The Constitutional Court found No 3 / 2000 Coll.
The Constitutional Court's finding of 1 December 1999 on the application for annulment of Act No. 144 / 1999 Coll., amending Act No. 42 / 1992 Coll., on adjusting property relations and settling property rights in cooperatives, as amended, Act No. 586 / 1992 Coll., on Income Tax, as amended, and Act No. 569 / 1991 Coll., on the Land Fund of the Czech Republic, as amended
Valid
3
FIND
The Constitutional Court
On behalf of the Czech Republic
On 1 December 1999, the Constitutional Court decided in plenary on the proposal of a group of Members to repeal Act No. 144 / 1999 Coll., amending Act No. 42 / 1992 Coll., on the Adjustment of Property Relations and Settlement of Property Rights in Cooperatives, as amended, Act No. 586 / 1992 Coll., on Income Taxes, as amended, and Act No. 569 / 1991 Coll., on the Land Fund of the Czech Republic, as amended,
as follows:
Paragraph 13 (4), (5), (6), (7), (8), (9) and (10), § 13a to 13c and § 18 (4) of Act No. 42 / 1992 Coll., on the modification of property relations and the settlement of property rights in cooperatives, as amended, § 4 (1) (zd), § 24 (2) (zi), § 34 (3) (f) and § 40 (25) of Act No. 586 / 1992 Coll., on income taxes, as amended, § 2 (5) (correct 7) of Act No. 569 / 1991 Coll., on the later Act of the Czech Republic, and Article IV of Act No. 144 / 1999 Coll.
The rest is rejected.
Reasons
On 19 July 1999 the Constitutional Court received a proposal from a group of Members pursuant to § 64 (1) (b) of Act No. 182 / 1993 Coll., on the Constitutional Court. The Judge-Rapporteur found that the submission fulfilled the formal requirements of the petition for the annulment of the act with a petition for the Constitutional Court to rule that Act No. 144 / 1999 Coll., amending Act No. 42 / 1992 Coll., on the modification of property relations and the settlement of property rights in cooperatives, as amended, Act No. 586 / 1992 Coll., on Income Taxes, as amended, and Act No. 569 / 1991 Coll., on the Land Fund of the Czech Republic, as amended, published in the Collection of Laws (amount 51) on 15 July 1999, is hereby repealed.
Members of the Chamber of Deputies of the Parliament of the Czech Republic in the number 77 confirmed by their signatures the motion for the annulment of the law and authorised Mr Mark Benda to act for them before the Constitutional Court.
A group of Members points out the contradiction of the contested law with the following constitutional articles:
Article 1 of the Charter of Fundamental Rights and Freedoms,
Article 2 (3) of the Charter of Fundamental Rights and Freedoms,
Article 4 (3) and (4) of the Charter of Fundamental Rights and Freedoms,
Article 11 (1) and (4) of the Charter of Fundamental Rights and Freedoms,
Article 1 (1) Additional Protocol to the European Convention for the Protection of Human Rights and Fundamental Freedoms.
The appellants focus on the rules governing the management of the assets of the members of the cooperative when it is transformed, because it is in this area that they believe that there has been fundamental interference with the constitutional rights of the citizens, or members of the cooperative. To this end, the provisions of Sections 13 (2) and 13 (3) of Act No. 42 / 1992 Coll., on the treatment of property relations and the settlement of property rights in cooperatives, as amended, which set out the rights of authorised persons with claims, as laid down in the contested amendment to that Act issued under No. 144 / 1999 Coll.
Paragraph 13 (2) of Law No 42 / 1992 Coll. states:
Where the beneficiary does not become a participant in a legal person under a transformation project and is an entrepreneur in the field of the activity of a production or consumer cooperative or is engaged in agricultural production in the case of an agricultural cooperative, the holding shall be issued to him within 90 days of the date on which the beneficiary has requested extradition in writing.
Paragraph 13 (3) of the Law states:
If the beneficiary does not become a participant in a legal person under a transformation project and is not an entrepreneur within the meaning of paragraph 2, the beneficiary may be granted a full share after seven years of approval of the transformation project, unless the beneficiary otherwise agrees with the cooperative or its successor in title after approval of the transformation project.
