FOURTH SECTION

CASE OF MONTANARO GAUCI AND OTHERS v. MALTA

(Application no. 31454/12)

JUDGMENT
(Just satisfaction)

STRASBOURG

10 October 2017

This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.

In the case of Montanaro Gauci and Others v. Malta,
The European Court of Human Rights (Fourth Section), sitting as a Chamber composed of:
	Ganna Yudkivska, President,
	Vincent A. De Gaetano,
	Paulo Pinto de Albuquerque,
	Faris Vehabović,
	Egidijus Kūris,
	Iulia Motoc,
	Marko Bošnjak, judges,
and Marialena Tsirli, Section Registrar,
Having deliberated in private on 19 September 2017,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1.  The case originated in an application (no. 31454/12) against the Republic of Malta lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by six Maltese nationals (see details in appendix) (“the applicants”), on 22 May 2012.
2.  In a judgment delivered on 30 August 2016 (“the principal judgment”), the Court held that the Maltese State had failed to strike the requisite fair balance between the general interests of the community and the protection of the applicants’ right of property, and that there had thus been a violation of Article 1 of Protocol No. 1 to the Convention (see Montanaro Gauci and Others v. Malta, no. 31454/12, § 56, 30 August 2016, and point 2 of the operative provisions).
3.  Under Article 41 of the Convention the applicants sought just satisfaction in an amount commensurate with the pecuniary losses they had endured as a result of the loss of use of the property for over twenty-eight years, and requested that the property be returned to them.
4.  Since the question of the application of Article 41 of the Convention was not ready for decision as regards pecuniary damage, the Court reserved it and invited the Government and the applicants to submit, within three months of the date on which the judgment became final in accordance with Article 44 § 2 of the Convention, their written observations on the matter, and, in particular, to notify the Court of any agreement they might reach (ibid., § 73, and point 3 of the operative provisions). Since the applicants did not claim any compensation for non-pecuniary damage, nor any costs and expenses, the Court made no award under those heads.
5.  The applicants and the Government each filed observations.
THE LAW
6.  Article 41 of the Convention provides:
“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”
Section 1.01	A.  Damage
(a)	1.  The parties’ submissions
7.  The applicants submitted that in default of the property being returned to them they were entitled to full compensation covering the entirety of the damage suffered. The applicants claimed compensation of between a low of 391,766 euros (EUR) and a high of EUR 1,464,514, based on two separate reports prepared by an estate agent and an architect respectively, which considered the site as having a footprint of 60 sq.m (or 139 sq.m on two floors).
8.  The first report, which took account of the fact that the property was suitable for residential or for retail and commercial purposes, and noting that a further full floor could be built, indicated the sale value of the property at market prices in 2016 as EUR 374,670. Its total rental value for the preceding thirty years was given as EUR 201,760, indicated in its relevant parts as follows:
1987 - 1995 rental value – EUR 28,243
1995 - 2005 rental value – EUR 60,289
2005 - 2015 rental value – EUR 113,228
The report also projected the total rental value for the future thirty years as EUR 1,464,514, on the assumption that the ground floor would be redeveloped for commercial use and the other floors for residential purposes.
9.  In the second report, (drawn up on the basis of the same considerations mentioned in the first report), rental income was calculated for the full period of the tenancy, starting from 1987 and ending on the expected termination of the lease in 2047 (it being a tenancy for life and assuming the tenant would not live longer than another thirty years). The calculation was based on:
(i)  The Net Present Value (NPV) of the fair rental income for the property compounded at 5% for the first thirty years of the lease between 1987 and 2017. The fair rental income was averaged at EUR 2,000 per year over a thirty-year period (until 2016). The compounded value of the rental income was established at EUR 59,658.
(ii)  The NPV of the fair rental income for the site after redevelopment for the expected remaining thirty years of the tenancy, for the period 2017 to 2047, compounded at a discount rate of 5%.
The values for the commercial and residential floors, once completed, were based respectively on EUR 4,000 and EUR 2,300 per square metre of covered floor space, giving a total value for the redeveloped site of EUR 395,000. The weighted annual rental income was estimated at EUR 20,843 which, according to the report, represented a realistic return of 5.27%. The rental income net of annual interest on the investment required to develop the site was estimated at EUR 15,100. The compounded value of that rental income for the future thirty-year period discounted at 5% amounted to EUR 232,108. The NPV of the rental income for the full period of tenancy between 1987 and 2047 amounted therefore to EUR 391,766.
10.  Without making reference to their claim quantified in paragraph 7 above, the applicants also submitted four other reports concerning rental values of the property at issue. They stated as follows:
(i)  Report A, dated 2017, was by an individual who works in a real estate agency but who drafted the report in his own name. It assessed the property as having a footprint of around 60 sq.m and an overall size of circa 139 sq.m, being situated in a very sought after area of Rabat, bordering Mdina, and having great potential for residential and commercial purposes. On the basis of a current market analysis (CMA), the sale of the land only in the years 2010-2014 was valued at EUR 245,000 and in 2015-2017 at EUR 375,000.
Based on the above and on the CMA values – taking into account an average return of 6.75% (the average between the rental return on residential property of 5% and that on commercial property of around 8.5%) ‑ the rental values were established as follows:
An average of EUR 3,212.80 annually covering 1980 - 1990;
An average of EUR 6,000 annually covering 1991 - 2000;
An average of EUR 11,300 annually covering 2001 - 2010;
An average of EUR 20,000 annually covering 2011 - 2020;
The same report also made projections for future rent.
(ii)  Report B, by a luxury real estate agency, undated, was based on the property’s location. It considered that if the property was converted into a good state for the rental of commercial premises then the rental value would be EUR 20,000 annually.
(iii)  Report C, dated 2017, by another luxury real estate agency, concluded as follows:
As a residential property, with a similar description as in report A, comprising one to two bedrooms with a private roof terrace, the monthly rental income would be in the region of EUR 650 to EUR 800. A split of the property into two separate entities could lead to two possible commercial scenarios. The first would comprise a “commercial class 4 outlet” at street level, with 75 sq.m of office space above, having a separate entrance at street level. Yearly rental income would be between EUR 9,125 and EUR 12,775 for the commercial outlet and between EUR 4,500 and EUR 6,000 for the office space, with gross forecast yearly income of EUR 18,775. The second scenario would comprise a “commercial class 4 outlet” at street level with a one or two-bedroom duplex residential property above it, with a roof terrace and a separate entrance at street level. Yearly rental income would be between EUR 9,125 and EUR 12,775 for the commercial outlet and EUR 7,200 to EUR 8,400 for the duplex residential apartment, giving a forecast total gross annual income of EUR 21,175.
(iv)  Report D, dated 2017, by yet another estate agency, considered that the property had potential if it was redeveloped – that could create ground floor commercial premises with a basement, with a total area of approximately 130 sq.m. Given the location, such commercial property, if rented in a finished state, would fetch approximately EUR 1,000 per month. A one-bedroom apartment on the first floor would rent furnished for EUR 500 per month and a one-bedroom apartment on the second floor would rent furnished for EUR 580 per month. The total yearly rental income would be approximately EUR 24,960, including Value Added Tax.
11.  The Government submitted that according to a valuation by their ex parte architect the sale value of the property in 2015 was EUR 153,000 and the rental market value in the same year was EUR 5,049 yearly. The Government submitted that the value of the property in 1987 had been quite low and that a boom in property prices had only come in 2003. Consequently, in the Government’s view, the annual sum of EUR 735 (EUR 35 yearly in rent together with the EUR 700 yearly awarded by the domestic court) paid from 1987 to 2008 was a considerable amount of rent compared to the rental market value in 1987. That amount of compensation had therefore been commensurate with the rental market value of the property and had therefore been sufficient compensation for the period 1988-2003. As for the period 2003-2015, the Government argued that a rental value of EUR 700 a year was adequate and thus compensation should not exceed EUR 8,400, given the property at issue, which consisted of two compact rooms in Rabat. They referred to Apap Bologna v. Malta (no. 46931/12, 30 August 2016), where the Court had awarded EUR 30,000 for a two‑storey house in Gzira.
(b)	2.  The Court’s assessment
12.  The Court has already held at paragraph 70 of its principal judgment that, in the circumstances of the present case, releasing the property would put the applicants as far as possible in a situation equivalent to the one in which they would have been if there had not been a breach of Article 1 of Protocol No. 1, but that it was nevertheless not empowered under the Convention to direct the Maltese State to annul or revoke the requisition order (see also, Edwards v. Malta, no. 17647/04, § 83, 24 October 2006).
13.  The Court notes that despite the allegations made at the time of the judgment on the merits (see paragraphs 27-29 of the principal judgment) neither party has informed the Court that the property has to date been derequisitioned. The Court must thus proceed to determine the compensation the applicants are entitled to in respect of the loss of control, use and enjoyment of their property, which they have suffered from 1988 to date.
