FOURTH SECTION
FINAL DECISION [1]
AS TO THE ADMISSIBILITY OF
Application no. 75619/01
by Lars AHLSKOG and Oy MAPLE HOUSE Ab
against Finland
The European Court of Human Rights (Fourth Section), sitting on 13 June 2006 as a Chamber composed of:
SirNicolas Bratza, President,
MrJ. Casadevall,
MrG. Bonello,
MrM. Pellonpää,
MrL. Garlicki,
MsL. Mijović,
MrJ. Šikuta, judges,
and Mr T.L. Early, Section Registrar,
Having regard to the above application lodged on 18 May 2001,
Having regard to the partial decision of 4 May 2004,
Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,
Having deliberated, decides as follows:
THE FACTS
The first applicant, Mr Lars Ahlskog is a Finnish national, who was born in 1929 and lives in Kokkola. He owned and administered a limited liability company named Oy Maple House Ab, the second applicant. The company was subsequently declared insolvent and wound up. They were represented before the Court initially by Mr Matti Wuori and subsequently by Mr Simo Ellilä, lawyers practising in Helsinki. The Finnish Government (“the Government”) were represented by their Agent, Mr Arto Kosonen of the Ministry for Foreign Affairs.
A. The circumstances of the case
The facts of the case, as submitted by the parties and as they appear from the documents, may be summarised as follows.
The proceedings leading up to the default judgment
On 30 June 1999 a bank instituted proceedings against the applicant company, the first applicant and his son with a view to obtaining payment on the basis of promissory notes[2] signed on behalf of the applicant company as a debtor. The first applicant and his son stood surety for the debt. Certain real property owned by the applicant company also served as collateral for the debt. The respondents contested the claim. On 8 February 2000 the Kokkola District Court (käräjäoikeus, tingsrätten) invited their further submissions, urging them to specify on what grounds they contested the claim, failing which the court could render a default judgment. Their submissions were received on 15 and 20 March 2000.
On 21 March 2000 the District Court rendered a default judgment ordering the respondents to pay the bank almost 1,500,000 Finnish marks (FIM; corresponding to some 250,000 euros) in capital. The court delivered a default judgment because it considered that the respondents had failed to answer clearly the questions put to them about their grounds for contesting the claim.
On 9 May 2000 the default judgment was served on the respondents. On 12 May 2000 they filed an application for a re-trial with the court that had delivered the default judgment and requested a stay of execution. On 15 June 2000 the court stayed the execution.
Meanwhile, they also lodged a procedural complaint with the Vaasa Court of Appeal (hovioikeus, hovrätten). On 22 May 2000 the court stayed the execution of the default judgment. It reasoned:
“... [T]he default judgment, which is currently subject to complaint, does not form the basis for the insolvency application [see below], as alleged by the applicants in their written observations. The application to declare Oy Maple House Ab insolvent is based on the request for payment with a risk of insolvency (konkurssiuhkainen maksukehotus, betalningsuppmaning vid hot om konkurs), which was served on the company on 25 November 1999. There is therefore no reason to preclude the use of the default judgment as ... a basis for enforcement in the insolvency proceedings.”
On 9 June 2000 the Court of Appeal dismissed the complaint without considering its merits owing to the fact that the case was pending before the lower court. Thus, the provisions relied on did not operate. The Court of Appeal's decision to stay the execution ceased to have effect.
The applicants appealed. On 17 October 2000 the Supreme Court (korkein oikeus, högsta domstolen) dismissed the appeal.
On 6 February 2004 the District Court quashed the default judgment insofar as it concerned the first applicant and his son but upheld it as regards the company. At the same time it ordered that execution of the judgment should no longer be stayed.
All parties appealed. On 10 May 2004 the Court of Appeal stayed the execution of the lower court's judgment. The case is still pending before the national courts.
The proceedings leading up to the insolvency judgment
The bank presented the applicant company with a request for payment within eight days with a risk of insolvency, which was served on 25 November 1999. On 3 December 1999 the company contested the request.
