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FIFTH
SECTION
CASE OF
REGENT COMPANY v. UKRAINE
(Application
no. 773/03)
JUDGMENT
STRASBOURG
3
April 2008
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 Regent Company v. Ukraine,
The
European Court of Human Rights (Fifth Section), sitting as a Chamber
composed of:
Peer
Lorenzen,
President,
Snejana
Botoucharova,
Volodymyr
Butkevych,
Rait
Maruste,
Renate
Jaeger,
Isabelle
Berro-Lefèvre,
Mirjana
Lazarova Trajkovska,
judges,
and Claudia Westerdiek, Section
Registrar,
Having
deliberated in private on 11 March 2008 and,
Delivers
the following judgment, which was adopted on that date:
PROCEDURE
- The
case originated in an application (no. 773/03) against Ukraine lodged
with the Court under Article 34 of the Convention for the Protection
of Human Rights and Fundamental Freedoms (“the Convention”)
by a company with its registered office in the Seychelles, Regent
Company (“the applicant company”), on 12 October 2002.
- The
applicant company was represented by Mr Yuriy Portnik, a director of
the company residing in London. The Ukrainian Government (“the
Government”) were represented by their Agent, Mr Yuriy Zaytsev.
- The
applicant company complained, in particular, under Article 6 § 1
of the Convention and Article 1 of Protocol No. 1 about the
non-enforcement of an arbitration award made on 23 December 1998 by
the International Commercial Arbitration Court at the Ukrainian
Chamber of Commerce and Industry. In particular, it alleged that the
judgment remained unenforced on account of an omission by the State
Bailiffs' Service and the enactment of Law no. 2864-III of
29 November 2001 on the introduction of a moratorium on the
forced sale of property.
- By
a decision of 10 April 2007 the Court declared the application partly
admissible.
- The
applicant company and the Government each filed further written
observations (Rule 59 § 1). The Chamber having decided, after
consulting the parties, that no hearing on the merits was required
(Rule 59 § 3 in fine), the parties replied in writing to
each other's observations.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
- The
applicant is a privately owned commercial company, Regent Engineering
International Limited, registered in Victoria (the Seychelles). The
company's actual address is in London (United Kingdom). It was
represented before the Court by its director, Mr Yuriy Portnik,
who resides in London.
A. Proceedings before the International Commercial
Arbitration Court at the Chamber of Commerce and Industry of Ukraine
- In
December 1998 COM s.r.o. (“COM”), a limited liability
company registered in Prague (Czech Republic) instituted proceedings
in the International Commercial Arbitration Court at the Chamber of
Commerce and Industry of Ukraine (Міжнародний
комерційний
арбітражний
суд при Торгівельно-Промисловій
палаті України
– “the Arbitration
Tribunal”) against an open joint-stock company, Oriana, seeking
an award for breach of contract. In particular, COM claimed that
Oriana, a company registered in the city of Kalush (Ivano-Frankivsk
Region), with 99.9% of its shares owned by the State, had failed to
comply with its contractual obligations concerning the processing of
raw materials.
- On
23 December 1998 the Arbitration Tribunal made an arbitration award
(case AC no. 142y/98) ordering the Oriana company to pay COM the
amount of 2,466,906.47 United States dollars (USD) in compensation.
B. Enforcement proceedings instituted by COM
- On
19 July 1999 COM lodged an application with the Ivano-Frankivsk
Regional Arbitration Court (“the Regional Arbitration Court”)
seeking a ruling that COM was a creditor in relation to the Oriana
company, on the basis of the 23 December 1998 award.
- On
2 August 1999 the Kalush State Bailiffs' Service of the Ministry of
Justice (“the Bailiffs' Service”)
instituted enforcement proceedings against Oriana in order to collect
the debt from it as ordered by the Arbitration Tribunal. These
enforcement proceedings were joined to the other enforcement
proceedings that were pending against Oriana.
- On
16 October 1999 the Regional Arbitration Court rejected the applicant
company's request to initiate bankruptcy proceedings against Oriana.
- On
18 and 21 October 1999 the Bailiffs' Service initiated the attachment
of the property owned by Oriana. On 13 December 1999 the Bailiffs'
Service quashed the decision on the attachment of Oriana's assets.
