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 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

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

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

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

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

Is it simply enough for the claimant to rely on the decision of the Competition Council? The construction cartel saga has thoroughly disturbed the calm waters of private damages claims in Latvia, in which the EU Damages Directive has so far been relatively unused in practice. However, since public purchasers have been receiving letters from the Prosecutor General’s office, urging them to pay attention to specific decisions of the Competition Council which have entered into force and become uncontested, and to carefully self-assess whether they have a grounded legal basis in recovering state or municipal money overpaid as a result of the cartel, the Court of Economic Matters has been receiving numerous private damages claims. As a result, specific trends in the case-law can be observed and the main overall conclusions are the following: A well-founded claim for private damages claims is now a rarity in of itself. It appears the contracting authorities feel compelled to comply with their obligation and bring a claim, but do not invest adequate resources in substantiating the claim. The judgments of the courts of the first instance are, however, contradictory. In the same vein, some judgments signal the risk of dangerous precedent-setting. This article will briefly address the question as to whether it is sufficient for the claimant to simply refer to the decision of the Competition Council in its private damages claim in order to justify the defendant’s unlawful conduct. In an action for private damages under the general procedure, the claimant must prove all the prerequisites for damages set out in Articles 1635(1) and 1779 of the Civil Code. The obligation to pay damages arises when the following conditions or grounds for damages exist simultaneously: (1) the unjustifiable act of the person who infringed the right, which, where applicable, includes an assessment of fault; (2) the existence of damage; and (3) the causal link between the damage and the tortfeasor’s act.[1] Implementing the provisions of the EU Damages Directive[2] into Latvian law, Article 25069 has been incorporated into the Civil Procedure Law, the first part of which provides that an infringement of competition law established by way of a decision issued by the Competition Council which has entered into force does not need to be proven from scratch when submitting a private damages claim, including in instances of cartelized procurements. This provision is undeniably aimed at easing the claimant’s burden of proof. If the judgment of the Competition Council which has entered into force clearly establishes that the defendant has acted in breach of competition law and the claimant has suffered damages as a result, the claimant does not have to prove the breach of competition law. However, it should be noted here that not all cartel decisions issued by the Competition Council in procurement cases are the same. At least two categories of such decisions can be distinguished. The first category includes those decisions which clearly establish a cartel in a particular procurement procedure. For example, the 2015 decision of the Competition Council in the case of AS “Latvijas valsts meži” on the procurement of logging services.[3] In this decision, the Competition Council found a prohibited agreement between several groups of bidders in a specific procurement procedure organised by the contracting authority, identified in the decision.[4] Following a claim for damages brought by AS “Latvijas valsts meži”, the judgment of the court of first instance rightly concluded that the defendant’s unlawful conduct had been established by the decision of the Competition Council and, accordingly, the first of the prerequisites for private damages claims had been fulfilled.[5] Another example, is the 2016 decision of the Competition Council in the case of price surveys for repair works of VAS “Latvijas Dzelzceļš”.[6] In this decision, the Competition Council found a prohibited agreement in specific price surveys for repair works at various facilities organised by VAS “Latvijas Dzelzceļš”, identified in the decision.[7] The judgment of the first instance court, in the action for private damages claims brought by VAS “Latvijas Dzelzceļš”, rightly concluded that the defendant’s unlawful conduct had been established by the decision of the Competition Council and, accordingly, the first prerequisite for the recovery of damages had been fulfilled.[8] In both of these cases, the actions were brought in relation to uncovered cartels in certain procurement procedures organised by the claimants, identified in the Competition Council’s decisions. Therefore, the claimants did not need to further substantiate the first prerequisite for private damages claims and it was sufficient to refer to the relevant decisions of the Competition Council. By contrast, in the second category of procurement cartel cases, the Competition Council uncovers a cartel which has showed itself as a single and continuous infringement over a long period of time, involving a number of procurement procedures which are not properly identified in the Competition Council’s decisions. For example, in 2014, the Competition Council fined the importer and dealers of Volkswagen brand cars for collusion.