Category: Croatia

BDV has advised Gideon on its strategic cooperation agreement for new automated logistics solutions with Toyota Material Handling Europe.

Gideon is a Zagreb-based technology company offering software solutions for the localization and control of autonomous mobile robots (AMRs).

According to Toyota Material Handling, the combination of Gideon technology with the company’s own vehicles will enable them to automate a variety of logistics applications, significantly reduce project implementation times, and service “an increasing market demand for simple autonomous solutions with self-navigating vehicles and an easy user-interface.”

The BDV team was led by Partner Marko Bohacek.

Editor’s Note: After this article was published, Karanovic & Partners announced that Ilej & Partners, in cooperation with Karanovic & Partners advised Toyota on the local aspects of the deal. The firm’s team included Senior Partner Goran Ilej and Senior Associate Nika Jurkovic.

Croatia ranks third among European Union countries in terms of home ownership, with a significant 91% of Croatians residing in real properties they either own or are owned by a household member. Typically, Croatians primarily use these owned residential properties for personal residential purposes. However, residential real property ownership is also regarded as a lucrative investment avenue. Individuals and companies often invest in real properties, either residential or commercial, on a buy-to-let model. In recent years, a hybrid model of aparthotels arose on the Adriatic coast, in the spatial zones designated for tourism industry. The model allows private investors to own a condominium unit in the tourism zone, utilising it for a specific period annually while deriving profit from its commercial use for the remaining period.

Aparthotels combine the best of serviced apartment living and facilities of a hotel. Contemporary hospitality investors often construct hotels with the pertaining facilities and adjoining private villas or apartment buildings, forming one cohesive unit. The guests of these villas and apartments enjoy access to all the amenities that the hotel and the resort have to offer. Typically categorised as 5-star establishments, these hotels and resorts are usually managed by renowned brand operators.

Recognising the value of the investment, the hospitality groups are increasingly exploring a model wherein villas and apartments are sold to private owners as condominium units in exchange for a long-term lease or management agreement. Although not entirely novel, this model faces limited adoption in Croatia due to legislative constraints and relative unfamiliarity.

Structuring

In Croatia, real property represents an area of land, together with all that is permanently connected above or underneath it. Hence, if a building is built on the land, the real property in question would be the land together with such a building. Croatian law recognizes private ownership of real properties by natural and legal persons, citizens from Croatia, European Union member states, or other countries, subject to statutory requirements.

When there is more than one owner of real property, such real property is under a co-ownership regime. Co-ownership is established automatically when there are more owners of the same real property (co-owners). Such parts of ownership title are expressed in fractions (e.g., 1/2, 3/4, 93/100, etc.) and are called co-ownership portions. However, a need arises for separate sole ownership of certain parts of the same real property that is co-owned by more than one owner – ownership over separate parts of the real property, i.e. condominium units (Cro. etaža) such as apartments, business premises, offices, garages, etc. This is established through a legal concept of condominium ownership or ownership of a separate part of real property. Condominium units can generally be established on any building, but up until recently, it was not always possible to be established in the spatial zone “T1” for tourism use. 

Zoning details are prescribed in the Croatian spatial planning legislation – Spatial Planning Act and spatial plans of state, county, municipal/city, or narrower/detailed levels. According to the old Spatial Planning and Construction Act (applicable until 2014), Article 71 prohibited the division of catering/hospitality buildings into separate condominium units unless such buildings serve solely for accommodation purposes (e.g., villas). The currently applicable Spatial Planning Act does not provide any such restriction. Based on the principles of the zoning laws and having in mind that the current Spatial Planning Act does not prohibit condominium ownership in “T1” zones, all catering/hospitality buildings in “T1” zones should be able to be divided into condominium units. The administrative bodies, namely officials working on the matters of issuing building permits are not harmonised in deciding whether or not to allow the establishment of condominium units in zones “T1”. Therefore, before any investment is made, the investors should confirm with the local bodies whether the establishment of condominium units is and will continue to be allowed for the specific real property.

Regardless of whether the condominium units are established on the “T1” real property, the zoning characteristics of the entire real property remain the same, i.e. the zone must be used for catering/hospitality service purposes. 

