Category: Latvia

Sorainen has advised joint lead managers Citigroup, Luminor Bank, Nordea, and UniCredit on Citadele Banka’s EUR 200 million notes issuance, due in 2026. Cobalt and reportedly Allen & Overy advised Citadele Banka.

According to Sorainen, “the purpose of the issuance is to meet the Minimum Requirement for Own Funds and Eligible Liabilities. Proceeds from the offer are to be used by Citadele for general corporate purposes.”

Sorainen had previously advised UniCredit Bank on its sale of UniCredit Leasing to Citadele Banka (as reported by CEE Legal Matters on January 2, 2020).

Sorainen’s team included Partner Rudolfs Engelis, Counsel Aija Lasmane, Senior Associate Inese Heinacka, and Of Counsel Martins Rudzitis.

Cobalt’s team included Partner Sandija Novicka, Specialist Counsel Edgars Lodzins, and Associate Krisjanis Buss.

TGS Baltic, working with Vinge in Sweden, has advised Swedish private equity company Helix Kapital on the Latvian law-related aspects of its investment into international sports media agency Spring Media.

According to TGS Baltic, the transaction included the indirect acquisition of Latvian media company 4.vara, which distributes news and broadcasts via a sports media channel and also provides various types of bespoke video services in Latvia and abroad. As part of the transaction, Spring Media “merged with the Future Sports Agency to strengthen its leading position on the Nordic sport-media market and accelerate international expansion.”

Helix Kapital invests in unlisted companies, primarily in Sweden.

Spring Media operates in sports rights management, TV production, and digital channels covering live sporting events. Its partners include the Swedish Damallsvenskan women’s league, the Olympic rights for Central Asia, media houses Bonnier and Schibsted, international clubs Arsenal and Chelsea, etc.

“We are thrilled to be consolidating with Future Sports Agency and Helix Kapital to take the next step on our journey of expansion,” commented Spring Media CEO Tobias Osmund. “The Future Sports Agency complements our know-how with expertise from the buyers’ side of the sports media market, and simultaneously the investment from Helix Kapital enables us to accelerate the growth of the Group with additional company acquisitions in Sweden and abroad.”

The TGS Baltic team included Partners Andra Rubene and Nauris Grigals and Associates Vladlena Rudusane-Simica, Kaspars Treilibs, Toms Tidemanis, and Alina Lepere.

TGS Baltic could not provide further information on the deal.

TGS Baltic has advised shareholders Squalio Group on the sale of its shares to information technology solutions and services provider Softline.

Founded in 1997 in Latvia, data technology company Squalio Group has representative offices in ten countries around the world. The company is Microsoft Corporation’s partner in software licensing and cloud services.

Softline is an information technology solutions and services provider focused on emerging markets of Eastern Europe, the Americas, and Asia, offering end-to-end technology solutions, public and private clouds, software and hardware provisioning, and associated services.

“Squalio’s mission is to partner with and guide individuals and companies towards a sustainable digital environment,” Squalio CEO Sandis Kolomenskis commented. “By joining forces with Softline, another fast-growing tech company, we are confident that the expanded portfolio breadth, customer and market reach, and investment capacity will support us in achieving our goals.”

“We are excited to have acquired Squalio as they have developed a dominant licensing business through first-class licensing expertise and certifications with key strategic vendors, such as Microsoft, Adobe, Oracle, IBM, Google, and other cloud and security solutions leading players,” Softline Global CEO Sergey Chernovolenko added. “As we continue to expand our presence in Eastern Europe and the Baltics through a strategy that balances acquisitions and organic growth, we are thrilled to have the opportunity to grow alongside Squalio in the coming years.”

The TGS Baltic team included Partner Nauris Grigals and Associate Kaspars Treilibs.

TGS Baltic did not respond to our inquiry on the matter.

The energy market in Latvia is in a constant process of development, on both the regulatory and business sides. The following highlights suggest the energy sector will remain active in the foreseeable future, providing new opportunities for potential investors.

Firstly, over the last couple of years, the Public Utilities Commission (PUC) has put a lot of effort into the improved efficiency of the electricity and natural gas tariff system. This has resulted in a new tariff methodology for transmission and distribution networks, which ensures that grids are used effectively and each consumer, whether industrial or household, pays its fair share for expended electricity and natural gas. While initially this change was not supported by energy producers, who were largely exempt from tariffs, the PUC maintained a very firm position, to ensure that grid maintenance costs are shared among all users of the grid.