[9] The decision found the dealers had for several years agreed on the conditions for participation in tenders by sending each other emails asking to refrain from participating in this or that procurement procedure. Although the decision is accompanied by a lengthy annex containing extracts from the emails in question, it is rarely possible to identify the specific procurement procedure from the emails. The Competition Council has not carried out any investigative work in this respect and has not included in the decision a list of the procurement procedures adversely affected by the cartel. Similarly, in the Construction Cartel decision[10] the Competition Council qualified the cartel as a single and continuous infringement, whereby the parties to the alleged cartel divided the procurement of construction works among themselves over an alleged period of several years. The reasoning for this decision is solely based upon private conversations wiretapped by the KNAB. As in the Volkswagen case, the excerpts of the recordings of the private conversations made public in the decision do not, for the most part, allow for a precise identification of the procurement procedures discussed. Also in this case, the Competition Council had not carried out a full investigation and had not included in its decision a list of the procurement procedures that were adversely affected by the prohibited agreement. However, already after the adoption of the decision, the Competition Council published on its website a defined “list of objects”[11] which identified more than 70 procurement procedures. However, this list does not form part of the Competition Council’s decision – the administrative act – and is for information purposes only. In particular, the possible claimant cannot base its claim on the ‘list of objects’, since the ‘list of objects’ does not have the preliminary effect provided for in Article 25069 of the Civil Procedure Law. Consequently, the question arises whether it is sufficient for the claimant to refer to the decision of the Competition Council in this second category of cases in order to substantiate the first prerequisite for damages. As it currently stands, the case-law provides contradictory answers to this question. One path of first instance case-law is that if the decision of the Competition Council does not identify the procurement procedure to which the alleged damages are attributed, the claimant has the burden of proving that the infringement of rights found in the decision of the Competition Council is attributable to the procurement in question, pursuant to Article 93(1) and Article 96(5) of the Civil Procedure Law.[12] In other words, it is not sufficient to merely refer to the decision of the Competition Council. In the judgement of the Court of Economic Matters of 23 February 2024 it was rightly recognised: although the defendant’s unlawful conduct – infringement of competition law, has been established by the decision of the Competition Council and has manifested itself as a violation of the Competition Law Article 11(1), where an agreement on the conditions of participation in tenders has been concluded between the undertakings referred to in the decision during a certain period of time, “the court must also determine whether the applicant has proved that it was precisely by means of this infringement that the defendant caused the damage (damage and its causation) to the claimant, i.e. whether the two purchase contracts concluded in the context of the claimant’s two tenders fall within the infringement established by the Competition Council”.[13] . However, there are also judgments in favour of the most eloquent of the claimants. In one case, the first instance court held that it is sufficient for the establishment of the first prerequisite for private damages claims that the procurement contract was concluded during the period in which the Competition Council established the infringement.[14] The judgment is based on the finding that, “the Competition Council was not required to investigate the conduct of each particular procurement (…) because the agreements constituted a single anticompetitive agreement and were part of an overall plan with a common objective of market sharing and exchange of information on the terms of participation in the procurement”. [15] The application of these conclusions – on the scope of the burden of proof of the Competition Council in the context of an administrative investigation – to a civil action for private damages in the context of an adversarial procedure is obviously faulty. The decision of the Competition Council does not provide a concrete basis for private damages claims in specific cases. The decision of the Competition Council provides the grounds for finding an infringement of Article 11(1) of the Competition Law and/or Article 101(1) of the Treaty on the Functioning of the European Union and for imposing a fine. If the Competition Council classifies the agreement in question as prohibited by object, the Competition Council does not need to analyse in detail each of the procurement procedures discussed between the cartel members in order to substantiate its decision. However, in a civil action for private damages, the claimant must substantiate its claim and, if the Competition Council has failed to do so, it is the claimant who has the burden of proof to link a particular procurement procedure to the competition law infringement found. As a minimum, the claimant should refer to the evidence analysed in the Competition Council’s decision that refers specifically to the claimant’s procurement procedure, provide the court with evidence on the conduct of the specific procurement procedure and the bidders (e.g., whether there were other bidders besides the cartel members, etc.), the price offers and price differences, including the market investigation carried out prior to the procurement and the differences between the prices offered and the results of the market investigation (as this could indicate unjustified overcharging), whether there were withdrawals of bids, whether there were any indications in the bidding documents that the bids were coordinated, etc. It should be noted that the claimant, as the contracting authority, has access to extensive information on the conduct of the procurement in question and has the right to ask the court to request evidence from both the defendant and third parties, as well as from the Competition Council’s investigation file, if the published version of the decision is not sufficient.[16] Thus, if a decision of the Competition Council does not identify specific procurement procedures, the claimant seeking to bring an action for private damages for a cartelised procurement is obliged to prove the infringement of competition law found by the Competition Council includes the procurement procedure organised by the claimant and, accordingly, the concluded procurement contract.   [1] Please refer to Torgans K. Law of obligations. Second updated edition. Riga, Tiesu namu aģentūra, 2018, p. 210. [2] Please refer to Directive 2014/104/EU of the European Parliament and of the Council of 26 November 2014 on certain rules governing damages actions brought under national law for breach of the competition laws of the Member States and of the European Union. [3] Please refer to the decision of the Competition Council of 14 July 2015 On Infringement of Prohibition Prohibited in Section 11 (1) of the Competition Law by SIA Oga G, SIA Amils, SIA RT Kadiķi, SIA AN Priede, SIA Consultation Office, SIA Riveros, SIA Eko burkāns, SIA Roluks, IK LUUX, SIA LK Forest and SIA Davos, available   here:   https://lemumi.kp.gov.lv/files/lemumu_pielikumi/mwLmgSYSUn.pdf. [4] Please refer to paragraphs 20, 21 of the Decision. [5] Please refer to the Judgment of the Court of Economic Justice of 21 August 2023, point 6.1, available here https://manas.tiesas.lv/eTiesasMvc/eclinolemumi/ECLI:LV:ELT:2023:0821.C75014822.2.S. [6] Please refer to the decision of the Competition Council of 6 October 2016 On Infringements of Section 11(1) of the Competition Law in the Activities of SIA Ogre S, SIA Dinar būve, SIA BTC, SIA Smarts, SIA PVL plussV, SIA Smartbūve and SIA KKT Construction, available here.Article 11(1) of the Competition Law on Infringements of the Activities of Ogre S, Dinar būve, BTC, Smarts, PVL plussV, Smartbūve and KKT Construction,  available  here:  https://www.kp.gov.lv/sites/kp/files/vkwxu0vyj51.pdf. [7] Please refer to paragraph 13 of the Decision. [8] Please refer to the Judgment of the Court of Economic Affairs of 24 August 2023, point 5.1, available here: anonymised_nolemums_512761.pdf. [9] Please refer to the Decision of the Competition Council of 15 December 2014 On infringement of the prohibitions set out in Article 11(1) of the Competition Law and Article 101(1) of the Treaty on the Functioning of the European Union by SIA SD AUTOCENTRS, SIA RIPO AUTOCENTRS, [Applicant]* , SE MOLLER BALTIC IMPORT, SIA MOLLER AUTO KRASTA, SIA MOLLER AUTO VENTSPILS, SIA MOLLER AUTO LATVIA, SIA Lauri Motors, available here: https://lemumi.kp.gov.lv/files/lemumu_pielikumi/pvsnXDKlpn.pdf. [10] Please refer to the Decision of the Competition Council of 30 July 2021 “On the Application of Article 11(1) of the Competition Law and Article 101(1) of the Treaty on the Establishment of the European Union Paragraph 1(1) of the Treaty on the Functioning of the European Union, the infringement of the prohibition laid down in paragraph 1 of the Treaty on the Functioning of the European Union by the activities of SIA SKONTO BŪVE, SIA LATVIJAS ENERGOCELTNIEKS, SIA VELVE, SIA ARČERS, SIA RERE BŪVE, SIA RE & RE, SIA RBSSKALS Būvvadība, SIA ABORA, AS LNK Industries and SIA MERKS’, available here: https://lemumi.kp.gov.lv/files/documents/21210809_L%C4%93mums_Publiskojam%C4%81_versija.pdf. [11]  Available  here:  https://www.kp.gov.lv/lv/media/9344/download?attachment. [12] Please refer to the Judgment of the Court of Economic Justice of 20 December 2022, Case C75012022, paragraph 7. [13] Please refer to the Judgment of the Court of Economic Justice of 23 February 2024, Case C75017723, paragraph 7.1. [14] Please refer to e.g., Judgment of the Court of Economic Justice of 29 December 2023, Case No C75015223, paragraph 4. [15] Ibid. [16] Please refer to Article 25066 and Article 25067 , second paragraph, of the Civil Procedure Law. March 11, 2024 by Debora Garanča, 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 March this year, the final ruling in the almost eight-year long trademark dispute between Air Baltic Corporation AS and SIA Baltic Taxi, over the trademarks Baltic Taxi[1], entered into force. The Latvian Supreme Court’s judgement in this case expressed several important conclusions which are likely to be cited in future trademark disputes.[2] Among others, the Latvian Supreme Court’s conclusions also relate to the concept of a “family” or “series” of trademarks, which is rarely analysed under Latvian case-law. In this regard, the general questions raised are: (i) what is a “family” of trademarks and how does it differ from an ordinary trademark registration; and (ii) what is the relevance for disputes in uncovering the existence of a family of trademark? As you may already be aware, trademarks can only be registered individually. A trademark consists of a specific sign (e.g., word, figurative logo, etc.) and this sign is registered as a trademark with its own individual registration number. Often, trademark proprietors, especially those working simultaneously in different sectors or with different classes of goods, own several trademarks. If such trademarks are created using a common design and/or the same elements, the existence of a trademark family may be established. However, it is not possible to register a family of trademarks in the Register of Trademarks. Such concept is not defined under the Latvian Trademark Law and thus the existence of a family of trademarks is a question of fact, which, in the event of a dispute, must be proven by the person claiming it. The European Union Intellectual Property Office guidelines explain that in order to be considered as belonging to a family of trademarks, all the trademarks must contain a common element (component) which must be identical or at least very similar in all the trademarks. Slight graphic differences in the common element do not preclude the conclusion that a family of trademarks exists, provided the public could regard the differences as a modern way of presenting the same product line.[3] For example, in the Baltic Taxi trademark case, the court upheld that the common element of the applicant’s family of trademarks was the word “Baltic” combined with descriptive signs (Bike, Miles, etc.), and that the trademarks of the family of trademarks had a uniform style, colour combination and layout. In the dispute concerning the trademark Rocher, on the other hand, the Latvian Supreme Court held the mark FERRERO is the unifying and common element of the family of trademarks and indicates the goods originate from a single undertaking.[4] In the case-law, the concept of a family of trademarks has been developed in the context of the comparison of trademarks and the assessment of the “likelihood of confusion”. Traditionally, in opposition or invalidity proceedings against a later trademark registration, the trademark is compared visually, semantically and phonetically with the earlier trademark in order to determine whether there is a likelihood of causing confusion or interconnection between the trademarks[5] by the relevant consumers. The proprietor of the earlier trademark is thus afforded protection against imitations of his trademark or mere confusingly similar later trademarks of others. However, when earlier trademarks form a family of trademarks, in addition to the usual comparison test, additional considerations to be taken into account are to be found in case-law. Within the existing case-law of the Court of Justice of the European Union (CJEU), Bridge v Bainbridge is considered a landmark case on the concept of a family of trademarks, in which it was upheld that a family of trademarks consisted of several trademarks with the common word element “bridge”.