Ownership and Management

The ownership right is the broadest property right in Croatia, allowing the owner to do as he pleases with the object and its benefits, and to exclude everyone else from it, unless contrary to third-party rights or statutory limitations. The ownership right can be limited against the owner’s will, only under the conditions and as specified in the statute. As with other objects, the ownership right over real property includes the authorisations specified above.

In tourism spatial zones designated as “T1”, condominium units can be bought and sold, but the change of ownership cannot evade the zoning use of the units, i.e., the units will remain within the catering/hospitality zone and would only be able to be used for such a purpose. Therefore, the investors must keep in mind that they can own the condominium units, but that residential occupancy is precluded. Hence, the investors cannot use the said condominium units as their residence and permanently settle in such units.

Furthermore, the condominium units must be managed by the authorised property manager, i.e., the manager of the hotel or resort where it is located and the investors’ usage rights over the units are further limited. The exact usage rights of the units are usually determined in the sale and purchase agreement and management agreement. These agreements may specify usage periods for owners, alongside restrictions on encumbrances and other ownership encroachments. For example, the management agreement will usually determine whether the owner will be able to use the unit for a fixed period, for a fixed or maximum duration, based on prior notice, or not at all. It will also specify the compensation for unit management, leasing, and usage, which may be fixed, variable, or a combination thereof. Investors should consider the tax implications associated with owning, using, and leasing such units. Additionally, these agreements will typically impose other ownership restrictions such as the restriction to establish encumbrances, the pre-emption rights, the rights of first refusal, and similar.

Prior to committing to an investment, it is crucial for investors to thoroughly evaluate the commercial aspects of the deal and project the expected return on investment. 

Conclusion

Over the past decade, there has been a growing interest in property investment within “T1” spatial zones and aparthotels. While certain “T1” areas may permit construction and condominium division, navigating their legal landscape in Croatia can be intricate due to its uncharted nature. It is important to note that dividing real property into condominium units does not circumvent zoning regulations.

Investing in aparthotels confers ownership rights over units, albeit with restricted usage privileges tied to the overarching resort management. Thus, condominium units in this context serve as a hybrid investment model, offering limited personal enjoyment alongside financial prospects.

By Sanja Novoselic, Attorney, Divjak Topic Bahtijarevic & Krka

Kinstellar has advised Immofinanz on its sale of the Grand Center Zagreb office building to an undisclosed Croatian real estate firm.

According to the firm, the Grand Center Zagreb “boasts modern architecture and top-notch amenities, offering approximately 16,000 square meters of prime office space, along with easy access to local bars and restaurants.”

The Kinstellar team included Managing Partner Dusko Zuric, Counsel Andrijana Kastelan, and Senior Associate Matea Sekur.

Kinstellar did not respond to our inquiry on the matter.

In public procurement, the term bid rigging (also called collusive tendering) describes unlawful agreements between bidders with the intention of distorting the competition in award procedures and allowing a preferred tenderer to win the public contract while giving the impression that the process is truly competitive. The hidden agenda is often to force a high contract price that is not appropriate given the state of the market.

Bid rigging usually happens when bidders consent to work together in tender procedures and against the regulations governing fair competition. Bidders may agree to divide the market according to factors like location, contracting authority, or the nature of the procurement, or they may agree to alternate in which the bidder is named the successful bidder (a process known as bid rotation). They may also agree to compensate the losing bidders, such as by designating the losing bidders as subcontractors, or to forgo submitting a bid altogether.

What are the consequences?

Article 101 of the Treaty on the Functioning of the European Union (“TFEU”) addresses collusion between undertakings under EU competition law. It expressly forbids agreements and coordinated practices that aim to prevent, restrict, or distort competition in the internal market or that could have an impact on trade between Member States. The European Commission (“EC”) has the authority to fine any infringement of Article 101 of the TFEU up to 10% of the net revenue of the included organization (that can also sometimes include the turnover of the whole company groups). Also, local acts of the EU Member States (including Croatia) contain identical sanctions and restrictions as those found in Article 101 of the TFEU.

Public procurement cartels, i.e. forbidden horizontal agreements between competitors participating in public procurement, can also result in criminal liability of undertakings included. In every instance, bid rigging may give rise to substantial private damage claims against the infringing participants, resulting in a decline in the companies’ market value, interruption of operations, and harm to their image. Also, another consequence and trend in sanctioning of bid rigging is forbidding the participation in current and future tenders for entities included in bid rigging.

