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On the amendment to the agreement on the privatisation of the joint-stock company “Alita”

Case No. 2/2010

 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA

IN THE NAME OF THE REPUBLIC OF LITHUANIA

 RULING

ON THE COMPLIANCE OF THE RESOLUTION OF THE GOVERNMENT OF THE REPUBLIC OF LITHUANIA (NO. 903) “ON THE ASSENT TO THE DEAL REGARDING THE DRAFT AMENDMENT TO THE AGREEMENT ON THE PURCHASE AND SALE OF THE SHARES OF THE STOCK COMPANY ‘ALITA’ THAT BELONG TO THE STATE BY RIGHT OF OWNERSHIP” OF 16 JULY 2004 WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA AND WITH PARAGRAPH 1 (WORDING OF 4 NOVEMBER 1997) OF ARTICLE 16 (WORDING OF 17 DECEMBER 2001) OF THE REPUBLIC OF LITHUANIA’S LAW ON THE PRIVATISATION OF STATE-OWNED AND MUNICIPAL PROPERTY

 2 April 2013

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, Ramutė Ruškytė, 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 Juliana Ostrouch, the Head of the Division of Legal Representation of the Ministry of Justice of the Republic of Lithuania, Dominikas Pečiulis, a 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 Antanas Skarbauskas, the Deputy Head of the Law Division of the state enterprise “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 7 March 2013, in the Court’s public hearing, considered constitutional justice case No. 2/2010 subsequent to the petition of a group of Members of the Seimas of the Republic of Lithuania, the petitioner, requesting to investigate whether the Resolution of the Government of the Republic of Lithuania (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 is not in conflict with 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 Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Republic of Lithuania’s Law on the Privatisation of State-Owned and Municipal Property.

The Constitutional Court

has established:

I

The petition of the group of Members of the Seimas, the petitioner, is substantiated by the following arguments.

  1. Through its Resolution (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 (hereinafter also referred to as government resolution No. 903 of 16 July 2004), the Government gave its assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership.

The said government resolution was adopted on the grounds of the Government Resolution (No. 1698) “On the Assent to the Draft Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 24 December 2003 (hereinafter also referred to as government resolution No. 1698 of 24 December 2003).

In its ruling of 23 May 2007, the Constitutional Court recognised government resolution No. 1698 of 24 December 2003 as being in conflict with Paragraph 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law, and Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property. The Constitutional Court held that the Government, while giving, through its resolution No. 1698 of 24 December 2003, its assent to the draft agreement on the purchase and sale of the shares of the stock company “Alita” (hereinafter also referred to as the SC “Alita”) that belong to the state by right of ownership, had not observed the imperative of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, whereby in the course of the privatisation of state property by way of a public tender competition, one is allowed to negotiate not with all participants of the public tender competition, but only with the potential buyer who has submitted the best competitive bid or with the potential buyers whose competitive bids do not differ from the best competitive bid by more than 15 percent. Taking account of the fact that the provisions of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property did not grant the Government any powers to approve the draft transaction agreement with the party to the transaction who did not meet the criteria established by law, one should draw a conclusion that the aforementioned norms did not grant the Government any powers to approve any draft amendment to such a transaction agreement, either.

Consequently, in the petitioner’s opinion, the Government, while adopting its resolution No. 903 of 16 July 2004, disregarded the requirements set forth in Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property. If government resolution No. 903 of 16 July 2004 were not removed from the system of law, one of the fundamental legal principles, according to which lawful consequences do not arise from unlawful actions (ex iniuria ius non oritur), would be violated.

  1. Since the Government, while giving, through its resolution No. 903 of 16 July 2004, its assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company “Alita” That Belong to the State by Right of Ownership, disregarded the imperative of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, such a government resolution does not conform to Item 2 of Article 94 of the Constitution and violates the hierarchy of legal acts, stemming from the constitutional principle of a state under the rule of law.

II

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from the representatives of the Government, the party concerned, who were J. Ostrouch, the Head of the Division of Legal Representation of the Ministry of Justice, D. Pečiulis, the then chief specialist of the State-Owned Enterprise Policy Division of the Company Law and Public Procurement Policy Department of the Ministry of Economy, and A. Skarbauskas, the Deputy Head of the Law Division of the state enterprise “State Property Fund” (hereinafter also referred to as the SE “State Property Fund”), in which it is maintained that government resolution No. 903 of 16 July 2004 is not in conflict with the Constitution and Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property. The position of the representatives of the Government, the party concerned, is substantiated by the following arguments.

