This article analyses the usage of Latin legal terms in Estonian legal language, examining it primarily on the basis of the law journals Õigus (‘Law’, 1920–1940) and Juridica (editions from 1993 to 2008). In the historical and cultural framework, Estonian-language-based jurisprudence and its terms are relatively young phenomena, which for the most part developed at the beginning of the 20th century in connection with the founding of the nation‑state (1918). Estonian-language jurisprudence developed with the establishment of sovereignty and the opening of the University of Tartu in 1919, with Estonian as the language of instruction for the first time in its history. Along with the establishment of national jurisprudence, the development of Estonian legal language was undertaken. In the 1920s, a wide-scale language reform and language planning movement took place in Estonia, bringing about a legal language reform and enrichment of vocabulary, among other things. ^*1 This was conditioned by the development of society and the ensuing urgent need and desire to develop the everyday language of the peasants into a functioning cultural language. The language reform led by young intellectuals set as its objective that, by becoming European, the nation still remain Estonian. ^*2 Considering the history of the Estonia of the beginning of the 20th century ^*3 we realise that the notion of ‘European’ suggested turning away from the sphere of influence of Imperialist Russia towards Western culture with its historical traditions, which have, among other things, strong ties with the Latin language that has played an important role in development of the terminology.

In fact, two epochs can be identified in the history of Estonian law and legal language, both characterised by the desire to be ‘Western’ and the conscious attempt to be European. The present article focuses on these two consciously Western-oriented eras: from 1918 to 1940 and from 1991 to the present. The Soviet era, between them, was marked by turning away from the West. This period is excluded from the present study. The periods under observation are interesting primarily because of their cultural-political changes in law and legal language. The first period of independence in Estonia (1918–1940) was an era when sovereignty could be enjoyed for the first time; a parliamentary democracy was established; and the Estonian language began to be used for legal studies, legislation, and practice of law in general. ^*4 The key elements that characterise this period are drafting of new legislation and development of the Estonian legal language, for until the adoption of new laws, the old laws imposed in tsarist times in the Estonian and Livonian provinces remained in force. Drafting legislation in the native language and preparing lawyers who would have a higher education required a properly functioning systematic legal vocabulary. Hence, the Õigusteaduse sõnastik (Dictionary of Law) ^*5 was published in 1934 as a result of the work done in the field of Estonian legal terminology, which included also terms in Latin and their Estonian counterparts.

In the time of regained independence (beginning in 1991), the Soviet legal system has been replaced with an orientation toward the Western world. Therefore, also the conceptual systems and languages of influence have changed: the importance of Russian has vanished, and the major languages of influence are now English and German, as a result of European Union legislation and the rulings of the European Court of Justice. Through European law and languages of influence, the usage of Latin terms has increased and for the first time in the history of the Estonian legal language a Latin–Estonian legal dictionary has been compiled. ^*6

Legal journals as object of study

The research material for the article is the major legal journals published in Estonian in the 20th and 21st centuries. Periodicals have a special role among the media for law and jurisprudence. In comparison with other types of scholarly texts, such as course books, monographs, or dissertations on jurisprudence, as well as legislation and court rulings, the choice of journals for terminological analysis has a clear advantage with respect to the topicality of the subject matter. Formally, periodicals are the most dynamic medium of law, reflecting the daily life of a particular legal culture. ^*7 Legal journals respond promptly to the changes in legal affairs, and it is here that pieces of new legislation and topical juridical issues are analysed and commented upon. As a result, juridical periodicals can be called ‘a medial crossing-point’ where jurisprudence, court and administrative practice, regulatory policies, and politics in general meet. ^*8 In short, this is the everyday life of a particular legal culture. Presenting relevant legal information, a legal journal becomes the memory of the legal culture of a particular age. From the perspective of terminological studies, this enables us to draw conclusions concerning the subject matter and areas that jurists have discussed most in their writing, using Latin terms.

Publication of legal journals in Estonian began in the first decade of the 20th century, in 1909. ^*9 In total, 16 periodicals have been published over the last hundred years. The 20th century was politically a very controversial time for Estonia, and the need for legal information produced a remarkable number of legal journals. Yet, in terms of substance and volume, all of these journals are very different. Several periodicals were released in only a few single volumes, while others have held considerable influence on jurisprudence and legal competence in Estonia for decades. The latter have been selected as the research material for this article.

The object of study in this article consists of the journals Õigus (as mentioned above, published in 1920–1940), the most influential legal journal prior to World War II (i.e., during the first period of independence in Estonia) and Juridica (issues from 1993 to 2008), the legal journal containing articles written since independence was regained. Õigus was published by the Association of Jurists, in Tartu. The authors and the editorial board included professors at the University of Tartu, judges of the Supreme Court, prominent lawyers, the Chancellor of Justice—the most active and renowned figures in the field of law in Estonia at the beginning of the 20th century. Õigus mostly consists of articles and overviews of the activities of the Supreme Court. In addition, some issues contained reviews of new legal literature published in Estonia as well as in foreign countries, overviews of international congresses and conventions, advertisements, and practical legal information, as well as presentations and speeches for Õigusteadlaste Päev (Jurists’ Day). Much space was dedicated to writings about legal matters and legislation in the neighbouring countries as well as other European countries.

Juridica is a periodical issued by the Faculty of Law at the University of Tartu, in which the majority of Estonian juridical publications appear. Juridica has a wide circle of authors, thus having become a representative object of linguistic study. Its tenure has seen, besides jurists and lawyers, specialists from other academic fields having had their articles published in it. By 2007 (i.e., in 15 years of publication), the number of authors of pieces in Juridica had increased to 540. ^*10 The range of topics includes, in addition to public and private law in Estonia, also international law and EU law, as well as legal theory, legal history, and legal philosophy. However, articles written about legal history and Roman law, which on account of their subject matter include numerous Latin terms, are rather scarce. Issues of Juridica tend to be dedicated to specific themes, and frequently summaries of different areas of law are given: the current problems in legislation are discussed, and theoretical and practical commentaries are printed pertaining to the issues that have arisen in the process of implementing legislative acts.

This article focuses on the following questions: how the usage of Latin terms on sentence level in legal texts in Estonian differs in the above-described two eras—prior to World War II, from the example of the journal Õigus, and that of regained independence, on the basis of Juridica. From an intralinguistic viewpoint, the paper explores also the question of the role of Latin terms in legal language—i.e., to what extent, in the context of legal reforms and a new legal environment, Latin terms are, for authors of juridical articles, a means of signifying legal structures, relationships, values, and changes. In carrying out of the present survey, lexical-semantic analysis was used as the main research method, an approach that relies on statistical analysis for the quantitative breakdown of the research material. The method chosen enables researching the developments of legal language. Latin-based terms play a significant role in this. Not only do the quantitative data vary in the usage of Latin terms; also the contextual and semantic parameters differ. The ways in which the dynamics and the qualitative characteristics in the usage of Latin terms are connected with the process in the scholarly discourse in law reflect the development of legal language in general. Latin terms are not only an ornamentation and traditional device in the texts; they play an active role in explaining juridical issues. The sphere of legal language in which Latin terms and expressions are used has its roots in European legal culture.

Statistical data and the dynamics of the usage of terminology

The comparison of the results from the analysis of the journals Õigus and Juridica is justified by the similarity of the cultural-political context: a few years before each of Õigus and Juridica began to be published, Estonia became an independent state, and in both periods there was a conscious attempt of orientation toward Western legal thinking. Both periodicals were the principal means of circulating juridical material in Estonian in their respective periods, and, additionally, the periods of publication of both are comparable: Õigus was published for 21 years, in 1920–1940, while Juridica has been issued since 1993. Accordingly, information regarding 16 years of publication of Juridica is included in this research. The general statistical data concerning the material in the corpus and the terms examined are summarised in Graph 1.

With regard to the breadth of the research material, it must be pointed out that, in total, 176 issues of Õigus were published, in 21 years. In both the first and the last year of the journal’s publication, only three issues appeared. From 1921 to 1928, eight issues of Õigus were published per year, on average ^*11 , and from 1929 onwards, there were as many as 10 issues a year. In all, the research material consists of 624 articles and 7,266 pages. The 16 years of Juridica studied involve 156 issues, 1,332, articles, and 9,545 pages. In the first year, 1993, six issues were printed, but in each subsequent year there were 10 issues published.

Graph 1: General statistical data: the periodicals Õigus and Juridica

In comparison of the two journals, it is noteworthy that, even though throughout the years of its publication Õigus had 20 issues more than Juridica has, the latter has had twice as many articles and about 2,300 more pages. This means that, while 35 articles per year appeared in Õigus, more than twice as many have appeared in Juridica, amounting to approximately 85 articles per year. As both were edited in times marked by influential changes and significant reforms in Estonian legal history, the differences in the scope of the materials cannot be explained by alterations in the legal order and the ensuing need for up-to-date juridical information. Rather, the differences can be explained, on the one hand, by the dissimilarities of the content—in Juridica, the main focus is on analytical articles, with little space being devoted to information about conferences and recent literature. Õigus contained, next to the articles on jurisprudence and commentaries on legislation, also information about legal practice: each issue ended with a summary of the decisions made by the Supreme Court (Riigikohus). Once a year, a statistical review of the activities of different court instances in various towns in Estonia was printed (listing the number of cases heard, the number of cases settled, and the number of pending cases). In addition, some issues included summaries of the activities of Parliament (Riigikogu), overviews of new literature on law in Estonia as well as abroad, reviews of international congresses and conventions, and summaries of the presentations of the speakers at the Õigusteadlaste Päev conferences. ^*12

On the other hand, the average number of articles in Juridica is greater because the pieces of writing printed in it are more exhaustive. In the earlier years of publication, the articles were relatively short, at only 2–3 pages, on average, and only a few more than a hundred articles were published in a year. The greatest qualitative change in this respect occurred in 2000, when the periodical had 687 pages all told and the number of articles decreased to 74, making the average length about nine pages. ^*13 In the last five years, 2004–2008, the same volume-to-article-number ratio has been maintained—i.e., about 70 articles for every 734 pages published in a year, with the average length about 10 pages. Hence, the articles have become longer and more comprehensive over the years, and the brief reviews and commentaries of the early years have been replaced with more extensive and detailed analyses.

Comparison of the frequency of Latin terms in the two journals reveals that in Õigus Latin terms were used 5,791 times, with 32 Latin expressions per issue and nine Latin terms per article, on average. If we divide the number of pages by the number of terms, we can see that, on average, 0.8 expressions per page were used; i.e., the Latin language appears on almost every single page of Õigus. In Juridica, the number of Latin terms in the 16 years of publication is 5,590. In comparison with Õigus, there is a greater number of terms per issue—on average, 35 terms. However, calculating the frequency of occurrence per article and per page, we find that in comparison with Õigus, in Juridica only half as many Latin terms are used—four expressions per article and 0.5 per page; i.e., the Latin language appears on every second page of Juridica, on average.

The dynamics of the occurrence of Latin terms over the years (as shown in Graph 2) reveal that in the years of its publication, Õigus enjoyed a steady growth in the usage of Latin terminology. The graph shows us the average frequency by five-year period. The number of Latin terms used, around 60 terms per year in the initial years of publication, steadily rose to 300 and even more in later years, finally totalling 500.

Graph 2: Dynamics of terminology usage: the periodicals Õigus and Juridica

In Juridica, Latin terms have been used more frequently from the very beginning of the publication of the journal, at 200 instances per year, on average. In the middle years of publication, this number is ca 350, and in recent years the trend has continued, with a total of 464 Latin terms per year in 2003–2007. The average for 2008—at 434 instances of usage—indicates that the trend is continuing.

In both Õigus and Juridica, the dynamics of the usage of terminology reflect the situation of the Estonian legal order and its changes during the years of publication of the periodicals. Õigus appeared when legal science in the Estonian language was being established. A major task faced by the new legal culture was to draft new laws and develop terminology in the native language. The widespread usage of Latin terms in the writings of the jurists of the time did not reduce the importance of the efforts to introduce and popularise legal terminology in the native language, though. On the contrary, Latin terms supplemented and specified the new vocabulary and served as an intermediary when the German and the Russian legal language employed earlier were replaced by the Estonian legal language. Making use of the Latin terms that the jurists were already familiar with alongside the new Estonian terms made it easier to understand and explain the latter.

The use of Latin terms in Õigus was conditioned directly by the existing laws . Until the adoption of the new laws, the old ones remained in force, having been imposed in the Estonian and Livonian provinces during the tsarist regime. One example is the Baltic Private Law Act ^*14 , which relied heavily on Roman law ^*15 and contained a large number of Latin terms. The Baltic Private Law Act, the basis for the new Estonian Civil Code, which was then being drafted, remained in force until the Soviet occupation in 1940 and formed one of the central elements in the juridical discourse. ^*16 The usage of Latin terms in the middle and at the end of the 1930s was influenced in an upward direction by the drafts of the new Civil Code prepared in those years, which naturally led to corresponding scholarly discussions. ^*17 Thus, Latin terms had an intermediary role not only in the process of developing a new legal language but also in preparation and, above all, in expounding on new regulatory policies.

The substantial changes in the development of the law in Estonia have also had an effect on the usage of terminology in Juridica . After the Republic of Estonia regained independence in 1991, a radical legal reform followed, which can be characterised in brief as abandoning the former Soviet law and becoming part of the Western legal environment, which largely depends on the Latin language. In this era, also the accession of the Republic of Estonia to the European Union took place (on 1 May 2004). This, in turn, has brought about the application of European law and the rulings of the European Court of Justice within the context of the laws of the Estonian state. The integration into international trade and cross‑border transactions additionally entails growing import of private international law.

The legal reform in Estonia has been accompanied by changes in the usage of terms by Estonian lawyers. In the periodical Juridica, the integration of the Estonian legal language into European legal culture is reflected by a relatively strong increase in the usage of terms in Latin, both in the sense of the general occurrence of terms and with regard to the adoption of numerous new Latin terms. The data on the dynamics of terminology usage in Õigus and Juridica show that in both journals there has been a steady increase in the usage of Latin terms over the years. The conscious desire to be European is mirrored in the language usage of the authors who are jurists, as well as in their vocabulary, which traditionally has relied heavily on the Latin language.

Terminological variety and Latin terms in context

In addition to the quantitative analysis of Latin terms, also a qualitative study of this material has been carried out, with a view to detecting terminological variety. Qualitative analysis makes it possible to compare and draw conclusions about the linguistic diversity employed by the jurists of the periods under observation: how many different terms are known and used in professional writing, which terms are the most numerous, and what major terminological changes have occurred. Table 1 summarises the years of publication of the journals studied, the total number of Latin terms, and the number of distinct terms.

Table 1: The total number of Latin terms and the number of different terms

The results reveal that the number of different terms in Latin is greater in Õigus—while the total number of terms is 5,791, the number of individual terms used is 1,342. Dividing the total number of terms by the number of different terms, we see that each term is found slightly more than four times per article, on average. In Juridica, the total number of terms used in the 16 years of publication is also huge—5,590 instances of occurrence of Latin phrases in all. If this frequency of usage continues, it is likely that in the next five years this number will exceed the total number of Latin terms found in Õigus. Simultaneously, the number of different terms in Juridica, at 807, is about a third smaller than that for Õigus, and calculations show that a given term occurs approximately seven times per article, on average. It must be noted, though, that the great number of different terms in both Õigus and Juridica is accounted for by a considerable variety of Latin expressions. This indicates that the authors of pieces in Õigus and Juridica have not limited themselves to merely a few practical legal terms. The willingness and readiness to rely in their work on vocabulary derived from Latin were remarkable in the periods studied.

The majority of terms in both periodicals have been used just once. About half of the terms in Juridica have been used at least twice, whereas in Õigus about a third of all terms are used twice. Terms that occur five times or more are even less commonplace: only 12 to 15 per cent of all terms found in the journal Õigus. In Juridica, this figure is bigger: nearly 21 per cent of terms have been used five or more times. Considering the length of the period studied, we may infer from the results that the vocabulary used in the articles does not abound in repetition of the same terms and for the most part the authors have resorted to expressions not found in the texts by the other authors. In contrast, the terms that do recur throughout the articles become all the more prominent. Table 2 introduces the Latin terms employed most frequently in the periodicals. The 10 most common terms are given with the number of occurrences in brackets.

Table 2: The most frequent Latin terms

Table 2 shows the great variety of terms being used recurrently in the periodicals examined. Juxtaposing the results of the study, we realise that the term that occurs most commonly is de lege ferenda (meaning ‘desirable to establish according to the law’). This term is used in discussions about laws that are being drafted as opposed to the legislation in force (lex lata). In fact, it is to be expected that such a term should be found so often in legal journals, as these constitute a forum for debates on current legislation and the laws being drafted. Both in Õigus and in Juridica, the term expressis verbis (explicitly) occurs frequently. This term semantically belongs to the general vocabulary of law and can be found equally in articles discussing all areas of law. In Juridica,the most frequently used term is versus, which is typically used to distinguish between the opposing parties in court cases.

The terms from professional vocabulary are among the 10 most common terms characteristically used in discussions about particular areas of law. These include the concepts of laesio enormis (gross disparity), detentor (detainer), detentio (detention), in solidum (for the whole), and culpa in contrahendo (pre-contractual liability) in the context of civil law, or, in the context of international law and international private law, ius cogens (peremptory norm) and lex mercatoria ((international) commercial law). Among the top 10 terms in Õigus and Juridica, there are also terms that do not belong to any particular field and that are used in the context of different topics; these concepts include corpus iuris (body of law), ex officio (by virtue of office or position), contra legem (contrary to the law), praeter legem (beyond the law), ipso iure (by the law itself), and ad hoc (that is, ‘for this’ or ‘for this special purpose’). The abbreviation op. cit.,standing for opus citatum or opere citato (meaning ‘the quoted book’ or ‘in the quoted book’), frequently used in Juridica, is fairly commonplace in scholarly writings for referring the reader to an earlier citation.

Functional usage of Latin terms

Analysing the research material from the standpoint of the meaning and function of the terms, we realise that professional juridical vocabulary is the most prominent. This category comprises the terms that, as normative arguments, precisely and fully convey the concepts they express; i.e., they carry specific juridical information. ^*18

A common feature in the periodicals examined is that the more frequently a term occurs, the broader the scope of topics it is used to discuss. For instance, the ideas of de lege ferenda (desirable to establish according to the law), de lege lata (according to the law in force), contra legem (contrary to the law), praeter legem (beyond the law), intra legem (within the law), causa (cause), ex lege (from the law), sine lege (without a law), ipso iure (by the law itself), conditio (condition), and lex specialis (special statute) cannot be identified as topic‑specific. Such terms, applied in various areas of law, constitute basic juridical terminology and are part of the vocabulary of all lawyers.

It also appears that the less frequently a term occurs, the more specific it is and the more likely it is to be related to a specific area of law. For example, in Õigus, the term mare clausum (closed sea), used once, denotes in international law a sea under the jurisdiction of a particular country and not open to other nations ^*19 ; in Juridica, the expression lex superior derogat legi inferiori (superior law overrules inferior law) denotes the primacy of the Constitution in the hierarchy of legislation.

The greatest number of specific legal terms can be detected in articles about civil law, whose vocabulary is derived from Roman law. Field-specific legal terms can also be found in articles that discuss penal law, legal theory, and the philosophy of law. The terms in these areas originate from the sources compiled in modern times and the Middle Ages, rather than in antiquity. Typically, such terms are lengthy expressions, often consisting of more than one sentence. There is a clear link with the topic: the more general the issues the article discusses and the greater the number of lawyers and jurists dealing with these issues in practice, the more frequently the well-known terms are used. The opposite is true also: the more specific the content of the article, the more numerous are the foreign terms applied in that particular area only.

The frequent use of professional vocabulary in Latin in the articles about international law and EU law attests to the practical value of Latin terms in international exchange of information and multi-language communication. Using specific legal terms and even coining new terms in Latin in these areas is justified and indeed expected. In the context of the above‑mentioned specialities, legislative drafting and legal practice operate across the boundaries of national languages, and foreign language units that can be considered neutral as to style and connotation enable us to ensure that the text is understood in the same way by everyone involved in the discourse. ^*20 Hence, Latin terms are universal aids in international legal relationships and facilitate communication between other languages.

Historical conditions and changes in the usage of Latin terms

Both journals examined for the purposes of this article were published in periods marked by profound political changes and the ensuing reforms in the Estonian legal order. Legal reforms have also influenced the usage of Latin terminology. While Õigus was being published, the most extensive changes in the usage of terminology concerned the development of Estonian legal language and drafting of legislation in Estonian, with Latin having a specific function. Latin terms played an intermediary role in the communication between Estonian and two foreign languages (German and Russian) and provided the required specificity of concepts. From the very first issue up to 1922, lists of terms appear in Õigus, providing Estonian translations of the previously used Russian and German terms. In order to allow determining the semantic accuracy and meaning of the new words, also Latin versions were given in addition to Russian and German translations. The new Civil Code was being drafted throughout the inter-war period, and this topic was constantly under discussion on the pages of Õigus. Thus, the usage of language by the lawyers of that time was noticeably affected by the abundance of Latin terms occurring in the previous legislation, the Baltic Private Law Act. The topics written about in Õigus that required particularly frequent use of Latin included land ownership and the right of succession, which needed to be analysed in detail in the context of the new legal situation. ^*21

Subsequently, the usage of Latin terms was a reflection of the development of the contemporary legal order and accompanied it. However, when the legal situation changes, linguistic needs change too and terminology is adjusted. Accordingly, the recent reorganisation of the legal system has changed the vocabulary of the lawyers active at present and we detect in the pieces of writing in Juridica only a few Latin expressions commonly found in Õigus in articles about the right of succession, such as hereditas iacens (resting inheritance), which denotes succession that has been opened where the inheritance has not been transferred to heirs. Also the ideas of beneficium inventarii (benefit of inventory), beneficium separationis (the right to have the goods of an heir separated from those of the testator in favour of creditors), successio singularis (singular succession), and successio universalis (universal succession) have been expressed in Latin once each in Juridica in an article about the draft Law of Succession Act. These are now both well-known institutes, as they were in the earlier period, so these Latin terms are part of the active vocabulary today.

By contrast, all of the important terms used in Õigus in writings about relations regarding land and ownership relations have failed to find their way into the vocabulary of today’s jurists. Examples of these concepts are dominium directum (referring to strict ownership, or the right of a landlord), dominium utile (ownership of the soil itself, or the right of a tenant), dominus directus (direct owner), dominus utilis (tenant or person who uses the property), and emphyteusis (denoting a contract by which a landed estate was leased to a tenant, either in perpetuity or for a long term, of many years, upon the reservation of annual rent and upon the condition that the tenant improve the property, by building, cultivating, or otherwise, and with a right vested in the tenant to alienate the estate or pass it to his heirs). Such disappearance is not surprising, since the laws concerning ownership of land have changed completely. The divided property principle, created in the Middle Ages and discarded in the process of development of modern private law, was adhered to in Estonia between the World Wars. ^*22 It was conditioned, on the one hand, by the existing legislation pertaining to private law inherited from the Russian tsarist regime. ^*23 At the same time, it was used to solve the regulatory problems that came with the new social reforms. ^*24 In Juridica, these terms do not occur because in the new legal environment there is no practical need for such terms. The divided property principle could be found in the Baltic Private Law Act, but current private law in Estonia recognises undivided or absolute property.        

The periodical Juridica has been issued on a regular basis after the Republic of Estonia’s accession to the European Union in 2004 . The harmonisation of local legislation with EU law and the European Court of Justice rulings has introduced the terminology used in the EU, resulting in the appearance of quite a few new Latin terms in the articles in Juridica. However, it is important to note that the qualitative change in usage of Latin terms did not occur only after Estonia became a member of the EU. The most significant changes in terminology started years earlier when the readiness to try to again become part of the European legal environment surfaced. ^*25 Thus, the rearrangements in the Estonian legal system have caused Estonian lawyers to include in their usage of legal language those Latin terms that have become rooted in the legal tradition of Europe.

Through the decisions of the European Court of Justice, such concepts as fumus boni iuris and fumus non mali iuris were adopted in Latin in 2007. Word-for-word translations of the terms would be ‘an air of good law’ and ‘an air of the not-bad law’. In the European Court of Justice, these terms are used in application of interim measures, and in that context fumus boni iuris has the meaning ‘probability of the alleged claim’ ^*26 —i.e., a strong presumption that the action is well founded or that it should at least be prima facie clearly well founded. ^*27 Fumus boni iuris can be altered into the weaker requirement fumus non mali iuris; i.e., the applicant is under the latter not required to demonstrate that the allegations in the main action are prima facie well founded but merely must show that the case is not obviously unfounded. ^*28 These are strictly professional terms whose direct meaning does not seem closely related to the concepts the words denote, and because they have limited application, they are not very common in legal texts yet. Therefore, before these become firmly rooted in our legal language, it would be practical to add translations or clarifying comments to them.

The term fumus boni iuris is also a good example of the spread of Latin legal terms in the European legal environment. A decade ago, when legal language was discussed, the prevailing view was that Europe’s legal systems have developed in too different directions for detection of any common vocabulary and that Latin’s role as a lingua franca in Europe is an illusion. ^*29 This standpoint was exemplified by pointing out that the term fumus boni iuris is found in the writings of Italian lawyers but not in other legal orders. Nonetheless, the materials included in the current research indicate that now this term has entered the professional literature in Estonia as well as other countries through the decisions of the European Court of Justice. Thus it can be inferred that in the past 10 years Latin terminology has acquired greater significance and is the connecting link between the legal languages in Europe.

The rulings of the European Court of Justice and the European Court of Human Rights have altered the usage of the term versus in the Estonian legal language. Earlier, the term was relatively rare in the articles in Juridica and was primarily used for juxtaposition of two situations or circumstances: ‘the meaning of law versus provision of law’, ‘personal interest versus public interest’, ‘minor infringements versus serious violations’, ‘guilt versus harmfulness’, etc. In recent years, this term has become noticeably more frequent. It mostly occurs in the abbreviated form ver., vs., or v., referring to particular European court judgements, and denoting the parties to a court case (e.g. ‘X vs.Y’).

However, not all new terms appearing in Juridica lately are part of the terminology needed for discussing the topics related to the European Union. In 2008, speculum practici (mirror of practice) was referred to for the first time to name a new column in Juridica, in which commentaries mainly on the practice of the Supreme Court are presented. The word speculum (mirror) is a reference to a tradition dating back to the Middle Ages when the so-called Mirror of Wisdom, Mirror of Morality, and Mirror of Law were compiled. ^*30 In legal history, the best-known mirror is ‘Sachsenspiegel’ (The Saxon Mirror), compiled by Eike von Repgow in the 13th century, on which was modelled also the 14th-century Law Mirror of Livonia. ^*31

In 2006, an article was printed in Juridica about the scholarly traditions of Roman law ^*32 , which added to the corpus several terms originating from Roman law. Among the concepts expressed in these are accessio (increase), acquisitiones naturales (natural acquisitions), acquisitiones originariae (original acquisitions), animus rem sibi habendi (intention to keep the thing in one’s possession), nova species (new species, or a new shape or form given to materials), res nullius (property of nobody), and usus modernus pandectarum (new use of the Pandects). The article focuses on the institute of specificatio (specification)—i.e., giving of form to materials—and describes the basic features of the scientific methods of two different legal scholarly traditions: usus modernus pandectarum and the historical school, which came after it.

Thus, not only modern law and EU vocabulary are represented in the usage of terminology in Juridica as a result of socio-political changes. New terms derived from Latin have been appropriated in the articles in Juridica also through work with materials considering legal history. As we can see in the speculum practici example, the term from the Middle Ages has found new application, establishing a link with the historical tradition.

Conclusions

The analysis of the Latin vocabulary detected in the research material established that during the years of publishing of Õigus and Juridica—i.e., in the two periods of independence in Estonia, Latin terms have been used widely. In both periods, the Estonian legal order underwent reform, and in drafting of new legislation, European legal culture, which had developed on the basis of the Latin language, was looked upon as a good model. The total number of Latin terms used is great in those two periods, and also the number of different terms is significant.

The results of the research allow us to infer that language usage keeps up with the developments in society. When the legal environment changes, language usage in legal texts changes, too. The terminology used in Õigus was directly related to the regulations dating back to the tsarist period, resulting in the appearance of terms used in the Middle Ages and pertaining to the divided property institute as in effect in Estonia then. Such an institute is absent in modern law, so these terms are unnecessary from a practical point of view and do not occur in the articles of the later publications. Today’s language is to a large extent influenced by the terms adopted through European law and the rulings of the European Court of Justice.

Notes:

^*This article was published with support from ESF Grant No. 7923.

^*1About the development of the Estonian legal language during the first half of the 20th century, see A. Vettik, R. Kull. Tagasivaade eesti õigussõnavara kujunemisloole (1920–1940) (Review of the Development of Estonian Legal Terminology (1920–1940)). Tallinn: Eesti Teaduste Akadeemia Emakeele Selts 2002 (in Estonian). In more detail about language planning in Estonia at the beginning of the 20th century see T. Erelt. Eesti keelekorraldus (Estonian Language Organisation). Tallinn: Eesti Keele Sihtasutus 2002, pp. 46–122 (in Estonian).

^*2 More about Noor-Eesti, the society of young Estonian intellectuals at the beginning of the 20th century and the language reform, see N. Andresen. Noor-Eesti ja keeleuuendus (Noor-Eesti and Language Innovation). – Looming 1970/9, pp. 1421–1429 (in Estonian).

^*3 Concisely but in detail about the history of Estonia and other Baltic states during that period see Z. Kiaupa, A. Mäesalu, A. Pajur, G. Straube. The History of the Baltic Countries. 3rd, revised ed. Tallinn: Avita 2002, in particular the chapter The Baltic States 1914–1939, pp. 129–164.

^*4 In more detail about the development of Estonian legal order, see T. Anepaio. Die rechtliche Entwicklung der baltischen Staaten 1918–1940. – Modernisierung durch Transfer zwischen den Weltkriegen. T. Giaro (Hrsg.). Frankfurt am Main: Vittorio Klostermann 2007, pp. 7–30; M. Luts-Sootak. Estland. – Handwörterbuch zur deutschen Rechtsgeschichte. Lfg. 6. (Eid-Familienfideikommiss). 2. Aufl. Berlin: Erich Schmidt Verlag 2007, p. 1430; P. Järvelaid. The Development of the Estonian Legal System. – Zeitschrift für Europäisches Privatrecht 2000 (8), pp. 873–877.

^*5 Compiled by F. Karlson, J. V. Veski, ed. E. Ilus. Tartu: Akadeemiline Kooperatiiv 1934.

^*6 K. Adomeit, M. Ristikivi, H. Siimets-Gross. Ladina-eesti õigussõnastik (Latin–Estonian Dictionary of Law). Tallinn: Eesti Keele Sihtasutus 2005 (in Estonian).

^*7 About legal journalism in Europe in the 18th–20th centuries, see M. Stolleis. Juristische Zeitschriften – die neuen Medien des 18.–20. Jahrhunderts. – Juristische Zeitschriften. Die neuen Medien des 18.–20. Jahrhunderts. Ius Commune Sonderhefte, Studien zur Europäischen Rechtsgeschichte, 128. M. Stolleis (Hrsg.). Frankfurt a.M.: Klostermann 1999, pp. XII–XIV.

^*8 Ibid., p. XII.

^*9 About publication of juridical periodicals in the Baltic provinces of the Russian Empire in the 19th century, see M. Luts. Die juristischen Zeitschriften der baltischen Ostseeprovinzen Russlands im 19. Jahrhundert: Medien der Verwissenschaftlichung der lokalen deutschen Partikularrechte. – Juristische Zeitschriften in Europa. M. Stolleis, T. Simon ( Hrsg. ). Frankfurt am Main: Vittorio Klostermann 2006, pp. 67–116.

^*10 P. Pruks. Juridica 150 numbrit ja 15 aastat – kuidas edasi? (150 Issues of Juridica and 15 Years—What Next?) – Juridica 2008/4, p. 263 (in Estonian).

^*11 In 1921 and 1928, several issues appeared as voluminous and thematically compiled editions containing for instance the presentations made at the conferences of the Association of Legal Scientists.

^*12 M. Ristikivi. Latin Terms in Estonian Legal Journalism in the Interwar Period: Practical Tools for a Young Legal Culture. – Juridica International 2009 (16), p. 234.

^*13 M. Ristikivi. Lexica iuridica in Juridica: Latin Terms as a Reflection of Europanisation of Estonian Legal Culture. – Juridica International 2007 (12), p. 174.

^*14 Provincialrecht der Ostseegouvernements. Dritter Theil. Privatrecht. Liv-, Est- und Curlaendisches Privatrecht. Zusammengestellt auf Befehl des Herrn und Kaisers Alexander II. St. Petersburg: Buchdruckerei der Zweiten Abtheilung Seiner Kaiserlichen Majestät Eigener Kanzlei 1864. The original version of the code was prepared in German, the Russian version was also compiled and published immediately: Svod mestnyh uzakonenij gubernij ostzejskih. Cast’ tretja. Zakony grazdanskie. St. Petersburg 1864. About the different redactions of the Baltic Private Law Act, see T. Anepaio. Tuntud tundmatu seadustik. Baltieraseaduse väljaanded (Renowned Unknown Code. Issues of Baltic Private Law). – Õpetatud Eesti Seltsi Aastaraamat 1994–1999 (in Estonian). Tartu: Õpetatud Eesti Selts 2002, pp. 302–324. About compiling the Baltic Private Law Act and its importance, see M. Luts. Private Law of the Baltic Provinces as a Patriotic Act. – Juridica International 2000 (5), pp. 157–167; B. Dölemeyer. Das Privatrecht Liv-, Est- und Kurlands von 1864. – Handbuch der Quellen und Literatur der neueren europäischen Privatrechtsgeschichte. H. Coing (Hrsg.). Bd. 3. Teilbd. 2. München: Beck 1982, pp. 2076–2090.

^*15 About the role of Roman law in the Baltic Private Law Act, see H. Siimets-Gross. Roman Law in the Baltic Private Law Act—the Triumph of Roman Law in the Baltic Sea Provinces? – Juridica International 2007 (12), pp. 180–189.

^*16 The influence of the Baltic Private Law Act goes back further in time: for instance, in regulation of types of servitudes it was transmitted into the 1993 Law of Property Act through the 1940 draft Civil Code Act. More about that, see M. Luts. Textbook of Pandects or New Style of Legislation in Estonia. – Juridica International 2001 (6), pp. 152–158. In 2003, the corresponding sections in the Law of Property Act were repealed, see Asjaõigusseaduse, kinnistusraamatuseaduse ja nendega seonduvate seaduste muutmise seadus (Act to Amend Law of Property Act, Land Register Act and Related Acts). – RT I 2003, 13, 64 (in Estonian).

^*17 In 1935 (No. 6) and 1936 (No. 7), special issues of Õigus were published, introducing the drafts of the Civil Code and its differences in comparison with the Baltic Private Law Act.

^*18 E. A. Kramer. Lateinische Parömien zur Methode der Rechtsanwendung. – Steuerrecht. Ausgewählte Probleme am Ende des 20. Jahrhunderts. Festschrift zum 65. Geburtstag von Ernst Höhn. Bern: Verlag Paul Haupt 1995, p. 142.

^*19 The term mare clausum has been taken from John Selden’s 1635 book by the same title, written as a response to Hugo Grotius’s 1609 work entitled “Mare liberum” which dealt with the principle of the freedom of the seas. More about this, see W. S. M. Knight. The Life and Works of Hugo Grotius. London: Sweet & Maxwell 1925, pp. 110–112.

^*20 Naturally, even Latin legal terms cannot avoid polysemy completely. In different legal systems, or in the course of centuries, several terms have acquired new meanings which express similar as well as not so closely related notions. However, polysemous terms are not particularly numerous and they are not considered a difficulty in professional usage. More about this, see H. E. S. Mattila. De aequalitate Latinitatis jurisperitorum. – Revue internationale de droit compare 2002/3, pp. 717–758; M. Ristikivi. Ladina keelest pärit terminite polüseemia ja sünonüümia eesti õiguskeeles (Polysemy and Synonymy of Latin Terms in Estonian Legal Language). – Eesti Rakenduslingvistika Ühingu aastaraamat 3. Estonian Papers in Applied Linguistics 3. Tallinn: Eesti Keele Sihtasutus 2007, pp. 253–267 (in Estonian).

^*21 In more detail about the usage of Latin terms in the context of the right of succession and ownership of land, see M. Ristikivi (Note 12), pp. 237–239.

^*22 More detailed contemporary studies about the obrok in Õigus, see J. Tjutrjumov. Pärilikust obroki õigusest Balti õiguse järele (On the Hereditary Right of Obrok for Baltic Law). – Õigus 1929/7, pp. 209–216 (in Estonian); T. Grünthal. Otsese omaniku õigustest kruntrendile (obrokile) antud kinnisvara suhtes (On the Rights of the Direct Owner on Real Property Given in Obrok. – Õigus 1931/8, pp. 358–364 (in Estonian).

^*23 Definition and general regulation of the divided property in the Baltic Private Law Act, see Provincialrecht der Ostseegouvernements. Dritter Theil. Privatrecht. Liv-, Est- und Curlaendisches Privatrecht. Zusammengestellt auf Befehl des Herrn und Kaisers Alexander II. St. Petersburg: Buchdruckerei der Zweiten Abtheilung Seiner Kaiserlichen Majestät Eigener Kanzlei 1864, Art. 942–952; about obrok see Art. 1324–1334.

^*24 About the Land Reform, see A. Weller. The agrarian reform in Esthonia from the legal point of view. Berlin: Baltischer Verlag und Ostbuchhandlung 1922.

^*25 M. Ristikivi (Note 13), pp. 175–176.

^*26 W. A. Kennett. Enforcement of judgements in Europe. Oxford University Press 2000, p. 160.

^*27 D. Sinaniotis. Interim Protection before the European and National Courts. Alphen aan den Rijn: Kluwer Law International 2006, p. 23; also W. Frenz. Handbuch Europarecht. Band 3: Beihilfe- und Vergaberecht. Berlin, Heidelberg: Springer 2007, p. 507.

^*28 K. Lenaerts, D. Arts. Procedural Law of the European Union. London: Sweet and Maxwell 1999, p. 300.

^*29 P. Berteloot. Der Rahmen juristischer Übersetzungen. – Recht und Übersetzen. G. R. de Groot, R. Schulze (Hrsg.). Baden-Baden: Nomos 1999, p. 101.

^*30 More about on the way Roman and medieval authors used the mirror as both instrument and metaphor, see E. P. Nolan. Now through a glass darkly: specular images of being and knowing from Virgil to Chaucer. Michigan: University of Michigan Press 1990, pp. 290–291.

^*31 J. Sootak. Uus rubriik – Speculum practici (New Heading—Speculum practici). – Juridica 2008/8, pp. 127–128 (in Estonian).

^*32 H. Siimets-Gross. Rooma õiguse uurimistraditsioon Tartu Ülikoolis 19. sajandi keskel (Research Tradition of Roman Law in the University of Tartu in the Middle of the 19th Century). – Juridica 2006/10, pp. 720–729 (in Estonian).

There are two primary forces that can help to reduce ineffective assistance of counsel: the market and judicial supervision. It is clear that no one will hire a lawyer with a bad reputation. ^*4 But this will not solve the problem entirely. There are regions in Estonia where choice of counsel is limited and clients have to settle with the few local lawyers available. ^*5 Also highly problematic is the issue of appointed counsel, referring to where a person has no right to select counsel of his or her choice. As of 1 January of this year, counsel is appointed at the request of an investigative body, the Prosecutor’s Office, or the court by the Estonian Bar Association, which means that the courts have no say in the choice of counsel. ^*6 While on the one hand this ensures that the body conducting the proceedings (I dare to say above all an investigating body or the Prosecutor’s Office) cannot appoint an advocate who will make its job easy, it also leaves no possibility for the courts to exclude advocates who are known to provide ineffective assistance.

The European Court of Human Rights (hereinafter ‘ECtHR’) has on numerous occasions emphasised the principle of the independence of counsel in criminal proceedings and has held that all measures taken by the national courts calculated to permit the officially appointed lawyer to fulfil his or her obligations must be taken whilst respecting the basic principle of the independence of counsel. ^*7 The Code of Criminal Procedure ^*8 (hereinafter ‘CCP’) does not provide for the independence of counsel. Yet it is clear that defence counsel acts in the interests of the client in criminal proceedings and that it is not up to the opposing side or to the court to dictate how counsel should fulfil his or her obligations. ^*9 To a certain degree, the independence of counsel is defined in the Code of Criminal Procedure through the obligations of counsel. Subsection 47 (2) of the CCP provides that counsel is required to use all means and methods of defence that are not prohibited by law in order to ascertain the facts that vindicate the person being defended, prove his or her innocence, or mitigate his or her punishment. This allows us to conclude that counsel is bound by law and only by the law in the fulfilment of his or her duties. Insofar as the majority of counsel involved in criminal proceedings are advocates ^*10 , it makes sense to look for the definition of independence in the Bar Association Act. ^*11 Pursuant to subsection 43 (1) of the Bar Association Act, advocates are independent in the provision of legal services and shall act pursuant to the law, legal acts and resolutions adopted by the bodies of the Bar Association, the requirements for the professional ethics of advocates, good morals, and their conscience.

While counsel may be independent in their activities, a certain level of control over their performance must nevertheless be possible, to ensure that the right of the accused to the assistance of counsel does not become an empty right. Next to competition, judicial supervision is one of the most important mechanisms for reducing ineffective assistance of counsel. The court directs the proceedings and gains a direct overview of counsel’s performance, and therefore can react rapidly in cases of ineffective assistance. The supervision of the court over counsel’s activities can be divided into two categories, direct and indirect, with the former subdivided into ongoing and ex post supervision. By ongoing supervision I refer to the ability of the court to make pertinent remarks and enquiries with ineffective counsel, up to and including the ability of the court to remove ineffective counsel from the proceedings. The courts perform ex post supervision at the request of the accused, primarily in appeal or cassation proceedings, which may lead to annulment of the judgment of the lower court on grounds of ineffective counsel and the possibility of new proceedings for the accused.

This article focuses on direct judicial supervision and examines issues involved with both ongoing and ex post supervision. The author has intentionally omitted indirect supervision—e.g., complaints lodged with the Bar Association—as proper treatment of this broad topic is not possible within the limits of this article.

1. The right of the accused to the assistance of counsel

According to Article 6, paragraph 3 (c) of the European Convention on Human Rights and Fundamental Freedoms ^*12 (hereinafter ‘ECHR’), everyone charged with a criminal offence has the right to defend himself in person or through legal assistance of his own choosing or, if he has not sufficient means to pay for legal assistance, to be given it free when the interests of justice so require. While the right to choose counsel is deemed to be an absolute right and is by some authors considered to be the best of the alternatives provided for in Article 6 3 (c) ^*13 , the ECtHR has in certain cases found limitations of this right to be justified. ^*14 For example, the ECtHR has held that the national court may override the choice of the person charged with a criminal offence when there are relevant and sufficient grounds for holding that this is necessary in the interests of justice. ^*15 The ECtHR also accepts that national law may proscribe certain conditions for persons who have the right to act as counsel in criminal proceedings. It is also permissible for national law to lay down even stricter rules for those who wish to defend persons in supreme courts. ^*16 In the case of Engel and others v. Netherlands, while the ECtHR recognised that the right of the person to choose counsel was limited, it held that there was no violation of Article 6 3 (c) of the ECHR, as the persons charged were, in view of the simplicity of the case, capable of defending themselves. ^*17 Strong criticism has been voiced against the case law of the ECtHR that allows for limitations to a person’s right to choose counsel, and it has been suggested that that ECtHR should change its position on this issue. Yet critics fail to fully agree as to the lengths to which judicial authorities should go to ensure the active participation of counsel in criminal proceedings. ^*18 There is a general tendency to agree with the ECtHR ^*19 in holding that counsel must demonstrate a certain amount of initiative to participate in the proceedings (e.g., request permission to be present during the questioning of a witness or suspect), but if counsel fails to do so, there is no violation of a person’s right to counsel. ^*20 In cases where counsel abuses a person’s right to assistance of counsel, with the intention of delaying the proceedings, by systematically failing to appear in court and thereby causing the trial to be repeatedly postponed, the court has the right to limit the person’s right to choice of counsel and to appoint counsel for the person charged with a criminal offence. ^*21 In such cases, the principle embodied in Article 17 ECHR applies, by which the Convention does not protect any abuse of the law. ^*22

Although a person’s right to assistance of counsel for his or her defence was provided for in the US Constitution ^*23 already at the time of adoption of the Bill of Rightsin 1789, it was not until 1932 that a case concerning a person’s right to defence was brought before the Supreme Court. ^*24 In its judgment, the Supreme Court held that denial of counsel to the defendant constituted a violation of the Fourteenth Amendment, yet what is more important is that the Court recognised that a defendant in a capital case who is unable to employ counsel or defend himself has the right to have counsel appointed. ^*25 Another ten years later, the Supreme Court held that the right of assistance of counsel for a person’s defence is protected by the Fourteenth Amendment, and a person must be guaranteed the assistance of counsel where this is necessary in the interests of a fair trial. ^*26 The Supreme Court’s position halted the development of the right of assistance of counsel for a person’s defence as a fundamental right for some time and drew much criticism and dissatisfaction. ^*27 In 1963, the Supreme Court finally ruled that all defendants, regardless of the charges against them or the specific criminal case at issue, have the right under the Sixth Amendment of the Constitution to court-appointed counsel. ^*28

In Estonia, the right of a suspect or the accused to assistance of counsel is guaranteed by §  8 3), § 34 (1) 3), and § 35 (2) of the CCP. The right to counsel of a person who is deprived of his or her liberty because he or she is suspected of a criminal offence is prescribed separately in § 21 (1) of the Constitution of the Republic of Estonia. ^*29 Participation of counsel is normally mandatory in criminal proceedings as of the presentation of the criminal file for examination, but in the cases set out in § 45 (2) of the CCP ^*30 , assistance of counsel must be guaranteed throughout the criminal proceeding. If a criminal proceeding has not yet reached the stage at which participation of counsel is mandatory but a suspect nevertheless wishes to have counsel, assistance of counsel shall be ensured, pursuant to § 8 3) of the CCP.

