December 10, 2024
By Eloïse Ward
This post concerns the just satisfaction judgment of SCI Le Château du Francport v France. In this case, the European Court of Human Rights more elaborately explains the considerations of equity that justify the attribution of damages than usual. It therefore presents a good opportunity to examine the way in which the Court awards compensation to applicant companies. Using the case of SCI Le Château as a focal point, this post comments on the Court’s approach to awarding pecuniary compensation for non-pecuniary harm to companies, highlighting how it blurs the line between applicant legal persons and the natural persons involved in their business activities.
The applicant in this case is SCI Le Château du Francport, a real estate agency created in May 2000. The case concerns the seizure of the applicant company’s castle, which it bought and renovated in 2000. An order for the seizure and sealing of the castle was issued on 27 August 2002, due to the suspicion that the funds used for its purchase and renovation were the proceeds of various offences. While the castle was held by the State, the investigating judge received numerous reports on the deterioration of the premises due to squatting, looting and vandalism.
On 13 September 2010, the applicant company made a claim for compensation for loss, claiming that the lack of care of the castle during the time that it was seized amounted to gross misconduct. The first instance court dismissed the claim on standing grounds. The Paris appeal court deemed that the applicant company had had access to the park and to the guard’s house by the castle, so it could have taken steps to ensure the protection of the castle and its grounds itself. After the Court of Cassation rejected an additional appeal, the applicant company brought its claim before the Court.
The application was successful: in its principal judgment delivered on 7 July 2022, the Court found a violation of Article 1 Protocol 1 to the European Convention on Human Rights, which protects the right to property. According to the Court, the Article was clearly violated by the disproportionate nature of the measure in comparison to the aim sought. The applicant company did not have any way to have its claim for compensation heard fairly by the French courts. The Court set out that the burden of proof rested with the State: it had to prove that it was not responsible for the deterioration of the premises. Therefore, the impossibility of obtaining compensation for the degradation of its property was a breach of the applicant company’s Article 1 Protocol 1 rights. The Court deemed that given its findings in relation to Article 1 Protocol 1, there was no need to consider the applicant’s claim under Article 6, protecting the right to a fair trial. Questions of just satisfaction were considered not ready for decision, and thus the just satisfaction judgment, which is the focus of this post, was published on the 13 June 2024.
The applicant company claimed 5 534 075, 15 EUR for pecuniary harm suffered and 20 000 EUR for non-pecuniary harm.
Given that no inventory was carried out when the castle was seized, the Court’s assessment of the compensation owed by the State was necessarily general rather than specific, and it awarded the applicant company 2 000 000 EUR for pecuniary harm.
The key part of the judgment here is the Court’s response to the applicant company’s claim for non-pecuniary damages. It reiterated the principle established in Comingersoll S.A. v Portugal, according to which legal persons are not automatically barred from obtaining compensation for non-pecuniary damages. Individual circumstances determine whether or not a given legal person is entitled to them. The Court then assessed the facts at hand:
“In the present case, the legal process must have caused both the applicant and its administrators, natural persons, significant inconvenience, if only in the management of its affairs and with regard to its commercial reputation, which warrants an award of compensation in this respect” (para. 4, own translation).
According to the Court, this warranted an award for non-pecuniary harm. It concluded that on the basis of equity, the applicant company should receive 10 000 EUR as compensation for non-pecuniary harm.
According to the Court’s Practice Directions, the award of compensation for non-pecuniary harm “serves to give recognition to the fact that non-material harm, such as mental or physical suffering, occurred as a result of a breach of a fundamental human right and reflects in the broadest of terms the severity of the damage” (§10). The calculation of compensation for non-pecuniary harm is necessarily an imprecise exercise, and thus, the Court usually relies on the principle of equity. It often decides on its awards on an equitable basis, without providing any further specific elements in its judgment to explain its approach. The broad principles enunciated make it difficult to understand exactly what is being compensated for and how that compensation is being calculated. This is especially true in cases involving companies, where the usual types of non-pecuniary damage listed as examples in the Practice Directions, mental and physical suffering, are not applicable. The Court in SCI Le Château also relies on this equitable basis without providing more detail as to what this entails, which, as discussed later in this post, obfuscates how and what harm is being compensated.
However, the Court does specify that the violation of the company’s rights here necessarily caused significant inconvenience not just to the applicant company, but also to its administrators, as natural persons, as it had affected the operations of the company and its commercial reputation.
This formulation is unusual, specifying that the administrators are natural persons. It begs the question: why highlight not only the role that non-applicants (the administrators) play in the award of non-pecuniary damages, but also their status as natural persons?
The Court makes it clear that compensation for non-pecuniary harm must not be dismissed purely because an applicant is a legal person rather than a natural person. From the outset, it insists that legal persons are entitled to damages for non-pecuniary harm in principle, notwithstanding the fact that they are not human. This makes the subsequent specification of the administrators’ status as natural persons all the more puzzling: the Court then indicates that there is some role to be played by the natural persons, the administrators, in the justification for awarding damages for non-pecuniary harm. It should be noted that the way that the Court phrases its judgment indicates that the inconvenience caused to the administrators is not used solely to calculate the amount of non-pecuniary damages, but as part of the justification for granting that kind of damage at all. Indeed, the significant inconvenience that leads the Court to grant compensation for non-pecuniary harm is inconvenience caused to both to the company and the administrators. In other words, the Court is not just saying that the administrators’ inconvenience should be accounted for in the calculation of a separate person’s (albeit legal) claim, it is saying that their inconvenience is a part of the reason that the legal person is obtaining non-pecuniary damage at all. This results in unclear boundaries between the legal person, and the natural persons involved in its activities. In this case, the ability of the legal person to obtain compensation for non-pecuniary harm is intrinsically tied to the effects of the company’s rights breach on the natural persons crucial to its daily functioning.
