CASE OF BUDIVELNO INVESTYTSIYNA GRUPA 1 v. UKRAINE

FIFTH SECTION

CASE OF BUDIVELNO INVESTYTSIYNA GRUPA 1 v. UKRAINE

(Application no. 56903/10)

JUDGMENT
(Just satisfaction)

STRASBOURG

11 January 2024

This judgment is final but it may be subject to editorial revision.

In the case of Budivelno Investytsiyna Grupa 1 v. Ukraine,

The European Court of Human Rights (Fifth Section), sitting as a Committee composed of:

 Stéphanie Mourou-Vikström, President,
 Mattias Guyomar,
 Kateřina Šimáčková, judges,
and Martina Keller, Deputy Section Registrar,

Having deliberated in private on 30 November 2023,

Delivers the following judgment, which was adopted on that date:

PROCEDURE

1.  The case concerns the applicant company’s complaint under Article 1 of Protocol No. 1 that it had been prevented by the local authorities from carrying out the erection of a multi-storied residential building and that it had received no compensation in that regard.

2.  In a judgment delivered on 17 December 2020 (“the principal judgment”), the Court held that there had been a violation of Article 1 of Protocol No. 1 to the Convention on account of the local authorities’ decision to revoke their earlier decision to lease the plot of land to the applicant company for construction purposes and to designate that plot as a public garden zone. In particular, the Court found serious shortcomings in the conduct of the local authorities who had, on the one hand, authorised the construction despite being aware of the public disquiet in that regard and, on the other hand, failed to explore any alternative solutions to mitigate the harsh consequences for the applicant company of the termination of the lease. The Court further found that, when dismissing the applicant company’s compensation claim, the domestic courts had neither carried out the requisite balancing exercise between the private and public interests at stake nor provided sufficient reasons for their decisions. In the Court’s view, the applicant company had therefore suffered an excessive individual burden. The Court also held that there was no need to examine the applicant company’s complaint under Article 6 § 1 of the Convention separately (see Budivelno Investytsiyna Grupa 1 v. Ukraine [Committee], no. 56903/10, §§ 44-56 and 59, 17 December 2020).

3.  Under Article 41 of the Convention, the applicant company claimed just satisfaction in respect of pecuniary damage which consisted of (i) 57,202,743.63 Ukrainian hryvnias (UAH) of loss that had allegedly arisen from the applicant company’s inability to fulfil its obligations under a contract of 11 March 2008 concluded with a foreign investor; and (ii) 11,689,920 United States dollars (USD) for loss of profit. The applicant company further claimed that as a result of the domestic authorities’ hindering of its business activities, its reputation had been seriously damaged. The applicant company submitted that the damage could not be quantified and asked the Court to determine the just satisfaction in respect of non‑pecuniary damage on an equitable basis. Lastly, the applicant company claimed USD 10,000 and UAH 63,604 in costs and expenses (ibid., § 61).

4.  Since the question of the application of Article 41 of the Convention was not ready to be decided, the Court reserved the issue and invited the Government and the applicant to submit their written observations within three months and, in particular, to notify the Court of any agreement they might reach (ibid., § 62, and point 4 of the operative provisions).

5.  The applicant and the Government each filed observations.

6.  In its observations on just satisfaction, the applicant company reiterated its claims that had been submitted at the merits stage and submitted new claims. The latter are set out in paragraphs 9, 42 and 46.

THE LAW

7.  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.”

8.  The applicable principles have been summarised in the Court’s judgment in East West Alliance Limited v. Ukraine (no. 19336/04, §§ 245‑53, 23 January 2014).Pecuniary damageLoss of the right to lease the disputed plot of land

9.  The applicant company claimed 13,452,089[1] American dollars (USD) compensation for the loss of the right to lease the plot of land in issue. It submitted a report by a private valuer who had determined the value of that asset as the difference between the probable income from the sale of the developments to be built on the plot (residential apartments, commercial premises and car parks) and the costs of the construction works as at 1 November 2008. The applicant company also claimed default interest on the above amount and an adjustment for inflation.

