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A Characterization of the Judicial System in Spain: Analysis with Formalism Indices by ** Juan S. Mora DOCUMENTO DE TRABAJO 2009-23

Talento, Esfuerzo y Movilidad Social FEDEA – Banco Sabadell

July 2009

The opinions and analyses herein are the responsibility of the author and, therefore, do not necessarily coincide with those of the Banco de España or the Eurosystem. I am grateful to Nuno Garoupa, Fernando Gómez Pomar, Pablo Hernández de Cos, Ángel Estrada, Pilar Arróniz, Philip Hill and Mario de las Heras for their very useful comments and suggestions to the whole piece of research. I also thank seminar participants at the IV annual Conference of the SIDE-ISLE (Università di Bologna)(2008), Universitat Pompeu Fabra (2008) and Universidad de Salamanca (2009). I am also grateful to María Gil and Fernando Ferrer for their assistance in the preparation of the charts and graphs. Any errors are my own.

Banco de España- Eurosistema. Contact: Juan S. Mora Sanguinetti. Alcalá 48, 28014 Madrid. Mail: juans.mora@bde.es. Phone: +34 913385197. Fax: +34 91 3385486.

Los Documentos de Trabajo se distribuyen gratuitamente a las Universidades e Instituciones de Investigación que lo solicitan. No obstante están disponibles en texto completo a través de Internet: http://www.fedea.es. These Working Paper are distributed free of charge to University Department and other Research Centres. They are also available through Internet: http://www.fedea.es. ISSN:1696-750X

Jorge Juan, 46 28001 Madrid -España Tel.: +34 914 359 020 Fax: +34 915 779 575 infpub@fedea.es

Abstract

In this paper, a previously proposed measure of “procedural formalism” of the judicial system for dispute resolution has been adapted in order to characterize the judicial enforcement of contracts in Spain in the long run (1966-2006). Spain has a multiplicity of procedures for the same type of civil dispute depending on the amount of the conflict. In this paper all those procedures are analyzed. The result of this research indicates that formalism of the Spanish judicial system has diminished in the most recent years. That result helps to explain the recent developments of the resolution, congestion and pending cases rates of the Spanish Judicial System. The results also contests the level of formalism assigned to Spain by previous works in this field.

JEL CLASSIFICATION: K40, K41, O10.

KEYWORDS: JUDICIAL EFFICIENCY, PROCEDURAL FORMALISM, CONTRACT

ENFORCEMENT, DEVELOPMENT

Resumen

Este trabajo proporciona una medida del grado de formalismo del sistema judicial español a la hora de juzgar conflictos entre sujetos privados (concretamente, en el orden civil) durante el período 1966-2006. El grado de formalismo aproxima el número y la complejidad de las formalidades necesarias para llegar al final de un proceso. El sistema judicial español dispone de múltiples tipos de procesos civiles, dependiendo de la cuantía en disputa, para resolver los conflictos que surgen entre los interesados. El trabajo analiza todos esos tipos de procesos tanto para la antigua Ley de Enjuiciamiento Civil como para la nueva y concluye que el grado de formalismo judicial se ha reducido en España, sobre todo en los últimos años. Ese resultado permite explicar, entre otros muchos factores, los cambios en las tasas de resolución, pendencia y congestión del sistema, que han sido especialmente extremos en la última década. Por otro lado, este trabajo rebate la tasa de formalismo judicial encontrado por otros estudios a nivel internacional, al encontrar una tasa significativamente menor.

1 Introduction

1.1 Literature review

As Coase (1960) highlighted, carrying on market transactions needs not only contracting, but also undertaking the inspection needed to make sure that the terms of the contract are being observed. The same can be said about the Law and its enforcement. It is not only important to have “good” regulations, but also to be able to enforce them.

“Contracting” and “enforcing” are important economic problems. If they are overly costly many transactions may not take place. Enforcement of private contracts has many examples, one of them of an essential economic meaning: the respect and maintenance of private property against external threats.

Since the early statements about the importance of good “institutions” for economic performance (North, 1990), it has been found several times that the protection afforded to property rights or, more in general, the possibility of enforcing the Law, is directly related to economic development. Acemoglu et al. (2001) found that better “protection against expropriation” had positive effects on the country’s income. Rodrik et al. (2004) measured the quality of institutions as the prevalence of the “rule of Law” (that is a wider concept that also captures the protection afforded to property rights) and also found that was significant in explaining development.

