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The European Arbitration Review 2017

Montenegro

Vesko Božović

VMB

14 October 2016

History of arbitration in Montenegro

The origins of arbitration in Montenegro date back to the Middle Ages when the trade cities in the Mediterranean such as Kotor, Dubrovnik, Venice, Genoa and Marseille settled their trade disputes in a manner similar to contemporary arbitration. The seeds of arbitration germinated from the General Property Code prepared by Valtazar Bogišic´ in 1888. In the area of conflict of jurisdictions, the Code deals with the recognition and enforcement of foreign court decisions. The effects of foreign court decisions were equated to the effects of local decisions and the conditions for the recognition of foreign arbitral awards were established back then, with most of these rules still in effect today.1

The Foreign Trade Court of Arbitration was founded by the Yugoslav Chamber of Commerce in Belgrade in 1947. The former Yugoslavia was the only European socialist country that managed to develop some kind of arbitration practice for national disputes.2 Even though the Law on Civil Procedure from 1965 reserved arbitration for ‘disputes with foreigners', it opened up the possibility for arbitration in the relations between domestic companies, which led to the formation of arbitration institutions within the commercial chambers of republics and provinces of the former Yugoslavia. This possibility was primarily envisaged by the Constitution of Yugoslavia in 1963, and then sanctioned by the Basic Law on Enterprises from 1965. The very same provisions featured in the Law on Civil Procedure from 1976. However, at the beginning of the 1990s significant changes emerged. As for the legal regulation of arbitration, amendment CFR 1990 modified the provisions on arbitrability, enabling arbitration for the first time in a wider range of relations. Until 1990, arbitration in disputes without a foreign element was permitted only between (some) legal persons (ie, only in terms of trade relations disputes). Since 1990, arbitration has been allowed in relations between all domestic legal entities (legal and natural persons) and not only for resolving commercial disputes but for resolving all disputes on rights that all parties are free to dispose of, if the law does not prescribe that certain types of disputes should be settled exclusively by other courts.3 The first institution for arbitration was established in Montenegro in 2003 (within the Chamber of Economy of Montenegro). The Foreign Trade Court of Arbitration and the Permanent Elected Court were founded within the Montenegrin Chamber of Economy, too. Arbitration proceedings have already been regulated pursuant to the Code of Civil Procedure.4 Standards in Montenegro governing arbitration are contained in articles 472 to 508 of the Civil Procedure Code. The draft of the Arbitration Rules of the Arbitration Court has been completed, too. The Foreign Trade Court of Arbitration will be the only arbitration institution in Montenegro (so far, it has been a permanent court of arbitration and the court for resolving disputes with an international element).

Montenegrin law on arbitration

The Montenegrin Law on Arbitration was adopted on 31 July 2015, and it entered into force in August 2015.5 Montenegro adopted this law in accordance with the UNICTRAL Model Law,6 with over 90 countries worldwide also modelling their arbitration laws on the UNCITRAL Model Law.

The Law on Arbitration (the Law) governs domestic and international arbitration, recognition and enforcement of arbitral awards, as well as the jurisdiction and the court procedure in relation to the arbitration. Domestic arbitration will take place when the disputed parties are natural persons with residence or habitual abode in Montenegro (ie, legal entities established under the laws of Montenegro). International arbitration involves a dispute in which one of the parties is a natural person with residence or habitual abode in another country, or a legal entity that is established under a foreign law and whose headquarters are in another country.

The application of the Law on Arbitration shall not affect the application of other laws if they provide specific rules on settlement of disputes through arbitration. Also, this method of dispute resolution is disabled if another law stipulates that the disputes cannot be settled by arbitration.

In order to separate the arbitration as much as possible as a non-judicial dispute resolution mechanism from the intervention of the court, the Law stipulates that the courts concerning arbitration can take only those actions that are according to this Law in the jurisdiction of the court. Thus, under certain conditions, the Commercial Court of Montenegro shall be competent for issues such as appointing the arbitrators, objecting to the jurisdiction of the arbitral tribunal, submission of the award, making a decision on the claim lodged for the annulment of the arbitral award, as well as the request for the recognition of the foreign arbitral award and the provisional measures. The court that is competent for the legal assistance in presenting evidence and the submission of a foreign arbitral award shall be the court that is actually competent to provide the requested legal aid, and the territorial jurisdiction belongs to the court in whose territory the specific action is to be taken.7

The Law on Arbitration contains provisions regulating the following:

  • the arbitration agreement;
  • the composition and jurisdiction of the arbitration tribunal;
  • interim measures;
  • conduct of the arbitration proceedings;
  • bringing the arbitration award and finalisation of the proceedings; and
  • cancellation, recognition and enforcement of the arbitration award.

