SECOND SECTION
DECISION
Application no. 34394/08
LUCAS ELECTRIC INDUSTRY AND COMMERCE JSC against Turkey
and 2 other applications
(see list appended)
The European Court of Human Rights (Second Section), sitting on 28 May 2019 as a Committee composed of:
Valeriu Griţco, President,
Egidijus Kūris,
Darian Pavli, judges,
and Hasan Bakırcı, Deputy Section Registrar,
Having regard to the above applications lodged on the various dates indicated in the appended table,
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. A list of the applicants is set out in the appendix.
2. The Turkish Government (“the Government”) were represented by their Agent.
A. The circumstances of the case
3. The facts of the cases, as submitted by the parties, may be summarised as follows. The details regarding the domestic proceedings and the amounts at issue are indicated in the appendix.
1. The background to the case
4. On unspecified dates the applicants opened accounts at İktisat Bankası T.A.Ş. (hereinafter “Iktisat Bank”).
5. On 19 February 2001 the Turkish government declared a state of economic crisis. From that date until 14 March 2001 the applicants deposited certain amounts with their accounts at Iktisat Bank. In line with the conditions of the “overnight interest rates” they had agreed upon with the bank, daily interest rates reaching up to 6,000% for certain dates was applied to their deposits.
6. By a decision dated 15 March 2001, the Banking Regulation and Supervision Board (Bankalar Düzenleme ve Denetleme Kurulu – hereinafter “the Board”) decided to transfer the management and control of Iktisat Bank to the Savings Deposit Insurance Fund (Tassarruf Mevduat Sigorta Fonu ‑ hereinafter “the Fund”), pursuant to section 14 (3) of the Banking Activities Act (Law no. 4389). In its decision the Board held that the assets of Iktisat Bank were insufficient to cover its liabilities and that the continuation of its activities would threaten the rights of its creditors as well as the security and stability of the financial system. It noted that Iktisat Bank’s managers had failed to take the required measures and had transferred the bank’s assets to their companies. Accordingly, Iktisat Bank’s management and control, and the privileges of its shareholders except for dividends, were transferred to the Fund.
7. Following Iktisat Bank’s transfer to the Fund, the applicants were paid the main amounts they had deposited, together with interest which had been calculated on the basis of the weighted average interest rates on the Istanbul Stock Exchange during the relevant period. As a result, part of the interests accrued in the applicants’ accounts, which corresponded to the amount exceeding the weighted average interest rates, was not paid to them.
2. Proceedings initiated by the applicants
(a) Lucas Electric Industry and Commerce JSC (application no. 34394/08)
8. During the period between 19 February and 14 March 2001 the applicant company deposited approximately 1 trillion former Turkish liras (TRL) to Iktisat Bank and accrued a total interest of TRL 258 billion. On an unspecified date following the bank’s takeover by the State, all of the deposit and TRL 181 billion of the total interest accrued was paid to it.
9. On 18 April 2001 the applicant company initiated enforcement proceedings against Iktisat Bank, which, at the time, had been within the structure of the Fund, and requested the payment of TRL 77 billion, the amount deducted by the bank, together with interest. Following Iktisat Bank’s objection to the enforcement proceedings, it brought an action before the Istanbul Commercial Court, requesting the annulment of Iktisat Bank’s objection and the payment of the confiscated amount.
10. In response to the applicant company’s claim, Iktisat Bank stated that the applicant company, acting together with others, had deposited significant amounts with Iktisat Bank, to which the bank’s former management applied “overnight interest rates” substantially exceeding the usual rates applied. During that period, the amount of interest accrued in one day could only be accrued in one year under normal circumstances. It argued that the said interest rates had resulted from the bank’s state of financial difficulty and had been contrary to the law, morals and public order. Accordingly, the provisions of the contracts regarding those excessive interest rates should be declared null within the meaning of Article 20 of the Code of Obligations in force at the time (Law no. 818). Iktisat Bank further submitted that the creditors’ acts constituted “unfair advantage” (gabin) pursuant to Article 21 of the same Code.
Iktisat Bank also brought a counterclaim against the applicant company and sought a declaratory judgment establishing that it was not indebted to it.
11. The expert reports drawn up during the course of the proceedings noted that the bank could not be considered to have been exploited within the meaning of Article 21 of the Code of Obligations as it was the party who had opened the accounts and determined the interest rates to be applied. The reports concluded accordingly that the bank could not confiscate the amount at issue.
