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THIRD SECTION

DECISION

Application no. 40050/06
by PYROBATYS, A.S. V REŠTRUKTURALIZÁCII
against Slovakia

The European Court of Human Rights (Third Section), sitting on 3 November 2011 as a Chamber composed of:

Josep Casadevall, President,
Alvina Gyulumyan,
Egbert Myjer,
Ján Šikuta,
Luis López Guerra,
Nona Tsotsoria,
Mihai Poalelungi, judges,

and Marialena Tsirli, Deputy Section Registrar,

Having regard to the above application lodged on 27 September 2006,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,

Having deliberated, decides as follows:

THE FACTS

The applicant, PYROBATYS, a.s. v reštrukturalizácii (“the applicant company”), is a joint-stock company established under the laws of Slovakia with its head office in Batizovce.

The applicant company was represented before the Court by Mr Š. Kseňák, a lawyer practising in Košice.

2. The Government of the Slovak Republic (“the Government”) were represented by their Agent, Ms M. Pirošíková.

A. The circumstances of the case

The facts of the case, as submitted by the parties, may be summarised as follows.

1. The applicant company

The applicant company was established in 1995 in the legal form of a limited-liability company with the name of PYROBATYS, s.r.o. It later changed its legal status to that of a joint-stock company under the name of PYROBATYS, a.s. It then entered the process of restructuring, which is reflected in its name, as indicated in paragraph 1 above. The restructuring was concluded in April 2011.

2. Contracts and their parties

On 7 December 1994 two separate contracts were entered into between a joint-stock company, A., and, respectively, the applicant company and a limited-liability company B. (“the contract”).

Under the contract A. let property to the applicant company and B. in return for payment of rent. The property consisted of an administration building, factory premises and garages. Leases were concluded for fifty years.

On 26 May 1999 the Košice Regional Court (Krajský súd) declared A., which had meanwhile changed its name, insolvent and appointed a receiver.

Later in 1999 B. was merged with the applicant company.

The applicant company and company A. had the same address, which was formerly also the address of company B. It appears from a publicly available official source (http://www.orsr.sk) that there were also ownership and personal connections between these companies.

By a letter of 6 June 2001 A., acting through the intermediary of its receiver, unsuccessfully requested an amicable settlement with the applicant company in respect of an amount of money that was allegedly owed by the latter by way of outstanding rent under the contract.

3. Ordinary courts

(a) Action

On 1 August 2001 A., acting through its receiver, sued the applicant company before the Poprad District Court (Okresný súd) for payment of rent under the contract.

The claimant sought an order for the payment of the equivalent of some 620,000 euros (EUR) and a ruling to the effect that neither party be awarded costs.

Despite the claimant’s failure to pay the court fees, the District Court went on to examine the action, inter alia by seeking the applicant company’s written observations in reply to the action and in respect of expert evidence, as well as by twice hearing the action on its merits.

To defend the action the applicant company appointed an advocate, for whose services up to 2005 it paid him the equivalent of some EUR 3,840.

(b) Court fees

Meanwhile, on 24 July 2003, the District Court had ordered that the claimant pay the court fees, amounting to the equivalent of some EUR 2,360.

On 22 August 2003 the claimant requested an exemption from the obligation to pay the court fees on the ground that, being insolvent, it had no means to pay.

On 30 January 2004 the District Court refused the request of 22 August 2003. No copy of the decision was served on the applicant company. Despite a specific written request, to which they have responded, the respondent Government have failed to provide the Court with a copy of this decision and of any other documents or information enabling the Court to ascertain the decision’s content.

The decision of 30 January 2004 could have been challenged by way of an appeal on the part of the claimant, in the absence of which it became final and binding on 2 March 2004.

By way of an order that was served on the claimant on 10 February 2005, it was again asked to pay the court fees. No payment was made.

(c) Discontinuation of action and ruling on costs

On 7 March 2005, following a hearing of the action held on the same day, the District Court discontinued the proceedings and ruled that no party was entitled to have its costs reimbursed. The ruling has the procedural form of a decision (uznesenie).

The District Court observed that the claimant had neither been granted an exemption from the obligation to pay the court fees nor had it paid the court fees, despite having been ordered to do so. The District Court held that, in such circumstances, pursuant to section 10(1) of the Court Fees Act (Law no. 71/1992 Coll., as amended), the action could not be examined.

