Thursday, 11 May 2017
Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017; Second Reading
I am pleased to follow Senator Ketter to speak in support of the Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017, which has been lodged and introduced by Labor. It is another sign that, despite the government's rhetoric to the contrary—and I will come to that a little bit later—Labor does have a very good understanding of the real needs of small business and is prepared to take action via introducing legislation like this to back in small business and ensure that they do get a fair deal and a level playing field.
Anyone who has dealt with small business or has run a small business understands that small businesses do face many barriers to taking action, especially against anticompetitive behaviour by the big end of town. One of the reasons for that is that big businesses do invariably have deep pockets and armies full of my former profession, lawyers. The risk of small businesses being overwhelmed and having to pay big business's legal fees is a significant obstacle when they are considering standing up for their rights. Unfortunately, even though this inequity has been recognised for a very long time, the Turnbull government has, nevertheless, refused to address this inequity. That is despite the government's own Productivity Commission and competition review saying that small businesses are disadvantaged in the court process.
As I say, I am very pleased to speak in support of this private member's bill introduced by Labor. As its name suggests, the Competition and Consumer Legislation Amendment (Small Business Access to Justice) Bill 2017 will help deliver some level of access to justice to small business. It will restore the balance by letting a small business request a no-adverse-costs order early in a court case. For those who have not been involved in litigation before, first of all I say: well done! It is something that is very well worth avoiding if you ever get the opportunity.
But one of the strengths of our system of litigation, particularly compared to the American system, is that, generally speaking, if a party brings legal action against another, particularly for a civil claim, they do have to think twice about whether that legal action has good prospects of success and whether it is frivolous because, at the end of the litigation, Australian courts do typically award costs to whichever party succeeds in a case. So, if you bring legal action against someone and make a claim against them, you need to think about the prospect that, if you lose, you may be facing quite a hefty order to pay at least a portion of the successful side's legal costs.
Overall, I think that is actually a good thing in our legal system. We do, from time to time, see what seem to be absurd examples of litigation in the US, and I think everyone would acknowledge that the US's legal system is pretty out of control compared to Australia's. We hear terms like 'litigation frenzy'. It is a much more litigious society than our own, and I think that one of the reasons for that is that, generally speaking, American courts do not order costs against an unsuccessful party in litigation, so there is not a tendency to issue adverse costs orders, and that means that people in the US can, pretty much without any repercussions, initiate legal action even though it may actually not have very much prospect of succeeding. We do not have that system in Australia. We have a system where unsuccessful parties in litigation run the risk of having to pay the successful party's legal fees, or at least a significant proportion of them, so that does give people pause for thought before they charge into a lawyer's office threatening to start legal action. Of course, the downside of that is that, if you are a smaller player, whether a small business or an individual, the fact that you may, at the end of a litigation, need to pay the other side's costs, again can be a bit of a deterrent from taking legal action which might actually be warranted.
As a lawyer, I have had many occasions where I have advised small businesses and other smaller parties, whether individuals or families, who have come to me with what, on its face, seems to be a reasonable claim—a claim that, though you never have a 100 per cent guarantee when you start legal action, on its face looks like it might have a reasonable prospect of succeeding—but, as the person's lawyer, you are obviously duty-bound to inform them that if all goes wrong and they do lose then there is a possibility that they could be up for the other side's legal costs. I have certainly personally advised more than one potential client about that, only to see them say, 'It's just not worth the risk,' even though they may have had a reasonably strong chance of succeeding in their legal action. The kind of work that I did—acting, usually, for plaintiffs—meant that they did not have the same level of resources as companies that they would take on, and very often they would weigh up the risks and decide that it just was not worth the risk of getting an adverse costs order. So that is a deterrent to litigation and sometimes does tilt the scales a bit too much towards big business.
So our bill, Labor's bill, seeks to restore that balance by letting a small business request a no-adverse-costs order early in a court case. As I say, we do not want that used frivolously. We do not want that to open the floodgates to litigation. So one of the other things that this bill provides for is: when a small business seeks a no-adverse-costs order early in a court case, a judge would have the ability to decide that, if the case has merit, the small business will not have to pay a big business's legal costs. So there is a check and balance in there. An application would need to be made to a court, and a judge would still need to weigh up the evidence. It would not be a full hearing of the case, because that in itself would run up massive legal costs. But this bill seeks to get that balance right, giving small businesses the opportunity to present their case, or a portion of their case, and have a judge determine whether the case has some merit and then have the ability to issue a no adverse costs order.
