Category: Deal 5

On October 31, 2016, CEELM reported that the Ukranian start-up eTachki had obtained USD 1 million investment from local capital fund TA Ventures. We asked the Head of Legal at eTachki, Marina Makarova, to tell us more about the deal and the structure of her in-house legal team.

CEELM: How did you persuade TA Ventures to invest in eTachki? What do you think is your chance to win the following investment rounds from TA Ventures again?

M.M: eTachki is a national-scale e-commerce project for the sale and purchase of used cars, and in fact is the only online service in Ukraine that allows sellers of used cars to get a quick and quality service.

TA Ventures is a well-known supporter of innovation and IT business on the Ukrainian market. TA Ventures is interested in partnership with us due to a number of factors, such as eTachki’s unique business model for Ukraine, its IT platform, which provides eTachki with an advantage over other market players, and also the huge interest of consumers in the used cars market.

As for the following rounds of investment by TA Ventures, in my opinion, eTachki’s potential makes this project interesting for investors and allows looking forward to further investment for the development and scaling of the project, including possible future rounds of investment by TA Ventures.

CEELM: Could you elaborate on the process of structuring the TA investment and the final result of it? 

M.M: After the initial phase, which involved a preliminary analysis of the eTachki business concept, the investment process identifies the main conditions of the subsequent shareholders agreement — the result of which was a Term Sheet between TA Ventures and Head Company of eTachki.

Later, at the due diligence stage, the parties agreed upon and analyzed all the legal and financial aspects of investing, verified the financial model of the project, and made sure all agreements, obligations, list of powers, and the expectations of the parties within the framework of the investment process accompanying this investment round were included in the shareholders agreement and in the contract of sale and purchase of shares.

eTachki’s investment conditions envisaged financial investment of USD 1 million from TA Ventures in exchange for issuing of preferred shares from the Head Company of eTachki. The process of obtaining financial investment was divided into 2 stages: the first stage provided for financial investments after the signing of the shareholders agreement; the second stage was connected directly to the achievement of key goals in the development of eTachki agreed by the Parties.

As a result of the investment round, the venture fund TA Ventures invested USD 1 million in eTachki.  

CEELM: How big is your legal team at eTachki? What was the rationale behind setting up an in-house legal team in your company rather than outsourcing legal services as is usual in start-ups?

M.M: Today, eTachki’s legal team includes two lawyers.

At the initial stage of development eTachki actually used the services of outsourced lawyers for resolving of all legal issues. However, in a period of eTachki’s dynamic development, the availability of in-house lawyers has become vital in light of the large (and increasing) amount of functions and tasks that need immediate reaction and permanent communication with internal structural elements, as well as with external contacts.

CEELM: What tasks are traditionally handled by your in-house team and which tasks are traditionally assigned to external counsel? 

M.M: At the moment our in-house team provides legal support for eTachki activities in general and is responsible for the legal tasks in the fields of contract, labor, and tax law, including intellectual property rights and corporate rights.

The range of the legal tasks for which eTachki engaged external consultants is basically connected with the scope of international law, the management of corporate rights outside Ukraine, and counseling and support for venture capital investments.

In such cases, we consider that it is necessary to invite foreign law firms or foreign lawyers with international experience and reputation in such issues for the provision of legal consulting.   

CEELM: Why did you retain Redcliffe Partners to help you on the structuring?

M.M: eTachki invited Redcliffe Partners as a law firm that has a high level of professional legal service and international experience, including matters of venture investment in connection with investments by TA Ventures.

Redcliffe Partner’s team accompanied the investment deal with TA Ventures by participating in the coordination of investment structure and by preparing the shareholders agreement and the contract of sale and purchase of shares.

In the future, we also see the possibility of a successful partnership with Redcliffe Partners because eTachki plans to attract further investment and carry out new investment rounds, in which Redcliffe Partners’ team’s international experience in legal practice will be necessary. 

