CASE OF TRAFIK OIL - 1 EOOD v. BULGARIA

FOURTH SECTION

CASE OF TRAFIK OIL - 1 EOOD v. BULGARIA

(Application no. 67437/17)

JUDGMENT
 

STRASBOURG

18 May 2021

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

In the case of Trafik Oil - 1 EOOD v. Bulgaria,

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

Iulia Antoanella Motoc, President,
Gabriele Kucsko-Stadlmayer,
Pere Pastor Vilanova, judges,
and Ilse Freiwirth, Deputy Section Registrar,

Having regard to:

the application (no. 67437/17) 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 a Bulgarian company, Trafik Oil - 1 EOOD (“the applicant company”), on 5 September 2017;

the decision to give notice to the Bulgarian Government (“the Government”) of the application;

the observations by the Government;

the decision to reject the Government’s objection to the examination of the application by a Committee;

Having deliberated in private on 13 April 2021,

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

INTRODUCTION

1.  The case concerns complaints, made under Article 6 § 1 of the Convention and Article 1 of Protocol No. 1 to the Convention, about the confiscation of fuel belonging to the applicant company in proceedings against a third party in which it could not participate.

THE FACTS

2.  The applicant company was registered in Bulgaria in 2013. The applicant company was represented by Mr N. Dundov, a lawyer practising in Sofia.

3.  The Government were represented by their Agent, Ms B. Simeonova, of the Ministry of Justice.

4.  The facts of the case, as submitted by the parties, may be summarised as follows.Administrative-penal proceedings in respect of the applicant company and judicial review

5.  In September 2014 representatives of the customs authorities inspected a petrol station managed by the applicant company. The authorities discovered that the applicant company had in stock 26,504 litres of diesel fuel in respect of which it could not produce the requisite excise duty documents. The customs authorities seized the fuel in October 2014.

6.  On 24 April 2015 they issued the applicant company with a penal order (“penal order no. 896”) for keeping excise goods without the necessary documents, in breach of section 126 of the Excise Duties and Tax Warehouses Act (“the EDTWA”). Penal order no. 896 imposed a monetary sanction on the applicant company, as well as the confiscation of the impounded fuel in accordance with section 124(1) of the EDTWA. The company was also deprived of the right to exercise activity at the petrol station for a period of one month.

7.  The applicant company brought judicial review proceedings in respect of penal order no. 896. The Sandanski District Court held three hearings in the case. The legal representative of the applicant company requested that, if other penal orders had been issued against some of the companies involved in the chain of supply of the fuel to it, those be produced in court. The authorities accordingly produced penal order no. 613 (see paragraph 9 below) during a hearing on 18 November 2015 and it was accepted by the court and included in the file as evidence. The Sandanski District Court upheld penal order no. 896 on 3 December 2015.

8.  Upon an appeal by the applicant company, in a final judgment of 7 April 2016 the Blagoevgrad Administrative Court overturned the findings of the lower court and quashed the penal order. The second-instance court found that the applicant company, as the final recipient of the fuel, could not have had other documents than those provided to it by its supplier, Petrol Company EOOD, and the supplier had issued the applicant company with an invoice (no. 0000001800/25.09.2014) for the sale of the fuel.Administrative-penal proceedings in respect of the applicant company’s supplier

9.  In the meantime, on 10 July 2015 the customs authorities had issued penal order no. 613 to the applicant’s supplier, Petrol Company EOOD, for having sold the fuel (see paragraph 5 above) to the applicant without a document evidencing payment of the excise duty due on it. The penal order imposed a financial sanction on Petrol Company EOOD, as well as the confiscation in favour of the State of 30,023 litres of diesel fuel as being the subject of a breach of section 126 of EDTWA.Judicial proceedings brought by the applicant company against the refusal to return the fuel

10.  On 21 April 2016 the applicant company asked the customs authorities to return the fuel or, alternatively, to pay the corresponding monetary value, given that penal order no. 896, on the basis of which the fuel had been confiscated, had been repealed with a final judgment. On 4 May 2016 the head of the customs authorities refused to grant the applicant company’s request. The refusal stated that the fuel had, in the meantime, been confiscated on the basis of penal order no. 613 (see paragraph 9 above), in force since 11 September 2015.

11.  On 20 May 2016 the applicant company brought judicial review proceedings in respect of the refusal to return the fuel. On 14 July 2016 the Blagoevgrad Administrative Court quashed the refusal, finding in particular that, as penal order no. 896 against the applicant company had been quashed, there had been no legal grounds for retaining the fuel confiscated in connection with it.

