Statements made by Roman Parkhomenko to the article ‘Death notice from Saint Petersburg forwarded Russian state institutions for tender.’ Fontanka.ru, 8 November 2018
Statements made by Roman Parkhomenko to the article ‘Death notice from Saint Petersburg forwarded Russian state institutions for tender.’ Fontanka.ru, 8 November 2018
The Supreme Court restrained state institutions of the country from extending rental contracts without tendering procedures.
A longstanding conflict between the Saint Petersburg private funeral agency and the administration of a hospital in the city of Kolpino has led to an unexpected result. The Supreme Court took the side of the businessmen and revoked regulatory acts of lower courts and the Federal Antimonopoly Service. Experts believe that from now, state institutions will not be successful in an action and will not win court cases of the kind, municipal and regional budgets will be restocked and the level of corruption will become a little lower.
The power of retroaction
Unoriginal beginning of the story is that in 2014 the Saint Petersburg private funeral agency Memorial Service LLC tried to take an advantage of the odd structure of funeral business in the city and rent a premise in the mortuary of Municipal Hospital No. 33 (which is situated in Kolpinsky district). Saint Petersburg funeral agencies manage to organize representative offices in mortuaries of all hospitals. Moreover, these offices are situated in places most visited by the decedents’ family members. Consequently, the businessmen offer services associated with preparation of the deceased for burial or cremation. On a citywide scale this business segment is evaluated in amount of RUB 2 000 000 000 per year, and this is the sum the decedents’ relatives, in general, currently pay out for funeral business.
The place in Municipal Hospital No. 33 the Memorial Service LLC claimed for was predictably occupied by another funeral agency – State Unitary Enterprise Funeral Services of Kolpinsky District (nowadays Opened Joint-Stock Company under the same name). When the rental period provided for by the contract concluded between the Hospital and Funeral Services of Kolpinsky District came to an end, the businessmen’s claim was rejected again by reason of the priority right to extend the rental contract, enjoyed by the renter of the day. Alexander Lasher, the lawyer acting for, in the name and on behalf of the Memorial Service LLC applied to the Office of the Federal Antimonopoly Service in Saint Petersburg and the Arbitration Court of Saint Petersburg and the Leningrad Region, and both applications obtained waiver.
The lawyer reported about violation of the Federal Law On protection of Competition requiring state institutions to rent premises out on a competitive basis. FAS and the Arbitration Court replied that the Law was adopted in 2006, Article 17.1 Antimonopoly Requirements to Tenders came into force in 2008 and the first rental contract between the Hospital and Funeral Services of Kolpinsky District had been concluded in 2000, hence, this requirement is not applicable to the mentioned rental contract in line with the principle of non-retroactivity of law. The same were findings of higher courts, but Alexander Lasher persisted to bring the case up to the Supreme Court. The highest judicial authority of Russia revoked regulatory acts of lower courts and the decision of FAS, and resolved that state institutions shall be under the obligation to extend rental contracts for the premises under the terms and conditions of competition.
Absence of competitive tendering is a competitive gain
Preparing findings the Chamber for Commercial Disputes of the Supreme Court directed its attention to one fact omitted by all the previous legal authorities. It is obvious that the law is not retroactive and the first rental contract between the Hospital and Funeral Services of Kolpinsky District had been concluded before the Federal Law On protection of Competition was adopted, but after that the contract was extended several times, and this fact is not of particular importance as a matter of law.
It is allowed to extended rental contracts for premises in public institutions without tendering procedures only in one case, when these rental contracts originally resulted from tendering procedure. When the rental contract had been concluded many years ago, it cannot be eternally extended for the same renter, since it is inconsistent with the principle of free market.
‘The courts established, and it was confirmed by the case files, that the rental contract of 11.04.2000 had been concluded ... without public procedures before Article 17.1 of the Federal Law On protection of Competition came into force. After expiration of the rental contract, the parties have concluded additional agreements on extension of the contract, and the rental period was finally extended until 31.01.2015. When the rental period came to an end, the non-residential premise was not returned to the institution and the contract was extended for an indefinite period.
