Case number: U-I-287/95 ECLI: ECLI:SI:USRS:1996:U.I

Transcription

1 Case number: U-I-287/95 ECLI: ECLI:SI:USRS:1996:U.I Challenged act: Securities Market Act (Official Gazette of the RS, No. 6/94) (ZTVP), Paragraph 2 of Article 48, Investment Funds in Management Companies Act (Official Gazette of the RS, No. 19/94) (ZISDU), Rules on Conditions for the Issuance of Licences for Doing the Jobs of Stockbrokers and Members of Management Companies (Official Gazette of the RS, No. 19/94), Chapters V and VI, Articles 18 through 27, Tariff of Taxes and Recompense for Deciding Cases Concerning the Issuance of Permits, Approvals and Other Matters (Official Gazette of the RS, No. 19/94), Paragraph 1 of Article 2 and Article 4. Operative provisions: 1. The Securities Market Act and the Investment Funds in Management Companies Act are not in conflict with the Constitution for reasons given in the Reasons for this decision. 2. The National Assembly shall eliminate the non-conformity with the Constitution referred to in Paragraph 1 of the adjudication hereof within 1 year from the publication of this decision in the Official Gazette of the RS. 3. The provision of Paragraph 2 of Article 48 of the Securities Market Act shall be abrogated in the portion reading "and the conditions for their withdrawal". 4. Provisions of Chapters V and VI, Articles 18 through 27, of the Rules on Conditions for the Issuance of Licences for Doing the Jobs of Stockbrokers and Members of Management Companies shall be abrogated. 5. Paragraph 1 of Article 2 and Article 4 of the Tariff of Taxes and Recompense for Deciding Cases Concerning the Issuance of Permits, Approvals and Other Matters shall be abrogated. Abstract: Constitutional rights and freedoms may only be limited when this is necessary for the protection of the rights of others. If the protection of the rights of others dictates that the rights and freedoms of particular legal entities be restricted, and when such restrictions have not been regulated by statute, the Constitutional Court shall on the basis of Article 48 of the Constitutional Court Act establish the existence of a gap in the law and set a time period in which the legislator shall have to eliminate such gap in the law (Article 2 of the Constitution). Authorization granted by the legislator to an organization vested with public authority for the purpose of regulating the matters which he should regulate himself is not in conformity with Article 3, Paragraph 2 of Article 120 and Paragraph 3 of Article 153 of the Constitution, and the Constitutional Court shall abrogate prospectively (or retrospectively) any regulation by which an organization vested with public authority has regulated such matters. An administrative body may not regulate by a regulation the relations for which authorization has not been granted to it by statute, and if essential rights and obligations have not been defined by the statute itself. In passing regulations, executive and administrative authorities are restricted by provisions of Articles 120 and 153 of the Constitution. A tax imposed for services of government authorities must be reasonably proportionate to the

2 services rendered by government authority. Substantial exceeding of the so defined tax may imply secret taxation, which can restrict access to the acquisition of a right. A different regulation would be a violation of principles of law-governed state (Article 2 of the Constitution). Thesaurus: Exercising and restricting of rights. Freedom of work. Principle of legality in administration. Principle of harmony between legal acts. Principle of law-governed and social state. Regulating of statutory subject matter by a regulation - legislator's authorization. Taxes for services of government bodies (stockbroking transactions). Legal basis: Constitution, Articles 49, 15, 120, 153, 2. Constitutional Court Act (ZUstS), Articles 21, 30, 43, 45, 48. Cases joined: PDF Format: U-I _eng.pdf Full text: U-I-287/95 14 November 1996 D E C I S I O N At the session of 14 November 1996 concerning the proceedings for evaluation of constitutionality and legality commenced on the initiative of Abančna borzno posredniška hiša d.d., Ljubljana, and Miran Pavlič from Ljubljana, both represented by Bojan Pečenko, lawyer in Ljubljana, the Constitutional Court d e c i d e d : 1. The Securities Market Act (Official Gazette of the RS, No. 6/94) and the Investment Funds in Management Companies Act (Official Gazette of the RS, No. 19/94) are not in conflict with the Constitution for reasons given in the Reasons for this decision. 2. The National Assembly shall eliminate this non-conformity with the Constitution referred to in Paragraph 1 of the adjudication hereof within 1 year from the publication of this decision in the Official Gazette of the RS. 3. The provision of Paragraph 2 of Article 48 of the Securities Market Act shall be abrogated in the portion reading "and the conditions for their withdrawal". 4. Provisions of Chapters V and VI, Articles 18 through 27, of the Rules on Conditions for the Issuance of Licences for Doing the Jobs of Stockbrokers and Members of Management Companies (Official Gazette of the RS, No. 19/94) shall be abrogated.

