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Content updated: 18-03-2020 09:58

The Law on the Prohibition of Unfair Actions on the Part of Economic Operators Buying and Selling Raw Milk and Trading in Milk Products is unconstitutional in terms of the procedure of its adoption

06-02-2020

 

By its ruling adopted today, the Constitutional Court has recognised that the Law on the Prohibition of Unfair Actions on the Part of Economic Operators Buying and Selling Raw Milk and Trading in Milk Products (wording of 25 June 2015) (hereinafter referred to as the Law on the Prohibition of Unfair Actions) is, in terms of the procedure of its adoption, in conflict with Paragraphs 2 and 3 (“The scope of power shall be limited by the Constitution. State institutions shall serve the people”) of Article 5 of the Constitution and the constitutional principles of a state under the rule of law and responsible governance. The Constitutional Court has also recognised that Article 3 (wording of 22 December 2015 with the amendment of 31 May 2018) and Article 5 (wording of 31 May 2018) of the Law on the Prohibition of Unfair Actions are not in conflict with the Constitution.

The Constitutional Court noted that the Law on the Prohibition of Unfair Actions was amended and supplemented by the laws amending and supplementing the Republic of Lithuania’s Law on the Prohibition of Unfair Actions on the Part of Economic Operators Buying and Selling Raw Milk and Trading in Milk Products, which were adopted by the Seimas on 22 December 2015 and 31 May 2018; these laws set out the said Articles 3 and 5 of the law in a new wording. Their compliance with the Constitution under the procedure of adoption was not a matter for investigation in this constitutional justice case. Therefore, upon the entry into force of this ruling of the Constitutional Court, the specified laws amending and supplementing the Law on the Prohibition of Unfair Actions will remain in force; however, the legal regulation established in the Law on the Prohibition of Unfair Actions may be inconsistent and include gaps.

In view of the fact that a certain period of time is necessary to remove the said regulatory gaps and uncertainties of the legal regulation established in the Law on the Prohibition of Unfair Actions (with subsequent amendments and supplement of 22 December 2015 and 31 May 2018), which was declared unconstitutional, and to ensure its internal coherence, this ruling will be officially published in the Register of Legal Acts on 1 July 2020.

The group of members of the Seimas, the petitioner, impugned the compliance of the Law on the Prohibition of Unfair Actions with the Constitution in terms of the procedure of its adoption on the basis, among other things, of the fact that this law was adopted under special urgency procedure without specifying the reasons substantiating the application of this procedure.

In its ruling of 16 April 2019, the Constitutional Court held that the duty of the Seimas to comply with the rules concerning the stages of the legislative process and the adoption of laws, which are established in the Constitution, laws, or the Statute of the Seimas, is not an end in itself; this duty is aimed at ensuring compliance with the requirements of publicity and transparency of the legislative process, as well as the quality requirements for the acts of the Seimas, which stem from Paragraphs 2 and 3 of Article 5 of the Constitution and the constitutional principles of a state under the rule of law and responsible governance. The application of the special urgency procedure of deliberation of laws and other acts of the Seimas provides very limited possibilities to ensure that the said requirements of publicity and transparency of the legislative process and the quality requirements for the laws and other acts of the Seimas be followed. Therefore, under the Constitution, when deliberating draft laws and other acts of the Seimas, the special urgency procedure may be applied only in exceptional constitutionally grounded cases, where it is necessary to ensure immediately the vital interests of society and the state, for example, when imposing or upon imposition of martial law or a state of emergency, when announcing or upon the announcement of mobilisation, when adopting a decision to use the armed forces in the event of an armed attack and (or) when a need arises to fulfil the international obligations, due to natural disaster or under other extreme circumstances, in the event of such a threat to the security of the state or society, the elimination of which requires the decisions of utmost urgency of the legislature.

