Constitutional Court ruling of 11 September 2024, Pl. Constitutional Court 23/24 became a groundbreaking decision on the issue of valorisation of contributions to the community property of spouses. It is significant not only for the post-divorce settlement of SJM, but also for the conditions for the admissibility of the creation of law when courts fill in gaps in the law.
The complainant and the intervener had been married since 1988. The husband owned the property, which he had sole possession of. Shortly after the marriage, he sold it and together with his wife they bought a property which was already part of the matrimonial property (value of the property approximately CZK 200 000). However, the marriage was divorced in 2017 and proceedings for the division of the matrimonial property followed. The main subject of the dispute was the real estate, which, however, was worth many times more at the time of the divorce (the value of the real estate at the time of the division of the community property was approximately CZK 10 million).
The civil courts ordered the property to be sold and divided the proceeds equally between the former spouses. In addition, they awarded the complainant the amount he had spent out of his sole assets to purchase the joint property in accordance with the provisions of Section 742(1) of the Civil Code (approximately CZK 170 thousand). Despite the complainant’s objections, the civil courts did not apply Section 742(1) of the Civil Code to the purchase of the property. 2 of the Civil Code, according to which, in the settlement of the dissolved community property, the contribution of the spouse from the sole to the community property is so-called valorised (increased or decreased according to the change in the value of the part of the property on which it was spent)․ They referred to the earlier judgment of the Supreme Court in Case No. No 22 Cdo 1172/2022 of 29 July 2022 (R 64/2023), which held in another case that this provision can only be applied if the spouses have agreed on the indexation in advance. However, in the present proceedings it was established that the complainant and his wife had not agreed on any such thing. The complainant appealed to the Constitutional Court, claiming that the municipal courts had infringed his right to a fair trial and his right to own property, as they had ruled in manifest contravention of Article 742(2) of the Civil Code.
Has the Supreme Court’s shaping of the law gone beyond the pale?
The courts, as one of the basic components of state (and public) power, have the task of interpreting and applying the law. In this process, however, the court must take into account the purpose and history of the law and its context in the legal order as a whole.
The Constitutional Court recalled that as regards the linguistic meaning of a text, interpretation of the law, shaping of the law and creation of the law can be distinguished from each other. Interpretation of the law aims at completing a vague part of the law with a clear linguistic core. However, when the interpretation of law goes beyond the boundaries of an expansive interpretation, it is a completion of law or its creation. Courts may cross that line provided they respect generally accepted methods of making law. This is possible because the legislator cannot foresee every single situation, and therefore the courts‘ shaping of the law is acceptable under certain conditions.
In its decision, the Constitutional Court defined the conditions under which the court’s creation of law is permissible. The court may allow itself to supplement the law if 1) there is a gap in the relevant provision, 2) it is an unconscious gap, 3) the gap is not unconscious, but there must be a fundamental change in the relevant (e.g. social) circumstances.
According to the Supreme Court’s reasoning, this is an unconscious loophole in the law and the language of this provision is broader than the purpose of the law. Hence, it chose to complete the law by teleological reduction. However, the Supreme Court did not give proper reasons for its decision, which the Constitutional Court reproached it for in its ruling.
The Constitutional Court stated that the wording in the provisions of Section 742(2) of the Civil Code is so clear and unambiguous that there is no room for any interpretation of the law by the court. At the same time, the Constitutional Court is of the opinion that there is a conscious gap in the law and therefore, if the Supreme Court wanted to shape the law, it should have sufficiently addressed the question whether there was a significant change in social or other relevant circumstances that would justify such a change, which it did not do.
Therefore, according to the Constitutional Court, based on the language of this provision, the spouse is entitled to claim in the event of divorce not only the funds from his/her sole property that he/she spent on the purchase of the community property, but also the increased value of that part of the property.
The old Civil Code had no provision similar to Section 742(2) of the Civil Code. Previously, this situation was resolved by case law applying the so-called principle of reduction, which took into account only the reduction in the value of the thing in question. In contrast, today’s statutory regulation is governed by the principle of enrichment. This is intended to ensure that the decisive factor in the contribution to the community property is not the amount of the value of the property invested, but how the investment results in an increase in the value of the community property. The Explanatory Memorandum justifies this change on the grounds that the period in which the Civil Code came into force was characterised by fluctuations in prices in both directions, which is why the legislator decided to work with the option of increasing the value of the common property, not just reducing it.
Therefore, the Constitutional Court concluded that the Supreme Court violated the complainant’s right to judicial and other protection. It did so by departing from established methods of interpretation and the obvious intention of the legislator. Despite the fact that there were no relevant reasons for doing so, it decided to shape the law. He thus substituted his mere idea of a more appropriate rule of law for the literal wording of the statute and the will of the legislature.
At the end of its ruling, the Constitutional Court stressed that it does not deny that the court may encounter application difficulties when applying the provisions of Section 742(2) of the Civil Code. It expressed the possibility for the Supreme Court to elaborate the conditions under which the general courts may apply this provision to individual situations. However, to deny the general principle of enrichment altogether and to reduce it only to cases where the spouses expressly agree on it goes beyond the limits of judicial law-making.
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