SCI Le Château Francport, the company, is the sole applicant here. The administrators are not applicants. When deciding on admissibility, the Court often goes to great lengths to ensure that this division is respected: a measure taken against a company is often not considered a sufficiently direct restriction on its employees, statutory representatives or other natural persons operating within it to enable them to bring an application. For instance, the applicant in Anttila v Finland was one of two shareholders of a limited liability company, and the chairman of its board, as well as the editor-in-chief of a magazine published by the company. When measures were taken against the company restricting the content of the magazine, regardless of the key role the applicant played within the company, the Court deemed the applicant’s claim inadmissible because the measure “affected only the interests” of the companies (Anttila v Finland, § 25). It therefore seems counterintuitive that, when the Court decides on just satisfaction entails in each case, it no longer maintains that strict division between a company and those making it up.
This question of how, or whether, to account for the harm done to natural persons within a legal person in the award of non-pecuniary damage is one that dates back to the case of Comingersoll S.A. In this judgment, the Court set out that the “anxiety and inconvenience caused to the members of the management team” should be accounted for in the decision to award compensation for non-pecuniary damages, albeit to a lesser degree. Therefore, SCI Le Château is certainly not the first case in which natural persons are accounted for in the assessment of damages for the breach of the rights of a company.
Though SCI Le Château cites G.I.E.M. S.r.l. and others, the case of Comingersoll S.A. was the first to clearly grant companies damages for non-pecuniary harm. The majority in Comingersoll S.A. decided that in calculating non-pecuniary damage, “account should be taken of the company’s reputation, uncertainty in decision-planning, disruption in the management of the company (for which there is no precise method of calculating the consequences) and lastly, albeit to a lesser degree, the anxiety and inconvenience caused to the members of the management team” (Comingersoll S.A., § 35). The concurring opinion by Judge Rozakis highlights the oddness of factoring in the effects on natural persons, when as far as the rest of the judgment is concerned, the sole applicant and therefore the sole subject whose rights are discussed is the company. Indeed, Judge Rozakis writes that “the company is an independent living organism […] whose rights also receive autonomous protection under the European Convention on Human Rights” (Concurring opinion of Judge Rozakis, joined by Judges Sir Nicolas Bratza, Caflisch and Vajić).
SCI Le Château can be subjected to the same criticism, with its factoring in of the administrators rather than focusing solely on the company’s harm. In cases like Anttila v Finland, Agrotexim and others v Greece, and Centro Europa 7 SRL and Di Stefano v Italy, the Court insists on the clear separation of companies and their chairpeople, shareholders and statutory representative respectively, thereby treating the companies as stand-alone rights holders. Including the harm caused to natural persons within the calculation of compensation for the breach of a company’s right appears to undercut the Court’s treatment of companies as fully-fledged applicants in their own right.
Returning to the above point about the opacity of awarding damages on an equitable basis, even with the Court setting out the consequences that ensued because of the breach (the significant inconvenience, notably in the management of the business and the damage to the company’s reputation), it is difficult to tell how they were weighed up. What was the importance of specifically mentioning the natural persons administering the company in the calculation of damages? Was there a real presence and reliance on the individuals constituting the company? Given the lack of additional detail, one is left solely with the knowledge that the effect on natural persons was considered, with no way of assessing to what extent it was. It is not possible to tell what weight is given to the harm done to non-applicants in cases like SCI Le Château.
On a final note, one of the arguments that the applicant company uses to persuade the Court of its entitlement to non-pecuniary damage is the claim that the company was thrown into deep distress (in French, “vif désarroi”). The Court did not, on this occasion, use the applicant’s characterisation in its own conclusion as to what non-pecuniary harm it suffered (preferring the more neutral term “significant inconvenience”), so it will not be dwelled on for long. However, the attribution of human feelings and emotions to an applicant company is not without foundation in the Court’s caselaw: it has in past cases acknowledged a company’s “feelings of helplessness and frustration” (Centro Europa 7 SRL and Di Stefano v Italy, § 221), or “distress” (Alithia Publishing Company v Cyprus, § 45).
The use of humanising language contributes to the above-mentioned blurring of the distinction between the applicant companies and the natural persons making them up which has happened in certain cases. It is moreover a poor fit: to speak of a legal person’s feelings of helplessness is not entirely coherent.
SCI Le Château is the latest case in which the Court awarded non-pecuniary damages to a company for non-quantifiable harm, namely significant inconvenience. The case serves as a clear example of the blurred lines between the applicant company and the natural persons that are involved in its business activities. Though the Court has often reiterated companies’ standing as applicants independent from their shareholders, employees, directors and other natural persons, in cases like SCI Le Château, it still includes the effects of a company’s rights violation on natural persons who are not applicants when deciding whether or not to grant said company pecuniary damages for non-pecuniary harm. This leads to a blurring of the boundaries between who is an applicant, and therefore whose harm should be accounted for in the award of damages. This ultimately raises the following question: if the rights of companies, as legal persons, independently from natural persons, are worthy of the Court’s protection, why does the Court feel the need to refer to natural persons orbiting the claim?
Strasbourg Observers is an academic blog that discusses recent developments at the European Court of Human Rights. The editorial team of Strasbourg Observers is based at the Human Rights Centre of Ghent University and the Centre for Government and Law of Hasselt University.
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