10.  The Government noted that the applicant company had not raised that claim prior to the just satisfaction proceedings. Further, in their view, that claim was unsubstantiated.

11.  The Court observes that the method used in the valuation report essentially sought to establish the quantum of profit lost. However, in so far as the report provided an estimate of the difference between the probable sale price of the land after development and the construction costs, the Court notes that the applicant company was expected neither to bear those costs nor to receive the sale proceeds in question.

12.  Indeed, the applicant company had contracted with a foreign company for it to invest in the construction project (see § 15 of the principal judgment). Under the terms of the investment contract, it was the investor who would finance the construction and become the full owner of the developments to be built on the plot of land. The applicant company, in its turn, was to be paid a fee by the investor.

13.  In view of the above, the Court considers that the assessment carried out in the valuation report does not concern the specific situation of the applicant company and is therefore irrelevant. The Court concludes that the applicant company’s claim under this head must be dismissed as unfounded.

14.  As regards the alleged loss of the opportunity to earn a fee under the investment contract, the Court notes that the applicant company raised a separate claim under this head. It will be examined below (see paragraphs 20‑29).Penalty for non-fulfilment of contractual obligations

15.  The applicant company reiterated its claim of 57,202,743.63 Ukrainian hryvnias (UAH). That amount represented the penalty incurred because the applicant company was unable to fulfil its obligations under the investment contract. The Commercial Court of Kyiv had ordered the applicant company to pay the penalty to the investor in a final and enforceable decision of 4 February 2010. If converted into euros at the exchange rate published by the National Bank of Ukraine on 4 February 2010, the sum corresponded to approximately EUR 5,112,455. The applicant company also claimed default interest on the above amount and an adjustment for inflation.

16.  The Government noted that the above amount had not been paid and that there were no pending enforcement proceedings with a view to its recovery. Further, the applicant had not appealed against the above‑mentioned decision of the Commercial Court of Kyiv. In the Government’s view, there was no clear causal connection between the damage claimed on account of the penalty and the violation of the Convention found in the principal judgment.

17.  The Court reiterates that when assessing compensation it takes into account pecuniary damage, which is the loss actually suffered as a direct result of an alleged violation (Pannon Plakát Kft and Others v. Hungary, no. 39859/14, § 68, 6 December 2022).

18.  The Court observes that the applicant company did not deny that the penalty at issue had not been paid or that no enforcement proceedings had been initiated in that regard. It cannot therefore be said that the applicant company had suffered any actual loss on that account.

19.  The Court further notes that the applicant company did not explain its failure to appeal against the above decision of the Commercial Court of Kyiv.

20.  In these circumstances, the Court considers it appropriate not to make any award under this head.Loss of profit

21.  The applicant company claimed USD 11,689,920[2] for loss of profit, representing the fee it had expected to earn under the terms of the investment contract (USD 12,000,000, to be paid in the national currency (UAH)). It submitted a report by a private valuer who had applied a discounting rate to take into account fluctuations in exchange rates. The applicant company also claimed default interest and an adjustment for inflation.

22.  The Government argued that this claim was exorbitant and speculative.

23.  The Court notes, at the outset, that the interference with the applicant company’s rights concerned control of the use of possessions rather than a deprivation (see § 46 of the principal judgment).

24.  The Court’s case-law has established that there must be a clear causal connection between the damage for which an applicant claims compensation and the violation of the Convention (G.I.E.M. S.r.l. and Others v. Italy (just satisfaction) [GC], nos. 1828/06 and 2 others, § 38, 12 July 2023) and that this may, in the appropriate case, include compensation in respect of loss of earnings (see, Basarba OOD v. Bulgaria (just satisfaction), no. 77660/01, § 20, 20 January 2011).

