On recognition as illegal and cancellation of the order forcing to make a favorable act
No. 6001-23-00-6ap/494, 6001-23-00-6ap/494(2) dated 08/01/2023
Plaintiff: "S" LLP.
Respondent: Russian State Institution "Department of the Agency for the Protection and Development of Competition of the Republic of Kazakhstan for the city".
Interested party: K LLP
The subject of the dispute: on the recognition of illegal and cancellation of order No. 35-NK dated April 15, 2022 "On approval of the conclusion on the results of the investigation of violations of the legislation of the Republic of Kazakhstan in the field of competition protection in relation to LLP "K" and "C", forcing to issue a favorable act – an order to terminate the investigation due to the absence of violations of the legislation of the Republic of Kazakhstan in the field of protection competition.
Review of the cassation complaints of the plaintiff and the person concerned. PLOT: On August 27, 2021, the Department appointed an investigation into violations of the legislation of the Republic of Kazakhstan in the field of competition protection in relation to the Partnership and K LLP. The basis for the investigation is the failure to comply with the notification of the antimonopoly authority on the presence of signs of violation of legislation in the field of competition protection No. 02-07/1025-I, No. 02 07/1025-I dated July 26, 2021.
The investigation period is from January 1, 2020 to May 31, 2021. The investigation period is from September 4 to November 24, 2021. Based on the Department's order No. 52 -OD dated October 29, 2021, the investigation period was extended until January 21, 2022.
Based on the results of the investigation, a conclusion was drawn up on the presence of anticompetitive coordinated actions of market entities in the actions of Partnerships "C" and "K" regarding the establishment and (or) maintenance of prices or other conditions for the purchase or sale of goods, and it was proposed to consider the fact of violation of the legislation of the Republic of Kazakhstan in the field of competition established.
The Department's Order No. 35-NK dated April 15, 2022 approved the conclusion based on the results of the investigation (hereinafter referred to as the order).
The partnerships "C" and "K", not agreeing with this order, appealed to the court with the requirements:
1) to declare illegal and cancel the order dated April 15, 2022 No. 35 NK "On approval of the conclusion on the results of the investigation of violations of the legislation of the Republic of Kazakhstan in the field of protection of competition in relation to LLP "K" and "C";
2) oblige to issue a favorable act - an order to terminate the investigation due to the absence of violations of the legislation of the Republic of Kazakhstan in the field of competition protection. The demands are motivated by the fact that the Department's investigation into violations of legislation in the field of competition protection was conducted in violation of the deadlines stipulated by law, as well as with procedural violations, including the conclusion signed by only two of the four officials, the calculation of the market volume and the shares of subjects in the commodity market was incorrect.; The market analysis is based on incomplete information, which was mistakenly conducted separately in relation to seventeen subjects.
Judicial acts:
1st instance: the claim was denied.
Appeal: the court's decision is upheld.
Cassation: judicial acts are cancelled.
A new decision on partial satisfaction of the claim was made in the case. The order was declared illegal and cancelled. In the rest, the claims for forcing a favorable act - an order to terminate the investigation due to the absence of violations of the legislation of the Republic of Kazakhstan in the field of competition protection - have been returned.
Conclusions: The court of first instance, rejecting the claim, proceeded from the content of the order and from the fact that the contested administrative act approved only the conclusion based on the results of the investigation, meanwhile, the presence or absence of violations of antimonopoly legislation, in the opinion of the court, is clarified only in the framework of consideration of the case of an administrative offense, where the guilt of the person should be established. who is being held accountable with the examination of evidence provided by both the authorized body and the object of the investigation.
When considering the case, the appellate instance indicated that the plaintiff has the right to appeal the contested order to the court, which is regulated by paragraph 7 of Article 224 of the Business Code of the Republic of Kazakhstan (hereinafter referred to as the PC), and therefore did not agree with the conclusions of the court of first instance regarding the investigation of violations of antimonopoly legislation only in the framework of consideration of an administrative offense case.
While upholding the decision of the court of first instance, the court of appeal concluded that the analysis carried out by the Department was legitimate, since the boundaries of the market and the time interval were reasonably determined and signs of anticompetitive concerted actions were seen in the actions of the objects of investigation.
These conclusions of the local courts do not comply with the circumstances and requirements of the law established in the case, and do not comply with the basic principles of administrative procedures and administrative proceedings.
