FIRST SECTION
DECISION
AS TO THE ADMISSIBILITY OF
Application no. 12277/04
by Yngvar STORBRÅTEN
against Norway
The European Court of Human Rights (First Section), sitting on 1 February 2007 as a Chamber composed of:
MrC.L. Rozakis, President,
MrL. Loucaides,
MrsN. Vajić,
MrK. Hajiyev,
MrD. Spielmann,
MrS.E. Jebens,
MrG. Malinverni, judges,
and Mr S. Nielsen, Section Registrar,
Having regard to the above application lodged on 24 March 2004,
Having regard to the decision to apply Article 29 § 3 of the Convention and examine the admissibility and merits of the case together.
Having regard to the observations submitted by the respondent Government,
Having deliberated, decides as follows:
THE FACTS
The applicant, Mr Yngvar Storbråten, is a Norwegian national who was born in 1955 and lives in Lillestrøm. He is represented before the Court by Mr S. Næss, a lawyer practising in the same town. The Norwegian Government (“the Government”) were represented by their Agent, Mrs F. Platou Amble, Attorney at the Attorney General's Office (Civil Affairs).
A. The circumstances of the case
The facts of the case, as submitted by the parties, may be summarised as follows.
In July 1998 the applicant opened a restaurant at Eidsvoll, in southern Norway. The restaurant was shut down in March 1999 and the applicant was declared bankrupt in August 1999. This was the fifth time a business run by him had ended in this way.
In the course of the year 1999 the tax authorities reassessed the applicant's liability to pay value-added tax, investment tax and income tax for certain parts of the taxation years 1998 and 1999. In this connection, on an unknown date during 1999 or 2000, the said authorities imposed 30% tax surcharges on him.
1. Proceedings leading to a disqualification order
In the relevant bankruptcy report, the Administrator of the estate recommended that the applicant be disqualified from further business (konkurskarantene). In the Administrator's view, both grounds for imposing a disqualification order under section 142(1) of the Bankruptcy Act 1984 (konkursloven) had been fulfilled, namely, the existence of a reasonable suspicion against the applicant that criminal conduct had led to the bankruptcy and that he had displayed carelessness in his business practices making him unfit to establish a new company or to serve as a board member or as day-to-day manager of such a company.
On 17 January 2000 the Eidsvoll Probate and Bankruptcy Court (skifterett) disqualified the applicant under section 142(1), points 1 and 2, and 142(2) for a period of two years. The decision contained the following reasons:
“The criminal offences referred to here are listed in Chapter VIII, items 1-5, of the preliminary report, and are as follows: failure to submit a self-employed income declaration to the tax authorities, failure to keep accounting records, failure to register employees in the register of employees, failure to submit value-added tax returns, and contravention of Article 286 § 2, see Article 288, of the Penal Code, relating to the essential disregard of provisions governing accounting, annual reports and accounts, and the keeping of accounting records.
[The applicant] was notified of the proposal to disqualify him by the court's letter of 3 January 2000. [He] was given until 14 January 2000 to submit any objections in this matter. The court has not received any objections from the debtor.
The police (Romerike Police District) have been advised of the proposal to impose a disqualification order and of the fact that they are entitled to act as a party to the proceedings. No reply has been received indicating that they wish to exercise this right.
Under section 142 of the Bankruptcy Act, a disqualification order may be imposed on a debtor if there are reasonable grounds for suspecting him or her of having committed offences in connection with the activities that led to insolvency, or if he or she is unfit, on grounds of unsound business conduct, to serve as a director etc. in a new company.
The court finds that there are reasonable grounds for suspecting [the applicant] of having committed criminal offences in connection with the establishment of Yngvars Bistro og Biffbar. The matters listed in the trustee's report may, in addition to constituting criminal offences, also be characterised as unsound business conduct. [The applicant] has entirely disregarded his duties to keep accounting records and submit returns to the authorities, including annual reports and accounts, VAT returns and reports to the register of employees. These transgressions have made subsequent control of his business operations impossible.
The court finds that a person who disregards his duties to the public authorities to such an extent cannot be considered fit to manage a business or to serve on the board or the management of a company.
The court finds that there is no doubt that the conditions for imposing a period of disqualification under section 142(1), points 1 and 2, of the Bankruptcy Act are fulfilled.
In so far as the court is aware, [the applicant] does not currently hold any managerial responsibilities in other companies, and there are no other circumstances that would make it unreasonable to disqualify him. The court therefore finds, after an assessment, that a disqualification order should be imposed as proposed by the trustee.
Since in this case it is more than four months since the commencement of bankruptcy proceedings, the court finds that the disqualification period is to run from the date of this ruling, cf. Konkursråd no. 5, page 49.”
The disqualification order became final as the applicant did not lodge an appeal.
2. Criminal conviction and sentence
Subsequently, on 18 December 2001, the Eidsvoll District Court (herredsrett) convicted the applicant on three counts, all of which were connected to the bankruptcy, namely, failure to comply with the book-keeping requirement in breach of Article 286 of the Penal Code and of the relevant provisions of the Accounting Act 1977 (regnskapsloven 1977); failure to declare business turnover in violation of section 72(2) of the Value Added Tax (VAT) Act 1969 (merverdiavgiftsloven); and failure to submit tax declarations in breach of section 12-1(1)D of the Tax Assessment Act 1980 (ligningsloven). He was sentenced to thirty-five days' imprisonment and tax surcharges were imposed on him. In those proceedings the applicant unsuccessfully relied on Article 4 § 1 of Protocol No. 7 to the Convention.
On an appeal by the applicant to the Eidsivating High Court (lagmannsrett), the latter, referring to more recent Supreme Court case-law under Article 4 § 1 of Protocol No. 7, quashed the District Court's judgment on 11 September 2002 in so far as it concerned the conviction and tax surcharges in respect of the tax and VAT offences (apparently not a subject of complaint in his application under the Convention). Moreover, the applicant was partly acquitted and partly convicted of the book-keeping offences. On the other hand, the High Court agreed with the lower court that the imposition of a disqualification order did not preclude subsequent prosecution. In the light of the foregoing, it reduced the sentence to fifteen days' imprisonment.
