Australian Federal Court rules on compliance with “genuine steps” requirement

The Federal Court of Australia has for the first time ruled on the requirement to take “genuine steps” to resolve a dispute under the Civil Dispute Resolution Act 2011 (Cth) (the Act): Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282. The lawyers for both parties failed to file a genuine steps statement, and also failed to inform their clients that they were under an obligation to comply with this requirement. In his judgment, Reeves J described the conduct of the parties as “the antithesis of the overarching purpose of civil practice and procedure.” As a result, Reeves J joined the lawyers as party to the proceedings for the determination of costs but stopped short of imposing personal costs orders on the lawyers on the basis that the respective clients had rejected the opportunity to seek to recover their costs. Michael Mills and Lauren Whitehead in our Sydney office explore the case and its implications.

Michael Mills
Michael Mills
Partner, dispute resolution, Sydney
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+61 2 9225 5788
Lauren Whitehead
Lauren Whitehead
Solicitor, dispute resolution, Sydney
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+61 2 9322 4168

 

Background

Under the Act, before litigation commences, an applicant must file a statement which states what steps have been taken to resolve the dispute or provide reasons why no such steps have been taken (called a “genuine steps statement”) (section 6). The respondent who is given a copy of the applicant’s genuine steps statement must then file a genuine steps statement in response before the specified hearing date. The respondent’s genuine steps statement must either agree with the applicant’s genuine steps statement or provide reasons why it disagrees and which steps the respondent disagrees with (section 7).  

The Act does not mandate the pre-action or genuine steps that must be taken by litigants. It simply obliges potential litigants to sincerely and genuinely attempt to resolve disputes, having regard to the circumstances and nature of their dispute.  Section 4 of the Act does provide some examples of what could constitute a ‘genuine step’, including:

  • notifying the other person of what is primarily at issue and offering to discuss them with a view to resolving the dispute
  • providing relevant information and documents to the other person to enable the other person to understand the issues involved and how the dispute might be resolved
  • considering whether the dispute could be resolved by a process facilitated by another person, including an alternative dispute resolution process (and if such a process is conducted but does not result in resolution of the dispute, considering a different process) or
  • attempting to negotiate with the other person, with a view to resolving some or all the issues in dispute, or authorising a representative to do so

There is also an obligation on lawyers to inform their clients of the requirement to file such a statement (and thus, attempt genuine steps).

Facts

In the Superior IP case, the lawyers for both parties failed to file a genuine steps statement and also failed to inform their clients that they were under an obligation to comply with this requirement. The court put the parties on notice that because of their failure to comply, the court could have regard to the relevant sections of the Act and the Federal Court of Australia Act 1976 (Cth) (FCA) when awarding costs (section 12(2) of the Act and 37N of the FCA).

Decision on genuine steps requirement

In his judgment, Justice Reeves described the conduct of the parties as “the antithesis of the overarching purpose of civil practice and procedure”. Both parties failed to file a genuine steps statement and neither had taken any steps to attempt to resolve the dispute, or even to narrow some of the issues in dispute. The adversarial attitude of the parties’ lawyers meant that any suggestions to attempt to resolve the dispute were ignored. The lawyers had completely failed to undertake any steps, let alone steps that could be considered as “genuine” attempts to resolve the dispute. As a result, Reeves J joined the lawyers as party to the proceedings for the determination of costs and directed that each lawyer to provide a copy of his reasons to their respective clients and advise them to seek independent legal advice on the question of costs. Furthermore, Reeves J’s decision was forwarded to the Queensland Law Society, the Bar Association of Queensland and the Legal Services Commission, inviting them to take action against the lawyers.

Decision on costs

The lawyers complied with the above directions and the costs issue was subsequently heard before Reeves J in Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys No. 2 [2012] FCA 977. Justice Reeves’s only costs order was that the defendant pay the plaintiff an amount equivalent to the filing fee. His Honour stopped short of imposing personal costs orders on the lawyers on the basis that the respective clients had rejected the opportunity to seek to recover their costs.

Comment

This case poses interesting points for the practitioner and is a lesson in what not to do. However, although filing a genuine steps statement is a mandatory requirement imposed by the Act, there is still great uncertainty as to what the court will consider, in a substantive sense, a genuine step.

It is noteworthy that Superior IP was under an obligation to file a genuine steps statement in accordance with the Act at the time it filed its application (and to have undertaken those genuine steps before initiating proceedings).  The solicitor for the defendant was successful in identifying that Reeves J had at first instance failed to identify that the Act imposes no obligation on a defendant to file a genuine steps statement if the plaintiff has neglected to comply with its obligation to do so under section 6 of the Act. The court stated that it could not ignore the fact that Superior IP had breached its obligations under the Act, noting however that the court still had discretion as to whether to take into account a failure to comply with these obligations when considering an award for costs (see section 12 of the Act).

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Filed under ADR, Australia, Costs, Intellectual Property, Mediation (General)

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