European Court of Human Rights

 

 

FIRST SECTION

CASE OF KATONA AND ZÁVARSKÝ v. SLOVAKIA

(Applications nos. 43932/19and 43995/19)

 

 

 

JUDGMENT
 

Art 1 P1 • Peaceful enjoyment of possessions • Deprivation of property • Impossibility of pursuing in legal proceedings claims against bankrupt debtor for payment of money owed on the basis of promissory notes due to legislative amendment on "debt discharge" • Absolute bar • Lack of compensation • Excessive individual burden on applicants • Fair balance between competing interests not struck

 

STRASBOURG

9 February 2023

 

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 Katona and Závarský v. Slovakia,

The European Court of Human Rights (First Section), sitting as a Chamber composed of:

  Marko Bošnjak , President ,
  Péter Paczolay,
  Krzysztof Wojtyczek,
  Alena Poláčková,
  Lətif Hüseynov,
  Gilberto Felici,
  Erik Wennerström , judges ,
and Liv Tigerstedt, Deputy Section Registrar,

Having regard to:

the applications (nos. 43932/19and 43995/19) against the Slovak Republic lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms ("the Convention") by a Hungarian national, Mr László Katona ("the first applicant), and a Slovak national, Mr Tomáš Závarský ("the second applicant") ("the applicants"), on 6 August 2019;

the decision to give notice to the Government of the Slovak Republic ("the Government") of the complaints under Articles 6 (access to a court) and 13   of the Convention and Article 1 of Protocol No. 1, and to declare inadmissible the remainder of the applications;

the decision of the Hungarian Government not to avail themselves of their right to intervene in the proceedings concerning application no. 43932/19(Article 36 §   1 of the Convention);

the parties' observations;

Having deliberated in private on 10 January 2023,

Delivers the following judgment, which was adopted on that date:

INTRODUCTION

1.     The applications concern the exclusion from satisfaction in insolvency proceedings or any other proceedings of the applicants' claims against an   individual for payment of money owed on the basis of a set of promissory notes. Apart from one, all the claims were adjudicated by final and binding judgments. The exclusion occurred by operation of law, combined with the fact that the debtor had been declared insolvent and granted a "debt discharge" in proceedings to which the applicants were not a party and by way of a decision against which there was no appeal.

THE FACTS

2.     The applicants were born in 1955 and 1979 and live in Budapest (Hungary) and Bratislava, respectively. They were represented by Mr   R.   Skovajsa, a lawyer practising in Bratislava.

3.     The Government were represented by their Agent, Ms M. Bálintová.

4.     The facts of the case may be summarised as follows.

1. BACKGROUND

5.     The applicants hold shares in a business entity. In 2005 the first applicant transferred a part of his shares to another individual ("the debtor") who agreed to pay the first applicant a certain amount of money in several instalments.

6.     In promise of payment, the debtor issued promissory notes in favour of the first applicant corresponding to the value of the respective instalments to be paid. The first applicant subsequently transferred one of those notes to the second applicant.

7.     It is uncontested that, within the said arrangement, (i) the first applicant had independent parallel claims against the debtor both under the share - transfer agreement and under the promissory notes, and (ii) he was free to claim payment from the debtor under either or both of these titles. He also submitted, and his submission was not directly disputed by the Government (see paragraph s 44 and 48 below), that (iii) he had not asserted his rights or taken any other action in relation to his claims under the share-transfer agreement, and (iv) they had accordingly become statute-barred.

8 .     In the absence of payment, the applicants sued the debtor over nine of the said promissory notes, the principal amount of which was in total 74,000   euros (EUR).

This resulted in four payment orders issued by the Bratislava V District Court on 24 March 2011, 17 January 2012 and 11 February and 6 May 2014, ordering the debtor to pay the applicants the amounts due. Following the dismissal of the defendant's appeals, these orders were certified as having become final, binding, and enforceable on 30 May 2016 (the order of 24   March 2011 for the benefit of the second applicant), 22 August 2016 (the   order of 17 January 2012 for the benefit of the first applicant), 6   November 2017 (the order of 11 February 2014 for the benefit of the first applicant) and 7 November 2017 (the order of 6 May 2014 for the benefit of the first applicant).

A further payment order was issued by the District Court on 5 September 2014 for further amounts to be paid to the first applicant, but it was challenged and the proceedings were ultimately terminated on 23 July 2019 without a   decision on the merits for the reasons explained in paragraph 15 below.

9 .     Between 2016 and 2018 the applicants applied for enforcement of the four final, binding and enforceable judgments and the enforcement was authorised. In respect of the claim adjudicated in favour of the second applicant (for the principal amount of EUR 20,000, plus associated sums), EUR   1,399 was seized from the debtor's monthly income. Out of that amount, EUR 1,092.93 was paid to the second applicant and the rest was retained by the enforcement officer for his costs. Other than that, the enforcement yielded no proceeds as no sizeable assets had been identified.

