Labor wants to make it easier for small business to litigate large businesses
March 15, 2016
Small businesses will find it easier to challenge large rivals in court for anti-competitive behaviour if Labor is elected, Shadow Treasurer Chris Bowen says.
Labor wants to give federal court judges the power to stop small businesses from having to pay their larger rivals' costly legal fees after unsuccessful litigation.
It says that by removing the fear of having to pay crushing legal fees if they lose, such a policy would allow small private litigants to better bring action against powerful interests, levelling the playing field between small and large companies.
Shadow Treasurer Chris Bowen says the move would change the ability of small businesses to bring private litigation. Photo: Andrew Meares The move has been welcomed by the Council of Small Business of Australia, and cautiously welcomed by the Business Council of Australia business litigation.
"This will change the dynamics of small businesses and their representatives in the ability to bring private litigation," Chris Bowen said on Monday.
"When you talk to small business about the issues, they will tell you it is very hard to get before a court when they have to weigh up not only their own legal costs but the chance of being provided with a bill for the other side's legal costs and the other side may well engage in a legal strategy to maximise those costs," Mr Bowen said.
Under Labor's new proposal, at an early stage of a court case a small private litigant would be able to request a "no adverse cost order" from a federal court judge, and the judge would then weigh up the initial arguments and decide whether there was merit to the case.
If merit was established, any liability for the defendant's legal fees could be waived.
To assist in the process, Labor wants small business private litigants to send their complaint to the Small Business Ombudsman beforehand, to get professional opinion on the likelihood of success of their complaint in court.
That would help a small business owner know if their complaint was likely to be granted a no adverse cost order. While that advice would not be legally binding, it would help small business better understand their prospects of successful action under the Competition and Consumer Act, Labor says.
The Small Business Ombudsman would require extra funding worth $1 million over two years, from 2017-18, according to the Parliamentary Budget Office.
Peter Strong, Council of Small Business of Australia chief executive, says the policy is a "really good thing" because it will stop big businesses from bullying small businesses in court.
"It sends a message to the big landlords, and Coles and Woollies and others, that our pockets are now as long as yours and we can beat you," Mr Strong said. "The experience we've seen with the Victorian Small Business Commissioner, which has a model like this, is that big business backs off very quickly.
The new policy is designed to put Labor on the side of small business after it said it would not support a recommendation from the Harper Review to introduce an "effects test".
An effects test would prohibit companies with substantial market power from engaging in conduct that "has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market".
Sections of the small business community have been calling for an effects test, saying it would stop big companies from abusing their market power and engaging in anti-competitive behaviour at the expense of small businesses.
But Labor has said an effects test would be a "multi-billion dollar disaster waiting to happen" that would create a "lawyers' picnic". "This is practical change for small businesses and is in the public interest," Mr Bowen said on Monday, about his Party's new policy.
"This is a modest, sensible proposal to provide some support for small businesses without damaging competition in the process," he said. Jennifer Westacott, Business Council of Australia chief executive, said she welcomed Labor's recognition that an effects test could damage the economy, and that non-legislative measures are the preferred way to deal with the misuse of market power.
"We need to see more detail about how 'no adverse cost orders' will apply but this is a vastly more sensible and pragmatic approach than disrupting the whole of economy through unnecessary changes to [introduce an effects test]," she said.
Assistant Treasurer Kelly O'Dwyer said on Monday that the Turnbull government would assess Labor's new policy over coming weeks.
She said the government was already supporting small business with a suite of new measures, including the establishment of Australia's first Small Business and Family Enterprise Ombudsman, Kate Carnell, who started her role on Friday.
The New York Times drew a lot of criticism, from me and others, for its three-part series on arbitration that largely ignored the wealthy special-interest group that opposes arbitration the most: Class-action lawyers.
In an editorial today the Times repeats the error, equating arbitration with a “shift away from the civil justice system,” as if people with $2 disputes over their cell phones could recover any meaningful relief through a conventional lawsuit.
Arbitration is part of the civil justice system, and if there is a problem with compulsory arbitration, it is lack of informed consent and meaningful oversight by the courts. To reject it wholesale would be to chip away at the right of individuals to order their transactions the way they want.
“A robust system of arbitration is healthy for our court system — it serves as a safety valve,” said Imre Stephen Szalai, a professor at the Loyola University College of Law in New Orleans and expert on the Federal Arbitration Act, that “dusty” (according to the New York Times) 1925 law that has been upheld in U.S. Supreme Court cases as enforcing contracts requiring disputes to be settled out of court. If low-dollar litigation “is going to get clogged up in the federal court system,” Szalai told me, “it can easily flow to an alternative system.”
