The Court of Cassation of the Republic of Armenia has addressed the issue of joint ownership of spouses concerning the share of a limited liability company in civil case No. ԵԿԴ/4634/02/16.
The following facts are significant for the examination of the cassation appeal:
1) According to the marriage certificate No. II CL N 452884 issued by the Civil Status Acts Registration Department on 31.05.1989, Anahit Vardanyan (who took the surname Ghazaryan after marriage) and Harutyun Ghazaryan got married on 31.05.1989 (volume 1, page 10).
2) The company (registration number: 273.110.03187, taxpayer identification number: 01542462, location: Yerevan, Al. Manukyan 7 building, apartment 48) was registered on 15.04.2002 (volume 1, page 96).
3) According to the letter No. 3-2/1622-16 from the Agency dated 17.10.2016, the participants of the Company are Harutyun Ghazaryan (50% share) and Armen Martirosyan (50%) (volume 1, page 11).
4) On 07.11.2016, a request was submitted by the representative of Anahit Ghazaryan to the head of the Agency, asking to enter Anahit Ghazaryan’s ownership of half of the 50% share registered in Harutyun Ghazaryan’s name, namely a 25% share, in the state register of legal entities (volume 1, pages 42-43).
5) In response to the request dated 07.11.2016, the head of the Agency, in letter No. 3-2/1752-16 dated 16.11.2016, informed the representative of Anahit Ghazaryan that based on Article 201 of the Civil Code of the Republic of Armenia, it can be established that half of the 50% share, namely 25%, belonging to the participant Harutyun Ghazaryan in the share capital of the Company legally belongs to Anahit Ghazaryan. (...) It was also stated that for the state registration of the change of participants in the company, in addition to the documents submitted by the applicant, it is necessary to present the consent of the participant Harutyun Ghazaryan or a corresponding court decision, as well as other documents stipulated by part 2 of Article 40 of the Law of the Republic of Armenia on "State Registration of Legal Entities, Separate Subdivisions of Legal Entities, Institutions, and Individual Entrepreneurs" (volume 1, pages 92-93).
6) On 16.11.2016, Harutyun Ghazaryan submitted a request to the Agency, stating that using the opportunity provided to him as a participant under Article 21 of the Law of the Republic of Armenia on "Limited Liability Companies" and part 5 of Article 40 of the Law of the Republic of Armenia on "State Registration of Legal Entities, Separate Subdivisions of Legal Entities, Institutions, and Individual Entrepreneurs," and based on the fact that the Company had received his application regarding his exit from the composition of participants, he requested to remove him from the composition of the participants of the Company with the corresponding registration (volume 1, page 50).
7) On 23.12.2016, Anahit Ghazaryan’s representative applied to the head of the Agency for information about the participants of the Company (volume 1, case-file page 56).
8) In response, by letter No. 3-212015-16 dated 27.12.2016, the head of the Agency provided a certificate of the information in the unified state register. As of 27.12.2016, the participants were Armen Martirosyan (50% share, valued at AMD 25,000) and the Company (50% share, valued at AMD 25,000). On 21.11.2016, the Agency had entered the transfer of Harutyun Ghazaryan’s share to the Company in the unified state register (volume 1, case-file pages 17, 18, 25 and 26).
9) In administrative case No. ՎԴ/0480/05/17, Anahit Ghazaryan brought a claim against the Agency for the State Register of Legal Entities of the Staff of the Ministry of Justice of the Republic of Armenia, with Harutyun Ghazaryan and the Company as third parties. She sought partial cancellation, in respect of 25%, of the Agency’s entry dated 21.11.2016, by invalidating the registration in the Company’s name of the 50% share previously registered in Harutyun Ghazaryan’s name, and an order requiring the Company not to pay him more than 25% of the value of his share. By its judgment of 07.07.2017, the Administrative Court of the Republic of Armenia partly granted the claim and invalidated (cancelled) the registration made on 21.11.2016 in the Company’s name in respect of the 50% share previously registered in Harutyun Ghazaryan’s name. The administrative proceedings concerning the requests for partial invalidation (cancellation), in respect of 25%, of that registration and for an order preventing the Company from paying Harutyun Ghazaryan more than 25% of the value of his share were terminated.
