Relationship of Criminal Proceedings to Civil Litigation, Insolvency and Tax Proceedings

When analysing economic crime, i.e. non-violent crime committed by a person involved in business as part of a business activity, the purpose of which is, albeit indirectly, to gain an unjustified economic benefit or to cause property damage, the issue of conducting civil litigation, insolvency and tax proceedings is encountered. Clarification of the nature of individual proceedings and their relationship to criminal proceedings is key to the correct determination of criminal liability and the procedure of prosecuting authorities, especially when clarifying crimes related to property, insolvency and taxes. It is the understanding of the interrelationships, often of parallel proceedings, that can help bridge the deepening sectoral specialisation.

The key factor for defining this relationship is the purpose of the proceedings in question and the related nature of the decision, i.e. whether the decision corrects private law relationships or is the implementation of a society-wide need. The conclusions reached by the applying prosecuting authority are in turn conditioned by the principles by which the proceedings are controlled; in particular by those principles determining the initiation and course of proceedings and the nature and extent of taking of evidence.

The characteristics of each procedure and the determination of its relationship to the criminal proceeding will thus depend on determining the purpose of the proceeding, the nature of the liability fulfilled in the proceeding and the principles on which the proceeding is based.

The purpose of every proceeding is to implement a certain legal liability, in principle either a private law or a public law liability. The nature of the pursued liability is obviously also reflected in the nature of the applying body's decision, which is either a decision that settles the legal relationship of the entities concerned (corrective justice) or a decision which implements the public interest (society-wide justice

Protection of “all those values which may be shared among the citizens of an organised state.” Aristotle (2004).

The purpose of criminal proceedings is to identify and punish the perpetrator of a crime, i.e. “to establish in a legally valid manner that a person has committed a certain criminal offence, and to find out which punishment for that particular offence is a legal punishment.”

Storch, Spáčil (2011).

A part of the criminal proceeding, however, is also the collateral proceeding as a certain penetration of corrective justice into criminal law. The reason for many criminal complaints concerning economic crime is precisely the existence of this collateral procedure. Its purpose is to satisfy the injured party's private law claim for compensation for damages.

At the same time, compensation for damages in collateral proceedings cannot be exercised if “the claim has already been decided in a civil or another relevant proceeding” (Art. 44 (3) of the Criminal Procedure Code).

In that part in which the claim is satisfied in criminal proceedings (in principle the direct and the actual damage), it is no longer possible to call for a claim in a civil procedure.

The exercise of a claim for damages and the punishment have in common only that the offender loses their legal right (“Rechtsgut”) (Berolzheimer, 1903).

The principle of uniformity of proceedings has effect in criminal proceedings, i.e. legal and factual arguments may be applied at any stage. Evidence can thus in principle be taken of indefinitely throughout the (regular) criminal proceedings; even an appeal may be based on new facts and evidence (Art. 249 (3) of the Criminal Procedure Code).

The initiation and course of proceedings are determined by the principle of officiality and the inquisitional principle. Due to the principle of officiality, the initiation of criminal proceedings and – with the exception of the somewhat problematic non-granting of the injured party's consent as defined in Art. 163 of the Criminal Procedure Code

See Jelínek (2017), or Kotlán (2018b).

In terms of the inquisitional principle, prosecuting authorities are themselves obliged to secure the evidence of the crime committed by the accused. Since these authorities must identify the “facts of the case of which there are no reasonable doubts” (Art. 2 (5) of the Criminal Procedure Code), the subsequent confession of the accused does not release them from the obligation to investigate the case properly (e.g. it may turn out that the accused is covering by false confession another person). Proceedings controlled by the inquisitional principle necessarily lead to the ascertaining of material truth, i.e. the ascertaining of the facts without formal restrictions.

„Zjištění skutkového stavu neklade . . . žádné formální překážky“ [“Identifying the facts does not constitute . . . any formal obstacles.”] (Winterová, Macková, 2015).