The enforcement of contracts and regulations can take place through purely private mechanisms (such as arbitration) or through public means. Judicial enforcement would be the paradigmatic case of the use of public means and it is the focus of this paper. Therefore, following what it was said above, a deficient judicial system may imply costs to the economy and constitute a deterrence of economic transactions. At international level, several studies analyze more particularly the effect of well-functioning judicial systems on the economy. First of all, “good” judicial systems (together with good legal environments) seem to promote greater development of financial markets. La Porta et al. (1997, 1998), argue that different systems of legal enforcement (such as the different Law families, i.e. Roman/Civil Law, Common Law, etc.) are related to different levels of investor protection (Common law countries having a stronger protection if compared to Civil law countries). Weaker investor protection leads to smaller debt and equity markets.

In fact, a good judicial system is considered essential to ensure the availability of cheap funds that promotes economic development (Padilla and Requejo, 2000). Jappelli et al. (2005) analyze a panel of the Italian provinces and find that credit is more widely available when there is a higher judicial efficiency. Similarly, a lower proportion of credit-constrained households (for a panel of Italian judicial districts) is also observed (Fabbri et al, 2004).

Besides the financial system itself, some effects of well-functioning judicial systems and procedures are observed in the area of firm dynamics. Desai et al. (2005) find that greater judicial interference and greater formalism of the procedures are associated with lower entry of new firms in the markets. Desai et al. utilize as a measure of formalism the indicator proposed by Djankov et al. (2003) that will be analyzed in the next sections.

1.2 Evidence for Spain

Between 1999 and 2000 the World Bank conducted an international survey “World Business Environment Survey” administered to enterprises that included some questions to assess the judicial system of the country and its effectiveness in enforcing property rights. The results for some of the questions for Spain, and also for France, Italy, Germany, UK and US, are included in table 1. Spain is below the average of the OECD countries in the questions about the judicial system if we compare countries with similar income. Batra et al. (2003), using this survey, observe that countries with higher discontent with affordability and quickness of the judicial system seem to perceive also less fairness and impartiality.

From 2004, the Doing Business Project of the World Bank publishes a more ambitious survey called “Enforcing Contracts”. It includes three indicators on the efficiency of contract enforcement on the basis of how a company has to go through the judicial system in each country to recover an overdue payment. Specifically it follows the step-by-step evolution of a commercial sale dispute between two businesses that have their conflict solved by a local court in the biggest city of the country (in the case of Spain, a court of first instance, juzgado de primera instancia, of Madrid). The amount of the claim is assumed to be fixed and equal to 200% of the country's income per capita. The indicators observed are the number of required interactions between the parties and the court in order to finalize the procedures, the estimated cost incurred during the dispute and the estimated time to resolve the dispute. Results for Spain (and again for France, Italy, Germany, UK and US) are also included in table 1. Spain holds the position 55 out of 178 analyzed countries (in 2007) (59 in 2006). The Doing Business project provides the results and rankings in this issue only for 2006 and 2007, therefore we lack the information on this indicator during the last decades.

Justice has also attracted the attention of private and public authorities in Spain. The Círculo de Empresarios (2003) conducted a survey among Spanish enterprises (members of the organization) about the situation of the Spanish justice. In general, justice in Spain gets a medium or low level of satisfaction. The results reflect the opinion that Spanish justice is too slow and that predictability of the judgments is low. An almost complete agreement exists among the enterprises when they are asked if the “simplification of the procedures” would be a good measure (among others) to apply to Spanish justice.

From the public administration perspective, there has been more effort to analyze the situation of justice in Spain during the last years. Statistics on judicial activity are available in Spain since 1995. In fact, analyzing the efficiency of the Judiciary is an important issue for national public authorities not only for the reasons already cited (i.e. the judicial system may be a determinant of competitiveness) but also because maintaining the system is costly and requires a high public expenditure (0.35% of GDP in Spain, 2003, 0.5% if we also include prisons) (Jiménez and Pastor, 2007) and employs an important number of public workers (57000) for whom an appropriate system of incentives and productivity is an important issue (Cabrillo and Pastor, 2001).

At the research level it is possible to find for the Spanish case results similar to those of Japelli et al. (2005). Padilla et al. (2007) find that better efficiency of justice is related to a better functioning of credit markets across the Spanish provinces and regional governments (Comunidades Autónomas).

1.3 Objectives of this paper

The objective of this paper is to provide an analysis of the degree of formalism of the judicia system in Spain as the main public mechanism of contract enforcement. The analysis covers the period 1966-2008 therefore providing a long run view of the system that is not given by the sources already cited. This will allow us to show the effects of several changes in procedural law like the one that took place in 2000 under the new Civil Procedural Law of 2000. Specifically, a judicial formalism index is provided for the period analyzed. For that purpose the methodology of Djankov et al. (2003) is followed once it has been adapted to the Spanish legal environment and once some important assumptions made by the authors have been relaxed. The most important one is that Djankov et al. (2003) fix the amount of the dispute. That assumption limits their analysis to one single procedure. In this paper all the different procedures of the Spanish system are analyzed for the period under study. Please note that Balas et al. (2008) provide the value of the index for Spain between 1950 and 2000 but their work suffer from the same assumptions as Djankov et al. (2003). An analysis of the effects of formalism in the figures of Spanish justice is also provided in this paper. Finally a comparison with the results of previous literature is also discussed.

