FIFTH SECTIONCASE OF FORTETSYA, MPP v. UKRAINE(Application no. 68946/10)      JUDGMENT STRASBOURG11 June 2020 This judgment is final but it may be subject to editorial revision.In the case of Fortetsya, MPP v. Ukraine,The European Court of Human Rights (Fifth Section), sitting as a Committee composed of: Gabriele Kucsko-Stadlmayer, President, Mārtiņš Mits, Anja Seibert-Fohr, judges,and Victor Soloveytchik, Deputy Section Registrar,Having deliberated in private on 17 March 2020,Delivers the following judgment, which was adopted on that date:PROCEDURE1.  The case originated in an application (no. 68946/10) against Ukraine lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Ukrainian company, Fortetsya, MPP (“the applicant company”), on 17 November 2010.2.  The applicant was represented by Ms Y. Khmaruk, a lawyer practising in Ostrog. The Ukrainian Government (“the Government”) were represented by their Agent, Mr I. Lishchyna.3.  The applicant company complained under Article 1 of Protocol No. 1 to the Convention that following a mistake on the part of the State bailiffs it had been deprived of its property and had not been compensated for it.4.  On 14 November 2018 the Government were given notice of the above complaint and the remainder of the application was declared inadmissible pursuant to Rule 54 § 3 of the Rules of Court.THE FACTSTHE CIRCUMSTANCES OF THE CASE5.  The applicant company, MPP Fortetsya, is a private company registered in Ostrog.6.  On 23 November 2004 the applicant company bought, for 55,455 Ukrainian hryvnias (UAH – at the time equivalent to about 8,000 euros (EUR)), a crane lorry at a public auction organised by the Bailiffs Service as part of enforcement proceedings against third persons. The applicant company transferred the lorry’s value to the Bailiffs Service’s account on 3 December 2004.7.  Given that it was not able to get the lorry from the previous owner (a company called N.Z.), the applicant company initiated commercial proceedings against the latter claiming the transfer of the lorry into its possession. N.Z. lodged a counter-claim seeking invalidation of the public auction. That counter-claim was subsequently pursued by five individuals, former shareholders of N.Z., who claimed the title to the lorry in question in place of their shares’ value.8.  On 21 December 2005 the Ostrog Town Court declared the public auction null and void, and recognised the five individuals’ title to the lorry. It was established that the head of the Bailiffs Service had conducted the auction in breach of a judicial ruling of 15 November 2004 which had stayed the enforcement proceedings.9.  On 16 April 2009 the applicant company lodged a claim against the local Bailiffs Service seeking the recovery of the amount paid for the lorry. It relied on Articles 661 and 1212 of the Civil Code, as well as Article 11 of the Enforcement Proceedings Act (see paragraphs 15 and 16 below).10.  On 16 July 2009 the Rivne Regional Commercial Court found against the applicant company. It held that at the time of the payment, the public auction had not yet been invalidated. Furthermore, the Bailiffs Service had not kept the money for itself, but had transferred it to the creditors in the enforcement proceedings.11.  The applicant company appealed. It maintained that it had fully complied with its obligations under the sales contract of 23 November 2004 and that it was entitled to get back what it had paid at the public auction after that auction had been declared null and void.12.  On 19 January 2010 the Lviv Commercial Court of Appeal upheld the judgment of 16 July 2009. It stated that, indeed, damage caused by the State Bailiffs to a physical person or legal entity in the course of enforcement proceedings had to be compensated by the State in accordance with Article 1174 of the Civil Code (see paragraph 15 below). It observed, however, that the applicant company had not relied on that provision. Furthermore, it was noted that Article 11 of the Enforcement Proceedings Act relied on by the applicant company did not concern the issue of compensation for damage caused by State Bailiffs. The appellate court therefore rejected the appeal.13.  The applicant company appealed on points of law. It argued, in particular, that it was for the courts to provide legal classification of the impugned facts and that, if it omitted certain legal provisions that should not prevent the courts from adjudicating on the merits of its claim.14.  On 25 May 2010 the Higher Commercial Court upheld the lower courts’ decisions. It noted that the applicant company had wrongly relied on Articles 661 and 1212 of the Civil Code alleging the failure of the Bailiffs Service to comply with its contractual obligations, whereas the damage caused had stemmed from non-contractual obligations. It was noted in the ruling that that issue was regulated by Article 11 of the State Bailiffs Service Act and Article 1173 of the Civil Code (see paragraphs 15 and 17 below).DOMESTIC LAW AND PRACTICERelevant legal provisions15.  