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Better Dispute Resolution for Small Business People

14 August 2011

Independent Contractors Australia has long campaigned for improved commercial dispute-resolution procedures for self-employed small business people. This campaigning is closely linked to our campaign for fair contracts for small business people. This discussion lays out how better dispute resolution can be achieved using the Small Business Commissioner model.

Here we discuss the issues.

Federal Inquiry
In May this year (2011), the Federal Small Business Minister issued a discussion paper on dispute resolution asking for submissions. Here are: Case studies
We've also case-studied self-employed people who had problems: Here's the story of Guy who fought the law, the ACCC, (and the law won):
The practical problem: 'big' has money
The essential problem in dispute resolution for self-employed small business people is that they lack the financial power to run expensive legal cases against large organizations.

The ordinary person's idea of the law is that it gives everyone an equal chance to argue his or her case before a court and that the court will act as an independent decision maker. The reality of the law is that it's very expensive.

This means that if a large organization (business or government) is in dispute with a self-employed, small businessperson, the large organization can, if they want:
  • Pay lawyers to run the case.
  • Raise lots of technical, legal procedural issues.
  • Avoid addressing the commercial issues that constitute the dispute.
  • Spend more money on lawyers than the amount of money in the dispute.
Where this happens, the self-employed person has effectively lost the case because it's not worth the time or money to fight the case. The self-employed mostly give up and the large organization wins. Large organizations know that they have this power of financial and legal intimidation.

The practical solution: balance out 'big'
This power of large organizations over individuals has long been recognised in consumer law. Extensive legislation has been put in place to stop large businesses using their power over consumers. In particular, simple dispute-resolution processes have been put in place for consumers. If consumers are unhappy about a product or service they have purchased, they can go to a low-cost dispute service that makes a decision. In Australia, each State government provides this service.

In Victoria, for example, the Consumer Affairs Department has a low-cost conciliation service and there's a small claims dispute-resolution process.

This is what's needed for self-employed, small business people because they/we are just the same as consumers. There have been some positive developments in this area.
  • The Victorian Small Business Commissioner (SBC) was created in 2003. The SBC provides a low-cost mediation service. A small businessperson and a large business can use the mediator to resolve their dispute. It's voluntary and cannot impose decisions. It's very successful---resolving over 70 per cent of disputes.
  • The Civil Disputes Resolution Act started on 1 August this year (2011). It will require parties in a civil/commercial dispute to first prove that they have taken 'genuine steps' to resolve the dispute before receiving approval to go to court.
Both these processes are positive.

The Small Business Commissioner model is now being replicated in South Australia, New South Wales and Western Australia.

Improving the Small Business Commissioner model
The SBC model has been successful in Victoria. It should prove successful in the other States. But it can and should be improved. There are developments in South Australia and Western Australia that give impetus to improvements. We shall produce an explanation of those developments shortly. Here is a summary of what those improvements may look like and which we find highly attractive.

The problem with the SBC mediation model is that large organizations that want to thumb their nose at the process can easily do so. The only 'downside' for them is that the Small Business Commissioner may decide to 'name' the business in a parliamentary report.

Additional powers are, however, being closely looked at and involve the following:
  • The SBC can require a party to produce documents or face a fine (this is in the SA SBC Bill).
  • The SBC could require a party to attend mediation.
  • If a dispute was for an amount below a certain figure (say, $20,000), the SBC could ban lawyers from attending the mediation.
  • If a party in mediation does not act in 'good faith', the SBC could take further action.
  • The decision about what constitutes 'good faith' could be for the SBC to determine, entirely at his/her discretion based only on the behaviours of the parties before them in mediation---for example, not turning up to mediation could be a sign of 'bad faith'.
  • If a party does not act in good faith, the SBC at his/her discretion could make a report to the court about the poor behaviour of that party and make recommendations to the court as to what should occur. The SBC could, for example, recommend that one party (say the large organization) pay all the cost of litigation in the courts. It would be for the court to decide what weight it applied to the SBC's report and recommendations.
  • If a party does not act in good faith, the SBC at his/her discretion could decide to run a court case on behalf of and for the other party (say the small business person) and to cover the costs.
Advantages of these possible improvements
The objectives of these improvements is to try and ensure that the focus on resolving commercial disputes is on the commercial issue. It's an advantage to keep lawyers out of the dispute-resolution process for as long as possible. Self-employed people have to run cases themselves even if a lawyer assists. For big organizations, a dispute is often taken out of the hands of the people in the organization who were dealing with the small business person. The issue is handed directly to lawyers. The commercial focus on the dispute collapses.

The changes being looked at above would
  • Keep pressure on large organizations to make a commercial resolution.
  • Not remove the right of large organizations to use lawyers.
  • Still allow large organizations to take a dispute to the court, but would put pressure on them to demonstrate 'good faith' during a mediation process before going to court.
The changes would not give self-employed small business people an unfair advantage over large organizations, but would increase the possibility of a more equal relationship.

The improvements being considered are most attractive to ICA. We will make further comment soon.

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