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   Lower turnover thresholds for Finnish merger control applicable as 1.1.2023

   Also the change in the European Commission’s referral policy, which was confirmed by the General Court this summer, must also be taken into consideration in merger control assessments. According to the Commission’s new approach, the Commission can also examine transactions that do not exceed the turnover thresholds of the referring Member State. Lower turnover thresholds for merger control Following the legislation amendment, from the beginning of 2023 all transactions must be notified to the FCCA where: Pursuant to current section 22 of the Competition Act (948/2011), the FCCA must be notified of transactions where the worldwide combined turnover of the parties to the concentration exceeds EUR 350 million and the turnover of at least two of the parties resulting from Finland exceeds EUR 20 million for both. Following the amendment, the turnover threshold for the combined turnover will be determined solely on the basis of turnover resulting from Finland, and the worldwide turnover will no longer be relevant for the assessment. The second turnover threshold, which concerns the turnover of at least two of the parties resulting from Finland, will be lowered from the current EUR 20 million to EUR 10 million. According to the government proposal, the current turnover thresholds for merger control are too high considering the size of the Finnish national economy. The current turnover thresholds have also been found to result in the exclusion of certain industries from merger control review. The new turnover thresholds will apply to transactions where the agreement has been made, control has been acquired or a public tender offer has been published on 1 January 2023 or after that. As a result of the amendment, Finnish merger control will extend to more transactions and smaller companies than before. Following the change in the turnover thresholds, it has been estimated that an additional 30–40 transactions will fall under the scope of the obligation to notify each year hereby doubling the current number of notifications. Contrary to the FCCA’s initial proposal, the amended Competition Act will not grant the FCCA the possibility to require a notification where the turnover thresholds are not exceeded. Also, the notification form has been updated following an amendment to the Government Decree on the scope of obligation to notify (1012/2011). The aim of the update is to reduce the amount of information required in transactions where the parties do not have any or have only limited horizontal overlaps or vertical links. The European Commission can also examine transactions that do not exceed the turnover thresholds Under Article 22 of the EU Merger Regulation, a Member State can request the Commission to examine a concentration that otherwise would not fall under the jurisdiction of the Commission or the national competition authority. Previously, the Commission has only examined mergers in situations where the threshold for notification has been exceeded in the Member State requesting referral. In the spring of 2021, the Commission published guidance on the use of Article 22, in which the Commission, deviating from its earlier practice, encourages Member States to use the referral mechanism of Article 22 also in certain cases where the national notification threshold is not exceeded. The reason behind the change is the Commission’s goal to be able to better intervene in arrangements intended at buying a new competitor out of the market. In summer 2022, the General Court confirmed in its ruling on case Illumina/GRAIL that the Commission can, at the request of a national competition authority, also examine mergers that do not exceed the national notification thresholds. As a result of the Commission’s guidance and the General Court judgment, the referral mechanism made possible by Article 22 will also have to be taken into considering in mergers not triggering a national merger control notification. This is particularly the case in mergers concerning the digital and pharmaceutical markets. 

   Published: 29.12.2022

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   Turn on the lights

   There are no easy matters on the management’s agenda: the war in Ukraine, recessionary fears, soaring inflation and the energy and climate crises have an impact on the economy and business activity. The increasing protectionism in the USA is also worrying from the European point of view. It would be easy to join those who complain. Yet every crisis has its silver lining and gives rise to new opportunities that are creatively leveraged by some. If you have the courage to act, you can outshine your competitors even on rainy days. To find impressive and inspiring success stories, just take a look at Finnish unicorns. The one thing we should not do is stay huddled in our own homes. We should venture out into the world with open minds and brave hearts to grow and learn. And when we come back with a bag full of new experiences and ideas, it is time to greet our home again, to turn on the lights and see things with fresh eyes. We should also remember to cherish our partnerships. Our job at Castrén & Snellman is to help our clients make the right decisions and succeed in good times and bad. Right now, the list of things to tackle might seem long. However, our belief in sustainable success stories remains strong, and we will continue to build them together with you also in the coming year. We wish to thank our clients and business partners for your trust and great cooperation this year!

