On 18 November 2016 the Federal Antimonopoly Service of the Russian Federation (“FAS”) published on its website the last package of clarifications this year to the amendments of the Retail Law1 (the “Clarifications”)2 which is addressed to participants of food retail market. It should be acknowledged that in preparing the Clarifications FAS did a lot of work discussing and clarifying with market participants and the expert community how to apply the new provisions of the Retail Law. Nevertheless, a number of pressing questions were either not answered or were not clarified explicitly enough. We draw you attention here to some of the most important provisions of the Clarifications.
According to the Retail Law, the terms of contracts contravening the new version of the Retail Law will lose their validity as of 1 January 2017. The Clarifications state that as of that time such terms “will be unable to regulate the relations of the parties to the contract.” However, the Clarifications do not answer one of the key questions: if the parties do not agree on the necessary amendments to the contract and some of its terms lose their validity as of 1 January 2017, how should the parties to the contract, for whom the contract has become uneconomical, proceed going forward? We suppose it would be reasonable if FAS Russia stated in the Clarifications that, in such case, the parties could file a claim with a court according to the procedures of Article 451 of the RF Civil Code to amend or terminate the contract “due to a substantial change of circumstances”. However, the Clarifications do not provide for either this or any other recommended plan of action for the parties in such a situation.
In FAS’ opinion, when calculating the total consideration it is necessary to take into account the price at which the contracting party actually acquired the product, i.e., not the “base” price list price, but the final price with all applicable discounts. The 5% limit on the maximum total consideration should be calculated from the cost of all products actually supplied during the period agreed upon by the parties to the supply contract.
In accordance with the Clarifications, if product promotion services, logistical services, services to prepare, process and package goods and other similar services are provided to the supplier by independent contracting parties (i.e., by entities not engaging in retail activity and not in those entities’ group of persons, for example, by independent advertising and logistics companies), the limit on the total consideration does not apply (provided there is no “imposing” or “coercing” into concluding such contracts by the purchaser of the goods, especially, by retail chains).
At the same time, in the Clarifications FAS has not given an answer to the question of whether the 5% limit applies if product promotion services and other similar services are provided by a retail chain not to the supplier (for example, to the distributor) but to a third party with which the chain does not have a supply contract (for example, the manufacturer that is personally interested in promoting its products but sells them through a network of distributors). During discussion of the draft Clarifications at the meeting of the working group the FAS representatives tended toward the idea that the 5% limit should apply even in that case; however, they were undecided as to how the maximum total consideration would be calculated in that situation.
In this regard it also bears reminding that in its previous clarifications3 FAS expressed the opinion that the fee for services should be determined not as a percentage of the cost of delivery, but in a fixed amount. Otherwise, i.e., if the retail chain set the price of the product promotion services contract as a percentage of product turnover, then in FAS’ opinion that would result in discrimination by the chain against the suppliers.
Important provisions of the Clarifications concern the potential creation of discriminatory conditions by suppliers toward retail chains, in other words, “an unconditional unequal position of some contracting parties as compared with others, other conditions being equal.” According to FAS, in principle suppliers are allowed to set different conditions for the supply of goods (including different manufacturer’s prices for the same products); however, those conditions should not be discriminatory.
At the same time, in the regulator’s opinion discrimination will occur when the supplier has no objective basis to set different prices for the same product, which basis can be documented in the relevant “pricing” or “discount” policies, “discount matrix,” “price formula” and other similar documents and contractual provisions transparently stipulating the price differences for different retail chains.
At the same time, according to the FAS representatives, the regulator assumes that, generally, retail chains have greater market power as compared to most of their suppliers, acknowledging, therefore, that practical implementation of a “nondiscriminatory pricing policy” by a supplier may be difficult for these reasons. Nevertheless, such an understanding does not eliminate the suppliers’ risks of being accused of discriminating against the chains if they are unable to arrive at a mutual understanding with any of the contracting parties as to the implementation of the suppliers’ “nondiscriminatory pricing policy.”
According to the Clarifications, the supplier is allowed to reduce the price of the product for a certain period of time (using so-called “promotional” or “sale” discounts) provided the purchaser sells the product to retail consumers at a price that is reduced at not less than that rate, i.e., “translating the discount to the shelf.” In FAS’ opinion, such a practice is allowable on the basis of the legislatively provided possibility of setting a maximum resale price in a “vertical” agreement.
From FAS’ perspective, providing a discount on a product after ownership of the product has passed to the purchaser (i.e., after delivery) is not allowed unless the parties agreed on such discount (the procedure for calculating it and the terms for providing it) when they entered into the supply contract.
Although the respective section of the Clarifications is titled “Correlation of the terms ‘group of entities’ and ‘foreign trade activity’ for the purposes of applying the Retail Law,” FAS does not give a straight answer to whether the restrictions contemplated by the Retail Law will cover foreign trade in goods/services by foreign companies in the same group as the entity engaging in retail activity (for example, if those services are provided to a Russian supplier by a foreign company in the retail chain’s group). Based on the general meaning of that section, the provisions of the Retail Law should not apply to such situations; however, as mentioned above, there is no definitive confirmation of this understanding in the Clarifications.
It should be borne in mind that the Clarifications are for information and recommendation purposes and are not binding, which in principle allows for the possibility of a different, narrower or broader interpretation of the provisions of the Retail Law by some FAS employees (in particular, in the territorial divisions) in their practice of applying the law.
1. Federal Law No. 381-FZ of 28 December 2009 on the Fundamentals of State Regulation of Trade in the Russian Federation in the version of Federal Law No. 273-FZ of 3 July 2016 on Amendments to the Federal Law on the Fundamentals of State Regulation of Trade in the Russian Federation and the Russian Federation Administrative Offenses Code.
2. FAS Russia’s clarifications on certain issues of applying Federal Law No. 381-FZ of 28 December 2009 on the Fundamentals of State Regulation of Trade in the Russian Federation in the version of Federal Law No. 273-FZ of 3 July 2016, published on 18 November 2016 here.
3. FAS Russia’s clarifications on certain issues of applying Federal Law No. 381-FZ of 28 December 2009 on the Fundamentals of State Regulation of Trade in the Russian Federation in the version of Federal Law No. 273-FZ of 3 July 2016 dated 5 September 2016, No. AK/60976/16, click here.