1. The second applicant must indemnify the joined party with respect to the respondents' counterclaim pursuant to the Terms of Settlement dated 31 May 2007 in Supreme Court proceeding No. 5120 of 2007.
2. By 18 June 2010 the joined party must file and serve any further affidavit material.
3. By 1 July 2010 the second applicant must file and serve any affidavit material in reply.
4. The joined party's indemnity claim against the second applicant is referred to a further hearing before Deputy President Aird on 5 July 2010 at 10:00 AM at 55 King Street, Melbourne, for half a day, at which time the tribunal will hear from the parties as to the extent and amounts to be indemnified.
5. The costs of and incidental to the hearing on 13 May 2010 are reserved with liberty to apply.

1. Until 5 March 2003 the second applicant ('Clements') and the joined party ('Wilbur') were in partnership carrying on business as domestic builders. They were registered with Vero Insurance as a partnership for the purposes of domestic building warranty insurance. On 5 March 2003, they incorporated Clements Building Pty Ltd and continued to operate their business through that Company. Subsequently they had a falling out and proceedings were commenced in the Supreme Court of Victoria. The parties to that proceeding were Ian David Clements; and Clements Building Pty Ltd; and I.D. Clements and A. W. Wilbur ('the partnership'); and Alfred Wilbur, Fiona Margaret Wilbur, and Aday Pty Ltd ('the Wilbur parties'). Those proceedings were compromised and terms of settlement entered into on 30 May 2007 ('the SC Terms').
2. In July 2004, Mr and Mrs Barlow ('the owners'), who are the first and second respondents in this proceeding, entered into a major domestic building contract for the construction of alterations and additions to their home. These proceedings were commenced in March 2006 by Clements Building Pty Ltd ('the Company') claiming payment of the sum of $102,458.95.
3. Following settlement of the Supreme Court proceedings, and in accordance with the SC Terms, the Company's interests in this proceeding were assigned to Clements. Under the SC Terms the Wilbur parties took control of the Company.
4. On 22 May 2007 Ian Clements was joined as second applicant to this proceeding. Points of Claim were filed on 20 June 2007; after settlement of the Supreme Court proceeding. Both the Company and Clements are named as the applicants. Although it is pleaded that the owners entered into a contract with the Builder, the Builder is not identified. However, in support of the Builder's alternative claim on a quantum meruit 'Clements Building Pty Ltd Profit and Loss' is set out in paragraph 9 of those Points of Claim. The amount claimed seems to be 107,458.95 which is described as 'cost to date'.
5. On 7 August 2007 the tribunal ordered that the Company be removed as a party to this proceeding. However, it is still recorded as the first applicant on the record with the notation 'withdrawn from the proceeding - orders dated 7 August 2007'. Points of Claim were filed on 19 November 2007 with Ian Clements as the applicant. Curiously, it was pleaded in those Points of Claim that Clements was the builder, and at paragraph 3 that:

At all material times the builder [Ian David Clements] was in partnership with Mr Alfred Wayne Wilbur.

1. Clements claimed $151,950.98 on a quantum meruit or, alternatively $73,602.11 'for loss and damage not including delay damages'.
2. Surprisingly, the Points of Claim do not recite how Clements is entitled to bring the claim in substitution for, or instead of, the Company. They do not set out the circumstances leading to the settlement of the Supreme Court proceeding. They do not, for instance, state that following the settlement of the Supreme Court proceedings the Company had assigned its interest in this proceeding to Clements and he was therefore authorised to bring this proceeding as the applicant.
3. On 10 December 2007 the owners filed a defence and counterclaim. The respondents to the counterclaim were Clements and Wilbur. In their counterclaim the owners allege that their contract was with the partnership and claimed damages of $118,686.77.
4. In February 2008 Wilbur filed an indemnity claim against Clements relying on the SC Terms. On 12 March 2008 Clements denied the indemnity. In such circumstances Wilbur says he had no alternative other than to defend the claims made by the owners in their counterclaim.
5. The hearing commenced on 13 October 2008. The proceeding settled during the hearing and the parties entered into terms of settlement ('the VCAT Terms') dated 16 October 2008. There has been no determination as to whether the Company or the partnership was the builder. Recital (e) of the VCAT Terms states:

Clements and Wilbur, whether as partners or on behalf of the Company, carried out the building work.

