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Recommendations for Fast-track

Procedures for Small Claims

Zagreb, September 2017

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Contents

Introduction ..................................................................................... 3

Overview of the Situation in Croatia ................................................. 4

Basic Legal Provisions Regarding Small Claims Procedures ................. 4

Practical Problems in the Application of Legislative Solutions that

Relate to Small Claims Procedures .................................................... 5

European Practice ............................................................................. 7

The Legal Framework in the European Union ..................................... 7

Examples of Good Practice ............................................................... 7

Regulation No 861/2007 of the European Parliament and of the Council

of 11 July 2007 establishing a European Small Claims Procedure ........ 8

Recommendations ............................................................................ 9

Introduction of the Obligation to Resolve Small Claims Procedures at

Specialized Court Chambers with the Participation of Court Advisers .. 9

More Stringent Provisions on the Burden of Proof and the Time Limits

for Offering Evidence and Greater Flexibility and Openness of the

Courts when Deciding on Taking Individual Evidence ......................... 9

Mandatory Professional Training for Judges and Court Advisers ........ 10

Introduction of e-services Enabling the Delivery of Party and Judicial

Documents by Electronic Mail ......................................................... 10

KPI – More Points for Resolving Small Claims Procedures................. 10

Publicly Disclosed Information ....................................................... 11

Key Advantages .............................................................................. 12

Improving Competitiveness ............................................................ 12

Relieving the Pressure on the Judiciary ........................................... 12

Restoring the Confidence of the Public in the Judicial and Legislative

System .......................................................................................... 12

Approaching the Standards of Implementation of the More Developed

Countries of the European Union ..................................................... 13

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Introduction

In Croatian legislation, claims are considered small when the amount demanded

does not exceed HRK 10.000, or HRK 50.000 for proceedings before commercial courts.

In Croatian legislation, small claims procedures are regulated by a separate Chapter of the Civil Procedure Act1, but there are only a few special rules prescribed

for this type of proceedings, while all other provisions of the Civil Procedures Act apply to the rest of the procedures.

It is also useful to mention that Regulation No 861/2007 of the European

Parliament and of the Council of 11 July 2007 establishing a European Small Claims

Procedure2 (hereinafter: the Regulation) is applied in Croatia as it is a member of

the European Union. The Regulation applies in cross-border cases, to civil and

commercial matters, whatever the nature of the court or tribunal, where the value

of a claim does not exceed EUR 2.000 at the time when the claim form is received

by the court or tribunal with jurisdiction, excluding all interest, expenses and

disbursements. The Civil Procedure Act prescribes certain formal rules that relate to

the application of the aforementioned Regulation in Croatia, while the remaining

content is applied in its integral form.

In accordance with the Framework Standards for the Workload of Judges: Class:

710-01/11-01/158, File number: 514-03-02-01-01/1-12-173 of 28 December 2012,

adopted by the Ministry of Justice of the Republic of Croatia on the basis of a

proposal of the General Session of the Supreme Court of the Republic of Croatia, a

first-instance court judge should resolve 400 small claims procedures in one

calendar year. However, experience has shown that this number is significantly

lower for most courts in Croatia due to a number of factors. The most important of

these factors include the general overload of courts, partially unclear content of

relevant regulations, as well as inconsistent and divergent application of the

provisions on civil proceedings. However, slow and inefficient small claims

procedure is often the consequence of the tendency of legal and natural persons in

Croatia to avoid complying with their indisputable obligations by using the option of

unnecessary and prolonged procedures.

1 Legislation Committee of the Croatian Parliament. 2011. Civil Procedure Act (Official Gazette nos. 53/91, 91/92, 58/93, 112/99, 88/01, 117/03, 88/05, 02/07, 84/08, 123/08, 57/11, 148/11, 25/13 and 89/14). Zagreb: Official Gazette. Available at: https://www.zakon.hr/z/134/Zakon-o-parni%C4%8Dnom-postupku 17 July 2017. 2 The European Parliament and the Council of the European Union. 2007. Regulation (EC) No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims Procedure. Brussels: Official Journal of the European Union. Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=CELEX:32007R0861&qid=1500629212866&from=EN 13 July 2017. 3 Ministry of Justice. 2012. Framework Standards for the Workload of Judges. Zagreb: Official Gazette. Available at: https://pravosudje.gov.hr/UserDocsImages/dokumenti/Pravo%20na%20pristup%20informacijama/Zakoni%20i%20ostali%20propisi/Okvirna%20mjerila%20za%20rad%20sudaca.pdf 17 July 2017.

