CASE OF MIHALEVI v. BULGARIA

FIFTH SECTION

CASE OF MIHALEVI v. BULGARIA

(Application no. 63481/11)

JUDGMENT

(Just satisfaction)

STRASBOURG

16 May 2019

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

In the case of Mihalevi v. Bulgaria,

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

Gabriele Kucsko-Stadlmayer, President,
Yonko Grozev,
Lado Chanturia, judges,
and Milan Blaško, Deputy Section Registrar,

Having deliberated in private on 23 April 2019,

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

PROCEDURE

1.  The case originated in an application (no. 63481/11) against the Republic of Bulgaria lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by two Bulgarian nationals, Mr Tsvetan Tsvetanov Mihalev and Ms Eleonora Petkova Mihaleva (“the applicants”), on 26 September 2011.

2.  The applicants were represented by Ms N. Sedefova, a lawyer practising in Sofia. The Bulgarian Government (“the Government”) were represented by their Agent, Ms R. Nikolova, of the Ministry of Justice.

3.  In a judgment delivered on 21 June 2018 (“the principal judgment”, see Mihalevi v. Bulgaria [Committee], no, 63481/11, 21 June 2018), the Court found a violation of Article 1 of Protocol No. 1, on the ground that the applicants had been unable to receive compensation for property expropriated in 1947 from a predecessor of theirs. Under domestic law, expropriated owners, or their heirs, were to receive compensation, in particular through compensation bonds, in cases where the restitution in kind of such properties was impossible. However, when the time-limit to seek such compensation was running (in 1997-98), the applicants justifiably believed that the property at issue had been the subject of restitution occurring ex lege – a fact recognised, in particular, by representatives of the authorities. In 2003, when a company using the property and, until then, paying rent to the applicants started contesting the fact of the restitution, and in 2010 when the domestic courts held for the first time that no restitution had actually taken place, the applicants could no longer seek compensation in lieu of restitution due to the expiration of the time-limit.

4.  The applicants sought just satisfaction under Article 41 of the Convention.

5.  Since the question of the application of Article 41 of the Convention was not ready for decision as regards damage, the Court reserved it and invited the Government and the applicants to submit, within four months, their written observations on that issue and, in particular, to notify the Court of any agreement they might reach (ibid., § 39, and point 3 of the operative provisions).

6.  The applicants and the Government each filed observations. They informed the Court that they have failed to reach an agreement.

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.”

A.  Damage

1.  Relevant domestic law and background facts

8.  The Compensation of Owners of Nationalised real Property Act (hereinafter “the Compensation Act”, see §§ 17-18 of the principal judgment) came into force in 1997.

9.  One of the manners of compensation it provided for was through so-called compensation bonds. These are not exchangeable for cash and can be used for participation in privatisation tenders. They are traded at the stock exchange and their market value largely depends on the availability of privatisation offers.

10.  Between September 2002, when trade at the stock exchange started, and October 2004 bonds were traded at between 20% and 30% of their face value. Prices started to rise in November 2004 when more State-owned companies were put up for privatisation, and during several months compensation bonds were traded at about 80-90% of their face value, in January 2005 even reaching 113% of that value. After that the prices gradually fell. From 2005 to 2007 they varied between about 50% and 80% of the bonds’ face value, from 2007 to 2009 – between 25% and 40% of the face value, and after August 2009 – usually between 15% and about 25% of that value. Towards mid-2013 the prices rose slightly, reaching between about 30% and 40% of the bonds’ face value, for a brief period between February and October 2014 even exceeding 50% of that value. Since mid‑2016 the bonds have been traded at about 20-35% of their face value.

2.  The parties’ submissions

(a)  The applicants’ claims

11.  The applicants claimed the value of the compensation bonds they would have received had they been able to do so at the national level. They submitted an expert report, which calculated the face value of the bonds at issue at 506,000 Bulgarian levs (BGN), the equivalent of 258,000 euros (EUR). The expert used the formula provided for in the Compensation Act. One of the elements in that formula is the average monthly salary during the trimester preceding the award of compensation bonds; the expert took into account the data for the first trimester of 2017.

12.  The applicants claimed that face value, namely EUR 258,000. They pointed out that, while the market value of compensation bonds was usually lower than the face value, there had been periods where bonds had actually been traded at their face value. Moreover, the applicants argued that awarding them anything less than the face value of the compensation bonds would impose on them an excessive individual burden.

13.  The applicants claimed in addition default interest on the sum indicated above (EUR 258,000). In their calculations, made in accordance with the domestic rules and covering the period after 2002 (in this year a decision to award them compensation for other property entered into force – see § 9 of the principal judgment), that interest amounted to BGN 890,668, the equivalent of EUR 455,000.

