This chapter examines the accessibility of services for businesses presenting a concept of a continuum of legal and justice services. In line with the OECD Serving Citizen framework it focuses on services provided by the state (Enterprise Registry, State Land service and Registry and the Patent Office). The chapter puts a particular emphasis on digital tools and provides an overview of e-services available for businesses in Latvia. This chapter also identifies the characteristics and impact of legal problems experienced by Latvian businesses.
Access to Justice for Business and Inclusive Growth in Latvia
Chapter 3. Centring service infrastructure on business needs in Latvia: a continuum of public services for businesses
Abstract
Towards a user-centred holistic approach
There is growing understanding that the accessibility of services plays a key role in a complex service system that consists of many institutions and actors, and that the system needs to be addressed as a whole. Service provision systems must be understood as a series of pathways for receiving services from the perspective of individuals, businesses and communities. In the course of their lifecycle, small, medium and large companies engage with multiple public services to register their activities, apply for licences, file business income and reporting, hire employees, resolve a dispute, etc. Public services for business are often fragmented across different administrations. Businesses, and particularly small and medium-sized enterprises (SMEs) who do not have the capability or resources (human, financial ‑ or time), may feel overwhelmed (Pleasence and Balmer, 2013).
The OECD Serving Citizens Framework underlines that governmental responsibility to provide a wide range of public services should be designed to meet the expectations and needs of their citizens in terms of access, responsiveness and reliability/quality. Since legal and justice services are considered as public services, affordability of legal procedures as well as access to legal information are key in assessing the degree of accessibility of the judicial system. Service delivery reflects citizens’ perceptions of public institutions: satisfaction with services as well as with public institutions and governments (OECD, 2015a).
Some OECD countries are integrating a business-centred approach to the provision of services. This dynamic service planning tool is developed around the “life events” of businesses. This helps organise public service delivery to meet the specific needs of their constituencies as well as assess the outcome of the service based on the experience of users (European Commission, 2015). Some countries (e.g. Colombia, Tunisia) are integrating (representatives of) courts and tribunals into multi-service centres in order to enhance the delivery of justice services and make those institutions accessible to, and reflective of, users’ needs.
In Latvia, the Ministry of Justice supervises key justice services related to the business life cycle including the following independent state institutions: the Enterprise Registry, State Land Service and the Patent Office (Figure 3.1). They are the focus of this chapter.
Figure 3.1. Institutions subordinated to the Ministry of Justice in Latvia
Source: Latvia – Ministry of Justice website.
Businesses in Latvia also have to register as a Value-Added Tax (VAT) payer at the State Revenue Service (SRS). The Latvian Central Depository (LCD), a privately owned institution, is the sole central publicly traded securities depository, maintaining the securities recording and settlement in Latvia. Supervised by the Financial and Capital Markets Commission, LCD further provides transaction services. For such private entities, the regulatory challenge is to respect their entrepreneurial character while at the same time ensuring the provision of public services. Beyond the existing institutions and entities, incentives might be considered for further private services to add to the basic functions of state business services.
A multi-level approach to understanding business needs
Business engagement
A strong consultation culture exists in Latvia that needs to fully encompass the views of all businesses. The Action Plans as well as other legal and regulatory reforms related to the business activities are developed in collaboration with various organisations representing businesses, including the Foreign Investors Council in Latvia, the Latvian Chamber of Commerce and Industry, and the Employers’ Confederation of Latvia. Yet according to Ministry of Economy’s survey on the impact of administrative procedures on the business environment, while the level of engagement has grown since 2014, it remains weak: 75% of entrepreneurs, mainly small businesses, do not participate in any industry/business association or union (71% of large companies engage in business-to-government [B2G] discussions; 57% of medium-sized companies; and 30% of small companies). Reasons cited include the lack of reason to participate (54% of respondents), lack of time (23% of respondents) and the absence of sufficient information (18.6% of respondents) are mainly cited. Importantly, this consultation needs to also take place with non-business stakeholders, e.g. consumer groups, trade unions.
Business needs
The starting point is to identify the needs, i.e. capture the legal needs of users and understand their pathways and experience and the gaps in the provision of services. There are two inter-related approaches: institution-generated or “administrative” data and legal needs surveys. Administrative data is generated by the different service providers in Latvia. Client satisfaction surveys are also conducted in some of the targeted services.
As part of this report, Latvia carried out a survey on business legal needs and experience to understand the good practices and bottlenecks from the point of view of businesses when accessing services under the purview of the Ministry of Justice (see Figure 3.2 and below for further information).
Figure 3.2. Business legal needs: Types and number of businesses surveyed
Source: OECD (2017a)
An operational public service environment for businesses
A one-stop shop for citizens and businesses
Creating an efficient and comprehensive entry point for citizens and businesses to access the public administration and enjoy services is a further priority of the Latvian government, as in many other OECD countries (see Box 3.1 for an example). While one-stop-shop services are recognised as a central characteristic of public services for businesses, their implementation remains a challenge. One-stop shop refers to services that are bundled at one central access point. The perspective for one-stop-shop services is that of the users, not necessarily that of the providers. In Korea, one-stop shops operate for all civil application services provided by all Korean administrative bodies, at national and local levels (OECD, 2003). The Mexican government, with the support of the OECD created the one-stop shop tuempresa.gob.mx to simplify the federal procedures required to create a business entity and to help entrepreneurs fulfil these procedures on line (OECD, 2009). Greece and Hungary have specialised in one-stop shops for foreign investors (OECD, 2003).
Box 3.1. Austria’s business service portal
In 2010, the Austrian federal government launched a one-stop business service portal (Unternehmensserviceportal –USP). It is a centralised online portal for businesses that provides comprehensive information for entrepreneurs and offers direct access to a number of e-government services. The portal serves as a single entry point for businesses and aims to create a favourable environment for setting up and running a business in Austria.
Upon registration, businesses have access to several features, such as:
a virtual tax office (FinanzOnline)
social insurance services (Electronic Data Exchange of Social Insurance)
a data-processing register
e-invoicing to the federal government
lobbying and Advocacy Register
a transparency database (publications of information about subsidies and transfers).
Moreover, the USP offers regular updates, information and tips regarding regulatory aspects of commercial activities, e.g. concerning personnel; tax; starting a business; searching for forms; or searching for the competent authority.
Source: Austria - Unternehmensserviceportal.
Since 2015 Latvia has continued to update its one-stop-shop approach to group procedures from the State Land Service and the Land Registry offices.1 Public services that could be considered to form part of a broader one-stop-shop approach for businesses are, for example: the Enterprise Registry, the State Land Service, Land Registry offices (which are under court jurisdiction), the Patent Office, the business arm of the Tax Authority and relevant licencing authorities.
In Latvia, a Public Administration Service Portal (www.latvija.lv) is operational, the remit of which is progressively expanding to include an increasing number of e-services. Managed by the State Regional Development Agency, the portal is the visible part of a developed national shared services platform. It consists of three levels: information, consultation and e-procedures (from basic e-documents sent by email to advanced, fully automated e-services). The portal also provides the opportunity to carry out e-services payments. As such, the portal serves as the Latvian “Point of Single Contact” for services, as provided for by EU legislation. The availability of e-services is provided also through the institutions’ websites. At present, more than 500 e-services are made available to citizens and businesses, mainly through the Public Administration Service Portal. In the case of the State Revenue Service, all formalities must now take place directly on line.
The Ministry of Environmental Protection and Regional Development is currently re-designing its underlying concept in order to make the portal more user-friendly and, ultimately, make the interface with the public smoother and more effective, as called for by some stakeholders.
In parallel, the Ministry of Economy started a new initiative to create a one-stop-shop website for businesses in Latvia. An improved one-stop portal is in the planning process and funds are already allocated. Some technological progress is already implemented to centralise such services.
In order to be truly effective, a one-stop shop should be designed strictly from the perspective of the users – rather than from the providers’. Users should not be concerned with differentiating between the competences of state agencies or have to engage in identifying and coping with the relevant legal provisions. They should, however, be required to provide a certain piece of information only once. This applies in particular, if such information is relevant for a higher number of state agencies. For example, even though the identity and address of the directors of a company are relevant for the Enterprise Registry, Land Registry offices and the Tax Authority, a one-stop shop approach requires this information only once. This would apply even if the different authorities require the information at different times. Currently, the users of public services are to provide the same piece of information multiple times when dealing with different state agencies. Reducing this to one-off submission only yields both private and public cost savings. Businesses would lower their registration costs and agencies would save costs since the information processing at the front end only happens once – instead of multiple times. This would have the added benefit of all services working on the basis of a consistent and identical data set. The current uncoordinated multiple requests of information by multiple public administrative bodies carry the risk of incoherent decisions and unpredictability. Some stakeholders have complained about such decisions being based on conflicting data.
The potential of one-stop-shop services is driven by information technology (IT) where electronic solutions are at the core of the one-stop-shop strategy (see below). Websites and data platforms facilitate centralised public services using data economies of scale in an unprecedented way. Consequently, such initiatives should aim to reduce the need for users to physically come to state agencies. This might be achieved by physically bringing the contact points for business-related services into one building or closer together. Stakeholders reported that – at present – the offices of public services are usually spread over different locations across the country, e.g. Enterprise Registry. Occasionally stakeholders also mentioned that they still want to be able to interact face to face with service staff. A compromise solution could be to allow for video communication where businesses arrange for an e-meeting and discuss with a service provider over video.
Provision of e-services
Beyond one-stop shops, the provision of e-services is a fundamental element to streamline administrative procedures for the everyday life of each citizen. It is, at the same time, an integral part of the commitment by the European Union to create a digital single market that minimises administrative burdens for economic operators. From 1 September 2018 all EU citizens should be able to receive cross-border electronic services through a qualified identification and identification tool provided in each member state. In Portugal, the Simplex/Simplex+ (administrative and legislative simplification programme) project aimed at fostering a better business environment, improving citizens’ lives and reducing costs for the Portuguese administration. This programme was based on cross-department and multi-level collaboration, and joined e-government and cutting-red-tapes initiatives (OECD, 2010a).2
The Government of Latvia is actively engaged in securing the elaboration and circulation of e-documents between individuals and institutions as well as the provision of e-services to end users. Every natural and legal person in Latvia has the right to use e-documents to communicate with all state and local government institutions as well as courts and public service providers. Such communication may take place either on line through the Public Administration Service Portal or through consumer service centres across the country. As mentioned, the State Regional Development Agency is thus developing a unified technical solution (e.g. memorandum of understanding at ministerial level as regards data protocols; see below) that will provide these tasks and will be integrated into the Public Administration Service Portal. In addition, providing the services (e.g. forms) in English and other languages could also help develop an international, business-friendly environment.
The Law on “Official Electronic Address” took effect on 1 March 2018, which provides for a legal framework to facilitate the circulation of e-documents and the more efficient use and development of e-services. A single electronic environment linked to a specific e-address will be created, to which each user will receive and store all their correspondence with public institutions, regardless of the authority and the matter at hand. The law also provides that an email account will only be accessible through qualified personal electronic identification means.
The Estonian experience shows some positive outcomes following the automation of most public sector processes (e-Governance Academy (n.d.)): more than 80% of Estonian enterprises now communicate with the public sector using e-channels; the duration of a business-starting process went from five days to two hours; public information (tax, commercial, procurement issues) about companies is now easily accessible and usable, which is deemed to have a direct impact on preventing money laundering and corruption.
Box 3.2. Estonia’s e-residency model
E-residency of Estonia is a programme launched by Estonia in 2014 and opened to location-independent entrepreneurs from all over the world. E-residents receive a government-issued digital ID card that enables them to access Estonian public and private sector e-services and resources. E-residency provides the ability to remotely take the following actions:
digitally sign documents and contracts
verify the authenticity of signed documents
encrypt and transmit documents securely
establish an Estonian company on line
administer your company from anywhere in the world
apply for third-party services like e-banking and remote money transfers
access online payment service providers
declare Estonian taxes on line.
To date, 27 068 applications were submitted from 143 countries. Using digital ID card and e-services, 4 273 companies were established in Estonia.
Source: Estonia - E-residency website.
Prompted by the risk of fraud via e-services, certain Latvian stakeholders (other than the sworn notaries) thought that this was a theoretical risk only. According to them, e‑services could be safer than physical checks as it will be easier to optimise multiple checks. Currently sworn notaries only conduct limited checks (see below). An e‑residency approach in Latvia such as in Estonia might be helpful, in particular, to improve investment opportunities for foreigners in Latvia by decreasing the time and costs necessary for registering business participation.
Discussing e-services with business stakeholders, it was revealed that many do not know enough about e-services and, as a consequence, do not use them. Also, not all agencies apply e-signatures at this point in time (see below). Finally coverage of fast optical fibre cable-based internet across the territory could be necessary for the take up of e-services in all regions of Latvia.
Leveraging information and communication technology (ICT) at the front and back ends
The use of IT mainly concerns two essential dimensions: the front end presented to users and the back end that deals with data management and decision making. Both dimensions matter equally and both dimensions offer enormous potential for cost reductions. In fact, it is only if both dimensions and additionally their inter-relationship is perfected that the potential of IT in public services is fully employed. To give just one example, improvements in data management and decision making at the back end will only develop their full potential if communicated in a user-centric way, such that businesses minimise their costs.
According to stakeholders, the business community is eager to see IT solutions uphold high-quality standards for the prevention of fraud. The majority of consulted stakeholders see an electronic public services approach as a chance to detect fraud. The thought was that data analytics could be used to detect fraud patterns in a way that mere identity checking would not discover.
The front end: Electronic identification, e-certification and e-empowerment
Security and reliability in working in an electronic environment require the issuance of individual e-identities to verify personal identification and allow personalised e-services. The Public Administration Service Portal identifies individuals for different services using various identification methods with different legal bases, security levels and usability. Common types of identity certification (authentication) in Latvia are:
Authentication systems maintained by the institutions: In order to authenticate their customers, the institutions create a specific authentication solution in their information systems, usually granting the user a username and password.
Authentication by Internet banking: By integrating the Internet banking mechanism into their information systems, institutions can allow identified individual users access to the relevant services and information. This authentication type depends on the voluntary agreement by the bank to such co-ordination, which cannot be guaranteed by the institutions, so might not be effective in the long run.
Mobile ID: Users can certify their identity remotely by using a mobile phone. Mobile ID is incorporated in the phone SIM card and merely requires mobile network coverage.
Electronic identification (e-ID) cards: The government committed to making the e‑ID card a free, mandatory document for residents in Latvia, providing for a transitional period from 2019 to 2022.3 The e-ID card contains biometric data and information in electronic form to enable both the electronic verification of the holder’s identity and the creation of a secure e-signature. As such, the e-ID card can serve both as an identity and travel document within the EU and as the most secure personal identification tool for accessing e-services.
