FIRST SOFIA COMMODITIES EOOD AND PARAGH v. BULGARIA

FIFTH SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 14397/04
by First Sofia Commodities EOOD and Paragh
against Bulgaria

The European Court of Human Rights (Fifth Section), sitting on 25 January 2011 as a Chamber composed of:

Peer Lorenzen, President,
Isabelle Berro-Lefèvre,
Mirjana Lazarova Trajkovska,
Zdravka Kalaydjieva,
Ganna Yudkivska,
Angelika Nußberger,
Julia Laffranque, judges,
and Claudia Westerdiek, Section Registrar,

Having regard to the above application lodged on 21 April 2004,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicants,

Having deliberated, decides as follows:

THE FACTS

1. The first applicant, First Sofia Commodities EOOD, is a single‑member limited liability company whose registered office is in Sofia, Bulgaria. The second applicant, Mr Karel Koes Hiranjgarbh Missier Paragh, is a Dutch national born in 1968, who is the applicant company’s sole member and manager. The applicants were represented before the Court by Ms S. Ganeva and Ms M. Kancheva, lawyers practising in Sofia. The Bulgarian Government (“the Government”) were represented by their Agents, Ms S. Atanasova and Ms M. Dimova, of the Ministry of Justice.

On 2 February 2009 the President of the Fifth Section decided that notice of some of the complaints raised by the applicant company should be given to the Government. The Government were not given notice of any complaints raised by the second applicant.

A. The circumstances of the case

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

3. Mr Paragh set up the applicant company in late 2001 in Sofia, with the intention of providing brokerage services for futures at foreign commodity exchanges. In the first half of 2002 the company actively sought new clients and managed to open about fifty client accounts.

4. On 16 April 2002 the company’s lawyers wrote to the State Securities Commission (“the Commission”), enquiring whether the company’s activity was subject to regulation by it. On 11 May 2002 the Commission replied that the company’s activity fell outside its mandate, because commodity futures were not investment securities within the meaning of the applicable law. It referred the applicant company’s query to the State Commodity Exchanges and Markets Commission, which also informed the company that brokers at foreign commodity exchanges fell outside its purview.

5. On 25 June 2002 the chairman of the Commission ordered an inquiry into the applicant company’s activities.

6. While the inquiry was underway, several newspapers ran negative articles about the company.

7. On 7 August 2002 the inquiry concluded that the company was publicly offering investment securities without making full disclosure, drawing up a prospectus and submitting it for approval to the Commission, as required under the applicable law. The same day the Commission recommended that the company cease its activities.

8. However, as the company did not comply and continued contacting prospective clients, on 11 September 2002 the Commission opened a procedure for imposing restrictions on its activity. In the course of the proceedings the company filed an objection, saying that its activity was not subject to regulation by the Commission. In a decision of 2 October 2002 the Commission rejected the objection, reasoning that the contracts offered by the company were investment securities. It went on to say that those securities were being offered to the public in breach of the requirements of the law, and ordered the company to desist from making further offers immediately and to unwind its existing contracts within one month. The decision said that it was immediately enforceable and that any application for its judicial review would not have suspensive effect.

9. On 22 October 2002 the company sought judicial review of the decision. On 18 February 2003 (реш. № 1397 от 18 февруари 2003 г. по адм. д. № 9822/2002 г., ВАС, ІV о.) a three‑member panel of the Supreme Administrative Court quashed it. The court found that the contracts between the company and its clients were not investment securities within the meaning of the applicable law. It had therefore not acted unlawfully by offering those contracts without the prospectus required for investment securities. Since it had not breached the law, there were no grounds to order it to cease its activity.

10. On an appeal by the Commission, in a final judgment of 4 July 2003 (реш. № 6878 от 4 юли 2003 г. по адм. д. № 3584/2003 г., ВАС, петчленен състав) a five‑member panel of the Supreme Administrative Court upheld that judgment, fully agreeing with its reasoning.

11. Following the successful outcome of the proceedings, the company wished to claim compensation for the damage sustained as a result of the provisional enforcement of the Commission’s decision. However, having received legal advice that such a claim would not stand any prospect of success, it decided not to bring one.

