The Supreme Court of Mongolia’s Interpretation of Cartel Principles and Contractual Freedom

No. 1/24          September 2024    

The main purpose of Сompetition law is to protect against unfair competition and to prevent, prohibit, and restrict any activities that are detrimental to fair competition. Unfair competition may manifest in various forms, one of which is anti-competitive agreements or arrangements (cartels). Consequently, the legal framework governing fair competition imposes prohibitions and restrictions on such agreements and arrangements.

In 2020, the Supreme Court of Mongolia issued a decision regarding anti-competitive agreements and arrangements (cartels) in relation to the principle of freedom of contract under civil law. The Court clarified that any agreement, regardless of whether it was primarily intended to restrict competition or whether it has been implemented, shall be considered anti-competitive if it meets the formal requirements. Therefore, a summary of the Supreme Court of Mongolia’s interpretation is presented below.

What happened? 

Company A and M (“co-claimants”) entered into a cooperation agreement. Authority for Fair Competition and Consumer Protection (“AFCCP”) determined that the agreement constituted an anti-competitive agreement under Article 11 of the Competition Law, as it involved market territories and product prices. As a consequence, Company A was penalized with a fine of MNT 113,196,980, and Company M with MNT 13,265,110.

Supreme Court’s analysis

Aim of Restricting Competition

Limitations of Contractual Freedom

Market Allocation

What is the significance?

The Court further addressed whether an agreement not intended to restrict competition, but resulting in such restriction, as well as whether unfulfilled provisions of an agreement that restrict competition, constitute unfair competition. In summary:

  • Contracting parties may freely enter into any agreement or transaction based on the principle of contractual freedom. However, if such agreement or transaction infringes upon public interest protected by Competition law and creates conditions that restrict competition, it shall be deemed as unfair competition.
  • Even if the parties did not intend to directly or indirectly restrict competition when entering into the agreement, if the result of such agreement or transaction leads to a restriction of competition, it shall be deemed as unfair competition.
  • Misconduct of concluding agreements or transactions aimed at restricting competition constitute a “per se” violation. Therefore, regardless of whether the agreement or transaction and its provisions have been executed, it shall be deemed as unfair competition.

Important considerations for businesses

The Supreme Court of Mongolia's decision on anti-competitive agreements and arrangements (cartels) has significant implications for businesses operating in Mongolia, as it clarifies the legal framework and criteria for determining unfair competition. This means that businesses must carefully review their contracts and transactions to ensure that they do not contain any provisions that may be construed as anti-competitive, such as price fixing, market allocation, output restriction, or bid rigging. Therefore, businesses must be aware of the potential risks and liabilities of engaging in or being accused of unfair competition and seek professional advice on compliance with competition laws and regulations.

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