Latvia has a three-tier court system. First instance judgments - that is, those of the district, city or regional courts - may be appealed before a regional court or the Supreme Court, while appellate decisions must be appealed before the Senate of the Supreme Court under the cassation procedure.

The Senate does not analyze the facts of the decision, but rather decides only on points of law. Its explanations are crucial for the correct application of court procedure, as the current court system was only established four years ago and thus some uncertainty still remains.

In the case of civil appeals, legal restrictions are a key issue. Pursuant to the Civil Procedure Law of Latvia, at least two preconditions restrict the subject matter of an appeal. First, the appellate court cannot entertain new evidence or arguments. Secondly, the appellate instance court may not hear any points of the claim that were heard at first instance and on which the judgment was made if these have not specifically been appealed.

Parties involved in the proceedings often argue that the limits of appeals have been exceeded when points of law not discussed at first instance are applied in the appeal. In its judgment of July 11 2001 the Senate of the Supreme Court commented on this situation as follows:

"Pursuant to the Civil Procedure Law of Latvia, each party must prove those facts to which it refers as the basis of its claim and objections, but need not prove that certain legal norms exist. Therefore the court, irrespective of the litigants' consent, must apply the relevant legal norms correctly. An appellate instance court which applies legal norms to which the plaintiff has not referred in the claim, nor the defendant in its objections, has thus not violated the Civil Procedure Law."

This explanation was given with respect to a claim for damages caused by a car accident. The plaintiff alleged a violation of the Civil Procedure Law because the defendant had not based its objections to the claim on the Cabinet Regulations on Traffic, but the appellate court nonetheless applied these regulations in resolving the dispute.

The Senate gave a similar explanation in its judgment of June 27 2001 in relation to a dispute over the termination of a real estate purchase agreement, and the subsequent cancellation of Land Register records because the due amount was not paid within the term specified in the purchase agreement. It was argued that when the decision was appealed before the Civil Case Panel of the Supreme Court, the panel had referred to legal norms that were not discussed in the filed claim. The filed claim made reference to Article 2040 of the Civil Law of Latvia, which sets out the circumstances in which a purchase agreement will be terminated. It also made reference to Article 1663 of the Civil Law, which provides that if a creditor no longer wishes an agreement to be performed due to the debtor's default, it may request its termination.

The appellate court, in its turn, applied Article 1652 of the Civil Law, which provides for the debtor's default. Among other things, it states that a debtor shall be in default if it has allowed the payment period which was specified in the agreement to elapse without paying. The court also referred to Article 2070 of the Civil Law, which governs the legal consequences of a purchase agreement. With regards to agreements which allow for the purchase price to be paid in instalments, Article 2070 provides that if the purchaser has defaulted on two instalments and the seller does not wish to bother collecting late payments, the seller may request the termination of the agreement and the return of the sold property.

In line with its earlier decision, the Senate concluded that these references to legal norms not discussed in the plaintiff's claim did not exceed the limits of the appeal. The Senate further pointed out that the applicant itself had made additional arguments in its cassation claim which were not mentioned in the appeal, and had thus acted unlawfully, since the Senate is entitled to evaluate only those arguments that were heard at first instance and on appeal.

In a third judgment, dated September 12 2001, the Senate found that the appellate court had exceeded the limits of the appeal. The claim was lodged with the Riga Vidzeme City Court and the circumstances were as follows. In 1997 Mrs P donated part of an immovable property to Mrs S, who subsequently sold the above part on to Mr A in 1998. In 1999 Mrs P sued both Mrs S and Mr A, arguing that the purchase agreement should be regarded as invalid under Article 1459 of the Civil Law because the transaction was fraudulent.

On September 22 1999 the Riga Vidzeme City Court recognized as invalid both the initial donation agreement concluded between Mrs P and Mrs S, and the purchase agreement signed between Mrs S and Mr A.

Mrs S lodged an appeal against that part of the judgment which held the donation agreement invalid. After hearing the appeal, the Riga Regional Court overturned the first instance decision and rejected Mrs P's claim in full. Mrs P then appealed this decision to the Senate.

In a judgment of September 12 2001 the Senate pointed out that the subject matter of the action before the appellate court is determined by the initial claim filed, the first instance judgment and the appeal claim. In her claim of appeal Mrs S requested that the case be reheard and that Mrs P's claim regarding the invalidity of the donation agreement be rejected. However, Mr A lodged no appeal. Likewise, Mrs S did not request that the claim regarding the invalidity of the subsequent purchase agreement be rejected. The appellate court had thus violated the provisions of the Civil Procedure Law, since it rejected the claim in full.

Finally, in a judgment of October 10 2001 the Senate revoked an appellate decision on the grounds that the appellate court had changed the subject of the claim.

The claim arose when a bank transferred funds of an insolvent company without the consent of the administrator. The administrator lodged a claim for damages. On September 2 2000 the Riga Central District Court rejected the claim, but the Riga Regional Court satisfied the claim upon appeal. However, the court indicated that it was granting compensation not for damages caused to the insolvent company, as was initially claimed, but for damages caused to the interests of the insolvent company's creditors. The Senate ruled that this change in the subject matter of the claim was a procedural violation which had led to an incorrect decision, and so overturned the Riga Regional Court's ruling.

For further information on this topic please contact Janis Rozenfelds at Rozenfelds & Partners by telephone (+371 7821563) or by fax (+371 7242 202) or by email ([email protected]).