Franz Kafka, “The Trial”
Tomislav Đorđević’s lawsuit against the Privatisation Agency
In October 2009, Tomislav Đorđević filed a lawsuit against the Privatisation Agency, for damages arising from the termination of the privatisation contract for HUTP Prag. Tomislav requests the return of all payments made prior to the termination of the contract, since the Agency repossessed all shares of Hotel Prag which it sold to him.
Specifically, on 17 July 2009, the Agency sent Tomislav notice of 60 days to submit proof of compliance with one of the contractual clauses or the contract would be deemed terminated. The clause states that for a period of five years from the date of the contract, the buyer has to ensure continuity of business operations in the prevailing activity for which the company was registered on the day of its auction.
The Agency argues that Hotel Prag had not maintained continuity of business activity based on the fact that the operating revenues of Hotel Prag in 2008 and 2009 were lower than those achieved in 2007. Since it is impossible to change balance sheets, i.e.. “provide evidence” to the contrary as the Agency requested, the letter constitutes notice of termination of the privatisation contract. It is faxed by the Agency to Tomislav on the due date for the payment of the third instalment, which he then withholds.
The decreased level of income in 2008 and 2009 was the result of a full scale refurbishment of the hotel, which resulted in a considerable reduction in hotel capacity and range of services, as well as the general impact of the global economic downturn which substantially reduced the budgets of consumers of hotel services.
From the date of the contract until its termination, Hotel Prag operated only in its registered activity, i.e. it did eliminate any of the registered activities, it did not sell assets, or change the function of any buildings or assets or used them to function outside the registered activity.
All of this was known to the Agency, which sent its controls to the hotel during the period of refurbishment.
After the expiration of the 60 days notice by the Agency, the contract was terminated ipso jure.
Although the contract was already terminated, the Agency sent Tomislav further notifications for postponed deadlines for payment of the third instalment, with the last deadline at the end of December 2009.
During the trial, in January 2010, the Agency sent Tomislav a notice of termination due to his failure to comply with the Privatisation contract, citing non payment of the third instalment and lack of continuity of business activity in Hotel Prag.
The verdict of the Commercial Court in Belgrade on 17 February 2011 denied the claim of Tomislav Đorđević.
On 13 March 2013 Tomislav Đorđević appealed to the Constitutional Court.
If the Constitutional Court does not rule in his favour, Tomislav Đorđević will resubmit his application to the European Court of Human Rights in Strasbourg.The application submitted on 30 November 2012 was rejected by the Court, citing that all domestic remedies have not yet been exhausted.
Complete documents from this dispute can be downloaded here.
Legal opinion: Legal nature of contracts in the privatisation process with reference to the privatisation of Hotel Prag – by Jelisaveta Vasilić, former judge of the High Commercial Court in Belgrade.
The lawsuit of the Privatisation Agency against Tomislav Đorđević
In February 2010, the Privatisation Agency filed a lawsuit before the Commercial Court in Belgrade against against Hotel Prag, Tomislav Đorđević and International Business Investment, requesting the court to annul two decisions of the shareholder’s assembly of Hotel Prag on capital increases.
At the same time, the Agency asked the court to issue an interim measure to prohibit the alienation of immovable property and the mortgaging of the building of Hotel Prag, and to award interim management of all privatised shares and all shares from subsequent share issues to the Share Fund (now the Privatisation Agency).
The Privatisation Agency sold the buyer Tomislav Đorđević, 70% of the social capital of Hotel Prag, constituted by 141,682 shares of series A.
Hotel Prag had two share issues following privatisation, in accordance with the regulations (Law on Enterprises, Law on Securities Market, Belgrade Stock Exchange Rules, the Rules of the Central Registry of Securities, etc.). The second issue (32,874 series B shares) was a closed issue for a capital increase which was an obligation from the privatisation contract. The third, open issue of 300,000 series C shares was conducted by public offering which was approved by the Securities Commission and announced several times in the Official Gazette of the Republic of Serbia and national newspapers.
All share issues were controlled by the Commission for Securities, whose final decision confirmed that the entire process of emission and acquisition of shares of Hotel Prag was conducted in accordance with the law.
The Privatisation Agency made no objection to the decision to approve the Series C issue when it was notified by the Securities Commission, nor did it object to any of the share issues until the termination of the privatisation contract.
After termination of the privatisation contract, the Privatisation Agency decided to apply subsequent amendments to the Law on Privatisation and declared the shares of Tomislav Đorđević from the mandatory contractual investment (series B) to be own shares of Hotel Prag and ordered the Central Share Registry to transfer 32,874 shares from the account of Tomislav Đorđević to the account of Hotel Prag. The Central Share Registry transferred 32,874 series A shares from the custodian account of Tomislav Đorđević, thus illegally breaking up the privatised share package. The unlawful situation of the privatised share package can be easily rectified by a counter-order of the Agency. The Agency however prefers to maintain the status quo in order to create an illusion of its inability to manage the privatised share package without a court decision which would annul the public share issue, although the agency has no legal standing for such a claim. Moreover, this situation, which has resulted from the wrongful actions of state bodies – the Privatisation Agency and the Central Share Registry, is used as the basis of the contrived criminal proceeding against Tomislav Đorđević for alleged abuse of office in the Hotel Prag.
The Agency’s claim boils down to the following: to retain all payments, to seize control over the shares of series B (ownership of Tomislav Đorđević), and to cancel the shares of series C but without refunding the money paid in by the buyers of series C!
The Commercial Court in Belgrade in its decision of 31 March 2010, upheld the plaintiff’s proposal and ordered the interim measure as requested by the Agency. The Commercial Court of Appeals revoked the decision of the Commercial Court in its entirety, and returned the case to the first instance court for retrial. The proceeding for the interim measure is still pending before the Commercial Court.
Complete documentation of the dispute can be downloaded here.
Legal opinion: The extent of restitution after cancellation of privatisation contracts with special reference to ECHR right from article 1 of Protocol 1 in relation to Hotel Prag – by Jelisaveta Vasilić, former judge of the High Commercial Court in Belgrade.
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