Bid rigging in Croatia – the case!

The first (and for now the only one) bid rigging decision of the Croatian Competition Agency (“Agency”) was rendered on 28 April 2022. Three undertakings have taken part in bid rigging in the period between 4 June 2012 and 1 January 2014, in relation to the public procurement proceeding for 14 different groups of food products. The Agency concluded that the bidders in question had entered into a forbidden horizontal agreement (cartel), which restricted and distorted competition, by fixing and coordinating the prices in their bids and by working together to allocate individual contracts with the intention of designating a winning bidder in the relevant public procurement procedure. The Agency also discovered that the fourth undertaking joined the collusive agreement in question between January 1, 2013, and January 1, 2014, and concluded a prohibited horizontal agreement with the aim of preventing, restricting, and distorting competition.

A punishment of HRK 2,155 million (EUR 286,018) was imposed against the included undertakings. The Agency discovered the bid-riggers’ practices during the course of the investigation. Those included submitting bids with nearly identical quotes for the duration of the four-year frame agreement and identical bids for the conclusion of individual public procurement contracts for 2012, as well as the subcontracting and contract allocation in public procurement agreements, bid suppression schemes, and identical bids from different bidders within the same product group. All listed actions were strong indicators of the existence of a cartel engaged in bid-rigging and a strict restriction on competition.

To establish a designated winning bidder in the public procurement procedure based on the frame agreement for a specific group of products and a specific year, undertakings engaged in a bid-rigging cartel by fixing and coordinating the prices in their bids, conspiring on the outcome of the procedure, and colluding on the allocation of individual contracts with respect to a specific group of products and a specific year.

Any chance of competition in the bidding process was eliminated by the collusive bid-rigging tactics in question in the public procurement procedure. It is not essential to demonstrate the true impact of such collusive cartel actions on the market because they are thought to have anticompetitive consequences, particularly on the price, volume, or quality of the items or services in question. Instead, they are expected to result in horizontal price fixing. 

Market sharing and market allocation agreements are expressly forbidden and are by object strong core restrictions of the competition laws. To put it another way, the Agency determined that the forbidden agreement in question included limits on competition by object, where the agreement’s detrimental nature has the capacity to distort competition.

Why is it difficult to detect bid rigging?

Bid rigging is mostly difficult to detect in practice and therefore troublesome to sanction. Of course, there are lawful ways for prospective bidders to collaborate on tenders. In order to ensure a winning bid and compete together, the companies can collaborate by sharing the work in a complimentary manner, combining their financial, expert, technical, or resource offers by respecting the competition law rules on horizontal relations and information exchange.

It is difficult to track the behaviour of undertakings for a long enough period to catch certain behaviours that deviate from the norm and patterns of conduct, especially considering that many public procurement contracts are concluded for multi-year periods, which further dilutes the whole sample that could be the basis for the establishment of collusive behaviour.

Other factors that make it difficult to identify bid rigging include other factors. Occasionally, there are insufficient market participants, which limits the number of viable proposals in tenders and facilitates bid-rigging. In some cases, corruption and collusion in public procurement are combined.

Will the joint forces of authorities solve the problem?

Since one of the joint goals of the Agency and the State Commission for the Supervision of Public Procurement Procedures (“State Commission”) is enabling bid rigging cases to be detected more often and being more efficient with their sanctioning, they have started cooperation.

The cooperation between both authorities has been formalized by entering into the Memorandum Agreement. The purpose of the memorandum agreement is to ensure effective and fair competition in public procurement. This will include ensuring that all new market participants have access to public procurement proceedings, by avoiding distortions of the market that might be caused by market incumbents due to their significant market power. 

Therefore, both the Agency and the State Commission are planning to use their synergy to work on a sustainable competition environment in public procurement and the prevention of cartels therein. In order to succeed in that, they plan to have a system of exchanging information between experts on both sides to mutually understand and assist each other with handling both the competition and public procurement aspects in practice. Also, they will take part in necessary training within both fields, which will include workshops, round tables etc. 

Hopefully, this cooperation will have a positive effect on the statistics of sanctioned bid rigging cases in Croatia. However, it is still to be seen how the war of worlds will end in practice and whether this will lead to harmony between fair competition process and formal public procurement rules.

