CASE OF S.C. FIERCOLECT IMPEX S.R.L. v. ROMANIA

1. The case originated in an application (no. 26429/07) against Romania lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by a Romanian company, S.C. Fiercolect Impex S.R.L. (“the applicant company ”), on 19 June 2007.
2. The applicant company was represented by Mr R. Chiriţă, a lawyer practising in Cluj- Napoca. The Romanian Government (“the Government”) were represented by their Agent, Mrs C. Brumar, from the Ministry of Foreign Affairs.
3. On 18 December 2012 the application was communicated to the Government.
I. THE CIRCUMSTANCES OF THE CASE
4. The applicant, S.C. Fiercolect Impex S.R.L., was a Romanian limited liability company, with a registered office in Cluj- Napoca.
5. On 7 March 2002 the Cluj Prefecture issued the applicant company with an operating permit, which was valid until 7 March 2005. The applicant company was required to apply for an extension of the permit if the initial conditions of operation did not change. Its main activity consisted in collecting and recycling scrap iron.
6. Under Article 5 of Order no. 265/2001 (see paragraph 2 8 below) an application for extension of the operating permit had to be submitted at least thirty days prior to the expiry of the previous permit. As the applicant company ’ s permit was due to expire on 7 March 2005, on 4 January 2005 it applied for an extension of the existing permit.
7. The applicant company also applied to the Regional Environment Agency (“REA”) for an environmental permit, which according to the law had to accompany the application for extension of the operating permit.
8. REA registered the applicant company ’ s application but refused to accept the accompanying documents on the grounds that on 2 0 December 2004 a new order providing for the authorisation of activities with a significant impact on the environment had been adopted and the guidelines for implementing the new order had not yet been published.
9. The relevant guidelines were published on 11 January 2005.
10. In a letter of 25 January 2005, REA informed the applicant company that under the new Order no. 876/2004, its activity was considered to have a significant impact on the environment and that it should therefore follow the authorisation procedure set out in that order. The applicant company was invited to submit new supporting documents within thirty days.
11. The applicant company submitted the requested documents on 27 January 2005.
12. A new environmental permit was issued on 24 March 2005. On 14 April 2005 the prefecture issued a new operating permit.
13. Between 7 March and 14 April 2005 the applicant company continued to carry out its activity.
14. Following an inspection carried out at the applicant company ’ s headquarters, on 6 May 2005 the Cluj Finance Inspectorate ( Garda Financiară Cluj ) fined the company ROL 25,000,000 (approximately 694 euros) and ordered the confiscation of ROL 768,471,700 (approximately EUR 21, 3 47 ), representing the market value of the scrap iron collected for recycling between 8 March and 14 April 2005. The finance inspectorate based its decision ( proces-verbal de constatare şi sancţionare a contravenţiilor ) against the applicant company on Article 13 (a) of Emergency Government Ordinance no. 16/2001.
B. Proceedings brought by the applicant company
1. Proceedings against the decision of 6 May 2005
15. The applicant company lodged a complaint against the decision of the Cluj Finance Inspectorate, claiming that the competent authorities were responsible for the delay in issuing the operation permit. In this connection, it argued that the application for an extension of the operating permit had been lodged in good time, namely on 4 January 2005.
16. On 2 August 2005 the Cluj-Napoca District Court dismissed the complaint as unfounded. It noted that the decision of 6 May 2005 was in accordance with Article 17 of Government Ordinance no. 2/2001. It also noted that the applicant company had continued to carry out its activity despite the fact that its operating permit had expired on 7 March 2005; it had therefore infringed Article 7 § 1 in conjunction with Article 13 (a) of Emergency Government Ordinance no. 16/2001. The court dismissed the applicant company ’ s claim that liability for its situation lay with the authorities for failing to issue its environmental and operating permits in time, holding that such a claim would be relevant only within the framework of a tort action and could not be raised as a reason for exonerating a company that had committed an administrative offence.
17. The applicant company appealed. On 2 December 2005 the Cluj County Court dismissed the appeal, upholding the decision of the first ‑ instance court on the same grounds.
