EHRM, 31-07-2008, nr. 72034/01

Article 11 § 4 provides that expropriation or other forcible limitation of ownership rights is possible only in the public interest and on the basis of law, and against compensation.

Under Article 36 § 1 anyone may assert his or her rights under a set procedure before an independent and impartial tribunal, and in specified cases before another organ. Under paragraph 2, anybody who claims that his or her rights have been violated by a decision of a public administrative organ may apply to a court for a review of the legality of that decision, unless the law provides otherwise. However, the review of decisions affecting the fundamental rights and freedoms listed in the Charter may not be excluded from the jurisdiction of the courts. Paragraph 3 provides that everybody is entitled to compensation for damage caused to him or her by an unlawful decision of a court, another organ of the State or the public authorities, or by maladministration. Under paragraph 4, the conditions and detailed provisions in this respect are determined by statute.

Under Article 38 § 1 nobody may be denied access to his lawful judge. The jurisdiction of the court and the competence of the judge are determined by statute. Paragraph 2 provides that everybody is entitled to have his or her case considered in public without unnecessary delay and in his or her presence, and to comment on all submitted evidence. The public may be excluded only in cases specified by law.

Section 1 provided that a credit union is a legal entity governed by the provisions of the Commercial Code on cooperatives unless the Act provides otherwise.

Section 3 stipulated, inter alia, that credit unions may provide loans to and receive deposits from their members, other credit unions and banks.

Section 24(1) and (2) provided that the head of the OSCU is appointed and removed from office by the Minister of Finance and that he is empowered, subject to the Minister's approval, to decide on the status, remit and policy of the OSCU.

Under section 27(1) the OSCU must have exercised its powers with due diligence and efficiently while respecting the interests of credit union shareholders.

In accordance with section 28(2) the OSCU may have imposed sanctions for any breach of the Act or other statute by a credit union or its organs or members.

Under section 28(3)(c) the OSCU was empowered, inter alia, to impose receivership for a period of six months instead of or together with the sanctions provided for in the preceding subsection.

In accordance with section 28(3) the OSCU may have issued repeated receivership orders.

Under section 28(6) receivership was governed by the Banks Act, which applies mutatis mutandis.

Section 28(10) provided that a decision on receivership may have been appealed before the Ministry of Finance within 15 days of its service.

Section 28(11) stipulated that proceedings before the OSCU are governed by the Code of Administrative Procedure unless the Act provides otherwise.

The newly inserted section 28(d)(1) provides that the powers of all the organs of a credit union, with the exception of its supervisory board, are suspended on service of a receivership order and are assumed by the appointed receiver. The supervisory board is entitled to appeal the OSCU's decisions.

Section 28c(1) provides that a receiver is appointed, removed and employed by the OSCU, which decides on his or her remuneration.

Section 26(2) provided that a bank may be placed in receivership by the Czech National Bank without any prior notice or invitation to remedy deficiencies identified in its business.

Section 26(3) stipulated, inter alia, that business transactions to the detriment of a bank's clients or transactions which constitute a risk to the stability and security of the banking sector of the financial market; infringements of the Banks Act or other statutes or secondary legislation adopted by the Czech National Bank; and a situation where the total volume of reserves and provisions set aside by the bank is not sufficient to cover the risks arising from the volume of classified assets recorded by it, are considered to be deficiencies within the meaning of the Act.

Under section 26(4) proceedings on receivership were governed by the administrative procedure legislation unless the Banks Act provides otherwise.

According to section 30 the Czech National Bank may have imposed receivership where deficiencies in a bank's activities endangered the stability of the banking system and the shareholders had not taken the necessary steps to eliminate them.

Article 245(2) provided that a court, while reviewing a decision adopted by an administrative authority within its discretionary power granted by a statute, may have examined only whether such a decision had been taken in conformity with rules laid down by a statute.

Article 247 et seq. entitled individuals or legal entities claiming that their rights had been curtailed by a decision of an administrative authority to apply for judicial review to determine the legality of that decision.