In the same case, the Administrative Court of Appeal of the Republic of Armenia, by its decision of 12.07.2018, dismissed the appeal of Shantan LLC and upheld the Administrative Court’s judgment of 07.07.2017.
By decisions dated 05.09.2018 and 24.10.2018, the Civil and Administrative Chamber of the Court of Cassation of the Republic of Armenia left the cassation appeals of Harutyun Ghazaryan and Shantan LLC, respectively, without examination.
4. The reasoning and conclusion of the Court of Cassation.
The Court of Cassation notes that the acceptance of the cassation appeals in this case and the review of the contested judicial act in cassation is conditioned by the existence of the grounds provided for in point 1 of part 1 and point 3 of part 2 of Article 394 of the Civil Procedure Code of the Republic of Armenia, namely, the decision of the Court of Cassation on the issue raised in the appeal may be of significant importance for the uniform application of the law and other normative legal acts, as there is a problem of legal development regarding Article 201 of the Civil Code of the Republic of Armenia and Article 21 of the Law of the Republic of Armenia on "Limited Liability Companies."
Considering that the grounds and justifications presented in the cassation appeals in this case are essentially identical, the Court of Cassation finds it appropriate to address them with the following general reasoning.
Within the framework of the examination of these cassation appeals, the Court of Cassation finds it necessary to address the following legal questions:
- Can a participant's share in a limited liability company, with all the rights and obligations included, be considered joint property of spouses?
- Is the exit of a participant from a limited liability company during marriage the disposal of property acquired by the spouses, or is it merely the exercise of the corporate subjective right of the participant?
According to Article 26 of the Family Code of the Republic of Armenia, relations related to the joint property of spouses are regulated by the Civil Code of the Republic of Armenia, as well as by the marriage contract concluded between the spouses:
According to the first part of Article 198 of the Civil Code of the Republic of Armenia, participants in joint ownership jointly possess and use the common property, unless otherwise provided by their agreement. According to the second part of the same article, property under joint ownership is disposed of with the consent of all participants, regardless of who among the participants concludes the transaction for disposing of the property:
According to the second part of Article 199 of the Civil Code of the Republic of Armenia, when dividing the common property and separating shares from it, the shares of the participants in joint ownership are considered equal, unless otherwise provided by law or by the agreement of the participants:
According to the first part of Article 201 of the Civil Code of the Republic of Armenia, property acquired by spouses during marriage is their joint property, unless otherwise provided by law or by the contract concluded between them. According to the second part of the same article, property belonging to each of the spouses before marriage, as well as property received by one of the spouses as a gift or inheritance during marriage, is their separate property. According to the third part of the same article, property for personal use (clothing, shoes, etc.), except for valuable items and luxury items, even if acquired with the common funds of the spouses during marriage, is considered the property of the spouse who used that property. According to the first part of Article 132 of the Civil Code of the Republic of Armenia, the objects of civil rights are property, including monetary funds, securities, and property rights:
The Court of Cassation has repeatedly addressed the issue of joint property of spouses in its previous decisions, particularly noting that in the absence of a corresponding contract between the spouses, property acquired during marriage, regardless of which spouse acquired it, whether it was acquired with the common or one spouse's funds, created or prepared by either or both, regardless of whose name it is registered in, is still considered joint property of the spouses (see, the decision of the Court of Cassation of the Republic of Armenia dated 01.06.2007 in the civil case of Rafael Abazyan and Anzhik Yeritsyan against Ruben Abazyan and the notary of the “Kentron” notarial district, case No. 3-415(ՎԴ)). The Court of Cassation has emphasized that, according to Article 201 of the Civil Code of the Republic of Armenia, an exception is made for property that each spouse had before marriage, property received by one of the spouses as a gift or inheritance during marriage, personal use items, as well as property acquired by privatization (see, the decision of the Court of Cassation of the Republic of Armenia dated 26.06.2009 in the civil case of Ruzanna Tsaturyan against Gevorg Tatosyan and others No. ԵԱՔԴ/2304/02/08).
