(Application no. 23465/03)
6 October 2011
This judgment will become final in the circumstances set out in Article 44 § 2 of the Convention. It may be subject to editorial revision.
In the case of Agrokompleks v. Ukraine,
The European Court of Human Rights (Fifth Section), sitting as a Chamber composed of:
Dean Spielmann, President,
Ganna Yudkivska, judges,
and Claudia Westerdiek, Section Registrar,
Having deliberated in private on 13 September 2011,
Delivers the following judgment, which was adopted on that date:
1. The case originated in an application (no. 23465/03) against Ukraine lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by Agrokompleks JSC (“the applicant company”), on 23 June 2003.
2. The applicant company was represented by Mr P.Y. Lucas, a lawyer practising in Paris. The Ukrainian Government (“the Government”) were represented by their Agent, Mr Y. Zaytsev.
3. The applicant company alleged, in particular, that it had not had a fair trial within a reasonable time conducted by an independent and impartial tribunal. It also complained of an infringement of its right to peaceful enjoyment of its possessions.
4. On 9 November 2009 the President of the Fifth Section decided to give notice of the application to the Government. It was also decided to rule on the admissibility and merits of the application at the same time (Article 29 § 1).
I. THE CIRCUMSTANCES OF THE CASE
5. The applicant company is a private company registered in Ukraine. At the time of the events it carried out barter trade operations with Russian companies involving, in particular, exchange of some food raw materials from Ukraine for Russian crude oil and further sale of finished oil products.
A. The events between 1991 and 1996
6. On 18 December 1991 the applicant company signed a contract with the Lysychansk Oil Refinery (“the Refinery” – the biggest company in the oil refining industry in the country at the time, with 67.41% of its shares being owned by the State) for the refining of 225,000 tons of crude oil.
7. On 5 March 1993 the Higher Arbitration Court (“the HAC”), allowing a claim brought by the applicant company, directed the Refinery to deliver to the applicant company the oil products produced from its raw materials.
8. During June and July 1993 the Refinery only delivered a small part of the oil products to the applicant company.
9. On 19 August 1993 the applicant company supplied another 150,000 tons of crude oil to the Refinery for refining.
10. In autumn 1993 the State-owned companies in the Lugansk region involved in harvesting, coal mining and other activities essential for the local economy suffered a particularly acute shortage of fuel. As a part of the emergency measures instituted to overcome the crisis, the local authorities directed the Refinery to provide for local needs, free of charge, some oil products, regardless of whether they had been produced from oil owned by customers.
11. Following a further claim brought by the applicant company, on 18 November 1994 the HAC ordered the Refinery to comply with the contract of 19 August 1993.
12. At some point the Refinery was renamed LysychanskNaftoOrgSyntez (“LyNOS”).
13. By a ruling of 5 April 1995, the HAC amended its judgment of 5 March 1993 and ordered LyNOS to pay the applicant company for the undelivered oil products.
14. On 26 April 1995 the Cabinet of Ministers instructed the State Department for the Oil, Gas and Oil Refining Industries (“Derzhnaftogazprom”) to verify whether the applicant company’s claims against LyNOS were justified. As can be seen from a letter from Derzhnaftogazprom to Parliament of 6 May 1995, it found the claims to be well grounded. It was noted in the letter, in particular, that the main reason for the Refinery’s failure to comply with its contractual obligations vis-à-vis the applicant company had been the unpaid diversion of oil products by the regional authorities in 1993.
15. On 19 July 1996 the HAC awarded the applicant company compensation for the lengthy non-enforcement of the judgments of 5 March 1993 and 18 November 1994 and ordered that the court fees be paid by LyNOS.
B. The insolvency proceedings against LyNOS and other developments concerning the settlement of its arrears vis-à-vis the applicant company
16. On 22 July 1996 the applicant company applied to the HAC for the initiation of insolvency proceedings against LyNOS, referring to the lengthy non-enforcement of the judgments of 5 March 1993 and 18 November 1994.
17. On 9 August 1996 the Poltava Regional Arbitration Court (“the Poltava Arbitration Court”), to which the HAC had referred the aforementioned motion of the applicant company, started insolvency proceedings.
18. On 3 March 1997 it made a preliminary finding that the outstanding debts of LyNOS vis-à-vis the applicant company had been confirmed by documentary evidence as 169,323,720 Ukrainian hryvnias (UAH) and 77,802 tons of oil products.
19. On 10 July 1997 the applicant company asked the HAC to secure the creditors’ claims by seizing the State’s shares in LyNOS.
20. On 15 July 1997 the court allowed the request and prohibited “[LyNOS], the State Property Fund and any other authorities from taking any action with a view to transferring ownership or changing the status of the State’s shares in [LyNOS] until the court completes the [insolvency proceedings].”
21. On 30 July 1997 the Prosecutor General’s Office informed the HAC’s President of the results of its investigation into the reasons for the arrears and the insolvency of LyNOS. It concluded, inter alia, that LyNOS’s debts vis-à-vis its customers had mainly been caused by the unpaid diversion of oil products for State needs in 1993.
22. On 20 August 1997 the applicant company concluded an agreement with LyNOS concerning the procedure for and conditions of repayment of the latter’s arrears resulting from the judgments of the HAC of 5 March 1993 and 18 November 1994, as well as the ruling of the Poltava Arbitration Court of 3 March 1997. Having signed that agreement, the debtor recognised its debt vis-à-vis the applicant company in the amount of UAH 225,355,355, which was, according to the agreed schedule, to be repaid in kind within five years. The parties also underlined that the agreement could not be understood as a friendly settlement and did not imply a request for termination of the insolvency proceedings against LyNOS.
23. On 18 November 1997 the HAC stayed the proceedings until the debtor, the creditors and the competent authorities had agreed on guarantees for the repayment of the arrears.
24. On 3 December 1997 the applicant company requested that the Prime Minister consider the possibility of transferring the State’s shares in LyNOS, equal to 26% of its share capital, into its trust for the period of the repayment of the arrears as a guarantee of that repayment.
25. On 14 January 1998 the HAC resumed the insolvency proceedings.
26. On 29 January 1998 it decided to leave unexamined the outstanding claims of LyNOS’s creditors. At the same time, referring to the need to continue to make efforts to settle the creditors’ claims and prevent the debtor’s insolvency, the court decided to conduct further review of the parties’ actions in that connection. Namely, it instructed LyNOS and the creditors whose claims remained unsettled to inform it on a monthly basis of the progress of the repayment of the arrears. Moreover, all the parties concerned were instructed to develop a mechanism to ensure the continued repayment of the arrears. The court also decided to invite the Cabinet of Ministers to take measures to prevent the insolvency of LyNOS. The court noted that it was common ground between the parties that the arrears could be repaid in kind.
27. On 13 February 1998 the HAC decided that the insolvency proceedings should be heard by a three-judge panel, instead of by a single judge. Prior to this, the single judge sitting in the case had been challenged by the applicant company.
28. On 20 February 1998 LyNOS wrote a letter to the First Deputy Speaker of Parliament asking for his “assistance in establishing the lawfulness” of the HAC’s rulings issued in the course of the insolvency proceedings.
29. On 21 March 1998 the First Deputy Speaker of Parliament wrote a letter to the acting President of the HAC with a request “not to tolerate any prejudice or issuance of ungrounded decisions concerning the insolvency of LyNOS”, which was claimed to be strategically important for the State. The letter also contained the following request:
“... with a view to preventing any infringements of the interests of the State and violations of the legislation of Ukraine, you are requested to take an urgent decision quashing the ruling of 13 February 1998 and terminating the proceedings concerning the insolvency of LyNOS.”
30. By a letter of 6 April 1998 the HAC’s President replied that the ruling of 13 February 1998 was in compliance with the relevant legislation and could not be reviewed under a supervisory review procedure.
31. The applicant company, in turn, requested that the HAC review the ruling of 29 January 1998 by means of a supervisory review procedure. It maintained that, while the debts of LyNOS had been confirmed by documentary evidence and had to be repaid, the court had failed to establish the final amount of the outstanding debt or to demand any effective guarantees of its redemption from the debtor.
32. On 6 April 1998 the Panel of the HAC for the Review of Judgments, Rulings and Resolutions (“the Review Panel”) quashed the HAC’s ruling of 29 January 1998 inasmuch as it concerned leaving the outstanding creditors’ claims unexamined, and remitted the case for fresh examination by a different bench. It noted that the procedures by which the debt would be repaid and the scope and methods of the debt’s repayment remained unclear.
