Category: Serbia

Amendments and supplements to the Customs Law, enacted in December 2022, amended the misdemeanour provisions for violations of this law. The amendments introduce greater certainty regarding the misdemeanour liability of importers and customs representatives for submitting customs declarations and accompanying documents with the goal of legitimate con­ducting of customs procedures. In this ar­ticle we present our interpretation of the respective amendments.

In the following articles we intend to fur­ther analyse practice of the misdemean­our courts of the Republic of Serbia and EU courts in relation to the liability of im­porters and customs representatives for actions or omissions that could result in incorrect tariffing of goods.

1. The Concept of Incorrect Tariffing of Goods

Pursuant to the Article 139 of the Customs Law (“Official Gazette of the RS”, no. br. 95/2018, 91/2019 – other law, 144/2020, 118/2021 and 138/2022; henceforth: CL) all goods intended to be placed in a customs procedure, except in the free zone procedure, must be included in a declaration for the respective customs procedure.

When importing goods into the customs territory of the Republic of Serbia with the in­tention of placing the goods into free circulation on the Serbian market, a declaration for placing the goods into free circulation must be submitted. A declarant must possess all data required for legitimate conducting of customs procedure (cases of submission of regular and simplified customs declaration). Since placing of goods into free circulation may be subject to payment of customs duties, whereby the customs debt occurs at the moment of acceptance of the declaration by the customs authorities (Article 65 Para­graph 2 of CL), the declaration to be submitted on this occasion must encompass all of elements, required for determining customs duties.

That is, above all, the tariff code of goods from the valid Customs Tariff Nomenclature, which the Government of the Republic of Serbia, on the basis of the Article 8 paragraph 3 of the Law on Customs Tariff (“Official Gazette of the RS”, no. 62/2005, 61/2007, 5/2009, 95 /2018 – other law and 91/2019), harmonizes with the Combined Nomenclature of the European Union by way of adopting an ordinance no later than in November of the current year for the following year (currently in force is the Ordinance on Harmonization of the Customs Tariff Nomenclature for the year 2023 (“Official Gazette of the RS”, no. 132/2022 and 141/2022 – corr.).

The tariff code to be entered in the cus­toms declaration must correspond to the nature of goods which are subject of the customs procedure of free circulation. If this is not the case, we are dealing with classification of goods under the incorrect tariff code – classification of the goods in tariff code with lower customs rate results in collection of lower amount of customs duties and VAT by customs authorities (incorrect tariffing of goods).

Import formalities by the import of goods, including filling and submission of the cus­toms declaration, are in business practice conducted by customs representatives on behalf of importers. As the law sets forth misdemeanor sanctions for incorrect tar­iffing of goods, the question is, who in the event of such misconduct bears misde­meanor responsibility – the importer, the customs representative or both.

2. Previous Customs Law and Court Practice

In court practice, rendered in the period of validity of the previous Customs Law (“Official Gazette of the RS”, no. 18/2010, 111/2012, 29/2015, 108/2016 and 113/2017 – other law; henceforth: Previous CL), misdemeanor courts, in cases where direct customs representation was contracted, regularly declared importers liable for incorrect tariffing, because they acted in the capacity of declarants (e.g. judgment of the Misdemeanor Appellate Court, no. Prž 908/2020 as of 27 January 2020).

However, in our practice we also came across judgments in which different standpoints on this issue were taken compared to the earlier court practice. In all of these cases the importer has contracted direct representation with the customs representative.

The previous CZ in its Article 294 Paragraph 1 Item 5 prescribed as a misdemeanor failure to insert in the declaration all the data on the goods, which are decisive for determining the tariff classification according to the nomenclature, or entering in the declaration a tariff code that is inadequate in relation to the data on nature of the respective goods, whereby such actions cause or may cause payment of import duties or other fees in a lower amount. 

In two more recent judgments that we received, the court took a stance that only the customs representative can be held responsible for the aforementioned misdemeanor, since he was the one who completed the customs declaration and entered the tariff code therein, which was subsequently determined as incorrect, respectively that the importer and the authorized person of the importer did not participate in the customs clearance procedure and consequently they could not be held responsible for such violations, since they did not even enter the data of the goods in the declaration.

In the third judgment that we received, the court indirectly took the position that in case of contracting direct representation both the customs representative and the importer are to be held liable for incorrect tariffing of goods respectively entering in­correct data in the customs declaration.

Such a stance, although taken while ap­plying the Previous CL, as a matter of fact already reflected solutions, enacted by the new/current CL.

3. The Current Customs Law

Article 12 Paragraph 2 Item 1 of the CL prescribes that the person lodging declaration, temporary storage declaration, entry summary declaration, exit summary declaration, re-export declaration, re-export notification, request for an authorization or any other decision, shall be responsible for accuracy and completeness of the information given in the declaration, notification or request.

Item 2 of the same paragraph of the same Article prescribes that obligation from paragraph 1 is also related to the authenticity, accuracy and validity of any document accompanying the declaration, notification or request.

Further, the Article 12 Paragraph 4 of the CL envisages that in the event, when the declaration, notification or request is submitted or information is provided by the customs representative in line with the Article 13 of the CL, the customs representative shall be bound by the obligations from the Article 12 Paragraph 2 of the CL. Hence, the customs representative shall also be held liable for accuracy and completeness of the data included in the declaration.

When it comes to customs representation, Article 13 of the current CL, similarly to the Previous CL, distinguishes between direct and indirect customs representation. While in the first case the customs representative acts in the name and on behalf of another person (principal/importer), in the second case the customs representative acts in his own name and on behalf of another person.

Our understanding is that the intention of the legislator is to harmonize CL with Regulation (EU) no. 952/2013 of the European Parliament and Council as of 9 October 2013 laying down the Union Customs Code (henceforth: EU Customs Code).

The current CL encompasses in the respective provisions nearly identical solutions as envisaged by the EU Customs Code.