The Law aims to provide additional assurance to the parties that the rules that have already been proved in a great number of countries will be applied to their dispute.

Arbitration agreement

The arbitration agreement must be concluded in a written form (ie, it can be reached in the form of an arbitral award as the constituent part of the contract or in the form of a specific agreement). The rules on the strictly written form of the agreement to arbitrate have been mitigated by the Law on Arbitration, but complete alignment with the Model Law on Arbitration has not been carried out because the Model Law contains fairly broad solutions that cannot really be applied in Montenegro as they are not suitable either to the needs of Montenegro or to the national legal system (the Model Law on Arbitration is inspired by the UNICTRAL Model Law on Electronic Commerce and the United Nations Convention on the Use of Electronic Communications in International Contracts).8

The relationship between the agreement to arbitrate and the claim of the court

The Law on Arbitration regulates the situation whereby the parties in the dispute have agreed to an arbitration proceeding and in that case the court to which the claim had been submitted in the dispute between the same parties shall be proclaimed as incompetent at the request of the party and any decision brought by this court will be annulled and the claim will be rejected, unless they find that the agreement on arbitration is not valid, it has already expired or it is not enforceable.9

Interim measures of the court

According to the agreement on arbitration each party can file with the court an application requesting interim measures and the court can order interim measures to be undertaken before the commencement of the arbitration proceeding or during this proceeding.10

Composition of the arbitral tribunal

The arbitration proceeding is conducted before the arbitration tribunal, which consists of one or more arbitrators. The designation of the number of arbitrators remains at will of the parties. The Law sets out certain limitations by prescribing that if the agreement envisages a greater number of arbitrators, their number must be odd. If the parties have not decided on the number of arbitrators, the provision prescribing that the tribunal be composed of three arbitrators shall be applied.11

Arbitrator

An arbitrator can be any individual who is competent regardless of his or her citizenship. Accordingly, the Law is set to have few legal restrictions regarding the characteristics of the arbitrator and by doing so allows the parties to determine the arbitrator pursuant to the dispute at hand and determine the procedure of appointing the arbitrator. The Law has defined the procedure of appointing the arbitrators in the event it is not envisaged by the agreement, and the procedure for challenging the choice of arbitrator; his or her exemption is envisaged too, and the Law contains rules by which the termination of the mandate of arbitrators is regulated, either by his or her resignation or by agreement reached by the parties. Pursuant to the Law, if the mandate of the arbitrator ceases, the deputy arbitrator is appointed.12

Jurisdiction of the arbitration tribunal

It has been envisaged by the Law that the jurisdiction of the arbitration tribunal is determined by the agreement of the parties, and that the tribunal itself takes care of its jurisdiction, including its inclusion in every objection in existence and merits of the agreement on arbitration.

The tribunal can decide on the lack of jurisdiction as the matter of the preliminary issue or it can render a decision on the merits. If the arbitration tribunal renders a decision on this issue within the framework of the decision on the merits, the court may intervene in accordance with the provisions of the Law on cancellation, recognition and enforcement of decisions.

In addition to complaints about lack of jurisdiction, the parties can likewise lodge a complaint about abuse of powers by the arbitral tribunal.13

Interim measures

By the amendments of the UNICTRAL Model Law, it has been prescribed that the arbitral tribunal has the authority to determine interim measures. Until recently, only a court could order interim measures. The Law stipulated the ordering of interim measures by the arbitral tribunal so that the most important principle of the arbitration proceeding would not be threatened: the principle of the confidentiality of the proceedings. The Law prescribes the possibility to modify, suspend or discontinue the interim measures at the request of either party, and in special circumstances the arbitral tribunal may do so on its own initiative, but it has to be done after prior notice is given to the parties.

