“No adverse costs order” for small business in competition law cases

New laws aimed at levelling the playing field between small and big business will give small businesses the chance to take legal action against bigger rivals or government without the threat of a costs order against them.

The Treasury Laws Amendment (2018 Measures No.5) Bill 2018 provides small businesses the ability to request a “no adverse costs order” early on in a competition law case brought by them on or after 1 July 2019.

What is a small business?

Regulators in Australia have different definitions of what is a ‘small business’. The ATO, ASIC, Fair Work Australia and the Australian Bureau of Statistics all have slightly different versions of criteria.

As ASIC regulates many businesses, including ‘small proprietary companies’, for the purposes of this article it is safe to assume that a small business is a company that possesses 2 out of the following 3 characteristics:

  • an annual revenue of less than $25 million;
  • fewer than 50 employees at the end of the financial year; and/or
  • consolidated gross assets of less than $12.5 million at the end of the financial year.

What is the current position?

If a small business takes a big business (or the government) to court, it is liable for its own legal costs and runs the risk of having to pay the other side’s legal costs if it loses or otherwise withdraws from the case at any time.

When a big business commits anti-competitive conduct, a small business can be left in financial trouble, having been pushed out of a market or undercut in price. With average costs associated with bringing claims more than $130,000, think David vs Goliath.

What has the new law introduced?

After 1 July 2019, a small business can seek, early on in a competition law case, a “no adverse costs order”.

If granted, a small business can rest assured that even if it were to lose or withdraw from the case, it will not face a large legal bill from the other side. Whilst not removing all barriers for small businesses to have full access to justice, this change is a small step in the right direction to improve access to the courts for small businesses  standing their ground.

Limitations of “no adverse costs order” provision

  • The provision only applies to claims brought under Part IV of the Competition and Consumer Act 2010 (CC Act), namely restrictive trade practices including:
    • cartel conduct;
    • contracts that restrict dealings or affect competition;
    • misuse of market power;
    • exclusive dealing; and
    • resale price maintenance.
  • There is a requirement for the claim to be “in the public interest” involving an issue significant for not only the applicant [small business] but for others too. The court must be convinced that the potential costs order against the applicant has such an impact that it could deter the business from bringing the claim.

Does the provision really improve access to justice for small business?

Kate Carnell, the Australian Small Business and Family Enterprise Ombudsman favours the new provision as “an important step towards levelling the playing field and would help address the power imbalance that currently exists” with regards to small vs big business owners in competition cases.

Whilst the new provision will certainly improve the position for small business potentially incentivising those businesses who would not otherwise have brought a claim, it is unlikely to cause an opening of the flood gates to legal action. Competition issues are complex, time consuming and costly, even without an adverse costs order being made.

If you are a small business and need advice on any aspect of Competition Law or wonder how this will affect you, please do not hesitate to contact our Commercial team. We will be able to navigate you through the complex provisions and recommend a business strategy suited to your objectives.

This article was written by Eloise Preller, Associate – Commercial.