Composition of the Chamber

Besarion Zoidze – Chairman of the Hearing, Judge Repporteur

Vakhtang Gvaramia – Member

Iakob Futkaradze – Member,

Nikoloz Shashkin – Member

Secretary of the Hearing: Darejan Chaligava

Title of the Case: Citizens of Georgia – Citizen of Georgia Valeri Gelashvili v. The Parliament of Georgia

The subject of the dispute – Constitutionality of the Resolution of the Parliament of Georgia of March 31, 2006 “On Preterm Termination of the Membership of Parliament of Valeri Gelashvili” in respect of article 53, sections 1 and 2 and article 54, section 2, clause “d” of the Constitution of Georgia.

Participants of the Oral Hearings: held on 12^nd, 15^th and 19^th, 26^th and 27th  of June and 4^th of July 2006: Claimant Mr. Valeri Gelashvili and his representatives Ms. Tinatin Khidasheli, Mr. Zurab Marakvelidze and Mr. Kakha Kukava; Representative of the Respondent – the Parliament of Georgia- the Members of Parliament of Georgia: Mr. Pavle Kublashvili, Mr. Nika Gvaramia and the Head of the Division for the Representation in Courts of the Legal Department of Parliament of Georgia – Mr. Batar Chankseliani; Witnesses – Minister of Education and Science of Georgia, Mr. Alexandre Lomaia, Chair of the Committee of Procedural Issues and Rules of the Parliament of Georgia Ms. Khatuna Gogorishvili, Director of LLC Evra, Ms. Megi Lomidze, the Teacher of the Tbilisi Secondary School no. 84 Ms. Gulnara Frangishvili and Director of “Fund of Avlabar” Mr. Alexandre Chkheidze and Specialists – Founder of the Law Firm “Migriauli and Partners”, Candidate of Juridical Sciences Mr. Roin Migriauli and Head of the Legislative Department of the Justice Ministry of Georgia, Candidate of Juridical Sciences Mr. Vasil Gonashvili.

Mr. Valeri Gelashvili lodged a constitutional complaint with the Constitutional Court of Georgia on April 13, 2006 (Registration no. 378). Pursuant to the recording notice dated May 2, 2006 the case was admitted for examination on its merits. The Constitutional Complaint was lodged under article 54, section 1 of the Constitution of Georgia, article 19, section 1, clause “g” and article 40 section 1 of the Organic Law of Georgia “On the Constitutional Court of Georgia”, and article 15 and article 16 of the Law of Georgia “On Constitutional Litigation”.

According to the constitutional claim, the claimant Valeri Gelashvili was a member of the Parliament of Georgia and pursuant to the impugned Resolution, his mandate as a member of parliament was terminated prior to the end of his term. The Parliament of Georgia based its decision on preterm termination of his membership on the Report of the Committee of Procedural Issues and Rules No. 4592/4-12 dated March 30, 2006, which contained information, that Valeri Gelashvili, Member of Parliament, proposed to the Minister of Education and Science of Georgia, Alexandre Lomaia to build a new building of the secondary school no. 84 instead of the old building through the LLC EVRA.

This fact was proved by Ms. Gulnara Prangishvili with whom Mr. Gelashvili negotiated concerning the building. The Parliament of Georgia found the Mr. Gelashvili committed acts envisaged in articles 53, section 1 of the Constitution of Georgia, article 8.1, 8.3(b) of the Law of Georgia “On the Status of Members of Parliament of Georgia”, article 9.1 and 9.3(b) of the Regulations of the Parliament of Georgia. Pursuant to the article 54, section 2, clause “d” of the Constitution and article 7.2(d) of the Regulations of Parliament of Georgia, the mandate of Mr. Gelashvili was terminated.

The constitutional claim states that the Claimant, Mr. Gelashvili was not involved in the relationships between LLC EVRA and Ministry of Education and Science of Georgia. He spoke to Mr. Alexander Lomaia on behalf of the “Fund of Avlabari” and this fact was duly mentioned in the explanation given in writing to the Committee of Procedural Issues and Rules of the Parliament of Georgia. The fact, that the Claimant is founder and shareholder of LLC EVRA shall not be qualified as entrepreneurship, as under article 8.2 of the Law of Georgia “On Status of Member of the Parliament of Georgia”, “Requirements related to incompatibility of entrepreneurship with the mandate of a member of the Parliament of Georgia do not infringe the right to property enshrined in the Constitution of Georgia. He may hold shares, stock and other property.” Representatives of the Claimant asserted that Valeri Gelashvili trusted his shares for management to another person and thus did not violate requirements of the Georgian Legislation and the Constitution. He did not act in a role of either management or representation bodies of the Company, as he was neither director of LLC EVRA, nor member of the supervising, controlling, revision or consulting body.

The Claimant was sent a notice on consideration of the merits of the case pursuant to the rules set forth in the Legislation, but he did not attend the hearing of the case. The Chamber deemed it necessary that the Claimant personally attended the hearing and gave explanations in respect to certain issues mentioned in the constitutional complaint and representatives of Mr. Gelashvili were repeatedly informed about it. The representatives stated that there was no necessity for Mr. Gelashvili to attend the hearing, as they were capable of fully representing him and responding to any questions. Therefore the court hearings were held without participation of the Claimant personally.

According to the representatives of the claimant, Mr. Gelashvili met Mr. Lomaia because his residential house was being built in Avlabari District and he had school age children. Due to these reasons he had joined the initiators and authors of “Fund of Avlabari” idea and acted charitably to improve the outlook of the district of his residence. He was informed about the development plan for Avlabari territory. He was also informed that there was an old building of the Secondary School No. 84 on the territory adjacent to the market. Therefore, he proposed to the Minister, that the Ministry could use the development plan and have a modern school building instead of the outdated and damaged building.