By Ana-Maria Sunko Peric, Attorney, Divjak Topic Bahtijarevic & Krka

Deloitte Legal has advised Slovenia’s Iskra on its acquisition of Croatian engineering company Elmap and Elmap Projekt from the Bozikovic family.

Iskra is a Slovenian company specializing in electromechanics, telecommunications, electronics, and automation. Founded almost 80, it describes itself as “a globally recognized provider of intelligent industrial solutions and cutting-edge electro-technical products.”  

Elmap is a Croatian engineering company specializing in automation, power engineering, and remote control systems for wastewater treatment plants, water supply, and sewage, as well as other industry and infrastructure applications. 

The Deloitte Legal team included Partner Ivan Zornada and Attorney at Law Jelena Kraljevic.

Against the backdrop of a turbulent legal landscape, Krehic Law Office Managing Partner Tarja Krehic underscores the recently ended strikes by commercial court judges and the subsequent impact on court proceedings and business registrations as the hot topics on the docket for Croatia, with women’s participation in executive roles as the next big issue.

“Commercial court judges, along with others, have been on strike from January 2024 until February 2,  2024, negotiating for salary increases,” Krehic begins. “The lack of updates to basic quotas for the past decade has led to legitimate demands for pay raises, prolonging negotiations and impacting court proceedings.” Moreover, she reports that, notably, “commercial registry activities have been on pause, affecting business registrations and applications across Central and Eastern Europe.”

Krehic further highlights the significant slowdown in court activities, adding that “hearings had been suspended and commercial proceedings had been halted. While urgent cases like family matters continued to some extent, delays were widespread, with over 50% of family hearings delayed during the first week of strikes,” she explains. “The aftermath of last year’s strikes saw prolonged delays in court operations, emphasizing the need for a swift resolution this time around.”

As for other factors that are influencing legal proceedings and business transactions in Croatia, Krehic points to “political dynamics, including the upcoming European Parliament, National Parliament, and local elections,” all of which add further complexity. She highlights the impact on major transactions like privatizations, with “one of the largest state-owned company privatizations facing slowdowns due to the anticipated elections. Despite challenges, certain sectors like energy and alternative energy sources remain active, attracting international investments,” she says.

Amidst these challenges, M&A activity has also slowed down somewhat. “M&A activity, particularly in tech start-ups, has been somewhat sluggish compared to previous years,” Krehic says. “However, there’s notable activity in the SME sector, especially with family-owned businesses, indicating resilience. Additionally, the sale and restructuring of state-owned companies continue, albeit with predominantly European investors involved,” she points out.

Finally, focusing on other legislative updates of note, Krehic mentions the implementation of EU Directive (EU) 2022/2381 of the European Parliament and of the Council of 23 November 2022 on improving the gender balance among directors of listed companies (the so-called Women on Boards directive), aimed at enhancing gender diversity in corporate governance. “This directive, expected to impact listed companies, aligns with efforts to improve corporate transparency and inclusion. Moreover, it serves as a step towards Croatia’s OECD membership aspirations,” she says. “I have to emphasize the importance of promoting women’s participation in executive roles, reflecting broader societal shifts. Efforts to include more women in decision-making positions – especially the push for state-owned companies to comply with the same legislation – aim to foster transparency and governance improvements, which are crucial, and would have a knock-on effect for a significant segment of Croatia’s economy,” Krehic concludes.

Divjak Topic Bahtijarevic & Krka has advised borrower Zadar Resort and sponsor Dogus Croatia on a EUR 31.2 million loan with Privredna Banka Zagreb and the Croatian Bank for Reconstruction and Development as the mandated lead arrangers. Mamic Peric Reberski Rimac advised Privredna Banka Zagreb and the CBRD.

According to DTB, “the facility will be used for the development of a five-star luxury hotel in Zadar, which will be under the management of the leading hotel operator Hyatt.”

Dogus is one of the largest Turkish conglomerates with a long-standing operation in Croatia in the tourism and leisure industry. According to DTB, “the development of the luxury hotel in Zadar is one of the largest investments in hotel facilities in Croatia. The completion of the construction works and all investment of the hotel is expected in autumn 2024.”

The DTB team included Senior Partner Damir Topic, Attorneys at Law Marta Hren and Barbara Simic, and Associate Jure Marovic.