- On
14 December 1999 the property owned by Oriana was attached
again. On 16 December 1999 the Bailiffs' Service decided to
sell some of the property that had been attached (the Oriana
company's polymerisation workshop).
- On
20 September 2000 COM again requested the Regional Arbitration Court
to institute bankruptcy proceedings against Oriana. It also sought a
ruling including it on the list of Oriana's creditors.
- Between
1999 and 2003 the Bailiffs' Service took a number of measures to
obtain payment of the debts accumulated by Oriana. In particular, it
sent payment orders to the debtor's bank, seized its assets,
prohibited the unauthorised sale of property belonging to Oriana and
attempted to sell some of the company's property in order to pay its
debts. It also attached the Oriana company's bank accounts and its
shares (including the shares which Oriana owned in the Lukor
company).
- At
the same time, the enforcement proceedings were suspended several
times because Oriana contested the bailiffs' actions before the
courts and because its numerous creditors filed applications with the
court seeking an insolvency order in respect of the company.
- On
18 September 2002 the Ivano-Frankivsk Regional Commercial Court
(formerly the Ivano-Frankivsk Regional Arbitration Court) instituted
bankruptcy proceedings against Oriana. These proceedings are still
pending.
- On
22 January 2003 COM requested the Ivano-Frankivsk Regional Commercial
Court to include it on the list of creditors of the Oriana company.
C. Enforcement proceedings instituted by the applicant
company
- On
10 February 2003 the applicant company concluded a contract with COM
concerning the transfer of the latter's right to claim the debt
awarded by the Arbitration Tribunal on 23 December 1998.
- On
8 June 2004 the applicant company and COM requested that the
Arbitration Tribunal recognise the applicant company as the creditor
in the arbitration proceedings against Oriana on the basis of the
above-mentioned contract. On 21 June 2004 the
President of the Arbitration Tribunal dismissed their request,
stating that the Arbitration Tribunal had been dissolved after having
made the award of 23 December 1998.
- On
9 July 2004 the applicant company and COM requested that the
Ivano-Frankivsk Regional Court of Appeal (“the Court of
Appeal”) declare the applicant company to be legally entitled
to the debt awarded to COM by the Arbitration Tribunal on 23 December
1998.
- On
16 July 2004 the applicant company and COM requested the Bailiffs'
Service to change the creditor in the enforcement proceedings on the
basis of the contract.
- On
9 September 2004 the applicant company and COM requested the Court of
Appeal to declare that the applicant company was the Oriana company's
creditor and to substitute the applicant company for COM as a party
to the enforcement proceedings on the same grounds as mentioned
above.
- On
10 September 2004 the Court of Appeal allowed the applicant company's
request. It declared the applicant company to be Oriana's creditor in
respect of the debt of USD 2,466,906.47 resulting from the
arbitration award of 23 December 1998.
- On
18 November 2004 the applicant company and COM requested the
Bailiffs' Service to substitute the applicant company for COM in the
enforcement proceedings against Oriana.
- On
9 December 2004 the Bailiffs' Service substituted the applicant
company for the original creditor in the enforcement proceedings on
the basis of the ruling of 10 September 2004.
- On
29 December 2005 the Ivano-Frankivsk Regional Commercial Court (“the
Regional Commercial Court”) ruled that the Bailiffs' Service
had to discontinue the enforcement proceedings.
- On
30 December 2005 the Bailiffs' Service discontinued the enforcement
proceedings and transferred the writs of enforcement to Oriana's
property administrator (розпорядник
майна).
- On
23 January 2006 the applicant company requested the Regional
Commercial Court to amend the list of Oriana's creditors and to
include it on this list on the basis of the contract of 10 February
2003 and the ruling of the Court of Appeal of 10 September 2004.
- On
6 February 2006 the Regional Commercial Court allowed the applicant
company's request and ordered that the administrator of the Oriana
company's property make the relevant amendments to the list of
creditors.
- On
27 February 2006 the applicant company requested to be informed
whether the Bailiffs' Service had substituted it for COM in the list
of creditors in the enforcement proceedings against Oriana.
- The
enforcement proceedings are still pending.
