Constitutional Court Decision of the Action for Annulment of the Disposition Transaction

November 2018 Duygu Öner Ayçiçek

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The Plenary of the Constitutional Court carries out the review of the constitutionality of laws, resolutions of the president, as well as the Rules of Procedure of the Grand National Assembly of Turkey, in terms of form and merit considerations. In this newsletter article, the Constitutional Court’s annulment decision numbered 2018/9 E. 2018/84 K. and dated 11.07.2018 regarding the provisions on the annulment of dispositions stipulated in Article 278 of the Enforcement and Bankruptcy Law (“EBL”) is examined.

The Subject of Action for Annulment

The subject of application to the Constitutional Court in the present case is that after the commencement of the execution proceedings by the creditor against the debtor, the action for annulment of the disposition was initiated pursuant to Article 278 of the EBL, on the allegation that the debtor transferred the immovable shares that belonged to the creditor to his brother at a price that was lower than the real sale price, in order to retain the property and to cause damage to the creditor. The domestic court that heard the case had applied to the Constitutional Court for annulment and suspension of execution of the provisions concerning the claim that subparagraphs (1) and (2) of the third paragraph of Article 278 of the EB Lare contrary to the Constitution.

Action for Annulment of the Disposition

The purpose of an action for annulment of the disposition is to satisfy creditors arising from legally valid transactions that the debtor made prior to the attachment or bankruptcy, as well as the goods that the debtor removed from the assets, as if they had belonged to the debtor. In accordance with Article 278 of the EBL, except for customary gifts, all donations and gratuitous transactions made by the debtor within the two year period prior to the arrest, or commencement of the bankruptcy proceedings, shall be subject to annulment. Additionally, pursuant to the third paragraph of Article 278 of the EBL, the following dispositions of the debtor shall be deemed as donations, although they are onerous, and such dispositions shall be subject to annulment:

Reciprocal transactions between conjoints, relatives to the third degree by blood or marriage, adopter and adopted;
Transactions in which the debtor accepted a price much lower than the real value in return for the goods;
The contracts in which the debtor establishes a life annuity contract, contract of support for life, or usufruct right, for his/her own benefit, or for that of a third party.

Within this scope, onerous transactions between conjoints, relatives to the third degree (including this degree) by blood or marriage, and adopter and adopted, shall be deemed as donations, as is set forth in subparagraph (1) of the third paragraph of Article 278 of the EBL, which is the subject of the request for annulment. In the second subparagraph of the relevant paragraph, it states that if the debtor is paid a very low price in return for the goods of the transaction, this transaction shall be deemed as a donation, and is subject to annulment. The Local Court applied to the Constitutional Court for the reason that these two subparagraphs do not comply with Articles 2, 10, 13, 35 and 36 of the Constitution.

Issue with Authorization

In accordance with Article 152 of the Constitution, if a court hearing a case finds that the law or the presidential decree to be applied is unconstitutional, or if it is convinced of the seriousness of a claim of unconstitutionality submitted by one of the parties, the court is authorized to apply to the Constitutional Court for the annulment of this provision. The examination to be made by the Constitutional Court as per this Article is referred to as “concrete norm control” in the doctrine.

Within this context, unconstitutionality may only emerge regarding a “norm to be applied in a case.” According to one opinion, the expression of “norm to be applied” should be accepted as “every law to be enforced by one of the parties.”[i] According to another opinion, the measure to detect the norm to be applied is “effectiveness on the merits;” thus, the Constitutional Court should only make an examination limited to the norm to be applied to the merits of the case.[ii]

The Constitutional Court, taking into account the fact that the transaction was made between the siblings in the present case, stated that the transaction to be deemed as a donation concerns the term “kinship by blood” in subparagraph (1) of the third paragraph of Article 278 of the EBL. In this context, due to the fact that there is no transaction between conjoints, relatives to the third degree by blood or marriage, adopter and adopted, and the parts of “conjoints, relatives …by marriage, adopter and adopted,” in subparagraph (1) of the third paragraph of Article 278 of the EBL, will not be applied in the present dispute, and it has decided that the court is not authorized to render a decision regarding the annulment of these statements.

Therefore, the Constitutional Court conducted a limited examination regarding Article 278’s part to be applied in the present case by interpreting the concrete norm control and, pursuant to the Article, has only examined the transactions that are deemed to be donations, as the transactions between kinship by blood.

Assessment on Unconstitutionality

Article 35 of the Constitution includes the provision that “Everyone has the right to own and inherit property. These rights may be limited by law only in view of the public interest. The exercise of the right to property shall not contravene public interest.”