Authentication by e-signature: This solution relies on an e-signature identification smart card. This authentication mode allows individuals to sign documents electronically and to access a variety of online e-services. Currently in Latvia three safe electronic signature types are available – virtual e-signatures (eParaksts), e‑signatures on smart cards and e-signatures on e-IDs. While stakeholders mentioned that not all agencies accept e-signatures in their correspondence, the possibilities to make use of e-signatures are expanding in Latvia. As a rule, all state and municipal authorities are now obliged to accept electronic documents signed with a qualified e‑signature. The timestamp is used along with e-signature in communications with state or local government institutions. The timestamp records electronically and thus bears proof of the time a document is signed. Currently the stakeholders have to pay for their e-signatures if they exceed a forfeit free use threshold; from 2019 it will be completely free and mandatory. It is hoped that the general availability of e-signatures will further support their use in practice. According to the experience in Estonia, mandatory e-signatures could increase the uptake of e-services.
The diffusion and use of certain e-identification means are disparate in Latvia. For instance holders of the Latvian e-ID card may, moreover, enjoy a forfeit of 120 individual free uses of e-signatures during the validity period of the card, after which the service unfolds on a pay-per-use basis. Technical challenges have also been identified, which tend to complicate or even prevent the authentication on the user’s website. The government recognises such hurdles.4 This considerably limits the attractiveness and effectiveness of the card, thereby hampering the legal certainty and trust in the e-ID card as a single and personally available universal means of identification.
Moreover the framework regulating the use of various means of identification is not uniform, and access to e-services is not evenly guaranteed in Latvia. The use of an identification tool is currently subject to an agreement between the provider of the service, the one of the identity identification, and the recipient of the service. Alternatively, separate provisions are needed in the legislation governing the specific public service.
Looking ahead, e-signatures alone are not the ultimate IT solution to businesses services. E-platform solutions offer more attractive cost-benefit relations than mere e-signature approaches. The essential reason is that e-platform solutions allow users to enter their data directly on the website and the entries are automatically transferred to the database. Using e-signature only approaches where, for example, the e-signature is attached to a PDF document, usually still requires someone to transfer the data from the document to the database. Hence, platform services offer greater cost savings.
Implementing e-services and promoting the use of e-identification in Latvia and other countries would need to take into account a population that is less tech-savvy and knowledgeable or have limited access to the Internet. It is thus important that going forward Latvia ensure e-empowerment. Stakeholder discussions emphasised that a considerable number of users were either not aware of already existing e-solutions or were equipped with wrong or outdated information on such possibilities. This highlights the need for information initiatives and getting support from core actors.
The back end: Common data management and protocol
With regard to the back end, stakeholders recommended a common data management covering all public services. In particular, establishing a common data protocol and common data standards/interfaces for all public services is key to the one-stop-shop approach, cost efficiency and facilitating the provision of e-services. While probably no one would dispute the usefulness of common data protocols and interfaces, they are sometimes difficult to achieve in practice. Different agencies might insist on their specific protocols and require exceptions, or co-operate half-heartedly. It seems necessary to establish an institutional and procedural framework that ensures the full participation of all service providers.
One solution is to set up a central body with the responsibility for harmonising data protocols and monitoring whether development milestones are met in a timely fashion. In Latvia this approach could build on the initiative from the Ministry of Environment and Regional Development. A memorandum of understanding at ministerial level is being developed that is intended to facilitate the harmonisation and quality of data protocols.
In terms of technical details, the Estonian e-residency model and the use of the Estonian open platform service, which is available as open source might be considered (see above; Box 3.2). The X-road project, which serves as the backbone of e-Estonia allows for “data exchange in a secure, decentralised, low-cost manner”. Some 600 information systems from the public and private sectors are linked in the state information administration system, together with more than 3 000 services.
Figure 3.3. Estonia’s X-Road project for secure and decentralised data exchange
Source: Estonia - Business Register (2017).
As mentioned for the design of the one-stop-shop website, the IT solutions should – from the start – be designed with foreign users in mind. This concerns back-end issues, such as the intake of data and the verification of information.
Moving forward: Investing in ever more efficient procedures for economic activities
Overall, although the government seems to have identified the reform fronts that require further action, and many of the issues raised by the stakeholders are already included in future reforms measures, a number of pending challenges persist, specifically in relation to the three formalities investigated below – i.e. the application procedures for registration and the re-organisation of businesses:
Digital signature and online services: While entrepreneurs’ awareness of e‑signature services is reported to be on the rise, its level of use does not reflect its potential benefits. This is partly due to the still widespread perception among the public that printed documents are legally more secure and binding than electronic files. A certain distrust in e-government is still embedded culturally in Latvia, although the main obstacles for a swifter diffusion of it are due to the lack of financial resources to set up the necessary e-infrastructure and the generally insufficient literacy and skills related to dealing with digital procedures and e-documents. Further reasons include the difficulty in implementation (78% of non-users) or the lack of information about the service (70% of non-users); the limited number of services accepting e-signatures; and mixed registration processes whereby not all documents can be submitted on line.
In addition, it currently seems difficult to use all services consistently on line. For example, notary certificates generally require personal attendance. It needs to be considered which functions really require personal attendance and where online-only services might be possible. Stakeholders reported that only small and simple companies could be registered on line, while larger and more complex registrations were not possible online-only (for example, if VAT is involved). One solution is to make use of the Estonian open platform service, which is available as open source. In addition, initiatives should keep in mind to incentivise private services to complement the basic functions of state business services. It could also be useful if e-services are organised by lifecycle; not so many companies use e-services (about 30%) so the issues are more about the mentality, although e-service take-up is higher for younger generations.
Other general challenges identified are, first, the setting up of a common data management covering all public services and an associated state institution and, second, the implementation of the ambitious plans to create a one-stop shop and easy-to-use public services. Tools that might support the process of setting up a working e-ecosystem and e-ID-system might be considered, for example an institution taking care of the harmonisation of data protocols and monitoring development milestones. Generally, it was suggested that e-platform solutions should be considered to go beyond e-signature approaches. This is because e-platform entries can be directly fed into the data system, while e-signature approaches still require manual data entry at public service level. Currently, entrepreneurs can optionally obtain an e-signature and use it with public services. Foreign e-signatures are currently not accepted, even if European. In addition, stakeholders stressed that agencies should work on the basis of the same information; currently they sometimes use conflicting information. Agencies should also make sure the user does not need to submit data twice, which currently is the case. The government seems to be aware of the disadvantages caused by the current heterogeneous electronic environment in Latvia. In particular, continued reliance on the fragmented, non-transparent framework for the electronic identification of the service recipient prevents citizens and businesses from fully exercising their right to receive state-guaranteed electronic services regardless of location. Individuals are not provided with steadily available and universally applicable means of electronic identification in order to receive an electronic service provided by the state for which the state is responsible for the safety and long-term operation. Economically, moreover, the current system is inefficient and burdensome on the public budget, and obliges commercial entities to invest extra financial resources in the development of new, individualised electronic identification solutions for their e-services.
Service costs: The costs of services were raised as an issue. The fact that negotiated discounted fees are offered to applicants if they opt to follow the digital procedure indicates that the fees are not set at cost-recovery levels. There seems to be scope for internationally comparing the costs of services and adjusting them.
Communication and language: One issue, mentioned several times, is the perception that state services do not communicate among themselves in a way that ensures coherent decisions from the perspective of the users. Central data management would be a first and important step towards coherent decision making. The perception of coherent decisions, however, does not only depend on the internal process of decision making. In addition, the external communication of processes and guidelines plays an important role in the acceptance of public services by citizens. One way to improve the communication between users and agencies is the publication of easy-to-use and easy-to-access best practice guidelines. Such guidelines can create a common ground between agencies and users and will improve the acceptance of procedures and results.
In addition, users gave thought to the question whether communication with them could be improved. Some felt that the register could maybe resort to quick and easy types of communication in cases where only minor issues in an application were problematic, such as a missing middle name. To address this issue, Latvia is introducing the use of artificial intelligence in the form of a chatbot for customer information and care. Considering the amount of reform and practical changes underway, communicating these initiatives to users will be key. With a view to attracting foreign investors, the register website already contains optional English and Russian languages. However, as of October 2017, these language options are not implemented without exceptions. Already on the first page of the English version, some part of the text is shown in Latvian. Against this background, stakeholders were very pleased to hear that there are ongoing discussions on whether the services should start communicating fully in English.
A final proposal from stakeholders in terms of communication concerns the communication of state services cross-border. Those stakeholders involved in cross-border investment felt that Latvian agencies at times create unnecessary hurdles for investors based in other countries. These hurdles concern the provision of information by foreign investors and the formal requirements for documents from such investors. In particular, foreign investment is hampered by the requirement of physical presence in Latvia for certain procedures. Similarly, unnecessary costs might be created in cases where Latvian law requires a certain legal form – for example a notarised document – when the home jurisdiction of the foreign investors does not provide such a form – many other countries do not have notaries. The experience of stakeholders shows that such complications either increase the costs of foreign investments due to costly attempts to work around or lead to the failure of such foreign investment.
Quality discrepancies at the sub-national level: Beyond the specific procedures considered for the measurement, business representatives pointed to some disproportionate costs imposed on business by various public administrations, notably when it comes to the delivery of public services at the local level (e.g. construction permits) where municipalities appear to still need to embark on major reforms. In those instances, businesses cannot expect the same clarity and predictability of public decisions that are to be found when interacting with several state administrations.
Business-related services under the Ministry of Justice
Enterprise Registry
Commercial registries are key enablers of the business environment and bear important economic relevance (European Commerce Registers Forum, 2016) (Box 3.3). Incorporating a business creates the corporate veil and allows the business to operate and access the financial and justice sectors. Registered companies may bid on public sector contracts. Registries hold information that helps businesses make targeted business decisions based on their sector or geographical location as well as build the confidence of other parties (suppliers or customers) to contract with the registered businesses. Besides tax purposes, such data can be collected for other key official statistics on the country’s economic environment (OECD, 2015b).
Box 3.3. The business registration process in OECD countries
OECD countries are developing specific measures to counter informal business environments by providing easier business registration processes.
In Chile, the Tu Empresa en Un Día (Your Company in One Day) programme enabled limited liability companies to register through a free-of-charge online platform, hosted by the Ministry of Economy. The registration process is reduced to filling out an electronic form with information on the company and shareholders. In addition, the online platform is directly linked to the tax agency, which means that taxpayer identification is automatically provided when a business is registered through this means. The programme had an almost immediate impact on the formalisation of businesses in the country and is now used by a majority of companies. According to the programme’s latest activity report, 73.6% of the businesses created in May 2017 went through the programme, which means an increase of 12.4% compared to the same month a year earlier.
In Estonia, the e-Business Register programme also had a significant impact on companies willing to start a business in the country. This online platform gathers several governmental services on line (business registration, business information and data, land registry). According to the Information System Authority, this tool allows a business to register a new entity, change existing information in the business register, and file XBRL (eXtensible Business Reporting Language, the standard used to define and exchange business and financial performance information) annual reports. Through the platform, the duration of business registration is deemed to have decreased from five days to two hours.
Brønnøysund Register Centre is a government agency under the Norwegian Ministry of Trade. The agency facilitates electronic business registration. It provides pre-filled electronic forms with information for several public registers, including the Register of Business Enterprises. The platform includes legal checks so the notification of registration is already proofed when submitted, preventing users from completing the requirements and sending documentation back and forth. The centre introduced the electronic signature for all notifications. Such electronic registration constitutes a great majority of all notifications received by the Register of Business Enterprises. This digital solution is user-friendly, enabling companies to easily and quickly update their registered data.
Source: Chile - “Tu Empresa en Un Día” (2017); May; e-Governance Academy (n.d.); Norway - Brønnøysund Register Centre website.
The registry is headed by the Chief State Notary, who is appointed by the Minister of Justice. The Chief State Notary may be dismissed by the Cabinet of Ministers. Similar to 15 other OECD countries (out of 25 surveyed) the government is the primary source of funding for the Enterprise Registry ‑ compared to a customer fees model (Table 3.1. Funding models of commercial registers in 27 OECD countries and jurisdictions). The Latvian Enterprise Registry joined the European Business Registers Interconnection System (BRIS) in June 2017.5 Its activities are regulated, among other things, by the Law on the Registry of Enterprises of the Republic of Latvia of 2005 and the Regulations of the Register approved by the Cabinet of Ministers.6 The Commercial Law further determines the legal events requiring registration, and other laws regulating formal aspects of the registration process, including the Law on Electronic Documents and the Law on the Notaries.
Table 3.1. Funding models of commercial registers in 27 OECD countries and jurisdictions
Source: European Commerce Registers Forum (2016).
Services of Enterprise Registries integrate notaries and banking counter services as well as VAT registration. The Registry employs several state notaries, whose main task is to verify the submitted documents for compliance with legislation; register commercial companies and organisations; and record changes in the basic documents. Additionally, state notaries also certify signatures on the documents that must be submitted to the Enterprise Registry.7
Accessing the service in practice
The reality of registration activity is dominated by private limited liability companies. In 2017, private limited liability companies accounted for more than 90% of all entities registered in the Enterprise Registry (ranging from sole traders, general partnerships, limited partnerships and private limited liability companies to public limited liability companies) (Figure 3.4).
Figure 3.4. Types of registered companies in Latvia
Source: Enterprise Registry as of August 2017.
Stakeholders voiced their general satisfaction with and trust in the services provided by the Enterprise Registry.8 The services provided by the Enterprise Registry are said to be widely used. Out of 96 businesses surveyed, 89 declared having used them in the last 3 months. The services were obtained on line (17); partially on line (18); by email (10) and in person at the Enterprise Registry (20). Entrepreneurs knew where to go and apply or whom to contact, or where they stand in the process. Respondents spoke highly of the staff working in the Registry. Two respondents declared corruption or bribery was involved. Businesses additionally mentioned the following aspects: when accounts are sent to the tax authority, they are forwarded to the register; registration fees are low. While business registration is seen as efficient, businesses reported that time spent to register at the Enterprise Registry increased between 2014 and 2017, from 5.7 to 6.4 days.9 This increase was greater when it came to registering for VAT status at the State Revenue Service. As in other OECD countries, after registration, businesses have to apply for business licences, which is said to be cumbersome in Latvia. According to their experience, registration is easy and straightforward if it is a single person registration but cumbersome if a more complicated structure or a foreign investor is to be registered.
A number of stakeholders also reported that a number of businesses are registered in Estonia, while conducting their businesses in Latvia. It is difficult to establish the reasons for this perception10 and this pattern with certainty. Possible reasons for setting up business in Estonia discussed with shareholders are possible reputational advantages of the Estonian legal framework brand, tax arbitrage and the more facilitative culture of the Estonian registers and institutions. Should this trend be confirmed, it is recommended to establish the causes for this pattern, as these would be symptoms of a legal or factual structure that might require regulatory action.
Many factors impact the complexity and timing of the registration process, including the handling and format of submission (paper, web-based/online forms, pdf images); the level of control/legal checks. Paperwork requirements and the complexity of the process were said to be the most unreasonable; the highest rate of replies (29) said it took them between one day and one week to obtain the service from filing to application, albeit the preparation of the paperwork was not found difficult. Legal empowerment of businesses through clearer information could help alleviate the perception of complexity and time waste (Figure 3.5. Main barriers to accessing the services of the Enterprise Registry).