The mandatory participation and assistance of counsel in criminal proceedings does not mean that a person is deprived of the right to defend himself or herself together with the advocate. A person has the right to submit evidence, complaints, and requests (see §§ 34 (1) 7) and 8), 35 (2) of the CCP), and he or she is together with his or her counsel a participant in the proceeding (under § 16 (2) of the CCP) and a party to the court proceeding (see § 17 (1) of the CCP). Only in cassation proceedings does the accused not have the right to defend him- or herself together with counsel, as the accused is not a party to a cassation proceeding under §§ 344 (3) and (5) of the CCP. The ECtHR considers it permissible for a State to restrict the right of a person to defend himself or herself in a supreme court. ^*31

Counsel may participate in criminal proceedings on two bases: on agreement with the client or on appointment by a competent authority. Whereas conclusion of a contract with counsel imposes an obligation on the person being defended to pay for counsel’s services, state-appointed counsel provides services to the person being defended free of charge, at least during the proceedings. In the light of ECtHR case law, it can be said that the ECtHR holds that it is compatible with Article 6 3 (c) of theECHR for there to be a situation in which a person is provided with so-called free state legal assistance during the proceedings but assumes the obligation to compensate for such assistance upon conviction. ^*32 While the ECtHR has not directly stipulated the conditions under which the accused may be required to reimburse fees for legal assistance, it has been suggested in the literature that this should be possible only if the financial position of the accused has improved after the proceedings. ^*33

According to the ECtHR, two conditions must be met, one financial and one legal, for a person to qualify for the right to free legal aid. ^*34 The financial condition is that the right to free legal aid is reserved for persons who do not have sufficient means themselves. The ECtHR has left the definition of this condition primarily to the domestic courts. ^*35 The legal condition is that the provision of free legal aid must be in the interests of justice. ^*36 The concept ‘interests of justice’ clearly does not mean that the accused should be provided with free legal aid only where the public interest so requires. ^*37 To date, the ECtHR has associated the legal condition with four criteria: the gravity of the offence, the complexity of the case, the principle of equal treatment of the parties, and the personal situation of the accused (e.g., mental health, linguistic skills, etc.). ^*38

The grounds for provision of legal aid by the state are broader in the Code of Criminal Procedure than required by the ECHR and ECtHR case law, and we cannot speak of free legal aid in the classic sense. Namely, there is no consideration of the financial situation of a suspect or the accused under Estonian criminal procedural law; rather, pursuant to §§ 43 (2) 1) and 2) of rhe CCP, counsel is appointed for every suspect or accused person who has not chosen counsel but has requested the appointment of counsel, or who has not requested counsel in a case where participation of counsel is mandatory. Clause 43 (2) 3) of the CCP allows, as an exception, for a person’s choice of counsel to be disregarded. ^*39 Since a person’s financial situation is irrelevant to his or her right to use the assistance of appointed counsel in a criminal proceeding, it is reasonable that upon conviction the person assumes the obligation to reimburse the costs of legal aid, from which he or she can be released only where his or her financial situation does not allow him or her to perform this obligation. Thus, § 180 (1) of the CCP provides that procedural expenses, which under § 175 (1) 4) of the CCP include remuneration established for appointed counsel, shall be compensated for by the convicted offender in the case of conviction. Pursuant to the first sentence of § 180 (3) of the CCP, when determining procedural expenses, the court shall take into account the financial situation and chances of re-socialisation of the convicted offender. Pursuant to the second sentence of the same subsection, the court shall order a part of the expenses to be borne by the state if the convicted offender is obviously unable to reimburse the procedural expenses.

The ECtHR does not set any limitations as to number for appointed counsel. ^*40 Counsel is, however, limited in quantity under Estonian criminal procedure, as § 42 (2) of the CCP provides that a person may have up to three lawyers as contractual counsel. It would be reasonable and also compatible with the principle of equal treatment to apply the same limitation on numbers to appointed counsel. Neither the Code of Criminal Procedure nor the State Legal Aid Act ^*41 (hereinafter ‘SLAA’) indicates that more than one advocate could be appointed as counsel. There might nevertheless be criminal cases that are so complex that the appointment of one advocate as counsel would not guarantee the right to the assistance of counsel to the accused. In such cases, it should be possible to appoint several advocates as counsel.

It is questionable whether the accused should be able to choose counsel who is providing state legal aid. The position of the ECtHR on this issue is unclear. Some judgments indicate that the ECtHR supports the position that the person’s preference should be taken into consideration in the appointment of counsel, but it has not always considered this to be a determining factor. ^*42 The Code of Criminal Procedure does not impose the obligation to consult with the accused regarding the choice of counsel prior to appointment of counsel. Subsection 20 (1) of the SLAA nonetheless indicates that it is preferable to have a situation in which the accused chooses, so to speak, the person who is appointed as counsel.

2. The right of the accused to effective assistance of counsel and the standard of effectiveness

It is first important to note that international law guarantees the right of a person not only to the assistance of counsel, but to the effective assistance of counsel. While this, however, need not be of the quality that the person charged with a criminal offence would wish, we cannot expect the rules of international law to guarantee the best possible defence. ^*43 The ECtHR does not evaluate the effectiveness of the assistance of counsel where the person has had counsel appointed, as it does in cases where a person has contractual counsel. ^*44 It has even been suggested by some authors that if more should be required of anyone, then it should be required precisely of appointed counsel. As the preference of the accused normally plays a very small role in the selection of appointed counsel, defence counsel must make a greater effort to create a bond of trust between the defender and the person being defended. ^*45 It is another matter altogether whether appointed counsel, who in Estonia receive payment that is 7–8 times lower than the fees paid to contractual counsel ^*46 , is prepared to make such an effort.

As the ECHR imposes obligations only on States, a person cannot file an application with the ECHR solely on grounds that the assistance provided by counsel in a criminal proceeding was ineffective. Yet it is possible that the ECtHR will in certain cases hold that a State, primarily a domestic court of the State, is responsible for ensuring that a person charged with a criminal offence receives effective assistance of counsel. ^*47 The ECtHR has addressed the issue of effective assistance of counsel in many judgments, in which the ECtHR has considered whether the right guaranteed to the person charged with a criminal offence is in a particular case practical and effective or theoretical or illusory. ^*48 It is clear from the judgment in Kamasinski v. Austria that the ECtHR will refrain where possible from addressing the substantive aspect of counsel’s assistance. In the above-mentioned case, the person charged with a criminal offence contended that his rights of defence had been violated, which he supported with a number of claims, including that his defence counsel had not provided effective legal assistance to him in the conduct of the case. Referring to its judgment in Artico v. Italy, the ECtHR held that a State cannot be held responsible for every shortcoming on the part of a lawyer appointed to provide legal aid. The ECtHR also found that a State should intervene only if a failure by legal counsel to provide effective representation is manifest or sufficiently brought to their attention in some other way. ^*49 If counsel is unable to perform his or her duties, for whatever reason, the court is obliged to act—that is, either to appoint a substitute or to oblige counsel to perform his or her duties. ^*50 In any case, the domestic court may not remain passive in such a situation. ^*51 In general, the case law of the ECtHR indicates that the court currently considers Article 6 3 (c) of the ECHR to be breached only where counsel completely fails to perform some duty. ^*52 In other cases, the court has referred to the independence of defence counsel and has refrained from evaluating the effectiveness of legal assistance provided by counsel. ^*53 In any case, the ECtHR has never found Article 6 3 (c) of the ECHR to have been violated merely on the claim of a person charged with a criminal offence that counsel did not act in his or her best interests. ^*54

In the US, complaints alleging ineffective assistance of counsel became more frequent after the decision of the US Supreme Court in Gideon v. Wainwright ^*55 ,of 18 March 1963. Efforts to develop an effective assistance test had been made before that judgment, due to which by 1963 US courts were using the ‘farce and mockery test’. According to this standard, it was up to the defendant to prove that the proceedings in his or her case were a farce and a mockery of justice. ^*56 This approach centred on the interests of justice and not the rights of the defendant, and it was widely criticised. ^*57 While the other US courts were actively seeking to develop a standard that would better protect an individual’s rights ^*58 , the Supreme Court chose for a long time not to address the issue. The Supreme Court was finally compelled to take a position. In its judgment in Strickland v. Washington ^*59 , the Supreme Court held that claims alleging the incompetence of counsel must be decided on a case-by-case basis, and that the court must prove that the deficient performance of counsel harmed the interests of the defendant. This decision established a two-part test for determining whether the performance of counsel was so deficient as to deprive the defendant of his Constitutional right to counsel. ^*60 In order to find that counsel’s assistance has been ineffective, the defendant must prove both the incompetence of counsel and harm caused. For the first element, the defendant must show that counsel’s performance fell short of an objective standard of reasonableness. For the second element, the defendant must prove that without counsel’s errors, the result of the proceeding would have probably been different.

This judgment has also been strongly criticised. ^*61 First, the standard developed by the Supreme Court does not really differ in any aspect from the farce and mockery test ^*62 , and, secondly, the Supreme Court forgot that, while the right to counsel is one of the guarantees of a fair trial, it is not the duty of counsel to ensure a fair trial for the defendant. Counsel’s duty is to adhere to the rules of ethics and to do everything in his or her power to ensure that the result of the proceedings is as favourable for the defendant as possible. ^*63

For nearly 20 years, the US Supreme Court did not amend the test for effectiveness of counsel. It was not until 2003 ^*64 that the Supreme Court, in Wiggins v. Smith, attempted to specify the vague guidelines provided in Strickland v. Washington and ruled that the effectiveness of counsel could be determined with reference to the American Bar Association (ABA) Guidelines. The guidelines referred to by the court (Guidelines 11.8.6) suggested that counsel should gather information on the defendant’s medical history, educational history, employment and training history, family and social history, prior offences, and religious and cultural influences ^*65 While the defendant in Wiggins v. Smith faced the death penalty upon conviction, there is no reason a defendant could not refer to the ABA Guidelines in any claim of ineffective counsel. ^*66 The Supreme Court has, however, emphasised that the ABA standards are strictly guides for determining what is reasonable and that they do not define reasonableness. While the states are free to set rules to ensure that assistance of counsel is sufficiently effective, the Supreme Court holds that the Constitution sets only one requirement: counsel must make objectively reasonable choices. ^*67 The Supreme Court has recently also specified the notion of prejudice and has stated that the defendant must show that it is reasonably probable that, but for counsel’s errors, the outcome of the proceedings would have been different. In that judgment, the Supreme Court held that the defendant should have proved that there is a reasonable possibility that if counsel who was knowledgeable of mitigating evidence had presented it during the trial, the jury would have taken it into consideration and would have returned with a different sentence. ^*68

It is rather questionable that a defendant could prove that a lighter sentence would have been imposed by the court if counsel’s assistance had been effective, given that the only requirement for a specific sentence is that it be justified. It is, therefore, possible that even if counsel submits mitigating evidence, a court will find the guilt of the defendant to be such as merits the same sentence as would be imposed without any mitigating circumstances. It is submitted by the author of this article that the element of harm could be proved in Estonia primarily where counsel has failed to present evidence that would prove that the act does not involve the elements essential to the offence, the act is not unlawful, or the defendant is not capable of guilt. In such a case, the accused could clearly claim that if counsel had provided effective assistance, the criminal proceedings would have culminated in an acquittal or termination of the proceedings pursuant to § 199 (1) 1) of the CCP. The possibility can also not be ruled out that a reviewing court would find that failure to present important mitigating evidence by counsel also constitutes grounds for annulment of the decision of the lower court.

3. Judicial supervision of performance of counsel in criminal proceedings

Considering that the interpretations of the ECHR by the ECtHR are an inseparable part of the Estonian legal system ^*69 , Estonian state authorities, including the courts, are obliged to guarantee a right of defence to persons charged with a criminal offence that is practical and effective, not theoretical or illusory. On the basis of the case law of the ECtHR, the Estonian courts have a duty to intervene where the ineffectiveness of counsel is manifest or sufficiently brought to their attention in some other way. Given the degree to which the ECtHR has been reticent to express its views in hearing claims concerning ineffective assistance of counsel, there is a significant chance that if a person who has been convicted in Estonia were to file an application regarding ineffective assistance of counsel, the application would not be satisfied by the ECHR. This should not, however, be taken to mean that the Estonian courts may turn a blind eye and fail to react to a violation of the right set out in the ECHR in the hopes that, should an application be filed, the ECtHR might for some reason (e.g., reference to independence of counsel) find that no violation of Article 6 3 (c) of the ECHR has occurred.

What can the courts do if counsel does not provide effective assistance in a criminal proceeding? One option is to rule on a claim of ineffective assistance lodged by the accused after the judgment has been passed, that is, when the result of the proceedings is clear. In such a case, the court reviewing the claim can consider the performance of counsel throughout the entire proceedings. ^*70 This approach is widespread in the US: the defendant, if convicted, has the opportunity to file a number of complaints concerning the ineffectiveness of counsel. The Federal Rules of Criminal Procedure ^*71 provide that the defendant has the right to assistance of counsel but does not provide any guidelines concerning what the courts should do if counsel is ineffective. For this reason, claims concerning ineffective assistance of counsel are heard according to the general rules of procedure, and such complaints can be filed as an appeal or a collateral attack. ^*72 Since the Supreme Court has held that a complaint regarding ineffective assistance of counsel must be satisfied only if the defendant proves that, but for counsel’s errors, the result of the proceedings would have probably been different, it is not generally possible for a defendant to prove violation of the right to assistance of counsel in the course of proceedings. Therefore, a defendant has no choice but to wait for the judgment and to only then file an appeal. ^*73

Applications concerning the ineffective assistance of counsel naturally reach the ECtHR only after the person has been convicted by a domestic court. The ECtHR has stressed that it is not its duty to impose new proceedings in a new form on a State. A State has the right to decide for itself what means it will use to put the applicant, as far as possible, in the position he or she would have been in had there not been a breach of the Convention. In so doing, the means chosen by the State must be compatible with the conclusions of the ECtHR and the rights of the defence. ^*74 In Quaranta v. Switzerland, the Court also stressed that a State should cure the defect before the case reaches the ECtHR at all. ^*75 According to this judgment, if a person’s right of assistance of counsel has been breached in a lower court, the case should be tried anew, in a higher court. ^*76 If limitations on the cases within the jurisdiction of the court ^*77 render this impossible, the person should be guaranteed new proceedings in a lower court.

Unlike the US courts, the ECtHR does not require a person accused of a criminal offence to prove harm in cases of ineffective assistance of counsel. According to the ECtHR, the fact that the interests of a person charged with a criminal offence have not been prejudiced does not mean that his or her right to counsel has not been violated. ^*78 Moreover, the Court has noted that a breach of the ECHR is possible even where the rights of a person have not been prejudiced. The element of injury is important only within the context of Article 50 of the ECHR. ^*79 Thus, unlike the US Supreme Court, the ECtHR uses a one-step test and has held that a breach of the right of defence is possible even where the element of injury is not involved.

Filing a complaint regarding ineffective assistance of counsel does not necessarily guarantee a person’s right of defence. ^*80 The required standard of proof alone may render a successful claim of ineffective assistance of counsel almost impossible. Secondly, the materials in a criminal case may not provide a court hearing such a complaint with sufficient information about counsel’s actions over the course of the proceedings. ^*81 Thirdly, there is some question as to who should file such a complaint or appeal. A defendant may file an appeal with a circuit court on his or her own, but, pursuant to §  344 (1) 2) of the CCP, an appeal in cassation may be filed with the Supreme Court only by defence counsel, who must be an advocate. But how likely is it that one advocate would be willing to file an appeal alleging the ineffective assistance of another advocate? And if the accused chooses to file an appeal with a circuit court him- or herself to avoid any possible confrontation between two advocates, is the accused capable of filing a sufficiently well-drafted appeal and of making the relevant claims in the appeal? We must also consider that annulling a judgment and ordering a new hearing of the case is always a decision that must be weighed carefully, as new proceedings mean new costs, and there are no guarantees that the quality of evidence has been maintained (e.g., witnesses may have forgotten what they saw). ^*82 It is, understandably, more effective if a court can react to the ineffective assistance of counsel immediately in the course of the proceedings. This, however, raises the question of whether the court has the right to interfere with counsel’s activities, since defence lawyers are independent in the performance of their duties, which has also been emphasised by the ECtHR. Yet, as noted above ^*83 , the ECtHR has stated that if counsel is unable, for whatever reason, to fulfil his or her duties, the domestic court is obliged to replace counsel or compel counsel to perform his or her duties.

On the one hand, there is nothing prohibiting the court from ordering counsel in the course of the proceedings to study the case file, confer with the client, etc. The obligation of counsel to become familiar with a criminal case is even set out separately in § 273 (4) of the CCP. The court may adjourn a court session for up to 10 days and order that the expenses related to the criminal proceedings due to the adjournment of the session be paid by the lawyer in question, if counsel is not familiar with the matter. An equally or even more important duty is, of course, the obligation to participate in court sessions in accordance with § 270 (2) of the CCP. The Code of Criminal Procedure does not impose any other obligations on counsel in the provision of assistance, which means that even if a court issues an order to counsel regarding his or her work, the court is not able to do anything should counsel fail to comply with the order. ^*84 It should also be noted that if a court finds that counsel has failed to present an important piece of evidence, the court may under § 297 (1) of the CCP order the collection of additional evidence on its own initiative. The Supreme Court has in numerous judgments held that the exercise of this right by the court is nevertheless an exception. ^*85

If counsel fails to perform his or her duties, despite receiving repeated instructions from the court, the issue of removal of counsel may arise. Naturally, consideration must be given to the fact that removal of counsel constitutes a serious infringement of the principle of independence of counsel. Pursuant to §§ 54 1) and 2) of the CCP, a person may not serve as counsel and must be removed if her or she has been subject to criminal proceedings on another basis in the same criminal matter, or if, in the same or a related criminal matter, he or she has previously defended or represented a person whose interests are in conflict with the interests of the person to be defended. If counsel does not remove him- or herself on these bases, the court shall remove counsel by a ruling on its own initiative or at the request of a party to the court proceeding (§ 55 (1) of the CCP). The court shall also remove counsel if it becomes evident in a proceeding for removal that counsel has abused his or her status in the proceedings by communicating with the person being defended, who was detained as a suspect or arrested, in a manner that may encourage the commission of another criminal offence or violation of the internal rules of the custodial institution (§ 55 (2) of the CCP). Thus, the Code of Criminal Procedure does not provide the possibility to remove incompetent counsel. The State Legal Aid Act does, however, provide for a change of provider of state legal aid in case of ineffective assistance of counsel. Under the first sentence of § 20 (3¹), the court shall, at the request of the recipient of legal aid or on its own initiative, remove an advocate from the provision of state aid by means of a ruling if the advocate has shown himself or herself to be incompetent or negligent. ^*86 The State Legal Aid Act does not specify what constitutes incompetence or negligence, from which we can conclude that these concepts will be interpreted by the court as the court sees fit in view of the particular circumstances of the case. The second sentence of § 20 (3¹) provides that the court may, in advance, request the submission of explanations or a report from the recipient of state legal aid and the advocate. Thus it can be seen that in the area of legal aid, an important step forward has been taken toward guaranteeing the effective protection of counsel to all defendants. The State Legal Aid Act does not, of course, regulate contractual representation of counsel, but this situation is somewhat simpler. If the accused can see that counsel does not meet his or her expectations ^*87 , the accused can always hire another advocate. ^*88

If counsel has failed to perform his or her duties competently and the accused or the court has for some reason not reacted to this in the course of proceedings in the court of first instance, the accused in Estonia may, pursuant to § 339 (2) of the CCP, file an appeal and later an appeal in cassation against the judgment of the court of first instance. Under that provision, the court may find that there has been a material violation of criminal procedural law other than as set out in § 339 (1) of the CCP, if the violation results in or may result in an unlawful or unfounded judgment. When ruling on an appeal under § 339 (2) of the CCP, the court must first ascertain that a violation (i.e., errors by counsel) has taken place and thereafter must weigh whether the violation resulted in or may have resulted in an unlawful or unfounded judgment. Thus, the test for ineffective assistance in Estonia is not a one-part test. The review of an appeal under § 339 (2) of the CCP is indeed more similar to the US approach: for a finding of breach of the right to counsel, it must first be determined that counsel’s errors may have influenced the lawfulness of the judgment. ^*89 The Estonian and US approaches cannot, however, be considered the same, since neither § 339 (2) of the CCP nor the practice of the US Supreme Court to date requires that the violation might have changed the outcome of the proceeding in order for it to be considered a material violation of criminal procedural law, as is required under US precedent. In any case, Estonia should in developing its test consider that, according to the case law of the ECtHR, a person charged with a criminal offence does not have to prove the element of harm.

Requiring a person charged with a criminal offence to prove the existence of harm would appear, in the context of Estonia and upon closer examination, to contravene the nature of criminal proceedings and the principles underlying the participation of counsel in such proceedings. Pursuant to § 47 (2) of the CCP, counsel is required to use all those means and methods of defence that are not prohibited by law in order to ascertain the facts that vindicate the person being defended, prove his or her innocence, or mitigate his or her punishment, and to provide other legal assistance necessary in relation to a criminal matter to the person being defended. We can conclude from this provision that the objective of counsel’s work is to provide the person being defended with all legal assistance necessary in a criminal case. If the success of an appeal concerning a breach of right of counsel were to require that the appellant prove that the outcome of the proceedings would have been different with the assistance of competent counsel, this would be tantamount to admitting that in cases where counsel has no evidence that vindicates the person being defended, proves his or her innocence, or mitigates his or her punishment—that is, where participation of counsel of whatever quality will not change the conviction of the person or the punishment imposed on him or her—the accused could just as well be left without any assistance of counsel at all. Therefore, in an appeal concerning ineffective assistance of counsel, by imposing on the accused the burden of proving that the outcome would have been different had counsel performed his or her duties (e.g., the accused would have been acquitted or would have received a lighter sentence), we would be negating the obligation of counsel to provide effective assistance in so-called hopeless cases. ^*90 This approach would place the accused in an unequal position and would clearly breach the ECHR and the provisions of the Code of Criminal Procedure. The accused also naturally has the option, if counsel has breached his or her duties and if the accused is unable to prove harm himself or herself, to appeal to the Court of Honour of the Bar Association or to claim damages from counsel, but here the accused reacts after the end of his or her criminal proceedings and therefore is not assisted in ensuring that the criminal proceedings are conducted with the participation of counsel who can provide effective assistance. It should also not be forgotten that criminal proceedings must not only be fair but appear to be fair, not only with regard to a particular person accused of a criminal offence but with regard to all persons charged with a criminal offence. For this reason, an appeal or appeal in cassation should not depend on whether the person would have been convicted or acquitted had counsel’s assistance been effective, or on the punishment that would have been imposed if counsel had performed his or duties correctly. ^*91 It must also be noted, as mentioned above, that proving harm is by its very nature practically impossible. ^*92

It is also debatable whether counsel can perform his or her duties so incompetently that the person being defended could claim that counsel has not participated in the criminal proceedings at all, which constitutes a violation of criminal procedural law under § 339 (1) 3) of the CCP. This provision does not require consideration of whether the violation resulted or may have resulted in an unlawful or unfounded judgment; rather, the judgment is annulled automatically once the violation is ascertained. The author of this article is of the opinion that the ineffective assistance of counsel could be alleged on the basis of § 339 (1) 3) of the CCP only where counsel has been so ineffective during the proceedings that one could speak of his or her not participating in the criminal proceedings at all (e.g., where counsel has participated in court sessions without being familiar with the criminal matter). In other cases, claims regarding ineffective counsel should under valid law be based on § 339 (2) of the CCP. Currently in practice, however, a judgment can be appealed on the basis of § 339 (1) 3) of the CCP only where counsel has not physically participated in the criminal proceedings.

If a standard were established in Estonia concerning the requirements for assistance of counsel, there would be no need to divide the concept of ineffective assistance of counsel such that certain violations are considered to be material violations of criminal procedural law in the meaning of § 339 (1) 3) of the CCP and others in the meaning of § 339 (2) of the CCP. If an adequate standard existed, failure by counsel to perform his or her duties according to that standard—e.g., the standard that Estonian society agrees upon as the minimum required of counsel—could be deemed to be a material violation of criminal law. In such cases, there would be no need to debate the meaning, in the context of ineffective assistance of counsel, of the provisions of § 339 (2), under which a material violation of criminal procedural law is one that results in or may result in an unlawful or unfounded judgment. If a standard existed, it would make no difference whether substandard assistance of counsel were considered a material violation of criminal procedural law in the meaning of § 339 (1) 3) or § 339 (2) of the CCP, as both would result in clear breach of the right of counsel—that is, ascertainment of failure of counsel to provide assistance in accordance with the standard and an order to return the criminal matter to the court of first instance for a new hearing, by a different court panel. ^*93

4. Conclusions

The author of this article is of the opinion that, in addition to ex post evaluation, Estonian courts must be able to act operatively and to remove counsel who does not provide effective assistance from criminal proceedings. Of course, granting the courts the right to remove ineffective counsel from criminal proceedings does not automatically mean that all problems related to ineffective assistance of counsel would disappear. First, the question arises whether courts should have the right to remove appointed counsel only in case of ineffective assistance, as set out in § 20 (3¹) of the SLAA, or contractual counsel as well. In any case, the Code of Criminal Procedure does not currently allow for contractual counsel to be removed as a result of ineffective assistance. It must be considered that whereas appointed counsel is appointed by a competent authority to provide assistance and the person being defended may have no say in the choice of advocate, contractual counsel is chosen by each defendant him- or herself, in exercise of the right to choose counsel as provided for in Article 6 3 (c) of the ECHR. Even if the assistance of contractual counsel has been ineffective, if a court intervenes, the question inevitably arises as to whether this violates the right of the person charged with a criminal offence to choose counsel as provided for in Article 6, paragraph 3 (c) of the ECHR. Does a person charged with a criminal offence not have the right to decide whether to discontinue or continue co-operation with counsel who has been proved to be ineffective? If it is indeed only the accused who can make this decision, does the court at least have an obligation to draw the attention of the accused to counsel’s ineffective performance—that is, an obligation to make sure that the accused understands that the performance of counsel is substandard? Removal of appointed counsel, particularly counsel appointed with due consideration of the opinion of the accused, without the consent of the accused is also somewhat questionable. Is it indeed permissible for the court to decide on removal of counsel without the consent of the accused as set out in the current wording of § 20 (3¹) of the SLAA? On the one hand, this ensures that the court will react in situations wherein the accused has no comprehension that his or her rights have been breached, yet, on the other hand, the court will be intervening very intensively in the relationship between counsel and the accused.

Additionally, there is no way to skirt the issue of whether Estonian judges would even dare to infringe the independence of counsel and evaluate an advocate’s work. And if they do dare, on what would they base such evaluation? Should a court remove counsel if the court feels that counsel has been ineffective, or should a court base removal on a particular legal norm (be it provided for in the Code of Criminal Procedure, the State Legal Aid Act, or even the Bar Association Act or the Code of Ethics of the Bar Association)? And what should a court do if current legal norms are too general? This raises the question of whether guidelines should be laid down for the assistance of counsel as has been done in the United States (in the form of the ABA Guidelines). On the one hand, establishing guidelines is complicated, as each criminal matter requires a unique approach by counsel. On the other hand, however, it is easier for the courts to evaluate the work of counsel if guidelines for counsel have been established (and the existence of the ABA Guidelines proves that this is possible), and there is less of a chance that the courts will infringe the independence of counsel without good reason. In any case, the establishment of an effective counsel standard that would assist the court in evaluating the performance of counsel both during a criminal proceeding and also retrospectively in appeal or cassation proceedings should also be considered in Estonia. The existence of a standard would mean that in appeal and cassation proceedings the circuit courts and the Supreme Court would not have to analyse separately whether the ineffective assistance of counsel resulted in or may have resulted in an unlawful or unfounded judgment by the lower court. In order to ascertain that a material violation of criminal procedural law has taken place, it would suffice for the higher court to determine that the assistance of counsel in the lower court did not meet the established standard.

Notes:

^*1 This could also include situations where counsel is a good lawyer but specialises in an area of law that is different than the area of law of the case.

^*2 F. C. Zacharias. Structuring the Ethics of Prosecutorial Trial Practice: Can Prosecutors Do Justice? –Vanderbilt Law Review 1991 (44), p. 66.

^*3 Estonian Ministry of Justice (publisher). Määratud kaitsja kättesaadavus ja kvaliteet kriminaalmenetluses (Ministry of Justice. Access to and Quality of Appointed Counsel in Criminal Proceedings). Available at http://www.just.ee/orb.aw/class=file/action=preview/id=33504/m%E4%E4ratud+kaitsja+k%E4ttesaadavus+ja+kvaliteet_KPO+_2_.pdf (2.03.2010).

^*4 F. C. Zacharias (Note 2), p. 66.

^*5 Estonian Bar Association press release of 4 March 2010: Ligi 80% Eesti advokaatidest töötab Tallinnas (Approximately 80% of Estonian Advocates Work in Tallinn). Available at http://www.advokatuur.ee/?id=417 (8.03.2010). One is reminded of a comment posted on the website of the daily newspaper Postimees in which one reader lamented that he required legal assistance in a small town in Estonia but his choice was rather limited: one advocate was a known crook, another was the spouse of the judge trying the case, the third was hired by the opposing party, and he was left with no choice than to hire the fourth and last one.

^*6 As counsel was previously appointed by the body conducting the proceedings, the purpose of the amendment was to ensure that prosecutors did not select the advocates they preferred (i.e. who were less difficult). See Estonian Ministry of Justice (publisher). Määratud kaitsja kättesaadavus ja kvaliteet kriminaalmenetluses (Note 3).

^*7 See, for example, ECtHR judgment 9.04.1984, Goddi v. Italy, paragraph 31; ECtHR judgment 21.04.1998, Daud v. Portugal, paragraph 40.

^*8 Kriminaalmenetluse seadustik. – RT I 2003, 27, 166; 2010, 8, 35 (in Estonian) .

^*9 The independence of counsel and the obligation of counsel to adhere to the rules and instructions of the court issued pursuant to law should of course not be confused. Failure to adhere to such rules and instructions may justify accusations of ineffective assistance by counsel.

^*10 Pursuant to § 42 (1) 1) of the CCP an advocate or, with the permission of the body conducting the proceedings, any other person who meets the educational requirements established for contractual representatives in subsection 41 (4) CCP, may serve as contractual counsel. Pursuant to § 42 (1) 2) of the CCP, only an advocate may serve as appointed counsel. While to date no statistics have been published on the percentage of criminal proceedings that are conducted with participation of an advocate or the participation of other counsel, the author of this article dares to say, based on her experience, that the majority of counsel in criminal proceedings are advocates.

^*11 Advokatuuriseadus. – RT I 2001, 36, 201; 2009, 68, 463 (in Estonian).

^*12 European Convention on Human Rights and Fundamental Freedoms. – RT II 1996, 11/12, 34. Entry into force in respect of Estonia 16 April 1996.

^*13 S. Trechsel. Human Rights in Criminal Proceedings. Oxford: Oxford University Press 2005, p. 266. S. Trechsel does not explain what is meant by the concept ‘best’. Since the object of Article 6 3 (c) of the ECHR is an effective defence (see C. Ovey, R. White. The European Convention on Human Rights. 4th Ed. Oxford: University Press 2006, p. 205) and a person can defend himself effectively in a situation where he is opposed by a professional prosecutor (lawyer) with the assistance of professional counsel chosen as he best sees fit, it is clear that the best option among the rights set out in Article 6 3 (c) of the ECHR is a person’s right to defence with the assistance of counsel of his or her choice.

^*14 See also K. Reid. A Practitioner’s Guide to the European Convention on Human Rights. 3rd ed. Thomson: Sweet & Maxwell 2008, p. 153; S. Trechsel (Note 13), p. 268; P. Van Dijk, F. Van Hook, A. Van Rijn, L. Zwaak (eds.). Theory and Practice of the European Convention on Human Rights. 4th Ed. Intersentia: Antwerpen-Oxford 2006, p. 641.

^*15 ECJ 25.09.1992, Croissant v. Germany, paragraph 29.

^*16 ECtHR judgment 26.07.2002, Meftah and others v. France, paragraph 45.

^*17 ECtHR judgment 8.06.1986, Engel and others v. Netherlands, paragraph 91.

^*18 See S. Trechsel (Note 13), p. 267.

^*19 ECtHR judgment 24.11.1993, Imbrioscia v. Switzerland, paragraph 42; ECtHR judgment 22.02.1994, Tripodi v. Italy, paragraph 30.

^*20 S. Trechsel (Note 13), p. 267.

^*21 The ECHR has accepted the appointment of additional counsel by the court on its own initiative even in cases where counsel chosen by the person charged with a criminal offence has not abused any rights, if the matter has been complicated and it can be presumed that the proceedings will take a long time. See Croissant v. Germany (Note 15), paragraph 30.

^*22 S. Trechsel (Note 13), p. 267. The same principle applies to situations in which a person repeatedly changes counsel with the aim of delaying the proceedings. K. Reid (Note 14), pp. 158–159.

^*23 The Constitution of the United States of America. Available at http://supreme.justia.com/constitution/ (3.03.2010).

^*24 W. G. Genego. The Future of Effective Assistance of Counsel: Performance Standards and Competent Representation. – The American Criminal Law Review 1984–1985 (22), p. 182. The Sixth Amendment to the US Constitution states laconically that a person has the right of assistance of counsel for his defence.

^*25 Powell v. Alabama, 287 U.S. 45 (1932). Available at http://supreme.justia.com/us/287/45/case.html (3.03.2010). Here the Court relied not on the Sixth Amendment guarantee of the right to counsel but rather on the due process clause of the Fourteenth Amendment, with its implicit principle that a criminal defendant must receive a fair trial. W. G. Genego (Note 24), p. 183.

^*26 Betts v. Brady, 316 U.S. 455 (1942). Available at http://supreme.justia.com/us/316/455/case.html (3.03.2010).

^*27 W. G. Genego (Note 24), p. 184.

^*28 Gideon v. Wainwright, 372 U.S. 335 (1963). Available at http://supreme.justia.com/us/372/335/case.html (3.03.2010).

^*29 Eesti Vabariigi põhiseadus. – RT 1992, 26, 349; 2007, 33, 210 (in Estonian). Subsection 21 (1) of the Constitution provides: “Everyone who is deprived of his or her liberty shall be informed promptly, in a language and manner which he or she understands, of the reason for the deprivation of liberty and of his or her rights, and shall be given the opportunity to notify those closest to him or her. A person suspected of a criminal offence shall also be promptly given the opportunity to choose and confer with counsel. – See also Eesti Vabariigi Põhiseadus. Kommenteeritud väljaanne. Teine, täiendatud väljaanne (Constitution of the Republic of Estonia. Commented edition. Second revised edition). Tallinn 2008, § 21 comment 6.

^*30 The participation of counsel throughout a criminal proceeding is mandatory if at the time of commission of the criminal offence, the person being defended was a minor; due to his or her mental or physical disability, the person is unable to defend himself or herself or if defence is complicated due to such disability; the person is suspected or accused of a criminal offence for which life imprisonment may be imposed; the interests of the person are in conflict with the interests of another person who has counsel; the person has been under arrest for at least six months; proceedings are conducted in the criminal matter pursuant to expedited procedure.

^*31 Meftah and others v. France (Note 16), paragraph 45.

^*32 Croissant v. Germany (Note 15), paragraphs 33–38.

^*33 S. Trechsel (Note 13), p. 278.

^*34 ECtHR judgment 13.05.1980, Artico v. Italy, paragraph 34.

^*35 ECtHR judgment 19.06.2001, Kreuz v. Poland, paragraph 64.

^*36 Artico v. Italy (Note 34), paragraph 34.

^*37 S. Trechsel (Note 13), p. 272; K. Reid (Note 14), p. 155.

^*38 S. Trechsel (Note 13), p. 273. The Court has listed these four criteria in for example ECtHR judgment 9.06.1998, Twalib v. Greece, paragraphs 52–53.

^*39 Under this provision, counsel is appointed if counsel chosen by a person cannot assume the duties of defence within twelve hours as of the detention of the person as a suspect or, in other cases, within twenty-four hours as of entry into an agreement to defend the suspect or accused or summoning to the body conducting the proceedings and the counsel has not appointed substitute counsel for himself or herself.

^*40 C. Ovey, R. White (Note 13), p. 207; S. Trechsel (Note 13), p. 271. For example, in its judgment Croissant v. Germany (Note 12) the ECtHR accepted that the domestic court appointed a third lawyer in addition to the two lawyers chosen by the person charged with a criminal offence in a complicated matter.

^*41 Riigi õigusabi seadus. – RT I 2004, 56, 403; 2009, 67, 460 (in Estonian).

^*42 S. Trechsel (Note 13), pp. 276–277; K. Reid (Note 14), pp. 153–154. See also Croissant v. Germany (Note 15) and ECtHR judgment 25.04.1983, Pakelli v. Germany, paragraph 31.

^*43 S. Trechsel (Note 13), p. 270.

^*44 See for example two of the leading ECtHR cases relating to ineffective assistance of counsel – Artico v. Italy (Note 34) and Goddi v. Italy (Note 7). Whereas Mr. Artico had appointed counsel, Mr. Goddi had contractual counsel. In both cases the ECtHR weighed the issue of ineffectiveness according to the same principles.

^*45 J. P. Busch, B. J. George Jr, T. Karas, K. Mossman. The Lawyer’s Use of the Standards. – The American Criminal Law Review 1974–1975 (12), p. 438.

^*46 Aivar Pilv: Seadusandja võiks ka advokaati kuulata (Legislators Could Also Listen to Advocates). Available at: http://www.epl.ee/artikkel/493155 (8.03.2010) (in Estonian).

^*47 S. Trechsel (Note 13), p. 286.

^*48 See Artico v. Italy (Note 34). See also Imbrioscia v. Switzerland (Note 19).

^*49 ECtHR judgment 19.12.1989, Kamasinski v. Austria, paragraph 65, but also for example Daud v. Portugal (Note 7), paragraph 38; ECtHR judgment 10.10.2002, Czekalla v. Portugal, paragraph 60.

^*50 Artico v. Italy (Note 34), paragraph 33.

^*51 K. Reid (Note 14), p. 157. See also ECtHR judgment 27.04.2006, Sannino v. Italy. In that judgment the ECtHR noted that the passiveness of the person charged did not excuse failure to act by the court (paragraph 51).

^*52 In the case Artico v. Italy (Note 34) counsel refused to provide legal assistance to the person charged with a criminal offence. In the case Goddi v. Italy (Note 7) counsel failed to appear in court. In the case Daud v. Portugal (Note 7) the first appointed counsel provided no legal assistance at all, and the second failed to prepare for trial. In all these cases the ECtHR held that Article 6 3 (c) of the ECHR had been breached. It is noteworthy that all these cases involved a situation in which counsel completely failed to perform one of his or her duties.

^*53 As emphasised in the introduction, the ECtHR first referred to the independence of counsel in Goddi v. Italy (Note 7) and has since that judgment emphasised the principle of independence of counsel repeatedly.

^*54 K. Reid (Note 14), pp. 157–158.

^*55 See also W. G. Genego (Note 24), pp. 185–186; W. H. Erickson. Standards of Competency for Defence Counsel in a Criminal Case. – The American Criminal Law Review 1979–1980 (17), pp. 237.

^*56 W. H. Ericskon (Note 55), p. 237.

^*57 W. G. Genego (Note 24), pp. 186–188; W. H. Ericskon (Note 55), pp. 237–239.

^*58 One of the most famous cases from that period is United States v. Decoster, in which the effectiveness of counsel’s assistance was contested in the courts of first and second instance for years, and culminated in the position that counsel must be ‘reasonably competent’. (See also Identifying and Remedying Ineffective Assistance of Criminal Defence Counsel: A New Look after United States v. Decoster. – Harvard Law Review, February, 1980 (93), pp. 758–772.)

^*59 Strickland v. Washington, 466 U.S. 668 (1984). Available at http://supreme.justia.com/us/466/668/case.html (3.03.2010).

^*60 See also J. H. Israel, Y. Kamisar, W. R. LaFave. Criminal Procedure and the Constitution: Leading Supreme Court Cases and Introductory Text. St. Paul (Minn.): West 1991, pp. 605–606.

^*61 D. A. Dripps. Ineffective Assistance of Counsel: The Case for an Ex Ante Parity Standard. – Journal of Criminal Law and Criminology 1997–1998 (88), p. 243.

^*62 This was even recognised by the Supreme Court in Strickland v. Washington in which the Court speculated that introduction of a new standard for determining cases of ineffective counsel would lead to a different result compared with determination under the old standard only in a few rare cases.

^*63 W. G. Genego (Note 24), p. 200.

^*64 Wiggins v. Smith, 539 U.S. 510 (2003). Available at http://supreme.justia.com/us/539/510/case.html (3.03.2010). The Court affirmed the same in its judgment in Rompilla v. Beard, 545 U.S. 374 (2005). Available at http://supreme.justia.com/us/545/04-5462/case.html (3.03.2010).

^*65 Guidelines 11.8.6.: Guidelines for the Appointment and Performance of Defense Counsel in Death Penalty Cases (11.8.6., 1989).

^*66 J. H. Blume, S. D. Neumann. It’s Like Deja Vu all over again: Williams v. Taylor, Wiggins v. Smith, Rompilla v. Beard and a (Partial) Return to the Guidelines Approach to the Effective Assistance of Counsel. – American Journal of Criminal Law 2006–2007 (34), p. 129.

^*67 Bobby v. van Hook, 558 U.S. ____ (2009). Available at http://supreme.justia.com/us/558/09-144/percuriam.html (3.03.2010).

^*68 Wong v. Belmontes, 558 U.S. ____ (2009). Available at http://supreme.justia.com/us/558/08-1263/percuriam.html (3.03.2010).

^*69 CCSCd 20.09.2002, 3-1-1-88-02.

^*70 This is clearly the only option available where the ineffective assistance of counsel becomes evident only after the judgment has been handed down.

^*71 Federal Rules of Criminal Procedure. Online. Available at http://www.uscourts.gov/rules/crim2007.pdf (4.03.2010).

^*72 P. W. Tague. The Attempts to Improve Criminal Defense Representation. – The American Criminal Law Review 1977 (15) 2, pp. 148–152.

^*73 The fact that the defendant, according to the current standard, must prove that the outcome of the proceeding, save for counsel’s errors, would have been different has been criticised time and again. It has been suggested that it should instead be up to the prosecutor, where the defendant has shown the errors of counsel, to prove that the errors did not influence the outcome of the proceedings. (See for example J. H. Blume, S. D. Neumann (Note 66), p. 164). Nonetheless, the author of this article has not read anything published in the US where the author would suggest that a breach of the right of defence might occur even where the errors of counsel did not affect the outcome of the proceedings.

^*74 Sannino v. Italy (Note 51), p. 71.

^*75 ECtHR judgment 24.05.1991, Quaranta v. Switzerland, p. 37. True, this judgment did not involve the ineffective assistance of counsel, rather the person was not accorded any assistance of counsel at all.

^*76 P. Van Dijk, F. Van Hook, A. Van Rijn, L. Zwaak (eds.) (Note 14), p. 637.

^*77 In Estonia, the Code of Criminal Procedure does not place limitations on the subject matter of cases before the circuit courts, which are appellate courts. In cassation proceedings, however, only matters of the incorrect application of substantive law or a material violation of criminal procedural law may be brought before the Supreme Court (see §§ 346 1) and 2) of the CCP).

^*78 The ECtHR stated this clearly in Artico v. Italy (Note 34), p. 35. See also P. Van Dijk, F. Van Hook, A. Van Rijn, L. Zwaak (eds.) (Note 14), p. 638. In the context of the judgment in Artico v. Italy, the judgment in Alimena v. Italy is somewhat incomprehensible. (ECtHR judgment 19.02.1991, paragraph 20.) The Court repeated its finding in Artico v. Italy by which a person charged with a criminal offence does not need to prove the existence of injury, but went on to note that the person was deprived of legal assistance which could have helped him in his attempt to secure an unqualified acquittal.

^*79 Article 50 of the ECHR provides: “If the Court finds that a decision or a measure taken by a legal authority or any other authority of a High Contracting Party, is completely or partially in conflict with the obligations arising from the present convention, and if the internal law of the said Party allows only partial reparation to be made for the consequences of this decision or measure, the decision of the Court shall, if necessary, afford just satisfaction to the injured party.”

^*80 W. G. Genego (Note 24), p. 201.

^*81 P. W. Tague (Note 72), p. 148.

^*82 Identifying and Remedying Ineffective Assistance of Criminal Defence Counsel: A New Look after United States v. Decoster (Note 51), pp. 772–773.

^*83 See p. 256 of this article.

^*84 Subsection 267 (4) of the CCP provides that if counsel violates order in a court session, fails to comply with the orders of a judge or acts in contempt of court, a fine of up to one hundred minimum daily rates may be imposed on him or her by a court ruling. An order of a court should be understood to mean only such orders as are issued to maintain order in the court. The heading of § 267 CCP is after all “Measures applicable to persons who violate order in court session.”

^*85 CCSCd 26.09.2006, 3-1-1-67-06 and 3-1-1-91-07.

^*86 The version in force from 1 January 2009 to 1 January 2010 required the consent of the accused to remove counsel; however, as of 1 January 2010, this is no longer required. It would appear that this amendment was intended to regulate situations in which the accused need not yet be aware that counsel’s assistance is ineffective, or the defendant is aware but for some reason fails to demand that counsel be removed. In such case, the court must intervene on its own initiative. Nevertheless, no comment has been made concerning these amendments in the explanatory memorandum. (See the Advokatuuriseaduse ja sellega seonduvate seaduste muutmise seadus. Seaduseelnõu 253 SE (Act to Amend the Bar Association Act and Other Related Acts. Bill 253 SE). Available at http://www.riigikogu.ee/?op=ems&page=eelnou_otsing (3.03.2010) (in Estonian).

^*87 It is of course another matter whether the accused understands this.

^*88 The question of whether the removal of counsel due to incompetency should be possible only with respect of appointed counsel or also with respect of contractual counsel merits separate and thorough consideration. According to the Code of Criminal Procedure, contractual counsel shall participate in the proceedings only so long as he or she has the approval of the accused. It can thus be said that currently, the wishes of the accused concerning contractual counsel are considered important in criminal proceedings. There may nevertheless be situations where the accused does not (cannot) see what the court can see: that counsel is not performing his or her duties correctly. Granting a court the right to remove contractual counsel in cases where the accused does not agree to removal is very problematic. This would infringe both the independence of counsel and the choice of the accused to freely choose counsel.

^*89 The issue of burden of proof is somewhat more complicated. In the US, the defendant must prove that the result of the proceeding was different due to the error of counsel. In Estonia, the accused (or his or her (new) counsel) must at least note in an appeal why the violation may have resulted or did actually result in an unlawful or unfounded judgment. Thus, on first view it would appear that whereas in the US the burden of proof is very clearly imposed on the defendant, in Estonia the situation is not nearly so clear. The accused in Estonia should nonetheless indicate the errors in counsel’s performance and somehow prove them. If the accused does not do so, there is nothing for the court of appeal or court of cassation to consider.