The paper is organized as follows. Section 2 summarizes the methodology of Djankov et al. (2003) and presents the adaptations and assumptions made for studying the Spanish legal system. Section 3 describes the main issues of the Spanish procedures during the period of study and discusses the results of the different indicators. Section 4 makes some international comparisons of the results obtained in this work. Section 5 discusses the case of the special procedures needed to evict a nonpaying tenant. Section 6 draws some final conclusions.

2 Methodology

2.1 The “formalism” indicator proposed by Djankov et al. (2003) and description of the variables

Djankov et al. (2003) use data from the judicial systems and procedures in 109 countries to construct an index of procedural formalism of dispute resolution. The authors observe and “map” two types of possible disputes to be solved before the courts: the collection of a check (an unpaid debt) and the procedure to evict a non-paying tenant. Both of them, especially the first one (which is the focus of the following sections), are “representative” cases of dispute before the national courts. An analysis of their formalism can be considered representative of the whole system. From their set of results, they conclude that, ceteris paribus, higher procedural formalism predicts longer duration of dispute resolution and also lower enforceability of contracts (therefore expected duration is highly correlated with formalism). The result would suggest that the legal structure is an essential dimension of judicial efficiency rather than the level of development of the country by itself.

The source of data they use is a questionnaire that covers all the stages of the typica procedure that a company or an individual must follow to recover a debt. The authors make some assumptions to simplify the analysis: they consider that the case is solved by the courts in the country’s largest city and they also fix the amount (of the unpaid debt). Fixing the amount implies that they analyze just one single procedure in the Spanish case.

The questions and stages of the procedures analyzed are guided by the 1994 International Encyclopaedia of Laws-Civil Procedure (Kluwer Law International).

The formalism index proposed by the authors is composed of 7 sub-indicators: “Professionals vs. Laymen”, “Written vs. Oral”, “Legal justification”, “Statutory regulation of evidence”, “Control of Superior Review”, “Engagement formalities” and a measure of the number of “independent procedural actions”. Each sub-indicator is scored from 0 to 1 (several intermediate results are possible). Each subindicator is composed of several variables that are assigned the score of 0 or 1. The formalism index is the sum of the sub-indicators and, thus, has a result out of a maximum score of 7. Higher results mean more “formalism” and, thus, more complexity and expected duration of the procedure. Table 2 contains more information on the variables included in each sub-indicator.

The sub-index for “professionals vs. Laymen” analyzes the intervention of professional judges (versus laymen) in all the procedures and their specialization for solving specific cases. It also considers whether legal representation is mandatory or not to act before a court, as legal representation is costly. The higher is the “professionalism” required or the lower is the specialization, the higher will be the index. More specialization of the courts is understood as a way of introducing “mass production” into the judicial system and therefore of, hypothetically, increasing the number of cases solved.

The sub-index for “Written vs. Oral elements” analyzes, among other issues, if it is compulsory in all the steps of the procedure to have all the notifications made by written documents and if they need to be “legalized” by a judicial officer. The sub-index also analyzes the formalism of the decisions of the court and the steps to enforce them. More written elements increase the score of the sub-index.

The sub-index for “legal justification” measures whether it is necessary to justify all the actions and requests (such as the claim or complaint) to the court in legal terms, with legal reasoning (or by expressly citing legal concepts and norms) or if more simple requests merely justified on grounds of “equity” are enough. Legal justification usually requires legal training and as a result, legal representation becomes necessary. The sub-index also takes into account if resolutions by the court need to be legally justified or they can be based simply on “equity”. More “legal justification” increases the result of the sub-index.

The sub-index for “statutory regulation of evidence” deals with the rules governing the “evidence” discussed and considered by the judge (oral interrogation of the parties or a witness, written documents…). Also it considers if the evidence must be recorded in all cases. More rigid criteria make the sub-index have higher results.

The sub-index for “control of superior review” considers whether enforcement of a court decision can be suspended if the decision is appealed. Also it considers the possible content and scope of the appeal. Automatic suspensions and a comprehensive review of the previous decision (including revision of old evidence already discussed) make the sub-index to increase.

The sub-index for “engagement formalities” considers certain formalities that may be present in the procedure, such as a compulsory stage of “pre-conciliation”. “Pre-conciliation” is not wrong in itself. In fact, it may solve the conflict without the need for a full judicial procedure. What the indicator measures is whether it is “compulsory” or not. If it is compulsory, it may be superfluous in some cases.

