LEGAL TECH

By Benjamin Förder

September 24, 2020

The number of lawsuits in Germany is falling. For years, a decline in the figures of incoming cases at the civil courts of first instance has been observed. In the comparative period from 1995 onwards, this decline amounts to around 20% at the Regional Courts and even around 47% at the Local Courts. These figures are alarming and indicate a possible problem in the effective enforcement of legal rights. To investigate the causes, last year the BMJV commissioned a comprehensive research study. Such unmet-legal-needs studies have already been known, especially in the Anglo-American region (e.g. the annual LSC reports), in order to be able to adjust the legal system to possible needs. The following outlines the possible barriers to the effective enforcement of legal rights, and then explains how legal tech may overcome them, at least on simpler issues.



The enforcement of law as an integral part of the rule of law

The organised access to justice is an essential component of the rule of law and a functioning state. However, this requires that citizens not only can acquire legal rights but are also able to enforce them. This is so, particularly in situations of asymmetrical distribution of power, where there is a danger that potential claimants will not use their rights for a number of reasons.

Barriers to the enforcement of law

First and foremost, there is the financial risk involved in legal proceedings from the perspective of the claimant. Art. 3 of the Basic Law in conjunction with the principle of the rule of law stipulates that the access to courts may not be impeded to a party because of the party’s financial capacity (subjective-relative cost barrier). From the perspective of a person who usually has to employ limited economic resources as effectively as possible, however, this would de facto also be the case if the financial risks in relation to the economic success envisaged by the lawsuit were no longer considered to be economically reasonable (objective-absolute cost barrier).

To overcome these obstacles, legal aid on the one hand (subjective-relative cost barrier), and the staggered scale of counselling fees of the RVG on the other hand are intended to make legal proceedings economically reasonable even in the case of lower values in dispute (objective-absolute cost barrier). Nevertheless, these concepts do not seem to be fully effective. In 2013, in a study commissioned by the GdV (German Insurance Association), 71% of the people questioned stated that they would not engage a lawyer because of fear of the costs of legal action. Apparently, the approaches of legal aid and staggered counselling costs are therefore not sufficient.

In addition to the financial risks, there are often further factors that impede the enforcement of law. In particular, the lengthy instance procedure, with its various stages of appeal, may impede effective legal protection. While the average duration of proceedings at the Regional Courts was 6.3 months in 1995, it increased to 10.4 months in 2018 (from 4.5 to 5 months at the Local Courts). It can take several years to exhaust the number of courts of appeal, which makes it unattractive to start a lawsuit with regard to time, mental, and financial resources. In addition, frequently people may not even be aware of their rights, especially when consumer rights are violated. This, combined with the uncertainties surrounding the procedure and the outcome, ultimately causes many people to refrain from enforcing their rights in court.

Legal tech as a solution

Of course, even with the help of legal tech, the outcome of a lawsuit cannot be predicted, and the long and risky process through the instances generally remains, but legal tech provides solutions especially in the area of alleged bagatelle cases. 

In the context of automatised legal counselling, people seeking advice can be instantly informed of their legal situation in simpler cases by means of “decision trees”. An example of this are the legal tech companies specialising in compensation payments in the event of flight or train cancellations and delays. Besides the provision of immediate information, it is also significantly easier to open the browser, outline the situation, and be directed to a website via search engine optimisation which is used by the firms, instead of going to an office-based lawyer.

Where previously the costs of a lawsuit including legal counselling were perceived as an objective-absolute cost barrier and were disproportionate to the potential profit, these firms can ensure the economically reasonable enforcement of rights through legal automatisation due to the mass of similar cases. 

Although this service is not for free and usually remunerated with a considerable commission, this is obviously only due in case of success. This eliminates the financial risk as the main obstacle to the enforcement of legal rights. In addition, the firms often offer the customers an immediate (but lower) payout and thus assume the full risk of litigation. In this way, the person seeking legal protection can pass on all the factors that may prevent him to start a lawsuit. He does not have to struggle with long and risky instances, nor does he have to spend “fresh money” on the proceedings.

Now, it may be argued that this form of legal enforcement undermines the statutory instruments of legal aid and staggered counselling costs and the legal counselling market in general, but this fails to recognise that in the context of previous legal tech applications nothing is lost, but much is gained. The above-mentioned bagatelle cases do not fit into the traditional categories and thus also lead to a weakening of the rule of law and its reputation among the people. The business that legal tech firms do on the basis of the assignment of consumer rights constitutes a win-win situation. They catch the cases that the traditional legal market cannot manage cost-effectively and economically, and thus offer consumers a real alternative. From the perspective of the consumer, who would otherwise get nothing at all, the sums offered and easily obtained represent a significant part of the compensation claims. Taking into account the risks for the firms, such a deal seems only fair.

Cost barrier vs. rule of law

Legal tech applications, such as those already used by firms offering compensation payments, facilitate the immediate and uncomplicated information for people seeking legal advice on simpler issues. By taking the risk of litigation away from consumers and reducing the costs of counseling through legal automatisation in the mass of similar cases, they enable the economically reasonable enforcement of rights that would otherwise frequently remain unclaimed due to the objectively-absolute cost barrier. In this way, they catch cases which cannot be handled cost-effectively and economically by the traditional legal market and thus contribute to the rule of law.