STOCKHOLMS MODEGARN AB v. SWEDEN

FIRST SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 38993/97
by STOCKHOLMS MODEGARN AB
against Sweden

The European Court of Human Rights (First Section), sitting on 16 January 2001 as a Chamber composed of

MrsW. Thomassen, President,
MrsE. Palm,
MrL. Ferrari Bravo
MrGaukur Jörundsson,
MrC. Bîrsan,
MrJ. Casadevall,
MrR. Maruste, judges,
and Mr M. O’Boyle, Section Registrar,

Having regard to the above application introduced with the European Commission of Human Rights on 25 September 1997 and registered on 12 December 1997,

Having regard to Article 5 § 2 of Protocol No. 11 to the Convention, by which the competence to examine the application was transferred to the Court,

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

Having deliberated, decides as follows:

THE FACTS

The applicant is a limited liability company, registered in Stockholm. Before the Court it is represented by Mr U. Jacobson, Stockholm. The Government are represented by Ms E. Jagander, Ministry of Foreign Affairs.

A.  The circumstances of the case

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

In April 1989 the applicant instituted proceedings in the District Court (tingsrätten) of Stockholm against a forwarding agent, claiming that goods belonging to the applicant had been damaged or lost while in the care of the agent. The agent was later declared bankrupt but the bankruptcy estate of the agent declined to enter as a party to the proceedings. On 16 December 1991 the District Court gave judgment in default (tredskodom) according to which the agent – the bankruptcy debtor – was to pay the applicant 112,340 Swedish kronor (SEK) in damages and SEK 199,210 in litigation costs. No appeal was made and the judgment gained legal force.

In March 1992 the applicant and the bankruptcy estate of the agent signed an agreement according to which the estate assigned to the applicant the estate's right to compensation from an insurance company under a third party insurance which had been taken out by the agent to cover possible liabilities incurred in connection with its forwarding business. Subsequently, the applicant instituted proceedings against the insurance company in the District Court, claiming that the insurance company should pay the applicant SEK 29,648 in compensation for damaged or lost goods and SEK 199,210 for the above-mentioned litigation costs.

On 7 July 1995 the District Court rejected the applicant's claims against the insurance company and ordered the applicant to pay the insurer's litigation costs in the amount of SEK 276,760. The court found that the bankruptcy estate of the forwarding agent had not been a party to the proceedings concluded by the judgment of 16 December 1991 – which had only determined the agent's liability vis-à-vis the applicant – and that, thus, the estate had not acquired any rights or obligations on account of that judgment. Accordingly, the estate of the agent had not been in a position to assign to the applicant any rights emanating from the third party insurance.

The applicant appealed to the Svea Court of Appeal (Svea hovrätt) and requested that the enforcement of the District Court's judgment be suspended as it had not gained legal force. On 9 August 1995 the appellate court found that there was no legal possibility to suspend the enforcement and thus rejected the applicant's request.

In order to recover its litigation costs, the insurance company requested the Enforcement Office (kronofogdemyndigheten) to levy execution on the applicant's assets. The Enforcement Office found, however, that the applicant had no seizeable assets. The insurance company then filed a bankruptcy petition against the applicant. In a decision of 19 October 1995 the District Court considered that the applicant's appeal against the judgment of 7 July 1995 had no prospects of success and that, consequently, its liability to pay the litigation costs in question would remain unchanged. Noting further that the applicant was insolvent as it had no assets to pay the litigation costs, the court declared the applicant bankrupt and ordered it to pay the insurer's litigation costs in the bankruptcy proceedings.

The declaration of bankruptcy was upheld by the Court of Appeal on 27 November 1995. However, the applicant made a further appeal to the Supreme Court (Högsta domstolen), and on 12 September 1996 that court quashed the appellate court's decision, rejected the bankruptcy petition filed against the applicant and ordered the insurance company to pay the applicant's litigation costs in the bankruptcy proceedings. The Supreme Court found that, by declining to enter as a party to the original damage proceedings, the bankruptcy estate of the forwarding agent had not renounced any rights it might have vis-à-vis the insurance company under the third party insurance. Consequently, the transfer of its rights under that insurance to the applicant was in fact valid. In view of this and the complexity of other issues raised by the parties in the compensation proceedings adjudicated by the District Court on 7 July 1995, there was no basis for concluding that the applicant's appeal against that judgment lacked prospects of success. As the inventory of the applicant company did not reveal any other important debts, the declaration of bankruptcy was entirely dependent on the applicant's possible liability to pay the insurance company's litigation costs in the compensation proceedings. Having found that the outcome of those proceedings was uncertain, the Supreme Court concluded that the insurer had failed to show that the applicant was insolvent.

