Case analysis, reports and campaigns in the field of ethics and compliance

A CORPORATE–JUDICIAL AFFAIR IN BiH part 1

JUDICIAL INEFFECTIVENESS IN THE SERVICE OF INDIVIDUAL UNJUST ENRICHMENT

Net Consulting d.o.o. presents, for domestic and international public, one of the biggest and, under international criteria, the boldest professional fraud ever in Bosnia and Herzegovina. What is original about this case of abuse of power is the fact that it would not be possible but for extensive and synchronized complicity by the Municipal and Cantonal courts in Mostar. Readers in BiH probably read words like “boldest” and “original” abuse of power, and wonder what is so original or bold about this act. The citizens do not trust the judiciary for the most part, and are used to numerous scandals involving collusion between businesses and the judiciary. So to them, this is old news.

However, as this text is intended for international readers as well, it is important to stress that they will likely find it unheard of and incomprehensible that courts of justice can be abused in such manner. Thus, it is important to explain the case in a way that they can fully understand.

The abuse of power we will present here proves by illustration that the judiciary in BiH is devolving even the last inklings of legal certainty in BiH. Message that this sends to all foreign investors is that they are welcome here, but only as prey. According to expert economists’ opinions, actions of the judiciary in this case will inevitably lead to a drastic decrease in foreign investments in BiH, as well as a likely retreat of existing investments. In turn, a domino effect of consequences is likely to ensue for all sectors of the country’s economy.

In order to ensure uniform understanding of the text, and to avoid inadvertent marketing, we will not be using the names of the companies involved. Instead, we shall refer to the party that the Court in Mostar favors: the local builder, and the party that the Court discriminates against will be referred to as: the international bank.

Short description of the facts:

The local builder applied for, and concluded a multi-million financing agreement (loan) with the international bank, to build a residential-commercial building complex in Mostar. After some time, he was defaulting on the deadline for finishing the construction and could no longer make his regular payments to the bank. So, the local builder thought of a creative way to not only avoid paying back the loan, but at the same time to fabulously enrich himself, and cause damage to the international bank.

He filed a lawsuit in the Municipal court in Mostar, claiming that it was the international bank’s fault that he (the local builder) did not sell all the real estate as originally planned. As compensation for his losses, he demanded that the international bank pay him the sale value of the original real estate contracts. In addition, his claim included what can only be called a “kitchen sink” of invented terminology as damages, using concepts that are non-existent in either legal or economic sectors. All in all, total damages demanded reached several tens of millions of BAM.

The local builder’s main claim is that the international bank in its written agreement with the local builder, also expressed interest in offering financing agreements to future potential customers who were purchasing apartments and commercial real estate in that building. The specific relevant language in the contract states that in order to take advantage of the bank’s offer, future buyers must submit a notarized purchase agreement for the real estate and be deemed creditworthy. This process represents standard operating procedure in bank financing agreements. It is a process required by law and regulated by the rules of the Banking Agency of the Federation BiH. The rules prohibit banks from approving loans to individuals who do not fulfill creditworthiness criteria.

On 14th of March 2014, the local builder filed his lawsuit at the Municipal court in Mostar. As proof of his claim, he included numerous so-called “pre-contracts,” between him and his buddies from Mostar. These pre-contracts were drafted in the local builder’s office and had not been notarized. In most cases, they never applied for financing with the international bank for the purchase of the real estate. Based on the documents, the international bank’s attorneys and legal experts concluded that the lawsuit was completely baseless, and that it was only one more way that the local builder was trying to distract from having to pay back his obligations toward the international bank.

In addition, “pre-contracts” for sale of real property that are not notarized are null and void, and as such they cannot form the basis for a sale of real property. At most, they can be considered as notes by future contracting parties on agreed upon issues. Consequently, the international bank did not get too concerned about the lawsuit, seeing as the claims presented included NO valid argument.

In fact, the opposite happened. The first and second-instance Courts in Mostar (Municipal and Cantonal, respectively) processed the claim expressly, in favor of the local builder. In terms of damages, they added the values of the null and void pre-contracts (notes’) and held the international bank liable for payment of several tens of millions of BAM in compensatory damages to the local builder.

The local builder filed a request for enforcement of the judgment only three days after the judgment was issued. The court granted the local builder’s request and ordered enforcement within 30 days, thereby forcing the international bank to pay the ordered damages.