In accordance with the first and second parts of Article 7 of the CPC, an administrative body or official carries out administrative procedures within its competence and in accordance with the Constitution of the Republic of Kazakhstan, this Code and other regulatory legal acts of the Republic of Kazakhstan.
When considering and resolving administrative cases, the court must strictly comply with the requirements of the Constitution of the Republic of Kazakhstan, constitutional laws, this Code, and other regulatory legal acts subject to the application of international treaties of the Republic of Kazakhstan.
The Judicial Board, checking the arguments of the claim about the lack of evidence of the existence of a set of all conditions stipulated by the PC for recognizing the actions of LLP "C" and LLP "K" as coordinated, aimed at restricting competition, established the following.
When considering signs of anticompetitive concerted actions, it is necessary to study the behavior of the objects of investigation, including in adjacent markets beyond the scope of the investigation, in order to establish patterns, sequences, or other information necessary for conducting a comparative analysis of the behavior of the objects of investigation.
In accordance with subparagraph 1) Paragraph 1 of Article 170 of the PC prohibits coordinated actions of market entities engaged in the production or sale of goods aimed at restricting competition, including those related to the establishment and (or) maintenance of prices or other conditions for the purchase or sale of goods.
The actions of market entities referred to in paragraph 1 of this article may be recognized as coordinated, subject to the following conditions: if they
1) these actions restrict competition; satisfy the
2) the result of such actions corresponds to the interests of each of the market entities;
3) the actions of market participants are known in advance to each of them in connection with a public statement by one of them or the public posting of information by one of them about the commission of such actions;
4) the actions of each of these market entities are caused by the actions of other market entities participating in coordinated actions;
5) the actions of market entities are not the result of circumstances that equally affect these market entities (changes in the tax and other legislation of the Republic of Kazakhstan, consumption dynamics, tariffs for services of natural monopolies, prices for raw materials and goods used in the production and sale of goods);
6) the total share of market entities in the relevant commodity market is thirty-five percent or more.
At the same time, the minimum share of one market entity in the relevant commodity market should be five percent or more. Thus, in order to recognize anticompetitive concerted actions, it is necessary to establish a set of all the above conditions.
It follows from the conclusion of the investigation approved by the order that the dynamics of prices for reinforcing steel for the period from January 1, 2020 to May 31, 2021 has been studied from the submitted materials from market participants, as well as from the results of the analytical work carried out. The data is shown in Tables No. 1 and No. 2.
The Department indicated that, based on the results of the analysis, the total share of market participants in the relevant commodity market is 26.2% in 2020, and 42.6% in January-May 2021. At the same time, the shares of each 86 of them exceed five percent or more. It is noted that the actions of the objects of investigation can be recognized as coordinated only in the period January - May 2021. In the justification, the Department indicated that from the dynamics of the purchase price, there is an increase in prices for the period 2020 and January-May 2021, with the exception of the months of May, June 2020 and March 2021.
On average, the purchase price increased from 197 thousand tons/ton to 379 thousand tons/ton, with a total increase of 92.39%. According to the Model Law on the Protection of Competition, this circumstance refers to objective factors. On average, the selling price increased from 197 thousand tons/ton to 395 thousand tons/ton, with a total increase of 100.51%.
Thus, in May 2021, the selling price of K LLP increased by 26.6%, amounting to 395 thousand tons/ton, while the purchase price increased by only 19.94%. Thus, it was noted that K LLP, as well as in May 2021, unreasonably increases the selling price of reinforcing steel.
According to LLP "C", the Department indicated that the average purchase price increased from 189 thousand tons/ton to 346 thousand tons/ton, an increase of 83.26% in total. On average, the selling price increased from 207 thousand tons/ton to 405 thousand tons/ton, with a total increase of 95.83%. Thus, in May 2021, the selling price increased by 19.82%, compared to April 2021, amounting to 405 thousand tons/ton, while the purchase price increased by 14.57%, amounting to 346 thousand tons/ton.
As a result, the Department noted that in May 2021, the selling price of reinforcing steel was unreasonably increased at C LLP. The result of such actions corresponds to the interests of each of the market participants - after an unjustified increase in prices for the remnants of reinforcing steel, the incomes of market participants increased, i.e. these actions correspond to the interests of each of them.
