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Newsletter 2011 Winter Edition

  • Lithuania

    02-03-2011

    Labour Law

    Amendments to the Labour Code have been adopted

    On 2 December 2010 the Labour Code of the Republic of Lithuania was supplemented with new item 4 of Article 124 in conjunction with new part 2. These amendments established new separate grounds for termination of an employment contract, which can be applied in cases when whereabouts of an employer (if an employer is a natural person) or of representatives of an employer are impossible to ascertain.

    The new provisions of legal framework will enable solution of the problems when an employee wishes to terminate his/her employment contract for different reasons (for example, when an employee wishes to start working for another employer), but cannot realize that, since the whereabouts of his/her employer (or its representative) are unknown. One of the reasons that prompted to supplement the provisions of the Labour Code was a common situation, when an employer keeps failing to pay salary to the employees, and the whereabouts of the employer are impossible to ascertain, such employees are prevented from registering at the labour exchange and implementing their rights under the Law on Unemployment Social Insurance of the Republic of Lithuania and related acts of legislative nature. According to Part 2 of Article 5 of the above-mentioned law, the unemployed are entitled to monetary unemployment benefits when they register at the territorial labour exchange within 6 calendar months from employment termination at the latest, and in the absence of the employer (or his representative) it has been impossible to terminate employment contracts.

    These supplements will become effective as of 1 March 2011. On 9 December 2010 Article 162 of the Labour Code of the Republic of Lithuania was amended and supplemented with a new clause which enacted 24 December, the Christmas Eve, to be a holiday. This amendment and supplement became effective on 1 January 2011.

    Contract Law

    The Law on the Register of Contracts has been adopted

    The Law on the Register of Contracts of the Republic of Lithuania was adopted on 16 November 2010 and came into force on 27 November 2010.

    It is provided in the Civil Code of the Republic of Lithuania that contracts indicated in articles 6.411, 6.417 and 6.572 of this code must be registered in a public register in accordance with procedure established by law, without providing details as to the procedure of registering these contracts as objects of a public register. From the year 2002 until coming into force of the Law on the Register of Contracts, the procedure of registering above-mentioned contracts was governed by the Regulations of the Register of Contracts, approved by a resolution of the Government; such a situation was in conflict with the wording of the Civil Code, which says that the abovementioned contracts must be registered in accordance with procedure established by law rather than delegated legislation, and violated provisions of the Law on Public Administration and the Law on State Registers as well as the constitutional principle of superiority of laws over delegated legislation.

    Pursuant to the Law on the Register of Contracts in effect, the following contracts are registered:

    1. Instalment sale contracts where things not subject to registration are purchased to provide services or to run a business of an undertaking;
    2. Contracts of sale with the right of redemption where things not subject to registration are purchased to provide services or to run a business of an undertaking;
    3. Leasing (financial lease) contracts the subject-matter of which is things not subject to registration and intended for use or business purposes.

    Persons who want to use the above-mentioned contracts against third parties are in the position to do so only if the respective contract has been registered in a public register in accordance with procedure set by law. In the event any of the above-mentioned contracts has been concluded, amended, terminated or has expired, a notice about conclusion/amendment/termination/expiration of such a contract is submitted to the Central Mortgage Office in the form set by an order of the Minister of Justice. Instalment sale contracts and leasing (financial lease) contracts are automatically (without a separate notice) delisted from the register after one year from the date of the final payment term. Contracts of sale with the right of redemption are automatically (without a separate notice) delisted from the register after five years from the date of registration of such a contract at the Register of Contracts.

    All the data about contracts entered in the Register of Contracts pursuant to procedure set by the Regulations of the Register of Contracts prior to and upon coming into force of the Law on the Register of Contracts are deemed to be correct and complete until proven otherwise in accordance with procedure established by law.

    The Law on Consumer Credits has been adopted

    Whereas national laws had to transpose the provisions of the Directive 2008/48/EC of the European Parliament and of the Council of 23 April 2008 on credit agreements for consumers (hereinafter referred to as the Directive) by 11 June 2010, the Government submitted the Seimas by the resolution of 21/10/2009 a draft of the Law on Consumer Credits of the Republic of Lithuania, which was adopted by the Seimas on 23 December 2010. The Law on Consumer Credits came into force on 4 January 2011.