25.  The Court is aware of the difficulties in calculating loss of profit in circumstances where such profit could fluctuate owing to a variety of unpredictable factors (see Dacia S.R.L. v. Moldova (just satisfaction), no. 3052/04, § 47, 24 February 2009; Könyv-Tár Kft and Others v. Hungary (just satisfaction), no. 21623/13, § 31, 5 October 2021). This is particularly true in cases concerning the commercial activities of a company, which implies the taking of risks and a degree of uncertainty as to the use and the profitability of the possessions in question (see Basarba OOD v. Bulgaria (just satisfaction), cited above, § 26; East West Alliance Limited v. Ukraine, cited above, § 251).

26.  Nevertheless, where a loss of profit is claimed, it must be established conclusively and must not be based on mere conjecture or probability (see Centro Europa 7 S.r.l. and Di Stefano v. Italy [GC], no. 38433/09, § 219, ECHR 2012).

27.  With this in mind, the Court is unable to accept the approach to assessing the applicant company’s loss of profit which was taken in the valuation report. That assessment was essentially based on the amount of the fee specified in the investment contract. It should be noted, however, that the applicant company had been intending to embark on a new construction project the potential success of which was dependent on a variety of factors whose assessment falls outside the Court’s jurisdiction.

28.  Furthermore, the applicant company would inevitably have incurred expenses in connection with that project (see Basarba OOD v. Bulgaria (just satisfaction), cited above, § 23). The Court also notes that any profit made by the applicant company would have been subject to tax (Avendi OOD v. Bulgaria (just satisfaction), no. 48786/09, § 36, 14 February 2023). Neither the applicant company nor the valuer factored those elements into their estimates.

29.  Without speculating on the profits which the applicant company would have made if the violation of the Convention had not occurred, the Court observes that the applicant company suffered a real loss of opportunity as a result of the violation found in the present case (see, mutatis mutandis, Centro Europa 7 S.r.l. and Di Stefano v. Italy [GC], cited above, § 219; Könyv-Tár Kft and Others v. Hungary (just satisfaction), no. 21623/13, § 34, 5 October 2021).

30.  Having regard to the large number of imponderables involved and the impossibility of quantifying the applicant company’s loss in exact terms, the Court considers that it must rule in equity. It therefore awards the applicant company EUR 100,000 under this head.Non-pecuniary damage

31.  The applicant company claimed that it had suffered damage to its business reputation and that its chances of finding another investor had been decreased. The applicant company did not specify the quantum of its claim, leaving the determination of the amount up to the Court.

32.  In the Government’s view, this claim was unsubstantiated.

33.  The Court reiterates its case-law to the effect that it cannot exclude the possibility that a commercial company may be awarded pecuniary compensation for non-pecuniary damage. In this context account should be taken of the company’s reputation, uncertainty in decision making, disruption to the management of the company (for which there is no precise method of calculating the consequences) and lastly, albeit to a lesser degree, the anxiety and inconvenience caused to the members of the management team (see Comingersoll S.A. v. Portugal [GC], no. 35382/97, § 35, ECHR 2000‑IV; Sovtransavto Holding v. Ukraine (just satisfaction), no. 48553/99, § 79, 2 October 2003; and Dacia SRL v. Moldova (just satisfaction), cited above, § 60).

34.  The Court observes that the applicant company based its claim on damage to its reputation. It firstly doubts whether there is any causal link between the local authorities’ decision to classify the plot of land in issue as a public garden zone and to terminate its lease on the one hand and the applicant company’s reputation on the other. However, even assuming that the disputed measures could have had a negative effect on the reputation of the applicant company, the Court notes that it has already found that the interference in issue, which was based on environmental considerations, pursued a legitimate aim that was in the general interest (see § 49 of the principal judgment). A violation was found only in respect of the shortcomings in the implementation of the disputed measures and the domestic courts’ examination of the applicant company’s compensation claim. The Court does not see any causal link between the alleged damage to the applicant company’s reputation and the shortcomings found, which were wholly independent of the activities of the applicant company.

35.  The Court further observes that the applicant company advanced no argument that it had suffered any other prejudice that would attract an award of compensation for non-pecuniary damage to a corporation: these are governed by specific criteria (se  Comingersoll S.A. v. Portugal [GC], cited above, § 35). In view of the lack of specific information about the impact of the disputed measures on the business activities of the applicant company, the Court is unable to conclude that the applicant company suffered any non‑pecuniary damage (see, mutatis mutandis, Forminster Enterprises Limited v. the Czech Republic (just satisfaction), no. 38238/04, §§ 24-25, 10 March 2011).