2. DEVELOPMENTS IN THE REGULATION OF INSOLVENCY

10.     Insolvency and the applicable procedures are governed by the Bankruptcy and Restructuring Code (Law no. 7/2005 Coll., as amended - "the BR Code").

11 .     The effects of a bankruptcy order entail, inter alia , that all legal proceedings concerning the assets belonging to the bankruptcy estate are stayed (Article 47 § 1 of the BR Code) and all enforcement proceedings are terminated (Article 48 of the BR Code).

12 .     If the bankrupt is an individual, the BR Code provides for the possibility of a "debt discharge" ( oddlženie ). In its wording before March 2017, a   debt discharge became possible once the bankruptcy proceedings had been terminated. It meant that, at that stage, a three-year probation period would be defined in which the bankrupt had to generate a certain amount of income and make it available for the discharge of any outstanding debts. Provided the bankrupt fulfilled the conditions, all outstanding debts would become incapable of being pursued in legal proceedings ( nevymáhateľné ) against the bankrupt.

13.     On 1 March 2017 an amendment (Law no. 377/2016 Coll.) to the BR   Code came into force. It made the "debt discharge" a part of the bankruptcy proceedings and provided, inter alia , that in the event of bankruptcy with a debt discharge any claims on the basis of promissory notes issued by the bankrupt prior to a defined date became incapable of being legally pursued.

3. BANKRUPTCY PROCEEDINGS

14 .     On 24 January 2019 the Bratislava I District Court issued a bankruptcy order in respect of the debtor, appointed a bankruptcy trustee to manage his estate and, upon the debtor's request, discharged him of his debts in the terms specified in the decision. The order was issued upon the debtor's request and was not subject to appeal.

15 .     By operation of the respective provisions of the BR Code (see paragraphs   11 above and 29 below), the bankruptcy order had as an automatic effect the termination of the enforcement proceedings the applicants had instituted against the debtor. Moreover, in application of those rules per   analogiam , the proceedings concerning the first applicant's pending claim were also terminated (see paragraph 8 above).

16 .     In a report of 10 August 2021, the bankruptcy trustee informed the District Court, inter alia , that, except for a claim for payment of EUR 662 to the State, the only creditors who had sought to have their claims registered in the bankruptcy proceedings concerning the debtor's estate were the applicants.

17 .     In a letter of 23 August 2021, the District Court confirmed to the bankruptcy trustee that the applicants' adjudicated claims based on the promissory notes were incapable of being pursued within the meaning of Article 166b § 1 (c) of the BR Code. Accordingly, they could not be registered or considered in the debtor's bankruptcy proceedings and no decision in their respect was called for.

RELEVANT LEGAL FRAMEWORK AND PRACTICE

1. THE CONSTITUTION

18.     Pursuant to Article 20 § 1 of the Constitution (Constitutional Law no.   460/1992 Coll., as amended), the ownership right of all persons has the same legal content and enjoys the same protection. Such protection does not, however, extend to ownership acquired in contravention of the law.

19.     Under paragraph 3 of Article 20, ownership implies responsibility and it must not be abused to the detriment of the rights of others or contrary to general interests protected by law. The exercise of the right of ownership must not interfere with human rights beyond a measure determined by law.

20.     Expropriation or restrictions on the right of ownership may be imposed only to the extent necessary and in the public interest, in accordance with the law and for adequate compensation (Article 20 § 4).

21.     In a constitutional judgment of 3 April 1996 in case no. PL. ÚS 38/95, the Constitutional Court held that expropriation or restrictions on the right of ownership could be imposed on the basis of an Act of Parliament, but not directly by an Act of Parliament.

2. CONSTITUTIONAL REVIEW OF LEGISLATION IN THE PROCEEDINGS ON AN INDIVIDUAL COMPLAINT

22 .     It has been the Constitutional Court's long-established practice that neither Article 127, which provides for the individual-complaint procedure, nor any other provision of the Constitution provides the basis for individuals to challenge legislation as being incompatible with the Constitution or with international instruments, including the Convention (see, for example, its decision of 7 November 2007 in case no. IV. ÚS 287/07).

3. THE BANKRUPTCY AND RESTRUCTURING CODE

23.     Under Article 166 § 1 of the BR Code, as amended by Law   no.   377/2016 Coll., an insolvent individual may apply for a debt discharge through bankruptcy proceedings (Articles 167 et seq.) or an instalment plan ( splátkový kalendár ) (Articles 168 et seq.).

24 .     Article 166b of the amended BR Code defines the type of claims that are "excluded from satisfaction". Paragraph 1 (c) states that this applies to claims based on promissory notes issued by the bankrupt prior to a reference date set out in Article 166a § 1 (a) of the amended BR Code.

