M. Stračkaitis: initiatives to liberalise notarial services are disguised in fine intentions but consequences are always bitter (interview for Teisė.Pro portal)

Teise.Pro 18 March, 2019

The Chamber of Notaries performs numerous activities in Lithuania – ensuring the protection of the legal framework of the state, helping modernise the Notariat in post-Soviet countries, using its own funds to develop the eNotaras electronic medium. It also faces a variety of challenges. One of the most pressing ones is the struggle of the Association in the case regarding the decision of the Competition Council for alleged cartel. Although Vilnius Regional Administrative Court decided to annul the decision, the Competition Council intends to appeal against the court decision. Marius Stračkaitis, President of the Chamber of Notaries and Klaipėda Notary tells Teise.pro more details about this and other problems and realities of the professional notariat.

Notaries have the higher public confidence among other legal professions in Lithuania. In your opinion, what are the reasons and what does this imply?

This is not news to us. We have been gauging public confidence in our and other legal professions since 2005. The confidence in notaries has always been the highest among other legal professions and amounted to as much as 80 per cent in certain years. This demonstrates that notaries are good and professional in their work, performing the duties and functions assigned to them by the state, and meet the high requirements of culture, professionalism and qualification. Consequently, we are successful in implementing the main task of the Chamber of Notaries to improve notaries’ qualification and ensure the provision of quality legal services. It was only in the recent years that public confidence in police has improved considerably, we believe that this has to do with positive developments in our country’s law enforcement and the popularity of the politicians who come from the police. Seeing the police gaining on us, we decided to commission monthly sociological polls and saw that one month we were in the lead and they were in the lead in the next. We see this as a very positive development. The notariat and the police both ensure the protection of the legal framework of our state. Notaries perform the prevention function of civil law, while the police protect public order. If the population has equal confidence in two key legal institutions, what more could one wish for in a country ruled by law? On the other hand, the sociological studies make us want to improve ourselves. Our polls also include many questions about customer satisfaction with the work of the notaries, and answers dictate to us what needs to be changed and improved. It is true that occasionally we are criticized by colleagues of other professions for including them into the polls regardless of the fact that their activity can’t be popular in principle. I am referring to bailiffs who are always at the bottom of the recent confidence polls. However, in my opinion, if one performs the functions delegated by the state, one can do it in a reliable and quality manner, and be respected for the work. The work of the police also has to do with strictness, occasionally even violence, while the policemen give flowers to female drivers on 8 March only.

Please, identify the biggest challenges to the notary activities in Lithuania today. How are they different from those in other EU states?

The processes and challenges in our country are the exact reflection of those existing across the European Union and even worldwide. Growing economies, the enormous pace of business development does not favour big formalities. The traditional ideological disputes between continental law and Anglo-Saxon law have long escalated to political level in Europe. There have been strong deregulation initiatives in the European Commission, besides, the European Union states are under constant pressure of the World Bank lobby. The annual Doing Business reports of the World Bank literally exert pressure to run and pant – “faster, faster, faster”. Many politicians, including those in our country, can’t resist the temptation of referring to the reports and demanding an even greater business deregulation. The Chamber of Notaries regularly encounters the enthusiasm for deregulation in the sphere of company formation and the simplification of real property transfer processes inspired by World Bank reports. According to the claims of the World Bank apologists, the prevention functions of a notary when forming companies or the obligatory notarial form of real property transfer transactions represent barriers for Lithuania in its effort to improve its competitiveness. But let us read the reports very carefully – and that’s precisely what we do. Year-by-year they indicate that notary procedures in company formation or real property transfer processes require the shortest period of time, while procedures such as opening a bank account, obtaining the necessary licenses and similar banking and public procedures take a lot longer to complete, but for some reason the efforts to speed them up achieve no results. And still, Lithuania’s indicators in the above-mentioned fields have been in the top three in the Doing Business ratings on multiple occasions. Therefore, I have defended, still defend and will continue to defend our position that it is the slowness of public institutions and even the banks rather than notary supervision that occasionally hampers business. Notary supervision does not take long and provides business with strong protection against a multitude of maladies, including the gravest and the most common ones such as money laundering, efforts to legalise capital of unknown origin and money laundering efforts though real property.

Another challenge faced by the notaries of the European Union states are liberalisation initiatives and attempts to force notaries to compete on price rather than service quality. This is a direct outcome of the efforts of extreme liberals in the politics of many countries. The notary services liberalisation initiatives are always disguised in fine intentions, e.g. increasing service accessibility and making the service lest costly, but the consequences are always bitter, without exception. Absence of regulation of the number and stable activity location of notaries, alongside with the lifting of service price caps, undermines the profession and deprives it of its essential function – protection against fraud.

