Franz J. SEDELMAYER v Germany - 30190/06 [2009] ECHR 2000 (10 November 2009)

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The European Court of Human Rights (Fifth Section), sitting on 10 November 2009 as a Chamber composed of:

Peer Lorenzen, President,
Renate Jaeger,
Karel Jungwiert,
Rait Maruste,
Mark Villiger,
Isabelle Berro-Lefèvre,
Zdravka Kalaydjieva, judges,

The applicant, Mr Franz J. Sedelmayer, is a German national who was born in 1963 and lives in Irschenhausen.

The facts of the case, as submitted by the applicant, may be summarised as follows.

From December 1994 to March 1996, assets of the applicant, who had made an investment in a Russian company in St. Petersburg, were expropriated by the Russian authorities without compensation. Relying on the Bilateral Investment Treaty between Germany and the former Union of Soviet Socialist Republics (USSR) of 1989, which remained in force between Germany and the Russian Federation after the disintegration of the USSR, the applicant complained to an international arbitral tribunal in Stockholm, Sweden, requesting compensation.

On 7 July 1998 the arbitral tribunal awarded 235,000,000 United States dollars (USD) plus interest to the applicant. The Russian Federation refused to pay this arbitral award. It made a request before the Swedish courts that the arbitral award be declared void. On 18 December 2002 the Stockholm District Court dismissed the request; the Russian Federation’s appeals were to no avail.

On 16 February 2001 the Berlin Regional Court declared the arbitral award enforceable. Relying on the Bilateral Investment Treaty of 1989 and the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, it observed that the Russian Federation could not rely on a general immunity from execution. The Regional Court added that it was not for it to decide, however, whether international law prohibited enforcement measures directed against specific assets such as assets serving a sovereign purpose. The applicant subsequently initiated execution proceedings in Germany.

2. The execution concerning the “VAT reimbursement claims” (application no. 30190/06)

The applicant requested an execution order (Pfändungs- und Überweisungsbeschluss) for the Russian Federation’s claims against Germany concerning the reimbursement of VAT (Value Added Tax).
The VAT owed by Germany stemmed from the Russian Embassy’s acquisitions of goods and services. In September 2002, the Berlin District Court granted the request, and attached and transferred the Russian Federation’s claims for VAT reimbursement. The Russian Federation objected to the order.

On 27 December 2002 the District Court cancelled the order, holding that the attachment of the claims was not in accordance with international law. It observed that the Russian Federation had issued a declaration in which it had assured that the reimbursed VAT solely served to maintain the functioning of the diplomatic and consular missions. Therefore, the attached claims served sovereign purposes and were exempt from execution. Furthermore, the Russian Federation had not declared a waiver of immunity for the enforcement proceedings.

On 3 December 2003 the Berlin Court of Appeal upheld the District Court’s decision. It found that an execution would be inadmissible under the rules of international law. The assurance given by the Russian Federation that the reimbursed VAT served solely to maintain the functioning of the diplomatic and consular missions was sufficient.

On 4 October 2005 the Federal Court of Justice dismissed an appeal by the applicant on points of law (no. VII ZB 8/05). It found that the enforcement of the Russian Federation’s claims of VAT reimbursement was inadmissible. The Russian Federation enjoyed diplomatic immunity in relation to these claims as they served for the maintenance of the diplomatic missions’ sovereign functions. It was pertinent in that context that there was no need for an actual impediment of the diplomatic activities to have occurred; an abstract risk of impediment sufficed. This general rule of international law was also applicable to assets which did not – as in the present case – fall within the ambit of the Vienna Convention on Diplomatic Relations; rather, the protection extended to all assets serving for the functioning of diplomatic and consular missions. It was also of no relevance whether the Russian Federation was capable of assuring sufficient funds for its missions by other means; if it had been, diplomatic immunity would have to depend on a State’s financial capacity. In the present case, the Russian Federation’s assurance had been sufficient and it would have amounted to an illegal interference in matters of a foreign State to ask the Russian Federation to specify the purpose of the assets.