On 29 March 2000 the bank petitioned the District Court in order that the company be declared insolvent, arguing that it had failed to pay its debt and also relying on the above default judgment of 21 March 2000.
On 9 May 2000 the petition was served on the company, which contested it, arguing that the bank's claim was not clear and undisputed as required by the then Insolvency Act (Act no. 31/1868; konkurssisääntö, konkursstadgan) as the company had lodged an appeal against the default judgment. In its further written submission of 22 May 2000 the company submitted that neither of the grounds on which the insolvency petition was based, i.e. the request for payment with a risk of insolvency or the default judgment, was sufficient for declaring it insolvent. The company argued that the former could not be used in the proceedings as it had been contested. The claim was not therefore clear and undisputed.
On 19 June 2000 the District Court held an oral hearing at which the company was represented by counsel. In its decision of the same day the court rejected the insolvency petition. It noted that the court had issued the above default judgment owing to the company's failure to state clearly its grounds for opposing the bank's claim even when directly asked by the court to do so. The company had lodged an application to set aside the default judgment, which application did not appear to be clearly groundless. In the circumstances of this particular case, the bank's claim could not therefore be regarded as clear and undisputed.
The bank appealed, requesting that the company be declared insolvent on the ground that it had not paid its debt despite the fact that it had been served with a request for payment with a risk of insolvency. In its letter of appeal the bank stated that the company's counsel had not submitted any grounds for contesting the insolvency petition at the District Court hearing. The Court of Appeal requested the company to produce its written reply to the appeal by 3 August 2000. Following the company's request dated that day, in which it stated its intention to provide the bank with full security for its claim, the time-limit was extended to 17 August 2000. In its reply of 15 August 2000 the company maintained that the claim was not clear and undisputed as it had appealed against the default judgment. It further maintained that it was not possible to examine in the course of the insolvency proceedings whether the bank had a claim against it. At this stage the company did not request an oral hearing. Nor did it contest the statement in the bank's appeal to the effect that the company had been represented by counsel at the District Court hearing.
On 4 September 2000 the Court of Appeal deliberated and it adopted a judgment. At noon on 11 September 2000 it delivered its judgment, quashing the lower court's decision and declaring the company insolvent based on a promissory note signed on 4 September 1996 and a request for payment with a risk of insolvency served on the company on 25 November 1999. The court held that according to established case-law a claim on the basis of a document liable for an action for debt (lainhaku, lagsökning) was considered clear and undisputed. In the present case, the bank had therefore a clear and undisputed claim against the company even if the default judgment was not taken into account. It sent the case back to the lower court for the execution of the winding-up proceedings.
According to the applicants and a report printed from their fax machine, at 11.35 a.m. on 11 September 2000 the company sent a fax to the Court of Appeal, in which, inter alia, an oral hearing in the matter was requested on the ground that the District Court had not heard the company or taken into account documentary evidence submitted by it before it rendered the above default judgment. According to a letter from the judicial secretary of the Court of Appeal, the above fax was received by the court only after it had rendered judgment. According to a report printed from the court's fax machine, it had been received at 1.30 p.m., i.e. only after the court had delivered its judgment, which it had done at noon.
The company sought leave to appeal and requested a stay of execution. On 5 October 2000 the Supreme Court refused a request for a stay of execution. On 21 November 2000 it refused leave to appeal.
In the subsequent winding-up proceedings there were several creditors. During these proceedings the applicant company instituted various civil proceedings against some of its creditors the outcome of which is not known. In its judgment of 9 April 2001 the District Court accepted most of the claims for payment made against the company and decided the priority order of the debts to be settled. It however found that the question of whether there was any foundation for the bank's claim and, if so, in what amount would first have to be decided in the re-trial of the default proceedings.
On 22 May 2001 the Court of Appeal upheld this decision and on 22 April 2002 the Supreme Court refused leave to appeal.
B. Relevant domestic law and practice
Under Finnish law there are various grounds on which a debtor can be declared insolvent. The petition can be lodged either by the debtor or a creditor.