36.  No award is therefore made under this head and the Court considers that the finding of a violation constitutes in itself sufficient just satisfaction for any non-pecuniary damage that the applicant company might have suffered.Costs and expenses

37.  According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these were actually and necessarily incurred and are reasonable as to quantum (G.I.E.M. S.r.l. and Others v. Italy (just satisfaction) [GC], cited above, § 72).Proceedings in the domestic courts

38.  The applicant company claimed a total amount of UAH 63,604 (approximately EUR 6,034) under this head.

39.  The Government did not contest the claim in relation to the domestic proceedings but noted that evidence of payment had been submitted only for the amount of UAH 12,750 (approximately EUR 1,186).

40.  Regard being had to the documents in its possession and the above criteria, the Court awards the applicant company the sum of EUR 1,186 for costs and expenses in the domestic proceedings, plus any tax that may be chargeable to the applicant company on that amount.Domestic review proceedings following the Court’s principal judgment

41.  In February 2021, following the delivery of the Court’s principal judgment, the applicant company applied to the Supreme Court of Ukraine seeking extraordinary review of the domestic courts’ decisions dismissing its compensation claim. By a decision of 1 March 2021, the Supreme Court of Ukraine dismissed that application as having been lodged outside the statutory time-limit of ten years from the date on which the court decisions being appealed against had been given.

42.  The applicant company claimed USD 3,000 for legal fees incurred in the above review proceedings before the Supreme Court. It submitted an invoice for UAH 100,653.12 (approximately 3,008 EUR).

43.  The Government argued, however, that these costs had not been necessarily incurred. The applicant company knew or ought to have known that its application for review of the court decisions, which had been delivered more than ten years previously, was out of time and thus bound to fail.

44.  The Court notes that the applicant company sought review of court decisions which had been given in 2009 and 2010 (see §§ 20-21 of the principal judgment). The ten-year time-limit for commencing review proceedings before the Supreme Court was specified in the law (Article 321 of the Code of Commercial Procedure of Ukraine). The Court therefore considers that the costs relating thereto were not reasonably and necessarily incurred. It makes no award under this head.Proceedings before the Court

45.  The applicant company claimed USD 10,000 for legal fees and submitted invoices for a total amount of UAH 178,405 (approximately EUR 8,054).

46.  The applicant company further claimed UAH 139,488 (approximately EUR 4,178) for experts’ fees incurred in the just satisfaction proceedings and submitted relevant invoices.

47.  The Government argued that those claims were not sufficiently substantiated.

48.  In the present case, regard being had to all the documents submitted, the Court considers it reasonable to award the applicant company the sum of EUR 12,232 under this head, plus any tax that may be chargeable to the applicant company on that amount.Default interest

The Court considers it appropriate that the default interest rate 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, UNANIMOUSLY,Holds that the finding of a violation constitutes in itself sufficient just satisfaction for the non-pecuniary damage sustained by the applicant company;Holds

(a)  that the respondent State is to pay the applicant, within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:

(i)  EUR 100,000 (one hundred thousand euros), in respect of pecuniary damage;

(ii)  EUR 1,186 (one thousand one hundred eighty-six euros), plus any tax that may be chargeable to the applicant company, in respect of costs and expenses incurred in the domestic proceedings;

(iii)  EUR 12,232 (twelve thousand two hundred thirty-two euros), plus any tax that may be chargeable to the applicant company, in respect of costs and expenses incurred in the proceedings before the Court;

(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 the remainder of the applicant’s claim for just satisfaction.

Done in English, and notified in writing on 11 January 2024, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.

 Martina Keller Stéphanie Mourou-Vikström
 Deputy Registrar President

[1] Around 10,319,951 euros (EUR)

[2] Around EUR 7,997,998

Full & Egal Universal Law Academy