At present, the right of the injured party to the so-called effective investigation is significantly reflected, which, however, does not affect the modification of the above principles, or more precisely, it can be seen as an affirmation of these principles, as it is a requirement for prosecuting authorities to make “qualified efforts to clarify the suspicion of a criminal offence”.

Finding of the Constitutional Court of the Czech Republic of 3. 9. 2018, file no. III. ÚS 2012/18. And as another judgment of the Constitutional Court states, this right guarantees the injured party “no specific result, but only the correctness of the procedure of the body in question”. Finding of the Constitutional Court of the Czech Republic of 19. 1. 2016, file no. II. ÚS 3436/14.

The relationship of criminal proceedings to other proceedings is determined in particular by the provisions on the preliminary ruling pursuant to Art. 9 of the Criminal Procedure Code. As defined in this provision, a prosecuting authority is bound by a decision of another body (in different proceedings) if it is not “assessment of the guilt of the accused” (Art. 9 (1) of the Criminal Procedure Code). The phrase “guilt of the accused” must be interpreted (and the courts do) relatively extensively, specifically with regard to the different purpose and principles that are related to individual proceedings.

Musil, Kratochvíl, Šámal (2003).

On the other hand, however, the court is not authorised to decide in criminal proceedings – with the exception of the above-mentioned compensation – on private law issues (e.g. on the right of ownership

In the case of property right, it will be decided on by the court in civil litigation proceedings. Finding of the Constitutional Court of 23. 2. 2015, file no. I. ÚS 2307/13.

The purpose of the civil litigation proceeding is described in the introductory provisions of the Code of Civil Procedure, i.e. that it “regulates the procedure of the court and the participants in civil court proceedings so as to ensure fair protection of private law and legitimate interests of the participants. . . ” (Art. 1 of the Code of Civil Procedure). In other words, the civil litigation proceeding is an instrument for private law liability by correcting private law relationships. There is no reason, however, not to exercise criminal (public) liability, pursuing a different purpose, in addition to private law liability, which is exercised in civil litigation proceedings. As a decision of the Supreme Court aptly states: “with the exception of the review of Art. 9 of the Criminal Procedure Code and Art. 135 of the Code of Civil Procedure”, the proceedings “are independent of each other. It is not excluded, however, that both proceedings on a certain related subject matter may be conducted simultaneously. In doing so, one legal relationship may be considered by the civil court as a relationship between the creditor and the debtor, and the court exercising criminal justice as a relationship between the injured and the accused.”

Decision of the Supreme Court of the Czech Republic of 18. 12. 2013, file no. 8 Tdo 1268/2013.

Significant elements of concentration of proceedings appear in civil litigation proceedings, which limit (concentrate) the possibility to propose evidence until a certain point in the proceeding (e.g. only in first-instance proceedings or until the court's first hearing (see Art. 118b of the Code of Civil Procedure).

The concentration of the proceedings is, in fact, based on the view that any dispute should be “eliminated” as soon as possible (‘bald aus der Welt schaffen’) (Klein, Engel, 1927).

Civil litigation proceedings are based on the principle of disposition and the adversarial principle. The principle of disposition, which is based on the idea that the initiative should be taken by the one who defends their legal interest,

Winterová, Macková (2015).

The adversarial principle, naturally following it, expresses the fact that the court hears only what the parties submit (burden of raising and presenting the issues); failure to bear the burden of proof then means failure in the dispute.

The principle that no one has to prove what they have not had to say before is applied (Balzer, Walther, 2018). For more details on taking of evidence, see Lavický (2017).

The principles governing civil litigation proceedings are quite contradictory to criminal proceedings, and therefore the conclusions of one proceeding may not always be relevant to the other. A prosecuting authority must therefore be particularly aware that a civil court decision may have the nature of formal truth, which is the result of failure to bear the burden of raising and presenting the issues or the burden of proof, rather than reflecting on the material (actual) state.

The relation of civil litigation proceedings to criminal proceedings is addressed in particular by Art. 135 (1) of the Code of Civil Procedure: “The court shall be bound by the decision of the competent authorities that a criminal offence has been committed. . . ” If a prosecuting authority has reached a certain conclusion in another issue, then the civil court. . . “proceeds from it” (Art. 135 (2) of the Code of Civil Procedure), i.e. it is (similarly for a prosecuting authority when assessing the preliminary question) its basis for further consideration, with the possibility of “re-arguing” it.

