Decision No. 3 of 6 March 2014 on Constitutional Case No. 10/2013
Proceedings under Art. 149, para 1, item 2 of the Constitution of the Republic of Bulgaria.
The case was filed on 9 April 2013 as the Constitutional Court acted on an initiative from the President of the Republic of Bulgaria and pursuant to Art. 150, para 1 of the Constitution. The Court was approached and asked to pronounce unconstitutional Art. 112k, para 1 of the Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria Act (MSIWPRBA), in the part „without tender or auction in favor of a person referred to in Article 112d, para 1, respectively in Article 112e, para 4, as well as“ that was inserted by § 39 of the Act Amending the Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria Act (AAMSIWPRBA).
The President challenged Art. 112k, para 1 of the MSIWPRBA that was inserted by § 39 of the AAMSIWPRBA to make it lawful for a certain group of persons referred to in Art. 112d, para 1, respectively in Art. 112e, para 4 to obtain, without tender or auction, a building lease to proceed with the construction of a new public transport port of regional significance as per Arts. 107-109, or of a specialized port facility under Art. 111а, para 1 or Art. 111b, para 1 of the said Act. It is claimed that according to Art. 18, para 1 of the Constitution the State shall enjoy exclusive ownership rights over waters established by a law. As Art. 14 of the Water Act reads that the internal marine waters and the territorial sea shall constitute exclusive state property, so port waters shall have this same type of status accordingly. Art. 92а, para 1 of the MSIWPRBA unambiguously states that the anchorage of the ports shall be exclusive state property whereas the territory and infrastructure of the ports may be owned by the State and by owners other than the State, viz. municipalities, individuals and corporate entities. The President held the view that vis-à-vis this ownership mix the Legislature had failed to ensure the exigent must to have a differentiated approach to the modus operandi that is established to be applied to the construction of a new port and that is to provide optimum guarantees that the exclusive state ownership will be protected. In the understanding of the President the Constitution-set requirements in Art. 18, para 1 and para 5 can be met only if a concession is granted and he referred to the Constitutional Court case-law, including the Court’s binding interpretations, to support his claim. While the claim explicated the need to promote private investment in construction by the passage of legislative measures to boost the economy, it recognized that they should not derogate the Constitution-proclaimed values and principles.
The Constitutional Court discussed the reasons advanced and to issue a pronouncement considered the following points:
To judge on merit the compliance with the Constitution of the challenged part of the provision in Art. 112k, para 1 of the MSIWPRBA „without tender or auction in favor of a person referred to in Article 112d, para 1, respectively in Article 112e, para 4, as well as“ that was inserted by § 39 of the AAMSIWPRBA, the nature of exclusive state ownership as a special kind of public state ownership is to be considered. A conclusion was made that legitimate options should be explored to establish limited rights in rem that concern entities from the category under discussion (the building lease, in this particular case) with due recognition of the concrete entity – ports of a definite type.
In terms of scope the new text of Art. 112k, para 1 of the MSIWPRBA that was inserted by § 39 of the AAMSIWPRBA provides for a building lease to build a new public transport port of regional significance, of fishing, yachting or special purpose ports (as per Arts. 107-109 of the MSIWPRBA) or of a specialized port serving fishing operations: docks for unloading fresh catches of fish and other marine organisms, as well as places offering temporary shelter to fishing vessels (as per Art. 111а, para 1 of the MSIWPRBA), docks for ships for seasonal transportation of passengers, docks for extracting ships, specialized ships within the meaning of Art. 5 of the Commercial Navigation Code (CNC), merchant vessels and vessels employed for research, training, cultural and sports purposes, for pilotage, etc., docks for ships intended for ancillary activities and for wintering sheds (Art. 111b, para 1, item 1 of the MSIWPRBA).
The range of persons who may enjoy preferential treatment subject to the newly arisen opportunity that the President challenged should be individualized thus: individuals or corporate entities registered as businesses that have the intention to invest to build a new port or to expand an existing port for public transportation of regional significance in line with the reference to Art. 112d, para 1 of the MSIWPRBA and the note that Art. 112k, para 1 of the MSIWPRBA concerns the construction of a new public transport port of regional significance, of ports as per Arts. 107-109 of the MSIWPRBA and of specialized ports as per Art. 111а, para 1 and Art. 111b, para 1 of the MSIWPRBA according to Art. 112e, para 4, read in combination with para 1 of the same Act.
