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On the Law on the Reorganisation of “Mažeikių nafta” and Its Subsidiaries

Case No. 39/01-21/02

 

THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF PARAGRAPH 4 OF ARTICLE 3 OF THE REPUBLIC OF LITHUANIA’S LAW ON THE REORGANISATION OF THE JOINT-STOCK COMPANIES “BŪTINGĖS NAFTA”, “MAŽEIKIŲ NAFTA” AND “NAFTOTIEKIS” WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

 

17 March 2003

Vilnius

 

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Armanas Abramavičius, Egidijus Jarašiūnas, Egidijus Kūris, Kęstutis Lapinskas, Zenonas Namavičius, Augustinas Normantas, Jonas Prapiestis, Vytautas Sinkevičius, and Stasys Stačiokas

The court reporter—Daiva Pitrėnaitė

Daina Petrauskaitė, a senior consultant to the Legal Department of the Office of the Seimas, acting as the representative of the Seimas of the Republic of Lithuania, the party concerned

The Constitutional Court of the Republic of Lithuania, 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 5 March 2003, in its public hearing, considered case No. 39/01-21/02 subsequent to the petitions of the Vilnius Regional Administrative Court and a group of members of the Seimas, the petitioners, requesting an investigation into whether the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Republic of Lithuania’s Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” (wording of 5 October 1999) is not in conflict with the principles of a just society and of a state under the rule of law which are entrenched in the Preamble to the Constitution of the Republic of Lithuania as well as with the provisions of Paragraphs 1 and 2 of Article 5 and Paragraphs 3, 4 and 5 of Article 46 thereof.

By the Constitutional Court’s decision of 23 October 2002, these petitions were joined into one case.

The Constitutional Court

has established:

I

1. On 5 October 1999, the Seimas adopted the Republic of Lithuania’s Law on Amending and Supplementing Articles 3 and 4 of the Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” (Official Gazette Valstybės žinios, 1999, No. 86-2560). By the said law one consolidated the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” in Paragraph 4 of Article 3 of the Republic of Lithuania’s Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis”.

2. The Vilnius Regional Administrative Court, a petitioner, was considering an administrative case. The said court suspended the consideration of the case by its ruling and applied to the Constitutional Court with the petition requesting an investigation into whether the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Republic of Lithuania’s Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” (wording of 5 October 1999; hereinafter also referred to as the Law) is not in conflict with the principles of a just society and of a state under the rule of law which are entrenched in the Preamble to the Constitution of the Republic of Lithuania as well as with the provisions of Paragraphs 1 and 2 of Article 5 and Paragraphs 3, 4 and 5 of Article 46 thereof.

3. A group of members of the Seimas, a petitioner, has applied to the Constitutional Court with the petition requesting an investigation into whether the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Law is not in conflict with the principles of a just society and of a state under the rule of law which are entrenched in the Preamble to the Constitution of the Republic of Lithuania as well as with the provisions of Paragraphs 1 and 2 of Article 5 and Paragraphs 3, 4 and 5 of Article 46 thereof.

II

The petitions of the petitioners are based on the following arguments.

1. The legislature deprived state and municipal institutions of the opportunity to raise additional claims to one of economic entities by the provision of Paragraph 4 of Article 3 of the Law which stipulates that after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this article, neither state nor municipal institutions will be permitted to raise additional claims to the joint-stock company “Mažeikių nafta” or its subsidiaries concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor. Due to this the said institutions lost an opportunity to raise additional claims which might be grounded on the activities, failure to act of the aforementioned companies or events, all of which took place prior to a certain date, i.e. liability of the aforementioned companies before state or municipal institutions became impossible for almost a limitless time period, save the cases when the claims of institutions are not additional.

2. The petitioners maintain that under the Republic of Lithuania’s Law on Competition, the Competition Council is a public body implementing the state competition policy, which controls how this law is being followed (Paragraph 1 of Article 18). The Chairperson of the Competition Council and its members shall be appointed by the President of the Republic upon the presentation by the Prime Minister (Paragraph 1 of Article 20). The Chairperson of the Competition Council shall submit annual reports on the Competition Council activities to the Seimas and the Government (Item 4 of Paragraph 1 of Article 21). The Competition Council is not accountable only to the Seimas as the legislative power. The procedure of formation of the Council confirms that the President of the Republic and the Government also enjoy certain rights of control. The petitioners believe that the aforementioned provision of Paragraph 4 of Article 3 of the Law is in conflict with Paragraphs 1 and 2 of Article 5 of the Constitution, also, that by the aforesaid provision of the Law the Seimas limited the powers of the Competition Council and violated the principle of the separation of powers.

