When one thinks of resolving disputes in Serbia, the first thing that comes to mind is the long, costly, inefficient dispute before a court, in a dusty court-room in a socialist architecture grey building. Even though these conditions still are reality, Serbia is making efforts in recent years to achieve higher efficiency in resolving disputes through various types of judicial reform including arbitration as one of dispute resolution mechanisms. The purpose of this article is to present what arbitration environment is like in Serbia, relaying on both arbitration regulations and arbitration practice together with court intervention in the arbitration proceedings. Bilateral investment treaties concluded between former Yugoslav republics are also tackled as a potential source of arbitration proceedings.

Arbitration Regulations in Serbia

Arbitration took a long time in finding its place under the sun of Serbian dispute resolution tradition, over which the courts still hold supremacy. Serbia is a small country which was, until recently, under a strict socialist regime which largely affected free trade and therefore the number of potential foreign trade or any kind of international disputes. In that sense, we can say that Serbia took a long road in acknowledging arbitration as a relevant dispute resolution mechanism and an arbitration law dealing with arbitration with an overall capacity was adopted quite recently. The first law governing arbitration proceedings comprehensively, the Law on Arbitration was rendered only in 2006, and it is, as in many other countries, based on UNCITRAL Model Law. We could have a long debate on why precisely the Model Law was used as template, but in the end, maybe we should all just go along with a notion of one professor of the University of Belgrade who famously stated that the Model law was written in order to “teach us all how to do it”.

Before 2006, arbitration was regulated by two laws - Civil Procedure Law which provided procedural rules, and the Law on Resolving Conflict of Laws which regulated recognition and enforcement of foreign arbitral awards. Arbitration was rather a side institute in these two laws, but that all changed with the Law on Arbitration. Even though the passing of the Law on Arbitration meant that all issues dealing with arbitration are to be interpreted in accordance with this law, there are certain provisions from other laws still in force that contradict the ones from the Law on Arbitration.

For instance, the provisions of the Law on Resolving Conflict of Laws, which regulate recognition and enforcement of arbitral awards, are still in force, although these issues are regulated in detail by the Law on Arbitration. The conditions for recognition of foreign arbitral decisions in these two Laws are mostly the same, however, the reciprocity, although not predicted by the Law on Arbitration, is still one of the conditions prescribed by the Law on Resolving Conflict of Laws.

Also, it should be mentioned that former Yugoslavia acceded to the New York Convention with two reserves, one concerning the reciprocity and the other concerning the subject of dispute, which should have been commercial.

Having this in mind, the question is, should Serbian court apply reciprocity and economic subject of dispute as an additional condition for recognition and enforcement of foreign arbitral decisions, although these conditions are not predicted by the Law on arbitration as lex specialis?

Author of this text finds that the answer is no. Recent court practice in Serbia has taken the same stand - after passing the Law on Arbitration, reciprocity from the Law on Resolving Conflict of Laws is not the condition for recognition and enforcement anymore. Furthermore, the courts are also at the stand that after the Law on Arbitration came into force (which is completely in compliance with the New York Convention), the reserves to the New York Convention had become irrelevant and inapplicable. Having said this, it might be wise for the Serbian Government to consider revoking these reserves to the New York Convention.

To conclude, in Serbia, for both arbitration and the recognition and enforcement of foreign arbitral decisions, relevant regulation is only the Law on Arbitration, and what is just as important, the courts in Serbia have no doubt about that.

Concerning the content of the Law on Arbitration, it regulates not only the recognition and annulment but also comprises of procedural rules. While the parties are free to agree on different procedural rules to the ones prescribed by the Law, they are not allowed to change conditions concerning annulment, recognition and enforcement of arbitral decisions, since these provisions are imperative.

Related to the arbitration agreement, it is interesting that for agreements concluded with defect of consent, the Law on Arbitration predicts different sanction that the one prescribed by the Serbian Law on Obligations. While the Law on Obligations predicts that the agreements concluded under defect of consent are voidable, the Law on Arbitration predicts that such arbitration agreements are null and void, which means that they can be revoked at any time, while voidable agreements can be revoked only within certain period of time. This is actually quite unorthodox and I am not sure I understand the intention of this different treatment of the arbitration agreements concluded under defect of consent compared to other such agreements. In fact, Serbia is the only country in the region with this solution, since as far as I am aware, the legislation which regulates the arbitration in other former Yugoslav Republics does not predict such severe consequence for defects of consent in arbitration agreements.

