SECOND SECTION
 
 
 
 
 
 
CASE OF DE LUCA v. ITALY
 
(Application no. 43870/04)
 
 
 
 
 
 
 
JUDGMENT
[Extracts]
 
 
STRASBOURG
 
24 September 2013
 
 
 
This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision. In the case of de Luca v. Italy,
The European Court of Human Rights (Second Section), sitting as a Chamber composed of:
 Danutė Jočienė, President,
 Guido Raimondi,
 Peer Lorenzen,
 Dragoljub Popović,
 Işıl Karakaş,
 Nebojša Vučinić,
 Paulo Pinto de Albuquerque, judges,
and Stanley Naismith, Section Registrar,
Having deliberated in private on 3 September 2013,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1. The case originated in an application (no. 43870/04) against the Italian Republic lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by an Italian national, Mr Giovanni De Luca (“the applicant”), on 10 December 2004. 2. The applicant was represented by Mr G. Romano and Mr A. Ferrara, lawyers practising in Benevento. The Italian Government (“the Government”) were represented by their Agent, Ms E. Spatafora, and their Co-Agent, Mr N. Lettieri. 3. The applicant alleged that the state of insolvency declared by his debtor, the municipality of Benevento, prevented him from collecting a sum that was owed to him. 4. On 29 August 2006 the application was communicated to the Government. It was further decided that the Chamber would rule on the admissibility and merits of the case at the same time (Article 29 § 1 of the Convention). THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
5. The applicant was born in 1927 and lives in Benevento. 6. In December 1993 the municipality of Benevento declared itself insolvent (stato di dissesto) in accordance with legislative decree no. 66 of 1989 (subsequently amended by Law no. 68 of 19 March 1993, then by legislative decrees no. 77 of 25 February 1995 and no. 267 of 18 August 2000). On 19 January 1994, the city’s financial management was entrusted to an extraordinary liquidation committee (organo straordinario di liquidazione) (the “OSL”), which had the task of drawing up a list of claims that could be declared admissible for the purposes of the debt repayment procedure. 7. Article 248 § 2 of legislative decree no. 267 of 18 August 2000 (the law on insolvent local authorities – enti locali dissestati) provided that from the time of the declaration of insolvency (dissesto) until the approval of the statement of accounts (rendiconto), no enforcement procedure could be initiated or pursued concerning the claims registered on the list drawn up by the OSL. Under paragraph 4 of that provision, during the period in question the insolvent local authority could not be liable for statutory interest on those debts or any compensation to offset inflation. 8. According to the domestic case-law (see decision no. 5778 of the Consiglio di Stato dated 30 October 2001), legislative decree no. 267 of 2000 did not apply to claims against a local authority that had been considered certain and payable by a judicial decision following the declaration of insolvency, regardless of the date on which the claim arose. It was thus possible to initiate enforcement proceedings in respect of such claims. 9. On 13 June 2004 Law no. 140 of 28 May 2004 entered into force. Section 5(2) of that Law provided that the rules governing insolvent local authorities also applied to claims that had arisen before 31 December of the year preceding that in which the accounts were rebalanced (bilancio riequilibrato), even where such claims had been established by a judicial decision after that date. The Consiglio di Stato applied that provision in its decisions no. 3715 of 30 July 2004 and no. 6438 of 21 November 2005. 10. On 28 October 1992 the applicant had filed a claim for damages against the municipal authority of Benevento, seeking the payment of unpaid rent and compensation for damage caused to his property. 11. In a judgment of 18 November 2003, of which the text was deposited in the court’s registry on 10 February 2004, the Benevento District Court had allowed the applicant’s claim and had ordered the municipal authority to pay him 17,604.46 euros (EUR) in damages, plus statutory interest and a sum to offset inflation. That judgment, which was served on the municipality on 9 April 2004, became final on 9 May 2004. 12. In its resolution no. 4088 of 21 June 2005, the OSL, following a simplified procedure adopted from 1998 onwards, acknowledged the existence of a debt owed by the municipal authority to the applicant for the sum of EUR 42,028.58. 13. On 7 February 2006 the OSL made a proposal to the applicant for a friendly settlement of the matter, offering him 80% of the sum that he claimed. The applicant declined the offer. II. RELEVANT DOMESTIC LAW AND PRACTICE