According to the representatives of the Claimant, the negotiations led by Mr. Gelashvili with the teachers of the Secondary School No. 84 are not proven. It is not evident from the testimony of the witness Ms. G. Frangishvili that Mr. Gelashvili spoke to her as representative of LLC EVRA. Therefore, the representatives of the Claimant assert, it is impermissible to qualify the actions of Mr. Gelashvili, on one hand, as “business negotiations” “in interests and on behalf” of “the commercial legal person owned by him” and on the other hand as “”carrying out personal management and representation of the company in the interests of the company.”

Therefore, the representatives of the Claimant deem that the impugned Resolution shall be declared unconstitutional and invalid and the mandate of the Member of the Parliament of Georgia Valeri Gelashvili shall be restored.

Representatives of the Respondent, the Parliament of Georgia urge that the constitutional claim shall not be upheld. Adopting the impugned resolution, the Parliament found it proved that on 28^th of October, 2005 the Member of Parliament of Georgia, Valeri Gelashvili met the Minister of Education and Science of Georgia, Alexander Lomaia and proposed to build through the LLC EVRA a new school building instead of an old building of the Secondary School No.84 at a different site. Mr. Gelashvili also met a teacher at this school, Ms. Prangishvili, who was acting director of the school at that moment, and talked to her about building a new school on a different site instead of the old building and proposed two options in this respect. The representatives of the Respondent consider that through these actions Mr. Gelashvili represented LLC EVRA in the relationships with third persons. The fact that proposition made by Mr. Gelashvili to Mr. Lomaia and Ms. Frangishvili in respect of destruction of the building of the Secondary School No. 84 and building a new school at a different site presented the business interest of LLC EVRA, confirms the finding of the Resolution. The finding is also confirmed by the letter of the Director of LLC EVRA, Ms. Megi Lomidze, which was sent to Mr. Lomaia after 3 days from the meeting of Mr. Gelashvili and Mr. Lomaia and which contained an identical proposition to the one made previously by Mr. Gelashvili in conversation with Mr. Lomaia.

The representatives of the respondent state that Mr. Gelashvili carried out business negotiations with the Minister, Alexander Lomaia on behalf of the private company, LLC EVRA, which served the interests of the Company. He acted consistently with the structural subordination, trying to remove problems at the lowest structural unit (teachers of the school), in order to avoid problems afterwards, when the authority capable to make decisions in respect of the building of the school would consider the issue. He carried out negotiations with the Minister of Education and Science of Georgia, Mr. Lomaia, as the Ministry was authorized to participate in making the relevant decision. Mr. Gelashvili tried thus to create for LLC EVRA favourable business conditions, and therefore he committed acts incompatible with the status of a member of the Parliament of Georgia and thereby violated the Constitution and legislation of Georgia. In the opinion of representatives of the Respondent, not merely formal indicators, such as officially taking the office of the director of the company makes the action of the Member of Parliament incompatible with his/her mandate, but also the actual performance of the duties of the member of the management body (director) of the company. The factual conduct of the entrepreneurial activities by the Member of Parliament, which is mostly non-evident, is substantially more dangerous, in the view of the representatives of Respondent, than the open and declared breach of law by assuming the office of the director.

The witness, Alexander Lomaia stated in the court hearing that the Member of the Parliament, Mr. Gelashvili visited him on 28^th of October. He declared that his construction company, LLC EVRA had interest in the territory, on which the Secondary School No. 84 was located. The Member of Parliament expressed his interest in having his company demolish the old building and build a new school in the conversation and he discussed several options. According to the explanations given by the witness, Mr. Lomaia proposed to Mr. Gelashvili to apply in writing to the Ministry of Education and Science, to start discussion of the issue. On 31^st of October, he was delivered a letter signed by the Director of LLC EVRA, Ms. Lomidze; the content of the letter was analogous to the conversation of Mr. Lomaia and Mr. Gelashvili. The issue was discussed but resolved negatively, as under the law, an educational building may be privatized exclusively in the case that the building is amortized and cannot serve for educational purposes. There is a special procedure set forth in the law, which was not met and therefore the proposition of LLC EVRA was declined and its representatives were informed about this decision. Afterwards, on 7^th of March the Director of the Secondary School No. 84 applied to the Ministry with a letter stating that the Member of Parliament and businessman, Mr. Gelashvili conducted construction work on the land adjacent to the School building. The Director of the School informed the Ministry that a wall of the school building was lacking structural support and renovation works should be undertaken. The Director of the school blamed the LLC EVRA in damaging of the school building, as it had interests in the school territory.

The witness Khatuna Gogorishvili declared to the Court that she is chair of the Committee of Procedural Issues and Rules of the Parliament of Georgia, which prepared the report on the entrepreneurial activities of the Member of Parliament Valeri Gelashvili. The Committee examined the declaration of Mr. Gelashvili, checked the registration information of the legal persons founded by Mr. Gelashvili, questioned witnesses, including the Minister of Education and Science and teachers of the Secondary School No. 84. Members of the Committee made a telephone call to Mr. Gelashvili who refused to arrive in Georgia and sent his explanations in writing. In telephone conversation, he confirmed that he met with Mr. Lomaia, though he explained that he met the Minister on behalf of the non-governmental organization “Avlabari”. Originally, a different report was prepared by the Committee. However, after Mr. Kukava presented to the Committee the documents certifying the Mr. Gelashvili transferred his shares of LLC EVRA to other person for administration purposes, the project was modified and final formulation of the resolution was adopted.

The witness, Megi Lomidze declared that since September 1, 2004, she has been the Director of the construction company LLC EVRA. The sole partner and 100% shareholder of LLC EVRA is Mr. Gelashvili. The witness asserted that Mr. Gelashvili did not participate in the management of the company. She also declared that in respect to the letter sent to the Ministry of Education and Science, she solely composed and sent the letter and Mr. Gelashvili was not informed about it. The witness asserted that she was not informed about the meeting of Mr. Gelashvili and the Minister of Education and Science.

