FIFTH SECTION
DECISION
Application no. 33859/12
AVTOTRANSSERVIZ AD
against Bulgaria
The European Court of Human Rights (Fifth Section), sitting on 27 August 2019 as a Committee composed of:
Ganna Yudkivska, President,
Síofra O’Leary,
Lado Chanturia, judges,
and Milan Blaško, Deputy Section Registrar,
Having regard to the above application lodged on 22 May 2012,
Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant company,
Having deliberated, decides as follows:
THE FACTS
1. The applicant company, Avtotransserviz AD, is a Bulgarian joint‑stock company, which was registered in 1990 and has its seat in Sofia. It was represented before the Court by Mr M. Ekimdzhiev and Ms G. Chernicherska, lawyers practising in Plovdiv.
2. The Bulgarian Government (“the Government”) were represented by their Agent, Ms I. Stancheva-Chinova, of the Ministry of Justice.The circumstances of the case
3. The facts of the case, as submitted by the parties, may be summarised as follows.
4. The applicant company was set up in 1990 to take over the assets of a State-owned enterprise. The process of transformation of State-owned enterprises into companies in the 1990s is described in more detail in paragraphs 19-21 below.
5. Until 1998 the State owned all shares in the applicant company. After the latter was offered for privatisation, on 14 August 1998 another company, S., bought from the State 67% of its shares.
6. In 2003 company S. transferred its shares in the applicant company to a third party.
7. In 2001 and 2003 the Post-Privatisation Control Agency (later on Privatisation and Post-Privatisation Control Agency, hereinafter “the Agency”, see paragraph 22 below), brought proceedings against company S., seeking payment of the penalties stipulated in the privatisation contract for the latter’s failure to fulfil its obligations under that contract to make investments and maintain a number of jobs. After those claims were allowed by the national courts, in 2005 the Agency obtained two writs of execution against company S. and initiated enforcement proceedings.
8. In 2007 the sum due by company S., including interest and costs, totalled 919,286 Bulgarian levs (BGN), the equivalent of 470,223 euros (EUR). By 2015 S.’s debt, including further interest and costs, had increased to BGN 2,131,902 (EUR 1,090,486).
9. On 28 November 2008, upon an application by the Agency on the basis of paragraph 8 of the transitional provisions of the Privatisation and Post-Privatisation Control Act (hereinafter “paragraph 8”, see paragraphs 23-24 below), a property register official registered a mortgage against several real properties of the applicant company – a plot of land in Sofia and buildings – as a security for company S.’s debt.
10. In 2013 company S. was declared insolvent and became subject to liquidation proceedings. In 2014 the enforcement proceedings against it initiated by the Agency were stayed, and new enforcement proceedings were opened against the applicant company.
11. In 2015 the applicant company entered into settlement negotiations with the Agency, and in February 2015 paid the Agency a part of company S.’s debt, amounting to BGN 101,872 (EUR 52,108).
12. However, following the revocation of paragraph 8 and the Supreme Court of Cassation’s judgment of 27 January 2016 (see paragraphs 26 and 28 below), the applicant company withdrew its proposal for settlement negotiations.
13. On 16 August 2016 the applicant company brought proceedings against the Agency, seeking a declaration that the mortgage against its properties was null and void, in particular because it was based on paragraph 8 which had breached requirements of EU law. The applicant company sought in addition to recover the sum of BGN 101,872 paid, according to it, on an invalid legal ground.
14. In the framework of the ensuing proceedings the applicant company was granted a judicial injunction staying the enforcement proceedings against it.
15. The mortgage against the applicant company’s property was declared null and void in a judgment of the Sofia City Court of 3 January 2017, upheld on 20 February 2019 by the Sofia Court of Appeal. The domestic courts found in particular, relying on the Supreme Court of Cassation’s judgment of 27 January 2016 (see paragraph 28 below), that paragraph 8 contradicted EU law and could not be applied, which meant that the mortgage was devoid of any legal ground.
16. The domestic courts disallowed the applicant company’s claim to have the sum of BGN 101,872 returned to it. The Sofia Court of Appeal considered that the applicant company had knowingly and voluntarily paid a third party’s debt, which meant that the payment was not without legal ground.