   Published: 20.12.2022

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   Gender quotas coming to boards of Finnish listed companies

   The new Directive increases the share of women on boards of listed companies On 22 November 2022, the European Parliament adopted a Directive that regulates improving the gender balance among directors of companies listed on stock exchange and aims to increase the share of women on company boards. Once the Directive has entered into force, it needs to be implemented into national legislation. In the background of the gender balance regulation is the EU’s goal to support European economic growth and the competitiveness of companies as well as achieving true gender equality in the job market. The regulation concerns all companies listed on stock exhange with at least 250 employees, and it targets the companies’ senior management, i.e. the board and, if applicable, the administrative council. The new regulation obliges companies to have a minimum of 40% of the under-represented sex among the non-executive directors by 30 June 2026. Member States can also decide to apply the minimum threshold to both executive and non-executive directors, in which case listed companies must strive for achieving a 33% presence of the under-represented sex among all directors. Nothing prevents Member States from adopting even tighter targets in order to achieve gender balance in company boards. Member States must also lay down effective, proportionate and dissuasive sanctions that will apply in case the obligations under the Directive are not fulfilled. According to the EU, such sanctions could include fines or annulling appointments and elections. Increased transparency in the selection procedure of board members If a company does not achieve the gender balance targets, it must adapt how it selects its board members. The company must adopt fair and transparent processes for electing and appointing board members that are based on comparing the candidates against clear and neutral predetermined criteria. If the candidates are equally qualified, the candidate of the under-represented sex should be given priority. Companies under the scope of the Directive must prepare yearly reports on the gender composition of their boards and, if they have not achieved their gender balance targets, on the actions with which they aim to achieve these targets. What does this mean for Finland? The current approach in Finland is to guide listed companies towards increasing the share of women on boards through recommendations without any specific quotas. The Finnish Corporate Governance Code for listed companies, published by the Securities Market Association, includes recommendations on the composition of the board with respect to gender balance and diversity. Pursuant to the recommendations, listed companies should also define and report the principles with which they promote board diversity. This means that listed companies are no strangers to reporting their targets for equal gender representation on the board, the means to achieve these targets and the progress they have made. The recommendations follow the principle of comply or explain, and there are no consequences for failing to comply with them. The recommendations of the Corporate Governance Code have been effective. According to a report by the Finland Chamber of Commerce , women currently hold approximately 31% of board positions in Finnish listed companies, and in companies with a high market value their share is approximately 35%. According to the report, one half of Finnish listed companies already comply with the Directive’s gender balance requirement. Even though the share of women on the boards of Finnish listed companies is already high by international standards, the reform will inevitably lead to an increased share of women holding leadership positions in Finnish listed companies.

   Published: 12.12.2022

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   The role of boards is emphasised during crises

   I have also been keeping an eye on the new regulations and directives proposed and approved by the European Commission, the latter of which are implemented into national legislation in addition to the domestic regulation amendments. A significant share of these changes are such that the companies’ boards should either implement them themselves or, as the law puts it, make the appropriate arrangements for their implementation. In other words, responding to these regulatory changes calls for expertise from the boards. In addition to the ever-increasing regulation, we are facing one crisis after another. The COVID-19 pandemic, the war in Ukraine, inflation, increasing interest rates, the energy crisis, the component shortage – there are many major issues that cannot be fixed with legislation but nevertheless affect the business of companies and the decision-making of their boards. These changes are unexpected, and decisions have to be made based on the available information. When the board’s conduct is evaluated later, it should be kept in mind that there is more information available at the time of the evaluation than what the board had at its disposal when it made its decisions.  The board must stay vigilant in case the company’s financial situation weakens due to crises. The board should actively monitor the state of its equity and notify the Trade Register if it is in the red. Particular attention should be paid to any operations and distribution of funds that deviate from normal business – solvency and balance sheet tests are currently more challenging. Groups must also remember that group privilege is not recognised. When financial difficulties arise, the responsibility of each group company’s board to further the benefit of the said company diligently is emphasised and group accounts or lending to group companies should be re-evaluated. The members of the board have a challenging task and they are also responsible for something that is very important to us all: well-managed companies are vitally important to Finland’s development. That is why expertise is such an asset in these challenging times.