  1. The petitioner’s petition requesting to investigate the compliance of government resolution No. 903 of 16 July 2004 with Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property is substantiated only by those circumstances and legal arguments that were already investigated in the Constitutional Court’s ruling of 23 May 2007, in which the compliance of government resolution No. 1698 of 24 December 2003 with the Paragraph 1 of Article 16 of the aforesaid law was considered. The impugned government resolution may not be related to the legal regulation laid down in Paragraph 1 of Article 16 of the Law on the Privatisation of State-Owned and Municipal Property, which defines the notion of public tender competition as well as the procedure for establishing the successful tenderer of a public tender competition. The impugned government resolution should not be assessed with regard to the violations of the Constitution and the law committed in the course of the privatisation of the SC “Alita”, which were established in the Constitutional Court’s ruling of 23 May 2007.

The draft amendment to the agreement, approved by the Government through the impugned resolution, did not contain any substantial provisions that could be in conflict with the state interests, and the amendment to the agreement was not linked to the buyer’s principal obligations assumed under the privatisation transaction agreement, the obligations stemming from which had already been fulfilled by the buyer.

  1. Although in the Constitutional Court’s ruling of 23 May 2007 it was held that in the course of the privatisation of the SC “Alita” the legal acts regulating the process of privatisation had been violated, this Constitutional Court’s ruling has not so far had any impact on the validity of the agreement, the draft thereof was assented to by the Government through its resolution No. 1698 of 23 December 2003: the parties to the transaction have not cancelled the transaction, and no institution defending the public interest, or other persons concerned, has contested this transaction under the civil procedure.

Under the valid laws, the Government had the right to assent or to dissent to a draft amendment of the valid agreement. The petitioner does not indicate any violations of law in relation to the drafting and adoption of the impugned government resolution. Through the impugned government resolution, the Government gave its assent to the amendment of the valid privatisation transaction agreement, i.e. it approved the reorganisation of the private legal entity that had purchased the shares of the SC “Alita”. The said government resolution is, in substance, of a technical character, and it has already been executed.

III

In the course of the preparation of the case for the Constitutional Court’s hearing, written explanations were received from Deividas Kriaučiūnas, the Director General of the European Law Department under the Ministry of Justice of the Republic of Lithuania, regarding the application of European Union law in the constitutional justice case at issue.

IV

At the Constitutional Court’s hearing, the representatives of the Government, the person concerned, who were J. Ostrouch, the Head of the Division of Legal Representation of the Ministry of Justice, D. Pečiulis, a chief specialist of the State-Owned Enterprise Policy Division of the Company Law and Public Procurement Policy Department of the Ministry of Economy, and A. Skarbauskas, the Deputy Head of the Law Division of the SE “State Property Fund”, virtually reiterated the arguments set forth in their written explanations, answered the questions of the justices of the Constitutional Court, and expressed the opinion on the dismissal of the constitutional justice case at issue.

The Constitutional Court

holds that:

I

  1. The group of Members of the Seimas, the petitioner, requests investigation into whether the Government Resolution (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 is not in conflict with Item 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law, and Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property.
  2. Government resolution No. 903 of 16 July 2004 prescribes:

“Conforming to Paragraph 5 of Article 10 of the Republic of Lithuania’s Law on the Privatisation of State-Owned and Municipal Property (Official Gazette Valstybės žinios, 1997, No. 107-2688) and having regard to the decision of the Privatisation Commission (Protocol No. 2V-22 (373)) of 10 June 2004, the Government of the Republic of Lithuania hereby resolves:

To assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership.”

  1. Thus, the Draft Deal Regarding the Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company “Alita” That Belong to the State by Right of Ownership (hereinafter also referred to as the Deal), which is indicated in government resolution No. 903 of 16 July 2004, proposed amending the agreement on the purchase and sale of the shares of the SC “Alita” that belong to the state by right of ownership.

The said government resolution does not specify when and with whom the Agreement on the Purchase and Sale of the Shares of the SC “Alita” was signed, nor does it indicate which provisions of the Agreement on the Purchase and Sale of the Shares of the SC “Alita” are amended through the Draft Deal referred to in the government resolution, nor does it provide for the purpose of amending the agreement and the grounds of such amendment.

Therefore, the contents of the impugned government resolution No. 903 of 16 July 2004 should be disclosed while taking account of the material submitted at the sitting of the Government for the consideration of the draft of this government resolution, inter alia the Agreement on the Purchase and Sale of the Shares of the SC “Alita”, the draft whereof had been assented to by the Government through the Resolution (No. 1698) “On the Assent to the Draft Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 24 December 2003.