25.     According to the explanatory report ( dôvodová správa ) on Law   no.   377/2016 Coll., the reason for the exclusion of claims based on promissory notes from satisfaction has to do with the fact that promissory notes are used as a security for the fulfilment of an underlying obligation. The debt under the promissory note is independent of the underlying debt and they habitually co-exist, while there are no obstacles to pursuing the underlying debt in the proceedings under the BR Code.

26.     A claim's incapability of being pursued in legal proceedings is to be taken into account by courts even if the bankrupt does not invoke it (Article   166e § 4 of the amended BR Code).

27.     Under Article 166f of the amended BR Code, if a creditor affected by a debt discharge can show that, through it, the bankrupt was not pursuing an honest aim ( poctivý zámer ), he or she is entitled to seek cancellation of the debt discharge by way of an action against the bankrupt or his or her heirs within six years of the bankruptcy order or the determination of the payment schedule.

28.     In the terms of Article 166g § 1 of the amended BR Code, an honest aim is recognised if the bankrupt's actions following the request for a debt discharge demonstrate a genuine effort to address his or her debts within his or her possibilities and abilities. Paragraph 2 of that Article gives examples of the absence of an honest aim, such as if the bankrupt has concealed some assets, has failed to include an individual in the list of his or her creditors, has based his or her request for a debt discharge on false or incomplete information, has failed to cooperate with the trustee, has deliberately brought about his or her insolvency, has pretended to be insolvent at the time of his or her request for a debt discharge, has incurred liabilities anticipating that he or she would discharge them by asking for a bankruptcy order or an instalment plan, has attempted to disadvantage some or favour other creditors, has negligently failed to respect the established instalment plan or to make certain specific payments, or has requested a debt discharge despite not having the centre of his or her main interests in Slovakia.

29 .     By virtue of Article 167f § 1 of the amended BR Code, enforcement proceedings must not be commenced or continued in relation to assets belonging to the bankruptcy estate.

THE LAW

1.         JOINDER OF THE APPLICATIONS

30.     Having regard to the similar subject matter of the applications, the Court finds it appropriate to examine them jointly in a single judgment.

2. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1

31.     Relying on Article 1 of Protocol No. 1 to the Convention and Article   13 of the Convention, the applicants complained that they had been unable to pursue their claims against the debtor in legal proceedings and that they had not had any legal protection in that connection.

32.     Being the master of the characterisation to be given in law to the facts of a case (see, for example, Radomilja and Others v. Croatia [GC], nos.   37685/10and 22768/12, § 126, 20 March 2018), the Court considers that, on the facts, the complaints are to be examined under Article 1 of Protocol No. 1, which reads as follows:

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

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

1. Admissibility

33.     The Government argued non-exhaustion of domestic remedies in that the applicants could and should have asserted their rights by way of an action for the cancellation of the debtor's debt discharge under Article 166f of the BR Code and, depending on its outcome, a complaint to the Constitutional Court. The action in question enabled the cancellation of a debt discharge in the event it was tainted by a dishonest aim on the part of the bankrupt. The available statistics showed that, in practice, this was the case most frequently in situations where the presumed bankrupt was not in fact insolvent, his or her insolvency being an essential prerequisite for the debt discharge. While it was true that the applicants had no standing to challenge legislation before the Constitutional Court in abstracto , had they made use of the action under Article 166f of the BR Code and had they not been satisfied with its outcome, it would have been open to them to challenge it before the Constitutional Court.

34.     The applicants responded that they were not aware of and the Government had failed to indicate any grounds on which the debtor's debt discharge could be contested under Article 166f of the BR Code. Moreover, they had been completely excluded from the proceedings concerning the debt discharge. They had accordingly had no access to the case file and therefore to any information necessary to be able effectively to pursue the legal avenue suggested by the Government. Furthermore, they considered the statistical information relied on by the Government inconclusive and argued that, in any event, challenging the debt discharge by way of a separate action would have generated further procedural costs (on top of those of the underlying litigation and enforcement proceedings), which in reality represented a barrier to the assertion of their rights in the way proposed by the Government. Lastly, as the alleged violation of their rights had originated from the direct application of the amended BR Code, and as they as individuals had no standing to contest legal provisions before the Constitutional Court, a constitutional complaint was not capable of providing them with any redress.

35.     The Court notes that the alleged violation of the applicants' property rights came about as the direct effect of the ruling on the debtor's debt discharge in the bankruptcy order of 24 January 2019 against him. This effect originated automatically from the application of Article 166b (c) of the BR   Code, as amended by Law no. 377/2016 Coll.

36 .     As there has been no complaint about the interpretation or application of that provision by the trustee, the bankruptcy court or anyone else, it is clear that what is in issue is the legal provision itself. It is uncontested that there is no way for the applicants to assert their property rights in relation to it by challenging the underlying bankruptcy order before the Constitutional Court (see also paragraph 22 above).

