SERBIA

1.LEGAL SYSTEM

2.LITIGATION

3.BUSINESS CRIME

4.INSOLVENCY

5.ARBITRATION

6.ENFORCEMENT

7.PRACTICE TIPS

8.CONTACT

The Serbian legal system is based on codified principles of civil law. Judicial precedents and opinions are non-binding but are strongly taken into consideration by the courts.

According to the Law on Organization of Courts, the court system of Serbia is divided into courts of general jurisdiction and specialized courts. Courts of general jurisdiction are the basic and higher courts, the courts of appeal, and the Supreme Court of Cassation. Specialized courts include the commercial courts, the Commercial Appellate Court, the misdemeanor courts, the Misdemeanor Appellate Court and the Administrative Court. In addition, a Constitutional Court hears and decides matters that involve the constitutionality of laws, regulations, and other official acts.

The 66 basic and 25 higher courts decide cases in both civil and criminal matters and have jurisdiction in matters concerning, inter alia, civil litigation, enforcement, contentious procedures, employment, media and copyright. Basic courts are exclusively courts of first instance with jurisdiction over civil matters of lesser importance, as well as criminal offenses punishable with up to 10 (ten) years of imprisonment. Higher courts serve as courts of second instance and hear appeals from basic court decisions, but also exercise first instance jurisdiction in matters of a more serious nature. Decisions of basic and higher courts may be appealed to the courts of appeal.

The courts of appeal are located in 4 cities: Belgrade, Kragujevac, Nis, and Novi Sad. Decisions rendered by the higher or basic courts in the first instance are reviewed and decided upon by one of these four appellate courts in the second instance.

Commercial courts of Serbia are specialized courts having jurisdiction over a wide range of commercial matters, including status of commercial entities, copyright infringement, privatization, recognition and enforcement, foreign investment disputes, unfair competition, maritime law, insolvency proceedings, and other disputes arising out of commercial activities. There are 16 commercial courts located throughout Serbia, and their decisions may be appealed to the Commercial Appellate Court in Belgrade. The decisions of the Commercial Appellate Court may be appealed to the Supreme Court of Cassation.

The misdemeanor courts and the Misdemeanor Appellate Court decide in matters concerning misdemeanours. The Administrative Court exercises first instance jurisdiction over administrative disputes and has the authority to review administrative acts throughout the entire territory of Serbia.

Finally, the Supreme Court of Cassation is the highest court of general jurisdiction in Serbia which decides on extraordinary legal remedies against decisions rendered in civil litigation, commercial litigation, criminal proceedings, as well as administrative disputes. As such, it is in a position to provide a country-wide uniform application of law by the courts. The Supreme Court of Cassation, therefore, hears and decides on extraordinary legal remedies against decisions of the courts of appeal and the Commercial Appellate Court. The Supreme Court of Cassation may also issue advisory opinions on draft laws.

It should also be mentioned that the Constitutional Court of Serbia has the authority to decide on conformity of laws, regulations, and other normative acts adopted by state bodies of the Republic of Serbia with the Serbian Constitution. Furthermore, it also resolves conflict of jurisdiction between courts and state bodies.

Focusing here on litigation, the procedural aspects of litigation are covered by the Serbian Law on Civil Procedure. This law was amended several times since it was first adopted in 2011 mostly to introduce instruments intended to prevent unjustified and unnecessary delays in court proceedings. The last amendments were introduced in May 2014 and changed the provisions on competences of sole judges (compared to panels of three judges), on representation in civil proceedings, and on extraordinary legal remedies, among other changes.

Generally, the Serbian court system can be said to be rather slow, especially concerning civil litigation where proceedings may last several years. In response to delays, in 2015 Serbia adopted a new separate Law on Protection of Right to Speedy Trial which came into effect on 1 January 2016, as described in more detail below.

With respect to litigation costs, these mainly consist of court and attorneys’ fees, expenses for expert opinions, travel expenses for witnesses, notaries' and translators' expenses, which are generally paid by the unsuccessful party.

Protection of Right to Speedy Trial

The Law on Protection of Right to Speedy Trial aims to provide court protection of the right to speedy trial and thereby prevent violations of this right.