[6] The CJEU emphasised a trademark can only be registered individually and the resulting protections granted individually, even where several trademarks having a common element are registered at the same time. Nevertheless, the CJEU upheld where there is an earlier family of trademarks, it cannot be limited to a mere comparison between the earlier and later trademarks (comparing the trademarks only in the form in which they are registered), one must also take into account the risk and assess whether consumers may mistakenly believe the later trademark forms part of an existing family of trademarks.[7] In particular, if the later trademark is based upon the same principles as the company’s trademarks from an existing family of trademarks, consumers encountering such a similar later trademark may perceive it as a “continuation” of the family of trademarks and mistake the goods for coming from the same company as the family of trademarks. As a result of such a misperception by consumers, the holder of a later trademark may benefit and facilitate the market entry of its goods. Thus, in Citigate, the General Court underlined the existence of the CITI family of trademarks increased the risk that the applicant’s trademark “CITIGATE” would exploit the reputation of the trademark “CITIBANK” and the public at large may decide to use the applicant’s services, believing (or understanding) the applicant’s trademark is related to the well- known trademark “CITIBANK”.[8] It is therefore not sufficient for consumers to have the ‘impression’ a sign is linked to an existing family of trademarks merely because the trademarks in the family are registered. In addition, the family of trademarks must also be used in the market where consumers can see and perceive the trademarks as a family, i.e., as evidence of the origin of the goods or services from the same company.[9] Accordingly, the proprietor of a family of trademarks must provide evidence the trademarks forming the family are being used.[10] The level of proof does not need evidence a particularly high degree of recognition of the family of trademarks on the market (reputation or well-known status). The Latvian Supreme Court, in the Baltic Taxi trademark case, has established the following set of clear criteria and procedures for assessing the risk of causing confusion in cases where there is a family of trademarks: the common element of the trademarks in the family must be identified and its distinctive character assessed (if the element is descriptive, it is not suitable to create the likelihood of confusion); an assessment of each of the contested trademarks against the family of trademarks; and examine whether the contested trademarks have such characteristics as to link them, giving consumers the false impression that the contested trademarks belong to an existing family of trademarks.[11] Admittedly, a finding of a “consumers’ false impression” will rarely be based upon direct evidence provided by consumers (as was found in the Baltic Taxi trademark case, where the consumer complaints received were clear evidence of a real-life misconception). Therefore the proprietor of a family of trademarks must be able to provide clear evidence of the use of the trademarks which demonstrates the existence of the family of trademarks on the market and their recognition by consumers. In summary, the creation of a family of trademarks may confer certain advantages upon the trademark proprietor by providing a broader scope of protection for its trademarks, i.e., protection also against later trademarks which, even if not confusingly similar in themselves, may nevertheless evoke associations with the family of trademarks as a whole.   [1] Please refer to the Riga Regional Court Judgement of 24 May 2024 in Case No. C3759916. [2] Please refer to the Supreme Court Judgement of 19 December 2022 in Case No. SKC-7/2022. [3] Please refer to the European Union trademark guidelines, part C “Opposition”, Section 6, available at: https://guidelines.euipo.europa.eu/2214311/1789608/trade-mark-guidelines/chapter-6-other-factors. [4] Please refer to the Supreme Court Department of Civil Cases Judgement of 31 May 2016 in the Case No. SKC-19/2016. [5] Please refer to the Trademark Law at Section 7, first paragraph, clause 2. [6] Please refer to Court of Justice of the European Union Judgement of 13 September 2007 in Case No. C- 234/06 P Il Ponte Finanziaria SpA.. [7] Ibid., at Clauses 62. and 63. [8] Please refer to General Court Judgement of 26 September 2012 in the Case T-301/09 IG Communications Ltd clause 122. [9] Please refer to Court of Justice of the European Union Judgement of 13 September 2007 in Case No. C- 234/06 P Il Ponte Finanziaria SpA, clause 64. [10] Please refer to European Union trademark guidelines, part C “Opposition”, Section 6, available on: https://guidelines.euipo.europa.eu/2214311/1789608/trade-mark-guidelines/chapter-6-other-factors. [11] Please refer to the Latvian Supreme Court Judgement of 19 December 2022 in the Case No. SKC- 7/2022, clause 11.2.2. July 17, 2024 by Brigita Tērauda, Partner    

