BAILII is celebrating 24 years of free online access to the law! Would you
consider making a contribution?
No donation is too small. If every visitor before 31 December gives just £1, it
will have a significant impact on BAILII's ability to continue providing free
access to the law.
Thank you very much for your support!
[New search]
[Contents list]
[Printable RTF version]
[Help]
FIFTH
SECTION
CASE OF KOHLHOFER AND MINARIK v. THE CZECH REPUBLIC
(Applications
nos. 32921/03, 28464/04 and 5344/05)
JUDGMENT
STRASBOURG
15 October 2009
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 Kohlhofer and
Minarik v. the Czech Republic,
The
European Court of Human Rights (Fifth Section), sitting as a Chamber
composed of:
Peer
Lorenzen,
President,
Renate
Jaeger,
Karel
Jungwiert,
Rait
Maruste,
Isabelle
Berro-Lefèvre,
Mirjana
Lazarova Trajkovska,
Zdravka
Kalaydjieva,
judges,
and Claudia
Westerdiek, Section
Registrar,
Having
deliberated in private on 15 September 2009,
Delivers
the following judgment, which was adopted on that date:
PROCEDURE
- The
case originated in applications (nos. 32921/03, 28464/04 and 5344/05)
against the Czech Republic lodged with the Court under Article 34 of
the Convention for the Protection of Human Rights and Fundamental
Freedoms (“the Convention”) by an Austrian national, Mr
Bruno Kohlhofer (“the first applicant”) and German
nationals, Mr Roman Minarik (“the second applicant”) and
Susanne Minarik (“the third applicant”), on 8 October
2003, 21 July 2004 and 29 April 2005, respectively.
- The
applicants were represented by Mr Petr Zima, a lawyer practising in
Prague. The Czech Government (“the Government”) were
represented by their Agent, Mr V.A. Schorm, of the Ministry of
Justice.
- On
4 September 2006 the President of the Fifth Section decided to give
notice of the applications and to communicate complaints under
Article 6 § 1 of the Convention to the Government. On 11
September 2006 he decided to give notice of the applications to the
Government of Austria and the Government of Germany respectively in
order to enable them to exercise their right to intervene in the
proceedings (Article 36 § 1 and Rule 44). Neither the Government
of Austria nor the Government of Germany exercised their right to
intervene (Rule 44 § 1(b)).
- The
applicants and the Czech Government each filed written observations
(Rule 59 § 1). The Chamber decided that no hearing on the
admissibility and merits was required (Rule 59 § 3 in fine).
It was further decided to join the aforementioned applications
for examination and to examine the merits of the applications at the
same time as their admissibility (Article 29 § 3).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
- The
facts of the case, as submitted by the parties, may be summarised as
follows.
Application no. 32921/03
- Through
the acquisition of shares before January 2001, the first two
applicants became minority shareholders of Českomoravský
cement, a.s., a joint stock company incorporated under Czech
law.
- On
1 January 2001 the Commercial Code (hereinafter “the CC”)
was amended. In accordance with its newly introduced Article 220p, a
general meeting of a joint stock company was empowered to decide to
wind up the company and transfer all its assets to a shareholder who
owned shares representing more than 90% of the company's share
capital (“the main shareholder”). An asset transfer
contract between the main shareholder and the company was to be
concluded to that end and compensation paid to the minority
shareholders.
- On
31 May 2001 the general meeting of the company adopted, by votes of
the main shareholder, a resolution on the winding-up of the company
and on the transfer of all its assets to the main shareholder
(together also referred to as “the transfer”).
- On
the same day the applicants filed an action to have that resolution
and the asset transfer contract set aside with the Prague Municipal
Court (městský soud). They asserted that
the resolution had been adopted contrary to law, treaties concerning
the encouragement and reciprocal protection of investments and their
property rights. They informed the court administering the commercial
register (obchodní rejstřík) about
this step.
- On
31 October 2001 the court administering the commercial register
(rejstříkový soud) approved the
transfer. No hearing was held prior to that decision.
- On
14 December 2001 the applicants contested the decision to register
the transfer before the Constitutional Court (Ústavní
soud), alleging an infringement of the right to a fair trial and
their property rights. They claimed not to have been able to raise
their objections to the general meeting resolution in a hearing
during the non-contentious proceedings preceding the delivery of the
decision. They invited the court to strike down inter alia
Articles 220h(3) and (4) and 220p of the CC.
- On
25 March 2003 the Constitutional Court in its decision no. IV. ÚS
720/01 rejected the applicants' appeal without holding a hearing. It
found that the applicants were not entitled to participate in the
proceedings as the task of the court in charge of the commercial
register had been to decide on the rights of the company, not on
theirs. It noted that that court had the applicants' arguments in
their action to set aside at its disposal and had taken them into
consideration before delivering the impugned decision, whilst
reviewing the lawfulness of the resolution as a preliminary question.
It held that the power to stay the proceedings was still available to
that court under the law as it stood at the relevant time. The
Constitutional Court dismissed the applicants' second claim according
to which that decision amounted to other interference by public
authority into their right to access to a court. Referring to Article
220h of the CC, it found the application of Article 131 of the CC in
conformity with constitutional law. In this regard, the court pointed
to procedural safeguards enshrined in Articles 131, 220h, 220k, 2201
and 220p of the CC which were available to the applicants, and
emphasised the aim of the regulation providing for legal certainty
and expeditious transformation of companies. As for the applicants'
challenge to the law providing for the winding-up and the transfer on
the ground of insufficient protection of the rights of minority
shareholders, the court did not examine it since it went beyond the
scope of that court's review defined by the applicants'
constitutional appeal contesting the decision in which the court in
charge of the commercial register had approved the registration of
the winding-up and the transfer at the commercial register, but not
any decisions adopted in other proceedings available to the
complaining minority shareholders.
- On
27 July 2006 the Municipal Court dismissed the applicants' action
lodged on 31 May 2001. Having noted that the court in charge of the
commercial register had approved the registration of the transfer,
the Municipal Court, referring to Article 131(3)(c) of the CC,
refused to deal with the applicants' assertions of unlawfulness of
the impugned general meeting resolution, their principal allegation
being that the resolution had been adopted by the main shareholder
whose voting rights had been suspended. As for the applicants' plea
of invalidity of the asset transfer contract, namely the insufficient
number of experts commissioned for the expert report on the
compensation and the determination of the decisive day (rozhodný
den), the court expressed the view that the validity of
the asset transfer contract must have been examined as a preliminary
question by the court approving the registration of the transfer into
the commercial register. At the same time, having reviewed the
contract, the Municipal Court found that the determination of
decisive day complied with the CC. Having interpreted relevant
provisions of the CC, the court further found that the law did not
require that more experts be commissioned for the purposes of
assessing the compensation to be paid by the main shareholders to the
applicants. Finally, the court examined and dismissed the applicants'
claims that the compensation had not been properly determined as
unfounded or reviewable only by a court reviewing the compensation in
separate proceedings.
- On
6 September 2007 the Prague High Court (vrchní soud),
sharing the legal view of the court of first instance, upheld the
Municipal Court's judgment of 27 July 2006.
- The
proceedings are now pending before the Supreme Court (Nejvyšší
soud). According to the applicants, they have no prospect of
success before that jurisdiction due to its settled case law.
- According
to the Government, the applicants filed with a court actions under
Article 220k of the CC whereby they asserted that the compensation
paid for the transfer pursuant to Article 220p(2) of the CC was not
adequate and claimed the remainder thereof. According to the
Government, these proceedings and the set-aside proceedings are still
pending.
Application no. 28464/04
- The third applicant owned 3% of the share capital of
YTONG, a.s., a joint stock company incorporated under Czech law.