A party in court proceedings, including enforcement proceedings, non-contentious proceedings, and criminal proceedings (including investigations led by the public prosecutor), may exercise the protection of this right under the terms of this law. The legal means for achieving this protection include submitting (i) an objection aiming to speed up the proceedings; (ii) an appeal; and (iii) a request for equitable settlement. These submissions are free of court fees, are urgent and take precedence in deciding compared to other submissions. This law prescribes the procedure for each type of recourse in more detail.

The law provides the possibility of monetary compensation in the amount of up to EUR 3,000 in RSD counter-value. The law came into effect on 1 January 2016. The effects in the first 2 (two) years of application can be said to be positive in the cases where it was applied, but any overall effects on the general efficacy of the court system are yet to be seen.

Business crime as a legal field in Serbia is still within the boundaries of general Criminal Law. However, efforts are being made to develop the group of criminal offences against commerce within the separate section of the Serbian Criminal Code. Namely, in 2016, new criminal offences were introduced to this group at the initiative of the Serbian Government expanding the number of criminal offences from 25 to 29. The aim of these amendments was to adapt the existing incriminations, which used very dated language, to modern times and also to introduce more contemporary criminal offences in the field of business crime. Thereby, 8 new criminal offences were introduced or amended, including, fraud, insurance fraud, embezzlement, abuse of good faith, abuse in privatizations, conclusion of restrictive agreements, passive and active bribery, and more. The provisions, introducing the new criminal offences against commerce and amending the existing ones, come into effect on 1 March 2018.

The Law on Responsibility of Legal Entities for Criminal Offences came into force several years ago, on 4 November 2008, and this law mainly contains procedural rules for deciding on the responsibility of legal entities; primarily, the rules to derogate or complete the application of the Law on Criminal Proceedings. As mentioned above, criminal offences themselves are proscribed by the Criminal Code of the Republic of Serbia.

The proceedings in criminal cases consist of pre-criminal, preliminary criminal and main criminal proceedings. The public prosecutor is the authorized prosecutor for criminal offences tried ex officio, whereas a private prosecutor is authorized for criminal offences tried by private claim. According to Article 35 of the Law on Responsibility of Legal Entities for Criminal Offences, the proceedings may be initiated against the legal entity, its responsible person or both, in which case the proceedings are to be held jointly. The state and other authorities, persons and legal entities have a duty to report criminal offences of which they become aware. Not reporting a criminal offense may be considered a criminal offence.

In the pre-criminal proceedings the public prosecutor is in charge of the investigation, although the police also have extensive investigative authority. In preliminary criminal proceedings an indictment is raised against the accused. If the court accepts this indictment, the main criminal proceedings are initiated.

The main criminal proceedings are composed of the preliminary hearing and the main hearing. The main hearing is a central part of criminal proceedings and the presentation of evidence is its key feature. After the weighing of evidence, the court decides on the matter by way of a verdict. The final part of the main hearing is the reading of the verdict. The verdict may dismiss the indictment, or acquit or convict the accused.

An appeal is a regular legal remedy against the verdict which can be filed by the prosecutor, the accused, his/her defender, or the injured party within 15 (fifteen) days after delivery of the verdict. The appeal is first filed with the first instance court for review of procedural preconditions. The first instance court may reopen the main hearing if the conditions are fulfilled. The first instance court than delivers all file documentation to the second instance court for review. If the court in the second instance overturns the acquitting verdict of the first instance court, an appeal is also allowed against such second instant verdict. Extraordinary legal remedies against final court verdicts are the reopening of criminal proceedings and a request for protection of the law.

Of course, a pivotal role in criminal proceedings belongs to the public prosecutor. According to Article 43 of the Law on Criminal Proceedings, the public prosecutor is in charge of pre-investigation proceedings, conducting the investigation, deciding on initiating criminal prosecution, raising the indictment and filing appeals and extraordinary legal remedies against court decisions.

The police and other relevant authorities involved in pre-investigative proceedings have a duty of compliance with requests of the public prosecutor and of informing him or her of every action undertaken in this respect. Failure to comply with such requests may lead to disciplinary action.

