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On the provision of the Law on Personal Bankruptcy whereby the prohibition to overcome the force of a ruling of the Constitutional Court was disregarded

Case no 13/2020

 THE CONSTITUTIONAL COURT OF THE REPUBLIC OF LITHUANIA
IN THE NAME OF THE REPUBLIC OF LITHUANIA

RULING

ON THE COMPLIANCE OF PARAGRAPH 7 (WORDING OF 13 JUNE 2019) OF ARTICLE 29 OF THE REPUBLIC OF LITHUANIA’S LAW ON PERSONAL BANKRUPTCY WITH THE CONSTITUTION OF THE REPUBLIC OF LITHUANIA

19 May 2021, no KT74-N7/2021
Vilnius

The Constitutional Court of the Republic of Lithuania, composed of the Justices of the Constitutional Court: Elvyra Baltutytė, Gintaras Goda, Vytautas Greičius, Danutė Jočienė, Giedrė Lastauskienė, Algis Norkūnas, Daiva Petrylaitė, Janina Stripeikienė, and Dainius Žalimas

The court reporter – Vaiva Matuizaitė

The Constitutional Court of the Republic of Lithuania, pursuant to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1 and 531 of the Law on the Constitutional Court of the Republic of Lithuania, at the Court’s hearing, on 7 May 2019, considered, under written procedure, constitutional justice case no 13/2020 following the petition (no 1B-10/2020) of the District Court of Vilnius Region (Vilniaus regiono apylinkės teismas), the petitioner, requesting an investigation into whether Paragraph 7 (wording of 13 June 2019) of Article 29 of the Republic of Lithuania’s Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts may be written off, is in conflict with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution of the Republic of Lithuania and the constitutional principle of a state under the rule of law.

The Constitutional Court

has established:

I

The arguments of the petitioner

1. The District Court of Vilnius Region, the petitioner, applied to the Constitutional Court after suspending the civil case concerning the opening personal bankruptcy proceedings on the basis of a declaration by a natural person who considers that he/she cannot and will not be able to pay the debts ordered by a court order arising from the criminal acts committed by him/her.

2. In the opinion of the petitioner, the legal regulation established in Paragraph 7 (wording of 13 June 2019) of Article 29 of the Republic of Lithuania’s Law on Personal Bankruptcy (hereinafter also referred to as the Law on Personal Bankruptcy) is similar to the legal regulation consolidated in Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2016; wording of 22 December 2015, which came into force on 1 January 2017) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts were written off. The petitioner drew attention to the fact that by its ruling (no KT5-N4/2017) of 19 May 2017 on the compliance of the provisions of the Republic of Lithuania’s Law on Personal Bankruptcy with the Constitution of the Republic of Lithuania (hereinafter referred to as the Constitutional Court’s ruling of 19 May 2017), the Constitutional Court declared this legal regulation to have been in conflict with the Constitution of the Republic of Lithuania. It is clear from the petition that the doubts of the petitioner concerning the compliance of the impugned legal regulation with Paragraph 1 of Article 23 and Paragraph 2 of Article 30 of the Constitution and the constitutional principle of a state under the rule of law are based on the same arguments as the petition of the Supreme Court of Lithuania, the petitioner, in the constitutional justice case in which the Constitutional Court’s ruling of 19 May 2017 was adopted.

II

The arguments of the representative of the party concerned

3. In the course of preparing the case for the hearing of the Constitutional Court, written explanations were received from Mykolas Majauskas, a member of the Seimas of the Republic of Lithuania, the representative of the Seimas, the party concerned, in which it is stated that after the Constitutional Court recognised that the legal regulation identical to the impugned legal regulation was in conflict with the Constitution, there are no presumptions to present legal arguments in support of the opposite opinion. Therefore, according to the representative of the Seimas, the impugned legal regulation is in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state justice under the rule of law.

The Constitutional Court

holds that:

4. On 10 May 2012, the Seimas adopted the Law on Personal Bankruptcy, which consolidated the institution of the bankruptcy of a natural person and regulated the process of such a bankruptcy. Paragraph 7 of Article 29 of the Law on Personal Bankruptcy, which regulates the relationships between the creditors and the debtor after the completion of the bankruptcy process of a natural person, has been amended on more than one occasion.

