It is not uncommon for monetary obligations to be contracted in a foreign currency, even when both parties are domestic individuals or business entities registered in the Republic of Serbia. However, in such situations, the question arises whether the creditor of a foreign-currency claim is entitled to request payment in the foreign currency itself or in the dinar equivalent.

In accordance with Article 395 of the Law on Obligations (“LO”), if a monetary obligation is denominated in a foreign currency or in gold, its fulfilment may be requested in domestic currency according to the exchange rate applicable at the time the obligation is fulfilled.

Position of Case Law

Courts in the Republic of Serbia often interpret the cited provision of Article 395 LO in an overly strict manner, concluding that a creditor whose claim is denominated in a foreign currency must formulate the claim in the foreign currency, but in such a way that the requested payment is made in the dinar equivalent at the exchange rate applicable at the time the obligation is fulfilled.

If the creditor converts the foreign-currency claim into dinars according to the exchange rate applicable on a date prior to the date of fulfilment – such as the date of filing the lawsuit, given that the obligation has obviously not yet been fulfilled at that time and the lawsuit is therefore being filed – courts predominantly reject such claims as unfounded.

The most common reasoning for such decisions is that the conversion of a foreign-currency claim into dinars before the moment of fulfilment is not permitted unless the right to do so is stipulated in the contract, bearing in mind that the debtor must fulfil the obligation conscientiously and exactly as agreed.

In its Judgement No. Už-3991/13 of 14 April 2016, the Constitutional Court of the Republic of Serbia found that such an application of substantive law by the court, in this case, the Belgrade Court of Appeal, was arbitrary, thereby violating the plaintiff’s constitutionally guaranteed right to a fair trial by denying judicial protection.

The Constitutional Court emphasized that the Court of Appeal could have considered the claim to implicitly include a request for payment of the dinar equivalent of a certain amount denominated in foreign currency, so the plaintiff could have been awarded the dinar equivalent of the foreign-currency claim at the exchange rate applicable at the time of fulfilment, together with interest calculated in the currency of the main claim according to the same method and at the same exchange rate as the main debt.

However, although nearly ten years have passed since the Constitutional Court delivered this judgement, it appears that the practice derived from it has not become established. Courts, including the Supreme Court of the Republic of Serbia, continue to reject claims that are not formulated in such a way that they request fulfilment of the contracted amount in foreign currency, payable in the dinar equivalent according to the exchange rate applicable at the moment of fulfilment of the obligation.

Statutory Default Interest

If the debtor delays the fulfilment of the monetary obligation, the creditor is entitled to claim statutory default interest.

In such cases, default interest is not calculated based on the reference interest rate of the National Bank of Serbia increased by eight percentage points, but rather based on the reference (i.e., base) interest rate prescribed and/or applied by the central bank of the country of the currency of denomination for its main operations, increased by eight percentage points, in accordance with Article 4 of the Law on Default Interest.

Default interest is calculated in the foreign currency in which the main debt is denominated, and the creditor may request payment in the dinar equivalent according to the exchange rate applicable at the time of payment.

Conclusion

As with many other issues, there is no uniform position in case law on this matter either. Although it may be concluded that the Constitutional Court seeks to curb the strict interpretation of Article 395 LO, an interpretation that results in the rejection of claims not formulated in foreign currency, the simplest path for creditors to collect their claims appears to be precisely to follow the formula under which the claim amount is expressed in the foreign currency, while requesting payment in the dinar equivalent according to the exchange rate applicable at the moment of fulfilment of the obligation.

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