EU Customs Code, in Article 15, prescribes that obligation of providing accurate and truthful information in the aim of correct application of the customs regulations have all persons, who are either directly or indirectly involved in performing customs formalities, hence importers as well as the customs representatives. It is explicitly stated that the customs representatives, when lodging customs declaration, are also bound by obligations related to accuracy and completeness of information in customs declarations as well as authenticity, accuracy and validity of documents accompanying the declaration.

This provision is rooted in the nature of relationship between the importers and customs representatives which fill out and submit customs declarations to the customs authority, respectively in the obligation between to the two to cooperate and deliver to each other complete and accurate data and information for the purpose of correct application of customs regulations.

To emphasise this correlation, EU Customs Code uses formulation “shall be also bound by obligations…”, whereby this formulation indicates that responsibility of both importers and customs representatives for fulfillment of the said obligations may exist.

In other words, in case of lodging a customs declaration responsibility for accuracy and completeness of the data contained therein and for authenticity, accuracy and validity of documents, responsibility may in principle be borne by both the importer and the customs representative, respectively neither of them will a priori be exempted from such responsibility merely on account of the fact that the parties have contracted customs representation, regardless of whether representation is direct or indirect or the fact that customs representative physically submits customs declaration to customs authority. 

Depending on the circumstances of individual case, either only the importer or only the customs representative or both will be held liable for incorrect tariffing of the imported goods.

Prior to the amendments enacted in December 2022 CL prescribed liability of a legal entity and responsible person in a legal entity in cases of:

1. accomplishing or attempting to accomplish payment of duties in a lower amount, preferential tariff treatment, exemption from payment of import duties, relief in payment of import duties and other fees, payment of reduced amount, refund or remission of duties or any other relief by way of presenting incorrect or untruthful data or in any other manner persuading the customs authority to a wrong conclusion (Article 266 Paragraph 1 Item 1 in connection with the Article 12 Paragraph 3 of CL before its amendments);
2. accomplishing payment of duties in a lower amount, preferential tariff treatment, exemption from payment of import duties, relief in payment of import duties and other fees, payment of reduced amount, refund or remission of duties or any other relief by way of presenting incorrect or untruthful data or in any other manner (Article 267 Paragraph 1 Item 2 in connection with the Article 12 Paragraph 3 of CL before its amendments).

As a result of supplements and amendments to the CL enacted in December 2022:

1. Article 266 Paragraph 1 item 1 became Article 265 Paragraph 1 Item 3;
2. Article 267 Paragraph 1 item 2 was deleted and CZ, after the amendments, prescribes in regard to conducting customs formalities the following actions as violations that could result in reducing the customs duties or accomplishing other reliefs (Article 266 Paragraph 1 Items 2 and 3).
   1. lodging a declaration or a temporary storage declaration, re-export declara­tion or a request for an authorization or any other decision, with incorrect or incomplete data stated in the declara­tion or with incorrect data stated in the request, except in case when such data have no influence on the procedure, initiated upon the declaration or re­quest, respectively in case of changes or supplements to the data in the dec­laration or changes to the data in the request, before undertaking any action by the customs authority in connection with the action or omission, i.e. before starting customs control;
   2. enclosing unauthentic, incorrect or invalid document to the declaration, temporary storage declaration, re-ex­port declaration or to the request for authorization or other decision.

According to the judgment of the Misdemeanour Appellate Court, Department in Novi Sad, III-306 Prž no. 18618/21, dated September 7, 2021, the wording in the Article 267 Paragraph 1 Item 2 (CL prior to the amendments enacted in December 2022) “presenting incorrect or untruthful data” implies potential liability of both the customs agent and the importer. The term “presenting” indicates an action or omission of the customs agent and the importer resulting in payment of customs duties in a lower amount.

In this specific case, the court took the stance that the importer is not responsible since he provided the indirect customs representative with all the information and documents of relevance for correct tariffing of the goods. Such stance indicates that the importer would be liable, had he not delivered all the necessary information and documents to the customs representative.

CZ, after the 2022 amendments, in its Ar­ticle 266 Paragraph 1 Item 2 instead of the wording “presentation of incorrect or untruthful data” encompasses the word­ing “lodging of a declaration or temporary storage declaration, re-export declaration or request for authorization or other de­cision, with incorrect or incomplete data provided in the declaration”. This wording indicates that either the customs repre­sentative who submits the customs dec­laration on behalf of the importer or the importer himself in the event of submitting the customs declaration by himself, could be held responsible for the act of lodging the customs declaration.

The importer could be held liable in cases of failure to provide the customs represen­tative with the required documents or in­formation of relevance for correct tariffing of goods (Article 266 Paragraph 1 Item 3 of CL) and failure to perform other obliga­tions related to fulfilment of the tariffing of goods-related customs formalities.

When it comes to the misdemeanour from the Article 265 Paragraph 1 Item 3 of CL both the customs representative and the importer could be held liable in case of intent of persons engaged by the customs representative and the importer to accomplish payment of duties in a lower amount through an action or omission that leads to lodging of a declaration with incorrect or untruthful data (complicity – Article 23 of the Law on Misdemeanours (“Official Gazette of the RS”, no. 65/2013, 13/2016, 98/2016 – CC decision, 91/2019, 91/2019 – other law and 112/2022 – CC decision; henceforth: LM) , incitement – Article 24 of LM or aiding – Article 25 of LM).

Correct application of regulations will largely depend on how the customs authorities will formulate requests for instigating misdemeanour proceedings, the evidences submitted along with the request as well as on how the courts will determine the relevant facts and the level of responsibility of importers and customs representatives.

