Cartels: a turn in the court practice
It has been more than a year since the Plenum of the Russian Supreme Court adopted Resolution No. 2 “On certain issues resulting from the courts applying antimonopoly legislation” dated 4 March 2021 (the “Resolution”). It is time to assess how the approaches to proving cartel agreements have changed and what provisions of the above document are the most cited by the courts. Read more in the article of Elena Sokolovskaya, Pepeliaev Group’s partner.
Previously, the Russian Antimonopoly Service (the “FAS”) applied in its practice an established approach whereby “for an anticompetitive agreement to be declared, several indirect pieces of evidence should be analysed by comparing each of them against the others without the proof process being burdened by a mandatory search for at least one direct piece of evidence” (Clarification No. 3 “Proving unacceptable agreements (including cartels) and concerted actions on commodity markets, including in bidding processes” (approved by Protocol No. 3 of the Presidium of the FAS dated 17 February 2016). The indirect evidence included, for example: correspondence, the coincidence of legal and mailing addresses, accessing an electronic site from the same IP address, and the participants’ conduct before and after an auction (in the event of collusion in a bidding process).
The courts supported the position of the antimonopoly authority (Resolution of the Federal Commercial Court for the Moscow Circuit dated 25 June 2013 in case No. А40-64690/12-130-611).
There are no grounds to state that the FAS’s approach lacks objectivity. However, when applied, it caused significant risks as to whether a well-grounded decision would be made following the examination of a case. Moreover, there were no clear limits of proof and in each specific case such limits were interpreted subjectively.
The Resolution has caused visible changes in administrative and judicial decisions and in court practice.
Clause 20 of the Resolution has become the most cited clause in court decisions. It specifies that cooperation between competitors aimed at generating profit is lawful if competitors do not aim to restrict competition. This is an important provision, since previously any business connections between competitors could be treated as indirect evidence of a collusion.
For example, a case of an “exhibition cartel”. It concerned a government contract for servicing an investment forum when three participants put themselves forward for the bidding process and one of them won the tender without any struggle proposing a price which was only by 0.5% lower than the initial price.
In its attempts to prove collusion the antimonopoly authority referred, among other things, to the long-term business relationships between the companies participating in the bidding (they had concluded loan, sublease and services agreements) (Decision of the Tatarstan Department of the FAS of Russia dated 4 March 2020 in case No. 016/01/11-1248/2019).
The regulator’s decision was refuted by the courts (Ruling of the Judge of the Russian Supreme Court dated 4 August 2021 in case No. А65-9116/2020). The courts pointed out that when the authority was proving stable connections between the companies, it also pointed out that the specified business entities systematically participated in a bidding battle on multiple occasions confirming that regardless of the assumed connection, the parties always used competitive tools. Therefore, the contractual relationships between the bidders in this case does not evidence any collusion.
The courts in their decisions also fairly often refer to clause 21 of the Resolution. This provision confirms the position that a cartel is not necessarily made in writing and may be reflected in the specific conduct of market players.
Such approach was also previously used in administrative and judicial decisions and in court practice, and therefore the analysis of the conduct of business entities was treated as indirect evidence. Meanwhile, clear standards of typical conduct which would not cause any suspicion have not been developed and each specific case was considered individually.
The Russian Supreme Court has set a specific direction for this situation to be resolved and has clarified that the parties to a cartel should deliberately adhere to a general plan of conduct (pursue a single unlawful goal) which allows a benefit to be derived from the restriction of competition. However, it should be examined whether conduct of the parties similar to an alleged cartel has resulted from other objective reasons.
Thus, in one case a cassation court supported the conclusions of the lower courts that the decision of the antimonopoly authority should be refuted and pointed out that “the purposes which the companies pursued as participants in the auction, and the interests which the imputed agreement was meant to meet” had not been proved (Resolution of the Commercial Court for the Volgo-Vyatka Circuit dated 26 August 2021 in case No. А17-6138/2020).
Previously, the Russian Antimonopoly Service (the “FAS”) applied in its practice an established approach whereby “for an anticompetitive agreement to be declared, several indirect pieces of evidence should be analysed by comparing each of them against the others without the proof process being burdened by a mandatory search for at least one direct piece of evidence” (Clarification No. 3 “Proving unacceptable agreements (including cartels) and concerted actions on commodity markets, including in bidding processes” (approved by Protocol No. 3 of the Presidium of the FAS dated 17 February 2016). The indirect evidence included, for example: correspondence, the coincidence of legal and mailing addresses, accessing an electronic site from the same IP address, and the participants’ conduct before and after an auction (in the event of collusion in a bidding process).
