Summary Report

Department of Innovation, Industry, Science and Research

Industry and Small Business Policy Division

— Small Business Dispute Resolution —

June 2010

A.	

Table of Contents

I.	Introduction
A.	Background
B.	Research Objectives
C.	Methodology
II.	Survey Findings
A.	The Incidence of Dispute Experienced by Small Businesses
Incidence of disputes by industry sector
Incidence of disputes by business characteristics
Incidence of disputes by location
B.	Characteristics of disputes
Parties involved
Current status of the dispute
Issues that the disagreement(s) encompass
Cost of the dispute
C.	Dispute resolution mechanisms used
Third Parties that were approached
Use and satisfaction with Government services
Awareness and Understanding of Alternative Dispute Resolution mechanism
D.	Satisfaction with available dispute resolution mechanisms
E.	Perceived gaps in dispute resolution mechanisms
Analysis of unmet demand
Satisfaction with available mechanisms
Perceived gaps by revenue
Perceived gaps by size and length of operations
Perceived gaps by location of the business
F.	Demographic Profile
G.	Appendices

Appendix A - Questionnaire

Appendix B – Frequency Results

Appendix C – Results by Industry

Appendix D – Results by State

Appendix E – Results by Revenue

Appendix F – Results by Business Age

Appendix G – Results by Business Size

Appendix H – Results by Role

Appendix I – Results by Region

Appendix J – Results by Gender

Appendix K – Open-ended Responses

Appendix L – Selected Additional Cross-tabulations

I.	Introduction
A.	Background
The Department of Innovation, Industry, Science and Research (DIISR) was investigating the extent to which there is an unmet demand for dispute resolution processes by small business.
Specifically, the research was to focus on disputes between these small businesses and other, Australian-based businesses – as opposed to disputes between small businesses and government, employees, or other parties.  
ORIMA Research was contracted to conduct this research in May 2010.
This report presents the results of the research.
B.	Research Objectives
The objectives of the research were to:
•	gauge the incidence of disputes experienced by the small business community in Australia;
•	gauge if such disputes are concentrated in specific industry sectors;
•	identify the common issues and themes that characterise these disputes;
•	identify the range of mechanisms currently being used to resolve the disputes;
•	assess whether there is an unmet demand for dispute resolution processes by small business;
•	gauge the current awareness and understanding of Alternative Dispute Resolution solutions;
•	gauge the cost on a business of managing disputes (where there is a dispute in progress or in the recent past);
•	measure the proportion of businesses that had sought (or would have liked to have had) support in resolving a dispute with another business thus to gauge the proportion of businesses who were not able to find appropriate support.
C.	Methodology
Research Design
The methodology contains three major components:
•	Desk research (into the range of dispute resolution mechanisms available, conducted by the DIISR prior to the main body of the research);
•	In-depth qualitative interviews – specifically targeted at business stakeholders who may be in a position to provide high level insights about the use of dispute resolution processes including mediation (e.g. accountants, solicitors and a small number of small businesses); and
•	A telephone survey – representative of the small business community, enabling reliable statistical extrapolations.

Questionnaire Development
The questionnaire was drafted based on findings from the desk research and in-depth interviews and further developed through a two-hour questionnaire development workshop, for which the draft questionnaire will form a basis, with the DIISR project team.

Survey Administration
Interviews were conducted by ORIMA Research’s fieldwork partner (Lighthouse Data Collection), using a Computer Assisted Telephone Interview (CATI) system.
Sample was drawn from Yellow Pages business listings.
Fieldwork was split into two components, as shown in the table below:
•	A preliminary “pilot” phase tested the workability of the questionnaire and provided an indication of the incidence of businesses that had recently (in the past 5 years) experienced a dispute with another Australian business.
•	A second phase was then conducted, with sample drawn so as to allow for approximately 300 interviews with businesses that had recently experienced a dispute with another Australian business.

