THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA R U L I N G. Vilnius, 18 October 2000

Transcription

1 Case No. 29/98-16/99-3/2000 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA R U L I N G On the compliance of the Republic of Lithuania s Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, Paragraph 3 of Article 5 of the Republic of Lithuania s Law on Tax Administration with the Constitution of the Republic of Lithuania and on the compliance of the Resolution of the Seimas of the Republic of Lithuania On the Recognition of a Strategic Investor with the Constitution of the Republic of Lithuania and the Republic of Lithuania s Law on the Basics of National Security Vilnius, 18 October 2000 The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Egidijus Jarašiūnas, Egidijus Kūris, Zigmas Levickis, Augustinas Normantas, Vladas Pavilonis, Jonas Prapiestis, Vytautas Sinkevičius, and Teodora Staugaitienė The court reporter Daiva Pitrėnaitė Seimas member Vytenis Povilas Andriukaitis and the advocate Gediminas Bulotas, acting as the representatives of the petitioners groups of members of the Seimas of the Republic of Lithuania Darius Karvelis, a consultant to the Law 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 Paragraph 1 of Article 102 of the Constitution of the Republic of Lithuania and Paragraph 1 of Article 1 of the Law on the Constitutional Court of the Republic of Lithuania, on 19 September 2000, in its public hearing, considered case No. 29/98-16/99-3/2000 subsequent to the petitions submitted to the Constitutional Court by the petitioners groups of members of the Seimas of the Republic of Lithuania requesting an investigation into whether the norms of the Republic of Lithuania s Law on the

2 2 Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, the Republic of Lithuania s Law On Supplementing and Amending Article 5 of the Law on Tax Administration and the Republic of Lithuania s Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania were in conformity with the Constitution of the Republic of Lithuania and, whether the norms of the Resolution of the Seimas of the Republic of Lithuania On the Recognition of a Strategic Investor was in compliance with the Constitution of the Republic of Lithuania and the Republic of Lithuania s Law on the Basics of National Security. The Constitutional Court has established: I 1. On 29 September 1998, the Seimas of the Republic of Lithuania adopted the Republic of Lithuania s Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis (Official Gazette Valstybės žinios, 1998, No ), the Republic of Lithuania s Law On Supplementing and Amending Article 5 of the Law on Tax Administration (Official Gazette Valstybės žinios, 1998, No ), the Republic of Lithuania s Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania (Official Gazette Valstybės žinios, 1998, No ) and the Resolution On the Recognition of a Strategic Investor (Official Gazette Valstybės žinios, 1998, No ). In its petition of 9 November 1998, a group of Seimas members requests an investigation into whether: 1) Articles 2, 3 and 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, Paragraph 1 of Article 1 of the Law On Supplementing and Amending Article 5 of the Law on Tax Administration and Article 1 of the Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania as to the content of the norms established therein are in compliance with the norms pertaining to a democratic state and the separation of powers as established in Article 1 and Paragraph 1 of Article 5 of the Constitution and the principle of a state under the rule of law entrenched in the Constitution; 2) in the light of the procedure of their adoption, the Law on the Reorganisation of the Jointstock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, the Law On Supplementing and Amending Article 5 of the Law on Tax Administration and the Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania are in compliance with the procedure established in Paragraph 1 of Article 69 of the Constitution;

