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Erik Penser begär prövningstillstånd i Europadomstolen Efter att Högsta domstolen avvisat Erik Pensers begäran om prövning av Svea hovrätts dom i tvisten med Nordbanken går han vidare och begär prövningstillstånd i Europadomstolen. |
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THE EUROPEAN COURT OF
HUMAN RIGHTS Strasbourg,
France APPLICATION under
Article 34 of the European Convention on Human Rights and
Rules 45 and 47 of the Rules of Court
Table
of Contents
I. THE PARTIESThe Applicant CompanyYggdrasil AB, Stortorget 13, 211 22 Malmö, Sweden. Phone
+46 (0)40 97 30 33 Representatives1.
Jan Södergren (lawyer) 2.
Percy Bratt (lawyer) 3.
Clarence Crafoord (LLM) 4.
Ingemar Bernhult (Lawyer, also representing the Applicant company in the
domestic procedures.) Advokatfirman
Ingemar Bernhult & Co AB, Villagatan 18, 114 32 Stockholm, Sweden. 5.
Lord Lester of Herne Hill QC (Barrister of the Bar of England and
Wales) 6.
Pushpinder Saini (Barrister of the Bar of England and Wales ) Blackstone
Chambers, Blackstone House Temple, London EC4Y 9BW, England. The Respondent StateThe
Government of Sweden. As
representatives for the Applicant company under the attached power of
attorney we submit the following application. 1.
This application raises fundamental legal questions concerning the
responsibility of a Contracting Party to ensure that its domestic law
protects the right to the peaceful enjoyment of one’s possessions, in
the form of a substantial corporate shareholding, from arbitrary and
unfair misappropriation by a third party. 2.
The application concerns the insufficient safeguards within Swedish law
for pledgors, in particular when the pledge consists of a controlling
shareholding. As this case shows, Swedish law provides neither adequate
safeguards nor effective protection for pledgors who are deprived of their
rights to a peaceful enjoyment of their possessions by the taking of their
assets at a substantial discount price. The Applicant company’s rights
under Article 1 of Protocol 1 and Article 13 of the Convention have
consequently been violated. 3.
The principal facts which give rise to the violation can shortly be stated
as follows: 3.1
At the material time in 1991, the Applicant company owned a controlling
shareholding representing 47.4% of the issued share capital of a listed
company, Nobel AB (“the Shareholding”). This was by far the most
important asset of the Applicant company. Contemporaneous independent
valuations of Nobel put the value of the Shareholding at approximately
MSEK 4,000-5,000, which is the equivalent of EUR 430-540 million (using a
ratio of 9.20 SEK/EUR). 3.2
The Shareholding was pledged by the Applicant company as security with a
Swedish State owned banking entity, Nordbanken, the bank’s subsidiary
Carnegie Fondkommission, and Handelsbanken against borrowings in the sum,
at the material time, of MSEK 1,630 (EUR 177 million). 3.3
By duress applied to the initial owner of the Applicant company,
Nordbanken took control of the Applicant company and inserted its puppet
board in corporate positions so as to achieve control of the assets. 3.4
At the request of Nordbanken, the puppet board purportedly “sold” the
Shareholding to Nordbanken, for a consideration representing the precise
quantum of the sums outstanding against the pledge, only MSEK 1,630.
Compared with valuations of Nobel made in 1990-91 by several institutions,
the price paid by Nordbanken was a vast under-valuation of the
Shareholding. 3.5
By characterising Nordbanken’s misappropriation of the pledge and the
concurrent debt cancellation as an ordinary purchase completely divorced
and legally distinct from the pledge relationship, the domestic courts, in
applying the relevant Swedish law, failed to provide the Applicant company
with effective protection of its possessions. Furthermore, it is and
remains unlawful under domestic law for a bank to acquire a pledge with a
speculative and profit-seeking purpose. However, those rules were held not
to have any civil law applications. The Applicant company was accordingly
the victim of an unlawful act that was not prescribed by domestic law,
leaving banks with a substantial opportunity to manipulate pledge
situations to their commercial advantage 3.6
In these circumstances, the State has itself interfered, without
justification, with a possession of the Applicant company in the form of a
surplus value of in any event close to MSEK 2,000 (EUR 220 million)
contrary to Article 1 of Protocol 1 (henceforth P1-1) of the Convention.
Alternatively, if and insofar as Nordbanken is not equated with the
respondent State in these proceedings, the domestic courts failed to
protect the said possession of the Applicant company from arbitrary
interference by Nordbanken in accordance with the positive obligations
imposed by P1-1, thereby engaging the responsibility of the respondent
State as a Contracting Party. 3.7
Further, the failure of domestic Swedish law to provide any effective
remedy enabling the Applicant company to obtain financial redress with
respect to the surplus is a violation of Article 13 of the Convention. 4.
The statement of the facts will be presented under the following headings:
Mr
Penser and the Applicant Company The
Swedish Financial Crisis The
Misappropriation The
True Value of the Shareholding The
Domestic Proceedings Mr Penser and the Applicant Company5.
The relevant share dealings are complex, but in essence the position was
as follows. Mr Erik Penser (“Mr Penser”) is an internationally
well-known businessman and entrepreneur. In 1980 he acquired the Applicant
company. During the first half of the 1980’s, the Applicant company
gradually increased its shareholding in the investment company Asken and
another company, Bofors. In 1985, Bofors bought the chemical company Kema
Nobel and changed its name to Nobel. It is the Applicant Company’s
shareholding in Nobel which is in issue in this application; the
Shareholding. 6.
At the start of the 1980’s, a subsidiary of Asken, AB Gamlestaden,
developed its financial activities as a finance house. AB Gamlestaden was
introduced on the Stockholm Stock Exchange during the first half of 1989. 7.
The Applicant company and three “sister” companies Gyllenkamme,
Universal and Expo Nord were owned by Mr Penser. They all owned shares in
Nobel. In August 1991, the shares in Nobel were owned as to 47.4% by the
Applicant company and as to 7.0% by Gyllenkamme, as to 7.0% by Universal
and to 7.7% by Expo Nord, in all 69.1% of Nobel. 8.
Nobel was a fast growing conglomerate whose acquisition value (the value
generated when a company sells its different business divisions and other
assets to industrial buyers and its loans are treated as being repaid) in
1991 was between MSEK 10,000-15,000 (EUR 1,100-1,600 million). The
Applicant company’s Shareholding of 47.4% in Nobel was by far its most
important asset. 9.
During the autumn of 1990, signs of financial problems started to show in
the Swedish economy as well as internationally. Financial indicators
reflected a general lack of confidence in the structural aspects of the
financial system. Swedish banking institutions, including the state-owned
entity Nordbanken, were seriously affected by a nation-wide financial
crisis and there were indications that Nordbanken already in 1990 was on
the verge of bankruptcy (or more accurately, involuntary liquidation due
to capital deficiency). These facts are relevant in identifying the
motives of Nordbanken in undertaking the contentious acts in issue in this
application. During
the summer of 1991, the business climate in Sweden deteriorated further.
The financial company Gamlestaden, now owned as to 47% by Nobel and as to
21% by the Applicant company, also experienced problems. Between 12 and 21
August 1991, Swedish banks were considering actions for their loans to
Gamlestaden and Nobel as well as a claim on Nobel and the Applicant
company to make a capital contribution to Gamlestaden. The banks were not
able to reach an agreement amongst themselves and therefore contacted the
Director of “Finansinspektionen”, the Swedish Financial Supervisory
Authority, who in his turn contacted the Minister of Finance. At 6am on 22
August 1991, a meeting was held between the top management of several
Swedish banks at the offices of the Minister of Finance, with the Minister
present. No representatives for Nobel or the Applicant company were
invited to participate in this meeting. Principle agreements were reached
requiring Nobel to remit MSEK 2,000 to Gamlestaden and Nordbanken to
guarantee a new share issue in Nobel in the sum of also MSEK 2,000.
Moreover, Nobel’s banks were to convert loans amounting to MSEK 2,700 to
preference shares. The capital contribution from Nobel to Gamlestaden of
MSEK 2,000 was intended to be paid to Gamlestaden’s lending banks. Final
agreements were reached on 27 August 1991, referred to as the “August Agreements” in the text below. Through
the application of a credit squeeze, Nordbanken in collaboration with
Nobel’s other banks pressured Nobel’s board to agree to this capital
contribution to Gamlestaden. During the period 13-23 August 1991, Nobel’s
cash situation deteriorated rapidly due to the credit squeeze. On 13
August 1991, without notifying Nobel, Nordbanken withdrew Nobel’s The
required capital contribution to Gamlestaden was unlawful according to
many legal experts, including Mr Södermark, who was the legal
representative of Nordbanken at the time and who was also appointed
counsel for the bank in the domestic proceedings of Yggdrasil vs
Nordbanken. Despite the uncertainty about the legality of the transaction,
the banks forced Nobel to make the contribution under threat of
terminating all lending. It was this demand for a capital contribution
combined with a credit squeeze that triggered the financial stress of the
otherwise healthy and profitable Nobel and its main owner Mr Penser, and
which made it possible for Nordbanken to “acquire” the Shareholding in
Nobel from the Applicant company. The said events concerning Nobel are in
detail accounted for in a report by Jan Ramberg, Professor of Law,
submitted in his Nobel Investigation on 15 March 1992. (Appendix 1). On
19 September 1991, the Nobel board commissioned Claude Hankes-Drielsma,
former president of the Management Committee of Price Waterhouse and
Partners worldwide, to make an independent investigation of the crisis in
Gamlestaden and its effect on Nobel, particularly as regards the proposed
capital contribution. The Hankes-Drielsma team included among others Dr
Fritz Leutwiler, Chairman of the board of Brown Boveri and former Chairman
of the Swiss National Bank, and Sir Peter Smithers, former member of two
British Governments and former Secretary General of the European Council.
