Financing courts and innovations

On this page, justice leaders can explore fresh ideas on how to fund existing law enforcement agencies and innovations. They can also find insights on creating an enabling regulatory and financial environment in which myriad financial arrangements can work.

Use pay as you go system in courts

Cross-subsidise court fees

To attract investments, measure outcomes

To attract investments, strengthen revenue model

Utatuzi Centre in Kenya is a one stop shop dispute resolution platform that resolves disputes of small, medium and large scale enterprises. Intially, the innovation received investments in the form of grants from philanthropic foundations and social impact investors. But now it is struggling to attract investment that it needs to expand its operations.

Like Utatuzi Centre, most justice innovations are known to attract philanthropic (e.g. grants, subsidies, awards) funding in their nascent stage, but they find it difficult to secure follow-up impact and investment capital for next stages of development and scaling. Innovations that are still taking off, struggle to meet day-to-day operating expenses along with those of expansion, research and development. Securing funding is even more challenging for innovations based in low income countries.

Photo by Suzy Hazelwood from Pexels

As for the various institutions in the formal justice system, such as courts, police, prisons, forensic labs and legal aid clinics, they compete for funds in the budget. Here, if you want to fund an innovation which interacts directly with, or as ancillary formal justice services, such as arbitration and mediation services or legal advice platforms, rerouting funding from an existing service to the new innovation may not be possible. To bring about significant improvements in service delivery of the formal justice system and to innovate it, you as a justice leader need an increased budget. But that’s not always an option.

Given the need and scarcity for funds, the justice sector needs to envision new sources of revenue and investment to fund existing services as well as upcoming innovations and services. In the below sections, we map sources of revenues and funding for investments that can help you in financing existing law enforcement agencies as well as new public and private innovations.

Mobilising sources of revenue to cover operating costs of courts and innovative justice services

Increasing revenue via court users 

Court systems and other justice services can meet operational expenses with the help of user fees. To be able to allocate money for research and development, or to scale their services, operators need to start making profits from user fees such that these profits can be reinvested in research and development. Countries such Austria, Germany, Turkey, Ukraine and the UK cover 40% to 100% of their court costs via user fees. Other European countries recover 0 to 40% of their court costs from user fees. On the other hand, France and Spain have principled policies to not levy court fees (see our report on Charging for Justice). 

Let’s try to understand why some countries are for user fees and some are against it. 

Most people perceive court fees and fees for legal help as something that prevents people from accessing the justice system. But is that really the case? World Justice Project’s research shows that of the people who had a legal problem, only 3% of them viewed cost as a barrier in benefiting from the formal justice system. A study conducted in the UK with parties to civil and family disputes reveals that the court users found court fees affordable and were willing to pay a higher fee than what they were charged. Another study found that having to pay for legal aid does not prevent people from using it. Given that legal assistance is required for litigation in most courts, it is safe to say that users of court services are willing to contribute to costs attached to them. 

On the flip side, it is common knowledge that when legal fees follow events that have caused setbacks in a person’s life such as imprisonment, eviction, unemployment, hospitalisation, it poses an additional burden. Typically, such events coincide with money problems or debts. For example, research shows that in the US where the cost of defence, detention, probation, community supervision or electronic monitoring is recovered from a criminal justice defendant, he or she accumulates a median additional debt burden of $260. 

Photo by cottonbro

How to levy court fees

Having established that there are both pros and cons of levying court fees, is it possible to find a way of levying fees such that it’s not a burden to users and still generates revenue? We think yes. Let us show you how it can be done. 

