FIFTH SECTION

CASE OF UKRAINE-TYUMEN v. UKRAINE

(Application no. 22603/02)

JUDGMENT
(Just satisfaction)

STRASBOURG

20 May 2010

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 Ukraine-Tyumen v. Ukraine,
The European Court of Human Rights (Fifth Section), sitting as a Chamber composed of:
	Peer Lorenzen, President,
	Karel Jungwiert,
	Rait Maruste,
	Mark Villiger,
	Isabelle Berro-Lefèvre,
	Mirjana Lazarova Trajkovska, judges,
	Mykhaylo Buromenskiy, ad hoc judge,

Having deliberated in private on 27 April 2010,
Delivers the following judgment, which was adopted on that date:
PROCEDURE
1.  The case originated in an application (no. 22603/02) against Ukraine lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by the Ukraine-Tyumen Joint Stock Company (“the applicant company”) on 23 July 2001.
2.  In a judgment delivered on 22 November 2007 (“the principal judgment”), the Court held that there had been a violation of Article 6 § 1 of the Convention and Article 1 of Protocol No. 1 (see Ukraine-Tyumen v. Ukraine, no. 22603/02, §§ 42 and 61 and points 2 and 3 of the operative provisions, 22 November 2007).
3.  Under Article 41 of the Convention the applicant company submitted that it had suffered some pecuniary damage as a consequence of the violation of its rights under Article 6 of the Convention and Article 1 of Protocol No. 1, without specifying the amount, and sought the return of the building of which it had been deprived.
4.  Since the question of the application of Article 41 of the Convention was not ready for decision as regards pecuniary damage, the Court reserved it and invited the Government and the applicant company to submit, within six months, their written observations on that issue and, in particular, to notify the Court of any agreement they might reach (§66 and point 4 of the operative provisions of the principle judgment).
5.  The time-limit set for the parties to reach an agreement passed without the conclusion of such an agreement. The applicant company and the Government each filed observations on the application of Article 41 of the Convention.
THE FACTS
I.  THE CIRCUMSTANCES OF THE CASE
1.  Events prior to the adoption of the principal judgment
6.  On 31 October 2001 the State Property Fund of Ukraine informed the applicant company that it could no longer remain a shareholder of the applicant company because the transfer of the building from Ukranaftoprodukt to the applicant company, as consideration for its shares, had been invalidated by the judgment of the Plenary Higher Arbitration Court of 15 February 2001 (see the principal judgment, § 15).
7.  Subsequently, several other shareholders, including the Ukrresursy State Enterprise, also informed the applicant company that they would no longer be shareholders.
8.  On 2 November 2001 the general assembly of the applicant company decided to remove the State Property Fund, the Ukrresursy State Enterprise and three other companies from its list of shareholders. It was also decided to cancel the shares of the former shareholders and to reduce the share capital from 900,000 to 153,000 Ukrainian hryvnias (UAH).
9.  According to the applicant company, the substantial drop in its share capital and its inability to use the building had inhibited its activities, which it had had to discontinue from May 2004 onwards.
10.  On 30 September 2006 experts hired by the applicant company estimated the market value of the building on that date at UAH 7,331,425.20.
2.  Events after the adoption of the principal judgment
11.   On 31 August 2008 two other experts hired by the applicant company to evaluate the market value of the building examined it from the outside, having been refused entry into the building. On 16 September 2008 they drew up an extensive report, finding that the building was worth UAH 12,711,000 given its actual state, location, existing possibilities of deriving profit from using the building, and the market values of similar types of property. They also mentioned that the building had not been in use since 1998 at least and therefore needed complete renovation.
12.  On 22 September 2008 the Kyiv City Bureau of Technical Inventory and Register of Ownership Rights over Immovable Property (the State real-estate register) produced, at the applicant company’s request, an expert report which estimated the market value of the building on 27 February 2001 at UAH 1,656,999, pointing out that the building had not been repaired or renovated since 1998.
13.  On 24 September 2008 the applicant company’s accounts were examined by an expert who noted, inter alia, that the book (inventory) value of the building on 1 January 2001 had been UAH 163,371.91, that from 1 May 1997 to 1 January 2001 the applicant company had spent UAH 137,451.22 on repair work to the building, and that its expenses for renting an office between 15 February and 1 April 2001 had come to UAH 1,621.55. The expert also calculated the inflation adjustment of the market value of the building, as mentioned in the valuation of 22 September 2008. Thus, the value of the building adjusted on 1 September 2008 amounted to UAH 3,431,452.53.
II.  RELEVANT DOMESTIC LAW
14.  The relevant provisions of the Economic Associations (Companies) Act of 19 September 1991 (as worded at the material time) read as follows:
Article 33
Payment for shares
“A shareholder shall pay the full price of the shares ... at the latest within one year from the date of the company’s registration.
Failing to make a payment in time ... a shareholder shall be liable to pay ten percent annual interest...
