Case No.: CH/00/5134, CH/00/5136, CH/00/5138 and CH/01/7668
Applicant: Muhamed ŠKRGIĆ, Raska ĆERIMOVIĆ, Fikret MURTIĆ and the Association for the Protection of Unemployed Shareholders of Agrokomerc
Respondent Party: Federation of Bosnia and Herzegovina
Other Title: Agrokomerc Case
Date Delivered: 9 March 2001

DECISION ON ADMISSIBILITY AND MERITS

Factual Background

The applicants Muhamed Škrgic, Raska Cerimovic and Fikret Murtic and the members of the Association for the Protection of Unemployed Shareholders of Agrokomerc ("Shareholders Association") were employed by the company Agrokomerc in Velika Kladuša. They claimed to hold shares in the company which they allegedly acquired during the period of 1991 until 1994 under the so-called "Markovic scheme" for privatisation. Primarily, the applicants alleged that they acquired such shares as partial payment for salaries.

The applicants complained that they were denied their rights to take part in the decision-making process of Agrokomerc and to exercise other shareholder rights since 1994. In addition, on 17 July 1997 the Assembly of the Una-Sana Canton issued a decision that "establishes a list of enterprises in the area of the Una-Sana Canton over which the powers and obligations of the owner on the basis of state capital are performed by the Government of the Canton". Agrokomerc was included in the list in question. The applicants interpreted this decision as declaring Agrokomerc to be exclusively state-owned. Based upon a conclusion of approval by the Agency for Privatisation of the Federation, on 7 March 2001 Revsar, a company for auditing and consulting in Sarajevo, issued a decision on the results of its renewed audit regarding the transformed ownership of Agrokomerc. In the renewed audit, Revsar concluded that the registered internal share capital was not properly and effectively formed; therefore, Revsar completely cancelled it in favor of state capital in the auditing process. The applicants challenged the validity of both these decisions, and any other official acts that deprived them of their rights as shareholders of Agrokomerc.

Admissibility

Considering its competence ratione personae, the Chamber observed that the Federation had official power and control over the governing bodies of the company and that the actions of these bodies were thus imputable to the Federation. In addition, the Shareholders Association had standing to lodge the application since it was a legal person and therefore a victim to the alleged violations.

Furthermore, the Chamber found that the event that actually deprived the applicants of their protected possessions was the cancellation of internal shares in favour of state-owned capital, not earlier laws or acts. Since this event occurred after 1995, the Chamber was competent ratione temporis to review the application. The applicants' claim of the right to work, however, pertained to earlier events and so was declared inadmissible.

Reviewing the application for non-exhaustion of effective domestic remedies, the Chamber considered the applicants' unsuccessful attempts to initiate judicial, administrative and extra-judicial proceedings and observed that no domestic remedy effective in practice was available to the applicants. The Chamber also noted that the six-month period from the final decision complained of had not expired at the time of lodging the applications. Consequently, the Chamber declared the application admissible with regard to alleged violations of the applicants' right to a fair hearing and the right to peaceful enjoyment of possessions, as guaranteed by Article 6 of the Convention and by Article 1 of Protocol No. 1 to the Convention, respectively.

Merits

Article 1 of Protocol No. 1 to the Convention

The Chamber divided its Article 1 analysis of the applicant's claim into three parts: (1) whether the applicants' claims involved "possessions" protected by the Article; (2) whether there was interference with their enjoyment of their possession; and (3) whether such interference was subject to conditions provided by law. The Chamber first observed that the applicants acquired protected possessions in internal shares of Agrokomerc for which payment was made on the basis of: a) permanent deposits; b) allocations of parts of salaries, either on a monthly basis during the period of 1991 to 1994, or on an annual basis for 1992; and c) distribution of profits for 1992 in proportion to the amount of paid internal shares. However, the Chamber did not recognise any protected possessions of the applicants for internal shares resulting from the conversion of employee claims for reduced salaries from 1987 to 1991 or the conversion of the value of inventory goods.

The Chamber subsequently found that by exercising effective exclusive control over the management of Agrokomerc, the authorities of the Federation interfered with the rights of the applicants to participate in the management and to share in the profits of Agrokomerc in relation to their paid internal shares. In addition, the Chamber held that the Federation did not act "subject to the conditions provided by law", and so concluded that the applicants' rights to enjoyment of possessions secured by Article 1, were violated.

Article 6 of the Convention

The Chamber observed that neither Revsar, nor the Institute for Accounting and Auditing of the Federation, nor the Ministry of Finance of the Federation had offered the applicants any real opportunity to present documents, testimony, or legal argument in writing or in person during the process of the performance of the audit. The Chamber concluded that for lack of actual or effective proceedings in which the applicants had been invited to participate, their rights under Article 6 were violated.