Stage	Fieldwork dates	Businesses with serious disputes
(longer survey)	Businesses with no serious disputes
(shorter survey)	Total interviews	
Stage 1	10-14 May 2010	50	238	288	
Stage 2	20 May to 1 June 2010	254	1,465	1,719	
Totals	304	1,703	2,007	

II.	
Survey Findings
A.	The Incidence of Dispute Experienced by Small Businesses
Overall, slightly fewer than one in five of those Australian small businesses surveyed had experienced a disagreement or dispute of some kind over the past five years. The nature or seriousness of these disputes varied considerably across businesses, ranging from being (see Figure 1):
•	routine and minor, not something to worry about (1.5%)
•	potentially serious but easily resolved without escalation (2.3%);
•	potentially serious but avoided escalation due to potential costs (6.6%);
•	serious enough to consider utilising third-party intervention but did not actually do so (2.0%); 
•	of a nature that required intervention by a third party or self-representation in formal proceedings (1.8%); to
•	serious enough to result in legal action being taken by either business involved in the dispute (4.6%).
Just less than 1% of businesses had experienced disputes with overseas businesses or in regards to franchising or retail tenancy. These disputes are not considered within the scope of this research and will not be reported on further. 
80% of respondents noted that they had not experienced a dispute or disagreement in the last five years. 

Figure 1:Incidence of different types of disputes
(Base: all respondents, n=2007)	

Incidence of disputes by industry sector
The incidence and seriousness of disputes experienced varied across industry sectors. As can be seen in Figure 2, the small businesses that were more likely to have disputes where they needed to take legal action or involved third party intervention tended to be concentrated in the following sectors:
•	Mining (17%); 
•	Wholesale trade (17%); 
•	Electricity, gas, water and waste services (13%); and
•	Construction (12%). 
The sectors least likely to have any kind of dispute (including those that were easily resolved) were the:
•	Health care and social assistance (12% disputes overall); and
•	Public administration and safety sectors (14% disputes overall). 

The spread of types of disputes also varied across industries. For example, the mining industry had the highest percentage of disputes that were easily resolved (8%), followed by education and training (5%). 
In contrast, public administration and safety (14%) had the highest level of disputes for which third party intervention was considered, followed by construction (10%). 

Figure 2: Nature of the Most Serious Dispute by Industry Sector
(Base: all respondents, n=2007)	

Incidence of disputes by business characteristics
The level of self-reported business revenue of the respondents had a relatively linear relationship with the incidence of disputes and their seriousness (as seen in Figure 3):
•	Those businesses whose revenue was over $1 million were considerably more likely (18% average) than those of a lower revenue bracket (6% average) to have experienced disputes where they had at least considered third part intervention (or had actually undertaken such intervention). 
•	Businesses that fell into the $200,000-$500,000 revenue bracket were most likely to have experienced a potentially serious dispute where they avoided escalation due to the potential cost (10%). 
•	Businesses that fell into the $150,000-$200,000 revenue bracket were least likely to have had any kind of dispute (11% disputes overall, including those that were easily resolved). 

Figure 3: Nature of the most serious dispute by business revenue
(Base: all respondents, n=2007)	

As can be seen in Figure 4, when examining the relationship between the length of time the business had been operating and the type of disputes the respondent had experienced, there was very little differentiation, other than the following: 
•	Businesses younger than 5 years old were least likely to have considered third party intervention at all, with only 5% of them having involved a third party or taken legal action. 
•	These businesses were also the most likely to have avoided dispute escalation due to the potential cost of such an action (10%).

Figure 4: Nature of the most serious dispute by business age
(Base: all respondents, n=2007)	

In comparison, when examining this relationship by the size of the business (see Figure 5), there was some differentiation: 
•	Businesses with between 6 and 19 employees were the most likely to have experienced a dispute where they took legal action or utilised a third party intervention (12%);
•	These businesses were also most likely to have experienced disputes overall, with 28% having experienced a dispute of some kind (including routine and easily resolved disagreements). 
•	Sole traders and those with only one other employee were the least likely to have experienced a dispute, and were proportionally more likely to have avoided a dispute due to the potential cost of such an action.