37.     In so far as the Government relied on an action for the cancellation of the debt discharge under Article 166f of the BR Code, the Court notes that the availability of this remedy depends on it being shown that the bankrupt was pursuing a dishonest aim through the debt discharge. As indicated in Article 166g § 1 of the BR Code by way of both positive and negative delineation, the content of this criterion focuses on the attitude and behaviour of the bankrupt. This is in fact consonant with the statistical information submitted by the Government to the effect that in most instances the bankrupt's dishonest intention is demonstrated if the bankrupt pursues a debt discharge without actually being insolvent.

38.     In that regard, however, the Court notes that the essence of the applicants' grievance has nothing to do with the intentions of the debtor as such, but rather with the debt-discharge arrangement allegedly being disproportionate and providing no protection to their rights and interests. It has not been suggested by the Government or established otherwise that an action under Article 166f of the BR Code allows for the consideration of these elements.

39 .     In these circumstances, the Court finds that it has not been shown that the type of action indicated was available in theory and in practice at the relevant time, that is to say that it was accessible, that it was capable of providing redress in respect of the applicants' complaints and that it offered reasonable prospects of success (see Akdivar and Others v. Turkey , 16   September 1996, § 68, Reports of Judgments and Decisions 1996-IV). This conclusion is not altered by the possibility for the applicants to challenge the outcome of an action under Article 166f of the BR Code before the Constitutional Court. This is so in particular since, as already noted, the complaint is essentially about the legal provision itself and not about its interpretation or application (see Jenisová v. Slovakia , no. 58764/00, §§  
58 - 60, 3 November 2009; see also Babylonová v. Slovakia , no. 69146/01, § 44, ECHR 2006-VIII; L.G.R. and A.P.R. v. Slovakia (dec.), no. 1349/12, §   55, 13 May 2014, with further references; and contrast Orange Slovensko, a. s. v. Slovakia (dec.), no. 43983/02, 24 October 2006).

40.     The Government's objection is accordingly dismissed.

41.     The Court notes that this part of the applications is neither manifestly ill-founded nor inadmissible on any other grounds listed in Article 35 of the Convention. It must therefore be declared admissible.

2. Merits
   1. The parties' submissions

(a)    The applicants

42.     The applicants complained that the effects of the debtor's debt discharge, stemming from the BR Code as amended with the effect from 1   March 2017, had made it impossible for them to pursue their claims against the debtor in legal proceedings and that they had been deprived of any legal protection in that connection. They emphasised that the promissory notes providing the basis for their claims had been issued before the entry into force of the said amendment and that, while they were in the process of pursuing those claims in judicial and enforcement proceedings, they could not have anticipated that the amendment would significantly change the framework for doing so.

43.     The debtor's bankruptcy proceedings amounted in fact to collective enforcement proceedings against him and the applicants had been completely excluded from the possibility of making any use of them, which had discriminated against them in relation to other creditors. If the purpose of the exclusion from satisfaction in the event of a debt discharge of claims based on promissory notes was to prevent double collection on the same amount under the promissory note as well as under the original contractual instrument underlying the promissory note, this objective could have been served by other means that were more proportionate to that aim.

44 .     In any event, in response to the Government's argument (see paragraph 48 below), the applicants submitted that the first applicant had made no dispositions in respect of his claims against the debtor under the share-transfer agreement, that these claims had meanwhile been statute - barred, and that the second applicant had not had any such claims. There was accordingly no risk of double collection of the same amount in their individual case. Moreover, there was no need to provide the debtor with any special protection otherwise warranted for consumers since the relationship between the applicants and the debtor was of a purely business - law nature.

45.     The applicants had been completely excluded from any possibility of pursuing their claims against the debtor in the bankruptcy proceedings or through any other legal means, without any compensation at all. The essence of their property rights had accordingly been impaired and, what was more, the arrangement interfered with the constitutionally guaranteed equality of owners and ignored the need for a fair balance to be struck between the competing interests in view of the principle of proportionality.

(b)    The Government

46.     The Government argued that the reason the applicants' claims had not been satisfied was the debtor's insolvency. The fact that one of the first applicant's claims had in fact not been upheld by courts with final effect made no actual difference and called for no answer other than that which follows.

47.     A private debtor's insolvency was an ordinary part of the risk to be assumed by any private creditor and it involved no direct liability on the part of the State. The latter's Convention responsibility had therefore been limited to the positive obligation to provide a framework and the availability of measures for the enforcement of the applicants' claims.

48 .     The applicants' promissory notes had served to secure the original claims under the share-transfer agreement and there had been no legal restrictions on the possibility of having the original claims pursued in the debtor's bankruptcy proceedings or through any other means prior to those proceedings. As it was unclear what had happened to the original claims based on the share-transfer agreement, any consideration of their being statute-barred was speculative.