The Federal Court of Justice also observed that diplomatic immunity was an essential element of effective international cooperation and had to be respected in order to be able to settle disputes by peaceful means.
These principles prevailed over the applicant’s interest in attaching the assets. As to the Russian Federation’s alleged waiver of immunity, the Federal Court of Justice found that the Bilateral Investment Treaty, regulating the procedure on the merits, contained no waiver for enforcement proceedings. Such a waiver could also not be inferred from the Bilateral Investment Treaty (in particular its Article 4 § 2) or the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or any other treaty. According to the spirit and purpose of the Bilateral Investment Treaty, enforcement proceedings were generally permitted, but did not extend to assets serving a sovereign purpose.

On 8 February 2006 the Federal Constitutional Court declared the constitutional complaint inadmissible without providing reasons.

3. The execution concerning the “air traffic fees” (application no. 30216/06)

The applicant requested an execution order for the Russian Federation’s claims against the German airline Deutsche Lufthansa AG. Those claims allegedly arose from, inter alia, the granting of overflight, transit and landing permits. On 5 February 2002 the Cologne District Court granted the request. The Russian Federation and Deutsche Lufthansa AG objected to the order.

On 29 May 2002 the District Court cancelled the order. It held that the claims in question could not be attached. They were of a sovereign nature and served a sovereign purpose, as they concerned the airspace over Russian territory. It observed that a measure enforcing those claims would only have been possible if the Russian Federation had consented to the execution.

On 6 October 2003 the Cologne Court of Appeal dismissed the appeal.
It observed that the international competence of German courts was doubtful. In any case, while execution on assets of the Russian Federation was not generally precluded, the attached claims could not be executed as they served a sovereign purpose and were thus subject to State immunity from execution. The Russian Federation had sufficiently demonstrated that the fees were to be used for sovereign purposes, namely for air traffic administration.

On 4 October 2005 the Federal Court of Justice dismissed the appeal on points of law (no. VII ZB 9/05) on two alternative grounds. First, it held that German courts lacked international competence to execute claims like those in question. Relying on German law as the lex fori, the court held that the claims concerned fees governed by public law, which could not be executed since German courts were only internationally competent for execution in assets that were located on German territory. The obligation of Deutsche Lufthansa AG to pay the fees had arisen, however, within the sovereign territory of the Russian Federation, not in Germany.

Second, the Federal Court of Justice held that, according to the rules of international law, the Russian Federation enjoyed immunity in relation to these claims as the fees for the air traffic served sovereign purposes. As the Court of Appeal had held, the receipts of the fees were directly devoted to the air traffic administration, which was a sovereign task. In addition, the Russian Federation had not waived its immunity from execution.
The Federal Court of Justice found that the Bilateral Investment Treaty, which regulated the procedure on the merits, contained no waiver in respect of enforcement proceedings. Such a waiver could also not be inferred from the Bilateral Investment Treaty (in particular its Article 10 § 4) or the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards, or any other treaty. According to the spirit and purpose of the Bilateral Investment Treaty, enforcement proceedings were generally permitted, but did not extend to assets serving a sovereign purpose.

On 23 February 2006 the Federal Constitutional Court refused to admit the constitutional complaint for adjudication, without giving reasons.

The applicant continued his attempts to execute the arbitral award in Germany. He requested an execution on a plot of land situated in Germany, which was owned by the Russian Federation. In 2006 the Cologne District Court ordered the judicial sale of the plot of land.

The Russian Federation brought a civil action against the applicant, claiming that that the execution was illegal as the arbitral award had been obtained fraudulently. The courts rejected the claim. On 4 September 2008 the Federal Constitutional Court refused to admit the Russian Federation’s constitutional complaint.

A state-owned Russian enterprise, which then owned the plot of land, lodged a complaint against the judicial sale of the plot, arguing that the execution conflicted with the international law principle of State immunity. The Frankfurt Court of Appeal rejected the complaint, finding that the plot of land did not serve a sovereign purpose and was therefore not exempt from execution by the principle of State immunity. On 15 December 2008 the Federal Constitutional Court refused to admit the constitutional complaint.