The party requesting interim measures is responsible for all the expenses or damage caused to other parties by ordering such measures in the event the arbitral tribunal determines that ordering the interim measures in that case was not necessary. The Law has also prescribed the reasons for the recognition and enforcement of interim measures. The interim measures ordered by the arbitral tribunal shall be recognised and enforced on the basis of an application to the competent court, unless the arbitral tribunal decides otherwise. The decision taken by the court has validity only in respect of the application for recognition and enforcement of interim measures and in making its decision the court will not consider the essence of the interim measures.14

Conduct of the arbitration proceedings

The Law guarantees the equality of the parties in the proceedings before the tribunal. The arbitral tribunal is obliged to provide the chance for each party to present its views and evidence and to comment on the actions and proposals of the opposing party. The rules of procedure may be determined by agreement; if the parties fail to do so, the arbitral tribunal may conduct the proceedings in a way that the court considers to be expedient in accordance with the Law.

When the arbitral dispute has a foreign element, the parties may agree that foreign law should be applied.15

The place of arbitration

Determination of the place of arbitration is one of the most important issues in the arbitration proceedings. Determination of this place influences the application of the law that governs the arbitration proceedings, the court's jurisdiction, the rules on annulment and enforcement of the arbitral award. The parties may determine the place of arbitration by their mutual agreement, otherwise the place of arbitration shall be determined by the tribunal, taking into account the circumstances of the case, including the convenience of the specific place for the parties. In the event the place of arbitration is not determined in this way, the place of arbitration is determined by the place where the arbitral award has been rendered.

The place of arbitration may be different from the place where the arbitral tribunal meets.

The parties may agree when to start the arbitration proceedings and the language of the proceedings.

The parties shall mutually determine whether the arbitral tribunal is to decide on the basis of documents and other written documents or whether an oral hearing will be held, unless the parties have decided upon written discussion by mutual agreement.16

Language to be used in the proceedings

The parties are free to agree on the language or languages to be used in the arbitral proceedings; failing such agreement, the arbitral tribunal shall determine the language or languages to be used.

The agreement of the parties or determination by the arbitral tribunal on the language or languages to be used in the arbitral proceedings, unless otherwise specified therein, shall apply to any written statement by a party, any hearing and any award, decision or other communication by the arbitral tribunal.

The arbitral tribunal may order that any documentary evidence shall be accompanied by a translation into the language of arbitration.

Until the language of arbitration has been determined, the statement of claim, defence and other statements can be submitted in the language of the contract referred to in article 9 paragraph 2 of the Law, the language of the arbitration agreement or in the Montenegrin language. If the parties have not reached an agreement on the language of arbitration and the arbitral tribunal has not determined the language of arbitration, the language of arbitration in international arbitration shall be English.17

Omissions of parties

If a party fails to perform an act, this omission has certain effects on the process and its rights and if the prosecutor does not file a complaint in accordance with the provisions of the Law, the proceedings shall be discontinued.

Omission of the respondent to file a response to the complaint in accordance with the provisions of the Law will not result in the dismissal of the proceeding by the arbitral tribunal, but it is considered that this failure in itself means the recognition of the claim.

The arbitral tribunal may continue the proceedings and make a decision based on the results of the proceedings and evidence that was submitted, even though one of the parties does not appear at the hearing or does not produce documentary evidence within a specified time.18

Court experts and legal experts

The arbitration tribunal may appoint one or more experts to report their opinion on the issues specified by the tribunal.

The Law also prescribes that the arbitral tribunal or a party, with the approval of the arbitral tribunal, may request from the competent court to seek legal aid for the presentation of evidence when the tribunal cannot present it and cannot perform this legal action.19

Adoption of the award and termination of the arbitration proceedings

The Law has enabled a broad autonomy in terms of determining the applicable law. Using the term ‘rules of law', the Law allows the parties to invite not only the substantive law contained in the law of the country, but also the rules of law that are recognised in the international community and that are not incorporated in specific legislation.20

The arbitral tribunal's decision-making

The parties may also agree on the way the arbitral tribunal may make its decision. If this is not decided on by the parties, the arbitral tribunal shall decide by majority vote.

In the arbitration proceedings, it is possible to conclude the settlement. In this case, the arbitral tribunal shall terminate the proceedings.21

Settlement

Resolution of the dispute on the basis of settlement can be noted in the form of an arbitral award, but only at the request of the parties and with the consent of the arbitral tribunal. In this case, the decision shall have the status and effect as any other meritorious arbitral award.22

The content of the arbitration award

The arbitral tribunal shall decide on the subject of the dispute in the arbitral award, which has to:

  • be in written form;
  • signed by the sole arbitrator (ie, the arbitration tribunal);
  • state the date and place of issuance; and
  • contain an explanation stating the reasons on which the decision is based, but the parties to the agreement can exclude this possibility as well.