33. On 20 April 1998 the Chairman of the Department for the Fuel and Energy Sectors of the Cabinet of Ministers of Ukraine, who was also the Chairman of the Supervisory Board of LyNOS, sent a “statement regarding the case” to the HAC, in which he noted, in particular, the following:
“The prolonged continuation of the insolvency proceedings against LyNOS is inflicting both pecuniary and non-pecuniary damage on the company and deters potential investors. ... I urge you to terminate the insolvency proceedings against LyNOS.”
34. On 22 April 1998 LyNOS complained to the President of Ukraine that the HAC’s ruling of 6 April 1998 had been unlawful and asked him to intervene with a view to terminating the insolvency proceedings.
35. On 4 May 1998 the Prime Minister informed the HAC’s President that the management board and the trade unions of LyNOS disagreed with the court’s ruling of 6 April 1998 and requested that “this issue be considered in line with the established procedure”.
36. On 18 May 1998 the State Property Fund asked the HAC to terminate the insolvency proceedings. It noted that it could not proceed with the sale of its shares in LyNOS, given the prohibition by the HAC in its ruling of 15 July 1997 on any change in the status of the company’s shares.
37. On 21 May 1998 the HAC found substantiated the requests of the creditors’ committee to speed up the final determination of the amount of outstanding arrears and to demand guarantees of their repayment from the debtors. It instructed both the creditors and the debtor to comply with their obligations under its earlier ruling of 6 April 1998 and to develop a scheme ensuring the further repayment of the arrears. The court rejected as unsubstantiated a request by the State Property Fund to terminate the insolvency proceedings so that it could conduct a non-commercial competition for the sale of the shares. It instructed the Fund to submit to it all the documents concerning the aforementioned competition and its results.
38. On 2 July 1998 the HAC considered the applicant company’s request for determination of the final amount of the debtor’s outstanding arrears owed to it. The court noted that the applicant company had originally estimated the arrears at UAH 660,000,000, but, following negotiations with the debtor, that amount had been reduced to UAH 225,355,355 in accordance with the agreement of 20 August 1997 (see paragraph 22 above). Following the partial implementation by LyNOS of that agreement in September-December 1997, which the court viewed as confirmation that LyNOS had accepted its terms, the outstanding debt was UAH 216,150,544.
39. Having regard to the critical financial situation of the debtor, as well as its strategic significance for the economy of the State, the applicant company requested that the court confirm that amount as the final total of the arrears. Furthermore, it was prepared to consider the debt satisfied in full once 90% of it had been repaid.
40. LyNOS, in turn, accepted the applicant company’s claims only in part and requested that the court establish the amount of the outstanding arrears to be paid in kind. It considered the rulings of the HAC allowing the applicant company’s claims to be unlawful, even if they had remained valid. The company also blamed the Government for its non-compliance with its contractual obligations vis-à-vis the applicant company. It maintained that the agreement of 20 August 1997 could not be considered valid, as it did not regulate essential terms such as costs, time limits and conditions placed upon the supply of the oil products.
41. The court found that the total outstanding debt of LyNOS to the applicant company was UAH 216,150,544.
42. On 7 July 1998 LyNOS complained to the President of Ukraine that the Prosecutor General and the HAC’s President had failed to bring a protest on the basis of LyNOS’s request with a view to overturning the HAC’s ruling of 6 April 1998 and, accordingly, terminating the insolvency proceedings. It was noted in the letter:
“... the absence of prosecutorial reaction to the unlawful insolvency proceedings against LyNOS ... and the absence of a clear position on the part of the President of the Higher Arbitration Court as regards this case, multiplied by the boldness, unsated ambitions and, probably, some selfish interests on the part of the creditors’ committee, ... have become an obstacle not only to the normal process of privatisation of LyNOS’s shares, but even to its normal functioning.”
43. On 30 July 1998 the HAC’s President wrote a letter to the Prime Minister (no. 01-2.1/181), in which he “informed [him] of the ongoing insolvency proceedings against LyNOS pursuant to the instructions of the President of Ukraine of 6 May and 13 July 1998”. The following was noted, inter alia, in the above letter:
“The arrears of the former Lysychansk Oil Refinery vis-à-vis [its] creditors who undertake entrepreneurial activities in Ukraine, are, first of all, the result of its improper compliance with its contractual obligations.
Having received oil owned by customers, the refinery is obliged to return finished oil products to its owners as agreed. The companies had to supply most of those oil products, [in turn], to Ukrainian agricultural enterprises.
The systematic violations by LyNOS of its contractual obligations, as well as its evasion of enforcement of the judicial decisions, have not only resulted in the arrears, but have also led to their accrual. ...
In the course of the examination of the case, the court, within its competence, took appropriate measures for settlement of the debts between LyNOS and its creditors. LyNOS concluded civil law agreements with some of the creditors governing the terms and conditions of the debts’ repayment, which are being implemented and which offers some hope that all the arrears can be settled that way. This is the expectation that the debtor itself expressed in its application to the President of Ukraine. However, despite this, the debtor is evading complying with the procedure of debt repayment agreed with [the applicant company].
Having regard to the difficult economic situation of LyNOS, [the applicant] company considerably reduced [its] claims ... - from UAH 596,055,564 to UAH 216,150,544 ....
I note for your information that the arrears of LyNOS in respect of [the applicant company] emerged in 1992-93 and are confirmed by judgments of the Higher Arbitration Court of Ukraine. The lawfulness of those judgments has been verified by the supervision instances, including by the Plenary Session of the Higher Arbitration Court, which upheld them.
However, since the commencement of the insolvency proceedings, LyNOS has not enforced the judgments despite the fact that they have the force of law. Its statement that by the conclusion of the agreements with the creditors concerning the terms of and procedures for the repayment of the arrears it was released from the necessity to comply with the judgments is unlawful.
Derzhgazprom, on the instruction of the Cabinet of Ministers of 26 July 1998 ..., investigated and fully confirmed the fact of LyNOS’s non-compliance with its contractual obligations, as a result of which the claims of [the applicant company] were found to be fully justified.
In its letter of 6 May 1995 ... this authority noted that during the second half of 1993 the leadership of the Lugansk regional authorities had grossly violated Ukrainian legislation, having ordered LyNOS to divert, free of charge, the oil products belonging to [the applicant company]. This undermines the statements of the debtor that it was not its fault that those oil products had not been delivered to their owners.
The debtor did not even use the aid provided by the Government for repayment of the arrears. In June 1993 Ukrderzhnaftogaz provided LyNOS with resources ... and approved a schedule of delivery of oil products during the period from June to September 1993 which was to remain in force until the full repayment of the debt to [the applicant company]. The [debtor] company delivered only 33,000 tons of those oil products during June and July 1993 and refused further repayment of the arrears, which exceeded this volume by several times.
The demand to terminate the proceedings contradicts the law and cannot be satisfied until the complete repayment of the arrears. ...
In the course of the examination of the case, the court exhausted all legally envisaged possibilities of saving the debtor from insolvent liquidation. The creditors have made it clear that it is not their goal to have the debtor liquidated or to get its assets into their possession. They insist on gradual repayment of the debts in compliance with the agreed schedules and, subject to that, do not object to termination of the proceedings upon the complete repayment of the arrears.
Given the complexity of the settlements between the debtor and the creditors and the lack of clarity as to the final time-frame of the repayment of the arrears, which inevitably leads to the accrual of damages due to inflation and a loss of income for the creditors, and with a view to the recovery of the debtor company, it is deemed necessary to create a taskforce to investigate the problem onsite.
In our opinion, it would be desirable to investigate and finally determine the destiny of the oil products produced by LyNOS from the oil owned by customers.”
44. On the same date, 30 July 1998, the Cabinet of Ministers created a taskforce to establish the reasons for the arrears of LyNOS vis-à-vis its foreign and domestic creditors and to study the consequences of settlement of their claims. It consisted of representatives of: the Cabinet of Ministers, the Ministry of Justice, the Ministry of the Economy, the Ministry of the Interior, the Ministry of Finance, the State Property Fund, the Main Audit Department, the Insolvency Prevention Agency, the National Agency for Reconstruction and European Integration, the State Security Service, the Prosecutor General’s Office, and LyNOS.