Being a special law the MSIWPRBA does not give a legal definition of the concept that is used in it – „persons who have an investment initiative.“ Therefore a definition should be derived, by interpretation, from the substance, more specifically the nature, scope and characteristics of the so-called investment initiative following a componential analysis of what is required for an investment project combined with prescribed specific requisites and appended documents in line with Art. 112d, paras 1-2 and Art. 112b, para 2 of the MSIWPRBA that make it binding on the individuals and corporate entities to submit so as to give legitimacy to their investment initiative. According to the cited legislation though the content of the concept discussed is not equivalent but similar to the concept used in Art. 161 of the Spatial Development Act (SDA) that is subsidiary applicable by virtue of Art. 112о of the MSIWPRBA that uses the term „Contracting Authority“. Art. 150 of the SDA describes an investment initiative as contracting, authorizing and drafting a development-project initiative design that shall consist of the following self-contained constituent parts: 1. A draft detailed plan, including a working spatial-development plan, where such shall be necessary; and 2. A development-project design.
The existing legislation (Art. 92, para 1 of the MSIWPRBA) defines a port thus: The port is a section which includes aquatory, territory and infrastructure on the coast of the Black Sea, the Danube River, the islands and the canals; it is situated on the territory of one or more municipalities and unites natural, artificially created and organizational conditions for safe lying, stay, and servicing of ships. The MSIWPRBA Additional Provisions – § 2, item 29 reads that „port aquatory“ shall mean the water space adjacent to the port territory with natural means or means resulting from human activities for protection from waves and clogging, having the area and depth necessary for the safe approach, maneuvering and docking of the largest ship envisaged for the respective port or port terminal. The aquatory of the port shall include: an approach zone, a maneuvering zone and an operating aquatory. In the wording of Art. 92а, para 1 of the MSIWPRBA the aquatory of the ports shall be exclusive state property unlike the territory and infrastructure of the ports that may be owned by the State, as well as by the municipalities, by individuals and by corporate entities (Art. 92а, para 2 of the MSIWPRBA).
Legislation is non-contradictory when by virtue of the constitutional delegation of Art. 18, para 1 of the Constitution it treats the aquatory of the ports as exclusive state property. The legislation does it in a consistent manner with the special piece of legislation that is examined by the Constitutional Court under this Constitutional Case and with the Water Act whose Art. 14 reads that the internal marine waters and the territorial sea shall constitute exclusive state property unlike the seabed and the subsoil thereof within the limits of the internal marine waters and the territorial sea and the flood plain of the River Danube shall constitute public state property as per Art. 12, para 2 of the Water Act. Art. 6, items 1-4 of the MSIWPRBA reads that the internal sea waters of the Republic of Bulgaria shall comprise: 1. The waters between the coastal line and the baselines from which the breadth of the territorial sea is measured; 2. The waters of the ports, bounded on the seaward side by the line joining the outermost points in the sea of the mooring grounds, hydrotechnical installations and other permanent port facilities; 3. The waters of named bays locked between the coastline and the straight lines that connect named capes. In that sense the conclusion that the aquatory of the ports which is part of the internal sea waters and the territorial sea is exclusive state property that has all the specific traits is not to be questioned, as the Court thinks.
The Constitutional Court case-law provides multiple rulings on matters of ownership. The major division of property into private and public is proclaimed by Art. 17, para 2 of the Constitution; however, the text referred to does not provide for the criterion that distinguishes private from public property. The Constitutional Court’s Decision No. 19/1993 on Constitutional Case No. 11/1993 to interpret Art. 17, para 2 of the Constitution recognized that „the title holder, the real possessions and the purpose they serve are relevant to the case“. The Court assumed it is only the imperium, i.e. the power that is wielded by the State and the municipalities, to a greater or lesser degree or on a larger or smaller scale, and it is they that have title to public property, unlike private property that is owned by all subjects of law – individuals and corporate entities, including the State and the municipalities. The municipalities engage in economic activities and thus get involved in the civil turnover. Another distinctive feature of public property is the purpose that it serves which is the public interest as Art. 18, para 6 of the Constitution prescribes the State shall utilize and manage all the State’s assets to the benefit of citizens and society. The existing Constitution specially singles out two particular categories of items that are in principle public property owned by the State and that are expressly enumerated in Art. 18, para 1 which prescribes that the State shall enjoy exclusive ownership rights over them. The Constitutional Court’s cited interpretative decision concluded that „the universal benefit of such items is apparent to the extent where the fathers of the Constitution thought it must be made available to all to enjoy it.“ Inherent features of the items discussed of crucial importance for the estimation of the Constitution-compliant techniques by which the State exercises its prerogatives are the definitive impossibility for these items to be in the ownership of an owner other than the State and the non-expropriability of such items as ensured by a constitutional imperative.