   Published: 12.12.2022

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   Investor protection under the Energy Charter Treaty – pressure to adapt to a new environment

   Following arbitrations where investors have sued contracting states after they have made political decisions to phase out the use of fossil fuels, the ECT has been criticised for hampering the contracting states’ endeavours to move toward greener energy. The contracting states have been preparing amendments to the ECT for several years so that the treaty could better support attempts to achieve climate objectives. The amendments were to be accepted in the Energy Charter Conference held on 22 November 2022, but due to disagreements between EU Member States, the item was withdrawn from the conference agenda at the last minute. Two days later, the European Parliament called the European Commission to begin processing a coordinated exit from the ECT. Investment protection and arbitration under the ECT Signed in 1994, the ECT currently has more than 50 states as parties. As is typical for investment treaties, the ECT provides for fair and equitable treatment of investments as well as protection against nationalisation, expropriation, and other comparable actions by the contracting states. The ECT is applicable to cross-border energy investments where the investors are from a different contracting state (home state) than in which the investment is being made (host state). Investors can ultimately enforce the investment protection offered by the ECT by bringing an action against the host state in arbitration. The arbitral tribunal then issues a final and binding decision on whether the contracting state has violated the investment protection set forth in the ECT. If the arbitral tribunal deems that a breach has occurred, it may order the state to compensate the investor for incurred losses. The ECT modernisation process to promote energy transition goals Arbitration proceedings that have been initiated pursuant to the ECT have received increasing attention in recent years. For example, after the Netherlands introduced legislation in 2019 to phase out of coal, German energy companies RWE and Uniper, both investors in Dutch coal plants, brought actions for damages against the Netherlands based on the ECT. On the other hand, Spain and Italy have faced several damages claims after making significant amendments to their legislation on renewable energy sources. The contracting states have been reviewing amendments to the ECT since 2017 in order to better reflect clean energy transition goals and contribute to the achievement of the objectives of the Paris Agreement without compromising the investment protection offered by the ECT. As a result of the modernisation process, it was proposed that the ECT would be supplemented with new articles that would exclude new fossil fuel related investments from investment protection and phase out protection for the already existing investments. In addition, the modernised text would have clarified the contracting states’ right to pursue their public policy objectives, such as climate change mitigation. Intra-EU investment treaty claims under the ECT Lately, there has also been an ongoing debate on whether the investor–state dispute settlement mechanism under the ECT is applicable to intra-EU disputes. On 2 September 2021, the Court of Justice of the European Union (CJEU) held in Moldova v. Komstroy LLC ( C-741/19 ) that investor–state arbitration under the ECT was contrary to EU law and thus inapplicable to disputes between an EU Member State and an investor of another EU Member State. However, not all arbitral tribunals have fully endorsed the position of the CJEU. The jurisdiction of arbitral tribunals is based on the ECT, which is an instrument of international law, and some tribunals have thus deemed that EU law should not take precedence over the ECT. In the modernisation process of the ECT, this debate was resolved by proposing that an investor from one contracting state could not bring actions against another contracting state if both states are part of the same regional economic integration organisation (REIO). If accepted, this proposal would mark the end to intra-EU investment disputes based on the ECT. The future of the ECT The proposal for the modernised ECT was to be accepted in the Energy Charter Conference held on 22 November 2022. However, since the EU Member States were not able to establish a common position on the proposed treaty text, the EU requested the removal of the ECT amendments from the conference agenda just some days prior to the conference. Thus, the outcome of the modernisation process remains open, and it is unclear whether the proposed amendments in their current form will be later brought to the Energy Charter Conference. The next conference is to be held in April 2023. Following the discussion over the ECT, several EU Member States (France, Germany, Poland, the Netherlands, Spain, Belgium, Slovenia and Luxembourg) have recently indicated their intention to withdraw from the ECT. Notably, the European Parliament also urged the European Commission to initiate a process towards a coordinated exit of the EU from the ECT in its resolution adopted on 24 November 2022. However, investors should keep in mind that the ECT includes a one-year notice period. In addition, the provisions of the ECT continue to apply to existing investments for 20 years after the withdrawal by a state from the treaty takes effect (the so-called sunset clause). In other words, the ECT protects existing investments at least for 21 years after a state’s official notification of withdrawal. It remains to be seen whether the states that potentially withdraw from the ECT will seek to contest the applicability of the sunset clause if claims are brought against them based on the ECT. Additionally, there has been speculation whether the states withdrawing from the ECT could mutually agree that the sunset clause would not be applied between the states in question. In its resolution of 24 November 2022, the European Parliament particularly urged the Commission and EU Member States to prepare an agreement excluding the application of the sunset clause between willing contracting parties. In accordance with international law, the sunset clause can be disregarded only in exceptional circumstances. The Energy Charter Secretariat pointed this out in a news article that it published only a few weeks before the Energy Charter Conference on 22 November 2022 where the modernisation of the ECT was originally to be decided. Even though the investment protection continues for a relatively long time in the event of a state’s withdrawal, it is clear that the current situation creates uncertainty for investors in the energy industry. However, unless any new agreement is reached, the sunset clause of the ECT offers longer protection for investments than the phasing-out of the investment protection included in the proposed modernised articles of the ECT. Read our previous blog on investment protection in Russia in the sanctions environment caused by the war in Ukraine