The findings of a prosecuting authority are therefore binding on a court in a civil procedure only if they relate to a finding that a criminal offence has been committed. If this is compared with the limit that the “criminal” court has, i.e. the decision on personal status, which is decided by the civil court, it is concluded that the powers of both bodies are similar and in deciding on the responsibility to be exercised are essentially also independent, apart from the exceptions mentioned.

Civil litigation proceedings, such as private law liability, pursues a different purpose than criminal proceedings do and is independent of it in that regard. The intersection of both proceedings occurs mainly in cases where a compensation for damages has been (partially) claimed in a collateral proceeding, which is part of the criminal proceedings. Then it is true that a civil procedure on this matter cannot be conducted (and vice versa – collateral proceedings cannot be conducted to compensate for damage that has been successfully sued). The evidence of the connection between criminal and civil litigation proceedings and the expression that corrective justice is realised through collateral proceedings is, among other things, the fact that the exercised compensation for damages in criminal proceedings suspends the limitation period to exercise a claim in the civil litigation proceeding.

Decision of the Supreme Court of 24. 5. 2006, file no. 25 Cdo 2478/2004 (the amount and legal reason for the claim must be evident, however, e.g. as early as in the criminal complaint).

In the case of economic crime, there is often a situation in practice where both proceedings, conducted at the same time, are indirectly influenced by the attitude of individual actors. So, for example, a person examined in a criminal proceeding who is simultaneously also the defendant in a civil proceeding reacts to the current situation in the respective proceeding when evidence is taken of. To some extent, this constitutes a schizophrenic position for the suspect or defendant – i.e. the need to bring evidence in their defence in the civil dispute and the possibility not to bring any evidence in the criminal proceeding.

The state of a civil dispute may at some point have an immediate effect on the legal classification of the offence. Thus, for example, the disposition of a (potential) debtor who is sued in a civil proceeding with their property may constitute a criminal offence of damaging the creditor pursuant to Art. 222 of the Criminal Code. The decisive factor is the state of the civil procedure, as the suspect's or defendant's intention to thwart the creditor's satisfaction by stealing their own property can be inferred precisely from the presumption of failure in a civil dispute.

E.g. the offence of damaging a creditor is committed when the civil procedure is at the stage of hearing the defendant's remedy against the judgment establishing their obligation towards the creditor.

It should be noted that criminal proceedings are becoming a welcome means of gaining an advantage over one's commercial competitor in the context of conflicting business relationships. As a result of filing a criminal complaint, which, unlike a lawsuit, is free of charge, and applying different principles in criminal and civil litigation proceedings, the complainant suspects a committed criminal offence, and, at the same time, the (potential) plaintiff has the possibility to transfer the activity of securing evidence to prosecuting authorities and use the results in this activity in the civil dispute. However, there are opposite cases as well, where the defendant in a civil proceeding opts for a criminal complaint as their “counter-attack” in order to somehow intimidate the plaintiff.

E.g. a plaintiff who has exercised their right of retention in respect of the defendant's case in order to satisfy their claim is reported by the defendant as a suspect of embezzlement.

The purpose of an insolvency proceeding is to organise the property relations of a debtor who is in (imminent) insolvency, i.e. to satisfy the private law claims of creditors. It is therefore necessary to reject the statement that the application of the debtor's private law liability in an insolvency proceeding may affect the subsidiarity of penal repression.

Púry (2015). Argumentation against Kotlán (2018a).

When taking of evidence in insolvency proceedings, the use of concentration is excluded, even within the application of the subsidiarity of the Code of Civil Procedure.

Winterová, Macková (2015).