II. RELEVANT DOMESTIC LAW AND PRACTICE
A. Law of 14 May 1992 on the restoration of a
debtor's solvency or the declaration of bankruptcy
- Under section 12 of the Law (Закон
України “Про
відновлення
платоспроможності
боржника або
визнання його
банкрутом”),
a commercial court is entitled to order a moratorium on debt recovery
from a company which is the subject of insolvency proceedings. The
moratorium entails a prohibition on execution by the Bailiffs'
Service of judgments against the company concerned. The same section
provides that a company protected by the moratorium is immune from
any fines and other sanctions for non-fulfilment or improper
fulfilment of its financial obligations during the moratorium.
B. Law of 29 November 2001 on the
introduction of a moratorium on the forced sale of assets
- The Law (Закон
України “Про
введення мораторiю
на примусову
реалiзацiю майна”)
aims at protecting State interests with regard to the sale of assets
belonging to undertakings in which the State holds at least 25% of
the share capital. A moratorium on the enforcement of judgment debts
has been introduced until the mechanism for the forced sale of the
property of such undertakings is improved. No time-limit has been
set.
- Section
2 of the Law provides that the prohibition on the forced sale of
assets includes the execution of writs by the State Bailiffs' Service
on the assets belonging to such companies. The Law therefore stays
the execution of all writs by the State Bailiffs' Service in respect
of the assets of undertakings in which the State holds at least 25%
of the share capital.
C. Relevant provisions of the Civil Code and the
Ownership Act
- Under
Article 214 of the Civil Code, in the event of delay in the
fulfilment of its financial obligations, a debtor must, upon a claim
by the creditor, pay the amount of the debt, plus any interest
payable at the officially established inflation rate during the
default period.
- Chapter 40
(“Compensation for damage”) of the Civil Code provides
for compensation for damage and establishes the grounds for such
compensation. Chapter VII (“Protection of property”) of
the Ownership Act guarantees protection of property and allows for
court action in such matters. Also, Articles 197-202 of Chapter 17
(“Reassignment of debts”) of the Civil Code provide for
the conclusion of transfer contracts and the reassignment of rights
to claim debt recovery.
D. The Enforcement Proceedings Act of 21 April 1999
- Under
section 2 of the Act (Закон України
“Про виконавче
провадження”),
the enforcement of judgments is entrusted to the State Bailiffs'
Service. Under section 85 of the Act, the creditor may file a
complaint against actions or omissions of the State Bailiffs' Service
with the head of the competent department of that service or with a
local court. Section 86 of the Act entitles the creditor to institute
court proceedings against a legal person entrusted with the
enforcement of a judgment on account of the inadequate enforcement or
non-enforcement of that judgment, and to receive compensation.
- Under
the Enforcement Proceedings Act, awards made by arbitration tribunals
(третейські
суди) are subject to enforcement
by the State Bailiffs' Service (section 3(1) of the Act) and are
therefore treated as equivalent to judgments delivered by domestic
courts.
E. The State Bailiffs' Service Act of 24 March 1998
- Section
11 of the Act (Закон України
“Про державну
виконавчу
службу”) provides for
the liability of bailiffs for any inadequate performance of their
duties, and for compensation for damage caused by a bailiff when
enforcing a judgment. Under section 13 of the Act, acts and omissions
of the bailiff can be challenged before a superior official or the
courts.
F. Relevant resolutions of the Cabinet of Ministers and
the State Property Fund report
- There
have been several resolutions of the Cabinet of Ministers in relation
to the financial situation of the Oriana company:
(a) no.
1650 of 19 October 1998 (on measures aimed at preventing Oriana's
bankruptcy and on the transfer of the company's management to the
Shelton enterprise);
(b) no.
1280 of 16 July 1999, which quashed the previous resolution on
Oriana (it also related to measures aimed at ensuring Oriana's
financial and economic well-being and the restructuring of its
debts);
(c) resolution
no. 800 of 10 May 1998 (on the approval of the list of enterprises
exempt from land tax payment in 1999);
(d) no. 92-p
of 19 February 2000 (on privatisation of the Oriana company);
(e) no.
314-p of 10 August 2000 (on payment of Oriana's debts for the loans
it received);
(f) no. 810-p
of 28 October 2004 (suspending privatisation of Oriana, following the
sale of 47.93% of shares in the Oriana company to CJSC Lukor, a
closed joint-stock company founded by Oriana and Lukoil, a Russian
company).
