This note provides an overview of Montenegro's arbitration framework, exploring its legal basis, procedural aspects, and advantages.
Background
As a former federal republic of the ex-Yugoslavia, Montenegro was part of its legal framework. Yugoslavia founded the Foreign Trade Arbitration in Belgrade in 1947.1 Although arbitration was first reserved only for disputes with foreigners, the system was changed in 1963, allowing arbitration between domestic companies.2 However, a significant breakthrough was made after 1990, expanding arbitration to all domestic legal entities, including both individuals and companies.
Since 2006, Montenegro has been an independent state. In 2015, arbitration in Montenegro was elevated to a higher level by enacting the Montenegrin Arbitration Act, based on the UNCITRAL Model Law.3 With this Arbitration Act, arbitration was finally uniformly regulated, covering, amongst others, the recognition and enforcement of arbitral awards and issues pertaining to jurisdiction and court procedures concerning arbitration.
Currently, in Montenegro, the main arbitration institution is the Arbitration Court at the Montenegrin Chamber of Commerce. This independent institution has existed since 2015, with its own Arbitration Rules.4
Legal Framework
The Montenegrin Arbitration Act is a modern type of arbitration legislation based on the UNCITRAL Model Law. Its framework broadly defines Arbitration in Montenegro.
The main principles on which the Montenegrin Arbitration Act bases itself are equality, party autonomy and due process.
Although the Montenegrin Arbitration Act differentiates between domestic and international arbitration, as defined in Article 2(1), the true difference that it makes is regarding arbitrations seated within Montenegro and those seated outside its borders.
Other Relevant Conventions
Arbitration in Montenegro is conducted in accordance with other relevant treaties, such as:
- The New York Convention;
- The European Convention on International Commercial Arbitration;
- The ICSID Convention;
- The Energy Charter Treaty;
- Numerous Bilateral Investment Treaties.
Arbitration Agreement
According to Article 9 of the Montenegrin Arbitration Act, an arbitration agreement is defined as:
"[A]n agreement by which the parties chose resolution by arbitration of all or certain disputes that have arisen between them or could arise from a specific contractual or non-contractual legal relationship."5
For the arbitration agreement to be valid, it needs to be concluded in writing and by parties with the necessary capacity.6 It could be concluded both as an arbitration clause included in a contract or a separate agreement.
Both natural and legal persons can be parties to the arbitration agreement.
Jurisdiction
According to the principle of competence-competence, the arbitral tribunal is competent to decide on its own jurisdiction.7 Additionally, the arbitral tribunal will consider objections relating to the existence or validity of the arbitration agreement, as set out in Article 19.
It should be noted that it is not incompatible with the Montenegrin Arbitration Act for a party to seek interim relief from a court before or during arbitration proceedings.8
Arbitral Proceedings
As with other modern arbitration laws, arbitration in Montenegro draws a distinction between institutional and ad hoc arbitration proceedings.9 If arbitration is conducted before an arbitral tribunal administered by an arbitral institution, proceedings begin upon the arbitral institution's receipt of the notice of arbitration. On the other hand, in ad hoc arbitration, proceedings commence when the respondent receives notice that the opposing party has appointed an arbitrator or proposed a sole arbitrator.
Arbitration Rules
The parties may establish procedural rules for the arbitral tribunal through mutual agreement or by referencing specific arbitration rules. In case of the absence of such an agreed procedure, the arbitral tribunal has the discretion to conduct proceedings in a manner it considers appropriate and in accordance with the provisions of the Arbitration Act.10
Seat and Language
The parties are free to agree on the seat of arbitration proceedings. In cases where the parties have not reached an agreement on the seat, the tribunal will decide on it based on the circumstances of the dispute and the convenience of the location for all parties involved. Additionally, if the parties have delegated the administration of arbitration to an arbitral institution, the institution's rules will determine the venue of arbitration.11
Further, the parties can mutually agree on the language or languages that will be used. However, in the absence of such an agreement, the arbitral tribunal will determine the language or languages to be used during the proceedings.12
The Conduct of the Proceedings
The claimant first presents the facts supporting its claims, contested issues, and relief sought, if not otherwise agreed. The respondent, in its response, addresses the allegations, proposals, and demands put forth by the claimant.13
Furthermore, the parties may submit documents they consider important or can refer to documents or other evidence they intend to submit.14
In addition, each party has the right to amend or supplement its pleadings during the arbitration proceedings unless the arbitral tribunal determines that this would undermine the efficiency of the proceedings.15