The paradox is even greater if we consider that the international bank, by paying damages to the local builder, in effect paid him for the value of the null and void real property pre-contracts mentioned above. But, the property in question still remained under ownership of the local builder, and he was free to sell it again. This in effect doubled the value of the profits of the local builder’s unjust enrichment.

The role of the Municipal and Cantonal courts in Mostar:

At first glance, you may be inclined to consider the local builder’s plan intelligent or well planned. However, upon a bit of reflection, it becomes clear that the idea was absolutely not as masterful. On the contrary, the idea itself was very rudimentary and unsophisticated. Some of the famous cases in Europe have taken authorities years to understand and be able to deconstruct a particular abuse of power scheme. They were so well developed it was impossible to expose them for a very long time.

Here on the other hand, the substance of the lawsuit in question was irrelevant. Just like it was irrelevant if it was well founded, or argued reasonably. The only important factor in the scheme is that you have the courts on your side and they support your (mal)intent. Taking the logic of this case to an extreme, one can see how each of us can find itself in a life catastrophe, where for example your neighbor unfoundedly takes you to court and demands that you vacate the premises. He claims that your apartment is in fact his.
You might find it funny at first, reading the charges, but you would nonetheless have to show up in court when summoned to defend yourself, or the court would issue a default judgment against you.

Staying with the same scenario, next, you would have several court proceedings, where you still cannot believe that this is happening to you. But, the judge who is behaving contrary to the rules, issues a verdict based on clearly and manifestly false facts, holding that your apartment does in fact belong to your neighbor.

Of course, you complain to the court of appeals, but to your even greater surprise, that court confirms the original court’s judgment, transferring ownership over your apartment to your neighbor. The same neighbor who just out of the blue decided to falsely claim your property as his in court.

After the court in the second-instance (appellate court) issues its verdict, you must vacate the premises. If you defy the verdict and refuse to vacate, a court order is issued and police comes to your door with a court order to evict you from your own apartment. The police has no jurisdiction over the legitimacy of the judgment, they are merely the “executors” of court orders.

A cherry on top of it all comes after you find out that because you lost the case, it is now your responsibility to pay for ALL expenses connected to the case. This includes the judges’ fees and court expenses, as well as both your and your neighbor’s attorneys’ fees. Again, it is that same neighbor who just seized your apartment.
It is reasonable that it may be difficult to imagine a scenario such as the one described above as being even remotely possible. But these are the facts, regardless of how incredible they sound.

The distrust and fear that such abuse of power by the judiciary embeds into the bones of every ordinary citizen or a business entity is devastating for the society as a whole.

Case chronology:

We use this opportunity to present only a short chronology of events and instances of judicial abuse of power, for readers’ reference. This timeline clearly shows the big picture, elements of the overall scheme that is the subject of this case. We will be presenting each in greater detail in this series:

– 14.03.2014 the local builder files his complaint against the international bank in the Municipal court in Mostar

– 15.01.2016 the Municipal court in Mostar issues a judgment against the international bank for multi-millions in damages. The court’s expedience in this case was surprising and unprecedented. Compared to the standard several years, it only took one year and one month for the Court to arrive at a judgment in this case.

– 01.06.2016 the Cantonal court in Mostar issues a judgment in the second-instance (appellate), confirming the Municipal court’s judgment and holding against the international bank for multi-millions in damages. The Cantonal court only took 4 and a half months to hear and deliberate the case and agree on a verdict. In comparison with the standard practice in Mostar and in other courts in BiH, such expedience in reaching an appellate decision in this case is unprecedented as well. The Court in Mostar requires on average several years to decide on a case ordinarily.

-04.06.2016 on the basis of the appellate verdict, the local builder files a request for enforcement of the judgment against the international bank with the Municipal court in Mostar. The Court should have denied the local builder’s request as premature. Namely, the court’s judgment included a 30-day time frame for voluntary compliance. On that basis, the court should have denied the local builder’s request.

– 05.07.2016 The Municipal court in Mostar grants enforcement of the judgment against the international bank, even though as described above, it should have dismissed the request as premature. Even this is an example the courts’ express action in this case (in only 1 month), as compared to the average and the length of time ordinarily required to decide other cases in the same court.

– 07.07.2016 The international bank seeks revision with the Supreme court of BiH appealing the second-instance judgment.