So, in May 2021, LLP "C" sold fittings at a price of 405 thousand tenge, and LLP "K" at 395 thousand tenge. That is, these Partnerships did not set the same prices among themselves, respectively, there is no reason to believe that actions between these entities are consistent for the reasons given below.
In the court of cassation instance, when examining the circumstances of the analysis and conclusion, it follows that the Department could not prove from which calculations the price sales of LLP "S" and "K" were taken, indicating that the calculations did not correspond to reality. In accordance with subparagraph 4) According to paragraph 1 of Article 26 of the PK, business entities have the right to independently set prices for all goods, works, and services produced, with the exception of cases established by this Code and the laws of the Republic of Kazakhstan.
Prices for fittings are not regulated by regulatory legal acts, and therefore sellers set sales prices depending on the prices of the purchased goods, the cost of costs, sales costs (transport, wages), and administrative costs, including tariffs for services provided by natural monopolies (light, water, and electricity)., interest expenses on bank loans; exchange rate expenses related to changes in exchange rates (dollar, ruble of the Russian Federation), etc.
From the data provided in the analysis on purchase prices and sales prices, it follows that the trade margin is on average for the entire analyzed period (the difference between the purchase price and the sale price) LLP "C" amounted to no more than 13%, and in May 2021, the trade margin was only 5.25%.
The trade margin of K LLP averaged 8.12% over the entire analyzed period, and in May 2021, the trade margin was only 6%, which is also less than the average for the entire analyzed period, as well as within the industry averages. The Judicial Board finds it appropriate and reasonable in the prevailing market conditions.
The Judicial Board notes that to impute the norms of Article 170 of the PC, one price increase from K LLP in May 2021 is not enough. In May 2021, the margin of this Partnership, taking into account the purchase price and sales, was only 16 thousand. (395 000 – 379 000 = 16 000), that is, 4.05%, the increase occurred taking into account the change in the purchase price.
In this regard, given that LLP "K" has not experienced a significant increase, there is therefore no reason to believe that there is a consistency of actions between LLP "C" due to the fact that in order to impute this violation, it is necessary to establish a corresponding violation on the other side.
Thus, the conclusions of the conclusion regarding the fact that the coordinated actions of LLP "C" and LLP "K" to increase selling prices limited competition are not true.
The judicial board also believes that the Department's conclusion did not reliably determine the border of the commodity market, the product was not correctly identified, and its details were missing. This does not comply with the requirements of current legislation.
According to paragraph 8 of the Methodology in force at the time of the investigation for the analysis and assessment of the competitive environment in the commodity market, approved by the Order of the Minister of National Economy of the Republic of Kazakhstan dated November 30, 2015, which is now invalid, and the current Methodology for analyzing the state of competition in commodity markets, approved by the order of the Chairman of the Agency for protection and development of Competition of the Republic of Kazakhstan dated May 3, 2022 (hereinafter referred to as the Methodology) preliminary determination of the product name is based on one of the following criteria:
1) commodity dictionaries or reference books of commodity experts;
2) expert opinions
3) decisions on granting licenses;
4) terms of the agreement;
5) a method that allows you to uniquely identify a specific product.
When determining the properties of the product that determine the buyer's choice, the functional purpose and application of the product are analyzed, including the purpose of consumption of the product and its consumer properties; qualitative characteristics, including type, grade, packaging, features in the distribution and distribution system; technical characteristics, including performance, transportation restrictions, conditions assembly, repair, maintenance), maintenance (including warranty features of professional use (industrial consumption); price; conditions of sale, including the size of batches of goods, the method of sale of goods; characteristics of goods.
The composition of the product properties that determine the buyer's choice and the necessary level of detail in the product description depend on the objectives of the research, as well as on the characteristics of the product market.
The analysis does not contain the specified features and conclusions that allow us to reliably detail the product. Its authors focused only on the group affiliation of the latter.
The Judicial Board concluded that the analysis carried out in terms of determining the boundaries of the commodity market also does not fully comply with the requirements of paragraph 17-23 of the Methodology and is actually determined within the authority of the Department (Astana city), whereas it should be determined depending on the possibility of purchasing goods in this territory; the validity and justification of transportation costs relative to the value of the goods; preservation of the quality, reliability and other consumer properties of the goods during their transportation; absence of restrictions on the purchase and sale, import and export of goods; the existence of equal conditions of competition in the territory within which the sale and supply of goods are carried out.