3. Paragraph 3 of Article 46 of the Constitution provides that the state shall regulate economic activity so that it serves the general welfare of the Nation. According to the petitioners, one of the forms of the regulation is establishment and application of legal liability to economic entities. The impugned provision of the Law deprives a state institution of an opportunity to regulate the activities of certain economic entities through the application of liability. The ensuring of freedom of fair competition is directly related with proper regulation of economic activity and protection of interests of consumers by the state. The Competition Council is a state institution implementing the state competition policy the essence of which is the safeguarding of fair competition in the Republic of Lithuania. Under Paragraph 3 of Article 40 of the Law on Competition, for violation of this law an action may be brought against economic entities not later than within three years from the date of infringement, and in case of continued violation—from the date of performance of the last acts. The petitioner maintains that the impugned provision of the Law deprives the Competition Council of an actual opportunity to apply liability under the Law on Competition. Alongside, the state lost an opportunity to defend the interests of part of consumers and safeguard the freedom of fair competition, while this is in conflict with Paragraphs 3, 4 and 5 of Article 46 of the Constitution.

4. Under Paragraph 1 of Article 46 of the Law on Competition, the economic entities which violate this law must compensate for damage caused to other economic entities or natural and legal persons according to the procedure established by law. In the opinion of the petitioner, since the Competition Council begins investigations into violations of the Law on Competition and it also establishes violations, then, in case it has no opportunity to raise claims, the compensation for damage under Article 46 of the Law on Competition becomes a problematic one. The petitioners assert that due to these arguments there exists a ground to believe that the impugned provision is in conflict with the principles of a just society and of a state under the rule of law which are entrenched in the Preamble to the Constitution.

III

In the course of the preparation of the case for the Constitutional Court hearing, written explanations were received from the representative of the Seimas, the party concerned, who was D. Petrauskaitė, a senior consultant to the Legal Department of the Office of the Seimas.

1. It is maintained in the explanations that by the Law one attempted, while attracting investments, to ensure a successful reorganisation of one of the most important sectors of the economy of this country and to establish peculiarities of the conditions of investing to the joint-stock company “Mažeikių nafta” which would operate after the reorganisation of the companies pointed out in the law, while taking account of the investment conditions discussed in the letter of intent signed between the Government and the USA Williams International Company on 29 July 1998. It is pointed out in Item 1.c of Paragraph 3 of the letter of intent, which in the course of deliberation of the said draft Law was presented to the Seimas as an annex to the draft Law, that “the Investment Agreement or the Final Agreement will contain a provision regarding exemption of Williams International Company and the project company from liability for all the obligations of the joint-stock companies ‘Būtingės nafta’, ‘Naftotiekis’ and ‘Mažeikių nafta’, which have not be taken over or revealed, including, for example, taxes not paid in the past”. Upon adoption of the Law, conditions were created for the Government to sign, under the conditions discussed in the letter of intent, an investment agreement with the USA Williams international Company, the strategic investor, on 29 July 1998.

2. In the opinion of D. Petrauskaitė, one should understand “additional claims” indicated in Paragraph 4 of Article 3 of the Law as claims by state and municipal institutions to the joint-stock company “Mažeikių nafta” or its subsidiaries, which appeared due to their activities or failure to act prior to the acquisition of the shares belonging to the joint-stock company “Mažeikių nafta” by the strategic investor and which are raised by the said companies after that, to pay sums (taxes not paid to the state, as well as penalties, fines, etc.) which, in concluding the agreement with the strategic investor, are not pointed out in the information documents presented by the joint-stock company “Mažeikių nafta”.

3. According to the representative of the party concerned, taxes, fines, which are calculated for the sums of taxes paid overdue, as well as the penalties imposed by the Competition Council are paid to the state budget. Under the impugned norm, the joint-stock company “Mažeikių nafta” into which, according to the investment agreement with the state, the strategic investor Williams International Company makes investments, as well as its subsidiaries, is exempted from the fulfilment of the claims (additional claims) to the state, which were not revealed, at the time of conclusion of the agreement, to the strategic investor. Thus, the state assumes losses which might appear due to the fact that in the agreements concluded by the Government and annexes thereto the information, statements and/or confirmations are incorrect and imprecise.

4. D. Petrauskaitė notes that at the time of the preparation to conclude the investment agreement, one attempted to reveal all liabilities of the joint-stock company “Mažeikių nafta” to the state. The “additional claims” indicated in the impugned norm are the claims which were unknown to the parties to the agreement or the parties were unable to know them at the time of conclusion of the agreement. Concluding the investment agreement with Williams International Company through its institutions, the state was acting as a subject of civil legal relations. From the standpoint of civil law, the state, while assuming possible losses due to unrevealed debt liabilities to it (the state) to the other party at the time of conclusion of the agreement, was acting as a faithful party to the agreement. The payment of additional sums, which are indicated in the impugned norm, would make impact on the amount of the floating capital and of the profit of the joint-stock company “Mažeikių nafta”, also on the obligations of the parties to the investment agreement related thereto, which might violate the interests of the strategic investor.