5. In the context of the constitutional justice case at issue, it should be noted that, in its ruling of 19 May 2017, inter alia, the Constitutional Court examined the constitutionality of the legal regulation established in Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2016) of Article 29 “Satisfaction of Creditors’ Claims” of the Law on Personal Bankruptcy (hereinafter also referred to as Paragraph 7 of Article 29 of the Law on Personal Bankruptcy), under which claims for compensation for damage caused by criminal acts are written off upon termination of the bankruptcy proceedings of a natural person.

5.1. Paragraph 7 of Article 29 of the Law on Personal Bankruptcy prescribes: “Unsatisfied creditors’ claims, including those backed by collateral and/or hypothec, remaining in the plan upon the completion of the personal bankruptcy process, except for the case defined in Item 2 of Paragraph 3 of Article 30 of this Law, shall be written off, except for the claims for damages in relation to mutilation or other bodily injury, death, or cash (alimony) for the maintenance of a child/adopted child, claims arising from the natural person’s obligation to pay penalties to the state imposed for administrative offences or criminal acts committed by the natural person, and collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy proceedings of the natural person, unless otherwise agreed in the agreement referred to in Item 10 of Paragraph 4 of Article 4 of this Law.”

5.2. As it was noted in the Constitutional Court’s ruling of 19 May 2017, under the legal regulation consolidated in Paragraph 7 of Article 29 of the Law on Personal Bankruptcy, upon termination of bankruptcy proceedings of a natural person (except for the case defined in Item 2 of Paragraph 3 of Article 30 of this Law), unsatisfied creditors’ claims for compensation for damage caused by criminal acts were written off, therefore, the person who had caused such damage was no longer obliged to compensate all the damage caused (inter alia, the damage awarded by a court decision), and a person who had suffered such damage could not receive compensation for it.

In its ruling of 19 May 2017, the Constitutional Court also mentioned that, on 1 January 2017, Paragraph 7 (which was set out in other wording, the wording of 22 December 2015) of Article 29 of the Law on Personal Bankruptcy came into force, however, the legal regulation laid down in Paragraph 7 of Article 29 of the Law on Personal Bankruptcy did not change in the aspect relevant in the case at issue.

5.3. In its ruling of 19 May 2017, the Constitutional Court held that seeking to ensure a balance between the interests of an insolvent natural person and his/her creditors by means of the institution of the bankruptcy of a natural person, which is established in the law, the legislature may not deny the requirement, which arises from the Constitution, inter alia, from the principle of compensation for damage, laid down in Paragraph 2 of Article 30 thereof, as well as from the constitutional principles of justice and a state under the rule of law, that a person who sustained material and moral damage must be fairly compensated; when determining the conditions of releasing bankrupt natural persons from debt obligations, the legislature must not establish any such legal regulation according to which persons would be able to avoid the obligation to compensate for material and/or moral damage caused by them when committing a criminal act, and according to which a person who sustained the said damage would not be able to receive fair compensation for it.

In its ruling of 19 May 2017, the Constitutional Court assessed the legal regulation consolidated in Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2016; wording of 22 December 2015, which came into force on 1 January 2017) of Article 29 of the Law on Personal Bankruptcy as having created the preconditions for a person who caused damage to benefit from the criminal act that he/she had committed and to avoid, in principle, the obligation to make full compensation for the damage (inter alia, the part for which compensation has been awarded by a court decision), as well as having created the preconditions preventing a person who suffered such damage (who, as a result of the damage inflicted on him/her, became a creditor in the bankruptcy process of a natural person) from receiving fair compensation for the damage suffered.

6. In view of the above, by its ruling of 19 May 2017, the Constitutional Court recognised that Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2016; wording of 22 December 2015, which came into force on 1 January 2017) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, had been in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state under the rule of law.

7. On 17 May 2018, the Seimas adopted the Republic of Lithuania’s Law Amending Articles 1, 3, 5, 6, 7, 8, 9, 12, 27, 29, and 31 of, as well as the Annex to the Law (No XI-2000) on Personal Bankruptcy, and Supplementing the Law with Article 41, whereby, among others, as is apparent from the explanatory memorandum to the draft law, in implementing the Constitutional Court’s ruling of 19 May 2017, the Seimas amended Paragraph 7 (wording of 22 May 2015) of Article 29 of the Law on Personal Bankruptcy.

