SOJUS TRADE COMPANY GmbH AND DEUTSCHE CONSULTING GmbH v. GERMANY

FOURTH SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 32411/96

by SOJUS TRADE COMPANY GmbH and
DEUTSCHE CONSULTING GmbH

against Germany

The European Court of Human Rights (Fourth Section) sitting on 20 April 1999 as a Chamber composed of

MrM. Pellonpää, President,

MrG. Ress,

MrI. Cabral Barreto,

MrV. Butkevych,

MrsN. Vajić,

MrJ. Hedigan,

MrsS. Botoucharova, Judges,

withMrV. Berger, Section Registrar;

Having regard to Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms;

Having regard to the application introduced on 3 June 1996 by SOJUS TRADE COMPANY GmbH and DEUTSCHE CONSULTING GmbH against Germany and registered on 25 July 1996 under file no. 32411/96;

Having regard to the report provided for in Rule 49 of the Rules of Court;

Having deliberated;

Decides as follows:

THE FACTS

The applicant companies are limited liability companies under German law with their registered offices in Berlin.

The first applicant company was formed in March 1990 in West Berlin by Mr Tanner and Mr Tozkij who subsequently also acted as managers. It was registered in May 1990 with the purpose of the import and export of goods.

The second applicant company was formed in February 1990 in East Berlin by citizens of the former German Democratic Republic, partly on a fiduciary basis for citizens of the Federal Republic of Germany, inter alia, Mr Tanner. It was registered in March 1990 with the purpose of counselling on long-distance goods traffic.

They are represented before the Court by Mr H. Kroitzsch, a lawyer practising in Karlsruhe.

The facts of the case, as submitted by the applicant companies, may be summarised as follows.

A.Particular circumstances of the case

1.The proceedings before the Berlin Regional Court

In 1992 the Deutsche Aussenhandelsbank AG instituted proceedings with the Berlin Regional Court (Landgericht) against the applicant companies, claiming that they had unlawfully participated in foreign trade business transactions, in transferable roubles (XTR), of the former German Democratic Republic and thereby unjustly received an amount of altogether 78,425,543.31 German marks (DM).

On 15 December 1992 the Berlin Regional Court ordered the applicant companies to consent to the payment to the plaintiff of the amounts of 19,183,800.41 DM and of 13,094,285.71 US dollars ($), deposited on trust accounts at the Dresdner Bank in Berlin, and of interest, and to pay to the plaintiff further 39,535,226,64 DM and interest.

As regards the background of the litigation, the Regional Court noted that the former German Democratic Republic had had a State monopoly on foreign trade. Only so-called foreign trade companies (Aussenhandelsbetriebe) with a special foreign trade licence were authorised to participate in foreign trade transactions. Individual transactions had further been subject to official authorisation under the customs regulations. Settlements had been made on the basis of the fictitious clearing unit of XTR. Its exchange rate with the currency of the former German Democratic Republic (“GDR mark”) had been 1:4.67. The financial transactions had been carried out by banking institutes established for this purpose in each of the States parties to the Council for Mutual Economic Assistance (Rat für Gegenseitige Wirtschaftshilfe “RGW” - “CMEA”) through the International Bank for Economic Cooperation (Internationale Bank für wirtschaftliche Zusammenarbeit) in Moscow. As regards payment of goods exported by a trade company of the former German Democratic Republic, the relevant terms of trade (Allgemeine Bedingungen für die Warenlieferungen zwischen den Organisationen der Mitgliedsländer des RGW) had provided that, upon presentation of documents certifying the dispatch of the goods concerned, the Deutsche Aussenhandelsbank as foreign trade bank on the vendor’s side, converted the purchase price denominated in XTR into GDR marks and credited this sum to the trade firm’s account. The Deutsche Aussenhandelsbank subsequently arranged for settlement with the foreign trade bank on the purchaser’s side. In some cases, in particular as regards transactions between the former German Democratic Republic and the Soviet Union, there had been a “cash before delivery” system of payment (Vorauskassensystem). Contrary to the above rules, a foreign purchaser, before delivery or dispatch of the goods, would have requested his foreign trade bank to transfer amounts in XTR to the Deutsche Aussenhandelsbank which credited the payee’s account with the equivalent amount in GDR marks.

The Regional Court stated that, with the emerging monetary union between the two German States, the “cash before delivery” system had offered an opportunity to have XTR eventually converted into German marks without corresponding export of goods. In this respect, the court noted that the second company had profited from section 9(2) of the Private Business Act (Gesetz über die Gründung und Tätigkeit privater Unternehmen und über Unternehmensbeteiligungen) of the former German Democratic Republic of March 1990. This provision had abolished the State monopoly on foreign trade and had given private enterprises the opportunity, in accordance with the import and export regulations of the former German Democratic Republic, to enter into export or import contracts or to charge third companies to do so.

The Regional Court found that in 1990, at a date in dispute between the parties to the litigation, the second applicant company had instructed Mr Tozkij to conclude, on its behalf, export contracts with Soviet customers on the condition that they made advance payments. Mr Tozkij had concluded fourteen contracts with Soviet firms. These contracts had been based on the “cash before delivery” system except for two contracts. One of these contracts had been concluded and carried out in terms of GDR marks. The other contract had been concluded under the traditional system of payment after dispatch. This contract had involved payment of 4,998,000 XTR, equivalent to 11,695,320 DM for the delivery of production facilities which, according to the court, by far exceeded their value. The court noted that the first applicant company had negotiated the facilities with a German producer at a price of 3,760,764 DM. In any event, the facilities had never been delivered, and the contract at issue had later been dissolved.

As regards the licensing of the export transactions, the Regional Court established that on 12 June 1990 the second applicant company had applied to the Ministry of Economic Affairs (Wirtschaftsministerium) of the former German Democratic Republic for an export licence regarding exports to the Soviet Union amounting to approximately 3.5 million XTR. On 21 June 1990 the second applicant company had applied for a further licence concerning exports amounting to 15.4 million XTR. The first licence had apparently been granted, the outcome of the second request had remained unclear.

In a contract dated 23 June 1990 and amended in July 1990, the applicant companies had agreed that the first applicant company would furnish the contracted goods, organise the export and indemnify the second applicant company from any compensation claims, while the second applicant company had undertaken to transfer incoming payments to the first applicant company, except for a commission of 3%.

On the basis of the above contracts, the Deutsche Aussenhandelsbank had credited the second applicant’s account with altogether 78,425,543.31 DM, after conversion of GDR marks at a rate of 2 to 1. These sums of money had subsequently gone to bank accounts of the first applicant company. Following the seizure, in the context of criminal proceedings, of remaining credits on these accounts, the applicant companies, Mr Tanner and the plaintiff had agreed to reimburse some amounts which were deposited to await the outcome of the present litigation.

As to the further course of the events, the Regional Court noted that, with a view to preparing the monetary union on 30 June 1990, the Staatsbank of the former German Democratic Republic had undertaken to provide GDR marks for the financing of the balances and accounts in the plaintiff’s books. The plaintiff had continued to handle the financial transactions abroad and the related internal settlement with clients. On 15 June 1992, the Staatsbank, which had been transformed into a corporation under public law (Körperschaft des öffentlichen Rechts -“Staatsbank Berlin”) in the context of German unification, had ceded to the plaintiff any compensation claims against the applicant companies.

Turning to the legal issues, the Regional Court observed that, in accordance with section 232 of the Introductory Act to the German Civil Code (Einführungsgesetz zum Bürgerlichen Gesetzbuch), the Civil Code (Zivilgesetzbuch) of the former German Democratic Republic (“Civil Code GDR”) applied to the litigation as far as the second applicant company and the deposited money was concerned. The claim against the first applicant company for further compensation payments was founded on the provisions of unjust enrichment of the German Civil Code.

The Regional Court, referring to sections 356(1) and 367 of the Civil Code GDR, considered that the plaintiff was entitled to payment of the deposited money as well as to the payment of further amounts as awarded. In its view, the second applicant company had obtained a pecuniary advantage, namely the crediting, on the basis of the bank contract with the plaintiff, of the litigious sums of GDR marks and subsequently of German marks. However, the second applicant company had not been entitled to the crediting in question. The second applicant company, acting in agreement with its Soviet partners, had unduly taken advantage of the legal possibilities resulting from the emerging monetary unification. The crediting in question was, therefore, null and void.

As to the application of the law, the Regional Court noted that the Civil Code GDR did not contain an express equivalent of section 138 of the German Civil Code on the consequences of a violation of bonos mores. However, section 68(1)(2) of the Civil Code GDR had stipulated that contracts were null and void if contrary to socialist morals. Following the amendment of the Constitution of the former German Democratic Republic in June 1990, this provision was identical with section 138 of the German Civil Code.

According to the Regional Court, the applicant companies had acted contra bonos mores. Collaborating with bona or mala fide partners in the Soviet Union, they had misused the “cash before delivery” system, the liberty of trade and the formal possibilities of diverting currencies without any advance or counter-performance in order to obtain payment of more than 78 million German marks to the disadvantage of the Federal Republic of Germany. They would have never envisaged the business activities in question, had the transactions been definitely settled in GDR marks. The applicant companies had not been involved in trading in accordance with the traditional foreign trade relations of the former German Democratic Republic which were protected under the Treaty Establishing a Monetary, Economic and Social Union (Vertrag zur Errichtung einer Währungs-, Wirtschafts- und Sozialunion) of May 1990. This was evidenced by their dates of foundation and their intention to export exclusively Western products. In this context, it was irrelevant whether in the past Western goods had formed part of the foreign trade between States parties of the CMEA, as these had not included speculative transactions. Likewise, the question could be left open of whether or not the contracts for delivery had been at some stage partly or mostly fulfilled, as the applicant companies had asserted, without any substantiation, at the court hearing. 14% of the volume of business had undisputedly not been fulfilled. The contracts in question had obviously been concluded for the sole purpose of obtaining possession of millions of German marks in exchange for normally valueless XTR credits. The Regional Court mentioned as example the profit margin in the contract regarding production facilities. Even assuming that the second applicant company had initially intended to perform the contracts in question, the applicant companies’ agreement shifting the performance to the first applicant company had antedated the crediting of the converted amounts to the second applicant company’s account. In these circumstances the second applicant had not been entitled to obtain the amounts in dispute.

The Regional Court also noted that the transactions of the applicant companies had contravened the normal purpose of the “cash before delivery” system which had been used since 1987 as a means of security following difficulties with companies in Poland and the Soviet Union.

The Regional Court next turned to the question of whether the Deutsche Aussenhandelsbank had been entitled to bring the proceedings in question (Aktivlegitimation). It considered that in the beginning the applicant companies had been unjustly enriched to the disadvantage of the plaintiff which had converted the XTR roubles and had paid the sums out. The fact that the plaintiff had subsequently transferred its holdings in XTR roubles to the Staatsbank Berlin did not affect its entitlement to pursue the proceedings, in any event after the cession of claims by the Staatsbank Berlin.

The court further examined the applicant companies’ argument that they were only obliged to the reimbursement of the sums concerned if they obtained possession of the equivalent XTR roubles. It found that XTR roubles were no articles of merchandise or valid means of payment and that dealings with XTR roubles had stopped. In any event, in case the contracts with the Soviet partners were to fail, not the applicant companies, but only their Soviet partners could possibly claim reimbursement. Furthermore, the foreign trade system under the CMEA had ceased to exist. Settlements were to be arranged at a political level.

2.The proceedings before the Berlin Appeals Court

On 13 September 1994 the Berlin Appeals Court (Kammergericht) dismissed the applicant companies’ appeal. Upon the plaintiff’s appeal, it amended the award of interest.

As regards the establishment of the relevant facts, the Appeals Court, in addition to the facts mentioned in the first instance judgment, noted that in July 1990 the first applicant company had concluded a control agreement with a third company, which had also been managed by Mr Tanner. According to this agreement, the first applicant company’s profits were to be transferred to Mr Tanner. Moreover, with regard to the contract between the applicant companies dated 23 June 1990, the Appeals Court noted that in the amendment dated 19 July 1990, the second applicant company’s remuneration had been reduced to 1% of incoming.

In its legal reasoning regarding the applicant companies’ appeal, the Appeals Court observed at the outset that it was competent to deal with the proceedings as the plaintiff was a legal person under private law (juristische Person des Privatrechts) which, in its relation to the first applicant, had not exercised sovereign powers.

The Appeals Court confirmed that the case had to be decided under the Civil Code GDR as the second applicant company’s undue participation in the transactions with XTR roubles had taken place before German unification on 3 October 1990. The same considerations applied with regard to the first applicant company. In any event, the same legal consequences would result from the application of the laws of the Federal Republic of Germany.

According to the Appeals Court, the second applicant company had made use of the XTR roubles settlement procedure without being authorised to do so. It therefore had to compensate the damages caused to the plaintiff, in accordance with section 330 of the Civil Code GDR. The first applicant company with its registered office in West Berlin had deliberately used the second applicant in order to profit from the XTR settlement procedure, and was accordingly liable to compensation under section 330 of the Civil Code GDR or section 826 of the German Civil Code, respectively.

The Appeals Court found that, in accordance with the rules of the CMEA, the second applicant company had not been authorised to make use of the XTR settlement procedure for the following reasons. The export goods had not originated from the former German Democratic Republic. The applicant companies had not intended to perform the contracts in question. Furthermore, from an economic point of view, the export contracts were not attributable to the second applicant company, but to the first applicant company. However, with a registered office in West Berlin, it had not been authorised to participate in the XTR settlement procedure.

Referring to case-law, the Appeals Court recalled that the foreign trade system within the CMEA had been reserved to goods produced within the area of the CMEA. Unauthorised re-exportation of Western goods was contrary to this system. Moreover, the system presupposed a real trade transaction within the CMEA. It did not allow for a transfer of XTR for the sole purpose of conversion of currency. In this respect, the Appeals Court, having regard to the material before it and the discussion of this issue at the oral hearing, found that the applicant companies had failed to show that the goods concerned had fully or partly been delivered. Furthermore, the second applicant company had operated as a dummy in order to enable the first applicant company unlawfully to participate in the XTR settlement procedure. The aim of these transactions had been to transfer almost all the profit to the first applicant company and, as followed from the control agreement of 6 July 1990, eventually to Mr Tanner. The Appeals Court, having regard to the facts and to the statements made by Mr Tanner, also considered that the applicant companies had deliberately abused the XTR settlement procedure.

The Appeals Court rejected the applicant companies’ argument that the Deutsche Aussenhandelsbank was jointly liable for the damages.

In the court’s view, the applicant companies had caused damages to the Deutsche Aussenhandelsbank amounting to altogether DM 77,675,543.31. It rejected the applicant companies’ argument that the Deutsche Aussenhandelsbank had not suffered any lasting loss as the sums in question had been subsequently refinanced by the Staatsbank Berlin. The court recalled the principle that a person causing damage could not profit from payments made to the injured person by third persons. In the present case, it was therefore decisive that the Deutsche Aussenhandelsbank had initially made the payments in question from its own assets.

Moreover, any XTR credits of the plaintiff with the International Bank for Economic Cooperation in Moscow were not deductible as they did not represent any measurable advantage. Referring to case-law, the Appeals Court observed that after the dissolution of the CMEA, the extinction of the German Democratic Republic, the dissolution of the Soviet Union and the surplus of German XTR claims in the balance of payments between Germany and Russia, XTR credits had no longer any economic value. In this respect, the Appeals Court noted that under the terms of trade of the CMEA, the States parties had to ensure a mutual settlement of XTR payments at the end of the calendar year and that there were no assets to ensure settlement of any surplus in the balance of XTR payments. The expectation of future compensation for the German XTR surplus, referred to by the applicant companies, was therefore unfounded. Any conversion of the XTR credits was subject to an international agreement, and it was accordingly impossible to estimate a remaining advantage for the plaintiff or for the Staatsbank Berlin. The understanding between the Federal Republic of Germany and Russia (see below ‘Political developments regarding outstanding XTR credits’) that German XTR credits owed by Russia would not be subject of discussion for a period of eight years indicated that in any event Russia would not settle XTR credits resulting from unlawful export transactions, in particular transactions as in the instant case which had never been carried out. The court noted that this matter had been discussed at the oral hearing.

3.The proceedings before the Federal Court of Justice

On 7 November 1995 the 11th Division (Senat) of the Federal Court of Justice (Bundesgerichtshof) dismissed the applicant companies’ appeal on points of law.

The Court of Justice confirmed that the applicant companies’ conduct constituted a breach of section 330 of the Civil Code GDR and, in respect of the first applicant company, also of section 826 of the German Civil Code.

Thus, the second applicant company, which had been used by the first applicant company as a dummy, had had no authority to participate in the XTR settlement procedure. According to the Court of Justice, it followed from the Agreement concerning multilateral settlements in transferable roubles and the establishment of an International Bank for Economic Co-operation (see below ‘Relevant law’) and the general terms of trade that the XTR settlement procedure had served the sole purposes of financing trade and other financial settlements between the said States parties. Recourse to the XTR settlement procedure, through the plaintiff, had therefore only been authorised in respect of the exchange of goods between the former German Democratic Republic and other States parties of the CMEA. These conditions had not been met in any of the litigious transactions. Irrespective of whether the applicant companies had seriously envisaged to perform the contracted deliveries or had in fact performed them, the export transactions had not related to any exchange of goods between the former German Democratic Republic and the Soviet Union. Moreover, the transactions had in reality been those of the first applicant company which had its registered office outside the former German Democratic Republic. The second applicant company had merely been used as a dummy in order to profit from the XTR settlement procedure.

Furthermore, the Federal Court of Justice confirmed the Appeals Court’s findings that the plaintiff had suffered a damage in the amount of the sums paid out to the second applicant company and that XTR amounts credited to the plaintiff’s accounts could not be taken into account.

The Federal Court of Justice considered in particular that the damage had been caused in that the second applicant company had received German marks without been entitled to do so. Contrary to the Appeals Court, the Federal Court of Justice found that the said damage was not the plaintiff’s own damage. As the Staatsbank of the former German Democratic Republic had charged the plaintiff with the implementation of the XTR settlement procedure and had committed itself to refinance the sums paid out, the Staatsbank had suffered the loss. Nevertheless, applying the principles governing compensation claims in respect of damages, which on account of contractual stipulations, were suffered by a third party (Drittschadensliquidation), the plaintiff was entitled to claim compensation in its own right.

As regards the question of whether German XTR credits were to be deducted, the Federal Court of Justice found that it was irrelevant whether such XTR credits still had any economic value. In the court’s view, it was decisive that the lawfulness of using the XTR settlement procedure for the trans-frontier payments in 1990 did not only entail the unlawfulness of the payments to the second applicant company, but at the same time deprived the XTR payments to the plaintiff of their legal basis. Thus, any claims for retransfer could only be raised by the bank institute on the Soviet side or its successor.

Finally, the Federal Court of Justice found that the question of the plaintiff’s shared liability could be left open on the ground that the rules on shared liability could not lead to a result where the person having caused damage would be entitled to keep part of the unlawfully obtained advantage.

4.The proceedings before the Federal Constitutional Court

On 5 February 1996 the Federal Constitutional Court (Bundesverfassungsgericht), sitting as a panel of three judges, refused to entertain the applicant companies’ constitutional appeal. The decision was served on 15 February 1996.

5.Political developments regarding outstanding XTR credits

In February 1995 the Federal Ministry of Finance, on behalf of the Federal Government, replied to a written question put by a member of the Federal Diet on the state of negotiations with the successor States of the Soviet Union and the former States parties of the CMEA regarding recognition and rating of the outstanding XTR claims. According to the Ministry, XTR credits amounting to altogether 11.8 billion XTR had arisen in the second half of 1990, including 7.4 billion XTR credits regarding the successor States of the former Soviet Union. In May 1991 the Federal Government had started negotiations regarding the settlement of these XTR credits. The negotiations had been very complex and difficult. With some countries settlement agreements had been concluded which regulated the recognition of XTR debits, conversion of the XTR debit into a liability denominated in German marks and provisions on the refunding, taking the financial strength of the country into account. There had been a procedural agreement with Russia which extended to the real estate in Germany of the Russian armed forces and their early withdrawal. In a Common Declaration, signed in Moscow on 16 December 1992, Federal Chancellor Kohl and President Yeltsin had stated that the issue of transferable roubles should not be subject of discussion for a period of eight years. At the end of this period, the discussion would be continued with Russia (having taken over all foreign liabilities of the former Soviet Union).

In a further report of the Federal Ministry of Finance of 16 December 1997, it is stated that due to the continued XTR settlements procedure German XTR credits amounting to 11.6 billion XTR had accumulated. These figures represented a real transfer of goods to the States parties of the CMEA and therefore gave rise to settlement claims by the Federal Republic of Germany. Referring to earlier reports of May 1994 and December 1995, the Ministry set out the actual state of negotiations with the countries concerned. As regards Russia, it referred to the declaration of December 1992. It further stated that in April 1995 the Kreditanstalt für Wiederaufbau and the Russian Foreign Trade Bank had reached an agreement on the amount of German XTR credits which was supposed to form the basis for the later political negotiations. The Ministry also reported on the state of proceedings against German firms regarding repayment of sums unlawfully obtained under the XTR settlement procedure.

B.Relevant law and practice

1.The Council for Mutual Economic Assistance

The Charter of the Council for Mutual Economic Assistance was signed in Sofia on 14 December 1959 and came into force on 13 April 1960.

The Agreement concerning multilateral settlements in transferable roubles and the establishment of an International Bank for Economic Co-operation was signed in Moscow on 22 October 1963 and entered into force on 18 May 1964. It was amended in December 1970 and in November 1977.

2.The Monetary, Economic and Social Union

On 18 May 1990 the Federal Republic of Germany and the former German Democratic Republic concluded the Treaty Establishing a Monetary, Economic and Social Union.

According to its Article 1, the purpose of the Treaty was to establish a monetary, economic and social union (§ 1). Article 1 § 2 further provided that as from 1 July 1990 the States parties formed a monetary union with a uniform currency area and the German mark as common currency; and that the German Federal Bank (Deutsche Bundesbank) was the monetary and central bank of this currency area. Moreover, all claims and liabilities denominated in mark of the former German Democratic Republic were to be converted to German marks. Article 1 §§ 3 and 4 defined the main features of the economic union and the social union.

Article 10 of the Treaty regulates the conditions and the principles of the monetary union, in particular the German marks as its currency, the functions of the German Federal Bank, the principle of monetary stability. Article 10 § 5 provides inter alia for the introduction of the German mark as currency in the German Democratic Republic and for the conversion of claims and liabilities denominated in mark of the German Democratic Republic, in general at a rate of 2 to 1.

Chapter III of the Treaty contains provisions regarding the economic union. Article 13 concerns the organisation of a free foreign trade in the former German Democratic Republic. Article 13 § 2 provides for the protection of legitimate expectations (Vertrauensschutz) regarding the traditional foreign trade relations of the German Democratic Republic, especially existing treaty obligations vis-à-vis the States parties of the CMEA.

Various public funds were created for the purpose of financing monetary union and the German unification. For the purposes of the monetary union, legislation was enacted to establish a Conversion Compensation Fund (Ausgleichsfonds Währungsumstellung - Gesetz über die Errichtung des Ausgleichsfonds Währungsumstellung (BGBl. 1990 I S. 1487)). In November 1994, following its fusion with the Staatsbank Berlin in October 1994, Kreditanstalt für Wiederaufbau, a public corporation (capital held by the Federal Republic of Germany and the Länder), was charged with the administration of XTR claims. Sums obtained in compensation for XTR credits are eventually transferred to the Federal Budget.

3.Provisions of Civil Law

The sixth chapter of the Introductory Act to the German Civil Code concerns the entry into force and interim rules upon introduction of the Civil Code in the area of the former German Democratic Republic. According to section 232(1), a contractual relationship having arisen before the German unification is governed by the previously applicable legislation.

In the former German Democratic Republic, liability in tort and unjust enrichment were governed by sections 330 et seqq. and sections 356 et seqq. of the Civil Code GDR, respectively.

In the Federal Republic of Germany, liability in tort and unjust enrichment are regulated in sections 823 et seqq. and sections 812 et seqq. of the Civil Code.

COMPLAINTS

1.The applicant companies complain that the German court decisions amount to a deprivation of their possessions contrary to the second sentence of the first paragraph of Article 1 of Protocol No. 1. They submit that as a consequence of these decisions the Federal Government obtains compensation in respect of converted XTR although the Federal Republic of Germany is still possessing XTR credits. In their view, they had obtained the litigious sums of money in the context of their international business with Russian clients and their international payment transactions. They consider that the court decisions in question amount to an unlawful confiscation of the transferred sums of money after conversion into German marks. Referring in particular to documents on their sales contracts and export licences, they assert that the German courts wrongly found that their business transactions had been unlawful and that they were not entitled to the corresponding XTR credits. In this respect, they also challenge the findings that these credits had no economic value and that in any event only the bank institutes on the Soviet side or their successors could claim retransfer of these credits.

2.The applicant companies further complain under Article 6 of the Convention that they did not have a fair hearing by a tribunal established by law. They submit that the plaintiff made false statements in its observations in reply to the appeal on points of law. Thus, the plaintiff stated that XTR credits did not represent any measurable value without informing the Federal Court of Justice about the course of the political negotiations regarding the German XTR credits. Furthermore, they state that their case should not have been heard by the 11th Division of the Federal Court of Justice. They argue that the 3rd Devision, to which the rules on the distribution of cases had assigned actions under the Convention, should have examined their appeal on points of law, in which they had inter alia invoked Article 1 of Protocol No. 1.

THE LAW

1.The applicant companies complain that the German court decisions ordering to consent to the payment of deposited sums of money and to pay further sums of money as amounting to almost 78 million German marks to the Deutsche Aussenhandelsbank AG are in breach of Article 1 of Protocol No. 1.

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.”

a.As regards the applicability of Article 1 of Protocol No. 1, the Court notes that the applicant companies were liable to pay to the Deutsche Aussenhandelsbank AG as plaintiff in civil proceedings under provisions on tort and unjust enrichment substantial sums of money. The applicant companies had obtained these sums of money in the context of financial transactions under the XTR settlement procedures of the CMEA and after conversion into German marks upon the German monetary union.

The Court considers that the legislation governing private law relations between individuals, including legal persons, will commonly comprise rules on the effects of such relations with respect to property. Such regulations are in the exclusive province of private law. Domestic court decisions in the determination of civil rights and obligations do not, in principle, give rise to an issue under Article 1.

In their submissions under Article 1 of Protocol No. 1, the applicant companies claim that the respondent State resorted to the general legislation governing liability in civil law in order to achieve the result of expropriation measures.

The Court, having regard to the particular features of the financial transactions at issue against the political background of German unification, will examine whether the German court decisions determining and recognising the applicant companies’ liability involved State responsibility which could be regarded as interference with their right to the peaceful enjoyment of their possessions within the meaning of Article 1 of Protocol No. 1.

b.Article 1 of Protocol No. 1 guarantees in substance the right of property. It comprises three distinct rules. The first, which is expressed in the first sentence of the first paragraph and is of a general nature, lays down the principle of peaceful enjoyment of property. The second, in the second sentence of the same paragraph, covers deprivation of possessions and makes it subject to certain conditions. The third, contained in the second paragraph, recognises that the Contracting States are entitled to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. However, the three rules are not "distinct" in the sense of being unconnected: the second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule (see the Gasus Dosier- und Fördertechnik GmbH v. the Netherlands judgment of 23 February 1995, Series A no. 306-B, pp. 46-47, § 55).

The applicant companies’ arguments focus on the second rule contained in the second sentence of the first paragraph of Article 1.

The Court notes that the German courts ordered repayment of the sums in question under the general rules on unjust enrichment and on tort, finding that the applicant companies had unlawfully obtained these sums. In the Court’s view, the present case cannot be compared with the transfer of ownership in the sense of an expropriation (see the Sporrong and Lönnroth v. Sweden judgment of 23 September 1982, Series A no. 52, p. 24, § 63) or with the compulsory transfer of specific property from one individual to another (see the James and Others v. the United Kingdom judgment of 21 February 1986, Series A no. 98-B, p. 30, §§ 38, 39). The court decisions complained of did not, therefore, involve a “deprivation of possessions” within the meaning of the second sentence of the first paragraph.

The Court considers that the second paragraph of Article 1 is not applicable either. The interference complained of was not limited to a control of the use of property. The applicant companies were ordered to repay very large sums of money which had been transferred to their bank accounts and had become part of their assets.

This being so, and bearing in mind that the applicant companies’ arguments before it were mainly directed to the issue of lawfulness of the interference, the Court will apply the general rule contained in the first sentence of the first paragraph of Article 1 (see, mutatis mutandis, the afore-mentioned Sporrong and Lönnroth judgment, p. 25, § 65).

c.The Court recalls that the lawfulness of an interference requires in the first place the existence of and compliance with adequately accessible and sufficiently precise domestic legal provisions (see the Lithgow and Others v. the United Kingdom judgment of 8 July 1986, Series A no. 102, p. 47, § 110). The Court’s power to review compliance with domestic law is limited (see, inter alia, the Fredin v. Sweden (no. 1) judgment of 18 February 1991, Series A no. 192, p. 16, § 50; with reference to the Håkansson and Sturesson judgment v. Sweden of 21 February 1990, Series A no. 171, p. 16, § 47).

In the present case, the German courts applied rules of civil law. In accordance with the legislation on the introduction of the German Civil Code in the area of the former German Democratic Republic, the courts decided the major part of the action under the Civil Code of the former German Democratic Republic, and, as regards the first applicant company, also under the equivalent provisions of the German Civil Code.

The requirements of accessibility and foreseeability do not give rise to any problem in the present case. The applicant companies’ objections concern the compliance with the law. The applicant companies maintain in particular that the German courts erred in considering that their business transactions had not been of the type entitling to benefit from the special XTR settlement procedure for CMEA trade. Furthermore, they are of the opinion that the value of German XTR credits was incorrectly assessed.

The Court notes that all three German courts dealing with the case found that the applicant companies were liable to repay the sums claimed by the Deutsche Aussenhandelsbank. In reaching this conclusion, the courts took different positions on the applicability of legal rules or on the relevance of particular factual elements or of legal considerations. In particular, the Berlin Regional Court’s legal approach under the rules on unjust enrichment was not upheld in the ensuing appeal proceedings. Thus, the Berlin Appeals Court, as confirmed by the Federal Court of Justice, qualified the case as an action in tort. The Court considers that the fact that different levels of domestic jurisdiction deviate as to the legal qualification of claims does not generally give rise to doubts as to the lawfulness of their decisions.

Moreover, in the present case, the differences in the legal approach had no bearing on the essence of the courts’ considerations as to the question of whether the applicant companies’ business transactions had entitled them to use the XTR settlement procedure and subsequently to obtain the litigious sums of money after conversion into German marks. In this respect, the Court notes that the German courts looked closely at the structure of foreign trade between the former German Democratic Republic and other States parties of the CMEA and the nature of the applicant companies’ business transactions. Moreover, the reasoning of the decisions shows that the courts had been aware of the issue of still existing book values of German XTR credits. Reference was made inter alia to the declaration made by the Federal Chancellor Kohl and the Russian President Jelzin in December 1992.

The applicant companies’ submissions also relate to the evaluation of developments regarding German XTR credits, especially the German-Russian bank agreement on the amount of outstanding German XTR credits. The Court notes that, in the report by the Federal Ministry of Finance of 16 December 1997, which was referred to by the applicant companies, a clear distinction was drawn between German XTR credits which represented a real transfer of goods and therefore gave rise to settlement claims by the Federal Republic of Germany and the repayment by German firms of sums unlawfully obtained under the XTR settlement procedure. Furthermore, the Court observes that the Federal Court of Justice, in its judgment of 7 November 1995, found that the questions regarding the economic value of XTR credits were of no relevance in the case of the applicant companies, as in no event the applicant companies could claim a XTR transfer. According to the Federal Court of Justice, the reasons rendering their financial transactions unlawful at the same time had the effect of depriving the transfer of XTR as such of its legal justification.

