The recent Federal Court decision of Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 provides the first substantial insight into how the Courts will interpret and apply the obligations set out in the Civil Dispute Resolution Act 2011 (Cth) (CDR Act) which came into force on 1 August 2011. Although the costs consequences of non compliance with the CDR Act were not considered in the judgment handed down on 23 March 2012 by Justice Reeves, the Court was highly critical of the parties and their lawyers for their flagrant disregard of their statutory obligations to attempt to resolve the matter.

The case concerned an application to set aside a statutory demand served by the Defendant on one of its former clients. Despite the statutory demand being for an amount of $10,706.33, the Plaintiff filed 300 pages of affidavit evidence and the Defendant filed 150 pages. Critically, no attempt to resolve the dispute had been made by either party 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.

Even after the matter was adjourned briefly to allow settlement negotiations to occur and Reeves J had asked the lawyers for the parties to disclose their fees to their clients (which totalled nearly twice the amount of the statutory demand in question), the matter remained unresolved.

Reeves J indicated in his judgment that at this point his Honour was “bereft of any other means to force the lawyers and their clients to see some sense” (at [4]) and described the behaviour of the parties and their legal representatives as the “absolute antithesis” of the overarching purpose of civil practice and procedure to facilitate the resolution of disputes according to law and as quickly, inexpensively and efficiently as possible (at [9]).

Notwithstanding a finding that the Plaintiff had wholly succeeded in the substance of its application, on the issue of costs his Honour referred to the failure of the parties and their lawyers to comply with the obligations and duties of the CDR Act. Given the potential conflict between the interests of the lawyers and their clients in relation to this issue, his Honour adjourned the matter to allow the parties to make submissions as to how the issue of costs should be addressed.

This decision serves as a reminder to parties, potential parties and legal representatives to take heed of the obligation in the CDR Act to take “genuine steps” to resolve a dispute before proceedings are commenced in any federal court. What this means for parties to a dispute is that they will need to be in a position to demonstrate these genuine steps to a court should the matter ultimately proceed to litigation.

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.