The witness Alexander Chkheidze explained to the court that he was the co-director of the “Fund of Avlabari” in 2000-2005. Mr. Gelashvili was willing to be the founder of the fund. He informally met the founders, though ultimately he was not appointed as the founder of the fund. However, in the opinion of the witness, even if Mr. Gelashvili were the founder of “Fund of Avlabari”, he would still have no authorization to act of behalf of the Fund.

The witness Gulnara Prangishvili stated that she is a teacher and the schoolmistress of the Secondary School No. 84. At the time of meeting with Mr. Gelashvili, she was an acting director of the school as it was summer and the teachers were on vacation. Mr. Gelashvili visited the school, met her and asked about the width of the territory on which the school was located and the width of the schoolyard. He was also asking about whether the staff of the school would agree to move to another place, in case the new school building were built at other place. The witness stated that Mr. Gelashvili proposed several options of the future location of the school; the witness accepted one of them. Then, Mr. Gelashvili declared that he would negotiate the issue at the Ministry of Education. The witness explained that the teachers of the school addressed the Minister only after the construction works carried out on the adjacent land damaged the school wall, and information given by her on Mr. Gelashvili was broadcast on several television stations on the day when the school building was burnt.

The specialist, Mr. Roin Migriauli stated in the report presented to the Court that Georgian Corporate Law does not consider the company partner or its director as parties to entrepreneurial relationships. Only the entrepreneurial company and individual entrepreneur are considered entrepreneurs. Under the legal definition, entrepreneurial activity is defined as profit-seeking activity, which is organized, independent and lawful and has regular character. The directors are entitled to manage limited liability companies. The director of the company is a person who is registered as director at the Corporate Register. No other person is entitled to carry out any management activities in the company, and the management activities carried out by a non-authorized person are not legally valid. In the opinion of the specialist, the negotiations conducted by Mr. Gelashvili with the Minister of Education and Science, Alexander Lomaia and with the Staff of the Secondary School No. 84 on behalf of LLC EVRA in respect of building a new school instead of the old one, shall not be qualified as management and representation activity in terms of the Law of Georgia on Entrepreneurs and the activities undertaken by him shall not be considered to be entrepreneurial activities.

The specialist Vasil Gonashvili declared that the entrepreneurial activities are deemed incompatible with the mandate of the Member of Parliament under the legislation of many states. The incompatibility may be divided into three directions:

1. Prohibition against any entrepreneurial activities;

2. Prohibition against holding an office in the company and carrying out its relevant duties;

3. Prohibition against ownership of the shares.

Under Georgian legislation, carrying out entrepreneurial activities is incompatible with the mandate of a Member of Parliament. A Member of Parliament is also not allowed to carry out the duties of the director of a company. In the opinion of the specialist, the Claimant violated the Constitution of Georgia and the requirements of legislation and he conducted the activities incompatible with his status.

The Chamber invited the professor Hans-Peter Shneider (Hannover, Germany) as specialist and he presented to the Court report in writing. It is stated in the report that a ban on entrepreneurial activity is imposed on the Federal President, Federal Chancellor and Federal Ministers in Germany. Under the explanation given in case law, performance of entrepreneurial and professional activities comprises any type of private labour activities. In the view of the specialist, in order to terminate the mandate of the Member of Parliament, it must be proved that Mr. Gelashvili not only alluded to his company during the conversations on the new school building, but also definitely proposed his construction company for the new school building. Only in case this fact is proved it would be possible to bring charges against him for carrying out entrepreneurial activities.

Based on the examination of the merits of the case and analysis of the information in the constitutional complaint, the speeches of the parties to the constitutional litigation, the testimonies of the witnesses, reports of the specialists and written evidence in the case, the First Chamber of the Constitutional Court made the following findings, crucial to the decision:

1. The Chamber declares that the mandate of the Member of Parliament, the Claimant Valeri Gelashvili was terminated pursuant to the Resolution of Parliament dated March 31, 2006 (No. 2828-IS) “On Preterm Termination of the Mandate of the Member of Parliament Valeri Gelashvili”. It is stated in the Resolution, “The Parliament of Georgia considers the information contained in the Report No. 4592/4-12 dated March 30, 2006 of the Committee on Procedural Issues and Rules on the visit of Mr. Gelashvili to the Minister of Education and Science of Georgia, Alexander Lomaia in 2005 and proposition to build a new school instead of the old building of the Secondary School No. 84 through LLC EVRA to be confirmed. The content of the conversation is confirmed by the explanations given by the Minister of Education and Science on the session held on March 27, 2006 in the Committee on Procedural Issues and Rules”. The written explanation of Mr. Gelashvili delivered to the Committee on Procedural Issues and Rules on March 29, 2006 also confirms these facts. The fact, that Mr. Gelashvili conducted negotiations for the same purposes with the representatives of the staff of the Secondary School No. 84 is also found to be confirmed. Ms. Gulnara Prangishvili confirmed at the session of the Committee of Procedural Issues and Rules held on March 27, 2006, that Mr. Gelashvili spoke to her on the aforementioned issue.

These actions, carried out by the Member of the Parliament of Georgia, Mr. Valeri Gelashvili, who represented his own commercial legal person in business negotiations, acted on its behalf and in its interests, presented performance of company management and representation duties for the purposes of article 9 of the Law of Georgia “On Entrepreneurs”, which served the interests of the company. Thus, he personally conducted entrepreneurial activities.

Therefore, the Parliament of Georgia ascertained:

1. It is found to be confirmed that the Member of the Parliament of Georgia Valeri Gelashvili performed the activities envisaged in the article 53, section 1 of the Constitution of Georgia, article 8.1 and 8.3(b) of the Law of Georgia “On Status of Member of Parliament of Georgia”, and article 9.1 and 9.3(b) of the Regulations of Parliament of Georgia.

2. The mandate of the Member of Parliament of Georgia Valeri Gelashvili shall be terminated preterm under article 54, section 2, clause “d” of the Constitution of Georgia, and article 7.2(d) of Regulations of Parliament of Georgia.

