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On the legal consequences arising in the case of the dissolution of an agreement on the privatisation of state-owned and municipal property

Case No. 15/2010-40/2010

 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

 RULING

ON THE COMPLIANCE OF ITEM 49 (WORDING OF 13 SEPTEMBER 2005) AND ITEM 50.2 (WORDING OF 29 AUGUST 2007) OF THE REGULATIONS FOR PRIVATISATION OF STATE-OWNED AND MUNICIPAL PROPERTY BY WAY OF PUBLIC AUCTION AS APPROVED BY THE RESOLUTION (NO. 1503) OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA “ON APPROVING THE REGULATIONS FOR PRIVATISATION OF STATE-OWNED AND MUNICIPAL PROPERTY BY WAY OF PUBLIC AUCTION” OF 31 DECEMBER 1997 WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA, THE PROVISIONS OF THE REPUBLIC OF LITHUANIA LAW ON PRIVATISATION OF STATE-OWNED AND MUNICIPAL PROPERTY AND THE CIVIL CODE OF THE REPUBLIC OF LITHUANIA

 24 October 2012

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court Egidijus Bieliūnas, Toma Birmontienė, Pranas Kuconis, Gediminas Mesonis, Egidijus Šileikis, Algirdas Taminskas, Romualdas Kęstutis Urbaitis, and Dainius Žalimas,

with the secretary—Daiva Pitrėnaitė,

in the presence of the representatives of the Government of the Republic of Lithuania, the party concerned, who were Dominikas Pečiulis, chief specialist of the State-owned Enterprise Policy Division of the Company Law and Public Procurement Policy Department of the Ministry of Economy of the Republic of Lithuania, and Rūta Kurienė, a lawyer of the Legal Division of the state-owned enterprise the State Property Fund,

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, on 23 October 2012, in its public hearing heard constitutional justice case No. 15/2010-40/2010 subsequent to the petitions of the Court of Appeal of Lithuania, the petitioner, requesting to investigate whether:

1) Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction as approved by the Resolution (No. 1503) of the Government of the Republic of Lithuania “On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction” of 31 December 1997, insofar as they prescribe that in case of failure to pay an ordinary contribution (instalment) with interest and late payment interest within 30 days of the deadline of payment, the agreement on sale and purchase of the privatisation object shall be dissolved unconditionally, the privatisation object shall be returned to the privatisation institutions, but the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) shall not be returned, was (is) not in conflict with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Republic of Lithuania Law on Privatisation of State-owned and Municipal Property (petition No. 1B-15/2010);

2) Item 50.2 (wording of 29 August 2007) of the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction as approved by the Resolution (No. 1503) of the Government of the Republic of Lithuania “On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction” of 31 December 1997, insofar as it prescribes that in case of failure to pay an ordinary contribution (instalment) with interest and late payment interest within 30 days of the deadline of payment, the privatisation object shall be returned to the privatisation institutions, but the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) shall not be returned, is not in conflict with Article 23 of the Constitution of the Republic of Lithuania, the constitutional principles of justice and a state under the rule of law, Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the Civil Code of the Republic of Lithuania (wording of 18 July 2000) and with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 (wording of 5 December 2006) of the Republic of Lithuania Law on Privatisation of State-owned and Municipal Property (petition No. 1B-48/2010).

By the Constitutional Court’s decision of 16 October 2012, these petitions of the Court of Appeal of Lithuania, the petitioner, were joined into one case.

 

The Constitutional Court

has established:

I

  1. The petition (No. 1B-15/2010) of the Court of Appeal of Lithuania, the petitioner, is substantiated by the following arguments.

Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction (hereinafter also referred to as the Regulations) as approved by the Government Resolution (No. 1503) “On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction” (hereinafter also referred to as the Government resolution (No. 1503) of 31 December 1997) of 31 December 1997 established the obligatory conditions of sale and purchase agreements of the privatisation object, whereby one consolidates not only the right of privatisation institutions to require to dissolve the agreement within 30 days of the deadline of payment in case no ordinary instalment is received, but also the right to apply unilateral restitution, i.e. to retrieve the privatisation object as ownership and not to return the buyer the sums that he has paid. This right of privatisation institutions is consolidated as unconditional and the aforementioned institutions may enjoy it without taking account of any circumstances of a concrete transaction, inter alia of the fact how many instalments for the privatisation object have already been paid. Meanwhile, the Law on Privatisation of State-owned and Municipal Property (hereinafter also referred to as the Law) prescribes that one must provide for sanctions against the buyer in proportion to the damage caused (Paragraph 4 of Article 21). Thus, the petitioner has doubts regarding the compliance of the legal regulation consolidated in the Regulations, under which unilateral restitution is applied, with Paragraph 4 of Article 21 of the Law, for the implementation whereof the said sub-statutory act has been adopted.

  1. The petition (No. 1B-48/2010) of the Court of Appeal of Lithuania, the petitioner, regarding the compliance of the impugned legal regulation with the Law is substantiated virtually by the same arguments as its petition No. 1B-15/2010.

The petition of the petitioner requesting to investigate the compliance of the impugned legal regulation with the provisions of the Constitution and the Civil Code (hereinafter also referred as the CC) is substantiated by the following arguments.

2.1. By having consolidated, in the Regulations, the legal regulation which is in conflict with the Law, one violated the constitutional principle of a state under the rule of law, according to which sub-statutory legal acts must be adopted on the basis of laws and may not be in conflict with them.

2.2. The impugned legal regulation may be in conflict with Article 23 of the Constitution which consolidates the principle of inviolability of property, as unpaid taking over of property amounts to confiscation of property which may be considered as a measure of criminal law and not a way to defend civil rights.

2.3. In addition, under Paragraph 6 of Article 21 of the Law, the provisions of the CC shall be applicable to the privatisation transaction and the acquisition of the right of ownership to the privatisation object. Under Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the CC and according to the principles of inviolability of property, proportionality, legitimate expectations and prohibition to abuse one’s right, upon dissolution of the contract, each of the parties shall have the right to claim the return of whatever one has supplied the other party under the contract if this party concurrently makes the return of whatever one has received from the latter (reciprocal restitution). Meanwhile, Item 50.2 (wording of 29 August 2007) of the Regulations as approved by the Government resolution consolidates unilateral restitution, thus, the impugned legal regulation, in the opinion of the petitioner, is in conflict with Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the CC.

II

In the course of the preparation of the case for the Constitutional Court hearing, written explanations were received from the representatives of the Government, the party concerned, who were D. Pečiulis, chief specialist of the State-owned Enterprise Policy Division of the Company Law and Public Procurement Policy Department of the Ministry of Economy, and R. Kurienė, a lawyer of the Legal Division of the state-owned enterprise the State Property Fund, in which it is stated that the impugned legal regulation is not in conflict with the Constitution and laws. The position of the representatives of the Government is substantiated by the following arguments.

  1. The purpose of the privatisation process of the state-owned and municipal property is to receive more funds so that the needs of society would be satisfied in the maximum manner. While seeking to protect the property of the state (municipalities) and defending the interests of the state, the measures of liability for violations whereby one would ensure the implementation of privatisation transactions must be established in the legal acts that regulate the procedures of privatisation of state-owned (municipal) property.

