Lietuviškai
Case No. 25/04
THE CONSTITUTIONAL COURT OF THE REPUBLIC OF
LITHUANIA
RULING
ON THE COMPLIANCE OF PARAGRAPH 1 (WORDING OF 17 DECEMBER
2001) OF ARTICLE 19 OF THE REPUBLIC OF LITHUANIA LAW ON
SECURITIES MARKET WITH THE CONSTITUTION OF THE REPUBLIC OF
LITHUANIA AND ON THE PETITION OF THE PANEVĖŽYS CITY LOCAL
COURT, THE PETITIONER, REQUESTING TO INVESTIGATE WHETHER
PARAGRAPH 2 (WORDING OF 17 DECEMBER 2001) OF ARTICLE 16 OF THE
REPUBLIC OF LITHUANIA LAW ON SECURITIES MARKET IS NOT IN
CONFLICT WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA
17 January 2006
Vilnius
The Constitutional Court of the Republic of Lithuania,
composed of the Justices of the Constitutional Court Armanas
Abramavičius, Toma Birmontienė, Egidijus Kūris, Kęstutis
Lapinskas, Zenonas Namavičius, Ramutė Ruškytė, Vytautas
Sinkevičius, Stasys Stačiokas, and Romualdas Kęstutis Urbaitis,
with the secretary of the hearing-Daiva Pitrėnaitė,
in the presence of the representatives of the Seimas of
the Republic of Lithuania, the party concerned, who were Inga
Jarukaitienė, senior advisor of the Law Department of the
Office of the Seimas, and Vilija Račkauskienė, the advisor of
the said department,
pursuant to Articles 102 and 105 of the Constitution of
the Republic of Lithuania and Article 1 of the Law on the
Constitutional Court of the Republic of Lithuania, in its
public hearing on 16 January 2006 heard case No. 25/04
subsequent to the petition of the Panevėžys City Local Court,
the petitioner, requesting to investigate whether Article 19
and Paragraph 2 of Article 16 of the Republic of Lithuania Law
on Securities Market are not in conflict with Article 23,
Paragraph 1 of Article 46 and Paragraph 1 of Article 48 of the
Constitution of the Republic of Lithuania, and the
constitutional principle of a state under the rule of law.
The Constitutional Court
has established:
I
The Panevėžys City Local Court, the petitioner, was
investigating a civil case. By its ruling, the court suspended
the consideration of the case and applied to the Constitutional
Court with a petition requesting to investigate whether Article
19 and Paragraph 2 of Article 16 of the Law on Securities
Market (hereinafter also referred to as the Law) are not in
conflict with Article 23, Paragraph 1 of Article 46, Paragraph
1 of Article 48 of the Constitution, and the constitutional
principle of a state under the rule of law.
II
The petition of the petitioner is based on the following
arguments.
1. In Paragraph 1 of Article 19 of the Law it is
established that in case the person, acting either alone or
together with other persons, acquires more than 40 percent of
votes of the issuer at the general meeting of the shareholders,
he must in 30 days transfer the securities that exceed this
limit, or submit an official offer to buy up the remaining
securities of the accountable issuer which grant the right to
vote and the securities confirming the right to acquire the
securities granting the right to vote. In the opinion of the
petitioner, it means that the person must against his will
transfer the property, while under Article 23 of the
Constitution, the property may only be seized for the needs of
society in accordance with the procedure established by law and
shall be justly compensated for.
2. Under Paragraph 2 of Article 16, "the head of the
issuer shall also have the votes of other heads of the issuer".
According to the petitioner, this provision may violate the
right of private ownership, individual freedom of economic
activity and initiative of other persons (Paragraph 1 of
Article 46 of the Constitution), as well as the right to freely
choose a job or business (Paragraph 1 of Article 48 of the
Constitution).
III
In the course of the preparation of the case for the
Constitutional Court hearing, written explanations from the
representatives of the Seimas, the party concerned, who were
Eglė Švilpaitė, senior advisor of the Law Department of the
Office of the Seimas, and Vilija Račkauskienė, the advisor of
the said department, as well as a letter from Inga
Jarukaitienė, senior advisor of the Law Department of the
Office of the Seimas, approving of the written explanations
provided by E. Švilpaitė and V. Račkauskienė, were received.
According to the representatives of the party concerned, the
disputed provisions of the Law are not in conflict with the
Constitution and their position is grounded on the following
arguments.