If not agreed upon otherwise, the arbitral tribunal will determine whether to conduct an oral hearing or proceed with the arbitration based on written submissions.16
Experts in the Proceedings
As in other arbitration proceedings, arbitration in Montenegro allows the use of experts. According to the Montenegrin Arbitration Act, the arbitral tribunal may appoint one or more experts to provide findings and opinions on specified issues. Additionally, it may require parties to furnish essential information to the appointed expert, as well as to provide documents, goods, or other materials or grant access to them.17
Assistance of the Court Regarding Evidence
If certain evidence cannot be produced, the arbitral tribunal or a party with the tribunal's consent may request assistance from the competent court, as determined in accordance with Article 6(2) of the Montenegrin Arbitration Act.18
Award
The arbitral tribunal will rule in accordance with the law chosen by the parties.19 In case there is no choice of law, the arbitral tribunal will apply the law which it deems applicable.20 Only in case of the parties' explicit intent can the arbitral tribunal rule in accordance with the principle of ex aequo et bono.21
Further, the generally accepted rule that the tribunal shall render any decision by a majority of all arbitrators applies.22 The award needs to decide on all the parties' requests.23 Moreover, the arbitral tribunal must render the award in writing and sign it.24 Additionally, the award must include the reasoning behind it unless the parties agree otherwise.25
The award rendered on Montenegrin territory is considered an enforceable document.26 The law governing the enforcement of the award within Montenegro is the Law on Execution and Security.27
Termination of the Proceedings
Usually, the proceedings terminate when the tribunal renders the award.28 However, in certain cases, the tribunal may terminate the proceedings by order, as defined in Article 44(2):
- When the claimant withdraws its claim, unless the respondent opposes this and the tribunal considers that the respondent has a justified legal interest in having a final award;
- In case the parties agree to end the proceedings;
- If the arbitral tribunal assesses that the continuation of the proceedings has become unnecessary or impossible;
- If the proceedings are suspended in accordance with the Montenegrin Arbitration Act.
Settlement
In the event that the parties settle during the course of the proceedings, the arbitral tribunal will end the proceedings.29 Furthermore, the award based on the settlement carries equivalent legal weight as an arbitral award that resolves the dispute.30 There is one restriction regarding settlement: it cannot be in conflict with the public policy of Montenegro.31
Application for Setting Aside
The only legal remedy allowed against the award is the application for setting aside.32 Article 48 of the Montenegrin Arbitration Act provides a closed list of the grounds for setting aside the award. Additionally, the Arbitration Act provides a time limit of three months as of the date of delivery of the award to the parties for the submission of the application.33
It is crucial to note that the same parties may only conduct a new arbitration proceeding on the basis of a new arbitration agreement regarding the same matter.34
Enforcement of Awards
An award rendered by an arbitral tribunal seated outside of Montenegro is considered a foreign award35 Thus, it requires recognition. The Montenegrin Arbitration Act regulates the process of recognition, with provisions based on the New York Convention and the UNCITRAL Model Law.36 The court competent to decide on the issues of recognition and enforcement is the Commercial Court of Montenegro.37
If one of the conditions in Article 51 is fulfilled, the court shall not recognize the foreign award as binding and enforceable. These conditions include:38
- One of the reasons in Article 52 of the Arbitration Act is present;
- The award has not yet become binding on the parties;
- The award has been set aside or suspended by a court of the country of origin or under the law of which the award was made.
In any case, the court will refuse recognition if:
- The subject matter of the dispute is ineligible for settlement by arbitration under the law of Montenegro; or
- The effects of the arbitral award would be contrary to the public policy of Montenegro.39
However, if not satisfied with the court's decision on recognition or enforcement, parties can submit an appeal to the Court of Appeal of Montenegro within 15 days from the date of delivery of the decision.40
Third-Party Funding
The Montenegrin Arbitration Act contains no provisions regarding third-party funding. Thus, there are no limitations in place.41
Costs
According to Article 14 of the Arbitration Act, the arbitrator has the right to reimbursement of fees and expenses for work performed. The parties are jointly and severally liable for the payment of such fees and expenses.42
If the arbitrator determines the amount of compensation for fees and expenses, and the parties do not accept it, it shall not bind the parties. In such a case, the arbitration institution, i.e., the appointing authority, makes the decision on the arbitrator's fees and expenses.43
Additionally, when choosing Montenegro as the seat of arbitration, the Parties may consider the lower fees and expenses than in the majority of other countries in Europe, such as France, the UK and Switzerland.