As to the ruling on costs, the District Court observed that:

- the action had not been withdrawn,

- the situation was not such as to call for an examination of procedural responsibility for the discontinuation of the proceedings (Article 146 § 2 of the Code of Civil Procedure (Law no. 99/1963 Coll., as amended - “the CCP”) and for the application of the criterion of success in the proceedings (Article 142 of the CCP),

- Article 150 of the CCP was to be applied, which allowed for moderation of the repercussions of the rules on costs,

- the case was “exceptional and worthy of particular consideration” in terms of Article 150 of the CCP, in view of the circumstances in which the contract had been concluded and the fact that the validity of the contract was being examined in another set of proceedings before the District Court, which had the aim of securing vacant possession of the premises in question.

(d) Appeal

The applicant company appealed against the ruling on costs, claiming compensation in an amount equivalent to some EUR 10,500 in respect of legal representation and costs reimbursable under the applicable statutory rules, plus the costs of the appeal.

The applicant company contended that the District Court’s findings of fact were erroneous and that its conclusions were not susceptible of review on account of lack of reasoning.

Furthermore, the applicant company submitted that its costs were the responsibility of the claimant, who had provoked them. Article 150 of the CCP could only be applied in situations which fell within the purview of one or more of the remaining rules on costs, if all conditions for their application had been met, but their application would produce an intolerable outcome. In so far as the District Court had referred to the other set of proceedings, in which the validity of the contract was to be examined, their subject matter was in fact not the validity of the contract but the amount of the rent set out in it.

On 9 February 2006 the Prešov Regional Court upheld the relevant part of the District Court’s decision. The ruling has the procedural form of a decision (uznesenie), in which the Regional Court found that:

- the District Court had erred in making reference to the criterion of success in the proceedings (Article 142 of the CCP);

- the rule that would normally have had to be applied was that costs are to be borne by the party which had caused the discontinuation of the proceedings (Article 146 § 2 of the CCP);

- the District Court had been right in taking account of the financial standing of both parties;

- in view of the circumstances the question of the validity of the contract, which was being examined in another set of proceedings, could be considered a ground “worthy of particular consideration”;

- by applying Article 150 of the CCP the first-instance court had rightly moderated the repercussions of the application of Article 146 § 2 of the CCP for the claimant, whose only objective was to realise and distribute fairly its estate in insolvency;

- the Court of Appeal was also of the opinion that “the amount of the costs would not have existential consequences for [the applicant company] and would not jeopardise its property holdings”.

4. Constitutional Court

On 19 May 2006 the applicant company lodged a complaint with the Constitutional Court (Ústavný súd) under Article 127 of the Constitution.

The complaint was directed against the Regional Court’s decision of 9 February 2006, the applicant company arguing that that decision had violated its rights to a fair hearing, procedural equality and protection of property, as well as prohibition of discrimination.

In particular, the applicant company contended that the amount at stake in the proceedings was rather significant from its perspective and that it had accordingly needed to acquire legal representation. It also advanced the following arguments.

The Court of Appeal’s conclusion concerning the lack of dramatic effects of the costs ruling on the applicant company was without any foundation in fact and evidence whatsoever and, as such, plainly arbitrary.

The claim for reimbursement of costs was independent of the financial standing of the party making it. In so far as financial standing of a party was to be taken into account, it was only the standing of the party that would otherwise be liable to reimburse another party’s costs.

As regards the claimant, at the relevant time it had been the owner of real property.

There was no statutory provision for exemption of an insolvent claimant from obligation to pay court fees and neither was there any provision exempting it from reimbursement of procedural costs it had itself provoked.

In the present case the claimant had been liberated from responsibility for the consequences of its actions and the burden of this responsibility had arbitrarily been placed on the applicant company.

In other words, the applicant company’s property holdings had been interfered with, in that it had been denied a proprietary claim without any legal basis.

On 14 December 2006 the Constitutional Court declared the complaint admissible.

On 29 March 2007 the Constitutional Court found that there had been no violation of the applicant company’s rights in issue.

The Constitutional Court observed that the applicant company had no right to a favourable outcome of the litigation it had been a party to. The reasons given by the Regional Court for its decision were such that any arbitrariness was ruled out. On the one hand, it had upheld the reasons given by the District Court, and on the other it had reinforced those reasons by adding further reasons of its own, in particular the reasons related to the financial standing of both parties to the proceedings.

In addition, the Constitutional Court observed that the decision not to exempt the claimant from the obligation to pay the court fees was not the subject matter of the present proceedings and that the relevant circumstances might have changed between that decision and the contested decision not to award the applicant company reimbursement of its costs.