2. Administrative proceedings against REA
18. The applicant company brought administrative proceedings against REA, seeking to recover the damages incurred as a result of the late issuing of the environmental permit. It based its action on Law no. 554/2004. It claimed that because of the amendment to the legislation concerning the procedure for issuing permits, the competent authority had not issued its permit in due time. It pointed out that even after the publication of the guidelines for the application of the new order on 11 January 2005, REA had not acted effectively, as it had not written to the applicant company until 25 January 2005. Moreover, REA had interpreted the applicant company ’ s application as a request for a new permit instead of for an extension of the existing permits, given that the operation conditions had not changed. That had further delayed the authorisation procedure.
19. On 10 March 2006 the Cluj County Court dismissed the action as premature, holding that the applicant company had not followed the prior procedure required by law before lodging an action with the court.
20. The applicant company lodged an appeal, claiming that the dismissal of its action as premature had been unjustified given that the defendant agency had already submitted its observations on the merits.
21. On 31 May 2006 the Cluj Court of Appeal allowed the applicant company ’ s appeal. It quashed the first-instance judgment and remitted the case to the first-instance court for examination on the merits.
22. On 15 September 2006 the Cluj County Court dismissed the applicant company ’ s action. It held that the applicant company had not complied with the obligation to lodge an application for a new environmental permit forty - five days prior to the expiry of the existing permit, as provided for by Article 16 of the new order regulating the procedure for obtaining an environmental permit, namely Order no. 876/2004. It noted that the previous order, no. 265/2001, had provided only for the obligation to obtain an environmental permit, without establishing the procedure to be followed in that respect. It concluded that the competent agency had issued the environmental permit within the ninety ‑ day deadline provided for by the new order and could not therefore be held liable for the damages incurred by the applicant company.
23. The applicant company lodged an appeal on points of law, pointing out that on 4 January 2005 when it had lodged its application for an extension of the operating permit, the guidelines for implementation of the new order had not yet been published. It also claimed that it had been unable to apply for a new permit forty - five days prior to the expiry of its existing environmental permit on 31 January 2005, as the new order had entered into force on 20 December 2004 and the relevant guidelines had not been published until 11 January 2005. The applicant company also complained that the first-instance court had interpreted Article 16 of Order no. 876/2004 to mean that the administrative authority had the option of extending the existing permit if the operating conditions had not changed, instead of an obligation to extend the permit. In this connection, the applicant company pointed out that, like the previous order, the new order provided for the ope legis extension of an existing permit for up to five years if the company ’ s operating conditions had not changed. It also pointed out that at the time of lodging its application for a new permit on 4 January 2005, the applicable law was Order no. 265/2001, which provided for a time-limit of thirty days for the issuance or renewal of an operating permit.
24. On 8 February 2007 the Cluj Court of Appeal dismissed the applicant company ’ s appeal on points of law, upholding the first ‑ instance judgment. It held that the law applicable to the applicant company was Order no. 876/2004, which had entered in force before the expiry of the applicant company ’ s environmental permit. It concluded that even assuming that the administrative authorities were liable for non-compliance with the applicable legislation, the applicant company had had no right to continue an illicit activity in the absence of the authorisation required by law. The applicant company should have suspended its activity until it had obtained the necessary permits and should then have brought proceedings seeking to recover any damages – as long as it could prove the existence and extent of such damages.
C. Updated information about the applicant company
25. Following a request lodged by the sole shareholder of the applicant company on 10 February 2010, the National Chamber of Commerce took note of the voluntary dissolution of the company.
26. In January 2013, before the Court had communicated the applicant company ’ s complaints to the respondent Government, the administrator and sole shareholder, Mr Teodor Morar, informed the Court of the company ’ s dissolution on 24 February 2010 and his intention to continue the procedure initiated before the Court by the applicant company.
II. RELEVANT DOMESTIC LAW AND PRACTICE
27. At the relevant time, the procedure for granting, extending, suspending and withdrawing a permit for collecting scrap iron for recycling was set out in Order no. 265/2001.
28. Article 5 of the order provided that the beneficiary of an operating permit had the right to apply for renewal of the permit. The application had to be submitted at least thirty days prior to the expiry of the existing permit. The general information contained in the permit renewal application was much the same as that set out in the initial operating permit application. An environmental permit had to be submitted together with the application.
29. On 20 December 2004 a new order (no. 876/2004) concerning the procedure for authorising activities with a significant environmental impact was adopted. It was published together with the guidelines for its implementation on 11 January 2005.
30. Under Article 9 of the order, an application for a new environmental permit must be submitted at least forty-five days prior to the expiry of the existing permit.