- On 24 June 2003 the general meeting of that company
adopted, by votes of the main shareholder, a resolution on the
winding up of the company and the transfer of all its assets to the
main shareholder.
- On 25 June 2003 the third applicant filed with the
Brno Regional Court (krajský
soud) an action to
have the resolution set aside, asserting that it had
been adopted contrary to the applicable law, treaties concerning the
encouragement and reciprocal protection of investments and their
property rights. Asserting the unlawfulness of the asset transfer
contract on account of its clause reserving for arbitration
jurisdiction over disputes concerning the value of the compensation,
she further emphasised a number of irregularities of the resolution.
She informed the court administering the commercial register about
the action.
- On
1 September 2003 the court in charge of the commercial register
approved the registration of the transfer. No hearing was held before
that decision, which was not served on the third applicant as she did
not have standing to participate in the proceedings.
- On
11 December 2003 the Olomouc High Court rejected the third
applicant's appeal contesting that decision. It ruled that since the
applicant did not have standing to take part in the impugned
proceedings, she was not entitled to appeal their outcome.
- On
28 November 2005 the High Court, relying on Article 220h(4) of the
CC, discontinued the set-aside proceedings without examining the
merits.
- According
to the Government, the third applicant filed with a court an action
under Article 220k of the CC whereby she asserted that the
compensation for the transfer paid pursuant to Article 220p(2) of the
CC was not adequate and claimed the remainder thereof.
- According
to the parties, these proceedings are after dismissive rulings of
courts of first two instances pending before the Supreme Court.
- On
24 June 2008 the Supreme Court rejected the applicant's appeal on
points of law and upheld the High Court's ruling of 28 November 2005.
- On
11 December 2008 the Constitutional Court rejected the applicant's
constitutional appeal, in which the applicant claimed an impairment
of her right to a fair trial in the set-aside proceedings by reason
of the limitation on access to court brought about by Article 220h(4)
of the CC. The Constitutional Court found that the Supreme Court had
not erred in its impugned decision of 24 June 2008 and that neither
the applicant's right to a fair trial nor any other constitutional
right had been breached.
- The
third applicant also raised the claim for compensation, together with
two other petitioners, before an arbitration tribunal to which she
was referred in the decisions of the ordinary courts. The arbitration
proceedings were discontinued and the petition rejected on
11 October 2006 for lack of jurisdiction.
Application no. 5344/05
- The
first applicant was a minority shareholder of Biocel, a.s., a joint
stock company incorporated under Czech law.
- On
21 November 2001 the company's general meeting decided to wind up the
company and transfer its assets to the main shareholder.
- On
the same day the applicant brought an action in the Ostrava Regional
Court (krajský soud) to have the general meeting
resolution and the asset transfer contract set aside. He argued that
the general meeting resolution was void on the grounds of
unlawfulness as the main shareholder had taken part in the vote
although not entitled to do so, the resolution had been adopted
despite the fact that the shares had been lodged as securities, and
the compensation payable to minority shareholders had been determined
improperly. He further asserted a violation of treaties concerning
the encouragement and reciprocal protection of investments and his
right to the peaceful enjoyment of his possessions.
- On
12 November 2002 the Regional Court, acting as a court in charge of
the commercial register, approved the registration of the transfer at
the commercial register without holding a public hearing.
- On
21 November 2002 an appeal by the first applicant against this
decision was rejected by the Olomouc High Court, which found that the
minority shareholders were not parties to the proceedings concerning
the approval of the registration at the commercial register.
- On
14 January 2003 the Regional Court stayed the set-aside proceedings
and asked the Constitutional Court to strike down Article 220p and
other provisions of the Commercial Code.
- On
an unspecified date the first applicant filed a constitutional appeal
alleging a violation of his right to judicial protection under
Article 36 § 1 of the Charter of Fundamental Rights and
Freedoms (Listina základních práv a svobod).
He claimed that he had not been allowed to act as a party in the
proceedings conducted by the court in charge of the commercial
register and had been prevented de facto, by Articles
131(3)(c), 220h(4), 220p of the CC and 109(2)(c) of the Code of Civil
Procedure (hereinafter “the CCP”), from acting before the
court in the proceedings to set aside the general meeting resolution.
He further contended that the relevant law was contrary to the Third
Council Directive 78/855/EEC. The first applicant requested that the
aforementioned provisions be struck down as being contrary to Article
36 § 1 of the Charter.
- On
31 August 2004 the Constitutional Court by its decision no. II. ÚS
21/03 rejected the applicant's constitutional appeal against the
decision approving the registration of the transfer at the commercial
register. It found that, under Article 131 of the CC a court in
charge of the commercial register is entitled to review as a
preliminary question the lawfulness and validity of a general meeting
resolution on the basis of which a registration in the commercial
register is to be made. It held that the right to judicial protection
was not denied to the first applicant having regard to the remedies
enshrined in Article 131 taken in conjunction with Articles 220h,
220k, 2201 and 220p of the CC. Therefore, shareholders of a joint
stock company could seek protection of their rights before an
independent and impartial court by another way than by taking part in
the proceedings held before the court in charge of the commercial
register.
- On
22 February 2005 the Plenary of the Constitutional Court rejected by
its decision no. Pl. ÚS 51/03 the request of the Regional
Court that it should strike down, inter alia, Article 220p of
the CC. It found that the Regional Court's request was ill-founded as
Article 220p of the CC could no longer be applied by the Regional
Court on account of Article 131(3)(c) of the CC, which barred that
court from deciding the case before it on the merits once the general
meeting resolution on the winding-up of the company and the transfer
had been inserted into the commercial register. Four constitutional
judges joined their dissenting opinions to the Plenary's decision.
- On
14 March 2008 the Ostrava Regional Court, relying on Article 220h(4)
of the CC discontinued the set-aside proceeding without examining the
merits as the transfer was registered in the commercial register.
- On
1 July 2008 the Olomouc High Court upheld that decision of the
Regional Court. Referring to the Constitutional Court's decision no.
IV. ÚS 720/01, the High Court found Articles 131(3)(b) and (c)
and 220h(3) and (4), and Article 220k(1) of the CC conform with Czech
law including the Charter of Fundamental Rights and Freedoms. The
first applicant did not pursue the case before higher instances. He
alleged to have no prospect of success due to the settled case law of
the Supreme Court and the Constitutional Court.
- According
to the Government, the applicant filed with a court an action under
Article 220k of the CC whereby he asserted that the compensation for
the transfer paid pursuant to Article 220p(2) of the CC was not
adequate and claimed the remainder thereof According to the
Government, these proceedings are still pending.
II. RELEVANT DOMESTIC LAW
1. The Constitution
- Article
83 provides that the Constitutional Court is the judicial body
responsible for the protection of constitutionality.
- Article
89(2) provides that all national authorities and individuals are
bound by enforceable rulings of the Constitutional Court.
2. The Commercial Code (as in force at the relevant
time)
- Article
27(3) provided inter alia that facts inserted in the
commercial register became effective as of the date on which they
were made public.
- In
accordance with Article 33 a court administering the commercial
register made a registration into the commercial register public.
- Article
131(1) gave shareholders the right to contest a general meeting
resolution by means of an application to set aside if it was deemed
to contravene the law, a deed of incorporation or by-laws. An
application to set aside could be lodged within three months or, in
certain circumstances, one year of the adoption of the resolution.
The provision was applicable to general meeting resolutions of joint
stock companies by virtue of Article 183(1).
- Under
Article 131(3)(c) the court could not set aside a general meeting
resolution if a court in charge of the commercial register had
recorded a transfer of the company's assets in the commercial
register.
