What are Genuine Steps? A Practitioner's Guide to the Civil Dispute Resolution Act 2011

New Requirements to take Genuine Steps to Resolve Disputes Prior to Litigation

Legal practitioners should note that, with the commencement of the Civil Dispute Resolution Act 2011 (the Act) on 1 August 2011 it is now their legal duty to advise their clients of the requirement to take genuine steps to resolve a dispute prior to commencing litigation and to assist them in taking such steps.[1] A failure to do so may result in personal costs orders against the legal practitioner which the Act clearly states would not be recoverable from the client.[2] Federal Court and Federal Magistrates Court applicants should lodge an Applicant’s Genuine Steps Statement when they file their application and respondents should lodge a Respondent’s Genuine Steps Statement before the first return date listed on an application.[3]

Certain proceedings are excluded[4] but in many instances the Act introduces a potentially weighty burden on the legal practitioner that poses the immediate question: what are genuine steps? Will the Act change the legal landscape in the majority of cases or does it merely codify ordinary, prudent legal practice? Although the Act provides that failure to file a Genuine Steps Statement will not invalidate proceedings, it also provides that the Court should have regard to the requirement in its case management[5] and in exercising its discretion to award costs[6] and it is a stated intention of the act to support cultural change away from adversarial litigation.[7]

The Act provides a non-exhaustive list of actions that might be considered genuine steps[8] but, in the absence of judicial consideration of the new legislation, it may be difficult to determine which steps would be considered necessary. This reflects the intentional flexibility of the Act, which is consistent with much alternative dispute resolution philosophy, but also results in potential uncertainty for litigants faced with these new requirements. Clearly there will be different circumstances for each case which will influence the extent to which pre-litigation steps are required under the Act.[9] Circumstances where such steps might not be appropriate include urgent matters, for example a search order or freezing order, or where the safety or security of any person or property would have been compromised by taking such steps.[10]

The examples of genuine steps to resolve disputes set out in subsection 4(1) of the Act are discussed below. The examples provided in the Act are not intended to be an exhaustive list.

1. Identifying the issues in dispute and notifying the other person of these issues and offering to discuss them with a view to resolving the dispute (a Notification of Dispute)

In many areas of the law this would be considered normal practice. A good example is the practice of sending a letter of demand in intellectual property disputes. In other cases a contract will require that a notice of breach be sent when a contractual breach arises. It should not automatically be assumed that a breach letter will comply with the requirements of the Act, although it may be possible to tailor such a letter so that it achieves this purpose. A practical approach may be to establish complementary precedents for letters initially notifying of breach and subsequent letters that take genuine steps to resolve the dispute. These subsequent letters need not involve making concessions where it is not appropriate but one would expect that the offer to discuss identified issues with a view to resolving the dispute should be a genuine offer.

2. Responding appropriately to a Notification of Dispute

Similarly, this would be the ordinary, prudent course for many clients who would prefer to avoid litigation. However this requirement may influence the way that corporate clients deal with those whom they perceive to lack the requisite appetite or resources for litigation. One question that emerges is: where there is no formal Notification of Dispute or an application is filed without a Genuine Steps Statement, what is the onus on the respondent to proactively pursue resolution of a matter? The Act merely requires that a Respondent’s Genuine Steps statement set out whether or not it agrees with any Genuine Steps statement filed by the applicant.[11] Regardless, there may be clear advantages to making attempts to resolve the matter in the manner indicated by the Act in any costs argument but an even more advantageous outcome might be an early resolution of the dispute or a clarification of issues in dispute.

3. 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

The extent to which a party must provide relevant information and documents could be a matter for dispute in many proceedings. One would expect that the complexity of proceedings and the volume of available documents would regulate what the courts consider to be reasonable, particularly if it would be necessary to expend considerable resources assessing whether or not certain documents might be privileged.  The object of the Act is stated to be that genuine steps to resolve a dispute are taken “as far as possible”[12] but the manner in which this interpreted is clearly subject to considerable judicial discretion.

It will be interesting to see how this requirement is interpreted so that it is consistent with the requirements for preliminary discovery, as set out in Rule 7.23 of the new Federal Court Rules. Section 17A provides that nothing in the Act should exclude or limit any other law relating to disclosure of information. Further, the Act appears to provide scope for prospective litigants to argue that they are entitled to more extensive pre-litigation access to documents without the necessity for a motion for preliminary discovery. A preliminary discovery motion might remain appropriate if litigants cannot persuade their opponents that this is the case.