3 3 3) Paragraph 1 of Article 1 of the Law On Supplementing and Amending Article 5 of the Law on Tax Administration and Article 1 of the Law on Foreign Capital Investment in the Republic of Lithuania are in compliance with Item 15 of Article 67 and Paragraph 1 of Article 128 of the Constitution; 4) Paragraphs 1 and 7 of Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis according to the content of the norms established therein are in compliance with Paragraph 1 of Article 23, Paragraphs 1 and 4 of Article 46 of the Constitution and whether Article 4 of the said law according to the content of the norms established therein is in compliance with Paragraph 1 of Article 23, Paragraph 1 of Article 29 and Paragraphs 1 and 4 of Article 46 of the Constitution; 5) Paragraph 1 of Article 1 of the Seimas Resolution On the Recognition of a Strategic Investor of 29 September 1998, according to the content of the norms established therein is in compliance with Paragraph 4 of Article 46 of the Constitution and the norms established in Paragraph 2 of Chapter 4 entitled Economic Policy of the annex to the Law on the Basics of National Security. The petition is grounded on the following reasoning. Traditionally, the object of the exclusive competence of the Parliament is to approve taxes and basic financial liabilities of the state. Delegation of this competence to the Government or any other state institution is not provided for in the Constitution. Paragraph 1 of Article 1 of the Law On Supplementing and Amending Article 5 of the Law on Tax Administration and Article 1 of the Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania provide for the right of the Government to arbitrarily exempt certain entities of economy from payment of new or changed taxes for the term of not three but ten years. By means of these legal provisions, the opportunity is created to adopt a basic financial liability of the state not by means of an act of the Seimas but that of the Government. The said laws violate the powers of the Seimas. Therefore, the impugned legal norms conflict with Item 15 of Article 67, Paragraph 1 of Article 128 of the Constitution and the principle of the separation of the branches of state power. In the opinion of the petitioner, Paragraph 1 of Article 69 of the Constitution sets the requirements for the procedure of adoption of laws. The petitioner maintains that the said laws were adopted under procedure of urgency. The Constitution stipulates that procedure of urgency must be regulated by law. This procedure is defined in the Statute of the Seimas of the Republic of Lithuania only, which, under a formal meaning, is not a law. The Seimas had no right to deliberate upon these laws conforming to procedure of urgency, therefore, it violated Paragraph 1 of Article 69 of the Constitution.

4 4 The petitioner notes that the Seimas, by regulating the activities of an individual economic entity by Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, assumed a basic competence of the executive and thus overstepped its constitutional powers and violated the principle of the separation of powers established in the norms of Article 1 and Paragraph 1 of Article 5 of the Constitution. According to the petitioner, the requirements set down in Paragraphs 1 and 7 of Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis regarding reorganisation of independent economic entities infringe the rights of the said entities to inviolability of property, therefore, the impugned norms of this law conflict with Paragraph 1 of Article 23 of the Constitution. They also infringe the rights of enterprises and their shareholders and hinder fair competition, therefore, they are in conflict with the norms of Paragraphs 1 and 4 of Article 46 of the Constitution. In the opinion of the petitioner, the norm of Paragraph 1 of Article 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis providing that a certain portion of shares of the enterprise may not belong to its shareholders, while the right is granted to the state and the strategic investor to disregard this limitation, violates the principle of the equality of all persons before the law and freedom of fair competition, therefore, this norm of the law conflicts with Paragraph 1 of Article 29 and Paragraphs 1 and 4 of Article 46 of the Constitution. The petitioner points out that the norm of Paragraph 2 of Article 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis restricts the right of some shareholders to dispose of their property freely as the state and the strategic investor enjoy priority in acquisition of the shares sold by the shareholders. Thus, the impugned norm violates the principle of inviolability of property and conflicts with Article 23 of the Constitution. The petitioner maintains that, by means of the norm of Paragraph 1 of Article 1 of the impugned Seimas resolution, the inequality of economic entities before the law is established and advantages in economic competition for certain entities are created. The petitioner is of the opinion that freedom of fair competition and the prohibition on monopolising the production are thus violated, therefore, Paragraph 1 of Article 1 of the impugned Seimas resolution is in conflict with Paragraph 4 of Article 46 of the Constitution. The petitioner points out that the provision of Paragraph 2 of Article 1 of the impugned Seimas resolution by which an opportunity to the strategic investor is granted to acquire a certain portion of shares of the reorganised enterprise denies the possibility for the state to retain a deciding vote, therefore, the norms of the impugned Seimas resolution conflict with the norm set down in the

5 5 Law on the Basics of National Security that in enterprises of strategic importance for national security the controlling decision power must be retained by the state. 2. On 3 June 1999, the Seimas adopted the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis (Official Gazette Valstybės žinios, 1999, No ). On 22 June 1999, a group of Seimas members applied to the Constitutional Court with the petition requesting an investigation into whether: 1) the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis passed on 3 June 1999 by the Seimas, regarding the procedure of its adoption, was in compliance with the procedure established in Article 69 of the Constitution; 2) Article 1 of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis was in compliance with the principles of a just society and state under the rule of law established in the Preamble to the Constitution, as well as Articles 1, 67 and Paragraph 3 of Article 69 of the Constitution; 3) Article 1 of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis was in compliance with Paragraphs 3, 4 and 5 of Article 46 of the Constitution. The request of the petitioner is based on the following arguments. If the Law on the Basics of National Security is considered a constitutional law, then its norms may only be changed by three-fifths majority vote of all Seimas members, while the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis was adopted by simple majority vote. By this law a new norm is created, permitting the strategic foreign investor to become a monopoly, as in case the foreign economic entity acquires 66 percent of the shares of the enterprise, the State of Lithuania will lose a deciding vote. This norm conflicts with the norm of the Law on the Basics of National Security that in enterprises of strategic importance for national security the controlling decision power must be retained by the state. Thus, the procedure of the adoption of the law conflicts with Article 69 of the Constitution. In the opinion of the petitioner, by means of Article 1 of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis new norms are created, therefore, in case the Law on the Basics of National Security is a constitutional law, the principle of coordination of legal acts is violated. The fact whether a law is a constitutional law, in the case that there is not any list of

