ON BEHALF OF AZERBAIJAN REPUBLIC
DECISION
OF THE PLENUM OF THE CONSTITUTIONAL COURT
OF AZERBAIJAN REPUBLIC
On complaint lodged by “Aztelekom” manufacturing company concerning verification of conformity of the decision of the Board on Civil Cases of the Supreme Court of Azerbaijan Republic of February 4, 2003 to Constitution and legislation of Azerbaijan Republic
July 12, 2004 Baku city
The Plenum of the Constitutional Court of Azerbaijan Republic composed of Chairman F.Abdullayev, Judges F.Babayev, B.Garibov, R.Gvaladze, E.Mammadov, I. Najafov (Reporter Judge), S. Salmanova and A. Sultanov,
joined in the proceedings by the Court Clerk I. Ismayilov;
attended by the complainant’s representative A. Tagiyev and N. Mustafayev;
in accordance with Article 130.5 of the Constitution of Azerbaijan Republic has examined in open court session via the procedure of constitutional proceeding the constitutional case on complaint lodged by “Aztelekom” manufacturing company concerning verification of conformity of the decision of the Board on Civil Cases of the Supreme Court of Azerbaijan Republic of February 2, 2003 to Constitution and legislation of Azerbaijan Republic.
Based on the letter No. 8m-14/02 of the Chairman of Supreme Court of the Azerbaijan Republic dated June 23, 2004, the case proceeded in absence of the respondent representatives.
Having heard the report of Judge I. Najafov and speeches of the complainant’s representative N. Mustafayev and having studied the materials of the case, Plenum of the Constitutional Court
DETERMINED AS FOLLOWS:
As we see from the complaint, in August 13, 1999 and in February 1, 2000, there was a trilateral credit contract № 581/a and № 661 between International Bank of Azerbaijan (now on will be called as IBA), “Aztelekom” production company (now on will be called as Aztelekom) and “Pochtbank” Stock Investment Bank (now on will be called as Pochtbank). There was a credit contract № 1045 between IBA and Aztelekom in January 16, 2000. As an addendum to the above mentioned trilateral contracts, and also taking into consideration these contracts, IBA and Pochtbank has signed a credit security agreements ascertaining guarantee by the Pochtbank for granting credits to Aztelekom.
As it was mentioned in the complaint, not only the different situations concerning the contracts, but also rules about giving and returning the credits and time, as well as time limits have been determined between the parties. Aztelekom had paid money for credits to Pochtbank according to the contracts, but the latter did not transferred money to IBA.
IBA filed a claim in the local economical court № 1. In its claim IBA demanded to return back money from the credit debts and other payments concerning credit agreements. IBA’s claim was partly about the above mentioned credit agreements and asking court to return back the money for credit debts from the respondents Aztelekom and Pochtbank
Local economical court № 1 made a decision in September 23, 2002, satisfying partly the claim of IBA against Aztelekom and Poctbank, as well as the reciprocal claim of Aztelekom. Court decided that Aztelekom had to pay $ 215 127 to IBA according to the credit agreement № 1045 and Pochtbank had to pay $ 4 928 965 to IBA according to the credit agreement № 581/a and credit agreement № 661.
Economical Court of Azerbaijan Republic has changed the decision of the local economical court № 1made in September 23, 2002, furthermore making a new decision in November 11, 2002. According to the decision of the Economical Court of Azerbaijan Republic Aztelekom had to pay $ 5 144 083 to IBA according to the credit agreements № 581/a, 661, 1045 and Pochtbank had to pay $ 4 928 956 to Aztelekom according to credit agreements № 581/a and 661.
Collegium of Economical Disputes of the Supreme Court of Azerbaijan Republic made a decision in February 4, 2003, leaving the decision of the Economical Court of Azerbaijan Republic made in November 18, 2002 unchanged. The cassation complaint of Aztelekom left unsatisfied. To the complaint of Aztetelekom to the additional court of cassation instance, the Chairman of the Supreme Court answered with the letter in April 16, 2003, stating that there was no need for the additional cassation proceeding.
In its complaint to the Constitutional Court of Azerbaijan Republic (now on will be called as Constitutional Court), Aztelekom asks the court to declare the decision of the Collegium of Economical Disputes of the Supreme Court of Azerbaijan Republic made in February 4, 2003 contrary to the Constitution (now on will be called as Constitution) and laws of Azerbaijan Republic and to restore the violated rights.
