The Lack of Clarity in Sanctioning the Failure to Perform a Contract with Budgetary Institutions – Unconstitutional

On 16 March 2017, the Constitutional Court of Moldova solved an exception of unconstitutionality of certain provisions of the Law on public finance and budgetary and fiscal accountability no. 181 of 25 July 2014.

Circumstances of the case

The case originated in an exception of unconstitutionality of Article 80.2 of the Law on public finance and budgetary and fiscal accountability, raised by the lawyer Vitalie Nagacevschi in the case no. 3-883/2016 pending before the Court of Law of Chişinău, Rîşcani District.

According to the challenged provision, in case a contract is not performed, within the statutory period, by individuals or legal entities that received payments in advance from budgetary institutions, they shall be charged with an amount calculated depending on the basic rate applied by the National Bank of Moldova to the main short term monetary policy operations.

The author of the complaint alleged that the sanction provided by this legal text is applied without considering the lack or presence of guilt of the individual or legal entity that did not perform the contract within the statutory period.

The complaint was examined by the Constitutional Court of Moldova in the following composition:

Mr Alexandru TĂNASE, President, 

Mr Aurel BĂIEŞU,

Mr Igor DOLEA,

Mr Tudor PANŢÎRU,

Mr Victor POPA,

Mr Veaceslav ZAPOROJAN, judges. 

Conclusions of the Court

Hearing the reasoning of the parties and examining the casefiles, the Court noted that in line with Article 130.1 of the Constitution, the formation, administration, use and control of financial resources of the State, that of the administrative units and public institutions are regulated by law.

Considering the public nature of financial resources, the Court mentioned that encroaching upon the fiscal and budgetary policy leads to legal liability of the legal subject – be it an individual or a legal entity of public law or private law.

At the same time, the Court noted that budgetary and fiscal law has to meet certain criteria of quality. In this regard, predictability and clarity of the law are sine qua non elements of the constitutionality of a legal provision, which cannot be disregarded in the lawmaking process.

According to Article 80.2 of the Law on public finance and budgetary and fiscal accountability, the legal entity or the individual that received from budgetary authorities/institutions financial means as a payment in advance – for the period that exceeds the statutory period provided by the contract – is charged from its budged an amount calculated depending on the basic rate applied by the National Bank of Moldova to the main short term monetary policy operations.

Considering the technical and legislative nature of the challenged provision, the Court found that the calculated amount for the failure to perform a contract within the statutory period is perceived as a penalty of legal nature.

It being a form of a contractual civil liability, the Court mentioned that applying the legal penalty shall meet the same conditions provided by the law as for the contractual liability, particularly the guilt of the debtor.

In this regard, the Court underscored the relevance of the provisions of Article 624.5 of the Civil Code which provides that the debtor is not under the duty to pay the penalty in case the failure to perform the contract is not due to his guilt.

Subsequently, the Court noted that the lawmaker may establish sanctions as penalties of legal nature, provided it observes the general provisions of civil law on the guilt. Concurrently, this element shall be considered both by the authority entitled to check the execution of the contracts concluded with a budgetary institution, and by the court of law in solving cases.

At the same time, in line with Article 624.3 of the Civil Code, the penal clause may be provided in a fixed amount or as a part of the value of the obligation guaranteed by the penal clause or of the part that was not executed [within the contract - TN].

Examining the challenged provisions, the Court found that the lawmaker only establishes that the charged amount shall be calculated depending on the basic rate applied by the National Bank of Moldova to the main short term monetary policy operations.

The Court held that the law does not determine against what reference there shall be calculated the amount of the penalty, i.e. whether the respective basic rate of the National Bank is calculated from the value of the entire obligation or only from the part of the obligation that was not executed.

Lacking any criteria set by the lawmaker, which would allow for the amount of penalty to be determined, the Court held that the challenged provision does not meet the requirements of quality of a law, enshrined in Article 23.2 of the Constitution. In other words, the individual or the legal entity should be able to calculate and foresee, at least with approximation, the amount he will have as a debt in case of a delay in performing the contract.

Judgment of the Court

Stemming from the above reasoning, the Constitutional Court of Moldova:

1)    declared admissible the exception of unconstitutionality;

2)    declared unconstitutional paragraph (2) of Article 80 of the Law on public finance and budgetary and fiscal accountability no. 181 of 25 July 2014;

3)    prior to the adoption by Parliament of new legal provisions, the sanctioning of the failure to timely perform the contracts concluded with a budgetary institution shall be applied in line with the provisions of the civil law and contractual clauses.

The Judgment of the Constitutional Court of Moldova is final, cannot be subject to any appeal, enters into force upon its delivery and is published in the Official Journal of Moldova.

This press-release is also available in Romanian.