    Before the adoption of the Law on Consumer Credits, the regulatory framework did not impose any obligations on creditors to check the creditworthiness of borrowers and did not prevent insolvent borrowers from increasing their debts. The Law on Consumer Credits will ensure implementation of the principle of responsible lending by obliging the creditors, prior to entering into a consumer credit agreement, to assess the creditworthiness based on sufficient information obtained from the borrower and, if necessary and with the borrower’s consent, to consult a relevant database used for assessing the creditworthiness of consumers.

    Previously the laws did not provide for the borrower’s right to withdraw from the consumer credit agreement within certain time. The enacted Law on Consumer Credits entitles consumer borrowers to withdraw from the consumer credit agreement within 14 days; however, if a consumer borrower exercises his right of withdrawal from the agreement, his obligation to repay the creditor the consumer credit granted and the interest accrued thereon from the date the consumer credit was drawn until the date the credit is repaid to the creditor will persist. This period of 14 days will enable the consumer borrowers to investigate the market after conclusion of an agreement and to obtain a possibly better deal.

    Taking into account the provisions of the Directive, this law provides for the creditor’s right to demand compensation in the event of the consumer borrower’s early repayment of the consumer credit, either in part or in full. If the time elapsed from the conclusion of the agreement to early repayment is less than a year, the compensation should not exceed 0.5 per cent of the amount repaid early, and if the above-mentioned elapsed time is longer than a year, the compensation should not exceed 1 per cent of the amount repaid early. The law, however, provides for cases when the creditor has no right to demand compensation and establishes that the creditor is entitled to demand compensation only if the amount repaid early exceeds 10,000 EUR over any 12-month period.

    Before the adoption of the Law on Consumer Credits, the entities that grant consumer credits (except commercial banks and credit unions) were under no control. As an instrument of their supervision, the law introduces public registration of both the creditors and credit intermediaries, and the failure to register will deprive them the right to pursue the businesses of, respectively, granting consumer credits

    or credit intermediation. Hopefully, the publicity will give consumers more confidence and legal certainty concerning the consumer credit offered, since the entities included in the register will comply with the requirements of the provisions of the Directive, i.e. they will have rules on assessment of creditworthiness and the order in which cases will be processed as well as access to databases. Detailed regulation of liability for breaches of the law will ensure effective control of compliance with the law.

    Finance Law

    Amendments to the Law on Audit have been proposed

    According to currently valid the Law on Audit of the Republic of Lithuania, audit can be performed by an auditor provided he/she works for an audit enterprise, or if he/she is partner of an audit enterprise. Moreover, Article 18 of this law establishes a finite list of legal forms of an audit enterprise, which means that an audit company can take the legal form solely of an individual enterprise, general partnership, limited partnership, or a private limited liability company.

    The Government proposed the Seimas by the resolution of 08/12/2010 to amend the Law on Audit of the Republic of Lithuania. In the prepared Draft Law on Amendment and Supplementation of Articles 1, 2, 5, 6, 8, 9, 12, 13, 14, 16, 17, 18, 20, 21, 22, 23, 24, 27, 28, 30, 32, 33, 34, 43, 44, 49, 50, 58, 59 and the Annex of the Law on Audit of the Republic of Lithuania, it is proposed to cancel the provision which limits the legal form of an audit enterprise, and to establish that an audit enterprise may take any legal form, and an auditor may perform an audit in a self-employed capacity, taking into account provisions of the Directive 2006/123/EC of the European Parliament and of the Council on services in the internal market, and thus to provide greater freedom to the providers of audit services in selection of the legal form for their activities.

    It the draft law on amendment and supplementation of the Law on Audit, it is proposed to stipulate that all the provisions applicable on an audit enterprise when performing an audit shall be mutatis mutandis applicable to a self-employed auditor.

    In addition, since the Directive 2006/43/EC of the European Parliament and of the Council does not establish a general requirement for natural persons to speak the official language of the member state, and since the official language is obligatory only in two cases, i.e. for taking the aptitude test and for entering information in the public register, the draft law proposes to waive the requirement of the official language. Furthermore, proposals have been made to amend the Law on Audit by enacting that a person who seeks to become an auditor must have attained higher education, with a college and/or university degree.