5. According to the representative of the party concerned, the impugned norm did not deprive state institutions of the right to apply legal liability to the joint-stock company “Mažeikių nafta” but merely limited the application of certain liability measures under certain conditions for a certain time period. Under Paragraph 3 of Article 127 of the Constitution, taxes, other contributions to the budgets, and levies shall be established by means of laws of the Republic of Lithuania. Thus, it is within the competence of the Seimas to establish contributions to the state budget, also, to exempt one from their payment. Therefore, in the opinion of D. Petrauskaitė, the Seimas did not interfere with the competence of the executive and there are no grounds to assert that the impugned norm is in conflict with the principle of a state under the rule of law established in the Constitution as well as Paragraphs 1 and 2 of Article 5 thereof.

6. D. Petrauskaitė notes that the norms of Article 3 of the Law regulate the relations related with the reorganisation of one sector of the economy of this country in the fulfilment whereof privatisation of economic objects is of utmost significance. The choice of privatisation methods is influenced by peculiarities of the development of this country, the condition of state-owned enterprises, the situation of the economy of this country and other factors. Implementing the economic reform, the state, without violating the principles and norms of the Constitution, may establish differentiated legal regulation. Taking account of this, the conclusion should be drawn that there is no ground to regard the impugned legal norm as being in conflict with Paragraph 3 of Article 46 of the Constitution. The prohibition on monopolising production and the market does not mean that it is prohibited to state the existence, in a law, of a monopoly in a particular sector of economy or otherwise to reflect actual monopolistic relations and to regulate them in a respective manner. The joint-stock company “Mažeikių nafta” dominates in the market, however, in itself the fact that, under the impugned norm, this company and its subsidiaries are exempted from fulfilment of the additional claims to the state, which are pointed out in the impugned norm, does not create any conditions for the enterprise to abuse the domination in the market. Therefore, in the opinion of the representative of the party concerned, the impugned norm is not in conflict with Paragraph 4 of Article 46 of the Constitution.

7. The representative of the party concerned also points out that the impugned norm is applied to the claims of state and municipal institutions, therefore, it is applied to the Competition Council, too. The conclusion should be drawn that the norms of the Law are applicable only to the claims which appeared when public liabilities are not fulfilled. Civil and public liabilities are of different content. They appear on different grounds, their legal regulation is based on different principles, and their violation gives rise to different legal effects. The construction of the nature of competition law of the Republic of Lithuania is inseparable from that of the nature of competition law of the European Union. In certain respects, competition law pertains to private law, while in certain respects it pertains to public law. The impugned norm does not prohibit the Competition Council from applying two sanctions from the three established in Article 40 of the Law on Competition (except for a penalty, which is an economic sanction). Thus, there is no ground to assert that the impugned norm deprives state institutions of the right to regulate, through liability, the activities of economic entities, to defend the interests of consumers and to protect freedom of fair competition.

8. In the opinion of the representative of the party concerned, the impugned provision of Paragraph 4 of Article 3 of the Law is not in conflict with Paragraphs 1 and 2 of Article 5, Paragraphs 3, 4 and 5 of Article 46 of the Constitution as well as the constitutional principle of a state under the rule of law.

IV

In the course of the preparation of the case for the Constitutional Court hearing, written explanations were received from R. Stanikūnas, Chairperson of the Competition Board, N. Eidukevičiaus, Vice-minister of Economy, G. Švedas, Vice-minister of Justice, V. Vadapalas, Director General of the Department of European Law under the Government of the Republic of Lithuania, Prof. O. G. Rakauskienė and Assoc. Prof. G. Davulis, both of whom work at the Faculty of Public Administration, the Law University of Lithuania, as well as Assoc. Prof. M. Kučinskienė, Assoc. Prof. Z. Gineitienė, lecturers G. Jatuliavičienė and E. Vabalas, all of whom who work at the Department of Economics of Enterprises of the Faculty of Economics, Vilnius University.

V

At the Constitutional Court hearing, the representative of the Seimas, the party concerned, who was D. Petrauskaitė, virtually reiterated the arguments set forth in her written explanations.

The Constitutional Court

holds that:

1. By the Law on the Amendment and Supplement of Articles 3 and 4 of the Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis”, which was adopted on 5 October 1999, the Seimas altered Articles 3 and 4 of the Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” and in Paragraph 4 of Article 3 of the said law it consolidated the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor”.

The Vilnius Regional Administrative Court and the group of members of the Seimas, the petitioners, request an investigation into whether the said provision of Paragraph 4 of Article 3 of the Law is not in conflict with the principles of a just society and of a state under the rule of law which are entrenched in the Preamble to the Constitution as well as with the provisions of Paragraphs 1 and 2 of Article 5 and Paragraphs 3, 4 and 5 of Article 46 thereof.

2. Paragraph 4 of Article 3 of the Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” (wording of 5 October 1999) establishes the provision impugned by the petitioners as well as provides for the procedure of the reorganisation of joint-stock companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis”, the conditions and procedure of investments into the company continuing its activities after the reorganisation, and the requirements for the owners of the blocks of shares.