- Article
131(4) provided, inter alia, that persons who had suffered
damage by a resolution of the general meeting adopted contrary to
law, the deed of incorporation or by-laws, were entitled to claim
damages and/or just satisfaction for an impairment of fundamental
shareholders' rights. This right could be asserted even if a court
did not declare the general meeting resolution void for one of the
reasons set out in Article 131(3) of the Code. Such a claim had to be
made before a court within the same time-limit as applied for
introducing an application to set aside of a general meeting
resolution, or within three months of the day on which a court
decided on such an action.
- Under
Article 131(7) everyone is bound by an enunciation of decision
delivered pursuant to Article 131(1), (2) or (3).
- Article
131(7) provides that if a resolution of general meeting was not
contested under Article 131(1),(2) or such a claim was not upheld,
the resolution may be reviewed only in proceedings on the
registration of the resolution in the commercial register, unless the
resolution involves amendments of by-laws or a deed of incorporation
contrary to law.
- Pursuant
to Article 220a(11) proceedings to set aside a contract providing for
a merger may be brought only if an application to set aside the
relevant general meeting resolution has been filed.
- Under
Article 220h(3) an action to set aside a general meeting resolution,
or a contract, on merger could not be filed if a registration of the
merger into the commercial register had been allowed by a court in
charge thereof.
- By
Article 220h(4), proceedings to set aside a general meeting
resolution, or a contract, on merger brought prior to an registration
of the merger in the commercial register could be continued after the
registration had been made only if the plaintiff changed his or her
action so as to seek damages or an adequate payment for surrendered
shares pursuant to Article 220k, provided that those claims had not
previously been raised.
- Under
paragraph (1) of Article 220k, if the exchange ratio for shares
together with financial compensation was not adequate, shareholders
of a merging company were entitled to seek compensation from an
acquiring company. The ratio decidendi of a judicial decision
granting compensation to a shareholder was by virtue of paragraph (5)
thereof binding, in respect of remaining shareholders, upon an
acquiring company.
- Pursuant
to Article 220l members of boards of directors and supervisory boards
of companies involved in a merger, and experts who drew up an expert
report for these companies were liable jointly and severally for
damages caused by a breach of their duties during the merger.
- Article
220p(l) empowered a general meeting of a joint stock company to
decide to wind up the company and transfer all its assets to
a shareholder owning shares which represented more than 90% of
the company's share capital (the main shareholder).
- Under
Article 220p(2) the main shareholder was obliged to provide other
shareholders with adequate compensation paid in cash in order to
settle such a transfer.
- Article
220p(3) provided, inter alia, that Articles
220a(l)-(4),(7)-(11), 220h and 2201 were to be applied appropriately
to the winding-up of a company and the transfer of its assets to
its main shareholder.
- According
to Article 220p(4), among other obligations, a company must have
concluded a contract for the transfer of its assets with its main
shareholder. Shareholders must have been thereby informed of their
right to apply for review by a court of the value of the
compensation. Article 220k(l),(5) and (7) governing an exchange of
shares pending mergers were to be applied appropriately.
3. The Act on Transformation of Companies and
Cooperatives (no. 125/2008)
- The
Act which entered into force on 1 July 2008 replaced inter alia
the provisions of the CC governing the winding up of a company
and the transfer of its assets to its main shareholder, Articles 220h
(3) and (4) and 220p (3) of the CC being among them.
- Under
Article 55(2) a court may declare a general meeting resolution on the
transfer null and void only until the time when the transfer is
inserted into the commercial register. Article 56(a) provides that
such a registration may not be rescinded.
4. The Code of Civil Procedure (as in force in the
relevant time)
- Under
Article 109(2)(c) a court is empowered to stay proceedings should a
legal issue which might be relevant for its decision be examined in
other pending proceedings. Courts deciding in proceedings on a
registration into the commercial register ceased to have that power
upon the amendment of that provision, which came into force on 31
December 2001.
- Article
200c(1) defines the persons having standing to participate in
proceedings on a request for a registration into the commercial
register. Only the requesting entrepreneur and the persons whose
names are required to be inserted into the commercial register have
such standing.
- Under
Article 200c(3) a court in charge of the commercial register is
obliged to proceed so as to take steps to prepare for delivery of
decision within fifteen days from the day when the request was
lodged.
- According
to Article 200d(2) a court in charge of the commercial register may
decide the matter before it without holding a hearing if, inter
alia, it can do so on the basis of deeds before it which
have been written pursuant to a particular statute (deeds by notary
public etc.).
- By
virtue of Article 243d a court to which a case was remitted following
a quashing judgment of the Supreme Court is bound by a legal view
enshrined therein.
5. The Constitutional Court Act (Act no. 182/1993)
- Section
72(1)(a) stipulates that a constitutional appeal may be submitted: a)
pursuant to Article 87(l)(d) of the Constitution, by a natural or
legal person, if he or she alleges that his or her fundamental rights
and basic freedoms guaranteed in the constitutional order have been
infringed as a result of the final decision in proceedings to
which he or she was a party, of a measure, or of some other
encroachment by a public authority.
- By
virtue of Section 82(3) if the Constitutional Court grants the
constitutional appeal of a natural or legal person under Article
87(l)(d) of the Constitution, it shall: a) quash the contested
decision of the public authority, or b) if a constitutionally
guaranteed fundamental right or basic freedom was infringed as the
result of an encroachment by a public authority other than a
decision, enjoin the authority from continuing to infringe this right
or freedom and order it, to the extent possible, to restore the
situation that existed prior to the infringement.
6. Act on Courts and Judges (acts nos. 335/1991 and
182/1993 respectively)
- The
Supreme Court is by virtue of that legislation the highest Czech
court of ordinary jurisdiction with the task inter alia to
settle case law of ordinary courts.
III. RELEVANT DOMESTIC PRACTICE
1. Judgment of the Constitutional Court no. I. ÚS
70/96
68. In its judgment of 18
March 1997 the Constitutional Court, interpreting Article 89(2) of
the Constitution, rejected the assumption according to which its
views enshrined in reasoning of its judgments are legally irrelevant.
The court held inter
alia that an a
priori disrespect
by ordinary courts towards such views raises doubts whether ordinary
courts decide in conformity with Article 90 of the Constitution,
according to which their principal task is to ensure the protection
of rights pursuant to law. Ordinary courts declining to follow such
views must be aware that their rulings will be most probably brought
by the Constitutional Court in line with its existent case law. The
Constitutional Court added in this regard that an a
priori disrespect
towards existent case law, resulting in different decisions on a same
matter, contravenes the principle of legal certainty, which is an
indispensable component of constitutional law and the rule of
law.
2. Decision of the Constitutional Court no. III. ÚS
527/04
- In
this decision of 25 May 2005 in which it rejected an appeal against a
court's decision approving the registration of a transfer of
company's assets to the main shareholder at the commercial register
and a request to strike down Articles 131(3)(c), 220h(3) and
220p of the CC, the Constitutional Court held as follows:
“The law providing for the winding up of a company
and the transfer of its assets to its main shareholder is at the very
limit of constitutional conformity owing to the imperfect
coordination of proceedings for a registration into the commercial
register with proceedings to set aside an asset transfer contract
(filed together with an application to set aside a general meeting
resolution) which makes possible the irreversible registration of
[the winding up of a company and the transfer of its assets to its
main shareholder] into the commercial register without examination of
an action to set it aside. It cannot be said, however, that minority
shareholders have no remedy at their disposal.. ..[A]ccording to
Article 131(4) of the [CC], they can seek damages and just
satisfaction.
The law governing proceedings before a court in charge
of the commercial register is proportionate to the aim and objective
of the legislation providing for transformations of companies, whose
purpose is to accommodate expeditious registration of those
transformations, made on the basis of the agreement among the
companies' shareholders, into the commercial register, with regard to
the fact that such a transformation is from a certain moment
irreversible owing to legal, economic and technical aspects of that
process.