Under Article 250i § 1 the court, when reviewing the legality of the decision, must have relied on the facts as they stood at the time of delivery of the impugned decision; no evidence was taken.

The Code entered into force on 1 January 2003, replacing Part V of the Code of Civil Procedure.

Article 71 § 1(d) and (e) provides that a plaintiff is obliged to substantiate the relevant factual and legal grounds on which the action is based and to identify evidence in its support.

Under Article 75 § 2 the administrative court bases its decision on the facts and the law as they stood at the time of the impugned ruling. It may take evidence in this respect under Article 77 § 1.

Under Article 59 § 1 an appellate authority has full jurisdiction to examine a contested decision. If need be, it may complete the proceedings in question and remedy any shortcomings identified.

Article 244 § 6 provides that the supervisory board of a cooperative is entitled to request from the board of directors any information concerning the financial situation of the cooperative. The board of directors is obliged to inform the supervisory board without delay of any fact which might have serious consequences for the financial situation of the cooperative or the status of the cooperative or its shareholders.

Section 17 provides that an audit made by a controlling authority may be contested by objections which have to be raised within five days from the service of the audit on a controlled person.

Under Section 18 an employee of a controlling authority is empowered to decide on raised objections. A controlled person may appeal that decision before the head of that authority within 15 days from that decision. The decision on the appeal is irrevocable.

According to Section 26 the Code of Administrative Procedure is not applicable on proceedings under Section 18.

Articles 244 – 250s [Part V] of the Code of Civil Procedure, in so far as they governed procedure of administrative courts, were repealed as of 31 December 2002 by this ruling. In its reasoning the Constitutional Court found these provisions contrary to Article 6 of the Convention as they, inter alia, limited jurisdiction of administrative courts to review administrative acts to issues of legality. It found that that the legislation in question empowered administrative courts to quash merely illegal decisions, not those embodying errors in fact. In other words, as the Constitutional Court put it, deliberation of administrative authorities could not be replaced, according to those provisions, by that of independent courts.

The gist of the applicant credit union's complaint consists in the allegation that it was placed in receivership contrary to Article 1 of Protocol No. 1, losing control of its business during the intervention by the receiver. The Court therefore considers that it is the second paragraph of Article 1 of Protocol No. 1 which is applicable (see Capital Bank AD v. Bulgaria, no. 49429/99, § 86, ECHR 2005-XII (extracts), with further reference to, mutatis mutandis, AGOSI v. the United Kingdom, judgment of 24 October 1986, Series A no. 108, § 51; and Bosphorus Hava Yollari Turizm ve Ticaret Anonim Şirketi v. Ireland[GC], no. 45036/98, §§ 153–154, ECHR 2005-VI). This finding is not altered by the fact that the applicant credit union alleged that its financial losses had been due to the unprofessional conduct of the receiver, as this matter shall be taken into consideration in the assessment of the claims submitted under Article 41 of the Convention.

The Court reiterates that its power to review compliance of impugned acts with national law is limited and it is not its task to take the place of the domestic courts (see Sovtransavto Holding v. Ukraine, no. 48553/99, § 95, ECHR 2002-VII). However, that does not dispense with the need for the Court to determine whether the interference in issue complied with the requirements of Article 1 of Protocol No. 1 (ibid.).

The Court reiterates that the first and most important requirement of Article 1 of Protocol No. 1 is that any interference by a public authority with the peaceful enjoyment of possessions should be lawful: the second sentence of the first paragraph authorises a deprivation of possessions only ‘subject to the conditions provided for by law’ and the second paragraph recognises that States have the right to control the use of property by enforcing ‘laws’. Moreover, the rule of law, one of the fundamental principles of a democratic society, is inherent in all the Articles of the Convention (see Capital Bank AD v. Bulgaria, cited above, with further reference to Iatridis v. Greece[GC], no. 31107/96, § 58, ECHR 1999-II).