6 6 constitutional laws, ought to be decided according to the importance of the law and the context of its adoption. Thus, Article 1 of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis conflicts with the principles of a just society and state under the rule of law established in the Preamble to the Constitution, as well as Articles 1 and 67 of the Constitution. The petitioner believes that after Article 1 of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis has granted exceptional rights to the strategic investor, the latter gets an opportunity to control a monopoly, therefore, this norm conflicts with the norm of Paragraph 3 of Article 46 of the Constitution stipulating that the state shall regulate economic activity so that it serves the general welfare of the nation, the norm of Paragraph 4 of the same article stipulating that monopolisation of production and the market shall be prohibited and the norm of Paragraph 5 of the same article providing that the state shall defend the interests of the consumers. 3. On 5 October 1999, the Seimas passed the 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 ). On 20 December 1999, a group of Seimas members applied to the Constitutional Court with the petition requesting an investigation into whether: 1) the 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 passed on 5 October 1999 by the Seimas, regarding the procedure of its adoption, was in compliance with the procedure established in Article 69 of the Constitution; 2) Articles 1 and 2 of the 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 were in compliance with the principles of a just society and state under the rule of law established in the Preamble to the Constitution, as well as Articles 1, 67, Paragraph 3 of Article 69 and Paragraph 1 of Article 135 of the Constitution; 3) Articles 1 and 2 of the 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 were in compliance with Paragraphs 3, 4 and 5 of Article 46 of the Constitution; 4) Article 2 of the 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 was in compliance with the principle of a state under the rule of law established in

7 7 the Preamble to the Constitution as well as Article 23 and Paragraphs 1 and 4 of Article 23 of the Constitution. The request of the petitioner is based on the following arguments. It is directly recognised in the 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 that the joint-stock company Mažeikių nafta is an object of essential importance for national security of Lithuania. The basics of national security are established by the Law on the Basics of National Security which, as to its essence, must be held a constitutional law. As a new norm is created by the 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, conflicting with that established in the Law on the Basics of National Security, the procedure of its adoption is not in line with the requirements for adoption of constitutional laws set down in Article 69 of the Constitution. Paragraph 1 of Article 2 of the 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 grants priority to the state in acquiring the shares of this enterprise sold or transferred in any other way by the shareholders. By establishing the right of priority for certain entities to acquire shares transferred by the owners the subjective rights of ownership of these owners are infringed. The principles of ownership and free economic activity of individuals will also be violated. Thus, the impugned legal norm is in conflict with Article 23 and Paragraph 1 of Article 46 of the Constitution. Articles 1 and 2 of the 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 conflict with Paragraphs 3, 4 and 5 of Article 46 of the Constitution. The norms of these articles grant exceptional rights to the strategic investor, therefore, they conflict with Paragraph 3 of Article 46 of the Constitution wherein a norm is established that the state shall regulate economic activity so that it serves the general welfare of the nation. By means of the impugned law the state refuses to have a decisive vote in the company Mažeikių nafta and loses a significant portion of its profit. Therefore, the norms of Articles 1 and 2 of the 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 conflict with Paragraph 4 of Article 46 of the Constitution under which monopolisation of production and the market shall be prohibited. Paragraph 5 of Article 46 of the Constitution provides that the state shall defend the interests of the consumers. After a decisive vote has been granted to the strategic investor, possibilities are created to violate the interests of the consumers. The state, by refusing a decisive vote in the company

