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KOTOV v. RUSSIA - 54522/00 [2012] ECHR 589 (3 April 2012)
URL: http://www.bailii.org/eu/cases/ECHR/2012/589.html
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[2012] ECHR 589
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GRAND
CHAMBER
CASE OF
KOTOV v. RUSSIA
(Application
no. 54522/00)
JUDGMENT
STRASBOURG
3
April 2012
This
judgment is final but may be subject to editorial revision.
In the case of Kotov v. Russia,
The
European Court of Human Rights, sitting as a Grand Chamber composed
of:
Nicolas
Bratza, President,
Jean-Paul
Costa,
Josep
Casadevall,
Corneliu
Bîrsan,
Peer
Lorenzen,
Karel
Jungwiert,
Elisabet
Fura,
Alvina
Gyulumyan,
Egbert
Myjer,
Danutė
Jočienė,
Dragoljub
Popović,
Giorgio
Malinverni,
George
Nicolaou,
Ann
Power-Forde,
Kristina
Pardalos,
Guido
Raimondi, judges,
Andrei
Bushev, ad hoc
judge,
and
Johan Callewaert, Deputy
Grand Chamber Registrar,
Having
deliberated in private on 12 January and 23 July 2011 and on
22 February 2012,
Delivers
the following judgment, which was adopted on the last mentioned
date:
PROCEDURE
The
case originated in an application (no. 54522/00) against the Russian
Federation lodged with the European Court of Human Rights under
Article 34 of the Convention for the Protection of Human Rights and
Fundamental Freedoms (“the Convention”) by a Russian
national, Mr Vladimir Mikhaylovich Kotov (“the
applicant”), on 17 November 1999.
In
the proceedings before the Chamber the applicant was granted leave
for self-representation. In the proceedings before the Grand Chamber
the applicant was granted legal aid. He was represented by Ms Evans
and Mr Bowring, lawyers practising in the United Kingdom, and Mr
Khasanov, a lawyer practising in Russia.
The Russian Government (“the Government”)
were initially represented by Mr P. Laptev, the former representative
of the Russian Federation at the European Court of Human Rights, and
subsequently by their Representative, Mr G. Matyushkin.
The
applicant alleged, in particular, that it had been impossible for him
to obtain the effective repayment of money owed to him in the context
of the liquidation of a private bank.
The
application was allocated to the First Section of the Court (Rule 52
§ 1 of the Rules of Court). Within that Section, the Chamber
that would consider the case (former Article 27 § 1 of the
Convention, now Article 26) was constituted as provided in Rule 26 §
1.
On
4 May 2006 the application was declared partly admissible by the
Chamber. The Government, but not the applicant, filed further written
observations (Rule 59 § 1).
On 14 January 2010 a Chamber of the first Section, composed of the
following judges: Christos Rozakis, Nina Vajić, Anatoly Kovler,
Elisabeth Steiner, Khanlar Hajiyev, Dean Spielmann and Sverre Erik
Jebens, assisted by Søren Nielsen, Section Registrar,
delivered its judgment. The Chamber held unanimously that there
had been a violation of Article 1 of Protocol No. 1
in that the applicant, on account of unlawful actions by the bank’s
liquidator, had not obtained effective payment of the money
owed to him by the bank in accordance with the statutory principle of
proportional distribution of assets amongst creditors with the same
priority ranking. It made no award under Article 41 of the
Convention, since the applicant had failed to submit claims in this
respect.
On
9 April 2010 the Government requested, in accordance with
Article 43 of the Convention and Rule 73, that
the case be referred to the Grand Chamber of the Court, and the Panel
of the Grand Chamber accepted that request on 28 June 2010.
The
composition of the Grand Chamber was determined according to the
provisions of former Article 27 §§ 2 and 3 (now Article 26
§§ 4 and 5) of the Convention and Rule 24.
The
applicant and the Government each filed written observations on the
merits.
A
hearing took place in public in the Human Rights Building,
Strasbourg, on 12 January 2011 (Rule 59 § 3).
There appeared before the Court:
(a) for the Government
Mr G. Matyushkin,
the
Representative of the Russian Federation, Agent,
Ms O.
Sirotkina,
Ms E.
Kudelich,
Mr D. Shishkin Advisers;
(b) for the applicant
Ms J. Evans,
Counsel,
Mr B. Bowring,
Mr M. Khasanov, Advisers.
The
Court heard addresses by Ms Evans, Mr Bowring, Mr Khasanov, and
Mr Matyushkin.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
The applicant was born in 1948 and lives in Krasnodar.
A. Proceedings against the bank for recovery of assets
On
15 April 1994 the applicant made a deposit in a savings account with
the commercial bank Yurak (“the bank”). After the bank
announced that it was changing the interest rate, the applicant
requested the closure of his account in August 1994, but the bank
informed him that it was unable to repay his capital plus interest as
its funds were insufficient. The applicant sued the bank, seeking
repayment of the capital he had deposited, together with interest, a
penalty payment and compensation for pecuniary and non-pecuniary
damage.
On
20 February 1995 the Oktyabrskiy District Court of the town of
Krasnodar partly upheld the applicant’s claims and ordered the
bank to pay him a total of 10,156 Russian roubles (RUB) (which
included the capital of the deposit, interest accrued, compensation
for non-pecuniary damage and penalties). That decision was upheld and
became final on 21 March 1995. In a judgment of the Oktyabrskiy
District Court of 5 April 1996 the above-mentioned award was
recalculated in line with the inflation rate. The award was thus
raised to RUB 17,983.
In
the meantime, on 16 June 1995, at the request of the Central Bank and
the Russian Savings Bank, the Commercial Court of the Krasnodar
Region declared the bank insolvent. On 19 July 1995 the insolvency
procedure was opened by that court and a liquidator was appointed by
the court to oversee the bank’s administration in that
connection.
B. Distribution of the bank’s assets
On
11 January 1996 the Commercial Court approved the provisional
statement of affairs based on the bank’s financial situation at
28 December 1995. As a result of the sale of the bank’s assets,
RUB 2,305,000 had been accumulated on the
bank’s account. According to the Government, the bank had
incurred debts against 7,567 first-class creditors, whose claims
amounted to RUB 24,875,000.
Under
the law which defined the order of distribution of assets of
insolvent entities, the applicant belonged to the first class of
creditors, whose claims were to be satisfied before others. However,
on 18 January and 13 March 1996 the creditors’ body of the bank
created a special group of “privileged” creditors within
the first class. That privileged group included disabled persons, war
veterans, persons in need and persons who had actively assisted the
liquidator within the insolvency proceedings. Those categories of
creditors were to receive full satisfaction of their claims before
other creditors belonging to the same class (the first). As a result,
almost all of the funds collected during the
liquidation process were used for repayment to those “privileged”
creditors: they were reimbursed by the liquidator at 100% of
the amounts due to them. On 6 April 1998 the
applicant received the sum of RUB 140 (i.e.
less than 1% of the amount of RUB 17,983
owed to him by the bank under the 1996 judgment).
C. First set of proceedings against the liquidator
On
22 April 1998 the applicant challenged, before the Commercial Court,
the fact that other creditors had received repayment at 100%, whereas
he had received less than 1% of the amount due to him. Relying on
sections 15 and 30 of the Corporate Insolvency Act
1992 (“the 1992 Act”), he
claimed that he belonged to the same class as the “privileged”
creditors, and that the bank’s assets should have been
distributed evenly. He sought repayment of the remainder of
the sum owed to him, in accordance with the principle of proportional
distribution of the assets of the bank amongst creditors of the same
class.
On
6 July 1998 the applicant’s action was dismissed at first
instance. On 26 August 1998 the Commercial Court of the Krasnodar
Region reversed the judgment of the first-instance court and held
that, in deciding to repay certain categories of creditors at 100%,
the creditors’ body had overstepped the limits of its powers
under section 23 of the 1992 Act. By enforcing that decision and
distributing the assets at 100% to the “privileged”
creditors, the liquidator had, in turn, disregarded the requirements
of sections 15 and 30 of the Act. Pointing out that section 30 of the
Act was not open to broad interpretation, the Commercial Court of the
Krasnodar Region ordered the liquidator to redress the violations
thus observed within one month and to inform it of the measures taken
in that connection.
The
liquidator appealed on points of law to the Federal Commercial Court
for the North Caucasus, arguing that he had distributed the assets
pursuant to a decision of the creditors’ body, that the
distribution had complied with Article 64 of the Civil Code and that
it had not therefore been in breach of the requirements of section 30
of the 1992 Act. On 12 November 1998 his appeal on points of law
was dismissed. Upholding the decision of 26 August 1998, the court
stated that the liquidator should not have enforced a decision by the
creditors’ body that was in breach of the law.
It
appears that the enforcement of the decision of 26 August 1998
(upheld at last instance on 12 November 1998) and, in particular, the
redressing of the applicant’s financial situation, were not
possible on account of the bank’s lack of assets.
D. Second set of proceedings against the liquidator
In view of the failure to enforce the decision of 26 August 1998, on
2 September 1998 the applicant filed a complaint with the
Commercial Court (supplemented by him on 27 January 1999). He
requested that the liquidator in person repay him the remainder of
his 1995 award of RUB 17,983, with interest, plus compensation
for non-pecuniary damage and loss of time, representing a total of
RUB 22,844.
By
a ruling of 4 February 1999 the Commercial Court rejected the
applicant’s request. The complaints in question were examined
in the context of the insolvency procedure opened against the bank;
within the same procedure the court examined the bank’s balance
sheet, as submitted by the liquidator. A representative of the
Central Bank of Russia was present at the hearing. The Commercial
Court found that on 20 February 1995 and 5 April 1996 the Oktyabrskiy
District Court had already awarded the applicant the sum of RUB
17,983 to cover his deposit, plus penalties and damages, and that it
was not possible to rule on the same request for a second time. The
Commercial Court further established that the applicant appeared in
the list of creditors as number 519 and that, in respect of the
actual capital originally deposited, the bank owed him a residual
amount of RUB 8,813. The court pointed out that this sum could
be paid to him under the conditions laid down in Article 64 of the
Civil Code. The court also rejected the claims for loss of time, as
the relevant legislation did not provide for such compensation.
Furthermore, the applicant [had] “failed to prove that the
losses were caused by the liquidator’s actions”.
On
31 March 1999 the Commercial Court of the Krasnodar Region, hearing
the case on appeal, upheld the decision of 4 February 1999. The court
of appeal held, firstly, that the applicant’s claims against
the liquidator were “stand-alone claims, examined by the court
of first instance and ... rightly rejected”. The court of
appeal’s reasoning read as follows:
“The law in force does not envisage satisfaction
of claims which did not arise during the period of the bank’s
operations but only during the period of the insolvency procedure ...
On a bank’s insolvency, its debt obligations are declared due,
but the insolvency procedure is initiated with a view to amassing
liquidation assets which must be allocated among the debts owed to
creditors and arising prior to the insolvency.
Furthermore, [the applicant’s] right to recover
[the original court award] from the bank already exists; therefore,
satisfaction of his claims [against the liquidator] would lead to
repeated recovery of the same amount, but this time in the form of
damages, which is unfounded.
[In the original court award the applicant] was also
awarded a sum for non-pecuniary damage, and in light of the above
such damages cannot be awarded for a further period.
The existing provisions of civil legislation make no
provision for compensation for loss of time.
