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Arbitration

A recent Supreme Court decision is the first in Lithuanian case law on the issue of the arbitrability of public procurement disputes. However, it has already sparked a debate among experts. Is it a Pandora's box, opening up the possibility of more disputes being deemed non-arbitrable, or is it a necessary weapon against bad-faith actions arising from public procurement relationships?

Disputes arising from contractual and other relations in the world of sport are normally settled by specialised sports arbitration bodies. A Court of Appeal decision recently raised the prospect that arbitration awards to settle disputes between professional sportspeople and their clubs might be ineligible for recognition and enforcement. However, the position of the courts now looks more reassuring.

Although the Supreme Court is essentially positive towards arbitration, its jurisprudence sometimes creates more surprise than stability. Although it seems clear that a court must refrain from assessing an arbitration clause if the question of the tribunal's jurisdiction is already a matter of contention in arbitration proceedings, it is less clear what approach a court may take if arbitral proceedings have not yet been initiated.

It is often said that litigation is more advantageous than arbitration due to the possibility of securing enforcement of the court's decision by applying for interim measures. This is only partially true. Although under the Law on Commercial Arbitration the arbitral tribunal has limited possibilities to decide on application of interim measures, this might easily be solved by applying to the court of general jurisdiction.

In Lithuania, Belarusian arbitral awards may be enforced only once they have been recognized and authorized for enforcement by the Lithuanian Court of Appeals. Belarusian arbitral awards cannot be reviewed on the merits; rather, they can be considered only on the basis of certain conditions that may constitute grounds for non-recognition.

Including: Arbitration Institutions; National and International Arbitration Regulations; Arbitration Agreements; Non-arbitrable Disputes; Arbitrators; Proceedings; Expenses; Interim Measures; Challenges; Recognition and Enforcement; Other Forms of Alternative Dispute Resolution.

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Commercial Property

One of the most positive aspects of the 2011 budget legislation is the revision to the Law on Immovable Property Tax. It allows for an individual valuation based on the impairment of immovable property value, instead of a mass valuation of the property. This allows companies to respond to market fluctuations by reducing the taxable base value of their property - a significant factor in improving the business environment.

The commercial property sector has been hit hard in 2009 and many tenants are trying to terminate or modify their long-term lease agreements. Recent first instance decisions are worrying for landlords and much will depend on whether the economic downturn and its effect on real estate rental values can be said to constitute a significant change in circumstances.

Until recently the requirement to obtain an energy performance certificate applied only to newly built and certain renovated buildings. However, the requirement has since been extended to most commercial buildings with a useful floor space of over 1,000 square metres, regardless of their construction date.

Company & Commercial

According to the new Lithuanian Law on Companies, which came into force on January 1 2004, all companies registered in Lithuania must submit financial statements, together with a report on the company's activities and auditor's opinion (if applicable), to the Register of Legal Persons every year within 30 days of their annual general meeting.

Lithuania has adopted a Legal Persons Register, bringing the country into line with EU member states. The register will operate from January 1 2004 and will replace the existing system based on separate registers for enterprises, public organizations, associations, budget institutions, credit unions and other entities.

The Ministry of Economy recently proposed amendments to the Law on Companies. The draft contains new requirements for the inclusion of company data in the Companies Register and provides that the legal status of private limited liability companies will no longer be dependent on the number of shareholders.

Recent amendments to the Law on Companies aim to prevent minority shareholders of limited liability companies from abusing their rights. The amendments generally provide higher shareholding thresholds at which minority shareholders can exercise their rights. In addition, the articles of association of Lithuanian companies must be amended to reflect the Law on Companies by July 1 2003.

Competition

Overview
Including: Legislation and Jurisdiction; Notification and Clearance; Substantive Assessment; Remedies and Restraints; Involvement of Other Parties or Authorities; Judicial Review; Recent Enforcement Record.

Lithuania's substantive competition law is similar to EU competition law; the main differences stem from enforcement rules and priorities. In recent times the Competition Council has adopted guidelines regarding fines and announced its enforcement priorities, highlighting several main characteristics of its approach.

