This case [1] is the first example of how the failure to file a “Genuine Steps Statement” at the commencement of Federal Court proceedings may have disastrous results for lawyers.
A firm of patent attorneys, Ahearn Fox, issued a Creditor’s Statutory Demand to a client, Superior IP, for unpaid fees totaling the grand sum of $10,706.33. Superior IP disputed the invoices, and so immediately filed an application in the Federal Court to set the Demand aside. Its lawyers did not file (or even consider) a genuine steps statement. Between them, the parties then proceeded to file over 450 pages of affidavit material, and undertake a full day’s hearing to end up with the inevitable result: that there was a genuine dispute regarding the debt, and the Superior IP’s application was successful. What they may not have expected was the cost and other consequences.
Genuine Steps Statement
The Civil Dispute Resolution Act (the Act) was introduced in 2011, and applies to all Commonwealth Courts and almost all civil litigation before them. Section 6 of the Act requires that:
An applicant who institutes civil proceedings in an eligible court must file a genuine steps statement at the time of filing the application.
A respondent also has to file a genuine steps statement before the hearing date where it has received one from an applicant [2].
Reeves J. (sitting in the Federal Court in Queensland) noted that proceedings to set aside a Statutory Demand were not “excluded proceedings”, and so Superior IP was obliged to have filed a genuine steps statement prior to commencing these proceedings. His Honour noted that winding up proceedings themselves are excluded proceedings (it’s good to be a creditor sometimes).
A lawyer is under a duty to inform a client regarding the client’s obligation to file a genuine steps statement, and advise on how to do so [3].
Section 12 of the Act provides for broad cost discretion in the hands of the presiding officer, including making personal costs orders against any offending lawyer.
So what could Superior IP have done before issuing the proceedings, given the limited 21-day time frame provided for in the Corporations Act and authorities such as David Grant & Co Pty Ltd v Westpac Banking Corporation [4] between service of a Statutory Demand and the filing of any application to set one aside?
Section 6(2) of the Act defines – albeit very loosely – what a genuine steps statement must contain from an applicant:
A genuine steps statement filed under subsection (1) must specify:
-
the steps that have been taken to try to resolve the issues in dispute between the applicant and the respondent in the proceedings, or
-
the reasons why no such steps were taken, which may relate to, but are not limited to the following: the urgency of the proceedings and/or whether, and the extent to which, the safety or security of any person or property would have been compromised by taking such steps.
Perhaps all Ahearn Fox needed to have done was write to Superior IP and propose a meeting to resolve the matter. Assuming that Superior IP then refused to attend the meeting, this could have been put into the genuine steps statement. That would have complied with the Act.
However it is evident from the judgment that the parties had made no attempt to resolve this small dispute before it reached Reeves J. His Honour even encouraged them to settle by adjourning the matter for that specific purpose. Finally he stated:
"Finally, 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".
The conduct of the hearing didn’t assist the parties’ lawyers either: they had not discussed, let alone agreed, on any objections to any of the voluminous affidavits, and, when it came time to address those objections, “neither lawyer appeared to have a copy of the Federal Court Rules 2011 or the Evidence Act 1995 with him in court”.
Superior IP’s lawyer then attempted to seek leave to rely on a large volume of material in reply that had not been put forward earlier. It is no wonder that his Honour commented: “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”. And all over a $10,000 debt!
After easily finding there was a genuine dispute (after 450 pages of opposing affidavits), Reeves J, stopped short of the usual order for costs in favour of the successful applicant. Quite the opposite! Aside from the provisions of the Act, his Honour also referred to the “overarching purpose” of the Federal Court Act, namely to “facilitate the just resolution of disputes as quickly, inexpensively and efficiently as possible”. He also noted that parties have a duty to conduct proceedings in accordance with that overarching purpose, and that where they do not, a court can take that into consideration in exercising its discretion when awarding costs [5].
The obviously frustrated judge then directed that:
-
the lawyers each provide a copy of his reasons to their respective clients, and advise them they should seek independent advice on the question of costs in the proceedings
-
the two lawyers concerned should be joined as parties to the proceedings for the limited purpose of determining costs of the proceedings [the personal costs order will no doubt follow shortly].
Finally he proposed to provide a copy of his reasons to the Queensland Law Society, the Bar Association of Queensland and the Legal Services Commission to consider further appropriate action against the lawyers.
I suspect that, even if Superior IP had filed a genuine steps statement, the result may well have been much the same, since he could have reached the same conclusion exercising powers under Part VB of the Federal Court Act without reference to the Civil Dispute Resolution Act. Whilst the case is a blunt reminder to practitioners and clients to attend to administrative considerations such as genuine steps statements before launching into expensive Federal Court proceedings, the case is just as much a reminder about running litigation properly, efficiently and as inexpensively as possible. The consequences of ignoring this are potentially dire.
Footnotes:
1 Superior IP Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282
Judgment was delivered on 23 March 2012
2 Section 7
3 section 9 Civil Dispute Resolution Act
4 184 CLR 265
5 Section 37N(4) Federal Court Act
The information in this document is provided for general guidance only. It is not legal advice, and should not be used as a substitute for consultation with professional legal or other advisors. No warranty is given to the correctness of the information contained in this document, or its suitability for use by you. To the fullest extent permitted by law, no liability is accepted by DibbsBarker for any statement or opinion, or for an error or omission or for any loss or damage suffered as a result of reliance on or use by any person of any material in the document.
This publication is copyright. Apart from any use as permitted under the Copyright Act 1968, it may only be reproduced for internal business purposes, and may not otherwise be copied, adapted, amended, published, communicated or otherwise made available to third parties, in whole or in part, in any form or by any means, without the prior written consent of DibbsBarker.
