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New laws reduce cost risk for small businesses

Small business face huge challenges when they are involved in a legal dispute with a large business.  It can be a David and Goliath type battle.

The challenges include:

  • The time and costs involved;
  • The imbalance of power and the fear of losing future business for the smaller business;
  • The risk of an adverse cost order in the event of a small claim; and 
  • Protracted and uncertain litigation.

Action under Part IV of the Competition and Consumer Act for allegations of anti-competitive conduct

Historically, if a small business believes that a larger business is engaging in conduct that is anti-competitive, they needed to commence legal proceedings in the Federal Court which has jurisdiction to hear these types of matters. Usually this involves seeking damages to recover losses or requesting an injunction to restrain anti-competitive conduct.

These types of disputes are usually complex and difficult to prove. For most small businesses, even if the chances of success are good, this tends to be outweighed by other factors like the time, cost and protraction of legal proceedings.  It is estimated that average costs that can be incurred when a small business takes action against a big business when a competitive practice is in the vicinity of  $130,000.

Adverse costs

The new laws allow judges in the Federal Court to waive liability for ‘adverse costs’ by applying for a ‘no adverse cost order’. This can be sought at any time during proceedings provided the small business can show there is a genuine case to be answered and that they are at a financial disadvantage in the proceedings.

If the Court accepts the application for the adverse costs order, then the small business will not be liable to for the other party’s costs “regardless of the outcome”.

The laws come in to effect for actions brought after 1 July 2019.

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