3. The Supreme Court's judgment on the question of double jeopardy
The applicant appealed to the Supreme Court on the ground that the criminal case against him entailed double jeopardy in violation of Article 4 of Protocol No. 7 and for this reason should have been dismissed.
On 23 September 2003 the Supreme Court unanimously rejected the applicant's appeal. In his reasoning, approved in the main by the other four Justices sitting in the case, the first voting judge, Mr Justice Oftedal Broch, stated:
“(20) In the current proceedings, it is of key importance that a disqualification order may be imposed if either of the two conditions specified in the first sub-section is met. Pursuant to point 1, there must be reasonable grounds for suspecting that a criminal act has been committed in connection with the bankruptcy or the activities that led to insolvency. Pursuant to point 2, an assessment of suitability is to be made. The effects of a disqualification order are the same in both cases, with the exception that sub-section 4 also authorises disqualification from the debtor's existing offices in other companies. This applies only to a disqualification order imposed pursuant to point 1 of the first sub-section.
(21) Disqualification after bankruptcy was first introduced into the 1976 Limited Liability Companies Act. Sections 13-19(1) introduced an automatic two-year disqualification period for board members and managing directors of limited liability companies and also for all personal debtors in bankruptcy. During this period, a disqualified person was not permitted to form a new limited liability company, take up any new office on a board or become a managing director in any other limited liability company.
(22) Although the general rule was that a two-year disqualification period was mandatory, section 13-19(2) authorised the probate and bankruptcy court, on an application, to decide that all or part of the disqualification period was to be remitted. Such a decision was to be made if there was no suspicion that the debtor had contravened any penal clause in connection with the bankruptcy or the company's activities, and there was no doubt about the soundness of the debtor's conduct as a manager or in another position he or she held in the company. The probate and bankruptcy court could also decide that a disqualification period was to be remitted if it found that no reasonable or public interest militated against this.
(23) On the other hand, the effect of disqualification pursuant to sections 13-20 could be made more severe. If there were reasonable grounds for suspecting the debtor of having committed offences in connection with the bankruptcy or the company's activities, the probate and bankruptcy court could decide that he or she was also to be removed from any position on a board or as a managing director of another company during the disqualification period, in other words the provision that we also find in section 142(4) of the Bankrupcty Act.
(24) The preparatory works for the Act (Proposal No. 19 (1974-1975) to the Odelsting [the larger division of Parliament], p. 98) explain the purpose of introducing provisions relating to disqualification as follows:
'There are several arguments for preventing a person who is involved in a bankruptcy from holding managerial responsibilities. If the bankruptcy is the result of dishonesty or other errors on the part of the company's management, it will be desirable to ensure that the same people are not involved in the management of other limited liability companies. In other cases too, there can be reasons for introducing a certain disqualification period pending investigation of the circumstances of the bankruptcy with a view to revealing any irregularities or other inappropriate conduct. Even if the question of possible irregularities is disregarded, two other important considerations are society's interest in ensuring that resources are soundly managed and the interests of the creditors. Moreover, it is not in the interests of the company's shareholders or helpful to its reputation for it to be managed by persons whose fitness for the position or solvency can be questioned.'
(25) The Standing Committee on Justice commented on the need for rules on disqualification in Recommendation O. No. 50 (1975-1976), p. 20:
'In the committee's opinion, there is particular reason to withdraw the right to form new companies or take up new positions. It is particularly in this connection that we find the typical cases that disqualification is intended to deal with. The position with regard to offices that a person already holds is somewhat different. Disqualification from these can easily have unintended and negative effects both for the individuals targeted and for companies that lose a board member or managing director. The committee has therefore concluded that disqualification from already existing positions should be treated separately and made dependent on an individual evaluation, with a view to dealing with the cases where the need for disqualification is most obvious, that is, those where the circumstances suggest that offences have been committed in connection with the bankruptcy or the company's activities.'
(26) The provisions on disqualification were later transferred from the Limited Liability Companies Act to the 1984 Bankruptcy Act, and later amendments have resulted in the current wording. Proposal No. 50 (1980-1981) to the Odelsting, p. 50, describes the purpose of these provisions as follows:
'The purpose of these provisions is to ensure that certain persons who have been involved in an earlier bankruptcy (either personally or as part of the management of an insolvent limited liability company) are not involved in forming or managing other limited liability companies for a certain period (two years).
...
The enactment of the provisions relating to disqualification periods in the new Limited Liability Companies Act will make it easier to stop serial bankrupts who, after being involved in one or more bankruptcies, start up new companies and continue in business until these also fail, and who are suspected of irregularities in connection with their business activities.
The imposition of a disqualification order pursuant to the provisions of the Limited Liability Companies Act is additional to other possible measures based for example on criminal liability, liability for damages, or the voidability of transactions. There is particular reason to note that the provisions of Article 29 of the Penal Code relating to the stripping of rights are not made superfluous by the disqualification provisions. In practice, Article 29 is seldom used, but in cases where it is, it can be an advantage that the debtor is already subject to a disqualification order from the time of the bankruptcy and thus cannot take up the types of positions to which the provisions of the new Limited Liability Companies Act apply, since it will generally take some time before a case can be tried pursuant to Article 29 of the Penal Code.'
(27) Proposal no. 50 (1980-1981) to the Odelsting was not debated by the Storting (Parliament), and the bill was put forward again, see Proposal no. 39 (1982-1983) to the Odelsting. This time, the Government proposed that disqualification should not be automatic, see section 142 of the current Bankruptcy Act. The reason for this was partly to improve security under the law. The original wording of sections 13-19 of the Limited Liability Companies Act concerning exemptions from disqualification was characterised by the fact that the person in question was expected to prove his or her own innocence. It was also partly for practical reasons: as disqualification applied automatically, it was difficult to find qualified people who were willing to become board members or managing directors, particularly in cases where the goal was to save a company that was in difficulties.