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Overview of the Situation in Croatia

Basic Legal Provisions Regarding Small Claims Procedures

The Civil Procedure Act is the general regulation regulating small claims procedures

in Croatia. This regulation was substantially amended in April 2013 and most of the

amendments were aimed precisely at speeding up civil proceedings.

With regard to small claims, the general rule prescribes that claims are considered

small when the value of the matter at issue does not exceed HRK 10.000, or

HRK 50.000 for disputes before commercial courts. Special rules prescribe that

small claims procedures also include disputes that are not aimed at payment, but at

devolution of movable property whose value does not exceed these amounts, that

is, disputes in which the plaintiff, instead of complying with the application, accepts

to receive a payment which does not exceed these amounts.

The Civil Procedure Act contains a series of special rules that relate to small claims

procedures and that are primarily aimed at faster and more efficient litigation in

those disputes. The following rules should certainly be highlighted as the most

important ones:

the parties are obliged to present all facts and offer evidence in the

complaint and the response to the complaint, and can present and offer them

at the preparatory hearing solely and exclusively if they were not able to do

so earlier with no fault on their part;

the time limit for an appeal is 8 days, and the decision can be challenged

only on the basis of a number of explicitly determined infringements, but

never on the basis of incomplete and incorrectly determined factual

situation;

only the so-called “exceptional” revision is permitted, i.e. the revision

referred to in Article 382(2) of the Civil Procedure Act.

Court fees for this type of procedure are relatively low and amount between

HRK 100 and 1.000, depending on the individual action.

In the practice of Croatian courts, small claims most often arise when proceedings

continue before a court due to an objection to enforcement against a payment

order contained in a public notary enforcement order. In these cases the value of

the matter at issue usually amounts to only a few thousand HRK, and the subject of

these civil proceeding are usually unpaid claims to utility charges (electricity, water,

gas), telecommunications services, etc.

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Practical Problems in the Application of Legislative Solutions that Relate to Small Claims Procedures

Although the legislative solutions that relate to small claims procedures are mostly

positive and aimed at achieving the standards of speed and efficiency, it is clear

that problems arise in their implementation.

The problems can be divided into three groups for identification purposes:

1. problems caused by nomotechnical imprecision and incompleteness of

relevant regulations;

2. problems caused by the need to reorganize the courts and the way

they operate;

3. socioeconomic problems (connected to business and debt culture).

1. When it comes to the problems caused by the content of relevant

regulations, the most common problems that appear in practice are:

- parties in the procedure taking advantage of the rule that new facts and

evidence cannot be presented after the claim and the response to the claim

are submitted;

- the rules on the burden of proof.

Namely, by prescribing that new facts and evidence can be presented after

submitting the claim and the response to the claim “if the party had not been able

to present these grounds, through no fault of his/her own”, the legislator

introduced a subjective element to the assessment of the existence or nonexistence

of guilt of the party responsible for the oversight. Since assessing the existence of

“guilt” causes difficulties and often disables the presiding judge from reaching an

objectively justified decision on its existence or nonexistence, in practice the courts

usually accept the facts and evidence the parties submit later. Due to these

frequent abuses of this procedural principle, small claims procedures are

unfoundedly long, which in the end causes damage primarily to the creditor.

With regard to the rules on the burden of proof, the rules in the Civil Procedure

Act are set out in very general and broad terms. In the context of the rule

stipulating that all facts and evidence should be presented in the claim and the

response to the claim, the parties (most often the plaintiff) offer in their

submissions a series of evidence that are often completely unnecessary and prolong

the procedure. For example, the plaintiffs (since they do not know whether the

respondent will challenge the amount claimed at the time of submitting the claim)

suggest financial examination even though their claim is based on only one or two

invoices in which the amounts claimed are indicated in a clear and unambiguous

manner. Although judges can refuse the taking of these unnecessary evidence, in

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most cases they choose the option of taking all evidence that the parties offer, and

then indicating in the decision that evidence taken in that manner did not affect or

influence the decision in any way. As a result, small claims procedures are

disproportionately long and very often the cost of litigation in the end exceeds the

value of the matter at issue.

2. When it comes to the problems caused by inefficient operation of the courts,

they are usually the consequence of nomotechnical imprecision of regulation, but

also of the general overload of the courts.

Specifically, specialization of municipal courts is only beginning to develop and

court chambers responsible for specific branches of law (for example, labor law,

tenancy relations, etc.) were profiled in the last few years, but only at the largest

municipal courts in Croatia. Because of this, judges are usually overloaded with

disputes from different branches of law, which in practice disables them from fast,

but also from precise, resolution of disputes.

