VILGERTS

Under the respective provision of the Commercial Law (Article 221) in Latvia, it is stated and confirmed by the Senate (see case No. C33594518, SKC-71/2022) that a board member has the right to remuneration corresponding to their duties and the financial condition of the company. The issue of the board members’ liability is a separate topic and shall be addressed in a separate article. Discussed herein are a few examples that can potentially lead to disputes between a board member and other participants or shareholders, or vice versa. In these rapidly changing economic circumstances, this risk can materialise in instances of board changes. Uncertainty regarding the board’s remuneration is a risk that affects not only relationships with third parties but also relationships with the tax authorities. The International Accounting Standard (IAS 24), specifically requires the disclosure of this matter in financial statements, covering not only remuneration, but also other income and benefits obtained from the company, including compensation upon leaving the position of a board member and options. Auditors should pay more attention to these issues in order to ensure it is clear from the financial statements whether this matter has been properly addressed or not. In general, there are several questions that can also affect or even provide grounds for a board members’ claims against the company where there is a concluded agreement: Whether the remuneration is fair? Whether the remuneration is determined for all of the duties the board member had to perform? Whether the financial condition of the company was directly related to the actions of the board member? Whether the personal risk of the board member is taken into account if the company’s operations or the actions of shareholders/directors are unlawful or otherwise immoral? What happens with unused vacation days if an employment contract with a board member is concluded (there are also situations that are a legal absurdity involving state/local government administration)? What are the financial capabilities of the company (e.g., significant equity or profit, reduction of losses, or consolidated results of the group), and can it be objectively determined by an expert? Situation 1: Board member without a contract with the company A classic situation for active companies or funds is when forming new holdings with multiple subsidiary companies, which are registered very often. Almost always, separate contracts with appointed board members are not concluded. Consequently, these board members may have rights to claim fair remuneration from the moment of their appointment to this new company. To address this risk, in M&A transactions, it is stipulated in the relevant transaction documents that the board member waives any claims against the company if the board member resigns (or is removed from office). If the board member continues to work after the sale of shares, it is recommended to mitigate the risk by removing the board member from office (so the board member’s remuneration risk remains with the seller) and appointing the same or another board member under the buyer’s defined terms for board member remuneration. Situation 2: Board member pays themselves remuneration As can be seen from the aforementioned Senate ruling, regular payment of remuneration is one of the criteria for assessing the compliance of a board member’s remuneration within the applicable legal provisions. It turns out, the absence of a shareholders’ resolution has not been a barrier to recognising this remuneration as lawfully paid if the shareholders’ intent can be determined in other ways. At the same time, it should be noted, regular payment of remuneration is not a guarantee that the board member will not demand additional remuneration which would be fair and justified based on the level of risk and responsibilities. In short, regular payments without a contract do not guarantee the absence of claims from the board member. Situation 3: The company does not pay remuneration to the board member This is the worst-case scenario as the board member is likely to demand remuneration at any time and in an unpredictable amount. The possible interpretation of the remuneration criteria in the Commercial Law (Section 221) is very broad, and they can be specified in each case, which can create an unnecessary risk for minority shareholders. If the majority shareholders have a good relationship with the board member, it does not mean the minority shareholders should not consider it as a potential risk. The minority shareholders should not be modest in demanding restrictions on board remuneration in the statutes or shareholders agreements. Typical examples include: 10% of annual net profit growth; Termination compensation amounting to 30% of the previous year’s remuneration; and Fixed annual remuneration and a percentage of EBITDA growth compared to the previous financial reporting period according to audited annual reports. Although the Senate (see Case No. C30474417, SKC-48/2022) has ruled in another case that the assumption of office itself does not create a de facto entitlement to remuneration: “[…] the Senate acknowledges the appellant’s argument that the appellate court did not establish that the claimant had actually and properly performed the work, and without such determination, the court could not conclude that the claimant had a right to remuneration.” However, this approach by the Senate is subject to critical evaluation on the understanding there is no provision in the Commercial Law permitting for the interpretation that board members must perform their duties without remuneration unless they have expressly waived such rights. Situation 4: A board member has a contract with only one company There are often situations where a board member has a contract with a company, which is properly executed in terms of form and content. However, after some time, the same individual holds multiple positions in new companies that are related to the initial company. The situation remains unchanged, and the board member has independent rights to claim compensation from each of these companies. Therefore, when entering into a contract (or in the context of the need to amend the contract) with a board member, consideration should also be given to these other new companies and the arrangement of contracts with them. The solution to all situations is simple – conduct a review of all positions held and duties performed by board members and enter into or amend and update contracts with them, obtaining the necessary approval of the shareholders’ meeting or board. At the same time, the question arises regarding the period (especially if it spans multiple years) prior to the conclusion of a contract, where the best solution is always negotiations and agreements between the parties. If dialogue does not progress, no one can prevent a board member from leaving their position by informing the Commercial Register of the Republic of Latvia (and, if possible, also the company and its shareholders). In any event, a company can remove a board member from their position at any time and appoint someone else, based on a properly prepared board member contract. May 16, 2023 by Gints Vilgerts, Managing Partner