This bill will also enable the Australian Small Business and Family Enterprise Ombudsman to provide professional assistance as to whether the no adverse costs order is likely to be successful. Again, we do not want people just trotting off to court and starting up legal action that has no prospect of success and that inevitably will result in an adverse costs order. This bill provides a capacity for small businesses to get some advice, prior to taking legal action, about whether a no adverse costs order is likely to be successful.
Working as a lawyer for over 10 years, I have had many instances where I have advised small businesses and other clients about their chances of succeeding in litigation, and they have weighed up the costs and the benefits. Most recently, before I entered the Senate, I practised in the area of class actions, which is a relatively new area of law in Australia. It has been going a lot longer in the US. I had the privilege of acting for individuals and small businesses in a couple of fairly large class actions. One was on behalf of shareholders in the National Australia Bank, and that was an action essentially about misleading the share market to do with the subprime crisis in America. Another class action that I was privileged to be involved in was on behalf of hundreds of horse breeders and horse owners and other people in the horse industry, who brought a class action against the Commonwealth in relation to a massive quarantine failure.
I mention this because many of the clients that we were acting for in those two class actions—and the firm I worked at obviously runs many more than just those two—were small businesses. If you spoke to them, there was no way that an individual shareholding small business or an individual horse industry small business could possibly have had the resources to take on either the National Australia Bank, in the first case, the shareholder case, or the Commonwealth of Australia, in the case concerning quarantine failures. These people had absolutely suffered some sort of financial loss through the wrongdoing of either the Commonwealth or the National Australia Bank. There was always going to be the matter of having to prove that it was the fault of the defendant, but there was no doubt these people had suffered financial losses, some in the thousands of dollars, some in the tens of thousands and some in the millions. But, no matter what size of loss they had suffered, there was absolutely no way they had the resources to fight a prolonged legal battle against some of the biggest defendants in the country, who would roll out their armies of lawyers and paralegals to review every single document. They would incur millions and millions of dollars in legal costs and invariably drag out a court case.
Class actions tend to run for three or four years. They are long, complex pieces of litigation. But there is no way that the ordinary small business out there can undertake that kind of legal action on an affordable basis. And that is one of the reasons we have seen a growth of litigation funding in Australia, where class actions can be run by plaintiff law firms, who have the security of getting their fees covered as the case rolls on. But the clients, the small businesses who take this legal action, only end up having to pay back those legal costs if they have a successful outcome.
I think that our class actions system in Australia, with litigation funding, has evolved to an extent that it does provide access to justice for many small businesses, who can band together, rather than each taking individual action against a large defendant for a similar wrong. They can band together with dozens or hundreds of other businesses or individuals who have suffered similar losses as a result of the same wrongdoing. They can come together and have someone else pay their legal fees and take the risk of an adverse costs order if the action is unsuccessful. That way, they are able to get access to justice which they would not be able to get on an individual basis.
But, while it is true that our class actions system and litigation funding system in Australia has evolved to an extent that it can provide access to justice to people, there are nevertheless some cases which are too small to be run as a class action and be viable.
The reality is that, as I say, they are long, complex cases where legal fees are expensive. If you are talking about a loss that has been suffered by people of, say, $10 million to $20 million all up, at one level that is a large amount of money, but, once you get legal costs taken out of that, there would not actually be a lot of money left over. That is the kind of instance that this bill will support. It will give opportunity to small businesses whose losses are not so great that they can afford to take the risk of incurring lots of legal costs and incurring adverse costs if they are unsuccessful in their action. We want to make sure that small businesses that have suffered relatively smaller but significant losses can still have their day in court. That is a pretty basic right in the Australian legal system, and this bill will enable that by giving some level of protection for small businesses that they will not face an adverse costs order if they bring a case that does have some merit but, at the end of the hearing, fails. All in all, this bill will give small and medium businesses greater power to enforce their rights under Australia's competition law.
The other thing I wanted to touch on in my contribution to this debate is an incredible misconception which has been perpetuated by conservative parties and some of their supporters in the business community over many years—that is, only those in the conservative side of politics are friends of small business. It is one of those mantras that we hear from conservative parties—and I can see my friend Senator Smith over there agreeing with that mantra. Well, he is wrong, and not for the first time. I know it is an article of faith in conservative parties that they are the defenders of small business and that Labor is anti-small business. If you have a look at the facts, you will see that nothing could be further from the truth. I will be honest—there are some issues that, from time to time, Labor takes a different position to—