Composition of the Board:

Besik Loladze – Chairman of the Hearing, Judge Rapporteur;

Otar Sichinava – Member;

John Khetsuriani – Member.

Secretary of the Hearing: Lili Skhirtladze

Title of the Case: The Public Defender of Georgia against the Parliament of Georgia

Subject of the Dispute: Constitutionality of the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs” with respect to the first paragraph of Article 21 of the Constitution of Georgia.

Participants of the Hearing: Representatives of the Claimant - Mr. Giorgi Mshvenieradze, Mr. Vakhushti Menabde and Mr. Tamar Charbadze; Representative of the Respondent – Mr. Batar Chankseliani.

I

1. On 5th of December 2008, a Constitutional claim was lodged with the Constitutional Court of Georgia by the Public Defender of Georgia. The Constitutional claim was registered with the number N467. By the resolution of 9 December 2008 of the President of the Constitutional Court of Georgia, the Constitutional claim was referred to the Second Board of the Constitutional Court of Georgia with a view to deciding the issue of admitting it for the consideration on the merits.

2. The disputed normative act is the first paragraph (compulsory sale of stocks) of Article 534 of the law of Georgia “On Entrepreneurs”, which has the content as follow: “if as a result of purchase of stocks, the stockholder has more than 95% of votes of the stock-company, then this stockholder (for the purposes of this Article – “buyer”) will have the right to redeem the stocks of other stockholders at a fair price.”

3. The Claimant considers that the disputed norm has the same content as Article 533 of the law of Georgia “On Entrepreneurs”, which was upheld as unconstitutional by the Constitutional Court of Georgia in its decision N2/1-370,383,390,402,405 of 18 May 2007 on the case “Citizens of Georgia, Mr. Zaur Elashvili, Ms. Suliko Mashia, Ms. Rusudan Gogia and others and the Public Defender of Georgia v. the Parliament of Georgia”. Hence, adoption of the disputed norm contradicts paragraph 4 of Article 25 of the organic law of Georgia “On the Constitutional Court of Georgia. If at the sitting on preliminary issues, the Constitutional Court arrives to an analogous conclusion, the disputed norm shall be recognized by the ruling as invalid based on paragraph 41of the same Article.

4. The Claimant makes the following conclusion from the decision of 18 May 2007 of the Constitutional Court of Georgia: “…it is clearly shown that unconstitutionality of the disputed norm was that its content (compulsory redemption of stocks) was against the first paragraph of Article 21 of the Constitution of Georgia and we did not accentuate on fairness of the price established upon its redemption. Also, in the constitutional claim filed by us on 18 August 2006, we requested to uphold the disputed normative act as unconstitutional with respect to the first paragraph of Article 21 of the Constitution of Georgia and not with respect to the first paragraph of Article 42 of the Constitution of Georgia, because we reckoned that despite the fact that whether or not a minority stockholder will have the right to apply to the court, the disputed norm will be anyway unconstitutional with Article 21”.

5. In case of admission of the constitutional claim for consideration on the merits, the Claimant demands to recognize the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs” as unconstitutional with respect to the first paragraph of Article 21 of the Constitution of Georgia. Besides, the Claimant requires temporarily suspending the operation of the disputed norm before rendering final decision on the case, pursuant to paragraph 5 of Article 25 of the organic law of Georgia “On the Constitutional Court of Georgia”, because its operation may have irremediable effects in respect to the party to the legal proceedings.

6. The administering sitting of the Second Board of the Constitutional Court of Georgia with oral hearing of the constitutional claim N467 was held on 19 March 2009.

7. At the administering sitting the Claimant paid the attention on the argument provided in the decision N2/1-270,382,390,402,402 of 18 May 2007 of the Constitutional Court of Georgia. The Constitutional Court for protection of the balance between minority and majority stockholders, in the Claimant’s opinion, enlisted three criteria: 1. There shall not be the possibility of applying abuse of economic power by a majority stockholder; 2. A minority stockholder shall be aware of why compulsory sale of his stocks takes place, and 3. A minority stockholder shall have the legal possibility to express and defend his position. The Claimant considers that the first and the third criteria are not complied by the disputed norm. Nevertheless that applicable wording of Article 534 of the law of Georgia “On Entrepreneurs”, in the Claimant’s opinion, improved certain shortcomings, but partly it still repeats Article 533 which was upheld as unconstitutional.

