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In the context of globalisation of market processes, the role of competition authorities is getting increasingly important, and Ukraine is no exception. The exclusive competence of national competition authorities to determine monopolies is commonly accepted around the world.

In addition to main legislation on protection of economic competition, Ukrainian competition authority is also guided by a specific act – the Methodology of Monopoly (Dominant) Position Determination (“the Methodology”). Importantly, Ukrainian legislation allows national economic courts to review the Antimonopoly committee of Ukraine (“AMCU’s”) conclusions. Moreover, Ukrainian national courts have competence to review the AMCU’s decisions in terms of proper and accurate implementation, besides other legislative acts, of this Methodology. However, they do not possess the power to establish commodity or geographical market and subsequently dominance of undertaking, instead of the AMCU.

Full and accurate implementation of requirements of the Methodology is a cornerstone of an objective investigation. In practice, this simple recipe faces a number of complex problems not only in determining market boundaries or market power, but also in the implementation of seemingly far simpler elements of analysis that directly affect the accuracy of the dominance determination by “butterfly effect”.
In this article we would like to enlighten a 2018 judicial review of the Decision of the AMCU referred to determination of PJSC Odessa Port Plant dominant position on the market of ammonia transshipment. Within this case we shall refer to definition of a proper consumer, geographical market, and market power identification. The interests of PJSC Odessa Port Plant were represented on all stages by lawyers of Sergii Koziakov & Partners law firm.

Determination of the actual consumer through the prism of an intermediary

Under the Methodology, for determination of dominant position of an undertaking, the AMCU first of all investigates the relevant market where such undertaking operates. Therefore, the AMCU needs to establish, firstly, actual sellers of the product or service and, secondly, the actual consumers of such goods or services. This combination of stable relationships between the consumer and the seller of goods or services makes it possible to investigate the possibility of the monopoly of the latter. But it is not always possible to establish proper seller-consumer relations by only taking direct relationships of undertakings.

In the practice of the AMCU, cases involving an intermediary in obtaining goods or services are rare. In addition, relationships in the triangle “seller-intermediary-consumer” are not always clearly defined. In such situations, it is especially important to pay attention to the nature of relationships between all parties with a view to a full and objective investigation of the circumstances of the case and clarification of the actual rights and obligations of each undertaking involved.

In the case of Odessa Port Plant dominance, between 2014-16 the AMCU investigated the legal relations between (i) Odessa Port Plant acting as the seller of services and (ii) national transporter of chemical raw materials – operator of the Ukrainian ammonia pipeline (“Transporter”). Services implied transshipment of ammonia by Odessa Port Plant to maritime vessels for further exportation. Meanwhile, these chemical raw materials belonged to (iii) a Foreign company throughout the entire period of transit through Ukraine.

Investigating the case, the AMCU came to the conclusion that the Transporter is the actual consumer of the services provided by Odessa Port Plant but not intended for it. Interestingly, during the investigation of the case Odessa Port Plant received the ammonia belonging to foreign companies for transshipment through the Transporter. Nevertheless, Odessa Port Plant in this case was recognised by the AMCU as dominant undertaking in providing respective services of ammonia transshipment within the Ukrainian market. Subsequently, at the beginning of 2017 the respective decision of the AMCU was challenged in national courts, and hearings continued until mid-2018.

In the given case the AMCU analysed direct contractual relations when defining both actual seller and consumer. Such an approach, as demonstrated below, has its pitfalls and hidden risks with respect to objective investigation made by the competition authority.

Firstly, in our case, although the intermediary actions of the Transporter in receiving services of ammonia transshipment for a Foreign company was not clearly defined, it derived however from the legal relations between the Transporter and the Foreign company.

Secondly, although the Transporter paid Odessa Port Plant for transshipment of foreign ammonia, it then re-invoiced the initially paid amounts to the Foreign company, being the actual owner of the ammonia. In addition, control over the process of ammonia transshipment in Ukraine was carried out by all three parties, and the Foreign company was the end-consumer of transshipment services rendered.

In fact, the Committee faced the problem of determining the actual consumer through the prism of intermediary actions of the Transporter on the territory of Ukraine in obtaining services for ammonia transshipment in favour of foreign counterparty.

However, the Methodology, applied by the AMCU in its investigations, provides that the concept of a “consumer” includes undertaking (a) purchases and (b) use of the service. And it was the foreign company-owner of the goods that satisfied both criteria of the actual consumer, while the Transporter’s obligations were limited to re-invoicing accounts. However, the Committee recognised the Transporter (being a mere intermediary) as the consumer.