B. Relevant domestic law

12. Article 7 of the 1991 Constitution provides that the State is liable for damage caused by the unlawful decisions or actions of its organs and servants. In a binding interpretative decision of 22 April 2005 (тълк. реш. № 3 от 22 април 2005 г. по т. гр. д. № 3/2004 г., ОСГК на ВКС) the Supreme Court of Cassation, confirming the courts’ earlier case‑law, said that that Article did not provide a direct avenue of redress, but merely laid down a general principle whose implementation was to be effected through a statute. As no such statute had been enacted after the Constitution came into force in 1991, that function was being served by the State Responsibility for Damage Caused to Citizens Act (1988) (Закон за отговорността на държавата за вреди, причинени на граждани), in force since 1 January 1989. (On 12 July 2006 it was renamed the State and Municipalities Responsibility for Damage Act (Закон за отговорността на държавата и общините за вреди) – “the 1988 Act”). The former Supreme Court and the Supreme Court of Cassation have held that the Act created a substantive right to claim damages, and has no retroactive effect (реш. № 1370 от 16 декември 1992 г. по гр. д. № 1181/92 г., ВС, IV г. о.; реш. № 63 от 21 февруари 1997 г. по гр. д. № 2180/1996 г., ВС; реш. № 529 от 17 юли 2001 г. по гр. д. № 24/2001 г., ВКС).

13. Section 1(1) of the Act, as originally enacted and in force until the end of 2005, provided that the State was liable for damage suffered by individuals (граждани) as a result of unlawful decisions, actions or omissions by civil servants, committed in the course of or in connection with the performance of their duties. Section 1(2) provides that compensation for damage flowing from unlawful decisions may be claimed after those decisions have been quashed in prior proceedings. The Supreme Court of Cassation’s case‑law (реш. № 2139 от 12 декември 1997 г. по гр. д. № 1649/1996 г., ВКС; реш. № 1807 от 14 януари 2002 г. по гр. д. № 97/2001 г., ВКС; реш. № 1307 от 21 октомври 2003 г. по гр. д. № 2136/2002 г., ВКС, V г. о.), confirmed in point 1 of the interpretative decision mentioned in paragraph 12 above, was that solely individuals, not legal persons, could claim compensation under that provision. The interpretative decision explained that the wording of section 1(1) was a result of the fact that during the communist regime, when the Act had come into force, all legal persons had been outfits set up by the State. It had therefore been evident that only individuals would need to be compensated for unlawful administrative action.

14. Section 8(1) provides that those seeking redress for damage occasioned in circumstances falling within the scope of the Act have no claim under the general law of tort. The courts have said that the Act is a lex specialis and excludes the application of the general regime (реш. № 1370 от 16 декември 1992 г. по гр. д. № 1181/1992 г., ВС, ІV г.о.; реш. от 29 юли 2002 г. по гр. д. № 169/2002 г., СГС, ГК, ІVб отд.). The Supreme Court of Cassation has said that liability under section 1(1) of the Act is a special case of vicarious liability under section 49 of the 1951 Obligations and Contracts Act (see paragraph 17 below) (реш. № 738 от 21 ноември 2006 г. по т. д. № 348/06 г., ВКС, I т. о.).

15. On 18 November 2003 three members of parliament introduced a bill for the amendment of the Act, proposing to add legal persons to those entitled to claim damages under its section 1(1). In the explanatory note to the bill they said that the express wording of that provision deprived legal persons of the possibility of suing the State. They also pointed out that the courts’ case‑law was categorical on the point that legal persons who had suffered damage could sue the authorities only under section 45 et seq. of the 1951 Obligations and Contracts Act (see paragraph 17 below). However, a claim under those provisions would be difficult to prosecute in practice. The bill was not adopted. Another group of members of parliament introduced a similar bill in March 2005.

16. On 21 December 2005, when adopting the new Tax and Social Security Procedure Code (Данъчно‑осигурителен процесуален кодекс), parliament decided to amend section 1(1) of the 1988 Act by adding “legal persons” to the category of those entitled to bring a claim (paragraph 9 of the Code’s transitional and concluding provisions). The amendment was published in the State Gazette on 29 December 2005 and came into force on 1 January 2006. In their ensuing case‑law the Supreme Court of Cassation and the Supreme Administrative Court have held that it conferred on legal persons a substantive right to claim damages, and has no retroactive effect (опр. № 9134 от 3 октомври 2007 г. по адм. д. № 8175/2007 г., ВАС, ІІІ о.; опр. № 1046 от 6 август 2009 г. по гр. д. № 635/2009 г., ВКС, ІІІ г. о.; опр. № 1047 от 7 август 2009 г. по гр. д. № 738/2009 г., ВКС, III г. о.; реш. № 335 от 31 май 2010 г. по гр. д. № 840/2009 г., ВКС, III г. о.; реш. № 329 от 4 юни 2010 г. по гр. д. № 883/2009 г., ВКС, IV г. о.).