Secondly, the Latvian district heating ownership is becoming more diverse, as international investors are entering a market once dominated by municipal companies. We expect this trend will incentivize further investments in this industry. A landmark deal in this regard has been Partners Group’s acquisition of Fortum’s district heating platform in the Baltic States, including Latvia. Fortum has been one of the largest and longest-standing foreign investors operating in the energy sector in Latvia. The acquisition of Fortum’s business in the Baltics by Partners Group confirms the strong interest from equity investors in the local district heating and renewable electricity business, notwithstanding the fact that the support period for most renewable electricity generators, via the EU approved feed-in tariff and capacity payment scheme, is approaching its expiry towards the end of 2020s.

Thirdly, for many years, the Latvian wind energy sector has been underdeveloped, in spite of Latvian wind conditions being comparable to many of the leading European wind energy forerunners. Now the decrease in technology costs and the availability of land have fueled an inflow of investments in wind energy projects. In 2020 the development of new onshore wind energy projects became even more accessible, due to revised planning requirements. Regulatory enactments were amended by relaxing some of the too-stringent restrictions and requirements for wind farm development projects. Several planning restrictions were substituted with the ability to evaluate and possibly mitigate the effect of such restrictions within environmental impact assessment. Another novelty was the possibility to construct wind farms in forests, which improves the available space for the development of new projects.

Latvia, with its long coastline and beneficial wind resources, provides for a significant, yet unexplored, potential for offshore wind farm development. The country’s National Energy and Climate Plan aims to increase its total offshore wind power capacity to at least 800 megawatts, over the next ten years. A possible catalyst for future offshore projects might be the ELWIND project – a joint effort by the Latvian and Estonian governments to develop a common offshore wind farm. The intention is to set the location, ensure access to the transmission grid, and then auction the respective area to private developers for the construction of a wind farm. Both governments have entered into the respective Memorandum of Understanding, and a designated working group, including transmission system operators of both countries, is actively working on this project, set to materialize in an operating large-scale offshore wind farm in 2030. This move has been successful in attracting international investor interest for the Baltic offshore wind market. In April 2021 Orsted A/S announced a plan to become the leading offshore wind developer in the Baltic countries, with an aim to deliver the first offshore wind farm in the Gulf of Riga, in the Baltic Sea, before 2030.

While there are still situations where the Latvian regulatory environment is not able to keep up with the needs of the industry, the above trends contribute to a generally positive market outlook for future energy transactions in Latvia.

By Gatis Flinters, Partner, and Martins Tarlaps, Senior Associate, Cobalt

This Article was originally published in Issue 8.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Franchising may be an attractive proposition for many companies wishing to expand internationally. Take a look at this overview to discover the applicable franchise law in Latvia, covering the essentials for franchisors, the relevant areas of law, selected aspects such as fees, and dispute resolution and applicable law.

ESSENTIALS

about Latvia´s franchising law

1. Pre-disclosure obligations apply irrespective of the provisions of the franchise agreement
2. The commercial secret protection mechanism is available according to the Commercial Secret Protection law
3. No specific provisions on franchise fees except for payments related to the non-competition obligation of the franchisee

RELEVANT AREAS OF LAW

Legal basis of Franchise Law

The legal framework of franchise agreements is provided by the Commercial law of Latvia, which contains a separate section regarding franchise agreements (Articles 474 to 480). Commercial law defines the franchise agreement. A franchise agreement is an agreement by which a merchant (franchisor) grants the other party (franchisee) the right to use a trademark, other intellectual property rights, know-how in the sale, distribution, or provision of services, under a system developed and tested by the franchisor (franchise). But the franchisee pays the agreed fees (Article 474). As the franchise relationship is private law, the relationship between merchants, the legal framework of the franchise agreement provided in the Commercial law is applicable, if the parties have not agreed otherwise. There are only a few exceptions when Commercial law provisions are mandatory (for example, definition of a franchise agreement, pre-contractual obligations). Also, the mandatory rules of the public law overrule the provisions of the franchise agreement (for example, mandatory licensing regulations for particular types of commercial activity, competition law).

Specifics regarding foreign franchisors

There are no restrictions regarding foreign franchisors. Any person can become a franchisor and enter into the franchise agreement.

Corporate Law

Latvian corporate law does not impose any restrictions on operations of foreign merchants in Latvia, nor on franchise systems in particular. The most common corporate form for business operations in Latvia is the limited liability company (as a “Sabiedrība ar ierobežotu atbildību” or “SIA”). SIA requires a minimum share capital of EUR 2800. Another option is to establish a joint-stock company (“Akciju sabiedrība” or “AS”). The minimum share capital requirement for AS is EUR 35000, and AS can place its shares in a public offering. For both types of companies, only the registered share capital is liable to the company´s creditors, not the shareholders personally. In order to establish SIA or AS, the founders need to sign an agreement or decision on the establishment and other documents, appoint a board (for AS also a supervisory board), and register the company in the Commercial register. Foreign companies often choose to operate in Latvia through the branch. The branch is not a legal entity but a part of the company operating separately on behalf of the company. To establish a branch, a branch manager shall be appointed, and the branch needs to be registered with the Commercial register. 