Nobel’s banks opposed the investigation and in early October again
squeezed Nobel’s credit to force Nobel to terminate the assignment of
this group. The Nobel board hence faced a choice between a severe
liquidity crisis and the termination of the investigation. Thus, on 6
October 1991, the pressed Nobel board decided to immediately stop the
investigation. (Appendix 2). 10.
After the meeting on 22 August 1991 with the Minister of Finance,
Nordbanken took control over the Applicant company in order to appoint a
new puppet board in the Applicant company. Nordbanken then “acquired”
the Shareholding from the Applicant company for a sum far below its true
value. This resulted in the State subsequently making a substantial
capital gain of MSEK 5,400, equivalent to EUR 590 million. The central
events leading to this were as follows. (a)
Without stating any reasons, Mr Wahlström, the Chairman of the board of
Nordbanken, summoned Mr Penser and the CEO of Nobel, Mr Carlberg, to a
meeting on 23 August 1991 at 12.30pm. Present at the meeting was also Mr
Ekdahl, a lawyer closely connected to Nordbanken whom Mr Penser had not
met before, and Mr Thunell, Director and Vice President of Nordbanken.
Nordbanken presented Mr Penser with a draft agreement for Mr Penser to
sign before 4pm the same day. The draft agreement included an option for
Nordbanken to acquire - for the price of SEK one (1) each - Mr Penser’s
four companies that owned Nobel shares, including the Applicant company.
Mr Wahlström made it clear to Mr Penser that the Government required him
to sign the agreement. Moreover, if he refused to sign, the bank would
that very day force him personally, as well as Gamlestaden and Nobel, into
bankruptcy. All of this came as a total surprise for Mr Penser. None of
his or the Applicant company’s loans in Nordbanken had been called.
There were no unpaid interest payments or amortisation payable. Nobel was
a healthy company making a profit. (b)
At Nordbanken’s board meeting that started 3pm on the same day (23
August 1991), Mr Thunell presented the principal agreements that had been
reached the previous day at the Ministry of Finance. Mr Wahlström
informed the board that: “It is an
absolute request by the other banks as well as by the Swedish State, that
the suggested solution, under no circumstances, leave Yggdrasil’s owner
Mr Penser with any possibility of ever making a profit on his current
shareholdings. Hence, measures must be taken to ensure Mr Penser’s giving up of his
board appointments in the said companies and at the same time handing over
his ownership in the companies to Nordbanken.” (Appendix 3). (c)
Mr Wahlström requested the board’s approval to terminate all lending to
Mr Penser and to the Applicant company “if
an agreement cannot be reached with him whereby all holdings discussed
above are handed over”. Mr Thunell presented to the board “valuation of Nobel carried out by Morgan Stanley”, i.e. the
valuation included in “Project
Prize August 13, 1991” (this report is of importance in this
application and is referred to further below, submitted as Appendix
4). An outline of Mr Thunell’s presentation was enclosed to the
minutes as appendix 112. It should be noted that at this point in time,
Nordbanken explicitly in the minutes referred to the valuation included in
the “Project Prize August 13, 1991”
by Morgan Stanley as a valuation. On reading appendix 112 to
the board minutes it is apparent that the figures presented to the board
by Mr Thunell as the value of Nobel was approximately MSEK 4,000 lower
than those in the Morgan Stanley report (Appendix 3 and 4). Mr Thunell did
not inform the board that he had reduced the value of Nobel from the
original report. (d)
Under the threat of personal bankruptcy, immense time pressure, and
without time to counsel legal advice, Mr Penser was forced to sign the
agreement drafted by Nordbanken at 4pm on 23 August 1991. At the request
of the bank, the agreement was antedated to 22 August 1991 (Appendix
5). Through this agreement Nordbanken had an option to acquire the
four of Mr Penser’s companies holding shares in Nobel, including the
Applicant company, for SEK 1 each. The agreement also required Mr Penser
to make three foundations, owned by his children, sell to the bank
convertible debentures of MSEK 150 in the Applicant company for a total of
SEK one (1). (e)
The following Monday, 26 August 1991, after Nordbanken had forced Mr
Penser to sign the agreement that enabled Nordbanken to obtain control of
Nobel, MSEK 1,000 worth of committed loan facilities were again available
to Nobel. On the same day, the Minister of Finance expressed in public his
support for the “solution” he had participated in drafting on 22
August. The press release, indicating the Government’s involvement,
reads as follows: “STATEMENT
OF THE MINISTER OF FINANCE MR ALLAN LARSSON.
The
agreement regarding a solution of the financial problems in
Nobel-Gamlestaden that now has been reached is supported by the
Government.” (f)
At Nordbanken’s press conference on 27 August 1991, Mr Thunell expressed
an optimistic view of the Nobel shares which were pledged as collateral by
the Penser companies: “We will not
lose money on Nobel Industrier ... We have invested a lot in Nobel
Industrier, have not yet lost a single crown and we will make a profit.”
(Appendix 6). The statement is of importance in relation to the
Banking Business Act Chapter 2, section 8, which prohibits banks from
taking over assets from the debtor with the aim of making a profit. This
prohibition is intended to be an important safeguard against the abuse of
power. (g)
At the Applicant company’s extraordinary shareholders’ meeting on 6
September 1991, the company was still owned by Mr Penser. Pursuant to
orders from Nordbanken, Mr Ekdahl appointed a new board of the Applicant
company, consisting of Mr Ekdahl, Mr Blomberg, and Mr Ekdahl’s
associate, Ms Eliasson. At the board meeting the same day, Mr Ekdahl was
appointed Chairman of the board, with Mr Thulin to continue as CEO. Ms
Gustafsson, Director at Nordbanken, was present (Appendix
7). (h)
On the initiative of the internationally well-known Mr Werthén, former
CEO and Chairman of the large multinational corporation Electrolux, Mr Penser joined him in Italy on 16 September
1991. They met with Gruppo Varasi who had authorised Mr Werthén to
execute a purchase of Nobel. Subsequent meetings were held and Gruppo
Varasi showed a continued interest in acquiring Nobel. This evidences the
interest that third parties had in acquiring Nobel. Nevertheless, after a
meeting with Mr Werthén and Nordbanken 25 November 1991, Nordbanken in an
answer to Mr Werthén showed no interest in selling the Nobel Shares (Appendix
8). (i)
On 19 September 1991, Mr Penser and Mr Wahlström met at Nordbanken. Mr
Penser wished to pay off the loans for which the Nobel shares were held as
collateral and to have the shares returned. Mr Wahlström indicated his
approval. However, in a telephone conversation with Mr Penser later that
day, Mr Thunell demanded that – for Mr Penser to get the Nobel shares
back – Nordbanken’s loans to other companies connected to Mr Penser,
among them Gamlestaden and Nobel, amounting to about MSEK 7,000 also must
be repaid. To demand repayment of loans which are not included in the
pledge contract in order for a company to redeem a pledged asset was not
only a breach of the written pledge agreement (Appendix
9) (j)
In the afternoon, Mr Penser sent a fax to Mr Wahlström in which he
reiterated his intention to refinance the loans and thereby to reclaim the
Nobel shares (Appendix 10). In
the fax Mr Penser confirmed Mr Wahlström’s positive attitude to his
wish to repay the loans as well as the information he had received by Mr
Thunell, which Mr Penser claimed he did not understand. Mr Penser also
added that he took for granted that Nordbanken: “does
not take any measures regarding ‘my’ shares without first consulting
me”. (k)
On 20 September 1991, Nordbanken sent a fax to Mr Penser informing that “Nordbanken
hereby uses the option you have given” to buy the Applicant company
and the three associated companies at the price of SEK 1 (one) each (Appendix
11). After a demand on the same day from the now parent company
Nordbanken to immediately transfer the Nobel shares, the two week old
puppet board of the Applicant company decided to “sell” the Nobel
shares that had been pledged as collateral to Nordbanken (Appendix
12). The board of the Applicant company demanded that the bank write a
letter of indemnification to be valid as of that day (Appendix 13). The bank set the price of the pledge as equalling
that of the total of the loans for which the shares were held as
collateral, MSEK 1,020 in Nordbanken and MSEK 278 in Carnegie
Fondkommission, the subsidiary of Nordbanken. The bank did not refer to
any valuation. No sales contract was written and executed. The 25
million shares held as collateral by Nordbanken were transferred at the
price of SEK 41 per share (Appendix
14). The 5.1 million shares held as collateral by Carnegie were
transferred at the price of SEK 55 per share (Appendix
15). The “purchase sum” was - down to the last crown - the exact
amount of the debt and accrued interest. None of the Applicant company’s
loans in neither Nordbanken nor Carnegie had been called. (l)
Mr Ekhdal, who had been appointed Chairman of the board of the Applicant