Figure 5: Nature of the most serious dispute by business size
(Base: all respondents, n=2007)	

Incidence of disputes by location
Two indications of location were collected from respondents. The first was the respondents’ State or Territory; and at first glance it appears to have significant differentiation in terms of the incidence and nature of the disputes experienced, as seen in Figure 6. 
•	However, these results must be interpreted with caution, given the small numbers of businesses sampled in the Australian Capital Territory and the Northern Territory (for example, only four people in the ACT noted that they had utilised legal or third party intervention).
It is interesting, nonetheless to examine these results: 
•	Businesses in Western Australia (11%) and South Australia (10%) were more likely to have avoided escalation due to the potential cost. 
•	Businesses in Tasmania were the most likely, outside of the ACT, to have experienced a dispute that required legal action or third party intervention (11%). 
•	Businesses in the NT (8%) and Queensland (5%) were most likely to have had disputes that were easy to resolve.

Figure 6: Nature of the most serious dispute by State/Territory
(Base: all respondents, n=2007)	

The second indicator of location collected in the survey was whether respondents were based in metropolitan, regional, or remote areas. As can be seen in Figure 7, there is little difference between the businesses in metropolitan versus regional and remote areas.
•	Businesses in regional and remote areas were slightly more likely to have experienced any kind of dispute (22%) as opposed to those in metropolitan areas (18%). 

Figure 7: Nature of the most serious dispute by region type
(Base: all respondents, n=2007)	

A.	
B.	Characteristics of disputes
Parties involved
Of the 9% of businesses who had experienced a dispute where they had taken legal action, involved a third party, or considered such action (henceforth referred to as a ‘serious’ dispute), the majority identified that the counterpart to the dispute was a client or business customer (54%). 
•	33% noted that it was a supplier for their business;
•	5% said that it was a business partner or associate; and 
•	4% said that it was a competitor. 
4% of respondents noted that it was someone else, including subcontractors or other parties, such as the bank or a body corporate. 

Current status of the dispute
Of the 19% of businesses who had experienced any kind of dispute (including routine and minor disputes), 35% overall noted that they had avoided escalation of the disagreement due to the potential cost of such an action.  A further 20% explained that their most serious recent dispute had been easily resolved or was routine and minor. 
Those who had experienced a serious disagreement (45% of businesses who had experienced a dispute, 9% of all businesses) were somewhat more spread out in terms of their current status:
•	17% were ongoing;
•	7% were resolved to the satisfaction of both parties;
•	9% were resolved to the respondents’ satisfaction; and 
•	12% were completed, but not to the respondents’ satisfaction. 

Issues that the disagreement(s) encompass
The 9% of respondents who had experienced a serious disagreement (that necessitated use of a third party or legal action, or consideration of such action) were asked to classify the types of issues that the disagreement had encompassed. 
•	65% indicated that it had been a disagreement over payment for goods or services; 
•	30% indicated that it was over other contractual obligations (excluding payment, retail tenancy and franchising issues); and 
•	7% indicated that it was another issue. 
Responses to further inquiry about the types of issues these might entail revealed a number of issues, including the following: 
•	A client had been unable to pay the bill (45%);
•	Respondents had had disagreements with their suppliers in regards to the quality of the goods or services provided (27%);
•	An agreement of some kind (whether formal or informal) had been broken or contravened (20%);
•	Respondents had been charged erroneously by suppliers (14%);
•	The respondent’s client had been unhappy with their product or service (10%); and
•	A client had been unable to pay their bill due to bankruptcy or liquidation (9%). 

Cost of the dispute 
Respondents who had experienced a dispute were asked to estimate their out-of-pocket expenses for their most serious dispute in the last five years, as well as their lost business opportunity and other costs. 
The out-of-pocket costs ranged from $0 (6%) to $ 160,000 (1%). The costs were relatively evenly spread.  50% of respondents indicated that their out-of-pocket expenses had been $2,000 or less. 
Figure 8 explores the relationship between the disclosed out-of-pocket expenses and other costs that respondents felt their business had suffered as a result of the dispute they had experienced. 
•	The figure shows that out-of-pocket costs were indicated over a smaller range than ‘other’ costs. However, in both cases the vast majority (around 90%) of costs were clustered below $50,000.
•	Generally respondents’ ‘other’ costs were considered to be larger than their actual out-of-pocket expenses were for the dispute. 