3. Present Resolution shall enter into force from the moment of publication.”

The Resolution was published in the “Legislative Bulletin of Georgia” dated April 5, 2006 (No.46; article 530).

It was ascertained from the materials of the case, that Limited Liability Company “EVRA”, which is mentioned in the impugned Resolution, was registered with the Khashuri district court according to the resolution dated January 5, 1996 (registration no. 65/4-19). According to the most recent version of the Charter of the Company, which was registered by Gori Tax Inspection on 14^th of November, 2005 (registration no. 5/077/65/4-19), Mr. Gelashvili is the sole partner and 100 % shareholder of LLC EVRA. According to the Charter, objectives of the Company comprise architectural, projecting accounting, building and trading commercial activities.

The First Chamber of the Constitutional Court considers, that examination of the constitutionality of the impugned Resolution requires that substantial circumstances of incompatibility of the entrepreneurship with the status of the Member of Parliament be ascertained and afterwards, based of its findings, all the direct and indirect evidence in the case shall be assessed, which are mentioned in the impugned Resolution and which shed light upon the nature of the link between the activities of the Claimant and the interest of LLC EVRA.

II. It can be ascertained from the impugned Resolution, that the Mandate of the Member of Parliament of Mr. Valeri Gelashvili was terminated due to the activities incompatible with the status of the Member of Parliament. The Chamber states that there is special legislation to regulate issues related to conflict of interests of high officials. On October 17, 1997, the Parliament of Georgia adopted the Law of Georgia “On Conflict of Interests and Corruption in Public Office”. Under article 3.3, “conflict of interests in the public office” means “incompatibility of personal or property interests of the official with the interests of the public office”. In this respect, the constitutional legal status of the official differs from the constitutional legal status of an ordinary citizen. The legislature definitely binds the official not to use the official status in favour of his/her personal interests and thus not to damage public interests. Under article 7 of the same Law, “An official is not entitled to use public authority or any related possibility against the interests of public office or for solution of the issue which does not fall under the scope of his/her public authority.” The UN General Assembly has adopted “International Code of Conduct for Public Officials”, under which public officials shall not use their official authority for the improper advancement of their own or their family’s personal or financial interest.” (Principle 4).

When there is a conflict between the private and public interests, this conflict shall be solved and a choice shall be made in favour of any of the two. The obligation of the officials to avoid the conflict of interests constitutes their legal, as well as ethical obligation, derived from the specific nature of their office. Titles of the normative acts regulating the conflict of interests in other states - “Code of Conduct”, “Official Code of Conduct”, laws of “Ethics of Government Officials”, underscore this approach. Public office obliges a person to realize the substance of this obligation and act coherently.

III. This obligation binds equally the Members of the Parliament of Georgia and taking into account their special status in the system of government, it may bind them even more stringently. The fact that the Constitution of Georgia and the special legislation separately regulate the grounds of conflict of interests of the Member of the Parliament of Georgia, underscores this opinion.

Under article 53, section 1 of the Constitution of Georgia, “A member of the Parliament shall not be entitled to hold any position in public office or engage in an entrepreneurial activity. The conflict of interests shall be determined by law.” In case of violation of these requirements, the mandate of the member of the Parliament of Georgia will be terminated preterm pursuant to article 53, section 2 and article 54, section 3, clause “d” of the Constitution of Georgia.

Article 8 of the Law of Georgia on Status of Member of Parliament of Georgia and article 9 of the Regulations of Parliament of Georgia were adopted pursuant to article 53 of the Constitution and for its interpretation.

The mandate of the Member of the Parliament, Mr. Gelashvili was terminated on the ground of the charge of entrepreneurship.

Under article 8 of the Law of Georgia on the Status of Member of Parliament of Georgia,

“1. It shall be prohibited to conduct entrepreneurship or hold any position in public office while holding a mandate of a Member of Parliament. The grounds of conflict of interest are enumerated in the Constitution of Georgia, in the Laws of Georgia on Elections of Parliament of Georgia, on Entrepreneurs, this law and other laws.

2. Requirements related to incompatibility of entrepreneurship with the status of a Member of the Parliament do not interfere with the right to property, which is enshrined in the Constitution. A Member of Parliament may own stocks, shares, and other property.

3. A member of the Parliament in not entitled to:

personally carry out regular activities to manage material valuables and financial assets for gaining profit;

personally carry out duties of the member of standing management, supervising, controlling, revising or consulting body of an entity engaged in entrepreneurship.”

Under the impugned Resolution of Parliament of Georgia, the Claimant Mr. Gelashvili violated article 8.1 and 8.3(b) of the Law of Georgia on Status of Member of Parliament of Georgia, article 9.1 and 9.3(b), which contain substantially analogous rules to those contained in the aforementioned articles of the Law of Georgia on Status of Member of Parliament of Georgia.

IV. In the impugned Resolution of the Parliament of Georgia, the term “entrepreneurship” mentioned in article 53 of the Constitution is construed according to the legislation regulating conflict of interests of a member of the Parliament. It is stated in the Resolution, that Mr. Gelashvili represented a commercial legal person owned by him in the business negotiations; he acted on its behalf and in the interests of the Company. Therefore he personally carried out company management and representation activities, which served the interests of the company defined in article 9 of the Law of Georgia on Entrepreneurs.

Under the Law of Georgia on Entrepreneurs, article 9.1, “Management of a company shall be carried out by: partners - in joint liability partnership, unlimited partners – in limited partnership, directors – in limited liability companies, joint stock companies and cooperatives.”

Regarding the aforementioned rules, the Chamber states that in respect to the conflict of interests of a member of the Parliament, “entrepreneurship”, for the purposes of article 53 of the Constitution of Georgia implies its public-law substance in addition to the private-law understanding.

