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Anti-monopoly Penalties

The latest in a number of significant developments in Russian competition law is an amendment to the Administrative Code in respect of the calculation of penalties to be imposed on entities which are found to have breached anti-monopoly regulations.

In some respects the action which the anti-monopoly authorities may take against a non-compliant entity is well established; existing legislation provides for specific penalties for certain types of anti-monopoly violation. However, in order to maintain a healthy competition culture and safeguard the interests of business entities, it is necessary to do more than focus on drafting transparent regulations for the calculation of penalties and their imposition and enforcement by the authorities. The aim of anti-monopoly legislation is not only to safeguard the state's interest in maintaining compliant and competitive markets and preventing illegal arrangements by business entities; in the majority of cases, violations of anti-monopoly legislation affect the interests of parties other than the state.

One of the most common examples of detriment to other parties involves legal persons which enter into a supply contract that contains unfair pricing terms. If a purchaser discovers that the price of the goods in its contract is substantially higher than that charged by the supplier to other purchasers for identical or similar goods, it would be reasonable for the anti-monopoly authorities to consider the question of whether discriminatory conditions had been imposed on the purchasing party in comparison with other business entities.

If the authorities confirm that the seller breached anti-monopoly rules, they impose a penalty. Until the amendments to the code came into effect, the penalty was a fine to the value of the income from the infringing conduct. The new provisions of the code calculate the fine on the basis of the infringer's sales income.

However, in both cases the fine is paid to the state; the purpose of the provisions is to discourage and punish infringement, not to compensate the aggrieved party. Neither the Anti-monopoly Law nor the code provides restitution to the purchaser for its loss as a result of unfair pricing. However, a purchaser which has been affected by discriminatory pricing has recourse under civil legislation.

Damages

One of the ways in which such a purchaser may seek a remedy against its supplier is to submit a claim for damages before an arbitration court. The Civil Code provides that a party which has caused damages must compensate the party affected. However, the law requires the purchaser to:

·                     bring a claim in judicial proceedings for a specific amount in damages;

·                     demonstrate that its loss is the result of the actions of a particular supplier; and

·                     show that such actions infringe anti-monopoly legislation.

However, given the nature of the offence (ie, the establishment of discriminatory conditions), it may be difficult to establish a sum which adequately restores a claimant's rights to obtain access to the market and services on terms which are equal to those enjoyed by other business entities.

If evidence of an anti-monopoly violation is revealed in the course of competition proceedings and the violation ceases as the result of a ruling by the authorities, it is logical to presume that the direct expenses borne by the purchaser in seeking the restoration of its rights are those incurred in the course of the proceedings. It is much harder to argue for other costs related to the restoration of a purchaser's rights. As case law offers no guidance on actions in respect of such claims, it is difficult to predict the result of proceedings to recover damages in such cases.

Unjust Enrichment

Another option for a purchaser is to argue that its overpayment for goods led to the supplier's unjust enrichment.

Russian law provides that a party which acquires or possesses property as the result of an illegal action or transaction, thereby causing loss to another party, must return such property. Can this principle be applied to the example of anti-competitive conditions between a purchaser and a supplier?

At first glance, it appears that no legal grounds for payment for the goods ever existed, as the discriminatory pricing conditions contravened anti-monopoly legislation when the transaction was concluded. The supplier may argue that the payment of the amount stipulated in the contract was legal because the customer agreed to the terms of the contract. Although this argument is no longer valid once the anti-monopoly authorities have determined that the supplier was in breach of competition law, a court may still adopt this approach and dismiss a claim for unjust enrichment on the grounds that the conditions of payment were stipulated in the contract with the mutual consent of the parties. As it must be shown that contractually agreed payments contravene competition law before restitution can be made, submitting a claim on the grounds of unjust enrichment does not guarantee compensation for a purchaser.

There is no guarantee that claims for damages or unjust enrichment will achieve a satisfactory result for a party which suffers loss as a result of anti-competitive pricing. However, in view of the number of occasions on which the application of a penalty for a breach of competition law fails to resolve the question of the infringer's responsibility to the entity whose commercial interests were affected by the breach, it is assumed that practical measures will be developed to provide remedies in civil actions. Companies which have borne financial losses as a result of counterparties' anti-competitive conduct will then be more confident in bringing claims to reverse the effects of anti-competitive terms.