Judgment (Merits and Just Satisfaction) of Court (First Section), July 25, 2013

Judge:MOSKALENKO K. ; DREL A. ; BLAKE N. QC ; PANNICK D. Lord QC ; GLASSON J. ; PEUKERT W. Dr ; LIPTSER Y. ; BARU Y. ; CASSESE A. Prof ; TOMUSCHAT Ch. Prof
Defense:CASE OF SACE ELEKTRİK TİCARET VE SANAYİ A.Ş. v. TURKEY
Resolution Date:July 25, 2013
Issuing Organization:Court (First Section)
SUMMARY

No violation of Article 3 - Prohibition of torture (Article 3 - Degrading treatment ; Inhuman treatment) (Substantive aspect) ; Violation of Article 3 - Prohibition of torture (Article 3 - Degrading treatment) (Substantive aspect) ; Violation of Article 5 - Right to liberty and security (Article 5-3 - Length of pre-trial detention ; Reasonableness of pre-trial detention) ; Violation of Article 5 -... (see full summary)

 
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FIRST SECTION CASE OF KHODORKOVSKIY AND LEBEDEV v. RUSSIA (Applications nos. 11082/06 and 13772/05) JUDGMENT STRASBOURG 25 July 2013 FINAL 25/10/2013 This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.In the case of Khodorkovskiy and Lebedev v. Russia,The European Court of Human Rights (Chamber), sitting as a Chamber composed of: Isabelle Berro-Lefèvre, President,
Khanlar Hajiyev,
Mirjana Lazarova,
Linos-Alexandre Sicilianos,
Erik Møse,
Ksenija Turković,
Dmitry Dedov, judges,
and Søren Nielsen, Section Registrar,Having deliberated in private on 2 July 2013,Delivers the following judgment, which was adopted on that date:

PROCEDURE

1. The case originated in two applications (nos. 11082/06 and 13772/05) against the Russian Federation lodged with the Court under Article 34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by two Russian nationals, Mr Mikhail Borisovich Khodorkovskiy (“the first applicant”) and Mr Platon Leonidovich Lebedev (“the second applicant”) on 16 March 2006 and on 28 March 2005 respectively.

2. Each applicant was represented by a group of lawyers. The legal team for the first applicant included Mrs K. Moskalenko and Mr A. Drel, lawyers practising in Moscow, Mr N. Blake QC, Lord D. Pannick QC, and Mr J. Glasson, lawyers practising in London, and Dr W. Peukert, a lawyer practising in Germany. The second applicant’s legal team included Ms Y. Liptser and Mr Y. Baru, lawyers practising in Moscow, as well as Dr W. Peukert, the late Prof A. Cassese, and Prof Ch. Tomuschat. The Russian Government (“the Government”) in the two cases were represented by Mr P. Laptev and Mrs V. Milinchuk, the former Representatives of the Russian Federation at the European Court of Human Rights, and subsequently by Mr G. Matyushkin, the Representative of the Russian Federation at the European Court of Human Rights.

3. The applicants complained, in particular, about their criminal conviction for tax evasion and fraud, as well as about other events related to the criminal proceedings against them. They alleged, in addition, that their prosecution was motivated by political reasons, in breach of Article 18 of the Convention.

4. By decisions of 27 May 2010 (in the second applicant’s case) and 8 November 2011 (in the first applicant’s case), the Court declared the applications partly admissible.

5. The applicants and the Government each filed further written observations on the merits (Rule 59 § 1 of the Rules of Court). The Chamber having decided, after consulting the parties, that no hearing on the merits was required (Rule 59 § 3 in fine), the parties replied in writing to each other’s observations.

6. On 2 July 2013 the Chamber decided to join the two cases, pursuant to Rule 42 § 1 of the Rules of Court.

THE FACTS

I. THE CIRCUMSTANCES OF THE CASE

7. Mr Khodorkovskiy (the first applicant) was born in 1963. He is currently serving a prison sentence in a penal colony in the Karelia Region. Mr Lebedev (the second applicant) was born in 1956 and is now serving a prison sentence in the Yamalo-Nenetskiy Region.

A. Introductory summary

8. The first applicant is the former head and one of the major shareholders of Yukos Plc, which at the relevant time was one of the largest oil companies in Russia. Before working in Yukos Plc, he was a senior manager and co-owner of the Menatep bank and the Rosprom holding (an industrial holding affiliated with Menatep) and controlled a number of other financial and industrial companies. In particular, he was the Head of the Executive Board of Yukos-Moskva Ltd and later its President. Further below the group of companies affiliated with Yukos will be referred to as “Yukos”.

9. The second applicant was the first applicant’s business partner and a close friend. In 1990s the second applicant was the chief executive of the Menatep bank and a top-manager of the Rosprom holding. From 1998 the second applicant worked as a one of the directors of Yukos-Moskva Ltd. He was also one of the major shareholders of Yukos.

