Communicated on 3 June 2016
FOURTH SECTION
Application no. 62162/13
Günter STRIEDINGER against Austria
and 3 other applications
(see list appended)
The applicants are Austrian nationals.
The first applicant was born in 1960 and lives in Brunn am Gebirge. He is represented before the Court by Mr N. Wess, a lawyer practising in Vienna.
The second applicant was born in 1960 and lives in Klagenfurt. He is represented by Roregger, Scheibner, Rechtsanwälte GmbH, a lawyer’s company situated in Vienna.
The third applicant was born in 1966 and lives in Klagenfurt. He is represented by Mr. S. Lesigang, a lawyer practising in Vienna.
The fourth applicant who was born in 1953 and lives in Hirtenberg. He is represented by Lanker Obergantschnig Rechtsanwälte GmbH, a lawyer’s company situated in Klagenfurt.
The facts of the case, as submitted by the applicants, may be summarised as follows.
A. The background of the case
The first applicant, the fourth applicant, and M. were members of the management board (Vorstand) of the Landes- und Hypothekenbank (“H. Bank”), a stock cooperation. The majority of its stocks was owned by Kärntner Landes- and Hypothekenbank-Holding (“Landesholding”), a corporate body governed by public law and which managed the financial assets of the Federal Region of Carinthia (Land Kärnten). Because of the plan to recapitalise the bank on the stock exchange, several steps of reorganisation were taken in 2003 and a complex system of subsidiaries and second-tier subsidiaries on national and international level was established. The H. Bank was redefined as head of the holding (Hypo Bank International AG hereinafter referred o as “HB International”). The bank business was transferred into corporations in different countries inter alia in Austria (“HBÖ”) and Liechtenstein (HBL). The leasing business was transferred to a private company (“HVV”) which became the parent company to a stock corporation (“HLH”). The first applicant and the fourth applicant held multiple positions in the HB International and its subsidiaries.
Because of the economic expansion of the holding, it was in need to find new equity capital (Eigenmittel) as required by law and to finance the economic expansion course. A working group, consisting of the first applicant, the second applicant and the third applicant, tax counsellor and lawyer of H. Bank for many years, designed a plan to generate equity capital for the accounts of HB International within the holding, but without introducing fresh capital from outside. HLH should emit preference non‑voting shares which should be bought by other companies inside the holding of HB International. In this way, the new equity capital should not affect the recapitalisation plans on the stock exchange and a danger of a hostile takeover should be minimised. They asked an extern counsellor‑at‑law to verify the lawfulness of the plan. This counsellor‑at‑law doubted that under the system envisaged the capital, gained by share deals within the holding, could be rated as equity capital within the accounts of HB International and adviced to consult the Austrian Capital Market Monitoring Authority (Finanzmarktaufsicht) before establishing this system.
This advice was not followed. Notwithstanding, at the end of January 2004 the applicants started the process to increase equity capital of HLH by emission of 100,000 preference non-voting registered shares (stimmrechtslose Vorzugsaktien) with a nominal value of EUR 1,000 each and a maximum dividend of 6.25%. On 3 February 2004 the board of HLH, consisting of the first applicant, the fourth applicant and M., consented to the increase in equity capital. On 27 May 2004 an extraordinary stockholders’ meeting of HLH took place in which the first applicant and the fourth applicant, representing HVV (mother company of HLH), gave the authorisation to the increase in equity capital. Based on this authorisation, HLH emitted 100,000 preference non-voting registered shares with a nominal value of EUR 1,000 each and a maximum dividend of 6.25% on 1 July 2004. On the same day, these non-voting shares were bought by HB International.
Subsequently, the non-voting shares were sold to corporations and private foundations (Privatstiftungen) with a close relationship to the second applicant and the third applicant. The sale contracts included a call option for HB International for the period of 2009 until 2015. At the same time, the subsidiary bank of HB International in Liechtenstein (HBL) granted the buyers a loan to finance the purchase of the shares. Amongst others, BCH corporation (“BCH”), which was founded only in June 2004 by the second applicant and owned by R foundation, bought 55,000 shares of HLH from HB International for EUR 55,55 Mio and 1% agio on 9 July 2004. The purchasing price was financed by a loan from G. foundation under Liechtenstein law which itself took out loans by further eleven foundations under Liechtenstein law. These eleven foundations, all only founded in June 2004, had taken up loans from HBL to finance the deal. The shares were the pledge for the loans. The second applicant and the third applicant were in the management board of BCH. The twelve foundations were officially administered by the brother in law of the third applicant but in fact under the control of one Liechtenstein lawyer. Neither BCH, nor the twelve foundations run any other business than this share deal.