The authors of the analysis also ignored the remaining points defining the essential aspects of the mandatory attribute of the subject of proof in this category of cases. As mentioned above, in order to recognize anticompetitive concerted actions, it is necessary that the combined share of market participants in the relevant product market be thirty-five percent or more.
At the same time, the minimum share of one market entity in the relevant commodity market should be five percent or more.
According to paragraph 2 of Article 196 of the PC, the analysis of the state of competition in commodity markets is carried out in accordance with the methods approved by the antimonopoly authority for analyzing the state of competition in commodity markets.
Paragraph 29 of the Methodology stipulates that market entities operating in the commodity market include all market entities that sell the product in question within its borders within a certain time interval. Based on the information obtained when determining the time interval of the study, when determining the commodity boundaries of the market and when determining the boundaries of the commodity market, market entities operating in the commodity market in question are determined, for which data allowing their identification is established.
By virtue of paragraph 32 of the Methodology, the absence of identification data is allowed (if it is impossible to establish them), provided that their share does not exceed 15% of the total commodity market. Thus, the legislation stipulates that when analyzing the state of the competitive environment, it is necessary to identify all market participants, regardless of the availability of identification data.
Meanwhile, during the analysis and assessment of the state of the competitive environment, which was the basis for the conclusion, when determining the composition of market participants, all market participants were not checked. Accordingly, it is impossible to reliably assess their market share.
The conditions for coordinated actions must take place in aggregate: if at least one of them is not identified (for example, if it turns out that there is an objective justification for the parallel behavior of market participants), then it will be impossible to talk about a violation of the rules on protection of competition.
Thus, when determining the border in the commodity market, the Department does not calculate margins, purchase and sale of the adjacent market, pricing, share of costs, information from producers from the territories bordering Astana, such as Akmola, Karaganda, Pavlodar regions, that is, what their share in the commodity market is not established.
At the hearing of the cassation judicial board, the representative of the defendant explained that the Department had not studied the issue of defining boundaries, accordingly, such data was missing from the analysis and there was also no way to assess the state of the competitive environment in the commodity market.
The Judicial Board considers that if the totality of the conditions provided for in paragraph 2 of Article 170 of the Criminal Code is not proven, the actions of market participants cannot be recognized as anticompetitive coordinated actions. Meanwhile, by virtue of article 79 of the CPC, an administrative act must be lawful and justified.
An administrative act should be clear to understand, ensure uniform application, and comprehensively define the circle of persons to whom it applies. In these circumstances, the judicial board concludes that when issuing the contested order, the defendant violated the principles of legality and proportionality, and the protection of the right to trust.
By virtue of the requirements of Articles 10, 13 of the CPC, when exercising administrative discretion, the administrative body and the official ensure a fair balance of interests of the participant in the administrative procedure and the company.
At the same time, an administrative act or an administrative action (inaction) must be proportionate, that is, appropriate, necessary and proportionate. The trust of a participant in an administrative procedure in the activities of a particular administrative body or official is protected by the laws of the Republic of Kazakhstan.
At the same time, an administrative act or an administrative action (inaction) must be proportionate, that is, appropriate, necessary and proportionate. The trust of a participant in an administrative procedure in the activities of a particular administrative body or official is protected by the laws of the Republic of Kazakhstan.
An administrative act or an administrative action (inaction) is considered lawful and justified until the administrative body, official or court determines otherwise in accordance with the legislation of the Republic of Kazakhstan. An illegal administrative act adopted through the fault of an administrative body or official, as well as an illegal administrative act (inaction) committed through the fault of an administrative body or official, may not entail burdensome consequences for a participant in an administrative procedure.
By virtue of part four of Article 6 of the CPC, violation of the principles of administrative procedures and administrative proceedings, depending on its nature and materiality, entails the recognition of administrative acts, administrative actions (inaction) as illegal, as well as the cancellation of judicial acts.
The plaintiff's demands regarding the compulsion to issue a favorable act - an order to terminate the investigation due to the absence of violations of the legislation of the Republic of Kazakhstan in the field of competition protection are subject to return, since the judicial board finds this requirement unnecessary, since the court has already canceled the appealed order, which eliminates the need for this requirement in this part.
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