Goltsblat BLP Tax Practice advises of the outcome of the challenge to the format for notifying of controlled transactions (Avtoframos et al. vs the Federal Tax Service of Russia)

18.06.2014

PaRR

Russia’s competition authority Federal Antimonopoly Service (FAS) is likely to face more legal challenges over its warnings to dominant companies on anticompetitive practices after the country’s Supreme Arbitration Court (VAS) ruling allowing Gazprom’s subsidiary to dispute a warning against it at arbitration courts, two Moscowbased lawyers said.

Before initiating a formal investigation FAS is obliged to issue a warning to a dominant company that allegedly abuses its market power, said Vitaly Dianov, a senior competition lawyer at Goltsblat BLP. The authority cannot initiate antitrust proceedings until the deadline indicated in the warning expires, he said.

Companies that received FAS warnings will likely seek to challenge them at courts, according to Dianov and Natalia Korosteleva who heads antitrust practice of Egorov Puginsky Afanasiev & Partners.

For example, Aeroflot, Russia’s major airline, has already turned to the Moscow Arbitration Court challenging FAS warning instructing several dominant Russian airlines to change their ticket pricing policy, Dianov noted.

The recent VAS decision strengthens Aeroflot’s challenge, he said. Aeroflot could even try to prove that is not a dominant company and thus is not subject to FAS warnings, suggested Dianov.

In early April, FAS issued a warning to Aeroflot, Transaero Airlines, UTair, Rossiya Airline, Orenburg Airlines, Vladivostok, Siberia Airline, and Globus Airline that dominate passenger transportation market in Russia, requiring to improve their ticket sale systems. Companies are considered dominant when together they control 70% share and each of them controls more than 8% of the relevant market exceeding market shares of other market players, FAS said in a written statement to PaRR.

The competition watchdog has decided to hold on launching formal probes against airlines refusing to implement changes to their respective ticket pricing systems.

This VAS ruling sets a precedent, which in practice may significantly complicate the work of FAS and put a heavy administrative burden on courts, said Korosteleva.

Companies, which received warnings from FAS, will use legal challenges to slow down the process, she expected. The use of warnings in Russia so far has proved to be effective. Between 2012 – when the authority started using this tool – and 2013, FAS has issued 3 182 warnings, in 85% of those cases companies corrected their behaviour, said Korosteleva.

Before VAS decision, there was no coherent treatment of lawsuits challenging FAS warnings, said Dianov. For example, prior to VAS ruling, three courts had ruled that a subsidiary of Gazprom could not challenge Nizhny Novgorod OFAS warning in regards to its alleged abuse of dominance, he said.

On the flip side, the quality of FAS warnings will likely improve as a result of VAS ruling, said Anton Subbot, a lawyer at Baker & McKenzie in Moscow.

Korosteleva echoed that the quality of warning is likely to improve. Now FAS will examine its chances to win a case in a court before issuing a warning, she noted.

The authority’s warnings will now be subjected to “judicial review” – a practice that is “moving into the right direction,” said Subbot.

The full text of VAS decision is not available yet, FAS spokesperson said. FAS warnings may be challenged within three months after they are received, he added. The use of warnings has been in operation for approximately two years.

In 2013, the number of formal antitrust investigations decreased significantly due to an active use of warnings over suspected competition violations, according to Artemyev. In the future, FAS plans to have 200%-300% less cases because of the use of warnings, he said.

by Natalia Lapotko in London

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