Consumer Protection

Law According to the Consumer Rights Protection Law, a consumer is an individual who buys goods or receives services for a purpose not related to his/her commercial or professional activity. For this reason, the franchisee does not qualify as the consumer, and laws and regulations determining consumer rights are not applicable.

Antitrust/Competition Law

According to the Latvian legislation, the mandatory rules of the public law overrule the provisions of the franchise agreement. Such kind of public law is the Competition law. The 126 rules on prohibited agreements overrule the agreement provisions, which distort competition within the territory of Latvia (Art 11 of the Competition law). The provisions of the franchise agreement, which distort competition, are deemed to be invalid retrospectively, i.e., as of the moment when the franchise agreement was concluded.

Employment Law

There is no specific labor regulation related to franchise and employment relationships is governed by the Labor Law. A franchise agreement is a type of agreement governing a particular business activity. The employment agreement is a different type of agreement according to which an individual undertakes to perform certain tasks and is entitled to receive a salary. Due to significant differences in definitions of the substance of these agreements, the franchisee should not be considered to be an employee of the franchisor. To avoid any risk that a franchise agreement could be considered to constitute an employment relationship, the franchise agreement should clearly state the type of relationship between the parties.

Law on commercial agents

According to Commercial law, a commercial agent activity is a separate type of business activity. The commercial agent is a merchant, who is permanently authorized on behalf of and for the benefit of the other person (principal). The agent prepares the conclusion of contracts or to conclude contracts with the third parties (Article 45 of the Commercial law). There are no limitations for the franchisor to authorize the franchisee to perform such types of activity as part of the franchise agreement. If the franchisee acts as a commercial agent, then the mandatory provisions of law regarding the commercial agent apply: (1) the commercial agent is entitled to receive remuneration every month, the period for the calculation of remuneration can be prolonged only up to 3 months, (2) the minimum termination period for a commercial agent’s contract by any party is 1 month – if termination is made in the 1st year of the contract, 2 months – if termination is made in the 2nd year of the contract, 3 months – if termination is made in the 2nd year of the contract, and 4 months – if termination is made on fourth or subsequent years of contract, (3) any party can terminate the contract immediately on the grounds of important reason, and other. These mandatory provisions of law prevail over any agreements.

IP Law

The trademarks are protected by Trademark Law, as there are no specific provisions about the trademarks used for the franchise. Owners of trademarks can acquire the right to prohibit the other persons to use their trademarks by registering their trademarks – either as International Registration with the World Intellectual Property Organization (WIPO), as EU Trademark with the EU Intellectual Property Office (EUIPO) in all 27 EU member countries, or as a national trademark in Latvia only with the Patent Office of the Republic of Latvia. If the trademark is not registered, the owner using a non-registered trademark can only dispute the registration of the trademark by another person and needs to prove the rights of the owner of the well-known non-registered trademark. Know-how is protected as a commercial secret. The protection is provided by the Commercial law and Commercial Secret Protection Law. International Franchise Handbook 2021 127 The Commercial Secret Protection Law defines what type of action is deemed to be lawful and what is considered to be unlawful in relation to the acquisition, use, and disclosure of the commercial secret, and commercial secret protection mechanism available to the injured party.

SELECTED QUESTIONS / ASPECTS

Precontractual disclosure

The Commercial law determined that prior to entry into the contract the franchisor must provide the following information to the potential franchisee: (1) general description of the franchise compliant with the actual circumstances, (2) evidence on the existence of rights included in the franchise and general description of know-how, (3) franchise term and extension options, (4) franchise fee and payment terms, (5) other information the franchisor considers necessary for entry into franchise contract. The franchisee has a general obligation to disclose significant circumstances to the franchisor relevant for entry into the franchise agreement. The law provides the right to the party of the franchise agreement, which has suffered from non-disclosure or provision of misleading information by the other party, to terminate the franchise agreement unilaterally.

