Last Updated on March 8, 2022 by LawEuro
The applications concern the non-enforcement of judgments in the applicant companies’ favour issued against a State unitary enterprise (for the legal status of unitary enterprises, see Liseytseva and Maslov v. Russia, nos. 39483/05 and 40527/10, §§ 54-127, 9 October 2014).
THIRD SECTION
CASE OF OOO TRUZHENIK-89 AND OOO FIRMA MOAZ v. RUSSIA
(Applications nos. 34336/10 and 30108/13)
JUDGMENT
STRASBOURG
8 March 2022
This judgment is final but it may be subject to editorial revision.
In the case of OOO Truzhenik-89 and OOO Firma Moaz v. Russia,
The European Court of Human Rights (Third Section), sitting as a Committee composed of:
María Elósegui, President,
Andreas Zünd,
Frédéric Krenc, judges,
and Olga Chernishova, Deputy Section Registrar,
Having regard to:
the applications (nos. 34336/10 and 30108/13) against the Russian Federation lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by two limited liability companies listed in the Appendix (“the applicant companies”) incorporated under Russian law, who were represented by Mr I.Y. Timishev, a lawyer practising in Nalchik;
the decision to give notice of the applications to the Russian Government (“the Government”), represented initially by Mr G. Matyushkin, the then Representative of the Russian Federation to the European Court of Human Rights, and lately by Mr M. Vinogradov, his successor in that office;
the decision to reject the Government’ s objection to examination of the applications by the Committee;
the parties’ observations;
Having deliberated in private on 8 February 2022,
Delivers the following judgment, which was adopted on that date:
SUBJECT-MATTER OF THE CASE
1. The applications concern the non-enforcement of judgments in the applicant companies’ favour issued against a State unitary enterprise (for the legal status of unitary enterprises, see Liseytseva and Maslov v. Russia, nos. 39483/05 and 40527/10, §§ 54-127, 9 October 2014).
2. The applicant companies concluded sub-contract agreements with the Federal State Unitary Enterprise “Department of Special Construction Works no. 42 of the Federal Special Construction Agency” (“the FGUP”) for reconstruction and clean-up of debris in Grozny, devastated during the hostilities in Chechnya.
3. The FGUP was set up in 2006 by the Russian Government as a part of the Federal Special Construction Agency («Спецстрой», “the FSCA”) for construction of social, cultural and household objects. The assets allocated to its economic control were federal property. Its activities were financed from the federal budget. It was assigned with the task of clean-up and reconstruction in and around Grozny.
4. The works were commissioned by the Government of Chechnya. The FGUP was the principal contractor. Treasury Enterprise “Directorate for Construction and Recovery Works of the Chechen Republic” acted as a client. The works were paid by the Chechen Republic and financed by the State capital investments. The client was liable to pay the FGUP for the works performed “within the limits of funds allocated for 2007”, and the FGUP (under the sub-contract agreements) undertook to pay for the applicant companies’ work within the limit of funds received from the “financing organisations”.
5. The applicant companies performed the works but the FGUP did not pay for them in full.
6. In October 2007 the Government of Russia transferred the entirety of the FGUP’s assets to the ownership of the Chechen Republic. The enterprise was renamed “State Unitary Enterprise Spetsstroy of the Ministry of Construction of the Chechen Republic” (“GUP Spetsstroy”, or “the debtor GUP”). GUP Spetsstroy was the legal successor of the FGUP and accepted 1,556 million Russian roubles (RUB) of the latter’s debts towards its creditors. At the time of the transfer, the Government of Chechnya owed a debt in the amount of RUB 1,891 million towards GUP Spetsstroy for works performed in 2006-2007. It appears that in August 2008 the FSCA suggested that the latter amount be allocated from the federal budget in the form of a targeted transfer for the settlement of the debt. No follow-up information was submitted by the parties.
7. In 2009 domestic courts awarded the applicant companies the amounts specified in the Appendix in respect of the unpaid debts and interest against GUP Spetsstroy (the legal successor of the FGUP). The debtor GUP did not comply with the judgments, for the lack of funds.
8. In late 2010 the bailiffs issued an attachment order in respect of the debtor’s banking account and in 2011 seized five buildings under the GUP’s economic control. The Ministry of Construction of Chechnya objected to the seizure, referring to the debtor GUP’s strategic importance for the region and to the risk that the seizure would paralyse the GUP’s activity and impair the reconstruction.
9. In response to the applicants’ complaints, a prosecutor’s office issued several warnings in connection with the bailiffs’ failure to open the enforcement proceedings, to assess the debtor’s assets and to seize the buildings in good time.
10. In 2009-11 the Government of the Chechen Republic (i) re-organised the debtor GUP transferring it to the republican Department of Construction; and (ii) transferred a healthcare centre building from the debtor GUP under the economic control of another unitary enterprise.