Another key challenge familiar to notaries in Lithuania and abroad is the global electronic progress. Lithuania is one of the leading countries in this regard. It has a well-developed and advanced system of registers – one that is envied by old countries of the European continent. The notaries are also technologically advanced and literate. We have implemented the eNotaras project which I will discuss a bit later. We constantly monitor the current global electronic system trends of the notariat. They are very diverse – ranging from the temptation to plunge head over heels into blockchain systems, to complete conservatism. Technology apologists believe that the development of electronic services will make notaries obsolete. We disagree with that. The role of the notary will never be less important and surely will not hamper progress, provided we find appropriate technological solutions. Our conservative colleagues in Germany are concerned that reckless admiration of electronic progress might affect the essential principle of the notariat – the involvement of a notary in ensuring the supervision of a transaction. We are somewhat less conservative and believe that the involvement of a notary in electronic processes must and can be preserved, and we can’t lag behind the train of progress. No matter what we say, technological development and the efforts of the notariat to keep up with it is one of the greatest challenges faced by notaries today.

With reference to the most recent realities – has the Chamber of Notaries anticipated the annulment of the decision of the Competition Council regarding the amount of notary compensation? What are the implications of the achievement for the notary community?

I liked the statement published in your portal that Vilnius Regional Administrative Court refused to be a tool in the hands of the Competition Council in liberalising the notary services market. From the very start of the investigation by the Competition Council, we knew that all suspicions and claims against us were unjustified because in the process of harmonising the practice and filling-in regulatory gaps, the Presidium of the Chamber of Notaries has implemented its duty under the law. The controlling authority – the Ministry of Justice, has been aware of the decisions of the Presidium of the Chamber of Notaries and approved of them. We believe that the investigation by the Competition Council was an ideological rather than a legal one, and was based on beliefs in certain truths rather than legal provisions. The beliefs can be manifested but they have no place in a sphere under state regulation. The notariat is strictly and clearly a sphere under state regulation rather than an object of competition regulation – this has been acknowledged for many years by representatives of the Competition Council itself. The Competition Council has already announced that it will appeal the court decision to a higher court and we are preparing ourselves for a further legal dispute. We have the law on our side, as well as the enormous support of the academic community and law experts in Lithuania and the European Union. We are disappointed about the tiresome process which continued for nearly two years, the time wasted on legal defence and the enormous spending of human and material resources. We could have employed the resources to intensify the skills improvement of notaries, the development of the eNotaras project and all other things which the Chamber of Notaries must engage in for the benefit of the public and the profession.

What do you think about the efficiency of notary services in Lithuania compared to other EU states?

Over the 27 years (that’s how much time has passed since the adoption and the coming into effect of the Law on the Notariat implementing the system of Latin notariat) we have demonstrated that the selected notariat model is a well-constructed and reliably operating one. Although we have seen ups and downs, the Lithuanian notariat consistently earned an increasing amount of trust from both the users and the state. This is confirmed by the ever-expanding range of notary functions; the state continues delegating new notary actions. Just as in other fundamental traditional notariat countries such as Germany and Austria, a sufficiently large number of transactions required notary form in Lithuania from the very start. Besides, the state continued with the regular practice of delegating a part of its functions to the notaries. After mortgage reform, notaries assumed the functions of the mortgage judge, later on notaries were entrusted with even more roles, particularly in ensuring financial transparency and criminal enrichment prevention. I am referring to a whole host of law amendments initiated by the President Dalia Grybauskaitė which have put in place the mandatory notary control over the transfer of shares, the signing of notes, the lending of funds, etc. The state also delegates other kinds of activity to the notaries, such as document apostilisation, etc. The regulation system of the number and the activity location of notaries as well as the control over the quality of notary services by the Ministry of Justice are still in stable operation. Moreover, the state has complete confidence in the self-governance of notaries and its ability to improve the skills of notaries, perform their certification and supervise compliance with the Notaries Code of Ethics. In all the above regards, the Notariat of Lithuania looks stable and confident even in the context of the majority of the “old” notariat countries. Countries like the Netherlands, Poland and Latvia gave in to the pressure to liberalise notary services. What do we see? No notaries are left in the regions and rural areas in the Netherlands and Latvia, where the permanent activity location criterion has been cancelled because all of them have relocated to major cities. After the changes have not proved to be working, Latvia has reinstated the regulation of the number of notaries. Due to rates liberalisation, rather than competing on quality, notaries in the countries are forced into price-competition among themselves, which is not only contrary to the fundamental principle of Latin notariat, but also puts the existence of the notariat in danger. The competitive struggle among notaries in the Netherlands has produced a reverse negative effect – the prices of socially-oriented services have increased. In an effort to cover their costs, notaries started ignoring the principle of cross- subsidisation, when socially-oriented services are less expensive thanks to the higher rates charged for other services. Many liberalisation ideas put forward to the European Commission used to originate in the United Kingdom. Today colleagues from European notariats debate and raise rhetorical questions whether BREXIT will affect liberalisation initiatives in the European Union, and whether the exit of Great Britain will result in the decline of the influence of Anglo-Saxon law. Should the notaries of Europe expect a rise of the continental civil law?

