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HEADNOTES
A
dispositive legal act cannot be the content of a legal fiction without
violating the dispositive principle on which the civil trial is built,
and ultimately also violating the principle of autonomous will
[(judgment of the Constitutional Court Pl. ÚS 42/08 of 21 April 2009 (N
90/53 SbNu 159; 163/2009 Coll.)]. The provision of § 399, paragraph 2,
the part of the second sentence after the semi-colon of the Insolvency
Act, whereby the fiction of withdrawal of a petition for debt discharge
denies a party to a bankruptcy proceeding the possibility of disposition
of the proceeding, is inconsistent with Art. 2 par. 3 of the Charter
and Art. 2 par. 4 of the Constitution of the Czech Republic, as well as
with Art. 36 par. 1 of the Charter.
CZECH REPUBLIC
CONSTITUTIONAL COURT
JUDGMENT
IN THE NAME OF THE CZECH REPUBLIC
On 27 July 2010, the Plenum of the Constitutional Court, composed of Court Deputy Chairwoman Eliška Wagnerová and Judges Stanislav Balík, Vlasta Formánková, Ivana Janů, Vladimír Kůrka, Dagmar Lastovecká, Jiří Mucha, Jan Musil, Jiří Nykodým, Miloslav Výborný and Michaela Židlická, ruled a petition from the High Court in Olomouc seeking the annulment of part of § 399 par. 2, the part of the second sentence after the semi-colon, of Act no. 182/2006 Coll., on Insolvency and Methods of Resolving It (the Insolvency Act), as follows:
The
provision of § 399 in paragraph 2, the part of the second sentence
after the semi-colon, of Act no. 182/2006 Coll., on Insolvency and
Methods of Resolving It (the Insolvency Act), which reads: “if he does
not appear without an explanation, or if the insolvency court does not
find his explanation to be justified, he is deemed to have withdrawn the
petition for debt discharge,” is annulled as of the day this judgment
is promulgated in the Collection of Laws.
REASONING
I. Recapitulation of the Petition
1.
On 3 July 2009 the Constitutional Court received a petition from the
High Court in Olomouc seeking the annulment of part of § 399 par. 2, the
part of the second sentence after the semi-colon, of Act no. 182/2006
Coll., on Insolvency and Methods of Resolving It (the Insolvency Act).
The contested provision constructs the legal fiction of withdrawal of a
petition for debt discharge if a debtor does not, without an
explanation, appear at a meeting of creditors called to discuss the
manner of debt discharge and voting on the adoption thereof, or if the
insolvency court does not find his explanation to be justified. This
provision is then related to § 394 par. 2 of the Insolvency Act, under
which the insolvency court takes cognizance of the withdrawal of the
petition by a decision that is delivered to the person who filed the
petition, the debtor, the insolvency administrator and the creditors’
committee, and § 396 par. 1 of the Insolvency Act, under which the
consequence of withdrawal of the petition for debt discharge is that the
debtor’s insolvency is handled in bankruptcy proceedings. In judgment
file no. Pl. ÚS 42/08 of 21 April 2009, the Constitutional Court
annulled part of § 394, paragraph 2, the part of the sentence after the
semi-colon, which read: “an appeal is not permissible.” The judgment was
promulgated in the Collection of Laws on 9 June 2009 as no. 163/2009
Coll.
2.