(28) It was also proposed that the trustee's first report to the probate and bankruptcy court, which must be submitted no later than three months after his or her appointment, should include an evaluation of whether any circumstances in the case come under the rules on disqualification, see section 120, point 7, of the Bankruptcy Act. The Ministry of Justice submitted the following comments on this provision:
'The Ministry of Justice is of the opinion that this provision will help to make the rules on disqualification after a bankruptcy more effective. Such reports will provide probate and bankruptcy courts with material that will enable them to evaluate whether disqualification orders should be imposed at an early stage of the proceedings. A ruling can of course also be made before a report is received. It is important that a ruling on disqualification is made as promptly as possible if this provision is to stop serial bankrupts who are suspected of irregularities in connection with their business activities.'
(29) Under the Act of 30 March 1990 No. 8, a central Disqualified Directors Register was established as part of the Brønnøysund Register Centre, see section 144(2) of the current Bankruptcy Act. This was done as a means of ensuring compliance with disqualification orders. In the preparatory works, Proposal no. 7 (1989-1990) to the Odelsting, p. 7, the Ministry commented that although consideration for the right to privacy of the person disqualified was an argument against an 'open' register, this was less important than ensuring a real possibility for enforcing disqualification orders.
(30) Thus, on the basis of the preparatory works, it can be established that the purpose of the provisions relating to disqualification orders is to prevent a debtor in bankruptcy or the company managers from forming or managing new limited liability companies. The underlying consideration is that there are risks involved in the operation of a limited liability company, and that others must be protected against misuse of this form of business organisation by dishonest or irresponsible people. Two considerations are particularly emphasised, namely, sound management of resources and the interests of creditors and shareholders. The preparatory works emphasise that a decision to impose a disqualification order must be taken as soon as possible in order to prevent continued irregularities. Disqualification is not considered to be a penal measure; on the contrary, it is emphasised that disqualification and penal sanctions supplement each other.
(31) Such interactions between disqualification and criminal prosecution are also laid down in the provisions of the Act. By virtue of section 143(2), the prosecuting authority is entitled to act as a party in cases concerning disqualification in the probate and bankruptcy court, and may apply for the disqualification period to be extended until there is a legally enforceable judgment in a criminal case in which the prosecuting authority has proposed, or is contemplating proposing, that the bankrupt be stripped of his or her rights under Article 29 of the Penal Code. It is not possible to strip the bankrupt of his or her rights under the Penal Code at an earlier stage than this. On the other hand, in Norwegian Supreme Court Reports 2002, p. 789, the Appeals Board of the Supreme Court established that if the police withdraw a charge for the offences that formed the basis for imposing disqualification, it is not possible to maintain the disqualification order under section 142 (1), point 1, of the Bankruptcy Act.
(32) Article 4 § 1 of Protocol No. 7 to the Convention in relation to section 142(1), point 2, of the Bankruptcy Act
(33) I shall now return to the question of how the disqualification provisions are to be evaluated in relation to the Convention and the prohibition against double jeopardy in Article 4 § 1 and will first consider a disqualification order pursuant to the provision of section 142 (1) item 2 – on the grounds that unsound business conduct makes the person in question unfit to form or manage a company. With one minor reservation, which I shall discuss later, the parties in our cases agree that disqualification imposed under the first sub-section, point 2, is not a penalty and does not entail double jeopardy. Here, there is case-law from the European Court of Human Rights dealing with the British provisions on disqualification. These are very similar to the Norwegian provisions in section 142(1), point 2. The British provisions are set out in the Company Directors Disqualification Act 1986. They stipulate, among other things, that a person who has been a director of an insolvent company and whose conduct is found to make him or her unfit to manage a company is to be disqualified (the court issues a disqualification order) from setting up or managing a company for a period of two to fifteen years. The court can make exemptions from disqualification. The public authorities must institute legal proceedings within two years after the company is declared insolvent, and the decision is made by the ordinary courts.
(34) The European Court has examined the British rules on disqualification under the Convention in two cases. In Davies v. the United Kingdom (no. 42007/98, judgment of 16 July 2002) the parties agreed, and the Court was of the same opinion, that proceedings concerning a decision on disqualification determined 'civil rights' pursuant to Article 6 of the Convention. The case concerned whether the legal proceedings had taken an unreasonably long time, and the Court found that there had been a violation of the Convention. I note here that the Supreme Court (see Norwegian Supreme Court Reports (Norsk Retstidende) 2003, p. 409) has also found that decisions on disqualification in connection with a bankruptcy concern a 'civil right' pursuant to Article 6 of the Convention.
(35) In the case D.C., H.S. and A.D. v. the United Kingdom (dec.) no. 39031/97, decided on 14 September 1999, the applicants claimed that the decision to disqualify them determined a criminal charge. The Court replied:
'The criteria for ascertaining whether a 'criminal charge' has been determined are the domestic classification of the 'offence', the nature of the 'offence', and the nature and degree of severity of the potential and actual penalty (see, for example, the Schmautzer v. Austria judgment of 23 October 1995, Series A no. 328, p. 13, § 27 with further references). In the present case, the proceedings were classified as civil in domestic law, the disqualification of directors is a matter which is regulatory rather than criminal, and the 'penalty' is neither a fine nor a prison sentence, but rather a prohibition on acting as a company director without the leave of the court. Whilst a great deal was undoubtedly at stake for the applicants, it cannot be said that what is inherently a regulatory matter can thereby become a 'criminal charge' within the meaning of Article 6 §1 of the Convention. Thus, none of these criteria indicates that the applicant was charged with a 'criminal offence', and the Court considers that the proceedings in the present case did not determine a criminal charge within the meaning of Article 6 §1 of the Convention (see also No. 36791/97, Comm. Dec. 21.5.98).'
(36) On the basis of this decision, I presume that the same applies to a Norwegian decision to impose a disqualification order under section 142(1), point 2, that is, it is not to be construed as a criminal charge within the meaning of Article 6. This means that Article 4 § 1 of the Protocol will not bar subsequent criminal prosecution.