14. In their observations, the Government described as follows the insolvency procedure applying to a local authority. The applicant indicated that this overview was essentially correct. 15. The declaration of insolvency (stato di dissesto) by a local authority and the subsequent administration procedure corresponds mainly to an ordinary insolvency procedure with the aim of satisfying the claims of creditors on a proportionate basis and on equal terms (par condicio creditorum), together with the rebalancing of the authority’s accounts. However, unlike a private company, the insolvent local authority does not cease to exist and must continue to discharge its institutional tasks. It must therefore dispose of the necessary resources. The OSL operates alongside the ordinary organs of the local authority. Its competence is limited to the period prior to the declaration of insolvency (in other words, to claims predating 31 December of the year preceding the declaration of insolvency) and does not extend to subsequent financial transactions. 16. The task of the OSL is to verify all the debts of the local authority from that period and to determine the assets available for repayment to creditors. The verification of the local authority’s debts is carried out by an administrative procedure. Creditors are required, within a period of sixty days, to declare their claim, provide evidence of its existence and show that it is certain, of a fixed amount and payable. In general, only off-balance-sheet liabilities (fuori bilancio) – in other words, those arising from transactions that had not been registered in the local authority’s budget – require in-depth verification. They are divided into two categories: (a)  debts for which the accounting procedures have not been complied with, or which have been incurred without any administrative legitimacy; and (b)  debts resulting from a judicial decision and therefore not foreseeable at the time the budget was established. The verification process is more straightforward in respect of the situation under (b). 17. The OSL is required to make a clear distinction between the debts of the local authority that led to the state of insolvency and the liabilities incurred under the new management. In order to guarantee the par condicio creditorum principle, it is prohibited, after the declaration of insolvency, to initiate or pursue any enforcement proceedings in respect of debts that had arisen prior to the insolvency procedure. However, the prohibition in question does not concern enforcement actions in respect of claims that arose outside the OSL’s period of competence. Enforcement through the courts becomes possible again once the claim has finally been cleared from the liabilities (for example, because the OSL has established that the debt was not related to the functioning of the local authority). Where, pursuant to the above-mentioned prohibition, the OSL has declared that enforcement proceedings are discontinued, the judge indicates the amount of the debt, the interest, the compensation to offset inflation and the court costs, so that those amounts can be registered under the authority’s liabilities. 18. It follows from the foregoing that a temporal boundary must be drawn between the “past” debts (which fall within the competence of the OSL), and the “present” or “future” debts (which are incurred in the normal course of management). In the Government’s submission, that boundary can be established only in relation to the date on which the debt arose, regardless of the time when it was certified by a court decision. All claims that have arisen during the OSL’s period of competence are thus dealt with by that committee. If a court decision has acknowledged the existence of a debt owed by the local authority, the OSL cannot ignore such a decision and must register the claim under the liabilities incurred by the extraordinary administration. 19. Creditors are entitled to lodge an appeal (ricorso gerarchico) with the Ministry of the Interior against any decision of the OSL. The Ministry’s decision may then be appealed against in the administrative courts (Regional Administrative Court and Consiglio di Stato) for, among other grounds, any defect in the reasoning or an abuse of authority. 20. The Constitutional Court (judgment no. 155 of 21 April 1994) dismissed objections of unconstitutionality in respect of the previous rules in such matters, taking the view that where an insolvency procedure was pending, it was not necessary to provide the creditors with guarantees of a judicial procedure under the supervision of a judge, as the legislature was free to decide that the debts of an insolvent authority should be settled in the context of an administrative procedure. In that court’s view, this was all the more true where, as in the present case, public interests were at stake and the legislative provisions sought to prevent the local authority’s financial situation from worsening any further. It was also the court’s view that once the insolvency procedure had been initiated, the debtor could not be held liable for the non-performance of its obligations, and that this justified the “blocking” (blocco) of the statutory interest and the compensation for inflation. The Constitutional Court further stipulated that the OSL’s acts did not fall outside the review of the ordinary courts when they interfered with purely subjective rights (diritti soggettivi). 