AGRICULTURAL PRODUCTION COOPERATIVE 'DIMSKIY' v Russia - 27191/02 [2008] ECHR 997 (11 September 2008)

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Application no. 27191/02
by AGRICULTURAL PRODUCTION COOPERATIVE ‘DIMSKIY’
against Russia

The European Court of Human Rights (First Section), sitting on 11 September 2008 as a Chamber composed of:

Christos Rozakis, President,
Nina Vajić,
Anatoly Kovler,
Elisabeth Steiner,
Khanlar Hajiyev,
Giorgio Malinverni,
George Nicolaou, judges,

Having regard to the decision to apply Article 29 § 3 of the Convention and examine the admissibility and merits of the case together,

Having regard to the observations submitted by the respondent Government and the applicant,

The applicant, the agricultural production co-operative “Dimskiy” (сельскохозяйственный производственный кооператив «Димский»), is a legal entity under the Russian law established in 1992 in the village of Novoaleksandrovka, the Tambov District of the Amur Region. It is represented before the Court by Mr V. Okunev, a lawyer practising in Blagoveshchensk. The respondent Government were represented by Mr P. Laptev, the former Representative of the Russian Federation at the European Court of Human Rights.

The facts of the case, as submitted by the parties, may be summarised as follows.

The applicant is the holder of Urozhay-90 bonds with a total nominal value of 343,375 non-denominated Russian roubles (RUR).

On 1 March 2001 the applicant brought an action against the Russian Government, seeking to recover 8,236,498 Russian roubles (RUB) as compensation for the bonds. The amount was calculated as the nominal value of the bonds multiplied by the official inflation co-efficient.

On 7 May 2001 the Commercial Court of the Amur Region issued a decision to dismiss the applicant’s claim. It noted that the federal law establishing the procedure for redemption of Harvest-90 bonds had not yet been adopted and their maturity date had not been determined. The court held that “at present the plaintiff did not have yet the right to lodge his claim”.

On 20 June 2001 the Appeals Division of the Commercial Court of the Amur Region quashed the decision of 7 May 2001 on procedural grounds and remitted the claim for a new examination.

On 27 August 2001 the Commercial Court of the Amur Region gave judgment. It established that the Ministry of Finance, rather than the Russian Government, should have been the proper defendant in the applicant’s claim for damages because the Russian Government had not committed any unlawful actions. As the applicant refused to substitute the original defendant or to join the Ministry of Finance as a co-defendant and as the court was not competent to do so of its own motion, it determined to disallow the applicant’s claim.

On 22 October 2001 the Appeals Division of the Commercial Court of the Amur Region upheld the judgment of 27 August 2001.

On 17 December 2001 the Federal Commercial Court of the Far-Eastern Circuit upheld, in the final instance, the judgments of 27 August and 22 October 2001. It confirmed that the actions of the Russian Government had been lawful and that the Ministry of Finance was responsible for the debts chargeable to the treasury. The applicant’s representative was not present at the hearing because the summons had not been sent to him.

On 26 July 1990 the RSFSR Council of Ministers adopted Resolution no. 259 “On urgent measures for increasing the purchase of agricultural products harvested in 1990 and for ensuring their safe-keeping”. Its relevant parts provided:

I. Measures to increase the independence of decision-making by collective and Soviet farms concerning the sale of the harvest

“1. To authorise all manufacturers of agricultural produce to sell the surplus of such produce that remains after delivery under existing agreements... to procurers or other consumers at negotiated prices...

2. To declare inadmissible any restrictions on the sale or shipment of agricultural produce to consumers in autonomous districts or regions of the RSFSR under paragraph 1 of the present resolution... Should local councils introduce such restrictions in their territories, the RSFSR Council of Ministers may stop issuing Urozhay-90 bonds or delivering goods against them in those territories...”

II. Measures to encourage the sale of agricultural produce to the State through the reciprocal sale of goods in high demand

“7. To begin issuing, in 1990, Urozhay-90 bonds to employees of collective and Soviet farms, other agro-industrial enterprises and organisations, peasants’ farms and owners of personal subsidiary land plots in respect of agricultural produce sold to the State.