On the other hand, according to the newly added provisions of § 13 (4) to (10) of the contested law - the amendment introduced a new method of "settlement 'of the property share by the issue of the cooperative's assets or its legal successor. The entitled person whose claim was not met on 31 March 1999 will receive 10% of the outstanding shareholding in cash, but not more than CZK 10 000 from the resources of the Land Fund of the Czech Republic (hereinafter referred to as the Land Fund) if he applies his claim properly by 31 March 2000. If the beneficiary requests the settlement of the holding by Land Fund bonds, the cooperative or its legal successor shall be obliged to conclude a settlement agreement with it in this manner. The bond shall have a maturity of 20 years at an interest rate of 2% per year. If there is no settlement in this procedure, for example because the beneficiary has not requested a bond to settle the claim for the issue of the property share, the cooperative or its legal successor shall be required to make the settlement by issuing the property certificates at the total nominal value in the name of the beneficiary. The transfer of property certificates satisfying the requirements shall settle the claim of the beneficiary against the cooperative or its legal successor. If, for 15 years, the first beneficiary who has been issued the cooperative's property certificates is not foreign or does not transfer them to the assets of the cooperative or other capital company, the Land Fund shall purchase those assets at a nominal price without interest after 15 years of their issue.
After this confrontation, the appellants conclude that the purpose of the contested law is to change the way in which the assets are settled and to restrict their owners in a way which is not comparable to the rights of the owners of other securities (shares, bonds, notes etc.) and does not provide them with equivalent compensation or rights. On the other hand, it has been quite disproportionately favouring debtors, i.e. the obliged entities (cooperatives and their legal successors) using the shares of beneficiaries without compensation since the transformation of the cooperative. They therefore consider that the change in the manner in which the property shares are issued to the beneficiaries, i.e. their owners, enshrined in the contested law limits the rights of those owners in an unconstitutional manner, in particular as regards the constitutionally inadmissible restriction on the owner of the property stake in the transformed cooperative or its legal successor, in breach of Article 1 of the Charter of Fundamental Rights and Freedoms.
Another objection by the appellants is that the contested law has created a standard which has the character of genuine retroactive effect. Entitlements for the settlement of the shares of beneficiaries in § 13 (3) to (10) of the Act were already incurred under the terms of Act No. 42 / 1992 Coll., i.e. in the transformation of the cooperative, a long time before the contested law took effect. However, the original Paragraph 13 (3), based on the original method of issuing the holding, has lost any meaning in addition to the newly introduced method of settlement. It has become obsolent and thus evidence of retroactive effect, together with Article IV of the contested law, which provides that it also governs the settlement of the holdings for which a claim was made before the date of its effectiveness. The retroactivity also results from the fact that according to the original version, as mentioned in the citation of § 13 paragraphs 2 and 3 of Act No. 42 / 1992 Coll., the owner was able to decide between two ways of issuing the shareholding: either to become a member of the cooperative, to operate agricultural production and thus to obtain the right to issue the shareholding without delay, or not to operate the agricultural production and to acquire the right to issue its shareholding seven years after the approval of the transformation project. It follows that, if he opted for the second option, the legislature in the contested law changed his claim as regards the way in which the shareholding was issued, in principle, to his disadvantage. This was in breach of Article 2 (3) of the Charter of Fundamental Rights and Freedoms, according to the appellants' opinion.
The appellants further express their doubts about the formalities and legal nature of the property certificates as defined in the contested law. They fulfil the features of the instrument as defined in § 4 (4) of Act No. 591 / 1992 Coll., on securities, as amended, since they are to be issued in connection with the taking over of the obligation to settle the equity interest of the beneficiary in the transformed cooperative, and are associated with the right to pay the equity interest and are transferable. In such a case, however, it must also include the elements set out in Section 3 of Act No. 530 / 1990 Coll., on bonds, i.e., inter alia, an obligation on the issuer to repay the nominal value of the bond within the specified time limit, to pay the specified bond yield at specified dates or the method of determining such yield. This creates institutes, rules and situations which are contrary to the Commercial Code and the rules relating to applicable private law.