14.  The applicants urged the Court not to reduce any award of damage on the ground that for many years prior to 2003 they had received rent for the disputed property. In § 33 of the principal judgment the Court indicated that that circumstance might be relevant for its assessment under Article 41 of the Convention. The applicants pointed out however that the rent at issue had been paid by a third party – a State-owned company – and not by the State itself, and that the amounts received by them had lost much of their value due to the devaluation of the Bulgarian currency in the 1990s. Between 1994 and 1999 they had received rent which, after the denomination of the old Bulgarian lev in 1999, equalled BGN 1,009, the equivalent of EUR 516.

15.  The applicants stated that they wished that any award made by the Court in respect of pecuniary damage be divided equally between the two of them.

16.  Lastly, each applicant claimed EUR 5,000 in respect of non‑pecuniary damage.

(b)  The Government’s position

17.  The Government urged the Court to award the applicants a lump sum comparable to the one in the similar case of Yavashev and Others v. Bulgaria (no. 41661/05, § 77, 6 November 2012).

18.  If the Court decided to award the value of the compensation which could have been received at the domestic level, the Government pointed out that in April 2003 the applicants would have received bonds with a face value of BGN 132,827, the equivalent of EUR 68,000. In support of that statement the Government submitted an expert valuation report. Using the same statute-provided formula as the expert retained by the applicants (see paragraph 11 above), and changing only one element in it, namely the average monthly salary during the trimester preceding the award of compensation bonds, the expert calculated that the face value of these bonds would have been in the amount indicated above – BGN 132,827 – in April 2003 (taking into account the average salary in the first trimester of 2003), and BGN 566,025, the equivalent of EUR 289,000, in September 2018 (taking into account the average salary in the second trimester of 2018).

19.  If the Court awarded any of these sums, the Government argued that no interest had to be added to it. They pointed out in addition that for many years prior to 2003 the applicants had received rent for the disputed property which, in their view, was equivalent compensation. They submitted a letter by company T. which had paid this rent, stating that the company no longer kept any documents showing the exact amounts disbursed.

(c)  The applicants’ response to the Government’s observations

20.  Upon receipt of the Government’s observations, and in particular the report referred to in paragraph 18 above, the applicants stated that they wished to increase their claim for pecuniary damage to BGN 566,025 (EUR 289,000) – the face value of the compensation bonds for their property as of September 2018, calculated by the Government-retained expert. The applicants justified their decision to base their claim on the bonds’ face value as of that date with the fact that, in their view, the Compensation Act aimed to provide compensation which was “as updated as possible”. They justified in addition their claim to be awarded the bonds’ full face value, pointing out that compensation bonds could be used as means of payment in privatisation tenders.

21.  The applicants observed that, unlike the applicants in Yavashev and Others (cited above), they did not claim the market value of their expropriated property, but the value of the compensation they could have received at the national level.

22.  The applicants reiterated that the amounts they had received from company T. in rent before 2003 had been “insignificant”. Moreover, the company had been entitled to claim back any such amounts.

(d)  The Government’s comments on the applicants’ claims

23.  The Government once again urged the Court to reduce any award in respect of pecuniary damage to take into account the rent received by the applicants before 2003, pointing out that it had not been in negligible amounts at the relevant time.

24.  Lastly, the Government contested the applicants’ claims in respect of non-pecuniary damage (see paragraph 16 above), considering them excessive.

2.  The Court’s assessment

(a)  Pecuniary damage

25.  In the similar case of Yavashev and Others (cited above, §§ 72-77) – which had a broader subject matter, the applicants complaining additionally of the domestic courts’ finding that the property they claimed had not been restituted to them – the applicants had claimed, in respect of pecuniary damage, the market value of that property. The Court, having found a violation of Article 1 of Protocol No. 1 of the Convention only as regards the impossibility for them to receive compensation in lieu of restitution, did not make an award reflecting that value. Since the parties had not made submissions as to the amount of compensation the applicants could have received, the Court noted that it could not speculate on the matter and, ruling on an equitable basis, awarded the three applicants a lump sum, EUR 20,000, to compensate any pecuniary and non-pecuniary damage suffered by them as a result of the violation.

26.  In the present case the parties made specific submissions with regard to the compensation the applicants could have received at the national level, and the Court sees no reason to rule, as in Yavashev and Others, on equitable basis.

27.  It reiterates that a judgment in which it finds a breach of the Convention imposes on the respondent State a legal obligation to put an end to the breach and make reparation for its consequences in such a way as to restore as far as possible the situation existing before the breach (see, among many other authorities, Brumărescu v. Romania (just satisfaction) [GC], no. 28342/95, § 19, ECHR 2001‑I, and Vistiņš and Perepjolkins v. Latvia (just satisfaction) [GC], no. 71243/01, § 33, ECHR 2014).