^*90 W. G. Genego (Note 24), p. 200.

^*91 A. Soo. Ebaefektiivne kaitse kriminaalmenetluses: mõiste ja probleemistik (Ineffective Defence in Criminal Procedure: Concept and Range of Problems). – Juridica 2007/6, pp. 368–369 (in Estonian).

^*92 See page 257 of this article.

^*93 Pursuant to § 341 (1) of the Code of Criminal Procedure, if material violation of criminal procedural law is ascertained in the course of a court session pursuant to § 339 (1), the circuit court shall annul the judgment of the court of first instance and return the criminal matter to the court of first instance for a new hearing by a different court panel. Pursuant to the second subsection of that section, the circuit court shall also annul the judgment of the court of first instance and return the criminal matter to the court of first instance for a new hearing by a different court panel if material violation of criminal procedural law is ascertained in the course of a court session pursuant to the procedure provided for in § 339 (2) of the Code and the violation cannot be eliminated in the court session. It is clear that ineffective assistance of counsel cannot be remedied in the higher court, rather the person must be accorded the opportunity to participate in proceedings where he or she receives effective legal assistance from counsel.

A new era in Estonia’s penal law began in 2002 when Soviet criminal law was replaced by contemporary penal law enriched with European influences. One of the most revolutionary aspects of the new Penal Code was the new concept of criminal liability of legal entities, replacing the vaguer notion of liability of legal entities (hereinafter also ‘corporate criminal liability’) as developed in previous case law. Criminal liability of legal entities, as well as the very concept of a legal entity, is unarguably the prodigy of legal theory, and those notions are treated rather differently in various legal cultures. For instance, the school of thought in Soviet criminal law—first and foremost, the criminal law dogmatics of the Russian Federation—holds a firm view that the criminal liability of legal entities is a notion belonging to a fantasy world, because the legal entity cannot know and understand its actions nor independently direct those actions: only physical persons can be responsible for committing a crime. ^*2

Whereas in the context of criminal liability of physical persons it is clearly deducible from the principle of guilt that the liability for the crime committed lies with the person who actually committed the act (and only said person and not, for example, his or her children and grandchildren in consequence of affiliation), the situation is less than clear in the context of legal entities, because, differently from physical persons, legal entities may be divided, merged, and reorganised. From the perspective of criminal liability, mergers and reorganisations of legal entities do not cause difficulties (the entity created as a result of merger or reorganisation shall be subject to liability), but with regard to division of legal entities the situation is more complex, as there are several potential entities that may be subject to liability. This article concentrates on issues arising in connection with division of a legal entity that is subject to criminal proceedings. Upon division of a legal entity, should both entities be liable or only the entity that is divided? What are the dangers arising from division of a legal entity that is subject to criminal proceedings in the course of such proceedings? How can we combat such risks and dangers? As the case law and legal theory in Estonia have not yet clearly tackled these issues, this article should be deemed an introduction to the topic, which one hopes will be followed by opinions of other experts in the field as well as case law.

2. Regulation of division under civil law

According to § 434 (1) of the Commercial Code ^*3 , division of a legal entity takes place without liquidation proceedings by way of division by acquisition or division by separation. In division by acquisition, the company to be divided transfers its assets to the recipient companies, which may be either existing companies or companies that are yet to be established, and the shareholders of the company subject to division shall become the shareholders of the recipient company. Upon division by acquisition, the company to be divided shall be deemed terminated. In division by separation, the company subject to division shall transfer its assets to one or more recipient companies while the company subject to division remains in existence. Consequently, the shareholders of the recipient company may either be the shareholders of the company subject to division or be the shareholders of the divided company itself.

The characteristic feature of both manners of division is the total or partial transfer of the rights and obligations of the company subject to division to the recipient company/companies. For the purposes of this article, the question of most importance is whether the procedural position of a suspect, the accused, or the convict may be deemed to be part of ‘assets’ as a combination of rights and obligations of the company subject to division within the meaning of § 434 of the Commercial Code and, consequently, whether such a procedural position could be subject to transfer in the course of division to the recipient company or companies. Or should the procedural position of a suspect, the accused, or the convict be deemed a combination of rights and obligations that is inseparably attached to a specific entity and therefore cannot be transferred to a recipient company in the course of division? With the latter thesis taken as a starting point, it should be impossible to hold recipient companies criminally liable for the acts previously committed by the entity that was subject to division. In other words, division would cause the criminal proceedings to be ended with regard to the company that was subject to division and its successors.

Should the procedural position be treated as a transferable ‘property’, then, according to § 435 (1) 6) of the Commercial Code, the representatives of the companies that participate in the division procedure should be able to agree among themselves in the division agreement who will bear the rights and obligations associated with criminal proceedings. ^*4 In essence, this means that in a situation where a legal entity has become a suspect in criminal proceedings, the liability of that legal entity may be transferred to a third party by way of an agreement among the parties involved. However, § 447 (1) of the Commercial Code is of ‘assistance’ here, stating that the companies participating in the division (i.e., the recipient companies as well as the company that is being divided) are subject to joint liability for the obligations of the company being divided if such obligations have arisen prior to entry of the division in the Commercial Registry. Accordingly, the regulation set out in the division agreement is relevant only with regard to the relations among the parties involved in the division procedure and all entities involved in the division procedure are jointly liable under private law before third parties.

In search for an answer to the question of whether the status of person subject to criminal proceedings is transferable, the civil-law approach could in principle be utilised by which a legal entity is a combination of assets with a certain purpose. ^*5 This, in turn, may lead to a further conclusion that, considering a legal entity to be merely a combination of assets, one would naturally hold that upon transfer of such assets to a third party the procedural position in criminal proceedings should accompany it. In other words, a legal entity lacks the sphere of ‘personality’, which would tie certain rights and obligations inextricably to a subject. In the context of criminal law, this thesis runs counter to the principle of guilt, according to which the basis for punishing a person is the guilt of the same person who committed the crime. Estonian penal law is based on act-oriented (in German: Tatstrafrecht) penal law according to which the act committed by the person is the measure for punishment. We would not imagine that physical persons could inherit along with other assets also the procedural position of a suspect, the accused, or the convict in criminal proceedings. ^*6 The essence of the principles of guilt and act-oriented penal law is to create an inseparable link between the person having committed the crime and the person being punished. That same link is directly reflected in the very nomenclature for the field of law itself—‘penal law’ (an act is subject to penalty). However, criminal liability is not an end in itself but, rather, is directed at achieving several aims of penal theory (special prevention and general prevention, etc.). The important question is whether those aims should also be applied to legal entities. With that purpose in mind, we will hereinafter attempt to dissect the concept of criminal liability of legal entities.

3. The aims with criminal liability of legal entities

3.1. The aims of punishments applicable to legal entities

In the context of corporate criminal liability, Estonian law has adopted the view that, because physical persons and legal entities are separate subjects of law, legal entities may also commit crimes. ^*7 The Penal Code ^*8 (hereinafter ‘PC’) prescribes monetary punishment (PC, in § 44 (8)) ^*9 or compulsory liquidation (§ 46) as the main punishments applicable to legal entities, with, as supplementary punishments, prohibition from processing state secrets and classified information of foreign states and deprivation of the right to keep animals (§ 55¹). By comparison, in Finland, for example, only monetary punishments apply to legal entities. ^*10

According to the principle of guilt, a person’s guilt is the basis for his or her punishment. Following the normative concept of guilt, one may define guilt as reproach for the person having failed to act lawfully despite having the option of doing so. Thus it is reproach for violating ‘normatively prescribed’ regulations. ^*11 In general, the punishment imposed for a crime is aimed at achieving two main goals: (a) compensating for the damages caused by violation of certain legal rights and (b) preventive goals. ^*12

In legal literature, the topic of goals of punishments imposed on legal entities boils down to the question of whether the aim of punishment is only deprivation of economic gains received in the violation (positive general prevention, negative special prevention, and general prevention) or to establish reproach of the specific legal entity that committed the crime (positive special and general prevention).

Definition of special preventive goals of punishment applicable to legal entities is somewhat vague as it remains unclear how a legal entity as a legal abstraction should be subject to special prevention. ^*13 This is all the more true when one considers that, according to the Supreme Court, the person who committed the crime should be taken into account if the special preventive aims of the punishment are to be met. ^*14 One possible solution would be to apply the special preventive goals of punishment first and foremost to persons listed in PC in § 14 (1), which would be reflected in the obligation to refrain from actions causing liability on the part of the legal entity (for instance, prohibition from holding certain official positions, etc.). However, this conclusion is problematic in the light of amendments to the Penal Code that took effect on 28 July 2008 and that were motivated by the need to harmonise Estonian legal regulations with the requirements of the Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. ^*15 Namely, with the 28 July 2010 amendments, § 14 (1) of the Penal Code was amended so that, instead of the previous wording ‘act committed by the organ or leading employee in the interests of the legal entity’, the liability of the legal entity may be based on the act of the organ, its member, a leading employee, or another competent representative if that act was committed in the interests of the legal entity. Whereas most of the amendments are of a technical nature, the notion ‘other competent representative’ may raise questions. Firstly, this is a rather ambiguous concept; in accordance with the examples brought forth in the explanatory report on the draft law, such a person could be an employee of the legal entity or possess representation rights on some other grounds (for example, those of an attorney-at-law). ^*16 Problems arise in connection with the issue that formerly the essence of the reproach applied to the legal entity was the violation by a person who represented the legal entity on a daily basis (member of the organ of the legal entity or a leading employee) and such a person was in any case responsible for forming the will of said legal entity as an abstraction. Imputation of the guilt of other competent representatives may be difficult from a dogmatic perspective, because imputation to a legal entity of any violation by an employee who plays a minor role in the organisation may excessively widen the area of liability. ^*17 A possible solution to this problem could be to impute to the legal entity the crime of only such a representative or employee as has certain decision-making powers, provided that the crime pertains to the respective area of decision-making, or with regard to each violation to refer to the violation by a certain member of the body or organ of the legal entity (insufficient supervision by the supervising organ responsible for the respective field of activity).

The general preventive aim in criminal punishment of legal entities is to show to the society that the legal entity that has committed the crime will be properly punished for it (positive general prevention). Division of a legal entity subject to criminal proceedings undoubtedly obstructs reaching of that goal. From the viewpoint of theories according to which punishment of legal entities bears only pragmatic relevance, mainly aimed at deprivation of unlawfully gained profits (the basis for that thesis being the previously described understanding of a legal entity as a faceless combination of assets that lacks any personal type of rights), division of the company subject to criminal proceedings would not particularly affect reaching of the aims of punishment, because it would not matter whether the former or a new legal entity is punished—the goal is reached if the financial status of at least one entity participating in the division process is negatively affected.

3.2. The goal of deprivation of economic gain

Theories aimed at deprivation of economic gain are associated with views that legitimise corporate criminal liability as something complementary to the liability of natural persons. For instance, corporate criminal liability allows application of statutory penal powers in a situation where the physical person who committed the crime remains unidentified. ^*18 According to the above-mentioned theory, the core of punishment of legal entities lies in application of monetary punishment in order to deprive the legal entity of the gains received as a result of the crime—i.e., as a result of behaviour that was profit-oriented and performed with full awareness of the costs. ^*19

The theory directed at deprivation of profits is an attempt to avoid formation of any dogmatic discussion of the legitimacy of punishing legal entities. In search of an easier way out, legal dogmatic arguments have been discarded and economic reasoning applied instead. Views are taken that the risk of the legal entity in connection with criminal liability for a crime is a potential that is fundamentally associated with the economic activity of the company. ^*20 The idea operates on the basis of a negative general prevention formula grounded in the simple so-called criminal-economic theory: with profit as a stimulus for committing the crime, punishment in the form of deprivation of that profit works as a stimulus to refrain from crimes. Accordingly, a person who weighs the costs and the gains is aware that committing a crime in the interests of the legal entity may cause application of punishments that are far greater than are the potential gains from the crime. ^*21

The above conclusion is supported by the content of § 44 (8) of the Penal Code, which allows applying monetary punishment as complementary punishment alongside compulsory liquidation. The clause has been interpreted in Estonian legal literature to be applicable in situations where a legal entity has committed an intentional crime with the aim of profiting from that crime. ^*22 Thus in Estonian literature it has clearly been conceded that in certain cases (in the form of applying monetary punishment as complementary punishment) penalty applied to legal entities is aimed at depriving them of their profits. This is further supported by § 44 (9) of the Penal Code, which entered into force on 27 February 2010 and according to which the amount of monetary punishment may in certain cases be tied to a percentage of the turnover of the legal entity (see Note 10).

However, reducing the aim of the monetary punishment applicable to legal entities to merely deprivation of profits is still questionable.

Firstly, deprivation of the profits as a goal of punishment cannot justify another type of punishment applicable to legal entities that is prescribed in the Penal Code—compulsory liquidation. The latter is clearly meant to reflect reproach for the legal entity that committed the crime. On the assumption that compulsory liquidation with the aim of deprivation of profits is probably not a separate type of punishment, the question arises of whether monetary punishment always bears the goal of profit-deprivation or monetary punishment is sometimes also meant to function as reproach of the legal entity. From the content of § 44 (8) of the Penal Code, it may be concluded that if monetary punishment is applied as a complementary punishment alongside compulsory liquidation, then the main aim of the monetary punishment is to deprive the relevant entity of profits. At the same time, the concept of monetary punishment as a mere tool for taking away the gains from the crime is questionable in a situation where the court is not willing to or cannot apply compulsory liquidation as the main punishment and applies monetary punishment as the main punishment. From this perspective, monetary punishment may possess just as wide-reaching goals and be deemed reproach falling under general prevention.

Secondly, the system of sanctions in the Penal Code is structured such that the institution of law aimed at deprivation of profits received from crime is confiscation. Namely, § 83¹ (1) of the Penal Code allows confiscation of assets received from intentional crime. In addition, § 83² of the Penal Code allows one to apply extended confiscation of assets gained from the crime (although the sanction referred to may be applied to physical persons only, while application to legal entities on the grounds of § 83² (2) 1) of the Penal Code is rather hypothetical).

Thirdly, the above-referenced theory is mainly characteristic of German law. However, the German legal system offers no concept of liability of legal entities similar to that prescribed in the Penal Code. According to the Code of Order Violations (or ‘OWiG’), § 30, the only punishment applicable to legal entities is the monetary penalty if the crime has been committed by the physical person in the interests of and for the benefit of the legal entity. ^*23 The above cannot be deemed a separate concept of the legal entity’s liability; rather, it is a complementary option, for punishment of the legal entity in a manner complementing the general system of the law—neither the OWiG nor the penal code of Germany expressly provides for the criminal liability of a legal entity. However, even in those states where criminal liability of legal entities is accepted and the concept of deprivation of profits is supported, the only criminal sanction applicable to legal entities is monetary penalty (one such state is Finland). ^*24

Therefore, considering that Estonian penal law prescribes other punishments (compulsory liquidation and restrictions on activity) applicable to legal entities aside from deprivation of profits, one may conclude that in Estonian penal law holding legal entities criminally liable has broader goals than only deprivation of profits received as a result of the crime.

3.3. Punishment as reproach of the legal entity that committed the crime

Despite the fact that criminal liability of legal entities under the Penal Code is regulated as derivative liability and in addition criminal liability must be set out in the composition of a particular criminal offence in the special part of the Penal Code (by the principle of speciality) ^*25 , legal entities are deemed to be separate and individual subjects under criminal law (at least from the perspective of addressees of punishment) similarly to in civil law. ^*26 Consequently, the same punishment policy goals should apply to legal entities and to physical persons.

This conclusion is supported by the final conclusion reached in the previous section of this article, according to which corporate criminal liability in Estonian criminal law is not limited to the goal of depriving the company of the gains achieved as a result of the crime, as well as by the case law of the Supreme Court of Estonia. The Supreme Court in its judgment No. 3-1-1-7-04 has conceded the following: “It is true that punishment of a legal entity may affect negatively the shareholders or members of such a legal entity, its employees, or even its creditors. However, such negative effects cannot be deemed punishment but rather damages arising from economic risks”, because a “legal entity [is] a separate subject of law, which cannot be equated with the physical persons who are the shareholders, members, or leading employees of the company. As a legal entity may be subject to legal obligations, it may, by ignoring such obligations, commit legal offences, including crimes” (emphasis added). Attention must be paid to the manner in which the criminal chamber uses its concepts: the chamber clearly distinguishes between punishment and negative consequences associated with it. In view of the above, deprivation of profits received as a result of crimes is rather a collateral negative effect associated with the punishment and the punishment itself must amount to something more—a reproach. The criminal chamber has emphasised that the penal character of the reaction to the crime committed by the legal entity is important.

On the basis of the above conclusion, the Penal Code deems legal entities equivalent to physical persons; accordingly, the punishments applicable to legal entities should be deemed to reflect reproach for the legal entity that committed the crime. This conclusion is compatible with the sociological argument used to legitimise criminal liability of legal entities in German legal literature, according to which in everyday social interaction legal entities and physical persons should be considered essentially equal. ^*27

To sum up, the goal of criminal liability of legal entities and the punishments that come with it cannot be merely limited to deprivation of profits. Similarly to how physical persons are addressed, the general preventive aims of the liability and punishment of legal entities should be recognised—to show the society that a legal entity that committed a crime is held liable for the damage caused to society. The reproach must be handed down for the person liable for committing the act. This leads us to the issue that in cases of division of the legal entity it might be difficult to establish to which person exactly the reproach should be made—i.e., to whom criminal liability shall be applied.

4. Criminal liability of legal entities upon division

4.1. Corporate identity

Upon division, a new company or several new companies are established. The Commercial Code prescribes a simple solution with regard to liability for obligations that came about prior to division, providing that all entities involved in the division shall remain jointly liable for the obligations that came about prior to division (§ 447 (1) of the Commercial Code). From the perspective of criminal liability (first and foremost with regard to monetary obligations arising from monetary punishment), it may be concluded that, in principle, the body conducting proceedings may elect at its sole discretion the entity or person to which to apply criminal liability. However, this would contradict the view that the goal of criminal liability and punishment of legal entities amounts to something more than just financial liability or liability for the gains received from the crime—it should also include the element of general prevention, which is reflected in the reproach of the specific legal entity that committed the crime. The element of general prevention becomes unavoidable in the context of compulsory liquidation. Therefore, certain parameters should be determined on whose basis the decision is made as to which of the entities involved in the division process should bear criminal liability for the crimes committed by the company that was subject to division.

Proceeding from the assumption that reproach for the legal entity for the crime committed is the goal of punishment, one finds it necessary, further, to define the concept of the legal entity as a unit that may be subject to criminal liability. The present article does not even attempt to provide such definition. However, to allow answering this question, a very basic distinction can be utilised: the entity that is formally identical (possessing the same registration code) or essentially identical to the entity that committed the crime should bear liability. In the former case, the company that is subject to division would always be liable; in the latter case, that of essential identity, the company that is factually—i.e., in terms of economic activities—identical to the company that committed the crime should be liable.

The concept of essential identity is based on the theory of corporate identity, the concept of Gesellschaftsidentität as developed in German criminal law. According to the latter theory, upon division, the company that from an ‘economic perspective’ is identical to (i.e., shares economic identity—in German, wirtschaftliche Identität—with) the company that committed the crime should be liable. ^*28 Economic identity can be verified on a case-by-case basis, and, therefore, the body conducting proceedings must deliver a reasoned decision, exercising its discretionary powers in each individual case—indicating why specifically this legal entity, or those legal entities involved in the division process, have been declared suspect or accused. ^*29 Economic identity is not affected by formal criteria such as change of business name or circle of shareholders. ^*30

This interpretation has been set equal with the economic interpretation rules applied in the context of tax law—the aim of such interpretation is not to follow the legal essence of circumstances but, rather, to focus on their economic content. As a result, the actual economic content of actions is revealed, particularly if the aim of such actions is to exclude application of certain legal norms ^*31 (for instance, criminal liability).

Application of the above suggestion presumes that certain concrete notions are defined. The notions ‘economically similar’ and ‘attribution of economic meaning’ are too vague and therefore may contradict the principle of specificity of criminal law (as set forth in § 23 of the Constitution).

The authors are of the opinion that the concept of economic identity of the company, as previously described, is largely compatible with the notion of enterprise as provided in § 180 (2) of the Law of Obligations Act (on transfer of enterprise) along with § 5 (1) of the Commercial Code. According to the above-mentioned clause of the Law of Obligations Act, an enterprise is a combination of assets, rights, and obligations associated with the economic activities of the it including contracts connected to the activities of the company. According to § 5 (1) of the Commercial Code, an enterprise is an economic unit via which the undertaking carries out its economic activities. An enterprise consists of assets, rights, and obligations that are intended, or in essence should be intended, for carrying out the economic activities of the enterprise. Generally, a legal entity carries out its activities via a single enterprise, yet it is possible for the same legal entity to comprise several identifiable enterprises (dealing with several fields of activity). The concept of enterprise is directed at emphasising the entity’s integrity: all rights and obligations that are economically associated with the enterprise are part of that enterprise. ^*32

The Supreme Court has provided a rather extensive interpretation of the notion of the enterprise. According to the opinion of the Civil Chamber of the Supreme Court, it is possible to apply § 5 of the Commercial Code by analogy to transfer of enterprise from one local government unit to another despite the fact that associated legal regulation in public law concerning that issue is lacking . ^*33 By the same line of reasoning, the corporate criminal liability in the context of division could be tied to the notion of the enterprise and thereby a specific concept of criminal liability of an enterprise could be created. This presumes that upon commission of a crime by a legal entity, it is possible to identify clearly which enterprise was the most involved with the crime (that is, in the interests of which enterprise the crime was committed).

Taking corporate identity (either based on the notion of enterprise or stemming from other criteria) as a starting point may ensure that the goals of punishment are achieved. Yet it might be problematic to apply the notion of the enterprise as a basis if, as a result of division, the economic activities that were previously pursued cease altogether. For instance, a company that was involved in sales at several locations might decide to cease its previous economic activities, to be divided into two separate companies, with both companies after division concentrating on transferring from the previous sales points in order to pursue other economic activities for the funds received. Neither of the companies that were created in the course of division are economically identical or even similar to the company that was subject to division. Nor is this a case of transfer of enterprise within the meaning of criminal law, because the former enterprise as an integral unit ceased to exist. Taking only the theory of corporate identity as a starting point, one may conclude that no criminal liability follows, despite universal succession. ^*34

It remains unclear which criteria should be applied by the body conducting proceedings—does the body conducting proceedings have discretionary rights? This approach is questionable. In above-described situations, formal identity (specifically, in the case of division by separation—the company subject to division is liable) could be considered as a starting point or an attempt could be made to determine which of the new companies is the most similar to the company that was subject to division (in the case of division by acquisition).

In situations where the transfer of an economic unit (for instance, an enterprise) is obvious, it would still be appropriate to consider liability of the company acting as the receiver of the economic unit. Therefore, application of corporate identity theory in the future practice of implementation of the Penal Code could still be considered, despite the fact that it is a concept derived from the German legal system and that, on account of the specifics of criminal liability, that theory cannot be applied in full in Estonia. According to the views expressed in the German legal literature, the theory may also be applied in the context of reorganisations—the company coming into existence as a result of reorganisation shall be liable only if it is identical to the previous company. ^*35 From the perspective of future implementation practice, it should be carefully considered whether the formula accepted in the German case law regarding division of liability between companies should also be identically carried over to Estonian practice. For example, in order to verify the liability of the recipient company or a company that has been established as a result of division, the following formula of checks has been developed:

–   universal succession has occurred (division has taken place),

–   the assets of the company that committed the crime have been transferred in identical or similar composition to the new company,

–   the transferred assets are clearly identifiable, and

–   the transferred assets constitute a significant part of the full body of assets owned by the new company. ^*36

It is important to note that the last presumption is directly aimed at achieving a goal of general prevention. Namely, it is questionable whether punishing the recipient company is appropriate in a situation where the enterprise involved in the crime has been transferred but, in view of the total turnover of the recipient company, that enterprise provides only a minor proportion of turnover.

4.2. Liability in case of division by separation

Upon division by separation, the key issue from the perspective of criminal law is whether the company that was subject to division or the recipient company should bear liability. As mentioned above, from a civil-law perspective there is no difference in division of liability: the two entities remain jointly liable, and in terms of relations between these entities themselves, the division of liability is regulated in the division agreement. Consequently, from the standpoint of civil law, it is possible to apply monetary punishment with regard to both legal entities.

The issue of compulsory liquidation poses more problems. As mentioned above, compulsory liquidation is a sanction of general prevention aimed at reproach directed at the legal entity that committed the crime (see Subsection 2.3, above). Differently from monetary punishment, compulsory liquidation cannot be reduced to a claim under civil law (the state acting as the creditor). In the application of compulsory liquidation, it might be useful to utilise the theory of corporate identity and to apply compulsory liquidation to the legal entity that is the most similar from an economic point of view to the company that committed the crime.

4.3. Liability in case of division by acquisition

The need for a scheme based on corporate identity or another concept is far more acute in cases of division by acquisition, where the company subject to division will cease to exist. There are no problems if there is just one recipient company involved in the division process. In the latter case, the recipient company will also take over the procedural position in criminal proceedings of the company that is subject to division.

The situation is more complex when there are two or more recipient companies. In contrast to division by separation, the context of division by acquisition involves unavoidable transfer of the procedural position of the company that is being divided to one of the recipient companies. If in the course of division the enterprise is divided among several recipient companies, all such recipient companies should become involved in criminal proceedings. At the same time, the extent to which the enterprise was transferred to a particular recipient company should be assessed. If the majority of the enterprise was transferred to one recipient company, then only that recipient company should be included in the criminal proceedings. In the latter case, the principle of economic identity should be applied, so that the recipient company that is the most similar to the company subject to division shall bear the liability.

If the company has been divided into tens or hundreds of entities and it becomes almost impossible for the body conducting proceedings to determine which companies to include as suspects or accused parties in the criminal proceedings after the division is carried out as successors of the divided company, then division in this form may lead to avoidance of criminal proceedings altogether. In cases such as this, it may have become impossible, or excessively difficult from a procedural standpoint, to verify economic identity.

5. Conclusions

In the previous section of the paper, we reached the conclusion that it is necessary to establish criteria on the basis of which the criminal liability of the company subject to division would be transferred. Enterprise could be used as such a criterion; i.e., criminal liability could be associated with the enterprise. At the same time, the body conducting proceedings must exercise its discretionary powers in each individual case wherein the suspect or the accused is being divided, in order to establish which entities to include in the criminal proceedings. As a company may be divided without limitations, the company that is the suspect or the accused may be scattered into so many fractions during the criminal proceedings that the main problem of the criminal proceedings becomes establishment of the identity of the person or entity that is subject to proceedings. This raises questions regarding the measures available for securing criminal proceedings.

Today, Chapter 4 of the Criminal Procedure Code ^*37 (hereinafter ‘CPC’) does not clearly prescribe measures that would allow prohibition of the division of the suspect or accused legal entity during criminal proceedings. Arrest of assets may be considered (CPC, § 142, while § 308 of PC prescribes liability for violation of storage measures applicable to arrested assets), which would preclude transfer of the assets of the legal entity; however, the success of such measure is still questionable.

In civil-court procedure, division may be obstructed by using the measure for securing the claim as provided in § 378 (1) 3) of the Civil Court Procedure Code ^*38 , which allows the court to prohibit certain acts and transactions of the plaintiff, including division.

The Criminal Procedure Code does not allow applying the measures for securing the claim as prescribed under the Civil Court Procedure Code in criminal proceedings. The Supreme Court has opined that, in principle, the measures for securing the claim as prescribed in the context of civil-court procedure may also be applied in criminal proceedings, with the specifics of the latter taken into account. ^*39 However, this is not a complete and comprehensive solution, and it fails to provide securing measures with regard to criminal cases in the context of which no civil-law claims have been submitted.

Criminal proceedings wherein the suspect or the accused is a legal entity require certain specific regulations. Therefore, an option that should be considered is to exceptionally allow application of the measures for securing the claim as prescribed in the Civil Court Procedure Code in criminal proceedings where the suspect or the accused is a legal entity, or to resolutely amend Chapter 4 of the Criminal Procedure Code and the catalogue of measures for securing criminal proceedings included therein.

If division has already taken place during criminal proceedings, it is necessary to obstruct any further division and to identify the entity that bears liability, as soon as possible, taking into account the changed circumstances. The authors are of the opinion that the principle of corporate identity could be used for that purpose in order to ensure that also the wider aims of criminal punishment of legal entities are reached.

To sum up, the primary aim with this article is to open a discussion of the goals of punishment applicable to legal entities. The authors are convinced that the concept of criminal liability of legal entities as set out in Estonian penal law is not limited to mere deprivation of profits received from the crime but also includes the reproach of the legal entity that committed the crime. Upon division of a legal entity, the identity of said company is partly or entirely transferred to the new recipient companies. Therefore, the question must be answered as to which element for establishing the identity of the company bears the most relevance in the context of the goals of criminal proceedings (punishing the person that committed the crime). The authors believe that essential criteria—namely, criteria related to economic activities—should be preferred over formal criteria. Consequently, the authors propose the solution according to which criminal liability should follow the company that takes over (or that continues to possess) the enterprise of the company subject to division in which interests the crime was committed.

Notes:

^*1 This article is based on the Estonian-language article published in 2009 in the collection of articles dedicated to the jubilee of Professor Jaan Sootak. Full reference of the article: M. Kairjak. R. Rask. Kriminaalvastutus juriidilise isiku jagunemisel (Criminal Liability upon Division of Legal Entity). – Tractatus terribles. Collection of articles dedicated to the 60th jubilee of Professor Jaan Sootak. Tallinn 2009, pp. 37–49 (in Estonian).

^*2 B. H. Кудрявчева, B. B. Лунеева, A. B. Наумова (Ред). Уголовное право России общая часть. Москва 2004, Chapter 4, § 19.

^*3 Äriseadustik. – RT I 1995, 26–28, 355; 2008, 27, 177 (in Estonian).

^*4 Clause 435 (1) 6) of the Commercial Code provides that the division agreement shall state ‘the list of assets transferrable to each recipient company and division of obligations which form part of the assets between the companies which participate in the division’.

^*5 The basis for that is the concept of legal entity as a purposeful combination of assets by A. R. v. Brinz from the 19th century. Along with the fiction and other civil law theories which today may be deemed as classic civil law theories from the 19th century, the aforementioned legal theory is no longer relevant or prevailing today. See also K. Rebmann, F. J. Säcker, R. Rixecker. Münchener Kommentar zum BGB. Ergänzungsband zur 4. 3. Aufl. Lief. ausgegeben im Februar 2006. München 2006, preceding  § 21, margin No. 1–10.

^*6 The topic of succession of persons subject to criminal proceedings (i.e., not limited to the positions of the suspect, the accused and the convict, but also the positions of the victim and civil law plaintiff and claimant) has essentially not yet been tackled in the legislation or in legal theory.

^*7 CLCSCd 3-1-1-7-04, paragraph 10.

^*8 Karistusseadustik. – RT I 2001, 61, 364; 2010, 29, 151 (in Estonian).

^*9 According to the amendment of the Penal Code which took effect from 27 February 2010, the court may, if so provided in the special part of the Penal Code, punish the legal entity with a monetary punishment the amount of which is calculated as a percentage from the turnover of the legal entity from the year immediately preceding to the year when criminal proceedings were initiated, or if the entity has been in existence for less than a year, then the turnover of the year when criminal proceedings were initiated (PC § 44 (9)). The upper limit of the applicable monetary punishment may not exceed the general maximum limit of monetary punishment applicable to legal entities which is 250,000,000 Estonian kroons. Such option is prescribed in case of competitive crimes (PC § 400).

^*10 R. Lahti. Die jüngsten Entwicklungen im finnischen Strafcrecht. – Die Zeitschrift für die gesamte Strafrechtswissenschaft (ZStW) 2003 (115), p. 142.

^*11 J. Sootak. Karistusõiguse alused (Basics of Penal Law). Tallinn 2003, pp. 100 ff. (in Estonian); P. Pikamäe. Kes on juriidilise isiku pädev esindaja karistusseadustiku § 14 mõttes? (Who is the Competent Representative of the Legal Entity within the Meaning of § 14 of the Penal Code?). – Juridica 2010/1, p. 8 (in Estonian).

^*12 J. Sootak (Note 11), pp. 141 ff.

^*13 G. Eidam. Unternehmen und Strafe. Vorsorge- und Krisenmanagement. 3. Aufl. Köln 2008, p. 222; M. Kremnitzer, K. Ghanayim. Die Strafbarkeit von Unternehmen. – ZStW 2001 (113), pp. 551–553; W. Mitsch. Recht der Ordnungswidrigkeiten. 2. Aufl. Berlin 2005, pp. 167–168.

^*14 CLCSCd 3-1-1-40-04; CLCSCd 3-1-1-99-06.

^*15 According to the explanatory report of the draft law, the amendments were referred to in the report prepared as a result of the first phase of assessment by the Working Group on Bribery which is one of the committees of the OECD. See also the explanatory report to the draft law on amending the Penal Code and the Criminal Procedure Code (239 SE, Riigikogu 11th composition). Available at http://www.riigikogu.ee/?page=pub_file&op=emsplain&content_type=application/msword&file_id
=280345&file_name=karistusseadustiku%20ja%20seletuskiri%20(242).doc&file_size=51712&mnsensk=239+SE&fd=.

^*16 P. Pikamäe (Note 11), pp. 4–7.

^*17 Ibid., pp. 7–9.

^*18 P. Šamal. Strafrechtliche Haftung von juristischen Personen de lege lata und de lege ferenda in der Stschechischen republik. – Zeitschrift für Wirtschaft und Recht in Osteuropa 2003/3, p. 71.

^*19 H. Többens. Die Bekämpfung der Wirtschaftskriminalität durch die Troika der § § 9, 130 und 30 des gesetes über die Ordnungswidrigkeiten. – Neue Zeitschrift für Strafrecht (NStZ) 1999/1; C. Wegner. Die Systematik der Zumessung unternehmerbezoener Geldbussen. Fankfurt (M) 2000, pp. 54–55.

^*20 C. Wegner (Note 19), p. 94.

^*21 The theory has been applied in drug trafficking cases where application of extensive monetary penalties has visibly changed the market structure which is reflected in the price rises of narcotics. See in more detail G. Kaiser. Gewinnabschöpfung als kriminologisches Problem. – H.-H. Jescheck (Hrsg.). Festschrift für Herbert Tröndle. Berlin 1989, pp. 685–704.

^*22 J. Sootak, P. Pikamäe. Karistusseadustik. Kommenteeritud väljaanne (The Penal Code. The commentary). Tallinn 2004, § 45 commentaries 5.2, 6 (in Estonian).

^*23 About the continuing discussion about the need to regulate the liability of legal entities in German law and about the meaning of OwiG § 30, see C. Roxin. Allgemeiner Teil. Bd 1. 4. Aufl. Beck 2006, § 8C; L. Senge (Hrsg.). Karlsruher Kommentar zum Gesetz über Ordnungswidrigkeiten. 3. Aufl. München 2006, § 30, margin No. 1–14.

^*24 It is important to note that the penal code of Finland provides very detailed regulations on the manner of calculation of the amount of monetary penalties applicable to legal entities. The following aspects must be taken into account: (1) extent of the violation; (2) the extent of involvement of leading employees; (3) the economic status of the company. See in more detail Penal Code of Finland, Chapter 9, § 6. Available at http://www.finlex.fi/en/laki/kaannokset/1889/en18890039.pdf. See also H. Jaatinen. Oikeushenkilön rankaistusvastuu. Helsinki: Kaupakaari OYJ 2000, pp. 131–134.

^*25 E. Elkind, J. Sootak. Juriidilise isiku vastutus: uued arengusuunad Eesti kohtupraktikas (Liability of Legal Entities: New Directions in the Estonian Case Law). – Juridica 2005/10, pp. 673–676 (in Estonian).

^*26 E.g., see CLCSCd 3-1-1-13-06.

^*27 P. Šamal (Note 18), p. 71; G. Eidam. Die Verbandsgelbusse des § 30 Abs 4 OwiG – eine Bestandsaufnahme. – Wistra 2003/12, pp. 448–449; L. Senge (Hrsg.). Karlsruher Kommentar zum Gesetz über Ordnungswidrigkeiten. 3. Aufl. München 2006, § 30, margin No. 10; T. van Jeger. Geldbusse gegen jurstische Personen und Personenvereinigungen. Fankfurt (M) 2002, pp. 55–58.

^*28 L. Senge (Note 27), § 3, margin No. 48.

^*29 Judgment of the Federal Court of Justice of Germany BGH 11.03.1986. – Wistra 1986/5, pp. 221–222; Judgment of the Federal Court of Justice of Germany BGH 13.11.2004. – NJW 2005/19, pp. 1381–1382.

^*30 L. Senge (Note 27), § 30, margin No. 45.

^*31 OLG Frankfurt 06.07.1984. – Wistra 1985/1, pp. 39–40.

^*32 P. Varul et al. Võlaõigusseadus. Kommenteeritud väljaanne (Law of Obligations Act. Commented edition). Tallinn 2006, § 180, commentary 4.5 (in Estonian); CLCSCd 3-2-1-7-00.

^*33 CLCSCd 3-2-1-98-07.

^*34 E. Göhler, H. Buddendiek. Gesetz über das Ordnunsgwidrigkeitrecht. 12. Aufl. München 1998, § 30, margin No. 38c; OLG Frankfurt 06.07.1984. – Wistra 1985/1, pp. 39–40.

^*35 G. Eidam. Unternehmen und Strafe. Vorsorge- und Krisenmanagement. 3. Aufl. Köln 2008, p. 225.

^*36 G. Eidam. Die Verbandsgelbusse des § 30 Abs 4 OWiG – eine Bestandsaufnahme. – Wistra 2003/12, p. 450; BGH 11.03.1986. – Wistra 1986/5, pp. 221–222; BGH 13.11.2004. – NJW 2005/19, pp. 1381–1382.

^*37 Kriminaalmenetluse seadustik. – RT I 2003, 27, 166; 2010, 19, 101 (in Estonian).

^*38 Tsiviilkohtumenetluse seadustik. – RT I 2005, 26, 197; 2010, 26, 128 (in Estonian).

^*39 CLCSCd 3-1-1-3-10.

In recent decades, the reliability of recorded crime statistics in assessing crime levels and comparing crime in international terms has increasingly been called into doubt. Court and police statistics are too much affected by the national features of law enforcement authorities and of the crime recording practice to fulfil that purpose. By now, it has become symptomatic of this that general crime indicators are interpreted above all as characterising of the activity of the criminal justice system. ^*1 More adequate ways for assessing the crime situation have been sought, including searching for types of crimes that are most immune to the above-mentioned shortcomings.

Intentional taking of another person’s life is a type of criminal offence that is characterised by relatively little dependence on the will of the particular regulator involved or on national statistical manipulations; by low latency; and by a high rate of detection. That is why intentional homicides rather than general numbers of recorded crimes are often used for comparing the crime in different countries. The attention to the homicide rate has spread from criminology to more general sociological approaches, where it is used as an indicator in the assessment and comparison of the crime situation and social security of different countries. ^*2

This article looks at violent crime and its level in Estonia as compared to other countries. The most significant type of criminal homicides in Estonia—intentional homicide—is used as empirical material. ^*3 The objective is to assess the level of intentional homicide in Estonia in comparison to other countries and to point out the most important short- and long-term trends. Based on homicide rates, an attempt is made to determine the general vector of Estonia’s social development.

Up to now only a few in-depth analyses of violent crime in Estonia that have been published in the domestic scientific literature. ^*4 Local homicides have been analysed by M. Lehti, who has also gathered material on this subject in Estonia. His research on this subject has been published in Finnish ^*5 and also in English. ^*6 Homicides in Estonia as indicators of the local crime situation were mostly beyond the scope set for that study, and the time period covered ended with the mid-1990s.

2. Homicide statistics in Estonia

Homicide statistics in Estonia since the restoration of independence must be viewed in the context of the criminal law in force. Firstly, the period from 1991 to 2002—i.e., the time when the Criminal Code of the Republic of Estonia (hereinafter ‘CrC’) was in force ^*7 —must be considered and, secondly, the period that started with the entry into force of the Penal Code ^*8 (hereinafter ‘PenC’) on 1 September 2002.

Until 2002, criminal homicides in Estonia were accounted for in two statistics: the recorded criminal offences (crime) statistics compiled by the Police Board and the court statistics of the Ministry of Justice. Criminal homicides were also accounted for in the health statistics of fatalities caused by external forces—i.e., violent deaths—kept by the Statistical Office. Police and court statistics are normally maintained in terms of criminal offences and types of crimes, whereas violent death statistics focus on crime victims.

In the Estonian crime statistics of the first, earlier, time period, the compilation principles of which remained relatively unchanged from those of the Soviet era, intentional homicides were considered separately. ^*9 They were taken to include the CrC § 100 (homicide without aggravated circumstances), CrC § 101 (murder), CrC § 102 (infanticide), and § 103 (homicide by one in a provoked state, so-called affect homicide). In presentation of the intentional homicide statistics, one type of intentional homicide was omitted—CrC § 104 (homicide through exceeding the limits of self-defence).

Another important aspect of Estonian homicide statistics up to the year 2002 was the fact that completed and attempted homicides were viewed together on account of legislative logic according to which attempted and completed crime resulted in prosecution under the same section of the law. The percentage of attempts from the total numbers of homicides varied greatly by types of homicide. In the earlier Estonian crime statistics, causing of fatal bodily injury (CrC § 107 (2) 1)) was not regarded as intentional homicide, which was quite problematic in view of the similarity between this type of criminal offence and homicide with regard to motivation and result. ^*10 As demonstrated by international comparisons of judicial practice, some countries prefer to classify violent crimes whose victim survives as attempted homicides, whereas others classify them as causing of serious bodily injury. As a result, the percentage of completed and attempted homicides from the total number of intentional homicides varies greatly by country. ^*11 At the same time—as demonstrated by Estonian crime statistics in the Soviet period, among others—the numbers for attempted homicide and fatal bodily injury were almost equal. Given that by the addition of attempted homicides to homicides the total number seemed to rise, while the omission of fatal bodily injury caused the total number of homicides to fall, the total number of intentional homicides in Estonian statistics from that time period can be regarded as quite reliable for the purpose of international comparison.

In 2002, when the PenC entered into force in Estonia, the corpus delicti of intentional homicide have been changed and some alterations were made to the principles for compilation of homicide statistics. The Penal Code now has four corpus delicti’sthat refer to intentional taking of another person’s life and are regarded as intentional homicide in crime statistics. The first of these is manslaughter (PenC § 113), the second is murder as an aggravated form of intentional homicide (PenC § 114), third is manslaughter in a provoked state (PenC § 115), and fourth is infanticide (PenC § 116).

It must be pointed out as an organisational characteristic that it is now the Ministry of Justice that compiles and presents national crime statistics, not the police. The statistics differentiate between completed and attempted homicides. At the same time, violent crimes that result in a human fatality but in whose case the death of the victim is not intentional but caused by negligence are still not classified as homicides in Estonian statistics. In that case, the offender’s behaviour is qualified as an aggregate of corpus delicti in such a way that PenC § 117 (negligent homicide) is combined with one of the followingcrime events: PenC § 118 (causing serious damage to health), PenC § 121 (physical abuse), or PenC § 122 (torture). ^*12

3. International comparison of intentional homicides

The data on intentional homicides are more comparable on an international basis than are the data on other types of crime. At the same time, it is, of course, impossible to know and consider all country-specific nuances arising from under- or over-recording and differences in classification when one is utilising these data. ^*13 Comparative data on intentional homicides can be found from several, quite different sources that have been compiled by international organisations. As a general rule, the number of intentional homicides per year per 100,000 inhabitants is used as an indicator.

a)  The UN (through the UNODC, United Nations Office on Drugs and Crime) has been gathering information on crime, including homicides, in member states since 1946. In 1974, a series of special studies on crime trends and the activity of criminal justice systems were commenced. The first of these covered the period from 1970 to 1975 and included 56 member states. The fifth study covered 1990 to 1994 and, among other things, presents the data on intentional homicides in 65 member states. This study employs the concept of intentional homicide (‘death intentionally caused by another person, including infanticides by mothers and attempted homicides’). ^*14 The newest publication in the series covers the years 1995–2004. ^*15

b)  INTERPOL (the International Criminal Police Organization) used to collect and publish crime data obtained from national police organisations since 1950. Criminal homicide was defined as ‘any act performed with the intention of taking another person’s life regardless of the circumstances of the performance of said act’. These statistics included infanticide but not always attempted homicide. The member states of INTERPOL did not submit crime data on a regular basis, and the number of countries that submitted data varied greatly from one year to the next. ^*16 Since 2006, INTERPOL is no longer involved in collecting and publishing the data on intentional homicides in member states. ^*17

c)  WHO (World Health Organization) data on causes of death, collected since 1948, are regarded as one of the best statistical sources. The WHO has defined homicide as ‘death resulting from injuries intentionally caused by other people’. In contrast to the two above-mentioned statistics, this proceeds not from consideration of criminal offence but from information on crime victims, and it includes all homicide victims, regardless of how the case has been described in the criminal code of the country in question. ^*18 The newest data from this series cover the situation in 2006. ^*19

d)  The Council of Europe has compiled international crime statistics for European countries. In 1996, a committee of the Council of Europe—the European Committee on Crime Problems—formed a specialist group that first collected data on the period from 1990 to 1996. In contrast to the UN and INTERPOL methodology, where country data are defined on the basis of standard definitions of crimes, a number of national correspondents were used instead, in an attempt to render the data from different countries as comparable as possible. Causing of fatal bodily injury, euthanasia, assistance to suicide, and infanticide were added to the standard definition of intentional homicide (‘intentional killing of another person’) where possible. ^*20 The last, third publication in the series was issued in 2006, and it includes crime data for the years 2000–2003. ^*21 In addition, Eurostat publishes the population and social statistics of member states on a regular basis. The last data that also reflect the intentional homicides recorded by the Estonian Police cover the years 1998–2007. ^*22

4. Short- and long-term trends of intentional homicides in Estonia

In order to assess the current level of intentional homicide in Estonia, we will look at the development trends of this type of criminal offence since the founding of the Republic of Estonia, comparing three periods:

1)  the Republic of Estonia before the Soviet occupation (1918–1940);

2)  the period of Soviet occupation (1945–1990); and

3)  the Republic of Estonia after restoration of independence (1991–2009).

