ECHR strengthens European companies’ bargain power in relations with small third-world companies, Granos organicos nacionales, 19508/07

Small Peruvian company Granos organicos nationales SA exporting bananas tried to sue 2 German import companies for a breach of contract. The third-world company and its shareholders were insolvent, and applied for legal aid (§ 8). The German Courts refused to provide the aid, since the company was not from the European Economic Area (§ 9), and the ECHR found this grounded.

The Peruvian banana company argued that there is no restriction for foreign companies to profit from legal aid in Peru. In Germany, in addition to the court fees, the Peruvian company has to pay guarantee for legal costs of € 90 020 to each of the two defendant European companies, and cover its own legal costs (§ 40). The denial of legal aid would, therefore, lead the third-world counterparts into bankruptcy (§ 35). There is no precise Peruvian case law however, since issuing a civil claim costs only € 120 in Peru, which is not a problem even for an insolvent European company (§ 42). Moreover, there is no defendant’s legal costs guarantee rule in Peru.

The ECHR held that Germany doesn’t have an obligation to provide legal aid to insolvent Peruvian companies, since the Peruvian company is unable to show case law proving the right of European companies to legal aid in Peru. Therefore there is no reciprocity, and the German restriction is proportional (§ 49).

ECJ upholds freezing of the Melli Bank funds, C-380/09 P

On 03/03/2008 the United Nations Security Council issued Resolution 1803 (2008) calling on “all States to exercise vigilance over [...] Bank Melli [...] in order to avoid such activities contributing to the proliferation sensitive nuclear activities, or to the development of nuclear weapon delivery systems” (§ 17). On 23/06/2008, under Common Position 2008/479/CFSP the EU Council froze the Melli Bank plc funds. The latter is owned by the Melli Bank Iran (بانک ملی ایران‎) that is owned by the Iranian Government (§ 19).

The Melli Bank raised a number of points of law before the EU General Court and, on appeal C-380/09 P, before the ECJ:

1. The Melli Bank maintained that the grammatical structure of legal acts requires giving specific and individualized reasons for freezing its funds (§§ 34-35). The UK based Melli Bank did not participate in nuclear proliferation. The ECJ replied that the fact that the EU Council has the discretion as to by whom the entity is “owned” does not mean that the EU Council also has discretion to assess whether that entity plays a part in nuclear proliferation (§ 42).
2. The Melli Bank pointed that the UN Resolution calls to “exercise vigilance” and not “freeying of funds”. Thus, the EU measure is disproportional (§ 47). The ECJ replied that the UN and the EU are “distinct legal orders” (§ 54), and that the EU freezing serves the “terms and objectives” of the UN vigilance (§ 55). Finally, it cannot be inferred from the UN Resolution that there is no need to freeze the funds (§ 57).
3. The Bank proposed that the proportional measures could be of prior authorization and supervision by an independent agent and of total prohibition of transactions with Iran. The ECJ replied that this argument was mentioned for the first time at the hearing, and therefore could not be taken into consideration (§ 59).
4. According to the Melli Bank the EU General Court changed the burden of proof by requiring the Bank to demonstrate that measures alternative to freezing would be entirely effective (§ 47). The judges reply that a “lack of evidence” does not fall to be reviewed by the ECJ (§ 59).
5. The Melli Bank argues that the competition law entitles it to make submissions to the EU institutions while consideration of the measures (§ 67), that freezing of funds is comparable to criminal penalty, and therefore there is a breach of the presumption of innocence (§ 69). The ECJ interprets that the fact of being “owned” by Iran is a sufficient ground, and it is not “necessary to carry out further review”.

ECHR: Interim measure of providing adequate medical treatment, Tymoshenko v Ukraine

Last week (15/03/2012) the European Court of Human Rights decided to indicate interim measures to the Ukrainian Government under Article 39 of the Convention in case Tymoshenko, 49872/11. The Court ordered to provide adequate medical treatment to twice former Ukrainian Prime Minister Yulia Tymoshenko. The facts of indicating interim measures and giving this case priority clearly before a formal exhaution of domestic remedies show the successful perspective of the application.

Twice former Prime Minister was in perfect health until arrest on 05/08/2011. On 15/08/2011 she fell ill. In October Tymoshenko lost capacity of walking. According to her defense, she was poisonned.