Following the Supreme Court's decision, the District Court, on 4 December 1996, fixed the fee to be paid to the official receiver who had been in charge of the applicant's bankruptcy at SEK 5,000. The District Court further recalled that the fee was to be paid by the bankruptcy estate. In so doing, it referred to Chapter 2, Section 25 of the Bankruptcy Act (Konkurslagen, 1987:62) which provides that, following the decision by a superior court to quash a declaration of bankruptcy, the assets of the estate shall be returned to the bankruptcy debtor to the extent they are not required for the defrayal of the bankruptcy costs. The receiver's fee is considered as a bankruptcy cost, according to Chapter 14, Section 1 of the Bankruptcy Act.

The applicant appealed to the Court of Appeal. It did not challenge the fee as such but claimed that a liability to bear the bankruptcy costs would violate the property rights of the estate and – consequently – the applicant. The applicant invoked Article 1 of Protocol No. 1 to the Convention.

In a decision of 30 December 1996 the Court of Appeal stated that the District Court had only recalled that, under the relevant law, the receiver's fee was to be paid by the bankruptcy estate. It had not ruled on the question whether the receiver's claim for remuneration had priority over the applicant's right to the assets. As a consequence, this question could not be examined by the Court of Appeal which, accordingly, dismissed the appeal.

The applicant made a further appeal to the Supreme Court. It claimed that, in referring to the above-mentioned provision of the Bankruptcy Act, the District Court had in fact determined that the bankruptcy estate – and not the State – was to defray the receiver's fee. The use of the word “recall” rather than “decide” was, in these circumstances, irrelevant. The applicant stated further that there was no other legal remedy available for the determination of the liability to pay the fee in question. Referring to Article 6 of the Convention, the applicant therefore claimed that the Court of Appeal was obliged to determine that liability.

On 5 June 1997 the Supreme Court refused the applicant leave to appeal against the Court of Appeal's decision.

The assets of the bankruptcy estate – SEK 1,597 according to the inventory deed – were appropriated to cover part of the receiver's fee. The remainder of the fee was paid by the insurance company.

By a decision of 22 September 1997 the Court of Appeal quashed the District Court's judgment of 7 July 1995 and referred the compensation case back to the latter court for re­examination. The appellate court found that the District Court had not examined the applicant's claim that the rights under the third party insurance had been transferred from the forwarding agent to its bankruptcy estate at the time when the agent was declared bankrupt rather than as a consequence of the default judgment of 16 December 1991. The District Court had failed also to consider the insurance company's counter-claim that, under the relevant provision of the Insurance Contracts Act (Lagen om försäkringsavtal, 1927:77), it was not liable to pay any compensation as, at the time of the declaration of bankruptcy, the policy-holder, i.e. the forwarding agent, had had no claim for compensation. Thus, the District Court had made a procedural error which presumably had affected the outcome of the case and which could not be remedied by the Court of Appeal.

After the case had been referred back to the District Court, the insurance company conceded to the applicant's compensation claims. Consequently, on 22 January 1999, the District Court gave judgment in the applicant's favour, ordering the insurance company to pay the compensation claimed and the applicant's litigation costs.

B.  Relevant domestic law

References in this section are made to the Bankruptcy Act, unless otherwise indicated.

a.Bankruptcy

By means of bankruptcy, all creditors collectively and compulsorily take the total assets of an insolvent debtor for payment of their claims. During bankruptcy, the bankruptcy estate takes care of the debtor's assets on behalf of the creditors (Chapter 1, Section 1).

A debtor who is insolvent shall be declared bankrupt by the District Court following his own or a creditor's petition. By insolvency is meant that the debtor cannot pay his debts when due and that this incapacity is not merely temporary (Chapter 1, Section 2). It is up to the creditor who files the petition to show that the debtor is insolvent. There are, however, exceptions to this rule. If certain requirements are fulfilled, a debtor is considered to be insolvent unless otherwise shown (Chapter 2, Sections 8 and 9). In such cases, the burden of proof is placed on the debtor. Thus, unless otherwise shown, a debtor is deemed to be insolvent when, in the event of enforcement within six months before the bankruptcy petition, it appeared that he did not have assets for full payment of the claim. The fact that a creditor's claim has been confirmed by a court makes the creditor entitled to request that the debtor be declared bankrupt even if the court's judgment has not gained legal force. However, this does not apply if the court has ordered that the judgment must not be enforced before it has gained legal force (Chapter 2, Section 6).