Under the law applicable at the material time the court had to summon the debtor without delay to appear before it in order to express his or her opinion of the insolvency petition, either in a hearing or in a written submission. The debtor had to be declared insolvent unless the debtor proved that he or she could satisfy the creditor or provided acceptable security for the payment of the debt. Even if the debtor failed to appear before the court, it could declare him or her insolvent. It follows from the aim of insolvency proceedings that the debtor could always fend off an insolvency petition by paying the creditor applicant's claim or by producing security for it (section 6(2) of the then Insolvency Act).
A creditor, who could prove a clear and undisputed claim against the debtor, could petition to have the debtor declared insolvent if the debtor, having the capacity of a trader, had been urged, through a notary public or in the presence of witnesses, to pay an undisputed and due debt, but he or she had for eight days or longer neglected to satisfy the creditor (section 6 (1d) of the then Insolvency Act).
The Supreme Court has established precedents concerning the notion of “clear and undisputed claim”. The Government Bill (no. 26/2003) to Parliament as regards the enactment of the new Insolvency Act (Act no. 120/2004), which replaced the Insolvency Act in force at the material time, explained the case-law as follows. The word undisputed did not mean that the debtor had acknowledged the claim or that he did not dispute it. In case-law a claim was considered clear and undisputed if it was enforceable. A claim was considered clear and undisputed also if it was based on a document, which on its own fully evidenced it, for example a promissory note or a cheque, by the signing of which the debtor had committed himself or herself to paying the claim. However, if the debtor contested the claim with obvious justification, i.e. if he or she relied on circumstances that gave reason to suspect that the claim was ill-founded, it could not form the basis for the decision to declare the debtor insolvent.
The court was obliged to hold a hearing when the matter required the hearing of witnesses or others in person (section 3 as amended by Act no. 1054/1991 of the Petitionary Matters in District Courts Act (laki hakemusasioiden käsittelystä yleisessä alioikeudessa, lag om behandling av ansökningsärenden vid allmän underrätt; Act no. 307/1986).
Under the law in force at the material time the Court of Appeal was obliged to hold a hearing if a party so requested unless it was manifestly unnecessary. This provision applied, in relevant part, also when hearing an appeal lodged in a petitionary matter. The Court of Appeal had to hold a hearing regardless of whether one had been requested, if the case turned on the credibility of the testimony received or the findings made in an inspection in situ held by the District Court, or on new testimony to be produced in the Court of Appeal. In this event, the Court of Appeal had to receive the same evidence as had been received in the District Court unless there was an impediment to doing so (Chapter 26, Articles 14 and 15, as amended by Act no. 165/1998 and as in force at the material time, of the Code of Judicial Procedure (oikeudenkäymiskaari, rättegångsbalken)). The appellate court has to examine an insolvency petition expeditiously.
Written observations to the Court of Appeal may be sent by fax. Such a submission is considered to have reached the court at the point when it is available in the court's fax machine. If there is no clarification of that time, the time it was sent is also considered to be the time of receipt (section 3 of the Electronic Communication in Legal Proceedings Act (laki sähköisestä viestinnästä oikeudenkäyntiasioissa, lag om elektronisk telekommunikation i rättegångsärenden; Act no. 594/1993).
COMPLAINTS
1. The applicants complained under Article 6 of the Convention that the applicant company had not been summoned to the District Court hearing on 19 June 2000 when the insolvency petition had been dismissed and that the Court of Appeal had not held an oral hearing when it had declared the company insolvent.
2. They also complained that the insolvency order had been in contradiction to the District Court's decision of 15 June 2000 to stay the execution of the default judgment. Further, the District Court judge should have appended the decision to stay the execution of the default judgment to the insolvency case file, or otherwise informed the Court of Appeal of the said decision, following the bank's appeal against the decision of 19 June 2000. Moreover, the District Court's decision to stay the execution of the default judgment was made too late and only after the Court of Appeal had issued a decision to stay the said execution.
3. Lastly, they complained under Article 1 of Protocol No. 1 to the Convention that the decision to declare the company insolvent amounted to an unlawful deprivation of property.