The charismatic female Prime Minister was found guilty in an illegal order for the signing of a contract concerning gas imports from Russia in 2009 that produced a damage of $ 189.5 million to the State company Naftogaz, and imprisonned for 7 years with a 3 year ban on holding public office by the Kiev Appellate Court on 23/12/2011. The defence of Tymoshenko maintains that the judicial attack was provoked by elimination of the intermediary Swiss company RosUkrEnergo from the Ukrainian-Russian gaz agreements.

In observing the legal strategy of Yulia Tymoshenko, one may observe however a number of mistakes similar to the case of Khodorkovsky.

EU General Court: a “private investor” may accept loss

I like finding patterns of “private investor” behavior in State aid cases. This mythical creature remains unpredictable, and therefore every example of her character is extremely interesting. The EU General Court adjudicated on 02/03/2012 that in certain circumstances a State acting as a “private investor” in State aid matters can accept loss, and annulled the respective provisions of the Commission’s Decision.

The Dutch Government decided to back the ING Bank during the global financial crisis in 2008. The Government subscribed to ING securities for € 10 billion, provided guarantees for ING liabilities amounting to € 11 billion, and took other measures (§ 8). The European Commission authorized the aid, however then the ING and the Netherlands amended the terms of repayment making it more favorable for the Bank.

The Commission insisted that the new repayment conditions meant a loss between € 1.5 and 1.9 billion for the State (§ 84). The EU General Court’s answer is that the Dutch Government behaved as a “private investor”, since (§ 125):

1. The new conditions allowed the Government to be repaid earlier.
2. When the amendment occurred it obtained a greater certainty of being repaid in a “satisfactory manner”.

ECHR: inadequate protection from natural disasters breaches property rights, Kolyadenko et al., 17423/05

There was a flood in August 2001 in the Vladivostok City, Russian coast of the Sea of Japan. The level of water reached 1.20 – 1.50 meters. The ECHR held the Russian Government responsible for the violation of the property rights, and of the right to home (Аrticle 8 of the Convention) due to the destruction of houses by the flood. Failure to maintain the channel of the Pionerskaya River in a proper state of repair by public authorities influenced the damage of property (§ 213).

The Government maintained that there was no evidence that the damage to the homes and possessions could have been avoided if the channel had been cleaned up, and that it was a natural disaster in the form of exceptionally heavy rain (§ 206). The European Court took a report of the Vladivostok Administration dated 04 07 2001 as a proof of State's guilt (§ 21).

EU General Court: a divestment of subsidiary does not automatically justify State aid, T-115/09, Electrolux v Commission

The EU General Court annulled the Decision 2009/484/EC of the European Commission authorizing France to provide State aid of € 31 million to Fagor France SA operating at the electrical household appliance market. Competitors Electrolux AB and Whirlpool Europe BV sued the Commission.

Both France and the Commission agreed that it is a restructuring aid, which is necessary to avoid undue distortions of competition in the sense of points 38-40 of the Guidelines on State aid for rescuing and restructuring firms in difficulty (§ 44). Fagor France SA divested its subsidiary Brandt Components to the Austrian group ATB for € 2-5 million, lost a part of the washing machine components market, and needed an aid. Brandt Components represented turnover of € 25-45 million or 2-5 % of Fagor France turnover in 2003, and employed 250-500 employees of 5-10 % of mother company’s workforce (§ 47).

The EU General Court held that the divestment does not justify the State aid, since:

1. It took place 2,5 years before the restructuring (§ 51).
2. The Commission herself mentioned once that the sale of Brandt Components did not have a “real effect” on the washing machine market (§ 53).
3. The fact that the sale was neither a write-off nor a closure does not mean that this divestment could be considered as a compensatory measure for the restructuring aid (§ 54).

The Commission’s Decision was annulled as a manifest error of assessment (§ 5).

UN HRC moves towards annulment of the citizenship requirement for property restitution, Klein, 1847/2008

No doubt, this is the most common kind of property litigations in Eastern Europe. On 08/12/2011 the UN Human Rights Committee found a violation of Article 26 (non-discrimination) of the Covenant of Civil and Political Rights by the Czech Republic, since they had forbade foreign citizens restitution of their property lost during the Soviet era. Miroslav and Eva Klain lost their Czechoslovak citizenship in 1978 due to the naturalisation in the USA. Their Czech property was confiscated but could be restituted on the condition of obtaining the Czech nationality.