49.     Claims based on promissory notes were among other claims that were excluded under Article 166b of the amended BR Code from satisfaction in the event of a debt discharge, with the overriding aim - linked to the insolvency context - of favouring the satisfaction of the principal amount of the original claims to accessory or parallel claims. As to claims based on promissory notes specifically, their exclusion followed a set of measures taken for the protection of consumers from abuse by means of promissory notes. Such abuse had become a common occurrence in view of the parallel existence of the original debt, the payment of which was secured by way of a   promissory note, and the independently existing debt under the promissory note.

50.     The purpose of the debt discharge was to address the problem of the insolvency of individuals, which was in general an important economic and social phenomenon. It was clear that it inherently involved a clash of the interests of the creditors, those of the bankrupt, and by extension also those of society. The debt-discharge arrangement sought to reconcile those interests by allowing reintegration of the insolvent individuals into economic life, and ensuring fairness in the satisfaction of creditors based on the principle of pari   passu .

51.     Furthermore, the Government pointed out that, prior to the debtor's debt discharge, the applicants had been able to pursue their claims based on their promissory notes before the ordinary courts and in the ensuing enforcement proceedings and that no complaints had been made in that connection. In combination with the availability of the action for the cancellation of the debt discharge under Article 166f of the BR Code, the respondent State had fulfilled any and all of its positive obligations at play in this case.

2. The Court's assessment

52.     The Court notes at the outset that what lies at the heart of the present case are the applicants' claims for the payment of money and that it has not been disputed by the Government that these claims amounted to possessions within the meaning of Article 1 of Protocol No. 1. In fact, all but one of these claims were granted by final and binding judicial decisions, the enforcement of which was authorised. The claims were accordingly sufficiently established to be enforceable, thereby amounting to possessions for the purposes of Article 1 of Protocol No. 1 (see Stran Greek Refineries and Stratis Andreadis v. Greece , 9 December 1994, § 59, Series A no. 301-B). The proceedings concerning the first applicant's remaining claim were terminated without any decision on the merits (see paragraphs 8 and 15 above). However, it is undisputed that such claim existed and was well founded. The Court accordingly accepts that, in the particular circumstances, the first applicant's remaining claim gave rise to a legitimate expectation that it would be treated in the same way as the other claims at stake (see, mutatis   mutandis , Pressos Compania Naviera S.A. and Others v. Belgium , 20   November 1995, § 31, Series A no. 332). It therefore likewise amounted to a possession for the purposes of Article 1 of Protocol No. 1.

53.     It must next be determined whether there has been an interference with the applicants' right to the peaceful enjoyment of their possessions and, if so, in which of the forms envisaged by Article 1 of Protocol No. 1. In that regard, the Government argued that the applicants' claims were against a private debtor, that the reason they had not been satisfied was that debtor's insolvency, that the State had no direct Convention responsibility for those claims not having been satisfied, and that the applicants' complaints were to   be examined as a matter of the State's positive obligations under the provision relied on.

54.     In agreement with the Government, the Court notes that the applicants' claims were of a private-law nature and against a private-law debtor. The essence of their complaints before the Court, however, has less to do with these claims not being honoured by the debtor than with there being absolutely no legal possibility of them being enforced, which is due to a   particular legislative amendment adopted while the applicants were in the process of asserting their claims. In fact, as the experience of the second applicant indicates, the debtor's insolvency did not represent an absolute bar to at least part of his claim being successfully enforced against the debtor (see paragraph 9 above). However, the effects of the debtor's debt discharge under the amendment to the BR Code in force since 1 March 2017 undoubtedly constituted an absolute bar to pursuing the applicants' claims against the debtor in his bankruptcy or any other type of proceedings. What lies at the heart of this case is thus an action by the State, rather than an action or omission by a private party, which distinguishes it from those examined by the Court in the past with reference to the respondent parties' positive obligations under the Convention (see, for example, Kotov v. Russia [GC], no.   54522/00, 3 April 2012).

55.     In these circumstances, the effects of the debt discharge amounted to an interference with the applicants' possessions. As to its form, the Court notes that, de jure , the applicants' claims were not extinguished and still exist (contrast Pressos Compania Naviera S.A. and Others , cited above, § 34). However, by operation of Article 166b of the amended BR Code, they became incapable of being legally pursued and were excluded from satisfaction (see paragraphs 12 and 24 above). The substantive effect of this measure is that it became absolutely and permanently impossible to pursue these claims in judicial, enforcement, bankruptcy or any other type of official proceedings.

56.     In these circumstances, and in view of the Convention's aim to   guarantee rights that are "practical and effective", the Court is satisfied that the debt discharge entailed sufficiently serious consequences for it to be held that the applicants have been the victims of a de facto deprivation of their possessions (see Sporrong and Lönnroth v. Sweden , 23 September 1982, §   63, Series A no. 52).

57.     The Court must accordingly consider whether that interference was "in the public interest" and whether it satisfied the requirements of proportionality.

