Victorian Court of Appeal confirms VCAT lacks jurisdiction in federal matters

In its decision, Thurin v Krongold Constructions (Aust) Pty Ltd, the appeal court held that VCAT has no power in respect of matters arising under Commonwealth law as opposed to Victorian state law.

The decision means that where proceedings involve a matter arising under Commonwealth law, VCAT lacks jurisdiction to hear and determine them. These proceedings may be struck out by VCAT, either by its own initiative or on application by a party, and referred to court – an outcome which will likely delay the hearing of the proceedings and increase the costs associated with them.

The decision is of particular significance to domestic building cases, which frequently involve the making of defences and claims under the Insurance Contracts Act 1984 (Cth) and the Competition and Consumer Act 2010 (Cth) (CCA) or its predecessor, the Trade Practices Act 1974 (Cth) (TPA). These are Commonwealth, as opposed to state, legislation although Victoria, like other states and territories, adopts the federal Australian Consumer Law scheme set out in schedule 2 of the CCA so that it applies as state law.

Unsurprisingly, given its potential implications to the efficient and effective resolution of VCAT proceedings, the decision in the Thurin case was recently considered by VCAT in Owners Corporation 1 Plan No PS707553K v Shangri-La Construction Pty Ltd (No 3). The decision clarifies that VCAT has jurisdiction to determine causes of action arising under the Australian Consumer Law and Fair Trading Act 2012 (Vic) (FTA), which adopts the federal Australian Consumer Law scheme such that it applies as a law of Victoria.  

We anticipate the decision will remain a point of contention given the breadth of Commonwealth law matters that may arise in VCAT proceedings, particularly in relation to insurance. Parties, and proposed parties, to domestic building disputes must carefully consider the forum for dispute resolution and all potential claims and defences.

Background

In 2006, David and Lisa Thurin engaged Krongold to demolish their house in Toorak and build a new residence. These works constituted building work under a major domestic building contract within the meaning of the Domestic Building Contracts Act 1995 (Vic) (DBC Act).

Krongold’s performance gave rise to several defect disputes. The Thurins alleged that defective pipes were used in internal plumbing works and that these works were not properly carried out. 

In 2018, the Thurins commenced proceedings before VCAT to enforce a determination by an expert appointed under the contract to determine the disputes with Krongold. The expert determined that the Thurins had suffered loss and damage of more than AU$3.58 million, which Krongold did not pay. 

Krongold’s defence was that any loss or damage suffered by the Thurins was ultimately caused by failures of other parties, including the supplier of the pipes, and was apportionable. It sought to join third parties to the VCAT proceeding on the basis that they were concurrent wrongdoers under the Wrongs Act 1958 (Vic), and alleged that the pipe supplier had breached a fitness for purpose warranty implied under the TPA.

VCAT referred the proceeding to the Victorian Court of Appeal on a question of law. A central question the Court of Appeal considered was whether VCAT had jurisdiction to hear and determine a claim under the TPA since it was a Commonwealth law. 

Legislative context

VCAT is chiefly responsible for resolving “domestic building disputes” – that is, disputes in relation to “domestic building work” within the meaning of section 5 of the DBC Act.

VCAT is created by the Victorian Civil and Administrative Tribunal Act 1998 (Vic) and only has the power conferred to it by legislation. This Act provides that enabling legislation may allow a person to invoke the “original” or “review” jurisdictions of VCAT. Such enabling legislation includes the Building Act 1993 (Vic), the DBC Act and the FTA.

Section 76(ii) of the Australian Constitution confers original jurisdiction on the High Court in relation to any matter “arising under any laws made by the [Commonwealth] Parliament”. The Judiciary Act 1903 (Cth) conferred this federal jurisdiction on courts of the states.

What the Victorian Court of Appeal decided

The Victorian Court of Appeal held that VCAT could not hear the matter and it had no power to join the pipe supplier as a party to the case as Krongold had sought. It reached this conclusion because VCAT is not a court and has no power in respect of “a matter arising under a law made by the Commonwealth Parliament”, having regard to section 76(ii) of the Australian Constitution.

The court set out that the following principles should be applied to determine whether VCAT lacks jurisdiction by reason of the matters raised in a proceeding:

• a “matter” is a controversy which encompasses all claims, including defences, within the scope of the controversy, whether or not these claims are ultimately established;
• the controversy that the court is being asked to determine must be genuine, not an advisory opinion and capable of legal argument;
• where the ‘very subject’ of the dispute is something that owes its existence to a Commonwealth law, then the dispute will be a ‘matter arising’ under that law, even if the cause of action is founded in a state law or case law (the common law).

The Court of Appeal also noted that a controversy in the sense described above was to be contrasted from some Commonwealth law facet merely “lurking in the background”, such as the fact that some of the parties were corporations.

Adopting these principles, the court determined that as soon as claims under the TPA were raised by Krongold against the pipe supplier, the matter subject of the VCAT proceeding fell into federal jurisdiction and VCAT had no jurisdiction to hear it.

Co-written by Jordan Davies of Pinsent Masons.