CASE OF NIKOLAY KOSTADINOV v. BULGARIA

THIRD SECTION

CASE OF NIKOLAY KOSTADINOV v. BULGARIA

(Application no. 21743/15)

JUDGMENT
(Just satisfaction)

Art 41 • Just satisfaction • Awards for pecuniary and non-pecuniary damage sustained from violation of Art 1 P1 on account of the respondent State’s failure to comply with its positive obligation to protect the applicant from fraudulent takeover of his company, its shares and assets, by a private party • Amount of pecuniary damages decided in equity on account of inherently uncertain character of damage flowing from the violation

STRASBOURG

2 April 2024

This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.

In the case of Nikolay Kostadinov v. Bulgaria,

The European Court of Human Rights (Third Section), sitting as a Chamber composed of:

 Pere Pastor Vilanova, President,
 Jolien Schukking,
 Yonko Grozev,
 Georgios A. Serghides,
 Peeter Roosma,
 Ioannis Ktistakis,
 Andreas Zünd, judges,
and Milan Blaško, Section Registrar,

Having deliberated in private on 12 March 2024,

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

PROCEDURE

1.  The case concerns the adequacy of the domestic authorities’ reaction to a criminal encroachment upon the applicant’s “possessions”, namely third parties fraudulently taking control of the applicant’s company and of assets of that company. The case raised issues relating to the positive obligations of the Bulgarian State under Article 1 of Protocol No. 1.

2.  In a judgment delivered on 8 November 2022 (“the principal judgment”), the Court held that there had been a violation of Article 1 of Protocol No. 1 (see Nikolay Kostadinov v. Bulgaria, no. 21743/15, 8 November 2022). It was of the view that the criminal investigation into the fraud concerning the applicant’s company (named Vandom OOD, hereinafter “Vandom”), despite resulting in the conviction of one person, had been ineffective. In particular, the authorities had failed to investigate the suspected larger scale of the criminal activity and people potentially involved and had thus failed to shed light on all the relevant circumstances. In addition, the civil-law remedies resorted to by the applicant had not permitted him to effectively oppose the fraudulent appropriation of his company. This was so, first, because the national courts had failed to order, as interlocutory measures, the garnishment of any shareholding in the company claimed by third parties and the ban of any managerial decisions. Second, the proceedings at issue had taken time, allowing the third parties controlling Vandom to transfer further the shares, and in that way render meaningless any judicial decision in the applicant’s favour (see, for the Court’s conclusions, §§ 53-75 of the principal judgment). Lastly, any effort on the part of the applicant to recover Vandom’s major asset, a plot of land in Varna (see paragraph 8 below), was blocked by the people having fraudulently taken control of the company.

3.  Under Article 41 of the Convention the applicant sought just satisfaction. However, since the question of the application of Article 41 was not ready for decision as regards pecuniary and non-pecuniary damage, the Court reserved such decision and invited the Government and the applicant to submit, within six months, their written observations on that issue, and in particular to notify the Court of any agreement they might reach (see § 80 and point 3 of the operative provisions of the principal judgment).

4.  The applicant and the Government failed to reach an agreement. They each filed observations on the question of just satisfaction (see below).

THE LAW

5.  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.”

6.  The applicant owned one half of Vandom’s shares and the remainder was owned by his sister (see § 5 of the principal judgment). Due to the fraudulent actions of third parties, the applicant lost his shareholding and control of the company at the beginning of 2008 (see § 12 of the principal judgment). Before the Court, the applicant claimed one half of the value of the company’s assets, updated to account for the rate of inflation.

7.  The applicant submitted that at the time when he had lost his shareholding Vandom had had no substantial debts. It had been an “active participant” in the economic exchange, had good financial results, and had invested in real estate.

8.  Vandom’s main asset at the time had been the plot of land in the vicinity of Varna described in § 6 of the principal judgment, which had itself become the subject of fraudulent actions. In the domestic criminal proceedings concerning the fraud, the value of the land as of 2011-2012 had been assessed at 785,000 Bulgarian levs (BGN), or 401,000 euros (EUR) – see § 17 of the principal judgment.

9.  In addition, in 2006 and 2007 Vandom bought three cars, for which it paid in total BGN 124,305 (EUR 63,583). The company took a bank loan for that purpose, but after the fraudulent transfer of the shareholding it stopped paying. As the applicant and his sister (the two shareholders as of 2006 and 2007) had been jointly liable to the bank, they had to pay the remainder of the sums due.

10.  In September 2007 Vandom paid BGN 198,036 (EUR 101,297) to another company – an initial instalment related to a construction project in Sofia (unrelated to the plot in Varna). The payment comprised in particular the value of Vandom’s right to construct on land owned by the other company.