The sub-index “engagement formalities” also takes into account whether a judicial officer must “legalize” the documents received or sent by the court. Higher formalities or added steps (such as compulsory pre-conciliation) increase the result of the sub-index.

The sub-index for the number of “independent procedural actions” counts the number of “steps” needed to complete filing, service, trial, judgment and enforcement. The sub-index is dependent on the results for the whole sample of countries. It takes value 0 for the country with a lower number of actions and one for the country with the maximum amount.

Djankov et al. (2003) observe that the sub-indicators move in the same direction and are positively correlated with the overall index of formalism. Therefore, they do not attach importance to the exact methodology for the construction of the formalism index.

2.2 Appraisal and criticism of the indicator

An important question arises from the indicator of Djankov et al. (2003). Is “judicial formalism” a good policy indicator? Does reducing formalism improve judicial systems? Is it desirable to reduce formalism in all cases?

One criticism questions the basic assumptions of the indicator: informal justice is said to be more vulnerable to subversion by the powerful, i.e. reducing time and cost of the procedure may also reduce its fairness.

As mentioned above, the indicator proposed by Djankov et al. (2003) penalizes formalism. In fact, the indicator takes as a model the “neighbourhood model”, inspired by the Common Law (as a consequence “Common Law” countries generally perform better both in Djankov et al. (2003) and in the Doing Business Project). Common Law countries have less tradition of written norms but, from the perspective of Roman/Civil Law, the lack of legal justification of the procedures is considered to give rise to risk of loss of “legal certainty” and thus a risk of increased partiality.

Another criticism points out that the indicators may not be representing the whole picture of institutions but just the reaction of the system to very specific case-studies (Ménard and Du Marais, 2006). Moreover, other specific case-studies challenge the assumptions of the sub-indices of Djankov et al. (2003). For instance, Garoupa et al. (2008) conclude that specialized courts in Madrid, after controlling for other relevant variables, may not be faster than the regular courts.

More in general, the results of the Doing Business Project, which takes as methodology the paper of Djankov et al. (2003) among others, have been criticised by Arruñada (2007). Arruñada, who analyzes the procedures needed for setting up a firm, criticises that this type of indicators may concentrate the efforts of the reformers in simplifying the regulations rather than evaluating their real effects.

In favour of Djankov et al. (2003), it can be said that their conclusions coincide also with those of the World Business Environment Survey completed before their work. Batra et al. (2003), following that survey, also conclude that reduced time and cost of the procedures are associated with perceptions of more fairness and impartiality.

It can be highlighted, in any case, that formalism must not be considered as “desirable” or “undesirable” by itself but, from the results of Djankov et al. (2003), it can be related to longer and more costly procedures.

When adapting the indicators to the Spanish case some of the assumptions made by Djankov et al. (2003) will be relaxed, thus giving some relief to the criticisms already cited.

2.3 Adapted indicators for Spain and Spanish data

The objective of this study is to provide a description of the Spanish judicial system through the analysis of the resolution of a representative dispute through court decisions.

The representative dispute is the action to recover a debt such as a check collection (that is also a dispute chosen by Djankov et al. 2003 in their indicators¹). The dispute takes place between two or more private parties (therefore there is no public administration involved) and it is assumed to be solved by a “juez de primera instancia” (court of first instance). Other solutions, such as arbitration are not taken into account.

In order to improve the indicators and address some of the criticisms generated by them, some assumptions made by Djankov et al. (2003) are relaxed: it is not necessary to assume that the conflict is solved in a particular place or city in Spain as the procedures are homogeneous throughout the country and it is not assumed to be a conflict for a particular amount. As will be seen in the next section, the type of procedure depends heavily on the amount in dispute. Therefore, all the possibilities are analyzed (8 in the last decades) unlike in Djankov et al. who only analyze the procedures for a very specific case. As said, Balas et al. (2008) suffer from the same assumptions as Djankov et al.

This paper also discusses the case of tenant eviction in section 5.

For the Spanish case there is no data on “judicial quality” (understood as effective average time needed to get a decision from the court) if we try to describe the system over a long period of time. Therefore, having a measure of formalism as an approach to expected duration is useful.

For the comparability of data over time and across types of procedure, we have the advantage to be dealing with just the case of Spain and, therefore, we can assume quite stable social conditions in relation to justice, legal culture and corruption.

The formalism index proposed for the Spanish economy is composed of the six first components explained above. As this study only analyzes Spanish justice, the seventh component is not included. Therefore, the formalism index proposed has a maximum score of 6. Table 2 contains more information on the sub-indices and variables. The last two columns contain some legal foundations for the scores given in this paper for Spain.

