THE OFFICE OF THE VICTORIAN SMALL BUSINESS COMMISSIONER – SUCCESSES, CHANGES AND CHALLENGES Geoff Browne Victorian Small Business Commissioner
[email protected]
Summary The Victorian Small Business Commissioner was established as an independent statutory role in 2003, with the objective of enhancing a fair and competitive operating environment for small business in Victoria. Under the legislation, the Commissioner has broad ranging functions and powers. This paper explores the evolution of the Commissioner’s role from the broad expectations and activities in the earlier years to the current predominant role as a provider of dispute resolution services for businesses. The challenges of communicating the role of the Commissioner to Victorian businesses, referring to a number of surveys and evaluations conducted, are examined. The evolution of the role of the Victorian Small Business Commissioner is of particular interest given the recent emergence of similar roles in four other Australian States, and a commitment to a national Small Business Commissioner. A brief commentary on the similar but different roles is provided.
Keywords:
Business Disputes, Small Business Commissioner, Dispute Resolution
THE EVOLUTION OF THE ROLE OF THE OFFICE Establishment and jurisdiction In 2003, the State Government of Victoria introduced legislation to establish the Victorian Small Business Commissioner (VSBC) as an independent statutory office. The Small Business Commissioner Act 2003 provided a broad range of functions and powers to enable the Commissioner to pursue the purpose of the Act – to enhance a competitive and fair operating environment for small business in Victoria.
The establishment of a Small Business Commissioner in Victoria was an Australian first.
The Second Reading Speech in the Victorian Parliament on 27 February 2003 noted that the ‘Small Business Commissioner will be integral to building a business environment that promotes competitive, innovative and vibrant Victorian small businesses’, and recognised the need for ‘a central point where small business concerns about unfair market practices can be addressed in a timely and low-cost manner’.
The functions of the Commissioner under the Small Business Commissioner Act 2003 are:
a) to facilitate and encourage the fair treatment of small businesses in their commercial dealings with other businesses in the marketplace;
b) to promote informed decision making by small businesses in order to minimise disputes with other businesses;
c) to receive and investigate complaints by small businesses regarding unfair market practices and mediate between the parties involved in the complaint;
d) to make representations to an appropriate body or person on behalf of a small business that has made a complaint;
e) to monitor and report to the Minister on any emerging trends in market practices that have an adverse effect on small businesses;
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f) to encourage the development and implementation of small business service charters within government to ensure small businesses receive high quality service;
g) to monitor the operation and effectiveness of those small business service charters;
h) as required by the Minister, to monitor and report to the Minister on the impact that legislation in Victoria, government procedures and administration have on small businesses;
i) as required by the Minister, to assist other branches and agencies of government to develop legislation, government procedures and administration that provide alternative ways in which small businesses can comply with the requirements of the legislation, procedures and administration;
j) to investigate compliance with industry codes;
k) to advise the Minister generally about matters for which the Commissioner is responsible; and
l) to advise the Minister on the operation of the Act.
In addition the Commissioner may: m) investigate any matter relevant to the Commissioner’s functions and powers under the Act.
The Second Reading Speech addressed each of the key functions under the Act, giving no indication of relative importance or priority.
On the same day in February 2003, immediately following the second reading of the Small Business Commissioner Bill, the Government second read the Retail Leases Bill. That Bill, which became the Retail Leases Act 2003 (‘RLA’), provided an explicit role for the Small
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Business Commissioner in resolving disputes between retail tenants and landlords in an informal, timely and cost-effective manner.
In 2005, the Owner Drivers and Forestry Contractors Bill was introduced into the Victorian Parliament.
It was noted that ‘under the Bill, the existing role of the Small Business
Commissioner in providing a low-cost, accessible, informal, private and independent alternative dispute resolution service to retail tenants will be extended to owner-drivers and forestry contractors’. The success of the Small Business Commissioner since establishment in 2003 was noted positively – ‘The speedy resolution of business-to-business disputes handled by the Office of the Small Business Commissioner has saved many Victorian businesses, especially retail tenants, the expense of lengthy and costly litigation. The Small Business Commissioner has successfully resolved more than 70 per cent of the disputes notified to him, saving many hundreds of Victorian businesses time and money, and helping to rebuild fractured business relationships’.
Both the Retail Leases Act 2003 and the Owner Drivers and Forestry Contractors Act 2005 (‘ODFCA’) require parties to a dispute to bring the dispute to the Small Business Commissioner for attempted resolution before the dispute can be lodged with a Tribunal with adjudication powers. The rationale for this statutory referral to the Commissioner was to ‘avoid the need for formal legal proceedings’ and avoiding the ‘expense of lengthy and costly litigation’ respectively.
In 2011, the Victorian Government proclaimed the Farm Debt Mediation Act 2011 (‘FDMA’). This Act gives the Small Business Commissioner a function of attempting to resolve farm debt disputes by mediation. This Act also has an element of statutory compulsion, in that a creditor wishing to commence farm debt recovery must first inform the farmer that they have a statutory right to seek mediation through the Small Business Commissioner. Under the Small Business Commissioner Act 2003 (‘SBCA’), however, there is no statutory obligation for ‘general’ business disputes (ie. disputes not captured by any of the other three Acts) to first be referred to the Commissioner.
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In summary, while the establishment legislation provided a very broad range of functions for the Small Business Commissioner, including but by no means limited to dispute resolution, the three subsequent laws all provided an explicit dispute resolution requirement on the Small Business Commissioner, and each included some form of statutory compulsion on parties for these matters to be brought to the Commissioner before subsequent actions could be taken.
It is perhaps unsurprising, therefore, that today the predominant function of the Small Business Commissioner is dispute resolution. However, a range of other factors have contributed to this more focused role over the past nine years.
