Methodology for Enforcing Contracts

Enforcing Contracts methodology

Doing Business measures the time and cost for resolving a commercial dispute through a local first-instance court and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The data are collected through study of the codes of civil procedure and other court regulations as well as questionnaires completed by local litigation lawyers and judges. The ranking of economies on the ease of enforcing contracts is determined by sorting their scores for enforcing contracts. These scores are the simple average of the scores for each of the component indicators.

Efficiency of resolving a commercial dispute

The data on time and cost are built by following the step-by-step evolution of a commercial sale dispute. The data are collected for a specific court for each city covered, under the assumptions about the case described below. The “competent court” is the one with jurisdiction over disputes worth 200% of income per capita or $5,000, whichever is greater. Whenever more than one court has original jurisdiction over a case comparable to the standardized case study, the data are collected based on the court that would be used by litigants in the majority of cases. The name of the relevant court in each economy is published on the Doing Business website at http://www.doingbusiness.org/data /exploretopics/enforcing-contracts. For the 11 economies for which the data are also collected for the second largest business city, the name of the relevant court in that city is given as well.

Assumptions about the case

The value of the claim is equal to 200% of the economy’s income per capita or $5,000, whichever is greater.
The dispute concerns a lawful transaction between two businesses (Seller and Buyer), both located in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city. Pursuant to a contract between the businesses, Seller sells some custom-made furniture to Buyer worth 200% of the economy’s income per capita or $5,000, whichever is greater. After Seller delivers the goods to Buyer, Buyer refuses to pay the contract price, alleging that the goods are not of adequate quality. Because they were custom-made, Seller is unable to sell them to anyone else.
Seller (the plaintiff) sues Buyer (the defendant) to recover the amount under the sales agreement. The dispute is brought before the court located in the economy’s largest business city with jurisdiction over commercial cases worth 200% of income per capita or $5,000, whichever is greater. As noted, for 11 economies the data are also collected for the second largest business city.
At the outset of the dispute, Seller decides to attach Buyer’s movable assets (for example, office equipment and vehicles) because Seller fears that Buyer may hide its assets or otherwise become insolvent.
The claim is disputed on the merits because of Buyer’s allegation that the quality of the goods was not adequate. Because the court cannot decide the case on the basis of documentary evidence or legal title alone, an expert opinion is given on the quality of the goods. If it is standard practice in the economy for each party to call its own expert witness, the parties each call one expert witness. If it is standard practice for the judge to appoint an independent expert, the judge does so. In this case the judge does not allow opposing expert testimony.
Following the expert opinion, the judge decides that the goods delivered by Seller were of adequate quality and that Buyer must pay the contract price. The judge thus renders a final judgment that is 100% in favor of Seller.
Buyer does not appeal the judgment. Seller decides to start enforcing the judgment as soon as the time allocated by law for appeal lapses.
Seller takes all required steps for prompt enforcement of the judgment. The money is successfully collected through a public sale of Buyer’s movable assets (for example, office equipment and vehicles). It is assumed that Buyer does not have any money on her/his bank account, making it impossible for the judgment to be enforced through a seizure of the Buyer’s accounts.

Time

Time is recorded in calendar days, counted from the moment Seller decides to file the lawsuit in court until payment. This includes both the days when actions take place and the waiting periods in between. The average duration of the following three different stages of dispute resolution is recorded: (i) filing and service; (ii) trial and judgment; and (iii) enforcement. Time is recorded considering the case study assumptions detailed above and only as applicable to the competent court. Time is recorded in practice, regardless of time limits set by law if such time limits are not respected in the majority of cases.

The filing and service phase includes:

The time for Seller to try and obtain payment out of court through a non-litigious demand letter, including the time to prepare the letter and the deadline that would be provided to Buyer to comply.
The time necessary for a local lawyer to write the initial complaint and gather all supporting documents needed for filing, including authenticating or notarizing them, if required.
The time necessary to file the complaint at the court.
The time necessary for Buyer to be served, including the processing time at the court and the waiting periods between unsuccessful attempts if more than one attempt is usually required.

The trial and judgment phase includes:

The time between the moment the case is served on Buyer and the moment a pre-trial conference is held, if such pre-trial conference is part of the case management techniques used by the competent court.
The time between the pre-trial conference and the first hearing, if a pre-trial conference is part of the case management techniques used by the competent court. If not, the time between the moment the case is served on Buyer and the moment the first hearing is held.
The time to conduct all trial activities, including exchanges of briefs and evidence, multiple hearings, waiting times in between hearings and obtaining an expert opinion.
The time necessary for the judge to issue a written final judgment once the evidence period has closed.
The time limit for appeal.