A Competition Council decision against 32 shipbroking and agency companies, together with their representative association, in connection with a price-fixing agreement has been appealed to the Administrative Court. It raises significant questions about the de facto termination of anti-competitive practices and the extent to which an undertaking in an association must distance itself from infringing practices by the association.

A recent judgment is likely to prove significant for companies facing competition enforcement in Lithuania. The court delineated the responsibilities of market regulatory authorities and the Competition Authority, clarified the standard of proof for the authority and confirmed that in-depth economic analysis is needed to determine the existence of abuse of dominant position by applying excessive prices.

Amendments to competition legislation allow chief executive officers (CEOs) to be held personally liable for infringements if they contribute to the organisation or implementation of an anti-competitive practice. The change is to be welcomed, but making CEOs liable for their employees' anti-competitive actions may prove too great a burden - not only for CEOs, but also for companies operating in small Lithuanian markets.

The Supreme Adminstrative Court has issued the first decision on damage claims against the Competition Authority. A claim for damages in respect of fines already paid will not be accepted if it is based solely on the annulment of the decision. However, the standard of proof required in demonstrating that the authority exceeded its legitimate powers is still ambiguous.

The Seimas has adopted amendments to the Competition Law which expand the powers of the Competition Council to allow it to seal the premises of an undertaking where documents are kept during an investigation and to impose liability for damaging such a seal. In addition, the council will be allowed to enter and inspect private premises for the purposes of competition investigations.

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Construction

In order to prevent abuses of the planning system by developers, illegal buildings must be demolished, regardless of whether such constructions are allowable in a particular area. However, proposed amendments to the Construction Law advocate a reasonable punishment of illegal developers and would allow for the regularization of buildings that meet planning, environmental and other criteria.

Corporate Finance/M&A

The Supreme Court has issued a decision which recognises the importance of representations and warranties when entering into share sale and purchase contracts. Its analysis helps to protect honest purchasers against fraudulent vendors or the unconscionable acts of their employees.

Following the Lithuanian government's decision to de-monopolize production of strong alcoholic beverages, four state-controlled companies have been tendered for privatization. The government has already privatized Lithuania's three leading strong alcohol producers and expects to finish privatization of the fourth producer in the first half of this year.

The government has chosen three of the successful bidders for Lithuania's state owned alcohol producers. The State Property Fund has already started negotiations with potential buyers. In related news, the Lithuanian Parliament has delayed the start of the liberalization of the domestic alcohol market by six months until January 1 2004.

The Lithuanian government has decided to privatize its majority equity stakes in four Lithuanian alcohol producers. The privatization will be subject to certain conditions, including maintaining the basic activities of the companies for five years. Potential buyers should be companies with at least five years' experience of producing or trading in alcoholic beverages.

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Corporate Tax

While there was much discussion on changes to the Lithuanian taxation system after the recent elections, the New Year has not brought any drastic changes. Nevertheless, some amendments have been made to the Profit Tax Law - with regard to not-for-profit organizations and long-term tangible assets - and the Income Tax Law, with regard to farmers’ income.

An amendment to the Value Added Tax (VAT) Law permits enterprises that deliver long-term services to retain VAT invoices in electronic format and enterprises that provide goods and services which are exempt from VAT to omit certain data normally required on VAT invoices. In addition, some small changes have been introduced into the Profit Tax Law and the Law on Income Tax of Individuals.

On June 15 2004 the Income Tax Law was amended to allow tax relief for persons purchasing computers and internet access for home use, in order to help Lithuania reach EU targets. Amendments have also been made to encourage the founding and development of social enterprises, which have been made exempt from corporate income tax.

As of May 1 2004 companies will not be required to use government-approved invoices and other blank forms in their transactions and accountancy procedures. The cabinet of ministers has also authorized the Ministry of Finance to create rules for the use of Value Added Tax (VAT) invoice forms, which VAT-paying companies must now acquire from their local tax authorities.