Policy Rationale
The key policy drivers underpinning the establishment of the Small Business Commissioner were:
To divert disputes to an alternative dispute resolution service away from the Tribunal and Court Systems both to reduce the already high volume of Tribunal and Court matters (and associated delays), and to realise the positive net benefits of diversion from high (direct and indirect) cost to low cost jurisdictions;
To provide a more equitable and accessible setting for dispute resolution between a small business and a large business or government entity – in terms of cost, risk, and authority/ intimidation;
To retain working relationships between businesses through mediated agreement rather than by arbitrated decision;
To create improved, efficient and consistent business relationships between small business and government;
To remove market inefficiencies through investigation of unfair or uncompetitive market structures or behaviours, or non-compliance with industry codes or service charters.
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The policy drivers supported the broader position that small business was the engine room of the economy, and quickly and effectively resolving disputes enabled small businesses to focus on ‘getting on with business’, contributing to overall economic productivity and growth.
Services
The range of services provided by the Office of the Small Business Commissioner (‘the Office’) can be summarised as:
Education and information Preliminary assistance: -
Information and assistance
-
Encourage participation to resolve a dispute
-
Pre-mediation dispute resolution
Mediation Investigation Other Services
Dispute Resolution / Reduction
The first three of these services are entirely focused on dispute reduction or dispute resolution.
Education and information (proactive): includes attendance at meetings, presentations, seminars, etc. to promote and explain the role of the Office, highlight ways in which disputes can be avoided, and how the Office can assist in low cost, speedy resolution of disputes if they arise. This is informed by any emerging issues or trends identified by the Commissioner. These activities complement the broad range of information and education small business programs provided through the Government’s Department of Business and Innovation.
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Preliminary assistance comprises: o Information and assistance (reactive): includes answering telephone calls, emails and face-to-face queries from businesses about their rights and obligations. This service can identify emerging issues or trends which can inform the Office’s proactive initiatives; o Encourage participation to resolve a dispute: the respondent to a dispute application may need convincing of the benefits of engaging in a dispute resolution process, whether through the Office or through formal mediation, including how the process works, particularly where there is no statutory compulsion to participate; o Pre-mediation dispute resolution: bringing parties to a dispute to resolve that dispute at no cost without the need to progress to mediation.
Mediation: is the formal process of conducting a mediation session with the disputing parties. Investigations
While the Commissioner has a broad statutory power to investigate ‘any matter relevant’, the power ‘to do all things necessary or convenient to be done for or in connection with the performance of his or her functions’, and the power to ‘request assistance or information from any public authority’, the SBCA has no prescriptive powers to underpin an investigation, as most regulators have. There is no specific power, for example, to require attendance at meetings or conduct records of interview, to produce documents or to substantiate claims. There are no enforcement powers under the SBCA.
Arguably the original intent of the Investigation function under the Act was to identify and address unfair and uncompetitive market activities more aligned with the functions of a competition regulator. At the time of proclamation of the Act in 2003, there was no general competition or market regulator in Victoria, while the Australian Competition and Consumer Commission (ACCC) was the national competition regulator.
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In July 2004, the Victorian Competition and Efficiency Commission (VCEC) was established. While the functions of VCEC have broadened since, in 2004 the Order establishing VCEC provided that: “The particular purpose of establishing the Commission is to maintain and improve competition and efficiency in the Victorian economy.”
Efforts by the Office to investigate unfair or uncompetitive market practices rely on cooperation of the parties, leveraged by the ability of the Office to report, through its Annual Report or otherwise, on the outcome of such investigations. While this approach continues, the establishment of VCEC arguably reduced the potential areas of unfair and uncompetitive market behaviour that the Office could engage in. The key role of VCEC in assessing Regulatory Impact Statements and Business Impact Assessments of prospective laws, regulations and policies, and having an explicit mandate to pursue regulatory burden reduction for business also has limited the role of the Office in investigating such matters. Comments by the Office have since been made to VCEC in response to inquiries being undertaken by VCEC, rather than the Office itself leading such investigation. Today, the Office’s investigations have essentially become more focused dispute resolution activities. They are undertaken where disputes from multiple complainants suggest a systemic underlying cause for the dispute – whether due to market structure, individual company behaviour or particular industry activity – or where a complaint against a government agency points to an underlying unfair or uncompetitive policy or regulatory setting.
Other Services
The other key functions of the Commissioner under the Act relate to encouraging and monitoring Government small business Service Charters, and investigating compliance with Industry Codes. While there was considerable proactive activity in these areas in early years, today such activities are opportunistic or reactive, or pursued as part of dispute resolution services. Early efforts by the Office to encourage government departments to adopt service charters for their dealings with small business had success only with the department with small business development responsibility (with which the Office was portfolio-aligned). The
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initial industry code statutorily assigned to the Small Business Commissioner (the Packaged Liquor Code) had relevance in the early years but today has no practical relevance to the Commissioner, as transitional deregulation has occurred and a new statutory body with significant compliance and enforcement powers for liquor licensing has evolved.
The ODFCA includes a Code of Conduct which is prescribed under the Act. It obliges the parties to a dispute to utilise the services of the Small Business Commissioner. Other than handling such disputes in the normal manner, no other monitoring of compliance with the Code has been undertaken or sought. Evaluations1 of the Office in 2006 and 2010 found that: The number of investigations into unfair market practices conducted by the Office in the two years 2004/5 and 2005/6 averaged 41 per annum compared with an annual average of 6 in the four years 2006/7 to 2009/10. While there may be an element of variable definitions in this comparison, it is clear that the number of investigations into unfair market practices has declined markedly over time; During the four year period to 2009/10, the Office had not undertaken any investigation into compliance with industry codes, ‘because there has been no demand or requirement to date to do so’. The 2006 Evaluation similarly noted that while some work had been undertaken on draft codes, there had been ‘no proactive work’ undertaken.
The Office does continue to engage with industry on Codes in varying forms, but primarily in a reactive and facilitative way, or for mainstream dispute resolution, rather then in any leading or directional capacity.