Worth noting that the guidelines for the AMCU not only ensure ascertainment of the actual rights and obligations of the parties to each case and determination of actual consumers taking into account indirect relationships between them. It also allows the AMCU to review its preliminary conclusions. Hence the questions arise: Whether the circumstances of the case were investigated in full? Whether conclusions on the merits of the case as to definition of consumers were correct and what consequences were caused by such conclusions?

After all, by disregarding such a simple question of determining the consumer by all criteria (“buy and consume”) distorts a number of further structural features and conclusions in definition of undertaking’s dominance.

Judicial review of issues of actual consumer

Investigating the case, the AMCU came to the conclusion that the Transporter is the actual consumer of the services provided by Odessa Port Plant. However, in the process of challenging respective decision of the AMCU, national courts demonstrated a thorough but different approach. Considering relations between undertakings, the Court of first instance took a conservative and narrow approach in identifying consumers in the market and supported the position of the AMCU by using direct contractual relationships. Thus, the Court of first instance, following the confirmation of the existence of contracts between Odessa Port Plant and the Transporter, upheld the AMCU’s conclusions regarding the Transporter as proper consumer.

In its turn the Court of Appeal, when analysing the controversial relationship, used a more progressive approach. It ascertained that Odessa Port Plant, although not having contractual relations with the foreign company, actually provided it with services of ammonia transshipment through complex chain of relations. Such relations were built on two agreements between three companies. The transporter had a foreign economic contract with the foreign company for transit of its ammonia through Ukraine, including services for ammonia transshipment at facilities of Odessa Port Plant. Secondly, Odessa Port Plant had a contract with the Transporter on transshipment of ammonia to maritime vessels. Moreover, the subject of contracts between Ukrainian undertakings analysed by the AMCU and courts was transshipment of foreign ammonia without the right of ownership to it from the side of Ukrainian undertakings. So the court found out, that the foreign ammonia throughout the entire period of transit through Ukraine was in ownership of foreign company.

If one seeks to find an explanation to such international business relations, the General Agreement on Trade in Services 1994 (GATS) results to be very helpful. Provision of product related services when such a product belongs to foreign owner, may fall under the definition of trade in services (Mode 2) in the meaning of Article I of the GATS. The GATS is an international treaty governing international trade in services between WTO members. Article I.2.b of the GATS also applies to the situation where the ammonia of the Foreign company (the Consumer of State A) is subject to the transshipment services rendered by Odessa Port Plant in the territory of Ukraine.

Proper geographical market

The Court of first instance by confirming that the Transporter is the proper consumer of Odessa Port Plant’s services upheld the AMCU’s conclusion that the services were rendered on the Ukrainian market. Therefore, the court also upheld the AMCU’s findings regarding dominant position of Odessa Port Plant on the Ukrainian market of ammonia transshipment.

In its turn, the Court of Appeal ascertained that since the Service Provider (an alleged monopolist according to AMCU and the court of first instance) was providing services related to goods owned by a foreign company all the time, the AMCU turned out to have been investigating existence of the Ukrainian enterprise’s monopoly in respect to the foreign enterprise rather than the Ukrainian intermediary. In such conditions, the service market formed as a result of such relations, involving intermediary, covered at least the territory of another country and was not limited to Ukrainian market only.

In conclusion, the Court of Appeal ascertained that relations between the players on such market extended beyond the territory of Ukraine. Therefore, the Court of Appeal found that the AMCU failed to determine Odessa Port Plant’ dominance on the appropriate market.

So who has the market power?

Another vital issue in this case is the market power. According to AMCU, since the Transporter was the only party to provide Odessa Port Plant with ammonia through the special ammonia pipeline, hence Odessa Port Plant had 100% market share and, therefore, the AMCU was not obliged to scrutinise the market power. So AMCU did not make any respective analysis in the decision, but for one reservation that potentially the Transporter as consumer had market power over Odessa Port Plant. The Court of first instance agreed with the competition authority.

The Court of Appeal, on the contrary, noted that the presence of market power features is a prerequisite for determining dominance of an undertaking. Since neither the AMCU nor the Court of first instance examined the issue, nor any conclusion or analysis of market power of Odessa Port Plant were given in the respective decisions, the Court of Appeal pointed at lack of investigation from the side of AMCU and the Court of first instance.

Therefore, the Court of Appeal supported the approach of modern competition case law saying that for the market power to exist, structural indicators are not the final evidence, while the behavioural factors of market power are sufficient for the competition authority to determine real dominance of an undertaking.
Eventually, in this quite interesting case the Supreme Court upheld the position of the Court of Appeal that AMCU failed to prove the dominance of Odessa Port Plant on the market of ammonia transshipment in 2014-2016.