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Inter-state application against Croatia regarding Ljubljanska Banka claims towards Croatian companies

The Republic of Slovenia lodged before the European Court of Human Rights (ECHR) an inter-state application against the Republic of Croatia related to the claims of Ljubljanska Banka towards Croatian companies. 

 

Slovenia contends that Croatia violated the European Convention on Human Rights and Fundamental Freedoms affirming that for the last 25 years, the Croatian judicial and executive authorities have systematically incapacitated Ljubljanska Banka to recover its claims towards Croatian companies and thus unlawfully denied Ljubljanska Banka the right to its property. This allowed the debtors of Ljubljanska Banka in Croatia to avoid repaying their debt. Slovenia found itself in an unjust position, where on the one hand it needs to pay out the savers of Ljubljanska Banka (Ališić case), while on the other hand Croatia prevented the repayment of Ljubljanska Banka claims towards Croatian companies.


The Croatian companies failed to repay their overdue liabilities, mainly from credit loans and guarantees approved after 1980, so between 1991 and 1996, Ljubljanska Banka and its branch office in Zagreb initiated the proceedings to recover their claims before the Croatian courts. In the ensuing protracted court proceedings, Ljubljanska Banka was subjected to arbitrary decisions by Croatian judicial and administrative authorities, forced prevention of its operation in Croatia, systematically protracted litigations and even prevention of enforcement of final and enforceable judgements, including as a result of interference by the executive authorities. 

 

Croatian courts, including the Croatian constitutional court, have denied Ljubljanska Banka the capacity to sue Croatian companies and legitimately recover its claims. This allowed the Croatian companies to avoid repaying their debt to the bank.

 

Following the lengthy yet fruitless negotiations with Croatia on the Ljubljanska Banka issue and considering the fact that Croatia has not honoured the previously agreed obligations, Slovenia estimated that the only possible solution to this dispute is to seek legal remedy at the international level. After exhausting all legal remedies in Croatia, Slovenia lodged an inter-state application before the ECHR that consists of 26 litigations regarding the Ljubljanska Banka claims. 

 

After the judgement on the right to property of the foreign currency savers (Ališić case), which Slovenia respects and fully implements, the Republic of Slovenia expects the ECHR to find a just solution also in the case of Croatian violations to the Convention.

 


TIMELINE OF EVENTS RELATED TO LJUBLJANSKA BANKA ISSUE 

 

2016 
 
Slovenia files an application against Croatia before ECHR

On 15 September 2016, the Republic of Slovenia lodged an application before ECHR against the Republic of Croatia for its violations of the Convention.

 
Another contentious decision by Croatian Constitutional Court

On 30 March 2016, the Croatian Constitutional Court considered the case of LB against Chromos Agro, Privredna banka Zagreb, Zagrebački jež and Sava and decided that LB does not have an active standing.

 

The 4 proceedings lasted for more than two decades. The average length of trial in all the proceedings before the Croatian courts is 18 years.

The violations cannot be regarded as isolated cases but as a general practice of Croatian authorities, an on-going practice not only in the judiciary but also in the executive branch of the Republic of Croatia.

2016

  

2014
 
Ališić judgment before ECHR

On 16 June 2014, ECHR ruled in the case of foreign-currency savers of the former LB branch in Sarajevo (Ališić and others) and decided that Slovenia must pay out all the savers that have not yet been disbursed. Slovenia has fully complied with the judgment.

  

2013
 
Memorandum of Understanding on transferred foreign-currency deposits

On 11 March 2013, Slovenian Prime Minister Janez Janša and Croatian Prime Minister Zoran Milanović signed the English original of the Memorandum of Understanding between the governments of the two States.

 

The governments reached a consensus to seek the solution for foreign currency deposits in Croatia within the Agreement on Succession Issues. They agreed to stop all proceedings of Croatian banks against LB and NLB and prevent new ones to be initiated.

 

Slovenia committed to start the ratification process for Croatia EU Accession Treaty, which was honoured.

 

Croatia, however, has not fulfilled its commitments. The unjustified legal proceedings in Croatia have continued. 

   

2006 - 2012
 
Croatian EU Accession Negotiations

Within Croatian accession negotiations, Slovenia raised with the European council the issues of a) commitment to continue negotiations within the Bank for International Settlements in terms of free movement of capital (chapter 4),  b) unhindered operation of Slovenian financial entities in the Croatian financial services market (chapter 9), and c) the need for impartiality and independence of Croatian judiciary in LB legal proceedings in Croatia.