Figure 8: Typical cost of disputes 
(Base: Respondents who had had a serious dispute and the dispute was finalised, n=106)	

The findings show that there was some variability in out-of-pocket expenses by State. The following values show the median out-of-pocket expenses in each State. An analysis of the median values by State showed that South Australia had significantly higher out-of-pocket expenses than Queensland.
The median values indicate that 50% of respondents in the following States had out-of-pocket expenses equal to or less than the following:
•	South Australia (n=11): $6,000
•	New South Wales (n=31): $2,500
•	Victoria (n=28): $1,000
•	Western Australia (n=13): $1,500
•	Queensland (n=14): $500. 
The ACT, Tasmania and the NT are not included here due to very small sample sizes. 

A similar analysis was performed in terms of revenue of the business. In this case, there seems to be a linear relationship, such that businesses with higher revenue generally disclosed higher out-of-pocket expenses for their most serious dispute in the last five years. 
Median out-of-pocket expenses by revenue are as follows: 
•	$200,000 to less than $500,000 (n=14): $1,000
•	$500,000 to less than $1 million (n=17):$1,300
•	$1 million to less than $2 million (n=27): $2,500
•	$2 million or more (n=24): $5,000. 
C.	Dispute resolution mechanisms used
Third Parties that were approached
Figure 9 identifies the range of third parties approached by the 6% of all respondents who had experienced a dispute and approached a third party to help resolve the matter.  The main third parties approached were lawyers, industry associations and/or debt collectors.  Dealings with lawyers ranged from simply seeking advice through to proceeding with or defending legal action: 
Of those respondents who underwent legal proceedings, 26% had their case heard in court. 

Figure 9: Use of third party dispute resolution support
(Base: Respondents who had a dispute and sought 3rd Party support n=131)	

Across states, there were similar patterns of use of third parties, with legal advice and initiation of legal proceedings being the two most popular for all states. The one exception was Tasmania, where they were likely to have approached a lawyer for advice (33%) or to have represented themselves in front of a court or tribunal (33%; bearing in mind that only 6 respondents answered this question). 

 Use and satisfaction with Government services
15% of all businesses had serious or potentially serious disputes (they utilised third party or legal support, considered it, or avoided escalation due to the potential cost of disputes). These businesses were asked whether they had used government information sources to help in resolving their dispute.
Table 1 summarises the use of government phone hotline or website services among these respondents (n=304).

Table 1: Use of Government Support Services
Base: Respondents who utilised third party or legal support, considered it, or avoided escalation due to the potential cost of dispute (n=304)	
Level of Government	Hotline	Website	Total (hotline or website)	
Australian Government	2%	3%	4%	
State Government	5%	7%	10%	
Government (cannot recall which)	2%	6%	6%	
Total Government	10%	15%	19%	

Of the businesses that had utilised Government services, 43% felt that the information or guidance that was provided was helpful in resolving the dispute. 
57% of the businesses that had used Government services were satisfied with the quality of the information or guidance provided. 
When examining the helpfulness of the information and satisfaction with the quality of the information by State or Territory (interpreting with caution given the very small sample of businesses being used):
•	South Australia seems to be the least satisfied, with 25% of these respondents strongly disagreeing that the information was helpful, and 27% being very dissatisfied with the quality of the guidance
•	NSW was the most satisfied, with 73% agreeing or strongly agreeing that the information was useful, and being satisfied with the quality of the guidance. 

Awareness and Understanding of Alternative Dispute Resolution mechanism
As can be seen in Figure 10, of the 15% of all businesses (80% of all disputes) that had serious or potentially serious disputes:
•	45% indicated that they were mostly or fully aware of the role played by mediators;
•	43% were mostly or fully aware of the services offered by arbitrators; and
•	33% indicated that they were mostly or fully aware of the role played by conciliators.
Awareness and understanding levels were the lowest for the role of conciliators, with 33% of these respondents not having heard of them, and a further 34% having heard of them, but lacking much understanding.

Figure 10: Awareness of alternative dispute resolution mechanisms
(Base: Respondents who had a serious or potentially serious dispute; n=304)	

A.	
D.	Satisfaction with available dispute resolution mechanisms
Of the 9% of respondents who had engaged or seriously considered engaging the services of a third party (43% of all businesses who had encountered disagreements), 44% indicated that they were satisfied that the dispute resolution mechanisms available to them provided them with the best opportunity to resolve the matter. As can be seen in Figure 11:
•	46% of these respondents were satisfied with the range of dispute resolution mechanisms available to them;
•	43% were satisfied with the cost of engaging the services of a third party; and 
•	73% were satisfied with the quality of advice available on how to resolve the dispute. 

