Further to our article published on Thursday, 21 October 2010 (When Should a Statutory Demand be Issued?), the Civil Dispute Resolution Act 2011 (Cth) (“the Act”) has commenced which now imposes obligations on parties who have or intend to file an Application to set aside a statutory demand in the Federal Court.
The Act is designed to ensure that, as far as possible, people take genuine steps to resolve disputes before certain civil proceedings are instituted especially in circumstances when parties are seeking to set aside a statutory demand in the Federal Court; otherwise, parties (and quite possibly, their lawyers) risk facing an adverse costs order being made.
The Act requires the parties (and their respective lawyers) to take part in “pre-action” negotiation and to entertain the possibility of resolving the disputes. Failure to resolve such disputes will require the Applicant (or their respective lawyers) to prepare a Genuine Steps Statement to be filed with the Court. This will then be followed by a Response to the Genuine Steps Statement to be filed by the Respondent in the proceeding.
These ‘genuine steps’ were closely reviewed in the recent Federal Court case of Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys  FCA 282. The parties failed to enter into pre-action negotiation to entertain any resolution to the dispute and instead, the Applicant filed the application to set aside the statutory demand, and thus failing to submit a Genuine Steps Statement.
The Court found that there was a genuine dispute regarding six (6) of the nine (9) invoices which would leave a sum less than that Court threshold for a statutory demand. As a result of the parties failure to comply with the Act, the Court directed the parties to seek independent legal advice on the question of costs and the lawyers were joined as parties into the proceedings. The Justice presiding over the case, his Honour Justice Reeves also referred the lawyers to the Queensland Law Society, Bar Association and the Legal Services Commission.
As a reminder
- If the application is to be made in the Federal Court, then the obligations to file a genuine steps statement in accordance with the Act applies to the parties involved and their lawyers.
- As an application to set aside a statutory demand must be filed and served within 21 days after the demand is served on the company, any efforts to resolve the dispute will also need to occur well within that 21 day time period.
- There is no prescription in the Act as to what steps constitute “genuine steps” to try and resolve the dispute. However, if time permits, it may be advisable that a letter is sent to the other party setting out in detail the basis on which the Applicant says the statutory demand should be withdrawn.
- The Act only applies to Federal Court proceedings. Parties may wish to reconsider the court within which they bring their application to set aside a statutory demand. Given the tight timeframe within which parties must apply to the court to have a demand set aside, there may be a greater tendency for parties to make their application in a state court as opposed to the Federal Court.
Should you require any assistance in issuing a Statutory Demand, complying with the obligations of the Statutory Demand or require clarification of this article, please contact…