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Independent Non-Profit Organization INSTITUTE FOR LAW AND PUBLIC POLICY

Schepkina str.8, PO Box 140, Moscow 129090, Russian Federation Tel.: +7(495) 608-69-59; 608-66-35 Fax: +7(495) 608-69-15 E-mail: info@mail-ilpp.ru http://www.ilpp.ru Constitutional Court of the Russian Federation Judge Mrs L. Zharkova

Brief Amicus Curiae concerning the enforceability of the European Court of Human Rights

Judgment of 31 July 2014 in the case of OAO Neftyanaya Kompaniya Yukos v. Russia

(Application no. 14902/04) submitted pursuant to the request

by the Judge of the Constitutional Court of the Russian Federation

 

I.  Introduction...........................................................................................................................2 

II.  Criteria for Admissibility of Individual Applications by Shareholders and for Just Satisfaction Awards to Shareholders under the Convention.....................................................4 

А.  Admissibility of individual applications filed by shareholders (former shareholders) seeking protection of a company’s rights and their personal rights........................................................................... 4 

B.  Exhaustion-of-remedies and involvement-in-domestic-proceedings requirement for shareholders .............................................................................................................................................................. 5 

C.  Question of the ECHR separate finding on a violation of shareholder rights when recognizing a violation of a company’s rights under the Convention ................................................................................... 5 

D.  Awarding just satisfaction to non-applicants in proceedings before the Strasbourg Court ........ 6 

III.  Assessment of Lawfulness of Levies in the Strasbourg Court Case Law................9 

А.  Lawfulness of Taxes, Penalties and Contributions in the Context of Article 1 of Protocol No. 1 to the Convention ..................................................................................................................................................... 9 

B.  Proportionality of Taxes, Penalties and Contributions and Their Imposition in the Context of Article 1 of Protocol No. 1 to the Convention .................................................................................................11 

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IV.  Constitutional Methods (Alternatives) of Enforcing the Strasbourg Court Judgment of 31 July 2014 ........................................................................................................................ 13 

А.  General provisions on the relationship between the Russian Constitution and the Strasbourg Court judgments ....................................................................................................................................................13 

B.  Analysis of arguments for the inconsistency between the Strasbourg Court Judgment of 31 July 2014 and the Constitution of the Russian Federation ..........................................................................15 

1. Constitutional Court Judgment No.9-P of 14 July 2005 ..................................................................... 15 

2. Constitutional Court Judgment No.13-P 30 July 2001........................................................................ 18 

3. Constitutional Principles of Fairness and Equality of Arms (Article 17(3), Article 19(1),

Article 46(3), and Article 55(1) of the Russian Constitution) ........................................................ 20 

В.  Acceptable Methods (Means) for Payout of Just Satisfaction ...........................................................21 

V.  Conclusion........................................................................................................................... 22 

I. Introduction

1. The Constitutional Court of the Russian Federation (the Constitutional Court or the Court) is deciding the case concerning the enforceability of the Judgment delivered on 31 July 2014 by the European Court of Human Rights (the Strasbourg Court or the ECHR) on Just Satisfaction in the case of OAO Neftyanaya Kompaniya Yukos v. Russia (Application No. 149902/04) (the ECHR Judgment of 31 July 2014 or the Judgment). In the Judgment, the ECHR ruled that the Russian Federation was to pay the applicant company’s shareholders as they had stood at the time of the company’s liquidation and, if applicable, their legal successors and heirs EUR 1,866,104,634 (one billion, eight hundred sixty six million, hundred and four thousand, six hundred thirty four euros), plus any tax that may be chargeable, in respect of pecuniary damage, to be converted into the currency of the Russian Federation at the rate applicable at the date of settlement; that the Russian Federation had to produce, in co-operation with the Council of Europe’s Committee of Ministers, within six months from the date on which the Judgment became final, a comprehensive plan, including a binding time frame, for distribution of the award of just satisfaction (paras 2(a)-(b) of the operative provisions of the Judgment). In the Judgment of 20 September 2011 in OAO Neftyanaya Kompaniya Yukos v. Russia (Application no. 149902/04) (the ECHR Judgment of 20 September 2011) the Strasbourg Court found that i) there was a violation of Article 6 of the Convention on the Protection of Human Rights and Fundamental Freedoms (the Convention) on account of inadequate time allowed to OAO Neftyanaya Kompaniya Yukos (YUKOS) to prepare for the trial and the appeal hearing in respect of the 2000 tax assessment (§§ 534 to 551 of the Judgment); ii) the 2000 tax penalty assessment and the doubling of the penalties due in the 2001 tax assessment was not in accordance with the law, as required by Article 1 of Protocol No. 1 to the Convention (§§ 563 to 575 of the Judgment): and iii) in the course of the enforcement proceedings against YUKOS the Russian authorities did not strike a fair balance between the

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legitimate aim of these proceedings and the imposed enforcement measures, as required by the same article of the Convention (§§ 645 to 658 of the Judgment).

2. The case has been referred to the Court by the Ministry of Justice of the Russian Federation (the Ministry of Justice) on 12 October 2016 under Article 1041 of the Federal Constitutional Law No.1-FKZ of 21 July 1994 “On the Constitutional Court of the Russian Federation” (the Law on the Constitutional Court). The Ministry of Justice asks the Court to determine that the enforcement of the ECHR Judgment of 31 July 2014 would be inconsistent with the Russian Constitution. The Ministry of Justice maintains that the Judgment relies on the interpretation of the Convention and the Protocols thereto that contradicts the fundamental principles and provisions of the Russian Constitution, in particular Art. 6(2), Art. 17 (3), Art. 19 (1), Art. 35 (1&3), Art. 46(3), Art. 55, and Art. 57, and the relevant judgments of the Constitutional Court, namely Judgment No.13-P of 30 July 2001 concerning constitutionality of Art. 7(1.7), Art. 77(1) and Art. 81(1) of the Federal Law “On Enforcement Proceedings” and Judgment No.9-P of 14 July 2005 concerning constitutionality of Article 113 of the Tax Code of the Russian Federation.

3. This amicus curiae brief has been prepared by the Institute for Law and Public Policy independent non-profit organization (the Institute or ILPP)1 in accordance with Articles 49 and 50 of the Law on the Constitutional Court and pursuant to request No.1347 received from the Constitutional Court Judge Mrs. L. Zharkova on 11 November 2016. The Institute has been invited to give its legal opinion on the Ministry of Justice’s arguments, addressing the following questions:

1) Whether the admissibility of individual applications under the European Convention and its interpretation by the Strasbourg Court extends to an individual application filed by a shareholder (or a former shareholder of a liquidated company) seeking protection of a company’s rights or a shareholder’s own rights. If so, whether the right of individual application is conditioned on a shareholder’s involvement in domestic proceedings or exhaustion of domestic remedies. And whether the infringement of a shareholder’s conventional rights requires any separate finding by the ECHR recognizing a violation of a company’s rights;

2) Whether, the Strasbourg Court has delivered, apart from the case of OAO Neftyanaya Kompaniya Yukos, any other judgment: i) affording similar compensation to a third party; or ii) finding a violation of an applicant company’s rights on account of imposing tax penalties and contributions (enforcement fee or analogous fees etc.) as regards (а) the penalty imposition as such and (b) the amount and method of collection; and

1 This amicus curiae brief has been drafted by the ILPP lawyers G. Vaypan, Е. Manzhosova, D. Мednikov, I. Оsmankina, О. Podoplelova, and N. Sekretareva. The Institute expresses its gratitude to Dr. A. Blankenagel (Humboldt University of Berlin) and practicing lawyer I. Rachkov (PhD in Law, associate professor at Moscow State University of International Relations) for assisting with the brief.

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3) Whether there are any methods (means) of enforcing this Judgment in ways that are consistent with the Russian Constitution.

4. Therefore, the amicus curiae brief provides an analysis of, firstly, the applicable provisions of the Convention and their interpretation by the ECHR in matters relating to admissibility of shareholders’ individual applications and payment of just satisfaction to shareholders; secondly, the ECHR case-law relating to the lawfulness of levies (taxes, penalties or contributions); and, thirdly, the enforceability of the Judgment of 31 July 2014 under the Russian Constitution. The structure of the brief corresponds to the questions raised by the Constitutional Court Judge Mrs. L. Zharkova.