To determine that the bonds certify the right to purchase goods in high demand at retail prices in trade outlets. The said bonds are not legal tender.

8. The RSFSR Ministry of Finance and the RSFSR Ministry of Agriculture and Food will, until 1 September 1990, print and put into circulation through the branches of the RSFSR State Bank Urozhay-90 bonds for a total amount of 10 billion roubles. The bonds are to be used before 1 October 1991.

9. To establish that Urozhay-90 bonds are issued by the branches of the RSFSR State Bank:

- to all producers who sold standard products to the State between 1 July 1990 and 30 June 1991... in the amount equivalent to 10% of the value of the sold products...

13. The Russian Consumers’ Association is to submit to the RSFSR Ministry for Foreign Economic Relations requests for those goods in high demand which are to be sold against the Urozhay-90 bonds, and organise their sale, on advance orders by citizens and organisations, at regional fairs and exhibitions and in specialised trade outlets. The Consumers’ Associations is to deliver goods to the consumers against the Urozhay-90 bonds no later than 1 January 1990 [sic]. In 1991 orders under the said bonds will be executed within two months.”

On 15 March 1992 the Russian Government issued Resolution no. 161, intended to compensate the owners of Urozhay-90 bonds for an increase in retail prices. It provided, in particular:

“1. To establish that passenger cars and other consumer goods which are made available to citizens as reward for the grain and other agricultural produce that was sold to the State in 1990 and 1991, are to be sold at the retail prices that prevailed before 2 January 1992...

2. To extend the period of validity of the Urozhay-90 bonds until the end of 1992...”

On 10 August 1992 the Government adopted Resolution no. 1442-r. It required the Russian ministries to allocate substantial amounts for the purchase of goods that were to be sold against the Urozhay-90 bonds. It further provided:

“4. The Ministry for Trade and Material Resources, in co-operation with the Central Consumers’ Union, shall define, within two weeks, the list of goods destined for the implementation of the Urozhay-90 bonds...

5. The Prices Committee of the Ministry of the Economy shall determine the increase in prices on domestic and imported goods since 1990... The price difference shall be reimbursed from the republican budget.

6. The Ministry of Agriculture shall carry out an inventory of bonds held by agricultural enterprises and organisations and private individuals as on 1 September.

7. The Ministry of Finance and the Ministry of Agriculture shall elaborate, within two weeks, the procedure for buy-out of the Urozhay-90 bonds through the branches of the Savings Bank. It is to be taken into account that these bonds may be either used for purchasing goods or bought out by the State with a co-efficient of 10.”

On 22 October 1992, by Resolution no. 1927-r, the Government required the Central Bank to grant a loan to the Central Consumers’ Union for the purchase of goods which would be sold to holders of the Urozhay-90 bonds. The Consumers’ Union would repay the loan out of the proceeds from the sale of goods under the bonds.

On 16 April 1994 the Government approved Regulation no. 344 “On State commodity bonds” which provided as follows:

“With a view to redeeming the State commodity bonds and preventing accrual of the State’s liability to compensate the price differences, the Government of the Russian Federation resolves:

– will buy out... the Urozhay-90 bonds at a price equivalent to their nominal value multiplied by 70 and credit that amount into a bank account...”

On 1 June 1995 the Commodity Bonds Act (no. 86-FZ, ФЗ «О государственных долговых товарных обязательствах») was enacted. It provided that State commodity bonds, including Urozhay-90 bonds, would be recognised as the internal State debt of the Russian Federation (section 1). The obligations arising out of the commodity bonds would be settled in accordance with the general principles of the Russian Civil Code, the limitation period being set at ten years (section 2). The original wording of section 3 provided:

“The Government of the Russian Federation shall draft, in 1995-1997, the State Programme for settlement of the internal debt of the Russian Federation described in section 1, based on the principle of full compensation. The Programme shall provide for redemption terms... convenient for citizens, including, at their choice: provision of goods designated in... the State bonds issued to agricultural suppliers...; redemption of State commodity bonds at consumer prices prevailing at the moment of the redemption...; conversion of the debt into State securities...”

