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The Right for Legal Action on the Compulsion to Conclude Agreement on Gas Transportation

Konstantin Vladimirovich Korepanov, holder of master’s degree of law (RSPL), post-graduate student of the department of energy law of Moscow state law university named after O.E. Kutafi n (MSLA)

In this article the author examines the legal nature of the contract for transportation of gas through pipelines, the problem issues at the stage of conclusion of the contract for the transportation of gas, conducts the legal analysis of court practice.

The presidium of the Supreme Arbitration Court of the Russian Federation in its Resolution No. 11857/04 of 5 April 2005[1] refused to recognize the agreement on the transportation of gas through the pipelines a public contract, i.e. a contract concluded by a commercial organization and setting its obligations on delivering services, which such an organization should conduct to every applicant based on the character of its activity. One of the arguments of the legal body was the claim that Art. 426 of the Civil Code of the Russian Federation provides for that a public contract is concluded between a commercial organization and a consumer; while according to Art. 2 of Federal Law No. 69-ФЗ “On the Gas Supply in the Russian Federation” of 31 March 1999[2], the consumer of gas (subscriber, sub-subscriber of the gas supplying organization) is defined as the legal or physical person, which purchases gas from the supplier and uses it as fuel and raw material, while the plaintiff in the case was the supplier, not the consumer of gas.

We cannot agree with this argumentation of the legal body. The concept of “gas consumer” is applicable to the concept “consumer” within the contract of the gas supply, while in the case of the transportation of gas, its consumer would be the consumer of the services of its transportation.

In its turn, the provision of services on the transportation of gas is regulated by the Law No. 147-ФЗ “On the Natural Monopolies” of 17 August 1995[3] (par. 3, p. 1, Art. 4 of the current law). According to Art. 3 of the current law, the consumer is defined as the physical and legal person purchasing goods produced (sold) by the subject of the natural monopoly. The goods are defined as the product of the activity (including the works and services) aimed for the sales, exchange and other ways of turnover. However, p. 1 of Art. 8 of the law sets the rule, according to which the subjects of the natural monopolies are not allowed to refuse to conclude the contract with any consumers, when it comes to the production (sales) of the regulated goods, when the subject possesses the natural monopoly on the production (sales) of the goods.

In other words, the Law on the Natural Monopolies provides for that the consumer (in the meaning of the Law on the Natural Monopolies) cannot be refused in concluding the contract on the provision of services on the transportation of gas through the gas pipelines in case there is physical capacity to provide them. However, the Supreme Arbitration Court of the Russian Federation noted that the physical or legal persons, which are not the consumers of gas in the sense of the Law on the Gas Supply of the Russian Federation, can be refused in the provision of the services on the transportation of gas through the gas pipelines. The two above-mentioned clauses come into contradiction.

Then the court in the case in question noted that the obligation of the defendant (the gas distribution organization), i.e. to conclude the contract on the transportation of gas, is determined not only by the character of the activity of this organization, but also by the observation by the person demanding the conclusion of the contract of the clauses of special normative acts, which foresee, among other, that the person possesses the contracts on the supply of gas. The court has also pointed to the fact that in accordance with Art. 27 of the Federal Law on the Supply of Gas in the Russian Federation, the access of the organizations to the gas transportation and gas distribution networks is conducted in the order established by the Government of the Russian Federation. The conditions and the order of the access of the organizations to the local gas distribution networks in the territory of the Russian Federation is determined by the Regulation on securing of access of organizations to the local gas distribution networks approved by the Resolution of the Government of the Russian Federation No. 1370 of 24 November 1998[4]. According to Chapter III of the current Regulation, access to the networks is granted provided several conditions are met, and as according to the materials of the case, the procedure and the conditions of granting access to the gas distribution networks were not met by the claimant, the court of the lower instance was not authorized to force the defendant to conclude the contract on gas transportation.