17. The general rules of the law of tort are set out in sections 45 to 54 of the 1951 Obligations and Contracts Act (Закон за задълженията и договорите). Section 45(1) provides that everyone is obliged to make good the damage which they have, through their fault, caused to another. Section 49 provides that a person who has entrusted another with performing a job is liable for the damage caused by that other person in the course of or in connection with the performance of the job. Legal persons cannot incur liability under section 45(1), as they cannot act with mens rea. They may, however, be vicariously liable under section 49 for the tortuous conduct of individuals employed by them (пост. № 7 от 30 декември 1959 г., Пленум на ВС). In the interpretative decision mentioned in paragraphs 12 and 13 above, the Supreme Court of Cassation said that legal persons who had sustained damage from unlawful administrative action could vindicate their right to damages under those provisions. On 17 July 2006 the Sofia City Court allowed a claim under section 49 brought by a company against the Council of Ministers in relation to events which had taken place in December 1998. Its ruling was upheld by the Sofia Court of Appeal on 10 April 2008, and by the Supreme Court of Cassation on 12 February 2010 (реш. № 550 от 12 февруари 2010 г. по гр. д. № 3387/2008 г., ВКС, ІІ г. о.). In a judgment of 31 May 2010 (реш. № 335 от 31 май 2010 г. по гр. д. № 840/2009 г., ВКС, III г. о.) the Supreme Court of Cassation examined a claim which the lower courts had characterised under section 1(1) of the 1988 Act and rejected because it had been brought by a legal person and concerned events preceding the entry of the 2005 amendment into force. The court re‑characterised the claim as one under section 49 of the 1951 Obligations and Contracts Act, and allowed it.

18. Section 110 of the 1951 Act , which is also applicable to proceedings under the 1988 Act (тълк. реш. № 3 от 22 април 2005 г. по т. гр. д. № 3/2004 г., ОСГК на ВКС; реш. № 7768 от 10 юни 2010 г. по адм. д. № 14132/2009 г., ВАС, ІІІ о.), provides that the limitation period for all claims is five years. In the interpretative decision mentioned in paragraphs 12 and 13 above the Supreme Court of Cassation said that, in so far as voidable administrative decisions are concerned, time starts running when the judgments quashing them become final.

COMPLAINTS

19. The applicants complained under Article 6 § 1 of the Convention that, being a legal person, the applicant company did not have access to court to claim damages from the authorities for the unlawful interference with its business. They also complained that in the course of the inquiry into the company’s business the authorities had made damaging statements which could only have been properly made in a judicial decision.

20. The applicants complained under Article 1 of Protocol No. 1 that the impossibility of claiming damages from the authorities had amounted to an unjustified interference with the applicant company’s possessions.

21. They also complained under Article 13 of the Convention that Bulgarian law denied the applicant company an effective avenue of redress for the unlawful interference with its possessions.

22. Lastly, they complained under Article 18 of the Convention that the restriction of the applicant company’s access to court did not pursue an authorised purpose.

THE LAW

A. Standing

23. The Court observes that the alleged violations affected directly only the applicant company. There are no special circumstances justifying a “piercing of the corporate veil”, and Mr Paragh cannot be considered as a victim of a violation (see, among other authorities, IZA Ltd and Makrakhidze v. Georgia, no. 28537/02, §§ 28‑30, 27 September 2005, and Meltex Ltd and Mesrop Movsesyan v. Armenia, no. 32283/04, §§ 66‑68, 17 June 2008). It follows that his complaints are incompatible ratione personae with the provisions of the Convention within the meaning of Article 35 § 3 (a) and must be rejected in accordance with Article 35 § 4.

B. The alleged impossibility of claiming damages from the authorities

24. In respect of its complaint about the impossibility of claiming damages from the authorities, the applicant company relied on Article 6 § 1 of the Convention, which provides, in so far as relevant:

“In the determination of his civil rights and obligations ..., everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.”

25. The Government drew the Court’s attention to the fact that the application had been lodged more than nine months after the Supreme Administrative Court’s final judgment which had opened the way for engaging the State’s liability. It therefore did not comply with the six‑month time‑limit under Article 35 § 1 of the Convention. They also submitted that there was no indication that the applicant company had tried to bring a claim against the authorities under section 1(1) of the 1988 Act after its amendment in 2005, or under section 45 et seq. of the 1951 Obligations and Contracts Act. The practicability of the latter avenue of redress was evinced by a number of cases. The applicant company had therefore failed to exhaust domestic remedies.