By Ivan Milosevic, Partner, and Janez Voncina, Senior Associate, JPM & Partners

Two laws concerning the work and residence of foreign nationals in Serbia have been updated this July. The Serbian Parliament has adopted the amendments to the Law on Foreign Nationals (“LFN”) and to the Foreign Nationals Employment Act (“FNEA”). Among the main reasons for these amendments are harmonization with EU regulations and standards, as well as the current trend of increased presence of foreign workforce in Serbia, the need for which is expected to continue to be on the rise.

The amendments to the LFN and the FNEA have been adopted at the same time, since the main novelty of the two mentioned regulations is the single application procedure. Unlike the current situation, whereby the foreign national needs to obtain a residence permit prior to even applying for a work permit, during the single application procedure, the foreign national will be in position to obtain the residence and work permit at the same time – Single Permit. This will significantly simplify and shorten the entire administrative procedure, enabling foreign nationals to start working shortly upon their arrival to Serbia. The applications will be submitted electronically via a web portal designated for foreign nationals. The mentioned web portal is also a novelty introduced by the LFN that will include all information relating to entry, residence and work of foreign nationals in Serbia, and through which foreign nationals will be able to apply electronically for other requests as well, including issuance of visa and various types of residence permits (issued for purposes other than work), as well as renewal and modification of the Single Permit. It will be possible to obtain the Single Permit for the duration of up to three years, with the possibility of renewal, which is a significant extension compared to the current solution that enables foreigners to obtain a temporary residence permit and work permit for the duration of one year. The Single Permit will be issued in the form of a biometric document (card) that will also serve as an identification document. All the above mentioned should provide for a higher level of legal certainty for foreign nationals residing in Serbia and their equal treatment as domestic citizens when it comes to the right to work and choice of profession.

The LFN contains several more amendments that liberalize the entry into and residence of foreign nationals in Serbia, especially when it comes to application for a permanent residence approval. On the other hand, the aim of certain amendments relates to the security aspect and control of entry and movement of foreign nationals, taking into account that Serbia is faced with increased irregular migrations. To this end, apart from collection of biometric data, that has already been mentioned above, the LFN also regulates the obligations of the host who provides a foreign national with an invitation letter to Serbia, who will be obliged to bear the costs relating to the foreign national’s stay and possible removal from Serbia.

When it comes to the amendments of the FNEA, notable is the expansion of the list of categories of foreign nationals who do not require a work permit, i.e. Single Permit, in order to have the right to work in Serbia. These categories are grouped as follows: i) foreign nationals who reside in Serbia based on a temporary residence permit issued for purposes other than work (for instance family reunion, immovable property ownership, humanitarian reasons), ii) foreign nationals who reside based on other grounds (for instance permanent residence approval, approved asylum, privileges and immunities in accordance with ratified international agreements), and iii) foreign nationals whose stay in Serbia does not exceed 90 days during a 180 day interval (for instance owners, founders, representatives of legal entities registered in Serbia, who are not employed at the said legal entity, lecturers or researchers participating in organized professional conferences or research projects).

The National Employment Agency that was previously in charge for issuance of work permits will now be performing the evaluation of whether the conditions for issuance of a Single Permit, depending on the different grounds for work, have been met. The amendments generally provide for less demanding conditions, compared to the previous rules. The National Employment Agency will also be performing the labor market test, necessary in case when the grounds for work is employment.

It may therefore be concluded that the amended FNEA will lead to easier engagement of foreign workforce in a simplified and more efficient procedure.

The novelties introduced by the amendments to the LFN and FNEA will be applicable from February 1, 2024.

The world’s population is on the rise, increasing the demand for food. The United Nations estimates that the world population will reach 9 billion people in approximately 15 years; by 2050, it is expected to reach 10 billion people. This means there will be an additional two billion people to feed, necessitating farming and food production to become more efficient.

Traditional farming methods may fall short of meeting these escalating needs. Artificial intelligence (“AI”) is emerging as part of the solution and a trailblazer in the agricultural industry’s technological evolution. AI’s applications in agriculture are already widespread, covering domains such as real-time monitoring, harvesting, processing, crop production, marketing, weed detection, yield prediction, crop quality control, and many more.

However, before dubbing AI the savior of agriculture, we must acknowledge the most significant risk associated with its use: liability for AI’s performance within the agricultural industry. AI-driven machinery like tractors or robots can inadvertently cause damage to crops, livestock, or even farmworkers. Analytical AI tools that predict weather patterns or optimal harvesting times can also make incorrect decisions, negatively impacting crops and yields. This raises the pivotal question: who should be held responsible for the damage caused by AI’s actions? Should it be the manufacturers, programmers, or users?

Historically, manufacturers and robot programmers are held liable for damage caused by a robot only if they could have reasonably foreseen such harm or if it occurred due to their negligence. In the case of Jones v. W + M Automation, Inc., the court ruled that the equipment manufacturer was not liable for the damage caused by the robot as they had produced “only non-defective component parts”. This implies that manufacturers who comply with regulations will not be held liable for the resulting damage.

However, even if the manufacturer had anticipated the possibility of harm, establishing a causal link between AI’s actions and the ensuing damage presents a challenge. The injured party must prove a causal link between AI’s actions and the resulting damage to claim compensation. Given the complexity of AI systems and their constant evolution, this proof can be particularly difficult to establish. Addressing this issue calls for introducing new regulations, such as shifting the burden of proof to the AI manufacturer, implementing mandatory AI damage insurance, presuming causation, and others. The European Union has already taken strides toward regulating AI and liability through the Artificial Intelligence Act and the AI Liability Directive.

Another potential regulatory approach involves distinguishing between the actions of machines under human control, like driving vehicles, and autonomous AI actions, such as crop protection spraying, when determining liability. This distinction would require specific provisions for (i) machine operators, (ii) machine manufacturers, and (iii) software providers. A clear delineation of responsibilities would facilitate liability determination. However, any unauthorized hardware or software modifications might shift the responsibility back to the machine owners.

