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Comments made by the lawyer Azamat Hagov to an article titled “Companies shall be forced to respect consumers”. Fontanka.ru

10 August 2011

Hundreds of St.-Petersburg companies, including banks, mobile operators, sales networks and other market players are under the new impending threat: the law that became effective allows the Rospotrebnadzor to file claims aimed at winging-up for only two consumer rights infringements committed by a company within a year. On the one hand, such norm can compel sellers and contractors to respect their clients, on the one hand, it may result in corruption.

Every month the courts satisfy up to 200 claims against St.-Petersburg companies which flout the Consumer Protection Act of the Russian Federation (effective from 1992), and supervision agency carries tens of resolutions on imposing administrative sanctions. However, such measures frequently prove inefficient, since the miserly fine does not stimulate companies to observe the law and to respect interests of clients. Moreover, budget expenses related to legal investigation sometimes exceed the fine imposed.

Statutory wording which existed for many years stipulated that the supervisor (the Rospotrebnadzor, and in the past, the antimonopoly service) is entitled to file claims aimed to winging up the manufacturer (contractor, vendor, authorized organization, importer) which committed repeated or flagrant violation of rights of consumers. A similar norm was included in the Civil code of the Russian Federation as well. However, since legislation contained no clear definition of assessment criteria applied to violations committed by companies, it resulted in controversial practice in court system, and arbitration courts most commonly refused to dissolve entities, because they considered even repeated infringements as not quite important.

Without the right to repeat a mistake

An amendment which became effective on August 1, 2011, makes a substantial difference. Since then “Repeated infringements” shall mean any two infringements, committed two and more times within one calendar year. (The courts) shall be entitled to dissolve an entity even for one gross offense, which resulted in death, mass diseases or poisoning of humans.

Gennady Onishchenko, the Head of Rospotrebnadzor expressed a positive view of amendments. As stated in special explanatory statement signed by the head of supervisory agency, “It is evident, that such rectification of the norm and elimination of legal uncertainty regarding this matter should promote a more active application of respective power by the Rospotrebnadzor.”

According to Maria Kozlova, the lawyer of business practice of Rightmark group, “Even two formal infringements of consumer rights (not resulting in substantial harm, etc.) recorded within a calendar year can be used as the trigger for winding –up. These infringements shall be substantiated by effective resolutions on administrative offense, or by judgments concerning dispute between a specific consumer and an entity.”

In such case hundreds of companies which have committed formal offenses may be scuttled: any inadequate information contained in papers accompanyingproducts or untimely repair of products, absence of Russian-language user manuals for the imported goods, etc. shall be considered as infringement of consumer rights. For example, an airline carrier may be punished for not providing a passenger with a possibility to make a phone call in the event a flight is delayed, and a bank may be punished for lack of detailed breakdown of (plastic) card transaction (for instance, transaction in a foreign currency, etc.)

The extreme penalty

Still, there is another position: Azamat Hagov from legal consultation office “Vertikal” emphasizes the court practice of handling claims filed by tax authorities aimed at winging-up entities. “The Supreme Arbitration Court of Russia has instructed courts on necessity to study the nature and duration of violations, and the subsequent activity of an entity. No entity can be liquidated, if the committed violations are petty offences or their harmful effects were remedied. In 2003, the Constitutional Court of Russia has stated that any judgment on dissolution of an entity (as a necessary measure to defend the rights and legitimate interests of other persons) can only be delivered in presence of significant repeated violations of the law, and taking into account their nature and consequences,” explained the lawyer Azamat Hagov.

Alexandra Zhumatiya, the legal adviser at the Estates Committee of the Society for Consumer Rights of St.-Petersburg and the Leningrad Region is of the same mind: “The fact that Rospotrebnadzor gained the right to file claims with court does not necessarily imply that tomorrow hundreds of entities (formally non-observing consumer rights) shall be liquidated. Liquidation is an extreme penalty, and it shall only be applied in extraordinary circumstances, in case of serious violations, and not formal ones, and if other measures proved inefficient. But it is worthwhile noting that one hard rule observed by all the civilized nations shall remain: an entity can only be dissolved by court.”