11.  Lastly, at the time the applicant lost his shareholding third parties owed Vandom BGN 50,000 (EUR 25,575).

12.  The above facts were supported by documents submitted by the applicant.

13.  The applicant presented before the Court a valuation report listing the values of the assets described above at the time when these values had been “indisputable”, namely in 2012 for the plot of land and in 2006-07 for the remaining assets. The experts then applied to these values the Harmonised Indices of Consumer Prices (“the HICP”) – a measure of the inflation across the countries of the European Union, indicative of the overall relative change in price levels of goods and services. On this basis the experts calculated the value of the assets above at BGN 1,253,158 (EUR 641,000) in February 2012, at BGN 1,291,912 (EUR 660,820) in September 2020 when the applicant submitted his initial claims for just satisfaction (see § 78 of the principal judgment), and at BGN 1,611,119 (EUR 823,752) in July 2023 when the experts updated the applicant’s claims for the present proceedings before the Court.

14.  The applicant, who had owned one half of Vandom’s shares, claimed accordingly one half of the updated value of the company’s assets as of September 2023, namely EUR 411,876.

15.  He argued that if he had not lost his shareholding due to the fraudulent actions described in the principal judgment and the domestic legal system’s failure to provide adequate protection, he would have received dividends from Vandom and would have been entitled to a liquidation share in the event of winding-up. He had thus suffered a real loss, which fell to be compensated by the State. The causal link between his loss and the violation of his rights found in the case was, in his view, sufficient.

16.  The Government argued that the expert valuation submitted by the applicant was speculative, seeing that it was unclear on what basis the values of the different assets had been calculated.

17.  The Government contended further that, as the present case did not concern deprivation of property imputable to the State, but only the State’s positive obligations under Article 1 of Protocol No. 1, any award under Article 41 of the Convention did not necessarily have to “reflect the idea of eliminating all consequences” of the violation of the applicant’s rights. The State was not therefore under an obligation to compensate the applicant for the full market value of Vandom’s assets.

18.  Moreover, there was no clear causal link between the damage claimed by the applicant and the violation of his rights found in the principal judgment. It could not be speculated what the profit from Vandom’s economic activities would have been, and any damage stemming from such activities was “inherently uncertain”.

19.  It was also significant that the primary factor leading up to the applicant’s losses had been the actions of private parties. The applicant had failed to claim compensation from those parties.

20.  Lastly, the Government argued that, following the finding of a violation in the principal judgment, the applicant could have applied for the reopening of the domestic proceedings concerning the ownership of the plot of land in Varna (see §§ 31-32 of the principal judgment).

21.  The Court has held that the nature and the extent of the just satisfaction to be afforded under Article 41 of the Convention directly depend on the nature of the breach found, and there must be a clear causal connection between the damage claimed by the applicant and the breach. The Court enjoys a certain discretion in the exercise of the power conferred by Article 41, as is borne out by the adjective “just” and the phrase “if necessary” in its text. Indeed, Article 41 empowers the Court to afford the injured party such satisfaction as appears to it to be appropriate, if national law does not allow – or allows only partial – reparation to be made (see, among other authorities, Comingersoll S.A. v. Portugal [GC], no. 35382/97, § 29, ECHR 2000-IV; Shesti Mai Engineering OOD and Others v. Bulgaria, no. 17854/04, § 101, 20 September 2011; and Kryvenkyy v. Ukraine, no. 43768/07, § 52, 16 February 2017).

22.  In the present case, the violation of Article 1 of Protocol No. 1 was based on a finding that the respondent State had not complied with its positive obligations to protect the applicant’s rights, as described in more detail in paragraph 2 above. This cannot be equated to a deprivation of property and, in the Court’s view, the compensation to be awarded does not have to reflect the idea of a total elimination of the consequences of the breach (see Shesti Mai Engineering OOD and Others, cited above, § 102).

23.  Yet, the applicant must be regarded to have suffered some real loss of opportunity (see Shesti Mai Engineering OOD and Others, cited above, § 102, and Papachela and AMAZON S.A. v. Greece, no. 12929/18, § 74, 3 December 2020). The Court is unable however to accept the applicant’s proposal for the estimation of the quantum under the present head of damage (see paragraph 14 above), for the reasons below.

24.  The applicant’s claim is based on the premise that full reparation is needed, as if the case concerned deprivation of property, which, as noted, it does not.

25.  In addition, while it can be assumed that, had it not been for the breach, the applicant would have retained his shareholding in Vandom, and accordingly would have been entitled to dividends and to a share of the company’s assets in the event of winding-up (see Shesti Mai Engineering OOD and Others, cited above, § 102), the fact remains that the Court cannot know with certainty what the outcome of the events would have been had the State complied with its positive obligations under Article 1 of Protocol No. 1 (see Sovtransavto Holding v. Ukraine (just satisfaction), no. 48553/99, § 55, 2 October 2003).

