Prof. Dr.

Rolf Knieper 21 November 2019

4.0 Industrial Revolution: New Horizons or Old Fallacies?
Some 300 years back, at the wake of the 1.0 Industrial Revolution, the internationally renowned
and influential mathematician, physicist and philosopher Gottfried Leibniz (1646-1716)
described the world as populated by myriads of monads, basic, intelligent and ultimate
constituents of the universe, leading an autonomous life but interacting at the same time in pre-
stabilized harmony in the best of all possible worlds. Some 40 years later, the philosopher
Voltaire (1694-1778) replied in his unforgotten “Candide or optimism” (1759) by describing
how the new technologies were used for colonial conquest and civil wars, all dictated by
politically, religiously and economically motivated power and greed.
It took the practice of injustice and the theories of Adam Smith, John Locke, Thomas Hobbes,
Charles Montesquieu, Immanuel Kant and many others to understand that sustainable economic
and social development necessitates the dynamics of the legitimate pursuit of individual and
private interests on the market, and at the same time the creation and maintenance of physical
and social infrastructure provided by States as the holder and administrator of the public, the
general interest and the establishment and enforcement of a legal frame to guarantee fairness in
market transactions.
Now we are told again that the 4.0 Industrial Revolution opens a new era of harmony, where
myriads of intelligent and autonomous things interact directly, where contracts are smart, cars
transport us autonomously by communicating with each other thus avoiding accidents, where
information is stored unfalsifiably and blockchain creates truth, algorithms collect and
administer data for the common good, where the burden of physical work disappears and where
everybody is happy. We hear that in this new world policepersons and judges, notaries and
bureaucrats are no longer needed, because their existence is linked to conflicts between citizens
and persons, and that these conflicts either disappear or are channeled through algorithms. We
hear that the classic interrelation between the private and the public spheres, which was
characteristic for the first industrial revolutions, becomes obsolete.
Leibniz seems to triumph over Voltaire. However, perhaps not. In a long article in the New
York Times of 10 September 2019, Glenn Gerstell, General Counsel of the US National
Security Agency (NSA), talks about continuous cyberconflict between States but also between
States and business, between business and between individuals. He describes how a flood of
data about human and machine activity, about consumption patterns, political preference,
communication and location places extraordinary power in the hands of the private sector, how
the perception of truthful encrypted information in blockchain, which is aimed to protect
financial and commercial transactions, is treacherous because the confidentiality and non-
falsifiability are close to be cracked by quantum computers developed by States and big private
companies, how all these actors are not driven by the quest for harmony but by competition for
power and wealth.
These developments have an effect on the balance between the private and the public spheres.
We have witnessed how the communist ideology was set to destroy the pursuit of private
interest completely and concentrated all political and economic power in the hands of the State.
The experiment failed. Now we see how the private sector tries to appropriate spheres of
activities that were considered public because maintained in the general interest. We may quote
Google standing ready to organize hitherto public registers for real estate but also for
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companies, encroaching on central spheres of notarial deeds, as well as facebook proposing to
create and police a crypto-currency, thus encroaching on one of the central spheres of the public
sector, i.e. monetary policy. These tendencies are so alarming because google and facebook
will not act in the general and public interest but in their own private interest which is oriented
to profit and market dominance.
In that respect, the emerging 4.0 Industrial Revolution does not fundamentally falsify Nobel
prize winner Oliver Williamson’s observation that private actors on the market pursue strategies
aimed at “the incomplete or distorted disclosure of information, in particular wilful attempts to
mislead, distort, conceal, obfuscate or to otherwise confuse” others.1 This is not a statement on
morality but on the structure of interaction on the market. The more data are concentrated in
the hands of private business, the more they will be used to manipulate potential partners. The
result is not harmony but growing structural distrust. Transaction costs are not reduced but
increased because everybody has to try to collect information on the goods to be exchanged, on
the credibility of the other party, on payment security, on monitoring performance.2 We
experience again that private monopolies are as dangerous for sustainable and fair market
relations as unscrupulous States.

Under these continuous circumstances of market relations, the technological changes in

industrial production, how enormous they might be, and the collection and use of big data do
not diminish but rather increase the relevance of legal certainty, the importance of meaningful
public institutions and public physical and social infrastructure.

Buyers of real estate need to know with certainty whether a potential seller is the owner;
business partners of corporations need to be informed about their identity and the identity of
the persons behind them as well as about the power of representation. This information can be
stored and - for the time being - secured in blockchain but the data and information that are
entered into the blocks need to be identified, verified and controlled as well.