The requirement of lawfulness, within the meaning of the Convention, presupposes, among other things, that domestic law must provide a measure of legal protection against arbitrary interferences by the public authorities with the rights safeguarded by the Convention (see Hasan and Chaush v. Bulgaria[GC], no. 30985/96, § 84, ECHR 2000-XI). Furthermore, the concepts of lawfulness and the rule of law in a democratic society require that measures affecting fundamental rights be, in certain cases, subject to some form of adversarial proceedings before an independent body competent to review the reasons for the measures and the relevant evidence (see, mutatis mutandis, Al-Nashif v. Bulgaria, no. 50963/99, § 123, 20 June 2002). It is true that Article 1 of Protocol No. 1 contains no explicit procedural requirements and the absence of judicial review does not amount, in itself, to a violation of that provision (see Fredin v. Sweden (no. 1), judgment of 18 February 1991, Series A no. 192, § 50). Nevertheless, it implies that any interference with the peaceful enjoyment of possessions must be accompanied by procedural guarantees affording to the individual or entity concerned a reasonable opportunity of presenting their case to the responsible authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision. In ascertaining whether this condition has been satisfied, a comprehensive view must be taken of the applicable judicial and administrative procedures (see Jokela v. Finland, no. 28856/95, § 45, ECHR 2002-IV with further references).

Turning to the specific facts of the case, the Court observes that the receiver, exercising the powers of the statutory organ of the applicant credit union during the receivership, was in full control of all of its business and accountancy documents showing its overall financial situation. Whilst exercising those powers he was the sole person entitled to grant access to those documents. He was nevertheless not obliged to do so under the law then in force. According to the applicant credit union, he denied its supervisory board access to the documents in question. The Government did not dispute that allegation.

The Court notes that the financial situation of a given entity is one of the decisive factors in the decision to impose receivership. Accordingly, it plays a central role in any subsequent review of such a decision and is often determinative of its outcome. Therefore, it is indispensable, in the Court's view, for any entity intending to contest a decision to place it in receivership to have access to all of its documents and other materials which may be of assistance in substantiating and establishing its appeal against such a decision. Business and accountancy documents fall within that category. It is true that the right to such access is not an absolute one, as there may be competing interest at stake. However, any limitation must not impair the very essence of that right. Otherwise the right to appeal decisions on receivership would be somewhat illusory, as an appellant would not have any reasonable opportunity of contesting those rulings and adducing evidence in support of its allegations. This is particularly so in proceedings where the decision whether to grant access to business and accountancy documents rests with a receiver, an employee of a regulatory authority who is appointed under the decision imposing receivership. In such cases, whether or not an entity has a reasonable opportunity of challenging the receivership to which it is made subject is determined by a receiver appointed, removed from office and employed by the State authority whose decision the entity intends to contest. In this situation, the executive branch of the State can frustrate any reasonable attempt to contest the imposition of receivership by means of a decision denying access to indispensable documents, which is not amenable to review. Taking into account the gravity of a decision to impose receivership and its consequences for an entity operating on the financial market, such denials must be, in the Court's view, subject to judicial scrutiny by an independent tribunal and not just by an employee of the executive branch of the State. Applying these principles in the instant case, the Court finds that none of the above-mentioned requirements regarding the denial of access to the applicant credit union's documents was met in respect of the review of the decision of 11 January 2000 imposing the receivership. It follows that the applicant credit union was deprived of the procedural guarantees affording it a reasonable opportunity of presenting its case to the responsible authorities with a view to effectively challenging the decision to place it in receivership.

The Court notes that the applicant credit union did not allege that the denial of access continued when it challenged the decisions of 12 July 2000 and 12 July 2001 extending the receivership. However, the only legal avenue by which the applicant credit union could dispute the receivership had ceased to exist by that time, as its supervisory board lost its standing to appeal with the entry into force of the amendment to the Act on 1 May 2000. The Court's conclusion with regard to the decision adopted on 11 January 2000 therefore also applies mutatis mutandis to those two decisions.

