Judgement:

I. The appeal is partially granted, and the contested decision is amended to suspend the execution of the decision of the Financial Administration of the Republic of Slovenia, No. DT 4934-107970/2019-40 dated March 9, 2021, until a final decision is made in this administrative dispute, thereby halting further enforcement actions.

II. The remaining part of the appeal is rejected.

III. The decision on the costs of the appeal procedure is reserved for the final decision.

Explanation:

1. The plaintiff, represented by lawyer Jurij Kutnjak, filed a lawsuit against the decision of the Financial Administration of the Republic of Slovenia, No. DT 4934-107970/2019-40 dated March 9, 2021. The decision imposed on the plaintiff, as a guarantor - a legal entity to which the activities of the tax debtor A., d. o. o. - in bankruptcy were transferred, the payment of tax liabilities of the said tax debtor in the total amount of EUR 347,278.59 and corresponding interest in the amount of EUR 188,416.60. Along with the lawsuit, the plaintiff also filed a motion for the issuance of a preliminary injunction, requesting the court to suspend the execution of the contested decision and to annul the enforcement order of the defendant, No. DT 4934-43426/2022-5 dated April 7, 2022, and thereby revoke all previous enforcement actions and prohibit the defendant from issuing any further decisions for the purpose of recovery based on the contested decision.

2. The court of first instance rejected the motion for the issuance of a preliminary injunction based on the second and third paragraphs of Article 32 of the Administrative Dispute Act (hereinafter ZUS-1) because it believed that the plaintiff did not demonstrate the occurrence of irreparable damage as a condition for the issuance of a preliminary injunction under the second paragraph of Article 32 of ZUS-1. It stated that although the immediate execution of the contested decision would likely result in difficulties and insolvency due to the high amount of the assessed tax and the structure of the plaintiff's assets, as well as potential bankruptcy, the plaintiff failed to prove that this was solely a consequence of the execution of the contested decision and not of other circumstances and actions that the plaintiff could influence and which could have prevented the bankruptcy. The plaintiff could have avoided bankruptcy by implementing financial restructuring measures. According to the court of first instance, the probability of bankruptcy is significantly reduced by the fact that a considerable part of the assessed debt will likely be recovered from the bankruptcy estate of the main tax debtor. Considering that the specific tax procedure has been ongoing since 2018, the plaintiff could have taken into account the obligation to pay the assessed tax liability in its business operations and made appropriate provisions, for example.

3. The plaintiff (hereinafter appellant), represented by lawyer Jurij Kutnjak, filed an appeal on all grounds against the aforementioned decision. The appellant primarily argued that in the motion for the issuance of a preliminary injunction, it extensively claimed damages in the form of the inability to conduct business and fulfill obligations, resulting in loss of revenue that would first lead to employee layoffs and, ultimately, possibly bankruptcy. Such damages could not be remedied by any future financial restructuring measures. The final stage, bankruptcy, in itself entails the occurrence of irreparable damage. The appellant further argued that the defendant did not dispute the allegations of the motion regarding the alleged likelihood of irreparable damage but only opposed the suspension of enforcement in a general manner. Therefore, the appellant requested that the appeal be granted, and the contested decision be amended to grant the request for the issuance of a preliminary injunction.

4. The defendant did not respond to the appeal.

Regarding Point I of the decision

The appeal is partially justified.

5. As stated by the court of first instance, according to the second paragraph of Article 32 of ZUS-1, at the plaintiff's request, the execution of the contested act can be suspended if the execution would cause the plaintiff irreparable damage. When deciding on the issuance of a preliminary injunction, the court must, in accordance with the principle of proportionality, also consider the impact on public interest and the interests of the opposing parties.

6. Based on the reasoning in the contested decision, the appellant did not demonstrate the occurrence of irreparable damage because it did not prove that the probability of its bankruptcy was solely a consequence of the immediate execution of the contested decision and not of other circumstances and actions that the appellant could influence and that could have prevented the bankruptcy of the company. The appellant could have avoided bankruptcy by implementing financial restructuring measures. In weighing the potential damage to the appellant resulting from the immediate execution of the decision, the court of first instance prioritized public interests and the interest in the payment of public taxes in connection with conducting economic activities. The court defined public interest by stating that tax obligations arising from business activities should be paid on time and in full.