In pre-war Estonia, on average, 127 homicides were committed per year; that is slightly above 11 homicides per 100,000 inhabitants, given the population at that time. ^*23 During the Soviet period, the average number of homicides and attempted homicides per year was 66; the corresponding indicator is about six homicides per 100,000 inhabitants. ^*24 The average figure in today’s Estonia is 196 homicides per year, the quotient being 13.9 per 100,000 inhabitants. Such figures require further comment.

At the same time, the very large figures for illegal abortions and infanticides grab attention. In the early 1920s, these two types of homicide accounted for almost a third of the total number of intentional homicides, whereas in 1924 this indicator was already nearly 60%. ^*25 Comparing this to the current situation, wherein, on average, only a few such criminal offences are committed per year (e.g., three in 1994, two in 1995, six in 1996, one in 2005, none in 2006, and two in 2007), we can see a significant change in the breakdown of intentional homicides committed in Estonia. The performance and detection of illegal abortions has become virtually non-existent in today’s Estonia as a result of legal options for abortion. Therefore, it is better to compare the numbers of intentional homicides in the 1920s and 1930s with later figures only after subtracting out infanticides and illegal abortions. The number of intentional homicides per year in the 1920s and 1930s in Estonia would thus be around 100 cases, on average.

The relatively low homicide figures in the Soviet period require fundamental specification. The crime statistics from that period must be approached with care, because in a totalitarian country the accounting of what goes on in the society is radically different from the practice of democratic nations. Crime statistics in the Soviet period also enabled manipulation of the numbers of intentional homicides. For instance, the crimes committed by the military or defence-industry enterprises’ employees staying here were not accounted for. Given that competition with the capitalist world also took place with regard to crime indicators, law enforcement authorities were subjected to strong political and ideological pressure upon producing the figures.

At the same time, it is quite logical that in a society where all of people’s conduct was strictly controlled, activity, including criminal activity, was restricted. The low level of intentional homicide in Estonia during the period of Soviet occupation is a vivid example of this. The opportunities of an over-controlled society to keep homicide indicators down is well characterised by China with its more than one milliard people—according to official data, 63 people were killed there in 1996; that is less than one case per 100,000 inhabitants. ^*26 It is impossible for an outsider to assess this figure objectively, but it can certainly not be juxtaposed with an analogous indicator from a European country for the purpose of comparison. The same applies to comparing the crime levels of Soviet Estonia and today’s Estonia.

When one looks at the homicides committed in the 1990s in Estonia, a clear dynamic emerges. The number of homicides started to rise in the early 1990s, exceeding 15 cases per 100,000 inhabitants in 1992 and 21 cases in 1993. The most homicides were committed in 1994, when the corresponding number was 365, or 24.2 homicides per 100,000 inhabitants. Since then, the number of intentional homicides in Estonia has been decreasing steadily. The latest figure for intentional homicides in Estonia is for the year 2009, during which 7.0 such criminal offences (attempts included) were committed per 100,000 inhabitants. With attempts excluded, the corresponding indicator was 5.2 (see Table). As we can see from the data presented, the level of homicide in Estonia has by now decreased more than three times in comparison to that of the mid-1990s.

Figure. Intentional homicides in Estonia, 1991–2009

Currently, PenC § 113 (on manslaughter) covers the vast majority of homicides, followed by PenC § 114 (on murder). Then come a small number of crimes qualified under PenC § 115 (manslaughter in a provoked state) (in 2007, for example: PenC § 113, 90 cases; § 114, 20 cases; and § 115, two cases). ^*27 When it comes to intentional homicides in Estonia, it also makes sense to see whether the rate of intentional homicide has in recent years decreased inversely to the increase in the number of negligent deaths. Should that prove to be true, there would be reason to claim that whenever possible, law enforcement agencies qualify homicides as causing death through negligence. These statistics do not point to such a tendency, although a surprisingly large number of negligent homicides were recorded immediately after the entry into enforcement of the Penal Code (with 2003 featuring 1207 cases and 2004 having 938 cases). In the following years, however, the number of negligent homicides has been decreasing constantly (e.g., 106 in 2008 and 85 in 2009), which permits rating the reliability of the statistics as quite high from that perspective.

5. Intentional homicides in Estonia and international background

The statistics for intentional homicides committed in Estonia in the mid-1990s received much international attention. For example, the UN Statistical Yearbook, which covered the general trends in Europe and North America, pointed out the criminal (intentional) homicide figures of two countries as exceptionally high. These were Russia and Estonia, whose number of intentional homicides per 100,000 inhabitants was above 20 and had more than doubled from 1990 to 1994. ^*28 The UN Human Development Report of 1999 presented 1994 data on intentional homicides. Estonia held the seventh place from the top, ranking two places above Russia. The latter’s level of intentional homicide was higher than the figure for Estonia only in such Third World countries as São Tomé and Príncipe, the Bahamas, Colombia, Lesotho, Guatemala, and Jamaica. ^*29 In the UN Human Development Report of 2007/2008, Estonia’s position had improved significantly, ranking in the 31st place by homicide level and the 11th place among countries with a high level of human development. ^*30

Compared to those for developed countries, Estonia’s level was much higher in the mid‑1990s also by the number of homicide victims. In 1994, Estonia ranked fourth in the list of the 15 countries with the world’s highest level of victimisation, falling below only Colombia, Russia, and El Salvador. By 1997, however, Estonia’s position had improved by a couple of places: in addition to the three above-mentioned countries, Armenia and Puerto Rico had a higher number of intentional homicides. ^*31 The data from 2007 indicate that Estonia now ranks 45th according to Estonian Police data and only 82nd according to health care institutions’ data. ^*32 Given the data presented, it can be said with confidence that today’s Estonia has no business among the countries where the homicide figures of the mid-1990s placed us.

Most European countries are characterised by low homicide levels when compared to the rest of the world, which is why Estonia firmly held a position among the European countries with the highest such figures in the mid-1990s. According to the above-mentioned study of the Council of Europe, Estonia shared third and fourth place in Europe with Albania for the level of intentional homicide (when cases of attempted homicide are included). More such crimes than in Estonia were committed in 1996 only in Russia and, surprisingly, in the Netherlands. ^*33 In the ranking of countries by completed intentional homicides, however, Estonia holds the second place after Russia for that year. The Netherlands, with 1.8 completed homicides per 100,000 inhabitants can be found only in the lower half of the ranking. In 2002, Estonia again ranked highest, with an indicator of 10.3. According to the year-2007 data and among European Union member states only, Estonia with its indicator of 6.9 holds second position, after Lithuania. ^*34 However, because countries’ figures also differ in the kind of data they provide, compiling an accurate ranking of intentional homicide levels is rather complicated.

On the basis of the violent crime data from the period between the World Wars, it was possible to divide Europe into a western part with a low homicide rate and an eastern part with a high homicide rate. ^*35 That was the general picture also in the first decades after World War II. Today such a division no longer applies in full, because the area with a low homicide rate has expanded, also covering several Central and Southern European countries in addition to Western Europe. However, the transitional countries with a large number of homicides (including Estonia) are still mostly found in Eastern Europe. The highest level in that regard characterises the former Soviet republics, followed by the former so-called European socialist countries. It seems that the earlier division of Europe into two parts applies to the overall condition of the society and the level of intentional homicide in combination with traditions that go back several decades. Estonia’s intentional homicide rates have improved in comparison to the mid-1990s but are nevertheless not as good as those of long-time European Union countries.

6. Conclusions

Offences against the person (homicides, above all) have been regarded as important from the perspective of characterising the moral level and proneness to conflict of the population. A society’s high crime level can be interpreted as the result of social interaction that develops in the presence of a sufficient contingent of motivated criminals, relatively weak social control, and suitable crime targets. ^*36 Such a general model where crime level is determined by the interaction of motivational and opportunity-related factors can also be used in interpreting homicide trends. The level of violent crime is correlated with factors of community life such as relative poverty, social inequality, and dissatisfaction with earnings. ^*37 At the same time, it is logical that the development of a large middle class brings about a reduction in violence, the level of which is indicated by intentional homicides.

In the interpretation of international trends with regard to intentional homicides, it must be taken into account that different societies have entered different stages of the modernisation process. This is accompanied by constant change in criminal motivation and opportunity. The main element of consistency is as follows: the more developed the society, the lower the incidence of violence-related crime. ^*38 As also demonstrated by Estonia’s development, the overall picture of the local crime is changing in a manner characteristic of a modernising society. At the same time, the importance of the socio‑cultural context in explaining violent crime has been emphasised. Societies with a low homicide rate have strong informal social control and a generally accepted normative system, a strict network of social responsibilities, and a cultural orientation that suppresses aggression. ^*39 After the restoration of independence, Estonia entered an era that can be described as a deficiency of social control, the loss of earlier control mechanisms. The development of a new social control based on other principles does not come about overnight.

The homicide level dynamic in Estonia from the early 1990s to the present day shows how fundamental the social changes in this country have been. Big changes first brought about a phase of social disorganisation in which the earlier bonds and control mechanisms of the society apparently proved ineffective, and all of the factors contributing to a high level of violent crime were at that time represented to a quite considerable degree in Estonian society. Estonia’s high level of homicide in the early and mid-1990s was directly related to the poor performance of law enforcement authorities in keeping such crime under control. Paradoxically, the overall numbers of recorded crime dropped in that period in Estonia, pointing to the fact that the resources of law enforcement authorities were mostly spent on curbing serious crime, and there were not always enough resources left for keeping minor offences under control.

It makes sense that social development and more extensive integration into the Western world bring about a steady reduction in the number of homicides. Estonia is no exception in that regard, and a similar process is taking place also in other transitional countries. It might be true that changes have been more rapid here, on account of the relative smallness and the geopolitical position of Estonia. If the current developments in Estonia continue and stability is achieved, the violent crime rate is likely to keep falling, to reach a level characteristic of other developed European countries.

^{*40   *41}

Table. The number of intentional homicides and attempted homicides, the quotient per 100,000 inhabitants, and the number of homicide victims in Estonia in 1991–2009

Notes:

^*1 K. Kangaspunta (ed.). Crime and Criminal Justice in Europe and North America 1986–1990. HEUNI Publications Series No. 25. Helsinki: HEUNI 1995.

^*2 United Nations Development Programme. Human Development Report 1999. New York, Oxford: Oxford University Press 1999; United Nations Development Programme. Human Development Report 2007/2008. Fighting Climate Change: Human Solidarity in a Divided World. New York: Palgrave Macmillan 2007.

^*3 For problems with the legal qualification of criminal homicides in Estonia before the year 2002, see J. Saar. Kriminaalkorras karistatavate ja õiguspäraste surmamiste regulatsioon Eestis võrrelduna Ameerika Ühendriikide ja Saksamaa õigusega (Regulation of Criminal and Legal Homicides in Estonia as Compared to the Law of the United States of America and Germany). – Juridica 2000/1, pp. 14–26 (in Estonian).

^*4 H. Urvaste. 1994. aastal Eesti Vabariigis toimepandud tapmistest (On the Homicides Committed in the Republic of Estonia in 1994). – Juridica 1995/2, pp. 50–52 (in Estonian).

^*5 M. Lehti. Viron henkirikollisuus 1990-luvulla. English Summary: Homicides in Estonia in the 1990s. Helsinki 1997.

^*6 M. Lehti. Homicide trends in Estonia, 1971–1996. – H. Ylikangas (ed.). Five Centuries of Violence in Finland and the Baltic Area. Columbus: Ohio State University Press 2001, pp. 133–192.

^*7 Entered into force on 1.06.1992, effective until 31.08.2002. – RT 1992, 20, 287 and 288; RT I 2002, 64, 390 (in Estonian).

^*8 Karistusseadustik. – RT I 2001, 61, 364; 2010, 29, 151 (in Estonian).

^*9 The main reason for that situation was the fact that the Criminal Code of the Republic of Estonia overlapped to a large extent with the Criminal Code of Soviet Estonia with regard to homicides.

^*10 Estonia is no exception in that regard, and in the Finnish Criminal Code, for instance, there is an analogous so-called fight homicide, in which case the resulting deaths are not qualified as intentional homicides. See The Penal Code of Finland and The Decree on the Enforcement of the Penal Code. Unauthorized Draft Translation, translated by Matti Joutsen. Helsinki: Research Institute of Legal Policy 1983, p. 71.

^*11 In that regard, see the comparison of the Estonian and Finnish judicial practice M. Lehti. Tahtlikud tapmised Eestis 1990ndatel aastatel (Intentional Homicides in Estonia in the 1990s). Tallinn: Sisekaitseakadeemia 1998, pp. 11–12 (in Estonian).

^*12 J. Sootak, P. Pikamäe (ed.). Karistusseadustik. Kommenteeritud väljaanne. täiendatud ja ümbertöötatud väljaanne (Penal Code. With commentary. 3rd revised edition). Tallinn 2009, comment on § 117, p. 374 (in Estonian).

^*13 One of the issues related to recording is the combining of homicide and attempted homicide figures in statistics. As mentioned before, some countries prefer to qualify the crime as causing of serious bodily injury if the victim survives, whereas others classify it under attempted homicide. For example, violent crimes whose victim survives are in Estonia mostly recorded as physical abuse. In contrast, Finland currently assigns a much broader meaning to attempted homicide; therefore, if homicides and attempted homicides are presented together, the level of this type of crime is much higher compared to the indicator of completed homicides only (e.g., in 1996 a total of 10.1 homicides and attempted homicides per 100,000 inhabitants were committed in Finland, whereas the corresponding indicator of completed intentional homicides was 3.7).

^*14 K. Kangaspunta, M. Joutsen, N. Ollus (eds.). Crime and Criminal Justice in Europe and North America 1990–1994. HEUNI Publications Series No. 32, Helsinki: HEUNI 1998.

^*15 K. Aromaa, M. Heiskanen (eds.). Crime and Criminal Justice in Europe and North America 1995–2004. HEUNI Publications Series No. 55, Helsinki: HEUNI 2008.

^*16 M. Riedel. Homicide. – L. Kurtz, J. Turpin (eds.). Encyclopedia of Violence, Peace, and Conflict. Vol. 2. San Diego, London: Academic Press 1999, pp. 123–138.

^*17 INTERPOL: http://www.interpol.int/Public/otherCrime/default.asp.

^*18 United Nations. United Nations Demographic Yearbook 1997. Forty-Ninth Issue. New York: United Nations, Department of Economic and Social Affairs 1999, pp. 450–470.

^*19 United Nations. United Nations Demographic Yearbook 2006. Fifty-Eighth Issue. New York: United Nations, Department of Economic and Social Affairs 2008, pp. 609–749.

^*20 European Sourcebook of Crime and Criminal Justice Statistics. European Committee on Crime Problems. Directorate General I, Legal Affairs, Strasbourg Oct. 1999, p. 17.

^*21 M. Aebi, K. Aromaa, B. de Cavarlay, G. Barklay, B. Gruszczynska, H. von Hofer, V. Hysi, J.-M. Jehle, M. Killias, P. Smit, C. Tavares. European Sourcebook of Crime and Criminal Justice Statistics – 2006. Third Edition. Haag: Wetenschappellijk Onderzoek- en Documentatiecentrum (WODC) 2006. Available at http://www.europeansourcebook.org/esb3_Full.pdf.

^*22 C. Tavares, G. Thomas. Population and Social Conditions. Crimes Recorded by the Police: Homicide. Eurostat. Statistics in Focus, 36/2009. Available at http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-09-036/EN/KS-SF-09-036-EN.PDF.

^*23 A. Susi. Kuritegevus Eestis 1919–1924 (Crime in Estonia 1919–1924). – Eesti Statistika 1926 (53) 1, pp. 1–7 (in Estonian); Central Bureau of State Statistics (publisher). Eesti Arvudes 1920–1937 (Estonia in Numbers, 1920–1937). Tallinn: Riigi Statistika Keskbüroo 1937, pp. 303–310 (in Estonian); K. Raid. Süütegevus 1937 (Offences 1937). – Eesti Statistika 1938 (200) 7 – (201) 8, pp. 357–365 (in Estonian).

^*24 For the indicators of the Soviet period, see J. Saar. Criminality as an Indicator of the Social Situation in Estonia. – B. Szamota-Sacki, D. Wojcik (eds.). Impact of Political, Economic and Social Change on Crime and Its Image in Society. 51st International Course of Criminology, 12–16 September 1995 Warsaw, Poland. Warsaw: Instytut Nauk Prawnych PAN 1996, pp. 61–77.

^*25 See A. Susi (Note 23) and K. Raid (Note 23).

^*26 United Nations. Demographic Yearbook of the United Nations 1999. New York: United Nations 1999, pp. 455–460.

^*27 See Ministry of Justice (publisher). Kuritegevus Eestis 2007 (Crime in Estonia 2007). – Kriminaalpoliitika uuringud 8. Tallinn 2008, p. 168 (in Estonian).

^*28 United Nations. The Statistical Yearbook of the Economic Commission for Europe. Trends in Europe and North America 1998/1999. New York and Geneva: United Nations 1999, p. 223.

^*29 United Nations Development Programme. Human Development Report 1999. New York, Oxford: Oxford University Press 1999, pp. 222–224.

^*30 United Nations Development Programme. Human Development Report 2007/2008. New York, UNDP: Palgrave Macmillan 2007, pp. 322–325.

^*31 Demographic Yearbook of the United Nations 1994 (1996), pp. 445–465; Demographic Yearbook of the United Nations 1997 (1999), pp. 450–470.

^*32 UNODC homicide criminal justice statistics. Available at http://www.unodc.org/documents/data-and-analysis/Crime-statistics/Criminal_justice_latest_year_by_country.20100201.xls; UNODC homicide public health data: http://www.unodc.org/documents/data-and-analysis/Crime-statistics/Public_health_latest_year_by_country_2.xls.

^*33 European Sourcebook of Crime and Criminal Justice Statistics (1999), p. 41.

^*34 European Sourcebook of Crime and Criminal Justice Statistics (1999), p. 42; European Sourcebook of Crime and Criminal Justice Statistics (2006), p. 40; Eurostat, crimes recorded by police http://epp,eurostat,ec,europa,eu/cache/ITY_OFFPUB/KS-SF-09-036/EN/KS-SF-09-036-EN,PDF.

^*35 V. Verkko. Homicides and Suicides in Finland and Their Dependence in National Character. Preface by Professor Thorsten Sellin. Scandinavian Studies in Sociology, 3. Kobenhavn: G.E.C.GADS FORLAG 1951, pp. 65–76.

^*36 J. Van Dijk. Opportunities for Crime: A Test of the Rational-interactionalist Model. Report at the Eleventh Criminological Colloquium of the Council of Europe. Strasbourg 1994, 23–30 November.

^*37 P. Mayhew, J. J. M.van Dijk. Criminal victimisation in eleven industrialised countries: Key findings from the 1996 International Crime Victims Survey. The Hague: Ministry of Justice, Research and Documentation Centre 1997.

^*38 See M. Riedel (Note 16), p. 126.

^*39 R. Gartner. Crime: Variations across cultures and nations. – C. Ember, M. Ember (eds.). Cross-Cultural Research for Social Science. Englewood Cliffs, NJ: Prentice-Hall 1997, pp. 101–119; M. Wolfgang, F. Ferracuti. The Subculture of Violence. Beverly Hills, London: Sage Publications, Inc 1982.

^*40 Starting from 2003, homicide indicator with attempted homicides excluded has been given in brackets. Source: Police Board, from 2003 Ministry of Justice: registered crime 2003–2009. Available at http://www.just.ee/orb.aw/class=file/action=preview/id=49210/
Kuritegevuse+andmed+2003-2009.xls (in Estonian).

^*41 Source: Statistical Office: The Deceased by Cause of Death, Sex and Age. Available at http://pub.stat.ee/px-web.2001/Dialog/varval.asp?ma=RV56&ti=SURNUD+SURMAP%D5HJUSE%2C+SOO+JA+VANUSER%DCHMA+J%C4RGI&path=../Database/Rahvastik/03Rahvastikusundmused/
10Surmad/&lang=2 (in Estonian).

At present, in Estonia there essentially exists plurality of criminal law—coverage of crimes is incorporated into the Penal Code ^*1 , but misdemeanours are mostly scattered among a variety of special laws. ^*2 Whether or not this is purposeful is obviously questionable, but it cannot compare with a situation in which, for a given offence, there is more than one criminal law that can be applied. So far, there has been little harmonisation of substantive criminal law in the European Union—one example of such an attempt being Council Framework Decision 2003/568/JHA of 22 July 2003, on combating corruption in the private sector ^*3 —but with the entry into force of the Treaty of Lisbon ^*4 the so-called system of pillars has been abolished and successive acts will be directly applicable. If any further acts will be directly applicable, a situation arises wherein we have our national criminal law and the criminal law of the European Union, two parallel systems of penal legislation existing simultaneously. What the direct applicability of criminal-law acts will look like is not yet clear. ^*5 Insofar as we already have historical experience of the simultaneous validity of parallel criminal-law sources, it is possible and necessary to show the problems that could await us.

In the first period of the Republic of Estonia, between the two World Wars (from 1918), there were three parallel codes in existence. In 1935, the Estonian Criminal Code ^*6 entered into force. With the entry into force of the new criminal code, the situation in criminal law changed dramatically—the general part of criminal law was governed by one legal act and was applicable to the whole of the special part of criminal law: to the offences dealt with in the Criminal Code itself and to the minor offences addressed in special legal acts. It should be noted that criminal law became clearer—there were uniform general norms for all crimes and misdemeanours. The situation that came into being in 1935 is comparable to the current situation in criminal law—the general part of the Penal Code is applicable to all offences that are found addressed therein and in special criminal law. The reform of criminal law that resulted in the enactment of the Criminal Code played a major role in clarification of criminal law. It led to the termination of the applicability of parallel penal codes.

This article will focus on characterising the criminal legislation that was in force until 1935. After this, the principles of the application of each criminal law and problems in application will be dealt with.

1. The sources of criminal law until 1935

1.1. The conceptual choice of the Republic of Estonia in 1918

From the 18th century until the First World War, the three Baltic States of today were parts of Czarist Russia. After the 1917 February Revolution, rapid consolidation by nations for statehood followed. In Estonia, the republic was announced on 24 February 1918, but on the next day German troops reached the capital, Tallinn. After the end of the German occupation, in November 1918, it was decided to restore the criminal law of Czarist Russia. ^*7 Mainly because the formation of a new criminal law code in an extremely short span of time was not possible, the provisional government decided to restore the old legislation. Doing otherwise would have also raised the question of what law to apply in the meantime when a new law had not yet been drafted or entered into force. During the German occupation, the new Penal Code (hereinafter ‘the New Penal Code’) was carried into effect. The New Penal Code, which had been completed in 1903, was held to be a modern and progressive codification, but it had only been enacted in part in Czarist Russia. There were many reasons the Estonian provisional government did not want to enact the New Penal Code in its totality as it had been during the German occupation. K. Saarmann found that most of our lawyers were not familiar with the New Penal Code, there was no law on enforcement of penalties, and the New Penal Code was not in compliance with procedural laws. ^*8 Another element that argued against the New Penal Code was the lack of case law, which was, by contrast, represented in a great mass for what we refer to here as the Old Penal Code. ^*9 G. Ambach also found that many Estonian lawyers had graduated from Russian universities (in St. Petersburg or Moscow) and were thus acquainted with the Old Penal Code. ^*10

The newly formed republic dealt not only with different branches of law but also with the founding of the general basis for constitutional law. The Republic of Estonia declared itself already in the Constitution from 1920 as subject to the rule of law. The preamble to the Constitution of 1920 states: “The people of Estonia, in unwavering faith and in steadfast will to establish a country that is founded on justice and law and liberty, to protect the internal and external peace, and pledge to present and future generations for their social progress and an overall welfare, the Constituent Assembly adopted and appointed the following Constitution.” The part of the preamble that states that the country shall be founded on justice, law, and liberty sets forth the important principle of the rule of law. Near the end of 1920, Professor Eduard Berendts already had written about the Supreme Court of Estonia and the principles of the Constitution of 1920 with the words ‘Justitia est fundamentum regnorum’ (that is, justice is the foundation of a state). ^*11 This is the rule of law. This idea is also the basis for the Constitution of 1920 of the Republic of Estonia and must rule over both the legislative and the executive powers in government and their actions in court. The rule of law is related to the limitation of power through general provisions in force, through which the state power is responsible to the people for its activities. ^*12 According to § 9 of the Constitution of 1920, it was not allowed to punish a person in Estonia for an act that was not punishable by law and laws against which were not in force during the commission of the act. Thus, the Constitution included the warranty of nullum crimen, which states the obligation of specification—namely, that offences are to be sufficiently well defined. Because the state intervenes in a person’s life intensively through criminal law, according to the rule of law and the principle of nullum crimen, criminal law must be implicit; there must be stipulations that designate the conditions for state intervention. So, we already have principles derived from the Constitution that support response to the fundamental need that criminal law be explicit.

It seems to be that, in direct conflict with the constitutionally required state of law, implicit and ascertainable criminal law was the situation that was caused with the introduction of Czarist criminal law. In Czarist times and before the German occupation, there were three parallel codes of criminal law applicable—the old Russian Penal Code of 1845, the Russian New Penal Code of 1903, and the Russian Penal Code for Peace Courts from 1864. Since the government of the Republic of Estonia decided to put into force the legislation pre-dating the German occupation, the three above-mentioned sources of criminal law entered into force. The Old Penal Code and the Penal Code for Peace Courts were in force completely, but only some parts of the New Penal Code were put into force. It can be suggested that, in situations where there is plurality of, and an overlap between, sources of criminal law, the options a person has to orient in and understand criminal law are restricted. In this kind of situation, is it possible to talk about the application of the rule of law? In addition, each of the above‑mentioned legal codes had shortcomings and ambiguities in connection with the principle of the rule of law.

1.2. The Old Penal Code (1845)

The Old Russian Penal Code or ‘Code of Criminal Penalties and Corrections’, entered into force on 1 May 1846. ^*13 With the entry into force of this penal code, the situation of Russian criminal law changed quite dramatically—it was the first source of systemised criminal law in Czarist Russia. J. Sootak has found that it ended legal particularism and harmonised court practice. ^*14 Contemporary German writer and famous Baltic jurist A. Paucker esteemed the code very highly—for him, the code was a new creation of the 19th century, one that was free from earlier, outdated concepts of criminal law ^*15 and was the source of criminal law for nearly the whole territory of Czarist Russia ^*16 ; he held also that the penal system was based on general and special prevention ^*17 and the corrective nature of punishments ^*18 . ^*19 Given the fragmentation of criminal law, the Penal Code of 1845 played a significant role in the organisation of contemporary law.

The legal act dating from the middle of the 19th century was unable to develop according to needs and had therefore become a heavily criticised source of legislation in the early part of the 20th century. Therefore, 75 years after the Old Penal Code came into effect, it was strongly criticised by various Estonian jurists. K. Grau found in 1921 that, in terms of its content, the Old Penal Code was long obsolete, was outdated, and had lost its reason—it stood far from the then-present-day needs and legal notions. He found that it was casuistic in terms of designations of crimes and misdemeanours and there were no general regulations as would include all the signs of a particular type of crime, as well as that there were fundamental contradictions between concepts in its individual chapters. ^*20 Grau did not consider it to be complete and opined that it consumed many words and often undetermined expressions, and it lacked solid legal technique. He also found that not very much was changed by the transposing of legislation into the Old Penal Code, because the content was intended to preserve the content of the legislation and the contradictions between different crimes could not be eliminated through supplementation and other amendments to the act. ^*21 The same view has been put forth by Saarmann, who found that the makers of the law had set themselves two objectives: firstly, to collect all of the individual penal laws that had been issued in the 200 years directly prior to 1845 and position them in the code in such a way that they would not lose their historic appearance and, secondly, to create a uniform penal code. ^*22 Consequently, Saarmann found that there is no reason to search for organic harmony in the Old Penal Code, that there are norms that deal with the same issue but are very different in their nature, and that the norms are very casuistic. He found that, since the writers of the Old Penal Code tried to preserve the historical appearance of the old laws, many grievous crimes had lighter punishments than did less severe crimes. ^*23 Also, Grau has said that the system of sanctions in the Old Penal Code is based on the idea of intimidating the perpetrator of the offence—there was no institution of parole, and punishments were extremely restrictive to the individual’s rights. ^*24

Approximately 75 years later, the Old Penal Code is still described negatively. Although Sootak saw some positive aspects to it, he found that the Old Penal Code was patriarchal and held a feudal spirit and that it maintained criminal injustice among people. ^*25 Ambach has held that the deficiencies of the Old Penal Code are connected with the fact that 19th-century Russian criminal law had not reached punishment theories or punishments as general definitions. ^*26 The last may be considered why the Old Penal Code was considered to be outdated and to have insufficient general regulation—it was drawn up on the basis of practical needs with the hope of maintaining what was in force.

The casuistic nature of the Old Penal Code is shown by configurations for the commission of an act or resources used to commit that act. ^*27 Its casuistic nature is manifsted also in the very small degree of abstraction. For example, the killing of a clergyman is, in § 212, regulated among crimes against religion, but, in fact, it could be regulated as killing of a person performing official duties and regulated among crimes against persons. In addition, this example shows that the crime of killing was addressed in several chapters of the code. This could hardly have facilitated the work of a judge, a prosecutor, or defence counsel.

Another drawback of the regulation of the Old Penal Code can be seen in the lack of consistent conceptualisation. For example, negligent tort is regulated in § 110 as a reckless movement of the body, which results in unintentional infraction of the law and as any other illegal act in the absence of intent. This means that the person did not have enough foresight or did not recognise the consequence of his act. Was negligent tort possible with every type of crime, or was it necessary to identify it on the basis of the special section of the code? This question is not conclusively answered by the regulation set forth in the code. However, there are crimes included in the special part that involve negligent tort. For example, according to § 1458 of the code, “if a person who knew and foresaw that, because of his unlawful act, another person or several persons may be endangered and nevertheless commits the act and, though acting without direct intent of an act of killing, causes someone’s death, then, depending on the type and importance of the unlawful act and type and size of risk that the offender had to anticipate and also with consideration of other factors, the offender will be punished with the type of penalty and rate for the specific crime”. This means that in the special part of the code we can find descriptions of negligence associated with different crimes. ^*28 The shortcomings of the general regulation of the code made it necessary to describe more precisely what negligence meant in the context of each specific crime.

The inequality of people in the Old Penal Code is evidenced most by the difference of sanctions. Penalties might, for example, depend on the religion of the person. Indeed, § 58 provided that, in addition to criminal and corrective punishments, as provided by law, a person might be obliged to complete spiritual repentance on the order of a clergyman. In the Old Penal Code, crimes with this punishment were, for example, negligent homicide (dealt with in § 1470) and killing with the crossing of self-defence boundaries (in § 1467). There were also different regulations for crimes against family members, which reflect the patriarchal nature of the code. ^*29

Similarly, the system of penalties was different from what we currently know—the penalties were divided into classes, and, depending on the crime, the penalty fell into a certain class. ^*30 For some crimes, it was possible to change classes. ^*31 Since the classes were not very wide, a judge had very little freedom in making a decision concerning the length of the sentence.

1.3. The New Penal Code (1903)

The draft of the New Penal Code ^*32 was ratified by Czar Nikolai II on 22 March 1903. ^*33 In contrast to the Old Penal Code, the New Penal Code was divided into a general and special part, which made the law more systematic and easier to use. The New Penal Code was more abstract than the Old Penal Code. Similarly, the system of penalties was clearer—the sanction for a crime was given as a minimum and maximum penal rate, which gave the judge much more discretion than he would have had with the Old Penal Code. When compared to the Old Penal Code, the New Penal Code was considered to be more scientific, clearer, and more complete. Although there were no provisions for the objectives of punishments, it was still considered to be European law. ^*34 Grau described the New Penal Code as a scientific, specific, implicit, and comprehensive law. ^*35 Because the New Penal Code was scientific and modern when compared to the Old Penal Code and the Penal Code for Peace Courts, it was used as one key basis for preparation of the Estonian Criminal Code of 1929/35.

The general high quality of the code was overshadowed by the fact that it was recognised to be valid only partially. The parts that were applied were the chapters concerning crimes against religion (§§ 73–80, 82–90, and 93–98, applicable in the Republic of Estonia as long as these provisions were not in contradiction with § 11 of the Constitution of the Republic of Estonia); crimes against the state, amongst them crimes against the higher power (§§ 99–107, which were changed in 1925 in consequence of new state institutions that had been formed, though how these sections were to be implicated until 1925 is not certain) and treason (§§ 108–120), as well as crimes against public order (§§ 121, 123–132, and 134); resistance to authorities (§§ 155 and 1551); offences against the administration of justice (§§ 163, 164, 166, 168, 170, and 173); offences against the public peace (§ 279 (5)); violations against public performances and printed matter (§ 309); forgery (§§ 437—not applicable in the Republic of Estonia—and 449–452); offences against personal freedoms (§ 500, part I (2) and parts II and III); sexual offences (§§ 530–540); failure to report a finding; intake of foreign welfare and abuse of trust (§§ 579 and 580); offences concerning bankruptcy; usury and other illegal acts related to property (§§ 601, 604, and 605); offences against copyright and exclusive rights (§§  620 and 622); and offences against official duties (§§ 643–645 and 652). The general part of the New Penal Code applied to these regulations. Many of these regulations were altogether new (for example, those pertaining to offences against copyright and exclusive rights), since there were new legal situations that had to be regulated by law. On the other hand, there were regulations that were already governed by the Old Penal Code, and, therefore, a situation arose wherein some norms were in the New Penal Code and others remained in the Old Penal Code.

Since the New Penal Code was originally designed for full application, the partial enactment of it could not have been a good idea. In a situation where only a portion of a new law is enacted and the old law that was meant to lose its validity remains the main source for criminal law, the legislation is not implicit and there is confusion in law. Obviously, we can see a violation of the rule of law here. Further, in addition to the coexistence of the two above‑mentioned laws, there was a third one applicable.

1.4. The Penal Code for Peace Courts (1864)

In 1864, the Penal Code for Peace Courts ^*36 was introduced alongside the Old Penal Code. Both Ambach and T. Anepaio have found that it was a product of major judicial reforms ^*37 and that its content was much simpler and easier to understand than the Old Penal Code and clearly represented indications of its own time. ^*38 Many norms from the Old Penal Code were transferred to the Penal Code for Peace Courts ^*39 ; thus, the judicial reform of 1864 plays a significant role in criminal law—the idea was to organise criminal law and make it easier to understand, but the process resulted in two laws that were contradictory in many respects. The Penal Code for Peace Courts was applied to only minor crimes and misconduct. In cases in which the Penal Code for Peace Courts did not provide a resolution, sections of the Old Penal Code had to be used. Efforts to align and harmonise the Old Penal Code and the Penal Code for Peace Courts failed. ^*40

As an example from the Penal Code for Peace Courts, there was an offence described in § 110 that consisted of threat in the event of which there was no profit to the self or any other such aim to it. Another example could be the various offences concerning theft (content regulating theft of forest property, dealt with in §§ 154–1681; theft of a value under 1,000 kroons, in §§ 169 and 170; theft without a special element, handled in § 1701; and special regulations in §§ 171–172). The regulation does not differ much from that of the Old Penal Code, which is why it was possible for questions to arise concerning the application of the right law.

The code was very casuistic, comparable with the Old Penal Code. It had separate regulations for theft with breaking into a house and theft by breaking a gate lock. This shows that the regulations were indicative of their time.

Another very important remark about the Penal Code for Peace Courts is that the procedural rules that applied to it were different from those for the previously mentioned codes. Offences under the Penal Code for Peace Courts were prosecuted by private persons, not public prosecutors. This means that criminal acts under this code were prosecuted only if a private person brought a complaint against the offender in court.

It is quite evident that in those circumstances where there is a plurality of criminal laws, we cannot talk about the realisation of the rule of law. The laws overlapped, they were meaningfully different, and this will be made even more obvious through description and illustration of the application of the laws.

2. Principles and problems of application of the criminal codes

2.1. Application of the codes in principle

The above-mentioned Old Penal Code, New Penal Code, and Penal Code for Peace Courts were used in general courts until 1935, when the Criminal Code was introduced. There are many elements to consider in relation to the application of the three codes until 1935.

First of all, the parallel existence meant that various criminal offences were settled under different criminal laws. Less serious offences were governed by the Penal Code for Peace Courts, mainly crimes against the state and religion were stipulated in the New Penal Code, and other grievous crimes were regulated in the Old Penal Code. This, however, meant that the first task, the first thing—in terms of logic—that a person needing to apply the law had to do, was identify the correct legal act that regulated the concrete situation at hand. The enforcement of the Penal Code for Peace Courts alongside the Old Penal Code meant that less serious crimes were processed under the Penal Code for Peace Courts and grievous crimes under the Old Penal Code. However, it has been found that the Old Penal Code and the Penal Code for Peace Courts were incompatible, which could have led to problems in finding of the right law to apply (and hence proper application of the law)—there might have been questions of whether to apply one or the other act in view of a person’s actions. For example, § 140 of the Penal Code for Peace Courts stipulates the nature of threats, and the same composition is handled in § 823 of the Old Penal Code. The situation went from bad to worse when the New Penal Code was introduced to the legal system. Although the Old Penal Code and the Penal Code for Peace Courts had their differences, the New Penal Code was of a very different cast. Grau has described the situation in criminal law in Estonia at that time as ‘sad and impossible’, holding that a judge when administering justice embraces the idea of the law but this cannot function if there are laws with different ideas. ^*41

Since there were three different criminal laws, all of the above-mentioned codes were supposed to regulate different crimes and each of them had separate regulation for the general rules.

Imagine the situation wherein, on the one hand, the Old Penal Code, like the Penal Code for Peace Courts, did not have a general part, while the New Penal Code, on the other hand, did. Already in principle the laws were different: the New Penal Code was considered scientific and European, and the other two were not. A person applying the law has to, in this situation, know and understand the logic of all the laws, understand how to apply them, and probably know in what sense they must be applied differently. For example, in the Old Penal Code, punishments were regulated through different classes; in the New Penal Code, the sanction system resembles that of the Criminal Code in effect at present. This means that in the New Penal Code, as in the Criminal Code, the punishment is given as a range from the least to the greatest possible punishment for a given offence. Already such differences provide a different understanding of a possible punishment—with the system of classes, the punishment was narrowly defined, which significantly restricts the understanding of a given sentence, whereas in the case of a wide range, the judge has much broader discretion concerning the length of the sentence. If already a judge might have found it difficult to work in different systems of criminal law, then, on the assumption that most people lack such legal expertise, there was a lack of clarity in Estonian criminal law due to the plurality of criminal laws.

There existed a major problem concerning the application of the correct law. It proves to be problematic, because we are able to find to some extent overlapping provisions in all of the above-mentioned codes. For instance, both the Old Penal Code and the New Penal Code governed offences against religion. Let us consider an example. Sections 180 and 176–178 and § 73 of the New Penal Code stipulated crimes against the public peace, which were all characterised by profanation of God, religion, or the church. Although all of these offences had the same type of punishment —deportation or forced labour—the scale of the penalties differed. And because the judge had broader discretion when imposing a sentence according to the New Penal Code, this was of great importance. Moreover, for example, when comparing § 85 of the New Penal Code and § 201 of the Old Penal Code, which stipulated punishment for voluntary castration committed using violence, one finds it apparent that they are practically the same. According to the New Penal Code, the punishment for committing this crime would have been up to six years of forced labour, whereas according to the Old Penal Code it would be 4–6 years of forced labour and loss of all special rights. This shows that, although the punishments are quite similar, the judge had much broader discretion if he were to employ the legislation of the New Penal Code. Another example may be found in § 212 (3) of the Old Penal Code and § 98 (2) of the New Penal Code (which deal with use of violence against the person of a clergyman), for which the sentence in the old code is 8–10 years of forced labour while in the new code it is unlimited time spent in a reformatory. The above examples only confirm that the regulations concerning offences against religion overlapped, but these were not the only parts of the codes with similar or the same regulation.

The next problem we consider existed in relation to the Old Penal Code and the Penal Code for Peace Courts. As mentioned above, when the Penal Code for Peace Courts was enforced, the aim of systematising criminal law was not met and the two codes were not in compliance. This is most evident when one reads the two texts. These examples will be analysed below, in the light of court practice.

How the prosecutor was supposed to prosecute a crime or how a judge was supposed to administer justice, how he was supposed to decide whether the indictment had been drawn up on the basis of the right law, is very unclear. The conflict between the laws applicable in general courts and also their multitude undoubtedly hampered the application of the law and the work of people who used it. In addition, it cannot be ignored that, in fact, this kind of confusion in legislation was affecting all who were subject to the law. Obviously, not all subjects of the law understand it, but in this kind of case, they probably wouldn’t even have the opportunity to do so.

2.2. Some practical examples

To illustrate the problem that existed as a result of the plurality of criminal laws, it is necessary to provide introduction to some relevant practice. There is a case from the Supreme Court, for example, wherein the offender was accused of killing the victim. The accused shot the victim with a gun as a consequence of a public quarrel while in an agitated state, but the victim did not die from the gunshot. Unfortunately, the victim died in hospital, but because of an infection he developed after a minor operation performed on him. For this, the court of first instance convicted the accused of murder under §§ 1455 (2), 311, 9, 115, 134, and 135 of the Old Penal Code. The attorney filed a complaint to the Supreme Court saying that, since there was no causal link between the act of the accused and the death of the person, his deed should be qualified as causing bodily harm as regulated in § 1482 of the Old Penal Code. The turn and total surprise comes in the Supreme Court’s declaration that the lower courts had applied the wrong law to start with. The Supreme Court found that, since there was little damage caused in the first place and there was no causal link between the act of the accused and the death of the victim, the Penal Code for Peace Courts should be applied. The Supreme Court annulled the decision of the court but, unfortunately, gave no hint of which section of the Penal Code for Peace Courts should be applied. ^*42

This is in very many ways an extremely tricky case. First of all, both laws regulate causing of bodily harm, and it is quite difficult to understand the difference. Since the punishments for the two offences are quite different, it is important that the choice of law be correct in the first instance. This situation may prove to be highly restrictive to the rights of the accused. How can an accused person defend himself if he does not know what law will be applied, and how could he then foresee the possible punishment? § 1482 of the Old Penal Code stipulated that if the offender inflicts harm on another person the act will be punished with imprisonment of eight months to a year and four months or the offender will be sent to a reformatory in accordance with § 31 (fifth class) and, in addition, will lose all of his personal and acquired-status rights.

The other problem is that the procedural norms obtaining in application of one or the other code are significantly different. When the Supreme Court annulled the decision, it was not clear whether the court should discuss the matter further or whether that is properly an assignment for the private prosecutor. The main reason this turns out to be such a problem is that the procedural norms for the Penal Code for Peace Courts demanded that prosecution take place with a private prosecutor and there was no involvement of a public prosecutor. Who would in this case be entitled to bring forward a prosecution if the qualification were changed by the Supreme Court, and, moreover, what happens to the evidence already collected by the public prosecution—may it be used by the private prosecutor, or not? These questions show that there was more that resulted from the problems of which law to choose. The choice of law was thus important from not only the perspective of protection of the accused; it also played an important role in relation to the procedural rules. It is certainly a very interesting and disturbing case showing that there were problems within the laws.

Another case to consider is one in which a person was accused of theft. The defendant removed a broken lock from a gate and through an unlocked window entered the victims’ house. He stole two candlesticks and some silverware from the house. For this, he was found guilty by the court of committing the crime stipulated in § 1701 (1) of the Penal Code for Peace Courts and was sentenced to imprisonment for one year. The Supreme Court annulled the decision, finding that the act meets the conditions for the case stipulated in § 1647 of the Old Penal Code. According to § 1701 (1) of the Penal Code for Peace Courts, a person may be sentenced to imprisonment of six months to one year and six months when theft has been committed through breaking of barriers that prevent access to the yard, access to a building, or getting from one of these places to the other, except in the cases mentioned in § 1647 of the Old Penal Code. According to the latter section, a person may be sentenced to imprisonment in a reformatory for 12–15 years, with loss of all special, personal rights or rights and benefits acquired in consequence of one’s status, if the theft was committed from an inhabited building, its courtyard, or buildings within the courtyard when the offender has previously breached a gate that prevented access to the yard, the inhabited building, or access from one to the other, or if the bolt on the gate has been broken. The Supreme Court concluded that removing the lock from a gate is considered to be breaking the gate. ^*43 How to differentiate these sections on the basis of the facts given is apparently unknown. Whether removing a broken lock constitutes breaking barriers or breaking a gate is actually unclear. This also shows that courts had concrete problems applying the so-called correct law. The two offences are very difficult to distinguish. Moreover, the crime stipulated in the Penal Code for Peace Courts is supposed to be less serious, but how can courts assess this question when there is another law that describes the act in almost the same way? The Supreme Court’s explanations were not at all thorough in this case; in contrast, the wording of the description of the crime and the judgement in the first instances imply that there were already practical problems in applying the law correctly.

There certainly exists evidence in the legal literature and in the practice of the Supreme Court that shows there to have been a problem with application of the ‘right’ law. In addition, it is apparently the case that this problem was more acute in lower instances of the court system. This assumption is mainly based on the fact that the Supreme Court dealt mainly with legal issues of a case, whereas the lower instances dealt with the facts of the matter. The facts of the cases are the basis for questioning the appropriateness of the law applied. That is why it is more probable that we can find issues here regarding the choice of application of the law. Unfortunately, it is not possible to raise examples of problems concerning the application of the Penal Code for Peace Courts and the Old Penal Code, on the one hand, and the New Penal Code, on the other, because too little research has been done in this field. Nonetheless, when accepting the perspective of Grau, one finds that there had to be a major problem. ^*44

2.3. The light at the end of the tunnel?— the Criminal Code (1929/35)

When the Criminal Code came into effect, in 1935, the substantive legal basis became undeniably clearer and people’s rights were better assured. Although misdemeanours were generally dealt with in special laws (lex specialis), rights were still better guaranteed, on account of the fact that all crimes were assigned a classification in the Criminal Code. It is not possible to say that the structure and form of the offences were very straightforward—there was a totally new situation wherein the level of abstraction was much higher than ever before. It can be said, of course, that the high level of abstraction shows the development in the legislation, but it is doubtful whether that legislation was clearer for the people in general. Maybe that is why it is possible to consider a six-year vacatio legis period (1929–1935) to be positive. In such a situation, there was time for discussion among jurists, and the specialist literature is an excellent example of this. In the Estonian journal Õigus (in English, ‘The Law’), we can find many articles dating from the time prior to the enforcement of the Criminal Code that deal with questions concerning the new law. Also, the specialist journal for the police, Eesti Politsei (in English ‘Estonian Police’), published an article by L. Vahter already in 1929 that dealt with the general part of the newly published but not yet valid Criminal Code. ^*45 The elaboration on various conceptual issues among lawyers certainly facilitated the subsequent transition from the old law to the new.