The court of appeal also takes into account the fact
that the failure to pay the amounts [due to the applicant] is a
result of the absence [of funds], since, following the court of
appeal’s judgment of 26 August 1998 ... the assets of the
bank in liquidation did not increase ..., as is evident from the
report provided by the liquidator on the work of the liquidation
committee and the documents appended to the report”.
The
applicant lodged a cassation appeal against that judgment. On 9 June
1999 the Federal Commercial Court for the North Caucasus dismissed
the applicant’s appeal on points of law on the following
grounds:
“The decision of the creditors’ body and the
liquidator’s action ... admittedly breached the principle of
proportional payment to creditors at the same level of
priority, but did not cause [the applicant] the damage he alleged,
because the 100% satisfaction of all first-level creditors was not
possible on account of the lack of assets available for distribution.
The sum repaid to [the applicant] was thus calculated in proportion
to the amount of his claim and to the assets realised in the course
of the liquidation. Taking into account the fact that the insolvency
procedure was ongoing when the dispute was examined, the courts of
first and appellate instance rightly referred to the possibility of
[the applicant’s] receiving the outstanding debt owed to him
under Article 64 of the Civil Code of the Russian Federation.
The claims for non-pecuniary damage and compensation for
loss of time were rightly refused by the court as unjustified on the
grounds set out in the earlier judicial decisions.
In view of the above [the court of cassation] finds that
the refusals by the courts of first and appellate instance to grant
[the applicant’s] claims were justified. There are no grounds
for overruling or modifying the judicial decisions taken.”
On
17 June 1999 the Regional Commercial Court confirmed the statement of
affairs as presented by the liquidator and approved by the creditors’
body, and closed the insolvency procedure on grounds of insufficient
assets. The applicant did not attempt to bring any new claims against
the liquidator.
E. Supervisory review proceedings
After the Government had been given notice of the
application, the President of the Supreme Commercial Court of the
Russian Federation lodged, on 31 January 2001, an application for
supervisory review (protest) against the judgments of
4 February, 31 March and 9 June 1999,
on the ground that they had been given in breach of Article 22 of the
Code of Commercial Procedure, which determined the jurisdiction of
the commercial courts. Among other things, he stated that examination
of the applicant’s complaints against the liquidator within the
context of the insolvency procedure opened against the bank had been
contrary to the 1992 Act governing such procedures. Since those
complaints had concerned a dispute between the applicant and the
liquidator, they were not related to the insolvency procedure as such
and the applicant should have submitted them to the courts of general
jurisdiction. On those grounds the President sought the annulment of
the decisions at issue and discontinuance of the proceedings
concerning the above-mentioned complaints.
On
17 April 2001 the Presidium of the Supreme Commercial Court of the
Russian Federation granted those requests in full, endorsing the
arguments raised in the application for supervisory review. The
Presidium concluded that the commercial courts had not had
jurisdiction to hear the case against the liquidator in person,
annulled the decision rendered in 1999 and closed the proceedings.
On
1 June 2001 the applicant submitted a request for supervisory review
of the 17 April 2001 decision to the same Presidium. On 4 July 2001
his request was dismissed as ill-founded by the Vice-President of the
Supreme Commercial Court.
II. RELEVANT INTERNATIONAL AND DOMESTIC LAW AND PRACTICE
A. Attribution of international responsibility to
States
The
Draft Articles on Responsibility of States for Internationally
Wrongful Acts adopted by the International Law Commission (ILC) in
2001 (Yearbook of the International Law Commission, 2001, vol.
II, Part Two), and their commentary, codified
principles developed in modern international law in respect of the
State’s responsibility for internationally wrongful acts. In
that commentary the ILC stated, inter alia, as follows (see
paragraph (6) of the commentary to Chapter II):
“In determining what constitutes an organ of a
State for the purposes of responsibility, the internal law and
practice of each State are of prime importance. The structure of the
State and the functions of its organs are not, in general, governed
by international law. It is a matter for each State to decide how its
administration is to be structured and which functions are to be
assumed by government. But while the State remains free to determine
its internal structure and functions through its own law and
practice, international law has a distinct role. For example, the
conduct of certain institutions performing public functions and
exercising public powers (e.g. the police) is attributed to the State
even if those institutions are regarded in internal law as autonomous
and independent of the executive government.”
The
ILC, in its commentary, described the phenomenon of “parastatal
entities”. It noted as follows (see paragraph (3) to the
commentary to Article 5):
“The fact that an entity can be classified as
public or private according to the criteria of a given legal system,
the existence of a greater or lesser State participation in its
capital, or, more generally, in the ownership of its assets, the fact
that it is not subject to executive control – these are not
decisive criteria for the purpose of attribution of the entity’s
conduct to the State. Instead, article 5 [of the Articles] refers to
the true common feature, namely that these entities are empowered, if
only to a limited extent or in a specific context, to exercise
specified elements of governmental authority.”
As
the ILC also recognised:
“Beyond a certain limit, what is regarded as
‘governmental’ depends on the particular society, its
history and traditions. Of particular importance will be not just the
content of the powers, but the way they are conferred on an entity,
the purposes for which they are to be exercised and the extent to
which the entity is accountable to government for their exercise”
(see paragraph (6) of the commentary to Article 5).
B. Insolvency procedures in Russia
1. Civil Code of 1994
Under
Article 63 of the Civil Code, after expiry of the period within which
creditors must file their claims, the liquidation committee draws up
a provisional statement of affairs containing information on the
bankrupt company’s estate, the claims filed by the creditors
and the results of the examination of those claims. The statement
must be approved by the body that has taken the decision to wind up
the company. If the company’s monetary assets are insufficient
to satisfy the creditors’ claims, the liquidation committee
will sell off the estate by auction. The distribution of assets to
the creditors may begin in accordance with the interim statement once
it has been approved, except in respect of fifth-level creditors who
will be unable to receive any money owed to them for one month
following that approval. Once all the payments have been made, the
final statement of affairs is drawn up and approved in the same
manner. Should the assets prove insufficient, unsatisfied creditors
may request the courts to order the owner of the company to honour
their claims out of his own personal funds.
Article
64 of the Civil Code, as in force prior to 20 February 1996, made a
distinction between five categories of creditors, providing that
payment could be made to a given class only when the creditors at the
previous level had been satisfied. According to this classification
the applicant belonged to the fifth class of “other creditors”.
Article 64 made no mention of a category of creditors who were
pensioners, war veterans, persons in need or persons assisting the
liquidator in the insolvency proceedings.
Under
a new provision, inserted into this Article on 20 February 1996, when
a bank or other lending institution is wound up, private persons
having made deposits with it are to be repaid as a first priority.
Article
64 further provides that where a company in liquidation has
insufficient assets, they must be distributed among creditors at the
same level in proportion to their respective claims.
2. Law of 19 November 1992 (“the 1992 Act”)
on corporate insolvency (bankruptcy)
(applicable to insolvency procedures opened prior to
1 March 1998)
Under
section 3(1) and (2) of the 1992 Act, insolvency cases fall within
the jurisdiction of the commercial courts, which examine them in
accordance with the rules laid down in the Act or, where no such rule
exists, in accordance with the Code of Commercial Procedure of the
Russian Federation.
Under
section 15 of the Act, insolvency procedures are opened in order to
satisfy the creditors’ claims on a pari passu basis, to
declare the bankrupt company released from his obligations and to
protect the parties from unlawful actions against each other.
Section
18(2) provides that, after a company has been declared insolvent and
an insolvency procedure has been opened against it, any claims
against the company’s assets may be submitted only in the
context of such procedure.
Section
20 lists the various participants in insolvency proceedings as the
liquidator, the general meeting of creditors, the creditors’
committee, the creditors, etc. The general meeting of creditors may
form a creditor’s committee and define its functions (Section
23 (2)). The Court will use the term “the creditors’
body” as referring to either of these bodies, as the case may
be.
The
creditors’ body nominates a candidate to act as the liquidator
before the commercial court for approval (Section 23(2) of the Act)
which then appoints the liquidator (Section 19). Under section 21(1)
the liquidator takes over the administration of the insolvent
company, convenes a general meeting of creditors, takes control of
the insolvent company’s property, analyses the financial
situation, examines the merits of the creditors’ claims,
accepts or rejects them, oversees the liquidation process to realise
the assets, sets up and heads the liquidation committee.
In
accordance with section 21(2), taken together with section 12(4),
candidates for the office of liquidator must be economists or
lawyers, or have experience of company management. They must not have
a criminal record. No one holding a position of responsibility in a
company that is a debtor or creditor may be appointed. Candidates for
the office of liquidator must declare their income and assets.
In
the situations referred to under the Act, the commercial court
examines the lawfulness of all actions by the participants involved
in the insolvency procedure (Section 19). Under section 21(3) the
liquidator may challenge before the court any decisions of the
creditor’s body when those decisions fall outside its remit.
Under
section 27(1), after the expiry of a two-month period within which
the creditors must submit their claims against the insolvent company,
the liquidator will draw up a list of the claims that have been
accepted and rejected, indicating the amounts for those that have
been accepted and the level of priority for each. The list must be
sent to the creditors within a period of two months.
Section
30 establishes the various levels of priority for the distribution of
the proceeds of the liquidation. Payment of the sums due to creditors
at a given level is made once those at the previous level have been
satisfied (paragraph 3). If insufficient assets are realised to pay
in full the creditors at a given level, the money that is available
will be paid to them pari passu in proportion to the amounts
of their respective claims (paragraph 4). Section 30 makes no mention
of a category of creditors who are disabled, war veterans, persons in
need, or persons assisting the liquidator. Paragraph 1 provides that
any expenses arising from the liquidation, the liquidator’s
fees and the expenses of the debtor company’s ongoing
operations must take priority over the claims of first-level
creditors.
Section 31 provides that a creditor may challenge
before the commercial courts any decision of the liquidator which, in
his view, breaches his rights and legitimate interests.
Under
section 35(3), any claims that cannot be satisfied because the
proceeds of the liquidation are insufficient will be regarded as
extinguished.
Section
38 provides that the bankrupt company will be regarded as wound up
from the time of its exclusion from the corresponding national
register, pursuant to the decision of the commercial court closing
the insolvency procedure.
3. Federal Laws on insolvency of 8 January 1998 (“the
1998 Act”), and
of 26 October 2002 (“the 2002 Act”).
On
8 January 1998 a new Insolvency Act was adopted (“the 1998
Act”). It replaced the 1992 Act and was applicable to
insolvency procedures opened after 1 March 1998. Section 21(3) of the
1998 Act provided that creditors were entitled to seek compensation
from the liquidator in respect of any damage that the latter might
have caused to them by an action or omission in breach of the law.
Section 114 provided for the same principles of distribution and pari
passu repayment as section 30 of the 1992 Act.
In
accordance with section 98(1), sub-paragraph 7, of this Act, claims
against the bankrupt company may be submitted only in the context of
the insolvency procedure (see also section 18(2) of the 1992 Act).
On
26 October 2002 the new Insolvency Act was adopted. It replaced the
1998 Act, and, in the following years, the 2002 Act underwent a
number of changes. Section 20-4 (4) of the 2002 Act establishes
liability of the liquidator for damage caused to the creditors by his
failure to comply with his duties, if that failure was established by
a final court decision. The 2002 Act provides that a liquidator
should be covered by a professional liability insurance to cover his
liability to the creditors (Section 20 of the Act). Sections 32 and
33 stipulate that bankruptcy cases are within the jurisdiction of the
commercial court, irrespectively of the status of the creditors.