21. The OSL is required to deposit with the Ministry of the Interior the list of claims accepted as forming part of the liabilities. After verification by the Ministry, the OSL may seek a loan from the Bank for Official Deposits. The amount of that loan is added to the other resources already established by the OSL. The OSL then pays advances to the creditors whose claims have been registered; as and when new resources become available, the OSL pays new advances, if possible until the complete re-payment of the registered debts. The procedure ends with the depositing of a debt repayment scheme, which must be approved by the Ministry further to an opinion by a specialised commission. The Ministry examines the merits of the choices made by the OSL and may seek additional explanations and verifications. It may also refuse to approve the scheme. 22. In order to speed up the procedure, the OSL may propose a friendly settlement to the creditors in return for a reduction in the sums claimed. Where the proposal is accepted, the sum resulting from the settlement is paid immediately to the creditor, who at the same time agrees to waive any future claims on such basis. If the proposal is refused, the OSL makes proportional repayments in accordance with the par condicio creditorum principle. 23. Throughout the insolvency procedure, the application of the interest rate and compensation for inflation is suspended in respect of the registered claims. Such interest and compensation may be claimed only after the closure of the insolvency procedure. III. COMPARATIVE LAW MATERIAL
24. From the comparative law material available to the Court, twenty-five member States of the Council of Europe (Azerbaijan, Belgium, Bulgaria, the Czech Republic, Estonia, France, Germany, Greece, Latvia, Luxembourg, the former Yugoslav Republic of Macedonia, Moldova, Montenegro, Poland, Romania, Russia, Serbia, Slovakia, Slovenia, Spain Sweden, Switzerland, Turkey, Ukraine and the United Kingdom) do not seem to make provision for the possibility of a local authority being declared insolvent (in Romania, a regulation was adopted but its implementation has been suspended). In Austria, however, a municipal authority may undergo an insolvency procedure and, in Hungary, the legislation provides for six cases in which a “municipal debt relief procedure” may be applied to an insolvent municipal authority. Without as such acknowledging the existence of an insolvent municipal authority, eight States (Belgium, Estonia, Latvia, the former Yugoslav Republic of Macedonia, Montenegro, Russia, Slovakia and Switzerland) provide that a situation of financial hardship may be declared and this in general entails a recovery scheme. In Switzerland the creditors of a municipal authority may become involved in the procedure through an arrangement negotiated with the authority. 25. In States where there is no declaration of insolvency or financial hardship procedure, the repayment of debts seems to require the enforcement of a court decision establishing the existence of a due and payable sum (Azerbaijan, Bulgaria, the Czech Republic, Germany, Greece, Moldova, Poland, Romania, Serbia, Slovenia, Spain, Turkey and Ukraine). Procedural safeguards in favour of the creditors of municipal authorities are provided for in Spain, Greece, Romania, the United Kingdom and France. Some States (Bulgaria, Germany, Montenegro, Serbia, Slovenia, Sweden and the United Kingdom) provide for the possibility of attachment of municipal property, although there are restrictions in this connection, exempting, for example, any property that may be necessary for the continuity of public services. 26. The two States (Austria and Hungary) which allow for a local authority to become insolvent have introduced certain guarantees in favour of creditors. In Austria, the officials of the municipal authority can be personally held liable in the event of negligence or misconduct and municipal property that is not necessary for maintaining public interests may be attached in order to pay off debts. In Hungary, the Regional Court may decide how the municipal property is to be distributed, in compliance with the order of priority of creditors laid down by law. 27. As to the possibility of State intervention for the repayment of a municipal authority’s debts, it is completely excluded in eleven States (Austria, Azerbaijan, Belgium, the Czech Republic, Hungary, Luxembourg, Poland, Spain, Switzerland, Turkey and Ukraine) and granted in only three specific situations (for example, where the State has stood surety) in three others (Bulgaria, Moldova and Russia). The central government can provide financial assistance to municipal authorities in Estonia, Germany, the former Yugoslav Republic of Macedonia and Serbia. 