  1. Government resolution No. 1698 of 24 December 2003 prescribes:

“Conforming to Paragraph 5 of Article 10 of the Republic of Lithuania’s Law on the Privatisation of State-Owned and Municipal Property (Official Gazette Valstybės žinios, 1997, No. 107-2688) and having regard to the decision of the Privatisation Commission (Protocol No. 55 (350)) of 27 November 2003, the Government of the Republic of Lithuania hereby resolves:

  1. To assent to the Draft Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ (enterprise code—4951989) That Belong to the State by Right of Ownership;
  2. To commission the state enterprise ‘State Property Fund’ to ensure verification of the origin of the funds paid by the potential buyer for the privatisation object.”
  3. In this context it needs to be mentioned that, under Item 8 (wording of 4 November 1997) of Paragraph 2 (wording of 17 December 2001) of Article 4 of the Law on the Privatisation of State-Owned and Municipal Property, the SE “State Property Fund” signs privatisation transaction agreements on behalf of the Government.
  4. As it is clear from the material of the Government’s sitting of 14 July 2004, the Agreement on the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership, after the draft whereof had been assented to by the Government through its resolution No. 1698 of 24 December 2003, was signed, on 6 January 2004, by Povilas Milašauskas, the Director General of the SE “State Property Fund”, on behalf of the SE “State Property Fund” (the seller), acting on behalf of the Republic of Lithuania, and, by Vytautas Junevičius, the Director General of the closed JSC “Invinus”, acting on behalf of the closed JSC “Invinus” (the buyer), as well as by Vytautas Junevičius, Vilmantas Pečiūra, Arvydas Jonas Stankevičius, and Darius Vėželis, who were the Consortium members. This agreement was given reference number 1/107.
  5. The Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” inter alia prescribed:

“The Consortium, the buyer, availing itself, as defined in Note 3 (the third note) of the Privatisation Programme, of the closed joint-stock company ‘Invinus’, which is fully and directly controlled by members of the Consortium, <...> in which members of the Consortium own 85 percent of the shares, from which 50.01 percent is owned by Mr V. Junevičius, 10.50 percent is owned by Mr V. Pečiūra, 13.99 percent is owned by Mr A. J. Stankevičius, 10.50 percent is owned by Mr D. Vėželis, and 15 percent is owned by the Financial investor. <...>” (Paragraph 1 of Article 1 “Definitions”);

“Conforming to the terms and conditions of this Agreement, the Seller <...> shall be obliged to sell to the Buyer at the Purchase Price, and in consideration that the other obligations set forth in this Agreement have been complied with by the Buyer, 61,223,997 <...> ordinary registered shares of the Company of the nominal value of 1 (one) litas per share, comprising 83.77% <...> of all Shares <...>” (Article 2.1 “Shares Offered for Purchase”);

“Until all obligations set forth in this Agreement have been fully complied with by the Buyer, members of the Consortium shall, without prior assent of the Government of the Republic of Lithuania, be obliged not to sell or otherwise transfer the Buyer’s shares held by them, also not to raise or reduce the Buyer’s authorised capital, as well as not to take any other measures as a result of which the share of members of the Consortium collectively, or of any of them separately, in the Buyer’s authorised capital would be reduced” (Paragraph 3 of Article 7.3 “Limitations Applicable until the Full Compliance with the Obligations by the Buyer”).

Articles 7.1 and 7.2 of the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” set forth the buyer’s obligations that were related to securing workplaces for the period of one year as well as its obligations not to change the character of the main activity of the SC “Alita” for the period of five years following the day of the completion of the transaction.

  1. As mentioned before, the draft of the said agreement was assented to by the Government through the Resolution (No. 1698) “On the Assent to the Draft Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 24 December 2003.

8.1. The aforesaid government resolution was recognised by the Constitutional Court’s ruling of 23 May 2007 as being in conflict with Paragraph 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law, and the provision “Negotiations on how to improve the submitted competitive bids may be entered into with the potential buyer who has submitted the best competitive bid or with the potential buyers whose competitive bids do not differ from each other by more than 15 percent” of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property.

8.2. The inconsistency of government resolution No. 1698 of 24 December 2003 with the Constitution and the aforementioned provision of the law was, in the aforesaid Constitutional Court’s ruling, substantiated by the fact that the Government had in that resolution disregarded the imperative of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, whereby in the course of the privatisation of state-owned property by way of a public tender competition, negotiations may be entered into only with the potential buyer who has submitted the best competitive bid or with the potential buyers whose competitive bids do not differ from each other by more than 15 percent (the bid of the aforementioned Consortium differed from the best competitive bid submitted by L. Bosca more than by 15 percent).

Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property prescribed:

“A public tender competition is the transfer of one or several privatisation objects to a potential buyer, the successful tenderer, whose written offers with regard to the price and investment (money for the acquisition of long-term and short-term tangible assets by increasing the authorised capital of the stock company or the closed joint-stock company), after meeting the minimum requirements for workplaces stipulated in the terms and conditions of privatisation, have been found to be the best. Negotiations on how to improve the submitted competitive bids may be entered into with the potential buyer who has submitted the best competitive bid or with the potential buyers whose competitive bids do not differ from each other by more than 15 percent.”