company on 6 September 1991, later confirmed in evidence given under oath
in the Appellate Court, that no negotiations had taken place prior to the
misappropriation and that there was no written sales contract. (See the
transcript of his testimony in the Appellate Court, submitted as Appendix
16, and further below.) Mr Ekdahl was further kept ignorant of Nobel’s
updated value given in the “Project
Prize September 14, 1991” report (Appendix
17), which was known by Nordbanken. The bank kept to itself the
information about the high acquisition value of Nobel, constituting
important information for a controlling owner such as the Applicant
company. (m)
In Nordbanken’s annual report of 1991, the transferred Nobel shares were
accounted for as collateral taken over for the protection of a claim and
not as a commercial purchase (Appendix
18). (n)
On 24 September 1991, Nordbanken sent a fax to the Applicant company
stating that MSEK 1,020 had been credited to a “collateralised
and blocked account awaiting the repayment of loans”. The account belonged to the Applicant company. Later the same day,
the Applicant company received a fax that included two transaction notes
for the shares pledged in Nordbanken which the bank misappropriated on 20
September 1991 and to which the sum MSEK 1,020 referred. (o) At Nordbanken’s board meeting on 1 October 1991,
Mr Thunell informed the board members that Nordbanken had acquired Mr
Penser’s companies. “In
addition, in compliance with the Swedish Banking Companies Act regarding
the protection of claims, Nordbanken has taken over the shares in Nobel
Industrier which so far have been pledged for the above mentioned company’s
loans in the Nordbanken group.” (Appendix
19). (p) On 6 December 1991,
Nordbanken provided a guarantee for the Applicant company’s loan in
Handelsbanken. On 13 December 1991, upon a request from Nordbanken, the
Applicant company’s board decided to ”sell” to Nordbanken further
Nobel shares pledged to Handelsbanken for MSEK 332 (Appendix
20). Nordbanken did not refer to any valuation. Again, there was no
negotiation and no sales contract. On the same day, Handelsbanken informed
the Applicant company that Nordbanken had paid the Applicant’s loan in
Handelsbanken plus accrued interest, MSEK 332. The previous day, on 12
December 1991, a German company had made a binding offer to Nobel to buy
the business division Consumer Goods (see § 12 below). Nordbanken, but
neither the Applicant company nor the stock market, was informed about
this very profitable binding offer the day before the misappropriation of
the last block of Nobel shares. Following Nordbanken’s misappropriation
of the Applicant’s Nobel shares, the book losses of the Applicant
company during 1991 amounted to MSEK 200 as of 20 September and to MSEK
443 as per 13 December, a total of MSEK 643. (q) Based on several
different valuations made during 1991, the Applicant company’s CEO Mr
Thulin objected in a letter to Nordbanken of 17 December 1991 to the low
prices Nordbanken had paid for the two stakes in Nobel (Appendix 21). The True Value of the Shareholding11.
Contrary to the findings of the domestic courts, there are several
irrefutable facts showing that Nordbanken took possession of the Nobel
shares at a price far below the
Shareholding’s true value. A significant indicator in this regard is the
quantum at which a distinct business division within Nobel was sold during
the same time frame in 1991 as the misappropriation took place.
There were, however, prior to this sale several valuations of Nobel
carried out by different specialists - including Nordbanken - showing the
existence of a substantial surplus value, as compared to the price later
paid by Nordbanken. The acquisition of Nobel for more than MSEK 11,000 by
the industrial buyer Akzo in 1993 also points to the vast surplus value.
The first matter addressed below is the sale of the Nobel Consumer Goods
Division. 12.
Sale of the Consumer Goods Division. On 12 December 1991,
Henkel, a major German chemical group that had shown an interest in buying
the Consumer Goods division since 1987, made a binding offer to pay MSEK
4,150 for the division, which represented merely 10% of the assets of
Nobel (Appendix 22). The bid
evidenced the value of this division to an independent industrial buyer.
The transaction generated a MSEK 2,400 capital gain for Nobel. This is to
be compared to Nobel’s total stock market value, as set by the traded
share price times the number of shares, of MSEK 1,400. Henkel’s offer
was more than 10% higher than the highest acquisition value in the range
set out in Morgan Stanley’s “Project
Prize” valuations (considered later in this section).
The Nobel board accepted the offer from Henkel
on 13 December 1991 (Appendix 23). 13.
Nordbanken’s own “cautious” internal valuation. On 20
November 1990, Ms Gustafsson, a Director of Nordbanken, compiled a “draft
for valuation” of Nobel (Appendix
24). This draft was used at a presentation to the Nordbanken board of
Directors on the bank’s exposure to the Penser-group-of-companies. Ms
Gustafsson valued Nobel’s subsidiaries at MSEK 6,000 more than the book
value. She stated that the net worth, i.e. total assets minus total debt,
of Nobel amounted to MSEK 9,700. She concluded by stating that:
“Over again, it must be emphasised that the valuation of the
subsidiaries is made with caution as uncertainty in the assessment of the
future development is high as a result of uncertain surrounding
circumstances. Certain subsidiaries such as Casco and Consumer Goods, for
instance, could, based on how the market has valued this type of companies
(consumer products companies has often been sold at prices corresponding
to a p/s value of +1.5) be valued considerably higher than what has been
done using this traditional method of assessing the yield to assets. Our
valuation of Nobel at approx. MSEK 10,000 would, using such a model, be
raised to approximately MSEK 15,000.” Ms Gustafsson was later made
officer in charge of the Penser-group-of-companies accounts at the bank.
On 30 April 1991, she issued a memorandum “Erik Penser and companies”. In this she concluded that “A
strategic premium to the value of the Nobel holding must be added” (Appendix
25). 14.
Lehman Brother’s valuation.
In February 1991, in a document issued by the U.S. investment bank
Lehman Brothers, Nobel’s acquisition value, or “Aggregate Business
Value” as Lehman Brothers described it, was estimated to MSEK
9,700-14,900 (Appendix 26). 15.
Carnegie International’s valuation. On 18 April 1991, a report by
Carnegie International, a subsidiary of Nordbanken, valued Nobel at MSEK
11,000-16,000. Carnegie emphasised that “In
1992 and 1993 we believe the company will show the real growth that will
put it amongst the very best of Scandinavian companies” (Appendix 27). 16.
Morgan Stanley’s first “Project Prize” valuation. On 20 June 1991, the investment bank Morgan Stanley presented a
report,” Project Prize, June 20th
1991” (Appendix 28),
to Nobel containing a valuation of Nobel. On its own initiative, Morgan
Stanley had produced the report to assist it in gaining the commission to
carry out the restructuring suggested in the report. The valuation was
based on publicly available information on Nobel. In addition, the report
drew on knowledge acquired by Morgan Stanley in its role as advisor in
sales and purchases of companies for Nobel and its counter-parties as well
as from advisory work carried out for Pharos, Nobel’s subsidiary, and
for the different business divisions Eka Nobel, Consumer Goods and Casco
Nobel. On the page in the report listing acquisition values at a sale of
assets to industrial buyers, the report stated:
“Nobel is valued by the market at a very substantial discount to the
underlying Acquisition Value of its various businesses”. Nobel’s “Market Value” (total number of shares times share price) of
MSEK 5,800 was significantly below the acquisition value of MSEK
10,500-14,900. Since, according to Morgan Stanley, Nobel was substantially
undervalued by the stock market, Morgan Stanley suggested that Mr Penser’s
companies should buy out Nobel from the stock market. Morgan Stanley was
asked to produce an in-depth study and, based on a valuation, make a
proposal of how a restructuring could be carried out. All relevant
internal information to produce a correct piecemeal valuation, or an “Acquisition Value” as Morgan Stanley described it, was made
available to Morgan Stanley. As a rule, the acquisition value of
conglomerates, i.e. companies consisting of several unrelated business
activities, tends to exceed the stock-market value. In 1991, with about
ten separate business areas, Nobel was very much a conglomerate 17.
Nordbanken’s further valuation. In its role as a significant
lender, Nordbanken met at least four times a year with Nobel and did so on
2 August 1991 for an update of relevant information. In addition,
forecasts, plans and the values of Nobel’s different business areas were
discussed in depth. On the same day, Ms Gustafsson produced a valuation of
Nobel based on the updated information (Appendix
29). Her conclusion was that “The
value of the Group in August 1991 is in line with the 1990-11-20 valuation”,
i.e. MSEK 10,000 using a conservative method and MSEK 15,000 if valued as
the market of industrial buyers values businesses such as those of Nobel’s.