The liability issue can also be addressed through contractual agreements. Here, responsibility can be transferred from machine manufacturers and programmers to machine operators in case of accidents or damage resulting from equipment operation. As manufacturers strive to mitigate liability risks, such provisions are likely to become common. However, the full validity of these provisions remains untested in court, leaving their interpretation – enforceable or void – uncertain.

The question of liability holds great significance for farmers as AI technology becomes increasingly integrated into agriculture. Farmers, eager to be well-informed about potential business risks, and insurance companies, aiming to understand the risks linked with AI in agriculture, both seek clear direction. Specifically, insurance companies need to identify the scope of coverage necessary for AI-related damages. Therefore, it’s recommended that liability issues be regulated through contracts between farmers and AI manufacturers, especially for AgTech solutions incorporating AI. This becomes crucial in countries where specific laws governing this area are lacking. A commonly adopted practice involves incorporating strong compensation and liability limitation clauses on the service provider’s side, while detailing the farmers’ responsibility to provide data of suitable quality and quantity.

By Dusan Jablan and Bojan Tutic, Associates, Gecic Law

Zivkovic Samardzic has advised Slovenia’s Samsic Holding on its acquisition of the remaining 45% stake in Belgrade-based facility management, construction, and installation services provider Samsic STM from the two founding shareholders. Sole practitioner Jelena Rasovic advised the minority shareholders.

Samsic Holding Dejavnost Holdingov d.o.o, is the Slovenian member of the French Samsic Group. Founded in 1986 and based in Rennes, France, with 117,000 employees and an annual turnover of EUR 3.45 billion, Samsic is a European facility management group. It operates in 27 countries and has over 30,000 customers.

As a result of the transaction, Samsic became the sole shareholder of the group’s subsidiary in Serbia, the firm reported. Zivkovic Samardzic had also advised on the initial acquisition, back in 2017, when the firm advised the Samsic STM (formerly Tim Kolos) shareholders on the sale of 55% of shares in the company to Samsic Holding (as reported by CEE Legal Matters on August 31, 2017).

The Zivkovic Samardzic team included Partner Igor Zivkovski and Associate Teodora Milosevic.

At the beginning of June 2023, the Supreme Court of the United States ruled in favor of the famous Jack Daniel’s distillery in a trademark infringement lawsuit after a squeaky toy for dogs appeared on the market, which resembles a bottle of the famous whiskey Jack Daniel’s Old No. 7 Black Label Tennessee Whiskey in the context of shape of the bottle and other elements (trade dress).

Case background

Arizona-based company – VIP Products has launched a line of squeaky dog toys on the United States market which mimic certain well-known product brands, including Jack Daniel’s whiskey. The dog toy in question, which is shaped like a bottle, has an image of a Spaniel’s head and inscriptions on a black label (in the same font as the original whiskey bottle) such as: “Bad Spaniels” “Old No. 2” “on your Tennessee carpet” etc. The company VIP Products said that the motivation behind the creation of such dog toy was to create a product as a parody of existing products on the market in order to entertain the public.

Although there is an inscription on the disputed dog toy that this product is not connected with the Jack Daniel’s distillery, the management of Jack Daniel’s was not amused by this business move, thus initiated proceedings against the company VIP Products for trademark infringement, in order to withdraw the disputed dog toy from the market.

First instance court procedure

Jack Daniel’s argued that the company VIP Products violated federal trademark law and that the toy tarnished Jack Daniel’s reputation, noting that it could further confuse consumers into thinking the product belonged to the “oldest registered distillery in the United States.”

Jack Daniel’s lawyers said that everyone loves a good joke, as reported by the media, but that VIP Products’ “joke” is profit-motivated and confuses consumers by exploiting the hard-earned reputation Jack Daniel’s enjoys.

The District Court ruled in favor of Jack Daniel’s in the first instance court procedure, arguing that the dog toy infringed the well-known distillery’s trademark. However, the Second-Instance Court sided with the company VIP Products in the appeal procedure, referring to the so-called Rogers test.

Second instance court procedure

In this case, the second-instance appeal body was the United States Court of Appeals for the Ninth Circuit (“Appeal Court“), which ruled in favor of the company VIP Products and, additionally, lifted the injunction imposed for further production and sale of the dog toy in question.

The Appeal Court referred to the Rogers test created in the case law of Rogers vs. Grimaldi, which is used in relation to the freedom of speech and the protection afforded in that regard by the First Amendment to the United States Constitution.

The Appeal Court reasoned that the use of Jack Daniel’s trademark was not commercial and was protected by the First Amendment because it was done in a humorous way and constituted an “expressive work.”

Jack Daniel’s, dissatisfied with the decision of the Appeal Court, further appealed to the Supreme Court of the United States.

Opinion of the Supreme Court

The Supreme Court overturned the judgment of the Appeal Court and sent it back for reconsideration, however the judges of the Supreme Court did not comply with the request of the distillery to completely dismiss the Rogers test that the Appeal Court applied in the course of rendering the decision.

The unanimous opinion of the judges is that, despite everything, the Supreme Court does not decide whether the use of the Rogers test is ever appropriate, nor how far the exclusion of non-commercial use of a trademark reaches. The opinion also states that the use of a trademark is not considered non-commercial just because it parodies or otherwise comments on other people’s products.

The Supreme Court judges took the stance that it was inappropriate for VIP Products to use the trademark to indicate the source of its own goods – in other words, VIP Products was using a trademark as a trademark. Such trademark use is the heart of the trademark law and does not receive special First Amendment protection.

Conclusion

Although the Jack Daniel’s case, according to media reports, raised serious concerns about the application of the First Amendment in trademark disputes, this case likely amused the justices as they discussed the humorous topic during oral arguments in March this year.

However, Jack Daniel’s lawyers were not amused and argued that the Appeal Court’s ruling “gives imitators a free license to prey on unsuspecting consumers and trademark holders”, thus warned that unless the Supreme Court overturns the Appeal Court’s decision, companies can use trademarks they do not own to flood the market with allegedly parody products.

