Legal analytics

Starting January 5^th, 2016, the so-called “fourth antimonopoly package”[1] of laws came into effect that substantially complemented existing legislation concerning the protection of competition. One of the more distinguished innovations is granting people the opportunity to contest rulings delivered by Russian Federation Federal Antimonopoly Service (hereinafter the FAS Russia) regional departments through extrajudicial proceedings. In this analytical review, a description is given of the mechanism that has been introduced and the appeal hearing procedure, and the current outcomes are reviewed for work performed on “departmental appeals” against the FAS Russia during the period they have existed.

The legal basis for the mechanism of "departmental appeal"

The general guidelines for the mechanism of “departmental appeal” are formalized in Sections 3-16, Article 23 in Federal Law No. 135-FZ, dated July 26^th, 2006, entitled “On protecting competition” (hereinafter the Law on protecting competition). In its current version, this article stipulates that, in addition to its other powers, the FAS Russia needs to set up collegial boards that are empowered to exercise special discretionary authority.

One of the special discretionary powers collegial boards have is the power to readjudicate rulings and/or orders delivered by the FAS Russia regional departments in cases on violations of antimonopoly legislation (Clause 2, Section 4, Article 23 in the Law on protecting competition.

The Law on protecting competition does not expand on the structure of the FAS Russia collegial boards. Legislation only states that the makeup of these boards needs to be ratified by FAS Russia management. According to information posted on the department’s official website, 14 Boards of Appeals have formed in the FAS Russia that took shape on the basis of their scopes of activity. In addition, readjudication for rulings delivered by territorial authorities is something that may be performed by the FAS Russia Presidium.[2]

Legislation does not establish any strict delineations between the Boards of Appeals and the FAS Russia Presidium in terms of their scopes of practice. As a rule, issues concerning the readjudication of rulings delivered by the territorial authorities are submitted to the Boards of Appeals. The FAS Russia Presidium, for its part, reviews only those cases that are the most important for subsequent legal practice.[3]

As of the time this review was drafted, the FAS Russia has only considered 3 cases, which is around 7% of the total number of cases that have been reviewed through “departmental appeals” on their merits. The cases reviewed by the FAS Russia Presidium had to do with the application of Articles 16, 10, and 11 in the Law on protecting competition. In two out of three cases, the verdicts delivered by the territorial authorities were overturned.[4] In one case, the ruling made by the territorial authority was upheld.[5] The legal positions set out by the FAS Russia Presidium are given in more detail below.

Grounds for overturning rulings

According to Clause 2, Section 4, Article 23 in the Law on protecting competition, the collegial boards readjudicate rulings and/or orders delivered by the FAS Russia territorial authorities in cases involving violations of antimonopoly legislation when those rulings and/or orders violate the principle of consistency with which the norms of antimonopoly legislation are applied by the antimonopoly authorities. 

This means that the Law on protecting competition specifies only one rationale to revise or overturn a decision (order) delivered by a territorial antimonopoly authority – violating the consistency with which the norms of antimonopoly legislation are applied by the antimonopoly authorities. The Law on protecting competition does not provide for any other grounds.

In those cases where the appellant indicates some other type of violation (for example, violating the procedural rules for reviewing a case) as grounds for revising/overturning a ruling delivered by a territorial authority, the FAS Russia collegial board rejects the appeal. For example, when reviewing an appeal filed by self-employed entrepreneur A.Sh. Galimova for the ruling and Orders No. 1 and No. 2 delivered by the Republic of Tatarstan Department of the Federal Antimonopoly Service, dated May 13^th, 2016, in case No. 05-435/2015 the FAS Russia indicated that some of the appellant’s arguments were not subject to review as per the procedure governing readjudication outlined in Article 23 in the Law on protecting competition, since these arguments were related to violating the procedures for initiating and reviewing a case, as well as the reasonableness of the amount of the fee charged to issue a permit for hookup to a gas supply system, which do not fall in the scope of review for the Boards of Appeals.

