The judgment of Justice Reeves handed down on 6 September 2012 in the Federal Court decision of Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys (No 2) [2012] FCA 977 is the first judicial consideration of the costs consequences of failing to file a ‘genuine steps statement’ as required by the Civil Dispute Resolution Act 2011 (Cth) (CDR Act).

The primary judgment

The substantive issue in the proceeding related to an application to set aside a statutory demand served by the Defendant. Having previously found in favour of the Plaintiff in an earlier judgment handed down in March 20121, Justice Reeves directed the parties to seek independent advice on the question of costs given the manner in which the case was conducted. In particular, the parties had made no attempt to resolve the dispute prior to the commencement of proceedings and no “genuine steps statement” had been filed pursuant to the CDR Act and the Federal Court Rules 2011.

Determination of the issue of costs

Despite foreshadowing serious cost implications in its primary judgment, the Court exercised its discretion not to award costs against the Plaintiff or against either of the lawyers with conduct of the litigation.

The reasons provided by the Court for adopting this approach included the special and unusual features of responding to a statutory demand under the Corporations Act 2001 (Cth) (Corporations Act), the fact that the Plaintiff was unrepresented at the time it commenced proceedings and the fact that neither party sought to recover its costs from its lawyers.

Of the reasons provided, the Court placed most weight on the special and unusual nature of an application to set aside the statutory demand under section 459G of Corporations Act 2001 (Cth). In accordance with the legislative framework, once a company has been served with a statutory demand, there is only a short period of time in which the company can apply under section 459G of the Act to set aside the demand.

After also highlighting the significant ramifications which flow from the service of a statutory demand, Justice Reeves held that it is “somewhat unrealistic and incongruous” to take genuine steps to resolve the dispute under the CDR Act at such an advanced stage of the statutory demand proceedings and in such a fraught situation for the plaintiff company [at 10].

His Honour also took into account the fact that the Plaintiff was self represented at the time it made its application, suggesting that its ignorance of the provisions of the CDR Act was “perhaps understandable” [at 11].

Ultimately, the only order for costs was for the Defendant to pay the Plaintiff an amount equal to the cost of the filing fee for its application. Critically, Justice Reeves also observed that, if it were not for the fact that both clients had expressly rejected the opportunity to seek to recover their costs against their lawyers His Honour “would have been very likely” to issue cost orders against the lawyers in an “attempt to deter lawyers from engaging in that type of conduct” [At 13].

Points to take away

Given that the arguably lenient approach adopted by the Court in this case arose from the nature of the particular application to set aside a statutory demand, this decision serves as a reminder to Australian Government agencies and their legal representatives to take heed of the obligation in the CDR Act to file a “genuine steps statement” to resolve a dispute before proceedings are commenced in any federal court.

Section 4 of the CDR Act provides guidance as to the kinds of steps which will satisfy the obligations imposed by the legislation and includes the following:

  1. notifying a prospective defendant(s) and offering to discuss how resolution of the dispute can be achieved;
  2. responding appropriately to a notification of intention to file proceedings received from another party;
  3. attempting to negotiate with the other party with a view to resolving some or all the issues in dispute, or authorising a representative to do so; and
  4. providing documentation to another party to help inform them about the dispute or facilitate a resolution.