The Law provides for the possibility of making partial decisions or intermediate decisions depending on the specific requirements and circumstances of the dispute.23

Termination of the proceedings

Arbitration proceedings are, as a rule, terminated when the tribunal renders a decision.

Conclusion of the proceedings

The process can be terminated and a conclusion can be reached in the following cases:

when the claimant withdraws his or her claim, unless the respondent objects thereto and the arbitral tribunal finds that the defendant has a legal interest for a final decision in the dispute to be issued;

when the parties agree on the termination of proceedings;

when the arbitral tribunal considers that the continuation of the proceedings has become unnecessary or impossible; or

when the arbitration proceedings have been suspended in accordance with the law.

National arbitral award

The arbitration award is a decision made by the arbitral tribunal in the territory of Montenegro and has enforcement power and is executed in accordance with the Law on Enforcement and Security.24

Request for the cancellation of the arbitration decision

Request for the cancellation of the arbitration decision is the only remedy that a party may file against the decision of the arbitral tribunal.

The claim must be filed within three months from the date of receiving the notice of the arbitration decision by the party that has filed the claim. The reasons for the cancellation of the arbitration decision may be divided into two groups:

First group

This group consists of reasons that the party may give that have to be proved. These reasons are mainly related to certain procedural shortcomings such as:

  • inability of the parties to conclude the agreement;
  • the invalidity of the agreement;
  • inability of the parties to discuss issues before the tribunal;
  • overstepping the bounds of the arbitration agreement;
  • the composition of the arbitral tribunal or the arbitral procedure that was not in accordance with the agreement of the parties or in accordance with the law; and
  • deficiencies in the reasoning of the arbitration award or the signature on the award.

Second group

The court itself may review the arbitration award on its own initiative. The court will annul the arbitration award if it determines that the dispute cannot be settled by arbitration in accordance with regulations of Montenegro (not arbitrable).

If the court finds that the arbitration decision is contrary to the public policy of Montenegro the arbitration agreement may remain in force after the annulment provided that the award has been annulled for reasons that are not related to the validity of the arbitration agreement.

At the request of a party, the court case can be revisited and returned for retrial to the arbitral tribunal.25

Recognition and enforcement of foreign arbitral awards

The Law on Arbitration contains rules on the enforcement of foreign arbitral awards (ie, awards where the decision has been taken by an arbitral tribunal in a place outside of Montenegro).26 In this area the Law follows the UNCITRAL Model Law.

The process of recognition and enforcement is initiated by a request filed to the competent court - the Commercial Court of Montenegro. Recognition and enforcement of an arbitral award may be rejected only in the cases stipulated by the Law and if the party proves that:

  • the arbitration agreement is not valid under the law to which the parties have subjected it or under the law of the country where the award was made;
  • a party against which the award was made was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings or for any other reason it was not able to present its case;
  • the decision relates to a dispute that was not covered by the arbitration agreement or the decision exceeded the limits of that agreement;
  • the decision shall not be recognised and enforced if it is found that the part of the decision whose limits are exceeded by an arbitration agreement can be separated from the rest of the decision, when it is possible to partially reject the recognition and enforcement of these decisions;
  • the arbitral tribunal or the arbitral procedure was not in accordance with the arbitration agreement, or it failed to reach such an agreement, in accordance with the law of the state in which the arbitration took place;
  • the decision has not yet become binding on the parties or the decision was annulled or suspended by the court of the state where the decision was made; or
  • the law prescribes two reasons for the refusal and recognition of enforcement of foreign arbitration decisions, and of which the court is aware ex officio.

The court may review the arbitration award on its own initiative. The court will annul the arbitration award if it determines that the dispute cannot be settled by the arbitration in accordance with the regulations of Montenegro.

The court shall issue a decision on granting the enforcement that must be explained, and against which the appeal can be filed to the Appellate Court of Montenegro within 15 days from the date of its receipt.27

Transitional and final provisions

After the Law on Arbitration had entered into force the relevant provisions of the Code of Civil Procedure and the Law on Private International Law ceased to be valid and applicable, which included rules for the recognition and enforcement of foreign arbitral awards.28

Conclusion

The concept of the open market economy is bringing positive developments to the country. Montenegro has huge potential to generate electricity from renewable sources, in particular solar, wind and hydropower. In November 2013, more than 20 international big oil companies came to Montenegro because of their interest in the exploitation of oil. Montenegro also has strong tourism and agriculture sectors.