28. As regards non-European States, in South Africa a municipal authority encountering financial problems may be placed under a recovery plan and, if it is unable to repay its debts, it may apply to the High Court for an order to stay, for a period not exceeding 90 days, all legal proceedings brought by creditors and the suspension of all or part of its financial obligations. If the High Court accepts the request, a distribution scheme for the partial settlement of claims is prepared. In Chile, where a creditor brings civil proceedings against a municipal authority, the attachment of municipal property not required for it to function may be ordered. 29. Lastly, in the United States of America, should a municipality become insolvent and should the relevant state so authorise, the municipality may file for bankruptcy protection, which generally allows it to restructure its payment schedule, to reduce the capital and interest to be paid and to obtain loans. A supervisory commission examines the adjustment plan, which must not discriminate unfairly, and must be fair and equitable. Some creditors may be paid in full, others may receive nothing, depending on the rules of priority. A creditor with a security interest over some or all of the debtor’s assets may retain that interest and avoid competing with unsecured creditors to collect the debt. Each level of priority must be paid in full before the next level of creditors is paid. THE LAW
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO. 1 TO THE CONVENTION
30. The applicant complained that he had been unable to obtain the enforcement of the Benevento District Court’s judgment of 18 November 2003. He relied on 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 Government contested that argument.
... B. Merits
1. The parties’ submissions
(a)  The applicant
42. The applicant began by complaining about the belatedness of the Government’s observations, which had been received in the Registry on 5 December 2006, after the expiry of the time-limit (29 November 2006) fixed for that purpose. 43. He further argued that the entry into force of Law no. 140 of 2004, as a result of which, in his submission, the provisions relating to insolvent local authorities now applied also to claims established by a judgment delivered after the declaration of insolvency, had deprived him of the possibility of collecting his debt. He added that he did not question the compatibility with the Convention of the general provisions on insolvent local authorities and that his complaint concerned Law no. 140 of 2004, which had de facto rendered unenforceable the judgment of the Benevento District Court of 18 November 2003 and ran counter to the case-law (see paragraphs 8 and 9 above). 44. The applicant further claimed that there had been an interference with the exercise of his right to the peaceful enjoyment of his possessions, the impugned law having had the effect, in his view, of postponing sine die the possibility of collecting his debt. He added that this interference was not “legal” for the purposes of Article 1 of Protocol No. 1 to the Convention, as it had created a situation of uncertainty and had deprived him of any possibility of protection by the courts. He stated, moreover, that his claim had been registered among the liabilities and that he was not therefore entitled to any statutory interest or compensation for inflation until the closure of the liquidation procedure. 45. He acknowledged, as the Government had indeed pointed out, that he had the possibility of challenging the OSL’s acts before the judicial or administrative authorities. He added that he could not, however, verify the OSL’s activity or seek the repayment of his debt, and that it was only the decision whether or not to register a claim that could be appealed against. In the light of the foregoing, he alleged that he had been obliged to bear an excessive burden and that the State had failed to strike a fair balance between the competing public and private interests. (b)  The Government
46. The Government submitted that the administration procedure initiated after the municipal authority became insolvent had the aim of releasing the liquid assets necessary for the repayment of all or part of its debts. It was not suggested in the present case that it was impossible to collect a debt or that the binding effect of a judgment had been disregarded. 47. The Government further argued that if each creditor had been allowed to act individually in order to collect his or her debt, that would inevitably have led to the insolvent local authority becoming paralysed and to a haphazard situation where only the most powerful or best assisted creditors could collect their debt. In the Government’s submission, the difficulty in collecting the debt had not been attributable to the authorities’ action, but to a purely factual situation beyond the State’s control, resulting from the financial failure of the local authority. The State, in intervening through the insolvency procedure, had sought to secure to all creditors an equal treatment in the collection of their debts and therefore to fulfil its positive obligations. 