7. Conditions for the issuance of a preliminary injunction in tax disputes under Article 32 of ZUS-1

8. Regarding the decision on the issuance of a preliminary injunction, the Supreme Court finds that due to the changed relationship between the regulation of administrative disputes and the application of civil procedure, which followed the amendment of the Code of Civil Procedure (hereinafter ZPP), certain positions adopted in previous case law need to be revised. This is done to contribute to the effectiveness of judicial protection (Article 23 of the Constitution of the Republic of Slovenia, hereinafter the Constitution), as the possibility of issuing a preliminary injunction is necessary to ensure the aforementioned constitutional right in this legal area, given that the legal regulation does not provide for a suspensive effect of an annulment lawsuit in administrative disputes. By issuing a preliminary injunction, the court postpones or otherwise arranges the enforcement of the contested decision by the executive branch of government until the competent court in the administrative dispute conclusively decides that the said decision is correct and lawful, thus significantly contributing to the legal certainty in the relationship of the division of powers (Articles 2 and 3 of the Constitution).

9. Based on the above, the Supreme Court emphasizes, first and foremost, that the decision on the issuance of a preliminary injunction is, in its essence, a decision on the dispute between the plaintiff and the defendant. The court, when determining the factual circumstances that justify the issuance of a preliminary injunction, should not impose a greater burden of proof on the applicant than on the defendant, as there is no legal basis for it in either the Code of Civil Procedure (ZPP) or the Administrative Dispute Act (ZUS-1). The relevant facts must be alleged and supported by evidence by both the applicant for the preliminary injunction and the other parties to the proceedings, and their existence or truthfulness is assessed and established according to the general rules of civil procedure, as ZUS-1 does not provide otherwise. In such cases, unchallenged facts should be considered proven (Article 214 et seq. of the ZPP), and with the offered evidence that cannot be considered inadmissible, unnecessary, or unsuitable, an appropriate evidentiary procedure should also be conducted. There are no restrictions on the types of evidence that can be used in deciding on a preliminary injunction.

10. In this regard, the Supreme Court emphasizes that, in the proceedings concerning the issuance of a preliminary injunction, the court must provide the parties with appropriate substantive and procedural guidance in accordance with the law (Article 285 of the ZPP). It is essential that the applicant for the preliminary injunction be allowed to substantiate, with their allegations and evidence, the indeterminate legal concept of irreparable damage under Article 32 of the ZUS-1, if the court believes that the statutory requirement has not been met. The court must also ensure this procedural guidance for the defendant and other parties to the administrative dispute, who are required to substantiate the public interest or other interests that may be disproportionately affected by the issuance of a preliminary injunction since the court does not establish these facts ex officio. Only in this way, in accordance with the principle of an open trial, can the parties discern when they have met the court's requirements to enable it to conduct a substantive assessment and decide on the merits of the application for a preliminary injunction. Therefore, the Supreme Court cannot consider the position that the requirement for careful preparation of the motion for a preliminary injunction excludes the aforementioned duties of the court and the rights of the applicant and other parties under the ZPP.

11. The Supreme Court also emphasizes that the instruction period prescribed by the fifth paragraph of Article 32 of the ZUS-1 is established in favor of the plaintiff, the applicant for the preliminary injunction. Therefore, to ensure a lawful procedure, the court may always exceed this deadline, for example, if necessary due to substantive and procedural guidance or other circumstances on the plaintiff's side (e.g., the presentation of evidence such as witness testimony).

12. Irreparable damage is a legal standard whose content is determined on a case-by-case basis. Based on the development of legal theory and practice, the concept of irreparable damage in the field of tax law needs to be redefined. According to the assessment of the Supreme Court, in the field of tax law, this concept should be interpreted in a way that considers the damage, relevant under the provisions of Article 32 of the ZUS-1, as the loss of resources that the plaintiff could have otherwise disposed of if they had not been deprived of them based on a non-final determination and imposition of a tax liability. Therefore, the plaintiff can reasonably request the prevention of such damage through the issuance of a preliminary injunction if the other statutory conditions are fulfilled (e.g., the difficulty of repair), but they cannot be required to justify the existence of further (irreparable) damage, which ZUS-1 does not foresee as a condition for the issuance of a preliminary injunction.