The petitioner stated that it is conducting insolvency proceedings,
file no. KSOS 16 INS 4988/2008, 2 VSOL 87/2009, in which the insolvency
court applied § 394 par. 2 of the Insolvency Act, in the wording in
effect until 8 June 2009, as well as § 369 par. 1 (evidently meaning §
396 par. 1) and § 399 par. 2 of the Act. The insolvency proceeding was
opened at the Regional Court in Ostrava – Olomouc branch (the “Regional
Court”) on 8 December 2008; the debtor filed a petition to permit debt
discharge, together with the insolvency petition. In its resolution of
20 January 2009, ref. no. KSOS 16 INS 4988/2008-A-9, the Regional Court
determined that the debtor was insolvent, appointed an insolvency
administrator, and permitted resolution of the insolvency through debt
discharge. At the same time it ordered a review hearing on 5 March 2009,
which was to take place at 9:00 a.m. in the offices of the Regional
Court, and it called a creditors’ meeting for the same time and place,
which was to take place immediately after the conclusion of the review
hearing. Although the debtor was duly summoned, he failed to appear at
the creditors’ meeting, without providing an explanation. Therefore, on
that date the Regional Court issued resolution ref. no. KSOS 16 INS
4988/2008-B--12, in which it took cognizance of withdrawal of the
petition to permit debt discharge, opened a bankruptcy proceeding
concerning the debtor’s assets, and decided that the bankruptcy
proceeding would be conducted as a simplified bankruptcy proceeding. The
debtor contested this decision in full, in an appeal in which he
claimed that he was prevented from attending the creditors’ meeting by
poor health, which he supported by a confirmation from his doctor of 10
March 2009. The debtor asked the petitioner to annul the resolution
opening bankruptcy proceedings concerning his assets and to return the
matter to the Regional Court for further proceedings, or that the
petitioner itself rule on debt discharge by setting a payment calendar.
According to the petitioner, it is also worth noting the content of the
official record prepared after the creditors’ meeting by the insolvency
judge, according to which, on 5 March 2009 at 10:00 a.m. the debtor was
in the law office of Mgr. K. in Šumperk, where he stated that he
believed the review hearing and the creditors’ meeting were to take
place at the District Court in Šumperk.
3.
The petitioner stated that in judgment file no. Pl. ÚS 42/08 the
Constitutional Court stated the legal opinion that § 394 par. 2 of the
Insolvency Act, the part of the sentence after the semi-colon, was
unconstitutional because of its connection, in application, to the
evidently unconstitutional part of § 399 par. 2 (the sentence after the
semi-colon) of the Insolvency Act, which reads: “if he does not appear
without an explanation, or if the insolvency court does not find his
explanation to be justified, he is deemed to have withdrawn the petition
for debt discharge.” In that judgment the Constitutional Court
emphasized that one of the fundamental principles governing a civil
trial is the dispositive principle. Withdrawal of the petition to permit
debt discharge is a dispositive act by the debtor, and it follows from
its nature that it cannot be the content of a legal fiction, i.e. it
cannot be deemed that the debtor withdrew the petition when he did not
in fact do so. Therefore, the fiction of withdrawal of the petition
constructed by § 399 par. 2, the part of the second sentence after the
semi-colon, of the Insolvency Act is, under the cited judgment,
inconsistent with the nature of a civil proceeding.
4.
Art. 89 par. 2 of the Constitution of the Czech Republic gives the
general courts an obligation to decide in accordance with legal opinions
stated in Constitutional Court judgments, not only in the particular
matter concerned in a judgment, but also in matters that address similar
or identical issues. In its judgment file no. III. ÚS 252/04 of 25
January 2005 (N 16/36 SbNU 173), the Constitutional Court emphasized the
obligation, when deciding other cases of the same kind, to be guided by
the “ratio decidendi,” i.e. the controlling legal rules (grounds for
decision) explained and applied in the judgment. Thus, the petitioner
reflected the legal opinion of the fiction of withdrawal of a petition
to permit debt discharge as stated in judgment file no. Pl. ÚS 42/08.
5.
In support of the arguments contained in the judgment, the petitioner
referred to the framework for withdrawal of a petition contained in § 96
of Act no. 99/1963 Coll., the Civil Procedure Code, as amended by later
regulations, (the “Civil Procedure Code”), in relation to which court
practice concluded that a petition can be withdrawn only by an act which
does not give rise to any doubts as to its content and meaning, and it
is thus quite unquestionable that the party to the proceeding has no
interest in having his petition addressed, and agrees that the court
will not rule on this petition. While the Civil Procedure Code presumes
an understandable and certain expression of will, without any
conditions, the Insolvency Act allows the consequences of withdrawal to
arise without the debtor’s expression of will having met the conditions.