On 16 January 1996 the Government adopted Resolution no. 33, by which it annulled Regulation no. 344 and instructed the Ministry of Finance to redeem the State commodity bonds within the amounts allocated for that purpose in the federal budget.

On 2 June 2000, section 3 of the Commodity Bonds Act was amended to provide that the procedure for implementation of the State’s obligations to holders of the Urozhay-90 bonds would be determined in a special federal law. No such law has yet been adopted.

On 27 December 2000 the Government adopted the State Programme for settlement of the internal debt of the Russian Federation. Paragraph 14 of the Programme provided that the procedure for payments in respect of the Urozhay-90 bonds would be determined in a special federal law.

Since 2003 the application of section 1 of the Commodity Bonds Act has been suspended in the part concerning the Urozhay-90 bonds, in accordance with the law on the federal budget for each successive year (Federal Law no. 176-FZ of 24 December 2002; no. 186-FZ of 23 December 2003; no. 173-FZ of 23 December 2004; no. 189-FZ of 26 December 2005; no. 238-FZ of 19 December 2006; and no. 198-FZ of 24 July 2007).

On 15 December 2000 the Constitutional Court issued a decision on an application lodged by the Parliament of the Sakha (Yakutiya) Republic which claimed that the amendments of 2 June 2000 (see above) had indeterminately delayed the implementation of the State’s obligations towards the bearers of the Urozhay-90 bonds. The Constitutional Court declared the application inadmissible for the following reasons:

“In its [previous decisions] the Constitutional Court has already determined that a unilateral change in the scope of the State obligations towards individuals, including the obligation to sell goods against commodity bonds, is impermissible. This does not exclude, however, the possibility of imposing restrictions on the property rights of individuals – in the established form and within the constitutional limits – in the matter of State obligations, which is compatible with Article 55 § 3 of the Constitution.

In particular, it follows from the case-law of the Constitutional Court... that implementation of the rights and lawful interests of individual citizens or groups of citizens should not excessively and adversely affect the budgetary resources allocated for satisfying the rights and interests of society as a whole. This principle becomes particularly relevant in a situation where budgetary resources are insufficient to resolve many social problems relating to the exercise of the rights to life and personal dignity. It follows that the balance between the rights and lawful interests of the individuals who act as creditors for the State in property relationships, on one hand, and everyone else, on the other hand, may, in principle, be struck only in the form of an act of Parliament.

Hence, given that the legislature may restrict individual rights and freedoms (including property rights) for the purpose of the protection of the rights and lawful interests of others, a review of the federal law amending section 3 of the Commodity Bonds Act by the Constitutional Court would imply an assessment of the financial and economic justification for the legislative decision on the procedure for settlement of State commodity bonds, which... falls outside the jurisdiction of the Constitutional Court.

When examining claims relating to settlement of the State commodity bonds, courts of general jurisdiction have the right and duty to interpret the legislative provisions in the light of the interests of an individual (Articles 2 and 18 of the Constitution) and be guided, in particular, by section 2 of the Commodity Bonds Act, which establishes that State commodity bonds are to be settled in an appropriate form and in accordance with the Civil Code of the Russian Federation.”

The applicant complained under Article 6 of the Convention that the domestic courts had misdirected themselves in law and refused to examine the substance of its complaints. It also alleged that its representative had not been informed of the hearing before the Federal Commercial Court of the Far-Eastern Circuit and had not been consequently able to attend.

The applicant complained under Article 1 of Protocol No. 1 about the Russian Government’s continued failure to pay compensation to holders of Urozhay-90 bonds.

“In the determination of his civil rights and obligations ..., everyone is entitled to a fair ... hearing ... by [a] ... tribunal ...”

The Court considers at the outset that the part of the complaint relating to the assessment of the merits of the applicant’s claim is substantially the same as its complaint under Article 1 of Protocol No. 1 and will be more appropriately dealt with under the latter provision (see below).