1. A person, who transfers the securities that exceed the
limit specified under the Law, gets a compensation for the
shares-the equivalent of the held property and non-property
rights in terms of money. Thus, the legal regulation
established in Article 19 of the Law does not mean seizure of
the property. Even though the provisions of this article
restrict the right of ownership, they are in line with the
provisions of the Constitution and the jurisprudence of the
Constitutional Court.
2. In the opinion of the representatives of the party
concerned, the restriction established in Paragraph 1 of
Article 19 of the Law is in line with the requirement of
lawfulness because the duty to transfer the shares that exceed
the limit specified in this paragraph is stated clearly and
unambiguously, and is established in a law published in the
official gazette Valstybės žinios. This restriction is also in
line with the requirement of necessity in a democratic society,
because a person who acquired the shares entitling to more than
40 percent of votes can make all the crucial decisions on the
management of the enterprise without an assent of other
shareholders, he can also block the decisions offered by other
shareholders, therefore, there must be a real possibility for
these shareholders to withdraw from the appropriate activity;
the duty established in Paragraph 1 of Article 19 of the Law is
meant to ensure the protection of the rights of the minority
shareholders.
3. According to the explanation of V. Račkauskienė and E.
Švilpaitė, a person, who has purchased the controlling block of
shares, has the possibility to choose whether to transfer the
securities that exceed the limit of 40 percent, or to buy up
the remaining securities. In the first case he is compensated
for the securities at the market price, while in the second
case the lowest limit of the price is established having taking
into account the market value of the shares for which the
offeror has acquired the shares in the period of 12 months.
Thus, the property interests of the said person are not
violated, nor is the established restriction disproportionate.
4. In the opinion of the representatives of the party
concerned, the legal regulation established in Paragraph 2 of
Article 16 of the Law may not be assessed separately from the
legal regulation established in Article 19 and other articles
of the Law, as well as from the purposes of the Law. If a
certain provision on counting of the votes were not entrenched
in Paragraph 2 of Article 16 of the Law, the heads of the
enterprises who hold the controlling block of shares and act
together, would be able to not let the rest of the shareholders
to effectively control the enterprise, nor implement other
rights. Thus, the purposes of the whole Law would not be
achieved, its inter alia the purpose of Article 19 thereof.
IV
In the course of the preparation of the case for the
Constitutional Court hearing, written explanations from K.
Daukšys, Minister of Economy of the Republic of Lithuania, R.
Šarkinas, Chairman of the Board of the Bank of Lithuania, V.
Poderis, Chairman of the Securities Commission of the Republic
of Lithuania, D. Kriaučiūnas, Director General of the European
Law Department under the Government of the Republic of
Lithuania, and A. Čepas, Director of the Law Institute, were
received.
V
At the hearing of the Constitutional Court, I.
Jarukaitienė and V. Račkauskienė, the representatives of the
Seimas, the party concerned, virtually repeated the arguments
set forth in the written explanations of E. Švilpaitė and V.
Račkauskienė.
I. Jarukaitienė also stated that the duty to submit the
obligatory official offer to buy up the remaining securities
has been applied in the European Union already since 1977 and
it is consolidated in the Directive 2004/25/EC of the European
Parliament and of the Council of 21 April 2004 on takeover
bids.
V. Račkauskienė also called attention to the fact that
Paragraph 1 of Article 46 of the Constitution establishes the
duty of the state to regulate economic activity so that it
serves the general welfare of the Nation; thus, the state has
the right to establish the restrictions of the economic
activity if they are necessary to harmonise the interests of
the persons engaged in the economic activity and to ensure the
possibilities for all persons to engage themselves in business.
The Constitutional Court
holds that:
I
1. Article 1 of the Republic of Lithuania Law on Amending
the Law on Public Trading in Securities, adopted by the Seimas
on 17 December 2001, amended the then Republic of Lithuania Law
on Public Trading in Securities, which was set forth in the new
wording, also by changing its title-it was named the Law on the
Securities Market. The Law on the Securities Market came into
force on 30 December 2001. It was more than once amended and/or
supplemented.
2. The Panevėžys City Local Court, the petitioner,
requests to investigate whether Article 19 and Paragraph 2 of
Article 16 of the Law on the Securities Market are not in
conflict with Article 23, Paragraph 1 of Article 46, Paragraph
1 of Article 48 of the Constitution, and the constitutional
principle of a state under the rule of law.