3 5. Paragraph 1 of Article 2 and Article 4 of the Tariff of Taxes and Recompense for Deciding Cases Concerning the Issuance of Permits, Approvals and Other Matters (Official Gazette of the RS, No. 19/94) shall be abrogated. R e a s o n i n g : A. 1. The initiators dispute Chapter V (Aticles 18 to 23) of the Rules on Conditions for the Issuance of Licences for Doing the Jobs of Stockbrokers and Members of Management Companies (hereinafter: "the Rules"), and Paragraph 1 of Article 2 and Article 4 of the Tariff of Taxes and Recompense for Deciding Cases Concerning the Issuance of Permits, Approvals and Other Matters (hereinafter: "the Tariff"). They claim that the Agency for Securities Market (hereinafter: "the Agency"), issued, by making reference to Article 48 of the Securities Market Act (Official Gazette of the RS, No. 6/94 - hereinafter: "the ZTVP") and Article 10 of the Investment Funds in Management Companies Act (Official Gazette of the RS, No. 19/94 - hereinafter: "the ZISDU"), the disputed Rules, and in provisions of Articles 18 to 23 regulated annual extension of licences for stock brokers and members of management companies. 2. The initiators consider that the Agency is on the basis of provisions of statutes to which it makes reference in the Rules authorized to regulate just the method and conditions for taking examinations for stock brokers for the acquisition of corresponding licences, and the conditions for withdrawal of the same, but not for their extension. In this way, the disputed provisions of the Rules in the opinion of the initiators went beyond the framework granted by statute, and are claimed to be in disagreement with Article 153 of the Constitution. They are also claimed to have interfered with the basic civil right of stock brokers to engage in a profession, which is a constitutionally guaranteed freedom. Such restriction could in the opinion of the initiators only be introduced by statute. For this reasons, the Rules are claimed in their disputed portion to be in disagreement not only with Article 48 of the ZTVP and Article 10 of the ZISDU but also with Article 153 and Articles 15, 49 and 87 of the Constitution, by which each person is guaranteed basic rights and freedoms. At the same time, the Rules are claimed to have put stockbroking firms in unequal position, thus restricting their freedom of enterprise (Article 74 of the Constitution). 3. In Article 4 of the Tariff, the Agency in agreement with the Government specified the taxes to be paid to be able to undergo an examination for the acquisition of stock broker licence and a tax for extending the validity of the licences. The tax for annual extension of validity of stock broker licences for each particular transaction (Article 39 of the ZTVP) amounts to SIT 100,000. Such high taxes are in the opinion of the initiators discriminatory and not proportionate to the services rendered by the Agency in connection with the extending of licences (as high as in the case of undergoing an examination). Such taxes are claimed to be a secret form of taxation which acts discriminatorily on the position of the agents in the marker and makes impossible free market competition. In this way, the Agency has supposedly usurped the legislative power. 4. The Agency in its reply states that the initiative is unfounded. It claims that statute has vested it with the power of passing the disputed provisions of the Rules and the Tariff, and that it has not exceeded the its powers. For the authorization concerning the determination of the method and conditions for taking test examinations for stock brokers for the acquisition of corresponding licences, and the conditions for withdrawal of the same supposedly also comprises authorization for regulating the relations between the acquisition and loss of stock broker licence. The charges for annual