Section 20 (12) stipulates that “disputes related to the
professional activities of the [liquidators] ... are within the
competence of commercial courts”. Pursuant to Section 60 of the
Act creditors of a bankrupt company are entitled to complain to a
commercial court about the liquidator’s acts or omissions
within the bankruptcy proceedings.
C. Examination of disputes within insolvency procedures
1. Insolvency Acts of 1992, 1998 and the Banks
Insolvency Act of 1999; the Code of
Commercial Procedure of 1995; the Code of Civil Procedure of 1964
Since the 1990s the
Russian judicial system has been comprised of three elements –
courts of general jurisdiction, commercial courts and constitutional
courts. Under Article 25 § 1 of the Code of Civil Procedure of
1964 (in force at the material time), courts of general jurisdiction
were competent to hear civil cases in which at least one party was a
natural person (as distinct from a legal person, such as a company).
The Code of Commercial Procedure of 1995 (No. 70-FZ
of 5 May 1995, in force at the material time) stated that the
commercial courts could determine “economic disputes arising
from civil, administrative and other legal relationships ... between
legal persons ... and individual entrepreneurs...” (Article 22
§ 1 of the Code). Article 22 § 3 stipulated that commercial
courts were competent to hear other cases, namely “insolvency
(bankruptcy) cases concerning legal entities and natural persons”.
Article 22 § 4 stipulated that commercial courts were competent
to hear cases involving natural persons (not having individual
entrepreneur status) where this was provided for by the Code itself
or by another federal law.
Article
31 of the Code of Commercial Procedure stipulated:
“... A creditor who considers that his rights and
legitimate interests are breached by a decision of the liquidator can
bring an application (zayavlenie) before the commercial court.
Following the examination of such an application the commercial court
should take an appropriate decision.”
Article
143 of the Code provided that insolvency cases were to be examined by
commercial courts in accordance with the Code and with the specific
provisions of the insolvency legislation.
Section
3 of the 1992 Insolvency Act stipulated that commercial courts had
jurisdiction to hear insolvency cases.
The
1998 Insolvency Act contained similar provisions. Sections 5 and 29
of that Act provided that insolvency cases where the debtor was a
company (as opposed to a natural person) fell under the jurisdiction
of the commercial courts. Section 55 of the 1998 Act provided that
the commercial courts were competent to hear creditors’
applications concerning a breach of their rights or legitimate
interests by the liquidator.
Sections
5, 34 and 50 of the 1999 Banks Insolvency Act provided for the
jurisdiction of commercial courts in the insolvency procedures
concerning banks and also contained references to the Code of
Commercial Procedure.
2. Position of the Constitutional Court
A
judgment of 12 March 2001 by the Constitutional Court concerned,
inter alia,
questions of access to a court in insolvency procedures. Paragraph 4,
concerning the constitutionality of section 18(2) of the 1992 Act
(section 98(1) in conjunction with sections 15(4) and 55(1) of the
1998 Act), reads:
“... when examining the claims of creditors who
are natural persons ..., the commercial courts do not have
jurisdiction to issue binding directions of a pecuniary nature to the
liquidator, acknowledging the existence of a claim or right in favour
of creditors ... This limitation ... must not be interpreted as
preventing the courts of general jurisdiction from examining on the
merits the pecuniary claims ... of those creditors ..., in accordance
with the legislation on insolvency.
Nor do the provisions at issue contain any clause that
would prevent commercial courts from giving decisions that enable the
persons concerned to secure in full their right to judicial
protection in the context of insolvency procedures, especially as
other provisions of the Federal Law on insolvency (bankruptcy)
precisely provide for the settlement of disputes through the courts
(sections 41, 44, 57, 107, 108 et seq.).
The refusal by a commercial court to examine a complaint
on the grounds that it does not have jurisdiction ... does not
prevent the creditor from applying to the courts of general
jurisdiction in order to secure protection of his rights ... The
right to judicial protection, as enshrined in the Constitution, must
be upheld even in the absence of legislative norms establishing a
division of jurisdiction between the commercial courts and the courts
of general jurisdiction.
It follows from this interpretation that [the provisions
at issue] do not prevent the courts of general jurisdiction from
examining claims filed by non-corporate creditors against the
liquidator and seeking ... compensation for damage, nor do they
prevent the commercial courts from securing the enforcement, in
accordance with the above-mentioned Federal Law, of the decisions
taken by the courts of general jurisdiction ...”
THE LAW
The
applicant complained about his inability to obtain the effective
payment of the 1995 court award on account of an unlawful
distribution of assets by the liquidator. He referred to Article 1 of
Protocol No. 1, which provides:
“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.”
I. THE GOVERNMENT’S PRELIMINARY OBJECTION
As before the Chamber, the Government claimed before
the Grand Chamber that the applicant had failed to exhaust domestic
remedies. In particular, they took the view that the applicant should
have sued the liquidator personally in separate proceedings before
the courts of general jurisdiction, in accordance with Chapter 59 of
the Civil Code (“Obligations in respect of damage caused”),
to complain about the unlawful distribution of the bank’s
assets. The Court considers that the
question of exhaustion of domestic remedies is closely linked to the
merits of the applicant’s complaint under Article 1 of Protocol
No. 1 to the Convention, in so far as the applicant can be understood
as complaining about his inability to claim compensation for damage
caused by the liquidator’s actions. This objection must
therefore be joined to the merits and will be analysed below.
II. TEMPORAL JURISDICTION
On
12 January 2011, following the hearing and deliberations, the Grand
Chamber put to the parties additional questions, concerning, in
particular, the Court’s jurisdiction
ratione temporis
in the present case.
A. The parties’ submissions
In
their written reply the Government argued that the impugned
distribution of the insolvent bank’s funds took place in 1996,
that is, before the date of the entry into force of the Convention in
respect of Russia (5 May 1998). The fact that this deprivation
had enduring effects did not produce a continuing situation. The
Government distinguished the present case from that of Sovtransavto
Holding v. Ukraine (no. 48553/99, §§ 54 et seq., ECHR
2002 VII), where the Court established that the loss of control
of a company was a protracted process, creating a continuing
situation. In the present case the applicant’s complaint
concerned a single act of distribution of the bank’s assets on
13 March 1996. No new bank assets were discovered after that
date. The subsequent decisions of the commercial courts (taken after
5 May 1998) did not violate the applicant’s rights. When the
Russian courts ordered that the violation of the applicant’s
rights be redressed, it was too late, since by that time the debtor
no longer had any assets. Thus there were objective reasons for the
failure to enforce the 1998 judgment. In support of this argument the
Government referred to the cases of Blečić v. Croatia
([GC], no. 59532/00, § 79, ECHR 2006 III) and Kopecký
v. Slovakia ([GC], no. 44912/98, § 38, ECHR 2004-IX). They
concluded that the Court did not have jurisdiction to examine the
case.
The
applicant maintained, first of all, that the exact date of the
distribution of assets was unclear. The creditors’ body’s
decision ordering distribution of assets was taken on 13 March 1996.
However, it was not until 6 April 1998 that the applicant received
RUB 140 of the RUB 17,983 owed to him. If this date was correct,
then a period of more than two years elapsed between the decision
ordering distribution of funds and its implementation. In the absence
of any clear evidence as to the time scale of the distribution
process, it was impossible to exclude the possibility that the
distribution process was concluded after 5 May 1998, when the
Convention entered into force in respect of Russia.
Secondly,
at the time when the decision by the creditors’ body was taken,
the total amount of money available for distribution was not known.
There was no evidential basis for the Government’s assertion
that from 12 November 1998 onwards the bank had no assets. There
was no information on developments in the insolvency procedure from
August 1998 until its closure in June 1999. Therefore, prior to the
formal closure of the liquidation procedure on 17 June 1999 it
remained theoretically possible for the applicant to receive the
monies due to him. That being the case, the Government’s
assertion that the distribution of funds represented the final
interference with the applicant’s rights was unsustainable.
The
applicant considered that the failure of the State to enforce a
binding legal judgment of 26 August 1998 formed part of the
multi-stage “continuing situation” of interference with
his rights. Although the domestic court did not specify the means by
which the liquidator should have provided the applicant with redress,
it had been open to the liquidator to either recover the money from
those to whom it had been unlawfully distributed or to employ any
other means within his discretion. Those possibilities were not in
any way precluded by the debtor’s lack of funds. In fact, the
continued absence of assets was caused precisely by the liquidator’s
unlawful actions and his failure to comply with the terms of the
court order to rectify the situation (assuming that the bank indeed
had no assets).
Finally,
in the applicant’s opinion, the domestic judgments of 1999
should be regarded as yet another stage in that “continuing
situation”, despite the fact that they were annulled by way of
supervisory review in 2001. The interference with the applicant’s
possessions took the form of a four-stage incremental process which
was comprised of (a) the liquidator’s unlawful distribution;
(b) the failure of the domestic authorities to enforce the judgment
of 26 August 1998; (c) the refusal of the commercial courts (in the
light of this failure to enforce) to hear the applicant’s claim
against the liquidator personally; and (d) the decision by the
Regional Commercial Court to close the insolvency procedure.
B. The Court’s analysis
The
Court observes that the distribution of the bank’s assets by
the liquidator to the “privileged” creditors took place,
most probably, in 1996, and in any event before 6
April 1998, when the applicant received his share of the remaining
assets of the bank. The Convention entered into force in
respect of Russia on 5 May 1998. The Court agrees with the Government
that the distribution of the bank’s assets was an instantaneous
act, and, as such, falls outside the Court’s jurisdiction
ratione temporis. That being said, the Court observes that
after 5 May 1998 the applicant was involved in two sets of judicial
proceedings concerning wrongful distribution of the bank’s
assets and the liquidator’s personal liability. The question is
whether the Court has jurisdiction to examine facts related to those
proceedings.
The
Government, referring to Blečić and Kopecký,
both cited above, argued that the proceedings of 1998 and 1999 should
not be dissociated from the original act of interference, namely the
wrongful distribution of the banks’ assets. However, in the
Court’s opinion, the present case must be distinguished from
Blečić and Kopecký, for the following
reasons. As acknowledged by the Government, under Russian law the
applicant was entitled to claim damages from the liquidator for the
latter’s wrongful acts. Legally speaking, the applicant had a
valid tort claim at the time when the Convention entered into force
in respect of Russia. It became sufficiently established even later,
with the final judgment of 12 November 1998, when the courts
recognised that the liquidator had acted unlawfully and ordered him
to provide the applicant with redress. The Court observes that in
Plechanow v. Poland (no. 22279/04, §§ 76 et seq., 7
July 2009) it dismissed the Government’s objection
ratione temporis and distinguished between the original
confiscation of property and the compensation proceedings. In
Broniowski v. Poland ((dec.) [GC] no. 31443/96, §§
74 et seq., ECHR 2002 X) the Grand Chamber drew a similar
distinction. It held that “the applicant did not complain of
being deprived of the original property” in the 1940s, but
rather complained about the “alleged failure to satisfy an
entitlement to a compensatory measure which was vested in him under
Polish law on the date of the Protocol’s entry in force”.