4. Considering dispute resolution by another person, presumably an independent third party

The use of the phrase “considering” in the Act indicates that there is no actual requirement for pre-litigation alternative dispute resolution but for practitioners seeking to ensure that they have taken genuine steps to resolve a dispute, it would be persuasive to argue that parties had undertaken some form of genuine ADR. There is no reason why this could not be subject to a strict confidentiality regime. Types of ADR include mediation, conciliation, expert appraisal, early neutral evaluation and arbitration. Again, the short term advantage of this may be a clarification of issues, even if the dispute itself is not resolved.

5. Agreeing on a resolution facilitator and attending a resolution process

Again the language of the Act does not presume that ADR will occur but this example indicates that mere consideration of some sort of resolution may not be sufficient. One assumes that this would influence case management and costs arguments where one party was willing to engage in a resolution process and the other party resisted it without a reasonable explanation for this position.

6. Considering a different resolution process if an initial attempt fails

This step also indicates that there will be discretion for Courts to place great emphasis on a failure to attempt some type of process of pre-litigation resolution. One would expect that demand for relatively inexpensive alternative dispute resolution services will increase so that these requirements can be met efficiently.

7. 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

This Explanatory Memorandum acknowledges that ADR is not always appropriate for the resolution of disputes. This example indicates that direct negotiation undertaken in good faith should be an acceptable alternative to an independent resolution process. This example also indicates an acceptance that a narrowing of issues in dispute may be sufficient to constitute genuine steps to resolve a dispute and this may reflect the object of the Act that genuine steps be taken “as far as possible.”

Conclusion

The Act contemplates a change to legal culture that moves away from adversarial litigation however, given the discretionary nature and impact of the requirements, the impact of this change may not be immediately apparent. In the interim, practitioners should be conscious of the court’s evolving philosophy in support of non-adversarial dispute resolution and pro-active in explaining the new requirements to their clients and assisting them to comply with the Act.

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[1] Section 9, the Act

[2] Section 12, the Act

[3] Federal Court Rules 2011 (Cth), Rule 5.03

[4] Sections 15 and 16, the Act

[5] Section 11, the Act

[6] Section 12, the Act

[7] Explanatory Memorandum

[8] Section 4, the Act

[9] Explanatory Memorandum

[10] Section 6(2), the Act

[11] Section 7, the Act

[12] Section 3, the Act

New Federal Court Rules commenced 1 August 2011

The new Federal Court Rules have commenced. They have been redrafted into plain English and structured to reflect steps undertaken by litigants. The former rules were based on the rules of the Supreme Court of New South Wales (which have subsequently changed substantially) at the time they were drafted and numerous amendments had made them disjointed and confusing and laborious for those unfamiliar with them.

Although the substance of the rules remains largely unchanged, there are some differences. The summary below is extracted from the explanatory memorandum for the Rules.

·         Although forms are still widely used by the Rules, the forms are not generally prescribed. The Chief Justice has the power to approve Federal Court Forms, which will be published on the Federal Court website.

·         Rules 1.31 and 1.32 provide that in making any order in a proceeding the Court may have regard to the nature and complexity of the proceeding, deal with the proceeding in a manner that is proportionate to its nature and complexity and make any order that the Court considers appropriate in the interests of justice.  These rules support the overarching purpose of civil practice and procedure set out in section 37M of the Federal Court of Australia Act 1976.

·         Rule 1.35 complements the power to dispense with compliance with any of the rules (Rule 1.34) by providing that the Court may make an order that is inconsistent with the Rules and, in that event, the order will prevail.

·         Rule 2.12 deals with compliance with approved forms and provides that a document is in accordance with an approved form if the document substantially accords with the approved form and any practice notes issued by the Chief Justice or has only those variations that the nature of the case requires.

·         A Registrar may now: order under subrule 1.04 (3) that the former Rules apply to a step in a proceeding which existed on 1 August 2011; give judgment or make an order under rule 1.41 even if the applicant has not made a claim for that relief; and order under rule 6.01 that a document containing matter that is scandalous, vexatious or oppressive be removed from the Court file or the matter be struck out of the document.

·         Rule 5.03 deals with a respondent’s new obligation to file a genuine steps statement in compliance with the requirements of the Civil Dispute Resolution Act 2011.  That Act will commence on 1 August 2011.  Subrule 5.03 (1) provides that if an applicant has filed a genuine steps statement in a proceeding, the respondent must file the respondent’s genuine steps statement in the approved form before the return date fixed in the originating application.  Subrule 5.03 (2) provides that that genuine steps statement must comply with section 7 of the Civil Dispute Resolution Act 2011.