It is noted in the explanations of the representative of the Seimas, the party concerned, that by this law one attempted to create conditions for the Government to sign an investment agreement with the strategic investor.

By its 29 September 1998 Resolution “On the Recognition of the Strategic Investor”, the Seimas recognised the United States Williams International Company as a strategic investor and granted the right to it to acquire some shares of the joint-stock company “Mažeikių nafta” which was to continue its activities after the reorganisation.

It is established in the Republic of Lithuania’s Law on the Amendment of Article 3 of the Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis”, adopted on 12 September 2002, that the rights and duties of the strategic investor, as provided for in this law, may devolve to the successor of the rights and duties of the strategic investor under respective agreements, which is the investor confirmed by the Seimas.

By its 17 September 2002 Resolution “On the confirmation of the Netherlands Limited Company Yukos Finance B.V. as an investor”, the Seimas confirmed the Netherlands Limited Company Yukos Finance B.V. as the investor taking over the rights and duties of the United States Williams International Company under the respective 29 October 1999 and 18 June 2002 agreements on investments into the joint-stock company “Mažeikių nafta”. It was also established in the same resolution of the Seimas that such a decision is valid and is also applicable to the companies which control the Netherlands Limited Company Yukos Finance B.V. or the companies controlled by the latter on the condition and only until when the Netherlands Limited Company Yukos Finance B.V. is controlled by the Russian Federation joint-stock company Yukos Oil Corporation.

3. The Constitutional Court has considered a case in which one was deciding, inter alia, the issue of the compliance of the 29 October 1999 Republic of Lithuania’s Law on the Reorganisation of the Joint-stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis”, the 3 June 1999 Law on Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis”, the 5 October 1999 Law on Amending and Supplementing Articles 3 and 4 of the Law on the Reorganisation of the Joint-stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” with the Constitution. In the Constitutional Court’s ruling of 18 October 2000, it was recognised that the provisions of Paragraph 4 of Article 3 of the Law stipulating that the Government, in the agreements with the strategic investor and the joint-stock company “Mažeikių nafta”, has the right to assume basic property liabilities in the name of the state, including recovery of losses, to the extent that that the right of the Government is established to obligate itself to cover losses to the strategic investor and the joint-stock company “Mažeikių nafta” even in such a case when the strategic investor and/or the joint-stock company “Mažeikių nafta” are responsible for the losses, also to the extent that the Government has the right to obligate itself in the name of the state to cover losses even in such a case when such losses are incurred due to adoption of the laws enforcing norms of the Constitution and/or protecting the values established in the Constitution were in conflict with the Constitution. In the said case the Constitutional Court did not investigate whether the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Law was not in conflict with the Constitution.

4. The beginning of the application of the impugned provision of Paragraph 4 of Article 3 of the Law is linked with a certain legal fact, i.e. with the fact that the strategic investor acquires the shares under Item 1 of Paragraph 1 of Article 3 of this law in which it is provided that the strategic investor, recognised as such by the Seimas upon the presentation by the Government, shall be granted the right to acquire shares of the new issue of the joint-stock company “Mažeikių nafta” which continues its activities after the reorganisation, the total nominal value whereof does not exceed 33 percent of the authorised capital of this company.

5. While deciding whether the impugned provision of Paragraph 4 of Article 3 of the Law is not in conflict with the Constitution, it is necessary to elucidate as to the meaning of the notions “state institutions” “municipal institutions” and the formula “additional claims concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor” which are employed therein.

5.1. The notion “state institutions” employed in the impugned Paragraph 4 of Article 3 of the Law includes all state institutions, i.e. all institutions which are a constituent part of the state mechanism and through which the state implements its functions.

5.2. The notion “municipal institutions” means subordination of corresponding institutions to a certain municipality. A municipality is the community of an administrative unit of state territory which enjoys the right to self-government guaranteed by the Constitution (the Constitutional Court’s ruling of 24 December 2002). In its ruling of 18 February 1998, the Constitutional Court held that the Constitution determines local self-government as a local public administration system operating on the basis of self-action principles, which is not directly subordinate to state authority institutions. Municipal institutions are established for the realisation of the interests of municipalities, also for the direct implementation of laws, government resolutions and decisions of municipal councils. It was held in the Constitutional Court’s ruling of 24 December 2002 that municipal councils, as well as the executive bodies accountable to them, and other institutions established by municipal councils, are to be regarded as municipal institutions.

5.3. The legislature, while pointing out the claims that will not be permitted to be raised to the joint-stock company “Mažeikių nafta” and its subsidiaries by state and municipal institutions, employed the notion “additional claims”. Thus, while defining the claims in the impugned provision, one underlined the criterion: the claims must be additional ones.

