Preserving the Effects Made By the Acts of the National Bank of Moldova – Constitutional

On 6 November 2017, the Constitutional Court of Moldova ruled on the constitutionality of a number of provisions of Art. 38.7 of the Law on financial institutions no. 550-XIII of 21 July 1995.

Circumstances of the case

The case originated in a complaint lodged with the Court by the MPs Vladimir Voronin, Inna Şupac, Elena Bodnarenco, Maria Postoico, Oleg Reidman, Oxana Domenti, Vasilii Panciuc asking for a constitutional review of Article 38.7, letters a) and b) of the Law on financial institutions no. 550-XIII of 21 July 1995.

According to Art.38.7 of the Law on financial institutions no. 550-XIII of 21 July 1995, the measures and sanctions applied by the National Bank of Moldova (BNM) may be appealed in the competent court of law. Concurrently, the lawsuit filed against the National Bank related to the enforcement of this law shall meet the following conditions:

a) if the court decides that the actions applied by the National Bank towards the bank and/or persons/shareholders are illegal, the National Bank shall pay all material damages and all the effects made based on the repealed  act of the National Bank shall be maintained, which was issued in order to apply the Articles 15, 15¹ and 156  of the Law on financial institutions, and any other act or subsequent operation pertinent to the enforcement of the repealed act, including the withdrawal of license shall remain valid;

b) the appeal or the action brought in the court shall not affect the liquidation process and shall not suspend the execution of acts imposed by the National Bank.

The complaint was examined by the Court in the following composition:

Mr Tudor PANȚÎRU, President, 

Mr Aurel BĂIEŞU,

Mr Igor DOLEA,

Mrs Victoria IFTODI,

Mr Victor POPA,

Mr Veaceslav ZAPOROJAN, judges. 

Conclusions of the Court

Hearing the reasoning of the parties and examining the casefiles, the Court observed that under Art. 53 of the Constitution, the person prejudiced by a public authority, by an administrative act or failure to solve a complaint within the legal term is entitled to obtain the acknowledgment of the declared right, cancelation of the act and the payment of damages.

The Court underscored that under Article 20.1 of the Constitution, any person enjoys the right to effective satisfaction by competent courts of law with regards to the acts that infringe upon his legitimate rights, freedoms and interests.

Concurrently, the Court recalled that the free access to justice is not an absolute right and may be subject to limitations when such limitations are reasonable and proportionate to the goal pursued.

The Court observed that the Judgment no. 24 of 15 November 2011 reviewed the constitutionality of the provisions of Article 38.1 letters a) and b) of the Law on financial institutions, thereby declaring them as constitutional.

Therefore, given that the provisions of Article 38.7, letters a) and b) of the Law on financial institutions, which provide that an action brought in the court shall not affect the liquidation process and shall not suspend the execution of acts imposed by the National Bank were not amended, the reasoning of Judgment no. 24 of 15 November 2011 and Judgment no. 31 of 1 October 2013, where the Court delivered on similar allegations, preserves its applicability for this case, which is why the Court did not examine the merits of the mentioned provisions.

In the part related to Article 38.7.a the Court noted that the Law no. 233 of 3 March 2016 has brought amendments to these provisions, nevertheless it did not alter the essence of the regulations.

Therefore, the Court found that under the provisions of Art. 38.7.a of the Law on financial institutions the measures and sanctions applied by the National Bank may be subject to appeal by the competent court of law. Concurrently, in case the court of law finds that the actions of the National Bank towards a bank and/or a person/stakeholder are illegal, the National Bank shall pay the material damages, however all the effects made based on the repealed  act of the National Bank - which was issued in order to apply the Articles 15, 15/1 and 15/6  of the Law on financial institutions, and any other act or subsequent operation pertinent to the enforcement of the repealed act, including the withdrawal of license - shall remain valid.

In its caselaw, the Court held that in certain sensitive issues, that carry a greater importance for the society, such as the stability of the banking system, the State enjoys a greater margin of appreciation. This margin of appreciation determines the right of the State to institute distinct regulations for other fields of regulation. The fact that banks operate with financial resources belonging both to individuals and legal entities makes it for the their viability and credibility to constitute a major public interest and imposes higher requirements upon the regulation and oversight of banking activities.

The Court mentioned that a determining role in upholding the financial stability lies with the National Bank of Moldova, which by virtue of its regulatory and supervision powers is in charge of the safety and well-functioning of commercial banks and of the whole banking system.

Examining the challenged provisions, the Court noted that repealing an act of the National Bank of Moldova – which provided for certain sanctions to be applied – by a court of law, there shall be distinguished between (1) sanctions applied/executed and, subsequently the legal situation of “facta praeterita” [fait accompli - TN], and (2) correlative sanctions regarding to the disposal of banking shares which may have their enforcement under way or that have already been enforced. Subsequently, in any case, we are witnessing a process that has already commenced.

Therefore, on the effect of the acts, the EU Directive 2014/59 of 15 May 2014 on bank recovery and resolution provides the following:

„Where necessary in order to protect third parties who have acquired assets, rights and liabilities of the institution under resolution in good faith by virtue of the exercise of the resolution powers by the authorities and to ensure the stability of the financial markets, a right of appeal should not affect any subsequent administrative act or transaction concluded on the basis of an annulled decision. In such cases, remedies for a wrongful decision should therefore be limited to the award of compensation for the damages suffered by the affected persons.”

Therefore, considering the abovementioned, the Court noted that when sanctions applied by BNM constitute a facta praeterita, and the commenced process is irreversible, implicitly the liquidation process of a bank, the challenged legal provisions – which read that declaring illegal by the court of law of actions undertaken by BNM does not affect the effect of the issued acts – pursue the goal of ensuring legal certainty.

The Court underlined that legal certainty shall be approached with greater caution, considering the crucial importance of banking reputation.

Concurrently, although the court of law is limited in its decisions on restoring the rights annulled by BNM, the Court considers that the remedy provided by the law on the payment of damages by a fair material compensation strikes a fair balance between the public interest and the interests of the bank/shareholders.

In this sense, the Court mentioned that under Art. 115.4 of the Constitution, the power to decide on the competence and the rules of lawsuits lies with the lawmaker.

Taking into account the above considerations, the Court noted that under the limitations provided by Article 54 of the Constitution, the provisions of Art. 38.7.a of the Law on financial institutions are not disproportionate to the goals pursued of protecting the rights of the creditors and safeguarding the public interest for a proper administration of the banks.

For the above reasons, the Court found that the provisions subject to constitutional review are in line with Articles 20 and 53.1 of the Constitution.

Judgment of the Court

Stemming from the above reasons, Constitutional Court of Moldova:

-      Rejected the complaint lodged by the MPs Vladimir Voronin, Inna Şupac, Elena Bodnarenco, Maria Postoico, Oleg Reidman, Oxana Domenti, Vasilii Panciuc on the constitutional review of Article 38.7.a of the Law on financial institutions no. 550-XII of 21 July 1995.

-       Declared constitutional Article 38.7.a of the Law on financial institutions no. 550-XII of 21 July 1995.

-       Declared as inadmissible the complaint in the part related to the constitutional review of Article 38.7.b of the Law on financial institutions no. 550-XII of 21 July 1995.

This judgment of the Constitutional Court is final, cannot be subject to any appeal, enters into force as of the date of adoption and is published in the Official Journal of Moldova.

This is an English language courtesy translation of the original press-release in Romanian language.