·         Division 5.2 provides for orders on default.  This includes specifying the orders that may be sought by a party when another party has failed to comply with an order, attend a hearing or prosecute or defend the proceeding with due diligence.  It is also makes clear that the Division does not limit the powers of the Court to punish for contempt.

·         Rule 5.21 allows a party to apply to the Court for an order (called a self-executing order) that, unless another party does an act or thing within a specified time the proceeding be dismissed, the applicant’s statement of claim or the respondent’s defence be struck out or the party applying have judgment against the other party.

·         Rule 8.02 deals with an applicant’s new obligation to file a genuine steps statement in compliance with the requirements of the Civil Dispute Resolution Act 2011.

·         Rule 9.71 however requires that, in seeking the Court’s approval of a compromise or settlement on behalf of a person under a legal incapacity, more information must be filed than previously required, including an opinion of an independent lawyer that the agreement is in the best interests of the person under the legal incapacity.

·         Division 10.6 is part of a scheme to implement Australia’s obligations under the Hague Convention and is substantially identical to the equivalent rules in the former Rules.  The Hague Convention commenced to operate in Australia from 1 November 2010.

·         Rule 10.02 provides that service on a corporation must be in accordance with section 109X of the Corporations Act 2001.

·         Rules 10.07 and 10.08 deal with service in proceedings under the Patents Act 1990 (the Patents Act) and Trade Marks Act 1995 (the Trade Marks Act).  These rules provide that in a proceeding brought against a patentee under the Patents Act or the owner of a registered trade mark under the Trade Marks Act, service of a document may be served on a person who is apparently a adult at an address for service given by that patentee to the Commissioner of Patents under section 221 of the Patents Act or by that owner of the registered trade nark to the Registrar of Trade Marks under section 215 of the Trade Mark Act respectively.

·         11.01 has been amended to include a note to the effect that parties can agree upon a method of service. Subrule 11.01 (4) introduces electronic service on a party represented by a lawyer in a proceeding by allowing service of any document in the proceeding to be effected by sending it to the email address of that party’s lawyer.

·         Part 12 deals with submitting notices.  It provides that a party served with an originating application or a notice of appeal who does not want to contest the relief sought in the application or appeal may file a submitting notice in the approved form.  The notice must state that the party submits to any order the Court may make, state whether the party wants to be heard on the question of costs, include an address for service and be filed before the return date for an originating application or within 14 days of service for a notice of appeal.  A party who has filed a submitting notice may apply to the Court for leave to withdraw the notice and any application for such leave must be accompanied by an affidavit stating why the party wants to withdraw the submitting notice and the party’s intentions in relation to the further conduct of the proceeding.

·         Part 15 requires an initiating document called a Notice of Cross Claim which is supported by pleadings (statement of cross claim) or an affidavit.

·         Rule 17.02 provides that in circumstances where a party wants to rely on correspondence or other documents, the authenticity of which is not in dispute, an interlocutory application can be filed without an accompanying affidavit.

·         Part 20 provides better and more detailed guidance and clarification on a number of aspects of discovery and inspection of documents (for example that discovery does not affect privilege (Rule 20.02), discovery is to be given only if it will facilitate the just resolution of the proceeding as quickly, inexpensively and efficiently as possible (Rule 20.11) and the obligations of a non-party if ordered to give discovery (Rule 20.24)).  It does not substantially alter existing practice but introduces an additional method for giving non-standard and more extensive discovery; with guidance on what must be identified and how this is to be done, including use of a discovery plan where appropriate (Rule 20.15); and allows for discovery of documents by category (Subrules 20.15 (1), (2) and (4) and 20.17 (2)).

·         Rule 20.11 has been redrawn to provide that an application for discovery should not be made unless an order is necessary for the just resolution of the proceeding as quickly, inexpensively and efficiently as possible. The discovery rules make it clear that the test for discovery is directly relevant and the Peruvian Guano test has no role to play.  Division 20.2 has been amended to make it clear that it applies to a proceeding which is proceeding on affidavits not pleadings.