Those arranging bond issuances in Latvia often have practical questions about the regulation of a collateral agent’s functions. Until 12 July 2024, this was a very complex question with several possible answers. Theoretical uncertainty contributed unnecessary worries amongst bond issuers and investors, however, these legal risks never became an insurmountable obstacle during the issuance process, nor were they risks that were “priced” into the interest rate increases or otherwise adversely affected the bond sales process. The amendments brought about on 4 July 2024 to the Financial Instruments Market Law (Finanšu instrumentu tirgus likums) are undoubtedly a positive development. Some of the known risks concerning the rights and obligations of a collateral agent have been resolved, however, not all of the risks have been fully covered by the recent amendments. A number of ambiguities still remain, for example, concerning the text of the terms of the issue and prospectuses, as well as the wording and the collateral agreements entered into. The respective amendments do not cover, for example, the issuer’s contract with the collateral agent, as well as the insurance of pledged assets, which is also an important aspect of bank financing. The most interesting text within the amendments to the Financial Instruments Market Law is contained under Article 91.2: “(1) in relation to the debtor, the collateral provider, or any other person, the information document, (2) In exercising the rights and obligations set out in the information document, the terms of issue or the prospectus and the collateral agreement,” Overall, this is a small but all important step for the development of the capital market in Latvia.  Including, the avoidance of confusing and ambiguous terminology, such as “parallel liabilities” or “parallel debt” and other terms that do not comply with the Civil Law (Civillikums) within the terms of the bond issuance and prospectus. The parties (the issuer and collateral agent) will have to agree on the terms of the collateral agent agreement, the pledge agreement and the insurance contract.  As the amendments now provide that the collateral agent acts “in the interests of the holders of the debt securities”, it is clear the role, rights and obligations of the collateral agent must be distinguished from the competence of the issuer’s advisors (who prepare the terms of issue or the prospectus) with the interests of the issuer as a primary consideration, in order to avoid a potential conflicts of interest. One question to note is whether any deviations from the market practice (for instance, compared to bank financing), is the need for the collateral to be disclosed in the terms of issue or prospectus. If the issuer does not want to insure the pledged assets or does not want the insurance indemnity to be paid to the collateral agent, this should, in our view, be disclosed in the terms of issue or in the prospectus as this is part of the risk the debt holders should be aware of as it affects, inter alia, the risk of debt repayment. The annotation to the amendments highlighting the lack of precedent before the Latvian courts is not entirely accurate, as there is although limited.  The Latvian courts are beginning to develop some experience in cases involving claims by the collateral agents. For example, in 2010 our law firm was authorised by an Estonian bank to enforce against Alta Capital Group, whereby the court of first instance fully recognised the claim of Swedbank” AS as a collateral agent under the applicable Latvian law. Civil proceedings were initiated and the claim was upheld. Finally, it should be recalled the collateral agent is a person specifically authorised by the creditors, whose liability will be assessed, inter alia, under the provisions of the Civil Law , taking into account the liability of the trustee, who is liable to the principal for any negligence caused. * * * VILGERTS law firm provides legal advice on bond issuances and collateral agent services. Since 2024, the firm has been providing collateral agent services in connection with a number of bond issues in Latvia, with total bond claims in excess of EUR 100 million. In connection with this article or the Firm’s services regarding bond issuances or collateral agent services, please contact Gints Vilgerts, Partner of the Firm ([email protected]), mobile. +371 29107768. August 27, 2024 by Gints Vilgerts, Managing Partner

In the business world, as well as in everyday life, there are options and opportunities. If in life options and choices are dependent on various coincidences and they coincide with human actions, then in the business world options to choose can also be strengthened contractually by closing options contracts. Options and option contracts have been known for a long time in the business world, although they have been utilised in a somewhat of a narrow scope of transactions; most frequently – in shareholder and member of the board agreements, real estate deals and trade of financial instruments. Options have become more popular as a tool to motivate and reward employees. Since the amendments to the Commercial Law and the Law On Personal Income Tax came into force at the beginning of 2021, the granting of stock options has also been facilitated for employees, management and supervisory board members of limited liability companies (“LLCs”) by providing tax exemptions. Taking into account that more and more employees are becoming minority shareholders in companies, it is important to note options and option contracts can also be used in other situations, applying practices from the financial and real estate sectors. Due to the fact that options contracts involve an “option” rather than an obligation, they are useful in contractual relationships that focus on future possibilities or events. Given that both parties to the contract are free to choose the settlement of their relationship, option contracts offer the possibility of adjusting the events, sequence, timing and price to the subject matter of the transaction. Under the Law of Obligations, an option is the contractual right and ability of one party to choose the manner and extent of performance of an obligation, creating corresponding obligations for the other party to the contract, or to refuse to perform it, subject to pre-agreed conditions. Option contract types partly derived from financial derivatives futures, which involve two types of options contracts or options: “Call options” provide the buyer with the right to buy a specific asset at a specific price; and “Put options” provide the buyer with