The first word: The Federal Court's first judgment on "genuine steps", non-compliance and costs

Key Points:

The Federal Court will take non-compliance with the Civil Dispute Resolution Act into account when exercising its existing case management powers in relation to the proceedings, and also in exercising its discretion as to costs.

Justice Reeves has published the first substantive consideration of the "genuine steps" requirement under the Civil Dispute Resolution Act 2011 (Cth), and how that legislation fits within the Federal Court's previously existing powers, in Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282.

He emphasised that the small amount at stake and the approach adopted by the lawyers on both sides, coupled with the parties' shared failure to take "genuine steps", did not justify the use of the Court's resources in hearing the matter. The consequence was remedial action, and professional conduct reporting, against the lawyers on both sides.

So what happened?

The plaintiff Superior IP applied to the Federal Court to set aside a statutory demand for $10,796.33 served on it by one its former clients, Ahearn Fox, on the basis of a genuine dispute about the debt claimed.

Justice Reeves ultimately set aside the statutory demand on the basis that there was a genuine dispute in relation to $9,649.30 of the debt claimed, and the remaining debt of $1,057.03 fell below the statutory minimum.

In the course of doing so, however, he criticised the "more than 400 pages of affidavit material" which were largely irrelevant to the existence or otherwise of a genuine dispute about the debt and criticised the parties' lawyers directly, stating that the content of the affidavit material "reflected a complete lack of appreciation by the two lawyers concerned as to what it was they had to direct their minds to at the hearing of this application".

Judgment on costs and conduct

Justice Reeves' judgment on costs focused upon the parties' failure to take genuine steps to resolve their dispute as required under section 3 of the Civil Dispute Resolution Act, to file a genuine steps statement as required under sections 6 and 7 of the CDRA, or to observe and adhere to the duty imposed by sections 37N(1) and (2) of the Federal Court of Australia Act 1976 (Cth). He laid the blame for those failures squarely at the feet of the parties' lawyers.

Justice Reeves referred to the fact that at the commencement of the trial he had:

• adjourned to allow the parties an opportunity to resolve their dispute (consistently with the aim of the Civil Dispute Resolution Act which is to encourage parties to attempt settlement before filing proceedings in Court);
• directed the parties' lawyers to notify their respective client how much it would be charged in legal fees (it emerged that the total legal costs were likely to be twice the amount claimed in the statutory demand); and
• drawn to the attention of the lawyers the provisions of Part VB of the Federal Court of Australia Act and their duties to conduct the litigation having regard to the overarching purpose therein, "viz the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible".

It was to no avail. The hearing proceeded, with Justice Reeves observing that "bereft of any other means to force the lawyers and their clients to see some sense, I considered I had no option but to proceed to hear the matter".

Relevant to his consideration on costs was the fact that the trial consisted in large part of the lawyers making objections to the largely irrelevant affidavit evidence. The lawyers' conduct drew the following observation from him:

"It hardly needs to be said that what I have just described is the absolute antithesis of the overarching purpose of civil practice and procedure set out in section 37M of the Federal Court of Australia Act, viz the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. It is not overstating the matter to observe that this is the sort of conduct that brings the legal profession into disrepute, that significantly undermines the efficient disposal of civil litigation and that has the potential to erode public confidence in the administration of justice in this country."

Also relevant to his consideration was the failure of the lawyers to comply with their duty under section 9 of the CDRA to advise their clients of the need to take genuine steps and file a genuine steps statement, and to provide their respective client the necessary assistance in that regard.

Justice Reeves analysed the parties' Civil Dispute Resolution Act failures in the context of the costs consequences of their failure to observe the over-arching purpose provision of Part VB of the Federal Court of Australia Act. He specifically referred to the fact that section 13 of the Civil Dispute Resolution Act makes it clear that the powers under the Civil Dispute Resolution Act are in addition to the Court's powers provided under any other legislation.

Ultimately, Justice Reeves directed that the two lawyers concerned:

• be joined as parties to the proceedings on the question of costs; and
• provide a copy of his reasons to their respective client and advise their client to seek independent advice on the question of the costs of the proceedings.

Lastly, he directed the Registrar to provide a copy of his reasons to the Queensland Law Society, Bar Association of Queensland and the Legal Services Commission, to enable those bodies to take appropriate action in response to the lawyers' conduct.

The take-home message

This judgment makes it clear that the Court does, and will, have regard to whether or not parties and their lawyers have complied with the requirements of the Civil Dispute Resolution Act . Parties must take "genuine steps" to resolve their dispute and must file a genuine steps statement. Lawyers must observe and perform their obligation to advise and assist their client in this regard.

As this case demonstrates, the Court will take non-compliance with the Civil Dispute Resolution Act into account when exercising its existing case management powers in relation to the proceedings, and also in exercising its discretion as to costs. Consequences for non-compliance can include personal costs orders against lawyers and professional conduct reporting.

It should be noted that, at the time of printing this article, the actual costs orders have yet to be published in this matter.

You might also be interested in...

• Civil Dispute Resolution Bill - a genuine step towards more ADR?
• Genuine steps in the right direction? The Civil Dispute Resolution Act 2011

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.