Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/2.2.3.3:2.2.3.3 Art. 6 ECHR and appraisal rights

Exit rights of minority shareholders in a private limited company (IVOR nr. 72) 2010/2.2.3.3

2.2.3.3 Art. 6 ECHR and appraisal rights

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In my opinion, the judgment in the case of Bramelid and Malmström is of particular interest to the appraisal rights described in Chapter 7 of this study. As will be described in Chapter 7, all Dutch appraisal rights have in common that the compensation is determined by agreement between the shareholder and the company. Dutch law dictates that, if no agreement can be reached, the compensation for the loss of the shares is to be determined by one or more independent experts to be appointed by the court. In my view, this is a compulsory form of arbitration, which must meet the requirements of Art. 6 ECHR.

The question can be asked whether the determination of the compensation by independent experts fits the requirements of Art. 6 ECHR. It is conceivable that the Dutch appraisal rights can be in line with the requirement of an independent and impartial tribunal with respect to the appointment of the experts. As the court appoints the independent experts, there is, in principle, equality between the parties. Nonetheless, independent experts are only incidentally involved in determining the price of shares and are not appointed to value shares on a regular basis. Therefore, one could doubt whether the independency and impartiality is sufficiently guaranteed.

The European Court of Human Rights considered that a tribunal does not necessarily have to be a court of law of the classic kind:

"it may comprise a body set up to determine a limited number of specific issues, provided always that it offers the appropriate guarantees."1

However, one of the characteristics of a tribunal established by law, as recognized by the Court, is duration of its members' term of office.2It is doubtful whether independent experts fit this requirement if they are appointed for the sole purpose of one case in which an appraisal right must be dealt with. These experts are appointed on an ad hoc basis. In this respect, I refer to Smits who held:

"The underlying thought of this requirement is that it must be prevented that ad hoc courts — that is, courts that are created for the occasion — are created by order of the Executive. From the outset, a formal statutory basis (by means of a parliamentary statute, which means a statute in formal terras) should be present on which the establishment of the courts is based."3

This view is also taken by Sir James Fawcett, former president of the European Court of Human Rights:

"this requirement plainly prohibits the establishment of extraordinary courts by mere executive order" @@4

With respect to the Dutch appraisal rights, it should be noted that the independent experts are not appointed by the Executive, but rather by the court based on statutory provisions. Nonetheless, the independent experts do not represent bodies established by statute and are only created for the occasion.

Moreover, comparable with the observation of the Commission in the case of Bramelid and Malmström, the Dutch appraisal rights do not provide for a public hearing. The denial of a public hearing conflicts with Art. 6 ECHR as follows from case law.5 In the Delcourt case, the court held:

"Justice must not only be done; it must also be seen to be done."6

I will not discuss the scope of the requirements of publicity in full,7 but note that in the situation of compulsory arbitration by the independent arbitrators there is no publicity at all. According to the literai text of Art. 6 ECHR, there are some exceptions to the publicity requirement with regard to the trial. For instance, the trial can be privately held in the interests of morals, public order or national security. Nonetheless, I do not think that these exceptions usually apply in the situation in which the Dutch appraisal rights can be invoked. In addition, the aforementioned exceptions to the general rule of Art. 6 ECHR do not apply with regard to the judgment itself. It should be noted that the compensation determined by the experts is not published. For these reasons, it seems plausible that the Dutch appraisal rights are not in line with the requirement of a public hearing and the requirement of a public judgment.

In addition, one could doubt whether the determination of the compensation can be characterized as a hearing, as the question of whether both parties are heard in the context of the determination of the price of the shares remains unanswered by statute. As will be considered in § 7.2.6, § 7.3.6 and § 7.4.7, it is unclear what procedural rules apply to the determination of the indemnification by the independent experts, or even if any procedural rules apply. Articles 194-200 RV do not appear to apply. Lack of clarity about procedural rules is repeatedly held to be a violation of Art. 6 ECHR.8

As a final point, in the case Hornsby, the Court ruled that in order to fit the requirements of Art. 6 ECHR, a proper execution of a judgment must be guaranteed. In this case, the Court considered:

"The Court reiterates that, according to its established case-law, Article 6 (...) secures to everyone the right to have any claim relating to his civil rights and obligations brought before a court or tribunal. (...) However, that right would be illusory if a Contracting State's domestic legal system allowed a final, binding judicial decision to remain inoperative to the detriment of one party. (...) Execution of a judgment given by any court must therefore be regarded as an integral part of the "trial" for the purposes of Article 6."9

As stated in § 7.2.6, § 7.3.6 and § 7.4.7, the execution of the Dutch appraisal rights may encounter serious difficulties. Also, in this respect, it is highly uncertain whether the Dutch appraisal rights are compatible with Art. 6 ECHR.

Having observed the several potential conflicts between the way the current Dutch appraisal rights are shaped and Art. 6 ECHR, I highly recommend to allocate the binding decision with regard to the determination of the financial compensation to the court and not to one or more experts appointed by the court.10 In this respect, I agree with Snijders, who deems compulsory arbitration not compatible with Art. 6 ECHR.11

Deze functie is alleen te gebruiken als je bent ingelogd.