Cost­ly con­se­quences of not tak­ing Gen­uine Steps

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In Brief

A recent deci­sion of the Fed­er­al Court of Aus­tralia sig­nals the impor­tance of par­ties to dis­putes and their legal rep­re­sen­ta­tives com­ply­ing with their oblig­a­tions under the Civ­il Dis­pute Res­o­lu­tion Act 2011 (Cth) (CDR Act).

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The case

The deci­sion, Supe­ri­or IP Inter­na­tion­al Pty Ltd v Ahearn Fox Patent and Trade Mark Attor­neys [2012] FCA 282, was hand­ed down by Jus­tice Reeves of the Fed­er­al Court of Aus­tralia on 23 March 2012.

The case con­cerned an appli­ca­tion under sec­tion 459G of the Cor­po­ra­tions Act 2001 (Cth) to set aside a statu­to­ry demand on the basis that there was a gen­uine dis­pute between the par­ties regard­ing the exis­tence of the debt to which the demand related.

The par­ty who brought the appli­ca­tion was ulti­mate­ly suc­cess­ful in its appli­ca­tion to have the demand set aside. Nor­mal­ly this would mean that the appli­cant would be enti­tled to an order that its costs be paid by the oth­er par­ty to the dis­pute. In this case, a fail­ure by the par­ties to com­ply with their oblig­a­tions under the CDR Act result­ed in a very dif­fer­ent outcome.

Gen­uine Steps requirements

The key require­ments under the CDR Act are that: 

• when a par­ty com­mences pro­ceed­ings in the Fed­er­al Court or Fed­er­al Mag­is­trates Court they must file with the court a gen­uine steps state­ment set­ting out either gen­uine steps that have been tak­en to seek to resolve the dis­pute, or the rea­sons why no such steps have been taken;
• if a respon­dent to pro­ceed­ings is giv­en a gen­uine steps state­ment, the respon­dent must file their own gen­uine steps state­ment in response, either stat­ing that they agree with the oth­er par­ty’s gen­uine steps state­ment, or explain­ing in what respects they dis­agree with it; and
• lawyers act­ing for a par­ty who is required to file a gen­uine steps state­ment under the Act must advise their client of the require­ment and assist them to com­ply with it.

Fail­ure to comply

Jus­tice Reeves not­ed that, con­trary to their oblig­a­tions under the CDR Act:

• the par­ties had not filed a gen­uine steps statement;
• the lawyers act­ing for the par­ties had not com­plied with their duty to advise their clients of the require­ment that they file a gen­uine steps state­ment and assist them to com­ply with that requirement.

Under the CDR Act the poten­tial con­se­quences of not fil­ing a gen­uine steps state­ment and not tak­ing gen­uine steps to resolve a dis­pute are that a court may take such actions into account in:

• per­form­ing any func­tion or exer­cis­ing any pow­ers in rela­tion to a pro­ceed­ing; and
• exer­cis­ing its dis­cre­tion to award costs.

Fur­ther­more, when exer­cis­ing its dis­cre­tion to award costs a court may take into account any fail­ure by a lawyer to com­ply with their oblig­a­tion to advise and assist their client in rela­tion to the require­ments of the Act. If a lawyer is ordered to bear costs of pro­ceed­ings per­son­al­ly, the Act pro­hibits the lawyer from recov­er­ing those costs from their client.

In addi­tion to the par­ties’ fail­ure to com­ply with the CDR Act, Jus­tice Reeves found that the way in which the case had been con­duct­ed, includ­ing reliance upon volu­mi­nous affi­davit mate­r­i­al which he con­sid­ered to be irrel­e­vant to the case, amount­ed to ​“the absolute antithe­sis of the over­ar­ch­ing pur­pose” of achiev­ing just res­o­lu­tion of dis­putes ​“as quick­ly, inex­pen­sive­ly and effi­cient­ly as pos­si­ble”. This over­ar­ch­ing pur­pose is set out in out in the Fed­er­al Court of Aus­tralia Act 1976 (Cth) (FCA Act).

The outcome

Jus­tice Reeves stat­ed that, hav­ing put the par­ties and their lawyers on notice that he intend­ed to have regard to the require­ments of the CDR Act and FCA Act he would give them an oppor­tu­ni­ty to make sub­mis­sions as to how he should deal with the issue of costs. Then, in a clear indi­ca­tion that the lawyers act­ing in the case might be held per­son­al­ly liable for the costs incurred by their clients in the pro­ceed­ings, Jus­tice Reeves direct­ed that the lawyers act­ing for each party:

1. pro­vide a copy of his judg­ment to their client and advise their client to seek inde­pen­dent legal advice on the ques­tion of costs; and
2. be joined as par­ties to the pro­ceed­ings for the pur­pose of deter­min­ing the ques­tion of costs.

He also stat­ed that he intend­ed to direct the Reg­is­trar of the Court to pro­vide a copy of his rea­sons for judg­ment to the Queens­land Law Soci­ety, the Bar Asso­ci­a­tion of Queens­land and the Legal Ser­vices Com­mis­sion to enable those bod­ies to take what­ev­er action they con­sid­er appro­pri­ate in respect of the lawyers involved in the case.

Conclusion

In cir­cum­stances where the CDR Act applies, its require­ments are manda­to­ry and a fail­ure to com­ply with it will be rel­e­vant to the deci­sions the court makes about the pro­ceed­ings and the costs incurred by the par­ties in rela­tion to them. As this deci­sion illus­trates, it is extreme­ly impor­tant that par­ties to dis­putes and the lawyers act­ing for them pay close atten­tion to their oblig­a­tions under the CDR Act.

For fur­ther details about the leg­is­la­tion please see our guide to the CDR Act.