The Constitutional Court has stated that the right to property is a right that allows a person to use his property, to benefit from its products, and to dispose of the property, provided that there is no harm to others, and complies with the limitations set forth under the law. In this context, it states that limiting the owner’s right to use his/her property, to benefit from its products, to dispose of it, and to deprive the owner of its property, constitutes an interference with the rights concerning property. However, it states that the relevant Article does not regulate the rights with respect to property as an unlimited right, and that this right could be restricted for the purpose of public interest and in law, in accordance with Article 13 of the Constitution. In Article 13 of the Constitution, it states that fundamental rights and freedoms may be restricted only by law and must be in conformity with the reasons mentioned in the relevant Articles of the Constitution. Therefore, in accordance with Article 13 of the Constitution, the rights concerning property may be restricted only by law and must be in conformity with the reasons mentioned in the Constitution, provided that these restrictions are not contrary to the requirements of the democratic order of society and the principle of proportionality. According to Article 36 of the Constitution, which regulates the freedom of expression and the right to a fair trial, every person has the right to litigation, either as plaintiff or defendant, as well as the right to a fair trial before the courts through legitimate means and procedures. In this respect, the Constitutional Court states that the provisions restricting the right to claim and defense, which are the two basic elements of the freedom to claim rights, and that would prevent the exercise of these rights and fair trial, would constitute a violation of Article 36 of the Constitution.

The Constitutional Court reviews Article 278 of the EBL, and states that the rule, which causes transactions that are made by the debtor when his/her power of disposition as to the assets has not been legally restricted (as in the present case - a sale transaction between the debtor and his/her brother – and would bear responsibility in property or in cash), and has the obligation to allow the compulsory execution transactions for a third party who makes the transactions, constitutes an interference in the rights concerning property.

In addition, as stated by the Constitutional Court, the interference in the right to property must be directed towards the purpose of public interest and must not be disproportional, and it must not impose an excessive burden on the owner. In the rule, subject to an objection that constitutes an interference with the rights concerning property, it is accepted that the reverse cannot be claimed and proven that onerous transactions between relatives by blood to the third degree (including this degree) take on the form of donations, without being dependent on any other conditions. In this respect, the fact that the value of the goods that are subject to the transaction is paid in whole, or in excess, the transaction is in favor of the debtor"s creditors, and the creditors are not damaged because of the transaction, and that the collection and compulsory execution activities by the creditors regarding the debt have not been made more difficult and, instead, have been facilitated, will not change the result. The provision in question that is subject to objection, which deduced that onerous transactions between relatives by blood to the third degree (including this degree) are treated as donations, does not provide any opportunity to the parties to make a claim or defense on the matters mentioned, and evidence, information and documents must be presented in order to prove these matters. From this aspect, it cannot be said that the regulation that damages the reasonable balance to the owner’s detriment, and which must be regarded as interference in the rights concerning property and the purpose intended, is not proportional to the intention. The rule that is subject to objection causes the restriction of rights concerning property, as well as the freedom to claim rights, disproportionately, through damaging the balance between public and personal interest. In this respect, it has been decided that the term “kinship by blood or…” in this Article does not comply with Articles 13, 35 and 36 of the Constitution. The annulment decision was published in the Official Gazette on 15 November 2018, and will enter into force nine months after its publication in the Official Gazette.

In subparagraph (2) of the third paragraph of Article 278 of the EBL, which is subject to the annulment, regardless of the degree of closeness between the parties of the contract, it is set forth that the contracts in which the debtor accepts a very low price in return thereof shall be accepted as donations. The Constitutional Court, which reviewed the provision subject to the request for annulment, has stated that that intention by the relevant regulation to prevent questionable transactions that are made in the period prior to the arrest, insolvency and/or bankruptcy of the debtor, is to protect the creditors, and to prevent difficulties in terms of establishing proof. According to the Constitutional Court, the rule that is subject to objection is an interference with respect to the rights concerning property, but it is in the public interest to regulate the use of rights concerning property for transactions with a very low price and is accepted in return. According to the relevant regulation, all contracts in which a low price is made are not necessarily accepted as donations, only the transactions in which the disproportion between the actions is serious and cannot be expected to be assessed as objectively reasonable, are accepted as donations. On the other hand, although the relevant provision provides ease of proof to the creditor, the debtor may prove that the transaction was made on the real value by claiming the opposite; thus, the annulment of the transaction may be prevented. In this respect, the Constitutional Court has determined that the rule in question does not disrupt the fair balance between public interest and an individual"s rights and freedoms, and does not violate the principle of proportionality.

Within this context, the Constitutional Court found that the subparagraph (2) of the third paragraph of Article 278 of the EBLwas not contrary to the Constitution.

Conclusion

In its annulment decision, the Constitutional Court has interpreted the concrete norm control narrowly and, due to the fact that the transaction in the dispute that is the subject of the case is made between the siblings, has examined the relevant provision of the law only limited by the expression “kinship by blood,” and has rendered its decision to annul the related statement due to its unconstitutionality. Thus, in the actions for annulment of the legal transaction, a dual distinction has emerged in terms of the party of the transaction. With the entering into force of the Constitutional Court"s annulment decision, in the transactions that the debtor makes with his/her relatives to the third degree by blood will not be subject to annulment. However, onerous transactions between conjoints, relatives to the third degree by marriage, the adopter and adopted, shall be considered to be donations, and shall be subject to the application for annulment, provided that the other conditions set forth in the relevant Article have been met.

[i] Armağan, Servet, Anayasa Mahkememizde Kazai Murakabe Sistemi, İstanbul, İ.Ü.H.F. Yayını, 1967, p. 86.

[ii] Kıratlı, Metin, Anayasa Yargısında Somut Norm Denetimi (İtiraz Yolu), Sevinç Matbaası, Ankara, 1966, p.22.

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