The relevant provisions of the Civil Code 2003 (as worded at the material time) read as follows:Article 216. Legal consequences of invalidation of a transaction“1. ... In the event of a transaction being declared null and void, each party shall return to the other party the proceeds received for the transaction in question. If that is impossible ..., each party must pay the other party the current value of what it received under the contract.2. If a party or a third party has suffered pecuniary or non-pecuniary damage as a result of a transaction being declared null and void, the liable party shall pay compensation ...”Article 229. Legal consequences of a transaction resulting from an error“1. If the author of a transaction erred in respect of essential circumstances, a court may invalidate the transaction. ...2. In the case of invalidation of a transaction, its author who committed a negligent error, must compensate the damage to the other party. ...”Article 661. The seller’s responsibility in the event of alienation of property from the buyer“1. In the event of alienation pursuant to a judicial order of the sold property from the buyer in favour of a third person on grounds that emerged prior to the sale, the seller shall reimburse the damage to the buyer if the latter did not or could not know about the existence of those grounds. ...”Article 1166. General grounds for liability for causing pecuniary damage“1. Pecuniary damage caused by unlawful decisions, actions or omissions to personal non-pecuniary rights of an individual or a legal entity, or damage caused to property of an individual or a legal entity, shall be fully compensated by the person who caused it. ...”Article 1173. Compensation for damage caused by a State authority ...“1. Damage caused to a private person or legal entity as a result of an unlawful decision, action or omission of a State authority ... shall be indemnified by the State ... irrespective of the guilt of that authority.”Article 1174. Compensation for damage caused by a State official ...“1. Damage caused to a private person or legal entity as a result of an unlawful decision, action or omission of a State official ... shall be indemnified by the State irrespective of the guilt of that official.”Article 1212. General provisions on the obligations stemming from acquisition and retention of property without valid legal grounds“1. A person who has acquired or retained property at the expense of another person (victim) without valid legal grounds shall return that property to the victim.2. The provisions of this chapter shall apply regardless of whether the ungrounded acquisition or retention of property resulted from the conduct of the acquirer, the victim or other persons, or were consequences of certain events.3. The provisions of this chapter shall also apply to the requirements regarding:1) recovery of what was [done or paid] under a transaction [eventually] declared null and void;2) recovery of property by the owner from unlawful possession;3) recovery of what was done by one of the parties under an obligation; and4) reimbursement of damage by a person, who acquired or retained property unlawfully at expense of another person.”16.  Article 11 of the Enforcement Proceedings Act 1999 (as worded at the material time) listed the parties in enforcement proceedings. Article 86 provided that damage caused by a State bailiff to individuals or legal entities was to be compensated in accordance with the procedure established by law.17.  Article 11 of the State Bailiffs Service Act 1998 (as worded at the material time) concerned the liability of bailiffs. It stated that damage caused by a State bailiff to individuals or legal entities during enforcement proceedings was to be compensated in the manner established by law at the expense of the State.Case-law of domestic courts cited by the GovernmentProceedings no. 127/3018/15-ц18.  A private person bought a flat at a public auction organised by the Bailiffs Service as part of enforcement proceedings against third persons. Subsequently that public auction was declared null and void owing to a number of errors committed by the bailiff. The purchaser brought proceedings against the Bailiffs Service seeking recovery of the money paid for the flat, as well as compensation for non-pecuniary damage. It is not known on which legal provisions the claimant relied on. On 10 June 2015 the Vinnytsia City Court allowed that claim in part and ordered the Bailiffs Service to reimburse the claimant the amount he had paid for the flat, in compliance with Article 216 of the Civil Code. It held as follows:“The court takes note of the submission by the [Bailiffs Service] that, under ... Article 1173 of the Civil Code, damage caused to the claimant in the present case should be compensated if the unlawfulness of the bailiff’s actions were established by a judicial decision. However, this submission is not relevant to the present dispute in so far as it concerns recovery of the money for the property acquired by the claimant. The claimant is not asking for compensation in respect of pecuniary damage from the [Bailiffs Service], but is seeking restitution following a legal transaction’s invalidity.... The transaction in question was declared null and void ab initio ... The [defendant] must therefore return to the claimant [the amount] received under that transaction.”The court rejected the claim in the part pertaining to non-pecuniary damage on the grounds that the claimant should bring a separate claim in that regard under Articles 1166 and 1174 of the Civil Code (see paragraph 15 above).Proceedings no. 671/35875/16-ц19.  