The administration of a bankruptcy estate is managed by one or more official receivers under the supervision of the Enforcement Office (Chapter 3, Section 3, and Chapter 7, Section 25). Such receivers are appointed by the District Court (Chapter 7, Section 2). The receiver must have regard to the common rights and best interests of the creditors and shall take all the measures that promote an advantageous and expeditious winding-up of the estate. The receiver is obliged to notify the public prosecutor if he considers that the debtor may be suspected of certain economic crimes (Chapter 7, Section 16).

b.Bankruptcy costs

By bankruptcy costs are meant, inter alia, the official receiver's fee for the work he performs and reimbursement to the receiver for special costs borne by him during the performance of his assignment (Chapter 14, Section 1).

If the District Court considers, after hearing the receiver, that the assets of the bankruptcy estate are not sufficient for payment of the bankruptcy costs and other debts that the estate has incurred, the court shall decide to write off the bankruptcy (Chapter 10, Section 1).

The receiver's fee is determined by District Court (Chapter 14, Section 4). It shall constitute reasonable remuneration for the receiver's assignment. Before determining the fee the court shall obtain the opinion of the supervisory authority (Chapter 14, Sections 8 and 10).

The bankruptcy costs shall be paid out of the bankruptcy estate before other debts that the estate has incurred (Chapter 14, Section 2). This means that before the distribution to the creditors can take place, first the bankruptcy costs shall be paid and then any other debts that the estate may have incurred. The State and the creditor who filed the bankruptcy petition can also be made liable for the bankruptcy costs but their liability is of a secondary nature (Chapter 14, Sections 2 and 3). Thus, to the extent that the bankruptcy costs cannot be paid out of the estate because there are not sufficient assets, they shall be paid by the State with the exception, however, provided for in Section 3. According to that provision, if the bankruptcy was written off in accordance with Chapter 10, Section 1 and the bankruptcy costs cannot be paid out of the estate, the creditor who filed the petition for bankruptcy – if someone else than the State – shall be liable for the bankruptcy costs but this liability is limited to a maximum of one tenth of the so-called yearly basic amount for national security purposes (“the basic amount”), under the Social Insurance Act (Lagen om allmän försäkring, 1962:381). At the time of the bankruptcy declaration in the present case one tenth of the basic amount corresponded to SEK 3,570. If the amount that the creditor has to pay does not suffice to cover the bankruptcy costs, the State shall pay the remainder of the costs.

Bankruptcy decisions are immediately enforceable (Chapter 16, Section 4). This means, inter alia, that when a debtor has been declared bankrupt, the District Court, regardless of whether an appeal has been lodged against the bankruptcy decision, shall promptly appoint a receiver who shall start his work immediately. In case a higher court quashes the bankruptcy decision all administrative measures shall be interrupted forthwith and the case shall be referred back to the District Court for concluding measures. The assets of the estate shall be restored to the debtor to the extent that they are not required for the defrayal of the bankruptcy costs and other costs that the estate has incurred (Chapter 2, Section 25).

In the event that a bankruptcy decision is quashed there is no exception provided for in the relevant legal provisions as regards the estate's liability to pay the bankruptcy costs (Chapter 2, Section 25, and Chapter 14, Sections 2 and 3). According to the travaux préparatoires to the Bankruptcy Act (cf. Government Bill 1986/87:90, pp. 206-207), the creditor who files the petition for bankruptcy should not be liable for the bankruptcy costs, as it can be difficult for him to make an assessment as to the debtor's insolvency. The reason given for the main principle to let the estate be liable for the bankruptcy costs is that knowing that such liability exists should make the debtor do his utmost in the District Court in order to avoid being declared bankrupt and, thus, not wait until the bankruptcy case is pending in a higher court.

A decision by the Supreme Court on 6 April 1998 (cf. Nytt Juridiskt Arkiv 1998, p. 214 et seq.) shows, however, that the State may be held liable for the bankruptcy costs when the bankruptcy decision is quashed due to a grave procedural error. In that case, the District Court had summoned the debtor, using a wrongful method of serving the summons, to a hearing at which it was to be determined whether the debtor should be declared bankrupt. After the Supreme Court had quashed the bankruptcy decision, the District Court, when deciding on the receiver's fee, recalled that the bankruptcy costs should be paid out of the estate. The Court of Appeal upheld the decision. The Supreme Court, however, arrived at the conclusion that the State should pay the bankruptcy costs. The Supreme Court found that the rationale behind the existing provisions concerning the estate's liability for bankruptcy costs had no convincing force in this case, as the debtor, due to the wrongful service of the summons, had been deprived of his right to take part in the proceedings. The court also found that this situation had not been regulated in the Bankruptcy Act, nor had it been dealt with in the travaux préparatoires.

c.The State's liability to pay damages

It follows from Chapter 3, Section 2 of the Tort Liability Act (Skadeståndslagen, 1972:207) that the State is liable to pay compensation for, inter alia, financial loss caused by a wrongful act or omission in connection with the exercise of public authority.