On November 1, 2016, CEELM reported that ZGI Capital has invested EUR 700,000 in Latvian FinTech company Mobilly. Rudolfs Krese, Investment Director at ZGI Capital agreed to provide more details on the deal.

CEELM: Mobilly announced that it attracted an “investment of EUR 1.1 million, including EUR 700,000 from ZGI-3.” Who were the other investors? Was it a joint investment coordinated beforehand or did it happen separately? If coordinated, who led the process, and how did the coordination between the two investors go?

M.Z.: The fund’s strategy is to invest into development and/or cash flow generating commercial properties across the three Baltic capitals — Vilnius, Riga, and Tallinn. This project is part of the fund’s long-term strategy.

CEELM: How does the investment in Mobilly fit into ZGI Capital’s overall investment portfolio? Does the investment come with strings attached, and what are they? 

R.K: ZGI fund has a well-diversified portfolio of 23 companies. Mobilly represents IT, more specifically FinTech, and has good growth potential. The company is already well established in the local market, [and this] new investment is targeted to facilitate further product development and expansion to foreign markets.  

CEELM: The Fort law firm reported that it “advised venture capital fund ZGI-3 in all phases of the transaction, including conducting due diligence, as well as drafting and negotiating all the investment documents.” To what extent were you involved in the active negotiating process?

R.K: Main negotiation was done by the ZGI team with Fort providing valuable assistance regarding legal issues (including legal and tax DD). Fort drafted all the investment documents and participated in the negotiations.

CEELM: How often do you use external legal services in your daily work and what is your experience managing external counsel? How do you usually choose them? 

R.K: As a rule we use external legal counsel for all our investment cases. Considering that the complexity of investment cases differ, we use Fort for the most complicated cases. For less complicated cases (or if there is a potential conflict of interest) we use other providers of legal services with whom we have established working relationship. In case we need some specific experience, we do tendering.   

CEELM: Have you worked with Fort in the past? Why did you retain them for this particular deal?

R.K: We have worked with Fort in many cases. We like to work with them as their competence, work accuracy, and work ethics is on a very high level. The Mobilly case in particular required a high level of IP and regulation (FKTK) knowledge. Fort had the necessary competence for the job. 

On August 17, 2016, CEELM reported that Yilport Holding had signed a public-private partnership agreement and acquired the right to operate Puerto Bolivar Harbor in Ecuador for 50 years. We reached out to Legal Director at Yildirim Holding for more details on the deal.

CEELM: Why did Yilport pursue the opportunity in Ecuador?

I.D: Puerto Bolivar will be a crucial port in the Yilport network once it is fully integrated into our global port portfolio. Mostly bananas, shrimp, other seafood, and mineral products will be exported from the port supporting also the exports of Ecuador. This remarkable and commercially feasible investment opportunity further bodes very well also for the global enlargement strategy of Yilport.

CEELM: Why did Yilport select Erdem & Erdem as external counsel on the deal? 

I.D: Erdem & Erdem has a strong track record and breadth of experience in infrastructure projects on BOT (Build-Operate-Transfer) models (particularly in airport development, port operations, and power generation), and contributed to the legal aspects of early development of private infrastructure investments in Turkey. The team has represented local and global clients who have taken roles as sponsors, developers, lenders, equity investors, and multilateral agencies in the development and financing of PPP (BOT, BO (Build-Operate), transfer of operation rights) investments.

In the last decade Erdem & Erdem team has been involved in many port privatizations and port management tenders in Turkey and in some of them they represented our Group, such as Derince Port and Kalamis Port. Furthermore, the Erdem & Erdem team has represented Yildirim Group in its investments in CMA-CGM, Malta Port, Gavle Port, Rota Port, Gemlik Port, and the Port of Oslo.  

Last year Erdem & Erdem was mandated to represent Yilport Holding in the acquisition of all shares of Mota-Engil Logistica and Tertir Terminais de Portugal, as a result of which Yilport Holding acquired seven container terminals in Portugal, two container terminals in Spain, and one terminal in Peru. The transaction is a landmark transaction, as it is the largest investment made by a Turkish company in Portugal as well as one of the largest port investments in Europe in 2015; hence the significance in terms of investment scale and economic value.

