The Constitutional Court accepted the constitutional appeal of the company "Sveti Stefan Hoteli" AD Budva and overturned the decision of the Supreme Court confirming the lack of jurisdiction of domestic courts in the dispute with the company "Adriatic Properties" AD Budva, regarding the performance of obligations under the Lease Agreement for the hotels Kraljičina plaža and Miločer - Sveti Stefan.
It was concluded that the Supreme Court arbitrarily concluded that the dispute was not within the jurisdiction of domestic courts but of international arbitration.
"The Constitutional Court's decision established that the courts failed to examine the essential issue of whether this is a dispute in which the exclusive jurisdiction of the Montenegrin judiciary is envisaged, bearing in mind that the subject matter of the dispute relates to the lease of real estate located on the territory of Montenegro," the Constitutional Court announced.
They recall that the Commercial, Appellate and Supreme Courts declared themselves incompetent in the dispute over the failure to fulfill obligations under the Lease Agreement, claiming that it was a dispute with a foreign element, that is, because one contracting party consists of multiple legal entities with headquarters abroad, stating that the 2007 Lease Agreement defined that any dispute that is not resolved by mutual agreement will be resolved before the London Court of International Arbitration.
The Constitutional Court found that the position of the Commercial, Appellate and Supreme Courts that there is no basis for the claim that this is a case that cannot be resolved before domestic courts is constitutionally unacceptable, which they based on the interpretation of the Law on Civil Procedure, "ignoring the transitional and final provisions of this law, selectively referring to the provisions of the Law on Arbitration, but also completely ignoring the relevant provisions of the Law on Private International Law, which is a law that specifically prescribes cases of exclusive jurisdiction of domestic courts".
The key issue in this case, the Constitutional Court points out, is whether the dispute is suitable for arbitration, which the courts "failed to examine in substance", in terms of assessing whether at least one of the parties to the arbitration agreement is a natural or legal person with a permanent residence/seat abroad, although the applicant of the constitutional complaint pointed to this very fact during the court proceedings.
The Constitutional Court specifically pointed out that the courts did not appreciate the fact that the contractual parties to the Lease Agreement exclusively listed the Hotel Group "Budvanska rivijera", as the lessor, and "Adriatic Properties", as the lessee, which are domestic legal entities with their registered office in Montenegro.
Instead, the Supreme Court merely stated in this regard that "on the tenant's side there are several legal entities, two of which are foreign legal entities...", although the Lease Agreement was concluded by domestic legal entities with a registered office in Montenegro as the tenant and the lessor, while the legal entity "Aidway Investments Limited", registered in the British Virgin Islands, was designated as the guarantor in the agreement.
The Constitutional Court states in its decision that the Supreme Court did not distinguish between the parties in a lease relationship and a surety agreement, which is a secondary agreement and does not determine or disrupt the position of the contracting parties in the Lease Agreement.
"The Supreme Court, by confirming the position of the lower courts, and by simply listing the guarantor in the Lease Agreement as a contracting party even though he is neither the lessee nor the lessor, has in fact implicitly enabled the strict rules regarding the jurisdiction of the state, which are expressly prescribed by the Law on Private International Law in the case of leases of real estate, to be completely avoided without the necessary analysis," the Constitutional Court's decision states.
Additionally, as they said, the Supreme Court did not assess the content of the Lease Agreement based on the basic rules of contract law, in the sense that such an agreement creates rights and obligations for the contracting parties, and failed to examine the position of the guarantor.
The Constitutional Court notes that the Law on Private International Law stipulates the exclusive jurisdiction of the Montenegrin judiciary when it comes to disputes regarding the lease of real estate located in Montenegro. This, they said, is also indicated by the practice of the Supreme Court, which in a review case from May 2024 stated that there is exclusive jurisdiction of the Montenegrin court in relation to real rights and rights arising from the lease of real estate located in Montenegro.
"As the Supreme Court only considered the legal provisions that were in favor of Adriatic Properties doo Budva, which resulted in the absence of clear answers to the claims of the constitutional complainant, as well as the lack of adequate reasoning and ambiguity in the interpretation of the provisions of the Arbitration Act and the Private International Law Act, the Constitutional Court concludes that the case was not considered in accordance with the requirements of a fair trial. The Constitutional Court has annulled the Supreme Court's decision and returned the case for retrial and decision-making, in accordance with the legal positions expressed in the decision," the statement reads.
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