3. At the time when the ruling of the Panevėžys City Local
Court, by which it was applied to the Constitutional Court, was
adopted, Articles 16 and 19 of the Law were set forth in their
primary wording, i.e. of 17 December 2001 (Official Gazette
Valstybės žinios, 2001, No. 112-4074).
4. The petitioner grounds his doubt on the compliance of
Paragraph 2 (wording of 17 December 2001) of Article 16 of the
Law with the Constitution on the fact that the provision "the
head of the issuer shall also have the votes of other heads of
the issuer" of this paragraph may violate the right of private
ownership and individual freedom of economic activity and
initiative of other persons (Paragraph 1 of Article 46 of the
Constitution), as well as the right to freely choose a job and
business (Paragraph 1 of Article 48 of the Constitution).
5. It is to be noted that the petitioner did not present
any legal arguments in what manner and how the said provision
of Paragraph 2 (wording of 17 December 2001) of Article 16 of
the Law may violate the right of private ownership and
individual freedom of economic activity and initiative of other
persons entrenched in Paragraph 1 of Article 46 of the
Constitution or the right to freely choose a job and business,
entrenched in Paragraph 1 of Article 48 of the Constitution.
6. Under Item 5 of Paragraph 2 of Article 67 of the Law on
the Constitutional Court, in the ruling of the court by which
the court applies to the Constitutional Court with a request to
investigate whether the legal act is not in conflict with the
Constitution, legal arguments presenting the opinion of the
court on the conflict of a law or other legal act with the
Constitution must be specified.
In its ruling of 12 December 2005 the Constitutional Court
has held that "the requirement to indicate the legal arguments
presenting the opinion of the court on the conflict of a law or
other legal act (part thereof) with the Constitution arising
from Item 5 of Paragraph 2 of Article 67 of the Law on the
Constitutional Court, means that the courts that apply to the
Constitutional Court with the request to investigate whether
the law or other legal act (part thereof) is not in conflict
with the Constitution, while arguing their opinion presented in
the petition that the law or other legal act (part thereof) is
in conflict with the Constitution, may not confine themselves
to general reasoning or statements that the law or other legal
act (part thereof), in their opinion, is in conflict with the
Constitution, but must clearly indicate which disputed articles
(paragraphs, items thereof) and to what extent, in their
opinion, are in conflict with the Constitution, and to reason
their position on the compliance of every disputed provision of
the legal act (part thereof) with the Constitution with clearly
formulated legal arguments".
7. Under Article 70 of the Law on the Constitutional
Court, in the case that a petition or attachments thereto fail
to comply with inter alia requirements set forth in Article 67,
the petition is to be returned to the petitioner. The return of
a petition shall not take away the right to apply to the
Constitutional Court according to the common procedure after
removal of the deficiencies thereof.
8. Taking account of the arguments set forth, the part of
the case on the compliance of Paragraph 2 (wording of 17
December 2001) of Article 16 of the Law with the Constitution
is to be dismissed and the petition to this extent is to be
returned to the petitioner.
9. Even though the petitioner requests to investigate
whether Article 19 (wording of 17 December 2001) of the Law is
not in conflict with the Constitution, it is obvious from the
petition that he had doubts not on the compliance of the whole
said article with the Constitution but only on the compliance
of Paragraph 1 (wording of 17 December 2001) of this article
with the Constitution to the extent that it entrenched the
alternative duty of a person who, acting either alone or
together with other persons, acquired more than 40 percent of
votes at the general meeting of the shareholders of the
accountable issuer, to either transfer the securities that
exceed this limit, or submit an official offer to buy up the
remaining securities of the accountable issuer that grant the
right to vote and the securities confirming the right to
acquire the securities granting the right to vote.
Thus, the petitioner virtually disputes the
constitutionality of the institute of the obligatory transfer
of securities and of the institute of submission of the
obligatory official offer to buy up the remaining securities
(to the extent by which these institutes are entrenched in
Paragraph 1 of Article 19 of the Law (wording of 17 December
2001)).