Volume Growth and Resourcing
The last compelling factor moving the Office inexorably toward being a dispute resolution service has been the combination of strong growth in demand for these services (primarily due to statutory compulsion, but to some extent due to the efforts of the Office in promoting these services) combined with no change in real budget allocation. While some extra funding 1
KPMG 2006; 2010.
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was provided when both the Owner Drivers legislation and the Farm Debt legislation were introduced, salary budget in real terms in 2010/11 was unchanged from that in 2004/05, while demand has grown by an average 11% pa. Inevitably, demand for statutorily required services takes precedence over other proactive initiatives. This trend was acknowledged in the 2006 Evaluation2 – ‘the key focus for the VSBC’s operations to date has been to facilitate the resolution of disputes … (which) … has also been the VSBC’s most publicly visible and successful area …’. The 2010 Evaluation3 similarly noted ‘the majority of work undertaken by the VSBC relates to the facilitation of dispute resolution …’.
Today the Office is predominantly focused on dispute resolution and prevention, with relatively small resource allocation to other functions.
PERFORMANCE AND TRENDS
This section of the paper reviews the performance of the Office of the Victorian Small Business Commissioner in its dispute resolution and reduction activities, and trends emerging.
Activity Levels and Success Rates Preliminary Assistance and Mediation
Graph 1 presents data from 2004-05 to 20010/11 for: the number of applications for dispute application received; the number of telephone calls handled by the office; the number of disputes resolved prior to mediation; the number of mediations conducted, by Act.
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KPMG 2006 KPMG 2010
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Graph 1: Activity levels 2004-05 to 2010-11 1,800
9000
1,600
8000
1,400
7000
1,200
6000
1,000
5000
800
4000
600
3000
400
2000
200
1000
-
0 2004-05
2005-06
2006-07
2007-08
Applications received (LHS)
2008-09
2009-10
2010-11
Settled prior to mediation (LHS)
Mediations undertaken (LHS) Phone calls received (RHS)
Table 1 shows the annual average compound growth rate for these four activity measures. There has been significant growth in each of these activity levels in most jurisdictional areas:
Table 1: Average compound annual increase in activity levels to 2010/11 Measure Telephone Calls received
Growth pa. 5.0%
Applications received
10.7%
Disputes resolved prior to mediation
19.2%
Mediations conducted
5.9%
The 10.7% growth in dispute applications comprises a 6% p.a. growth rate for RLA disputes, and a 31% p.a. increase for SBCA disputes. The proportion of dispute applications under the SBCA has progressively increased to nearly 30% of all applications in 2010/11, as shown in Graph 2.
Activity data is also presented in Graph 3 to show the change in service profile over the years, with increased emphasis on resolution through preliminary assistance.
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Graph 2: SBCA disputes as a proportion of total dispute applications received 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2003/4
2004/5
2005/6
2006/7
2007/8
% Other
2008/9 2009/10 2010/11
% SBCA
Graph 3: Use of preliminary assistance and mediation 60% 50% 40% 30% 20% 10% 0% 2004-05
2005-06
2006-07
2007-08
Settled prior as % apps rec'd
2008-09
2009-10
2010-11
Mediations as % apps rec'd
There has been a deliberate effort to settle more matters prior to mediation. Firstly, this represents a more value-adding and satisfying role for Office staff, compared with the more mechanical process of arranging a mediation. Secondly, resolution through preliminary assistance is at no cost to the parties and is quicker than mediation, notwithstanding the low cost and rapid scheduling of mediations. The ability to continue to grow preliminary assistance resolution is influenced by the Office’s budget structure - preliminary assistance is
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undertaken by salaried staff in the Office, while mediations are undertaken by external contractors (although the Office does employ one mediator). In 2012 the Office commenced a ‘triage’ process based on characteristics of complaints considered most likely to settle through preliminary assistance and most likely to progress straight to mediation (ie no preliminary assistance). By fast-tracking relevant applications to mediation, the intent is to free up some staff time to enable them to focus their preliminary assistance efforts on complaints more likely to settle through this effort. The focus initially is on Retail Lease disputes, given the large volume of these matters.
This is still a work in progress, having been implemented only in the past three months.
Criteria used for fast-tracking applications straight to mediation are:
Information provided demonstrates that both parties have agreed to mediate; OR
Both parties are represented by lawyers, and both representatives have used mediation services of the VSBC previously; OR
The dispute has urgency for both parties; OR
The claimed amount in dispute exceeds $100,000
The first of these already applied, while the other three criteria are new.
All other files will proceed through some level of preliminary assistance. An examination of past files indicated:
A slightly higher preliminary resolution rate on claims of smaller amounts.
Where both parties were represented, matters tended to proceed to mediation rather than be resolved at preliminary assistance stage.
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Anecdotally, more complex matters were less amenable to preliminary resolution than single issue or more clear-cut issues.
Accordingly, more time and effort on preliminary assistance is given for applications with the following characteristics:
The quantum of the claim is less than $5,000;
Parties are unrepresented;
The number of elements to the dispute are (appear) few;
Legal rights and obligations are straightforward
Mediation outcomes
The Office’s successful resolution of mediated disputes is highlighted in Graph 4. The Office has achieved a mediation resolution rate averaging 79.2% since inception. This measure is one of two KPIs against which the performance of the Office is measured, with a minimum target of 75%. The second KPI is mediation customer satisfaction rates (see below).
Mediation success can vary according to legislation. Graph 5 shows the mediation success rates in 2010/11 for the (then) three applicable jurisdictions.
The slightly higher success rate for SBCA disputes is perhaps reflective of the fact that there is no statutory incentive for a respondent party to participate in mediation. Hence, those who agree to attend do so with a willingness to participate in good faith and try to resolve the dispute. Under the RLA and ODFCA, if a party refuses to mediate, this fact may be used by the applicant progressing the dispute to a Tribunal to seek an award of costs against the respondent.