The elements of the first particular category: the nethers of the earth, the coastal beaches (N.B. not the whole coast), and the national motorways enjoy the status of exclusive state property directly by virtue of the Constitution, therefore, to change that status legislatively, the Constitution shall be amended first. The second category that comprises the waters, forests and parks of national importance and the natural and archaeological reserves is subject to constitutional delegation establishing imperative legal regulation at law level. In that way of thinking the question whether, for instance, all water bodies in the State or just some categories of water bodies are under exclusive ownership of the State, shall be addressed by law and shall not be made subject to a lower-ranking statutory act.
A differentiation should be made between items over which the State shall enjoy ownership rights as per Art. 18, para 1 of the Constitution and the items where the State shall exercise sovereign rights as per Art. 18, paras 2 and 3 of the Constitution. Regarding the former, the State establishes its legitimacy as the only possible rightful title holder whereas concerning the latter, the State exercises sovereign rights with respect to the continental shelf and the exclusive off-shore economic zone and to radio frequencies and the geostationary orbital positions.
The Constitutional Court’s Decision No. 18/1998 on Constitutional Case No. 17/1998 reads that „Art. 18, para 5 of the Constitution lists the legal instruments by which the State’s rights in that Article are exercised, viz. concessions over units of property and licenses for the activities deriving from such rights.“ The Decision that interpreted Art. 18, para 5 of the Constitution regarding the exercise of the sovereign rights of the State considered that the sovereign rights extended over units of property and over activities alike, contained the Court’s conclusion that the Constitution does not provide for any restrictions on the applicable procedures as per Art. 18, para 5 of the Constitution – the granting of concessions and licenses – and allows certain situations where the procedures may combine. The Constitutional Court insisted then that the legal arrangement of this matter shall be done by a law and ever since has not found justification to abandon or reconsider this view.
The check for compliance with the Constitution calls for the Constitutional Court’s arbitration on the text challenged in terms of two major interrelated questions that are essential if the dispute is to be resolved, viz.: Is it to be concluded that the concession procedure that Art. 18, para 5 of the Constitution provides for is compulsory in the hypothesis of the construction of a new port as per Art. 112k, para 1 of the MSIWPRBA, and, if the answer is in the affirmative, is it tolerable from a constitutional angle to codify an exception to the above rule, that is, to let the persons that the law refers to obtain a building lease without tender or auction?
As already noted, in terms of ownership a port shall be seen as a composite unit of property, i.e. composed of several different elements: anchorage which is part of the internal marine waters and of the territorial sea of the Republic of Bulgaria and which, by virtue of the discussed constitutional delegation and on the basis of the cited texts from the special pieces of legislation – the Water Act and the Maritime Space, Inland Waterways and Ports of the Republic of Bulgaria Act – is exclusive state property and a land area and infrastructure that may be owned by the State or, equally, by municipalities or individuals or corporate entities.
Art. 7, para 1 and Art. 8, item 6 of the Spatial Development Act provide that areas occupied by water and water bodies shall likewise constitute spatial development areas. The specific assigned use of lots shall be determined by the relevant detailed plan which covers the areas occupied by water and water bodies: for the internal sea waters and the territorial sea, the Bulgarian section of the River Danube, the rivers, lakes and dam lakes.
Given the specifics of the unit of property under discussion the construction of a new port is, in principle, works on land and in water space. The construction of any port regardless of the function that it will have (fishing, yachting, etc.) always presupposes building and assembly of different type and size and substance on the beach and in the water space, specifically on the seabed where the respective installations are to be placed, assembled and fixed. In that context it is an absolutely true judgment that the building lease is obtained by a beneficiary that will place and fix installations onto the seabed and not upon the sea surface.
This configuration shows clearly that the site on which a port is to be built covers, generally speaking, the following geographic features: a part of the mainland which may be owned by the Government, individuals or corporate entities; the seabed which is in public state ownership; the water space that is over the seabed is defined as the aquatory of the port and constitutes exclusive state property.
Treated as a standalone limited right in rem on an alien site, the building lease that is to be obtained in the context of a peculiar combination of different kinds of ownership, the construction of a port under the conditions of Art. 112k, para 1 of the MSIWPRBA includes the superficiary’s right to build the port and own it perpetually (unless subject to the hypothesis of Art. 65 of the Ownership Act where the right of use is created with a fixed time period), and also to use the blank space around inasmuch as it is needed for what has been built up, for its upkeep and operation as intended, inclusive of the right of way and non-obstruction to the installation of needed equipment to enable the appropriate use of the infrastructure.