10. It is to be mentioned that the Seimas amended
Paragraph 1 (wording of 17 December 2001) of Article 19 of the
Law by Article 21 of the Law on Amending and Supplementing the
Law on Public Trading in Securities, adopted on 23 June 2005
(which came into force on 12 July 2005) and established that
the said alternative duty is held by the person who, acting
either alone or together with other persons, acquires more than
40 percent of votes at not any but precisely at the meeting of
shareholders of the accountable issuer, founded in the Republic
of Lithuania.
11. Even though the petitioner requests to investigate
whether Paragraph 1 (wording of 17 December 2001) of Article 19
of the Law to the specified extent was not in conflict with
inter alia whole Paragraph 1 of Article 48 of the Constitution,
it is obvious from the arguments of the petition that it is
doubted on the compliance (to the specified extent) of
Paragraph 1 (wording of 17 December 2001) of Article 19 of the
Law with the provision "each human being may freely choose
<...> business" of Paragraph 1 of Article 48 of the
Constitution.
II
On the compliance of Paragraph 1 (wording of 17 December
2001) of Article 19 of the Law on Public Trading in Securities
with Article 23, Paragraph 1 of Article 46 and Paragraph 1 of
Article 48 of the Constitution and the constitutional principle
of a state under the rule of law.
1. In order to decide whether Paragraph 1 (wording of 17
December 2001) of Article 19 of the Law was not in conflict
with the Constitution to the extent that it entrenched the
alternative duty of the person who, acting either alone or
together with other persons, acquired more than 40 percent of
votes at the general meeting of the shareholders of the
accountable issuer, to either transfer the securities that
exceed this limit, or submit an official offer to buy up the
remaining securities of the accountable issuer that grant the
right to vote and the securities confirming the right to
acquire the securities granting the right to vote, it is
necessary to ascertain the purpose and essence of the institute
of the obligatory transfer of securities and of the institute
of the submission of official offer to buy up the remaining
securities.
2. In the joint-stock company there might appear a
situation where some shareholder, acting either alone or
together with other persons, acquires such a number of the
shares of the enterprise that he can control the activity of
the enterprise and determine the decisions made. Thus, the
possibilities of other shareholders, especially of the small
ones, to influence the activity of the enterprise respectively
decrease and the value of the shares they hold may decrease.
The protection of the rights of such shareholders is a public
interest. The legislator, implementing inter alia provision of
Paragraph 2 of Article 23 of the Constitution that the rights
of ownership shall be protected by laws, has the powers also to
establish such protective measure for the property rights of
other shareholders as the obligatory transfer of securities
when one of the shareholders (acting either alone or together
with other persons) acquires the shares that grant more votes
at the meeting of shareholders of the accountable issuer than
the grounded and reasonable limit established in the law.
It is to be held that there are no legal arguments
allowing to state that the limit of 40 percent of votes at the
meeting of shareholders of the accountable issuer established
in Paragraph 1 (wording of 17 December 2001) of Article 19 of
the Law is groundless, unreasonable or that the obligation to
transfer the securities (by reimbursement) after that limit is
exceeded is disproportionate to the objective sought, which is
to protect property rights of other shareholders, especially
the small ones, i.e. the value entrenched in Article 23 of the
Constitution.
3. The institute of submission of the obligatory official
offer to buy up the rest of securities is also meant to protect
property rights of other shareholders, especially the small
ones. In its ruling of 12 December 2005 the Constitutional
Court has held: the purpose of the institute of submission of
the obligatory official offer to buy up the rest of securities
is to protect the rights of small shareholders, first of all
rights of ownership, in cases when a certain subject
(shareholder) either alone or together with other subjects
acquires the portion of the joint-stock company which enables
him (either alone or together with other subjects) to control
the activity of the joint-stock company in question and due to
this the opportunities of small shareholders to influence the
activity of this joint-stock company decrease, thus the value
of shares belonging to them may decrease as well; the essence
of the obligatory official offer is that the subject who has
acquired (either alone or together with other subjects) the
portion of shares of a joint-stock company that enables him to
control the activity of the company must submit the obligatory
official offer to buy up the shares belonging to the small
shareholders, while the latter must be given an opportunity to
sell their shares for not any but a fair price; the said rule
of the fair price, as the institute of obligatory official
offer in general, permits the small shareholders to choose
whether to sell their shares and withdraw from the company
after a certain subject (shareholder) either alone or together
with other subjects acquires the portion of the joint-stock
company which enables him (either alone or together with other
subjects) to control the activity of the joint-stock company in
question, or to remain small shareholders.