(37) I would like to mention that in case no. 2003/203, the defence counsel claimed that disqualification imposed under the first sub-section, point 2, must also be considered to determine a criminal charge if the grounds for considering a person unfit are suspicion that specific offences have been committed. I do not agree with this distinction. The basis for disqualification under section 142(1), point 2, is that the court has found the person in question to be unfit to form a new company or take part in the management of a new company. This is the case regardless of the further grounds cited by the court for judging the person unfit to take up such functions.
(38) Article 4 § 1 of Protocol No. 7 to the Convention in relation to section 142(1), point 1, of the Bankruptcy Act
(39) I shall now consider whether a disqualification order imposed under section 142(1), point 1 (reasonable ground for suspecting the person concerned of offences in connection with the bankruptcy), precludes subsequent criminal prosecution.
(40) For Article 4 § 1 to preclude subsequent criminal prosecution, the person charged must already have been 'finally acquitted or convicted'. The first question here is whether it is the decision to impose a disqualification order that must be 'final', which it clearly is, or whether the requirement for a final decision refers to the offences that are the grounds for issuing the order. The real question in the present case is whether the imposition of a disqualification order precludes subsequent criminal prosecution of these underlying offences. In my opinion, it follows directly from the wording of Article 4 § 1 that the final decision relates to the offences that are the grounds for disqualification; see the text of the Protocol, 'tried or punished again ... for an offence for which he has been finally acquitted or convicted'.
(41) There is no doubt that by issuing a disqualification order the adjudicating court expresses a view on whether the person in question may have committed the offences that constitute the grounds for imposing disqualification. But does it make sense to claim that when the court has decided whether or not to impose a disqualification order, the person has been finally acquitted or convicted of these offences? In my opinion, it does not.
(42) Firstly, I refer to the requirement of guilt for the criminal offences in question here. A finding that there is reasonable ground for suspicion is not a final conviction, either literally or according to Norwegian legal tradition. The concept of just cause for suspicion is associated particularly with the conditions in which coercive measures – arrest, custody, search, and so on – may be used pursuant to the Code of Criminal Procedure, and a decision to use such measures clearly does not constitute a final decision on guilt. These are of course temporary measures directly related to the criminal investigation. Coercive measures are used for the purpose of the investigation, and must be construed as ceasing to apply if the investigation is discontinued. However, as I have described above, the imposition of a disqualification order is also linked to the investigation of the case. The Appeal Committee of the Supreme Court has established that if the prosecuting authority withdraws a charge in respect of the offences that were the basis for issuing a disqualification order, the disqualification order must also be withdrawn (see Norwegian Supreme Court Reports 2002, p. 789). The same must apply in the event of an acquittal.
(43) Furthermore, the purpose of disqualification is an argument against the interpretation that a disqualification order constitutes a final decision regarding the underlying offences. In the preparatory works it is stated several times that the purpose of imposing a disqualification order is to prevent the person in question from continuing to misuse the company form through irregularities or other misconduct, and that disqualification orders must be issued swiftly. Use of the criterion 'reasonable ground for suspicion' is related to the need for a rapid response, which is expected before investigation of the case is completed. This is not in keeping with the interpretation that disqualification constitutes a final decision on guilt. The preparatory works point to the fact that the completion of the investigation of a criminal case will take longer, and is thus something that will be considered later.
(44) Finally, the procedural rules militate against regarding a decision to impose a disqualification order as a 'final conviction'. The 1984 amendments reversed the provisions on disqualification, so that instead of disqualification being automatic, it required a ruling by the probate and bankruptcy court, and at the same time a provision was introduced requiring the trustee to evaluate whether there were any circumstances in the case that came under the rules on disqualification, see section 120 item 7 of the Bankruptcy Act, in the first report to the probate and bankruptcy court, which must be submitted no later than three months after appointment. In the report, the trustee gives a survey of possible criminal offences, but is unlikely to be able to assess the strength of the suspicion in relation to each offence. In general, the district court too has only limited opportunities for making a closer assessment of guilt as regards each offence. Since disqualification requires only that there is a reasonable ground for suspecting the person in question of one offence, there is little reason for a debtor in bankruptcy to object to a single count, unless he or she claims not to have committed any offences at all. This means that there is little focus on specific offences. Thus, a ruling from the district court is not a suitable basis for determining which specific offences can be construed as having been finally adjudicated.
(45) In my opinion, these three elements – the form of guilt, the purpose of disqualification and the rules of procedure – considered together lead to the conclusion that the imposition of a disqualification order cannot be interpreted as a final conviction for the offences on which the decision is based.
(46) It is of course the case that the phrase 'finally .... convicted' is to be interpreted as an autonomous concept within the framework of the Convention. However, in my view, the raw material for the analysis must be the domestic legal system. On this basis, it seems to be reasonably clear that a debtor in bankruptcy has not been 'finally acquitted or convicted' of the offences that form the basis of a decision to impose a disqualification order, and that Article 4 § 1 therefore does not apply.
(47) However, I would like to point out that in the limited case-law from the European Court relating to Article 4 § 1, I have not found any material from the Convention's own legal system that can clarify the meaning of the term 'finally acquitted or convicted'.
(48) In the decision of inadmissibility in the case of Mulot v. France on 14 December 1999 (application no.37211/97), the question was whether the temporary withdrawal of a driving licence for six months for driving under the influence of alcohol and causing injury precluded subsequent criminal prosecution for the same offence. The withdrawal was a temporary measure involving no assessment of guilt. It could apply for a maximum of six months and would cease to have effect if the person was convicted. The Court established that Article 4 § 1 did not preclude subsequent criminal prosecution, but reasoned that the withdrawal of the driving licence was a traffic safety measure and thus was not a 'criminal charge'. The Court also referred to a Grand Chamber judgment two months earlier, on 28 October 1999, relating to Article 6 (Escoubet v. Belgium [GC], no. 26780/95, ECHR 1999‑VII), which concerned the immediate withdrawal of a driving licence for fourteen days, without any finding of guilt. In this case too, it was found that the withdrawal of the driving licence ought to be regarded as a preventive measure for the safety of road-users.