It needs to be noted that under the valid laws and other legal acts state and municipal institutions may raise various claims to entities of economic activity due to their activities or failure to act, also, as regards other events. One of them are to be linked with the implementation of the competence of state and municipal institutions, others arise out of civil and other legal relations. The impugned provision of Paragraph 4 of Article 3 of the Law indicates the claims by state or municipal institutions concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events which were not stated prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law as additional claims.

5.4. Thus, it is possible to judge from the legal regulation established in the impugned provision of Paragraph 4 of Article 3 of the Law that by this provision the joint-stock company “Mažeikių nafta” and its subsidiaries, after the strategic investor acquires some of their shares under the Law, are exempted from liability concerning their activity or failure to act or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, save the liability subsequent to the claims raised by state and municipal institutions prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, also the liability subsequent to the claims raised by other entities.

6. The petitioners request an investigation into whether the impugned provision of Paragraph 4 of Article 3 of the Law is not in conflict with Paragraphs 3, 4 and 5 of Article 46 of the Constitution.

6.1. Paragraphs 3, 4 and 5 of Article 46 of the Constitution provide:

The State shall regulate economic activity so that it serves the general welfare of the Nation.

The law shall prohibit monopolisation of production and the market and shall protect freedom of fair competition.

The State shall defend the interests of the consumer.”

6.2. It needs to be noted that the principles set down in Article 46 of the Constitution constitute a whole, which is the constitutional basis of the economy of this country. The principles are in harmony with each other, and this implies their balance, therefore, each of them must be interpreted without denying the other constitutional principle (the Constitutional Court’s ruling of 6 October 1999). It is impossible to construe the content of Paragraphs 3, 4 and 5 of Article 46 of the Constitution by only taking account of the fact that under Article 46 of the Constitution Lithuania’s economy shall be based on the right of private ownership and individual freedom of economic activity and initiative (Paragraph 1) and that the state shall support economic efforts and initiatives that are useful to the society (Paragraph 2).

6.3. Paragraph 3 of Article 46 of the Constitution provides that the state shall regulate economic activity so that it serves the general welfare of the Nation. This provision of the Constitution consolidates a principle which establishes the directions, ways and limits of regulation of economic activity (the Constitutional Court’s rulings of 14 March 2002 and 9 April 2002). The state, while regulating economic activity so that it serves the general welfare of the Nation, must coordinate the interests of the person and of society, and not to deny the principle of fair competition and other principles of the Lithuanian economy, which are entrenched in the Constitution.

6.4. While construing Paragraph 4 of Article 46 of the Constitution, the Constitutional Court has noted that the provision “the law shall prohibit monopolisation of production and the market” means that it is prohibited to introduce a monopoly, i.e. that it is prohibited to grant, by law, an economic entity exceptional rights to operate in a certain sector of economy due to which this sector would become monopolised. However, the prohibition on monopolising production and the market does not mean that it is prohibited, under certain circumstances, to state in the law the existence of monopoly in a certain sector of economy or to reflect factual monopolistic relations otherwise and to regulate them accordingly. Such a statement creates legal preconditions for applying corresponding requirements to the monopolist in the course of protection of the rights and legitimate interests of other economic entities and consumers (the Constitutional Court’s rulings of 6 October 1999, 18 October 2000, and 9 April 2002).

The provision of Paragraph 4 of Article 46 of the Constitution that the law shall protect freedom of fair competition also means the obligation for the legislature to establish by law such legal regulation so that production and the market would not be monopolised, that freedom of fair competition would be ensured and measures would be provided for for its protection.

6.5. Paragraph 5 of Article 46 of the Constitution consolidates the right of the state to protect the interests of consumers. This constitutional provision implies that the laws and other legal acts ought to establish various measures of protection of the interests of consumers, that state institutions ought to control economic entities how the latter are following the requirements established by law and other legal act.

6.6. According to the petitioners, the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Law means that liability is not applied to certain entities of economic activity, and that one may not also raise the claims arising out of violation of the laws regulating competition. Therefore, in the opinion of the petitioners, the impugned legal regulation does not serve the general welfare of the Nation, the state does not have any opportunity to protect freedom of fair competition and defend the interests of part of consumers. The petitioners maintain that such legal regulation is in conflict with the provisions of Paragraphs 3, 4 and 5 of Article 46 of the Constitution.

6.7. It needs to be noted that provided one violated the provisions of Paragraphs 4 and 5 of Article 46 of the Constitution, one also violates Paragraph 3 of Article 46 of the Constitution in which it is established that the state shall regulate economic activity so that it serves the general welfare of the Nation, or preconditions are created for violating Paragraph 3 of Article 46 of the Constitution.

6.8. While investigating whether the impugned provision of the Law is not in conflict with freedom of fair competition entrenched in Paragraph 4 of Article 46 of the Constitution, it should be noted that the legislature, while taking account of peculiarities of economic activity in certain sectors of economy, may regulate economic activity in a differentiated manner, however, while doing so, he may not deny the fundamentals of the Lithuanian economy, which are consolidated in the Constitution.

