Information Note on the Court’s case-law 254
Pintar and Others v. Slovenia – 49969/14, 20530/16, 4713/17 et al.
Judgment 14.9.2021 [Section II]
Article 1 of Protocol No. 1
Article 1 para. 2 of Protocol No. 1
Control of the use of property
No reasonable opportunity to challenge or seek compensation for national bank’s extraordinary measures cancelling shares and bonds: violation
Facts – The applicants were holders of shares or subordinated bonds in three Slovenian banks which had applied for State aid. In 2013 and 2014, the Bank of Slovenia adopted decisions putting in place extraordinary measures, including in respect of the three banks, which reduced their share capital to zero. The decisions were adopted within the framework of domestic legislation, following a Communication from the European Commission. They referred to an EU Council Recommendation, as well as asset quality review (“AQR”) and stress test results carried out under the leadership of a steering committee, which included the Commission, the European Banking Authority and the European Central Bank. The former holders were not granted access to several documents underpinning the decisions. The applicants brought various, unsuccessful and pending legal actions at domestic level.
In 2016, the Constitutional Court found that certain relevant provisions of the domestic law were inconsistent with the Constitution, including in relation to the lack of availability of a legal avenue for former holders. Subsequently, the Act on Judicial Protection Procedure for Former Holders of Eligible Liabilities of Banks (“the 2020 Remedy Act”) was adopted – its implementation has been suspended by the Constitutional Court pending a review of its constitutionality.
Law – Article 1 of Protocol No. 1:
(a) Existence of “possessions” and interference with the right to property
The shares could be considered a “possession” within the meaning of Article 1 of Protocol No. 1, even on the assumption that the Government’s view that they had no economic value was valid. As regards the bonds, the bondholders in principle had had a “legitimate expectation” to have their claims met in accordance with the contractual clauses (see, mutatis mutandis, Mamatas and Others v. Greece). The Government had suggested that, due to their financial situation, the banks would not be able to honour their obligations towards the bondholders to any degree. However, in the absence of any domestic judicial ruling on that point and having regard to the limited information in its possession, the Court was not in a position to conclude that the bonds in question had no economic value. Article 1 of Protocol No. 1 was therefore applicable to the present case and the cancellation of the applicants’ shares or bonds had amounted to an interference with their right guaranteed by that provision.
(b) Compliance with Article 1 of Protocol No. 1
The impugned decisions of the Bank of Slovenia had clearly been taken with the aim of controlling the banking sector in the country. While they might have involved a deprivation of property, in the circumstances, the deprivation had formed a constituent element of a scheme for controlling the banking industry. The measure in question therefore had constituted control of the use of property within the meaning of the second paragraph of Article 1 of Protocol No. 1. The Court assessed it in the light of the general principle of the peaceful enjoyment of property, with which it was connected.
The Bank of Slovenia’s decisions had had a basis in domestic law, which had been found by the Constitutional Court to be compatible with the Constitution and which met the qualitative requirements of accessibility and foreseeability. However, the requirement of lawfulness also presupposed that the domestic law had to provide a measure of legal protection against arbitrary interferences by the public authorities with the rights safeguarded by the Convention. The Court had to determine, taking a comprehensive view of the applicable procedures, whether the interference had been accompanied by procedural guarantees affording a reasonable opportunity for the applicants to present their case to the responsible authorities for the purpose of effectively challenging the impugned measures.
The Constitutional Court had assessed the legal provisions on which the extraordinary measures had been based, however, it had not assessed whether the impugned measures had in fact been justified in the circumstances pertaining at the relevant time with respect to each of the banks in question. According to the Government, the only way for the applicants to challenge the decisions interfering with their possessions had been to lodge a compensation claim against the Bank of Slovenia under section 350a of the Banking Act. However, as found by the Constitutional Court, the former holders had not been in a position to effectively dispute the grounds on which the Bank of Slovenia’s decisions had been based as they had lacked access to crucial information, such as the reports of an AQR and the stress tests. The Constitutional Court had also found several further shortcomings in the proceedings under the then applicable legislation and had concluded that it had not provided the former holders with effective judicial protection. It had ruled that specific legislation would need to be adopted in order to provide an effective remedy. The Court saw no reason to depart from the Constitutional Court’s finding that the legislation, without further appropriate regulation of the proceedings, had not provided the applicants with a legal avenue to effectively challenge the measures in question. Further, although the Constitutional Court had given the legislator a deadline of six months to bring about the appropriate legislation, the law implementing its decision – the 2020 Remedy Act – had been adopted only three years later. The Act, while representing an important development, had so far had no real consequences for the former holders, including the applicants. That was so because, further to the petition lodged by the Bank of Slovenia, the Constitutional Court had suspended its implementation in March 2020.
The Court was mindful of the fact that the provision of an effective remedy in the present case had been bound up with complex questions regarding the respect for various principles under EU law; and that the Court of Justice of the European Union (“CJEU”) had provided a preliminary ruling within the proceedings leading to the 2016 decision of the Constitutional Court and had again been requested to do so in the proceedings concerning the review of the constitutionality of the 2020 Remedy Act. However, the respondent State had remained responsible for securing the former holders’ rights under Article 1 of Protocol No. 1. That obligation, including its procedural aspect, had been triggered when the bank’s extraordinary measures had been envisaged, and yet those measures had not been accompanied by sufficient procedural guarantees against arbitrariness. The former holders, who had lost their shares or bonds in 2013 or 2014, had so far had no effective access to a meaningful legal avenue to dispute the grounds for such measures and claim compensation, let alone obtain a final determination of their claims.
Having regard to the above considerations, four of the applicants could not be reproached for not lodging the compensatory remedy – a possibility which remained open to them in view of the 2016 Decision and the provisions of the 2020 Remedy Act. Indeed, access to such a remedy had thus far been theoretical at most.
The Court found that neither the compensatory remedy nor any of the other remedies which had been tried by some applicants had provided for a reasonable opportunity to challenge the Bank of Slovenia’s impugned decisions and/or seek compensation. Given that finding, the Court would not address specific elements of the remedy provided by the 2020 Remedy Act, even more so since the review of that Act was currently pending before the Constitutional Court.
The interference with the applicants’ possessions had not been accompanied by sufficient procedural guarantees against arbitrariness and had thus not been lawful within the meaning of Article 1 of Protocol No. 1. It was thus neither necessary nor, due to the lack of relevant information, possible, for the Court to ascertain whether the other requirements of that provision had been complied with. The Court accordingly refrained from expressing any opinion as to whether the extraordinary measures, as a result of which the applicants’ shares and bonds had been cancelled, had been in the general interest and, if so, whether a fair balance had been struck between the demands of the general interest of the community, and the protection of the applicants’ right to peaceful enjoyment of their possessions (see, mutatis mutandis, Project-Trade d.o.o v. Croatia).
Conclusion: violation (unanimously).
Article 46: The violation affected thousands of former holders of the cancelled shares and bonds. It was therefore essential that they had access to a legal avenue enabling them to effectively challenge the interference with their right to property. Such access had to be provided in practice as soon as that became possible. Having regard to the time that had elapsed since the impugned measures had been taken, it was particularly important that the appropriate arrangements were made in order to ensure that the proceedings, once initiated or resumed, were conducted without any further unnecessary delays.
Article 41: Sums ranging between EUR 1,000 and EUR 3,000 to each applicant in respect of non-pecuniary damage.
(See also Mamatas and Others v. Greece, 63066/14 et al., 21 July 2016, Legal Summary; Project-Trade d.o.o. v. Croatia, 1920/14, 19 November 2020, Legal Summary)