CASE OF RS INVESTMENT LTD v. SLOVAKIA

THIRD SECTION

CASE OF RS INVESTMENT LTD v. SLOVAKIA

(Application no. 55610/18)

JUDGMENT
 

STRASBOURG

19 May 2020

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

In the case of RS INVESTMENT LTD v. Slovakia,

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

Dmitry Dedov, President,
Alena Poláčková,
Gilberto Felici, judges,
and Olga Chernishova, Deputy Section Registrar,

Having regard to:

the application against the Slovak Republic lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a company having its registered seat in Saint Vincent and the Grenadines, RS INVESTMENT LTD (“the applicant company”), on 16 November 2018;

the decision to give notice to the Slovak Government (“the Government”) of the complaint concerning the alleged unfair trial and to declare inadmissible the remainder of the application;

the parties’ observations;

Having deliberated in private on 28 April 2020,

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

INTRODUCTION

The applicant company complained, in particular, that the quashing, upon an extraordinary appeal on points of law filed by the Prosecutor General, of a final and binding judgment in its favour was contrary to its rights under Article 6 § 1 of the Convention.

THE FACTS

1.  The applicant company has its registered seat in Saint Vincent and the Grenadines. It was represented by Mr A. Kucek, a lawyer practising in Bratislava.

2.  The Government were represented by their Agent, Ms M. Pirošíková.

3.  The facts of the case, as submitted by the parties, may be summarised as follows.

4.  On 13 March 2007, X. initiated proceedings for damages against the State, relying on the latter’s liability for an irregular conduct and unlawful decision of a tax authority related to the registration of the company Y. as VAT payer. The damages claimed included real damages sustained by Y. in the tax proceedings, claim which X. as one of Y.’s shareholders had been in 2006 transferred by Y., and the loss of profit of almost 4 million euros allegedly sustained by X. due to the difference between the sale price of his business share and the profit expected to be gained by Y.

5.  On 18 February 2009, the Bratislava V District Court partially granted the action, rejecting as unfounded the State’s objection that the claim was statute-barred and ordering it to pay X. a sum of almost 4,5 million euros.

6.  By a contract of 27 April 2009, X. transferred the above claim to the applicant company, which was authorised to enter the proceedings on 18 June 2012, upon X.’s request dated 4 June 2012.

7.  On 30 June 2009, the Bratislava Regional Court fully upheld the first-instance court judgment.

8.  Subsequently, the State lodged an appeal on points of law (dovolanie), which was rejected by the Supreme Court on 15 March 2012. It also addressed two petitions to the Prosecutor General inviting him to exercise his discretionary power to challenge the above judgments by way of an extraordinary appeal on points of law (mimoriadne dovolanie) to the Supreme Court.

9.  On 17 August 2010, the Prosecutor General lodged such appeal, being of the view that the courts had reached incorrect legal conclusions since the conditions to grant damages to the plaintiff had not been met and the starting point of the statutory limitation period had been wrongly determined.

10.  On 20 March 2012, the Supreme Court quashed the impugned judgments and remitted the matter to the first-instance court. After having from its own initiative examined whether the proceedings had been flawed within the meaning of Article 237 of the Code of Civil Procedure, the Supreme Court mainly considered that the lower courts’ judgments had not been duly reasoned, notably as regards the defendant’s objection of statutory limitation and the fulfilment of the conditions for the State’s liability, and that, as such, they did not comply with the requirements of the right to judicial protection.

11.  By a judgment of 17 January 2013, the District Court again ordered the State to pay the applicant company a sum of almost 4,5 million euros. In its appeal, the State objected again that X.’s claim was statute-barred and unsubstantiated.

12.  By a judgment of 24 June 2014, final on 22 August 2014, the Regional Court upheld the above decision of the District Court, including the latter’s conclusion that the action had been filed within the statutory limitation period.

13.  The State lodged an appeal on points of law, repeating the objections stated in the appeal, and asked again the Prosecutor General to challenge the incorrect legal assessment made in the above judgments by way of an extraordinary appeal on points of law. After its first petition was set aside by the Prosecutor General because the conditions were not considered to have been met, the State filed a second petition insisting on the fact that an incorrect legal assessment could not be successfully challenged through the appeal on points of law.

14.  Such extraordinary appeal was lodged on 4 June 2015; according to the Prosecutor General, the courts had failed to distinguish between the two claims sought (i.e. real damages and loss of profit) and between their original holders (i.e. Y. and X.), and they had wrongly held the State liable for the loss of profit alleged by X.