The Constitutional Court emphasised that the fact that, in the above-mentioned ruling of 16 April 2019, Paragraph 1 of Article 164 (wording of 30 May 2016 ) of the Statute of the Seimas was declared to be in conflict with the Constitution, insofar as, under the established legal regulation, the consideration of draft laws and other legal acts of the Seimas could be subject to special urgency procedure not only in exceptional constitutionally grounded cases, may not in itself be the grounds for impugning the compliance of the laws and other acts of the Seimas, which were adopted by applying special urgency procedure prior to the publication of the said ruling of the Constitutional Court, with the Constitution only due to the fact that this procedure was applied not in the exceptional constitutionally grounded case. However, the petition considered in this constitutional justice case had been received at the Constitutional Court prior to the publication of the Constitutional Court’s ruling of 16 April 2019; therefore, there was no ground not to investigate the compliance of the Law on the Prohibition of Unfair Actions with the Constitution in terms of the procedure of its adoption.

In assessing the compliance of the Law on the Prohibition of Unfair Actions with the Constitution in terms of the procedure of its adoption, the Constitutional Court held that it was obvious from the factual circumstances linked to the adoption of the Law on the Prohibition of Unfair Actions and relevant to this constitutional justice case that this draft law had been adopted while applying, upon the proposal of the Speaker of the Seimas, the procedure of deliberation of special urgency without specifying the reasons substantiating the application of this procedure, thus, among other things, without the existence of such a threat to the security of the state or society, the elimination of which had required the decisions of utmost urgency of the legislature. As there were no reasons substantiating the application of the special urgency procedure, the legislature did not follow the constitutional requirement to deliberate draft laws and other acts of the Seimas under special urgency procedure only in exceptional constitutionally grounded cases, thus, also the requirements of publicity and transparency of the legislative process and the quality requirements for the laws and other acts of the Seimas, which stem from the Constitution, among other things, Paragraphs 2 and 3 of Article 5 thereof and the constitutional principles of a state under the rule of law and responsible governance.

The petitioner impugned, among other things, the compliance of Article 4 of the Law on the Prohibition of Unfair Actions with the Constitution. Having held that the Law on the Prohibition of Unfair Actions was in conflict with the Constitution in terms of the procedure of its adoption, the Constitutional Court did not examine in this case whether Article 4 of the same law was in conflict with Article 29 and Paragraph 3 of Article 46 of the Constitution and the constitutional principle of a state under the rule of law.

In the constitutional justice case at issue, the Constitutional Court also assessed the compliance of Article 3 (with the amendment of 31 May 2018) and Article 5 (wording of 31 May 2018) of the Law on the Prohibition of Unfair Actions with Paragraphs 1 and 3 of Article 46 of the Constitution, which consolidates freedom of individual economic activity and the obligation of the state to regulate economic activity so that it serves the general welfare of the people.

While deciding whether the impugned legal regulation was in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution, the Constitutional Court noted that, under the Constitution, among other things, Paragraphs 1 and 3 of Article 46 thereof, and the constitutional principles of a state under the rule of law and justice and the general legal principle of bona fides (the principle of good faith), while taking into account the specificity of a certain economic activity and having assessed the situation and significance of a certain sector of economy for Lithuanian economy, as well as in seeking to ensure the balance between the interests of economic operators and to prevent these economic operators from unfair economic activity and from abusing of a dominant market position, the legislature may establish such a legal regulation of economic activity in a relevant sector, among other things, in the milk sector, which would establish special limitations applied to economic operators operating in that sector of economy, also including the imperative provisions prohibiting specific unfair actions as defined therein in the field of contractual relations of these economic operators; this legal regulation would also provide for control over the observance of such provisions and liability for violations thereof. In doing so, the legislature must respect the Constitution, among other things, the constitutional principle of proportionality, and must not deny the essential provisions of freedom of economic activity, which are consolidated in Article 46 of the Constitution, among other things, freedom of contract.