Szalai is no fan of the widespread use of binding arbitration clauses in consumer contracts. His book, “Outsourcing Justice,” attacks the theory animating Chief JusticeJohn Roberts’ robust enforcement of the FAA, which is that Congress passed the law to keep state-court judges from meddling with contracts among consenting adults. That’s a misreading of history, Szalai said. The FAA reflected mayhem in the federal court system, where until the Federal Rules of Civil Procedure were passed in 1938, each judge picked whatever procedural rules he wanted and courts were overwhelmed with Prohibition-related cases anyway.
Practicing law in federal courts in the 1920s “has been compared to Sanskrit,” Szalai said. “So it’s not an accident businesses pushed for a quick, efficient way to resolve business disputes.”
The Times series paints a simplistic, either-or portrait of arbitration, however, leaving readers with the impression consumers who agree to arbitration have given up their “right to sue” when that is a practical illusion. No lawyer will take small consumer disputes unless they are bundled together into a class action, where there is ample evidence attorneys often settle on terms that are profitable for them but don’t bring much to their clients.
The class-action bar is a vital source of financial support to the Democratic Party and it is fighting back hard. The Consumer Financial Protection Bureau has proposed new rules that would ban contracts in consumer-finance contracts over credit cards, loans and the like, that prohibit class actions. In the Bureau’s strikingly pro-lawyer language, the proposed new rule “would give consumers their day in court to hold companies accountable for wrongdoing.”
The CFPB’s own report to Congress released in March casts doubt on that conclusion. In that report the agency concluded that in 60% of 562 class actions filed between 2010 and 2012, consumers got nothing, mostly because lawyers settled their cases without negotiating a payment for the class (but presumably getting a fee for themselves). In the 15% of cases that included cash for the plaintiffs, the payments averaged $32.35 per class member, according to an analysis by Alan Kaplinsky, a partner at Ballard Spahr who pioneered the use of arbitration clauses in consumer contracts. At the same time, plaintiff attorneys recovered $424,495,451 in fees, Kaplinsky reported.
Small businesses will find it easier to challenge large rivals in court for anti-competitive behaviour if Labor is elected, Shadow Treasurer Chris Bowen says.
Labor wants to give federal court judges the power to stop small businesses from having to pay their larger rivals' costly legal fees after unsuccessful litigation.
It says that by removing the fear of having to pay crushing legal fees if they lose, such a policy would allow small private litigants to better bring action against powerful interests, levelling the playing field between small and large companies.
Shadow Treasurer Chris Bowen says the move would change the ability of small businesses to bring private litigation. Photo: Andrew Meares The move has been welcomed by the Council of Small Business of Australia, and cautiously welcomed by the Business Council of Australia business litigation.
"This will change the dynamics of small businesses and their representatives in the ability to bring private litigation," Chris Bowen said on Monday.
"When you talk to small business about the issues, they will tell you it is very hard to get before a court when they have to weigh up not only their own legal costs but the chance of being provided with a bill for the other side's legal costs and the other side may well engage in a legal strategy to maximise those costs," Mr Bowen said.
Under Labor's new proposal, at an early stage of a court case a small private litigant would be able to request a "no adverse cost order" from a federal court judge, and the judge would then weigh up the initial arguments and decide whether there was merit to the case.
If merit was established, any liability for the defendant's legal fees could be waived.
To assist in the process, Labor wants small business private litigants to send their complaint to the Small Business Ombudsman beforehand, to get professional opinion on the likelihood of success of their complaint in court.
That would help a small business owner know if their complaint was likely to be granted a no adverse cost order. While that advice would not be legally binding, it would help small business better understand their prospects of successful action under the Competition and Consumer Act, Labor says.
The Small Business Ombudsman would require extra funding worth $1 million over two years, from 2017-18, according to the Parliamentary Budget Office.
Peter Strong, Council of Small Business of Australia chief executive, says the policy is a "really good thing" because it will stop big businesses from bullying small businesses in court.
"It sends a message to the big landlords, and Coles and Woollies and others, that our pockets are now as long as yours and we can beat you," Mr Strong said. "The experience we've seen with the Victorian Small Business Commissioner, which has a model like this, is that big business backs off very quickly.
