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THIRD
SECTION
CASE OF
GALICH v. RUSSIA
(Application
no. 33307/02)
JUDGMENT
STRASBOURG
13 May
2008
This
judgment will become final in the circumstances set out in Article 44
§ 2 of the Convention. It may be subject to editorial
revision.
In the case of Galich v. Russia,
The
European Court of Human Rights (Third Section), sitting as a Chamber
composed of:
Josep
Casadevall,
President,
Elisabet
Fura-Sandström,
Corneliu
Bîrsan,
Boštjan
M. Zupančič,
Anatoly
Kovler,
Alvina
Gyulumyan,
Egbert
Myjer, judges,
and
Santiago Quesada, Section
Registrar,
Having
deliberated in private on 22 April 2008,
Delivers
the following judgment, which was adopted on that date:
PROCEDURE
- The
case originated in an application (no. 33307/02) 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 a Russian national, Mr Boris Ivanovich Galich
(“the applicant”), on 27 August 2002.
- The
applicant was represented by Ms M. Deryabina, a lawyer practising in
Omsk. The Russian Government (“the Government”) were
represented by Mr P. Laptev, the former Representative of
the Russian Federation in the European Court of Human Rights.
- The
applicant complained, in particular, that he had been unable to
contest the reduction by the appeal court of the amount of statutory
interest awarded by the first-instance court, and that the reasons
adduced by the court of appeal in this connection had been
insufficient.
- By
a decision of 6 April 2006, the Court declared the application partly
admissible.
- The
applicant and the Government each filed further written observations
(Rule 59 § 1). The Chamber having decided, after consulting the
parties, that no hearing on the merits was required (Rule 59 § 3
in fine), the parties replied in writing to each other's
observations.
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
- The applicant was born in 1952 and lives in Omsk.
- In
May 2000 the applicant lent a sum of money to a private person, Mr M.
The amount of the debt was linked to the exchange rate of the United
States dollar. Mr M. failed to repay the full amount in due
time, and on 19 April 2001 the applicant brought a civil action
against him. The applicant sought to recover 141,800 Russian roubles
(RUB) on account of the outstanding debt, plus statutory interest for
the period of delay (проценты
за неисполнение
денежного
обязательства).
The amount of statutory interest was calculated on the basis of the
refinancing rate of the Central Bank of Russia.
- In
the domestic proceedings the applicant was represented by a lawyer.
Mr M., the defendant, claimed that he had returned RUB 45,000 to the
applicant. However, he acknowledged the remainder of the principal
debt, and accepted the calculations of statutory interest.
- On
15 January 2002 the Kirovskiy District Court of Omsk partially
granted the applicant's claim. The court found that a part of the
debt (RUB 45,000) had already been paid to the applicant. Given the
exchange rate of the United States dollar at that moment, the court
awarded the applicant RUB 106,500 (equivalent to 3,970 euros
(EUR)) on account of the outstanding debt, plus RUB 34,611
(equivalent to EUR 1,290) as statutory interest under Article 395 of
the Civil Code for 491 days of delay in paying the outstanding debt.
To calculate the interest the court applied the annual refinancing
rate of the Central Bank of Russia, which amounted to 25% at the
time.
- The
applicant appealed. In the points of appeal he contested the finding
of the first-instance court that a part of the principal debt had
been returned to him.
- On
27 February 2002 the Omsk Regional Court examined the appeal and
dismissed it. The issue of statutory interest was not raised by the
parties during the appeal proceedings. However, the court proprio
motu reduced the amount of statutory interest awarded to RUB
10,000 (EUR 373), stating as follows:
“In addition to the principal debt the court
ordered recovery of statutory interest, in accordance with Article
395 of the Civil Code of the Russian Federation.
At the same time, in the opinion of the court of appeal,
the amount of interest – 34,611 roubles 44 kopeks – is
disproportionate to the consequences of the breach of the obligation
and is excessive.