3. Conclusions

Estonia remained under a plurality of criminal laws until 1935. There were three criminal codes applicable in general courts. The offences tended to overlap, making it hard to decide which law to apply. These problems were also the reason a new criminal law—the Criminal Code—was introduced.

If we recognise the situation in Estonia from 1918 to 1935 as a problem, we can learn from it. The question that needs to be answered is whether or not we are prepared to understand and cope with the existence of several different criminal laws and whether it is consistent with our own legal system as in force today. If there is one thing that we can learn from our history, it is that criminal law divided among various legal acts is not a good sign for legal certainty. Whether or not this problem already exists in our criminal law, with the crimes handled in one place and misdemeanours mainly addressed by special laws, might have to be answered in the affirmative. Firstly, it is not possible with the amount of legislation regulating misdemeanours for all people to know the regulations. Secondly, it could even constitute a problem for the judge or prosecutor. An even more acute question arises in relation to the probable intersection with European Union law. If we look at the historical experience in Estonia, then we can undoubtedly say that we should in all ways try to avoid being in a situation where criminal law is divided among several different acts—such a situation goes against the principle of nullum crimen and the rule of law; it is implicit and violates the rights of individuals. We have to be careful not to step over the very thin line that stands between a country subject to the rule of law and a country violating people’s rights, and our historical experience offers one way to show how this could come about and what could be the results.

Notes:

^*1 Karistusseadustik. Adopted on 6 June 2001. – RT 2001, 61, 364; 2010, 11, 54 (in Estonian). English translation available at http://www.legaltext.ee/et/andmebaas/paraframe.asp?loc=text&p.=et&sk=en&dok=X30068K8.htm&query=karistusseadus&tyyp
=X&ptyyp=RT&pg=1&fr=no (1.04.2010).

^*2 See further P. Pikamäe, J. Sootak. Einheit der verfassungsmässigen Rechtsordnung: Entscheidungen und Lösungen im Strafrecht. – Juridica International 2002 (VII), pp. 127–137.

^*3 See J. Ginter. Criminal Liability of Legal Persons in Estonia. – Juridica International 2009 (XVI), pp. 155–156.

^*4 See http://eur-lex.europa.eu/JOHtml.do?uri=OJ:C:2007:306:SOM:ET:HTML (10.03.2010).

^*5 On problems concerning the so-called European criminal law see for example T. Weigend. Zu einem einheitlichen europäischen Strafrecht? – Nullum ius sine scientia. Festschrift für Jaan Sootak zum 60. Geburtstag am 16. Juli 2008. Tallinn 2008, S. 243–265.

^*6 Kriminaalseadustik. Adopted on 26 March 1929. – RT 1929, 56, 396; RT 1940, 15, 112 (in Estonian). About the Criminal Code, see for example K. Saarmann. Die Einführung eines neuen Strafgesetzbuches in Estland – Zeitschrift für osteuropäisches Recht. N. F. 1 (1934/1935) nr. 4, pp. 182–186.

^*7 G. Ambach. Die strafrechtliche Entwicklung der Republic Estland in der ersten Seite des zwanzigen Jahrhunderts. – Rechtsgeschichtliche Vorträge, Publikation der Rechtsgeschichtlichen Forschungsgruppe der Ungarischen Akademie für Wissenschaften an dem Lehrstuhl für Ungarische Rechtsgeschichte Eötvös Lorànd Universität. B. Mezey (Hrsg.). Budapest 2005, S. 3–6.

^*8 K. Saarmann. Uue Nuhtlusseadustiku maksmapanemine (Imposition of the New Penal Code). – Õigusteadlaste päevad (Jurists’ Days). Õigus 1922, p. 137 (in Estonian).

^*9 E. Mailend, A. Rammul (compiled by). Kriminaalõigus. Konsepkt. Prof. K. Saarmann’i ja Riigikohtu prokuröri R: Räägo loengude, Kriminaalseadustiku jt. Alustel koostatud (Criminal Law. Lecture notes. Based on the lectures of Professor K. Saarmann and Prosecutor of the Supreme Court R. Räägo, the Ciminal Code, and etc.). Tartu, 1935, p. 13 (in Estonian).

^*10 G. Ambach (Note 7), S. 4.

^*11 E. Berendts. Eesti Vabariigi Riigikohus ja 1920. a. põhiseaduse printsiibid (Supreme Court of the Republic of Estonia and the Principles of the 1920 Constitution).  – Õigus 1920/2, p. 42 (in Estonian).

^*12 T. Friedenau. Rechtsstaat in zweierlei Sicht. Berlin: Untersuchungsausschuß Freiheitlicher Juristen 1956, S. 13.

^*13 ПСЗ -2, nr. 19283. Уложение о наказаниях уголоьных и испраьимелъных . See also Gesetzbuch der Kriminal- und Korrektionsstrafen: nach dem russischen Originale übersetzt in der zweiten Abtheilung Seiner Kaiserlichen Majestät Eigener Knazelei. St. Petersburg 1846.

^*14 J. Sootak. Development of Estonian Criminal Law. – Juridica International 1996 (I), p. 53.

^*15 C. J. A. Paucker. Unsere neuesten Gesetzbücher und ihre geschichtlichen Begleiter. – Das Inland, H 36, S. 853.

^*16 Ibid., S. 854. The Old Penal Code was only not in force in Finland. See T. Anepaio. Kriminaalõiguse muutumisest 1889. aasta reformi käigus (On the Changes in Criminal Law during the 1889 Reform). – Tractatus Terribiles. A collection of articles for the 60th anniversary of Professor Jaan Sootak. Tallinn 2009, p. 143 (in Estonian).

^*17 C. J. Paucker (Note 15), S. 854.

^*18 C. J. Paucker (Note 15), S. 857.

^*19 See also M. Luts-Sootak. Modernisierung und deren Hemmnisse in den Ostseeprovinzen Est-, Liv- und Kurland im 19. Jahhundert. – Modernisierung durch Transfer im 19. und frühen 20. Jahrhundert. Frankfurt am Main 2006, S. 181–182.

^*20 K. Grau. Tarvidus Uue nuhtlusseadustiku maksmapanemiseks Eesti Vabariigis (The Need to Impose a New Penal Code in Estonia). – Õigus 1921, No. 5/6, p. 97 (in Estonian).

^*21 Ibid.

^*22 See K. Saarmann. Uue Nuhtlusseadustiku maksmapanemine (Imposition of the New Penal Code). – Õigusteadlaste päevad (Jurists’ Days). Õigus 1922, p. 138 (in Estonian).

^*23 Ibid., pp. 138–139.

^*24 Ibid.

^*25 J. Sootak. Veritasust kriminaalteraapiani (From Vendetta to Criminal Therapy). Tallinn: Kirjastus Juura. 1998, p. 210 (in Estonian).

^*26 G. Ambach. Karl Saarmann kui Eesti kriminaalõiguse formeerija ja arendaja (Karl Saarmann as the Shaper and Developer of Estonian Criminal Law). 2006, p. 67 (in Estonian).

^*27 See for example § 1453 (1), which lists aggravated killing that is committed in a way that is publicly dangerous: “Intentional killing or murder, if committed using ignition or an explosion, whether through a gas explosion or using gunpowder, with the destruction of building, or if the offender causes a flood, for example by destroying a water dam or in any other way or by destroying a bridge or a railway or a violation in a people’s shooting range, although the aim was to kill only one person  and all other ways that generally endanger or cause deaths.”

^*28 E.g., the Estonian Penal Code from 2002 does not describe negligent torts in the specific parts, it only gives punishments and shows that the crime can be committed negligently.

^*29 J. Sootak (Note 25), p. 211.

^*30 E.g.,  according to § 19 of the Old Penal Code the term of forced labour were divided into seven classes:

                        1st class: unlimited forced labour;

                        2nd class: 15–20 years of forced labour;

                        3rd class: 12–15 years of forced labour;

                        4th class: 10–12 years of forced labour;

                        5th class: 8–10 years of forced labour;

                        6th class: 6–10 years of forced labour;

                        7th class: 4–6 years of forced labour.

^*31 For example § 1451 (4) according to which if  a woman killed her child at birth, who had been born outside of a marriage could have her punishment lowered to the 4th class of forced labour.

^*32 Уголовное Уложение. – Свод Законовъ Российской Империи. Т .XV. C.- Петербург , 1909. See also O. S. Bernstein (Übersetzer). Das Neue russische Strafgesetzbuch: (Ugolovnoje Ulozenje): allerhöchst bestätigt am 22. März 1903. Berlin 1908.

^*33 With regulations from  7.06.1904, 16.07.1905, 14. 27.03.1906, 25.12.1909 and 20.03.1911.

^*34 B. B. Есипов. Уголовное право. Часть особенная. C.-Петербург 1902, cтp. 139.

^*35 K. Grau (Note 20), p. 98.

^*36 Уставъ о наказанияхъ, налагаемыхъ Мировыми Судьями. – Свод Законовъ Российской Империи. Т. XV. C.-Петербург, 1885. Until the situation as at 24 October 1917 and some changes. See also G. J. H von Glasenapp (vlj). Gesetzbuch der Criminal- und Correctionsstrafen und Gesetz über die von den Friedensrichtern zu verhängenden Strafen: nach der Russischen Ausgabe vom Jahre 1885 nebst den Ergänzungen und Abänderungen bis zum Mai 1887. Tartu, 1892.

^*37 G. Ambach (Note 26), p. 66 and T. Anepaio (Note 16), pp. 141–142.

^*38 G. Ambach (Note 26), p. 66.

^*39 T. Anepaio (Note 16), pp. 141–142.

^*40 G. Ambach (Note 26), p. 66.

^*41 K. Grau (Note 20), pp. 99–100.

^*42 Supreme Court decision No. 928, 1926. FOND: ERA.1356.4.81. The Supreme Court’s decisions are located at the Estonian National Archive in Tallinn. The number 1356 means the Supreme Court of Estonia, number 4 documents of the criminal department and the last number a number for a group of court decisions from a certain period that have been put in a seperate folder.

^*43 Supreme Court decision No. 799, 1934. FOND: ERA.1356.4.104 (see Note 42).

^*44 K. Grau (Note 20), pp. 99–100.

^*45 L. Vahter. Eesti kriminaalseadustiku üldosa ülevaade (Overview of the General Part of the Estonian Criminal Code). – Eesti Politseileht 1929, No. 35/36, pp. 431–436 (in Estonian).

1. Different national approaches to individuals’ insolvency

Credit is as old as mankind. Representing a pattern of social behaviour, credit also is subject to human weaknesses and environmental conditions. There is no causal necessity ensuring that a loan will be repaid. On the contrary, default is an ever-present possibility, although the relative risks of default can be identified and managed to an extent. Where there is credit, non-payment can equally occur. Although debts are generally repaid, the possibility of default can be seen as an inevitable feature of the credit phenomenon. Laws from the earliest times (the Code of Hammurabi, the Twelve Tables of early Rome, laws of ancient Greece, etc.) reflect this and provided various remedies for a creditor against the insolvent, from enslavement to death. Under early Roman law, when a debtor had too many creditors, the law gave them the option of cutting the debtor in pieces to be divided among themselves. ^*6

Nowadays, there are two primary paradigms for individuals’ insolvency: the American liberal paradigm and the European welfare state paradigm. ^*7 Consumer bankruptcy law in the United States (US) is described as a market function in which bankruptcy serves as an exit from and a complement to the open-access credit market system. ^*8 Conversely, a goal of the welfare state is to protect citizens against risks caused by natural disaster, accident, illness, and economic misfortune. In such systems, the state actively promotes equality of citizens and legal regulation as one means by which politically set goals are achieved. ^*9

In everyday usage, the term ‘bankruptcy’ carries the meaning of personal disaster and a fate to be avoided at all costs. Yet, in the majority of modern societies, the process of bankruptcy aims to relieve the debtor from the cumulative burden of debts that, as a result of his current economic circumstances, he cannot realistically repay in full. Historical and cultural differences underlying civil and common law jurisdictions also lead to different approaches to bankruptcy. Notably, in the US, the term ‘bankruptcy’ refers generically both to liquidation and to reorganisation, with or without a trustee. A trustee is always appointed in liquidation (Chapter 7 in the US Bankruptcy Code) and in repayment plans for wage‑earners (Chapter 13), and one may be appointed in exceptional circumstances in reorganisation (Chapter 11). Natural persons, corporations, and most other entities are eligible to seek protection under Chapter 7 or Chapter 11 of the US Bankruptcy Code, which can be applied to both natural persons and corporations. ^*10 Chapter 13 is available only to physical persons with a regular income.

Even terms such as ‘consumer bankruptcy’, ‘indebtedness’, ‘over-indebtedness’, ‘debt counselling’, ‘debt restructuring’, and ‘fraudulent debts’ may have a different meaning and usage from one country to another. For example, in Portugal, indebtedness means the amount owed by a family unit, whether resulting from a single credit obligation or from multiple obligations, from multiple sources. Frequently, where there is more than one debt, the concept of multi-indebtedness is applied. ^*11 As used in the INSOL International Consumer Debt Report (hereinafter ‘INSOL Report’) ^*12 , the term ‘consumer debtor’ refers to a debtor whose liabilities are incurred primarily for private, family, or household purposes, as distinct from business debts incurred either on the debtor’s own account or in partnership with others, or arising from guarantees given on behalf of limited‑liability entities. The INSOL Report describes the following types of consumer debts: survival debts ^*13 , over-consumption debts ^*14 , compensation debts ^*15 , relational debts ^*16 , accommodation debts ^*17 , and fraudulent debts. ^*18 In short, as defined in the INSOL Report, a consumer debtor’s liabilities are related primarily to bank overdrafts, loans from banks and other financial institutions, personal credit cards, mortgages, and hire-purchase or credit‑sales agreements associated with purchases of capital items such as automobiles. ^*19 No generally recognised definition of a consumer debtorexists. These words may have different meanings in different jurisdictions. Whether liquidation or rehabilitation procedures by nature, these are usually collectively referred to as insolvency procedures. ^*20

The credit card is a symbol of consumer-led societies. As consumer-led economies having high levels of personal financial credit and allowing a discharge, the US and Canadian systems depend on important monitoring and control mechanisms to manage the risks of default. Instead of punishing the debtor, the US Bankruptcy Code facilitates a ‘fresh start’ for a debtor at the conclusion of a bankruptcy proceeding by allowing a discharge of all dischargeable debts. Under US bankruptcy law, most general unsecured consumer debts are dischargeable, including credit-card debt and medical debt. Some debts are considered non‑dischargeable, among them student loans ^*21 , domestic support obligations, and many tax obligations, or debts that were incurred through fraud or wrongdoing. When a debt is discharged, it may no longer be collected from the debtor, but it is not cancelled. ^*22 The bankruptcy system permits a debtor to keep certain of his assets that are considered to be ‘exempt’ from the bankruptcy estate and therefore not subject to the claims of creditors. A debtor has an option to elect the exemptions granted either by federal law (i.e., the Bankruptcy Code) or by state law. Some states in the US have much more generous exemptions than others. For example, New York state law permits a debtor to retain $50,000 in a homestead exemption, $2,400 in a motor vehicle exemption, food and fuel to last 60 days, clothing, and household furniture. Under Texas state law, a debtor may keep up to 200 acres of rural homestead property, along with other exemptions. Even if creditors are not repaid in full, the debtor is allowed to keep exempt assets in order to provide a ‘fresh start’ in his economic life following the discharge. ^*23

Canadian bankrupts are now required to pay their creditors a portion of the surplus income they earn during the period between their filing for bankruptcy and the discharge of their debts. An administrative edict defines surplus income as a function of Canadian poverty lines. After discharge, however, no payments are required from the former bankrupt’s income. ^*24

Under most European bankruptcy laws, the discharge of a debtor from (all) debts is almost unheard of without the creditors’ approval. This could be the result of widespread historical perceptions about causes of insolvency being attributable to economic distress, unemployment, serious disease, or financial mismanagement. As a result, consumer insolvency in Europe is generally treated as a social problem caused by a force majeure, rather than as a market exit or adjustment mechanism.

A development in the opposite direction has taken place in continental Europe. Denmark was the first continental European country to adopt a specific legal regime aimed at treating the ills associated with consumer over-indebtedness, beginning in January 1972 and culminating with the adoption of the Danish consumer debt adjustment act, Gældssaneringslov, on 9 May 1984. ^*25 The aims of the consumer debt adjustment laws in Scandinavia are quite similar to those aims presented in the doctrine of social force majeure. ^*26 The laws on judicial debt adjustment for consumers entered into force in 1993 in Finland and in Norway, then in 1994 in Sweden. The French law on prevention and regulation of individual and household over-indebtedness was already enacted by 1989, but its very restrictive discharge provision was substantially expanded in 1998. The Netherlands passed a law on consumer debt adjustment in 1997 and Belgium in 1998. In Austria, debt adjustment legislation was accepted in 1993, and in Germany similar legislation entered into force in 1999. ^*27

With the exception of the Czech and Slovak republics, Estonia, and Russia, prior to 2002, the majority of Eastern European transition countries had not tackled the problem of consumer insolvency. ^*28 Influenced mainly by the German insolvency regulation system, Estonia adopted a separate procedure for discharge of debts within insolvency proceedings in January 2003. Since 1 January 2004, Chapter XI of the Bankruptcy Act ^*29 has regulated discharge of obligations. There is no automatic discharge of debts available in Estonia. Pursuant to the Bankruptcy Act’s § 175 (1), a court shall decide on discharge by a ruling made five years after commencement of the proceedings stipulated in Chapter XI of the Bankruptcy Act. ^*30 The additional period of time before entering Chapter XI proceedings cannot be predicted, as a consequence of the complexity of insolvency cases. The debtor is not prevented from obtaining more than one discharge but should wait 10 years before becoming eligible for another discharge. ^*31

All mature market economies have well-developed provisions for the bankruptcy of individuals (which are not just households or consumers but also may be owners of very small, micro enterprises). ^*32 For example, in England and Wales, the main alternative to bankruptcy is an individual voluntary arrangement (hereinafter ‘IVA’) under Part VIII of the Insolvency Act 1986. An IVA is a composition or scheme of arrangement that arises from a proposal made by an individual debtor (whether a business or consumer debtor) to his creditors. It is essentially an extra-judicial procedure, as the court has only a limited supervisory role. The proposal, which may encompass the debtor’s assets, income, or both, is formulated by the debtor in conjunction with an insolvency process practitioner (the nominee). The creditors vote on the proposal, and, if it is approved, the nominee becomes the supervisor of the IVA and oversees its implementation. If the proposal is approved by the requisite majority, all creditors who were entitled to vote are bound, regardless of whether or how they voted. ^*33

From a creditor’s perspective, the infringement of claims pursuant to statutory debt restructuring schemes may seem unjustified. For example, a Finnish creditor complained that the Finnish Debt Restructuring Act violated his rights of ownership under Article 1 of Protocol 1 of the European Convention on Human Rights. From the ECHR’s decision dated 20 July 2004 ^*34 , the following general conclusions can be drawn:

a)  The debt-adjustment legislation clearly serves legitimate social and economic policies and is not therefore, ipso facto, an infringement of Article 1 of Protocol 1.

b)  That in the case of bankruptcy the creditor’s claims would have remained legally valid and enforceable at a later stage does not change the fact that, by entering into an agreement with a debtor, a creditor takes upon himself a risk of financial loss.

c)  The European Court of Human Rights would not exclude the possibility that a court-ordered irrevocable extinction of a debt, as opposed to the scheduling of payments of a debt over a longer period of time, or the bankruptcy of a private individual, could in some circumstances result in the placing of an excessive burden on a creditor.

d)  Whether such a burden was placed on the applicant also depends on whether the procedure applied provided him with a fair possibility of defending his interests as one of some 70 creditors. ^*35

A fascinating spectrum of policy approaches can be found in states across Europe, including those having recently emerged from operation as command economies and that are now struggling with the different challenges of free-market capitalism. Recently, a number of European countries have initiated consumer insolvency reforms, mainly following the examples of discharge provided in Chapters 7 and 13 of the US Bankruptcy Code. The British discharge may be even more generous than the US. In the UK, the discharge now takes effect after one year has passed from the commencement of bankruptcy, a reduction from the previous period of three years. ^*36 Furthermore, debtors may obtain more than one discharge and do not have to wait for a specified minimum period of time before becoming eligible for another discharge. ^*37 In mediaeval England, a debtor could be placed in a debtor’s prison until he repaid his debt, which was impossible while one was imprisoned and unable to generate an income. Against such practices, the concept of a discharge of indebtedness must be seen as a great privilege, without which many debtors would never find relief from their debts.

As of January 2007, Swedish consumers need not necessarily seek counselling before applying for formal debt relief. Sweden is the first continental European country to do away with the requirement of out-of-court credit counselling and negotiation as a prerequisite to formal relief. Swedish debtors can still seek budget- and debt-related counselling from local state-supported counselling services, but in most cases, neither counselling nor negotiation with creditors is required. As in France and Luxembourg, debtors in Sweden file petitions for relief not with a court but with an official administrative body. Unlike in France and Luxembourg, the Swedish agency in charge of the consumer insolvency system is the state Enforcement Agency (Kronofogdemyndigheten, KFM). Formerly an arm of the Tax Service (Skatteverket) but a free-standing agency as of June 2006, the KFM’s primary function is to act as the official collector of both public and private debts. The courts play almost no role in the Swedish consumer debt adjustment process. They continue to hear appeals from debtors and creditors unhappy with the KFM’s findings regarding debtors’ qualification for relief and the terms of payment plans, though in the overwhelming majority of cases in the past, courts have affirmed the KFM’s decisions. ^*38

In the Netherlands, as of 2008, it is the debtor’s responsibility to demonstrate that he acted in good faith for the five years prior to the wet schuldsanering natuurlijke persoonen application. ^*39 Belgium and Luxembourg exclude debtors who knowinglybrought about their own circumstances of insolvency. The bankruptcy rules in England and Wales, Germany ^*40 , and the US give no subjective grounds to reject a debtor’s application for a debt restructuring scheme. Since October 2005, however, a disposable income test has been applied in the US to determine whether the debtor may file directly for liquidation under Chapter 7 or, instead, must file a plan of reorganisation of its debts under Chapter 13.

In Eastern Europe, Latvia represents a country that recently adopted a more modern consumer insolvency law process. On 1 January 2008, the Latvian Insolvency Act established a new procedure that is similar to the British IVA for individuals. The purpose of insolvency proceedings for a natural person is to provide an opportunity for this person to renew paying capacity or to be released from the debt commitment specified in the plan for the sale of his property and satisfaction of creditors’ claims, by observing creditors’ interests without necessarily being declared bankrupt. ^*41 A natural person may apply for insolvency proceedings if this person does not have possibilities for settling the debt commitment, for which the due data has come to pass and the total commitment exceeds 50 times the minimum wage for one month, or, because of the conditions to be proved, it will not be possible for this person to settle the debt commitment, the due data of which will have elapsed within a year, where the debt commitment in total exceeds 100 times the minimum monthly wage. ^*42

The Czech Insolvency Act (Act 182/2006 Coll.) took effect on 1 January 2008, replacing the previous Bankruptcy and Composition Act (Act 328/1991 Coll.). One of the novelties introduced by the act is the set of proceedings called oddlužení in Czech, best translated as discharge of unpaid debt or, in shorthand, discharge. In short, in the discharge proceedings, the creditors either receive the proceeds of the sale of the debtor’s assets, whereupon the debtor’s future income is protected, or they receive instalments from the debtor’s income for five years, in which case the debtor’s assets are protected—in each case provided that the method chosen leads to the payment of at least 30% of the debtor’s unsecured debt. ^*43 After the sale or the elapsing of the five-year instalment period, the court will, in a new order issued upon the debtor’s application, discharge the debtor from the remaining part of his debts (under § 414 of the Act). The order will be issued only if the debtor paid at least 30% of his unsecured debts ^*44 , unless individual unsecured creditors agreed to receive less or unless the debtor can show that he was prevented from paying the minimum amount by circumstances beyond his control and that the unsecured creditors have in any case not received less than they would have in liquidation proceedings (under § 415 of the Act). In the three years following the discharge order, the court may reverse the order if it turns out that the debtor acted fraudulently in the proceedings or committed a crime in relation thereto (described in § 417 of the Act). ^*45

In the Czech Republic, in 2008, the first year of the new act being in force, some 1,700 applications for discharge proceedings were filed, amounting to approximately 1/3 of all insolvency petitions (a total of approx. 5,300) filed under the new act in that first year. ^*46 The overwhelming majority of the confirmed applications involved instalments as the chosen method of satisfaction of the debts. The first quarter of 2009 saw a significant increase in new insolvency petitions (up 17.2% from the figure for the fourth quarter of 2008) and even greater growth in the number of applications for discharge proceedings (up almost 50% from the fourth quarter of 2008). These developments are correlated with the deepening economic recession that arrived later to the Czech economy than to some other European markets. ^*47

Since 31 March 2009, there have been personal insolvency proceedings available in Poland. ^*48 The scope of the new regulation covers those debtors who are not involved in business (consumers). Before, insolvency proceedings were also available to so-called business individuals (individual entrepreneurs). The new law provides that only the debtor and not its creditors may file for bankruptcy. The consumer insolvency is exclusively a winding-up insolvency, which means that all of the assets will be liquidated and the creditors will be (partially) paid off by means of the proceeds. The liquidation of assets is usually managed by the appointed liquidator; however, it may be allowed for the debtor to carry it on personally under the supervision of a liquidator. ^*49 In Poland, by the end of June 2009, in the first three months of the new law being in force, there were about 450 court applications, of which only two (!) succeeded. In both cases, debtors secured their spouses’ businesses, which went bankrupt later. The statistics indicate clearly that regulation proves to be too strict with respect to both the material and the financial prerequisites for filing of an effective consumer insolvency petition. ^*50

No individual insolvency law is available in Romania and Hungary. In Hungary, there has been some discussion about introducing the concept of individual insolvency, but no laws have been adopted yet. A proposal was presented in February 2009 concerning procedures available to individuals trying to settle their claims with creditors. This draft proposes to introduce two types of individual bankruptcy:

a)  a regulated procedure that aims to establish a compromise between the debtor and his creditors—in such a procedure, the supervision of the debtor’s financial decisions is secured; and

b)  a procedure (also aimed at securing a compromise between the debtor and creditor) initiated by the request of the debtor or creditor but that does not assume an agreement with the other party. ^*51

Also, a separate new draft law on natural persons’ debt adjustment has been pending in the Estonian Parliament since 21 April 2010. ^*52 In this draft, a separate court procedure has been proposed in which an individual may apply for several debt adjustment measures. The court in debt adjustment proceedings has the leading and supervisory role in finding balanced interests between creditors and debtor. The proceedings are substantially alternative procedures to bankruptcy proceedings and aimed at preventing individuals from being involved in bankruptcy proceedings. The procedure is similar to and based on restructuring proceedings applied for reorganisation of corporate debtors as stipulated in the Reorganisation Act ^*53 , but it takes into account the different nature of the types of debtor.

2. Various aspects to address in a European cross-border insolvency system

In cases of cross-border insolvency in Europe, the European Insolvency Regulation resolves conflicts among the national law regimes and conflicts of jurisdiction among the courts of the various Member States. The regulation has three basic goals:

a)  t o provide for legal certainty in matters of cross-border insolvency;

b)  t o promote the efficiency of insolvency proceedings, by favouring those solutions that facilitate their administration and improve the ex ante planning of transactions; and

c)  to eliminate inequalities among Union-based creditors with regard to access to and participation in such proceedings. ^*54

All of these aims are closely related to creditors’ rights, whether in main and/or in territorial insolvency proceedings. ^*55 In order to achieve the above-mentioned goals, the regulation does not seek to establish a uniform code of insolvency law in the European Union.

However, uniform rules of conflict of laws—Articles 4 and 28—which replace national rules of private international law ^*56 , stipulate that the law of the state in which the proceedings are opened (lex fori concursus) is applicable for the insolvency proceedings and their effects. Because of the current rapidly changing socio-economic landscape, it can nowadays be debatable whether, as a result of widely differing national substantive laws, it was (at the time when the EIR was written) not practical to introduce insolvency proceedings with a universal scope throughout the Union ^*57 , as the drafters believed that the application of the law of the state opening an insolvency proceeding would, against this background, frequently lead to difficulties unless there were exceptions, which were drafted and stipulated in Articles 5 to 15. The rules related to the lodging, verification, and admission of claims are governed by lex fori concursus according to Article 4 (2) (h) and uniform substantive rules contained in Articles 32 and 39–42 of the EIR itself; the latter provisions also replace national rules of private international law in the Member States.

Equally important for the application of the regulation are the three annexes. These contain, respectively, a list of insolvency proceedings (Annex A), of winding-up proceedings (Annex B), and of liquidators (Annex C). These lists supplement the legal definitions contained in Article 2 of the EIR. By dictating which national legal institutions fall within the definitions, they ease the interpretation of these. According to Article 45 of the EIR, the Council of Europe, acting by qualified majority on the initiative of one of its members or on a proposal from the European Commission, may amend the annexes. ^*58 This ‘closed-list system’ ^*59 provides legal certainty, as it enables the parties applying it to ascertain exactly which proceedings fall within the scope of the regulation’s application. ^*60

The regulation permits insolvency proceedings to be opened against the same debtor (applicable to both natural and legal persons) in two or more (!) Member States. The regulation does not establish any limit to the number of the territorial proceedings that may be opened, as long as the debtor has an establishment within the meaning of Article 2 (h) of the EIR in the Member State of the opening. As indicated above, Articles 4 and 28—which replace national rules of private international law—stipulate that the law of the state in which the proceedings are opened (lex fori concursus) is applicable to the different insolvency proceedings and their effects. Finding of the proper, correctly applicable law may be incomprehensive, costly, and burdensome for individual debtors and also for creditors. Doubling of insolvency proceedings also requires double liquidators in various Member States to be appointed by the courts to handle these proceedings, which is definitely costly for the system where individuals’ insolvency proceedings are concerned.

Another aspect is that all proceedings opened after the main insolvency proceedings must necessarily be winding-up proceedings within the meaning of Article 2 (c) of the EIR. ^*61 According to the EIR, this principle applies for both individual and corporate debtors’ insolvency proceedings. Member States having seen a constantly increasing number of individuals’ insolvencies (which was not an issue in the early 1990s), the requirement stipulated in the EIR that secondary insolvency proceedings may only be winding-up proceedings, by nature, is not, in the author’s opinion, well grounded or justified anymore. An appropriate transparent regulatory measure for enabling over-indebted individuals to start over with their lives and for participants in insolvency proceedings to recognise the proceedings in other Member State is needed within the European Insolvency Regulation framework. ^*62 Whether it is to involve an abolishment of secondary proceedings from the European Insolvency Regulation framework or some further amendments to the EIR has yet to be considered. The nature of individuals’ insolvency proceedings is common to all national legal systems—in the bankruptcy of an individual, the debtor will not cease to exist, unlike corporate debtors. That secondary insolvency proceedings must be winding-up proceedings might not create difficulties in Member States that have separate forms of insolvency proceedings, such as France or Italy. ^*63 For Estonia, the proceeding listed in Annex B of the EIR is the pankrotimenetlus. Pankrotimenetlus (directly translated into English as ‘bankruptcy proceeding’) pursuant to the Estonian Bankruptcy Act’s § 2 may be either a winding-up or a reorganisation proceeding. In contrast to other legal systems, Estonian insolvency law (as is the case in Spanish law, with concurso in annexes A and B of the EIR, or German law, Insolvenzverfahren, in annexes A and B of the EIR) does not distinguish from the outset between winding-up and reorganisation proceedings. There might arise problems in other Member States in terms of the recognition and transparency of the proceeding in question. Debatable is, for instance, whether an insolvency plan proceeding under German law should be regarded as a winding-up proceeding within the meaning of the regulation. ^*64

In the author’s opinion, revision of provisions in national laws and the European Insolvency Regulation is needed in relation to questions of secondary insolvency proceedings and individual debtors (consumers). Because of the complexity of the over‑indebtedness problem, some countries have already excluded certain types of debtors from insolvency proceedings altogether, while in other countries a natural person cannot be declared bankrupt unless he acted in the capacity of a merchant. ^*65 These constantly changing policies and governmental attitudes do not make European and domestic insolvency systems more predictable, simple, transparent, and efficient for the creditors and debtors to apply. Consumer over-indebtedness may raise wider socio-economic concerns. Firstly, there are concerns of the ‘ticking time bomb’ variety. Highly leveraged consumers are vulnerable to sudden drops in income caused by changes in their personal circumstances, such as job loss, illness, or family breakdown, or changes in their general economic outlook. ^*66 For example, most Western European countries have been dependent on sustained consumer spending. Credit has been a driving force for economic growth and the welfare of consumers. Yet it also poses a risk for credit-providers and threatens additional costs and insolvency for a growing number of consumers. Secondly, there are concerns about the social impact of over-indebtedness on families and communities. Over‑indebtedness affects a significant and growing number of European consumers in all Member States. In most cases, over-indebtedness is due to increasing uncertainty in predictability of income. In other cases, changes in societal attitudes to debt and enjoying the present at the expense of the future lead to over-indebtedness.

Naturally, nothing in the regulation prevents only one set of main proceedings from being opened in the Community against the same debtor even though he has establishments operating in multiple Member States; the plurality of proceedings is simply a possibility that the regulation offers to those involved. ^*67 However, as a creditor, one should always be aware that

a)  the main insolvency proceedings have automatic universal world-wide effects ^*68 upon opening of the insolvency proceedings in respect of all the debtor’s assets, wherever such assets are located ^*69 within the Union ^*70 , and for all creditors (including residents of other Member States) as being automatically involved in these proceedings ^*71 ;

b)  the decision to request the commencement of secondary proceedings ^*72 will only make sense when the expected value of the claim in the secondary proceedings is greater than that in the main proceedings ^*73 or in situations in which it is not possible to initiate main proceedings ^*74 ;

c)  the general rule stated in Article 4 (1) of the EIR, that the lex fori concursus applies to the insolvency proceedings opened—either main or secondary proceedings—is subject to a considerable number of exceptions set out in Articles 5–15, 32, and 39– 42 of the EIR; and

d)  the effects of main insolvency proceedings will not be recognised in relation to local assets since the opening of the secondary proceedings. Once secondary proceedings are commenced, the local assets form part of those proceedings and are governed by local law. This enables local expectations with regard to such matters as local law priorities in respect of dividends and the validity of locally perfected security to be met. ^*75

In addition, most probably the creditor and the debtor need to communicate with, co‑operate with, and protect their interests in front of the foreign-language-speaking liquidator, who most probably is not familiar with foreign domestic law in cross-border insolvency cases. The task is not an easy one for all of the participants in cross-border insolvency proceedings if the insolvency system is far too complex and unpredictable.

Legislators should take into account that there are already some unpleasant examples of court cases involving individuals in cross-border insolvency proceedings—in particular, the Stojevic case. ^*76 In this case, Mr Stojevic, a Croatian national of Russian extraction, was declared bankrupt in two courts in succession, on 27 March 2003 in England and on 28  January 2004 in Austria, both proceedings being the main insolvency proceedings. The annulment of the Austrian Bankruptcy Order removed the conflict of jurisdiction between the two European countries—England and Austria—but in this case, the centre of the debtor’s main interests within the meaning of the European Insolvency Regulation, when the bankruptcy petition was filed, was actually in Austria and not in England. It took four years to resolve this matter legally, and the situation resulted in the annulment of the English Bankruptcy Order dated 27 March 2003 under Section 282 (1) (a) of the 1986 Act. The downside of this action meant that Mr. Stojevic, who had huge debts both in Austria and in England, and no assets in either country, escaped bankruptcy altogether. ^*77

3. Conclusions

Attitudes toward individuals’ bankruptcy differ significantly between individual societies and cultures. These diversities are reflected in the insolvency laws and in the policies of the respective countries, which shape both the terms of the laws and the mode of their application.

However, the nature of the proceedings is common for all legal systems—in the bankruptcy of an individual, the debtor does not cease to exist. Therefore, we often find ourselves pondering how to find a balance between the need to provide an appropriate mechanism for enabling over-indebted individuals to start over with their lives, on one hand, and social concerns that debts should be paid (moral duty).

Moral philosophy tells us that we should keep to our promises. This is the starting point of contract law as well. The key to the moral obligation to pay a debt lies in the act of promising. If we have a moral duty to keep our promises, it applies to our contractual debts too. The answer to the question ‘What makes a promise morally binding?’ will set the ethical boundaries for the public enforcement of contracts. It is logical to conclude that a society should, as a general rule, sanction only those contracts that, in some rational sense, are morally binding. There are several ways whereby promises can be seen to introduce moral force to contractual obligations. ^*78 However, Christianity has played an important role in Western culture and societies. One of its central doctrines is forgiveness, with the Bible advising us to forgive debts every seventh year. Even if the duty to keep promises is given the strictest possible interpretation, to the effect that promises must always be kept, there are circumstances (for example, involving the duty to perform impossible acts) wherein obligation simply becomes void. An insolvent debtor is under no obligation, moral or legal, to pay his debts in a society where there is a law allowing discharge. The most common argument for laws protecting debtors is that their consequences are favourable. They are seen as producing the best outcome, at least from the debtor’s and society’s point of view, but often from the creditor's perspective as well. ^*79

Among the innovative responses to the rising volume of consumer bankruptcies in many societies, specially targeted procedures are being introduced with the aim of bringing relief to those debtors with limited means, or without any regular income, who are overwhelmed by the level of their debts. When countries evaluate and reform their insolvency laws, the key question will often be how to find the appropriate balance between a variety of social, political, and economic interests that will induce all players in the economy to participate in the system.

Although the bankruptcy laws of individual countries differ in many important respects, we should keep in mind firstly that the overall aim of the bankruptcy laws should be the allocation of risks among participants in a market economy in a transparent, equitable, and predictable manner and, secondly, that the aim of the bankruptcy law is to protect and maximise value for the benefit of all interested parties and the economy in general. When determining how to strike a balance between the various objectives, it is necessary to avoid easy stereotypes—debtors are not always fraudulent or incompetent in their actions, and creditors are not always selfish and grasping. However, discharge for individual debtors should not be made available to those who have engaged in fraudulent behaviour or who have failed to disclose material information during the proceedings.

To achieve a fair and equitable allocation of consumer credit risks, the INSOL Report recommends that legislators enact regulatory means to assure a fair and equitable, efficient and cost-effective, accessible and transparent settlement and discharge of consumer and small business debts. ^*80 Whether an appropriate legal measure is an abolishment of secondary insolvency proceedings from the European Insolvency Regulation framework or some further amendments and modifications to the European Insolvency Regulation is yet to be decided.

Notes:

^*1 This research was supported by European Social Fund’s Doctoral Studies and Internationalisation Programme DoRa.

^*2 D. McKenzie Skene, A. Walters. Consuming Passions: Benchmarking Consumer Bankruptcy Law Systems. – P. J. Omar (ed.). International Insolvency Law. Themes and Perspectives. Ashgate 2008, p. 136.

^*3 J. Niemi-Kiesiläinen, I. Ramsay, W. C. Whiteford. Introduction. – J. Niemi-Kiesiläinen, I. Ramsay, W. C. Whiteford. Consumer Bankruptcy in Global Perspective. Oxford, Portland, Oregon: Hart Publishing 2003, p. 1.

^*4 Council Resolution of 26 November 2001 on consumer credit and indebtedness. – OJ 2001/C 364/01.

^*5 Council Regulation (EC) No. 1346/2000 29 May 2000 on insolvency proceedings. – OJ S 160, 30.06.2000, pp. 1–18.

^*6 J. Kilppi. The Ethics of Bankruptcy. London, New York: Routledge 1997, p. 9.

^*7 Habermas distinguishes between two contemporary legal paradigms, the liberal paradigm and the welfare state paradigm. See J. Niemi-Kiesiläinen. Collective or Individual? Constructions of Debtors and Creditors in Consumer Bankruptcy. – J. Niemi-Kiesiläinen, I. Ramsay, W. C. Whiteford. Consumer Bankruptcy in Global Perspective. Oxford, Portland, Oregon: Hart Publishing 2003, pp. 46 and 48.

^*8 Ibid., pp. 46–47.

^*9 Ibid., p. 48.

^*10 Chapter 11 is only available for natural persons of a higher net worth, whereas most natural persons will be eligible for a wage earner plan of reorganisation under Chapter 13.

^*11 M. M. L. Marques, C. Frade. Searching For an Over-indebtedness Regulatory System for Portugal and the European Union. – J. Niemi-Kiesiläinen, I. Ramsay, W. C. Whiteford. Consumer Bankruptcy in Global Perspective. Oxford, Portland, Oregon: Hart Publishing 2003, p. 121.

^*12 INSOL International, Consumer Debt Report—Report of Findings and Recommendations, May 2001. Available at www.insol.org/pdf/consdebt.pdf (15.03.2010).

^*13 Survival debts occur as a matter of survival strategy, when recurrent debts for life necessities accumulate, such as household debts (food, rent, electricity, education, clothing).

^*14 Over-consumption debts result from overconsumption by a debtor who initially may have a budget surplus, but finances an extravagant life-style with borrowed money. Typically, such a debtor enters into more than one loan, causing an increased extension of debt.

^*15 Compensation debts result from over-consumption by a debtor who typically suffers deprivation or social exclusion. It is triggered by advertising, and establishing social class, power, status or as compensation for other loss. This behavior may result in illness-related debts, gambling debts, alcoholism and mental illness.

^*16 Relational debts are acquired through connection with others because of marriage, other relationship or death. In some states, they arise by operation of law as a result of liabilities incurred by a spouse.

^*17 Accommodation debts are caused by the inability to adapt to misfortune, a sudden drop in income or unforeseen expenses.

^*18 Fraudulent debts occur when a debtor over-commits himself financially. Typically, such a debtor fails to act in good faith or deliberately attempts to defraud his creditors, either while incurring the debt or in his representations of his ability to repay. These debtors are frequently excluded from a discharge altogether.

^*19 INSOL Report, p. 1.

^*20 INSOL Report, pp. 2–3.

^*21 The dischargeability of student loans has been a contentious issue in both the US and in Canada, because the negative consequences of making discharge ‘freely available’ or ‘unfair’ since students are thought to be likely to have high future incomes. See S. Schwartz. Personal Bankruptcy Law: A Behavioural Perspective. – J. Niemi-Kiesiläinen, I. Ramsay, W. C. Whiteford. Consumer Bankruptcy in Global Perspective. Oxford, Portland, Oregon: Hart Publishing 2003, p. 80.

^*22 That is, if someone else is also responsible to pay the debt, such as a guarantor or co-obligor, then the debt may still be collected from that person or entity. Note that in most Chapter 7 cases (liquidation) of natural persons, there are no assets available to distribute to the creditors, but the debtor may still receive a discharge. See E. Stong. Fresh Start and Convergences in the Treatment of Insolvent Companies in the European Union: the United States Contribution. Forthcoming.

^*23 In the Chapter 7 case, the debtor, whether a natural person or an entity, turns over to the trustee his non-exempt assets as of the date of the filing of the bankruptcy petition, and those assets are applied to satisfy his debts as of the petition date. In a Chapter 13 case, the debtor, who may only be a natural person, commits his post-petition disposable income for up to five years to repay his creditors, in whole or in part. He must repay the creditors at least as much as they would receive in liquidation. In both Chapter 7 and Chapter 13, if the case is successful, the debtor’s pre-petition dischargeable debts will be discharged. Source: E. Stong (Note 22).

^*24 S. Schwartz (Note 21), p. 74.

^*25 J. J. Kilborn. Twenty-Five Years of Consumer Bankruptcy in Continental Europe: Internalizing Negative Externalities and Humanizing Justice in Denmark. – International Insolvency Review 2009 (18), p. 155.

^*26 J. Niemi-Kiesiläinen (Note 7), p. 48.

^*27 Ibid.

^*28 J. Lowitzsch (ed.). The Insolvency Law of Central and Eastern Europe. Twelve Country Screenings of the New Member and Candidate Countries of the European Union: A Comparative Analysis. – INSOL Europe 2007/2, p. 40.

^*29 Pankrotiseadus. Adopted on 22 January 2003. – RT I 2003, 17, 95; 2009, 68, 463 (in Estonian).

^*30 Note: not after submission of bankruptcy petition and commencement of the bankruptcy proceedings.

^*31 Bankruptcy Act § 171 (2) 3).

^*32 See Table 1. J. Lowitzsch (Note 28), pp. 41–42.

^*33 D. McKenzie Skene, A. Walters (Note 2), p. 141.

^*34 ECHR, Bäck v. Finland, Application No. 37598/97. Available at http://www.echr.coe.int/echr (15.03.2010).

^*35 See summary of A. Noordam Doctoral Thesis “Schuldsanering en goede trouw” (Debt Restucturing and Good Faith). Amsterdam: Vrije University 2007, pp. 678–679. Available at http://bobwessels.nl/wordpress/wp-content/uploads/2007/11/summary.pdf (15.03.2010).

^*36 D. McKenzie Skene, A. Walters (Note 2), p. 147.

^*37 This contrasts with the position in the US where a debtor who receives a discharge in Chapter 7 must wait eight years before qualifying for another discharge through a Chapter 7 filing. D. McKenzie Skene, A. Walters (Note 2), p. 147.

^*38 J. J. Kilborn. Comparative Consumer Bankruptcy. Durham: Carolina Academic Press 2007, pp. 48 and 89–90.

^*39 Note: The Dutch Financial Services Act (Wetfinanciële dienstverlening) and the Dutch Finance Supervisory Act (Wet financieel toezicht) have not been effective in terms of preventing consumers from falling into debt situations from which they are unable to independently extricate themselves. Debt counselling is not always effective and creditors frequently refuse out-of-court debt settlements. The Dutch Act on Debt Restructuring for Natural Persons (Wet schuldsanering natuurlijke persoonen), included in the Dutch Bankruptcy Act in 1998 and generally referred to as the Wsnp, operates as a final resort for individuals experiencing serious debt problems. In 1999, one in every 2000 people in the Netherlands were either declared bankrupt or applied to undergo Wsnp debt restructuring. This number had doubled by 2005. See A. Noordam (Note 35), pp. 667 and 678.

^*40 See E. Braun (ed.). Commentary on the German Insolvency Code. Düsseldorf: IDW-Verlag, p. 497 ff.