6.8.1. The prohibition, which is entrenched in the impugned provision of Paragraph 4 of Article 3 of the Law, for state and municipal institutions to raise additional claims to the joint-stock company “Mažeikių nafta” or its subsidiaries concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law is an absolute one. It has been mentioned that the impugned provision indicates the claims by state or municipal institutions concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events which were not stated prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law as additional claims. These claims are linked with the implementation of the competence of state or municipal institutions and/or such claims arise out of civil or other legal relations. Thus, by the legal regulation established in Paragraph 4 of Article 3 of the Law a legal situation is created under which state and municipal institutions cannot raise also such claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law which they would have to raise in the course of discharging the functions assigned to them by the Constitution and laws, also in the course of the control whether the economic entities indicated in the impugned provision of the Law have been following the laws and other legal acts protecting freedom of fair competition. Under such legal regulation, the economic entities indicated in the impugned provision of the Law are placed in an advantageous position: in their regard the legal norms protecting freedom of fair competition concerning their activity or failure to act or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law are not applied, with the exception of cases when state and municipal institutions raised claims prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, also, when claims are raised by other entities.

6.8.2. It needs to be noted that under the impugned provision of Paragraph 4 of Article 3 of the Law, not only state but also municipal institutions cannot raise the said additional claims. It has been mentioned that municipal institutions are established so that the interests of the communities enjoying the right to self-government might be realised, also that the laws, government resolutions and decisions of municipal councils would be directly implemented. Thus, these institutions also cannot raise the requirements that ought to be raised in defending not only the rights and legitimate interests of the state but also the communities enjoying the right to self-government and of municipal institutions themselves. Such regulation is incompatible with the concept of self-government enshrined in the Constitution and ought to be deemed violating Article 122 of the Constitution in which it is established that municipal councils shall have the right to apply to court regarding the violation of their rights, thus, also as violating Paragraph 2 of Article 120 of the Constitution under which municipalities shall act freely and independently within their competence, which shall be established by the Constitution and laws.

6.8.3. The implementation of the rights and legitimate interests of various economic entities, including that in the relations of fair competition, may be linked with decisions of state and municipal institutions and claims arising out of these decisions. In case state and municipal institutions are prohibited from raising claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, the rights and legitimate interests of the said economic entities the implementation whereof is linked with the claims raised by state and municipal institutions would be violated.

6.8.4. The legal regulation established in the impugned provision of Paragraph 3 of Article 4 of the Law means that the entities indicated therein are exempted from liability for unlawful activities or unlawful failure to act by the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, save the liability subsequent to the claims raised by state and municipal institutions prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, also the liability subsequent to the claims raised by other entities.

It has been mentioned that the state, while regulating the economic activity so that it serves the general welfare of the Nation, must coordinate the interests of the persons and society, and not deny fair competition and other fundamentals of the Lithuanian economy established in the Constitution.

The legislature, while seeking to restructure a certain sector of economy of this country, may choose various ways of its restructuring (thus, also to attract a strategic investor). When establishing differentiated regulation of a certain sector of economy and establishing a specific situation of individual economic entities, the legislature must provide for in the law also the measures which would permit compensating for damage or making amends to other entities, which are not compensated by the economic entities in regard of which the specific legal situation has been established.

Thus, while establishing, in the law, that municipal and state institutions will not be permitted to raise additional claims concerning their activity or failure to act or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, the legislature ought to have provided for in the law also the measures which would permit compensating for damage or making amends to other entities, which are not compensated by the economic entities in regard of which the specific legal situation is established due to the fact that state and municipal institutions may not raise additional claims concerning the activity or failure to act by the said economic entities or as regards other events. The legal regulation whereby the entities indicated in the impugned provision of the Law are in part exempted from liability regardless of the rights and legitimate interests of other entities or while denying them are incompatible with freedom of fair competition entrenched in the Constitution.

6.8.5. Taking account of the arguments set forth, it should be concluded that

1) the impugned provision of Paragraph 4 of Article 3 of the Law is in conflict with Paragraph 4 of Article 46 of the Constitution;

2) the impugned provision of Paragraph 4 of Article 3 of the Law to the extent that it is established that municipal institutions will not be permitted to raise the additional claims indicated in this provision is in conflict with Paragraph 2 of Article 120 and Article 122 of the Constitution.

6.9. Under Paragraph 5 of Article 46 of the Constitution, the state has a duty to establish, by law and other legal act, various measures of protection of the interests of consumers, and state institutions must control how economic entities are following the requirements of protection of the rights and legitimate interests of consumers.

