CASE OF SOVTRANSAVTO HOLDING v. UKRAINE
Preliminary objection rejected (ratione temporis);Violation of Art. 6-1;Violation of P1-1;Not necessary to examine art. 14;Just satisfaction reserved
Georg Ress
9. The applicant company, Sovtransavto Holding, an international transport undertaking, is a Russian limited company that was set up in 1993 and has its registered office in Moscow. 10. Between 1993 and 1997 the applicant company held 49% of the shares in Sovtransavto-Lugansk, a Ukrainian public limited company. 11. On 3 January 1996 a general meeting of Sovtransavto-Lugansk's shareholders adopted a resolution altering the company's memorandum and articles of association, converting it into a private limited company. On 23 January 1996 the Lugansk Executive Council (виконавчий комітет), a municipal body legally vested with the requisite power, ratified the decision of 3 January. 12. By decisions of 26 December 1996, 11 August 1997 and 20 October 1997, Sovtransavto-Lugansk's managing director increased the company's share capital, each time by one-third, and altered its memorandum and articles of association accordingly. These decisions were ratified by the Lugansk Executive Council on 30 December 1996, 12 August 1997 and 18 November 1997 respectively. 13. These increases in Sovtransavto-Lugansk's share capital enabled its directors to assume sole control of the company's management and assets. The applicant company's shareholding fell from 49% to 20.7%. 14. According to the applicant company, between 1997 and 1999 some of Sovtransavto-Lugansk's assets were sold to various undertakings that had been set up by its managing director. 15. On 25 June 1997 the applicant company lodged a complaint (Case no. 70/10-98) with the Lugansk Region Arbitration Tribunal (the court of first instance in the present case) against Sovtransavto-Lugansk and the Lugansk Executive Council. It sought a declaration that the decisions altering Sovtransavto-Lugansk's memorandum and articles of association and the Executive Council's decision of 23 January 1996 ratifying the changes were unlawful. It submitted that, contrary to the requirements of the legislation in force and Sovtransavto-Lugansk's memorandum and articles of association, the general meeting on 3 January 1996 had been organised without the participation or agreement of the representatives of Sovtransavto Holding. Moreover, the minutes had not been signed by all the shareholders. On 4 August 1997 the Arbitration Tribunal rejected the applicant company's claim. 16. On 9 September 1997 the applicant company lodged with the President of the Lugansk Region Arbitration Tribunal an application for revision under the “supervisory review” procedure (заява про перевірку рішення у порядку нагляду) [Note by the Registry. Under the arbitration rules in force prior to 21 June 2001, an application for revision was a remedy that allowed the parties to seek “supervisory review” of a final judgment or order of an arbitration tribunal] of the judgment of 4 August 1997. In a judgment of 14 October 1997, the tribunal's Vice-President refused the application. 17. On 21 November 1997 the applicant company applied to a bench of the Ukrainian Supreme Arbitration Tribunal seeking revision under the “supervisory review” procedure of the two judgments mentioned above. In a judgment of 6 March 1998 the bench set aside the judgments of 4 August and 14 October 1997 on the ground that the tribunals concerned had not taken sufficient account of the facts of the case and the applicant company's arguments. It remitted the case for reconsideration to the Kiev Region Arbitration Tribunal (which thus became the court of first instance in the case) and asked it to pay special attention to the need for a detailed examination of the facts of the case and the documents produced by the parties. 18. On 16 January 1998 Sovtransavto-Lugansk's board sent the Ukrainian President a letter asking him to “place the case under his personal control” in order to ensure that “Ukrainian interests [were] safeguarded”. In a letter of 3 February 1998 the President of Ukraine urged the President of the Supreme Arbitration Tribunal to “defend the interests of Ukrainian nationals”. 19. On 1 February 1998 a general meeting of Sovtransavto-Lugansk's shareholders adopted a revised version of the company's memorandum and articles of association. On 17 February 1998 the Lugansk Executive Council ratified that decision. 20. In a coded telegram of 6 March 1998 the Chief Executive of the Lugansk Region informed the Ukrainian President that, notwithstanding his resolution of 28 January 1998 calling for the defence of national interests, the Supreme Arbitration Tribunal had set aside the judgments of 4 August and 14 October 1997 and remitted the case for reconsideration, a decision which, in his opinion, constituted a threat to Sovtransavto-Lugansk's ability to carry on its business and adversely affected Ukraine's interests in Russia's favour. He asked the President to intervene in the case immediately in order to defend the interests of the Ukrainian company and of Ukrainian nationals. 