An individual bought non-residential premises at a public auction organised by the Bailiffs Service as part of enforcement proceedings against third persons. Subsequently that public auction was declared null and void on the grounds of numerous violations committed by the bailiff. The purchaser brought a claim for damages against the Bailiffs Service. On 25 September 2017 the Kyiv Shevchenkivskyy District Court allowed that claim and awarded the claimant compensation in respect of pecuniary and non-pecuniary damage to be paid by the Bailiffs Service. The court relied, in particular, on Articles 1166, 1173 and 1174 of the Civil Code.Proceedings no. AC-42/282-0620.  A private company bought non-residential premises at a public auction organised by the tax authorities. Subsequently that sales contract was declared null and void on the grounds that the tax authority had had no right to sell those premises. The purchaser brought a claim against that authority, relying on Article 1212 of the Civil Code. On 15 August 2006 the Kharkiv Regional Commercial Court allowed that claim. It held that the failure of the tax authority to return to the claimant the money paid under the sales contract, which had eventually been invalidated, had been contrary to Articles 216, 229 and 661 of the Civil Code. Accordingly, the court ordered the tax authority to return the above-mentioned amount to the claimant. Furthermore, relying on Article 1174 of the Civil Code, it adjusted that amount to take account of inflation and the interest rate.THE LAWALLEGED VIOLATION OF ARTICLE 1 of protocol no. 121.  The applicant company complained that it had been deprived of its property owing to faults on the part of the State Bailiffs Service and that it had not been compensated for that loss. It relied on Article 1 of Protocol No. 1 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.”AdmissibilityArguments of the parties22.  The Government argued that the applicant company had failed to exhaust the domestic remedies available to it in Ukraine before lodging its application with the Court. They contended that it should have brought a claim for damages under Articles 1173 and 1174 of the Civil Code as instructed by the domestic courts.23.  The Government referred to domestic proceedings nos. 127/3018/15‑ц and 671/35875/16-ц (see paragraphs 18 and 19 above) as evidence that the above-mentioned remedy was effective and accessible in practice. They also submitted to the Court a copy of the judgment of the Kharkiv Regional Commercial Court of 15 August 2006 in proceedings no. AC-42/282-06 (see paragraph 20 above), without additional comments.24.  The applicant company disagreed. It submitted that it had done everything which could have reasonably been expected from it to exhaust the domestic remedies.25.  In the applicant company’s opinion, Article 1212 of the Civil Code could have been applied to its situation. The applicant company observed that in case no. AC‑42/282-06 cited by the Government (see paragraph 20 above) the claimant had successfully relied on that provision in comparable factual circumstances.26.  Furthermore, the applicant company emphasised that it had been seeking recovery of the amount paid under the sales contract, which had eventually been declared null and void, rather than any additional compensation in respect of pecuniary damage. The applicant company noted that in case no. 127/3018/15-ц (also cited by the Government; see paragraph 18 above), the domestic courts had stated that Article 1173 of the Civil Code had not been applicable to restitution following a legal transaction’s invalidity. That proved, the applicant company went on to state, that it could not be reproached for not having relied on Articles 1173 and/or 1174 of the Civil Code.27.  In sum, the applicant company maintained that the Government’s objection as regards its compliance with the requirement to exhaust domestic remedies was unfounded.The Court’s assessment28.  The purpose of Article 35 § 1 is to afford the Contracting States the opportunity of preventing or putting right the violations alleged against them before those allegations are submitted to it. Thus, the complaint to be submitted to the Court must first have been made to the appropriate national courts, at least in substance, in accordance with the formal requirements of domestic law and within the prescribed time-limits. Nevertheless, the only remedies that must be exhausted are those that are effective and capable of redressing the alleged violation. More specifically, the only remedies which Article 35 § 1 of the Convention requires to be exhausted are those that relate to the breaches alleged and at the same time are available and sufficient; the existence of such remedies must be sufficiently certain not only in theory but also in practice, failing which they will lack the requisite accessibility and effectiveness. It falls to the respondent State, if it pleads non-exhaustion of domestic remedies, to establish that these various conditions are satisfied (see, for example, Paksas v. Lithuania [GC], no. 34932/04, § 75, ECHR 2011 (extracts), with further case-law references).29.  In the present case the Government submitted that the applicant company’s failure to bring a claim for damages under Articles 1173 and 1174 of the Civil Code indicated that the rule of the exhaustion of domestic remedies had not been complied with (see paragraphs 15, 22 and 23 above). The Court will examine whether the remedy cited by the Government could be regarded as an effective one in the circumstances of the case.30.  