CONSEIL
DE L’EUROPE
COUNCIL
OF EUROPE
COUR EUROPÉENNE DES DROITS DE L’HOMME
EUROPEAN COURT OF HUMAN RIGHTS
FIRST SECTION
DECISION
AS TO THE ADMISSIBILITY OF
Application no. 39739/06
by Miljenko KOVAČ
against Croatia
The European Court of Human Rights (First Section), sitting on
15 January 2009 as a Chamber composed of:
Christos Rozakis, President,
Nina Vajić,
Khanlar Hajiyev,
Dean Spielmann,
Sverre Erik Jebens,
Giorgio Malinverni,
George Nicolaou, judges,
and Søren Nielsen, Section Registrar,
Having regard to the above application lodged on 7 September 2006,
Having regard to the observations submitted by the respondent
Government and the observations in reply submitted by the applicant,
Having deliberated, decides as follows:
THE FACTS
The applicant, Mr Miljenko Kovač, is a Croatian national who was born
in 1938 and lives in Bjelovar. He was represented before the Court by
Mr H. Kovač, an advocate practising in Bjelovar. The Croatian Government
(“the Government”) were represented by their Agent, Mrs Š. Stažnik.
A. The circumstances of the case
The facts of the case, as submitted by the parties, may be summarised as
follows.
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KOVAČ v. CROATIA DECISION
1. Background to the case
The applicant was a shareholder of the Croatia banka d.d., a joint-stock
company incorporated under Croatian law with its registered office in
Zagreb (“the bank”). The bank was entirely owned by private individuals
and companies.
On 23 February 1999 the Croatian National Bank (Hrvatska narodna
banka – “the CNB”) adopted a decision appointing a temporary
administrator to the bank. Under section 84(2) of the Banks Act, from the
date of service of such decision, all powers of the management board, the
supervisory board and the shareholders’ general meeting were transferred to
the temporary administrator. Subsequently, on 23 August 1999 the CNB
extended the temporary administrator’s term of office for a further two
months.
Meanwhile, on 18 June 1999 the CNB had proposed to the Government
that the process of recovery and restructuring of the bank be commenced, as
provided for by the domestic legislation.
In accordance with that proposal, on 23 September 1999 the Government
adopted the Decision on Recovery and Restructuring of the Croatia banka
d.d. (“the Decision”). From that date, all shares held by the bank’s
shareholders were revoked and cancelled. Following the process of
recovery, the bank was to issue new shares, all in the name of the State
Agency for Securing Savings Deposits and Recovery of Banks (Državna
agencija za osiguranja štednih uloga i sanaciju banaka).
2. Constitutional review proceedings
In 1999 and 2000 five shareholders of the bank, but not the applicant,
filed four separate petitions for review of the constitutionality and legality
(prijedlog za ocjenu ustavnosti i zakonitosti) of the Government’s Decision
of 23 September 1999. They complained that the Decision violated their
constitutional rights as shareholders of the bank. They also claimed that the
bank had been in good standing and that the Decision had therefore been
unnecessary.
On 30 January 2003 the Constitutional Court (Ustavni sud Republike
Hrvatske) discontinued the proceedings because the statute on which the
Decision was based had in the meantime been repealed.
3. Civil proceedings instituted by the applicant
On 20 November 2001 the applicant brought a civil action for unjust
enrichment (or enrichment without cause) in the Bjelovar Municipal Court
(Općinski sud u Bjelovaru) against the bank, seeking repayment of 37,200
Croatian kunas (HRK). He relied on section 210(3) of the Civil Obligations
Act. The applicant explained that on 28 November 1997 he had bought 186
of the bank’s ordinary shares for the above amount. However, on the basis
of the Government’s Decision of 23 September 1999 he had been deprived
of those shares. He argued that the Decision had actually annulled the
contract under which the bank had sold him its shares. That contract, being
KOVAČ v. CROATIA DECISION
3
the cause on the basis of which he had paid HRK 37,200 to the bank, had
thus ceased to exist. It followed that the bank had enriched itself without
cause, or more precisely, on the basis of a cause which had subsequently
ceased to exist, and had therefore been bound to return to him the sum in
question.
On 12 February 2002 the Municipal Court dismissed his action. It
rejected the applicant’s argument that the Government’s Decision of
23 September 1999 had annulled the contract under which he had acquired
the bank’s shares. Consequently, the court found that the cause on the basis
of which he had paid HRK 37,200 to the bank had not ceased to exist and
that the bank had not been bound to return the sum demanded.