^*41 Latvian Insolvency Act Part D Chapter XXIV, § 149 (1).

^*42 Latvian Insolvency Act Part D Chapter XXIV, § 151.

^*43 T. Richter. Consumer Insolvency Proceedings under the New Czech Insolvency Law. Paper presented in INSOL Europe conference in Stockholm 2009.

^*44 Notably, the Act does not require that this be measured in the present value of the payments, i.e., the debtors will in effect pay less than 30 per cent of their debt.

^*45 T. Richter (Note 43).

^*46 For details see T. Richter. Insolvenční zákon v roce dva: první statistické údaje a jejich prozatimní interpretace (The Insolvency Act in Year Two: First Statistics and a Tentative Attempt at Interpretation). XVII. Karlovarské právnické dny. Praha: Linde 2009 (in Czech).

^*47 T. Richter (Note 43).

^*48 Articles 491¹–491¹² of  the Polish Bankruptcy and Reorganisation Act dated 28 February 2003 amended by the Law of 5 December 2008. – Journal of Laws 2008 (234), section 1572.

^*49 P. Filipiak. Consumer Insolvency Proceedings under the Amended Polish Bankruptcy Law. Paper presented in INSOL Europe conference in Stockholm 2009.

^*50 Ibid.

^*51 C. M. S. Cameron McKenna. Individual Insolvency in Russia and Certain Central and Eastern European Countries. September 2009.

^*52 Võlgade ümberkujundamise ja võlakaitse seaduse eelnõu seletuskiri (Explanatory Memorandum to the Draft Act on Restructuring of Debts and Debt Protection), draft act No. 743 SE. Available at http://www.riigikogu.ee/?page=en_vaade&op=ems&eid=1004095&u=20100519125501 (22.04.2010) (in Estonian).

^*53 Saneerimisseadus. 4 December 2008. – RT I 2008, 53, 296; 2010, 2, 3 (in Estonian).

^*54 M. Virgós, F. Garcimartin. The European Insolvency Regulation: Law and Practice. Kluwer Law International 2004, margin No. 5, pp. 7–8.

^*55 Territorial insolvency proceedings can be characterised as either secondary insolvency proceedings pursuant to Article 3 (3) of the EIR, or independent territorial insolvency proceedings pursuant to Article 3 (4) of the EIR, depending on whether the main proceedings have been opened or not.

^*56 See M.Virgos, E. Schmit. Report on the Convention on Insolvency Proceedings, 8 July 1996, margin No.  87 ff.

^*57 M. Virgós, F. Garcimartin (Note 54), margin No. 5, pp. 7–8.

^*58 K. Pannen (ed.) European Insolvency Regulation. De Gruyter Commentaries on European Law. Berlin: De Gruyter Recht 2007, Introduction, margin No. 45, p. 17.

^*59 M. Virgos, F. Garcimartin. The European Insolvency Regulation: Law and Practice, 2004, p. 30. – K. Pannen (Note 58), Article 2, margin No. 3, p. 52.

^*60 K. Pannen (Note 58), Article 2, margin No. 3, p. 52.

^*61 M. Virgós, F. Garcimartin (Note 54), margin No. 443, p. 235.

^*62 During the negotiations on the 1995 Draft Convention on Insolvency Proceedings, many of the Member States wished to restrict the scope of the convention to winding-up proceedings. By way of compromise, it was finally agreed that main insolvency proceedings could also be geared to the reorganisation of the debtor, but that secondary insolvency proceedings could not; these must result in a winding-up. Historical reason for this is that secondary insolvency proceedings geared to the reorganisation of the debtor could pose problems of compatibility and coordination with the main insolvency proceedings. These arguments are not well-grounded within the changed economic landscape in EU.

^*63 K. Pannen (Note 58), Article 2, margin No. 13, p. 54.

^*64 On this, see, e.g.: S. Smid. Deutsches und Europäisches Internationales Insolvenzrecht. Kohlhammer 2004, Article 2, margin No. 11; C. G. Paulus. Europäische Insolvenzverordnung. Kommentar. Frankfurt a. M.: Recht und Wirtschaft 2006, Article 2, margin No.11; K. Pannen (Note 58), Article 2, margin No. 14, p. 54.

^*65 This is the case in France, Greece, Italy, Luxembourg, Portugal and Spain. See K. Pannen (Note 58), Article 4, margin No. 40, p. 223.

^*66 D. McKenzie Skene, A. Walters (Note 2), p. 137.

^*67 M. Virgós, F. Garcimartin. The European Insolvency Regulation: Law and Practice. Kluwer Law International 2004, margin No. 418, p. 225.

^*68 Recognition based on Article 16 of the EIR.

^*69 Uniform rules determining the location of assets in Member States are determined in Article 2 (g).

^*70 Article 4 of the EIR.

^*71 Article 32 (1) of the EIR.

^*72 Article 29 (b) empowers to request the opening of secondary proceedings by any person under the law of the Member State within the territory of which the opening of secondary proceedings is requested.

^*73 It’s seems logical because the effects of secondary proceedings are restricted to assets only located in the Member State of the opening of secondary proceedings from which claims may be satisfied.

^*74 M. Virgós, F. Garcimartin (Note 54), margin No. 418, p. 225.

^*75 I. F. Fletcher. The Law of Insolvency. 3rd edition. London: Sweet & Maxwell 2002, paragraphs 31–029. – G. Moss, I. F. Fletcher, S. Isaacs (eds). The EC Regulation on Insolvency Proceedings. A Commentary and Annotated Guide. 2nd ed. Oxford University Press, 2009, margin No. 8.269, p. 307.

^*76 Case No. 9849 of 2002, High Court of Justice in Bankruptcy, London, 20 December 2006.

^*77 Ibid.

^*78 J. Kilppi (Note 6), p. 17.

^*79 Ibid., pp. 68–70.

^*80 INSOL Report, p. 14.

In the circumstances of the economic recession, saving of money and the effective use of resources has become a highly popular subject. Also the effectiveness of legal regulation is without doubt an important part of this topic. The objective is not just the ensuring of legal regulation appropriate to the society’s level of development but the ensuring of that with the least possible expense. Insolvency law and the regulation of economic relations arising from insolvency—one of the essential elements of legal order—is also of great importance and deserves at least as much attention as the rest of the elements of legal regulation. During an economic crisis, insolvency law obtains a much more prominent place in the social consciousness than usual. This is, above all, due to the rise in the number of insolvency cases (including bankruptcies). An increasing part of the society is beginning to sense insolvency-related issues as personal problems or at least as a source of personal problems.

The author of this article has set three objectives for himself: first, to examine the statistical relationship between the state’s economic circumstances and the number of insolvency proceedings; second, to ascertain the principles according to which it is reasonable to evaluate the effectiveness of insolvency regulation, which, in turn, requires definition of the objectives of the legal regulation of insolvency; and, third, to compare different types of procedures and different regulations from the standpoint of expected effectiveness. However, the article also serves a purely practical purpose: to investigate whether the regulation in force in Estonia is sustainable in the circumstances of an economic crisis, and if not, what could be done to improve the regulation. The author has proceeded from the hypothesis that the regulation currently in force is not effective enough to handle the rising number of insolvency proceedings resulting from the economic crisis, and this is not a problem unique to Estonian regulation. Although the article mostly relies on Estonian data, most of the conclusions drawn are also applicable to other countries, with similar regulations. Because of the rising trend of insolvency proceedings, it is likely that finding ways for reducing procedure expenses—above all, for improving the effectiveness of the existing types of procedures and for using such types of procedures as involve the court and the state as little as possible—is unavoidable.

2. The relationship between the number of insolvency proceedings and change in GDP

Comparing the recent years’ dynamic of bankruptcy matters filed in Estonian courts ^*1 , we will see that in 2007, there were 698 bankruptcy cases filed in courts; that is a 67.8% increase in comparison to the previous year, and the number of bankruptcy matters filed in courts in 2008 was 698, which is, in turn, 69.9% more than in the previous year. The data of 2009 are not directly comparable with those of previous years, because of a change in procedure rules ^*2 , but the total number of filings for action for proceedings concerning petition and other bankruptcy matters was 2,420, which means that the number has more than doubled. ^*3 Also, it cannot be claimed that the increase in bankruptcy matters has occurred proportionally to the decrease in other cases. In fact, both the total number of civil matters and the percentage of bankruptcy matters in relation to that number are on the rise. In 2007, 2008, and 2009, that percentage was 2.6%, 4.6%, and 8.2%, respectively. ^*4

The facts presented speak for themselves; however, for planning of the measures necessary for updating the insolvency regulation, it is not enough to state the fact that the number of insolvency proceedings is likely to keep rising in the near future. It is important to know how much and when exactly it is going to increase. To get an overview of the situation, statistical parameters descriptive of essential relations must first be determined. Unfortunately, no statistical indicator provides a complete picture of the process. Each indicator only describes specific aspects of the reality, and making some kind of selection is unavoidable. In order to examine the statistical relations between the current economic situation and the number of bankruptcies, the author has chosen the following statistical indicators:

1.  Change in gross domestic product calculated via chain-weighting method in comparison with the same period of the previous year (real GDP growth) has been used as a characteristic of the dynamic of the state’s economy. As shown by this indicator, Estonia’s economic growth was relatively stable in the years 2001–2005, was exceptionally rapid in 2005 and 2006, began to decrease in 2007, and turned negative in 2008. In 2009, the downturn became very rapid. Such a development curve coincides very well with the common understanding of the development trends of the Estonian economy.

2.  The number of court-declared insolvency cases of companies—i.e., abated and declared bankruptcies—has been used as an indicator characteristic of the number of insolvency proceedings. The collected data indicated that the result does not change substantially with use of the ratio of the number of insolvency cases to 10,000 registered undertakings.

To get a good overview, it would be practical to use time-series that are as long as possible, but, unfortunately, the options are limited here. All elements of a time series must be determined on the same bases. In the years following the entry into enforcement of Estonia’s first Bankruptcy Act (hereinafter ‘BankrA’) in 1992 ^*5 , the number of bankruptcies was very small because the launch of the new system required some break-in time, while the number of registered companies was very large as a result of the low cost and ease of business registration proceedings. The number of companies registered in Estonia experienced a significant change in the years 1995–1997, when the principles for founding companies changed and companies were reregistered, moving from the register of enterprises, agencies, and organisations to the commercial register. Therefore, it would be misleading to compare the indicators of the years up to 1997 with those of recent years, which is why earlier years have been discarded in this study. The data, presented in table form, are the following:

^{*6   *7}

In order to show trends, the data have been presented in a line graph:

I will leave more precise correlation calculations to mathematicians, but it is easy to see the clear negative relation between GDP and the number of insolvency cases—the graph lines mirror each other. By examining the maximum and minimum points, one may notice that the relation occurs with a shift of about a year. This could also be formulated by saying that today’s trends of GDP change are realised as a corresponding growth or decline in the number of bankruptcies one year later. Given the duration of bankruptcy proceedings ^*8 , the effect is likely to persist for many years. Decline in GDP therefore increases the work load of courts for more than a year.

It could be said that the author is ‘breaking through an open door’, and that such a result is entirely expected and this dependency has been noted in the professional literature before. ^*9 However, given the novelty of the situation for Estonia, pointing out this problem in such a way is probably necessary nevertheless. It is relevant to analyse whether and to what extent this (presumably well-known) trend has been taken into account in planning of the developments of the coming years. First and foremost, the question must be answered of whether the existing regulation is effective and inexpensive enough to be able to handle the sharp increase in the number of insolvency proceedings that is very likely to occur in the near future. Given that Estonia lacks experience with crises comparable to the current economic crisis, the study must rely mainly on the experience of other countries. As regards the economic effectiveness of the procedure, there are, however, several opportunities for drawing important conclusions from the statistics for insolvency proceedings in Estonia. Since reorganisation proceedings are still a very young type of procedure in Estonia, it is mostly the statistics pertaining to bankruptcy proceedings that can be used.

3. Evaluation of the effectiveness of the legal regulation of insolvency

The effectiveness of a system can be viewed as the ratio of the level of achievement of the system’s objectives (the effect gained) to the resources employed or the expenses used to achieve this. ^*10 In order to evaluate a regulation’s effectiveness, the objectives of the regulation must, therefore, be determined first. Without a clear idea of the objectives, the level of their achievement cannot be evaluated. Metaphorically speaking, a ship without a target port cannot have a stern wind. By formulating the objectives, one can evaluate to what extent and with what expenses the existing regulation aids in achieving these objectives or, to put it differently, how effective the regulation is. All of the above also applies to the legal regulation of insolvency. If one is to be able to choose between alternative regulations and the different possible procedures, evaluating their effectiveness is of central importance.

Fair distribution of the debtor’s assets among the creditors has been regarded as the principal objective of bankruptcy proceedings. ^*11 Such an approach shows vividly why execution proceeding for insolvent subjects must be regulated separately from the usual execution proceeding ^*12 , but it fails to explicate the general objectives of insolvency regulation. If the equal treatment of creditors is considered the sole objective of bankruptcy proceedings, the objective is achieved even if the requirements are not met at all. In more general terms, ensuring fair distribution or putting the creditors in an equal position can only be one component of the objective, one part of the complete system of objectives. The author of this article believes that two sides can be distinguished in this system of objectives. Some authors highlight the component targeted at protecting public interest by claiming that the main objectives of any insolvency regulation are a foreseeable, fair, and transparent distribution of risks among business participants and the preservation and increasing of value for the benefit of all interested parties and the economy in general ^*13 , whereas others emphasise the component targeted at protecting private interests by claiming that the objective is to distribute the debtor’s assets fairly among the creditors. Both sides have a sense and substance particularly in the economic context. The question of whether the regulation could also have non-economic objectives is beyond the scope of this article. In the following passages, the focus is on economic objectives.

In studies and literature on Law & Economics, the economic aspects of a regulation’s objective have been examined quite thoroughly. Using the terms of Law & Economics, one can claim that the economic objective of any insolvency proceeding (including a bankruptcy proceeding) is the maximally efficient allocation of resources after the completion of the insolvency proceeding and its achievement with minimal transaction costs. ^*14 Therefore, from the perspective of Law & Economics, what matters is

–    how many resources (money and time) are spent on an insolvency proceeding and how these expenses are distributed (the amount and structure of transaction costs); and

–    how many resources are redistributed by means of insolvency proceedings and what the proportion (ratio) is of transaction costs and the resources to be redistributed. 

The effectiveness of the regulation can thereby be measured in three different stages of the process:

1)  ex ante (before the insolvency proceeding);

2)  interim (during the proceeding); and

3)  ex post (after the proceeding). ^*15

In the first stage, in a situation where the particular insolvency proceeding is not yet being discussed but investments are planned, credit agreements are concluded, and decisions are made with regard to capital structure etc., the regulation is effective if it prevents the launching of unpromising business plans and creates the conditions for the emergence of as few insolvency cases as possible. ^*16 A good system must eliminate the possibility of using the bankruptcy proceeding malevolently, among other things. ^*17

Unfortunately, it is very difficult to evaluate the effectiveness of the regulation empirically ex ante. ^*18 The views expressed in the professional literature vary greatly, and the results of comparison of different studies can be quite surprising. For instance, it has been ascertained that bankruptcies are more frequent in countries where the legal system is more developed and the rights of creditors are better protected. ^*19 Several authors have concluded that the great debate of recent decades between two fundamentally different systems of insolvency law (the pro-debtor and pro-creditor system) is, at least from the economic perspective, rather immaterial—economic research shows that there is no statistically significant correlation between the effectiveness indicators of insolvency law and the pro-debtor/pro-creditor system. ^*20 More important than the harshness or gentleness of the regulation towards the debtor is the efficiency of the bankruptcy proceeding. ^*21

In the second stage (during the insolvency proceeding), the regulation is effective if it permits solving problems quickly and overcoming insolvency. For the most part, this involves finding a procedure that is as inexpensive and effective as possible. The central problem here is the amount of procedure expenses, but also the distribution of expenses among the various parties is very important. If the protection of private interests is considered important among the objectives of the regulation, it would be reasonable, for example, to reduce the role of courts; if the public interest is highly valued, the opportunities for extra-judicial proceedings should be reduced. These questions no doubt deserve in-depth analysis, which is also being performed quite extensively.

In the third stage, the effectiveness of the regulation can be evaluated empirically by examining, among other things, the direct costs of the process, the recovery rate, the observance of distribution rules, and the duration of the process. ^*22 The direct costs of the procedure can be defined as the payments made during the procedure period in order to cover the procedure expenses. This includes the fees of administrators and other consultants as well as all other costs (including those of judicial proceedings) that are directly related to the implementation of the procedure. Recovery rate is defined as the quotient of the total amount paid to all creditors and the sum of the protected claims. ^*23 In the third stage, the regulation is effective if post-procedure payments are as large and fair as possible, the costs of the process are minimal, and those involved in the procedure are satisfied with the course of events. It is this aspect of effectiveness that economists tend to study, and some authors believe that discussion around bankruptcy law is typically preoccupied with ex post efficiency. ^*24

Regardless of stage, the evaluation of effectiveness requires clarity with regard to the objectives of the regulation. As noted before, the objective of the insolvency regulation is a complex, multi-level, and sophisticated system, in which the particular components of the objective may contradict each other. Such complexity of objectives also necessitates a complex approach to the procedure. Many specialists believe that, when it comes to increasing both ex ante and ex post effectiveness, the keyword is diversity. The claim that the complexity of the regulation provides a relative advantage with regard to effectiveness has been confirmed by studies. ^*25 In September 2003, the report Best Project on Restructuring, Bankruptcy and a Fresh Start,prepared by experts working under the auspices of the European Commission, was published. ^*26 One of the main conclusions of the experts was that legal regulation should provide an opportunity to avoid liquidating bankruptcy proceedings in suitable cases. The possibility of using different types of insolvency proceedings and the employment of economic factors to foster optimal choice are of great importance here. The authors of a study prepared by the International Monetary Fund claim with good reason that in the development of insolvency legislation by states, the key question is how to find such a balance among the different social, political, and economic interests as would prompt all those involved in economic processes to participate actively in the system to be created. ^*27 In essence, this is the formulation of the objective of the legal regulation of insolvency ex ante. The ways of overcoming insolvency should be viewed as a unitary complex that enables finding an appropriate method for solving each individual case. In the event of equal efficiency, cheaper types of procedure should be favoured. It is important to ensure not only the multitude of options but also the opportunity for smooth transition from one alternative to the next. ^*28

The system of the objectives of the regulation cannot be viewed as a definite and unchangeable catalogue in the order of importance. In consideration of the changes in the economic situation, the different components of the objective can have different weights in different stages of development. In a situation of rapid economic development, the progress of the regulation toward greater formalisation was understandable, which also inevitably entailed an increase in the importance of courts and other institutions, whereas in the circumstances of an economic recession, the idea of saving resources dictates that attention should be focused on reducing procedure expenses and advancing informal procedures. The system should be not only complex but also dynamic. But is that idea practicable in, for example, Estonian circumstances?

Formally speaking, there are only two insolvency proceedings currently used in Estonia: the (liquidating) bankruptcy proceeding and reorganisation. From a practical standpoint, however, it would be reasonable to consider also as separate types of procedures rehabilitation under the bankruptcy proceeding, compromise both under and outside the bankruptcy proceeding, and abatement of bankruptcy. In special cases, also the establishment of creditors’ control and compulsory dissolution can be employed as ways of overcoming insolvency.

Lawyers and practicians agree that the ineffectiveness of insolvency proceedings at a microeconomic level and ex post is mostly due to the bankruptcy being filed for too late, when the debtor is already in an irrevocably bad economic state. ^*29 But could this problem be eliminated by improving the regulation? Perhaps it would be possible, by legalising additional alternatives, to make the debtors assess their solvency at an earlier stage in their monetary trouble and thereby take action earlier? Given that this problem occurs in different countries to a differing extent, there is reason to assume that some relation to the regulation in force exists. In many countries, the number of types of procedure possible is much greater than in Estonia, and it is being increased even further. In France, for instance, the number of possible procedures has risen significantly in recent years. ^*30 Perhaps Estonia should consider this option as well.

4. Ways of overcoming insolvency in Estonia

Classical (liquidating) bankruptcy proceeding .An important step in the development of Estonian insolvency law is the amendments to the Bankruptcy Act that entered into force on 1 January 2010. ^*31 The amendments partially result from the need to specify the objectives of the bankruptcy proceeding and to emphasise the effect of the regulation ex ante. The authors of the amendment find, for example, that the state should ensure that insolvent legal entities do not participate in civil circulation, because that might restrict that civil circulation. The state is able to fulfil this task only if it tries to remove all associations without assets from circulation either through bankruptcy proceedings or via liquidation proceedings. ^*32 This wording also conceals the main shortcoming of the Estonian regulation—our regulation tends to favour ‘removal from circulation’ over transforming into solvent, and state-organised proceedings over the initiative of the concerned parties. First and foremost, an attempt should be made to overcome insolvency while maintaining the debtor, and the debtor should be removed from commerce only if there is no other option. The regulation in effect has indeed provided some opportunities for this ^*33 ; the use of those opportunities, however, has succeeded only in exceptional cases.

Abatement of the bankruptcy proceeding .Considering the very large percentage of abated bankruptcies in Estonia, this subclass of proceedings deserves special attention. The main problem of the regulation in force might well be the fact that, because of abatement of bankruptcies, liquidating bankruptcy proceedings do not usually fulfil their most direct objective, which is, pursuant to § 2 of the Bankruptcy Act as in force, the satisfaction of the creditors’ claims from the debtor’s assets. This is confirmed, for example, by the statistics concerning the abatement of bankruptcies published by the Statistical Office and the Ministry of Justice. In the years 2002–2004, bankruptcy was left undeclared on account of abatement in almost half of the insolvency cases identified by the court. ^*34 Usually the reason for the abatement of proceedings ^*35 was the insufficiency of the debtor’s assets even for covering the expenses of the bankruptcy proceeding, which is why all claims were left fully unsatisfied. The Statistical Office and the Ministry of Justice have not disclosed the statistics for more recent years, but, according to the data published in the one relevant study, the situation has not improved in the following years; in fact, the contrary holds true: in more recent years, the proceedings have been abated in sometimes more than half of the cases where insolvency has been identified by the court. ^*36 In cases of abatement of bankruptcy proceedings, even the expected direct procedure expenses exceed the value of the resources to be distributed. The actual redistribution of resources takes place before the start of the official procedure and is verifiable only to a very limited extent and post factum. Therefore, this is an extremely ineffective procedure and the development of the regulation should be targeted at reducing the number of such proceedings.

Rehabilitation and compromise under the bankruptcy proceeding .The concept of rehabilitation was first explained in Estonian law with § 57¹ of the first Bankruptcy Act, in the formulation that entered into force on 1 February 1997: rehabilitation of a debtor that is a legal entity consists in the application of measures that enable the satisfaction of the claims of the creditors through the continuation of the debtor’s economic activity. Unfortunately, this regulation has been used in very few instances in the course of this long time span. Despite its several amendments, the Bankruptcy Act in force in Estonia still has one (perhaps formal) deficiency: in the case of a company, compromise also requires rehabilitation, since, pursuant to § 179 (1) of BankrA, the company’s rehabilitation plan is always included as an annex to the compromise proposal if the debtor is involved in economic or professional activity. Compromise aimed at saving on procedure expenses and resulting in the liquidation of the company is ruled out, at least pursuant to this provision. This fault would be easy to remove by means of a simple amendment. Also the reorganisation proceeding, whose enforcement has been welcomed by Estonian lawyers ^*37 and recognised as a positive step forward by foreign experts ^*38 , could do without this deficiency.

Reorganisation . The procedure of reorganisation has now been in use in Estonia for more than a year ^*39 , and attempts to use it have been quite frequent. However, the effect of the new regulation is difficult to assess at first. Studies by researchers in field of Law & Economics have confirmed, on the basis of statistical research, that the reorganisation proceeding has high microeconomic effectiveness. According to some studies, the payments to creditors in the case of reorganisation of large public companies are almost twice as big as in the case of sale in bankruptcy going-concern sales. ^*40 Researchers have also pointed out that an advantage of the reorganisation option should prompt the debtor to deal with its insolvency issue in an earlier stage. ^*41 At the same time, it has been claimed that reorganisation is a suitable method for large-scale companies only, and in the case of small companies, selling of the bankruptcy estate in the form of going-concern is preferable. ^*42 It must be noted that, according to the criteria of the world economy, there are practically no large-scale companies in Estonia. Most of our companies qualify as small companies. ^*43 The size of the companies that are winding up, in turn, is exhibiting a trend of decreasing. In the years 2002–2006, almost half of the dissolved companies had 1–4 employees. The percentage of the companies that had operated without employees during their last year of activity also grew significantly: in 2003, the percentage was 18%, whereas by 2006, this indicator had doubled, reaching 40%. Companies with 10 or more employees made up under four per cent of those liquidated in 2006. ^*44

The first steps of the reorganisation proceeding in Estonia confirm the suspicions of the sceptics. The relatively large number of reorganisation applications submitted to courts and the very low rate of their satisfaction ^*45 show that the reorganisation proceeding is only just seeking its place among insolvency proceedings. So far, the legalisation of this proceeding has somewhat reduced the overall effectiveness of insolvency proceedings. It is becoming customary that first of all, an attempt is made to reorganise the debtor, but afterwards a bankruptcy proceeding must nevertheless be performed also. If the reorganisation proceeding turns out to be just a means for delaying the submission of a bankruptcy petition, the effect of this regulation can ex ante be regarded, rather, as negative. One expensive proceeding is thereby replaced by two expensive proceedings instead of a cheaper one. However, these might prove to be transitional problems.

Compromise under the law of obligations . Considering the high costs related to bankruptcy and reorganisation proceedings, one finds it in the interests of both the creditors and the debtor to forgo proceedings. The creditors would agree (if they had enough information) to partially abandon their claim in order to hasten the recovery of money and save on procedure expenses, while the shareholders and board members of the debtor would agree to liquidate the company in order to relieve themselves of the inconveniences resulting from the bankruptcy proceeding. Pursuant to the regulation in force in Estonia, this is possible only with the consent of all creditors. The achievement of a consensus, however, is extremely difficult in practice. In order to gain the consent of all creditors, the need may arise to fully satisfy the claims of the creditors who refuse to co-operate. If a bankruptcy proceeding of the debtor must later be initiated despite the compromise, this can be regarded as unequal treatment of creditors under § 113 (1) 2) of BankrA, and the performance can be recovered. Such a regulation does not favour co-operation between creditors. The important advantages of a compromise reached in the course of a bankruptcy proceeding emerge here—the binding nature of the decision made also for those who did not support the compromise and a decision that can be used as an execution document. While making a compromise with a majority vote is probably not transferable to informal procedure, the version of the Conciliation Act that entered into force on 1 January 2010 provides a new opportunity for formalising the decision as an execution document. ^*46 At first sight, referring the conciliation procedure to the subject of insolvency might seem artificial, but the result of conciliation activity can, among other things, also be a multilateral compromise. Pursuant to § 14 of the act, such an agreement can in some cases also be formalised as an execution document.

Creditors’ control . In some cases, the option of overcoming insolvency through establishment of creditors’ control—whether permanent or temporary—should be considered. The former can be done, for example, by increasing share or stock capital in a special issue to creditors. The creditors pay for the acquired holding by setting off claims. Such a procedure is enabled in Estonia by §§ 194¹ and 346 of the Commercial Code. ^*47 Temporary control is possible, for example, in the event of selling of the debtor’s shares or stocks from shareholders to creditors with the right of repurchase, as permitted under §§ 238 and 242 of the Law of Obligations Act. ^*48 In several countries, creditors’ control as a form of procedure is relatively common. One of the best-known systems of establishing creditors’ control is the procedure developed and promoted by the Bank of England—the so-called London approach. ^*49 The use of this procedure spread mainly in the financial sector ^*50 and received recognition from scientists and practicians also in other countries. ^*51 The procedure is largely based on the assumption that the majority of the claims against the debtor have converged in the hands of one creditor. Moreover, activity is governed more by custom than by law. ^*52 In the presence of similar preconditions, such a procedure can also be used in Estonia. At least one such case has already been discussed in the media. ^*53 Given that, from the perspective of written law, this is an informal procedure, internationally recognised practice could largely be relied on, and amendment of the existing laws is not unavoidably necessary. The designs to be used and the descriptions of working principles have been compiled and issued as recommended materials. ^*54

Deletion from the register . Even just a few years ago, an extremely easy and inexpensive insolvency proceeding was in use in Estonia. If a company or a commercial association lacked assets, the registrar gave a warning to the company about deletion from the register and issued a relevant notice. If the company had not submitted data on the existence of assets to the registrar within four months from the date of the warning, the registrar deleted the company from the commercial register. Presumably, this procedure was abandoned on account of its potential misuse. Unfortunately, the commercial register still contains a significant number of companies that are of no economic interest to anyone. Their voluntary liquidation at the initiative of shareholders or stockholders could be hindered for various reasons, while the completion of a classical liquidating bankruptcy proceeding can take up a disproportionately large amount of resources. It is in the public interest to, on the one hand, remove insolvent companies from circulation and ensure the conformity of the commercial register data to reality and, on the other hand, do this as cheaply as possible. To perform this task, it is reasonable to provide for procedures of differing complexity, depending on how much the society or the creditors are prepared to spend on conducting the particular procedure. In the case of a hopelessly insolvent company, using the state’s resources for the activity of the court, the temporary trustee in bankruptcy, and other participants in the procedure is reasonable only in the presence of public interest in the procedure. In the absence of such interest, this simplified deletion procedure could, in the author’s opinion, well be used with those companies. If somebody is interested in the performance of a more thorough procedure, he should certainly be guaranteed such an opportunity. Publication of a relevant notice in the media should also exclude the misuse of this simplified procedure.

As mentioned above and as the International Monetary Fund has also recommended to us, the development of insolvency law in Estonia should better facilitate the use of extra‑judicial proceedings. ^*55 According to the experts of the World Bank, however, all ‘semi-informal’ ways of saving the debtor must also be utilised. ^*56 For that purpose, it is important to familiarise the concerned parties with the alternative methods of overcoming insolvency, including semi-formal and informal procedures that might be even more effective than formal procedures from an economic standpoint. ^*57

It would certainly increase the options if the regulator were to consider providing some safeguards to the debtor for the time during which the debtor regards the restoration of solvency as possible and is actively involved in restoring solvency or negotiating to achieve a compromise. Such an option of so-called bankruptcy protection exists in several countries, such as France. ^*58 In regulation of the insolvency proceedings that take place without the direct involvement of a court, the possibility of applying four essential principles, depending on the case, should be considered:

1)  the binding nature of decisions associated with an alternative procedure also for those creditors who were themselves not in favour of such a procedure;

2)  the immunity of the debtor to judicial claims (including bankruptcy petitions) during the procedure;

3)  increasing the options for improving the debtor’s situation, especially the opportunity for recovering assets; and

4)  suspending the charging of interest on the claims against the debtor.

In practical terms, the application of such measures would mean giving official recognition to informal restructuring. There are several objections to this, but in certain cases, especially in the circumstances of an economic crisis, this might be expedient.

5. Conclusions

The article has demonstrated, using Estonia as an example, that the number of insolvency proceedings has a negative correlation with economic growth. Moreover, the trends of GDP change are realised as a corresponding increase or decrease in the number of bankruptcies about a year later. This leads to the conclusion that the number of insolvency proceedings and that of the related court cases is going to rise in the near future. Also their proportion among all civil matters is going to increase. Stating the fact that the objective of the insolvency regulation is a complex, multi-level, and sophisticated system wherein individual components of the objective might even contradict each other to a certain extent, the article focused on examining the economic effectiveness of the complex of objectives ex post. The author of the article is convinced (especially in view of the large percentage of abated bankruptcies) that the regulation in force in Estonia is not economical enough, in financial terms, and does not ensure maximal utilisation of resources. However, this is not a problem unique to Estonia. Presuming that there is a need to save resources in the circumstances of an economic recession, creating different opportunities and favouring procedures that involve the state and other institutions as little as possible should be given top priority in the advancement of the insolvency regulation.

The means of overcoming insolvency should be regarded as a unitary complex that enables finding an appropriate method for solving each individual case. The studies that this article refers to have come to the conclusion that the complexity of a regulation provides relative advantage in terms of effectiveness. It is important to ensure not only a multitude of options but also the opportunity for smooth transition from one alternative to the next. In the event of equal efficiency, cheaper types of procedure should be favoured. The article took a closer look at the changes in the regulation of different insolvency proceedings in the recent past and also at potential developments in the near future. In a situation of rapid economic development, the progress of the regulation toward greater formalisation was understandable, which also—inevitably—entailed an increase in the importance of courts and other institutions, whereas in the circumstances of an economic recession, the idea of saving resources dictates that attention should be focused on reducing procedure expenses and advancing informal proceedings. The system should be not only complex but also dynamic.

In addition to the enforcement of new legislation, the communication of legal and economic knowledge to all undertakings is important. Quite a few insolvency cases could be resolved more easily and inexpensively if those involved had a clear overview of the various options and were able to predict their economic efficiency. Hence, it is not only the enforcement of a complex regulation that is important but also the introduction of the opportunities of said regulation to the parties concerned.

Notes:

^*1 Kohtute statistika 2007. aasta kokkuvõte (Summary of Court Statistics for 2007); Kohtute statistika 2008. aasta kokkuvõte (Summary of Court Statistics for 2008). Available at http://www.kohus.ee/10925 (21.03.2010) (in Estonian).

^*2 With the Amendment Act of the Code of Civil Procedure and the related acts (Tsiviilkohtumenetluse seadustiku ja sellega seonduvate seaduste muutmise seadus. – RT I 2008, 59, 330, 284 (in Estonian)), adopted on 10 December 2008 and enforced on 1 January 2009, the initiation of bankruptcy proceedings, the declaration of bankruptcy, and the matters related to bankruptcy proceedings that cannot be settled by action were classified under matters to be settled by proceedings on petition. That also changed the way they were reflected in court statistics.

^*3 I ja II astme kohtute statistilised menetlusandmed. 2009. aasta kokkuvõte (Statistical Procedure Data of Courts of 1st and 2nd instances. Summary for 2009). Available at http://www.kohus.ee/orb.aw/class= file/action= preview/id= 49783/I+ja+II+astme+kohtute+menetlusstatistika+2009.a.pdf (21.03.2010) (in Estonian).

^*4 Kohtute statistika 2007. aasta kokkuvõte (Summary of court statistics for 2007); Kohtute statistika 2008. aasta kokkuvõte (Summary of court statistics for 2008); I ja II astme kohtute statistilised menetlusandmed (Statistical procedure data of courts of 1^st and 2^nd instances); 2009. aasta kokkuvõte (Summary for 2009). Available at http://www.kohus.ee/10925  (21.03.2010) (in Estonian).

^*5 Pankrotiseadus. – RT I 1992, 31, 403; 2002, 44, 284 (in Estonian).

^*6 Ettevõtlus arvudes 1998–2000 (Business in Numbers, 1998–2000). Tallinn: Justiitsministeeriumi registrikeskus 2001, p. 14 (in Estonian); Paneeluuring. Pankrotid Eestis /2002/ (Cohort Study. Bankruptcies in Estonia /2002/). Tallinn: AS Krediidiinfo 2003, p. 4 (in Estonian); Paneeluuring. Pankrotid Eestis /2004/ (Cohort Study. Bankruptcies in Estonia /2004/). Tallinn: AS Krediidiinfo 2005, p. 4 (in Estonian); Pankrotid Eestis 2007. Paneeluuring (Bankruptcies in Estonia 2007. Cohort Study). Tallinn: AS Krediidiinfo 2008, p. 5 (in Estonian).

^*7 Change in chained GDP value in comparison with the same period of the previous year. Available at http://www.stat.ee/43098 (in Estonian); Press release of the Statistical Office, 11.03.2010: Mullu jäi SKP suurim langus II kvartalisse (The Biggest Decrease in GDP Occurred in the 2nd Quarter Last Year). Available at http://www.stat.ee (21.03.2010) (in Estonian).

^*8 In the one currently available study that covers Estonia, the average duration of a proceeding is shown to be three years in Estonia. See 10 aastat pankrotimenetlust – mõnel pool tavaline (10 Years of Bankruptcy Proceeding—Common in Some Areas). Äripäev. Finantsjuhtimine. 2006/4, p. 12. Available at http://www.aripaev.ee/pdf/infoleht/fj jaanuar 2006.pdf (21.03.2010) (in Estonian).

^*9 See, e.g., P. Ilmakunnas, J. Topi. Microeconomic and Macroeconomic Influ ences on Entry and Exit of Firms. – Bank of Finland. Discussion Papers 1996/6, p. 24.

^*10 U. Mereste. Majandusleksikon (Dictionary of Economics). Tallinn 2003, p. 145 (in Estonian).

^*11 K. Siibak, P. Kama, M. Vutt. Majandustegevuse õiguslikust keskkonnast Eestis (On the Legal Environment of Economic Activity in Estonia). Tartu: TÜ 1997, p. 108 (in Estonian).

^*12 The general procedure of execution proceeding in force in Estonia might put creditors in unequal positions—claims are satisfied in the order of their submission for execution, and those who initiate execution proceeding earlier, gain an advantage. In a situation where the assets do not suffice to satisfy all claims, the regulator has deemed it necessary to place all creditors in an equal position.

^*13 Orderly and Effective Insolvency procedures. International Monetary Fund 1999, p. 8. Available at http://www.imf.org/external/pubs/ft/orderly/.

^*14 F. Cabrillo, B. W. F. Depoorter. Bankruptcy Proceedings. Encyclopedia of Law and Economics. Gent 2000, p. 261.

^*15 O. Couwenberg, A. Jong. Costs and recovery rates in the Dutch liquidation-based bankruptcy system. – European Journal of Law and Economics 2008/26, p. 107; J. R. Franks, K.G. Nyborg, W. N. Torous. A comparision of US, UK, and German insolvency codes. – Financical Management 1996/25, pp. 86–101.

^*16 S. Claessens, L. F. Klapper. Bancruptcy around the world: Explanations and relative use. – American Law and Economics Review 2005/7, p. 283.

^*17 F. Cabrillo, B. W. F. Depoorter (Note 14), p. 264.

^*18 O. Couwenberg, A. Jong (Note 15), p. 108.

^*19 S. Claessens, L. F. Klapper (Note 16), p. 258.

^*20 O. Couwenberg, A. Jong (Note 15), p. 125; G. Recasens. Financial Reorganization under Pro-creditors Bankruptcy Laws. – Finance India 2004 (18) 1, p. 643; R. Blazy, B. Chopard, A. Fimayer. Bankruptcy law: a mechanism of governance for financially distressed firms. – European Journal of Law and Economics 2008/25, p. 255.

^*21 M. Brouwer. Reorganization in US and European Bankruptcy law. – European Journal of Law and Economics 2006/1, p. 5.

^*22 O. Couwenberg, A. Jong (Note 15), p. 108.

^*23 Ibid., p. 106.

^*24 D. Smith, P. Strömberg. Maximizing the value of distressed assets: Bankruptcy law and the efficient reorganization of firms. Systematic Financial Crisis: Containment and Resolution. Cambridge University Press 2005, p. 237.

^*25 S. Djankov, O. Hart, C. McLiesh, A. Shleifer. Debt Enforcement around the World. – Journal of Political Economy 2008 (116) 6, p. 1107.

^*26 Best Project on Restructuring, Bankruptcy and a Fresh Start. Available at http://europa.eu.int/comm/enterprise/ entrepreneurship/support_measures/ failure_bankruptcy/pdf_final_report/ (27.01.2010).

^*27 Orderly and Effective Insolvency Procedures. International Monetary Fund 1999, p. 13. Available at http://www.imf.org/external/pubs/ft/orderly/ (27.01.2010).

^*28 Principles and Guidelines for Effective Insolvency and Creditor Right System. The World Bank 2001, p. 8. Available at http://www.worldbank.org/ifa/ipg_eng.pdf (27.01.2010).

^*29 J. A. A. Adriaanse. Restructuring in the shadow of the law. Informal reorganization in the Netherlands. Dissertation. Univesity of Leiden 2005, p. 142 Available at https://openaccess.leidenuniv.nl /bitstream /1887/ 9755/1/ Dissertation_Adriaanse.pdf; J. Luik. Saneerimine eeldab reaalset tegevust ja mastaapi (Reorganisation Requires Real Activity and Scope). – Eesti Majanduse Teataja 2010/1, p. 43 (in Estonian).

^*30 Insolvency Law Reform In France: Three Years On. Contributed by Denton Wilde Sapte Law Office. Paris, 12.06.2009. Available at http://www.internationallawoffice.com/Newsletters/Default.aspx.

^*31 Kohtutäituri seadus (Bailiffs Act). Adopted on 9.12.2009. – RT I 2009, 68, 463 (in Estonian).

^*32 Seletuskiri kohtutäituri seaduse eelnõu juurde. Eelnõu nr 462 SE (Explanatory Memorandum to the Draft Bailiffs Act. Draft No. 462 SE), p. 36. Available at http://www.riigikogu.ee/?page= en_vaade&op= ems&eid= 594370&u= 20100129115045 (27.01.2010) (in Estonian).

^*33 Bankruptcy Act provides for the opportunity of rehabilitation and compromise under the classical bankruptcy proceeding.

^*34 Pankrotiavaldused esimese astme kohtus. Statistikaamet (Bankruptcy Petitions in Court of First Instance. Statistical Office). Available at http://pub.stat.ee/px-web.2001/Dialog/varval.asp?ma= Js133&ti= PANKROTIAVALDUSED+ESIMESE+ASTME+KOHTUS &path../Database/Sotsiaalelu/ 17Eigus_ja_turvalisus/04Eigussusteem/ &lang= 2 (in Estonian); Pankrotiasjade statistika 2002 kuni 2004. Justiitsministeerium (Statistics of Bankruptcy Matters from 2002 to 2004. Ministry of Justice). Available at http://www.just.ee/orb.aw/ class= file/action= preview/id= 11457/pankrotistats.pdf (27.01.2010) (in Estonian).

^*35 In the Bankruptcy Act in force up to 1 January 2004, the concept of abatement was broader that in the current act. See §§ 15 (1) and 93 of Bankruptcy Act.

^*36 Paneeluuring. Pankrotid Eestis (Cohort Study. Bankruptcies in Estonia). Tallinn: Krediidiinfo AS 2008, p. 5 (in Estonian) .

^*37 J. Luik (Note 29), p. 43 (in Estonian).

^*38 Republic of Estonia: Staff Report for the 2009 Article IV Consultation. International Monetary Fund. IMF Country Report No. 10/4, January 2010. Available at http://www.imf.org/external/pubs/ft/scr/2010/ cr1004.pdf (27.01.2010).

^*39 Saneerimisseadus (Reorganisation Act). Adopted on 4.12.2008. – RT I 2008, 53, 296; 2010, 2, 3 (in Estonian).

^*40 L. M. LoPucki, J. W. Doherty. Bankruptcy Fire Sales. – Michigan Law Review 2007 (106) 1, p. 44; O. Couwenberg. Survival Rates in Bankruptcy Systems: Overlooking the Evidence. – European Journal of Law and Economics 2001 (12), p. 270.

^*41 A. S. Ravid, S. Sundgren. The comparative efficiency of small-firm bankruptcies: a study of the US and Finnish bankruptcy codes. – Financial Management 1998 (27) 4, p. 31.

^*42 G. McCormak. Rescuing Small Businesses: Designing an “Efficient” Legal Regime. – The Journal of Business Law 2009/4, p. 299; O. Couwenberg (Note 40), p. 273.

^*43 See, e.g., G. McCormak (Note 42), p. 316.

^*44 S. Sutova. Ettevõtluse demograafia (Business Demographics). – Teemaleht 2008/4. Available at http://www.stat.ee/30598 (21.03.2010) (in Estonian).

^*45 L. Linnamäe. Saneerimisseaduse autor: paljude firmade päästmine ebaõnnestubki (Author of Reorganisation Act: The Saving of Many Firms Indeed Fails). – E24 Majandus, 7.07.2009. Available at http://www.e24.ee/?id= 139280 (27.01.2010) (in Estonian).

^*46 Lepitusseadus (Conciliation Act). Adopted on 18 November 2009. – RT I 2009, 59, 385 (in Estonian).

^*47 Äriseadustik. Adopted on 15.02.2005. – RT I 1995, 2628, 355; 2010, 20, 103 (in Estonian).

^*48 Võlaõigusseadus. Adopted on 26.09.2001. – RT I 2001, 81, 487; 2010, 7, 30 (in Estonian).

^*49 See P. Kent. The London Approach. – Journal of International Banking Law 1993, p. 81.

^*50 Principles and Guidelines for Effective Insolvency and Creditor Right System, p. 27. The World Bank 2001. Available at http://www.worldbank.org/ifa/ipg_eng.pdf (27.01.2010).

^*51 J. A. A. Adriaanse (Note 29), p. 143; Building Effective Insolvency Systems. Available at www.wordbanjk.org/legal/insolvency_ini/WG6-paper1.htm.lk (27.01.2010).

^*52 Orderly and Effective Insolvency Procedures (Note 13), p. 14.

^*53 P. Reiljan, K. Bank. Swedbank laseb eestlastel Sportlandi päästa (Swedbank Lets Estonians Save Sportland). – Äripäev, 29.01.2010 (in Estonian).

^*54 See, e.g., INSOL International. Statement of Principles for a Global Approach to Multi-Creditor Workouts. Available at http://www.insol.org/Lenders.pdf 30 (27.01.2010).

^*55 Republic of Estonia: Staff Report for the 2009 Article IV Consultation. International Monetary Fund. IMF Country Report No. 10/4, January 2010, p. 31. Available at http://www.imf.org/external/pubs/ft/scr/2010/ cr1004.pdf (27.01.2010).

^*56 Principles and Guidelines for Effective Insolvency and Creditor Right System. The World Bank 2001, p. 29. Available at http://www.worldbank.org/ifa/ipg_eng.pdf (27.01.2010).

^*57 Ibid.

^*58 Insolvency Law Reform In France: Three Years On. Contributed by Denton Wilde Sapte Law Office. Paris, 12.06.2009. Available at http://www.internationallawoffice.com/Newsletters/Default.aspx.

Die alltäglich gewordene grenzüberschreitende Kommunikation und die zunehmende Internationalisierung sowohl des gesellschaftlichen als auch familiären Bereichs bedeuten, dass die Richter zunehmend Fälle zu lösen haben, die nicht nur mit einem Staat verbunden sind, und Rechte anzuwenden haben, die sie nicht ausreichend kennen. In solchen Fällen können die Eingriffsnormen als „Rettungsringe“ dienen, die es dem Richter dennoch ermöglichen, von der Anwendung des ausländischen Rechts abzuweichen und damit inländische Grundwerte und -Prinzipien zu gewähren.