45. On 31 August 1998 the taskforce issued its report, which contained, inter alia, the following findings. LyNOS was the biggest oil refinery in Ukraine and was able to satisfy up to 35% of the fuel needs of the country. All the oil it had refined during 1998 belonged to Russian commercial entities, which had showed increasing interest in the company given its proximity to the Russian border. The report concluded that the company was insolvent. It noted that the final amount of its arrears vis-à-vis the applicant company, as confirmed by the HAC in its ruling of 2 July 1998, was UAH 216,150,544. The main reason for the company’s indebtedness had been the decision of the State authorities (in 1992 – according to the report in question, in 1993 – according to all the other documents in the case file) to divert the oil products produced by LyNOS from oil owned by customers for State needs.
46. The report also contained the following statement:
“The taskforce supports the proposal [apparently, advanced by LyNOS] that the Higher Arbitration Court of Ukraine must also take into account ... the State’s share of the company’s assets and the other factors which were not taken into account during the previous hearings. This concerns fulfilment of the obligations in kind, since their translation into pecuniary terms caused the amount of the arrears to be overstated.”
47. However, the taskforce considered that the amount of the outstanding debt of the company vis-à-vis the applicant company had to be verified, by means of expert reports if required. It further underlined a finding of the HAC in another case, according to which the indexation of debt to inflation had not been envisaged by the relevant legislation, and maintained that a similar line should be followed in the present case. It recommended suspending the insolvency proceedings until the “factual indebtedness of LyNOS vis-à-vis commercial enterprises was established on the basis of a documentary audit”.
48. According to the above report, the taskforce had been created at the request of the HAC’s President, such request having been expressed in a letter (no. 01-2.1/181) dated 30 July 1998, and pursuant to the above-mentioned order of the Cabinet of Ministers.
49. On 31 August 1998 the Review Panel rejected a request from LyNOS for an extension of the time-limit for challenging the HAC’s ruling of 15 July 1997 under the supervisory review procedure.
50. On 10 September 1998 the HAC’s President lifted the ban on changing the status of LyNOS’s shares which had been imposed by the HAC’s ruling of 15 July 1997. This was done at the request of LyNOS, which intended to conduct a non-commercial competition for the sale of the State’s shares in the company equal to 41.4% of its share capital. The sale was intended to help the company overcome its financial crisis and avoid insolvency.
51. On 12 September 1998 the First Deputy Prime Minister wrote a letter to the HAC’s President in which he asked him to also lift the ban on transferring the ownership of LyNOS’s shares. The letter stated:
“... the members of the taskforce created at your request by an order of the Cabinet noted that the amount of [LyNOS’s] arrears vis-à-vis its domestic creditors requires further clarification and in-depth and thorough verification.
Given the fact that LyNOS runs the biggest and the most modern oil refinery in Ukraine and having regard to its importance to the economy and security of the State, ... you are requested to consider the findings of the taskforce, to lift the ban on the sale of the company’s shares and to postpone the examination of the insolvency proceedings pending a determination of the final amount of its arrears vis-à-vis the domestic creditors.”
52. On 14 September 1998 the First Deputy Prime Minister instructed the Ministry of Finance, the Ministry of the Economy, the Ministry of the Interior, the National Agency for Reconstruction and European Integration, the State Property Fund, the State Tax Administration, Derzhnaftogazprom and the Insolvency Prevention Agency to ensure that a “thematic documentary audit of the agreements for oil refining entered into by LyNOS in 1992 and the amount of [its] arrears vis-à-vis the domestic creditors” be undertaken by 10 October 1998.
53. On 9 October 1998 the Main Audit Department informed the Cabinet that it had checked the agreements entered into by LyNOS in 1992 and found that the company had delivered oil products to State agricultural enterprises pursuant to governmental instructions. There had been no documents or information suggesting that the Government had ever paid for that. As a result, the arrears of LyNOS (then called the Refinery) had emerged vis-à-vis its customers, commercial enterprises, and as of 1 January 1993 had been equal to 640,700 tons of oil products.
54. On 26 October 1998 the HAC rejected a request by LyNOS for an expert assessment of its arrears in respect of the applicant company, noting that it had already established the final amount of those arrears. On 21 January and 26 April 1999 the Review Panel upheld that ruling.
55. On 22 June 1999 the applicant company lodged a request with the Review Panel for review of the ruling issued by the HAC’s President on 10 September 1998. It claimed that he had lacked the power to make such a ruling. The applicant company submitted that the creditors had not previously challenged the ruling because it had been issued in order to enable a non-commercial competition to be held for sale of the State’s shares, amounting to 41.4% of the share capital in the company, and the competition had been subject to a guarantee that the arrears would be repaid by the company’s new owners. Referring to the fact that such a competition had never taken place and that, according to the media, there was instead a new plan to sell over 50% of the shares (a controlling share) without any guarantee of repayment of the debts, the applicant company had sought to have the ruling of 10 September 1998 overturned and its claim secured by a ban on the sale of the State’s shares in LyNOS until the insolvency proceedings were complete.
56. On 9 July 1999 the HAC’s President wrote a letter to the First Deputy Prime Minister, in which he noted that the original claim of the applicant company in respect of LyNOS had been reduced through an agreement between the parties from UAH 596,055,564 to UAH 216,150,544, with the latter figure having been confirmed by the court. The letter stated that the creditors had agreed to a restructuring of LyNOS’s arrears for a term of five years, subject to an approved debt repayment schedule being formalised by a judicial decision and having its enforcement guaranteed. At the same time they had agreed, subject to the aforementioned conditions, to reduce the amount of the arrears payable in kind. With reference to the aforementioned points, the HAC’s President underlined that the court had exhausted all procedural possibilities for saving the debtor from insolvent liquidation. He proposed to take into account the above suggestions of the creditors for overcoming the company’s financial crisis made in the extrajudicial restructuring process, as the situation pertaining at the time had led to the accrual of the arrears due to inflation and to a loss of income for the creditors.
57. On 16 July 1999 the creditors’ committee submitted its proposals for restoring the solvency of LyNOS and preventing its insolvency to the First Deputy Prime Minister. It proposed, inter alia, to transfer into the trust of the creditors’ committee the State’s shares in LyNOS in an amount equal to the company’s arrears as a guarantee of the repayment of those arrears. The creditors’ committee drew the attention of the First Deputy Prime Minister to what it described as “unlawful pressure by the authorities on the creditors and on the court, as well as the unacceptable protraction of the search for a solution to [this] acute problem”.
58. On 15 September 1999 LyNOS asked the Speaker of Parliament “to apply to the Higher Arbitration Court with a view to termination of the insolvency proceedings”. It contended that the HAC had wrongly resumed the insolvency proceedings, having overturned its earlier ruling of 29 January 1998 on 6 April 1998. It submitted that the HAC had “chosen to allow the claims of the creditors, who seek unjust enrichment ...”.
59. On 12 November 1999 LyNOS instituted proceedings before the Kyiv City Arbitration Court seeking to have its contracts with the applicant company for oil refining entered into in 1991 and 1993, as well as the agreement of 20 August 1997 concerning the repayment of the arrears, declared formally invalid. On 24 December 1999 the HAC took the case over.
60. On 25 February 2000 LyNOS wrote a letter to the President of Ukraine in which it noted that extensive efforts were being made to overcome its financial crisis and that there was interest in it from a potential foreign investor. It considered, however, that “the position of a number of non-State creditors of the company [was] an obstacle to obtaining an effective result from the measures taken by the State authorities and to realisation of the investor’s potential”. It underlined that the applicant company was “blocking the possibility of resolving the problem in a civilised manner”. The company asked the President “to give instructions to the relevant State authorities to verify, within the legal framework, the soundness of [the applicant company’s] claims against LyNOS, the nature of their emergence and to determine the correct amount of the arrears.”
61. On 13 March 2000 the State Property Fund ordered that a tendering commission be created to further the commercial sale of the State’s shares in LyNOS (representing 67.41% of its share capital).
62. On 17 March 2000 the HAC rejected LyNOS’s claim for the invalidation of its contracts with the applicant company entered into in 1991 and 1993, as well as the agreement of 20 August 1997 concerning the repayment of the arrears.
63. On 27 March 2000 the HAC’s President wrote a letter to the President of Ukraine with the following contents:
“Pursuant to your instruction of 20 March 2000, I am informing you of the progress of the insolvency proceedings against LyNOS.
Twenty enterprises are creditors in this case, with claims for the repayment of arrears amounting to over one billion hryvnias.
In the course of the examination of the case, the court took, within its competence, certain measures to settle the debts of LyNOS owed to its creditors.
However, given the complexity of the settlements between the debtor and the creditors and with a view to the company’s recovery, I request that you create a taskforce of specialists which will investigate, within the company, the problem, including clarification of the amount of the arrears.”