Figure 3.5. Main barriers to accessing the services of the Enterprise Registry
Source: OECD (2017a).
Avenues for service improvement according to surveyed businesses
Stakeholders made a number of suggestions to further simplify and speed up the registration process in specific instances (Figure 3.6). These are presented in the following sections and should be read in light of the cost assessments made in Chapter 3.
Figure 3.6. Main avenues for service improvement of the Enterprise Registry
Source: OECD (2017a).
Service fees and financial costs for businesses
The majority of business respondents (out of 50) found the service to be affordable; yet the financial burden was still seen to be heavy (Figure 3.5). Discussions with stakeholders revealed that there is more to the issue of service costs than the reduction of service costs at the back end as a basis for lowering the price of services charged to users. One such further element is the fact that state agencies are in a position to lower service costs to clients beyond transferring their own cost savings. The perspective for discovering such cost savings on the user side is to consider the intermediary position of the state agencies. Whenever the agencies manage to offer their services in a way that maintains their cost level, but reduces the costs on the users’ side, an overall cost reduction is achieved.
One example for achieving such cost reductions is to offer standard documents, simple forms and guidelines to spare businesses the need to ask for professional advice. In particular, small and medium-sized businesses for which such advisory costs are relatively higher will benefit from such measures. A further element is to develop a coherent approach to pricing services. Such a coherent approach would consider the effects of service charges on the behaviour of users. For example, prices might be used to nudge users toward the use of e-platform services, which in turn triggers economy of scale advantages in terms of back-end costs, as mentioned above. Further, cross-services price comparisons can be used to understand the reality of pricing from the perspective of the users. Finally, international price comparisons – in particular with closely competing jurisdictions – can reveal information for strengthening Latvia’s position in the competition for investments.
Simplification and scope of examination
Among OECD countries, many differences exist between the amount and type of information needed, the type of control or legal check; name examination, use of public notary; and the submission format (paper, electronically).
In Latvia the scrutiny of the Registry is not substantive and rather procedural – e.g. verifying the correctness of the name and legal address of the applicant, and of the chosen name of the company ‑ in the sense that the state notaries do not check the factual circumstances in which a certain decision was made, nor whether all facts specified in the submitted documents are true.11 No scrutiny is performed at that stage on the type of economic activities envisaged by the applicant. The Registry may alert other public administrations such as the State Revenue Services about potential risky situations, in particular in relation to cases where an address appears to host several companies or where a person appears to sit on the board of several companies. The need to ensure that a legal entity can be reached at its legal address is the main reason why this check is conducted by the Enterprise Registry. Stakeholders mentioned it could also be used to avoid fraudulent behaviour in setting up companies at fake addresses (a non-existent building or a place where many other businesses are registered).
According to 50 business respondents, optimising the process and data requirement simplification is the main avenue for service improvement (Figure 3.6). As of October 2017, efforts were underway to simplify the registration process by reducing the number of issues checked by the Enterprise Registry as a pre-condition of registration. The issues the Registry should check were planned to be reduced to essentials, such as name, board composition, and whether the capital corresponds with the legal requirements. This is in line with stakeholders’ recommendation for the Enterprise Registry to interfere less with regard to the substance of submitted applications. In particular, stakeholders preferred the Registry to engage less in checking the articles of association when registering a company.12 It is recommended to monitor whether the reduction in intensity and breadth of the issues checked by the Registry is implemented in a way such that the mandate of the Registry and concerns of the users are satisfied.
In addition, where there are multiple enterprises registered at one address, the register entry is postponed for a certain number of days and stakeholders feel this loss of time unnecessary. Further, stakeholders felt that processes under which the Registry asks the State Revenue Service for further information could be streamlined. Such extra information may be required, for example, where there is only one board member.
Further simplifications might be considered, namely to simplify the law regarding the registration of branches of foreign companies in Latvia.
An “operate-straight” registration
From the point of view of future entrepreneurs, being able to swiftly operate should be the premise of the provision of registration services, i.e. taking into account pre-registration activities, to the registration per se and obtaining the necessary licences.
Building on the one-stop-shop approach, shifting from a concept of “simple administrative registration” to an “operate-ready” registration would ensure businesses are set up to perform their activities as soon as possible. This is in line with businesses that indicated in the survey the ability to obtain necessary business-related services in one location as a desired avenue for improvement. As mentioned above, registering your business entails some administrative activities that are out of the scope of the registration process at the Registry itself.
While checks are necessary to ensure the legality of the business activity, optimising data exchange between business services and integrating licencing services could improve business development in Latvia. For instance in the last ten years, the number of state and local government permits or licences and time spent to obtain them have increased.13 Latvia is proposing to set up a single national body responsible for reviewing the licenses and permits related to business activities. Business development would gain in efficiency and effectiveness to see the operations of the proposed national body linked to the overall registration process.
Clear and up-to-date data for legal certainty
The first of these future developments is increasing the degree of publicity.
The Enterprise Registry currently provides publicity services that are in line with established international practice: 1) basic information is available free of cost (for example type of entity, legal address, name, registration number and date; 2) the remaining information is available at a fee not exceeding the administrative costs (this includes the documents on which registry entries are based); 3) private information providers use the information from the Enterprise Registry, enrich it with additional elements and offer these value-added services to interested parties (for example, information on liquidity and profitability).14 Currently, such amendments are publicised in the National Gazette. Information about all amendments can be received by requesting a statement – full information about a registered legal entity (at a fee not exceeding the administrative costs). From the perspective of both cost reduction and accessibility improvement, it is suggested to move such publications to an electronic platform (only). For instance, the German Commercial Law provides for the online publication of register entries in its Section 10.15
An issue where certain progress was achieved, but which continues to plague the Enterprise Registry is a relatively large number of inactive companies on the Register. For example, by 31 May 2017, 262 108 entities were already registered, and out of those entities 179 315 were active, while over the course of 2010 only 262 004 entities were registered, out of which 179 271 were active. In turn, during the year 2009 the number of registered entities amounted to 261 922, out of which 179 240 were active (Baltic Legal, n.d.). While there is nothing to be said against using shelf companies that are created in order to be immediately ready if needed, stakeholder comments suggest that the inactive companies on the Enterprise Registry go far beyond the legitimate use of registering companies that are not immediately trading. In particular, such companies create a risk to be abused to the detriment of outsiders such as creditors. If this problem persists, it is suggested to consider using a combination of mixed measures to distinguish legitimate inactive companies from illegitimate ones. English law uses a mix of filing duties, penalties and the threat to strike companies from the register to deal with inactive companies (Box 3.4).
Box 3.4. Clearing the registry: UK practice
UK law requires inactive companies (so-called “dormant” companies) to file a confirmation statement and annual accounts with the register. If the company is dormant and small, the company may file “dormant accounts” instead and no auditors’ report is required. A company is dormant if it had no significant transactions in the financial year. The sanctions for late or no filings are penalty payments and striking the company from the register.
Legal empowerment and the use of ICT
The most significant barrier according to the 50 surveyed businesses was the complexity and vagueness of the information (Figure 3.5). While the procedures linked to registering a business are not perceived to be overly burdensome, information displayed on the Registry’s website was by contrast not considered straightforward, which prompts several applicants to visit the Registry personally to ensure clarity.
The surveyed businesses requested more and clearer information on line, and, in addition, the ability to obtain information by phone (Figure 3.6). The Registry communication of the actual requirements and forms mandated in practice as opposed to the legal provisions set out in the Commercial Law is moreover reported to be a cause of confusion that prompts applicants to seek direct clarifications in person. The poor availability of information in English on relevant websites and brochures also impacts foreign applicants.
As users are more interested in a straightforward and cost-adequate registration process overall, other factors that affect registration, but are not necessarily in the competence of the Enterprise Registry, matter to them. Hence, the ease or difficulty of opening a bank account matters to users if this is a requirement for registration. A number of stakeholders mentioned that opening a bank account is difficult and hampers the registration process. The process of opening an account is perceived to require many documents and banks are thought to be quite restrictive in practice. When incorporating a company in Latvia, the founders have to physically go to the bank, which is a burden, and this is problematic in particular for foreign investors. Stakeholders wondered whether a framework could be put in place, under which a bank account is provided with ease once the essential elements for registration are provided.
As for other public services, information technology plays an important role for the future of the Enterprise Registry. Currently, electronic registration requires the use of an e-signature. Only 25% of businesses reported using e-signature in their dealings with the Enterprise Registry.16 Users suggested pressing for the mandatory use of e-signatures to ensure the take up of this technology, similar to the Estonian experience. Current recognition by the Registry of e-signatures other than Latvian ones is very limited, even for some EU member states wherein interoperability is not established (with the exception of Estonia and Lithuania). Therefore, international investors encounter problems in the registration process. This is further complicated in cases where the foreign jurisdiction, e.g. China and Saudi Arabia, does not notarise foreign documents. Stakeholders emphasised that their businesses do not only concern the European Union, but for them, investors are also attractive from the wider world. For example, when there is a change of shareholders, one physical document needs to travel through the world because the signatures need to be on one page. Stakeholders feel that the notary approach does not work well internationally. In addition, while a founder can certify his or her ID with an e-signature in Latvia, translators still physically need to go to the notary (also see the discussion above).
Use of the Registry’s e-platform service grew from 38% in 2014 to 42% in 2016.17 Users, however, reported problems when using the website registration service. A stakeholder involved in multiple registrations reported that as a consequence of the problems experienced, attaches all documents to an email and sends it to the Registry instead of using the e-platform. 18Such cases are neither ideal for the user nor for the Registry. The e-platform offers efficiency advantages in terms of data transfer compared to other means of communication and, hence, it is in the interest of all parties involved for this e-platform approach to be used as extensively as possible. The introduction of e-addresses for enterprises is planned for 2020. Stakeholders suggested not to limit e-addresses to communication between enterprises and state agencies, but also to facilitate their use for communication between enterprises.
State Land Service and Land Registry offices
A reliable, transparent, complete and secure land registration system is associated with greater access to credit, lower income inequality and lower incidence of bribery at the Land Registry (World Bank, 2015). In Latvia, real estate and subsequent changes are recorded in Land Registries and the related property rights are registered in Land Books.
Organisational and service arrangements
Land administration system in Latvia is covered by two institutions – the State Land Service and the Land Registry. The State Land Service is supervised by the Ministry of Justice. The Land Registry offices are part of the district (city) court system: rights in the Land Registry are corroborated on the basis of a decision of a judge. The decision of the Land Registry office judge may be appealed in the Appeal Court.
State Land Service manages the National Real Estate Cadastre Information System (Nekustamā īpašuma valsts kadastra informācijas sistēma), which is used for registering the individual components of property and consolidating these components for the purpose of recording the property in the Land Registry. The State Land Service is headquartered in Riga with five regional offices. The Land Registry (Zemesgrāmata) is used for recording immovable property rights following registration of property in the National Real Estate Cadastral Information System.
Land Registries offices are judicial institutions and are maintained by the Court Administration (i.e. administrative work of Land Registry’s offices). The State Single Computerised Land Registry groups the database of all the Land Registry offices. It contains the legally recognised information about the immovable properties and the rights related, as well as information on general issues, including easements and real estate encumbrances, landowners, the legal basis for the title, notifications on insolvency or creditor claims (European e-Justice, 2016). Information can be requested by specifically indicating the number of a division or the cadastre number of a property or the name of a property, or the address of an object in the composition of the property. Only the owner of an immovable property (and people who have certain rights to an immovable property) can examine immovable property folders and search immovable property by personal identification data.19
The separation of cadastre and land register into two entities – the State Land Service and the Land Register – creates challenges in terms of efficiency, consistency and accessibility. The dual structure may cause extra administrative costs, may lead to data inconsistency between the two institutions and may give rise to organisational complications. From the perspective of the users, it may be more complex and time-consuming to deal with two instead of one public service when it comes to land transactions. Some states such as Hungary and Lithuania solved these challenges by taking a unified approach where the cadastre and land register are organised in one institution. Other countries prefer a technology-based approach linking the registry and cadastre while keeping a dual structure. This approach needs to keep in mind that the issues to be solved do not only concern the organisational efficiency and data consistency of the cadastre and the register. In addition, the user perspective needs to be considered with a view to creating a one-stop-shop solution for land issues.
The division of the State Land Service (as part of the Executive) and the Land Registry (as part of the Judiciary) into two entities appears to be rooted in historical factors. Moving forward, as Latvia looks to identify efficiencies in the use of its judicial and state resources and to improve accessibility of state and justice services to users, Latvia may consider greater use of legal clerks in dealing with land registration issues and possibly strengthening the connection between the two entities. Many OECD countries can provide good examples in this regard. Many countries have merged the services under the roof of one state agency, although some OECD countries have their Land Registry managed by the Judiciary. In Germany, the Land Registry may be accessed only by persons who can show a legitimate interest in consulting it (e.g. particularly for legal or economic reasons). To do so, they must first contact the Land Registry office in the district in which the property is located. Those persons may also apply for excerpts. These restricted groups of users that may consult the Land Registry data via an electronic portal for the particular federal state include German courts, public authorities, notaries, credit institutions and utility companies. The judicial authorities of the federal states are responsible for regulating these access rights (European e-Justice, 2015).
Accessing the service in practice
Registering a property in Latvia is a three-stage process. First, the business will verify the title of the real estate and the legal rights attached on line, by paying a fee of EUR 5.20 After the parties sign a real estate sales agreement, they submit it to the municipality for a decision on its first refusal rights. After notarising its application, it is submitted to a land book judge for registration. The entry in the Land Registry should be made no longer than within ten days. According to the authorities, it usually takes five to six days. After examination of a request for corroboration, it is certified by a decision of the judge in a Land Registry office and immediately entered into the computerised Land Registry. Supporting documents can be sent by post to the Land Registry office.
Stakeholders are generally satisfied with the services provided by the State Land Service and the Land Registry offices. Specifically, most of the survey respondents expressed rather positive experiences with the institutions (19 out of 32). There is, however, disparity in the assessment of the staff in the State Land Registry offices – it was said to be knowledgeable and competent while some respondents strongly disagreed. Surveyed businesses (32) highlighted four main barriers: accessibility and vagueness of the information; the complexity of the process and language; financial and time burden (Figure 3.7). As for the financial costs, further analysis is needed to better capture the financial burden beyond the service fee.
Figure 3.7. Main barriers to accessing the services of the Land Registry Offices
Source: OECD (2017a).
According to the survey of the Ministry of Economy, in 2016 it took on average 16.5 (and up to 42.1) days to register real estate in Latvia compared to 24 days in 2014. According to the Office, the latest data from the year 2017 show that in Land Registry offices in Riga the application, when submitted, is decided within 5.7 days on average. The 32 surveyed businesses questioned as part of this report indicated that the process took less than 1 day to 1 week (10) and from 1 week to 1 month (18).
Avenues for service improvement according to surveyed businesses
Pre-registration activities, i.e. preparing the paperwork, were seen as mostly burdensome by 32 businesses. Respondents reported lengthy procedures that could be improved by simplifying data requirements and process and number of steps (Figure 3.8).