In its annual balance sheet for 2004, HB International presented an increase in equity capital because of the share deal. HBL presented a growing business value of the corporation due to the rise of its credit sector because of the loans granted to the eleven foundations.
When the auditors of the annual accounts for HB International and HBL examined the share deals and the credit deals, respectively, for the annual accounts 2014, the applicants gave written declarations that they would not be aware of any subsidiary agreements or arrangements in relation to the share deal with BCH corporation and that neither HBL nor HB International had financed directly or indirectly the increase in capital stock of HLH.
On 29 April 2005 and on 27 April 2006 HLH disbursed the dividend of EUR 2.578.000 to BCH. The money form the dividend was, after tax‑payment and reduced by fees and renumerations, transferred to G foundation, paid out in cash and transferred to the eleven foundations. The money was then transferred to HBL to reimburse the credits.
In 2006, audits of HLB by the Capital Market Monitoring Authority of Liechtenstein as well as of HB International by the Independent Central Bank of Austria (Oesterreichische Nationalbank), took place. The Liechtenstein authorities qualified the loans, granted to the eleven foundations, to be treated as cluster risks (Klumpenrisiko) because no adequate security deposit was at hand. Therefore, HBL was ordered to liquidate the loan contracts. Moreover, HB International (as the mother company) was ordered to provide guarantees until the loans were paid back. The Independent Central Bank of Austria examined the increase of capital stock of the HB International and criticised the preference non-voting registered share deal of June 2004. It found that because of this share deal HB International could not present an increase in capital stock.
At this time, the first applicant was no longer in the management board. Because of the results of the examination by the Oesterreichische Nationalbank, the other applicants decided to unravel the system established in June 2004. Because of allegations of falsification of balance sheets (Bilanzfälschung), the fourth applicant was dismissed as member of the management board of HB International in October 2006 but became a member of the supervisory board. From December 2006 to April 2007, the share deal between HB International and BCH as well as the credit deals between the foundations and HBL were re-transacted. HB International sold the preference non-voting registered shares to other investors.
On 22 May 2007 the Landesholding sold parts of its shares of HB International to the German B. Bank which became the majority shareholder. Because of an enormous lack of capital, the Austrian Government agreed to take over the shares of HB International in December 2008 (Notverstaatlichung). Thereupon, a commissioner of the Government took over control.
B. Criminal proceedings against the applicants
Because of the findings of the commissioner in an extensive evaluation process, the Klagenfurt Public Prosecutor’s Office instituted criminal investigation proceedings (No 10 St 273/09g) against the first applicant, the second applicant, the fourth applicant and others on suspicion of alleged breach of trust and other offences and enquired into H. Bank’s and HB International’s business in the previous years.
Because of the extensiveness of the investigation proceedings, the public prosecutor’s office invited several experts for interviews to find experts for the investigation proceedings qualified for the particularity of the case. On 22 February 2010 the public prosecutor appointed three experts, including H., as official expert to the investigation proceedings. During investigation proceedings the public prosecutors submitted questions to these experts, depending on their field of expertise and capacities.
On 17 August 2010 questions were submitted to H. in order to examine and provide expertise in regard to the emission of non-voting shares of HLH in 2004 and 2006. In particular, H. should examine the evidence and provide expertise
1. whether there was any particular feature of to the arrangement of the emission of the non-voting shares considering any special conditions for the investors;
2. whether, and to which extent and in which form, a refinancing of the investors took place within HB International;
3. if question 2 was answered in the affirmative, whether the emission of the shares and the refinancing of the investors could be seen as one uniform act (einheitlicher Vorgang);
4. whether it was possible that the modalities of to the arrangement of the emission of the non-voting shares and considering any special condition for the investors could have caused damage to HB International;
5. whether, considering the arrangement of the emission of the shares and possible special conditions for the investors, the non-voting shares still had to be treated as equity capital (Eigenkapital) from an operational (betriebswirtschaftlich) and financial (bilanzielle) point of view.
6. who knew or should have known about the arrangement of the emission of the non-voting shares and the possible special conditions for the investors and the possible refinancing of the investors;
7. whether, considering the economic situation of HB International, a reduction of the share capital could economically be justified.
On 6 May 2010 criminal proceedings were opened against the third applicant as well. He submitted a private expert’s report of 20 October 2010 to prove the lawfulness of the system.