31. Article 10 of the order stipulates that an environmental permit will be issued within ninety days of the receipt by the authority of all requested documents.
32. Article 16 provides for the possibility of extending an environmental permit for up to five years if the operating conditions of the company have not changed.
C. Emergency Government Ordinance no. 16/2001
33. Under Article 7 § 1 of the ordinance, a company could carry out the activity of collecting scrap iron for recycling on the basis of an operating permit issued by the county ’ s prefecture and of an environment permit issued by the territorial authority for environmental protection. Pursuant to Article 13 (a), non-compliance with the requirements of Article 7 § 1 constitutes an administrative offence and is punishable by a fine of between 25 and 50 million Romanian lei (ROL) and confiscation of the market value of the scrap iron collected without the required permits.
34. The establishment, organisation and functioning of companies in Romania are governed mainly by the provisions of the Companies Act ( Law no. 31/1990 ), as republished and subsequently amended.
35. Under section 237 of the Act the assets belonging to a dissolved company that has been struck from the companies ’ register are transferred to the company ’ s shareholders.
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1 TO THE CONVENTION
36. The applicant company complained that the confiscation of a large sum of money resulting from its activity, as an additional sanction to the fine imposed by the finance inspectorate represented an infringement of its right to the peaceful enjoyment of its possessions. It 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.”
1. Inadmissibility ratione personae
37. The Government submitted that the applicant company ’ s complaints should be dismissed as inadmissible ratione personae. In this connection they pointed out that the applicant company no longer existed as a legal entity, as it had been struck from the register of companies after being dissolved on 23 February 2010.
38. The Court notes at the outset that the application was initially lodged on behalf of the applicant company by its sole shareholder, in his capacity as administrator of the company.
39. Under Article 34 of the Convention the existence of a “victim of a violation” is required before the protection mechanism of the Convention can be put into motion. The Court reiterates that where the acts or omissions complained of affect a company, the application should be brought by that company. Disregarding a company ’ s legal personality as regards the question of being a “victim” will be justified only in exceptional circumstances (see Capital Bank AD v. Bulgaria (dec.), no. 49429/99, 9 September 2004; G.J. v. Luxembourg, no. 21156/93, § 23, 26 October 2000; and Agrotexim and Others v. Greece, 24 October 1995, § 66, Series A no. 330 ‑ A). On the other hand, the sole owner of a company can claim to be a “victim” within the meaning of Article 34 of the Convention in so far as the impugned measures taken in respect of his company are concerned, because in the case of a sole owner there is no risk of differences of opinion among shareholders or between shareholders and a board of directors as to the reality of infringement of Convention rights or to the most appropriate way of reacting to such an infringement (see Ankarcrona v. Sweden (dec.), no. 35178/97, 27 June 2000; Dyrwold v. Sweden, no. 12259/86, Commission decision of 7 September 1990; and Gubiyev v. Russia, no. 29309/03, § 53, 19 July 2011 ).
40. The Court notes that the alleged breaches of Article 1 of Protocol No. 1 in the present case concern the procedure whereby the applicant company had challenged the finance inspectorate ’ s decision to impose a fine and to confiscate a large sum of money. Under the Companies Act, following the dissolution of a company and its removal from the register, its assets are transferred to its shareholders (see paragraph 3 5 above). In the instant case, the applicant company was a limited liability company with a sole shareholder. After the dissolution of the applicant company, its sole shareholder expressed his interest in continuing the proceedings before the Court.
41. In these circumstances, the Court considers that since its decision will have a direct impact on the sole shareholder as the person to whom the applicant company ’ s claims have been transferred, the Government ’ s objection has to be dismissed.
2. Inadmissibility ratione materiae
42. The Government stressed that the Convention system did not safeguard the obtaining of property. The applicant company ’ s complaint concerned its dissatisfaction with the domestic courts ’ decisions to dismiss its tort action as well as its action seeking compensation for the amount confiscated, representing the profit it had obtained between 7 March and April 2005. The applicant company ’ s complaint in that respect should therefore be dismissed as inadmissible ratione materiae.
43. The applicant company submitted that its complaint under Article 1 of Protocol No. 1 did not concern the right to “ obtain property ”, as submitted by the Government; on the contrary, it concerned the confiscation of its profit by the State. Accordingly, the case raised an issue of deprivation of property.