4 extension of validity of licences are supposedly intended to be used for covering the cost of supervision over the operations of stock brokers and stockbroking firms (or, as the case may be, management companies under Article 61 of the ZTVP), which is in the public interest. Such manner of financing the supervisory function of the Agency is claimed to be more appropriate than financing via tax system. In this way, supervisory costs are charged to those who derive profit by engaging in stockbroking activities, and not to all tax payers. 5. The National Assembly did not reply to the initiative and to the resolution of the Constitutional Court U-I-287/95-4 of 25 January 1996 to accept the initiative, stay the implementation of the disputed provisions referred to in the Resolution and commence proceedings for the review of constitutionality of Paragraph 2 of Article 48 of the ZTVP and Paragraph 3 of Article 10 of the ZISDU. B. - I. 6. With its resolution U-I-287/95-4 of 25 January 1996, the Constitutional Court accepted the initiative. With the same resolution it extended, based on Article 30 of the ZUstS, the review of constitutionality of the disputed provisions of the Rules to Paragraph 2 of Article 48 of the ZTVP and Paragraph 3 of Article 10 of the ZISDU. 7. According to the provision of Article 49 of the Constitution, each person shall freely choose his employment, and there shall be no unjust discrimination in work opportunities available to each person. Direct exercise of human rights and fundamental freedoms shall be guaranteed by the Constitution, and these may only be limited and in such cases as are determined by the Constitution and when this is necessary for the protection of the right of others (Paragraphs 1 and 3 of Article 15 of the Constitution). 8. Thus, basic constitutional rights can only be restricted by statute, after the legislator has weighed the constitutional benefits and has found that a restrictive measure is indispensable. In the case of restricting free choice of profession, in specifying the conditions subjective elements can be used, in particular by defining the qualifications of a person. Specification of special conditions is legitimate if the professions concerned demand special knowledge, capacities and characteristics, and if absence of these could lead to harmful consequences for third parties or the community. Traditional restrictions apply to health care activities and some professions of special importance (lawyers, notaries and similar). In more recent period, legitimate restrictions are gaining in prominence, which are dictated by new economic and socio-political circumstances and the aims relating to the level of general welfare. The position of the legislator in determining special conditions is limited, for he must study the actual states involved and adopt such measures as are proportionate to the nature of the protected benefit. Restrictive measures can be introduced for the purpose of protecting human health and life, for reasons of safety at work and in public transportation, for the purpose of protecting end users and consumers because of dangerous products, and for the purpose of protecting the property of third parties in most exposed professions. In the case of subjective criteria, the conditions required include special knowledge, level of qualifications, professional examinations, required practical experience, such personality characteristics as may be necessary (reliability), minimum age limit and similar. Special conditions are admissible if the restriction is indispensable and if public interest cannot be safeguarded in another manner. 9. As restrictive measures relating to free choice of profession and job encroach upon constitutional rights and freedoms, they should be determined by statute but could only be determined by a

5 regulation by taking into consideration the principle of hierarchy of general acts (Article 153 of the Constitution) and of public administration as bound by the Constitution and statute (Article 120 of the Constitution). Thus, the basic framework for restrictions must be set by statute, and these may only be further detailed by a regulation within such scope. In deciding the case the Constitutional Court used as the basis the foregoing principles. 10. The Constitutional Court finds that the ZTVP and the ZISDU failed, both in reference with the first and the second profession, to regulate questions such as the level of qualifications, the criteria for determining the subject matter of professional examination and the criteria for granting licences for engaging in the profession, which is why they are not in conformity with the Constitution. As the two statutes failed to regulate the questions which they should have regulated, the Constitutional Court on the basis of Article 48 of the Constitutional Court Act (Official Gazette of the RS, No. 15/94 - hereinafter: "the ZUstS") made a declaratory decision on this and at the same time instructed the legislator to eliminate the non-conformity with the Constitution as established within 1 year from the publication of the decision. In Paragraph 2 of Article 48 of the ZTVP, the legislator granted to the Agency, on mutatis mutandis basis, authorization to determine the conditions for withdrawal from stock brokers of licence for engaging in transactions relating to securities. In this way, he fully vested it with the right to the regulation of matters which are subject to regulation by statute and which he should have regulated himself, or for which he should have at least determined a basis and framework for regulation by subordinate legislation. The Constitution in Paragraph 2 of Article 3 enacts the principle of separation of powers, which is also the basis for dividing powers between legislative, executive and judicial branches. In accordance with this principle, legislative power is vested in a representative body elected by direct election. And the executive in accordance with Paragraph 2 of Article 120 of the Constitution operates "independently and pursuant to an consistently with the Constitution and law". Also according to Paragraph 3 of Article 153 of the Constitution, regulations and other legislative measures must conform with the Constitution and with statute. The principle of the executive as bound by statute excludes the possibility for the Agency within the framework of executing public powers to independently regulate the method and conditions relating to the withdrawal of licence for engaging in stockbroking activities. Statute should specify at least the limits within which the Agency would be allowed to interfere with the rights of stock brokers who have obtained the licence, and the purpose of such interference. On the basis of the foregoing, the authorization for regulating the method and conditions for withdrawal of licence from stock brokers as contained in Paragraph 2 of Article 48 of the ZTVP was not in conformity with the above mentioned provisions of the Constitution, which is why it had to be cancelled. B. - II 11. By prescribing mandatory extension of licences and withdrawal of the same, the disputed Rules exceeded the authorizations granted by statute and, by bypassing the law, interfered with the essence itself of a constitutional right. The Statutes defined both professions as non-permanent, subject to annual extension of licences for engagement in the profession and allowing the withdrawal of the licence. As said in the foregoing, the choice of, engagement in and termination of a profession cannot be separated. Each of these elements represents a certain phase in professional life. Conditions and limits applying to a professional activity must be appropriate, indispensable and proportionate to the protected benefit.