Consequently, the appeal court (кассационная
инстанция)
deems it necessary, pursuant to Article 333 of the Civil Code of the
Russian Federation, to reduce the amount of the penalty to 10,000
roubles.”
The
overall amount awarded to the applicant was therefore reduced to
RUB 116,500. That decision became final.
II. RELEVANT DOMESTIC
LAW
A. Calculation of statutory interest
-
Article 395 of the Civil Code (“Responsibility for
non-compliance with a monetary obligation”) provided, insofar
as relevant, as follows:
“For the use of monetary assets belonging to
another person, as a result of their unlawful withholding, or the
failure to pay them back ... a [statutory] interest should be paid
.... The amount of that interest is defined as the refinancing rate
[of the Central Bank of Russia] ... applicable in the place of
residence of the creditor ... on the day of the execution of the
monetary obligation. If the monetary debt is recovered through the
court, the court may award [statutory] interest on the basis of the
refinancing rate applicable on the day of lodging of the claim, or on
the day of the delivery of the judgment. These rules are applicable
unless another rate has been fixed by the law or by an agreement
[between the parties] ...”
- Article
333 of the Civil Code (“The Reduction of the Penalty”),
insofar as relevant, stipulates as follows:
“If a penalty due [for a violation of a
contractual obligation] is obviously out of proportion to the
consequences of the violation of the civil obligation, the court has
the right to reduce the amount of the penalty ...”
- Pursuant
to Joint Ruling no. 13/14 by the Russian Supreme Court and the
Supreme Commercial Court of 8 October 1998, Article 333 is
applicable to the statutory interest provided under Article 395. In
deciding whether or not to reduce the statutory interest payable, the
courts “should take into account the fluctuation of the
refinancing rate of the Central Bank during the period of delay, as
well as other circumstances which may affect the rates of interest”.
B. Powers of the court of appeal
- Article
294 (“Scope of review of the case by the court of appeal”)
of the Code of Civil Procedure of 1964, then in force, stipulated:
“The [court of appeal] shall verify the legality
and reasonableness of the first-instance court judgment within the
scope of the appeal. It may examine new evidence and establish new
facts. The court shall examine newly submitted evidence if it
considers that the evidence could not have been submitted to the
first-instance court.
In the interests of legality, the court of appeal may
examine the decision of the first-instance court in its entirety.”
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 6 OF THE CONVENTION
- The applicant complained that the proceedings before
the court of appeal had not been “fair” in that the court
had reduced the amount of statutory interest payable by the defendant
without hearing his submissions on the subject. He also complained
that the court had not given reasons for its decision to reduce the
amount of statutory interest awarded. Article 6 § 1 of the
Convention, referred to by the applicant in this connection, reads in
its relevant part as follows:
“In the determination of his civil rights and
obligations ..., everyone is entitled to a fair ... hearing ... by
[an] ... impartial tribunal...”
A. The parties' submissions
- The
Government submitted that the application of Article 333 of the Civil
Code which allowed the court to reduce the amount of statutory
interest payable clearly followed from the Ruling of the Supreme
Court no. 13/14 of 8 October 1998, and had therefore
been foreseeable. By virtue of Article 294 of the Code of Civil
Procedure, the Regional Court had not been limited by the parties'
arguments and could examine the case in its entirety. The applicant,
through his representative, had had ample opportunity to present his
arguments at the hearing before the court of appeal. Therefore, the
proceedings had been fully adversarial.
- Further,
the Government submitted that the reasoning of the Regional Court's
decision had been sufficient. The outstanding amount of the debt had
been linked to the exchange rate of the US dollar. Therefore, the
applicant had been sufficiently protected against the then high
inflation of the Russian rouble. However, the first-instance court
had applied the annual refinancing rate for the rouble credit,
whereas the rate for the credit in US dollars was much lower.