12.  Upon an appeal by the customs authorities, in a final judgment of 14 June 2017 the Supreme Administrative Court (“the SAC”) overturned the lower court’s findings and rejected the applicant company’s appeal against the refusal. The SAC observed that, indeed, penal order no. 896 issued against the applicant company in 2015 had been quashed on 4 April 2016. However, in the meantime penal order no. 613 had been issued against the applicant company’s supplier for having sold fuel to the applicant company without a document evidencing payment of the excise duty due on it. Penal order no. 613 had become final on 11 September 2015, given that Petrol Company EOOD had not contested it within the requisite period.

13.  The SAC concluded that the existence of a valid penal order concerning a breach of section 126 of the EDTWA determined the legality of the confiscation of the fuel in favour of the State, irrespective of whose property the fuel was, as unequivocally stated in section 124(1) of the EDTWA. The sale of the fuel by Petrol Company EOOD to the applicant company did not change the fact that the excise duty in respect of it had not been paid. The fact that the penal order against the applicant company had been revoked in court as unlawful was also irrelevant for the confiscation of the fuel. If both penal orders (nos. 896 and 613) had been revoked as unlawful, there would not have been a breach of the EDTWA and, consequently, there would be no grounds for the confiscation. However, in the case at hand, although having a different owner, the fuel had been the subject of a breach of section 126 of the EDTWA and, consequently, had to be confiscated or its return refused.

RELEVANT LEGAL FRAMEWORK AND PRACTICEState Responsibility for Damage

14.  Section 1(1) of the State and Municipality Responsibility for Damage Act 1988 (“the SMRDA”) provides that the State and municipalities are liable for damage caused to individuals and legal entities as a result of unlawful decisions, acts or omissions by their own authorities or officials while discharging their administrative duties. Section 4 of the SMRDA provides that compensation is due for all damage which is the direct and proximate result of the unlawful act or omission. The State’s liability is strict, that is no fault is required on the part of the civil servants in the commission of the unlawful acts.

15.  A claim for damages could be made after the administrative act in question had been quashed in prior proceedings. The cumulative prerequisites for granting such claims are: (1) act of an administrative body, quashed as unlawful; (2) presence of damage, and (3) causal link between the first two elements above.

16.  Interpretative decision No. 2/2014 of 19.05.2015 of the General Assembly of the Civil Chambers of the Supreme Court of Cassation and the First and Second Chambers of the SAC, held that claims for damages stemming from penal orders quashed as unlawful, including those for awarding costs in proceedings challenging the lawfulness of the penal order, shall be heard by administrative courts.

17.  Interpretative decision No. 1 of 15.03.2017 of the SAC held that lawyers’ fees incurred in proceedings challenging the lawfulness of penal orders, when those orders have been revoked as unlawful, shall be considered a direct and immediate consequence of the damage claimed under section 1(1) of the SMRDA.Obligations and Contracts Act

18.  Under section 79 of the Obligations and Contracts Act, if the debtor fails to fulfil their obligation properly, the creditor has the right to demand fulfilment and compensation for the delay or to demand compensation for non‑fulfilment. When compensation is claimed instead of fulfilment, the debtor may offer the originally-due amount and compensation for the delay if the creditor still has an interest in fulfilment.Excise dutiesGeneral considerations

19.  Excise duty is an indirect tax imposed by the State on the price of certain goods. Subject to excise duty in Bulgaria are alcohol and alcoholic beverages, tobacco products, energy products and electricity. The persons subject to excise duty are authorised warehouse keepers, manufacturers, carriers, suppliers under the conditions of distance-selling within the meaning of the Value Added Tax Act, end users. Excise goods are subject to excise duty as from the moment they are produced or imported into the territory of the State. Payment of excise duty may be deferred until the product is released for consumption. Excise taxation, as well as control over the production, use, storage, movement and provision of goods subject to excise taxation, are regulated by the Excise Duties and Tax Warehouses Act (“the EDTWA”) and the Rules for Implementation of the EDTWA. The EDTWA

20.  Section 124(1), in force as from 1 January 2015, provides that in case of offences under sections 108a, 114a, 115, 116, 117, 118, 120(1)(2), 121(1)(2)(3)(5), 122, 123(1)(2)(4)(6) and section 126, as well as in the cases when the perpetrator is unknown, the goods - subject of the offence, shall be confiscated in favour of the State, regardless of their ownership.