The Court will follow this line of reasoning in the present case. As
in Broniowski, the applicant, when the Convention entered into
force in respect of Russia, had a defendable tort claim which
outlived the original tort. Thus, the central question is why the
applicant’s attempt to restore his rights failed, first in 1998
and then in 1999, that is, after the entry into force of the
Convention. The Court concludes that it has temporal jurisdiction to
examine whether the applicant’s rights under Article 1 of
Protocol No. 1 to the Convention were properly secured in the
proceedings of 1998 and 1999.
III. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1 TO
THE CONVENTION
A. Chamber judgment of 14 January 2010
The
Chamber began by rejecting the Government’s non-exhaustion
plea. The Chamber noted that “the annulment [of the 1999
judgments in 2001, by way of supervisory review,] was pronounced in
the case after the respondent Government had been given notice of the
application and [that] they used this to raise an objection on
grounds of non-exhaustion of domestic remedies”. The Chamber
did not accept that such an objection might be validly derived from
the supervisory review proceedings of 2001. The Chamber then shifted
the focus to the 1998 proceedings, which had ended with the judgment
of 12 November 1998. In the Chamber’s opinion, in 1998 the
applicant had availed himself of his right to contest the
liquidator’s unlawful actions. The 1998 judgments were given
within the subject-matter jurisdiction of the commercial courts; as a
result, it was immaterial whether or not the applicant’s claim
against the liquidator in person had been brought in the proper court
– the applicant had exhausted remedies by introducing the first
complaint with the commercial court, and those proceedings ended on
12 November 1998.
As
to the merits, the Chamber held that the amount awarded by the
Russian courts in 1995 (hereinafter “the 1995 award”)
could be described as the applicant’s “possessions”
under Article 1 of Protocol No. 1. By distributing the assets to
the “privileged” creditors before all of the other
first-class creditors, the liquidator had acted unlawfully, and, as a
result, the applicant did not receive what he would otherwise have
received. There had therefore been an unlawful interference by the
liquidator with the applicant’s right to the enjoyment of his
possessions.
The
Chamber further found that the liquidator was a representative of the
State. That conclusion was based on the status
of the liquidator as defined in sections 19 and 21 of the 1992
Insolvency Act. The Chamber referred to the fact that
the liquidator was appointed by the court according to certain
eligibility criteria, that
he was supervised by the court, and that he acted in the interests of
all creditors of the company. The Chamber also referred to
“the nature of his duties”, which “pertained to
public authority”. The Chamber held that the liquidator was
“expected to achieve a ‘fair balance’ between the
demands of the general interest and the requirements of the
protection of the individual’s fundamental rights”. Since
the interference with the applicant’s rights was made by a
public authority, and was unlawful, it was contrary to Article 1 of
Protocol No. 1 to the Convention.
B. The Government’s submissions before the Grand
Chamber
1. On the legal status of the liquidator
In
their referral request the Government mainly challenged the Chamber’s
finding that the liquidator was a “State authority”
within the meaning of Article 34 of the Convention. They relied on
the case of Katsyuk v. Ukraine (no. 58928/00, § 39,
5 April 2005), which suggested that, despite the fact that the
liquidator was appointed by the court, he was not a “public
official” and his actions could not be directly attributed to
the State. The application was therefore incompatible with the
Convention ratione personae.
In
support of this argument, they referred to the liquidator’s
legal status, the manner of his appointment, and the degree of his
accountability before the State authorities. The Government compared
the status of liquidator in Russia and in Ukraine and concluded that
in both countries the liquidator was not a public authority, as was
rightly held by the Court in the Ukrainian context in the case of
Katsyuk, cited above. Thus, the liquidator was a professional
employed by the creditors’ body. His candidature was approved
by the commercial court, but the court’s task was limited to
verifying whether the liquidator met the statutory qualification
requirements. The initiative in appointing the liquidator belonged to
the creditors’ body, it submitted the liquidator’s
candidature to the court and supervised his work.
The
creditors’ body not only nominated the liquidator; it also
exercised operative control over his actions. For example, it
approved transactions involving the insolvent company’s assets,
fixed the price of sale of its property and approved friendly
settlements with debtors. The courts were not even mentioned by the
law as a party to the insolvency procedure – they only ensured
the formal lawfulness of the liquidator’s actions. The courts
had no power to issue binding directions to liquidators as to the
management of the estate of an insolvent company.
The
liquidator was remunerated by the creditors’ body for his work;
the State did not pay for his services. Further, he acted in his own
interest. Although his activity might have been of some public
importance, he did not exercise any official powers and accepted the
appointment in order to make a profit. He did not have a legal
monopoly but operated in a sector open to competition, and was unable
to issue orders or regulations binding on third parties, or to impose
sanctions or exercise other governmental functions. His actions could
be challenged in civil proceedings, rather than by means of an
administrative complaint. The Government described the liquidator’s
duties and powers in the insolvency procedure. His mission was to
ensure the fair distribution of an insolvent company’s assets
among the creditors, within a very narrow framework established by
the relevant legislation. In sum, the liquidator enjoyed significant
operational and institutional autonomy from the State and was
completely independent financially from the authorities. The
Government concluded that the liquidator acted as a businessman
rather than a State official. That position was reinforced in the
2002 Insolvency Act, which provided for the creation of a
self-governing non-governmental organisation of professional
liquidators.
2. Alleged failure of the State to fulfil its positive
obligations
In
so far as the Government’s positive obligations under Article 1
of Protocol No. 1 to the Convention might have been engaged, the
Government noted, first of all, “the limited scope of reliable
data” as to the assets of the insolvent bank available for
distribution among its creditors by the liquidator. They acknowledged
that the applicant, as a result of the unlawful acts of the
liquidator and the creditors’ body, had received less than he
could legitimately have expected to receive, but did not agree with
the applicant that the total amount of the original court award was
recoverable.
The
Government admitted that the State might have an obligation to assist
creditors in recovering their money from an insolvent debtor.
However, it had fulfilled its positive obligations by establishing an
appropriate legal framework for insolvency procedures. Thus, special
legislation (the 1992 and 1998 Acts) had been enacted in order to
protect the interests of creditors. The legislation provided for the
distribution of the assets of an insolvent company on a pari passu
basis. Those Acts (sections 31 and 21 respectively) guaranteed
the right of the creditor to complain to the court about actions or
omissions on the part of the liquidator. The liquidator was
personally accountable for his acts to the creditors. The 2002 Act
went even further by requiring mandatory professional insurance for
liquidators. The Government referred to the practice in several other
member States where the liquidator was personally liable vis-à-vis
the creditors of an insolvent company.
In
so far as the specific circumstances of the present case are
concerned, the Government argued as follows. First, the applicant had
been successful in challenging the liquidator’s action: in 1998
the commercial courts held that those actions had been unlawful and
ordered the liquidator to restore the applicant’s rights within
one month. However, as a result of the unlawful actions of the
liquidator and the creditors’ body, all of the bank’s
assets had been lost, and, as a result, it was impossible to enforce
the court order of 1998. The State could not be held responsible for
non-enforcement of a judgment if it was caused by factors outside the
State’s control.
In
addition, the applicant was entitled to sue the liquidator personally
for his unprofessional conduct in discharging his duties. The
existence of that remedy derived from sections 31 and 21 of the 1992
and 1998 Acts respectively. The possibility of claiming damages from
the liquidator was also confirmed by the Constitutional Court. The
applicant used that legal avenue by filing a new complaint with the
commercial courts, which examined and dismissed it mainly on the
ground that the liquidation procedure was still pending. Indeed, it
would have been unjust to award the applicant any damages when there
was still a possibility (however vague) of obtaining the money from
the bank itself. Had the courts satisfied the applicant’s
claims, he would have been in a position to recover the same amount
twice, and that would be tantamount to unjust enrichment.
After
the bank’s liquidation on 17 June 1999, all of its unpaid debts
were extinguished. After that date the applicant had the option of
recovering damages from the liquidator. However, for some reason he
did not use that avenue. The mere existence of doubt as to the
prospects of success of such a remedy was not sufficient to justify
the applicant’s failure to use it.
The
Government also argued that the proper venue for examining such
claims would be a court of general jurisdiction. The applicant had
the status of an individual. Commercial courts could only hear
disputes between companies or individual entrepreneurs. This was
confirmed by the Supreme Commercial Court’s judgment of 17
April 2001, rendered by way of supervisory review. However, even
after that judgment the applicant did not lodge a claim against the
liquidator with the proper court. The Government concluded that the
applicant had had access to a legal remedy capable of restoring his
rights but failed to use it, for no good reason.
C. The applicant’s submissions before the Grand
Chamber
1. On the legal status of the liquidator
The
applicant argued that the liquidator was appointed and supervised by
the State. The Chamber had been correct when it distinguished the
case of Katsyuk (cited above) from the present case, since the
respective legislative frameworks were different in a number of ways,
including the questions of appointment of the liquidator, supervision
of his activities, the relationship between the liquidator and the
creditors’ body, remuneration of the liquidator, and powers in
respect of misconduct by the liquidator.
The
liquidator under Russian law was not an insolvency practitioner but
rather a person who met certain qualification requirements, not
necessarily linked to that particular sphere. Thus, a civil servant
was eligible to perform the duties of liquidator. Furthermore,
although the creditors were entitled to propose their candidates, the
power to appoint the liquidator belonged solely to the court. The
courts supervised the activities of the liquidator and the course of
the insolvency procedure in general. The liquidator in Russia (unlike
his counterpart in Ukraine) had a right to challenge before the court
an unlawful decision of the creditors’ body. In Russia the
liquidator was remunerated by the court, on the basis of the amount
defined by the creditors’ body and from the funds collected
during the liquidation process. The liquidator’s actions could
be challenged before the courts, and the courts were entitled to give
directions to the liquidator and order the payment of compensation to
creditors. Ukrainian courts had no such powers vis-à-vis
liquidators. In sum, the liquidator in Russia was appointed by the
court, paid by the court, and supervised by the court. In such
circumstances he should have been regarded as a governmental
official, and the Government’s responsibility for his action
should have been engaged.
2. Alleged failure of the State to fulfil its positive
obligations
Even
assuming that the liquidator was a private person, the applicant
considered that, in view of the nature of his duties, the State must
have been responsible for his actions, at least in an indirect
manner. The applicant relied upon the Court’s findings in
Costello-Roberts v. the United Kingdom (25 March 1993, Series
A no. 247 C), where the actions of employees in an independent
school were found to be the responsibility of the State. The Court
concluded in that case that “the State [could] not absolve
itself from responsibility by delegating its obligations to private
bodies or individuals”. A similar approach was adopted in the
context of the position of advocates in the case of Van der
Mussele v. Belgium (23 November 1983, Series A no. 70), and
with regard to the status of the Polish-German Reconciliation
Foundation in Woś v. Poland, (no. 22860/02, ECHR
2006 VII) and of the Romanian Union of Lawyers in the case of
Buzescu v. Romania (no. 61302/00, 24 May 2005). The
applicant concluded that, in view of the Court’s case-law, the
actions of the liquidator in the present case engaged the
responsibility of the State. Even if the liquidator was not a
government official, the Russian State retained a positive obligation
under Article 1 of Protocol No. 1 to protect the applicant, as one of
the bank’s creditors, from unlawful actions by the liquidator.
