FIRST SECTION
CASE OF PROJECT-TRADE D.O.O. v. CROATIA
(Application no. 1920/14)
 
 
JUDGMENT
 
Art 1 P1 • Control of the use of property • Art 6 § 1 (civil) • Access to court • Cancellation and revocation of applicant company’s shares in private bank directly affecting their right to protection of property and going beyond merely upsetting their position in the bank’s governance structure • Victim status upheld • Government decision not reviewable by any judicial authority
Art 6 § 1 (civil) • Reasonable time • Excessive length of proceedings lasting almost five years at one level of jurisdiction

 
STRASBOURG
19 November 2020
 
FINAL
 
19/04/2021
 
This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision. In the case of Project-Trade d.o.o. v. Croatia,
The European Court of Human Rights (First Section), sitting as a Chamber composed of:
 Krzysztof Wojtyczek, President,
 Ksenija Turković,
 Aleš Pejchal,
 Pauliine Koskelo,
 Tim Eicke,
 Jovan Ilievski,
 Raffaele Sabato, judges,
and Renata Degener, Deputy Section Registrar,
Having regard to:
the application against the Republic of Croatia lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by Project-Trade d.o.o. (“the applicant company”), a commercial company incorporated under Croatian law, on 20 December 2013;
the decision to give notice to the Croatian Government (“the Government”) of the complaints concerning access to court, the reasoning of the Constitutional Court’s decision, the length of the proceedings and peaceful enjoyment of possessions and to declare the remainder of the application inadmissible;
the parties’ observations;
Having deliberated in private on 22 September 2020,
Delivers the following judgment, which was adopted on that date:
INTRODUCTION
1. The case mainly concerns the deprivation of property arising from the Government Decision on the restructuring and recovery of a commercial bank depriving the bank’s shareholders, including the applicant company, of their shares, and the lack of access to court in that regard. THE FACTS
2. The applicant company is a limited liability company incorporated under Croatian law which has its registered office in Zagreb. It was initially represented by Mr J. Butigan, and then from 15 October 2018 by Mr F. Galić, both lawyers practising in Zagreb. 3. The Government were represented by their Agent, Ms Š. Stažnik. 4. The facts of the case, as submitted by the parties, may be summarised as follows.
events giving rise to the dispute
5. The applicant company was a shareholder of Croatia Bank (Croatia banka d.d. – hereinafter “the bank”), a joint-stock company incorporated under Croatian law which has its registered office in Zagreb. The bank was wholly owned by private individuals and companies. The applicant company held 1,251 shares with a nominal value of 200 Croatian kunas (HRK) each. 6. On 23 February 1999 the Croatian National Bank (Hrvatska narodna banka – hereinafter “the CNB”) adopted a decision appointing a temporary administrator at the bank. Under section 84(2) of the Banks Act, from the date of service of such a decision, all powers of the bank’s governing bodies were transferred to the temporary administrator (see paragraph 25 below). On 23 August 1999 the CNB extended the temporary administrator’s term of office for a further two months. 7. Meanwhile, on the basis of an expert report indicating that the bank’s debts largely outweighed its share capital and that it therefore presented a risk to the general stability of the financial market, on 18 June 1999 the CNB proposed to the Government of Croatia that the process of recovery (sanacija) and restructuring of the bank be commenced, as provided for by domestic law. 8. In accordance with that proposal, on 23 September 1999 the Government of Croatia adopted a decision on the recovery and restructuring of Croatia Bank (Odluka o sanaciji i restrukturiranju Croatia banke d.d., Zagreb, Official Gazette nos. 98/99 and 53/00 – hereinafter “the Government Decision”). The Decision was published in the Official Gazette on 27 September 1999. From that date, all shares held by the bank’s shareholders were revoked and cancelled. Following the recovery process, the bank was to issue new shares, all in the name of the State Agency for Deposit Insurance and Bank Resolution (Državna agencija za osiguranja štednih uloga i sanaciju banaka – hereinafter “the DAB”). The powers of the bank’s governing bodies and the rights of shareholders were extinguished with the entry into force of the Decision. DAB’s director had to appoint a person responsible to represent and administer the bank during the process of recovery and restructuring. That process was completed on 13 September 2000. The Decision, which was slightly amended on 25 May 2000, and in respect of which the Constitutional Court later on held that, by its legal nature, it was subordinate legislation (podzakonski općenormativni akt (propis)) rather than an individual legal act (see paragraph 11 below), read as follows:
I. “Recovery and restructuring process of Croatia bank... is hereby initiated. The process of recovery and restructuring of the bank is conducted by [DAB] in accordance with the Recovery and Restructuring of Banks Act and the State Agency for Securing Savings Deposits and Resolution of Banks Act.”
II. “It is established that on 31 May 1999 the bank has:
(a) risky investments and potential liabilities in the amount of 1,797.5 million kunas, including potential losses of HRK 517 million;
(b) suspected and disputed claims ... in the amount of HRK 446 million;