Implement a pay-as-you-go system
To ensure that fees pose less of a burden to people, courts can develop a pay as you go system where people pay a monthly fee, or pay after they have received a certain outcome such that the outcome of the dispute stabilises the financial situation of the individual. This system is especially suitable where procedures are predictable. One example of a pay as you go system is found in Germany where people are required to pay court costs in criminal cases only after a judge reaches the final decision.
Implement a pay-as-you-go system
Offer targeted subsidies
When charging user fees, courts can offer subsidies to people based on their ability to pay. Data of the World Justice Project shows that about 10% of users of courts or other legal services need targeted subsidies. And some countries are already offering them. For example, courts in the US are allowed to waive fees for defendants in criminal cases. Courts in New Zealand waive off fees for certain people who face a civil or family related dispute.
Offer targeted subsidies
Transferring costs to the relatively financially secure party to the dispute
Court fees can be transferred from individuals to institutions given that the institution is more likely to possess extra funds. Following are suggestions on how this can be done. - In an employment dispute, the employer pays for legal costs that the employee would otherwise bear. - Vendors can contribute to disputes raised by consumers.
Transferring costs to the relatively financially secure party to the dispute
Cross-subsidise adjudication
Germany and Austria cross-subsidise adjudication for individuals through fees charged to corporate clients who have high financial claims. More countries can implement such measures and do so in a transparent manner.
Cross-subsidise adjudication
Mobilise sources of revenue from other justice sector or government institutions

Legal services provided by courts can also be paid for by other ministries who work in the same sector or department as them. For instance, the employment ministry can fund an employment tribunal. The ministry that is responsible for infrastructure and roads can fund traffic courts. In a few countries, administrative tribunals are funded by the ministry of internal affairs or by local governments. For example, in Qatar, the Ministry of Interior manages the Traffic Department in the country that settles traffic violations. 

Mobilise sources of revenue from other justice sector or government institutions
Adopting performance-based budgeting to optimise resources and expenditures

Until now, courts have relied on historical costs and line items when making budgeting decisions. The formal justice system needs to adopt strategies such as performance-based budgeting to utilise resources effectively. Performance-based models link allocations to the number of outputs, such as the number of judgments, or outcomes such as recidivism or the level of crime. They require a calculation of the resources needed to produce certain outputs. 

So far, ministries of Justice in Finland, France, the NetherlandsUK and New Zealand have implemented performance-based budgeting.

Adopting performance-based budgeting to optimise resources and expenditures
Court users taking on a legal expenses insurance
Countries that have predictable legal costs offer insurance of legal expenses on civil law. Currently, legal expenses insurance is being offered in the Netherlands, Germany, France, Switzerland, USA, Canada among others. Up to 40% of families may have such a policy in these countries. In some countries, insurance companies can also use their own personnel to resolve disputes on behalf of clients. However, this approach is prohibited or disputed in other places.
Court users taking on a legal expenses insurance

Mobilising funds for investment expenditures of innovative justice services

As a Minister of Justice, you may have a promising innovation in mind that you would like to invest in. But given that there are several law enforcement agencies that rely on you for funding, you need to be able to mobilise alternative sources of capital to fund this innovation. You may also not be sure exactly which of the innovations need your help in scaling. Let us have a look at the investment models that justice innovations have devised. This will help understanding the various sources of investments available and where the government can help in filling gaps. 

Innovations such as user-friendly contracts, claiming platforms, one-stop shop dispute resolution platforms, community justice services, information and advice portals have a proven record of delivering the outcomes that people want and resolving justice problems at scale. Some of these innovations have secured investments from bilateral and multilateral aid agencies, venture capitalists, philanthropic foundations, private equity and accelerators.

Nevertheless, governments also have an indispensable role to play in providing early-stage funding and access to resources and incentives (such as data, partnerships, regulatory sandboxes) for justice innovations. By supporting these innovations at the infrastructural base level, public authorities send positive investment signals that make it more likely for knock-on private capital to see the market opportunity and investment. In doing so, governments support the development of an Enabling Environment for people-centred justice innovation. 

For example, providers of user-friendly contracts such as LegalZoom and Rocketlawyer in the US, Lawpath in Australia have received investments from venture capitalists whereas DIYLaw (Nigeria) and Creative Contracts (South Africa) have received funds from HiiL’s Justice Accelerator. This brings us to the question of what kind of innovations venture capitalists are interested in investing in. Most venture capitalists want to invest in innovations that have a stable and growing source of revenue, and opportunities for further product development and market expansion. 