44. The Court reiterates that the concept of “possessions” in the first part of Article 1 of Protocol No. 1 has an autonomous meaning which is not limited to the ownership of physical goods and is independent from the formal classification in domestic law: certain other rights and interests constituting assets can also be regarded as “property rights”, and thus as “possessions” for the purposes of this provision. The issue that needs to be examined in each case is whether the circumstances of the case, considered as a whole, conferred on the applicant title to a substantive interest protected by Article 1 of Protocol No. 1 ( see among others, Centro Europa 7 S.r.l. and Di Stefano v. Italy [GC], no. 38433/09, § 171, ECHR 2012 ).
45. The Court observes that the “possession” at issue in the present case is a sum of money which resulted from the applicant company ’ s activity and was already in its possession and in respect of which the finance inspectorate ordered the confiscation by its decision of 6 May 2005. Therefore, the Court considers that the applicant company ’ s complaint falls within the scope of Article 1 of Protocol No. 1 to the Convention. Consequently, the Government ’ s objection has to be dismissed.
46. The Court further notes that the applicant company ’ s complaint is not inadmissible on any other grounds. It must therefore be declared admissible.
47. The applicant company alleged that there had been an interference with its right to the peaceful enjoyment of its possessions.
48. It firstly complained about the significant value of the confiscated sum.
49. Secondly, it claimed that it had had to bear an excessive and unfair burden, for which the competent authorities alone were responsible since they had issued the necessary permits with undue delay.
50. The applicant company further submitted that the purpose of the confiscation measure had not been reparative but punitive. It contended that it had taken every measure required to obtain the extension of its permits, which had eventually been issued because it had been carrying out its activity in compliance with the legal requirements. It also emphasised that it had acted in good faith, making all possible efforts to obtain the permits in due time, but a legislative void had made it impossible to predict the authorities ’ requirements. It could not have foreseen that the application for an extension of its environmental permit should have been lodged forty ‑ five days prior to the expiry of the old permit, because when it had lodged its application, that rule had not been stipulated by law. It also pointed out that if the period of forty-five days had been calculated from 4 January 2005, when the application had been lodged, the authorities should have issued the permit on 18 February 2005.
51. Lastly, the applicant company contended that it could not have suspended its activity until it had obtained the operating permit, as the suspension would have severely affected its activity.
52. The Government submitted that the interference complained of amounted to control of the use of property and that the national authorities enjoyed a certain margin of appreciation in that area. They pointed out that the restriction on the applicant company ’ s use of property had not imposed an excessive burden on it, contrary to the second paragraph of Article 1 of Protocol No. 1 to the Convention.
53. The Government further maintained that the applicant company had continued to collect scrap iron for recycling without a valid permit, instead of suspending its activity until a new permit had been issued.
54. The Government contended that the fine imposed on the applicant company could not be considered as excessive. Moreover, the confiscation of the applicant company ’ s profit was justifiable as it represented the proceeds of an unlawful activity.
(a) The applicable rule and whether there was interference
55. Article 1 of Protocol No. 1 comprises three distinct rules: the first rule, set out in the first sentence of the first paragraph, is of a general nature and enunciates the principle of the peaceful enjoyment of property; the second rule, contained in the second sentence of the first paragraph, covers deprivation of possessions and subjects it to certain conditions; the third rule, stated in the second paragraph, recognises that the Contracting States are entitled, inter alia, to control the use of property in accordance with the general interest. The three rules are not, however, distinct in the sense of being unconnected. The second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule (see, among other authorities, James and Others v. the United Kingdom, 21 February 1986, § 37, Series A no. 98), which reiterates in part the principles laid down by the Court in Sporrong and Lönnroth v. Sweden (23 September 1982, § 61, Series A no. 52).
56. In the Court ’ s view, there was indisputably an interference with the applicant company ’ s right to peaceful enjoyment of its possessions. It remains to be determined whether the measure was covered by the first or second paragraph of that Convention provision.
57. The Court reiterates its constant approach that a confiscation measure, even though it involves the deprivation of possessions, constitutes nevertheless control of the use of property within the meaning of the second paragraph of Article 1 of Protocol No. 1 (see Riela and Others v. Italy (dec.), no. 52439/99, 4 September 2001; Air Canada v. the United Kingdom, 5 May 1995, § 34, Series A no. 316 ‑ A; AGOSI v. the United Kingdom, 24 October 1986, § 34, Series A no. 108 and Silickienė v. Lithuania, no. 20496/02, § 62, 10 April 2012 ). The same approach must be followed in the present case. The Court must further examine whether the interference was justified, that is whether it was provided for by law, was in the general interest and was proportionate.
