On 15 December 2016 the ACAT will change its civil jurisdiction from $10,000 to $25,000. In the explanatory memoranda, then-Attorney-General Simon Corbell MLA, explained that this increase was to ensure that the jurisdiction of the ACAT kept up in real terms with the original jurisdiction of $10,000 as it existed in 1997 under the Small Claims Court which was then superseded by the ACAT in 2008 when it was set up.

Unfortunately, the more likely result will be that recovering debts for small businesses and individuals is about to get a lot harder and a lot more expensive.

Ulterior Reasons

The reasons behind the changes are likely more chimeric than the explanatory memoranda stated and have the serendipitous benefit of alleviating the busy court system with no additional expenditure. For numerous years, the legal fraternity and the judiciary were calling for a 5th full-time Supreme Court Judge to try to deal with the back-log and for a long time were allocated several Acting Justices and supplementary Federal and interstate judges, but even with the appointment of a 5th Justice in July 2016 the situation does not appear to have significantly eased. This is not limited to the Supreme Court with a similar situation existing in the Magistrates Court, where Special Magistrates are used to help meet the immense work load faced by the Court there.

Over the last few years there has been bandaid tweaking to the court administration such as creating new listing allocations and making it easier to transfer matters such as the simplified committal process. Some methods such as the bulk call-overs and multiple listings on the same day seem to be having limited success but overall fail to address the underlying problem that our courts are over-worked. Additionally, as the government has just committed $150 million for a new courts precinct it is unlikely that any of the more expensive fixes will be employed soon.

With this in mind, it would make sense that an easy, cheap solution would be to change the jurisdictional limits and shift a lot of the smaller litigation away from the Magistrate’s Court towards the ACAT.

Shifting the Buck

The biggest problem with this approach is that the ACAT is also overworked and in fact overworked to the point of not being fit for purpose. The ACAT is designed to resolve disputes quickly, simply and inexpensively. For those who have dealt with the ACAT, this is often simply not the case. Reasonably simple cases such as return of residential bond cases often take months, yet alone the more complex issues dealt with by ACAT such as reviewing large development application or decisions relating to the discipline of the legal profession.

The involvement of lawyers probably contributes to the back-log but at the end of the day there are real stakes on the line and the Tribunal still deals with issues in a manner mostly corresponding to the Courts such as following precedent and applying legislation making it still largely inscrutable to the average member of the public. The jurisdiction of ACAT stretches far beyond returns of bonds and it is not uncommon for multi-million dollar developments to be subjected to ACAT’s jurisdiction and with that amount of money you can guarantee that both sides will have lawyers and they will raise every possible point in favour of their client, much against the simple, inexpensive model originally envisaged.

The Impact on Business

The impact on small business should not be understated. Some of the toughest times for a small business is when they are dealing with recalcitrant debtors. Waiting 6-12 months to get paid, or not paid at all, can really put the squeeze on small businesses. Even businesses that can afford to absorb that debt still have to take on that burden; whether through reshuffling finances, allocating staff resources to recover the debt or ultimately hiring outsiders to recover that debt on their behalf.

This final step usually involves lawyers. Once lawyers get involved, very few creditors ever recover 100% of their outlay. If they are lucky, a simple quick process such as a statutory demand can be a cheap way to recover debts but the problem with this mechanism is that if the debtor raises a “genuine dispute” then Statutory Demands will usually fail. “Genuine disputes” are simple enough to raise and are often red herrings not actually deterring from whether the debt is payable. The reasoning being is that Statutory Demands are not meant to resolve disputes.

If a dispute is raised then the courts will usually need to become involved and when they do, at least there is the probability that if a creditor is successful in proving their debt that they will recover around 60-80% of the legal costs they have outlaid. Recovering 60-80% makes it commercially viable to outlay $8-10,000 in legal costs to pursue a debt of $20,000. Of course people are free to pursue their debts without lawyers, but in the courts this is usually at their own peril, especially if the debtor “lawyers up”.

This is where the real problem becomes apparent. The increased jurisdiction of ACAT hasn’t corresponded with a re-visiting of the other rules, including the practice that ACAT generally doesn’t award costs. ACAT has the ability to award costs in instances where one party has acted in such a way that causes unreasonable delay or obstruction but in practice if a losing party can prove that it had a case to argue, even if wrong, then they’ll almost never face a costs order.

This drastically changes the commercial considerations faced by small businesses. After 15 December 2016 a small business will need to assess whether they are willing to incur $10,000 in costs to pursue a $15,000 or $20,000 debt, when previously this would have been a no-brainer due to the 60-80% costs recovery.

I’ve heard it defended that this approach will encourage settlement. But generally speaking, if the debt is truly owing then this does not encourage settlement but instead just makes it harder to recover debts against those parties willing to take advantage of the system against small businesses simply trying to play by the rules.

To accept the argument that real-term jurisdiction hasn’t increased since 1997 is a valid point, but utilising the Reserve Bank calculators show that the new limit should be closer to $15,000 rather than $25,000; and this difference makes all the difference to a small business.