Franchise fees

The franchise fees shall be determined in the franchise agreement and are a mandatory part of the agreement. The franchise fees are not regulated by law. Specific payment obligations are provided by law regarding a non-competition of the franchisee. If the non-competition clause is included in the agreement limiting the business activity of the franchisee after the expiry of the franchise agreement, the franchisee is entitled to remuneration for the whole period of this limitation. The remuneration shall be determined in the franchise agreement. However, if the franchisor terminates the agreement due to potential harm to his reputation or due to an important reason, which was caused by the fault of a franchisee, the franchisee loses his right to receive remuneration.

Confidentiality

The franchisor has a legal obligation not to disclose to the third party the commercial secret, which has become known to the franchisee as a result of using the franchise. This obligation remains effective five years after the expiry of the franchise agreement. Although the Commercial law section on franchise agreements does not provide a specific definition of the commercial secret for the franchise, the general rules section of the Commercial law and the Commercial Secret Protection Law defines the information. It is considered a commercial secret, and these definitions also apply to the franchise. Even if the franchise agreement does not contain the provisions for the protection of commercial secrets, these provisions of law apply.

The Commercial Secret Protection Law provides a commercial secret protection mechanism, which is made available to the parties to protect the information. The injured party may ask the court to prohibit the other person or to impose an obligation to the other person to perform certain actions to protect commercial secrets and terminate unlawful actions with the commercial secret. The injured party may also ask the court to order compensation of loss or non-pecuniary harm.

Amendments/ Termination

The provisions regarding the franchise agreement amendments and termination shall be included in the agreement. The Commercial law states that any of the parties have a right to terminate the franchise agreement according to the provisions of law or agreement. If the agreement does not determine otherwise, the provisions of the law are applicable. According to the law, any of the parties may withdraw from the agreement; if the performance on the franchise agreement has become too burdensome due to objective change of circumstances or misleading information regarding the significant circumstances was provided by the other party before entering into the contract. The law provides that in case if the performance on the franchise agreement has become too burdensome due to objective change of circumstances, the parties have to perform negotiations to amend or terminate the contract. The party may refer to the objective changes of circumstances if: (1) changes have occurred after the entry into the agreement, (2) the party could not foresee the change of circumstances at the moment of entry into the franchise agreement, and (3) the party has not undertaken the risk of change of circumstances. In addition, if as a result of the negotiations agreement between the parties to amend or terminate the agreement has not been reached, any of the parties may ask the court either to decide on the termination of the agreement or amendments of the contract, determining fair distribution between the parties of the loss and gains resulting of changed circumstances.

Renewal and transfer

The Commercial law does not provide any provisions on transfer or renewal of the franchise agreement. The specific provisions on transfer and renewal should be stated in the franchise agreement. In the agreement, the franchisor may prohibit the franchisee from transferring the franchise agreement or any claims arising from it to another person. If the agreement does not provide specific provisions regarding renewal and transfer, the general provisions of the law are applicable. In such a case, the renewal of the agreement after its expiry is possible only by agreement of both parties. The franchisee can transfer his rights and liabilities arising from the franchise agreement to another person as part of the business transfer. It is possible under the provisions of transfer of merchant’s undertaking provided in Article 20 of the Commercial law. According to the definition given in the law, the merchant’s undertaking is an organizational unit of merchant consisting of pool tangible and intangible assets and other valuable items used for commercial activity. If the franchisee transfers its undertaking (for example, shop, manufacturing plant) to another person, all rights and obligations related to it, including the relevant franchise agreement, are deemed to be transferred to the acquirer of the undertaking. However, in case of such transfer, the franchisee and the acquirer shall maintain joint liability for the transferred obligations, which existed before the transfer, or it will become due within 5 years after the transfer. This liability provision is mandatory and prevails over any provisions of agreement. The same provisions apply in the case of transfer of an undertaking by the franchisor in case, if part of it is a franchise agreement.

DISPUTE RESOLUTION AND APPLICABLE LAW

Dispute resolution, court system

The parties to a franchise agreement can agree on the venue of the disputes. The parties of the franchise agreement may choose that the disputes are reviewed by an arbitration court instead of the state court. In such case, the arbitration clause shall be included in the franchise agreement. If agreement on venue or jurisdiction of arbitration court is not made, the claims against any party can be brought to the Latvian state courts if the defendant is registered in Latvia or the claim relates to losses that have occurred in Latvia. Latvia has a three-tier court system. The first instance court is region (city) court, which reviews the case in merits. The judgment of the first instance court is appealable to the district court, which has the competence to review disputes on merits repeatedly. After the appellate court has issued its judgment, the cassation complaint regarding the appellate judgment can be submitted to the Supreme Court. However, the Supreme Court does not have the competence to review the case on merits. The Supreme Court can only verify whether there was a breach of substantive or procedural law during the review of the case on merits. If the Supreme Court finds that there was such breach, it can cancel the judgment in full or part and return the case to a new review in merits by the first instance or appellate instance court.

