The “Competition and Law” magazine publishes an article by ART DE LEX lawyers discussing the review of the Presidium of the Supreme Court of the Russian Federation concerning competition protection cases

Wednesday, March 16, 2016 The Presidium of the Supreme Court of the Russian Federation approved a review of the legal practice issues arising when considering competition protection cases and administrative offence cases in the said sphere (hereinafter, the Reviev). It comes down to repeating a bumber of the legal positions of the arbitrations courts which practicing lawyers are aware of. However, some of the stated provisions require a close scrutiny. 

The Review includes a conclusion that it is illegal for a management organization to establish a dominant position in the market to provide apartment house management services solely on the basis of the fact that it entered into a management agreement for that apartment house (Clause 6).

Such approach is based, without limitation, on the practice of the Federal Arbitration Court of the North Caucasus District [1]. The subject of examination was the legality of the decision made by the Federal Antimonopoly Service Administration for the Rostov Region to declare the management organization as having violated Part 1 of Article 10 of the Protection Competition Law [2] by setting an unreasonably high electricity rate.

When reversing the decisions by the antimonopoly authority and the Arbitration Court of the Rostov Region, the court of appeals and the cassation court pointed out that by virtue of the provisions of Article 162 of the Housing Code of the Russian Federation, the owners of an apartment house may change the house management method at any time, including by changing the management organization. In this context, the courts concluded that it was illegal to declare a management organization as holding a dominant position in the apartment house management market.

It appears that the stated position is not worth interpreting as clearly denying the possibility of establishing the fact of domination by a management organization within the boundaries of one house without regard to the actual circumstances of a specific case. In particular, it should be taken into account that it refers exactly to the cases involving the legal relations in which the participants are exclusively the management organization and the owners of premises in an apartment house, and the violation detected refers directly to the provision of public utility services to the tenants.

It would be wrong to apply such approach to all types of violations detected in the conditions of management organizations dominating in the apartment house management market. For example, it is inapplicable where the abuse by a management organization of its dominant position in the market affects the legitimate rights and interests of any third parties, including communications providers. Thus, the law enforcement practice currently admits the possibility of declaring a management organization as abusing its dominant position in the cases when there are obstacles created for communications providers' access to the communal property or where such access is denied.

Another ambiguous position is described in Clause 11 of the Review. The reference is to consideration by antimonopoly authorities of cases opened on the grounds of violation of Part 1 or 2 of Article 15 of the Competition Protection Law. Thus, the regulator should prove the fact of competition prevention, restriction, or elimination or ascertain that such consequences may ensue in the relevant commodity market. At the same time, the antimonopoly authority is obliged in each specific case to analyze the competitive situation in the commodity market and prove that the disputable acts or actions (omission) by the public authority result or may result in competition prevention, restriction, or elimination.

It appears that the wording “market analysis” used in the Review should not mislead about the need to conduct such analysis in accordance with the procedure contemplated by Order No. 220 of the Russian FAS dd. April 28, 2010, which does not provide for the antimonopoly authority's duty to conduct a market analysis when considering such cases.

The key idea which the Russian Supreme Court appears to have attempted to set out is that every violation of the law by a public authority cannot be qualified as violation of Part 1 of Article 15 of the law, but only such violation which may also result or resulted in competition prevention, restriction, or elimination. It is for the purposes of establishing this obligatory qualifying attribute that the antimonopoly authority needs to study the competitive situation in the commodity market.

Clause 11 of the Review describes the position of the Arbitration Court of the Ural District [3] concerning the declaration as being illegal the decisions made by the antimonopoly authority establishing the facts of violation of Part 1 of Article 15 of the Competition Protection Law which consisted in the refusal of the Main Department for Architecture and Urban Development of the Administration of the city of Chelyabinsk to approve the installation of advertising structures.

It is remarkable that currently even the legal practice of the Ural District referenced by the Russian Supreme Court does not consistently apply the relevant position to the approval by public authorities of installation of advertising structures.

For example, after the Determination dd. July 25, 2014, concerning the refusal to submit Case No. А76-14233/2013 to the Presidium of the Russian Supreme Arbitration Court had bee made, the same Arbitration Court of the Ural District gave an exactly opposite Ruling with regard to Case No. А76-18850/2013 on August 21, 2014. The court upheld the judicial acts of the appellate and first instances which confirmed the validity of the decision made by the FAS Administration for the Chelyabinsk Region which was similar to the reversed decision in respect of the Main Department for Architecture and Urban Development of the Administration of the city of Chelyabinsk.

