Outdated court system is failing small businesses: Ombudsman

The Australian Small Business and Family Enterprise Ombudsman Kate Carnell is calling for an overhaul of the dispute resolution framework, saying the current court system doesn’t work for small businesses.

Releasing her Access to Justice Report today, Ms Carnell said small businesses urgently need pathways to resolve their disputes quickly and cost-effectively.

“Trying to resolve a dispute through the courts is just not a viable option for most small businesses,” Ms Carnell says.

“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.

“Our report essentially provides a five point plan to ensure small businesses have access to tailored dispute resolution processes that are less formal, more timely and cost effective.”

The report includes a suite of recommendations as part of the five umbrella findings. These include:

  • 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 wellbeing of small business owners through permanent funding of the Beyond Blue NewAccess for Small Business program

Ms Carnell says small businesses have been hit hard by the COVID crisis and in this time of unprecedented hardship, disputes inevitably arise.

“My office saw commercial lease disputes increase nine-fold during the peak of the pandemic, with more than 570 cases in the June quarter alone,” Ms Carnell says.

“We know that state-based small business commissioners’ offices were also inundated with these kinds of disputes.

“Commercial disputes are very common, but they can be devastating when not handled correctly.

“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.

“Our report recommends forming a small business jurisdiction as part of the Federal Circuit Court to hear matters which cannot be heard by current state or territory tribunals. Damages would be capped at $5 million, matters would be aimed to be resolved within 60 days and small businesses could 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. For instance, a Queensland farmer who deals with a NSW processor would not be able to seek a resolution through either state tribunals.

“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.

“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.”

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