8.3. Thus, from the Constitutional Court’s ruling, which recognised government resolution No. 1698 of 24 December 2003 as being in conflict with inter alia the provision of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, it is clear that the Consortium, the buyer, availing itself of the closed JSC “Invinus”, fully and directly controlled by members of the Consortium and represented by V. Junevičius, the Director General, was not such a buyer with whom negotiations could be entered into regarding the improvement of the submitted competitive bids, also that the Consortium could not be the successful tenderer of the public tender competition held to privatise the shares of the SC “Alita” that belonged to the state by right of ownership, as well as that it could not assume any obligations as the successful tenderer of the public tender competition.

  1. Consequently, the Draft Deal, indicated in government resolution No. 903 of 16 July 2004, which is impugned in the constitutional justice case at issue, amended the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership, signed on 6 January 2004, between the SE “State Property Fund”, the seller, acting on behalf of the Republic of Lithuania and represented by P. Milašauskas, the Director General, and the closed JSC “Invinus”, the buyer, represented by V. Junevičius, the Director General, as well as by V. Junevičius, V. Pečiūra, A. J. Stankevičius, and D. Vėželis, who were members of the Consortium, the draft whereof had been assented to by the Government through its resolution No. 1698 of 24 December 2003 (which, as mentioned before, in the Constitutional Court’s ruling of 23 May 2007 was recognised as being in conflict with the Constitution and the law).
  2. It has been mentioned that the impugned government resolution No. 903 of 16 July 2004 prescribes:

“Conforming to Paragraph 5 of Article 10 of the Republic of Lithuania’s Law on the Privatisation of State-Owned and Municipal Property (Official Gazette Valstybės žinios, 1997, No. 107-2688) and having regard to the decision of the Privatisation Commission (Protocol No. 2V-22 (373)) of 10 June 2004, the Government of the Republic of Lithuania hereby resolves:

To assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership.”

In the preamble to said government resolution No. 903 the legal ground for adopting that resolution—Paragraph 5 of Article 10 of the Law on the Privatisation of State-Owned and Municipal Property—is identified.

Paragraph 5 (wording of 4 November 1997) of Article 10 (wording of 5 March 2002) of the Law on the Privatisation of State-Owned and Municipal Property, which was valid at the time of the adoption of government resolution No. 903 of 16 July 2004, inter alia prescribed that “[t]he Government shall have <...> the right to assent or dissent to <...> draft transaction agreements on the privatisation of the key objects of Lithuanian economy”.

  1. The discretion of the Government “to assent or dissent to <...> draft transaction agreements on the privatisation of the key objects of Lithuanian economy”, consolidated in the provision of Paragraph 5 (wording of 4 November 1997) of Article 10 (wording of 5 March 2002) of the Law on the Privatisation of State-Owned and Municipal Property, is to be construed together with other provisions of this law, inter alia Paragraph 4 of Article 1, where the privatisation transaction is defined, and Paragraph 1 of Article 16, which specifies who may be recognised as the successful tenderer of a public tender competition.

Paragraph 4 of Article 1 of the Law on the Privatisation of State-Owned and Municipal Property (wording of 4 November 1997) prescribes: “‘Privatisation transaction’ shall mean an arrangement entered into in observance of this law, under which the holder of a state-owned or municipal privatisation object is obliged to transfer the privatisation object into the ownership of the potential buyer, and the potential buyer is obliged to pay the amount of money agreed upon and/or fulfil other obligations established under the arrangement.”

Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property inter alia prescribed: “A public tender competition is the transfer of one or several privatisation objects to a potential buyer, the successful tenderer, whose written offers with regard to the price and investment (money for the acquisition of long-term and short-term tangible assets by increasing the authorised capital of the stock company or the closed joint-stock company), after meeting the minimum requirements for workplaces stipulated in the terms and conditions of privatisation, have been found to be the best.”

Consequently, the right of the Government to assent to a draft privatisation transaction agreement and, subsequently—to a draft amendment to such a concluded privatisation transaction agreement, where privatisation is carried out by means of a public tender competition, may be implemented only then when a privatisation transaction is concluded in observance of the Law on the Privatisation of State-Owned and Municipal Property, when it meets the requirements for a draft privatisation transaction agreement and, respectively, the requirements for a draft amendment to a privatisation transaction agreement, inter alia the requirement that the potential buyer may assume and fulfil the obligations established under the privatisation transaction if it is the successful tenderer in the sense of Paragraph 1 of Article 16 of the Law on the Privatisation of State-Owned and Municipal Property.

