CEDH · CASELAW;CLIN;ENG — 7 juillet 2020

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Hungary [GC] - 5294/14 Judgment 7.7.2020 [GC] Article 34 Victim Impact on individual shareholders of legislation putting banks under central supervising authorities and resulting in significant loss of their operational autonomy: inadmissible Facts – The applicants were two hundred and thirty seven individual shareholders in two savings banks. Collectively they held 98% of shares in one bank and around 88% in the other. They complained that the Integration Act of 2013 had breached Article   1 of Protocol No.   1 by excessively restricting their rights to influence the operation of the said banks, in particular, the rights to establish and amend a memorandum of association, adopt annual reports, appoint board members and determine share capital or payment of dividends. Under the new legislation those issues had become subject to the approval of two central bodies which had initially been controlled by the State: the Integration Organisation of Cooperative Credit Institutions (hereinafter “the Integration Organisation”) and the Savings Bank. In a judgment of 29 January 2019, a Chamber of the Court held, by six votes to one, that due to the applicants not having pointed to any circumstances justifying the lifting of the corporate veil, they could not claim to be victims of the alleged violation and that there had been no violation of Article   1 of Protocol No.   1. On 24 June 2019 the case was referred to the Grand Chamber at the applicants’ request. Law – Article 34: When it came to cases brought by shareholders of a company, it was crucial to draw a distinction between complaints brought by shareholders about measures affecting their rights as shareholders and those about acts affecting companies, in which they held shares. In the former group, shareholders themselves might be considered victims within the meaning of Article   34. In such cases the difference between the rights of the company and the rights of the shareholders was maintained and the company’s legal personality remained intact, as the complaints and the Court’s substantive analysis concerned the rights and the situation of the company’s shareholders and not those of the company. In the latter group the general principle was that shareholders of companies could not be seen as victims, within the meaning of Article   34, of acts and measures affecting their companies. That principle might be justifiably qualified in two kinds of situations, firstly, where the company and its shareholders were so closely identified with each other that it was artificial to distinguish between the two and, secondly, if it was warranted by “exceptional circumstances” precluding the affected companies from bringing the cases to the Court on their own behalf. (a)     Distinction between acts and measures affecting the company and acts affecting the rights of shareholders as such and whether the Integration Act and the Amendments had directly affected the applicants’ rights as shareholders as such The mere loss of value of shares was not the only decisive factor when determining what constituted an act “aimed at the rights of the shareholder as such”. The Court had to consider whether the likely effects of the measure in question concerned not only the applicant’s interests in the company but had also been directly decisive for his or her individual rights. In a number of cases where the measure complained of by an applicant shareholder had directly and adversely affected legal rights covered by such share(s) or the ability to exercise such rights, the Convention institutions had recognised the applicant’s victim status implicitly by accepting the case for examination without entering into a detailed discussion. The Court had been prepared to find an interference with the enjoyment of possessions where the impugned measures had directly and adversely affected the applicants’ ownership of their shares or their freedom to dispose of their shares, or obliged the applicant to sell his shares, or where the measures had decreased their power to influence the company vis-à-vis other shareholders, or to act as the company’s manager, or to vote. Those decisions were consistent with and could be viewed as illustrations of the general principles set out in the leading rulings in Agrotexim and Others v. Greece and Olczak v. Poland , notably of measures directed or aimed at the applicant’s rights as a shareholder, to be distinguished from the infringements of the company’s right to the peaceful enjoyment of its possessions. Having had regard to the reasoning in those leading rulings and also taking due account of its case-law, the Court observed that acts affecting the rights of the shareholders were distinct from measures or proceedings affecting the company in that both the nature of such acts and their alleged effect impacted the shareholders’ legal rights both directly and personally and went beyond merely disturbing their interests in the company by upsetting their position in the company’s governance structure. The Integration Act adopted in 2013 had made the two banks ipso jure members of the new State-sponsored integration scheme and they had been faced with a choice between either remaining members of the Integration Organisation or leaving it. The choice of leaving implied the need to re-apply for a new banking licence and also, among other things, the requirement to raise the banks’ own capital, whereas the option of remaining as a member required the banks to agree to a significant loss of their operational autonomy. Given the consequences for non-compliance with the requirements of the Integration Act, the relevant provisions of the impugned legislation clearly had a coercive and involuntary character. The choice to remain had to be made by the competent bodies of the banks, i.e. the general meeting of their shareholders, which included most of the applicants, and the banks’ management. In the end both banks had agreed to remain members of the Integration Organisation and, as a result, had lost a significant amount of their operational autonomy. It was not in dispute