The Court of Cassation, reaffirming its previously expressed position, nevertheless finds that the development of corporate relations requires the Court of Cassation, as a constitutional body ensuring the uniform application of the law and other normative legal acts, to clarify the relationship of joint ownership of spouses with the share held by a participant in a limited liability company, thereby developing the law regarding both the property included in the joint ownership of spouses and the essence of the share held by a participant in a limited liability company.
In light of the above, the Court of Cassation finds it necessary to address the specific features of a limited liability company as an independent organizational-legal form, as well as the scope of rights and obligations arising from the share owned by the participants of the company:
Thus, according to the first part of Article 3 of the Law of the Republic of Armenia on "Limited Liability Companies," a limited liability company (hereinafter referred to as the company) is considered a company established by one or more persons, whose share capital is divided into shares of the sizes specified in the company's charter:
According to the second part of Article 8 of the Law of the Republic of Armenia on "Limited Liability Companies," the establishment of the company is carried out by the decision of the founder(s). According to the sixth part of the same article, the decision of the founder(s) regarding the establishment of the company or the minutes of the founders' meeting must contain provisions on the establishment of the company, the composition of the participants, the sizes of the participants' shares, the approval of the company's charter, the formation of the executive body of the company, and a provision that all decisions have been made unanimously. The decision of the founder(s) regarding the establishment of the company or the minutes of the founders' meeting must be signed by all founders of the company. According to the first part of Article 9 of the Law of the Republic of Armenia on "Limited Liability Companies," persons wishing to establish a company (founders) enter into a written agreement. (...) According to the second part of the same article, the agreement on the establishment of the company specifies the procedure for joint activities for its establishment, the conditions for transferring their property to the company and their participation in its management, (...) the composition of the founders of the company, the size of the share capital and the share of each founder, (...):
According to the first part of Article 10 of the Law of the Republic of Armenia on "Limited Liability Companies," the founding document of the company is the charter approved by its founders (participants). According to the second part of the same article, the decision on the approval of the charter must be made unanimously by the founders (participants). The charter of the company must contain:
(...) (c) the amount of the share capital of the company, the sizes of the participants' shares.
(d) information about the participants of the company, (...):
According to the fourth part of the same article, changes in the charter of the company are made by the general meeting. Changes made in the charter of the company acquire legal force for third parties from the moment of their state registration, and in cases provided by law, after notifying the body responsible for the state registration of legal entities:
According to the second part of Article 18 of the Law of the Republic of Armenia on "Limited Liability Companies," if, according to the charter of the company, the alienation of a participant's share (its part) to third parties is not possible, and the other participants of the company refuse to buy it, then the company is obliged to acquire the participant's share at the request of the participant. The share is transferred to the company from the moment the participant submits a request to acquire the share, or from the moment the court decision on the removal of the participant from the company enters into legal force, or if a refusal has been received from any participant of the company regarding the transfer of the share to the heirs (successors) of the participant, or in connection with the distribution of the share among the participants of the dissolved legal entity, as well as in the case of payment of the value of the share (its part) at the request of the creditors of its participants:
According to the second part of Article 19 of the Law of the Republic of Armenia on "Limited Liability Companies," after the share belonging to the participant of the company is transferred to the company, within one year, by a unanimous decision of the general meeting, it must be distributed among all participants of the company according to their shares or among one or more participants of the company or, if not prohibited by the charter of the company, to third parties, and must be fully paid. The undistributed part of the share must be extinguished through a reduction of the share capital of the company.
