Access to justice reforms: A good start but …

Small Business has a dispute with Big Business over late payment of its invoices. Big Business regularly pays all of its small business suppliers late. Small Business has invested significant time and effort trying to resolve the dispute directly, but has failed. Small Business now cannot pay its own bills and its suppliers are threatening to bring legal action against Small Business.

Small Business doesn’t want to bring legal action against Big Business because of the potential damage to its trading relationship, and the likely costs and time involved. Small Business sees no choice but to soldier on.

The ability to ‘access justice’ is important to small business. An ongoing legal dispute can result in significant financial and personal strain, which is bad for business and bad for Australia’s economy.

Recently, Federal Parliament passed law designed to improve the ability of small business to access justice. It will take effect from 1 July 2019. The changes only apply to competition law breaches, such as where a big business has (allegedly) misused its market power. Unfortunately, with such a limited application, the law only fixes a small part of a much larger problem.

The ‘access to justice’ problem

The access to justice issue has been raised in a number of recent inquiries in Australia. 

In relation to competition law, the Harper review recognised “[access] to remedies has been a roadblock for many small businesses, and … access should be improved”. Likewise, in relation to consumer law, the Australian Consumer Law Review Final Report noted “... the difficulty that consumers and small businesses face in accessing remedies”.

More broadly, the Productivity Commission in its 2014 Report into Access to Justice Arrangements found that costs and delay were two key factors preventing access to justice for many Australians. The current ASBFEO Access to Justice Inquiry Report, found that “one in three disputes were not escalated through the formal process because the expected costs were considered to be more than the potential gain”.

So how do the changes help Small Business in the scenario above?

The changes to be introduced help in a limited way. 

If Small Business decided to bring a case against Big Business for misusing its market power, Small Business could ask a judge to make a ‘no adverse costs order’ (The Australian Small Business and Family Enterprise Ombudsman (ASBFEO) is permitted to help Small Business decide whether to seek this order). This means that Small Business would not have to pay Big Business’ legal costs, even if Small Business loses the case (It is common for a judge to require an unsuccessful party to pay some of the successful party’s legal costs).

This is a positive outcome for Small Business, but a number of downsides remain:

• Small Business could not ask for the same order in a case brought for late payment because it is not a breach of competition law – it is a breach of contract.
• Competition cases are as complex as they sound, requiring legal and economic evidence. It will be hard for Small Business to prove its case.
• The court case will still require a substantial investment of time (away from the business) and money (to pay Small Business’ own legal costs).

Other solutions are needed

Other options are needed to allow Small Business to access justice for a wider range of legal disputes. Ideas include:

• Introduction of collective redress schemes. Under these schemes, Big Business could agree to pay compensation to Small Business (and all consumers and businesses effected), without any court case. This is a concept supported by the Australian Law Reform Commission Inquiry into Class Action Proceedings Final Report.
• Online court and/or dispute resolution solutions that simplify the process, making it quicker and easier (and therefore cheaper) for Small Business to resolve its legal issues. A good example is the online court pilot currently being run in the UK for claims up to £10,000.

You can read Chapter 8 IPA-Deakin SME Research Centre Small Business White Paper for other suggested solutions.

Conclusion

With SMEs comprising more than 99 per cent of businesses in Australia, a solution to the access to justice problem for small business is critical. Political focus on this issue needs to be maintained. 

Rachel Burgess, IPA-Deakin SME Research Centre