Dmitry Sokolov, the Director General of Maksidom LLC, does not believe in applicability of this norm, too. In his opinion, “Repeated nature of violations per se cannot give occasion to liquidation of an entity in a judicial proceeding. To satisfy the claim filed by Rospotrebnadzor, the court requires a certain complex of factors. We use to routinely prevent such issues: complaints are reviewed, deficiencies are corrected, and court judgments in favor of customers are executed. Therefore, we do not perceive these changes in legislation as a treat.”

However, we have yet to learn, how courts will apply the new law. Rospotrebnadzor has no clear methods, too. Oleg Prusakov, head of the Department for Consumer Rights Protection at the Rospotrebnadzor explained to the reporter of “Fontanka” that the matter necessitates no additional criteria and interpretation, and the issue of claims shall be resolved considered all things and public significance of violations detected.

In the risk area

As a whole, experts give positive evaluation of changes. “They shall have a good impact on current consumer security climate, because they are mainly aimed at motivating manufacturers to better observe the consumers’ rights,” believes Azamat Hagov.

Most of the interviewed market players state that innovation will not affect them. For instance, MTS declared that conditions of contracts with subscribers and the procedure of services are in full compliance with the current legislation. At the same time, in reality only over this year courts have repeatedly confirmed violations, which infringe the interests of subscribers. The same applies to activity of “ВТБ 24”: one of the recent judgments involving the rights of hundreds of clients was delivered on July, 7. The numerous judgments confirmative of violations were delivered concerning other major financial institutions (including Sberbank, Raiffeisen Bank, Russkiy Standard, etc.), mobile operators, developers (companies of RBI group) and other market players (including the St.-Petersburg Humanitarian University of Trade Unions, etc.).

Gross violations, which, subject to the new law, may serve as a basis for dissolution, were committed, for instance, at the Waterville indoor water park (in March, 2008, about two hundred guests got intoxicated with chlorine) and at Оkey hypermarket (in January, 2011, one person died and 17 persons were injured, as a result of roof collapse). And Mozhaisky Military Engineering Air Space Academy, St.-Petersburg, where 300 cadets caught typhoid fever in 2006, could not face harsh sanctions: victims did not pay for their education, and consequently, they are not consumers subject to the law.

Anyway, lawyers remind that the law establishing or aggravating administrative responsibility or otherwise worsening the situation of citizens or entities, has no retroactive force. “Therefore, Rospotrebnadzor shall only be entitled to file claims aimed at winging-up an entity, should any repeated or gross offences be committed following August, 1,” concluded Maria Kozlova.

Onishchenko’s baton

Some market players are concerned about the situation. As the director of a small retail store confessed to the reporter of “Fontanka”, “Of course, due to new amendment, sellers and contractors shall be compelled to better comply with statutory requirements and to serve interests of clients. As a customer, I am just positive about. At the same time, the decision shall de facto depend not only on court, but on officials at Rospotrebnadzor. They can, for unknown reasons, demand liquidation of a small business which committed two formal offenses, and turn a blind eye to repeated gross offences committed by the big market players. That is, the new good law stimulates corruption, without providing adequate mechanics to defend consumers and sellers. After all, state officials, unlike court, are not obliged even to find reasons for their inactivity.”

Such concern is confirmed by practice. For instance, in the beginning of this year the heads of Rospotrebnadzor launched an attack on Transaero, an airline carrier. The attack was triggered by December collapse at the Domodedovo airport, when hundreds of flights were cancelled due to abundant snowfall. According to Sergey Bykhala, director of corporate communications at “Transaero”, no flight was delayed due to the fault of the carrier, however, the carrier voluntary paid millions rubles to passengers, as a compensation. The majority of other airline carriers got off with nothing more than a fright, while Rospotrebnadzor issued tens of resolutions against Transaero, aimed at imposing administrative sanctions. The court declared them to be illegal.

Recall that in the beginning of this year Rospotrebnadzor started to use another “baton” against infringers, i. e. to institute proceedings aimed at disqualification of director of the entity for non-compliance with instructions issued by the supervisor. The “warning shot» has already cracked, and it was directed at chairman of the board of Alpha bank, one of major credit institution in Russia.

Pavel Netupsky

Fontanka.ru 


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