Legal update for the automotive industry in Latvia

There is ongoing litigation between the Moller Mobility group companies in Latvia (importers and dealers of VW cars in the country) and Latvia’s Competition Council involving a EUR 7.4 million fine imposed on the companies for an alleged cartel agreement. This is the highest fine ever imposed in Latvia for breach of competition law on one group of companies.

Following a whistleblower’s report by a former dealer who had been excluded from the dealers’ network for breaching the dealer’s agreement, the Competition Council built its case on e-mail correspondence between the group and independent VW dealers aimed at reserving participation rights in an upcoming public tender for one of the dealers. The Competition Council took the view that this e-mail correspondence constituted a cartel agreement, i.e., an agreement the very object of which is to restrict competition in the relevant market.

In December 2018 the Administrative Regional Court repealed the Competition Council’s decision, finding among other things that the e-mail communication between the group and independent VW dealers could not be regarded as a cartel agreement because it was limited to one brand and VW still faced fierce competition from other brands. The court ruled that the Competition Council had to prove the negative effects of such an agreement instead of presuming them. The Competition Council has appealed the case to the Supreme Court.

Antitrust Damages

Neither the Trucks cartel case nor the VW diesel emissions case have generated any antitrust damages actions in Latvia. With regard to the Trucks cartel, this is despite the fact that, when implementing the EU Competition Damages Directive, the legislator established a presumption that cartels cause a 10 percent price mark-up unless proven otherwise. Most likely the ice would start moving if the legislator also allowed for class actions in antitrust damages claims.

So far there has been only one successful antitrust damages case in Latvia: In November 2018 a final court judgment entered into force awarding damages worth EUR 1.35 million from the Riga Freeport Authority for having abused its dominant position for more than seven years. The litigation took nine years, which is another reason why lawyers do not get many antitrust damages engagements.

Used Car E-Commerce

Latvia’s State Revenue Service and Road Traffic Safety Directorate have been working together for several years to suppress the shadow economy in sales of used cars. The Automotive Association, which represents importers and dealers of new cars, is assisting the state institutions with a campaign aimed at educating consumers about the risks of fraud, the lack of any guarantees, and the seller’s liability when buying used cars from natural persons. A by-product of this co-operation is a regulatory requirement permitting the commercial sale of cars only through a “brick and mortar” car park. This requirement effectively constitutes a barrier to the online sale of used cars, since e-commerce platforms are still obliged to hand over the cars at a physical “store” – a requirement contrary to the very business rationale of e-commerce. This rule is probably incompatible with the EU’s Digital Single Market Strategy, since the objectives of preventing tax evasion and ensuring consumer protection can be attained by less restrictive means, as it is in other EU Member States.

GDPR

Most consumers opt for consumer financing of their cars. Latvian laws require any such deal to be based on an assessment of a consumer’s creditworthiness. That puts car dealers in an unusual role from the perspective of protecting personal data, now governed by the GDPR. Dealers are subcontractors of consumer finance companies as opposed to the traditional role of customer’s representative. Dealers must now follow financiers’ rules for protecting personal data in lease applications, agreements, and maybe even during negotiations with several financiers. They also must invest in IT security and reign-in aggressive sales techniques.

Whistleblowers’ Law

On May 1st, 2019, the Whistleblowers’ Law came into force to protect persons who report information on a wrongdoing such as corruption, sexual harassment, tax evasion, breach of competition law, and so on, obtained in a work-related context. Car dealers and other companies employing more than 50 persons are obliged to have internal procedures in place to handle whistleblower reports. If implemented wisely, the whistleblowing procedure can serve as an internal audit mechanism, helping companies to avoid penalties and reputation damage.

Written by Debora Pavila, Partner, and Katrine Plavina, Senior Associate, VILGERTS

Article of “Experts Review”, CEE Legal Matters /  March 2019 / Automotive / Manufacturing 

by Debora Pāvila, Partner, Latvia

Related Lawyers

Katrīne Pļaviņa

Attorney-at-law

+371 26 164 110

katrine.plavina@vilgerts.comEmail

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