Hinsichtlich dieses Bedürfnisses, mitunter eine solche Abweichung zuzulassen, wurde sowohl in inländischen Gesetzen zum internationalen Privatrecht als auch in entsprechenden neuesten Staatsverträgen und EU-Verordnungen die Möglichkeit vorgesehen, die Anwendung des ausländischen Rechts aufgrund innerstaatlicher Interessen zu verweigern. Bei den Eingriffsnormen handelt es sich um eine der zahlreichen Änderungen, die mit dem Inkrafttreten der Rom I-Verordnung ^*1 stattgefunden hat und für die Rechtspraxis von Bedeutung ist. Die Anwendung dieser Ausnahme fällt jedoch schwer, da es sich dabei um einen Begriff handelt, der nicht nur inhaltlich kompliziert zu definieren ist, sondern dessen Eingreifen auch von vielen Aspekten und ihren Mitwirkungen abhängig ist.

In diesem Aufsatz soll die Problematik und Bedeutung von Eingriffsnormen aufgezeigt werden. Das Ziel des folgenden Beitrags ist es zu untersuchen, was im Allgemeinen als Eingriffsnormenbezeichnet wird und vornehmlich – unter welchen Voraussetzungen sie in der Praxis eingreifen können. In dem Aufsatz wird auf die neuesten entsprechenden Entwicklungen in der EU eingegangen und untersucht, ob und welche Fortschritte diese gegenüber dem EVÜ bringen. Als gesetzliche Grundlagen der Untersuchung werden die entsprechenden Gesetze Estlands und die EU-Verordnungen benutzt; außerdem wird rechtsvergleichend auch das deutsche Recht einbezogen.

2. Begriff und Bestimmung der Eingriffsnormen

2.1. Begriff der Eingriffsnormen

Bei den Eingriffsnormen handelt es sich um Normen, die ohne Rücksicht auf das Vertragsstatut bzw. Deliktsstatut den Sachverhalt zwingend regeln. Diese sind in § 31 des estnischen IPR-Gesetzes ^*2 (und im Art. 34 EGBGB ^*3 ) geregelt – Art. 34 nennt zwar den Begriff von Eingriffsnormen nicht ausdrücklich und spricht nur von zwingenden Vorschriften, im EIPRG dagegen wird schon seit dem Inkrafttreten des EIPRGs am 1. Juli 2002 ausdrücklich von Eingriffsnormen gesprochen.

Die Festlegung des Begriffes der Eingriffsnormen kann vielschichtige Probleme aufwerfen. Es ist dabei von besonderer Wichtigkeit, zwischen den Eingriffsnormen und zwingenden inländischen Bestimmungen (§ 32 Abs. 3 EIPRG, Art. 27 Abs. 3 EGBGB) zu unterscheiden. Der Grund dafür ist, dass zwingende inländische Bestimmungen nur dann eingreifen können, wenn der Sachverhalt mit einem und demselben Staat verbunden ist. Ebenso müssen Eingriffsnormen von zwingenden Bestimmungen zum Schutz des Verbrauchers im Sinne des § 34 EIPRG abgegrenzt werden, die nur in den Fällen anzuwenden sind, in denen der innerstaatliche Verbraucherschutzstandard durch Anwendung von ausländischem Recht gefährdet wird.

In verschiedenen Sprachen wurden bis heute mehrere verschiedene Begriffe anstelle vom Begriff Eingriffsnormen ( üldist kehtivust omavad sätted ) benutzt. ^*4 Solch eine Verwendung paralleler Begriffe ist an sich nicht problematisch, obwohl die Benutzung eines konkreten Begriffs im Interesse der Rechtssicherheit vorzuziehen wäre. Besonders wichtig ist, dass die Verwendung paralleler Begriffe keine Schwierigkeiten bei der Festlegung der Eingriffsnormen verursacht. Zum Beispiel werden in der estnischen rechtswissenschaftlichen Literatur neben dem Begriff der Eingriffsnormen auch solche Termini wie imperative Bestimmungen ( imperatiivsed normid ) ^*5 , international zwingende Normen ( rahvusvaheliselt imperatiivsed sätted ) ^*6 oder zwingende Vorschriften ( kohustuslikud sätted ) ^*7 verwendet. Gerade die Benutzung des Begriffs der imperativen Bestimmungen oder zwingenden Vorschriften ermöglicht es aber nicht, die Natur der Eingriffsnormen eindeutig zu verstehen, und Schwierigkeiten können sowohl bei der Unterscheidung zwischen Eingriffsnormen und zwingenden inländischen Bestimmungen als auch bei der Entscheidung über deren Anwendung entstehen.

In der Fachliteratur wurde vielfach kritisiert, dass der Begriff von Eingriffsnormen in Art. 7 EVÜ inhaltlich undefiniert gelassen wurde. ^*8 Eigentlich definieren weder § 31 EIPRG, Art. 16 Rom II-Verordnung ^*9 noch Art. 34 EGBGB nicht, was unter dem Begriff der Normen, die ohne Rücksicht auf das Vertragsstatut bzw. Deliktsstatut den Sachverhalt zwingend regeln, zu verstehen ist. Deswegen ist zu begrüßen, dass bei der Umwandlung des EVÜ in die Rom I-Verordnung auch die Eingriffsnormen revidiert wurden. Bei der Umwandlung wurde nicht nur die Überschrift der Vorschrift verbessert – diese Norm ist jetzt als Eingriffsnormen tituliert – sondern der Verordnung wurde auch die Legaldefinition der Eingriffsnormen hinzugefügt, was die Natur von Eingriffsnormen besser zu verstehen ermöglichen soll. Gemäß der in Art. 9 der Rom I-Verordnung beinhalteten Definition ist eine Eingriffsnorm eine zwingende Vorschrift, deren Einhaltung von einem Staat als so entscheidend für die Wahrung seines öffentlichen Interesses, insbesondere seiner politischen, sozialen oder wirtschaftlichen Organisation, angesehen wird, dass sie ungeachtet des nach Maßgabe der Rom I-Verordnung auf den Vertrag anzuwendenden Rechts auf alle Sachverhalte anzuwenden ist, die in ihren Anwendungsbereich fallen. Diese Begrifflichkeit folgt eng der Arblade-Entscheidung des EuGH ^*10 und stimmt in begrüßenswerter Weise mit dem bisherigen Verständnis der international zwingenden Bestimmungen weitgehend überein. ^*11 Die Benutzung des Terminus Eingriffsnorm hilft hoffentlich von jetzt an die Verwendung paralleler Begriffe zu vermeiden. Erfreulicherweise ist durch die Verwendung der Legaldefinition auch die unter dem EVÜ bestehende Begriffswirrung zwischen einfach und international zwingenden Bestimmungen beendet. ^*12

2.2. Bestimmung der Eingriffsnormen

Obwohl die neue Rom I-Verordnung eine Legaldefinition der Eingriffsnormen beinhaltet, ist damit keinesfalls eine umfassende Regelung vorgesehen. Im Gegensatz – allein die Definition selbst genügt meistens nicht um zu entscheiden, ob eine Vorschrift auch eine Eingriffsnorm ist. ^*13 Demzufolge ist für die Feststellung des international zwingenden Charakters einer Norm festzulegen, ob die fragliche Norm einen sog. Anwendungswille oder Geltungswille hat. Der Anwendungswille, der auch bisher zu fordern war, bedeutet einen besonderen Geltungsanspruch der Norm, ohne Rücksicht auf fremdes Recht in jedem Fall durchgesetzt zu werden. Im Idealfall sollte der Anwendungswille der Norm schon aus ihrer Formulierung ableitbar sein. Um weitere Fraglichkeiten zu vermeiden, sollte der Gesetzgeber mithin schon beim Formulieren von Rechtsakten gegebenenfalls expressis verbis vorschreiben, dass ein Vorschrift ohne Rücksicht auf das für das Rechtsverhältnis maßgebende Recht anzuwenden ist. Zum Teil hat z. B. der deutsche Gesetzgeber dies auch getan, indem er – insbesondere in jüngeren Vorschriften – die internationale Normgeltung ausdrücklich angeordnet hat. ^*14 Da solche expressis verbis vorgeschriebene internationale Normgeltung jedoch vergleichsweise selten in Gesetztexten vorkommt, ist es unmöglich bloß nach der Formulierung der Vorschrift zu entscheiden, ob der Anwendungswille der Vorschrift vorhanden ist. ^*15

Wenn der Wortlaut der Norm den Anwendungswillen nicht ausdrücklich erwähnt, muss ihr staatspolitischer Zweck ermittelt werden, um den international zwingenden Charakter der Norm festzulegen. Es bedeutet, dass Normen, die als Eingriffsnormen anzusehen sind, hauptsächlich staats- und wirtschaftspolitischen Interessen dienen (sollen), oder aus sozial- oder gesellschaftspolitischen Gründen erlassen worden sein sollen. ^*16 Dieser schon zu Art. 34 EGBGB und Art. 7 EVÜ entwickelte Meinungsstand wurde auch in die Rom I-Verordnung eingenommen – gemäß Art. 9 Abs. 1 wird die Wahrung des öffentlichen Interesses eines Staates, insbesondere seiner politischen, sozialen oder wirtschaftlichen Organisation expressis verbis als Zweck der Eingriffsnormen genannt. Für die Klassifizierung als Eingriffsnorm ist es also notwendig, dass die Norm überwiegend oder zumindest stark im öffentlichen Interesse liegt – Vorschriften, die in erster Linie Privatinteressen ausgleichen, fallen somit aus dem Kreis der Eingriffsnormen heraus. ^*17 Es ist jedoch nicht per se ausgeschlossen, dass Eingriffsnormen auch zum Schutz der sozial schwächeren Partei eingreifen können. Dabei muss aber berücksichtigt werden, dass sie daneben zumindest auch Gemeinwohlziele verfolgen. ^*18

3. Voraussetzungen der Anwendung der Eingriffsnormen

Obwohl Art. 16 Rom II-Verordnung aufgrund des Widerstands einzelner Mitgliedstaaten ^*19 nur von einer einzigen Art von Eingriffsnormen – internen Eingriffsnormen oder Eingriffsnormen der lex fori – spricht, ist gemäß Art. 9 der Rom I-Verordnung zwischen zwei Arten von Eingriffsnormen zu unterscheiden. Nämlich werden neben den Eingriffsnormen der lex fori auch sog. externe oder fremde Eingriffsnormen erwähnt. Eine wesentliche Änderung im Vergleich zu der bisherigen Rechtssituation, wo viele Vertragsstaaten von einem möglichen Vorbehalt gegenüber der Berücksichtigung ausländischer Eingriffsnormen Gebrauch gemacht haben, ergibt sich daraus, dass nach dem Inkrafttreten der Rom I-Verordnung am 17. Dezember 2009 sind alle Mitgliedsstaaten unter gewissen Umständen verpflichtet, auch ausländische Eingriffsnormen zu beachten. ^*20

3.1. Eingriffsnormen der lex fori

Wie schon gemäß EIPRG und EVÜ der Fall war, ordnen auch Rom I- und Rom II-Verordnungen an, dass andere Vorschriften nicht die Anwendung der Eingriffsnormen der lex fori berühren. ^*21 Aufgrund der Formulierungen der genannten Rechtsakte kann es auf erstem Blick scheinen, dass, sofern nichts deren Anwendung berührt, es für die Anwendung der Eingriffsnormen der lex fori ausreicht, wenn lediglich deren internationale Geltungfestgestellt wird. Allerdings ist es umstritten, ob es zusätzlich zum Anwendungswillen noch des, im Wortlaut nicht erscheinenden, Elements der engen Verbindung bzw. eines objektiven Inlandsbezugs bedarf. ^*22 Eine solche zusätzliche Anforderung findet zwar im Wortlaut der Regulierungen der Rom I- und Rom II-Verordnungen eine Stütze, folgt aber wohl aus dem Sinn und Zweck dieser Vorschriften. Das ergibt sich daraus, dass die Durchsetzung eigener, die politische, Wirtschafts- oder Sozialordnung schützenden Normen tatsächlich nur dann Sinn ergibt, wenn diese von der Anwendung zumindest räumlich betroffen ist. ^*23

Es kann dennoch fraglich sein, welche Intensität der Inlandsbeziehung für die Anwendung der Eingriffsnormen verlangt ist oder wie die Inlandsbeziehung festzulegen ist. Einerseits mag der Grad der Inlandsbeziehung schon gesetzlich angeordnet sein. Beispielsweise müssen in Deutschland die Preisvorschriften der Honorarordnung für Architekten und Ingenieure nach ihrer Zielsetzung zwingend zur Anwendung gelangen, wenn die in einem grenzüberschreitenden Architektenvertrag vereinbarten Leistungen für ein im Inland gelegenes Bauwerk erbracht werden. ^*24 Auch z. B. die in § 36 Abs. 3 ESchRG ^*25 beinhaltete Regulation der allgemeinen Geschäftsbedingungen sieht vor, dass der Vertrag mit allgemeinen Geschäftsbedingungen oder mit deren Erfüllungsort verbundene Tatorte in Estland liegen würden. Beim Fehlen einer solchen Inlandsbeziehung kann die Regulation der allgemeinen Geschäftsbedingungen nicht als Eingriffsnorm angewendet werden. Andererseits, wenn die Intensität der Inlandsbeziehung als Anwendungsvoraussetzung gesetzlich nicht angeordnet ist, ist es in jedem Einzelfall durch Auslegung zu ermitteln, welche Umstände die erforderliche Beziehung zur inländischen Rechtsordnung herstellen. Dabei ist es erheblich zu beachten, dass es auf die zu untersuchende Vorschrift und nicht etwa auf den Vertrag, auf den die Vorschrift angewendet wird, ankommt. ^*26

In letzter Zeit werden in der Fachliteratur beide Elemente – der Anwendungswille der Norm als subjektives Kriterium und Inlandsbeziehung als räumliches Kriterium, zu einander in Wechselbeziehung gesetzt. ^*27 Diese Methode bedeutet, dass beide Kriterien negativ voneinander abhängig gemacht werden sollten und der jeweilige Normzweck der Vorschrift zur Intensität der jeweiligen Inlandsberührung in Verbindung zu setzen ist – je wichtiger der Normzweck für grundlegende ordnungs- und sozialpolitische Interesse ist, umso geringer darf die Inlandsbeziehung des jeweiligen Sachverhaltes sein. Umgekehrt kann ein starker Inlandsbezug auch bei einem weniger ausgeprägten öffentlichen Interesse ausreichen. Mit einer solchen Auslegung stimmen auch die in den Erwägungsgründen der Rom I- und Rom II-Verordnung genannten Begründungen überein, gemäß der die Gründe des öffentlichen Interesses die Anwendung der Eingriffsnormen nur unter außergewöhnlichen Umständen rechtfertigen. ^*28

3.2. Beachtung fremder Eingriffsnormen

3.2.1. Gesetzliche Grundlage für die Beachtung fremder Eingriffsnormen

Neben internen Eingriffsnormen beinhaltete das EVÜ auch eine Obliegenheit, unter bestimmten Voraussetzungen fremde Eingriffsnormen zu beachten. ^*29 Daher waren nicht alle Gerichte der Mitgliedstaaten des EVÜ dazu verpflichtet, diese zweite Art von Eingriffsnormen – fremde oder externe Eingriffsnormen –, zu berücksichtigen. Das ergab sich daraus, dass wegen der gegenseitigen Meinungen der Mitgliedstaaten des EVÜ und vielfältiger Kritik über Art. 7 Abs. 1 es gemäß Art. 22 Abs. 1 lit. a EVÜ möglich war, einen Vorbehalt gegen die Beachtung der ausländischen Eingriffsnormen einzulegen. ^*30 Aufgrund dieser „Angstklausel“ des Art. 22 entfaltete also Art. 7 Abs. 1 EVÜ in Bezug auf drittstaatliche Eingriffsnormen keine gemeinschaftsweite Wirkung. ^*31

Dennoch hatten sich selbst diejenigen Mitgliedstaaten des EVÜ, die den Vorbehalt gegen die Anwendung des Art. 7 Abs. 1 EVÜ eingelegt hatten, einer Berücksichtigung ausländischer Eingriffsnormen bekanntlich nicht gänzlich verschlossen. So hat z. B. der Bundesgerichtshof Deutschlands zwar nicht Art. 7 Abs. 1 EVÜ angewandt, doch hat er statt dessen im Rahmen der lex causae auf materiell-rechtliche Rechtsinstitute ausgewichen, indem er bei Verstößen gegen ausländische Eingriffsnormen, deren Wertungen vom deutschen Recht geteilt werden, § 138 BGB angewendet hat. Ähnlich hat die englische Rechtssprechung fallweise eine materiell-rechtliche Berücksichtigung solcher ausländischer Eingriffsnormen in Betracht gezogen, deren Wertung vom englischen Recht geteilt wurde. ^*32

Um die Rechtseinheit im Binnenmarkt zukünftig stärker sicherzustellen, wurde die Möglichkeit, einen Vorbehalt gegen die Beachtung der ausländischen Eingriffsnormen einzulegen, bei der Umwandlung des EVÜ in die Rom I-Verordnung ausgeschlossen, was aber keine endgültige Zustimmung der Mitgliedstaaten gefunden hat. ^*33 Als Kompromiss zwischen der Einbeziehung und Ausschaltung der ausländischen Eingriffsnormen wurde beschlossen, den Anwendungsbereich der Vorschrift einzuschränken. Somit wird in der Rom I-Verordnung jedoch zwischen den internen und externen Eingriffsnormen prinzipiell differenziert, von den externen Eingriffsnormen sind aber nur die Eingriffsnormen dieses Staates zu berücksichtigen, in dem die durch den Vertrag begründeten Verpflichtungen erfüllt werden sollen oder erfüllt worden sind.

Folglich ist also auch künftig zwischen zwei Arten von Eingriffsnormen zu unterscheiden, aber während sowohl das EVÜ als auch der Kommissionsvorschlag Eingriffsnormen der lex fori und Eingriffsnormen anderer Staaten als zwei Arten von Eingriffsnormen erwähnt haben, so spricht die endgültige Fassung der Verordnung neben der Eingriffsnormen der lex fori von Eingriffsnormen des Erfüllungsortsstaates. Bei dieser Änderung handelt sich um eine Begrenzung, die vom europäischem Parlament in der ersten Lesung des Entwurfs praktisch im letztem Moment eingeführt wurde – zunächst wurde gar eine vollständige Streichung der externen Eingriffsnormen erwogen, um Übereinstimmung mit der Rom II-Verordnung zu erzielen. ^*34 Das Parlament war mit der Zufügung der Vorschrift in den Text der Verordnung nur unter der Bedingung einverstanden, dass deren Anwendungsbereich mit Eingriffsnormen des Erfüllungsortsstaates abgegrenzt ist.

In der Fachliteratur wird behauptet, die neue Formulierung der Vorschrift entspreche im Wesentlichen englischen kollisionsrechtlichen Vorstellungen. Daraus folge jedoch nicht, dass die Verordnung auch genau so auszulegen und anzuwenden wäre, wie dies dem englischen Verständnis der Behandlung ausländischer Eingriffsnormen entspricht – die Verordnung als ein Gemeinschaftsrechtsakt sei vielmehr den Gesetzmäßigkeiten und Auslegungsprinzipien des europäischen Rechts verpflichtet. ^*35

Die Anwendungsvoraussetzungen der Eingriffsnormen des Erfüllungsortsstaates unterscheiden sich deutlich von der bisherigen Regulation der Eingriffsnormen anderer Staaten (EVÜ Art. 7 Abs. 1). Dennoch handelt es sich bei beiden Vorschriften um eine Norm, deren Anwendungsvoraussetzungen noch spezifischer und außergewöhnlicher sind, als es bei der Anwendung der Eingriffsnormen der lex fori der Fall ist. ^*36 Sowohl bei der bisherigen als auch bei der derzeitigen Regulation muss aber darauf Rücksicht genommen werden, dass der andere Staat i.S.d. Norm ebenso ein Mitgliedstaat wie ein Drittstaat sein kann. Obwohl während der Diskussionen über den Inhalt der Rom I-Verordnung am Anfang auch über die Möglichkeit verhandelt wurde, nur Eingriffsnormen der Mitgliedstaaten anstatt drittstaatlicher Eingriffsnormen zu berücksichtigen, wurde dieser Vorschlag abgelehnt.

Wie oben erwähnt, hat die Rom II-Verordnung in Art. 16 auf eine entsprechende Regelung verzichtet, daraus ist aber keineswegs auf ein Verbot der Berücksichtigung ausländischer Eingriffsnormen – ob drittstaatlicher oder zumal solcher aus anderen Mitgliedstaaten – zu folgern. Die Autorin dieses Aufsatzes stützt den, auch in der deutschen rechtswissenschaftlichen Literatur erwähnten Standpunkt, dass das mit der Rom II-Verordnung verfolgte Ziel des internationalen Entscheidungseinklangs gerade eine maßvolle Anwendung ausländischer Eingriffsnormen gebiete, da ansonsten ein Anreiz zum forum shopping geschaffen würde.^*37 Folglich sollte auch die Rom II-Verordnung es prinzipiell ermöglichen, ausländische Eingriffsnormen zu berücksichtigen, deren Voraussetzungen bleiben zurzeit aber unklar und es ist äußerst fraglich, ob und wann deren Anwendung in Praxis in Frage kommen könnte. In der deutschen Literatur wird erwähnt, dass sich z. B. für den Bereich der Arbeitskampfmaßnahmen eine Berücksichtigung ausländischer Eingriffsnormen aus Erwägungsgrund 28 ableiten lassen. ^*38 

3.2.2. Hinreichende Inlandsbeziehung

Art. 7 Abs. 1 EVÜ hat vorgeschrieben, dass die Eingriffsnormen eines anderen Staates Wirkung verliehen können, wenn der Sachverhalt mit diesem Staat eine enge Verbindung aufweist. In die Formulierung der neuen Regulation dagegen wird eine hinreichende Beziehung des Eingriffsstaates nicht expressis verbis angeordnet, sondern es wird nur die Möglichkeit erwähnt, dass Eingriffsnormen des Staates, in dem die durch den Vertrag begründeten Verpflichtungen erfüllt werden sollen oder erfüllt worden sind, Wirkung verliehen können. ^*39

Als der Staat, in dem die durch den Vertrag begründeten Verpflichtungen erfüllt werden sollen oder erfüllt worden sind, von selbst und ganz unvermeidlich mit dem Sachverhalt eine hinreichende Beziehung aufweist, ist dennoch das bis jetzt gegoltene Prinzip in diesem Sinne in Kraft geblieben. Im Vergleich zum EVÜ wird in der Rom I-Verordnung der Anwendungsbereich der Norm aber durch eine Präzision der erforderlichen Inlandsbeziehung bemerkenswert begrenzt. Nach der neuen Verordnung kann somit nur eine Art von hinreichender Beziehung die Anwendung ausländischer Eingriffsnormen rechtfertigen, nämlich der Erfüllungsort, der sich im Ausland befindet. Folglich ermöglicht die neue Verordnung nicht mehr die Berücksichtigung der Eingriffsnormen aller Staaten, die mit dem Sachverhalt eine enge Verbindung aufweisen. Demzufolge, wenn für die Anwendung der ausländischen Eingriffsnormen nach Art. 7 Abs. 1 EVÜ nur eine hinreichend enge Verbindung mit diesem Staat festgestellt werden musste, dann sieht die neue Rom I-Verordnung eine Berücksichtigung der Eingriffsnormen allein dieses Staates vor, in dem die Verpflichtungen erfüllt werden sollen oder erfüllt worden sind, obwohl zudem eine enge Verbindung mit dem Recht eines anderen Staates bestehen mag.

Eine weitere Frage ist, ob es sich beim Erfüllungsort im Sinne des Art. 9 Abs. 3 Rom I-Verordnung um einen rechtlichen oder faktischen Erfüllungsort handelt. Dieser Aufsatz stütz die Maßgeblichkeit des tatsächlichen Erfüllungsortes. Es könnte aber auch gegen dieses Standpunktes argumentiert werden, z. B. mit Begründungen, dass Art. 9 Abs. 3 nach dem Vorbild des englischen Rechts gefasst wurde, in dem überwiegend allein Eingriffsnormen des Erfüllungsortes im Rechtssinne für berücksichtigungsfähig gehalten werden, oder dass es sich bei dem Terminus „Erfüllungsort“ um einen Rechtsbegriff handelt. Dennoch wird auch im deutschen Rechtschrifttum ausgehalten, dass es nach der genannten Vorschrift bei bereits erfolgter Leistung im Sinne einer ex post-Betrachtung allein auf den Ort ankommen solle, an dem die Vertragsverpflichtungen erfüllt worden sind. ^*40 Genau vor diesem Hintergrund soll auch bei noch nicht erfolgter Erfüllung abgestellt werden, wo künftig tatsächlich entscheidende Handlungen zu erbringen sind. Folglich sollten bei bereits erfüllten Vertragspflichten die tatsächlichen Erfüllungsorte von Bedeutung sein, bei noch ausstehender Erfüllung sollte demgegenüber darauf abgestellt werden, wo die Erfüllung nach dem Vertrag tatsächlich zu erfolgen hat.

Zusätzlich zu der Abgrenzung des Anwendungsbereichs der Eingriffsnormen des Staates, die mit dem Sachverhalt eine enge Verbindung aufweisen, wird in der neuen Rom I-Verordnung auch der Umfang deren Berücksichtigung präzisiert – nach Art. 9 Abs. 3 S. 1 Rom I-Verordnung kann nur solchen ausländischen Eingriffsnormen Wirkung verliehen werden, die die Erfüllung des Vertrages unrechtmäßig werden lassen. Die Eingriffsnormen des Erfüllungsortsstaates können somit auf den Vertrag nur ausschließend einwirken. ^*41 Doch auch dann, wenn der Erfüllungsort sich in einem anderen Staat befindet, kann die ausländische Eingriffsnorm nicht unbesehen hingenommen werden. Vielmehr bedarf es vorher einer inhaltlichen Überprüfung, ob sie mit der Rechtsordnung des Forumstaats vereinbar ist und ob andere Anwendungsvoraussetzungen erfüllt sind. ^*42 

3.2.3. Diskretion der Gerichte

Sowohl die bisherige Regulation (Art. 7 Abs. 1 EVÜ) als auch das geltende Recht (Art. 9 Abs. 3 Rom I-Verordnung) bestimmen – anders als bei der Eingriffsnormen der lex fori, die beim Vorliegen ihrer Anwendungsvoraussetzungen immer anzuwenden sind– dass ausländische Eingriffsnormen unter den in der Vorschrift genannten Voraussetzungen Wirkung verliehen können. Damit wird die Wirkungsverleihung in das freie Ermessen nationaler Gerichte gestellt – die Formulierung der Vorschrift stellt klar, dass die Wirkungsverleihung nicht etwa einem Automatismus folgt, sondern auf einer wertenden Entscheidung des Gerichts beruht, bei der die für und gegen die Wirkungsverleihung sprechenden Argumente gegeneinander abzuwägen sind. ^*43 Deshalb wird in der Literatur auch behauptet, eine solche Norm erinnere etwas an die Ermessensvorschriften des Verwaltungsrechts. ^*44

Allerdings darf der Richter die Anwendungsentscheidung nicht nach eigenem Gutdünken treffen, da die dafür maßgeblichen Entscheidungskriterien ihm in der Rom I-Verordnung vorgeschrieben sind. ^*45 Zunächst ordnet die Verordnung an, dass bei der Entscheidung, ob den ausländischen Eingriffsnormen Wirkung zu verleihen ist, „Art und Zweck“ (oder „Natur und Gegenstand“ in EVÜ) dieser Normen zu berücksichtigen sind. Im Prinzip bedeutet es, dass eine Analyse des Normzwecks und der in der Vorschrift beinhalteten Werte durchgeführt werden muss. Bedauerlicherweise bleibt hier unklar, ob es erforderlich ist, dass das Gericht die ausländische Werte auch teilt oder ob es für deren Beachtung genügt, dass es sie zumindest nicht ablehnt. In der Literatur wird das Erfordernis einer positiven Anerkennung der ausländischen Wertung für rechtspolitisch überzeugender angesehen. ^*46 In der Praxis soll nach Ansicht der Autorin dieser Aufsatz aber genügen, wenn die in einer ausländischen Eingriffsnorm beinhalteten Werte nicht den inländischen Werten widersprechen.

Zweitens hat das Gericht bei der Entscheidung, ob den ausländischen Eingriffsnormen Wirkung zu verleihen ist, die Rechtsfolgen deren Berücksichtigung bzw. Nichtberücksichtigung zu bedenken. Damit wird das Gericht über allgemeine außenpolitische Erwägungen hinausgehend zu einer Analyse verpflichtet, ob und in welchem Ausmaß die Berücksichtigung bzw. Nichtberücksichtigung der betreffenden Eingriffsnorm die inländischen aber auch ausländischen Staatsinteressen tatsächlich tangiert. ^*47 Es wird in der Literatur argumentiert, dass im Allgemeinen eher solche ausländische Eingriffsnormen berücksichtigt werden, die internationalen Standards entsprechen und international typisch sind. Dagegen können Normen, die das eigene Wirtschafts- und Gesellschaftssystem ernsthaft stören würden oder die der Absicht andere Staaten zu diskriminieren oder zu schädigen dienen, nicht beachtet werden. ^*48 Dabei ist aber nicht nur von inländischen Staatsinteressen auszugehen – auch europäische Werte und Wertentscheidungen, die mittlerweile in zahlreichen Rechts- und Politikbereiche, insbesondere im Außenhandelsrecht getroffen wurden, spielen heutzutage bei der Entscheidung über die Berücksichtigung bzw. Nichtberücksichtigung eine immer wichtigere Rolle. Somit dürften z. B. solchen ausländischen Eingriffsnormen keine Wirkung verliehen werden, deren Anwendungsfolge eine Beschränkung des freien Warenverkehrs darstellen würde. ^*49

Zum Schluss muss darauf hingewiesen werden, dass weder das bisher gegoltene Recht noch die neuen Verordnungen dem Richter die Anwendung ausländischer Eingriffsnormen vorausgehend ganz auszuschließen ermöglichen – wenn erforderlich, muss er somit deren Berücksichtigung bzw. Nichtberücksichtigung zumindest erwägen. ^*50 Das heißt, das mitgliedstaatliche Gericht hat – in ähnlicher Weise wie bei ordre public-Überlegungen – auch bei der Berücksichtigung der ausländischen Eingriffsnormen die für eine Wirkungsverleihung in Betracht kommenden Normen in jedem Fall zunächst zu identifizieren und anschließend zu begründen, ob und warum ihrer Berücksichtigung inländische Wertungen entgegenstehen. Ferner sind die Kriterien eines richterlichen Beurteilungsspielraums dem Richter streng vorgeschrieben. Einerseits ist der Richter deshalb verpflichtet, die beiden genannten Entscheidungskriterien (Art und Zweck der ausländischen Norm und ihre Anwendungsfolgen) zu beachten, andererseits bedeutet der Zusammenhang mit den Entscheidungskriterien, dass andere Erwägungen von dem Richter nicht herangezogen werden dürfen. Deswegen besteht es nach Art. 9 Abs. 3 Rom I-Verordnung eine Verpflichtung des Richters, sich mit den Zielen der ausländischen Eingriffsnorm und den Konsequenzen ihrer Anwendung auseinanderzusetzen und die Vereinbarkeit des Normzwecks mit der inländischen Rechtsordnung zu überprüfen. ^*51 Demzufolge ist der richterliche Beurteilungsspielraum, der auf den ersten Blick ziemlich groß erscheint, in Wirklichkeit stark eingeschränkt. Folglich, falls nach Ansicht des Richters alle Anwendungsvoraussetzungen der ausländischen Eingriffsnorm tatsächlich gegeben sind und es nicht den inländischen Werten widerspricht, fehlt dem Gericht ein Grund, ausländische Eingriffsnormen oder – wie jetzt in Rom I-Verordnung reguliert – Eingriffsnormen des Erfüllungsortsstaates nicht zu berücksichtigen.

4. Fazit

In dem vorstehenden Aufsatz wurde aufgezeigt, wie problematisch die Festlegung der Kriterien für die Bestimmung der Eingriffsnormen und ihrer Anwendungsvoraussetzungen ist. Zwar soll die expressis verbis Verwendung des Terminus „Eingriffsnormen“ in den neuen Rom I- und Rom II-Verordnungen die bisher bestehende Begriffswirrung zwischen einfach und international zwingenden Normen beenden und somit die Festlegung von Eingriffsnormen erleichtern. Als entscheidendes Kriterium für die Feststellung des international zwingenden Charakters einer Norm sollen deren Anwendungswille – d.h. Wille, unabhängig vom anwendbaren Recht gelten zu wollen – und der staatspolitische Zweck der Norm dienen. Es bedeutet, dass die fragliche Norm primär überindividuelle Gemeinwohlzwecke verfolgt und sie auch gegen ein an sich geltendes, anderes Recht zwingend durchsetzen will.

Die Untersuchung der zwei Arten von Eingriffsnormen – internen Eingriffsnormen oder Eingriffsnormen der lex fori und externen oder ausländischen Eingriffsnormen hat gezeigt, dass für deren Anwendung diverse Voraussetzungen vom Richter zu beachten sind. Die Vorbehaltslösung des EVÜ ist in der Rom I-Verordnung nicht mehr vorgesehen und folglich sind jetzt alle Mitgliedstaaten unter gewissen Umständen verpflichtet, auch ausländische Eingriffsnormen zu berücksichtigen. Obwohl die Beachtung der beiden Arten von Eingriffsnormen trotz fehlender Nennung im Wortlaut der Rom I-Verordnung einer hinreichenden Inlandsbeziehung bedarf, ist der Anwendungsbereich der ausländischen Eingriffsnormen im Vergleich zu inländischen Eingriffsnormen weitaus enger. Ferner wird der Umfang deren Berücksichtigung in der Rom I-Verordnung nur auf solchen ausländischen Eingriffsnormen eingeschränkt, die die Erfüllung des Vertrages unrechtmäßig werden lassen. Außerdem werden die Kriterien eines richterlichen Beurteilungsspielraums für die Berücksichtigung bzw. Nichtberücksichtigung der betreffenden Eingriffsnorm in der neuen Regulation dem Richter streng vorgeschrieben.

Anmerkungen:

^* Diese Arbeit wurde durch die Stiftung der Universität Tartu und den Europäischen Sozialfonds im Rahmen der DoRa-Programme des Promotionsstudiums und der Internationalisierung unterstützt.

^*1 Verordnung (EG) Nr. 593/2008 des Europäischen Parlaments und des Rates über das auf vertragliche Schuldverhältnisse anzuwendende Recht („Rom I“). Vom 17. Juni 2008 (ABl. EU 2008 Nr. L 177 S. 6 (hiernach: Rom I-Verordnung). Die Rom I-Verordnung wurde im Dezember 2009 wirksam und hat somit das bislang geltende EVÜ (Römisches EWG-Übereinkommen über das auf vertragliche Schuldverhältnisse anzuwendende Recht. Vom 19. Juni 1980 (BGBl. 1986 II, S. 810) i.d.F. des 4. Beitrittsübk. Vom 14. April 2005 (BGBl. 2006 II, S. 348) hiernach: EVÜ) abgelöst.

^*2 Estnisches IPR-Gesetz (Rahvusvahelise eraõiguse seadus) vom 27.03.2002. – RT I 2002, 35, 271; 2009, 59, 385 (hiernach: EIPRG).

^*3 Einführungsgesetz zum Bürgerlichen Gesetzbuche. 21. September 1994. – BGBl. I S. 2494, ber. 1997 I S. 1061. München 2007 (hiernach: EGBGB).

^*4 In der deutschen rechtswissenschaftlichen Literatur werden vor allem die Begriffe von Eingriffsnormen oder internationalen zwingenden Normen benutzt; der entsprechende Artikel in EGBGB ist dagegen als zwingende Vorschriften tituliert. In der englischsprachigen rechtswissenschaftlichen Literatur spricht man von overriding mandatory provisions, overriding statutes, conflicts-mandatory rules und internationally mandatory rules. In der französischen Sprache werden Begriffe wie lois de police oder lois d’application immédiate benutzt. S. näher: H.-J. Sonnenberger (Redaktor). Münchener Kommentar zum Bürgerlichen Gesetzbuch. Band 10. Einführungsgesetz zum Bürgerlichen Gesetzbuche (Art. 1-46). Internationales Privatrecht. München 2006, Art. 34 EGBGB Rn. 10 ff. (hiernach: Münchener Kommentar/Martiny); U. Magnus (Redaktor). J. von Staudingers Kommentar zum Bürgerlichen Gesetzbuch mit Einführungsgesetz und Nebengesetzen. Einführungsgesetz zum Bürgerlichen Gesetzbuche/IPR. Berlin 2002, Art. 34 EGBGB Rn. 1 ff. (hiernach: Staudinger/Magnus); P. Bassenge, U. Diederichsen. Palandt Bürgerliches Gesetzbuch. München 2009, Art. 34 EGBGB Rn. 1 ff. (hiernach: Palandt/Thorn); C. Reithmann, D. Martiny. Internationales Vertragsrecht. Köln 1996, Rn. 390 (hiernach: Internationales Vertragsrecht/Limmer); A. V. Dicey, J. H. C. Morris. The Conflict of Laws. London 1993, S. 21 ff; G. C. Cheshire, P. M. North. Private International Law. London 1993, S. 455 ff.; P. Kaye. The New Private International Law of Contract of the European Community. Aldershot 1993, S. 160, S. 242 ff.; A. Bonomi. Mandatory Rules in Private International Law. – Yearbook of Private International Law 1999, I, S. 219; u.a.

^*5 I. Nurmela, L. Almann u.a. Rahvusvaheline eraõigus (Internationales Privatrecht). Tallinn 2005, S. 120; R. Jankelevitš. Avalik kord ja imperatiivsed sätted rahvusvahelises eraõiguses (Öffentliche Ordnung und imperative Bestimmungen im IPR). – Juridica 2002/7, S. 483.

^*6 R. Jankelevitš (Fn. 5) S. 484.

^*7 EVÜ Art. 7.

^*8 P. Mankowski. Der Vorschlag für die Rom I-Verordnung. – IPRax 2006, II, S. 109; R. Jankelevitš (Fn. 5) S. 484; S. auch z. B. A. Briggs. The Conflict of Laws. Oxford 2002, S. 166.

^*9 Verordnung (EG) Nr. 864/2007 des Europäischen Parlaments und des Rates über das auf außervertragliche Schuldverhältnisse anzuwendende Recht („Rom II“). Vom 11. Juli 2007 (ABl. EU 2007 Nr. L 199 S. 40 (hiernach: Rom II-Verordnung).

^*10 EuGH Slg. 1999, I-8453.

^*11 R. Freitag. Die kollisionsrechtliche Behandlung ausländischer Eingriffsnormen nach Art. 9 Abs. 3 Rom I-VO. – IPRax 2009, II, S. 112.

^*12 S. dazu auch: R. Freitag (Fn. 11).

^*13 Siehe V. Loussouarn, P. Bourel, P. Vareilles-Sommières. Droit international privé. Paris 2004, S. 140; U. Magnus. Die Rom I-Verordnung. – IPRax 2010, I, S. 41.

^*14 Staudinger/Magnus Art. 34 EGBGB (Fn. 4), Rn. 52; P. Mankowski (Fn. 8), S. 109; Internationales Vertragsrecht/Limmer (Fn. 4), Rn. 391. Die ausdrückliche Anordnung der internationalen Normgeltung z. B: Börsengesetz. 9. September 1998. – BGBl. I, S. 2682; Wertpapierhandelsgesetz, Börsengesetz, Verkaufsprospektgesetz. Stuttgart 1999, Art. 61; Gesetz gegen Wettbewerbsbeschränkungen. 15. Juli 2005. BGBl. I, S. 2114. Zuletzt geändert durch Artikel 1a des Gesetzes vom 18. Dezember 2007. BGBl. I, S. 2966. Siehe unter http://bundesrecht.juris.de/bundesrecht/gwb/gesamt.pdf, Art. 98.

^*15 S. auch R. Jankelevitš (Fn. 5), S. 485; A. Bonomi (Fn. 4), S. 231.

^*16 J. Kondrig. Der Vertrag ist das Recht der Parteien – Zur Verwirklichung des Parteiwillens durch nachträgliche Teilrechtswahl. – IPRax 2006, V, S. 427; H. P. Westermann (Hrsg.). Erman Bürgerliches Gesetzbuch II. Köln, 2008, Art. 34 EGBGB Rn. 12 (hiernach: Erman Bürgerliches Gesetzbuch/Hohloch); Internationales Vertragsrecht/Limmer (Fn. 4), Rn. 391.

^*17 J. Kropholler. Internationales Privatrecht. Tübingen 2006, § 52 IX 1; U. Magnus (Fn. 13), S. 41.

^*18 Palandt/Thorn (Fn. 4), Art. 34 EGBGB Rn. 3; H.-J. Sonnenberger. Einriffsrecht – Das trojanische Pferd im IPR oder notwendige Ergänzung? – IPRax 2003, II, S. 107; BGHZ 165, 248, Rn. 26; BAGE 63, 17 Rn. 32 und 33.

^*19 Palandt/Thorn (Fn. 4), Anh. zu Art. 38-42 EGBGB: Rom II-VO Art. 16, Rn. 1.

^*20 Bislang hatten die Bundesrepublik Deutschland, Irland, Lettland, Luxemburg, Portugal, Slowenien und das Vereinigte Königreich gem. Art. 22 Abs. 1 lit. a EVÜ einen Vorbehalt gegen die Anwendung ausländischer Eingriffsnormen erklärt.

^*21 § 31 EIPRG, Art. 7 Abs. 2 EVÜ, Art. 9 Abs. 2 Rom I-Verordnung, Art. 16 Rom II-Verordnung; ebenso Art. 34 EGBGB.

^*22 Die herrschende Lehre in Deutschland verlangt für die Anwendung der Eingriffsnormen zusätzlich eine gewisse Inlandsbeziehung – Bezüglich der Inlandsbeziehung s. ausführlich: Münchener Kommentar/Martiny (Fn. 4), Art. 34 EGBGB Rn. 130; Palandt/Thorn (Fn. 4), Art. 34 EGBGB Rn. 3; Erman Bürgerliches Gesetzbuch/Hohloch (Fn. 16), Art. 34 EGBGB Rn. 13; Internationales Vertragsrecht/Limmer (Fn. 4), Rn. 393; J.  Kropholler (Fn. 17), § 52 IX 1.

^*23 Internationales Vertragsrecht/Limmer (Fn. 4), Rn. 393.

^*24 BGH 27.2.2003=IPRax 2003, 449, 436 Aufsatz Kilian/Müller=IPRspr. 2003 Nr. 27; J. Kropholler (Fn. 17), § 52 IX 1.

^*25 Võlaõigusseadus (Estnisches Schuldrechtsgesetz). 26. september 2001. – RT I 2001, 81, 487; RT I 2010, 7, 30 (hiernach: ESchRG).

^*26 Internationales Vertragsrecht/Limmer (Fn. 4), Rn. 393.

^*27 Siehe: Palandt/Thorn (Fn. 4), Art. 34 EGBGB Rn. 3; Internationales Vertragsrecht/Limmer (Fn. 4), Rn. 394.

^*28 Erwägungsgrund 37 zur Rom I-Verordnung, Erwägungsgrund 32 zur Rom II-Verordnung.

^*29 Art. 7 Abs. 1 EVÜ.

^*30 A. Bonomi (Fn. 4), S. 221; G.C. Cheshire, P. M. North (Fn. 4), S. 139.

^*31 R. Freitag (Fn. 11), S. 109.

^*32 Ausführlich dazu: R. Freitag (Fn. 11), S. 109; S. auch: Vorschlag der Kommission KOM(2005) 650 endg, S. 8; Private International Law (Miscellaneous Provisions) Act 1995 (c. 42), section 14 (4); A. Bonomi (Fn. 4), S. 222.

^*33 S. dazu Vorschlag der Kommission KOM(2005) 650 endg.

^*34 Bericht über den Vorschlag für eine Verordnung des Europäischen Parlaments und des Rates über das auf vertragliche Schuldverhältnisse anzuwendende Recht (Rom I). (KOM(2005)0650–C6-0041/2005–2005/0261(COD)). 21.11.2007. Siehe unter http://www.europarl.europa.eu/sides/; S. auch R. Freitag (Fn. 11), S. 110.

^*35 R. Freitag (Fn. 11), S. 111.

^*36 S. auch: Staudinger/Magnus (Fn. 4), Art. 34 EGBGB Rn. 24.

^*37 Erwägungsgrund 6 zur Rom II-Verordnung.

^*38 Palandt/Thorn (Fn. 4), Anh. zu Art. 38-42 EGBGB: Rom II-VO Art. 16, Rn. 3.

^*39 Art. 9 Abs. 3 Rom I-Verordnung.

^*40 S. dazu ausführlich R. Freitag (Fn. 11), S. 114 ff.m.w.N. aus Schrifttum.

^*41 Eine solche Wirkung bedeutet, dass die Eingriffsnormen des Erfüllungsortsstaates sich von Natur aus der öffentlichen Ordnung nähern - bei der Anwendung des ordre public-Vorbehalts im internationalen Vertragsrecht handelt es sich auch meistens um solche vertragliche Verpflichtungen, welche im Forumstaat unrechtmäßig sind.

^*42 Münchener Kommentar/Martiny (Fn. 4), Art. 34 EGBGB Rn. 158.

^*43 R. Freitag (Fn. 11), S. 111.

^*44 J. Fetsch. Eingriffsnormen und EG-Vertrag. Die Pflicht zur Anwendung der Eingriffsnormen anderer EG-Staaten. Tübingen 2002, S. 54; A. Bonomi (Fn. 4), S. 246; P. Stone. EU Private International Law. Harmonization of Laws. Cheltenham 2006, S. 310.

^*45 Ähnlich hat auch das EVÜ die gesetzlichen Grenzen des richterlichen Spielraumes bestimmt. S. dazu auch J. Fetsch (Fn. 44), S. 54; J. Kropholler (Fn. 17), § 52 X 3a; P. Stone (Fn. 44), S. 310.

^*46 R. Freitag (Fn. 11), S. 110.

^*47 Ausführlich dazu: J. Fetsch (Fn. 44), S. 55.

^*48 Münchener Kommentar/Martiny (Fn. 4), Art. 34 EGBGB Rn. 160. z. B. würden auch Freihandelsverbote, die sich gegen das eigene Land richten, keine Anwendung finden.