The injured party has a focal role as well. It may participate in the proceedings as an injured party, as an injured party prosecutor, or as a private prosecutor. An instrumental right of the injured party in criminal proceedings is the right to submit a property claim. A property claim may be a claim for damages, return of possession or setting aside of a specific legal transaction.

As an injured party prosecutor, the injured party represents the indictment and assumes the rights of the public prosecutor in this regard, with the exception of those rights which the public prosecutor has as a state official. As a private prosecutor, the injured party represents a private claim before the court. Interestingly, the accused against whom a private criminal claim was raised may submit a counterclaim against the private prosecutor.

As illustrated above, the injured party has significant authority in criminal proceedings. It may indicate facts and propose evidence, and has a right to inspect files and objects of evidence. During the hearings, the injured party may be in attendance or it may have a lawyer present as representative. If the public prosecutor withdraws from criminal prosecution, the injured party may take over.

Moreover, by way of submitting a property claim, an injured party may claim damages and reclaim financial losses without having to undergo litigation. In addition, it may submit propositions and evidence for its property claim. The injured party may also request an interim injunction in order to secure the property claim.

However, if the injured party choses to initiate litigation against a criminal offender, the civil courts are bound by the criminal court's convicting verdict on the existence of the crime as well as the criminal liability of the offender. Notwithstanding certain limitations concerning confidential information, documents obtained in criminal proceedings may be used in later litigation.

There are currently no available statistics that would show the average time span of any part of criminal proceedings in business crime cases as the criminal offences vary in difficulty and the time span would greatly depend on a number of factors including, for example, the quantity of evidence.

With respect to costs, other than court fees, costs of criminal proceedings are comprised of fees and ex- penses for witnesses, court interpreters, experts, expert advisors, translators, transportation costs for offi- cials and the accused, possible medical expenses of the accused if he or she was incarcerated, necessary expenses of the defence lawyer, the private prosecutor or injured party prosecutor and other costs.

When the court finds the accused guilty, it will order him or her in the verdict to reimburse the costs of the criminal proceedings. If the criminal proceedings are discontinued or the accused is not found guilty, the court budget or the private prosecutor will bear the costs of proceedings. The private prosecutor may agree on sharing the costs with the accused if the private claim is withdrawn.

From a public law perspective, business crime can be observed as a constant combat of the state against corruption and malpractice in business transactions. For example, under the Law on Public Companies, general managers of public companies are not able to hold posts in political parties. In relations between private parties, a criminal conviction eases the process of claiming damages as may be seen further below.

Other than the above, a noteworthy novelty from a wider business crime perspective is a Central Record of Measures which operates as of 1 June 2016 which provides an online record of decisions, verdicts, and other documents by which state authorities issued measures in criminal, misdemeanour, or any of a large number of administrative proceedings conducted under Serbian law, thereby increasing the transparency of doing business in Serbia. This public record contains information on sanctions issued by a number of Serbian authorities and required a joint effort of the Serbian Business Registers Agency, the Serbian courts, the National Bank of Serbia, but also the tax authority and over 30 other inspectorates.

The measures included in this record include any prohibitions and limitations to performing business activities and also of the ability to dispose of company funds or of shares/stock in commercial entities. This record also contains valuable information on revocation of any licences. With respect to individuals, this record contains information of those prohibited from acting as responsible persons for companies and entrepreneurs, within the meaning of Serbian law, although the scope of information provided is subject to data protection and criminal record regulations. The Central Record of Measures, therefore, provides a valuable single point of reference where the public and interested parties, usually prospective or current business associates, can inquire as to the conduct of certain persons in Serbian commerce, whether they have been issued any of the above measures or otherwise fail to comply with Serbian business law.

Insolvency proceedings are governed by the Serbian Insolvency Law. The latest amendments of this law came into force on 25 December 2017.

There are two different ways in which insolvency proceedings may be carried out: (a) through a bankruptcy of an insolvent debtor; or (b) through reorganization. Insolvency proceedings are carried out in a special department of the Commercial Court.

The main distinction between bankruptcy and reorganization proceedings is that in bankruptcy, the insolvent debtor’s assets (or if the debtor is a legal entity, the legal entity) are sold and the proceeds of the sale are distributed to the debtor's creditors. Whereas in reorganization proceedings, the creditors and the insolvent debtor may agree on the reorganization of the debtor and its liabilities, which should in turn result in the future settlement of those liabilities. In short, bankruptcy proceedings result in the liquidation of the insolvent debtor, whereas in the case of reorganization, the debtor continues to exist.