The nature and scope of such an obligation would consist (at the very
least) in ensuring that the liquidator’s actions were compliant
with domestic law. The obligation would also extend to remedying any
misconduct by the liquidator. In the present circumstances, the
appropriate remedy would have entailed the payment of compensation to
the applicant as provided for by domestic law, and the enforcement of
such award. The applicant in the present case took every opportunity
to challenge both the unlawful distribution of the assets by the
liquidator and the failure to enforce the decision of the commercial
courts. The domestic courts confirmed the liquidator’s unlawful
distribution of the assets in 1998 and during further proceedings in
1999, but in spite of those rulings, the insolvency procedure was
closed on 17 June 1999 on the grounds of insufficient funds.
The
applicant’s claims against the liquidator (which ended with the
judgment of 9 June 1999) were dismissed on several grounds. Thus, the
courts held that the matter had already been considered by the courts
of general jurisdiction, which made it impossible for the commercial
court to consider the same matter. Further, the courts held that the
applicant’s additional claim to compensation for non-pecuniary
damage in respect of mental distress and loss of time were
unsubstantiated, since the Insolvency Act did not cover claims for
damage incurred during the insolvency procedure. The courts also held
that it was impossible to repay the applicant the original award, on
account of the bank’s lack of assets, but that this would
subsequently be possible if and when additional assets became
available. The applicant’s additional claims for compensation
for mental distress and loss of time were dismissed on the merits,
whereas his claim in respect of the award by the courts of general
jurisdiction was dismissed on procedural grounds.
At
the time the applicant was entitled to appeal against unlawful
actions of the liquidator to the commercial court under section 21 of
the 1998 Insolvency Act. The domestic courts considered the
applicant’s complaints on the merits; this supported the
applicant’s submission that he had used an appropriate remedy
in this situation. As to the Government’s reference to the
Constitutional Court judgment of 12 March 2001, the applicant noted
that, according to the Constitutional Court, a creditor had a right
to appeal to the court of general jurisdiction “if the
commercial court refused to examine a complaint on the grounds that
it [did] not have jurisdiction”. However, in the current case
the commercial courts did not refuse to consider the applicant’s
complaints on the ground of a lack of jurisdiction. The 2001 judgment
of the Constitutional Court opened the possibility of seeking a
remedy in the courts of general jurisdiction but did not exclude the
creditors’ right to challenge the liquidator’s decisions
before the commercial courts. Only in 2001 was the “jurisdictional”
ground raised under the “supervisory review” procedure,
and all the previous decisions of the commercial courts (of 4
February, 31 March and 9 June 1999) were annulled. That procedure
itself raised serious issues regarding the principle of legal
certainty, as held by the Court on numerous occasions.
The
applicant acknowledged that in theory he could also have sought a
remedy in the courts of general jurisdiction against the liquidator’s
unprofessional conduct in discharging his duties; however, the
annulment of the enforceable judgments issued by the commercial
courts made the “general jurisdiction” remedy illusory.
For that reason, he did not seek to use the latter remedy, and could
not be required to do so. Moreover, as the Chamber had noted, the
applicant used the courts of general jurisdiction for his initial
complaint to the courts, prior to the opening of the insolvency
procedure, but the award of compensation to him (by the decisions of
20 February 1995 and 5 April 1996) was never enforced.
D. The Court’s analysis
At
the outset, the Court will briefly outline the factual and legal
elements which raise no controversy between the parties. First, the
Government acknowledged that the 1995 court award had amounted to the
applicant’s “possession” within the meaning of
Article 1 of Protocol No. 1. Secondly, the Government agreed
with the applicant that the liquidator had acted unlawfully in that
the assets of the bank, which should normally have been distributed
evenly amongst the first-class creditors, had been used for full
reimbursement of certain “privileged” creditors. Thirdly,
the Government agreed that, as a result of such distribution of
funds, other first-class creditors of the bank, the applicant
included, had received much less than they could legitimately have
expected to receive, given the bank’s financial situation.
The
Court does not see any reason to disagree with the parties on the
above points. It reiterates that a pecuniary claim supported by a
final judicial decision (often referred to in its case-law as “a
judgment debt”) has always been regarded by the Court as a
“possession” within the meaning of Article 1 of Protocol
No. 1 to the Convention (see Burdov v. Russia, no. 59498/00,
§ 40, ECHR 2002 III, and Stran Greek Refineries and
Stratis Andreadis v. Greece, 9 December 1994, § 59, Series A
no. 301-B). Indeed, where the debtor is a private person or company,
the pecuniary claim, even supported by a court judgment, is less
certain, because its enforceability largely depends on the solvency
of the debtor. As the Court has repeatedly held, “when the
debtor is a private actor, ... the State is not, as a general rule,
directly liable for debts of private actors and its obligations are
limited to providing the necessary assistance to the creditor in the
enforcement of the respective court awards, for example, through a
bailiff service or bankruptcy procedures” (see, for example,
Shestakov v. Russia (dec.), no. 48757/99, 18 June
2002; Krivonogova v. Russia (dec.), no. 74694/01, 1 April
2004; and Kesyan v. Russia, no. 36496/02, 19 October 2006; see
also Scollo v. Italy, 28 September 1995, Series A no. 315-C, §
44, and Fuklev v. Ukraine, no. 71186/01, § 84, 7 June
2005). Nonetheless, such pecuniary claims may also be characterised
as “possessions”. In the case at
hand the bank’s assets before their distribution by the
liquidator were sufficient to meet at least a substantial proportion
of the applicant’s claims. Therefore, the 1995 court award was
at least partly recoverable. The applicant was a
creditor of the first class and the bank’s obligations towards
him should have been honoured accordingly. However, the money
collected was distributed by the liquidator mostly amongst the
“privileged” creditors, in breach of the law. As a
result of that unlawful action, a significant part of the original
award was lost for the applicant. Such was the conclusion of the
Chamber (see paragraph 53 of the judgment), to which both parties
fully subscribed, and the Grand Chamber does not see any reason to
depart from that conclusion. It follows that the applicant has been
deprived of his possessions by an unlawful act of the liquidator.
1. Legal status of the liquidator
Before the Grand Chamber the Government claimed that
the Court had no jurisdiction ratione personae to examine the
applicant’s complaint about the liquidator’s actions,
since the latter had acted as a private person and not as a State
agent. The Court will address this issue first.
(a) Court’s case-law
The
Court has already ruled on the question whether a State can be held
responsible under the Convention on account of acts by a company or a
private person. A first category of cases (to which the present case
belongs) concerns the State’s responsibility ratione
personae for the acts of a body which is not, at least formally,
a “public authority”. In the case of Costello Roberts
v. the United Kingdom (cited above, § 27), the Court
held that a State could not absolve itself from responsibility by
delegating its obligations to private bodies or individuals, in that
case an independent school. Similarly, the Court found in Storck
v. Germany (no. 61603/00, § 103, ECHR 2005 V) that
the State remained under a duty to exercise supervision and control
over private psychiatric institutions where patients could be held
against their will (see also the cases of Evaldsson and Others v.
Sweden, no. 75252/01, § 63, 13 February 2007, concerning the
organisation of the labour market; Buzescu v. Romania, cited
above, § 78, concerning bar associations; and Woś v.
Poland, cited above, §§ 71-74, where the status of the
Polish-German Reconciliation Foundation was discussed).
A
second category of cases concerns the locus standi of an
applicant entity under Article 34 of the Convention and the notion of
“governmental organisation”. In the case of Radio
France and Others v. France ((dec.), no. 53984/00, §
26, ECHR 2003 X (extracts)), the Court noted:
“... The category of ‘governmental
organisation’ includes legal entities which participate in the
exercise of governmental powers or run a public service under
government control. In order to determine whether any given legal
person other than a territorial authority falls within that category,
account must be taken of its legal status and, where appropriate, the
rights that status gives it, the nature of the activity it carries
out and the context in which it is carried out, and the degree of its
independence from the political authorities.”
As
far as the entity Radio France was concerned, the Court noted that
although it had been entrusted with public-service missions and
depended to a considerable extent on the State for its financing, the
legislature had devised a framework which was plainly designed to
guarantee its editorial independence and institutional autonomy. In
this respect, there was little difference between Radio France and
the companies operating “private” radio stations, which
were themselves also subject to various legal and regulatory
constraints. The Court thus concluded that Radio France was a
non-governmental organisation for the purposes of Article 34 of
the Convention. Similarly, the Court found that the applicant company
in Islamic Republic of Iran Shipping Lines v. Turkey
(no. 40998/98, § 79, ECHR 2007 ...) was a
non-governmental organisation, despite the fact that it was wholly
owned by the Iranian State and that a majority of the members of the
board of directors were appointed by the State. The Court noted that
the applicant company was legally and financially independent from
the State and was run as a commercial business.
Despite
the difference between the concept of “governmental
organisation” and that of “public authority”, the
pattern of analysis used by the Court in these two situations is
similar. Thus, the principles developed in Radio France were
applied in the case of Mykhaylenky and Others v. Ukraine
(nos. 35091/02, 35196/02, 35201/02, 35204/02, 35945/02, 35949/02,
35953/02, 36800/02, 38296/02 and 42814/02, §§ 43-46, ECHR
2004 XII), which concerned the question of the State’s
liability for the debts of an enterprise operating on the private
market (see also Yershova v. Russia, no. 1387/04, §§
55 and 62, 8 April 2010).
As
far as the legal status of insolvency liquidators is concerned, it
has been examined by the Court in the following cases. In Katsyuk
(cited above, § 39) the Court held, inter alia, that the
liquidator did not have any characteristic of a “governmental
organisation”, since his appointment and the approval of his
report by the commercial court could not, as such, confer on him such
status (see also Bakalov and Others v. Bulgaria (dec.),
no. 55796/00, 18 September 2007). It should be pointed out,
however, that in that case the liquidator had been appointed at a
time when the debtor enterprise was already unable to meet its
obligations. Moreover, the actions of the liquidator had not been
challenged as unlawful or unreasonable. The central question was
rather whether, by the very fact of appointing a liquidator, the
Ukrainian authorities had assumed liability for the debts of a
private enterprise, and the Court found that they had not.
In
the case of Sychev v. Ukraine (no. 4773/02, §§
54-56, 11 October 2005), the Court examined the status of the
liquidation committee and concluded that its prolonged failure to
enforce a court judgment “was due to the State’s failure
to establish an effective system of enforcement of court judgments
given against the company undergoing bankruptcy proceedings”
(see also Pokutnaya v. Russia (dec.), no. 26856/04, 3 July
2008). The Court, however, did not deal with the question whether the
liquidation committee was a “public authority”. It
focussed rather on the State’s non-compliance with its positive
obligations in this sphere. Nor did the Court examine this issue in
cases where it had to decide whether Article 6 was applicable to
disputes arising from liquidation procedures (see, for example,
Werner v. Poland, no. 26760/95, § 34, 15 November
2001; see also Ismeta Bačić v. Croatia, no.
43595/06, § 27, 19 June 2008) or in cases where the Court
examined the length of bankruptcy proceedings (see Luordo v.
Italy, no. 32190/96, §§ 67-71, ECHR
2003 IX).
Thus,
mainly as a result of the variety of situations occurring in the
cases brought before the Court, it appears that the case-law on the
legal status of insolvency liquidators requires some clarification.
The Court will therefore examine whether in the present case the
liquidator can be considered to have acted as a State agent, having
regard to the criteria set out below.