The sanction consolidated in Item 49 of the Regulations which is impugned by the petitioner is designated for the defence of the interests of the state (municipality), as a participant of the public legal relation.

  1. The Regulations consolidate the right of the buyer to choose the ways of payment for the property acquired at auction—to pay immediately or by instalments. The latter procedure of payment is more favourable to the buyer, but not to the state (municipality), thus, the owner (state (municipality)) of the property sold at auction, while taking the risk regarding the financial possibilities of the buyer to carry out the transaction and seeking to ensure the completion of the transaction, must establish the stricter measures ensuring the implementation of the agreement. Due to the rather long terms of deferral of payment, negative consequences are possible for the owner of the property, for example, when selling the same property after a long time its value may be lower, thus, in case of non-implementation of payment obligations assumed by the buyer by the agreement, the stricter sanctions are applied to the buyer. Both Paragraph 4 of Article 21 of the Law and the impugned items of the Regulations imperatively specify that certain restrictions which discipline the buyer must be established also in the privatisation transaction.
  2. The impugned provision provides that if the buyer does not fulfil the obligations of payment assumed by the agreement, not only is the privatisation agreement dissolved and the acquired property passes into the ownership of the state (municipality), but also the instalments paid by the buyer and the funds spent for the improvement of the acquired object are not returned to him. This is an additional measure which disciplines the buyer and which, in case of dissolution of the agreement, should be assessed as losses sustained by a party of the transaction that appeared due to the fault of the latter. These losses of the buyer may not be more important than the losses sustained by the injured party (the state) due to the privatisation which was not accomplished—the losses linked to selling of property, change of the value of property, non-received income, etc. In practice, also such cases are possible when the losses sustained by the public subject in reality due to non-fulfilment of an agreement exceed both the sum paid by the buyer for the privatisation object and the value of the returned privatisation object, thus, the consequences of dissolution of the privatisation agreement provided for in the impugned Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations may not be assessed as being in conflict with the provision of the Law.
  3. The impugned legal regulation may not be assessed as allowing to confiscate the property of the buyer, as, in the opinion of the representatives of the Government, by stating so, the petitioner did not take account of the final moment of transferring of the privatisation object and annulment of restriction of the rights of ownership to this property with respect to the buyer. Therefore, the legal regulation, under which upon dissolution or annulment of the agreement on sale and purchase of the privatisation object and after failing to reach the aims of privatisation this property is returned to the state (municipality), may not be assessed as being in conflict with Article 23 of the Constitution.
  4. Regarding the compliance of the impugned legal regulation with Paragraph 1 of Article 6.222 which provides reciprocal restitution and the principles specified in Paragraph 1 of Article 1.2 of the CC, the representatives of the Government note that in the legal sense restitution is understood in a threefold manner: as a process (returning of property by one person to another person on the established grounds for return), as a result (restoration of status quo) and as a form of responsibility (negative consequences for the guilty party not only when returning the property, but also when recovering losses). Not in all cases reciprocal restitution is applied to parties. In certain cases only one of the parties has the duty of giving back. Restitution is to be considered as an independent obligatory legal way of defence of the violated right in which one may inter alia defend the interests of the state. The impugned items of the Regulations consolidate special legal norms which are to be applied in case of dissolution of the sale and purchase agreement, therefore, they may not coincide with the legal regulation established in Paragraph 1 of Article 6.222 of the CC.
  5. While applying reciprocal restitution in case of dissolution of the privatisation transaction, the state (municipality) would be placed in a non-equal situation and, as the party injured from non-fulfilment of the transaction, it would have more duties with regard to the guilty party, it would be difficult to recover the losses sustained by it and one would not avoid negative economic consequences for the interests of society.

III

In the course of the preparation of the case for the Constitutional Court hearing, Justė Žibūdienė, a lawyer of the Legal Division of the state-owned enterprise the State Property Fund, and Ona Šimčikienė, a specialist of the privatisation division of this fund, the specialists, were questioned.

IV

At the Constitutional Court hearing, D. Pečiulis and R. Kurienė, the representatives of the Government, the party concerned, virtually reiterated the arguments set forth in their written explanations and answered the questions of the justices.

The Constitutional Court

holds that:

I

  1. The Court of Appeal of Lithuania, the petitioner, requests to investigate the compliance of Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribes that in case of failure to pay an ordinary instalment with interest and late payment interest within 30 days of the deadline of payment, the agreement on sale and purchase of the privatisation object shall be dissolved unconditionally, the privatisation object shall be returned to the privatisation institutions, but the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) shall not be returned, with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law and the compliance of Item 50.2 (wording of 29 August 2007) thereof, to the same extent, also with Article 23 of the Constitution, the constitutional principles of justice and a state under the rule of law and with Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the CC.

It needs to be noted that, as the Constitutional Court has held more than once, an inseparable element of the content of the constitutional principle of a state under the rule of law is the constitutional principle of justice, thus, the petition requesting to investigate the compliance of the impugned legal regulation with the constitutional principles of a state under the rule of law and justice is to be treated as a petition requesting to investigate its compliance with the constitutional principle of a state under the rule of law.

  1. On 31 December 1997, while following the Law on Privatisation of State-owned and Municipal Property, the Government adopted the Resolution (No. 1503) “On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction” which came into force on 10 January 1998. This resolution approved the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction which inter alia establish the procedure of preparation of a public auction for privatisation of state-owned or municipal property, regulate conclusion of a sale and purchase agreement, provide how one is to pay for a privatisation object acquired at a public auction, consolidate the procedure of payment and establish other conditions of a sale and purchase agreement.

This Government resolution has been amended and/or supplemented more than once, inter alia by the Government Resolution (No. 1007) “On Amending the Resolution (No. 1503) of the Government of the Republic of Lithuania ‘On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction’ of 31 December 1997” of 13 September 2005 (which came into force on 18 September 2005) and by the Government Resolution (No. 933) “On Amending the Resolution (No. 1503) of the Government of the Republic of Lithuania ‘On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction’ of 31 December 1997” of 29 August 2007 (hereinafter also referred to as the Government resolution (No. 933) of 29 August 2007).

  1. It has been mentioned that in the constitutional justice case at issue the petitioner doubts inter alia regarding the compliance of Item 49 of the Regulations (wording of 13 September 2005) with the Law.

