Superior Bargaining Power concept in Russian Law Мaksim Bashkatov, leading research fellow, Institute for Law and Development HSE-Skolkovo, National Research University – Higher School of Economics Managing and Executive Editor, Civil Law Review Journal
Superior bargaining power as an idea: footprints on the Moon Before the Amendments to the Civil Code (8. 03. 15) -Means under the Federal Statute on Consumers’ Rights -Art. 10 of the Civil Code: general prohibition of abuse of rights -Art. 169 of the Civil Code: invalidity of a legal transaction made with a purpose contrary to the basis of the legal order or morality -Art. 428 of the Civil Code: adhesion contracts -Basic rule - Art. 16 of the Federal Statute on Consumer Rights. This Paragraph establishes the mandatory nature of the rules of the pointed statute and stresses the general principle of inadmissibility of decline of consumer rights as compared to this act.
Superior bargaining power as an idea: footprints on the Moon Before the Amendments to the Civil Code (8. 03. 15) B 2 B transactions: basic ideas - Entrepreneurs should incur all legal and economic consequences of their strategic decisions because of the implied entrepreneurial risk - But, from a different angle, rough violation of bargaining capability cannot be ignored by courts as reflecting the abuse of civil-law rights.
Ruling № 16: a new approach to the superior bargaining power concept -New Wave: the practice of the Supreme Commercial Court (R. I. P. ) Ruling № 16 (March 14, 2014) "On the Freedom of the Contract and Its Limits" Art. 428 as the center of weaker party protection in contract law 1)Applicable not only to b 2 c, but also to b 2 b transactions 2)Expanding the scope of application of this article Contract of adhesion - “. . contract whose terms are determined by one of the parties in printed forms or other standard forms and that may be accepted by the other party not otherwise than by adhering to the proposed contract as a whole”. The same approach should be applied if one contracting party has developed and proposed a draft contract containing clearly burdensome terms substantially violating the balance of interests (unfair contract terms), and if at the same time the other contracting party was in a position effectively complicating for him renegotiation of such terms (weaker party)”. To apply the contract of adhesion regime the court shall not establish that the disputed contract was a standardized one, but it will serve if there were no individual negotiations as a result of inequality in bargaining power
Ruling № 16: a new approach to the superior bargaining power concept Art. 428 as the center of weaker party protection in contract law 3) the notion of unfair contract terms These terms are supposed to be legally valid and binding but clearly onerous (burdensome), causing a serious imbalance in the parties’ interests. The court shall evaluate provisions of this kind in aggregate with the other terms of the agreement and related transactions, since advantages under some contractual conditions may, therefore, compensate for disadvantages under others. So, the onerous character of the concrete term shall be established as related to concrete cases, but not as being based on some abstract criteria. 4) the status of the weaker party – it is the contracting party, which was in no position to negotiate the terms because of inequality in bargaining power. It is important that courts shall analyze the actual (real) state of bargaining power into the deal, taking into account whether submission to the contract was compulsory and other related circumstances
Ruling № 16: a new approach to the superior bargaining power concept Art. 428 as the center of weaker party protection in contract law What circumstances shall the courts take into account? -he standard of professionalism of the parties in the concrete sphere, -competition on the given market -the possibility of concluding an alternative transaction 5) the mechanism of adhesion contracts was “adapted” to protect the weaker party into b 2 b transactions - now, alternatively, instead of claiming for contract amendment, the weaker party can resist the enforcement of terms resulted from the superior bargaining power of the other party (because this party acted in bad faith) Now this approach was implemented into Paragraph 3 Art. 428, of the Civil Code.
Amendments to Art. 428 of the Civil Code Rules provided under sub-clause 2 of this clause [428] shall be applied also to agreements that are not adhesive contract but where conditions of such contracts are determined by one of the parties while the other party due to obvious disparity of negotiation capacity is put in a position that substantially prevents it from negotiating other terms of a contract”. What should constitute an “obvious inequality in bargaining power” ? How to determine criteria for “substantial” prevention from negotiation of alternative terms of the agreement? Only in the Ruling № 16 of the Supreme Commercial Court (which remains in force, but since the SCC was liquidated its status seems to be ambiguous from a legal standpoint).
Judicial Practice Cautious approach – courts tend to interfere into b 2 b transactions only in exceptional cases, that means when the imbalance in superior bargaining power was clearly disproportional Problems in judicial practice 1) different approaches in judicial practice to cases when the party to the contract was offered the draft of the agreement, but did not make any effort to negotiate the terms of it. 2) whether developed competition on certain market prevents the protection against the unfair contract terms, or whether actors shall have access to it even in the situation when an alternative deal is also possible? 3) Is it possible to enforce such sort of protection in the sphere of public procurement? Entering into the contract for public procurement inherently means that the party submits the terms which could be negotiated in minor detail. Does it mean that such a submitting person will be named the weaker party in all the cases?