21.  Under section 126, in force as from 1 January 2015, any person who keeps, offers, sells or transports excise goods without an excise document under this act shall be punished by a fine - for individuals, or by a pecuniary sanction - for legal persons and sole traders, of double the amount of the excise duty due, but not less than BGN 1000, and in case of repeated violation - not less than BGN 2000.

22.  For the procedure to be followed with a view to the establishment, issuing, appeal against and enforcement of penal orders, section 128 of the EDTWA refers to the Administrative Offences and Punishments Act 1969 (“the 1969 Act”).The 1969 Act

23.  Under section 59(1), a penal order shall be subject to appeal before the district court in the area where the offence has been committed or completed, and for the offences committed abroad - before Sofia District Court.

24.  In 2019 a bill for the amendment of the Administrative Offences and Punishments Act was prepared, which envisages a serious reform of the administrative punishment system. According to the Government, in an attempt to overcome the shortcomings of the national legislation established by the Court in the judgment in Microintelect OOD v. Bulgaria (no. 34129/03, 4 March 2014), the amendments envisage that a property owner who is not an offender would be able to challenge a penal order, if his or her property is confiscated in favour of the State. If the penal order provides for the confiscation in favour of the State of items that do not belong to the offender, a copy of the penal order would be served on the owner of the goods who in turn would be able to appeal against the penal order. Persons whose belongings are confiscated without them being the offenders would be able to request the reopening of the administrative-penal proceedings.

THE LAWALLEGED VIOLATION OF ARTICLE 1 of PROTOCOL No. 1 to THE CONVENTION

25.  The applicant company complained that the unjustified confiscation of its fuel in proceedings against its supplier violated its right to peaceful enjoyment of its possessions as provided in Article 1 of Protocol No. 1, which reads as follows:

 “Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”AdmissibilityThe parties’ positions

26.  The Government submitted that the applicant company had failed to exhaust domestic remedies.

27.  In the first place, it had not brought a claim for damages under the SMRDA. According to an interpretative decision of a joint bench of judges from the Supreme Court of Cassation and Supreme Administrative Court of 19 May 2015 (тълк. постановление No. 2/2014 от 19 май 2015) the administrative courts were competent to decide on claims for damages made under section 1(1) of the SMRDA in relation to unlawful penal orders, irrespective of the fact that the latter were not individual administrative acts (see paragraph 16 above). A significant body of case-law had been accumulated, whereby the national courts awarded compensation for damage caused by penal orders quashed as unlawful. The applicant company could have brought such a claim as soon as the judgment quashing penal order no. 896 against it had become final (see paragraph 8 above) but it had failed to do so.

28.  Secondly, the applicant company had omitted to bring proceedings against its supplier, Petrol Company EOOD, under section 79 of the Obligations and Contracts Act (see paragraph 18 above). The national courts had consistently applied that provision to cases where debtors had failed to fulfil their obligation properly. The losses incurred by the applicant had a direct causal link with the actions and omissions of its supplier and not with the actions of the public authorities.

29.  Finally, the Government submitted that the applicant company should be expected to show evidence that it had actually paid for the fuel in question, by a bank transfer as stipulated in the invoice of 25 September 2014, in order to demonstrate its incurred losses.

30.  The applicant company made no submissions in reply.The Court’s assessment

31.  The Court observes that the remedy under the SMRDA, by virtue of which individuals or companies could claim damages following the adoption of the 2015 interpretative decision, was applicable to situations in which penal orders had been quashed as unlawful. Therefore, it appears that that remedy may be open to the applicant company in respect of the first set of administrative-penal proceedings, which ended with the quashing of penal order no. 896 against the applicant company as being unlawful. That said, the applicant company’s complaint before the Court concerns the ultimate confiscation of its fuel in proceedings against a third party in which it could not participate. Indeed, the SAC concluded that the confiscation, respectively the refusal to return the fuel to the applicant company, had been lawful as based on penal order no. 613 against a third party (see paragraph 13 above). Consequently, the Court finds that the remedy under the SMRDA does not appear to have offered any prospects of success in respect of the applicant company’s complaint before it (see, for the relevant principles in respect of an applicant’s obligation to exhaust only remedies that are effective, Vučković and Others v. Serbia (preliminary objection) [GC], nos. 17153/11 and 29 others, §§ 73-74, 25 March 2014).