...[T]he impugned decision of the court in charge of the
commercial register did not amount to unconstitutional interference
with the appellant's property rights as he retained access to legal
remedies for the protection of his ownership rights to the shares in
a proportionate manner.. ..[L]egitimate expectations of shareholders
do not have the same intensity as those of owners of other property.
..[as] the nature of a joint stock company implies risks of a change
in the shareholders' status...
The gist of the appeal consists in the applicant's
disagreement with the law providing for [the winding-up of a company
and the transfer of its assets to its main shareholder] as such, in
particular with the insufficient guarantees for minority
shareholders. The Constitutional Court, however, by Section 74 of the
Constitutional Court Act is not empowered to examine these complaints
as the appeal at hand contested only the decision adopted by the
court in charge of the commercial register in the proceedings on the
registration of the winding up and the transfer into the commercial
register. [Examination] of these complaints would go beyond the scope
of that court's review defined by the applicants' constitutional
appeal contesting the decision of the court in charge of the
commercial register which decided on the registration in the
commercial register, not on decisions adopted in other proceedings
available to the complaining minority shareholders.”
3. Decision of the Supreme Court no. 29 Odo 1128/2005
of 23 May 2007
- In
this decision the Supreme Court upheld lower court's views according
to which a legal impediment, enshrined in Article 131(3)(c) of the CC
taken in conjunction with Article 183(1) thereof, and Article 220h(4)
of the CC taken in conjunction with Article 220p(3) thereof, barred
courts from setting aside general meeting resolutions and asset
transfer contracts after such an asset transfer had been recorded
into the commercial register.
THE LAW
I. JOINDER OF THE APPLICATIONS
- The
Court considers that, in accordance with Rule 42 § 1 of the
Rules of Court, the applications should be joined, given their common
factual and legal background.
II. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION
- The
applicants, minority shareholders, complained that Czech law
permitted them to challenge neither a company resolution to wind up
the company and transfer its assets to the main shareholder nor an
asset transfer contract, once the resolution had been registered in
the commercial register.
They
relied on Article 6 § I of the Convention, which reads as
follows:
“In the determination of his civil rights and
obligations ..., everyone is entitled to a fair ... hearing ...
by [a] ... tribunal...”
73. The
Government disagreed.
A. Admissibility
- The Government maintained that the applications were
inadmissible for non-exhaustion of domestic remedies or,
alternatively, premature. They argued that only the proceedings
before the courts administering the commercial register had ended,
whilst the others - actions to set aside the general meeting
resolutions, actions to determine the value of the compensation, and
actions in damages and/or seeking just satisfaction - were still
pending or were never brought. They maintained that the law hindering
the applicants from seeking a review of lawfulness, i.e. Article
131(3)(c) and Article 220h(3) and (4) of the CC, had not yet been
directly examined by the Czech higher courts. The existing case law
of the Constitutional Court (decisions nos. IV. ÚS 720/01, PI.
ÚS 51/03, III. ÚS 527/04 and III. ÚS 84/05)
consisted of unpublished resolutions whose normative force was “much
less intensive” than that of that court's judgments. It could
not therefore be argued that the relevant domestic case law was so
settled as to prevent the applicants from defending their cause in
proceedings before domestic courts.
- The
applicants disputed that objection, asserting that they had no
prospect of success in the pending proceedings.
- The
Court reiterates that the rule of exhaustion of domestic remedies
referred to in Article 35 § 1 of the Convention is based on the
assumption that the domestic system provides an effective remedy in
respect of the alleged breach. It is for the Government claiming
non-exhaustion to satisfy the Court that an effective remedy was
available in theory and in practice at the relevant time; that is to
say, that the remedy was accessible, capable of providing redress in
respect of the applicant's complaints and offered reasonable
prospects of success (V. v. the United Kingdom [GC],
no. 24888/94, § 57, ECHR 1999-IX). The Court has recognised
that the rule of exhaustion is neither absolute nor capable of being
applied automatically; for the purposes of reviewing whether it has
been observed, it is essential to have regard to the circumstances of
the individual case. This means, in particular, that the Court must
take realistic account not only of the existence of formal remedies
in the legal system of the Contracting State concerned but also of
the general context in which they operate, as well as the personal
circumstances of the applicant. It must then examine whether, in all
the circumstances of the case, the applicant did everything that
could reasonably be expected of him or her to exhaust domestic
remedies (D.H. and Others v. the Czech Republic [GC], no.
57325/00, § 116, ECHR 2007-XII). The Court further reiterates
that where a suggested remedy did not offer reasonable prospects of
success, for example in the light of settled domestic case law, the
fact that the applicant did not use it is not a bar to admissibility
(Radio France and Others v. France, no. 53984/00, decision of
23 September 2003, § 34).
- In
the instant case, the Court notes that it appears from the
Government's submissions that not all of the set-aside proceedings
have ended. The Court understands their contention to be that, absent
a determination by the Constitutional Court of the issues in the
individual set-aside proceedings, the Court is not able to consider
those proceedings.
- The
Court first notes that as regards application no. 28464/04, on
11 December 2008 the Constitutional Court - that is, after the
Government's admissibility submissions - dealt with the third
applicant's constitutional complaint by confirming the approach of
the Supreme Court of 24 June 2008. As the third applicant
had raised the compatibility of Article 220h(4) of the Commercial
Code with provisions of constitutional law guaranteeing the right to
a fair trial in those proceedings, the Government's contention as
regards this particular application is no longer accurate and must be
rejected.
- As
regards applications nos. 3291/03 and 5344/05, it is true that the
applicants did not bring about a decision of the Constitutional
Court: in application no. 5344/05 the proceedings ended with a ruling
of 1 July 2008 by the Olomouc High Court, and in application no.
32921/03 the set-aside proceedings are still pending before the
Supreme Court. In its decisions IV. ÚS 720/01 of 25 March
2003 (that is, the appeal of the applicants in application no.
3291/03 concerning, as such, the challenge to the registration of the
asset transfer, see paragraph 12 above) and II. ÚS 21/03 of 31
August 2004 (in the context of the challenge by the applicant in
application no. 5344/05 to the registration of the transfer
(see paragraph 35 above) the Constitutional Court examined the
constitutional issues raised in applications no. 32921/03 and
5344/05. In particular, although the Constitutional Court was
formally dealing with challenges to decisions to register asset
transfers, in each case it made comprehensive findings that the
legislation on regulation of actions to set aside was compatible with
the Constitution, as extensive procedural safeguards were contained
in the CC. Those safeguards included, in its view, the possibility of
an action for compensation under Articles 131, 220h, 220(k), 2201 and
220p of the CC. Moreover, the Constitutional Court subsequently took
the same approach in its decision III. ÚS 527/04 of 25 May
2005, and on 23 May 2007 the Supreme Court applied those
principles in a decision dealing directly with applications to set
aside general meeting resolutions once the transfer had been
registered. Furthermore, as to application no. 5344/05, the
Plenary Constitutional Court did deal in the set-aside proceedings
with the first applicant's complaint of denial of access to a court,
when it refused the Ostrava Regional Court's request to strike down
as unconstitutional the provisions of the Commercial Code preventing
the first applicant from having his case decided on the merits (see
paragraphs 33 and 36 above). The outcome of that review by the
Constitutional Court embodied in its decision no. Pl. ÚS 51/03
did not differ from its earlier case law.
In
these circumstances, the Court considers that the domestic courts'
case law on the question was settled such that the applicants could
not reasonably be expected to have pursued (or, in the case of
application no. 32921/03, to await the outcome of) separate
constitutional complaints in the individual set-aside proceedings. It
is true, as the Government point out, that that case law consists of
decisions rather than judgments. However, in the absence of any such
judgments, or any indication that the Constitutional Court would
regard those decisions as irrelevant, the Court does not consider
that the decisions should be afforded lesser weight for the purposes
of the review under Article 35 § 1 of the Convention.