The Government omitted to comment on the alleged non-notification of the applicant’s representative of the hearing before the Federal Commercial Court. The applicant maintained its complaint under this head.

The Court considers, in the light of the parties’ submissions, that the complaint concerning the alleged failure to notify the applicant’s representative raises serious issues of fact and law under the Convention, the determination of which requires an examination of the merits. The Court concludes therefore that this complaint is not manifestly ill-founded within the meaning of Article 35 § 3 of the Convention. No other ground for declaring it inadmissible has been established.

“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 submitted that the Court has no competence ratione temporis to examine the complaint as the Urozhay-90 bonds had been issued and recognised as the State’s internal debt before the Convention entered into force in respect of Russia on 5 May 1998. They maintained that, even though the applicant’s claim was examined in 2001, “divorcing the domestic courts’ decisions from the events which gave rise to these proceedings would amount to giving retroactive effect to the Convention which would be contrary to general principles of international law” (here they cited Litovchenko v. Russia (dec.), no. 69580/01, 18 April 2002).

The Government emphasised that under the Russian Budget Code administration of the State debt and execution of the federal budget was entrusted to the Ministry of Finance. Accordingly, that Ministry was the appropriate defendant in a claim such as the applicant’s. As the applicant withheld its consent to substitution of the defendant, the domestic courts rightly decided to disallow the claim.

The Government explained that section 2 of the Commodity Bonds Act fixed the time-limit for settling the State obligations arising out of the commodity bonds at ten years. Accordingly, such obligations were to be settled in the period from 2001 to 2004. However, the authorities had been forced to declare a moratorium on settlement of those obligations.

The moratorium had a lawful basis because it was confirmed by federal budget laws for each respective year. It pursued a public interest since, in a situation where the budgetary resources were insufficient to satisfy pressing social needs, the State had a duty to protect the budget from excessive spending resulting from the obligations that had been adopted by the USSR Cabinet of Ministers and subsequently voluntarily assumed by the Russian Federation.

The Government pointed out that the moratorium did not annul the obligations arising out of the commodity bonds but merely delayed their settlement until such time as an appropriate federal law had been adopted. That law had not been yet prepared because it had been necessary to reconcile the public and private interests and to devise an effective procedure for indexation and settlement of the amounts outstanding which would have allowed the private bond holders to be adequately compensated. A further matter of public interest was the task of detecting a “huge number of counterfeit bonds issued in the last ten years and still circulating” and “bonds which had not met the legal requirements at the time of their issue”.

Referring to the Constitutional Court’s decision of 15 December 2000 (cited above) and the domestic courts’ decisions in the applicant’s case, the Government maintained that the redemption procedure must be set out in a federal law. Applying the civil-law provisions by analogy in this sphere would detrimentally affect distribution of budgetary funds which have been earmarked for other social needs. In the Government’s submission, the Regional Court had rightly refused the applicant’s claim because a different decision would have violated the constitutional rights and interests of all citizens.

Finally, the Government acknowledged that the Urozhay-90 bonds constitute the applicant’s “possessions” within the meaning of Article 1 of Protocol No. 1. They emphasised that the bonds had been recognised as the State’s internal debt and that the obligations arising out of the bonds would be discharged upon adoption of a federal law governing the redemption procedure.

The applicant submitted that the violation it complained about was of a continuous nature. Accordingly, the Court has competence ratione temporis to entertain its complaint.

The applicant considered unconvincing the Government’s argument about insufficient budgetary funds as a reason for introducing a moratorium on settlement of the commodity bonds. As of late the revenues of the Russian federal budget had constantly exceeded expenditure and multi-billion amounts had been transferred into the Stabilisation Fund.

The allegation about the issuing of “counterfeit bonds” was likewise unpersuasive as a justification for the moratorium. In the applicant’s view, it would be contrary to common sense to imagine that someone would bother to counterfeit the bonds which never were legal tender and had not been redeemable for the past fourteen years. Otherwise the Government’s logic would require that a moratorium on using cash should be introduced for the reason that some banknotes have been counterfeited.

The applicant pointed out that there were no exceptional circumstances which would be able to account for such a protracted failure to regulate the payment of compensation under the Urozhay-90 bonds.