The enforcement phase includes:

The time it takes to obtain an enforceable copy of the judgment and contact the relevant enforcement office.
The time it takes to locate, identify, seize and transport the losing party’s movable assets (including the time necessary to obtain an order from the court to attach and seize the assets, if applicable).
The time it takes to advertise, organize and hold the auction. If more than one auction would usually be required to fully recover the value of claim in a case comparable to the standardized case study, then the time between multiple auction attempts is recorded.
The time it takes for the winning party to fully recover the value of the claim once the auction is successfully completed.

Cost

Cost is recorded as a percentage of the claim value, assumed to be equivalent to 200% of income per capita or $5,000, whichever is greater. Three types of costs are recorded: average attorney fees, court costs and enforcement costs.

Average attorney fees are the fees that Seller (plaintiff) must advance to a local attorney to represent Seller in the standardized case, regardless of final reimbursement. Court costs include all costs that Seller (plaintiff) must advance to the court, regardless of the final cost borne by Seller. Court costs include the fees that the parties must pay to obtain an expert opinion, regardless of whether they are paid to the court or to the expert directly. Enforcement costs are all costs that Seller (plaintiff) must advance to enforce the judgment through a public sale of Buyer’s movable assets, regardless of the final cost borne by Seller. Bribes are not taken into account.

Quality of Judicial Processes

The quality of judicial processes index measures whether each economy has adopted a series of good practices in its court system in four areas: court structure and proceedings, case management, court automation and alternative dispute resolution.

Court structure and proceedings index

The court structure and proceedings index has five components:

Whether a specialized commercial court, section or division dedicated solely to hearing commercial cases is in place. A score of 1.5 is assigned if yes; 0 if no.
Whether a small claims court and/or a fast-track procedure for small claims is in place. A score of 1 is assigned if such a court or procedure is in place, it is applicable to all civil cases and the law sets a cap on the value of cases that can be handled through this court or procedure. The point is assigned only if this court applies a simplified procedure or if the procedure for small claims is simplified. An additional score of 0.5 is assigned if parties can represent themselves before this court or during this procedure. If no small claims court or fast-track procedure is in place, a score of 0 is assigned.
Whether plaintiffs can obtain pretrial attachment of the defendant’s movable assets if they fear the assets may be moved out of the jurisdiction or otherwise dissipated. A score of 1 is assigned if yes; 0 if no.
Whether cases are assigned randomly and automatically to judges throughout the competent court. A score of 1 is assigned if the assignment of cases is random and automated; 0.5 if it is random but not automated; 0 if it is neither random nor automated.
Whether a woman’s testimony carries the same evidentiary weight in court as a man’s. A score of -1 is assigned if the law differentiates between the evidentiary value of a woman’s testimony and that of a man in any type of civil case, including family cases; 0 if it does not.

The index ranges from -1 to 5, with higher values indicating a more sophisticated and streamlined court structure. In Bosnia and Herzegovina, for example, a specialized commercial court is in place (a score of 1.5), and small claims can be resolved through a dedicated division in which self-representation is allowed (a score of 1.5). Plaintiffs can obtain pretrial attachment of the defendant’s movable assets if they fear dissipation during trial (a score of 1). Cases are assigned randomly through an electronic case management system (a score of 1). A woman’s testimony carries the same evidentiary weight in court as a man’s (a score of 0). Adding these numbers gives Bosnia and Herzegovina a score of 5 on the court structure and proceedings index.

Case management index

The case management index has six components:

Whether any of the applicable laws or regulations on civil procedure contain time standards for at least three of the following key court events: (i) service of process; (ii) first hearing; (iii) filing of the statement of defense; (iv) completion of the evidence period; (v) filing of testimony by expert; and (vi) submission of the final judgment. A score of 1 is assigned if such time standards are available and respected in more than 50% of cases; 0.5 if they are available but not respected in more than 50% of cases; 0 if there are time standards for less than three of these key court events or for none.
Whether there are any laws regulating the maximum number of adjournments or continuances that can be granted, whether adjournments are limited by law to unforeseen and exceptional circumstances and whether these rules are respected in more than 50% of cases. A score of 1 is assigned if all three conditions are met; 0.5 if only two of the three conditions are met; 0 if only one of the conditions is met or if none are.
Whether there are any publicly available performance measurement reports about the competent court to monitor the court’s performance, to track the progress of cases through the court and to ensure compliance with established time standards. A score of 1 is assigned if at least two of the following four reports are made publicly available: (i) time to disposition report (measuring the time the court takes to dispose/adjudicate its cases); (ii) clearance rate report (measuring the number of cases resolved versus the number of incoming cases); (iii) age of pending cases report (providing a snapshot of all pending cases according to case type, case age, last action held and next action scheduled); and (iv) single case progress report (providing a snapshot of the status of one single case). A score of 0 is assigned if only one of these reports is available or if none are.
Whether a pretrial conference is among the case management techniques used in practice before the competent court and at least three of the following issues are discussed during the pretrial conference: (i) scheduling (including the time frame for filing motions and other documents with the court); (ii) case complexity and projected length of trial; (iii) possibility of settlement or alternative dispute resolution; (iv) exchange of witness lists; (v) evidence; (vi) jurisdiction and other procedural issues; and (vii) narrowing down of contentious issues. A score of 1 is assigned if a pretrial conference in which at least three of these events are discussed is held within the competent court; 0 if not.
Whether judges within the competent court can use an electronic case management system for at least four of the following purposes: (i) to access laws, regulations and case law; (ii) to automatically generate a hearing schedule for all cases on their docket; (iii) to send notifications (for example, e-mails) to lawyers; (iv) to track the status of a case on their docket; (v) to view and manage case documents (briefs, motions); (vi) to assist in writing judgments; (vii) to semiautomatically generate court orders; and (viii) to view court orders and judgments in a particular case. A score of 1 is assigned if an electronic case management system is available that judges can use for at least four of these purposes; 0 if not.
Whether lawyers can use an electronic case management system for at least four of the following purposes: (i) to access laws, regulations and case law; (ii) to access forms to be submitted to the court; (iii) to receive notifications (for example, e-mails); (iv) to track the status of a case; (v) to view and manage case documents (briefs, motions); (vi) to file briefs and documents with the court; and (vii) to view court orders and decisions in a particular case. A score of 1 is assigned if an electronic case management system that lawyers can use for at least four of these purposes is available; 0 if not.

The index ranges from 0 to 6, with higher values indicating a more qualitative and efficient case management system. In Australia, for example, time standards for at least three key court events are established in applicable civil procedure instruments and are respected in more than 50% of cases (a score of 1). The law stipulates that adjournments can be granted only for unforeseen and exceptional circumstances and this rule is respected in more than 50% of cases (a score of 0.5). A time to disposition report, a clearance rate report and an age of pending cases report can be generated about the competent court (a score of 1). A pretrial conference is among the case management techniques used before the District Court of New South Wales (a score of 1). An electronic case management system satisfying the criteria outlined above is available to judges (a score of 1) and to lawyers (a score of 1). Adding these numbers gives Australia a score of 5.5 on the case management index, the highest score attained by any economy on this index.

Court automation index

The court automation index has four components:

Whether the initial complaint can be filed electronically through a dedicated platform (not e-mail or fax) within the competent court. A score of 1 is assigned if such a platform is available and litigants are not required to follow up with a hard copy of the complaint; 0 if not. Electronic filing is acknowledged regardless of the percentage of users, as long as no additional in-person interactions are required, and local experts have used it enough to be able to confirm that it is fully functional.
Whether the initial complaint can be served on the defendant electronically, through a dedicated system or by e-mail, fax or short message service (SMS), for cases filed before the competent court. A score of 1 is assigned if electronic service is available and no further service of process is required; 0 if not. Electronic service is acknowledged regardless of the percentage of users, as long as no additional in-person interactions are required, and local experts have used it enough to be able to confirm that it is fully functional.
Whether court fees can be paid electronically for cases filed before the competent court, either through a dedicated platform or through online banking. A score of 1 is assigned if fees can be paid electronically and litigants are not required to follow-up with a hard copy of the receipt or produce a stamped copy of the receipt; 0 if not. Electronic payment is acknowledged regardless of the percentage of users, as long as no additional in-person interactions are required, and local experts have used it enough to be able to confirm that it is fully functional.
Whether judgments rendered by local courts are made available to the general public through publication in official gazettes, in newspapers or on the internet. A score of 1 is assigned if judgments rendered in commercial cases at all levels are made available to the general public; 0.5 if only judgments rendered at the appeal and supreme court level are made available to the general public; 0 in all other instances. No points are awarded if judgments need to be individually requested from the court, or if the case number or parties’ details are required in order to obtain a copy of a judgment.