26. The applicant company replied that the Supreme Administrative Court’s judgment had not been the “final decision” within the meaning of Article 35 § 1 of the Convention in respect of its complaint. In the judicial review proceedings the courts had not been competent to rule on any claim for damages against the State. At the material time, the applicable law – the 1988 Act – did not confer on legal persons the right to claim damages from the authorities. It had therefore been useless for the company to bring such a claim, and it had not tried to do so. If the person concerned had been an individual, the Supreme Administrative Court’s judgment would have marked the starting point of the limitation period for bringing such a claim. However, this was not so, and there had been no “final decision”. It was therefore appropriate to count the six‑month time‑limit from the moment when the company had become aware of the impossibility of claiming damages from the authorities. That had been the point when it had become clear that the 2003 bill for amendment of the 1988 Act had not been adopted: the date when the parliamentary session during which it had been introduced had come to an end: 21 December 2003. The application had been lodged less than six months after that.

27. The applicant company further submitted that at the time when it had lodged its application it had not had at its disposal an effective domestic remedy in respect of its complaint, which had amounted to a denial of access to court, in breach of Article 6 § 1 of the Convention and the principle of the rule of law. It was unreasonable to expect it to wait for that situation to be made good through legislative changes which might or might not be adopted at some point in the future, because it was entitled to the determination of its civil rights within a reasonable time.

28. The Court considers that the questions whether the applicant company could have brought a claim under section 1(1) of the 1988 Act after it was amended at the end of 2005 and whether it could have sued the authorities in tort under section 45 et seq. of the 1951 Obligations and Contracts Act touch upon issues which are also relevant for the determination of the substance of the complaint under Article 6 § 1 of the Convention (see, mutatis mutandis, McGinley and Egan v. the United Kingdom, 9 June 1998, § 75, Reports of Judgments and Decisions 1998‑III). It will therefore examine those questions below.

29. The Court furthermore observes that there is some doubt as to whether to complaint has been lodged within the six‑month time‑limit under Article 35 § 1 of the Convention. At the time when the Supreme Administrative Court quashed the administrative decision which had allegedly caused damage to the applicant company, it was clear that legal persons could not claim compensation for such damage under section 1 of the 1988 Act. The applicant company raised its complaint about that state of affairs more than nine months after that. However, the Court does not find it necessary to determine that point, because it considers that the complaint is in any event inadmissible, for the following reasons.

30. The first question is whether Article 6 § 1 is applicable. A restatement of the principles which must guide the Court in that enquiry may be found in Roche v. the United Kingdom ([GC], no. 32555/96, §§ 116‑21, ECHR 2005‑X, with further references). The answer hinges on whether the applicant company could claim, at least on arguable grounds, to have a (civil) right to damages against the authorities in relation with the allegedly unlawful interference with its business resulting from the exercise of the powers of the State Securities Commission in 2002.

31. In Bulgarian law, the principle that the State is liable for damage is enshrined in Article 7 of the 1991 Constitution. However, in a binding interpretative decision the Supreme Court of Cassation held that that provision lays down only a general principle whose implementation is to be effected through a statute, and cannot in itself serve as a basis for a tort claim against the authorities. The court went on to say that such basis is supplied by the 1988 Act (see paragraph 12 above).

32. Under the terms of section 1(1) of the Act, as worded until the end of 2005 and consistently construed by the Bulgarian courts, only individuals – and not legal persons – were entitled to claim damages from the authorities (see paragraph 13 above). The need to fill that gap was felt as early as 2003, and in the end of 2005 the legislature amended section 1(1) of the Act, expressly providing that legal persons could also claim damages from the authorities (see paragraphs 15 and 16 above). However, in their ensuing case‑law the Supreme Administrative Court and the Supreme Court of Cassation made it clear that they regarded the amendment as conferring a new substantive right and as not having retroactive effect (see paragraph 16 above).

33. In those circumstances, and bearing in mind that the interference with the applicant company’s business took place in 2002, long before the amendment came into force on 1 January 2006, the Court finds that the possibility of bringing a claim in respect of that interference after the amendment’s entry into force did not offer a reasonable prospect of success.