15.  On 15 December 2016, the Supreme Court rejected the State’s appeal on points of law as inadmissible, having found no reason for admissibility (incorrect legal assessment not being accepted as such reason) and no procedural errors. It found that, considered together with the District Court judgment, the Regional Court had duly reasoned all its conclusions and responded in detail to the appellant’s arguments; the fact that the defendant had been of a different view and that the reasoning of the courts’ decisions had not met its expectations did not render those decisions unreviewable or arbitrary.

16.  Upon the Prosecutor General’s extraordinary appeal, the Supreme Court decided on 31 July 2017 to quash the impugned judgments, considering that they were vitiated by manifest errors in the application of the substantive law (statutory limitation, lack of evidence as to the existence of damage, causal link between damage and authorities’ conduct) which made the courts deviate, without due reasoning, from the established practice. After having considered the relevant case-law, the Supreme Court considered that those flaws amounted to fundamental errors which were incompatible with the constitutional order and fair trial guarantees and allowed for departing from the principle of legal certainty. Thus the matter was remitted back to the District Court for a fresh examination.

17.  On 26 October 2017, the applicant company challenged the above decision of the Supreme Court by a constitutional complaint. Relying on Article 6 § 1 of the Convention, it asserted that the extraordinary appeal was unsubstantiated, contrary to the principle of legal certainty and clearly inadmissible, given that the defendant had had a possibility to seek redress through an appeal on points of law. The applicant company further maintained that the Supreme Court went beyond the scope of the extraordinary appeal and that its decision was arbitrary and non-compliant with the Constitution and the Court’s case-law.

18.  By a decision of 16 May 2018 (I. ÚS 152/2018), the Constitutional Court dismissed the constitutional complaint mainly as manifestly-ill founded, referring to the unifying opinion of its plenary no. PLz. ÚS 3/2015 and to the Court’s relevant case-law. The Constitutional Court considered that the impugned decision of the Supreme Court was comprehensibly and thoroughly reasoned and supported by the relevant practice. Moreover, the Prosecutor General’s extraordinary appeal was based on a reason (incorrect legal assessment of the case) which could not be successfully relied upon by the defendant in its appeal on points of law; thus the protection of the defendant’s rights could not have been secured by any other means and the Supreme Court’s intervention was justified.

RELEVANT LEGAL FRAMEWORK AND PRACTICE

19.  The relevant domestic law and practice and European texts have been summarised in the Court’s judgment in, inter alia, the case of DRAFT - OVA a.s. v. Slovakia (no. 72493/10, §§ 39-56 and 58-61, 9 June 2015).

20.  Pursuant to Article 35 § 2 (j) and (l) of the Code of Civil Procedure (no. 99/1963 Coll.), as applicable at the relevant time, the prosecutor could enter into any pending proceedings to which the State was a party or which concerned the State’s liability for damage caused by an unlawful decision or irregular conduct of a public authority.

21.  On 18 March 2015, the plenary of the Slovak Constitutional Court adopted a unifying opinion no. PLz. ÚS 3/2015 in which it held that, regard being paid to the principle of legal certainty which was set up by a final decision, to the principle of subsidiarity enshrined in Article 127 § 1 of the Constitution, as well as to the exceptional nature of the extraordinary appeal on points of law as an extraordinary remedy lodged by the Prosecutor General, the admissibility of such appeal in civil proceedings was acceptable only if the party to the proceedings exhausted all ordinary and extraordinary remedies which were available to him/her and which he/she could effectively use to protect his/her rights and legitimate interests.

22.  In the joint observations no. 94 of its Civil and Commercial Law Divisions adopted on 20 October 2015, the Supreme Court stated that the procedural admissibility of the extraordinary appeal on points of law filed upon a party’s petition in civil proceedings is conditioned by the fact that the party in question had unsuccessfully used all available ordinary and extraordinary remedies likely to secure him/her a more favourable decision. If such possibility was not used, the extraordinary appeal had to be dismissed.

23.  The new Code of Civil Contentious Procedure (Law no. 160/2015), adopted on 21 May 2015, entered into force on 1 July 2016, i.e. after the relevant procedural steps taken by the applicant company in this case. According to its section 458, the extraordinary appeal on points of law lodged by the Prosecutor General shall be admissible only if a final judicial decision breaches the right to a fair trial or suffers from errors resulting in a severe violation of that right on account of the fact that the legal conclusions reached are arbitrary or untenable and if the need to quash such decision prevails over the interest in preserving its inalterability and the principle of legal certainty.