– 13.07.2016 The international bank makes a bank transfer in the amount of several million BAM to the local builder, complying with the order of enforcement by the Municipal court in Mostar.

Note: Revision with the Supreme court does not delay enforcement of valid appellate judgment, thus the international bank had to pay the amount adjudicated immediately. This well-known legal norm – an obligation to comply with a legally valid judgment, will be an important bit of information further down in the text, so we ask that the reader memorizes this fact.

– 05.10.2017 The Supreme court of the FBiH issues a judgment in third-instance in favor of the international bank, dismissing the first and second instance judgments as unfounded and denying the local builder’s request for order of enforcement. This verdict renders invalid also the payment of the international bank per the enforcement order to the local builder. Therefore, the local builder becomes liable for repaying that amount to the bank at this point in time.

– 18.10.2017 The international bank files a request for counter-enforcement against the local builder with the Municipal court in Mostar, demanding the return of multi-millions BAM it paid out in compliance with that court’s enforcement order.

– 25.01. 2018 Three months passed from the filing of the counter-enforcement request before the Municipal court in Mostar first issued its decision, denying the request of the international bank. The same request that was granted to the local builder in 1 month, took 3 months to reject.

– 11.09.2018 Eleven months passed from the filing of the counter-enforcement request before the Cantonal court granted an appeal by the international bank, and granted counter-enforcement against the local builder. The appeals process lasted 7.5 months from the date of filing. Unsurprisingly, this is almost double the time it took the same Court to decide in favor of the local builder in the appeal of the original court’s judgment.

– 12.10.2018 Twelve months after the start of the fight for counter-enforcement, the Municipal court in Mostar issued an order for counter-enforcement, complying with the decision of the Cantonal court. This process lasted one month.

NOTE: At this point, the international bank thought they were finally in the clear, and considered the case closed. However, as will become clear, the local builder has more “good luck” with the courts than it may seem to be the case.

– 24.10.2018 the local builder files an objection to the decision of the Municipal court in Mostar for counter-enforcement in favor of the international bank.

-01.11.2019 The international bank files its response to the objection, on its own volition and self-initiative. The bank saw the objection filed in the CMS system, and responded preemptively in order to speed up the process and prevent further undue delay and waste of time.

24.07.2019 21 months after the beginning of the fight for counter-enforcement, and whole 9 months after the Municipal court in Mostar received the request, the international bank receives information about the complaint by the local builder. The information requested a response to the objection, even though the bank had already responded through the CMS system.

Here too is an example of unacceptable abuse of power through delay and waste of time. The fact that it took 9 months for a process that involves merely delivering a letter to the bank is unacceptable. This is also significantly longer than the usual length of the court proceedings in other similar cases.

– 26.07.2019 The international bank again delivers a response to the objection to the Municipal court in Mostar.

– Until today, 11.11. 2019 25 months after the start of the fight for counter-enforcement, no decision has been issued regarding the above-mentioned objection. In turn, the process of enforcing the order for counter-enforcement has not yet started. At this point, 13 months passed since the Cantonal court approved the request for order of counter-enforcement by the international bank. A whole 25 months passed since the Supreme court of FBiH for the first time dismissed the first and second instance judgments in favor of the local builder and rejected the above-mentioned claims by the local builder as without merit and unfounded.

NOTE: The delays and waste of time are apparent here as well, considering that the same process which took 25 months to complete in this case, was completed in 30 days when the court granted local builder’s request for enforcement of the judgment of several tens of millions of BAM.

– The international bank is suffering enormous damages as a result of all this. Their losses are two-fold: its money is seized illegally by the local builder, who refuses to return it. In the meantime, the local builder has been actively working to minimize his known assets, which the international bank could use to eventually recoup at least some of the losses it experienced by this gross abuse of power by the Municipal and Cantonal court in Mostar.

NOTE: The Municipal court in Mostar is well aware of these activities as there is a series of court proceedings between the local builder and the international bank in its courts regularly.

Suspension of the Supreme court of FBiH:

The international bank repeatedly urged the Municipal court in Mostar to take the matter of counter-enforcement request under advisement, with regular follow up contacts and communication. The Court continued to invent justifications for its lack of activity in this case, employing different technical, illegitimate as well as justifications that represent violations of the Law on enforcement procedures.