  

2008
 
Contentious revision decision of Croatian Supreme Court

On 30 December 2008, the Croatian Supreme Court issued its first revision decision erroneously claiming that, following the amended Slovenian Constitutional Act in 1994, the entire LB property was supposedly transferred to NLB, including the LB property in Croatia. 

From this revision decision onwards (namely 14 years after the adoption of the said Act), the Croatian courts have been adopting this interpretation of the Act in all proceedings where LB is suing its debtors – Croatian companies. This arbitrary and erroneous argument has been used to the detriment of LB, denying LB's active standing. On the other hand, the same Croatian courts acknowledge LB the passive standing.

 
Croatian savers' case before ECHR

On 3 October 2008, the Grand Chamber of ECHR declared inadmissible the application of Croatian savers (Kovačić and others) against LB. 

 

In this instance, the court decided in favour of the Republic of Slovenia. In accordance with the opinion of Parliamentary Assembly of the Council of Europe, the issue of LB savers is considered a succession issue that SFRY successor States must resolve by adopting an agreement.

  

2006
 
Contentious decisions by Croatian Constitutional Court

Decisions of the Constitutional court of the Republic of Croatia of 24 November 2006 and 15 December 2006 in cases LB Main Branch Zagreb against IPK Tovarna šećera Osijek d.o.o., Osijek. 

 

These decisions pushed LB to file an application against Croatia before ECHR on 15 June 2007.

 

On 4 June 2015, ECHR decided the application is inadmissible, stating that despite LB d.d. being an independent legal entity, it does not enjoy sufficient institutional and operational independence from the State and therefore had to be regarded under the European Convention on Human Rights and Fundamental Freedoms as a governmental organisation. 

  

2005 – 2010
 
Different interpretations of LB property issues

Following the Croatian Supreme Court decision (2002), 35 LB depositors were repaid in full in the period 2005–2010 from the LB property (forced sales of real estate). In 2010, another 28 savers were repaid in full, including Kovačić and Mrkonjić, which was also noted by ECHR. 

 

However, in proceedings between 2005 and 2016 where LB acted as a plaintiff, the courts claimed that the entire property of LB was transfered ex lege to NLB as early as 1994. 

 

Apparently, the Croatian judiciary and executive authorities acknowledge LB property in Croatia in cases against LB, while in cases of LB against its debtors they claim such property in Croatia no longer exists.

2004
 
Additional interference from the executive in the judiciary

In cases related to Rast d.o.o., the Croatian attorney general interfered in the final judgements favourable for the LB, defending, in place of the debtors, the argument of active standing, which stems from an incorrect and wrongful interpretation of the Slovenian Constitutional Act.

 

This constitutes an appeal disguise and a manifest interference of the executive branch into judicial proceedings.

2003
 
Non-implementation of final judgments in favour of LB

LB against Astra-Agrimeks d.o.o. case: A Croatian court issued a decision not to implement the final judgment on the enforcement of LB claims against its debtor Astro-Agrimeks.

 

Croatia thus failed to fulfil the duty of the State to establish, organise and monitor the implementation of final enforceable judgments. As a consequence, LB incurred damage, and in 2011 the debtor was declared bankrupt.

 
Interference in judicial proceedings by the Croatian executive

The Croatian executive authorities directly interfered in the enforcement procedure of LB against its debtor IPK Tvornica šečera Osijek d.o.o.

 

In May 2003, Slavko Linić, Croatian deputy Prime Minister, interfered in the enforcement of final judgements before the Commercial court in Osijek and in December 2003, all proceedings before the court were halted in line with his political instruction. 

 

The political influence of Mr Linić was also covered by the Croatian media: "Utjecao sam na sud" ("I have influenced the Court"), Slobodna Dalmacija, 3 November 2006; "Ljubljanska banka plijeni hrvatske trtke – kako smo spriječili ovrhu" ("Ljubljanska Banka looting Croatian companies – how we prevented the pillage"), Dnevnik, 9 March 2004. Following the ECHR judgment (2015), Mr Linić stated for RTV Slovenia: "As Deputy Prime Minister I forbade any payments to the non-existent old Ljubljanska Banka."

