Small businesses are being left behind in the current disputes market. The Brief recently reported on the high number of small businesses failing to pursue legitimate claims due to the fees and time involved in legal action. The cost of pursuing claims has been further exacerbated by the rise in court fees in March 2016.
For a claim of £150,000, the up-front cost of bringing proceedings rose from £1,315, to £7,500. For small businesses, where cash flow is paramount, resources finite, and in-house legal teams non-existent, such barriers to accessing justice prove particularly disproportionate.
The recent report by Lord Justice Briggs into civil justice reform is welcomed. His recommendations include the establishment of an out-of-hours court-based mediation service for county courts, and an online court for claims of £25,000 or less by 2020.
However, the solution does not only lie in civil justice reform. Structural change to the legal services market is desperately needed, as are initiatives to increase the legal knowledge and awareness of small businesses.
The establishment of a Small Business Commissioner is a step in the right direction, but more can be done to empower and better equip small businesses to both avoid and resolve disputes themselves, or where legal representation is required, to select the most appropriate fee arrangement or alternative funding option.
There are alternative avenues that businesses can explore to resolve their disputes. Alternative Dispute Resolution (ADR) methods, such as arbitration and mediation, have become increasingly popular tools for resolving commercial disputes due to the potential cost and time savings, confidentiality, and scope of enforcement abroad.
It is evident, however, that the benefits of ADR are being lost on small businesses; in a recent survey by the Association of Independent Professionals and the Self-Employed (IPSE), only 5.5% of their members were aware of ADR.
Private ADR providers such as The Chartered Institute of Arbitrators (CIArb) are pivotal in fostering change, to make alternatives to court “culturally normal”. Bespoke ADR schemes, such as CIArb's Business Arbitration Scheme (BAS), are being introduced to cater to small business disputes.
BAS seeks to address two of the most pressing concerns for small businesses: cost and time. It applies to claims of between £5,000 - £100,000, and, for a fixed fee, a sole arbitrator will render a final and legally binding award in under three months. Crucially, because of its simplicity, businesses can use the scheme without legal representation.
Lawyers are key players in promoting ADR where appropriate, including building ADR clauses into contracts as standard practice. But their responsibility does not stop there; the cost of legal representation, be it for ADR or litigation, presents one of the greatest challenges going forward.
The effects can be seen by the stark rise of litigants in person in civil cases.
Whilst the Bar Council’s Direct Access Portal is encouraging, further innovation from the legal community, under the leadership of the Law Society, is vital.
Some of the key issues for small businesses, highlighted by the Competition and Markets Authority’s July 2016 Report, concern:
- the complexity of the legal landscape;
- high, uncertain, and open-ended costs;
- a lack of transparency on price and quality of legal services, hindering effective competition;
- a lack of responsiveness and small business acumen.
It is only with the urgent and collective efforts of the legal community, private ADR providers, and the courts, addressing small business concerns head on, that a small business justice crisis can be averted. CIArb will be actively promoting this message at the forthcoming political party conferences.
An edited version of this opinion piece was first published by The Brief on 23 August 2016. To receive news from the Brief, you can sign up online. Readers can register for free.