A new law aims to improve the tax administration system in Lithuania by adopting some of the best practices of foreign states. The law emphasizes cooperation between taxpayers and the tax administration, and concentrates on the voluntary payment of taxes rather than the function of collecting taxes.

Lithuania's Law on Value Added Tax (VAT) has been amended to harmonize it with EU legislation. The new law will enter into force on May 1 2004, the date of Lithuania's accession to the European Union. Among other things, the law provides new definitions for terms such as ‘goods’, ‘VAT payers’ and ‘VAT commercial invoices’.

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Intellectual Property

The government has commenced proceedings in Parliament to ratify the Singapore Treaty. It also submitted draft amendments to the Law on Trademarks that would, among other things, implement the provisions of the treaty, modernise registration procedures for trademarks and eliminate the requirement that trademark licensing agreements be registered before they can be used against third parties.

Intellectual property can be transferred by assignment or licence agreement, by inheritance and by other procedures prescribed by law. Transferors and transferees of IP assets should ensure that they understand the tax consequences of assigning or licensing intellectual property in Lithuania.

Parliament has finally adopted new legislation to reform Lithuania's private copying levy, covering blank analogue and digital media and personal reproduction devices with memory and recording functions. The law is expected to raise well over double the current annual revenue. However, it remains to be seen whether the new regime will meet the expectations of the creative industries.

A recent Court of Appeal decision on interim measures sought by pharmaceuticals company Bayer has important lessons for the protection of patents in Lithuania. When seeking interim measures, the effect of which would virtually coincide with the consequences of a successful claim, the patent holder must have a strong patent with no reasonable doubts surrounding its validity.

After Lithuania regained independence in 1990 and established its trademark protection system, companies rushed to register signs which had been used for goods in the Soviet Union. Over 20 years later, some of these marks may be at risk of invalidation if they include elements that are generic and non-distinctive.

According to Lithuanian copyright legislation, copyright and related rights holders whose rights have been infringed may seek recovery of material damages; alternatively, they may seek lump-sum (or statutory) damages up to twice the value of the licence fee or compensation. A recent Constitutional Court ruling casts new light on the criteria involved in calculating compensation.

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Litigation

A recent Supreme Court clarifies that the purpose of restitution in the context of a wrongful agreement is to limit the ability of a party acting with wrongful intent and in bad faith from benefitting from such conduct. Consequently, such a party must fully reimburse its contractual counterparty under an annulled contract, whereas a party that has acted in bad faith should not be reimbursed.

In considering an appeal arising from a dismissed claim for non-pecuniary damages, the Supreme Court has warned against an overly formalistic approach to statutory limitation periods. It referred to the practice of the European Court of Human Rights in stating that limitation rules cannot be applied without considering the circumstances of the legal relationship in question.

A dispute between a construction company and the developer of a residential tourism complex regarding liability for fire damage to the complex has led to two decisions by the Supreme Court. Among other things, the court has clarified the circumstances in which a fire may be said to constitute force majeure.

A recent case centred on the effect of an arbitration clause in a financial lease contract in respect of an earlier purchase and sale contract, which was attached to the financial lease contract as an annex. The Supreme Court held that the dispute should be adjudicated by an arbitration tribunal and that a reference to EU Regulation 44/2001 was unfounded.

A regional court in Lithuania denied its competence to consider a claim related to a bankrupt German company, finding that claims against a company based in another EU member state arising out of bankruptcy must be decided by the courts of the state in which bankruptcy proceedings were initiated. The Supreme Court has now referred three related questions to the European Court of Justice.

The Supreme Court has ruled that contracts for the carriage of passengers are consumer contracts. The court also ruled that a jurisdictional clause in such a contract is invalid if it states that a dispute arising out of the contract shall be adjudicated by the courts of the state in which the carrier is located.

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Product Liability

The Ministry of Health issued a decision to regulate the labelling, presentation and advertising of foodstuffs. The previous Hygenic Norm was amended and supplemented to accord with the EU Food Labelling Directive. Lithuanian institutions treat the provision as relevant to all possible health-related preventions and treatments, and do not allow any health-related information on foodstuff labels.