MIHALEVI v. BULGARIA - 63481/11 (Judgment : Article 1 of Protocol No. 1 - Protection of property : Fifth Section Committee) [2018] ECHR 532 (21 June 2018)

In the case of Mihalevi v. Bulgaria,

The European Court of Human Rights (Fifth Section), sitting as a Committee composed of:

Gabriele Kucsko-Stadlmayer, President,
Yonko Grozev,
Lado Chanturia, judges,
and Milan Blaško, Deputy Section Registrar,

Having deliberated in private on 29 May 2018,

Delivers the following judgment, which was adopted on that date:

PROCEDURE

1. The case originated in an application (no. 63481/11) against the Republic of Bulgaria lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms ("the Convention") by two Bulgarian nationals, Mr Tsvetan Tsvetanov Mihalev ("the first applicant") and Ms Eleonora Petkova Mihaleva (the second applicant", together "the applicants"), on 26 September 2011.

2. The applicants were represented by Ms N. Sedefova, a lawyer practising in Sofia. The Bulgarian Government ("the Government") were represented by their Agent, Ms R. Nikolova, of the Ministry of Justice.

3. On 6 April 2017 the complaint concerning the lack of compensation for the applicants for nationalised property of their predecessor was communicated to the Government and the remainder of the application was declared inadmissible pursuant to Rule 54 § 3 of the Rules of Court.

THE FACTS

I. THE CIRCUMSTANCES OF THE CASE

4. The applicants were born in 1942 and 1969 respectively. The first applicant lives in Gabrovo and the second applicant lives in Varna.

5. Mr Ts. Mihalev, father of the first applicant and grandfather of the second applicant, owned a machinery factory in Gabrovo, which was nationalised in 1947. After the nationalisation the property was allocated for use to a State-owned enterprise, which in 1991 was transformed into a State-owned company named T.. Under domestic law, such a transformation entailed the newly-created company becoming, in principle, the owner of the assets which had until then been allocated to it for use and management; some assets allocated to State-owned enterprises or companies could nevertheless be the subject of restitution (see paragraph 15 below).

6. After the Restitution of Ownership of Nationalised Real Property Act (hereinafter "the Restitution Act", see paragraphs 15-16 below) came into force in 1992, the first applicant and his brother asked the mayor of Gabrovo to strike the factory building out of the register of State properties. Their request was allowed in a decision of the mayor of 28 August 1992, which explicitly referred to the Restitution Act. On that basis in 1993 the first applicant and his brother obtained a notary deed, which also stated that the property had been subject to restitution under the Restitution Act.

7. In 1994 the first applicant and his brother concluded a rent contract with company T., which undertook to pay rent in exchange of the use of the building. The term of the contract was extended on several occasions, the last of which in 2002.

8. In 1997 the first applicant's brother transferred his share in the building to his daughter, the second applicant.

9. After the entry into force of the Compensation of Owners of Nationalised Real Property Act (hereinafter "the Compensation Act", see paragraph 17 below), in January 1998 the first applicant and his brother applied to receive compensation for moveable properties such as industrial equipment and materials which had been nationalised together with the factory. In a decision of 21 December 1999 the Minister of Economy awarded them compensation for these properties, noting in addition that the factory building had been the subject of restitution and no compensation was due for it. That decision was upheld in a final judgment of the Supreme Administrative Court of 17 September 2002, after the first applicant and his brother sought its judicial review, contesting the manner of compensation. Eventually, in 2005 they received compensation bonds with a face value of 19,494 Bulgarian levs (BGN, the equivalent of 9,970 euros (EUR)).

10. Company T. was privatised in 2003 and the new management stopped paying rent to the applicants for the factory building, arguing that it had in fact never been subject of restitution.

11. In January 2009 company T. brought proceedings against the applicants, claiming to be the factory building's owner. It argued that the restitution of the property had not taken place, because the preconditions under the Restitution Act had not been complied with, and that it had become the owner of the building as a result of its transformation into a company (see paragraph 5 above).

12. In a judgment of 27 October 2009 the Gabrovo Regional Court dismissed the claim. However, on 17 May 2010 the Veliko Tarnovo Court of Appeal quashed the lower court's judgment and allowed the action against the applicants, finding that the preconditions for restitution had indeed not been met. On the basis of expert evidence and witness testimony, it concluded that after the nationalisation the building had been modified in a manner and to a degree which meant that in 1992 it had not existed in its state prior to 1947. Accordingly, the applicants could not rely on restitution and company T. had become the owner of the building on the strength of its transformation from a State-owned enterprise into a company in 1991 (see paragraph 5 above). In a final decision of 30 March 2011 the Supreme Court of Cassation refused to accept for examination the applicants' appeal on points of law.

