Category: Latvia

The law on carriage of goods is a well-harmonized area of international law –  a streamlined set of rules that allows cargo owners and carriers to save valuable time and resources. While freight forwarders are an important element of every consignment it is surprising that many elements of forwarder’s liability are still regulated by national law.

And in some important ways, forwarder’s liability differs in Latvia from that in other countries.

Freight forwarders tend to have dual liability. Unless the parties have expressly agreed otherwise, the forwarder may either be liable only for its own mistakes or may assume the liability of other parties that have been involved in the consignment by the forwarder.

Generally, a forwarder’s liability is limited to arranging the consignment in a diligent and prudent manner. However, under Latvian law forwarders also assume the liability of other parties involved in the consignment if the forwarder has expressly or impliedly assumed the liability of the carrier; the forwarder determined the fee for a carriage; the forwarder issued a consignment note in its own name; or the carriage takes place exclusively via road transport.

These conditions for extended forwarder liability can be easily met. Forwarders often set the carriage fees, exclusively use road transport, or otherwise engage in carrier functions that give rise to implied liability. As a result, in most occasions forwarders assume the full liability of carriers, warehouse operators, and other parties involved in a consignment.

The law limits the maximum amount of forwarder’s liability to 8.33 special drawing rates (SDR) for each gross mass kilogram of freight. What is peculiar about forwarder’s liability under Latvian law, however, is that the liability limit operates irrespective of the type of carriage used for the consignment. That means that when the carriage takes place by means of transport that has higher or lower liability limits, the forwarder may have a higher or lower liability limit than the limit used for the particular industry. For example, if the loss of cargo occurs within an air consignment, then the forwarder’s liability will remain capped at 8.33 SDR instead of the 19 SDR for each gross mass kilogram that is the liability limit for air transport.

These liability limits apply only to cases of cargo loss or damage, but not to cases of delayed delivery, in which the forwarder may potentially be liable for the full amount of the loss. This conflicts with the overall transport industry standard, in which carrier liability is limited to the amount of the fee received for the carriage.

Where the consignor has not set a specific cargo delivery deadline, the forwarder shall be responsible for the delivery of the cargo within a reasonable time. On the other hand, if a specific delivery deadline was set by the consignor, then the forwarder shall be liable for any delay that could have been avoided by an honest and careful merchant. That means that the forwarder must follow a very high degree of care and may become liable for any negligence or wilful misconduct that contributed to the failure to meet the agreed-upon delivery date.

Similarly, as in other countries, Latvian law provides that claims against forwarders expire within one year, except for claims of wilful misconduct or gross negligence, which expire in three years. Recent case law from Latvia’s Court of Appeal has provided valuable guidance as to what actions of a forwarder may constitute gross negligence under Latvian law.

In the matter considered by the court the cargo was delivered late and part of the cargo was stolen when the carrier’s vehicle experienced technical problems during the carriage. Even though the carrier informed the forwarder about the need to carry out roadside repairs, the forwarder ignored this information for over one month. The court established that the forwarder’s degree of care required the forwarder to engage proactively with the carrier and facilitate the safe delivery of the cargo. The court held that the forwarder’s failure to demonstrate any interest in the carrier’s technical difficulties qualified as gross negligence.

By Gatis Flinters, Partner, Cobalt Latvia

This Article was originally published in Issue 6.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

On 30 January 2020 the Latvian Parliament adopted amendments to the CIT Law. The amendments have not been promulgated and, therefore, the exact wording of the adopted amendments is not available yet. The amendments will come into force on the next day after their promulgation, which most likely will happen already this month.

Withholding tax from rent payments to corporate non-residents

By the amendments withholding tax from rent payments to corporate non-residents is re-introduced. Withholding tax from rent payments to corporate non-residents was abolished as of 1 January 2018 when the new CIT regime was introduced. After the amendments will come into force the rent payments to corporate non-residents for the real estate located in Latvia will be subject to withholding tax of 5%. Corporate non-residents being EU residents and residents of the countries with whom Latvia has effective tax treaty may afterwards ask recalculation of the tax at the rate of 20% from the gain taking into account expenses related to such rent income.

Distribution of profit from sale of shares in real estate companies will be taxed

Currently profit from the sale of shares (except shares in companies of low-tax or no tax-jurisdictions) held for 3 years can be distributed in dividends to corporate shareholders without paying CIT.