The Mamic Peric Reberski Rimac team included Partner Luka Rimac, Junior Partner Frano Belohradsky, and Attorney at Law Lucija Roncevic.

One of the most important questions within every M&A deal is whether the transaction at hand is subject to merger clearance. The answer to said question might impact the timeline and (potentially) the successful completion of the deal itself. Up until Towercast cases (C-449/21), the analysis was straightforward by applying the clear turnover-based rules defining the applicability of the Regulation No 139/2004 (“Merger Regulation”).

During the due diligence phase, the potential acquirers would analyse turnovers of both the target company and their own. If the turnover thresholds were met, the potential acquirers would identify the obligation to obtain the merger clearance of the national competition authority or European Commission (as applicable). However, if turnovers were not exceeding the thresholds set by national or EU merger rules, the parties would conclude that transaction is not subject to merger clearance and continued with transaction process. But is it the end of story in terms of competition law? Not really, according to Court of Justice of the European Union (“CJEU”) in recent Towercast case.

The Towercast case has provided us with certain challenges as the CJEU was confronted with the question of applicability of Article 102 TFEU in cases where the transactions do not meet the requirements for EU and national merger control. The question was raised by the Paris Court of Appeal (France) in terms of whether Article 21(1) of the Merger Regulation (which is governing the Merger Regulation’s applicability and competent authorities) precludes a national competition authority from assessing a concentration which (i) has no Community dimension within the meaning of Article 1 of the Merger Regulation, (ii) is below the thresholds for mandatory ex ante assessment laid down in national law, and (iii) has not been referred to the European Commission under Article 22 of the Merger Regulation, as constituting an abuse of a dominant position prohibited by Article 102 TFEU, in the light of the structure of competition on a market which is national in scope. In other words, whether the deal may be subject to an ex-post review under Article 102 TFEU in cases where the national and EU thresholds are not met, i.e., if the deal represents an action that constitutes an abuse of dominance.

The respective question was related to Towercast’s complaint directed against the acquisition of control over Itas by TDF, the dominant operator on the market which transaction represented, in Towercast’s opinion, so called a “killer acquisition”. Having in mind the respective context, the submitted question for preliminary ruling is indeed of significant importance for the future assessment of potential acquisitions by the dominant companies. Especially having in mind recent strategies of strong, established companies (mostly in tech and pharma industry) acquiring innovative start-up companies solely for the purpose of elimination of their future competition. 

The analysis and the judgement of the CJEU

In its judgement, CJEU followed Advocate General Kokott’s proposal to interpret the Article 21(1) of the Merger Regulation in such a way that it does not limit the application of Article 102 TFEU to cases where the transaction is not caught by national or European thresholds and ex ante merger control mechanisms. The CJEU additionally clarified that the temporal effects of the present judgment should not be limited retrospectively which means that rendered interpretation can be applied by the national authorities for the transaction that already happened in the past.

In its reasoning, CJEU has applied legal interpretation methods of the relevant acts according to the settled case law, i.e., the interpretation of a provision of EU law must take into account its wording, the context in which it occurs, as well as the objectives and purpose pursued by the act of which it forms part.

The CJEU reiterated that the objective of the Merger Regulation is to ensure that concentrations do not result in lasting damage to competition in the internal market. However, the CJEU concluded that it cannot, however, be inferred that the legislature intended to render the control carried out at national level on a concentration operation in the light of Article 102 TFEU devoid of purpose. The CJEU further pointed out that no exemption may be granted, in any manner whatsoever, in respect of abuse of a dominant position as such abuse is simply prohibited by TFEU. The list of practices and types of conduct contained in Article 102 TFEU is not exhaustive, so the list of abusive practices contained in that provision does not exhaust the methods of abusing a dominant position prohibited by EU law. As the prohibition laid down in Article 102 TFEU is sufficiently clear, precise, and unconditional, the CJEU clarified that there is no need for a rule of secondary law expressly prescribing or authorising its application by the national authorities and courts. Thus, the ex-ante control mechanism under Merger Regulation must be applied as a matter of priority, but it cannot preclude the possibility for a competition authority to capture a concentration operation under Article 102 TFEU under certain conditions.