Investor-State Cases
To date, six investor-state arbitrations have been initiated against Montenegro:44
- Atlas and Kne~ević v. Montenegro;45
- Addiko Bank v. Montenegro;46
- Deripaska v. Montenegro;47
- Medusa v. Montenegro;48
- CEAC v. Montenegro;49
- MNSS and RCA v. Montenegro.50
The latest one, Atlas and Kne~ević v. Montenegro, was initiated in 2020 and is still pending.51 This case concerns investments in Atlas Banka and Invest Banka Montenegro, as well as in a medical centre project in Meljine near Herceg Novi. Claims stem from the Central Bank of Montenegro's decision to place these banks under temporary administration due to bankruptcy. Additionally, alleged government actions reportedly obstructed a medical tourism project in Herceg Novi.52
The other five cases concluded primarily in favour of Montenegro. In MNSS and RCA v. Montenegro the tribunal decided in favour of neither party, i.e., liability was found, but no damages were awarded.
Conclusion
In conclusion, arbitration in Montenegro offers an alternative to traditional litigation. Rooted in the Montenegrin Arbitration Act, arbitration within the Montenegro legal framework supports both domestic and international entities. The Arbitration Court at the Montenegrin Chamber of Commerce serves as a central institution, overseeing arbitration proceedings with clear rules on jurisdiction, conduct, and enforcement of awards. Time will tell if Montenegro becomes a more popular seat for international arbitrations, but its legal framework is sound.
Footnotes
1 Aceris Law, International Commercial Arbitration in Serbia (3 October 2017), available at https://www.acerislaw.com/international-commercial-arbitration-in-serbia/.
2 D. Karollus-Bruner, N. Velisavljevic, N. Kovacevic, International Arbitration Law and Rules In Montenegro (1 November 2023), available at https://cms.law/en/int/expert-guides/cms-expert-guide-to-international-arbitration/montenegro.
3 Montenegrin Arbitration Act.
4 Montenegrin Arbitration Court, available at https://komora.me/en/cem/arbitration-court.
5 Montenegrin Arbitration Act, Article 9.
6 Montenegrin Arbitration Act, Article 9.
7 Montenegrin Arbitration Act, Article 19.
8 Montenegrin Arbitration Act, Article 11.
9 Montenegrin Arbitration Act, Article 33.
10 Montenegrin Arbitration Act, Article 31.
11 Montenegrin Arbitration Act, Article 32.
12 Montenegrin Arbitration Act, Article 34.
13 Montenegrin Arbitration Act, Article 35(1).
14 Montenegrin Arbitration Act, Article 35(2).
15 Montenegrin Arbitration Act, Article 35(4).
16 Montenegrin Arbitration Act, Article 36(1).
17 Montenegrin Arbitration Act, Article 38.
18 Montenegrin Arbitration Act, Article 39(1).
19 Montenegrin Arbitration Act, Article 40(1).
20 Montenegrin Arbitration Act, Article 40(3).
21 Montenegrin Arbitration Act, Article 40(4).
22 Montenegrin Arbitration Act, Article 41(1).
23 Montenegrin Arbitration Act, Article 43(1).
24 Montenegrin Arbitration Act, Article 43(3).
25 Montenegrin Arbitration Act, Article 43(5).
26 Montenegrin Arbitration Act, Article 46(1).
27 Montenegrin Arbitration Act, Article 46(2); Montenegrin Law on Execution and Security.
28 Montenegrin Arbitration Act, Article 44(1).
29 Montenegrin Arbitration Act, Article 42(1).
30 Montenegrin Arbitration Act, Article 42(3).
31 Montenegrin Arbitration Act, Article 42(4).
32 Montenegrin Arbitration Act, Article 47.
33 Montenegrin Arbitration Act, Article 48(3).
34 Montenegrin Arbitration Act, Article 49(1).
35 Montenegrin Arbitration Act, Article 50.
36 D. Karollus-Bruner, N. Velisavljevic, N. Kovacevic, International Arbitration Law and Rules In Montenegro (1 November 2023), available at https://cms.law/en/int/expert-guides/cms-expert-guide-to-international-arbitration/montenegro.
37 Montenegrin Arbitration Act, Article 51(2); see also Article 6(1).
38 Montenegrin Arbitration Act, Article 51.
39 Montenegrin Arbitration Act, Article 52(2).
40 Montenegrin Arbitration Act, Article 54(5).
41 T. Sumar, V. Tica, International Arbitration Comparative Guide for the jurisdiction of Montenegro (19 March 2021), available at https://www.mondaq.com/litigation-mediation–arbitration/788996/international-arbitration-comparative-guide.
42 Montenegrin Arbitration Act, Article 14(3).
43 Montenegrin Arbitration Act, Article 14(5).
44 https://jusmundi.com/en/d/profile/state/me.
46 https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/849/addiko-bank-v-montenegro.
47 https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/765/deripaska-v-montenegro.
48 https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/908/medusa-v-montenegro.
49 https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/597/ceac-v-montenegro.
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