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Graph 4: Mediation success rates 2003/4 – 2010/11 84% 82% 80% 78% 76% 74% 72% 70% 68% 2003/4
2004/5
2005/6
2006/7
2007/8
2008/9
2009/10
2010/11
% mediations successful
Interestingly, the 2010 Evaluation of the Office noted that ‘relevant literature indicates that mediation resolves disputes successfully around 85 per cent of the time, with this reduced to around 75 per cent if the mediation is mandatory’4. The 2010/11 results for the Office appear to very accurately support this opinion.
Graph 5: Mediation Success Rates 2010/11 by jurisdiction
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% RLA
SBCA Settled
ODFCA
Not settled
KPMG 2010, p3, citing Marsh, S. (2000), ‘The Truths Behind Mediation’, ADR Resources, retrieved on 8 November 2010 from http://www.adrr.com/adr3/other.htm#4a, also Victorian Law Reform Commission (2008) Civil Justice Review Report, Chapter 4: Improving Alternative Dispute Resolution, p.213. 4
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Customer Satisfaction
Finally, the VSBC collects feedback5 from parties to mediations. Data shown in Graph 6 is for 2010/11. Importantly, all parties and their representatives report a very high level of satisfaction with the mediation process, with a weighted average result of 92.8%. The target for this KPI is at least 80%.
Graph 6: Customer Satisfaction with Mediations, 2010/11 94.0% 93. 3% 93. 0%
93.0% 91. 9%
92.0% 91.0% 89. 8%
90.0% 89.0% 88.0% A pplicant
A pplicant's representative
Respo ndent
Respo ndent's representative
UNDERSTANDING THE MARKET Market Segmentation
Qualitative research6 undertaken in 2010 to complement the 2010 Evaluation also sought to analyse the motivations and attitudes of parties attending the VSBC to enable better communication to each segment. It found there was little segmentation difference between those assisted through preliminary assistance and those participating in mediation. Rather it found the two key segmentation dimensions were: Whether the dispute was viewed emotionally or as a business issue. Whether VSBC was seen as the final solution, or a step in the process.
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Completion of feedback forms by parties and their representatives is voluntary. There may be some bias in these results towards the more satisfied parties. Over 500 responses were received in 2010/11. 6 Essence, 2010, Key Findings
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These dimensions segment the market into four characteristic types, as shown in Figure 1.
Those emotionally involved in the process (Segments A and B) pursue the dispute because of ‘the principle’. This means that they will often not accept a commercially negotiated outcome if they do not get everything they believe is their right. Those in Segment A accept that VSBC is a step in the process for their rights to be upheld (if the VSBC can’t deliver what they expect, the next step is litigation), while those in Segment B expect the VSBC to deliver the outcomes they want. Figure 1: Market segmentation – business disputes with the VSBC An Emotional Dispute
B: It’s the principle. It’s unfair. I want it resolved (in my favour).
A: It’s the principle. I’ll take it all the way.
VSBC a step in the process
C: It’s part of doing business. I’ll use experts to win.
D: It’s part of doing business. VSBC should resolve the problem. I’m following the process.
VSBC expected to resolve dispute
A Business Dispute
Segment B parties do not initially understand that the VSBC cannot force the other party to attend mediation, or that the outcome of a mediation may not be consistent with their view of the dispute. Segment B parties need the role of the VSBC and the process to be clearly explained at the outset, and the possibility that there may be alternate views on their dispute (and what is ‘right’) needs to be flagged as part of the process.
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Parties in Segments C and D view disputes as a part of doing business. They are more commercially pragmatic. Differing knowledge of the role of the VSBC differentiates the segments. Segment C parties focus on the efficiency of the process and its transactional characteristics, leveraging professional advisers to maximise their likelihood of success. Segment D parties have a higher expectation that the VSBC will resolve the problem quickly and efficiently. These parties would be appreciative of advice about the VSBC process and role, and the cost and benefit implications if a dispute does not resolve at mediation.
This analysis has led to the Office improving its website information to ensure parties understand what the Office can (and cannot) do, explaining in more detail how a mediation is conducted and what to expect, and amending other documents provided to parties to a dispute, including a Mediation Guide.
These changes have complemented negotiation
training undertaken by Office staff to assist them to better understand the motivation and approach of parties to a dispute.
Knowledge and Awareness of the Small Business Commissioner
Notwithstanding the strong growth in demand for the Office’s dispute resolution services since inception and its success rate, knowledge of the existence of and services provided by the Office, particularly under the SBCA, is poor.
There was substantial media and other publicity surrounding the establishment of the Office in 2003, and the Commissioner and staff undertook an average of 143 presentations in each of the two years 2004/5 and 2005/6. The 2006 Evaluation7 found that ‘awareness of the VSBC presence and functions continues to increase’, yet many stakeholders did not have a detailed understanding of the VSBC’s full scope of activities, and considered that awareness across the small business sector was ‘likely to be very low’. A survey8 undertaken in February 2004, less than twelve months after the establishment of the Office, found that 54% of Victorian small and medium businesses (up to 200 employees)
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KPMG 2006 Sensis 2004. Based on telephone interviews with 432 small and medium sized business proprietors in Victoria. 8
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were aware of the Office of the Small Business Commissioner. However, only 16% of those aware of the VSBC correctly identified dispute resolution and mediation services being provided. Fifty eight percent of respondents did not know of any services provided. The balance of respondents provided generic responses which did not necessarily reflect informed knowledge. A similar survey was undertaken in 20079. This survey differentiated between those businesses (15% of the sample) which had experienced a ‘serious dispute with another business’ in the previous 3 years from those that had not. Businesses which had been involved in a dispute were asked, “Where did you go for advice on your dispute?” Answers were unaided. As shown in Graph 7, the Office was not named explicitly, although 4% of respondents nominated a ‘mediator/mediation service’.