Examples include changing presiding judges several times, each time preventing the case to get on the docket, or files were sent to a different court by mistake, or the plaintiff’s objection had not been filed in the CMS system by mistake, so nobody was able to respond. At other times, the presiding judge was on sick leave, then the presiding judge was on holidays. The Court even went so boldly as to state expressly that it is just not longer interested in this case. “We are no longer interested in that case” is a word by word quote from a response received to a follow up on the status of the case.

All of this has been made possible with the help of a number of judges rotated by the Court from court to court, placed strategically, to persistently and with an incredible stamina continue to defend the illegal interests of the local builder.

The Municipal court in Mostar and the judge presiding over the case have abused their discretionary autonomy, which is afforded to them by the virtue of their public position as a judge, to do something truly unbelievable. They managed to hijack the legal validity of the judgment of the Supreme court of FBiH, thereby positioning themselves above the Constitution. In line with that, they took it upon themselves to put a hold on the counter-enforcement request, probably until the Constitutional court issues a judgment on the appellate motion by the local builder.

In December 2017, the local builder filed his appeal with the Constitutional court of BiH, contesting the verdict of the Supreme court of FBiH from October 2017. It is a well accepted norm that the verdict of the Supreme court is legally valid and that appellate procedure does not delay enforcement of Supreme court judgment.

NOTE: Now recall that part we asked you to memorize above. The Court applied the principle of obligatory and efficient compliance with valid judgment on the international bank’s payment of damages to the local builder. As a result, express enforcement and payment ensued. Here, on the other hand, the judgment of the Supreme court of FBiH is in favor of the international bank, and the Municipal court and the presiding judge decided discretion to suspend the legal validity of the Supreme court’s judgment and decide on their own to put a hold on the enforcement of the counter-enforcement request. With this act, they mirrored the legal system of the Federation of BIH and effectively eliminated the role of the Supreme court of the Federation of BIH.

It is a well known rule that evidence whose existence is so obvious does not have to be proven with specificity, because it is so obvious. In this case, it is clear and obvious that the Municipal and Cantonal court in Mostar discriminated against the international bank by depriving them of due process.

First, the court processed the case of the local builder within 4.5 months, as compared to the 3 or 4 years, which is how long a similar process lasts in the same courts. In addition, the Court is dragging out the counter-enforcement over 25 months, using the most incredible excuses for the delay.

The editors of Net Consulting do not have evidence of any of the judges taking bribes in the sense of committing a criminal act of corruption. However, it is indisputable that corruption occurred in this case, in the sense of the requirements of the Strategy against corruption in BiH. Namely, the strategy defines corruption broader than the criminal act and includes a broad spectrum of irregularities and unprofessional behavior that can create a qualified risk of corruption in the broader sense of professional irregularities, as well as the narrow circumstances that create the risk of the criminal act of corruption.

The judge presiding over the case of request for counter-enforcement stands in the middle of the zone of qualified risk of existence of criminal act of corruption. This specific type of risk is not addressed by any corrective measures by the institutions in charge.

The president of the Municipal court in Mostar has the ultimate responsibility for the Court and for the reputation of the Court. She, as far as we know, has thus far done nothing to address the unprofessional behavior of the presiding judge in this case. Another institution in charge is the main disciplinary prosecutor of the VSTV. The third institution, or the first one, depending on the angle, is the Office of the prosecution of BIH. Considering that all circumstance point to the fact that the Cantonal office of the prosecutor cannot be considered objective in this case, it is appropriate that the FBiH prosecutor be informed and takes action.

Consequences for the society:

In BiH, it is very rare that one single person, solely on account of their own personal actions causes as much damage to the legal certainty of investments as the presiding judge in this case has managed. Economic consequences of this judiciary scandal can be considered as a threat to the vital national interest of the Federation of BiH with far-reaching consequences for its economic stability. This brutal pillaging of a foreign international investor, enabled and made possible by the judicial system itself, the same system that is supposed to protect the interests of justice and truth, will send a message whose negativity will likely exponentially outweigh positive messages we are trying to send from BIH to the world.

End of part one.

Net Consulting d.o.o. monitors and analyses business processes and practice, conflicting business relationships, administrative judicial procesess, and identifies irregularities that damage legitimate and legal corporate interests of clients. This text is published with consent of the damaged party in this case. Net Consulting d.o.o. confirmed the veracity of all claims in the text with secondary documentation and other material proof.

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