In contrast to the civil litigation proceedings, the principle of disposition is not linked to the adversarial principle but to the inquisitional principle, which is documented in particular in Art. 86 of the Insolvency Act: “In insolvency proceedings, the insolvency court is obliged to provide also other proofs necessary to certify the debtor's insolvency or imminent insolvency than those proposed by the participants.” This undoubtedly leads to the fact that the finding of the insolvency court or administrator corresponds more to the material truth and thus comes closer to the conclusion reached by the prosecuting authority on the same issues (e.g. finding of insolvency or the amount of the claim).

Similarly, the principle of disposition and inquisitional principle are intertwined in German insolvency proceedings. See Rechberger, Seeber, Thurner (2018).

The relationship of insolvency proceedings to criminal proceedings is generally determined, with regard to the subsidiary application of the Code of Civil Procedure (see Art. 7 of the Insolvency Act), by the mentioned provision of Art. 135 of the Code of Civil Procedure, i.e. it shows in principle the independence of both proceedings.

See also Púry (2015).

The facts of the so-called insolvency offences or criminal offences

This term is, however, somewhat misleading because some constituent elements are classified as insolvency offence, though insolvency is not their legal characteristic. See, for example, the damage to the creditor under Art. 222 of the Criminal Code.

The classification of claims according to the Insolvency Act for offences of benefiting creditors pursuant to Art. 223 of the Criminal Code may therefore have a fundamental effect on criminal liability. If, for example, a suspect pays a debt to a secured creditor when the company the suspect is acting for is insolvent, whose claim is paid up to the full amount of the security, then it cannot be said (in the material sense) that the creditor has been favoured. If a security (e.g. a lien on real estate) was sufficient to cover the debtor's obligation, they would still be satisfied in full from the debtor's property.

As defined in Art. 167 (1), Art. 168 (3), Art. 169 (2) and Art. 305 of the Insolvency Act. For more details, see Kotlán (2015).

Uncertainties arise in the relationship of insolvency proceedings to collateral proceedings. If the collateral proceeding is a sort of possibility to implement private law liability in a criminal proceeding instead of a civil litigation proceeding, then logically the provision of Art. 109 (1) (a) of the Insolvency Act should be applied, i.e. the impossibility to assert one's claim after the insolvency proceeding has commenced other than by applying for an insolvency proceeding as well as for a collateral proceeding.

The Supreme Court did not cope with this argument in any way in its decision when it broadly inferred from the wording of Art. 266 (1) (a) of the Insolvency Act that there is no obstacle to the decision on compensation for damages in collateral proceedings under Art. 228 of the Criminal Code. Decision of the Supreme Court of the Czech Republic of 11. 9. 2013, file no. 7 Tdo 677/2013.

The purpose of a tax proceeding is to correctly identify and determine a tax and to ensure its payment (see Art. 1 (2) of the Tax Code). Ensuring payment must be understood not only as the procedure for tax collection but also for penalty payment pursuant to Art. 251 of the Tax Code (Act No. 280/2009 Coll., The Tax Code, as amended), which will be significant for the relationship to criminal proceedings (see below). Taxes are the basic revenue of public budgets, so their correct determination and collection is undoubtedly the implementation of public law liability. A very specific element of tax proceedings, which fundamentally distinguishes them from administrative and criminal proceedings, is the so-called self-assessment obligation, i.e. the taxpayer's obligation to file a proper tax declaration (Art. 135 (1) of the Tax Code).

The specificity of the tax proceeding can also be seen in the fact that “it is continuous with the existence of tax liability unless the objective of the tax administration has been achieved” (Bakeš, 2012).

The concentration of proceedings shall not apply in tax proceedings, as the appellate body may take of evidence to supplement the documents for the decision even in appeal proceedings (Art. 115 (1) of the Tax Code), i.e. “to supplement essentially any evidence or tools if it deems it appropriate and if it does so within the limits of legal restrictions.”

Judgment of the Supreme Administrative Court of the Czech Republic of 30. 1. 2015, file no. 5 Afs 143/2014.

The procedure in tax proceedings is determined by the inquisitional principle, albeit with some modification. The initial provision is Art. 92 (2) of the Tax Code: “The tax administrator shall ensure that the facts decisive for the correct identification and assessment of a tax are identified as completely as possible, not bound only by taxpayers’ proposals.” The modification is caused by the burden of raising and presenting the issues and the burden of proof of the taxpayer, consisting mainly in the already mentioned obligation to file the tax declaration and prove the facts declared thereof.