On 8 June 2023, the Supreme Court of Canada ruled that a supplier’s claim for debt collection from the buyer for the supply of linseed was justified due to the fact that the buyer had agreed to the terms of the contract by sending the supplier a “👍” or raised thumb emoji (see KING’S BENCH FOR SASKATCHEWAN, South West Terminal Ltd v Achter Land & Cattle [2023] SKKB 116). The question arises from the judgment as to whether it is permissible under the Latvian legal system for a contract to be concluded or accepted by sending an emoji. For the sending of an emoji to be regarded as an acceptance or a confirmation of an offer (which entails an obligation on one of the parties to the contract to fulfil any obligation arising from a contract thus entered into), a certain set of circumstances must be evidently established. Section 1404 of the Civil Code (Civillikums) stipulates that in each legal agreement it is necessary to consider the participants, subject, statement of will, components and form. If there is no dispute between the parties about the parties and the subject matter of the agreement, it should be considered how the statement of will from the parties (in the form of “👍") would be assessed under the applicable provisions of the Latvian civil law. Section 1427 of the Civil Code stipulates that bilateral or multilateral agreements require a coherent expression of intent by all parties to the agreement. A coherent statement of intent is aimed at the occurrence of certain legal consequences (see Section 1511 of the Civil Code). For example, in a transaction concerning the sale and purchase of a car, the seller wants to sell the car to the buyer, while the buyer wants to buy the car from the seller for a corresponding price. In this regard, the parties to such an agreement are seeking: (i) the transfer of ownership of the car; and (ii) the receipt of payment for the car. On the other hand, according to the first paragraph of Section 1428 of the Civil Code, a party’s will may be expressed in words, orally, in writing or “by signs that have the meaning of words”. To date, “👍” has not been analysed much within the Latvian case-law, on the understanding that within formal communication, especially legal documents, it is not customary to use emojis if it is not specifically stipulated as a condition. It cannot be ruled out that emojis will be used much more frequently in communication, including in formal communication, which may have certain legal effects under certain specific circumstances. The Riga City Court, adjudicating on the dispute between the employee and the employer, has upheld that " 👍” can be used as a “confirmation” for something (i.e. confirmation that employee will attend themeeting in person.)(see the judgment of the Riga City Court of December 27, 2022, in case No.C68346322). The conclusion of the Riga City Court was upheld on appeal and the Senate of the Supreme Court has subsequently refused to initiate cassation proceedings (see the judgment of the Civil Court Panel of the Riga Regional Court of 6 April 2023 in Case No. C68346322, CA-1044-23/1 and the decision of the Action Session of the Senate of the Supreme Court of 29 June 2023 in Case No. C68346322, SKC- 740/2023). The judgement can therefore be considered as being final. Section 1437 of the Civil Code states that the expression of intent must be serious. A statement made in the form of a joke has no binding legal consequences. To conclude that an emoji might be considered as an acceptance of an offer, it is necessary to evaluate the context in which it is expressed. The sign “👍” may have a completely different meaning, which may not indicate confirmation of something, for example, by assessing parties’ previous practice. The Supreme Court of Canada, adjudicating on the dispute between the parties, concluded that there is a practice between the parties in how agreements are finalised. In particular, the seller in question sent, in electronic form, the text of the agreement, which specified all the essential elements of the agreement, asking for confirmation of the terms of the contract. In turn, the buyer in previous dealings with the seller confirmed the seller’s offer by sending a confirmation of the words “yes”, “yup” or “ok”. The buyer had made payments for transactions approved in this way on several occasions. Consequently, the previous practice of cooperation between the parties to the dispute did not leave the court in any reasonable doubt that, following the established practice between the parties, the buyer’s approval had been received and the seller had the right to demand the execution of a legally concluded agreement. It is understood that throughout a long-standing practice of concluding uniform agreements, in which the parties have agreed on the subject and price of the purchase, only the quantity of the item to be sold changes, the parties may also agree on a current order in an informal manner. In such situations, it would not be problematic to establish the acceptance of the offer, since there is already an established practice of cooperation between the parties (see the third paragraph of Article 18 of the United Nations Convention on Contracts for the International Sale of Goods). A different situation could arise, however, whereby the parties are negotiating a possible agreement that is not long-term nor repeated cooperation. Section 1533 of the Civil Code stipulates that a contract is considered to be entered into only when there is a full agreement between the parties on “the essential elements of the transaction with the purpose of mutually binding each other”. Thus, it is necessary to assess whether the “👍"sending after receiving the offer indicates the clear will of the parties to be binding and enforceable. It should be noted that the meaning of “👍" depends on the factual context in each case, and it cannot always be assumed that the receipt of “👍” from the other party to the agreement constitutes the conclusion of the agreement. However, if there is a full agreement between the parties on the essential elements of the agreement and one of the parties has reserved the right to agree on certain ancillary provisions (for example, the delivery period), then the sending of “👍” may not be considered as a will to form an agreement since such communication will be considered a preliminary discussion, and not a legally concluded agreement (see Section 1534 of the Civil Code). Notably, the Supreme Court of Canada recognised that “👍” is to be recognised as a signature-like expression of will (within the meaning of Canadian law) that confirms the buyer’s consent to purchase the goods in question. As mentioned above, under a Latvian law context, “👍”   could be considered as an expression of intent confirming the buyer’s consent to be bound by the seller, however, sending “👍”  could not be considered as a signed document, especially if one of the preconditions for the contract to become effective (as agreed by the parties in the contract) is that both parties sign the contract. The first paragraph of Section 5 of the Law on the Legal Force of Documents (Dokumentu juridiskā spēka likums) stipulates that the document must be signed by hand. The second paragraph of Section 3 of the Electronic Documents Law, on the other hand, provides that a document shall only be considered as being signed by hand if it has a secure and valid electronic