In addition, judges are also not motivated to resolve small claims in a more

expedient and efficient manner due to key performance indicators (KPI), since work

on these cases is rewarded with fewer points than work on cases involving larger

claims.

3. As a consequence of the problems described in the first two items, a growing

problem of unconscientious avoidance of complying with ones obligations by

delaying court proceedings can be observed. Specifically, respondents are rarely

motivated to engage in alternative resolution of disputes (for example, through a

mediation process) since slow resolution of court cases actually works in their favor

– compliance with the obligation is prolonged for a number of years. In proceedings

before commercial courts, insolvency proceedings are often brought against the

respondents during litigation or they are placed under court-supervised

administration. For the plaintiff, this means that the settlement of his/her claim is

very unlikely. Also, long-term and uncertain litigation exhausts the plaintiffs, who

are exposed to expenses during litigation (legal costs and very often lawyers’ fees)

and it is uncertain when and if these costs will be settled by the respondent. That is

why plaintiffs often withdraw small claims, which also contributes to the growing

trend of avoiding compliance with obligations.

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European Practice The Legal Framework in the European Union

Since each Member State is authorized to autonomously regulate civil proceedings applied on its territory, different models for resolving small claims exist in the European Union.

Building on the comparative report “Fast-Tracking the Resolution of Minor

Disputes: Experience from EU Member States” 4 , the following can be concluded:

as most countries of the European Union, Croatia has developed certain special rules for small claims procedures within its concept

of civil proceedings; also, as most countries of the European Union, Croatia prescribed a

narrower scope of rules for small claims procedures, including a narrower scope of grounds of appeal and shorter time limits for taking actions in proceedings;

considering all EU Member States, Croatia, in addition to Germany, prescribes the lowest maximum value of a claim which is necessary

for a claim to be considered small (up to HRK 10.000 in claims before municipal courts);

in Croatia, as in most of the countries of the European Union, there

are no specialized courts (or court chambers) dedicated exclusively to small claims procedures.

In general, it can be concluded that legislative solutions related to small claims procedures in Croatia are very similar to the ones in other

countries of the European Union. However, slow and inefficient resolution of these claims seems to be a more serious problem.

Examples of Good Practice

As stated above, legislative solutions related to small claims in Croatia are based on

similar or the same principles as in the other EU Member States. However, some EU

Member States have introduced certain forums or models in their legal system that

make this procedure significantly more efficient and which could be introduced in

the Croatian legal system as well.

Specifically, Malta can be pointed out as an example of good practice. In this

country, small claims procedures are resolved before a Small Claims Tribunal

composed of lawyers who have been practicing for at least 7 years. They are

appointed to a position on the Tribunal for a mandate of 5 years.

4 Harley, Georgia; Said, Agnes. 2017. Fast-Tracking the Resolution of Minor Disputes: Experience from EU Member States. World Bank, Washington, DC: World Bank. Available at: https://openknowledge.worldbank.org/handle/10986/26100 13 July 2017.

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Examples of efficient resolution can also be found in France, Ireland and Italy,

where parties are obliged to attempt to resolve a dispute in a mediation process

before a court before initiating civil proceedings. Parties are instructed to initiate

civil proceedings only if the mediation process in not successfully concluded.

Some countries have introduced certain solutions that significantly speed up

settling the substantive resolution of a dispute, i.e. the taking of evidence. For

example, in Austria, in claims whose value does not exceed the amount of

EUR 1.000, the judge can decide not to take evidence in the usual manner, but to

make a decision on the claim based on the case file.

Furthermore, some countries allow written submissions in small claims to be

submitted electronically (Denmark, Ireland, Slovenia and Sweden).

It is also important to point out that some countries have limited the possibility to

appeal only to claims exceeding a certain value of the matter at issue. Specifically,

in Italy appeals are not allowed for claims whose value does not exceed

EUR 1.100, in the Netherlands EUR 1.750 and in Spain as much as EUR 3.000.

Regulation No 861/2007 of the European Parliament and of the Council of 11 July 2007 establishing a European Small Claims

Procedure

In accordance with Article 2 of the above Regulation, the Regulation “shall apply, in

cross-border cases, to civil and commercial matters, whatever the nature of the

court or tribunal, where the value of a claim does not exceed EUR 2 000 at the time

when the claim form is received by the court or tribunal with jurisdiction, excluding

all interest, expenses and disbursements”.