On the basis of the above provisions, the Court of Cassation notes that a limited liability company is an economic company operating on the basis of the merger of shares, that is, a company whose degree of participation of a person is determined by the percentage of that person's share in the total share capital. The Court of Cassation emphasizes that during the establishment and operation of the company, the share held by the participants of the company is of key importance, as well as its ratio to the total share capital. In particular, in the supreme body of the company, the general meeting, the number of votes of each participant in the company is determined according to the number of shares they hold in the share capital of the company (Article 35 of the Law of the Republic of Armenia on "Limited Liability Companies").
At the same time, the Court of Cassation notes that the legislator has emphasized the role of the founders and participants of the company in making all key decisions for the company. Thus, the company is established by the founding agreement, which is the consent of the founders to determine the rules for conducting joint entrepreneurial activities. Subsequently, the persons who established the company unanimously approve the charter of the company, which is the founding document of the company.
The Court of Cassation has previously established that the charter is the most important document defining the legal status of the company. The charter regulates the internal relations of the founders (participants), thereby defining, in particular, the name of the company, its location, the purpose and subject of its activities, the governing and supervisory bodies, the procedure for profit distribution, etc. The Court of Cassation has noted that the registration of the company, the participants of the company, and the charter of the company (including amendments) is not an end in itself. In addition to allowing the collection of comprehensive information about legal entities operating in the territory of the state, it also allows the public to obtain complete information about legal entities. This is especially emphasized for legal entities engaged in commercial activities, including companies, as their future potential counterparties have the opportunity to obtain information about their future partners, revealing their objectives, the effectiveness of their governing bodies, the composition of their participants, which is no less important, as the composition of the participants may cause future counterparties to refuse to enter into contractual relations with that legal entity. Therefore, the Court of Cassation has emphasized that regardless of the internal relations of the participants of a limited liability company or potential participants, the right of the person acquiring the share arises only from the moment of registration in the register of participants of the company, making changes to the charter of the company, and registering it (see, the decision of the Court of Cassation of the Republic of Armenia dated 07.04.2018 in the civil case of Susanna Khachatryan against Vigen Aslanyan Avanesyan No. ԵԿԴ/0779/02/10). The Court of Cassation emphasizes that the charter of the company, as a document containing key information about the company, is approved by the participants unanimously, which implies that changes in it, including regarding the composition of the participants, must also be made by the general meeting of the participants. Moreover, the Court of Cassation also emphasizes that the legislator has clearly defined the relations concerning disposal of the share by the participants of the company. In particular, according to the first part of Article 14 of the Law of the Republic of Armenia on "Limited Liability Companies," a participant of the company has the right to sell or otherwise alienate their share (its part) to one or more participants of the company. According to the third part of the same article, the participants of the company have a proportional right of first refusal to purchase the share (its part) of the participant (...). According to the sixth part of the same article, the assignment of the right of first refusal to purchase the share is not allowed:
Furthermore, the Court of Cassation notes that even when levying execution against a participant’s share, special regulations apply. In particular, according to the first part of Article 20 of the Law of the Republic of Armenia on "Limited Liability Companies," execution may be levied against a participant’s share at creditors’ request only in the case of insufficient other property to satisfy the debts of that participant, based on a court decision:
Thus, the Court of Cassation notes that a limited liability company is a company based on a higher degree of trust, which is also conditioned by the maximum number of participants in the company being 49 (Article 11 of the Law of the Republic of Armenia on "Limited Liability Companies"). The Court of Cassation emphasizes that a limited liability company implies a more direct form of conducting entrepreneurial activities than, for example, a open joint-stock company. In other words, the circle of participants in a limited liability company is more limited, as they practically carry out the direct management of the company themselves.