21. Between 10 and 31 March 1998 the Ukrainian Securities Exchange Commission (Державна Комісія з цінних паперів та фондового ринку), a public body responsible for supervising limited companies, investigated the activities of Sovtransavto-Lugansk. On 29 April 1998 it found that the general meeting of shareholders of 3 January 1996 and the decisions subsequently adopted by the company's management had not complied with the legislation in force. 22. On 19 May 1998 Mr T. (a member of the Ukrainian parliament) urged the President of Ukraine to “defend the interests of Ukrainian nationals”. In a resolution adopted on the same day the President once again drew the President of the Supreme Arbitration Tribunal's attention to the need to protect the State's interests. 23. On 20 May 1998, during the trial, Mr Kravchuk (the arbitrator appointed by the Kiev Region Arbitration Tribunal) publicly refused to conduct the proceedings on account of the heavy pressure brought to bear by the defendants (Sovtransavto-Lugansk and the Lugansk Executive Council). On 21 May 1998 another arbitrator was appointed. 24. On 28 May 1998 the President of the Supreme Arbitration Tribunal sent the President of the Kiev Region Arbitration Tribunal a copy of the Ukrainian President's resolution of 19 May 1998 so that it could be taken into account when the applicant company's case was considered. 25. On 3 June 1998 the applicant company made a further application against Sovtransavto-Lugansk and the Lugansk Executive Council (Case no. 13/10-98) to the Kiev Region Arbitration Tribunal, seeking a declaration that the following decisions were unlawful: firstly, the decisions to increase the share capital and alter the memorandum and articles of association taken by Sovtransavto-Lugansk's managing director on 26 December 1996, 11 August and 20 October 1997; secondly, the ratification of those decisions by the Executive Council on 30 December 1996, 12 August and 18 November 1997; and thirdly, the ratification by the Executive Council on 17 February 1998 of the resolution to alter the memorandum and articles of association adopted by the general meeting of Sovtransavto-Lugansk shareholders on 1 February 1998. 26. On 9 June 1998 the Kiev Region Arbitration Tribunal adjourned Case no. 13/10-98 until after judgment had been given in Case no. 70/10-98. 27. By a letter of 17 June 1998 the Vice-President of the Supreme Arbitration Tribunal asked the President of the Kiev Region Arbitration Tribunal to “take the case under his personal control”. 28. On 23 June 1998 the Kiev Region Arbitration Tribunal tried Case no. 70/10-98 and, after stating in a set formula that neither the decision of 3 January 1996 to alter Sovtransavto-Lugansk's memorandum and articles of association nor the ratification of that decision on 23 January 1996 had been unlawful, refused the applicant company's application. 29. It then tried, on the same day, Case no. 13/10-98 and, after stating in a set formula that the decisions challenged by the applicant company were lawful, refused its application. 30. On 2 July 1998 the applicant company lodged with the President of the Kiev Region Arbitration Tribunal two applications for revision under the “supervisory review” procedure of the judgments of 23 June 1998 in Cases nos. 13/10-98 and 70/10-98. It submitted in particular that the defendants had breached Law no. 1576-XII of 19 September 1991, Law no. 533-XII of 7 December 1990 and Government Ordinance no. 276 of 29 April 1994, governing the activities of limited companies and the procedure for ratifying their decisions. It further complained that the proceedings before the first-instance court had not been public. 31. In two judgments of 12 October 1998 the Vice-President of the Arbitration Tribunal refused the applications, after upholding the findings of the first-instance court. 32. On 24 November 1998 the applicant company applied to a bench of the Ukrainian Supreme Arbitration Tribunal seeking revision under the “supervisory review” procedure of the judgments concerning it. In two judgments of 12 January 1999 the bench dismissed the appeals relating to Cases nos. 13/10-98 and 70/10-98, reproducing the set formulas used by the first-instance court. 33. In February 1999 the applicant company asked the Ukrainian Attorney-General's Office to intervene in the arbitration proceedings concerning Cases nos. 13/10-98 and 70/10-98 to verify their lawfulness. It also asked the Supreme Arbitration Tribunal to issue an objection under the “supervisory review” procedure (протест у порядку нагляду) [Note by the Registry. Under the arbitration rules in force prior to 21 June 2001, an objection was a remedy that allowed the Attorney-General's Office or, as the case may be, the President of the Ukrainian Supreme Court or their deputies to seek the annulment of a final judgment or order of an arbitration tribunal] seeking revision of all the judgments in the cases in which it was involved. 