On 27 December 2012 H. submitted his expert report. He arrived at the conclusion that there were particularities in the arrangement of the emission taking into account the settings with the investors as the legal vehicle used (non-voting shares) did not match the economic expectation and an integrated business actor would not use such arrangements. That arrangement was not comprehensible from an economic point of view. This system could only be established through the intended cooperation (bewusste und gewollte Zusammenarbeit) of those involved who sought to conceal the real purpose of the scheme. There was evidence showing a refinancing of the investors within HB International which however had been concealed from the certified public accountant by the first applicant and the fourth applicant who had submitted wrong statements in this regard. The transactions had to be seen as one uniform act. Within HLH, the capital of the non-voting shares could be treated as shareholders capital but not within HB International. The applicants must have known about the full frame of transactions. The system also caused damage of at least EUR 5.5 Mio for HB International. The redemption of stocks (Rückkauf) in 2006 and 2007 was reasonable from an economic perspective.
Upon the order of the public prosecutor, H. clarified certain passages in his expert report on 13 January 2011.
The expert report and the statement of 13 January 2011 were served on the applicants.
On 21 February 2011 the second applicant filed a statement claiming that H. had made an error in calculation.
H. responded to this statement on 22 February 2011, explaining his calculation and negating a calculation error.
On 22 February 2011 the third applicant filed an objection because of violation of the law (Einspruch wegen Rechtsverletzung), complaining that he had not been informed about the appointment of H. in advance and that H. had answered questions of law (when answering the question No 6). He requested the dismissal of H. as official expert because of lack of expertise and questioning the findings of H. on certain points of the expert’s report. In case the appointment of H. be maintained, another expert should be appointed. Further it was requested that H. should amend his expert report and include share emissions in 2006 as well. He submitted two private expert reports.
On 11 March 2011 H. commented on the third applicant’s statement and on the submitted private experts’ reports stating that he would not share the private experts’ opinion in regard the reading of Section 24 of the Banks Act.
On 17 March 2011 the public prosecutor commented on the objections of third applicant. He admitted that H.G. had not been informed about the appointment of H. as expert to the investigation proceedings because at the time of the appointment, criminal proceedings had not been commenced against him. When investigation proceedings were commenced, H. was already working on his expert report. Therefore, the third applicant’s rights under the Code of Criminal Proceedings had been violated in this regard. Nevertheless, as the expert report had been sent to him and he had filed objections to H’s appointment, the violation had no relevance. In any case, the fact that the third applicant had not been informed about the appointment of H. in time did not mean that the expert report of H. must not be introduced in proceedings. Referring to the reasons claimed to prove the bias of H., the public prosecutor noticed that the third applicant did not mention reasons relating to the person of H. which would speak against an appointment but solely in relation to the expert report.
The third applicant filed another statement to counter the statement of the public prosecutor claiming that H.’s expert report was not based on sufficient expertise. He also submitted a private expert’s report to substantiate his argument.
As new information on bank accounts on foundations in Liechtenstein were received by the public prosecutor, H. was asked to consider these data as well and to amend his expert report if required.
On 17 June 2011 the Klagenfurt Regional Court dismissed the third applicant’s objection. It reformulated question No 6 to the expert but did not find a reason to dismiss H. from his office as appointed expert.
On 5 July 2011 the third applicant filed objections against the Klagenfurt Regional Court’s decision of 17 June 2011.
On 29 July 2011 H. submitted an amendment to his expert report including detailed findings on the information provided by the public prosecutor concerning the foundations in Liechtenstein.
On 8 August 2011 the public prosecutor split off parts of the accusations raised in case No 10 St 273/09g and filed a bill of indictment charging the first applicant and the fourth applicant with breach of trust under Article 153 of the Criminal Code and the second applicant and the third applicant with aiding and abetting to breach of trust for setting up the system with the emission of non-voting shares of the HLH, the sale of these shares and the financing of this operation within the holding in 2004. According to the bill of indictment, this system established by the accused had caused damage to the HB International of at least EUR 5.5 Mio.
On 23 August 2011 the Graz Court of Appeal dismissed the third applicant’s remedy against the Klagenfurt Regional Court’s decision of 17 June 2011. As the bill of indictment concerning breach of trust and other offences had already been filed against the third applicant, the Court of Appeal did not deal with the complaints and allegations concerning the wrongfulness of H.’s findings. In respect of the third applicant’s complaint about a violation of his rights as accused person as he had not been informed about the appointment of H. in time, the Court of Appeal stated that at the time of H.’s appointment criminal proceedings against the third applicant had not been instituted. Nonetheless, he did have the possibility to challenge H. for bias any time. Therefore, his rights as accused person were not violated. Concerning the alleged violation because of the wording of question No 6, the Court of Appeal found that an accused person had no right to challenge the questions submitted by the public prosecutor.
