CEE Legal Matters

Category: Latvia

  • Latvia’s Fight Against Corruption

    Latvia is gradually improving its score in the corruption perception index. According to the international anti-corruption organization Transparency International, Latvia took 44th place in the corruption perception index in 2016, with 57 out of 100 points – after scoring 55 in both 2015 and 2014 (it scored 53 points in 2013 and 49 in 2012). This represents Latvia’s best score so far, and it appears to be a sign that tolerance of corruption in our country is continuing to decrease. By contrast, Lithuania fell from 34th place in 2015 to 38th place in 2016 (with 59 points in 2016, compared to 61 in 2015), and Estonia moved up to 22nd in 2016 from 23rd the year before, though it had the same 70-point score both years. 

    Research on attitudes towards corruption in Latvia performed by the SKDS research center in October 2016 revealed that the number of respondents who admitted that, within the last two years they had made unofficial payments, given gifts, or used private connections when sorting out issues or problems decreased by 18% since 2015. The number of respondents who would be ready to report on cases of corruption increased by 10% as well. The readiness of respondents to inform the Corruption Prevention and Combatting Bureau of Latvia (KNAB) of known crimes, such as – for example – when a bribe is required or an official exceeds his/her commission increased by 2%.

    Despite its progress, there is still a lot of work to be done in order for Latvia to catch up with Lithuania and reach the level of Estonia.

    International corporations with subsidiaries, clients, and/or intermediaries in Latvia have also had a huge impact on the prevention of corruption in Latvia by educating their staff and co-operation partners and requiring them to commit to internal anti-bribery policy & compliance guidelines, as well as the US Foreign Corrupt Practices Act and/or the UK Anti-Money Laundering Act, as a precondition for commencement of business.

    The most recent cases prosecuted by the KNAB or commenced by the prosecutor general at the KNAB’s instruction were related to the disclosure of confidential information and corruptive behaviour by the chairperson of the regional court, the malicious misuse of official position with greedy intent, the carrying out, organization, and support of large scale embezzlement, the requesting and receiving of a bribe, trading with influence, embezzlement of a bribe, extortion of a bribe, and so on.

    In the first of these, the chairperson of the regional court allegedly disclosed non-state secret confidential information to a representative of the media. In that same case, a private person allegedly offered a bribe to the chairperson of the regional court to take certain actions favorable to that private person in relation to the adjudication of a civil case.

    In another case, employees of the municipal company AS Rigas Centraltirgus (Riga Central Market) allegedly carried out illegal actions. The chairman of the management board of the capital company owned by the Riga City Council organized a large-scale embezzlement, an employee of that capital company (a state official) supported that embezzlement, and three employees misappropriated the financial resources of that company in a large scale by handing them over to the management.

    There was a case in which a private person allegedly accepted a material benefit from a company in return for using his social position to illegally influence an official of the Jurmala City Council to conclude a transaction with SIA Jurmalas Siltums (Jurmala Heating).

    There was also a case concerning the alleged extortion of a large-scale bribe for the commissioning of a construction project and for forgery of documents at the construction site.

    In one case, a person claiming a close relationship with the officials of the Road Traffic Safety Directorate encouraged another person to provide a bribe that the first person could then pass on to the officials of the Directorate and the State Police to cancel a prohibition of a driver’s licence.

    Currently, a case has been submitted for prosecution involving a state official who allegedly requested and received a bribe in return for his promise not to prohibit the renovation of a living wagon in a biosphere reservation.

    The aforementioned cases reflect anti-corruption related issues topical in Latvia in 2017. None of the persons described above should be considered guilty until he/she is convicted of committing a criminal offense in accordance with the procedures specified in the Latvian Criminal Procedure Law.

    By Andra Rubene, Partner, TGS Baltic

    This Article was originally published in Issue 4.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Sorainen Advises Baltic Horizon Fund on Acquisition of Riga Office Building

    Sorainen Advises Baltic Horizon Fund on Acquisition of Riga Office Building

    Sorainen has advised the Baltic Horizon Fund, managed by Northern Horizon Capital, on its acquisition of the Vainodes 1 office building in Riga, for a price of approximately EUR 21.3 million, from sellers NULE 4 and NM 2.

    Sorainen reports that the deal was confirmed on November 14, 2017, when a share purchase agreement was signed with the sellers for the acquisition of Vainodes 1 and a neighboring land plot at Telts 1, in Riga. According to Sorainen, as the transaction was structured as a share deal, “the buyer is to acquire shares in the SPV companies that own the property.” Closing remains subject, the firm reports, “to the customary conditions precedent and is expected to take place in December.”