6 Thus, the extent of restriction can only be such as is indispensable for the protection of an important benefit which is threatened or in connection with which there is a degree of probability that such threat could occur. By provisions on withdrawal of licence subordinate legislation regulates the ending of engagement in a profession, which is an essential component of the constitutional right under Article 49 of the Constitution, which cannot be restricted by such regulation. 12. The Constitutional Court does not doubt that restrictions concerning the engagement in the two professions are necessary. It is characteristic of both professions that they allow to their agents to manage considerable assets of third parties, and their unprofessional acts could cause damage to these. 13. The abrogated provisions of the Rules mentioned in Paragraph 4 of the abjudication hereof violated the rights granted under Article 49 of the Constitution. The Rules interfered with a matter which is subject to regulation by statute, and this was a violation of the principle according to which public administration is bound by the Constitution and statute as provided in Article 120 of the Constitution. This is why the Rules had to be abrogated in the portion of Chapter V disputed by the initiators and, for the same reasons and on the basis of Article 30 of the ZUstS, also in the portion of Chapter VI which regulates matters to be regulated by statute and concerning the right to the withdrawal of licence from stock brokers and members of managing staff of management companies. With the abrogation of Paragraph 2 of Article 48 of the ZTVP in the portion reading "and the conditions for their withdrawal" there is no more any legal basis for Chapters V and VI of the Rules, which regulate extension and conditions for withdrawal of licences from stock brokers. And in as far as the regulating of these issues in reference with members of managing staff of management companies is concerned, the Agency did not even have any such authorization in statute. Abrogation of Chapters V and VI shall become effective with the publication of the decision in the Official Gazette of the RS. B. - III. 14. In the disputed Tariff, the Agency imposed payment of a tax for the request lodged for the purpose of issuing the licence and an opinion concerning the engaging in transactions with securities in the amount of SIT 100,000 for any transaction for which the licence and corresponding opinion is required. Article 4 prescribed the payment of a tax to be paid by stock brokers, managers of stockbroking firms and members of managing staff of management companies on the occasion of applying for examination, that is, "for application for the special part of professional examination for stock broker, for each particular transaction, for application for the general part of professional examination and for extending the licence of stockbroker for each particular transaction under Article 39 of the ZTVP in the amount of SIT 100,000." The Tariff in the said article also prescribed the payment of tax for application for the special part of professional examination for members of managing staff of management companies and for extending of such licences in the amount of SIT 300,000. Article 39 of the ZTVP lists 6 transaction relating to securities and in reference with which a special examination is required, which means that for extending the licence of a stock broker who engages in all the types of transactions with securities a tax amounting to SIT 600,000 would have to be paid on the occasion of undergoing the examination and of each extension of the licence already acquired for engaging in the said transactions. 15. A direct relationship and reasonable proportion should exist between tax amount and the corresponding service. A tax which would not be imposed so as to be proportionate to the service could restrict access of legal entities to the right concerned, and this would be a violation of the principle of law-governed state (Article 2 of the Constitution).

7 16. The tax amount introduced by the tariff in its disputed portion is in the opinion of the Constitutional Court obviously disproportionate when compared with the service rendered by the Agency in connection with the taking of examinations for stock brokers, managers of stockbroking firms and members of managing staff of management companies. This is even more clear in the case of procedures for extending the licences already issued. The disputed portion of the Tariff is for this reason in disagreement with principles of law-governed state (Article 2 of the Constitution). C. 17. This Decision was made on the basis of Articles 21, 30, 43, 45 and 48 of the Constitutional Court Act (Official Gazette of the RS, No. 15/94) by the Constitutional Court in the following composition: Dr. Tone Jerovšek, President, and mag. Matevž Krivic, mag. Janez Snoj, Dr. Janez Šinkovec, Dr. Lovro Šturm, Franc Testen and Dr. Lojze Ude, the Judges. The Decision was reached with seven votes in its favour and one vote against it. Vote against was cast by judge Ude. President of the Constitutional Court: Dr. Tone Jerovšek Type of procedure: ocena ustavnosti in zakonitosti predpisov in drugih splošnih aktov Type of act: zakon Applicant: Abančna borzno posredniška hiša d.d., Ljubljana, Miran Pavlič, Ljubljana Date of application: Date of Decision: Type of decision adopted: odločba Outcome of proceedings: ugotovitev je v neskladju z Ustavo/zakonom Published: Official Gazette of the RS, No. 68/96 and OdlUS V, 155 Document: AN01196