3.1. Item 49 (wording of 13 January 2005) of the Regulations prescribed:

“If the sale and purchase agreement establishes that one shall pay for the privatised tangible fixed assets not later than within 5 working days of the day of signing of this agreement, then, within 5 working days of signing of the sale and purchase agreement, the winner of the public auction must pay the obligatory sum—not less than 25 percent of the offered price of the privatisation object or the sum corresponding to a state’s (municipality’s) share in the purchase sum, where the percentage of the increase in the value due to the expenses incurred when improving the object during the period of rent provided for in the privatisation programme of the object (structure) has been established, including the paid initial payment. The deferred instalments must be paid every quarter in equal parts together with interest calculated on the sum still to be paid. The interest rate shall be calculated in accordance with the procedure set forth by the Government of the Republic of Lithuania and announced in the Information Bulletin of Privatisation together with the privatisation programme of the object. One shall start to return the arrears the following quarter after the acquired property is mortgaged or upon the deadline for provision of a bank guarantee, the ordinary instalment and interest are paid till the 10th day of the first month of the next quarter. For the ordinary instalment or interest which was not paid on time, the buyer must pay the late payment interest correspondingly into the Privatisation Fund account opened for the Ministry of Finance or into a special account of the municipality—0.1 per cent of late payment interest shall be paid for each overdue day. If an ordinary instalment with interest and late payment interest is not paid within 30 days of the deadline of payment, the agreement on sale and purchase of the privatisation object is dissolved and everything that was transferred to the buyer according to this agreement till its dissolution is returned to the Property Fund. The sum paid by the buyer and the funds paid for improvement of the privatisation object (structure) are not returned. The Ministry of Finance shall inform the Property Fund on the ordinary instalments which were not paid on time.”

Thus, Item 49 (wording of 13 September 2005) of the Regulations established how one could pay for the privatisation object acquired at a public auction (immediately, not later than within 5 working days of signing this agreement, or by instalments), consolidated the procedure of payment, as well as established the legal circumstances for the buyer who did not fulfil payment obligations under a concluded agreement on sale and purchase of a privatisation object.

It needs to be noted that, under the legal regulation consolidated in Item 49 (wording of 13 September 2005) of the Regulations, upon agreement to pay for the privatisation object by instalments, the buyer must immediately, i.e. within 5 working days of signing the agreement, pay a part of the price (i.e. not less than 25 percent of the sum provided for in the agreement), while the remaining payments are deferred and the instalments are paid regularly every quarter in equal parts together with the corresponding interest.

3.2. While construing the legal regulation impugned by the petitioner which is consolidated in Item 49 (wording of 13 September 2005) of the Regulations, in the aspect investigated in the constitutional justice case at issue, it needs to be noted that in those cases, when one has arranged to pay for the acquired privatisation object by instalments and when the buyer has not fulfilled the obligations under the concluded agreement on sale and purchase of the privatisation object, i.e. during the established period of time (within 30 days of the deadline for payment) has not paid an ordinary instalment with interest and late payment interest, the legal consequences of non-implementation of the agreement on sale and purchase of the privatisation object arise: the sale and purchase agreement is dissolved, the privatisation object acquired by the buyer is returned to the privatisation institution—the Property Fund, whereas the sum paid by the buyer also for improvement of the privatisation object (structure) is not returned. This legal regulation established in Item 49 (wording of 13 September 2005) of the Regulations is applied in all cases when a decision to dissolve the agreement on sale and purchase of the privatisation object is made, irrespective of the fact what part of the price the buyer has paid. Thus, under the legal regulation consolidated in Item 49 (wording of 13 September 2005) of the Regulations, if the buyer fails to fulfil the payment obligations assumed by the agreement on sale and purchase of the privatisation object to pay the deferred instalments with interest and late payment interest for the privatisation object and because of that fact the sale and purchase agreement is dissolved, one party of the transaction—the state (municipality)—redeems the property (the privatisation object) that belonged to it before, whereas the other party of the transaction—the buyer—loses not only the acquired privatisation object, but also the instalments paid for it up to that moment and the funds paid for the improvement of the privatisation object (structure).

In this context it needs to be noted that, under the legal regulation which is impugned by the petitioner, upon dissolution of the agreement on sale and purchase of the privatisation object and upon return of the privatisation object to the Property Fund, the instalments paid for it and the funds paid for the improvement of the privatisation object are not returned to the buyer in all cases, i.e. neither in the case when the property returned to the Property Fund is of a bigger value than it was at the moment when the buyer acquired it, inter alia when due to the improvements of the privatisation object made by the buyer the value of the object increased, nor in the case when, irrespective of the funds paid for improvement of the object, its value did not increase (or even decreased) and it is returned being of the same or even lower value. Thus, in some cases, under the legal regulation impugned by the petitioner, the privatisation object returned to the state (municipality) is of the same or reduced value, in other cases—of higher value than it was at the moment when the buyer acquired it, inter alia due to the improvements of the object made by the buyer, while the instalments paid by the buyer and the funds paid by him for improvement of the privatisation object (structure) are not returned in any case irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object changed (increased or decreased).

3.3. Item 49 (wording of 13 September 2005) of the Regulations, which is impugned by the petitioner, was amended by the Government resolution (No. 933) of 29 August 2007 and was set forth as follows:

“The winner of the auction may pay for the privatisation object (tangible fixed assets) by instalments when the time period for the final payment for the privatisation object established by the possessor of the privatisation object is longer than 5 working days from signing the agreement on sale and purchase of the privatisation object and so is prescribed in the coordinated draft agreement on sale and purchase of the privatisation object which was assented by the Privatisation Commission or the Government of the Republic of Lithuania. In this case, in the agreement on sale and purchase of the privatisation object one must prescribe that within 5 working days of signing of the sale and purchase agreement, the winner of the public auction must pay the obligatory sum—not less than 25 percent of the price to be paid for the privatisation object established in the agreement, while the initial payment paid by the winner of the public auction is included into the first instalment. If the percentage of the increase in the value due to the expenses incurred when improving the object during the period of rent is established in the privatisation programme of the object (structure), one must establish in the agreement on sale and purchase of the privatisation object that the initial payment will be not less than 25 percent of the sum corresponding to a state’s (municipality’s) share in the purchase sum, and the initial payment of the winner of the public auction is included into the initial payment.”

While having compared the legal regulation established in Item 49 (wording of 29 August 2007) of the Regulations with the one established in Item 49 (wording of 13 September 2005) of the Regulations, it needs to be noted that Item 49 (wording of 29 August 2007) of the Regulations prescribes how one may pay for the privatisation object acquired at auction (the buyer may pay for the privatisation object immediately or by instalments), consolidates the payment procedure, however, it does not regulate the legal consequences for the buyer who does not fulfil the obligations of payment according to the concluded agreement on sale and purchase of the privatisation object.

Thus, the legal regulation consolidated in Item 49 (wording of 29 August 2007) of the Regulations changed in the way that it no longer included the legal regulation impugned in the constitutional justice case at issue.

It needs to be emphasised that the legal regulation consolidated in Item 49 (wording of 29 August 2007) of the Regulations is not subject to investigation in the constitutional justice case at issue.

  1. It has been mentioned that in the constitutional justice case at issue the petitioner doubts inter alia regarding the compliance of Item 50.2 (wording of 29 August 2007) of the Regulations with the Constitution and laws.