    The Vainodes 1 office building is fully occupied and located about ten-minutes from Riga city center. The total leasable area of the building is 8,052 square meters. The anchor tenant, with about 90% of the GLA, is JSC Latvian State Forests; other tenants include the pharmaceutical company Abbvie and a cafeteria. The current detailed plan for the land plots includes an opportunity to construct up to 18,262 square meters of additional office space and a multi-story car park.

    “We are glad to include such an attractive property in our cash flow portfolio and are satisfied about being able to deploy most of the capital raised in the Q2 offering,” claimed Baltic Horizon Fund Manager Tarmo Karotam. “The process towards execution of the agreement took longer than usual. This is because additional legal and tax due diligence was needed due to changes in tax regulations in Latvia as of January 2018.”

    The Sorainen Latvia team was led by Country Managing Partner Eva Berlaus, working with Senior Associate Janis Bite.

    Image Source: baltichorizon.com

  • TGS Baltic Assists Expobank AS on Compliance with EU Financial Instruments Market Directive

    TGS Baltic Assists Expobank AS on Compliance with EU Financial Instruments Market Directive

    TGS Baltic has advised Expobank AS on integrating the requirements of Financial Instrument Market Directive 2014/65/EU (MiFID II) into its operations.

    According to TGS Baltic, as many “new types of market participants” have been introduced in “the field of financial instrument trading,” the purpose of MiFID II “is to facilitate the protection of investor’s interests [and] ensure the transparency of the financial market by envisaging a new obligation of market participants to publish data and provide reports on transactions with financial instruments.”

    TGS Baltic Senior Lawyer Alise Eljasane and Lawyer Jekaterina Anohina advised Expobank on the regulations requirements.

  • The Latvian Supreme Court Clarifies Recovery for Cancellation of Leasing Contract

    In Latvian Case SKC-176/2017, lessor Swedbank Leasing resold the lease objects to another buyer after lessee Mednis had made full payment, such that, according to the judgment of the arbitration court, at the moment the objects were resold the lessee was not in debt to the lessor.

    After the sale of the objects Swedbank Leasing kept the difference between the value of each leasing object and the total payment made by Mednis (excluding interest and VAT). As a result, Mednis argued, Swedbank Leasing unjustly acquired wealth at the expense of Mednis for the difference, because the payment of Mednis included both interest and payment of principal amounts that were the price for buy-out of the leasing objects. 

    Swedbank Leasing contra-argued that it retained the title to the leasing objects up until the moment Mednis fulfilled all its obligations under the leasing contracts; thus it had just gained all possible benefits from its property, including reselling the leasing objects.

    According to Swedbank Leasing, it used the funds obtained from the sale to settle the debt of Mednis. The leasing contracts did not provide that Swedbank Leasing should return the difference to Mednis. Mednis did not buy out the leasing objects and the leasing contracts were terminated before their term. Swedbank Leasing as the owner of the leasing objects realized full power of its ownership of the property by selling those objects to third parties after the leasing contracts had been terminated, and in doing so had acted according to the law and the leasing contracts. 

    The main motive of the cassation complaint was the allegedly unjustified acquisition of wealth by Swedbank Leasing, which had gained almost double the income from the sale of the same leasing objects first to Mednis and then to third parties. 

    The Supreme Court recognized Mednis’s claim as substantiated, ruling that, although at the moment the leasing contracts were concluded there were no specific provisions of law regulating them, provisions that regulate transactions which in this particular case could be considered elements of the lease, as a compound transaction, should have been applied. 

    According to the Court, the leasing contracts qualified as purchase by gradual instalments, because the intention of the parties was to transfer the leased objects into the possession of Mednis after all leasing payments were made. Such qualification conforms with Article 463(2) of the Latvian Commercial Law, which provides that the provisions of the Civil Law regulating the purchase agreement apply to leasing contracts if at the end of the term of contract the lessee is obligated to buy out the lease object. Therefore, the Regional Court should have applied the provisions of the Civil Law regarding purchase agreement by gradual instalments. 

    In the opinion of the Supreme Court, although Mednis’s claim was based on the general provisions of the Civil Law restricting unjustified acquisition of wealth, according to the principle iura novit curia, the Regional Court should have known the applicable provision in the legal system itself and therefore it should have applied the specific provision of the Civil Law restricting unjustified acquisition of wealth in cases of purchase by gradual instalments provided in Article 2070 of the Civil Law. 

    Clause 2070 of the Civil Law provides that: “If the right of payment of a purchase price by instalments has been contracted for, and the purchaser has defaulted with respect to two payments, but the seller does not wish to burden himself or herself with the collection of late payments, […], then the seller may request setting aside of the contract and return of the sold property together with compensation for the use, during the period from the delivery of the property to the purchaser until the return of the property to the seller, and for the losses caused for the latter. Against the amount, that the seller is entitled to from the purchaser on such basis shall be set off all the payments made by the purchaser, and if they exceed such amount, then the remainder shall be paid back to the purchaser. Agreements contrary to these regulations shall be void.”

