CASE OF WERRA NATURSTEIN GMBH & CO KG v. GERMANY
(Application no. 32377/12)
19 April 2018
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 Werra Naturstein GmbH & Co KG v. Germany,
The European Court of Human Rights (Fifth Section), sitting as a Chamber composed of:
Erik Møse, President,
Lәtif Hüseynov, judges,
and Milan Blaško, Deputy Section Registrar,
PROCEDURE1. The case originated in an application (no. 32377/12) against the Federal Republic of Germany lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms ("the Convention") by a German company, Werra Naturstein GmbH & Co KG ("the applicant company").2. In a judgment delivered on 19 January 2017 ("the principal judgment"), the Court held that the lack of compensation for the effective loss of the applicant company's mining licence and for the interference with its remaining quarrying operation had violated the applicant company's right guaranteed by Article 1 of Protocol No. 1 (see Werra Naturstein GmbH & Co KG v. Germany, no. 32377/12, 19 January 2017).3. Since the question of the application of Article 41 of the Convention was not ready for decision, the Court reserved it and invited the Government and the applicant company to submit, within three months, their written observations on that issue and, in particular, to notify the Court of any agreement they might reach (point 3 of the operative provisions).4. The applicant company and the Government each filed observations.
THE LAW5. The applicant company claimed EUR 8,571,715.24 in respect of pecuniary damage. EUR 3,916,482.67 of this amount was based on an expert opinion estimating the forgone profits, including the value of the remaining limestone, and the costs for relocating the mining operation. The applicant further argued that this amount should be adjusted to current value (EUR 4,909,803.94), to offset the effects of inflation, and interest should be paid from 30 November 2001, the day the mining operations were discontinued (EUR 3,661,911.30). In addition the applicant company claimed EUR 542,847.29 for the costs and expenses incurred before the domestic courts and EUR 16,785.00 for those incurred before the Court.6. The Government contested these claims made by the applicant company and considered them extremely excessive. They argued that the expert had not only estimated the value that had to be compensated in the present proceedings, but also included losses and costs for the landfill business, compensation for the expropriated land and costs for setting up a new operation at a nearby site. In particular, these relocation costs could not be equated with the value of the existing machinery, roads and buildings as the new infrastructure would allow the applicant company to extract limestone at the new site for a longer period and in larger amounts. Since the applicant company had calculated interest, inflation adjustment and legal expenses on the excessive pecuniary damage claim, these amounts had to be reduced as well. Additionally, the Government submitted that part of the legal costs and expenses claimed concerned the expropriation proceedings, which had not been in dispute before the Court.7. On 19 July 2017, after failing to reach a friendly settlement agreement with the applicant company, the Government submitted a unilateral declaration with a view to resolving the issue of just satisfaction. The declaration, in so far as relevant, reads:
"2. The Federal Government would therefore like to acknowledge - by way of a unilateral declaration - that, in light of the particular circumstances of the case, Article 1 of Protocol No. 1 of the Convention has been violated.
3. The Federal Government is prepared to pay compensation in the amount of €1,000,000 to the Applicant if the Court, on condition of payment of that amount, strikes the Application out of the list pursuant to Article 37 (1) c) of the Convention. This would be deemed to settle all of the Applicant's claims in connection with the above-mentioned Application against the Federal Republic of Germany and the Land of Thuringia, including, in particular, compensation for the Applicant's damage (including non-pecuniary damage) as well as costs and expenses.