34. In a letter of 26 February 1999 the head of the arbitration proceedings department of the Attorney-General's Office refused the applicant company's application on the ground that in the cases in question the participation of a representative of the State was not necessary. 35. On 8 June 1999 a general meeting of Sovtransavto-Lugansk's shareholders, organised, according to the applicant company, without its participation, decided to wind the company up. 36. In April 2000 the President of the Supreme Arbitration Tribunal lodged an objection under the “supervisory review” procedure to the Presidium of that court seeking annulment of all the judgments relating to Cases nos. 13/10-98 and 70/10-98. In a judgment of 21 April 2000 the Presidium of the Supreme Arbitration Tribunal set aside the judgments of 23 June 1998, 12 October 1998 and 12 January 1999 and remitted Cases nos. 13/10-98 and 70/10-98 to the Kiev Region Arbitration Tribunal for reconsideration. In its judgment it held that the arbitration tribunals' judgments had been given without a proper, detailed examination of the facts and the parties' arguments, and that their rulings had been contradictory and premature in that they had not taken into account either the findings of the Ukrainian Securities Exchange Commission, which had revealed that a number of decisions taken by Sovtransavto-Lugansk's board had contravened the provisions of the legislation in force, or the requirements of the legislation governing the ratification of the memorandum and articles of limited companies; moreover, there had been no verification whether Sovtransavto-Lugansk's memorandum and articles of association complied with the legislation in force. 37. In a letter of 12 May 2000 the President of the Kiev Region Arbitration Tribunal drew the attention of the President of the Supreme Arbitration Tribunal to the fact that “in a judgment of 21 April 2000 the Supreme Arbitration Tribunal [had] set aside the judgments given by the arbitration tribunals two years [before] in Cases nos. 13/10-98 and 70/1098” and that “the Kiev Region Arbitration Tribunal [had] already ruled on the matter”. He observed that “certain events concerning the case cast doubt on the guarantee that the Tribunal's judges [would] try the case impartially, a circumstance which [might] entail negative consequences”. He asked the President of the Supreme Arbitration Tribunal to remit Cases nos. 13/10-98 and 70/10-98 to another tribunal with a view to “guaranteeing the objectivity and impartiality of the proceedings”. 38. In a letter of 25 May 2000 the President of the Supreme Arbitration Tribunal refused the President of the Kiev Region Arbitration Tribunal's request for Cases nos. 13/10-98 and 70/10-98 to be remitted to another court, having noted that the judgment of 21 April 2000 complied with the legislation in force. 39. On 7 August 2000 the Kiev Region Arbitration Tribunal tried Cases nos. 13/10-98 and 70/10-98. After examining the documents submitted by the applicant company and noting that Sovtransavto-Lugansk had been wound up, it ordered the Lugansk Executive Council to produce the documents concerning the winding-up and the originals of the documents concerning the registration of a limited company, Trans King, that had been set up with Sovtransavto-Lugansk's assets. It adjourned the case until 7 September 2000. 40. On 7 September 2000 the Kiev Region Arbitration Tribunal, after noting that it was necessary for State Counsel's Office to take part in the proceedings, adjourned the case until 18 October 2000. 41. On 25 October 2000 the Kiev Region Arbitration Tribunal, noting that it was necessary for the documents relating to Cases nos. 13/10-98 and 70/10-98 to undergo further examination by the Attorney-General's Office, adjourned the case. 42. In a judgment of 23 April 2001 the Kiev Region Arbitration Tribunal allowed the applicant company's claims in part, in so far as it ordered Trans King, the successor of Sovtransavto-Lugansk, to return to the applicant company part of the assets it had owned at the material time, but refused the applicant company's claim against the Lugansk Executive Council. In particular, the Tribunal held that Sovtransavto-Lugansk's managing director's decisions of 26 December 1996, 11 August 1997 and 20 October 1997 to increase the company's share capital and alter its memorandum and articles of association had been unlawful, as under applicable law such decisions could only be taken by the board. It further held that as a result of those decisions the applicant company's rights in respect of the management of Sovtransavto-Lugansk and control of its assets had been infringed and that the compensation the applicant company had received following the winding-up of Sovtransavto-Lugansk had not been in proportion to the applicant company's shareholding when Sovtransavto-Lugansk's memorandum and articles of association were ratified in January 1996. 43. By an order of 7 May 2001 the Lugansk court bailiffs' service stayed execution of the judgment of 23 April 2001 because the defendant company had lodged an application with the President of the Kiev Region Arbitration Tribunal seeking revision thereof under the “supervisory review” procedure. 