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"Letter of the Law": First experience of application Directive No.4 by the court. Legislative ambiguity interpreted in favour of entrepreneurs

9 Mar 2011

It has not been a secret any more that the laws are very confusing here and there. Therefore many are very happy about the principle put into Directive No.4 on the necessity to interpret the “ambiguity and uncertainties” of the acts of law by the state authorities and courts in favour of the objects of entrepreneurial activity and citizens.

The first practical experience of application of the directive’s provisions in the system of economic courts of the Republic of Belarus were discussed within the frames of the author program of Denis Aleinikov, Senior Partner of Law Group “Argument” by the Deputy Chairman of the Economic Court of the City of Minsk Sergey Kulakovsky.

Sergey, speaking in general, what are the place and the role of the economic courts in practical application of Directive No.4?

The program nature of the document is setting the tasks in 9 points before the whole number of state authorities, including judicial authorities in the person of economic justice. It also regards the application procedure of administrative responsibility since the directive’s provisions contain requirements on liberalization of administrative liability measures; the directive also has provisions stipulating that in case of resolving any conflict situations the courts should proceed from the priority to protect the interests of the economic entities if the legislative norms are stated indistinctly or unclearly. Proceeding from the principle put into the directive the courts shall take the side of the economic entity in making their decision in such a case.

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What does it mean in this context “to take the side of the economic entity”?

I may give you a concrete example of consideration of an administrative case. The regulatory body has drawn up an administrative offence report in relation to the economic entity. The regulatory body has decided that the economic entity was conducting a licensed activity without special permit und thus committed the administrative offence stipulated by the art.12.7 part 1 of the Administrative Offences Code. The regulatory body has calculated a certain amount of income since this article’s sanction has covered the possibility of confiscation of the gained income as additional administrative action measure, taking into account that the amount was quite significant. These materials had been sent to the Economic Court.

Considering this case the regulatory body charged the economic entity with conducting activity on collection and selling the corn seeds without special permit. Having analyzed the current normative base it was actually stated that the economic entity had conducted this activity during a certain period of time without corresponding passport for this activity. Such a passport shall be issued by the respective inspection for seed growing, quarantine and plants protection. This passport was not available and since this passport is giving permit for conducting this activity the regulatory body has considered that the economic entity had actually no proper permit (license).

Some clarifications for the users. We are having quite an interesting situation: on the one hand, this passport is granting a permit for a certain activity (seed collection), but it is missing. On the other hand, may its lack be regarded as lack of special permit (in the sense of license)?

Actually, if we analyze the legislative base, there was a whole range of legal normative acts regulating this activity subject to obtaining certain permissive documents. What legal qualification might be given to these permissive documents – application possibilities were actually unclear in this case. At the moment when the administrative offence report was drawn up, Decree No.17 of the President related to licensing of certain activities was in force, and by the moment of the court’s consideration Edict No.450 of the President was effective then. At the same time some respective resolutions of the Council of Ministers regulating the procedure of conducting this or that activity were also effective, which the economic entity had been incriminated, i.e. seed collection and selling without special passport for such activity.
Coming up to the complex interpretation of the normative documents and taking into account that the Administrative Code had not contained the definition of the term “special permit, or license” the court had to proceed from the special Decree No.17 of the President which was namely connected with the licensable activities and the authorities entitled to grant such licenses. So, the court had matched this normative base with the normative base regulating seed circulation and on the bases of such analysis, including interpretation of the legislative vagueness and uncertainty, and taking into account that this terminology had not been revealed in the conceptual framework of the Administrative Offences Code, came to a conclusion that there was no any incriminated administrative corpus delicti in the actions of the economic entity, thus the proceeding upon the case was terminated. Naturally, the economic entity had not just evaded the penalty stipulated by this article’s sanction, but had also escaped the possibility of confiscation of considerable income amounts which could be actually aimed at its activity development and distribution to the funds in accordance with the constituent documents.

Interestingly enough, considering this very case, have you referred to the provisions of the directive making foundation of your position?

As far as the directive is a program document and not a norm of direct application, we didn’t. Though we have applied the approaches contained in the directive, namely, the necessity to interpret legislative vagueness and uncertainty in favour of the economic entity. With reference to the lack of the respective terminology and some other uncertainties of the law, these arguments were put into the motivation of the court order to terminate the proceeding upon the case.

Unfortunately, we also have no terminology for such notions as “legislative vagueness and uncertainties”. Where has it been written what the “legislative vagueness” or, for example “uncertainty” mean? How should it be stated while considering the case in practice, whether there is any legislative vagueness and uncertainty or not?

