Commercial Court of Appeals Improves NPL Market by Aligning Interpretation of Litigation Act with Regional Practice

August 23, 2018

Commercial Court of Appeals Improves NPL Market by Aligning Interpretation of Litigation Act with Regional Practice

August 23, 2018

Milan Samardžić

Milan Samardžić

Partner

Ivan Nikolić

Ivan Nikolić

Senior Associate

No more denial of claims because of the claim assignment – Commercial Court of Appeals Improves NPL Market by Aligning Interpretation of Litigation Act with Regional Practice.

NLP market in Serbia becomes even more attractive due to this alignment with international practice. The claimant will no more lose active standing in initiated dispute regardless of the assignment of claim or subject of dispute and it will not significantly affect the outcome of the proceedings.  

Commercial Court of Appeals has finally aligned its court practice related to change of the litigant in the procedure in case of the assignment of the claim, with the regional court practice, thus making the NPL market in Serbia much more advanced.

According to Article 204 of the Litigation Act, assignment of a claim during litigation does not affect the course of litigation. So far, the change of the litigant was possible only in case all parties consented thereto. However, in case either party opposed the change of litigant, the litigation continued regardless of the assignment of the claim and the resulting judgment had an effect on the acquirer of the claim.

Alignment with international practice regarding the assignment of claims

The prevalent interpretation of Article 204 of the Code of Civil Procedure law was that in case one of the parties in litigation proceedings restrained from approving the change of litigant, due to claim assignment, the original parties would both retain their status of a party to the proceedings, but would lose its standing to sue, or to be sued (due to lack of material, i.e. active or passive standing). Ultimately, this led to the denial of the claims, to the detriment of both transferors and acquirers of such claims. This stance was based on the understanding that the Litigation Act cannot address material issues, but rather procedural ones. However, such practice was entirely opposite to the one established in the countries in the region, such as in Croatia or Montenegro, the laws of which contain an almost identical provision to the Article 204 of the Serbian Litigation Act. In addition to this, there was also the fragmentary practice of certain Serbian courts of general practice, which was completely opposite to the prevailing one.

Domestic decisions on the claim assignment

The change in trajectory came with the judgment of Commercial Court of Appeals Pž 829/2017 dated 15 March 2018 which was recently published in Commercial Courts’ Bulletin no. 1/18. This judgment asserted that despite the fact that, during the course of litigation, the original claimant assigned the claim to a third party that was not allowed to replace the original claimant due to defendant’s opposition on the basis of Article 204 of the Litigation Act, the original claimant did not lose its active standing in the litigation proceedings. According to the court’s opinion, Article 204 of the Code of Civil Procedure should be, and in this case is, interpreted in such a manner that it serves to protect the litigants when they, after the start of litigation proceedings, assign the claim or subject of dispute. It follows from the content of the aforementioned legal provision that in such case the claimant will not lose the active standing, nor will the defendant lose its passive standing in the initiated dispute, which ends between the same parties, regardless of the transfer of the claim or subject of dispute. Besides the fact that assignment of the claim leads to the relatively easy replacement of the creditor in enforcement and insolvency proceedings, now, it also does not affect the outcome of litigation in case change of a party is blocked by another party to the proceedings.

This novel court practice, in case it is widely accepted by other Serbian courts of general practice, could be regarded as a turning stone for the Serbian NPL market, which will definitely contribute to making this business more attractive and developed.

This article is only for the blogging purposes and does not in any mean pose as a legal advice of SOG law firm. If you are interested in expert’s opinion on this matter or any advice of legal nature, feel free to contact us.

 

Contact:

Milan Samardžić, Partner
milan.samardzic@sog.rs
+381 63 318 320

Ivan Nikolić, Senior Associate
ivan.nikolic@sog.rs
+381 69 3282 806

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