3 The Spanish judicial system, 1966-2008

3.1 Civil Procedural Laws

As mentioned in the previous section, the objective of the study is to provide a description of the judicial system through the analysis of a representative dispute resolved through the courts. That representative dispute is the action to recover a debt such as a check collection.

For such cases, and in general for all disputes arising under private contracts, in Spain the procedures are regulated by the “Civil Procedure Law” (CPL, Ley de Enjuiciamiento Civil), that establishes the rules of access to the court system, the formalisms that the parties must observe, the role of the judge or court, the rules governing evidence, the control by superior instances and all the related issues. Two general Civil Procedure Laws has been passed in Spain since the 19th century, the first one in 1881 (Ley de Enjuiciamiento Civil, Real Decreto de Promulgación de 3 de febrero de 1881, CPL 1881), that governed the procedures until 2001, and the most recent one, Law 1/2000 (Ley 1/2000, de 7 de enero, de Enjuiciamiento Civil, CPL 2000) in force since 8^th January 2001. Several minor reforms and amendments have been passed during the last decades.

From these Laws it can be concluded that in Spain there is not just one procedure to recover debts. The type and characteristics of the procedure will depend on the estimated amount of the debt. Under the CPL 1881 there were 4 types of procedures, “juicio de mayor cuantía”, “juicio de menor cuantía”, “juicio verbal” (named as “old” in the tables and figures to distinguish it from the new procedures passed under CPL 2000) and “juicio de cognición” (that was not regulated in the main text of the CPL but in a more specific piece of legislation, Decree of 21^st November 1952). The CPL 2000 introduced a new set of procedures: “juicio ordinario”, “juicio verbal” (type I and II) and a special “fast” procedure suitable for debt recovery under certain circumstances called “proceso monitorio”. All new disputes that come before the courts after 8^th January 2001 must take the form of one of the procedures of the CPL 2000. As mentioned above, although the names seem similar, the old type of “juicio verbal” is a different procedure compared to the “juicio verbal” introduced by the CPL 2000.

Table 3 describes the applicability of the different procedures by amount. As it can be seen, several amendments changed the amounts that define the applicability of the different procedures. For example, to collect an unpaid debt of €1000 after 2001 the applicable procedure would be the “juicio verbal”. But if the estimated amount is €4000, the procedure would be a “juicio ordinario”. The new procedures under CPL 2000 are not clearly heirs of the old types as we will see.

The period under study is 1966-2008 to cover the most recent reforms in the procedural Laws. During that period, various amendments changed the amounts applicable to each procedure. The first set of amounts was defined by Law 46/1966 and was applicable until 1985 (when Law 34/1984 entered into force). The last change in the amounts, before the new CPL 2000 entered into force, was made by Law 10/1992.

3.2 Formalism indices for the Spanish procedures

As explained above, to analyze the “formalism” for the Spanish case it is necessary to obtain the index for each of the applicable procedures. Therefore, the objective is to obtain a measure of formalism for each of the 8 procedures cited in the previous subsections and observe their evolution through time. That will allow us to obtain a comparison between them in a tractable manner and also a comparison over time. Finally, a compound indicator, taking into account the different possibilities is provided.

Figures 1 to 6 show the results for the 6 sub-indicators that compose the “formalism index“ used here (Professionals vs. Laymen, Written vs. Oral, Legal justification, Statutory regulation of evidence, Control of Superior Review and Engagement formalities). Figure 7 shows the result for the “formalism index”. The vertical lines in years 1985, 1992 and 2001 indicate relevant changes in the procedures due to a change in the whole Law (with the approval of the new CPL in 2000) or minor changes made by Law 34/1984 and Law 10/1992.

As expected, the procedures that are established by the CPL for solving cases involving lower amounts are also less “formal” (“juicio verbal old” before 2000 and “juicio verbal II” after 2000) (see figure 7). Also higher sub-indicators are related to higher nominal amounts (Figures 1-6). An exception is the “Proceso monitorio” (after 2000) that also has a low degree of formalism, although it can be used to solve disputes involving quite large amounts. In fact the “proceso monitorio” was especially created to be a “simple” procedure to use under strict circumstances.

All the sub-indicators have shown some improvement (that is, we obtain lower results for all or some of the procedures) in recent years. The improvements are reflected in the global indicator of formalism (Figure 7) insofar as we observe a general reduction of “formalism” over time. All the quantitative results are included in Table 4.

With respect to the problem of the consistency of the indicators, as observed in the study of Djankov et al. (2003), the sub-indicators move in the same direction and are positively correlated with the overall index of formalism. Table 5 provide the correlations among the formalism index and its components. All correlations are high and positive.

3.3 A compound indicator of formalism

The previous results give us the levels of “formalism” of each of the procedures allowing us to make comparisons among them. It would be desirable to obtain a single indicator of formalism to represent the situation of the whole economy independently of the specific procedure needed for a specific dispute. That indicator can be constructed since there are data available on the usage of the different types of procedures over time (1995-2006).

