Capital Bank AD v. Bulgaria

Information Note on the Court’s case-law No. 80

November 2005

Capital Bank AD v. Bulgaria - 49429/99

Judgment 24.11.2005 [Section I]

Article 6

Civil proceedings

Article 6-1

Access to court

Courts deferring to National Bank’s findings as to solvency of bank sought to be wound up: violation

Fair hearing

Adversarial trial

Bank sought to be wound up represented by administrators or liquidators answerable to the National Bank which had initiated the proceedings: violation

Article 37

Article 37-1

Striking out applications

Government request for strike-out rejected

Article 1 of Protocol No. 1

Article 1 para. 2 of Protocol No. 1

Control of the use of property

Withdrawal of banking licence resulting in compulsory liquidation: violation

Facts: The applicant bank was set up and acquired a banking licence in 1993. In 1997 its licence was revoked by the Bulgarian National Bank (“the BNB”) and in 1998 it was put into compulsory liquidation. When dealing the BNB’s petition to have the applicant bank wound up the courts deferred to the BNB’s findings in respect of the applicant bank’s insolvency. The courts considered that they only had jurisdiction to verify the formal validity of the Central Bank’s decision to revoke its licence on the ground of insolvency. Before the city court the applicant was represented by special administrators appointed by, and answerable to the BNB, and before the Supreme Court of Cassation by the liquidators who also were accountable to the BNB. In 2005 the applicant bank was wound up and struck off the register of companies.

Law – Government’s request for a strike-out: In June 2005 the Government had requested the Court to strike the application out of its list pursuant to Article 37(1) on the ground that the applicant bank no longer existed as a legal person, as it had been struck off the register of companies after being liquidated. (In June 2005 the bank which had purchased the applicant bank’s entire undertaking at the beginning of 2005, also had requested that the application be struck out of the list under Article 37(1)(a), as, in its alleged capacity of successor to the applicant bank, it no longer intended to pursue the application. The Court declared that request inadmissible.)

As regards the Government’s request the Court noted that the application had been lodged on behalf of the applicant bank by the chairman and the vice‑chairman of its board of directors and its shareholders when it had already been in liquidation and should normally have been represented by the liquidators. In its admissibility decision the Court had accepted the manner in which the application had been filed, given the particular circumstances and the need to interpret Article 34 in a practical and effective manner. It was not necessary to examine whether the conditions for striking the application out of its list under Article 37(1)(a)-(c) had been fulfilled, as respect for human rights as defined in the Convention and the Protocols required the further examination of the application. While under Article 34 the existence of a “victim of a violation” is indispensable for putting the Convention mechanism into motion, this criterion cannot be applied in a rigid, mechanical and inflexible way throughout the whole proceedings. As a rule, and in particular in cases which, as the one at hand, primarily involve pecuniary, and, for this reason, transferable claims, the existence of other persons to whom that claim is transferred is an important criterion, but cannot be the only one. Human rights cases before the Court generally also have a moral dimension, which it must take into account when considering whether to continue with the examination of an application after the applicant has ceased to exist, all the more so if the issues raised by the case transcend the person and the interests of the applicant.

The complaints in this case concerned the procedure whereby the applicant bank’s licence had been revoked and the bank had been wound up, which ultimately had led to its ceasing to exist as a legal person. Striking the application out of the list under such circumstances would undermine the very essence of the right of individual applications by legal persons, as it would encourage governments to deprive such entities of the possibility to pursue an application lodged at a time when they enjoyed legal personality.

Conclusion: Government’s request rejected (unanimously).

Article 6(1) – Applicability:The withdrawing of the applicant bank’s licence and the ensuing winding-up order had had a clear and decisive impact on its ability to continue operating as a going concern as well as on its right to manage its own financial affairs and to administer its property. As a result of those measures the bank eventually had been struck off the register of companies and had ceased to exist as a legal person. As the measures had been decisive as far as the bank’s civil rights were concerned Article 6(1) applied.

Compliance – Scope of judicial review: When examining the BNB’s winding-up petition, the city court and the Supreme Court of Cassation had considered themselves precluded from conducting their own examination of whether the applicant bank’s insolvency, deferring instead, in a manner decisive for the outcome of the case, to the BNB’s finding in this respect. The Banks Act 1997 explicitly excluded from the scope of judicial review a decision by the BNB to revoke a bank’s licence on the ground of insolvency. Neither was the impossibility for the applicant bank to challenge the BNB’s decision before the courts warranted by any inherent limitation on the right of access to a court implicit in Article 6(1). In sum, the courts’ decision to abide by the BNB’s determination without subjecting it to any criticism or discussion, coupled with the absence of any means of scrutinizing that determination in direct review proceedings, had not been justified.

Representation by persons dependent on the adversary: In the proceedings in question the applicant bank had been represented by persons who had been dependent, to varying degrees, on the other party to those proceedings. The rights of access to a court and of adversarial proceedings imply, among other things, the possibility for the parties to a civil or criminal trial to be able to effectively participate in the proceedings and adduce evidence and arguments with a view to influencing the court’s decision. As it had been represented by persons dependent on the other party to the proceedings, the applicant bank had been unable, especially when the case was being examined by the Supreme Court of Cassation, to properly state its case and protect its interests. An intervention by the prosecutor’s office could not remedy the fact that the applicant was denied the opportunity to present its case before the domestic courts.

Conclusion: Violations of Article 6(1) (unanimously).

Article 1 of Protocol No. 1: The withdrawal of the licence had had the effect of automatically putting the applicant bank into compulsory liquidation and had amounted to a control of the use of the bank’s property within the meaning of the second paragraph of the provision. Under the Banks Act 1997 the BNB’s could revoke a bank’s licence without being obliged to inform the bank itself of the commencement of the procedure. Nor did the BNB have to take into account the bank’s representations and objections. Thus, a bank is first officially notified of the withdrawal of its licence only after the BNB’s decision has already been taken, as had happened in the present case. This, combined with the lack of any subsequent possibility for administrative or judicial review of the decision and the view of the courts that examined the winding-up petition that they were bound by the BNB’s determination on the question of insolvency, had rendered it impossible for the applicant bank at any stage to state its objections to the BNB’s findings of fact and to mount a reasoned challenge to the BNB’s conclusion that it was insolvent. Despite the various options available for safeguarding the interests of the applicant bank’s depositors and other creditors and protecting the stability of the banking system the legislative framework had opted for the most drastic solution – dispensing with any sort of proceedings in all cases – and there was no indication that other possibilities had been considered. In conclusion, the interference with the applicant bank’s possessions had not been surrounded by sufficient guarantees against arbitrariness and thus had not been lawful within the meaning of Article 1 of Protocol No. 1.

Conclusion: Violation (unanimously).

Article 41: While the withdrawal of its licence and the order for its winding-up might well have had adverse financial consequences for the bank, the Court could not speculate as to what the eventual result might have been if the bank had been able to challenge the imposition of those measures in a proper manner. The claim was pecuniary damage was therefore dismissed but the Court awarded a certain amount for costs and expenses.

© Council of Europe/European Court of Human Rights
This summary by the Registry does not bind the Court.

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