The Court reiterates that its jurisdiction ratione temporis covers only the period after the ratification of the Convention or its Protocols by the respondent State. From the ratification date onwards, all the State’s alleged acts and omissions must conform to the Convention or its Protocols and subsequent facts fall within the Court’s jurisdiction even where they are merely extensions of an already existing situation (see Broniowski v. Poland (dec.) [GC], no. 31443/96, § 74, ECHR 2002 X).

Accordingly, the Court is competent to examine the facts of the present case for their compatibility with the Convention only in so far as they occurred after 5 May 1998, the date of ratification of Protocol No. 1 by Russia. It may, however, have regard to the facts 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.

The Court observes that the applicant did not complain about the impossibility of buying goods in high demand against the Urozhay-90 bonds at the time when these bonds had been just introduced. Likewise, it did not complain about the domestic authorities’ refusal to buy out the Urozhay-90 bonds during the implementation of the buy-out scheme in 1994-1996. In fact, its complaint was not directed against a single specific decision or measure taken before, or even after, 5 May 1998.

The factual basis for the applicant’s Convention claim is the alleged failure of the Russian State to satisfy its entitlement to redemption of the State’s internal debt which was vested in it under Russian law on the date of the Protocol’s entry in force and which, despite intervening legislation, subsists today. The Court notes that the Commodity Bonds Act, which was already in force on 5 May 1998, established the Government’s obligation to adopt implementing legislation governing the procedure for redeeming the State’s internal debt in the form of, in particular, the Urozhay-90 bonds held by the applicant. It is undisputed that no such legislation has been enacted to date and that the applicant has not had at its disposal any procedure for satisfying its entitlement.

It follows that, in so far as the applicant’s complaint is directed against the failure of the Russian State to implement the entitlement vested in it under Russian law – an entitlement which existed on 5 May 1998 and still exists today – the Court has temporal jurisdiction to entertain the complaint.

The parties concurred that the Urozhay-90 bonds constituted the applicants’ “possessions” within the meaning of Article 1 of Protocol No. 1. Nevertheless, the Court has to satisfy itself that it has jurisdiction ratione materiae in any case brought before it. To hold the contrary would mean that where a respondent State waived its right to plead or omitted to plead incompatibility, the Court would have to rule on the merits of a complaint against that State concerning a right not guaranteed by the Convention (see Blečić v. Croatia [GC], no. 59532/00, § 67, ECHR 2006 ...).

The Court reiterates that the concept of “possessions” in the first part of Article 1 of Protocol No. 1 has an autonomous meaning, which is not limited to ownership of physical goods and is independent from the formal classification in domestic law: certain other rights and interests, for instance debts, constituting assets can also be regarded as “property rights”, and thus as “possessions” for the purposes of this provision. The issue that needs to be examined is whether the circumstances of the case, considered as a whole, conferred on the applicant title to a substantive interest protected by Article 1 of Protocol No. 1 (see Broniowski (dec.), cited above, § 98).

In the present case, that approach requires the Court to have regard to the following points of law and of fact. It observes that the scope of entitlement conferred by the Urozhay-90 bonds on their holders has not been identical throughout their lifetime. The following periods may be discerned:

(a) In the initial period following the introduction of the bonds and until early 1992, the bonds merely certified their holders’ right to purchase consumer goods in high demand. Holders of the bonds had to pay cash for the goods and also produce bonds corresponding to the amount of the purchase. The bonds, in themselves, were not legal tender or a money substitute but rather an indispensable element for concluding the purchase, up to the maximum amount determined by their face value.

(b) In March 1992 the Government established that consumer goods under the bonds would be sold at the prices that had prevailed before January 1992. The resolution of 10 August 1992 further specified that the price difference would be subsidised from the republican budget. Given the rampant inflation at that time, in practical terms this measure implied that purchasing goods against the bonds would be cheaper than buying the same goods on the open market.

