Insights

Court holds that VCAT lacks jurisdiction to resolve disputes relating to federal issues

Construction, Commercial Disputes
Building framework shot from above, backlit by afternoon sun.

Thurin v Krongold Constructions [2022] VSCA 226

Implications for VCAT's jurisdiction

In a significant and potentially wide-reaching decision, Thurin v Krongold Constructions [2022] VSCA 226 (Thurin v Krongold), the Victorian Court of Appeal has held that the Victorian Civil and Administrative Tribunal (VCAT), which has primary jurisdiction over domestic building disputes in Victoria,1 can no longer hear domestic building disputes involving the interpretation or application of federal legislation.

This has the potential to cause disarray in not only the domestic building list of VCAT, but other lists as well, as questions relating to federal legislation (such as the Competition and Consumer Act 2010 (Cth) and the Insurance Contract Act 1984 (Cth)) often permeate disputes before VCAT. Because of the Victorian Court of Appeal's decision, such matters must now be transferred out of VCAT and re-listed, with associated delay and increased expense, in a court.2

Anecdotal evidence and published decisions confirm the extent of the disruption, and we expect this to remain a live issue for some time.

Factual background

In 2006, David and Lisa Thurin engaged Krongold Constructions to demolish their Toorak home and build a new residence. These works constituted major building works under the Domestic Building Contracts Act 1995 (Vic).3 Subsequently, Mr and Mrs Thurin alleged certain defects in the building works. In December 2017, they appointed an expert to determine the extent of the defects. The expert found that Mr and Mrs Thurin had suffered loss and damages of $3,583,437.88, which Krongold declined to pay.4

In May 2018, Mr and Mrs Thurin commenced a proceeding in VCAT seeking to enforce the expert determination. Krongold served points of defence which, relevantly, claimed that any loss or damage suffered by Mr and Mrs Thurin was apportionable. Krongold alleged that each of MDG Plumbing, Swan Hardware, and Casper Architecture and Design had breached the Australian Consumer Law and hence were concurrent wrongdoers within the meaning of s 24AH of the Wrongs Act 1958 (Vic).5 On the basis of these allegations, Krongold sought orders joining the parties to the proceeding.6

Decision

The matter was referred to the Court of Appeal on a question of law, namely that, given Krongold had raised a claim under the Australian Consumer Law (a federal statute), did VCAT have jurisdiction to hear the matter? Or was VCAT required to refer the matter to another state court?7

In short, the Court of Appeal held, for constitutional reasons, that VCAT lacked jurisdiction to determine the parties' rights and liabilities under a federal statute, and therefore the matter had to be referred.8

The Court's reasoning was as follows:

  • If a party raises a bona fide claim or defence under a federal piece of legislation, the entire dispute becomes a "federal matter"9
  • Under the Australian Constitution, only federal "courts" and state "courts" are empowered to hear "federal matters"10
  • VCAT is not a "court";11 and
  • Therefore, VCAT is not empowered to hear cases concerning federal pieces of legislation12

Implications

This decision has the potential to be extremely disruptive to VCAT's operations. The ease in which a dispute can be converted to a "federal matter" (by the bona fide raising of a claim or defence under federal legislation, seemingly at any stage of the proceeding) means that there is a wide scope for matters to stall in VCAT and need to be referred out.

We are already seeing the challenges the Thurin v Krongold decision is causing in VCAT, as members are forced to strike out and refer matters where they lack jurisdiction. For instance, a VCAT proceeding that commenced in 2019 and had 63 applicants and 20 joined parties was struck out this month. The proceeding involves claims arising out of the Insurance Contracts Act 1984 (Cth) between one of the applicants and the 19th joined party, meaning that the entire proceeding and its related proceeding were both struck out and referred. The member found this "most unfortunate", given that it would "significantly further delay the hearing of both proceedings and...add to the costs associated with them".13

This is merely one example of what will now potentially become commonplace at VCAT, whose jurisdiction has been significantly curtailed. Moreover, parties may be discouraged from commencing an action in VCAT even if no federal issues are present at the outset, given that it might be removed from VCAT's jurisdiction after it is already underway due to new claims or joined parties.

Following this decision, claimants will need to take careful advice about which forum to commence a domestic building dispute, as getting this decision wrong (and having to restart in a different jurisdiction) will unnecessarily increase the costs and delays associated with the dispute. Equally, respondents will need to carefully consider the implications of relying upon a defence that may inadvertently convert the case into a "federal matter".

Conclusion

Thurin v Krongold is a significant decision that cuts right to the heart of VCAT's jurisdiction. We expect to see this remain a live issue for some time, as VCAT, the court and litigants attempt to navigate these upended and murky jurisdictional waters.

Thank you to Cree Oliveira and Emma Morris for their valuable contribution to research and drafting for this article.


1 Domestic Building Contracts Act 1995 (Vic), section 57

2 VCAT Building and Property List BP1087/2019 [2]

3 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [6]

4 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [9]

5 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [11]-[13]

6 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [17]

7 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [26]

8 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [6]

9 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [63]

10 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [44]

11 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [44]

12 Thurin v Krongold Constructions Pty Ltd [2022] VSCA 226 [45]

13 VCAT Building and Property List BP1087/2019 [3]

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