In the opinion of the Court of Cassation, this is also conditioned by the legislative regulation that a participant (participants) who hold, in aggregate, at least 10 percent of the shares in the company has the right to demand the removal of another participant from the company through judicial means if their actions or inactions complicate or make it impossible for the company to operate normally. Moreover, the share of the removed participant passes to the company, and the company is obliged to pay the participant the value of the share (Article 22 of the Law of the Republic of Armenia on "Limited Liability Companies"). Furthermore, the Court of Cassation notes that even in the case of a participant exiting the company, the share of that participant remains within the same circle of persons (it can only be transferred to third parties if it is not prohibited by the charter of the company). Thus, according to the first part of Article 21 of the Law of the Republic of Armenia on "Limited Liability Companies," a participant of the company has the right to exit the company at any time, regardless of the consent of the company or its participants. (...) According to the first part of Article 23 of the same law, from the moment the application for exit from the company is submitted, the share of the participant is transferred to the company. The company is obliged to pay the participant the value of the share within 6 months from the moment the application for exit from the company is submitted (in the case of non-full payment of their contribution to the share capital, the value of the corresponding share that has been paid). According to the second part of Article 19 of the Law of the Republic of Armenia on "Limited Liability Companies," after the share belonging to the participant of the company is transferred to the company, within one year, by a unanimous decision of the general meeting, it must be distributed among all participants of the company according to their shares or among one or more participants of the company or, if not prohibited by the charter of the company, to third parties, and must be fully paid. The undistributed part of the share must be extinguished through a reduction of the share capital of the company:
The Court of Cassation also finds it necessary to note that due to the share, the participants of the company acquire rights and bear obligations, in particular, they have the right to participate in the management of the company, receive information about the company's activities, receive the legally established share of the profit from the company's activities, alienate their share (its part) to one or more participants of the company or third parties, regardless of the consent of the other participants, exit the company at any time, and receive a share of the remaining property of the company in the event of the company's liquidation (Article 12 of the Law of the Republic of Armenia on "Limited Liability Companies"). At the same time, the participants are obliged to make contributions to the share capital of the company in the manner established by the agreement on the establishment of the company or by the unanimous decision of the participants, not to disclose information containing secrets about the company's activities, except in cases provided by law (Article 13 of the Law of the Republic of Armenia on "Limited Liability Companies").
The Court of Cassation emphasizes that even in the case of alienation of the share, there are restrictions, and the legal fate of the alienated share depends on the will of the participants of the company. Thus, they can prohibit the alienation of the share to third parties by the charter, and even if the participants refuse to buy the share, the participant alienating the share has no right to alienate it to a third party; in this case, the share is acquired by the company, which is then distributed among all, or one or several, participants by unanimous decision within one year. The Court of Cassation finds it necessary to add that a similar regulation also applies in cases where a refusal has been received from any participant regarding the transfer of the share to the heirs (successors) of the participant. In other words, even if a participant of the company has died, and at least one participant of the company does not agree for the heirs to become participants of the company, that participant has an absolute right to prevent any third party from becoming a participant of the company. This means that in the case of limited liability companies, the circle of participants is determined solely by the will of the participants, and even the rights arising by law (for example, the right of inheritance) cannot limit the rights of a participant of the company.