64. On 12 April 2000 the State Property Fund requested that the HAC’s President lift the ban on sale of shares in LyNOS, given that the ruling of 10 September 1998 had only lifted the ban on changing the status of the shares and it remained unclear whether that also concerned their sale. On the same date the HAC’s President allowed the request.
65. On 15 April 2000 the Lugansk Regional Audit Department issued a report on the “verification of the validity of the debt obligations of LyNOS vis-à-vis [the applicant company] and the lawfulness of inflation indexation and application of penalties”, which had been undertaken pursuant to the instructions of the Main Audit Department. It established the final arrears owed by LyNOS to the applicant company in the amount of UAH 36,401,894. The report considered that the findings of the HAC concerning the outstanding debt to the applicant company had been wrong and in contradiction of the applicable legislation.
66. By a ruling of 6 June 2000 the HAC imposed a moratorium on allowing the creditors’ claims in the case and appointed an administrator of the debtor’s property (an individual person).
67. In July 2000 the State’s shares in LyNOS, amounting to 67.41% of its share capital, were sold to a Russian company.
68. On an unspecified date in 2000 LyNOS applied to the Review Panel for review of the rulings of the Poltava Arbitration Court of 3 March 1997 and of the HAC of 2 July 1998 (both rulings concerning the amount of the outstanding debts of LyNOS vis-à-vis the applicant company) on the basis of newly-discovered circumstances. It referred to the above report of the Lugansk Regional Audit Department of 15 April 2000 as the newly-discovered circumstance warranting the review.
69. On 19 September 2000 the HAC examined the above application. Having found that the report relied on did not contain any new information that was not known at the time when the challenged rulings had been issued, the HAC ruled to “uphold the part of the [relevant] ruling regarding the final determination of the debt of LyNOS to the [applicant company]”. The court also noted that the ruling of the Poltava Arbitration Court of 3 March 1997 had determined the amount of the debt only in preliminary terms, while the amount later defined as final in the HAC’s ruling of 2 July 1998 had been based on the agreement between the parties of 20 August 1997. Furthermore, the court had secured the creditors’ claims by imposing a ban on any activities involving the debtor’s assets.
70. Later in September 2000 the HAC’s President, relying on Article 92 of the Code of Arbitration Procedure, instructed his two deputies to review the HAC’s ruling of 19 September 2000, as, according to him, “it had virtually [paralysed] the work of a company strategically important for the State, which could harm the property interests of both the creditors and the debtor, as well as undermine the fulfilment of the investor’s obligations to the State Property Fund”.
71. On 4 October 2000 the Review Panel allowed an application brought by LyNOS for the suspension of the enforcement of the HAC’s ruling of 19 September 2000 until the Panel had decided whether to undertake the supervisory review sought by the company.
72. On 26 December 2000 the Review Panel quashed the HAC’s ruling of 19 September 2000 (with the exception of two unrelated points) and remitted the case for fresh examination.
73. On the same date, the Chairman of the Board of LyNOS wrote a letter to the President of Ukraine thanking him “for [his] firmness and insistence in solving the issues of the company’s privatisation and recovery”. The letter noted that “the positive results were self-explanatory”. The company considered, in particular, that the new investor had contributed to overcoming its crisis. The letter also contained the following statements:
“As a manager, I find disturbing the actions of [the applicant company], which [is] trying to put pressure on LyNOS and the investor ..., constantly exaggerating its claims in the insolvency proceedings examined by the Higher Arbitration Court ... It will be extremely difficult for LyNOS to solve these problems without your intervention. In this connection, I ask you to support our team of employees and to instruct the Prosecutor General’s Office and the Higher Arbitration Court of Ukraine to sort the situation out and to issue lawful decisions”.
74. On 29 December 2000 the President of Ukraine forwarded the above request to the HAC’s President and to the Prosecutor General with a note as follows:
“Please sort this out and take decisions according to the legislation in force”.
75. At the request of LyNOS, on 20 June 2001 the Review Panel reviewed the HAC’s ruling of 17 March 2000 under the supervisory review procedure and upheld the ruling, having found no grounds for the invalidation of LyNOS’s contracts with the applicant company entered into in 1991 and 1993, as well as the agreement of 20 August 1997 on the repayment of arrears.
76. On 27 June 2001 the HAC, at the request of LyNOS, reviewed the rulings of the Poltava Arbitration Court of 3 March 1997 and of the HAC of 2 July 1998 concerning the amount of its outstanding debts vis-à-vis the applicant company on the basis of newly-discovered circumstances. The court considered that the agreement between the parties of 20 August 1997 (on which the earlier determination of the outstanding arrears had been based) was to be considered in law as a contract of supply. However, it had not contained all the elements required for such a contract and thus had to be declared invalid. Furthermore, the court considered that the creditors’ committee had lost its powers on 4 May 2000, the effective date of amendments to the insolvency legislation envisaging new procedures for the creation and activities of creditors’ committees.
77. By the same ruling, the HAC established the final amount of the outstanding debts of LyNOS vis-à-vis the applicant company to be UAH 97,406,920, having noted that the earlier amounts established had been of a preliminary nature.
78. The applicant company appealed against the above ruling of the HAC, contending, inter alia, that the review and reduction of the amount of the arrears contradicted the final judicial decisions in that connection, which had become res judicata.
79. On 13 July 2001 the Higher Commercial Court (the former Higher Arbitration Court, as renamed in June 2001) transferred the insolvency case to the Lugansk Regional Commercial Court (“the Lugansk Commercial Court”) for further examination in line with amendments introduced to the legislation governing arbitration proceedings in June 2001.
80. On 26 July 2001 the Higher Commercial Court returned the applicant company’s appeal against the HAC’s ruling of 27 June 2001 to it, making reference to the transfer of the case to the Lugansk Commercial Court on 13 July 2001.
81. Between March and July 2001 the applicant company introduced several applications with the HAC for access to the case files regarding the insolvency proceedings and the proceedings concerning its claims against LyNOS (then called the Refinery) lodged in 1993 and 1994. By a letter of 16 July 2001 the Higher Commercial Court informed the applicant company that the files relating to its claims brought in 1993 and 1994 had been destroyed, as the time-limit for their storage had expired. The applicant company was, however, given access to the case file concerning the insolvency proceedings. It complained to the Prosecutor General’s Office and to the President of the Supreme Court about the destruction of the case files pertaining to the 1993 and 1994 claims and of irregularities in respect of the file concerning the insolvency proceedings (lack of page numbering and inadequate numbering and inventory of contents). On 3 August 2001 the Prosecutor General’s Office informed the applicant company that it had brought the irregularities discovered in the case file with regard to the insolvency proceedings to the attention of the President of the Higher Commercial Court.
82. On 29 October 2001 the Donetsk Commercial Court of Appeal considered an appeal by the applicant company against the HAC’s ruling of 27 June 2001. As a result, it changed the total of the outstanding arrears of LyNOS vis-à-vis the applicant company to UAH 90,762,268 in debt and UAH 220,809 in compensation for delayed repayment (UAH 90,983,077 in total).
83. On 16 April 2002 the Higher Commercial Court dismissed an appeal in cassation brought by the applicant company against the above-mentioned ruling of 29 October 2001.
84. On 25 June 2002 the Lugansk Regional Commercial Court commenced the court-supervised restructuring of LyNOS.
85. On 26 December 2002 the Supreme Court, sitting as a bench of five judges, rejected the applicant company’s request for leave to appeal in cassation against the rulings of 26 December 2000 and 16 April 2002, having “failed to come to an agreement as to the presence in this case of legal grounds for the institution of cassation proceedings before the Supreme Court”.
86. On 21 November 2003 the creditors’ committee and the debtor signed a friendly settlement agreement, according to which the creditors’ claims were to be settled by exchanging them for the debtor’s assets. The applicant company, in particular, was to receive 90,983,077 shares owned by the debtor in the share capital of the Lysychansk Oil Investment Company in settlement of its claims (equal to UAH 90,983,077). Its claims would also have been considered settled had it refused to accept the aforementioned shares.
87. On 8 December 2003 the Lugansk Regional Commercial Court approved the above friendly settlement agreement, noting, inter alia, that the creditors’ committee had voted for it unanimously. It declared the court-supervised restructuring of the debtor company complete and lifted the moratorium on settling the creditors’ claims. The applicant company was not present at the hearing, although, as noted in the ruling of the Donetsk Commercial Court of Appeal of 22 April 2004 (see below), it had been duly notified of it.