In the other part of its submissions, the appellants are based on the fact that the beneficiary has already become owner of the holding before its issue within the meaning of Article 9 (7) of Act No. 42 / 1992 Coll., i.e. after the ownership of the holding was calculated by the cooperative and the beneficiary has been informed of it. They stress that there is a substantial reduction in the ownership content of the property by the contested law, both by limiting the right to use it, and by depriving it of its fruit and benefits for a period of 15 years. The indirect consequence is the limitation of the right of disposal to such property. The appellants consider that the legislature has been outside the scope of Article 11 (2) and (4) of the Charter of Fundamental Rights in order to protect the debtor - a transformed cooperative or its legal successor - in the protection of the debtor, since it has "given these entities" the right to use foreign property for at least 15 years without compensation, while not admitting to the owners of such property the right to reasonable proceeds from such property. According to the original version of Act No. 42 / 1992 Coll., the legislature has already granted seven years to the transformed cooperatives to issue their shares to the beneficiaries (albeit without income) and the current legislation to those who, in a substantial way, failed to comply with their obligations arising from the original version of the Transformation Act, has practically extended their advantage by twice. Consequently, the appellants consider that both Article 11 (1) and (4) of the Charter of Fundamental Rights and Freedoms and Article 1 (1) of the Additional Protocol to the European Convention for the Protection of Human Rights and Fundamental Freedoms have been infringed.
Finally, the appellants point out that, pursuant to Article 1: The Constitution of the Czech Republic is the Czech Republic's legal state, and its definitions include the principle of legal certainty and the protection of citizens' trust in law, and consequently the prohibition of retroactivity of legal standards. The retroactivity provided for in Article IV of the contested law is therefore a breach of acquired rights beyond the purpose of Act No. 42 / 1992 Coll. and also violates the principle of the protection of trust in law and is therefore contrary to Article 1 of the Constitution of the Czech Republic.
The Constitutional Court requested comments from the Chamber of Deputies and the Senate of the Parliament of the Czech Republic on the constitutional complaint.
By letter dated 15 September 1999, the President of the Chamber of Deputies, Prof. Ing. Václav Klaus, CSc., informed the Constitutional Court that Law No 144 / 1999 Coll. was approved by the necessary majority of Members of the Chamber of Deputies on 1 April 1999. On 28 April 1999 it was rejected by the Senate, on 19 May 1999 it was re-approved by the Chamber of Deputies. It was returned to the President of the Republic on 2 June 1999 and on 29 June 1999 the Chamber of Deputies continued to vote on the returned Act. Then the law was signed by the President of the Chamber of Deputies and the Prime Minister and was duly declared. As regards the content of the law, the President of the Chamber of Deputies states that the reason for considering amending the law is the concern of the possible serious consequences of the mass settlement of the transformation shares expected at the end of 1999 and 2000. Today, it is quite clear that agricultural cooperatives, or their legal successors, are not in the position of debtors and will not be able to settle the transformation shares until the deadline. The amendment to the Act therefore aims to protect these entities from bankruptcy. When discussing the bill in the Chamber of Deputies, fundamental and strongly contradictory views were put in place, with the argument of the opponents of the bill essentially identical to that of a group of Members of the Constitutional Court. Finally, the President of the Chamber of Deputies states that it is up to the Constitutional Court to examine the constitutionality of this law in the context of the proposal submitted and to give its decision.
By letter dated 30 September 1999, the Constitutional Court sent observations on the motion of the Group of Members of the Senate President PhDr. Libuš Beneš. It stated that the draft of the contested law was the subject of extensive discussions in the Senate and, in the course of the hearing, the draft was criticised for shortcomings consisting in particular of the original concept of the law governing the issue of the shareholding, while the provisions of the amendment of the law replaced the word of the issue by a significantly different word of settlement; in a situation where there is no agreement between the creditor and the agricultural cooperative on the settlement of the holding and where the condition is proposed to address the issue of the property certificates at the value of the assets settled and where the property share is settled on the date on which the cooperative issues the property certificates; the entitlement of the beneficiary to the agricultural cooperative shall also cease on that date. Therefore, due to the mere non-conclusion of the participants' agreement, the real equity stake is only converted into an asset sheet which does not represent a share in real estate; is therefore the fact that
- the property certificate shall not be issued by agreement of the participants;
- the Act transmits the obligation to pay a significant part of the debtors' liabilities to the Land Fund, thereby draining public funds for other purposes;
- the general provisions of the Act concern all types of cooperatives and the draft act under discussion deals only with agricultural cooperatives;
- the amendment harms the outstanding private farmers to whom the assets were to be issued by the cooperative or its legal successor six years ago, and prefers the obliged persons to whom it allows them to issue the property certificates, thereby relieving themselves of all obligations, in particular the group of obliged persons who had not voluntarily fulfilled their obligations towards the group of obliged persons which had already done so, etc.