Private-law definition of entrepreneurship is set forth in article 1.2, the 2^nd sentence of the Law of Georgia on Entrepreneurs: “Entrepreneurship is a lawful and regular activity, which is carried out to make profit, independently and has organized character.” Pursuant to the same section, the first sentence, the subject of entrepreneurship (or entrepreneur) is an enterprise, which has prescribed organizational-legal form. Under article 2.2 of the Law of Georgia on Entrepreneurs, “Organizational-legal forms of enterprises are: individual entrepreneur, joint liability partnership (JLP), limited partnership (LP), limited liability company (LLC), joint stock company (JSC), cooperative.”

Thus, as the specialist Mr. Roin Migriauli stated it, Georgian legislation on corporations grants the power to carry out entrepreneurship to an individual entrepreneur, who is a natural person and to companies and cooperatives, which are legal persons.

Therefore, from the private law standpoint, a member of the Parliament of Georgia, in the present case, the claimant Mr. Gelashvili, would carry out entrepreneurial activities, if he were an individual entrepreneur. This type of entrepreneurial activity is prohibited under article 8, section 3, clause “a” of the Law of Georgia on Status of Member of Parliament of Georgia.

Regarding private law understanding of entrepreneurship, whereas the entrepreneur is a legal person, it is impossible and illogical to assume that a manager or representative of the enterprise is the entrepreneur, as an enterprise and its director, a person who has management power, cannot be identical to each other.

According to this approach, even if the Claimant Mr. Gelashvili were the director of EVRA LLC which he founded, he would not still be a person carrying out entrepreneurship, as a director cannot be considered to be an enterprise. Article 8.3(b) underscores this, stating that “standing manager” is the manager of the subject of entrepreneurship, whereas the subject of entrepreneurship is a company, according to the private law understanding.

As for the constitutional legal relationships, from the standpoint of conflict of interests in public office, managerial activities of a member of the Parliament in the company may qualify as entrepreneurial activity for the purposes of article 53 of the Constitution of Georgia.

The approach is grounded in the fact that alongside with the basic definition of the legal values, there also exist purposeful definitions. The legislation in force often contains different definitions of the same categories for the purposes of separate laws, (it is noteworthy, though, that it is basic substantive definition that serves in all cases as the basis for the purposeful definitions.)

The First Chamber of the Constitutional Court deliberated on the character of purposeful definitions in its judgement No. 1/1/107 in the case of Lela Intskirveli and Ekaterine Chachanidze v. The Parliament of Georgia and decided that it is correct that under the Tax Code notary activity is considered to be an economic activity.

V. The Chamber notes, that parties expressed radically different opinions in respect of the constitutional legal assessment of the management of a company.

The Claimant states that solely activities of the formal director, who was appointed manager of the company pursuant to article 9 of the Law of Georgia on Entrepreneurs falls within the scope of article 53 of the Constitution. In their opinion, article 8, section 3, clause “b” of the Law of Georgia on Status of Member of Parliament shall be construed relevantly. The law implies only formal, not a factual director, who manages the company. As Mr. Gelashvili was not the Director of EVRA LLC, his activities shall not qualify as directorial activities and hence it is not unconstitutional.

Representatives of the Respondent state that article 53 of the Constitution prohibits a member of the Parliament to be both factual and formal director of a company. Mr. Gelashvili was not the Director of LLC EVRA formally, though he performed the duties of the Director of LLC EVRA in practice. Performance of the duties of the standing manager, which is referred to in article 8 of the Law of Georgia on Status of Member of Parliament of Georgia, encompasses the factual performance of the duties of a director.

The Chamber considers that no document presented to the Court by the parties proves the fact that Mr. Gelashvili was the formal director of LLC EVRA. The only fact proved in this respect is that Mr. Gelashvili is the sole partner and 100% shareholder of the Company. Thus, his activities shall not be qualified as activities of the formal director.

Taking into account the purpose of article 53 of the Constitution, it is reasonable to construe this article as prohibiting entrepreneurship of a member of Parliament not only formally, that is, in competence of duly appointed director, but also factual performance of duties of the director by a member of the Parliament even though he is not a director. Article 8, section 3, clause “b” of the Law of Georgia on Status of Member of Parliament shall be construed in the same way, though from the perspective of legislative techniques, the construction of this article is flawed and gives rise to multifarious interpretation.

The purpose of article 53 of the Constitution of Georgia is to prevent a Member of Parliament from using power in favour of his personal interests and from harming the public interest. Factual performance of managerial duties in the company shall not fall beyond the scope of the constitutional prohibition. Deliberating on the incompatibility of the mandate of a member of the Parliament with entrepreneurship, it is noteworthy that factual performance of these activities is just as much incompatible with the legal order, as carrying out these activities in the normal way, (meeting all the formal criteria). It shall be taken into account that the form does not have independent function in law and the form-related requirements are not self-sufficient. There is a specific content behind the form and what matters for the legal order is whether this specific content was or was not met. When the content is met, but practical realization does not meet its form, it does not mean the fact falls beyond the legal assessment. When there is a prohibited activity, it is deleterious for the public order to ignore the factual reality and to recognize merely what exists formally. Such an approach would give leeway to public officials to carry out entrepreneurship and to justify their activities with the lack of formal criteria of entrepreneurship. Thus it shall be presumed that prohibited activities are prohibited in both cases, when they meet special formal criteria and when they are carried out factually. If a public official is prohibited to assume the position of director of a company, it shall be presumed that public official is also prohibited to carry out the managerial activities factually. Legislation of a number of countries differentiates between formal and factual facets of the conflict of interests. For instance, it is prohibited in Canada for the members of the Chamber to carry out factual management and administration of the company, as well as assuming the position of a director.