8 8 Mažeikių nafta, violates Paragraph 5 of Article 46 of the Constitution as it will not be able to defend the interests of the consumers. By its decision of 28 August 2000, the Constitutional Court joined the petitions of the petitioners into one case. II In the course of the preparation of the case for the judicial consideration, the explanation of 14 December 1999 by D. Karvelis, a consultant to the Law Department of the Office of the Seimas, was received. It is maintained therein that, while assessing the compliance of Article 1 of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis with the norms of the Constitution, one has to take account of the factual circumstances of adoption of this law. Its norms created the legal pre-conditions for avoiding significant economic losses and created the conditions for privatising the oil sector. They regulate special legal relations arising in the course of the reorganisation of the joint-stock companies Būtingės nafta, Mažeikių nafta and Naftotiekis. According to the object of regulation, the impugned law should be considered a special normative legal act. Adopting this law, the Seimas did not violate the provision of Paragraph 3 of Article 46 of the Constitution that the State shall regulate economic activity so that it serves the general welfare of the Nation : it implemented the constitutional provision that the State shall defend the interests of the consumers. D. Karvelis noted that under the Statute of the Seimas, the laws pointed out in Article 150 of the Constitution, as well as amendments to the Constitution, other laws particularising the constitutional norms, which are indicated in the law on the list of constitutional laws, shall be considered constitutional laws. The Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis does not belong to such constitutional laws. There are no grounds to consider the Law on the Basics of National Security a constitutional law having the primacy over the impugned law. In the opinion of D. Karvelis, it is necessary to take account of the fact that in the valid laws the notion natural monopolies is not employed. European Union law does not prohibit the dominance of economic entities in the market. The prohibition against dominance would mean a certain limitation on the competition, and, thus, the interests of the consumers might suffer. The European Union Agreement prohibits the abuse of dominance that means the establishment of unfair prices of sale and purchase, limitation on production, the market or of technological development or their control to the disadvantage of the consumers, as well as the discrimination of entities on the basis of nationality.

9 9 III In the course of the preparation of the case for the judicial consideration, the explanation of 29 March 1999 by V. Pakalniškis, who was then the Minister of Justice of the Republic of Lithuania, was received. It is maintained therein that the Law on the Reorganisation of the Jointstock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis is a special law regulating the process of reorganisation of these enterprises, the investments and requirements to the owners of blocks of shares. The essence of the principle of the legal doctrine lex specialis derogat legi generali is that in case there is rivalry between a common and a special norm, the special norm should be applied. The aforesaid law itself defined the legal relation between it and the common laws (the Company Law, the Law on the Privatisation of State-owned and Municipal Property) by establishing that the procedure of reorganisation of the aforementioned companies is regulated by the Company Law, while their privatisation by the Law on the Privatisation of State-owned and Municipal Property in case the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis does not provide otherwise. Special norms might be established by the Seimas only, but not by the Government. Thus, the principle of the separation of powers was not violated. V. Pakalniškis is of the opinion that the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 29 September 1998, the Law On Supplementing and Amending Article 5 of the Law on Tax Administration, the Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania and the Seimas Resolution On the Recognition of a Strategic Investor are in compliance with the Constitution. In the course of the preparation of the case for the judicial consideration, the explanation of 26 March 1999 by V. Babilius, who was then the Minister of Economy of the Republic of Lithuania, was received. It is maintained therein that the Company Law provides for the possibility of reorganisation of joint-stock companies by way of merger, i.e. certain companies are joined to a company which continues its activities. The shareholders may adopt a decision to reorganise the company by not less than a two-thirds majority vote. Before the reorganisation the Government held the controlling block of shares of the aforementioned enterprises and adopted a decision, by legally sufficient majority vote, to reorganise the said enterprises. The special law on reorganisation of the said enterprises, if compared with the valid Company Law, does not provide for additional restriction or limitation on the exercise of ownership and non-ownership rights of the shareholders. The norm of Paragraph 2 of Article 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, providing for priority of the state in acquisition of the shares of the company Mažeikių nafta sold or otherwise transferred by the shareholders, does not infringe the right to inviolability of property as it merely establishes a certain