Thus, in this case, extension of the rental contract ... for a new period was allowed only as the result of tender due to the fact that the legislative body had specified conditions of renewal for such rental contracts limited by the obligatory conduct of public procedures ... as a result of violation of the Federal Law On protection of Competition the institution granted a competitive gain to the organization allowing the use of municipal property upon the expiry of the rental contract…,’ as it was written in the declaration of intent to the Judgment of the Supreme Court.
Revenues for the budget and confidence to the authority
Roman Parkhomenko, advocate of the Pen & Paper Attorneys-at-Law, states that nowadays disputes of the kind emerge quite rarely, though several years ago there were plenty of controversies and contradictions associated with the extension of rental contracts for the state real estate property for an indefinite period.
‘These disputes have been taking place after 2008 because on 1 Juny 2008 the legislative body restrained conclusion of rental contracts for the state property without tendering procedures At first, in case when the rental contract had been concluded before the 1 Juny 2008 renewal of the contract without tender was allowed only for small and medium-sized enterprises, but this provision of the Federal Law On protection of Competition ceased to be in force on the 1 Juny 2008,’ says the expert.
According to Roman Parkhomenko, findings of the Supreme Court may affect interests of the state or municipal property renters, disposing this property in accordance with additional agreements to the rental contracts concluded before the 1 July 2008, including those cases of renewal of such contracts for an indefinite period. According to the expert, it is impossible to estimate the total number of these rental contracts in Russia, but for certain, there still exist thousands of the kind effective. And nowadays these legal cases shall be resolved declaring invalidity of renewal of the state property rental contracts concluded before the 1 July 2008 without tendering procedures.
According to Catherine Teider, the Head of Becar Asset Management development business line, this decision of the Supreme Court will substantially affect the tenants who have been renting the state premises for a long time. From now their position can not be considered set in stone.
‘Nevertheless, any situation always has two sides. For someone, this decision will open up new opportunities: for example, the change will have a positive impact on the replenishment of local budgets, as the number of rental contracts concluded on terms inconsistent with the principle of market will be significantly reduced,’ states Ekaterina Teider.
Moreover, in her opinion, these regulatory acts further motivate companies to resolve disputes by a court order, pass through all the authorities and proceed all the way to completion. Revocation of decisions of all the previous authorities by the Supreme Court can constitute a stable support for the companies confident in correctness of their business and striving for market transparency. It will also enhance confidence of business to the judicial authorities.
Nomen illis Legio…
The scale of the phenomenon – issue of extension of the previously concluded rental contracts for the premises in state institutions is considered to be the most controversial. There is no statistics collected in the Saint Petersburg Property Matters Commission ‘We have thousands of contracts, and we are not able to select those concluded before 2008,’ that was the statement reported to the journalist of Fontanka.
‘Hero of the day’ lawyer Alexander Lacher believes that 95 % of premises rented in state institutions of Saint Petersburg have been rented for a long time and under the same terms as those he challenged in the Supreme Court.
Officer of Economic Crimes Department of Russian MIA GA for Saint Petersburg on condition of anonymity reported of the repeated complaints of businessmen who can not rent premises in these institutions because of the constantly extended contracts ‘with the insiders’.
‘We send complainants to courts, because in these cases it is impossible for us to prove the fact of corruption using our own resources. But I am sure that in every second state institution there are a couple of favorite renters, and on a national scale there are dozens of thousands of such contracts,’ – he said.
Head of Transparency International centre in the Saint Petersburg Dmitry Sukharev emphasized the importance of anti-corruption content of the decision made by the Supreme Court,
‘In this case, the Supreme Court touched upon the segment of a real estate market that is extremely interesting from the point of view of corruption. Premises suitable for placement of commercial facilities which profile correspond to activity of the state institutions, where these premises are located. There always exist the lack of such premises, these areas always become the subject of conflict between businessmen, and unfair directors of the relevant state institutions always make a profit out of such premises. I do not think that this Judgment of the Supreme Court will affect corruption in Russia in general, but at the level of chief executives of numerous hospitals and polyclinics, where it is possible to sell medical drugs; educational institutions, where it is possible to organize public catering, and other state institutions of the kind, the situation should change for the better,’ said Dmitry Sukharev.
Lev Godovannik, Fontanka.ru