The Chamber decides that factual reality might become the object of negative assessment, when certain quantitative and qualitative elements are present. Whereas fact of appointment of a Member of the Parliament as director of the company suffices for finding of the conflict of interests, in order to prove the informal performance of managerial duties, there should be present sufficient factual ground. The report of the German specialist, Professor Hans-Peter Schneider points to the same conclusion, stating, “In order to terminate the mandate of the Member of Parliament, it shall be proved that Mr. Gelashvili not only alluded to his company during the conversations on the new school building, but also definitely proposed his construction company for the new school building. Only in the case that this fact is proved, it would be possible to bring charges against him for carrying out entrepreneurial activities. The factual circumstances contained in the impugned Resolution of the Parliament does not present sufficient factual evidence. In the case that the Court after examination of the evidence is not able to structure a stronger opinion, the claim of the Member of the Parliament shall be upheld, the mandate of the Member of the Parliament shall be restored and the Resolution of the Parliament shall be declared invalid.”

VI. The Chamber does not accept the argument of the Claimant that criteria derived from the definition of entrepreneurship shall be automatically applied to the managerial activities in a company. As it was stated above, pursuant to article 1.1 of the Law of Georgia on Entrepreneurs, entrepreneurship is a lawful and regular activity, which is performed to make a profit and has independent and organized character.

According to the statements of the representatives of the Claimant, the activities carried out by Mr. Gelashvili do not demonstrate the characteristics of entrepreneurship and this fact evidences that Mr. Gelashvili did not carry out entrepreneurial activities.

The Chamber states in this respect, that criteria characteristics for entrepreneurship present criteria which are characteristic to the subject of entrepreneurship. Subjects of entrepreneurship are the enterprises. Each enterprise, taking the prescribed organizational legal form, is considered to be established due to meeting these criteria. Hence, the criteria set forth in article 1.1 of the Law on Entrepreneurs shall not be considered to be constitutional criteria applicable to the activities of either formal or factual director. The function of the standing manager of a company is to represent a company in business relationships and act in its interests. It is stated in article 9.9(7) of the Law of Georgia on Entrepreneurs, that “Officers named in article 9.1 and members of the supervisory board shall manage companies in good faith, shall make efforts as much as any normal, reasonable person would make in analogous situations and assuming analogous positions and shall believe that there activities are most favourable for a company.”

Thus, the character of the power of a manager of a company shall not be assessed through the criteria characteristic for entrepreneurship. A manager shall act for making profit, but even if he does not act for this purpose, he is still the manager. The same is true in respect to the regular character of the activity. Despite the number of activities practically carried out, a manager will still be a representative of a company. If the persons vested with managerial authority do not carry out their obligation to manage a company in good faith, stated in the Law of Georgia on Entrepreneurs, they will be liable for omission.

VII. Pursuant to the impugned Resolution of the Parliament of Georgia, the Claimant Mr. Gelashvili carried out managerial and representation duties of LLC EVRA. The Chamber notes, that in this case the factual performance of the duties of a standing manager of a company shall be taken into account. Factual performance implies that an unauthorized person carries out the activities, normally performed by bodies enlisted in article 9.1 of the Law of Georgia on Entrepreneurs. Under article 9.2 of this Law, managerial activity is defined to be an activity, which directly or indirectly serves the purposes of a company. A public official may perform factually duties of a standing manager, without authority to represent a company and thus serve the interests of a company.

In order to judge the constitutionality of the termination of the mandate of the Claimant Mr. Gelashvili it shall be ascertained what activities he implemented and whose interests were served through this activities.

It is stated in the impugned Resolution that Mr. Gelashvili represented in business negotiations “a legal entity owned by him and acted in its interests”. In 2005 he met the Minister of Education and Science of Georgia, Mr. Lomaia; he also met the representative of the staff of the Secondary School # 84, Ms. Prangishvili and proposed to build an new school building through the LLC EVRA. These facts are proved not only by these people, but also from the written explanation of Mr. Gelashvili, which he sent to the Committee of the Parliament of Georgia on Procedural Issues and Rules in March 28, 2006.

VIII. The Chamber states, that in the course of deliberations on the case, the organic link was identified connecting the evidence, which suggest that Mr. Gelashvili acted on behalf of LLC EVRA and in its interests. Moreover, it is evident from the case materials that Mr. Gelashvili negotiated with Mr. Lomaia, the Minister of Education and Science, the issue of building on the Avlabari territory a new school, instead of the old building of the Secondary School No.84. The witness, Mr. Lomaia reiterated in his evidence given to the Court, the explanations given to the Committee on Procedural Issues and Rules of the Parliament of Georgia. He stated that Mr. Gelashvili, the Member of the Parliament visited him on 28^th of October 2005 and explained that he had a construction company and he was interested in development of the territory adjacent to the Secondary School No. 84. For development purposes, he intended to demolish the old school building and build a new one. The Minister promised that they would consider the issue, in case the Ministry was officially supplied with a letter.

Thus, according to the testimony of the witness, Mr. Lomaia, the Member of the Parliament, Mr. Gelashvili planned to build a new school through the construction company owned by him.

IX. The Chamber does not find the allegations of the Claimant party persuasive, that Mr. Gelashvili was not motivated by the commercial interests of LLC EVRA at the meeting with the Minister of Education and Science. Mr. Gelashvili states in explanations sent to the Committee on Procedural Issues and Rules of the Parliament of Georgia, that he met indeed with the Minister, Mr. Lomaia and discussed the planned development of Avlabari territory, but he acted not on behalf of LLC EVRA, but as a founder of “Avlabari Fund”. The Claimant states, “In October, 2005, I indeed met with Mr. Lomaia and discussed the plan for development of Avlabari Territory. At the time, I had already been a founder of so called “Avlabari Fund” which has goal of renovation of Avlabari and improvement of its outlook. Thus I was informed on the aforementioned plan. I was also informed that there was an old building of the Secondary School No. 84 on the territory adjacent to the market. I informed Mr. Lomaia that the Ministry of Education could use the development plan and have a modern school building instead of the outdated and damaged building. The reason for my meeting with Mr. Lomaia was to promote the improvement of the outlook of the city district, where the Holy Trinity Cathedral is located and administrative complex of Avlabari, as well as my own residential house is being built. We did not discuss any business details at the meeting, neither did we plan or agree on anything. Mr. Lomaia stated that many school buildings in the City were really damaged and he would welcome any assistance that the Ministry could be provided with in this respect.