In the opinion of the Court of Cassation, this approach is conditioned by the special status of a limited liability company, the closer partnership relations of the participants, and the simpler organizational-legal form of limited liability companies:
Summarizing the above regulations regarding the share of a participant in a limited liability company and the rights and obligations arising from it, the Court of Cassation concludes that the share is the basis for the emergence of corporate relations between the company and the participant, through which the scope of mutual rights and obligations between the company and the participant is determined:
However, the Court of Cassation finds that in addition to being a corporate object, the share also serves as a basis for the emergence of other property (including property rights). In particular, the share entitles the participant to receive a portion of the profit from the company's activities, to receive a share of the remaining property of the company in the event of its liquidation, and to receive compensation for the value of the share in the case of its alienation:
The above provides the basis for the Court of Cassation to conclude that the share includes both purely civil and corporate elements. Therefore, to assess how the share can be considered property acquired during the joint life of spouses, it is necessary to distinguish between these two key elements of the share:
Thus, from a corporate perspective, the share cannot be considered joint property, given that the spouse cannot be considered a participant in the company by law without the consent of the other participants and without fulfilling the obligations to the company (in particular, paying the contribution). Moreover, under the opposite interpretation, the interests of not only the other participants of the company but also the counterparties of the company are violated, who do not have full information about the composition of the participants of the company. Moreover, the Court of Cassation finds it necessary to state that if the spouse's right to the share arose by law in its entirety, both in corporate and civil property terms, numerous legal issues could arise in many situations. For example, according to the first part of Article 31 of the Law of the Republic of Armenia on "Public Service," public officials and public servants cannot (...) engage in entrepreneurial activities, (...) (within the meaning of the same law, being a participant in a commercial organization is also considered entrepreneurial activity, except in cases where the share of the commercial organization has been fully transferred to fiduciary management). The Court of Cassation emphasizes that if the share were to be fully considered property acquired during the joint life, then all public servants or public officials whose spouses are participants in the company would be considered to have violated the requirement of incompatibility.
Therefore, the Court of Cassation emphasizes that for the purposes of exercising corporate rights, only the other property acquired through the share can be treated as property acquired during the spouses’ joint life, the profit received from the company's activities, the property received after the liquidation of the company, the compensation received for the alienation of the share; and, in the general civil-law sense, in cases where the share is transferred through division of the spouses’ jointly owned property or inheritance, as well as in respect of other non-corporate rights. The Court of Cassation emphasizes that the share cannot belong to the spouse in corporate terms until that spouse has become a participant in the company in accordance with the law or the procedure established by the charter of the company:
Considering the above, the Court of Cassation finds it necessary to also address the issue of a participant's exit from the company, specifically answering the question of whether this right is a disposal of jointly owned property or an exercise of corporate rights:
According to the first part of Article 21 of the Law of the Republic of Armenia on "Limited Liability Companies," a participant of the company has the right to exit the company at any time, regardless of the consent of the company or its participants:
The Court of Cassation has previously established that it directly follows from Article 21 of the Law of the Republic of Armenia on "Limited Liability Companies" that no precondition is required for the exercise of the right of a participant to exit the company, and it depends absolutely on the will of the participant. This means that the exercise of the right of the participant (the claimant in the same case) is not based on the obligation of this or that subject (the respondents in the same case) to exhibit a certain behavior (action, inaction), the performance of which would be necessary for the exercise of that right by the participant (see, the decision of the Court of Cassation of the Republic of Armenia dated 14.11.2011 in the civil case of Gomidas Hartunyan, a founding member of "Agur-Comp" LLC against "Agur-Comp" LLC, the same company's founding member and director Rafael Mkrtchyan, founding member Gurgen Martirosyan No. ԵԱԴԴ/0832/02/09).
Taking into account the legal positions expressed in this decision, the Court of Cassation notes that exiting the company is an absolute corporate right of the participant, not conditioned by anyone's will, which creates a corporate relationship for both the participant and the company. In particular, the share, as a rule, remains within the same circle of persons in the company, and the exiting participant receives the value of the share. Therefore, the Court of Cassation concludes that the exit of a participant from a limited liability company is the exercise of corporate rights of the participant, not the disposal of property acquired during the joint marriage.
Application of the above legal positions to the facts of this case
According to the facts of this case, Anahit Ghazaryan and Harutyun Ghazaryan married on 31.05.1989. The Company was registered on 15.04.2002. As of 17.10.2016, its participants were Harutyun Ghazaryan (50%) and Armen Martirosyan (50%). On 07.11.2016, Anahit Ghazaryan’s representative applied to the head of the Agency to register her ownership of half of the 50% share registered in Harutyun Ghazaryan’s name, namely a 25% share.