17. The case is currently pending on appeal before the Supreme Court of Cassation.
18. In the two judgments above the applicant company was awarded its costs and expenses.Relevant background facts, domestic law and practiceTransformation of State-owned enterprises and their privatisation
19. Until the beginning of the 1990s, almost all economic activity was owned and administered by the State. All commercial assets were the property of the State and were only allocated to State enterprises for “use and management”.
20. A process of replacing communist economic legislation began in the early 1990s. Under legislation adopted in 1991 and 1992, State enterprises had to be transformed, by decision of the relevant ministry and upon registration at the competent court, into State-owned limited liability companies or State-owned joint-stock companies. The newly-created companies became the owners of all assets until then used and managed by the respective enterprise.
21. That transformation was in particular regulated in the 1992 Transformation and Privatisation of State and Municipally-Owned Enterprises Act (Закон за преобразуване и приватизация на държавни и общински предприятия). That Act also dealt with the privatisation of the newly-created State-owned companies. It remained in force until 2002. After that date privatisation was regulated by the Privatisation and Post‑Privatisation Control Act (Закон за приватизация и следприватизационeн контрол).
22. The body competent to exercise post-privatisation control under the Privatisation and Post-Privatisation Control Act was the Post-Privatisation Control Agency (“the Agency”). In 2010, after being also tasked with managing privatisation itself, it was renamed to Privatisation and Post-Privatisation Control Agency. It is in particular in charge of receiving all payments under privatisation contracts, verifying compliance with such contracts and, where necessary, taking action against any defaulting buyers.Paragraph 8
23. In 2006 Parliament added paragraph 8 to the transitional provisions of the Privatisation and Post-Privatisation Control Act (“paragraph 8”). Under that provision, in cases where persons who had bought shares in State or municipally-owned companies had not met their obligations under the privatisation contracts, the Agency could seek to have a mortgage registered in its favour (законна ипотека) against real properties belonging either to those persons (the buyers in the privatisation procedure) or to the privatised companies. A 2008 amendment to paragraph 8 allowed other security measures against the assets or properties of the privatised companies.
24. According to media reports, the Agency used this provision to register more than 400 mortgages against the properties of privatised companies. The Agency’s director at the time explained that some of the companies which had participated in the privatisation had been created especially for that purpose and did not have any assets save their shares in the privatised companies. As a result, the properties of the privatised companies in which they had shares were considered “the most reliable” security for their obligations.Infringement proceedings brought by the European Commission
25. In 2012 the European Commission initiated infringement proceedings against Bulgaria pursuant to Article 259 of the Treaty on the Functioning of the European Union (hereinafter “the TFEU”), and on 21 March 2013 delivered a reasoned opinion, taking the position that paragraph 8 breached the rules on the free movement of capital and the freedom of establishment (Articles 49 and 63 of the TFEU – see paragraph 36 below). The European Commission pointed out that, where the State mortgaged the assets of a privatised company, European investors who had invested in it would be unable to dispose freely of these assets and take appropriate managerial decisions. The Commission expressed concern furthermore that even where only one of the shareholders in a privatised company had breached its obligations under the privatisation contract, paragraph 8 authorised the State to impose mortgages and other security measures on the property of the privatised company.
26. In 2015 Parliament repealed paragraph 8. The explanatory note accompanying the bill reiterated the reasons given in the European Commission’s reasoned opinion.
27. After this amendment, on 24 September 2015 the European Commission closed the infringement case.Relevant developments of the domestic case-law
28. In a judgment of 27 January 2016 (Решение № 147 от 27.01.2016 г. на ВКС по т. д. № 3013/2013 г., II т. о.) the Supreme Court of Cassation examined an appeal on points of law brought by the Agency against the judgment of a court of appeal declaring mortgages under paragraph 8 null and void. The Supreme Court of Cassation upheld that judgment, after concluding that paragraph 8 was incompatible with Article 63 of the TFEU. Relying on case-law of the Court of Justice of the European Union and the European Commission’s position set out in the reasoned opinion referred to above, the domestic court found that paragraph 8 infringed the rights of direct and portfolio investors in privatised companies and unjustifiably enhanced the economic interests of the Bulgarian State to the detriment of those investors. It concluded that the application of paragraph 8 was “inadmissible” after Bulgaria’s accession to the European Union in 2007 and, as concerns the particular case before it, that the mortgages against the plaintiff’s property based on that provision were indeed null and void.