12. On 30 September 2003 the Istanbul Commercial Court dismissed the applicant company’s case and accepted the counterclaim brought by Iktisat Bank. The domestic court noted first of all that it did not base its decision on the expert reports as they had not taken account of the financial difficulty faced by the banks in the circumstances of the economic crisis and had failed to evaluate whether the bank’s management offered excessive interest rates due to that financial difficulty, which should have been known by the bank’s creditors. Relying on Articles 19, 20, and 21 of the Code of Obligations, the court found that the applicant company took advantage of Iktisat Bank’s financial difficulty, which had been contrary to law and morals and constituted unfair advantage. In that connection, it also held that the rates at issue had significantly been higher than those offered by banks which had not been transferred to the Fund following the economic crisis.
13. On 11 November 2004 the Court of Cassation quashed that judgment, finding that the conditions of unfair advantage within the meaning of Article 21 of the Code of Obligations had not been satisfied and that the Commercial Court had reached a different conclusion as it had failed to assess the objective and subjective elements of the concept of unfair advantage, that is, whether there had been clear disproportionality between the parties’ acts and whether that disproportionality had resulted from the state of difficulty or lack of experience of one of the parties, respectively.
14. On 20 June 2005, in assessing the applicant company’s application for rectification, the Court of Cassation once again quashed the judgment of the first-instance court, this time with a different reasoning. Setting aside its previous decision, the appellate court held that the Commercial Court should deliver a new judgment after obtaining new reports, which should make a comparative assessment of the interest rates applied during the relevant period and establish whether the conditions of unfair advantage were met.
15. Subsequently, in line with the decision of the Court of Cassation, two expert reports were submitted to the Istanbul Commercial Court. Although both reports noted that the overnight interest rates offered by Iktisat Bank had been higher than the other banks, they reached different conclusions regarding the satisfaction of the conditions of unfair advantage.
16. On 7 November 2006 the Commercial Court once again dismissed the applicant’s case and accepted the case of Iktisat Bank. Relying on the financial information given in the expert reports, the court held that Iktisat Bank had been obliged to apply excessively high interest rates in order to provide money flow during the economic crisis and that the applicant company had not acted in bona fide as it had taken advantage of that difficulty faced by the bank. Consequently, it found that the conditions of unfair advantage set out in Article 21 had been satisfied and the bank had not been indebted to the applicant company for the amount at issue.
17. On 24 September 2007 the Court of Cassation upheld that judgment. On 7 April 2008 the appellate court rejected the applicant company’s rectification application.
(b) Yiğit (application no. 51224/08)
18. The applicant, together with eight others, deposited TRL 5 trillion with a joint account at Iktisat Bank. Between 19 February and 14 March 2001 a total interest of TRL 194 billion accumulated in the said account. Following the bank’s transfer to the Fund, the applicant and the others were paid the main amount together with TRL 103 billion in interest.
19. On 23 March 2001 the applicant issued a warning through a notary, requesting Iktisat Bank to pay him TRL 91 billion.
20. On 20 April 2001 Iktisat Bank brought a case against the applicant, seeking a declaratory judgment to establish that it did not owe him the amount it had deducted from his account. In that connection, the bank argued that the deducted amount had accumulated in the applicant’s bank account as a result of the excessive interest rates applied, which constituted exploitation of the bank by the applicant.
21. On 1 June 2001 the applicant brought a counterclaim, requesting the payment of the amount at issue.
22. On 26 January 2003 the Istanbul Commercial Court accepted the applicant’s case and dismissed the bank’s. In line with the expert reports submitted during the course of the proceedings, the court found that the bank was an institution of financial expertise and could not be considered to have been the subject of unfair advantage within the meaning of Article 21.
23. On 25 April 2004 the Court of Cassation quashed that judgment and held that the Commercial Court should base its examination on new expert reports, which should evaluate whether the elements of unfair advantage were met.
24. On 15 December 2006 the Istanbul Commercial Court accepted Iktisat Bank’s case and dismissed the applicant’s. The court stated that although the expert report drawn up following the Court of Cassation’s decision concluded that there had been no unfair advantage, on the basis of the financial information provided therein, it was clear that the interest rates applied by Iktisat Bank during the period concerned had been higher than the other banks. Finding that that incompatibility of the rates and the state of financial difficulty of the bank together satisfied the conditions of unfair advantage, it concluded that the bank was not indebted to the applicant.
25. On 12 November 2007 the Court of Cassation upheld the judgment. On 14 April 2008 it rejected the rectification application lodged by the applicant.
