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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