29. The above findings were upheld in a subsequent judgment of the Supreme Court of Cassation, given on 30 June 2017 (Решение № 37 от 30.06.2017 г. на ВКС по т. д. № 2637/2014 г., I т. о.).
30. Relying on those two judgments, in a number of later cases first- and second-instance courts declared mortgages based on paragraph 8 null and void (Решение № 58 от 13.04.2017 г. на ВтАС по в. т. д. № 28/2017 г.; Решение № 43 от 19.03.2018 г. на ОС-Габрово по в. гр. д. № 7/2018 г.; Решение № 76 от 26.04.2018 г. на ОС-Пазарджик по т. д. № 147/2017 г.; Решение № 3187 от 21.05.2018 г. на СГС по гр. д. № 7571/2016 г.; Решение № 287 от 25.10.2018 г. на ПАС по в. т. д. № 344/2018 г.).
31. In other cases where properties mortgaged under paragraph 8 had already been sold to satisfy the State’s claims, first- and second-instance courts, relying in particular on the Supreme Court of Cassation’s judgment of 27 January 2016 (see paragraph 28 above) and on Article 4 § 3 of the TEU (see paragraph 35 below), awarded to the affected companies compensation for any damage inflicted on them (Решение № 651 от 29.01.2019 г. на СГС по гр. д. № 3714/2016 г.; Решение № 44 от 26.04.2016 г. на БАС по гр. д. № 96/2016 г.; Решение № 18 от 22.03.2019 г. на БАС по в. гр. д. № 381/2018 г.). In one of those cases the proceedings have been stayed after reaching the Supreme Court of Cassation, pending the adoption of an interpretative decision on the competence of the administrative and civil courts to examine claims under Article 4 § 3 of the TEU (Определение № 440 от 18.04.2017 г., гр. д. № 5165/2016 г. ВКС, IV г. о., on the interpretative proceedings at issue see paragraph 33 below).
32. In many other cases the national courts have examined on the merits tort claims based on Article 4 § 3 of the TEU (Решение № 109 от 25.01.2019 г. на АдмС-Варна по адм. д. № 560/2016 г.; Решение № 264 от 26.11.2018 г. на ВтАС по в. гр. д. № 276/2018 г.; Решение № 6149 от 1.10.2018 г. на СГС по гр. д. № 7849/2017 г.).Other developments
33. The question whether civil courts, applying the general law of tort, or administrative courts, competent to apply legislation concerning special occasions of tort liability of the State and the municipalities, were competent to examine claims under Article 4 § 3 of the TEU has been answered differently by different Bulgarian courts. As a result, in 2015 the Supreme Court of Cassation and the Supreme Administrative Court opened proceedings for a joint interpretative decision. That decision has not yet been delivered.
34. In the meantime, a draft bill regulating that matter and specifying in which cases claims under Article 4 § 3 of the TEU would be examined by the administrative courts and in which by the civil courts, was introduced in Parliament on 12 April 2019, and was approved at first reading on 29 May 2019.Relevant law of the European Union
35. Article 4 § 3 of the TEU provides as follows:
“Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual respect, assist each other in carrying out tasks which flow from the Treaties.
The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.
The Member States shall facilitate the achievement of the Union’s tasks and refrain from any measure which could jeopardise the attainment of the Union’s objectives.”
36. The relevant provisions of the TFEU read:
Article 49
“Within the framework of the provisions set out below, restrictions on the freedom of establishment of nationals of a Member State in the territory of another Member State shall be prohibited. Such prohibition shall also apply to restrictions on the setting-up of agencies, branches or subsidiaries by nationals of any Member State established in the territory of any Member State.
Freedom of establishment shall include the right to take up and pursue activities as self-employed persons and to set up and manage undertakings, in particular companies or firms within the meaning of the second paragraph of Article 54, under the conditions laid down for its own nationals by the law of the country where such establishment is effected, subject to the provisions of the Chapter relating to capital.”
Article 63
“1. Within the framework of the provisions set out in this Chapter, all restrictions on the movement of capital between Member States and between Member States and third countries shall be prohibited.
2. Within the framework of the provisions set out in this Chapter, all restrictions on payments between Member States and between Member States and third countries shall be prohibited.”
