The Constitutional Court of Ukraine reviews the constitutionality of the provision on changing the price of goods by up to 10% in public procurement

The Constitutional Court reported that on July 8, the Second Senate of the CCU, during an open part of the plenary session in the form of written proceedings, considered a consolidated constitutional case based on constitutional complaints filed by Limited Liability Companies "Promgaz City," "Lvivenergozbut," and "UKR GAZ RESOURCE" regarding the constitutionality of paragraph 2 of part five of Article 41 of the Law of Ukraine "On Public Procurement" dated December 25, 2015, No. 922–VIII, as amended.

The contested provisions of the Law establish that the essential terms of a procurement contract cannot be changed after its signing until the obligations are fully performed by the parties, except in cases including "an increase in the price per unit of goods by up to 10 percent proportionally to the increase in the market price of such goods in case of market price fluctuations, provided that such change does not lead to an increase in the amount specified in the procurement contract – no more than once every 90 days from the moment of signing the procurement contract or making changes to such contract regarding the increase in the price per unit of goods. The restriction on the timing of price changes per unit does not apply in cases of changes in the procurement contract conditions for gasoline and diesel fuel, natural gas, and electricity."

The reporting judges in this case, Viktor Horodovenko and Halyna Yurovska, informed about the content of the constitutional complaints, the course of the relevant cases in the judicial system, and the applicants' reasoning.

Position of LLC "Promgaz City"

As noted by reporting judge Viktor Horodovenko, LLC "Promgaz City" in its constitutional complaint indicates that paragraph 2 of part five of Article 41 of the Law "in its actual normative meaning forms a legal regulation model under which lawful business activity can be questioned retroactively, the economic result of such activity forcibly withdrawn, and the business entity deprived of the opportunity to foresee or avoid such consequences. Under such conditions, the right of ownership and freedom of entrepreneurial activity lose their real meaning and acquire a formal character, which indicates the incompatibility of the contested provision with the constitutional model of the rule of law and excludes the possibility of its application in a manner consistent with the Constitution of Ukraine."

The applicant believes that the application of the contested provision leads to violations of the rights to entrepreneurial activity "in terms of ensuring the real possibility of its implementation on the basis of economic independence"; property rights "in terms of free disposal of property and control over the economic consequences of its use"; as well as "guarantees of equality of property rights holders before the law in terms of ensuring equal conditions for the exercise of property rights." Justifying its position, LLC "Promgaz City" states that paragraph 2 of part five of Article 41 of the Law, in particular, does not meet "the requirements of the principle of the rule of law since it does not ensure an adequate level of legal certainty, allows the formation of the content of legal regulation beyond the law, causes unjustified expansion of the discretion of law enforcement bodies, and creates conditions for arbitrary interference in the property rights of business entities."

Positions of LLC "Lvivenergozbut" and "UKR GAZ RESOURCE"

Reporting judge Halyna Yurovska noted that according to LLC "Lvivenergozbut," "the limit on price increases in public procurement may lead to the inability of conscientious suppliers to fulfill procurement contracts, the inability to make timely payments for purchased electricity on the electricity market, the imposition of fines, penalties, inflation charges, 3% annual interest for late payment for electricity on the market, late payment for services of NEC 'Ukrenergo' for electricity transmission, and the application of sanctions by consumers – budget institutions – against suppliers as provided by electricity procurement contracts for suppliers' breaches of contractual obligations. Consequently, the presence of such a restriction may lead to the bankruptcy of many conscientious suppliers, which destroys the enterprise in the electricity supply sector."

LLC "UKR GAZ RESOURCE" emphasizes that the contested provisions of the Law, as applied in the final court decision, indicate the transformation of procurement disputes and commercial relations into the sphere of criminal prosecution precisely due to the uncertainty of the legislative model regulating changes to essential contract terms.

The judge also reported that another case is currently before the Court, in which the subject of constitutional control is the same provisions of the Law; therefore, the issue of further consolidation of these constitutional proceedings will be considered by the Court additionally.

Halyna Yurovska noted that requests have been sent to state authorities and scientific institutions regarding the issues raised in the constitutional complaints. The content of the judges' expressed positions will be communicated during the closed part of the plenary session.

After examining the case materials, the Second Senate proceeded to the closed part of the plenary session.

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