The Czech Government argued that citizenship is a "reasonable and objective" criterion (§ 4.4) but the judges replied that it is "arbitrary and discriminatory", because individuals who are equally victims of prior State confiscations find themselves in completely different situations on the mere ground of the passport.

The case is also important, since the Committee has explained (§ 7.6) that the judicial deadline to file a communication is 5 years after the final internal instance, or 3 years after another mechanism of international settlement (where applicable).

ECHR lowers the private life protection standard, von Hannover v Germany (no.2), 40660/08

On 07/02/2012 Her Royal Highness Princess Caroline von Hannover, Hereditary Princess of Monaco, and her husband lost proceedings against paparazzi before the European Court of Human Rights. The issue was raised by publishing photos of the Princess from her private skiing holiday at the resort of St. Moritz.

The most interesting for me in this case is the lowering of the private life standard. If previously the paparazzi would have to prove that the published photos “contribute to a debate of general interest”. This time we see a new wording: “contribute, at least to some degree, to a debate of general interest” (§ 118). Do you see the difference? In practical terms it means that, since the respective German press article suggested that Prince Rainier of Monaco was ill but his daughter Princess Caroline did not care about him enough and went on holidays, it “contributed, at least to some degree, to a debate of general interest”. Thus, according to the ECHR, the photos were not published for the entertainment purposes.

The Princess pointed that she did not exercise any political or official function, and therefore her private life should enjoy protection (§ 85). This was an argument leading to success in her previous case von Hannover (no.1). However this time the judges regarded her and her husband as “public figures” (§ 120).

The Princess argued that such a judgment would make the paparazzi free to abuse the notion of “general interest”, but the judges replied that they do not really care about future possibilities. Basically, let’s think about future in the future – they wrote (§ 119).

From the legal strategy perspective, the paparazzi performed well in mobilizing 5 NGOs for filing their observations (§§ 90, 92-93), which with no doubt had an influence on the judges.

The real sense of VIAGRA, T-332/10

On 25/01/2012 Pfizer Inc. from New York owning trademark VIAGRA won the case against Polish company VIAGUARA SA who tried to register its name as a community trademark for drinks.

The EU General Court held that trademarks VIAGRA and VIAGUARA have "strong similarity" (§ 42). The Polish company argued that there is a huge difference between the pharmaceutical product for stimulation of erection (class 5) and drinks (classes 32 and 33) - they are in different classes, and Pfizer Inc. never tried to move to the class of drinks (§§ 44-45).

The judges replied that the "association" between the trademarks remains "possible", since VIAGRA has a huge recognition that extends the limits of the public interested in pharmaceutical erection (§ 52). Thus the real sense of VIAGRA may cover the class of drinks.

ECJ bans patents on transplantation of embryo cells, Brüstle, C-34/10

Professor Olivier Brüstle got the German patent related to neural precursor cells and the processes for their production from embryonic stem cells for therapeutic purposes, but was attacked by Greenpeace and finally lost proceedings before the Grand Chamber of the ECJ.

Professor Brüstle tried to argue that, in fact, he does not work with “embryo”, but the ECJ replied that “embryo” is an autonomous concept of the EU law and gave it the widest sense possible – thus, covering any human ovum after fertilisation, any non-fertilised human ovum into which the cell nucleus from a mature human cell has been transplanted and any non-fertilised human ovum whose division and further development have been stimulated by parthenogenesis (§§ 26, 38).

Professor Brüstle then argued that he does not use embryos for “industrial or commercial purposes” but for “purposes of scientific research” only. The ECJ replied that the word “patent” implies its industrial or commercial application (§§ 41-42). Therefore, according to the Grand Chamber, “industrial or commercial purposes” cover “scientific” ones (§ 46).

Thus, the transplantation of embryo cells became unpatentable.