The collegial boards also reject appeals when an appeal and the appended documentation do not outline the rationale why the territorial authority violated the consistency with which antimonopoly legislation is applied. For example, in the decision on an appeal filed by Gazstroyservis LLC for the ruling delivered by the Krasnodar Region Department of the Federal Antimonopoly Service on May 19^th, 2016, in case No. 412/2015, the collegial board rejected the appeal, citing a lack of relevant evidence.

How can a violation of the principle of consistency be proven?

The practice that is emerging for reviewing appeals vis-à-vis decisions/orders delivered by the FAS Russia territorial authorities in the bounds of extrajudicial proceedings permits an understanding of how appellants can prove that there has been a violation of the principle of consistency. As a rule, rulings made by FAS Russia territorial authorities are used as evidence.

(a) Rulings delivered by the FAS Russia territorial authorities for issues in the same vein

This type of evidence is expected to be the most common in cases involving reviewing decisions made by FAS Russia territorial authorities, since it is precisely the totality of all the rulings made for these kinds of issues that shapes existing practice. Along with that, the more of these kinds of rulings are made, the more rationales the collegial boards will have to make decisions that are in favor of the appellant.

As an example of using rulings made by FAS Russia territorial authorities as evidence, the case of the decision made by the Russian FAS Presidium on an appeal filed by GUP MO Mosoblgaz, which concerned a ruling made by the Moscow Department of the Federal Antimonopoly Service on June 8^th, 2016 in case No. 1-10-1918/77-15, is worthy of examination. This ruling, enacted by the territorial authority, was overturned. In addition, the reasons for judgment gave many references to decisions made by other territorial authorities that explained their position on the issue under review.

The act of recognizing the rulings delivered by territorial authorities that are cited by the appellant will be an advantage during the process of substantiation. The collegial boards frequently cite rulings delivered by the territorial authorities that have been upheld by courts with various scopes of authority.[6]

(b)  Explanations given by FAS Russia

Explanations given by FAS Russia, if they exist for a contentious issue, can significantly strengthen the appellant’s position vis-à-vis violations of the principle of consistency in regulatory enforcement practices.

For example, in the reasons for judgment in the ruling on the appeal filed by N.A. Scherbakova for the ruling delivered by the Krasnodar Region Department of the Federal Antimonopoly Service on August 26^th, 2016, in case No. 88/2016, involving a breach of antimonopoly legislation, the collegial board cited several letters and explanations composed by the FAS Russia that substantiated overturning the territorial authority’s ruling.

Rulings delivered by the territorial authorities that are appealed may be evaluated both in terms of whether they conform to the principle of consistency during the practice of applying antimonopoly legislation and by other means.

For example, in Ruling No. 16-01-10-04-04/185, delivered by the Volgograd Region Department of the Federal Antimonopoly Service on August 12th, 2016 - and appealed by PAO Volgogradenergosbyt - in a case involving a breach of antimonopoly legislation, the Board of Appeals indicated that the contested ruling contradicts the legal position sent by FAS Russia to the territorial authorities as part of providing methodological assistance. This served as the rationale to overturn the ruling delivered by the territorial authorities.

During their sessions, the collegial boards may also explore the opinions of independent experts that are members of the Association of Antimonopoly Experts.[7] For example, in ruling No. 16-5-1/1, dated April 13^th, 2016, delivered by the FAS Russia Presidium on an appeal filed by Bashkirskaya Liftovaya Kompaniya LLC for the decision made by the Bashkortostan Department of the Federal Antimonopoly Service on December 31^st, 2015 in case No. А-136/16-15, the collegial board, on the basis of findings arrived at by the association stated above, came to the conclusion that the appellant’s petition did not give any examples of practice (rulings, explanations) where antimonopoly legislation had been applied some other way – and the arguments in the appeal could be distilled down to irreconcilability with the conclusions reached by the territorial authority. In another case, it was the other way around, and the independent experts came to the conclusion that the territorial authority had violated the principle of consistency in regulatory enforcement practices, and on that basis overturned the contested ruling.[8]

The appellate procedure

The general provisions governing extrajudicial appellate procedure in respect to rulings delivered by the territorial authorities are enshrined in Sections 6-16, Article 23 in the Law on protecting competition, as well as in FAS Russia Decree No. 422/16, dated April 7^th, 2016 and entitled “On the procedure for the Federal Antimonopoly Service collegial boards to perform work” (hereinafter the Work procedure for collegial boards).