COMPLAINTS
37. The applicant company complained, relying on Article 1 of Protocol No. 1 and Articles 6 § 1 and 13 of the Convention, about the mortgage against its property.
THE LAW
38. The Court is of the view that the complaints fall to be examined solely under Article 1 of Protocol No. 1, which reads as follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”Arguments of the partiesInitial observations by the Government
39. In their initial observations on the admissibility and merits of the case, submitted on 18 October 2018, the Government argued that the interference with the applicant company’s property rights had not breached Article 1 of Protocol No. 1, in particular because the aim of paragraph 8 had been to prevent abuse on the part of defaulting buyers under privatisation contracts and to further the economic and social policies of the State.Observations by the applicant company
40. In its observations accompanying its just-satisfaction claims, received on 19 December 2018, the applicant company informed the Court for the first time of the relevant developments after the lodging of the application, including the proceedings brought by it against the Agency in 2016.
41. The applicant company argued that the mortgage against its property had restricted its rights, that the measure at issue was unlawful, and that it was disproportionate, in particular because it had been a third party to the 1998 privatisation contract.Additional observations by the Government
42. In response to the new facts submitted by the applicant company, the Government urged the Court, in observations received on 27 February 2019, to dismiss the application for non-exhaustion of domestic remedies. They pointed out that the proceedings whereby the applicant company was seeking to have the mortgage against its property declared null and void were pending. They noted furthermore that the domestic courts’ most recent case-law on similar cases was “consistent and unambiguous”, submitting in support of this argument some of the judgments cited in paragraph 30 above. They concluded that the remedy at issue was effective.
43. The Government pointed out that a compensatory remedy was also developing at the domestic level, the national courts awarding damages under Article 4 § 3 of the TEU to companies having been subject to measures under paragraph 8.Additional observations by the applicant company
44. After the Court had invited the applicant company to comment on the Government’s non-exhaustion plea, on 11 and 12 April 2019 the applicant company, relying on the case of Demopoulos and Others v. Turkey (dec.) ([GC], nos. 46113/99 and 7 others, ECHR 2010), argued that the Government were estopped from raising, at such a stage of the proceedings, the plea at issue. The applicant company contended moreover that there was no justification for the Court to depart from its usual approach to assess whether domestic remedies had been exhausted with reference to the date on which the application had been lodged with it.
45. The applicant company argued in addition that the remedy it was pursuing was not proven to be effective. Most of the similar cases had not yet ended with a final judgment, the outcome of the proceedings it had brought was unclear, and the remedy’s accessibility was tainted by the requirement to pay high court fees.
46. As to the compensatory remedy, the applicant company contested its effectiveness, pointing out in particular that none of the cases brought had ended with a final judgment.The Court’s assessment
47. The Government raised an objection of non-exhaustion of domestic remedies, on the ground that the applicant company had brought proceedings seeking a declaration that the mortgage against its property was null and void, which were still pending. The Government pointed out that a compensatory remedy was also available (see paragraphs 42-43 above).
48. The arguments at issue were raised in the Government’s additional observations in response to the applicant company’s comments and claims for just satisfaction. The Court has held that a Government may be estopped from pleading non-exhaustion at a certain stage of the proceedings before it, and that only exceptional circumstances are capable of exempting a Government from their obligation to raise an objection to admissibility in a timely manner (see, among others, Khlaifia and Others v. Italy [GC] (no. 16483/12, §§ 52‑53, 15 December 2016, and Khusnutdinov and X v. Russia, no. 76598/12, § 64, 18 December 2018).
49. In the case at hand, the applicant company informed the Court of the proceedings brought by it in 2016 only in its comments in response to the Government’s observations (see paragraph 40 above). The first- and second‑instance courts gave judgments in these proceedings in 2017 and 2019 (see paragraph 15 above). Moreover, even though in a leading judgment of 2016 the Supreme Court of Cassation found that paragraph 8 contradicted EU law and should not have been applied after 2007 (see paragraph 28 above), the bulk of the subsequent case-law in which the national courts struck down measures under that provision or awarded damages is recent (see paragraphs 30-31 above). Accordingly, the Court accepts that at the time of submitting their initial observations on the admissibility and merits of the case the Government could not have known of all the circumstances allowing them to plead non-exhaustion. They are thus not estopped from doing this at a later stage of the proceedings.