II. Criteria for Admissibility of Individual Applications by Shareholders and for Just Satisfaction Awards to Shareholders under the Convention

5. This section addresses the admissibility of individual applications filed by shareholders (subsections А to C) and the award of just satisfaction to third parties in Strasbourg proceedings (subsection D).

А. Admissibility of individual applications filed by shareholders (former shareholders) seeking protection of a company’s rights and their personal rights

6. Pursuant to Article 34 of the Convention, the Strasbourg Court may receive applications from any person, governmental organization or group of individuals claiming to be the victim of a violation by one of the High Contracting Parties of the rights set forth in the Convention or the Protocols thereto.

7. According to the ECHR’s established case-law, to be denoted as "victim", in the context of Article 34 of the Convention, the applicant must be directly (the violation of the applicant’s conventional rights) or indirectly (where the violation of another person’s conventional rights would cause harm to the applicant or the applicant would have a valid and personal interest in seeing it brought to an end) affected by the State actions complained of2. For example, close family members of the deceased can claim to be "indirect victims" of the alleged violation of Article 2 of the Convention where the death of the person is a violation of the right to life under Article 2 of the Convention3. However, the Strasbourg Court generally would not admit an application from an alleged "indirect victim" of a violation of a right other than the substantive right protected by Article 2 of the Convention4.

8. As regards the violation of the company’s rights, the Court notes that shareholders cannot claim to be "indirect victims" and file valid applications with the ECHR to represent the company’s rights other than in exceptional circumstances5, such as where the company’s

2 Vallianatos and others v. Greece, nos 29381/09, 32684/09, §47, 7 November 2013 (Appendix 1). 3 Van Colle v. United Kingdom, no 7678/09, § 86, 13 November 2012 (Appendix 2). 4 Nassau Verzekering Maatschappij N.V. v. Netherlands, no 57602/09, § 20, 4 October 2011 (Appendix 3). 5 Centro Europa 7 S.R.L. and Di Stefano v. Italy, no 38433/09, § 92, 7 June 2012 (Appendix 4).

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institutions or liquidators are unable to apply to the ECHR themselves in the process of liquidation or there is a conflict of interest between shareholders and liquidators6. In certain cases, the sole shareholder can also claim to be "victim" of a violation within the meaning of Article 34 of the Convention provided there is no conflict between the shareholder’s personal interest and that of the company.7

9. At the same time, the shareholder has the right to file an application with the Strasbourg Court to protect their rights against administrative actions that affect the company’s interests and infringe on the shareholder’s rights8. These include removing shares without any compensation9, significantly reducing the value of shares10, seriously delaying the execution of a court decision transferring shares to applicants11, especially in the case of company liquidation12.

B. Exhaustion-of-remedies and involvement-in-domestic-proceedings requirement for shareholders

10. To be able to apply to the ECHR seeking protection of their rights, shareholders must exhaust all domestic remedies in accordance with Article 35 § 1 of the Convention and the ECHR’s approach13.

11. However, the ECHR notes that where the applicant makes a valid application seeking protection of a company’s rights, it is unreasonable to require the exhaustion of domestic remedies because, in many jurisdictions, shareholders cannot bring action against the harm caused to “their” company14.

C. Question of the ECHR separate finding on a violation of shareholder rights when recognizing a violation of a company’s rights under the Convention

12. The ECHR case-law shows that the Court would assess a violation of a company’s rights if a shareholder files an application concerning a violation of a company’s rights. And to have the

6 Agrotexim and others v. Greece no 14807/89, § 66, 24 October 1995 (Appendix 5); Capital Bank AD v. Bulgaria no 49429/99, 9 September 2004; Camberrow MM5 AD v. Bulgaria no 50357/99, 1 April 2004 (Appendix 7).

7 Glas Nadezhda EOOD and Anatoliy Elenkov v. Bulgaria, no. 13134/02), § 40, 11 October 2007 (Appendix 8); Begus v. Slovenia, no. 25634/05), § 25–26. 15 December 2011 (Appendix 9); Ankarcrona v. Sweden, no. 35178/97, 27 June 2000 (Appendix 10); G.J. v. Luxembourg, no. 21156/93, § 24, 26 October 2000 (Appendix 11).

8 Olczak v. Poland, no.30417/96, § 59, 7 November 2002 (Appendix 12); Vesela and Loyka v. Slovakia no. 54811/00, 13 December 2005 (Appendix 13).

9 Reisner v. Turkey, no. 46815/09, § 43–51, 23 June 2015, (Appendix 14). 10 Olczak v. Poland, no. 30417/96, § 60–62, 7 November 2002, (Appendix 12). 11 Murtić and Ćerimović v. Bosnia and Herzegovina, no. 6495/09, § 26–30, 19 June 2012 (Appendix 15). 12 Olczak v. Poland, no. 30417/96, § 59, 7 November 2002 (Appendix 12). 13 Reisner v. Turkey, no. 46815/09, § 41, 23 July 2015 (Appendix 14). 14 Olczak v. Poland, no. 30417/96, § 57, 7 November 2002 (Appendix 12).

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ECHR’s finding of a violation of a shareholder’s Convention rights, the latter needs to submit an individual application as well15.

D. Awarding just satisfaction to non-applicants in proceedings before the Strasbourg Court

13. It appears that the YUKOS case does not deal with the questions addressed earlier in subsections А to C. It was only the YUKOS company that acted as a party throughout the proceedings before the ECHR; the ECHR Judgment of 20 September 2011 finds a violation of the Convention rights of YUKOS; and the ECHR Judgment of 31 July 2014 awards just satisfaction for pecuniary damage sustained by YUKOS16. The ECHR regards YUKOS

shareholders as beneficiaries of just satisfaction, which YUKOS was awarded as a (liquidated) “victim”, rather than applicants or an “injured party” within the meaning of Article 41 of the Convention. Therefore, the summary of the ECHR case-law provided by the Ministry of Justice on page 10 of its petition to the Constitutional Court is irrelevant since the cases cited therein – Agrotexim and others v. Greece (Application No. 14807/89), Terem Ltd., Chechetkin and Olius v. Ukraine (Application No. 70297/01), Rakhimov v. Azerbaijan (Application No.22759/04), and Jarafli and others v. Azerbaijan (Application No. 36079/06) – deal with the question of a valid applicant rather than the appropriateness of paying just satisfaction to a third party whose rights violations have not been examined by the ECHR and have not been subjected to the exhaustion-of-remedies requirement. The ECHR emphasizes that these are two separate questions17.

14. Article 41 of the Convention states that 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. The ECHR establishes that Article 41 of the Convention obliges all the Contracting Parties to provide adequate reparation since the conventional mechanism of just satisfaction operates as lex specialis with respect to the international rules and principles making States responsible for their internationally wrongful acts18. Further, the effective protection of Convention rights implies both an award for damage sustained and its actual payment to either the victim or the victim’s successors19. Thus, in exceptional

circumstances, the ECHR would afford just satisfaction to a third party due for a violation of rights protected by the Convention and the Protocols thereto. The case-law of the Strasbourg Court provides for three such situations.

15 International Bank for Commerce and Development AD and others v. Bulgaria, no. 7031/05, § 101–107, 118–125, 2 June 2016.

16 The ECHR Judgment of 20 September 2011, § 525; the ECHR Judgment of 31 July 2014, § 1–3, 36. 17 International Bank for Commerce and Development AD and others v. Bulgaria, no. 7031/05, § 158, 2

June 2016 (Appendix 16). 18 Cyprus v. Turkey, no. 25781/94, § 41–42, 12 May 2014 (Appendix 17). 19 Uniya OOO and Belcourt Trading Company v. Russia, nos 4437/03, 13290/03, § 258–266, 282–285 19

June 2014 (Appendix 18).

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15. First,  the  Strasbourg Court  recognizes  the  right  to  satisfaction  for heirs of an  individual applicant who  died  during  the  proceedings20  but  notes  that  such  recognition  does  not change the amount of damages sought or satisfaction afforded21. Typically, compensation will be awarded on the basis of  the will expressed by  the heirs. The ECHR, however,  in some  cases  has  included  legal  expenses  in  the  succession  mass  in  the  absence  of  any information about successors or close family relatives of the deceased applicant22. 