Graph 7: Where did you go for advice on your dispute? 46%
Lawyer/solicitor 20%
Worked it out myself 8%
Debt collection agency
7%
Nowhere
6%
VCAT Mediator/mediation service
4%
Ombudsman
4%
Professional body Small claims tribunal Search on the internet
3% 2% 1%
When the same segment was asked, “Which if any of the following steps did you take in this dispute?”, and possible answers were read out, 11% nominated ‘Mediation services, for example the Office of the Small Business Commissioner’. (Graph 8)
The cohort of businesses that had not experienced a serious dispute in the past three years were asked, “If you were involved in a dispute, where would you go to get advice?”, 1%
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Sensis 2007. Based on sample of 401 Victorian small and medium sized businesses across all industry sectors.
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nominated the Office of the Small Business Commissioner and a further 2% nominated Mediator/Mediation Services (Graph 9).
Graph 8: Which if any of the following steps did you take in this dispute?
39%
A letter from a solicitor or lawyer
21%
Did nothing
17%
A court or tribunal hearing Mediation services, for example the Small Business Commissioner's Office
11%
Debt collector
6%
Resolved it myself
6%
Ombudsman Held discussions
4% 2%
Graph 9: If you were involved in a dispute, where would you go to get advice? Lawyer/solicitor Industry association Don't know Search on the internet Accountant Professional body VCAT Government organisation Ombudsman ACCC Mediator/mediation service Consumer affairs Debt collection agency Office of the Small Other business owner Friends/relatives Insurer Small business service
51% 15% 9% 6% 5% 5% 5% 4% 4% 3% 2% 2% 2% 1% 1% 1% 1% 1%
At the end of the survey, all respondents were asked whether they were aware of the Victorian Office of the Small Business Commissioner. Fifty-two percent replied in the affirmative (54% in 2004), although this response was stronger for small businesses (53%) 20
than medium businesses (35%). As shown in Graph 10, when asked what services the Office provides, 46% of the ‘aware’ group did not know (58% in 2004), while 34% referred to business disputes, complaint investigation or mediation services (16% in 2004) and a further 4% correctly identified information on retail tenancy.
Finally, seventeen percent of respondents aware of the VSBC (8.8% of all respondents) said they had contacted the Office at some stage. It should be noted that this was not limited to contacting the Office ‘in regard to a dispute’ – the Office provides a number of statutory roles requiring businesses to lodge documents relating to retail leases. Differentiating between size of business, 9% of small businesses had had contact with the Office, but only 2.5% of medium businesses. Graph 10: Knowledge of services provided by VSBC – businesses aware of VSBC 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
46% 58%
34% 16% 2004 (54% aware)
Know ledge of SBC dispute resolution role
2007 (52% aware) Unaw are of any services
Other answ ers
A survey10 into Alternative Dispute Resolution in May 2007 contacted 500 Victorian small businesses (defined as businesses with less than 20 employees). Fifty percent of respondents were aware of the Small Business Commissioner, very consistent with the abovementioned survey results. However, when asked if they had ever contacted the Small Business Commissioner to help in handling a dispute, only 2% replied in the affirmative. The results from the two 2007 surveys on businesses ‘ever contacting the VSBC’ suggest that while 2% of small (<20 employee) businesses had contacted the VSBC with regard to a 10
Ipsos 2007.
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dispute, a further 7% of such businesses had contacted the VSBC for other reasons. In addition, 2.5% of medium businesses had contacted the VSBC.
Is this data consistent with the activity levels of the Office (and necessary contact with businesses as a result)? Appendix 1 examines the potential maximum party contact with the VSBC based on dispute related and non-dispute related activities to July 2007. It concludes that the survey results are not inconsistent with the likely level of engagement businesses have had with the Office since establishment.
The various survey results provide mixed messages:
Firstly, there was little change in general awareness of the existence of the VSBC over the three years - around half of businesses surveyed were aware. Secondly, around 2% of all small businesses had contacted the VSBC for dispute related reasons up to July 2007 and a further 7% of small businesses had contacted the Office for other reasons. 2.5% of medium sized businesses had also contacted the Office. Thirdly, there was a significant increase in informed awareness of the role of the Office between 2004 and 2007. In 2007, 17.7% of all small and medium businesses demonstrated an informed understanding of the role of the Office (ie, 38% of the 52% of businesses aware of the VSBC), compared with 8.6% in 2004. This 17.7% of SME businesses having an informed understanding of the role of the VSBC compares with the 8.8% of SME businesses that had ever contacted the VSBC (for whatever reason), suggesting a significant growth in informed businesses which had not utilised the services of the Office. Fourthly, when prompted, 11% of businesses which had experienced a serious dispute nominated the Office as one of the steps they had used to address the dispute, but unprompted, this same cohort did not cite the Office as a place to go for advice on the dispute.
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Between 2004 and 2007, it can be concluded that: There was no improvement in the awareness of businesses of the existence of the Office of the Small Business Commissioner, staying fairly constant at around 50% of businesses; There was a doubling in the percentage of businesses informed about the role of the Office (but only to around 18%); The Office was not ‘front of mind’ as a place to go for information and assistance about business disputes. More recently the 2010 Evaluation11 found: Stakeholders and industry groups had high awareness of the VSBC, but very low awareness in the small business community; Parties to a dispute were generally unaware of the VSBC prior to utilising its services. Qualitative research12 undertaken to complement the 2010 Evaluation found: (businesses) were not really aware of how to seek help (to resolve a dispute) or from whom; many had tried many different avenues in search of help … before arriving at the VSBC, … particularly for the clients involved in disputes relevant to the Small Business Commissioner Act most had not heard of the VSBC;
These conclusions are similar to the conclusions drawn from the 2004 and 2007 surveys, although the 2007 surveys suggest a higher incidence of awareness of the VSBC and informed understanding of the role of the VSBC than suggested in qualitative research in 2010.
The compulsory referral of disputes under the RLA, ODFCA and FDMA means that parties to disputes will often be informed of the VSBC by their solicitors, industry bodies, tribunals or other intermediaries. It is the other disputes (under the SBCA) where lack of awareness is a major barrier to parties utilising the services of the VSBC.