On 13 December 2011 the Klagenfurt Regional Court appointed H. as official expert to the trial proceedings.
On 27 March 2012 the trial against the applicants started. In the hearing of this day, the first applicant requested the court not to admit as evidence the expert report of H., not to hear H. as an expert in trial and to dismiss him as court appointed expert, because
“1.) the expert (H.) had been appointed by the public prosecutor in preliminary proceedings and has to be seen as witness of the prosecution. In this context reference is made referred to Article 6 of the Convention;
2.) H. was not an expert certified according to the court’s expert register for questions of bank law (Bankwesengesetz);
3.) in particular, he is biased, because he has overstepped his competences when answering questions of law and evaluating evidence.”
The other applicants joined this request.
The public prosecutor asked the court to dismiss this request as the appointment of H. in preliminary proceedings was in accordance with the Code of Criminal Proceedings and would not constitute a reason for bias. As far as the applicants would complain that H. was not competent, the public prosecutor referred to the Graz Court of Appeal’s decision of 23 August 2011. The alleged overstepping of competences in investigation proceedings had no consequences for the trial.
The court dismissed the accused requests and referred to the reasons given by the Graz Court of Appeal in its decision of 23 August 2011.
The first applicant thereupon requested the court to admit as evidence the reports of three private experts as well as their appointment as official court experts to trial in order to examine the facts and in particular the question if the system established by the accused had a positive effect on the equity capital of HB International.
The other applicants joined this request as well.
These requests were dismissed by the trial court with reference to the Supreme Court’s case-law.
On 15 and 16 May 2012 H. was questioned in trial. The accused also questioned him. Afterwards, the accused challenged H. for bias claiming that he had had answered questions of law and evaluated evidence. Further, they asked the court to dismiss him because he had not the knowledge required for being an expert in these proceedings.
The challenge for bias as well as the request was dismissed.
On 24 May 2012 the Klagenfurt Regional Court convicted the applicants according to the charges of the public prosecutor and sentenced the first applicant and the second applicant to four years’, the third applicant to four and a half years’ and the fourth applicant to three and a half years’ imprisonment. It found that the applicants had cooperated to increase unlawfully numbers of equity capital of HB International in the accounts even though they had known that this was contrary to the law and caused costs in an amount of approximately EUR 5,49 Mio with no adequate equivalent. The share deals as well as the loan deals were evasive transactions (Umgehungsgeschäfte) for the purpose of hiding the fact that no fresh capital was introduced but merely the nominal capital stock increased.
All applicants filed pleas of nullity with the Supreme Court.
The first applicant stated in his plea of nullity inter alia that the dismissal of the request not to appoint H. as official expert to the trial, or to dismiss him respectively, infringed his defence rights. H. had been in business relations with another expert appointed by the public prosecutor in this trial. Further, in investigation proceedings, H. had evaluated evidence, taken legal conclusions and thereby overstepped his competence. For this reason, H. was biased. In any event, the public prosecutor had based the bill of indictment in major parts on the findings of H. in investigation proceedings. H. was therefore a witness of the prosecution and not an independent expert of the court. He had been present during trial and questioned witnesses on behalf of the court. He had also made statements concerning evidence. Because of his special status as court appointed expert, the applicants had no chance to submit evidence on the same level to trial. Their private expert reports had not been taken into account and these experts had not been questioned in trial. The right to question H. in trail was not sufficient to solve the imbalance. Therefore, the right to equality of arms as guaranteed in Article 6 § 3 (d) of the Convention was violated.
The second applicant stated in his plea for nullity inter alia that his defence rights had been violated because the trial court had dismissed the request not to appoint H. as official expert to the trial, or to dismiss him respectively. It could not be excluded that H. was partial because H. had been appointed by the public prosecutor in investigation proceedings and the bill of indictment was based upon his report. In the present case, H. had been biased because he had overstepped his competences as expert when establishing facts in his report, in particular when he stated that the fourth applicant must have known about the established share-system. Actually, the appointment of H. in connection with Article 126 § 4 of the Code of Criminal Proceedings was problematic as this provision would inhibit the challenge of a biased expert. The accused person himself was not allowed to submit as evidence private expert reports in trial or to have these private experts questioned by the court. Therefore, to the right of equality of arms under Article 6 § 3 (d) of the Convention had been violated.