Complainant states that Article 193 of the Civil Code of Azerbaijan Republic which was valid till September 1, 2000 (now on will be called as previous CC) haven’t been correctly implemented and moreover, Article 197 of the same code have been interpreted incorrectly and Articles 9, 372, 418 of the Civil Procedure Code of Azerbaijan Republic |(now on will be called as CPC) haven’t been implemented at all, concerning the disputed issue. As a result, court decisions, as well as the decision of the Collegium of Economical Disputes of the Supreme Court of Azerbaijan Republic made a decision in February 4, 2003 violated complainant’s rights to fair court examination and property.
Constitutional Court finds it necessary to state the followings concerning the complaint of Aztelekom.
The civil case considered in the courts concerns credit dealings and this dispute must be solved within the scope of civil legislature. Thereupon, the principles such as equality of the parties, free will, inviolability of the property, freedom of contract, court protection of the civil rights etc. should be principally considered.
One of the legal grounds for the creation of civil rights and responsibilities is bargain. Bargain is unilateral, bilateral and multilateral expression of will which serves to create, to change or to annul civil rights and responsibilities. Contract is one of the forms of bargain and comes into force as soon as signed. Contract terms are mandatory for the contract parties. If the validity period of the contract expires, subsequently the parties will not be free from liability for the law breaches which were done during the contract validity period.
The court should assess not only the literal meaning of the words and phrases in the contract, but also, the true meaning of the expression of will by the parties and compare the literal meaning of the contract with its terms while interpreting contract terms.
However, the period of the disputed issue is also very important according to the civil law legislature. According to the Article 7 of the CC (which talks about the force of law through time in the civil law legislature) the provisions of the civil legislature are not retrospective and they only apply to the situations which happened after the provisions came into force, except circumstances determined in the VII part of Article 149 of Constitution. If the law directly determines, then civil legislature can be retrospective.
In view of this, provisions of the previous CC must be applied to the credit contracts between IBA, Aztelekom and Pochtbank.
As it was determined in the previous CC, civil rights and responsibilities are created on different grounds. One of such grounds is bargain. These include bargains determined by law, as well as from the bargains not shown in law, but which are not against law. Obligations are created by the contracts and by the requirements in the Article 4 of the previous CC. Obligations should be performed in a proper way and in time according to the terms of the contract and provisions of law. If such instructions don’t exist, then obligations should be performed in time according to common rules. One of the parties cannot reject the contract or change its terms without the consent of the other party (Article 4, 150 and 160).
One of the ways to ensure that the obligation will be performed by the opposite party is to have a guarantee. According to the previous CC, the guarantor takes the responsibility before the creditor that the person which takes credits will perform his/her obligations fully or partly (I part of the Article 192).
The Presidium of the Constitutional Court states particularly that courts play very essential role in solving the civil law disputes in the accordance with the interests of the people and within the scope of the legislature. To respect civil rights determined by the substantive legal norms and provide help in their protection is the duty of every physical person and legal entity, as well as government agencies.
Legal norms which need to be implemented to solve civil dispute lawfully and contract provisions about performance of the obligations and legal consequences is noteworthy. It is very important for lower level courts to analyze contract provisions concerning the obligations of the parties and then considering these provisions to apply legal norms properly.
According to the trilateral credit agreements № 581/a in August 18, 1999 and № 661 in February 1, 2000 IBA was a creditor, Aztelekom was debtor, Pochtbank was the agent or the guarantor of the debtor.
The provisions 2, 3, 5 and 8 of the above mentioned credit agreements consist of the followings. IBA opens credit line in relevant amounts with the requisite that Aztelekom will perform all the terms of the contract. Aztelekom has to present application to Pochtbank in order to get a letter of credit and the latter has to present it to IBA. Aztelekom authorizes Pochtbank to intrust IBA to carry out credit payments by writing from the loan account of Aztelekom to the debit of account; to ensure that all the commissions and percentages are paid from the account of Pochtbank; to obtain documents from IBA about opening a letter of credit and its realization. IBA presents the documents about the loan account of Aztelekom in IBA, as well as documents about payments concerning the opening a letter of credit and its realization by Pochtbank. Credits given by IBA are ensured by the credit security agreement of Pochtbank. If Aztelekom doesn’t disburse payments for credits to IBA in time, IBA has a right to take the money for the main debt, for the percentages from the main debt and also for other payments and costs from the Pochtbank’s account. If Aztelekom doesn’t pay required amount of money to IBA in time, then Pochtbank takes responsibility to pay that amount immediately.