11 12
KPMG 2010 Essence, 2010 Key Findings
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The same survey as that conducted in 2007 is to be commissioned in 2012. Communications Strategy
There appears to be a constant challenge for the Small Business Commissioner to ensure businesses are aware of the Office, and its role, so that when faced with a business dispute they know where to turn. On the positive side, as the VSBC continues to record increased use of the Office’s services through phone calls and applications, the volume of businesses that have utilised the services will grow and knowledge will gradually spread. However, with a 10% - 13% churn each year in small businesses (i.e. new entrants and exits), there will always be a substantial group of businesses without knowledge or prior experience with the VSBC.
It is useful to differentiate the two types of disputes and audiences - where there is statutory compulsion to use the Office, and where there is no such statutory compulsion. For disputes where there is some statutory compulsion to use the Office’s dispute resolution services, the business unaware of the role of the Office will soon learn of it if contact is made with a lawyer, accountant, industry association, tribunal or court. The benefit of these businesses knowing of the Office beforehand is the early provision of information to prevent or minimise a dispute, avoidance of time delay in finding out about the obligation to refer the dispute to the Office, and possibly the costs incurred engaging professional advice, which is not necessary to access the services of the Office. However, knowledge of the Office’s services may encourage lodgement of a dispute which would not otherwise be progressed by the complainant, due to uncertainty of processes, likely costs, or rights. Dispute prevention messages are also relevant to this audience, including new starters. The communications objective for this class of disputes is less about ‘growing market share’ and more about awareness and dispute prevention.
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For disputes where there is no statutory obligation to engage with the VSBC, the primary communications objective is to capture more such disputes.
For these disputes, it is clear
that many intermediaries as well as businesses are unaware of the potential to use the VSBC. There are a substantially larger number of these ‘general’ business disputes, than disputes under the RLA, ODFCA and FDMA. The survey13 undertaken in 2004 found that about 6% of small and medium businesses had a serious business dispute in the preceding twelve months, while the 2007 survey14 found 15% of businesses had experienced a serious business dispute in the preceding 3 years. This seems roughly consistent with national15 data from 2010 indicating that some 19% of small businesses had at least one serious dispute in the preceding five years. (This excluded retail lease disputes and business to government disputes).
Based on 500,000 small to medium sized businesses in Victoria, these survey estimates of 4% - 6% of businesses facing serious disputes each year put the total number of business disputes at around 20,000 – 30,000 per annum. In 2010/11, the VSBC received 458 general dispute applications from Victorian businesses – only around 2% of this available ‘market’. Even allowing for other dispute resolution jurisdictions for some of these disputes (eg. Ombudsman schemes), it would appear that the penetration of the VSBC into the ‘general business dispute’ space is remarkably small. Further, one third of the business disputes identified in the 2010 national survey were not progressed by the business due to concerns that the costs of escalation would be too high. This is a primary market for a no or low cost dispute resolution service, yet clearly has been largely untapped.
The communications objective for this segment and their advisers is geared toward increasing market share of these disputes, raising awareness of the services available, and emphasising the benefits of a mediated outcome, supplemented by low cost and quick processes.
Getting VSBC general business dispute services known by small and medium sized businesses is the key strategic communications challenge facing the Office. In early 2012 a strategic review supported by quantitative analysis, small business focus groups, business 13
Sensis 2004 Sensis 2007 15 ORIMA Research 2010 14
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interviews and stakeholder interviews was undertaken. The objective of the review was to enable the Office to capture a higher proportion of general business disputes through more effective, targeted communications.
A dominant finding of the review was a consistent sense of confusion and a negative orientation by small businesses towards dispute resolution. They have no clear understanding of the various ways in which a dispute can be dealt with (and there are many) or how to navigate the dispute resolution ‘system’. There is some caution about embarking on a process that could lead to unforeseen or uncontrolled outcomes. Confusion and negative expectations are consistent with a high percentage of serious disputes which do not progress or escalate due to expected high costs or other reasons.
In addition to continued promotion of the VSBC services targeting specific segments with more relevant communication messages, there is a role for the VSBC to provide information to businesses to address this confusion and uncertainty about the dispute resolution ‘system’ and the various options available to them. As an independent, Government established body focused on a fair and competitive operating environment for small business, this is an appropriate role for the Victorian Small Business Commissioner. The success of such a role will in turn lead to greater understanding of the dispute resolution services specifically provided by the VSBC – with the choice of approach left to the individual business according to its circumstances.
THE EMERGENCE OF OTHER SMALL BUSINESS COMMISSIONERS IN AUSTRALIA
The success of the Victorian Office has led in the past 12 months to the establishment of Small Business Commissioners in three other Australian States, a Business Commissioner in Queensland16, and confirmation of the intent to appoint a Small Business Commissioner at the national level. However, all are different to each other, and to the Victorian model.
16
On 24 March 2012, there was a change of Government in the State of Queensland. At time of writing, it is unclear what if any impact a new Government will have on the previously announced role of the Queensland Business Commissioner.
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Key variables highlighting the differences include:
Provision of dispute resolution services / mediation Policy development role Program delivery role Advocacy role Compliance and enforcement role Statutory independence Legislative coverage
Table 2 presents a view of these differences, although it should be noted that some legislation is still in development, and the meaning and application of some of these terms (e.g. advocacy) can be different in different jurisdictions. Table 2: Indicative differences between Commissioner roles by jurisdiction17 – Work in Progress Dispute Resolution
Policy
Advocacy** Compliance Enforcement ? √ (codes) (√)
Vic
√
NSW
√
√
√
WA
√
√
√
√
√
Qld SA
√
Cth
?
√
?
?
Program delivery
Statutory role √
?
√
√
√ X
√
√ (codes)
√
√
?
?
√ ?
?
** May have different meanings and implications in different jurisdictions
Differences across jurisdictions reflect a number of factors, including specific State-based issues and pre-existing organisational structures within each State. The differing roles and emphases of each jurisdiction’s Commissioner may present challenges to businesses which operate across State borders and their advisers, as they will 17
On 24 March 2012, there was a change of Government in the State of Queensland. At time of writing, it is unclear what if any impact a new Government will have on the previously announced role of the Queensland Business Commissioner.