ECtHR: contradictions between judgments of 2 national supreme courts must be tolerated, Şahin v Turkey, 13279/05

On 16/05/2011, a Turkish military plane crashed on return from an anti-terrorist operation in Iraq (§ 10). Families of 14 victims addressed the Ankara Administrative Court/Turkish Administrative Court and got pensions due to the death of relatives during an anti-terrorist operation (§ 64). However the Şahin family appeared before the 4th Chamber of the Ankara Administrative Court that found that the case shall be forwarded to the Turkish Supreme Military Administrative Court. The latter concluded that this was not a death during an anti-terrorist operation (§ 65). Yesterday, on 20/10/2011, the Grand Chamber of the ECtHR found on appeal that this case law contradiction must be tolerated, that it does not violate the right to fair trial.

The Şahin family tried to argue that this contradiction violates the principle of the consistency of the law, and the principle of legal certainty (§§ 40-41). The 10 v 7 ECtHR majority replied that this conflict of the Turkish Administrative Court and the Military Administrative Court must be tolerated, that it does not undermine legal certainty, that the principle of good administration of justice cannot impose a strict requirement of case law consistency, that one must respect the autonomy and independence of the 2 Turkish Courts, that it is not the ECtHR role to intervene simply due to a conflict of judgments (§§ 83-84, 88).

The minority of 7 judges held that the conflict of judgments gives an impression of “arbitrariness”, that this is contrary to the legal certainty, that consistency is necessary to preserve public confidence in the administration of justice (§§ 3-4, 6 of the dissenting opinion).

I like this kind of cases because it shows the extent of unknowability we live in, and supports the general Critical Legal Studies perspective on indeterminacy of law in slightly more complex cases.

ECJ: contractual clause prohibiting Internet trade is illegal, Pierre Fabre, C-439/09

Pierre Fabre Dermo-Cosmétique SAS manufactures and markets cosmetics and personal care products under brands Avène, Galénic, Ducray and Klorane. Their general contractual clause imposed an obligation on distributors was that the products have to be sold in a “physical space” in the presence of a person with a diploma in pharmacy, which de facto excluded internet trade (§§ 13-14).

Pierre Fabre tried to justify the clause with an intention to provide a personalized advice in order to ensure “cosmetovigilance” (§§ 17, 25), avoiding the risks of counterfeiting and free-riding between authorized pharmacies (§ 23), need to maintain the prestigious image of the products (§ 45). The French Competition Authority decided that the real aim of the clause is to prevent selling the goods to non-authorised distributors, to reduce considerably the ability of an authorized distributor to sell the contractual products to consumers outside its contractual territory, and to restrict competition (§§ 19, 38). Pierre Fabre got a fine of € 17 000.

The ECJ adjudicated that the reasons given by Pierre Fabre did not have a legitimate aim for restricting competition (§§ 44, 46).

ECtHR supports squatters, Rhino v Switzerland, 48848/07

About 100 squatters (mostly art students) occupied 3 buildings in the center of Geneva in 1988, and established the squat association “Rhino” (acronym for “Retour des habitants dans les immeubles non occupés” or “Return of inhabitants to non occupied buildings” in English). On 10/05/2007 the Swiss Federal Tribunal prohibited the association due its “illegal aims”, i.e. “subtract the buildings that they occupy from the market and speculation” (§ 45), and on 23/07/2007 police expelled the squatters (§ 28). However on 11/10/2011 the European Court of Human Rights adjudicated that the liquidation of the squatters association violated the freedom of association (Article 11 of the Convention).

The Swiss Government argued that the liquidation of the squatters association was necessary, since they had illegal aims and were implementing those aims with illegal actions (occupying buildings). It was necessary to forbid the association in order to re-establish the rights of the owners of the buildings. The ECtHR replied that there is no link between the protection of property rights and the liquidation of the association (§ 63).

The Court dismissed the argument that the dissolution was necessary in order to preserve public order (§ 64). Chairwoman of the squat association M. Kerchenbaum, secretary M. Pier and treasurer O. Connolly were awarded € 65 651 for pecuniary damage and € 21 949 to cover the lawyers.

