Be careful using the dispute resolution provisions of the RLA 2003 to increase the disputation between the parties…

Justice Croft in the Supreme Court of Victoria has recently handed down his decision in the curious case of Koronczyk v Victorian Small Business Commissioner & Ors [2023] VSC 431 that sheds a practical light on the operation of the technical dispute resolution provisions in Part 10 of the RLA 2003.

The plaintiff was the sole director of the tenant of a retail shop and also the guarantor under the lease.  When the tenant fell into rent arrears, the landlords applied to the VSBC for mediation and mediation was duly conducted.  Importantly, the plaintiff in his capacity as guarantor was not named as a respondent in the application for mediation at the VSBC and he did not attend.  However, he was identified as one of the tenant’s contacts and mediation was attended by his brother, who had responsibility for the tenant’s leasing portfolio.

The mediation was unsuccessful, a certificate was issued by the VSBC, and the landlords commenced proceedings at VCAT against the tenant and against the plaintiff as guarantor under the lease.  

After about 18 months at VCAT, the proceedings were struck out with a right of reinstatement, because the tenant was placed into administration.  At that time, the landlords went back to the VSBC and asked for the VSBC’s certificate to be amended to say that mediation had failed between the landlords, the tenant and the plaintiff (in his capacity as guarantor under the lease).  

After the certificate was amended, the plaintiff requested that it be revoked because the plaintiff was not invited to and did not attend the mediation.  

Following that request and a number of phone calls, the VSBC asked the landlords (though their solicitor) if they wanted to conduct a mediation with the plaintiff.  When the landlords said firmly that they did not want to mediate, the VSBC informed them that the VSBC could not compel the landlords to attend mediation and that the landlords could apply for a fresh certificate.  The landlords evidently did apply for a fresh certificate naming the plaintiff as guarantor, a certificate was issued by the VSBC and the landlords had the proceedings reinstated at VCAT solely against the guarantor.

The plaintiff then took the extraordinary step of issuing proceedings in the Supreme Court to quash certificate issued by the VSBC naming the plaintiff and requiring a mediation to be conducted.

In response, the VSBC sought summary dismissal of the Supreme Court proceedings, resulting in last week’s judgment.  The Court granted the orders sought by the VSBC, ultimately finding that the VSBC had done all that was required to do, and all that it could reasonably be expected to do, by offering the landlords a mediation with the guarantor and then issuing a certificate after the landlords firmly declined that offer.  

The decision is concise, but quite technical, and I do not propose summarising all of the Court’s reasons here.  For the lease-nerds who are interested, click on the link above and refer to paragraphs [39] to [60] of the Court’s the reasons. However, there are a few points that are worth highlighting.

First, central to the plaintiff’s argument was s 86 of the RLA 2003, which states that (among other things):

(1)       Any or all of the parties to a retail premises lease may refer a retail tenancy dispute to the Small Business Commission for mediation.

…

(3)       The Commission must arrange for each retail tenancy dispute referred in accordance with this section to be the subject of—

(a)       mediation by a mediator; or

(b)       another appropriate form of alternative dispute resolution by a suitably qualified person.

…

In response to the argument that a mediation was compulsory before a certificate could be issued, the Court held that:

[39]     … provisions such as s 86(3) of the RLA must, in my view, be interpreted as being in the nature of a procedural provision rather than a mandatory provision as the plaintiff contends; in spite of the use of the word “must” in respect of arranging a mediation.  This, in my view, follows from the broad conferral of power on the VSBC with respect to dispute resolution in Part 10 of the legislation and regard for what must, ultimately, be the voluntary nature of “mediation”, whether in a broad or narrow sense.^[1]  Were s 86(3) to be interpreted as a mandatory provision it would follow that the process provided for in the provisions of Part 10 to which reference has been made could be stymied by a party simply refusing to take part in a mediation in which case it would either be pointless or impossible for the VSBC to ‘arrange’ a mediation for the purpose of the provisions of s 86(3), or otherwise.

Secondly, the Court formed the view that the proceeding was a delay tactic by the plaintiff and was quite critical of his conduct, holding that (among other things):

[52]     … the gravamen of the plaintiff’s complaint is that it was not afforded a mediation in respect of its obligations as guarantor under the Lease.  That dispute has been the subject of a proceeding at the Tribunal since December 2021.  Seemingly largely due to the plaintiff’s own actions, that proceeding has not advanced in any meaningful way.  If it is the case that the plaintiff is genuinely concerned about not having the opportunity to mediate the dispute, then it is telling that there no evidence before the Court that the plaintiff has requested such a mediation or other form of alternative dispute resolution at the Tribunal.  It is likely that the Tribunal would readily accommodate such a request, and any actual mediation sought by the plaintiff would then be ordered.^[2]  Nevertheless, the plaintiff has taken no steps to progress the VCAT proceedings and has not even now filed a defence; though well out of time in this respect under the Tribunal’s orders.  Neither has the plaintiff communicated any inkling of its defence to the Landlords; and counsel appearing for the plaintiff in these proceedings had no instructions or knowledge as to what the plaintiff’s defence is or may be.

…

[59]     … I am of the view that this proceeding does amount to an unmeritorious attempt by the plaintiff to mount a collateral attack on the jurisdiction of the Tribunal and in circumstances where any such challenge to its jurisdiction should properly have been made or be made in the Tribunal.  I accept that it is telling that the plaintiff has chosen not to follow this course.  The attempt by the plaintiff in the present proceeding to agitate a collateral attack on the Tribunal’s jurisdiction in this Court has exposed the parties to this proceeding to unnecessary costs and, in the case of the Landlords, to unnecessary delay. This attempt must be regarded as ‘scandalous’ and ‘vexatious’, in the sense that those terms are applied in the circumstances such as the present, for at least those reasons. …

The Court made an award for indemnity costs against the plaintiff.

There are a couple of take-home points for practitioners:

1. The dispute resolution provisions in Part 10 of the RLA 2003 are intended to facilitate the early resolution of retail tenancies disputes, not increase disputation between the parties.  I often see practitioners taking a technical interpretation of those provisions in an attempt to delay proceedings against their clients.  This decision illustrates that parties to litigation take such an approach at their own peril and that the Court is likely to take a particularly dim view of parties who adopt an unmeritorious technical approach to those sections in an attempt to secure leverage for their clients.
2. It may be tempting to infer from this judgment that an applicant seeking swift justice could simply apply for a certificate and then refuse to mediate in order to reduce costs and expedite the litigation process.  However, that is also a risky approach because the Tribunal may make a costs order against a party to a retail tenancies dispute under s 92(2)(b) of the RLA 2003 if a party refuses to take part in mediation.
3. That being said, a landlord seeking swift judgment for a claim against a tenant solely in relation to the payment of rent (see s 81(2) of the RLA 2003) or against a guarantor (see s 89(4)(c)) or for limited number of other disputes (see s 89(4)(a) and (b)) may issue proceedings in Court, rather than VCAT, without the need to mediate at the VSBC.  For further discussion on the considerations associated with this approach, see: https://samhopperbarrister.com/2012/12/18/whether-to-issue-in-vcat-or-court-for-arrears-of-rent-under-a-retail-premises-lease/

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^[1] And see s 85 of the RLA.

^[2] See VCAT Act s 88 (also applied with respect to retail lease disputes under Part 10 of the RLA by s 91(1)(e) of that Act; and see Jeffery v Corrections Victoria (2004) 21 VAR 196; [2004] VCAT 1211 at [24], where Morris J observed (as VCAT President) observed that VCAT has been “in the vanguard of promoting mediation as a means of resolving disputes.