(c) Odabaşı (application no. 38629/10)
26. The applicant deposited approximately TRL 20 trillion with Iktisat Bank, which brought a total interest of TRL 554 billion between 19 February and 14 March 2001. Following the bank’s transfer to the Fund, he was paid all of the deposited amount and TRL 401 billion in interest.
27. On an unspecified date in 2001 the applicant initiated enforcement proceedings against Iktisat Bank and requested the payment of the amount deducted by the bank (TRL 153 billion).
28. Following Iktisat Bank’s objection to the enforcement proceedings, on 11 April 2002 the applicant brought an action before the Istanbul Commercial Court, requesting the annulment of Iktisat Bank’s objection and the payment of the confiscated amount. Subsequently, on 23 May 2002 the bank reiterated its argument in the cases brought by the other applicants and lodged a counterclaim against the applicant.
29. On 8 July 2003, on the basis of the expert report finding that there had not been any unfair advantage within the meaning of Article 21, the Istanbul Commercial Court accepted the applicant’s case and dismissed the bank’s counterclaim.
30. On 21 June 2004 the Court of Cassation quashed that judgment, finding that the Commercial Court should assess the case in the light of a new expert report.
31. On 22 May 2007 the Istanbul Commercial Court dismissed the applicant’s case and accepted the one lodged by Iktisat Bank. The court noted that although the expert reports concluded that the conditions of unfair advantage had not been met, it was clear that there had been a disproportionality between the parties’ acts and that the applicant had benefited from the bank’s financial difficulty. It concluded accordingly that the provisions of the contract pertaining to the excessive interest rates contravened law, morals and the principle of good faith, and accordingly were not in line with Articles 19 and 20 of the Code of Obligations and Article 2 of the Civil Code.
32. On 12 December 2007 the Court of Cassation upheld that judgment. On 9 November 2009 it rejected the applicant’s application for rectification.
B. Relevant domestic law
33. The relevant articles of the Code of Obligations (Law no. 818) in force at the material time read as follows:
Article 19
“The subject of a contract may be determined freely within the boundaries set out by law.
A contract drawn up between two parties shall be valid unless it contravenes the statutory provisions, customary law, morals or public order.”
Article 20
“A contract would be null if its subject is impossible, illegal or contrary to morals.
Nullity of certain provisions shall not nullify the contract, however; those provisions shall be abolished. In case it is found that the contract could not be drawn up without those provisions, it will be declared null and void.”
Article 21
“If the parties’ acts in a contract are clearly disproportionate and if that disproportionality results from one party’s exploitation of the other’s financial difficulty or thoughtlessness or lack of experience, the injured party may revoke the contract within one year after signature and secure restitution.
...”
34. According to section 14(5)(aa) of the Banking Activities Act (Law no. 4389) in force at the time, when a bank was transferred to the Fund pursuant to paragraph 3 of the same provision, the latter was competent, among other things, to transfer that bank’s assets and saving deposits together with their accrued interests, in so far as those interests did not exceed the average interest rate applied by the five largest banks, to another bank and/or request the Board to annul that bank’s banking license.
COMPLAINT
35. The applicants complained under Article 1 of Protocol No. 1 to the Convention that they had been unlawfully deprived of the interests accrued in their accounts at Iktisat Bank following the bank’s transfer to the Fund.
THE LAW
36. Having regard to the similar subject matter of the applications, the Court finds it appropriate to examine them jointly in a single decision.
A. Preliminary objections of the Government
37. The Government raised a preliminary objection regarding the first application and argued that the applicant company did not have a valid authority form. They claimed that the members of the applicant company’s board of directors had changed and that it was not clear whether the persons who had signed the authority form before the Court were still authorised to represent the company. They invited the Court to strike the application out of the Court’s list of cases pursuant to Article 37 § 1 (a) of the Convention.
38. As for the second applicant, the Government maintained that although the applicant’s account at Iktisat Bank was a joint account, which he had opened together with eight other people, he had not submitted any document proving that he represented the others. They argued accordingly that the application should be dismissed for failure to comply with Rule 47 of the Rules of Court.
39. The Government also argued that the applicants in all three applications could not be considered victims, as they had been paid their initial deposits together with a certain amount of interest and as the deducted part solely considered the overpayment made by the bank. They maintained accordingly that the applications were incompatible ratione personae with the provisions of the Convention.