6.9.1. While assessing the compliance of the impugned provision of Paragraph 4 of Article 3 of the Law with Paragraph 5 of Article 46 of the Constitution, it needs to be noted that the prohibition, which is consolidated in the impugned provision, for state and municipal institutions to raise additional claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law also includes claims related to the protection of the rights and legitimate interests of consumers. Although the impugned norm does not prohibit state and municipal institutions to control how one is following the measures of protection of the rights and legitimate interests of consumers, however, if it becomes clear in the course of discharging the control function by them that due to the activity of failure to act by the joint-stock company “Mažeikių nafta” or its subsidiaries, or due to other events the interests of consumers have been violated, in case one is prohibited from raising corresponding claims, such control becomes ineffective. Thus, due to such regulation state and municipal institutions cannot discharge all the powers assigned to them in the course of ensuring protection of the rights and legitimate interests of consumers. Thus, preconditions are created for violating the rights and legitimate interests of consumers.

6.9.2. It needs to be noted that the legislature, while regulating the relations of a certain sector of economy in which a specific legal situation of certain economic entities is established, and while providing for in other laws the exceptions of regulation of the said relations, must also establish additional legal measures which would ensure the protection of the rights and legitimate interests of consumers.

Upon establishment by law that state and municipal institutions are not permitted to raise additional claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, and since additional measures of protection of the rights and legitimate interests of consumers have not been established, one has created preconditions for violating the rights and legitimate interests of consumers.

6.9.3. Taking account of the arguments set forth, the conclusion should be drawn that the impugned provision of Paragraph 4 of Article 3 of the Law is in conflict with Paragraph 5 of Article 46 of the Constitution.

6.10. It has been mentioned that the principles entrenched in Article 46 of the Constitution constitute an indivisible whole, that in case the provisions of Paragraphs 4 and 5 of Article 46 of the Constitution are violated, one also violates Paragraph 3 of Article 46 of the Constitution or preconditions are created for violating it.

It has been held in this ruling of the Constitutional Court that the impugned provision of Paragraph 4 of Article 3 of the Law is in conflict with Paragraphs 4 and 5 of Article 46 of the Constitution. Having held this, one is also to hold that the said provision is also in conflict with Paragraph 3 of Article 46 of the Constitution.

7. The petitioners request an investigation into whether the impugned provision of Paragraph 4 of Article 3 of the Law is not in conflict with the principles of a just society and a state under the rule of law, which are enshrined in the Preamble to the Constitution.

7.1. The constitutional principle of a state under the rule of law is a universal principle upon which the entire Lithuanian legal system and the Constitution of the Republic of Lithuania itself are based; the content of a state under the rule of law can be detected in various provisions of the Constitution and should be construed inseparably from the striving for an open, just, and harmonious civil society, which is proclaimed in the Constitution.

The principle of a state under the rule of law which is entrenched in the Constitution implies, along with the other requirements, that human rights and freedoms should be ensured, that all institutions implementing state authority as well as other state institutions must act on the basis of law and in compliance with law, that the Constitution has the supreme legal power and that laws, government resolutions and other legal acts must be in conformity with the Constitution.

One of essential elements of the state under the rule of law principle which is entrenched in the Constitution is the principle of legal security. This means the duty of the state to ensure certainty and stability of legal regulation, to safeguard the rights of participants of legal relations, as well as to respect legitimate interests and legitimate expectations.

It also needs to be noted that the principle of a state under the rule of law is inseparable from justice, which is one of the objectives of law as a means of regulation of social relations. It is possible to administer justice by ensuring a balance of interests, by evading fortuities and arbitrariness as well as opposition of interests.

Thus, the principle of a state under the rule of law entrenched in the Constitution is inseparable of the imperative of justice and vice versa.

An inseparable element of the content of the principle of a state under the rule of law as well as a necessary condition of administration of justice is the right of the person to apply to court. Under Paragraph 1 of Article 30 of the Constitution, the person whose constitutional rights or freedoms are violated shall have the right to apply to court. Paragraph 1 of Article 109 of the Constitution provides that in the Republic of Lithuania, justice shall be administered solely by courts.

7.2. Under the impugned provision of the Law, after the strategic investor acquires the shares under Item 1 of Paragraph 1 of Article 3 of the Law, state and municipal institutions will not be permitted to raise additional claims to the joint-stock company “Mažeikių nafta” or its subsidiaries concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor. It needs to be noted that the prohibition established in the impugned provision for state and municipal institutions to raise the said claims is absolute: it includes the prohibition for state and municipal institutions to raise claims grounded on agreements, as well as laws and other legal acts. The prohibition for state and municipal institutions to raise the said claims also means that they are prohibited from raising claims attempting to defend constitutional values. Meanwhile, the implementation of the rights and legitimate interests of other entities may depend on the raising of the aforesaid claims.

7.3. It has been mentioned that a duty for the legislature stems from the constitutional principle of a state under the rule of law to ensure the certainty and stability of legal regulation, to safeguard the rights and legitimate expectations of the participants of legal relations, as well as to guarantee legal security.

The legislature may establish the legal regulation whereby certain economic entities are exempted, to a certain extent, from liability for performed actions or failure to act or as regards other events, however, while establishing such legal regulation, in the law the legislature must also provide for measures enabling to compensate damage or make amends for other entities, which certain economic entities do not pay to them due to the fact that they are exempted from the liability.