Several world-famous companies also filed briefs with the Supreme Court in support of Jack Daniel’s, including Nike, which argued that not every use of someone else’s trademark is a parody and that the Supreme Court should discipline this important classification in cases where parody is insisted upon.

This article is to be considered as exclusively informative, with no intention to provide legal advice. If you should need additional information, please contact us directly.

By Ivana Ruzicic, Managing Partner and Sara Ostojic, Senior Associate, PR Legal

On July 4, the United States celebrated Independence Day, which reminded us of the Declaration of Independence from 1776 that marked the establishment of the United States. This prompted us to reflect on the numerous distinctive legal achievements of the United States, inspiring us to explore the phenomenon of class action. Originating from across the Atlantic, this legal institution has found its place in continental European jurisdictions, sparking discussions within the professional community about its potential incorporation into Serbia’s legal framework.

This article kicks off a series of articles on class action. In the first installment, we delve into the historical development of this institution and its peculiarities within the United States’ legal system. In the second installment, we will examine the need for a similar institution within Serbia’s national jurisdiction from the perspective of de lege ferenda.

Historical Development of Class Action

Class action emerged due to the idea of representative litigation in Anglo-Saxon law. Representative litigation can be defined as a procedure in which the plaintiff/defendant represents the interests of third parties who are not involved in the proceedings but share a common interest with them, in addition to their own.

The roots of a modern class action can be traced back to the early 14th century in the practice of English courts, with the Channel Islands case considered the first example of a class action. It is believed that the idea of the class action was born in that case, but it was not confirmed until three centuries later in the case of Brown v. Vermuden in 1676, which established an exception to the traditional procedural doctrine of necessary party, requiring all interested parties to be present in the proceedings.

When it comes to the relevant case law of American courts, the first class action case is considered to have occurred in 1820 in the case of West v. Randall. In this proceeding, Judge Joseph Story expressed the opinion that an exception to the necessary party doctrine should be recognized when it is practically impossible to have all interested parties participate or when discussing a matter of general interest where individuals can sue on behalf of the whole.

Although class action originated in the early judicial precedents of English courts, it continued to develop exclusively within American case law from the 19th century onwards, making it one of the symbols of American legal tradition today.

Following the articulation of the concept of class action in American court case law, legislative regulation ensued. Class action was first regulated by the Federal Rules of Equity in 1843. It was revised in 1912, with Rule 48 being replaced by Rule 23 of the Federal Rules of Civil Procedure. Rule 23 of the Federal Rules of Civil Procedure was amended in 1966, marking the beginning of the era of modern class action, which still applies today in a slightly modified form.

Key Features of Class Action Litigation

As class action is a form of representative litigation, it has necessitated the development of specific rules that deviate from the framework of bilateral litigation proceedings.

Class Certification

Rule 23 of the Federal Rules of Civil Procedure begins by regulating the class certification, where the court determines the permissibility of a class action, consisting of three phases.

In the first phase, the court determines whether (i) the class members are so numerous that it is impracticable for all individuals to participate in the proceedings, (ii) there are questions of law or fact common to the class, (iii) the claims or defenses asserted by the representative parties are typical of the claims or defenses of the class, and (iv) the proposed class representative can fairly and adequately protect the interests of the class. These conditions must be cumulatively met to proceed to the second phase of the preliminary proceedings.

In the second phase, the court examines whether (i) separate actions by class members would create a risk of inconsistent judgments establishing incompatible standards of conduct for the party opposing the class or would make it difficult for other class members to protect their interests, (ii) the party opposing the class has acted on grounds entirely consistent with respect to the class, rendering the claims asserted identical for all class members, or (iii) a common legal or factual question of the class overwhelmingly overshadows any questions affecting only individual class members, and there is no more efficient method for resolving the dispute than a class action. Meeting only one of these conditions is sufficient to proceed to the third phase of the preliminary proceedings.

In the final phase, class members are notified of the lawsuit’s existence. The notice must include, among other things, information that class members can opt out of the proceedings, and if they exercise this right, the effects of the judgment will not extend to them.

The Emphasized Role of the Court in Class Action Proceedings

Given the adversarial nature of American litigation, the court generally plays a passive role. However, such an approach was unsustainable in the case of class action, primarily because it involves deciding on the interests of absent parties who may not even be aware of the ongoing proceedings. Consequently, the court assumes three critical roles during class action proceedings: evaluating class certification, approving settlements and disposition of the claims, and determining attorney fee awards.

Court Costs of Class Action Proceedings

The general rule in American litigation procedure is that each party bears its own court costs. However, depending on the type of proceeding, specific rules regarding cost recovery are established. In the case of class action, the common fund doctrine is applied based on the idea of fairness. It holds that if a particular value is obtained for the class through the individual efforts of plaintiffs, it is fair for the costs of the proceedings to be paid from the common fund. In addition, American legal tradition recognizes the contingency fee arrangement, which stipulates the payment of attorney fees only if the represented party succeeds in the case, typically as a percentage of the awarded amount. In practical terms, these two rules mean that attorneys finance the litigation and can receive compensation only if they achieve benefits for their clients, effectively assuming the economic risk of the proceedings.

Class Representative

In class action proceedings, there is a distinct type of litigant known as the class representative. In American legal tradition, any party, including private entities, can bring a class action lawsuit, a right not exclusive to organizations, as is the tendency in European jurisdictions. Although the class representative is not the primary litigant, one of the conditions for class certification is for the court to determine that the appointed class representative can adequately represent the class. The adequacy of the class representative involves assessing two conditions: a) the absence of known or apparent conflicts of interest between the representative and the class, and b) the representative’s sufficient competence in the issues that are the subject of the proceedings. Everyday practice has shown that attorneys play a crucial role in the proceedings, driven by financial considerations, instead of the class representative, as attorneys ultimately stand to gain greater financial benefits than individual class members.