For a clear overview, see Vašutová (2012).

Tax proceedings are thus, in principle, aimed at identifying the material truth. In certain cases, however, in a case of insufficient evidence, the tax may be determined according to tools or agreed with the taxpayer (Art. 98 of the Tax Code), which is rather an expression of formal truth.

Even when determining a tax with tools, the tax administrator is still obliged to determine the tax base with the greatest possible degree of probability. Judgment of the Supreme Administrative Court of the Czech Republic of 28. 6. 2007, file no. 2 Afs 184/2006.

The tax administrator in tax proceedings, of course, even with regard to the fact that it is not a judicial body, is generally bound by decisions of other public authorities (Art. 99 (1) of the Tax Code). In relation to criminal proceedings, it should be noted that it is not, among other things, authorised, in the context of assessing preliminary rulings, to decide whether a certain action is a criminal offence. On the other hand, as already mentioned, a prosecuting authority does not have such a limit in relation to the issues that are the subject of tax proceedings, and with regard to assessing preliminary rulings under Art. 9 (1) of the Criminal Procedure Code, it can therefore deal with the tax administrator's conclusion in an argumentative way.

The Supreme Court stated that the decision of the tax administrator on tax liability or advantage is a significant matter for guilt, and therefore it can be assessed by a prosecuting authority separately as a preliminary ruling, e.g. in the Decision of the Supreme Court of the Czech Republic of 7. 8. 2013, file no. 5 Tdo 693/2013.

This stated modification of the inquisitional principle as well as the mentioned difference between the authorities conducting tax and criminal proceedings may then, in regard to a criminal proceeding, lead to a breach of the principle of nemo tenetur se ipsum accusare, i.e. to the prohibition of coercion to self-incrimination.

Seer, Wilms, Radvan (2016).

Tax proceedings are an implementation of public law liability and therefore, under certain circumstances, may be in conflict with criminal proceedings. The merging of the two proceedings in the event of a violation of tax obligations may result in both criminal and tax penalties.

“Taxpayers are subject to both administrative penalties and criminal sanctions if they want to comply their reporting and payment obligations” (Alink, Kommer, 2011).

The penalty under Art. 251 of the Tax Code has thus been the subject of a heated debate in recent years, and it is still unclear whether this sanction is of a punitive nature or not. If this were the case, then the simultaneous sanctioning with this penalty and the punishment for the criminal offence of evading taxes, fees and similar mandatory payments under Art 240 of the Criminal Code would be an inadmissible violation of the principle of ne bis in idem (see Article 4 (1) of Protocol 7 of the Convention for the Protection of Human Rights and Fundamental Freedoms).

On various aspects of this principle in relation to European law and the decision-making activities of the European Court of Human Rights, see the collection of contributions by Bockel (2016).

If a collateral proceeding is taking place within a criminal proceeding in relation to the criminal offence of tax evasion (Art. 240 of the Criminal Code), the tax proceeding is considered an obstacle as defined in Art. 44 (3) of the Criminal Procedure Code for the tax administrator to exercise its claim in the collateral proceeding.

See the Decision of the Supreme Court of the Czechoslovak Socialist Republic of 31. 7. 1985, file no. 3 To 9/85.

To define the relationship between criminal proceedings and the other proceedings – in the case of economic crime, particularly civil litigation, insolvency and tax proceedings – is one of the most complex problems, given the obvious overlap of the different branches. However, if the prosecuting authority becomes aware of the purposes of each proceeding, the differences in the principles by which they are governed and the legislation in question (in the light of the relevant case law), its conduct is generally correct. In any case, legal norms are not always unambiguous – for instance, in the issue of the so-called punitive damages, the relationship between collateral proceedings and insolvency proceedings or the nature of penalties under Art. 251 of the Tax Code, a legislative change could therefore be considered from the perspective of de lege ferenda.