05 May 2011

Who's afraid of the Civil Dispute Resolution Act and its requirement to take "genuine steps"?

by Caroline Bush, Kate Evans

Under the Civil Dispute Resolution Act, a person must take "genuine steps" to resolve a dispute before commencing proceedings in the Federal Court or Federal Magistrates Court.

After some delay following the election last year, the Civil Dispute Resolution Bill (Cth) has been passed by the Federal Parliament on 24 March 2011.

The new Civil Disputes Resolution Act 2011 will come into effect by 13 October 2011 at the latest, and will seek to ensure that, as far as possible, potential litigants take "genuine" pre-litigation steps to resolve their dispute before seeking the assistance of the courts.

Australian Government agencies need to understand the effect of these changes not only on their own litigation practices and procedures but the obligations they impose upon the other side.

The need to take "genuine steps"

The object of the Act is to ensure that a person takes "genuine steps" to resolve a dispute before commencing proceedings in the Federal Court or Federal Magistrates Court. An applicant who institutes proceedings must file a "genuine steps statement" when filing proceedings in court. A respondent must file a "genuine steps statement in reply".

The "genuine steps statement" must detail the steps that have been taken in an attempt to resolve the dispute, or, if no steps were taken, the reasons why they were not (eg. for reasons of urgency or security). The respondent's statement in reply must either agree with the applicant's genuine steps statement or must specify what the respondent disagrees with and why.

Interestingly, the Act places an obligation on lawyers to both advise their clients of the requirement to file a genuine steps statement and to assist their clients in complying with this requirement. Where a lawyer does not comply, the court has a discretion to award personal costs that cannot be recovered from the lawyer's client.

The consequences of not taking "genuine steps"

A failure to file a genuine steps statement will not prevent an applicant from instituting the proceedings in court, nor will a respondent's failure to file a statement in reply prevent the proceedings from continuing. But the court will take into account any failure when exercising its powers as to the future conduct of the matter as well as its discretion to award costs. These are obviously powerful incentives to ensure that an appropriate genuine steps statement is filed when required and to ensure that the statement is convincing in its explanation of the steps taken or the reason why no pre-action steps were taken.

Under the Act, the taking of a "genuine step" is defined as a step that is "a sincere and genuine attempt to resolve the dispute, having regard to the person's circumstances and the nature and circumstances of the dispute".

The Act does not prescribe or mandate any particular steps; rather it allows the parties to decide what steps are appropriate in the circumstances. There is however, a non-exhaustive list of examples of "genuine steps", such as:

  • notifying the other person of the issues and offering to discuss them;
  • providing relevant information and documents to the other person;
  • considering the use of alternative dispute resolution; and
  • using an alternative dispute resolution process.

Exclusions from the requirement to file a genuine steps statement

Certain types of proceedings are excluded from the requirements under the Act. Of particular relevance to Australian Government agencies are the following:

  • proceedings for a pecuniary penalty relating to a contravention of a civil penalty provision;
  • proceedings brought by or on behalf of the Commonwealth for a criminal offence or a contravention of a civil penalty provision;
  • review proceedings arising from decisions made by the Administrative Appeals Tribunal, the Migration Review Tribunal, the Refugee Review Tribunal, the Social Security Appeals Tribunal and the Veterans' Review Board;
  • appeal proceedings; and
  • proceedings under the Australian Citizenship Act 2007, the Migration Act 1958, the National Security Information (Criminal and Civil Proceedings) Act 2004 and the Native Title Act 1993.

The attempt to encourage resolution – a different perspective

The policy objective underpinning the introduction of pre-action processes is to encourage "wherever possible or appropriate" the early resolution of disputes without resort to the courts. However, there remains debate as to whether the legislation will achieve this.

The criticism of overly prescriptive pre-litigation protocols suggests that they result in delay and a front-loading of costs before proceedings ever reach the court. Pre-action processes have also been criticised for failing to recognise the potential power and resource imbalance that may exist between parties to a dispute. There is concern that they impose a burden on less-resourced parties that might prevent access to justice.

The Commonwealth Attorney-General has responded by highlighting the deliberate flexibility inherent in the requirements, in that they allow the parties to decide on and then tailor the steps they need to take to ensure that they are appropriate to the circumstances of the dispute rather than mandating a prescriptive and potentially onerous "one size fits all" pre-action protocol.

The model litigant obligation and pre-action processes

Pre-litigation requirements may now oblige the Commonwealth to undertake some additional formal steps, so Australian Government agencies (and their external lawyers) will need to carefully implement an additional process in order to ensure that methods other than litigation have been fully considered before commencing proceedings.

It should be noted however that the Commonwealth is already required by virtue of the Legal Services Directions 2005 to take steps to avoid legal proceedings and/or limit the scope of any legal proceedings.

In other words as a model litigant, the Commonwealth is already required to take "genuine steps" to resolve disputes and it is therefore arguable that in practice the Act will not impose any real additional burden.

State approaches to pre-litigation requirements

The Act reflects a trend in civil litigation reforms across Australia, and in the United Kingdom, where pre-litigation protocols have also been introduced. Similar reforms in NSW (under the new Part 2A of the Civil Procedure Act 2005) and reforms which were briefly introduced as part of Victoria's Civil Procedure Act 2010, but then quickly repealed before commencement, are just two recent examples.

The NSW and repealed Victorian provisions adopt a "reasonable" steps requirement, in contrast to the relatively novel concept of "genuine" requirement in the federal jurisdiction. Significantly, the state reforms have imposed a positive obligation on parties to undertake reasonable steps to resolve a dispute before commencing proceedings, in addition to an obligation to provide a statement setting out the steps taken.

Concerns that prompted the Victorian Government's decision to repeal that state's pre-action processes included apprehension that satellite litigation would arise to determine the parties' "reasonable" attempts to resolve the dispute. In his second reading speech, Attorney-General Clark indicated that the repeal was needed because of the concern about the effectiveness of the pre-litigation requirements, the potential for parties to use the requirements to delay and frustrate proceedings, and also concern that they would add unnecessary costs and thereby hinder access to the courts.

Similar concerns have been expressed in NSW over the introduction of pre-action processes enshrined in new Part 2A of the Civil Procedure Act 2005. These concerns may have prompted the enactment of a regulation that has excluded the operation of Part 2A in all civil proceedings in the Supreme Court pending the commencement of the comparable Commonwealth provisions (ie. the Civil Dispute Resolution Act). It remains to be seen whether the NSW reforms will survive, notwithstanding the anticipated commencement of the Act.

 

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.