16. Second, in inter-State disputes, the ECHR may afford just satisfaction to individual citizens suffering from the actions taken by the respondent State. This award requires no declared will of such individuals, their heirs or close relatives but can be afforded only to injured individuals who are identifiable23. In Cyprus v. Turkey, for example, the ECHR ordered the respondent State to pay an award of EUR 90 million under Article 41 of the Convention to the applicant State that, in turn, had to ensure the effective distribution of funds among the injured individuals under the supervision of the Council of Europe’s Committee of Ministers as per the 18-month distribution schedule which was submitted to the ECHR24.

17. Third, in the ECHR’s opinion, satisfaction may be afforded to the successors of a company which was liquidated during proceedings before the ECHR. The ECHR reiterates that the criterion of the existence of a "victim of a violation" under Article 34 for putting the protection mechanism into motion cannot be applied a "rigid, mechanical and inflexible" way throughout the whole proceedings. Once the application is declared admissible, the liquidation of the company at any stage of the proceedings does not call for the application to be struck out of the Court’s list of cases under Article 37(1) of the Convention. Neither it excludes the award of just satisfaction for pecuniary claims transferrable to other parties, i.e. the company’s successors25. In particular, the ECHR declares “transferability” in respect of the claims awarded for a violation of Article 1 of Protocol No. 1 and of the just satisfaction afforded under Article 41 of the Convention26.

18. The ECHR case-law provides various examples of methods of distribution of just satisfaction afforded to the liquidated applicant company on a case-by-case basis (determining pecuniary or non-pecuniary damages or legal expenses) among beneficiaries, including board members27, or

20 See e.g. Malhous v. Czech Republic, no. 33071/96, § 67, 12 July 2001 (Appendix 19); Ahmet Sadik v. Greece, no. 18877/91, § 26, 15 November 1996 (Appendix 20).

21 Sophia Andreou v. Turkey, no. 18360/91, § 32–33, 36, 22 June 2010 (Appendix 21); Lordos and others v. Turkey, no. 15973/90, § 62, 10 January 2012 (Appendix 22).

22 Karner v. Austria, no. 40016/98), § 48–50, 24 July 2003 (Appendix 23). 23 Cyprus v. Turkey, no. 25781/94, § 43–46, 12 May 2014 (Appendix 17). 24 Ibid, § 58–59, paras 4–5 of the operative part. The compensation was ultimately awarded to, first, the heirs

and close relatives of 1 456 missing citizens of Cyprus; and, second, Greek Cypriots from Carpas. 25 Centre for Legal Resources on Behalf of Valentin Câmpeanu v. Romania, no. 47848/08, § 96, 14 July

2014 (Appendix 24); Uniya OOO and Belcourt Trading Company v. Russia, no. 4437/03, 13290/03), § 260, 19 June 2014 (Appendix 18); Capital Bank AD v. Bulgaria, no. 49429/99, § 78, 24 November 2005 (Appendix 25); Karner v. Austria, no. 40016/98, § 25, 24 July 2003 (Appendix 23).

26 Uniya OOO and Belcourt Trading Company v. Russia, nos 4437/03, 13290/03, § 261, 19 June 2014 (Appendix 18).

27 Capital Bank AD v. Bulgaria, no. 49429/99, § 148, 24 November 2005 (Appendix 25).

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the leader of the liquidated religious organization28, or else the award was included in the bankrupt company’s estate29. Apart from the YUKOS case, the right to just satisfaction of a LLC member was recognized in the case of ООО Unyia and Belkort Trading Company v. Russia through the actual award was unnecessary as the State was willing to compensate for the damage30.

19. Where a company’s liquidation is largely prompted by the State, the ECHR tends to afford satisfaction to shareholders as discontinuing the proceedings due to bankruptcy and liquidation resulting from the State actions complained of would undermine the very essence of the right to apply to the ECHR by encouraging governments to “benefit from their own wrongful acts” and restraining entities from taking part in the proceedings initiated by a valid application31. In the Judgment of 31 July 2014, the ECHR’s conclusion that just satisfaction is to be paid only to the YUKOS shareholders and not to its creditors (with the State being the principal creditor of the company)32 logically follows from the adopted approach; otherwise the government’s decisive role in the liquidation of YUKOS would have been overlooked33 and the breaching government would have benefited from the compensation instead of the company’s owners who became victims of the violations of the Convention as established by the ECHR.

20. Clearly, there are a number of general principles applied by the ECHR in affording just satisfaction to a third party despite the fact that this matter is decided on a case-by-case basis due to a small number of such cases. In the YUKOS case, the ECHR decision that the compensation amount be paid to the applicant company’s shareholders and their legal successors and heirs in proportion to their nominal participation in the company’s stock, as they stood at the time of the company’s liquidation, was non-random and in line with the ECHR’s previous approaches to these matters. First, the ECHR maintained its strategy for intergovernmental disputes and afforded the compensation to the persons that could be easily identified from the list and the register34.

Second, the ECHR continued its policy of affording compensation for "transferrable" pecuniary claims to the persons considered to be the applicant company’s successors. Third,

28 Holy Synod of the Bulgarian Orthodox Church (Metropolitan Inokentiy) and Others v. Bulgaria, nos 412/03, 35677/04), § 39, 22 January 2009 (Appendix 26). The ECHR noted that the compensation is to be paid “for the benefit of a religious community”.

29 Metalco Bt. v. Bulgaria, no. 34976/05, § 14, 26 June 2012 (Appendix 27). 30 Uniya OOO and Belcourt Trading Company v. Russia, nos 4437/03, 13290/03, § 263, 284, 19 June 2014

(Appendix 18). 31 International Bank for Commerce and Development AD v. Bulgaria, no. 7031/05, § 85–88, 2 June 2016

(Appendix 16); Uniya OOO and Belcourt Trading Company v. Russia, nos 4437/03, 13290/03, § 264, 283, 19 June 2014 (Appendix 18); OAO Neftyanaya Kompaniya Yukos v. Russia, no. 14902/04, § 439–444, 29 January 2009 (Appendix 25); Capital Bank AD v. Bulgaria, no. 49429/99, § 80, 24 November 2005 (Appendix 25).

32 ECHR Judgment of 31 July 2014, § 17. 33 Ibid § 41; ECHR Judgment of 20 September 2011, § 653–656. 34 ECHR Judgment of 31 July 2014, § 38 (“…the Court refers to the list of the Court refers to the list of the

applicant company’s shareholders, as they stood at the time of the company’s liquidation, which is held by ZAO VTB Registrator, the company which had held and ran the register of the applicant company. Therefore, it is incorrect to assert that the ECHR has afforded compensation to “unspecified persons” (the Ministry of Justice’s petition to the Constitutional Court, p. 9).

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giving the company’s shareholders the sole compensatory award (in the given case where the State was the principal creditor responsible for the company’s liquidation) could be viewed as consistent with the object and purpose of the Convention, i.e. an international human rights treaty aiming to ensure an effective remedy for infringement of rights of individual business owners.

21. In any event, the mere fact that the Russian Ministry of Justice disagrees with the ECHR’s interpretation of the Convention about the scope of procedural rights and responsibilities of the parties per se does not indicate any conflict between the ECHR Judgment of 31 July 2014 and the Constitution of the Russian Federation (see also section IV (B.3) of this brief).

III. Assessment of Lawfulness of Public Dues in the Strasbourg Court Case Law

22. This section analyzes the ECHR case law relating to finding violations of the applicant company’s rights by the penalties and fees (execution or similar fees etc.) enforced under domestic laws, including their amount and method of payment. The two following points need to be addressed in view of the ECHR’s findings in the YUKOS case:

1) the approaches the ECHR has developed to evaluate the lawfulness of the country’s statutory taxes, penalties and contributions under Article 1 of Protocol No. 1 to the Convention (Sub-section A);

2) the approaches the ECHR has developed to evaluate the proportionality of the country’s tax penalties and payments as well as related procedures under Article 1 of Protocol No. 1 to the Convention (Sub-section B).