It needs to be noted that the implementation of the rights and legitimate interests of various entities depends on the claims raised by state and municipal institutions. The entities, the implementation of the rights and legitimate interests of which depends also on the claims raised by state and municipal institutions, had an opportunity to reasonably expect that state and municipal institutions would discharge the functions assigned to them and would raise additional claims regarding violation of the rights and legitimate interests of the aforementioned entities regardless of the fact whether these rights and legitimate interests had been violated because of activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events pointed out in the impugned provision of the Law prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law or after such acquisition. After the law prohibited state and municipal institutions from raising the said additional claims, the aforementioned entities found themselves at a disadvantage, since state and municipal institutions cannot defend their rights and legitimate interests by raising additional claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law. Therefore, by the legal regulation established in the impugned provision of the Law one does not pay heed to the requirements of protection of legal certainty and legal security as well as of legitimate expectations.

7.4. The prohibition established in the impugned provision for state and municipal institutions to raise additional claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law also includes the claims concerning activity or failure to act of the aforesaid economic entities or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law, which could be raised by state and municipal institutions in court. Under the impugned provision, municipal institutions, while implementing the rights and legitimate interests of the communities enjoying the right to self-government, also, while directly implementing laws, government resolutions and decisions of municipal councils, will not be able to raise the said additional claims concerning activity or failure to act of the joint-stock company “Mažeikių nafta” or its subsidiaries or as regards other events prior to the acquisition of the shares by the strategic investor under Item 1 of Paragraph 1 of Article 3 of the Law in the course of the implementation of the rights and legitimate interests of the communities enjoying the right to self-government, also, while directly implementing laws, government resolutions and decisions of municipal councils.

Thus, the judicial protection of the rights and legitimate interests of the aforementioned participants of legal relations becomes limited due to the legal regulation established in the impugned provision of Paragraph 4 of Article 3 of the Law. Some of these entities cannot raise the additional claims in court, which are indicated in the impugned provision of the Law, while others, although they are not formally prohibited against raising such claims to the entities indicated in the Law and applying to court, however, in case state and municipal institutions do not raise corresponding claims, the fully-fledged judicial protection of the rights and legitimate interests of such entities is impossible. The legal regulation whereby opportunities to defend violated rights and legitimate interests in court are limited is incompatible with the constitutional principle of a state under the rule of law.

7.5. Taking account of the arguments set forth, the conclusion should be drawn that the impugned provision of Paragraph 4 of Article 3 of the Law is in conflict with the constitutional principle of a state under the rule of law.

8. The petitioners request an investigation into whether the impugned provision of Paragraph 4 of Article 3 of the Law is not in conflict with Paragraphs 1 and 2 of Article 5 of the Constitution.

Having held that the impugned provision of Paragraph 4 of Article 3 of the Law is in conflict with Paragraphs 3, 4 and 5 of Article 46 of the Constitution as well as the constitutional principle of a state under the rule of law, also, that the said provision to the extent that it is established that municipal institutions will not be permitted to raise the additional claims indicated in this provision is in conflict with Paragraph 2 of Article 120 and Article 122 of the Constitution, the Constitutional Court will not investigate further the compliance of the impugned provision of the Law with the other articles (parts thereof) of the Constitution.

Conforming to Article 102 of the Constitution of the Republic of Lithuania and Articles 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 gives the following

ruling:

1. To recognise that the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Republic of Lithuania’s Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” is in conflict with Paragraphs 3, 4 and 5 of Article 46 of the Constitution of the Republic of Lithuania as well as the constitutional principle of a state under the rule of law.

2. To recognise that the provision “after the strategic investor acquires the shares under Item 1 of Paragraph 1 of this Article, neither State nor municipal institutions will be permitted to raise additional claims to the joint-stock company ‘Mažeikių nafta’ or its subsidiaries concerning activity or failure to act of the joint-stock company ‘Mažeikių nafta’ or its subsidiaries or as regards other events, all of which took place prior to the acquisition of the shares by the strategic investor” of Paragraph 4 of Article 3 of the Republic of Lithuania’s Law on the Reorganisation of the Joint-Stock Companies “Būtingės nafta”, “Mažeikių nafta” and “Naftotiekis” provision to the extent that it is established that municipal institutions will not be permitted to raise the additional claims indicated in this provision is in conflict with Paragraph 2 of Article 120 and Article 122 of the Constitution of the Republic of Lithuania.

This ruling of the Constitutional Court is final and not subject to appeal.

The ruling is pronounced in the name of the Republic of Lithuania.

Justices of the Constitutional Court:                                                  Armanas Abramavičius

Egidijus Jarašiūnas

Egidijus Kūris

Kęstutis Lapinskas

Zenonas Namavičius

Augustinas Normantas

Jonas Prapiestis

Vytautas Sinkevičius

Stasys Stačiokas