Reprivatisation law must be just

An interview with Krzysztof Wiktor, a partner at Wardyński & Partners who co-heads the Reprivatisation Practice, about the little reprivatisation act, a controversial ruling by the Constitutional Tribunal, and current trends in the case law.

The “little reprivatisation act” was submitted to the Sejm for a second reading on 23 June 2015. The Council of Ministers and the parliamentary committees both evaluated it positively. So what’s so bad about this bill?

Krzysztof Wiktor: Interestingly, the Minister of Treasury issued a negative opinion on the act, clearly moving against the current of the Sejm committees and the rest of the government. When asked during consultation on the proposal, the minister stated that the act is unconstitutional on several points, and in reality would result in a second expropriation while not respecting the constitutional principle of just compensation. Property can be taken, but only for public purposes and for just compensation. But here the public purposes were defined very broadly in the act, and there is no mention of the form of compensation. The Bureau of Research at the Chancellery of the Sejm issued a legal opinion on 8 June 2015 that tore the bill apart.

Where exactly is expropriation found in the bill?

It should be explained that it involves expropriation of rights rather than physical property. Persons with claims under the Warsaw Decree of 1945 have become vested with a type of entitlement known as an expectancy. It is an expectation of establishment of the right of perpetual usufruct to the land taken under the Warsaw Decree. It is comparable to a situation where a member of a residential cooperative enters into a contract with the cooperative under which the cooperative is supposed to build a unit which the individual will then be able to live in with cooperative ownership of the unit. The member of the cooperative then has an expectancy of receiving a right of cooperative ownership of the unit.

Similarly, former owners of Warsaw property—or now their legal successors—obtained an expectancy pursuant to the Warsaw Decree of obtaining the right of perpetual usufruct if they met two conditions: they filed a timely application and it was possible to use the land in compliance with the zoning plan in force on the date the application was considered.

But the proposed new act says that even if the use is currently consistent with the zoning plan, in many instances it is permissible to refuse to establish perpetual usufruct. The bill provides a long list of such instances. This is a form of expropriation—expropriation of the right of expectancy. It is like adopting a regulation that in such and such situations the residential cooperative will not establish a cooperative ownership right to the unit. That is an injury, and anybody would expect compensation. And if expropriation does occur, it must be done for fair compensation, as provided by Art. 21 of the Polish Constitution.

What if the bill provided for compensation? Would it be OK then?

Then at least the constitutional standard would be maintained, but it still would not be a good law. Obviously, regulations providing for compensation for the former owners of Warsaw properties do exist. Art. 215 of the Real Estate Administration Act says that compensation can be awarded to former owners for real estate taken under the Warsaw Decree. But this regulation refers only to owners who held real estate zoned for residential construction in pre-war plans and were deprived of control over the property after 5 April 1958. Thus it does not cover, for example, owners of industrial properties or those who were deprived of control over the property earlier (and that was the case in most districts which remained at least partially built up). If the little reprivatisation act enters into force in its current form, persons who filed a timely application under the Warsaw Decree, and could now expect it to be decided positively, will be told that at most they can apply to the Mayor of Warsaw for damages. But they will get nothing from City Hall because they do not meet the criteria of Art. 215 of the Real Estate Management Act. And even if they meet those criteria, the compensation awarded them under this procedure is on average half of the compensation awarded by the courts, because the compensation is not calculated as the market value of the lost property, but based on the condition and use from 1945.

Introduction of the new act without regulations on compensation would deprive many people of a chance for return of their property or compensation. These people (more often, unfortunately, their heirs) would be left with nothing after waiting for nearly 70 years for justice. This is totally unfair. If such a bill arose in the 1980s, it could be blamed on the communist system. But now, under the rule of law, 25 years after Poland regained independence, it is hard to believe that such a bill arose in the Sejm. The record of the sessions of the parliamentary committees dealing with this bill make an unusual impression. The record shows that deputies were aware of the unconstitutionality of a number of provisions (as clearly underlined by the parliamentary experts), but they still voted it through. Of course reprivatisation cases can result in distortions, and this should be addressed in some way, but the law must be just. If a reasonable proposal were offered, everyone would sign it with relief.

On top of that, the Constitutional Tribunal ruled four years ago (in its judgment of 13 June 2011) that Art. 215 of the Real Estate Administration Act should be changed because it introduces artificial criteria. This regulation should cover all former owners, and not just those who had a single-family home taken after 5 April 1958. The little reprivatisation act would be an excellent occasion to address this issue, but the drafters did not take advantage of it. Instead, they provided for restrictions on the rights of former owners under the Warsaw Decree without the possibility of obtaining compensation.

A few of the solutions are acceptable, for example the right of pre-emption for the State Treasury and the regulation of the issue of guardians for deceased people. This is an unnecessary regulation, but harmless. But expanding the ability to refuse to return real estate without at the same time addressing compensation issues is unconstitutional. The drafters of the act recognise this, and they have even said that they would be happy to make amendments if the Constitutional Tribunal gives them guidelines. But is that the role of the legislature? Should the Parliament approve a bill that is doomed from the start to be challenged on constitutional grounds?

The bill also provides for the possibility of discontinuing all proceedings for return of property if the heirs of the former owners do not come forward within 6 months after publication of an announcement by the city. This obviously would most affect persons of Jewish origin, who were owners of very many properties in Warsaw and died during the Second World War without leaving any heirs (or their heirs are unknown). The bill would allow the Warsaw authorities to publish an announcement that they are seeking these heirs, and if no one responds within 6 months the restitution proceeding would be discontinued. This construction is entirely alien to the Polish Administrative Procedure Code, which requires public administrative authorities to seek out the parties, and not the other way around. This solution is a shortcut that is inconsistent with Polish administrative procedure.