The Court has already held that, according to domestic legislation, compensation for damage inflicted by unlawful actions of State authorities set forth by Articles 1173-1175 of the Civil Code is dependent on further elaboration of the procedure to be followed and the conditions for obtaining such compensation, and that the mentioned procedure and conditions have not been defined by domestic legislation so far (see Portyanko v. Ukraine (dec.), no. 24686/12, 6 October 2015). Therefore, the Court concluded that seeking compensation for damages under those provisions could not be said to have any reasonable prospects of success and, consequently, it could not be said to be “effective” (see also Bakulin v. Ukraine (dec.) [Committee], no. 5687/07, § 33, 12 February 2019).31.  The Court takes note of the domestic case-law relied on by the Government in support of their argument that the above-mentioned remedy complied with the effectiveness requirement. Like in the present case, the three judicial decisions cited by the Government concerned attempts of private persons or entities to recover the funds paid at a public auction organised by the Bailiffs Service or tax authorities and eventually declared null and void.32.  In case no. 127/3018/15-ц the Vinnytsya City Court explicitly stated that Article 1173 of the Civil Code was not relevant to the dispute in so far as it concerned recovery of the money paid for the property acquired by the claimant. It was specified that seeking restitution following a legal transaction’s invalidity was to be distinguished from asking for compensation in respect of pecuniary damage (see paragraph 18 above). Accordingly, in the Court’s opinion, the reference to this case rather undermines the Government’s argument that in the present case the applicant company should have brought a claim for damages under Articles 1173 and 1174 of the Civil Code.33.  A different approach is observed in case no. 671/35875/16-ц, where a claim for damages against the Bailiffs Service, in particular under Articles 1173 and 1174 of the Civil Code, was successful (see paragraph 19 above). It is noteworthy, however, that this is the only such example provided. Furthermore, it remains unknown whether the judgment in question was further challenged and, if so, whether it was upheld by upper-level courts. Lastly, that judgment was delivered in September 2017, which was more than seven years after the domestic proceedings in the present case had been completed (see paragraphs 14 and 19 above). It cannot therefore be regarded as sufficient proof of effectiveness of that remedy for the applicant company.34.  In the third case cited by the Government, no. AC-42/282-06, a private company claimed from the tax authorities the money paid under a sales contract after its invalidation, relying on the same legal provision as the applicant company in the present case – namely, Article 1212 of the Civil Code (see paragraphs 9 and 20 above). That claim was successful. The domestic court relied on Article 1174 of the Civil Code only in adjusting the amount in question to take account of inflation and the interest rate. In the present case, however, the applicant company’s only claim before the domestic courts was to get back the money paid to the Bailiffs Service at a public auction and did not concern any further adjustments (see paragraph 20 above). That being so, it is unclear for the Court how the cited case proves effectiveness of a claim under Article 1174 of the Civil Code instead of that under Article 1212 of the Civil Code relied on by the applicant company.35.  It follows that the Government failed to rebut the conclusion made by the Court in its earlier case-law that the remedy under Articles 1173 and 1174 of the Civil Code was not effective (see paragraph 30 above). Accordingly, the applicant company was under no obligation to exhaust that remedy.36.  The Court therefore dismisses the Government’s objection regarding the non-exhaustion of domestic remedies.37.  The Court further notes that the present complaint is neither manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention nor inadmissible on any other grounds. It must therefore be declared admissible.Merits38.  The Government did not provide any observations on the merits of the applicant company’s complaint.39.  It is undisputed that on 3 December 2004 the applicant company paid UAH 55,455 to the Bailiffs Service as the price for a crane lorry purchased at a public auction (see paragraph 6 above). Nor is it in dispute that that money had belonged to the applicant company. The Court therefore concludes that the applicant company had “possession” within the meaning of Article 1 of Protocol No. 1 to the Convention.40.  The failure of the Bailiffs Service to return the money paid by the applicant company for the crane lorry at the public auction after the latter had been declared null and void constituted an interference, which falls to be examined in the light of the general rule contained in the first sentence of the first paragraph of Article 1 of Protocol No. 1.41.  In order for a measure constituting the interference to comply with Article 1 of Protocol No. 1, it must be shown that it was lawful, that it was “in accordance with the general interest”, and that there existed a reasonable relationship of proportionality between the means employed and the aim sought to be achieved (see, for example, Beyeler, v. Italy [GC], no. 33202/96, §§ 108-14, ECHR 2000-I)). The requisite balance will not be found if the person concerned has had to bear an individual and excessive burden (see, among other authorities, Sporrong and Lönnroth v. Sweden, 23 September 1982, §§ 69 and 73, Series A no. 52).42.  