As for the revenue model of providers of user-friendly contracts, a subscription-based pricing model proved to be a stable source of revenue for online contracting companies. Online contracting companies operate on both, a B2B and B2C model. Those providing visual contracts work on a consultancy basis where their clients are businesses but end users are everyday consumers. In other words, they have a B2B2C model.   

iVerify from Nigeria is an online platform that provides identification verification services to employees of small and medium scale enterprises and monetary financial institutions. The platform charges a flat rate fee to the business based on its size of the client. With its B2B business model, it was successful in generating revenue and has attracted a grant from HilL’s Justice Accelerator. 

Some innovations have benefited from both, investments by the public and private sector. For example, claiming platforms DoNotPay (US) has raised capital through venture capitalists and Promise (US) has raised capital via accelerator Y Combinator as well as venture capitalists. At the same time, Upsolve (USA) has received support from Legal Services Corporation which is a publicly funded organisation, funds alloted to civic legal aid, a few philantropic foundations, venture capitalists as well as Harvard University and Y Combinator. Haqdarshaq (India), a claiming platform that enables citizens to access social welfare schemes that they are eligible for, has partnered with large private companies and now helps in providing their employees with access to social welfare schemes. Haqdarshak’s B2B2C model means that the lion’s share of their revenue is generated via these large private companies, not the end-user. Haqdarshaq has also unlocked funds that private companies making profit above a certain threshold are mandated by the Government of India, to channelise into corporate social responsibility. 

Where the public sector can step in

Now let us have a look at innovations that are more likely to succeed when funded by the public sector. 

For example, the experience of HiiL’s Justice Accelerator indicates that private innovations that offer online information, advice and representation do not receive much investment from private investors and draw low revenues from users. Because the outcomes that these innovations provide to users are not measurable, and their business models are much less clear or certain, they tend to be less attractive to private investors. On the other hand, the Citizens Advice Bureau in the UK, which offers advice and helps people in claiming welfare benefits related to health, immigration, housing, family, debt and money  and employment, has been very successful. This advice portal received investments from the Department of Business, Energy and Industrial Strategy, Money and Pensions Service as well as the Ministry of Justice. 

Photo by Oyster Haus

Similarly, one stop shop dispute resolution platforms are also known to be more successful when the core investment is made by the public sector. This is because the government can make the use of a one stop shop dispute resolution platform mandatory. Meanwhile, a private one stop shop dispute resolution platform suffers from submission problems where disputing parties may not agree to using the platform. One example of it is the Civil Resolution Tribunal in British Columbia which addresses disputes related to small claims, motor vehicle injury and condominiums. A source of revenue for the Civil Resolution Tribunal is an application fee which is equivalent to fees charged in a small claims court.

But governments do not always have to provide the investment necessary to set up a dispute resolution mechanism. They can help the platforms in generating revenue that can cover operational costs instead. For example, Uitelkaar in the Netherlands, is a private one stop shop dispute resolution platform that helps couples in obtaining a divorce or in separating. Uitelkaar received investment from social impact capital enabled by HiiL’s Justice Accelerator. Meanwhile, the Dutch Legal Aid Board provides subsidies to low-income users of the platform. From other users that can afford the fees, Uitelkaar charges fees ranging from 250 Euros to 550 Euros, depending on the kind of services the users opt for.

Community justice services are popular in low and high income countries alike. They can be found in Uganda, Sierra Leone, Colombia and Norway, Switzerland and the USA. Because community justice services cater to justice needs of the poor and marginalised, they are not designed to generate revenues. So they are less likely to attract funding from impact investors or venture capitalists. The more dependable source of finance for community justice services is philanthropic foundations or bilateral agencies whose core agenda is to strengthen the capacity of the state to govern and to empower people. For example, Bataka Courts in Uganda has secured investments from philanthropic foundations.

At the same time, there is often an economic incentive for governments to invest in these services since they are often cheaper than the court system and can deliver high resolution rates. In fact, the majority of the community justice services that have achieved scale are those that have been funded by the public sector, with some support from bilateral aid agencies. For example, the Sierra Leone Legal Aid BoardHouses of Justice in Colombia and Local Council Courts in Uganda. A source of revenue for these community justice services can be user-fees. 

You as a policy maker also have the option of getting into a public-private partnership or procuring services from private companies. You can read more about these options on our Make or Buy page. 

Justice Dashboard

Justice Dashboard