How closely does Lithuania co-operate with European international notary organisations? What is the role of Lithuania in them?

The Notariat of Lithuania is a member of both major global notariat organisations. For 25 years since 1994 we are a member of the International Union of Notaries (UINL) bringing together more than eighty countries of the World. Following the accession of Lithuania to the European Union, we have also joined the Council of the Notariats of the European Union (CNUE). Both memberships are of vital importance to us because they serve as the channel for receiving know-how and competence not only on the continuity of the principles of Latin notariat but also about the most recent trends. UINL experts, particularly those from Switzerland and Germany (the bilateral co-operation between the Chamber of Notaries of Lithuania and the two countries deserves special mention), assisted in the planning and implementation of the 1992 notariat reform in Lithuania and later provided political and methodical support in the processes of strengthening the notariat and professional skills improvement. I have been elected a member of UINL International Notarial Co-operation Commission for the European Continent – Eastern Partnership countries. Together with colleagues from UINL we do a lot of work with former Soviet states assisting them in reforming their notariats and providing methodical support. We also regularly participate in the work of the European Notariat. Numerous international events – conferences and workshops, were held in Vilnius in co-operation with our foreign partners where we shared our experience about the role of the notary profession in protecting public interest, ensuring the transparency of public finances and the protection of personal data.

How many notaries are there in Lithuania? How does their number change? In your opinion, does the supply of notaries meet the demand?

As of the end of February, there were 252 notaries in Lithuania, working in 218 notary offices. According to the regulatory legislation of the notariat activity, the maximum permissible number of notaries has a cap of 300. Nonetheless, throughout our history the number of working notaries in Lithuania has never been more than 270, even in the pre-crisis period of economic growth and the build-up of the real property “bubble” when the Ministry of Justice had been appointing new notaries almost every year.

I could answer your question from two perspectives. First – is the number of notaries appropriate for the economic situation of the country? I like to say that a notary is a mirror of a country’s economic situation. Looking at the activities of a notary, one can draw reliable conclusions about the condition of the real property sector, the setting-up and development of businesses and the financial situation of the population – how much real property it buys and mortgages, how much money it borrows. Looking at objective indicators such as population size in municipalities, the number of transactions notarised, the revenues of notaries, we can confidently state that even 252 notaries is too much for Lithuania. The number of notaries in major cities is particularly high, e.g. in Vilnius. As I have already mentioned, this has to do with the policy adopted more than a decade ago by the then Ministry of Justice to increase the number of notaries, despite warnings of the Chamber of Notaries about the dangers of the process. Experience has shown that when the crisis struck, the number of notarial acts and the volume of notaries’ income dropped by nearly two times. Some notaries terminated their activity being unable to sustain themselves and maintain their offices and employees in accordance with the regulatory acts of notarial activity. Even now, nearly a decade after the end of the economic crisis, the number of notarial acts and the volume of notaries’ income are only approaching the level of 2005 – 2006. One does always see clients at notary offices, but their numbers don’t compare to the run that we witnessed 12 – 13 years ago. The situation in the regions is different – occasionally notaries even have to wait for clients. The decline in the number of corporate clients in the regions is particularly acute. This has to do with the fact that the majority of banks have shut down their branches, one can hardly find an operating branch of a bank offering services to clients and lending funds in regional centres. All business with legal persons has long relocated to county centres or even major cities. Consequently, notaries in the regions are increasingly rarely involved in the setting-up of companies, increasing their authorised capital and drawing-up mortgages; instead, notaries usually cater for private individuals, providing such services as testaments, matters of succession and low-value real property transactions. I will repeat myself – a notary is the mirror of a country’s economic situation. Setting up more notary offices and appointing more notaries does not result in a greater number of notarial acts or a higher income of notaries. Economy and notariat are interconnecting vessels.