According to Section 6, Article 23 in the Law on protecting competition, the deadline to appeal a ruling or order delivered by a territorial authority is one month from the time the relevant enactment comes into being. In addition, current legislation does not provide for any possibility to extend or reinstate a missed deadline, even if there is a valid reason, something also backed up by judicial practice.[9] In case the deadline to file an appeal is missed, the FAS Russia will return the appeal without reviewing it on its merits – but the appellant still has the chance to dispute the ruling delivered by the territorial authority in the bounds of judicial proceedings.[10]

The ability to file an appeal is stipulated for those parties that participate in a case involving a breach of antimonopoly legislation (Section 6, Article 23 in the Law on protecting competition). However, regulatory enforcement practice demonstrates that even when a territorial authority does not initially involve a party that, pursuant to the relevant law, should have been involved in the case, this does not deprive the party of the right to file an appeal with the collegial boards.

This position was expressed in the decision made on an appeal filed by the Center for Developing and Implementing Information Technologies GRAND LLC for the ruling delivered by the Magadan Region Department of the Federal Antimonopoly Service, dated February 17^th, 2016, in case No.  02-9/10-2015, and was also confirmed by the courts[11]. In this case, the plaintiff that had originally sued due to actions taken by another party subsequently successfully contested - through the process of “departmental appeals” - the decision made by the territorial authority to terminate the antimonopoly case. The defendant in the original case attempted to initiate judicial proceedings to submit an appeal to the collegial board, claiming that the Board of Appeals had no basis to review the appeal since the initial plaintiff was not involved in the case review by the territorial authority, and was not a party that had participated in the case.

However, the courts at all levels of jurisdiction rejected this argument as meritless, indicating that, pursuant to Articles 42 and 44 in the Law on protecting competition, the territorial authority should have involved the appellant in the case as a plaintiff. The unlawful failure to involve a plaintiff as a participant in a case cannot constitute a hindrance to initiating an appeal vis-à-vis a ruling enacted by a territorial authority.  

The deadline for the collegial board to review an appeal is two months from the time an appeal is filed. In case it is determined that additional time is necessary to do research on documentation (information) that is necessary for the appeal to be reviewed, this deadline may be extended, but by no more than one month (Section 8, Article 23 in the Law on protecting competition). This means that the total length of the deadline should not exceed three months from the time the appeal is filed with the FAS Russia.

It is important to note that current legislation does not contain any provisions that clearly regulate the procedure for submitting an appeal to the collegial boards, or that specify an appeal’s content or form. The FAS Russia, as far back as the end of 2015, prepared a bill for a decree called “On ratifying the Regulations for the collegial boards at the Federal Antimonopoly Service to revise rulings and/or orders delivered by territorial antimonopoly authorities in cases involving breaches of antimonopoly legislation.[12] However, this bill was never signed and passed into law.

This means that, given the absence of established requirements for appeals, it is recommended that they be filed while adhering to the requirements that are usually stipulated for filing appeals with the FAS Russia for other issues: in written form, containing information about the plaintiff, signed by the plaintiff or the plaintiff’s representative, and also describing and providing a detailed rationale relating to any violations committed by the territorial authorities, emphasizing breaches of the principle of consistency in regulatory enforcement practices.

Reviewing appeals for rulings enacted passed by territorial authorities is performed at sessions held by collegial boards. Section 9, Article 23 in the Law on protecting competition, as well as clause 10 in the Work procedure for collegial boards, provide parties that participate in a case the opportunity to participate in sessions where appeals are reviewed. In addition, these parties may petition to participate in collegial board sessions by means of video conferencing – something which can entail significant savings in terms of the time and expenses required to represent these parties’ interests.

The procedure for holding collegial board sessions is determined by the person chairing the board (clause 11 in the Work procedure for collegial boards). Legislatively, this procedure is not enshrined anywhere, which may create uncertainty for parties participating in the case.

Following the session, the collegial board makes a decision that needs to be substantiated and outline the results of the legal debate. According to Section 10, Article 23 in the Law on protecting competition, the collegial board may either dismiss an appeal or revise or overturn a ruling/order delivered by a territorial authority.  

