Has losing arbitrations become a trend? Two new disputes in Republika Srpska (RS), in Nevesinje and Rudo, and several hundred million more in damages are threatening Bosnia and Herzegovina (BiH). The question is who we are paying. Guests in an interview were: Ismet Velic, Goran Bubic, Zlatan Meskic, and Mladjan Mandic.
Bubic: Claims about siphoning money through arbitrations are arbitrary; we have not heard a single legal argument
Lawyer Goran Bubic, representative of a group of foreign investors in arbitration disputes against institutions in BiH, responded to allegations of abuse, political connections, and deliberate siphoning of money out of the country.
At the outset, Bubic stressed that he cannot speak about specific cases, but can address general issues. He points out that an incorrect picture is being created in the public’s mind about investment disputes and concessions:
“Arbitrations are not some BiH-specific feature. They are the result of global business practice and the fact that investors do not trust domestic courts.”
He stated that 1.332 cases are currently being conducted before the International Centre for Settlement of Investment Disputes in Washington, and that BiH is a signatory to 42 bilateral investment protection agreements, which enable investors to initiate proceedings.
He adds that at least seven arbitration disputes are active in BiH, probably more, since some proceedings remain confidential.
Regarding claims that money is being “siphoned out of BiH” through arbitrations, Bubic says:
“The party that loses has the right to be angry, but I have never heard legal arguments. Only arbitrary political qualifications.”
He emphasises that the public does not know the essence of these cases because legal reasons and evidence are never discussed.
Asked about alleged political ties to Milorad Dodik and access to confidential documents, Bubic responded:
“I don’t understand how you are expanding this. I am a lawyer. I have represented clients for 30 years. These claims that something is available to me and not to others are completely unfounded.”
He stressed that in this case, he has for years represented private investors who came to him “by recommendation,” not through political connections.
“Investors were stripped of a factory; neutral arbitrators decide on the damages”
Without going into details of the case, he briefly stated:
“In this case, investors had a factory taken away from them. Arbitrators, one or three, will decide whether there is liability.”
Regarding claims that the High Representative prevented major compensation claims through amendments to the law, Bubic says those amendments lack constitutional weight and are legally wrongly formulated:
“Such a clause presupposes in advance that the state expects to breach the contract. From a legal standpoint, that is nonsense.”
He recalled that the essence of arbitration cases is simple:
“The problem here is that certain contractual provisions were not respected. Something was granted and later revoked, which led to damage. That is being kept silent.”
Mandic: Arbitration cannot serve to seize money from the people of BiH
Former attorney of the BiH Attorney’s Office, Mladjan Mandic, commented on the frequent international arbitrations that BiH and its entities are increasingly entering, stressing that this is a repeating pattern that raises serious suspicions.
Speaking about whether frequent arbitrations and the same actors point to a problem, Mandic says that these proceedings can be divided into two categories.
“I could divide those arbitration proceedings into two wholes. Arbitration proceedings that arose from the breakup of the former SFRY, and there is nothing disputed.”
However, he also emphasises the unequal treatment of BiH.
“This, in my view, is unjust, since everyone sues BiH, and we have not yet sued anyone.”
“Arbitrations are becoming a way to obtain large sums of money very easily”
Mandic claims that new types of arbitrations no longer relate to disputes from the time of the SFRY, but to abuses of public goods.
“Lately, arbitrations have become a way to very easily obtain large sums of money. We are talking about millions.”
According to him, some well-known arbitrations, such as Viadukt, Trusina, and Rudo, follow the same pattern.
“Land is taken, given into concession, nothing is done, a lawsuit is filed before international arbitration, money is taken, the claimant always succeeds. BiH essentially remains without money. That, in my view, is outright theft.”
He stresses that the state has no benefit from these public goods.
“BiH has no benefit from this; the rulers benefit.”
Speaking about the Viadukt arbitration, Mandic pointed out that as an attorney, he was removed from the process.
“What hurt me was my removal from the team that was supposed to defend the interests of Republika Srpska (RS); I was not even informed about the main hearing.”
He claims that advisers and individuals without professional knowledge appeared in the proceedings, receiving enormous fees.
“At those gatherings, some advisers appeared who were taking huge sums of money. One lawyer in arbitration takes one to two million euros. Various friends, godfathers appear, taking 300 to 500 thousand euros even though they are responsible for nothing and know nothing.”
Mandic believes that losses in a series of proceedings cannot be accidental.
“It is impossible to lose every arbitration, to take a concession every time, take public property, do nothing, and still have to give money for your country. That is nonsense.”
Mandic concludes that arbitration as a legal mechanism is not problematic, but the way it is used.
“Arbitration as arbitration is absolutely fair. What I am saying is that arbitration cannot serve to seize money from the people of BiH.”
He particularly emphasises that public goods belong to the citizens.
“These are public goods, goods that are owned by all of us. We should have benefits, and we have only losses.”
Meskic: We must narrow the space for both bad faith and ignorance
Professor at the Faculty of Law of the University of Riyadh, Zlatan Meskic, commented on the current case and warned that BiH must systemically regulate the way it concludes investment contracts.
“We just need to look a bit at the solutions of states that found themselves in a similar situation. That means we must narrow the space both for bad faith and for ignorance,” Meskic said, emphasising that he is speaking from experience in legally representing public enterprises from the Federation.
He recalls that the arbitration proceedings in which he participated were successful precisely because the teams were well prepared.
“I’m glad you didn’t hear much about those arbitrations, because fortunately, they were successful. A team must be formed following the example of states.”
Meskic recalls that states in South America first faced such challenges, which, like BiH, invited foreign investors and later ended up in arbitrations.
“They created a team at the state level to which it was mandatory to submit all investment contracts that the state concludes. The contracts were standardised in order to narrow the space for both ignorance and bad faith when concluding a contract.”
He adds that BiH is not strong enough to impose its terms in negotiations, but must have clear limits below which it will not go.
“We are not such a strong state that we have strong negotiating power, but we must know below which conditions we will not give something.”
According to Meskic, the greatest risk lies in the commissions that prepare and supervise contracts.
“You must understand our commissions that work on concessions and the teams that work in public procurement; on the other side, they have a foreign law firm with years of experience, which is very capable of inserting a clause into a contract that easily passes us by, whether due to ignorance or bad faith.”
For this reason, he believes that the state must have centralised oversight over all contracts.
“The state must have oversight over what is being done at all levels and have a centralised database.”
An additional problem is the unavailability of documentation once arbitration begins.
“When arbitration comes, it is difficult to obtain documentation from those public enterprises, because, of course, everyone is afraid that they have made a mistake. And it is very important for us to know all the facts.”
Asked whether he sees room for bad faith in the specific case, Meskic answers cautiously:
“I am involved at a stage when the dispute has already arisen. We are trying through documentation to understand how a certain contractual clause came about.”
He points out that it is subsequently analysed whether the disputed clause is the result of an unfavourable negotiating position or “some ignorance or some group negligence.”
“When we come before that commercial arbitration, those arbitrators look at it purely from a commercial perspective. We will lose that dispute if we have breached the contract. It is simply a commercial matter.”
Velic: There are numerous shortcomings accompanying these proceedings
“The arbitration proceedings themselves appear as a kind of finale, at the end, linked to a multitude of events that preceded the arbitration procedure. We have different phases and segments related to resolving a certain issue or a certain problem, by the competent institutions. So whether it is a case related to a certain concession procedure, where we have certain commission bodies and so on, competent ministries, governments that have the authority to ultimately conclude a certain contract, or whether it is related to a certain dispute of an investment nature, for example from the period of the former Yugoslavia, when different entities from the territory of the former Yugoslav republics invested in one republic, another, and so on,” said former attorney of the BiH Attorney’s Office Ismet Velic.
As to whether these are deliberately provoked disputes, Velic points out that it is necessary to have “concrete indicators and evidence” for such claims, but that it is a fact that “serious problems are appearing.”
“It is evident that there are numerous shortcomings that accompany these proceedings. Therefore, it is easy to reach the conclusion that it would be necessary to undertake certain actions in order to generally improve these procedures, to make them of higher quality,” Velic concluded.
Furthermore, Velic pointed out “numerous weaknesses of different segments of this society.”
“What is a fact and what is important is acting in that direction to correct, among different elements and entities involved in these proceedings, what represented a shortcoming in the concrete conduct. So, whether it is intentional conduct or insufficiently professional and quality conduct, it is necessary to act in the sense of the highest-quality training possible, of making the procedure more serious. Thus, conducting a correct, quality, professional procedure is the basic prerequisite for the possibility of quality representation in arbitration proceedings,” he concluded, Federalna writes.