It is true that in such a sensitive economic area as the stability of the financial market the Contracting States enjoy a wide margin of appreciation (see Olczak v. Poland (dec.), no. 30417/96, § 85, ECHR 2002-X (extracts)) and that in certain situations — especially in the context of a credit union crisis such as the one facing the Czech Republic at the relevant time — there may be a paramount need for the State to act in order to avoid irreparable harm to a credit union, its depositors and other creditors, or credit unions and the financial system as a whole. Nevertheless, if such margin were limitless, the rights embodied in Article 1 of Protocol No. 1 would become illusory. Therefore, it has to be construed so as to guarantee to individuals that the essence of their rights is protected.

Applying this principle to the instant case, the Court considers that the taking of control of the applicant credit union's business by the receiver could in itself be regarded as falling within that margin of appreciation, as it was not established by the applicant credit union that the responsible State authorities had lacked a reasonable suspicion that its financial situation required them to impose receivership. However, on the facts of the present case, in which the applicant credit union was denied access to its business documents (see paragraph 90) and was unable subsequently to challenge that denial before a court, this aspect of the imposition of the receivership under Article 1 of Protocol No. 1 remains subject to the Court's review for the purposes of Article 1 of Protocol No. 1. Once the State was in full control of the applicant credit union's business, thus substantially reducing the threat constituting the reason for placing it in receivership, the Court, having regard to the fact that the Government did not put forward any arguments to justify the denial in question, sees no reason which would dispense the State from affording the applicant credit union a reasonable opportunity to have access its business documents or to contest the denial before a court.

In the light of the foregoing, the Court concludes that the interference with the applicant credit union's possessions was not surrounded by sufficient guarantees against arbitrariness and was thus not lawful within the meaning of Article 1 of Protocol No. 1 (see, mutatis mutandis, H.L. v. the United Kingdom, no. 45508/99, § 124, ECHR 2004 IX). This conclusion makes it unnecessary to ascertain whether the other requirements of that provision have been complied with (see Iatridis, cited above, § 62). The Court thus expresses no opinion on the question whether the statutory requirements for the imposition of receivership were met in the instant case or on the issue of whether the impairment struck a fair balance between the applicant credit union's rights and the demands of the general interest of the community.

There has therefore been a violation of Article 1 of Protocol No. 1.

The Court reiterates that the piercing of the ‘corporate veil’ or the disregarding of a company's legal personality will be justified only in exceptional circumstances, in particular where it is clearly established that it is impossible for the company to apply to the Convention institutions through the organs set up under its articles of incorporation or — in the event of liquidation — through its liquidators (see Agrotexim and Others v. Greece, cited above, § 66). In assessing those circumstances, the Court takes into consideration in the first place the nature of the complaint and the conflict of interests between the parties involved.

Turning to the present case, the Court notes that the applicants' complaints are essentially the same as those raised by the applicant credit union. Having regard to its finding of a violation of Article 1 of Protocol No. 1 in respect of the applicant credit union (see paragraph 96), the Court considers that the applicant credit union, acting through its supervisory board, successfully raised before the Court the claims asserted by its members. In these circumstances and with regard to the criteria established by the Court's case-law, the applicants cannot be regarded as having standing to apply to the Court (see Agrotexim and Others v. Greece, cited above, §§ 66 and 71, and Minda and Others v. Hungary, (dec.), no. 6690/02, 13 September 2005). The Government's objection in this regard must therefore be upheld.

The Court recalls that Article 35 § 4 of the Convention in fine enables it to dismiss an application it considers inadmissible ‘at any stage of the proceedings’. Thus, even at the merits stage the Court may reconsider a decision to declare an application admissible if it concludes that it should be declared inadmissible for one of the reasons given in the first three paragraphs of Article 35 of the Convention (see, mutatis mutandis, Blečić v. Croatia[GC], no. 59532/00, § 65, ECHR 2006).

In the light of the foregoing, the Court declares this part of the application incompatible ratione personae with the provisions of the Convention within the meaning of Article 35 § 3 and rejects it under Article 35 § 4 of the Convention.

