DRGN LIMITED v. RUSSIA and 1 other application

Published on 26 February 2024

FOURTH SECTION

Applications nos. 54564/17 and 17510/22
DRGN LIMITED against Russia
and AO RENTAL ENTERPRISE SIMFEROPOL PRODUCTION-COMMERCIAL FIRM PHOTON against Russia
lodged on 24 July 2017 and 10 March 2022 respectively
communicated on 6 February 2024

SUBJECT MATTER OF THE CASE

The applications originate from the conflict between Ukraine and the Russian Federation. They concern the applicant companies’ property rights and the respective obligations of the Russian authorities under the Crimean and State bonds.

On 21 January 2013 the applicant, a Cypriot company, purchased 25,219 of 3-year bonds (“the Crimean bonds”, with a maturity date on 22 June 2014) issued by the Parliament of the Autonomous Republic of Crimea (“the ARC”). D., a third-party Ukrainian company and the Crimean bonds’ underwriter, sold them to the applicant company for 24,728,583.49 Ukrainian hryvnias ((UAH) approximately 2,322,000 euros (EUR)). During 2013 and 2014 the applicant company had sold part of its bonds and as of 23 March 2014 (the deadline for the eleventh payment of the interest rate) it was holding 17,103 Crimean bonds.

After Russia asserted its jurisdiction over Crimea, the applicant company did not receive the eleventh and twelfth interest payments and the face value of the Crimean bonds, with the two latter being due on 22 June 2014. The Russian authorities in their responses to the applicant company stated that the delay with payments had occurred due to a lack of information from the National Bank of Ukraine (“the NBU”) on the bondholders and a failure of the State Treasury Service of Ukraine to make payments in March 2014. The NBU, in turn, acknowledged that the Crimean bonds had been written off to the issuer (the Parliament of the ARC) on 20 June 2014. The NBU also stated that no payment of the interest and face value was made to the applicant company as it had received no funds from the issuer for this purpose.

On 3 April 2015 the applicant company sued the Ministry of Finance of the Russian Federation and the Russian authorities in Crimea for the recovery of debt and interest on the Crimean bonds it held.

On 12 July 2016 the Moscow City Arbitration Court partially allowed the claim and ordered the “Ministry of Finance of the Republic of Crimea” to pay the applicant company UAH 18,339,546.90 (approximately EUR 737,950) in Russian roubles (RUB). The court confirmed the applicant company’s title to 17,103 Crimean bonds based on the records of D. which had been depositing them for the applicant company as a second-tier depository and on the records of the NBU which had been depositing them for D. as a first-tier depository. The court also concluded that the obligation to repay the Crimean bonds had transferred from the Parliament of the ARC to the “Republic of Crimea” by means of the Federal Constitutional Law of the Russian Federation No. 6‑FKZ of 21 March 2014 and Article 14 § 1 of the Federal Law No. 37‑FZ of 2 April 2014. The latter, in particular, recognised all securities which had been issued by the issuers registered in Crimea up to 16 March 2014.

On 11 August 2016 the applicant company appealed against the judgment, arguing that by applying Russian, not Ukrainian, laws the court had failed to award the inflation losses and had mistakenly converted the sum of debt from EUR to UAH and RUB. The respondents also appealed seeking the rejection of the applicant company’s claims.

On 20 September 2016 the Ninth Arbitration Court of Appeals dismissed the applicant company’s appeal, allowed the respondents’ appeals, set aside the judgment and fully rejected the applicant company’s claim. It reasoned that the latter had failed to prove its title to the Crimean bonds, as there had been no NBU records indicating the applicant company, not D., as the bonds’ holder. This decision was upheld on both levels of cassation.

The applicant company is a successor of a Soviet company S. established in 1964 and based in Simferopol. S. was the client of the Soviet state-owned bank V., based in Moscow, where it had foreign currency accounts in US dollars (USD).

In 1992, following the collapsing of the USSR, S. was privatised and became a Ukrainian company. V., in turn, became a Russian state-owned corporation according to the Federal Law No. 82-FZ of 17 May 2007.

Due to severe economic situation and the lack of V.’s funds, according to the decisions of the Russian authorities adopted between 1992 and 1996, all foreign currency balances of the Russian companies held with V. were to be converted, during a limited period, into Russian State bonds. However, they did not prescribe any conversion for the non-Russian clients of V. The issue of V.’s debts before its non-Russian clients was to be resolved in future via Russia’s treaties with other post-Soviet States. It appears and is claimed by the applicant company that such treaties were never signed.

On 27 March 2017, after Russia asserted its jurisdiction over Crimea, the applicant company, still based in Simferopol, was re-registered as a Russian company. Subsequently it asked V. about the state of the foreign currency accounts of S., its predecessor.

On 23 November 2018 V. confirmed that there were USD 591,859.47 held in two accounts. However, it refused granting the applicant company access to these funds, stating that the conversion to the State bonds had been possible only during 1992-1996, and that the applicant company had not qualified as a Russian company then.

The applicant company then challenged this refusal and sued V., requesting access to the funds. It argued that it could not apply for the debt conversion in 1992-1996 as it had not been a Russian entity then, while, due to the change of its nationality in 2017, it would not be able to participate in any future resolution of V.’s debt before the non-Russian entities either.

The courts rejected its claim, stating that it was filed outside of the 3-year limitation period which had commenced in 1992, and that regardless of this there were no grounds in law to support its claim.

Relying on Article 1 of Protocol No. 1 to the Convention and Article 6 § 1 of the Convention both applicant companies complain that they were deprived of their possessions by the decisions of the Russian authorities that were arbitrary, did not pursue a legitimate aim and were not provided for by law, and that the proceedings before the Russian courts to which they were parties fell short of fair trial standards.

QUESTIONS TO THE PARTIES

1.  Did the interests of the applicant company in application no. 17510/22 constituted “possessions” within the meaning of Article 1 of Protocol No. 1? Has there been an interference with the applicant companies’ peaceful enjoyment of possessions, within the meaning of that provision?

2.  Assuming that there had been an interference, do the facts to which the applicant companies refer amount to a violation of Article 1 of Protocol No. 1? In particular, did the alleged acts which gave rise to their complaints have a basis in “law” within the meaning of that Article?

3.  Did the applicant companies have a fair hearing in the determination of their civil rights and obligations by an independent and impartial tribunal established by law, in accordance with Article 6 § 1 of the Convention?