“Peering into the darkness”: Legal battles are costing Aussie businesses thousands

Twelve months ago small business owner Peter Balthazar received what would become a very expensive letter in the mail.

It informed him a trademark application for his activewear business Stay Shredded had been opposed by multinational drink giant Monster Energy.

Underneath that were several other letters from intellectual property lawyers offering their services.

That was the start of what has now become a year-long legal dispute for Balthazar, a sole trader who also works full time.

He hired a lawyer, conducted extensive research into his case (which centres on the alleged similarity of his logo to that of Monster’s), and, of course, has been paying the bills.

“It ends up being thousands and thousands of dollars,” Balthazar tells SmartCompany.

“It’s a long process, and you’re really peering into the darkness, you don’t know what’s going to happen.”

“I don’t have a trademark either, it’s dangerous waters.”

Balthazar is one of the hundreds of small business owners who have experienced financial strain due to participating in the legal system.

Legal battles costing Aussie SMEs thousands

A new survey of 1,600 small businesses released today by Australian Small Business and Family Enterprise Ombudsman (ASBFEO) Kate Carnell has found one in five (22%) have experienced a dispute in the last five years.

Of those businesses, 87% said they had experienced a financial loss as a result, while 16% conceded there had been an opportunity cost in terms of what they could have otherwise been doing.

The findings are giving weight to calls from advocates, including Carnell and the Council of Small Businesses of Australia (COSBOA), to find a way to help SMEs solve disputes more cheaply and quickly.

“The cost of disputes to small businesses is far-reaching. There can be a significant financial loss; existing business relationships become strained; it is a time-consuming process and reputations can be seriously damaged,” Carnell said in a statement.

Payment times and terms are the biggest cause of disputes for businesses surveyed, accounting for 44% of cases, while a third of disputes are escalated through a non-formal process.

Barriers to justice

Barriers for businesses staring down the barrels of a legal battle are apparent: The research found where disputes are escalated through formal pathways, the average cost of resolution is over $130,000, a figure that has doubled in the last decade.

While 41% of surveyed businesses said they escalated their dispute through formal legal channels, half of those surveyed said he time and cost involved with formal dispute resolution is unreasonable.

Over a quarter (26%) did not escalate a dispute because the costs outweighed the potential gains, or there wasn’t time to spare.

Those figures skyrocket when only the 13% of businesses who have abandoned a dispute are considered, with 49% saying the costs outweighed the potential gains.

COSBOA chief executive Peter Strong says larger firms often drag their feet in court battles, extending proceedings until small businesses run out of money, sending them broke.

“Small business needs the same access to justice everyone else gets,” he tells SmartCompany.

Lose-lose for time-poor businesses

Hashtag Burgers co-owner Ben Kagen knows a thing or two about paying legal bills. His business was involved in a high profile dispute with American chain In-N-Out Burger over the name of his Down N’ Out brand earlier this year.

Kagan was in a financial position to defend the case but tells SmartCompany that accessing justice can be a lose-lose for small businesses.

“If you don’t have the money to fight it you just fold, even if you do have the money you’re just trapping yourself,” he says.

“There’s no assistance and the bills can add up .. the government doesn’t help you at all.

Another former business owner, who asked not to be named for legal reasons, said the prospect of even trying to fight their legal dispute was a $10,000 to $20,000 bill.

Deciding to defend themselves to save money, the entrepreneur spent two years working on the case, before settling.

“I couldn’t afford it, I represented myself, but I wasn’t legally minded and it was to the detriment of my business,” the owner said.

Many businesses gave the impression they’re legal disputes were simply a result of doing business, with 43% saying they could not have done anything differently to avoid their stouche.

Is a better system needed?

Strong says a framework where a larger can take cases forward on behalf of SMEs, such as Victoria’s small business commissioner, solves key issues.

However, the ASBFEO research found a majority (62%) of businesses reach out to lawyers as their first point of call when they encounter a legal dispute, while only 14% contacted the ombudsman.

There is some movement on making it easier for businesses to resolve disputes though.

The new Australian Financial Complains Authority (AFCA) intends to set up a dedicated small business desk to help SMEs resolve disputes with Australia’s big banks.

Meanwhile, disputes arising from issues with the taxation office will be addressed by a new officer within the ASBFEO office, unveiled in a recent policy announcement.

The next phase of ASBFEO’s investigation into access to justice will examine more formal and informal pathways to the legal system, including courts.

It will seek to identify the factors that affect the cost, time and effectiveness of non-legal pathways, as well as legal ones.

The second phase of the inquiry will begin later this month ahead of a final report in the first quarter of 2019.

Have you had issues accessing justice? What do you think the solutions are? Let us know: news@smartcompany.com.au

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