13. It should be noted that the legislator did not prescribe a standard of irreparable damage but rather damage that arises from the execution of the contested administrative act, which would be difficult to repair for the plaintiff upon the subsequent success in the administrative dispute, thereby meeting the conditions set forth in the second paragraph of Article 32 of the ZUS-1. On the tax matter, the difficulty of repair can be justified (primarily) by the consequences that affect the plaintiff due to the fact that they lack the financial resources needed to fulfill their legal obligations (e.g., child support obligations) or to realize other essential aspects of the plaintiff's life and work. Thus, the difficulty of repair, in terms of the law, can also include the circumstance that the plaintiff would have to use their regular assets, which are essential for their life and work (e.g., loss of necessary work assets), or that they would have to dispose of their assets in a way that would cause them irreparable damage themselves (e.g., having to sell real estate or other assets to obtain the required financial resources, which cannot be regained or only at a significant loss or high costs). The Supreme Court departs from the standpoint previously held in case law that material damage should always be considered repairable.

Assessment in the Present Case

14. The appellant, represented by attorney Jurij Kutnjak, submitted a motion for the issuance of a preliminary injunction with the aim of suspending the execution of the tax assessment decision and preventing further enforcement actions, including the sale of the appellant's movable property, until a final decision is reached in this administrative dispute. In the motion, the appellant emphasized that the mere seizure of their basic assets, which they can still use for their activities according to an agreement with the respondent, does not currently cause them any damage. However, such damage would certainly occur and would be difficult to repair if the respondent were to sell these movable assets in accordance with the enforcement order or if they were to seize the appellant's financial resources. The sale of the seized movable assets would first lead to an inability to conduct business and fulfill ongoing obligations, resulting in loss of income and a reduction in the need for labor. With the onset of illiquidity due to the blocking of financial resources, the conditions for initiating bankruptcy proceedings would be met, resulting in the loss of all value of the company and business. The damage would not only affect the appellant but also the employees and their families, and ultimately, even the respondent, and it would be difficult to compensate for. The respondent did not contest these appellant's allegations in response to the motion for a preliminary injunction; therefore, according to the second paragraph of Article 214 of the ZPP, they are considered acknowledged (point 9 of the reasoning of this decision).

15. The first-instance court, in the reasoning of the contested decision, found that considering the high amount of the assessed tax and the structure of the appellant's assets, immediate enforcement of the contested decision would likely result in hindered operations of the appellant, possibly even insolvency, or that the appellant has demonstrated with sufficient likelihood that the execution of the contested decision would cause disruptions, including the interruption and contraction of their business activities.

16. According to the assessment of the Supreme Court, it is entirely sufficient for the issuance of a preliminary injunction that the appellant has demonstrated that the immediate forced execution of the tax obligation based on the contested tax decision (through the sale of seized assets and enforcement on other assets, primarily monetary funds in banks) would encroach upon the appellant's resources and assets necessary for conducting their business activities (point 13 of the reasoning of this decision). The damage that would arise from such interference with their business activities would undoubtedly significantly affect the appellant and would be difficult to compensate for. Therefore, the appellant correctly argues in the appeal that they were not required to further prove or demonstrate that they would not be able to prevent or remedy the insolvency resulting from the undisputed necessary contraction of their business activities through financial restructuring measures.

17. In this regard, the Supreme Court adds that the first-instance court's position regarding the rejection of the proposed evidence by obtaining an expert opinion in financial matters, on the grounds that the decision on the motion for a preliminary injunction must be swift, is incorrect. The Supreme Court emphasizes (firstly) that there are no limitations on evidence in deciding on a preliminary injunction (point 9 of the reasoning of this decision) and (secondly) that the instruction period prescribed by the fifth paragraph of Article 32 of the ZUS-1 is established in favor of the applicant for the preliminary injunction (point 11 of the reasoning of this decision). Therefore, the court cannot reject evidentiary proposals by the applicant that could justify the motion by reasoning that it must decide on the motion within the specified short deadline. Given the Supreme Court's decision based on undisputed facts between the parties, also arising from the contested decision of the first-instance court, this evidence is no longer necessary in the proceedings before the Supreme Court.

