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 28 May 2019, the Second Board of the Constitutional Court rendered its judgment in the case of “Remzi Sharadze v. The Minister of Justice of Georgia” (constitutional complaint №867). Under the disputed provision, in enforcement proceedings, in case the property was not realized on the first two auctions, the price of the property would be 0 GEL. The claimant argued that the possibility of realizing property in exchange for an inappropriately low price was in breach of the debtor’s right to property.

In the view of the respondent, the lack of possibility to determine 0 GEL as the initial price of the property in the compulsory auction would result in endless auctions, would complicate enforcement of decisions and would harm the interests of creditors. Accordingly, the disputed provision was balancing interests of creditors on one hand, and those of the property owner on the other.

According to the Constitutional Court, the disputed provision envisaged mandatory alienation of the property against the will of the owner. At the same time, the owner did not participate in determination of the initial price. The Court noted that the issue of managing the property and, among others, determining price of the property was part of the owner’s constitutional right. Thus, from this point of view, the disputed provision restricted the right to property.

The Court agreed with the respondent in that the legitimate aim of the disputed provision was to secure satisfaction of the creditors’ claims. The Court noted that in a legal state, it is important that all persons are protected in cases of non-performance of civil-law obligations. Persons should apprehend that in a civil-law relationship, in case of non- performance of duties by other party, there are effective legal measures that can protect their interests. Thus, the Court ruled that satisfying the creditors’ recognized lawful claims is a legitimate aim of such a value, the achievement of which could justify restriction of the right to property.

While examining the balance of interests envisaged by the disputed provision, the Constitutional Court noted that the Constitution does not establish an obligation to conduct endless amount of compulsory auctions. Hence, at some point, when the chances of selling a property for a high price are minimal, it might objectively be necessary to determine 0 GEL as an initial price. However, before conducting an auction with such an initial price, the government must undertake all the reasonable measures aiming to ensure realization of the property in a proper price.

The Constitutional Court pointed out that when determining price of the property on first and second auctions, transitional rights (such as mortgage) pertaining to it were not taken into account. In the process of alienation of property, existence of transitional rights implied that it is encumbered by certain property rights, which would pertain to it even after alienation. Existence of such an encumbrance could not have transformed a third party to an addressee of the claim, however, it implied that the said third party had the right to satisfy his or her claims from the property transferred into the ownership of the purchaser. Therefore, the Constitutional Court ruled that transitional rights pertaining to a subject significantly diminished the real value of the property in question. Thus, within the scope of the existing regulations, it was possible for the initial price of the property on first two auctions to be significantly higher than the real value, which obviously minimized the chances of its realization.

Taking into account all the above-mentioned, the Constitutional Court concluded that before determining 0 as an initial price of the auction, the government was not undertaking all the reasonable measures aiming to sell the property for a relatively high price. Accordingly, the restriction of the right prescribed by the disputed provision was deemed unconstitutional.

The Court found that in case of declaring the disputed norm void upon publication of the judgment, before regulation of the matter in accordance with the Constitution, it would have been impossible to conduct a second auction (including those on the property which would not have been encumbered by transitional property rights in case of realization), which might have harmed the interests of parties to the enforcement proceedings. Hence, the Court postponed invalidation of the disputed norm until 31 August 2019, in order to give the Minister of Justice of Georgia reasonable time for regulating the matter of proceedings regarding mandatory auctions in compliance with the Constitution.