The Court reiterates that for the determination of civil rights and obligations by a tribunal to satisfy Article 6 § 1 of the Convention, the tribunal in question must have jurisdiction to examine all questions of fact and law relevant to the dispute before it (see Terra Woningen B.V. v. the Netherlands, judgment of 17 December 1996, Reports 1996-VI, § 52; Chevrol v. France[GC], no. 49636/99, § 77, ECHR 2003-III; and I.D. v. Bulgaria, no. 43578/98, § 45, 28 April 2005). It is to be therefore examined whether the imposition of receivership by the OSCU was subject to direct review by a court with full jurisdiction (see British American Tobacco Company Ltd v. the Netherlands, judgment of 20 November 1995, Series A no. 331, §§ 84–87, and I.D., cited above, § 53). In doing so, the Court should confine itself as far as possible to examining the question raised by the case before it. Accordingly, it should only decide whether, in the circumstances of the case, the relevant national authorities had jurisdiction required by Article 6 § 1 of the Convention (Fischer v. Austria, judgment of 26 April 1995, Series A no. 312, § 33). The Court recalls in this regard that the lack of full jurisdiction by a court might be found, in the particular circumstances of a given case, to be compatible with Article 6 of the Convention. In assessing the sufficiency of a judicial review available to an applicant, it is necessary to have regard to matters such as the subject-matter of the decision appealed against, the manner in which that decision was arrived at and the content of the dispute, including the desired and actual grounds of appeal (see Bryan v. the United Kingdom, judgment of 22 November 1995, Series A no. 335 A, § 45).

The Court observes that the OSCU carried out the audit of the applicant company's economic standings on its own motion. The gathering of evidence and its assessment, i.e. establishing the facts of the case, was thus exclusively reserved for the OSCU. The audit was made accessible to applicant credit union on 10 January 2000, thus triggering the five-day limit under Section 17 of the State Control Act for the latter to contest it by raising objections. Pursuant to Section 18 thereof the objections raised by the applicant credit union were dealt with by an employee of the OSCU. His/her decision may have been contested before the head of the OSCU within 15 days of its service on the applicant credit union. Application of the Code of Administrative Procedure in that procedure was expressly excluded by Section 26 of the Act, however. There was no other administrative remedy against the finding of the audit. Whilst it is true that the decision imposing the receivership based on the aforementioned finding could, and indeed was, appealed before the Ministry of Finance, the audit, i.e. the finding as to the facts, was not reviewed as the Ministry found that it had been taken by the OSCU under the State Control Act and the former was therefore bound by it. The facts as assessed by the OSCU were not reviewable in administrative proceedings by any other administrative authority.

Moreover, according to section 24(1) and (2) of the Act, the OSCU was managed by a director appointed and removed from office by the Minister of Finance, who also exercised the power to approve in detail the OSCU's status, remit and policy. Hence, the OSCU was an authority subordinated to and dependent on the Ministry, which forms part of the executive branch and cannot therefore be deemed to be an independent and impartial tribunal conforming to the requirements of Article 6 § 1 of the Convention.

In the light of the foregoing, this case must be distinguished from the case of Bryan v. the United Kingdom (cited above) where there was no dispute as to the primary facts and where the safeguards available to the applicant in the administrative proceedings were uncontested.

As regards the judicial review of the case, the Court observes that until 31 December 2002 the Czech administrative courts did not have full jurisdiction to review administrative acts, their scrutiny being limited under Part V of the Code of Civil Procedure to the examination of issues of legality. It further notes that the application of that legislation by administrative courts was found by the Constitutional Court in 2001 incompatible with Article 6 of the Convention, as, in that court's view, administrative courts were not empowered to quash unlawful decisions but merely those which were illegal. The Court further notes that the newly adopted Code of Administrative Court Procedure, providing for full scrutiny of the law and the facts, entered into force on 1 January 2003. The impugned proceedings were conducted by the administrative courts under the latter Code on its entry into force. Accordingly, the impugned judicial decisions adopted after the above-mentioned date were delivered by courts which had full jurisdiction.