Accordingly,
the Government's objection is in this respect dismissed for all three
applications.
- As
for the other proceedings which, according to the Government, the
applicants could have brought or whose outcome they should have
awaited, that is, actions in damages or for just satisfaction, or
actions for compensation, the Court considers that the question of
alternative remedies is inseparably linked to the Government's plea
on merits that those remedies justified the limitation on the
applicants' access to a court in the set-aside proceedings. The Court
therefore joins those legal questions to its examination on the
merits of the applications.
- The
Court notes that non-compliance with other admissibility criteria was
not asserted by the Government. Recalling that the right to seek
a review of the lawfulness of a general meeting resolution and
related measures affecting applicants' shares falls within the ambit
of Article 6 § 1 of the Convention (Pafitis and
Others v. Greece, judgment of 26 February 1998,
Reports of Judgments and Decisions 1998-1, § 87), it
therefore declares the applicants' complaints under Article 6 §
1 of the Convention admissible.
B. Merits
1. The parties' submissions
(a) The applicants
- The
applicants alleged that the main shareholders voted in the respective
general meetings for resolutions approving the transfers against the
applicants' will. Their right to have the lawfulness of those
resolutions reviewed by means of an action to set aside was infringed
by the outcome of separate proceedings initiated by the respective
companies requesting the courts in charge of the commercial register
to insert the impugned resolution therein and wind them up. Having
granted these requests, the courts made it impossible for the
applicants to pursue their actions to set aside as the CC prevented
them from doing so once the requests for registration had been
granted. Since the applicants were not allowed to participate in the
proceedings before the courts granting those requests, and as the
courts were obliged to decide on the requests within fifteen days of
their introduction, the applicants lost any chance of a fair trial on
their actions for review of the lawfulness of the transfer. They
maintained that on account of these shortcomings and the inevitably
perfunctory examination of the lawfulness of the transfers caused by
the fifteen-day time-limit, these proceedings should be deemed
contrary to Article 6 § 1 of the Convention and bilateral
treaties concerning encouragement and reciprocal protection of
investments binding upon the Czech Republic and Germany and Austria,
respectively.
- The
applicants further asserted that the legal protection of their
impaired rights consisting of actions in damages referred to in the
decisions of the domestic courts was infeasible or, at very best,
quasi-feasible. The right to bring proceedings against the main
shareholder in order to be paid the value of the compensation was
excessively difficult to assert before the courts. The third
applicant stressed in that regard that, according to the asset
transfer contract, entered into by the company and the main
shareholder, whereby all the company's assets had been transferred
from the former to the latter, she could assert that right only
before an arbitration tribunal.
- The
applicants moreover contended that the legislation providing for the
transfer was allegedly inspired by Austrian and German law, yet its
conformity with the purpose of the Third Council Directive 78/855/EEC
was not ensured.
(b) The Government
- The
Government conceded that an action to set aside a general meeting
resolution whereby a company's assets had been transferred to the
main shareholder when the company was wound up could be brought only
if a court administering the commercial register had not yet
authorised the registration of the transfer into the commercial
register. Nevertheless, they maintained that such a court was indeed
obliged to review the lawfulness of that resolution as a preliminary
question. The impossibility for shareholders to take part in
proceedings before that court pursued a legitimate aim to eliminate
protraction of the issue and abusive challenges which would weaken
the protection of shareholders' rights, including those of minority
shareholders. They added that the court deciding in the case of the
first applicant was empowered to stay the proceedings if it thought
that to be necessary.
- As
regards the alleged breach of bilateral treaties concerning
protection of investments, that issue was, in the Government's view,
outside the scope of review under the Convention.
- Moreover,
where the majority shareholder possessed more than 90 percent of a
company's shares, minority shareholders could not influence the
company's conduct. Therefore, benefits arising from their shares were
de facto reduced to the asset value of the shares which they
possessed, the other rights attached thereto being rather
theoretical. The influence of minority shareholders could not be
durable and those shareholders were to be considered rather as brakes
delaying the plans of the main shareholder. In these circumstances,
the legislature allowed a main shareholder to squeeze out minority
shareholders by winding up a company without liquidation whilst all
its assets were transferred to the main shareholder. This form of
squeeze out had been found to be in conformity with the Convention in
the case of Bramelid and Malmström v. Sweden (nos. 8588/79
and 8589/79, Commission decision of 12 October 1982, Decisions and
Reports (DR) 29, p. 64).
- The
Government further maintained that alternative legal remedies were
available to the applicants. In the event of disagreement regarding
the compensation, it was possible for the applicants to request that
the value of that compensation be determined by a court. In such
proceedings a court was obliged to seek and take into account
even evidence which was not presented by the parties but which was
necessary for it to establish relevant facts. Moreover, if the
decision depended on an expert opinion, a party could be discharged
of its obligation to pay the costs of proceedings even if it was only
partly successful. Therefore, such proceedings, in the Government's
view, did not put the applicants at a disadvantage in comparison
with their standing as the plaintiffs in set-aside proceedings.
Furthermore, an action for compensation for the damage inflicted by
the resolution and an action for just satisfaction for a breach of
fundamental shareholders' rights were at the applicants' disposal.
- They
concluded that even though the applicants had been hindered from
seeking a review of the transfer through actions to set aside, this
limitation of their rights under Article 6 of the Convention had to
be regarded as justified, since it pursued the legitimate aim of
promoting legal certainty in legal relations, protecting the
interests of third parties and the main shareholder and,
alternatively, of guaranteeing the efficient operation of business
companies. The judicial protection afforded to minority shareholders
must therefore be considered adequate.
2. The Court's assessment
- The
Court recalls that Article 6 § 1 of the Convention embodies the
“right to a court”, of which the right of access, that
is, the right to institute proceedings before a court in civil
matters, constitutes one aspect (Osman v. the United Kingdom, 28
October 1998, § 147, Reports of Judgments and Decisions
1998-VIII).
However,
being able to put a case to a court does not in itself satisfy all
the requirements of that provision. It must also be established that
the degree of access afforded under the national legislation was
sufficient to secure the individual's “right to a court”,
having regard to the rule of law in a democratic society (Petkoski
and Others v. "the former Yugoslav Republic of Macedonia",
no. 27736/03, § 40, 8 January 2009 which itself refers to
Ashingdane v. the United Kingdom, judgment of 28 May 1985,
Series A no. 93, § 57). Moreover, Article 6 § 1 of the
Convention guarantees the right of access to a court which does not
only include the right to institute proceedings, but also the right
to obtain a “determination” of the dispute by a court. As
stated in the Court's case-law, “it would be illusory if
a Contracting State's domestic legal system allowed an
individual to bring a civil action before a court without
securing that the case would be determined by a final decision in the
judicial proceedings. It would be inconceivable that Article 6 §
1 of the Convention should describe in detail procedural guarantees
afforded to litigants - proceedings that are fair, public and
expeditious - without guaranteeing the parties to have their civil
disputes finally determined” (Petkoski, cited above, and
Multiplex v. Croatia, no. 58112/00, §§ 44 and
45, 10 July 2003).
At
the same time, the “right to a court” is not absolute; it
is subject to limitations permitted by implication, since by its very
nature it calls for regulation by the State, which enjoys a certain
margin of appreciation in this regard. However, these limitations
must not restrict or reduce a person's access in such a way or to
such an extent that the very essence of the right is impaired
(Edificaciones March Gallego S.A. v. Spain, 19 February 1998,
§ 34, Reports of Judgments and Decisions 1998 I).