the right to sell a specific asset at a specific Note, these options can also be sold – the seller of a call option commits to sell a certain asset at a certain price, while the seller of a put option commits to buy a certain asset at a certain price. In real estate, an option contract has some similarities with a pre-agreement or a contract of repurchase, where the owner of real estate may grant the buyer an option to buy a certain property (or even a property that does not yet exist in nature) at a certain price, at a certain time, with the owner being obliged to sell and the buyer having an option, rather than an obligation to buy or a subsequent option to sell the property back, at a certain time. Options are also used in board members’ and shareholders’ agreements where it is necessary to provide that members or shareholders may acquire or dispose of their shares between themselves when certain events occur or are reasonably likely to occur. Call and Put options in board members’ and shareholders’ agreements are used in situations where, for example, the owner agrees to sell part of the company to a new buyer while agreeing to remain a shareholder of the company for a fixed period and on agreed terms. The main reason for such terms is to give the buyer comfort and assurance that there will be an opportunity to learn from the existing shareholder and gain experience in managing the company. There are also situations where the minority shareholder is also the CEO of the company who wants to stay in his or her position, but the company is sold and the possibility for the minority shareholder to acquire additional shares in the company is agreed with the new buyer if favorable financial or other conditions arise. Such an agreement shall be documented in the members’ (shareholders’) agreement, which shall set out the following transitional provisions. In order to provide the participants with a guaranteed exit strategy, the agreement may contain provisions allowing the buyer to “call” the seller to sell their shares and allowing the seller to “put” his shares to the buyer after an agreed period that provides certainty for both parties. A call option allows the buyer to “call” for the shares to be sold at a future date agreed by the buyer. This can sometimes be set in the event of a significant event (new markets, authorisation, sales volumes, etc.) rather than at a fixed date. Alongside that, the buyer can also include the “nomination” in their call options contract to set forward a third-party as a buyer. A Put option allows the seller to encourage the buyer to buy the remaining shares at a certain price on a certain future date. To avoid potential disputes, it is advised to consider the following: A circumstance triggers the moment when the option is exercised (trigger); When the option expires or is no longer exercisable; Tax risks; Whether the option is exercisable all at once or can be divided into tranches; Whether the option competes with pre-emption rights or other prohibitions in the company’s articles of association; and Whether there must be a mandatory waiver of pre-emption or other rights of other participants. Similarly, there are also the following options contracts: “Cross option” – when the buyer acquires a call option in one company and the seller in return acquires a put option in another Such an option is exercisable when there are two companies that are financially or strategically linked to each other. A mutual option can be used to ensure the succession of a company if one of the participants passes away. Heirs may be granted call and put options in cooperation with another specified participant; “Reverse option” – more often applied in real estate transactions whereby the buyer is to receive a share of the resale value of the property. A reverse option ensures the seller would have the right to buy back the property when the buyer is unable to develop the property and sell it at a higher price; “Reverse vesting option” – typically used to motivate start-ups when attracting an As with employee stock options, the criteria are set for the acquisition of shares, but in a buyback option, the founder of a new company receives shares in the company immediately, with the condition that the investor can buy them back within a certain period of time if the criteria are not met. The investor’s repurchase options decrease in percentage with the passage of time or the fulfilment of the criteria. Option contracts provide flexible solutions in a changing business environment, additional options for sellers and buyers, opportunities to maximise financial benefits for investors and minority shareholders, and opportunities to incentivize counterparties. Options can also be useful in transactions where the expected outcome may not materialise. By exercising options effectively, corporate participants can achieve strategic objectives and plan for different exit scenarios. For more information on options and strategies on how to implement them, please contact Reinis Sokolovs, Partner and Head of Corporate Practice at VILGERTS ([email protected] ). May 20, 2024 by Reinis Sokolovs, Partner

Under the respective provision of the Commercial Law (Article 221) in Latvia, it is stated and confirmed by the Senate (see case No. C33594518, SKC-71/2022) that a board member has the right to remuneration corresponding to their duties and the financial condition of the company. The issue of the board members’ liability is a separate topic and shall be addressed in a separate article. Discussed herein are a few examples that can potentially lead to disputes between a board member and other participants or shareholders, or vice versa. In these rapidly changing economic circumstances, this risk can materialise in instances of board changes. Uncertainty regarding the board’s remuneration is a risk that affects not only relationships with third parties but also relationships with the tax authorities. The International Accounting Standard (IAS 24), specifically requires the disclosure of this matter in financial statements, covering not only remuneration, but also other income and benefits obtained from the company, including compensation upon leaving the position of a board member and options. Auditors should pay more attention to these issues in order to ensure it is clear from the financial statements whether this matter has been properly addressed or not. In general, there are several questions that can also affect or even provide grounds for a board members’ claims against the company where there is a concluded agreement: Whether the remuneration is fair? Whether the remuneration is determined for all of the duties the board member had to perform? Whether the financial condition of the company was directly related to the actions of the board member? Whether the personal risk of the board member is taken into account if the company’s operations or the actions of shareholders/directors