   Published: 29.11.2022

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   Reformed Restructuring of Enterprises Act to simplify restructuring proceedings and prevent abuse

   Reforms aim at streamlining restructuring proceedings The reforms of the Restructuring of Enterprises Act aim in particular at strengthening the operating conditions of SMEs, streamlining and simplifying restructuring proceedings, promoting businesses’ possibility for restructuring proceedings early enough, and preventing abuses relating to restructuring proceedings. In addition, the new Act facilitates accessing accelerated restructuring proceedings and terminating certain contracts to which the debtor is party. Administrator’s preliminary estimate to replace financial report on debtor The government proposal includes replacing the financial report on debtor with a preliminary estimate carried out by an administrator. In the preliminary estimate, a court-appointed administrator establishes the debtor’s assets, liabilities and other commitments as well as the circumstances affecting the debtor’s financial situation and its expected development. In addition, within a month of the commencement of restructuring proceedings, the administrator must also provide the committee of creditors, the debtor, the major creditors and, upon requests, the other creditors with The current report on debtor has been criticised especially for not really being able to add to the information on the debtor that is already included in the application. As the applications for restructuring proceedings must be drafted carefully, it is easy to agree with the proposed report reform. The reform simplifies considerably the administrator’s duties at the beginning of the restructuring proceedings, allowing the administrator to focus on drafting a restructuring programme and rehabilitating the business. Terminating certain contracts to be allowed in restructuring proceedings   A debtor may terminate certain contracts it has entered into before the commencement of restructuring proceedings if such termination is necessary for the execution of the restructuring. This concerns contracts under which the debtor is committed to a non-monetary obligation and which the debtor has not fulfilled when the restructuring commences. The contracts may be terminated upon approval of the restructuring programme irrespective of their term or notice period. As an example of such contracts, the government proposal mentions long-term contracts where the debtor’s obligation to render services remains similar for a long period of time. A potential compensation for premature termination would be restructuring debt – contingent restructuring debt, to be more precise – until the restructuring programme is approved and the termination enters into force. In addition, terms and conditions relying on restructuring proceedings would be prohibited. The legal state would therefore correspond with bankruptcy. The proposed change reflects the European framework. In many countries, termination during restructuring proceedings is more flexible than in Finland. However, the proposed legislation still carries major uncertainties. With the extended right of termination, evaluating the amount of reasonable compensation payable to the contracting partner will become more frequent. In this respect, the government proposal refers to the section on lease or credit-lease agreements. As evaluating the reasonableness of compensation has been problematic for these agreement types, it is clear that the legal state surrounding the evaluation of reasonable compensation will remain unclear for a long time. Disputes concerning the amount of compensation also lend themselves to lengthening the restructuring proceedings. Moreover, it is clear that the proposed change impairs the position of certain contracting partners of debtors in restructuring proceedings. Longer period for bringing actions for recovery The government proposal also suggests extending the period during which actions for recovery must be brought from six months to a year. Both the administrator and the debtor must bring actions within a year of the commencement of the restructuring proceedings. This would align the periods for bringing an action of restructurings and bankruptcies. The amended Act would also lay down more precise rules on how the assets recovered with the administrator’s action should be retained and used. The provisions on the use of assets should be included in the restructuring programme. Extending the period for bringing an action can be criticised as it does not promote streamlining restructuring