88. The applicant company appealed against the above ruling, submitting, amongst other things, that it had had no opportunity to object to the friendly settlement agreement, that there had been no assessment of the value of the shares in the Lysychansk Oil Investment Company, and that it had not been established whether LyNOS had been authorised to repay its debts with the assets of the aforementioned company.
89. On 22 April and 28 September 2004 the Donetsk Commercial Court of Appeal and the Higher Commercial Court, respectively, dismissed the applicant company’s appeal and cassation appeal as unsubstantiated.
90. On 25 November 2004 the Supreme Court rejected a further request by the applicant company for leave to appeal in cassation.
II. RELEVANT DOMESTIC LAW AND PRACTICE
A. Constitution of Ukraine 1996
91. The relevant provisions can be found in Miroshnik v. Ukraine, no. 75804/01, § 30, 27 November 2008 (independence of the judiciary), and in Seryavin and Others v. Ukraine, no. 4909/04, § 22, 10 February 2011 (protection of property).
B. Code of Arbitration Procedure 1991 (renamed into the Code of Commercial Procedure by amendments of 21 June 2001 effective since 5 July 2001)
93. Chapter XII-2 (in force since 5 July 2001) can be found in MPP Golub v. Ukraine (dec.), no. 6778/05, ECHR 2005-XI.
94. Under Article 112, final judicial decisions may be reviewed on the basis of newly-discovered circumstances, where those circumstances were of significant importance for the case and could not have been known to the party concerned. According to Article 114, the examination of a request for the review of a case on the basis of newly-discovered circumstances should result in a court judgment (ruling or resolution) upholding the judgment (ruling or resolution) sought to be reviewed, modifying it or quashing it. The relevant decision may be challenged under standard procedure.
C. Code of Arbitration Procedure (Amendments) Act of 21 June 2001 (in force from 5 July 2001)
95. Under paragraph 4 of the Final and Transitional Provisions, a judgment not challenged by the time of the entry into force of the Act before the president of an arbitration court may be appealed against to the commercial court of appeal or cassation instance in compliance with the procedures envisaged by the Code of Commercial Procedure.
I. ALLEGED VIOLATIONS OF ARTICLE 6 OF THE CONVENTION AND ARTICLE 1 OF PROTOCOL NO. 1
96. The applicant company complained about the length and alleged unfairness of the debt recovery proceedings initiated by it against LyNOS (named “the Lysychansk Oil Refinery” at the time) back in 1993 and continuing through 2004. It submitted, in particular, that the courts had breached the principle of res judicata by reconsidering the amount of the debt due to it after that amount had been established by the final judicial decision of 2 July 1998. It also contended that the courts dealing with the case could not be regarded impartial or independent given the intense pressure from high-ranking State officials. The applicant company relied on Article 6 of the Convention, which reads, insofar as relevant, as follows:
“In the determination of his civil rights and obligations ... everyone is entitled to a fair ... hearing within a reasonable time by an independent and impartial tribunal established by law.”
97. The applicant company further complained under Article 1 of Protocol No. 1 to the Convention of a violation of its property rights. It complained, in particular, that it had been unable to recover in full the 375,000 tons of oil it had supplied to the State-owned oil refinery in the early 1990s, even though the domestic courts had confirmed its claim in that regard. Article 1 of Protocol No. 1 relied on by the applicant company 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. Compatibility ratione temporis
98. The Government argued that the application was incompatible ratione temporis insofar as it concerned events prior to the entry into force of the Convention in respect of Ukraine on 11 September 1997.
99. While agreeing with the Government’s view as to the Court’s temporal jurisdiction, the applicant company maintained that facts occurring before that date also had to be taken into consideration.
100. The Court notes that, indeed, as it has made it clear in many cases against Ukraine, it is competent to examine the facts of an application for their compatibility with the Convention only in so far as they occurred after 11 September 1997 (see, for example, Kozak v. Ukraine (dec.), no. 21291/02, ECHR 2002-X).
101. The present case concerns facts occurring both before and after that date. The Court considers that the applicant company’s complaints, insofar as they pertain to the period prior to 11 September 1997, are beyond the Court’s jurisdiction ratione temporis. It therefore upholds the Government’s objection and declares this part of the application inadmissible under Article 35 §§ 3 (a) and 4 of the Convention.
102. At the same time, the Court may and will have regard to events prior to ratification inasmuch as they could be considered to have created a situation extending beyond that date or may be relevant for the understanding of facts occurring after that date (see Broniowski v. Poland (dec.) [GC], no. 31443/96, §§ 74-77, ECHR 2002-X).
2. Applicability of Article 6 § 1 of the Convention
103. The Government further submitted that the applicant company’s complaint about the allegedly unjustified review of the HAC’s ruling of 2 July 1998 (establishing the amount of the debt owed to it by LyNOS) should be declared inadmissible within the meaning of Article 35 § 3 of the Convention because Article 6 § 1 did not apply to that review as such. They contended that the ruling in question could not be regarded as a final judicial decision determining the applicant company’s civil rights or obligations. The Government noted in this connection that, at the relevant time, the insolvency proceedings brought by the applicant company against LyNOS had still been underway, and that the applicant company’s civil rights and obligations had therefore yet to be determined.
104. The applicant company contested that argument.
105. The Court notes that the complaint raises questions of fact and law which are sufficiently complex not to be susceptible of being resolved at the admissibility stage. It considers that the determination of this complaint, including the question, raised by the Government, of the applicability of Article 6 § 1 of the Convention, depends on an examination of the merits (see and compare with Esa Jussila v. Finland (dec.), no. 73053/01, 9 November 2004, and Ferrazzini v. Italy [GC], no. 44759/98, § 18, ECHR 2001-VII).
106. Accordingly, the Court joins this objection of the Government to the merits of the complaint.
3. Compliance with the six-month time-limit
107. The Government also submitted that the application had been introduced out of the six-month time-limit. According to them, the six-month period for the purposes of Article 35 § 1 of the Convention had started running on 26 December 2000 – the date when the HAC’s Review Panel had quashed the HAC’s earlier rejection of LyNOS’s application for review of the ruling of 2 July 1998 establishing the amount of its debt to the applicant company on the basis of newly-discovered circumstances and had remitted that request for fresh examination.
108. The applicant company disagreed. It noted that the above-mentioned application lodged by LyNOS had been allowed by the HAC’s judgment of 27 June 2001, which the applicant company had challenged before the higher courts in compliance with commercial procedure legislation. It maintained that the final domestic decision had therefore been the ruling of the Supreme Court of 26 December 2002. Accordingly, the applicant company considered that its application, which had been lodged on 23 June 2003, had been brought in compliance with the six-month time-limit.
109. The Court notes at the outset that, although the Government raised this objection in respect of the general admissibility of the application, it is in fact confined to challenging the applicant company’s compliance with the six-month time-limit only insofar as it concerns the review of the HAC’s ruling of 2 July 1998 on the basis of newly-discovered circumstances.
110. In its case-law, the Court has viewed the quashing of a final judgment as an instantaneous act, which does not create a continuing situation, even if it entails the reopening of proceedings (see, for well-established authority, Voloshchuk v. Ukraine (dec.), no. 51394/99, 14 October 2003, and Sardin v. Russia (dec.), no. 69582/01, ECHR 2004-II). In the absence of an effective remedy, the Court has considered the very act of quashing of a final judgment to trigger the start of the six-month time-limit for lodging a related complaint with the Court (ibid.).
111. Turning to the present case, the Court discerns particular circumstances which make it distinguishable from the cases cited above, as well as from the numerous other comparable cases (see, for example, The Mrevli Foundation v. Georgia (dec.), no. 25491/04, 5 May 2009; Nosov v. Russia (dec.), no. 30877/02, 20 October 2005; and Sitokhova v. Russia (dec.), no. 55609/00, 2 September 2004).
112. Certain particularities of the relevant legislation governing Ukrainian commercial arbitration procedure in force at the material time are noteworthy. Thus, unlike in civil procedure – where the courts are required to deliver a separate decision granting or rejecting a request for the reopening of a case on the basis of newly-discovered circumstances, such a decision not being amenable to appeal (for the relevant legal provisions and an analysis of them see the Voloshchuk decision, cited above) – the arbitration procedure in Ukraine does not envisage such a separate procedural decision. Following the examination of a request for reopening of a case on the basis of newly-discovered circumstances, a court has the following options: to uphold the judgment (decision) which the claimant has sought to have reviewed; to quash it; or to amend it. The court’s decision in the matter may then be challenged in accordance with standard procedures (see paragraph 94 above).