8. The disputed norm coincides with the norm that was upheld unconstitutional also in the regard that the legislator’s attitude towards the legitimate aim has not altered. Under the Claimant’s position, the mechanism is not envisaged in order to establish as to what extent there is a pressing public need in the concrete case. The aim to which the compulsory sale of stocks serves should be well illustrated by the law. The Claimant declares that stemming from the decision N2/1-370,382,390,402,405 of 18 May 2007 of the Constitutional Court of Georgia, he could not see the aim for compulsory sale of stocks, pressing public need.

9. The Claimant believes that the common court, while rendering the decision on compulsory sale of stocks, is deprived of the possibility to discuss about the need of this procedure. The Court, in this case, plays the role of a notary officer and a majority stockholder is entitled, by any reason, to redeem the stocks of minority stockholders. Arising from this, minority stockholders do not have effective remedies for legal protection.

10. The Claimant considers that in the event of recognizing the disputed norm as unconstitutional, all the norms regulating compulsory sale of stocks will be declared invalid. This is preconditioned by the fact that under paragraph 4 of Article 50 of the law of Georgia “On Normative Acts”, if a normative act or its part loses legal force, all normative acts adopted based on it or for its execution shall also lose their legal force.

11. The Claimant left the requirement in force before rendering the final decision on temporary suspension of operation of the disputed normative act. Stemming from the fact that the mechanism for protection of the rights by a minority stockholder, like the norm upheld as unconstitutional, is not provided for by the disputed norm, so its operation shall be suspended.

12. The Respondent did not agree with the Claimant that the disputed norm and Article 533 that were declared as unconstitutional have the analogous content. Article 534 of the law of Georgia “On Entrepreneurs” improved shortcomings, which underlay the recognition of Article 533 as unconstitutional by the Constitutional Court of Georgia. The issue that the content of the challenged norm and the norm that was upheld unconstitutional is not identical, in the Respondent’s opinion, is even indicated in the explanation presented by the Claimant, where he admitted that improvement of part of shortcomings existed before is envisaged by the applicable norm.

13. The Respondent considers that Article 534 of the law of Georgia “On Entrepreneurs” obligates a majority stockholder that he should present serious argumentation with respect to the reasons on procedure for compulsory sale of stocks. In this regard, the common court should later discuss it and assess as to what extent there is a legitimate aim for compulsory sale of stocks.

II

1. The Board can see the essential difference between the reasoning which was provided in the constitutional claim and which was presented by the Claimant at the administering sitting. It is seen from the constitutional claim that the Claimant casts doubt on the essence of compulsory sale of stocks and consequently, the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs” is challenged. It is clarified from the constitutional claim that the moment of fairness of stock price and legal protection of minority stockholder does not have a primary importance for the author of the constitutional claim. However, one of the major place was taken by legal remedies for protection of a minority stockholder in the argumentation presented the Claimant at the administering sitting. The Claimant, at the administering sitting, paid his attention not to the essence of institute on compulsory sale of stocks, but to those separate requirements of the decision N2/1-370,382,390,402,405 of 18 may 2007 of the Constitutional Court, that, his opinion, were not foreseen by the legislator.

2. Despite the contradictions stated above, the Board will assess the issue of admitting the constitutional claim N467 for consideration on the merits based on the argumentation which the Claimant finally chose.

3. The Claimant believes that based on the decision N2/1-370,382,390,402,405 of the Constitutional Court of Georgia, could not see the pressing public need for compulsory sale of stocks and the law should clearly demonstrate the aim to which this procedure serves. The Constitutional Court of Georgia, with regard to this issue, has clearly indicated: “legislator “for pressing public need” may act when he is driven by the aims that have positive effects for the society or for the part of it. besides, it is not necessary for the legislator to indicate in the norm as for what “pressing public need” he takes it. …the issue whether or not the legislator’s viewpoint on “pressing public need” is appropriate and in accordance with the Constitution, is established by the Constitutional Court”. (Decision N2/1-370,382,390,402,405; II-15). With regard to the institute on compulsory sale of stocks, the Constitutional Court observed the possibility that this procedure serves to pressing public need and gave the detailed regard to it (Decision N2/1-370,382,390,402,405; II-23,24,25,26).

4. The Board considers that casting a doubt on the legitimate aim of the institute on compulsory sale of stocks actually means bringing up the issue of constitutionality of the essence of this institute. Both two issues have been decided by the decision N2/1-370,382,390,402,405 of 18 May 2007 of the Constitutional Court of Georgia and in this regard, position of the Constitutional Court of Georgia has not changed – the essence of the institute on compulsory sale of stocks does not contradict the Constitution and the compulsory sale of stocks may have the legitimate aim, which is preconditioned by the pressing public need.