58.     In order to justify the interference, the Government referred to the purpose of a debt discharge, which was to resolve the problem of the insolvency of individuals by enabling them to reintegrate into economic life. The favouring of the satisfaction of the principal amount of their original debt to accessory or parallel debts served this purpose, and the exclusion from satisfaction of claims based on promissory notes also served to protect consumers from abuse owing to double collection of the original debt in addition to the debt under the promissory note.

59 .     The Court has no hesitation in accepting that the complex socioeconomic phenomenon of the insolvency of individuals calls for a   response on the part of the State, which may in the public interest take the form of special arrangements in insolvency proceedings. Respecting the national authorities' margin of appreciation (see, for example, Pressos Compania Naviera S.A. and Others , cited above, § 37, with a further reference, and Béláné Nagy v. Hungary [GC], no. 53080/13, §   113, 13   December 2016), it likewise finds no reason to question the general approach of favouring in the given context the satisfaction of the principal amount of the original debt to accessory or parallel debts. However, except for one, in the present case the applicants' claims had been confirmed in final and binding judgments which were certified as enforceable. Moreover, since the contractual relationship between the applicants and the debtor was of a   purely business-law nature, the Court considers that no justification for the interference with their property rights may be found in the need to protect consumers.

60.     As to the proportionality of the measure, Article 1 of Protocol No. 1 requires of any interference that there be a reasonable relationship of proportionality between the means employed and the aim pursued. This fair balance will be upset if the person concerned has to bear an excessive individual burden. In addition, the importance of the procedural obligations under Article 1 of Protocol No. 1 must not be overlooked. Although that provision contains no explicit procedural requirements, judicial proceedings concerning the right to the peaceful enjoyment of one's possessions must also afford the individual a reasonable opportunity of putting his or her case to the competent authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision. An interference with the rights provided for by Article 1 of Protocol No. 1 cannot therefore have any legitimacy in the absence of adversarial proceedings that comply with the principle of equality of arms, allowing discussion of aspects that are important for the outcome of the case (see, for example, G.I.E.M. S.R.L. and Others v. Italy [GC], nos. 1828/06and 2 others, §§ 300 and 302, 28 June 2018, with further references).

61.     On the facts, the debtor's debt discharge was the result of proceedings which had been initiated by him and to which the applicants were not a party, and the decision was not subject to appeal (see paragraph 14 above).

62.     Moreover, the effects of the debt discharge on the applicants' claims stemmed directly from the legal provisions, necessitated no decision (see paragraph 17 above) and, as already established (see paragraphs 36 and 39 above), the applicants had no way of effectively challenging it (see, for example, Hentrich v. France , 22 September 1994, § 49, Series A no. 296-A; G.I.E.M. S.R.L. and Others , cited above, § 303; and Uzan and Others v.   Turkey , nos. 19620/05and 3 others, § 215, 5 March 2019). Consequently, the relevant legal provisions did not allow for any exceptions or balancing factors to be taken into account (see Megadat.com SRL v. Moldova , no.   21151/04, § 74, ECHR 2008) such as, for example, that in the applicants' individual case there was actually no risk of double collection on the original debt and that, other than the applicants themselves, there were no private creditors whose interests might potentially call for protection (see paragraph   16 above). Indeed, the applicants had no access to any proceedings where they could have effectively argued their case. The need for such proceedings is to be seen in correlation with the fact that, as already noted (see paragraph   59 above), the applicants' situation was beyond the object and purpose of the legislation in issue.

63.     In view of the foregoing considerations, and noting that their deprivation of possessions was accompanied by a total lack of compensation (see The Holy Monasteries v. Greece , 9 December 1994, § 71, Series A no.   301 A), the Court concludes that the effects of the legal provisions of the debtor's debt discharge on the applicants placed an excessive individual burden on them. The fair balance which should have been struck between the protection of the applicants' right to the peaceful enjoyment of their possessions and the requirements of the general interest was therefore upset.

64.     There has accordingly been a violation of Article 1 of Protocol No. 1.

3. ALLEGED VIOLATION OF ARTICLE 6 OF THE CONVENTION

65.     The applicants also complained that their inability to pursue their claims against the debtor had been contrary to their right of access to a court as provided in Article 6 § 1 of the Convention.

66.     The Government argued non-exhaustion of domestic remedies, in the same way as in relation to the complaint under Article 1 of Protocol No. 1. In addition, they pointed out that prior to the bankruptcy order against the debtor the applicants had been able to pursue their claims against him both in court proceedings and in enforcement proceedings. Accordingly, in their view, the applicants had had access to a court and the complaint was manifestly ill - founded.

67.     Having regard to the facts of the case, the submissions of the parties, and its findings above, the Court considers that the objection as to the exhaustion of domestic remedies must be dismissed and that, on the substance, it has already examined the main legal questions raised in the present application. It thus considers that the applicants' remaining complaint is admissible but that there is no need to give a separate ruling on it (see Centre for Legal Resources on behalf of Valentin Câmpeanu v.   Romania   [GC], no. 47848/08, § 156, ECHR 2014).