The given argument does not render the court act in question better motivated as the mention that the contract is not public is not in itself enough to dismiss a suit on the forcing to conclude a contract. A reference to the non-compliance of the plaintiff with the procedure and the conditions of extending him the access lead to the dismissal of the suit only under one condition, namely if the contract is public, but the plaintiff has broken the established order of concluding the contract. However, if the court comes to the opposite conclusion, namely that the contract is not public, then it will not be possible to force the defendant to conclude the contract even if the plaintiff complies with all the procedures and conditions of access, because the legal persons are free to conclude treaties, apart from the cases of the mandatory conclusion of the treaties.

If we proceed from the positive resolution of the issue of the public character of the treaty on the transportation of gas suggested in the current article (as a treaty on the transportation of gas through the local gas distribution networks and the transportation through the gas transport system, because the Law on the Natural Monopolies extends to the services on the transportation of gas through the pipelines, i.e. both gas mains and others), the non-compliance with the procedure and conditions of access can be assessed in two different ways.

Based on the first one, because the refusal of a commercial organization to conclude a public contract provided the physical ability to provide the required services to the consumer (par. 1, p. 3, Art. 426 of the Civil Code of the Russian Federation) is not allowed, the non-compliance of the plaintiff with the procedure and the conditions of the provision of access can only speak of the absence of the possibility to deliver the respective services to the consumer, in particularly because of the fact that the plaintiff may not possess the feed pipes corresponding to the adopted standards or because of the fact that the quality of the transferred gas may not meet the adopted norms required for the design parameters of the functioning of the gas pipeline, or the gas transport organization may not have the required capacities.

In accordance with the second method, as p. 4 Art. 426 of the Civil Code of the Russian Federation provides for the right of the Government to issue the rules obligatory for the sides when concluding and implementing public contracts, the non-compliance by the plaintiff with the procedure and the conditions of the provision of access laid down by the Government of the Russian Federation, can be qualified as the breach of the established rules, which are obligatory for the sides when concluding and implementing public contracts.

Certain ambiguity arises. Thus, using the first method of qualifying (well-founded refusal to conclude a public contract), the issue of validity of the refusal must be resolved as part of the application of the side, who received the refusal, to the court with the demand to force the other side to conclude the contract based on the direct indication in par. 2, p. 3, Art. 426 of the Civil Code of the Russian Federation to par. 1, p. 4 Art. 445 of the Civil Code of the Russian Federation. Under the second method of qualifying, a question arises on the legal consequences of non-compliance with the rules obligatory for the sides when concluding public contracts, by one of the sides. For the case of non-compliance with the rules obligatory for the sides when implementing public contracts, a special rule is set in p. 5 Art. 426 of the Civil Code of the Russian Federation, claiming that the conditions of the public contract, which are not in compliance with p. 4 Art. 426 of the Civil Code of the Russian Federation are null and void. Such direct indication in the law on the means of protecting the right as with the first method of qualifying is absent.

Accordingly, how should the side, which believes that it has fulfilled the required set rules for concluding the contract, act when the other side refused it in concluding the contract on non-compliance with the set rules of concluding a public contract? The absence of a direct indication in the law on the means of protecting the rights does not mean that in order to protect the rights in the current situation some means of protection other than the suit on forcing to conclude the contract should be chosen: the rule in par. 1 p. 4 Art. 445 of the Civil Code of the Russian Federation on the right of a side to go to law with the demand to force to conclude the contract is the common means of protecting the right with respect to the public contract.

When commencing legal action, the plaintiff should possess the right to sue in the procedural and material sense. The right of commencing legal action in the procedural sense is defined as the right to the commencement of legal action, the right to initiate and support the legal deliberation of a certain civic-legal dispute with the aim of its resolution[5]. In other words, the right to sue in the procedural sense is the availability of the procedural prerequisites for going to court. The right to commence legal action in the material sense is the possession of the plaintiff of the subjective civic right in the state, in which it is capable of forcing the obliged person[6], i.e. within the period of limitation. When there is no procedural right to sue, the court terminates the action, while when there is no material right to sue, it dismissed the suit.