(49) On this basis, there is reason to consider whether, in the alternative, a disqualification pursuant to section 142(1) item 1 of the Bankruptcy Act can be construed as a criminal punishment under the Convention. A similar question has been of central importance in several of the Supreme Court's decisions relating to Article 4 § 1. I refer for example to Norwegian Supreme Court Reports 2002, p. 1216 and 2002, p. 1271, both of which include a thorough discussion of the term 'punishment' in this connection.
(50) There are strong indications that an evaluation of the legal institution of disqualification under the Convention must lead to the same conclusion for both the conditions laid down in section 142 (1) of the Bankruptcy Act, which in practice are often invoked together. In the preparatory works, the purpose of disqualification is described in the same terms for both conditions. The primary purpose is to satisfy a non-penal need for protection in cases where bankruptcy is related to criminal or unsound business conduct on the part of a manager or board member, indicating that he or she is unfit to engage in such business activities. The person in question should therefore, for a period of time, be excluded from holding managerial responsibilities in limited liability companies. The condition set out in item 1 – reasonable ground for suspicion of a criminal offence – can be regarded as a special case of the general criterion of fitness set out in item 2. Even if section 142(1) item 1, is viewed separately, an evaluation relative to the Convention must be based on the common purpose of these two provisions.
(51) In the above-cited D.C., H.S. and A.D. v. the United Kingdom, the key sentence in the reasoning is as follows,
'In the present case, the proceedings were classified as civil in domestic law, the disqualification of directors is a matter which is regulatory rather than criminal, and the 'penalty' is neither a fine nor a prison sentence, but rather a prohibition on acting as a company director without the leave of the court.'
(52) In my opinion, these three criteria are applicable in exactly the same way to a Norwegian disqualification order pursuant to section 142(1) item 1 of the Bankruptcy Act. Thus, there is no doubt that disqualification is classified as a civil matter in Norwegian domestic law. The next criterion is often described as the nature and purpose of the measure. Here, the European Court emphasises that disqualification is a matter that is regulatory rather than criminal. It is presumably of key importance here that the provisions relating to the disqualification of directors in Britain – and also in Norway – govern a very narrow field of business activities, namely, forming and managing limited liability companies. The nature of the measure cannot be said to be significantly influenced by the fact that it is grounded on suspicion of offences rather than an assessment of unfitness. In any event, the fact that the main reason for disqualification is to protect others, not to punish, is a factor that weighs more heavily here. I would also like to mention one particular feature of the Norwegian provisions, which is that an assessment of whether disqualification is reasonable in the circumstances is always required before a decision is made, see section 142(2). This also tends to strengthen the conclusion that disqualification is a means of regulating business activities rather than a punishment.
(53) Finally, as regards the severity of the measure, disqualification entails a prohibition against forming or managing new limited liability companies for a period of two years. It does not entail a general prohibition against engaging in business activities. As the High Court stated in its judgment in the present case,
'A person who is subject to a disqualification order is not prevented from running a general partnership, but is merely – for a relatively short period of time – prevented from using a form of business organisation in which personal liability is limited, and where there may therefore be less incentive to operate according to sound business principles.'
(54) As regards the severity of the measure, particular attention has been paid to the provisions of section 142(4). In cases where this provision applies, disqualification may also apply to current positions and offices held in other companies. It is quite clear that this form of disqualification has a greater effect, see the comments in Recommendation O. No. 50 (1975-1976), at the time when the provision was incorporated into the Limited Liability Companies Act. The question is whether its effects are so severe that a different conclusion must be drawn with respect to the term 'punishment' as used in the Convention. In my opinion, this is out of the question. As I understand the British rules, a disqualification order always applies to current positions held in other companies. Despite this – and the fact that the disqualification period is longer than in Norway – the European Court did not consider that the disqualification determined a 'criminal charge'.
(55) Further, it has been claimed that recording disqualifications in an open register is particularly defamatory and thus increases the severity of the measure. As I have shown earlier, the purpose of establishing a register was to enforce disqualification orders more effectively. The Ministry considered that the need for effective enforcement overrode the interests of protection of privacy. In my view, no particular importance can be attached to such registration when evaluating the severity of disqualification as a measure.
(56) In accordance with the above, I am of the opinion that given the nature of disqualification orders, their purpose, and the fact that this is not a particularly severe encroachment on a person's rights, a disqualification order cannot be construed as a punishment within the meaning of the Convention. Therefore, and also because disqualification does not entail a criminal charge, Article 4 § 1 of Protocol No. is not applicable.
(57) In the light of these conclusions, I will not discuss the third question in this case, namely, whether the offences that were the basis for the disqualification order pursuant to section 142 (1) item 1, are identical to the offences for which Mr Storbråten has been prosecuted and convicted.”
On the same date the Supreme Court pronounced judgment in a similar case, which also became the subject of an application (no. 11143/04) lodged under the Convention by Mr Per Harald Mjelde against Norway and which is being dealt with simultaneously with the present case.
B. Relevant domestic law and practice
In so far as relevant, section 142 of the Debt Reorganisation and Bankruptcy Act of 8 June 1984 No. 58 (the Bankruptcy Act) read:
Section 142 -Conditions for imposing a disqualification order
“If a debtor's estate is the subject of bankruptcy proceedings, the district court may impose a disqualification order on the debtor if
1) there are reasonable grounds for suspecting the person concerned of a criminal act [straffbar handling] in connection with the bankruptcy or the activities that led to insolvency, or
2) if it must be presumed that, for reasons of unsound business conduct, the person in question is unfit to establish a new company or to serve as a director or general manager (managing director) of such a company.
In taking a decision on this matter, importance shall be attached to whether, having regard to the debtor's conduct and the circumstances as a whole, it appears reasonable to impose a disqualification order.
The imposition of a disqualification order means that, for a period of two years from the opening of bankruptcy proceedings, the debtor may not establish such a company as mentioned in the fifth sub-section, or undertake the office or de facto exercise the powers of a member or deputy member of a board of directors or managing director of such a company. The district court may decide that the two-year period shall start from the date when the court takes its decision.