    Case Law

    Lithuanian case law

    Regarding provisions applicable in respect of reduction of contractual penalty

    On 2 November 2010 an extended panel of the Civil Division of the Supreme Court of Lithuania (hereinafter referred to as the SCL) ruled in civil case No. 3K-7-409/2010, in which a dispute arose about reduction of penalty set in a sale and purchase agreement. When examining the case at the court of first instance to decide on the issue of reduction of the amount of penalty set in the contract between the parties, the defendant, inter alia, disputed a clause regarding penalty in the sale and purchase agreement, as being in the capacity to create essential inequality of its parties and referred to Article 6.228 of the Civil Code of the Republic of Lithuania, which regulates the right of a party to withdraw from the contract or its separate clause due to essential inequality of its parties.

    In order to uniform variegated case law on the application of the right to withdraw from the contract or its separate clause due to essential inequality of its parties in respect of reduction of an unreasonably high amount of penalty, an extended panel of the SCL Civil Division stated that Article 6.228 of the Civil Code is not applicable when one seeks to cancel or amend a contractual clause relating to penalty and its amount. The SCL noted that the purpose of this article is different in that it is designed to defend the weaker party of the contract (mostly the consumer, although a commercial entity in certain cases as well), which had to agree with the clauses of the contract offered to it, and, therefore, that a contractual clause on penalty is not valued in the light of the provisions of Article 6.228 of the Civil Code. In solving a dispute regarding reduction of amount of penalty set in a contract which was concluded by free will of the parties, Articles 6.73 and 6.258 of the Civil Code should be applied.

    Regarding registration of purchase and sale agreement of an automobile

    On 11 November 2010 an extended panel of the SCL Civil Division ruled in civil case No. 3K-7-309/2010, in which, when the court examined the issue of compensating expenses for forced towing and for storage of an automobile, a dispute arose about the title of ownership of an automobile. The defendant asserted that he sold his automobile to another person and that the automobile no longer belonged to him at the time of committing the offence, however, both the court of the first instance and the appellate court held that the defendant failed to prove this fact, since the automobile sale and purchase agreement between the defendant and a third party had not been registered with a public register, and, after the possessor of the automobile changed, no adjustments of the data on the automobile registration were made, whereas pursuant to Part 2 of Article 1.75 of the Civil Code of the Republic of Lithuania, the parties to an unregistered transaction may not invoke the fact of transaction against third persons and argue their rights against third persons by relying on other means of proof.

    The extended panel of the SCL Civil Division did not agree with such an interpretation and noted that in accordance with the Law on Safe Traffic on Automobile Roads of the Republic of Lithuania a respective vehicle, but not the grounds of its acquisition, is subject to compulsory registration. Therefore, the provision of Part 2 of Article 1.75 of the Civil Code, which says that the parties to an unregistered transaction may not invoke the fact of transaction against third persons and argue their rights against third persons by relying on other means of proof, is not applicable. The SCL noted that registration of a thing with a respective register does not mean per se that only the person that completed registration of such a thing is its owner. In the event that a person, under whose name an automobile is registered with a register, proves that he/she had sold the automobile, the owner of such an automobile is deemed to be the person who purchased it, notwithstanding registration of the automobile by such a person with the Register of Road Vehicles of the Republic of Lithuania. The extended panel of the SCL Civil Division clarified that a change in the ownership of an automobile is to be proven by other evidence rather than the fact of an automobile registration.

    Regarding conditions under which contracts concluded overstepping legal capacity of a private legal person may be declared void

    On 31 January 2011 a panel of the SCL Civil Division ruled in civil case No. 3K-3-17/2011, in which a shareholder of a private limited liability company sought to declare void decisions made by a manager of a company in contravention of the provisions of the Law on Companies regarding authority of a manager of a company.

    The SCL said that in order to declare void a contract that was concluded overstepping legal capacity of a private legal person, an aggregate of the following conditions is required:

    • First, a breach of authority of a managing body and/or contradiction to the goals of the legal person must be ascertained;
    • Second, bad faith of the other party of the contract with the legal person must be proven;
    • Third, a violation of a right or a legal interest of a person which questions the contract must be ascertained.

    When a member of a private legal person questions, as in this case, a lease contract concluded by a company based on a breach of authority of a body of a legal person when entering into such a contract, such a member must prove that such a contract violated the member‘s subjective rights or legal interests. The SCL noted that reasoning a violation of rights based only on limitation of the rights of the shareholder is too abstract, therefore, declaring void a contract that generates income to the company on the basis of violation of authority of a body of a legal person, without raising the issues of wastefulness of a contract or other important aspects, is not in compliance with the requirement to respect stability of contractual relationships and to declare contracts void only in cases if violated rights cannot be defended in other ways.