- On
3 August 2000 the Cabinet of Ministers adopted a procedure for
payment of Oriana's debts from the State budget, amounting to
USD 34,115,000.
- On
a number of occasions the Government included Oriana on the list of
State-owned companies which had strategic importance for Ukraine's
economic well-being and security and were thus to be excluded from
privatisation (see, for instance, resolutions nos. 1346 and 1734 of
the Cabinet of Ministers of 29 August 2000 and 23 December 2004).
- The
Government also undertook to fund compensation for environmental
damage caused by the Oriana company's operations (resolution no. 593
of the Cabinet of Ministers of 18 July 2005).
- In
its resolution of 19 August 2002 the Cabinet of Ministers adopted an
action plan providing for the elimination of environmental damage
caused by the operation of Kaliyny Zavod, an enterprise belonging to
the Oriana company. The action plan provided for the allocation of
33,800,000 Ukrainian hryvnas (UAH) from the State budget for
necessary environmental work during the period from 2003 to 2012.
- In
decision no. 308-p of 3 August 2005 the Prime Minister ordered the
Cabinet to examine Oriana's financial problems and to take the
necessary steps for its economic development.
- Also,
it ensues from the report of 15 December 2004 by the State
Property Fund that the State, and in particular the State Property
Fund, managed Oriana's “corporate rights” (its corporate
investments). In particular, on 26 May 2006 the State Property Fund
appointed the State's representative to Oriana's supervisory board
and ordered that the relevant structural department of the State
Property Fund should issue a letter of authority for the
representative enabling him to manage the State's shares in the
company.
G. Judgment of 10 June 2003 of the
Constitutional Court in a case concerning the moratorium on the
forced sale of property
- In its judgment the Constitutional Court found that
the Law of 29 November 2001 on the introduction of a
moratorium on the forced sale of property complied with the
Constitution of Ukraine. It also held that the Law at issue did not
violate the constitutional principle of the binding nature of court
judgments. Court judgments requiring the forced sale of the property
of enterprises, given both prior to and after the Law was adopted,
had not been set aside; they remained in force, and their enforcement
was merely suspended until the mechanism for the forced sale of
property was improved. That meant that the Law extended the term for
enforcement of judgments during that period (“period of
legislative improvement”).
H. The International Commercial Arbitration Act of 24
February 1994
- The
relevant provisions of Chapter VIII of the Act, concerning the
recognition and enforcement of awards, read as follows:
Section 5
Extent of court intervention
“In matters governed by the present Act, no court
shall intervene except where so provided in the present Act.”
Section 6
Authority for certain functions of arbitration
assistance and supervision
“1. The functions referred to in
sections 11(3), 11(4), 13(3) and 14 shall be performed by
the President of the Ukrainian Chamber of Commerce and Industry.
2. The functions referred to in
sections 16(3) and 34(2) shall be performed by the Appeal Court
of the Autonomous Republic of Crimea, regional appeal courts or
appeal courts of the cities of Kyiv and Sevastopol, depending on
where the arbitration takes place.” (On
6 September 2005 the Verkhovna Rada amended this provision and
allowed the local district courts of first instance to perform these
functions.)
Section 35
Recognition and enforcement
“1. An
arbitration award, irrespective of the country in which it was made,
shall be recognised as binding and, upon a written application to the
competent court, shall be enforced subject to the provisions of this
section and of section 36.
2. The
party claiming an award or applying for its enforcement shall supply
the duly authenticated original award or a duly certified copy
thereof, and the original arbitration agreement referred to in
section 7 or a duly certified copy thereof. If the award or agreement
is made in a foreign language, the party shall supply a duly
certified translation thereof into the Ukrainian or Russian
language.”
|
Annex I to the International Commercial
Arbitration Act of 24 February 1994 “Statute on the
International Commercial Arbitration Court at the Ukrainian
Chamber of Commerce and Industry:
|
“... 4. An award of the International
Commercial Arbitration Court shall be carried out by the parties
voluntarily within the time limit indicated by the Court. If the
award does not indicate any time limit, it shall be carried out
immediately. Awards not carried out within the applicable time limit
shall be enforced in accordance with law and international treaties.”