Denis, you have already answered to the half of your question. Actually, the case is that the legislator does not reveal the notions named after such words as vagueness and uncertainty of normative legal acts prescriptions. There is just a general notion that the legal normative act shall be read and interpreted unambiguously. If any doubts in the concept of the norms and their content occur, then certain vagueness and uncertainties in the concept of any legal act appear. There are definite requirements to the legislative technique applied while preparing drafts of any legal normative acts. One of such requirements is that the terminology and the notions used in one legal normative act shall have identical meaning: if we speak about income in one of the articles, then its content shall be the same when it is spoken about in another article. This is one of the principles of the legislative technique.
Unfortunately, it is not always the case when legal normative acts comply with the key principles of the legislative techniques and the construction of the legal norm itself. Thus certain vagueness and uncertainties in application of some normative acts take place. The simplest way is to apply the authority which is a norm-maker of this or that normative act and ask it for the official interpretation. Though the procedure is time consuming. Sure, to get prompt official interpretation of application on a certain normative act takes a long time to wait.

In order to avoid long waiting the courts use and will use such vagueness and uncertainties if they take place, and make decisions in favour of the economic entities, in case there is no any other legal regulation which may allow ascertaining the truth upon the case.

So, the load of clarifying the legislative vagueness and uncertainties in the future shall be laid upon the court system, i.e. general and economic courts?

This principle of interpretation of the entire vagueness and uncertainties of the current legislation shall be laid not only upon the court system. This principle shall be applied by all state structures in case such a question shall arise. The cornerstone of the Law On the Basis of Administrative Procedures is interests of the person concerned who applied for the administrative procedure. Resolving his issues all vagueness and uncertainties shall be interpreted in his favour. If such issues arise in the course of inspection, the officials of the regulatory body shall come from this principle while making their decisions. The same is for considering a certain case, if such a question shall arise in the course of the court proceeding, this principle shall be taken into account by the court. This is a through principle, which covers all relations areas of the economic entity and the regulatory bodies, and the court as the final stage.

When this principle was first fixed in our legislation?

Right you are, Directive No.4 of the President is not the first place of the principle’s appearance. To analyze the directives of the head of the state which are of program nature in general, this principle has already been put in the President’s Directive No.2 On Measures of Further Debureaucratization of the State Apparatus. This is the directive with the principle laid down in it, that entire vagueness and uncertainties shall be interpreted in favour of a physical person. Indeed, the objects circle has been limited a bit – it was referred only to physical persons. Currently the principle has been applied to all objects of entrepreneurial activity, including physical persons as well. Actually its effect covers public at large now. Virtually it appeared in 2006 and it was subsequently materialized in the whole range of legal normative acts.

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Please tell us, what other principles and approaches laid down in the directive have been applied by you in practice?

There is an example, when we used the directive’s provisions in the sphere of promotion of competition development, e.g. the provisions actually lifting any restrictions in the trade expansion sphere, performing works and rendering services. The regulatory body has drawn up an administrative offence report in regard to the economic entity, in accordance with which the economic entity was incriminated conducting entrepreneurial activity with violation of the rules and conditions for this activity. The economic entity was rendering services on broadcasting TV programs via cable TV, and its license didn’t contain the region of its activity field. No certain street name, no house number for rendering the above services was determined. This requirement in regard to this activity was stipulated by the President’s Decree No.17 and Edict No.450. Indeed, this offence was falling under certain elements of the administrative offence.

Pursuant to the provisions of the directive lifting any restrictions in the trade expansion sphere, performing works and rendering services today, while determining the administrative penalty measure and taking into account the official way of rendering the services and due tax payments, which means the transaction itself being transparent, and considering the fact that conducting the activity by the economic entity was aimed at development of the population oriented services, and proceeding from the directive’s thesis on the necessity of lifting any barriers for free selling of services, the court has recognized formal elements of the administrative offence (because corresponding amendments have neither been introduced to the Edict No.450 of the Head of the state, nor to the respective articles of the Administrative Code); but resolving the issue on application or non-application of proceeds confiscation the court failed to apply confiscation; explaining its conclusions of non-application of confiscation, the court referred to the respective provisions of Directive No.4 of the Head of the State.

Thank you for the answer. It is coming out that if the laws had been brought in compliance within the directive’s frames by the moment of consideration by the court, the case could have been terminated? So the legislation is going behind the court practice today?

As it has already been told earlier, the directive is actually a program document containing approaches to be developed and implemented by various legislative structures which are entitled to issue legal normative acts of different legal force. Sure, everything is being done rather slowly: the respective drafts shall be prepared, and then they shall go through the settled procedure until they are adopted, and all that naturally takes rather a substantial period of time. Thus stimulation of entrepreneurial activity and development of business activity is needed today, so certain steps shall be made.

I agree with you. The interests of the entrepreneur shall also be protected today– the directive has already come into force.