^*49 A. Bonomi (Fn. 4), S. 246; S. auch J. Fetsch (Fn. 44), S. 56; Münchener Kommentar/Martiny (Fn. 4), Art. 34 EGBGB Rn. 160.

^*50 J. Fetsch (Fn. 44), S. 53.

^*51 Näher R. Freitag (Fn. 11), S. 111.

The meaning of a remedy (accordant with the German concept of Rechtsmittel) is in most cases associated with a certain violation, and the objective of a remedy is primarily to rectify, in one way or another, a violation of a subjective right of a person. The meaning and objectives of a remedy may vary according to the branch of law in question. For instance, in judicial proceedings law, remedies are understood as legal opportunities that a party to a proceeding may exercise to contest a judicial decision in a court of higher instance. The legal literature notes that the objective of such remedies is primarily to correct and alter the decision while remedies may have a different procedural effect. The principle is that a party to a proceeding is granted an opportunity to contest the decisions that said party considers to be unlawful and unfavourable to him. ^*4 State liability law recognises primary and secondary remedies—with the former, the objective of the remedy is to prevent or eliminate the causation of damage, and in the second case compensation for damage is granted in the direct (i.e., monetary) sense of the term. ^*5 Environmental law too speaks of a comprehensive approach to remedies and to the violations associated with one particular area of the law. ^*6

This article aims to investigate the specific nature and objectives of shareholders’ remedies under company law and the approaches employed by different legal systems and countries to the systematics of shareholders’ remedies. The paper will also provide an assessment of the regulation of this particular issue under Estonian law.

1. Specifics of remedies under company law

In the Estonian legal space, with its influences from the Germanic legal tradition, the complex concept of legal remedy has perhaps been defined best in the law of obligations, where a remedy is treated as an opportunity that a creditor has at his disposal for eliminating, when an obligation has been violated, the negative consequences of said violation or for preventing such consequences. A remedy may include both an opportunity to claim something from the other party to the obligation (the right of claim, e.g., such as an action for the compensation of damage) and the right to unilaterally alter the obligation (in German, Gestaltungsrecht, e.g., the right to withdraw from or cancel a contract). The legal literature ties the opportunity to apply a remedy in the law of obligations to the concept of liability. ^*7 Proceeding from the principle of private autonomy, it is characteristic of remedies in the law of obligations that it is up to the creditor to decide on their application and neither courts nor other institutions can interfere and apply a remedy whose application the creditor has not requested or upon which he has not relied. ^*8

However, one certainly cannot claim that remedy as an independent legal concept is something characteristic solely to the Germanic law of obligations. The term can be found in the Principles of European Contract Law ^*9 , whose Article 8.101 (1) provides that whenever a party does not perform an obligation that is set forth in the contract and the non-performance is not excused, the aggrieved party may resort to remedies. These are remedies under contract law, and their systematics proceeds from the violation, providing for which remedies are available. Likewise, Chapter 3 of Book III of the Common Frame of Reference ^*10 contains regulation of remedies for non-performance.

Relations under company law are characterised by their multifacetness, which arises from there being numerous parties to such a legal relationship, and these relations are also multi-layered. Therefore, creation of an appropriate system of remedies is a rather challenging task in this domain. Internal relations include, simultaneously, the relations of the members of management with the company, relations between directing bodies, relations among the shareholders, and the relations of the shareholders with the members of the directing bodies. In addition, account should be taken of the relations of the public limited company, as a legal entity acting in commerce in its own name, with third parties because the legal capacity of a legal entity is realised by its management board via the members thereof. ^*11

The dilemma under company law lies in the fact that, on the one hand, any company, in order to operate, needs a stable environment. The managers of a company need to act independently within the limits of the powers conferred upon them and to have a guarantee that, under normal circumstances, there will be no interference in the day‑to‑day economic activities of the entity they manage. On the other hand, there is a risk of abuses because of conflicts between the management board and the shareholders, characteristic especially of companies with fragmented holdings, as well as conflicts between the majority and minority, which are burdensome for those companies with one strong majority shareholder and a number of minority shareholders. ^*12 Contradictions may also develop, and proper remedies are necessary in the case of closed limited companies in which the shareholding is evenly split between two shareholders or between two homogenous interest groups who, whilst having similar interests and acting together, compete with each other. ^*13 Thus it can be seen that the requirements imposed on the catalogue of remedies under company law are more diverse.

A remedy under company law is, it may be said, a legal measure whose objective is to eliminate or prevent the negative consequences of violations committed by subjects in company law (such as a company, members of its directing body, or shareholders). However, a remedy under company law may, in equal measure, be directed toward the prevention of future violations.

2. The nature and objectives of the remedies for a shareholder

At the turn of the century, the theory of company law brought to the fore the company as a whole, and the interests of the shareholders, as one interest group among many, were pushed into the back seat. ^*14 This tendency has of late started to change. In the light of the financial crisis that originated in the United States of America in 2008, there has been increasing talk about broadening the rights of shareholders in order to balance the powers of the management board. ^*15 In Germany too, there is ongoing legal debate, unlike in the past, about the rights of a shareholder, even going as far as to discuss the possibility of claiming compensation for personal damages of a shareholder. ^*16

While the legal literature discusses protection of the shareholders, the emphasis has differed: in America, it has been on protection of shareholders as a class, in contrast to Europe, where the focus is on the protection of minority and small shareholders. These approaches have been conditioned by the differences between the relevant capital markets—compared to the USA, Europe (in particular, continental Europe) features considerably more limited companies that are controlled by a majority shareholder. ^*17 Majority interest has been the basic principle guiding company law. However, as Finnish researcher Seppo Kinkki has explicitly stated, the existence of minority protection is the very reason for which a person, instead of just giving his money to a random stranger, would invest it in a limited company. ^*18 In fact, Japanese jurist Eiji Takahashi has posited minority protection to be the paramount task of modern company law. ^*19 Whilst a majority shareholder should be able to protect his rights by voting, the minority shareholder does not have that option.

The shareholder, being the original owner of the investment, will, according to the legal principle of casum sentit dominus ^*20 , generally bear the risks inherent to the company. ^*21 However, according to that principle, the owner bears only the so-called risk of accidental destruction ^*22 , while for errors of the management clearly beyond the scope of the business judgement rule ^*23 , the liability shall be borne by the person who made such an error. This means that the shareholder carries a risk to lose his investment should the business fail. Where the directing bodies have acted in keeping with the business judgement rule—i.e., when they have observed the due-care obligation of a prudent entrepreneur—any consequences of loss of assets invested in the company by the shareholders shall be borne by those shareholders if the business fails. However, if the directing bodies have not exercised due care in management, the shareholders need not bear the negative consequences and the members of management must compensate for the damages they have caused. Such is the principle of casum sentit dominus as expressed in the structure of a limited company as a legal entity.

A remedy available to a shareholder under company law is, in the broadest sense, any right vested in a shareholder to prevent a planned violation or to respond to a violation already committed in the company (by taking action to clarify the violation; demand the elimination of the consequences of the violation, restoration of the original situation, or claim damages; etc.). In this sense, among the remedies a shareholder can exercise are also the right to call a general meeting when the management board has not summoned a general meeting after receiving a demand from the shareholders (set forth in § 292 (2) of the Commercial Code ^*24 ), the right to demand a special audit (see § 330 (2) and (2¹) of the CC), claims related to merger and winding-up procedures, and other remedies. ^*25 In a narrower sense, the remedies available to a shareholder may be understood primarily as claims directed toward the elimination of the consequences of violations, of which contestation of the resolutions of the general meeting or directing bodies and compensation for damages are the primary ones.

In addition to remedies under company law, a shareholder may avail himself of the remedies provided under, for example, the law of obligations. ^*26

In comparison to remedies under the law of obligations, for which the objective is to eliminate a violation arising from an obligation, the objectives of the remedies available to a shareholder under company law are somewhat broader. The objective of remedies under company law are not necessarily limited to the enforcement of a particular, purely subjective right (such as compensation for damages); rather, they are targeted at protecting the interests of the company as a whole—catering to reasonable resolution of conflicts within the company, alleviating discord between majority and minority shareholders, preventing abuse by directing bodies, or creating an adequate and flexible system to address the consequences of violations already committed. This logically gives rise to the question of whether remedies under company law should be always and in any event guaranteed to each individual shareholder or whether it makes sense to establish in certain cases some specific majority vote requirements.

3. Proportionality of legal regulation

Responses to a violation may generally be divided into responses in private law and those in public law, according to whether the response requires state intervention or not. ^*27 In view of this, the legal literature treats various forms of control and mechanisms of liability created by the state under penal law as sanctions under public law. ^*28

The literature makes mention of a goods market as one possible alternative to remedies under company law (including options for response to any violations committed by a member of the directing body); however, it is stressed that the regulatory impact of the market varies significantly in different countries and legal orders. ^*29 B. Black and R. Kraakman believe that the use of various options of legal intervention and regulators based on market forces depends, inter alia, on the type of economy in place in the country in question, and they also hold that, for example, an emerging economy needs a company-law environment different from that of a developed, stable economy. ^*30 These authors also highlight the prohibitive economic model that was characteristic of the British and US company law in the 19th century and wherein the main legal regulator was the prohibition of various activities that by their nature would be conducive to the most violations (e.g., related-party transactions). Black and Kraakman concede that in the early phases of an emerging economy such a model might be justified, but they argue that a self-enforcing model may also be effective in the conditions of an emerging economy. ^*31 They consider the market as regulator to be an alternative not only to the remedies of a shareholder but to legal regulation in general. How great a role legal provisions should have at all in the regulation of a capital market is the starting point of the discussion. However, the collapses of Enron and other major listed companies, which cast a shadow over the turn of the century, have demonstrated that even the capital market of the USA can no longer be the corresponding environment’s sole regulator. The literature notes that, in reality, market mechanisms and protection of shareholders and investors go hand in hand and that where no proper protection measures are in place, flow of capital from outside the company dries up (or just becomes too expensive) and abuse related to insider trading begins to spread. ^*32

The existence of any remedy is justified by the right whose enforcement the corresponding remedy purports to serve. A concrete remedy can be viewed from two angles—firstly, from that of the right protected and secondly from the perspective of violation as consequence. The question is of whether individual shareholders (or a minority holding a certain number of votes) should have the possibility of controlling only the resolutions adopted at a general meeting, by contesting the resolutions that are unlawful or adopted in violation of the rules of procedure, or they should also be granted the same right of control over the activity of the directing bodies, vesting in the shareholders, inter alia, the right to bring charges against the members of the directing bodies to remedy a violation or to compensate for damage. ^*33 On the topic of democracy in company law, the literature notes that it is not so much democracy of shareholders as it is democracy of the shares, meaning that the general emphasis leans toward building the catalogue of other legal options on one’s proportion of property rights. ^*34 The principles of company law do, however, accept to a certain extent the right of the shareholders to control the activities of the directing bodies, and, despite the general rule that the majority decides, it is deemed necessary to protect the rights of the minority against abuse by the directing bodies and the majority shareholder.

Contrary to the stance that every shareholder should have a maximum arsenal of legal remedies, specialists in economics argue that even granting each shareholder the right to contest the resolutions of a general meeting may cause excessive problems for a limited company. In Germany, for example, it has been opined that individual shareholders have for much too long had an excessively wide playing ground for blocking vital reforms in a company by first provoking a basis for invalidating or nullity of a resolution of the general meeting and then bringing the case before a court in order to sway the company to employ, instead of the economic choice expressed in the contested resolution, another solution, one preferable to that particular shareholder. ^*35 Such court proceedings are often very distressing and time-consuming for the company, which is why the threat of court proceedings has indeed been used as a means of exerting pressure on a company. ^*36

In creating a catalogue of remedies for shareholders under company law, one should take into account more factors than merely the need to restore someone’s subjective right that has been violated. In addition to the interests of shareholders, the interests of a company as a social whole and those of its other interest groups must be born in mind as well as the need to launch changes vital to the shaping of a secure investment environment and the normal operation of the company. It should also be considered that the system of measures should be developed in a balanced and proportionate way.

In summary, it can be stated that the affording to shareholders of remedies under company law is a rather significant issue of legal regulation; the only question concerns the objectives sought and whether or not such measures are consistent with the general legal and economic environment of the state.

4. Various possibilities of systematics of shareholders’ remedies

4.1. France and Belgium

Different legal systems approach shareholders’ remedies differently, and sometimes when speaking about shareholders’ remedies, different phenomena are understood as being referred to. Therefore, the systematics of remedies also may differ. French lawyer Bernard Grelon, for instance, divides claims for remedying violations of shareholders’ rights into, first, those against the directing bodies of the company and, second, claims against the other shareholders, and for the latter claims he distinguishes, further, between claims arising from the abuse of rights and those arising from the shareholders’ agreements. Grelon divides claims against the directing bodies into temporary measures, whose aim is to collect evidence or prevent damages, and measures to restore rights in order to eliminate a violation. ^*37

According to Grelon, the so-called nullity lawsuits are the measures directed toward elimination of a violation. The author cites as the most characteristic nullity lawsuits those cases wherein a shareholder files a lawsuit to establish the nullity of a transaction concluded by the members of management with that particular shareholder or with a person having the same economic interest in a situation in which the transaction was entered into without the prior consent of the board of directors (in the case of a one‑level management structure) or the supervisory board (where a two-level structure applies). ^{*38 *39} French law is affirmative of the shareholder’s right of intervention in such a situation even where the violation occurred before that person acquired the shares in the company, and also where the relevant person, while a shareholder at the time of violation, later transferred his shares. However, in the latter case it is important to prove, if one is to rely on nullity, the existence of justified interest. ^*40

The measures for restoring rights or the claims for compensation for damage may, according to Grelon, be original or derivative. Derivative claims are directed against the members of management who were in breach of their obligations and the compensation has to be paid by, instead of the company, another person—i.e., in the context of these systematics, by the shareholder. Grelon calls those lawsuits ut singuli lawsuits. In their case, unlike that of nullity lawsuits, should the claim be enforced, the shareholder needs to own a certain number of shares both at the time of filing suit and throughout the whole course of proceedings. Original claims, on the other hand, are claims to compensation made by shareholders for their own personal damage that the shareholders may bring against the members of the directing bodies in a situation wherein damages have been caused directly to the shareholders. Although, in theory, claims for compensation of shareholders’ personal costs are possible according to Grelon, the courts tend to ignore such compensation claims of shareholders. Judicial practice has generally demonstrated the stance that bad management primarily harms the company and even where the market price of the shares drops as a result of the wrongdoing of the managers, the shareholders are not deemed to be aggrieved parties. ^*41

Belgian lawyers Alexia Bertrand and Arnaud Coibion generally share the systematics of shareholder protection outlined above. Namely, they distinguish among shareholder suits against the directors of the company, suits against other shareholders, claims against the company, and shareholder suits in so-called summary proceedings whose aim is to provide for provisional and prompt regulation of a certain legal relationship. ^*42 The group of suits classed as summary proceedings includes, for example, suspension of the holding of a convened shareholders’ meeting, suspension of the effects of the resolutions of the company, prohibition of certain activities of the company (sale of assets, publication of an official announcement, publication of a press release, etc.), and also curtailing of a shareholder’s right to information. ^*43 The cases cited here can be treated as measures for securing an action or as measures for provisional regulation of a legal relationship. ^*44

As the main cases of shareholders’ suits against other shareholders, Bertrand and Coibion highlight suits connected with exit from the company. These authors note that for a long time, the only solution set forth by law for an enduring dispute among the shareholders of a company was the judicial liquidation of said company. Since 1996, a minority shareholder in Belgium has been able to request that one or several other shareholders sell all of their shares or other securities in the relevant company, for so-called valid reasons (exclusion), or that one or several other shareholders buy all of their shares in the company (withdrawal), also for valid reasons and on the premises that other measures would not provide solutions to the dispute and the dispute is likely to lead to the winding up of the company. Today, Belgium has significant judicial practice of such proceedings; therefore, it can be seen that these remedies do actually work. ^*45 Bernard and Coibion mention, as the main type of shareholder suits against a company, the challenging of a resolution of the company. They also mention remedies (predominantly claims to compensation for damages) applied in the course of various categories of take-overs, mergers, divisions, and restructuring proceedings. ^*46

4.2. The United Kingdom

The systematics of the shareholders’ remedies in the United Kingdom are reflected in the consultation paper prepared by the Parliament-commissioned Law Commission (Shareholder Remedies Consultation Paper, hereinafter ‘SRCP’). ^*47 The document analyses the rights of shareholders as well as the main types of existing remedies and their application. Shareholders’ remedies are accorded a rather broad meaning, and distinction is made among personal actions of shareholders, derivative actions ^*48 , unfair prejudice remedies (in German, Beeinträchtigung), and additional remedies arising from the law. ^*49 The main remedies the paper deals with are the shareholders’ derivative actions and unfair prejudice remedies. The last of the remedies mentioned here, also called oppression remedy, allows the minority to contest any abuse of the minority rights and also contest acts damaging the company generally. This remedy has been treated as an effective measure also in Canadian corporate law, into which it was incorporated in 1983. ^*50 Such a remedy was already in place in the law of the UK as far back as in 1948, and before the corporate-law reform of 2006, it was regulated by Articles 459–561 of the Companies Act. The Companies Act in effect since 2006 ^*51 also provides for such remedy; namely, Article 994 specifies that a member of a company may apply to the court, by means of a petition, for an order on grounds that the company’s affairs are being, or have been, conducted in a manner that is unfairly prejudicial to the interests of members generally or that an actual or proposed act or omission of the company is, or would be, so prejudicial. The persons whose rights are affected may represent all or only some of the shareholders, but in order for them to bring charges, the condition necessary is that at least the rights of the petitioner have been violated.

This remedy is considered to be a complex and flexible legal option that can be exercised by the court to assess the various aspects of the company’s business operations and simultaneously resolve different types of disputes. ^*52 A. Reisberg has called this measure a substitute for a derivative action and referred to the fact that British courts continue to be more keen to process such actions than derivative actions. ^*53 The SRCP too indicates that this is an important procedural alternative to a derivative action. Part 9 of the SRCP analyses the instances wherein the unfair prejudice remedy is used the most, among which are exclusion from management, failure to provide information, increase of the share capital issued, alteration of articles of association, diversion of company business and ‘misappropriation’ of assets ^*54 , excessive remuneration or non-payment of dividends, and mismanagement (SRCP, 9.33–9.44).

4.3. Germany

Germanic company law, in contrast, is characterised by different procedures and remedies being provided for different types of violations. Less attention is devoted to a complex analysis and systematics of shareholders’ remedies. The possibility of challenging the resolutions of the general meeting and directing bodies—establishment of nullity or revocation of a resolution—is one of the fundamental shareholders’ remedies in Germany. The term ‘shareholder action’ (equivalent to the German concept of Aktionärsklagen) is used to denote the remedies available to shareholders in a narrower sense. In the legal literature, it has been argued that a corresponding, comprehensive realm of law is still in the process of developing, with the support of legal theory and judicial practice. German lawyer Walter Bayer has classified shareholder actions as actions directed toward the remedy of defective resolutions, on one hand, and as defence actions or actions for compensation for damage, on the other. The first type of action is applicable in the case of defective resolutions; depending on the nature of the defect, a shareholder may turn to a court and demand that either the nullity of the resolution be declared or the resolution be annulled. ^*55 This right arises primarily out of §§ 241 and 245 of the German Aktiengesetz ^*56 , which grant the shareholders the right to demand revocation of an unlawful resolution of their general meeting or recognition of its nullity. As this is one of only a few remedies available to minority shareholders, it is employed widely, which, in turn, has prompted extensive criticism. For instance, in the legal literature it has been opined that in many instances shareholders initiate actions to contest or annul a resolution for provocative reasons, in order to interfere purposefully with the operations of the company. ^*57

As regards the second type of shareholder actions (defence actions or actions for compensation of damage), Bayer highlights those sets of instances wherein the corresponding remedies are applied most often: illegal meddling of the directing bodies with the rights of the shareholders, causing of damages to the company by the members of the directing bodies, breach of law by the directing bodies in preference of the interests of a particular shareholder, damages unlawfully caused to the company by third parties, and unlawful affecting of the directing bodies by third parties (shareholders included). ^*58 However, the enforcement of actions for compensation for damages is a matter of some debate in German law. ^*59 Problems are also caused by practices contrary to articles of association where those practices are based on non‑formalised resolutions—i.e., contesting the de facto alteration of the articles (faktische Satzungsänderung). ^*60 Namely, it has been argued in German legal theory that de facto alteration of the articles of association does not necessarily constitute a violation of the provisions of the articles and that this situation involves de facto behaviour beyond one’s competence, which may prove difficult to challenge. ^*61

5. Shareholders’ remedies in Estonian company law—haphazard versus systematic

If we proceed from the classification according to which shareholder actions are divided into actions aimed at correcting resolutions and so-called defence actions, it becomes clear that Estonian corporate law focuses on the opportunity granted to a shareholder to contest the resolutions of a general meeting or directing bodies. Both the General Part of the Civil Code Act ^*62 (hereinafter ‘GPCCA’) and the Commercial Code distinguish, in the case of contested resolutions of a general meeting, between invalidation of resolutions and nullity of resolutions. In respect of public limited companies, the special provision made in § 302 (1) of the CC applies. Under this provision, on the basis of an action filed against a public limited company, a court may revoke a resolution of the general meeting of shareholders that is in conflict with the law or the articles of association. Pursuant to subsection 3 of the same section, a shareholder who did not participate in the general meeting may demand the revocation of the resolution. A shareholder who did participate may demand revocation only if said shareholder’s objection to the resolution has been entered in the minutes of the general meeting. Thus, the law does not require that a shareholder necessarily prove that a resolution violates his rights (a violation may be objective), but, instead, it directs the shareholder to take proactive measures and at least have his objection recorded in the minutes. The purpose of such regulation is to reduce the opportunities to file protection actions.

An action to establish nullity of a resolution is provided for in § 301¹ (1) of the CC, under which the resolution of the general meeting of shareholders is void if it violates a provision of law established for protection of the creditors of the associated public limited company or for reasons of other public interest, if it is contrary to good morals, if the minutes of the general meeting that passed the resolution have not been notarised in the manner prescribed by law, or the procedure for calling a meeting was violated in the calling of the general meeting that passed the resolution. Nullity of a resolution may be relied upon in court proceedings through filing of an action or objection. At the same time, reliance in legal practice on the nullity of a resolution requires that a court have previously established such nullity (see the second sentence of § 38 (2) of the GPCCA).

As regards those persons who are entitled to demand that a court establish that a resolution of the general meeting is void, the law does not list the subjects who have such rights of contestation. Subsection 301¹ (3) of the CC just sets out that nullity of a resolution may be relied upon in court proceedings by filing an action or objection.

For the purpose of determining the list of persons with the right of contestation, when cases of nullity are involved, one can turn to § 38 (3) of the GPCCA—in this provision, the term ‘interested person’ is used. The author believes that the question as to which shareholders may demand the establishment of nullity can be approached in two ways. Firstly, it is possible to claim that, as the person whose rights are violated by a resolution has the right to demand the establishment of nullity, in order for that shareholder to demand the establishment of the nature of that resolution, it must directly violate his rights. Secondly, because of the specific character of relations under company law, it can be argued that the shareholder is indeed the interested person, in view of the fact that he, as the provider of capital, has a special relationship with the company and also that the shareholder’s right to rely on nullity and demand the establishment of nullity is precluded only in exceptional cases (first and foremost, when he abuses his rights in the filing of his action) The author of this article leans toward the second interpretation and believes that a shareholder’s right of claim is generally to be deemed worthy of regard; however, the prohibition of abuse of one’s rights and the principle of good faith rule out the possibility of a claim being enforced by a shareholder who was present at the meeting and voted in favour of the resolution (see §§ 32 and 138 of the GPCCA). ^*63 Such a restriction arises, inter alia, from the fact that the holder of a subjective right must not exercise a right vested in him contrary to the objective of such a right. ^*64

Contestation of resolutions as a legal remedy has found its most in-depth treatment in Estonian legal theory ^*65 , and it is also the remedy exercised most widely by shareholders in judicial practice. ^*66 The situation is somewhat more complicated for actions for compensation of damage filed against members of directing bodies. Estonian law proceeds from the principle that the filing of an action shall be decided upon and the company represented during the proceedings by a person appointed to this task by the supervisory board. Although the practice of the Supreme Court shows that quite a number of actions against members of directing bodies for compensation of damage have been processed, civil cases in which a member of the management board has been held accountable are rather rare. One of the features of proceedings directed against members of the management board is that they are carried out in the name of the bankrupted company. ^*67 The compensation for personal damages of shareholders has not been discussed in the legal literature. However, the CC includes provisions that allow such actions. For instance, § 403 (6) of the CC sets out that the members of the management board and supervisory board shall be liable to the company for any damage wrongfully caused by the merger. In addition, the CC contains several provisions that, although providing for the obligation of certain persons to compensate for damage, do not specify to whom such persons are liable. For instance, § 33 (8) of the CC sets out that if incorrect information is submitted to the commercial register, the persons who signed the petition shall be solidarily liable for any damage wrongfully caused. ^*68 The author of the present article believes that in actuality we lack a theoretical treatise about the area of protection of those provisions as well as a clear understanding of whether they have ever been applied in practice and, if they have, which problems have been encountered and whether they could be treated as the shareholder protection provisions—and, if so, which of them could. ^*69

When defining the areas of protection related to actions for compensation for damage, Bayer posed, among other questions, those of the opportunities that a shareholder should have for enforcing his personal claims and of his opportunities to enforce them on behalf of the company. The author of this article believes that Bayer’s approach, in material published about 10 years ago, is meaningful for the current analysis of Estonian company law because it broadly reflects our current legal situation and problems. The part of company law that Bayer calls defence actions has not been explored or developed in Estonia. One cannot but arrive at the view that the development of shareholders’ remedies has lacked proper systematic attention and that, in this domain, further development of the law has been haphazard and limited to just a few, often half-masted solutions. For instance, by the amendments of 1 January 2006, §  289² was introduced into the Commercial Code. Under this new section, a person who, by misusing his powers of control, influences a member of the management board or supervisory board to act contrary to the interests of the public limited company, has become liable for compensation of any damage incurred thereby by the public limited company; however, no attention was paid to the fact that the persons who, in such a situation, could initiate proceedings to enforce an action for compensation of damage might be and actually often are those very members of the directing bodies who were influenced. ^*70 Another problem is that currently a shareholder must be able to navigate amid a plethora of requirements, objections, and procedural problems, and also often the opportunities for protecting the rights of a failing company and the persons connected with it are unclear or undefined. The author of this article has already expanded upon the problems related to the lack of a derivative action as an institute in Estonian company law. ^*71

Therefore, the protection of the rights of shareholders is defective in the Estonian context, because often measures such as contesting resolutions made by the directing body of the company, requesting information, commissioning a special audit, or employing other preventive measures are of no avail in defending against the abuse perpetrated by the directing bodies or the majority shareholder, while, on the other hand, the compulsory dissolution of the company would be either impossible or disproportionate because of the extremity it involves, or simply not desirable. ^*72 The author of this article is of the opinion that not enough attention has been paid in Estonian law to the areas where most of the problems are expected to occur: abuses by the majority at the expense of the minority, influencing the directing bodies and thereby causing damages for the company, and creation of flexible (additional) measures to enforce actions for compensation of damage. Models are plentiful in the laws of other countries, and closer analysis of such models as well as identification of the problems we face in practice will allow us to develop our law in the direction we want. 

6. Conclusions

The objectives of remedies under company law are multifaceted, covering not just the elimination of the negative consequences of violations committed by subjects in company law (companies, members of directing bodies, shareholders, etc.) or the prevention of the arrival of such consequences. They are also directed at the avoidance of further violations and initiation of restructuring within the company as needed, as well as at the protection of the interests of the company as a whole and at reasonable resolution of internal conflicts.

Different countries have tackled the matter of shareholders’ remedies at differing levels. During a recent reform, the United Kingdom developed, in the preparatory state of the reform, a consultation paper that provides an in-depth analysis of the various forms of shareholders’ remedies. Likewise, French and Belgian practitioners of jurisprudence are actively discussing the subject of shareholder actions and more interest is being shown in the so-called defence actions and their enforceability (actions for compensation for damages). In German legal literature too, though this area has not been addressed systematically to any great extent, increasingly more writings have been published on the topic of potential actions for compensation of damage. However, in contrast, shareholders’ remedies have not been systematically developed in Estonia.

On the basis of the above reasoning, the author of this article concludes that this domain of company law needs to be analysed in Estonia and that related regulations should be reviewed. The starting point should be to map out the typical circumstances of violations on the basis of our judicial experience as well as the experiences of other countries as to situations that involve a greater risk of violations (e.g., mergers, divisions, take-over proceedings, excessive remuneration of members of directing bodies, and also cases wherein a legal entity has been penalised for a crime by means of a fine but there is no functioning mechanism of recourse against the members of the directing bodies). After this, the current laws and judicial practice should be analysed from the standpoint of the effectiveness of remedies (with assessment of their enforceability and also procedural aspects, as well as, for instance, the alternatives provided in protection measures under public law). The problems should be compiled in a coherent manner, and the necessary amendments to the law should be formulated on the basis thereof in consideration of issues of suitability for the general legal and economic backdrop.

Notes:

^*1 This article was published with support from ESF grant No. 7297 “Theoretical Bases of the Harmonisation of Main Institutes of Civil Law in Europe and Its Impact on Civil Law and Legislation in Estonia”.

^*2 A. Aarnio. Õiguse tõlgendamise teooria (Theory of Interpretation of Law). Tallinn 1996, p. 77 (in Estonian).

^*3 About this principle, see, e.g., T. A. Thomas. Ubi Jus, Ibi Remedium: The Fundamental Right to a Remedy under Due Process. – San Diego Law Review, November 2004 (41). Available at SSRN http://ssrn.com/abstract=564302 (23.03.2009); J. Kahn. The Search for the Rule of Law in Russia. – Georgetown Journal of International Law 2006 (37) 2. Available at SSRN http://ssrn.com/abstract=1011822.

^*4 T. Rauscher et al. (Hrsg.). Münchener Kommentar zur Zivilprozessordnung mit Gerichtsverfassungsgesetz und Nebengesetzen. 3. Aufl. München 2004. Vorbemerkung zu den § 511 ff., margin No. 1–3.

^*5 E. Andresen. Õigusvastaste tagajärgede kõrvaldamine ja kahju hüvitamine riigivastutusõiguses (Elimination of Unlawful Consequences and Compensation for Damage in Sate Liability Law). – Juridica 2006/3, p. 160 (in Estonian).

^*6 M. Kloepfer. Saksamaa tulevase keskkonnaseadustiku mõte ja sisu (The Idea and Content of the Future German Environmental Code). – Juridica 2007/7, p. 513 (in Estonian).

^*7 I. Kull et al. Võlaõigus I. Üldosa (Law of Obligations I. General Part). Tallinn 2004, p. 192 (in Estonian).

^*8 P. Varul et al. Võlaõigusseadus I. Kommenteeritud väljaanne (Law of Obligations I. Commented edition). Tallinn 2006, § 101, commentary 3 (in Estonian).

^*9 Principles of European Contract Law. Available at http://frontpage.cbs.dk/law/commission_on_european_contract_law/
PECL%20engels/engelsk_partI_og_II.htm.

^*10 C. von Bar et al.(ed.). Principles, Definitions and Model Rules of European Private Law: Draft Common Frame of Reference. Outline edition. Available at http://www.law-net.eu/.

^*11 K. Saare. Eraõigusliku juriidilise isiku õigussubjektsuse piiritlemine. Doktoritöö (Delimitation of the Legal Subjectness of a Legal Entity under Private Law. Doctoral thesis). Tartu 2004, p. 132 (in Estonian).

^*12 H. Hansmann, R. Kraakman. Agency Problems and Legal Strategies—The Anatomy of Corporate Law. A Comparative and Functional Approach. R. Kraakman et al. Oxford 2004, p. 21.

^*13 At first glance, such a distribution of shareholding may seem democratic, but in essence in such a case both shareholders and voting blocs need to vote for every resolution in order to adopt it. Conflicts of a principle nature may render a company incapable of acting if, e.g., the term of office of the directing bodies elapses and, because of the differences between the shareholders, new members cannot be appointed into the directing bodies.

^*14 Even in the USA, which is classically considered to be at the forefront of shareholder protection, in the post-Enron times the need to consider the broader goals of corporate governance has been intensely emphasised. See, e.g., T. Baums, K. E. Scott. Taking Shareholder Protection Seriously? Corporate Governance in the United States and Germany. – American Journal of Comparative Law, Winter 2005 (53); ECGI – Law Working Paper No. 17/2003; Stanford Law and Economics Olin Working Paper. Available at SSRN http://ssrn.com/abstract=473185.

^*15 As noted by Jennifer Hill, in reference to an article in The Financial Times, business once again has a ‘legitimacy problem’, adding that the financial crisis represents an opportunity to reassess whether shareholders should be afforded stronger power, as a check on managerial control. See J. G. Hill. Who’s Afraid of Shareholder Power? A Comparative Law Perspective. Unpublished Paper, 2009, pp. 2–3. Available at http://works.bepress.com/cgi/viewcontent.cgi?article=1003&context=jennifer_hill.

^*16 See, e.g., G. Wagner. Schadensberechnung im Kapitalmarktrecht. – Zeitschrift für Unternehmens- und Gesellschaftsrecht, August, 2008 (4), pp. 495–531.

^*17 K. J. Hopt. The German Two-Tier Board: Experiences, Theories, Reforms. – Comparative Corporate Governance—The State of the Art and Emerging Research. K. J. Hopt, H. Kanda et al (ed.). Oxford 1998, p. 232.

^*18 S. Kinkki. Minority Protection and Dividend Policy in Finland. – European Financial Management, 2008 (14) 3, p. 471.

^*19 E. Takahashi. Der Gleichbehandlungsgrundsatz im japanischen Aktienrecht als Aufgabe der Rechtswissentschaft. – Zeitschrift für Vergleichende Rechtswissenschaft. Archiv für Internationales Wirtschaftsrecht. 108. Band. Mai 2009, p. 105.

^*20 Casum sentit dominus is a principle derived from Roman law under which the owner of a thing is primarily the one to bear the risk of accidental destruction or damage of a thing. See, e.g., R. Lieberwirth. Latein im Recht. 3. Aufl. Berlin: München 1993, sv “casum sentit dominus“.

^*21 H. C. von der Crone. Haftung und Haftungsbeschränkung in der aktienrechtlichen Verantwortlichkeit. – SZW/RSDA 2006/1, p. 159. Available at http://www.rwi.uzh.ch/lehreforschung/alphabetisch/vdc/cont/
Haftung_und_Haftungsbeschraenkung.pdf.

^*22 Of course, here we can speak about the risk of accidental destruction only conditionally as in legal sense there is not necessarily a linear relationship between the ‘destruction’ of the shareholder’s investment and the bad economic situation of the limited company.

^*23 For more on this, see, e.g., T. Tiivel. Äriühingu juhtorgani liikme kohustused ja vastutus. Magistritöö (Duties and Liability of a Member of a Directing Body of a Company. Master’s thesis). Tartu 2004, p. 30 (in Estonian).

^*24 Äriseadustik. Adopted on 15 February 1995. – RT I 1995, 26/28, 355; 2010, 9, 41 (in Estonian). Hereinafter ‘CC’.

^*25 E.g., under § 378 (4) of the CC, shareholders who represent at least one tenth of the share capital may bring an action with a court, in a liquidation proceeding, within two months after the date on which the shareholders were informed that the balance sheet and asset distribution plan are presented to the shareholders for examination. The shareholders may demand the preparation of a new balance sheet or asset distribution plan, or supplementary liquidation.

^*26 As stated in CCSCd 10.02.204, 3-2-1-16-04 (RT III 2004, 6, 64 (in Estonian)), a claim for payment of dividend, e.g., is an enforcement claim under the law of obligations. The adoption of a resolution to pay dividend creates an obligation between the company and the shareholder under which the company is required to pay the dividend when the claim falls due and there exist no other objections such as, e.g., those arising from the prohibition to abuse rights. If the company refuses to pay to a shareholder the dividend allocated to him by a resolution of the general meeting, the shareholder may demand the payment of the dividend and resort to other appropriate remedies under the law of obligations (paragraph 15 of the decision).

^*27 The author believes that such a distinction is rather conditional because sanctions under private and public law are understood differently in different legal systems. In the Germanic legal system, on which our classification of the branches of law is built on, e.g., the meaning of public law is understood more broadly and as the enforcement of an action for compensation of damage in private law also requires, if not obeyed voluntary, enforcement via a court proceeding carried out by the public authorities, then in our legal theory, civil court procedure is treated as a part of the public law. See R. Narits. Õiguse entsüklopeedia (Encyclopedia of Law). Tallinn 2004, p. 47 (in Estonian).

^*28 A. Reisberg. Derivative Actions and Corporate Governance. Theory and Operation. New York 2007, p. 31.

^*29 Ibid., p. 37.

^*30 B. Black, R. Kraakman. A Self-enforcing Model of Corporate Law. – Harvard Law Review, June, 1996 (109) 8, p. 1939. Available at SSRN http://ssrn.com/abstract=10037.

^*31 Ibid., pp. 1930–1932.

^*32 W. W. Bratton, J. A. McCahery. Comparative Corporate Governance and the Theory of the Firm: The Case Against Global Cross Reference. – Columbia Journal of Transnational Law 1999 (38) 2, p. 60. Available at SSRN http://ssrn.com/abstract=205455.

^*33 A. van Aaken. Shareholder Suits as a Technique of Internalization and Control of Management. A Functional and Comparative Analysis. Heidelberg 2004, p. 7. Available at http://www.uniformterminology.unito.it/downloads/papers/
AakenShareholder.pdf.

^*34 P. L. Davies. Gower and Davies’ Principles of Modern Company Law. Seventh Edition. London 2003, p. 328.

^*35 H.-U. Wilsing. Der Reiz der Anfechtungsklage. Der ökonomische Gastkommentar. – Handelsblatt, 2.10.2007. Available at http://www.handelsblatt.com/politik/handelsblatt-kommentar/der-reiz-der-anfechtungsklage;1330686.

^*36 A draft act has been prepared in Germany which, inter alia, purports to reduce the time consumed by contesting a resolution and therefore also to alleviate the burden of such a proceeding on a company. See Entwurf eines Gesetzes zur Einführung erstinstanzlicher Zuständigkeiten des Oberlandesgerichts in aktienrechtlichen Streitigkeiten. Bundesrat. Drucksache 901/07 (Beschluss). 14.03.2008. Available at http://dip21.bundestag.de/dip21/btd/16/090/1609020.pdf.

^*37 B. Grelon. Shareholders’ Lawsuits against the Management of a Company and its Shareholders under French Law. – European Company and Financial Law Review, August 2009 (6) 2/3, pp. 205–218.

^*38 See Code de Commerce (Code de Commerce (Commercial Code) accordingly. Last amendment: Act No. 2006-11 of 5 January 2006 Art. – Official Journal of 6 January 2006, Article  L.225-38 and Article L225-86. Available at http://195.83.177.9/code/liste.phtml?lang=uk&c=32.

^*39 B. Grelon (Note 37), p. 210.

^*40 Ibid., p. 211.

^*41 Ibid., p. 213.

^*42 By their nature, these measures are similar to the measures for securing an action or provisional legal protection, as known in the Estonian law, which must be connected with a particular court case, already initiated or pending initiation.

^*43 A. Bertrand, A. Coibion. Shareholder Suits against the Directors of a Company, against other Shareholders and against the Company itself under Belgian Law. – European Company and Financial Law Review, August, 2009 (6) 2/3, p 270–271.

^*44 Thus, § 378 (1) 3) of the Code of Civil Procedure (Tsiviilkohtumenetluse seadustik (RT I 2005, 26, 197; 2010, 8, 35, (in Estonian)), hereinafter ‘CCP’, allows a prohibition on the defendant from entering into certain transactions or performing certain acts, clause 10) of the same subsection also allows another measures considered necessary by the court. In the case of a register proceeding, a court may, under § 598 of the CCP,  suspend the proceedings in the matter of the petition for entry until the time the dispute has been adjudicated by way of actions.

^*45 A. Bertrand, A. Coibion (Note 43), p. 290.

^*46 Ibid., pp. 298–301.

^*47 The Law Commission. Shareholder Remedies. Consultation Paper No. 142, 1996. Available at http://www.lawcom.gov.uk/docs/cp142.pdf.

^*48 A shareholder derivative claim is a claim originally owned by the company which the shareholder or the shareholders representing certain share capital may, in the presence of the prerequisites provided by law, enforce against a member of a directing body by demanding (primarily) that the violation of an obligation is stopped and the damages caused by such violation are compensated to the company. A. Reisberg has more thoroughly explored the shareholder derivative action as a remedy (Note 28).

^*49 Special rights vested into the shareholders by law are treated as such; e.g., the right to challenge a resolution changing the goal of the company (Article 12.11 ff.), the right to request information, etc.

^*50 I. Ellyn, K. de Champlain. Shareholders’ Remedies in Canada. Toronto, 28.03.2005, p. 15. Available at http://www.ellynlaw.com/PDFs/ellyn%20-shareholders%20remedies%20in%20canada.pdf.

^*51 Companies Act 2006. Available at http://www.opsi.gov.uk/ACTS/acts2006/pdf/ukpga_20060046_en.pdf.

^*52 I. Ellyn, K. de Champlain (Note 50), p. 17.

^*53 A. Reisberg (Note 28), p. 298.

^*54 For the purposes of Estonian law: violation of the loyalty obligation, competing activities, etc.

^*55 W. Bayer. Aktionärsklagen de lege lata und de lege ferenda. – Neue Juristische Wochenschrift 2000, Heft 36, p. 2610.

^*56 Aktiengesetz vom 6. September 1965 (BGBl. I p. 1089), zuletzt geändert durch Artikel 11 des Gesetzes vom 16. Juli 2007 (BGBl. I p. 1330). Available at http://bundesrecht.juris.de/bundesrecht/aktg. Hereinafter ‘AktG’.

^*57 E. Wiedmann. Der Rechtsmissbrauch im Markenrecht. Dissertation zur Erlangung des Doktorgrades der Rechtswissenschaft der Rechts-, Wirtschafts- und Verwaltungswissenschaftlichen Sektion der Universität Konstanz, Fachbereich Rechtswissenschaft. Konsta nz, 2002, pp. 42–43. About the criticism, see also H. -U. Wilsing (Note 35).

^*58 W. Bayer (Note 55), p. 2610.

^*59 See, e.g., H. C. von der Crone et al. Aktienrechtliche Verantwortlichkeit und Geschäftsführung. Bibliothek zur Zeitschrift für Schweizerisches Recht. Beiheft 43. Basel, 2006, p. 38. Available at http://www.rwi.uzh.ch/lehreforschung/alphabetisch/vdc/cont/
Verantwortlichkeit_und_Geschaeftsfuehrung.pdf.

^*60 B. Kropff, J. Semler. Münchener Kommentar zum Aktiengesetz. Band 4. 2. Aufl. München 2004, § 179, margin No. 44.

^*61 B. Helmke. Satzungsdurchbrechungen bei der GmbH. Dissertation zur Erlangung des Grades eines Doktors der Rechtswissenschaft des Fachbereichs Rechtswissenschaft I der Universität Hamburg. Hamburg 2001, p. 10.

^*62 Tsiviilseadustiku üldosa seadus. Adopted on 27 March 2002. – RT I 2002, 35, 216; 2010, 38, 231 (in Estonian).

^*63 Under § 32 of the GPCCA, the shareholders or members of a legal person and the members of the directing bodies of a legal person shall act in accordance with the principle of good faith and consider each other’s legitimate interests in their mutual relations. Subsection 138 (2) of the GPCCA provides that a right shall not be exercised in an unlawful manner or with the objective to cause damage to another person.

^*64 I. Kull. Hea usu põhimõte kaasaegses lepinguõiguses. Doktoritöö (The Principle of Good Faith in Modern Contract Law. Doctoral thesis). Tartu 2002, p. 169 (in Estonian).

^*65 A. Vutt has more thoroughly explored the issues related to the contestation of the resolutions of the general meetings of companies. See A. Vutt. Äriühingu organi otsuste vaidlustamisega seotud probleeme (Problems related to the Contestation of the Resolutions of a Body of a Company). – Juridica 2005/1, pp. 53–61 (in Estonian).

^*66 On the basis of the index provided at the web site of the Supreme Court (www.nc.ee), a total of 19 such cases have been processed by the highest national judiciary since 1998.

^*67 See, e.g., CCSCd 3.05.2002, 3-2-1-75-02. – RT III 2002, 18, 208; CCSCd 30.04.2003, 3-2-1-41-03. – RT III 2003, 17, 164; CCSCd 11.05.2005, 3-2-1-41-05. – RT III 2005, 17, 181; CCSCd 25.04.2006, 3-2-1-27-06. – RT III 2006, 17, 162, etc.

^*68 Similar provisions are, e.g., § 223 (3) of the CC which sets out that the issuers are liable to compensate for the damage caused by the issue of shares with a nominal value of less than ten kroons, § 249 (4) which provides for the obligation to compensate for any damage caused by an inaccurate valuation of the non-monetary contribution, etc.

^*69 The Supreme Court made its first ruling on an action for compensation of damages to a shareholder on 31 March 2010 (civil case 3-2-1-7-10). In this case, a shareholder filed, on the basis of § 403 (6), an action against the members of the management board and supervisory board for compensation of damages caused by a merger; the Supreme Court affirmed the existence of the shareholder’s right of claim on the basis of the general elements of liability set forth in law.

^*70 True, the situation is a bit different where a company is bankrupt because the enforcement of claims is decided and the company is represented in the proceedings by a bankruptcy trustee. However, the author does not believe that lenience just towards the enforcement of claims by a bankruptcy trustee is the correct path to take.

^*71 M. Vutt. Shareholder’s Derivative Claim—Does Estonian Company Law Require Modernisation? – Juridica International 2008 (XV), pp. 76–85.

^*72 The bases of compulsory dissolution are set forth in § 40 (1) of the GPCCA and in the context of the topic at hand, the following instances may be highlighted: the objective or activities of the legal person are contrary to law, public order or good morals; the articles of association of the legal person are contrary to law to a significant extent; incapability to appoint new persons in place of the removed members of the management board, etc. The person with the right of action is in this case the Minister of Internal Affairs or ‘any other person or agency so entitled by law’. Compulsory dissolution, being by its nature extreme, cannot therefore be treated as a normal measure to be employed for solving disputes encountered in business activity.