THE LAW
A. Article 6 § 1 of the Convention
The applicants complained that the company had not been summoned to the District Court's hearing on 19 June 2000 and that the Court of Appeal had not held a hearing. They also complained, in essence, that the company should not have been declared insolvent as the execution of the default judgment had been stayed.
They relied on Article 6 § 1, which reads insofar as relevant:
“In the determination of his civil rights and obligations ..., everyone is entitled to a fair ... hearing ... by [a] ... tribunal...”
The parties' submissions
The Government
The Government contested the allegations. They considered that the first applicant could not claim to be a victim as regards the alleged failure to stay the execution of the default judgment because the default judgment had been quashed on 6 February 2004 insofar as it concerned him. In any event, the Government argued that the complaints were manifestly ill-founded for the following reasons.
The Government pointed out that on 9 May 2000 the applicant company had been summoned to appear before the District Court. As recorded in the court's minutes, the company had been represented by counsel at the hearing on 19 June 2000 and had thus been provided with an opportunity to present oral arguments. No oral evidence had been received at the hearing. The court had rendered its decision based on an assessment of the case file and the documentary evidence. Although the company in its reply to the appeal had contested the bank's view that the claim was clear and undisputed, it had not presented any new evidence or information so as to require a hearing before the Court of Appeal. It had not requested a hearing. The appeal had not therefore raised any questions of fact or law which could not have been adequately resolved on the basis of the case file. In such circumstances, there had been no reason for the Court of Appeal to hold a hearing of its own motion. The mere overturning of the lower court's decision had not required a hearing. It was not until after the delivery of the Court of Appeal judgment, and thus too late, that the company requested that an oral hearing be held. Nor had the company requested a hearing in its petitions for leave to appeal and it must therefore be considered to have waived any right to a hearing.
In any event, the Government submitted that the nature of insolvency proceedings were such that the parties usually relied on documentary, and generally rather technical, evidence only. Due to the aim and summary nature of insolvency proceedings such cases should be tried speedily, providing the creditor with a relatively swift way of securing payment.
The Government pointed out that the insolvency petition had been based on the promissory note, which formed a sufficient basis for it. The proceedings had not therefore been dependent on the outcome of the proceedings in which the default judgment had been rendered or decisions taken to stay the execution.
The applicants
The applicants maintained that they were both victims of the alleged violations within the meaning of Article 34 of the Convention. The first applicant owned effectively all the shares in the company together with his wife and owing to their financial liabilities he had lost not only the shares but all his property. He had thus been affected.
The applicants emphasised that the national proceedings had taken a wrong turn from the very beginning in that the District Court had rendered a default judgment although it should have gone on to examine the merits of the case. While it was true that the bank's claim as regards the insolvency petition had been based on the promissory note, the case had not been that simple, owing to the fact that there had also been a pledge involved. Had there been due process and observance of the audiatur et altera pars principle, they would have had a fair chance of disputing and fending off the insolvency petition. This opportunity had been lost owing to the lack of a hearing. The strength of the applicants' argument was evidenced by the District Court's subsequent judgment of 9 April 2001 according to which the bank's claim could not be secured in the course of the insolvency proceedings as there was an appeal pending with a view to having the default judgment overturned. The applicants did not dispute that there was no absolute right to a hearing. However, given the nature and consequences of the insolvency petition in question, the failure to hold a hearing in the Court of Appeal had been in breach of Article 6. Furthermore, the applicants submitted that their counsel in the District Court had not been duly authorised to represent them. They could by no means be considered to have waived their right to a hearing as alleged by the Government.