Our working relationship with the Erdem & Erdem team is a long-standing one. The senior team and partners of Erdem & Erdem have extensive legal, corporate, and business experience and were involved in our landmark transactions supporting our business growth. The team has a sound understanding of our business and strategies and integrates extremely well with our in-house legal and management teams, which we think is a crucial feature for an ideal external counsel.

Erdem & Erdem is also unique in terms of the involvement of its partners in transactions. While they also engage junior associates of different ranks and competence to work on various phases of the transactions, they stand out as a firm in having active partner involvement and partner accessibility throughout the projects, which is a policy we have appreciated as a client for many years. Erdem & Erdem has not failed us in this respect so far.

CEELM: What was the organizational structure of the legal team, both internal and external, on the matter? In other words, how was it managed, and how were responsibilities divided?

I.D: The in-house team at Yildirim Holding supports and coordinates all strategic transactions undertaken by group companies in general. In transactions abroad, while we retain local counsel in the host country, we think it is indispensable to rely also on the advice, scrutiny, and review of Turkish counsel.

The in-house team and Erdem & Erdem worked together starting from the tender stage for the privatization of Puerto Bolivar to identify key issues and risks, to form a structure, and to produce legal documentation, including the review of the concession agreement and active participation in the negotiations. Erdem & Erdem, in collaboration with its in-house team, supervised and monitored the transaction from the outset by actively supporting both legal and management teams of the Yildirim Group involved in the transaction.

Erdem & Erdem had a high level partner involvement in the project from the very beginning. They led the negotiations process, and despite the complications and inefficiency they experienced in working with local advisors in Ecuador (particularly due to different time zones and the buffer times required for translation works and he complexity of the project, which was a major privatization of the Ecuadorian government), Erdem & Erdem successfully managed to draft and negotiate the concession agreement and support us extremely well throughout the tender process.

Their broad experience, based on years of similar transactions in PPPs and port projects, facilitated the negotiations in Ecuador with local authorities and their insight into the dynamics of our business made Erdem & Erdem’s contribution even more crucial for our success in this transaction.

CEELM: According to the article on the CEE Legal Matters website, “the term sheet of the public-private partnership project was signed in February, 2016, in the presence of the President of the Turkish Republic, Recep Tayyip Erdogan, and the President of Ecuador, Rafael Correa.” Why were the Presidents of the two countries involved in the ceremony? In other words, what is the political significance of the deal?  

I.D: In the last decade, Turkey pursued a more active policy towards Latin America with the aim of strengthening its bilateral relations. Ecuador is among the 14 countries with which a legal framework for bilateral cooperation and political consultations has been concluded, to a large extent. As a result of this policy, the Turkish government encourages all Turkish investors to invest in Latin America.

On the other hand, Yilport Holding, as part of efforts to implement its designated global enlargement strategy, continuously investigates and examines investment opportunities in many different regions of the world. At the time of signing, this particular investment  — along with the ongoing negotiations — was already in the pipeline for several years, with a view to realize the Holding’s strategy to the best commercial interest of the general Group.

Against this backdrop, H.E. President Erdogan’s state visit is regarded as a propitious occasion by both Ecuadorian and Turkish authorities for polishing this substantial port investment of Yildirim in Ecuador. The project will be the largest investment in the country by an investor of Turkey origin, and once completed, Puerto Bolivar will be the largest container port on the Pacific coast of Latin America.   

CEELM: What would you say were the biggest challenges of making the acquisition happen? Where any elements of the process unexpectedly difficult?

I.D: It was one of the most challenging port privatizations we have been involved in at Yilport Holding. Major challenges included the vagueness of the tender process, the language barrier, and more significantly the lack of a local PPP-experienced counsel due to lack of previous privatization transactions in Ecuador.