This approach was however not applied when Nordbanken subsequently “acquired”
the shares in Nobel in September and December 1991. It is worth noting the
striking correspondence between the valuations made by Lehman Brothers in
February, Carnegie International in April, Morgan Stanley in June and
Nordbanken in August, all valuing Nobel at MSEK 10,000-15,000. 18.
Morgan Stanley’s second “Project Prize” valuation.
Morgan Stanley presented Nobel with its report “Project Prize August 13,
1991” (Appendix 4) which included a “Valuation
Summary”. The acquisition value likely to be generated if Nobel’s
assets were sold to industrial buyers was estimated at MSEK 12,800-16,500.
Based on these values, Morgan Stanley presented “Proposed
Restructuring Plan” in which the amounts expected to be generated
through the disposal of assets were also set out. The report recommended
the sale of some assets during August-November 1991 (step 1) and the
Consumer Goods Division and Njordkraft during November 1991 - January 1992
(step 2). Steps 1 and 2 were expected to generate MSEK 5,500. Morgan
Stanley began preparing an assignment letter to carry out the recommended
restructuring. However, Nobel never had the chance to sign the agreement
before Nordbanken, on the 23 August, forced Mr Penser to hand over the
control of Nobel. 19.
Morgan Stanley’s third “Project Prize” valuation. In the
valuation of Nobel which was included in “Project
Prize 14 September, 1991” (Appendix 17), certain figures regarding
Nobel’s assets and liabilities were changed from the presentation of 13
August 1991. The valuation per 14 September 1991 could, contrary to the
valuations made earlier, take account of how the “August
Agreements” of 27 August 1991, including the capital contribution to
Gamlestaden, would affect the value of Nobel. Nordbanken itself provided
information to Morgan Stanley on Nobel’s cash position as well as on
interest bearing debt. Morgan Stanley adjusted downwards the value of the
shares in Njordkraft and in Nordbanken to an estimated market value. The
acquisition value of Nobel was now estimated to be MSEK 8,192-12,392. In
this value, account was taken of the proposed new issue of MSEK 2,000 as
an additional item and to the now to MSEK 2,300 increased capital
contribution to Gamlestaden as a deduction. The report contained a list of
21 potential buyers for the Consumer Goods division and 22 for the
Nobelpharma division. 20.
The above demonstrates that it is indisputable that the value of the
controlling Shareholding, 47.4% of Nobel’s value, was far in excess of
the sum paid on the alleged “purchase” from the Applicant company by
Nordbanken, acting through the puppet board of the Applicant company. Of
particular note is that Nordbanken’s own updated valuation far
exceeded the amount later claimed by the bank to be the value of the
Shareholding. All
Nordbanken’s Nobel shares were on 29 December 1992 transferred to the
subsidiary of Nordbanken, the “bad bank” Securum, an entity that was
formed to handle non-performing assets within Nordbanken. On 1 January
1993 Securum was bought by the Swedish state. In 1993 Nobel was acquired
by Akzo, which resulted in a considerable capital gain for the State (see
§ 21 below). The
Domestic Proceedings
21. In May 1992, Mr. Penser
regained control of the Applicant company from Nordbanken (which by this
time had disposed of the Nobel shares). On 8 November 1993, the
State-owned Securum disclosed in a press release that the offer from the
Dutch company Akzo to buy Nobel generated a capital gain of MSEK 5,400 for
Securum on its Nobel shares (originating from Mr Penser’s four
companies) (Appendix 30). On June 1994 the Applicant company filed a civil suit
against Nordbanken before the City Court of Stockholm (Stockholms Tingsrätt). The Applicant company claimed MSEK 3,372
(EUR 366 million) plus interest. The claim was based on a value of the
Shareholding of MSEK 5,002 (based on the price Akzo paid for the whole of
Nobel) less loans of MSEK 1,630. Nordbanken disputed the claim. The
alternative grounds for the claim were that the misappropriation
constituted a realisation of the pledge and that the surplus should be
returned; that Nordbanken was in breach of contract which should result in
damage liability; that the “purchase sum” through the debt
cancellation was merely preliminary; that the “purchase sum” should be
adjusted and, finally, that it was the question of the payment of an
illegal dividend from the Applicant company to Nordbanken. 22. The City Court dismissed
the claim in its judgment on 1 September 1998 (in the case No T 2-1066-94,
Appendix 31). The City Court
ordered the Applicant company to pay the legal costs of Nordbanken
amounting to MSEK 33 (EUR 3.6 million). The Applicant company
appealed to the Appellate Court (Svea Hovrätt) and invoked the same grounds in that forum. The
Applicant company made a secondary claim of MSEK 1,850 (EUR 200 million).
This claim was based on a value of the Shareholding of MSEK 4,040 less a
contribution Nordbanken made to Nobel of MSEK 560 that was the Applicant
company’s part of the contribution to Gamlestaden and less loans of MSEK
1,630. The Applicant company also reduced its primary claim with these
MSEK 560 to MSEK 2,812. The Appellate Court dismissed the appeal in its
judgment on 28 June 2002 (in case No. T 1066-98, Appendix
32). The Appellate Court further ordered the Applicant company to pay,
in addition to the costs in the City Court, Nordbanken’s costs in The
Appellate Court amounting to MSEK 19 (EUR 2.1 million). The Appellate
Court concluded that the take-over of the Nobel shares constituted an “ordinary
purchase” according to common principles of contractual law with the
following reasoning (page 3 et seq): “…it is clear from concordant statements by the representatives of Nordbanken as well as Yggdrasil’s representative at the time - Göran Ekdahl and Märit Eliasson - that Yggdrasil and Nordbanken after negotiations, voluntarily and based on businesslike considerations, on all occasions agreed that Yggdrasil should sell the Nobel shares to Nordbanken and that agreements to that effect were completed. There is no reason to assume that they under oath would have provided inaccurate information. Moreover, their statements gain highly significant support by the written documentation. Of vital importance for the content of an agreement is primarily the common will of the parties. If that can be established, it will also determine the agreement. Applying common principles of contractual law it is thus a question of ordinary purchases. It is of no relevance that outsiders perhaps did not recognise this.” 23. The City Court came in
principle to the same conclusion. The domestic courts qualification of the misappropriation of the pledged
shares as an ordinary purchase, without any relation to the mortgage, is a
legal assessment that was inadequate and detached from indisputable
commercial realities. Since there is a remarkable lack of modern and
relevant case law in the area, the Appellate Court’s judgment must be
regarded a landmark case, which has established a legal position that
seriously undermines the protection of pledgors and thus the right to
peaceful enjoyment of possessions in domestic law (see § 50-57).
Concerning the closer examination of the circumstances in the case the
following shall be emphasised. 24.
Mr Ekdahl and Ms Eliasson were board members of the Applicant company at
the relevant time. It is undisputed that they became board members at the
request of Nordbanken. They sat on the board from 6 September 1991 until
the end of April 1992 - for only 8 months. The evidence of these
witnesses, both related to Nordbanken, was relied upon in the domestic
courts. However, the evidence of Mr Ekdahl and Ms Eliasson shows that the
board members did not decide to sign over the shares to Nordbanken
entirely voluntarily. First, Mr Ekdahl admitted that the decision to
comply with Nordbanken’s proposal was “facilitated”
by the fact that the board received an indemnification commitment from
Nordbanken (see p. 22 of the transcript of his testimony in the Appellate
Court, Appendix 16). The commitment was thus signed the same date as
Nordbanken forwarded its request to acquire the Nobel shares. Ms Eliasson
also confirmed in her testimony in the Appellate Court (Appendix
33) that “...it was Göran
Ekdahl, who made sure we received it and he
probably had a few discussions with the bank about it”. She further
explained the situation as “a very
special mandate and Nordbanken had in principle 100% control of this
company”. To her “it felt
natural to receive such a commitment” (see p. 8 of her testimony).
The indemnification commitment alone shows that the board considered that
the transaction as required by Nordbanken might be open to legal
challenge, and the board members therefore required that they should be
held harmless in the event of any subsequent legal claim of wrongdoing by
them. The Applicant company had for example the owners of MSEK 150 of
debenture loans to pay regard to. 25.
In addition, both these board members said that there were no
discussions concerning the price (Mr Ekdahl in his testimony in Appendix
16, p. 24 and Ms Eliasson inter alia
on p. 15 in her testimony, Appendix 33). In another context Mr Ekdahl
stated that they “didn’t have
all that much room to manoeuvre in relation to Nordbanken... (p. 9
Appendix 16)”. It cannot objectively be said on the basis of the
evidence that the board agreed to the transactions based on proper
commercial considerations. For that to be the case - especially in a
situation were the 100% parent company forwarded its demand to the board
appointed by the parent - it would have to be assumed that the board was
fully informed about the value of Nobel and the Shareholding in the same
way that Nordbanken was. Mr Ekdahl’s evidence was that the board did not
make any special valuation and that they heard “that
Morgan Stanley had said something” but that they “had no part in it...”. 26.