4. APPLICATION OF ARTICLE   41 OF THE CONVENTION

68.     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."

1. Damage

69.     By way of compensation in respect of pecuniary damage, the applicants claimed 12,464.36 euros (EUR) and EUR 6,802.34, respectively, which corresponds to the full amounts of the costs of the proceedings they incurred at the domestic level in pursuing their claims against the debtor. Under the same heading, they also claimed EUR 57,058 and EUR 18,228.39, respectively, which corresponds to 70% of the nominal value of their promissory notes, plus interest.

70.     The applicants further claimed EUR 30,000 and EUR 20,000, respectively, in respect of non - pecuniary damage.

71.     Reiterating that the main reason the applicants' claims against the debtor had not been satisfied was the latter's insolvency, the Government contended that there was no causal connection between the violations and the pecuniary damage alleged. In addition, they considered the claims in respect of non-pecuniary damage excessive.

72.     The Court notes that the applicants' claims in respect of the alleged pecuniary damage are based on their claims against the debtor, that the latter is a private party, and that it is uncontested that he has been declared insolvent. The Court finds that, in these circumstances, it cannot speculate as to the actual financial loss sustained by the applicants due to their inability to pursue their claims against the debtor. It nevertheless does not find it unreasonable to regard the applicants as having suffered a loss of real opportunities (see, mutatis mutandis , Lawyer Partners a.s. v. Slovakia , nos.   54252/07and 14 others, § 60, ECHR 2009).

73.     Ruling on an equitable basis, the Court awards the first applicant EUR   11,000 and the second applicant EUR 9,000, plus any tax that may be chargeable, for both pecuniary and non-pecuniary damage taken together.

2. Costs and expenses

74.     The applicants also claimed EUR 3,600 each in respect of the legal fees incurred before the Court. According to the bills submitted in support of these claims, the amounts corresponded to thirty hours of legal work for each of them.

75.     The Government pointed out that although the applicants' situation and Convention complaints were substantially the same, they had claimed compensation individually in the same amount, which the Government considered to be an unjustified duplication of claims.

76.     According to the Court's case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these were actually and necessarily incurred and are reasonable as to quantum (see Iatridis v. Greece (just satisfaction) [GC], no. 31107/96, § 32, ECHR   2000-XI).

77.     In the present case, the applicants have at all stages before the Court been represented by the same lawyer and their complaints and arguments were substantially the same, differing only in factual details. Regard being had to the documents in its possession and the above criteria, the Court considers it reasonable to award the applicants jointly the sum of EUR 5,000 for the proceedings before the Court, plus any tax that may be chargeable to them.

FOR THESE REASONS, THE COURT

1. Decides , unanimously, to join the applications;
2. Declares , unanimously, the applications admissible;
3. Holds , by five votes to two, that there has been a violation of Article 1 of Protocol No. 1;
4. Holds , unanimously, that there is no need to examine separately the merits of the complaint under Article 6 § 1 of the Convention;
5. Holds , by five votes to two,

(a)   that the respondent State is to pay, within three months from the date on which the judgment becomes final in accordance with Article  
44   §   2 of the Convention, the following amounts:

(i)   to the first applicant EUR 11,000 (eleven thousand euros), plus any tax that may be chargeable, in respect of pecuniary and non-pecuniary damage;

(ii)   to the second applicant EUR 9,000 (nine thousand euros), plus any tax that may be chargeable, in respect of pecuniary and non - pecuniary damage;

(iii)   to the applicants jointly EUR 5,000 (five thousand euros), plus any tax that may be chargeable to them, in respect of costs and expenses;

(b)   that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a   rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;

6. Dismisses , unanimously, the remainder of the applicants' claim for just satisfaction.

Done in English, and notified in writing on 9 February 2023, pursuant to Rule  
77   §§   2 and 3 of the Rules of Court.

 

  Liv Tigerstedt   Marko Bošnjak
  Deputy Registrar   President

 

 

In accordance with Article 45 § 2 of the Convention and Rule 74 § 2 of the Rules of Court, the following joint dissenting opinion of Judges Paczolay and Wojtyczek is annexed to this judgment:

 

M.B.
L.T.
 

 

JOINT DISSENTING OPINION OF JUDGES
PACZOLAY and WOJTYCZEK

1.     Although we fully share the majority's general endeavour to ensure efficient protection of property rights, we respectfully disagree with their view that Article 1 of Protocol No. 1 has been violated in the instant case.

2.     The instant case is connected with a horizontal legal relationship between the applicants and another natural person, referred to as "the debtor" in the judgment. In this context, the case raises issues of procedural fairness. The interference with the applicants' rights consists in the protection of the debtor: the measure complained of protected the latter. In the majority's view, the protection provided to the debtor was excessive under the Convention. In other words, the applicants' rights have been infringed because their debtor's rights have been over-protected. Although the Court's judgment is not directly enforceable in the domestic legal order, this finding may still have a certain factual impact upon the debtor's situation in the domestic legal system. However, the determination that the protection of the debtor's right was incompatible with the Convention, as being excessive, has been made without ever hearing the person concerned. Before issuing such strong judicial statements, it would have been preferable to hear this person in the proceedings before the Court. As a result of the approach adopted, the legitimate interests of the debtor have not been duly identified and weighed up in the process of balancing the conflicting values under Article 1 of Protocol No. 1.