The Bilateral Investment Treaty of 13 June 1989 between the Russian Federation and Germany reads in its Article 10 § 4 in fine:

“The decisions of the arbitral tribunal shall be recognised and implemented in accordance with the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958.”

Article III of the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 reads:

“Each Contracting State shall recognise arbitral awards as binding and enforce them in accordance with the rules of procedure of the territory where the award is relied upon, under the conditions laid down in the following articles. There shall not be imposed substantially more onerous conditions or higher fees or charges on the recognition or enforcement of arbitral awards to which this Convention applies than are imposed on the recognition or enforcement of domestic arbitral awards.”

The relevant provisions of international law instruments governing State immunity are referred to in various cases examined by the Court (see, among many other authorities, Treska v. Albania and Italy (dec.), no. 26937/04, ECHR 2006 ... (extracts)).

A. The complaints concerning the non-execution of the VAT reimbursement claims (application no. 30190/06)

B. The complaints concerning the non-execution of the air traffic fees (application no. 30216/06)

“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 applicant complained that the refusal of the German courts to execute the arbitral award amounted de facto to an absolute immunity from execution, claiming that all his attempts to attach the assets of the Russian Federation had been unsuccessful. He also contended that when deciding that the Russian Federation had not waived its right to immunity the courts had incorrectly interpreted the relevant provisions of the Bilateral Investment Treaty between the Russian Federation and Germany and the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The applicant generally averred that the German courts had failed to correctly establish the facts, for example, as to whether the claims served a sovereign purpose.

The Court observes that the arbitral award had given rise to a debt in the applicant’s favour that was sufficiently established to be enforceable. Therefore, the applicant had a “possession” for the purposes of Article 1 of Protocol No. 1 (see Stran Greek Refineries and Stratis Andreadis v. Greece, 9 December 1994, § 59, Series A no. 301 B).

Any interference in the right to peaceful enjoyment of the applicant’s possessions must be provided for by law and serve a legitimate aim in the public or general interest. In addition, the Court reiterates that the right guaranteed by Article 1 of Protocol No. 1 may result in positive obligations on the State to take reasonable and appropriate measures to protect the right of property. A State is, for example, under an obligation to afford judicial procedures that offer the necessary procedural guarantees and therefore enable the domestic courts and tribunals to adjudicate effectively and fairly any disputes concerning the right of property (see Sovtransavto Holding v. Ukraine, no. 48553/99, § 96, ECHR 2002 VII). Whether the case is analysed in terms of a positive duty on the State or in terms of an interference by a public authority, the applicable principles are broadly similar. In both contexts regard must be had to the fair balance that has to be struck between the competing interests of the individual and of the community as a whole (see, in relation to Article 8 of the Convention, Hatton and Others v. the United Kingdom [GC], no. 36022/97, § 98, ECHR 2003 VIII, and, in relation to Article 11 of the Convention, Demir and Baykara v. Turkey [GC], no. 34503/97, § 111, 12 November 2008).

In the present case, the Court will therefore ascertain whether the German courts struck a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights (see, among many other authorities, Sporrong and Lönnroth v. Sweden, judgment of 23 September 1982, Series A no. 52, p. 26, § 69).

The Court reiterates that the Convention has to be interpreted in the light of the rules set out in the Vienna Convention of 23 May 1969 on the Law of Treaties and that Article 31 § 3 (c) of that treaty indicates that account is to be taken of “any relevant rules of international law applicable in the relations between the parties”. The Convention should thus be interpreted in harmony with other rules of international law of which it forms part, including those relating to the grant of State immunity (see Fogarty v. the United Kingdom [GC], cited above, § 35, and Kalogeropoulou and Others v. Greece and Germany, cited above). In addition, the Court observes that the concept of possessions within the meaning of Article 1 of Protocol No. 1 is “subject to the conditions provided for ... by the general principles of international law”.