Thus, the institute of submission of the obligatory
official offer to buy up the remaining securities is not in
itself in conflict with Article 23 of the Constitution, but, on
the contrary, it must help to protect the value entrenched in
this article of the Constitution.
4. Both the institute of the obligatory transfer of
securities and the institute of the submission of official
offer to buy up the remaining securities as measures to protect
the rights of small shareholders are entrenched in laws of
various states of the world. It is also to be noted that the
institute of the submission of official offer to buy up the
remaining securities is also entrenched in the legal acts of
the European Union, as in the Directive 2004/25/EC of the
European Parliament and of the Council of 21 April 2004 on
takeover bids.
5. While deciding whether Paragraph 1 (wording of 17
December 2001) of Article 19 of the Law was not in conflict
with Article 23 of the Constitution to the extent that it
entrenched the alternative duty of the person who, acting
either alone or together with other persons, acquired more than
40 percent of votes at the general meeting of the shareholders
of the accountable issuer, either to transfer the securities
that exceed this limit, or to submit an official offer to buy
up the remaining securities of the issuer that grant the right
to vote and the securities confirming the right to acquire the
securities granting the right to vote, the fact is also
important that under the law, a person who, acting either alone
or together with other persons, has acquired more than 40
percent of votes at the general meeting of the shareholders of
the accountable issuer, had and has the right to choose himself
whether to transfer the securities that exceed the specified
limit or to submit the official offer to buy up the remaining
securities of the accountable issuer that grant the right to
vote and the securities confirming the right to acquire the
securities granting the right to vote.
6. Taking account of the arguments set forth, a conclusion
is to be made that Paragraph 1 (wording of 17 December 2001) of
Article 19 of the Law ,to the extent that it entrenched the
alternative duty of the person who, acting either alone or
together with other persons, acquired more than 40 percent of
votes at the general meeting of the shareholders of the
accountable issuer, either to transfer the securities that
exceed this limit, or to submit an official offer to buy up the
remaining securities of the accountable issuer that grant the
right to vote and the securities confirming the right to
acquire the securities granting the right to vote, was not in
conflict with Article 23 of the Constitution.
7. Having held that, it is also to be held that by means
of the disputed legal regulation neither the provision of
Paragraph 1 of Article 46 of the Constitution, stating that
Lithuania's economy shall be based on the right of private
ownership and individual freedom of economic activity and
initiative, nor the provision of Paragraph 1 of Article 48 of
the Constitution, stating that each human being may freely
choose a business, nor the constitutional principle of a state
under the rule of law were violated.
Conforming to Articles 102 and 105 of the Constitution of
the Republic of Lithuania and Articles 1, 53, 54, 55, 56, 67
and 70 of the Law on the Constitutional Court of the Republic
of Lithuania, the Constitutional Court of the Republic of
Lithuania has passed the following
ruling:
1. To recognise that Paragraph 1 (wording of 17 December
2001; Official Gazette Valstybės žinios, 2001, No. 112-4074) of
Article 19 of the Republic of Lithuania Law on the Securities
Market, to the extent that it entrenched the alternative duty
of the person who, acting either alone or together with other
persons, acquired more than 40 percent of votes at the general
meeting of the shareholders of the accountable issuer, either
to transfer the securities that exceed this limit, or to submit
an official offer to buy up the remaining securities of the
accountable issuer that grant the right to vote and the
securities confirming the right to acquire the securities
granting the right to vote, was not in conflict with the
Constitution of the Republic of Lithuania.
2. To dismiss the part of the case on the compliance of
Paragraph 2 (wording of 17 December 2001; Official Gazette
Valstybės žinios, 2001, No. 112-4074) of Article 16 of the
Republic of Lithuania Law on the Securities Market with the
Constitution of the Republic of Lithuania and to that extent to
return the petition to the Panevėžys City Local Court, the
petitioner.
This ruling of the Constitutional Court is final and not
subject to appeal.
The ruling is promulgated in the name of the Republic of
Lithuania.
Justices of the Constitutional Court: Armanas Abramavičius
Toma Birmontienė
Egidijus Kūris
Kęstutis Lapinskas
Zenonas Namavičius
Ramutė Ruškytė
Vytautas Sinkevičius
Stasys Stačiokas
Romualdas Kęstutis Urbaitis