·         Part 25 deals with offers to settle and provides better guidance to parties on some aspects (for example the content of an offer) and more flexibility on aspects to do with the structure of offers (for example in relation to interest).  Rule 25.12 limits the costs which can be recovered on an offer being accepted (if that offer is not inclusive of costs) to up to and including 14 days after the offer was made regardless of when the offer may be accepted.

·         Rule 28.1 places a new, positive obligation on parties to consider options for alternative dispute resolution as early as possible in all matters and provides that the Court will help to implement those options if appropriate.  These obligations are complementary to but independent of the obligations imposed under the Civil Dispute Resolution Act 2011.

·         Rule 28.02 sets out the orders that a party may apply for to refer the whole or part of a proceeding to mediation, arbitration or an alternative dispute resolution process.  ‘ADR process’ is defined in the Dictionary (Schedule 1) to mean an alternative dispute resolution process conducted by a suitable person.

·         Rule 28.05 confirms that parties may refer their matters to mediation, arbitration or an alternative dispute resolution process privately without an order of the Court but that, in those circumstances, the applicant must within 14 days of the referral apply to the Court for directions as to the future management and conduct of the proceeding.

·         Division 34.1 now makes it clear that it is not necessary to file a certificate issued by Fair Work Australia under either section 369 or 777 of the Fair Work Act 2009 in proceedings relating to dismissal from employment in contravention of a general protection, alleged unlawful termination of employment or alleged discrimination if the application is brought by a Fair Work Inspector.

·         Divisions 34.4, 34.5 and 34.5A cover proceedings to which the Trans-Tasman Proceedings Act 2010 (Trans-Tasman Act) apply and the transition from the commencement of the new Rules until section 3 of the Trans-Tasman Act comes into effect. Note the Trans-Tasman Act has not yet come into effect.

·         Some of the provisions contained in the former Rules in relation to native title proceedings have been omitted as they are dealt with in the general body of new Rules.  These include powers of registrars; amending and striking out main application; changing an address for service; and giving notice.  Provisions relating to applications for payment secured by bank guarantee which existed under the former Rules have also been removed, as they are now dealt with by section 52(1) of the Native Title Act 1993. 

·         Division 35.1 adopts a more consistent approach to the time for filing leave to appeal than the former Rules by requiring that all applications for leave to appeal be filed within 14 days after the day on which the judgment was pronounced or order made or on or before such other date fixed for that purpose by the Court.  It also streamlines the existing procedures for applying for an extension of time to seek leave to appeal.

·         Division 35.3 sets out new procedures for ending early applications for leave to appeal and applications for extensions of time for leave to appeal.  This includes withdrawing an application, the approved form to use and dismissing an application for failure to comply, for failure to attend or for want of prosecution.  This Division also sets out a new procedure where a party is absent when an application is called on for hearing.  Division 35.4 deals with revocation of leave to appeal.

·         Two new rules have been inserted in relation to applications for leave to appeal, at 35.18 and 35.19.  These new rules relate to applications which may be dealt with without an oral hearing, and the filing of submissions.  A new rule has also been inserted at 36.43.  This rule relates to an objection to an application being dealt with without an oral hearing. 

·         Division 36.4 allows for certain applications to be dealt with on the papers.  The kind of applications that may be dealt with without an oral hearing is broader under the new Rules.  Division 36.5 reflects the Court’s streamlined approach to the content and preparation of appeal books and the accelerated provision of outlines of submissions.  Division 36.6 deals with the ending of appeals by dismissal or discontinuance.  Rule 36.72 deals with competency.  Unlike the former Rules, which allowed an objection to competency to be made at any time, Rule 36.72 requires any notice of objection to competency be filed within 14 days of service of the notice of appeal.  The Part does not substantially alter existing practice and provides better guidance to parties on obligations and requirements. 

·         Part 40 introduces some significant changes in relation to the basis on which party and party costs are determined and the structure of the scale of costs used in that process as well as the quantum of costs which must or can be allowed for work done and services performed by legal practitioners.  Importantly, ‘costs as between party and party’ is defined in the Dictionary (Schedule 1) to mean only the costs that have been fairly and reasonably incurred by the party in the conduct of the litigation.  In contrast, the test under the former Rules was what was necessary or proper for the attainment of justice or for maintaining or defending the rights of a party.

• Rule 40.29 provides for allowance of costs in accordance with Schedule 3 to the new Rules.  Schedule 3 regulates the amounts which must or can be allowed for work done and services performed in determining a bill of costs, including short form bills.  The schedule only applies to work done and services performed after 1 August 2011.