proceedings. However, it is worth remembering that actions can be brought earlier as well, and the administrator must still actively look into grounds for actions as soon as the proceedings commence. This point of departure has also been noted in the government proposal. Other changes The government proposal also includes further amendments to the Act. As means to prevent abusing the system by filing unjustified restructuring applications, it is proposed that the processing of bankruptcy petitions is continued even if a restructuring application is filed simultaneously. However, the bankruptcy petition cannot be resolved before there is a decision on the commencement of the restructuring proceedings. If the restructuring application is denied or the proceedings are otherwise ordered to be terminated, the bankruptcy petition must be resolved. This also applies in situations where a restructuring application has been initiated but a petition for the bankruptcy of the debtor is filed before resolving the matter. If the restructuring application and the bankruptcy petition have been filed at the same time and the restructuring proceedings are commenced, the bankruptcy petition lapses after the restructuring programme is approved. The qualifications of administrators are also specified. In Finland, it has been deemed necessary to appoint an administrator also for early restructurings, and it is easy to agree with this approach. The government proposal also includes a new section in the Act on declaring claims or additional demands after the due date set by the court. The new section aims to clarify the current legal state by unifying practices, as restructuring regulation would then align with the practice of retroactive lodgement of claims in bankruptcies. The summary approval of restructuring programmes is also supported. In summary approval, the ordinary proceedings of the programme are disregarded and the programme is approved faster. Pursuant to the proposal, summary approval requires approval of the creditors whose claims total at least 70% of the overall total claims of the creditors (instead of the current 80%) as well as of each creditor whose claim is at least 10% of the overall total claims of the creditors (instead of the current 5%). It is difficult to estimate in advance what the practical effect of these changes in summary approval will be. Other procedural provisions are also fine-tuned to make the process more streamlined going forward. Reforming the Act to continue The European Commission is preparing a new directive on insolvency proceedings, expected to be adopted in early December. The directive will provide for recovery, the duties of directors in the event of insolvency and the rights of creditors in the event of a bankruptcy. 

   Published: 25.11.2022

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   Real estate industry putting words into action in sustainability

   The 2010s saw an increased number of concrete steps in promoting sustainability, in particular in the design and construction of new buildings, as the buyers’ requirements for sufficient environmental classification and energy efficiency were included in transaction documentation. Nowadays having an environmental classification certificate is almost a standard, and its details are an essential part of a property’s sales and marketing materials. The requirements property users have for facilities also increasingly reflect environmental and sustainability perspectives. Environmental classification certificates have a direct impact on the price, the prospects of selling or renting out the property, and investors and occupants require an increasing amount of information on the environmental impacts of their real estate, thus fulfilling their own sustainability goals. The financing of projects is an essential part of the real estate market’s operation, and financing is what originally initiated the leap in sustainability in the industry. As green financing is cheaper than regular financing, investors are motivated to promote sustainability. Having a financial incentive encourages investors to advance sustainability, thereby increasing the number of green projects and the foothold of sustainability in the real estate industry. Sustainability is not about improving your image – it has real financial benefits. The more we measure and verify the sustainability of projects and portfolios, the easier it is for projects to find financing. In short: greener projects have the advantage of more affordable and easily available financing and are a more valuable investment in an investment portfolio.