On the whole, the Court, having regard to the limits on its review in this field, finds that the applicant companies’ submissions on factual details concerning their business transactions, the CMEA system of foreign trade or the nature of German XTR credits do not disclose any clear non-observance of German law.                

d.Moreover, the Court must determine whether a “fair balance” was struck between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. The concern to achieve this balance is reflected in the structure of Article 1 as a whole: there must therefore be a reasonable relationship of proportionality between the means employed and the aims pursued (see the afore-mentioned Sporrong and Lönnroth judgment, p. 26, § 69; Gasus Dosier- und Fördertechnik GmbH judgment, p. 49, § 62; and the National & Provincial Building Society, the Leeds Permanent Building Society and the Yorkshire Building Society v. the United Kingdom judgment of 23 October 1997, Reports of Judgments and Decisions 1997-VII, pp. 2353-2354, § 80). In determining whether this requirement has been met, a Contracting State enjoys a wide margin of appreciation and the Court will respect the legislature’s assessment unless it is devoid of reasonable foundation (see the James and Others judgment cited above, p. 32, § 46; and the Gasus Dosier- und Fördertechnik GmbH judgment cited above, pp. 48-49, § 60).

Legislation on liability for damages in case of breach of duty is a reasonable means of regulating private law relations, which is in itself in “the public interest”. The application of these rules in the present case does not disclose any appearance of disproportionality. The Deutsche Aussenhandelsbank obtained a title to repayment of sums of money which were the proceeds of unlawful financial transactions, taking improperly advantage of the emerging German unification, especially the monetary union. However, there is nothing to show that this political background of the case affected the conduct or the outcome of these civil proceedings.

In sum, the Court, having examined the applicant companies’ submissions and bearing in mind the margin of appreciation left to the national authorities, finds that there is no appearance of a breach of Article 1 of Protocol No. 1.

It follows that this part of the application is manifestly ill-founded within the meaning of Article 35 § 3 of the Convention.

2.The applicant companies further complain that the German court proceedings were in breach of Article 6 § 1 of the Convention.

This provision, as far as relevant, provides:

“In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair ... hearing ... by a ... tribunal established by law ...”

a.The applicant companies contend that their appeal on points of law was not heard by a “tribunal established by law”. In their view, their case should not have been attributed to the 11th Division of the Federal Court of Justice.

The Court reiterates that it is the purpose of the requirement in Article 6 § 1 that courts shall be "established by law" that the judicial organisation in a democratic society must not depend on the discretion of the Executive, but that it should be regulated by law emanating from Parliament. However, Article 6 § 1 does not require the legislature to regulate every detail in this area by a formal Act of Parliament if the legislature establishes at least the organisational framework for the judicial organisation (see the Piersack v. Belgium judgment of 1 October 1982; Series A no. 53, p. 16, § 33; and also the report of the Commission of 12 October 1978 in the case of Zand v. Austria, D.R. 15, p. 80).

The applicant companies’ appeal on points of law was conducted in proceedings before the Federal Court of Justice in accordance with general procedural law. The assignment of the cases to the Divisions of the Federal Court of Justice was based on the court’s internal rules on the distribution of cases.

The applicant companies challenge the correct application of these rules. They argue that they had inter alia relied on the Convention and that their appeal should have therefore been assigned to another Division, competent for claims under the Convention. However, the internal assignment of a particular case on the basis of existing rules is an administrative matter which does not as such concern the establishment of the court.

In these circumstances, the applicant companies’ submissions do not disclose any appearance of a breach of their right to a hearing by a “tribunal established by law” under Article 6 § 1 of the Convention.

b.The applicant companies also submit that the proceedings were unfair. They submit in particular that the plaintiff failed to inform duly the Federal Court of Justice on relevant developments regarding the negotiations on German XTR credits.

Article 6 § 1 places the “tribunal” under a duty to conduct a proper examination of the submissions, arguments and evidence adduced by the parties, without prejudice to its assessment of whether they are relevant to its decision (see the Van de Hurk v. the Netherlands judgment of 19 April 1994, Series A no. 288, p. 19, § 59).

The Court refers to its above finding that the Federal Court of Justice followed a line of reasoning in which the state of negotiations concerning German XTR credits was of no relevance. It did not, therefore, affect the lawfulness of the interference with the applicant companies’ right under the first sentence of the first paragraph of Article 1 of Protocol No. 1. Consequently, the conditions of Article 6 § 1 in this respect have been satisfied.

On an overall assessment, the Court considers that the applicant companies had the benefit of adversarial proceedings. At the various stages of those proceedings they were able to submit the arguments they considered relevant to their case. The factual and legal reasons for the civil court decisions were, at all levels of jurisdiction, set out at length.

c.In these circumstances there is no appearance of a breach of Article 6 § 1 of the Convention.

It follows that this part of the application is likewise manifestly ill-founded within the meaning of Article 35 § 3 of the Convention.

For these reasons, the Court, unanimously,

DECLARES THE APPLICATION INADMISSIBLE.

Vincent BergerMatti Pellonpää
RegistrarPresident

Full & Egal Universal Law Academy