In an earlier post here I wrote about the Justice Legislation Amendment Bill 2023 (Vic) that was currently before the Victorian Parliament. A few people have asked for an update on the Bill’s progress.

The Victorian Government legislation website notes that the Bill passed through the upper house last Tuesday, 3 October 2023. The same website is not showing the Bill as an Act that is currently in force, which suggests that the Bill is awaiting Royal assent.

Many readers will be aware of the ongoing issues at VCAT resulting from certain limits to its jurisdiction.  I recently wrote a post here relevant to the exercise by the Tribunal of ACL jurisdiction.  That does not address the ongoing issues with the Statute of Limitations and contribution claims under the Wrongs Act.  However, a legislative fix to those problems is now working its way through Victorian Parliament.

The Limitation of Actions Act

Earlier posts here and here discuss recent findings by the Court and VCAT that the Limitation of Actions Act does not apply to VCAT.

The Justice Legislation Amendment Bill 2023 (Vic) has been passed by the Legislative Assembly (the lower house) and is currently being debated by the Legislative Council (the upper house).

Section 73 of the Bill seeks to amend the definition of Court in s 3 of the Limitation of Actions Act so that it will read as follows:

action includes any proceeding in a court of law or in VCAT;

The following transitional provision is also proposed to be added to the Limitation of Actions Act:

39B    Transitional—2023 amending Act

The amendment made to this Act by section 73 of the Justice Legislation Amendment Act 2023 applies on and after the commencement of Division 3 of Part 10 of that Act to causes of action whether accruing before, on or after that commencement.

Once passed, those amendments should restore the normal operation of the Limitation of Actions Act to proceedings in VCAT.

Wrongs Act contribution claims

Justice Delany, sitting as a judicial member of VCAT in Vaughan Constructions Pty Ltd v Melbourne Water Corporation (Building and Property) [2023] VCAT 233, held that VCAT also did not have jurisdiction to hear and determine contribution claims under Part IV of the Wrongs Act 1958 (Vic). 

This had a significant impact on a large number of building and construction cases in the Building and Property list at VCAT, many of which involve claims for contribution from contractors and sub-contractors.  Retail tenancies disputes are also heard in the Building and Property List.

It did not have a direct impact on any retail leasing disputes that I am aware of, as contribution claims rarely arise in those cases.  However, it has had an indirect impact on the conduct of those cases, as it has caused a number of large cases to be transferred out of the Building and Property list and into the Supreme Court, freeing members to hear more retail tenancies disputes.

However, the issue is also addressed by the new legislation, s 98 of the Justice Legislation Amendment Bill 2023 (Vic) will, when passed, give VCAT jurisdiction over contribution claims in the Wrongs Act 1958 (Vic), and should address this problem.

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/

^[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.

Many readers will be aware already of the Court of Appeal’s decision in Thurin v Krongold Constructions (Aust) Pty Ltd [2022] VSCA 226.

For those who haven’t heard, the upshot of the decision is that VCAT cannot hear a case that raises a bona fides issue under federal legislation.

An excellent summary of the decision by my colleague at the Victorian Bar Melinda Jackson can be found at the CommBar blog here.

Anecdotal reports suggest that the decision is already starting to have an impact on retail leasing cases at VCAT.  In particular:

First, I was listed for a four-day trial that was scheduled to commence last Monday.  The respondent filed a counterclaim that raised alleged breaches of the Australian Consumer Law and Fair Trading Act 2012 (Vic).  The respondent did not plead its claim under the Competition and Consumer Act 2010 (Cth).  However, the Australian Consumer Law and Fair Trading Act 2012 (Vic) incorporates into Victorian law the Australian Consumer Law, which is contained in a schedule to the Competition and Consumer Act 2010 (Cth). When the Tribunal was asked to make some last-minute pre-trial directions, it unilaterally adjourned the trial for a number of reasons.  Among the reasons given for the adjournment was that the pleadings raise issues relating to the Australian Consumer Law and that it was appropriate for the matter to be referred to a judicial member.

Secondly, the problems with VCAT’s lists in recent years has been well-known for some time now (see my earlier post here).  I have heard that wait times to trial have stretched out as far as 2025.  However, recent anecdotal reports suggest that adjournments such as occurred above are likely to become commonplace.  One colleague has reported to me that she recently appeared at a directions hearing for a trial that is currently listed in November 2023 and was told by the Tribunal that there were likely to be vacancies in the list due to jurisdiction issues that have arisen, which could see her case being given an earlier trial date.

I suggest that practitioners with retail tenancies cases at VCAT keep a close eye on how things are progressing and consider the following:

• if you have a case that raises a claim or counterclaim under the Australian Consumer Law – whether that be under the Australian Consumer Law and Fair Trading Act 2012 (Vic) or the Competition and Consumer Act 2010 (Cth) – you should consider making an application to VCAT for orders referring the matter to the Supreme Court or County Court to be heard and determined by a judicial member sitting as both VCAT and a Court that can exercise federal jurisdiction;  and
• if you have a case that is listed for a trial at some stage in the distant future and your client would prefer to have that case heard sooner, you should consider making an application to have the matter listed for an earlier trial, even if it does not raise a claim under the Australian Consumer Law, as the Tribunal’s lists may well free up in the coming weeks or months. 

