The norms that defined the procedure for calculating the consumed natural gas and compensation, which the user of energy paid in case of a violation, are incompatible with Article 64 and Article 105 of the Satversme

25.03.2020.

On 20 March 2020, the Constitutional Court passed the judgement in case No. 2019‑10‑0103 “On Compliance of Section 423 (1) of Energy Law (in the wording that was in force until 7 March 2016) and Para 56, Para 58 and Para 87 of the Cabinet Regulation of 16 December 2008 No. 1048 “Regulation on the Supply and Use of Natural Gas” with Article 64 and Article 105 of the Satversme of the Republic of Latvia and Section 423 (1) of Energy Law (in the wording that was in force until 7 March 2016)”.

Eight cases, which had been initiated on the basis of Aleksejs Petrovs’ constitutional complaint and applications by several courts, have been joined in the present case.

The Contested Norms

Section 42(1) of Energy Law (here and hereafter – in the wording that was in force until 7 March 2016):

 “If the energy supply merchant detects that the user of energy has violated the Cabinet Regulation on the supply and use of natural gas or the agreement on the supply of natural gas and as the result the amount of consumed natural gas reading has been decreased or the possibility has been created to consume natural gas free of charge the user of energy shall pay to the energy supply operator for the natural gas consumed and compensation. The procedure, in which the energy supply merchant determines the amount of actually consumed natural gas as well as the amount of compensation, shall be established by the Cabinet.”

Para 56 of the Cabinet Regulation of 16 December 2008 No. 1048 “Regulation on the Supply and Use of Natural Gas” (hereafter – Regulation No. 1048):

 “If the system operators detects a violation of this Regulation or the agreement, due to which the result the amount of consumed natural gas reading has been decreased or the possibility has been created for the user to consume natural gas free of charge, the user shall pay to the system operator for the consumed natural gas as well as compensation.”

Para 58 of Regulation No. 1048:

 “The system operator shall determine compensation envisaged in Para 56 of this Regulation by multiplying the calculated amount of consumed natural gas by the tariff in double amount.”

Para 87 of Regulation No. 1048:

 “The system operators shall calculate the amount of natural gas for a household user consumed as the result of an infringement referred to in Para 56 of this Regulation in accordance with the differentiated consumption norms of natural gas in the procedure of payments approved by the system operator.”

Norms of Higher Legal Force

 Article 64 of the Satversme of the Republic of Latvia (hereafter – the Satversme):

“The Saeima, and also the people, have the right to legislate, in accordance with the procedures, and to the extent, provided for by this Constitution.”

Article 105 of the Satversme:

“Everyone has the right to own property. Property shall not be used contrary to the interests of the public. Property rights may be restricted only in accordance with law. Expropriation of property for public purposes shall be allowed only in exceptional cases on the basis of a specific law and in return for fair compensation.

 Section 423 (1) of Energy Law (quoted above)

 The Facts

 The applicants hold that the norms, which regulate payment for natural gas in cases where the energy user has violated regulations on the supply and use natural gas or an agreement on the supply of natural gas (hereinafter – regulations on the use of natural gas), as well as the norms on compensation that the user of energy pays to the system operator in such cases are incompatible with the Satversme.

The Applicants hold that the authorisation granted to the Cabinet by Section 423 (1) of Energy Law (hereafter – the contested norm of the law) is not sufficiently clear, therefore this norm is incompatible with Article 64 and Article 105 of the Satversme. Moreover, Para 87 of Regulation No. 1048 is said to be incompatible with Article 64 and Article 105 because the contested norm of the law authorises the Cabinet to establish the procedure, in which the operator supplying energy, determines the amount of consumed natural gas. By this norm of the Regulation, substantially, the Cabinet had re-delegated this task to the system operator. Thus, the Cabinet had exceeded the limits of its authorisation defined in the law.

The Applicants note that the compensation envisaged in the contested norm of the law as well as Para 56 and Para 58 of Regulation No. 1048, which define this compensation, establish punishment for an infringement committed by an energy user. By establishing this punishment, the Cabinet had exceeded the authorisation granted by the legislator. Moreover, the restriction on fundamental rights included in the contested norm is said to be disproportional.

The Court’s Findings

 On specifying the limits of the claim and on the most effective approach to examining the case

The Constitutional Court took into account that the contested norm of the law and Para 56 and Para 58 of Regulation No. 1048 applied to cases, where any user of energy had violated the Cabinet Regulation on the supply and use of natural gas or an agreement on the supply of natural gas. Whereas the calculation of the consumed natural gas, established in Para 87 of Regulation No. 1048, applied only to those cases, where the said violation had been committed by a household user. Hence, in the present case, the Constitutional Court decided to review the compatibility of the contested norms with Article 64 and Article 105 insofar these applied to a household user. [20.]

The Constitutional Court decided, first and foremost, to examine the compatibility of the contested norm of the law with Article 105 of the Satversme, verifying, inter alia, whether the alleged restriction on the fundamental rights established in Article 105 of the Satversme, had been established by a law adopted in due procedure, among other things, in compliance with Article 64 of the Satversme. [21.1., 21.2.]

On the restriction on fundamental rights included in Article 105 of the Satversme

The Constitutional Court reminded that a person’s financial resources were an object of the right to property. Protection of the financial resources that had to be invested to make the payments established by the contested norm of the law falls within the scope of the right to property included in Article 105 of the Satversme. Hence, the contested norms restricted a person’s – a household user’s – fundamental rights included in Article 105 of the Satversme. [22.2., 23., 31.]