Figure 3.8. Main avenues for service improvement of the Land Registry
Source: OECD (2017a).
Unifying the Land Registry services
It is suggested to reconsider the division of land services into two entities against the advantages of centralising both services in one institution. This can promise costs savings and facilitate the provision of one-stop-shop services to users (see below). Indeed in some economies, having the real property registration and information gathered in one system shows positive outcomes by limiting inconsistency and ensuring more comprehensive data provision. According to the World Bank (2015), doing so helps maintain up-to-date records on the legal rights to properties and the spatial characteristics of land plots, thus increasing tenure security. It also provides a single point of contact for those conducting land transactions.
Enhancing the use of land and cadastral e-services
Despite significant improvements in the automation of information and registration by Latvian authorities, it is important that the current system continues its efforts towards comprehensive and efficient access to land and cadastral services, using information and communication technologies (ICTs). Many entrepreneurs do not seem to use electronic means to apply for registrations with the Land Registry (10% in 2016, mostly in Riga).21 As confirmed in the survey, most businesses stated that they went in person to the Land Registry office to handle their cases (26 out of 32 respondents). The need for the development of e-services in order to facilitate the completion of a process on line was highlighted (Figure 3.7). Banks, instead, were said to use electronic registration regularly. It is suggested to create the necessary framework and incentivise stakeholders other than banks to use electronic registration, including reviewing the need for notarised documents. Furthermore, it may prove fruitful to explore the digital registration of mortgages and similar instruments to provide an efficient background for credit security.22
Patent Office
Latvia is focusing on improving its patent system in a bid to boost innovation activity and research and development (R&D) expenditure.23 Providing firms with well-defined and high-quality intellectual property (IP) rights and enforcement mechanisms for those rights is necessary (OECD, 2017a). Intellectual property rights give businesses an incentive to invest in R&D, encouraging the creation of innovative products and processes. They also give their holders the confidence to share new technologies through – among other things – joint ventures and licensing agreements. In this way, successful innovations are, in time, diffused within and across economies, bringing higher productivity and growth (OECD, 2010b).
Organisational and service arrangements
The Patent Office of the Republic of Latvia (Latvijas Republikas Patentu valde) is the central authority in the Latvian industrial property protection system. It administers the grants of national patents and the filing and validation of some European patent applications. Latvia is also a member of the Enhanced Co-operation on the Unitary Patent Protection and ratified the Unified Patent Court (UPC). The Patent Office provides for the registration of trademarks, design, topographies of semiconductor products and supplementary protection certificates. Businesses and other stakeholders can also register their trademarks under the Madrid system since 1993 and their designs and models under the Hague system since 2005. The service is centralised in Riga and e-services are available.
The Patent Office offers free access to up-to-date information on registered IP rights, the current legal status of Latvian trademarks, and industrial design registrations. It is part of the European Trade Mark and Design Network, which provides trademark and design statistics; a common user satisfaction system; an enforcement database; and e-learning for small and medium-sized enterprises (Box 3.5). None of the 53 business respondents found the process complex or difficult to understand or were lost in the process.
Box 3.5. The European Trade Mark and Design Network
The European Trade Mark and Design Network (ETMDN) is the hub that connects national and regional intellectual property offices, user associations and other relevant organisations from all across Europe. The network provides a high-quality experience for users of the IP system by having up-to-date electronic services, facilitates access to information, and converges practices on how IP offices examine and evaluate trademarks and designs. The projects are driven by working groups made of experts from the participating institutions. Infrastructure and resources to support project implementation are provided by the European Union Intellectual Property Office and the participating IP offices.
There are several intellectual property tools aimed at supporting examiners, businesses and the enforcement community available on the ETMDN website. For instance, the “TM view” allows any person to search for, free of charge, the trademarks of all the trademark offices involved in the initiative. The “Design view” is a centralised access point to view the registered design information held by any of the participating national offices. The ETMDN website also makes available e-learning courses providing online training for small and medium-sized enterprises on the importance of IP rights.
Source: European Trade Mark and Design Network website.
Accessing the service in practice
Registration process
In Latvia the granting of national patents is an easy procedure as it is a simple registration procedure. Among businesses that have declared having used the Patent Office to obtain legal protection of an invention (7 out of 53) or trademarks (7 out of 49) in the last three years, most respondents were satisfied if not very satisfied with the service provided. When a patent application with respective documentation is submitted, the Patent Office examines the documents and determines whether the filed documents conform to the requirements of patent law. If the submitted documents conform, the Patent Office sets the patent application filing date. The Patent Office proceeds to a formal examination of the application within three months, after which the date is set for publication of the application. The publication shall be made within 18 months of the filing date or – if priority was requested – from the earlier priority date of the application. This enables the applicant to file an application in other countries within 12 months as well as to obtain the results of the search informing the applicant about the patentability of the invention before publication. After the fee is paid by the applicant, the Patent Office registers the patent in the State Patent Register, publishes the notification regarding the grant of a patent in the Official Gazette of the Patent Office (available only on the official website of the Patent Office) and issues the patent to the owner of the patent. The 53 survey respondents stated that this procedure is time-consuming and significantly impedes the use of services provided by the institution (4 out of 6). Nevertheless, no businesses reported difficulties in understanding or following the process; the paperwork was also not seen as burdensome. The staff of the Patent Office were said to be knowledgeable and competent by all respondents (3). The decisions of the Patent Office are appealable (Gencs Valters Law Firm, 2016) (see Box 3.13 later in this chapter for more information).
The patentability of the invention is tested in the course of court proceedings when challenged (Box 3.13). This approach helps not to deter potential businesses from applying for a patent. Applications can be filed in English, French, German, Russian or any other EU official language under a European patent application, provided a Latvian translation of the invention formula (claims) is submitted within three months. Patent searches are free.
The ability to complete the process on line was seen as limited for two out of four business respondents, and considered an avenue to be further explored.
E-service
The experience of the Patent Office with e-applications of trademarks and designs demonstrates the advantages of e-platform services over e-signature services. Relevant cost savings are made with the e-platform approach while with e-signatures, little savings are achieved. It is suggested to consider whether the discount of 10% for electronic applications could be increased where higher savings are made, for example in the case of e-platform applications, under certain circumstances. The last cost assessment was performed in 2015. A starting point would be to recalculate costs per service, as envisioned by Ministry of Finance, “A pilot project to reduce the costs of processing patent applications and to improve their quality was launched by the Patent Office in October 2016” (OECD, 2017b).
Service costs for users
According to information provided by the Patent Office, fees to file a patent application or an application for an additional protection certificate is EUR 120 (patent application costs vary based on the number of claims and the number of pages in the application; discounts are available for physical disability [60%] or a student or retiree [80%]); EUR 90 for granting a patent and patent publication; EUR 90 to EUR 420 for a renewal. Fees to file a trademark application start from EUR 90 for an individual trademark and EUR 150 for a collective trademark; EUR 95 for registration; EUR 180 for renewal of an individual trademark and EUR 240 for a collective trademark. Regarding designs, the minimum fee to file a national application for a single design is EUR 40; EUR 65 for registration and publication (only one representation in an application) including the grant of the registration certificate and between EUR 170 and EUR 335 renewal fees depending on the renewal period.
Other service costs related to the work of international IP institutions are the following: preparation of a community design application and forwarding it to the European Union Intellectual Property Office (EUR 31); preparation of a priority document on the basis of documents and materials from the Patent Office’s register and transmitting it to the International Bureau of the World Intellectual Property Office (EUR 19.16).
The Patent Office’s service costs for the legal protection of trademarks were seen either as affordable (4 out of 6 respondents) or expensive (2). Thus, it was suggested to reduce the financial burden of registration.
A continuum of dispute resolution services
Service chain and user-centricity
OECD work on access to justice focuses on users trying to identify and address their legal needs through a full continuum of legal and justice services (Figure 3.9). Evidence indicates that exclusive reliance on litigation through the judiciary system can be costly (both to the state and litigants) and lengthy. With this view, countries are taking steps to promote a wide range of legal and justice services, recognising that effective resolution of disputes can take place through various pathways to justice, which could be arrayed along a continuum of services from access to alternative dispute resolution (ADR) mechanisms to full litigation, and from access to legal information and legal advice to full representation.
Figure 3.9. A continuum of legal and justice services
Source: Adapted from Australia - Attorney-General’s Department (2009).
Justice and legal assistance are recognised as a public service in most OECD countries. The user-centred perspective should be incorporated in a broad range of modalities to resolve legal problems. The concept of the expanded rule of law envisions accessible procedures that enable fair outcomes for all, and particularly those who live in situations of disadvantage or vulnerability, whose cases rarely reach a courtroom.
The experience of OECD member countries underscores the importance of several criteria to ensure efficient justice service delivery adapted to people’s legal needs from entry to the endpoint of the justice continuum. These include: evidence-based planning, inclusion, empowerment, prevention and timeliness, responsiveness, collaboration and integration, outcome focus, fairness and effectiveness. These criteria can be implemented across all the components of the justice system: structures, processes, outcomes, and the system as a whole, and assist by: improving data-collecting capacity; building stakeholder support and ownership; informing project design; gauging project effectiveness and informing practice; increasing transparency and accountability; and including the perspectives of vulnerable groups (Figure 3.10).
Figure 3.10. Common criteria for service delivery
Source: OECD (2017b).
Businesses’ legal needs and behaviour in Latvia
As part of this report, Latvia conducted a business legal needs survey.24 While assessing the legal needs and experience of citizens is gathering some strong interest among OECD and non-OECD countries, a smaller number of countries carried out this innovative approach to help better tailor the delivery of justice services to the specific needs of the study subjects (Box 3.6). In practice, this exercise seeks not only to identify the legal problems of businesses but to also understand how they face this problem, what action if any they took and why, and what the underlying causes and consequences were. The analysis in the following sections builds on four complementary tools: an online legal need and experience survey conducted for the purpose of this report; interviews with governmental and non-governmental stakeholders; official information provided by Latvia; and a literature review. A total of 295 business representatives participated in the overall survey on access to business justice services with 62 responding to the legal needs and experience section. These data represent the views of a small number of businesses and should be interpreted with caution.
Box 3.6. Business legal needs studies in OECD countries
In the United Kingdom (England and Wales), the Small Business Legal Needs Benchmarking Survey conducted in 2013 highlighted the direct relevance of addressing the legal issues of businesses to improve the business environment and promote economic growth. The survey collected information on the characteristics of small businesses; internal legal expertise and the practice of using legal services; legal problems faced by small businesses including nature, model, impact and outcome; the strategies to address legal issues; attitudes to law, regulation and services.
In the Netherlands, the Ministry of Safety and Justice conducted two surveys that aimed to identify difficulties experienced by small and medium-sized companies. The study focused on the occurrence and settlement of (potential) legal problems in those companies, which jointly makes up over 99% of the companies in the country. The research focussed on the nature and frequency of the problems; legal pathways chosen; legal assistance providers and final solutions to the problems.
The Australian Department for Industry, Innovation and Science was created to enable growth and productivity for globally competitive industries. Its work focuses on supporting science and commercialisation, growing business investment and improving business capability, streamlining regulation and building a high-performance organisation. The Office of the Chief Economist provides publicly accessible data on resources, energy, innovation and industry. It serves as a basis for numerous publications and research papers addressing a wide range of economic issues. For instance, most recently, analysis of entrepreneurship dynamics in Australia was published.
Source: Pleasence, P. and N.J. Balmer (2013); Netherlands - Ministry of Safety and Justice website; Australia - Department for Industry, Innovation and Science website.
Characteristics and impact of legal issues faced by Latvian businesses
Legal interactions with other businesses, customers or the government are the backbone of business activities ranging from employment, intellectual property protection, leasing premises, etc. Latvian businesses mostly deal with other businesses (165 respondents) or customers (134 respondents) in their everyday activities. Their business dealings with the government amount to almost 20% of their interactions. Those legal relationships are potential sources of legal threat for businesses in all OECD countries. While all types of businesses are affected, small businesses are particularly prone to volatility, and misfortune that could lead to legal issues (Pleasence and Balmer, 2017a). Additionally, a US study found that the larger the business, the higher the proportion of disputes (Norton Rose Fulbright, 2017). In some countries, businesses feel increasingly exposed to cybersecurity and data-protection-related disputes (Norton Rose Fulbright, 2017).
In Latvia, 39 out of 62 business respondents reported having encountered at least one legal problem in the past two years. The most frequently experienced problems relate to employment (e.g. payment of wages/pension, staff misconduct and dismissal or threat of dismissal), followed by regulations (e.g. data protection, filing/content of annual company accounts, need for/outcome of audit, mandatory licenses/permits/accreditation or insurance) and goods or services provided to customers or purchased by the business (late, partial or non-payment).
Figure 3.11. Types of problems faced by businesses in Latvia in the last 24 months
Notes:
Fraudulent or wrongful trading: Concerning insolvency
Public tender: Unfair operation
Int’l trading: Legal/regulatory issue
Refusal of credit: Due to incorrect information held by a credit reporting agency
Mismanagement of business money including of investments by financial services
Source: OECD (2017a).
The prevalence of a legal issue is not correlated to the level of concern of business. The nature of the problem and the perception of its seriousness can vary, thus being a deciding factor in the course of action (see below).
Based on 44 replies, business respondents were said to be most affected by legal problems linked to the unfair operation of a public tender (11.36%), liability for tax/amount of tax owed (11.36%), payment for good or services (9.09%), or fraudulent or wrongful trading (concerning insolvency) (6.82%). In the five largest business sectors, the unfair operation of tender and liability to tax were said to carry the highest consequences (Figure 3.12). It would be interesting to further the analysis and understand the factor of concerns (e.g. time, legal cost, reputational risk, etc.).
Figure 3.12. Most significant legal problems in the five largest surveyed business sectors in Latvia
Notes:
Five largest surveyed business sectors: Manufacturing; Information and communication; Wholesale and retail trade, repair of motor vehicles and motorcycles; Financial and insurance activities; Real estate, renting and business activities.
Employment: e.g. Payment of wages/pension; Staff misconduct; Staff dismissal (or threat); Exercise of parental rights (including maternity), leave/pay or flexible working request
Debt: e.g. Administration; Receivership; Debt relief order
Regulation: e.g. Filing/content of annual company accounts; Need for/outcome of the audit; Mandatory insurance
Business structure: e.g. Change of legal status; Technicalities of business start-up; Sale of business
Premises (rented/leased): e.g. Rent arrears; Terms of rental agreement/lease
Premises (owned): e.g. Repairs/maintenance of communal areas; Conveyancing
Tax: e.g. Tax liability; Errors in business tax return; Failure to register/report changes
Public tender: Unfair operation
International trading: Legal/regulatory issue
Fraudulent/wrongful trading: Concerning insolvency
Mismanagement of business money /investments by financial service
Source: OECD (2017a).