Anyone who wishes to claim compensation from the State for financial loss which he considers to have been caused by a wrongful decision taken by a court or an administrative state authority can proceed in two different ways. He can either turn to the Office of the Chancellor of Justice (Justitiekanslern) in accordance with Section 3 of the Ordinance Concerning the Handling of Claims for Damages Against the State (Förordningen om handläggning av skade-ståndsanspråk mot staten, 1995:1301), or he can bring a civil action against the State in the courts. The decision of the Office of the Chancellor of Justice cannot be appealed. If the claim is rejected, the claimant still has the possibility to institute civil proceedings in the courts.

COMPLAINTS

1.  The applicant claims that it is unreasonable that, following the erroneous decision to declare it bankrupt, it was liable to pay the receiver's fee. The applicant asserts that this obligation, stipulated in the relevant provisions of the Bankruptcy Act, violates its property rights under Article 1 of Protocol No. 1 to the Convention.

2.  The applicant further maintains that there was no legal remedy available for the determination of the applicant's liability to pay the receiver's fee. In this respect, the applicant invokes Article 6 of the Convention.

3.  Finally, under Article 13 of the Convention, the applicant complains that it had no effective remedy for the determination of the alleged violations of its rights under the Convention.

THE LAW

1.  The applicant claims that the obligation imposed on it to pay the receiver's fee violates its property rights under Article 1 of Protocol No. 1 to the Convention, which 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.”

The respondent Government maintain in the first place that the applicant has not exhausted domestic remedies since it did not institute civil proceedings against the State, claiming compensation under the Tort Liability Act for the part of the receiver's fee that was paid out of the bankruptcy estate.

The Government consider, since they are of the opinion that there was no “right” at stake in the present case within the meaning of Article 6 § 1 of the Convention (see below), that the applicant's alleged right to the assets of the bankruptcy estate does not constitute “possessions” within the meaning of Article 1 of Protocol No. 1 to the Convention. They note that, under Swedish law, the applicant had, after the quashing of the declaration of bankruptcy, a legitimate expectation to take possession of the assets in the bankruptcy estate only in so far as they were not needed for the payment of the bankruptcy costs. Consequently, in the Government's view, there has not been an interference with the applicant's possessions.

In any event, the Government find that the aim of placing the liability for bankruptcy costs on the bankruptcy estate is to force the debtor to be as active as possible from the very beginning of bankruptcy proceedings and thereby avoid unnecessary bankruptcy declarations. The alleged deprivation of possessions was thus made “in the public interest”. Further, the relevant provisions governing the liability to pay bankruptcy costs are allegedly very clear and precise and were not applied in an arbitrary manner. Also, taking into account, inter alia, the aim of the liability and the very modest amount in the present case – SEK 1,597 – the Government contend that the measures applied struck a fair balance between the relevant interests and did not place an excessive burden on the applicant.

The applicant refutes at the outset that it would have been an effective remedy to institute civil proceedings against the State under the Tort Liability Act, as the fact that the lower courts made a different assessment of facts and law than the Supreme Court does not mean that they made a wrongful act or omission, as required by Chapter 3, Section 2 of the Act. Furthermore, the applicant made use of all remedies in the ordinary bankruptcy proceedings.

The applicant maintains that it has been deprived of its possessions. It states that it remained owner of its assets during the bankruptcy proceedings; the bankruptcy estate was only administering these assets. In any event, the applicant maintains that the assets relevant in the present case undoubtedly belonged to the applicant before the declaration of bankruptcy and that they were thereafter appropriated to pay costs caused by that erroneous declaration. Allegedly, already in those circumstances, the applicant's rights under Article 1 of Protocol No. 1 have been violated.

In regard to the Government's statement that the aim of making the bankruptcy estate liable for bankruptcy costs is to force the debtor to be as active as possible in bankruptcy proceedings, the applicant asserts that it did everything in its power during the entire proceedings to avoid being declared bankrupt. Therefore, the application of Chapter 2, Section 25 of the Bankruptcy Act to the applicant's case did not serve a legitimate aim.

The Court considers, in the light of the parties' submissions, that the applicant's complaint raises complex issues of law and fact under the Convention, the determination of which should depend on an examination of the merits of the application. The Court concludes, therefore, that this part of the application is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other grounds for declaring it inadmissible have been established.