  1. From the material of the Government’s sitting, in which the impugned government resolution No. 903 of 16 July 2004 was adopted and the Draft Deal was assented to, it is clear that, the Deal Regarding the Amendment to the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” supplemented the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” with a new Article 7.5, which was set forth as follows:

“7.5. Exemptions from Limitations

The Seller hereby agrees that the closed joint-stock company “Invinus”, an enterprise fully and directly controlled by the Buyer, would be reorganised by being merged with the Company, which will take over all the rights and duties of the reorganised closed joint-stock company “Invinus”, while the closed joint-stock company “Invinus” will cease to exist as a legal entity, and confirms that it will not deem such reorganisation a breach of the Buyer’s obligations stipulated in Article 7.3 of the Agreement. The Seller hereby also agrees that the closed joint-stock company “Invinus” would be restructured into a stock company, or the Company—into a closed joint-stock company, and confirms that it will not deem such restructuring a breach of the Buyer’s obligations stipulated in Article 7.3 of the Agreement. The Parties agree that the aforementioned agreement by the Seller does not limit any rights of the Seller, as a creditor of the reorganised enterprise, which the latter may hold under Laws.”

The said Article 7.5 contains the reference to Article 7.3 of the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, in which inter alia it is established:

“7.3. Limitations Applicable until the Full Compliance with the Obligations by the Buyer

<...> Until all obligations set forth in this Agreement have been fully complied with by the Buyer, members of the Consortium shall, without prior assent of the Government of the Republic of Lithuania, be obliged not to sell or otherwise transfer the Buyer’s shares held by them, also not to raise or reduce the Buyer’s authorised capital, as well as not to take any other measures as a result of which the share of members of the Consortium collectively, or of any of them separately, in the Buyer’s authorised capital would be reduced.”

Thus the Deal, through which amendments were made to the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, and which contains the reference to that agreement, by its contents and in itself (without the main provisions of the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”) may not be regarded as holding an independent force.

  1. It also needs to be noted that the so-called ban on financial assistance, under which a company may not advance funds, nor make loans, nor provide security, with a view to the acquisition of its shares by a third party, was consolidated in Paragraph 1 of Article 23 of the Directive (77/91/EEB) of the Council of the European Communities of 13 December 1976 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of Article 58 of the Treaty, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent (the so-called Second Directive on Company Law).

II

  1. Item 2 of Article 94 of the Constitution prescribes that the Government of the Republic of Lithuania executes laws and resolutions of the Seimas on the implementation of laws, as well as decrees of the President of the Republic.

If the Government failed to observe laws, the constitutional principle of a state under the rule of law, which implies the hierarchy of legal acts, as well as Item 2 of Article 94 of the Constitution, would be denied (the Constitutional Court’s rulings of 23 May 2007 and 13 August 2007).

  1. In the context of the constitutional justice case at issue Item 2 of Article 94 of the Constitution should be construed in conjunction with Paragraph 3 of Article 46 thereof.

The Government, while forming and carrying out the economic policy of the state as well as while respectively regulating the economic activity within its competence defined by the Constitution and laws, inter alia while passing resolutions, may not act ultra vires; it must observe the Constitution and laws (the Constitutional Court’s ruling of 23 May 2007).

  1. Under the Constitution, the state, while regulating economic activity, must ensure that state property should be managed so that there are no contradictions to the requirement consolidated in Paragraph 3 of Article 46 of the Constitution, whereby the economic activity must be regulated so that it serves the general welfare of the Nation (the Constitutional Court’s rulings of 24 January 1996 and 2 March 2009).

The provision of Paragraph 3 of Article 46 of the Constitution that the state regulates economic activity so that it serves the general welfare of the nation implies the duty of the state as well as of the state institutions implementing state power and other state institutions, while heeding the norms and principles of the Constitution and taking account of the situation of the national economy, the variety and changes in the economy and social life, to establish such legal regulation of the economic activity that would serve the general welfare of the nation (the Constitutional Court’s rulings of 30 June 2008 and 6 January 2011).

The Constitutional Court has held on more than one occasion that it is not permitted to establish any such legal regulation according to which property that belongs to the state by right of ownership would be transferred into the ownership of other subjects so that it would satisfy the interests or needs of only one social group or separate persons, where this would not serve the public interest, the needs of society, or the welfare of the nation (the Constitutional Court’s rulings of 30 September 2003, 8 July 2005, 5 July 2007, 23 November 2007, and 20 March 2008).

In the Constitutional Court’s jurisprudence it has been held on more than one occasion that the implementation of the public interest, as an interest of society recognised by the state and protected by law, is one of the most important conditions for the existence and evolution of society itself (the Constitutional Court’s rulings of 6 May 1997, 13 May 2005, 21 September 2006, and 6 January 2011).