Article 3 of the Law on the Prohibition of Unfair Actions consolidates the general principal that unfair actions on the part of economic operators when buying and selling raw milk are prohibited; this article also indicates the specific prohibited unfair actions linked to unilateral termination and amendment of an agreement on sales and purchase of raw milk, the purchase price of raw milk, the quantity of sales and purchase of raw milk, and the duty to purchase raw milk of the composition and quality assessed in accordance with the established procedure. These provisions should be considered as imperative legal norms that may not be amended, limited or annulled by the agreement of contracting parties. Article 5 of this law establishes the duty of a buyer of raw milk to justify the reduction of the purchase price of raw milk laid down in the agreement on sales and purchase of raw milk by more than 3 percentage points and to provide this justification to the public institution Rural Business and Markets Development Agency, as well as it lays down the procedure for assessing whether such a reduction is justified and consolidates the prohibition to reduce the purchase price of raw milk if it is established that such a reduction is not justified.

The factual circumstances linked to the situation in the milk sector of Lithuanian economy, among other things, to the situation of the sellers (producers) of raw milk, are important in this case. The Constitutional Court held that the Lithuanian milk sector is particularly significant to the economy of the country; in Lithuania, a substantial (significant) part of economic operators are engaged in the production and sales of raw milk; however, the structure of Lithuanian milk sector is unfavourable for the sellers (producers) of raw milk, among other things, in the aspect that the powers of most sellers (producers) of raw milk to negotiate on the buying-in price of raw milk and other conditions were and continue to be weak in comparison with those of milk processors and other buyers thereof.

Thus, as the Constitutional Court held, by means of the imperative legal norms established in Article 3 of the Law on the Prohibition of Unfair Actions, the buying and selling of raw milk are regulated while taking account of the structural characteristics of Lithuanian milk sector and its significance for national economy and in pursuing the legitimate objectives that are important to society – to ensure a balance between the legitimate interests of the sellers (producers) and buyers of raw milk by defending the rights and legitimate interests of the weaker contractual party, i.e. the sellers of raw milk, as well as the interest of society to maintain a sustainable level of Lithuanian milk sector; therefore, in seeking the welfare of not individual persons, but precisely the general welfare of the people.

The Constitutional Court held that these provisions do not prevent the sellers, buyers, and processors of raw milk from both concluding agreements on sales and purchase of raw milk, of their own free will, and amending and terminating these agreements; they also do not prevent from agreeing on other specific conditions of an agreement provided that they are in line with the said imperative legal norms. Those provisions do not preclude the sellers and buyers of raw milk from agreeing on a different purchase price of raw milk to be applied on the basis of an objective criterion (quantity of milk sold) to sellers of raw milk belonging to different groups and, on the basis of that criterion, to sellers of raw milk belonging to the same group and, taking into account the method of delivery of the raw milk and the composition and quality of the milk delivered, or from reducing the purchase price of raw milk where there are objective reasons for doing so. In view of this and in the light of the factual circumstances established in this constitutional justice case, there are no grounds for stating that such a legal regulation of economic activity denies one of the essential provisions of freedom of economic activity, which is consolidated in Article 46 of the Constitution, freedom of contract, and that the rights and freedoms of economic operators (sellers, buyers, and processors of raw milk) are restricted clearly more than necessary in order to reach the said objectives, i.e. that the prohibition of unfair actions established by the above-mentioned legal regulation, as a measure of the legal regulation of economic activity, is disproportionate.

Having held this, on the basis of the same arguments, the Constitutional Court also held that also Article 5 of the Law on the Prohibition of Unfair Actions was not in conflict with Paragraphs 1 and 3 of Article 46 of the Constitution.

In this case, the preliminary ruling of the Court of Justice of the European Union of 13 November 2019 was received, in which it was interpreted that European Union law does not preclude national legislation such as consolidated in Items 1 and 3 of Paragraph 3 of Article 3 and Article 5 of the Law on the Prohibition of Unfair Actions, provided that these provisions are appropriate for attaining the objective pursued and they do not go beyond what is necessary in order to attain that objective; this must be examined by the court that has referred for a preliminary ruling.