3.     In our view, the degree of precision of the factual findings made by the majority in the instant case is insufficient for the purpose of adjudication. The majority established that "the applicants sued the debtor over nine of the said promissory notes, the principal amount of which was in total 74,000 euros (EUR)" (see paragraph 8). At the same time several other relevant factual elements have not been established: (i) the precise amounts awarded in the four payments orders issued by the Bratislava V District Court on 24 March 2011, 17 January 2012 and 11 February and 6 May 2014 (see paragraph 8); (ii) the amount awarded in the payment order dated of 5 September 2014 (ibid.); (iii) the real market value of each and every of these claims before Law no 377/2016 came into force (see paragraph 13).

We note in this context, that - given the debtor's inability to repay his debt - the real market value of the applicants' claims was much lower than the nominal total value of 74,000 euros referred to in paragraph 8.

4.     The evaluation of the proportionality interference with possessions protected under Article 1 of Protocol No. 1 necessarily encompasses a calculation of the economic burden. We note in this context, that the judgment states the following in paragraph 72:

"The Court notes that the applicants' claims in respect of the alleged pecuniary damage are based on their claims against the debtor, that the latter is a private party, and that it is uncontested that he has been declared insolvent. The Court finds that, in these circumstances, it cannot speculate as to the actual financial loss sustained by the applicants due to their inability to pursue their claims against the debtor. It nevertheless does not find it unreasonable to regard the applicants as having suffered a loss of real opportunities ..."

We further observe that the actual financial loss remains unknown and that the exact value of the loss of real opportunities has not been calculated. At the same time, the majority conclude in paragraph 63 "that the effects of the legal provisions of the debtor's debt discharge on the applicants placed an excessive individual burden on them".

We see a contradiction between these two findings. It is not clear how much exactly the applicants lost, but for the majority they lost too much nonetheless. In our view, in order to rationally assess whether the burden placed upon a holder of property rights was excessive, it is necessary to establish the real market value of these rights. In the instant case, it is therefore impossible to assess the burden placed upon the applicants without first establishing the real market value of their claims. If the actual financial loss remains unknown, how is it possible to conclude that the interference causing this loss was excessive?

5.     We note that Article 1 of Protocol No. 1, as interpreted by the Court, does not exclude that certain types of claims may be extinguished, under some circumstances, by general rules, provided that the principle of proportionality is observed (see, for instance, Pressos Compania Naviera S.A. and Others v.   Belgium , 20 November 1995, §§ 38-44, Series A no. 332).

Legislation regulating insolvency proceedings in European States often introduces a hierarchy and prioritisation of claims raised by creditors. Liabilities may be divided into several categories with varying levels of priority and protection. Moreover, international law may impose such a prioritisation (see, for instance, Acar and Others v. Turkey (dec.), 26878/07, 12   December 2017, and Doğan v. Turkey (dec.), 32446/07, 12 December 2017). In our view, the hierarchy of claims in situations of insolvency may go as far as the total extinction ex lege of certain types of liabilities of the lowest category, if this is justified by the protection of the insolvent debtor. Such a measure does not appear to exceed the margin of appreciation left to the States in the field of insolvency law.

6.     The majority appear to attach considerable weight to the fact that the liabilities at stake have been recognised by final judgments (see in particular paragraphs 52 and 59). In our view, this circumstance does not plead per se for giving the liabilities in question a higher priority and protection in insolvency proceedings. This hierarchy should depend upon the nature of the liabilities not the legal form of their recognition.

Furthermore, the majority underline in paragraph 62 that "the relevant legal provisions did not allow for any exceptions or balancing factors to be taken into account". We do not understand this argument. Rules allowing for exceptions and therefore the de facto transfer of part of the rule-making powers (or standard-setting powers) from the legislator to law-enforcing bodies are not necessarily a better solution than general rules which do not allow for exceptions at all (compare Animal Defenders International v.   the   United Kingdom [GC], no. 48876/08, § 108, ECHR 2013 (extracts)). The result of such a comparison depends on many factors, such as the area under regulation, the best trade-off between legal certainty and flexibility in the area in question, and so forth. The solution favoured by the majority may have detrimental consequences.

7.     In conclusion, we do not see sufficient arguments which would enable us to conclude that, in the circumstances of the case, the interference complained of (i.e. the protection provided to the debtor) was excessive, and that the domestic authorities overstepped the wide margin of appreciation left to the States in the domains of property rights in general and insolvency law in particular.