11. In 2012 a supervision procedure was put in place, and since 2013 insolvency proceedings have been pending in respect of the debtor GUP. By that time, the aggregate amount of the GUP’s debt towards its creditors was approximately RUB 2,341 million (including RUB 1,946 million towards the third-line creditors), whilst the aggregate balance-sheet value of its assets was RUB 2.48 million. The applicant companies’ claims were included in the third and fourth lines of the creditors’ claims. According to an undated extract from the GUP’s financial analysis, by 2012 the debtor GUP had had no assets unencumbered by liabilities; for years it had been accumulating debts with no attempt to settle them; and its loss of solvability had been to an important extent caused by its dependence on budgetary funding.
12. Throughout the proceedings insolvency managers on several occasions informed the creditors that the debtor GUP had lacked assets to meet their claims. In 2017 a commercial court granted the GUP’s insolvency manager’s request in unrelated proceedings to adjourn payment of a court fee in the amount of RUB 3,000, as the debtor company lacked funds on its current account.
13. The debtor GUP sued the republican authorities for arrears in payment for the works performed. In 2016 its claims were rejected by courts, as lodged outside the limitation period.
14. The first applicant company brought subsidiary liability proceedings against the owner of the debtor GUP’s assets. The claims were rejected as belated, and as the claimant had failed to demonstrate that the insolvency had been caused by the authorities’ actions.
15. On 27 April 2016 the Supreme Court of Russia rejected the first applicant company’s claim for damages against the bailiffs, as the defects identified by the prosecutor’s office had been made good, had not resulted in a loss of assets, and therefore a causal link between the bailiffs’ actions and the losses claimed had not been established.
16. On 22 November 2021 a first-instance court discontinued the insolvency proceedings, as the insolvency manager had resigned and a new one had not been appointed for more than six months.
17. The applicant companies complained under Article 6 § 1 of the Convention and Article 1 of Protocol No. 1 thereto about the non‑enforcement of the judgments by the debtor company and about the State’s failure to assist the applicants in obtaining execution of the awards.
THE COURT’S ASSESSMENT
18. Having regard to the similar subject matter of the applications, the Court finds it appropriate to examine them jointly in a single judgment.
19. In so far as the Government argued that the debtor GUP had not been liquidated and the debts could be recovered directly from it, the Court notes that in November 2021 the first-instance court discontinued the insolvency proceedings in respect of the GUP (see paragraph 16 above). In any event, for several years to date the debtor GUP apparently had no longer performed its statutory tasks and, as confirmed in 2012-2021 by both the authorities and the insolvency management, has not been able to meet its creditors’ claims, including the applicants’ ones (see paragraphs 11-12 above). There is nothing to suggest that by December 2021 (date of the applicant companies’ latest submissions), eight years after the beginning of the liquidation proceedings, there had been any prospect of successful enforcement of the judicial awards in the applicant companies’ favour. Accordingly, there is no reason to depart from the Court’s settled approach to the State responsibility for the debts of unitary enterprises on the ground that the company has not been formally liquidated (see, for a similar approach, Gobayev v. Russia [Committee], no. 48978/11, §§ 55-60, 15 October 2019, and contrast to Zhdanov and Others v. Russia (dec.) [Committee], nos. 48028/07 and 15 others, §§ 63-64, 28 June 2016).
20. In so far as the Government argued that the GUP’s debts were not attributable to the State, the Court rejected a similar objection in Liseytseva and Maslov (cited above, §§ 204-19). The debtor GUP had strategic importance for the region, and its specific task was to perform works of vital importance to the local population, aimed at meeting urgent needs of the town’s residents. The works were financed by the State within major recovery projects (see paragraphs 3-4 and 8 above). The debtor GUP was placed under the strict control of the authorities who owned its assets and, moreover, disposed of them as they saw fit: in 2007, when the FGUP (the debtor GUP’s predecessor) had already accumulated an important debt towards its creditors, the State transferred the entirety of the company’s assets to the ownership of the Chechen Republic (see paragraph 6 above); the republican authorities further decided on the GUP’s re-organisation and transferred some of its assets to a different company (see paragraph 10 above). Furthermore, the authorities accumulated a considerable debt towards the debtor GUP (see paragraphs 6 and 11 above), thus apparently triggering the debtor company’s difficult financial situation.
21. These considerations are sufficient for the Court to conclude that the debtor GUP did not enjoy sufficient institutional and operational independence from the authorities at the time of the events (see R. Kačapor and Others v. Serbia, nos. 2269/06 and 5 others, §§ 98-99, 15 January 2008). Accordingly, the Government’s objection is to be dismissed, and the State is to be held responsible under the Convention for the debts owed by the debtor GUP to the applicant companies.
22. Furthermore, the complaint is not manifestly ill-founded or inadmissible on any other grounds. It must therefore be declared admissible.
23. It is not in dispute that the final judgments in the applicant companies’ favour have remained unenforced for more than ten years to date. By failing to comply with the judicial orders the authorities deprived the final judgments in the applicants’ favour of their useful effect and prevented the applicant companies from receiving the money they could reasonably have expected to receive (see Liseytseva and Maslov, cited above, §§ 208-24).