   Published: 23.11.2022

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   Green transition through agreements

   In business law, a significant part of our work involves advising our clients on agreements in one way or another. As agreements are a shared tool for us and our clients, it only follows that we assist our clients in achieving their sustainability goals by accounting for these goals in their agreements as well as possible. While there is no one-size-fits-all solution and each agreement is always individually tailored to meet our clients’ needs and wishes, we have nevertheless started drafting standard sustainability clauses in order to promote sustainability. These clauses will be used in the types of agreement often used by our clients. Many of the clauses are aligned with the Paris climate agreement and the goal of limiting global warming to 1.5 °C. For example, the requirements related to environmental classification certificates in transaction documentation are aligned with the goals of the Paris climate agreement, as are the requirements included in lease agreements on the sustainable use of the object of lease when it comes to green electricity, reduced water usage and smart temperature monitoring and adjustment. In the construction industry, we strive for zero emissions already during construction by increasingly leveraging circular economy, for example. In financing, financiers look for sustainable financing solutions that finance sustainable projects or the sustainable business of companies. The current legislation does not steer towards reducing the carbon footprint of the whole life cycle of buildings, which is why financing agreements can give a welcome nudge towards cutting emissions. What’s more, the European Union and the Loan Market Association as well as other industry operators have issued multiple guidelines on green financing in recent years. These guidelines are reflected in financing agreements and their clauses that govern, among other things, the use, monitoring, management and reporting of borrowed funds in project-specific financing. Sustainability-linked loans, for their part, monitor and measure the borrower’s sustainability performance against key performance indicators (KPIs) and pre-defined sustainability performance targets (SPTs). Finland aims to be carbon neutral by 2035, while EU aims for the same by 2050. As the built environment is a major source of emissions, it is undisputed that sustainability clauses will become more common in real estate and financing agreements, and we will certainly see a strong increase in sustainability regulation going forward. The current energy crisis plays its part in accelerating the trend of sustainability, and it is easy to see that sustainability clauses in the real estate and financing industries are here to stay.

   Published: 10.11.2022

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   State’s right of pre-emption and screening of foreign buyers of real estate improve security without compromising the operation of the real estate market