113. The Court notes that, in the present case, LyNOS’s application for review of the HAC’s ruling of 2 July 1998 on the basis of newly-discovered circumstances was initially unsuccessful. Thus, on 19 September 2000 the HAC found that there had in fact been no newly-discovered circumstances. It did not, however, reject the application for review, but rather upheld the challenged ruling of 2 July 1998 (see paragraph 69 above). Strictly speaking, the HAC had already examined the merits of the case by doing so. Later on, that decision was quashed and the application for review was remitted for fresh examination (see paragraph 72 above). As a result, on 27 June 2001 the HAC, acting as a court of first instance, changed its ruling of 2 July 1998 by a decision which the applicant company was able to and did challenge before the higher courts (see paragraphs 76-78, 80, 82-83 and 85 above).
114. Bearing in mind the above, the Court considers that the date upon which the final ruling of 2 July 1998 was quashed, triggering the running of the six-month time-limit, would not have been apparent for the applicant company under the circumstances: technically, the period could have commenced as early as on 19 September 2000 (when the initial ruling was upheld); or on 26 December 2000 – as submitted by the Government – when the decision of 19 September 2000 was quashed; on 27 June 2001 – when the HAC modified the ruling of 2 July 1998 in the light of the newly-discovered circumstances referred to by LyNOS; or, finally, on 26 December 2002 – when the Supreme Court upheld the aforementioned judgment of 27 June 2001 by a final ruling.
115. The Court will examine all these possibilities.
116. As to the failure to complain to the Court about the review of the ruling of 2 July 1998 resulting in its being upheld by the decision of 19 September 2000, the applicant company can hardly be reproached for this, given that the outcome was in its favour.
117. Furthermore, contrary to the Government’s assertions, the outcome of the application for review was yet to be determined following the decision of 26 December 2000 remitting the application for fresh examination. Accordingly, the ruling of 2 July 1998 cannot be regarded as having been quashed on that date.
118. The Court also observes that on 27 June 2001 the HAC, sitting as a court of first instance, modified the ruling of 2 July 1998, to the detriment of the applicant company, in allowing LyNOS’s application for review. It is noteworthy that: it was the only judicial decision regarding the application for review that the applicant company found itself confronted with; the decision was on the merits of the case; and it was amenable to an ordinary appeal, which the applicant company resorted to. The applicant company could therefore have hardly been expected to calculate the six-month time-limit for bringing its case to the Court from 27 June 2001.
119. Lastly, the Court notes that, following the legislative amendments which entered in force on 5 July 2001, the applicant company’s appeal was examined by the Donetsk Commercial Court of Appeal (see paragraphs 82 and 95 above). Subsequently, the applicant company appealed in cassation to the HCC (formerly the HAC) and later sought leave from the Supreme Court to bring a further cassation appeal (see paragraphs 83 and 85 above). According to the Court’s case-law, a second appeal in cassation to the Supreme Court was, after 5 July 2001, an effective domestic remedy in commercial proceedings in Ukraine (see the MPP Golub decision, cited above).
120. The Court therefore concludes that, in the specific circumstances of the present case, the applicant company cannot be reproached for calculating the six-month time-limit for complaining to the Court of the allegedly unlawful quashing of the HAC’s final ruling of 2 July 1998 from the date of the Supreme Court’s decision on the case of 26 December 2002.
121. Given that the application was lodged with the Court within six months thereafter, on 23 June 2003, the Court also dismisses this objection of the Government.
3. Otherwise as to the admissibility
122. The Court further notes that this part of the application, insofar as it falls within the Court’s temporal jurisdiction (see paragraphs 101 and 102 above), is neither manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention nor inadmissible on any other grounds. It should therefore be declared admissible.
1. Alleged violations of Article 6 § 1 of the Convention
(a) Independence and impartiality of the courts
123. The applicant company maintained that the courts dealing with the insolvency proceedings against LyNOS had not been independent or impartial, given the strong political pressure and the enduring control over the proceedings exerted by various State authorities, which had had a strong interest in their outcome. It referred, in particular, to the correspondence between the high-ranking officials and the courts dealing with the case (or their senior officials), on the one hand, and between LyNOS and those authorities, on the other hand.
124. The Government disagreed, referring to the guarantees of the independence and impartiality of the judiciary enshrined in the Ukrainian Constitution and other laws. While the Government admitted that there had been attempts to influence the proceedings, they insisted that there was no proof that those attempts had in fact had any impact. In support of that submission, the Government referred to the fact that, although the State authorities had sought the termination of the insolvency proceedings since 1998, those proceedings had continued until 2004.
125. The Court reiterates that in order to determine whether a tribunal can be considered “independent” for the purposes of Article 6 § 1 of the Convention, regard must be had, inter alia, to the following criteria: the manner of appointment of its members and their term of office; the existence of safeguards against outside pressures; and whether the tribunal presents an appearance of independence (see, among many other references, Findlay v. the United Kingdom, 25 February 1997, § 73, Reports 1997-I).
126. As regards the question of “impartiality” for the purposes of Article 6 § 1, it is well established in the Court’s case-law that there are two aspects to this requirement, a subjective and an objective one. First, the tribunal must be subjectively impartial, that is, no member of the tribunal should hold any personal prejudice or bias. Personal impartiality is presumed, unless there is evidence to the contrary. Secondly, the tribunal must also be impartial from an objective viewpoint – that is, it must offer sufficient guarantees to exclude any legitimate doubt in this respect (see Kiiskinen v. Finland (dec.), no. 26323/95, ECHR 1999-V (extracts)). More specifically, it must be determined, under the objective test, whether, quite apart from the judges’ personal conduct, there are ascertainable facts which may raise doubts as to their impartiality (see Kleyn and Others v. the Netherlands [GC], nos. 39343/98 et seq., § 191, ECHR 2003-VI).
127. In deciding whether in a given case there is a legitimate reason to fear that these requirements are not met, the standpoint of a party is important but not decisive. What is decisive is whether this fear can be held to be objectively justified (see Kleyn and Others, cited above, § 194).
128. The Court observes that the concepts of independence and objective impartiality are closely linked (see Findlay, cited above, § 73). They are particularly difficult to dissociate, where – like in the present case – the arguments advanced by the applicant to contest both the independence and impartiality of the court are based on the same factual considerations (see also Kleyn and Others, cited above, § 194, and Salov v. Ukraine, no. 65518/01, § 82, ECHR 2005-VIII (extracts)). The Court will therefore examine both these issues together.
129. The Court notes that – as confirmed by documentary evidence – various State authorities did indeed intervene in the judicial proceedings in question on a number of occasions. Moreover, those interventions took place in an open and persistent manner and were often expressly solicited by the applicant company’s adversary.
130. Thus, the case file contains copies of LyNOS’s requests to the First Deputy Speaker and the Speaker of Parliament, as well as the Prime Minister and the President of Ukraine, for intervention in the court proceedings, as well as letters from those officials to the HAC’s President with instructions to quash or reconsider the court’s earlier decisions, to terminate the proceedings, or simply enclosing the relevant request made by LyNOS (see paragraphs 28-29, 34-35, 42, 51, 58, 60 and 74 above). The Court also notes that the HAC’s President responded to some of those letters with reports on the status of the proceedings and with explanations of the measures taken within those proceedings (see paragraphs 43, 56 and 63 above). Furthermore, the Court does not lose sight of the fact that LyNOS explicitly thanked the President of Ukraine for his interventions, which it considered to be successful – noting that “the positive results [were] self-explanatory” (see paragraph 73 above).
131. Although the notion of the separation of powers between the executive and the judiciary has assumed growing importance in the Court’s case-law (see Stafford v. the United Kingdom [GC], no. 46295/99, § 78, ECHR 2002-IV, and Henryk Urban and Ryszard Urban v. Poland, no. 23614/08, § 46, 30 November 2010), neither Article 6 nor any other provision of the Convention requires States to comply with any theoretical constitutional concepts regarding the permissible limits of the interaction between the two branches. The Court must clarify whether in each particular case the requirements of the Convention are met (see Pabla Ky v. Finland, no. 47221/99, § 29, ECHR 2004-V).
132. It is not the Court’s task to analyse the soundness of the relevant constitutional arrangements in Ukraine. The sole question it is faced with is whether, in the circumstances of this case, the domestic courts had the requisite “appearance” of independence, or the requisite “objective” impartiality (see McGonnell v. the United Kingdom, no. 28488/95, § 51, ECHR 2000-II, and Kleyn and Others, cited above, § 193).