I. Rules of the International Commercial Arbitration
Court at the Ukrainian Chamber of Commerce and Industry
- The
relevant extracts from the Rules of the International Commercial
Arbitration Court (as
approved by the decision
of the Presidium of the Ukrainian Chamber
of Commerce and Industry of 25 August 1994, Protocol no. 107(3), with
amendments resulting from the decision of 26 September 2001
of the Presidium of the Ukrainian Chamber of Commerce and Industry)
provide as follows:
V. Remedies against an arbitration award
“... 9.1. An arbitration award may be
challenged in court only by means of an application for setting aside
in accordance with paragraphs 2 and 3 of Rule 9 of the
present Rules.
9.2. An arbitration award may be set aside in
accordance with section 6(2) of the International Commercial
Arbitration Act by the Shevchenkivsky District Court of Kyiv only if:
(1) the party making the application for
setting aside furnishes proof that:
a party to the arbitration agreement referred to in
Rule 1.2 above was subject to an incapacity; or the said
agreement is not valid under the law to which the parties have
subjected it or, in the absence of any indication thereof, under the
law of Ukraine; or
a party was not given proper notice of the appointment
of an arbitrator or of the arbitration proceedings or was otherwise
unable to present its case; or
the award was made regarding a dispute not contemplated
by or not falling within the terms of the submission to arbitration,
or, where it contains decisions on matters beyond the scope of the
submission to arbitration, provided that the decisions on the matters
submitted to arbitration can be separated from those not so
submitted, only that part of the award which contains decisions on
matters not submitted to arbitration may be set aside; or
the composition of the Arbitration Tribunal or the
arbitration proceedings were not in accordance with the agreement of
the parties, unless such agreement was in conflict with a provision
of the International Commercial Arbitration Act from which the
parties cannot derogate, or, in the absence of such agreement, were
not in accordance with this Act; or
(2) the court finds that:
the subject matter of the dispute is not capable of
settlement by arbitration under the law of Ukraine; or
the award is in conflict with the public policy of
Ukraine.
9.3. An application for setting aside may not
be made after three months have elapsed from the date on which the
party making that application had received the award or, if the
request had been made under Rules 8.16-8.18 above, from the date on
which that request had been disposed of by the Arbitration Tribunal.”
VI. Recognition and enforcement of an
arbitration award
“10.1. An award by the Arbitration
Tribunal shall be final. It shall be executed by the parties
voluntarily within the time-limit indicated by the Arbitration
Tribunal.
If the award does not indicate any time-limit, it shall
be executed immediately.
10.2. An arbitration award shall be
recognised as binding and, in the event of refusal to execute it
voluntarily, it shall be enforced depending on the respondent's
location.
If the debtor is in Ukraine, the award by the
International Commercial Arbitration Court at the UCCI shall be
enforced upon an application in writing to the competent court at the
place of the debtor's location in accordance with the International
Commercial Arbitration Act and the rules of civil procedure in
Ukraine.
If the debtor is abroad, the claimant's application in
writing shall be communicated to the competent court of the country
where the debtor is located and in accordance with Article III
of the New York Convention on the Recognition and Enforcement of
Foreign Arbitral Awards (1958) or an inter-State agreement, the
relevant court of the Contracting State shall recognise and enforce
awards of the International Commercial Arbitration Tribunal in
accordance with the rules of procedure of the territory where the
award is being relied upon.
10.3. To obtain the recognition and
enforcement of the award, the party applying for recognition and
enforcement shall, at the time of the application, supply to the
competent State court the duly authenticated original award or a duly
certified copy thereof, and also the original arbitration agreement
referred to in Rule 1.2 above or a duly certified copy thereof.
If the said application, award or agreement is not made in an
official language of the country in which the award is being relied
upon, the party applying for recognition and enforcement of the award
shall produce a translation of these documents into such language in
two copies. The translation shall be certified by an official or
sworn translator or by a diplomatic or consular agency.”
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION AND ARTICLE 1 OF PROTOCOL NO. 1
- The
applicant company complained under Article 6 § 1 of the
Convention and Article 1 of Protocol No. 1 about the non-enforcement
of the arbitration award of 23 December 1998. These provisions read
as follows:
Article 6 § 1
“In the determination of his civil rights and
obligations ..., everyone is entitled to a fair ... hearing ... by
[a] ... tribunal...”
Article 1 of Protocol No. 1
“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.”