Effects of Judgments in Class Action Proceedings

For a considerable period, case law grappled with the question of whether, and under what conditions, a judgment should bind class members who do not participate in the proceedings. The landmark case of Hansberry v. Lee in 1940 is widely considered the most significant precedent in this aspect of class action regulation. In this case, the Supreme Court posited that the binding effect of a judgment in a class action represents a permissible exception to the general rule that a judgment can only bind those who participated in the proceedings. Today, it is largely undisputed that a judgment rendered in a class action lawsuit binds all class members unless they have exercised their right to opt out. However, this principle has exceptions. Class members are allowed to be released from the binding effect of the judgment if they initiate separate proceedings and demonstrate that their interests were not adequately represented in a class action.

By Jovana Velickovic, Partner and Head of Dispute Resolution, and Nikola Ivkovic, Associate, Gecic Law

 

In the long-awaited aftermath of the havoc caused by the CJEU’s decision (adopted in 2020 in the famous Schrems II case) to invalidate the previously existing EU-US Privacy Shield Framework, the European Commission adopted the adequacy decision promoting the new EU-US Data Privacy Framework (the “Framework”) on 10 July 2023.

The Framework concludes that the United States now ensure an adequate level of personal data protection – essentially equivalent to that of the European Union. This means that personal data can now flow freely from the EU to US companies participating in the Framework, without the need for the implementation of additional safeguards (such as the standard contractual clauses or binding corporate rules).

After multiple back-and-forths with the Schrems overturns, and continuous concerns expressed by EU regulators and courts, the new Framework seems to have reconciled the opposing views. In particular, the European Commission evaluated the steps taken by the United States to mitigate the risks to personal data protection, especially those aimed at limiting the (broad) surveillance powers and (insufficiently) effective mechanisms allowing the exercise of data subjects’ rights and concluded these suffice for a new framework to allow undisrupted data flow to the United States.

Much like its predecessors, the Framework does not validate all data transfers to the US, as only certified US companies, who have undergone a certification process under the Framework, will be able to import personal data from the EU and EEA without the need to rely on alternative data transfer mechanisms. The certification process will be performed by the U.S. Department of Commerce, whereas organizations already certified to the Privacy Shield will have to update their privacy policies to account for the Framework in the upcoming three months. The U.S. Department of Commerce will maintain a list of certified organisations, which will serve to demonstrate that an organization can receive personal data on the basis of the Framework, from the date it is placed on the list.

To put this in perspective locally, the new Framework has strong implications for Serbia as well, given that the validity of EU adequacy decisions automatically extends to Serbia under local data protection laws.

Until now, in the absence of an adequacy decision for transfers to the US, Serbian companies have had a hard time trying to grasp how to perform data transfers to the US in a legally sound way, which presented a non-negligible obstacle for smooth business cooperation with US-based organizations. This exercise was particularly mind-bending given the non-existence of Serbian standard contractual clauses (the “SCCs”) supporting all potential transfer scenarios (but just the controller-to-processor ones), unlike EU-based companies, which had the advantage of relying on a modernized set of the SCCs.

As a consequence of the Framework, companies in Serbia will be able to enjoy the facilitated data flow to and from certified US companies, although playing it cautiously by reviewing that all transfers to the US are done in accordance with the new Framework. In that sense, the adoption of the Framework is a great opportunity for local companies to revisit their transfers and data importers and make sure that their data processing activities reflect the new legal environment.

The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

By Goran Radosevic, Partner, Vladimir Jovanovic, Associate, and Anja Mihajlovic, Junior Associate, Karanovic & Partners

Chapter 1 – A commercial offence – a brief review of an unjustifiably neglected step between a misdemeanour and a criminal offence.

It’s no secret that the thunderous development of information technologies, alternative financing methods and the frequent commercial transactions have led to the situation that certain traditional legal practice areas are getting less attention or are completely neglected due their rigidity and formality. During the previous months, we witnessed some valuable guidelines and articles written by our colleagues who have reviewed the comprehensive revolutionization of the system of the Republic of Serbia, both in terms of the administrative aspect and in terms of the legislation itself. We are sure that the future will bring even more perceptive articles from young experts who shall provide their knowledge to both domestic and foreign clients regarding most novelties in the legal system of the Republic of Serbia.

However, in order to maintain a balance in the eternal collision between modern and traditional legal professions, as well as a quality presentation of all the negative consequences that the conduct of a legal entity and a responsible person therein can produce, we consider it necessary to review a special type of offence, which, along with misdemeanours and criminal offences, forms the very basis of the Serbian penal law. Hence, in the following lines of this article, we shall provide the most interesting aspects of the Commercial offences act (Official Gazette of the SFRY, Nos. 4/77, 36/77 (corrected version), 14/85, 10/86 (revised text), 74/87, 57/89 and 3/90, Official Gazette of the FRY, Nos. 27/92, 16/93, 31/93, 41/93, 50/93, 24/94, 28/96 and 64/2001 and Official Gazette of RS, No. 101/2005 (other law), hereinafter: ‘’Law’’’), with emphasis on commercial offences as such and the proceeding itself. 

Commercial Offence

Pursuant to Article 2 paragraph 1 of Law, a commercial offence represents a socially harmful violation of regulations on economic or financial operations which has caused or may have caused graver consequences and which is defined as a commercial offence under the competent authority’s relevant regulation. From the very legal definition of commercial offence, we can break down three basic characteristics of any commercial offence, which are:

• violation of economic or financial regulations.
• graver consequences have occurred or could occur.
• such violation must be defined as a commercial offence by the competent authorities.

Despite the fact that some legal experts and critics define it as outdated, considering that it belongs to a not-so-small set of communist/socialist-era regulations and given that the last amendments were made back in 2005, the Law offers some rather interesting solutions in the sphere of general terms and principles governing the imposition of sanctions, the sanction system itself as well as the proceeding for establishing the liability of and imposing sanctions on offenders.