Furthermore, Mr M. had repaid part of the debt in time. All that led
the Regional Court to conclude that the rate of statutory interest
(25% annually) applied by the first-instance court had been too high.
- The
applicant maintained his complaints. In his words, the fact that the
amount of debt was linked to the exchange rate of the US dollar was
intended to protect the interests of both parties, and not only those
of the moneylender. In calculating the amount of statutory interest
the first-instance court had applied the lowest rate that had existed
at the moment of the litigation. However, even this rate had seemed
too high to the Regional Court. Ruling no. 13/14, referred to by the
Government, specified that in applying Article 333, the courts should
take into account fluctuations of the lending rate of the Central
Bank. However, the amount of interest set by the Regional Court (RUB
10,000) had clearly been nominal, pulled “out of thin air”
and without any precise calculations.
- Further,
the Regional Court had gone beyond the scope of the appeal, which,
according to the second part of Article 294 of the Code of Civil
Procedure, was possible only for the sake of legality. The eventual
reduction of the statutory interest payable had not been discussed by
the parties before the court at either of the two instances. Finally,
the overall amount awarded by the Regional Court (RUB 116,500) was
even less than the sum recognised as due by the defendant before the
District Court (RUB 137,392.88).
- In his additional observations on the merits the
applicant also alleged that the main reason for the reduction of the
amount of statutory interest payable was that the defendant had
experienced financial difficulties. However, Article 333 of the Civil
Code did not allow for that aspect to be taken into consideration.
B. The Court's assessment
1. General principles
- The
applicant complained, under Article 6 § 1 of the Convention,
that he had not had a fair trial in the proceedings before the court
of appeal. That complaint had two limbs. Firstly, the applicant had
not foreseen that the court would reduce the amount of statutory
interest and, therefore, he had not been able to present his
arguments in that connection. Secondly, the applicant complained that
the reasoning of the court of appeal decision concerning the amount
of interest payable had been insufficient. The Court will start by
examining the applicant's first argument.
- The
Court recalls that the issue of unexpected alteration of the scope of
a case was more often raised in the context of criminal proceedings.
Indeed, the requirements inherent in the concept of a "fair
hearing" are not necessarily the same in cases concerning the
determination of civil rights – they are normally less
stringent than in cases concerning the determination of a criminal
charge (see Dombo Beheer B.V. v. the Netherlands, judgment of
27 October 1993, Series A no. 274, § 32). Nevertheless, the
civil proceedings should also be “fair”; “fairness”
implies that the proceedings be adversarial
in nature, which, in turn, requires that a court should not
base its decision on evidence that has not been made available to
each of the parties (see, mutatis mutandis, Nideröst-Huber
v. Switzerland, judgment of 18 February 1997, Reports
of Judgments and Decisions 1997-I, § 24).
- The
Court recalls that in the case of Georgiadis v. Greece
(judgment of 29 May 1997, Reports 1997 III) it found
a violation of Article 6 § 1 in that the applicant had not been
given a chance to make submissions in the matter of compensation for
his detention. In that case the issue of the State's liability was
examined by the court proprio motu, together with the question
of the applicant's guilt of draft evasion. The Court said, inter
alia, that “a procedure whereby civil rights are determined
without ever hearing the parties' submissions cannot be considered to
be compatible with Article 6 § 1” (§ 40).
- In
sum, in civil proceedings the parties should also be given a
reasonable opportunity to comment on all relevant aspects of the
case. The Court does not need to decide in abstracto what
“reasonable opportunity” means – whether or not it
existed in a given case depends on too many factors. For instance,
civil courts are not bound by the parties' legal arguments; the
courts are free to choose the applicable law, to interpret evidence
in a new way, and so on. On the other hand, judges should be more
cautious when they are dealing with new facts or evidence which have
not been discussed at the trial.
