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DECLARATION on ARBITRATION and MEDIATION

DECLARATION on ARBITRATION and MEDIATION

The Croatian Association of Public Bailiffs Zagrebačka cesta 50 10000 Zagreb     Zagreb, 10 August 2012

DECLARATION on ARBITRATION and MEDIATION

      Dear Sirs,   First of all I want to emphasize that the Croatian Government, at the proposal of the Minister of Justice Orsat Miljenić, at its 34th meeting on 20 June 2012 passed three for the State budget, the Croatian judiciary and litigants disastrous decisions, which determine the way to solve current and future civil disputes in which one of the parties is the Republic of Croatia or a company (majority) owned by the Republic of Croatia or a legal person with public powers.   These are the following three decisions:   1) The decision on measures to encourage alternative and out of court dispute resolution in civil cases in which one of the parties to the dispute is the Republic of Croatia (hereinafter: DECISION 1 – Appendix No. 1 of this declaration),   2) The decision on the recommendations for the promotion of alternative and out of court dispute resolution in civil cases in which one of the parties to the dispute is a company owned or majority-owned by the Republic of Croatia or a legal person with public powers (hereinafter: DECISION 2 – Appendix No. 2 of this declaration),   3) The decision on the establishment of the Commission for the promotion of alternative and out of court dispute resolution in civil cases in which one of the parties to the dispute is the Republic of Croatia (hereinafter: DECISION 3 – Appendix No. 3 of this declaration).     I          And why are these three Government Decisions disastrous for the State budget, the Croatian judiciary and litigants?   First let us consider briefly the content of the DECISION 1.   The DECISION 1 determines the obligation of all government bodies that at the conclusion of legal transactions agree to MEDIATION and ARBITRATION before the Permanent Arbitration Court at the Croatian Chamber of Commerce (hereinafter: PAC CCC) as the ultimate solution to all manner of disputes that would result from such legal transactions – Art. II. of the DECISION 1, Appendix 1 of the DECISION 1 – Agreement on mediation and Appendix 2 of the DECISION 1 – The arbitration clause.   What this means for parties in civil disputes in which one of the parties is the Republic of Croatia?   This means that from the State budget will have to be paid 50% of the total cost of all these contractual arbitrations and mediations, which is expressly provided for as to the costs of arbitration in Art. 6 of the Annex 3 of the DECISION 1 – An arbitration agreement, and regarding the cost of mediation in the Art. 8 of the CCC Board’s decision on the costs of the mediation proceedings, of 30 November 2011 (hereinafter: Tariff CFM CCC – Annex No. 4 of this declaration), and for both of the above mentioned categories of costs confirmed by Art. XI. DECISION 1: “The funds required for the implementation of measures and practices in this decision will be provided in the state budget at the position of the state government body in whose jurisdiction the dispute arises.”     What are those future costs of arbitration and mediation? First things first.     II      The Croatian State Attorney’s Office in its Information about court proceedings in which the Republic of Croatia is a party with the proposed measures to reduce their numbers, drawn on 08 May 2012 at the request of the Croatian Ministry of Justice (hereinafter: INFORMATION – Annex No. 5 of this declaration), as the starting point for its analysis of the data took 2011 disputes in which one of the parties was Croatia, so we will do the same.   Using the INFORMATION of 08 May 2012 and the Annual report of the Croatian State Attorney’s Office for 2011, also of May 2012 (hereinafter: STA REPORT for 2011 - Annex No. 6 of this declaration), we found out that the number of civil cases in which one of the parties is the Republic of Croatia is on the rise, and that these disputes in 2011 before national courts were 7,365 in total, of which in 2,792 disputes Croatia was a plaintiff, and in the remaining  4,573 a defendant.   Moreover, in 2,792 domestic disputes in which Croatia in 2011 was the PLAINTIFF, total value of financial claims that are the subject of these disputes (hereinafter: VPS) is 719,884,000.00 HRK:   1) in    228 commercial disputes, the total VPS is 334,685,400.00 HRK,   2) in 2,564 disputes before municipal courts, the total VPS is 385,198,600.00 HRK.     In 4,573 domestic disputes in which Croatia in 2011 was the DEFENDANT, the total VPS is 2,321,865,000.00 HRK:   1) in 193 commercial disputes, the total VPS is 1,802,579,000.00 HRK,     2) in 4,380 disputes before municipal courts, the total VPS is 519,286,000.00 HRK.   All the above statistics are determined by examining the upper chart on p. 72 of the STA REPORT for 2011 and Tables 34a and 43 on p. 158 and 167 of the STA REPORT for 2011, the contents of which the author of this declaration previously thoroughly checked, while in turn checking the statistical data provided in the text of p. 67-74, 81 and 116 of the STA REPORT for 2011 identified a number of errors in the writing of numbers, which the author of this declaration determined by comparing the observed with the correct information contained in the above mentioned chart and tables.   In 2011 the State Attorney’s Office has represented Croatia in only 4 proceedings before foreign courts, while on the other hand in 2011 there were no arbitration proceedings with an international element in which the Republic of Croatia was a party, but only 7 foreign investors contacted the State Attorney’s Office with a request for a settlement before initiating arbitration.   Thus, the total number of disputes with an international element in which Croatia is a party is negligibly small – in 2011 only 11 and so later in this statement all amounts of arbitration costs will be calculated using the Tariff No. 2 Paragraph 2 of the Art. 8 of the CCC Board’s decision on the costs of the arbitration proceedings, of 30 November 2011, which is the prescribed tariff for the arbitrators of the PAC CCC for arbitration without an international element (hereinafter: Tariff PAC CCC – Annex No. 7of this declaration).