10 10 procedure of disposal of property. In the opinion of V. Babilius, the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 29 September 1998 is in compliance with the Constitution. In the course of the preparation of the case for the judicial consideration, the explanation of 21 March 2000 by the member of the Seimas S. Malkevičius was received. It is maintained therein that in the context of the case at issue the constitutional provision property shall be inviolable means that the norms of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis empower the state, which is the holder of the controlling block of shares, to exercise its rights of property possession, transfer, sale, granting etc. The norms of the said law are in line with system of the free market as every buyer has the right and an opportunity to choose a supplier. In the opinion of the member of the Seimas S. Malkevičius, the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 29 September 1998 is in compliance with the Constitution. In the course of the preparation of the case for the judicial consideration, the explanation of 15 March 2000 by V. Milaknis, Minister of the Economy of the Republic of Lithuania, was received. It is maintained therein that the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis is in compliance with Article 69 of the Constitution, according to the procedure of its adoption. The strategic interests and security of the state are secured by special laws irrespective of the form of ownership of economic entities. V. Milaknis is of the opinion that the norms of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis is in compliance with the Preamble to the Constitution and Articles 1 and 67 of the Constitution. The statement of the petitioners that the strategic investor has been given a decisive vote is untrue as the state still holds 59.3 percent of shares. The norm of Paragraph 1 of Article 2 of the impugned law does not infringe the right of the shareholders of the reorganised enterprise to dispose of their shares. In case the Government refuses to acquire the shares sold, the shareholders may sell them to a person they choose for the price announced earlier. According to V. Milaknis, the impugned law is in compliance with Paragraph 1 of Article 46 of the Constitution. In the course of the preparation of the case for the judicial consideration, the explanation of 16 March 2000 by G. Balčiūnas, Minister of Justice of the Republic of Lithuania, was received. It is maintained therein that the petitioner groundlessly considers the Law on the Basics of National Security a constitutional law. It is only the Seimas that decides matters of coordination of laws. The Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis was adopted lawfully as the common constitutional rules of adoption of laws were

11 11 being followed. Thus, the procedure of the adoption of the said law and its Articles 1 and 2 are in compliance with the Constitution. In the course of the preparation of the case for the judicial consideration, the explanation of 15 March 2000 by V. Vadapalas, Director General of the Department of European Law under the Government of the Republic of Lithuania, was received. It is maintained therein that it is provided in Paragraph 6 of Article 1 of the 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 that upon acquisition of shares by the strategic investor, and upon conclusion of agreements by the joint-stock company Mažeikių nafta on the acquisition of the right of control in the joint-stock company Klaipėdos nafta, the provisions of Chapter 3 of the Republic of Lithuania s Law on Competition shall not be applied. In itself, the dominance of an economic entity in the market does not mean abuse. The European Court of Justice has noted that the fact that an enterprise holds a dominant position does not mean a violation but it only means that regardless of the reasons of dominance a respective enterprise must abstain from conduct which might distort competition in the overall market. In another case the said court noted that actions undermining the competitive structure of the market may be held abuse stemming from the dominant position in the market and, therefore, had to be prohibited. IV At the Constitutional Court hearing the representatives of the petitioners the member of the Seimas V. P. Andriukaitis and the advocate G. Bulotas presented additional arguments substantiating the requests of the petitioners. At the Constitutional Court hearing the representative of the party concerned virtually reiterated the arguments set forth in his written explanation. A specialist, Dr. J. Kugelevičius, an expert of the Institute of Lithuanian Energetics, spoke at the Constitutional Court hearing. The Constitutional Court holds that: I 1. On 29 September 1998, the Seimas adopted the Law on the Reorganisation of the Jointstock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis, the Law On Supplementing and Amending Article 5 of the Law on Tax Administration, the Law On Supplementing Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania and the Resolution On the Recognition of a Strategic Investor.

12 12 The Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis provides for the procedure of reorganisation of the 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 it sets requirements for the owners of blocks of shares. The other aforesaid laws and the Seimas resolution are linked with the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis. On 9 November 1998, a group of Seimas members applied to the Constitutional Court with the petition requesting an investigation into whether the norms of the aforementioned legal acts were in compliance with the Constitution as to their content, whether the said laws were in conformity with the Constitution as to the procedure of their adoption, as well as whether the Seimas resolution was in compliance with the Constitution and the Law on the Basics of National Security. 2. By means of the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis passed on 3 June 1999, Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis was amended. On 22 June 1999, a group of Seimas members applied to the Constitutional Court with the petition requesting an investigation into whether the said law as to its content and procedure of adoption was in compliance with the Constitution. 3. Articles 3 and 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis were amended by the 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 of 5 October On 20 December 1999, a group of Seimas members applied to the Constitutional Court with the petition requesting an investigation into whether the said law as to its content and procedure of adoption was in compliance with the Constitution. 4. Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis was amended by the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 3 June 1999, while Articles 3 and 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis were amended by the 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 of 5 October The petitioners request the Constitutional Court to investigate the compliance of