It should suffice to mention here that despite the best efforts and support of the local counsel in Ecuador, their contribution was inevitably very limited, and it was a herculean task to produce a coherent straw-man draft for the concession agreement identifying the key issues for the negotiations. The market was not developed for privatization and the tendering authority’s understanding was naturally very limited, particularly compared to its Turkish counterpart, which also made the whole process very burdensome for us. The challenge of negotiations was further aggravated by the language barrier and lack of knowledge of English by some local authorities, forcing us to to rely substantially on a translator and as a result we needed to cope with the time constraints as well that resulted from the loss of time we suffered due to the translation work. 

On October 12, 2016, CEELM reported that Lords LB Asset Management had entered into a management contract with Carlson Rezidor to open a Radisson RED hotel in Vilnius, Lithuania. Fund Manager Marius Zemaitis agreed to answer our questions on the deal.

CEELM: How does this project fit into Lords LB Special Funds I’s general investment portfolio?

M.Z.: The fund’s strategy is to invest into development and/or cash flow generating commercial properties across the three Baltic capitals — Vilnius, Riga, and Tallinn. This project is part of the fund’s long-term strategy.

CEELM: Why was the Radisson RED hotel brand chosen in this instance? 

M.Z.: After conducting a thorough analysis and selection of potential hotel operators and brands, we decided to proceed with Carlson Rezidor hotel group, one the the largest hospitality market players in the world. This decision was made due to their strong track record and performance indicators in Europe and the Baltics. Radisson RED, Rezidor’s new lifestyle segment brand, suits perfectly with the vision and ambition of our project — a vibrant, modern, tech savvy, and focal point of new city-center.  

CEELM: Lords LB Special Funds I has a number of other hotels in its portfolio. Were the negotiations and ultimate form of the contract different in any significant way from other, similar contracts in the portfolio? If this is the first, did it involve any unexpected challenges or other aspects over other forms of investments in the past?

M.Z.: This is the first investment by the fund in the hotel segment. We found the process to be smooth, professional, and well-prepared by both participating parties.

CEELM: Sorainen advised and represented the fund and its subsidiary in negotiations with the hotel operator related to hotel management contract matters. What was your in-house legal team‘s role in the whole process?  

M.Z.: As a part of our structure, we do not possess a large in-house legal team, and its role is rather supportive in a process like this.   

CEELM: Why did you choose Sorainen as your adviser and how would you describe your working relationship?

M.Z.: Sorainen is one of the leading legal advisers in this field in the Baltics. We have worked with them on various assignments before. We are confident in their professionalism and were delighted to have them onboard while working on this deal. 

Image Source: rezidor.com

On October 18th, 2016, CEELM reported that Slovenian start-up Creatriks had successfully obtained an investment from Speedinvest II International GmbH. We reached out to Creatriks COO & Co-founder Aljaz Ketis to find out how the investment was obtained.

CEELM: ABC Accelerator described Creatriks as a company which is “at the forefront of the hospitality revolution.” What is the Creatriks application exactly and how does it work?

A.K: Creatriks is the company which made Facility — a hotel operations application. Facility is the ultimate hotel operations application replacing paper, phone and mouth-to-mouth communication. It makes daily hotel operations a lot easier and more efficient. Hotel staff members can check what has already been done or needs to be done with one single glance at the user-friendly application on their smartphone, tablet, or computer. By using Facility no task in a hotel is forgotten, whether big or small, regardless of the field of work: from hotel management to maintenance, from housekeeping to front office, and everything in between. 

CEELM: What steps did you take in order to attract the investment? How did you persuade Speedinvest II of the value and usefulness of the app? 

A.K: Facility entered the Slovenian startup scene through the ABC Accelerator program, which concluded a year ago. The startup’s potential was clear from the start, and it managed to raise EUR 150,000 in angel investments already last year. Since then, the team has been working hard on its world-class product and acquired over one hundred clients: hotels from Slovenia, Croatia, Serbia and Austria. 