Remedies

The Chamber designed a remedy that would allow the applicants to regain ownership over their paid internal shares and to exercise the management and participation rights that naturally and legally flowed from these shares. The Chamber made the following orders to the Federation of Bosnia and Herzegovina: a) to take all necessary steps to recognise the applicants as holders of internal shares in relation to the amount of their paid internal shares in Agrokomerc and to enable the applicants to exercise the management rights connected to these shares, as described in the Chamber's decision; b) at its own expense, to employ internationally recognised auditors, in strict compliance with best practice procurement rules for international tenders, to undertake an audit to determine the complete present ownership structure of Agrokomerc, in accordance with the Chamber's decision and in compliance with International Accounting Standards and International Auditing Standards; c) upon completion of the audit, to take all necessary action to ensure that the results of the audit are properly and speedily implemented, including causing the new ownership structure of Agrokomerc to be properly registered, causing individual share certificates to be issued to each applicant in accordance with the Law on Securities of the Federation, and causing a general meeting of the assembly of shareholders to be convened in accordance with the law and at the latest within three months from the delivery of the results of the forensic audit. In addition, the Chamber issued several conclusions as interim measures, which allowed the applicants the opportunity to participate in the management of Agrokomerc until the delivery of the results of the forensic audit. Thus the Chamber ordered that, until the forensic audit is completed, the capital structure of the company be recognised as registered by the competent court in 1991, i.e., 53% share capital and 47% state capital. Further, the Chamber ordered the establishment of an interim supervisory board consisting of 3 members appointed by the Federation and 4 members appointed by the applicants, through the Shareholders Association. The Chamber rejected the applicants' claims for compensation for pecuniary damages, but reserved the right to make additional orders for further remedies.

Dissenting Opinion

Mr. Victor Masenko-Mavi dissented from several of the Chamber's conclusions. He argued that the orders he voted against could have negative consequences for the Agrokomerc joint stock company, because the Shareholders Association would, as a result of them, acquire a privileged position in the management of the company, which in light of the facts of the case was not warranted. The dissenting judge suggested formulating orders more carefully, so as to leave the respondent Party an opportunity to find the most appropriate course of action to remedy the breach.

Decision adopted 8 February 2002
Decision delivered 8 March 2002


DECISION ON REQUEST FOR REVIEW

The applicants submitted a request for review in which they requested the Chamber to recognise the Shareholders Association as representing all shareholders of Agrokomerc, including those who are not members, and to explicitly refer in its findings to all shareholders. Secondly, the applicants challenged the decision with respect to the conclusion to declare the complaint concerning the applicants' right to work inadmissible. In addition they sought recognition of the conversion of employee claims for reduced salaries paid from 1987 to 1991. The applicants also sought recognition of the conversion of the value of inventory goods as payment for internal shares. In addition they requested the Chamber to empower the interim supervisory board to decide by a simple majority instead of the two-thirds majority as envisaged in the Chamber's decision of 8 February 2002 on the appointment of the management and all issues which according to the Law on Business fall under the competencies of the shareholders' assembly. The applicants requested the Chamber either to remove the existing management of Agrokomerc and to refer all competencies to the interim supervisory board or to order that the management shall be composed of four directors appointed by the Shareholders Association and three directors appointed by the respondent Party.

The respondent Party submitted a request for review in which it stated that it recognised the applicants as holders of paid internal shares, but challenged the validity of the Workers' Council decision on the issuance of internal shares as outside the statutory time limit and therefore void. The respondent Party furthermore did not consider it reasonable that the Chamber gave "majority rights in governing the company during the 'so-called' interim period" to the representatives of the Shareholders Association in the interim supervisory board. Finally, the Federation objected to the unequal position of the shareholders who are not applicants nor members of the Shareholders Association.

The Chamber found that the requests for review did not raise "a serious question affecting the interpretation or application of the Agreement or a serious issue of general importance" as required by Rule 64 paragraph 2(a) of its Rules of Procedure or that the whole circumstances justified reviewing the decision as set forth in the second requirement of Rule 64 paragraph 2. Accordingly, the Chamber decided to reject the requests for review.

Decision adopted 9 May 2002


DECISION ON FURTHER REMEDIES

Developments subsequent to the decision on admissibility and merits

As indicated above, the Chamber's decision on admissibility and merits provided for the establishment of a 7 member interim supervisory board for Agrokomerc (with 4 members appointed by the applicants and 3 members appointed by the Federation). For decisions on issues within the general competence of the assembly of shareholders and for changes in the membership of the management a two-thirds majority of 5 was described. The interim supervisory board was established in April 2002 and its first meeting convened in May 2002. Since the establishment, however, the interim supervisory board has been unable to take any decisions or to carry out any functions. The 4 members appointed by the applicants have been prevented from performing their duties by the management, which has denied them access to the company's documents and premises. Further, the lack of clarity as to whether Agrokomerc is currently governed under the 1995 Law on Enterprises or the 1999 Law on Business Companies appears to have given the management board (appointed by the Federation on 2 August 2001) and the management (appointed by the management board) additional grounds to obstruct any participation in the management of the company by the members of the interim supervisory board appointed by the applicants. The management board continued to function as a supervisory board, while the interim supervisory board established pursuant to the Chamber's decision existed on paper only, without any real power. The applicants repeatedly complained about this state of affairs to the Chamber.

Further remedies

To remedy the situation, the Chamber decided on 5 March 2003, by way of further remedies, inter alia, as follows:

(a) to order the Federation to ensure that the management board of Agrokomerc cease to function, so as to permit the interim supervisory board to carry out its intended function;
(b) to partly lift the super-majority requirement and to entitle the interim supervisory board, by a simple majority vote, to replace 3 of the current 6 executive directors of the management, to appoint one more executive director to fill a vacant seat on the management and to determine who of the above 4 shall serve as the deputy director of the company.

The Chamber reserved the right to issue such further orders, as it may deem necessary to remedy the violations found in its decision on admissibility and merits.

Decision adopted 5 March 2003
Decision delivered 7 March 2003