By letter dated 16.11.2016, the head of the Agency informed her representative that Harutyun Ghazaryan’s consent or a corresponding court judgment, together with the other documents required by law, had to be submitted. On 16.11.2016, Harutyun Ghazaryan requested the Agency to remove him from the Company’s participants by making the relevant entry. On 21.11.2016, the Agency registered his share in the Company’s name. As of 27.12.2016, the participants were Armen Martirosyan (50%, valued at AMD 25,000) and the Company (50%, valued at AMD 25,000).
In administrative case No. ՎԴ/0480/05/17, the Administrative Court of the Republic of Armenia, by its judgment of 07.07.2017, invalidated (cancelled) the registration made by the Agency on 21.11.2016 in the Company’s name in respect of the 50% share previously registered in Harutyun Ghazaryan’s name. That judicial act entered into legal force.
The first-instance Court granted the claim on the ground that Harutyun Ghazaryan’s right to the share was registered during a legally registered marriage and there were no grounds for treating the property as the separate property of one spouse. It therefore held that Anahit Ghazaryan’s ownership of half of the Company’s shares registered in Harutyun Ghazaryan’s name since 2002 should be recognised.
Upholding that judgment, the Court of Appeal agreed and added that, under Article 201 of the Civil Code, Anahit Ghazaryan’s ownership of half of the share arose at the moment Harutyun Ghazaryan acquired it. The Court of Appeal stated that he had transferred his 50% share to the Company without the consent of his wife, who by operation of law owned half of that share, or 25%. Thus, jointly owned property had been disposed of without her knowledge and consent.
Assessing the lower courts’ conclusions in the light of the above legal positions, the Court of Cassation states the following.
Based on the facts of this case, it becomes clear that Harutyun Ghazaryan acquired a share in the Company during the joint marital life. However, based on the legal positions expressed in this decision, the Court of Cassation notes that Anahit Ghazaryan, as joint property, may have claims not to the share in its entirety, but only to the other property obtained through the share. The Court of Cassation's approach is conditioned by the fact that there is no evidence presented in the case that Anahit Ghazaryan has become a participant in the Company in accordance with the law or the procedure established by the charter of the Company, thus acquiring claims to the corporate rights arising from the share.
The Court of Cassation emphasizes that from the perspective of corporate relations, Anahit Ghazaryan cannot be considered a participant in the Company by law, having, for example, the right to participate in the management of the Company's affairs, to make decisions, or to be familiar with the Company's documents:
In light of the above, the Court of Cassation notes that Anahit Ghazaryan's right arising by law to joint ownership extends only to the non-corporate rights of the share in the Company:
Meanwhile, the Court and the Court of Appeal did not take into account the corporate nature of the share and unjustifiably concluded that Anahit Ghazaryan's right extends in full to the share of Harutyun Ghazaryan. Moreover, the courts also unjustifiably noted that the corporate right of Harutyun Ghazaryan to exit the Company is a disposal of jointly owned property, which was carried out without the consent of Anahit Ghazaryan. The Court of Cassation finds that such an interpretation has disrupted both the essence of the share of a participant in a limited liability company and ignored the specific features of a limited liability company as an independent organizational-legal form.