13. In June 2011 the applicants applied to the Gabrovo regional governor to receive compensation for the factory building under the Compensation Act. In a decision of 19 July 2011 the governor dismissed their request, as it had not been submitted within the time-limit provided for under that Act (see paragraph 17 below). After the applicants applied for its judicial review, the governor's decision was upheld in a final judgment of the Supreme Administrative Court of 14 June 2012.

II. RELEVANT DOMESTIC LAW

14. The relevant domestic law and practice have been summarised in the Court's judgment in the case of Yavashev and Others v. Bulgaria (no. 41661/05, §§ 25-26, 28-30 and 35-36, 6 November 2012).

15. In particular, the 1992 Restitution Act (Закон за възстановяване собствеността върху одържавени недвижими имоти) provided that the former owners, or their heirs, of certain types of real property nationalised under legislation adopted between 1947 and 1952 were entitled to the restitution of their property under certain conditions, notably where the property at issue still existed in its state prior to the nationalisation and where it was still owned by the State or a State-owned enterprise or company.

16. Such restitution of ownership was by operation of law. There was no need for an administrative or judicial decision certifying that the preconditions for restitution were in place.

17. The Restitution Act provided in addition that, where restitution was impossible for different reasons, the former owners or their heirs were to be compensated in a manner to be set out in a separate statute. This was the Compensation Act (Закон за обезщетяване на собственици на одържавени имоти), which was adopted and came into force on 22 November 1997. Applications for compensation under that Act had to be made within one year after it had come into force, that is until 22 November 1998.

18. One of the manners of compensation under the Compensation Act was through so-called compensation bonds. These are not exchangeable for cash and can be used for participation in privatisation tenders. They are traded at the stock exchange and their market value largely depends on the availability of privatisation offers. Thus, while until November 2004 bonds were traded at between 15 and 25% of their face value, at the end of 2004 and the beginning of 2005, due to the announced privatisation of several major enterprises, the rates reached 100% and more of the bonds' face value. After that the market prices fell once again. In 2017 the bonds were traded at about 20-40% of their face value.

THE LAW

I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL No. 1

19. The applicants complained under Article 1 of Protocol No. 1 that they had been deprived of compensation for the factory building, seeing that the national courts had found that its restitution had not taken place long after the time-limit to apply for compensation in lieu of restitution had expired.

20. Article 1 of Protocol No. 1 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."

A. Admissibility

21. The Court notes that the application is not manifestly ill-founded within the meaning of Article 35 § 3 (a) of the Convention. It further notes that it is not inadmissible on any other grounds. It must therefore be declared admissible.

B. Merits

1. The parties' submissions

22. The applicants pointed out that for many years after the adoption of the Restitution Act the authorities had "agreed" that the restitution had taken place. The opposite was for the first time found in the Veliko Tarnovo Court of Appeal's judgment of 17 May 2010, but by that time the time-limit for the applicants to apply for compensation under the Compensation Act had long ago expired. This state of affairs was clearly imputable to the authorities and upset the fair balance required under Article 1 of Protocol No. 1.

23. The Government pointed out that neither the mayor's decision to strike the factory building out the register of State-owned properties, nor the fact that company T. had paid rent for the use of this building before 2003 could be a proof that the restitution of the property at issue had actually taken place. It was for the first time in the proceedings brought in 2009 by company T. against the applicants that the question whether the preconditions for such restitution were met was decided in a manner binding for the parties. However, it was not the State's fault that the matter had not been brought before the courts on an earlier date.

24. The Government argued further that the applicants had not been deprived of any possibility to obtain compensation under the Compensation Act. In particular, they could have sought the reopening of the proceedings whereby the first applicant and his brother had been awarded compensation for the factory's moveable properties (see paragraph 9 above). Moreover, for many years the applicants had received from company T. rent for the factory building, which was equivalent to "a kind of compensation".

25. In their submissions in response to those of the Government, the applicants disputed the Government's claim that they had been able to seek the reopening of the compensation proceedings. They pointed out that in those proceedings the first applicant and his brother had not applied to receive compensation for the factory building, seeing that at that time they had believed it to be the subject of restitution. Lastly, the applicants were of the view that any payment of rent on the part of company T. was irrelevant for the State's own obligation to provide to them compensation in lieu of restitution.

