All over the world entrepreneurs are coming up with new ideas that spur innovation and drive economic growth. Starting their own business can bring their dreams to life, but complying with the requirements to start and operate a business is not always easy.
Smart regulations that incentivize firm creation and growth, are transparent, efficient and easy to implement. However, good regulations are not enough to drive economic growth; well-functioning institutions are also needed. A study by the Bank of Portugal found that countries with better institutions may achieve better economic performance and attract considerably more foreign direct investment. Key among institutions are the courts. An efficient judicial dispute resolution allows businesses to secure contractual and property rights. However, if resolving a business dispute in the courts is lengthy and costly, companies will hesitate to launch new business ventures. In the EU, if a business deal goes wrong, resolving a commercial dispute through the courts and having that judgment enforced will take more than 4 years in Athens and cost nearly half of the claim amount in the United Kingdom (UK). However, in Luxembourg, the same dispute is resolved in less than a year at less than a quarter of the cost than in the UK.
It’s clear that court efficiency varies across countries: courts have different legal traditions and legal frameworks. However, court efficiency also varies within countries. This is what recent World Bank studies found. Funded by the EU Commission, the World Bank measured the ease of doing business in 47 cities across seven EU countries (Bulgaria, Croatia, Czech Republic, Hungary, Portugal, Romania and Slovakia). In Hungary, for example, it takes nearly twice as long to enforce contracts in Budapest than in Debrecen. In Portugal, it takes nearly 50% longer in Lisbon than in Coimbra where it only takes 17 months. The enforcement of judgements also has variations. In Romania, enforcement costs varied across cities; they were more than twice as high in Bucharest than in Oradea where the creditor only pays approximately 3.9% of the debt (or approximately 600 EUR). In Hungary, where the bailiffs are appointed by the courts, the delay in issuing an order for enforcement and appointing bailiffs can take 4 weeks in Pécs but up to 8 weeks in Miskolc. Enforcement can also vary depending on the court that oversees enforcement. In Croatia the municipal courts, which carry heavy backlogs, oversee enforcement. As a result, enforcement takes from just over 6 months in Osijek up to 16 months in Rijeka. In Portugal, enforcement agents have significant autonomy and do not often have to go to courts to resolve enforcement issues, however if this happens, the enforcement courts could take months to decide.
Why does court performance vary so widely within countries? External factors can play a role, such as uneven distribution of resources and differences in the demand for services. But often, it’s how courts apply rules and regulations and how they are internally managed that has a significant impact on their performance. The good news? Rebalancing resources or dealing with differences in demands can be difficult, good practices in court management found in one city are much more easily replicated in another by sharing good practices.
Well-performing courts can boost the positive economic impacts of efficient regulations, increasing investment, trade and productivity. This is particularly beneficial for SMEs, which make up 98% of firms in the EU and create two thirds of the private sector jobs.