6.
For these reasons, the petitioner concluded that § 399 par. 2, the part
of the second sentence after the semi-colon, of the Insolvency Act is
inconsistent with Art. 36 par. 1 and Art. 38 par. 2 of the Charter of
Fundamental Rights and Freedoms (the “Charter”). If the dispositive
authorization of a party to the proceeding is replaced by a legal
fiction, as a result of which, due to the party’s inactivity, or even
only on the basis of the court’s evaluation, the entire proceeding is
stopped, then according to the petitioner that construction is also
inconsistent with Art. 2 par. 3 of the Charter. Therefore, in accordance
with Art. 95 par. 2 of the Constitution of the Czech Republic and § 64
par. 3 of Act no. 182/1993 Coll., on the Constitutional Court, as
amended by later regulations, (the “Act on the Constitutional Court”)
the petitioner submitted the matter to the Constitutional Court, asking
that it annul § 399 par. 2, the part of the second sentence after the
semi-colon, of the Insolvency Act as of a date that it sets in its
judgment.
7.
In conclusion the petitioner pointed to the fact that the insolvency
proceeding cannot be interrupted, and that the consequences of opening
bankruptcy proceedings concerning the debtor’s assets arose by
publication of the decision in the insolvency register, and proposed
that the Constitutional Court address its petition as urgent under § 39
of the Act on the Constitutional Court, because further steps within a
bankruptcy proceeding may lead to changes that will make the originally
permitted debt discharge impossible for the debtor. Moreover, according
to the petitioner, a decision on this petition, if it is granted, may
also be important for the insolvency proceedings of other debtors.
II. Conduct of the Proceeding and Recapitulation of the Statements of the Parties
8.
In accordance with § 69 of the Act on the Constitutional Court, the
Constitutional Court called on the Chamber of Deputies of the Parliament
of the Czech Republic and the Senate of the Parliament of the Czech
Republic, to respond to the petition.
9.
The Chamber of Deputies, through its Chairman, Ing. Miloslav Vlček,
stated that the bill of the Insolvency Act was discussed in the first
reading on 26 October 2005, as publication 1120, and was then assigned
to the Constitutional Law Committee, which discussed it at its meetings
on 1 December 2005 and 20 January 2006; it recommended passing it, as
amended by a comprehensive amending proposal contained in Committee
Resolution no. 235 (publication 1120/1), which also newly amended § 399
par. 2 of the Insolvency Act. The second reading of the bill took place
on 27 January 2006, and the amending proposals presented in it were
processed as publication 1120/2. The bill was approved in the third
reading on 8 February 2006, as amended by the comprehensive amending
proposal from the Constitutional Law Committee and other amending
proposals. The Act was then signed by the appropriate constitutional
authorities and promulgated in the Collection of Laws as no. 182/2006
Coll. The provision in question was not affected by later amendments to
the regulation.
10.
The Senate of the Parliament of the Czech Republic stated that the bill
of the Act whose provision is proposed to be annulled was passed to it
on 28 February 2006, and the Organization Committee assigned it for
discussion, as publication no. 288, to the Constitutional Law Committee
and the Committee for the Economy, Agriculture, and Transportation. The
bill was discussed by both committees on 15 March 2006, and 22 March
2006; both recommended adopting the Act in the wording approved by the
Chamber of Deputies. The bill was approved by the Senate at its 10th
session, as resolution no. 416 of 30 March 2006; out of 54 senators
present, 49 voted to adopt the Act, no one voted against, and 5 of those
present abstained from voting. There was no discussion concerning the
provision that is the subject of the proceedings before the
Constitutional Court; discussion concerned the institution of debt
discharge only as regards the possibility of applying it in the case of a
legal person that is not an entrepreneur. Thus, in the approval process
no opinion was stated that would either support or refute the
petitioner’s claim that § 399 par. 2 of the Insolvency Act is
unconstitutional. The senate discussed the bill within the bounds of the
competence provided by the Constitution of the Czech Republic and in
the constitutionally prescribed manner; it acted on the basis of the
majority belief that the Act was in accordance with the constitutional
order of the Czech Republic and with its international obligations. It
is now up to the Constitutional Court to evaluate the constitutionality
of the provision in question.