18. When deciding on the issuance of a preliminary injunction, the court must consider, in accordance with the principle of proportionality, the impact on the public interest and the interests of the opposing parties, as correctly emphasized by the first-instance court. However, the ZUS-1 does not establish different (i.e., stricter) conditions for the issuance of a preliminary injunction in tax matters. The provision of Article 32 of the ZUS-1 does not provide a basis for the position that the deferral of execution in tax matters is generally contrary to the public interest. Instead, such a conclusion can only be reached through the balancing of equal interests of both parties in each specific case.

19. The facts that could adequately substantiate the prevailing public interest or other disproportionate impact on the public interest that would be affected by the issuance of a preliminary injunction must be substantiated by the defendant and the affected parties to the administrative dispute. The Supreme Court emphasizes that the court cannot establish these facts ex officio. Due to the lack of arguments from the parties, the first-instance court also lacked a basis in the present case to conclude that the imposed tax liability on the appellant was not unexpected, and that the appellant should have already made appropriate provisions for it.

20. In the present case, the respondent only substantiated the impact on the public interest by referring to the arguments in response to the motion for a preliminary injunction, stating that the appellant was previously involved in transactions of a related legal entity, company A, d.o.o., in bankruptcy, which were not in line with ordinary business practices. In the Supreme Court's assessment, these are not circumstances that would indicate that the public interest would be disproportionately affected precisely due to the temporary suspension of forced execution of the contested decision (e.g., rendering future payment of the tax obligation impossible or significantly more difficult). Furthermore, the respondent did not contest the appellant's allegations, extensively stated in the motion, that the public interest is already adequately secured by the issuance of the enforcement order on their movable property, that the public interest is not disproportionately affected by the temporary suspension of execution because there is a high probability that the majority of the respondent's claims could be satisfied from the bankruptcy estate of the main taxpayer, company A, d.o.o., in bankruptcy, and that the continuation of the appellant's business activities is also in the interest of the respondent, as the tax authority can collect taxes and other public levies from them in the future. According to the appellant's arguments, the public interest also includes the narrower interest of their employees and their families.

21. Therefore, since the appellant has demonstrated that immediate execution of the contested decision would cause them significant and difficult-to-repair damage, while the respondent has not demonstrated that the temporary suspension of forced execution would disproportionately affect the public interest, the Supreme Court has granted the appeal and appropriately amended the contested decision so that the execution of the tax assessment decision by the respondent is temporarily suspended until a final decision is reached in this administrative dispute. This means that no new enforcement orders can be issued based on this decision, nor can further enforcement actions be taken based on the already issued enforcement order dated April 7, 2022 (point 3 of the third paragraph of Article 80 in conjunction with the first paragraph of Article 82 of the ZUS-1).

Regarding point II of the operative provisions

22. The appellant, represented by attorney Jurij Kutnjak, also requested in the motion for a preliminary injunction the annulment of the enforcement order dated April 7, 2022, the annulment of all previous enforcement actions, and the prohibition of the respondent from issuing any further decisions for the purpose of recovering the claim based on the contested decision. However, since the legality of the enforcement order issued in a separate proceeding, as well as the annulment of all previous enforcement actions, cannot be decided upon in the dispute against the tax assessment decision based on the temporary injunction, the Supreme Court has ruled as stated in point II of the operative provisions of this decision.

Regarding point III of the operative provisions

23. Since the costs of the temporary injunction are part of the costs of the entire proceedings, the Supreme Court has ruled as stated in the operative provisions of this decision (the first paragraph of Article 151 of the Code of Civil Procedure in conjunction with the first paragraph of Article 22 of the ZUS-1).