    Pursuant to the specific provision applicable in case of termination of the leasing contract, the seller’s claimed right for payment of the purchase price transforms into a claim for payment for use of the leasing object and compensation of losses, but any sum exceeding those payments shall be refunded. In these circumstances, on the basis of Article 2070 of the Civil Law, Mednis was entitled to have the overpaid amount returned. 

    By Andra Rubene, Partner, TGS Baltic, Latvia

    This Article was originally published in Issue 4.8 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • Cobalt Advises SEB Bankas on Altum Green Bond Issuance

    Cobalt Advises SEB Bankas on Altum Green Bond Issuance

    Cobalt has advised AB SEB Banka on its role as arranging bank on the October 10th issuance of EUR 20 million Green bonds by Latvia’s state-owned JSC Development Finance Institution Altum — the first such issuance by a national development institution in Central and Eastern Europe . 

    According to an Altum press release, “the Green bond is a climate-related fixed income instrument allowing investors with mainstream investment mandates to participate in climate financing, to raise awareness on climate related risks in addition to making a sound investment. The Green bond market has grown rapidly over the last decade with total, cumulative issuance exceeding USD 300 billion and the total number of individual Green bond issuers approaching 500.”  

    In addition, according to Altum, the green bond issuance was “in the total value of EUR 20 million with a maturity date of 17 October 2024, a fixed annual interest rate (coupon) is 1.3%, [and] a yield of 1.367%. The deal was finally allocated to 24 investors from: Latvia (43.5%), Lithuania (31%), Estonia (19%), Sweden and Germany (6.5%). The bond issue was oversubscribed by 6.5 times by asset managers, pension funds, insurance companies and banks. The bonds will be listed on Nasdaq Riga.” The proceeds from the bonds will be used to finance viable business projects supporting energy efficiency and use of renewable energy.

    Legal assistance to AB SEB Bankas in the transaction was provided by Cobalt’s banking and finance team led by Specialist Counsel Edgars Lodzins. Cobalt did not reply to an inquiry about counsel for Altum.

  • Ellex Klavins Successful for JCDecaux Latvia on Placement of Advertising on Public Transportation Stops

    Ellex Klavins Successful for JCDecaux Latvia on Placement of Advertising on Public Transportation Stops

    Ellex Klavins has successfully represented JCDecaux Latvia before the Latvian Competition Council in a matter regarding the placement of outdoor advertising on public transportation stops.

    According to Ellex, “during the course of proceedings, the Competition Council (CC) concluded that Rigas Satiksme (the main provider of public transport services in Riga) had leased public transport stops to the company Pilsetas Linijas, on the condition that a number of them would be rebuilt. PL transferred this right further to our client JCDecaux, which, after the reconstruction of the transportation stops, was going to return them to RS at no additional charge. After assessing the terms of the contract, the CC identified certain points that they considered to potentially limit competition over a longer period of time: the long term of the contract; the ‘reservation’ of advertising rights for all future and potential RS transportation stops; [and the] automatic renewal of the contract. After evaluating JCD’s investment in the construction of the public transport stops, the CC concluded that they were objectively justified in relation to the specific contract. All three companies involved in the case submitted a written commitment to change certain clauses of the agreement, thereby eliminating the potential negative effects on the market. Consequently, the case has been successfully terminated without the imposition of any fines, and the change in the specific clauses has removed the CC’s concerns about a breach of the Competition Law.”

    JCDecaux Latvia was represented in the matter by Ellex Klavins Partner Liga Merwin and Senior Associates Maris Brizgo and Martins Gailis.

    Editor’s Note: After this article was published TGS Baltic informed CEE Legal Matters that it had represented Clear Channel Latvia in its application to the Latvian Competition Council “that led to Council’s infringement decision establishing that SIA Rigas Satiksme, SIA Pilsetas linijas, and SIA JCDecaux had committed competition law violation in relation to contracts on rights to place outdoor advertisements.”

    According to TGS Baltic, “the Council identified several anti-competitive issues limiting competition in the relevant market over a longer period of time, such as: the long term of the contract, the reservation of advertising rights for all future and potential Rigas Satiksme transportation stops, and the automatic renewal of the contract.”

    Clear Channel was represented by TGS Baltic Partner Agnese Hartpenga and Associate Mara Stabulniece.”

    Subsequently, BDO Law announced that it had “prepared a written undertaking in which SIA Rigas Satiksme and other companies involved in the case expressed their readiness to change certain clauses of the agreement and to further adhere to other conditions, thus preventing a possible violation. The Competition Council accepted the commitment given by BDO Law as it eliminates the competition restrictions identified by the authority. It is important to point out that the commitment addresses the competition concerns related to the prevention of the risks of cartels.”