14.  The Court observes that the applicants’ claims are not based on valuations prepared by a court-appointed expert. While the Government have not rebutted such valuations by any technical means, the Court considers that the valuations put forward provide little guidance as to the real rental values applicable to the property at issue, which was used solely for residential purposes throughout the relevant period. This is mainly due to the fact that the reports considered the commercial potential of the property as opposed to its real use. Moreover, some of the reports looked at the redevelopment of the property, the building of extra floors or other hypothetical considerations, to establish a current rental value for recent years (or the relative future projections). The Court further notes that while the reports submitted at this stage of the proceedings refer to a property which has a footprint of 60 sq.m (139 sq.m on two floors), the facts presented by the applicants (based on the ex parte expert valuation at the time) referred to a property of 82 sq.m (see paragraph 5 of the principal judgment). On the same lines, the applicants’ ex parte valuations submitted at the time of the principal judgment estimated the sale value in 2011, bearing in mind its commercial potential, at EUR 230,000 (see paragraph 16 of the principal judgment), while the recent submissions estimate the sale value in 2016 at EUR 374,670. No explanation has been given for this substantial increase in only five years.
15.  The Court further notes that the Government did not provide any expert valuations concerning rental values. The Government’s arguments and their valuations are based on subjective opinions which are not supported by any expert valuation which could have been submitted in rebuttal (see Apap Bologna, cited above, § 45). Furthermore, while the Government admitted that a boom in property prices had occurred only in 2003 and that until then EUR 735 annually was commensurate with the rent payable at the time, for the following period they considered that the smaller sum of EUR 700 annually would suffice in compensation. Be that as it may, the Court has already rejected the Government’s argument (paragraph 11 above) in its principal judgment when dealing with victim status (see paragraphs 38 and 44 of the principal judgment), thus no further comment is warranted in that regard.
16.  In the Court’s view, both parties’ submissions leave much to be desired. Thus, as has been its practice in such cases, in assessing the pecuniary damage sustained by the applicant, the Court has, as far as appropriate, considered the estimates it has been provided with and had regard to the information available to it on rental values on the Maltese property market during the relevant period. It has also considered the legitimate purpose of the restriction suffered, bearing in mind that legitimate objectives in the “public interest”, such as those pursued in measures of economic reform or measures designed to achieve greater social justice, may call for less than reimbursement of the full market value (see, inter alia, Edwards v. Malta (just satisfaction), no. 17647/04, § 21, 17 July 2008; Ghigo v. Malta (just satisfaction), no. 31122/05, § 18, 17 July 2008; and Amato Gauci v. Malta, no. 47045/06, § 77, 15 September 2009). In that connection, it must be noted that the Court found a violation in the principal judgment only in connection with the meagre amount of rent received by the applicants (see paragraph 56 of the principal judgment). There is, thus, no reason to call into question that the measure was intended to secure the social welfare of tenants (see, by contrast, Fleri Soler and Camilleri v. Malta (just satisfaction), no. 35349/05, § 18, 17 July 2008, and Zammit and Attard Cassar v. Malta, no. 1046/12, § 75, 30 July 2015).
17.  The Court reiterates that an award for pecuniary damage under Article 41 of the Convention is intended to put an applicant, as far as possible, in the position he would have been had the breach not occurred. It therefore considers that interest should be added to the award in order to compensate for loss of value of the award over time. As such, the interest rate should reflect national economic conditions, such as levels of inflation and rates of interest (see, as the most recent authority, Apap Bologna, cited above, § 100).
18.  Hence, and bearing in mind the award made by the Constitutional Court which remains payable to the applicants, the Court awards the applicants EUR 30,000, jointly, in respect of pecuniary damage.
19.  The Court reiterates that under Article 41 of the Convention the purpose of awarding sums by way of just satisfaction is to provide reparation solely for damage suffered by those concerned to the extent that such events constitute a consequence of the violation that cannot otherwise be remedied. It is therefore not for the Court to quantify the amount of rent due in the future. Consequently, the Court dismisses the applicants’ claim for future losses, without prejudice to any future claims they may have (see, mutatis mutandis, Amato Gauci, cited above, § 80).
Section 1.02	B.  Costs and expenses
20.  The applicants made no claims for costs and expenses incurred at this stage of the procedure.
21.  Accordingly, the Court awards no sum in this respect.
Section 1.03	C.  Default interest
22.  The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1.  Holds
(a)  that the respondent State is to pay the applicants, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, EUR 30,000 (thirty thousand euros), jointly, in respect of pecuniary damage;
(b)  that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amount at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;

2.  Dismisses the remainder of the applicants’ claim for just satisfaction.
Done in English, and notified in writing on 10 October 2017, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
	Marialena Tsirli	Ganna Yudkivska
	Registrar	President

APPENDIX

No.	First name LAST NAME	Date of birth 	Place of residence	
1.		Gerald MONTANARO GAUCI	20/11/1934	Sliema	
2.		Alfred MONTANARO GAUCI	28/08/1936	St. Julians	
3.		Neville MONTANARO GAUCI	18/11/1938	St. Julians	
4.		Winston MONTANARO GAUCI	19/09/1946	Gozo	
5.		Marie Jose SULTANA	22/07/1944	Sliema	
6.		Nicolette ZAMMIT LUPI	08/07/1942	Sliema