Inability to resolve legal problems may have a negative knock-on effect for the business and its owner(s). Some studies concluded that businesses suffer financial cost (e.g. loss of income; incurring of additional costs), social costs (e.g. upset within the business; damage to employee relations) or reputational costs (e.g. damage to business relationships, loss of reputation), and in extreme cases, businesses ceasing trading (Blackburn, Kitching and Saridakis, 2015).
Legal issues in the professional domain may compound other legal problems and have a spillover effect on the personal life and health of business owners (e.g. stress), especially of SMEs (Pleasence and Balmer, 2017b; Blackburn, Kitching and Saridakis, 2015). In turn, illness and relationship breakdowns are identified as potential triggers for business difficulties leading to liquidation in the worst case scenario.25 While further analysis is necessary to measure the impact of business-related problems intertwined with non-business ones, by way of an illustration “in England and Wales, the economic value of this impact was suggested to amount to tens of billions of pounds per year” (Blackburn, Kitching and Saridakis, 2015; Pleasence and Balmer, 2017b).
In Latvia unresolved legal problems mostly impacted businesses’ revenue directly or indirectly; businesses also reported missed opportunities. The economic cost may be significant to the business market valuation and value, competitiveness and growth: the average estimated monetary value of legal problems declared by 25 respondents amounted to EUR 2.5 million, ranging from EUR 35 to 50 million. Additionally, a study revealed that the announcement of a filing might bear wealth losses for businesses (listed companies) due to “increased probability of financial distress.26
Figure 3.13. Adversarial impact of the most significant legal problems for businesses in Latvia in the last 24 months
Note:
Additional costs: e.g. Increased insurance costs
Loss of employees: Other than through dismissal/redundancy
Source: OECD (2017a).
Response strategies to businesses’ legal problems
As mentioned above, the nature and the perceived or real seriousness of the problem can influence how a business addresses its legal difficulties. For instance a study commissioned by the Australian Department of Innovation, Industry, Science and Research (DIISR) highlighted that businesses in such situations distinguished between issues that are “routine and minor, not something to worry about”; “potentially serious but easily resolved without escalation”; “potentially serious but avoided escalation due to potential costs”; “serious enough to consider utilising third-party intervention but did not actually do so”; “of a nature that required intervention by a third party or self-representation in formal proceedings” to “serious enough to result in legal action being taken by either business involved in the dispute” (Orima Research, 2010).
In OECD countries, businesses seek to prevent potential legal disputes or minimise the problem as part of the process (Figure 3.14).
Figure 3.14. Dispute prevention and resolution process framework
Source: Adapted from van der Horst, R., R. de Vree and P. van der Zeijden (2006).
Risk reduction measures used involve regular training; quality schemes; background checks of a potential business partner; and contract reviews (van der Horst, de Vree and van der Zeijden, 2006; Norton Rose Fulbright, 2017) (Figure 3.15). Business in a 2016 study lauded internal training as the most effective preventive measure (Norton Rose Fulbright, 2017). Businesses will also often reach out to the other party to settle the matter whether before instigating formal or informal dispute resolution proceedings or during the litigation process. For instance, micro-enterprises and SMEs brought on average less than 40% of intellectual property disputes cases before the UK Patents Court between 2003 and 2009 (IPO, 2010).27 The study reported that 40% of listed cases are settled while 50% are heard by a judge. It highlighted that negotiation was preferred over mediation and litigation.28 A potential explanation could be found in the social environment and networks that may influence the way an SME handles its legal issues, i.e. which mechanisms to elect ‑ formal or informal or procedural approach (e.g. adjudicatory or conciliatory) (Gómez, 2008). Family-owned businesses may rely more often on non-formal ADR mechanisms and talk the matter out directly with the other party in view of protecting the business relationship in the long term (Gómez, 2008). These businesses would turn to formal legal advice sources once having exhausted their network and trusted sources (Blackburn, Kitching and Saridakis, 2015). Some businesses in OECD countries will also preventively purchase insurance policies to cover for potential legal expenses. Yet the cost and lack of awareness of these policies seemed to inhibit their adoption.29
Figure 3.15. Framework for minimising disputes
Source: Adapted from Norton Rose Fulbright (2017).
In Latvia, business seems to more often than not confront their legal problems. The 42 business respondents including family-owned businesses chose to sort the problem out on their own (47.62% and 48%) rather than retaining external professional help (28.5% and 24%). Only 7.14% of businesses took advantage of governmental information sources (Figure 3.16).
Figure 3.16. How Latvian businesses address their legal problems
Source: OECD (2017a).
In Latvia, as in many OECD countries, businesses contemplate a wide array of avenues to address their legal plight. Yet this variety of often disconnected dispute resolution services can be overwhelming, especially for non-legal specialists. Different services bear different direct or indirect costs: financial or opportunistic. As a study contends: “There is an inherent irony in the judicial system in that individuals who bring suit may endure injury from the very process through which they seek redress. The legal process itself is often a trauma” (Strasburger, 1999).
Some studies observed that while SMEs may encounter fewer legal difficulties than larger companies due to the small scale of their activities, they are said to be less capable of facing and resolving them.30 This can have an impact on the favourability of the outcome.31
Over half of overall respondents stated possessing the internal legal capacity, mostly in company or contract law (138 out of 258 respondents). Yet over half of the family-owned businesses reported otherwise. Moreover, on deciding on the course of action, business respondents including family-owned businesses who decide not to seek redress cited time considerations (and not legal awareness).
Figure 3.17. How Latvian businesses resolve their legal problems
Notes:
Independent third party: Action or decision of an independent third party, e.g. police, regulator
ADR Agreement: Judicial or non-judicial
Business representation: Agreement reached through a representative of the business (e.g. solicitor or accountant)
Source: OECD (2017a).
Length of time (whether linked to the proceedings or to the dealing of the dispute) appears to be the main impediment for businesses who acted upon their problem (Figure 3.18). Financial costs were particularly highlighted by family-owned business respondents. Further developments on the experience with dispute recourse mechanisms in Latvia are described below.
Figure 3.18. Most significant barriers faced by Latvian businesses in resolving legal problems
Source: OECD (2017a).
Access to user-centred dispute resolution mechanisms in Latvia
Surveyed businesses felt unsatisfied with the pathway chosen to address their legal problem (7 respondents). Yet they are equally satisfied or very unsatisfied. They highlighted different ways to improve their experience (Figure 3.19) including:
improving/creating online services to access legal information;
simplifying the data requirements.
Figure 3.19. Main avenues for the improvement of the dispute resolution system in Latvia
Source: OECD (2017a).
Access to the court system
The Latvian court system underwent a comprehensive reform to establish a “clear three-level instance system” by 2016 (CEPEJ, 2018).32 Under the ordinary jurisdiction framework, civil and criminal are heard before district (city) courts (rajonu [pilsētu] tiesa) at the first instance jurisdiction and by regional courts (apgabaltiesas) at the appellate level. Administrative district (city) and regional courts review the legality and validity of acts and actions of administrative authorities or institutions.33 The Supreme Court (Augstākā tiesa) serves as the cassation instance for all three sectors of justice.
Over one-third of businesses surveyed stated that their most significant legal problem terminated before a judge (37 respondents). This proportion rose to over 75% for family-owned enterprises. Businesses mainly completed the process in person or by post. Improving trust is seen as an essential factor by almost 50% of business respondents, which is a key requirement for the Supreme Court in the implementation of its judicial reforms.34 Moreover, stakeholders highlighted three key challenges similar to the ones experienced in other OECD countries.
Box 3.7. Duration, cost and complexity of judicial proceedings in OECD countries
Duration, cost and complexity of litigation procedures are considered among the top barriers, particularly for SMEs. Therefore, several countries have developed e-services in order to reduce judicial proceedings’ duration and enhance their transparency.
In Korea, the e-court experience shows significant outcomes towards fairer and faster trials for companies, with a particular impact on small enterprises’ access to justice. The electronic-case filing system allows for electronic filing of civil, commercial, administrative and family affairs cases since 2010. These e-court solutions include features to help judges in judicial proceedings, facilitating the filing of cases for litigants, and informing the public about case outcomes.
In Texas (United States), a majority of courts have implemented the e-Filing for Courts system, which facilitates the two-way flow of judicial information between all relevant stakeholders (attorneys, clerks, court personnel and judges). The system “exports directly to an existing document management system (DMS)”, thus allowing to “barcode, index, and store each electronic filing automatically” and therefore “reducing the amount of time clerk and court personnel spend on these activities”.
British Columbia’s (Canada) eCourt Initiative developed an integrated case management system and publicly accessible e-services. This programme was a joint initiative of the Ministry of the Attorney General of British Columbia, the British Columbia Court Services Branch and the three levels of the BC judiciary. It aimed to provide an integrated system facilitating “seamless co-ordination from e-documents created in law offices to the registry to the judicial desktop and the courtroom, which would include eCourtrooms” having a complete e-court file. The objectives of this initiative were to support “public access (including e-searches, online document purchase, court lists, e-filing and a filing assistant), out-of-court access by justice partners such as crown attorneys, police and defence counsel (including document production, routing, signing and distribution), and in-court functionalities”.
The Money Claim Online (MCOL) is an online service for the e-filing of money claims in England and Wales. It enables English and Welsh citizens and lawyers to issue a money claim through a user-friendly website which “allows for filing documents, checking claim status, and requesting both judgement entry and enforcement (by way of a warrant of execution)”.
As a supranational model, the European Union’s e-CODEX (e-Justice Communication via Online Data Exchange) project “improves the cross-border access of citizens and businesses to legal means in Europe and furthermore creates the interoperability between legal authorities within the European Union”. In this framework, several civil justice pilots started being implemented in 2013, focusing on European Payment Order, small claims, and business registers.
Source: OECD (2015d); World Bank (2014); TexasOnline--eFiling for Courts, website; Lupo, G and J.Bailey (2014); e-CODEX website.
Complexity
Most of the 37 business surveyed knew where to go or whom to contact to handle an issue. Yet they still felt unsure of what to do. While most respondents declared the application process to be straightforward, 5 out of 11 businesses respondents further found the process to be complex. The complexity of the process and language represented a significant barrier for 8 out 11 respondents. The lack of accessibility and the vagueness of the information may have contributed to the situation (6 out of 11 respondents). Consideration should be given to the court competences in cases where an entry in the Enterprise Registry is (potentially) wrong. Currently, stakeholders reported that two jurisdictions might apply: parties might need to address both the administrative and the commercial court. This dichotomy of court competences regarding one subject matter raises the question of whether only one court can be identified that is best suited in terms of competence and efficiency.
Three avenues to improve were put forward by business respondents:
Reducing the number of steps was suggested to improve service delivery.
Simplifying the process was suggested to improve service delivery.
Considering providing English language court services was suggested to attract foreign investors.
Some OECD countries have considered introducing English as an optional language for certain types of court proceedings. In Germany, for example, there is an ongoing debate whether the English language should be introduced as an optional language in specific court proceedings. Some courts already offer court proceedings in English (i.e. Landgericht Bonn35). Moreover, on the initiative of the Ministry of Justice of Nordrhein-Westfalen, there is a new draft law brought to the Federal Council (Bundesrat) to establish specialised chambers in courts for international commerce matters that will conduct court proceedings in English.36 International chambers of commercial law could be established at selected courts and if both parties agree, the procedural language would be English. The background of this initiative is the experience that large and international disputes are diverted to English courts or arbitration by the parties. Consequently, the local courts are diminished in their relevance. In addition, the substantial court and practitioners’ fees generated by such proceedings are lost to another country. Similar initiatives might make sense for public services dealing with foreign investors, such as the Enterprise Registry, the State Land Service and Land Registry offices and the Patent Office.
Financial costs
Several businesses consulted, including surveyed businesses, declared financial costs to be a challenge (4 and 3 out of 11 respondents, respectively).
This result needs to be read in connection with the provision of legal aid. Nine businesses out of ten respondents declared having relied on legal aid to present their case. Legal aid was mostly obtained within one week. The process was found quite difficult.
Moreover, actual or perceived costs of justice borne by businesses may go beyond monetary costs (e.g. court and legal fees). In order to better assess the financial burden of the court service for businesses opportunity costs (e.g. time off work or transportation due to geographic isolation) would need to be taken into account.
Time
Most consulted businesses, both through the interviews and an online survey (8 out of the 11 businesses that responded to the survey on dispute resolution) noted that the main barrier was the time it took for their dispute to settle in court. Moreover, 45% of business respondents further declared it took them more than three months to complete the procedure – from filing an application (5 out of 11 respondents). Some 36% waited between one and three months to meet a judge and almost 55% more than three months (4 and 6 respondents respectively). While most declared it was easy to talk to someone, shorter wait times at walk-in centres and on the phone were suggested to improve service delivery.
During the interviews, opinions were divided. While all stakeholders representing the interests of businesses stressed the significant length of court proceedings, stakeholders representing the government or the court system considered court proceedings to usually be concluded in an acceptable timeframe. The latter added that further improvements are on the way and that delays were rather the responsibility of non-responsive lawyers (electronic calendars might help) and delay tactics by parties (based on rules requiring personal attendance) than due to slow proceedings in court. It was mentioned, however, that some of the very short deadlines (a few days only) applicable to first instance courts were too short and overwhelmed judges in certain situations. When challenging administrative decisions from the Enterprise Registry, delays due to capacity were specifically highlighted, whether before the head of the Register or a court.
Various explanations for these differing perceptions were discussed. Maybe the negative public perception of the duration of court proceedings does not reflect reality, which would lead to the question of how to communicate the speed of services in fact offered. Another explanation could be that the improvements in the duration of proceedings reflected in more recent statistics are due to proceedings that matter less to businesses (for example, private consumer litigation), while those proceedings that matter to businesses might still take a long time.
The Latvian government has undertaken several reforms in this perspective and time savings remains a key focus (Box 3.8). In 2014, amendments to the Civil Procedure Law entered into force, providing an opportunity to transfer a case in proceedings to another court to ensure faster review. Consequently, more than 6 000 cases were transferred from Riga’s city courts to other city courts and around 500 cases were transferred from Riga’s regional court to other regional courts (Ministry of Justice, 2017). Significant outcomes on the length of judicial proceedings can already be noted, in particular within district courts. Whether it concerns civil, criminal or administrative cases, the duration of proceedings generally decreased. Respectively, the duration went from 9.2 months in 2013 to 7.4 in 2017 (civil cases), from 6.4 months in 2013 to 5.4 in 2017 (criminal cases), and from 13.5 months in 2013 to 7.5 in 2017 (administrative cases). However, it is necessary to also point at lower decrease rates in regional courts of appeal in these three areas. Additionally, the duration in criminal cases marginally increased in regional courts, with proceedings going from 3.5 months in 2013 to 3.7 months in 2017.
Box 3.8. Latvia’s action line for better contract enforcement (Extract)
Objective: From 23rd place to 16th in Doing Business 2019 (with other indicators unchanged), as well as the number of days reduced from 469 to 400 days.
Improvement of monitoring of designated court sittings
The Court Administration proposes to develop the availability of a new e-service for representatives of legal entities, in order to ensure reception of reminders in the user’s registered email on designated court sittings in the cases, in which the legal entity whom this person represents is registered in the Court information system as a party to the case.