The purpose of the bankruptcy proceedings is for the insolvent debtor’s estate to be liquidated and dis- tributed to the creditors in accordance with the procedure established by the Insolvency Law. Bankruptcy proceedings may be initiated by creditors or the debtor, as well as by the liquidation administrator. In ad- dition, in certain situations the Public Defender, the Public Prosecutor or the Republic Tax Office may ini- tiate bankruptcy proceedings. The petition to initiate bankruptcy proceedings may be withdrawn before the opening of the bankruptcy proceedings, which begins with a posting on the court's announcement board. Bankruptcy proceedings generally consist of: (a) preliminary proceedings, where the reasons for the bankruptcy proceedings are stated and evaluated; and (b) the main bankruptcy proceedings.

When the requirements for initiating bankruptcy proceedings are met, the debtor, the bankruptcy administrator, the creditors (holding at least 30% of the respective claims towards the debtor) and persons holding at least 30% of the debtor's capital may propose reorganization. Reorganization may also be proposed simultaneously with the filing of the petition to initiate bankruptcy proceedings, and generally cannot be proposed later than 90 (ninety) days after bankruptcy proceedings have been initiated. Once approved by the creditors, the reorganization plan becomes a new agreement for the settlement of the claims specified, and this new agreement is directly enforceable. However, the debtor remains under the supervision of the bankruptcy administrator, and bankruptcy proceedings may be re- initiated if the debtor breaches the obligations set forth in the reorganization plan or the provisions of the Bankruptcy Law.

Liquidation proceedings are regulated separately by the Serbian Commercial Entities Act and carried out in a special department of the Commercial Court. The purpose of liquidation is to compensate all of the company’s creditors before the company ceases to exist. If conditions for initial bankruptcy proceedings exist, liquidation proceedings will not be conducted.

Arbitration proceedings are governed by the Serbian Arbitration Act, which entered into force on 10 June 2006. The Arbitration Act applies to both domestic and international arbitration proceedings where the seat of arbitration is in Serbia. International arbitration is generally defined as arbitrations whose subject matter concerns disputes arising out of international commercial business relations. In general, Serbian companies are willing to sign arbitration clauses, especially concerning international commercial and business transactions.

The last few years have seen a number of developments with respect to Serbian arbitration institutions. The Belgrade Arbitration Centre was established in 2013 as a permanent arbitral institution that administers domestic and foreign disputes in accordance with its BAC Rules. The BAC also assists in technical and administrative aspects of ad hoc arbitral proceedings under rules other than its own and furthermore organizes and conducts mediation sessions.

Also, as of June 2016, the Permanent Arbitration at the Serbian Chamber of Commerce was established as an arbitration institution. This is only formally a new institution as it was formed by merging two long- standing independent arbitration institutions that existed at the Chamber of Commerce, namely, the Foreign Trade Court of Arbitration and the Permanent Court of Arbitration. Other chambers and organizations may also establish institutional arbitration courts, if their professional rules allow. For example, according to the Serbian Securities Act and the legal provisions governing the Belgrade Stock Exchange, disputes related to stock exchange transactions between members and participants of the Stock Exchange, or between these entities and the Stock Exchange, may be resolved by the Stock Exchange Arbitration Court.

Under Serbian law, the arbitration agreement must be in writing, and is deemed to be in writing if contained in documents signed by the parties or in other forms of communication exchanged between the parties that provide written proof of the existence of the parties' mutual agreement to settle the dispute through arbitration.

Arbitration may only be agreed upon for the resolution of proprietary disputes arising out of rights of the parties over which they may freely dispose. Claims where the subject matter is in the exclusive jurisdiction of the state courts (such as disputes concerning real estate in Serbia, marital and family disputes, personal status rights etc.) are not arbitrable.

The Arbitration Act does not stipulate a maximum duration of the arbitration proceedings. However, the Act does require the arbitrators to diligently and efficiently carry out their duties as arbitrators. The parties are free to agree on the substantive law, the procedural rules, the seat and language of arbitration.