50. The assessment of whether domestic remedies have been exhausted is normally carried out with reference to the date on which the application was lodged with the Court. However, as the Court has held on many occasions, this rule is subject to exceptions, which may be justified by the particular circumstances of each case (see Baumann v. France, no. 33592/96, § 47, 22 May 2001, and Demopoulos and Others v. Turkey (dec.) [GC], cited above, §§ 87-88).
51. In the present case, the relevant circumstances – in general and as concerns the applicant company – changed considerably after the lodging of the application in 2012. In particular, in 2012 the European Commission initiated infringement proceedings against Bulgaria (see paragraph 25 above), which in 2015 led to the revocation of paragraph 8 by the Bulgarian Parliament. In the view of the European Commission, shared by Parliament, that provision contradicted EU law (see paragraphs 25-27 above). This was confirmed in 2016 and 2017 in judgments of the Supreme Court of Cassation (see paragraphs 28-29 above).
52. After that a body of case-law developed, as the national courts started declaring null and void mortgages registered on the strength of paragraph 8 – as in the case at hand – or awarding damages in cases where the properties mortgaged under that provision had already been sold (see paragraphs 15 and 30-31 above). Indeed, many of the former category of cases (where mortgages were declared null and void) have not yet ended with a final judgment. As concerns, moreover, the latter category (cases where damages were awarded), a case reaching the Supreme Court of Cassation has been stayed and the Court has not been informed of any case completed with a final judgment.
53. Nevertheless, these developments are sufficiently indicative of a trend in the case-law of the national courts, which have started considering measures under paragraph 8 unlawful as contradictory to EU law and affording appropriate redress.
54. In view of the considerations above the Court concludes that the remedy currently pursued by the applicant company is, in principle, an effective one. Moreover, the applicant company has so far been successful at two levels of jurisdiction in obtaining a finding that the mortgage against its properties was null and void (see paragraph 15 above). While its additional claim to recoup the sum it had paid the Agency in 2015 has been dismissed, the case is currently pending before the Supreme Court of Cassation (see paragraphs 16-17 above) and the applicant company does not raise specific complaints in that regard.
55. The Court does not accept the applicant company’s argument that the remedy at issue is ineffective because of the requirement to pay high court fees (see paragraph 45 above). It notes that that requirement has not prevented the applicant company from initiating proceedings and participating in them, and that, being the successful party in those proceedings, it has been awarded its costs and expenses (see paragraph 18 above).
56. The Court points to the Government’s additional argument, concerning an emerging compensatory remedy under domestic law based on the established incompatibility of paragraph 8 with EU law (see paragraph 43 above). Even though, as noted above, none of the tort proceedings initiated by companies affected by measures under paragraph 8 appear to have ended with a final judgment (see paragraph 31 above), Bulgarian courts do examine tort claims based on alleged breaches of EU law and the matter is being regulated on a legislative level (see paragraphs 32 and 34 above). The Court sees no reason to question, in abstracto, the ability of the remedy at issue to provide adequate redress. It concludes that, if the applicant company has sustained any damage due to the registration of a mortgage against its property based on paragraph 8, it has what appears, at this stage, an effective means at its disposal to obtain compensation.
57. The Court concludes that it is justified to make an exception to the rule that the assessment of whether domestic remedies have been exhausted is normally carried out with reference to the date on which the application was lodged (see paragraph 50 above). Finding the opposite and substituting its own assessment for that of the national courts in proceedings which have been in whole or partly successful at two levels of jurisdiction and which are pending on appeal, or taking a position on remedies which appear effective but which the applicant company has not pursued, would be tantamount to ignoring the Court’s subsidiary role (see Laurus Invest Hungary KFT and Others v. Hungary (dec.), nos. 23265/13 and 5 others, § 42, ECHR 2015 (extracts)).
58. Accordingly, this application must be rejected under Article 35 §§ 1 and 4 of the Convention for non-exhaustion of domestic remedies.
For these reasons, the Court, unanimously,
Declares the application inadmissible.
Done in English and notified in writing on 19 September 2019.
Milan BlaškoGanna Yudkivska
Deputy RegistrarPresident
Full & Egal Universal Law Academy