The situation thus described clearly shows that the lease to build and operate a port of whatever type would not serve the purpose unless the water area of the aquatory of the port is employed. Otherwise the approach, movement and mooring of the ships would be unthinkable, that is, there exists no possibility for a hypothesis where the water space locked between the seashore and the installations that have been placed and assembled on the seabed could be ignored in a way that enables the port to function appropriately as intended. It is evident the exclusion of the water area or the aquatory of the port would make the whole port complex that comprises all facilities and infrastructure on the shore and in the water (including the seabed and the riverbed of the Danube) unfit to serve its proper purpose, that is, it would be anything but a port. Given that both the aquatory that, premising on the already cited constitutional delegation under Art. 18, para 1 and on the special law, is defined as exclusive state property, and the whole unit of property thus built as an integral part of the aquatory and as such is subject to concession under Art. 18, para 5 of the Constitution and therefore, there exists no valid legal tool which is based on an express Constitution procedure and by which the concession procedure is to be circumvented. Concession is the only tool that complies with the Constitution and that allows any entity other than the State to use property over which the State enjoys exclusive ownership rights.
The legal definition of concession can be read in Art. 2, para 1 of the Concessions Act: A concession shall be a right to exploit a facility and/or a service of general interest, conceded by a concession granting authority to an equity company concessionaire, under the concessionaire's obligation to construct and to manage and maintain the subject of the concession or to manage the service at the concessionaire's own risk. A concession shall be granted on the basis of a long-term agreement in writing involving a particular material interest, concluded between the concession granting authority and the concessionaire. In legal doctrine concession is defined as a special right to use units which are in state public ownership and over which the State enjoys sovereign rights and a right to carry out activities that are subject to a State monopoly in the sectors of public works, services and extraction – Art. 2, paras 2-3 of the Concessions Act.
In other words, as the case stands the unconditional need to use the aquatory which is exclusive state property to enable the port to perform its functions leaves no alternative but to enforce the Constitution-required concession modality on the whole unit and that is an absolute must. It is not accidental that to guarantee the maximum protection of units that are declared exclusive state property owing to their importance arising from the universal benefit that they bring and the significant public interests that they uphold, the fathers of the Constitution codified the opportunity to let all entities other than the State use these units with a prescription of a constitutional rank – Art. 18, para 5 of the Constitution.
The account so far is sufficient to assume that the very derogation of the granting of concessions when exclusive state property is really used as a result of an established limited right in rem is sufficient to construe the challenged part of Art. 112k, para 1 of the MSIWPRBA to be directly discordant with Art. 18, para 5, read in combination with Art. 1 of the Constitution and therefore to declare it unconstitutional.
Apart from the stated reason in the President’s challenge which is not binding on the Constitutional Court, following Art. 22, para 1, sentence 2 of the Constitutional Court Act (CCA) the challenged part of Art. 112k, para 1 of the MSIWPRBA conflicts with the principle as set forth in Art. 19, para 1 of the Constitution, namely, that the economy of the Republic of Bulgaria shall be based on free enterprise which is furthered in the Constitution prescriptions of Art. 19, paras 2-3. In addition to concession which is a must in the case under consideration, it is only a competitive and transparent concession granting procedure that would ensure a level playing field and equal legal opportunities for all individuals and corporate entities (Art. 16, para 1 of the Concessions Act) to be bidders in a public tender and to be evaluated on the basis of the criteria that are set by law – the most economically advantageous submitted bid (Arts. 27-28 of the Concessions Act). Concession granting procedures that are subject to strict law-established rules are a dependable guarantee against biased judgements.
The Constitutional Court case-law abounds in examples of its conclusive resolutions on the absolute need of clearly, precisely and unambiguously worded exceptions to any of the general rules that are passed by laws. A principled position that is in tune with Art. 4, para 1 of the Constitution reads that any exception that the Legislature endorses should be interpreted and applied restrictively, i.e. that exceptions may be introduced only when and if the general law fails to respond to the need of the imposition of a differentiated approach to the regulation of a specific group of societal relations providing there exists serious and tenable reasons that call for an exception. It is sufficient to recall, in that context, that discretionary legislation may and should apply within the Constitution-set confines. A view to the opposite will suggest nothing else but an arbitrary legislating behavior where it would appear that the National Assembly is involved in lawmaking that is not tied up with the Constitution-proclaimed principles and values. By Decision No. 12/2013 on Constitutional Case No. 9/2013 the Court concluded that all the cases that are covered by the exception shall constitute a violation of the Constitution principle of the law-governed state if the legal frame that concerns these cases is not clearly defined in order to preclude ambiguities, doubts and uncertainties so that no discrimination occurs in the intention and application of exceptions on a case by case basis. In the case at issue the criterion termed „existence of an investment initiative“ is devoid of the inherent distinctive features that are to single out this group of individuals and corporate entities from the rest whose business intentions continue to be subject to the general arrangements, i.e. the demarcation line between a rule and an exception is lost.