26.  It should not also be overlooked that, as noted by the Government (see paragraph 19 above), the primary actor in the fraudulent takeover of the applicant’s company were not the authorities but private persons, and the applicant has not attempted to seek compensation for damage from these persons (see Shesti Mai Engineering OOD and Others, cited above, § 103). The applicant could have mitigated his losses through such action, and this remains valid even bearing in mind that the Court dismissed an objection of non-exhaustion of domestic remedies in the principal judgment on the ground that the applicant had not brought a tort action against the person convicted for the fraud (see §§ 45-47 of the judgment).

27.  The Court’s assessment as to the amount of pecuniary damage to be compensated takes into account the following additional considerations.

28.  The case under examination concerns essentially the business activities of a company, and the applicant’s impossibility to develop such activities and profit from them. However, the running of such a company implies the taking of risks and a degree of uncertainty as to the use and the profitability of the assets acquired, which renders any loss of profit difficult to quantify (see, among other authorities, Basarba OOD v. Bulgaria (just satisfaction), no. 77660/01, § 26, 20 January 2011, and East West Alliance Limited v. Ukraine, no. 19336/04, § 251, 23 January 2014).

29.  At the same time, it appears from the applicant’s submissions that at the time when Vandom was targeted by fraudulent action, namely in 2007‑08, it was in a good financial situation and was owning substantial assets (see paragraphs 7-11 above). The Court does not need to reach a conclusion on the objective value of these assets, or the value’s evolution after the passage of years (compare with the situation in Sovtransavto Holding, cited above, §§ 65 and 70), but it observes nevertheless that the Government, while contesting the expert valuations (see paragraph 16 above), have not disputed the applicant’s factual submissions on the company’s situation.

30.  The Government argued that the applicant should have applied for the reopening of the domestic proceedings concerning the plot of land in Varna (see paragraph 20 above). However, they have not shown how this could have been an effective remedy: as was noted in § 31 of the principal judgment, the applicant’s action was dismissed because he was not considered to be Vandom’s representative, and this has not changed. Moreover, the company Vandom has in the meantime been wound up (see § 36 of the principal judgment).

31.  Lastly, it should be noted that the Government, while disagreeing with the manner of assessing the pecuniary damage claimed by the applicant, did not make any alternative proposition.

32.  In view of the above considerations, noting once again the inherently uncertain character of the damage flowing from the violation, the Court considers it appropriate to decide on the amount of pecuniary damage in equity (see Shesti Mai Engineering OOD and Others, § 103, and Papachela and AMAZON S.A., § 75, both cited above). It thus awards the applicant EUR 80,000 under the present head. Any tax that may be chargeable should be added to that amount.

33.  As regards non-pecuniary damage, the applicant claimed EUR 10,000. He stated that he had been frustrated and had felt helpless in the face of the State’s failure to protect his property rights. Moreover, during many years he had undertaken different efforts seeking to resolve the situation.

34.  The Government contested the claim, considering it excessive.

35.  The Court acknowledges that the applicant must have suffered distress and frustration on account of the violation of his rights. In view of the circumstances of the case, and judging in equity, it awards EUR 4,000 under this head.

36.  For the proceedings under Article 41 of the Convention, the applicant claimed EUR 562, the equivalent of the BGN 1,100 paid by him in August 2023 for the valuation report concerning Vandom’s assets (see paragraph 13 above). He claimed in addition EUR 38, paid for the translation of his claims for just satisfaction. He requested that the latter sum be paid directly to the law firm of his legal representatives, Ekimdzhiev and Partners. The claims were supported by the relevant invoices and receipts.

37.  The Government contested the claims. They considered in particular that the expenses incurred for the expert valuation submitted by the applicant had been unnecessary.

38.  According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses when it has been shown that these were actually and necessarily incurred and are reasonable as to quantum. In the present case, the Court is of the view that the costs claimed meet these requirements, and therefore awards the amount claimed, EUR 600 in total, in full. As requested by the applicant, EUR 38 of the amount awarded is to be paid directly to the law firm of the applicant’s legal representatives before the Court.

FOR THESE REASONS, THE COURT, UNANIMOUSLY,

(a)  that the respondent State is to pay the applicant, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:

(i)  EUR 80,000 (eighty thousand euros), plus any tax that may be chargeable, in respect of pecuniary damage;

(ii)  EUR 4,000 (four thousand euros), plus any tax that may be chargeable, in respect of non-pecuniary damage;

(iii)  EUR 600 (six hundred euros), plus any tax that may be chargeable to the applicant, in respect of costs and expenses, EUR 38 (thirty-eight euros) of which is to be transferred directly into the bank account of the law firm Ekimdzhiev and Partners;

(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;

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

 Milan Blaško Pere Pastor Vilanova
 Registrar President