Court system criticised for failing small businesses over dispute resolution

The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, has called for an overhaul of the dispute resolution framework, saying that the court system as it stands is putting small businesses at a disadvantage.

The call comes with the release of her office’s Access to Justice Report, that has taken a detailed look into the issues related to the current dispute resolution process.

“Trying to resolve a dispute through the courts is just not a viable option for most small businesses,” Carnell said, adding that small businesses urgently need pathways to resolve their disputes quickly and cost-effectively.

“It’s prohibitively expensive and time-consuming. We know small businesses are more likely to abandon both the dispute and the commercial relationship than suffer the cost and mental load of taking legal action,” Carnell added.

The report cites five recommendations that would help improve the dispute resolution process:

  • Strengthening Unfair Contract Terms protections.
  • Promoting alternative dispute resolution.
  • Providing access to voluntary, binding arbitration.
  • Greater access to tribunal and court determinations for disputes.
  • Supporting the well-being of small-business owners through permanent funding of the Beyond Blue NewAccess for Small Business program.

The Ombudsman noted that commercial lease disputes increased nine-fold during the peak of the pandemic, with more than 570 cases in the June quarter alone. State-based small business commissioners’ offices were also reportedly inundated with these kinds of disputes.

“Commercial disputes are very common, but they can be devastating when not handled correctly,” Carnell said. “Clearly, alternative dispute resolution through mediation, conciliation and arbitration is the best way to preserve commercial relationships. Litigation, on the other hand, is a relationship killer.

“When businesses can’t resolve a dispute with the help of experts, we need to have a system in place that allows for an external party to make a determination, without small businesses having to wait for lengthy periods or go bankrupt due to excessive legal fees,” Carnell added.

The said report also recommended the formation of a small business jurisdiction as part of the Federal Circuit Court to hear matters which cannot be heard by current state or territory tribunals, with damages capped at $5 million, resolution within 60 days, and small businesses being able to apply for a no adverse costs order so they are not saddled with the other party’s costs.

“Current state tribunals have been found to be effective for small businesses but they are limited in dealing with cross-border and international disputes,” Carnell explained. “While the vast majority of disputes are resolved through mediation and conciliation, there also needs to be a cost-effective, timely and binding judicial process for those small businesses that need it.

“Given the enormous pressure small-business owners are under as a result of the COVID crisis and the inevitable stress that comes with being involved in a dispute, it is important that our dispute resolution avenues are supportive of participants’ wellbeing,” Carnell said. “Our report recommends mental health measures be integrated into all dispute resolution processes and reviewed regularly to ensure they are meeting the needs of small-business owners.

“Ultimately the purpose of this report is to create a framework that supports small businesses and family enterprises in this critical recovery phase,” Carnell concluded.

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