Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/2.2.2.1:2.2.2.1 Requirements

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/2.2.2.1

2.2.2.1 Requirements

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Art. 1 First Protocol ECHR is the keystone provision on protection of property rights of natural and legal persons. This provision stipulates:

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 European Court of Human Rights derives three rules from Art. 1 First Protocol ECHR. The first rule is the most important. At first, this article sets out the general principle of peaceful enjoyment of possessions owned by natural and legal persons. Secondly, the provision clarifies that, nonetheless, deprivation of possessions is allowed onder limited conditions that follow from national law and that are in accordance with the general principles of international law. Thirdly, the states that are party to the ECHR are entitled to control the use of possessions. This entitlement must be exercised in the general interest, by enforcing laws which the states deem necessary for the purpose.1 In this respect, the states enjoy a certain margin of appreciation. These three rules are not distinct from each other, but must be interpreted in connection with each other. In the words of the European Court of Human Rights:

"The three rules are not, however, `distinct' in the sense of being unconnected. The second and third rules are concerned with particular instances of interference with the right to peaceful enjoyment of property and should therefore be construed in the light of the general principle enunciated in the first rule."2

When a case is brought before the European Court of Human Rights, the court must first assess whether there is interference with the right of property.3 Interference with the right of property may occur in the form of complete deprivation, which means that the complete right is expropriated in a legal or factual way (the second rule). Secondly, interference can take place by way of control of property by the State, for instance by restricting its use (the third rule). Barkhuysen and Van Emmerik submit that the court does not strictly distinguish between these two types of interference, because a firm distinction raises complex legal issues.4

If the court is of the opinion that an interference with the right of property is present, it investigates whether the interference violates Art. 1 First Protocol ECHR. In order to examine this, the European Court of Human Rights uses a test consisting of three parts. The court investigates:

(a)

the legitimacy (Is the measure in accordance with the rules of the applicable national laws?);

(b)

the objective (Does the measure serve the public interest?);

(c)

the proportionality (Is the measure proportionate to the objective?).5

The concept of national law as referred to onder (a) is a material concept. As appears from case law, even rules that do not expressly stem from statute can be sufficient on the condition the relevant rules are sufficiently accessible, precise and foreseeable for citizens.6

With respect to the aforementioned matter under (b), in principle, national authorities can most appropriately assess whether a measure is in the public interest. National authorities enjoy a wide margin of appreciation. As has been contended by the ECHR in the James and Others case:

"Because of their direct knowledge of their society and its needs, the national authorities are in principle better placed than the international judge to appreciate what is "in the public interest". Under the system of protection established by the Convention, it is thus for the national authorities to make the initial assessment both of the existence of a problem of public concern warranting measures of deprivation of property and of the remedial action to be taken."7

The proportionality mentioned above under (c) implies that a für balance must be found between the public interest and the interest of the right of a citizen with respect to his property. According to the ECHR in the Sporrong and Lönnroth case and the James and Others case:

"the requisite balance will not be found if the person concemed has had to bear an individual and excessive burden".8

A relevant factor with respect to the assessment whether there is an individual and excessive burden is whether compensation is afforded to the person deprived of his property.9

The Offerhaus case illustrates this well. This case concemed the application of the Dutch squeeze-out proceedings started by Internationale Nederlanden Groep NV, better known as ING, with respect to shares held by inter alia Ms Offerhaus in Nationale Nederlanden. ING was set up as a holding company, with a view to the acquisition of all shares in Nationale Nederlanden and NMB-Postbank in return for shares in ING. In this case, the European Court of Human Rights held:

"Compensation terras under the relevant legislation are material to the assessment whether the contested measure respects the requisite für balance and, notably whether it imposes a disproportionate burden on the applicants. In this connection, the taking of property without payment of an amount reasonably related to its value will normally constitute a disproportionate interference (...)."10

So, the availability and the amount of compensation is relevant to the answer to the question of whether Art. 1 First Protocol ECHR is violated. As a principle, in the case of complete expropriation compensation must be provided at full market value.11 Compensation that does not equal the full market value usually leads to the conclusion that the deprivation is disproportional. In the case of control of property by the state, in contrast to expropriation, compensation at full market value is a less important though still relevant factor with respect to the assessment whether or not the interference is proportional.12

Art. 1 First Protocol cannot be invoked horizontally, but only vertically. This means that a citizen cannot invoke this provision against another citizen. Nonetheless, citizens are able to invoke the provision against states. As will be seen in the case of Sovtransavto Holding below, Art. 1 First Protocol may result in positive obligations for Member States to secure the effective exercise of the peaceful enjoyment of possessions, also in relationship between citizens. If possessions are not offered an appropriate level of protection, Member States can be ordered to provide fust satisfaction on the basis of Art. 41 ECHR.13 A citizen cannot request the court to order another citizen to provide fust satisfaction. Art. 41 ECHR stipulates:

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 fust satisfaction to the injured party.

Member States have to take measures to secure an appropriate level of protection of the peaceful enjoyment of possessions. In addition, in the situation that positive obligations arise, as follows from case law of the ECHR, national courts may have the obligation to explain national law in conformity with Art. 1 First Protocol ECHR .14

The notion of possession as referred to in Art. 1 First Protocol ECHR is autonomously interpreted and does not run parallel to the Dutch notion of property contained in Art. 5:1 DCC or its equivalente in other national statutes. The European Court of Human Rights explained in the Gasus Dosier- und Fördertechnik case that the notion of possession contained in Art. 1 First Protocol ECHR does not only include "ownership of physical goods", but also includes "certain other rights and interests constituting assets".15

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