06.10.2015 — Long-Awaited Fourth Antimonopoly Package Approved by President
Russian President Vladimir Putin approved amendments to the law “On the protection of competition” and to a number of competition-related laws, i.e. the so-called ‘fourth antimonopoly package’. These amendments were passed by the State Duma on September 22 and approved by the Federation Council on September 30, 2015. The fourth antimonopoly package substantially reduces administrative barriers for business representatives and also reduces state participation in economic activity. Among other things, the new amendments prohibit unfair competition connected with the substitution or use of a similar trade mark, as well as with dissemination of false, inaccurate or corrupt information. Most of the amendments come into force in January 2016 (within 90 days as of their official publication).
Russian President Vladimir Putin approved amendments to the law “On the protection of competition” and to a number of competition-related laws, i.e. the so-called ‘fourth antimonopoly package’. The fourth antimonopoly package substantially reduces both, administrative barriers for business representatives and state participation in economic activity.
Most importantly, these amendments include a new section into the Law on the protection of competition, which sets forth a list of activities considered to be not only immoral, but also unlawful. Among other things, the law prohibits unfair competition through defamation, i.e. dissemination of false, inaccurate or corrupt information, which can harm the person’s good will. Such information can, for example, comprise data on the quality of the goods and their usefulness to consumers. The law also prohibits unfair competition though the use of someone else’s intellectual property, substitution or use of a similar trade mark, as well as unlawful receipt and dissemination of confidential information.
The law provides for the creation of a collegial body within the Federal antimonopoly service, which will be empowered to hear appeals from the decisions and instructions of local antimonopoly authorities.
Moreover, the new law amends the Russian Administrative Code. Thus, the fine imposed on a state authority official for actions resulting in restriction of competition and freedom of economic activity has been increased up to RUB 50.000. If, however, the said official has been previously fined for a similar administrative offence, she may face a three-year disqualification.
The new law imposes administrative liability for the violation of bidding procedures, sale of state or municipal property, conclusion of contracts as a result of the bidding. At the same time the law mitigates administrative liability imposed on persons assisting in the investigation of a competition law offence.
06.10.2015 — Does Defects’ Elimination Exclude Penalty Payment? - Supreme Court Orders Case Re-Trial
The Supreme Court has recently considered whether free elimination of defects in works by the contractor excludes the possibility of imposing a fine for the same defects (case No. А40-33372/2014). Lower courts decided that a fine cannot be imposed in such circumstances, whereas the Supreme Court ordered a re-trial of the case. The first instance court might resolve the case based solely on the interpretation of the contract concluded by the parties. However, it is likewise possible that the lower court will develop a general principle regarding liability for defective works.
In the present case the parties concluded a work contract, under which the defendant (the contractor) reconstructed power generating units for the claimant (the client). The claimant was forced to stop using the unit for 27 days due to a defect revealed shortly after the commencement of operation. The defendant eliminated the defect at its own expense, however the claimant demanded payment of a contractual penalty amounting to 20% from the the total contract price. The lower courts refused to satisfy the claim, as, according to their view, the contractor would be liable twice for the same breach, which is prohibited by civil legislation.
During the Supreme Court proceedings, the claimant disagreed with the lower courts’ rulings and opined that their conclusion does not fully consider the dual character of the contractual penalty, which is not only a consequence of contractual breach, but also a means of securing an obligation. The defendant, on the other hand, agreed with the lower courts, stating that their ruling is in line with Article 723 of the Russian Civil Code, which sets forth the consequences of defective works (i.e. free elimination of defects by the contractor, price decrease, termination of contract and recovery of damages etc.) According to the defendant, these consequences should be considered alternative means of protection. The Supreme Court ordered a re-trial of the case, and the first instance court will have to resolve the case in accordance with the Supreme Court’s instructions.
The parties’ dispute can probably be resolved only by interpreting the contractual provisions. Thus, clause 28.6 of the contract says: “ If the Equipment cannot be used within the warranty period due to quality defects in the works…the Contractor shall pay to the Client a fine amounting to 20% of the Contract price”. This provision is specified in clause 28.8: “Payment of fines does not release the Parties from performance of contractual obligations and elimination of defects”.
Interestingly, according to the defendant, clause 28.6 can be applied only if the equipment did not work during the whole warranty period, i.e. was not operative for 2 years. Moreover, the defendant noted that the contract had been concluded as a result of a competitive tender, therefore the contractor had no opportunity to change its provisions.
The Supreme Court must have ordered the re-trial due to the different interpretation of contractual provisions suggested by the parties. It is now for the first instance court to decide how to interpret the relevant provisions. Nevertheless, the fact that previous rulings of lower instance courts were set aside confirm that the Supreme Court is not ready to prohibit the use of penalty clauses in similar situations.