2. Application to the present case
- The
central question to answer in the present case is whether the
re-calculation of the statutory interest due to the applicant was
foreseeable. The Court notes in this respect that by virtue of
Article 333 of the Civil Code the national judge has a wide
discretion as to the amount of interest to be awarded to a claimant,
where the interest stipulated in the contract or provided by the law
are clearly unjust. The Government argued that, by virtue of Joint
Ruling no. 13/14 of 8 October 1998, the courts had had the
power to apply Article 333 (see the “Relevant domestic law”
part above) on their own initiative. Therefore, in their words, such
a development had been foreseeable and the applicant could have
prepared additional arguments for that occasion.
- The
Court accepts that, as a matter of principle, the courts in Russia
have the power to lower the amount of interest payable. The Court
further accepts that, as such, this power of the domestic courts is
not contrary to any other Convention provision – see the
Court's findings under Article 1 of Protocol No. 1 in the
admissibility decision of 6 April 2006. Therefore, a claimant in
civil proceedings should be aware that there is a risk that the
amount of statutory interest could be reduced under Article 333 of
the Civil Code.
- However,
a distinctive feature of this case is that the first-instance court
did not apply Article 333 and based its calculations solely on
Article 395 of the Code. Therefore, it has to be decided whether
the decision of the court of appeal was foreseeable.
- To
answer this question the Court has to examine how the Russian law
delimits the competence of the court of appeal. The first paragraph
of Article 294 of the Code of Civil Procedure, referred to by
the Government, stipulates that, as a general rule, the court of
appeal should not go beyond the scope of the brief of appeal. Turning
to the present case the Court notes that neither the applicant (the
creditor), nor the debtor raised the issue of statutory interest
before the court of appeal.
- Indeed,
the second paragraph of that article stipulates that the court of
appeal is able to examine the case in its entirety. However, this
power could be exercised only “in the interests of legality”,
and this is the crucial prerequisite. The Government did not
explain what “legality” means in the Russian law and
practice; in particular, the Government did not produce any case-law
on the subject. Therefore, the Court will rely on its own
understanding of the legality.
-
“Legality” is often understood as formal compliance with
the legal order. The modern legal thinking also developed a theory of
“substantive” legality, based on the respect for human
rights and democracy. In the instant case, however, it is clear that
the term “legality” used in Article 294 of the Code of
Civil Procedure meant that the court decision should be in conformity
with the body of applicable legal norms.
- The
Court notes that the first instance court, acting within its
jurisdiction, awarded statutory interest as provided by Article 395
of the Civil Code. It did not apply Article 333 and did not
reduce the statutory interest in line with the real losses suffered
by the creditor. However, its application was a prerogative of the
court, not an obligation. In any event, the court of appeal did not
cast doubt on the legality of the lower court's decision. Therefore,
the decision of the lower court in the present case was not “illegal”
in the formal sense of this term.
- Despite
that, the court of appeal decided to recalculate the statutory
interest due to the applicant. The court decided, of its own motion,
that the amount of real loss sustained by the applicant was
considerably less than the amount of statutory interest calculated
under Article 395 of the Civil Code. The Court notes that the
reasoning of the court of appeal was based on the notion of
“proportionality” employed by Article 333. The court
of appeal concluded that the decision of the lower court was not
formally illegal, but, still, unfair in that the award made under
Article 395 had not reflected the realities of the case.
- It
is doubtful whether under the Russian law the second instance court,
in the circumstances of the case, had a power to go beyond the scope
of appeal - the law lacked clarity in this respect. The Court is
prepared to assume that the court of appeal was entitled to reduce
the amount of statutory interest payable. However, the Court
finds that such a development was hardly foreseeable for the
applicant.
- The
Court further emphasises the nature of the issue decided by the court
of appeal. The applicant's claims were based on a calculation of the
interest due to him at a rate defined by the Central Bank. In
contrast, the application of Article 333 of the Civil Code was
tantamount to a de facto evaluation of the actual losses of
the applicant, which should have involved a more complex assessment
of questions of fact. However, that issue was never raised in the
proceedings.