signature. A qualified electronic signature shall be considered to be a secure electronic signature within the meaning of Article 3, paragraph 12 of the Regulation No. 910/2014/ES of the European Parliament and of the Council of 23 July 2014. That is, by signing a document with a secure electronic signature, it is possible to establish the identity of the signatory. Consequently, the opposing party would not be able to assume that the buyer has signed the agreement with an emoji and the consequences arising from the signing of the agreement under Section 1431 of the Civil Code had occurred. In particular, it cannot be assumed the other party to the contract who “signs” the agreement in that way has expressed his/her will to the content of the agreement (see paragraph 12.3 of the Senate judgment of 31 October 2016 in Case No SKC-53/2016 (C17147209)). Conclusions: “👍” may be regarded as consent to the offer if there is a clear intention on both sides to enter into the relevant legal agreement. Sending an “👍” emoji will not always be considered as consent to relate to the other party in any way and evaluating the meaning of the emoji “👍” depends upon the factual context of its use, the history of cooperation between the parties, the type and form of the transaction. By sending “👍”, it cannot  be assumed the opposing party signed the agreement by hand and thus agreed to the content of the agreement. November 22, 2023 by Agris Dēdelis, Associate

Traditionally, companies, for one reason or another, seek to avoid litigation as much as possible. This is totally understandable, litigation is time and resource consuming and for the most part, unpredictable. In this regard, to date, there has been no very active litigation practice before the Latvian courts concerning conflicting trademarks. Nevertheless, it is important for the trademark owners to be aware that the applicable Latvian law restricts their ability to formally act against a competitor’s conflicting trademarks if they do not do so in a timely manner. The Trade Mark Law provides for a so-called “acquiescence period”, after which the owner of a trademark will no longer be entitled to oppose the registration of a competitor’s trademark that interferes with the owner’s right, as the owner will be deemed to have “acquiesced” with the existence of that trademark. In particular, the Trade Mark Law grants the trademark owner a period of 5 (five) years during which the owner can decide whether to oppose the registration of an identical or confusingly similar trademark. At the end of this 5 (five)-year period, the trademark owner will have to simply accept the existence of the competing mark. The statutory limitation period for bringing a trademark infringement action, i.e., bringing an action against a competitor for unlawful use of a trademark (asking the court to prohibit such use), should also be considered. This period is 3 (three) years from the date on which the trademark owner became aware of the infringement. According to the provisions of the Trade Mark Law, if the owner of an earlier trademark has not contested the use of a later trademark registered in Latvia within 5 (five) consecutive years, even though the owner knew or should have known of such use, the owner is no longer entitled, on the basis of the owner’s earlier rights, to claim the invalidity of the registration of the later trademark, unless the later trademark was applied for in bad faith. As regards infringement actions, the Trade Mark Law provides that such actions may be brought against the infringer within 3 (three) years from the time at which the owner of the trademark knew or should have known of the unlawful use of the trademark. Firstly, there is no need to worry about the possible expiry of the acquiescence period in situations whereby a competitor’s trademark has been registered with bad faith (a competitor has registered in its own name a trademark to which it is not essentially entitled). ‘Bad faith’ will be typically found in situations whereby, for example, a trademark created by a company is registered in its own name by an employee or affiliate of the company or by a contractual partner of the company. ‘Bad faith’ registration is not protected by the law and, accordingly, can be opposed at any time. Secondly, the timeline for which the competing brand appears in the marketplace should be recorded as accurately as possible. It is important to stress, the Trade Mark Law refers not only to the time of actual “knowledge”, but also to the time when the person “should have known” about the competing mark. Such situations may arise in the absence of any direct contact between the trademark owner and the conflicting trademark. However, the existence of the conflicting trademark could nevertheless not have remained unknown to the owner (e.g., products bearing both trademarks are sold in the same shops, are exhibited at the same trade fairs, etc.). Thirdly, when confronted with a conflicting brand in the marketplace, carry out a due diligence and confirm whether it is already registered as a trademark. The confirmation can be easily carried out through using publicly accessible databases, access links to which can be found on the website of the Latvian Patent Office  https://www.lrpv.gov.lv/lv/precu-zimes/datubazes. Once the situation is clear, one must decide whether to formally act against the conflicting trademark circulating in the marketplace or wait it out. Naturally, the launch of a new brand does not necessarily mean that it will be a success and still be around in a few years’ time. In the same vein, a similar brand does not necessarily immediately harm the trademark owner. It is therefore, depending on the situation, possible to wait and see what happens with the new brand, i.e., to postpone taking formal action until a later date – subject to the time limits prescribed under the Trade Mark Law. It is important to stress, however, that in some cases, immediate action can be much more effective. If the conflicting trademark is found to be recently applied for registration, it is possible to use the relatively simple opposition procedure before the registration authority (the Latvian Patent Office or, in the case of an EU mark, the EU Intellectual Property Office) to prevent the registration of such a mark from being completed at all. Sometimes, an amicable solution is also possible, where both owners of similar brands agree to co-exist, for example, by defining product categories or market segments for the use of each trademark. As can be seen, there are a variety of different solutions depending on the specifics of the factual situation, however, it is important to always bear in mind the time limits prescribed under the Trade Mark Law. March 19, 2024 by Brigita Tērauda, Partner