Clements agrees that these terms of settlement are without prejudice to the indemnity claim and that Wilbur is at liberty to have the proceedings relisted before Deputy President Aird for the hearing and determination of the indemnity claim, such hearing to take place at an appropriate time in view of the parties' obligations pursuant to these terms of settlement. In the event that it is determined that VCAT does not have jurisdiction to hear and determine the indemnity claim Clements and Wilbur shall be at liberty to issue proceedings in an appropriate jurisdiction to have the subject matter of the indemnity claim determined.

1. On 31 March 2010 I found the Tribunal has jurisdiction to hear and determine the joined party's indemnity claim as it is closely related to and arising from a domestic building contract.
2. Orders were made for the hearing of Wilbur's indemnity claim including for the filing and service of affidavit material. An extensive affidavit has been filed by Wilbur. There is no answering material from Clements other than an Amended Points of Defence to the Joined Party's Indemnity Claim dated 14 April 2010.
3. At the hearing of the indemnity claim Clements was represented by Mr Pumpa of Counsel and Wilbur was represented by Mr Dickensen of Counsel, both of whom provided me with written submissions to which they spoke.

1. At issue is whether the indemnity set out in the SC Terms includes Wilbur's costs of defending the counterclaim in this proceeding. Relevantly the SC Terms provide:
   1. The Wilbur parties will indemnify:

(b) Clements for the debts and liabilities of the partnership, save for any claims with respect to building works against Clements (in which the Partnership and/or the Company received the proceeds) ("Building Works Claims") to the extent that they exceed the balance for the time being remaining in the Contingency Fund.

1. As and from the settlement date, in respect of VCAT proceeding number D160-2006 Alfred Wilbur undertakes to procure an assignment by the Company of all its interest and liability in that proceeding to Clements in the form of the Deed of Assignment annexed hereto and marked 'B'.
2. The Wilbur parties will pay on or prior to the settlement date $40,000.00 into an interest bearing account in the names of Clements and Fiona Wilbur and Alfred Wilbur ('the Contingency Fund') which fund:

(a) shall remain open until 31 December 2016 or such time as Clements dies or becomes insolvent, or to an earlier date agreed between Clements, Alfred Wilbur and Fiona Wilbur;

(b) shall be drawn upon only to pay (in the following order):

(i) the balance of the Company's legal costs of the Proceeding to a maximum $15,000.00 within 14 days of submission of an account by the Company's solicitors ...;

(ii) any GST liability arising out of the Partnership's margin scheme, which is warranted by the Wilbur parties not to exceed $2,000.00, and to the extent that such liability exceeds that sum, that liability will be met by the Wilbur parties;

(iii) any Building Works Claims but not claim number D160-2006 in VCAT;

(c) shall be closed and the balance repaid to:

1. Clements will advise the Wilbur Parties of any and all Building Works Claims as soon as practicable after he receives notification of it or them and provide the Wilbur parties with copies of those claims and relevant documents.
2. To the extent that any Building Works Claims are made that are not capable of being satisfied out of the balance of the time being remaining in the contingency fund:

(a) Clements will make no claim upon the Wilbur parties, the Company or the Partnership;

(b) Clements will indemnify the Wilbur parties, the Company and the Partnership with respect to such claims.