The courts supported the position of the antimonopoly authority (Resolution of the Federal Commercial Court for the Moscow Circuit dated 25 June 2013 in case No. А40-64690/12-130-611).
There are no grounds to state that the FAS’s approach lacks objectivity. However, when applied, it caused significant risks as to whether a well-grounded decision would be made following the examination of a case. Moreover, there were no clear limits of proof and in each specific case such limits were interpreted subjectively.
The Resolution has caused visible changes in administrative and judicial decisions and in court practice.
Clause 20 of the Resolution has become the most cited clause in court decisions. It specifies that cooperation between competitors aimed at generating profit is lawful if competitors do not aim to restrict competition. This is an important provision, since previously any business connections between competitors could be treated as indirect evidence of a collusion.
For example, a case of an “exhibition cartel”. It concerned a government contract for servicing an investment forum when three participants put themselves forward for the bidding process and one of them won the tender without any struggle proposing a price which was only by 0.5% lower than the initial price.
In its attempts to prove collusion the antimonopoly authority referred, among other things, to the long-term business relationships between the companies participating in the bidding (they had concluded loan, sublease and services agreements) (Decision of the Tatarstan Department of the FAS of Russia dated 4 March 2020 in case No. 016/01/11-1248/2019).
The regulator’s decision was refuted by the courts (Ruling of the Judge of the Russian Supreme Court dated 4 August 2021 in case No. А65-9116/2020). The courts pointed out that when the authority was proving stable connections between the companies, it also pointed out that the specified business entities systematically participated in a bidding battle on multiple occasions confirming that regardless of the assumed connection, the parties always used competitive tools. Therefore, the contractual relationships between the bidders in this case does not evidence any collusion.
The courts in their decisions also fairly often refer to clause 21 of the Resolution. This provision confirms the position that a cartel is not necessarily made in writing and may be reflected in the specific conduct of market players.
Such approach was also previously used in administrative and judicial decisions and in court practice, and therefore the analysis of the conduct of business entities was treated as indirect evidence. Meanwhile, clear standards of typical conduct which would not cause any suspicion have not been developed and each specific case was considered individually.
The Russian Supreme Court has set a specific direction for this situation to be resolved and has clarified that the parties to a cartel should deliberately adhere to a general plan of conduct (pursue a single unlawful goal) which allows a benefit to be derived from the restriction of competition. However, it should be examined whether conduct of the parties similar to an alleged cartel has resulted from other objective reasons.
Thus, in one case a cassation court supported the conclusions of the lower courts that the decision of the antimonopoly authority should be refuted and pointed out that “the purposes which the companies pursued as participants in the auction, and the interests which the imputed agreement was meant to meet” had not been proved (Resolution of the Commercial Court for the Volgo-Vyatka Circuit dated 26 August 2021 in case No. А17-6138/2020).
At the same time the regulator treated fairly formally the investigation of cases on cartel agreements and it did not necessarily determine the purposes of the participants in an alleged collusion. Now, in view of the position set out in the Regulation aimed at a more thoughtful analysis of cases of this category, including in terms of the possible economic feasibility of the actions of business entities, the practice has started to change.
Clause 24 of the Resolution dedicated to the most popular type of cartel, an agreement to increase, maintain or reduce prices in a bidding process, specifies that an assessment should be carried out of the aggregate of the evidence attesting a causal link between the actions of the participants in the bidding process and the prices being changed or maintained in such bidding.
The practice shows that the courts have started to actively be guided by this approach. In particular, they assess the following facts referring to clause 24:
- whether the level achieved of a price reduction (increase) is usual for bidding which is held with respect to specific types of goods;
- whether the conduct of several participants has the elements of a single strategy being implemented;
- whether the application of such strategy can generate profit from a cartel (Resolution of the Commercial Court for the Volgo-Vyatka Circuit dated 7 October 2021 in case No. А43-26071/2020).
The new practice shows that the provisions of the Regulation in general have been positively accepted by courts and are being actively used when disputes on cartel agreements are settled. The approach of the Russian Supreme Court is fully justified and encourages courts to analyse this category of cases more thoughtfully, including in terms of the possible economic feasibility of the actions of business entities.
Source: Competition and Law