Previously in his testimony, Mr Ekdahl said in response to a question from
Nordbanken’s lawyer that there “was
no scope to refuse, as it were. The background very shortly here is that
here comes a proposal from Nordbanken supported by the Banking Act to
acquire a pledge to protect a claim. It is the duty of the board of the
wholly-owned subsidiary Yggdrasil to look after Yggdrasil’s affairs,
there was no other offer at the same or any higher amount at this
point” (p. 10 Appendix
16). The board members were hence admittedly unaware of the acquisition
value indicated in the updated valuation by Morgan Stanley, which was
handed over to Nordbanken by Mr Hepburn of Morgan Stanley on 14 September
1991. Further, they were evidently unaware of the binding offer on 12
December 1991, prior to the second misappropriation, that resulted in
Nobel selling the Consumer Goods Division with a capital gain almost twice
the current total stock market value of Nobel. In sum, Nordbanken but not
the Applicant company had access to information showing a most substantial
surplus value of the Shareholding. 27.
As to the classification of the transaction as an ordinary purchase, with
the reference to the common intention of the parties, relying on the
statements of the board members supported by the written documents, it is
important to analyse the words of the witnesses and what was stated in the
documents produced before the domestic courts. There is one important
written document among others which (quite opposite to what the Appellate
Court stated) explicitly recorded that the transfer was the realisation of
the pledge. In the minutes from the board meeting of the Applicant company
on 10 April 1992 (Appendix 34)
the following was accurately stated in § 5: “The
chairman emphasised that the director’s report carefully must state the
motives for selling shares in Nobel Industrier AB to Nordbanken, from
which it must be clear that the shares were pledged for sundry debts in
Nordbanken, that Nordbanken had taken over the shares of Nobel Industrier
AB for a price that was 10% above quoted price and that the shares were
taken over by way of realising pledges in accordance with the Banking Act.
It must also be clear from the director’s report that no offer could be
had at that price and that the board did not oppose the deal” (emphasise added). 28.
This statement was the focus of much attention during the court hearings.
The Chairman in this case was Mr Ekdahl. He testified that the minutes
gave “a fair representation of
everything essential”. He also said that the minutes were “quite comprehensive too and this reflects a little bit the care we
wanted to put into this thing and when I have gathered my recollection the
minutes have been the essential source and I haven’t seen anything in
them that differ from my recollection” (p. 20 in his testimony,
Appendix 16). 29.
In the Appellate Court, Nordbanken’s lawyer confronted Mr Ekdahl with
his earlier statement in the City Court regarding the realisation of the
pledge in the minutes of the board meeting on 10 April 1992. The lawyer
read Mr Ekdahl’s answer in the City Court from the transcript, where he
had said: “OK, ah, to begin with
the situation was this, the bank needed the right to acquire the shares
and they have that right in the Banking Act to protect their claim, so a
more correct expression instead of realisation of the pledge would have
been as protection of their claim here, that’s the objective legal
background. ” 30.
Mr Ekdahl confirmed that he had no reason to question the comments he made
in the City Court (p. 15 in his testimony, Appendix 16). Also Ms Eliasson
was asked by Nordbanken’s lawyer what the impugned statement meant. She
said (p. 8 in her testimony Appendix 33): “It means what it says there. I understand that what has been discussed a lot is the fact that we chose to call it in the minutes realisation of pledges in accordance with the Banking Act. And what was intended was the same thing as has been said in these different mandates, i.e. that it was an acquisition in accordance with the Banking Business Act that the bank made to protect its claim.” 31.
From the statements of the two witnesses it cannot reasonably be concluded
that the transaction constituted an “ordinary purchase” unrelated to
the debt situation. Furthermore, Nordbanken’s minutes of the board
meeting 1 October 1991 states “the
bank has, in accordance with The Banking Business Act’s rules on the
protection of claims, taken over the shares in Nobel Industries that were
pledged for the above mentioned company’s credits with the Nordbanken
group” (Appendix 19). In Nordbanken’s annual report of 1991, the
transaction appeared under the heading “Pledged property taken over to protect claim”. The report also
states “During the year Nordbanken
became the owner of the shares in conjunction with the utilisation of
certain pledges to protect claims. This kind of holding is governed by the
Banking Business Act” (Appendix 18). In a statement by Nordbanken in
November 1991 the bank declared that, as a consequence of utilisation of a
pledge in order to protect claims, it had become the owner of 69.6% of
Nobel (Appendix 35). The above is sufficient to demonstrate that the
Appellate Court’s view of the transaction as an “ordinary purchase”
separated from the pledge-situation, based on presented written and oral
evidence, was arbitrary and divorced from the facts. 32.
The Banking Business Act prohibits a Bank’s purchase of a pledge (in
order to secure a claim), if the transaction is aimed at making a profit.
This ground was also invoked by the Applicant company. In this context the
Appellate Court held (Appendix 32, p. 4, et seq): “Yggdrasil further claimed that Nordbanken has violated the provisions of the Banking Business Act, in that Nordbanken acquired collateral with the aim of seeking a profit, and that this must imply that it cannot be a question of an ordinary purchase but of a realisation of collateral or in any event that Nordbanken must compensate Yggdrasil as if it would have been a question of realisation of collateral. In the opinion of The Appellate Court however Nordbanken’s approach to and possible violation of provisions in the Banking Business Act cannot affect the civil law relationship between the parties that arose from the above mentioned purchase. It can however be added, as will be dealt with in the following, that the investigation in the case refutes the allegation that it concerns a profit-seeking acquisition.” The
Appellate Court, by not affording the Banking Business Act any civil
effect, thereby established a position of law that undermines the
protection of pledgors in a fundamental way (see below § 48-49 and the
legal opinion of professor Ulf Bernitz, submitted as Appendix
A). 33. The Appellate Court went
to conclude that the value of the pledge did not exceed the total amount
actually paid for the Nobel shares, i.e. the total amount of the debts. On
that ground the Appellate Court also dismissed the submission that the
misappropriation constituted an illegal dividend to Nordbanken. 34. In short, the Appellate
Court’s conclusion was that the real market value of listed shares
typically equals the quoted stock-market price. The Applicant company
however claimed that it held a controlling shareholding that was critical
to the decision to realise the acquisition value of Nobel, which by far
exceeded the stock-market value. Regarding this submission, the Appellate
Court held that
in order to be able to run a company through a controlling shareholding
with fewer restrictions “this is
rarely achieved unless the ownership amounts to 90 or 100 per cent of the
shares” (Appendix 32, p. 7). Contrary to the Appellate
Court’s view of the necessary level of ownership, the
Applicant company with its 47.7% ownership of Nobel - in its role as a controlling
shareholder - had successfully initiated the process of realising the
acquisition value prior to Nordbanken’s misappropriation of the
Shareholding (see further § 55-56 below). In March 1991 Nobel presented
to Nordbanken a plan to sell non-core business divisions for MSEK 8,000 in
order to amortise loans. At the board meeting of Nobel 14 June 1991, the
CEO Mr Carlberg was assigned the task of selling the company Extraco for
at least MSEK 450. The board discussed a list of other identified “sellable
assets” amounting to MSEK 5,000. The board also discussed potential
structural affairs to be executed during 1991-1992, such as exchanging
possessions with other chemical companies, Akzo being one of them (Appendix 36). On 13 September 1991, Extraco was sold with the
assistance of Morgan Stanley at a price of MSEK 525 and with a capital
gain of MSEK 331. Nobel had for many years, also in 1991, a continuos flow
of industrial companies that contacted the CEO Mr Carlberg and expressed
interest in acquiring different divisions within the group, the Consumer
Goods division being one of the most frequently asked for. Furthermore,
the Appellate Court relied upon the fact that Mr Hepburn and Mr Bok of
Morgan Stanley had stated that “the
June and August reports in part were based on incorrect or incomplete
data.” (p. 9). The Appellate Court however failed to refer to the
updated September report which had taken into account all information
about how the “August Agreements” affected Nobel’s acquisition
value. It was essentially the lack of this information that the
representatives of Morgan Stanley referred to as incorrect in the reports
20 June and 13 August, finalised before the “August Agreements” of 27
August. The Appellate Court also failed to take into account the statement
of Mr Hepburn, in which he maintained his view expressed in the City Court
“…the value of the ongoing
operating divisions was indeed something we felt very strongly was correct”
(Appendix 37, pp. 48-49). Yet,
the Applicant company’s expert witness, Mr Treffner, Partner of Price
Waterhouse Corporate Finance and head of their Swedish business area
Valuation Services, had verified that the valuation in Project Prize was
done with the prudence and rigor that is normal for a stand-alone
valuation done by a professional valuation institution (Appendix
38). The board of Nobel in 1993 asked Morgan Stanley to give a “fairness
opinion” in order to determine if the price Akzo offered to pay
corresponded to the true value of Nobel. This reflects the trust that the
Nobel board nominated by Nordbanken/Securum had in Morgan Stanley’s
competence in assessing the right value of Nobel. The
said incorrect information in the June and August reports - corrected in
the September report – raised, according to the Appellate Court,
considerable doubts regarding the significance of the report from Morgan
Stanley. Based on this, the Appellate Court further held that similar “doubts arise with respect to the other reports, inter alia from Lehman
Brothers and Carnegie, which also seem to be based on the partly incorrect
or incomplete assumptions”. The Appellate Court did not, however,
mention the reports carried out by Nordbanken through Ms Gustafsson, also
indicating a most substantial surplus value (see above § 17). It can
hardly be disputed that Nordbanken had access to all relevant information. With regard to the possibility of selling Nobel’s different business
divisions, the Appellate Court essentially held that the business climate
for divestitures was not favourable at the time, failing to connect this
to the fact that Extraco was successfully sold in September and that the
Consumer Goods Division was sold in December 1991 at a price 10% higher
than the highest acquisition value in the range set in Morgan Stanley’s
valuations. The Appellate Court’s findings on the valuation issue were
therefore also arbitrary and the principle and approach applied makes it
highly unlikely for a pledgor to ever be able to prove the existence of a
surplus value, a fact that further undermines the right to property (see
further § 53-57 below). 35. The Applicant company
appealed against the judgment of the Appellate Court to the Supreme Court
(Högsta Domstolen) on 17
October 2002 and asked for a leave to appeal (Appendix
39). The Applicant company also submitted a memorandum by Judge Bertil
Wennergren, former member of the Administrative Supreme Court of Sweden,
arguing that the actions taken by Nordbanken constituted a violation of
the right to peaceful enjoyment of possessions as provided for inter
alia in P1-1 and the constitution of the respondent State (Appendix
40). Permission to appeal was refused on 10 February 2003 (Appendix
41). IV.