A. The Government's preliminary objection
1. The parties' submissions
- The
Government maintained that Article 6 § 1 of the Convention was
not applicable to arbitration proceedings. The Government firstly
noted that the Arbitration Tribunal was established on the basis of
the parties' agreement to arbitrate as contained in the arbitration
clause concluded between them. They stated that the parties to the
arbitration proceedings in the instant case had waived the full
application of Article 6 § 1 of the Convention,
which consequently was not applicable to the enforcement of the final
arbitration award of 23 December 1998 made by that tribunal.
Secondly, they maintained that there was no relationship between the
arbitration proceedings in the case and the ensuing enforcement
proceedings, since the applicant company had allegedly acquired the
debt pursuant to the contract of 10 February 2003 and not in
accordance with the arbitration award. They concluded that the
application was incompatible ratione materiae with the
provisions of the Convention.
- The
applicant company disagreed. It stated that Article 6 § 1 of the
Convention was applicable to the proceedings at issue.
2. The Court's assessment
- In so far as the Government raised an objection to the
applicability of Article 6 § 1 of the Convention to arbitration
proceedings, the Court reiterates that Article 6 does not
preclude the setting up of arbitration tribunals in order to settle
disputes between private entities. Indeed, the word “tribunal”
in Article 6 § 1 is not necessarily to be understood as
signifying a court of law of the classic kind, integrated within the
standard judicial machinery of the country (see, inter alia,
Lithgow and Others v. the United Kingdom, judgment of 8 July
1986, Series A no. 102, pp. 72-73, § 201). It further
considers that the Arbitration Tribunal was a “tribunal
established by law”, acting in accordance with the 1994
International Commercial Arbitration Act and internal procedural
rules. The proceedings before the Arbitration Tribunal were similar
to those before an ordinary State civil or commercial court and due
provision was made for appeals to the Kyiv City Court of Appeal (as
applicable at the material time), which could review the award on the
grounds specified in the 1994 Arbitration Act. The Arbitration
Tribunal remains the only arbitration body in Ukraine that may, in
accordance with the 1994 Arbitration Act, decide on “commercial
disputes with a foreign element”. Under the 1994 Arbitration
Act and section 3(1) of the Enforcement Proceedings Act, the
Arbitration Tribunal's award is treated as equivalent to an
enforceable court judgment.
- As
to the right to demand payment of a debt or to comply with a
civil-law obligation to provide compensation for pecuniary and
non-pecuniary damage is a “civil” right, belonging to the
domain of Ukrainian private law, which is provided for in Chapter 40
of the Civil Code (“Compensation for damage”) and the
Ownership Act (“Protection of possessions”). In
particular, Articles 197-202 of Chapter 17 of the Civil Code allow
the reassignment of debts and the conclusion of written agreements
for their transfer. Furthermore, the applicant company's right to
recover the debt owed to it by the Oriana company on the basis of the
arbitration award and the agreement was upheld by the Ivano-Frankivsk
Regional Court of Appeal on 10 September 2004. The Court
concludes therefore that the arbitration proceedings related to the
determination of the original claimant's civil right. Following the
transfer of the debt to the applicant company on the basis of the
agreement of February 2003 and the recognition of the applicant
company as a new debtor in September 2004, the ongoing enforcement
proceedings involved the applicant company's rights and its civil
rights in succession of those of the initial creditors.
- The
Court observes that these reasons are sufficient to conclude that
Article 6 § 1 of the Convention was applicable to the
proceedings in this case. It therefore dismisses the Government's
preliminary objection.
B. Merits of the applicant company's complaints under
Article 6 § 1 of the Convention and Article 1 of Protocol No. 1
1. The parties' observations
- The
Government submitted that there had been no breach of Article 6
§ 1 of the Convention in respect of the applicant company. In
particular, the Government contended that the arbitration award at
issue was final only in respect of the parties to the dispute and was
enforceable only in relation to the original creditor of the Oriana
company, but not the applicant company, which had indirectly acquired
the right to payment of the debt resulting from the arbitration
award. The Government further argued that there had been no breach of
Article 1 of Protocol No. 1. In particular, the State was not
accountable for the debts of the Oriana company, which was a separate
legal entity. They also submitted that the transfer contract of
10 February 2003 was not a valid ground on which to demand the
enforcement of the arbitration award made in favour of another
entity.