According to credit security contracts, Pochtbank agrees that its demand balance in IBA will not be less than the general amount of the main debt and percentages for credits of Aztelekom. Moreover IBA gets an unquestionable right to withdraw money resources from Pochtbank’s account in IBA in order to return money from main debt and percentages according to credit security contract. Pochtbank agrees that its obligations in the credit security contracts will not be changed and will be valid until all the debts for the above mentioned credit agreements are paid.
Therefore, IBA was obligated to give credits to Aztelekom in required amount through its agent Pochtbank according to the credit agreements № 581/a and 661. In its turn, Aztelekom is obligated to return all the credit resources in time through its agent. Pochtbank is the third party in these agreements and stands as an agent and guarantor of Aztelekom. Pochtbank was obligated to keep documentation to giving and receiving credits and to pay immediately the required amount of money, in case if Aztelekom doesn’t pay debts or percentages for credits to IBA. IBA also gets a right to withdraw money in required amounts from the accounts of Aztelekom and Pochtbank by sending them written notification.
Besides trilateral credit agreements, ABB and Aztelekom negotiated a credit agreement № 1045 in January 16, 2000. The terms of this contract are similar with the terms of the above mentioned contracts, except the provisions about credit security. But this contract is bilateral and obligations are only between two parties.
The text and the procedures of negotiating contracts were considered lawful by the first, appellate, court of cassation instances during the hearings. Courts also have determined that Aztelekom has received credits in amount of $ 5 140 903 according to the credit agreements № 581/a and 661. This money was accumulated to the credit account of Aztelekom in Pochtbank in the amount of $ 2 300 000 till May 11, 2000 and in the amount of 2 841 202 till January 5, 2001. But Pochtbank has paid only $ 1 501 015. 73 from that money to IBA. Courts have also determined that Aztelekom has debts in the amount of $ 215 127 according to the credit agreement № 1045.
But different level courts have made very different decisions based on the same facts.
Court of first instance decided that Aztelekom in generally performed its own obligations and Pochtbank have admitted not performing its own obligations. Thus, this court referring to the Articles 192 and 193 of the previous CC and to the Article 191.3 of CPC decided that Pochtbank must be liable before IBA for the breach of contract terms and Aztelekom has to pay debts to IBA from the credit agreement № 1045.
The court of appellate instance came to conclusion that role of Pochtbank as guarantor is annulled and Pochtbank doesn’t have any responsibility before IBA concerning credit agreements № 581/1 and 661. This court has referred to the Article 197.2 and 149 of previous CC and decided that Aztelekom is liable for the performance of contract terms before IBA for all the three credit agreements and Pochtbank is liable only before Aztelekom. This decision was left unchanged by the court of cassation instance.
The Article 193 of the previous CC determines that if there is no special term in the guarantee contract, debtor and guarantor are jointly liable before the creditor in case if the contract obligations are not performed.
As we see, there has to be two conditions in order to apply this Article (“if there are no special terms in the guarantee contract” and “in case if the contract obligations are not performed”). These conditions should be considered while applying this Article to the civil law dispute.
According to the facts confirmed by the courts, Aztelekom transferred money at the amount of $ 5 140 903 to its credit account in Pochtbank , thus performing its credit contract obligations. But Pochtbank, as an agent of the debtor, performed its obligations partly by paying only $ 1 501 015 to IBA. In this case, there is no condition such as “in case if the contract obligations are not performed” and that why it is not correct to apply Article 193 of CC to Aztelekom.
In order to apply this Article correctly, we should also follow the condition “if there are no special terms in the guarantee contract”. But in the trilateral credit contracts № 581/a and 661 between IBA, Aztelekom and Pochtbank and in the credit security contracts between IBA and Pochtbank special terms were determined. Therefore, the other condition is also lacking and we cannot apply Article 193 of the previous CC.
According to the Article 197 of the previous CC, guarantee contract is annulled when the contract obligations are annulled. If the creditor doesn’t bring lawsuit before the court against the guarantor during three months after the obligation’s validity period expires, then guarantee contract also is annulled.