133. The Court has already condemned, in the strongest terms, attempts by non-judicial authorities to intervene in court proceedings, considering them to be ipso facto incompatible with the notion of an “independent and impartial tribunal” within the meaning of Article 6 § 1 of the Convention (see Sovtransavto Holding v. Ukraine, no. 48553/99, § 80, ECHR 2002-VII, and Agrotehservis v. Ukraine (dec.), no. 62608/00, 19 October 2004).
134. Similarly to its approach outlined in the Sovtransavto Holding case, cited above (§ 80), the Court finds it to be of no relevance whether the impugned interventions actually affected the course of the proceedings. Coming from the executive and legislative branches of the State, they reveal a lack of respect for the judicial office itself and justify the applicant company’s fears as to the independence and impartiality of the tribunals.
135. The Court is mindful of the fact that the proceedings in question concerned the insolvency of what was at the time the country’s biggest oil refinery and in which the State was the major shareholder (see paragraphs 6 and 45 above). It is therefore natural that they attracted the close attention of the State authorities at the highest level. Those authorities, however, did not confine themselves to passive monitoring of the developments in the court case in the context of their extrajudicial efforts to overcome LyNOS’s crisis, but blatantly interfered in the court proceedings, which is unacceptable.
136. The Court emphasises in this connection that the scope of the State’s obligation to ensure a trial by an “independent and impartial tribunal” under Article 6 § 1 of the Convention is not limited to the judiciary. It also implies obligations on the executive, the legislature and any other State authority, regardless of its level, to respect and abide by the judgments and decisions of the courts, even when they do not agree with them. Thus, the State’s respecting the authority of the courts is an indispensable precondition for public confidence in the courts and, more broadly, for the rule of law. For this to be the case, the constitutional safeguards of the independence and impartiality of the judiciary do not suffice. They must be effectively incorporated into everyday administrative attitudes and practices.
137. The Court further observes that judicial independence and impartiality, as viewed from an objective prospective, demand that individual judges be free from undue influence – not only from outside the judiciary, but also from within. This internal judicial independence requires that judges be free from directives or pressures from fellow judges or those who have administrative responsibilities in a court such as, for example, the president of the court. The absence of sufficient safeguards ensuring the independence of judges within the judiciary and, in particular, vis-à-vis their judicial superiors, may lead the Court to conclude that an applicant’s doubts as to the independence and impartiality of a court may be said to have been objectively justified (see Parlov-Tkalčić v. Croatia, no. 24810/06, § 86, 22 December 2009, with further references).
138. Turning back to the present case, the Court notes that in September 2000 the HAC’s President gave direct instructions to his two deputies to reconsider the court’s ruling of 19 September 2000 (by which it had rejected LyNOS’s application for the revision of the amount of its debt to the applicant company).
139. The Court considers such influence by a judicial superior on the course of the proceedings to be contrary to the principle of internal judicial independence as outlined above.
140. In sum, the Court concludes that, in the circumstances, the domestic courts could not be regarded independent or objectively impartial.
141. There has accordingly been a violation of Article 6 § 1 of the Convention in that regard.
(b) Compliance with the principle of legal certainty
142. The applicant company contended that by overturning the final ruling of 2 July 1998 establishing the amount of arrears due to it by LyNOS, the courts had acted in breach of the principle of legal certainty inherent in the notion of fair trial under Article 6 § 1 of the Convention.
143. Referring to their objection as to applicability of Article 6 § 1 to the situation complained of, the Government did not submit any further observations on the merits of this complaint.
144. The Court reiterates that legal certainty, which is one of the fundamental aspects of the rule of law, requires that where courts have finally determined an issue, their ruling should not be called into question (see Brumărescu v. Romania [GC], no. 28342/95, § 61, ECHR 1999-VII).
145. As regards the present case, the Court notes that, in the absence of any appeal to the Review Panel – which could have been submitted by either party within two months of the pronouncement of the HAC’s ruling (see the reference in paragraph 92 above) and which was considered, before 5 April 2001, to be an appeal to the court of final instance for the purposes of exhaustion of ordinary domestic remedies in arbitration proceedings (see Sovtransavto Holding v. Ukraine (dec.), no. 48553/99, 27 September 2001, and MPP Petrol v. Ukraine (dec.), no. 62605/00, 25 March 2008) – the HAC’s ruling of 2 July 1998 was a final judicial determination of the amount of the outstanding arrears owed by LyNOS to the applicant company. The fact that the modalities of its repayment were yet to be defined, at that stage, within the ongoing insolvency proceedings, has no bearing on this finding.
146. Proceeding from the standpoint that a court whose lack of independence and impartiality has been established cannot in principle guarantee a fair trial, the Court has occasionally chosen not to examine complaints regarding the fairness of the relevant proceedings (see Çiraklar v. Turkey, 28 October 1998, §§ 44-45, Reports 1998-VII). Having regard to the circumstances of each particular case before it, the Court has, however, at times found it necessary to undertake a separate examination of the fairness issue under Article 6 of the Convention, along with that regarding the courts’ independence and impartiality (see, for example, Salov, cited above, §§ 78-98, and Bochan v. Ukraine, no. 7577/02, §§ 60-85, 3 May 2007).
147. The Court considers that in the present case the applicant company’s complaint of the alleged breach of the principle of legal certainty raises a serious issue warranting a separate examination under Article 6 § 1 of the Convention.
148. The principle of legal certainty implies that no party is entitled to seek review of a final and binding judgment merely for the purpose of obtaining a rehearing and a fresh determination of the case. Review by higher courts should not be treated as an appeal in disguise, and the mere possibility of there being two views on the subject is not grounds for re-examination. A departure from that principle is justified only when made necessary by circumstances of a substantial and compelling character (see Ryabykh v. Russia, no. 52854/99, § 52, ECHR 2003-IX).
149. Turning to the present case, the Court notes that, while the HAC’s ruling of 2 July 1998 determining the amount of the outstanding arrears of LyNOS vis-à-vis the applicant company was not challenged and became final, later in July 1998 the Government created a taskforce of representatives of various high-level State authorities for clarifying the reasons for the company’s indebtedness. In its report of 31 August 1998 that taskforce stated a need for verification of the amount of arrears. Subsequently, on 14 September 1998, the First Deputy Prime Minister instructed certain ministries and State agencies to undertake an audit with a view to verifying the amount of the debt. As a result, in its report of 15 April 2000, the Lugansk Regional Audit Department concluded that the HAC’s findings in its ruling of 2 July 1998 concerning the outstanding debt owed to the applicant company had been wrong and in contradiction of the applicable legislation, and that LyNOS’s debt was in fact equal to UAH 36,401,894, instead of UAH 216,150,544 as had been established on 2 July 1998. LyNOS relied on that conclusion as a newly-discovered circumstance warranting revision by the courts of the previously established amount of debt, and its application for review was granted. As result, the courts reconsidered and reduced the finally established debt of UAH 216,150,544 to UAH 97,406,920 and subsequently to UAH 90,983,077 (see, in particular, paragraphs 41 and 77 above).
150. These facts indicate that the non-judicial State authorities called into question the judicial decision of 2 July 1998 even though it had become final, revised it as they saw fit and criticised its findings as wrong and unlawful. Moreover, the non-judicial revision of the debt amount was then referred to as a newly-discovered circumstance, on the basis of which the courts reconsidered, to the applicant company’s disadvantage, the amount of the arrears owed to it by LyNOS.
151. The Court therefore concludes that the reopening of the finally settled legal issue of the amount of arrears in the present case was based merely on the State authorities’ disagreement with it, this being disguised as a newly-discovered circumstance. It considers that this amounted to a flagrant breach of the principle of legal certainty enshrined in Article 6 § 1 of the Convention.
152. Accordingly, the Court rejects the Government’s objection as to applicability of Article 6 § 1 of the Convention to this complaint, which was previously joined to the merits (see paragraph 106 above), and finds that that there has been a violation of this provision.
(c) Length of proceedings
153. The applicant company maintained that the proceedings initiated by it against LyNOS had lasted for an unreasonably long time.
154. The Government did not consider the overall length of the proceedings to be unreasonable, given the complexity of the case and the applicant company’s own allegedly uncooperative conduct.
155. The Court reiterates that the reasonableness of the length of proceedings must be assessed in the light of the circumstances of the case and with reference to the following criteria: the complexity of the case; the conduct of the applicant and the relevant authorities; and what was at stake for the applicant in the dispute (see, among many other authorities, Frydlender v. France [GC], no. 30979/96, § 43, ECHR 2000-VII).