2000
 

 

Revocation of operation permit and closure of LB Zagreb branch giro account

On 14 July 2000, the Croatian Payment Transaction Institute received a notice from the NBH governor instructing it to close the giro account of the LB Zagreb branch, preventing the branch to state in legal proceedings its giro account to which debtors could repay their liabilities in case of a favourable litigation outcome.

 

Neither LB nor the LB Zagreb Branch ever received any written decision by NBH against which they could seek legal remedy.

1999
Treaty between Slovenia and Croatia

On 8 October 1999, the Treaty between the Republic of Slovenia and the Republic of Croatia on the Regulation of Property Relations was concluded.

The treaty, however, does not regulate the status of LB, stipulating that this will be regulated separately.

1997
 
Intergovernmental agreement

On 12 December 1997, the Slovenian and Croatian governments concluded an agreement on the encouragement and mutual protection of investments.

It was agreed that the agreement was not to be applied to the LB issue.

1996
 
The Croatian Payment Transaction Institute in Zagreb blocks the Zagreb branch bank giro account

Ever since 1991 LB had to scale down the scope of its operation, and has been unable to maintain adequate liquidity since 24 February 1996, the day when the Croatian Payment Transaction Institute blocked the giro account of the Zagreb branch bank. 

1995
 
Hindered enforcement of judgments in favour of LB

Despite enforceable judgements, FINA (Croatian Financial Agency) refused without reason to enforce the claims against Croatian debtors, so LB filed a lawsuit against it.

1994
 
Amendments to Slovenian Constitutional Act

On 27 July 1994, the National Assembly of the Republic of Slovenia amended the Constitutional Act Implementing the Basic Constitutional Charter on the Sovereignty and Independence. The amended act established two new and separate legal entities – Nova Ljubljanska banka (NLB) and Nova kreditna banka Maribor (NKBM).  

 

The Constitutional Act defined inter alia which part of the property is to remain with LB adopting the closing and opening balance sheets for LB d.d. and the opening balance sheet for NLB d.d. The assets and liabilities of LB in Zagreb were not transferred to NLB.

1993
 
Further limitations to banking operations of LB Main Branch Zagreb

On 31 May 1993, NBH further limited the scope of Zagreb Branch operations to a minimum, and that exclusively in the national currency, which seriously hindered the liquidity of the branch.

1992
 
Inter-governmental negotiations

Inter-governmental negotiations between the Republic of Slovenia and the Republic of Croatia including about LB operations in Croatia (29 September 1992 in Otočec and 1 October 1992 in Zagreb) did not yield any results.

1991 – 1996
 
Court proceedings against LB debtors in Croatia

81 proceedings were initiated before Croatian courts against Croatian companies to enforce LB claims.

1991
 
First limitations to LB operations by Croatian authorities

On 16 October 1991 i.e. 8 days after Croatia's de facto independence, the governor of the National bank of Croatia (NBH) declared that LB is not allowed to have a branch in Croatia and that the branch could not be transformed into an independent bank.

1989
 
Bank conversion

Following the banking system reforms, the LB Združena banka converted, on 19 December 1989, to Ljubljanska banka d.d. Ljubljana (LB Ljubljana), while Ljubljanska banka Temeljna banka Zagreb converted to Ljubljanska banka d.d. Main Branch Zagreb (LB GP Zagreb).

1977
 
Introduction of foreign currency redeposition system

SFRY adopted the Foreign Exchange and Credit Relations with Foreign Countries Act.

 

The redeposition system allowed the National bank of Yugoslavia (NBY) to grant Yugoslav commercial banks interest-free dinar loans in exchange for depositing their foreign currency (in the amount of the dinar counter-value of deposited foreign currency).

Ljubljanska banka Temeljna banka Zagreb (today Ljubljanska banka d.d. Main Branch Zagreb) allocated the NBY dinar loans to Croatian business entities.

 



Implementation of the case Ališić and oth.

Slovenia has been executing the judgement in the Ališić case consistently and in accordance with the legislation



SFRY succession

Five countries (Slovenia, Croatia, Bosnia and Herzegovina, Macedonia and the Federal Republic of Yugoslavia – today Serbia) signed the Agreement on succession issues by which it was conclusively confirmed that five sovereign equal successor states were formed upon the dissolution of the former SFRY.