INVEST KAPA, A.S. v. THE CZECH REPUBLIC

FIRST SECTION

DECISION

Application no. 19782/13
INVEST KAPA A.S.
against the Czech Republic

The European Court of Human Rights (First Section), sitting on 12 June 2018 as a Committee composed of:

Armen Harutyunyan, President,
Aleš Pejchal,
Jovan Ilievski, judges,

and Renata Degener, Deputy Section Registrar,

Having regard to the above application lodged on 15 March 2013,

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

Having deliberated, decides as follows:

THE FACTS

1. The applicant, INVEST KAPA, a.s. (“the applicant company”), is a private joint-stock company established under the laws of the Slovak Republic in 1997. It has its registered office in Dunajská Lužná and is represented before the Court by Mr P. Pokorný, a lawyer practising in Všenory.

2. The Czech Government (“the Government”) were represented by their Agent, Mr V.A. Schorm, from the Ministry of Justice.

A. The circumstances of the case

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

1. Background circumstances

4. According to the information provided by the Government (which was not contested by the applicant company), KTP Quantum, a.s. (“KTP”), a company trading in securities, entered in 2000 into a loan agreement with Penta Investment Limited (“Penta”), registered in Cyprus. KTP received 80,000,000 Czech korunas (CZK – 3,060,443 euros (EUR)) under that loan agreement.

5. In return, Penta was entrusted with shares in Jáchymov Medical Spa (Léčebné lázně Jáchymov), which were transferred to Penta’s securities account at the Central Securities Depository (Středisko cenných papírů) on 13 September 2000. According to an expert opinion, the market value of the shares was CZK 499,433,540 (EUR 19,106,103).

6. On 27 February 2002 the applicant company purchased book-entry shares (zaknihované akcie) in Jáchymov Medical Spa to the value of CZK 299,062,000 (EUR 11,440,780) from Penta.

2. Criminal proceedings against K.T. and O.B.

7. On 8 May 2002 criminal proceedings were instituted against K.T. and O.B., two natural persons who controlled KTP. They allegedly collected a large amount of money from approximately twenty-eight thousand natural persons in order to enrich KTP and siphoned funds out of the company into affiliated businesses, having systematically withheld information from clients. Penta, from which the applicant company purchased the book-entry shares, had also been previously involved in the business activities of K.T. and O.B.

8. On 27 August 2002 the Police Unit for Combating Corruption and Serious Economic Crime (Útvar pro odhalování korupce a závažné hospodářské trestné činnosti) decided under Article 79c (1) of the Code of Criminal Procedure (“the CCP”), with reference to Article 79a (1) of the CCP, to seize all the book-entry shares (zajistit zaknihované cenné papíry) in Jáchymov Medical Spa recorded at the Prague Securities Centre in the account of the applicant company.

9. The applicant company lodged a complaint with the Prague High Court (Vrchní soud), challenging the decision to seize its assets; the complaint was dismissed on 5 December 2002.

10. A constitutional complaint (ústavní stížnost) lodged by the applicant company was dismissed by the Constitutional Court (Ústavní soud) on 21 April 2005 as manifestly ill-founded. The court stated that there was a high degree of probability that the seized shares had come from proceeds from criminal activity and there was a link to the applicant company. It found the measure lawful and not in breach of the right to property.

11. On 21 May 2004 the Bratislava Regional Court (krajský súd) decided that the contract concluded on 27 February 2002 was valid and that the applicant company was the owner of 300,000 shares with a nominal value of CZE 1,000 (EUR 38,25) issued by Jáchymov Medical Spa.

12. On 21 June 2004 the High Prosecutor’s Office (vrchní státní zastupitelství) lodged an indictment against K.T. and O.B. with the Prague Municipal Court (městský soud).

13. On 20 July 2004 the Prague Municipal Court decided that it did not have local jurisdiction and referred the case to the Prague High Court, which, by its decision of 31 August 2004, referred the case to the Hradec Králové Regional Court (krajský soud) for the sake of efficiency.

14. The Regional Court returned the case to the High Prosecutor’s Office on 28 April 2005 because of procedural faults and the need to clarify material facts. This decision was upheld by the High Court on 15 December 2005.

15. The High Prosecutor’s Office lodged the indictment again on 2 August 2006. The Regional Court returned the case again on 13 March 2007 for further investigation. The High Court upheld this decision on 8 November 2007.

16. On 6 May 2009 the applicant company requested the release of the seized shares, arguing, in particular, that the length of the seizure was no longer reasonable.

17. The High Prosecutor’s Office refused the request on 18 May 2009. After the applicant company lodged a complaint, the High Court upheld the impugned decision on 15 September 2009, ruling, inter alia, that the length of the proceedings was adequate in the light of the exceptional extent of the case and its complexity.