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1. The plaintiff challenged the decision of the Financial Administration of the Republic of Slovenia, No. DT 4934-107970/2019-41, dated March 15, 2021, which pertained to the dismissal of the claim for reimbursement of legal representation costs in the proceedings before the tax authority. The second-instance tax authority consolidated the decision on the appeals against the aforementioned decision and this resolution for unified consideration.
2. It is also evident from the case file that an enforcement order has already been issued against the plaintiff for the execution of taxes on movable property, which includes seizure, valuation, and sale of the plaintiff's owned and possessed assets.
3. According to the provision of the first paragraph of Article 122 of the ZPP-E (Code of Civil procedure), which has been applicable since September 14, 2017, the provisions of the ZPP (Code of Civil Procedure) are applied in administrative disputes, unless otherwise stipulated by the ZUS-1 (Administrative Dispute Act).
4. The Supreme Court also expressed the same in the decision in case I Up 96/2022, adopted at the same session on June 8, 2022.
5. In this way, in administrative disputes, the court, through a temporary injunction with the effect of finality, decides on a specific issue that is separate from the decision on the main matter in the administrative dispute. The court can only decide on the issuance of a temporary injunction again within the framework of the administrative dispute if new subsequent facts and circumstances arise that could justify its issuance. A similar stance is expressed in some decisions in civil proceedings, for example, see the decision of the Higher Court VSL I Cp 2788/2013, dated October 23, 2013.
6. The court is not precluded from conducting evidence by hearing witnesses. The rules of the ZUS-1 that apply to the obligation to hold a main hearing do not apply in the proceedings for deciding on a temporary injunction. Therefore, the hearing must be conducted only when the nature of the evidence demands it.
7. It states: "The presiding judge asks questions and ensures, in any other appropriate manner, that all decisive facts are stated before or during the hearing, that incomplete statements by the parties on important facts are supplemented, that evidence relating to the parties' statements is offered or supplemented, and, in general, that all necessary explanations are given to establish the disputed factual situation and legal relationship that are relevant to the decision."
8. As stated, for example, in the decision of the Supreme Court I Up 22/2020, dated March 4, 2020, point 8 of the reasoning.
9. See, for example, the decision of the Supreme Court in case I Up 147/2020, dated November 4, 2020.
10. The Constitutional Court also emphasizes the protection of the right to private property under Article 33 of the Constitution or the right to the peaceful enjoyment of possessions under Article 1 of Protocol No. 1 to the ECHR, which can only be restricted in accordance with constitutional and legal guarantees and limitations (see, for example, the decision of the Constitutional Court in case U-I-6/15-23, Up-33/15-32, Up-1003/15-27, dated July 5, 2018, point 32 of the reasoning).
11. The Supreme Court, for example, also stated this in the decision I Up 247/2021, dated December 23, 2021.
12. See the decision of the Supreme Court in case I Up 174/2018, dated October 17, 2018.
13. For example, the Administrative Court in the decision I U 934/2015, dated May 8, 2015, and III U 8/2017-12, dated April 6, 2017. The fact that material damage is not always reparable is also evident from several decisions of the Constitutional Court of the Republic of Slovenia, which mainly concern enforcement (interference) with property that is specially protected (e.g., decision U-I-171/16-9 and Up-793/16-10, dated September 9, 2016, and Up-1298/18-16, dated May 9, 2019). Similarly, the case law of the European Court of Human Rights (ECtHR), for example, in the cases Rousk v. Sweden, points 137 to 142 of the reasoning, and Zehentner v. Austria, points 58 to 65 of the reasoning, regarding enforcement against immovable property, which is the debtor's home.
14. See the decision of the Supreme Court in case I Up 23/2022, dated February 15, 2022, point 13 of the reasoning.
15. The respondent did not file a response to the appeal.
16. According to the plaintiff's allegations, the seizure has already been carried out, which means that the respondent has acquired a lien right on the seized movable property. The lien right ensures repayment, so non-payment of the debt is not possible under any circumstances. However, the provision of the first paragraph of Article 178 of the ZDavP-2 (General Taxation Procedure Act), referred to by the court of first instance, provides the plaintiff with protection against the sale of seized assets necessary for their business activities for a period of six months from the due date of the assessed obligation.

Reference:

Republic of Slovenia (RS) - Constitution, Laws, Agreements, Contracts
Administrative Dispute Act (2006) - ZUS-1 - Article 32

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