- Finally,
the Court notes that the Omsk Regional Court did not give any reason
why it considered the interest awarded by the first-instance court to
be disproportionate to the damage sustained by the applicant. It is
conceivable that certain matters may be decided by the court on the
basis of the case file alone. However, for want of any reasoned
decision in this respect, the Court is unable to make such a
concession and concludes that the issue of the “proportionality”
of the statutory interest awarded could not have been decided by the
court of appeal without having consulted the parties.
- The
Court concludes that, assuming that the court of appeal was entitled
to exercise its discretion to reduce the amount of statutory
interest payable, in the specific circumstances of the case, by
depriving the parties of an opportunity to be heard on the
issue, which was not purely technical, it failed to exercise
that discretion in a manner consistent with the requirements of
Article 6 §1 of the Convention. The appeal court's judgment
being final, there was no further ordinary instance at which the
applicant could have advanced his defence against its findings (see,
by contrast, Feldman v. France (dec.), no. 53426/99,
6 June 2002, and Dallos v. Hungary, no. 29082/95, §§
50-52, ECHR 2001 II).
- The
Court considers that, given its findings above, it is not necessary
to examine separately the complaint concerning the alleged inadequacy
of the reasoning in support of the decision to reduce the statutory
interest payable.
- The
Court therefore concludes that there has been a violation of Article
6 § 1.
II. APPLICATION OF ARTICLE 41 OF THE CONVENTION
- Article 41 of the Convention provides:
“If the Court finds that there has been a
violation of the Convention or the Protocols thereto, and if the
internal law of the High Contracting Party concerned allows only
partial reparation to be made, the Court shall, if necessary, afford
just satisfaction to the injured party.”
A. Damage
- The
applicant claimed 5,000 euros (EUR) on account of non-pecuniary
damage.
- The
Government stressed that the applicant did not show that he had
suffered any distress or frustration in connection with the violation
complained of. They considered that the amount awarded to him by the
Omsk Regional Court was just and fully covered all his losses.
- The
Court notes that even though the applicant was awarded certain
amounts in the domestic proceedings, that cannot by itself deprive
him of his right to claim compensation under Article 41 of the
Convention for the unfairness of those proceedings. The Court accepts
that the applicant must have suffered a certain amount of frustration
and a feeling of injustice as a consequence of the court's failure to
invite him to comment on one of the important aspects of the case. It
considers that the non-pecuniary damage suffered by the applicant
cannot be adequately compensated by the finding of a violation alone.
At the same time the Court considers that the amount of compensation
claimed by the applicant is excessive. Making its assessment on an
equitable basis, it awards the applicant EUR 1,000, plus any tax
that may be chargeable on that amount.
B. Costs and expenses
- The
applicant did not make any claims for the costs
and expenses incurred before the domestic courts and before the
Court. Accordingly, the Court does not award anything under this
head.
C. Default interest
- The
Court considers it appropriate that the default interest 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
- Holds that there has been a violation of
Article 6 § 1 of the Convention;
- Holds
(a) that
the respondent State is to pay the applicant, within three months
from the date on which the judgment becomes final in accordance with
Article 44 § 2 of the Convention, EUR 1,000 (one
thousand euros) in respect of non-pecuniary damage, to be converted
into Russian roubles, at the rate applicable at the date of
settlement, plus any tax that may be chargeable;
(b) that
from the expiry of the above-mentioned three months until settlement
simple interest shall be payable on the above amount at a rate equal
to the marginal lending rate of the European Central Bank during the
default period plus three percentage points;
- Dismisses the remainder of the applicant's claim
for just satisfaction.
Done in English, and notified in writing on 13 May 2008, pursuant to
Rule 77 §§ 2 and 3 of the Rules of Court.
Santiago Quesada Josep Casadevall
Registrar President