(b) The liquidator in the present case
At
the outset, the Court stresses that under domestic law at the
relevant time the liquidator was not a public official, as formally
speaking the administration of insolvencies was to remain in private
hands. The Court will now examine whether the formal status of the
liquidator corresponded to the reality of the liquidation process.
(i) Appointment
At
the relevant time the liquidator in Russia was a private individual
employed by the creditors’ body, which was a self-interested
entity. He was chosen on an open market amongst other professionals
competing for the same job. He worked for a fee, which was fixed
freely and paid by the creditors’ body. To the extent that the
State was involved in the insolvency proceedings it acted as a
creditor and not as a “public authority”.
The
appointment of the liquidator was confirmed by a judge. However, as
the Government convincingly explained, by doing so the judge simply
validated the decision of the creditors’ body, after verifying
that the person proposed satisfied all the eligibility criteria. As
such, this validation did not entail any State responsibility for the
way in which the liquidator would discharge his duties.
(ii) Supervision and accountability
While
the Chamber strongly relied on the domestic court’s control
over the lawfulness of the liquidator’s actions, the Grand
Chamber notes that the scope of such control was very limited and had
only retrospective effects, for the courts did not have to verify
whether the liquidator’s decisions were justified from an
economic or business point of view. The courts were not empowered to
give instructions to the liquidator on how to manage the bankrupt
company – this fell within his discretionary powers. The courts
only controlled the compliance of his actions with the procedural and
substantive rules of the domestic insolvency legislation. Their role
was limited to serving as the forum for settling disputes between the
creditors of the insolvent company, its debtors and the liquidator.
To this extent they played the same role as in any other private
dispute.
Moreover,
under the 1992 Act the liquidator was not accountable to any
regulatory body. He was accountable only to the creditors’ body
or to individual creditors. The relations between the liquidator and
the creditors (including the State) were regulated by civil law,
which provided for personal liability of liquidators vis-à-vis
the creditors. The liquidator did not receive any public funding. The
1992 Act did not contain any specific provision on compensation for a
liquidator’s unlawful actions. This gap was filled by the 1998
Act, which established that creditors were entitled to seek
compensation from the liquidator in respect of any damage caused by
the latter’s unlawful actions. The liquidator could be held
criminally responsible for offences such as fraud or embezzlement,
but not for criminal offences which could only be committed by public
officials. Finally, under the law of tort there was no State
responsibility for the liquidator’s acts, whereas he was liable
before the creditors.
(iii) Objectives
While
it is clear that the insolvency legislation at the time sought to
achieve a fair balance between all competing interests involved in
insolvency cases, inter alia by introducing various orders of
priority between the creditors and establishing fair liquidation
procedures, the Grand Chamber considers that the liquidator himself
was not obliged to perform that balancing exercise. In the Grand
Chamber’s opinion, his task was much more similar to that of
any other private businessman appointed by his clients, in this case
the creditors, to best serve their – and ultimately his own –
interests. As such, the mere fact that his services might also have
been socially useful does not turn him into a public official acting
in the public interest.
(iv) Powers
Most
importantly, the liquidator had very limited powers: he was indeed
empowered to manage the property of the company in question, but had
no coercive or regulatory power in respect of third parties. There
was no formal delegation of powers by any governmental authority
(and, as a result, no public funding). Unlike a bailiff, the
liquidator was unable to seize property, obtain information, impose
fines, or take other similar decisions binding third parties. His
powers were limited to the operational control and management of the
insolvent company’s property.
(v) Functions
The liquidator is the key person in the liquidation
process and, in this capacity, he may be called upon to pay the
creditors, whose claims, as in the present case, have been
established by a court order. His functions therefore bear some
similarity to those of a court bailiff, who is undoubtedly a public
authority. Indeed, in most European countries public authorities are
involved in the enforcement proceedings and help successful claimants
to recover court awards by employing court bailiffs, policemen or
other similar officials. The Court has held on numerous occasions
that Articles 6 § 1 and Article 1 of Protocol No. 1 to the
Convention provide for a positive obligation on the State to assist
private persons in the enforcement of court judgments against other
private persons (see Fuklev v. Ukraine, cited above, §§ 84
and 91; Scollo v. Italy, cited above, § 44; Fociac
v. Romania, no. 2577/02, § 70, 3 February 2005; and
Kesyan v. Russia, cited above, §§ 79 and 80, 19
October 2006). However, those similarities would not appear decisive
in the light of the significant differences between the functions of
bailiff and those of a liquidator. Firstly, whereas bailiffs have to
execute court orders, liquidators deal with several kinds of claims,
including those which have not been made enforceable by a court.
Secondly and most importantly, unlike liquidators, bailiffs are
entrusted with coercive powers, in addition to being appointed, paid
and closely supervised by a competent State authority. Thus, in the
context of insolvency procedures the respondent State left the
management of the insolvent company in the hands of its creditors and
of liquidators appointed by them, whereas in the context of
enforcement proceedings it chose to operate through its own officials
and to bear direct responsibility for their actions.
(vi) Conclusion
It
would appear that the liquidator, at the relevant time, enjoyed a
considerable amount of operational and institutional independence, as
State authorities did not have the power to give instructions to him
and therefore could not directly interfere with the liquidation
process as such. The State’s involvement in the liquidation
procedure resulted only from its role in establishing the legislative
framework for such procedures, in defining the functions and the
powers of the creditors’ body and of the liquidator, and in
overseeing observance of the rules. It follows that the liquidator
did not act as a State agent. Consequently, the respondent State
cannot be held directly responsible for his wrongful acts in the
present case. The fact that a court was entitled to review the
lawfulness of the liquidator’s actions does not alter this
analysis.
The
Court must, however, also examine whether the respondent State
breached any positive obligations in the present case.
2. Nature and extent of the State’s positive
obligations in the context of insolvency procedures
(a) General principles
The
Court has repeatedly held that Article 1 of Protocol No. 1 also
establishes some positive obligations. Thus, in the case of
Öneryıldız v. Turkey ([GC], no.
48939/99, § 134, ECHR 2004 XII), which concerned the
destruction of the applicant’s property as a result of a gas
explosion, the Court held that the genuine, effective exercise of the
right protected by Article 1 of Protocol No. 1 did not depend merely
on the State’s duty not to interfere, but might require
positive measures of protection, particularly where there was a
direct link between the measures an applicant might legitimately
expect from the authorities and his effective enjoyment of his
possessions. Even in horizontal relations there might be public
interest considerations involved, which may impose some obligations
on the State. In Broniowski v. Poland ([GC], no.
31443/96, § 143, ECHR 2004-V), for instance, the Court held that
positive obligations under Article 1 of Protocol No. 1 might
require the State to take the measures necessary to protect property
rights.
The
boundaries between the State’s positive and negative
obligations under Article 1 of Protocol No. 1 do not lend themselves
to precise definition. The applicable principles are nonetheless
similar. Whether the case is analysed in terms of a positive duty of
the State or in terms of an interference by a public authority which
needs to be justified, the criteria to be applied do not differ in
substance. In both contexts regard must be had to the fair balance to
be struck between the competing interests of the individual and of
the community as a whole. It is also true that the aims mentioned in
that provision may be of some relevance in assessing whether a
balance between the demands of the public interest involved and the
applicant’s fundamental property rights has been struck. In
both contexts the State enjoys a certain margin of appreciation in
determining the steps to be taken to ensure compliance with the
Convention (see, mutatis mutandis, Hatton and Others v. the
United Kingdom [GC], no. 36022/97, §§ 98
et seq., ECHR 2003-VIII, and the Grand Chamber judgment in
Broniowski, cited above, § 144).
The
nature and extent of the State’s positive obligations vary
depending on the circumstances. Thus, in the case of Öneryıldız
(cited above), the loss of the applicant’s possessions resulted
from obvious negligence of the authorities in the face of a very
dangerous situation. By contrast, where the case concerns ordinary
economic relations between private parties such positive obligations
are much more limited. Thus, the Court has stressed on many occasions
that Article 1 of Protocol No. 1 to the Convention cannot be
interpreted as imposing any general obligation on the Contracting
States to cover the debts of private entities (see, mutatis
mutandis, Shestakov, cited above, and Scollo,
cited above, § 44; and see in particular the Court’s
reasoning in Anokhin v. Russia (dec.), no. 25867/02, 31 May
2007).
However,
the Court has also held that in certain circumstances Article 1
of Protocol No. 1 may require “measures which are necessary to
protect the right of property ..., even in cases involving litigation
between individuals or companies” (Sovtransavto Holding,
cited above, § 96). This principle has been extensively applied
in the context of enforcement proceedings against private debtors
(see, Fuklev, cited above, §§ 89-91; Kesyan,
cited above, §§ 79-80; see also Kin-Stib and Majkić
v. Serbia, no. 12312/05, § 84, 20 April 2010; Marčić
and Others v. Serbia, no. 17556/05, § 56, 30 October
2007; and, mutatis mutandis, Matheus v. France,
no. 62740/00, §§ 68 et seq., 31 March 2005).
In
the case of Blumberga v. Latvia (no. 70930/01, § 67, 14
October 2008) the Court held: “When an interference with the
right to peaceful enjoyment of possessions is perpetrated by a
private individual, a positive obligation arises for the State to
ensure in its domestic legal system that property rights are
sufficiently protected by law and that adequate remedies are provided
whereby the victim of an interference can seek to vindicate his
rights, including, where appropriate, by claiming damages in respect
of any loss sustained”. It follows that the measures which the
State can be required to take in such a context can be preventive or
remedial.
As
to the remedial measures which the State can be required to provide
in certain circumstances, they include an appropriate legal mechanism
allowing the aggrieved party to assert its rights effectively.
Although Article 1 of Protocol No. 1 contains no explicit procedural
requirements, the existence of procedural positive obligations under
this provision was recognised by the Court both in cases involving
State authorities (see Jokela v. Finland, no. 28856/95, §
45, ECHR 2002 IV; see also Zehentner v. Austria, no.
20082/02, § 73, 16 July 2009) and in cases between private
parties only (as in the case at hand). Thus, in a case belonging to
the latter category the Court held that States were under an
obligation to afford judicial procedures that offered the necessary
procedural guarantees and therefore enabled the domestic courts and
tribunals to adjudicate effectively and fairly any disputes between
private persons (Sovtransavto Holding, cited above, § 96;
see also Anheuser-Busch Inc. v. Portugal [GC], no.
73049/01, § 83, ECHR 2007 I, and Freitag
v. Germany, no. 71440/01, § 54, 19 July 2007).
Finally,
the Court reiterates that, in assessing compliance with Article 1 of
Protocol No. 1, it must make an overall examination of the various
interests in issue, bearing in mind that the Convention is intended
to safeguard rights that are practical and effective. It must look
behind appearances and investigate the realities of the situation
complained of (see Plechanow v. Poland, cited above, §
101).
(b) Application to the present case
At
the outset the Court observes that the applicant suffered significant
losses as a result of the liquidator’s deliberate and unlawful
actions. This was confirmed by the Russian courts. The Court,
however, reiterates that States cannot be held directly responsible
for the debts of private companies or the faults committed by their
managers (or by insolvency liquidators, as in the case at hand). In
the present case, by depositing his money with a private bank the
applicant assumed certain risks, including those related to
mismanagement and even fraud. Hence, it was not for the State to bear
any civil liability for the liquidator’s unlawful actions.