TYPE

of

COURT

Croatia

PLAINTIFF

Croatia DEFENDANT

Average VPS

(kn)

Average VPS

(EUR)

No. of

disputes

Total

VPS

(000 kn)

No.   of

disputes

Total

VPS

(000 kn)

Croatia

PLAINTIFF

(kn)

Croatia

DEFENDANT

(kn)

Croatia

PLAINTIFF

 (EUR)

Croatia

DEFENDANT

 (EUR)

1

2

3

4

        5 = 2/1          6 = 4/3

7 = 5/SR*

  8 = 6/SR*

COMMERCIAL    228 334,685.4    193 1,802,579 1,467,918.42 9,339,787.56 195,022.12 1,240,849.04
MUNICIPAL 2,564 385,198.6 4,380    519,286    150,233.46    118,558.45   19,959.45      15,751.23
Total 2,792 719,884 4,573 2,321,865         -        -       -       -

* SR = Sales rate of Croatian National Bank for EUR on 09 August 2012 = 7.526933 HRK / € 1.00    Total cost of the arbitration (TACARB) is always made up of three components. These are: 1) award of a sole arbitrator (AW 1) / arbitration panel of three arbitrators (AW 3), 2) administrative expenses (AE 1 / AE 3), 3) enrollment fee (EF).

VPS

(EUR)

AWARD OF A SOLE ARBITRATOR

AW 1

    (EUR)**

AW 1 = C + (VPS – A) x D/100

FROM

A

TO

B

BASIS

C

%

D

-

5,000

300

-

5,000

20,000

300

3

20,000

50,000

750

2

50,000

100,000

1,350

1.5

100,000

500,000

3,150

0.75

500,000

2,000,000

6,150

0.35

2,000,000

-

11,850

0.15

** Tariff No. 2 Par. 2 of the Tariff PAC CCC The minimum reward for an arbitration panel of three arbitrators, which will decide in cases where the VPS is higher than € 100,000.00 (Art. 14 Par. 2 of the Rules of Arbitration of the CCC PAC, of 30 November 2011, below: Arbitration Rules – Annex No. 8 of this declaration), amounts to 250% of the fees for 1 arbitrator, i.e. AW 3 = 2.5 x AW 1 (Tariff No. 4 Par. 1 of the Tariff PAC CCC).   Administrative expenses shall be 20% of the reward of a sole arbitrator, i.e.                          AE 1 = 0.2 x AW 1, while for the arbitration panel of three arbitrators shall be 10% of the fees for three arbitrators, therefore N x 0.1 x 2.5, i.e. AE 3 = 0.25 x AW 1 (Tariff No. 6 of the Tariff PAC CCC).   Enrollment fee (EF) is the same for all cases and amounts to € 200.00 x 1.03, i.e. € 206.00(Tariff No. 1 of the Tariff PAC CCC).     Thus, the total average cost of 1 arbitration (TACARB) = AW 1/3 + AE 1/3 + EF, and is calculated using the following formula:   1) TACARB = 1.20 x AW 1 + € 206.00    - if the VPS is up to € 100.000,00   2) TACARB = 2.75 x AW 1 + € 206.00    - if the VPS is higher than € 100,000.00

TYPE

of

COURT

Average VPS

(EUR)

AW 1

award of a sole arbitrator

(EUR)

TACARB

total average cost of

1 arbitration

 (EUR)

Croatia

PLAINTIFF

 (EUR)

Croatia

DEFENDANT

 (EUR)

Croatia

PLAINTIFF

 (EUR)

Croatia

DEFENDANT

 (EUR)

Croatia

PLAINTIFF

 (EUR)

Croatia

DEFENDANT

 (EUR)

1

 2

3

4

         5          6
COMMERCIAL 195,022.12 1,240,849.04

3,862.67

8,742.97

 10,828.34    24,249.17
MUNICIPAL   19,959.45      15,751.23

  748.78

   622.54

   1,104.54         953.05
Total       -       -          -          -         -        -

TOTAL COST OF ARBITRATION (TOTCARB) = TACARB x No. of disputes

TYPE

of

COURT

TACARB

total average cost

of 1 arbitration

 (EUR)

No. of disputes

TOTCARB

total

cost of arbitration

(EUR)

Croatia

PLAINTIFF

 (EUR)

Croatia

DEFENDANT

 (EUR)

Croatia

PLAINTIFF

Croatia

DEFENDANT

Croatia

PLAINTIFF

 (EUR)

Croatia

DEFENDANT

(EUR)

         1          2

3

4

     5 = 1 x 3     6 = 2 x 4
COMMERCIAL  10,828.34    24,249.17         228           193 2,468,861.52 4,680,089.81
MUNICIPAL    1,104.54         953.05      2,564        4,380 2,832,040.56 4,174,359.00
Total         -        -      2,792        4,573 5,300,902.08      8,854,448.81

Thus, the total annual cost of arbitration at the Permanent Court of Arbitration at the Croatian Chamber of Commerce in cases where Croatia is a PLAINTIFF will amount to approximately € 5,300,000.00, and in cases in which Croatia is a DEFENDANT will amount to approximately € 8,850,000.00, i.e. app. € 14,150,000.00 in total for all Croatia’s disputes, which converted into HRK using the applicable sales rate of 7.526933 HRK /1.00 €, amounts to app. 106,500,000.00 HRK.   III      Total cost of mediation (TCM) is also always made up of three components. These are: 1) award for mediators (AM), 2) administrative expenses (AE), 3) registration fee (RF). The award for every mediator involved in the mediation is 1,200.00 HRK gross for each day of mediation (Art. 4 Tariff CFM CCC). According to data from Internet sites like one belonging to the Mediation Centre of the Croatian Employers’ Association (hereinafter: Information about mediation – Annex No. 9 of this declaration), mediation lasts a minimum of 2-3 days, and that only in simple cases, so we will calculate a minimum award of mediators by using an award for one mediator for three days of mediation, totaling 3,600.00 HRK. Furthermore, the administrative costs for 1 mediator are 20% of his award (Art. 5 of the Tariff CFM CCC). So AM + AE amounts to at least 1.20 x 3,600.00 = 4,320.00 HRK. The registration fee (RF) is the same for all disputes and costs € 120.00 (Art. 3 Tariff CFM CCC), which translated into HRK, using the applicable sales rate of 7.526933 HRK /1.00 €, amounts to app. 900.00 HRK. Consequently, the total minimum cost of 1 mediation (TMCMED) = AM + AE + RF = 5,220.00 HRK.   Total minimum annual cost of mediation in disputes in which Croatia is a party will amount to approximately 5,220.00 HRK x 7,365 (the total number of disputes in which Croatia was a party in 2011), i.e. app. 38,445,000.00 HRK.   So, the minimum total annual COSTS of MEDIATION AND ARBITRATION on the basis of the DECISION 1 will amount to 106,500,000.00 + 38,445,000.00 HRK, i.e. app.  145 million HRK, of which amount from the Croatian state budget will have to be paid 50% - app. 72.5 million HRK per annum. IV     Who will be damaged?   First of all, the Croatian State budget will be damaged for a minimum amount of 72.5 million HRK per year, which is not only harmful, but also completely unnecessary, since the State Attorney’s Office without any financial investment more than successfully concludes extrajudicial settlements in cases in which Croatia is a party.   Thus, for example, from p. 106 of the STA REPORT for 2011, as well as p. 8 i 9 of the INFORMATION is evident that in accordance with Art. 186 of the Code of Civil Procedure, on the basis of requests for a settlement of potential plaintiffs filed with the State Attorney’s Office and requests that the State Attorney’s Office has filed on behalf of Croatia to potential defendants, the State Attorney’s Office in 2011 concluded 1,499 extrajudicial settlements worth 140,813,800.00 HRK, which is 12.39% higher compared to 2010, while, in the words of the Chief State Attorney Mladen Bajić himself, “not a HRK of budget was invested, neither  increased the number of deputies or advisers, nor invested in their professional training”.   The Chief State Attorney Mladen Bajić further on p. 9 of the INFORMATION suggested Minister of Justice that the additional funding needed for the conclusion of an even greater number of extrajudicial settlements, whose conclusion would significantly save the Croatian State budget on costs and rates of litigation that the Republic of Croatia in the courts would partially or entirely lose, could be provided from the court fees and litigation expenses collected by the State Attorney’s Office during the representation of Croatia in litigations, i.e. without new expenses for the State budget.   Furthermore, it will damage the Croatian judiciary in general. Specifically, the Minister of Justice Orsat Miljenić, by introducing the obligation of the arbitral resolution of all disputes in which Croatia is a party, seeks to avoid regular judicial procedures, forcing the arbitration in which: – Arbitrators shall not be liable for any irregularities in their proceedings, – Parties are not guaranteed their constitutional right to an appeal against an arbitral decision,   thereby violating by the Croatian Constitution prescribed separation of powers, because it is not guaranteed by anything the QUESTIONABLE INDEPENDENCE of the arbitrators.   Why questionable?   Because the vast majority of the arbitration judges, elected by the arbitration parties including Croatia as one of them, are professors of law schools, judges of the ordinary courts and other state officials, who all receive their salary from the State budget of the Republic of Croatia – one of the parties in all arbitration proceedings in which they should decide impartially, and therefore is highly questionable to what extent can so elected judges be independent in deciding the arbitration proceedings in which Croatia is one of the parties.     V       Who is favored?   Minister of Justice, above all, favors its external business associates and subordinates in his ministry, among which are: 1) Professor Ph. D. Mihajlo Dika from the Zagreb Law school, who was also the president and only professor of law in the working group of the Ministry of Justice for creating a “new”, but actually copied old Enforcement act, and is the current president of the Permanent Arbitration Court at the Croatian Chamber of Commerce, with the authority that in all cases in which the Republic of Croatia and the other parties do not agree on the identity of the arbitrator SOLELY APPOINTS a sole arbitrator or a presiding third arbitrator, i.e. those arbitrators whose voice is crucial for the content of  arbitral decision (Art. 16 Par. 2, Art. 17 Par. 3 and Art. 19. Par. 2 of the Arbitration Rules).   Professor Ph. D. Mihajlo Dika is also: – an arbitrator of the PAC CCC in the proceedings with an international element,an arbitrator of the PAC CCC in the proceedings without an international element, – a mediator at the MC CCC (See list of arbitrators of the PAC CCC in procedures with and without an international element and the list of mediators of the MC CCC, below: LISTS OF ARBITRATORS AND MEDIATORS – Annex No. 10 of this statement).   2) Ph. D. Vanja Bilić – from January 2012 until the present Assistant Minister of Justice, i.e. a senior official of the Croatian Ministry of Justice, whose minister proposed Croatian Government the introduction of obligatory arbitration in resolution of all disputes in which one of the parties is Croatia, as well as the head of Administration of the Ministry of Justice for civil, commercial and administrative law, responsible for the preparation of all regulations governing civil procedures, including the preparation of the DECISION 1. Ph. D. Vanja Bilić is also an arbitrator of the PAC CCC in the proceedings without an international element, that is, in proceedings which constitute more than 99% of all arbitration proceedings in which Croatia will be a party before the Permanent Arbitration Court of the Croatian Chamber of Commerce on the basis of the DECISION 1, and also a mediator at the Center for Mediation of the CCC (LIST OF ARBITRATORS AND MEDIATORS), which means that in this case he is in the obvious and extreme CONFLICT OF INTEREST.     And in the end From all of the above, it is evident that the Minister of Justice Orsat Miljenić tries to establish a parallel court system by introducing the obligation of the arbitral resolution of all disputes in which Croatia is a party at the Permanent Arbitration Court of the Croatian Chamber of Commerce, to which Court will the Minister of justice exercise influence through control of the appointment of arbitrators whose voice will be crucial for the content of arbitral decisions – the sole arbitrators and the presidents of arbitration panels. Appointed arbitrators will be regularly those close to the Minister of Justice, earning very well from these arbitrations, and all at the expense of the State budget and other parties in those proceedings, who will have to pay in advance 50% of the total cost of arbitration proceedings each, what will the State budget, together with the costs of mediation, cost app. 72,500,000.00 HRK annually. Finally, it should be noted that from the State budget, pursuant to the DECISION 2, will be funded also the 50% of the total costs of arbitration and mediation in all disputes in which one of the parties to the dispute is a Croatia owned company, Croatia majority-owned company or a legal person with public authorities, since that in this region the director of the public company or the head of a legal person with public authorities who would not comply with the recommendation of the Government, would soon be sacked. To estimate that annual amount of the total cost of arbitration and mediation, Croatian Association of Public Bailiffs were not available the necessary statistical data, but the amount concerned can only be higher than the above 72,500,000.00 HRK per annum for disputes in which one of the parties is the Republic of Croatia.   In conclusion, Croatian Association of Public Bailiffs hereby publicly and openly asks Prime Minister Zoran Milanović to immediately remove Orsat Miljenić from the office of the Croatian Minister of Justice, in order to prevent that the same Minister further uses the Croatian Government as a tool for passing by-laws such as the DECISION 1, 2 and 3, and for making Parliament bills like the “new”, but actually copied old Enforcement Act of 1996, which benefit only the minister Miljenić’s outside business associates and subordinates, simultaneously causing tens of million HRK serious property damage to the State budget, and debtors and creditors in civil litigations and enforcement proceedings.   The Croatian Association of Public Bailiffs:   Vedran Vidmar Vice President

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