At the end of April, the Tenth Arbitration Court of Appeal rejected the appeal of IKEA Dom LLC (the legal entity of IKEA in Russia) and upheld the decision of the Arbitration Court of the Moscow Region dated February 15, 2023, according to which the company must pay 176.6 million rubles. advertising agency Mediamaker (part of Group4Media). This follows from the decision of the Court of Appeal, placed in the filing cabinet of arbitration cases. As a third party, the National Advertising Alliance (NRA; controls the sale of more than 90% of advertising on Russian TV) was involved in the case.
In December 2021, Mediamaker entered into a deal with NRA to place ads on Russian TV in 2022 on behalf of IKEA Dom LLC, follows from the court decision. And on June 20, 2022, the Russian legal entity IKEA notified Mediamaker of the unilateral refusal of the annual contract, it is indicated there.
Vedomosti sent a request to the IKEA global office. Group4Media and NRA representatives declined to comment.
IKEA announced the suspension of its stores in Russia on March 4, 2022 amid a special operation. In the summer, the company held a sale of goods, marketplaces bought the rest, after which the process of liquidating the Russian legal entity began. In total, this company managed a retail network of 17 IKEA stores in Russia. On June 15, 2022 it became known of sale of all four productions of IKEA in the Leningrad, Kirov and Novgorod regions. On February 16, 2023, Deputy Minister of Industry and Trade of Russia Viktor Evtukhov named the buyers of the plants, they were the Slotex company specializing in kitchen worktops and facades, as well as Luzales.
After the start of the special operation, many Western companies completely left Russia (except for IKEA, these are Apple, Coca-Cola, Ford, Nokia, etc.) or suspended their advertising investments (Pepsico, Mars, Nestle, Procter & Gamble, etc.). At the end of 2022, the Association of Communication Agencies of Russia (ACAR) for the first time in history did not disclose the indicators of the television segment of the advertising market. According to the advertising group OMD OM Group, the TV segment in 2022 decreased by 10-15% by 2021 to 168-178 billion rubles.
The decision of the arbitration court notes that IKEA did not provide Mediamaker with funds to compensate for the costs associated with the cancellation of the advertising campaign on TV, and did not pay him an agency fee, although this was provided for in the contract. The cumulative fine for violation of obligations to the NRA, as indicated in the document, amounted to 35% of the planned cost of advertising placement on TV. As a result, the court of first instance decided to recover 175.9 million rubles from IKEA in favor of Mediamaker. to pay fines NRA, 533 128 rubles. arrears in paying the agency fee in the amount and 200 000 RUB. as payment of state duty.
IKEA in numbers
According to Ivan Fedyakov, CEO of Infoline, IKEA’s business in Russia worked with a small margin: in 2021, the company’s revenue was about 157 billion rubles, and profit was about 4–5% of turnover. IKEA occupied up to 20% of the Russian home goods market. In addition, 14 Mega shopping centers are owned by Ingka Centers (part of the Ingka group of companies, which owns the IKEA brand). A Vedomosti source among real estate consultants says the Swedish owners have not yet made a final decision on whether to sell their latest assets in Russia.
In the appeal, IKEA Dom LLC pointed to the incorrect calculation of the penalty for the cancellation of the annual transaction, but the court of appeal recognized these arguments as untenable. “Defendant’s costs for the cancellation of the 2022 annual TV deal are fully consistent with standard market practice, current professional standards and generally accepted principles in the advertising market,” the decision states. IKEA filed a cassation complaint, the meeting is scheduled for August 7.
This is the largest lawsuit against IKEA and the only one of these proceedings in which the court did not reduce the compensation to the plaintiff by dozens of times. Among other major lawsuits against IKEA Dom are statements from the IT company OOO Astronis, which is trying to recover 28 million rubles, and from the construction company Yartek for 23 million rubles.
With a high degree of probability, judicial acts will also be upheld in the cassation instance, since the amount of the fine to be collected from IKEA Dom was voluntarily agreed upon by the company when concluding an agency agreement with Mediamaker, Roman Rukavitsyn, a leading legal adviser in the dispute resolution practice at EBR law firm, believes.
Elena Gladysheva, managing partner of the RI-consulting law firm, agrees with him. In fact, judicial acts are guided by one of the basic principles of civil and international law – pacta sunt servanda (“contracts must be respected”), so if the parties agreed to pay penalties, then they must be paid in full, she says. But it will be difficult to collect the debt, as the lawyer notes, since IKEA House is now in the process of liquidation.
Aleksey Sharov, managing partner of the consulting company Averta Group, also speaks about the difficulty of collecting debts from IKEA. According to the financial statements of IKEA Dom LLC, the size of its fixed assets over the past year has decreased by almost thirty times and today it is only a little over 150 million rubles.
“The company still has claims to counterparties for a fairly significant amount, but in the context of a rapid curtailment of activities, an increase in counterclaims is possible,” the lawyer concluded.