The
Court notes, however, that in the present case the liquidator’s
wrongdoings were serious and gave rise to substantial claims that
were acknowledged by the domestic courts. Moreover, they occurred in
an area where the State’s negligence in combating
malfunctioning and fraud could have devastating effects on the
State’s economy, thereby affecting a large number of individual
property rights. Under these circumstances, the Court considers that
it is part of the States’ duties under Article 1 of Protocol
No. 1 at least to set up a minimum legislative framework
including a proper forum allowing persons who find themselves in a
position such as the applicant’s to assert their rights
effectively and have them enforced. Indeed, by failing to do so a
State would seriously fall short of its obligation to protect the
rule of law and prevent arbitrariness. The Court will therefore
examine whether the respondent State complied with this obligation in
the present case, by opening adequate legal avenues for the applicant
to assert his rights and creating an appropriate legal forum for that
purpose.
As
regards any preventive measures which the State could have been
required to take, the Court reiterates that it does not have the
jurisdiction ratione temporis in this case to examine what
could have been done by the State to avoid the unlawful distribution
of the bank’s assets by the liquidator in 1996, since the
Convention entered into force in respect of Russia only on 5 May
1998. However, the Court may ascertain if any remedial mechanisms
were, in 1998 and 1999, capable of redressing the wrong done to the
applicant by the liquidator’s unlawful actions, and, if such
mechanisms existed, why they were not effective in the applicant’s
case.
(i) Existence of adequate legal avenues
(α) Claim against the bank
The
Court observes that the applicant attempted twice to have his rights
restored. In 1998 he brought proceedings against the liquidator as
manager of the bank, relying on the provisions of the Insolvency Act,
which provided for judicial supervision of the liquidator’s
actions (see paragraph 46 above). In the final judgment of
12 November 1998 the Federal Commercial Court for the North
Caucasus satisfied his claims and ordered the liquidator to provide
redress. However, this judgment was not enforced since the
distribution of money to the “privileged” creditors had
left the bank with virtually no assets and no new assets were
discovered. Thus, that remedy proved to be ineffective and incapable
of redressing the wrong done to the applicant. Consequently, the only
remaining avenue was a tort action for damages against the
liquidator.
(β) Tort action against the liquidator
It
is common ground between the parties that, at the time, the applicant
could have sued the liquidator personally for damages. This could
have been done with reference to general provisions of Russian tort
law. The Court observes that, prior to 1998, there was no specific
legal norm establishing a liquidator’s personal liability for
mismanagement, or any constant case-law to that effect. The situation
has changed since then, with the 1998 Insolvency Act providing in
section 21(3) that creditors are entitled to seek compensation from
the liquidator in respect of any damage that the latter may have
caused to them by an action or omission in breach of the law. The
Court, however, is prepared to accept the Government’s argument
that section 21 of the 1998 Act did not introduce the liquidator’s
personal liability into Russian law but simply confirmed its
existence. It follows that, at the time, Russian law provided for the
possibility of suing the liquidator for damages, at least in theory.
The Court must now examine whether it was effective in the
circumstances of the case.
(ii) Effectiveness of the existing legal
avenue
The
Government argued that the law entitled an aggrieved creditor to seek
compensation from the liquidator personally but that the applicant
had failed to do so properly, for two reasons. Firstly, by going
before the commercial court instead of a court of general
jurisdiction the applicant had brought proceedings in the wrong
court. In support of this argument they referred to the decision of
the Supreme Commercial Court of 17 April 2001. Secondly, the
applicant had introduced his claim prematurely, before the closure of
the insolvency procedure.
(α) Whether the applicant brought
proceedings before the competent court
On
the question whether the applicant brought proceedings before the
competent court, the Court acknowledges that the domestic courts are
in principle better placed to interpret national legislation. It
observes in this connection that both cases against the liquidator,
which ended in 1998 and 1999 respectively, were examined by the
commercial courts. However, in 2001 the Supreme Commercial Court
annulled the results of the 1999 proceedings on the ground that since
the applicant had sought compensation from the liquidator in person
(and not from the liquidator acting as manager of the bank), his
claims ought to have been examined by the courts of general
jurisdiction. The Court is not convinced that in the circumstances of
the present case the applicant could have been aware of the
competence of the courts of general jurisdiction to hear his case at
the relevant time.
Indeed,
the Code of Civil Procedure at the time established that pecuniary
disputes between an individual and a company should be heard by a
court of general jurisdiction (see paragraph 52 above). However, the
Insolvency Acts of 1992 and 1998, as well as the Code of Commercial
Procedure and the Banks Insolvency Act of 1999 (which appeared to be
lex specialis) established a different rule, namely that all
disputes arising out of insolvency procedures fell within the
jurisdiction of the commercial courts (see paragraphs 53 et seq.
above). Neither of these Acts distinguished between claims of
creditors directed against the liquidator as manager of the insolvent
company and those directed against him as an individual wrongdoer.
Moreover,
the Government did not refer to any case-law, contemporary to the
events at issue, which would confirm the existence of such a
distinction in Russian law. The Government cited the judgment of the
Constitutional Court of 12 March 2001 (no. 4-P). However, that
judgment postdates the events at issue. Furthermore, the
Constitutional Court only stated that where a commercial court
refused to examine a complaint by an individual creditor for lack of
jurisdiction, such creditors could turn to the courts of general
jurisdiction. At the same time, the Constitutional Court emphasised
that the provisions of the Insolvency Act did
not contain “any clause that would prevent commercial courts
from giving decisions that enable[d] the persons concerned to secure
in full their right to judicial protection in the context of
insolvency procedures”.
Finally,
the Court notes that if the applicant did make a mistake, it
was not evident either to the parties or to the representative of the
Central Bank of Russia who participated in the 1999 proceedings. What
is more, the commercial courts at three instances considered that
they had jurisdiction to hear the case. Only in 2001 was the
“jurisdictional” ground raised under the supervisory
review procedure, following the communication of the case by the
Court to the Russian Government, with the result that all previous
decisions by the commercial courts (of 4 February, 31 March and 9
June 1999) were quashed.
It
follows that the rules on the jurisdiction of the relevant courts at
the time were unclear and that the applicant acted reasonably by
taking his case to a court which appeared to have jurisdiction. In
these circumstances the Court considers that the applicant could not
be expected, as a result of the quashing in 2001 of the 1999
judgments by way of supervisory review, to pursue an identical claim
before a different court. When the applicant lodged his application
with the Court he had good reason to believe that he had used an
appropriate remedy and that the judgment of 9 June 1999 had put an
end to his case. Consequently, if the applicant did go before a court
that lacked jurisdiction to adjudicate his case, this mistake cannot
reasonably be held against him.
(β) Whether the proceedings instituted
by the applicant were premature
The
Government also argued that the applicant’s claim had not been
satisfied because the liquidation procedure was still pending. As
long as the bank was in existence, there was still a possibility that
the original award could be paid from the bank’s remaining
assets. Thus, if the courts had awarded damages to the applicant, he
would have been entitled to recover the same amount twice, both from
the bank and from the liquidator (the “double recovery”
argument). However, after completion of the liquidation procedure the
applicant was indeed entitled to bring further proceedings and seek
due compensation. In sum, the Government suggested that the applicant
had only been precluded temporarily from recovering damages from the
liquidator, for as long as the liquidation procedure was ongoing. To
address this argument the Court will now examine the reasoning of the
domestic courts in the 1999 proceedings.
The
Grand Chamber observes that the judgment of 9 June 1999 clearly
relied on the “double recovery” argument. Essentially,
from 17 June 1999, the date when the liquidation of the bank was
approved by the commercial court, the applicant had the possibility
of proceeding against the liquidator in tort proceedings alleging
negligence and breach of duty in the discharge of his official
functions. However, the applicant did not use such a remedy, for
reasons which remain unknown. Whatever they were, there was nothing
in the judgment of 9 June 1999 that would have prevented him from
suing the liquidator once the liquidation proceedings had ended.
In
the Court’s opinion, the “double recovery” argument
relied on by the domestic courts is not without significance. For if
the applicant had successfully sued the liquidator and had then gone
on, subsequently, to recover the original court award against the
bank, he would, effectively, have been compensated twice for what
was, essentially, the same financial loss. Hence, there was a
rationale in the court’s refusal to deal with the applicant’s
claims against the liquidator, while the liquidation procedure itself
was still pending. Even if, in the circumstances of the case, the
possibility of recovering the original bank award was remote, the
general rule applied by the court in the judgment of 9 June 1999
cannot be dismissed as having no reasonable justification.
Admittedly,
this rule meant that an aggrieved creditor had to wait until the
debtor company had ceased to exist before he could claim damages from
the liquidator in person. The Court would point out, however, that in
cases arising from individual petitions the Court’s task is not
to review the relevant legislation in the abstract. Instead, it must
confine itself, as far as possible, to examining the issues raised by
the case before it (see, mutatis mutandis, among many others,
Taxquet v. Belgium [GC], no. 926/05, § 83, ECHR 2010). In
the present case the bank was liquidated on 17 June 1999, that is,
eight days after the courts had pronounced on the applicant’s
claims against the liquidator. Considered globally, only a short
period of time elapsed between the applicant’s knowledge that
the bank had no assets with which to discharge the court award in his
favour as found in the judgment of 12 November 1998 and the date
when it became possible for him to sue to the liquidator in damages.
Furthermore,
the Court reiterates that the margin of appreciation available to the
legislature in implementing social and economic policies should be a
wide one (see, among many other authorities, Jahn and Others v.
Germany [GC], nos. 46720/99, 72203/01 and 72552/01, § 91,
ECHR 2005-VI), especially in a situation where, as in the present
case, the State has to have regard to competing private interests in
horizontal relations in an area, such as, bankruptcy proceedings.
In
sum, the law provided for a “deferred” compensatory
remedy but the applicant failed to use it when it became available.
Given that the inability to seek redress against the liquidator was
of a limited duration and existed only for the time of the insolvency
proceedings, and in the absence of any argument by the applicant as
to why this might have been excessive in the circumstances, the Court
considers that such limitation did not affect the essence of the
applicant’s rights under Article 1 of Protocol No. 1 and
remained within the State’s margin of appreciation.
It
follows that the legal framework put in place by the State provided
the applicant with a mechanism to have his rights under Article 1 of
Protocol No. 1 protected. Consequently, the Court finds that the
State complied with its positive obligations under this provision. In
view of the above, it is not necessary to consider separately the
Government’s preliminary objection.
FOR THESE REASONS, THE COURT
Joins to the merits the Government’s
preliminary objection as to the non-exhaustion of domestic remedies;
Holds, by sixteen votes to one, that the
Court has jurisdiction ratione temporis to examine the
applicant’s complaints, in so far as they relate to the
proceedings which took place in 1998 and 1999;
Holds, by twelve votes to five, that there has
been no violation of Article 1 of Protocol no. 1 to the Convention
and that it is not necessary to consider the Government’s
preliminary objection.
Done in English and French, and delivered at a public hearing in the
Human Rights Building, Strasbourg, on 3 April 2012.