Following an appeal by the applicant, on 27 May 2002 the Bjelovar
County Court (Županijski sud u Bjelovaru) quashed the first-instance
judgment on account of incomplete facts and remitted the case. It also
instructed the lower court to verify whether the contract under which the
applicant had bought the shares could be rescinded under section 133 of the
Civil Obligations Act on account of the fundamental change in
circumstances, having regard to the Government’s Decision of
23 September 1999.
In the resumed proceedings, on 19 November 2002 the Bjelovar
Municipal Court ruled for the applicant, finding that the bank had indeed
enriched itself without cause. The court again did not accept the applicant’s
argument that the contract of sale on the basis of which he had bought the
bank’s shares had been annulled by the Government’s Decision of
23 September 1999. It however held that, because of that Decision, the
contract had lost one of the essential elements for the validity of every
contract, namely its consideration, defined as the economic purpose of a
transaction. Relying on section 52 of the Civil Obligations Act, the court
further found that, owing to the absence of consideration, the contract was
null and void. Accordingly, the nullity of the contract had resulted in the
disappearance of the cause on the basis of which the applicant had paid the
bank the sum sought and the bank had been obliged to return that sum to
him.
Following an appeal by the respondent, on 27 February 2003 the
Bjelovar County Court reversed the first-instance judgment and dismissed
the applicant’s action. It found that the Government’s Decision of
23 September 1999 had not annulled the applicant’s contract with the bank
relating to the purchase of the shares. Moreover, the Decision could not in
any other way have affected the validity of that contract because the parties
had performed, and thereby extinguished, their contractual obligations
before the Decision had been adopted (the applicant by paying HRK 37,200
to the bank, and the bank by transferring 186 of its shares to him). It
followed that at the relevant time (during its existence) the applicant’s
contractual obligation had been performed for consideration which could
not subsequently have been removed by an event that took place after that
obligation had already been extinguished. The contract in question had thus
been valid. As that contract had been the cause on the basis of which the
KOVAČ v. CROATIA DECISION
4
applicant had paid HRK 37,200 to the bank, and had been valid, it could not
be argued that this cause had ceased to exist and that the bank had been
bound to repay him the amount sought. The conditions for rescission of the
contract on the basis of a fundamental change in circumstances had not been
met either, because under section 133(3) of the Civil Obligations Act such
rescission could not have been sought by a party who had already performed
his or her contractual obligations.
On 30 October 2003 the applicant lodged a constitutional complaint
against the second-instance judgment, alleging breaches of Articles 48 (1),
49 and 50 of the Constitution.
On 16 March 2006 the Constitutional Court dismissed his constitutional
complaint.
B. Relevant domestic law and practice
1. The Constitution
The relevant provisions of the Constitution of the Republic of Croatia
(Ustav Republike Hrvatske, Official Gazette nos. 56/90, 135/97, 8/98
(consolidated text), 113/00, 124/00 (consolidated text), 28/01 and 41/01
(consolidated text), 55/01 (corrigendum)) provide as follows:
Article 48 § 1
“The right to property is guaranteed.”
Article 49 § 4
“The rights acquired through the investment of capital shall not be diminished by
law, or by any other legal act.”
Article 50
“1. Property [rights] may be restricted or taken in accordance with the law and in the
interest of the Republic of Croatia upon payment of compensation equal to its market
value.
2. The exercise...of property rights may exceptionally be restricted by law for the
protection of the interests and security of the Republic of Croatia, nature, the
environment or health.”
2. Relevant legislation
(a) The Banks Act
The relevant provisions of the Banks Act (Zakon o bankama, Official
Gazette no. 161/98) read as follows:
XV. TEMPORARY ADMINISTRATOR
Section 82
“When the Croatian National Bank establishes that the potential losses of a bank ...
are higher than that bank’s share capital and in cases where a bank is insolvent, it shall
KOVAČ v. CROATIA DECISION
5
appoint a temporary administrator to that bank, or shall file a petition with the
competent court with a view to opening bankruptcy proceedings against that bank.”
Section 84(2)
“From the date of service of the decision on the appointment of a temporary
administrator, all powers of the management board, supervisory board and
shareholders’ general meeting shall cease and shall at the same time be transferred to
the temporary administrator.”
XVI. RECOVERY OF BANKS
Section 90
“On the proposal of the Croatian National Bank, the Government of the Republic of
Croatia may decide to commence the process of recovery of a bank if it establishes
that this is in the State’s special interest and if it finds that the other possibilities of
preventing disturbance in the stability of the overall financial system of the State have
been exhausted.”