A ruling made by a collegial board needs to be prepared in its full scope over the course of five days from the time that its judicial decree is announced (Section 14, Article 23 in the Law on protecting competition). Over the course of five days from the time that the ruling is prepared it needs to be posted on the FAS Russia official website. The moment the collegial board ruling’s full text is posted, it comes into effect (Section 15, Article 23 in the Law on protecting competition).

It is important to note that submitting an appeal for a ruling delivered by a territorial authority to an FAS Russia collegial board deprives the appellant of the right to simultaneously submit an appeal to the arbitration court. In addition, a ruling made by a collegial board may also be contested in the bounds of judicial proceedings over the course of one month from the time the ruling comes into effect (Section 1.1, Article 52 in the Law on protecting competition).

Current results for the “departmental appeals” work process

As of the time this review was drafted, FAS Russia collegial boards had reviewed 42 appeals on their merits.[13] Rulings enacted by territorial authorities were revised or overturned in approximately one-third of those cases. The remaining appeals were dismissed by the FAS Russia (see Diagram 1 for details).

An analysis of the appeals reviewed by the collegial boards, broken down by type of violation, demonstrates that most cases (45%) fell under Article 10 in the Law on protection competition (abuse of a dominant position). A considerable portion of the appeals were also filed for violations of the principle of consistency during the review process for anti-competition agreements (Article 11 in the Law on protecting competition). However, collegial boards also review appeals for other forms of antimonopoly violations. Statistics for the review of appeals, broken down by type of violation, are given in Diagram 2.

Special attention should be given to the legal positions expressed by the FAS Russia Presidium regarding how certain provisions in the Law on protecting competition are applied. As already stated above, the FAS Russia Presidium, as of the time this review was drafted, had reviewed three cases, and in two of them the rulings delivered by territorial authorities were overturned.

1. FAS Russia Presidium Ruling No. 16-5-1/1 dated April 13^th, 2016 on the appeal filed by Bashkirskaya Liftovaya Kompaniya LLC  2016 for a ruling delivered by the Republic of Bashkortostan Department of the Federal Antimonopoly Service on December 31^st, 2015 in case No. А-136/16-15

In this case, the issue of a public authority and an economic entity signing an agreement was examined (Article 16 in the Law on protecting competition). The territorial authority established the fact that an unlawful agreement had been entered into, which led to restricted access to a certain product market. The defendant filed an appeal for this ruling, which included justifying its actions by claiming that the ruling it disputed did not contain any evidence that there were any negative consequences in the form of restricted access to the product market or other economic entities being pushed out of it.

However, the FAS Russia Presidium rejected this argument given by the appellant, indicating that when cases in this category are under review it is not necessary to prove the onset of negative consequences. Moreover, the violation lay in the fact that the agreement was signed, and therefore, in order to come to a conclusion concerning whether the parties’ actions violated the law, there was no need to even show evidence whether any work was really performed under it. After reviewing the appeal, the FAS Russia Presidium rejected it.  

2. FAS Russia Presidium ruling on the appeal filed by GUP MO Mosoblgaz for a ruling delivered by the Moscow Department of the Federal Antimonopoly Service on June 8^th, 2016 in case No. 1-10-1918/77-15

This case involved violations related to pricing policy for hookup to a gas supply system. The territorial authority found the company guilty of violating Article 10 in the Law on protecting competition, for which reason an appeal was filed with the FAS Russia collegial board for the ruling delivered by the territorial authority.

The FAS Russian Presidium overturned the ruling made by the territorial authority, indicating that the reason why controversial legal relations arose was the fact that specific contracts were sent to an explicit number of consumers. However, taking into account the amendments introduced into Section 1, Article 10 in the Law on protecting competition, declaring actions that infringe on the interests of certain clearly defined consumers – in ways not related to their performance of commercial activity – was eliminated as a possibility.