In that context the Constitutional Court found, among other things, that the existing legislation that is relevant to the matter discussed needs precision. If the Legislature believed that it should liberalize the modality that will make public state property available to individuals and corporate entities by the phased-in establishment of limited rights in rem over units of property that are in exclusive state ownership as per Art. 7, para 6 of the State Property Act (SPA) (amended, DV, No. 27/2013), immediately after it passed the contended text of Art. 112k, para 1 of the MSIWPRBA (DV, No. 28/2013), then the Legislature should have thought about and avoided the controversies in the regulation that it had approved; these controversies can be summarized as follows: The SPA that provides for the acquisition, management and disposition of properties and movables constituting state property contains a text (the text under consideration) that allows to establish limited rights in rem one of which is, no doubt, the leasehold but only when and if this is needed for the construction of a national project or is intended to meet public needs on a long-term basis. The MSIWPRBA challenged text provides for a preferential legal treatment to obtain leasehold to build, inter alia, new fishing, yachting and special-purpose ports that in principle could not be ascribed to the named category of units. Moreover, by its Decision No. 4/2000 on Constitutional Case No. 5/2000 the Constitutional Court agreed that as a rule the use of such ports is confined to a certain category – fishermen, yacht owners and yacht users or some legal persons whose activity is technologically associated with the ports but with a feature in common which is that none of these have the attributes that make up a universal utility. Therefore, given this feature they could not be ascribed to any of the national projects or to ventures that are intended to meet public needs on a long-term basis according to the criteria of Art. 7, para 5 of the SPA and these are the projects and ventures that the SPA permits, by way of exception, to establish limited rights in rem. In the situation as it is, it is clear that the commented legislation creates an apparent and considerable contradiction in the regulation which, according to the Constitutional Court case-law, fails to meet the constitutional criteria of guaranteed law and order in the State and of legal predictability and legal certainty, hence the collision with the principle of the state committed to the rule of law that Art. 4, para 1 of the Constitution proclaims.
As far as the construction of a new port is concerned, the contested exception does not fit into the Constitution-required equal treatment of all units of property regardless of their ownership in the hypotheses where the new regulation has a bearing on previously acquired rights. The problem has been considered by the Constitutional Court which unanimously agreed that the Legislature did not violate the Constitution when it took into account the legal status quo (with respect to units that are public state property and are used by business companies under a concession, in a situation of change of ownership of the concessionaire /the company/, existing ports and parts thereof that are owned by private legal entities). The Court unanimously agreed that the cases under consideration really afford preferential treatment which rightly tolerates already acquired rights, including ownership rights and right of use, and honor rights resulting from privatization deals in connection with investments made in such units in keeping with the legislation in force, including Art. 57, para 1 of the Constitution. As the Constitutional Court discussed this range of problems it was firm that the opposite approach would trespass on inviolable private property whose expropriation but for the cases in Art. 17, para 5 of the Constitution and after fair compensation at that, is unconstitutional at all times. The most essential difference with the specifics of the case under consideration is that the decisions quoted don’t treat the initially granted concessions so as to be able to credibly sustain the thesis that the principle of competition in a concession granting procedure might be derogated in this way. The Constitutional Court’s invariable and consistent attitude is in tune with the applicable provisions of Art. 112i of the MSIWPRBA, § 75 and § 76 of the Transitional and Concluding Provisions to the Act Amending the MSIWPRBA to arrange the rights of owners of ports that already exist. There exists no legal justification, however, to ascribe to the said category of provisions the provision that is challenged in order to accept that, like the other provisions, it is not in contravention of the Constitution for the reasons that are stated above. What is more, in a situation where the owner of a coastal plot of land decides to declare an initiative to build a new port whose territory, wholly or partially, would cover the existing property on the shore (argumentation as per Art. 112d, para 2, item 2 of the MSIWPRBA), when such an owner bids in a compulsory tender to be awarded a concession, that owner will have sufficient motivation to submit and offer the State the most economically advantageous bid.
In conclusion, as the Constitutional Court considered the above related facts, it found the President’s challenge tenable and ruled that Art. 112k, para 1 of the MSIWPRBA in the challenged part „without tender or auction in favor of a person referred to in Article 112d, para 1, respectively in Article 112e, para 4, as well as“ that was inserted by с § 39 of the Act Amending the MSIWPRBA should be declared unconstitutional.