Depending on the agreement between the contracting parties, arbitration proceedings may be presided over by an arbitral tribunal or by a sole arbitrator. There may only be an odd number of arbitrators. In addition, the parties may agree on the procedure for appointing the arbitrators. However, if no agreement has been stipulated in the arbitration agreement or reached between the parties in this respect, a local court shall decide how the arbitrators should be appointed.

The decisions of arbitral tribunals are based on material laws, legal rules, agreements and customs; however, the tribunal may also decide on the basis of what is just and fair (ex aequo et bono) if the parties have so agreed. If the parties have not agreed on the applicable substantive law and legal rules governing the arbitral proceedings, the arbitral tribunal or arbitration court may decide on the basis of conflict of laws rules.

The Arbitration Act provides that arbitral tribunals have the authority, unless the parties to the arbitration agree otherwise, to order upon request of a party such interim measures as the tribunal deems necessary.

The Arbitration Act stipulates that the parties may request interim measures from a court either before or during arbitral proceedings (Article 15 Arbitration Act). The Arbitration Act also stipulates that this possibility exists even when the arbitration agreement relates to arbitration that has its seat outside of Serbia.

Under the Arbitration Act domestic arbitral awards (i.e. awards rendered in Serbia) may be challenged by way of a claim for annulment. The Arbitration Act contains an exhaustive list of grounds for such challenge (Article 58 Arbitration Act). Those grounds include:

-invalidity of the arbitration agreement;

-lack of due process;

-ultra petita;

-incorrect composition of the arbitral tribunal;

-lack of arbitrability;

-violation of Serbian ordre public; and

-false testimony or a criminal act of an arbitrator or a party to the proceeding

(if established by a final court judgment).

Foreign judgments and foreign arbitral awards may be enforced only if the foreign award has been previously “admitted” to the Serbian legal system in recognition proceedings. When recognized by a Serbian Court, a foreign award receives the same status as a domestic award.

Enforcement of a foreign judgment in Serbia is subject to the requirement of reciprocity, unless the creditor in the judgement is a Serbian citizen, or if the dispute is of a marital nature or for the purpose of determining paternity or maternity. In all other cases, there must be reciprocity with the foreign state that rendered the judgement. Even if diplomatic reciprocity does not exist, factual reciprocity is deemed sufficient. Generally, factual reciprocity is presumed unless it is proven to the contrary. If there is doubt, an inquiry should be made to the Ministry of Justice to determine whether reciprocity exists whereby the Ministry provides an explanation thereto.

Serbian courts will refuse to recognize foreign arbitral awards, upon a proposal of a party against which the enforcement is sought, based on grounds which are essentially the same as the described grounds for challenge of domestic arbitral awards. However, whereas the false testimony or criminal act of an arbitrator or a party to the proceeding is not among the grounds for refusal of the recognition of a foreign award by Serbian courts, the recognition of the award may be refused based on one additional ground. Namely, if the foreign award has not yet become binding for the parties, or if it has been annulled or its enforcement has been stopped by a court of the state where or based on whose law the award was rendered, the Serbian court will be entitled to refuse its recognition (and enforcement).

Serbia is a party to the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards, with the reservations that the Convention will only be applied to the recognition and enforcement of awards made in the territory of another contracting state and will only be applied to differences arising out of legal relationships, whether contractual or not, that are considered commercial under the national law and will only be applied to those arbitral awards which were adopted after the entry into effect of the Convention. Serbia is also a party to the 1961 European Convention on International Commercial Arbitration.

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3. BUSINESS CRIME

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4. INSOLVENCY

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6. ENFORCEMENT OF FOREIGN JUDGMENTS AND ARBITRAL AWARDS

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7. PRACTICE TIPS

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CONTACT

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MIROSLAV STOJANOVIĆ

Partner

Wolf Theiss Serbia

+381 11 330 2900

miroslav.stojanovic@wolftheiss.com

Vidak KovaČeviĆ

Advokat / Attorney at Law

+381 11 330 2900

vidak.kovacevic@wolftheiss.com

AnÐelka TodoroviĆ

Advokat / Attorney at Law

+381 11 330 2900

andjelka.todorovic@wolftheiss.com