4.1. Item 50.2 (wording of 29 August 2007) of the Regulations prescribes:

“If one pays for the privatisation object by instalments, the instalments must be paid every quarter in equal parts together with interest calculated on the sum still to be paid. The amount of the interest rate equals to the interest rate (“in total”) of the new loans granted to non-financial corporations and households of the newest month announced on the website of the Bank of Lithuania on the day of its establishment (recalculation). The day of establishment of the initial amount of the interest rate is the day of signing the agreement on sale and purchase of the privatisation object. The amount of the interest rate is recalculated after 6 months from the day of former establishment (recalculation) of the amount of the interest rate. The Property Fund informs the buyer about the changed amount of the interest rate within 5 working days of the day of recalculation of the interest. One starts to return the arrears the following quarter after the acquired property is mortgaged or after the deadline for provision of a bank guarantee, and an ordinary instalment and interest are paid till the 10th day of the first month of the next quarter. For the ordinary instalment or interest which were not paid on time, the buyer must pay the late payment interest correspondingly into the Privatisation Fund account opened for the Ministry of Finance or into a special account of the municipality—0.1 per cent of late payment interest shall be paid for each overdue day. In case one fails to pay an ordinary instalment with interest and the late payment interest within 30 days of the deadline of payment, the purchase and sale agreement shall be dissolved and everything that was transferred to the buyer according to this agreement till its dissolution shall be returned to the Property Fund. The sum paid by the buyer and the funds paid for improvement of the privatisation object (structure) shall not be returned.”

Thus, Item 50.2 (wording of 29 August 2007) of the Regulations establishes the procedure of payment for the privatisation object acquired at auction in those cases when one pays for it by instalments; it also establishes the legal consequences for the buyer who does not fulfil the payment obligations according to the concluded agreement on sale and purchase of the privatisation object: it provides that the sale and purchase agreement is dissolved and the privatisation object acquired by the buyer is returned to the Property Fund, however, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object changed (increased or decreased).

4.2. It needs to be noted that Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations, in the aspect in which they are impugned in the constitutional justice case at issue, establish an identical legal regulation: they provide the legal consequences of non-fulfilment of the agreement on sale and purchase of the privatisation object for the buyer who, during the established period of time, has not paid an ordinary instalment with interest and late payment interest—the sale and purchase agreement is dissolved and the privatisation object acquired by the buyer is returned to the Property Fund, however, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object changed (increased or decreased).

  1. The legal regulation consolidated in Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations which is impugned by the petitioner, whereby one establishes the legal consequences of non-fulfilment of the agreement on sale and purchase of the privatisation object, is to be construed in the context of other items of the Regulations.
  2. The Regulations inter alia prescribe:

– a public auction is a method of selling of the privatisation object where the number of potential buyers participating at auction is not limited and where the privatisation transaction is concluded with the highest bidder (Item 4);

– public auctions are organised and held by the Property Fund (Item 5);

– an agreement on sale and purchase of the privatisation object is an agreement (the example form of the agreement is provided in Annex 4 of the Regulations) between the Property Fund which acts representing the state (municipality) and the potential buyer, whereby the Property Fund is obliged to pass the privatisation object into the ownership of the potential buyer—the winner of the public auction, whereas the latter assumes obligations to pay the sum of money specified in the agreement and/or fulfil other obligations specified in the agreement (Item 34);

– the sale and purchase agreement must specify inter alia the procedure and terms for payment for the acquired object, the obligations of the buyer to implement the conditions of privatisation of the object, the sanctions for the buyer for non-implementation of the conditions or inappropriate implementation thereof, cases of dissolution of the sale and purchase agreement, the obligations of the buyer to mortgage the acquired privatisation object with the Property Fund or to provide a bank guarantee if the payment for the object is deferred and the sanctions (including dissolution of the agreement) if such an obligation is not implemented because of the buyer's fault, etc. (Item 35 (wordings of 1 December 2004 and 29 August 2007)).

While summarising the legal regulation set forth, it needs to be noted that, after the public auction organised by the Property Fund representing the state (municipality) has taken place, the purpose whereof is to privatise, for the biggest offered price, concrete property (a privatisation object) which belongs to the state or municipality, an agreement on sale and purchase of the privatisation object is concluded between the Property Fund and the buyer of the privatisation object according to the form of the example agreement provided in Annex 4 of the Regulations, on the grounds of which the buyer acquires the right to property; the sale and purchase agreement establishes various conditions of conclusion of an agreement, inter alia the obligation to mortgage the privatisation object, cases of dissolution of the agreement, etc.

  1. As mentioned before, the example form of the agreement on sale and purchase of the privatisation object is provided in Annex 4 (wording of 1 December 2004) of the Regulations.

Item 8 of this example agreement prescribes the procedure for payment of the remaining part of the price and late payment interest for the privatisation object. Under Item 8.3 of the example agreement, the agreement on sale and purchase of the privatisation object must specify that “if an ordinary instalment with interest and late payment interest is not paid within 30 days of the deadline of payment, this agreement may be dissolved under the judicial procedure and the paid sum is not returned.”

The provisions of Annex 4 of the Regulations, inter alia Item 8 thereof, were amended by the Government resolution (No. 933) of 29 August 2007, however, the legal regulation established in Item 8.3 of the example agreement, under which a possibility for the Property Fund to dissolve the agreement under the judicial procedure is provided, if the buyer does not fulfil the payment obligations assumed by the agreement on sale and purchase of the privatisation object, has not changed.

While construing the legal regulation impugned by the petitioner which is consolidated in Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations together with the corresponding provisions of Annex 4 (wordings of 1 December 2004 and 29 August 2007) of the Regulations, it needs to be noted that in case of failure to pay an ordinary contribution (instalment) with interest and late payment interest within the established term and thus in case of failure to fulfil the payment obligations assumed by the agreement on sale and purchase of the privatisation object, the consequences of non-fulfilment of the agreement on sale and purchase of the privatisation object may arise: the Property Fund may apply to court regarding dissolution of the concluded sale and purchase agreement; upon its dissolution, the privatisation object acquired by the buyer is returned to the Property Fund, whereas the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object changed (increased or decreased). Thus, it needs to be held that by means of the discussed legal regulation the Property Fund is granted discretion to choose dissolution of the agreement on sale and purchase of the privatisation object under the judicial procedure or another way of defence of the violated rights of the state (municipality).

  1. In the Regulations one regulates inter alia the moment of acquisition of the right of ownership to the privatisation object.

8.1. Item 54 (wording of 9 October 2000) of the Regulations inter alia prescribed: “The document of transferring of the right of ownership to the privatisation object shall be the act on transferring the right of ownership to the privatisation object <…>. The act is drawn up within 15 days after the buyer (its authorised person), under the established procedure, pays the sums specified in Item 48 (or 49) and Item 52 and fulfils or assumes an obligation to fulfil the conditions of privatisation provided in the agreement on sale and purchase of the privatisation object <...>”.

Thus, under Item 54 (wording of 9 October 2000) of the Regulations, the buyer used to acquire the right of ownership to the privatisation object upon conclusion of a statement of transfer of the right of ownership to the privatisation object which had to be drawn up within 15 days after the buyer fully or partially pays for the acquired privatisation object and fulfils the provided privatisation conditions or assumes, in the agreement, the obligations to fulfil them.

8.2. Item 54 (wording of 9 October 2000) of the Regulations, whereby one regulates the moment of acquisition of the right of ownership to the privatisation object, was amended, inter alia by the Government resolution (No. 933) of 29 August 2007.