А. Lawfulness of Taxes, Tax Sanctions and Administrative Fees in the Context of Article 1 of Protocol No. 1 to the Convention

23. In the YUKOS case, the ECHR has found a violation of Article 1 of Protocol 1 to the Convention in respect to the lawfulness of the tax sanctions based on the two key factors, including i) applying the limitation period retroactively to the tax liability for 2000 in contravention of the principle of foreseeability and accessibility of laws; and ii) the subsequent doubling of the 2001 sanctions for a repeated offense35.

24. Article 1(2) of Protocol No.1 to the Convention provides that the State has the right to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties. The ECHR case law stresses that this not a stand-alone rule and it should be construed in the light of the general principle enshrined in the first sentence of the first paragraph of this article to guarantee the peaceful enjoyment of private possessions36.

35 ECHR Judgment of 20 September 2011, § 574–575. 36 James and Others v. United Kingdom, no. 8793/79, § 37, 21 February 1986 (Appendix 28); Sporrong and

Lonnroth v. Sweden, nos 7151/75, 7152/75), § 61, 23 September 1982 (Appendix 29).

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25. Any State interference will be found lawful under Article 1(2) of Protocol No. 1 to the Convention if exercised under the conditions provided for by law37. The ECHR notes that the States are allowed a wider margin of appreciation and discretion in taxation matters within the criterion of their lawful interference with the use of property38. Moreover, the ECHR applies a stricter standard for legal entities, as compared to individuals. It notes, in particular, that due to the "the complex regulation of the matters in question corporate entities, unlike individual taxpayers, should exercise particular care and are expected to seek advice from the competent experts" in the field of taxation39.

26. In deciding on the lawfulness of interfering with the property rights, the ECHR says that such interference should be provided for by national legislation but the mere presence of statutory provisions is not sufficient to comply with the principle of lawful interference40. According to the ECHR, State interference should not be arbitrary41 and the applicable rules should be sufficiently accessible, clear, and foreseeable such that every person could foresee the consequences of his or her acts42.

27. Article 1 of Protocol No. 1 per se does not rule out the retroactive application of tax regulations43 unless it is inconsistent with the requirements of accessibility, clarity, and foreseeability and t purpose of serving the public interest.

28. The ECHR stressed in the YUKOS case that the "2000 Tax Assessment proceedings were criminal in character"; hence, the intervention had to be evaluated under the requirement of lawfulness of Article 1 of Protocol No.1 to the Convention and in the light of lawfulness-related standards under Article 7 of the Convention44. When speaking of law Article 7 alludes to the very same concept as that to which the Convention refers elsewhere45. The ECHR has repeatedly noted that the concept of “law” comprises statute law as well as case-law46.

29. The applicable law should be sufficiently precise and foreseeable in accordance with the standard of Article 7 of the Convention47. Every person should be able to realize that he or she may be held liable for certain action or omission depending on the drafting language and

37 Iatridis v. Greece, no. 31107/96, § 58, 25 March 1999 (Appendix 30). 38 The National and Provincial Building Society, the Leeds Permanent Building Society and the Yorkshire

Building Society v. United Kingdom, no. 117/1996/736/933-935, 23 October 1997 (Appendix 31). 39 Špaček s.r.o. v. Czech Republic, no. 26449/95, § 59, 9 November 1999 (Appendix 32). 40 N.K.M. v. Hungary, no. 66529/11, § 47, 14 May 2013 (Appendix 33). 41 Там же, § 75. 42 Там же, § 48. См. также: Guiso-Gallisay v. Italy, no. 58858/00, § 82–83, 8 December 2005 (Appendix

34); Hentrich v. France, no. 13616/88, § 42, 22 September 1994 (Appendix 35); Lithgow and Others v. United Kingdom, nos 9006/80, 9262/81, 9263/81, 9265/81, 9266/81, 9313/81, 9405/81), § 110, 8 July 1986 (Appendix 36); Špaček s.r.o. v. Czech Republic, no. 26449/95, § 54, 9 November 1999 (Appendix 32).

43 Di Belmonte v. Italy, no. 72638/01, § 42, 16 March 2010 (Appendix 37). See also M.A. and Others v. Finland, no. 27793/95, 10 June 2003 (Appendix 38).

44 The ECHR Judgment of 20 September 2011, § 566–567. 45 Plechkov v. Romania, no. 1660/03, § 60, 16 August 2014 (Appendix 39). 46 Ibid, Varvara v. Italy, no. 17475/09, § 55, 29 September 2013 (Appendix 40). 47 Plechkov v. Romania, no. 1660/03, § 61, 16 August 2014 (Appendix 39).

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judicial interpretation of the provision in question48. At the same time, the requirement of lawfulness does not outlaw the gradual clarification of applicable rules, including through judicial interpretation especially where the latter could reasonably be foreseen49. The ECHR states expressly that the requirement of “foreseeability” can still be satisfied where the person concerned has to take appropriate legal advice because of the professional activity he or she is carrying on50.

30. In certain cases, the ECHR found a violation of Article 1 of Protocol No.1 to the Convention particularly or to a large extent due to levying public dues itself. The ECHR also noted in these cases that the applicable law had not been sufficiently precise to determine the tax liability of an applicant organization51 and to identify the facts of evidential significance to taxation authorities52. This approach was employed by the ECHR in a range of tax-related cases53.

B. Proportionality of Taxes, Tax Sanctions and Administrative Fees and Their Imposition under Article 1 of Protocol No. 1 to the Convention

31. The ECHR underlines that collecting tax payments must strike a “fair balance” between the demands of the general interest and the applicant’s rights54. This test is applied by the ECHR to both legal entities and individuals55. Under Article 1(2) of Protocol No. 1 to the Convention the ECHR makes no differentiation between taxes, penalties and various administrative fees collectively considered as public dues.

32. Under Article 1 of Protocol No.1 to the Convention, the requirement of proportionality of an interference implies that the ECHR would assess whether the amount of a public due levied imposes an unreasonable burden on an applicant and whether it significantly undermines the applicant’s financial status56. For example, the ECHR found a violation of the Convention in the case where an organization was charged a late payment penalty of 80% of the tax due even though that it would make the entity stop its operations57. A similar approach was used with respect to 98% of tax on severance payment. The ECHR found the amount to be

48 Ibid, Sud Fondi SRL v. Italy, no. 75909/01, § 108, 20 January 2009 (Appendix 41). 49 Sud Fondi SRL v. Italy, no. 75909/01, § 62, 20 January 2009 (Appendix 41). 50 Varvara v. Italy, no. 17475/09, § 56, 29 September 2013 (Appendix 40). 51 Association Les Témoins de Jéhovah v. France, no 8916/05, § 69, 30 June 2011 (Appendix 42). 52 Там же, § 70. 53 Association Des Chevaliers du Lotus D’or v. France, no. 50615/07, 31 January 2013 (Appendix 43);

Association Culturelle du Temple Pyramide v. France, no. 50471/07, 31 January 2013 (Appendix 44); Eglise Evangelique Missionnaire et Salaûn v. France, no. 25502/07, 31 January 2013 (Appendix 45).

54 N.K.M. v. Hungary, no 66529/11, § 42, 14 May 2013 (Appendix 33). See a similar case: R.Sz. v. Hungary, no 41838/1, 12 July 2013.

55 Microintelect OOD v. Bulgaria, no. 34129/03, § 41, 4 May 2014 (Appendix 46). 56 Di Belmonte v. Italy, no. 72638/01, §40, 16 March 2010 (Appendix 37); M.A. and 34 Others v. Finland,

no. 27793/95, 10 June 2003 (Appendix 38); Imbert de Trémiolles v. France, nos 25834/05 and 27815/05, 4 January 2008 (Appendix 47); Spampinato v. Italy, nos 69872/01, 29 March 2007 (Appendix 48); Wasa Liv Ömsesidigt, Försäkringsbolaget Valands Pensionsstiftelse and others v. Sweden, no. 13013/87, 14 December 1988 (Appendix 49); S.C. Complex Herta Import Export S.R.L. v. Romania, no 17118/04, § 38, 18 June 2013 (Appendix 50). See also: Mamidakis v. Greece, no. 35533/04, § 47, 11 January 2007 (Appendix 51).

57 Association Les Témoins de Jéhovah v. France, no. 8916/05, § 49, 30 June 2011 (Appendix 42).

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disproportionately large and in violation of the applicant’s rights guaranteed by Article 1 of Protocol No. 1 to the Convention58.

33. A breach of the requirement of proportionality can also result from the procedure of levying public dues. When assessing proportionality of measures taken by the State, the ECHR assumes that public authorities should act in a timely, most appropriate and consistent manner59. The ECHR emphasizes that domestic authorities should be flexible and at least mindful of serious implications of such measures to the persons concerned when enforcing tax-related court decisions60.

34. The ECHR considers a heavy financial burden to be disproportionate even where it results from conduct of the person concerned61. Therefore the ECHR emphasizes that in striking a fair balance of interests one needs to consider all relevant factors, including the impact of the measures on the applicant’s overall financial status even where the current situation was prompted by the applicant’s actions, including manifestly reckless ones62. In addition, the ECHR case-law shows that even the applicant’s unscrupulous actions do not relieve the State from the obligation to balance public and private interests; in this case, an important aspect of such balance is the length of enforcement proceedings that prevents a person from using his or her property for a long period of time despite retaining property rights63.

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35. Thus, by the time the YUKOS Judgment of 20 September 2011 was delivered, the ECHR had already developed quite consistent approaches to assessing compliance with the requirements of lawfulness and proportionality of levying taxes, tax sanctions and administrative fees under Article 1 of Protocol No.1 of the Convention, namely:

1) the requirement of clarity and foreseeability of laws (statutory laws and case-law) enabling a person to foresee the consequences of his or her actions;

2) the State’s obligation to assess whether the amount of public dues and the procedure of their collection have a decisive impact on financial status of a person whether this person is able to continue economic operations after making all the payments.

36. A conclusion can be drawn that the ECHR findings in the YUKOS case on – а) non-violation of the Convention in imposing additional tax charges on YUKOS for the years 2000 to 200364; b) a violation of Article 1 of Protocol No. 1 by imposing tax liability on YUKOS on the basis of the law which does not meet the foreseeability requirement65; and c) a violation of Article 1 of Protocol No. 1 by the authorities’ failure to ensure a fair balance between the means

58 N.K.M. v. Hungary, no, 66529/11, 14 May 2013 (Appendix 33). 59 Megadat.com SRL v. Moldova, no. 21151/04, § 72, 8 April 2008 (Appendix 52). 60 Rousk v. Sweden, no. 27183/04, § 125, 25 July 2013 (Appendix 53). 61 Perdigão v. Portugal, no. 24768/06, § 76, 16 November 2010 (Appendix 54). 62 Там же, § 74. 63 Luordo v. Italy, no 32190/96, § 70–71, 17 July 2003 (Appendix 55).. 64 ECHR Judgment of 20 September 2011 года, § 605–607. 65 Ibid, § 563–575.

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employed and the pursued legitimate aim of recovering taxes from the company66 – are all in line with the legal standards developed in the ECHR case law.

IV. Constitutional Methods (Alternatives) of Enforcing the Strasbourg Court Judgment of 31 July 2014

37. This section looks at whether there are any impediments to the enforcement of the ECHR Judgment of 31 July 2014 in terms of the general principles of the relationship between the Russian Constitution and the ECHR Judgments (Section А) as well as at the specific arguments provided by the Ministry of Justice to demonstrate that the ECHR Judgment of 31 July 2014 contradicts the Russian Constitution (Section B). In addition, some acceptable methods (means) are considered for organizing the payout of just satisfaction (Section C).

А. General provisions on the relationship between the Russian Constitution and the Strasbourg Court judgments

38. Pursuant to Article 1043 of the Constitutional Court Law, the Constitutional Court reviews the possibility to enforce a decision by an inter-State body for the protection of human rights and freedoms under the Russian Constitution in terms of Russia’s constitutional order and legal framework for the rights and freedoms of man and citizen.

39. The case-law of the Constitutional Court provides for two possible situations of conflict between the constitutional norms and principles, on the one hand, and the decisions of an international body for the protection of human rights and freedoms (including ECHR judgments), on the other. The first situation is where an ECHR judgment is to be enforced through individual and (or) general measures that contradict a specific express provision of the Constitution (for example, "an imperative ban")67. The second situation is where an ECHR judgment is to be enforced through individual and (or) general measures that are not consistent with a domestic law that has been declared constitutional by the Constitutional Court68. However, these two collisions by themselves do not unconditionally exclude the enforceability of an ECHR judgment because they can be removed through either interpretation of constitutional provisions69 or reversal of Constitutional Court’s earlier holdings70.

40. As regards the ECHR Judgment of 31 July 2014, the above analysis suggests two conclusions.

First, there can be no contradiction between the ECHR judgment and the Russian Constitution where the proper enforcement of the judgment is exhausted through the payment of just satisfaction. In its operative paras 2(a) and 2 (b) the ECHR Judgment of 31 July 2014 stipulates that the international obligation of the Russian Federation consists in paying out just satisfaction to the applicant shareholders and preparing a comprehensive plan to this end.

66 Ibid, § 645–658. 67 Constitutional Court Judgment No.12-P of 19 April 2016 (para 1 of the operative provisions) 68 Constitutional Court Judgment No.21-P of 14 July 2015 (paras 2.2 and 6 of the operative provisions);

Constitutional Court Judgment of 6 December 2013 года № 27-P (para 3.2 of the operative part, para 1 of the reasoning); Article 101(2) of the Constitutional Court.

69 Constitutional Court Judgment No.12-P of 19 April 2016 (para 5.5 of the reasoning).

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41. The Russian Constitution does not contain provisions prohibiting an inter-State body for the protection of human rights and freedoms (i.e. the European Court of Human Rights) from awarding, in a case against Russia, just satisfaction to victims of violations of a relevant international treaty of the Russian Federation and determining the procedure for paying out such compensation. Quite to the contrary, in its Judgment No.21-P of 14 July 2015 and Judgment No.27-P of 6 December 2013 the Constitutional Court has stated that, within the meaning of Article 1(1), Article 2, Article 15(2), Article 17(2), Article 18, Article 45(1), Article 46(1&2), Article 52, Article 53, Article 55 and Article 118 of the Russian Constitution, which guarantee the effective judicial protection of everyone’s rights and freedoms, the ECHR final judgment, including the award of just satisfaction, must be complied with71.

42. Furthermore, should the Constitutional Court declare the ECHR judgment unenforceable only in the payment of just satisfaction, such a declaration would be devoid of legal meaning. Article 1042 of the Law on the Constitutional Court provides that if the Constitutional Court finds constitutionally unenforceable, in whole or in part, a decision of the inter-State body for the protection of human rights and freedoms, no enforcement action or act may be taken in Russia with respect to the decision concerned. Similarly, in its Judgment No.-21 of 14 July 2015 the Constitutional Court states that the "rules of the international treaty, which are in breach of constitutional provisions, ... cannot and should not apply in its legal system" (emphasis added by ILPP). However, the non-payment of just satisfaction (and equally its payment) pursuant to a finding by the Constitutional Court would not have any consequences in the Russian legal system. This reflects an essential difference in terms of the ECHR judgment enforcement between just satisfaction and general measures requiring invalidation or amendment of domestic legal standards. The non-payment of just satisfaction pursuant to a judgment of the Constitutional Court would also be without legal consequences in terms of international law as it would not affect Russia’s international obligation to comply with a binding decision of an international tribunal72.

43. Secondly, there can be no question of non-enforcement of the ECHR judgment where the ECHR-established violation of the Convention results neither from Russia’s constitutional nor legislative provisions as interpreted by the Constitutional Court, but rather from unlawful actions and decisions by domestic authorities. The following analysis of the arguments put forward by the Ministry of Justice (Subsection B) shows that the ECHR Judgment of 20 September 2011 findings on the violation of the YUKOS company’s Convention rights have been made on the basis of incorrect interpretation and application by domestic commercial

70 Constitutional Court Judgment No.24-P of 15 November 2016 (para 2.3 of the reasoning). 71 Constitutional Court Judgment No.21-P of 14 July 2015 (para 2.1 of the reasoning); Constitutional Court

Judgment 27-P of 6 December 2013 (para 2 of the reasoning). The Venice Commission’s Final Opinion on Amendment to the Federal Law on the Constitutional Court § 28, 30 (Appendix 58).