156. The period to be taken into consideration in the present case is from 11 September 1997 (the date of the entry into force of the Convention in respect of Ukraine – see paragraphs 100-102 above) to 25 November 2004 (the ruling of the Supreme Court finalising the bankruptcy proceedings against LyNOS by upholding its friendly settlement with the creditors’ committee). The proceedings therefore lasted for over seven years.
157. The Court notes that the case was of importance for the applicant company, with a significant pecuniary interest being at stake. It was, however, factually and legally complex. At the same time the Court observes that, on the one hand, the major delay (from July 1999 to 16 April 2002) can be explained mainly by the authorities’ efforts to have the amount of the debt owed to the applicant company revised, despite a final judicial decision in that regard. On the other hand, no delays in the proceedings were attributable to the applicant company.
158. The Court has frequently found violations of Article 6 § 1 of the Convention in cases raising issues of the length of proceedings (see Frydlender, cited above).
159. Having examined all the material submitted to it, the Court considers that the Government have not put forward any fact or argument capable of persuading it to reach a different conclusion in the present case. Having regard to its case-law on the subject, the Court considers that in the instant case the length of the proceedings was excessive and failed to meet the “reasonable time” requirement.
160. There has accordingly been a breach of Article 6 § 1 of the Convention in this regard too.
2. Alleged violations of Article 1 of Protocol No. 1
161. The applicant company contended that, due to the fault of the State, it had been unable to recover in full the 375,000 tons of oil it had supplied to the State-owned oil refinery in the early 1990s, even though the domestic courts had confirmed its claim in that regard by their final decisions of 5 March 1993, 18 November 1994 and 2 July 1998.
162. The applicant company referred, in particular, to the revision of the amount of arrears after it had already been established by the HAC’s final ruling of 2 July 1998, and its subsequent considerable reduction (from UAH 216,150,544 to UAH 90,700,000).
163. It next submitted that the ban on selling shares in LyNOS had been lifted by mere decisions of the HAC’s President on 10 September 1998 and 12 April 2000, and that the State’s shares had eventually been sold to a foreign investor without any safeguards that LyNOS’s outstanding debt to the applicant company would ever be repaid.
164. Furthermore, the applicant company contended that it had been forced, in 2003, into what it considered to be a discriminatory friendly settlement resulting in the transfer to it of shares owned by LyNOS which were neither transferable nor free from encumbrances nor eligible for dividends, instead of the money or oil products which it would have received had its rights not been violated.
165. The Government maintained that there had been no interference with the applicant company’s rights under Article 1 of Protocol No. 1, as, until the completion of the insolvency proceedings against LyNOS, it could not have been regarded as having any possessions or enforceable property claims.
166. The Court reiterates that the existence of a debt confirmed by a binding and enforceable judgment furnishes the judgment beneficiary with a “legitimate expectation” that the debt will be paid and constitutes the beneficiary’s “possessions” within the meaning of Article 1 of Protocol No. 1. Quashing such a judgment therefore amounts to an interference with the right to peaceful enjoyment of possessions (see, among other references, Brumărescu, cited above, § 74, and Ponomaryov v. Ukraine, no. 3236/03, § 43, 3 April 2008).
167. The Court observes that the debt of LyNOS, a State-owned company at the time, to the applicant company was confirmed by the final judicial ruling of 2 July 1998 in the amount of UAH 216,150,544. Accordingly, that sum of money constituted the applicant company’s possessions, and its subsequent reduction, as a result of the reopening of the case on the basis of newly-discovered circumstances, amounted to an interference with its right to peaceful enjoyment of those possessions.
168. As the Court has found in the context of Article 6 § 1 of the Convention, the quashing of the HAC’s enforceable ruling of 2 July 1998 was contrary to the principle of legal certainty (see paragraphs 148-149 above). It frustrated the applicant company’s reliance on a binding judicial decision and deprived it of an opportunity to receive the money it had legitimately expected to receive.
169. The Court therefore concludes that, in these circumstances, the revision of the amount of debt due to the applicant company under the HAC’s final and binding ruling of 2 July 1998 placed an excessive burden on the applicant company and was therefore incompatible with Article 1 of Protocol No. 1.
170. In a broader context, the Court notes that the insolvency proceedings initiated by the applicant company against LyNOS had a direct impact on the property interests of the former. Given the Court’s findings that the courts dealing with those proceedings lacked the requisite independence and objective impartiality owing to the wholly unwarranted interventions by the State’s legislative and executive authorities (see paragraphs 136-137 above), the Court considers that no “fair balance” was struck between the demands of the public interest and the need to protect the applicant company’s right to the peaceful enjoyment of its possessions (see and compare with the judgment in the Sovtransavto Holding case, cited above, §§ 97-98).
171. The above considerations suffice for the Court to find a violation of Article 1 of Protocol No. 1, without the need to examine the applicant company’s further arguments in support of its complaint under this heading.
172. Accordingly, there has been a violation of Article 1 of Protocol No. 1.
II. OTHER ALLEGED VIOLATIONS OF THE CONVENTION
173. The applicant company also complained under Article 6 § 1 of the Convention of irregularities in the case file concerning the insolvency proceedings and of the destruction of files regarding the 1993-1994 proceedings. It further complained, relying on Articles 6 § 1 and 13 of the Convention and Article 2 of Protocol No. 7 to the Convention, that it had been deprived of access to court by the fact that on 26 December 2002 the Supreme Court, sitting as a five-judge bench, had rejected its request for leave to appeal in cassation. It referred in that regard to the requirement of the applicable procedural legislation to have the consent of at least five judges for proceedings to be started and the Supreme Court’s failure to specify the total number of judges on the bench.
174. In the light of all the material in its possession, and in so far as the matters complained of are within its competence, the Court finds that they do not disclose any appearance of a violation of the rights and freedoms set out in the Convention or its Protocols. It follows that this part of the application must be rejected as being manifestly ill-founded, pursuant Article 35 §§ 3 (a) and 4 of the Convention.
III. APPLICATION OF ARTICLE 41 OF THE CONVENTION
175. 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.”
176. The applicant company submitted two alternative claims in respect of pecuniary damage – 179,119,430.67 euros (EUR) or EUR 143,873,981.28 – with its calculations being based, respectively, on United States and Ukrainian interest and inflation rates. It also claimed EUR 250,000 in respect of non-pecuniary damage and EUR 253,878.95 in legal costs and expenses.
177. The Government contested those claims.
178. The Court considers that, in the circumstances of the case, the issue of the application of Article 41 of the Convention is not ready for decision. Consequently, it decides to reserve it and to fix the subsequent procedure in the light of the possibility of an agreement between the respondent State and the applicant company (Rule 75 §§ 1 and 4 of the Rules of Court).
FOR THESE REASONS, THE COURT UNANIMOUSLY
1. Decides to join to the merits the Government’s objection as to the applicability of Article 6 § 1 of the Convention to the applicant company’s complaint regarding the review of the judicial ruling of 2 July 1998, and dismisses it;
2. Declares the complaints under Article 6 § 1 of the Convention (fairness as regards the principle of legal certainty, independence and impartiality of the domestic courts, and length of the proceedings) and Article 1 of Protocol No. 1 admissible insofar as they pertain to the period after the Convention’s entry into force for Ukraine on 11 September 1997, and the remainder of the application inadmissible;
3. Holds that there has been a violation of Article 6 § 1 of the Convention on account of the lack of the courts’ independence and impartiality;
4. Holds that there has been a violation of Article 6 § 1 of the Convention on account of the unfairness of the proceedings (breach of the principle of legal certainty);
5. Holds that there has been a violation of Article 6 § 1 of the Convention on account of the length of the proceedings;
6. Holds that there has been a violation of Article 1 of Protocol No. 1;
7. Holds that the question of the application of Article 41 of the Convention is not ready for decision; accordingly,
(a) reserves the said question in whole;
(b) invites the Government and the applicant company to submit, within three months from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, their written observations on the matter and, in particular, to notify the Court of any agreement that they may reach;
(c) reserves the further procedure and delegates to the President of the Chamber the power to fix the same if need be.
Done in English, and notified in writing on 6 October 2011, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Claudia Westerdiek Dean Spielmann Registrar President
AGROKOMPLEKS v. UKRAINE JUDGMENT (MERITS)
AGROKOMPLEKS v. UKRAINE JUDGMENT (MERITS)