Summarizing the above, the Court of Cassation concludes that the Law of the Republic of Armenia on "Limited Liability Companies" was applicable in this case, while the lower courts applied Article 198 of the Civil Code of the Republic of Armenia, which could not be applied:
Thus, the Court of Cassation finds that the existence of the grounds for the cassation appeals is sufficient to annul the decision of the Court of Appeal based on Article 364 and part 2 of Article 390 of the Civil Code of the Republic of Armenia [the name of the Code is reproduced as stated in the Armenian article], considering that the Court of Appeal has committed a violation of the norms of substantive law that has disrupted the essence of justice:
At the same time, the Court of Cassation finds that in this case, the authority to annul and change the judicial act should be applied based on point 3 of part 1 of Article 405 of the Civil Procedure Code of the Republic of Armenia for the following reason:
According to the first part of Article 63 of the Constitution, everyone has the right to a hearing of their case within a reasonable time. The resolution of the dispute in this civil case is of significant importance for the persons involved in the case. The Court of Cassation finds that examining the case within a reasonable time is an element of the right to a fair trial enshrined in the same article of the Constitution; therefore, unnecessary delays in the case pose a risk of violating this fundamental right. In this case, the Court of Cassation's alteration of the judicial act is in the interests of the efficiency of justice, as there is no need to establish new facts for making a final judicial act in this case:
When altering the judicial act, the Court of Cassation relies on the reasoning of this decision, as well as the absence of the need for a new examination of the case:
5. The reasoning and conclusions of the Court of Cassation regarding the distribution of judicial costs.
According to Article 101 of the Civil Procedure Code of the Republic of Armenia, judicial costs consist of state duty and other expenses related to the examination of the case:
According to the first part of Article 109 of the Civil Procedure Code of the Republic of Armenia, judicial costs are distributed among the persons participating in the case in proportion to the satisfied claims:
According to the first part of Article 112 of the Civil Procedure Code of the Republic of Armenia, the judicial costs related to appealing to the Court of Appeal or the Court of Cassation and the examination of the appeal are distributed among the persons participating in the case in accordance with the rules of Chapter 10 of the Civil Procedure Code of the Republic of Armenia entitled "Judicial Costs." According to the third part of the same article, in the case of annulment and alteration of the contested judicial act, the Court of Appeal or the Court of Cassation redistributes the judicial costs among the persons participating in the case in accordance with the rules of Chapter 10 of the Civil Procedure Code of the Republic of Armenia:
In this case, considering that the satisfaction of the cassation appeals and the annulment of the decision of the Court of Appeal result in the dismissal of the claim, the Court of Cassation finds that 10,000 AMD is to be recovered from Anahit Ghazaryan in favor of Harutyun Ghazaryan as compensation for the state duty paid in advance for the appeal to the Court of Appeal, and 20,000 AMD as compensation for the state duty paid in advance for the cassation appeal. At the same time, 10,000 AMD is to be recovered from Anahit Ghazaryan in favor of the Company as compensation for the state duty paid in advance for the appeal to the Court of Appeal, and 20,000 AMD as compensation for the state duty paid in advance for the cassation appeal. The issue of the state duty to be paid for the examination of the case in the first instance should be considered resolved, as the state duty amount has been paid by Anahit Ghazaryan:
Based on the above and guided by Articles 405, 406, and 408 of the Civil Procedure Code of the Republic of Armenia, the Court of Cassation
DECIDED
1. To satisfy the cassation appeals of Harutyun Ghazaryan and "Shantan" LLC. To annul the decision of the Civil Court of Appeal of the Republic of Armenia dated 17.08.2018 and to change it.
To dismiss the claim of Anahit Ghazaryan against Harutyun Ghazaryan, "Shantan" LLC, third parties Armen Martirosyan, and the Legal Entities State Register Agency of the Ministry of Justice of the Republic of Armenia regarding the recognition of ownership, partial invalidation of the entry, and registration of the right to the share:
2. To recover 10,000 AMD from Anahit Ghazaryan in favor of Harutyun Ghazaryan as compensation for the state duty paid in advance for the appeal to the Court of Appeal, and 20,000 AMD as compensation for the state duty paid in advance for the cassation appeal:
To recover 10,000 AMD from Anahit Ghazaryan in favor of "Shantan" LLC as compensation for the state duty paid in advance for the appeal to the Court of Appeal, and 20,000 AMD as compensation for the state duty paid in advance for the cassation appeal:
3. The decision enters into legal force from the moment of its adoption, is final, and is not subject to appeal: