BIMER S.A. proti Moldavsku

FOURTH SECTION

DECISION

AS TO THE ADMISSIBILITY OF

Application no. 15084/03
by BIMER S.A.
against Moldova

The European Court of Human Rights (Fourth Section), sitting on 23 May 2006 as a Chamber composed of:

Sir Nicolas Bratza, President,
Mr J. Casadevall,
Mr G. Bonello,
Mr M. Pellonpää,
Mr K. Traja,
Mr S. Pavlovschi,
Mr J. Šikuta, judges,
and Mr T.L. Early, Section Registrar,

Having regard to the above application lodged on 7 March 2003,

Having regard to the observations submitted by the respondent Government and the observations in reply submitted by the applicant,

Having deliberated, decides as follows:

THE FACTS

The applicant, Bimer S.A., is a company incorporated in the Republic of Moldova. It is represented before the Court by Mr R. Zeglovs, a lawyer practising in Riga, Latvia. The Moldovan Government (“the Government”) are represented by their Agent, Mr V. Pârlog.

A. The circumstances of the case

The facts of the case, as submitted by the parties, may be summarised as follows.

1. Background to the case

On 10 June 1994, by Presidential Decree No. 195, it was permitted to open and operate duty free shops at land, water and air-border crossings. In accordance with the Decree, the duty free shops were entitled to sell imported goods without having to pay customs tax (see below).

The applicant company was incorporated in Moldova in 1998. Its shares were owned by Moldovan, American and British investors and therefore it qualified as a company owned by foreign investors and thus benefited from special incentives and guarantees as provided for by the Law on Foreign Investments (see below).

On 12 June 1997 the applicant company signed a contract with the Leuşeni Customs, at the border between Moldova and Romania, providing for the opening of duty free shops on the territory of the customs. The contract did not contain any provisions as to its duration. The contract was approved by the Head of the Customs Department of the Government and by the Minister of the National Security.

On 3 July 1998 and on 2 December 1998 the company obtained two licences for operating a duty free shop and a duty free bar, within the shop, at the Leuşeni Customs. The licences were issued in accordance with Presidential Decree No. 195 of 10 June 1994 (see below) and they did not contain any provisions as to their duration. For the purpose of opening the shop and bar the applicant company bought the necessary equipment and built the premises.

On 24 April 2002 the Parliament made an amendment to the Customs Code by which duty free shops were henceforward restricted to international airports and on-board aircraft flying international routes (section 51: see below).

On 18 May 2002 the Customs Department ordered the closure of all duty free shops which were not located in international airports or on-board aircraft flying international routes (“the order”).

2. The applicant’s court action against the order

On 12 June 2002 the applicant company, together with other companies similarly affected, lodged an action against the order with the Court of Appeal of the Republic of Moldova.

The applicant argued inter alia that the grounds relied on by the Customs Department to close down its duty free shop and bar were not enumerated in the exhaustive list of grounds for closing down such shops provided for in section 56 of the Customs Code.

Moreover, in the light of section 46 the Law No. 780, the new amendments to the Customs Code could not have retroactive effect and could be interpreted only as limiting the opening of duty free shops in the future, and not as closing down those already open.

According to the applicant the order conflicted with section 40 of the Law on Foreign Investments (see below), which stipulated that the activity of a company owned by foreign investors could be terminated only by a governmental decision or a court order, and only when the company had seriously breached Moldovan legislation and its articles of incorporation.

The applicant further argued that according to section 43 of the Law on Foreign Investments, in the event of the adoption of less favourable new legislation, companies owned by foreign investors were entitled to rely on the old legislation for a period of ten years. The ten-year period began to run from the date of enactment of the new legislation. Moreover, the second paragraph of the same section specifically provided that foreign-owned companies which enjoyed customs incentives in accordance with the former legislation of the Republic of Moldova had the right to enjoy those incentives after new legislation came into effect.

3. The judgment of the Court of Appeal of the Republic of Moldova

On 26 June 2002 the Court of Appeal of the Republic of Moldova ruled in favour of the applicant company and quashed the order, relying inter alia on the following reasons:

“...According to the second paragraph of section 43 of the Law on Foreign Investments, foreign investors and enterprises with foreign capital which enjoyed customs, tax and other incentives in accordance with legislation of the Republic of Moldova formerly in force, have the right to enjoy these incentives after the new legislation comes into effect.

...

The court considers that the order violated the applicant’s right to property guaranteed by section 46 of the Constitution ... and by Article 1 of Protocol No. 1 to the Convention....”

The Customs Department appealed against this judgment to the Supreme Court of Justice.

4. The judgment of the Supreme Court of Justice

On 11 September 2002 the Supreme Court of Justice allowed the Customs Department’s appeal, quashed the judgment of the Court of Appeal and dismissed the applicant’s action. The grounds relied on by the Supreme Court were the following:

“... The order did not bring an end to the activity of duty free shops in general but only to their activity in certain locations. Therefore, the conclusion reached by the Court of Appeal that due to the order the entire business of foreign investors in this field was terminated is incorrect...

The amended section 51 of the Customs Code defines a duty free shop as a customs regime (regim vamal) which consists of the sale of goods under customs supervision in specially designed places situated in international airports and on aeroplanes. Through this provision the policy makers have regulated and limited the location of these shops, but they have not prevented them from functioning. It follows that the reason given by the Court of Appeal that the foreign investors’ right to activity was violated is devoid of any legal support. The applicants are not precluded from opening duty free shops in places allowed by the law. ... Accordingly, the order only brings the activity of duty free shops into conformity with the new provisions of the Customs Code, but it does not force the applicants to cease trading...”

The Supreme Court of Justice did not express any view on the applicant’s argument and on the ruling of the Court of Appeal concerning the applicability of paragraph 2 of subsection 2 of section 43 of the Law on Foreign Investment to the case. Its judgment was final.

B. Relevant domestic law and practice

1. Relevant extracts from the Constitution of the Republic of Moldova

“Article 46. The Right to Private Property and Its Protection

(1) The right to possess private property ... [is] guaranteed.

(2) No one may have his property expropriated except for reasons dictated by public necessity, as established by law, and subject to the payment of just and appropriate compensation made in advance.

(3) No assets legally acquired may be confiscated. The effective presumption is that of legal acquirement.

...”

2. Presidential Decree No. 195 of 10 June 1994

“...

Section 3. Imported goods which are to be sold at “duty free” shops... shall be exempted from customs tax;

...

“Duty free” shops can be operated at the road, naval and air border crossing points....”

3. The Law on Foreign Investments of 1 April 1992

“Section 1. The applicable law

...

3.... The laws which contradict the present law in the part concerning the foreign investments shall not be applicable.

...

Section 35. Customs incentives for the goods brought into the country

1. The goods provided for by section 3 of the present law [cars, equipment, office equipment, row material...], which are brought into the country as a contribution to the statutory capital shall be exempted from customs tax.

...

Section 36. Customs incentives for import and export

...

2. A company owned by foreign investors shall be exempt from customs tax for merchandise (raw materials...), imported for the purpose of producing goods to be exported.

Section 39. Guarantees concerning nationalisation or expropriation of foreign capital investments

1. Foreign investments in the Republic of Moldova are granted complete safety and protection.

2. Foreign investments cannot be expropriated, nationalised or subjected to any other similar measures in any way other than according to the law, on the basis of a law for the aim of national interest and against the payment of appropriate compensation.

3. Compensation shall correspond to the value of investment assessed immediately before the moment of expropriation, nationalisation or other similar measure. It has to be paid not later than three months from the moment the above measures are taken, with an appropriate bank interest rate calculated before the date of payment. The compensation has to be paid in the currency in which the investment was made and it may be transferred abroad without any restrictions.

4. The payment of compensation is ensured by the State body entitled to carry out the expropriation, nationalisation or any other similar measures. The State body must determine the value of investment and pay the compensation not later than on the day of the expropriation, nationalisation or other similar measure. If the State body does not have sufficient funds, the compensation shall be paid from the State budget.

5. The affected investor is entitled to request the verification of the legality of the expropriation, nationalisation or other similar measure and of the amount of the compensation in the manner provided for by law.”

Section 40. Guarantees concerning forcible suspension and cessation of activity

1. The activity of an enterprise with foreign investors can be forcibly suspended only in accordance with a decision of the Government of the Republic of Moldova or a competent court, when the enterprise has seriously violated the terms of the legislation of the Republic of Moldova or the provisions of its articles of incorporation...

2. If the activity of an enterprise with foreign investors is suspended on the initiative of a body of State control, and no violations of legislation or of the constitutive documents are found, the above body shall compensate the enterprise for any damages including lost profit. If the State body does not have sufficient money, the payment is made from the State budget.

3. The assets of a foreign investor whose enterprise is liquidated or who withdraws from the enterprise may be taken by him abroad without any licence.”

...

“Section 43. Guarantees concerning changes of legislation

1. In the event of the adoption of new legislative acts changing the conditions of activity of an enterprise with foreign capital created before the adoption of such acts, that enterprise shall have the right to have applied to it the legislation of the Republic of Moldova operating on the day of its creation for a period of ten years calculated from the day of the entry into force of the new legislative act.

2. The provisions of paragraph 1 do not extend to legislation related to tax, customs, finance, monetary, credit, currency or anti-trust measures, or to legislation regulating State security, protection of the environment, social order, morals or the health of the population.

Foreign investors and enterprises with foreign investors which enjoyed customs, tax and other incentives in accordance with former legislation of the Republic of Moldova shall enjoy those incentives after the new legislation comes into effect....”

4. The Customs Code of the Republic of Moldova as amended on 24 April 2002

“Section 51. The duty free shop – a customs regime (regim vamal) which consists of the sale of goods under customs supervision in specially designed places situated in international airports and on-boards aircraft.

Section 56. A duty free shop can be closed down if the licence expires or if it is annulled or withdrawn in accordance with the law.”

5. Law No 780 of 27 December 2001

“Section 46 § 1. A law may have effect only during the period of its validity and may not have retroactive or prospective effect.”

6. Treaty Between the United States of America and the Republic of Moldova Concerning the Encouragement and Reciprocal Protection of Investment, signed at Washington on April 21,1993

“...

Article II. 3. (a) Investment shall at all times be accorded fair and equitable treatment, shall enjoy full protection and security and shall in no case be accorded treatment less than that required by international law.

(b) Neither Party shall in any way impair by arbitrary or discriminatory measures the management, operation, maintenance, use, enjoyment, acquisition, expansion, or disposal of investments. For purposes of dispute resolution under Articles VI and VII, a measure may be arbitrary or discriminatory notwithstanding the fact that a Party has had or has exercised the opportunity to review such measure in the courts or administrative tribunals of a Party.

(c) Each Party shall observe any obligation it may have entered into with regard to investments.

...

Article III. 1. Investments shall not be expropriated or nationalized either directly or indirectly through measures tantamount to expropriation or nationalization ("expropriation") except: for public purpose; in a nondiscriminatory manner; upon payment of prompt, adequate and effective compensation; and in accordance with due process of law and the general principles of treatment provided for in Article II(3). Compensation shall be equivalent to the fair market value of the expropriated investment immediately before the expropriatory action was taken or became known, whichever is earlier; be calculated in a freely usable currency on the basis of the prevailing market rate of exchange at that time; be paid without delay; include interest at a commercially reasonable rate from the date of expropriation; be fully realizable; and be freely transferable.”

6. The letter from the Parliamentary Commission on Economy, Industry, Budget and Finance

On 31 July 2001 the Commission on Economy, Industry, Budget and Finance of the Parliament of the Republic of Moldova replied to an enquiry made by the applicant in respect of the interpretation of Section 43 of the Law on Foreign Investment. In a letter signed by the President of the Commission, Mr. N. B., it stated the following:

“Subsection 1 of Section 43 provides that in the event of new legislation, changing the conditions of activity of a company with foreign investors which was created before the adoption of such new legislation, that company has the right to rely on the legislation in force on the day of its creation for a period of ten years calculated from the day of the entry into force of the new legislation.

The above is a general rule, which refers to any legislation changing the general conditions of activity of a company owned by foreign investors.

Paragraph 1 of Subsection 2 states the type of legislation not covered by the rule in Subsection 1, and which is applicable from the very moment of its entering into force.

Paragraph 2 of Subsection 2 states the exceptions to Paragraph 1 of Subsection 2. These exceptions refer only to privileges (facilităţi) (incentives (înlesniri), exemption of payments (scutiri de plăţi), etc.), which were provided for in law at the moment of creation of the company.

Accordingly, Paragraph 2 of Subsection 2 does not contradict the provisions of Paragraph 1 of Subsection 2, but makes clear that companies with foreign investors, which enjoyed customs, tax or other forms of privileges in accordance with the legislation of the Republic of Moldova formerly in force, have the right to enjoy those privileges ten years after the entering into force of new legislation.”

In their observations of October 2005 the Government argued that the above letter was not signed by the President of the Commission on Economy, Industry, Budget and Finance of the Parliament, but by an ordinary member of that Commission and that in any event, according to the Moldovan legislation, it could not be considered as an official interpretation of Section 43 of the Law on Foreign Investment but merely as an explanation. They requested the Court not to admit the letter as evidence.

7. Relevant case-law submitted by the parties

The applicant company submitted for the Court’s attention a judgment of the Court of Appeal of the Republic of Moldova in the case of Bimer S.A. versus the Ungheni Customs Office in which a similar matter was decided. In that case the applicant successfully challenged the closure of another duty free shop operated by it at the Ungheni customs point on the same grounds as in the present case. By its final judgment of 9 July 2002 the Court of Appeal found inter alia that the applicant company had been entitled to rely on paragraph 2 of subsection 2 of section 43 of the Law on Foreign Investments and that the amended section 51 of the Customs Code could not have any bearing on the applicant company since according to section 46 of the Law No 780 it could not have retroactive effect on the duty free shops opened prior to its enactment.

COMPLAINT

The applicant company complained that the closure of its duty free shop and bar constituted a breach of its rights provided for by Article 1 of Protocol No. 1 to the Convention. In particular, it argued that the new section 51 of the Customs Code could not apply retroactively to already existing duty free shops; that section 56 of the Customs Code contained an exhaustive list of grounds for closing down a duty free shop and such a ground as the one invoked by the domestic authorities was not provided therein; and finally that according section 43 it was entitled to enjoy the old legislation for another ten years. The applicant concluded that the closure of its duty free shop and bar was not based on law and did not serve any public interest.

A consequence of that closure was the impossibility for the applicant to use the facilities which it had built in the customs area for the purpose of running the duty free shop and bar. Their conversion for use for a different purpose, if possible, would involve great expense, substantial re-equipment and new authorisation from the State. Even assuming that such investment could be made, it remained questionable whether the use of the facilities would be profitable.

THE LAW

Alleged violation of Article 1 of Protocol No. 1 to the Convention

The applicant alleged a violation of Article 1 of Protocol No. 1 to the Convention, which states as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State 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 Government argued that the duty free shop and bar was not the only type of activity provided for by the applicant company’s articles of association. Accordingly, it would be incorrect to state that by closing down the duty free shop and bar, the entire activity of the applicant company was stopped.

The applicant company was entitled to open a duty free shop and bar at the airport or on-board planes. At the same time it was not deprived of its goods, since it could use the premises of the former duty free shop for other purposes and it could sell the merchandise under a regular, non-duty-free regime. Accordingly, the measure applied to the applicant can only be characterised as a control of use of property.

The interference with the applicant’s right to property was carried out in accordance with the new section 51 of the Customs Code and accordingly it was provided by law and it pursued the public interest of avoiding or reducing the number of offences of a financial or tax nature.

According to the Government, the duty free regime enjoyed by the applicant company under the terms of its licences did not constitute “customs, tax and other incentives” for the purposes of paragraph 2 of subsection 2 of section 43 of the Law on Foreign Investments and therefore the applicant could not rely on that provision and hope to have the old legislation applied to it for a further ten years.

The Government argued that the “customs, tax and other incentives” mentioned in paragraph 2 of subsection 2 of section 43 referred only to the incentives stipulated in sections 35 and 36 of the Law on Foreign Investments.

They also submitted that since both the Law on Foreign Investments and the Customs Code are organic laws, the newer law, which is the Customs Code, shall apply.

As a final argument in support of their position that the duty free regime is not “customs, tax and other incentives” for the purposes of paragraph 2 of subsection 2 of section 43, the Government submitted a letter from the Customs Department, which, they argued, was the only body entitled to give explanations concerning customs legislation. In that letter, the Customs Department reiterated its position from the domestic proceedings that the duty free regime was not “customs, tax and other incentives” for the purposes of paragraph 2 of subsection 2 of section 43 of the Law on Foreign Investments.

The applicant company argued that the selling of goods in its duty free shop and bar had been its only activity. It submitted that the Law on Foreign Investments was clear in stating that foreign investments were guaranteed complete safety and protection. Such was the wording of section 39 of the Law. In the applicant’s view this law had been created in order to encourage foreign investors to invest their money in the Moldovan economy, in conditions of safety while not being afraid of any change of legislation or of changes of the political course of Moldova. In such circumstances, the ambiguity of the text concerning the guarantees afforded by this law to it must have been interpreted in its favour. If a state interprets contradictions within its legislation for its benefit, that constitutes a breach of the principle of lawfulness, and accordingly a breach of the right to respect for one’s possessions.

The applicant company argued that the legislation applied to it was not foreseeable and that accordingly the interference with its right to property was not in accordance with the law.

In particular, the applicant referred to the guarantees provided for in section 43 of the Law on Foreign Investments.

Moreover, the principle of non-retroactivity of laws stipulated in section 46 of the Law No. 780 had been breached by the authorities when applying the new section 51 of the Customs Code to duty free shops opened in 1998.

The closure of the duty free shops had also been illegal because it was in breach of section 56 of the Customs Code which enumerated in an exhaustive manner the grounds on which a duty free shop could be closed down. That provision did not say anything about closing down a duty free shop on the ground of a change of legislation.

The applicant submitted that in a similar case decided by the Moldovan courts by a final judgment of 9 July 2002, the legislation enumerated above was interpreted and applied differently (see the “Relevant Domestic Law and Practice” above). That judgment, however, was never complied with by the Moldovan authorities.

Since 60% of the shares of the company were held by a United States resident, the treatment applied to the company was contrary to the provisions of the Treaty between the United States of America and the Republic of Moldova concerning the encouragement and reciprocal protection of investment.

The applicant company also argued that the interference had been disproportionate and that a fair balance had not been struck between the public interest and its individual rights and that thus the interference constituted an excessive burden for it.

The theoretical possibility for the applicant to relocate its duty free shop and bar in accordance with the new section 51 of the Customs Code was excluded because that would have required additional large investments, which was not consistent with the initial investment plan, and moreover, the applicant would not have had any guarantees that after such relocation the law would not change again and that it would not lose its business again.

The applicant also argued that the interference amounted to a deprivation and that no compensation was paid by the State.

The Court notes that the respondent Government have not pleaded that the applicant has failed to make use of domestic remedies, and it need not therefore examine this matter. In the light of the parties’ observations, the Court considers that the application raises serious questions of fact and law both in respect of the substantive and procedural rights which are of such complexity that their determination should depend on an examination on the merits. It cannot, therefore, be considered manifestly ill-founded within the meaning of Article 35 § 3 of the Convention, and no other ground for declaring it inadmissible has been established.

For these reasons, the Court unanimously

Declares the application admissible, without prejudging the merits of the case.

T.L. Early Nicolas Bratza
Registrar President