Figure 8 represents the proportion (in %) of disputes resolved by each type of procedure between 1995 and 2006. The data are taken from the public database of the CGPJ (Consejo General del Poder Judicial, General Council of the Judicial Power) and represent the disputes resolved by the first instance (and first instance plus “instrucción”) courts excluding “family conflicts” and executions. After 2000, all the new cases that were filled in the Spanish courts took the form of one of the new procedures, therefore in a few years all the cases resolved by the system will be dealt with the new procedures. Meanwhile, as can be seen in the figure, in the first years after 2000 it is still possible to find a relevant, but diminishing, proportion of disputes solved under the form of the old procedures.

The data have two important drawbacks: the period available is very limited and the data does not differentiate between the two “types” of “juicio verbal” (after 2001), as explained above.

Figure 9 (data in Table 6) shows a composite indicator of formalism taking into account the proportion of solved cases explained above. It is assumed that half of the new cases between 0 and €3000 took the form of a “juicio verbal I”. Figure 9 shows that the implementation of the new Law 1/2000 implied a significant reduction in the “formalism” of the Spanish judicial system. It can be expected that the measure of formalism will stabilize around the results of 2006 as the weights of the old procedures in the system approach 0.

That reduction in general formalism can be explained by the introduction of some reforms in the judicial system by the CPL 2000. The CPL 2000 introduced a simple fast procedure (proceso monitorio) for a quite wide range of amounts (up to 30000 euros). More specifically in the “proceso monitorio” legal representation is not mandatory unless the procedure is transformed in another type of procedure (due to the opposition of the debtor). Also the complaint may be submitted to the court in a simplified form. Moreover, the number of steps needed to complete the procedure may be very limited under CPL 2000: the “proceso monitorio” begins with the presentation by the creditor of the documents which demonstrate that a debt was left unpaid by a debtor. If, faced with those documents, the debtor acknowledges before the judge that the debt exists and he is willing to pay, the procedure ends without any further steps. On the other hand, as we have seen, the CPL 2000 inherited some of the previous simplifications, such as the elimination of the pre-trial conciliation. All those innovations lead to a decrease in the formalism index.

3.4 Effects of formalism in the judicial system figures

The CGPJ offers data (for 1995-2006) on the number of cases resolved per year by the judicial system, the number of new cases that entered the judicial system during the year and the number of cases still pending at the end of the year. From these figures, it is possible to compute 3 relative measures of the efficiency of the judicial system: the resolution rate, defined as the ratio between the cases resolved and the cases that entered the system for a specific year, the pending cases rate, defined as the ratio between pending cases in a specific year and the cases resolved in the same period, and the congestion rate, defined as the ratio between the sum of pending cases plus new cases in a specific year and the cases resolved in the same year. Higher resolution rate, lower pending cases rate and lower congestion rate are related to greater efficiency of the judicial system.

Table 7 shows that formalism is positively correlated with all three measures in the case of the years 1995-2006 (see figure 10 for a graphical intuition). This could be interpreted as evidence, although admittedly very weak, that a reduction of formalism might have had a positive impact on the system through a reduced congestion and pending cases rate. On the other hand, the improvements in formalism may also have attracted a higher amount of new cases to the courts (an increase in litigation) and, therefore, a reduction in the resolution rate. This would suggest that a net improvement in the judicial system needs not only reforms in the procedures but also more resources, in order to cope with the new disputes reaching the courts.

4 Comparison with the results of Djankov et al. (2003) and other international indicators

As mentioned above, the indicator of formalism proposed in the previous sections relaxes some of the assumptions made in Djankov et al. (2003) and takes into account all the procedures related to debt recovering, unlike the indicator proposed by Djankov et al. Therefore it would be interesting to compare the results of both pieces of research.

The indicator of formalism of Djankov et al. was composed of 7 sub-indicators of which the last one (“independent procedural actions”) had to be removed from the indicator proposed in this paper. Therefore, in order to obtain comparable results in both cases, we should remove the seventh subindicator from the results from Djankov et al. (2003). Their result for the formalism index in Spain (data from 2002), once we remove the seventh sub-indicator, is 4.96. The formalism index proposed in this paper for 2002 takes the value of 3.81. In the case of Djankov et al., Spain is in position 106 out of 109 countries. Therefore Djankov et al. (2003) conclude that Spain has a very formal system of justice. On the findings set out in this paper, Spain would be in position 79 out of 109 countries. Thus, Spain would be in a mid-position. The latter result should hold as all the different procedures for debt recovery are taken into account, and not only a very specific case.