  1. The transfer of property under the ownership of the state to the ownership of other subjects (including privatisation) may be constitutionally justifiable only when it may provide larger benefits to society, when the purpose of such transfer is the satisfaction of important, constitutionally grounded needs and interests of society; such transfer (both repayable and non-repayable) would be constitutionally unjustifiable if it inflicted obvious damage on society and violated the rights of other persons (the Constitutional Court’s rulings of 30 September 2003, 8 July 2005, and 23 November 2007).

The public interest is dynamic and subject to change (the Constitutional Court’s rulings of 8 July 2005, 21 September 2006, 15 May 2007, 30 June 2008, and 6 January 2011). The state may and, in certain cases, must change (expand, abridge, or otherwise correct) the regulation of economic activity (the Constitutional Court’s rulings of 30 June 2008 and 6 January 2011). Neither the legislative nor executive power, while enjoying respective powers in the area of economic activity, may opt out of this constitutional obligation (the Constitutional Court’s ruling of 13 May 2005).

The legislator, while heeding the Constitution and taking account of various factors, may establish the regime (conditions and procedure for the use) of the property that is being transferred to the ownership of other subjects in order to continue to ensure the interests of society and the welfare of the nation and implement the values consolidated in the Constitution (the Constitutional Court’s rulings of 30 September 2003 and 8 July 2005).

Not only laws adopted by the legislator for the regulation of the transfer of property under the ownership of the state to the ownership of other subjects (inter alia privatisation of such property), but also decisions of the executive power regarding the implementation of these laws, must serve the public interest and the general welfare of the Nation.

  1. In the context of the constitutional justice case at issue it needs to be noted that the legislative and executive state powers, while amending the regulation of economic activity related to privatisation, are not allowed to deny not only the public interest and the requirements stemming from Article 46 of the Constitution (inter alia Paragraph 3 thereof, under which the state regulates economic activity so that it serves the general welfare of the nation), but also the constitutional principle of responsible governance.

The regulation of economic activity, when inter alia legal acts related to privatisation are adopted, may be linked to the implementation of the rights and legitimate interests of various economic subjects, shareholders, and creditors. From the Constitution, inter alia Article 46 thereof, as well as from the constitutional principle of responsible governance, the duty arises for the legislator, while regulating the relations of privatisation, to precisely define the powers of employees and officials of state and municipal institutions and to determine their responsibility. Decisions adopted by institutions of the executive power in the area of privatisation (especially those through which certain previous decisions establishing respective obligations are amended) must be rationally reasoned, and the impact of such decisions on inter alia the economy of this country and finances of the state must be properly assessed. The said decisions may not be arbitrary.

  1. The constitutional principle of a state under the rule of law implies various requirements arising with respect to the legislator and other law-making subjects, inter alia the requirement that law-making subjects pass legal acts without exceeding their powers (the Constitutional Court’s rulings of 13 December 2004, 16 January 2006, 22 March 2010, and 9 November 2010).

An essential element of the principle of a state under the rule of law inter alia is that only legal acts that are published are valid. Law may not be non-public (the Constitutional Court’s rulings of 29 November 2001 and 30 May 2003).

In its ruling of 26 February 2010, the Constitutional Court held that the constitutional requirement that law may not be non-public must also be followed in the course of issuing acts of the Government whereby privatisation agreements are assented to; the said constitutional requirement means not only that a government resolution through which assent is given to draft agreements on the privatisation of the key objects of Lithuanian economy as well as to draft annexes to such agreements must be officially published, but also that such a government resolution must contain not only formal assent to the draft agreement and draft annexes thereto, but inter alia that it also must state the compliance of the provisions of the draft agreement that is being assented to with the terms and conditions provided for in the object privatisation programme, as well as that it must specify the principled provisions of the agreement, as, for instance, the purpose of the agreement, the object of the agreement, and the basic commitments undertaken by the state.

  1. In the context of the constitutional justice case at issue it needs to be noted that the constitutional requirement that law may not be non-public, which must be also observed while adopting a government resolution through which assent is given to an agreement on privatisation, also means that a government resolution through which assent is given to the amendment of the provisions of a privatisation agreement, previously assented to by the Government, must contain not only formal assent to the amendment to the agreement, but that it must also specify inter alia the purpose of the amendment to the agreement and the principled provisions amending the agreement.

III

On the compliance of the Government Resolution (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 with Item 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law, and Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property.

  1. It has been mentioned that the group of Members of the Seimas, the petitioner, requests investigation into whether the Government Resolution (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 is not in conflict with Item 2 of Article 94 of the Constitution, the constitutional principle of a state under the rule of law, and Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property.
  2. While deciding whether government resolution No. 903 of 16 July 2004 is not in conflict with Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, it needs to be noted that, as mentioned before, the Draft Deal indicated in this government resolution amended the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership, signed on 6 January 2004, between the SE “State Property Fund”, the seller, acting on behalf of the Republic of Lithuania and represented by P. Milašauskas, the Director General, and the closed JSC “Invinus”, the buyer, represented by V. Junevičius, the Director General, as well as by V. Junevičius, V. Pečiūra, A. J. Stankevičius, and D. Vėželis, who were members of the Consortium.