40. Lastly, they submitted that the applications were incompatible ratione materiae as the applicants had not had a legitimate expectation to obtain the amount at issue. In that connection, they maintained that the contracts for high interest rates agreed upon by the applicants and the bank had been null and that the applicants’ claims to obtain the overpaid amounts had not been based on a legal provision or established case-law.
41. The Court considers it unnecessary to resolve these issues since the applications are in any event inadmissible for the following reasons (see Çulha and Others v. Turkey (dec.), nos. 7023/07 and 22 others, 15 May 2018).
B. Article 1 of Protocol No. 1 to the Convention
1. The parties’ submissions
42. The applicants complained that the State authorities had failed to comply with their duty of supervision. They argued that although the authorities had allowed Iktisat Bank to apply high interest rates to its creditors’ deposits, following the bank’s transfer to the Fund, they claimed that such interest rates had been contrary to law and morals. The applicants maintained that the creditors of the bank should not have been held responsible of the damages caused by the bank’s bankruptcy, which had resulted from the main shareholders’ wrongful management and the State’s failure to supervise and control the bank at the time. In that connection, they also claimed that they could not be considered to have benefited from “unfair advantage” and that the domestic courts had failed to take account of the expert reports in that regard.
43. The Government maintained that the interference at issue was lawful, as it was made on the basis of section 14(5)(aa) of Law no. 4389, which placed a restriction on the interests to be paid for deposits in banks transferred to the Fund. Moreover, the interference pursued a general interest, namely, the protection of the banking system and financial stability.
44. As regards proportionality, the Government stated that in view of the deteriorating financial situation of Iktisat Bank and the economic crisis announced on 19 February 2001, it was clear that the applicants had deposited their money with accounts at Iktisat Bank following that date with the sole aim of benefiting from the environment of crisis, by taking the risk of losing all their deposits. Nevertheless, following the intervention of the State authorities and the bank’s subsequent transfer to the Fund, they had been paid the total amounts they had deposited together with interests calculated on the basis of revised interest rates, which had been substantially above the rates applied in the market at the time of payment. In that connection, they maintained that had the domestic authorities not intervened, the applicants would not be able to collect either their deposits or the interests accrued, as Iktisat Bank’s assets had been insufficient to cover its liabilities. Moreover, the fact that Iktisat Bank’s financial difficulty before the transfer resulted from its management’s imprudence did not justify certain creditors’ attempts to take advantage of that situation. Taking account of the procedural guarantees provided to the applicants during the proceedings whereby their claims had been assessed, the Government concluded that the interference with the applicants’ right to peaceful enjoyment of possessions had been proportionate to the general interest pursued.
2. The Court’s assessment
45. As for the applicable rule, the Court refers to its established case-law with regard to the structure of Article 1 of Protocol No. 1 and the three rules contained therein (see, among other authorities, Ališić and Others v. Bosnia and Herzegovina, Croatia, Serbia, Slovenia and the former Yugoslav Republic of Macedonia [GC], no. 60642/08, § 98, ECHR 2014). In the present case, the Court observes that Iktisat Bank was taken over by the State as a measure to control the country’s banking sector. As a result, the applicants’ accounts, together with all their deposits and the interests accrued, were transferred to the Fund, which subsequently reimbursed them the amounts deposited with their accounts, after deducting a certain part of the interests. It is true that that deduction involved a deprivation of property, but in the circumstances of the case, that deprivation formed a constituent element of a scheme for controlling the banking industry. It is therefore the second paragraph of Article 1 of Protocol No. 1 which is applicable in the present case (see Süzer and Eksen Holding A.Ş. v. Turkey, no. 6334/05, §§ 146-147, 23 October 2012; Reisner v. Turkey, no. 46815/09, § 47, 21 July 2015; Yaşar Holding A.Ş. v. Turkey, no. 48642/07, § 89, 4 April 2017; see also Erdem and Egin-Erdem v. Turkey (dec.), nos. 28431/06 and 4 others, 17 November 2009).
46. The Court reiterates that an interference must achieve a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. The search for this balance is reflected in the structure of Article 1 as a whole, and therefore also in the second paragraph thereof: there must be a reasonable relationship of proportionality between the means employed and the aim pursued. In determining whether this requirement is met, the Court recognises that the State enjoys a wide margin of appreciation with regard both to choosing the means of enforcement and to ascertaining whether the consequences of enforcement are justified in the general interest for the purpose of achieving the object of the law in question (see, among other authorities, Chassagnou and Others v. France [GC], nos. 25088/94 and 2 others, § 75, ECHR 1999‑III).