   In the current unstable security situation, it is interesting to note that the role of real estate ownership in Finnish security was already looked into when the security situation was still very stable in Finland and Europe in general. Russia’s war of aggression in Ukraine, ongoing since this February, has had fundamental effects on the Finnish security situation. The assessment of the security situation took into account, among other things, the real estate properties owned by Russian parties, the potential risks of ownership in terms of security and territorial integrity, and the future policy concerning foreign ownership, including Russian ownership, of real estate. The Ministry of Defence has also discussed the matter publicly, stating that permission application screening has been further intensified since Russia attacked Ukraine. State’s right of pre-emption mitigates security risks of real estate ownership In addition to intensifying permission screenings, the State has also taken other steps in order to mitigate the risks related to real estate ownership. The State first exercised its right of pre-emption in the spring of 2022, and again in the summer of 2022. We are not currently aware of other cases where pre-emption would have been exercised. Even though the State’s right of pre-emption also concerns transactions where the buyer is Finnish or from the EU/EAA, the intensified screenings and the use of the right of pre-emption are linked together. Both of these State practices should be viewed against the changed security situation: intensified screening increases the probability of identifying potential risks in real estate ownership, and exercising the right of pre-emption prevents these risks from becoming reality. In both pre-emption cases mentioned above, Russian parties attempted to purchase real estate in Finland. In the first case, the transaction concerned a holiday village located in the Turku archipelago. As some of the holiday village’s areas border the Skinnarvik depot area used by the Finnish Defence Forces, exercising the right of pre-emption was justified by reasons related to national defence. In the second case, a Russian buyer attempted to acquire an empty industrial property in the immediate vicinity of Rovaniemi Airport. While the Ministry of Defence has not publicly commented on the details of the transaction, it is likely that the decisive factor for exercising the right of pre-emption was the vicinity of the airport and the related security risk. In late October this year, another real estate transaction involving buyers with a Russian background made the news. The real estate in question is located a few kilometres from the Niinisalo garrison and Pohjankangas firing range, and it remains to be seen whether the Ministry of Defence will permit the transaction. The right of pre-emption does not affect the operation of the real estate market Buyers from outside the EU/EEA include buyers (whether private individuals, companies or entities) with a seat or residence outside the EU/EEA. They also include companies and entities with a seat in the EU/EEA when a party from outside the EU/EEA holds a minimum of 10% of the company or entity or exercises equivalent actual control in the company or entity. Equipped with the information on beneficial owners, the Ministry of Defence can identify risky buyers that would at first glance appear to fall outside of the scope of transactions requiring special permission. Based on our experience of the permit process, the structure of the buying company must be presented clearly and carefully in order for the Ministry of Defence to consider the requirements for a permit to be fulfilled. Buyers should also remember that in certain cases they might have to re-apply for an already issued permit if there are changes to the buyer’s ownership or to parties exercising actual control in the buyer after a permit has been issued. The requirement for acquisition permission and the State’s right of pre-emption do not compromise the operation of the real estate market. The buyer needs to evaluate the need for permission when preparing a real estate transaction and, when necessary, apply for a permit from the Ministry of Defence. For legal advisers, a good rule of thumb is that if the buyer cannot be certain a permit is not required, they should apply for a permit to be on the safe side. The Ministry of Defence processes applications quickly and efficiently and the costs for applying for a permit are low. Having a permit will remove any uncertainties related to registering the buyer’s title and eliminate the greatest risk of a permit not being granted. In a worst-case scenario, when a real estate transaction has been confirmed despite the permit being denied or before a permit decision turns out to be negative, the buyer must sell or otherwise transfer the real estate within a year. As is the case with intensified screenings, the State’s right of pre-emption does not pose any uncertainty for the operation of the real estate market as the right is restricted to the cases mentioned in the Act. The buyer also has the opportunity to request a preliminary decision from the Ministry of Defence as to whether the State intends to exercise its right of pre-emption.

   Published: 10.11.2022

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    Supervision of legality in public procurements