(b) The Act on Recovery and Restructuring of Banks
The relevant provisions of the Act on Recovery and Restructuring of
Banks (Zakon o sanaciji i restrukturiranju banaka, Official Gazette no.
44/94 – “the Recovery and Restructuring Act”) read as follows:
Section 3(1)
“The procedure of recovery and restructuring of a bank shall be initiated when a
bank shows potential losses ... of more than 50% of the amount of its share capital, if
the Croatian National Bank deems such procedure feasible and economically
justifiable.”
Section 11(1)
“The decision on recovery and restructuring of a bank shall be given by the
Government of the Republic of Croatia on the proposal of the Croatian National
Bank.”
The Recovery and Restructuring Act was repealed on 23 May 2000 by
the entry into force of the Act Repealing the Act on Recovery and
Restructuring of Banks (Zakon o prestanku važenja zakona o sanaciji i
restrukturiranju banaka, Official Gazette no. 52/2000 of 23 May 2000).
(c) The Government’s Decision on Recovery and Restructuring of the Croatia
banka d.d.
The Decision on Recovery and Restructuring of the Croatia banka d.d.
(Odluka o sanaciji i restrukturiranju Croatia banke d.d., Zagreb, Official
Gazette nos. 98/1999 and 53/2000 – “the Decision”), in its relevant part,
read as follows:
I.
“It is established that on 31 May 1999 the bank has:
(a) risky investments and potential liabilities in the amount of 1,809 million kunas,
including potential losses of 517 million kunas;
KOVAČ v. CROATIA DECISION
6
(b) suspected and disputed claims ... in the amount of 446 million kunas;
(c) business losses incurred in 1998 and between 1 January and 31 May 1999 in the
amount of 622.2 million kunas.”
VII.
“On the day of the publication of this Decision all existing shares of the Bank shall
be revoked and cancelled. The Bank shall issue new shares in the amount of 217
million kunas, which shall be entirely owned by the Agency.”
(d) The Courts Act
The relevant part of the Courts Act (Zakon o sudovima, Official Gazette
nos. 3/94, 100/96, 131/97 and 129/00), as in force at the material time, read
as follows:
Section 19
Commercial courts... shall adjudicate:
1. ...
2. Disputes concerning the establishment, operation and dissolution of commercial
companies as well as disputes concerning disposition of membership and membership
rights in such companies ...”
(e) The Civil Obligations Act
The relevant part of the Civil Obligations Act (Zakon obveznim
odnosima, Official Gazette nos. 53/91, 73/91, 111/93, 3/94, 7/96, 91/96,
112/99 and 88/01), read as follows:
III. CONSIDERATION
Permissible consideration
Section 51
“(1) Every contractual obligation shall have permissible consideration.
(2) Consideration shall be impermissible if it is contrary to the Constitution,
peremptory rules or public morals.
(3) It shall be assumed that an obligation has consideration even if it is not expressly
stated.”
Nullity of a contract on account of consideration
Section 52
“If consideration is inexistent or impermissible, the contract shall be null and void.”
KOVAČ v. CROATIA DECISION
7
III. RESCISSION OR AMENDMENT OF A CONTRACT OWING TO A
FUNDAMENTAL CHANGE IN CIRCUMSTANCES
Conditions for rescission
Section 133
“(1) If, after a contract has been entered into, circumstances occur which make the
performance of the obligations of one party more difficult, or if, owing to such
circumstances the purpose of the contract cannot be attained, and in both cases to the
extent that the contract obviously no longer corresponds to the expectations of the
contracting parties and that, according to general opinion, it would be unfair to
maintain the contract as it is, the party for which performance has been rendered more
difficult or the party which, owing to the [fundamentally] changed circumstances,
cannot attain the purpose of the contract, may request that the contract be rescinded.
(2) ...
(3) The party requesting the rescission of the contract cannot rely on
[fundamentally] changed circumstances which have occurred after the expiry of the
time-limit set forth for the performance of his or her obligation.
(4) ...
Part 3.
ENRICHMENT WITHOUT CAUSE
General rule
Section 210
“(1) When a part of the property of one person passes, by any means, into the
property of another person, and that transfer has no basis in a legal transaction or a
statute [i.e. it is without cause], the beneficiary shall be bound to return that property.
If restitution is not possible, he or she shall be bound to provide compensation for the
value of the benefit received.
(2) ...
(3) The obligation to return the property or provide compensation for its value shall
arise even when something is received on account of a cause which did not come into
existence or which subsequently ceased to exist.”