The plan is to include in the reminder the court name, case number, place and time of the court sitting.
The plan is to provide as a paid CA service the possibility to pre-pay the connection to the service on the portal manas.tiesas.lv, using the payment module of latvija.lv.
The service is aimed at legal entities, who are involved in several judicial proceedings at the same time.
Implementation of the monitoring of data of judicial proceedings, receiving electronic notifications about changes in data of judicial proceedings
The e-service “Monitoring of data of judicial proceedings” receiving electronic notifications about changes in data of judicial proceedings” was introduced to allow a party to any case to obtain information about changes in data of judicial proceedings of the case. The information will be sent to the user’s registered email.
The system will prepare an electronic notification on the fact of changes in the information, specifying the possibilities of viewing them on the manas.tiesas.lv portal.
In addition, the plan is to introduce additions, which will provide users with the possibility to pre-pay reception of the service on the portal manas.tiesas.lv, using the payment module of latvija.lv.
Source: Latvia’s Court Administration.
The issues of strengthening court efficiency, increasing the number of judges and support of judges by assistants were underscored by stakeholders as decisive factors to reduce the duration of proceedings.37 To this end, since 2014, the number of judges in Latvia increased by ten in district courts of the Riga judicial region, which handles approximately 40% of civil cases in the country (Ministry of Justice, 2017).
Stakeholders also mentioned their wish for a seamless experience using ICT, e.g. ability to better track their case status.
As in other OECD countries, Latvia is working to improve the use of electronic communication, which has improved significantly in recent times (e.g. introduction of e‑files; e-signatures are already accepted). The Appeal Court of Riga, for example, already uses e-cases for specific claims (e.g. disputed statement of an auction of immovable property), and e-signatures for signing documents and parties can file electronically. Everything that the court enters into the court IT system can be seen in a transparent way, also remotely. The Latvian procedural law allows for the sending of electronic communication to parties. Lawyers and prosecutors can only receive electronic communication. Natural persons are still informed by post because the e-address law is not in operation yet (although it can be electronic in cases provided by law). The use of e-ID card could be further explored to optimise the system (Box 3.9).
Box 3.9. Estonia’s judicial single computerised system
Launched in 2009 for criminal proceedings, Estonia has a computerised system, common to all judicial actors. Criminal records were incorporated in the system in 2012 and in civil as well as administrative proceedings in 2014.
Electronic communication with court officers and litigants not represented by a lawyer is possible through the system. For lawyers, electronic communication is compulsory, whereas private individuals may choose to use the digitalised system. For anyone who wished to access the computerised platform, the identity card can be used as identification and to file a request, forward papers or documents for the proceedings, and receive procedural acts and judgments in dematerialised form. Access is free. Lawyers, notaries, court clerks, legal representatives and governmental bodies may only communicate with the court by electronic means. Moreover, the portal also allows users to access other useful information systems pertaining to the business register, population register, etc.
Source: Court Quality Framework Design Project (2017).
Latvia has also conducted reforms to improve communication and streamline the process for litigants (Ministry of Justice, 2017). After amendments of the Civil Procedure Law entered into force in early 2017, Latvian courts are now able to communicate with parties electronically via a court informative system, which means receiving court decision and other documents in electronic form. This communication system also became mandatory for sworn advocates. Moreover, the video conferencing system was established in 66 Latvian courtrooms so far, so as to enhance less formal hearing procedures and to lead to more efficient evidence-gathering procedures.
Box 3.10. Communication with the parties: Indicators to measure the quality of the system and communication
Electronic procedures for litigants throughout the proceedings
Depending on the states, electronic communication in proceedings takes different forms and includes different functionalities (filing of claims, and in some systems, management of documents, notification, etc.). This communication may be compulsory in some litigation for professionals, whereas it is optional for private individuals.
Despite the variety of systems and practices, standards have emerged:
Tools available for all (the parties, their representatives and the courts).
Minimum technical specifications for electronic communication systems, such as tools’ technical capacity for storing, managing and archiving the documents exchanged; a high level of security for the system and exchanges.
The rate of proceedings covered by the electronic communication system and the rate of procedural acts in different types of litigation (civil, administrative or commercial); it must allow for submitting claims on line, transmitting the necessary documents, and generating automatic notifications for the parties.
Use of the system must not generate additional costs for litigants.
System maintenance constitutes a central component of the mechanism’s quality (it could rely on the effectiveness of the means introduced, such as dedicated teams inside courts, the management outsourced to private service providers, the existence of assistance for the parties in the event of a system failure).
Indicators should make it possible to evaluate the quality of the system and the communication it allows with the parties:
The rate of proceedings covered can be measured by counting the number of cases of compulsory and non-compulsory referral by electronic means.
The coverage rate for procedural acts can be measured by counting the different types of acts that can be performed electronically, where appropriate by litigation type.
Evaluation of the satisfaction and level of satisfaction for all users (judicial actors, private individuals).
Regular re-evaluation of the system’s capacity. It must lead to corrective measures.
Access to and communication of information for individual cases and proceedings
In addition to the transparency that is necessary for the parties, the foreseeable length of the proceedings and each of their stages represent a key quality management tool for courts. Communication of this information takes the form of a variety of instruments making it possible to provide more or less accurate procedural timeframes:
standards for the average length of proceedings to predict the length of proceedings
communication of the timeframe for the proceedings or foreseeable timeframes.
Indicators can help to measure the quality of the mechanisms introduced:
It is important to measure the systematic nature of the communication of procedural timeframes, procedural timeframes and real-time information on delays.
The reliability of the information communicated is ensured by:
comparing the lengths communicated with the effective lengths of the case
ensuring that average lengths and standards are reviewed regularly and that the corresponding trends are analysed periodically.
The effectiveness of the means made available to the parties with regard to delays may be measured by counting:
the number of claims filed for excessive delays compared to the number of cases pending
the proportion of successful claims for excessive delays compared to the total number of claims
a qualitative evaluation of the underlying grounds for delays.
Source: Court Quality Framework Design Project (2017).
Specialised processes
Another important issue emphasised by stakeholders during interviews concerned the use of specialised justice.
The specialisation of justice services is a rapidly growing trend in OECD countries according to the legal context of a country. It is utilised as a response to the legal needs of citizens and businesses through service integration for specific legal issues (OECD, 2015e). Different degrees of specialisation exist: from full-fledged court to chamber and internal (informal) tracks (Box 3.11). Judges sitting in court of general jurisdiction may also build or decide to focus their knowledge and expertise on specific matters. This may be said to have a number of advantages, some of which were recognised by Latvian judges. First, greater specialisation allows judges to build expertise in a particular area of law or industry. Secondly, and as a consequence, cases can be reviewed and disposed of more efficiently because the specialised judge may bring her or his knowledge of the species of the dispute to bear upon the proceedings. Thirdly, judicial training can be more focused and help deepen knowledge and expertise, including by assimilating international best practice. Fourthly, the quality of decision making and judgments may improve.
Box 3.11. Specialised bodies and chambers in selected OECD countries
In the United States at the federal level, federal bankruptcy and insolvency courts and handle matters of individual and corporate bankruptcies, and the U.S. Tax Court was notably created to review Internal Revenue Service (IRS) assessments challenged by the taxpayers subject to them. At the state level, the success of Delaware’s specialised court of equity (Court of Chancery) in business-related litigation, “the increasing complexity of the commercial world, and growth in the creation and use of complex financial instruments and transaction has prompted a number of states to establish new specialised courts”. These include the establishment of a new Commercial Division in New York’s state court system, a special Business Court in North Carolina, or a Business Court Division in Nevada’s Eight Judicial District.
In France, Commercial Tribunals (“Tribunaux commerciaux”) have jurisdiction over commercial disputes between businesses and/or corporations and also between businesses and individuals in some circumstances. It also hears bankruptcy matters. Judges are elected traders, “juges consulaires” i.e. not career judges. In French Court of Appeals, four chambers are specialised in civil, commercial, criminal and social affairs. The Court of appeal of Paris also have special jurisdiction against decisions from the Competition Council ; Financial Markets Authority ; Regulatory Authority for Electronic Communications and Posts ; Commission for Energy Regulation
In Belgium, commercial tribunals have specialised jurisdiction over petitions linked to postal services, some maritime matters and acts of the national lottery. In Brussels exist French- and a Dutch-speaking tribunal.
In Switzerland, the Cour de Justice a second-instance court, is divided into courts of civil, criminal and public law “Cour civile”; Cour pénale”; “Cour de droit public”, which are themselves divided into chambers. For instance a specialised chamber under the Cour civile hears lease and rent matters. The Cour pénale constitutional, administrative and social affairs chambers
In Switzerland, Tribunal des prud’hommes in Swtizerland or Conseils des Tribunal des prud’hommes in Belgium and France hear any disputes concerning work contracts. Employers and employees are both represented in the panels.
In England and Wales, Business and Property Courts were launched in October 2017, acting as an umbrella for specialist financial, business and property litigation and some international civil dispute jurisdictions. It encompasses specialist courts and lists including a Commercial Court, a Business List (with sub-lists on Financial Services and Regulatory oor Pensions), a Competition List; Financial List; Insolvency and Companies List; Intellectual Property List; Property,Trusts and Probate List and Technology and Construction Court. According to the English and Welsh Courts and Tribunals Judiciary, this new arrangement are to “preserve the familiar practices and procedures of these courts, whilst allowing for more flexible cross-deployment of judges with suitable expertise and experience to sit on appropriate business and property cases”. Moreover the tribunals system runs alongside the court system and includes a Tax and Chancery Chamber and a Lands Chamber as part of the Upper Tribunal.
Sources: Zimmer, M.B., (2009); Belgium - Ministry of Justice website ; France - Ministry of Justice website; Switzerland - Ministry of Justice website; UK Courts and Tribunal s Judiciary (2017).
This is borne out by the experience (such as it is) in Latvia and internationally. Higher demand for specialised review, backload in court of general jurisdiction or a need for specific technical expertise or to foster business and investment may prompt the implementation of specialised adjudication (OECD, 2016; Kroeze, 2006). Specialised courts, chambers or tracks are seen to be more efficient and effective in the resolution of questions of law, and enhance uniformity and predictability, and improve the quality of judicial decision making. Yet specific challenges exist linked to the preferential selection process or treatment, bias, detachment from the judiciary system and broad judicial knowledge. The experience in England and Wales may be instructive. While more analysis is needed, commercial and business-related specialisation is seen as a tool to attract investments and prevent them from leaving if facing a legal issue (Kroeze, 2006).
Box 3.12. Advantages and risks of establishing judicial specialisation
“Specialisation […] may have at least three advantages:
Greater efficiency, through specialised procedures, staff and specialised judges who are well versed in the subject matter, which leads to streamlined operations and more efficient processing.
Enhanced uniformity, as a result of dealing with exclusive jurisdiction over particular areas of the law, thereby contributing to greater predictability and confidence in the courts.
Quality decisions, due to greater expertise and experience in applying the law to the facts properly.”
“Specialisation may also pose some risks, such as:
Preferential selection process – may lead to the biased selection of judges and their staff. Circumventing legal requirements in this process may open the door for interest groups to influence the selection process.
Detachment from the judiciary system – if court specialisation benefits only a small group of court users and positive results and lessons learned are not transferred to other judicial operations. In addition, an important link with the general court system may be lost if their work and education are detached from it.
A specific group of court users – since judges, lawyers, experts, officials and actors involved in the litigation of cases handled by specialised courts tend to be a small group in each jurisdiction; judges may become familiar with these actors, which may lead to potential preferential treatment or bias in the judges’ decisions.
Less broad experience – through the compartmentalisation of the judges’ activity and knowledge of the law, which may stir them away from the knowledge of different areas beyond their own speciality.”
Source: Extracts from OECD (2016).
In Latvia the specialisation of judges is currently not very widely spread. The Court House reform gradually consolidates district (city) court areas within the jurisdiction of regional courts, and also introduces specialisation trends.38 With the consolidation of the smallest jurisdictions, larger courts are established and allows for further specialisation.39 At the Appeal Court of Riga, for example, all judges are considered to be competent for commercial matters. Yet, a special three-tiered jurisdiction for administrative matters has been in place since 2014. Judicial review related to decisions from the Enterprise Registry and the State Land Service are heard before those administrative courts. As mentioned above, Land Registry Offices are integrated into the district (city) court system.
As mentioned above, Latvia has also introduced specialised tracks in specific areas: Jelgava City Court hears cases related to the decisions of company members (shareholders) meetings; Riga City Vidzeme Suburb Court specialises in cases of industrial property rights (including patents, designs, semiconductor products, trademarks) and hears appeals made against the decision from the Industrial Property Board of Appeal of the Patent Office (Box 3.13). It is worth noting that litigants are represented by specialised patent lawyers in the first and second instances (Box 3.14).
Box 3.13. Administrative challenges, patent litigation and enforcement in Latvia
Challenging a decision from the Patent Office
Opposition to the registration of a design and trademark may be submitted in writing (including electronically) to the Patent Office within three months after the receipt of its decision, while opposition to the grant of an appeal from any stakeholder is open until nine months after the publication of the grant of the patent in the Official Gazette. A fee is set for EUR 150 for filing an appeal and EUR 180 for an opposition.
Should the new decision of the Patent Office be unsatisfied, the Industrial Property Board of Appeal of the Patent Office (Board of Appeal)40 will orally hear the petitioner within three months. A written decision is rendered within a month and can be appealed within six months before the court. Patents are appealable directly before the courts.
Litigation and enforcement
Trademark disputes are heard before the Riga City Vidzeme Suburb Court as the court of first instance, the Riga Regional Court as the court of appeal and the Supreme Court as the court of cassation. The Riga Regional Court acts as the Court of first instance for specific cases related to the reestablishment of a patent right (e.g. prior use; infringement patent; grants of a licence, etc.). All trademark matters are examined solely in bench trials by one judge alone (at first instance) or by collegia of three or five judges (in appeal or cassation instance). Criminal proceedings can also be launched.
Latvia ratified the Unified Patent Court Agreement (UPCA) on 11 January 2018. The UPCA is a court common to 25 EU states that have signed the Agreement on the Court.
According to the Patent Law, a claim pertaining to patents can be filed to a court within three years of finding out the rights may have been infringed. As to a dispute regarding the invalidation of a granted patent, a grant of a licence or provisions of a licence contract may be filed to a court throughout the whole period of validity of the patent.
Preliminary injunctions are remedies available to the trademark owner in trademark infringement actions only and are not applicable to cancellation action. In order to improve the quality of the decisions rendered by the Patent Office, the latter has organised training sessions for judicial staff in co-operation with World Intellectual Property Organization (WIPO), the European Union Intellectual Property Office (EUIPO) and the Latvian Judicial Training Centre (LTMC).
The Board of Appeal examines disputes related to the patents, trademarks, designs and topographies of semiconductor products. Members are appointed for a period of three years by the Ministry of Justice, which also determines its number. The panel is composed of at least three members including a patent lawyer and an external expert. Foreign litigants are represented by a professional patent lawyer from Latvia or the European Union. A register of national professional patent lawyers is administered by the Patent Office.