In so far as the applicant company had contended that the Regional Court had drawn conclusions concerning its financial standing without actually examining that standing, the Constitutional Court reiterated that, as a matter of principle, it had no power to examine whether the ordinary courts had adequately established and assessed the facts. It emphasised, in particular, that “[t]he fact that the applicant company disagreed with the Regional Court’s view could not give rise to a conclusion that the latter was manifestly ill-founded or arbitrary, nor did it provide for a basis for the Constitutional Court to substitute its own legal opinion for that of the Regional Court.”

In accordance with its existing doctrine, the Constitutional Court held that since there had been no violation of the applicable procedural rights of the applicant company, by definition there could not have been any violation of the applicant company’s substantive proprietary rights. In those circumstances, there was no basis for the prohibition of discrimination to be applied either.

B. Relevant domestic law and practice

1. The Constitution (Constitutional Law no. 460/1992 Coll., as amended)

Article 127 provides that:

“1. The Constitutional Court shall decide complaints by natural or legal persons alleging a violation of their fundamental rights or freedoms ... unless the protection of such rights and freedoms falls within the jurisdiction of a different court.

2. If the Constitutional Court finds a complaint justified, it shall deliver a decision stating that a person’s rights or freedoms as set out in paragraph 1 have been violated by a final decision, specific measure or other act and shall quash such a decision, measure or act. If the violation that has been found is the result of a failure to act, the Constitutional Court may order [the authority] which has violated the rights or freedoms to take the necessary action. At the same time it may remit the case to the authority concerned for further proceedings, order that authority to refrain from violating the fundamental rights and freedoms ... or, where appropriate, order those who have violated the rights or freedoms set out in paragraph 1 to restore the situation to that existing prior to the violation.

3. In its decision on a complaint the Constitutional Court may grant appropriate financial compensation to a person whose rights under paragraph 1 have been violated.”

2. Code of Civil Procedure and relevant judicial practice

Under Article 138 § 1, at the request of the party concerned, the party to the proceedings may be fully or partly exempt from the obligation to pay court fees where it is justified by the situation of that party and provided that the claim at issue is neither frivolous nor clearly devoid of any prospect of success.

A party which has been entirely successful is to be awarded costs necessary for purposeful assertion or defence of its rights against the unsuccessful party (Article 142 § 1). In the event of success in part, the costs are normally to be split proportionally (Article 142 § 2). However, even in the event of success in part, full award of costs may be granted if the party was unsuccessful in merely a negligible proportion or if the scope of the substantive claim depended on expert evidence or judicial discretion (Article 142 § 3).

A party which is liable for the necessity of discontinuing proceedings is obliged to reimburse the costs of such proceedings (Article 146 § 2).

Article 150 provides that:

“If there are reasons worthy of particular consideration, the court exceptionally does not need to award reimbursement of costs or their part. The court shall take into account in particular the situation in which the party which is being awarded reimbursement of costs has adduced facts and evidence together with the first procedural step that was for that the party to take, which however does not apply if the party was not able to introduce such facts and evidence.”

In a commentary on Article 150, with reference to a previous yearbook of judicial decisions, the view was expressed that, when assessing “reasons worthy of particular consideration”, regard should be had to personal, proprietary, income and other circumstances applying to all parties to the proceedings, and also the circumstances which caused the parties to assert their rights before the court, as well as to their attitude in the proceedings (see Občiansky súdny poriadok, Jaroslav Krajčo a kolektív, Eurounion, spol.s r.o., Bratislava 2004, p. 294).

The position described in the preceding paragraph forms part of settled case-law (see, for example, judgment (rozsudok) of the Supreme Court in case file no. M Cdo 14/99, judgment of the Constitutional Court of 23 August 2006 in case file no. III. ÚS 53/06, decision (uznesenie) of the Supreme Court of 30 November 2009 in case file no. 4 MCdo 18/2008 and decision of the Supreme Court of 28 January 2010 in case file no. 2 M Cdo 17/2009).

In the decisions quoted, the courts also opined that the application of Article 150 must be rather exceptional and adequately reasoned. The existence of the special circumstances has to be established on the basis of the situation of all parties to the proceedings. It is necessary to take into account not only the situation of the person liable to pay the costs but also the impact of the decision refusing the reimbursement of costs on the property of the party who is entitled to reimbursement under normal circumstances.

3. Court Fees Act

Court fees are collected, inter alia, for individual procedural steps or for proceedings before the courts, provided that these have to be initiated by an application (section 1(1)).