Sovereign immunity of States is a concept of international law, developed out of the principle par in parem non habet imperium, by virtue of which one State shall not be subject to the jurisdiction of another State. The grant of sovereign immunity to a State in civil proceedings pursues the legitimate aim of complying with international law to promote comity and good relations between States (see Fogarty v. the United Kingdom [GC], no. 37112/97, § 34, ECHR 2001 XI (extracts), and Kalogeropoulou and Others v. Greece and Germany (dec.), no. 59021/00, ECHR 2002 X).

The Court has previously held that international legal instruments governing State immunity set forth the general principle that, subject to certain strictly delimited exceptions, foreign States enjoy immunity from execution in the territory of the forum State. The protection thus afforded to foreign States is increased with regard to property belonging to their diplomatic and consular missions in the forum State (see Manoilescu and Dobrescu v. Romania and Russia (dec.), no. 60861/00, § 73, ECHR 2005 VI). A State cannot be required to override against its will the rule of State immunity, which is designed to ensure the optimum functioning of diplomatic missions (ne impediatur legatio) and, more generally, to promote comity and good relations between sovereign States (see Manoilescu and Dobrescu, cited above, §§ 81 and 92, and Treska, cited above).

In the present case, the Court observes that in relation to the claims for VAT reimbursement, the Federal Court of Justice took into account the principle of diplomatic immunity, an essential element of effective international cooperation, weighing it against the applicant’s interest in attaching the Russian Federation’s VAT reimbursement claims.
With respect to the air traffic fees, the Federal Court of Justice considered that they served sovereign purposes and that those fees arose within the sovereign territory of the Russian Federation, thus beyond the international competence of German courts. The Federal Court of Justice thus took into consideration the principle of diplomatic immunity and of sovereign territory when refusing the applicant’s requests for attachment.

In so far as the applicant claimed that the refusal of the German courts to execute the arbitral award amounted to a de facto absolute immunity from execution as they had refused his attempts to attach the assets of the Russian Federation, the Court cannot concur. The domestic courts neither decided that the arbitral award was invalid nor that it would not be enforced at all in Germany; on the contrary they found the arbitral award to be enforceable. Relying on principles of international law, the German courts only excluded the execution of those assets that served the maintenance of the diplomatic missions’ sovereign functions (the claims for VAT reimbursement) and of those which served sovereign functions and were not executable for lack of international competence, as they arose within the sovereign territory of the Russian Federation (the air traffic fees). The Court also notes the other attempts by the applicant to attach assets of the Russian Federation in Germany, which appear to have been approved by the German courts.
The Court concludes that there is nothing to suggest that the German courts would not allow the attachment of assets that are not protected by principles of international law.

As to the applicant’s contention that the German courts had failed to correctly establish the facts and had incorrectly interpreted the relevant treaty provisions, the Court reiterates that it is not its task to establish whether the Russian Federation’s claims in fact served sovereign functions or whether the Russian Federation had in fact waived its immunity.
Those questions are primarily for the domestic courts to decide.
The German courts found that the claims had served sovereign purposes and that the Russian Federation had not waived its immunity from enforcement. The Court considers that the applicant has failed to demonstrate, and there is nothing to suggest, that the assets in question have not been used by the Russian Federation in accordance with its sovereign power, or that that State had consented to any measures of constraint, such as attachment, arrest or execution, which would justify lifting its immunity from enforcement.

In light of the foregoing, the Court concludes that the German courts struck a fair balance between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights.

It follows that there is no appearance of a violation of Article 1 of Protocol No. 1 and this complaint must be rejected as manifestly ill-founded pursuant to Article 35 §§ 3 and 4 of the Convention.

It follows that this part of the application is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.

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You are here: BAILII >> Databases >> European Court of Human Rights >> Franz J. SEDELMAYER v Germany - 30190/06 [2009] ECHR 2000 (10 November 2009) URL: http://www.bailii.org/eu/cases/ECHR/2009/2000.html Cite as: [2009] ECHR 2000