For those wanting to read more about the Court of Appeal’s decision in Thurin v Krongold Constructions (Aust) Pty Ltd [2022] VSCA 226, I suggest looking at the following blogs:

• https://www.landers.com.au/legal-insights-news/court-holds-that-vcat-lacks-jurisdiction-to-resolve-disputes-relating-to-federal-issues
• https://hwlebsworth.com.au/decision-of-the-victorian-supreme-court-of-appeal-signals-vcat-no-longer-has-the-jurisdiction-to-hear-federal-matters/
• https://www.khq.com.au/legal-blog/court-of-appeal-vcat-has-no-jurisdiction-in-federal-matters/
• https://www.cornwalls.com.au/vcats-jurisdiction-for-domestic-building-works-limited/

There is a construction issue that keeps coming up in retail and commercial leasing cases about whether a market rent review is required at the commencement of a new term in the standard LIV copyright lease when the Schedule says there are no market reviews.  Different versions of the same issue keep cropping in different version of the LIV lease.

In MD & S Griggs Pty Ltd v DWH Pty Ltd (Building and Property) [2016] 1718, Senior Member Riegler (as the Deputy President was then) considered the 2006 revision of the LIV lease.  

Clause 11 is the market review clause.

Clause 12 of the LIV lease deals with renewals, and in the 2006 revision it states that (underlining added):

12.2       The renewed lease –

12.2.1    starts on the date after this lease ends,

12.2.2    has a starting rent determined in accordance with clause 11, and

12.2.3    must contain the same terms as this lease but with no options for renewal after the last option for a further term stated in item 18 has been exercised.

Accordingly, clause 12.2.2 suggests that the starting rent for a new term is to be determined by market review under clause 11.

However, Item 16 of the Schedule to the lease considered by Senior Member Riegler states that (underlining added):

Item 16                Review date(s):

[2.1.1, 11, 18]

Market review:               Not applicable

CPI review:                     Not applicable

Fixed review:                  Not applicable 

Item 17                Who may initiate reviews:

[2.1.1, 11, 18]

Market review:               Not applicable

CPI review:                     Not applicable

Fixed review:                  Not applicable

The tenant in that case argued that the lease did not provide for market reviews because of the text in the Schedule, and the landlord argued that clause 12.2.2 prevailed.  The Senior Member held that:

16.       In my view, the words market review date in Clause 11 refer to a point in time during the currency of the lease. Similarly, Items 16 and 17 of the lease schedule refer to mid-term reviews, not the process of fixing the initial rent at the commencement of each renewal. 

17.       I am of the view that Clause 12.2.2, which states that the renewed lease has a starting rent determined in accordance with clause 11, means that the mechanical provisions of Clause 11 are to be utilised to determine what the starting rent is to be for the renewed lease. This is because the opening words of Clause 11.1 contemplate that the review period will cease either at the next review date (if there is one) or alternatively, at the end of this lease. Therefore, the market review date refers to a point of time during the currency of the lease. The failure to specify a market review date in the lease schedule simply means that there will be no market review during the currency of any specific term. However, it does not therefore follow that there will be no market review to determine the starting rent of any renewal. Such an interpretation would be inconsistent with Clause 12.2.2 which requires that there be a determination of the starting rent of any new term.

…

23.       … Clause 11 has two functions. The first is to provide the mechanical provisions for rent review during the currency of a term, subject to Item 16 of the lease schedule stipulating a market review date. The second function is to provide mechanical provisions to establish the starting rent of any renewed term.

24.       In my view, such an interpretation avoids the apparent disharmony between the two provisions and gives effect to what was intended. I am reinforced in this view by a review of the following authorities, which examine how a conflict between two clauses may be reconciled

The same issue arose last year in the case of Baroud Nominees Pty Ltd v Mereland Technology Pty Ltd(Building and Property) [2022] VCAT 516, in which Member Nash considered the same provisions in the May 2009 revision of the LIV lease.  In that revision, clauses 11 and 12 were in materially the same form as the 2006 Revision.  Items 16 and 17 of the Schedule in that case stated that (underlining added):

Item 16

[2.1.1, 11, 18]

Review date(s):

Term

(a) Market Review date(s);                      Not Applicable

(b) CPI review date(s):                               On the first anniversary of the commencement date and upon each anniversary of the commencement date thereafter in accordance with the increase in the CPI of the rent payable in the year preceding each such review date.

(c) Fixed review date(s) and percentage

of fixed amount increases:             Not Applicable

Item 17

[2.1.1, 11, 18]

Who may initiate reviews:

Market review:                                        Not applicable

CPI review:                                               Review is automatic

Fixed review:                                            Not applicable

Member Nash referred to the decision in Griggs and adopted and applied the same reasoning.

The same issue has arisen in a number of cases that I have been involved with recently and, given the recent volatility in rent, may well arise in other case, so practitioners should be aware of the decisions. 

Relevantly, the decisions suggest that:

1. if Eleanor has already leased a property to her tenant Fraser with options for a further term, and they used one of the the LIV standard leases, the rent for the new term will probably be determined by a market review, even if they have have marked ‘not applicable’ to market reviews in the Schedule (or words to that effect);  and
2. if Eleanor and Fraser want to use the LIV standard lease and specify a different mechanism for determining the rent for the commencement of a new term, they should expressly state that intention in their lease.  The easiest way to do that is to draft an additional provisions that expressly overrides the operation of clause 12.2.2.  They will also need to ensure that the proposed rent review complies with sub-s 35(2) of the RLA 2003 (see here).

However, practitioners should also be aware that the each lease is construed on its own terms.  While the decisions above are a good indication of how the LIV standard lease will be construed on this issue in the future, the decisions are not binding and there may be other indications in the documents that a different construction is applicable.  

Also, the LIV lease may well change – so make sure you read the whole lease before adivising clients!