The fee payer (poplatník) is the person making the application for a procedural step which is subject to court fees if the tariff scale provides that the fee is payable on the making of the application (section 2(1)(a)).

The duty to pay the court fees arises when the application is made, if made by the fee payer (section 5(1)(a)). In such a case, the court fees become payable at the same time (section 8(1)).

If the court fees payable on the making of an application have not been paid, the first-instance court is to order the fee payer to pay the fees within a given period, usually ten days. If the fees have not been paid within this period, the court is to discontinue the proceedings (section 10(1)).

COMPLAINTS

The applicant company complained under Article 6 § 1 of the Convention that the decision not to reimburse its costs had been arbitrary, unsupported by adequate reasons, based on a conclusion that was devoid of any basis in evidence or assessment of evidence and the product of proceedings lacking the guarantees of procedural equality of the parties.

The applicant company also complained under Article 1 of Protocol No. 1 that the decision not to reimburse its costs had interfered without justification with its property rights.

Lastly, in conjunction with the violations alleged above, on the basis of the same facts the applicant company also alleged a violation of Article 14 of the Convention.

THE LAW

A. Article 6 § 1 of the Convention

The applicant company argued that the proceedings in respect of its costs had fallen short of the guarantees of fairness pursuant to Article 6 § 1 of the Convention, the relevant part of which reads as follows:

“In the determination of his civil rights and obligations ... everyone is entitled to a fair ... hearing ... by [a] ... tribunal ...”

The Government submitted that it was for the national courts to assess the facts and to interpret and apply domestic law. In particular, questions such as admissibility and assessment of evidence were the primary domain of the national courts, the Court’s role being limited. In that respect, they referred to the Court’s judgment in the case of Van de Hurk v. the Netherlands (19 April 1994, § 61, Series A no. 288). They emphasised that, although Article 6 of the Convention called for judicial decisions to be reasoned, it did not go as far as to require a detailed answer to each of the parties’ arguments.

According to the Government, in the present case Article 150 of the CCP conferred judicial discretion on the domestic courts and they had exercised it legitimately and rightfully. Their decisions had not been unjustified or arbitrary and had been based on an acceptable interpretation of the relevant laws and criteria established by existing judicial practice, as had indeed been confirmed by the Constitutional Court, to the findings of which the Government referred.

In reply, the applicant company disagreed and submitted that the complaint raised serious issues of substance, as had been recognised by the Constitutional Court in that it had declared its complaint under Article 127 admissible. Judicial discretion under Article 150 of the CCP did not mean uncontrollable arbitrariness. Its exercise therefore necessitated proper reasoning. However, in the present case, in so far as the Regional Court relied on the applicant company’s proprietary situation, no acceptable reasons had been or could have been cited, since no evidence whatsoever had been taken and examined in that respect. The decision was therefore based on an unfounded assumption that had no legal value. Even if it had had a legal value, the using of property-standing assumptions would amount to a discriminatory immunity from procedural liability on grounds of property.

The Court observes that the determination of the costs of the trial in the present case falls within the purview of Article 6 § 1 of the Convention (see Robins v. the United Kingdom, 23 September 1997, §§ 28 and 29, Reports of Judgments and Decisions 1997 V, and Macková v. Slovakia, no. 51543/99/98, § 55, 29 March 2005), which is accordingly applicable.

The Court reiterates that the resolution of the issue of court costs may have implications for the fairness of the proceedings as a whole (see Stankiewicz v. Poland, no. 46917/99, § 60, ECHR 2006 VI).

At the same time, the Court reiterates that, in accordance with Article 19 of the Convention, its duty is to ensure the observance of the obligations undertaken by the Contracting Parties to the Convention. In particular, it is not its function to deal with errors of fact or law allegedly committed by a national court, unless and in so far as they may have infringed rights and freedoms protected by the Convention. Moreover, while Article 6 of the Convention guarantees the right to a fair hearing, it does not lay down any rules on the admissibility of evidence or the way it should be assessed, which are therefore primarily matters for regulation by national law and the national court (see Garćia Ruiz v. Spain [GC], no. 30544/96, § 28, ECHR 1999-I, with further references). The Court’s task under the Convention is to ascertain whether the proceedings as a whole, including the way in which evidence was taken, were fair (see, for example, Petrenco v. Moldova, no. 20928/05, § 41, 30 March 2010).

As to the present case, the Court observes first of all that it arose in the context of a contractual transaction of a commercial nature between private parties and that the crux of the Article 6 complaint appears to be the domestic court’s decision on the applicant company’s costs, which is an auxiliary issue in relation to the main subject-matter of the proceedings.