Paragraph 7 (wording of 17 May 2018) of Article 29 of the Law on Personal Bankruptcy prescribed: “Unsatisfied creditors’ claims, including those backed by collateral and/or hypothec, remaining in the plan upon the completion of the personal bankruptcy process, except for the case defined in Item 2 of Paragraph 3 of Article 30 of this Law, shall be written off, except for the claims for damages in relation to mutilation or other bodily injury, death, compensation for damage caused by an intentional criminal act or cash (alimony) for the maintenance of a child/adopted child, claims arising from the natural person’s obligation to pay penalties to the state imposed for administrative offences or criminal acts committed by the natural person, and collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy proceedings of the natural person, unless otherwise agreed in the agreement referred to in Item 10 of Paragraph 4 of Article 4 of this Law.”

Therefore, in implementing the Constitutional Court’s ruling of 19 May 2017, Paragraph 7 (wording of 17 May 2018) of Article 29 of the Law on Personal Bankruptcy established that, upon termination of the bankruptcy proceedings of a natural person, unsatisfied creditors’ claims for compensation for damage caused by criminal acts are not written off.

8. On 13 June 2019, the Seimas adopted the Republic of Lithuania’s Law Amending Articles 2, 6, 11, 12, 13, 14, 21, 23, and 29 of the Law (No XI-2000) on Personal Bankruptcy, which came into force on 1 January 2020. This law, among others, amended Paragraph 7 (wording of 17 May 2018) of Article 29 of the Law on Personal Bankruptcy.

Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, which is impugned by the petitioner, prescribed: “Unsatisfied creditors’ claims, including those backed by collateral and/or hypothec, remaining in the plan upon the completion of the personal bankruptcy process, except for the case defined in Item 2 of Paragraph 3 of Article 30 of this Law, shall be written off, except for the claims for cash (alimony) for the maintenance of a child/adopted child, claims arising from the natural person’s obligation to pay penalties to the state imposed for administrative offences or criminal acts committed by the natural person, and collateral-backed and/or hypothec-backed claims of creditors if these creditors and natural person have agreed on the preservation of the pledged property during the bankruptcy proceedings of the natural person, unless otherwise agreed in the agreement referred to in Item 10 of Paragraph 4 of Article 4 of this Law.”

Therefore, having established, by means of the impugned legal regulation consolidated in Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, the list of remaining unsatisfied creditor claims that were not written off upon termination of bankruptcy proceedings of a natural person, the claims arising from the damage caused by criminal acts were not included into this list. Under such a legal regulation, these claims are written off, thus creating preconditions for a person who has caused damage to benefit from the criminal act that he/she has committed and to avoid, in principle, the obligation to make full compensation for the damage, as well as the preconditions preventing a person who suffered such damage (who, as a result of the damage inflicted on him/her, became a creditor in the bankruptcy process of a natural person) from receiving fair compensation for the damage suffered.

9. Therefore, the impugned legal regulation, which is consolidated in Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy and under which claims for compensation for damage caused by criminal acts are written off upon termination of the bankruptcy proceedings of a natural person, is identical to the legal regulation consolidated in Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2016; wording of 22 December 2015, which came into force on 1 January 2017) of Article 29 of the Law on Personal Bankruptcy, which was, by means of the Constitutional Court’s ruling of 19 May 2017, declared to be in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state under the rule of law.

10. In view of the above, on the basis of the same arguments on the grounds of which, in its ruling of 19 May 2017, the Constitutional Court recognised that Paragraph 7 (wording of 22 December 2015, which was in force until 31 December 2016; wording of 22 December 2015, which came into force on 1 January 2017) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, had been in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state under the rule of law, it should be held that Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, is in conflict with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state under the rule of law.

11. It should also be held that Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, again consolidated such a legal regulation that had been declared unconstitutional by the Constitutional Court in its ruling of 19 May 2017. Therefore, this legal regulation consolidated in Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy overcame the force of the ruling of the Constitutional Court.