3. Relevant practice
On 21 December 2004 the High Commercial Court (Visoki trgovački sud
Republike Hrvatske) delivered judgment no. Pž-6234/04-2 in a case where
the plaintiff, a shareholder of the Croatia banka d.d., had sued the bank and
the State Agency for Securing Savings Deposits and Recovery of Banks
before the competent commercial court claiming that she had been deprived
of her shares and the rights derived from them without any compensation.
She sought a declaratory judgment that she was still a shareholder of the
bank and asked the court to order the respondents to transfer her back 1,517
of her shares. In ruling for the plaintiff the High Commercial Court directly
applied Articles 48 (1) and 49 (4) of the Constitution. It expressly stated that
the Government’s Decision of 23 September 1999 was contrary to the latter
Article and reasoned as follows:
KOVAČ v. CROATIA DECISION
8
“In particular, any restriction or deprivation of the rights deriving from shares would
be contrary to that provision of the Constitution, as it would constitute diminution or
deprivation of membership rights acquired through the investment of capital in a jointstock company.”
COMPLAINTS
1. The applicant complained under Article 1 of Protocol No. 1 to the
Convention that he had been deprived of his shares by the Government’s
Decision of 23 September 1999 without receiving any compensation.
2. The applicant further complained under Article 6 § 1 of the
Convention about the outcome of the above-mentioned civil proceedings.
3. Lastly, the applicant complained under Article 13 of the Convention
that he had not had an effective remedy at his disposal.
THE LAW
A. Alleged violation of Article 1 of Protocol No. 1 to the Convention
The applicant complained that the Government’s Decision of
23 September 1999 had violated his property rights. In particular, he
claimed that he had been deprived of his property by the State in that his
shares had been revoked and cancelled without any justification or
compensation. He relied on Article 1 of Protocol No. 1, which reads as
follows:
“Every natural or legal person is entitled to the peaceful enjoyment of his
possessions. No one shall be deprived of his possessions except in the public interest
and subject to the conditions provided for by law and by the general principles of
international law.
The preceding provisions shall not, however, in any way impair the right of a State
to enforce such laws as it deems necessary to control the use of property in
accordance with the general interest or to secure the payment of taxes or other
contributions or penalties.”
The Government disputed the admissibility of this complaint, arguing
that the applicant had failed to exhaust domestic remedies.
1. The parties’ submissions
(a) The Government
The Government first pointed out that before the domestic authorities,
that is, in the above-mentioned civil proceedings, the applicant had sought
repayment of the money he had invested in shares, because he had
considered that the contract for the sale of shares entered into between him
and the Croatia banka d.d. had been annulled, and that therefore the legal
KOVAČ v. CROATIA DECISION
9
basis for payment of that amount had ceased to exist. However, the
domestic courts had found that the contract had been performed upon the
payment of the agreed price and the transfer of shares, and that a party who
had performed his or her contractual obligation could not seek rescission of
such a contract on account of a fundamental change in circumstances. The
courts had also found that there had been no unjust enrichment on the part
of the bank.
Before the Court, however, the applicant had complained about the
cancellation of shares and the loss of rights deriving from them. The
Government argued that in those circumstances the applicant should have
brought such a claim – which involved a dispute regarding membership and
shareholders’ rights in a commercial company – before the competent
commercial court, as the commercial courts had jurisdiction in that type of
dispute. In this connection they noted that already in the Batinović case (see
Batinović and Point Trade d.o.o. v. Croatia (dec.), no. 30426/03, 10 July
2007), the Court had referred to a judgment of the High Commercial Court
of 21 December 2004 in which that court had granted a claim by a
shareholder of the Croatia banka d.d. whose shares had been cancelled by
the disputed Government’s Decision of 23 September 1999. On the basis of
that judgment the Court had concluded in the Batinović case that
commercial courts had accepted jurisdiction in such matters and that the
applicants and other shareholders who had been in an identical legal
situation would have had reasonable prospects of success with their claim.
Accordingly, the Government concluded that the applicant in the present
case had had an effective remedy at his disposal which he could have used
to protect his shareholder’s rights. However, he had not done so.
(b) The applicant
The applicant replied that the Government had merely stated that he
could have chosen another avenue of redress by requesting that the
ownership of his shares be restored, but that this argument had not called
into question the validity of his claim. He argued that the choice of remedy
should have been left to his discretion and that compensation corresponding
to the amount he had paid for the shares, of which he had been subsequently
deprived, was exactly what he had considered he had been entitled to. What
is more, by arguing as they did, the Government had actually confirmed that
his claim was well-founded and had implied that an erroneous decision had
been taken at the domestic level.