Wikileaks proves that MEP Uspaskich is persecuted for political reasons

The European Parliament never saw such a striking case of political persecution as that of Viktor Uspaskich, Member of the EP, Chairman of the Lithuanian Labour Party. His political party was accused of non-payment of certain taxes, and last year the European Parliament waived his immunity. However the question is now re-opened due to the disclosure of secret notes of the US Embassy in Vilnius by Wikileaks:

1. It is stated in the 1st secret document that the State Secretary of the Lithuanian Government told to USA diplomats that it was the Government who “engineered the departure” (or expel) of Mr Uspaskich from Lithuania. It also follows that he also confessed that the real reason of the attack by the State was quite different from the formal one: the suspicion of Ministers that he might be related to Russian secret services. However there is no even a single proof of such a relationship. Therefore, he is formally accused of something else. As a Lithuanian, I would add that we, Lithuanians, have a general cultural-historic tradition to accuse Russians of all possible problems.
2. The 2nd secret document discloses that the Defense Minister of Lithuania told to the US Ambassador that the aim of the Governing Political Party was to remove the opposition leader Uspaskich from the post of head of the Labour Party and to put there someone else. By the way, the 2nd and 3rd Chairmen of the Party signed the final fiscal declarations for 2004 and 2005. Uspaskich (1st chronological Chairman) did not sign them. However nor the 2nd, neither the 3rd leader of the Party are even suspected of anything. Doesn’t it go in line with this secret document?

The scope and danger of this political persecution is much wider than any of the persecutions in cases Blumenfeld, 1-123/84, Amadei, A2-0034/86, Gaibisso, A2-0101/86, Valenzi, A2-0220/86 and A2-0221/86, Herklotz, 1-321/81, Marciani, A5-0422/03, or Brok, A7-0047/2011. The Committee of Legal Affaires of the European Parliament will consider this issue on Monday.

ECHR: Standard of “increased prudence” in a retrospective application of criminal law, Soros v France, 50425/06

Today George Soros lost his case in Strasbourg. In 1998 his investment fund Quantum Fund acquired 160 000 shares of the French bank Société Générale, and sold them several days later. This looked as a participation in a takeover attempt. The operation brought the profit of $ 2.28 million ($ 1.1 million at the French market, §§ 10-11). However in 2007 the Paris Appellate Court convicted Soros of buying shares based on insider information (Mr. P), and imposed a fine of € 940 507.22 (§ 30).

George Soros argued before the European Court of Human Rights that the French judgment had violated Article 7 of the Convention (nulla poena sine lege). The classic understanding of “insider trading” was that it is a use of “privileged information” by a person employed by the respective company or otherwise contractually related (§ 54). Does this conception cover Mr. Soros? The report of the French Commission of Stock Exchange Operations stated that it had been impossible to appraise whether the French law had forbade this kind of operations at the respective time (§ 14). However later the French law was amended in a manner making that operation clearly illegal.

The ECHR majority (4 versus 3) ruled on introduction of additional tests.

1. The 4 judges stated that he had “to doubt” about that operation, since previously the French first instance tribunals had ruled that an insider employed by a company could not use privileged information for such a personal benefit (§§ 56-58). Note: this question never went to appeal or cassation stage.
2. They qualified George Soros as “institutional investor”, and since he was this kind of person, he had to bring a “proof of increased prudence” (§ 59).

The minority opinion of 3 judges insists that the criminal law interpretation must be strict. The very fact that after the operation the French Government had to amend the written law shows that it was not precise at the respective time. The minority underlines the difference between “unavoidable imprecision” and “avoidable imprecision” of criminal law, and proposes to use this as a judiciary test.

Competition law policy of the ECHR

ECHR adjudicated that the competition law must be assimilated with the criminal law for the purposes of the European Convention of Human Rights in case A. Menarini Diagnostics SRL v Italy, 43509/08, § 44. This Florence company was subjected to a fine of € 6 million by the Italian competition authorities for a participation in a cartel fixing prices and dividing the market of tests for diagnosis of diabetes.

A. Menarini Diagnostics insisted on violation of the right to court, i.e. the right to a full review of the competition authority decision: as the Administrative Tribunal of Latium had recognized, the judicial control of competition cases is “weak”, “it is prohibited to the judge to exercise an in-depth control”, the judge cannot substitute its appraisal to that of the competition authority, the judge can only apply the legal norms identified by the competition authority, cannot modify the elements of the investigation and the very decision. The judicial control is limited to the verification of legality, of the logic and coherence of the decision (§ 52).

Nonetheless, the ECHR considers that the Italian Courts have a full jurisdiction in competition cases, since they can examine the elements of proof, verify whether the administration used the powers in an appropriate manner (§ 63), verify the reasonableness and proportionality of the choices within a decision, verify the technical things (§ 64), and change the sanction (§ 65).