72 Article 27 of the Vienna Convention on the Law of Treaties (Vienna Convention) states that a party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. This rule is without prejudice to article 46. Therefore, in the case of conflict between the existing treaty and the national law Article 46 entails neither the invalidity of the treaty nor that of the international court decision relying on that treaty.

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courts and enforcement authorities of the relevant legislative provisions rather than because of the content of such provisions.

B. Analysis of arguments for the inconsistency between the Strasbourg Court Judgment of 31 July 2014 and the Constitution of the Russian Federation

44. In its petition the Ministry of Justice states that the ECHR Judgment of 31 July 2014 affords just satisfaction to the YUKOS company’s shareholders relying on the Convention and the interpretation of its provisions which is inconsistent with the Russian Constitution, its Article 6(2), Article 19(1), 55 (part 3) and 57, in the light of the Constitutional Court's findings provided by Judgment No.9-P of 14 July 2005 in the case concerning the constitutional review of Article 113 of the RF Tax Code in connection with Mrs G.A. Polyakova’s complaint and the request by the Federal Commercial Court of Moscow District (Constitutional Court' Judgment No.9-P of 14 July 2005), (pages 3 to 6).

45. The Ministry of Justice also observes that the ECHR Judgment awards just satisfaction relying on the interpretation of the Convection and the Protocols thereto, which is inconsistent with Article 35 (1&3) and Article 55 (2&3) of the Russian Constitution in the light of the Constitutional Court's findings provided by Judgment No.13-P of 30 July 2001 in the case concerning the constitutional review of Article 7(1(7)), Article 77(1) and Article 81(1) of the Federal Law on Enforcement Proceedings in connection with the request from the Voronezh Region Commercial Court, the request from the Saratov Region Commercial Court and OAO IZYKHSKY Razrez company’s complaint (Constitutional Court Judgment No.13-P of 30 July 2001), (pages 6 to 9).

46. Finally, the Ministry of Justice maintains that enforcing just satisfaction afforded by the Judgment of 31 July 2014 would be in breach of Article 17(3), Article 19(1), Article 46( 3), and Article 55(1) of the Russian Constitution and of the principles of fairness and equality of arms enshrined therein (pages 9 to 11).

1. Constitutional Court Judgment No.9-P of 14 July 2005

47. In its Judgment No.9-P of 14 July 2005 the Constitutional Court affirms the constitutionality of Article 113 of the Russian Federation Tax Code and elucidates the meaning of the contested provisions under constitutional law. Thus, the current legal framework does not provide for these provisions to terminate of the limitation period; they mean that the limitation period for tax liability stops running on the date of the tax audit report that contains the documented evidence of the detected tax offenses, identified during the audit and references to the tax provisions stipulating liability for these offenses; or on the date of the taxpayer’s liability decision by the director (deputy director) of the tax department where no audit report is required (Para 1.1 of the operative part of the Judgment).

48. The Constitutional Court noted that; the federal legislator is empowered to revise the regulation of the consequences of missing the tax offense-related limitation period (para 1.2 of the operative part of the Judgment); and pending such legislative revision, where tax control or audit is obstructed by the taxpayer, the court can recognize the validity of reasons for missing the tax-related limitation period and impose penalties for the tax offenses detected in the

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documents within the audit scope (para 1.3 of the operative part of the Judgment); the meaning of Article 113 of the RF Tax Code under constitutional law, as construed in the Judgment, is definitive and compulsory and may not be interpreted otherwise (para 2 of the operative part of the Judgment).

49. Judgment No.9-P of 14 July 2005 was delivered as a result of the request received from the Federal Commercial Court of Moscow District which examined the cassation case of YUKOS against final and binding judgments. In deciding the YUKOS tax evasion case, commercial courts relied on Article 113 of the RF Tax Code for imposing tax liability beyond the three-year limitation period established by this Article, on the grounds that the taxpayer acted in bad faith and attempted to obstruct and protract the regular progress of control measures. However, the cassation court noted that the lower courts’ way of interpreting the rules on limitation period for tax offenses was not in accordance with the existing legislation and case-law. In other words, it was for the first time that commercial courts applied Article 113 of the Tax Code to the YUKOS case in the interpretation, which was subsequently declared constitutional by the Constitutional Court of the Russian Federation.

50. The ECHR Judgment of 20 September 2011 finds that the Constitutional Court Judgment No.9-P of 14 July 2005 has actually changed the interpretation of the limitation period rules73. In the ECHR’s opinion, the Constitutional Court created an exception from the existing rule; this exception was applied by the courts in imposing penalties on YUKOS for the 2000 and 2001 tax assessments, which could not be reasonably foreseen and conflicted with the requirement of lawful interference with the peaceful enjoyment of possessions (Article 1 of Protocol No.1 of the Convention)74. Consequently, the Judgment of 31 July 2014 concludes that the amounts paid by YUKOS (the 2000 penalties in whole and the 2001 penalties in half) constitute the pecuniary damage that must be compensated for by Russia under Article 41 of the Convention75.

51. The above facts demonstrate that there is no inconsistency between the ECHR Judgment of 31 July 2014 (based on the Judgment of 20 September 2011) and the Constitutional Court Judgment No.9-P of 14 July 2005. First, neither the Judgment of 20 September 2011 nor the Judgment of 31 July 2014 assess the Constitutional Court Judgment No.9-P of 14 July 2005; it is nowhere stated that the Constitutional Court’s interpretation of Article 113 of the RF Tax Code under constitutional law contradicts the Convention, Protocols thereto or the ECHR case-law. The violation of the Convention results from the retroactive application of the new rule on the limitation period by the commercial courts in the YUKOS case but not from this new rule in itself76. On the other hand, the Constitutional Court, by virtue of Article 3 of the Law on the Constitutional Court, did not assess the facts and did not check the lawfulness of the specific judicial decisions in the YUKOS case (paragraph 1.4 of the reasoning of the judgment); in other words, its legal opinion did not ascertain the correctness of the commercial courts’

73 ECHR Judgment of 20 September 2011, § 565. 74 Ibid, § 568–569, 572–575. 75 ECHR Judgment of 31 July 2014, § 20–22. 76 ECHR Judgment of 20 September 2011, § 563–575.

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decision not to apply the three-year limitation period in the case of YUKOS. Thus, there is no direct conflict between the Judgments of 31 July 2014 and the legal view of the Constitutional Court.

52. Second, the Ministry of Justice’s submission can be taken as pointing to inconsistency between the Judgment of 31 July 2014 and the legal consequences of Constitutional Court Judgement No.9-P of 14 July 2005 № 9 P. This argument implies that the application of the new limitation period rule under Article 113 of the Tax Code the Russian Federation in the YUKOS case by commercial courts was allowed only by the binding view of the Constitutional Court. However, such an interpretation does not seem well-founded, since in the YUKOS case the

commercial courts were to assess the possibility or impossibility of the retrospective application of the Constitutional Court’s view to the YUKOS case, taking into account the constitutional prohibition of any retroactive application of the law worsening the situation of the taxpayer, which they did not. Accordingly, the ECHR found a violation of the Convention rights of YUKOS on account of the commercial courts’ acts rather than the Constitutional Court Judgment No.9 P of 14 July 2005.

53. Pursuant to Article 57 of the Russian Constitution, the laws introducing new taxes or worsening taxpayer’s situation may not be retroactive. The Constitutional Court notes that this constitutional requirement provides guarantees in the fiscal relationship of the individual and public authorities, ensures stability in the field of taxation, and enhances taxpayer confidence in the stability of their legal and economic status. Therefore, it is unacceptable not only to make laws retroactive by expressly stating it therein, but also to adopt laws, which are retroactive in substance, albeit without any explicit reference to this effect (the Constitutional Court’s Judgment No.13-P of 8 October 1997 and Judgment No.17-P of 2 July 2013).

