KLIMAT INKOM V & CO OOD AND OTHERS v. BULGARIA
Inadmissible
André Potocki;Angelika Nußberger;Mārtiņš Mits;Nona Tsotsoria;Yonko Grozev;Gabriele Kucsko-Stadlmayer
1. The applicant company, Klimat Inkom V & Co OOD, was a Bulgarian limited liability company which had its registered office in Sofia. It was wholly owned by the two individual applicants, Mr Danail Kirilov Vidolov and Ms Vera Gancheva Vidolova, Bulgarian nationals who were born in 1941 and 1946 respectively. Mr Danail Kirilov Vidolov lives in Sofia. 2. Ms Vera Gancheva Vidolova died on 23 May 2014. In a letter dated 14 December 2016, her heirs ‒ Mr Danail Kirilov Vidolov, Mr Kiril Danailov Vidolov and Mr Daniel Danailov Kirilov ‒ expressed their wish to pursue the application in her stead. 3. The applicant company was wound up in 2015. 4. The applicants and Ms Vidolova’s heirs were represented before the Court by Mr M. Ekimdzhiev and Ms K. Boncheva, lawyers practising in Plovdiv. 5. The Bulgarian Government (“the Government”) were represented by their Agent, Ms M. Dimitrova, of the Ministry of Justice. 6. The facts of the case, as submitted by the parties, may be summarised as follows. 7. The State-owned company Incoms was created in 1989 as the successor of a previously existing State-owned enterprise. In 1991 it was registered as a joint-stock company with its registered place of business in Sofia. At that time it was wholly owned by the State. 8. In 1992 Parliament passed the Transformation and Privatisation of State and MunicipallyOwned Enterprises Act (hereinafter “the Transformation and Privatisation Act”). Pursuant to section 17a thereof (see paragraph 20 below), the company became the owner of the properties it had until then used and managed. In 1994 the company was renamed Incoms-Telecom Holding EAD. 9. On an unspecified date a decision was taken to privatise IncomsTelecom Holding EAD. 10. In early 1996 the company management took a decision to put up for sale some of the company’s properties, namely two industrial buildings in Sofia covering areas of 530 and 1,590 square metres respectively, as well as the plot of land on which they stood, which measured 5,152 square metres (hereinafter “the properties”). Since privatisation of the company was planned, the sale had to be authorised by the Council of Ministers (a requirement under section 21(2) of the Transformation and Privatisation Act – see paragraph 23 below). On 14 June 1996 the Council of Ministers authorised the sale, in a decision which stated in addition that the sale would be carried out in accordance with section 18(2) of the 1994 Regulations on the Exercise of the State’s Property Rights in Enterprises (hereinafter “the 1994 Regulations”, see paragraph 24 below). 11. On 23 August 1996 Incoms-Telecom Holding EAD and the applicant company concluded a preliminary contract for the sale of the properties. The final contract was signed on 5 February 1997 (hereinafter “the 1997 contract”). In July 1997 the applicant company paid in full the agreed price, which at the time was the equivalent of approximately 22,000 euros (EUR). 12. In August 1997 the applicant company took possession of the properties and started using them. The buildings appear to have been in a bad state of repair and it made substantial improvements to them. According to an expert assessment submitted by Mr Vidolov and Ms Vidolova’s heirs, in December 2016 the value of the properties was EUR 2,610,900. However, as the parties have provided to the Court no assessment of the value of the improvements made after 1997, it is unclear to what extent the increased value in 2016 was the result of price changes in the real estate market and to what extent – to the improvements made by the applicant company. 13. Incoms-Telecom Holding EAD was privatised in 2002, after which its name was changed to Incoms-Telecom Holding AD. 14. In 2003 that company brought against the applicant company a rei vindicatio action, reclaiming the properties. It argued that the 1997 sale contract had been null and void because, in particular, it had not been concluded before a notary as required by law; consequently, the applicant company had never validly acquired the properties. 15. The action was allowed on 4 June 2004 by the Sofia District Court. It noted at the outset that the sale would only have been valid if it had been duly authorised by the Council of Ministers, as required by law. However, the authorisation given on 14 June 1996 (see paragraph 10 above) had been too general and had not specified the properties concerned. 16. In addition, the Sofia District Court noted that the 1997 contract was null and void because it had not been concluded before a notary. There was no reason to conclude that the general requirement of section 18 of the Obligations and Contracts Act (see paragraph 26 below) did not apply to it, as it did not fall within any of the exceptions provided for by law. In particular, the contract at issue was not a privatisation contract because it did not fall within the scope of the Transformation and Privatisation Act, as defined under its section 1(3) (see paragraph 21 below), and because its subject matter did not concern State-owned properties, the properties at issue having already come into the private ownership of the company Incoms on the strength of section 17a of the Transformation and Privatisation Act (see paragraph 8 above). Nor could section 18(2) of the 1994 Regulations (see paragraph 24 below), which the applicant company had relied on, provide a legal basis for concluding that the requirement laid down in section 18 of the Obligations and Contracts Act was inapplicable. Thus, the 1997 contract, which had not been concluded before a notary, was null and void ab initio. 17. The contract’s nullity meant that the applicant company had been a possessor in bad faith of the properties after August 1997 and could only acquire those properties through adverse possession after the expiry of a period of ten years. Since the claimant had brought an action in 2003, that period had not expired. Accordingly, the applicant company was not the owner of the properties and had to surrender possession to the claimant. 