(b) Whether the Romanian authorities observed the principle of lawfulness and pursued a legitimate aim
58. The Court reiterates that Article 1 of Protocol No. 1 requires that any interference by a public authority with the peaceful enjoyment of possessions should be lawful. The rule of law, one of the fundamental principles of a democratic society, is a notion inherent in all the Articles of the Convention (see Vistiņš and Perepjolkins v. Latvia [GC], no. 71243/01, § 95, 25 October 2012).
59. In the instant case it is not disputed by the parties that the interference was lawful. The Court notes that the two penalties were imposed on the applicant company under Article 13 (a ) in conjunction with Article 7 § 1 of Emergency Government Ordinance no. 16/2001. Under the terms of those provisions, any legal person carrying out the activity of collecting scrap iron for recycling without an operating permit and an environment permit was liable to a fine of between 25 and 50 million Romanian lei (ROL) and confiscation of the unlawfully obtained revenue. The wording of the provisions is clear and gives no choice between the penalties; both must be applied together. The Court therefore finds that the interference was prescribed by law.
60. The Court further considers that the legislation at issue pursued a legitimate aim, namely it ensured the control by the State of the conditions under which activities with an impact on the environment were carried out by companies.
(c) Whether the authorities struck a fair balance
61. The concern to achieve a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual ’ s fundamental rights is reflected in the structure of Article 1 of Protocol No. 1 as a whole and entails the need for a reasonable relationship of proportionality between the means employed and the aim sought to be achieved (see, among other authorities, Sporrong and Lönnroth, cited above, § 69; and Chassagnou and Others v. France [GC], nos. 25088/94, 28331/95 and 28443/95, § 75, ECHR 1999-III).
62. The Court notes that in the present case, the finance inspectorate imposed a fine of ROL 25,000,000 (approximately EUR 694 ) on the applicant company and confiscated a sum amounting to ROL 768,471, 700 (approximately EUR 21, 3 47 ) on account of the applicant company ’ s carrying out its activity in the absence of a valid operating permit.
63. It needs to be established whether the domestic authorities ’ decision to fine the applicant company and also to confiscate any profit it had made between 7 March and 14 April 2005 was proportionate.
64. The Court first notes that, in order to be considered proportionate, the interference should correspond to the gravity of the infringement.
65. As regards the seriousness of the breach committed, the Court notes that in today ’ s society the protection of the environment is an increasingly important consideration. The environment is a cause whose defence arouses the constant and sustained interest of the public, and consequently the public authorities. Financial imperatives should not be afforded priority over environmental protection considerations, in particular when the State has legislated in this regard. The public authorities therefore assume a responsibility which should in practice result in their intervention at the appropriate time in order to ensure that the statutory provisions enacted with the purpose of protecting the environment are not entirely ineffective (see Hamer v. Belgium, no. 21861/03, § 79, ECHR 2007 ‑ V (extracts).
66. The Court notes that in the present case the applicant company continued to carry out its activity in the absence of an environment permit, even though pursuant to the newly adopted legislation, its activity was considered by the domestic authorities to have a significant impact on the environment. In the Court ’ s view the applicant company could have asked the authorities what to do and should have suspended its activity until it had obtained the permits required by law for its operation instead of carrying out its activity after the expiry of its permits. It could then have brought proceedings seeking to recover any damages, as indicated by the domestic court (see paragraph 2 4 above ).
67. The Court has recognised the wide margin of appreciation of the States concerning the measures taken in the sphere of environmental protection from the standpoint of Article 1 of Protocol No. 1 (see Powell and Rayner v. the United Kingdom, 21 February 1990, § 44, Series A no. 172; Fredin v. Sweden (no. 1) (18 February 1991, § 48, Series A no. 192; Pine Valley Developments Ltd and Others v. Ireland, 29 November 1991, Series A no. 222; and Hatton and Others v. the United Kingdom [GC], no. 36022/97, §§ 97, 98 and 100, ECHR 2003 ‑ VIII).
68. The issue whether such conduct should be punished by a financial penalty with a deterrent effect such as a fine and the confiscation of the unlawfully obtained revenue comes within the Contracting States ’ margin of appreciation.