Some of the principles in the Regulation could certainly be applied in national

legislation with the aim of achieving more efficient and effective resolution of small

claims procedures. For example, the Regulation prescribes that a claim in this type

of disputes is submitted via a special form that can be delivered to the court by

electronic mail in countries in which that type of communication is enabled.

Furthermore, as a rule, the procedure is conducted in writing – the “court or

tribunal shall hold an oral hearing if it considers this to be necessary or if a party so

requests” (but the court can refuse this request if it deems that a just procedure

can be ensured without oral hearing, considering the circumstances of a case)

(Article 5 of the Regulation). The court must render a decision within 30 days

from receiving a response to the claim or request additional evidence from the

parties, take the evidence offered or hold an oral hearing. If the court decides to

hold an oral hearing, it can be held through a video conference. When deciding

on taking evidence, the “court or tribunal shall use the simplest and least

burdensome method of taking evidence” (Article 9 of the Regulation).

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Recommendations

Considering the examples of good practice from Member States of the European

Union and the models and solutions referred to in the Regulation, it can be concluded that there is a lot of room for improvement and progress with regard to

small claims procedures in Croatia. However, improvement requires more active and efficient cooperation of the legislative and judicial authority, which should

result in legislative solutions that will be easy to implement in practice.

AmCham therefore suggests the following:

Introduction of the Obligation to Resolve Small Claims Procedures

at Specialized Court Chambers with the Participation of Court Advisers

Establishing specialized court chambers competent exclusively in the resolution of small claims procedures and employing court advisers would contribute significantly

to faster and more efficient resolution of small claims procedures. Although the existing Judiciary Act 5 provides the possibility for the courts to employ court

advisers authorized, among other things, to conduct proceedings in which the value of the matter at issue does not exceed HRK 100.000 before municipal courts or HRK 500.000 before commercial courts, the work of these officials does not focus

only on small claims procedures, but a whole range of other cases that are often more complex. In addition, due to organizational deficiencies of the Croatian courts,

a large number of courts (particularly smaller ones) do not employ court advisers.

Croatian courts are extremely overloaded with a large number of cases. Due to all

of the reasons described above, the speed and efficiency which this type of disputes implies cannot be achieved.

Significant improvement in speed and efficiency would certainly be achieved if a special chamber specialized in the resolution of these disputes were established at

all courts, or at least at the most overloaded ones.

More Stringent Provisions on the Burden of Proof and the Time Limits for Offering Evidence and Greater Flexibility and Openness

of the Courts when Deciding on Taking Individual Evidence

As already mentioned, although the Civil Procedure Act contains a general rule on

the obligation to present all facts and evidence in the claim and the response to the claim, parties to the proceedings often deviate from that rule, which consequently

leads to delays in proceedings.

For this reason, the model prescribed by the Regulation could be applied – parties

present all facts and evidence at their disposal in the complaint and the response to the complaint and the judge then decides on the dispute based on those data or

5 Croatian Parliament. 2005. Judiciary Act (Official Gazette nos. 28/13, 33/15, 82/15, 82/16.) Zagreb: Official Gazette. Available at: http://narodne-novine.nn.hr/clanci/sluzbeni/2005_12_150_2896.html 13 July 2017.

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invites the parties to submit new documentation or state their positions in an oral hearing. This would prevent delays in proceedings which are in most cases

motivated exclusively by avoiding to comply with obligations. In addition, due to this inconclusive rule on time limits for presenting facts and evidence, plaintiffs often present a range of unnecessary evidence in their claims to avoid the risk of

not being able to present those evidence at a later stage. In those cases, judges should take a more active approach and discuss possible controversies with the

parties at the first hearing and reject unnecessary evidence that are offered. In practice, the courts often take all evidence offered without due cause, even though some pieces of that evidence have no practical significance (for example, hearings

of directors, financial examinations of one or two invoices, etc.).

For these reasons, AmCham deems that the model from the Regulation could make

small claims considerably more efficient.

Mandatory Professional Training for Judges and Court Advisers

AmCham believes it is necessary to introduce mandatory professional training on

small claims procedure for judges and court advisers, with the aim of shortening

the time limits in which the courts are required to render a decision on small claims procedures.

In an overwhelming majority of cases, small claims procedures are factually and

legally simple. That is why the time limits for their resolution should be much

shorter. For example, a realistic time limit in which a small claim procedure could and should be resolved before a first-instance body is 3 (to 6) months from the day of receiving a response to the claim, or additional 3 months at most in case of an

appeal. This reduction of time limits necessarily presupposes the realization of the previously mentioned proposal for improvement – a more active role of the

presiding judge when making decisions on taking evidence and discussing facts.