In the cases mentioned in the first sub-section, item 1, the district court may decide that disqualification shall also entail that the debtor shall be removed from any such offices as mentioned in the third sub-section held in such companies as mentioned in the fifth sub-section.
The term company in sub-sections 3 and 4 means a limited liability company, a public limited liability company, a branch office of a foreign company, a business foundation, a housing construction cooperative, a housing co-operative, a company aimed at promoting its members' consumer interests (consumer co-operative), a mutual insurance company or a State company.”
For a summary of the legislative history of the provisions on disqualification under Norwegian law, reference is made to paragraphs 21 to 31 of the Supreme Court's judgment quoted under Part A, sub-title 3, above.
In the parallel case of Mr Mjelde, in which the Court delivered a decision on the same date as the present decision, the Probate and Bankruptcy Court stated that in the assessment of reasonableness, emphasis should be placed on whether the conditions in both item 1 and item 2 were fulfilled.
The Government provided certain additional information, some of which is summarised below.
In the individual assessment of reasonableness to be carried out under section 142(2), account was to be had to such factors as the cause of the bankruptcy, the debtor's conduct during the bankruptcy proceedings and the time element. In the event of a significant and unwarranted delay from the opening of the bankruptcy proceedings until the submission of a request for a disqualification order, the court might conclude that it would be unreasonable to impose a disqualification order.
In the preparatory works to the Bankruptcy Act 1984, the Ministry of Justice had stressed that the rules would make it possible to put a stop to the activities of persons who were repeatedly involved in limited liability companies which became insolvent, and where there was reason to suspect improper business conduct. It had also been emphasised that disqualification orders should function as a supplement to stripping the offender of his or her rights (rettighetstap), which was a punitive measure imposed under Article 29 of the Penal Code. In this context, the Ministry had pointed to the advantages of the fact that a disqualification order could be imposed shortly after the opening of the bankruptcy proceedings, whilst it would normally take longer to investigate and prosecute possible criminal offences. The possibility of swift action was necessary to achieve the preventive purpose of the measure.
The duration of the disqualification period – usually two years – could be extended if the public prosecutor in a criminal case had requested or was contemplating requesting the trial court to strip the person in question of their rights under Article 29 of the Penal Code. The disqualification period could then be extended until the court had decided the criminal case.
The competent court could remit a disqualification order if any of the parties so requested and there was relevant new information. If a person subjected to a disqualification order was later acquitted in criminal proceedings for an offence which constituted the basis for the disqualification order, or further investigation showed that no such criminal offence had been committed, the public prosecutor was to request that the disqualification order be lifted (Norsk Retstidende 2002-789, Appeal Committee of the Supreme Court).
A disqualification order could be imposed by a court of first instance (tingretten) or by the probate and bankruptcy courts (skifteretten). Such a measure was usually taken on the basis of written proceedings. However, the parties had the right to request an oral hearing. In his or her report to the probate and bankruptcy court, the liquidator was to provide information on whether, in his or her opinion, there were circumstances suggesting that a disqualification order should be imposed. Both the bankrupt's estate (represented by the liquidator) and the prosecuting authority had a right to intervene as parties in the proceedings concerning the disqualification order. The opposing party would be the debtor, board member or other person against whom the order would apply. It was rare that the prosecution or the bankrupt's estate intervened as a party to the proceedings. The court's decision would, accordingly, normally be taken only on the basis of the information and recommendation in the liquidator's report, and the information and objections provided by the defendant.
Under section 143A of the Bankruptcy Act, a failure to comply with a disqualification order was a criminal offence punishable by up to four months' imprisonment and/or fines.
COMPLAINT
The applicant complained that the criminal proceedings against him and his conviction had concerned the same matter as the one in respect of which a disqualification order had been imposed on him under section 142 of the Bankruptcy Act and thus amounted to double jeopardy in breach of Article 4 § 1 of Protocol No. 7 to the Convention.
THE LAW
The applicant alleged a violation of Article 4 § 1 of Protocol No. 7, which reads:
“No one shall be liable to be tried or punished again in criminal proceedings under the jurisdiction of the same State for an offence for which he has already been finally acquitted or convicted in accordance with the law and penal procedure of that State.”
A. Submissions of the parties
1. The applicant
The applicant stressed that, as could be seen from the Probate and Bankruptcy Court's decision of 17 January 2000, the disqualification order in his case had been made not only on the ground of item 2 but also item 1 of section 142(1) of the Bankruptcy Act, on the basis of there being a reasonable suspicion of his having committed a criminal offence. This was a penal measure that should have barred further criminal prosecution. However, the applicant was subsequently convicted and sentenced with respect to the same facts and was thus subjected to double jeopardy in breach of Article 4 § 1 of Protocol No. 7.
2. The Government
As to the general interpretation of Article 4 § 1 of Protocol No. 7, the Government were of the view that the classic Engel criteria - the domestic classification of the offence, the nature of the offence and the nature and degree of severity of the penalty – for establishing the existence of a “criminal charge” for the purposes of Article 6 of the Convention or a “criminal offence” or “penalty” within the meaning of Article 7, were applicable also to the issue whether a person had been acquitted/convicted for a (criminal) “offence” within the meaning of Article 4 § 1 of Protocol No. 7. However, it did not necessarily lead to identical conclusions as to the applicability of each of the aforementioned provisions, the scope of which may differ.
To the Government's knowledge, there was no clear precedent in the Court's case law to the effect that any sanction that attracted the legal protection guarantees under the criminal head of Article 6 would also be encompassed by the double jeopardy clause of Article 4 § 1 of Protocol No. 7. The Court did not explicitly rule on the question in the Gradinger judgment of 28 September 1995, and the Explanatory report to Article 4 § 1 of Protocol No. 7 offered no decisive support for either conclusion. The purpose of Article 6, and the considerations warranting the Court's application of criminal legal protection guarantees in its case-law for certain offences classified as civil in domestic law, did not – in the opinion of the Government – apply similarly in all cases where the competence was divided in domestic law to impose two different kinds of sanctions for the same “offence”. The purpose of Article 4 § 1 of Protocol No. 7, and the underlying considerations regarding the application of the ne bis in idem principle, were different.