Source: Anohin, V. and V. Osmans (2017); Anohin, V., B. Batrumovics and K. Grishina, (2016).
The Riga District Court in Sigulda adjudicate only civil matters and the Riga City Northern District Court handles cases of illegal transfer of a child across the border or detainment in a foreign country (Ministry of Justice, 2017). Informal specialisation also occurs (e.g. a judge in the Supreme Court being a specialist in commercial law).
There was some lack of clarity about the formal existence of adequate procedural rules for small claims. It seems that small claims procedures are limited in Latvia, notably against decisions from the Board of Appeal for Industrial Property.41 This refers to a small claims procedure as a simplified procedure to optimise the proceedings, not only a procedure that is based on documents and is transferred to a regular procedure once the other party contradicts.42 This approach may be interesting to further explore: 2016 data show incoming small claim matters to amount to 13 022 cases.
Stakeholders reported welcoming the possibility of exploring deepened judicial specialisations. Business stakeholders mentioned the introduction of specialised judges either by way of specialised courts or through specialised chambers within courts. For instance, appeals against decisions of the Enterprise Registry could be dealt with by a specialised Commercial Court or, at least, by a Commercial Chamber. In addition, it was discussed whether in land registration cases, the civil courts might be better suited than the administrative courts to deal with these challenges. Some institutional stakeholders consider specialisation to potentially conflict with the principle of random distribution of cases. This is considered an important issue for the perception of courts in society.
In terms of practicalities, stakeholders felt that a formal specialisation only made sense for courts with ten judges and more. Combined specialisation is considered as a possibility to also avoid possible shortages in other areas of the Latvian justice system (on the basis that there are relatively low numbers of courts and judges in the country). To this end, a chamber could combine specialisations in business, banking and business insolvency issues. Moreover, it was suggested that chambers specialise in certain areas but could also cover other types of cases on a subsidiary basis.
Box 3.14. Official registry of patent attorneys in OECD countries
The registry of patent attorneys (which implies the examination of candidates and the assignment of the professional name as well as the authorisation to act as a patent attorney) is done by an official body specialised in the field of industrial property protection. In Latvia and Lithuania, the examination of the candidate falls under the competence of their respective Patent Office. In Estonia, it is the responsibility of the Ministry of Economic Affairs and Communication. In Latvia, the Professional Patent Attorney Qualification Examination Commission consists of employees from the Patent Office and representatives from the Latvian Association of Professional Patent Attorneys.
The legal framework for the patent attorneys’ profession is practically identical in the three Baltic states where only the patent attorneys who are included on the list of professional patent attorneys are entitled to represent foreign clients before the Patent Office. The candidates who wish to obtain the authorisation either in trademarks, design or inventions can also be authorised in both fields after having completed all examinations.
However, there are some slight differences in the scope of authorisation of patent attorneys’ in Baltic countries with respect to the representation of clients before the courts. Indeed, Estonian patent attorneys may represent clients both in civil and administrative proceedings, whereas in Lithuania a lawyer needs to be involved in the proceedings, and jointly with a patent attorney they are the legal representatives of the client. In Latvia, only sworn advocates at Supreme Court can represent clients before the Supreme Court.
In Germany, in order to be able to practice as a patent attorney, it is mandatory to be admitted to the patent bar. Moreover, the German Patent and Trade Mark Office is responsible for the admission of patent attorneys and patent attorney limited liability companies as well as for registering members of the profession from states of the European Economic Area and Switzerland. The Chamber of Patent Attorneys issues admissions certificates to candidates allowing them to practice the profession using the titles Patentanwältin and Patentanwalt.
Source: Ostrat, J. (n.d.).
With the reorganised judicial map and the establishment of larger courts where higher numbers of judges now sit, judicial specialisation considerations in Latvia are being revisited. Yet a cautious, evidenced-based and thorough approach is needed based on court resources, the needs of all court users, including citizens, as well as mapping the potential risk (Box 3.12). For instance, the small number of commercial-related administrative cases does not in itself call for a specialised unit (Figure 3.20). It would make sense to develop a comprehensive policy for the integrated delivery of dispute resolution services, i.e. including ADR mechanisms (see below). In doing so, disaggregating between the number of civil and commercial cases would be one of the first steps.
Figure 3.20. Proportion of cases challenging a decision from the Enterprise Registry, Patent Office and Land Service compared to the overall number of administrative cases in 2016
Source: Data from Latvia’s Court Administration.
Access to alternative dispute mechanisms in Latvia
Beyond court, there exist different pathways of justice, including contractual compromise, mediation, conciliation, ombudspersons or arbitration. The recent decade saw a new approach to dispute resolution in OECD countries and the European Union. The traditional dichotomy of resolving legal disputes either by way of contractual compromise or by going to court gave way to a more nuanced approach. Multiple avenues can be confusing to some without legal proficiency. The challenge for policy makers is to design a justice ecosystem that helps parties in bringing their dispute to the right forum based on user-centred mechanisms that are fair, effective and efficient. As highlighted during the 2015 OECD Roundtables, “limited co-ordination and lack of a comprehensive approach across justice services are often cited as one of the main challenges in enabling a seamless level of service and access to justice”.
Stakeholder interviews in Latvia revealed that there is considerable interest in alternative dispute resolution. Such practice is available in many countries (Box 3.15).
Box 3.15. Examples of commercial alternative dispute resolution mechanisms in OECD countries
Commercial disputes can be resolved outside the public courtroom with alternative dispute resolution mechanisms. Their resolution can take place in arbitral tribunals consisting of one or more arbitrators and parties. The latter are, in principle, free to determine the composition of the tribunal. Arbitral tribunals may be constituted ad hoc when parties choose the arbitrators. Arbitrators can also be appointed under the supervision of agencies or organisations directly involved in commercial arbitration.
For instance, in the United States, there are several independent and non-profit organisations and agencies that are competent to undertake arbitration in different types of litigation, including commercial litigation. These include the National Academy of Arbitrators (NAA), the American Arbitration Association (AAA), and the Federal Mediation Conciliation Service (FMCS).
Parties can also choose to submit their disputes to specialised bodies such as chambers of commerce. It should be noted that the title of chamber of commerce is applied to somewhat different types of bodies depending on the country. For example, in the United Kingdom and Belgium they are voluntary associations, whose members provide financial resources by subscription. However, they can have a more public status, e.g. in EU member states and in some Latin American countries, where they are bodies whose functions, membership, financial resources, and organisation are prescribed by law.
There are a variety of chambers of commerce in OECD countries. In Germany, the Court of Arbitration of the Hamburg Chamber of Commerce, as an independent institution, conducts arbitration proceedings in domestic and international matters. During the arbitration proceedings, a Legal Counsel from the Chamber of Commerce provides specialised economic and legal advice in the field to parties and arbitrators.
In Poland, the Arbitration Court operates at the National Chamber of Commerce of Warsaw. Proceedings before the Arbitration Courts at the NCC are governed by Rules of Arbitration Court at the NCC, which prevail over all non-statutory provisions. The Court is an independent organisational unit consisting of a President, Secretary, Deputy Secretary and arbitrators appointed to hear disputes.
In Sweden, commercial disputes through ADR are not resolved directly by the chamber of commerce, but by an institution that is affiliated to it: The Arbitration Institute of the Stockholm Chamber of Commerce. The latter provides dispute resolution services to Swedish and international parties.
Source: US Federal Mediation and Conciliation Service, website; CMS Cameron McKnna (2003); Hamburg Chamber of Commerce, website; Stockholm Chamber of Commerce.
ADR is, however, considered underdeveloped on both sides, i.e. on the side of parties in conflict looking to solve the conflict and on the side of those offering ADR services. These asymmetries, however, reveal different situations for the various ADR mechanisms (see below). While there appear to be gaps in the menu available to Latvian businesses to address their legal issues, stakeholders surveyed do not seem to be fully aware of the potential benefits of a principled approach in choosing the right mechanism for dispute resolution. Between contractual compromise on the one hand and going to court as a form of high escalation on the other hand, businesses interviewed only contemplate arbitration from time to time. Other ways of solving disputes, such as online dispute resolution (Box 3.16), consumer dispute resolution, conciliation, mediation or ombudschemes are currently little considered by businesses, if at all.43
Box 3.16. Online dispute resolution services in Latvia
The European Commission Online Dispute Resolution platform approves and lists online disputes resolution providers in EU countries based on “quality standards relating to fairness, efficiency and accessibility” including in Latvia:
Ombudsman for the Latvian Insurers Association deals with complaints on the insurers’ decision which allows to undertake insurance business in Latvia on a variety insurance payments for life insurance, assistance insurance, property insurance, insurance for land vehicle and claims pertaining to accident insurance.
Ombudsman of the Association of Latvian Commercial Banks deals with complaints against clearance remittances or transaction through electronic procedures of payment in the framework of the credit institution’s activities.
Motor Insurers’ Bureau of Latvia ensures that interests of third persons are protected after a traffic accident and promotes security of the mandatory third party liability insurance for persons owning vehicles.
Latvian Council of Sworn Advocates monitors sworn advocates and their assistants in their activities, evaluates complaints against their activities, and is in charge of instigating disciplinary proceedings.
Consumer Rights Protection Centre (Consumer Dispute Resolution Committee) assists consumers to resolve disputes with manufacturers regarding breaches of consumer rights protection regulations submitted by consumers.
Public Utilities Commission incorporates ADR into its processes, as a means of encouraging public participation in the service of public utilities.
Source: European Commission (n.d.); Financial and Capital Market Commission (2011); Motor Insurers’ Bureau of Latvia (n.d.); Latvian Council of Sworn Advocates, webpage.
Mediation
Countries offer different types of mediation services under different frameworks and avenues (Figure 3.21). Although differences exist depending on the service providers (i.e. court or private), many countries are grappling with the overall take-up of mediation by their constituency, all the more when this mechanism is not compulsory in the dispute resolution. Fostering the quality, trust and awareness of mediation services is an ongoing process, including in Latvia.
Figure 3.21. The “mediation landscape”
Source: Adapted from International Finance Corporation (2016).
Mediation was introduced in the Latvian legal framework under the Mediation Law of 22 May 2014. Until then mediation services were fragmented and offered sporadically by governmental and non-governmental institutions. The 2014 law establishes the basic principles of mediation, the proceedings, court-annexed mediation and the status of certified mediators. Government-to-business mediation does not exist yet. The Ministry of Finance had been piloting a project to provide mediation services to solve administrative tax issues through mediation.
ADR mechanisms, and in particular mediation, remains estranged from the Latvian dispute resolution culture, despite the fact that stakeholders perceived the process of mediation easier and overall better than going through a traditional court process (seen as more expensive and lengthier). Yet, while there are a number of initiatives underway, mediation for commercial disputes still appears to be underdeveloped in the Latvian context. Latvia is actively looking into ways to promote mediation services (Box 3.17).
Box 3.17. Ongoing efforts to promote mediation services in Latvia
Latvia is aligning itself with recommendations from the European Commission that “Member States should, where necessary and appropriate, increase their efforts to promote and encourage the use of mediation through the various means and mechanisms […]. In particular, further efforts at the national level should be made to increase the number of cases in which courts invite the parties to use mediation in order to settle their dispute.” Authorities believe that in order to promote mediation services, state support is vital, especially since the mediation concept and principles are relatively new. A cultural shift is also needed to change the way people think of conflict resolution.
Several projects are being implemented:
The first pilot project (launched in 2015) provides a free consultation with a mediator in a number of courts in Riga and courts outside. The consultation is intended for those parties who cannot decide whether or not to agree to the recommendation of mediation as part of a dispute, including commercial ones. The number of courts participating in the project is increasing.
The second pilot project (2017-18) ensured partial state-funded mediation in family disputes (e.g. five first mediation sessions).
In 2017-18, in-depth training on mediation issues is provided to judges, court staff, including mediators, and sworn bailiffs. In 2017, nearly 200 people attended the training groups, while in 2018 approximately 350 people are expected.
Source: Information gathered by OECD during stakeholders discussion in March 2018; Commission to the European Parliament and the European Economic and Social Committee (2016).
Court-integrated mediation modules might be considered after evaluating the needs. Initiatives to raise awareness among businesses (e.g. through the confederation of employers) exploring other incentives models (Box 3.18), and to demonstrate the practicalities and cost benefits of mediated solutions should go hand in hand with strengthening the capacity of service providers (e.g. training).
Box 3.18. Current and potential incentive models for Latvia
Current Latvian practice: Repayment of the state fee
The state fee paid by the party to the court is to be repaid back in the amount of 50% from the paid fee if:
The court approves an amicable agreement between the parties.
Mediation was successful, certified by a written confirmation from the mediator.
Rights for refund are effective within three years after the state fee is paid into the state budget.
Other potential models
A first regulatory model mediation costs are never borne by the state. It states that a failure to engage and unreasonable refusal to participate in alternative dispute resolution results in cost sanction, i.e. a party culpable is required to cover costs of litigation even if the claim is successful e.g. United Kingdom. This incentive holds parties responsible rather than provides financial incentives from the state.
The objective of the second regulatory focuses on court funding by reducing net costs. It aims at weeding out unnecessary court cases. Yet this approach to cost incentive may generate supplementary expenses for the state e.g. Sacramento County, California. A grant of US$600 is provided for 3-hour session with a certified mediator.
According to International Finance Corporation (2016), incentive models are seen as advantageous “when the regular costs of mediation are below the regular costs of litigation and arbitration, with no intervention from the state to exert regulatory control”. Proposed measures to include: duty for lawyers to discuss alternative dispute resolution options with their clients; mandatory court-connected mediation; subsidy for mediation.
Source: International Finance Corporation (2016).
At present, there is a small number of specialised certified mediators handling a small number of commercial cases in Latvia (Table 3.2).
Table 3.2. Number of certified mediators and commercial cases in Latvia
Source: Adapted from Kāpiņa L. (2017).
Some stakeholders think that the courts might be the spark that ADR needs to take root in Latvia (Box 3.19). The role courts play in incentivising parties at early and later stages of court proceedings to consider dispute resolution by ADR mechanisms could indeed be further explored.44 While measures are being implemented (e.g. dedicated room to mediators recently to give them a physical presence in certain court buildings), court practice was seen as lagging. In terms of lawmaking, some reform of procedural and court organisation reform may be necessary in order to fully equip the courts with the possibility to integrate alternative dispute resolution, based on ongoing initiatives. The introduction of court internal mediation might be a valuable addition in terms of dispute resolution services offered by the court system. Courts could be equipped with an ADR co‑ordinator judge who serves as a contact point for both judges internally and parties looking for advice externally.