In any event, even with the legislative framework, majority of disputes in Serbia are still resolved before the court. This can be attributed to many factors, but mainly to lack of practice in agreeing on arbitration and quite frankly, a poor arbitration tradition, which I hope will change in the future, since arbitration has become such a global trend nowadays as a most efficient way in resolving high value international commercial disputes. What also may be targeted as a reason for not agreeing on arbitration is the expensiveness of arbitral proceedings – costs for arbitration are significantly higher than costs of a case handled before the court. The money factor certainly does not trigger higher number of arbitration agreements in a transition economy, such as the one in Serbia.

Court Intervention in Arbitration Proceedings

Even though the Serbian Law on arbitration mostly allows the parties and the arbitrators to conduct the arbitral proceedings, the court still may actively be involved in a certain way, but only when this is explicitly prescribed in the Law on Arbitration.

According to the Law, for example, if the arbitral tribunal rules on objections regarding tribunal’s jurisdiction as a preliminary issue with a separate decision, any party may request that the court decides on the matter from the objection. In other words the court is acting as the second instance authority and may overturn the tribunal’s decision. The fact that the court is actually acting as a supervisory body may be the reason why the Law on Arbitration excludes the right of appealing against court decisions concerning the above mentioned questions.

On the other hand, the Law excludes the possibility of appealing against the court’s decisions on appointment of arbitrators (when there is no agreement on this between the parties, or if there is no appointing authority) and the court’s decisions concerning arbitrator’s recusal and revocation of arbitrator's appointment. I think that this could potentially leads to many problems in practice, since the first instance court may, for example, appoint the arbitrator apparently inadequate for the case at hand, with no option for this decision to be corrected.

In addition to this, the court may also assist in taking of evidence process. The court is also entitled to decide on interim measures. This can be done before arbitration is initiated, or during the arbitration. According to the Law, this can be done even when the arbitration agreement refers to arbitration located outside of Serbia, however, in our recent practice, a Serbian court rejected to decide on the proposal for interim measure simply because the parties agreed the arbitration outside of Serbia. In that way the court actually took a stand that completely contradicts the explicit provision of the Law.

Then again, if the parties did not agree otherwise, arbitral tribunal may, upon one party’s proposal, order an interim measure. However, if the debtor ignores the preliminary measure and chooses not to comply with it, the problem is how to enforce it. Unlike courts, arbitral tribunals do not have adequate means of enforcement. I am of the opinion that the arbitral decisions concerning interim measures should be treated just like arbitral decision on merits and enforced as such. And when we are speaking of enforcement, domestic arbitral awards and recognized foreign arbitral awards can be enforced in the same way as any domestic court decision.

Of course, there are still matters in arbitration under exclusive competence of the court. These are annulment of domestic arbitral awards and recognition and enforcement of foreign arbitral awards. What is important to know is the presumption that the arbitral decisions are valid and enforceable, and that the opposing party needs to prove otherwise, except for the conditions concerning arbitrability of the dispute and whether the effects of the award are contrary to the public policy, which the court considers ex officio.

When speaking of the annulment, there is a case our firm handled worth mentioning. In this case, the domestic arbitral award was set aside through the first instance decision, since the court ruled a pathological arbitration clause. The court found that bilingual arbitration clause is pathological because the English and Russian versions of the clause are not the same, and the parties did not agree that one of the versions will prevail in case of discrepancy. While the English version undoubtedly predicted arbitration as the dispute resolution mechanism, the Russian version could have been interpreted in two different ways - that the arbitration was agreed or that the parties agreed on jurisdiction of the commercial court. Acting upon our appeal, the second instance court cancelled the first instance decision saying that, according to the Law on Arbitration, pathological arbitration agreement is not one of the reasons for the annulment of the arbitral awards. The second instance court elaborated that when it is not clear whether the parties agreed on arbitration, the court has to determine what the true will of the contacting parties was. Only if the court determines that there was no consent about the arbitration, the award could be annulled because of lack of the arbitration agreement (lack of jurisdiction). This only shows that the second instance in deciding is sometimes more than welcome, in fact necessary.

Concerning the annulment, I would also like to mention that in Serbia the main argument the parties raise when seeking the annulment is that the award is in conflict with imperative law provisions and thus in conflict with the public policy. The good news is that publicly available court practice shows that the courts in Serbia are strongly taking the position that the fact that an arbitral award is in conflict with imperative provisions does not by itself mean that it is in conflict with public policy. This stand I believe shows that the courts in Serbia support the arbitration as dispute resolution mechanism.

Also, there is one solution in the Law on Arbitration which implies that the intention of the court should be to keep the arbitral award in force instead of annulling it. The court may, at the request of a party, suspend the proceedings for annulment and give the arbitral tribunal an opportunity to eliminate reasons that led to setting aside of the award. Although this solution is good and efficient, unfortunately, I am not sure if it was ever applied in practice.