11. All parties to the proceedings agreed to waive a hearing, under § 44 par. 2 of the Act on the Constitutional Court.
III. The Text of the Contested Statutory Provision
12. The contested provision of the Insolvency Act reads:
§ 399
§ 399
[…]
(2) The insolvency court shall deliver to the debtor and insolvency
administrator, using personal delivery, a summons to the creditors’
meeting pursuant to paragraph 1, with instructions that their presence
is necessary. The debtor is required to take part in the meeting
personally and answer questions from the creditors present; if he does
not appear without an explanation, or if the insolvency court does not
find his explanation to be justified, he is deemed to have withdrawn the
petition for debt discharge.
[…]
IV. Petitioner’s Active Standing
13.
Under Art. 95 par. 2 of the Constitution of the Czech Republic, if a
court concludes that a statute that is to be applied when adjudicating a
matter is inconsistent with the constitutional order, it shall submit
the matter to the Constitutional Court. Further specifics on this
authorization are given in § 64 par. 3 of the Act on the Constitutional
Court, under which a court may submit to the Constitutional Court a
petition seeking annulment of a statute or of individual provisions
thereof. The condition for addressing such a petition on the merits is
that the wording of Art. 95 par. 2 of the Constitution of the Czech
Republic must be met, meaning that the statute must be one that is to be
applied in adjudicating the matter, i.e. the statute, or its
provisions, that is proposed to be annulled is to be applied directly by
the petitioner when resolving the particular dispute. The
Constitutional Court found that this condition had been met, because the
petitioner will review the justification for the debtor’s appeal
against the insolvency court’s decision, issued precisely due to the
effects of the legal fiction of withdrawal of the petition that is
contained in the contested provision. The Constitutional Court verified
the facts concerning the conduct of the insolvency proceeding in the
Regional Court’s file KSOS 16 INS 4988/2008, available electronically at
https://isir.justice.cz (the insolvency register).
14.
For completeness, the Constitutional Court notes that a conclusion that
the petitioner is authorized is not inconsistent with the opinion
stated in judgment file no. Pl. ÚS 42/08, in which the Constitutional
Court stated that the same petitioner did not have active standing to
submit a petition seeking the annulment of part of § 399 par. 2 of the
Insolvency Act (point 22 of the judgment). That legal opinion arose in a
particular procedural situation, where annulling the provision in
question was not part of the proposed judgment of the petition, and,
especially, where the Constitutional Court addressed the issue of
whether it is even in the petitioner’s competence at all to rule on the
appeal on the merits. In other words, as regards judgment file no. Pl.
ÚS 42/08, the petitioner was in a situation where it had to address the
issue of permissibility of an appeal, and not the issue of justification
of the appeal, and therefore at that time it was not directly applying
the contested provision. Of course, in the presently adjudicated matter,
as already explained, the situation was different.
V. Constitutional Conformity of the Legislative Process
15.
In a proceeding on a petition seeking the annulment of a statute or
part thereof, the Constitutional Court reviews whether the contested
legal regulation was adopted and issued within the bounds of the
competence provided by the Constitution of the Czech Republic and in a
constitutionally prescribed manner (§ 68 par. 2 of the Act on the
Constitutional Court). As the constitutional adoption of the contested
part of the Insolvency Act was not questioned by any of the parties to
the proceeding, the Constitutional Court verified the constitutional
conformity of the legislative process only formally, using publicly
available sources (http://www.psp.cz),
and found that all the prescribed procedures were observed during the
adoption of the contested legal regulation. Regarding the conduct of the
legislative process, one can refer in full to the recapitulation
provided by the parties to the proceeding (points 9 and 10 of this
judgment).