Box 3.19. Views from certified mediators
Overall, the Ministry of Justice reports establishing positive co-operation with the Council of Certified Mediators to promote mediation services, including through the introduction of pilot projects implemented by the Ministry of Justice with the close co‑operation of courts and the Council of Certified Mediators. Yet, the use of mediation remains limited at best. The average number of cases of the certified mediators in Latvia was nine per year. While mediation seems to be recognised to solve family disputes, it is not seen as a relevant dispute resolution mechanism for business matters. Mediators report often feeling limited support for mediation both from state institutions and businesses themselves. Mediators believe that judges and lawyers do not always encourage parties enough to try mediation. The existing pilot projects, e.g. in family law, seem limited to provide the necessary impulses needed for mediation practice, according to them. In fact, there is a view that by only making the first five hours of family mediation free of charge and keeping a very low hourly rate for the following hours of mediators’ service, the pilot projects risk sending the signal that mediation is for family, but nor for commercial disputes. Mediators also highlight the need to ensure a competitive and fair service cost.
Mediators reported that their attempts to position mediation as a relevant mechanism for dispute resolution in commercial cases had encountered little interest from the private sector. Feedback from business reflects that there is a predominant need for dispute resolution in the government–to–business area (especially for areas concerning public tenders, construction projects, co-operation between tax administration and businesses regarding the application of the tax issues). State initiatives such as mediation pilot projects in government-to-business disputes were seen by the private sector as controversial and misaligned with the spirit of mediation practice and values.
As mediation is already introduced in the Latvian legal framework and given its strong potential to become an effective and efficient mechanism for business dispute resolution, there is an opportunity to provide the appropriate incentives to use mediation in business disputes or government-to-business disputes (e.g. increased state fee if mediation is not used). This would also require adapting the culture of dispute resolution in Latvia, which still appears to be oriented towards courts and a win-lose mindset. As such, Latvia may strongly benefit from strategic and co-ordinated efforts to enhance public understanding of mediation practice and benefits.
While the introduction of court internal mediation may provide strong opportunities for increasing trust in mediation, its benefits need to be carefully considered with regard to the development of external mediation services. In addition, care should be taken to preserve and develop the skills of professional mediators, which may be at risk in view of the current low demand for service.
Source: Comments from certified mediators, 2018
A number of suggestions were raised (Box 3.20). There could be a mandatory consultation pre-litigation with a mediator (early neutral evaluation). The state fee for proceedings where no mediation was attempted could be increased. Court fees might be reduced if mediation was used. The fees of a certified mediator could be written off for tax obligation purposes. Stricter obligations for lawyers to advise their clients on ADR could be introduced and coupled with documentation duties. Business initiatives could help to makes businesses aware that wrong choices in dispute resolution create costs in their own books.45
Box 3.20. Towards an ADR mix for Latvia
Some of the following questions were discussed with mediators as potential ways to improve the position of alternative dispute resolution and mediation, in particular in the mix of Latvian dispute resolution practice:
Should the Code of Court Procedures be transformed into a Code of Dispute Resolution and cover alternative dispute resolution, such as mediation, and the characteristics of specific procedures?
Should there be rules on how to transfer from one type of dispute resolution procedure to another?
Should there be rules on what effects one type of dispute resolution has on another?
Is there a need to improve the legal effects of mediation?
Would a way forward be a list of types of disputes in which parties have to try alternative dispute resolution first?
Should courts be asked to require parties 1) to have a mandatory information session on alternative dispute resolution; and/or 2) to try a specific type of alternative dispute resolution?
Should the parties to a dispute have an obligation to contact each other before going to court, to discuss alternative dispute resolution and to report the result of these discussions in their court claim statement?
Should financial state support for alternative dispute resolution be brought into a balance with state support for court proceedings for poor parties?
What about cost reductions/cost sanctions if alternative dispute resolution is used/not used?
Are dispute insurances covering alternative dispute resolution? If not, why not?
Should alternative dispute resolution be made a mandatory subject at university and other places of education?
Latvia may benefit from the continuous reflection process on these questions as it considers ways to strengthen the quality, trustworthiness and take-up of mediation services for business-related disputes.
Arbitration
The use of institutional or ad hoc arbitration services in Latvia was said to be common during the interviews with business. Over recent years Latvia was responsive to the needs of the different stakeholders and is constantly looking to improve its arbitration landscape.
As in many OECD countries, arbitration gained popularity among businesses over a decade ago as a way to expedite the resolution of their disputes. At the time, the court system in Latvia was experiencing heavy backloads that were said to hinder business activities. Consequently, institutional and ad hoc arbitration proliferated: as high as 214 arbitration panels functioned in 2014. It created a perception of “pocket arbitration”, lack of quality control and corruption claims in the sentencing and enforcement of awards.
The 2014 Arbitration Law came into force in 2015, which reformed the sector. The law is based on the existing provisions of the Civil Procedure Law at the time and does not follow United Nations Commission on International Trade Law (UNCITRAL) Model Law. It aimed to raise the quality of arbitration in Latvia by increasing the professionalisation of arbitrators, tightening the requirements for accrediting arbitration institutions and embedding fundamental principles to ensure efficient and fair proceedings. Disputes related to employment, trademarks or insolvency procedures as well as involving a state or regional authority or infringing the rights of a third party are excluded. The Enterprise Registry maintains an official online list of arbitration institutions and their rules of procedure. Today, 60 arbitration bodies are active. A party can challenge the validity of an arbitration agreement before the district (city) court as well as request a writ of execution if the award is not complied with voluntarily.
Yet arbitrators remain pessimistic.46 While it clearly improved the practice, some stakeholders felt it did not go far enough; the 2014 law was seen as dealing with the symptoms rather than the causes (Tipaine and Fjodorova, 2016). The number of arbitration institutions is still deemed too high and offering services at a quality that many stakeholders consider as insufficient. Stakeholders agreed that an ideal number of arbitration institutions in Latvia would be four or five. The enforceability of awards rendered by ad hoc arbitration services is also unclear. When stakeholders summon greater involvement of courts or judicial specialisation in arbitration matters, caution is needed on the impact of court workload.
A ten-year vision was called upon to unlock the use of, and trust in Latvian domestic arbitration. This initiative should be based on a further assessment of the legal needs and experience of stakeholders as well as taking into account the issue of court specialisation in commercial matters (see above).
One way in which the arbitration landscape in Latvia might be rationalised is to consider some process and framework by which arbitration forums and, equally importantly, arbitrators, can receive recognition, or a “stamp of approval”.
Conciliation and ombudschemes
The introduction of conciliation and/or ombudschemes, in particular in fields such as banking, insurance and travel might improve business-related dispute resolution. Based on interviews, it seems that such schemes are not very well used. By way of example, the Association of Commercial Banks handled 12 cases in 2014, 8 in 2016 and 6 in 2016. Stakeholders mentioned that the authority of the ombudspersons is limited. Ombudschemes might be provided free of charge to consumers and ombud decisions might have a binding effect for the trader, but not the consumer.47
Governance structures and a level playing field for those offering such services require particular attention. Yet further information is needed (e.g. on consumer dispute schemes, for instance) (Box 3.21).
Box 3.21. Box 3.21. Drivers of trust in consumer dispute ombudschemes: Views from Germany, France and the United Kingdom
“There [are] different opinions about what builds trust and those responsible for developing public trust in ombudsmen.
The German ombudsmen, retired judges, argued that trust rests with the individual ombudsman concerned. This person is responsible for continually earning the trust of those who approach the ombudsman for help. The independence of the ombudsman is an important factor in building trust.
The French ombudsmen observed that trust was dependent on several factors, the main being speed of decision making, independence, transparency, and neutrality. The importance of avoiding technical jargon and to promote good practices was also noted.
The UK public ombudsman posed the question as to why people do not trust the ombudsmen, suggesting that contributory factors include the context in which they work and how they remedy injustice. They typically deal with complex complaints involving many parties, and a rather extensive process. This context reflects a pre-existing lack of trust in the system.
The private sector ombudsmen argued for the importance of integrity among ombudsmen, and that they should be accessible and provide consumers with a fair and reasonable approach to solving their complaints. It seems that on the one hand consumers are more aware of their rights and are looking for independent help with their complaints, and on the other hand, they seem overwhelmed by the number of pathways available to resolve disputes outside of the courts.”
Source: Extract from Hodges, C. et al. (2016).
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Notes
← 1. In March 2018 the Parliament approved upon first reading the amendments identifying eight procedures where the State Land Service is required to send a submission of a land owner to the respective Land Registry Office electronically and vice versa. It provides that changes in one information system should pass to (are entered) another information system within the framework of inter-institutional co‑operation.
← 2. See also www.simplex.gov.pt/.
← 3. The introduction of a national e-ID card was approved by the government in 2010 and a new Personal Identification Documents Law came into force in 2012, defining and regulating the e-ID card types. See Protocol Decision No. 60 on “Possible financing solutions for providing certification services in Identity Cards (e-IDs) and their unique and priority means to ensure electronic identity of individuals” of 8 November 2018, available at http://polsis.mk.gov.lv/documents/5755.
← 4. The government acknowledges that in order for the user to technically use the e-ID as an identification tool, it is necessary to make adjustments and install specific units on the user’s computer, including card reader drivers; dedicated drivers; and also an additional card-specific integration module to ensure compatibility with specific web browsers and operating systems. For more information, see the Informative Report on “Possible financing solutions for providing certification services in Identity Cards (e-IDs) and their unique and priority means to ensure electronic identity of individuals”, of 8 November 2018, available at http://polsis.mk.gov.lv/documents/5755.
← 5. Based on EU Directive 2012/17/EU and EU Regulation 2015/884.
← 6. The law is available at https://likumi.lv/doc.php?id=72847&version_date=08.04.2009.
← 7. Signatures can also be certified by sworn notaries or using e-signatures.
← 8. For a description of the registration procedures, see Chapter 3.
← 9. Information provided by the Ministry of Economy.
← 10. Latvia highlighted that the 324 private limited companies and 1 public limited company were set up in 2016 and founders were Latvian citizen or Latvian companies; compared to 10 320 new limited companies in Latvia.
← 11. Some data quality checks are performed by the Enterprise Registry, for instance information about natural persons are checked in the Population Register, addresses in the State Addresses Register, and information about property in the Land Registry.
← 12. It is worth noting that the Enterprise Registry does not have jurisdiction to examine private agreements of shareholders (stakeholders) included in the articles of association in accordance with Article 144 Paragraph 1 Point 8 and 9 of the Commercial Law.
← 13. Information provided by the Ministry of Economy. Information provided by the Ministry of Economy.
← 14. Users may be interested in knowing two different things: 1) the complete and up-to-date information on the register regarding a certain business entity; 2) only the amendments concerning a business entity for a recent time period. In the second point, the user does not want to see the entire information, but is only interested in the particular elements that have been changed in a specific time period.
← 15. “The entries in the Enterprise Registry shall be published by the court, sorted by days and in the chronological order of their entry, in the electronic information and communication system designated by the Land department of justice […]. Unless the law provides otherwise, the entries shall be notified in their entirety.”
← 16. Information provided by the Ministry of Economy.
← 17. Information provided by the Ministry of Economy.
← 18. Latvia highlights that it is not possible to submit documents via email if the service is available on the e-platform, according to amendments of the law “On the Enterprise Registry of the Republic of Latvia” (1 May 2017).
← 19. The Cabinet determines the list of the state authorities and officials (courts, public authorities, notaries, bailiffs and others authorities) to whom the holder of the Computerised Land Registry will provide the information. For others, the information is provided under the permission of the Head of the Land Registry Office if the information is necessary for the protection of infringed or contested rights of such persons or their interests protected by law.
← 20. Accordance with Land Registry Law, Art. 132 - Prior to the certification of such transactions, the object of which are rights entered or to be entered in a Land Registry, as well as prior to the certification of a request for confirmation, a notary has a duty to examine the relevant division of the Computerised Land Registry. The process to verify the title of the real estate and real rights are not obligatory.
← 21. Information provided by the Ministry of Economy.
← 22. As previously mentioned, in March 2018 the Parliament approved in the first reading the amendments, identifying eight procedures where the State Land Service must send a submission of a land owner to the respective Land Registry Office electronically and vice versa. It provides that changes in one information system pass to (are entered) in another information system within the framework of inter-institutional co-operation. Sworn notaries will also have to electronically submit a request for corroboration to the Land Registry office as well as when it deals with mortgages.
← 23. “The sub-par patenting system may have contributed to the low research and innovation spending, particularly in the public sector”; see OECD (2015c).
← 24. A total of 295 businesses representatives participated in the overall survey on access to business justice services with 62 responding to the legal needs and experience section. These data should be interpreted with caution. The survey was disseminated by the Court Administration and promoted through various governmental and business websites. Interviews with business stakeholders during two fact-finding missions (July and October 2017), information received from Latvia and desk research also contributed to the findings in this chapter.
← 25. Productivity Commission (2015) in Pleasence and Balmer (2017b).
← 26. Engelmann and Cornell (1988), Bhagat, Brickley and Coles (1994), and Bhagat, Bizjak and Coles (1998) in Bhagat and Romano (2001).
← 27. This was a small sample size.
← 28. See also van der Horst, de Vree and van der Zeijden (2006).
← 29. For example, see IPO (2010).
← 30. See Pleasence and Balmer (2017a).
← 31. See Pleasence and Balmer (2013) in Pleasence and Balmer (2017a).
← 32. The main goals of the reform were to: 1) reduce and prevent unequal caseload distribution among courts; 2) ensure random distribution of cases; 3) enhance the specialisation of judges; 4) increase the overall quality of court rulings and of judicial services; 5) reduce the length of proceedings; 6) optimise the allocation of court resources.
← 33. The scope of the review encompasses disputes arising from public procurement processes.
← 34. See the Strategy of Activity of the Supreme Court of the Republic of Latvia 2017-2019.
← 35. See www.lg-bonn.nrw.de/behoerde/englischsprachige-zk/index.php (in German).
← 36. See www.justiz.nrw.de/Mitteilungen/2018_03_02_Wirtschaftsprozesse_auf_Englisch/index.php (in German).
← 37. Information gathered by the OECD during the OECD fact-finding mission, July 2017.
← 38. Prior to the Court House reform, it was difficult for a judge to specialise due to the small size of most of the district (city) court (authorities). Latvia had a wide network of small first instance courts. Some 65% of all district (city) courts had fewer than 7 judges (3-7 judges) in a court. Some 26% of district (city) courts had 8-14 judges in court, and there were only 3 district (city) courts with more than 14 judges (Authorities).
← 39. The Chief Judge of a court prior to the beginning of each calendar year establishes a list of specialisations within the court. He or she will consider the organisation of the district (city) court, work experience and the specific knowledge of a judge. Specialisation occurs only if it is possible to ensure the random distribution of cases, according to the Law on Judicial Power (Authorities).
← 40. Chapter 30.3, Civil Procedure Law.
← 41. Chapter 30.3, Civil Procedure Law.
← 42. Information gathered by the OECD during the OECD fact-finding mission, July 2017.
← 43. Information gathered by the OECD from government sources during the OECD fact-finding mission, July 2017.
← 44. Information gathered by the OECD during the OECD fact-finding mission, July 2017.
← 45. Information gathered by the OECD during the OECD fact-finding mission, July 2017.
← 46. Information gathered by the OECD during the OECD fact-finding mission, July 2017.
← 47. Information gathered by the OECD during the OECD fact-finding mission, July 2017.