Introduction of e-services Enabling the Delivery of Party and Judicial Documents by Electronic Mail

In light of the example of the Regulation, parties and courts should be enabled to conduct all communication by electronic mail via authorized servers. This would

prevent significant losses of time caused by mail being delivered in the conventional manner.

KPI – More Points for Resolving Small Claims Procedures

If judges and court advisers were rewarded with more points, and consequently with better statistics, for resolving small claims procedures, they would be more

motivated to render decisions faster and more efficiently. In conditions in which the resolution of these claims is awarded with fewer points, the presiding judges are

more disposed to dedicate their limited office hours to more extensive work on larger disputes, while small claims remain in the background.

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Publicly Disclosed Information

Information on the rules for small claims procedures should be publicly available and comprehensible to the wider public, and submissions could be delivered using

standardized forms.

Considering the value of the matter at issue in a dispute that is considered a small

claim, both the active and the passive side in those disputes often involve insufficiently informed parties or parties that have no contact with courts.

In Croatia, certain types of proceedings (for example, land-registry and insolvency proceedings) were made more accessible to the wider public by enabling written

submissions to be delivered via standardized forms and by notification through a system of an electronic notice board.

Similar models could be applied in small claims. For example, instructions on time limits and the manner of initiating small claims procedures could be posted on the

web pages of the competent courts, and, where possible, these instructions should be supported by standardized forms which can be used to draft written

submissions. By doing so, the parties would be able to resolve these disputes without hiring lawyers (and paying for their services), which would also motivate a larger number of parties to initiate this type of claims.

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Key Advantages Improving Competitiveness

According to the “Doing Business” report created by the World Bank for 2016,

Croatia was ranked as number 43 out of 190 countries whose socioeconomic climate was assessed in the report. Croatia achieved the worst results in the categories “Resolution of commercial disputes” and “Resolution of insolvency”.

Imprecise and unclear provisions on small claims procedures, together with inefficient and slow operation of the courts, create an atmosphere of investors’

distrust in efficient collection of due payments. This is particularly relevant for foreign investors specializing in providing financial services (banks, savings banks) or other types of common everyday services (telecommunication services,

electricity services, etc.)

Speeding up and maximizing the efficiency of small claims procedures would certainly improve Croatia’s competitiveness on the aforementioned list precisely in

the two most problematic categories – “Resolution of commercial disputes” and “Resolution of insolvency”.

Relieving the Pressure on the Judiciary

As already mentioned on several occasions in this Position paper, Croatian courts are extremely overloaded and the framework standards for the workload of judges cannot be implemented as prescribed. If chambers specializing in small claims

procedures were introduced at courts, as suggested by AmCham, the pressure on other judges of a particular court would be relieved as they would not work on

those cases and would consequently have more time to work on other files in a particular unit. Of course, this type of reorganization necessarily presupposes changes to key performance indicators in order to additionally motivate judges (or

court advisers) at those specializes chambers to work fast and efficiently.

Restoring the Confidence of the Public in the Judicial and Legislative System

Small claims procedures involve the participation of the widest public, and socially vulnerable categories – retired persons, unemployed persons, etc., often

predominate. These persons are often unable to obtain professional assistance in these claims, and they do not possess the professional knowledge that would enable them to adequately protect their rights. By introducing standardized forms

and clear instructions for litigation and initiating small claims procedures in publicly available media (web pages of the courts), the protection of the rights of those

persons would be significantly improved. This would undoubtedly improve the level of general trust of the public in the

judicial and legislative system, and on the other hand, minimize the risk of unfoundedly long proceedings, which are often caused by one or both of the parties

not knowing how to adequately articulate their requests and protect their rights.

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Approaching the Standards of Implementation of the More

Developed Countries of the European Union Some of the most frequent criticism of the institutions of the European Union

directed at Croatia refer to the justice system. Croatia is often compared to other countries of the European Union and invited to reinforce its engagement in

resolving the problem of slow and inefficient courts. The report of the World Bank used to draft this document clearly shows that the

manner in which small claims procedures are regulated in Croatia does not differ significantly from the models and principles that are applied in other Member States

of the European Union. However, the implementation of those rules in practice is not satisfactory. The recommendations of AmCham are therefore aimed primarily at practical improvements.

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For additional information, please contact: The American Chamber of Commerce in Croatia

Andrea Doko Jelušić, Executive Director T: +385 1 4836 777 E: andrea.doko@amcham.hr