3.  FAS Russia Presidium ruling on the appeal filed by Joint-Stock Company Medintorg for a ruling delivered by the Moscow Region Department of the Federal Antimonopoly Service on February 22^nd, 2017 in case No. 05-15/32-16

In this case, the issue examined was whether the territorial authority had established the reality of a breach of Article 11 in the Law on protecting competition – in terms of an agreement that had been signed that propped up prices during electronic bidding – in a legally valid manner.

The territorial authority established that two participants had submitted bids and price quotes – and had signed contracts – from one IP address, which served as the basis for making the decision that was in dispute. However, the FAS Russia Presidium determined that the participants’ founders belonged to one group of people since they were family members. Therefore, as per Section 7, Article 11 in the Law on protecting competition, the provisions in Article 11 in this law do not apply to the participants, and their actions could not be qualified as signing an unlawful contract.

To sum up

The mechanism to file pretrial appeals for rulings delivered by territorial antimonopoly authorities functions fairly successfully: more than one-third of these appeals ended in positive results for the appellants. However, an analysis of regulatory enforcement practice demonstrates the relatively small number of appeals filed to challenge rulings made by territorial authorities.

The reasons for this small number of appeals may be associated with the presence of certain blank spots in regulations governing the procedures for drawing up, submitting, and reviewing appeals, as well as the substantial restrictions on the scope of review for appeals for FAS Russia.

However, despite these factors, the “departmental appeals” process holds great potential. The procedure that has been established operates much more swiftly than litigation. Furthermore, actively using the mechanism that has been put in place will help make legal practice on the part of the territorial authorities more consistent, and will also ease the burden on the courts.

[1] Federal Law 275-FZ dated October 5^th, 2015 entitled “On amending the Federal Law “’On protecting competition’ and certain Russian Federation legislative acts”

[2] See http://fas.gov.ru/press-center/fas-in-media/detail.html?id=47443.

[3] Ibid.

[4] See the FAS Russia Presidium decision on the appeal filed by State Unitary Enterprise Moscow Region Mosoblgaz for the ruling delivered by the Moscow Department of the Federal Antimonopoly Service on June 8^th, 2016 in case No. 1-10-1918/77-15, as well as the FAS Russia Presidium decision on the appeal filed by JSC Medintorg for the ruling delivered by Moscow Region Department of the Federal Antimonopoly Service on February 22^nd, 2017 in case No. 05-15/32-16.

[5] See the FAS Russia Presidium Decision No. 16-5-1/1 dated April 13^th, 2016 on the appeal filed by Bashkirskaya Liftovaya Kompaniya LLC concerning the ruling delivered by the Republic of Bashkortostan Department of the Federal Antimonopoly Service on December 31^st, 2015 in case No. А-136/16-15.

[6] As an example, see the Ruling on the appeal filed by Joint-Stock Company Oboronenergosbyt for the ruling delivered by the Samara Region Department of the Federal Antimonopoly Service on February 16th, 2016 in case No. 79-186-15/5; Ruling No. 03-03/06-2016 on the appeal filed by A.Yu. Deyev for the ruling delivered by the Tula Department of the Federal Antimonopoly Service on November 11th, 2016.

[7] Annotation. Association of Antimonopoly Experts (previously the noncommercial enterprise “Assisting the Development of Competition).

[8] See the FAS Russia Presidium ruling on the appeal filed by Joint-Stock Company Medintorg for the ruling delivered by the Moscow Region Department of the Federal Antimonopoly Service on February 22^nd, 2017 in case No. 05-15/32-16.

[9] See Resolution No. 09P-6108/2017 made by the Ninth Arbitration Court of Appeals on March 20th, 2017 in case No. А40-216779/16.

[10] Annotation. The possibility to contest a decision made by a territorial authority in the bounds of judicial proceedings exists before the deadline to petition the court that is stipulated in the Russian Federation Arbitration Procedural Code (3 months).

[11] See Resolution No. F05-4976/2017 passed by the Moscow District Arbitration Court on April 27th, 2017 in case No.  А40-145056/2016.

[12] The draft's text is accessible in either the Konsultant+ System or at the following link: http://regulation.gov.ru/projects#npa=42694.

[13] Annotation. This analytical review did not count those appeals that were returned to parties that submitted them on procedural grounds, including due to missing deadlines related to the appeals process.