In addition, the principle of the rule of law and the notion of fair
trial enshrined in Article 6 § 1 of the Convention preclude any
interference by the legislature with the administration of justice
designed to influence the judicial determination of the dispute
(Stran Greek Refineries and Stratis Andreadis v. Greece,
judgment of 9 December 1994, Series A no. 301-B, § 49).
i. Application no. 32921/03
- In
the instant case, the Court observes that the applicants' action
lodged on 31 May 2001 was twofold, consisting of the claim of
unlawfulness of the general meeting resolution of Českomoravský
cement, a. s. and that of unlawfulness of the asset transfer contract
(see paragraph 9 above).
- Dealing
first with the applicants' claim before the Municipal Court that the
asset transfer contract had been unlawful, the Court notes that the
Municipal Court dealt with all heads of the claim (see paragraph 13
above). In particular, it dealt on the merits with the claims
concerning the determination of the decisive day and the number of
experts commissioned. There was therefore no limitation on access to
court in this respect. As regards the head of unlawfulness
purportedly deriving from the manner of determining compensation for
minority shareholders, the Municipal Court referred the applicants to
the other fora which were available. Given that such fora were set up
and used by the applicants, this part of the decision did not limit
the applicants' access to court, either.
It
follows that there was no limitation on access to court concerning
the applicants' claim that the asset transfer contract was unlawful.
- However,
as regards the claim that the courts failed to deal with the
applicants' contention that the resolution of the general meeting of
Českomoravský cement, a. s. was unlawful, on 27 July 2006
the Municipal Court declined to examine the applicants' challenge of
unlawfulness to the general meeting resolution of 31 May 2001 on the
ground that the resolution had been registered in the commercial
register, and that Article 131(3)(c) of the CC, taken in conjunction
with Article 183(1) thereof, therefore deprived the Municipal Court
of jurisdiction (see ibidem). The Court finds that the
application of Article 131(3)(c) of the CC in the case constituted a
limitation on the applicants' access to court as it prevented them
from having a court determination on merits of the legal issue at
stake, namely whether the resolution had been adopted contrary to
law.
- The
Court must examine whether that limitation is compatible with Article
6 § 1 of the Convention.
- The
Court first notes that the limitation on access to court came about
as a result of the operation of Article 131(3)(c) of the CC, and it
is clear that that provision covered the present case. The limitation
was therefore lawful in the sense that it was provided for by
domestic law. As to the
applicants' contention that the domestic law was, itself,
incompatible with Community law, and apart from the fact that it is
in the first place for the domestic authorities to interpret domestic
law and for the Community judicial organs to interpret Community law,
the applicants, referring to the Third Council Directive 78/855/EEC,
have not specified what provisions thereof they invoked. The Court
therefore finds this applicant's plea unsubstantiated. The same
applies mutatis mutandis to the contention whereby the
applicants relied on the aforesaid bilateral treaties.
- Consequently,
it is to be examined whether the interference was justified, i.e.
whether it pursued a legitimate aim in the public interest and was
proportionate (Osman v. the United Kingdom, referred to above,
§ 147).
- The
Government maintained that the limitation aimed to preserve legal
certainty and facilitate the operation of business. The applicants
disagreed, contesting the existence of any public interest in the
case.
- The
Court recognises that giving companies flexibility in determining
their share-holdership, and a concomitant limitation on challenges to
asset transfers once they have been registered, can be seen as
enhancing trade and economic development. The Court further
recognises that Article 131(3)(c) of the CC can have the effect of
preventing delays by abusive challenges to company resolutions, which
in turn promotes stability in commercial markets and also contributes
to trade and economic development. This is so, even though in the
present cases the immediate beneficiary of the transfer was the main
shareholder: the mere fact that legislation benefits a private person
does not mean that the impugned legislation cannot have pursued a
public interest (see James and Others v. the United Kingdom,
judgment of 21 February 1986, Series A no. 98, §§
39-40). The Court finds that the denial of access to a court through
the contested legal provision, which is part of the legislation on
asset transfers, pursued a legitimate aim in the public interest.
- As
for the proportionality of the contested limitation, the Court
reiterates that a limitation will not be compatible with Article 6 §
1 of the Convention if there is not a reasonable relationship of
proportionality between the means employed and the aim sought to be
achieved (Ashingdane v. the United Kingdom, cited above, §
57).
- The
Court first observes that the application by the Municipal Court on
27 July 2006 of Article 131(3)(c) of the CC in the case at hand
prevented any further examination of the merits of the applicants'
claim that the resolution of 31 May 2001 was unlawful. As to the
Government's suggestion that the applicants' interests were
adequately considered in the proceedings connected with the
registration of the resolution, the Court notes that the applicants
had no standing in the registration proceedings as is shown in
rulings of domestic courts upheld by the decision of the
Constitutional Court of 25 March 2003. Thus, the applicants'
interests under Article 6 § 1 of the Convention could not be
protected in those proceedings.
Further, the registration was not adjourned pending the
outcome of the challenge to the resolution, even though the
applicants informed the court of their views, and even though the law
at the relevant time would have permitted such an adjournment.
- As
to the Government's contention that it was open to the applicants to
seek to vindicate their interests in other ways, such as by
requesting a separate judicial review of the compensation paid by the
main shareholder, or by claiming damages or just satisfaction for a
breach of fundamental rights of shareholders, the Court would note
that those proceedings had different objectives and dealt with the
separate issue of the monetary satisfaction. Moreover, just
satisfaction could be claimed for breach of not all but only
fundamental rights of shareholders. The Government have not shown
that these legal avenues were capable of giving rise to a discussion
of the lawfulness of the resolution in circumstances comparable to a
review in the set-aside proceedings. They cannot be therefore
regarded as a means of mitigating the effects of Article 131(3)(c) of
the CC in connection with the core issue in the proceedings.
Nor could they be considered as effective remedies to be exhausted by
the applicant (see paragraph 74 above), an issue which the Court
joined to merits (see paragraph 80 above).
- Thus,
the Court concludes that as a result of the operation of Article
131(l)(c) of the CC, the applicants were deprived of a determination
on the merits of the claim that the resolution of the general meeting
was unlawful. Their access to a court was therefore limited, and no
reasons have been established which could render that limitation
proportionate to the legitimate aims of furthering stability in the
business community by preventing abusive challenges to resolutions.
Accordingly,
the Court dismisses the Government's objection of non-exhaustion of
domestic remedies in this respect and finds that there has been a
violation of Article 6 § 1 of the Convention.
ii. Application no. 28464/04
- The
Court notes that on 25 June 2003 the third applicant contested by her
action to set aside both the general meeting resolution of YTONG,
a. s. and the asset transfer contract to which she was not a
party (see paragraph 19 above) and pursuant to which the compensation
she received from the main shareholder for the transfer was
reviewable not by courts but only an arbitral tribunal. The Court
further notes that she claimed, in particular, that the transfer was
unlawful because of a compulsory arbitration clause in the contract.
The Court further notes that the Olomouc High Court discontinued the
set-aside proceedings initiated by the third applicant without
reviewing the merits with reference to Article 220h(4) of the CC. The
Court observes that she had no standing in the proceedings on the
registration of the transfer into the commercial register, and that
those proceedings were not adjourned pending the outcome of the
challenge to the resolution and the contract.
- After
the transfer had been registered with the commercial register, it was
no longer possible for the applicant to seek that the general meeting
resolution and the asset transfer contract be set aside, as the
proceedings could have continued only if she had changed the object
of her action so as to claim damages or to request a review of
compensation. Article 220h(4) of the CC thus constituted a limitation
on the third applicant's access to a court as it prevented her from
having a court determination on merits of the legal issue at stake,
in particular whether the resolution and the contract had been
adopted contrary to law. Its effects on the third applicant were thus
similar to those of Article 131(3)(c) of the CC on the applicants in
application no. 32921/03 examined above.
- Reviewing
whether that limitation was justified, the Court notes that Article
220h(4) of the CC pursued according to the Government the same aim as
Article 131(3)(c) thereof. Having regard to its considerations
expressed in paragraph 98 above, the Court finds Article 220h(4) of
the CC to have pursued a legitimate aim in the public interest within
the meaning of Article 6 § 1 of the Convention.
As
for the proportionality of that limitation, the Court notes that the
Government relied, as in application no. 32921/03 above, on the
existence of alternative legal avenues which rendered the limitation
compatible with the Convention. The Court further notes that in its
view expressed above those legal avenues did not constitute remedies
to be exhausted within the meaning of Article 35 § 1 of the
Convention, nor could they adequately mitigate the impairments of
minority shareholders' rights caused by that limitation (see
paragraph 101 above). Given that the third applicant's right to
access to a court was limited as a result of the operation of Article
220h(4) of the CC in a manner similar to that in application no.
32921/03, the Court finds that the availability of alternative
remedies could not satisfy the requirements of Article 6 § 1 of
the Convention in the present application.
- It
ensues that the third applicant's right of access to a court was
limited as a result of the operation of Article 220h(4) of the CC
which deprived her of a determination on merits of the claim of
unlawfulness of the general meeting resolution and the asset transfer
contract, and no reasons that would render that limitation justified
were established. Therefore, the Court dismisses the Government's
objection of non-exhaustion of domestic remedies in this respect and
finds that there has been a violation of Article 6 § 1 of the
Convention.
iii. Application no. 5344/05
- The
applicant in application no. 5344/05 complained about a lack of
access to court in the set-aside proceedings in two respects. He
complained, first, that the courts had not dealt with his claim that
the asset transfer contract was invalid because of the way it
provided for the calculation of compensation, and he complained that
the courts had not dealt with his claim that the asset transfer
contract and the general meeting resolution were invalid on the
ground of serious irregularities at the general meeting of Biocel, a.
s.
- As
to the claim that the courts did not deal with the claim concerning
compensation provisions, the Court notes, as the Government
contended, that it was open to him to raise precisely this issue in
proceedings under Article 220k of the CC. The applicant did bring
such proceedings, and they are still pending. It follows that the
refusal to deal with the claim in the set-aside proceedings did not
deprive the applicant of access to court in this respect.
As to
the claim that the courts did not deal with the merits of the
proceedings to have the transfer set aside, the Court notes that
those proceedings were discontinued by the decisions of the Ostrava
Regional Court and Olomouc High Court of 14 March 2008 and 1 July
2008 respectively, without having been examined on merits. Both
courts, referring to the registration of the transfer in the
commercial register, relied on Article 220h(4) of the CC which
prevented them from further reviewing the action to set aside. The
Court observes that the first applicant had no standing in the
proceedings on the registration of the transfer into the commercial
register, and that those proceedings were not adjourned pending the
outcome of the challenge to the resolution and the contract.
- The
Court notes that the situation of the first applicant in the
set-aside proceedings became after the decision of the Regional Court
and High Court respectively, analogous to the position of the third
applicant in application no. 28464/04 (see paragraph 103 above), as
he was prevented from having a court determination on merits of his
action to have the general meeting resolution set aside. His access
to a court was therefore limited in a manner similar to that in
application no. 28464/04. Having found that the alternative legal
avenues referred to by the Government did not constitute an effective
legal remedy within the meaning of Article 35 § 1 of
the Convention and did not adequately mitigate such a limitation (see
paragraphs 101 and 105 above), the Court finds that no reasons that
would render that limitation proportionate to the legitimate aims of
furthering stability in the business community by preventing abusive
challenges to general meeting resolutions were established.
In
the light of the foregoing, the Court dismisses the Government's
non-exhaustion arguments in this respect and finds that there has
been a violation of Article 6 § 1 of the Convention.
III. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1
- The
applicants further complained that the transfer of the companies'
assets amounted to the expropriation of their property, which was not
safeguarded by sufficient procedural safeguards. They contested the
relevant legislation as such, in particular the way it governed
determination of the compensation. Furthermore, they argued that the
relevant law did not provide for a sufficient level of precision,
foreseeability and certainty regarding the rights of minority
shareholders. It lacked such features as duty for companies to
provide information, joint representation of minority shareholders
and other safeguards. They considered the relevant law unbalanced as
it failed to strike a fair balance between the interests of a main
shareholder and those of minority shareholders. Finally, they alleged
an interference with their legitimate expectation, as Czech law had
not provided for that form of transformation of a company when they
acquired their shares. Moreover, it had to be considered legitimate
to expect observation of the legal standards of west European
countries and international treaties on protection of investments by
the Czech legislature when it introduced the impugned provisions
contravening Article 1 of Protocol No. 1, the relevant part of 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.”
- The
Government maintained that the complaints under this provision of the
Convention were inadmissible.
- The
Court observes that the complaint before it aims at the entire
process of the company's transformation and the position of minority
shareholders therein. However, this process has not yet been fully
completed, as the compensation proceedings, crucial in the light of
Article 1 of Protocol No. 1, are still pending.
It
follows that this part of the applications is premature within the
meaning of Article 35 § 1 of the Convention and must be declared
inadmissible pursuant to Article 35 § 4 of the Convention.
IV. APPLICATION OF ARTICLE 13 OF THE CONVENTION
-
The applicants complained that they did not have at their disposal
any remedy against the interference with the property rights asserted
in their applications. They relied on Article 13 of the Convention
which reads as follows:
“Everyone whose rights and freedoms as set forth
in [the] Convention are violated shall have an effective remedy
before a national authority notwithstanding that the violation has
been committed by persons acting in an official capacity.”
- The
Court notes that this complaint is linked to the claims made by
applicants under Article 1 of Protocol No. 1, which were declared
inadmissible as premature.
It
follows that this complaint is manifestly ill-founded pursuant to
Article 35 § 3 of the Convention and must de declared
inadmissible in accordance with Article 35 § 4 of the
Convention.
V. 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
- The
applicants asserted that they had not yet been able to assess
pecuniary damage inflicted by the “expropriation” of
their shares as the relevant domestic proceedings were still pending.
They reserved the right to specify the damages once those proceedings
are terminated. The third applicant claimed in addition CZK 622,160
(EUR 22,200) for fees she had been obliged to pay in the arbitration
proceedings.
The
Government maintained that the applicants failed to establish any
damage. They saw no casual link between the alleged damage and the
violation of Article 6 § 1 of the Convention. They noted in
respect of the third applicant that the asserted arbitration fee was
incurred by all three petitioners together, not just by the third
applicant.
The
Court considers that the damage alleged by the applicants is
connected to the loss of their shares upon the liquidation of the
companies and the attempts to recover it in proceedings before
domestic courts. These claims, however, are linked to the complaint
under Article 1 of Protocol No. 1, which has been declared
inadmissible. It follows that no casual link has been established
between the alleged damage and the violation found. As for the damage
allegedly incurred by the payment of the arbitration fee, the third
applicant did not allege in her submissions under Article 1 of
Protocol No. 1 that her property rights had been impaired by the
payment of that fee. Even if she had done so, no casual link between
the alleged damage and the violation found could be established as
only a violation of Article 6 § 1 of the Convention was
found.
No
award under this head is therefore granted.
- As
for non-pecuniary damage the applicants claimed EUR 1,000,000
for having suffered on account of uncertainty and frustration caused
by their inability to enjoy rights under the Convention. They
considered that sum to be proportionate to the size of their
investment and of the class of shareholders affected by the impugned
legislation and case law. In the applicants' view a smaller amount
would not compel the responding Party to bring that legislation in
line with European standards.
The
Government pointed out that the Convention system does not recognize
actio popularis and therefore only the situation of the
applicants may be taken into consideration. They consider that a mere
statement of finding a violation of Article 6 § 1 of the
Convention is sufficient satisfaction for the applicants.
The
Court, ruling on an equitable basis and in accordance with its case
law concerning the denial of access to a court, holds that finding a
violation of Article 6 § 1 of the Convention represents in
itself just satisfaction for the applicants.
B. Costs and expenses
- Each
applicant claimed the costs of legal representation amounting to CZK
120,000 (EUR 4,528). They asserted that the legal representation in
each case consisted of fifty billable hours charged CZK 2,400 (EUR
90) per hour.
Invoking
Rule 60 paragraph 2 and 3 of the Rules of Court, the Government
asserted that it appeared that the applicants had not provided within
the time specified therein any documents proving the payment of those
costs at the amount sought. They contended that the Court should
reject the claim as insufficiently grounded (Aldoshkina v. Russia,
no. 66041/01, § 32, 12 October 2006).
- The
Court reiterates that an applicant may recover his costs and expenses
only in so far as they have been actually and necessarily incurred
and are reasonable as to quantum (Bottazzi v. Italy [GC], no.
34884/97, § 22, ECHR 1999-V). Having regard to the material
before it, particularly the complexity of the case, domestic
proceedings pursued in search of remedy of violation found, the
aforementioned criteria, and the fact that the applicants were
successful only in part of their claim raised in their applications,
the Court finds it proportionate to award the applicants, in respect
of each application, EUR 2,264 for costs and expenses, plus any tax
that may be chargeable to the applicants on this amount, all that to
be converted into Czech crowns at the rate set by the Czech National
Bank and applicable at the date of settlement.
C. 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
- Decides unanimously to join the
applications;
- Joins unanimously to the merits the
Governments' contention that the applicants did not exhaust domestic
remedies in that they did not avail themselves of the available
alternative remedies and declares the complaints under Article 6 §
1 of the Convention concerning the denial of access to a court
admissible and the remainder of the applications inadmissible;
- Dismisses by five votes to two the
non-exhaustion argument which was joined to the merits and holds that
there has been a violation of Article 6 § 1 of the
Convention in respect of each application;
- Holds by five votes to two that finding a
violation of Article 6 § 1 of the Convention represents in
itself just satisfaction for the applicants;
- 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, EUR 2,264 (two thousand two hundred and sixty four
euro) in respect of each application for costs and expenses, to be
converted into the national currency of the respondent State at the
rate applicable at the date of settlement, together with any tax that
may be chargeable to the applicants;
(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;
- Dismisses unanimously the remainder of the
applicants' claim for just satisfaction.
Done in English, and notified in writing on 15 October 2009, pursuant
to Rule 77 §§ 2 and 3 of the Rules of Court.
Claudia Westerdiek Peer Lorenzen
Registrar President
In
accordance with Article 45 § 2 of the Convention and Rule 74 §
2 of the Rules of Court, the dissenting opinion of Judge Jaeger
joined by Judge Rait Maruste is annexed to this judgment.
P.L.
C.W.
DISSENTING OPINION OF JUDGE JAEGER,
JOINED BY JUDGE
MARUSTE
I am
unable to agree with the majority's finding of a violation of Article
6 § 1 of the Convention – access to court –
without any determination of the substantive civil right at stake.
The
case is about the rights of shareholders as defined by the Czech law.
On the one hand owners of shares may be protected under Article 1 of
Protocol No. 1 in so far as these shares constitute a possession or a
property right of a certain variable value according to the stock
market. But the Chamber declared these claims inadmissible as being
premature (§ 110-112). On the other hand shareholders are
empowered to participate in certain decisions concerning the future
of the company concerned by means of resolutions taken within a
general meeting, which is an added value to the pure monetary value.
These
decisions are taken under the majority rule. Shareholders being in
the majority have the overwhelming power to transform the company
into something different and to transfer its assets. Minority rights
are rather limited, according to the restrictions by law: the
minority, or a single shareholder, can institute proceedings to set
aside such resolutions, but cannot inhibit registration following the
majority's vote by virtue of his own right. After registration the
minority's rights dwindle to a mere right to compensation. This is
all set out in the judgment under § 42-59.
The
Czech courts gave some reasoning why they considered those
restrictions of shareholder rights to be legitimate – legal
certainty and the expeditious transformation of companies. The court
administering the commercial register was established to project
majority rights and the rights of the company as such (see paragraph
12 of the judgment). In addition, by reviewing the legality of the
decision-making process within the company the courts administering
the commercial register also protect the public interest in ensuring
that the law is complied with.
I am
of the opinion that the restrictions of which the applicants complain
are partly implemented by substantive provisions, partly by
procedural ones. Whether these restrictions are in conformity with
Convention rights cannot be answered by Article 6 § 1 of the
Convention only focusing on the procedural aspect, even limited to
one single factor within the procedural safeguards. In the context of
civil rights that are not to be exercised individually but
collectively together with other shareholders in the same position
and under the obligation to reach a majority vote, access to court
cannot be understood as a purely individual right to challenge and
suspend every decision. This would at the same time grant every
single shareholder a veto right against majority decisions. Thus
the scope of shareholders' voting rights is defined within the limits
of judicial control attached to them.
Whether
the rights enshrined in the Convention demand for an extension of
minority rights with the aim to sufficiently protecting a minority of
shareholders cannot be answered by Article 6 § 1 of the
Convention but only by Article 1 of Protocol No. 1. It is a
substantive and not a procedural question.
Article
6 of the Convention applies under its “civil head” if
there was a “dispute” over a “right” which
can be said, at least, on arguable grounds, to be recognised under
domestic law irrespective of whether it is also protected under the
Convention (see Associazone Nazionale Reduci Dalla Prigonia
Dall'Internamento E Dalla Guerra Di Liberazione and others v.
Germany, no. 45563/04; J.S. and A.S. v. Poland, no.
40732/98, 24 May 2005). The absence of a legitimate expectation of
a property right or any other civil right does not presuppose
the absence of a right recognised on arguable grounds and the
applicability of Article 6 of the Convention. The Court therefore has
always to examine whether there was a dispute over a defendable
right, which the Chamber did not do in any depth in this case.
The
civil right under dispute might be the purely financial property
right embodied in the share. This dispute is still pending as
conceded by the majority of the Chamber. It might as well be the
additional right to influence important resolutions taken in a
general meeting. The only existing legal provisions regarding a right
to influence the future of a company clearly limit shareholders'
bearing to a right to participate and vote in the general meeting, to
a right to challenge resolutions as long as the changes are not
registered and assets transferred by the commercial court, and –
after the registration finalises the transactions – to claim
compensation in case of any damages sustained or of inadequate
compensation paid for their shares. Domestic law neither provides for
any right to set aside majority resolutions nor to suspend their
execution after registration. Minority shareholders are clearly
excluded from these rights. Thus they cannot claim to have such right
on arguable grounds. Article 6 § 1 of the Convention
is not applicable (see Associazone Nazionale, referred to
above).
Finding
Article 6 of the Convention not applicable in the case does not
necessarily exclude finding a violation under Article 1 of Protocol
No. 1 to the Convention. This question, especially whether the law
strikes a fair balance between the competing interests of the
majority's rights and the public interest in the functioning of
economy under the safeguards of the rule of law on the one hand and
the protection of minority rights on the other hand, cannot be
decided before compensation is determined. In the course of their
scrutiny the courts will have to examine whether the totality of
restrictions, including those on access to court, can be deemed
necessary to control the use of property in accordance with the
general interest (under the second paragraph of Article 1 of Protocol
No. 1). I agree with the majority of the Chamber under § 112
that this part of the application is premature.