18. On 26 February 2007 and 27 April 2009 respectively the above conclusions were endorsed by the Sofia City Court and the Supreme Court of Cassation. The applicant company surrendered possession of the properties in 2007. 19. In separate proceedings, in 2007 Incoms-Telecom Holding AD requested that the applicant company be declared insolvent. Even though the request was not granted until 2011, a trustee for the applicant company was appointed in April 2008. After the liquidation proceedings were completed, the applicant company was wound up by a court judgment of 5 November 2015. 20. After 1989, Parliament passed several pieces of legislation providing for the transformation of State-owned enterprises into companies and the privatisation of such companies. The Transformation and Privatisation Act (Закон за преобразуване и приватизация на държавни и общински предприятия) was adopted in 1992. Its section 17a provided in particular that, in the process of transforming a State enterprise, ownership of real estate or other assets that had been used and managed by it should be deemed to pass to the company succeeding it. 21. Privatisation was defined under section 1(3) of the Transformation and Privatisation Act as “the transfer to private persons or legal entities of 1. shares in companies owned by the State and the municipalities; 2. ownership of entire enterprises, parts of them, assets of liquidated enterprises or properties under construction; 3. State or municipality-owned non-residential properties not included in State or municipally-owned enterprises and used for commercial purposes (such as shops, workshops, warehouses and repair shops).” 22. Pursuant to the Transformation and Privatisation Act and the secondary legislation adopted in the course of its implementation, the stages of a privatisation procedure were as follows: a legal analysis of the property to be privatised was conducted; based on that analysis, the competent authority took a decision to privatise and chose the appropriate method (auction, competition, negotiations); that decision was published in the State Gazette; an independent analysis of the company or assets to be privatised was conducted and the conditions for participation in the auction or competition were announced; the buyers were chosen and a privatisation contract was concluded; and lastly, a specialised body was charged with exercising post-privatisation supervision. The privatisation contract did not need to be concluded before a notary. Such contracts would often contain additional obligations for the buyer, such as the preservation or creation of jobs, or the introduction of measures for environmental protection or to ensure continuation of the privatised company’s activity. 23. Once a decision to privatise had been taken, the company to be privatised was banned from selling or otherwise transferring its fixed assets unless authorised by the body competent to conduct the privatisation (section 21(2) of the Transformation and Privatisation Act). 24. The Regulations on the Exercise of the State’s Property Rights in Enterprises, adopted in 1994 (Правилник за реда за упражняване правата на собственост на държавата в предприятията – “the 1994 Regulations”), were part of the secondary legislation implementing the Transformation and Privatisation Act. Their section 18 provided that fixed assets of State-owned companies could only be sold or transferred to private parties after an auction or a competition (paragraph 1), except where the competent State body had authorised direct negotiations with potential buyers (paragraph 2). 25. In 2002 the Transformation and Privatisation Act was superseded by other legislation. 26. Section 18 of the Obligations and Contracts Act (Закон за задълженията и договорите) requires that all contracts concerning rights in rem should be concluded before a notary (“с нотариален акт”). 27. Section 26(2) of the Act provides that if the appropriate procedure (“предписана от закона форма”) has not been observed, a contract will be null and void. Pursuant to section 34, when a contract is declared null and void, each of the parties is under an obligation to return everything it has received. 28. By section 110 of the Act, except where provided otherwise, all claims lapse after the expiry of five years. Where the claim is for the recovery of something given under a contract which was in fact null and void, the period at issue is considered to start from the moment the contract was concluded (Постановление № 1 от 28.V.1979 г. по гр. д. № 1/79 г., Пленум на ВС; Решение № 172 от 21.03.2011 г. на ВКС по гр. д. № 80/2010 г., IV г. о., ГК; Решение № 100 от 20.06.2011 г. на ВКС по т. д. № 194/2010 г., TК, II т.о.). Limitation periods are not to be applied by the courts of their own motion, but only when an objection has been raised by the interested party (section 120 of the Act). 29. Real property can be acquired through adverse possession after either five or ten years of possession, depending on whether the possessor acted in good or bad faith (section 79 of the Property Act – Закон за собствеността). Possession based on a null and void transaction is always considered to have been in bad faith (Постановление № 6 от 27.XII.1974 г. по гр. д. № 9/74 г., Пленум на ВС; Решение № 5268 от 9.07.2013 г. на СГС по гр. д. № 9074/2010 г.). 30. A possessor in bad faith who has been found not to be the owner of a property can claim from the owner the expenses incurred for the property’s upkeep (section 73(2) of the Act). If improvements have been made to the property, he or she can claim the lesser of the amount spent on those improvements and the amount by which the property’s value has augmented as a result (section 74(1)). Where the owner was aware that improvements were being made to the property and did not object, the possessor in bad faith can in any event claim, if higher, the amount by which the property’s value has augmented (section 74(2) in conjunction with section 72(1)). Limitation periods for claiming the value of improvements start to run when a property claim ‒ such as a rei vindicatio claim ‒ is brought, or when the possession of the property at issue is otherwise disturbed (Постановление № 6 от 27.XII.1974 г. по гр. д. № 9/74 г., Пленум на ВС).