News

18 April, 2019

Judgement on the Case of “'SKS LLC' vs. the Parliament of Georgia"

On 18 April 2019, the Constitutional Court of Georgia granted the constitutional complaint N655, filed by the legal entity “SKS LLC”, and declared unconstitutional the provision of the “Law on Public Procurement” that exempted the “Georgian Post LLC” from its regulatory scope.

Under the disputed provision, postal and courier services rendered by the Georgian Post to a contracting organisation were not subject to the public procurement legal regime, as established by the “Law on Public Procurement”.     

The complainant argued that the state has given preference to the Georgian Post, a commercial agent in the postal and courier service market, over their competitors by excluding other commercial agents from the relevant market. Therefore, the disputed law has created a legal prerequisite for the Georgian Post to establish a monopoly on the postal and courier service market, which per complainant’s submission, contradicted the freedom of enterprise and competition guaranteed by the Constitution of Georgia (article 26.4).

The respondent, the Parliament of Georgia, stated that the impugned regulation served the legitimate aim of providing postal and courier services with affordable price on the whole territory of the country, which, in essence, is a universal service in line with constitutional provisions.

The Constitutional Court indicated that state bodies and other entities funded from the state budget were allowed to circumvent the procedural requirements of the law and purchase postal and courier services solely from the Georgian Post. As a result, the latter was given a significant privilege, as unlike from other commercial agents on the same market, it has already served a significant number of guaranteed customers in the form of public procurement. The Constitutional Court thereby established that the disputed regulation interfered with the freedom of enterprise. The Court further noted that the constitutionally guaranteed freedom of enterprise is not an absolute right and may be subject to restrictions, provided they serve a legitimate public aim and observe the principle of proportionality.   

The Constitutional Court of Georgia emphasised that creating access to the postal and courier services for the population on the whole territory of the country is an important legitimate aim. The Court accepted the respondent`s position that the provision of postal and courier services in less populated and hardly accessible areas may not be commercially attractive. It thus followed that in order to ensure affordable prices for postal and courier services on the whole territory of the country, the interference in the relevant market may well be justified, inter alia, by establishing a preferential treatment for the Georgian Post. Nevertheless, the Constitutional Court indicated that any such benefits granted to the Georgian Post must be proportional to the services rendered.

It was concluded by the Constitutional Court that the legislation failed (a) to clearly define the obligation of the Georgian Post to provide postal and courier services with affordable price on the whole territory of the country; (b) to establish transparent and objective criteria for calculation of economic expenses necessary for provision of postal and courier services with affordable price on the whole territory of the country; and, (c) to incorporate a mechanism that would prevent the Georgian Post from abusing their market power by receiving benefits, which exceed adequate commercial expenses and reasonable profit. Therefore, the Constitutional Court declared that the disputed legal provision contradicted the freedom of enterprise and pronounced it unconstitutional.

Furthermore, the Constitutional Court noted that an immediate invalidation of the impugned legal act may negatively affect customers of the postal and courier services and thereby threaten the provision of such services with affordable price on the whole territory of the country. For this reason, the Constitutional Court granted the legislature, Parliament of Georgia, with reasonable time to address the said regulatory noncompliance in line with the Constitution by 1 May 2020, after which the disputed legal provision will be invalidated.