If no payment is made within three months [after the expiry of the time-limit] ... the company may sell the shares in accordance with the procedure established by [its] statute.”
THE LAW
15.  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.”
A.  Pecuniary damage
1.  Arguments of the parties
(a)  The applicant company
16.  The applicant company, relying on the principle of  asked for the return of the building of which it had been unlawfully deprived If the restitution was not possible for any reason, the applicant company asked for compensation based on the property’s market value which, according to a valuation made on 31 August 2008 by an expert hired by the applicant, was worth EUR 1,775,878.81.
17.  Without prejudice to its above claim, the applicant company stated that were the Court to take the date on which it had lost ownership of the building, namely, 15 February 2001, when assessing the pecuniary damage, the amount of compensation in that respect should be EUR 612,070.39. The applicant company arrived at that sum by adding the market value of the building on that date adjusted for inflation (EUR 584,890.39) to the cost of the repair and improvements to the property at the applicant company’s expense (EUR 26,841.07) and the amount it had paid for renting an office between 15 February and 1 April 2001 (EUR 328.98).
18.  According to the applicant company, the figures were based on the valuations by the experts at its request (see paragraphs 10-13 above).
(b)  The Government
19.  The Government submitted that the consequence of the violation of applicant company’s rights under Article 6 § 1 of the Convention and Article 1 of Protocol No. 1 was owing to the failure of one of its shareholders, the State Property Fund, to pay for its shares in the applicant company (valued at 71,542 United States dollars) by transferring ownership title to the building in issue. In this connection, the Government argued that under the provisions of its articles of association and also in line with Article 33 of the Economic Associations Act of 19 September 1991 the applicant company was entitled to claim damages, including any actual loss and loss of profit, for a shareholder’s failure to fulfil its obligations. Since the applicant company had not availed itself of this possibility at the domestic level, it had not exhausted domestic remedies in respect of its claim for pecuniary damage and, therefore, no just satisfaction could be awarded in this respect.
20.  The Government further contended that, given the above reasons, transfer of title to the building to the applicant company was not possible. They finally suggested that the finding of a violation in the applicant company’s case would constitute sufficient just satisfaction.
2.  The Court’s assessment
(a)  General principles
21.  As the Court has held on a number of occasions, a judgment in which it finds a breach imposes on the respondent State a legal obligation to put an end to the breach and make reparation for its consequences in such a way as to restore as far as possible the situation existing before the breach (see  (just satisfaction) [GC], no. 31107/96, § 32, ECHR 2000-XI, and Guiso-Gallisay v. Italy (just satisfaction) [GC], no. 58858/00, § 90, 22 December 2009). The Contracting States that are parties to a case are, in principle, free to choose the means by which they will comply with a judgment in which the Court has found a breach. This discretion as to the manner of execution of a judgment reflects the freedom of choice attached to the primary obligation of the Contracting States under the Convention to secure the rights and freedoms guaranteed (Article 1). If the nature of the violation allows for restitutio in integrum it is the duty of the State held liable to effect it, the Court having neither the power nor the practical possibility of doing so itself. If, however, national law does not allow – or allows only partial – reparation to be made for the consequences of the breach, Article 41 empowers the Court to afford the injured party such satisfaction as appears appropriate.
22.  In order to determine just satisfaction, the Court has regard to the particular features of each case, which may call for an award less than the value of the actual damage sustained or the costs and expenses actually incurred, or even for no award at all. In this context, the Court reiterates that in cases involving the taking of property by the State, the distinction between “lawful” and “unlawful” deprivation of property is particularly relevant to the assessment of a pecuniary claim (see, mutatis mutandis, Scordino v. Italy (no. 1)[GC], no. 36813/97, §§ 255-256, ECHR 2006‑V, and Guiso-Gallisay, cited above, §§ 91-95).
b.  Application of these principles to the instant case
23.  Turning to the circumstances of the present case, the Court notes that the applicant company’s claims for pecuniary damage stem from the deprivation of property which was found to be in breach of Article 1 of Protocol No. 1 (see the principal judgment, §§ 60-61). The domestic litigation suggested by the Government did not concern cases of deprivation of property and the Government did not demonstrate that it offered a reasonable prospect of obtaining reparation, albeit partial, for the consequences of the breach of the applicant company’s rights. Furthermore, the Court does not share the Government’s view that the harm to the applicant company could be adequately remedied merely by the Court’s finding of a violation of the Convention. Accordingly, the Court will determine just satisfaction in the present case.