The second aspect I would like to touch upon in reply to your question is the accessibility of a notary to the public. The fundamental regulation of the permanent activity location of notaries involving the assignment of notaries to specific municipalities which has been adopted from Germany and other traditional Latin notariat countries and implemented in Lithuania is completely proven and necessary when we talk about the accessibility of a notary. The network of notaries is geographically proportionate and stable. There is no place in Lithuania where the nearest notary is more than an hour away. The stability of the network of notaries is even greater than that of other establishments, institutions or businesses, e.g. banks, which are shut down based on the simple logic of business efficiency. Today Pagėgiai and Rietavas are the only municipalities without operating notaries. The population and the economies of the municipalities are simply too small for a notary to be able to make a living. There have been attempts to appoint notaries there more than a decade ago but they failed to sustain themselves. Therefore the interests of the population of the municipalities are ensured by assigning notaries from other neighbouring municipalities to cover them. They come one or two days a week, appointments can be made. If there is an urgent need for the services of a notary, one can easily travel to the neighbouring districts approximately 30 kms or an hour’s drive away.

There is one more subject that needs to be covered in the context of the number and accessibility of notaries. We have regular constructive discussions with the Ministry of Justice about the need to arrange public recruitment procedures to fill new or vacant notary positions. Decisions regarding the demand for notaries are made based on the special methodology approved by the Minister of Justice which takes into account the size of the population and the income of notaries. These are objective indicators which are also provided for in the Law on the Notariat. The self-governance of the notariat and the executive authority concerned with its work have normal interaction in the matters of appointing notaries.

We have read about recent efforts to transfer the work of the notaries with their clients to the electronic environment. Can you tell us about implementation progress and desirable objectives? Is the eNotaras system fully operational?

Our interview takes place at a symbolic time – the eNotaras system is being launched ten years since the moment when the idea was conceived. We aren’t newcomers to the sphere of electronics – notaries have been using real property and mortgage as well as other electronic systems for a decade. Electronic means are used when notarising real property, mortgage and pledge transactions, issuing certificates of title. The systems developed by the State Enterprise Centre of Registers are used for that purpose. The Chamber of Notaries is also at work – we have developed the eNotaras system using our own resources and efforts, without spending a dime of taxpayers’ money; the system will also be available to a wide circle of public users. The eNotaras system is a massive electronic medium used by all notaries and notary offices as well as the Chamber of Notaries. The system of interfaces with public registers and their databases will soon be completed. The objective of the system – to facilitate daily work of notaries and its planning, has been achieved; we seek to improve customer service, offer the client a possibility to get prepared for the performance of a notary act: communicate with the notary office, exchange the necessary documents and control the progress of the transaction after the meeting with the notary. A significant innovation is the development and legalisation of a register of notarial acts which has replaced the notary ledger. The register is used not only for registering the acts but also for making automatic calculations of the notary’s fees; later on, data is systematised and presented both in the mandatory reports of the Chamber of Notaries and the Tax Inspectorate as well as other institutions. In a few years we aim to implement further stages of the eNotaras project which would enable to perform certain notary acts at a distance, using secure two-way video communication. The most important thing is to safeguard the involvement of the notary and accordingly – his preventive function of civil law. In the process of developing the eNotaras project, we follow the work of our colleagues Estonian notaries who have many innovative ideas, as well as the work of other countries, and draw from their experience. During our visits in France and the particularly frequent ones in the Ukraine, Georgia, Kazakhstan and Belarus, we note huge technological progress of the legal system of the countries, including the progress in their notariats.

Please, tell us about challenges faced by notaries in the Ukraine. How does the Lithuanian Chamber of Notaries help modernise the notariat in the Ukraine and other post-Soviet countries?

