“In this case, the rule “practice makes perfect” does not function”

The Competition Protection Law stipulates that, when making public purchases, only such products, works, services as are technologically and functionally connected may be included in a single lot. However, the standards for establishing such connection are not developed, and therefore the judicial practice varies greatly. Yesterday, the HCA of Russia dealt with the problem on the example of spent nuclear fuel, while simultaneously attempting to set new rules for the speeches of the parties’ attorneys in the supervisory instance court.

A contract of Rosatom state corporation was in the center of attention of the Board of the Higher Court of Arbitration of Russia. The contract was executed under the program of construction of a new type of storage facilities for spent nuclear fuel and its transportation there from those nuclear power plants, whose own storage facilities were close to critical level of fullness. The program was approved in 2007. In October of 2011, Rosatom declared an open bidding for works of development of containers for spent nuclear fuel, their setting into operation and transportation of nuclear waste from the Kurskaya nuclear power plant for storage at the FSUV “Gorno-himichesky kombinat” (GHK) in Zheleznogorsk of Krasnoyarsky territory (former manufacturing facility of plutonium for military uses).

The GHK won the bidding and received the contract for approximately 800 million roubles from Rosatom. But ElectroLab LLC, another participant of the tender, decided that Rosatom had breached the law by limiting the competition: it allegedly joined in a single lot works, which were not technologically and functionally connected. ElectroLab LLC also pointed to the necessity for the executor to have licenses for each type of the works (the validity of one such license of ElectroLab LLC expired by the time of producing the results of the bidding). ElectroLab LLC filed a complaint with the Federal Antimonopoly Service.

But the FAS found nothing illegal in the actions of Rosatom and concluded that a single set of works was the subject of the bidding. While the Court of Arbitration of the city of Moscow, where ElectroLab LLC filed a complaint with (case А40-123181/2011), as well as the instances of appeal and cassation, ruled the actions of the state corporation illegal and the tender results invalid. The courts referred to the nomenclature approved by the Ministry of Economic Development (by its Order No. 273 dated June 7 of 2011), according to which, all the above works belong to different groups and to different codes of ARCEAT. Besides, according to the courts, “the diversity of the works evidences their being governed by different chapters of the Civil Code”.

The opinion of the nuclear engineers and the three judges

The Federal Court of Arbitration of the Moscow District expressed its opinion on the case on July 4 of 2012. The Zheleznogorsk plant had by that time partially fulfilled the contract and requested, as did Rosatom, the HCA of Russia to reconsider the case according to the procedure of supervision. The nuclear engineers’ main argument was that the development of a container for spent nuclear fuel, its setting into operation and the transportation of the waste itself are closely connected processes, and cannot be done by different contractors for being stages of a single nuclear safety program.

The three supervision judges - Oksana Gvozdilina, Valeria Kiriushina and Mikhail Yukhney – agreed with the claimants’ arguments. They determined that the case be remitted to the supervision instance and wrote: “The legislation of placing orders is not aimed at maximizing the number of participants as much as the discovery, as a result of the tender, of the person, who shall fulfil the contract in the fullest compliance with the purposes of efficient use of financial sources and with the needs of the Russian Federation. Therefore, when the client set the requirements of licenses for the licensed work types, he acted within the law”.

The HCA judges believe that the lower instance courts’ allegations of the MED nomenclature, ARCEAT and the Civil Code are erroneous: the absence of the same name signs by itself cannot confirm the absence of technical and functional connection as it only evidences the heterogeneity. Plus, the HCA judges also paid attention to the fact that the lower instance courts did not take into account the Rosatom and GHK arguments of the partial fulfillment of the contract, and that ElectroLab LLC failed to give any proof that the annulment of the tender and the contract may lead to the restoration of its breached rights and interests (according to the position laid out in the Resolution No. 12573/11 by the Board of the HCA of Russia dated February 7 of 2012, ruling tenders invalid must cause the restoration of violated rights of the person, who filed the claim).

Consideration of the case

During the Board session, the attorney of Rosatom Sergey Redkikh repeated the arguments stated in the resolution by the three judges and reiterated that the heterogeneity of the works does not mean that they could not be combined in a single lot. S.Redkikh pointed out: “No law prohibits this. The final goal of the works is the only criterion for their connection”. He also said that, due to the license situation of ElectroLab LLC, only GHK had complied with all requirements of the tender as of that moment.

After that speech, Vladimir Slesarev, Deputy Chairman of the HCA (he conducted the session as Chairman Anton Ivanov was taking part in a law congress in London) attempted to set new rules of the parties’ statements in the instance of supervision. He addressed Olga Konovalova, the representative of the plant, whose turn it was to speak next: “I’d like to call your attention to the fact that in this case, the rule “practice makes perfect” does not function. The determination of the three judges has already been read, one attorney has already spoken, many things repeat themselves. If you are courageous enough to expand on the previous speeches…”

O.Konovalova was courageous enough. She remarked that the lower instance courts had erroneously not brought GHK into the case as a third party, though it was a party of the transaction with Rosatom. She also pointed out the partial fulfillment of the transaction by her principal, which is evidenced by the respective acts and the transfer of budget funds to the plant.

Svetlana Gorbachik, attorney of ElectroLab LLC, expectedly repeated the arguments of the lower instance courts, pointed to their motives and attempted to familiarize the judges with the details of the technological process of nuclear waste transportation. She stressed that completely different contractors were able to develop the container and to do the removal. And Roman Semenov of the FAS in his speech supported all arguments of the claimants, after which the Board members deliberated. It did not take them long: the HCA dismissed the requests of ElectroLab LLC and revoked the decisions of the courts on the invalidity of the tender and the contract.

Evaluation by the lawyers

Irina Mitina, senior lawyer of “Kachkin and Partners”, says that even though the Competition Protection Law stipulates the inclusion in one lot only of such products, works and services as are technologically and functionally connected, the legislation gives no definition and no criteria of such connection. She says: “Until now, there is no uniform court practice on the matter”. According to her, the courts in other cases also frequently allege independent legal regulation of works within a single lot, the presence of various licenses, belonging to one group of ARCEAT, purpose of order placement, whereas “the evaluation of the given criteria may favour or go against the existence of the connection”.

I.Mitina believes that even though the HCA supported the case of the claimants, it is still impossible to mention any specific criteria of the connection. She supposes that the supervisory instance will only point out the need for individual approach and consideration of the entire proof of the case.

And Radmila Nikitina, acting Head of Antitrust Law Group of the Law Firm "YUST", is convinced that the resolution of the Board, which confirms the legality of actions of Rosatom during the tender, should positively affect the law application practice. She is hopeful that: “[Its] main interesting feature will be that the supreme court instance will attempt to elaborate approaches for acknowledging the technological and functional connection between products, works and services within a single lot”.