24.  In this context, the Court notes that the origin of the violation found under Article 1 of Protocol No. 1 was the absence of compensation for such interference with the applicant company’s property rights and not, as the applicant company puts it, the unlawful taking of its property (see the principal judgment, §§ 52, 60, and 61).
25.  Although the instant case involves an issue of the domestic courts’ non-compliance with the requirement of legal certainty under Article 6 § 1 of the Convention, it differs from the vast majority of cases in which the Court found violations of the Convention in respect of the quashing of the final and binding decisions (see, for example, Agrotehservis v. Ukraine, no. 62608/00, 5 July 2005, Timotiyevich v. Ukraine, no. 63158/00, 8 November 2005). In the present case the domestic judicial decision, the quashing of which the Court held to be contrary to the principle of legal certainty, did not directly provide for a transfer or recognition of the applicant company’s pecuniary rights. At the heart of the case was a dispute between central and local government over the title to a building and, as a consequence, the question of the lawfulness of its transfer to the applicant company’s statutory fund by a State enterprise.
26.  In view of the foregoing, the Court does not find relevant to the present case the approach based on the total elimination of the consequences of the impugned interference, which it would normally apply in determining compensation for pecuniary damage in cases of res judicata (see, for example, Timotiyevich, cited above, § 45; Kondrashova v. Russia, no. 75473/01, § 36, 16 November 2006; and Sitkov v. Russia, no. 55531/00, §§ 49-52, 18 January 2007).
27.  The Court considers that the interference with the applicant’s rights under Article 1 of Protocol No. 1 in the instant case is comparable to  a “distinct expropriation”, adequate compensation for which has to correspond to the market value of the property at the time of the expropriation (see Scordino (no. 1), cited above, §§ 256-258). Such compensation will not cover any other loses, such as inflation or repair works.
28.  Thus, regard being had to the valuation made by a specialised State agency (see paragraph 12 above) on 22 September 2008 submitted by the applicant company, the accuracy of which was not contested by the Government, the Court awards the applicant EUR 334,696 in compensation for pecuniary damage.
B.  Costs and expenses
29.  The applicant company claimed UAH 55,700 for legal costs and UAH 227.70 for correspondence expenses incurred in the proceedings before the Court after the delivery of the principal judgment. It also sought reimbursement for a total of UAH 60,020 for the expert examinations carried out in the proceedings at its expense (see paragraphs 10-13 above), which sum included the cost of valuing the building by the State agency in September 2008 (UAH 20,000).
30.  The applicant company to the State agency and for correspondence expenses. As to the legal costs, the applicant company submitted a report of the law firm which it has hired to represent it in the proceedings before the Court. According to the report, the firm’s three staff members, a senior lawyer, a lawyer and an assistant lawyer, had spent a total of 76 hours working on the case at an hourly rate ranging from UAH 1,500 (senior lawyer) to UAH 300 (assistant lawyer). Their work included the analysis of the case materials and the preparation of written observations requested by the Court regarding the just satisfaction aspect of the case.
31.  According to the Court’s case-law, an applicant is entitled to the reimbursement of costs and expenses only in so far as it has been shown that these have been actually and necessarily incurred and are reasonable as to quantum. In the present case, regard being had to the documents in its possession and the above criteria, the Court considers it reasonable to award the applicant company EUR 4,800, which includes, apart from a lump sum for legal expenses, the cost of valuing the building by the State agency in September 2008 and correspondence expenses.
C.  Default interest
32.  The Court considers it appropriate that the default interest should be based on the marginal lending rate of the European Central Bank, to which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
1.  Holds
(a)  that the respondent State is to pay the applicant company, within three months of the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, EUR 334,696 (three hundred and thirty-four thousand six hundred and ninety-six euros) in respect of pecuniary damage and EUR 4,800 (four thousand eight hundred euros) for costs and expenses, plus any tax that may be chargeable to the applicant company on the above amounts, which shall be converted into the currency of the respondent State at the rate applicable on the date of settlement;
(b)  that from the expiry of the above-mentioned three months until settlement simple interest shall be payable on the above amounts at a rate equal to the marginal lending rate of the European Central Bank during the default period plus three percentage points;

2.  Dismisses the remainder of the applicant’s claim for just satisfaction.
Done in English, and notified in writing on 20 May 2010, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
	Claudia Westerdiek	Peer Lorenzen
	Registrar	President