are unlawful or otherwise immoral? What happens with unused vacation days if an employment contract with a board member is concluded (there are also situations that are a legal absurdity involving state/local government administration)? What are the financial capabilities of the company (e.g., significant equity or profit, reduction of losses, or consolidated results of the group), and can it be objectively determined by an expert? Situation 1 : Board member without a contract with the company A classic situation for active companies or funds is when forming new holdings with multiple subsidiary companies, which are registered very often. Almost always, separate contracts with appointed board members are not concluded. Consequently, these board members may have rights to claim fair remuneration from the moment of their appointment to this new company. To address this risk, in M&A transactions, it is stipulated in the relevant transaction documents that the board member waives any claims against the company if the board member resigns (or is removed from office). If the board member continues to work after the sale of shares, it is recommended to mitigate the risk by removing the board member from office (so the board member’s remuneration risk remains with the seller) and appointing the same or another board member under the buyer’s defend terms for board member remuneration. Situation 2 : Board member pays themselves remuneration As can be seen from the aforementioned Senate ruling, regular payment of remuneration is one of the criteria for assessing the compliance of a board member’s remuneration within the applicable legal provisions. It turns out, the absence of a shareholders’ resolution has not been a barrier to recognising this remuneration as lawfully paid if the shareholders’ intent can be determined in other ways. At the same time, it should be noted, regular payment of remuneration is not a guarantee that the board member will not demand additional remuneration which would be fair and justified based on the level of risk and responsibilities. In short, regular payments without a contract do not guarantee the absence of claims from the board member. Situation 3 : The company does not pay remuneration to the board member This is the worst-case scenario as the board member is likely to demand remuneration at any time and in an unpredictable amount. The possible interpretation of the remuneration criteria in the Commercial Law (Section 221) is very broad, and they can be specified in each case, which can create an unnecessary risk for minority shareholders. If the majority shareholders have a good relationship with the board member, it does not mean the minority shareholders should not consider it as a potential risk. The minority shareholders should not be modest in demanding restrictions on board remuneration in the statutes or shareholders agreements. Typical examples include: 10% of annual net profit growth; Termination compensation amounting to 30% of the previous year’s remuneration; and Fixed annual remuneration and a percentage of EBITDA growth compared to the previous financial reporting period according to audited annual reports. Although the Senate (see Case No. C30474417, SKC-48/2022) has ruled in another case that the assumption of office itself does not create a de facto entitlement to remuneration: “[…] the Senate acknowledges the appellant’s argument that the appellate court did not establish that the claimant had actually and properly performed the work, and without such determination, the court could not conclude that the claimant had a right to remuneration.” However, this approach by the Senate is subject to critical evaluation on the understanding there is no provision in the Commercial Law permitting for the interpretation that board members must perform their duties without remuneration unless they have expressly waived such rights. Situation 4: A board member has a contract with only one company There are often situations where a board member has a contract with a company, which is properly executed in terms of form and content. However, after some time, the same individual holds multiple positions in new companies that are related to the initial company. The situation remains unchanged, and the board member has independent rights to claim compensation from each of these companies. Therefore, when entering into a contract (or in the context of the need to amend the contract) with a board member, consideration should also be given to these other new companies and the arrangement of contracts with them. Conclusions: The solution to all situations is simple – conduct a review of all positions held and duties performed by board members and enter into or amend and update contracts with them, obtaining the necessary approval of the shareholders’ meeting or board. At the same time, the question arises regarding the period (especially if it spans multiple years) prior to the conclusion of a contract, where the best solution is always negotiations and agreements between the parties. If dialogue does not progress, no one can prevent a board member from leaving their position by informing the Commercial Register of the Republic of Latvia (and, if possible, also the company and its shareholders). In any event, a company can remove a board member from their position at any time and appoint someone else, based on a properly prepared board member contract. May 16, 2023 by Gints Vilgerts, Managing Partner

Introduction Companies are occasionally left scratching their heads as to the far-reaching possibilities associated with a claimant’s ability to forum shop for damages claims in certain jurisdictions, as a result of an infringement carried out by a group company in which they had no knowledge or did not participate in. They therefore (carry out a misconceiving) attempt to consider the various options available in order to prevent potential claims being guided towards more favourable jurisdictions with no avail. Potential claimants are in the driver’s seat concerning such damages claims and naturally opt for the most suitable or favourable jurisdiction to readily hear their claim. Defendants, on the other hand, have to prepare for each possible avenue and react accordingly. There are those Member States courts that have attracted such claims (e.g., the Netherlands) due to the nature of being more claimant friendly and others which do not yet meet the mark of trekking down the pathway for a successful claim. Across the Member States, there are varying evidentiary bars to satisfy, estimating and calculating the damages suffered, differing limitation periods and appeal processes (with the court process lasting years in some places), as well as attracting opportunities for litigation fundings. Within Latvia, follow-on cartel damages claims are usually heard where the defendant resides or where the infringement occurred. However, the more broader EU rules allow for a defendant domiciled in a Member State of the European Union may be sued whereby the defendant “is one of a number of defendants, in the court where any of the other defendants is domiciled, provided that the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings”.