It took us nine months to get the investment from the largest Austrian investment fund Speedinvest. Werner Zahnt, Partner and Investment Manager at Speedinvest, said: “Facility were able to convince us with their outstanding team and product, addressing a real pain point of the hotel industry; an industry in the middle of disruption that still relies on very analog processes today. Facility enables [hotels] to realize massive efficiency — and service quality-improvements of hotel operations. The first potential customer to whom we showed the solution wanted to buy the company immediately. So we are really excited about working with the founders on the further development of Facility.”  

CEELM: Had conversations/negotiations between you and Speedinvest II already begun before you asked Miro Senica and Attorneys for assistance, or was the firm involved at the very beginning of the process?

A.K: We met with Speedinvest and other investors at the demo day event which was held by ABC Accelerator at the end of the program. We liked their view on being an active partner in the companies that they invest in so we kept them informed of our progress with Facility. When official talks started and the first due diligence documents needed to be prepared, we asked Mr. Cop from Miro Senica and Attorneys for assistance, and they have helped us through the whole process since that point.

CEELM: Why did you ask Miro Senica and Attorneys in particular to help you out on the deal?  

A.K: Slovenian law has many specifics and is not the kindest in the matter of investments into startups. We really wanted to make sure that the process would be smooth, since we have already had some difficulties in the past regarding the share transfers in the company. Since we knew that Miro Senica and Attorneys are one of the most prominent attorney companies in Slovenia and that Mr. Cop was highly recommended by our angel investors, the choice was easy.   

CEELM: Is the investment intended simply for general use, or are there specific purposes for which the funding was requested, and to which it will be put?

A.K: It’s our vision to become the leading global provider in our segment. Our next goal is expanding to even more countries and at least one thousand hotels in the coming year. We will use the investment to accelerate the expansion on the global market. This means investing primarily in sales, development and expansion of the team. Above all, it will allow us to be faster on the global market, which is vital for us. The expansion of the product will focus on the Russian, Spanish, German, and English markets. 

On September 22, 2016, CEELM reported that CA Immo had purchased the Millenium Towers office complex in Budapest in what was described as the biggest real estate transaction of this year in Hungary. CA Immo’s Group Head of Legal Affairs Ingo Steinwender agreed to elaborate on the acquisition.

CEELM: This is reportedly one of the largest, if not the largest, standalone acquisition made by CA Immo. What were the strategic rationales behind the investment?

I.S: Expanding our Hungarian property portfolio by acquiring this modern office complex with a strong cash-flow will make an important contribution to the recurring earnings of CA Immo. The acquisition will further strengthen our international income producing portfolio which already has a high occupancy rate of 92% and is a perfect addition to our high-growth development activities in Germany. 

CEELM: Although the acquisition was in Budapest, lawyers in Austria, the Czech Republic, UK, and Cyprus were also involved. What aspects prompted the need to involve expertise from other jurisdictions? 

I.S: Due to several applicable laws resulting from Cypriot sellers, an Austrian buyer, and an English law W&I policy, we involved lawyers from the respective jurisdictions.  

CEELM: CA Immo was advised by CHSH, Patrikious Pavlou & Associates, and Hogan Lovells on this transaction. Why did you choose these three firms specifically?

I.S: In the last two years CHSH advised us to our fullest satisfaction in the sale of the BBC office building and the M1 logistic center, both in Budapest. It was logical to continue our successful cooperation in this landmark deal with Vienna-based lead Partner Mark Krenn and local Hungarian Partner Wilhelm Stettner. Patrikious Pavlou & Associates were chosen as they are members — like CHSH — in the lex mundi network and Hogan Lovells was recommended to me due to their expertise in W&I insurance issues.

CEELM: What assignments specifically did you delegate to the respective external counsel teams and what aspects of the deal were handled in-house? 

