Bidders lose immunity – Economics – Kommersant

The Constitutional Court (CC) of the Russian Federation did not find grounds for expanding antimonopoly immunity, exempting from liability for cartel collusion at the auction. The law gives such immunity to companies that are legally under the control or direction of one person. Business expected that the Constitutional Court would give a broader interpretation of control and would allow companies that are actually controlled by one person not to be considered cartel participants. But that did not happen. Lawyers advise market participants to reconsider approaches and methods of participation in the auction.

The Constitutional Court recognized Part 8 of Art. 11 of the Law “On Protection of Competition”, which provides immunity from liability for a cartel agreement to controlled enterprises solely on the basis of formal legal grounds. The law considers agreements between competing economic entities operating in the same market to be a cartel, which can lead to restriction of competition (raising, lowering or maintaining prices at auction, reducing the production of goods, etc.).

The reason for checking the norms was the complaints of JSC Specialized Developer Koshelev-Project Samara and JSC Koshelev-Project, controlled by State Duma Deputy from the Samara Region Vladimir Koshelev. In 2020, the Samara OFAS considered that they entered into an anti-competitive agreement (cartel), as both companies were bidding for the construction of two schools and several roads. The agency concluded that the companies did not compete in good faith, and their joint participation in the auctions was aimed at maintaining the most favorable contract price. As a result, developers were fined 138 million rubles.

The arbitration courts recognized the decision of the FAS as lawful, although the applicants explained that they belonged to the same group of persons and therefore, in principle, could not compete. The companies cited shared personnel, powers of attorney for the same persons, mutual loan guarantees, and general management.

But the courts rejected these arguments, noting that the list of grounds for “anti-cartel immunity” is exhaustive. Thus, it is granted to business entities that form a group of persons if one of them controls the other or they are under the control of one person. At the same time, the law establishes only two independent qualifying signs of such control: the disposal of more than 50% of the votes and (or) the exercise of the functions of the executive body of a legal entity.

In a complaint to the Constitutional Court, the companies insisted that accountability should be determined not only by formal criteria, but also by the actual circumstances that are checked in each specific case. And if the courts have not established a real threat of restriction of competition, then the existence of its theoretical possibility cannot be the basis for bringing to responsibility.

In part, this approach was supported by the RSPP, noting in its response that the participation of affiliated companies in the auction is not always a sign of fraudulent activity, sometimes it is due to the “specifics of the legislation on tenders.” For example, you need to submit more than one application for the auction to be recognized as valid. “Formally interpreting the law on protection of competition, the FAS does not allow the use of real economic analysis, thereby forcing legal business to act to its detriment,” the RSPP noted. In turn, the FAS insisted that a broad interpretation of the norm would lead to the possibility of its arbitrary application and legal uncertainty.

As a result, the CC decided that taking into account only the signs of formal control for “anti-cartel immunity” is not “arbitrary and discriminatory” in relation to those who do not meet these criteria. The lack of legal grounds for control, according to the court, may be due to the desire to “hide the role” of one business entity in the activities of another. At the same time, being in the same group of individuals “may not reach” the degree of influence of participants on each other, “which allows one to define the decisions of one person as control over another,” the CC explained.

In turn, the composition of the signs for the conclusion about the actual control “is evaluative”, which means that “it can also create prerequisites for abuse by representatives of law enforcement agencies,” the resolution notes.

In addition, “the obligation of the state to legitimize such forms of actual control does not follow from the constitutional requirements for the protection of freedom of economic activity.” At the same time, the Constitutional Court noted that the legislator has the right, at its discretion, to both expand the scope of anti-cartel immunity, and narrow it down or completely cancel it.

Attorney at Kulik & Partners Law.Economics Maria Kanuntseva explains that, as a rule, the submission of several bids at the auction is necessary “for the auction to be recognized as valid and not subject to the rules for concluding an agreement with a single participant”, which in some cases require “agreement of the contract with the supervisory authority. Also, according to her, sometimes customers themselves ask “to go to auction with several companies” in order to avoid additional procedures and difficulties.

Irina Akimova, a partner in the BGP Litigation Competition Law practice, believes that the position of the Constitutional Court “retains the status quo on the issue.” But other lawyers are sharper in their assessments. Despite the fact that the companies under the control of one person are not competitors, now “their attempts to avoid the charge of a cartel agreement, referring to other actual control, are doomed to failure,” emphasizes Maria Kanuntseva.

Aleksey Kostovarov, partner at Liniya Prava, considers the position “to a certain extent divorced from reality, running counter to the legal trends of recent years.” In the bankruptcy practice of the Supreme Court, an approach has long been developed that “actual control in terms of its legal consequences cannot differ from formalized control,” otherwise it would “significantly reduce the level of protection of rights and legitimate interests in the economic sphere,” explains Mr. Kostovarov. In his opinion, “the denial of the value of actual control in relation to the rules on cartels leads, in fact, to the creation of double standards of law enforcement of the same category.”

Irina Akimova notes that the decision of the Constitutional Court is “consonant with the initiative”, which is included in the “fifth antimonopoly package” (preparing for the second reading). In this draft, the FAS proposes to completely remove immunity for cartels at auction. The Constitutional Court, pointing to the right of the legislator to reduce exemptions from the ban on cartels, “actually confirmed that it sees no obstacles for this,” Maria Kanuntseva believes. Thus, Ms. Akimova adds, “we are seeing a trend towards increased responsibility for concluding a cartel agreement at the auction,” in connection with which “business should, if necessary, reconsider the approaches and methods of participation in the auction.”

Anna Zanina, Anastasia Kornya