RELEVANT DOMESTIC LAW AND PRACTICE 36.
The relevant Swedish statutory provisions are set out in Appendix 42. V. STATEMENT OF ALLEGED VIOLATIONS OF THE CONVENTION AND/OR PROTOCOLS AND OF RELEVANT ARGUMENTS37.
The Applicant company submits that it was arbitrarily and unfairly
deprived of its possessions by the respondent State, or that there was an
arbitrary and unfair interference with the peaceful enjoyment of its
possessions, in violation of P1-1 due to Nordbanken’s misappropriation
of the Applicant company’s shares in Nobel. This was a State action by a
State-owned bank. Alternatively, by refusing to grant the Applicant
company compensation and damages, the Swedish judiciary effectively
approved of the misappropriation and engaged the respondent State’s
responsibility in acting as public authorities of the state. Further, by
failing to provide an effective remedy protecting the right to the
surplus, the respondent State is in violation of Article 13 in relation to
the Applicant company’s claim of breach of P1-1. APPLICABILITY OF P1-1The Government’s Responsibility38.
The Applicant company submits that the State responsibility in this
application arises in two distinct forms. First, the misappropriation of
the Nobel shares by Nordbanken was for all practical purposes the result
of an exercise of Governmental “authority” in that the State was the
main owner of Nordbanken at the relevant point in time. Second, even if
(contrary to the Applicant company’s primary submission) Nordbanken
should be considered a private entity for the purposes of the Convention,
the State has under Article 1 and P1-1 positive obligations, to be
fulfilled ultimately through the judiciary, to protect private individuals
and companies from arbitrarily and unfairly being deprived of their
possessions through the conduct of other individuals and companies. A
failure to provide such protection violates Article 13 of the Convention
as well as P1-1. Existence of a Possession39.
It is uncontroversial that both interests of the Applicant company’s in
shares and money (the two issues in this application) are possessions
within the meaning of P1-1. 40.
The Nobel shares owned by the Applicant company were appropriated by
Nordbanken, no matter what legal epithet is used to describe that
appropriation. The Strasbourg Court has consistently held that in
determining whether there has been a deprivation of possessions, it is
necessary not only to consider whether there has been a formal
purchase, dispossession or expropriation of property, but “to
look behind the appearances and investigate the realities of the situation
complained of. Since the Convention is intended to guarantee rights that
are ’practical and effective‘, it has to be ascertained whether the
situation amounted to a de facto expropriation” (see inter
alia Sporrong and Lönnroth v.
Sweden, judgment of 23 September 1982, Series A No. 52, Brumarescu v. Romania, judgment of 28 October 1999, Reports
1999-VII, p. 201, Carbonara and
Ventura v. Italy, judgment of 30 May 2000, Reports 2000-VI, p. 91 and Belvedere
Alberghiera S.R.L. v. Italy, judgment of 30 May 2000, Reports 2000-VI,
p. 135). In the present case, these comments are particularly apposite
given that the domestic courts allowed the “cloak” of an “ordinary
purchase” to be used as a device to disguise the reality of what was
clearly a misappropriation of a vast surplus value. 41.
Even if (contrary to the Appellant company’s primary case) the
appropriation did not constitute a deprivation with the meaning of the
second sentence of P1-1, the measures taken constitute a loss of
opportunity for the Applicant company. 42.
Accordingly, there is no doubt that the protection provided by P1-1
applies to the circumstances of the present case. 43.
The interference by Nordbanken and the Swedish courts with the Applicant
company’s P1-1 rights can only be justified if it was prescribed by law,
pursued a public interest and was proportionate to the legitimate aim
pursued. Prescribed by Law - the Principle of Legality and Legal Certainty 44.
According to the established jurisprudence of the Strasbourg Court, the
first requirement of P1-1 is that any interference with the peaceful
enjoyment of possessions should be lawful: the second sentence of the
first paragraph authorises a deprivation of possessions only “subject to the conditions provided for by law” and the second
paragraph recognises that States have the right to control the use of
property by enforcing “laws”.
Moreover, the rule of law, one of the fundamental principles of a
democratic society, is inherent in the Convention as a whole. It is
further recalled that the expression “prescribed
by law” requires not only that the impugned measure should have a
formal basis in domestic law. It also refers to the quality of the law in
question. The requirement of “lawfulness”
is designed to prevent arbitrary deprivation of property. It is submitted
that the Swedish provisions governing the protection of debtors - as
applied by the Appellate Court and confirmed by the Supreme Court by
denying the Applicant company’s request for a leave to appeal - are
insufficient and open to arbitrary deprivation of property both as has
occurred in relation to the Applicant company and more generally.
Swedish law concerning realisation and forfeiture of the pledge 45.
In Swedish law, the general provisions governing the rights of a creditor
to realise the value of the pledge are to be found in the Swedish
Commercial Code 1736: 0123 2, Chapter 10 Section 2 (Appendix
42) It follows from this provision that the value of the pledge for
the creditor can, in principle, be realised in two different ways: either
by a sale in a public auction or by an arrangement where the debtor allows
the creditor to keep the pledge after a formal objective valuation. In the
domestic proceedings, the Applicant company claimed that the provision
applies not only to a sale of the pledge, but also to a contractual
take-over by the creditor of the assets pledged, for a compensation to the
debtor in the form of cancellation of the claim (i.e. even assuming,
contrary to the actual facts, that this was a simple purchase). 46.
As to the applicability and relevance of this provision the City Court
stated in its judgment that: "Chapter
10 § 2 of the Commercial Code contains rules about realisation of
pledges. The provision prescribes an old-fashioned procedure. For some
time it has been questioned in doctrine if it is not obsolete. In any case
it can be noted that the provision is optional and that
it is regularly replaced with
standardised conditions in credit agreements". In line with this
neither the City Court nor the Appellate Court gave the principles in
Chapter 10 Section 2 of the Swedish Commercial Code any significance. Also
in a more general perspective this “old fashioned” provision seems to
have no impact in today’s case law. Consequently, Chapter 10 Section 2
of the Swedish Commercial Code 1736 does not provide a sufficient
protection for pledgors in situations like the present, as required by
P1-1. 47.
Furthermore, the Appellate Court held Chapter 3 section 37 of the Swedish
Law of Contract concerning the invalidity of a forfeiture of a pledge not
to be applicable (see Appendix 42 for the wording of the rule). This
interpretation had the effect of removing a further legal safeguard
against abuse. 48.
Under Chapter 2, Section 8 of the Banking Business Act, a bank may, only
as a last resort in order to secure a claim and as payment for the claim,
take over property which constitutes security for the claim when there is
reason to believe that the bank otherwise would suffer a significant loss.
The main purpose of this legal restriction is to prevent banks from doing
speculative profit seeking transactions (see Falkman,
Bankrörelse - Risker och riskhantering i banker, pp. 402-403, Appendix
43). At Nordbanken’s press conference on 27 August 1991, Mr Thunell
declared that “We will not lose money on
Nobel Industrier… We have invested a lot in Nobel Industrier, we have
not yet lost a single crown and we will make a profit”. According to
the minutes of a board meeting of 28 October 1992 at Nordbanken, the bank
did not want to transfer the Nobel shareholding to Securum:”…the board’s assessment is that the shareholding in Nobel may develop
into a profitable investment for Nordbanken.” (Appendix 44). It shall in this context be added that Nobel was
bought by the industrial buyer Akzo for more than MSEK 11,000 in 1993
resulting in a capital gain for the stately owned Securum of MSEK 5,400
(EUR 587 million). 49.