Item 53 (wording of 29 August 2007) of the Regulations prescribes: “The winner of the public auction acquires the right of ownership to the privatisation object from the moment of transferring of the privatisation object to the winner of the public auction which is formalised under the procedure established in Item 54 of these Regulations.”

Item 54 (wording of 29 August 2007) of the Regulations inter alia prescribes: “Transferring of the privatisation object shall be formalised by a statement of transfer and acceptance of the right of ownership <…>. The statement is drawn up within 15 days after the buyer (its authorised person), under the established procedure, pays the sums specified in Item 48 (or 49) and Item 50.4 and fulfils or assumes an obligation to fulfil the conditions of privatisation provided in the agreement on sale and purchase of the privatisation object <...>”.

While having compared the legal regulation set forth in Items 53 and 54 (wording of 29 August 2007) of the Regulations linked to the acquisition of the right of ownership to the privatisation object with the one set forth in Item 54 (wording of 9 October 2000) of the Regulations, it needs to be noted that essentially it did not change: the right of ownership to the privatisation object is acquired from the moment of signing of a statement of transfer and acceptance of the right of ownership to the privatisation object which has to be drawn up within 15 days after the buyer fully or partially pays for the acquired privatisation object and fulfils the provided privatisation conditions or assumes the obligations to fulfil them. Items 53 and 54 (wording of 29 August 2007) of the Regulations also prescribe that by the statement of transfer and acceptance of the right of ownership to the privatisation object one formalises the transferring of the privatisation object.

8.3. Under Items 48 (or 49) and 50.4 (wording of 29 August 2007) of the Regulations which are referred to in Item 54 (wording of 29 August 2007) of the Regulations (whereby one regulates the moment of acquisition of the right of ownership to the privatisation object), before signing a statement of transfer and acceptance, thus, also before the acquisition of the right of ownership to the privatisation object, the buyer must have paid the difference of the purchase price and the initial payment if the time period for payment for the privatisation object is no longer than five working days, i.e. if one pays for the privatisation object immediately, or, if one pays for the privatisation object by instalments, the buyer must have paid not less than 25 percent of the sum provided for in the agreement and the percentage of the increase due to the necessary expenses incurred when improving the object during the period of rent, and must have fulfilled other privatisation conditions provided or must have assumed, in the agreement, the obligations to fulfil them.

8.4. While construing the legal regulation impugned by the petitioner which is consolidated in Items 49 (wording of 13 September 2005) and 50.2 (wording of 29 August 2007) of the Regulations together with the legal regulation set forth, it needs to be noted that if in the agreement on sale and purchase of the privatisation object it was agreed to pay for the privatisation object by instalments, the buyer who won the public auction acquires the right of ownership to the privatisation object from the moment, when, having paid the obligatory initial sum—not less than 25 percent of the sum provided for in the agreement and the percentage of the increase due to the necessary expenses incurred when improving the object during the period of rent—and having fulfilled or having assumed the obligations to fulfil other conditions of the sale and purchase agreement, he accepts the privatisation object transferred by the seller and signs the statement of transfer and acceptance, i.e. yet prior to the time when he pays the total price for the privatisation object established in the sale and purchase agreement.

Thus, in those cases, when the buyer does not fulfil the payment obligations according to the concluded agreement on sale and purchase of the privatisation object (fails to pay, during the established period of time, an ordinary instalment with interest and late payment interest), the sale and purchase agreement is dissolved and the privatisation object belonging to the buyer by the right of ownership is returned to the Property Fund, whereas the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object changed (increased or decreased).

  1. Other conditions of the agreement on sale and purchase of the privatisation object is consolidated inter alia in Item 50 (wording of 4 February 2004) of the Regulations.

9.1. Item 50 (wording of 4 February 2004) of the Regulations inter alia prescribed: “If the deadline of payment is deferred, the winner of the public auction must provide the Property Fund with the measures ensuring the fulfilment of obligations which are specified in the privatisation programme: to mortgage the acquired tangible fixed assets or to provide a bank <…> guarantee. The market value of the mortgaged property or the guaranteed sum may not be smaller than the sum of obligations of the buyer to be fulfilled <…>.”

Thus, Item 50 (wording of 4 February 2004) of the Regulations established an obligatory condition of the sale and purchase agreement—a requirement to provide measures ensuring the implementation of the agreement of the privatisation object, i.e. to mortgage the acquired tangible fixed assets or to provide a bank guarantee of not lower value than the arrears of the buyer to another party of the transaction—the state (municipality)—by means of which one seeks to ensure that if one party of the agreement, the buyer, does not fulfil the payment obligations assumed by the sale and purchase agreement, another party of the transaction—the state (municipality)—would have a possibility to satisfy its requirements arising from the agreement by recovering the remaining part of the debt of the buyer from the property mortgaged by the buyer or from the guarantor.

9.2. Item 50 (wording of 4 February 2004) of the Regulations was amended inter alia by the Government resolution (No. 933) of 29 August 2007 and the legal regulation established in it was set forth in Item 50.3 (wording of 29 August 2007) of the Regulations.

Item 50.3 (wording of 29 August 2007) of the Regulations prescribes: “If one pays for the privatisation object by instalments, the winner of the public auction must provide the Property Fund with the measures ensuring the fulfilment of obligations which are specified in the privatisation programme: to mortgage the acquired tangible fixed assets or to provide a bank <…> guarantee. The market value of the mortgaged property or the guaranteed sum may not be smaller than the sum of obligations of the buyer to be fulfilled <…>.”

While having compared the legal regulation consolidated in Item 50 (wording of 4 February 2004) and Item 50.3 (wording of 29 August 2007) of the Regulations, it needs to be noted that both items establish an identical legal regulation.

9.3. While construing the impugned legal regulation consolidated in Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations together with the legal regulation consolidated in Item 50 (wording of 4 February 2004) and Item 50.3 (wording of 29 August 2007) of the Regulations, it needs to be noted that, while concluding the agreement on sale and purchase of the privatisation object, the buyer in all cases assumes the obligation to ensure the implementation of this agreement—to submit the documents regarding mortgaging the acquired property or a bank guarantee of not lower value than the remaining arrears to the state (municipality); in those cases when the buyer does not fulfil the obligations assumed by the sale and purchase agreement, the other party of the transaction—the state (municipality)—may decide to recover the remaining part of the payments of the buyer from the property mortgaged by the buyer or from the guarantor, or to apply to court regarding the dissolution of the sale and purchase agreement; if one adopts a decision to dissolve the agreement on sale and purchase of the privatisation object, the privatisation object belonging to the buyer by the right of ownership is returned to the Property Fund, whereas the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object changed (increased or decreased).

  1. The legal regulation impugned by the petitioner which is consolidated in Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations is to be construed in the context of the provisions of also other legal acts, namely the Law on Privatisation of State-owned and Municipal Property, whereby one regulates the legal relations of privatisation of the state-owned (municipal) property, as well as of the CC, whereby one inter alia regulates the legal relations of purchase and sale.
  2. On 4 November 1997, the Seimas adopted the Law on Privatisation of State-owned and Municipal Property which came into force on 1 December 1997. By means of this law one regulates inter alia transfer of state-owned and municipal property into the ownership of potential buyers for money under privatisation transactions concluded in accordance with the established procedure (Paragraph 1 of Article 1 and Paragraph 1 of Article 2).