Figure 11: Satisfaction with aspects of the dispute resolution process
(Base: Respondents who had a serious dispute; n=171)	

Respondents who had participated in a voluntary dispute resolution process with some sort of professional facilitator (i.e. a mediator, conciliator or arbitrator) were most likely to be satisfied that the range of dispute resolution mechanisms available provided them with the best chance for resolution (see Figure 12).
•	77% of respondents who had approached a mediator, conciliator or arbitrator were satisfied overall with dispute resolution mechanisms available (with just 8% dissatisfied).
•	Unsurprisingly, respondents who sought legal assistance due to proceedings being brought against them were least likely to be satisfied with the range of dispute resolution mechanisms available (10% satisfied, 50% dissatisfied).
High levels of dissatisfaction with the helpfulness of dispute resolution mechanisms available were recorded among all groups of respondents who had sought assistance from a lawyer – whether for legal advice (36%), to initiate proceedings (44%) or in response to proceedings initiated against them (50%).

Figure 12: Satisfaction with dispute resolution process by supports used
(Base: Respondents who indicated they had used each mechanism)	

As shown in Figure 13, respondents who had participated in a voluntary dispute resolution process with a mediator, conciliator or arbitrator were also most likely to be satisfied with the range of mechanisms available to them (70%) and the cost of engaging a third part (60%).
•	Over three-quarters of this group (77%) were also satisfied with the quality of advice available, although satisfaction with this measure was comparably high among all groups of respondents.

Figure 13: Satisfaction with aspects of the dispute resolution process by type of support utilised
(Base: Respondents who indicated they had used each mechanism – % satisfied)	

A.	
E.	Perceived gaps in dispute resolution mechanisms
Analysis of unmet demand
To establish if there was any unmet demand for dispute resolution support, we combined respondents’ satisfaction with available mechanisms with whether they felt that other mechanisms should have been available. 
We defined unmet demand as being present when respondents were dissatisfied with the available mechanisms to resolve the matter and they felt that there should have been other mechanisms available to assist them in resolving their dispute. 
The findings, as can be seen in Table 2, show that:
•	0.9% of all businesses (or 6% of business that had a serious dispute) can be classified as having unmet demand; 
•	3% of all business (or 19% of those that had a serious dispute) felt their demand was partly met; and
•	11% of all businesses (or 75% of those that had a serious dispute) had fully met demand. 

Table 2: Analysis of unmet demand for dispute resolution mechanisms.
(Base: all respondents, n=2007)	
		Satisfaction with available mechanisms	Avoided dispute escalation	No serious disputes	
		Satisfied	Neither satisfied nor dissatisfied	Dissatisfied			
Whether respondent felt that more mechanisms are needed.	Yes	0.6%
(fully met)	0.4%
(partly met)	0.9%
(unmet)	0.6%
(partly met)	84.9%	
	No	2.8%
(fully met)	1.9%
(fully met)	1.8%
(partly met)	6.0%
(fully met)		

Further analysis of the characteristics of the three groups of respondents (unmet demand, partly met and fully met groups) highlighted some notable differences in relation to the status of the matter in dispute (see figure below).
The majority of respondents in the unmet demand group (63%) had a dispute that was resolved, but not to their satisfaction.  Furthermore, one in three businesses in this segment (32%) had a matter that was ‘ongoing’ (not yet resolved). 
Respondents in the partly met demand group were more likely to have a matter that was ‘ongoing’ -  although a significant minority (36%) were also dissatisfied with the outcome of the resolution process.
In contrast, respondents in the fully met demand group were much more likely to have had the matter resolved to their satisfaction (or to the satisfaction of both parties).  Although, there were respondents in this group who had matters that were ongoing (36%) or resolved but not to their satisfaction (15%).