The issue on the right to action in the procedural sense on the cases of forcing to conclude the contract caused difficulties in the practice related to the suits on concluding the contract of transporting gas though the gas transporting system of OAO Gazprom, because p. 14 of Direction on securing the access of independent organizations to the gas transport system of OAO Gazprom (approved by the Resolution of the Government of the Russian Federation No. 858 of 14 July 1997[7]) stipulates that in case of non-agreement of the independent organization with the decision passed by OAO Gazprom on the partial satisfaction or on the well-founded refusal to conclude the contract on the transportation of gas, the independent organization presents its application to the transportation of gas, the decision of OAO Gazprom on the application and other required materials to the Commission of the Government of the Russian Federation. Within one month, the commission with the participation of the representatives of the independent organization and OAO Gazprom examines the presented materials and passes its decision. Noteworthy is the absence of the verb “can” or the conditional mood, as opposed to the word choice in p. 18 of the Direction, which states that the disputes on the conclusion of the contracts can be reviewed in the pretrial order by the Governmental Commission.

Consequently, a question arises whether the court should pass a positive decision on the issue of rejecting a suit without deliberation based on par. 2 p. 1 Art. 148 of the Civil Code of the Russian Federation – the non-compliance with the claimant or other pretrial order of settling the dispute with the defendant if this is foreseen by the federal law in the case when the plaintiff has started legal action with the demand to conclude contract on transporting gas without the reference to the Governmental Commission. We deem that because par. 2 p. 1 Art. 148 of the Civil Code of the Russian Federation states that the order of the claimant or other pretrial order of settling the dispute must be foreseen in the federal law, and the given order is foreseen by the Resolution of the Government of the Russian Federation, there are no grounds for a positive decision on the issue of rejecting a suit without deliberation.

In practice this issue reached the Presidium of the Supreme Administration Court of the Russian Federation. Thus, the Presidium in its Resolution No. 11930/04 of 12 April 2005 on the case No. А76-23067/03-22-571/153[8] stated that the list of grounds for rejecting a suit without deliberation, which is contained in Art. 148 of the Civil Code of the Russian Federation, the given list is exhausting and cannot be broadly interpreted by the arbitration court. The court should reject a suit without deliberation after taking over the case only if the court establishes that the claimant or other pretrial order of settling of the dispute with the defendant was not complied with, or if that order is foreseen exclusively by the federal law or agreement.

Complications arise in the legal practice also with respect to the material right to sue. In some cases, these are caused by the improper means of protecting their right, in other cases with the non-possession by plaintiff of the subjective civic right.

Thus, the Resolution of the Federal Administrative Court of the Moscow district of 10 May 2007 on the case No. КГ-А40/1132-07[9], the court has examined a case when an independent organization turned to the arbitration court with a suit against OAO Gazprom on adjudicating as illegal the refusal of the defendant to the access of the plaintiff to the defendants gas transportation system (GTS), on forcing the defendant to issue to the plaintiff a permit to access the GTS, on establishing the person obliged to issue the plaintiff the permit to the access to the GTS of the defendant and on defining the term of issuing the permit on the access to the GTS of OAO Gazprom. In rejecting the suit, the court pointed to the fact that Art. 12 of the Civil Code of the Russian Federation does not foresee such a method of protection of civic rights as laying down the demand to recognize the actions of a commercial organization illegal. The court also stated that in accordance with Art. 11 of the Civil Code of the Russian Federation, the protection of the civic rights of the plaintiff on this case must be pursued in the administrative order in accordance with the then acting clauses of the Law of the Russian Federation “On the Competition and the Limiting of the Monopolistic Competition at the Commodity Markets” and only after the adoption of a non-normative act of the anti-monopoly body based on the claim of the plaintiff about the non-provision of access to the GTS of OAO Gazprom, the plaintiff has the right to go to court and appeal against this act in the arbitration court.

In the Resolution of the Federal Administrative Court of the North-Caucasus district No. Ф08-4619/2001 of 20 February 2002[10], the court has stated that in order to receive access to the gas transport system of OAO Gazprom, provided the latter refuses to provide such access, the Regulation on Securing the Non-discriminatory access provides for the obligation of an independent organization to appeal to the respective Commission of the Government of the Russian Federation, which, considering all the documents presented by the organization, audits the validity of the refusal by OAO Gazprom to allow the access to the gas transportation system and, in case of the confirmation of its illegality, grants its consent on concluding the contract on transportation in fulfillment of the presented claim. In accordance with this, the court agreed with the lower courts on the absence of the legal grounds on the plaintiff’s size for the forcing of OAO Gazprom to conclude a contract on the transportation of gas until the Commission of the Government of the Russian Federation passes the final decision on the issue.