- The
applicant company submitted that Article 6 § 1 of the Convention
had been breached by the State authorities in that the arbitration
award of 23 December 1998 had not been enforced within a
reasonable time and in full. It stated that the State had failed to
comply with its obligations under Article 1 of Protocol No. 1 in that
it had not ensured that the award was enforced in good time and had
not taken necessary and adequate measures to ensure that the
applicant company effectively enjoyed its property rights.
2. The Court's assessment
- The
Court notes that one of the main reasons for the failure of the
authorities to enforce the final arbitration award was the insolvency
of the Oriana State-owned and managed company. However, it is to be
noted that while appropriations for the payment of State debts may
cause some delay in the enforcement of judgments from the
Government's budget, they cannot be considered an excuse for failure
to comply with the obligations under Article 6 § 1 of the
Convention.
- Moreover,
it appears from the case file that no recent steps have been taken by
the State authorities to remedy the situation in the present case.
The Court is therefore of the view that the continued non-enforcement
of the judgment debt at issue constituted a violation of
Article 6 § 1 of the Convention.
- The
Court also notes that it has consistently held that a “claim”
can only constitute a “possession” within the meaning of
Article 1 of Protocol No. 1 if it is sufficiently established to be
enforceable (see Burdov v. Russia, no. 59498/00, § 40,
ECHR 2002-III, and Poltorachenko v. Ukraine, no. 77317/01,
§ 45, 18 January 2005). It also considers that an assignment of
a debt is capable in principle of amounting to such a “possession”.
Moreover, from the Court's point of view domestic court's judicial
decisions acknowledging that the applicant company was the creditor
in the proceedings as to enforcement of the arbitration award of
23 December 1998 mean
that it had an enforceable claim which constituted a “possession”
within the meaning of Article 1 of Protocol No. 1 (see paragraph 24
above).
- There
has therefore been a violation of Article 1 of Protocol No. 1.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
- 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.”
A. Damage and costs and expenses
- The
applicant company claimed USD 10,000,000 for non-pecuniary damage and
lost income. They made no claim as to costs and expenses.
- The
Government stated that the claim was exorbitant and not substantiated
by any relevant evidence.
- The
Court observes that it is not disputed that the State still has an
outstanding obligation to enforce the judgment at issue. Accordingly,
the applicant company remains entitled to recover the amount of the
award debt and, if the Government were to pay this debt, this would
constitute full and final settlement of the claim for pecuniary
damage.
- As
to the claim in respect of non-pecuniary damage, the Court is of the
opinion that in the particular circumstances of the case, the finding
of a violation of Article 6 § 1 of the Convention and
Article 1 of Protocol No. 1 constitutes sufficient just
satisfaction. In particular, the Court notes that the applicant
company purchased the debt in question, as a part of its normal
business activity, being aware of problems existing in enforcement of
the award at issue, thus taking a commercial risk by that
transaction. It considers, therefore, that the applicant company is
not entitled for non-pecuniary damage.
- The
applicant company made no claim for costs and expenses and therefore
the Court makes no award under this head.
B. Default interest
- The
Court considers it appropriate that the default interest 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
- Finds that Article 6 § 1 of the Convention
is applicable and dismisses the Government's preliminary
objection;
- Holds that there has been a violation of Article
6 § 1 of the Convention;
- Holds that there has been a violation of Article
1 of Protocol No. 1;
- Holds that the finding of a violation
constitutes in itself sufficient just satisfaction for the
non-pecuniary damage sustained by the applicant;
- Holds
(a) that
the respondent State is to pay the applicant company, within three
months from the date on which the judgment becomes final in
accordance with Article 44 § 2 of the Convention,
the outstanding amount of the arbitration award of 23 December 1998
still owed to it;
(b) that
from the expiry of the above-mentioned three months until settlement
simple interest shall be payable on that sum at a rate equal to the
marginal lending rate of the European Central Bank during the default
period plus three percentage points;
- Dismisses the remainder of the applicant
company's claim for just satisfaction.
Done in English, and notified in writing on 3 April 2008, pursuant to
Rule 77 §§ 2 and 3 of the Rules of Court.
Claudia Westerdiek Peer
Lorenzen
Registrar President