At this meeting with Mr. Lomaia and afterwards I took no part in the relationships between the Education Ministry of Georgia and LLC EVRA.”

It seems from this explanation, that the Claimant Mr. Gelashvili at the moment had already been the founder of the so called “Avlabari Fund”, a fact that was also asserted by the representatives of the Claimant, and Mr. Gelashvili talked to the Minister of Education and Science of Georgia on behalf of this fund.

The Chamber decides that the evidence in the case, namely the testimony of the witness Mr. Chkheidze and even more importantly, the Charter of “Avlabari Fund” (registered with the Ministry of Justice of Georgia, Order No.335 dated November 29, 2000) does not confirm that Mr. Gelashvili was the founder of the Fund. Pursuant to section 1.1 of the Charter the founders of “Avlabari Fund” are: a. Academy for Urban Development and District Planning of Germany; b. the Government of Tbilisi and c. Institute of Architecture of the Technical University of Georgia.

It is noteworthy that according to the testimony of the witness Mr. Lomaia, Mr Gelashvili did not mention “Avlabari Fund” in the conversation with him.

The statements of the representatives of the Claimant and of the witness A. Chkheidze, asserting that Mr. Gelashvili was willing to become a founder of “Avlabari Fund’ and made some efforts in this respect does not affect the above finding. This statement contradicts the explanation given by Mr. Gelashvili himself.

The Chamber considers that accepting the Claimant’s statement that he was not acting on behalf of LLC EVRA, to be true would make the events look illogical. The Member of Parliament discussed a serious development plan with the Minister of Education and Science of Georgia, he proposed to improve the outlook of Avlabari territory and to use the development plan to build a new school building instead of the damaged building of the Secondary School No. 84, but he did not explain how his proposals could be realized. This is particularly suspicious taking into account the explanations of Mr. Gelashvili, “Mr. Lomaia stated that many school buildings in the City were really damaged and he would welcome any assistance that the Ministry could be provided with in this respect.” The fact that Avlabari Fund is a non-commercial organization and it needs to establish a separate enterprise and select an acceptable organizational-legal form in order to carry out subsidiary entrepreneurship shall also be taken into account.

For the assessment of explanation of Mr. Gelashvili, it is noteworthy that LLC EVRA was beginning construction of a new modern complex on the territory of Avlabari and this fact is confirmed by the letter of the witness Ms. Lomidze sent to Mr. Lomaia.

X. The fact that Mr. Gelashvili acted on behalf of LLC EVRA is corroborated by the letter that was sent to Mr. Lomaia by Mr. Lomidze, Director of LLC EVRA on 31^st of October, 2005, within a few days from the conversation of Mr. Gelashvili with Mr. Lomaia. Ms. Lomidze proposed to Mr. Lomaia to demolish the old, damaged building of the Secondary School No. 84, which was under administration of the Ministry of Education and Science, and to build instead a new building on some other territory, several options of which were also proposed, or to compensate the demolition of school building in some other way. Namely, Ms. Lomidze offered, “to grant residential or other premises to the Ministry of Education on the same place or in the residential complex “Ortachalis Turpa” which cost the same negotiated price, as the school territory transferred to LLC EVRA.”

It is evident from the case materials, that Ministry of Education and Science of Georgia discussed the proposition and declined it. It is clear from the letter of Ms. Lomidze that LLC EVRA acted for its business interests and the goal was to acquire the territory of the School. The business interest of LLC EVRA was enhanced due to the fact that the School territory was immediately adjacent to the land plot owned by LLC EVRA.

Assessing the activities of Mr. Gelashvili, namely his conversation with the Minister of Education and Science of Georgia from the perspective of entrepreneurial activities, it is necessary to compare its content to the information contained in the letter of the Director of LLC EVRA. It is noteworthy that there is a substantial similarity between them. In both cases, there is discussion of the Avlabari development plan, and of the necessity to ensure the welfare of Alvabari with the pretext that there is the Holy Trinity Cathedral located and the administrative complex being built. The most important fact is that against the background of the above circumstances, the object of the major interest is the territory of the old damaged building of the Secondary School No.84 and building a new school instead of the old one.

It is true, that Ms. Lomidze, the Director of LLC EVRA refuses any involvement of Mr. Gelashvili in sending a letter to the Minister of Education and Science of Georgia. However, taking into account the aforementioned circumstances, there apparently is a direct link and congruence of interests between the visit of Mr. Gelashvili to Mr. Lomaia and actions of Ms. Lomidze. As LLC EVRA acted to gain profit in this case, it is logical that at the meeting with the Minister Mr. Gelashvili was interested in transfer of the territory of the Secondary School No.84 to LLC EVRA, which would provide the School with the alternative new building. Otherwise, the interests of LLC EVRA and its sole Partner Mr. Gelashvili would be incongruent. If we shared the position of the claimant, than we would need to assume that Mr. Gelashvili was acting with non-commercial (charitable) purpose, while the LLC EVRA, 100% of shares of which is owned by Mr. Gelashvili, was acting for making profit in respect of the same object of interest (the Secondary School No.84).

Examined against the background of the letter of Ms. Lomidze, Director of LLC EVRA, we find the testimony of Mr. Lomaia even more persuasive, to state that the interests of LLC EVRA at the meeting with the Minister drove Mr. Gelashvili.

XI. In the opinion of the Chamber, it is clear from the conversation of Mr. Gelashvili with the acting Director of the Secondary School No. 84, that the Claimant was interested in the school territory and building of a new school instead of the old one. Mr. Gelashvili did not deny the fact of this meeting. According to the testimony of Ms. Prangishvili, Mr. Gelashvili offered her several options for a new school building. It is noteworthy that part of these options coincide with the options proposed by the Director of LLC EVRA, Ms. Lomidze to the Ministry of Education and Science. Regard shall be given to the fact that Ms. Prangishvili confirmed the fact of meeting with Mr. Gelashvili and his interest in the school territory in her interview broadcasted by televisions (“RUSTAVI-2” and “First Channel”) on the day when the school building was burnt.