28.  Turning to the circumstances of the present case, the Court observes that the parties appear to agree that, had the breach of the applicants’ rights not occurred, they could have received compensation bonds in 2002-03. In particular, a decision awarding to the applicants compensation under the Compensation Act for other expropriated property entered into force in September 2002 (see § 9 of the principal judgment), and the applicants were of the view that at about the same time they could have received compensation for the property at issue as well (see paragraph 13 above). The Government, for their part, submitted an expert report indicating, among others, the face value of the compensation bonds the applicants could have received in April 2003 (see paragraph 18 above).

29.  Reiterating that reparation for pecuniary damage under Article 41 of the Convention must result in the closest possible situation to that which would have existed if the breach in question had not occurred, the Court finds it justified to take, as a starting point of its analysis, the amount of compensation bonds the applicants would have received in 2002-03. The Court has been provided with an expert assessment of the face value of these bonds as of April 2003, setting that value at the equivalent of EUR 68,000 (see paragraph 18 above).

30.  The Court observes furthermore that, under domestic law, compensation bonds such as the ones the applicants could have received are not exchangeable for cash. The applicants could sell them to investors (see paragraphs 9-10 above) or, possibly, as they seemed to claim (see paragraph 20 above), use them to participate directly in privatisation tenders. Either way, seeing the fluctuating levels at which bonds are traded at the stock exchange (see paragraph 10 above) and, more generally and with regard to the applicants’ argument that they could have participated directly in privatisation tenders, the uncertainty of the economic process (see, for example, Basarba OOD v. Bulgaria (just satisfaction), no. 77660/01, § 26, 20 January 2011), the Court does not find it proven that, had the breach of their rights not occurred, the applicants would have eventually obtained the equivalent of the bonds’ face value. In view of the data available, and acknowledging the inevitable degree of speculation on the matter, the Court finds it reasonable to conclude that the applicants could have obtained for their bonds the equivalent of about EUR 41,000.

31.  To that sum should be added interest. The Court has held that the interest rate applied, which is intended to compensate for loss of value of the award over time, should reflect national economic conditions, such as levels of inflation and rates of interest during the relevant period (see Runkee and White v. the United Kingdom, nos. 42949/98 and 53134/99, § 52, 10 May 2007, and Vaskrsić v. Slovenia, no. 31371/12, § 98, 25 April 2017). In a recent case against Bulgaria the Court found it reasonable to apply an interest rate equal to the base interest rate of the Bulgarian National Bank during the relevant period plus one percentage point (see Boyadzhieva and Gloria International Limited EOOD v. Bulgaria, nos. 41299/09 and 11132/10, § 55, 5 July 2018), and it will follow the same approach in the case in hand. It thus awards the applicants EUR 16,000 under this head.

32.  The Court sees no reason to decrease the award for pecuniary damage to account for the fact that up to 2003 the applicants received rent for the use of the disputed building. The parties have not provided it with specific information on the amount of rent paid for the whole period in question, nor on the actual current value of the sum received. Moreover, the rent at issue was paid by company T. which, even though State-owned before 2003, remained a separate legal entity. In addition, as pointed out by the applicants (see paragraph 22 above), the company could claim back any unduly paid rent. Lastly, any payment on its part before 2003 cannot replace the compensation which would have been due by the State (see § 33 of the principal judgment).

33.  The global award in respect of pecuniary damage is thus EUR 57,000. As requested by the applicants (see paragraph 15 above), each of them is to receive a half of it, namely EUR 28,500.

(b)  Non-pecuniary damage

34.  Lastly, the Court is of the view that the applicants must have suffered non‑pecuniary damage, for which the finding of a violation of the Convention in the principal judgment is not a sufficient remedy. Judging on an equitable basis, it awards each of them EUR 2,000 under this head.

B.  Default interest

35.  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,

1.  Holds

(a)  that the respondent State is to pay each of the applicants, within three months, the following amounts, plus any tax that may be chargeable, to be converted into Bulgarian levs at the rate applicable at the date of settlement:

(i)  EUR 28,500 (twenty-eight thousand five hundred euros) in respect of pecuniary damage;

(ii)  EUR 2,000 (two thousand euros) in respect of non-pecuniary damage;

(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;

2.  Dismisses the remainder of the applicants’ claim for just satisfaction.

Done in English, and notified in writing on 16 May 2019, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.

Milan BlaškoGabriele Kucsko-Stadlmayer
              Deputy RegistrarPresident

 

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