On the constitutionality of the contested norm

On whether the restriction on fundamental rights was established by a law adopted in due procedure and whether it has a legitimate aim

The restriction on fundamental rights included in the contested norm of the law was established by a law adopted in due procedure. The Constitutional Court recognised, inter alia, that the legislator itself had decided how to regulate the legal relationships, in which the household user had violated the regulations on the use of natural gas, clearly authorising the Cabinet to regulate some aspects related to it. [25.]

The restriction on the household user’s right to property was linked to ensuring constant supply of energy and promoting equality in the legal relationships between these users and the energy  supply merchant operating in the conditions of a monopoly. Hence, the restriction on fundamental rights included in the contested norm of the law had legitimate aims – protecting the rights of other persons and public welfare. [26.]

On whether the restriction on fundamental rights complies with the principle of proportionality

The Constitutional Court recognised that the obligation, established by the contested norm of the law, to pay for the consumed natural gas and to pay compensation was aimed at constant, secure and qualitative functioning of the energy supply system. Moreover, it served as an incentive to comply with the regulations on the use of natural gas and the agreement on supplying natural gas, and also promoted prevention of violations of the regulations on the use of natural gas. Hence, the aforementioned obligation was an appropriate measure for protecting the rights of household users and promoting public welfare. [28.1., 28.2.]

In conditions of a monopoly, application of the general regulation established by the Civil Law or sanctions to be applied in accordance with the Latvian Administrative Violations Code or the Criminal Law could not be considered as being an alternative to the household user’s obligation, established in the contested norm of the law, to pay for the consumed natural gas and pay compensation. Hence, there were no other, more lenient means that would allow reaching the legitimate aims of the restriction on fundamental rights at least in the same quality. [29.]

In the particular case, the legislator, in exercising its discretion to establish special regulation on the legal relationship between an energy supply merchant and the household user, had decided that, in case of violating the regulations on the use of natural gas, the household user had to pay for the consumed natural gas and to pay compensation to the energy supply operator. This obligation was disciplinary by nature and was aimed at preventing violations of the regulations on the use of natural gas. Such violations could cause not only consumption natural gas, i.e., limited resource, without remunerating for it and, consequently, increase in the tariffs, but also functional disruptions in the natural gas supply system. Hence, the restriction on the household user’s fundamental rights was proportional. Hence, the contested norm of the law complied with Article 64 and Article 105 of the Satversme. [30.]

On the constitutionality of the contested norms of the Regulation

The Constitutional Court examined the contested norms of the Regulation as united legal regulation and recognised that these provided more detailed regulation on the application of the contested norm of the law in the case where the regulations on the use of natural gas had been violated and did not establish a new legal relationship, which did not follow from Energy Law. However, this per se does not mean that these norms had been issued within the limits of authorisation established in the law. [32.2., 32.3.1.]

As to its legal consequences, compensation performed the functions of contractual penalty; however, by defining a fixed amount of compensation, the Cabinet had not ensured compliance with the principle of the individualisation of punishment, i.e., that the scope of punishment in each particular case should be commensurate to the offence committed by the person. Moreover, if the payment for the natural gas and establishing and limiting the compensation had been aimed at protecting consumers against an energy supply merchant in the conditions of a monopoly, then the Saeima, by granting the authorisation to the Cabinet in the contested norm of the law, could not have wished, in accordance with the principle of a rational legislator, the Cabinet to define such method for setting the amount of compensation, the impact of which on the consumer could lead to violations of the requirements set in the normative legal acts regulating the protection of consumer rights. [32.3.1.]

In the particular case, in Para 87 of Regulation No. 1048, the Cabinet had not defined itself how, in the case where the regulations on the use of natural gas had been violated, the amount of consumed natural gas should be determined, but had authorised the system operator to do it, by imposing the obligation on the system operator to determine differentiated norms of consumption in the scheme of payments approved by it. Thus, the Cabinet not only had not respected the limits of authorisation set in the contested norm of the law but also, by the contested norm of the Regulations had included in it as an element of the united legal regulation a provision that was defined by a private person without democratic legitimisation. Hence, in issuing the contested norms of the Regulation the legislator’s authorisation had been exceeded. [32.3.2.]

On the date, as of which the contested norms of the regulation become void

Legal norms, which have been issued by exceeding the authorisation granted by the legislator, should be recognised as being void as of the date of their adoption. This means that the contested norms of the regulation must be recognised as being void as of the date of their adoption with respect to persons, to whom these norms had been applied or should be applied in court. [34.]

The Constitutional Court held:

to recognise Section 423(1) of Energy Law (in the wording that was in force from 4 July 2008 until 7 March 2016) as being compatible with Article 64 and Article 105 of the Satversme;

to recognise Para 56, Para 58 and Para 87 of the Cabinet Regulation of 16 December 2008 No. 1048 “Regulation on the Supply and Use of Natural Gas” as being incompatible with Article 64 and Article 105 of the Satversme with respect to persons, to whom these norms had been applied or should be applied in court, as of the date of their adoption.

The judgement by the Constitutional Court is final and not subject to appeal, it shall enter into force on the day it is published. The judgement will be published in the official journal “Latvijas Vēstnesis” within the term set in Section 33 (1) of the Constitutional Court Law.

The text of the judgement in Latvian is available on the homepage of the Constitutional Court: http://www.satv.tiesa.gov.lv/web/viewer.html?file=/wp-content/uploads/2019/06/2019-10-0103_Spriedums.pdf#search=

Linked case: 2019-10-0103