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.

In the newly released Access to Justice Report, Ms Carnell said small businesses urgently need pathways to resolve their disputes quickly and cost-effectively or they would be hampered by inefficient processes through the courts. 

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

“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.”

To address the challenge, the ASBFEO has developed 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 key findings. These include strengthening unfair contract terms protection, promoting alternative dispute resolution, and providing access to voluntary, binding arbitration. 

Additional recommendations include greater access to tribunal and court determinations for disputes and supporting the wellbeing of small-business owners through permanent funding of the Beyond Blue NewAccess for Small Business program. 

Ms Carnell stated that she also 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. 

The damages would be capped at $5 million, with matters 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,” she said.

“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.”

Ms Carnell said that disputes inevitably arise especially in times of unprecedented hardship, with small businesses having been hit hard by the COVID crisis. 

“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 said.

“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.”