Applicable Law

The parties of the franchise agreement can agree on a choice of law to apply to their contractual relationship. In order to avoid disputes on applicable law, the governing law shall be determined in the franchise agreement. If the agreement on applicable law does not exist, then it is determined according to the provisions of the Latvian Civil law. The Civil law states that in relation to the contractual obligations. The applicable law is the law of the country where the obligations have to be performed. If this country cannot be determined, then the applicable law is the law of the country where the agreement was concluded.

COVID-19

No specific legislative provisions have been adopted in relation to the franchise agreements. There are only general provisions adopted influencing all types of contractual relationships. Until 1 September 2021, there is a temporary moratorium for compulsory collection of different types of payments – the debtor shall be given 60 days time for voluntary payment before commencement of the compulsory collection process. Also, the application for commencement of the debtor’s insolvency process cannot be submitted to the court earlier than 1 September 2021.

By Ivita Samlaja, Managing Associate, ZAB Deloitte Legal 

Sorainen is providing pro bono legal assistance to journalists Madara Sprude and Normunds Robeznieks from Tvnet Grupa, and Inga Springe from the Baltic Center for Investigative Journalism Re:Baltica in connection with the persecution and intimidation of journalists carried out by a private individual.

According to Sorainen, “to protect their rights, journalists have turned to law enforcement agencies, as well as asking senior state officials and the Ombudsman to pay attention to the low level of protection for journalists in the country.”

The Sorainen team included Partner Andris Taurins.

Sorainen has provided legal assistance to Latvian local newspaper Independent News of Tukums’ Editor-in-Chief Ivonna Plaude in a dispute against the Tukums Municipal Council for insulting her honor and dignity.

According to Sorainen, the dispute followed the publication of false and defamatory information about Plaude in the municipal newsletter. Plaude applied to the court in June 2021, asking for the removal of the information and compensation for non-pecuniary damages.

“Although the municipality initially did not recognize the claim, in August 2021 a settlement was reached in the case, as a result of which the municipality undertook to delete the disputed information, as well as to pay compensation to the plaintiff,” Sorainen reported.

Sorainen’s team included Partners Ieva Andersone and Andris Taurins and Assistant Lawyer Lucija Strauta.

Cobalt has advised I Asset Management on a EUR 12 million development project for private student housing in Riga in cooperation with MBC Capital and Bonum Management. Triniti reportedly advised MBC.

The 240-room project will be constructed next to the Academic Center of the University of Latvia and is scheduled to be completed by 2022.

According to Cobalt, “the project in Riga is a part of I Asset Management’s student housing development strategy which aims to develop modern student housing across the Baltics and elsewhere in Central and Eastern Europe. Over the next five years I Asset Management aims to develop and consolidate in excess of 4,000 rooms of student housing.”

The Cobalt team included Managing Partner Dace Silava-Tomsone, Partner Sandija Novicka, Senior Associate Elina Locmele, and Associates Juta Meimere and Vadims Zvicevics.

Cobalt has advised Latvian retail banks Swedbank, SEB, Luminor, and Citadele on a cooperation agreement to ensure accessibility of cash services throughout Latvia.

The memorandum signed on September 3, 2021, provides, among other things, for the availability of ATMs within 20 km from the home of at least 99% of the population. According to Cobalt, the increasing proportion of electronic payments has lowered both the demand for cash and the importance of ATMs, yet the availability of cash remains crucial from a social perspective and has implications for privacy.

“The largest retail banks have recognized a potential for voluntary cooperation in order to maintain, by means that would serve both consumer interests and cost efficiency, a certain level of service standards that were set in collaboration with the Bank of Latvia,” Cobalt noted.

The Cobalt team included Partner Ugis Zeltins and Specialist Counsel Edgars Pastars.

Ellex has advised the Lithuanian real estate developer Hanner Group on its EUR 131 million sale of Riga office complex Jauna Teika to the Eften Real Estate Fund 4.

According to Ellex, the Jauna Teika business center is a strategically important property in Riga. Located in the Vefresh area, which has historically been the home of Latvian technology companies, Jauna Teika comprises four office buildings with a total leasable area of ​​about 59,000 square meters. 

According to Eften Capital, the transaction is the largest in Eften’s history, as well as the second-largest real estate transaction in the history of Latvia.

The Ellex team included Partners Ivars Pommers and Inita Jurka, Senior Associate Zane Miglane, and Associate Ineta Kanepe.