5. As concerns to clarification of the mechanism, whether or not there is the pressing public need in the concrete case, in the Board’s opinion, this is linked with the issues of corresponding legal protection of a minority stockholder. The possibility to discuss this is not provided by the claim requirement, which is limited to the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs”, which determines the gist of sale and not the procedure for compulsory sale of stocks and the place of a minority stockholder in this process.

6. The claim requirement also does not provide the possibility to assess as to what extent there is the possibility of abuse of economic power by a majority stockholder under the conditions of presence of applicable regulation. The reason for it is that, as it was stated above, the Claimant does not challenge the norms regulating the rule for compulsory sale of stocks.

7. Actually there is the case present, when the argumentation presented by the Claimant in terms of its content is not relevant to the challenged norm. The Constitutional Court of Georgia repeatedly stated (ruling N2/3/412, II-9; Ruling N2/2/438, II-1; Ruling N2/1/456, II-7) that the reasoning of the constitutional claim in terms of its content should concern the disputed norm. Otherwise, there is a breach of requirements of subparagraph “e” of the first paragraph of Article 16 of the law of Georgia “On the Constitutional Legal Proceedings” and there is the reason not to admit the constitutional claim for the consideration on merits as prescribed by subparagraph “a” of Article 18 of the same law.

8. The same situation is with regard to viewpoints presented by the Claimant that the common court, while compulsory sale of stocks, plays “the role of notary officer” and does not assess the need for this procedure. The Constitutional Court is deprived of the possibility to discuss this circumstance, as in this case, the argumentation of the Claimant in terms of its contents, does not either relate to the disputed norm.

9. The Board considers as wrong the expectation of the Claimant that in the event of declaring the disputed norm invalid, all the norms regulating compulsory sale of stocks will be also declared invalid. The given norms will continue operation and based on them, it may be possible to exercise the procedure on compulsory sale of stocks. Stemming from the practice of the Constitutional Court of Georgia (Ruling N2/8/448, II-7,8,9; Ruling N2/9/450, II-12; Ruling N2/1/456, II-8) just like in similar cases, argumentation of the Claimant does not satisfy the requirements of paragraph 2 of Article 31 of the organic law of Georgia “On the Constitutional Court of Georgia” and those of subparagraph “e” of the first paragraph of Article 16 of the law of Georgia “On the Constitutional Legal Proceedings”.

10. With regard to content similarity of the disputed norm and Article 533 that was upheld as unconstitutional of the law of Georgia “On Entrepreneurs”, the Constitutional Court of Georgia has already formulated its position in the Ruling N2/3/460 of 5 May 2009 on the case “Citizen of Georgia, Suliko Mashia v. the Parliament of Georgia”. In this case also, like the constitutional claim N467, a subject of the dispute was the constitutionality of the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs” with respect to the first paragraph of Article 21 of the Constitution of Georgia. The Constitutional Court of Georgia indicated that “arising from the claim requirement, the Constitutional Court is deprived of the possibility to completely compare the contents of the applicable rule on compulsory sale of stocks with those of rule that was recognized as unconstitutional. However, the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs”, despite its literal contents, acquires other logic weight, even because of the following circumstance – as opposed to the norm recognized as unconstitutional - the decision on compulsory sale of stocks is made by not a majority stockholder, but by the Court”. (Ruling N2/3/460, II-10).

11. Admission of the constitutional claim N467 for the consideration on merits does not take place. Therefore, the Constitutional Court of Georgia will not give its regard to reasonability of the requirement for temporary suspension of operation of the disputed norm, because the suspension of operation of the disputed norm is permissible only in the event of admitting the constitutional claim for the consideration on merits.

III

Stemming from the abovementioned, based on paragraph 41 of Article 25, paragraph 2 of Article 31, paragraphs 5 and 8 of Article 43 of the organic law of Georgia “On the Constitutional Court of Georgia”; subparagraph “e” of the first paragraph of Article 16 and subparagraph “a” of Article 18 of the law of Georgia “On the Constitutional Legal Proceedings”,

The Constitutional Court of Georgia
rules:

1. Not to admit the Constitutional Claim N467 (the Public Defender of Georgia v. the Parliament of Georgia) for the consideration on the merits;

2. Not to uphold the demand of the Claimant as to declare invalid the first paragraph of Article 534 of the law of Georgia “On Entrepreneurs” based on the rule determined by paragraph 41 of Article 25 of the organic law of Georgia “On the Constitutional Court of Georgia”.

3. The present ruling is final and shall not subject to appeal or revision.

4. Copy of the present ruling will be sent to the parties.

Members of the Board:

Besik Loladze,

Otar Sichinava,

John Khetsuriani.