4. The amount is payable within three months of notification of the Court's decision to strike the case out of its list."8. By letter of 22 August 2017 the applicant company submitted that the amount offered by the Government did not constitute equitable compensation for the damage, costs and expenses incurred by the applicant. It reiterated its claim for just satisfaction.9. On 18 January 2018 the Government provided further information concerning the question of taxability of the proposed compensation, at the request of the Court. They submitted that the tax treatment of the compensation payment was a matter for the competent tax authorities of the Länder and that the Government could only provide a legal - but not binding - assessment. According to it, the compensation payment would not be directly liable to tax. It could, however, potentially and indirectly affect factors that determine other types of taxes (i.e. taxes on earnings) and thereby impact the tax liability of the applicant company itself and that of third parties. As regards the applicant company, the compensation payment could increase the company's commercial earnings and consequently result indirectly in an increase in its trade tax burden. In terms of indirect tax effects on other persons, the compensation payment could have an effect on the profit to be distributed amongst the individual partners of the applicant company, and therefore the amount of income tax or corporation tax owed by the partners. The Government argued that these potential indirect tax effects were, however, justified, as it would be appropriate, in the present case, that any profit resulting from the compensation payment would also be treated as profit from a tax perspective. It pointed out that the proposed amount was to compensate forgone profits. Consequently, had it not been for the violation of the Convention, the applicant company's profits would have been higher in the past, which would have had the corresponding tax effects in the past.10. The Court reiterates that Article 37 of the Convention provides that it may at any stage of the proceedings decide to strike an application out of its list of cases where the circumstances lead to one of the conclusions specified under (a), (b) or (c) of paragraph 1 of that Article. Article 37 § 1 (c) enables the Court in particular to strike a case out of its list if:
"for any other reason established by the Court, it is no longer justified to continue the examination of the application."11. It also points out that in certain circumstances, it may strike out an application under Article 37 § 1 (c) on the basis of a unilateral declaration by a respondent Government, even if the applicant wishes the examination of the case to be continued. Moreover, there is nothing to prevent a respondent State from filing a unilateral declaration relating to the reserved Article 41 procedure (see Megadat.com SRL v. Moldova (just satisfaction - striking out), no. 21151/04, § 10, ECHR 2011). To this end, the Court will examine the declaration carefully in the light of the general principles applicable in respect of Article 41 of the Convention (see, for example, Guiso-Gallisay v. Italy (just satisfaction) [GC], no. 58858/00, § 90, 22 December 2009).12. As regards the claims made by the applicant company and the documents submitted in support, the Court notes that the expert, while estimating the value of the remaining limestone, had not estimated the value of the existing infrastructure of the mining operation but the costs for transferring or re-erecting a comparable infrastructure at the new mining site. The Court would also point out that, in its principal judgment, it held that the applicant company did not have legitimate expectations as regards possible future profits from the landfill business and that these therefore did not fall within the ambit of Article 1 of Protocol No. 1 (see Werra Naturstein GmbH & Co KG, cited above, § 39). The Court observes that the future profits of the landfill business are nonetheless included in the amount estimated by the expert. Furthermore, the applicant company claimed compensation for the expropriated land, even though the land had been compensated in the national proceedings and the expropriation of the land was not at issue before the Court (see Werra Naturstein GmbH & Co KG, cited above, §§ 13, 25, 40). Lastly, the Court notes that the applicant company calculated the claims for interest, inflation adjustment and legal expenses on the basis of its claim for pecuniary damage and that those claims would have to be adjusted to reflect the considerably lower compensation award.13. In sum, the Court considers the applicant company's claim for pecuniary damage and costs and expenses excessive and that the amount of compensation proposed by the Government appears - in view of the matters that had to be compensated - to be equitable in the present case. In that regard the Court also notes that according to the information provided by the Government the compensation payment will not be directly liable to tax. In so far as the payment of the compensation amount might affect factors that determine the calculation of other taxes and thereby indirectly impact the tax liability of the applicant company, the Court does not consider this problematic. It is not the purpose of an Article 41 award to exempt applicants from taxes which they would have owed to the State under ordinary tax law in the event that the violation in question would not have occurred.14. Having regard to the above, the Court finds that it is no longer justified to continue the examination of the case (Article 37 § 1 (c)). It is also satisfied that respect for human rights as defined in the Convention and its Protocols does not require the Court to continue the examination of the application under Article 37 § 1 in fine. Accordingly, the application should be struck out of the list.
FOR THESE REASONS, THE COURT, UNANIMOUSLY,
1. Takes note of the terms of the respondent Government's declaration and of the modalities for ensuring compliance with the undertakings referred to therein, and directs in consequence:
(a) that the respondent State is to pay the applicant company EUR 1,000,000 (one million euros), within three months from the date on which the judgment becomes final, in accordance with Article 44 § 2 of the Convention, in respect of pecuniary and non-pecuniary damage as well as costs and expenses;
(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. Decides to strike the application, as regards the reserved Article 41 procedure, out of its list of cases.
Done in English, and notified in writing on 19 April 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Milan BlaškoErik Møse