2. The Court's assessment

26. The Court observes that it examined a complaint similar to the one raised by the applicants in the case of Yavashev and Others (cited above).

27. In Yavashev and Others, the local municipality had recognised the applicants as owners of the disputed property by striking that property out of the State properties register, and had continued to treat them as such owners for many years. Taking note of the wording of the Restitution Act which provided for restitution by operation of law, coupled with the municipality's continued recognition of the applicants' title and the fact that under the Restitution Act the applicants were entitled to compensation where restitution was impossible, the Court concluded that the applicants had a proprietary interest protected under Article 1 of Protocol No. 1, which was therefore applicable (see §§ 55-56 of the judgment).

28. Subsequently, in judicial proceedings the courts found in Yavashev and Others that the property had not been restituted to the applicants. However, by the time these proceedings ended it was too late for the applicants to apply for compensation under the Compensation Act. The Court held that it had not been unreasonable for the applicants to rely on the municipality's recognition of the fact of the restitution and not apply for compensation in the one-year time-limit after the adoption of the Compensation Act, and that the resulting complete lack of any compensation had upset the fair balance required under Article 1 of Protocol No. 1 between the demands of the general interest of the community and the applicants' rights (see §§ 65-68 of the judgment).

29. The Court sees no reason to apply a different approach in the case at hand. It observes that in the decision of 28 August 1992 to strike the factory building claimed by the applicants out of the register of State properties the mayor of Gabrovo relied expressly on the Restitution Act (see paragraph 6 above). The fact of the restitution was also recognised in the notary deed obtained by the first applicant and his brother in 1993 (ibid.). Soon after that the State-owned company T. started paying rent to the first applicant and his brother, and continued paying such rent, after 1997 to the two applicants, until its privatisation in 2003 (see paragraph 10 above). Moreover, in 1999, when awarding the first applicant and his brother compensation for the factory's moveable properties, the Minister of Economy pointed out that the factory building had been the subject of restitution (see paragraph 9 above). As in Yavashev and Others, this continued recognition of the restitution and treatment of the applicants as owners of the property at issue (contrast Velikin and Others v. Bulgaria ((dec.), no. 28936/03, §§ 67-68, 1 December 2009), coupled with the fact that the Restitution Act provided for restitution by operation of law (see paragraph 16 above), meant that the applicants had a proprietary interest protected under Article 1 of Protocol No. 1. Moreover, in case where the restitution was deemed impossible the applicants were, in principle, entitled to compensation. As in Yavashev and Others (see paragraph 27 above), the Court thus concludes that the applicants had "possessions" within the meaning of Article 1 of Protocol No. 1.

30. The applicants complained that the authorities' behaviour made it impossible for them to apply for compensation in lieu of restitution (see paragraph 19 above). Such impossibility amounted to State interference with the applicants' "possessions". As in Yavashev and Others (see § 57 of the judgment), the Court will examine that interference in light of the first sentence of the first paragraph of Article 1 of Protocol No. 1, setting out the general rule of peaceful enjoyment of one's "possessions".

31. The applicants have not argued that the interference with their "possessions" was not in accordance with the law, or that it did not pursue a legitimate aim in the public interest. The salient question is therefore whether a fair balance was struck between the demands of the general interest of the community and the applicants' rights (see Yavashev and Others, cited above, § 62).

32. The Court refers in that regard to the facts summarised in paragraph 29 above, on the basis of which it concluded that the authorities and the State-owned company using the factory building had for many years recognised the fact of the restitution and treated the applicants as owners. Seeing, as mentioned above, that restitution under the Restitution Act occurred ex lege (see paragraph 16 above), the applicants, faced with such recognition and in the absence of any other decision challenging the restitution, must have had a justified assumption that such restitution had taken place. Thus, it was not unreasonable on their part not to apply at the time for compensation under the Compensation Act. It was only in 2003 that the restitution was for the first time contested, and a national court found that no restitution had taken place only in 2010 (see paragraphs 10-12 above). This passage of time is especially relevant in the case, since the time-limit for the applicants to apply for compensation under the Compensation Act expired on 22 November 1998 (see Yavashev and Others, cited above, § 65). In 2011, when they finally applied for such compensation, their application was dismissed as time-barred (see paragraph 13 above).

