Alternative Dispute Resolution Project in Bosnia and Herzegovina Presented by: Lada Busevac, ADR Project Manager Bosnia and Herzegovina Washington D.C., April 2006

IFC PEP SE background IFC: Active portfolio in the country, $106m invested IFC PEP SE – Private Enterprise Partnership Southeast Europe Established on July 1, 2005 IFC managed two large TA programs in the Balkans: SEED and PEPSE Mandate: strengthen the private sectors in the Balkans (Albania, Bosnia and Herzegovina, Macedonia and Serbia and Montenegro) PEP SE projects in the areas of: Access to Finance Business Enabling Environment and Access to Markets Supply Chain Linkages Pipeline: Housing Finance, Microfinance, Registration

PEP Southeast Europe: Guiding Principles Focused and integrated approach to PSD in the region that emphasizes: a. Facilitation Capacity building and utilizing local resources Local implementation and ownership b. Mobilization Coordinating donors, harnessing external resources Working in partnerships c. Sustainability Focus on local cost recovery Building local markets

IFC’s target areas: Export Between 3 and 5 times harder to export with 9 documents and 15 signatures needed Protecting Investors Companies 50% less transparent than the region and shareholders amongst the weakest in the region Contract Enforcement It takes 36 steps and 330 days to enforce contracts and the cost of enforcing contracts is 19.6% of debt

ADR Project Background Needs identified in Bosnia and Herzegovina 1 million backlogged cases in 64 courts1 430 days to collect debt through court2 21 pending cases with a cumulative value of EUR 120.000 in Sarajevo region3 Project objective region wide “Assist judicial reform underway, support introduction of commercial mediation and allow better access to justice and finance for businesses” Alternative dispute resolution is a term encompassing a number of methods of settling disputes outside the traditional court system. The term ADR is often used to describe a wide variety of dispute resolution mechanisms that are short of, or alternative to, full-scale court process. The term can refer to everything from facilitated settlement negotiations, where disputants are encouraged to negotiate directly with each other prior to some other legal process, to arbitration systems or minitrial that look an feel very much like a courtroom process. In mediation mediators may simply facilitate communication, or may help direct and structure the settlement, but they do not have the authority to decide or rule the settlement. In arbitration systems a third party is authorized to decide how a dispute should resolve. Mediation – non-binding; Dependant of the willingness of the parties to reach voluntary agreement. Parties to a dispute reach a voluntary settlement through the assistance of a skilled facilitator. Arbitration – binding/non-binding; Involves a resolution by neutral arbitrator , which may or may not be legally binding. It is also important to distinguish voluntary vs. mandatory process. Conciliation is not a new and unknown concept, as is did exist in former Yugoslavia in a form of community based conciliation councils, but it did not have its roots in the official legal structure. If mediation would be used for court disputes its results would be treated as illegal, and not admissible at court. Therefore, the new law is recommending close links of court and mediation system especially in overall understanding what positive effects can mediation bring to existing slow and inefficient system, and also allow full transparency and clarity of relations. ADR can only support ongoing reform process by taking away burden from courts/judges that are at the moment unable to cope with heavy case load and therefore resulting in poor satisfaction of end-users, especially SMEs, and in reluctance of foreign investors to fully commit to commercial activities in BH. Because mediation is such a new idea, it can hardly be use as a substitute, and it should not be. But, at the same time it is finding advocates in businessmen and others who find the courts too time-intensive and incredibly inefficient. 1 - High Judicial and Prosecutorial Council, Annual report 2004 2 - World Bank’s Doing Business Report 2006 3 – Finding of the Sarajevo Canton Chamber of Commerce

Alternative Dispute Resolution Program Activities (region wide) Establish legal framework for mediation Establish regional network of 10 mediation centers Develop a pool of well trained mediators Support the development of local counterparts and foster their financial sustainability Raise awareness on mediation among businesses

IFC’s Alternative Dispute Resolution Program Duration Three years (2005 –2008) Continuation of SEED’s ADR project started in 2003 Budget $ 3,1 million Donors Government of Canada through the Canadian International Development Agency September 2003- March 2006 Government of the Netherlands January 2006 – June 2008

Legal framework Code on Civil procedure allows use of mediation Law on Mediation enacted in Bosnia and Herzegovina in August 2004 Law on transfer of mediation competencies to the Association of Mediators in BH enacted in July 2005 By-laws enacted in March 2006 Laws harmonized with EU recommendations and UNCITRAL model law Mediation Law allows for legal and non-legal professionals to become mediators Mediation agreement – executive title

Court-Referred Mediation Pilot Projects Aim to test effectiveness of mediation in terms of: reducing backlog, improving courts’ performance and allowing businesses better access to justice and finance Mediations taking place in mediation centers co-managed by IFC and Association of Mediators Working towards mediation self-sustainability by charging (subsidized) fees for mediation services Custom-made monitoring and evaluation methods used to measure effectivnes facilitate use of lessons learned

Why Court Referred Mediation? Moving cases out of the court - reducing backlog – creating pipeline Positive judicial attitude towards mediation ensuring buy-in from parties Does not put additional burden on the judges Retaining legal protection offered by court decision/enforceable document Minimizing lawyers’ opposition Can eventually lead to a norm or culture of resolving disputes out-of-the-court

Integrated approach and sustainability IFC Mediation Center Partnership Agreement Memorandum of understanding Civil Society Institution (e.g. Association of Mediators) Partner Court ADVISORY BOARD Selection of cases Inviting parties and mediating cases

Mediation center financing model Month 22 – Mediation center reaching its full financial sustainability

Overview Bosnia - Herzegovina Results March ’04 – March ‘06 2 Mediations Centers in cooperation with Sarajevo Municipal Court and Banja Luka Basic Court 16 judges referring cases to mediation 12 fully trained mediators (lawyers and others) 254 mediations completed successfully (35% B2B) 57% success rate € 7,6 million released - average € 30,197 per case

Public Awareness Campaign Objectives Improve awareness of mediation as an alternative to the formal court system among legal professionals and business community and create demand Increase visibility of the Association of Mediators in front of key target audiences (legal community and potential corporate customers) on the market Variety of communication channels used: newsletter, web page, custom made presentations with professional BMOs, workshops, seminars, conferences, editorials, PR materials, etc.

Work with the Association of Mediators in Bosnia and Herzegovina In BH Association of Mediators beneficiary of IFC’s technical and financial assistance Positive management practices being put in place Association’s work promoted through an extensive public awareness campaign facilitated by IFC Financial sustainability being developed – offering commercially own training and consulting services A broad network of dedicated mediators is a guarantee for long term commitment to mediation development

Mediation and integration MEDIATORS COURTS/LAWYERS Success requires well-trained mediators working within an established legal framework with carefully drafted procedural rules and enforcement mechanisms. We then need to find a way to stimulate the use of ADR and to increase its acceptance among lawyers and judges, as well as the general public. GOVERNMENT GENERAL PUBLIC

In Conclusion Businesses understanding mediation benefits and creating demand “I have resolved the total of 3 million KM disputes through mediation in just 180 minutes - 16 543, 81 KM per minute. My personal opinion is that it is better to have 50 000 KM today than 100 000 KM in a year because you can invest this in equipment and production materials today and earn even more money than 100 000 KM.” Banja Luka Focus Group participant

However, there are still many issues… Low acceptance rate Lawyers and mediation Low judicial motivation to promote use of mediation Really assisting judicial reform? Lack of respect for the legal norm Short project timeline jeoperdizing project effectivenes

Thank you. Lada Busevac, IFC PEP SE Sarajevo, Bosnia and Herzegovina lbusevac@ifc.org