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

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

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

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 towards the acquirer of the claim.

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 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 almost identical provision to the Article 204 of the Serbian Litigation Act. In addition to this, there was also fragmentary practice of certain Serbian courts of general practice, which was completely opposite to prevailing one.

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.

Beside the fact that assignment of the claim leads to relatively easy replacement of the creditor in enforcement and insolvency proceedings, now, it also does not affect outcome of litigation in case change of a party is blocked by other 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.

By Milan Samardzic, Partner, Ivan Nikolic, Senior Associate Samardzic, Oreski & Grbovic

Serbia Knowledge Partner

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