(c) business losses incurred in 1998 and between 1 January and 31 May 1999 in the amount of HRK 622.3 million.”
III. “The operating losses are written off against the gross share capital reduced by the cost of acquiring treasury shares in the amount of HRK 264.8 million and against special reserves for non-identified losses in the amount of HRK 8.6 million.”
IV. “[DAB] shall secure HRK 553.5 million for the recovery of the bank, including:
(a) an amount of HRK 348.9 million to cover the operating losses which could not be written off against the gross share capital reduced by the cost of acquiring treasury shares and/or the special reserves for non-identified losses and
(b) an amount of HRK 204.6 million as funds necessary for an initial recapitalisation of the bank. The amount of the part of the risky investments which include potential losses of the bank in the amount of HRK 348.9 million shall be transferred to [DAB].”
V. “For the recovery of the bank referred to in point IV. of this Decision [DAB] shall issue bonds in the amount of HRK 553.5 million with a maturity date of 20 April 2000 and an interest [rate] of 7.5%.”
VI. “A new opening balance sheet of the bank shall be prepared to reflect the situation on 1 June 1999.”
VII. “On the day of the publication of this Decision all existing shares of the Bank shall be revoked and cancelled. The Bank shall issue new shares in the amount of HRK 204.6 million, which shall be entirely owned by [DAB].”
VIII. “The powers of the bank’s General Meeting, Supervisory Board and of the bank’s Management Board, as well as the rights of the bank’s shareholders based on the existing shares, shall be extinguished on the day of publication of this Decision. The Director of [DAB] shall appoint a person authorised to manage and represent the bank during the bank’s recovery process...”
9. In 1999 and 2000 five shareholders of the bank (including the applicants in the case of Batinović and Point Trade d.o.o. v. Croatia (dec.), no. 30426/03, 10 July 2007, see paragraphs 48-50 below), but not the applicant company, filed four separate petitions with the Constitutional Court (Ustavni sud Republike Hrvatske) for a review of the conformity of the Government Decision with the Constitution and with the relevant primary legislation (prijedlog za ocjenu ustavnosti i zakonitosti). They complained that, as shareholders of the bank, the Decision violated their constitutional rights guaranteed by Article 48 § 1, Article 49 § 4 and Article 50 of the Croatian Constitution (see paragraph 20 below). They also claimed that the bank had been in good standing and that the Decision was therefore unnecessary. 10. During the proceedings the Constitutional Court obtained opinions from two financial experts and two professors of commercial and company law. The financial experts suggested that the Government Decision was not economically justified or necessary, while the law professors suggested that it was contrary to Article 49 § 4 of the Constitution (see paragraph 20 below). 11. On 30 January 2003 the Constitutional Court discontinued the proceedings because the legislation on which the Decision was based, namely the 1994 Recovery and Restructuring of Banks Act (see paragraph 26 below), had in the meantime, on 31 May 2000, been repealed. It added:
“The contested Decision is, by its legal nature, subordinate (secondary) legislation but the legal effects [of some of its provisions] directly interfere with the individual rights of a certain category of citizens (founders and former shareholders of Croatia Bank).
... The Constitutional Court notes that the Croatian legal system guarantees to every founder and/or shareholder of Croatia Bank who considers his or her rights to have been violated by ... the contested decisions, the ... ability to obtain judicial protection.
... It is evident from the existing case-law that individual legal protection is also available in civil proceedings by applying the relevant provisions of the Obligations Act. Judicial protection against possible infringements of the rights of founders and former shareholders of Croatia Bank, brought about by the contested Decision, is also available in proceedings based on section 19(2) of the [1994] Courts Act, under which the commercial courts have jurisdiction in disputes concerning the disposition of membership and membership rights in companies. Lastly, each plaintiff (former shareholder of Croatia Bank) is entitled to lodge a constitutional complaint against the judgment of a competent court and [thereby] institute proceedings before the Constitutional Court if he or she deems that a court judgment has violated certain human rights or fundamental freedoms guaranteed by the ... Constitution.”
12. Two judges of the Constitutional Court expressed dissenting opinions. They argued that the court could have continued the abstract review proceedings and that it had had jurisdiction to examine whether the Government Decision was in compliance with the Constitution and relevant primary legislation (statute). They also opined that the Government Decision was contrary to the Constitution. One of the dissenting judges stated that under domestic law there was no remedy, much less a judicial one, against the Decision. The other dissenting judge specifically contested the view expressed by the majority that the bank’s shareholders could seek the protection of their rights in ordinary civil proceedings. He averred that the shareholders could not successfully do so without the Constitutional Court finding that the Government Decision was unconstitutional. Civil proceedings in the applicant company’s case