The Chamber finds, that comparative analyses of testimonies of Mr. Lomaia and Ms. Prangishvili on one hand, and the letter of Ms Lomidze, Director of LLC EVRA sent to the Minister of Georgia of Education and Science and the explanation of Mr. Gelashvili submitted to the Committee on Procedural Issues and Rules of the Parliament of Georgia point to the fact that Mr. Gelashvili acted on behalf of EVRA LLC and in its interests.

The allegations of the representatives of the Claimant, that the Claimant visited Mr. Lomaia, the Minister of Education and Science solely to inform him and that the Claimant was driven by welfare of Avlabari territory and aspiration to live in a healthy and safe environment and not commercial interests, are groundless in the light of the aforementioned circumstances.

XII. The Chamber agrees with the representatives of the Claimant, that no person visited by Mr. Gelashvili was competent to act as a party in the private legal relationship of transfer of the school territory to LLC EVRA and building a new school instead of the old building. However, negotiating this issue with them comes under the scope of article 9.1 of the Law of Georgia on Entrepreneurs as it presents business negotiations conducted for the purpose of establishing contacts. The issue here is the demolition and rebuilding of a school, which is an educational institution and construction of a new building instead. It is natural, that special private law actions could not be carried out without prior approval of the Ministry of Education and Science of Georgia thereto. Thus the logic in the actions of the Claimant is elicited. First, he went to the teachers of the Secondary School No.84 and ascertained their position; afterwards, he met the Minister of Education and Science of Georgia and then LLC EVRA applied the Minister, Mr. Lomaia for construction of a new building of the School No. 84 and for transfer of its territory legally.

We need to assume that the Claimant had been informed about the scope of competence of the people he negotiated the issue with.

Taking this into account, the activities of Mr. Gelashvili can be assessed from the constitutional-legal perspective independently from the fact that these actions were not followed by a definite private legal transaction. The representative of the Claimant stated that had Mr. Gelashvili made a definite business proposal, in that case his mandate of a member of the Parliament should have been terminated. This statement also confirms that the competence of the Minister of Education and Science cannot serve as criteria for determining the nature of the Claimant’s statement.

XIII. The allegation that Mr. Gelashvili acted in the interests of LLC EVRA becomes even more persuasive due to the letter (No. 5210/9-33) of Mr. Gelashvili sent to the President of Georgia on 18^th of April, 2005. Analysis of the content of the letter makes the Claimant look like a typical factual director of LLC EVRA. Mr. Gelashvili states in the letter, that LLC EVRA carried out all its contractual obligations related to the construction of Avlabari Administrative Complex and demands from the President to ensure that competent state authorities meet correspondent contractual obligations related to compensation duly and on time. Delays in carrying out the contractual obligations by the state would cause serious hardships for the Organization, due to which “it has to pay the additional bank interests, to terminate its activities, execution of agreements and contracts for absence of resources, discharge its employees, etc.”

It is true that the Parliament of Georgia did not refer to this letter in the impugned Resolution, though this fact does not prevent the Court from considering it in order to define the nature of the Claimant’s links to the interests of LLC EVRA.

XIV. The First Chamber of the Constitutional Court states that public officials are involved in entrepreneurship, due to the fact that as founders (partners), they take the companies as their property. That is why frequently the will of the partner dominates the management and representation of a company without due legal basis and partner factually functions as director of the company.

A founder (partner) and a company founded are fully independent subjects on the market. Regrettably, the impugned Resolution demonstrates that even the Parliament of Georgia could not fully realize it and it refers to LLC EVRA as “commercial legal person owned by Mr. Gelashvili”. Such a qualification by the Legislature is inadmissible and incompatible with the legalisation, that it has adopted.

XV. Examination of the merits of the case, the Constitutional Court states, that the Legislature is obliged to conduct a thorough inquiry of all circumstances, when deliberating over the conflict of interests in the activities of a member of the Parliament, in order to make the right decision. The Constitutional Court of Republic of Lithuania declared in its decision (case no. 04/04) dated February 10, 2005, “When examining the activities of a member of Seimas, in order to ascertain whether he is involved in private business or commercial activities, the nature of these activities and all the other circumstances shall be considered.” To ignore this approach when assessing the activities of a member of the Parliament, may lead to support of private or public interests that is not based on the Constitution.

Taking all the abovementioned into consideration and pursuant to article 53, section 1 and 2, article 54, section 1 and section 2, clause “d” and article 89 of the Constitution of Georgia, article 19.1(g), article 21.2, article 40.1 and 40.2, article 43.1, 43.2, 43.4, 43.7 and 43.8 of the Organic Law of Georgia on Constitutional Court of Georgia, article 32 and article 33 of the Law of Georgia on Constitutional Litigation,

The Constitutional Court of Georgia:

1. Dismisses the constitutional claim of Mr. Valeri Gelashvili related to constitutionality of Resolution of the Parliament of March 31, 2006 “On Preterm Termination of the Membership of Parliament of Valeri Gelashvili” in respect of article 53, section 1 and 2 and article 54, section 2, clause “d” of the Constitution of Georgia;

2. Holds that the present judgement enters into force from the moment of its public announcement at the hearing of the Constitutional Court;

3. Holds that the present judgement is final and cannot be challenged or reviewed;

4. Holds that copies of the present judgement be sent to the Parties, the President of Georgia, the Government of Georgia and the Supreme Court of Georgia;

5. Holds the present judgement be published in “Legislative Bulletin of Georgia” (within 7 days) and in the press.

Besarion Zoidze (Chairman of the Hearing, Judge Rapporteur)

Vakhtang Gvaramia

Iakob Futkaradze

Nikoloz Shashkin