The index ranges from 0 to 4, with higher values indicating a more automated, efficient and transparent court system. In Estonia, for example, the initial summons can be filed online (a score of 1), it can be served on the defendant electronically (a score of 1), and court fees can be paid electronically as well (a score of 1). In addition, judgments in commercial cases at all levels are made publicly available through the internet (a score of 1). Adding these numbers gives Estonia a score of 4 on the court automation index.

Alternative dispute resolution index

The alternative dispute resolution index has six components:

Whether domestic commercial arbitration is governed by a consolidated law or consolidated chapter or section of the applicable code of civil procedure encompassing substantially all its aspects. A score of 0.5 is assigned if yes; 0 if no.
Whether commercial disputes of all kinds—aside from those dealing with public order, public policy, bankruptcy, consumer rights, employment issues or intellectual property—can be submitted to arbitration. A score of 0.5 is assigned if yes; 0 if no.
Whether valid arbitration clauses or agreements are enforced by local courts in more than 50% of cases. A score of 0.5 is assigned if yes; 0 if no.
Whether voluntary mediation, conciliation or both are a recognized way of resolving commercial disputes. A score of 0.5 is assigned if yes; 0 if no.
Whether voluntary mediation, conciliation or both are governed by a consolidated law or consolidated chapter or section of the applicable code of civil procedure encompassing substantially all their aspects. A score of 0.5 is assigned if yes; 0 if no.
Whether there are any financial incentives for parties to attempt mediation or conciliation (for example, if mediation or conciliation is successful, a refund of court filing fees, an income tax credit or the like). A score of 0.5 is assigned if yes; 0 if no.

The index ranges from 0 to 3, with higher values associated with greater availability of alternative dispute resolution mechanisms. In Israel, for example, arbitration is regulated through a dedicated statute (a score of 0.5), all relevant commercial disputes can be submitted to arbitration (a score of 0.5), and valid arbitration clauses are usually enforced by the courts (a score of 0.5). Voluntary mediation is a recognized way of resolving commercial disputes (a score of 0.5), it is regulated through a dedicated statute (a score of 0.5), and part of the filing fees is reimbursed if the process is successful (a score of 0.5). Adding these numbers gives Israel a score of 3 on the alternative dispute resolution index.

Quality of judicial processes index

The quality of judicial processes index is the sum of the scores on the court structure and proceedings, case management, court automation and alternative dispute resolution indices. The index ranges from 0 to 18, with higher values indicating better and more efficient judicial processes.

Reforms

The enforcing contracts indicator set tracks changes related to the efficiency and quality of commercial dispute resolution systems every year. Depending on the impact on the data, certain changes are classified as reforms and listed in the summaries of Doing Business reforms in order to acknowledge the implementation of signiﬁcant changes. Reforms are divided into two types: those that make it easier to do business and those changes that make it more difficult to do business. The enforcing contracts indicator set uses three criteria to recognize a reform.

First, changes in laws and regulations that have any impact on the economy’s score on the quality of judicial processes index are classified as reforms. Examples of reforms impacting the quality of judicial processes index include measures to introduce electronic filing of the initial complaint, the creation of a commercial court or division, or the introduction of dedicated systems to resolve small claims. Changes affecting the quality of judicial processes index can be different in magnitude and scope and still be considered a reform. For example, implementing a new electronic case management system for the use of judges and lawyers represents a reform with a 2-point increase in the index, while introducing incentives for the parties to use mediation represents a reform with a 0.5-point increase in the index.

Second, the impact of data changes on the time and cost to resolve a dispute is assessed based on the absolute change in the overall score of the indicator set as well as the change in the relative score gap. According to the enforcing contracts methodology, any updates in legislation leading to a change of 0.5 points or more in the score and 2% or more on the relative score gap of the time and cost indicators is classified as a reform, except when the change is the result of automatic official fee indexation to a price or wage index (for more details, see the chapter on the ease of doing business score and ease of doing business ranking). Minor fee updates or other small changes in the indicators that have an aggregate impact of less than 0.5 points on the overall score or 2% on the gap are not classified as a reform, but the data are updated accordingly.

Third, legislative changes of exceptional magnitude such as sizeable revisions of the applicable civil procedure, or enforcement laws, that are anticipated to have a significant impact on time and cost in the future are classified as reforms.

This methodology was initially developed by Djankov and others (2003) and is adopted here with several changes. The quality of judicial processes index was introduced in Doing Business 2016. The good practices tested in this index were developed on the basis of internationally recognized good practices promoting judicial efficiency.