44. In a judgment of 24 January 2002, following an objection by the Ukrainian Attorney-General's Office and an application under the “supervisory review” procedure by Trans King, the bench of the Kiev Economic Court of Appeal (the appellate court in the instant case following the reform of the judicial system), set aside the order in the Kiev Region Arbitration Tribunal's judgment of 23 April 2001 for the restitution of the applicant company's assets and dismissed all the applicant company's claims. 45. On 25 February 2002 the applicant company lodged an appeal on points of law with the bench of the Ukraine Supreme Economic Court (as the former Supreme Arbitration Tribunal was now known, following the reform of the judicial system) against the judgment of 24 January 2002. 46. In an order of 2 April 2002, the bench of the Ukraine Supreme Economic Court dismissed the applicant company's appeal on points of law without examining it on the merits. It found, in particular, that the applicant company had not furnished any evidence that it had paid the court fee due to the Supreme Economic Court for the examination of the appeal on points of law. The Supreme Economic Court reimbursed the applicant company the sum it had paid in respect of the court fee and advised it that it could resubmit its appeal once it had completed that formality. 47. The applicant company lodged its appeal on points of law afresh. By an order of 26 April 2002, the bench of the Ukraine Supreme Economic Court dismissed the appeal without examining it on the merits, finding, inter alia, that it had been lodged out of time and there had been no application for an extension of time. 48. Section 1 of the Act provides: “In accordance with the Constitution of Ukraine, the arbitration tribunals shall have jurisdiction in economic cases. The arbitration tribunal is an independent entity with jurisdiction in all economic cases between corporations, public or other bodies and litigation arising out of insolvency.” 49. The relevant provisions of the Code of Civil Procedure provide: “Judgments and court orders or decisions which have become final may be reconsidered under the supervisory review procedure on an objection [протест] lodged by one of the officials specified in Article 328 of this Code.” “The following officials are empowered to lodge objections under the supervisory review procedure with a view to securing the revision of judgments and court orders or decisions which have become final: (1) the President of the Ukrainian Supreme Court, the Attorney-General and their deputies ...; (2) the presidents of the Supreme Court of Crimea, the regional courts, the Kiev District Court and the Sebastopol District Court and their deputies, and State counsel at the Supreme Court of Crimea, the regional courts, the Kiev District Court and the Sebastopol District Court and their deputies ...; (3) the presidents of the regional military tribunals and military or admiralty courts, military prosecutors ... and their deputies ...” “The officials mentioned in Article 328 of this Code ... are empowered to require the relevant court to submit the file on a civil case to them so that they can decide whether there are grounds for an objection under the supervisory review procedure. ... Where there are no grounds for an objection, the official concerned shall notify his or her decision to the person who requested revision, with a short statement of the reasons for it, the case being remitted to the relevant court.” 50. The relevant provisions of the Code of Arbitration Procedure provide: “The lawfulness and merits of a judgment, order or decision of an arbitration tribunal ... may be reconsidered under the supervisory review procedure on an application by a party or an objection by State Counsel or his deputy, in accordance with the said Code and other Ukrainian laws. An application by a party for revision of a judgment, order or decision under the supervisory review procedure shall be examined by the President of the Supreme Arbitration Tribunal of Crimea or his deputy, by the presidents of the regional arbitration tribunals, the Kiev City Arbitration Tribunal or the Sebastopol City Arbitration Tribunal or their deputies, or by a bench of the Ukrainian Supreme Arbitration Tribunal. The following persons are empowered to lodge an objection: The Attorney-General and his deputies ...; State counsel at the courts of Crimea, the regions, Kiev City and Sebastopol City and their deputies ...” “The President of the Supreme Arbitration Tribunal of Ukraine, the Attorney-General or his deputies shall be entitled to lodge an objection with the Presidium of the Supreme Arbitration Tribunal seeking revision of a judgment of a bench of the Supreme Arbitration Tribunal in an economic case. ...” “... An objection by the Attorney-General or his deputy for revision of a judgment, order or decision under the supervisory review procedure shall not stay execution of the decision concerned ...” “An application by a party for