The new policy is designed to put Labor on the side of small business after it said it would not support a recommendation from the Harper Review to introduce an "effects test".
An effects test would prohibit companies with substantial market power from engaging in conduct that "has the purpose, or would have or be likely to have the effect, of substantially lessening competition in that or any other market".
Sections of the small business community have been calling for an effects test, saying it would stop big companies from abusing their market power and engaging in anti-competitive behaviour at the expense of small businesses.
But Labor has said an effects test would be a "multi-billion dollar disaster waiting to happen" that would create a "lawyers' picnic". "This is practical change for small businesses and is in the public interest," Mr Bowen said on Monday, about his Party's new policy.
"This is a modest, sensible proposal to provide some support for small businesses without damaging competition in the process," he said. Jennifer Westacott, Business Council of Australia chief executive, said she welcomed Labor's recognition that an effects test could damage the economy, and that non-legislative measures are the preferred way to deal with the misuse of market power.
"We need to see more detail about how 'no adverse cost orders' will apply but this is a vastly more sensible and pragmatic approach than disrupting the whole of economy through unnecessary changes to [introduce an effects test]," she said.
Assistant Treasurer Kelly O'Dwyer said on Monday that the Turnbull government would assess Labor's new policy over coming weeks.
She said the government was already supporting small business with a suite of new measures, including the establishment of Australia's first Small Business and Family Enterprise Ombudsman, Kate Carnell, who started her role on Friday.
The New York Times drew a lot of criticism, from me and others, for its three-part series on arbitration that largely ignored the wealthy special-interest group that opposes arbitration the most: Class-action lawyers.
In an editorial today the Times repeats the error, equating arbitration with a “shift away from the civil justice system,” as if people with $2 disputes over their cell phones could recover any meaningful relief through a conventional lawsuit.
Arbitration is part of the civil justice system, and if there is a problem with compulsory arbitration, it is lack of informed consent and meaningful oversight by the courts. To reject it wholesale would be to chip away at the right of individuals to order their transactions the way they want.
“A robust system of arbitration is healthy for our court system — it serves as a safety valve,” said Imre Stephen Szalai, a professor at the Loyola University College of Law in New Orleans and expert on the Federal Arbitration Act, that “dusty” (according to the New York Times) 1925 law that has been upheld in U.S. Supreme Court cases as enforcing contracts requiring disputes to be settled out of court. If low-dollar litigation “is going to get clogged up in the federal court system,” Szalai told me, “it can easily flow to an alternative system.”
Szalai is no fan of the widespread use of binding arbitration clauses in consumer contracts. His book, “Outsourcing Justice,” attacks the theory animating Chief JusticeJohn Roberts’ robust enforcement of the FAA, which is that Congress passed the law to keep state-court judges from meddling with contracts among consenting adults. That’s a misreading of history, Szalai said. The FAA reflected mayhem in the federal court system, where until the Federal Rules of Civil Procedure were passed in 1938, each judge picked whatever procedural rules he wanted and courts were overwhelmed with Prohibition-related cases anyway.
Practicing law in federal courts in the 1920s “has been compared to Sanskrit,” Szalai said. “So it’s not an accident businesses pushed for a quick, efficient way to resolve business disputes.”
The Times series paints a simplistic, either-or portrait of arbitration, however, leaving readers with the impression consumers who agree to arbitration have given up their “right to sue” when that is a practical illusion. No lawyer will take small consumer disputes unless they are bundled together into a class action, where there is ample evidence attorneys often settle on terms that are profitable for them but don’t bring much to their clients.
The class-action bar is a vital source of financial support to the Democratic Party and it is fighting back hard. The Consumer Financial Protection Bureau has proposed new rules that would ban contracts in consumer-finance contracts over credit cards, loans and the like, that prohibit class actions. In the Bureau’s strikingly pro-lawyer language, the proposed new rule “would give consumers their day in court to hold companies accountable for wrongdoing.”
The CFPB’s own report to Congress released in March casts doubt on that conclusion. In that report the agency concluded that in 60% of 562 class actions filed between 2010 and 2012, consumers got nothing, mostly because lawyers settled their cases without negotiating a payment for the class (but presumably getting a fee for themselves). In the 15% of cases that included cash for the plaintiffs, the payments averaged $32.35 per class member, according to an analysis by Alan Kaplinsky, a partner at Ballard Spahr who pioneered the use of arbitration clauses in consumer contracts. At the same time, plaintiff attorneys recovered $424,495,451 in fees, Kaplinsky reported.