The Court considers, however, that the same conclusion does not apply to the judgment of the Prague High Court of 21 June 2002. The Government nonetheless argued that the procedural law as applied at the relevant time did not prevent the courts from exercising full judicial review of administrative decisions. They asserted that the administrative courts also occasionally reviewed factual aspects of a given case. The examination of the applicant union's case by the High Court prior to delivery of the judgment of 21 June 2002, consisting in detailed scrutiny of the objections raised by the applicant union against the decision of the OSCU imposing the first receivership order, proved that such a practice by the national courts was possible. It followed, in the Government's view, that the proceedings before the High Court had been in conformity with Article 6 § 1 of the Convention.

The Court reiterates that, in a given case where full jurisdiction is contested, proceedings might still satisfy requirements of Article 6 § 1 of the Convention if the court deciding on the matter considered all applicant's submissions on their merits, point by point, without ever having to decline jurisdiction in replying to them or ascertaining facts (see Zumtobel v. Austria, judgment of 21 September 1993, Series A no. 268 A, § 31–32 and Fischer v. Austria, cited above, § 34). By way of contrast, the Court found violations of Article 6 § 1 of the Convention in other cases where the domestic courts had considered themselves bound by the prior findings of administrative bodies which were decisive for the outcome of the cases before them, without examining the relevant issues independently (see Obermeier v. Austria, judgment of 28 June 1990, Series A no. 179, pp. 22–23, §§ 69–70; Terra Woningen B.V., cited above, pp. 2122-23, §§ 52–55; I.D., cited above, §§ 46 and 50–55; and Capital Bank AD v. Bulgaria, cited above §§ 99–108 ). The Court found a violation of the right to access to a court where the applicant could not challenge before a court an assessment of facts in a decision adopted by an administrative authority acting within its discretionary power (see Tinnelly & Sons Ltd and Others and McElduff and Others v. the United Kingdom, judgment of 10 July 1998, Reports of Judgments and Decisions 1998 IV, § 74). It that case, the judicial review never led to a full scrutiny of the factual basis of such a decision.

In the present case, the applicant credit union's appeal to the Prague High Court against the decision of the OSCU and the Ministry of Finance imposing the receivership was twofold. Firstly, the applicant credit union contested the legal assessment of the OSCU declaring the transactions entered into by the applicant credit union contrary to the Act. Secondly, it was asserted in the appeal that the OSCU, deciding entirely within its discretion provided for by the Act, imposed on the applicant credit union a disproportionate measure when opting for receivership, although other less strict measures were available under the Act. According to the applicant credit union, that decision was partly due to an erroneous assessment of the facts, namely of its economic standings, by the OSCU.

The Court notes that due to its jurisdiction limited to review of legality, the Prague High Court when dealing with the second limb of the appeal, abstained, as it is apparent from its reasoning, from conducting its own examination of whether the applicant credit union was in fact in a situation justifying the imposition of receivership. Admitting that receivership was the strictest measure available under the Act, it held that that legislation reserved for the OSCU acting within its discretionary power the decision as to what measure to adopt in case of breach of the Act's provisions. Instead of ruling on the question of proportionality of the receivership, it only confined itself to the verification whether the OSCU did not act beyond its discretionary power as reserved by the Act when imposing the receivership. That finding was made on the assumption, not verification, by the High Court that the economic standing of the applicant credit union as assessed by the OSCU was accurate.

It ensues that the High Court, prevented from assessing whether there was indeed any factual basis for imposing the receivership, and limited to reviewing whether the impugned decision was adopted within the OSCU's discretionary power instead of examining lawfulness of that decision, did not exercise full judicial review.

The Court therefore finds that the OSCU's determination of the applicant company's civil rights in the case at hand was not subject to judicial scrutiny of the scope required by Article 6 § 1

It follows that there has been a violation of Article 6 § 1 of the Convention.