Creditors should attempt “resolution” prior to filing an application to set aside a Statutory Demand in the Federal Court

Creditors should attempt “resolution” prior to filing an application to set aside a Statutory Demand in the Federal Court


Dispute Resolution

The Federal Court has considered the Civil Dispute Resolution Act 2011 (Cth) requirement for “genuine steps” insofar as it relates to applications to set aside Statutory Demands in the Federal Court.

The recent decision in Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 (“Superior IP International”) demonstrates the Court’s treatment of the “genuine steps” requirement under the Civil Dispute Resolution Act 2011 (Cth)(“the Act”) to applications to set aside statutory demands made in the Federal Court.

The Act requires that when a party brings proceedings in the Federal Court or Federal Magistrates Court, they must file with the court a genuine steps statement setting out either genuine steps that have been taken to seek to resolve the dispute in negotiation, or the reasons why no steps have been taken. The respondent party must then file their own genuine steps statement in response.

In Superior IP International, the Respondent firm issued a number of invoices to the Applicant for services it allegedly provided, but the Applicant disputed nine unpaid invoices totaling $10,706.33.

The Respondent served the Applicant with a statutory demand in respect of this outstanding amount, and in response, the Applicant filed an application in the Federal Court seeking an order that the statutory demand be set aside on the grounds that there was a genuine dispute in respect of the debt.  Significantly, the parties had not attempted to resolve the dispute before the Applicant filed its application, and no “genuine steps statement” had been filed.

The Court set aside the Respondent’s statutory demand on the grounds that a genuine dispute existed in respect of six of the invoices, while the total of the remaining three invoices was of an amount less than the statutory minimum for a Statutory Demand.

In reaching its decision, the Court condemned the conduct of the parties, describing the hearing as the “absolute antithesis of the overarching purpose” of the Act, for conduct including failing to make any attempt to resolve the dispute in accordance with the objects of the Act.

As a consequence of that conduct, the Court made directions that the parties seek independent legal advice on the question of costs in the proceeding, that the party’s lawyers were to be joined as parties to the proceeding for the purpose of determining the issue of costs, and that the lawyers involved be referred to the Queensland Law Society, the Bar Association of Queensland and the Legal Services Commission.

This case demonstrates that federal court litigants must comply with the “genuine steps” requirement by taking genuine steps to try to resolve their dispute before they apply to the Federal Court for an order to set aside a statutory demand.  Further, the obligations to file a genuine steps statement in accordance with the Act applies to the parties involved and their lawyers.

For all matters concerning dispute resolution, contact the team at Irish Bentley Lawyers today.

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