Major investments, amounting to €3 billion, will be implemented in Montenegro in the fields of infrastructure, electricity, electrical transmission and tourism.

When it comes to the benefits for investors and companies in Montenegro, income tax is only 9 per cent and VAT is 19 per cent. There are certain incentives for business centres in some towns of Montenegro. The rights of domestic and foreign investors are equal. Limited liability companies can be launched with €1 investment. Foreign nationals can obtain a work permit very easily, especially when they are in a managerial position. Investors are exempt from paying utilities while building 4- or 5-star hotels.

The new Law on Arbitration presents a contemporary law that enables any possible dispute to be settled by the arbitration relying on the rules on arbitration proceeding. This possibility is highly important as Montenegro is very attractive for foreign investors. Bearing this fact in mind, the Assembly of the Chamber of commerce of Montenegro formed only one court for arbitration - the Montenegro Arbitration Court (MAC) and it adopted new rules.

Notes

  1. Kostić-Mandić, M. Recognition and enforcement of foreign court decisions in the new private international law of Montenegro, Collected papers, Association of Montenegro Lawyers, Nos. 1-2/2015, Podgorica.
  2. Triva S.& Uzelac A. (2007) Croatian arbitration law. Narodne novine. Zagreb.
  3. Ibid.
  4. Code of Civil Procedure, Official Gazette of Montenegro, Nos. 22/2004 and 76/2006.
  5. Montenegrin Law on Arbitration, Official Gazette of Montenegro, No. 47/2015 from 18 August 2015.
  6. UNCITRAL Model Law on Electronic Commerce (1996) with additional article 5 as adopted in 1998 and UNCITRAL Model Law on International Commercial Arbitration (1985) with amendments as adopted in 2006.
  7. Explanation submitted to the parliament of Montenegro with the draft Law on Arbitration.
  8. Montenegrin Law on Arbitration, article 9.
  9. Ibid, article 10.
  10. Ibid, article 11.
  11. Ibid, article 12.
  12. Ibid, article 13.
  13. Ibid, article 19.
  14. Ibid, article 21, article 22, article 23.
  15. Ibid, article 30, article 31.
  16. Ibid, article 32.
  17. Ibid, article 34.
  18. Ibid, article 37.
  19. Ibid, article 38.
  20. Ibid, article 40.
  21. Ibid, article 41.
  22. Ibid, article 42.
  23. Ibid, article 43.
  24. Ibid, article 44, article 45, article 46.
  25. Ibid, article 47, article 48.
  26. This law was adopted on the basis of the New York Convention on the Enforcement of Foreign Arbitral Awards from 1958 ratified by Montenegro on 6 June 2006.
  27. Ibid, article 50, article 51, article 54.
  28. Ibid, article 55.

VMB
Moskovska 99/II
81000 Podgorica
Montenegro
Tel: +382 6822 0999 / 2022 8068

Vesko Božović
vesko.b.adv@t-com.me
vbozovic@vmb1.me

www.vmb1.me

Cherishing the tradition of being pioneers in dealing with new legal issues in our country makes us unique. We were first in privatisation business, intellectual property and arbitration while cooperating with offices from London, Paris, Belgrade, Zagreb and other cities. VMB has specialised in the field of franchise agreements, and in this capacity, we attended the International Franchise Fair in New York. Innovation is one of the our advantages as well as recognising the primary interest of our clients, and through mutual trust and our extensive experience and expertise we achieve the most effective results. VMB cooperates with renowned law firms in the region and throughout the world. We are especially pleased that in the recent years we have taken on leadership role in the development of alternative dispute resolution (ADR), with particular focus on cooperation with the arbitration centres from the region such as the German Institute of Arbitration (DIS) and UNCITRAL in Vienna. Our firm had a leading role in drafting the Law on Arbitration of Montenegro, based on UNCITRAL Model Law Rules. We were also the initiators and active participants in making the rules that are applied to arbitrations before the Montenegro Arbitration Court (MAC). We cooperate with all arbitration institutions in the region, including Serbia, Bosnia, Macedonia, Slovenia, Albania and Kosovo, and especially with the most important international arbitration institutions such as the LCIA. We follow the changes that take place in the arbitral proceedings through symposiums, conferences and joint meetings with related firms.