Contract law approaches and competition law Russian contract law permits addressing the level of competition on a certain market to determine whether it is possible to apply the superior bargaining power concept. Judicial practice: contract law concept of the superior bargaining power is an additional criteria to qualify the dominant position of the market actor and then to enforce the competition law mechanism.
Superior bargaining as criteria for dominant position The business entity can be acknowledged to hold a dominant position, if (1) its market share exceeds 50%; (2) its market share is 35 -50%, but the Federal Antimonopoly Service acknowledged its dominant position; or (3) its market share is less than 35%, but the dominant position is acknowledged by virtue of statutory exception. The availability of the stronger market position and, as a consequence, the stronger superior bargaining power of the legal entity should be evaluated by the antimonopoly body as a circumstance influencing the competition and/or infringement of lawful interests of other persons. Consequently, the antimonopoly body is able to take into account the superior bargaining power to qualify the dominant position at the market.
Superior bargaining as a criteria for dominant position 1 st point: - abuse by the dominant position is a special case for abuse of rights general prohibition (Art. 10 of the Civil Code of the Russian Federation) Supreme Commercial Court (Resulution № 30): To qualify the abuse by the dominant position it should be particularly determined if such actions were made within the authorized limits of exercise of civil-law rights or there were the unreasonable limitations of exercise by the counteragents of their rights. - that means that the dominant position of the market player presupposes the application of the civil-law concept of superior bargaining
Superior bargaining as a criteria for dominant position 2 nd point: In order to qualify the dominant position, the antimonopoly body should prove the following: - obtaining the dominant position on the market at the moment of the supposed violation; - the fact of abuse by such person of its position on the market, i. e. the exercise of the civil-law rights or of the available market power in general with a purpose to prevent or eliminate the competition at the certain commodity market and (or) the infringement of the lawful interests of the other persons; - unlawful consequences of the pointed actions as prohibited by the statute on competition
Superior bargaining as a criteria for dominant position Conclusion: The basic Russian statute on competition authorizes the antimonopoly body to evaluate the superior bargaining power of the certain business entity which led to infringement of lawful interest of other persons and/or prevention (limitation) of competition on a appropriate market. The pointed statute states the cases of solicitation of contract terms. Regardless of the legal and economic form in which such behavior displays, the possibility to dictate terms, i. e. to force the acceptance or impose on the appropriate way of negotiation are the characteristics of the person possessing the sufficient market power.
Superior bargaining as a criteria for dominant position Criteria for superior bargaining power - pressing unprofitable terms upon the counterparty; pressing terms not related to the subject of the agreement (which do not meet the criteria of reasonableness) pressing additional services upon counterparties Unprofitable terms in judicial practice: - Different prices for the one certain commodity or different prices for commodities with common characteristics. - Absence of technological, economic and other justification for prices.
Superior bargaining as a criteria for dominant position Unprofitable terms in judicial practice: Although the statutory law doesn’t stipulate the clear criteria for justification of prices, there are some necessary factors to justify different prices. For example, - disparity in expenses of the seller due to the production/sale of the commodity. This disparity may result from, particularly, such conditions as: - different volumes and periods of delivery of the purchased commodity; - difference in expenses connected with the delivery of the commodity (railroad and other tariffs, customs clearance and customs fees); - difference in characteristics of the commodity (difference in prime cost, as well as peculiarities of production technology); -terms of payment – advance payment or postponement of payment etc.
Food market regulation -Federal Statute as of 28. 12. 2009 № 381 -FZ "On the basic principles of state regulation of the trade activity in the Russian Federation” (Art. 13) -It is prohibited : 1) to formulate discriminatory contractual terms, 2) to dictate contractual terms to the counterparty + list of typical discriminatory contractual terms Judicial practice: - presumption that the listed terms violate the rights and lawful interests of market actors, if these terms were not voluntarily accepted by them. Consequently, the actual negative consequences for the weaker party shall not be necessarily proved in the case. At the same time, the achievement of mutual agreement on these terms may result in violation of rights and lawful interests of the weaker party but it should be established by the court.
Food market regulation – practice of antimonopoly service -The case No. 5 -9 -3/00 -18 -14 as of 08. 04. 2015 (“Trading House “Perekrestok”) “the position of the retail chain, being determined on the basis of rules of the Statute on trade is similar to company holding the dominant position at the certain commodity market…” It was established that the company dictated the discriminatory terms (different prices for one sort of services provided to the customer)
Food market regulation – practice of antimonopoly service Territorial bodies of Federal Antimonopoly Service (7 cases) Discriminatory contractual provisions: -Special remuneration for the retail chain for purchase of certain commodities, -Purchase of commodities with similar features on sufficiently different conditions, -Evasion from contracting with the concrete supplier (5 cases) Lossmaking provisions: -The mandatory supplementary agreement for services provided by the retail chain, which costed more then сommodities purchased by this chain
Thank You for attention! ■ Maxim L. Bashkatov ■ maximbashkatov@gmail. com mbashkatov@hse. ru m_bashkatov@law. msu. ru ■ ■
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