18. On 10 November 2009 the applicant company lodged a constitutional complaint, arguing that its right to property had been violated.

19. On 11 September 2012 the Constitutional Court dismissed the applicant company’s complaint. The court made a distinction between the present case and the case of Forminster Enterprises Limited v. the Czech Republic (no. 38238/04, 9 October 2008), and noted:

“... in the present case, it is not possible to overlook the enormous gravity and also the extreme factual complexity of the criminal case, where the damage amounts to at least CZK 1,094,824,614 [EUR 41,883,114] and which concerns approximately ten thousand victims. The ... complexity places enormous requirements on prosecuting authorities ... In this regard the High Court pointed out in its decision that this case is without any exaggeration unprecedented in the Czech Republic ...

...

In the present case, the Constitutional Court has verified that the impugned decisions in their entirety are based on a sufficient amount of concrete facts and also ex post they appear as constitutionally defendable. The prosecuting authorities examined the continued existence of the grounds for the seizure of the book-entry shares ... and in particular noted that concrete facts indicated that the seized shares related to the criminal activity of the accused persons and constituted proceeds from such activity. ... The prosecuting authorities focused, in particular, on the question of the proportionality of the interference ... and proceeded along the lines set out by the Constitutional Court in its previous judgments ...”

20. In the meantime, a third indictment had been lodged with the Regional Court on 26 November 2009. After a dispute over local jurisdiction, the court decided on 29 December 2010 to return the case to the prosecutor for further investigation. This decision was upheld by the High Court on 26 March 2011.

21. On 31 December 2010 the whole of Jáchymov Medical Spa was sold for CZK 700,000,000 (EUR 26,778,882) and the company changed the subject of its business. The applicant company, as the majority shareholder, voted in favour of the sale during an extraordinary general meeting held on 17 December 2010.

22. A fourth indictment was lodged with the Regional Court on 8 March 2012. By its decision of 20 June 2012 the Regional Court sent the case back to the prosecutor for further investigation. Upon a complaint lodged by the prosecutor, the High Court quashed the impugned decision of the Regional Court on 18 December 2012. The court concluded that the indictment had been comprehensible and reviewable.

3. Criminal proceedings following the amnesty law

23. On 1 January 2013 the President of the Czech Republic declared an amnesty, which took effect on 2 January 2013 and, inter alia, discontinued all pending prosecutions that had lasted longer than eight years and which had been conducted in respect of offences subject to sentences of no more than ten years under the Criminal Code.

24. On 3 January 2013 the High Prosecutor’s Office lodged a request for the confiscation of items connected with and proceeds from the criminal activities of K.T. and O.B. (návrh na zabrání věci), including 299,062 shares in Jáchymov Medical Spa.

25. The Regional Court discontinued the criminal proceedings against K.T. and O.B. on 31 January 2013. The decision was upheld by the High Court on 11 April 2013.

26. On 8 July and 9 July 2013 respectively, the receiver (správce konkursní podstaty) of Médeia Bohemia, a.s., one of KTP’s companies, and the applicant company sought the release (zrušení zajištění) of the seized shares. Their requests were refused by the Regional Court on 10 July 2013. The court noted that despite the presidential amnesty it had to rule on the confiscation request of 3 January 2013. The decision was upheld by the High Court on 24 October 2013.

27. On the same day the High Prosecutor’s Office added further arguments to its confiscation request.

28. In the meantime, the receiver had lodged a constitutional complaint and, on 5 February 2014, the case file had been transferred to the Constitutional Court, which dismissed the complaint on 19 February 2015.

29. The Regional Court ordered public hearings on 22 and 23 July, 10 and 11 September, 1 October and 5 November 2015 and on 7 January 2016. By its decision of 8 January 2016 the Regional Court ruled that the shares in Jáchymov Medical Spa should not be confiscated. The prosecutor lodged a complaint, and added additional arguments to it on 28 April 2016.

30. The case is pending before the High Court.

B. Relevant domestic law

1. The Code of Criminal Procedure (Act no. 141/1961) (as in force at the material time)

31. Article 79a provides for the seizure of financial assets deposited in a bank account. Under paragraph 1, if the facts indicate that the financial assets in a bank account are destined for the commission of a crime, or have already been used for such purposes, or constitute the proceeds of criminal activities, the president of a chamber or a prosecutor, or the police authority at the pre-trial stage of the criminal proceedings, are empowered to impound them.

32. Article 79c provides for the seizure of book-entry shares. Under paragraph 1, should the president of the chamber, or the prosecutor at the pre-trial stage of the criminal proceedings, decide on a seizure of book-entry shares, the Securities Centre, a legal person empowered to keep records and exercise other activities of the Securities Centre under a specific law, or the Czech National Bank must open a special bank account on which the seized securities are deposited. Paragraph 3 provides, inter alia, that the authorities mentioned in paragraph 1 may suspend other rights connected with the seizure of the shares. According to paragraph 4, Article 79a applies mutatis mutandis to the procedure governing decisions to seize book-entry shares and to reduce the terms of or lift such seizures.

33. Article 146a, paragraph 2 provides for a review by a court of a decision on seizure of book-entry shares also under Articles 79a (1) and 79c (4).

COMPLAINTS

34. The applicant company complained under Article 6 § 1 of Convention and Article 1 of the Protocol No. 1 that the excessive length of the criminal proceeding had resulted in the long-term limitation of its property rights to the seized book-entry shares.

THE LAW

35. The applicant company invoked Article 6 § 1 of the Convention and Article 1 of the Protocol No. 1. The Court, being the master of characterisation to be given in law to the facts of the case, considers that this complaint falls to be examined under Article 1 of Protocol No. 1 to the Convention only (see Forminster Enterprises Limited, cited above, § 59). This provision 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.”

36. The Government submitted that the shares had been seized in accordance with the law, which was more accurate and foreseeable for the applicant company than the legislation that the Court had accepted in the Forminster case (cited above). The seizure had pursued a legitimate aim, namely that of protecting the victims of crime, to prevent unlawful transfers of shares and combating the most dangerous form of economic crime faced by the Czech Republic in the course of the transformation of its economy. Moreover, the interference had been proportional and its intensity was negligible.

37. The applicant company contested those submissions and maintained that the excessive length of the criminal proceedings had been caused primarily by repeated erroneous actions on the part of the prosecution and that the interference had constituted an excessive burden.

38. The Court notes, at the outset, that in the case of Forminster Enterprises Limited (cited above, §§ 63‑77), it dealt with a similar complaint, namely the disproportionality of the seizure of book-entry shares and the excessive length of the criminal proceedings in question. It found that the situation in question could not be regarded as constituting a deprivation of property and that the second paragraph of Article 1 of Protocol No. 1 was applicable (ibid., § 63). The Court finds no reason to depart from this conclusion.

39. The Court further emphasises that the first and most important requirement of Article 1 of Protocol No. 1 is that any interference by a public authority with the peaceful enjoyment of possessions should be lawful: the second sentence of the first paragraph authorises a deprivation of possessions only “subject to the conditions provided for by law” and the second paragraph recognises that States have the right to control the use of property by enforcing “laws”. Moreover, the rule of law, one of the fundamental principles of a democratic society, is inherent in all the Articles of the Convention (see, inter alia, Lekić v. Slovenia, no. 36480/07, § 86, 14 February 2017, with further references).

40. Turning to the present case, the Court notes that after the entry into force on 1 January 2002 of Article 79c of the CCP, which expressly provides for the seizure of book-entry shares, the applicant company – assuming that, inter alia, it acted with due care and received legal assistance – could not be regarded as having lacked a reasonable opportunity to foresee the consequences of acquiring the shares, including the impossibility of ruling out the risk that the shares might be seized in the course of the criminal proceedings (see Forminster Enterprises Limited, cited above, § 67). In addition, in respect of the applicant’s right to challenge the measure, the Court observes that the authorities dealt with and ruled on the issue raised by the applicant company (see paragraphs 9, 10, 16, 18, and 19 above) in accordance with the domestic procedural rules, and the applicant company cannot be regarded as having been deprived of a reasonable opportunity to challenge effectively the seizure in question (see, a fortiori, Forminster Enterprises Limited, cited above, §§ 71-72). The imposition of the seizure must be therefore considered lawful within the meaning of Article 1 of Protocol No. 1.

41. As to whether the control of the property in issue pursued a legitimate aim, the Court considers that the Government’s assertion refers to policies which are indeed essential for the proper functioning of all Contracting Parties and relates to the fight against serious crime, which has become an increasingly international problem, as recognised in the Council of Europe Convention on Laundering, Search, Seizure and Confiscation of the Proceeds from Crime. In this regard the Court reiterates that it has already established that confiscation measures in criminal proceedings pursue a general interest of the community because the forfeiture of money or assets obtained through illegal activities or paid for with the proceeds from crime is a necessary and effective means of combating criminal activities (see, for example, Veits v. Estonia, no. 12951/11, 15 January 2015 (confiscation of an apartment); Rummi v. Estonia, no. 63362/09, 15 January 2015 (confiscation of the substances and metals); and Denisova and Moiseyeva v. Russia, no. 16903/03, 1 April 2010 (seized material property and money)). A fortiori, in the Court’s opinion, it is all the more relevant when it concerns such measures as may be necessary to prevent any dealing in or the transfer or disposal of property which is liable to confiscation. Thus, turning to the present case, the seizure order in respect of book-entry shares was made in the general interest and was aimed at the protection of society and fighting crime (see Benet Czech, spol. s.r.o. v. the Czech Republic, no. 31555/05, § 34, 21 October 2010) and must be, therefore, considered as pursuing a legitimate aim within the meaning of Article 1 of Protocol No. 1.