Analysis: Companies registered in Latvia will be able to use crypto assets to pay for their share capital During the end of 2024, the Latvian government introduced amendments to the Commercial Law, specifically permitting the use of crypto assets as contributions in kind to the share capital of a limited liability company (SIA). These latest amendments are part of a broader strategy aimed at promoting innovation and attracting crypto asset service providers to Latvia. The legal framework is based upon the European Parliament and Council Regulation (EU) 2023/1114 on Markets in Crypto-Assets (MiCA), which came into effect on 30 December 2024. MiCA aims to establish a unified regulation for crypto assets across the European Union, thereby increasing legal certainty and promoting a wider use of distributed ledger technology (DLT). Although crypto enthusiasts generally frown upon hearing about new regulations being introduced, MiCA’s task is to regulate the ‘shadow market’ of crypto, thereby ensuring consumer protection, market integrity, and financial stability. Particularities of the Process The standard process of incorporating a SIA in Latvia includes several stages – preparing incorporation documents, appointing the management board, and paying the share capital. Traditionally, when establishing a SIA, participants transfer Euro 2,800 to the temporary account of the newly established SIA, but it is possible to pay the share capital with a contribution in kind. For making a contribution in kind, an independent expert’s opinion on the value of the in-kind contribution is usually required. However, when making a contribution by way of a crypto asset, the founder can prepare the valuation of the crypto asset themselves. This valuation must be based upon the average price of the specific crypto asset on a crypto asset trading platform operating in accordance with the MiCA regulation (over the six-month period prior to the valuation). Article 153 of the Commercial Law, which sets out the basic principles of in-kind contributions, was supplemented with a seventh part, which prescribes the procedure for investing crypto assets in the company’s share capital. Meanwhile, Article 154 of the Commercial Law, which determines the procedure for evaluating in-kind contributions, was supplemented with part 2², which sets out the procedure for evaluating electronic money tokens or asset-referenced tokens. According to the seventh part of Article 153 of the Commercial Law: “When making an in-kind contribution with a crypto asset, it shall be transferred to the company’s distributed ledger address or to an account opened with a crypto asset service provider specified in the MiCA regulation.” Currently, only two types of crypto assets are allowed for paying share capital: 1) Electronic Money Tokens (EMT); or 2) Asset-Referenced Tokens (ART), as defined in MiCA: Electronic Money Tokens (EMT) – Regulation Section IV (Articles 31–44) These are crypto assets most commonly called stablecoins intended to maintain stable value by referencing a single official fiat currency (e.g., Euro or USD). They function similarly to electronic money. Examples include fiat currency-backed stable cryptocurrencies such as USD Coin (USDC) and Tether (USDT). Issuers must be authorised (licensed) as an electronic money institutions (EMI) or credit institutions, observing strict requirements, including: Maintaining liquid reserves in a 1:1 ratio with the reference currency. Reserve assets must be separated from the issuer’s own assets. Token holders must be ensured the right to redeem tokens at face value at any time. A whitepaper must be submitted and approved by the national competent authority. Asset-Referenced Tokens (ART) – Regulation Section III (Articles 16–30) These cryptocurrencies stabilise their value by referencing multiple assets, such as a basket of currencies, commodities or other crypto assets. Examples include DAI and PAX Gold (PAXG). Issuers must obtain MiCA authorisation and meet requirements, such as: Secure and transparent reserve asset management. Reserves must not be used as collateral. Detailed reports on reserve coverage. Compliance with risk management and governance standards. Practical Experience: USDC as Share Capital USDC (USD Coin) is one of the most popular stablecoins or EMTs that complies with MiCA. USDC is issued through a partnership between Circle and Coinbase, aimed at ensuring a constant 1:1 peg to the USD. USDC’s total market capitalisation exceeds USD 60 billion. The closest stablecoin pegged to the Euro is EURC from the same issuer Circle, but its market capitalisation and popularity are significantly lower. USDC is based upon the following technical and financial principles: Reserve in USD currency or equivalent assets: For every USDC in circulation, an equivalent amount in USD (or highly liquid US government securities) is held in third-party maintained accounts, which are periodically audited. Upon returning USDC, the token is destroyed, and the user receives the equivalent amount in USD. Regular audits and transparency: Circle publishes reports on reserve funds so that users and institutions can verify the maintenance of the 1:1 ratio. Smart contracts and blockchain: USDC exists on multiple blockchains (Ethereum, Solana, Polygon, etc.), and issuance and destruction (minting/burning) occur through smart contracts, ensuring transparency and precise accounting. Data from the European Central Bank (ECB) highlights that since 2022, the Euro/USD exchange rate has experienced significant fluctuations, affecting the competitiveness of Latvian companies across global markets. Stablecoins can offer an alternative, enabling companies to manage currency risk more effectively, maintain liquidity, and reduce conversion costs. It should be noted, however, that currently no Latvian bank offers crypto asset custody services for businesses; therefore, it is necessary to seek a foreign Fintech provider for such services. Additionally, when transferring funds to a crypto exchange, there is an inherent risk the credit institution may identify the payment as risky and accordingly block the account. When