The Government submitted that disqualification orders did not fall within the criminal head of Article 6 either. They relied on the Court's decision in D.C., H.S. and A.D. v. the United Kingdom ((dec.) no. 39031/97, decided on 14 September 1999) that a disqualification order pursuant to UK legislation, which was very similar to item 2 of section 142(1) of the Norwegian Bankruptcy Act, did not constitute a criminal charge within the meaning of Article 6. Accordingly, regardless of any differences in scope as suggested above, no issue would in any event arise under Article 4 § 1 of Protocol No. 7 for orders imposed under item 2 of section 142.
The Government pointed out that Article 4 § 1 of Protocol No. 7 was only applicable where the first (blocking) decision had been taken pursuant to domestic penal procedure. In this connection they referred to the clear wording, purpose and Explanatory Report to Article 4 § 1 of Protocol No. 7 and the absence of any Strasbourg case-law to the contrary.
In the event that the Court did not rule out the application of Article 4 § 1 of Protocol No. 7 on the basis outlined above, the question arose whether a disqualification order under section 142 of the Bankruptcy Act must be considered a “criminal matter” under the three Engel criteria, for the purposes of Article 4 § 1 of Protocol No. 7. Those criteria were applicable in exactly the same way to a disqualification order pursuant to section 142(1) item 1. The regulatory character of the measure was emphasized by the fact that it only covered a very narrow field of business activities. The nature of the measure was not significantly influenced by it being based on suspicion of criminal offences rather than on the somewhat wider concept of unfitness in general. That the purpose of section 142(1) item 1 was regulatory was strengthened by the fact that, pursuant to the second sub-section of section 142, an assessment of whether disqualification was reasonable in the circumstances had to be made before a decision could be taken.
As regards the severity of the measure, the Government emphasised that the “penalty” was neither a fine nor a prison sentence, but rather a prohibition on holding certain business positions. Disqualification entailed a prohibition against forming or managing new limited liability companies for a period of two years. It did not entail a general prohibition against engaging in business activities, as opposed to the revocation of a driver's licence, for example, as was the case in Malige v France.
In the opinion of the Government, given the nature of the disqualification order, its purpose and the fact that it did not constitute a particularly severe encroachment on the applicant's rights, the measure did not constitute a “criminal matter” for the purposes of Article 4 § 1 of Protocol No. 7.
Moreover, as found by the Supreme Court, the imposed disqualification order did not constitute a “final” conviction in the sense of Article 4 § 1 of Protocol No. 7.
Lastly, the Government stressed, the criminal proceedings had not concerned the same offence as the disqualification order.
B. The Court's assessment
The Court reiterates that the aim of Article 4 § 1 of Protocol No. 7 is to prohibit the repetition of criminal proceedings that have been concluded by a final decision.
In the case under consideration two measures were imposed on the applicant in two separate and consecutive sets of judicial proceedings.
First, a two-year disqualification order was imposed on him under section 142(1), points 1 and 2, of the Bankruptcy Act on account of certain conduct in relation to his bankruptcy, notably with reference to tax and VAT offences and book-keeping offences in contravention of Articles 286(2) and 288 of the Penal Code. Thereafter, he was prosecuted on three counts, all connected to the bankruptcy, namely failure to comply with the book-keeping requirement in breach of Article 286 of the Penal Code and of the relevant provisions of the Accounting Act 1977; failure to declare business turnover in violation of section 72(2) of the Value Added Tax (VAT) Act 1969; and failure to submit tax declarations in breach of section 12-1(1)D of the Tax Assessment Act 1980.
It is undisputed that at least some of the acts had constituted the basis not only for the disqualification order but also for the criminal prosecution. In the end, the applicant was convicted in part on the book-keeping charges and was sentenced to fifteen days' imprisonment. The question is whether, as a result of the latter proceedings, the applicant could be said to have been “tried and punished again in criminal proceedings ... for an offence of which he had already been finally .... convicted in accordance with the law and penal procedure of that State”.
From the outset the Court observes that the disqualification order was imposed at the end of a procedure conducted under the Bankruptcy Act which had predominantly civil-law features and which was not regarded as a “penal procedure of [the respondent] State”. The Court is, however, unable to share the Government's view that the applicability of Article 4 § 1 of Protocol No. 7 was excluded for this reason alone. As can be seen from paragraph 29, referring to paragraph 22, of the Explanatory Report to Protocol No. 7, the intended meaning of the provision “finally .... convicted in accordance with the law and penal procedure of that State” (see also the French version of Article 4 § 1: “condamné par un jugement définitif conformément à la loi et à la procédure pénale de cet Etat”) was to clarify when a “decision is final”. That is when, according to the traditional expression, it has acquired the force of res judicata (see Nikitin v. Russia, no. 50178/99, § 37, ECHR 2004‑VIII), a question to be assessed with reference to national law.
Moreover, the legal characterisation of the procedure under national law cannot be the sole criterion of relevance for the applicability of the principle of ne bis in idem under Article 4 § 1 of Protocol No. 7. Otherwise, the application of this provision would be left to the discretion of the Contracting States to a degree that might lead to results incompatible with the object and purpose of the Convention (see, mutatis mutandis, Őztürk v. Germany, 21 February 1984, § 49, Series A no. 73). It could, for example, make the protection afforded by the ne bis in idem principle dependent on the order in which the respective proceedings are conducted, whereas it is the relationship between the two offences which is material (see Franz Fischer v. Austria, no. 37950/97, § 29, 29 May 2001).
