Compensation to ex-holders of rights to property that has been nationalised
Right of property
Compensation for expropriation
RULING Nº 493/2009
29 of September of 2009
The rule which says that the compensation the state must pay to ex-holders of rights to property that has been nationalised should take the form of public debt securities is not unconstitutional.
The object of this appeal was a request to consider the constitutionality of certain articles of the Law which approved the payment of compensation to the ex-holders of rights to property that is nationalised or expropriated. The applicable rules result in a transfer of public debt securities in lieu of payment, with the terms and conditions governing the transfer to be regulated by official order, to include redemption and deferral periods and interest rates that are differentiated by class or band, depending on the overall amount to be compensated, as per the data set out in the table annexed to the Law in question.
The refusal by the court against whose decision this appeal was lodged to allow the application of certain articles of this Law on the grounds that they are unconstitutional was due on the one hand to the form of payment of the compensation laid down by the Law, and on the other to the length of the redemption and deferral periods applicable to the loans that corresponded to the public debt securities which were transferred in order to satisfy the right to compensation.
Although it considered that the failure to pay the amounts due in compensation immediately was justified, the lower court held that providing that payment in the form of Treasury Bonds which were redeemable over a long period, combined with a fixed rate of remuneration which was clearly lower than the actual rate of inflation, meant that despite the fact that the compensation in its own right had not been derisory to start with, the compensation that was actually paid “became derisory due to the passage of time itself”.
In accordance with this finding, the court decided to partially uphold the suit by issuing an order that the state must update the amount allocated as compensation by subjecting it to certain monetary correction coefficients.
The Constitutional Court noted that one of the principles on which the country’s socioeconomic organisation is based is that of the “public ownership of natural resources and the means of production, in accordance with the collective interest”.
As part of the dynamic underlying the state’s actions and in accordance with this public interest, this principle legitimates acts involving the forced dispossession of means of production and their transfer to the public sector. Where the property that is the object of this measure is concerned, the latter results in a change of ownership – in an ablation by a unilateral act of authority of the ownership that was previously in the hands of private subjects – and must thus necessarily be articulated with the constitutional guarantee of the right to property.
This is why the Constitution enshrines the constitutional possibility of the “public appropriation of means of production” and charges the law with setting out the applicable requirements.
In the strict sense of the two terms, nationalisation is not the same thing as expropriation. Distinctions can be made between the two formats as regards their objects, grounds and purposes and, consequently, the rules that govern them (particularly the procedure for their implementation). The characteristics that typify nationalisation set it apart from expropriation in the national interest.
Nor are the two sets of rules the same when it comes to the constitutional criteria governing compensation. Whereas the Constitution states that expropriation in the public interest may only occur “upon payment of just compensation”, the Article on nationalisation as a form of public appropriation of means of production limits itself to requiring the law to determine “the criteria for setting the applicable compensation”, without specifying what yardstick the law ought to use in order to do so.
The combination of the fact that the Constitution refrains from predetermining a criterion that it deems appropriate for calculating compensation, and the use of the plural (“criteria”) to describe that which it charges the law with determining, means that one can deduce that where nationalisations are concerned the legislative authorities enjoy a high degree of discretionary power which is entirely absent in the case of expropriations in the public interest.
In the case of expropriations, the principle of just compensation requires that the latter be both full and tendentially equivalent to the saleable value of the property, as determined by its market price. Given the specific nature of nationalisations, the Constitution leaves the legislative authorities enough room for manoeuvre to enable them to weigh up the situation and ensure that the compensation rules reflect a variety of complex and variable factors of a political, economic and social nature, with the ability to justify a compensatory quantum that is not entirely equivalent to the loss suffered by the previous owner. This does not mean that the infra-constitutional legislator is entirely free from any form of constitutional parameterisation that will affect the value of compensation and the way in which it is paid and will require them to be appropriate in constitutional terms. It simply implies that in the (justified) absence of a specific, restrictive criterion derived from a principle of commutative justice, such as the one that applies to expropriations, nationalisations are subject to the less stringent general principles of justice, in their role as elementary principles of a Democratic State based on the Rule of Law. These general principles merely require that the compensation must not lose a large part of its effectiveness and consistency due to the fact that the previous owner is granted an amount which is derisory or manifestly unreasonable.
The Court noted that this is the guideline it has uniformly outlined to date, and, while not unaware of the voices which have argued that the same criteria should be used to set the compensation for both nationalisations and expropriations, felt that the existing guideline should be reiterated.
Six Justices, including the initial rapporteur and the President of the Court, dissented from this Ruling. The grounds for their dissenting opinions were linked to their belief that the legislative criteria in the case before the Court were unreasonable: because the risks of monetary erosion were placed primarily on the previous owner of the nationalised property, due to the very long period over which the securities were to be redeemed and the very low interest rate applicable to them; because the legislative authorities gave the securities which served to pay the price of the nationalisations a legal status that seriously affected their value within the context of the rules that govern a market economy; because the conditions that were imposed on the mobilisation of the securities were not established in accordance with the inherent rules of a market for financial products, and this meant that the value of those securities was massively reduced; and because even though, given the differences in their natures (particularly in terms of their purposes and the grounds for them), compensation for nationalisations does not have to be the same as that for expropriations in the public interest, the Constitution has always required that there also be compensation in cases of nationalisation and has only left it to the law to set the criteria for determining the amount of that compensation – criteria which can vary depending on the type and value of the nationalised property and even on the justification for its nationalisation, but which must respect the principle of justice that is implicit in the concept of a democratic state based on the rule of law.