The applicants submitted that when the Court of Appeal had declared the company insolvent it had failed to comply with the District Court's decision of 15 June 2000 to stay the execution of the default judgment. They maintained that the basis for the insolvency petition had not been clear and undisputed as required by law. In such circumstances, the stay of the execution had been a crucial instrument in averting the outcome which in this case had been premature given the uncertainty as to the final assessment of the merits of the case in which the default judgment had been rendered. Owing to the courts' inconsistent and incorrect actions the creditor bank had been able to use a “window of opportunity”. The applicants considered it reasonable to conclude that the Supreme Court, when dismissing the request for leave to appeal, and certainly the Court of Appeal, when pronouncing its judgment of 11 September 2000, had been aware of the fact that the bank's claim was not clear and undisputed, and that both the District Court and the Court of Appeal had ordered a stay of execution.
The applicants concluded that it had been the disregard for proper adversarial means and the haste with which the insolvency proceedings had been concluded, together with the inevitability and irrevocability of the outcome, that had constituted the breach of the minimum safeguards under Article 6.
The Court's assessment
As to the Government's preliminary objection, the Court takes note of the first applicant's argument that he was one of the owners of the applicant company before it was declared insolvent. He also stood surety for the company's liabilities. The Court proceeds therefore on the assumption that both applicants can claim to be victims of the alleged grievances.
1. As to the complaint concerning the procedure in which the applicant company was declared insolvent, the Court notes the following.
Initially, the applicants complained to this Court about an alleged failure by the District Court to summon the applicant company to appear before it at the hearing on 19 June 2000. This was contested by the Government in their observations. They submitted that the company had been duly summoned and, indeed, had appeared before the court represented by counsel at the hearing. In their observations in reply of 29 October 2004, the applicants no longer expressly maintained this aspect of the application. Instead, they alleged that their counsel in the District Court and the Court of Appeal had not been duly authorised to represent the company. Insofar this can be understood to be a new complaint, the final domestic decision was taken on 21 November 2000 and thus it has been introduced out of time and must be rejected in accordance with Article 35 §§ 1 and 4 of the Convention. Insofar as it can be understood as a mere argument, the Court finds no strength in it because it cannot be concluded from the case file that this alleged grievance was ever raised at the national level.
The Court notes that an oral hearing was held at first instance. The company had won the case before the District Court and therefore did not have an obvious interest in requesting an oral hearing before the higher court. It would not, however, have been prevented from drawing the Court of Appeal's attention to a need to hold a hearing in case the last-mentioned court would be inclined to revise the decision of the District Court. It is clear from the facts outlined above that the company's request for a hearing in the Court of Appeal was received only after the delivery of the court's judgment. Accordingly, the company must be considered not to have requested one before the Court of Appeal. It was represented by counsel throughout the proceedings.
Even where a court of appeal has jurisdiction to review the case both as to facts and as to law, the Court has not found that Article 6 always requires a right to a public hearing irrespective of the nature of the issues to be decided. The publicity requirement is certainly one of the means whereby confidence in the courts is maintained. However, there are other considerations, including the right to trial within a reasonable time and the related need for expeditious handling of the courts' case-load, which must be taken into account in determining the necessity of a public hearing at stages in the proceedings subsequent to the trial at first instance. Provided a public hearing has been held at first instance, the absence of such a hearing before a second or third instance may accordingly be justified by the special features of the proceedings in issue. Thus, leave-to-appeal proceedings and proceedings involving only questions of law, as opposed to questions of fact, may comply with the requirements of Article 6, although the appellant was not given an opportunity of being heard in person by the appeal or cassation court (see Ekbatani v. Sweden, judgment of 26 May 1988, Series A no. 134, p. 14, § 31).
The manner of application of Article 6 to proceedings before courts of appeal depends on the special features of the proceedings involved; account must be taken of the entirety of the proceedings in the domestic legal order and of the role of the appellate court therein. The main question is whether a departure from the principle that there should be such a hearing could, in the circumstances of the case, be justified at the appeal stage by the special features of the domestic proceedings viewed as a whole (see Ekbatani v. Sweden, cited above, p. 13, §§ 27-28). In order to decide this question, regard must be had to the nature of the Finnish appeal system, to the scope of the Court of Appeal's powers and to the manner in which the applicants' interests were actually presented and protected before the Court of Appeal particularly in the light of the nature of the issues to be decided by it. Under chapter 26 (165/1998), Article 15 of the Code of Judicial Procedure, the Court of Appeal could have held a hearing of its own motion had it considered it necessary.