I.S: We assigned CHSH to work on the legal due diligence, drafting, and co-negotiation of the SPA, various W&I insurance matters, and post-closing work. In particular in counsel to counsel matters such as contract negotiations we were very happy to rely on the “punch” of CHSH and Mark Krenn, in particular. CHSH was closely led by me in defining the legal structure of the transaction and the strategy in contract negotiations as well as in finalizing the W&I insurance. In addition the legal in-house team, lead by me, took care of the corporate and capital market matters. Apart from legal aspects, we undertook the commercial and financial due diligence reviews in-house.   

CEELM: About a year ago, Poland, the Czech Republic, and, to some extent, Hungary, were reporting the highest buzz in the RE sector. As far as you can see, is that still the case? What other markets, if any, should people be on the look out for?

I.S: What we see at the moment is an extremely positive dynamic in the Budapest as well as the Bucharest office market. As for Warsaw, we’re watching the real estate market quite cautiously – there’s a lot of development activity going on with the vacancy rates likely to rise. Czech Republic is quite stable with our investment properties 94% occupied. 

On August 25th, 2016, CEELM reported that Shell Exploration & Production Ukraine Investments (IV) B.V. was represented by Vasil Kisil & Partners in a dispute over the Ukrainian tax authorities’ refusal to grant over UAH 5 million as an automatic VAT refund. We reached out to Viktor Kachurenko, Legal Counsel at Shell Ukraine Exploration and Production I, LLC, for more information.

CEELM: What was the argument made by the Ukrainian tax authorities in attempting to retain the VAT refund, and on what basis did the Superior Court of Ukraine reject its reasoning?

V.K.: The tax authorities claimed that some general rules of the Tax Code of Ukraine re VAT automatic refund to investor–tax payer should overrule special rules in the Tax Code legalizing the specific automatic tax refund regime for product-sharing agreements. The Supreme Administrative Court of Ukraine found that the special legal rules on VAT refund in the Tax Code are prevailingly applicable to the case and override the general rules governing the VAT refund procedure. So, the tax authorities’ cassation appeal against the winning case was rejected by the SACU and our position was supported in full.

 

CEELM: Is the case concluded now, or are further appeals possible? 

V.K.: The case is over at the level of the Supreme Administrative Court of Ukraine.  

CEELM: What was the most challenging part for you during the whole process of the court proceedings?

V.K: The most challenging was to prioritize in the Judge’s opinion formed around the case, the requirement by law to apply the specific VAT automatic refund provisions of the Tax Code and the related tax provisions in the PSA. Fortunately, we succeeded in advocating this idea and the court supported our key standpoint in its decision.

CEELM: Why did you retain Vasil Kisil and Partners to represent you in the case?

V.K.: We cooperate with VKP during prolonged period of time and can confirm that cooperation is fruitful.   

CEELM: How were you working with your external counsel? How did you divide the responsibilities?

V.K: We are working out our position in the court together with the external counsel who then plays the key representation & procedural role for Shell in the litigation. 

On September 5th, 2016, CEELM reported that Axon Partners had assisted Ukraine’s state-owned ProZorro public procurement electronic system in Ukraine on its transformation into an IT company. As the in-house legal team of ProZorro was not involved in the matter, we asked Director Nadia Bigun to answer several questions about the matter.

CEELM: Axon Partners reported that “as a result of public procurement reform, ProZorro has become subject to compulsory implementation in Ukraine.” What does that mean, and what value does the ProZorro platform add?

N.B.: ProZorro has some specific attributes that make it a novelty in the procurement world. Firstly, everything is open. All information related to the tender process, including suppliers’ offers, can be accessed and monitored by anyone. The system is open source, and all data is structured in line with the Open Contracting Data Standard, making cross-country data comparison and analysis possible.

Secondly, ProZorro is a “hybrid model” e-procurement system, which means the information is stored in one central database, but suppliers and contracting authorities can access the data from a number of different platforms, choosing the one that best serves their needs. Using an API, these interfaces are connected to the central database so that all the information is synchronized across all platforms.