ECHR: company tax litigation is a criminal and property case

Moldovan company Agurdino SRL producing chemical products was ordered to pay Value-Added Tax of € 126 000, and a fine of € 101 000. The Moldovan Supreme Court of Justice found in favour of the company, since it was operating in the Expo-Business- Chişinău Free Economic Zone, and therefore hadn’t been obliged to pay VAT (§§ 6-7). However then the Moldovan Parliament adopted an Act on Interpretation of the Act on the Free Economic Zone (§ 8). On the basis of this Act, the Supreme Court of Justice re-opened the case and ordered the Agurdino SRL to pay the money (§ 11).

Since the fine of € 101 000 has the purpose to deter re-offending rather than merely imposing a pecuniary compensation, the tax litigation must be qualified as “criminal” (§ 23). The money that could be kept after the first Supreme Court of Justice judgment is covered with the category of “possession” (§ 40).

The ECHR qualified re-opening the file after issuing a legislative interpretation as “appeal in disguise” violating the principle of legal certainty and property rights.

ECJ: in the absence of “complementary elements”, controlling 98 % of shares does not presume liability of the mother company, Elf Aquitaine, C-521/09 P

The ECJ annulled the decision of the European Commission ordering mother company Elf Aquitaine SA to pay the fine of € 45 million jointly with its daughter company Arkema SA for a participation in cartel AMCA at the monochloroacetic acid market. The EU General Court held the mother company liable due to the fact that it controls 98 % of the daughter’s shares (§ 158). The ECJ set aside this judgment and dismissed the conclusions of its own Attorney General.

Elf Aquitaine argued that she is a “pure holding” without operational functions, the daughter company never got any instructions from the mother company, the daughter company did not inform the mother company, the daughter company was financially autonomous and could act without any authorization, and the daughter company was perceived as autonomous by the third parties (§ 160).

The ECJ adjudicated that the right to motivation required the European Commission to bring “complementary elements” showing an interference of the mother company into the commercial behavior of the daughter company.

EU General Court: USSR coat of arms may not be registered as a trademark, Couture Tech Ltd., T-232/10

UK company Couture Tech Ltd. tried to register Soviet coat of arms as a trademark. The EU General Court refused because this symbol is prohibited in Hungary, Latvia and Czech Republic, and therefore is contrary to public policy and morality (§ 60).

Couture Tech argued that, unlike the swastika, the political connotation of the USSR coat of arms has been diffused and transformed into a provocative one, connected with the concept of the avant-garde, so that the trademark applied for had acquired “a new distinctiveness” (§ 46).

The EU General Court replied that it is still perceived as a political symbol (§ 64).

“Incontrovertible and direct proof” standard prevents oil company YUKOS from getting the desired victory, YUKOS, 14902/04

Russian oil company YUKOS led by businessman and politician Mikhail Khodorkovsky bankrupted in 2007 due to the fiscal debt of € 16 billion for 2000-2003. The Parliamentary Assembly of the Council of Europe fully supported YUKOS and declared this persecution political. However on 20/09/2011 YUKOS failed to prove the same before the European Court of Human Rights.

YUKOS argued that the circumstances of the tax assessment and enforcement, the prosecution of Mr Khodorkovsky and other owners and officials of the company, as well as the statements of the highest State officials show the intention of the Russian Government to destroy the company and to take control of its assets (Article 18 of the Convention, § 661).

The ECHR recognized a violation in the speed with which the Russian courts had conducted the tax assessment for 2000, and in defining the penalties. However the position of YUKOS concerning Article 18 was destroyed in 2 steps:

1. Article 18 (principle prohibiting application of restrictive measures for purposes other than the public ones) is applicable only where the restrictions are permitted under the Convention. In this manner the Court cut off the violations where the restrictions had not been permitted.
2. The Court applied the “incontrovertible and direct proof” standard. The statement of the highest State officials do not meet this standard – especially taken in their respective context – for the purpose of proving that the aim of Russian authorities was to destroy the company for political reasons (§ 665).

This result was foreseeable after the judgment in case Khodorkovsky. The same YUKOS arguments could have more chances under the classic Article 6(1) on fair and impartial trial.