If the period for claim haven’t been determined in the contract or determined due to demand period, and if there is no other agreement, then after a year from the time of signing guarantee contract, the liability of the guarantor is annulled.
We should consider that, implementation of the phrases “after the obligation’s validity period expires” and “if there is no other agreement” should be applied correctly to the facts of the case in order to achieve public justice. Courts must pay attention to the contract terms and conditions which don’t oppose the law.
Especially, the phrase “if there is no other agreement” in the previous CC requires more attention to the contract terms.
Generally, the guarantee period should be longer in order to regulate all the formalities concerning lawsuits against guarantor. Otherwise this legal tool loses its effectiveness in practice. At the same time, general rules in the legislature about performance of obligations have to be considered while annulling guarantee contract. One of such rules is that one of the parties cannot refuse to perform contract terms without the consent of the other party, except under circumstances shown in law (second part of the Article 160 of the previous CC).
The credit security contract between IBA and Pochtbank was an addendum to the trilateral credit contracts № 581/a and 661 between ABB, Aztelekom and Pochtbank. This credit security contract concludes that obligations of Poctbank concerning credit security will never change and will be valid till all the debts for credits are paid.
The Presidium of the Constitutional Court finds it important to mention that since court of appellate instance haven’t analyzed contract terms comprehensively, Article 197 of the previous CC regarding the annulment Pochtbank’s obligations before Aztelekom was interpreted incorrectly. As a result, the court of appellate instance has made a decision which doesn’t match with the facts of the case. Thus, in the decision of the Economical Court of Azerbaijan Republic made in November 18, 2002, the second part of the Article 197 of the previous CC haven’t been correctly implemented and as a result, II part of Article 127 of Constitution was violated.
In view of above mentioned, we should pay attention to how rules for public justice are implemented.
Courts must follow constitutional norms, try cases impartially, fairly and equally, refer to the facts and legislature (II part of the Article 127, Constitution) while considering the cases. Court hearings must be held in litigation form (VII part of Article 127, Constitution).
The duty of the legal proceedings on civil and economical disputes is to confirm in the courts the rights and interests of every physical and legal persons determined by the Constitution and laws of Azerbaijan Republic (Article 2 of CPC).
Public justice is held through litigation, equality of the parties and examination of the facts. Judge must substantiate his/her decision with the evidences, documents and clarifications proved during the litigation (Article 9.1 and 9.3 of CPC).
After examining evidences impartially, fairly and comprehensively, the court assesses legal norms which can be applied. A decision of the court should be lawful and sufficient. The decision should be reasoned regarding the facts of the case and parties. A Judge makes a decision based on the demands of people. But in exception situations determined by law, a Judge can surpass the substance of the claim (Articles 88, 217 and 218.3 of CPC).
Existence of the right to file complaints to upper courts from the decisions of the lower courts is one of the essential elements of the fair court examination. This right guarantees court protection of rights and freedoms and helps to correct the mistakes of lower courts.
A person can file an appellate complaint from the decisions of the lower courts which haven’t come into force yet according to the norms of CPC. Court of appellate instance considers the case by examining existing facts and new facts. The scope of court of appellate instance proceedings is bounded by the Article 372 of CPC.
Economical Court of Azerbaijan Republic made a decision, stating that Aztelekom is required to pay money at the amount of $ 5 144 083 to IBA according to three credit contracts and Pochtbank is required to pay $ 4 928 956 to Aztelekom according to two out of three credit contracts.
By determining Pochtbank’s responsibility to pay money to Aztelekom, court found Pochtbank also liable for two credit contracts and by doing so court believes that Aztelekom’s claim was satisfied partly. But in its claim, Aztelekom requested to seize the disputed sum from Pochtbank and pay it to IBA and if the respondent doesn’t have enough money resources, to confiscate the other properties of Pochtbank. As we see, court of appellate instance exceeded the substance of the claim and requirements of the Article 372 of CPC.
Different from Pochtbank, IBA and Aztelekom is governmental organizations. The decision of the Economical Court of Azerbaijan Republic gave preference in returning debts to non-governmental organization. Such preference doesn’t correspond with provisions of the Constitution, such as “property is inviolable and guarded by the state” (Article 13) and “there is no preference to any type of property” (Article 29).