According to the amendments this exemption will not be applicable to the profit from the sale of shares in real estate companies (company with more than 50% of its assets in the year of the transaction or a year before consisting of Latvian real estate), except publicly circulated shares.

This may have an impact on many investors that acquired real estate in Latvia and used Latvian holding companies for the management of real estate companies. Exit scenarios planned before the amendments might be insufficient to prevent unnecessary tax leakages.

By Sandija Novicka, Partner, Cobalt

Ellex Klavins has advised SIA Verus Praedium on its sale of 14.45 hectares of land to SIA Riga Retail Park for the development of a new Saga shopping center. Riga Retail Park was reportedly advised by Sorainen.

The shopping center will be located beside an IKEA store near the border of Riga and Riga’s Stopini district.

Ellex’s team included Attorneys at Law Ilga Gudrenika-Krebs and Anete Dimitrovska and Senior Associate Inese Freivalde.

Editor’s note: After this article was published CEE Legal Matters learned that Sorainen had advised the buyers on the deal. According to the firm, “Saga will be located next to the IKEA store and will be a unique concept, combining shopping with recreation, sports, and office facilities. The planned investment for developing Saga is approximately EUR 68 million.”

Sorainen’s team included Partners Lelde Lavina, Rudolfs Engelis, and Janis Taukacs, Senior Associates Jorens Jaunozols, Inese Heinacka, Renate Purvinska, and Kristine Erele, and Associates Andris Vilisons and Zane Akermane.

Subsequently, CEE Legal Matters learned that TGS Baltic and Deloitte Legal had advised CVI Dom Maklerski on financing provided to SIA Riga Retail Park for the acquisition. 

Latvian lawyer Ugis Zeltins has been promoted to Partner and Head of Competition at Cobalt.

According to Cobalt, “[Ugis’] strong work ethics, outstanding knowledge, and experience in competition and dispute resolution matters will strengthen Cobalt’s position in the Baltic legal market and expand the capacity of Cobalt to offer high-quality advice to clients.”

Zeltins joined the firm in 2007, Cobalt reports, “and ever since has been involved in numerous high–profile assignments and led several landmark cases in national and European courts, concerning abuse of dominant position, horizontal and vertical agreements, recovery of damages and patent disputes.”

Zeltins holds an LL.M. from the College of Europe in Bruges and is a graduate of the University of Latvia, where he also teaches competition law.

“We are happy to see yet another bright talent joining Cobalt’s partnership,” commented Cobalt Latvia Managing Partner Dace Silava-Tomsone. “Ugis is not only a widely recognized expert in his practice areas but also a passionate promoter of new approaches and technologies in rendering legal services. Cobalt has set goals to remain current in the ever-changing legal market, and Ugis’ input will be highly instrumental in Cobalt partnership achieving those goals.”

Sorainen has advised the Kaamos Group on its acquisition of one sixth of the shares in Sunly Land and on its entrance into a shareholder agreement.

Sunly focuses on renewable energy and climate tech innovation in the Baltics. Sunly Land consolidates all of Sunly’s assets. 

“Kaamos Group is constantly looking for new innovative companies to invest in,” commented Marek Pohla, Chairman of the Board of the Kaamos Group. “Sunly’s team of renewable energy experts and strategic collaboration with them will enable us to expand into a promising energy industry.”

“The inclusion of Kaamos’s capital enables us to enter foreign renewable energy markets more vigorously,” added Sunly CEO Priit Lepasepp. “We are active in the solar market in Poland today, having just bought 12 additional solar projects in addition to the 26 we have already acquired, but we have big plans in other countries and the contribution from Kaamos is giving a lot of momentum.”

Sorainen’s team included Partner Piret Jesse, Senior Associate Kaspar Endrikson, and Associate Robin Teever.

Sorainen did not reply to our inquiry on the matter.

The Baltic real estate and construction markets remain active, with a number of sizeable transactions completed during the first few months of 2019 and investment pouring into the development of infrastructure, commercial, and residential projects. For the past decade, the Estonian and Lithuanian real estate markets have been more active than the Latvian market. Now, however, with Estonian and Lithuanian markets becoming more and more saturated, Latvia is attracting an increased amount of interest from developers and investors.

This increased activity is providing an additional push for streamlining the construction process to facilitate the absorption of investment and deliver more projects to the market. The long-awaited reforms of the construction law finally seem to be ready for launch. The Ministry of Economics, the institution responsible for construction policy in Latvia, has released draft laws which promise improvement in a number of aspects.