In the domestic proceedings, considering the facts described above, the
Applicant company claimed that Nordbanken had violated the provisions of
the Banking Business Act in that Nordbanken acquired the pledge with the
aim of seeking a profit, and that this necessarily meant that it could not
be a question of an ordinary purchase but of a realisation of the pledge,
or in any event that Nordbanken was obliged to compensate the Applicant
company as if it would have been a question of realisation of the pledge.
In this context, however, the Appellate Court stated that: "Nordbanken’s
approach to and possible violation of provisions in the Banking Business
Act can not affect the civil law relationship between the parties that
arose from the above mentioned purchase." The protective
provisions of the Banking Business Act are accordingly regarded by the
Swedish courts’ interpretation as a purely public law limitation,
offering no protection in private contractual relations. The immediate
victim of such an unlawful acquisition is in other words not given any
compensation or other effective remedy according to domestic law. This is
a position of law that clearly demonstrates the insufficiency in the
protection of pledgors in the Swedish domestic system. The Reality of the Misappropriation and True Value of the Shareholding50.
In the domestic proceedings, the Applicant company contended that the
transfer transaction was so closely linked to the fact that the controlled
shareholding was pledged and the concurrent debt cancellation that the
transfer must be regarded as either a phase in the realisation of the
pledge or as a forfeiture of the pledge. From the facts set out above, it
is apparent that the transaction lacked most of the features that would
ordinarily characterise an "ordinary purchase" of a controlling
shareholding in an industrial group worth several billion crowns. In
particular: i.
there
were no negotiations between the parties; ii.
no due
diligence was done; iii.
no
contract was expressed in writing (there was not even a written note
confirming that the initial pledge agreement (Appendix 9) was terminated); iv.
the so
called price exactly equalled the amount of the debt, including principal
and accrued interest, that was cancelled and for which the shares were
pledged as collateral. 51.
These facts is conclusive evidence that the misappropriation of the shares
was not an ordinary purchase. The Appellate Court, in examining the value
of the pledged shares, found that the value was to be measured by the
stock-exchange price per share at the time of the misappropriation. In
light of this finding, it is remarkable that Nordbanken paid a price that
was slightly higher than the quoted stock exchange price. Contrary to the
domestic courts’ findings, the misappropriation was carried out as an
utilisation of the pledge. By accepting Nordbanken’s characterisation of
the misappropriation as an ordinary purchase, the Appellate Court took an
extremely formal and unrealistic position. This is in conflict with the
rule of effectiveness requiring courts to look beyond appearances and
formalities, and instead focus on the realities of the applicant’s
position (see van Dijk, van Hoof, Theory and Practise of the European
Convention on Human Rights, third edition 1998, Kluwer Law international,
page 74). Due to the extreme formalistic approach taken by the Swedish
courts, it is now open for creditors to arbitrarily deprive debtors of
their pledged assets simply by redefining the form of the transaction. 52.
In conclusion, neither the “old fashioned” procedure prescribed by the
Swedish Commercial Code, Chapter 10, Section 2, nor the Banking Business
Act - which according to the domestic courts provides no civil law
protection - provides any adequate safeguard of the interest of the
debtor. Consequently, these facts, taken together with the wide
possibilities for a bank to circumvent its contractual obligations as a
pledge holder and the narrowly restrictive interpretation of the scope of
application of Section 37 in the Swedish law of Contract, can only lead to
the conclusion that the domestic rules and regulations designed to provide
debtors safeguards against arbitrary deprivations of possessions do not
provide sufficient protection for pledgors (see the Legal Opinion and the
Article of professor Ulf Bernitz, Appendix
A and Appendix B). 53.
However, even if the above described material rules for realisation of a
pledge should apply, they would still have no practical relevance in a
situation like the present, since the principles for valuation of a
controlling shareholding applied by Swedish courts are such that it is
highly unlikely that a pledgor would ever be able to prove the existence
of a surplus value. The Appellate Court - despite its narrowly restrictive
interpretation of the relevant law - carried out an examination of the
question of the value of the pledged Nobel shares. This examination of the
value of the shares pledged as collateral led to the following conclusion
by the Appellate Court: "Overall
The Appellate Court cannot reach another conclusion in the valuation issue
than that Nordbanken must be considered to have proved that the value of
the Nobel shares that Nordbanken and Yggdrasil agreed that Nordbanken at
the relevant point in time should take over was below the price that
Nordbanken had paid for them. In light of this, implying inter alia that
Yggdrasil has not suffered any damage in this context, The Appellate Court
cannot find that the stock purchase can be refuted on the grounds of
provisions regarding pledges or the provisions in the Contracts Act
regarding invalidity and nor is there any reason to modify the purchase
price considering the content of the agreement, and this irrespectively of
which legal epithet the take-over is labelled with." 54.
The Appellate Court’s conclusion reveals that the valuation issue was of
crucial importance for the entire case. Furthermore, the approach and the
principles applied to valuation are of general importance for the
effective legal protection of the rights of the debtor. As has been
explained above, in this particular case there was a perfect opportunity
to estimate the value of the pledge at the time for the misappropriation
by Nordbanken: a group of experts at one of the world’s largest and most
respected investment banks, Morgan Stanley, evaluated the acquisition
value of Nobel just before the transfer of the pledge. This was made on
the initiative of Nordbanken and a report containing this evaluation was
delivered to Nordbanken 6 days before Nordbanken executed the
misappropriation of the main part of the pledge. Other factors that
facilitate a retrospective estimation of the acquisition value of Nobel in
September 1991, are the sale of the Consumer Goods Division only 10 weeks
later and the estimations of the acquisition value made by Lehman
Brothers, Carnegie and, indeed, Nordbanken itself. The sale of Nobel to
the industrial buyer Akzo in 1993 showed the acquisition value and made
the substantial surplus value evident. 55.
The Appellate Court did not even initiate a serious examination of the
answer to one of the most crucial questions in the case, namely: what was
the acquisition value of Nobel, and by that the value of the Applicant
company’s controlling Shareholding of 47.4% of Nobel, at the time for
the misappropriation of the pledge. Instead, the Appellate Court, in its
examination, sought the answer to the question as to what might constitute
a reliable measurement of the value of one separate share. The
Appellate Court stated: "The
question is in other words what a wise and sensible buyer with access to
adequate information would be
willing to pay for the share"
(see p. 5, Appendix 32). The Appellate Court came to the conclusion that,
regarding shares listed on the stock exchange, the quoted stock-price as a
rule constitutes such a measurement. However, in this case the value of
one single share - when sold in the way described by the Appellate Court -
is completely irrelevant, since it was a question of a controlling
shareholding and - which is of great importance - since it was a question
of deciding the acquisition value. In this context, the controlling
shareholding was a necessary condition for the ability to decide on a
realisation of the acquisition value of Nobel, which the Applicant company
had already successfully started by for example the sale of Extraco in
September 1991. When the whole company is sold in a so called friendly
take-over the buyer has to negotiate with the controlling shareholder,
such as the Applicant company in the case of Nobel, to reach a price
agreement. The
Appellate Court held that a possession ought to represent an ownership
amounting to 90-100% in order to represent a controlling shareholding (see
pp. 6 and 7, Appendix 32). However, it is a well-established fact that it
is not necessary to represent an ownership amounting to 90-100% in order
to represent a controlling shareholding. The Applicant company controlled
47.4% of the votes on its own. A controlling shareholding involve the
possibility to unchallenged be able to appoint the board. The Applicant
company could select the board of Nobel merely on the basis of its own
holding of shares. Consequently, the Applicant company had the power
through the Nobel board to initiate a restructuring of Nobel, including
selling the different business divisions in order to realise the
acquisition value. 56.
The Appellate Court seems not to have paid any attention to the crucial
difference between the concepts "stock
market value" and "acquisition
value". The stock market value is the market’s valuation of one
single share, multiplied by the total number of shares. This value,
however, is not equivalent to the acquisition value, which in the case of
Nobel, as were shown in different valuations, by far exceeded the stock
market value. Considering the facts mentioned above, no legitimate
valuation of the Applicant company’s pledged Nobel shares was made by
the domestic courts. The domestic court should have relied upon the fact
that all the valuations, not least the ones made by Nordbanken itself,
were made with focus on the acquisition value of Nobel that a controlling
shareholder (like the Applicant company) could realise. The findings of
the Appellate Court concerning what constitutes a controlling shareholding
that was necessary for the ability to realise the acquisition value of
Nobel can not be described as anything else than completely divorced from
reality and perverse in the sense that these findings include inexplicable
or arbitrary elements. The correct factual approach required the domestic
courts to focus on the following: (a) On 14 September 1991, Mr Hepburn at Morgan Stanley, delivered the
"Project Prize September 14, 1991" valuation to Nordbanken.
In the report the acquisition value of the operating business divisions
was stated. The report was carried out on the initiative of Nordbanken.
The report was updated and suggested how to carry out sales of assets in
the same way as Morgan Stanley had recommended in the earlier report of 13
August. (b)
The valuation in the report estimates the acquisition value of Nobel,
computed as total asset value, plus cash and marketable securities, less
debts and preferred stocks, to between MSEK 8,192 and 12,392 before
adjustments. (c)
In his testimony before the Appellate Court, Mr Hepburn maintained his
position from the City Court of the correctness of the value of the
business divisions as presented in the Morgan Stanley reports (see pp.