revision of a judgment, order or decision under the supervisory review procedure must be lodged within two months of the date of the judgment, order or decision in question.” “The parties may participate in proceedings for the revision of a judgment, order or decision under the supervisory review procedure. ... Revision of a judgment, order or decision under the supervisory review procedure must be completed within two months of the lodging of an application or objection. ... ... The judgment, order or decision of the arbitration tribunal may be revised under the supervisory review procedure no later than one year after its delivery or issue.” “Following revision of a judgment, order or decision under the supervisory review procedure, an arbitration tribunal may: (i) leave the judgment, order or decision as it stands; (ii) vary the judgment, order or decision; (iii) quash the judgment, order or decision and adopt a new decision, adjourn the case for further consideration, close the case or decline to entertain the application. The judgment, order or decision of the arbitration tribunal shall be examined as a whole, irrespective of the grounds for the application or objection. An arbitration tribunal examining an application for revision of a judgment, order or decision under the supervisory review procedure shall be vested with all the powers of an arbitration tribunal considering an economic dispute. Where a judgment, order or decision has been revised under the supervisory review procedure by the Supreme Arbitration Tribunal, its judgment shall be final ...” “Following revision under the supervisory review procedure of a judgment of the Supreme Arbitration Tribunal of Crimea, a regional arbitration tribunal, the Kiev City Arbitration Tribunal or the Sebastopol City Arbitration Tribunal, the arbitration tribunal concerned shall issue, in the name of Ukraine, a reasoned decision. The decision shall be signed by the President of the Supreme Arbitration Tribunal of Crimea or his deputy, the President of the regional arbitration tribunal or his deputy, the President of the Kiev City Arbitration Tribunal or his deputy or the President of the Sebastopol City Arbitration Tribunal or his deputy. Following revision under the supervisory review procedure of a judgment, order or decision of a bench of the Ukrainian Supreme Arbitration Tribunal, the bench concerned shall issue, in the name of Ukraine, a reasoned judgment signed by all its judges.” “Directions set out in a judgment delivered following the revision of a judgment, order or decision under the supervisory review procedure shall be binding on the arbitration tribunal to which the case is remitted for retrial. ...” “Judgment, orders and decisions of arbitration tribunals shall be effective on the day they are delivered or issued and all undertakings, organisations and public authorities shall be bound to comply with them.” 51. The relevant provisions of the Constitution read as follows: “Everyone shall have a right to compensation from public or municipal bodies for losses sustained as a result of unlawful decisions, acts or omissions by public or municipal bodies or civil servants in the performance of their official duties.” “Municipal bodies shall exercise their powers in accordance with the statutory rules of competence; decisions of municipal bodies shall be mandatory in the area concerned. Execution of decisions of municipal bodies shall be stayed, in accordance with the law, if their compatibility with the Constitution or the legislation in force is contested in the courts or tribunals.” 52. Under this Act, the system of arbitration tribunals was replaced by a system of economic courts with jurisdiction to try disputes relating to economic matters. Section 5 of the Act provides that the system shall comprise three levels of jurisdiction: district economic courts, economic courts of appeal and the Supreme Economic Court of Ukraine. 53. The Code of Economic Procedure of 6 November 1991 (as renamed and amended on 21 June 2001) abolished the objection (протест) procedure. Article 53 provides that economic courts may grant extensions of time on an application by a party or State Counsel or on their own initiative. Article 110 lays down that appeals on points of law may be lodged no later than one month after the judgment of the district economic court or the economic court of appeal shall have become effective. Article 111 requires notices of appeal on points of law to be accompanied, inter alia, by evidence that the court fee has been paid to the court or tribunal. Article 111-3 § 4 provides that courts and tribunals shall return notices of appeal on points of law to the appellant without examining the appeal on the merits if the appellant fails to furnish evidence that the court fee has been paid to the tribunal. Article 111-3 § 5 provides that courts and tribunals shall return notices of appeal on points of law to the appellant without examining the appeal on the merits if it has been lodged out of time and the appellant has not applied for an extension of time.