[1] Over the last few years, we have seen a significant uptake in follow-on damages claims across the EU Member States, including Latvia. These cases have either resulted in a national court having an anchor defendant (establishing jurisdiction for all other defendants) or claimants bringing claims against separate defendants in the courts covering a number of different jurisdictions (leaving an array of different avenues for determining local jurisdiction). There has also been a momentous development of the European courts’ and national case-law which has provided extremely valuable guidance on the stretch of the applicable EU rules and legal principles. National courts have struggled at times getting to grasp how to approach these claims from different angles resulting in varying approaches in such cases. The European Court of Justice (hereinafter, the “CJEU”) has been stepping in from time-to-time with specific questions posed by national courts. These preliminary rulings have been helpful to a certain extent on the interpretation of certain specifics of the application of the Damages Directive and respective jurisdictional questions stemming from Regulation No. 1215/2012.[2] One thing, however, is consistently underlined in the CJEU’s case-law, potential claimants are not to be hindered from accessing the best possible recourse in recovering damages as a result of an infringement whereby they have suffered an evidenced loss. Athenian Brewery case In its recent judgement, dated 13 February 2025, the CJEU provided clarifications concerning the issue of jurisdiction in a follow-on damages claim as a result of a request for a preliminary ruling from the Hoge Raad der Nederlanden (Supreme Court of the Netherlands).[3] In essence, the request posed the question as to whether a national court can hold jurisdiction over a claim involving both a parent company and its subsidiary (joint and several liability) on the rebuttable presumption of the parent company’s influence over its subsidiary, under the interpretation of Article 8(1) of Regulation No. 1215/2012.[4] (a) Brief factual background By way of brief factual background, Athenian Brewery SA (hereinafter, “AB”) and Macedonian Thrace Brewery SA (hereinafter, “MTB”) are breweries established in Greece and operating on the Greek beer market. AB is a part of the Heineken group (98.8% of the shares in the capital of AB between September 1998 and 14 September 2014), the parent company of which, Heineken, has its registered ofce in Amsterdam (the Netherlands). Accordingly, Heineken sets the strategy and objectives of the Heineken group and does not itself carry on any operational activities in Greece. By way of a decision on 19 September 2014, the Epitropi Antagonismou in Greece (hereinafter, the “Competition Commission”) found that AB had abused its dominant position on the Greek beer market (during the period the Heineken group held 98.8% of the shares in AB) and held to be a single continuous infringement of Article 102 TFEU (and the Greek statutory equivalent). Notably, while MTB had asked the Competition Commission to include Heineken in its investigation, it was stated in the wording of the Competition Commission’s final decision there was no evidence of Heineken’s direct involvement in the infringements and that the specific circumstances did not support the assumption that Heineken had “exercised a decisive influence over AB”. Therefore, the Competition Commission did not adjudicate on the rebuttable presumption of the parent company’s decisive influence and liability. Subsequently following the decision, MTB made an application to the rechtbank Amsterdam (the District Court, Amsterdam, Netherlands) for AB and Heineken to be held jointly and severally liable for the infringement. AB and Heineken requested for the claim to be dismissed as the Dutch court did not have jurisdiction (no close connection between the claims) to hear the claim under the respective provisions of Regulation 1215/2012. While it has been established by the CJEU in Sumal parent companies and their subsidiaries are liable for competition law infringements committed by one of them if they form a single economic unit, the subsequent question of jurisdiction and forum shopping in such cases has been rather woolly and contested from different fronts.[5] From the other angle, the CJEU has previously held,[6] inter alia, that actions brought against undertakings which have participated, in different places and at different times, in a single and continuous infringement, which has been established by a decision of the European Commission (not a national competition authority as is the situation in the present case), were so closely connected that it was expedient to hear and determine them together to avoid the risk of irreconcilable judgments under Article 8(1) of Regulation No. 1215/2012. The answer of bringing actions in one Member State against a defendant as a result of a national decision originating in another Member State was not therefore clear. (b) CJEU’s Preliminary ruling In light of the above and following the uncertainty as to how to approach the jurisdictional question on appeal, the Hoge Raad der Nederlanden decided to stay proceedings and referred the following questions to the CJEU for a preliminary ruling to clarify the requirements of establishing a close connection between the actions (AB’s violation as a subsidiary and Heineken as the parent exercising decisive influence over AB) under Article 8(1) of Regulation No. 1215/2012. The latter Article 8(1) stipulates that where the defendant is domiciled in a different Member State, that defendant may be sued (for damages) in the courts for the place where any one of the defendants is domiciled, provided that the claims are so “closely connected” that it is practical to hear and determine them together, avoiding the risk of conflicting judgments from separate proceedings. Therefore, the CJEU had to provide an answer as to whether the rebuttable presumption of the parent company’s decisive influence (in this instance, holding almost all of the capital in the subsidiary) and liability fulfils the necessary close connection provided under Article 8 of Regulation No. 1215/2012. In its ruling, the CJEU first clarified EU competition law refers to the activities of undertakings, with the result that, since the liability for damage caused by infringements of EU competition rules is personal in nature, the undertaking which infringes those rules must answer for the damage caused by the infringement.