VI. The Constitutional Court’s Legal Review
16.
The provision of § 399 par. 2 of the Insolvency Act imposes on a debtor
for whom debt discharge has been permitted, an obligation to take part
in a creditors’ meeting and answer their questions; in the event of the
debtor’s unexplained absence, the statute imposes a penalty in the form
of the fiction of withdrawal of the petition, and the resulting effects.
As a result of applying this fiction, the debtor loses the opportunity
of resolving his insolvency through debt discharge, and bankruptcy
proceedings are opened against him (§ 396 par. 1 of the Insolvency Act).
The insolvency court takes cognizance of the withdrawal of the petition
by a resolution (§ 394 par. 2 of the Insolvency Act).
17.
The Constitutional Court has already considered the complex of
provisions regulating the consequences of a debtor who has been
permitted debt discharge missing the creditors’ meeting, in judgment
file no. Pl. ÚS 42/08, published as no. 163/2009 Coll., in which it
annulled § 394 paragraph 2, the part of the sentence after the
semi-colon, of the Insolvency Act, which ruled out an appeal against a
decision in which a court took cognizance of withdrawal of a petition.
In the cited judgment, the Constitutional Court stated that, in terms of
preserving the insolvency debtor’s right to a fair trial, it appears
necessary that a remedy exist against a court decision issued on the
basis of the fiction of withdrawal of a petition under § 399 par. 2 of
the Insolvency Act, both for purposes of correcting obvious errors that
may appear in the court’s actions (e.g., the debtor’s explanation is
filed in a different file), and because the effects of the fiction may
arise as a result of the insolvency court’s evaluative judgment (if the
insolvency court does not find the explanation to be justified).
18.
At the same time, the Constitutional Court critiqued the construction
of the legal fiction contained in § 399 par. 2 of the Insolvency Act:
“The civil proceeding rests, among other things, on two fundamental
principles – the dispositive principle, and the adversarial principle.
The close relationship between substantive private law and public civil
procedure law is best expressed through the dispositive principle. The
meaning and purpose of civil procedure law is to protect subjective
private rights, i.e. public civil procedure law serves private
substantive law, and if it does not fulfill that role, it loses its
meaning. The functional connections between private substantive love,
which is based on the autonomous will of parties to private law
relationships, and public civil procedure law and reflected in
procedural law primarily through the dispositive principle, which
governs civil trials. The dispositive principle is a specific reflection
of private law autonomous will in the area of a civil trial. The
parties have the right, in accordance with the dispositive principle, to
freely handle both the proceeding and the subject matter of the
proceeding. Procedural rights, which are derived from the dispositive
principle, are reserved exclusively to the bearers of these rights
through dispositive procedural acts; it follows from the nature of these
dispositive procedural acts that they cannot be the subject of a legal
fiction, i.e. it cannot be specified that someone withdrew a petition
even though he did not do so. The legal construction of the fiction of
withdrawal of a petition for debt discharge is inconsistent with the
nature of a civil trial, which applies not only to an adversarial civil
trial, but to any kind of civil court proceeding, i.e. including an
insolvency proceeding. A dispositive legal act cannot be the content of a
legal fiction without violating the dispositive principle on which the
civil trial is built, and ultimately also violating the principle of
autonomous will. As the Constitutional Court stated, e.g. in judgment
file no. I. ÚS 167/04, of 12 May 2004 (N 70/33 SbNU 197), autonomy of
will and free individual action is guaranteed at the constitutional
level by Art. 2 par. 3 of the Charter of Fundamental Rights and
Freedoms. Art. 2 par. 3 of the Charter must be understood in two senses.
