Executive Summary
So extensive are the delays now in the Victorian Civil and Administrative Tribunal (VCAT) due to the effects of staff shortages and the pandemic that the County Court recently held in Impresa Construction Pty Ltd v Oxford Building Group Pty Ltd [2021] VCC 1146 that VCAT should no longer be chiefly responsible for resolving domestic building disputes and could be bypassed in favour of other Victorian courts while conditions persisted.
The finding was made in the context of an application under section 57(2)(a) of the Domestic Building Contracts Act 1995 (Vic) (Act) to stay proceedings commenced in the County Court. Under that section, an action in respect of a domestic building dispute commenced in the Magistrates’, County or Supreme Court must be stayed if it “could be heard by VCAT”. These words were deemed to be a precondition to the right to stay. The Court held that the precondition was not met if it could not be said that a matter was capable of being heard in a practical sense, that is within a reasonable timeframe.
Although the Court found that section 52(2)(a) of the Act was, in any event, not engaged as the action was not a domestic building dispute, the decision sends a strong signal that until such time VCAT overcomes its difficulties, it remains open to parties to resist a stay on the same basis. This is likely to encourage parties to commence domestic building disputes in the courts rather than VCAT without fear of being stayed. This raises a number of costs and strategic issues that need to borne in mind.
The decision also clarifies that disputes arising out of a contract between a builder and a sub-contractor are not domestic building disputes for the purposes of the Act.
HWL Ebsworth Lawyers has expertise in acting for all parties including owners, builders and subcontractors in building disputes across both the domestic and commercial setting. Please contact Paul Graham of our Construction and Infrastructure team with any enquiries.
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What happened?
Impresa Construction Pty Ltd (Impresa) entered into a subcontract with Oxford Building Group Pty Ltd (Oxford) for $262,500.00 to supply and install certain doors and windows as part of the construction of four townhouses and one office building at a site in Yarraville (Contract).
Oxford terminated the subcontract and on 30 March 2020 Impresa commenced proceedings in the County Court seeking a declaration that the termination was invalid and damages. On 25 June 2021, Oxford applied for a stay of proceedings under section 57 Act.
Was section 57 of the Act engaged?
Section 57 of the Act requires that a Court must dismiss an action arising from a domestic building dispute on application of any party, if it has not been heard by VCAT first and if the action “could be heard by VCAT”.
Impressa argued that section 57 of the Act was not engaged as the dispute did not involve a domestic building dispute.
Section 54(1) defines a domestic building dispute as a dispute or claim between (relevantly) a building owner and a builder or sub-contractor or between a builder and a sub-contractor, in relation to: (a) a domestic building contract (First Limb) or (b) the carrying out of domestic building work (Second Limb).
Section 3 of the Act defines a domestic building contract as a contract to carry out, or to arrange or manage the carrying out of, domestic building work other than a contract between a builder and a sub-contractor.
Sections 3 and 5 of the Act define domestic building work as including the erection or construction of a home, including any associated work and preparation of plans or specifications of the carrying out of such work.
Regarding the First Limb, the Court held that the Contract was not a domestic building contract as it was a contract between a builder and a sub-contractor.
Regarding the Second Limb, although a dispute arising out of the sub-contract could clearly involve domestic building work as defined under Section 3 and 5 of the Act, the Court held that the express exclusion in Section 3 of contracts between a builder and a sub-contractor would be rendered inutile if it was sufficient for the dispute to involve building work. The Court held that Second Limb applied when there was no contract between the parties and the work was done on a quantum meruit basis.
In short, the Court held that as neither limb applied, the dispute was not a domestic building dispute and Section 57 had no application.
What did the Court say about under-resourcing at VCAT?
Despite not being raised by either party, the Court went on to say that it would, in any event, be open to a party to argue that the right to stay proceedings under Section 57(2)(a) does not arise given the lamentable state of under-resourcing at VCAT.
The Court noted that, as at 30 April 2020, approximately 400 VCAT matters were adjourned, with VCAT venues closed to the public and no face-to-face hearings being scheduled. VCAT’s website states that “due to COVID-19 … timeframes do not apply” and that “VCAT will “assess your application and contact you within 8-10 weeks”. By August 2021, VCAT’s Building and Property List was vacating all hearings of long and complex cases from October 2021 due to the backlog of matters and shortage of resources.
The likelihood was that the current matter would be resolved sooner in the County Court than in VCAT.
The Court contrasted this state of affairs with one of Act’s main objectives, which is “to enable disputes involving domestic building work to be resolved as quickly, as efficiently and as cheaply as is possible having regard to the needs of fairness”.
It observed that the inability to commit to a time frame and/or the inability to deal with disputes due to lack of VCAT resources undermines the objective of the Act and VCAT is effectively prevented from being able to perform its function and role.
The Court held that the words “if the action could be heard by VCAT” in Section 57(2)(a) of the Act imposed a precondition, which in the current circumstances could not be met in practical sense due under-resourcing. An injection of much needed resources was required to make it possible for VCAT to fulfil its role.
Why is this decision important?
The Court’s position on the right to stay proceedings under Section 57(2)(a) of the Act is, we believe, significant.
While conditions persist, it is likely that parties to domestic building disputes, particularly larger and more complex disputes, will consider commencing proceedings in the County or Supreme Courts rather than in VCAT. The ability to do so without the risk of being stayed may be a welcome relief.
However, for those used to the relative informality and specialism of VCAT, this will not be a positive development. Furthermore, there is the increased risk in court proceedings of having to pay the other side’s costs in the event of an adverse outcome. The bar for a costs order is higher in VCAT. It is also unclear whether the County Court has sufficient resources to deal with a large number of domestic building disputes in its Building Cases List.
Overall, while this may be a short term fix, the better solution is obviously increased funding to boost resources in VCAT. Time will tell whether this is considered a priority.
How can HWLE help you?
HWL Ebsworth Lawyers has expertise in acting for all parties including owners, builders and subcontractors in building disputes across both the domestic and commercial setting. Please contact Paul Graham of our Construction and Infrastructure team with any enquiries.
This article was written by Paul Graham, Partner, Brian Rom, Special Counsel and Kai-Yang Goh, Solicitor.