1. Clements contends that the indemnity only extends to Building Works Claims made and received after the date of the SC Terms and that any claims in this proceeding are specifically excluded. However, as at the date of the SC Terms the only claim in this proceeding was the claim for payment made by the Company. Points of Defence had not been filed by the owners, and although they had obtained a report from the Building Commission following an inspection on 8 March 2006 they had not filed a counterclaim.
2. The owners did not file an expert report until 9 July 2007 - after the SC Terms were entered into. The counterclaim was not filed until 10 December 2007 some seven months after the SC Terms were entered into. As raised with Counsel for Clements, during the hearing, a counterclaim is a new application and, but for the administrative processes adopted by this List, would otherwise have been a separate proceeding. In Forty Third Janelda Pty Ltd v Allen [2009] VCAT 138 when considering the meaning of application in Section 115 of the Victorian Civil and Administrative Tribunal Act 1998 (VCAT Act) I said at paragraph [10]

... Following the usual practice in the Domestic Building List, rather than lodging a separate application as a cross-claim, the respondent counterclaimed for the estimated cost of rectification works ... An applicant is defined in s3 of the Act as 'a person who makes an application'. An application is defined as 'an application to the Tribunal'. An application fee is payable and was paid. In my view a respondent lodging a counterclaim, instead of a separate application, is clearly making an application.

1. Counsel for Clements submitted that the words of the contract - the SC Terms - speak for themselves and I must not have regard to the intention of the parties when entering into those terms. He referred me to Farmer v Honan [1919] HCA 13; (1919) 26 CLR 183 at 195, and said further that the presumption is that the document expresses all the terms in the contract with the effect that the court will only look to the document 'in determining what the contract really was and what it really meant' (Inglis v John Buttery & Co (1878) 3 App Cas 552 at 577 adopted in Gordon v MacGregor [1909] HCA 26; (1909) 8 CLR 316 at 323) [1]. I accept this. However, it is important to consider the SC Terms in conjunction with the Deed of Indemnity, the parties to which are Clements and the Company.
2. The Deed of Indemnity is in the following terms:

1. The Company is a Plaintiff in Supreme Court proceeding Number 5190 of 2007 (the "Proceedings").
2. This Deed of Indemnity is entered into to give effect to a settlement of the Proceedings.

1. The Company agrees to give an indemnity on the terms contained in this Deed to IC [Clements].

1. In consideration of the settlement of the Proceedings, the Company hereby indemnifies and holds harmless IC as and from the date of this Deed, in respect of all liabilities, claims, actions, suits, proceedings, demands, losses, damages, costs, fees and expenses whatsoever incurred or arising out of or in connection with the Company and in the course of IC undertaking the duties of officeholder of the Company (except to the extent of any dishonesty on the part of IC) save and except for the following -

Any Building works Claims to the extent that they exceed the balance for the time being in the Contingency Fund as provided for in the terms of settlement entered into to settle the Proceedings.

1. If any provision of this Deed is void, voidable by any party, unenforceable or illegal, it will be read down so as to be valid and enforceable or if it can not be read down, the provision or where possible the offending words will be severed from this Deed without affecting the validity, legality or enforceability of the remaining provision or provisions. The remaining provision or provisions after such severance will have full force and effect.
2. The Deed of Assignment is not relevant as the indemnity in paragraph 3 extends to the Company only and does not include the Wilbur parties.
3. In considering the provisions of the Deed of Indemnity in conjunction with the SC Terms I am satisfied that whilst the purpose for which funds can be drawn down from the Contingency Fund is qualified, such that those funds cannot be applied in satisfaction of any claims made in this proceeding, the indemnity is not qualified.
4. As noted above, at the time the parties entered into the SC Terms the only claim on foot in this proceeding was the Company's claim for payment. The counterclaim was not filed until nearly four months later. Clause 6(b) of the SC Terms is quite clear: it provides that the Wilbur parties will indemnify Clements for the debts and liabilities of the partnership, save for any claims with respect to building works against Clements in which the partnership and/or the Company received the proceeds. The clear intention of the parties, as expressed in the SC Terms, was that Clements was to be liable for any Building Works Claims made against him in respect of works carried out by the Company or the partnership, and that he was to indemnify Wilbur for any such claims.
5. I do not accept the submission on behalf of Clements that at the time of entering into the SC Terms the parties agreed and intended that Clements would indemnify Wilbur for any future Building Works Claims. If this had been the intention of the parties it would have been clearly stated in the SC Terms.
6. The High Court has recently said in Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd [2004] HCA 52 at 40:

The meaning of the terms of a contractual document is to be determined by what a reasonable person [in the position of the parties] would have understood them to mean. That, normally, requires consideration not only of the text, but also of the surrounding circumstances known to the parties, and the purpose and object of the transaction ...