13. On 12 September 2003 the applicant company brought a civil action in the Zagreb Commercial Court (Trgovački sud u Zagrebu) against the bank and the DAB, asking the court to (a) issue a declaratory judgment confirming that the company was still the holder of 1,251 shares, (b) order the DAB to transfer the corresponding number of shares from its portfolio to the company, and (c) order the bank to record the company as holder of that number of shares in the bank’s register of shareholders. 14. During the proceedings, the applicant company argued that the Government Decision revoking and cancelling its shares was unjustified in economic terms because the bank had been in good standing. It further argued that relevant statutory requirements had not been satisfied, and that the Decision was contrary to Article 48 § 1, Article 49 § 4 and Article 50 of the Constitution (see paragraph 20 below), as had been acknowledged by the High Commercial Court (Visoki trgovački sud Republike Hrvatske) in its judgment of 21 December 2004 in another case (see paragraph 33 below). 15. By a judgment of 21 February 2006 the Zagreb Commercial Court dismissed the applicant company’s action. 16. By a judgment of 18 June 2008 the High Commercial Court dismissed an appeal by the applicant company and upheld the first-instance judgment. On 16 September 2008 it served its judgment on the applicant company’s representative. The relevant parts read as follows:
“The [applicant company] in the statement of claim states that it is a shareholder of Croatia Bank, holding 1,251 shares with a nominal value of HRK 200 each. However, on a proposal from the Croatian National Bank (hereinafter “the CNB”) of 18 June 1999, the Government of Croatia adopted on 23 September 1999, without any grounds, the Decision on the recovery and restructuring of Croatia Bank ... [The applicant company] alleges that its property was taken by that Decision and that it was prevented beforehand from participating in the management of the bank’s affairs and deciding its fate. The [applicant company] states that the Government Decision [was] based on an incorrect assumption ... because the potential losses of the bank were declared actual losses, which is not supported by any arguments or evidence. The bank’s claims totalling HRK 446,000,000 were declared uncollectable by the CNB and the Government, even though potential losses are not actual losses, and all these claims were secured by various means of guaranteeing payment, such as mortgages and so forth. The [applicant company] considers that the shares of all the shareholders, including its own, were cancelled on the basis of incorrectly established facts ... The [applicant company] further submits that throughout the proceedings which preceded the adoption of the Government Decision, the shareholders did not have the opportunity to participate or ... protect their entrepreneurial or property rights attached to the shares they had lawfully obtained but which were unlawfully taken away from them. The [applicant company] considers that ... the Government Decision was adopted without satisfying the statutory requirements, that is, on the basis of an unrealistic assessment of potential losses and other arbitrary parameters.
... The first-instance court consulted the Government Decision on the recovery and restructuring of Croatia Bank ... from which it established the bank’s losses, the amount secured for its restructuring and initial recapitalisation, and established that point 7 provided that on the date of publication of the Decision all the existing shares of the bank would be revoked and cancelled, and that the bank would issue new shares in the amount of HRK 217,000,000 which would all be transferred into the ownership of [the DAB] and that ... the rights belonging to shareholders on the basis of the existing shares would be extinguished. The first-instance court also consulted the Constitutional Court’s decision and established that the proceedings for reviewing the conformity of the Government Decision on the recovery and restructuring of Croatia Bank with the Constitution and primary legislation had been discontinued. The [first-instance court] on the basis of point 7 of the [Government Decision] ... established that all the existing shares of the bank had been extinguished and that new shares had been issued, which were fully owned by [the DAB]. On the basis of the facts thus established, the first-instance court considered that the [applicant company’s] shares no longer existed, which is evident from (point 7 of) the Government Decision ... Since the [applicant company’s] shares had thus been cancelled and revoked the [first-instance court] held that the plaintiff company could not have its shares returned to it because [the DAB] had obtained its [own] shares on the basis of its capital investment during the recapitalisation process.
... The appeal is unfounded.
... It follows from the appeal that the [applicant company] considers that the first‑instance court misapplied the substantive law because it based its decision on the Government Decision which was adopted on the basis of the [1994] Recovery and Restructuring of Banks Act... while the plaintiff company in the ... appeal gives reasons as to why the Government Decision is unconstitutional. [The applicant company] therefore argues that the Government of Croatia had to compensate it for the market value of the revoked shares, in accordance with Article 50 § 1 of the ... Constitution.

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