13 13 the norms of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis in its initial wording and in its subsequent wordings with the Constitution. The Constitutional Court will investigate the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis in its wording of 5 October 1999 while taking account of the same law in its previous wordings. 5. Article 5 of the Law on Tax Administration was amended and supplemented by means of the Law On Supplementing and Amending Article 5 of the Law on Tax Administration of 29 September Taking account of the arguments presented by the petitioner, the Constitutional Court will investigate whether the provision of Paragraph 3 of Article 5 of the Law on Tax Administration, which is impugned by the petitioners, providing that the Government is entitled to prolong the term of not increase of taxes to the strategic investor for up to 10 years, is in compliance with the Constitution. 6. By Article 16 of the Republic of Lithuania s Law on Investment passed on 7 July 1999 the Law on Foreign Capital Investment in the Republic of Lithuania was recognised as null and void. The petitioners applied to the Constitutional Court concerning the compliance of the provisions of Paragraph 4 of Article 12 of the latter law. Under Paragraph 4 of Article 69 of the Law on the Constitutional Court, the annulment of an impugned legal act shall be grounds to adopt a decision to dismiss the initiated legal proceedings. Concerning this part of the case, the initiated legal proceedings should be dismissed. Alongside, the Constitutional Court notes that as for the challenged provision of Paragraph 4 of Article 12 of the Law on Foreign Capital Investment in the Republic of Lithuania providing that the Government is entitled to prolong the term of not increase of taxes to the strategic investor for up to 10 years, an analogous provision has been set forth in Paragraph 3 of Article 5 of the Law on Tax Administration. The Constitutional Court will investigate the compliance of this norm with the Constitution in the present case. 7. Under the Constitution, the Constitutional Court shall decide whether laws (parts thereof) of the Republic of Lithuania as well as resolutions (parts thereof) of the Seimas are in conformity with the Constitution and the laws. The Constitutional Court is not empowered to investigate and shall not investigate in this case any agreements or transactions signed by the Government with the strategic investor, which are linked with the impugned laws and the impugned Seimas resolution, nor shall it consider their preparation and conclusion nor their implementation. 8. In the requests of the petitioners doubts are raised whether the said laws are in conformity with the Constitution as regards the procedure of their adoption and their content.

14 14 First of all, the Constitutional Court will investigate whether the laws pointed out by the petitioners are in compliance with Article 69 of the Constitution which establishes the procedure of adoption of laws, including constitutional laws. II On the compliance of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 29 September 1998, the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 3 June 1999, the Law On Amending and Supplementing Articles 3 and 4 of the Law on the Reorganisation of the Jointstock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 5 October 1999 and the Law On Supplementing and Amending Article 5 of the Law on Tax Administration of 29 September 1998 with Article 69 of the Constitution. 1. In the opinion of the petitioners, the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis and the Law On Supplementing and Amending Article 5 of the Law on Tax Administration, both of which were passed on 29 September 1998, according to the procedure of their adoption conflict with the requirements set in Paragraph 1 of Article 69 of the Constitution as they were deliberated under the procedure of urgency provided for in the Statute of the Seimas but not in the law. Articles 3 and 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 29 September 1998 were amended and supplemented by the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 3 June 1999 and the 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 of 5 October 1999 the norms whereof, according to the petitioners, establish a different regulation than is provided for in the Law on the Basics of National Security, which should be considered a constitutional law. As the norms of a constitutional law may be amended only by at least a three-fifths majority vote of all the Seimas members, while the aforesaid laws were adopted by simple majority vote, the petitioner doubts whether the procedure of adoption of the said laws is in conformity with the requirements set in Article 69 of the Constitution. 2. Article 69 of the Constitution provides: Laws shall be enacted in the Seimas in accordance with the procedure established by law. Laws shall be deemed adopted if the majority of the Seimas members participating in the sitting vote in favour thereof.