Although the CJEU has not outlined specific guidelines for national authorities regarding the application of the Article 102 TFEU in cases where the transaction at hand is not subject to ex-ante control, the CJEU stated that it is for the authority in question to verify that a purchaser, holding a dominant position on a given market, and having gained control of another company in that market has, by that conduct, significantly impeded competition on that market. In that regard, the mere finding that an undertaking’s position has been strengthened is not sufficient for a finding of abuse, since it must be established that the degree of dominance thus reached would substantially impede competition – only undertakings who would remain in the market would be the ones whose behaviour depends on the dominant undertaking.

Practical implications of the Towercast case

Following the CJEU’s judgement in Towercast case, it looks like there are certain points left open which consequently result in legal uncertainties concerning M&A deals. The Towercast case had brought a lot of question marks over dealmakers’ heads as from now on the M&A practitioners should take into account the elements that up until now were not relevant for M&A deal.

First, the CJEU has provided only general guidance of the Article 102 TFEU application in respect of concentrations and has not provided any clear guidance to which acquisitions could constitute an abuse. As a result, the national competition authorities may review a wide range of transactions below the threshold.

Second, and this is quite a problematic one, the CJEU has not determined the time period in which transactions may be reviewed by the national competition authorities, i.e., how far back the authorities could look and review non-reportable transactions. By applying the general rules for statute of limitations in relation to any abuse of dominance case, a competition authority could go back for as long local prescription rules allow, starting from the date of the completion of the acquisition, which creates a great deal of legal uncertainty.

Third, the CJEU has not confirmed what could be the sanctions of determining that the acquirer (a dominant company) has abused its dominant position by completion of the transaction in questions. The question that comes up to mind is whether national authorities can impose structural remedies, for example a dissolution of a concentration, if the abuse of dominance by completion of the transaction is determined? Advocate General Kokott states that “in view of the primacy of behavioural remedies and the principle of proportionality, there is not usually a threat of subsequent dissolution of the concentration, but rather only the imposition of a fine”. However, it seems that nothing prevents the national competition authority to impose structural remedy (such as dissolution of the deal) if it considers that such remedy as being proportionate.

The effects of the Towercast case have already been visible in some EU member states where national authorities already started to apply “Towercast test”. In Proximus’ acquisition of EDPnet in Belgium, the Belgian competition authority, by referring to the Towercast case, adopted interim measures aiming at suspending the alleged abusive acquisition, after which it proceeded with further investigation. As a result, Proximus divested EDPnet Belgium to Citymesh, after which the Belgium competition authority closed the procedure.

Considering the mentioned competition uncertainties, the dominant companies should now carefully examine potential non-reportable acquisitions to see if they might be caught under dominance rules, especially by analysing the possibility of potential complaints by customers and its competitors. Finally, the transaction documents should contain provisions reflecting the possibility of ex-post control without a time limit. Nevertheless, it is yet to be seen how the “Towercast test” is to be applied by the national authorities in the EU member states.

By Dominik Glavina, Associate, Divjak Topic Bahtijarevic & Krka

Croatian law firm Ostermann & Partners has changed its name to Ostermann Ivancic with “the addition of partner Vjekoslav Ivancic to the company name [as] a dedication to his outstanding career and contribution he has made to the firm’s growth.”

As the firm reports, “Ivancic is widely appreciated for his outstanding corporate litigation skills. He is also a seasoned banking & finance and energy law expert and has helped our law firm create one of the most respected restructuring and insolvency practices in Croatia.” He joined the Ostermann & Partners team back in 2014 and has since spent almost ten years with the firm.

“While looking forward to continuing our growth with Vjekoslav as the new Name Partner, we extend our gratitude to everyone who is supporting us on this path: our loyal clients and valuable team members,” the firm announced.

Vukmir & Associates has advised ZB Invest on taking over the management and the merger of the UCITS funds from Allianz Invest.

Financial details were not disclosed. The target funds include the Allianz Short-Term Bond, Allianz Portfolio, and Allianz Equity. The market regulator approved the takeover on December 5, 2023.

ZB Invest is an investment fund management company in Croatia. The company’s activity is the establishment and management of undertaking for collective investment in transferable securities funds and portfolio management. The company is a member of the Zagrebacka Banka Group.

Allianz Invest is an investment management firm.

The Vukmir & Associates team included Partners Ivan Cuk, Sanja Tkalec Kovac, and Tomislav Pedisic and Attorney at Law Tea Cerinski.