Figure 14: Demand status by dispute outcome status
(Base: Respondents that had a serious dispute and attempted to address the matter)	

Perceived gaps by industry 
There were some differences in terms of whether respondents felt there was unmet demand when examining the characteristics of the respondents’ businesses. 
Firstly, as can be seen in Figure 15, the highest levels of purely unmet demand were centred in the following industries:
•	Electricity, gas, water and waste services (3%);
•	Wholesale trade (3%); and 
•	Renting, hiring and real estate services (3%). 
Comparatively, the highest levels of partially met demand were concentrated in mining (8%), construction (7%) and electricity, gas, water and waste services (6%). 

Figure 15: Demand for other mechanisms that were not available (by industry)
(Base: all respondents, n=2007)	

Perceived gaps by revenue 
When examining the demand for dispute resolution mechanisms by the revenue of the business involved, there is a relatively linear relationship between unmet and partially met demand and revenue that mirrors the relationship between number of disputes and revenue. 
As seen in Figure 16, the businesses with higher levels of revenue were more likely to have experienced more disputes, but they were also more likely to feel that the available dispute resolution mechanisms weren’t completely satisfactory. 
The exception to this pattern is most obvious for businesses with revenue of $2 million or more – they were the most likely to experience a dispute (see also Figure 3) but only had 0.5% of unmet demand (and 6% of partially met demand). 
•	Comparatively, businesses with revenue between $1 and $2 million had a similar number of disputes but had unmet demand of 3% (and 5% of partially met demand). 

Figure 16: Demand for other mechanisms that were not available (by revenue)
(Base: all respondents, n=2007)	

Perceived gaps by size and length of operations 
When examining the demand for business dispute resolution mechanisms by the length of time the business had been in operation, there was very little differentiation (the levels of unmet demand ranged from 0.7% to 1.3%). 
When the size of the business was examined (see Figure 17), there was slightly more differentiation. 
•	Businesses with 2 employees total were the least likely to have unmet demand (0.4%). 
•	Businesses with between 6 and 19 employees total were most likely to have unmet demand (1.6%). 

Figure 17: Demand for other mechanisms that were not available (by business size)
(Base: all respondents, n=2007)	

Perceived gaps by location of the business 
There was very little difference when examining the demand for dispute resolution mechanisms by type of region (i.e. metropolitan vs. regional/remote) and for this reason it is not explored here. 
In comparison, there were some differences when examining the data by the respondents’ State or Territory. 
The ACT was most likely to record a higher incidence of perceived unmet demand (4%); however, given the small sample size, caution needs to be exercised in interpreting this finding. 
•	South Australia had the highest level of unmet demand (1.8%), followed by Western Australia (1%). 

Figure 18: Demand for other mechanisms that were not available (by State/Territory)
(Base: all respondents, n=2007)	

Perceived gaps by number of disagreements
Perceived unmet demand was higher among businesses indicating they had had more than one disagreement with another business in the past five years (6%) than among businesses indicating only one disagreement (3%).

F.	Demographic Profile
The businesses interviewed comprised:
•	32% businesses in NSW, 27% in Victoria, 19% in Queensland, 10% in Western Australia, 8% in South Australia, 3% in Tasmania, 1% in the ACT and 1% in the Northern Territory;
•	a wide range of businesses from different industries, but most commonly retail trade (24%), health care and social assistance (14%), manufacturing (8%); accommodation and food services (8%) and construction (7%);
•	2% businesses that have been in operation less than 1 year, 5% for 1-3 years, 6% for 3-5 years, 17% for 5-10 years , 15% for 10-15 years, and 55% for over 15 years;
•	a majority (58%) consisting of no more than 3 employees, counting the owner (23% sole traders, 22% with 2 people in total, 13% with 3 people in total);
•	a range of revenue brackets ranging from under $25,000 to over $5 million, with the bulk of businesses falling into $200,000 to less than $500,000 range (20%), the $500,000 to less than $1 million range (20%), or the $1 million to less than $2 million range (17%).  
Figure 19 and Figure 20 show a comparison of the sample of 2,007 businesses interviewed with ABS data for all businesses in Australia.

Figure 19: Comparison between sample and population (ABS, 2007) for revenue levels
(Base: all respondents, n=2007)	

Figure 20: Comparison between sample and population (ABS, 2007) for State
(Base: all respondents, n=2007)	

G.	Appendices