The bill also provides for application of the new rules to cases already in progress. In other words, the law would operate retroactively, even though this would work to the detriment of the citizen’s situation vis-à-vis the state.

A lot has been happening recently in reprivatisation. On 12 May 2015 the Constitutional Tribunal issued a highly controversial judgment.

In that judgment, with the best of intentions the Tribunal complicated many proceedings. The facts in that case were narrow and exceptional. The owners had filed an application under the Warsaw Decree which was found to be filed late. Before the end of the 1940s, the owners filed an application to reinstate the deadline for filing the application. Then the administrative authorities at that time—this is the exceptional aspect—issued a decision reinstating the deadline for those owners to file the application under the Warsaw Decree. Today the rulings from the Supreme Administrative Court are clear that deadlines of substantive law cannot be crossed. In the 1940s apparently the view was different. Therefore the application was deemed to have been filed on time, but over all the years since the application had not been considered.

Based on those decisions, the former owner had been seeking restitution of the property since the 1990s. The city had issued a restitution decision, but one of the owners of units that had been bought out in the building filed a complaint with the province administrative court, alleging that the administrative authority had relied on a decision unlawfully reinstating the deadline, because deadlines of substantive law cannot be reinstated. The litigant sought a declaration that the decision was invalid.

So the province administrative court started to wonder whether it is possible to remove a decision from legal circulation 65 years after the fact, where the decision was the basis on which someone acquired a certain type of entitlement (in this case, a right to restitution of real estate taken under the Warsaw Decree). The court thus sought a ruling from the Constitutional Tribunal, and the Tribunal held that indeed, after so many years, if someone had acquired a right based on the decision, the decision could not now be invalidated. There must be some reasonable period after which such an administrative decision should not be removed from legal circulation; it is sufficient to recognise that the decision was not in compliance with the law, without setting aside the decision.

Such a time restriction would clearly be advantageous for example in the case of a decision issuing a building permit. If someone sought to invalidate the decision a decade later, it might result in issuance of an order to demolish the building. But let’s consider the question from the perspective of reprivatisation cases. If a state enterprise acquired the right to perpetual usufruct of land even though the claim by the former owner had not been considered—and that claim takes priority—under this interpretation this decision could not be eliminated from legal circulation because too much time had passed. For former owners, this interpretation would significantly limit the possibility of realising their claims, because they could not seek restitution of the property.

So the legal community is awaiting the written justification for the judgment. The Tribunal could give the Parliament clear guidelines to block the elimination of administrative decisions only from commercial dealings. That would be understandable. But that is not how it should be in purely administrative dealings, in which the citizen stands against the state. That would prevent invalidation of decisions merely because of the passage of time. That would be controversial.

How is the case law from other courts in reprivatisation cases shaping up now?

There is a noticeable trend by the Supreme Court and the Supreme Administrative Court to delineate the set of entitlements of former owners. One example that had not raised doubts before was the finding of the invalidity of decisions from past years refusing to return real estate in situations where the possibility of using the land was literally consistent with the zoning plan. If there was actual consistency—in other words, in past years the property had not actually been zoned for public use—the authorities would hold that the decision refusing to return the property was invalid, thus opening the way to restitution or compensation. Now the administrative courts have begun to hold that even if the plan did not provide for public use of the property, it was sufficient if a siting decision was issued referring to construction of a public structure. The siting decision is being treated as an elaboration of the zoning plan.

This is a highly unfavourable interpretation, because the Warsaw Decree expressly referred to the zoning plan. Siting decisions were not zoning decisions, but political and directional decisions, similar to decisions on construction conditions today. This new interpretation will make it much harder to pursue claims.

Another problem is related to determining the parties to the reprivatisation proceeding. The administrative authority takes the position that anyone who has a legal interest within the meaning Art. 28 of the Administrative Procedure Code is a party—including for example owners of bought-out residential units. This is not a problem if a few residents of one building are involved. But it’s worse if a huge housing estate has been built on the site covered by the Warsaw Decree or agricultural reform. There are cases where half the town were parties to the proceeding.

The province administrative court attempted to rationalise this situation, stating repeatedly that these owners or perpetual usufructuaries essentially have no legal interest in the reprivatisation proceeding because their legal interest will not form until the former owner seeks to eject them from the property. Then they will be protected by the warranty of public reliance on the land and mortgage register, because they acquired their property from the State Treasury or the local commune—which is the case in 99% of these instances.

Unfortunately, when the case reached the Supreme Administrative Court, it was held that owners and perpetual usufructuaries of such properties are always parties to the administrative proceeding. As a consequence, we see cases where there are several hundred or several thousand parties. The administrative authority must notify each of the parties and serve them with papers. This paralyses the proceedings. In my view this is a method for blocking reprivatisation cases.

Another mixed bag is the rulings on claims for unagreed use of real estate, i.e. claims between the owner who has regained the property and the prior occupant of the property. In Warsaw there is a dispute concerning whether the commune or city is liable for these claims, or the tenants of the residential units. The city obviously adopts the latter view. Fortunately, these cases have begun to reach the Supreme Court, and we are waiting to see how it rules.

Are reprivatisation cases becoming harder and harder?

Definitely. But experience shows that the case law from the courts is subject to change. It used to be that rulings against the former owners led to resolutions in their favour from the Supreme Court or Supreme Administrative Court setting fairly clear guidelines. And probably in a year or two the controversies I referred to here will be taken up by an expanded panel of judges of at the Supreme Court or Supreme Administrative Court. Then we will see how the case law may develop over the following years.

Interview conducted by Justyna Zandberg-Malec