The plaintiff’s case was refused based on the absence of the material right to sue. In one case, the court came to the conclusion that the material right to sue does not arise at all and the only way to act through the administrative procedure, and later in case of a negative outcome, is to appeal against the decision passed. In another case, the court also concluded about the absence on the plaintiff’s side of the material right to sue before OAO Gazprom would refuse to conclude the contract on the transportation of gas already after the adoption of the respective decision by OAO Gazprom itself or the governmental commission based on the claim of the plaintiff.

These decisions seem to be ill-founded because of the following argument. The right to conclude the contract itself remains the element of the legal capacity of the legal or physical person and thus cannot in itself grant the right for a suit in the material sense. In order to possess the material right of going to court, one should possess the respective subjective civic right, which should be violated. Legal capacity and concrete subjective rights in the civic legislation act as the logically superseding possibilities: first, the possibility to have any rights, second, a concretized possibility (the concrete subjective law appearing based on and as a result of the implementation of the first possibility – legal capacity)[11]. Thus, a question arises at which moment the right on concluding a public agreement transforms from an element of the legal capacity into the subjective civic right.

According to p. 4 Art. 445 of the Civil Code of the Russian Federation, the basis for going to court with the demand to force the conclusion of a contract is the evasion of the other side, which is obligated to conclude the agreement, from its conclusion. Consequently, the right of action with the demand to conclude the contract arises when two grounds are available: the conclusion of the agreement should be recognized by the legislator as obligatory, and the counteragent should be refusing to conclude it. As established earlier, in accordance with the Law on the Natural Monopolies, but against the practice of the Supreme Administrative Court of the Russian Federation, the conclusion of the contract on the transportation of gas remains obligatory.

With respect to the refusal to conclude the given contract, one should note that because the Government of the Russian Federation set its own rules, which are obligatory for all the sides when concluding an agreement, in accordance with p. 4 Art. 426 of the Civil Code of the Russian Federation, the Resolution on Securing the Access regulates the conclusion of the agreement. In other words, the whole procedure of submitting claims and the access and the process of their examination and fulfillment present the process of concluding an agreement, which provides for not only the formal signing. In the given case, the conclusion of the contract means the full process of working out of the conditions of the contract starting from submitting an application.

Thus, one can conclude that independent organizations acquire the right to sue in the material sense from the moment when according to the Resolution it should received the answer from OAO Gazprom with respect to its application, but fails to do so, or if it receive refusal to conclude the contract, or only a partial satisfaction of the application, i.e. from the moment when one can assume the evasion of OAO Gazprom from concluding the contract.



[1] Bulletin of the SAC RF, 2005, No. 7.

[2] Code of Laws of the Russian Federation, 1999, No. 14, Art. 1667 (in Russian).

[3] Code of Laws of the Russian Federation, 1995, No. 34, Art. 3426 (in Russian).

[4] Code of Laws of the Russian Federation, 1998, No. 48, Art. 5937 (in Russian).

[5] Gurvich M.A. Right to sue. Мoscow, 1949, p. 45–46 (in Russian).

[6] Ibid, p. 145.

[7] Code of Laws of the Russian Federation, 1997, No. 29, Art. 3525.

[8] Bulletin of the SAC RF, 2005, No. 8.

[9] Document remained unpublished, source: “SPS ConsaltPlus”

[10] Ibid.

[11] Fleyshits E.A. The Correspondence of Legal Capacity and the Subjective Rights. Voprosy obshhey teorii sovetskogo prava. Moscow, 1960, pp. 274–277.

Bibliography:

  1. Gurvich M.A. Right to sue. Мoscow, 1949. pp. 45–46 (in Russian).
  2. Fleyshits E.A. The correspondence of legal capacity and subjective rights. Voprosy obshhey teorii sovetskogo prava. Moscow, 1960. pp. 274–277.