It is important to understand that Law represents an organic law (‘lex generalis’) in the sphere of commercial offences but at the same time, it doesn’t offer the so-called ‘’catalogue’’ of offences as Criminal Code of Republic of Serbia does. Different commercial offences are stipulated under the provisions of other economic or financial regulations such as Law on Mining and Geological Surveys, Law on Energy, Planning and Construction Act (with its recently announced amendments), Chemicals Act, Law on Prevention of Money Laundering and the Financing of Terrorism, Law on Strong Alcoholic beverages, etc.

Some might say that commercial offence legislature in Serbia represents a kind of a hybrid solution or a ‘’step between a misdemeanour and criminal offence’’ as in terms of prescribing punishable conducts, it uses the principles typical for misdemeanours, while in terms of the procedure itself and general institutions, it introduces the application of Criminal Procedure Code in terms of procedural rules and application of Criminal Code’s provision in terms of substantive regulations.

The commercial offence proceeding and its main characteristics

As the complete opposite of the inquisition principle dominant in the misdemeanour proceedings which implies the active participation of the court in the investigation, accusation and representation of the indictment, in the commercial offences’ proceedings, the accusatory principle is dominant. This means that the Public Prosecutor, as an independent state authority, is exclusively competent for prosecution of commercial offenders and initiating the commercial offence proceeding before the competent court. However, this general rule comes with an exception provided in Article 50 of Law stipulating that in case that the Public Prosecutor does not institute commercial offence proceeding or in case it decides not to prosecute, the injured party may institute or continue the proceeding, provided that it has submitted a motion for indemnification.

As far as the competence of the courts is concerned, in accordance with the rule stipulated under Article 27, paragraph 3 of Law on Organization of Courts, Commercial courts shall decide in the first instance on commercial offences, while the court in the territory where the accused legal entity has its registered seat shall have territorial jurisdiction.

Who can be liable for a commercial offence?

Pursuant to Article 6 of Law, a legal entity or the responsible person of a legal entity may be liable for a commercial offence. In accordance with the provisions of Companies Act, a legal entity represents a subject conducting an activity with the aim of gaining profit while Law prescribes that responsible person is a subject within a legal entity entrusted with a specific range of tasks in the sphere of economic or financial operations.

It is crucial to understand that a foreign legal entity or the responsible person shall be liable for a commercial offence if a foreign legal entity has a representative office in the territory of Republic of Serbia or if the commercial offence was committed with its means of transportation, unless otherwise provided by the regulation defining the commercial offence in question. 

Sanctions

Another in a series of specifics of the procedure is reflected in the type of sanctions themselves. Law prescribes penalties, a suspended sentence and security measures as only sanctions.

When it comes to penalties, as the most severe sanctions, Article 17 of Law stipulates that only a fine may be imposed for a commercial offence. The minimum fine that may be prescribed for a legal entity is RSD 10,000 (ca. EUR 80) while the maximum fine can go as high as RSD 3,000.000 (ca. EUR 25,000), while for the responsible person the fine ranges from RSD 2,000 (ca. EUR 18) to RSD 200,000 (ca. EUR 1750).

The court may impose a suspended sentence on a legal entity and the responsible person for the committed commercial offence as well. This means that the court may impose a fine of up to RSD 20,000 (ca. EUR 175) for a legal entity, and up to RSD 4,000 (ca. EUR 35) for the responsible person of a legal entity, under the condition that the fine shall not be executed if the convicted entity during the period determined by the court (a so-called time of verification), does not commit a new commercial offence, i.e. if the responsible person does not commit a criminal offence that includes all the characteristics of a commercial offence.

On the other hand, the following security measures may be imposed for commercial offences:

• publication of a judgement – the court shall impose the security measure of publication of a judgement if it finds it useful to inform the public regarding the judgement, specifically if the publication of the judgement would help eliminate a threat to people’s lives or health or would help protect the security of trade or other economic interests.
• confiscation of objects – objects which have been used or were intended for the commission of a commercial offence, or which arose from the commission of a commercial offence, may be confiscated from the legal entity or from the responsible person therein.
• prohibiting a legal entity from conducting a specific commercial activity represents a security measure consisting of banning a legal entity from conducting a specific economic activity and the court shall imply the ban on the production of specific products or the ban on the conduct of specific transactions in commodity and service trade and other economic transactions as well. A judgement imposing that measure shall specify the economic activity the legal entity is banned from conducting.
• prohibiting the responsible person from executing specific duties – banning the responsible person from executing specific duties shall imply that they shall be banned from executing the duty they were performing at the time of the commission of an commercial offence, from holding a management position in the sphere of economic or financial operations and from performing specific tasks, either all or some of the duties related to the management, use, administration or handling of social assets or to their safekeeping.

Although Law does not prescribe an imprisonment as such, there is a possibility that such sentence might be imposed to a responsible person of a legal entity. This is possible if the responsible person sentenced to a fine does not pay it within the legal term. In that case, the court shall replace the fine with a prison sentence, but this time, in accordance with a provision contained in Article 193 of the Law on Execution of Criminal Sanctions.

Statute of Limitations

On the list of the most important issues for the proper defence before the official initiation and during the procedure itself is the statute of limitations.  It is regulated in detail by Articles 37-40 of Law and the main reason of its importance for defendant lies in a simple fact – if the time frame set forth under Law regarding the prosecution or enforcement of the penalty expires, the court shall be obliged to discontinue the proceeding.

The statute of limitations on prosecution shall expire three (3) years after the date of the commission of a commercial offence. As an exception paragraph 2 of the same article provides that the statute of limitations on prosecution for commercial offences committed in the sphere of foreign trade, foreign exchange and customs operations shall expire five (5) years after the day of the commission of a commercial offence. Finally, when it comes to enforcement of a penalty, the statute of limitations offence shall expire three (3) years after the day of the finality of a decision imposing the penalty at hand.