At the same time, the common position that the antimonopoly authority needs to prove that competition may be restricted, prevented, or eliminated through any illegal actions by a public authority was confirmed by the acts of arbitration courts in a variety of districts on more than one occasion [4]. It was also reflected in Clause 8 of Resolution No. 30 of the Plenum of the Supreme Arbitration Court of the Russian Federation dd. June 30, 2008, “Concerning certain issues arising in connection with the application by arbitration courts of the antimonopoly laws” (hereinafter referred to as Resolution No. 30 of the Russian SAC Plenum).

There are also a number of conclusions made in the Review concerning directions given by an antimonopoly authority, specifically: concerning a legal approach to the determination of the amount of income recovered into the budget in accordance with item “k” («к») in Clause 2, Article 23 of the Competition Protection Law, and the possibility of inclusion in the direction of requirements concerning the prevention of any violation of the antimonopoly laws in the future. As for the latter, the Review defines cases which may be subject to the application of such administrative pressure method as issuance of a direction.

As per Clause 16 of the Review, a direction for the future shall contain a specifically defined requirement to perform any directly established acts; otherwise, it is unenforceable. This conclusion is consistent with the legal position of the Russian Supreme Court [5] to the effect that a direction may not be of abstract nature.

It is indicated that the issuance of a general direction for the future without specifying the type of actions which a business entity holding a dominant position should or should not perform fails to meet the certainty and legality requirements and may result in the interference with the diverse types of business activities of that entity.

Clause 16 of the Review actually duplicates the provisions which were already expounded by the Russian SAC Plenum [6]. Moreover, the Russian Supreme Court considered disputable situations relating only to the cases where the issued directions for the future contained requirements on the inclusion (non-inclusion) of certain terms and conditions in any civil law contracts.

Thus, where a violation consists in any conditions being imposed on the counterparty which are not related to the subject matter of the contract, the direction, as concerns the requirements intended to prevent any similar violations, shall contain specific instructions that such terms and conditions are not to be included in the contract or, in case of a model contract, a requirement that the same be excluded.

At the same time, if a business entity's violation relates to the fixing and maintenance of a monopolistically high or monopolistically low price for a commodity, the direction may not contain a requirement that contracts should be entered into in the future at a price determined by the antimonopoly authority by calculation because such calculation may have no regard to any future conditions, including economic conditions, for carrying out the business activities.

There are also encountered in the legal practice other types of directions containing requirements for the future. For example, the FAS of the Central District found to be legal the requirement included in the direction of the FAS Administration for the Tula Region not to include in one lot any functionally and technologically unrelated works when holding public tenders [7].

At the same time, it is necessary to take into account the position of the Russian SAC whereby any directions issued by the antimonopoly authority shall not diminish the freedom of economic activity fixed as one of the foundations of the constitutional system of the Russian Federation (Part 1 of Article 8 of the Russian Constitution), suppress the economic independence, unreasonably impede entrepreneurial activities, and excessively restrict the rights of the participants in civil-law relations [8].

Finally, Clause 15 of the Review also contains one example of interference with the business activities of an organization. That Clause describes a legal position whereby a direction obligating a business entity to hold a new tender for the right to enter into a contract is illegal.

[1] Refer to the Resolution of the Federal Arbitration Court of the North Caucasus District dd. May 4, 2010, with regard to Case No. А53-22727/2009-С4-10.

[2] Federal Law No. 135-FZ dd. July 26, 2006, “On Competition Protection” (hereinafter referred to as the Law).

[3] Refer to Case No. А76-16055/2014 and Case No. А76-14233/2013.

[4] Refer, for example, to Case No. А71-1669/2013, Case No. А40-99467/2012, and Case No. А64-1278/2015.

[5] Refer to Determination No. KAS09-274 of the Supreme Court of the Russian Federation dd. June 23, 2009.

[6] As per Clause 6 of Resolution No. 30 of the Russian SAC Plenum, arbitration courts should take into account the fact that, based on the results of considering a case relation to a violation of the antimonopoly laws committed when concluding a specific contract, the supervisory authority may (if there is an appropriate petition), on the basis of item “j” («и») in Clause 2, Part 1 of Article 23 of the Competition Protection Law, issue a direction to change the terms and conditions of the contract entered into or terminate the contract. If it is established that there are contracts entered into with any other entities containing similar terms and conditions, the antimonopoly authority may, absent any petitions filed by those entities, obligate the business entity holding a dominant position to send an offer to its counterparties to amend or terminate such contracts.

[7] Refer to the Resolution of the Federal Arbitration Court of the Central District dd. February 8, 2013, with regard to Case No. А68-2823/2012.

[8] Refer to Determination No. VAS-16263/13 of the Supreme Arbitration Court of the Russian Federation dd. February 10, 2014.