The third applicant stated in his plea of nullity inter alia that H. was biased as he had overstepped his competences in the investigation proceedings when establishing facts concerning the intent (subjektive Tatseite) of the accused persons. Article 126 § 4 of the Code of Criminal Proceedings was contrary to Article 6 § 1 of the Convention. The right to equality of arms as required by Article 6 § 3 (d) of the Convention was violated as H.G. was not allowed to introduce private expert reports in trial.
The fourth applicant stated in his plea of nullity inter alia that H was, because of his appointment by the public prosecutor in the investigation proceedings, not an independent expert for the trial but a witness of the prosecution. He had provided the factual basis for the indictment. H. was biased against the accused and this had become apparent several times during trial. H. had overstepped his competences by evaluating evidence and giving legal analyses. The Regional Court had refused to examine the bias of H. and had based its decision on Article 126 § 4 of the Code of Criminal Proceedings. This provision would violate the applicant’s rights under Article 6 § 1 and § 3 (d) of the Convention. The principle of equality of arms was violated as H.’s double role in the proceedings resulted in an imbalance in the trial between the rights of the prosecution and of the defence, as the applicants could not submit as evidence the reports prepared by their private experts or have them questioned by the trial court because their request to question three private experts was dismissed.
On 2 July 2013 the Supreme Court dismissed the pleas of nullity. Concerning the applicant’s complaints about the alleged bias of H., the Supreme Court found that the applicants in the trial proceedings had not based their challenge of bias on the fact that H. had to be seen as witness of the prosecution because he had been appointed by the public prosecutor in preliminary proceedings. In fact, they had merely claimed bias of H. explicitly because he had overstepped his competences in these preliminary proceedings by assessing evidence and answering questions of law. The question of a possible violation of the accused rights under the Convention because of Article 126 § 4 of the Code of Criminal Proceedings had not been raised in the course of the trial. Therefore they could not rely on this argument in their pleas of nullity. Further, reasons for considering H. biased had not been shown by the accused as they had failed to submit concrete statements in this regard. Therefore, the accused’s requests to admit as evidence the submitted private expert reports, as well as to appoint these private experts as official experts to the trial were rightfully dismissed. Also, the accused would have had the possibility to be assisted by experts during trial when questioning witnesses or the expert. None of them had used this opportunity. This decision was served on the applicants on 22 and 23 August 2013.
On 20 December 2013 the first applicant filed an application under Article 363a of the Code of Criminal Proceedings to the Supreme Court, requesting the renewal of the criminal proceedings.
On 11 February 2014 the Supreme Court dismissed the application and found that in proceedings like the present ones, when already a plea of nullity was dismissed by the Supreme Court, an application under Article 363a of the Code of Criminal Proceedings was not possible.
COMPLAINT
The applicants complain under Article 6 § 1 and 3 (d) and Article 13 of the Convention that the criminal proceedings against them had been unfair. H. who was appointed as official expert for the trial had also acted as an expert appointed by the public prosecutor at the stage of the preliminary investigation. Therefore, he could not be seen as impartial but as a witness of the prosecution against the accused. As there was no possibility for the defence to have summoned a private expert or to submit to the case file a written report by a private expert, the principle of equality of arms had been violated.
COMMON QUESTIONS
1. Have the applicants exhausted all effective domestic remedies, as required by Article 35 § 1 of the Convention?
In particular, did the applicants invoke before the national authorities, at least in substance, the rights under Article 6 § 1 and Article 6 § 3 (d) concerning the appointment of H. as court appointed expert in trial on which they now wish to rely before the Court?
2. Was the equality of arms, as one of the elements of the broader concept of fair trial guaranteed under Article 6 § 1 taken together with Article 6 § 3 (d) respected in the present case, in particular when the official expert, who was appointed by the public prosecutor, was appointed official expert in trial and the applicants were not allowed to introduce their private experts as witnesses or written reports of these experts in favour of the applicants in the proceedings?
APPENDIX
No.
Application
no.
Lodged on
Applicant name
date of birth
place of residence
Represented by
62162/13
02/10/2013
Günter STRIEDINGER
23/02/1960
Brunn Am Gebirge
Dr. Norbert WESS
62736/13
04/10/2013
Gerhard KUCHER
10/01/1960
Klagenfurt
Michael ROHREGGER
62889/13
04/10/2013
Hermann GABRIEL
02/08/1966
Klagenfurt
Sebastian LESIGANG
18571/14
21/02/2014
Wolfgang KULTERER
17/12/1953
Hirtenberg
LANKER OBERGANTSCHNIG RECHTSANWÄLTE GMBH
Full & Egal Universal Law Academy