11.1. In this context, it should be noted that, under Paragraph 2 of Article 107 of the Constitution, decisions of the Constitutional Court on the issues assigned to its competence by the Constitution are final and not subject to appeal. As the Constitutional Court has noted, the finality and non-appealability of the decisions of the Constitutional Court established in Paragraph 2 of Article 107 of the Constitution are the basis for the constitutional prohibition on overruling the legal force of a final act of the Constitutional Court (decision of 19 December 2012).

While interpreting Paragraph 2 of Article 107 of the Constitution, the Constitutional Court held that:

it is prohibited from repeatedly establishing the legal regulation that has been ruled to be in conflict with the Constitution, by adopting certain laws or other legal acts afterwards (inter alia, the rulings of 30 May 2003 and 5 September 2012 and the decision of 19 December 2012), as well as such a legal regulation that is incompatible with the concept of constitutional provisions that is set out in the acts of the Constitutional Court (ruling of 5 September 2012 and decision of 19 December 2012); the constitutional prohibition on overruling the legal force of a final act of the Constitutional Court means also the prohibition on adopting a legal act (part thereof) the content whereof would be completely or partially identical to such a legal act (part thereof) where the legal regulation established in this act has been declared unconstitutional by the Constitutional Court (decision of 19 December 2012);

the constitutional prohibition on overcoming the force of a final act is one of the means, consolidated in the Constitution, for the protection of the Constitution in order to ensure the supremacy of the Constitution and the rule of law; disregard of the said prohibition denies the principle of the supremacy of the Constitution, which is consolidated in Paragraph 1 of Article 7 of the Constitution, and the related constitutional imperative of the rule of law, as well as other aspects of the principle of the supremacy of the Constitution, inter alia, the principle of the separation of powers, which is consolidated in Paragraph 1 of Article 5 of the Constitution, and the provision of Paragraph 2 of Article 5 thereof, whereby the scope of powers is limited by the Constitution (decisions of 19 December 2012 and 18 September 2015);

the opposite interpretation of Paragraph 2 of Article 107 of the Constitution would mean that, under the Constitution, the law-making subjects are provided with the opportunity to overrule the legal force of final acts of the Constitutional Court, i.e. the opportunity not to follow the Constitution and laws for a certain period of time, until the Constitutional Court repeatedly declares a relevant legal regulation to be in conflict with the Constitution; the recognition of such an opportunity would be equal to the denial of the essence of the principle of the supremacy of the Constitution and the constitutional imperative of the rule of law; thus, the said recognition would be inconsistent with the requirements for the administration of constitutional justice (decision of 19 December 2012).

11.2. Therefore, it should be held that, having established the impugned legal regulation, identical to the legal regulation declared by the ruling of the Constitutional Court of 19 May 2017, to have been, in terms of its content, in conflict with the Constitution, the legislature disregarded the prohibition, arising from Paragraph 2 of Article 107 of the Constitution, on overcoming the legal force of a final act of the Constitutional Court and, at the same time, denied the principle of the supremacy of the Constitution, laid down in Paragraph 1 of Article 7 of the Constitution, and the related constitutional imperative of the rule of law, as well as the principle of the separation of powers, which is consolidated in Paragraph 1 of Article 5 of the Constitution, and the provision of Paragraph 2 of Article 5 thereof that the scope of powers is limited by the Constitution.

12. In view of the foregoing arguments, the conclusion should be drawn that Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, are in conflict not only with Paragraph 2 of Article 30 of the Constitution and the constitutional principles of justice and a state under the rule of law, but also with Paragraphs 1 and 2 of Article 5, Paragraph 1 of Article 7, and Paragraph 2 of Article 107 of the Constitution.

13. Having held this, the Constitutional Court will not further investigate whether Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, to the extent specified by the petitioner, is in conflict with Paragraph 1 of Article 23 of the Constitution.

14. The Constitutional Court has note that the general rule consolidated in Paragraph 1 of Article 107 of the Constitution, that the legal force of decisions of the Constitutional Court is prospective is not absolute (inter alia, the rulings of 30 December 2003, 27 June 2016, and 2 September 2020).