Even assuming that the impugned interference had been provided for by law and pursued an aim in the public interest, it in any event fell short of the requirement of proportionality, as will be set out below (see, mutatis mutandis, Maksymenko and Gerasymenko v. Ukraine, no. 49317/07, § 69, 16 May 2013, and Gladysheva v. Russia, no. 7097/10, §§ 75-76, 6 December 2011).43.  The need to correct an old “wrong” should not disproportionately interfere with a new right which has been acquired by an individual relying on the legitimacy of the public authority’s action in good faith (see, mutatis mutandis, Pincová and Pinc v. the Czech Republic, no. 36548/97, § 58, ECHR 2002‑VIII). The risk of any mistake made by the State authority must be borne by the State itself and the errors must not be remedied at the expense of the individuals concerned (see Gashi v. Croatia, no. 32457/05, § 40, 13 December 2007; and Trgo v. Croatia, no. 35298/04, § 67, 11 June 2009). In the context of revoking ownership of a property transferred erroneously, the good governance principle may not only impose on the authorities an obligation to act promptly in correcting their mistake (see, for example, Moskal, cited above, § 69), but may also necessitate the payment of adequate compensation or another type of appropriate reparation to its former bona fide holder (see, mutatis mutandis, Pincová and Pinc, cited above, § 53; Gladysheva, cited above, § 80, and Maksymenko and Gerasymenko v. Ukraine, cited above, § 64).44.  In the present case the domestic courts rejected the applicant company’s claim for recovery of the money paid under the invalidated sales contract. It was established, however, that the applicant company had lost its property title through the fault of the Bailiffs Service (see paragraph 8 above). Nonetheless, no compensation was paid. This factor alone is sufficient for the Court to find that the applicant company was subjected to a disproportionate burden (compare Maksymenko and Gerasymenko v. Ukraine, no. 49317/07, § 69, 16 May 2013, and Kryvenkyy v. Ukraine, no. 43768/07, § 46, 16 February 2017).45.  There has accordingly been a violation of Article 1 of Protocol No. 1 to the Convention.APPLICATION OF ARTICLE 41 OF THE CONVENTION46.  Article 41 of the Convention provides:“If the Court finds that there has been a violation of the Convention or the Protocols thereto, and if the internal law of the High Contracting Party concerned allows only partial reparation to be made, the Court shall, if necessary, afford just satisfaction to the injured party.”Damage47.  The applicant company claimed EUR 8,018.86 in respect of pecuniary damage. According to its calculation, that sum corresponded to the price it had paid for the lorry.48.  The Government contested that claim as unsubstantiated.49.  The Court reiterates that a judgment in which it finds a breach imposes on the respondent State a legal obligation to put an end to the breach and make reparation for its consequences in such a way as to restore as far as possible the situation existing before the breach (see Iatridis v. Greece (just satisfaction) [GC], no. 31107/96, § 32, ECHR 2000‑XI). There must be a clear causal connection between the pecuniary damage claimed by the applicant and the violation of the Convention (see, for instance, Kurić and Others v. Slovenia (just satisfaction) [GC], no. 26828/06, § 81, ECHR 2014, and the cases cited therein).50.  The Court observes that the amount claimed in the present case was intended to cover the value of the crane lorry at the time (see paragraphs 47 and 6 above). In the light of the conclusion of a violation of Article 1 of Protocol No. 1, found in respect of the lack of compensation for that crane lorry, which the applicant company had bought in good faith and the title to which it had lost through the fault of the State Bailiff (see paragraph 45 above), the Court awards the applicant company the full amount claimed (see, for a similar approach, Grafov v. Ukraine [Committee], no. 4809/10, § 47, 18 December 2018).Costs and expenses51.  The applicant company did not submit any claim in respect of costs and expenses. The Court therefore makes no award under this head.Default interest52.  The Court considers it appropriate that the default interest rate should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.FOR THESE REASONS, THE COURT, UNANIMOUSLY, Declares the application admissible;Holds that there has been a violation of Article 1 of Protocol No. 1 to the Convention;Holds(a)  that the respondent State is to pay the applicant company, within three months, EUR 8,018.86 (eight thousand and eighteen euros and eighty-six cents), to be converted into the currency of the respondent State at the rate applicable at the date of settlement, plus any tax that may be chargeable;(b)  that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amount at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points.Done in English, and notified in writing on 11 June 2020, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.Victor Soloveytchik  Gabriele Kucsko-Stadlmayer Deputy Registrar President