10. Yukos was created as a result of the mass privatisation of the State oil and mining industry which took place in the mid-1990s. Following privatisation, new management techniques were introduced and the companies acquired by Yukos were reorganised. In particular, sales of the producing companies were re-directed to new trading companies. As a result, Yukos became one of the most successful businesses in Russia, and the first applicant was mentioned in the press as one of the richest persons in Russia.

11. Amongst other acquisitions by Yukos in the course of the privatisation were 20 per cent of the shares of a large mining company, Apatit Plc (hereinafter referred to as “Apatit”), a major supplier of the apatite concentrate in the country. The acquisition of Apatit shares gave rise to litigation in which the State Property Fund opposed Yukos. The former claimed that Yukos had failed to meet its obligations under the privatisation agreement. That litigation ended in 2002 with a friendly settlement: the State Property Fund accepted a termination fee while acknowledging the rights of Yukos to 20 per cent of Apatit shares.12. Most of the Yukos produce was sold abroad. However, Yukos did not trade directly with foreign firms but sold its output to several Russian companies (“trading companies”) registered in the zones with special tax regime, in particular in the town of Lesnoy, situated in the Sverdlovsk region in the Urals (also referred to as the “ZATO”, an abbreviation translated as “closed administrative territorial formation”). Special taxation in Lesnoy was established by the Federal Law “On Closed Administrative-Territorial Entities” of 14 July 1992 (the “ZATO Act”). The ZATO Act was supposed to attract investors to economicly depressed areas and foster economic growth there.

13. Such mode of operation persisted for several years; Yukos trading companies were operating on the basis of “preferential taxation agreements” with the administration of the Lesnoy town. Those agreements were renewed every year since 1998. Thus, for example, on 28 January 2000 the town administration concluded a preferential tax agreement with Business Oil Ltd (hereinafter referred to as “Business Oil”), the main trading company of Yukos in Lesnoy, providing it, amongst other tax cuts, a 75 per cent reduction of the “local” part of the corporate income tax (i.e. of the part destined for the local budget). Under that agreement Business Oil was supposed to transfer a certain amount of money to the town budget (5 per cent of the amount of tax cuts obtained). A major part of the profits of Business Oil and other trading companies were later transferred on a gratuitous basis in the form of investments in the “fund for financial support for production development”, which was founded within Yukos on the basis of a resolution of the Board of Directors.

14. In addition to obtaining tax cuts, the trading companies registered in the low-tax zones paid some of their taxes not with money but with promissory notes issued by Yukos. Those notes were accepted by the local authorities as a method of payment of taxes and were later honoured by Yukos. The trading companies also enjoyed VAT exemption in respect of the oil they were selling abroad. VAT was reimbursed in monetary form from the State budget to the bank accounts of those companies. Tax audits carried out in 1999 confirmed the eligibility of Business Oil for tax cuts.

15. The applicants’ personal income consisted of the salaries they received from Yukos and the dividends from the Yukos shares they owned. In addition, both applicants earned substantial amounts of money as self-employed contractors (or “individual entrepreneurs”, in the Russian terminology), by providing consulting services to foreign firms. As “individual entrepreneurs” the applicants were entitled to preferential taxation under the Law “On Simplified Form of Taxation, Accounting and Reporting for Small Businesses” (No. FZ-222, 29 December 1995, the “Small Business Act”).

16. In 2003 the office of the General Prosecutor of the Russian Federation (hereafter “the GPO”) started a criminal investigation into the business activities of Mr Khodorkovskiy and his partners. The charges against the applicants originally concerned fraudulent acquisition of Apatit and another firm during the mass privatisation of 1990s. Later the GPO charged the applicants with large-scale tax evasion. In particular, the GPO suspected that the trading companies registered in the low-tax zones were in fact sham legal entities (podstavnye, i.e. “frontman companies”; hereinafter referred to as “sham companies”) affiliated with the applicants, as they were neither present nor operated in the place of their registration, had no assets and no employees of their own but were fully controlled from the Yukos head-quarters in Moscow. Therefore, tax cuts had been obtained by them unlawfully. The tax authorities also characterised payment of taxes with promissory notes as tax evasion. Furthermore, the tax authorities suspected that the firms to which the applicants, in their private capacity, had been rendering consulting service were affiliated with them and that no services had been provided to those firms in reality.

17. In 2003 both applicants were arrested and detained on remand. That investigation led to a trial which ended with the conviction and imprisonment of the applicants. Facts related to this trial (the “first case”) are at the heart of the present case. The applicants’ prison terms have now expired; however, they both remain in prison on account of new accusations brought against them within related but separate court proceedings (the “second case”).

18. In parallel with criminal proceedings against...

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