Arbitration before Serbian and International Forums

In general, all disputes in Serbia can be settled through arbitration, except for disputes that are usually in exclusive competence of domestic courts – real estate disputes, family disputes etc. On a related note, any entity may choose to resolve a dispute before arbitration (individuals, companies, even the state, state-owned companies, government institutions and so forth). However, I am confident to say that two individuals in Serbia have never resolved a dispute through arbitration. Arbitration between two domestic companies is very rare, while the arbitration between domestic and foreign companies happens from time to time.

As consequence of the transition economy the number of arbitrations involving the state (or state-owned companies and government institutions) has increased in the last decade. This is comprehensible, since the foreign investors would like to avoid that the Serbian court decides on disputes against the Serbian government institutions. This is most apparent in the privatization agreements, where the significant number of foreign investors agreed the arbitration as a dispute resolution mechanism. However, even in these cases I am not familiar with a single case involving foreign arbitration, because even when the government bodies agree on arbitration they avoid agreeing on the seat of arbitration outside of Serbia. In this way the government intends to keep the Serbian court involved as much as possible – as it reads above, in domestic arbitration Serbian courts may have significant influence on arbitral awards and here I refer not only to annulment but also to the possibility for the court to intervene during the course of arbitral proceedings.

Related to the arbitration forums, traditionally the parties agree on two forums of the Chamber of Commerce and Industry of Serbia – Permanent Court of Arbitration, handling domestic disputes and Foreign Trade Court of Arbitration (FTCA) handling international disputes. In 2013, a new institutional arbitration was founded - the Belgrade Arbitration Centre (BAC), competent to settle both domestic and foreign disputes. Permanent Court of Arbitration and FTCA already handled numerous cases, but even though BAC is a new forum, it should also be considered when agreeing on arbitration having in mind the reputation and knowledge of its founders, distinguished arbitration scholars.

BITs between Former Yugoslav Republics

Since 1990, when first investor-state arbitral award under a modern investment treaty was rendered, there has been an ongoing increase of signed investment treaties and treaty disputes during the 1990s. Serbia was no exception to this trend and signed multiple bilateral investment treaties with, among others, former Yugoslav republics between 1996 and 2002 (in 1996 with Macedonia, following that, in 1998 with Croatia, and then in 2001 with Bosnia and Herzegovina and in 2002 with Slovenia). Bilateral investment treaty with Montenegro was signed in 2009, soon after the disintegration of State Union of Serbia and Montenegro. All bilateral investment treaties are in force, except the one with Montenegro for which there is no available information as to when and under which conditions these two states will confirm the applicability of the treaty through their legislation.

The idea of signing these treaties was clear – establishing investment protection in a region torn apart by civil wars and trying to give incentive to investors to explore markets in the region.

However, what is not clear is why the authors of these BITs included the courts of a Host State as a possible forum for the investment disputes. Although all BITs prescribe that disputes between contracting parties will be resolved before an ad hoc arbitration, when it comes to disputes between an Investor and the Host State, all of the BITs have an alternative that the dispute may be resolved before a Host State court.

It is rather interesting that a choice of a domestic court is given at all, since it is very hard to imagine that an investor would choose a Host State court to decide whether the Republic of Serbia has violated investment protected by the investment treaty. Up to this date, and it has been almost twenty years since BIT with Macedonia was signed, there was not a single investment dispute brought before a Serbian court. This only shows this option is needless. Not to mention, that it is highly questionable whether a regular Serbian commercial court would have the necessary aptitude in handling such disputes, even if a foreign investor would dare to bring such dispute before a Serbian court.

Conclusion

Arbitration was construed in an attempt to resolve a dispute as effectively as possible. It is undoubtedly the reason why its former and future beneficiaries see it as an adequate and useful alternative to resolving a dispute before a court. More importantly, in the context of international law, one of major assets contributing to popularity of arbitration is its neutrality. Arbitration is far more impartial than a national court.

Nevertheless, arbitration is still not a household name when it comes to dispute resolution in Serbia. Many participants in the market are not even aware of the possibility to resolve a dispute before any other forum besides a court. This is one of the main reasons why arbitration is still not a common fixture in Serbia. Even though there are signs of improvement and optimism for the future when it comes to commercial and investment arbitration, it is safe to say that potential use of arbitration in dispute resolution in non-commercial issues in Serbia is still light years away. I believe that the proper way to go would be to raise awareness of the possibility to efficiently resolve a dispute outside of a traditional court room. Once people become aware of this option, they will at least consider it when deciding on a dispute resolution mechanism.