that the Integration Act and its Amendments did not regulate directly, even on a temporary basis, any of the specific legal rights that the applicants as shareholders held under the applicable domestic law, or directly interfere with the exercise of those rights. Nor did it appear that the impugned legislation had had an adverse impact on the business of the two banks. The matters to which the applicants had referred as examples of restrictions of their rights were in fact powers which, under the applicable domestic law, belonged to and were exercised exclusively by the companies’ statutory bodies. Moreover, their exercise of those powers was subject to various procedural rules, including quorum and majority requirements. Thus, the reform had been aimed at, and indeed directly affected, the governing structures of the two banks, their respective general meetings of shareholders and their boards of directors. As a consequence, those bodies had permanently lost a significant degree of their powers in managing the banks in so far as such powers had been conferred to the Integration Organisation and the Savings Bank. As regards the powers of individual shareholders, each of them could exercise his or her rights in respect of the above-mentioned matters, notably by being involved in the decision-making process and voting. The applicants’ interests had thus also been affected by the reform. However, their individual shareholdings were of such size that each of them could not, in his or her capacity as a shareholder, control any of the banks. Given the number of shareholders that each of the two banks had, the number of shares owned by an average shareholder (0.015% in one bank and 0.016% in another) and the lack of any indication that at the relevant time the applicants as a group had been bound by a shareholder agreement or other means of consolidating their fragmented influence at general meetings of the two banks, the influence of a single shareholder over other shareholders at any given moment was on the whole weak. In those circumstances there was nothing to indicate that the applicants’ rights as individual shareholders had as such been aimed at or adversely affected by the impugned measures, which essentially related to corporate matters. It followed that, even though the reform had had a considerable impact at company level, its bearing on the situation of individual shareholders, whilst real, had nevertheless been incidental and indirect. The case could therefore be distinguished from cases where the relevant measures, such as the artificial dilution of a shareholder’s voting power or the outright cancellation of shares, had either directly affected the applicants’ legal rights or had direct and decisive effect on their exercise ( Olczak and Shesti Mai Engineering OOD and Others) . In those circumstances, the Court concluded that the acts complained of by the applicants had concerned principally the banks, and had not directly affected their shareholder rights as such. (b)     Whether the applicants as shareholders could be identified with their banks Although companies with a separate legal personality were not normally to be identified with their shareholders, in some of its previous cases the Court had accepted that there were situations where it would “serve no purpose to distinguish between the two” and had allowed the shareholders to proceed with their complaints about the proceedings or events affecting their companies. The reason for accepting victim status in such cases was that there had been no risk of differences of opinion among shareholders or between shareholders and a board of directors as to the reality of infringement of Convention rights or to the most appropriate way of reacting to such an infringement. That group had included cases brought by shareholders of small or family-owned or family-run companies or cooperatives, notably where a sole owner of a company had complained about the measures taken in respect of his or her company, or where all shareholders of a small cooperative had applied to the Court as applicants, or where one shareholder in a family-owned firm had lodged an application under the Convention, whilst the remaining shareholders at least had not objected to that. The two banks were not family-run or family-owned firms or otherwise closely-held entities, but rather public companies with limited liability, numerous shareholders and a fully delegated management. The applicants had argued that they owned “almost 100% of the shares” in the two banks. That being so, the exact percentage of shares that the applicants might have owned was not dispositive, as they did not “carry [out their] own business through the medium of the company [or have] a direct personal interest in the subject-matter of the complaint”. In those circumstances it could not be assumed that the company and its shareholders were so closely identified with each other that it would be artificial to distinguish between the two. (c)     Whether the case involved exceptional circumstances precluding the affected companies from bringing the cases to the Court on their own behalf The starting point was that when a company was run by its management, duly appointed by the company’s competent statutory bodies, the management had to bring the relevant complaints and such cases should be lodged in the company’s, and not the manager’s, name. In a number of cases lodged before it concerning companies in respect of which some degree of outside supervision or control had been imposed due to the company’s financial or other difficulties, the Court had decided the question of the shareholders’ victim status by examining in detail the alleged impediments to the company’s ability to institute proceedings under the Convention on its own. In some instances, the Court had agreed with the applicants’ arguments and acknowledged that the existence of “exceptional circumstances” had precluded the affected company from bringing the case and had allowed the shareholders to proceed with their complaint, notwithstanding the company’s existence with separate legal personality. In cases falling within that group, the mere existence