It has been mentioned that the right of the Government to assent to a draft privatisation transaction agreement and, subsequently—to a draft amendment to such a concluded privatisation transaction agreement, where privatisation is carried out by means of a public tender competition, may be implemented only then when the privatisation transaction is concluded in observance inter alia of Paragraph 1 of Article 16 of the Law on the Privatisation of State-Owned and Municipal Property, under which a potential buyer must be the successful tenderer of a public tender competition.

It has also been mentioned that the Consortium, the buyer, availing itself of the closed JSC “Invinus”, fully and directly controlled by members of the Consortium and represented by V. Junevičius, the Director General, was not such a buyer with whom the negotiations could be entered into regarding the improvement of the submitted competitive bids, as well as that the Consortium could not be the successful tenderer of the public tender competition held to privatise the shares of the SC “Alita” that belonged to the state by right of ownership.

In this ruling it has been held that the amendments to the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, made through the Deal, which contains the reference to that agreement, in themselves (without the principal provisions of the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”) may not be regarded as holding an independent force.

It has been mentioned that government resolution No. 1698 of 24 December 2003, through which assent was given to the Draft Agreement on the Purchase and Sale of the Shares of the SC “Alita” (the agreement was subsequently given reference number 1/107), was recognised in the Constitutional Court’s ruling of 23 May 2007 as being in conflict with the provision of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, Item 2 of Article 94 of the Constitution, and the constitutional principle of a state under the rule of law.

Consequently, through government resolution No. 903 of 16 July 2004, in violation of Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, assent was given to such a Draft Deal Regarding the Amendment to the Agreement on the Purchase and Sale of the Shares of the SC “Alita” that amended the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, which had been concluded with such a party that should not have been an appropriate party to the main agreement and could not have assumed any obligations as the successful tenderer of the public tender competition.

  1. Taking account of the arguments set forth, one should draw a conclusion that the Government Resolution (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 was in conflict with Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property.
  2. The Constitutional Court has held on more than one occasion that, if the Government failed to observe laws, the constitutional principle of a state under the rule of law, which implies the hierarchy of legal acts, as well as Item 2 of Article 94 of the Constitution, under which the Government executes inter alia laws, would be denied.

Having held in this Constitutional Court’s ruling that government resolution No. 903 of 16 July 2004, through which assent was given to the Draft Deal Regarding the Amendment to the Agreement on the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership, was in conflict with Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property, one should hold that the said government resolution is in conflict with Item 2 of Article 94 of the Constitution and the constitutional principle of a state under the rule of law.

IV

  1. In the constitutional justice case at issue it has been held that government resolution No. 903 of 16 July 2004 is in conflict with Item 2 of Article 94 of the Constitution and the constitutional principle of a state under the rule of law, as well as that it was in conflict with Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Law on the Privatisation of State-Owned and Municipal Property.
  2. It needs to be noted that from the material of the constitutional justice case at issue it is clear that, under the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership (the draft thereof was assented to by the Government through its resolution No. 1698 of 24 December 2003, and it was signed on 6 January 2004):

– the Consortium, the buyer, availing itself of the closed JSC “Invinus”, which was fully and directly controlled by members of the Consortium, and in which members of the Consortium owned 85 percent of the shares, from which 50.01 percent was owned by V. Junevičius, 10.50 percent—by V. Pečiūra, 13.99 percent—by A. J. Stankevičius, 10.50 percent—by D. Vėželis, and 15 percent—by the financial investor, purchased from the state 61,223,997 ordinary registered shares of the SC “Alita” of the nominal value of 1 (one) litas per share, which comprised 83.77 percent of all shares;

– without prior assent of the Government, members of the Consortium assumed the obligation not to sell or not to otherwise transfer the buyer’s shares held by them, also not to raise or reduce the buyer’s authorised capital, as well as not to take any other measures as a result of which the share of members of the Consortium collectively, or of any of them separately, in the buyer’s authorised capital would be reduced.