11.1. The Law inter alia prescribes:

– there shall be the following privatisation institutions: the State Property Fund, municipal property funds or other departments of the administration of a municipality (Paragraph 1 of Article 3);

– one of the methods of privatisation of the state-owned and municipal property shall be a public auction (Item 2 of Paragraph 1 of Article 13), the procedure for the implementation whereof shall be established by the Government (Paragraph 3 of Article 13);

– unless this law or the privatisation transaction provides otherwise, the provisions of the CC shall be applicable to the privatisation transaction and the acquisition of the right of ownership to the privatisation object (Paragraph 6 of Article 21).

While summarising the legal regulation set forth, one needs to note that, while regulating the relations of privatisation of state-owned and municipal property by means of the Law, the legislator commissioned the Government to establish the procedure of preparation and implementation of the public auction which is organised by the Property Fund representing the state (municipalities). While privatising state-owned (municipal) property inter alia by means of public auction, one must apply also the provisions of the CC which regulate the obligatory relationships, as well as the relationships linked to the appearance of the right of ownership if they are not regulated by the Law or the privatisation transaction itself which must in all cases be concluded while complying with the Law and other legal acts, inter alia the provisions of the CC.

11.2. While construing the legal regulation impugned by the petitioner which is consolidated in Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations in the context of the set forth provisions of the Law, it needs to be noted that while adopting the resolution (No. 1503) of 31 December 1997, whereby the Regulations were approved, the Government was implementing the legislator’s assignment to establish the procedure of public auction, one of the ways of privatisation of the state-owned (municipal) property. While establishing this procedure, the Government had to follow the provisions of the CC which regulate the obligatory relationships, as well as the relationships linked to the appearance of the right of ownership if they are not regulated by the Law.

  1. The Civil Code, whereby the obligatory relationships linked to the conclusion, implementation and dissolution of an agreement are regulated, inter alia prescribes:

– civil relationships shall be regulated in accordance with the principles of equality of their subjects’ rights, inviolability of property, freedom of contract, non-interference in private relations, legal certainty, proportionality, and legitimate expectations, prohibition to abuse a right, as well as the principles of comprehensive judicial protection of civil rights (Paragraph 1 of Article 1.2);

– the state, municipalities and their institutions shall be subjects of civil relations subject to the same grounds as other participants thereof (Paragraph 1 of Article 2.36);

– dissolution of the contract releases both parties from the performance of the contract; dissolution of a contract shall not preclude the right of claim for damages for non-performance of the contract, as well as the right of claim for penalty (Paragraphs 1 and 2 of Article 6.221);

– upon dissolution of the contract, each of the parties shall have the right to claim the return of whatever he has supplied the other party under the contract if this party concurrently makes the return of whatever he has received from the latter (Paragraph 1 of Article 6.222).

While summarising the legal regulation set forth, which is consolidated in the CC, in the context of the constitutional justice case at issue, it needs to be noted that in those cases when one of the parties of an agreement is the state or a municipality, while concluding the agreement on sale and purchase of the privatisation object, it participates on the equal grounds with the other party of the agreement—the buyer, and the same principles, which are followed when regulating the civil legal relations, are applied to the former party, inter alia the principles of equality of rights, inviolability of property, proportionality and protection of legitimate expectations. If the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, this agreement may be dissolved, whereas both parties of the transaction may be released from further implementation of the agreement. Pursuant to the provisions of the CC, upon dissolution of the agreement, one seeks to reinstate both parties of the agreement in the situation wherein they were prior to the conclusion of the agreement, usually by applying mutual restitution, whose condition is that one may redeem something that was transferred to the other party of the transaction only in the case if, at the same time, one returns to it everything that was received from that party.

II

On the compliance of Item 49 (wording of 13 September 2005) of the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction as approved by the Government resolution (No. 1503) of 31 December 1997 with Paragraph 4 of Article 21 of the Law on Privatisation of State-owned and Municipal Property and on the compliance of Item 50.2 (wording of 29 August 2007) thereof with Article 23 of the Constitution, the constitutional principle of a state under the rule of law, Paragraph 4 of Article 21 of the Law on Privatisation of State-owned and Municipal Property and Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the Civil Code.

  1. It has been mentioned that the Court of Appeal of Lithuania, the petitioner, requests to investigate the compliance of Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribes that in case of failure to pay an ordinary instalment with interest and late payment interest within 30 days of the deadline of payment, the agreement on sale and purchase of the privatisation object shall be dissolved unconditionally, the privatisation object shall be returned to the privatisation institutions, whereas the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) shall not be returned, with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law and the compliance of Item 50.2 (wording of 29 August 2007) thereof, to the same extent, also with Article 23 of the Constitution, the constitutional principle of justice and Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the CC.
  2. The doubts of the petitioner regarding the compliance of the impugned legal regulation with the Constitution and the provisions of laws are grounded on the fact that the legal regulation consolidated in Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations, whereby the privatisation institutions have the right to require to apply unilateral restitution, i.e. to retrieve the privatisation object into ownership without returning to the buyer the paid instalments and the funds for improvement of the object, irrespective of any circumstances of a concrete transaction, inter alia regardless of the fact what part of the price the buyer has already paid, is not in line with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law and with the principle of inviolability of property which is consolidated in Article 23 of the Constitution, because upon dissolution of the sale and purchase agreement the buyer loses both the acquired privatisation object and all the funds paid for it.
  3. As mentioned before, Item 49 (wording of 13 September 2005) of the Regulations inter alia prescribed: “If an ordinary instalment with interest and late payment interest is not paid within 30 days of the deadline for payment, the agreement on sale and purchase of the privatisation object is dissolved and everything that was transferred to the buyer according to this agreement till its dissolution is returned to the Property Fund. The sum paid by the buyer and the funds paid for improvement of the privatisation object (structure) are not returned.”

It has been mentioned that, under the legal regulation impugned by the petitioner, which is construed together with other items of the Regulations, inter alia with the provisions of the example agreement on sale and purchase of the privatisation object provided in Annex 4 of the Regulations, when the buyer has not fulfilled the obligations under the concluded agreement on sale and purchase of the privatisation object, and, during the established period of time (within 30 days of the deadline for payment), has not paid an ordinary instalment with interest and late payment interest, the legal consequences of non-implementation of the agreement on sale and purchase of the privatisation object arise: while defending the violated interests of the state, the sale and purchase agreement may be dissolved under the judicial procedure and the privatisation object belonging to the buyer by the right of ownership may be returned to the Property Fund, whereas the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object has changed (increased or decreased).

  1. Paragraph 4 of Article 21 of the Law, with regard to which one impugns the compliance of Item 49 (wording of 13 September 2005) of the Regulations, prescribes:

“The privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused should he default on the assumed obligations, including dissolution or annulment of the privatisation transaction in the event of non-compliance with the terms and conditions, obligations and/or guarantees (a guarantor who will pay damages to the state or municipality shall be indicated) set forth in the privatisation transaction; the contract must also provide for the liability of the holder of the privatisation object for default on the assumed obligations.”