24. There has accordingly been a violation of Article 6 of the Convention and Article 1 of Protocol No. 1 thereto on account of the non-enforcement of the final judgments in the applicant companies’ favour.
25. Application no. 30108/13 was communicated to the Government under Article 13 of the Convention. The Court finds that the complaint is admissible but considers that there is no need to give a separate ruling on it (see, among others, Belev and Others v. Bulgaria, nos. 16354/02 and 40 others, § 100, 2 April 2009).
APPLICATION OF ARTICLE 41 OF THE CONVENTION
26. The applicant companies claimed the amounts specified in the Appendix in respect of pecuniary damage, and 7,000 euros (EUR) each in respect of non-pecuniary damage.
27. The Government argued that the debts could still be recovered from the debtor GUP, and assessed the claims in respect of the non-pecuniary damage as unfounded.
28. As regards the pecuniary damage, the most appropriate form of redress is to ensure that the applicant as far as possible is put in the position in which he would have been had the requirements of Article 6 not been disregarded (see Poznakhirina v. Russia, no. 25964/02, § 33, 24 February 2005). In the present case this principle also applies. Accordingly, and given the Court’s findings in paragraph 19 above, the Government should pay the applicant companies the equivalent in euros of the unpaid judgment debts under the initial judgments in their favour, as converted into euros at the date of submission of the relevant claims to the Court. Further, as regards the claims submitted in case no. 34336/10, the adequacy of the compensation would be diminished if it were to be paid without reference to various circumstances liable to reduce its value, such as an extended delay in enforcement (see, mutatis mutandis, Gizzatova v. Russia, no. 5124/03, § 28, 13 January 2005, and Kuzhelev and Others v. Russia, nos. 64098/09 and 6 others, §§ 149-50, 15 October 2019). The Government have not disputed either the amount claimed, or the method of calculating the losses chosen by the applicant company, or the period concerned. The Court sees no reason to disagree with the applicant company’s calculations. The Court awards the applicant companies the amounts specified in the Appendix, plus any tax that may be chargeable, in respect of pecuniary damage, less any amounts which may have already been paid in that regard at the domestic level (see, in so far as relevant, Stošić v. Serbia, no. 64931/10, § 65, 1 October 2013). The Court rejects the remainder of the claims submitted by the second applicant company under this head.
29. Further, having regard to its settled case‑law (see Voronkov v. Russia, no. 39678/03, §§ 68-69, 30 July 2015), the Court awards each applicant company EUR 2,000, plus any tax that may be chargeable, in respect of non‑pecuniary damage, and dismisses the remainder of the claims under this head.
30. As the applicant companies have not submitted claims in respect of costs and expenses, no award is to be made under this head.
31. The Court further 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. Decides to join the applications;
2. Declares the applications admissible;
3. Holds that there has been a violation of Article 6 of the Convention and Article 1 of Protocol No. 1 to the Convention in both cases;
4. Holds that there is no need to examine the merits of the complaint under Article 13 of the Convention in case no. 30108/13;
5. Holds
(a) that the respondent State is to pay the applicants, within three months, the following amounts, to be converted into the currency of the respondent State at the rate applicable at the date of settlement:
(i) the amounts specified in the Appendix, in respect of pecuniary damage;
(ii) EUR 2,000 (two thousand euros) to each of the applicant companies, plus any tax that may be chargeable, in respect of non‑pecuniary damage;
(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;
6. Dismisses the remainder of the applicant companies’ claims for just satisfaction.
Done in English, and notified in writing on 8 March 2022, pursuant to Rule 77 §§ 2 and 3 of the Rules of Court.
Olga Chernishova María Elósegui
Deputy Registrar President
___________
APPENDIX
| No. | Application no.
Lodged on |
Applicant company Registered office in Incorporated as |
Domestic judgment
Date Final on Court
|
Amounts awarded by the domestic courts, in Russian roubles (RUB) | Claims in respect of pecuniary damage as submitted by the applicant companies | The Court’s award
in respect of pecuniary damage in euros (EUR) |
| 1. | 34336/10
22/05/2010 |
OOO PKF “TRUZHENIK – 89”
(OOO Proizvodstvenno-Kommercheskaya Firma “Truzhenik-89”) |
03/11/2009
03/12/2009 Commercial Court of the Chechen Republic |
RUB 21,570,444 | RUB 40,319,473,
representing the domestic award, as adjusted by applying the consumer price index for the period between November 2009 and July 2017. Detailed calculation and certificates in respect of the consumer price index in the Chechen Republic for the impugned period submitted. |
EUR 589,395, less any amounts which may have already been paid in that regard at the domestic level |
| 2. | 30108/13
14/04/2013 |
OOO FIRMA “MOAZ” Grozny Incorporated under Russian law as a limited liability company |
07/09/2009
08/12/2009 Commercial Court of Moscow |
RUB 13,949,974 | EUR 316,941,
representing the domestic award as converted into euros at the rate applicable on the date of the domestic judgment |
EUR 196,813, less any amounts which may have already been paid in that regard at the domestic level |
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