    Case Law of the Court of Justice of the European Union

    Regarding employment termination of males and females of different pensionable ages

    On 18 November 2010 the Court of Justice of the European Union (hereinafter referred to as “the Court of Justice”) gave judgement in case C-356/09 Pensionsversicherungsanstalt v. Christine Kleist, in which the Court of Justice had to evaluate permissibility of national legislation providing for the right for employers to dismiss employees who have acquired the right to draw their retirement pension, when statutory provisions lay down different pensionable ages for males and females.

    The Court of Justice ruled that national rules which, in order to promote access of younger persons to employment, permit an employer to dismiss employees who have acquired the right to draw their retirement pension, when that right is acquired by women at an age five years younger than the age at which it is acquired by men, constitute direct discrimination on the grounds of sex prohibited by Article 3(1)(c) of Council Directive 76/207/EEC of 9 February 1976 on the implementation of the principle of equal treatment for men and women as regards access to employment, vocational training and promotion, and working conditions, as amended by Directive 2002/73/EC of the European Parliament and of the Council of 23 september 2002.

    Regarding fixing an age limit which requires termination of employment contracts or prohibits work under contracts of indefinite duration

    On 18 November 2010 the Court of Justice gave judgement in joined cases C‑250/09 and C‑268/09 Vasil Ivanov Georgiev v. Tehnicheski universitet – Sofia, filial Plovdiv, in which the Court of Justice had to answer if Council Directive 2000/78/EC of 27 November 2000 establishing a general framework for equal treatment in employment and occupation does not preclude national legislation under which university professors who have reached the age of 68 are compulsorily retired and beyond the age of 65 may not work under contracts of indefinite duration, except by means of fixed‑term contracts concluded for a period of one year and renewable at most twice.

    The Court of Justice ruled that Council Directive 2000/78/EC and, in particular, its Article 6 (1) must be interpreted as meaning that it does not preclude national legislation under which university professors are compulsorily retired when they reach the age of 68 and may continue working beyond the age of 65 only by means of fixed‑term one-year contracts renewable at most twice, provided that that legislation pursues a legitimate aim linked inter alia to employment and labour market policy, such as the delivery of quality reaching and the best possible allocation of posts for professors between the generations, and that it makes it possible to achieve that aim by appropriate and necessary means.

    Other News

    Eversheds Saladžius partners with INVEST LT in organising a set of conferences R&D, Shared Service Opportunities and Funding for UK Companies in Lithuania

    Lithuania is increasingly being seen as a prime location for international companies looking to establish R&D and outsourcing  operations. In the past few months a range of companies including Barclays Bank, Western Union, IBM and Thermo Fisher Scientific have  announced their major investments in Lithuania.

    Invest Lithuania in partnership with outstanding market experts are happy to invite you to special seminars to provide you with an insight into shared service business development opportunities, R&D infrastructure, financial support and tax incentives available to UK companies in Lithuania and share information on local law and labour markets.

    Seeking most favourable investment location? INVEST LT+ will cover expenses of your project in Lithuania

    Foreign investors interested in locating a business in Lithuania as well as foreign companies already operating on the Lithuanian market but eager to urther expand may apply for INVEST LT+ financial ivestment support of up to EUR 3.5 million per investment project. NVEST LT+ rovides financial support to cover personnel training osts (up to EUR 2 million) as well as eligible construction, infrastructure and salary costs (up to 1.5 million), incurred by foreign investors establishing a manufacturing, services or research and development (R&D) business unit in Lithuania. The financial support tool is designed to support foreign businesses investing into the development of new technologies, production of export-oriented highquality products and services as well as establishment of qualified jobs on the market.

    Multinationals such as Barclays, Western Union, MOOG, SystemAir, SCT Lubricants, Ideal Invent and SEB have expanded to Lithuania and have already benefited from INVEST LT+ support.

    Join the club, contact INVEST LITHUANIA at isd@investlithuania.com

    Eversheds Saladžius wins Corporate Intl Magazine 2010 Legal Awards

    Eversheds Saladžius has been successfully chosen as the winner of the Corporate Intl Magazine 2010 Legal Awards for M&A, Construction Law, Banking & Finance, International/Cross Border and Oil and Gas Law Firm of the Year in Lithuania. Corporate Intl is firmly established as one of the leading titles for business leaders, professional advisers and providers of finance through the world. More information on the Awards may be found at http://www.corp-intl.com/

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