In the determination of the applicants' civil rights in the present case the Court of Appeal was called upon to examine the case as to both the facts and the law. This is however not decisive, the nature of the issues to be decided being more relevant. The parties did not submit any new evidence before the Court of Appeal. Nor did they rely on any oral evidence received in the lower court. Here, the issue to be decided was of an essentially legal character, the only question being whether the claim could be considered as clear and undisputed within the meaning of the Insolvency Act. Having regard to the fact that the outcome of this issue turned on the interpretation of the relevant case-law and the summary and urgent nature of insolvency proceedings at their initial stages and that the company had not proposed any oral evidence, the Court considers that the lack of an oral hearing in the Court of Appeal does not, in the circumstances of this case, disclose an appearance of any violation of Article 6 § 1 of the Convention.
It follows that this complaint is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.
2. The applicants also complained, essentially, that the bank's claim was not clear and undisputed within the meaning of the then Insolvency Act and thus, it could not form the basis for declaring the applicant company insolvent. Nor could the default judgment form such a basis, because its execution had been stayed.
In accordance with Article 19 of the Convention, the Court's only task is to ensure the observance of the obligations undertaken by the Parties in the Convention. In particular, it is not competent to deal with an application alleging that errors of law or fact have been committed by domestic courts, except where it considers that such errors might have involved a possible violation of any of the rights and freedoms set out in the Convention (see Schenk v. Switzerland, judgment of 12 July 1988, Series A no. 140, p. 25, § 45). The Court has only limited power to review compliance with domestic law (see, for example, Håkansson and Sturesson v. Sweden, judgment of 21 February 1990, Series A no. 171-A, p. 16, § 47) as it is in the first place for the national authorities, notably the courts, to interpret and apply domestic law (see Lukanov v. Bulgaria, judgment of 20 March 1997, Reports of Judgments and Decisions 1997-II, pp. 543-44, § 41).
The Court notes that the Court of Appeal found that the request for payment with a risk of insolvency, which had been served on the company on 25 November 1999 and was based on a promissory note signed on behalf of the company, constituted a clear and undisputed claim within the meaning of the Insolvency Act. It held that the bank had substantiated its insolvency petition even if the default judgment was not taken into account. Therefore, the Court need not examine whether there was any irregularity in the fact that the insolvency petition was granted despite the fact that the execution of the default judgment had been stayed. Furthermore, it is not the Court's task to give a ruling as to whether, under Finnish law, a debtor can be declared insolvent based on the kind of claim in issue. Only if the interpretation by the national courts is arbitrary or manifestly wrong can it be set aside by the Court. It is obvious that different interpretations of the notion “clear and undisputed” were possible. This is shown by the contradictory conclusions drawn by the District Court and the Court of Appeal. The Court cannot however find that the interpretation adopted by the Court of Appeal was arbitrary or manifestly wrong and therefore incompatible with the Convention.
It follows that the complaint is manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.
B. Article 1 of Protocol No. 1 of the Convention
The applicants complained under Article 1 of Protocol No. 1 to the Convention that the decision to declare the company insolvent was an unlawful deprivation of property.
Article 1 of Protocol No. 1 provides:
“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 Court reiterates that domestic court regulation of property disputes according to domestic law does not, by itself, raise any issues under Article 1 of Protocol No. 1 to the Convention. On the facts of the present case, there is no indication that the conclusion of the domestic courts interfered with the applicants' property rights contrary to that provision.
It follows that this complaint is manifestly ill-founded within the meaning of Article 35 § 3 of the Convention and must be rejected in accordance with Article 35 § 4.
For these reasons, the Court unanimously
Declares the application inadmissible.
T.L. EarlyNicolas Bratza
RegistrarPresident
[1] As rectified on 12 September 2006 pursuant to Rule 81 of the Rules of Court.
[2] Following rectification, this expression is used hereafter in the singular (Rule 81 of the Rules of Court).
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