A concern has also been raised as to whether the proposed regulation does not conflict with Article 11 of the Charter of Fundamental Rights and Freedoms (withdrawal of property law without the existence of public interest).
The present draft was also criticised for retroactivity as it regulates the handling of property certificates at a time when the legal regime has been against pending cases for 7 years.
As a result, the Senate rejected the vote on 28 April 1999, in which out of 65 senators and senators present, 39 declared rejection and 21 opposed the rejection of the bill. It is therefore now, on the basis of a proposal from a group of Members at the Constitutional Court, to assess the constitutionality of this law.
The Constitutional Court also became aware of the content of the letter of the President of the Republic of 2 June 1999 returning the Law pursuant to Article 50 of the Constitution of the Czech Republic to the Chamber of Deputies. It is stated in the preamble that the beneficiaries, in accordance with the applicable legislation, have since 1992 assumed that, after 7 years of approval of the cooperative's transformation project, they would be granted a full share of their assets. Just before the end of this relatively long period of time when their share was "blocked ', the share-issuing scheme is to be replaced in full by a claim settlement scheme which significantly aggravates their economic position. In this way, the law violates one of the fundamental principles of the rule of law, namely the principle of trust in law, and in its consequences it weakens the guaranteed protection of property rights by the Constitution of the Czech Republic. The law adopted deepens the inequality between the various groups of beneficiaries, established already in 1992, namely between persons who started farming (which had to be issued within 90 days of the application) and persons who did not start farming.
The Constitutional Court also requested the opinion of the Government, submitted by Prime Minister Miloš Zeman on 2 December 1998 to the Chamber of Deputies of the Parliament of the Czech Republic. It states that the government has given its consent to the draft law, but has also pointed out that it will shortly discuss its own more extensive draft amendment to Act No. 42 / 1992 Coll., which will also propose a solution to the way in which shares in cooperatives will be settled. At the same time, the Government pointed out that the bill submitted had some shortcomings, such as:
- it is not always clear from the provisions proposed that the nature of the property right should be in the sense of whether it is a bond or a security of a type of share,
- the proposal (Paragraph 13 (5)) that, in the same way as it is proposed to settle the shares of non-members of cooperatives, the shares of members of cooperatives should also be settled, does not correspond to the actual situation, since the settlement of the shares of members of cooperatives usually addresses the statutes of cooperatives,
- doubts are also raised by the proposal (Paragraph 13a (3)) that the asset list be publicly negotiable directly by law, i.e. without the permission of the competent authority, which could lead to additional non-financial and illiquid securities, as well as a proposal (Article II) to the extent of the tax exemption,
- the standard proposed (Article III) to extend the rights of the Land Fund is disproportionately general,
- the draft law lacks a reasoned report, including quantification of the economic and financial scope of the proposed adjustment.
The Constitutional Court assessed the proposal to repeal Act No. 144 / 1999 Coll. and concluded that the proposal was justified. In doing so, he assessed the breach of constitutional provisions differently from the proposal in some cases.
Although it follows from the constant case law of the Constitutional Court that it is for the State to decide that it will confer less benefits on one group than on another, it must not proceed arbitrarily and its decision must imply that it is in the public interest and not, for example, to cover up the shortcomings in governance.
The Constitutional Court, as a body for the protection of constitutionality, first decided not to deal with the reasoning of the proposal concerning the objection that the contested law introduced new institutes, such as property certificates, and also some other provisions, were in conflict with the Commercial Code or regulations related thereto. This is not to say that the objections raised are not justified, but the Constitutional Court has treated the proposed proposal in particular from the point of view of whether it infringed the constitutional rules set out in the proposal by the appellants.
After examining the submitted documents, including parliamentary prints, and taking into account the reasons put forward by the President of the Republic and the Senate of the Parliament of the Czech Republic, the Constitutional Court concluded that the amendment of the Transformation Act infringes one of the fundamental principles of the rule of law, namely the principle of legal certainty and trust in law, as is apparent from Article 1 of the Constitution of the Czech Republic. Authorised persons, in accordance with the legislation, have since 1992 assumed that after 7 years of approval of the transformation project they would be granted a full share of their assets. However, just before the end of this rather long period, the amendment produced a very different solution, namely the settlement (not already the issue) of an equity stake either by a bond payable up to 20 years with a 2% interest or by an asset note which is compulsory to buy at the nominal value of the Land Fund after 15 years without interest from the first authorised person to be issued by the cooperative. On the one hand, therefore, the amendment damages, impair the economic position and denies the ownership rights of beneficiaries to equity interests and, on the other hand, legalizes the right of cooperatives or companies to dispose of foreign property according to their own disposition. This also violates Article 11 (1) and (4) of the Charter of Fundamental Rights and Freedoms that all owners have the same legal content and protection. The compulsory restriction of ownership is also possible only in the public interest, on the basis of the law and for compensation.