The functions of the court and parties’ are different from each-other during court proceedings according to the litigation principle. Court should provide equal opportunities for both parties to prove their position and should ensure fair and impartial hearings. For this reason, court cannot perform the procedural functions of the parties. Court cannot make a decision without listening to both parties.
We should also mention that, the court of appellate instance has changed the substance of the claim and this has affected the legal status of Aztelekom. By surpassing the substance of the claim, Economical Court has made a decision obliging Pochtbank to pay certain amount of money to Aztelekom. But with this decision, Aztelekom is actually obliged to pay already paid amount of money again to IBA. Complainant believes that this decision violates right to property determined in the Article 29 of the Constitution.
Hence the court of appellate instance has changed the substance of the claim while making a decision and thereupon has encroached litigation principle which is a main element of the right to court protection of rights and freedoms determined in the Article 60 of Constitution. By doing so, Economical Court exceeded the limits of court proceeding determined by the CPC and as a result has a made a decision which opposes II part of the Article 127 of Constitution, as well as Articles 9 and 372 of CPC.
Court of cassation instance examines how substantive and procedural legal norms were implemented by the court of appellate instance according to civil procedural legislature. If the court of appellate instance infringed substantive and procedural legal norms or didn’t implemented them correctly, court of cassation instance has right to annul the decision of the court of appellate instance according to law. Legislature gives broad power to court of cassation instance regarding this matter. Infringement of the procedural legal norms or their incorrect implementation can be the cause of the decision’s annulment if such infringement resulted or may result with the wrong court decision (Articles 416, 417, 418.1 and 418.3 of CPC).
Collegium of Economical Disputes of Supreme Court considered the case regarding the dispute between IBA, Aztelekom and Pochtbank and didn’t pay attention to the incorrect implementation of the substantive and procedural legal norms, thus repeating mistakes of the court of appellate instance and making a decision which contradicts to the Articles 416, 417, 418.1, 418.3 of CPC.
Taking into consideration the above mentioned, Constitutional Court comes to the conclusion that:
The decision of the Collegium of Economical Disputes of Supreme Court of Azerbaijan Republic made in February 4, 2003 which has left the decision of Economical Court of Azerbaijan Republic regarding the claim of International Bank of Azerbaijan against “Aztelekom” Production Company and “Pochtbank” Stock Investment Bank about payment of debts for credit contracts № 581/a, № 661 and № 1045, made in November 18, 2002 unchanged, should be considered null and void, because it contradicts Articles 13, 29, 60 , 127 of Constitution of Azerbaijan Republic, Articles 193, 197 of Civil Code of Azerbaijan Republic, as well as Articles 416, 417, 418.1, 418.3 of Civil Procedural Code of Azerbaijan Republic;
the case regarding this part should be re-considered according to the procedural legislature of Azerbaijan Republic and before that court acts should not be executed;
Relying on the parts V, IX, X of the Article 130 of the Constitution of Azerbaijan Republic, as well as Articles 52, 62, 63, 65-67 and 69 of the law Azerbaijan Republic about Constitutional Court, the presidium of the Constitutional Court
DECIDED:
The decision of the Collegium of Economical Disputes of Supreme Court of Azerbaijan Republic made in February 4, 2003 regarding the claim of International Bank of Azerbaijan against “Aztelekom” Production Company and “Pochtbank” Stock Investment Bank about payment of debts for credit contracts № 581/a, № 661 and № 1045 shall be considered null and void, as it contradicts to the Articles 13, 29, 60 , 127 of Constitution of Azerbaijan Republic, to Articles 193, 197 of Civil Code of Azerbaijan Republic, as well as to Articles 416, 417, 418.1, 418.3 of Civil Procedural Code of Azerbaijan Republic. The court acts concerning this part shall not be executed and this claim shall be re-considered according to the procedural legislature of Azerbaijan Republic.
2. The decision of the Constitutional Court of Azerbaijan Republic comes into force from the date of its publication.
3. The decision is subject to publication in the "Azerbaijan", “Respublika”, “Xalg gazeti”, “Bakinsky rabochiy” newspapers and “Bulletin of the Constitutional Court of Azerbaijan Republic”.
4. The decision is final and cannot be cancelled, changed or officially interpreted by any body or official.
Chairman Farhad Abdullayev