THE LAWALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION

24.  The applicant company asserted that the fact that a final judgment in its favour was repeatedly quashed by the Supreme Court following an extraordinary appeal on points of law lodged by the Prosecutor General was contrary to the principles of legal certainty and equality of arms. It relied in this respect on Article 6 § 1 of the Convention, which reads as follows:

“In the determination of his civil rights and obligations ... everyone is entitled to a fair ... hearing ... by [a] ... tribunal ...”

25.  The Government contested that argument.Admissibility

26.  The Government objected that, as regards the first quashing decision of the Supreme Court of 20 March 2012, the applicant company had not yet been party to the proceedings at that time (see paragraph 6 above), which makes any complaint in this regard incompatible ratione personae with the provisions of the Convention. Moreover, no constitutional appeal was lodged against that decision, thus the condition of exhaustion of domestic remedies has not been fulfilled.

27.  The Court first considers that it is not necessary to rule on the preliminary objections raised by the Government in respect of the Supreme Court’s decision of 20 March 2012 since it follows from the applicant company’s observations (see paragraph 30 in fine below) that the application is primarily directed against the decision of 31 July 2017.

28.  The Court further notes that the application is neither manifestly ill-founded nor inadmissible on any other grounds listed in Article 35 of the Convention. It must therefore be declared admissible.MeritsSubmissions by the parties

29.  The applicant company submitted that the extraordinary appeal was deliberately designed as a concealed form of a further appeal to allow for revision of the lower courts’ final decisions. Extensively relying on the Court’s case-law, it maintained that extraordinary remedies were incompatible with Article 6 of the Convention when they aimed at challenging only the legal assessment of a case, without the proceedings being vitiated by fundamental defects which would seriously affect their fairness, integrity and public reputation. In the absence of such defects, neither a party’s disagreement with the assessment made by the first-instance and appeal courts nor a misinterpretation or incorrect application of legal provisions amounted to circumstances of a substantial and compelling character which would warrant quashing a binding and enforceable judgment and re-opening of the proceedings on the original claim.

30.  However, in the present case, the primary ground for the “revision” of the proceedings was – as follows from the Prosecutor General’s appeal – the need to repeatedly reassess the merits of the case. Indeed, the quashing of final and legally binding decisions occurred twice, namely on 20 March 2012 and on 31 July 2017. The applicant company admitted in this respect that no constitutional complaint was filed against the first of those decisions. It noted however that the violation persisted and that its right to a fair trial was ultimately breached by the decision of 31 July 2017, which was duly challenged before the Constitutional Court.

31.  The applicant company further asserted that it was not disputed between the parties that the tax authority had breached its obligations and the amount of the damage caused had a factual basis. Only the legal issues of statutory limitation and qualification of the claim remained controversial and the courts duly reasoned their conclusions in this respect. Although the State as the defendant had lodged two appeals on points of law, those were not successful since the Supreme Court did not identify any fundamental procedural error which would allow it to declare that remedy admissible. Given that the legal assessment of the case could not be challenged through the appeal on points of law, the State turned to the Prosecutor General and eventually convinced him to lodge an extraordinary appeal (see paragraphs 13-14 above). In the applicant’s company view, it was clear and undisputed that the defendant’s appeal on points of law and the Prosecutor General’s extraordinary appeal were based on the same objections, which had already been raised before and dealt with by the lower courts. In its quashing decision of 31 July 2017, the Supreme Court thus clearly acted as a third instance, putting forward its own legal assessment of the case without remedying any substantial procedural defects.

32.  Lastly, the applicant company pointed out that the decisions of the first-instance and appellate courts did not serve as precedents; therefore, potential errors in their legal assessment would not cause any inconsistency of the judicial practice nor threaten the legal system. Moreover, pursuant to Article 35 § 2 of the Code of Civil Procedure, the Prosecutor’s Office could have at any moment intervened in the proceedings before the lower courts (see paragraph 20 above). The fact that the Prosecutor General waited until a final decision was delivered and used its discretionary power upon a petition filed by a high representative of the State amounted to a serious breach of the principle of equality of arms.

33.  The Government submitted that the present case had to be distinguished from the cases of DRAFT - OVA a.s. v. Slovakia (cited above), COMPCAR, s.r.o. v. Slovakia (no. 25132/13, 9 June 2015) and PSMA, spol. s r.o. v. Slovakia (no. 42533/11, 9 June 2015), in which the Prosecutor General based his extraordinary appeal on arguments which had not – but could have - been previously raised by the parties or on aspects which had not been disputed by them. Conversely, in the present case, the issues which were at the origin of the quashing decisions, namely the very existence of the damage, the title to compensation, its holders and statutory limitation, had already been raised by the State in its appeal and appeal on points of law but were either assessed wrongly or left unanswered. Moreover, the argument of an incorrect legal assessment could not be successfully relied upon by the State before the Supreme Court since it did not constitute a valid reason for the admissibility of the appeal on points of law.