Finally, the key actors in the project play their own, unique role in what we call the “golden triangle of partnership.” Government actors are responsible for setting general rules and protecting information; businesses are responsible for providing services to contracting authorities and suppliers; and civil society is responsible for managing business intelligence modules and developing risk-management methodologies. This style of cooperation has significantly improved trust among all key stakeholders.  

CEELM: Have you already launched the system? 

N.B.: We have already launched the e-procurement system and it is obligatory for use by all public procurers in Ukraine. But it does not mean that the IT product is completely done, we still have a lot of plans how to develop its functionality further.  

CEELM: What were the legal riddles needed to be solved in relation to transforming the public procurement system into an IT product?

N.B.: The list of open issues is big but the main issue is connected with transferring intellectual property rights. ProZorro as IT product was partially developed with donor’s money and partially by volunteers. At the very beginning all the intellectual property rights belonged to NGO Transparency International. Then they were transferred to SoE ProZorro. The challenge was to transfer the right while the product was still under development. Second big issue is transferring of the brand rights. To promote our reform we plan to allow institutions to use the our brand in cases when they do not get commercial profit. In cases of getting the commercial profit we plan to give the right  on commercial basis. For the first group we can provide operating licence.

CEELM: Why did you choose to work with Axon Partners?

N.B.: We started working with Axon Partners even before this company was actually born. At first, we were looking for someone experienced in IP and IT law. We found out that there is one team of innovative lawyers, which, by the way, worked in another law firm at that time. As we were informed, besides working with IT companies and startups, the team was supporting some legal initiatives by drafting IT and IP connected laws. When we addressed these lawyers, they agreed to provide us with a due diligence of ProZorro IP rights transfer.

Probably, they had some inner motivation because they quickly became engaged into our working processes and promptly answered all of our requests.

Consequently, when Axon Partners was created, we decided to continue cooperation with the new company. It’s all about the people, you know.  

CEELM: According to Axon Partners, ProZorro was “being transformed into an IT company implementing innovative projects in Ukraine.” What are those other projects?

N.B.: Reform of sale of the illiquid bank’s property was launched this summer under the ProZorro brand. We have other projects too, and we will tell you about them soon. 

On July 15, 2016, CEELM reported that Primus represented the Lithuanian Football Federation (LFF) in an arbitration with a football club and its players involving sanctions the LFF had imposed following match-fixing-related investigations before the Court of Arbitration for Sport (CAS), based in Lausanne, Switzerland. We reached out to the President of the Lithuanian Football Federation Edvinas Eimontas to get his insight into the matter.

CEELM: We understand the dispute began with the football club contesting sanctions related to match-fixing. To the extent you can share this information, how were these fixed matches originally identified?

E.E.: The LFF works closely with a company called Sportradar, which analyzes betting patterns of matches played in Lithuanian top and second divisions. These betting patterns are highlighted in UEFA Betting Fraud Detection System (UEFA BFDS) reports. As regards the matches in question, the UEFA BFDS reports demonstrated beyond any doubt that the outcome of these matches was determined in advance for the purpose of making corrupt betting profits. As stated in the UEFA BFDS reports, the suspicious betting patterns observed exceed the acceptable threshold to conclude that they were manipulated for betting purposes.  

CEELM: According to the statement released by Primus, “this CAS award shall have a big impact on the fight against match-fixing in the future.” Why is that? How will it support your efforts in this fight?

E.E.: The fight against match–fixing is a harsh fight, because you need a full pack of evidence in order to confront the offender and try to push him away from football by imposing appropriate sanctions. All the sports bodies, including the LFF, used to get into a deep hole when they needed to prove match-fixing. However, the LFF was eager to find better solutions and effective ways to deal with it. Therefore, in 2015 it introduced a disciplinary system according to which the offender could be punished based on the presumption of match-fixing. According to this system, the LFF is required to prove the suspicion that the player could be involved in match-fixing. The UEFA BFDS reports and an analysis of particular match videos are deemed to be sufficient evidence to prove such suspicion.