1. If there was any doubt as to the parties' intentions, Clements' conduct following the execution of the SC Terms clearly demonstrates his understanding of the indemnity he had agreed to give in favour of Wilbur.
2. On 20 July 2007 Clements wrote to Gleeson & Co, the solicitors then on record for the Company, (although they are now the solicitors on the record for Clements) as follows

'Please note that as part of the settlement of the Supreme Court proceedings, I undertook to instruct you to make application for the removal of a Company Clements Building Pty Ltd from VCAT proceedings. You have a copy of the terms of settlement wherein I personally indemnified the Company in that regard.

Therefore I give you those instructions to make such an application to VCAT.

In regard to the VCAT proceedings, and because of the indemnity referred to above, you are further instructed not to take directions or instructions from or to divulge any information to Mr Wilbur or parties related to him unless I so consent.'

1. Although there is no correspondence from or on behalf of Clements after the counterclaim was filed, I am satisfied it was the parties' intention at the time they entered into the SC Terms that Clements would have the benefit of the Company's claim in this proceeding. I am not satisfied there was any agreement between the parties that the indemnity would not extend to any Building Works Claim that might be made by the owners.
2. It was suggested on behalf of Clements that if Wilbur believed he had an indemnity in respect of the owner's counterclaim he should not have played an active part in this proceeding. I reject this. Once Clements denied the indemnity it was entirely appropriate for Wilbur to take whatever steps were necessary to protect his interests. It may have been prudent for him to have sought a preliminary hearing as to the extent and meaning of the indemnity but that is an observation made with the benefit of hindsight. The manifest good sense of Wilbur taking all necessary steps to protect his interests are apparent when considered in the context of Clements' repeated failure to comply with directions of the Tribunal, and, ultimately, the VCAT Terms.

1. In the alternative Wilbur claims costs under Section 109 of the Victorian Civil and Administrative Tribunal Act 1998 ('the VCAT Act') should I find the indemnity does not apply. For the reasons set out above I am satisfied the indemnity does apply but if I am wrong I consider this an appropriate case for the exercise of the Tribunal's discretion under s109(2).
2. At all times Wilbur has played an active role in this proceeding complying with all directions insofar as they related to him. Wilbur only found himself a party to this proceeding, it seems, because in his Points of Claim Clements pleaded that the building work had been carried out by him in partnership with Wilbur. In such circumstances, it was entirely appropriate and reasonable for the owners to counterclaim against the partnership.
3. It is hard to believe Clements did not realise and appreciate at the time he entered into the SC Terms that he might be faced with a claim from the owners. That is a risk he took.
4. I therefore find Clements is obliged to indemnify Wilbur with respect to the counterclaim. I note in passing that at the commencement of the indemnity hearing counsel for Wilbur conceded that many of the costs Wilbur was seeking from Clements, as set out in his affidavit, were not referable to the counterclaim including counsel's fees and legal costs in relation to the Supreme Court proceedings. Wilbur has exhibited a large number of receipts to his affidavit. As counsel for Clements observed, many of the amounts sought refer to expenses which on their face do not appear to be referable to the counterclaim including mediation at Brighton (the subject property is in Ferntree Gully), vehicle and parking expenses including infringement notices. Further, I observed that although that many of the receipts are difficult to read, at least one of the petrol receipts includes Smarties, a Kit Kat and a Nestle medium bar and the full amount of the receipt has been claimed. I expect that all original receipts will be available at the next hearing. Accordingly, I will order Wilbur to file a further affidavit.
5. I will also reserve the costs of this hearing.

[1] Paragraphs 14 and 15 of submission on behalf of second applicant.