    Division of tasks between the supreme guardians of the law reformed on 1 October 2022 The supreme supervision of legality is carried out by the Chancellor of Justice of the Government and the Parliamentary Ombudsman. A complaint to one of the supreme guardians of the law must usually be lodged within two years from the event about which the complaint has been lodged. The division of tasks between the supreme guardians of the law was revised on 1 October 2022 by an amendment to the Act on the Division of Tasks Between the Chancellor of Justice of the Government and the Parliamentary Ombudsman (330/2022). The amendment means that for example tasks concerning public procurement, competition and matters related to government support were centralised to the Chancellor of Justice. The task areas are related to each other: public procurement may include prohibited government support if the question is of an illegal direct procurement, which means that the contracting entity has deviated from the obligation to put the procurement out to tender. Prohibited government support to one company in turn distorts competition on the market. The procurement procedure was erroneous – should I lodge a complaint to the Chancellor of Justice? Supervision of legality is part of the supervision of administrative activities. When an authority acts as a contracting entity, the guardian of the law, in this case the Chancellor of Justice, supervises compliance with the Act on Public Contracts and the implementation of the principles of good governance in a public procurement procedure and the related decision-making. The Chancellor of Justice may provide the contracting entity with administrative guidance, for example highlight the requirements under the law or present their understanding of the statutory procedure. The authority can also be reprimanded for a clearly erroneous procurement procedure. The guardians of the law issue annually a few decisions concerning complaints about procurements. We have collected a few examples of the decisions below.  Subsequent decision-making resulted in a reprimand A procurement of approximately EUR 450,000 concerning the repair work of a school building owned by the city resulted in a reprimand by the Chancellor of Justice (OKV/637/1/2015). The city’s facilities centre had requested several service providers to give an offer for projects concerning the repair of indoor air problems that did not exceed the threshold values. Individual procurements had been carried out with letters containing an order. According to the understanding of the contracting entity, the question was of a framework agreement. This however remained unclear in the Chancellor of Justice’s view because the prices and other terms and conditions had not been finalised and there was no mention of putting the framework agreement out to tender in the HILMA system. One procurement, which allegedly was based on the framework agreement, exceeded the threshold multiple times. The procurement decision was only drawn up after the service had already been provided. The decision referred to the provisions of the Act on Public Contracts concerning direct procurement and to the urgency of the procurement. Based on the assessment, the requirements were however not fulfilled as the city itself had delayed the repairs. The right of appeal of a party concerned was not realised because the contracting entity failed to make a procurement decision. According to the Chancellor of Justice, the procedure was very problematic also with respect to the general openness and transparency of the administration as well as to the right of access to information of citizens. Clients’ needs must be taken into account when procuring social and healthcare services Particularly, in procurements of social and healthcare services, it must be ensured that the rights of different client groups are realised. The realisation of rights can also be necessary to assess in conjunction with a procurement procedure. The Parliamentary Ombudsman assessed in the decision EOAK/6638/2017 the procurement of interpretation services for people with disabilities arranged by Kela, the Social Insurance Institution of Finland. According to the complainant, the access to interpretation services had been compromised for certain client groups as Kela had not taken into account the special needs of the clients, and interpreters who had earlier produced the services had been excluded from the framework agreement. The guardian of the law stated that the contracting entity must take the users’ special needs into account. The users of interpretation services include special groups such as the deaf-blind and people with speech impairments. The Parliamentary Ombudsman also deemed that if the procurement has negative impacts on the services of a certain client group, the contracting entity must hear the client or client group separately. Kela can also not use the Act on Public Contracts to justify why it has ignored the special needs. If the special needs cannot be taken comprehensively into account in the competitive bidding process, a direct procurement procedure should be used in an individual case. Reprimands for inadequate documentation and negligence In their previous decisions, the Chancellor of Justice has emphasised that it must be possible to prove the legality of procurements afterwards. This means that for example inadequate documentation concerning small procurements was reprehensible as several similar procurements of legal expert services had not been put out to tender and the appropriateness of the reasoning could therefore not be evaluated later (OKV/1338/1/2014). The Chancellor of Justice also stated that services that are procured regularly must be assessed as a separate entity, and the contracting entities must take into account that it is prohibited to divide the procurement into parts to avoid the application of the Act on Public Contracts. The contracting entity must take into account the general principles under procurement law and administrative law, such as fairness and proportionality. From this premise, the Chancellor of Justice criticised the contracting entity for not observing the priority order in the framework agreement (OKV/1022/1/2015). The priority order of service providers under the framework agreement must be confirmed in sufficient detail so that it does not allow for wide discretion on a case-by-case basis. The contracting entity must also observe the grounds it has decided when it places orders under the framework agreement. Supervision of legality does not replace an appeal process The supervision of legality assesses the compliance with regulation concerning procurements, and the goal is to prevent recurring failures. The guardian of the law examines the activities of authorities in their administrative duties. When supervising the procedure, the guardian of the law does not take a stand on which outcome an individual procurement should have had, whether a certain offer should have been rejected or whether some other tenderer should have been chosen. It is thus not possible to affect the outcome of the procurement by filing a complaint, and it does not replace an appeal process. A complaint can however positively contribute to the development of the procedures of contracting entities and to the elimination of bad operating models.

    Published: 10.11.2022