In a recent decision concerning the annulment of a domestic arbitral award, the Supreme Court of Bosnia’s sub-sovereign entity Federation Bosnia and Herzegovina (“FBiH Supreme Court” or “Court“) adopted a distinctly pro-arbitration stance by upholding a severely pathological arbitration clause.
The arbitration clause
In 2006, two foreign entities, Shiddi Trading Est. Riyadh and Shiddi International London, and two Bosnian entities, Al‑Shiddi International Sarajevo (plaintiff in the annulment proceedings) and BN Step d.o.o. Zavidovići (defendant in the annulment proceedings), concluded a commercial contract (“Contract“) with the following arbitration clause (“Arbitration Clause“):
“Eventual disputes shall be resolved amicably or by arbitration, and if that, God forbid, is not successful, the courts in BiH are competent.“
Background of the case
In 2017, BN Step Zavidovići (defendant in the annulment proceedings) initiated litigation in a Bosnian court against Al‑Shiddi International Sarajevo (plaintiff in the annulment proceeding) and Shiddi International London, seeking payment of BAM 449,144.50 (approximately EUR 225,000) under the Contract. The claim was related to a share in profits from a certain Bosnian business venture for the period 2014–2015. Al‑Shiddi International Sarajevo did not invoke the Arbitration Clause. Co-defendant Shiddi International London initially challenged the court’s jurisdiction based on the Arbitration Clause but subsequently dropped the challenge.
In 2020, BN Step Zavidovići commenced arbitration proceedings before the Arbitration Court attached to the Foreign Trade Chamber of Bosnia and Herzegovina against Al‑Shiddi International Sarajevo and Shiddi International London, seeking payment of BAM 2,025,890.57 (approx. EUR 1,000,000) under the Contract for profits generated in the period 2016–2019.
Al‑Shiddi International Sarajevo, as respondent in arbitration proceedings. challenged the tribunal’s jurisdiction on two grounds: (i) the Arbitration Clause was pathological; and (ii) even if it were not, BN Step Zavidovići had waived its right to arbitrate by initiating court litigation under the same Contract. Arbitral tribunal dismissed the jurisdictional challenge and rendered an award in favour of BN Step Zavidovići.
Al‑Shiddi International Sarajevo subsequently sought annulment of the arbitration award in Bosnia.
Lower court proceedings
According to the judgment of the FBiH Supreme Court dated 28 August 2025 (65 0 Ps 1012588 25 Rev), the court of first instance granted annulment on the grounds that the Arbitration Clause was invalid due to its ambiguity and internal contradictions. Specifically, the lower court found that the clause purported to confer jurisdiction on both arbitration and the courts. The lower court further observed that the clause did not even specify whether the arbitration was to be ad hoc or institutional, let alone that the proceedings should take place before the Arbitration Court attached to the Foreign Trade Chamber of Bosnia and Herzegovina.
The annulment decision of the first-instance court was confirmed on the appeal.
Salvaging operation of the FBiH Supreme Court
The highest court of Federation Bosnia and Herzegovina reversed the annulment and upheld the arbitral award.
Relying on the principle in favorem validitatis, the FBiH Supreme Court concluded that the absence of a designated arbitral institution is not fatal if the parties’ objective intent can be ascertained through interpretation.
While this approach is generally sound, the Court made a significant interpretative leap by concluding that the parties intended to arbitrate under the auspices of the Arbitration Court attached to the Foreign Trade Chamber of Bosnia and Herzegovina. As a reminder, the disputed Arbitration Court reads: “Eventual disputes shall be resolved amicably or by arbitration, and if that, God forbid, is not successful, the courts in BiH are competent.” The FBiH Supreme Court interpreted this idiosyncratic language as establishing a three-tiered dispute resolution mechanism: (i) amicable settlement; (ii) arbitration; and (iii) recourse to the Bosnian courts for annulment proceedings.
The Court was right to conclude that the parties expressed preference for arbitration over litigation. That much is clear from the language of the Arbitration Clause, under which the “courts in BiH” enter the frame only if arbitration “is unsuccessful”.
The conclusion that the parties contemplated arbitration in Bosnia and Herzegovina is also reasonable, given that two of the four parties to the Contract are Bosnian entities and the subject matter of the Contract is entirely connected to Bosnia and Herzegovina. The reference in the Arbitration Clause to “courts in BiH” further supports the interpretation that the parties must have also intended for their arbitration to be seated in Bosnia and Herzegovina.
Where the FBiH Supreme Court went too far was in reaching two further conclusions: that the reference to the courts in BiH is a reference to the annulment proceedings and that the parties intended to arbitrate before an institutional arbitration – even more specifically before the Foreign Trade Chamber of Bosnia and Herzegovina.
The Court’s interpretation of the phrase “and if that, God forbid, is not successful, the courts in BiH are competent” as a reference to annulment proceedings is unconvincing. The Arbitration Clause does not mention annulment proceedings and jurisdiction in the annulment proceedings cannot be in any event created by prorogation. Moreover, a party may initiate annulment proceedings after an award has been rendered, and not when arbitration is “not successful“.
Although the Court’s interpretation of the reference to “the courts in BiH” is flawed, it is ultimately inconsequential. What is problematic is the attribution to the parties of an intent to arbitrate before the Arbitration Court attached to the Foreign Trade Chamber of Bosnia and Herzegovina. The Court acknowledged that the parties did not expressly designate this institution but held that “imprecise designation of the arbitral tribunal does not result in the invalidity of the arbitration clause, provided that it is possible, through interpretation, to determine which arbitral tribunal the parties intended to designate“. While this is a correct statement of principle, it does not support the outcome in this case. The disputed Arbitration Clause is not merely imprecise regarding the designation of an arbitral institution – it contains no such designation whatsoever. Moreover, the clause does not even stipulate institutional arbitration. The Court failed to provide a cogent explanation for its conclusion that the parties intended to arbitrate before the Arbitration Court attached to the Foreign Trade Chamber of Bosnia and Herzegovina. A more plausible interpretation is that the clause refers to ad hoc arbitration or to an unspecified arbitration arrangement requiring further agreement between the parties with the default jurisdiction of Bosnian courts if no agreement is reached. The parties omitted so much from the Arbitration Clause that, ultimately, it should have been considered null and void.
Conclusion
While the FBiH Supreme Court’s commitment to arbitration is commendable in principle, in this particular case the Court stretched the parties’ intention beyond what the text of the Arbitration Clause reasonably supports. It is to be hoped that such judicial latitude will not encourage parties to neglect the significance of precision in drafting arbitration clauses.