So, the court matching the old legal normative base which proceeds being in effect along with the program provisions of the directive, takes it into account also when applying any liability measures. Thus, even in the above described case the penalty upon the article’s sanction had been paid, but comparing with that confiscation amount which could have been applied in regard to the economic entity; it was actually of symbolic nature. It could not affect substantially the financial and economic activity of the economic entity. It is the additional penalty in form of confiscation that could actually put the economic entity to the edge of bankruptcy, which had not committed any serious administrative offence in terms of the directive’s provisions.

… was acting correctly…

I would not say that the entity was acting correctly, because there were formal elements of the offence, so the court applied the penalty as the measure of punishment, but the court proceeded from eventual minimum administrative measure of pressure in respect of this economic entity. It shall be taken into account that the provisions of the directive are to the maximum extent of program nature and not the norms of direct action, that’s why getting regulated by them directly is quite difficult, so it is necessary to correlate current normative base with the directive in order to take the future development of regulation-making procedure into consideration as well as provisions set forth in the directive for determining any administrative penalty measure.

The principles of rationality and reasonableness of administrative liability measures have been inserted into the directive. Though the sanctions of the articles have not been amended yet. What can the court do in this respect before the legislation has been adjusted to the directive?

Indeed, the issue is very topical. In order to synchronize the directive’s provisions to the current legal normative base today, the court, at least in terms of administrative cases, has possibility to regulate the administrative penalty measures where there is the so called “spread” or an option of application or non-application of confiscation. Naturally, such spreads, e.g. possibility or impossibility to apply confiscation is being regarded today through the prism of the directive’s provisions when the analysis of any offence is indicating that the actions of the economic entity had not damaged the state’s interests, the taxes had been paid, the counterfeit goods had not been involved in the economic turnover, which could eventually undermine the economic foundations of the state.

In such a case the court shall analyze these provisions as long as the directive is aimed at stimulation, I underline, of legal entrepreneurial activity. And cases connected with the illegal entrepreneurial activity shall be treated by the court with consideration of all requirements of the current laws, as far as actually illegal entrepreneurial activity is in its essence substantially undermines the foundations of the law, because this is nonpayment of respective taxes. The court is examining each separate case in terms of illegal entrepreneurial activity and notwithstanding the general provisions contained in the directive in part of liberalization of administrative liability measures; it approaches the case taking into account its specific circumstances.

I would like to draw your attention to the fact that sometimes understanding of legality or “illegal entrepreneurial activity” are frankly differentiated – depending upon the interpretation object. What to do if the entrepreneur, analyzing the acts of law, is considering that he is conducting his entrepreneurial activities on legal bases, but the regulatory body estimates the same activity as being “illegal entrepreneurial activity”? Has there ever been such positions controversy as the subject-matter of the economic court’s consideration after the directive had been adopted?

Yes, I could give you an example. There was an inspection of the economic entity in the course of which the official of the regulatory body got interested in the outsourcing agreement made between the Belarusian economic entity and that of the Russian federation. According to the terms and conditions of that agreement our Belarusian economic entity rendered services by means of its personnel to the economic entity of the Russian Federation in regard to construction works in the territory of Russian Federation. Taking into account that such an activity as employment of citizens of the RB abroad is a licensable activity which has been subject to license issued by the authorities of the Ministry of Internal Affairs, the officials of the regulatory body raised the questions regarding the legal qualification of this outsourcing agreement and the necessity of obtaining special license by the economic entity. The economic entity had no such a license. Pursuant to the fact that our Civil Code has not contained this kind of civil law circumstance, the regulatory body made respective inquiries to the competent (licensing) authority upon clarification of the necessity to obtain the license for employment of citizens abroad in this case.
Unfortunately, two questions of the regulatory body remained without any distinct final answer. Only after the third inquiry it has come to the conclusion that taking into consideration those provisions contained in the answer to the question, there is incriminated elements of the administrative offence in actions of the economic entity – that is conducting activity without special license (i.e. illegal entrepreneurial activity). The report in respect of this economic entity was drawn up and the collected materials were sent to the court. The economic court estimated entire norms of the current laws and accounting documents, the procedure of money transfer from the economic entity of RF to the Belarusian economic entity and a certain number of other documents certifying that our citizens were not actually employed in the territory of the Russian Federation, as far as they were among the personnel of the Belarusian economic entity, and got their salary from our Belarusian economic entity, but were just forwarded on business trips to Russia, which was acknowledged by business trip certificates and payment of travelling allowance. The laws effective in the field of licensing of that activity have also challenged the necessity to obtain the licenses in the case under consideration, which was also indicated by repeated applications of the regulatory body to the competent authorities in terms of obtaining respective explanations concerning the necessity of obtaining the license in this case.
In such circumstances, proceeding from the principle of making decisions in case of vagueness and uncertainties of the current laws which have been laid down in the directive, the economic court has made its decision in favour of the economic entity and come to the conclusion that the actions of the economic entity had not contained the incriminated elements of the administrative offence, consequently, there was no any fact of conducting illegal entrepreneurial activity.





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