54. There is no doubt that any legislative extension of tax prosecution worsens the taxpayer situation. The Constitutional Court Judgment No.9-P of 14 July 2005 actually has changed the practice of application of Article 113 of the Russian Federation Tax Code, which constitutes case law-making77. Consequently, Article 57 of the Russian Constitution, which prohibits worsening of the taxpayer situation, should have been applied to determine the scope of the Judgment in question. The application of the Constitutional Court’s legal point of view in the YUKOS case was within the jurisdiction of the commercial court that should have relied on Article 57 due to the direct effect of the Russian Constitution78.

77 Judgment of 20 September 2011, § 80, 405-408. The law-making character of the Constitutional Court Judgment No.9-P of 14 July 2005 can also be confirmed its comparison with the Constitutional Court Determination No.36-O of 18 January 2005 concerning the rejected of the YUKOS company’s complaint about the violation of their constitutional rights and freedoms by Article 3(7) and Article 113 of the Tax Code of the Russian Federation. For more detail see the Constitutional Court Judgment of 16 June 1998 (subsection 4 of the reasoning); and the Constitutional Court’s Judgment No.13-P of 26 April 2016 (p. 4 of the reasoning).

78 Therefore, it is not about denying the binding nature of the Constitutional Court’s legal points of view; and the point is that its views worsening the situation of a person or a company facing liability under public law cannot apply to the cases initiated before the Judgment, as prescribed by Article 57 of the Constitution.

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55. Thus, it was the application by the commercial court of the Constitutional Court’s legal point of view expressed in its Judgment No.9 of 14 July 2005 despite the constitutionally prohibited worsening of the taxpayer situation that served as a basis for recognizing Russia in breach of Article 1 of Protocol No.1 to the Convention in the part concerning the impossibility to reasonably foresee the application of this legal point of view in the YUKOS case. That being said, one cannot maintain that the Judgment of 31 July 2014 relies on the application of Article 1 of Protocol No. 1 to the Convention in the interpretation which is inconsistent the Russian Constitution in view of the Constitutional Court Judgment No.9 of 14 July 2005.

2. Constitutional Court Judgment No.13-P of 30 July 2001

56. The Constitutional Court Judgment No.13-P of 30 July 2001 elucidates the meaning under constitutional law of Article 81(1) of the Federal Law "On Enforcement Proceedings" with respect to the collection of enforcement fees. According to the Judgment, first, the federal legislator may impose such a penalty (as an administrative sanction) for a failure on the writ of execution issued by courts or other competent authorities; and, second, the statutory amount (7% of the levy) is only the permitted maximum that can be lowered depending on the nature of offense, the seriousness of damage, the degree of guilt, the offender’s financial situation, and other material circumstances (para 2 of the operative provisions).

57. Indeed, in the YUKOS case, the European Court of Human Rights and the Russian Constitutional Court formally disagree on the nature of enforcement fees. While the Constitutional Court considers enforcement fees to be a penalty, the ECHR regards it as a measure of compensation and stresses in its Judgment of 20 September 2011 that its collection from YUKOS in the maximum amount of 7% was extremely disproportionate to the potential or actual costs of the enforcement proceedings79. However, this disagreement does not impede

the enforcement of the ECHR Judgment of 31 July 2014 in the manner consistent with the Russian Constitution; in fact, both Courts reach the same conclusion about the importance of following the principle of proportionality in the application of the Federal Law "On Enforcement Proceedings ", including regarding the collection of enforcement fees.

58. In the YUKOS case, the ECHR found breach of Article 1 of Protocol No.1 to the Convention by the Russian Federation on account of collection of enforcement fees against the test of a fair balance between the legitimate public interest in recovering tax arrears and the protection of property rights of the YUKOS company80.

59. It is essential that in assessing proportionality of the restriction the ECHR examined collection of enforcement fee along with a combination of all other related measures (the attachment, freezing and seizure orders, and the auction sale of the company’s assets) as they had one aim in common, i.e. to force YUKOS to meet its tax liabilities 81. The ECHR expressly stated that with regard to the enforcement proceedings the principal issue in the YUKOS case is the time required to pay the tax arrears and penalties brought against the company by the Russian

79 ECHR Judgment of 20 September 2011, § 655. 80 Ibid, § 647. 81 ECHR Judgment of 20 September 2011, § 646–647.

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Federation and the decision to put OAO Yuganskneftegaz, the company’s main production facility, as a first-priority item of the auction sale scheduled to that end82.

60. Thus, the collection of 7% enforcement fee as stand-alone and separate from the other measures taken against YUKOS would not have amounted to disproportionate State interference with the right to peaceful enjoyment of possessions provided for in Article 1 of Protocol No.1 to the Convention.

61. At the same time, the ECHR found that the measures imposed on the applicant company, if considered as a combination, were not proportionate to the legitimate aim of securing tax payments by YUKOS. The ECHR stressed that, given the very serious impact of the measures taken on the future of the company, the State should have taken account of all critical factors in the enforcement proceedings and their effect83. These factors, inter alia, include the nature and amount of the existing debt, as well as the pending and potential financial claims against the applicant company, the scope of the applicant company’s activities and its contribution to the national economy, the current and prospective economic situation of the company and assessment of its viability in the course of enforcement proceedings84. In addition, the ECHR also pointed out that the enforcement authorities should have properly considered the implications of the enforcement measures for the YUKOS company and its various categories of its shareholders, as well as the views of its top-management and owners, and the company’s conduct throughout the enforcement proceedings, including the substance of any propositions the company could have made with respect of the enforcement of court decisions85.

62. Moreover, ECHR has paid special importance to the fact that domestic authorities, at no single stage of enforcement proceedings, made an attempt to assess any possible alternative methods to collect debts from the company and the impact of such measures on the company’s future86.

63. The ECHR also emphasized that the enforcement officers were entrusted within the system of national legislation with critical powers to preserve YUKOS87. And the 7% levy is viewed by the ECHR as one of many factors seriously affecting the applicant's situation in the enforcement proceedings88.

64. Thus, in finding the violation of the YUKOS company’s rights protected by Article 1 of Protocol No.1 to the Convention, the ECHR mostly relied not on the upper limit of enforcement fees imposed as a penalty, but on the actual failure of the competent national authorities to implement a set of varied measures within the scope of enforcement proceedings and to properly consider the effect of these measures on the business viability in compliance with the principle of proportionate restriction of rights89.

82 Ibid, § 650. 83 Ibid, § 651. 84 Ibid, § 651. 85 Ibid, § 651. 86 ECHR Judgment of 20 September 2011, § 652. 87 Ibid, § 654. 88 Ibid, § 655. 89 Ibid, § 657.

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65. The above conclusion does not conflict with the Constitutional Court’s view expressed in its Judgment No.13 of 30 July 2001 that the rate of enforcement fees can be lowered by enforcement authorities depending on the factual circumstances of a given case90. Should bailiffs and (or) commercial courts have followed the Court’s legal view, it would have prevented some of the adverse and irreversible consequences for YUKOS.

66. Consequently, one cannot maintain that the ECHR Judgment of 20 September 2011 relies on the interpretation Article 1 of Protocol No.1 to the Convention which is inconsistent with the Russian Constitution in view of the Constitutional Court Judgment No.13-P of 30 July 2001.

67. The Ministry of Justice argues that YUKOS did not aim to reduce the amount of enforcement fees in the domestic proceedings (page 8 of the petition). This argument as such by no means indicates a contradiction between the legal views held by the Strasbourg Court and those of the Constitutional Court with regard to the proportionality of enforcement fees and irrespective of their nature. As regards the applicant company’s failure to exhaust domestic remedies (Article 46(3) of the Constitution), this argument is not fully confirmed by the case file. In particular, YUKOS has exhausted all appeals in the domestic courts against the enforcement fees, including the 2000 assessment, and complained about the 2001 and 2002 amounts to some of the courts as well91. The ECHR Judgment of 20 September 2011 rejected Russia’s argument that the application submitted by YUKOS was inadmissible because the remedies against the enforcement fees had not been exhausted in the domestic proceedings. The ECHR based this conclusion on the fact that the applicant company had lacked effective remedies at its disposal in the given circumstances of the case92. This conclusion, which rests on a well-established exception to the general requirement of exhaustion of domestic remedies93 cannot be regarded as inconsistent with Article 46(3) of the Russian Constitution.