47. In cases of wide margin of appreciation the Court will respect the State authorities’ judgment as to what is in the general interest unless that judgment is manifestly without reasonable foundation (see Benet Czech, spol. s r.o. v. the Czech Republic, no. 31555/05, § 36, 21 October 2010, and the cases cited therein).
48. In the present cases, the Government submitted that the impugned interference had been made on the basis of section 14(5)(aa) of Law no. 4389, which restricted the management and transfer of the interests that had been accrued in banks transferred to the Fund, and in accordance with the general interest of protecting financial stability. Their submissions were not disputed by the applicants. The Court finds no reason to arrive at a different conclusion in this regard.
49. As regards the proportionality of the interference at issue, the Court considers that the modalities of the reimbursement made to Iktisat Bank’s creditors by the Fund intended to ensure the fair management of the creditors’ claims (see Erdem and Egin-Erdem, cited above) in view of the bank’s lack of financial resources to cover all of its debts (see, mutatis mutandis, Saggio v. Italy, no. 41879/98, § 35, 25 October 2001). Within that context, the bank’s creditors, including the applicants, were reimbursed their deposits at the bank, together with a certain amount of interest, which was calculated on the basis of the weighted average interest rates on the Istanbul Stock Exchange for the relevant period. In that connection, the Court notes that the interest rates applied by the Fund to the applicants’ deposits did not considerably diminish in comparison with that agreed upon before the State’s takeover of Iktisat Bank (see, mutatis mutandis, Trajkovski v. the former Yugoslav Republic of Macedonia (dec.), no. 53320/99, ECHR 2002‑IV). It points out that besides their deposits, the applicants were reimbursed a substantial part of the interests accrued, that is to say, around 70% in the first and third applicants’ cases, and 53% in the second applicant’s (see paragraphs 8, 18, and 26 above).
50. In so far as the applicants complained about the domestic courts’ assessment of the cases they had brought to obtain the deducted amounts, arguing that they could not be considered as having gained unfair advantage by the interest rates they had agreed upon with Iktisat Bank, the Court reiterates that its jurisdiction to verify that domestic law has been correctly interpreted and applied is limited and that it is not its function to take the place of the national courts, its role being rather to ensure that the decisions of those courts are not flawed by arbitrariness or otherwise manifestly unreasonable (see Anheuser-Busch Inc. v. Portugal [GC], no. 73049/01, § 83, ECHR 2007‑I). It observes that the applicants’ cases were examined by the domestic courts before two levels of jurisdiction. The courts delivered their judgments after having obtained several expert reports and by stating the reasons for their conclusions, finding that the bank had the right to revoke the provisions pertaining to the excessive interest rates on account of unfair advantage under Article 21 of the Code of Obligations, and as those provisions were contrary to morals and statutory law. In that connection, the Court does not consider it relevant that most of the expert reports concluded that there had not been any unfair advantage within the meaning of Article 21, as that issue constituted the gist of the domestic courts’ interpretation of domestic law, which was neither arbitrary nor manifestly unreasonable. Accordingly, the Court concludes that the proceedings during which the applicants’ claims were examined together with Iktisat Bank’s counterclaims provided sufficient procedural guarantees to the applicants.
51. In view of the above and having regard to the need to strike a fair balance between the general interest of the community and the right of property of the applicants, and of all those in the same situation with them (see, mutatis mutandis, Trajkovski, cited above), the Court considers that the means chosen by the domestic authorities in reimbursing Iktisat Bank’s creditors were suited to achieving the general interest pursued and that the applicants cannot be said to have suffered an “individual and excessive burden”.
52. It follows that the applications are manifestly ill-founded and must be rejected in accordance with Article 35 §§ 3 and 4 of the Convention.
For these reasons, the Court, unanimously,
Decides to join the applications;
Declares the applications inadmissible.
Done in English and notified in writing on 20 June 2019.
Hasan BakırcıValeriu Griţco
Deputy RegistrarPresident
APPENDIX
No.
Application no.
Lodged on
Applicants’
dates of birth
places of residence
Represented by
1
34394/08
16/07/2008
Lucas Electric Industry and Commerce JSC
Istanbul
Mehmet Yaşar SOLMAZ
2
51224/08
14/10/2008
Muhammer YİĞİT
17/07/1952
Istanbul
Hülya AKSOY
3
38629/10
19/04/2010
Nurettin ODABAŞI
01/01/1939
Istanbul
Ahmet ÇAKMAKOĞLU
Full & Egal Universal Law Academy