34.  In the Government’s view, it also followed from the decision of 16 May 2018 that the Constitutional Court was well aware of the Court’s critical approach to extraordinary appeals left to the authorities’ discretion and of the relevant case-law, allowing to set the principle of legal certainty aside only to rectify fundamental errors or miscarriages of justice. In this respect, it shared the opinion of the Supreme Court according to which the errors committed in the instant case by the lower courts in the application of the substantive law were so serious that it was justified to grant the extraordinary appeal and to remit the matter back for a fresh examination. The Government considered that this was also aimed at avoiding legal uncertainty which would otherwise stem from the existence of decisions deviating from the established practice.

35.  Lastly, the Government noted that the amount allegedly corresponding to the damage sustained by Y. because it had not been able to apply for a VAT deduction was paid to that company through the income tax.The Court’s assessment

36.  The Court observes at the outset that the action for damages lodged against the State was adjudicated in the applicant company’s favour and that the final and binding judgment was quashed following the application of an extraordinary remedy. Therefore, it must be ascertained whether the interference with the originally completed proceedings in the present case was compatible with the guarantees of Article 6 of the Convention, in particular with the principles of the rule of law, legal certainty and equality of arms inherent in that provision.

37.  The Court reiterates that for the sake of legal certainty implicitly required by Article 6, final judgments should generally be left intact. They may be disturbed only to correct fundamental defects, such as jurisdictional error, a serious breach of court procedure or abuses of power, which may justify the quashing (see Luchkina v. Russia, no. 3548/04, § 21, 10 April 2008). Departures from the principle of legal certainty are thus justified only when made necessary by circumstances of a substantial and compelling character, the existence of which has to be examined case by case (see, e.g., Tishkevich v. Russia, no. 2202/05, §§ 25-26, 4 December 2008, and Sutyazhnik v. Russia, no. 8269/02, § 35, 23 July 2009). The mere possibility of there being two views on the subject is not a ground for re‑examination (see Ryabykh v. Russia, no. 52854/99, §§ 51-52, ECHR 2003‑IX).

38.  In the present case the final and binding judgment of 24 June 2014 was quashed upon the extraordinary appeal lodged on account of an incorrect legal assessment of the matter, the Prosecutor General being of the view that the lower courts had failed to distinguish between the two claims sought and between their original holders and that they had wrongly held the State liable for the loss of profit alleged by the original plaintiff (see paragraph 14 above). It clearly follows from the Supreme Court’s decision of 31 July 2017 that the sole grounds for the quashing were incorrect application of the legal provisions regulating the statutory limitation and incorrect assessment of the fulfilment of the conditions for the State’s liability.

39.  Not dealing with the question whether those defects are procedural or substantive in nature, the Court is not convinced that they constituted circumstances justifying interference with a final and binding judicial decision in the present case. It observes in this respect that the same legal questions were raised by the State throughout the proceedings and were also at the origin of the first quashing decision of 20 March 2012, following which they were duly dealt with by both lower courts. This was confirmed by the decision of 15 December 2016, rejecting the State’s appeal on points of law, in which the Supreme Court stated that the impugned judgments were adequately reasoned and responded in detail to the appellant’s arguments; no procedural errors, lack of fairness or arbitrariness were found (see paragraph 15 above).

40.  In such conditions, the Court considers that the extraordinary appeal may rather be seen as a further appeal or, in other words, an appeal in disguise in terms of the Court’s case-law (see, for example, Ryabykh, cited above, § 52) and that the quashing of the judgments of 17 January 2013 and 24 June 2014 was a disproportionate measure. This conclusion is unaffected by whether or not this will ultimately result in any real damage having been sustained by the applicant company.

41.  There has accordingly been a violation of Article 6 § 1 of the Convention. This finding makes it unnecessary for the Court to consider separately whether the procedural guarantees of Article 6 of the Convention were respected during the proceedings on the extraordinary appeal.APPLICATION OF ARTICLE 41 OF THE CONVENTION

42.  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.”

43.  The applicant company did not claim any damages nor costs and expenses under Article 41 of the Convention.

44.  Accordingly, the Court considers that there is no call to award it any sum on account of just satisfaction.

FOR THESE REASONS, THE COURT, UNANIMOUSLY,Declares the application admissible;Holds that there has been a violation of Article 6 § 1 of the Convention.

Done in English, and notified in writing on 19 May 2020, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.

Olga Chernishova Dmitry Dedov
Deputy RegistrarPresident

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