3. Constitutional Principles of Fairness and Equality of Arms (Article 17(3), Article 19(1), Article 46(3), and Article 55(1) of the Russian Constitution)

68. The Ministry of Justice maintains that the award of just satisfaction in the ECHR Judgment of 31 July 2014 is in breach of Article 17(3), Article 19(1), Article 46(3), and Article 55(1) of the Russian Constitution and the constitutional principles of fairness and equality of arms, including before an international body for the protection of human rights and freedoms, in so far as "adding the specified persons to the compensation list for the damage allegedly inflicted by the Russian authorities, puts those persons in a better position as compared to other Russian

90 That Russian and European approaches regarding proportionality of enforcement fees converge may be demonstrated, for example, by the fact that in the YUKOS proceedings on just satisfaction the ECHR accepted the 4% rate suggested by the Russian Ministry of Justice as the optimal collection rate for the purpose of calculating the amount of just satisfaction. See the Judgment of 31 July 2014, § 32–33.

91 Judgment of 20 September 2011, § 130–134, 177–187, 200–204. 92 Ibid, § 642. 93 Ibid, § 636–638; Collected Articles on State Responsibility for International Wrongdoings (The UN’s

International Law Commission’s Report at 53rd Session (2001)) (Appendix 56); Collected Aricles on Diplomatic Protection (The UN’s International Law Commission’s Report at 58rd Session (2006)) (Appendix 57).

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applicants at the ECHR, going against the principle of equality of arms, which is clearly a breach of Article 46(3) of the Constitution stipulating that applying to an international body for the protection of human rights and freedoms is subject to the exhaustion of domestic legal remedies” (p. 11 of the petition).

69. Firstly, the Ministry of Justice’s arguments are driven by a confusion between eligible applicants and beneficiaries of just satisfaction under the Convention. As discussed above in Section II-D of this brief, the ECHR case-law confirms that compensation can be awarded to persons who have not taken part in domestic proceedings, have not been declared victims of violations of the Convention and have not been parties to proceedings before the ECHR. As for the principle of equality of arms, the applicants before the ECHR enjoy more procedural rights than those entitled to just satisfaction only, on the one hand, and the award of just satisfaction to a third party does not lift the requirement of exhaustion of domestic remedies by an eligible applicant in the case (the domestic remedies have been exhausted by YUKOS in the case at hand).

70. Secondly, the Ministry of Justice’s disagreement with the ECHR’s interpretation of the Convention regarding the scope of procedural rights and responsibilities of the parties by itself does not indicate any contradiction between the ECHR judgments and the Russian Constitution and especially its Article 46(3) which is meant to provide additional guarantees for human rights and freedoms and. hence, cannot be used to deprive the beneficiaries of just satisfaction afforded to them by the ECHR Judgment. Anyway, the enforcement proceedings before the Constitutional Court may not be used by a government’s representative to re-argue for the wrong interpretation of the Convention after identical arguments have already been rejected by the ECHR94.

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71. Therefore, the Judgment of 31 July 2014 delivered under the Convention is not inconsistent with the fundamentals of Russia’s constitutional system and its legal framework for the rights and freedoms of citizens, including with regard to the content of the Constitutional Court’s Judgments No.9-P of 14 July 2005 and Judgment No.13-P of 30 July 2001.

В. Acceptable Methods (Means) for Payout of Just Satisfaction

72. The foregoing suggests that the payout of just satisfaction to YUKOS shareholders is a constitutionally permissible way to enforce the Judgment of 31 July 2014.

73. In its Judgment of 31 July 2014 the ECHR has clearly identified the persons entitled to compensation. Paragraph 2(a) of the Judgment says that “the State is to pay the applicant company’s shareholders as they stood at the time of the company’s liquidation and, as the case may be, their legal successors and heirs”. Yet, paragraph 38 prescribes that the amount of compensation should be paid to the applicant company’s shareholders in proportion to their nominal participation in the company’s stock. In order to facilitate the shareholder identification, the ECHR further refers to the list of the applicant company’s shareholders, as

94 ECHR Judgment of 29 January 2009, 439–444; ECHR Judgment of 31 July 2014, § 15–17, 38–42.

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they stood at the time of the company’s liquidation, which is held by ZAO VTB Registrator (АО VТB Registrator since 2016), the company which had held and ran the register of the applicant company 95.

74. The ECHR Judgment of 31 July 2014 does not prescribe any payout method; it refers to the specific list of persons that should receive just satisfaction in proportion to their share in the company’s stock and orders preparation of the distribution plan with a schedule of payments (para 2(b) of operative provisions of the Judgment). Therefore, Russia can opt for any available method of distribution of the award to enforce the Judgment.

75. In this case, the domestic civil law provisions governing distribution of a liquidated entity’s assets might apply mutatis mutandis and insofar as they do not go against the essence of ECHR just satisfaction award distribution. For example, Article 64(5.2) of the Civil Code, as amended by Federal Law No. 99-FZ of May 5, 2014, provides that in the case of located property belonging to a liquidated entity, which was removed from the unified State register, including on insolvency (bankruptcy) grounds, the person concerned or a competent authority can apply to the court for determining the method of property distribution among entitled beneficiaries. To that end, the court will appoint a bankruptcy administrator to distribute the identified assets of the liquidated entity (Section 5.2 para 1). The method of distribution of the liquidated entity’s identified assets will be determined provided the sufficiency of funds and the possibility of distributing them among the identified beneficiaries (Section 5.2 para 2) under the Civil Code liquidation rules for legal entities (Section 5.2 para 3).

V. Conclusion

76. The above analysis allows specific conclusions to be drawn on the points raised:

I. A company’s shareholders may take part as applicants or beneficiaries of just satisfaction in proceedings before the ECHR. As applicants in such proceedings, the shareholders cannot validly complain of a violation of a company’s rights unless there are exceptional circumstances. As for beneficiaries, which is the case with OAO Neftyanaya Kompaniya Yukos v. Russia, under certain circumstances shareholders can receive just satisfaction as successors of the company liquidated during proceedings before the ECHR despite that fact that they neither took part in domestic proceedings nor acted as parties (applicants) to the proceedings before the ECHR or were declared victims of a violation of the Convention.

II. Applying Article 1 of Protocol No. 1 to the Convention in OAO Neftyanaya Kompaniya Yukos v. Russia is perfectly consistent with the ECHR standards of review of lawfulness of taxes, tax penalties or other contributions. These standards imply i) the requirement of precision and foreseeability of legislation (comprising statutory laws and case-law) enabling a person to foresee the consequences which his or her action may entail; ii) the State’s duty to assess

95 URL: http://vtbreg.com/company/about_us/information.

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whether the amount and collection of levies constitutes an undue financial burden that will force the entity to cease its economic operations after making all the payments.

III. Paying out just satisfaction to the YUKOS shareholders is a constitutionally permissible way to enforce the ECHR Judgment in the case of OAO Neftyanaya Kompaniya Yukos v. Russia of 31 July 2014. The payout of the just satisfaction award, which has been awarded by the ECHR for the violations of the Convention resulting from the unlawful acts and decisions by domestic authorities, not only does not contradict but rather directly follows from the general principles of the relationship between the Russian Constitution and the ECHR judgments. The ECHR Judgment of 31 July 2014 does not contradict the fundamentals of Russia’s constitutional system and constitutional legal framework for the rights and freedoms of man and citizen, including those covered by the Constitutional Court's Judgment No.9-P of 14 July 2005 and Judgment No.13-P of 30 July 2001. The Russian Federation may opt for any available alternative to provide the payout of just satisfaction within the scope specified in para. 2(a)&(b) of the Judgment of 31 July 2014. That said, domestic civil law provisions governing distribution of a liquidated entity’s assets might apply mutatis mutandis and insofar as they do not go against the essence of ECHR just satisfaction award distribution.

7 December 2016

Independent Non-profit Organization

Institute for Law and Public Policy

Director

Olga Sidorovich