[7] The CJEU went on to underline, “the concept of an ‘undertaking’ and, through it, that of an ‘economic unit’ automatically entail the application of joint and several liability amongst the entities of which the economic unit is made up at the time that the infringement was committed”.[8] In other words, the CJEU holds that parent companies and subsidiaries are liable for the same infringement if they constitute a single undertaking under the applicable rules, in line with the principles of foreseeability and legal certainty.[9] The CJEU also confirmed the fact that the joint and several liability was not established in a final European Commission or national decision does not preclude the application of Article 8(1) of Regulation No 1215/2012.[10] The CJEU further highlighted “in the specific case where a parent company holds, directly or indirectly, all or almost all of the capital of a subsidiary which has infringed the competition rules, there is a rebuttable presumption, namely the presumption of the parent company’s decisive influence and liability, that that parent company does in fact exercise a decisive influence over the conduct of its subsidiary”.[11] The CJEU underlined the aforementioned presumption therefore also applies in the case of a claim brought by a natural or legal person as a result of a company’s participation in an infringement, brought against another company which holds all or almost all of the capital of the former. In that regard, the CJEU holds within the context of Article 8(1) of Regulation No. 1215/2012 that the aforementioned rebuttable presumption (decisive influence of the parent company over the subsidiary) does indeed apply in such claims and as a result a close connection can be presumed (rebuttable) concerning the actions of both parent and subsidiary. In other words, the defendants can rebut the aforementioned presumption and therefore jurisdiction if they provide hard evidence the parent company did not hold directly or indirectly all or almost all of the capital of that subsidiary, or that that presumption should nevertheless be rebutted. Finally, the CJEU emphasised that “at the stage at which international jurisdiction is determined, the court seized examines neither the admissibility nor the substance of the claim [however], only the connecting factors with the Member State in which that court is situated which are capable of providing a basis for its jurisdiction under Article 8(1) of Regulation No 1215/2012”.[12] In other words, the national courts are able to reach a decision on jurisdiction by exclusively applying the presumption (if raised and successfully evidenced (“firm evidence”) by the claimant and not adequately rebutted by the defendant (with “firm evidence”)).[13] Conclusion and key takeaways In sum, the CJEU’s ruling is much welcomed for further guidance and clarity. The court repeated its reasoning throughout which is to avoid irreconcilable judgments across the Member States. The ruling also provides added legal certainty for claimants and a further weapon in the armoury for forum shopping. If we look at the ruling literally, the question is of course raised whether this would be applied in reverse (i.e., going after an innocent subsidiary where the parent has committed the infringement). We will have to wait and see. According to the CJEU, companies should “reasonably foresee” the possibilities of being sued if the parent or subsidiary has been found to have infringed competition laws. Finally, in practice, we have seen the difficulties in rebutting the presumption of decisive influence and it is unclear what the CJEU means by “firm evidence”. This will be tried and tested. Should you have any questions or clarifications concerning potential damages claims, or require practical assistance with any aspect of competition laws, please reach out to a member of the VILGERTS’ Competition team. ______________________________ Refer to Regulation (EU) No 1215/2012 of the European Parliament and of the Council of 12 December 2012 on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters (recast), OJ L 351, 20.12.2012, at pp. 1–32. Refer to Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union Text with EEA relevance, OJ L 349, 5.12.2014, at pp. 1–19. Article 9 of the Damages Directive states: “1.Member States shall ensure that an infringement of competition law found by a final decision of a national competition authority or by a review court is deemed to be irrefutably established for the purposes of an action for damages brought before their national courts under Article 101 or 102 TFEU or under national competition law. 2. Member States shall ensure that where a final decision referred to in paragraph 1 is taken in another Member State, that final decision may, in accordance with national law, be presented before their national courts as at least prima facie evidence that an infringement of competition law has occurred and, as appropriate, may be assessed along with any other evidence adduced by the parties […]”. Refer to Case C‑393/23, Athenian Brewery SA, Heineken NV v. Macedonian Thrace Brewery SA, 13 February 2025, ECLI:EU:C:2025:85. Refer to Article 8(1) of Regulation 1215/2012: “A person domiciled in a Member State may also be sued: (1) where he is one of a number of defendants, in the courts for the place where any one of them is domiciled, provided the claims are so closely connected that it is expedient to hear and determine them together to avoid the risk of irreconcilable judgments resulting from separate proceedings; […].” Refer to Case C-882/19 Sumal v. Mercedes Benz Trucks Espana, 6 October 2021, EU:C:2021:800. Refer to Case C‑352/13 CDC Hydrogen Peroxide, 21 May 2015, EU:C:2015:335. Refer to Case C‑724/17, Skanska Industrial Solutions and Others, 14 March 2019, EU:C:2019:204, paragraphs 30 and 31 and the case-law cited therein. fn. 5 at paragraphs 43 and 44. At paragraph 40, the CJEU also stated the concept of ‘undertaking’, within the meaning of EU competition law, which constitutes an autonomous concept of that law, cannot have a different scope with regard to the imposition of fines by the Commission under Article 23(2) of Regulation No 1/2003 as compared to actions for damages for infringement of EU competition rules. Refer to Case C‑103/05 Reisch Montage, 13 July 2006, EU:C:2006:471, at paragraph 25. fn.3 at paragraphs 30-31. Refer to Case C‑457/16 P and C‑459/16 P to C‑461/16 P Global Steel Wire and Others v Commission, 26 October 2017, EU:C:2017:819, at paragraph 84 and the case-law cited therein. fn.3 at paragraph 41. fn.3 at paragraphs 42-46. March 7, 2025 by Charles Clarke, Expert Counsel