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need to understand what each Commissioner does and doesn’t do in each jurisdiction. The ability for Commissioners to disseminate a common and consistent message may also be constrained by their different legislative mandates.
Notwithstanding their differential roles, a positive consequence of the emergence of many Small Business Commissioners in Australia is that the message of the existence of such roles is more likely to penetrate the small business sector in every jurisdiction.
The details of the proposed national Small Business Commissioner role have yet to be provided. Early information suggests the intent is to avoid duplication with State-based Commissioners (e.g. dispute resolution services), and provide a one-stop shop for small business to obtain information about available services, and to voice issues of concern to the Federal Government. The recent appointment of a Federal Small Business Minister to a Cabinet position, together with the commitment to appoint a Small Business Commissioner, reinforces the intent to ensure the interests of small business remain at the forefront of Government policy making.
The avoidance of duplication with State-based services is critical. The capacity for the national Small Business Commissioner to engage in disputes that State-based Commissioners are less well placed to deal with, for example, disputes with Commonwealth agencies, and major cross-border disputes, would also make sense.
The current State-based Commissioners met for the first time in December 2012, and intend to meet every two months for information exchange and identification of issues of mutual interest. The inclusion of the national Small Business Commissioner in this group will reinforce a strong small business focus across the nation, in stark contrast to the situation less than 12 months ago.
NEW CHALLENGES
Two issues that have arisen recently relate to: how mediators are appointed to mediations; and the introduction of new legislation which introduces elements of good faith into judgements of mediation outcomes.
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Appointment of mediators and achieving program success
All evaluations and surveys conducted to date confirm that the Office has been successful in its dispute resolution functions, often exceeding the expectations of customers. While the increasing success of pre-mediation dispute resolution outcomes undertaken by the Office is reflective of the skills of Office staff, the success of the mediations undertaken is based on the skills of the mediators used.
The approach adopted by the Office for engagement of mediators has been consistent since commencement – with one notable difference being the employment of an internal mediator as a member of staff in 2007. In contrast to many tribunal and court models which establish selected panels and provide a minimum level of work for everyone on the panel, the Office does not select mediators for a panel, but simply seeks Expressions of Interest to be on the External Mediator List, based on satisfying a few relevant criteria. The key differentiator is that there is no guarantee to any mediator on the List that they will be appointed to any mediation. This has enabled the Small Business Commissioner to maintain complete discretion in who is appointed to mediations, and how often. This, however, has given rise to some observations from mediators that others are appointed more often than they are.
The allocation process needs to be transparent, but the allocation of mediators to mediations is not about equal sharing of work between mediators. The VSBC has a government-set target of achieving aggregate mediation resolution rates of at least 75%, and the Office has averaged around 80% for the past eight years. It is a matter of simple arithmetic that to achieve an aggregate success rate of 80%, for every mediator with a success rate of less than 80%, a mediator with a counterveiling success rate above 80% needs to be appointed.
Of the 130 mediators on the External Mediator List, around 25 have been used over the past two years. Of those, there are a handful of mediators who have success rates over 80% based on a large number of mediations conducted for the VSBC, and a larger number with success rates in the 70-79% range. It is not surprising that the more successful mediators undertook more mediations than other mediators in 2011. By assigning mediations equally across the current regularly used mediators, the Office would have achieved an aggregate resolution rate of 72% compared with the 79% achieved in 2011.
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The challenge with this approach is how to find the next group of highly successful mediators. If there was a large group of mediators with 80%+ success rates, arguments of equity could be reconsidered. In the absence of this, the challenge is to balance the risk of appointing an untried or infrequently used mediator for a number of mediations with the overall program goal of an 80% success rate overall.
Examination of the cumulative success rates of mediators used by the VSBC at least 50 times suggests that it is only after 15 - 25 mediations that a ‘steady state’ success rate begins to emerge. After only a few mediations, a new mediator could have a success rate of 0% or 100% or anything in between, which is not a good indicator of likely long term performance. This raises difficult issues.
What leeway should be provided to new mediators before
forming a view on their likely long term success rates? As it could be hypothesised that one’s mediation skill improves with experience, how much performance improvement can be forecast for relatively new mediators?
There are criteria other than past success rates that influence appointments. Availability, qualifications, legislative expertise, compliance with administration requirements of the Office, flexibility to reschedule mediations when needed, willingness to travel, etc. all are taken into account in the appointment process. The approach of the parties to a dispute, and their representatives (if any) are also taken into account.
And feedback forms from
mediations provide another input to the process.
The approach adopted to date is to continue to rely heavily on the proven performers, providing more mediations to the more successful mediators, but committing to allocate some mediations to new / infrequently used mediators to enable them to demonstrate their potential to become a high-performing mediator. Ultimately it is a balance between achieving the aggregate success rate target and trying a few newer mediators. Regular monitoring and review of mediator success rates is now undertaken to manage this balance.
A mediation
policy reflecting these considerations has now been formalised and published on the VSBC website, ensuring transparency.
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Judging good faith in mediations
Legislation introduced in December 2011 requires Victorian creditors intending to enforce a farm debt to first offer the farmer mediation through the Victorian Small Business Commissioner.
This is based on legislation introduced in the State of New South Wales in 1994.