CEELM: Primus also states that, “disciplinary bodies of federations will be able to investigate potential match fixing violations while assessing experts’ conclusions based on analysis of particular match videos.” Can you give us some details as to how this analysis of videos will work in practice?

E.E.: Video analysis is required when the match-fixing fact is established. In case of match-fixing there must always be somebody on the pitch who is involved in match-fixing. Therefore, video analysis is used in order to pick those players who are possibly involved. This function is delegated to the football-expert group, which consist of members with well-established experience in football. This group basically decides which players do not do their job properly in the field and play the game in a suspicious way.

CEELM: What were the main reasons you turned to Primus for legal representation on this matter?

E.E.: One of the main reasons was their experience in CAS case law. And their constant involvement and thorough understanding of sport in Lithuania, and globally, of course.  

CEELM: Since your association does not have a legal function, did you coordinate with your counsel directly or was it the members of the disciplinary board who did so? How did your cooperation with the firm go?

E.E.: The LFF does have a legal counsel. Basically, he coordinated the whole process and communicated with Primus and our legal partner from Switzerland, Libra Law, which worked on this case as well. The cooperation was smooth and professional.

On August 22, 2016, CEELM reported that Raidla Ellex had advised fintech company DataMe OU on the creation of a new credit register in Estonia. The co-founder and CEO of DataMe, Marko Vaik, agreed to answer our questions on the subject. 

CEELM: When you first set out to create this new register, what led you to work with external counsel?

M.V.: DataMe collects and shares personal credit data and this area is regulated by the Personal Data Protection Act. To collect, share, and analyze personal credit data we needed a legal framework to get permission for data processing and we needed to do it without any external risks for banks and other credit providers. Setting up a business in this sensitive area for lenders needed to be without any legal problems. As a Fintech start-up company we have to operate as effectively and fast as possible so we decided to involve a legal advice partner who would help us to create necessary documents so that all aspects in our business model would be in accordance with the law.                 

CEELM: Were there other or unexpected problems or challenges that arose after the initial instruction that required their assistance?

M.V.: Yes, as we started consultations with Raidla-Ellex we thought that we only needed to concentrate on the terms and conditions agreement text under the loan application. But shortly it turned out be bit more complicated that we first thought. To process personal data in accordance with the law we also needed to create terms and conditions for DataMe data processing. 

CEELM: According to Raidla Ellex, the register was meant to also make “it easier to comply with regulatory obligations.” What regulatory obligations specifically were targeted and how does this register help?

M.V.: Lenders are obliged to check customer credit worthiness before signing a loan contract, but before DataMe there was no register that aggregated all the information about customer obligations and monthly payments. The only way available was a historical debt register, and different studies made it clear that it is not enough to predict client payment behaviour. Historical debt data just is not enough in our quickly changing economic environment, as lenders need information about existing obligations and payment behavior. This is the place where DataMe can help to comply with regulatory obligations.

CEELM: Fintech is an ever-increasing buzz-word. To what extent do you feel the regulatory framework in Estonia is comprehensive enough — do you still feel there are ambiguities that make your operations difficult at times?

M.V.: I think that Fintech is much more than just a buzz-word. We are talking about a sector that has operated without any major upgrades for decades. Changes in finance are just getting started and everybody is waiting for a company that would give a whole sector new breathing room, like Tesla has done in the automotive industry. For DataMe Estonian regulations are not an obstacle, as until we exchange data, we are operating under the Data Protection Act. If we are planning to offer loan recommendations in the near future, then our Financial Supervision Authority has been open to give us advice with the regulations.  

CEELM: Why did you choose Raidla Ellex as your external adviser on this matter?

M.V.: As we started with DataMe it was clear that we can’t allow any mistakes in programming, compliance, or choosing a right partner to outsource some of the work. We were looking for an adviser who would have excellent knowledge in data protection but also in finance to understand the specifics when it comes to doing business with highly regulated partners. After market research we found that Raidla Ellex covered all our terms.