Can you imagine the situation where a carefully selected and purchased plot of land ends up causing more losses than expected gains? This article provides a practical overview of what to look out for so as to avoid ending up in such unfortunate situations. In 2019, when the well-known supermarket chain Lidl sought to open its first store in Āgenskalns it raised a real protest storm and the construction of the new store on a plot of land chosen for this particular purpose was not supported by the Riga municipality (please see more information here). Lidl had chosen the 7,331 square metre plot of land at Baldones street 7 for its new store, on which the Agenskalns Sports and Gymnastics Society House was established since 1910. In the 1930s, tennis courts were built there, which are still in use today. In 2019, information was published providing that on 21 December 2017 SIA “Centrālais tenisa klubs” concluded a real estate sales agreement with SIA “MMS Property Solutions” (new company – SIA “Lidl Latvija”), however, the change of ownership was not subsequently registered in the Land Register. Accordingly, SIA “Centrālais tenisa klubs” commissioned a local plan to change the purpose of the land. After receiving 52 applications (signed by a total of 1,723 people) expressing negative public opinion on the development of the land plot for the opening of a new Lidl store, the Riga City Council, at its 48th meeting on 27 February 2019, decided to reject the local plan version of the land plot at Baldones street 7. This leads to a scenario that can be summarized as “the land exists, but you cannot construct anything on it”. When purchasing real estate land, with the primary aim of developing the land, it is necessary to evaluate various factors and nuances in order to clearly understand whether the selected land plot meets the planned purpose of use. Qualitative real estate research significantly reduces both possible risks and provides clarity on the final outcome. What should be considered when buying real estate for commercial development? In the context of this article, commercial activities are understood as being, for example, warehouse services, retail, wholesale, manufacturing, etc., and other similar commercial activities. Purpose of use of real estate. When purchasing real estate, it is first necessary to evaluate whether it meets the intended use. It is essential to first evaluate what is the purpose of use, which is registered in the national cadastre information system. A land plot and part of a land plot may have several purposes of use, each of which imposes certain restrictions on the acquisition, development, and occupation of the property. Of course, the purpose of use may be changed, for example, when a building permit is issued or by applying to the municipality where the land plot is located. If the purpose of use is registered as a forest, the land may be deforested. Deforestation is the conversion of forest into another land purpose use, caused by a person’s activity, and is described in the Forest Law. The State must be compensated for the costs of dealing with the negative consequences of deforestation. The amount of compensation is calculated using a formula and depends upon the area to be deforested, the average cost of reforestation and maintenance according to the Central Statistical Office, the type of forest, the purpose of deforestation and other factors. It is worth considering whether the change of the land purpose should be an obligation for the seller before the transaction, as sometimes the land purpose may also impose restrictions on its disposal. For example, if a plot of land is primarily intended as agricultural land, there are various restrictions on how much land can be acquired by natural or legal persons, how the land can be used, and there is also a right of first refusal for the person administering the Latvian Land Fund. Municipal territory planning. In addition to the purpose of the land use, restrictions on the use or development of the property may be set out in the municipality’s spatial plan. The spatial plan is a long-term development planning document of a municipality, which sets out the requirements for the use and development of the territory, including functional zoning, public infrastructure, rules for the use and development of the territory, as well as other conditions for the use of the territory, which are binding on any natural or legal person. The municipal spatial plan also includes the regulations on the use and development of the territory, which lay down general requirements for the planning, use and development of the territory at the local level. Changing a municipality’s spatial plan is not as easy as changing the use of real estate. If the municipality’s spatial plan has been in force for a longer period of time, it is possible to detail it by creating a local or detailed plan. Unlike a detailed plan, a local plan can amend the spatial plan of a local authority. In practice, both can take about 1 year in smaller towns or villages, or even 2-6 years in Riga. If the municipality’s approved spatial plan is coming to an end and the municipality has started work on a new spatial plan, interested parties can be involved in its preparation. The planning authority has a duty to seek the opinions of the public and organise public participation in the development planning of the area. The relevant municipality shall publish information on its website on the launch of the preparation of the spatial plan and its amendments, the procedure, place, and time limits for public consultation, where and when the spatial plan and its amendments can be consulted and how written proposals and comments can be submitted. Binding regulations of local governments. In addition to territorial planning, local governments can also adopt other binding regulations or decisions that may affect the use or construction of the specific real estate; therefore, they must be considered when planning the purchase of the relevant property. Encumbrances. It is not only the municipality that can restrict the development of real estate. Different restrictions can be agreed upon by the current or former owner of the property. Consequently, all mortgages, encumbrances, easements attached to the real estate must be assessed. It must be specifically provided that the real estate seller resolves all issues related to registered mortgages, if any, and releases the real estate from all encumbrances that could create obstacles to the use of the land. It should be noted that easements in real estate, not personal easements, are usually registered in the Land Register. This means the easements are tied to the real estate itself, not the seller. If the easements are established on the real estate, it is important to familiarise yourself with the easement agreement, as its obligations may also be transferred to the future owners of the real estate. It is also important to remember that an easement mark, unlike an easement record, does not create rights in rem. According to the case law of the Senate of the Republic of Latvia, the mark of easement creates only a pending right to record the easement in the Land Register. Therefore, easement rights are created only by a correctly created entry in the Land Register. However, not everything is as simple as it might seem at first