32.  As regards the argument that the applicant company could have claimed damages from its supplier for faulty delivery on the contract for sale of fuel between the two companies, the Court observes that the applicant company lost its fuel as a result of an act by the authorities (confiscation) in proceedings (against its supplier) in which it could not take part. Consequently, any proceedings which the applicant company might bring against its supplier are not relevant for the central question before the Court, namely whether the State had provided a reasonable opportunity to the applicant company to put its case in a situation in which the State had confiscated its property (compare with Ünsped Paket Servisi SaN. Ve TiC. A.Ş. v. Bulgaria, no. 3503/08, § 32, 13 October 2015). Accordingly, the State cannot relieve itself of its responsibility under the Convention to provide for such a procedure by asking the person, who was not the addressee of the penal order leading to the confiscation, to seek recovery of their property from a third party (ibid).

33.  In respect of the Government’s third argument, that the applicant company should be expected to demonstrate that it had effectively paid the price for the fuel in order to establish that it had incurred losses following its confiscation, the Court reiterates that the domestic courts are better placed than it to establish the facts and interpret domestic law. Consequently, it is precisely in domestic proceedings offering procedural guarantees in accordance with Article 1 of Protocol No. 1 to the Convention that this point could and should be elucidated.

34.  The Court notes, finally, that the Government have not argued that the judicial review proceedings in which the applicant challenged the refusal of the customs authorities to return the fuel to it (see paragraphs 10 to 13 above) could not possibly be an effective remedy in respect of the applicant company’s complaint under Article 1 of Protocol No. 1. With reference to the particular circumstances of the case (see paragraphs 11 and 13 above), and the Government’s submissions on the merits (see paragraph 38 below), the Court considers that this remedy was not doomed to failure from the outset (Jeronovičs v. Latvia [GC], no. 44898/10, § 75 in fine, 5 July 2016) and the applicant cannot be reproached for having attempted to use it. Consequently, as the final decision in those proceedings was of 14 June 2017 (see paragraph 12 above), the Court finds that no issue arises in terms of compliance by the applicant company with the six-month time-limit, given that it applied to the Court on 5 September 2017.

35.  Accordingly, the Court dismisses the Government’s objection of non-exhaustion of domestic remedies. It further notes that this complaint is neither manifestly ill-founded nor inadmissible on any other grounds listed in Article 35 of the Convention. It must therefore be declared admissible.MeritsThe parties’ positions

36.  The applicant company reiterated its complaint.

37.  The Government submitted that the interference with the applicant company’s possessions constituted control over the use of property. The interference had been lawful, as it had been based on legal provisions which were clear and accessible, and the consequences of its application were foreseeable. The interference had been in the public interest, namely to prevent the unauthorised distribution of excise goods for which no excise duty has been paid, secured or charged. It had also been proportionate because the applicant, a company, should have exercised due diligence and ensured that its supplier also complied with the relevant regulatory requirements when selling the fuel concerned, something which the applicant company had failed to do.

38.  Furthermore, the two sets of proceedings to which the applicant company had had access, namely the judicial review proceedings of penal order no. 896 and the appeal proceedings against the explicit refusal to return the fuel confiscated in favour of the State, had provided a reasonable opportunity to the applicant company to present its case and to defend its position for the purposes of effectively challenging the confiscation. In particular, in the proceedings in which it challenged the refusal to return the fuel to it, the case was heard by two levels of court. In its submissions before the first-instance court, the applicant company had set out its arguments against the confiscation. The courts had examined the legality of the challenged administrative act (the refusal) and had thus exercised indirect judicial control over the legality of the confiscation ordered on the basis of section 124(1) of the EDTWA. The applicant company had not borne an excessive individual burden in view of the possibilities open to it for seeking compensation under the SMRDA and bringing a claim against its supplier.The Court’s assessment

39.  The Court observes that it is not in dispute between the parties that the matters complained of constituted an interference with the peaceful enjoyment of the applicant company’s possessions. In the Court’s view, the forfeiture can be examined as both a constituent element of the procedure for the control of the use of excise goods and as a measure securing the payment of taxes or penalties (compare with Microintelect OOD v. Bulgaria, no. 34129/03, § 36, 4 March 2014). It follows that it is the second paragraph of Article 1 of Protocol No. 1 which is applicable in the present case. That provision must be construed in the light of the general principle expressed in the opening sentence of the first paragraph of Article 1 of Protocol No. 1. It remains for the Court to determine whether the interference was lawful and in the public interest, and whether it struck a fair balance between the demands of the general interest and the applicant company’s rights (see Microintelect OOD, cited above, § 37).

40.  The Court observes that the applicable legislation clearly provided that excise goods sold without the payment of the requisite excise tax were subject to confiscation, and made no provision for third parties asserting rights to such goods to take part in the related proceedings against the offender (see paragraph 20 above).

41.  The Court further considers that the impugned interference pursued a legitimate aim in the public interest, namely to prevent the unauthorised sale of excise goods.