Unless we count monthly business trips to Brussels, the Ukraine is a country which we probably visit most frequently. We are guardians and sincere friends of the Ukrainian Chamber of Notaries. We have helped arrange a number of workshops and conferences where we shared our experience in the sphere of reforms and explained the principles of Latin notariat as well as the paths and mistakes of post-soviet reforms. Sadly, the political will in the country is changeable, therefore it is difficult to implement the principles of Latin notariat which the Ukraine has undertaken to do when joining the International Union of Notaries. Firstly, the numerus clausus principle which regulates the number of notaries remains unimplemented to this day, the permanent activity location requirements are ignored. There are approx. 7.5 thousand notaries in the Ukraine, and at least one thousand is crammed in Kiev. At the same time, notaries are sometimes in short supply in the vast territories of the country. Secondly a part of the notaries in the Ukraine are still state notaries, i.e. they are paid by the state, although they perform a part of identical functions and compete with private notaries on price rather than service quality. Thirdly, the autonomy of the Ukrainian Chamber of Notaries is not enshrined in the law, the Chamber is merely a public organisation without the clearly defined functions and powers possessed by the chambers of notaries in traditional Latin notariat countries. Without being an association operating in the framework of the law and without mandatory membership of notaries, a public organisation is not in a position to ensure proper organisation of notary activities and skills improvement of notaries and represent the interests of the profession. Fourthly, interest groups that often promote non-transparent legislation are very active in the Ukraine. One of the examples is happening now. The prohibition on the sale of agricultural land has been lifted after a long period of time, the land market is worth billions of hryvnia. A draft law proposing to allow the approval of privatisation transactions by state-appointed officials – with no education criteria, without passing notary exams, without having notary licences and compulsory civil liability insurance, immediately appeared and has reached the Verkhovna Rada. The notaries of the Ukraine see a huge risk of non-transparency and corruption and even held a general strike of notaries on 25 February. Another disturbing issue of the recent days is the draft regulation which provides for a possibility to suspend a notary’s access to public data registers but fails to set clear principles for doing that, in other words – it deprives a notary of a tool which he is obliged to use under the law. In accordance with the draft regulation, the right to use public registers would be restored only after an additional professional eligibility assessment. We share our experience by attending conferences and workshops in the Ukraine, sending our experts and inviting representatives of the Ukraine to Lithuania, but this work has a long way to go.

In my capacity of a representative of the international notarial co-operation commission of the International Union of Notaries I travel a lot in post-soviet states, make presentations and compile situation assessment reports. After the collapse of the Soviet Union, the independent states chose different paths of notariat development. Belarus implemented a Latin notariat reform but after Alexander Lukashenko came to power, the notaries have once again been made public and forced to refund all their earnings collected over a few years’ period to the state budget. Those who failed to comply were put it jail. After more than twenty years of A.Lukashenko’s rule, Belarus realised that state notariat was ineffective and constituted a burden to the state, and reformed the notariat once again; notaries in Belarus are making fast progress and seek membership in the Latin notariat union. Furthermore, as I have mentioned it before, there is a really impressive project for the creation of electronic notariat in Belarus. Notariat has made little progress in the countries of Central Asia. Uzbekistan and Tajikistan have state notaries, and the reforms of the notariat are only in the planning stage. I have visited the countries together with my colleague from Germany and looked into the experience of transformations. Kyrgyzstan has a mixed system of private and state notaries but there is no regulation of either the number or the permanent activity location of notaries; the self-governance of notaries is extremely weak. The future of the notariat in the afore-mentioned states depends a lot from the political will of the government which is unstable and changeable.

Can you tell us about the relationship between notaries and representatives of other legal professions (bailiffs, attorneys)?

Together with bailiffs and attorneys, we belong to the free legal profession, a legal autonomy with its own self-governance and interests. We form a part of a huge public legal system, and the public legal system will be able capable of quality and co-ordinated operation only provided the legislators, the executive powers and the legal professions are able to function well. We are inter-connected in our daily work, not a single day goes by without a notary-attorney-bailiff interaction. We also have shared interests on the professional autonomy level. On the other hand, each of our autonomies is organised differently and has different aims. Being the representative of notaries, the Chamber of Notaries gives priority to the interests of notaries.

What do you think of the legal framework of the Republic of Lithuania regulating the work of notaries, what gaps can you see in the framework? In your opinion, should the influence of notaries be further increased and their functions expanded?

The fathers of the Civil Code and the Law of the Notariat have made sterling work. The public code and the regulatory law fundamental to the work of the notaries have been well thought-through and well-based, they reflect the best European experience and Western law culture. We co-operate with executive powers, particularly the Ministry of Justice to which we report, in the matters of regulations and procedures governing the work of notaries.

I have already mentioned that, relying on notaries, the state has delegated to them numerous functions related to the protection of financial transparency and the prevention of unjust enrichment. Discussions about the possibility of delegating certain court and civil registry functions to notaries have been going on for many years. For instance, the notaries who have already proven their efficiency by assuming the functions of mortgage judges, could also record divorces in the cases when there is no dispute regarding underage children. Legalisation of partnership would reflect the interests of hundreds of thousand Lithuanian residents. The Civil Code has been in effect for nearly 20 years but partnership still remains unregulated. Should partnership be legalised, its registration could be entrusted to notaries. By the way, for a number of years the results of sociological polls commission by the Chamber of Notaries indicate that the majority of the population would approve of the recording of divorces and the registration of partnership by a notary. Furthermore, colleagues from the Baltic states can also boast the function of marriage registration. In our country the executive government and the Church have a great divide of opinion about the matter.