We cannot but agree with the World Bank’s World Development Report 2017, stating that “empirical
studies have revealed the importance of law and legal institutions to improving the functioning of
specific institutions, enhancing growth, promoting secure property rights, improving access to credit,
and delivering justice in society,”3 a statement concretised by Nobel prize winner Douglass North who
found that the “inability of societies to develop effective, low-cost enforcement of contracts [is]
the most important source of both historical stagnation and contemporary underdevelopment
in the Third World”4.

We are aware that – in a broad brush – common law jurisdictions entrust private actors with the
collection and verification of transactional information and thus the creation of legal certainty,
by title search and title insurance in real estate transactions, and by legal opinions and
certificates of good standing in dealing with companies, while most civil law jurisdictions rely

1
O. E. Williamson, The Economic Institutions of Capitalism, 1985, p. 47.
2
J. Wallis/D.C. North, Measuring the Transaction Sector in the American Economy, 1870-1970, in: Engerman/Galman (eds.), Long Term
Factors in American Economic Growth, 1986, pp. 95-148/98
3
The World Bank, World Development Report 2017, 2018, p. 83
4
D.C. North, Institutions, Institutional Change and Economic Performance, 1990, p.61-63

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on instruments of preventive justice as part of the public administration of justice. They assume
that the creation and maintenance of legal certainty are in the public interest and thus in the
realm of social infrastructure. For instance, the European Court of Justice (ECJ) confirms the
concept and the conviction that the maintenance of public registers and the guaranteeing of their
accuracy by notaries “constitute an essential component of the preventive administration of
justice in the sense that it seeks to ensure proper application of the law and legal certainty of
documents concluded between individuals, which are matters coming within the scope of the
tasks and responsibilities of the State.” 5

In 2017, I have conducted a comparative empirical study for the International Union of Notaries
(UINL) on “The Economic Relevance of Notarial Authentic Instruments”, which relates to an
important aspect of the administration of preventive justice, together with reliable public
registers.6 The empirical evidence presented here is derived from there. The study covered
Andorra, Argentina, Austria, Belgium, Bulgaria, China (PR), Colombia, Congo (Rep.), Costa
Rica, Croatia, Estonia, France, Georgia, Germany, Guatemala, Hungary, Italy, Korea (Rep.),
Kosovo, Lithuania, Luxembourg, Mali, Morocco, Portugal, Russian Federation, Slovakia,
Turkey, United Kingdom, Uruguay and the USA.

I have found that the duties of civil law notaries are comprehensively circumscribed by law.
They have to identify the identity, the legal capacity and the power of attorney of the persons
appearing before them and have to decline acts that are legally void, illegal or evidently
intended to pursue prohibited or dishonest ends; they must explore the intention of all parties,
determine the factual situation including the marital status of the parties; they are required to
ensure that inexperienced or unsophisticated parties are not being taken advantage of; whenever
they have reason to believe that a party may be assuming a risk which, as a result of his/her
inexperience, he/she is unable to properly assess, they must actively caution that party in order
to ensure a 'level playing field' for all parties involved. Civil law notaries are exposed to liability
when they fail to advise the parties correctly before authentication. The efficiency and
enforceability are assured by mandatory insurance and public guarantee funds. They operate
under a system of public supervision and disciplinary sanctions which reach from simple
warnings to the revocation of the accreditation.

The intensity of the notaries’ obligations, the preventive effect of liability and the narrowly
supervised deontological duties justify the evidential value of the authenticated instruments.
Through the presumption of correctness, the document creates legal certainty, and opportunistic
negotiation strategies of actors on the market are thwarted.

The meticulous procedure of authentication and registration, combined with the effect of public
trust and the protection of good faith facilitates transactions in relation of land, be they for the
transfer of property, the establishment of other iura in rem such as encumbrances, the creation
of secured long-term rights to land use, or the creation of collateral as credit security. Thereby,

5
European Court of Justice, Judgment of 9 March 2017, paragraphs 58-59
6
Rolf Knieper, The Economic Relevance of Notarial Authentic Instruments, 2017

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disputes between contracting parties are reduces, the burden of curative justice is alleviated,
and of cost and time are saved.

In corporation matters, the notarial authentication documents the existence of the company as
a juridical person with probative value, its extent of liability and the way how by whom it is
represented. Together with the public registration, a presumption of correctness is established
and the good faith of business partners protected. Conversely, Company House in the common
law jurisdiction UK, disclaims any responsibility for correctness.7 Indeed, the disclaimer
affirms the very limited usefulness of the register for the protection of good faith business
partners. It does not prevent the hijacking of companies nor the theft of identities nor the
fraudulent pretention of powers of attorney. Crucial functions, which are guaranteed by a well-
organized register in civil law jurisdictions, are absent. In fact, Companies House reports that
it has to deal with 50 to 100 cases of company identity theft every month.8

In real estate transactions, empirical evidence documents that litigation is very significantly
reduced in jurisdictions with notaries and public registers. Italy reports that disputes before
courts with respect to real estate are “close to zero”; Germany reports 0.69% of cases for
possession and title of land and Lithuania 0.1%. Conversely, in the USA, where real estate
transactions are in the hands of lawyers and realtors and no register protecting good faith exists,
3.6% of all cases before courts concern title or boundary disputes.

