Genuine steps statement needed in Federal Court to set aside statutory demand

The Federal Court of Australia has recently held that an applicant seeking to set aside a statutory demand issued against it was obligated to file a genuine steps statement before commencing proceedings. This places the onus on a party attempting to set aside the statutory demand to take genuine steps to resolve the dispute prior to taking action in the Federal Court. Consequently, practical difficulties arise due to the short timeframe of 21 days in which a party is required to respond to a statutory demand.

A challenge to a statutory demand is able to be commence in the Federal Court or in a State Supreme Court. The requirement to file a genuine steps statement before commencing proceedings only applies in the Federal Court because at this stage there is no equivalent of the Federal genuine steps statement in State Courts. Commencement of similar legislation in NSW (the only state where such legislation is or still is on the books) is currently suspended for 18 months from 13 September 2011. This means that applicants seeking to set aside a statutory demand may prefer to do so in a State Supreme Court.

The decision of Reeves J in Superior IP International Pty Ltd v Ahearn Fox Patent and Trade Mark Attorneys [2012] FCA 282 is an important decision which clarifies the obligations of lawyers in complying with the requirement to file a genuine steps statement in the Federal Court pursuant to the new Civil Dispute Resolution Act 2011 (Cth).

Reeves J held that the failure of either party to file a genuine steps statement should be taken into consideration in determining the question of costs in the proceedings, and adjourned the matter to allow the parties to make submissions on the issue. His Honour ordered that the parties' lawyers be joined as parties to the proceeding for the determination of costs, and that they advise their clients to obtain independent legal advice for that issue.

This case confirms that, in the Federal Court, the failure to provide a genuine steps statement will be a relevant consideration in determining the question of costs in a proceeding, and that where a lawyer has failed to comply with their obligation to assist their client in filing a genuine steps statement, they may be joined as parties to the proceedings for the limited purpose of determining costs. From an insolvency law perspective, it is important to note that applications to set aside a statutory demand do not constitute an 'excluded proceeding' for the purpose of the Act. Accordingly, in the Federal Court, the obligation to file a genuine steps statement remains.