of measures of outside supervision or control in respect of the company at issue was generally viewed as an important factor, but not the only one. As explained by the Court in Agrotexim and Others , the differences of opinion between various stakeholders of a company which were characteristic of “the life of a limited company” were exacerbated where insolvency or other similar types of proceedings (involving the transfer of control of the company’s matters to an outside official) were brought in respect of the company. Yet, even then “the piercing of the ‘corporate veil’ or the disregarding of a company’s legal personality would be justified only in exceptional circumstances, in particular where it was clearly established that it had been impossible for the company to apply to the Convention institutions through the organs set up under its articles of incorporation or – in the event of liquidation – through its liquidators”. As to what “circumstances” might be considered “exceptional”, in the cases where shareholders had been allowed to proceed with their complaints on behalf of the company the burden had been on them to demonstrate that an official who had been tasked with looking after the company’s interests at the relevant time, had been unable or unwilling to apply to domestic courts and the Strasbourg Court with the grievances at issue, that the Convention complaint had concerned a matter, such as the removal of a regular manager and the appointment of a trustee, in respect of which there had been a difference of opinion between the trustee and the shareholders, or various actions of the trustee affecting the interests of the shareholders. In each case, the matter had been such that its potential impact could have had a serious effect on the shareholders’ situation, either directly or indirectly. It was clear that, in order for applicants to satisfy the Court that their pursuit, as shareholders, of a matter affecting the company had been justified by “exceptional circumstances”, they had to give weighty and convincing reasons demonstrating that it had been practically or effectively impossible for the company to apply to the Convention institutions through the organs set up under its articles of association and that they should therefore be allowed to proceed with the complaint on the company’s behalf. In the applicants’ case the two banks had never been subjected to any insolvency or bankruptcy proceedings, and throughout the relevant time had remained operational and their regular management had remained in place. The applicants had collectively held considerable voting majorities in the general meetings of the two banks and could, if they had so wished, have directed the banks to bring legal proceedings on their behalf. It could not be said that the officials who had been tasked with looking after the two companies’ interests at the relevant time had been unable to apply to the Court with the grievances at issue. As to the further question whether the banks had been precluded from bringing their case on account of undue pressure from the authorities, the applicants had not made any specific allegations regarding either direct or implied threats to that effect. Instead, they had vaguely referred to “the high degree of State involvement in the integration”. The circumstances of the adoption and entry into force of the Integration Act suggested that the future member institutions might have felt some pressure to join the new integration. That was evident in that the legal compulsion to become members of the Integration Organisation had been combined with heavy financial and formal conditions and time constraints. In addition, as a result of the reform, the Integration Organisation had acquired a seemingly wide discretion over its members to impose sanctions, including very severe ones, such as exclusion of the members and withdrawal of licences. At the same time, any pressure to join the integration should not be taken to mean that pressure was also brought to bear in order to prevent the reform or related measures from being challenged before the courts. There was no evidence of any pressure on the banks to prevent them from challenging the reform. Quite the contrary, the domestic legal system had provided future member institutions and persons concerned with access to court to contest the reform in general as well as specific decisions of the Integration Organisation. In particular, the entirety of the impugned legislation had been challenged before the Constitutional Court, which had intervened on behalf of some savings cooperatives and modified some of its provisions. That eventually resulted in the Amendments to the Integration Act. It had also to be noted that in so far as the reform had subjected the banks to the supervisory powers of the Integration Organisation and the Savings Bank, the latter bodies’ specific decisions were not only open to judicial review before the domestic courts, but such remedies were also used and with success. There was no indication that there existed exceptional circumstances precluding the affected companies from bringing the respective cases to the Court in their own names. In the circumstances of the case the complaints about the Integration Act and the Amendments should have been brought by the two banks and the applicants could not claim to be victims of the alleged violations within the meaning of Article   34. Conclusion : inadmissible (incompatible ratione personae ). (See also Olczak v. Poland (dec.), 30417/96, 7   November 2002 , Information Note 47 ; Pokis v. Latvia (dec.), 528/02, 5   October 2006, Information Note 90 ; Agrotexim and Others v. Greece , 14807/89, 24   October 1995, Information Note ; Nassau Verzerkering Maatschappij N.V. v. the Netherlands (dec.), 57602/09, 4   October 2011, Information Note 145 ; Shesti Mai Engineering OOD and Others v. Bulgaria , 17854/04, 20   September 2011, Information Note 144 ; and Lekić v. Slovenia [GC], 36480/07, 11   December 2018,   Information Note 224 )   © Council of Europe/European Court of Human Rights This summary by the Registry does not bind the Court. Click here for the Case-Law Information Notes