2.  The applicant maintains that there was no legal remedy available for the determination of its liability to pay the receiver's fee. In this respect, the applicant invokes Article 6 of the Convention, which reads, in so far as relevant, as follows:

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

In the Government's view, the applicant could not claim, on arguable grounds, that it was entitled under Swedish law to the assets of the bankruptcy estate without deduction of the receiver's fee. Under the relevant legal provisions, there is an absolute obligation on the part of the bankruptcy estate to bear the bankruptcy costs as long as there are enough assets in the estate. In case a bankruptcy decision is quashed, the bankruptcy debtor has no right to such assets as are necessary for the payment of the bankruptcy costs. As regards the above-mentioned Supreme Court decision of 6 April 1998, the Government point out that it was given after the proceedings in the applicant's case and that, in that case, the Supreme Court quashed the bankruptcy decision due to procedural errors and not, as in the applicant's case, because it made a different assessment regarding the applicant's insolvency than that made by the lower courts. As the Supreme Court decision must be deemed to be limited in scope, it has no relevance in the present case. Consequently, there was in the present case allegedly no “right” at stake within the meaning of Article 6 § 1 of the Convention.

Furthermore, the Government maintain that the alleged right and the obligation to pay the receiver's fee fall outside the ambit of Article 6 of the Convention for not being “civil” in character. The Government claim that the present case involves rather strong public law features. They point out that the bankruptcy legislation is meant to provide a certain security to creditors in general and thereby contribute to the creation of a well-functioning credit system. Another important function of the bankruptcy institution is to prevent economic crime. Furthermore, a bankruptcy receiver may, in certain circumstances, take into account the interests of the debtor's employees in keeping their jobs and those of society combating unemployment. Also, the general courts and the Enforcement Office perform important supervisory and other functions in the administration of bankruptcies.

The Government adduce also that it can be argued that there has been no determination of rights and obligations in the present case as far as the applicant is concerned, as the District Court, in its decision of 4 December 1996, only recalled the existence of the relevant legal provision but did not rule on the liability to pay the receiver's fee as such.

Finally, should the Court find that the payment liability falls within the scope of Article 6 § 1 of the Convention, the Government maintain that the applicant could have the issue determined by a tribunal in conformity with that Article by instituting court proceedings under Chapter 3, Section 2 of the Tort Liability Act, claiming that the State is liable to pay compensation for the financial loss that the applicant has suffered due to the wrongful declaration of bankruptcy. Allegedly, the complaint under Article 6 is thus, in any event, manifestly ill-founded.

The applicant contends that a civil right within the meaning of Article 6 of the Convention was indeed at stake. It states that the assets of the applicant – and not of the bankruptcy estate – were appropriated for the payment of the receiver's fee, as the estate, during the bankruptcy, only administered the assets and did not have any other rights over the assets. As shown by the Supreme Court's decision of 6 April 1998, the applicant's liability to pay the fee should have been assessed on the merits. It is thus clear that, under Swedish law, there was a right at stake which is to be considered “civil” under Article 6 of the Convention. In the latter respect, the applicant claims that there were no strong public law features in the present case: the applicant had no employees, and there were no other creditors than the forwarding agent. The applicant further adduce, as it did in the domestic proceedings, that the District Court, by referring to a particular legal provision in its decision of 4 December 1996, in fact ruled that the applicant's assets should defray the receiver's fee. Consequently, the applicant's obligations in this respect were determined by the District Court.

As set out above, the applicant contends that proceedings under the Tort Liability Act would not constitute an effective remedy. Further, the applicant should only be required to try one possible remedy which it did by appealing to the Supreme Court in the bankruptcy proceedings.

The Court considers, in the light of the parties' submissions, that the applicant's complaint raises complex issues of law and fact under the Convention, the determination of which should depend on an examination of the merits of the application. The Court concludes, therefore, that this part of the application is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other grounds for declaring it inadmissible have been established.

3.  The applicant complains that it had no effective remedy for the determination of the alleged violations of its rights under the Convention and invokes in this respect Article 13 of the Convention, which reads as follows:

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

The Court finds that this complaint cannot, at this stage of the proceedings, be separated from the complaint made under Article 6 of the Convention. The Court therefore considers that the applicant's complaint raises complex issues of law and fact under the Convention, the determination of which should depend on an examination of the merits of the application. The Court concludes, therefore, that this part of the application is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other grounds for declaring it inadmissible have been established.

For these reasons, the Court unanimously

Declares the application admissible, without prejudging the merits of the case.

Michael O'BoyleWilhelmina Thomassen
RegistrarPresident

Full & Egal Universal Law Academy