33. It does not appear that the applicants had any other means at their disposal to obtain compensation for their predecessor's nationalised property. The Government, while relying on the possibility for them to seek re-opening of the compensation proceedings initiated in 1998 (see paragraph 24 above), have not shown that this could be an effective avenue, seeing that in these proceedings the first applicant and his brother applied to receive compensation for moveable properties (see paragraph 9 above). Neither was any payment of rent on the part of company T. a replacement of the compensation due by the State in cases where restitution of nationalised property could not take place, as provided for in the Restitution Act and the Compensation Act (see paragraph 17 above; the payment of rent by company T. may however be relevant in the assessment under Article 41 of the Convention of any losses incurred by the applicants).

34. Accordingly, as in Yavashev and Others (see § 68 of the judgment), the Court concludes that the complete lack of compensation in lieu of the restitution of the applicants' property breached the fair balance between the demands of the general interest of the community and the applicants' rights.

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

II. APPLICATION OF ARTICLE 41 OF THE CONVENTION

36. 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. Damage

37. The applicants claimed BGN 1,396,668 (the equivalent of EUR 714,408) in respect of pecuniary damage. Of these, BGN 506,000 (the equivalent of EUR 258,823) represented the face value of the compensation bonds they considered were due to them for the factory building, as calculated by a certified expert, and the remainder represented default interest on the above sum, calculated by another expert in accordance with the domestic rules for a period starting in 2002 and ending in 2017. For non-�pecuniary damage, the applicants claimed EUR 5,000 each.

38. The Government contested the claims. They submitted a letter by the Ministry of Economy, in which it was stated that the applicants would have been entitled to compensation bonds for BGN 146,915 (the equivalent of EUR 75,148) for the factory building; it was noted however that this was not based on an assessment by a certified expert. In addition, the Government called on the Court to take into account the fact that for many years the applicants had received rent for the building. Lastly, the Government observed that in Yavashev and Others (cited above) the Court had made an award for pecuniary and non-pecuniary damage which was significantly lower than the one claimed in the present case.

39. The Court is of the view that the question of the application of Article 41, in so far as it concerns damage, is not ready for a decision (Rule 75 § 1 of the Rules of Court). Accordingly, the Court reserves that question and the further procedure, and invites the Government and the applicants, within four months, to submit their observations on the matter and, in particular, to inform it of any agreement that they may reach.

B. Costs and expenses

40. The applicants also claimed BGN 4,500 (the equivalent of EUR 2,300) for the remuneration of their legal representatives before the Court. In support of this claim they presented a contract for legal representation and a statement by their current lawyer and another lawyer who subsequently withdrew from the case as to the receipt of this sum.

41. The applicants also claimed BGN 650 (the equivalent of EUR 332) for the fees paid by them to the experts who had prepared the reports submitted in support of their claims for pecuniary damage (see paragraph 37 above) and for translation. To substantiate this claim, the applicants submitted statements by the experts and the translator.

42. The applicants asked that any amount awarded for costs and expenses be divided in equal shares for each of them.

43. The Government contested the claims, considering them excessive.

44. Regard being had to the documents in its possession and to its case-�law, the Court considers it reasonable to award each applicant EUR 750, covering costs under all heads.

C. Default interest

45. The Court considers it appropriate that the default interest rate 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. Declares the application admissible;

2. Holds that there has been a violation of Article 1 of Protocol No. 1;

3. Holds that the question of the application of Article 41, in so far as it concerns the claim for damage, is not ready for decision;

accordingly,

(a) reserves the said question;

(b) invites the Government and the applicants to submit, within four months, their written observations on the matter and to notify the Court of any agreement that they may reach;

4. Holds

(a) that the respondent State is to pay each of the applicants, within three months, EUR 750 (seven hundred and fifty euros), plus any tax that may be chargeable to the applicants, in respect of costs and expenses, to be converted into Bulgarian levs at the rate applicable at 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;

5. Dismisses the remainder of the applicants' claim for just satisfaction in so far as it concerns costs and expenses.

Done in English, and notified in writing on 21 June 2018, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.

Milan BlaškoGabriele Kucsko-Stadlmayer
Deputy RegistrarPresident

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You are here: BAILII >> Databases >> European Court of Human Rights >> MIHALEVI v. BULGARIA - 63481/11 (Judgment : Article 1 of Protocol No. 1 - Protection of property : Fifth Section Committee) [2018] ECHR 532 (21 June 2018) URL: http://www.bailii.org/eu/cases/ECHR/2018/532.html Cite as: [2018] ECHR 532, CE:ECHR:2018:0621JUD006348111, ECLI:CE:ECHR:2018:0621JUD006348111