The abstract of the judgment (The judgment is available only in Georgian). Abstracts published by the Constitutional Court of Georgia summarise the facts of the case and key legal considerations of the judgment.

Abstract

On 17 October, 2017, the Grand Chamber of the Constitutional Court adopted the Judgement in the case of “Citizen of Georgia Nodar Dvali v. The Parliament of Georgia” (constitutional complaint №550) and partially upheld the claims raised in the complaint.

In the constitutional complaint №550 the complainant asked for declaration as unconstitutional of Article 185 and Article 312(2) of the Civil Code of Georgia with regard to Paragraphs 1 and 2 of Article 21 of the Constitution of Georgia.

The disputed provisions provided the rules protecting the conscientious buyer in case of transfer of a property by a person who is incorrectly registered as owner in the public register. More specifically, according to Article 185 of the Civil Code, in view of the interests of acquirer, the transferor is considered to be the owner, if s/he is registered as such in the public register, unless the acquirer knew that the transferor was not the owner. Moreover, Article 312(2) of the Civil Code, states that in favour of a person, who acquires property from the person incorrectly registered as owner in the public register, entry of the register is presumed to be correct, except for the cases, when the complaint is pending against the entry, or the acquirer knew that the entry was inaccurate.

The complainant requested to find the disputed provisions unconstitutional, as they excluded the right of a genuine owner to recover their ownership on wrongfully transferred real property. Moreover, the complainant explained, that neither the case law of the Supreme Court of Georgia, nor the legislation provided for an opportunity to retrieve the ownership by a genuine owner; in case of dispute, the conscientious acquirer was always privileged and the right to property of the original owner was left unsecured. The complainant referred to the present legal regime of movables and asserted that the rule of acquisition of immovable property should be analogous to the rule applicable to movables. More specifically, the complainant considered that it would be constitutional, if a conscientious acquirer would not be able to become the owner of the property, if the property was transferred out of the possession of its original owner against their will.

The respondent party explained, that the disputed regulation constituted a mechanism to strike a fair balance between the interests of a conscientious acquirer and the original owner. It serves the stability of civil circulation, reliability of records of civil register and insurance of simplicity and low cost of the process of acquisition of property. Despite the fact, that the right of ownership on the immovable property is transferred to the conscientious acquirer, the original owner can claim compensation of damages from the person, whose actions led to loss of right of ownership of the original owner.

The Constitutional Court of Georgia identified the claim raised in the complaint, in the first place and explained, that Article 185 of the Civil Code of Georgia deals exclusively with the cases of transfer of property right on the immovable property, while Article 312 has a broader scope and applies to the rights registered in the public register in general. Moreover, the disputed provisions protect the conscientious acquirer in every case of conclusion of deals based on payment of price. However, in view of the claims brought before the Constitutional Court, it only reviewed the constitutionality of that normative content of the disputed provisions, which protects the conscientious acquirer in conclusion of market deals on immovable property, that is with regard to those transactions, which is concluded between the two independent actors at the market and in which both parties act to ensure their best interests and to profit.

The Constitutional Court reviewed the constitutionality of the disputed provisions based on the principle of proportionality and pointed out that the disputed provisions served achievement of the valuable legitimate aim, which is insurance of stability, ease and low cost of civil circulation. However, in addition to the public interests of stability and ease, in this case there is a conflict between the interests of two individuals. The right of ownership on the real estate of an original owner is opposed to the interests of a conscientious acquirer. Therefore, the both conscientious actors have legal claim on the disputed property. At the same time, in case of any legal solution, it is inherently impossible to fully satisfy the interests of the both parties. Therefore, as the conflict of interests in inevitable, it entails the need of harmonization and fair balance. Therefore, the Court examined whether there was reached such a balance between the restricted right and the legal good secured as a result of this restriction.

The Constitutional Court interpreted, that obliging the conscientious acquirer to check every circumstance excluding the right of a registered owner in the process of acquisition of immovable property would make meaningless the existence of the public registry and also have significant chilling effect on the process of acquisition of property. In case of presence of such regulation, it would be necessary to collect and examine the whole chain of transactions and related documents, which is related to additional costs and time. Lack of such safeguards for protection of conscientious acquirer, as are provided in the disputed provisions would also increase the costs and complicate to certain extent concluding deals on real estate. At the same time in case of total lack of safeguards for conscientious acquirer, the original owner would have less incentive to demand the correction of entry in case of incorrect registration of his or her property on another person’s name and to bring the respective complaint, which would complicate the identification and eradication of incorrect entries present in the public register. Therefore the Court interpreted, that the regulation which privileges the conscientious acquirer vis-a-vis the owner of a property, does not disturb the fair balance between the private and public interests.

The Constitutional Court also noted, that the regulation should not incentivize reckless attitude of the acquirer towards the correctness of records of the public register. The legislator should not establish such system, in which the acquirer can ignore the information available to him raising questions about the correctness of the entries of the register. In view of the Court, if the acquirer is informed about the ongoing dispute about the correctness of an entry in the public registry, they should verify the right of the person, who transfers the property to them, or bear the risk generated by the inaccuracy of the entries of the public register. Presence of a complaint brought against the entry of the public register shows, that the real owner of the disputed property undertook due measures to eradicate the inaccuracy of the entry of public registry. The Court interpreted, that the goal of protection of the conscientious acquirer is to avoid artificial barriers on the purchase of property, however the regulation offered by the legislator should not rule out the minimal, reasonable obligation of checking, which accompanies the transactions related to real property. The Constitutional Court noted, that protection of an acquirer and considering them as conscientious should be excluded in case, there is a complaint pending and at the same time, the acquirer knows about it. The Court also interpreted what the complaint brought against the entry in the register should imply and declared that it can be: a. administrative dispute on making incorrect entry in the register or b. civil dispute about the ownership of a real estate.

The Constitutional Court interpreted that the regulation provided in Article 185 of the Civil Code of Georgia is different from the rule provided in Article 312(2). Article 185 of the Civil Code of Georgia sets forth the knowledge by the acquirer, that the person, who transfers the property is not an owner, as the only obstruction to transfer of ownership to the acquirer. Hence, the awareness about the pending complaint against the entry of the register does not prevent considering the acquirer as conscientious and transfer of ownership to him. The Constitutional Court decided, that Article 185 could be applied independently and there was a risk to consider a person as conscientious even if they knew about the pending complaint against the entry of the register. The Constitutional Court interpreted, that when the acquirer is informed about the dispute on the accuracy of the entry of the register, they must check the information about veracity of the right and bear the risk of voidness of the entry themselves.

Article 185 of the Civil Code of Georgia led to loss of ownership by the owner in more cases, than it was objectively necessary to achieve a legitimate goal. Therefore, the Constitutional Court found unconstitutional its normative content, according to which, “person who transfers the property to another is presumed to be the owner, if s/he is registered as such in the public registry” even when, there is a complaint pending against the entry of the register and this fact is known to the acquirer.

The dissenting opinion of the Judges – Giorgi Kverenchkhiladze, Irine Imerlishvili and Maia Kopaleishvili is appended to the Judgement.