Johan Callewaert Nicolas Bratza
Deputy to the
Registrar President
In accordance with Article 45 § 2 of the Convention and Rule 74
§ 2 of the Rules of Court, the following separate opinions are
annexed to this judgment:
(a) concurring
opinion of Judge Bratza;
(b) partly
dissenting opinion of Judge Gyulumyan;
(c) dissenting
opinion of judges Lorenzen, Fura, Popović,
Malinverni and Raimondi.
N.B.
J.C.
CONCURRING OPINION OF JUDGE BRATZA
With
some hesitation I have voted in favour of the finding that the
applicant’s rights under Article 1 of Protocol No. 1 were not
violated in the present case. My hesitation relates not to the
question whether the liquidator was to be seen as a public official
or as to the nature and extent of the State’s positive
obligations in the context of insolvency proceedings, on both of
which points I fully share the view of the majority of the Court, but
to the question whether those positive obligations were met in the
circumstances of the present case.
The
positive obligations under Article 1 of Protocol No. 1 were
interpreted in the case of Sovtransavto Holding v. Ukraine
(no. 48553/99, ECHR 2002-VII) as meaning in particular that States
are under an obligation to afford judicial procedures that offer the
necessary procedural guarantees and therefore enable the domestic
courts and tribunals to adjudicate effectively and fairly any
disputes between private parties, including, as here, claims to
recover by way of damages an amount due to the applicant. The
requirement is not merely that there should exist a legislative
framework but that there should be a degree of clarity and coherence
in the law and procedures to be followed in order to avoid, in so far
as possible, any legal uncertainty and ambiguity for the litigants
concerned. In the Sovtransavto case itself, it was the
difference of approach to the application and interpretation of
domestic law between the various levels of jurisdiction, which made
possible the repeated re-opening of the proceedings in issue and
which created permanent uncertainty as to the lawfulness of the
decisions in question, that led in part to the Court’s finding
that Article 1 of Protocol No. 1 had been violated. In Plechanow
v. Poland (no. 22279/04, 7 July 2009), it was the lack of
clarity as to the identity of the appropriate authority to be sued,
following fundamental changes in the competence of the various
authorities at the local and State administrative levels, with the
consequent shifting to the applicant of the duty to identify the
correct defendant to the proceedings, which was found by the Court to
be disproportionate and to upset any fair balance, in breach of
Article 1 of Protocol No. 1.
There
was indisputably a lack of clarity in the present case, both as to
the issue of whether – and, if so, when – a claim for
damages lay against a liquidator for mismanagement in settling the
claims of the creditors of the bank, and as to whether any such claim
should be brought in the commercial court or in the courts of general
jurisdiction.
I do
not attach much importance to the latter point or to the fact that in
the supervisory review proceedings the Supreme Commercial Court found
that the dispute between the applicant and the liquidator was not
related to the insolvency procedure as such and should have been
submitted to the courts of general jurisdiction. As noted in the
judgment, not only did the parties to the 1999 proceedings and the
representative of the Central Bank of Russia appear to share the view
of the applicant that the proceedings had been brought in the
appropriate court, but the commercial courts themselves, at three
instances, considered that they had jurisdiction to hear the case.
Had the final decision of the Federal Commercial Court been in favour
of the applicant and had it been set aside on supervisory review, an
issue might well have arisen under the Protocol. But this was not the
case, the applicant’s claim having been rejected at each of the
three instances.
The
central question is whether the legal situation, as analysed and
applied by the commercial courts, was so uncertain as to deprive the
applicant of effective protection for his property rights. The
judgment of the Court of Appeal of 31 March 1999 rejecting the
applicant’s claim against the liquidator was based on two
grounds: the risk of “double recovery” if damages were
awarded against the liquidator while the liquidation proceedings
themselves were still pending and the fact that the Insolvency Act
extended only to claims which arose while the bank was operating and
not to those arising during the insolvency procedure. However, as is
pointed out in the judgment, only the “double recovery”
ground was expressly upheld by the Federal Commercial Court in its
judgment of 9 June 1999. I do not find such a decision to have been
arbitrary or unreasonable (cf. OBG Ltd. and Others v. the
United Kingdom, (dec.) no. 48407/07, § 90, 29 November
2011). Nor do I find unreasonable the commercial courts’
conclusion that the law did not provide for compensation for
non-pecuniary damage. The legal position may have been unclear until
the determination of the Federal Commercial Court. This is hardly
surprising having regard to the fact that the decisions were taken at
a time when the insolvency law and procedure were in a state of
development and transition. However, viewed as a whole, I do not find
such legal or procedural uncertainty in the present case as to
deprive the applicant of effective protection of his property rights,
the more so since it would have been open to the applicant to bring
fresh proceedings against the liquidator when the liquidation
proceedings were formally closed, an event which occurred shortly
after the judgment of 9 June 1999.
PARTLY DISSENTING OPINION OF JUDGE GYULUMYAN
I
disagree with the majority’s finding that the Court was
competent to consider this case ratione temporis.
The
Court has repeatedly held that in cases where the interference
pre-dates ratification, while the refusal to remedy it post-dates
ratification, to retain the date of the latter act in determining the
Court’s temporal jurisdiction would result in the Convention
being binding for that State in relation to a fact that had taken
place before the Convention came into force in respect of that State
(see, among other authorities, Blečić v. Croatia
[GC], no. 59532/00, § 70, ECHR 2006-III). The Court has also
held that “divorcing the domestic courts’ decisions”
from the events which gave rise to the relevant proceedings would
amount to giving retroactive effect to the Convention, contrary to
general principles of international law (see Jovanović v.
Croatia (dec.), no. 59109/00, 28 February 2002). In the present
case the interference with the applicant’s “possessions”
took place in 1996, when the liquidator took the money destined for
the applicant and paid it to creditors who had no right to it. It was
an instantaneous act, which occurred before the Convention entered
into force in respect of Russia (5 May 1998). It is probable that the
applicant, in such circumstances, was allowed to claim compensation
from the liquidator personally. I admit that such a claim existed in
Russian law at that time – at least, this is what the
Government acknowledged in their observations. However, having read
the judgments of 1999 I was left with the impression that the
domestic courts had not been certain whether such a right really
existed. It follows that the crux of the present case is not the
proceedings which took place in 1999, but rather the substantive
legislation in force at the time of the interference, namely in 1996.
That legislation was probably not sufficiently clear and the
applicant’s action against the liquidator in 1999 was thus
doomed to fail. Be that as it may, the question of the alleged
deficiency of the substantive rules of law which existed in 1996
escapes the Court’s jurisdiction ratione temporis.
DISSENTING OPINION OF JUDGES
LORENZEN, FURA, POPOVIĆ, MALINVERNI AND RAIMONDI
In
the present case the majority voted for a finding that there had been
no violation of Article 1 of Protocol No. 1 as the State was
considered not to have failed to fulfil its positive obligations
under that Article. We are unable to agree with that conclusion for
the following reasons.
As is
stated in the judgment, the Court has, in its case-law, held that
Article 1 of Protocol No. 1 may require “measures which are
necessary to protect the right of property... even in cases involving
litigation between individuals or companies” (paragraph 112)
and that the State has a positive obligation, also in respect of
interferences by a private individual, “to ensure in its
domestic legal system that property rights are sufficiently protected
by law and that adequate remedies are provided whereby the victim of
an interference can seek to vindicate his rights, including, where
appropriate, by claiming damages in respect of any loss sustained”
(paragraph 113). Furthermore, the Court has held that even though
Article 1 of Protocol No. 1 contains no explicit procedural
requirements, States are under an obligation to provide “judicial
procedures that [afford] the necessary judicial guarantees and
[enable] the domestic courts and tribunals to adjudicate effectively
and fairly any disputes between private persons” (paragraph
114).
The
present judgment has confirmed these findings and we cannot but agree
with this conclusion. We also agree with the point that in the
circumstances of a case like the present one the State is obliged
under Article 1 of Protocol No. 1 “at least to set up a minimum
legislative framework including a proper forum allowing persons who
find themselves in a position such as the applicant’s to assert
their rights effectively and have them enforced” (paragraph
117).
The
judgment has further stated that in Russian law, as it stood at the
relevant time, the only avenue to be considered was a tort action for
damages against the liquidator. The applicant did in fact try to
obtain compensation from the liquidator and chose to pursue his claim
before the commercial courts. The claim was, however, refused as
unjustified. Only after the complaint to the Court had been
communicated to the Government were the judgments of those courts
annulled for lack of jurisdiction. Like the majority, we can only
conclude that the applicant in the circumstances of the present case
could not have been aware of the competence of the courts of general
jurisdiction to hear his case (paragraph 122), that the rules on the
jurisdiction of the relevant courts at the time were unclear, and
that the applicant acted reasonably by taking his case to a court
which appeared to have jurisdiction (paragraph 126).
In
spite of the above, the majority have found that the proceedings
instituted by the applicant were premature and that after the bank
had finally been liquidated in June 1999 he should have used the
possibility of proceeding against the liquidator for negligence
before the courts of general jurisdiction. In that respect we
disagree with the majority.
Even
though, in theory, the applicant might have been able to sue the
liquidator in tort before the courts of general jurisdiction, the
legal situation was, in our opinion, so unclear as to deprive him of
any practical redress for his grievances. The majority seem to have
attached considerable importance to the “double recovery”
argument upon which the judgment of 9 June 1999 relied. Apart from
the fact that none of the commercial courts indicated that the
applicant could or should have sued the liquidator before the courts
of general jurisdiction, the “double recovery” argument
was not the only one relied upon by the commercial courts. The
Government themselves acknowledged that there had been other reasons
for dismissing the applicant’s tort claim. Thus the judgment of
31 March 1999 (on appeal) stated that the Insolvency Act did not
allow claims of creditors to be satisfied if they had not come into
existence when the bank was operating but only during the insolvency
procedure. The court of appeal thus did not make a distinction
between the bank’s original debt and the liquidator’s
personal liability in tort. In so doing it rendered the liquidator
immune from any liability for his conduct, even if the law, as
explained by the Government, provided for such liability. Even though
in its judgment of 9 June 1999 the court of cassation relied on
the “double recovery” argument, it upheld the judgment of
the court of appeal in full, stating explicitly that there was no
reason to modify it. Under these circumstances and having regard to
the unclear legal situation at the time, the applicant was entitled
to believe that his claim had been dismissed on the merits rather
than as being premature and that his case had thus been closed. This
is, in our opinion, further confirmed by the fact that it was only
after the complaint to the Court had been communicated that it was
established that the commercial courts had no jurisdiction to hear
the claim against the liquidator.
Moreover,
besides claiming the amount of the original court award, the
applicant also sought compensation for non-pecuniary damage and loss
of time. However, the courts found that the law did not provide for
any compensation of that kind and dismissed his complaints. It thus
appears that, whatever the fault of the liquidator, his
responsibility would in any event have been limited to the amount of
the original debt. The Government have not provided any information
on case-law which would allow the Court to hold otherwise. That
placed the aggrieved creditor in a very unfavourable position,
especially in a context of a rampant inflation, as was the case in
Russia at the relevant time, combined with the fact that he had to
await the final termination of the liquidation after a lengthy
insolvency procedure.
Based
on the foregoing, we can only come to the conclusion that Russian law
at the relevant time did not provide a sufficient legal framework in
order to protect the applicant’s rights under Article 1 of
Protocol No. 1. Consequently we find that the State has failed to
fulfil its positive obligations under that Article, which has
accordingly been violated.