Diminishing Regulatory Control

In line with the decrease of regulatory control over construction that has become a trend across Europe, the proposed amendments to the Construction Law of Latvia narrow the scope of review of designs to be performed by public authorities supervising the construction processes (i.e., “construction boards”). Under these proposed amendments, construction boards will control the architectural quality of designs only to the extent required to preserve the landscape and urban environment and to ensure compliance with zoning requirements and requirements for the building’s location. The amendments aim to end a long-lasting discussion about whether construction boards are entitled (or even required) to review technical solutions. Going forward, overseeing compliance with building regulations and standards will be the exclusive responsibility of certified architects and engineers. The decreased regulatory control is expected to speed up construction processes, which can currently be significantly delayed by the need to obtain approvals (although in fact current construction board review is largely formal due to a lack of staff and competence).

Yet another innovation will be the introduction of the principle of “silence as acceptance.” Under this principle a construction board or other public authority that fails to issue a decision within the timeframe required by the construction laws will be deemed to have granted its approval for the intended activity. Likewise, owners of networks and roads who fail to coordinate the construction documents within the terms set by law will be deemed to have consented to the works within the protective zones of the relevant networks or roads.

Effective Insurance

Surprisingly, the hottest area of debate related to the improvements in construction regulations involves the division of liability. Although there is no doubt that each party must bear liability for its own mistakes, the industry found it difficult to reach a compromise on which party should bear the risk of third parties suffering damages or injuries as a result of accidents on the construction site. 

It is well known that determining the cause of accidents may take years and involve significant expense. The current Latvian system, under which each participant of the construction process (designer, expert, contractor, supervisor, etc.) must carry its own third-party liability insurance policy, is not functioning, as no compensation is paid by insurers until the determination of the responsible party is concluded, and few third parties have the resources or the patience to wait. As a result, suits brought by third parties against all the construction participants involved (or at least against the deepest pocket) are common.  

The solution of this problem lies in comprehensive insurance, covering all the participants of the construction process. Since there is no strict liability of building owners in Latvia, developers found it difficult to accept that they would be held liable for risks related to faults of their contractual parties. Eventually, a compromise seems to have been found: customers will be obliged to procure third-party liability insurance covering all the construction participants. Only if the customer fails to procure the insurance will it be liable towards a third party, up to the limit of mandatory insurance. It will be an additional cost for the customer, but it will end the search for the deep pocket – which most often is the developer itself. 

If these legislative proposals are adopted by the end of 2019, another step forward will have been taken towards making the Latvian market more attractive for developers.

By Dace Silava-Tomsone, Managing Partner, Cobalt Latvia

This Article was originally published in Issue 6.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

“There were no major changes in the structure of the Latvian legal services market in 2019,” says Lauris Liepa, the Managing Partner of Cobalt in Latvia. “As before, three firms – Cobalt, Sorainen, and Ellex – have dominated both the transactions and the corporate advisory market. While some lawyers have changed firms, there have been no major moves regarding teams or senior lawyers. One of the reasons might be a relatively good situation in the legal services market, with growth in all practice areas.”

Liepa says that Latvia’s economy is in good condition, “as it is in all the Baltic countries,” and he notes that “it performed above the average EU level in terms of GDP growth in 2019.” He concedes “certain unpleasant discoveries in the banking/AML segment regarding past practices,” but says that these have caused “no turbulence in the industry.” He says that there has been a noticeable uptake in the financial regulatory/compliance areas. Finally, he says, “we also expect that the necessity for legal assistance in infrastructure projects will grow this year.” 

Liepa feels that the current political situation in Latvia is “rather stable, after the elections that took place in 2018, with the coalition government attempting to implement coordinated reforms in, among others, the judicial area.” He believes that this has raised business confidence and increased trust in governmental measures. “The regulatory environment in Latvia can be characterized as business-friendly.”

Finally, on the subject of legislation, Liepa reports that the “most important change will be the creation of a new specialized court for Economical Matters,” which he says was proposed by the government coalition and is expected to be implemented in 2020/ 21. The goal for this court, he says, is to facilitate an expedient and specific process for commercial disputes as well as white-collar trials. “This will be a major change,” he says, noting that it is “aimed to improve the efficiency of judicial review of business disputes and will inevitably play a positive role in the development of the Latvian business environment.”