48. The Government further observed that the applicant had refused a proposal for a friendly settlement consisting of paying him a sum representing 80% of his claim (see paragraph 13 above). They inferred from this that it had been the applicant himself who had chosen not to collect his debt, while the State, faced with the exceptional situation of an insolvent municipality, had rapidly sought to protect the rights of creditors. They referred to the case of Bäck v. Finland (no. 37598/97, ECHR 2004-VII), in which the Court had found no violation of Article 1 of Protocol No. 1 in spite of the annulment, without compensation, by retrospective legislation, of the applicant’s claim against an individual in the context of a social policy. They explained that, in the present case, the law on insolvent local authorities was not directed at a specific dispute, but was necessary for budgetary reasons and in pursuance of economic and social policies and that, as it had concerned a municipality and not an individual, it was in accordance with the general interest. They further submitted that the very substance of the applicant’s right had not been impaired, and that there had been only a slight reduction in relation to his claim. 2. The Court’s assessment
49. The Court is of the view that it is not necessary to address the question whether or not the Government’s observations reached it in due time (see paragraph 42 above), as the facts of the case, in any event, reveal a violation of Article 1 of Protocol No. 1 to the Convention, for the reasons set out below. 50. The Court would first reiterate that a “claim” can constitute a “possession” within the meaning of Article 1 of Protocol No. 1 if it is sufficiently established to be enforceable (see Stran Greek Refineries and Stratis Andreadis v. Greece, 9 December 1994, § 59, Series A no. 301-B, and Burdov v. Russia, no. 59498/00, § 40, ECHR 2002-III). 51. In the present case it notes that the applicant had a claim that was certain, due and payable pursuant to the judgment of the Benevento District Court of 18 November 2003, which had ordered the municipal authority to pay him EUR 17,604.46 in damages, together with statutory interest and compensation to offset inflation. That judgment became final on 9 May 2004 (see paragraph 11 above). 52. Following the declaration of insolvency of the municipality of Benevento in December 1993 (see paragraph 6 above), and the entry into force of legislative decree no. 267 of 18 August 2000 (see paragraph 7 above) and Law no. 140 of 28 May 2004 (see paragraph 9 above), the applicant was unable to bring enforcement proceedings against the municipal authority of Benevento. Moreover, the authority did not repay its debt, thus breaching the applicant’s right to the peaceful enjoyment of his possessions, within the meaning of the first sentence of Article 1 of Protocol No. 1 (see, mutatis mutandis, Burdov, cited above, § 40). 53. In addition, by failing to enforce the judgment of Benevento District Court, the national authorities prevented the applicant from receiving the money that he could reasonably have expected to obtain. It is true that the OSL offered him a friendly settlement through which he could have received 80% of the amount claimed (see paragraph 13 above); but the fact remains that had he accepted that offer – which he did not – he would have forfeited 20% of his claim and would not have been paid the statutory interest or compensation for inflation which had accrued in respect of the sum due since the date of the municipality’s declaration of insolvency (see paragraph 7 above). 54. The Government justified the interference with the applicant’s right to the peaceful enjoyment of his possessions by the insolvency of the municipality and by the policy of granting all creditors equal treatment for the collection of their debts (see paragraphs 47 and 48 above). The Court is of the view that a municipality’s lack of funds cannot justify a failure on its part to honour its obligations arising from a final judgment against it (see, mutatis mutandis, Ambruosi v. Italy, no. 31227/96, §§ 28-34, 19 October 2000, and Burdov, cited above, § 41). 55. The Court would point out that the present case concerns the debt of a local authority, and therefore an organ of the State, resulting from a judicial decision ordering it to pay damages. This point distinguishes the case from that of Bäck v. Finland, cited by the Government (see paragraph 48 above), which concerned a claim against an individual, and from that of Koufaki and Adedy v. Greece ((dec.), nos. 57665/12 and 57657/12, §§ 31‑50, 7 May 2013), which concerned a social policy with the aim of reducing future remuneration and pensions of civil servants.
56.

Article of the Convention at issue: Article 6
Outcome: violation