14.1. In revealing the exceptions to this general rule, the Constitutional Court has held that a legal act (part thereof) whereby an attempt is made to overrule the legal force of a final legal act of the Constitutional Court must not be considered a legal basis for acquiring legitimate expectations, certain rights, or a legal status, i.e. the consequences of the application of such a legal act (part thereof) could be regarded as anti-constitutional, inter alia, the consequences that arose before the adoption of the decision of the Constitutional Court that this legal act (part thereof) is in conflict with the Constitution (decisions of 19 December 2012 and 18 September 2015); if the legislature, nonetheless, adopted a law whereby it disregards the said prohibition, such a law could not be a lawful ground for acquiring particular rights or a legal status (ruling of 5 September 2012 and decision of 19 December 2012).

14.2. The provisions of Paragraph 1 of Article 102 and Paragraph 2 of Article 107 of the Constitution, interpreted in the context of the principle of the supremacy of the Constitution, and the constitutional imperative of the rule of law, inter alia, give rise to the powers of the Constitutional Court, upon establishing in a constitutional justice case that an impugned legal act (part thereof) is in conflict with the Constitution and having assessed all circumstances, also to hold that this act (part thereof) should be assessed as a violation of the constitutional prohibition on overruling the legal force of a final act of the Constitutional Court, and to declare as anti-constitutional the circumstances of the application of such a legal act (part thereof) (decisions of 19 December 2012 and 21 March 2019); having established a violation of the constitutional prohibition on overruling the legal force of a final act of the Constitutional Court, the Constitutional Court, when deciding whether its ruling declaring a legal act (part thereof) violating this prohibition to be in conflict with the Constitution must be applied retroactively, must assess (in view of the circumstances of a constitutional justice case at issue) the possible consequences of such a retroactive application, inter alia, the fact whether such an application is possible at all, whether it would create such a burden upon society and the state that would be disproportionate to the objective aimed at removing completely the consequences of the anti-constitutional act, and whether it would create such consequences related to the said burden that would be especially unfavourable for human rights and freedoms (decision of 19 December 2012).

14.3. It should be held that the consequences that had arisen on the basis of the impugned unconstitutional legal regulation, which is consolidated in Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy and under which claims for compensation for damage caused by criminal acts are written off, before the date of the official publication of this ruling of the Constitutional Court must not be regarded as lawful, since, otherwise, the preconditions would be created for disregarding the Constitution, among other things, for denying the principle of the supremacy of the Constitution and the related imperative of the rule of law, the administration of constitutional justice, and the constitutional principles of the separation of powers and a state under the rule of law.

It should also be stated that, in this constitutional justice case, there are no circumstances due to which the retroactive application of this ruling of the Constitutional Court would be impossible, or that this application would impose such a burden on society and the state that would be disproportionate to the objective of completely eliminating the consequences of the anti-constitutional act, or that this application would have particularly unfavourable consequences for human rights and freedoms.

15. Therefore, having held that Paragraph 7 (wording of 13 June 2019) of Article 29 of the Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, is in conflict with, inter alia, Paragraphs 1 and 2 of Article 5, Paragraph 1 of Article 7, and Paragraph 2 of Article 107 of the Constitution, it should also be held that all consequences resulting from the application of the impugned legal regulation are anti-constitutional.

Conforming to Articles 102 and 105 of the Constitution of the Republic of Lithuania and Articles 1, 53, 531, 54, 55, and 56 of the Law on the Constitutional Court of the Republic of Lithuania, the Constitutional Court of the Republic of Lithuania gives the following

ruling:

To recognise that Paragraph 7 (wording of 13 June 2019, Register of Legal Acts, 27-06-2019, No 10340) of Article 29 of the Republic of Lithuania’s Law on Personal Bankruptcy, insofar as, under this paragraph, claims for compensation for damage caused by criminal acts are written off, is in conflict with Paragraphs 1 and 2 of Article 5, Paragraph 1 of Article 7, Paragraph 2 of Article 30, and Paragraph 2 of Article 107 of the Constitution of the Republic of Lithuania, as well as with the constitutional principles of justice and a state under the rule of law.

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

Justices of the Constitutional Court:             Elvyra Baltutytė

                                                                                 Gintaras Goda

                                                                                 Vytautas Greičius

                                                                                 Danutė Jočienė

                                                                                 Giedrė Lastauskienė

                                                                                 Algis Norkūnas

                                                                                 Daiva Petrylaitė

                                                                                 Janina Stripeikienė

                                                                                 Dainius Žalimas