  • Cobalt Advises Hanslink in Acquisition of Bank M2M Europe

    Cobalt Advises Hanslink in Acquisition of Bank M2M Europe

    Cobalt has advised Latvian investor Hansalink SIA on its acquisition of a direct qualifying holding in Bank M2M Europe.

    On September 20, 2017 the European Central Bank and the Financial and Capital Markets Commission granted permission to a new group of shareholders – Signet Global Investors Ltd (25%), Hansalink SIA (22.3%) and Fin.lv SIA (8.79%) — to acquire a majority shareholding in Bank M2M Europe AS.

    Cobalt advised and assisted Hansalink in preparing the documentation for its filing for acquisition of the qualifying holding in Bank M2M Europe, and represented Hansalink in liaising with the ECB and FCMC in the application review process. The firm’s banking and finance team was led by Managing Partner Lauris Liepa.

  • Ellex Klavins Advises New Hanza Capital on Acquisition of Riga Office Buildings

    Ellex Klavins Advises New Hanza Capital on Acquisition of Riga Office Buildings

    Ellex Klavins has advised New Hanza Capital, acting via its NHC 2, SIA subsidiary, on the acquisition of three office buildings on the territory of Latvia’s former State Electro-Technical Factory from Salvus 6, SIA, a subsidiary of DNB Bank.  

    New Hanza Capital, AS — a member of the ABLV group — was founded in 2006 to invest its own and third party funds, to sustainably raise revenues from the lease of premises, and to ensure the increase of property value and capital gain in the long term. Its majority shareholder is ABLV Bank, AS, which owns 88% of the company’s shares.

    According to Ellex, the VEF territory is now being developed as a new quarter for business, culture, entertainment and creative activities. The firm reports that “the acquired site has the status of cultural heritage and has a high potential for development.”

    The total value of the transaction is EUR 8.46 million. The overall floor area of the acquired office buildings, which are located in Riga at Brivibas Gatve 214B, Brivibas Gatve 214M, and Berzaunes Iela 1a, is approximately 25,000 square meters. Intrum Justitia Software Development Centre, SIA and Accenture Latvian branch are among the most prominent tenants in the buildings.

    The Ellex Klavins team was led by Partners Ivars Pommers and Inita Jurka.

  • Magnusson Latvia Merges with Glimstedt

    Magnusson Latvia Merges with Glimstedt

    On October 1, 2017, the entire Latvian operations of Magnusson merged with Glimstedt in that country and will operate under the Glimstedt name going forward, with former Magnusson Managing Partner Valdis Kronis and Partner Ivars Kronis becoming Partners at Glimstedt.

    According to Aldis Kalinks, Managing Partner of Glimstedt in Latvia, the merger will consolidate the core competencies and professional expertise of the Glimstedt and Magnusson teams and will provide local and international clients with a broader range of legal services.

    According to Glimstedt, “Dr. Ivars Kronis is a member of Latvian Collegium of Sworn advocates, a qualified insolvency practitioner, and an arbitrator of the Riga Permanent Court of Arbitrage. Ivars focuses on insolvency, restructuring and commercial disputes and is a leading arbitration expert in Latvia. Valdis Kronis obtained an LL.M. degree at Durham University, in the United Kingdom. He is a member of Latvian Collegium of Sworn advocates, a qualified insolvency practitioner, and an arbitrator of the Riga Permanent Court of Arbitrage. [His] main areas of his practice include insolvency, litigation, arbitration, corporate, real estate, M&A, EU and competition law.

  • Ugis Treilons Joins Joins Leadell in Riga

    Ugis Treilons Joins Joins Leadell in Riga

    Ugis Treilons has joined the Riga office of Leadell as a Partner.

    Treilons practiced with Klavins, Slaidins un Loze, later becoming a Founding Partner of the Treilons & Petrovics firm. Since 2011 he has been a Partner at Treilons Sworn Advocates. According to Leadell, Treilons’ “remarkable experience and knowledge in the fields of corporate law, investments and commercial transactions will expand our capacity to provide effectively secure and trustful top-level legal assistance to business clients.”

    “The core values of our firm — security, trust, passion — are essential features of efficiency in every process, and the accession of Treilons to our team means even more opportunities to respond to customer needs quickly, precisely, and according to a high standard,” commented Leadell Fogels, Vitols, and Paipa Managing Partner Karlis Vitols, “I am pleased to offer our clients the knowledge and experience that Uģis has accumulated in the industry for more than 20 years.”

    “Leadell people are well-trained team players, which they are prepared to demonstrate both in their professional careers and when teaming up in sporting activities,” said Treilons. “I am convinced that flawless and solid team performance is the most valuable benefit for clients, which is also the main reason why I decided to join this law firm.”