(c) On 10 August 1992 the Government’s Resolution introduced, for the first time, the possibility of having the bonds bought out by the State at their face value multiplied by 10. The resolution of 16 April 1994 left the buy-out as the only option available to bearers and increased the buy-out co-efficient to 70. Thus, there existed in that period a procedure for exchanging the bonds for monetary compensation.

(d) Since the adoption of the Commodity Bonds Act in 1995, the bonds have been recognised as the State’s internal debt. However, the federal law defining the procedure for settlement of that debt has not been enacted to date.

The Court observes that in the initial period (a) the bonds had no independent economic value, being merely an administrative instrument for the distribution of consumer goods in high demand. However, in the subsequent periods they acquired the characteristics of an economic asset. Thus, in period (b) their economic effect was similar to that of discount coupons, and in period (c) their bearers obtained access to monetary compensation. It follows that, although the right the bonds had originally certified – the right to purchase goods in high demand – lost its value and relevance on transition to the market economy, the legal regulation of the Urozhay-90 bonds evolved over time in line with the changing economic conditions in Russia, with the result that the bearers of the bonds obtained a pecuniary interest qualifying for the protection under Article 1 of Protocol No. 1.

It appears to have been uncontested by the parties that by enacting the Commodity Bonds Act in 1995, the Russian State took upon itself an obligation to settle the debt arising out of the Urozhay-90 bonds. Since the enactment of the Commodity Bonds Act the applicant has continuously held a claim against the Russian State arising out of the bonds. This claim existed both on the date of ratification of the Convention by Russia and on the date of submission of the application to the Court. Although the implementation of the Commodity Bonds Act has been suspended since 2003 in the part concerning the Urozhay-90 bonds, the relevant provisions have never been revoked or annulled. It follows that the legal basis for the entitlement which is the subject-matter of the applicant’s complaint before the Court has been established in domestic legislation on a continuing basis.

The Russian courts’ decisions on individual claims brought by bearers of the Urozhay-90 bonds have been contradictory. On at least one occasion a Russian court awarded the applicant the entire amount he had claimed under the bonds, finding, in particular, that “the failure to adopt a federal law governing the procedure for redemption of the State’s obligations did not prevent the plaintiff from seeking judicial protection of his legitimate interests” (see Volokitin v. Russia, no. 374/03, § 8, 9 November 2006). In another case a district court determined that the debt arising out of the bonds was a medium-term debt whose maturity date had not yet occurred, while a town court in the same region dismissed similar claims on the ground that an act of Parliament governing the settlement procedure had not yet been adopted (see Malysh and Others v. Russia (dec.), no. 30280/03, 19 June 2008). Although in the present case the courts did not take cognisance of the merits of the applicant’s claim, they nevertheless acknowledged that the Ministry of Finance should have been the proper defendant as the authority in charge of administration of the State’s internal debt. Thus, despite the discrepancy in the grounds invoked by the domestic courts, all the decisions acknowledged the existence of a debt arising out of the Urozhay-90 bonds under the Commodity Bonds Act and chargeable to the State.

Having regard to the above, the Court is satisfied that the applicant has had a proprietary interest which was both recognised under Russian law and acknowledged by Russian courts. While the Court does not find it necessary to determine the precise content and scope of the legal interest in question, since it considers that that issue should more appropriately be dealt with at the merits stage, it finds that the proprietary interest at issue is eligible for protection under Article 1 of Protocol No. 1.

It follows that the complaint cannot be rejected as being incompatible ratione materiae with the provisions of the Convention.

As far as compliance with Article 1 of Protocol No. 1 is concerned, the Court considers, in the light of the parties’ submissions, that the complaint raises serious issues of fact and law under the Convention, the determination of which should depend on an examination of the merits.

Decides to discontinue the application of Article 29 § 3 of the Convention and to declare the application admissible.

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You are here: BAILII >> Databases >> European Court of Human Rights >> AGRICULTURAL PRODUCTION COOPERATIVE 'DIMSKIY' v Russia - 27191/02 [2008] ECHR 997 (11 September 2008) URL: http://www.bailii.org/eu/cases/ECHR/2008/997.html Cite as: [2008] ECHR 997