48-49, Appendix 37). d)
The valuation in the Morgan Stanley "Project
Prize September 14, 1991" suggests a mean acquisition value for
Nobel of MSEK 10,292 ((8,192 + 12,392)/2). According to that value, on
which the Applicant Company’s secondary claim of MSEK 1,850 (EUR 200
million) is based, Nordbanken paid a too low price for the Shareholding.
This conclusion is also supported by the facts presented under § 11-20. e)
Also according to the price Akzo paid for Nobel, there was a vast surplus
value on which the Applicant
company based its adjusted primary claim of MSEK 2,800 (EUR 300) in the
Appellate Court on (see § 21 above). 57.
In sum, despite unambiguous circumstances showing a most substantial
surplus value, this value was not recognised by the domestic courts. The
relevant Swedish law as applied by the Appellate Court gives a creditor
the opportunity to make an improper and unjust profit by forcing a
take-over of the pledge for a price far below the true value. Thus, the
effective protection for the right of property is indeed illusory in this
area. Public InterestThere
is a public interest for creditors to secure claims, but there is no
public interest in the misappropriation of a surplus value. Thus there is
in this case no question of any public interest justifying the taking of
property. Proportionality58.
In any event, the State made an unjust enrichment through the take-over of
the pledge, when it ultimately sold the Nobel shares with a capital gain
of MSEK 5,400. Consequently the measure did not strike a fair balance (see Beyeler v. Italy
[GC], judgment on 5 January 2000, Reports 2000-I, p. 57). Article 1359.
Further, by failing to provide an effective remedy for requiring the bank
to disgorge the improper profit, the application of Swedish law to the
circumstances of the Applicant company constitutes a violation of the
right to an effective remedy guaranteed by Article 13 of the Convention.
This provision requires both an effective remedy before the national court
and the ability, in the present case, to obtain actual financial redress.
However, under Swedish law, a banking entity can evade all protections for
a debtor in respect of a pledged asset by obtaining control of the debtor
through economic duress and then create a false “purchase” of the
pledged asset with the aim of reaping the benefit of the surplus. 60.
In the present case, the domestic remedies were not effective, neither in
law nor in practice. The fact that a breach of the Banking Business Act
did not have any civil effects shows that the remedy was not effective in
law. Further, the redefinition of the misappropriation as an “ordinary
purchase” and the insufficiency of the domestic legislation in
combination with narrow and restrictive interpretation of relevant law
indicate that the remedies were not effective in practice. The same goes
for the other conclusions, explained above, the domestic courts drew from
undisputed or irrefutable facts. The Court will be invited to declare
violations of both Article 1 of Protocol 1 and Article 13 of the
Convention. VI.
STATEMENT
RELATIVE TO ARTICLE 35 OF THE
CONVENTION
The
domestic procedures ended when the Supreme Court denied the Applicant
company’s request for a leave for an appeal on 10 February 2003
(Appendix 41). VII. STATEMENT OF THE OBJECT OF THE APPLICATIONThe
Applicant company respectfully requests the Court to decide and declare
that the application is admissible and that, on the merits, the Swedish
Government has violated the Applicant company’s right to peaceful
enjoyment of possessions as protected by the first Protocol and Article 13
of the Convention taken in conjunction with P1-1. The Applicant company
further asks the Court to award it compensation for pecuniary and
non-pecuniary damages - including default of interest - with an amount
that will be specified at the appropriate stage. Finally the Applicant
company asks the Court to order the Government to reimburse it for legal
costs incurred in the domestic procedures as well as costs incurred before
the Court. The sum will be specified later. VIII. STATEMENT CONCERNING OTHER INTERNATIONAL PROCEEDINGSNo
other international proceedings regarding the above-described events are
pending. IX. LIST OF DOCUMENTSThe
following documents are submitted as Appendix in English (“Eng) or
Swedish (“Sw”); A.
Legal opinion by Ulf Bernitz, professor of European law at
Stockholm University, Senior Research Fellow, Balliol College, University
of Oxford. (Eng) B.
Article by Ulf Bernitz, “The incorporation of the European human
rights convention into Swedish law - a half measure”. (Eng) 1.
The final report of the Nobel Investigation by professor Jan
Ramberg. (Sw) 2.
Letter from by Sir Peter Smithers on 22 January 1992 reproduced in
Swedish press. (Eng) 3.
Protocol from board meeting in Nordbanken No. 11, on 23 August
1991. (Sw) 4.
Morgan Stanley’s report, Project Prize August 13, 1991. (Eng) 5.
The option agreement between Nordbanken and Mr Penser, on 23 August
1991. (Sw) 6.
Statement
of Mr Thunell at a Nordbanken press conference on 27 August 1991. (Sw) 7.
Protocol from board meeting in Yggdrasil No. 1 on 6 September 1991.
(Sw) 8.
Part of Mr Werthén’s memorandum after meeting with
representatives of Nordbanken 25 November 1991, that was sent to Gruppo
Varasi. (Eng) 9.
The initial pledge agreement between Nordbanken (at the time named
PK-Banken) and Yggdrasil on 22 September 1989. (Sw) 10.
Mr Penser’s fax to Mr Wahlström on 19 September 1991. (Sw) 11.
Nordbanken’s fax to Mr Penser on 20 September 1991, making use of
the option. (Sw) 12.
Protocol from board meeting in Yggdrasil No. 3 on 20 September
1991. (Sw) 13.
Letter of indemnification for Yggdrasil’s board members on 20
September 1991. (Sw) 14.
Accounting slips regarding the misappropriation on 20 September
1991 of the Nobel shares pledged to Nordbanken. (Sw) 15.
Accounting slips regarding the misappropriation on 20 September
1991 of the Nobel shares pledged to Carnegie Fondkommission. (Sw) 16.
Transcript of the testimony of Mr Ekdahl in the Appellate Court.
(Sw) 17.
Morgan Stanley’s report, Project Prize September 14, 1991. (Eng) 18.
Part of Nordbanken’s annual report 1991. (Sw) 19.
Protocol from board meeting in Nordbanken No. 16 on 1 October 1991.
(Sw) 20.
Protocol from board meeting in Yggdrasil No. 10 on 13 December
1991. (Sw) 21. Protocol from board meeting in Yggdrasil No. 11 on 18 December 1991, including Mr Thulin’s letter to Nordbanken on 17 December 1991. (Sw) 22.
Part of binding offer from Henkel KGaA to Nobel on 12 December 1991
to acquire the Consumer Goods division. (Eng) 23.
Protocol from board meeting in Nobel No. 18 on 13 December 1991.
(Sw) 24.
Nordbanken’s draft valuation of Nobel on 20 November 1990. (Sw) 25.
Memorandum by Ms Gustafsson, Nordbanken, on 30 April 1991. (Sw) 26.
Page showing Lehman Brother’s valuation of Nobel in February
1991. (Eng) 27.
Carnegie International’s valuation of Nobel in April 1991. (Eng) 28.
Morgan Stanley’s report, Project Prize 20 June 1991. (Eng) 29.
Nordbanken’s updated valuation of Nobel on 2 August 1991. (Sw) 30.
Press release by Securum on 8 November 1993. (Sw) 31.
The City Court of Stockholm’s judgment on 1 September 1998 in
Case No T 2-1066-94. (Sw) 32.
The Appellate Court’s judgment on 28 June 2002 in Case No. T
1066-98. (Sw) 33.
Transcript of the testimony of Ms Eliasson in the Appellate Court.
(Sw) 34.
Protocol from board meeting in Yggdrasil No. 2 on 10 April 1992.
(Sw)
35.
Statement from Nordbanken in Nobel’s prospectus (share issue) in
November 1991, regarding the bank’s utilisation of the pledged Nobel
shares to protect claims. (Sw) 36.
Protocol from board meeting in Nobel No. 4 on 14 June 1991. (Sw) 37.
Transcript of the testimony of Mr Hepburn in the Appellate Court.
(Eng) 38.
Expert opinion by Mr Treffner, Price Waterhouse Corporate Finance.
(Sw) 39.
The appeal to the Supreme Court over the judgment of the Appellate
Court on 17 October 2002. (Sw) 40.
Memorandum on 17 October 2002 by former judge Bertil Wennergren.
(Sw) 41.
The Supreme Court’s denial of a leave for appeal on 10 February
2003. (Sw) 42. Appendix over relevant domestic law. (Eng) 43.
“Bankrörelserisker och riskhantering” by Mr Falkman,
pp. 402-403. (Sw) 44.
Protocol from board meeting in Nordbanken No. 18 on 28 October
1992. (Sw) X. STATEMENT OF PREFERRED LANGUAGE
English We
hereby declare that, to the best of our knowledge and belief, the
information we have given in the present application form is correct. Stockholm 5 August 200 _________________________________ _________________________________
________________________________
Clarence Crafoord ________________________________
London 5 August 2003 _____________________________ _ ________________________________ |
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