42.  As to whether there was a reasonable relationship of proportionality between the means employed and the aim sought to be realised, the following is of relevance. Contracting States have a wide margin of appreciation when passing laws for the purpose of securing the payment of taxes (see Gasus Dosier- und Fördertechnik GmbH v. the Netherlands, 23 February 1995, § 60, Series A no. 306‑B, and Bulves AD v. Bulgaria, no. 3991/03, § 63, 22 January 2009).

43.  However, the Court observes that, as established by the SAC in the proceedings in which the applicant company had attempted to have the fuel returned to it, the confiscation of the applicant company’s possession was ultimately ordered in administrative-penal proceedings against its supplier. Even though the applicant had been put on notice about those proceedings (see paragraph 7 above), according to the relevant legislation it could not take part in them (compare with Microintelect OOD, cited above, § 45, and contrast with AGOSI v. the United Kingdom, 24 October 1986, §§ 60 and 62, Series A no. 108) as the law makes no provision for third parties who claim to be the owners of confiscated goods to intervene in proceedings against an alleged offender (see paragraph 20 above).

44.  The Government advanced that, in the proceedings in which the applicant company had challenged the refusal to have the fuel returned to it, the applicant company had made submissions and the courts had exercised indirect control over the legality of the confiscation. The Court observes that, while in those proceedings the SAC indeed considered and established the legality of the confiscation under national law (see paragraph 13 above), it did not examine the conduct of the confiscated fuel’s owner or the relationship between the conduct of the latter and the offence. The SAC in fact held that the ownership of the goods, subject to confiscation in such proceedings, was irrelevant (compare with Microintelect OOD, cited above, § 47). The SAC’s decision appears in accordance with the relevant legislation, and there is nothing to indicate that it went beyond the reasonable limits of interpretation. Indeed, a possibility for an examination of the owner’s case where goods are confiscated in proceedings against third parties was not provided for in domestic law, yet it was necessary under Article 1 of Protocol No. 1 to the Convention so that the authorities could assess the proportionality of the confiscation (compare with, mutatis mutandis, Ünsped, cited above, § 38). The confiscation would only have complied with the Convention requirements if it had been carried out in accordance with a procedure offering appropriate safeguards against arbitrariness (ibid, § 46). Consequently, the absence of such a procedure, and/or a relevant analysis in the SAC’s decision discussed above, did not allow to strike a “fair balance” between the different interests involved, regardless of what the outcome of such a procedure might be.

45.  Having regard to the above considerations, and in spite of the wide margin of appreciation afforded to the State in this domain, the Court finds that the domestic courts’ failure to address the applicant company’s position, in the context of its challenge of the confiscation of its property, deprived it of an assessment of the proportionality of the measure and the requisite safeguards against arbitrariness and was thus not necessary in a democratic society.

46.  There has accordingly been a violation of Article 1 of Protocol No. 1 to the Convention.ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE CONVENTION

47.  The applicant company complained that it did not have access to a court in order to put its case asserting its property rights. The company relied on Article 6 § 1 of the Convention, the relevant part of which reads as follows:

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

48.  The Government submitted that the applicant company had failed to bring this complaint within the six-month period required under the Convention. In particular, it had learned as early as 18 November 2015 about the penal order no. 613 issued against its supplier (see paragraph 7 above). There had been no possibility in domestic law for the applicant company to challenge that order in court. Consequently, the applicant company had been expected to turn to the Court with its complaint within six months from learning about that penal order. However, it had only applied to the Court on 5 September 2017, which was more than six months later.

49.  The Court finds that the issue raised by the applicant company under Article 6 § 1 is intrinsically linked to the question of whether a procedure was available to the applicant to put its case under Article 1 of Protocol No. 1 to the Convention, and that was dealt with by the Court under the latter provision. The Court finds, therefore, that it is not necessary to examine separately the admissibility and merits of the applicant’s complaint under Article 6 § 1 of the Convention.APPLICATION OF ARTICLE 41 OF THE CONVENTION

50.  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.”

51.  The applicant did not submit any claims in respect of either pecuniary or non-pecuniary damage, or costs and expenses.

52.  Consequently, the Court makes no award.

FOR THESE REASONS, THE COURT, UNANIMOUSLY,Declares the application admissible;Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention;Holds that there is no need to examine the admissibility and merits of the complaint under Article 6 § 1 of the Convention.

Done in English, and notified in writing on 18 May 2021, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.

Ilse Freiwirth Iulia Antoanella Motoc
Deputy RegistrarPresident

 

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