42. Turning to the question of proportionality, the Court notes that it must take into account, on one hand, the importance of the aim pursued, and on the other hand the burden imposed on the applicant company, including the nature of the interference, the behaviour of the applicant, and that of the State authorities (see Forminster Enterprises Limited, cited above, § 75). In this regard the Court observes, at the outset, that the applicant company has not specified in any detail how the running of its business was negatively affected (see Pekárny a cukrárny Klatovy, a.s., v. the Czech Republic, nos. 12266/07 and 3 others, § 52, 12 January 2012). However, it can be seen from the file that it continued to manage its day-to-day business activities together with other shareholders and even sold the enterprise at a considerable profit (see paragraph 21 above). The Court notes in this regard that the police authority decided to seize all the book-entry shares under Article 79c (1) of the CCP, with reference to Article 79a (1) of the CCP, but did not limit other rights attached to the shares under Article 79c (3) of the CCP (see paragraphs 8 and 32). Therefore, even though the applicant company’s shares in Jáchymov Medical Spa were seized after 27 August 2002 (the starting point of the interference) and represented a considerable proportion of the total number of shares and being of considerable value, it does not appear that its voting rights attached to the shares or other rights attached to the shares, such as the right to be paid dividends and to challenge resolutions of general meeting (see paragraph 21 above), were restricted in any way (in contrast Forminster Enterprises Limited, cited above, § 77).

43. Furthermore, the Court notes that the interference had its origin in a measure undertaken by the prosecuting authorities within the context of a large-scale investigation into an extremely extensive and complex economic crime that caused damage amounting tens of millions of euros and affected approximately ten thousand victims (see paragraph 19 above). The extent of the investigation was considerable and the prosecuting authorities did not remain passive (see Benet Czech, spol. s.r.o., cited above, § 46).

44. The Court further reiterates that, although the second paragraph of Article 1 of Protocol No. 1 contains no explicit procedural requirements, it has been its constant requirement that the domestic proceedings afford the aggrieved individual a reasonable opportunity of putting his or her case to the responsible authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision. In ascertaining whether this condition has been satisfied, a comprehensive view must be taken of the applicable procedures (see Denisova and Moiseyeva, cited above, § 59, with further references).

45. In the instant case, the general courts, as well as the Constitutional Court, repeatedly reviewed the lawfulness of the impugned measure (including the reasonableness of its duration) and gave detailed reasons in respect of the proportionality of the measure in question (see paragraphs 10 and 19 above). The applicant company had at its disposal an effective remedy, which included access to courts, by which it could challenge the continuing seizure of its book-entry shares and these remedies were not deficient. Thus, the present case is materially different from such cases as Ünsped Paket Servisi SaN. Ve TiC. A.Ş. v. Bulgaria or Denisova and Moiseyeva (cited above), where the Court found a violation of Article 1 of Protocol No. 1 on the grounds, inter alia, that the applicants had not had access to an effective remedy (see Ünsped Paket Servisi SaN. Ve TiC. A.Ş. v. Bulgaria, no. 3503/08, § 47, 13 October 2015, and Denisova and Moiseyeva, cited above, § 64), as well as from, for example, Rummi (cited above), where the Court criticised the absence of reasons for the confiscation order in question (see Rummi, cited above, § 108).

46. At this point the Court has to emphasise that a reasonable suspicion at the beginning of the investigation cannot justify an indefinite interference with the applicant company’s rights (see Benet Czech, spol. s.r.o., cited above, § 42). However, considering the particular circumstances of the present case – namely the very low intensity of the interference (see paragraph 42 above) – together with the extreme complexity of the criminal investigation, which was followed by a careful review of lawfulness of the applied measure (see, a contrario, Rummi, cited above, § 104, and Denisova and Moiseyeva, cited above, § 59), the Court finds, having taken account of the importance of the aim pursued (see paragraph 41 above), that a fair balance has been struck in the instant case between the general interests of society and the interests of the applicant company, as the latter has not been obliged to bear an excessive burden as a result of the continuing seizure of its shares.

47. Consequently, the applicant company’s complaint under Article 1 of Protocol 1 must be rejected as manifestly ill-founded, pursuant to Article 35 §§ 3 (a) and 4 of the Convention.

For these reasons, the Court, unanimously,

Declares the application inadmissible.

Done in English and notified in writing on 5 July 2018.

              Renata DegenerArmen Harutyunyan
              Deputy RegistrarPresident

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