the tokens are in the company’s possession, crypto assets must be accounted for in the bookkeeping. According to the amendments to the Cabinet Regulation No. 775 “Regulations on the Application of the Annual Accounts and Consolidated Annual Accounts Law,” crypto assets must be shown as inventories, while EMTs – fall under “cash”. The value of crypto assets at year-end must be adjusted, choosing between acquisition costs or the lower market price. Detailed information on the types of crypto assets and accounting policy must also be included in the financial statements. It is entirely possible that in the near or distant future taxes may also be payable with crypto assets. Reduction of the bank’s role as a transaction intermediary and building trust in crypto Europe in general, and Latvia in particular, are currently at interesting crossroads regarding the trust in cryptocurrencies. The Eurobarometer 2024 survey shows that 68% of Europeans have heard about cryptocurrencies, but only 17% have used them. In the Latvian context, these figures are similar according to recent surveys– 63% of residents are aware of cryptocurrencies, but only 14% have used them. The decentralised financial system (DeFi) is currently changing the dynamics of financial transactions, gradually reducing the role of banks as intermediaries. The decentralisation enabled by blockchain technology transforms the essence of financial intermediation, on the one hand, threatening traditional bank revenue sources, but on the other hand, stimulating new models of cooperation and forms of services. High-street banks will continue to offer traditional services, including deposits and loans, but their ‘monopoly’ over transactions is gradually diminishing. For entrepreneurs in Latvia, this means more opportunities to conduct cross-border transactions without the need to pay relatively high commission fees or wait for long transaction confirmations. Moreover, transactions on the blockchain are fully traceable and virtually unbreakable. With the increasing trust of global asset managers in crypto assets, regulatory efforts by global jurisdictions, and the inclusion of crypto assets within investors’ portfolios and the topic is no longer discussed within a narrow circle of enthusiasts. One of the main obstacles for general acceptance is the lack of knowledge and concerns about security. As the Associate Professor Dr. oec. Jānis Priede from the University of Latvia’s Faculty of Business, Management and Economics notes: ”Fraud cases and chaotic regulation in the past have left an impact on public trust in cryptocurrencies. However, the implementation of the MiCA regulation and other regulatory efforts are gradually changing this perception”. Personal experience reflects this paradox of trust – on the one hand, the legislator increasingly supports the integration of cryptocurrencies into businesses, but on the other hand, traditional institutions, such as banks, still treat them with caution or rejection. As regulatory clarity increases and positive usage examples emerge, a gradual rise in public trust in cryptocurrencies can be likely expected, particularly in stablecoins, which combine innovation with stability. As is often stated in the financial world – money is conservative, but innovations are revolutionary. My experience shows these two forces are gradually starting to find a place in Latvia, and in the future, we may see more and more companies successfully integrating traditional business structures with the advantages provided by crypto assets.

With the registration of a trade mark, its owner acquires not only exclusive rights against third parties but also the obligation to commence the use of the trade mark no later than within 5 years. At the same time, any interested person has the right to challenge the registration of a trade mark if, after the expiration of the said term, the trade mark is not actually used in commercial activity. In such a dispute, the trade mark owner will have to provide evidence proving the use of the trade mark with respect to the goods and services for which the trade mark is registered. On 13 May this year, the Supreme Court, in case C30575718, provided clear guidelines on the requirements for proving the use of a trade mark. Although these findings can be found in the judgments of the Court of Justice of the European Union and in certain earlier judgments of Latvian courts, the mentioned Senate judgment consolidates them in one place and explains in detail. The trade mark owner (defendant) has the obligation to prove the use of the trade mark by submitting specific evidence. The claimant does not have to prove that the trade mark has not been used. Evidence must be submitted for each good/service indicated in the trade mark registration, even if the goods/services fall under the same Nice Classification class. Evidence of the use of the mark in relation to one service cannot be applied to all services indicated in the relevant class. However, if the goods/services are defined very precisely and narrowly and fall within one homogeneous category, it may be sufficient to submit evidence only regarding part of the goods/services included in this category. In principle, the court must assess all submitted evidence regarding the use of the trade mark; however, there may be situations where only a few or even a single piece of evidence is sufficient for proving use. Use cannot be proven by probabilities or presumptions, but only by objective evidence of effective and sufficient use of the trade mark in the relevant market. A trade mark may also be used in a form that differs in non-essential elements from the registered trade mark. When evaluating the differences, it is not necessary to assess whether the registered and used signs are confusingly similar, but rather to establish whether the differences are non-essential and such use does not alter the distinctive character of the registered trade mark. Accordingly, trade mark owners should remember that the registration of a trade mark does not allow them to “reserve” rights to the respective sign concerning all goods/services covered by the registration throughout its validity period, if the trade mark is not actually used or is used only for certain items from the list of goods/services. It should also be remembered that when changing the form of a trade mark over time, it is necessary to assess whether it is required to register a new trade mark.