Its first dimension represents a structural principle, under which
state power can be exercised vis-à-vis the individual and his autonomous
sphere (including autonomous volitional expression) only in situations
where the individual’s conduct violates an expressly formulated
prohibition provided by law. However, such a prohibition must also
reflect only the requirement consisting of preventing the individual
from interfering in the rights of third parties, and in promoting the
public interest, if it is legitimate and proportional to such limitation
of the individual’s autonomous behavior. This principle must be
understood as an essential requirement of every democratic state
governed by the rule of law (Art. 1 par. 1 of the Constitution of the
Czech Republic). Art. 2 par. 4 of the Constitution has a similar
content. In its second dimension, Art. 2 par. 3 of the Charter functions
as an individual’s subjective right to have the state power respect the
autonomous expression of his personality, including volitional
expression that is reflected in his specific behavior, provided such
behavior is not expressly forbidden by law. Art. 2 par. 3 of the
Charter, in its second dimension, where it functions as an individual’s
fundamental right, must be applied directly. This dimension does not
mean mere that it radiates into ordinary law, but is a subjective right
that is in effect directly vis-à-vis the state power. Therefore, state
bodies are required, when applying ordinary law, to interpret the norms
of that right, which reflect Art. 2 par. 3 of the Charter and Art. 2
par. 4 of the Constitution as an objective constitutional principle, so
as not to interfere in the individuals’ subjective right to autonomy of
the will, which is also guaranteed by Art. 2 par. 3 of the Charter in
its second dimension.’. The obligation to respect the autonomy of the
will applies not only to the bodies that interpret and apply the law,
but undoubtedly also for legislators. Therefore, on one hand the attempt
to speed up a proceeding is desirable, but on the other hand it cannot
take such a form that, by replacing a procedural act by a party it
actually takes away his possibility to act freely. Therefore, mature
legal orders use, e.g. the institution of presumptions only when
determining the factual state of affairs, i.e. in clarifying and
determining the decisive factual circumstances. Thus, institutions that
accelerate the process (e.g. a default judgment or preclusive deadlines)
are used only in an area to which the adversarial principle applies,
and it is not possible, in the interests of speeding up the proceeding,
to use these means for disposition of the proceeding and the subject
matter of the proceeding. It is not a function of a legal fiction to
make certain decisive facts more probable, all the more so a fiction
cannot apply to a party’s fundamental right to disposition of the
proceeding and the subject matter of the proceeding (further, see Macur,
J. Rozsudek na základě fikce uznání nároku podle ustanovení § 114b o.
s. ř. [Decision on the Basis of the Fiction of Recognizing a Claim under
§ 114b of the Civil Procedure Code] Bulletin Advokacie, no. 2/2002, pp.
28–36).” (point 20 of Constitutional Court judgment file no. Pl. ÚS
42/08).
19.
The Constitutional Court also emphasized that the fiction of withdrawal
of a petition for debt discharge is unacceptable from a constitutional
law viewpoint even more so because it is not a mere procedural act
whereby the party acts for disposition of the proceeding, but it has
fundamental substantive law consequences for debtor and creditor (the
subsequent opening of bankruptcy proceedings). It was only the
petitioner’s lack of active standing in the proceeding under file no.
Pl. ÚS 42/08 that prevented the Constitutional Court from then canceling
the now contested part of § 399 par. 2 of the Insolvency Act (cf. point
22 of the cited judgment).
20.
The Constitutional Court had no reason to diverge from the
abovementioned conclusions; therefore, it stated that § 399, paragraph
2, the part of the second sentence after the semi-colon of the
Insolvency Act, whereby the fiction of withdrawal of a petition for debt
discharge denies a party to a bankruptcy proceeding the possibility of
disposition of the proceeding, is inconsistent with Art. 2 par. 3 of the
Charter and Art. 2 par. 4 of the Constitution of the Czech Republic, as
well as with Art. 36 par. 1 of the Charter, wherefore it ruled, under §
70 par. 1 of the Act on the Constitutional Court, that this provision
is annulled as of the day this judgment is promulgated in the Collection
of Laws.