For that matter, the Court also observes that the proceedings on the merits of the claim of A. against the applicant company were discontinued without any substantive decision and that they thus essentially ended in the applicant company’s favour. The issue of the costs of the trial was determined subsequently, at two levels of ordinary jurisdiction, the decisions of which were ultimately reviewed by the Constitutional Court.

The domestic courts mainly relied on the provisions of Articles 150 and 146 § 2 of the CCP and held that the test that would normally have had to be applied was that costs are to be borne by the party which had caused the discontinuation of the proceedings, as provided for by the latter of the provisions cited. However, in the present case, the former provision was to be applied, which allowed for moderation of the repercussions of the latter rules. This was so because the case was exceptional and worthy of particular consideration in terms of Article 150 of the CCP, in view of the circumstances in which the contract had been concluded, the fact that the validity of the contract was being examined in another set of proceedings before the District Court and the financial standing of both parties.

The Court considers that, when taken as whole, these reasons are not manifestly arbitrary, irregular or otherwise wrong. Moreover, the applicant company was represented by a lawyer throughout the proceedings and it was provided with ample opportunity to state its arguments, to challenge the submissions made by A. and to submit any evidence it considered relevant to the outcome.

As to the references, which are now impugned by the applicant company, and which were made by the ordinary courts to the circumstances of the conclusion of the contracts, their contested validity and the financial standing of the parties, the Court - guided by the principle of subsidiarity - does not finds them inexplicable on the particular facts (see, for example, paragraph 8 above) and also in view of the fact that A. was obviously insolvent while the applicant company was not.

In conclusion, in the light of all the material in its possession, and in so far as the matters complained of are within its competence, the Court finds that they do not disclose any appearance of any procedural unfairness within the meaning of Article 6 § 1 of the Convention.

It follows that the relevant part of the application is manifestly ill founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

B. Article 1 of Protocol No. 1

The applicant company also complained that the decision not to reimburse its costs interfered without justification with its property rights, contrary to Article 1 of Protocol No. 1, which provides as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

The Government objected, first of all, that the complaint was incompatible ratione materiae with the provisions of the Convention, since the applicant company could not be said to have had at stake any “possession” within the meaning of Article 1 of Protocol No. 1.

The Government also contended that, in any event, the outcome of the domestic proceedings had been lawful in terms of Article 150 of the CCP, was in accordance with the general interest of protecting the creditors of an insolvent debtor, and was not disproportionate.

In reply, the applicant company disagreed, and reiterated its complaint. In particular, the applicant company submitted that, in the circumstances, it had a right to have its costs reimbursed that was sufficiently solid to fall within the ambit of Article 1 of Protocol No. 1.

The Court considers that it is not called upon to rule specifically on the Government’s objection ratione materiae because the relevant part of the application is in any event inadmissible for the reasons stated below.

In that respect, the Court observes that the complaint made under Article 1 of Protocol No. 1 has the same factual, procedural and substantive background as that under Article 6 § 1 of the Convention. The Court’s reasons will accordingly apply to the present complaint mutatis mutandis.

In particular, the Court finds it of relevance that the present dispute over court costs took place between two private entities. A resolution of such matters in a manner that is compatible with Article 6 § 1 of the Convention does not give rise to an issue under Article 1 of Protocol No. 1 (see Sika v. Slovakia (dec.), no. 2132/02, 10 May 2005).

At the same time, the Court observes that in so far as any claim could potentially be made on the premise that the incurring of procedural costs by the applicant company was due to erroneous official conduct on the part of the courts, such a claim has not been asserted at the domestic level and is not the essence of the present case.

Thus, in the light of all the material in its possession, and in so far as the matters complained of are within its competence, the Court finds that they do not disclose any appearance of a violation of the applicant company’s rights set out in Article 1 of Protocol No. 1.

It follows that the complaint under that provision is manifestly ill founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

C. Remaining complaint

Lastly, in conjunction with the violations alleged above, on the basis of the same facts the applicant company also alleged a violation of Article 14 of the Convention.

However, in so far as this part of the application has been substantiated and raises any issues that are separate from those examined above under Articles 6 § 1 of the Convention and 1 of Protocol No. 1, the Court finds that it does not disclose any appearance of a violation of the provision invoked.

It follows that the remainder of the application is manifestly ill founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

For these reasons, the Court unanimously

Declares the application inadmissible.

Marialena Tsirli Josep Casadevall
Deputy Registrar President