2. The Court’s assessment
The Court notes at the outset that the present case is similar to that of
Batinović and Point Trade d.o.o. v. Croatia ((dec.), no. 30426/03, 10 July
2007). In that case the applicants, also shareholders of the Croatia banka
d.d., complained, like the applicant in the instant case, under Article 1 of
Protocol No. 1 to the Convention that they had been deprived of their shares
by the Government’s Decision of 23 September 1999 without any
10
KOVAČ v. CROATIA DECISION
compensation. In declaring the case inadmissible for non-exhaustion of
domestic remedies, the Court held as follows:
“However, the applicants did not present their arguments in this respect to any
domestic court of full jurisdiction, which would be far better placed than the Court to
examine the factual background of their case. ...
Given that commercial courts are generally competent in cases when a shareholder
deems that his shareholder’s rights were violated, it is reasonable to assume that
bringing an action in the competent commercial court would have had reasonable
prospects of success. The Court recalls in this connection that a mere doubt as to the
prospect of success of a remedy is not sufficient to exempt an applicant from
submitting a complaint to the competent authority (see Elsanova v. Russia (dec.), no.
57952/00, 15 November 2005).
The foregoing conclusion is reinforced by the High Commercial Court’s judgment
submitted by the Government, which shows that commercial courts accepted
jurisdiction in the matter and even decided in favour of another shareholder of the
Bank, who was in an identical legal situation to that of the applicants. ...
In these circumstances, the Court concludes that the applicants’ complaint under
Article 1 of Protocol No. 1 to the Convention must be rejected under Article 35 §§ 1
and 4 of the Convention for non-exhaustion of domestic remedies.”
The Court notes that, unlike the applicants in the Batinović case, the
applicant in the present case did bring an action in a domestic court of full
jurisdiction. However, even though his dispute with the bank was clearly a
dispute between a commercial company and its shareholder and thus falling
into the category of commercial disputes envisaged in section 19 of the
Courts Act as matters within the jurisdiction of commercial courts, he did
not institute proceedings before the competent commercial court. Instead, he
misconstrued the Government’s Decision of 23 September 1999 by
advancing a rather implausible interpretation that the contract under which
he had acquired the bank’s shares had been annulled by that Decision, and
on that basis brought an action for unjust enrichment against the bank in an
ordinary court, seeking to retrieve the sum he had paid for the shares in
question.
In these circumstances, the Court cannot but accept the Government’s
objection, supported by the judgment of the High Commercial Court of
21 December 2004, that by bringing a misconceived action for unjust
enrichment in the ordinary courts, the applicant had failed properly to
exhaust domestic remedies.
It follows that this complaint is inadmissible under Article 35 § 1 for
non-exhaustion of domestic remedies and must be rejected pursuant to
Article 35 § 4 of the Convention.
B. Other alleged violations of the Convention
The applicant also complained under Article 6 § 1 of the Convention
about the outcome of the above civil proceedings, and under Article 13
thereof about the lack of an effective remedy for his property complaint.
Those Articles in their relevant part read as follows:
KOVAČ v. CROATIA DECISION
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Article 6 § 1
“In the determination of his civil rights and obligations ... everyone is entitled to a
fair ... hearing ....”
Article 13
“Everyone whose rights and freedoms as set forth in [the] Convention are violated
shall have an effective remedy before a national authority notwithstanding that the
violation has been committed by persons acting in an official capacity.”
As regards the complaint under Article 6 § 1 of the Convention, the
Court notes that the applicant complained about the outcome of the
proceedings, which, unless arbitrary, the Court is unable to examine under
that Article. The applicant does not complain and there is no evidence to
suggest that the domestic courts lacked impartiality or that the proceedings
were otherwise unfair. In the light of all the material in its possession, the
Court considers that in the impugned proceedings the applicant was able to
submit his arguments before courts which offered the guarantees set forth in
Article 6 § 1 of the Convention and which addressed those arguments in
decisions that were duly reasoned and not arbitrary.
As regards the complaint under Article 13 of the Convention, the Court
refers to its above findings according to which the applicant did not bring a
civil action in the competent commercial court and thereby failed properly
to exhaust available domestic remedies.
It follows that these complaints are inadmissible under Article 35 § 3 as
manifestly ill-founded and must be rejected pursuant to Article 35 § 4 of the
Convention.
For these reasons, the Court unanimously
Declares the application inadmissible.
Søren Nielsen
Registrar
Christos Rozakis
President