Small business group urges reform of legal system to deal better with disputes

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8 December 2016


Courts: more than half of small businesses seek formal resolution of disputes

Courts: more than half of small businesses seek formal resolution of disputes

Small businesses need a “beefed up” legal system that prevents disputes in the first place and resolves those that occur more, their representative body said today.

Among a series of measures laid out by the Federation of Small Businesses (FSB) was ensuring that the online court is “seamlessly” integrated with other courts, enabling the shifting of cases between them to be “frictionless”.

It also called for a specialist commercial track within the small claims court (SCC), for the SCC’s value limit to be aligned with the online court, and argued that instead of judges, specialist ‘referees’ should be the primary decision makers in small claims cases.

Research by the Federation of Small Businesses (FSB), Tied up: unravelling the dispute resolution process for small firms, found that more than half of its members – who account for over 99% of all private sector businesses – resorted to the civil courts or other formal resolution when confronted with disputes. Almost 80% went to the SCC.

Fewer than one in 10 opted for alternative dispute resolution (ADR). Over 40% chose informal resolution between the parties or semi-formal resolution, such as through an adviser.

It also found that seven out of ten had had at least one commercial dispute between 2010 and 2015 – more than 3.4m businesses – worth an average of £18,000, most involving late- or non-payment.

The FSB blamed the weak appetite for ADR on a “knowledge gap” among both its members and their advisors, including solicitors, and fragmentation among ADR suppliers.

It argued it was essential that “a significant improvement in the dispute resolution landscape for small businesses, needs to be conceived and developed holistically”.

After carrying out a survey of its membership last year and consulting various lawyers and academics, the FSB recommended a three-tier approach to helping businesses resolve disputes: informal and semi-formal resolution, ADR and the civil courts.

But it noted that, according to the World Bank, England and Wales lagged far behind other common law jurisdictions in the ease, cost and speed with which commercial disputes were resolved, notably Singapore, Australia and New Zealand.

The FSB welcomed planned investment in IT and other court infrastructure, as well as the online court. But it argued several areas of the existing courts system were in need of urgent reform, including organisation, procedure, management, funding, and access.

If the online court was established as a separate court, it said: “[It] needs to be seamlessly interlinked with the SCC and the fast and multi-tracks to enable frictionless shifting of cases between them.”

When devising upper claim limits for the online court, the government should consider integrating the system into the SCC, it said: “This would then ensure users using the online option can choose a menu of methods for taking their claim through the civil courts or defending a claim… [and] reduce the inevitable frictions that will arise from having a separate online court to the SCC.”

There should be a specialist commercial track within the SCC, said the FSB, and the value limit of the SCC should be increased to £25,000 to align it with the proposed online court limit “along with similar appropriate upward revisions to the case value ranges for the ‘fast’ and ‘multi’ tracks.”

Also, similar to the registrar model proposed by JUSTICE: “Instead of judges, the primary decision makers and case managers in small claims cases should be specialist ‘referees’,” said the FSB. The system would replace separate court-based ADR offerings, it added.

The FSB said a small business commissioner should develop an online hub, providing guidance and support for small businesses to help prevent disputes, or resolve disputes early.

FSB national chairman Mike Cherry said: “The dispute resolution process faced by small businesses in England and Wales is costly and complicated. Billions of pounds are flowing out of small business pockets as they try to claw back unpaid debts.

“We want to see a beefed up system to bring about fewer disputes and faster resolutions for small firms.”

He told Legal Futures: “We support a vibrant and diverse legal services market to meet the needs of small businesses. Legal businesses can be a key part of this.

“Small businesses tend to seek advice from trusted sources before purchasing legal services, so FSB members will call our own 24-7 helpline before taking action.”

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