Thus, Paragraph 4 of Article 21 of the Law establishes that while making a privatisation transaction, one must provide for the legal consequences of its non-compliance therein: if the buyer does not fulfil the payment obligations established in the transaction or does not comply with other conditions assumed by the transaction, the privatisation transaction may be dissolved. It means that Paragraph 4 of Article 21 of the Law established a way of defence of the violated rights of the other party of the privatisation—the state (municipality): if the buyer does not fulfil the payment obligations established in the transaction or does not comply with other conditions established in the transaction, one must apply such judicial measures that the buyer would suffer the losses (sanctions) of property nature, adequate to the harm caused by him.

Thus, Paragraph 4 of Article 21 of the Law consolidates a requirement to provide, in the privatisation transaction, the ways of defence of violated rights, inter alia a possibility to dissolve the concluded transaction while seeking to ensure that due to non-fulfilment of the payment obligations assumed by one party of the transaction—the buyer, or non-compliance with other conditions of the transaction, the other party of the transaction—the state (municipality)—would not suffer harm, whereas upon the appearance of such harm, there would be a possibility to defend its interests, by inflicting upon the buyer the losses of property nature which would be adequate to the harm caused.

  1. In the context of the constitutional justice case at issue it needs to be noted that, as the Constitutional Court has held, under the Constitution, the property that belongs to the state by right of ownership has to be possessed in such a way that it would serve the common welfare of the nation, and the general interest of the whole society; the requirement to treasure, not waste and rationally possess state-owned property follows from provisions of the Constitution (the Constitutional Court’s ruling of 30 September 2003).

The principles of management of the state-owned property are consolidated also in the Republic of Lithuania Law on Management, Use and Disposal of the State-owned and Municipal Property which inter alia establishes that the state-owned and municipal property must be managed, used and disposed of in compliance with inter alia the principles of public benefit, efficiency and rationality (Article 81).

In the context of the constitutional justice case at issue it needs to be noted that when concluding an agreement on sale and purchase of the privatisation object which belongs to the state (municipality), it must provide such conditions of this agreement and measures ensuring the implementation of the agreement which would allow to guarantee a privatisation process which would be efficient, rational and would provide public benefit, as well as would ensure the compliance with the principles of equality of rights, inviolability of property, proportionality and protection of legitimate expectations.

  1. It has been mentioned that, under the legal regulation consolidated in the Regulations, inter alia Item 50 (wording of 4 February 2004) thereof, while concluding an agreement on sale and purchase of the privatisation object, the buyer assumes an obligation to provide measures ensuring the implementation of this agreement, i.e. to mortgage the acquired tangible fixed assets or to provide a bank guarantee of not lower value than the remained arrears of the buyer to the state (municipality), so that in those cases when the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, the other party of the transaction—the state (municipality)—could redeem the remaining part of the payments of the buyer from the property that the buyer mortgaged or from the guarantor.

Thus, by the legal regulation consolidated in the Regulations one has already provided a concrete measure ensuring the implementation of the agreement on sale and purchase of the privatisation object—mortgaging the acquired property or a bank guarantee, by means of which, while carrying out the privatisation procedure of the state-owned (municipal) property, one seeks to ensure the defence of the state (municipal) interests.

  1. It needs to be noted that, while seeking to ensure that a privatisation procedure would be efficient, rational and providing benefit to society, an agreement on sale and purchase of the privatisation object may also provide other ways of defence of the violated rights if the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, as well as negative consequences of property nature for the buyer who does not fulfil the payment obligations assumed by the agreement.
  2. While deciding whether Item 49 (wording of 13 September 2005) of the Regulations is not in conflict with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law, one needs to assess whether the measure applied in the case of non-fulfilment of the payment obligations assumed by the sale and purchase agreement (which is established in this item)—dissolution of this agreement when the privatisation object belonging to the buyer by the right of ownership is returned to the Property Fund, but the instalments paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned irrespective of the fact what part of the price the buyer has paid and how the value of the privatisation object has changed (increased or decreased)—is proportionate (adequate) to the harm inflicted upon the other party of the transaction—the state (municipality)—due to non-implementation of the agreement.
  3. It has been mentioned that, under the legal regulation consolidated in Item 49 (wording of 13 September 2005) of the Regulations, upon dissolution of the agreement on sale and purchase of the privatisation object and having returned the privatisation object to the Property Fund, the instalments paid for it and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, i.e. neither in the case when the property returned to the Property Fund is of bigger value than it was at the moment when the buyer acquired it, inter alia when due to the improvements of the privatisation object made by the buyer the value of the object increased, nor in the case when, irrespective of the funds paid for improvement of the object (structure), its value did not increase (or even decreased) and it is returned being of the same or even lower value.

In this context it needs to be noted that, on the one hand, under the legal regulation which is impugned by the petitioner, such a situation may appear that upon dissolution of the sale and purchase agreement, the buyer would lose both the acquired property and the sum paid for it which may make the biggest part of the price of the privatisation object, whereas the other party of the transaction—the state (municipality)—would receive both the improved privatisation object (of higher value) and the part of the price of the privatisation object paid by the buyer. On the other hand, according to the legal regulation impugned by the petitioner, also such a situation is possible, where, upon dissolution of the agreement on sale and purchase of the privatisation object, the value of the returned privatisation object would not be an increased one, but a decreased one, and the sum paid by the buyer prior to the return of the privatisation object to the Property Fund would not cover the losses sustained by the state (municipality) due to the return of this object. Moreover, the buyer may have had some benefit from the privatisation object yet before returning it to the Property Fund.

  1. The legal regulation consolidated in Item 49 (wording of 13 September 2005) of the Regulations which provides such a measure of property nature, in case of non-implementation of the sale and purchase agreement, as dissolution of the agreement when the privatisation object is returned to the Property Fund, and instalments paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned, insofar as it creates preconditions for the situations to appear when the sum of the value of the privatisation object returned to the state (municipality) and the instalments of the buyer is of such an amount that it covers, but does not exceed, the losses incurred by the state (municipality) upon dissolution of the sale and purchase agreement, is to be assessed as permitting justly to compensate the harm inflicted by the buyer upon the state (municipality) and not to restrict the rights of the buyer more than it is necessary in order to achieve legitimate and universally important objectives sought, and the measure consolidated by this legal regulation which is applied for the buyer in case of non-implementation of the agreement—as proportionate and adequate to the harm caused by the buyer to the state (municipality).

However, the said legal regulation consolidated in Item 49 (wording of 13 September 2005) of the Regulations, insofar as it creates preconditions for the situations to appear when the sum of the value of the privatisation object returned to the state (municipality) and the instalments of the buyer, after one has deducted the benefit received by the buyer from that object before returning it to the Property Fund, is bigger than the losses incurred by the state (municipality) due to the returning of this object, is to be assessed as restricting the rights of the buyer more than it is necessary in order to achieve legitimate and universally important objectives, inter alia to ensure just compensation for the harm inflicted upon the state (municipality), and the measure consolidated by this legal regulation which is applied for the buyer in case of non-implementation of the agreement—as disproportionate and inadequate to the harm inflicted by the buyer upon the state (municipality).