The key difference between the Victorian legislation (Farm Debt Mediation Act 2011) and the other pieces of legislation administered through the Victorian Small Business Commissioner is that it introduces the concept of ‘satisfactory mediation’. A settled mediation is deemed to be satisfactory, but so too is a mediation that doesn’t reach settlement ‘but has proceeded as far as it reasonably can’. Following a mediation that hasn’t reached settlement, the Small Business Commissioner must determine whether the mediation has been satisfactory or not on either party’s application. There are significant implications arising from this determination. If the mediation is determined to be satisfactory, or unsatisfactory due to the conduct of the farmer, the creditor can proceed to enforce the farm debt through Court action. If the mediation is determined not to be satisfactory due to the conduct of the creditor, the creditor is prevented from enforcing the farm debt for up to six months. A key criteria to determine ‘satisfactory mediation’ is whether either party has refused to mediate, which is defined to include failing to take part in the mediation in good faith. As the Commissioner does not participate in the mediations, the report of the mediator is critical to the judgement formed by the Commissioner as to whether the parties participated in good faith. In the case of the NSW Act, the mediator has statutory indemnity where the mediator has acted in good faith. In the Victorian Act, there is no statutory indemnity for the mediator, although the mediation agreement signed by the mediator and all parties to a mediation includes contractual protections for the mediator. So in Victoria, the Commissioner is dependent on the mediator’s report to form a view on whether parties have participated in the mediation in good faith, yet the mediator has lesser
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protections than exists in NSW. Only time will tell whether the lack of a statutory indemnity for mediators in Victoria under the Farm Debt Mediation Act 2011 leads to increased litigation risk against the Commissioner, or the mediator, compared with the situation in New South Wales.
CONCLUSIONS
This paper has explored the evolution of the role of the Victorian Small Business Commissioner since 2003 and argues that for a variety of reasons, the role has changed to become predominantly if not entirely focused on dispute resolution. The primary implications of this change are to ensure that expectations (of government, stakeholders, etc) are aligned to the new reality, and that future evaluations of the Office are reflective of this reality.
The policy objectives behind the Small Business Commissioner Act 2003 and other Acts which relate to dispute resolution are largely being achieved, while objectives relating to improved business-government relations and investigating unfair market practices have been to a large extent ‘crowded out’ by the predominance of the dispute resolution service imperative.
Office activity is analysed, and the trend to more disputes being resolved prior to mediation is contrasted with the structural budgetary constraints on growth in this activity. A new triage system to stream dispute applications is being piloted to achieve these objectives. Mediation success rates have been fairly consistent at around 80%, although there are slight differences across legislation.
The key strategic challenge facing the Office is to ensure businesses are aware of the services provided by the VSBC. Survey and other data demonstrate low ‘front of mind’ awareness of the VSBC by business. Informed awareness of the VSBC role will increase over time as businesses use the services of the VSBC. The major area of focus is those disputes which are not required by legislation to be referred to the VSBC. There appears to be a substantial opportunity for the VSBC to expand penetration into this ‘market’ through effective, targeted marketing and communications, as well as by providing information to small businesses to
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help them understand the dispute resolution ‘system’, and overcome some of the confusion and negativity small businesses feel when faced with a business dispute.
The recent emergence of Small Business Commissioners in other Australian States, and committed at the national level, is a very strong statement of Government support for small business across Australia, and is likely to lead to improved awareness by small businesses of the role of Commissioners generally. Each of the roles is somewhat different, however.
Recent challenges faced by the VSBC include the articulation of a policy for the appointment of mediators to provide a successful and sustainable mediation program, and the need to judge whether certain mediations have been conducted in ‘good faith’ when the Commissioner is not present at these mediations. --------------------------------------------------References: Essence, ‘Victorian Small Business Commissioner Resolution of Conflict report, November 2010 Ipsos Australia Pty Ltd for the Victorian Department of Justice, ‘Dispute Resolution in Victoria: Small Business Survey 2007’ August 2007. KPMG for Department of Innovation, Industry and Regional Development, ‘Evaluation of the Office of the Small Business Commissioner 2006. KPMG for Department of Innovation, Industry and Regional Development, ‘Evaluation of the Office of the Small Business Commissioner 2010. ORIMA Research, Department of Innovatino, Industry, Science and Research, ‘Small Business Dispute Resolution’, June 2010
Sensis Business Index Special Report for the Victorian Small Business Commissioner March 2004.
Sensis Market Intelligence Victorian Small Business Commissioner Mediation and Dispute Resolution survey report, September 2007. 33
APPENDIX 1 - MAXIMUM POTENTIAL BUSINESS CONTACT WITH VSBC
To validate the survey results from 2007 of business knowledge of the VSBC, dispute and non-dispute related contacts with the VSBC were considered, as shown in Table 3.
Table 3: Maximum potential party contact with VSBC from commencement to July 2007 No.
Parties
Potential
involved Maximum Business
% of small business sector18
Contacts Phone Calls
23,126
1
23,126
4.7%
Applications completed
2,221
2
4,442
0.9%
27,567
5.6%
Dispute related S.21 Certificates issued19
2371
2
4742
1.0%
S. 25 lodgements20
53,991
1
53,991
11.0%
Not dispute related
Total
maximum
12.0%
potential
17.6%
contact
If each contact with the VSBC was from a different party, an upper bound on party engagement with the VSBC regarding disputes is 5.6% of businesses. However, many phone calls will turn into applications, phone calls may be from the same party, many phone calls are made by solicitors, parties may not be small businesses, and (over four years) phone calls and applications may relate to different disputes from or relating to the same party. Also, not all phone calls will relate to a dispute – often a business is seeking information on their (or the other party’s) rights and obligations, which may not be considered as relating to a
18
Based on 490,000 small businesses in Victoria in 2007. Certificates issued to waive tenant rights for a minimum lease duration of 5 years to apply by statute. Both the landlord and the tenant are involved in the process. 20 The Retail Leases Act 2003 section 25 requires the landlord to lodge with the Commissioner details of new and renewed leases within 14 days of execution. 19
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‘dispute’. Arguably, the facts are not greatly inconsistent with survey data showing around 2% of small businesses had contacted the VSBC about a dispute.
Taking a broader view of contacts, Office activity levels suggest a maximum possible 17.6% of businesses had contacted the VSBC by July 2007 for any reason, compared with survey responses of 8.8%. Again, for reasons noted above and in the case of Section 25 RLA lodgements the reality that often the real estate agent or solicitor lodges lease details for multiple landlord clients, these results may not be inconsistent21.
21
Differences in survey results may also arise through different questionnaire methodologies, including question design.
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