Conversely, another way to compare the indicators would be to add to the indicator obtained in this paper the component that is lacking when compared with Djankov et al. (2003) (“independent procedural actions”). Djankov et al. (2003) provide the value of each of the sub-indicators and therefore it is possible to add the value given by them to the component that is needed. Note that this is a strong assumption as adding their component for “independent procedural actions” to our indicator would mean considering that the value they offer for “independent procedural actions” (0.29 in 2002) is constant across the different types of procedures analyzed in this paper. The formalism indicator obtained in this paper for 2002 was 3.81. If we add the result for “independent procedural actions” (0.29) we obtain a result of 4.1 that is significantly lower than their result for formalism in Spain (5.25). With a value of 5.25 (obtained by Djankov et al, 2003) Spain is in position 101 out of the 109 analyzed countries. With the results obtained in this paper Spain is in position 81 (out of 109).

Figure 11 represents the regression between the average (1995-2004) GDP per capita (in constant prices) and the formalism index taken from Djankov et al. (2003) adding an extra observation for Spain with the value of the formalism index obtained in this paper (once we add the seventh subindicator of Djankov et al. 2003). Formalism is significantly and negatively correlated to the average GDP per capita. Therefore, less formalism seems to be related to wealthier economies. As can be seen in the figure, Spain is above the expected level of formalism given its GDP per capita, and therefore its formalism may constitute an obstacle to development. On the other hand, the measure of formalism obtained in this paper is more consistent with the level of development of Spain if we compare it with the original measure obtained by Djankov et al. (2003).

In conclusion Spain gets significantly better results when the assumptions made by Djankov et al. (2003) are relaxed. In fact, the World Bank, when measuring the institutions related to contract enforcement in the Doing Business Project, gives Spain a mid-position in the classification that would be consistent with the results of this paper. Following the Doing Business project, Spain would be in positions 82, 101 and 39 out of 178 countries if we classify the countries by the duration of the procedures, by the number of steps needed in the procedures and by the estimated cost of litigation respectively.

5 A special case: evaluation of the procedures needed to evict a non-paying tenant.

A well functioning tenancy market depends heavily on the correct enforcement of its contracts. Delays in the eviction of non-paying tenants are a strong disincentive to rent and that entails a reduction in the weight of the tenancy market in the real estate market.

A weak tenancy market entails negative effects for the labour markets. In fact, it can be seen that there is a negative relationship between home ownership and mobility and that a high percentage of geographical mobility takes place among workers that were renting their homes (Barceló, 2006). The reduced mobility implied by inefficient tenancy markets reduces the efficiency of the economy (Hardman and Ionnides, 1999). On the other hand, a strong tenancy market is beneficial to relieve the pressures in the real-estate market.

Unlike the case of recovering a general debt, which was analyzed in the previous sections, the procedure for tenant eviction is a single, special procedure of Spanish Law, which does not depend on the amounts owed (although the quantity of the rent disputed may change some characteristics of the procedure).

Apart from the “substantive” Law on Tenancy (understood as the “Residential Tenancies Act”) that has changed several times during the recent decades (the last change taking place under Law 29/1994), the procedures applicable in the case of a dispute are included in the applicable CPLs. The Civil Procedural Law of 1881 established a special, unique, procedure for eviction called “juicio de deshaucio” that resembles the “juicio verbal (old)” analyzed above. The new CPL 2000 establishes that such a dispute will be resolved under the “juicio verbal” procedure (I or II, depending on the amount owed) but excluding the other procedures.

Note that these procedures have as their result a judgment that returns the full rights over the dwelling to the owner, therefore the tenant must leave the property. The non-paying tenant, as in other cases, may still decide not to comply with the judgment (and thus, not to leave the property although he no longer has any more rights over it). In that case, another further procedure would be needed: execution of the judgment (that concludes with a forced eviction, “lanzamiento”). The analysis herein is carried out for the main procedure and not for the execution.

Table 4 contains the results for the indicator of “eviction procedure”. As said, the results are those of the “juicio verbal (old)” before CPL 2000, and a similar result to those of the new “juicio verbal” afterwards. Unlike the indicator describing a very general case of debt recovery, the “formalism” in the case of eviction has increased slightly. That can be explained by the fact that, depending on the amount, the litigants may need legal representation after 2001, while under CPL 1881 that legal representation was not needed, at least in part of the procedure.

6 Conclusions

Djankov et al. (2003) proposed a measure of procedural formalism that was related to higher complexity and expected duration of the dispute within the judicial system. At international level, they did not find significant improvements in fairness or quality related to higher formalism. In this paper is it proposed to adapt those indicators to the Spanish legal system to observe the evolution of formalism over time and the different procedures. The results show that the level of formalism in the Spanish economy is lower than the one obtained in Djankov et al. (2003). In fact, the level of formalism obtained here would be more consistent with Spanish GDP per capita and the classifications of the World Bank.