As to challenges of notarial instruments before courts and claims against notaries, Italy reports
0.003%, Colombia 0.02%, and Lithuania reports one case against a notary since its
independence 30 years ago. The European Commission for the Efficiency of Justice (CEPEJ)
concludes “that the pre-emptive filter of the notary screens courts from a large amount of extra
workload.”9 Again in comparison, the American Bar Association (ABA) reveals that for the
years 2012 to 2015, real estate matters accounted for 14.89% of all claims against lawyers.10
That is the second most important category of malpractice claims, of which “32.66% relate to
the preparation, filing and transmittal of documents.”11

As to the costs of conveyance, Peter Murray conducted a study in 2007, where he compared
costs in civil law with notaries and common law jurisdictions without. He found that for the
sale of a piece of land and a house built on it at a price of 250,000 €, the percentage of notarial
fees and costs were 0.37% for Estonia, 1.08% for France and 0.36% of the price for Germany.
The equivalent costs of conveyance were 0.72% for the United Kingdom (England and Wales)
and 0.65% for the USA (upstate New York).12

7
Cf. http://resources.companieshouse.gov.uk/serviceinformation.shtml
8
https://www.gov.uk/guidance/protect-your-company-from-corporate-identity-theft
9
CEPEJ Study, p. 9
10
American Bar Association (ABA), Standing Committee on Lawyers’ Professional Liability, Profile of Legal Malpractice Claims 2012-
2015, September 2016, pp. 11-13
11
ABA Study 2016, p. 27
12
Peter Murray, Real Estate Conveyancing in 5 European Union Member States: A Comparative Study, Condensed Report,
commissioned by the Council of the Notariats of the European Union, 2007

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I believe that these costs have not changed dramatically. I add data which I have collected
myself in 2017 for other jurisdictions. 13 Each time for the 250,000 € sales price scenario, they
amount to 2% in Argentina, 0.98% in Belgium, 0.3% in the PR of China, 0.4% in Colombia,
0.18% in Croatia, around 0.5% in Italy, 0.45% in Lithuania, and around 1.75% in Mali.

When comparing the data, we realize that cost effectiveness is not an element inherent in the
common law or the civil law system. This is neither a systemic issue nor one of professional
abuse but of legal policy and the concrete determination of tariffs. Governments and the
legislator must take the objective of accessible preventive justice into account when formulating
their tariff structure.

Finally, it may be recalled that a systematic codification is an efficient element of a cost efficient
preventive justice, when formal title to property of movable and immovable assets as well as
other iura in rem such as encumbrances and mortgages are clearly defined, rights and
obligations in contractual relations are firmly established, and when procedures of public
registration of rights to land are provided for. It is fair to state that Civil Codes and Civil
Procedure Codes, which codify these rights and obligations, are politically provided public
goods that create legal certainty and predictability. They protect trust and good faith
transactions and reduce transaction costs.

This assumption is evidenced by data on the expenditure by private persons for the judiciary
and legal services in common law and in civil law jurisdictions: In 2015, a study commissioned
by the Council of the Notariats of the European Union covering both common law and civil law
jurisdictions found that private expenditure per capita for the acquisition of legal services
amounted to 460 € in 2008 and 426 € in 2010 in the United Kingdom and to 432 € and 391 €
respectively in Ireland, while in Germany and the Netherlands it was less than 200 € for both
years.14 The results are accentuated by extending the research to the USA. In 2016, Thomson
Reuters Executive Institute reported that the legal services market in the USA amounted to 437
billion USD15, with a population of 323,157,51316. This leads to a per capita private expenditure,
measured as total turnover on the legal services market, of 1,352.30 USD.

In light of these data and in light of the uncertainties and the untamed conduct of private
competitors on the market in the 4.0 Industrial Revolution, it would be very unwise to destroy
the public office of the civil law notary and the public registers and replace them by private
alternatives. Caution is warranted.

13
Rolf Knieper, The Economic Relevance of Notarial Authentic Instruments, 2017
14
H. Berrer et al., Dimensions of Legal Certainty in the EU, Study commissioned by the CNUE in 2015, pp. 8-9 and 129-137
15
Legalexecutiveinstitute.com/wp-content/uploads/2016/1
16
www.census.gov/data/datasets