Have you unsuccessfully attempted to recover a debt by sending a letter of demand? It is important you are aware of your other options to pursue money owed through the legal system. In Victoria, creditors can recover a debt through two forums:
- The Victorian Civil and Administrative Tribunal (VCAT); or
- The Magistrates, County or Supreme Courts.
The statutory demand process dealt with in the Federal or State Supreme Courts is addressed in another article available here.
Using VCAT to Recover a Debt
Under the Australian Consumer Law and Fair Trading Act 2012 (Vic), VCAT has the power to deal with disputes or claims arising between purchasers and suppliers of goods or services in relation to the goods or services (known as consumer and trader disputes). The legislation does not limit the extent of VCAT’s monetary jurisdiction in relation to consumer and trader disputes.
In dealing with consumer and trader disputes, VCAT may order any or all of the following:
- Refer a dispute to a mediator appointed by VCAT;
- Order the payment of a sum of money found to be owing by one party to another party;
- Vary any term of a contract;
- Declare that a term of a contract is, or is not, void;
- Order the refund of any money paid under a contract or under a void contract;
- Make an order that a contract be performed;
- Order rescission of a contract;
- Order rectification of a contract;
- Declare that a debt is, or is not, owing;
- Make an order for the possession of land; and/or
- Order a party to do or refrain from doing something.
What is VCATs Jurisdiction?
In the recent case of Thompson v South East Water Corporation  VCAT 612, VCAT Senior Member Vassie ruled that disputes between suppliers and purchasers in regards to the supply of services must meet an additional requirement in order to be heard in VCAT – the applicant must establish that the supply was (or was to be) made “in trade or commerce”. It will suffice here to state that “in trade or commerce” means in the course of a business activity (see Keogh v Higgins (Civil Claims)  VCAT 1256).
Accordingly, a person who provides a service on a one-off basis or as a hobby may not be able to commence a proceeding in VCAT to recover payment. In contrast, a supply of goods need not be in trade or commerce in order to fall under VCAT’s consumer and trader dispute jurisdiction.
What Are the Pros/Cons to Suing in VCAT?
Unlike the courts, VCAT was designed to be user-friendly to self-represented litigants. To that end, it is not bound by the rules of evidence. Additionally, the starting point in a VCAT proceeding is that each party is to bear its own costs and its jurisdiction to award costs is only enlivened when it is satisfied that it is fair to do so. Accordingly, while this reduces the risk of an adverse costs order for applicants, it also reduces an applicant’s chance of being awarded costs. Most fundamentally, VCAT only has jurisdiction where it is specifically empowered under statute. This means that it does not have a general commercial jurisdiction and therefore cannot deal with common law claims such as breach of contract.
Using the Courts to Recover a Debt
The first matter to be considered in selecting the appropriate court is the value of the debt. The jurisdictional limit of the Magistrates Court of Victoria for a debt claim is $100,000, whereas the monetary jurisdiction of the County and Supreme Courts is unlimited. In terms of distinguishing between the County and Supreme Courts, the latter is more appropriate for complex debt recovery and charges higher filing and hearing fees.
What are the Pros/Cons to Suing in a Court?
Each of the State courts has a general commercial jurisdiction and can, therefore, deal with all types of civil debt claims (subject to their jurisdictional limits). Unlike VCAT, the courts are bound by the rules of evidence and due to their often complex and detailed rules, it is advised you have legal representation. The exception to this rule is for small claims (up to $10,000) which can be litigated in the Magistrates Court by way of arbitration. In arbitration, the court is not bound by the rules of evidence, and there is a cap on the costs claimable in the event of success (see here). All debt claims under $10,000 in the Magistrates Court are referred to arbitration.
In general, the courts tend to be slower than VCAT in listing matters for hearing or trial and, as a rule, the level of case management increases as per the court hierarchy.
Unlike in VCAT, in court proceedings, the guiding principle is that ‘costs follow the event’, meaning that a successful litigant will ordinarily be awarded costs in his/her/its favour as per the court scale. Notably, the court scale is often far below a litigant’s actual legal fees, and the process of fixing an amount of costs may require a separate application to the Costs Court.
The choice of the appropriate forum in which to commence debt recovery proceedings can be a complex one and so the best course is to seek legal advice to ensure that jurisdictional or procedural impediments do not arise in the course of the proceeding.
At LegalVision, we are well placed to assist with all Victorian debt recovery matters, so please get in touch with your questions on 1300 544 755.