In addition, it can be concluded that formalism has decreased over time in Spain during recent decades. Particularly, the new CPL 2000 has reduced significantly the formalism of the whole system. This effect can be explained by the different initiatives introduced by the CPL 2000, such as the creation of a simple fast procedure (proceso monitorio) for a quite wide range of amounts (up to 30000 euros). This has also allowed more disputes to be broad before a court without legal representation. Moreover, some steps in the procedures have disappeared in recent years, as the compulsory pre-trial conciliation (in 1984).

As to the issue of how to achieve further reductions in formalism, the methodology applied in this paper would support several refinements in the Spanish judicial system. In particular, reducing the number of procedures in which the litigants need legal representation would be a positive step in that direction. Related to that, reducing the complexity of the complaint or the opposition would help to make the initial steps of the procedure less formal. If legal justification of the complaint is not compulsory, legal representation may be not necessary, at least in the initial steps of the procedure. That would reduce the costs for the litigants. The indicators would also support giving more freedom to the judges to assess the admissibility and weight of evidence. Also they support simplifying and reducing the number of notifications needed during the procedure. A very different problem that would need to be tackled is the one detected when inflation is taken into account. The analysis of the applicable amounts in real terms shows that the more formal procedures may be used to resolve disputes involving minor amounts over time due to the eroding effect of inflation. Thus, inflation may increase formalism over time.

7 APPENDIX: Applicable amounts in real terms

A problem with the system of procedures explained above (section 3.1) is that it establishes a rigid set of amounts that can only be changed by a new Law (as happened on several occasions as we have seen). As a result, the Law is not taking into account the effect of inflation and, therefore, year after year the limits of the different procedures decline in real terms. Table 3 describes the applicable amounts for each procedure in nominal terms. For instance, the applicable amount for a “juicio ordinario” was in 2001 €3000 or more, and this amount remained unchanged in the following years.

Figure 12 shows the amounts applicable to the different procedures in real terms, therefore taking into account the eroding effect of inflation. Thus, the more “complex” procedures become applicable to lower amounts year after year. The “steps” in the graph coincide with the cited amendments in the CPLs.

Inflation entails several costs. Probably the best known is the distortion caused by inflation in money demand. Dolado et al. (1997) have identified other costs for the Spanish economy, some of them related to rigid regulations such as the ones governing taxation.

In this respect, in the same way that inflation may lead to distortions in revenue through incomplete or delayed indexation of tax brackets, the lack of indexation of the amounts to which Spanish civil procedures apply may produce unexpected changes in formalism. More formal procedures become applicable to actions for lower amounts if inflation is present in the economy. Thus, inflation may increase the formalism of the judicial system.

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TOTAL PROFESSIONAL VS LAYMEN

INDEX WRITTEN VS ORAL ELEMENTS

LEGAL JUSTIFICATION

STATUTORY REGULATION OF EVIDENCE

CONTROL OF SUPERIOR REVIEW

ENGAGEMENT FORMALITIES

FORMALISM INDEX

SOLVED CONFLICTS BY TYPE OF PROCEDURE SOURCE: Consejo General del Poder Judicial (2008).

COMPOSITE INDICATOR OF JUDICIAL FORMALISM IN SPAIN

FORMALISM AND JUDICIAL SYSTEM FIGURES SOURCE: Consejo General del Poder Judicial (2008).

GDP PER CÁPITA AND FORMALISM SOURCES: Banco de España, Heston et al. (2006), Djankov et al. (2003).

SOURCE: World Bank. Doing Business Project (2008) and The World Business Environment Survey (2000).

DESCRIPTION OF THE VARIABLES AND ADAPTATION NOTES FOR SPAIN (a) (b)

SOURCE: Djankov et al. (2003) and Spanish Civil Procedural Laws. a. Please note the especialities of the regulation of the "proceso monitorio" (CPL 2000). If there exist opposition to the demand under a "proceso monitorio", the procedure ends an it is transformed in a "proceso ordinario" or "verbal". b. Judgment is understood as "sentencia". The "proceso monitorio" ends with an "auto". See explanations to the indicators.

DESCRIPTION OF THE VARIABLES AND ADAPTATION NOTES FOR SPAIN (cont.)

SOURCE: Djankov et al. (2003) and Spanish Civil Procedural Laws.

APPLICABILITY OF THE DIFFERENT PROCEDURES IN NOMINAL TERMS

SOURCE: Spanish Civil Procedural Laws.

TABLE 4

RESULTS FOR THE INDICATORS

CORRELATIONS OF FORMALISM INDEX AND ITS SUB-INDICES

CORRELATIONS OF FORMALISM INDEX AND FIGURES OF THE JUDICIAL SYSTEM

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