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).