  1. From the material of the constitutional justice case at issue it is also clear that the Government, by giving its assent, through its resolution No. 903 of 16 July 2004, to the Draft Deal Regarding the Amendment to the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, also gave its assent to the reorganisation of the closed JSC “Invinus” by merging it with the SC “Alita”, thereby creating preconditions so that all rights and duties of the reorganised closed JSC “Invinus” would be transferred to the SC “Alita” (inter alia the liabilities of the amount of (LTL) 58,583,446, owed on 1 September 2004) and the closed JSC “Invinus” would cease to exist as a legal entity.
  2. Consequently, after the Government gave its assent, through its resolution No. 903 of 16 July 2004, to the Draft Deal Regarding the Amendment to the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, the buyer’s previous obligations were denied, inter alia the obligations not to raise or reduce the buyer’s authorised capital, as well as not to take any other measures as a result of which the share of members of the Consortium collectively, or of any of them separately, in the buyer’s authorised capital would be reduced, which had been established under the initial Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” and the privatisation programme of the SC “Alita”, approved by the Government Resolution (No. 170) “On the Approval of the Privatisation Programmes of the Stock Companies ‘Stumbras’, ‘Vilniaus degtinė’, ‘Alita’, and ‘Anykščių vynas’” of 3 February 2003.

Thus, the said Deal created preconditions for transferring to the SC “Alita” the liabilities of the closed JSC “Invinus” emerging inter alia under the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership. Thereby the rights of small shareholders could be violated, and there could be a negative impact on the state funds.

  1. While summing up, one should note that, without doubt, there is a ground to hold that in the course of adopting the legal acts related to the privatisation of the SC “Alita” (inter alia while giving assent to the Amendment to the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita”, which led to the reorganisation of the closed JSC “Invinus” by merging it with the SC “Alita”) in 2003–2004, the Government persisted in disregarding the imperatives stemming from the Constitution.

The foregoing is, first of all, clear from the Constitutional Court’s ruling of 23 May 2007, which recognised government resolution No. 1698 of 24 December 2003 as being in conflict with the Constitution and the law, as well as in the light of the fact that government resolution No. 1698 of 24 December 2003, through which assent was given to the Draft Agreement of the Purchase and Sale of the Shares of the SC “Alita” That Belong to the State by Right of Ownership and which in the Constitutional Court’s ruling of 23 May 2007 was recognised as being in conflict with the Constitution and the law, has not so far been recognised as no longer valid.

The foregoing equally applies to the drafting and consideration of the respective draft legal acts, including the assessment of the impact of these draft legal acts, carried out by the state institutions inter alia privatisation institutions, which is perfunctory and contradictory (on the one hand, doubts are not removed that, upon the reorganisation of the closed JSC “Invinus” by merging it with the SC “Alita”, the state will not lose part of the taxes, while, on the other hand, it is indicated that neither positive, nor negative impact on the finances and economy of the state is anticipated).

It needs to be emphasised that such practice of adopting resolutions by the Government is defective while following which one ignores the requirements, stemming with respect to institutions of executive power from Article 46 of the Constitution and the constitutional principle of responsible governance, that decisions being adopted in the area of privatisation (particularly those through which certain previous decisions establishing respective obligations are amended) must be rationally reasoned, and that the impact of such decisions on inter alia the economy and finances of the state must be properly assessed. One should not tolerate any such cases when the said government resolutions perfunctorily approbate privatisation agreements (amendments thereto) the contents of which is not known to the public, which fail to concretely indicate inter alia any circumstances making it possible to justify the necessity of amending the Agreement (No. 1/107) on the Purchase and Sale of the Shares of the SC “Alita” and which deny the obligations established under that agreement and the privatisation programme—by changing, through the amendments to the agreements, to the advantage of one of the former potential buyers, an obligation established under the privatisation programme, which applied to all other potential buyers at the time of the transfer of the company’s shares that belonged to the state by right of ownership.

  1. Alongside, it needs to be noted that the impugned government resolution No. 903 of 16 July 2004 in the other aspects indicated by the petitioner is not a matter of investigation in the constitutional justice case at issue. The facts set forth as well as the circumstances indicated in this Constitutional Court’s ruling are an object of the consideration of other jurisdictional and law-applying institutions.

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:

To recognise that the Resolution of the Government of the Republic of Lithuania (No. 903) “On the Assent to the Deal Regarding the Draft Amendment to the Agreement on the Purchase and Sale of the Shares of the Stock Company ‘Alita’ That Belong to the State by Right of Ownership” of 16 July 2004 (Official Gazette Valstybės žinios, 2004, No. 112-4188) is in conflict with Item 2 of Article 94 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law, as well as that it was in conflict with Paragraph 1 (wording of 4 November 1997) of Article 16 (wording of 17 December 2001) of the Republic of Lithuania’s Law on the Privatisation of State-Owned and Municipal Property.

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

Justices of the Constitutional Court:                                    Egidijus Bieliūnas

                                                                                                        Toma Birmontienė

                                                                                                        Pranas Kuconis

                                                                                                        Gediminas Mesonis

                                                                                                        Ramutė Ruškytė

                                                                                                        Egidijus Šileikis

                                                                                                        Algirdas Taminskas

                                                                                                        Romualdas Kęstutis Urbaitis

                                                                                                        Dainius Žalimas