Legal and tax toolbox

Choice of dispute resolution forum

In terms of resolving the commercial disputes between foreign investors and their local contractual partners, the parties may choose to stipulate in their agreements whether their disputes will be resolved by arbitration or local courts.

Arbitration. Arbitration proceedings in Bosnia and Herzegovina are governed by the entity’s civil procedure laws. Arbitration is not commonly used in Bosnia and Herzegovina, and there are currently only two arbitral bodies in Bosnia and Herzegovina i.e. the Arbitral Court of the Foreign Trade Chamber of Bosnia and Herzegovina and the Arbitral Court of the Trade Chamber of Republic of Srpska. However, it is common practice for legal entities to agree upon a foreign arbitral body as the authority competent for resolving potential commercial disputes. Foreign arbitral awards are generally recognized and enforced under local law the same as local awards or judgements, only subject to fulfilment of conditions for enforcement and recognition stipulated by the relevant laws.

Regarding the expectations and protection of foreign investors, there are more than 30 bilateral Investment Treaties that Bosnia and Herzegovina signed (“BITs”). BITs give additional protection to the investors and they are signed with the following countries: Albania, Austria, Belarus, Belgium, China, Croatia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hungary, Pakistan, India, Islamic Republic of Iran, Italy, Kuwait, Qatar, The former Yugoslav Republic of Macedonia, Moldova, Montenegro, Malaysia, Netherlands, Portugal, Lithuania, Romania, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, Ukraine and United Kingdom.

All these BITs provide for additional protection of the foreign investors in Bosnia and Herzegovina. They all prescribe several levels of possible solutions for a potential dispute resolution. The first level implies an attempt for an amicable solution (usually through negotiations, if necessary by seeking expert advice, or by conciliation between the contracting parties through diplomatic channels).

In the absence of an amicable settlement, the dispute shall be submitted, at the option of the investor, either to the competent jurisdiction of the contracting party where the investment was made, or to the arbitration as an alternative dispute resolution forum. Most of the BITs contain an option for the investor to address the following forums:

• an ad hoc arbitral tribunal according to the arbitration rules laid down by the United Nations Commission on International Trade Law (UNCITRAL), or
• The International Center for the Settlement of Investment Disputes (ICSID), set up by the Convention on the Settlement of Investment Disputes between the States and Nationals of other States, opened for signature at Washington on March 18, 1965, when each contracting party to this Agreement has become a party to the said Convention, or
• Arbitral Court of the International Chamber of Commerce (ICC).

Arbitration represents an alternative to resolving disputes before the local courts. Parties can agree to arbitrate a dispute arising out of a domestic or international business transaction, or any private law matters which the parties can freely dispose of, except for disputes that are reserved to the exclusive jurisdiction of the courts.

An award rendered in Bosnia and Herzegovina has the power of final and enforceable court decision and does not need to go through the process of recognition, thus it is directly enforced as any court decision of the local courts. Bosnia and Herzegovina is a signatory to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (i.e. the New York Convention). Bosnia and Herzegovina placed reservations to the original text of the New York Convention so that it will apply the convention only: (i) for the recognition and enforcement of awards made in the territory of another contracting state, on the basis of reciprocity; (ii) to differences arising out of legal relationships, whether contractual or not, that are considered commercial under the national law; and (iii) to those arbitral awards which were adopted after the New York Convention came into effect.

There are numerous reasons for choosing arbitration over the judicial dispute settlement system, such as:

• Proceedings are fast, efficient and reliable;
• Parties are free to choose their arbitrators and choose their own rules governing proceedings;
• Arbitrators apply modern and efficient rules of procedure, including techniques aimed at reducing the costs of the proceedings (e.g. telephone and video conferencing);
• Confidentiality of arbitrarily proceedings;
• Arbitrators should maintain and protect equality of the parties;
• The arbitral award has the same legal effects as any final and enforceable decision of a national court;
• The arbitral award is final and enforceable, without the right of appeal;
• Unlike a court decision in Bosnia and Herzegovina, arbitrarily awards are enforceable in 150 countries in the world under the framework of the New York Convention.

Local courts. The division of the state in different political units has resulted in the division of the court system, i.e. the presence of a total of four judicial systems - the system at the state level, the system at the level of the two entities and at the Brčko District level.

The judicial system of Bosnia and Herzegovina has been the subject of a number of reforms in the past two decades which continue to be implemented. The aim of these reforms is to simplify and improve the efficiency of the existing system and to improve the efficiency of the courts.

However, the Bosnia and Herzegovina judiciary still demonstrates certain drawbacks. In the process of accession to the EU, Bosnia and Herzegovina will be required to fulfil specific preconditions in the area of judiciary, such as the strengthening of judicial institutions and the rule of law. The problem is also in a large number of backlog cases which continue to grow.

Commercial disputes are mostly handled at entity level courts i.e. basic and municipality courts, cantonal and district courts and the supreme courts of the entities as the final court instance. The supreme courts are rule on extraordinary legal remedies. The Republic of Srpska has specialized commercial courts while the Federation of BiH only has separate departments for commercial disputes with Municipality courts.

Enforcement issues

The main legislative framework governing the judicial enforcement procedure in Bosnia and Herzegovina are the entity level laws on enforcement procedures. Although there are two separate legislations depending on the competent court for the debtor’s property, the laws are almost identical. The main objective of the enforcement procedure is to ensure effective and efficient recognition of rights conferred by a competent court. The enforcement procedure enables the holder of a right to oblige the (natural or legal) person in infringement of a right to comply with it and thus restore the rule of law, with the support of the competent state authorities.

An enforcement procedure may be initiated on the basis of a valid enforcement instrument submitted to the court by the creditor. An enforcement instrument is a final and enforceable court or arbitration decision, court or arbitration settlement, enforceable notarial deed, enforceable decision rendered in administrative proceedings or an administrative settlement (conditioned to be referred on a monetary obligation) or another document that the law expressly indicates as having such quality (such as a reorganization plan in bankruptcy proceedings, mediation settlement etc.).

Jurisdiction in enforcement procedures belongs to the local court where the debtor’s headquarter/domicile is situated or the debtor’s property is situated, unless otherwise provided by the law. Immediate acts of execution are performed by the court appointed enforcement officer or directly by the bank/registry/court if applicable.

There are several enforcement forms that can be carried out (depending on the object of enforcement), simultaneously or successively, until the amount claimed is entirely recovered:

• Garnishment;
• Redemption of dematerialized securities;
• Sale of business shares;
• Sale of movables;
• Sale of real estate;
• Attachment of claims;
• Transfer of movables;
• Redemption of other rights (taking possession of real estate, court order of certain actions or cease of certain actions etc.).