glance and it is advisable for potential buyers to check why the marks have been made, if any. In practice, lawyers come across various situations which may, for example, turn out to be an error in the marking of an easement, for historical or other reasons, and in fact both property owners – the servient and the dominant – wanted to record the easement in the Land Register in the form of an entry. Meteorological impact. Given that Latvia is a country rich not only in forests but also in water, it is advisable to assess whether the property is located in an area where there is an increased risk of flooding or flooding threats. This information is collected by the Latvian Environment, Geology and Meteorology Centre, as well as by the municipalities themselves. Flood risks can be caused not only by natural factors, but also by man-made engineering structures – amelioration systems. Before buying real estate, it is advisable to check in the Land Amelioration Cadastre whether and which land amelioration systems are located on the plot of land. Land amelioration systems affect real estate not only with food risks if the system is blocked, but also with various responsibilities and restrictions for the landowner. Among other things, the regulatory legislation provides that the landowner or the legal possessor operates and maintains relations with the amelioration system. The Protection Zone Law stipulates it is forbidden to carry out work with impact machinery, to drop weights, to dump and pour toxic and corrosive substances, fuels, and lubricants around amelioration structures, and to obstruct access roads. In the protective zones around amelioration structures and devices of state and national importance, it is prohibited to leave growing bushes and trees if they interfere with the amelioration system. The protected area factor. When purchasing an undeveloped piece of land, it can be overgrown with plants or be a home for various animals and birds. And if at first glance it might seem like a beautiful visual addition to the real estate, however, we recommend checking that the property does not contain any plants, trees or natural monuments that are considered to be protected species, or that the property does not contain any protected animals or birds. Such areas, which fall into one of the protected area categories, have fairly strict restrictions on what kind of development can take place there. Access options. From a practical point of view, one needs to be aware of where the property is located. This includes how the property can be accessed, what the neighbours are like, what the road access is like, etc. In many parts of Latvia, access to a property is only possible via a privately owned road or a road shared with other neighbours. All the risks of using private roads need to be carefully assessed to avoid potential disputes after the purchase of the land. The quality of the road itself, its connections to other roads (whether public or private) must also be assessed on the ground to see if it is ft for purpose of the use of land. It should also be noted that national roads are subject to predicted traffic volumes. Consequently, in accordance with Latvian legislation, if facilities are planned which may result in increased traffic volumes and disruption to other road users, additional congestion and other negative impacts on transport infrastructure, a traffic flow diagram must be drawn up and included in the local plan, detailed plan, or construction design. Noise compliance with regulatory enactments. Careful consideration must also be given to whether there are any private properties nearby. The Latvian legislation requires structures to be designed and constructed to ensure noise levels within and adjacent to buildings comply with the applicable noise levels. However, where industrial or other activities are planned which are likely to give rise to increased noise levels, the development regulations may impose additional conditions for the construction of noise attenuating features to reduce noise levels. Electrical network connection. If the plot of land is not developed, there is a possibility it does not have a connection to an electricity grid. To install an electricity connection with a large power consumption, it is necessary to understand where the substations of the “Distribution Network” power network are located and the power consumption. In addition, one should also be aware whether such works will affect other real estate in the area. Once the buyer decides the chosen property is suitable for the intended business, the parties can start working on a draft agreement. Given the conditions, stages, and prerequisites for this type of transaction, there is an established practice of how such transactions are implemented to the satisfaction of both parties. The core of such transactions is that the payment is split into several instalments (usually two). A down payment (usually 10%) is made at the time of conclusion of the agreement or shortly thereafter. To protect the interests of the buyer, a mortgage is secured on the real estate in the amount of the down payment. The buyer pays the rest of the purchase price when the building permit is issued or the building plan is approved by a building inspector, which means that it is possible to carry out the development of the property as planned by the buyer to suit the planned commercial activity. Knowing that a building permit has been issued or is likely to be issued, it is clear the intended purpose has also been accepted by the municipality. The vendor is therefore interested in assisting the buyer in obtaining all necessary permits and approvals. VILGERTS’ advise against entering into a “cash” agreement in such transactions, as the final decision on the purchase of real estate does not always depend only upon the buyer. One of the most important aspects when purchasing real estate for commercial development is whether the chosen plot of land is suitable for carrying out the specific commercial activity. Therefore, it is safer and more profitable to conclude a real estate purchase agreement, which accurately and in detail describes the obligations of each party for obtaining the necessary permits. By being aware of all the risks described above, the parties can more easily define the terms of the agreement and understand the structure of the transaction, reducing the possible ambiguities of the parties or such risks because of which the real estate cannot be used for the chosen commercial activity. *** Our experience in real estate is leading edge. We can cover all aspects of transactions, tax, and disputes. Among our clients are the largest real estate developers and major construction companies. For any enquiries, please contact Real Estate & Construction partner Gints Vilgerts (email: [email protected]) or Elizabete Bartansone (email: [email protected]). May 20, 2024 by Elizabete Bartansone, Associate