Where, as is the case here, the Court is satisfied that the first decision is “final”, it must examine whether it concerned a “criminal” matter within the autonomous meaning of Article 4 § 1 of Protocol No. 7. This notion must be interpreted in the light of the general principles concerning the corresponding words “criminal charge” and “penalty” respectively in Articles 6 and 7 of the Convention (see Rosenquist v. Sweden (dec.), no. 60619/00, 14 September 2004; Manasson v. Sweden (dec.), no. 41265/98, 8 April 2003; Göktan v. France, no. 33402/96, § 48, ECHR 2002-V; Malige v. France, 23 September 1998, § 35, Reports of Judgments and Decisions 1998-VII; and Nilsson v. Sweden (dec.), no. 73661/01, ECHR 2005‑). Hence, the Court will have regard to such factors as the legal classification of the offence under national law; the nature of the offence; the national legal characterisation of the measure; its purpose, nature and degree of severity; whether the measure was imposed following conviction for a criminal offence and the procedures involved in the making and implementation of the measure (see Malige and Nilsson, both cited above). This is a wider range of criteria than the so-called “Engel criteria” formulated with reference to Article 6 of the Convention.
In this regard the Court first reiterates its findings above as to the civil character of the procedure. It further notes that it is not disputed before it that the offence that could lead to a disqualification order and the measure itself were classified as civil under national law. The Court finds no reason to hold otherwise.
As to the nature of the offence, the Court observes that the disqualification order in this case was imposed with reference both to item 1 and item 2 of section 142(1) of the Bankruptcy Act as well as the condition of reasonableness in section 142(2).
Under item 2, it was a condition that, due to unsound business conduct, the person concerned must be presumed unfit for setting up or managing a company. In the view of the Court, this was not a matter of criminal but of civil/administrative regulatory nature, as was undisputed before it (see, mutatis mutandis, Davies v. the United Kingdom, no. 42007/98, § 25, 16 July 2002, and D.C., H.S. and A.D., cited above).
An issue arises only in relation to item 1. However, pursuant to this provision, it was sufficient that there existed a reasonable ground for suspecting the person concerned of having committed a criminal act in connection with the bankruptcy or the activities leading to the insolvency; the establishment of guilt for the commission of a criminal offence was not a condition. Moreover, as observed in paragraph 44 of the Supreme Court's judgment, the application of item 1 depended on a broad assessment based on the trustee's report rather than on a specific assessment of the strength of the evidence in relation to each possible offence mentioned in the report. Furthermore, although the two items constituted alternative grounds for a section 142 measure, it is clear that, like in the present case, the existence of such grounds as described in item 1 was relevant for the issue of unfitness under item 2. In practice, the two grounds were often applied together. As observed by the Supreme Court in paragraph 50 of its judgment, the condition set out in item 1 could be regarded as a special case of the general criterion of fitness in item 2. In addition, under section 142(2), a condition for imposing a disqualification order was that it was reasonable having regard to the debtor's conduct and the circumstances as a whole, including whether item 1 was applied in conjunction with item 2 in the case at hand. In view of these considerations, the Court does not find that the condition of reasonable ground for suspicion of a criminal act in item 1 deprived the measure of its essentially regulatory character and conferred on it a penal nature.
It should further be noted that the primary purpose of a disqualification order, whether imposed under item 1 or item 2, was, as emphasised by the Supreme Court (see paragraph 43 of its judgment cited above), to protect shareholders and creditors and society as a whole against exposure to undue risks of losses and mismanagement of resources that were likely to arise if an irresponsible and dishonest person were to be allowed to continue to operate under the umbrella of a limited liability company. It was essentially a preventive measure that was meant to be taken as soon as possible in order to avert such excessive risks as mentioned above and for a defined period, usually two years. It was intended to offer an easy and rapid means of stopping damaging business misconduct, pending, as the case may be, criminal proceedings.
In this way, as illustrated by the sequence of events in the applicant's case, a disqualification order intervening at an early stage would play a supplementary role to criminal prosecution and conviction at a later stage with the possibility then of stripping the offender of his or her rights under Article 29 of the Penal Code, as opposed to continuing the disqualification order. Whilst a disqualification order would be lifted in the event of an acquittal or discontinuation of the criminal proceedings, the institution of such proceedings was not a direct and inevitable consequence of disqualification. Nor would the latter be considered to be part of the sanctions under Norwegian law for the offences in respect of which the applicant was tried in the criminal case (compare Nilsson v. Sweden (dec.), no. 73661/01, cited above).
As to the nature and degree of severity of the measure, it should be noted that a disqualification order entailed a prohibition against establishing or managing a new limited liability company for a period of two years, not a general prohibition against engaging in business activities. In the view of the Court, the character of the sanction was not such as to bring the matter within the “criminal” sphere. Although a disqualification order, which was to be entered on a special public register for such measures, was capable of having a considerable impact on a person's reputation and ability to practise his or her profession (see Eastaway v. the United Kingdom, no. 74976/01, § 52, 20 July 2004), the Court does not find that what was at stake for the applicant was sufficiently important to warrant classifying it as “criminal”. This is not altered by the fact that more severe measures could be imposed under section 142(4) extending to existing positions and honorary posts in other companies.
Against this background, the Court arrives at the same conclusion as the Norwegian Supreme Court, namely, that the imposition of a disqualification order did not constitute a “criminal” matter for the purposes of Article 4 of Protocol No. 7 to the Convention.
It may in addition be noted that the two measures not only pursued different purposes - prevention and deterrence in the case of the first and also retribution in the case of the second – but also differed in their essential elements (see Rosenquist v. Sweden (dec.), no. 60619/00, 14 September 2004). For instance, while subjective guilt was not a prerequisite for the application of section 142(1) item 1 of the Bankruptcy Act in the first set of proceedings, it was a condition for establishing criminal liability in the second set; whereas reasonableness of the sanction was a condition in the former context, it was not in the latter.
In the light of the above, the Court finds that the criminal proceedings brought against the applicant, which subsequently led to his conviction and sentence for book-keeping offences by the High Court on 11 September 2002, did not entail his being “tried or punished again ... for an offence for which he ha[d] already been finally ... convicted”, in breach of Article 4 § 1 of Protocol No. 7.
It follows that the application must be rejected as manifestly ill-founded under Article 35 §§ 3 and 4 of the Convention.
For these reasons, the Court unanimously
Declares the application inadmissible.
Søren NielsenChristos Rozakis Registrar President
Full & Egal Universal Law Academy