By its scope and concept, the amendment deepens both the inequality between the various groups of beneficiaries, which were already established in 1992, between persons who had started farming and had to be issued a holding within 90 days of the application and between persons who had not started farming, to whom the holding could (not have) have been issued pursuant to § 13 (3) of Act No. 42 / 1992 Coll. However, this inequality, which may have been regarded as justified from a restitution point of view, and thus as a rule of public interest, has been extended by the amendment to the extent that it can no longer be regarded as justified and must be regarded as a violation of Article 1 of the Charter of Fundamental Rights and Freedoms, which expresses the principle that people are equal in rights.
In the light of the above, it should also be accepted that Article 1 (1) of the amendment was also infringed. Additional Protocol to the European Convention for the Protection of Human Rights and Fundamental Freedoms, which provides that any natural or legal person has the right to use his property peacefully. No one may be deprived of his property, except in the public interest and under conditions laid down by law and by the general principles of international law.
Considering all the above reasons, The Constitutional Court ruled that the motion of a group of Members should be met and the new regulation of Act No. 42 / 1992 Coll. and Acts No. 586 / 1992 Coll. and No. 569 / 1991 Coll. should be repealed. On a formal basis, he had to rely on the fact that Act No. 144 / 1999 Coll., which was published in the Collection of Laws on 15 July 1999, the same day he changed the provision in the original Act No. 42 / 1992 Coll., where the provisions of the contested Act No. 144 / 1999 Coll., which the Constitutional Court considered unconstitutional, were brought in this way.
At the same time, the Constitutional Court considers it necessary to point out both the legislature and the executive body that Law No 42 / 1992 Coll. should strengthen the status of authorised persons in Article 13 (3), which may result from the text, but is deliberately weakened to the extent that the issue of the shareholding, even if it is established by law, is practically annulled at the time when the mandatory seven-year period is due to expire, is called into question by Law No 144 / 1999 Coll. Therefore, the Constitutional Court did not leave unnoticed nor did the statements of some Members or Senators who saw in the draft law the withdrawal of property law without the existence of public interest or as a form of expropriation, but not for the need of a democratic state, but for another group of persons who did not fulfil their obligations under the law since 1992. At the time, the agricultural cooperatives were able to use the property of the beneficiaries and the proceeds of the property. Some of them acted economically and legally fairly, fulfilled the legal obligation and issued the shares. It assumed that the property had been entrusted to them in the administration, that it was not theirs and that it was necessary to repay it within the prescribed period. However, she was also one who did not care for the entrusted property.
For these reasons The Constitutional Court annulled the contested legal provisions pursuant to § 70 (1) of Act No. 182 / 1993 Coll., on the Constitutional Court.
As regards the part of the amendment, according to which in § 13 (2) and (3) of Act No. 42 / 1992 Coll. the words "issued 'and" issued' were replaced by the words "settled 'and" settled', the Constitutional Court rejected the proposal for its annulment pursuant to § 70 (2) of Act No. 182 / 1993 Coll., as it concluded that this legislation was not unconstitutional when the constitutional interpretation and application of this legal standard did not infringe the rights of ownership of beneficiaries.
President of the Constitutional Court:
JUDr. Kessler v. r.
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Regulation Information
| Citation | The Constitutional Court found no 3 / 2000 Coll., on the application for annulment of Act No. 144 / 1999 Coll., amending Act No. 42 / 1992 Coll., on the modification of property relations and the settlement of property rights in cooperatives, as amended, Act No. 586 / 1992 Coll., on Income Taxes, as amended, and Act No. 569 / 1991 Coll., on the Land Fund of the Czech Republic, as amended |
|---|---|
| Regulation Type | - |
| Author | - |
| Collection | Code of Laws |
| Date of Promulgation | 07.01.2000 |
|---|---|
| Effective from | - |
| Effective until | - |
| Status | Valid |
The regulation text is for informational purposes only.
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