Final thoughts

Although there is an obvious need for modernization of the Law, especially in terms of abandoning socialist and post-socialist wording, we’ve tried to present the most interesting aspects of commercial offence’s sphere with an aim of overall better understanding. It is an undoubtedly complex field where ‘’outdated’’ provisions sometimes collide with corresponding application of somewhat modernized criminal codes. However, with professional help of an expert, both domestic and foreign legal entities and their responsible persons should not have any unnecessary problems in case a criminal offence proceeding is initiated against them.

In the following weeks, our team shall analyze specifics of the first-instance commercial offence proceeding (chapter II) and proceedings upon legal remedies – both ordinary and extraordinary ones (chapter III), so make sure to stay with us. 

ByMilovan Bogdanovic, Senior Associate, JPM & Partners

Moravcevic, Vojnovic, and Partners in cooperation with Schoenherr has advised OTP Group members OTP Bank Plc Hungary and OTP Bank Serbia on project financing for Pannonia Bio. Karanovic and Partners advised Pannonia Bio.

According to Schoenherr, “the financing will be used by three special-purpose vehicles that acted as borrowers to develop six biogas power plants in Serbia. The project’s sponsor, Pannonia Bio, is among the largest biorefinery operators in Europe.”

According to the firm, “biogas power plants utilize a wide variety of feedstock, such as agricultural residues and biogenic waste, to produce biogas. This biogas is then efficiently converted into heat and electricity, enabling the plants to contribute to waste reduction and generate clean, renewable energy.”

The Schoenherr team included Partners Jelena Arsic and Milos Lakovic, Attorney at Law Aleksandra Petrovic, and Associate Marko Kostic.

Karanovic & Partners’ team included Partners Maja Jovancevic Setka and Petar Mitrovic, Senior Associates Tijana Arsenijevic and Katarina Tomic, and Associates Jelena Tripkovic and Dimitrije Ilic.

As we previously announced, the Court of Justice of the European Union (“CJEU”) issued a ruling in the CK Telecoms case last week, annulling the CK Telecoms judgment and referring the case back to the General Court (“Court”). This appeal was in response to the Court’s decision on May 28, 2020, invalidating the European Commission’s (“EC“) ban on the acquisition of Telefonica Europe Plc by Hutchison 3G UK Investments Ltd. In this article, we delve deeper into the background of this important case and the reasoning behind the CJEU ruling.

The roots of the case trace back to 2016, when CK Hutchison Holdings Ltd, through its subsidiary Hutchison 3g UK Investments Ltd, which became CK Telecoms UK Investments LTD (“CK Telecoms“), sought to acquire sole control over Telefonica Europe Plc. The acquisition would lead to a decline from four to three large mobile operators active in UK’s retail market for mobile telecommunications services. The EC objected to the proposed concentration, deeming it incompatible with the internal market, arguing it would substantially impede competition by restricting the mobile telecommunications market infrastructure’s development in the UK and driving up consumer prices.

In response, CK Telecoms lodged an action with the Court, seeking annulment of the EC’s decision to block the merger. During the proceedings, CK Telecoms asserted that the proposed merger would enhance efficiency, promote technological advancements, and increase investment in the telecom sector. They argued that these benefits would outweigh any potential anti-competitive effects, justifying the merger.

The Court upheld various aspects of the appeal, including the intensity of judicial review, the legal framework for concentrations, the burden of proof, and the standard of proof. Furthermore, the Court identified other competing telecommunications market undertakings as an important competitive force and assessed the closeness of competition and quantitative effects on prices. It also concluded that the EC failed to substantiate significant impediments to competition and recognized errors related to horizontal non-coordinated and non-coordinated effects on the wholesale market. Consequently, the Court annulled the EC’s decision, triggering an appeal to the CJEU.

The CJEU’s judgment, further elaborated below, outlines several key findings.

First, the CJEU stated that the Court committed a legal error by applying a higher standard of proof than that established by case law in assessing significant competition obstacles post-merger. The CJEU has stated that the EC only needs to demonstrate a prospective economic analysis without an exceptionally high standard of proof.

Second, the CJEU found that the Court misinterpreted the Merger Regulation by implying that a significant impediment to effective competition could only be established if two specific cumulative conditions were met: the elimination of crucial competitive constraints between the merging entities on each other and the reduction of competitive pressure on the remaining competitors. The CJEU dismissed this reasoning and held that these are not cumulative conditions but separate reasons why a transaction in an oligopolistic market may impede effective competition.

Third, the CJEU established that the Court did not exceed its authority in interpreting “competitive forces” and “close competitors” concepts. However, it distorted the EC’s decision by misrepresenting its views on important competitive forces and the closeness of competition. The Court also erred in requiring the EC to prove aggressive pricing or significant pricing policy changes to classify an undertaking as an important competitive force.

Fourth, the Court held that the EC failed to consider efficiencies generated by the transaction, including “standard” efficiencies that can be expected to arise in M&A transactions. However, the CJEU countered that not all transactions produce efficiencies and that it is the merging parties’ responsibility to demonstrate the existence of such efficiencies, not the EC’s.

Fifth, the CJEU pointed out that it is clear from the relevant decision that the EC did evaluate the potential decline in network quality associated with the proposed merger. The Court’s assertion that the EC did not conduct such an assessment misrepresented the decision.

Given the “breadth, nature, and scope of the errors made” by the General Court, the CJEU overturned the disputed judgment. However, lacking the information necessary to render a final judgment on all the legal arguments presented, it referred the case back to the Court. The Court is now tasked with reassessing the entire case, considering all the CJEU’s clarifications during the appeal process.

Our Competition Law & EU Law team will monitor the situation closely and provide essential updates as new developments unfold.

By Milica Novakovic and Nikola Ivkovic, Associates, Gecic Law