34. However, the domestic courts’ case‑law, which was fully in line with earlier case‑law on the legal effect of the 1988 Act’s liability provisions (see paragraph 12 in fine above), also makes it clear that the company’s inability to bring a claim under section 1(1) of the Act was not a procedural limitation, but flowed from rules governing the substantive right of action in Bulgarian law, and that that provision, as worded between its entry into force on 1 January 1989 and its amendment with effect from 1 January 2006, did not confer on the company any (civil) right that could attract the application of Article 6 § 1 of the Convention (see, mutatis mutandis, Roche, cited above, § 124). The Court finds it necessary to reiterate in that connection that Article 6 § 1 does not in itself guarantee any particular content of the substantive law of the States Parties. Even where the non‑existence of a cause of action under domestic law has the same effect as an immunity, in that it prevents the persons concerned from suing for a given category of harm, that is not enough to bring Article 6 § 1 into play (see Z and Others v. the United Kingdom [GC], no. 29392/95, § 98, ECHR 2001‑V, and Markovic and Others v. Italy [GC], no. 1398/03, § 113, ECHR 2006‑XIV).

35. In any event, the now defunct impossibility for legal persons to bring claims under section 1(1) of the 1988 Act cannot be regarded as an arbitrary removal of the courts’ jurisdiction to determine a whole range of civil claims, because legal persons had at their disposal an alternative cause of action through which to vindicate their right to compensation for damage resulting from unlawful administrative action. The Bulgarian courts’ case‑law shows that legal persons, such as the applicant company, could bring claims against the authorities under section 49 of the 1951 Obligations and Contracts Act, even in respect of damage which has arisen before the amendment of section 1(1) of the 1988 Act (see paragraph 17 above). It is not for the Court to express a view on the nature of the relationship between those provisions (see paragraph 14 above). It suffices to note that the Bulgarian courts apparently regard the two as autonomous in the sense that either of them can serve as a basis for a tort claim against the authorities. There is no indication that the applicant company tried to avail itself of that opportunity.

36. It follows that this complaint is manifestly ill‑founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

C. Complaint under Article 1 of Protocol No. 1

37. In respect of its complaint about the impossibility to claim damages from the authorities, the applicant company additionally relied on Article 1 of Protocol No. 1, which provides 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.”

38. Having regard to its findings under Article 6 § 1 of the Convention, the Court does not consider that it is necessary to examine that complaint separately.

D. The authorities’ allegedly damaging statements about the applicant company

39. In respect of its complaint about the statements made by the authorities during the inquiry into its business, the applicant company relied on Article 6 § 1 of the Convention, whose text has been set out in paragraph 24 above.

40. The Court considers that the statements made by the authorities during the inquiry into the applicant company’s business did not amount to a determination of its civil rights or of a criminal charge against it (see Fayed v. the United Kingdom, 21 September 1994, §§ 60‑63, Series A no. 294‑B).

41. It follows that this complaint is incompatible ratione materiae with the provisions of the Convention within the meaning of Article 35 § 3 (a) and must be rejected in accordance with Article 35 § 4.

E. Alleged violation of Article 13 of the Convention

42. In respect of its complaint that Bulgarian law denied it an effective avenue of redress for the unlawful interference with its possessions, the applicant company relied on Article 13 of the Convention, which provides:

“Everyone whose rights and freedoms as set forth in [the] Convention are violated shall have an effective remedy before a national authority notwithstanding that the violation has been committed by persons acting in an official capacity.”

43. The Court observes that the applicant’s complaints under Article 6 § 1 of the Convention and Article 1 of Protocol No. 1 were clearly directed against section 1(1) of the 1988 Act, as worded until the end of 2005. Article 13 of the Convention does not go so far as to guarantee a remedy allowing a Contracting State’s laws as such to be challenged before a national authority on the ground of being contrary to the Convention (see, among other authorities, Roche, cited above, § 137).

44. It follows that this complaint is manifestly ill‑founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

F. Alleged violation of Article 18 of the Convention

45. In respect of its complaint that the impossibility to bring a claim under section 1(1) of the 1988 Act did not pursue an authorised purpose, the applicant company relied on Article 18 of the Convention, which provides:

“The restrictions permitted under [the] Convention to the said rights and freedoms shall not be applied for any purpose other than those for which they have been prescribed.”

46. The Court is not persuaded that the impossibility for legal persons to claim damages under section 1(1) of the 1988 Act could be regarded as a “restriction” within the meaning of Article 18. In any event, bearing in mind the legislative history of the 1988 Act (see paragraphs 13 and 15 above), it finds no indication that the impossibility for legal persons to claim damages under section 1(1) was imposed or maintained for an improper purpose.

47. It follows that this complaint is manifestly ill‑founded and must be rejected in accordance with Article 35 §§ 3 (a) and 4 of the Convention.

For these reasons, the Court unanimously

Declares the application inadmissible.

              Claudia WesterdiekPeer Lorenzen
RegistrarPresident

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