  1. Thus, the legal regulation consolidated in Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribes that if the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, this sale and purchase agreement may be dissolved and the privatisation object may be returned to the Property Fund, whereas the instalments paid for it and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, created preconditions to restrict the rights of the buyer more than it is necessary in order to achieve legitimate and universally important objectives, inter alia to ensure just compensation for the harm inflicted upon the state (municipality).

Thus, it needs to be held that Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribed that if the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, was in conflict with Paragraph 4 of Article 21 of the Law, whereby a privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused, i.e., as mentioned before, such sanctions must be the legal measures due to which the buyer would sustain losses of property nature which would be adequate to the harm caused.

  1. The Constitutional Court has held more than once that, under the Constitution, the Government, while adopting legal acts, must follow the valid laws and, while enforcing certain laws, it may not violate other laws; the legal acts adopted by the Government, which are sub-statutory legal acts, may not contain any legal regulation competing with that established in laws. The Constitutional Court has also held that the duty of the Government to adopt sub-statutory acts which are necessary so as to implement laws stems directly from the Constitution, while in case there is a commissioning by the Seimas to do so, it also stems from the laws and Seimas resolutions concerning implementation of laws; it is important that the Government adopt sub-statutory legal acts without exceeding its powers and that these legal acts be not in conflict with the Constitution and laws (the Constitutional Court’s rulings of 18 December 2001, 5 March 2004, 31 May 2006, and 13 August 2007).

The Constitutional Court has also held in its acts more than once that the principle of a state under the rule of law entrenched in the Constitution implies the hierarchy of legal acts as well, inter alia the fact that sub-statutory legal acts may not be in conflict with laws, constitutional laws and the Constitution, that sub-statutory legal acts must be adopted on the basis of laws, that a sub-statutory legal act is an act of application of norms of the law, irrespective of whether the act is of one-time (ad hoc) application, or permanent validity. If the legal regulation established in the Government resolutions competed with the legal regulation established in the laws or were not grounded on the laws, not only the constitutional principle of a state under the rule of law and Item 2 of Article 94 of the Constitution, but also Paragraph 2 of Article 5 of the Constitution, in which it is established that the scope of power shall be limited by the Constitution, would be violated (the Constitutional Court’s rulings of 31 May 2006 and 13 August 2007).

  1. Having held in this ruling that Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribed that if the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, was in conflict with the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law, it also needs to be held that Item 49 (wording of 13 September 2005) of the Regulations was to the same extent in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution and with the constitutional principle of a state under the rule of law.
  2. While taking account of the arguments set forth, one is to draw a conclusion that Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribed that if the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, was in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law and the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law.
  3. It has been mentioned that the Court of Appeal of Lithuania, the petitioner, also doubts regarding the compliance of Item 50.2 (wording of 29 September 2007) of the Regulations, insofar as it prescribes that in case of failure to pay an ordinary instalment with interest and late payment interest within 30 days of the deadline of payment, the agreement on sale and purchase of the privatisation object shall be dissolved unconditionally, the privatisation object shall be returned to the privatisation institutions, but the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) shall not be returned, with the Constitution and the provisions of laws.
  4. Item 50.2 (wording of 29 August 2007) of the Regulations inter alia prescribes: “If an ordinary instalment with interest and late payment interest is not paid within 30 days of the deadline of payment, the agreement on sale and purchase of the privatisation object is dissolved and everything that was transferred to the buyer according to this agreement till its dissolution is returned to the Property Fund. The sum paid by the buyer and the funds paid for improvement of the privatisation object (structure) shall not be returned.”

It has been mentioned that Item 49 (wording of 13 September 2005) and Item 50.2 (wording of 29 August 2007) of the Regulations establish an identical legal regulation.

  1. Having held in this ruling that Item 49 (wording of 13 September 2005) of the Regulations, insofar as it prescribed that if the buyer does not fulfil the payment obligations assumed by the sale and purchase agreement, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, was in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law and the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law, on the grounds of the same arguments one is to hold that Item 50.2 (wording of 29 August 2007) of the Regulations is also to the same extent in conflict with the same provisions of the Constitution and those of the Law.
  2. While taking account of the arguments set forth, one is to draw a conclusion that Item 50.2 (wording of 29 August 2007) of the Regulations, insofar as it prescribes that if the buyer does not fulfil the payment obligations assumed by the agreement on sale and purchase of the privatisation object, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, is in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law and the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Law.
  3. Having held that, the Constitutional Court will no further investigate whether Item 50.2 (wording of 29 September 2007) of the Regulations, insofar as it prescribes that in case of failure to pay an ordinary instalment with interest and late payment interest within 30 days of the deadline of payment, the privatisation object shall be returned to the privatisation institutions, whereas the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) shall not be returned, is not in conflict with Article 23 of the Constitution, and with Paragraph 1 of Article 1.2 and Paragraph 1 of Article 6.222 of the CC.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 54, 55, and 56 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 Item 49 (wording of 13 September 2005; Official Gazette Valstybės žinios, 2005, No. 112-4096) of the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction as approved by the Resolution (No. 1503) of the Government of the Republic of Lithuania “On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction” of 31 December 1997, insofar as it established that if the buyer does not fulfil the payment obligations assumed by the agreement on sale and purchase of the privatisation object, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, was in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution of the Republic of Lithuania, the constitutional principle of a state under the rule of law and the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Republic of Lithuania Law on Privatisation of State-owned and Municipal Property.
  2. To recognise that Item 50.2 (wording of 29 August 2007; Official Gazette Valstybės žinios, 2007, No. 97-3928) of the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction as approved by the Resolution (No. 1503) of the Government of the Republic of Lithuania “On Approving the Regulations for Privatisation of State-owned and Municipal Property by Way of Public Auction” of 31 December 1997, insofar as it establishes that if the buyer does not fulfil the payment obligations assumed by the agreement on sale and purchase of the privatisation object, and, thus, due to this fact, upon dissolution of the sale and purchase agreement and upon return of the privatisation object to the Property Fund, the sum paid by the buyer and the funds paid for the improvement of the privatisation object (structure) are not returned to the buyer in any cases, is in conflict with Paragraph 2 of Article 5 and Item 2 of Article 94 of the Constitution of the Republic of Lithuania, the constitutional principle of a state under the rule of law and the provision “the privatisation transaction must provide for sanctions against the buyer in proportion to the damage caused” of Paragraph 4 of Article 21 of the Republic of Lithuania Law on Privatisation of State-owned and Municipal Property.

 

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:                         Egidijus Bieliūnas

                                                                                             Toma Birmontienė

                                                                                             Pranas Kuconis

                                                                                             Gediminas Mesonis

                                                                                             Egidijus Šileikis

                                                                                             Algirdas Taminskas               

                                                                                             Romualdas Kęstutis Urbaitis

                                                                                             Dainius Žalimas