15 15 Constitutional laws of the Republic of Lithuania shall be deemed adopted if more than half of all the members of the Seimas vote in the affirmative. Constitutional laws shall be amended by at least a three-fifths majority vote of all the Seimas members. The Seimas shall establish a list of constitutional laws by three-fifths majority vote of the Seimas members. Provisions of the laws of the Republic of Lithuania may also be adopted by referendum. The fundamental rules of legislation are set in this article of the Constitution. Deciding whether in the course of the adoption of the impugned laws there were violations of the Constitution, one should take into consideration the fact that under Article 76 of the Constitution, the structure and procedure of activities of the Seimas shall be determined by the Statute of the Seimas which shall have the power of law. The determination of the procedure of activities of the Seimas includes the regulation of the procedure of legislation. Part V of the Statute of the Seimas entitled Legislative Procedure provides for registration of draft laws and other draft acts of the Seimas, their presentation at Seimas sittings, their deliberation in the main committee and at Seimas sittings, consideration of a draft law under procedure of urgency and that of special urgency, adoption of the law at Seimas sittings etc. Thus, without violating the Constitution, the Seimas is entitled to establish a corresponding legislative procedure as well as consideration of draft laws under procedure of urgency by the Statute of the Seimas which has the power of law. In its ruling of 8 November 1993, the Constitutional Court held: The duty of the Seimas to act in accordance with the procedure of law enactment established by the Statute of the Seimas not only may be but, in fact, must be interpreted as a constitutional duty because it is conditioned by the provision established in Paragraph 1 of Article 69 of the Constitution. Taking account of the reasoning set forth, it should be concluded that the Seimas, while adopting laws, may consider them under procedure of urgency provided in the Statute of the Seimas. Therefore, there are not any legal grounds to assert that the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 29 September 1998, the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 3 June 1999, the 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 of 5 October 1999, and the Law On Supplementing and Amending Article 5 of the Law on Tax Administration of 29 September 1998, as regards the procedure of their adoption, conflict with Paragraph 1 of Article 69 of the Constitution. 3. The petitioners substantiate their statement by the fact that the laws by which Articles 3 and 4 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis were amended and supplemented conflict with Article 69 of the

16 16 Constitution as regards the procedure of their adoption, on the fact that the regulation established in the norms of the said laws is different from that established in the Law on the Basics of National Security, which is considered a constitutional law by the petitioners. The procedure of adoption of constitutional laws is set in Paragraph 3 of Article 69 of the Constitution. As mentioned before, these laws are deemed adopted if more than half of all the members of the Seimas vote in the affirmative, while they are amended by at least a three-fifths majority vote of all the Seimas members. The Seimas shall establish a list of constitutional laws by three-fifths majority vote of the Seimas members. In its ruling of 8 November 1993, the Constitutional Court held that only after approval of a list of constitutional laws under this procedure the laws entered on the said list shall be constitutional laws and the rule of their adoption and amendment by qualified majority vote as established in the Constitution may be applied to these laws only. Thus, in case a law is not entered on the list of constitutional laws, the procedure of adoption of constitutional laws defined in Paragraph 3 of Article 69 of the Constitution may not be applicable to the adoption of such a law. The Law on the Basics of National Security has not been included into the list of constitutional laws, thus, it is not a constitutional law. Alongside, it needs to be noted that this law does not regulate relations pertaining to legislature either, therefore, it does not condition peculiarities of adoption of the impugned laws. Taking account of the reasoning set forth, it should be concluded that the Law On Amending and Supplementing Article 3 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis of 3 June 1999 and the 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 of 5 October 1999, as to the procedure of their adoption, are in compliance with Paragraph 3 of Article 69 of the Constitution. III On the compliance of Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis with the principle of a state under the rule of law established in the Preamble to the Constitution, Article 1 and Paragraph 1 of Article 5 of the Constitution, and on the compliance of Paragraphs 1 and 7 of Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis with Paragraph 1 of Article 23 and Paragraphs 1 and 4 of Article 46 of the Constitution. 1. Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis provides:

17 17 1. The joint-stock companies Būtingės nafta, Mažeikių nafta and Naftotiekis shall be reorganised by way of merger, i.e. by joining the joint-stock companies Būtingės nafta and Naftotiekis to the joint-stock company Mažeikių nafta, the former two ceasing their activities as legal persons. 2. The governing board of every reorganised company shall draw up an extensive evaluation of the plan of reorganisation and shall present it to the general meeting of the shareholders. After the Government has approved the reorganisation plan, the general meetings of the shareholders of the joint-stock companies Būtingės nafta, Mažeikių nafta and Naftotiekis may, by at least a two-thirds majority vote, adopt a decision to reorganise the company and approve this plan and the prepared Articles of Association of the company which will be operating after the reorganisation. 3. The approved reorganisation plan and the minutes of the general meeting of the shareholders must be handed over to the supervisor of the register of enterprises within 5 working days from the day of the meeting which has approved the reorganisation plan. 4. The reorganisation of the joint-stock companies shall be announced publicly twice with an interval of not less than 14 days between the announcements. 5. The liabilities of the reorganised joint-stock companies Būtingės nafta and Naftotiekis shall be transferred to the joint-stock company Mažeikių nafta which will continue its activities. Every reorganised company must provide additional guarantees as regards fulfilment of their liabilities to every creditor who requests so. In cases when the reorganised companies lack sufficient financial and material resources to provide the additional guarantees, the Government must provide the creditors with the State guarantees under procedure provided by law. 6. The requirements of Paragraphs 9, 10, 11, 13 and 14 of Article 10 of the Company Law shall not be applicable to the reorganisation of the joint-stock companies Būtingės nafta, Mažeikių nafta and Naftotiekis. 7. In the reorganisation plan of the joint-stock companies Būtingės nafta, Mažeikių nafta and Naftotiekis it shall be provided that the shares of the oil products sales network (petrol stations) as well as those of the companies established on the basis of Plinkškiai hotel-recreational centre belonging to the joint-stock company Mažeikių nafta, as well as those of the company established on the basis of the shop making wooden articles, belonging to the joint-stock company Naftotiekis, shall be transferred respectively to the shareholders of the joint-stock companies Mažeikių nafta and Naftotiekis in proportion to the number of shares belonging to them, by respectively reducing the authorised capitals of the joint-stock companies Mažeikių nafta and Naftotiekis. In the course of the reorganisation, mistakes that were made in the formation (concerning the use of State budget appropriations for construction of dwelling-houses in the Vsevolozhsk district of the Leningrad region of the Russian Federation for settling the families

18 18 moving from Mažeikiai) and increase (transfer of the reservoirs of fuel stocks of the State to the joint-stock company Mažeikių nafta ) of the authorised capital of the joint-stock company Mažeikių nafta must be rectified. Decisions concerning reduction of the authorised capital shall be adopted by the general meetings of the shareholders of the joint-stock companies Mažeikių nafta and Naftotiekis where the issue regarding the reorganisation of the said enterprises will be decided. The reduction of the authorised capital of the joint-stock companies Mažeikių nafta and Naftotiekis shall be announced publicly twice with an interval of not less than 14 days between the announcements. Due to the reduction of the authorised capital of the joint-stock companies Mažeikių nafta and Naftotiekis, the amendments to the Articles of Association of the said companies shall not be specially recorded in the register of enterprises. 8. The guarantees of the State for the banks as regards the credits given to the joint-stock companies Būtingės nafta, Mažeikių nafta and Naftotiekis are also valid for the liabilities taken by the joint-stock company Mažeikių nafta which will continue its activities after the reorganisation. 2. The petitioners maintain that the norms of Article 2 of the Law on the Reorganisation of the Joint-stock Companies Būtingės nafta, Mažeikių nafta and Naftotiekis violate the principle of a state under the rule of law established in the Preamble to the Constitution, the provision of Article 1 of the Constitution stipulating that Lithuania shall be a democratic state, as well as the principle of the separation of powers entrenched in Paragraph 1 of Article 5 of the Constitution, and that Paragraphs 1 and 7 of Article 2 of the said law violate Paragraph 1 of Article 23 and Paragraphs 1 and 4 of Article 46 of the Constitution. 3. In the Preamble to the Constitution the striving for an open, just, and harmonious civil society and state under the rule of law is entrenched. In its ruling of 23 February 2000, the Constitutional Court held: < > the constitutional principle of a state under the rule of law is a universal one upon which the whole Lithuanian legal system as well as the Constitution of the Republic of Lithuania itself are based and < > the content of the principle 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 and state under the rule of law declared in the Preamble of the Constitution. Along with the other requirements, the principle of a state under the rule of law consolidated in the Constitution also pre-supposes the fact that human rights and freedoms must be ensured, that all state institutions exercising state authority, as well as other state institutions, must act on the grounds of law and in compliance with law, that the Constitution has the supreme juridical power and that the laws, government resolutions and other legal acts must be in conformity with the Constitution.