Frost v Reid Smith - [2006] SADC 73

DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
FROST v REID SMITH
Judgment of Her Honour Judge Shaw
27 June 2006
CONTRACTS - GENERAL CONTRACTUAL PRINCIPLES - CONSTRUCTION AND INTERPRETATION OF CONTRACTS
ADMINISTRATIVE LAW
APPROPRIATE FORM OF RELIEF - DISCRETION OF THE COURT
Claim by plaintiffs for sums owing by the defendant pursuant to a contract for the sale of the plaintiffs share in a company, Samsean Pty Ltd. The defendant alleges that the contract for the sale of shares was part only of a wider contract.
Held the contract between the plaintiffs and the defendant is that contained in the contract for the sale of shares and is not part of a wider contract.
Frustrated Contracts Act 1988 (SA) s6, referred to.
Johnson Matthey Ltd v A.C. Rochester Overseas Corporation (1990) 23 NSWLR 190; Forstaff Adelaide Pty Ltd v Hills Industries Ltd [2006] SASC 88; Austrust Pty Ltd v Astley & Ors (1993) 60 SASR 354; Abrams & Anor v A V Jennings [2002] SASC 417; Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1981) 149 CLR 337; Leyland Motor Corporation of Australia Ltd v Wauer (1981) 104 LSJS 460; Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310; Watcham v A-G of the East Africa Protectorate [1919] AC 533; Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696; Brisbane City Council v Group Projects Pty Ltd & Anor (1979) 145 CLR 143; Ardee Pty Ltd v Collex [2001] NSWSC 836; Beaton v McDivitt & Anor (1987) 13 NSWLR 162; Clark v Local Government Training Authority SA Inc [2001] SASC 273; Carney v Herbert & Ors [1985] AC 301, considered.

FROST v REID SMITH
[2006] SADC 73
Introduction

Thomas Frost and Debra Frost (“the plaintiffs”) are husband and wife. Thomas Frost and Jonathon Reid Smith (“the defendant”) have been friends and business partners together for many years.
The plaintiffs were the beneficial owners of one share each in Samsean Pty Ltd (“Samsean”). The defendant held the remaining share. Samsean conducted a commercial cleaning business, “Commercial Clean”. The parties allocated to themselves different functions based upon their expertise.
Mr Frost was responsible for the day to day operations of Samsean and Mr Reid Smith, an accountant, was responsible for the financial management of Samsean.
On 4 February 2001, the parties executed a sale of shares agreement (“the contract”). The plaintiffs’ case is that the contract between the parties is wholly in writing; is clear on its face and contains all of the terms of the sale of the plaintiffs’ shares in Samsean, to the defendant.
The plaintiffs further contend that the contract appears on its face to be a complete record of the parties’ agreement and that accordingly it is presumed at law to contain the whole of the agreement between them.[1]
[1] Johnson Matthey Ltd v A.C. Rochester Overseas Corporation (1990) 23 NSWLR 190
The defendant contends that he is not obliged to pay the agreed price for the Samsean shares and related assets. He says he is entitled to a refund of certain monies paid pursuant to the contract.
The defendant’s case is that there is a wider agreement between the parties which is partly oral, partly in writing, and partly to be inferred (“the wider agreement”) which governed the obligations of the parties to the contract. In the alternative, the defendant asserts the existence of a collateral contract.
The wider agreement was alleged to have been entered into between “January and 4 February 2001”[2] at the premises of Mr Peter Lines, the accountant for Samsean. The defendant asserts that the wider agreement is in fact a tripartite agreement between the plaintiffs, the defendant and Samsean, in respect of which Mr Frost acted as agent for himself and his wife.
[2] Defence para 7
The terms of the wider agreement were said to include a term that a new company, Gloss Australia Pty Ltd (“Gloss Australia”) would be incorporated to operate an ultraviolet floor coating business “Permagloss Floors”, with ultraviolet floor polishing machines to be purchased from a company called Hako.
The parties seek a declaration as to their rights pursuant to the terms of any contract, which the court determines existed between the partes. The parties submitted that trial should be limited to such declaratory relief so that the parties can then determine what other relief may be required. In particular, a declaration as to their respective proprietary rights to certain ultraviolet machines will enable the parties to resolve outstanding issues.
Courts are reluctant to grant declaratory relief unless these is a real purpose in doing so rather than to answer some theoretical question.[3]
[3] See Forstaff Adelaide Pty Ltd v Hills Industries Ltd [2006] SASC 88
It is also preferable that all outstanding issues and final relief sought be dealt with at the same time. In my opinion this is an appropriate case where declaratory relief be given and the parties be given an opportunity to resolve outstanding issues in light of my reasons.[4]
[4] See Austrust Pty Ltd v Astley & Ors (1993) 60 SASR 354 at 391
However, difficulty arose in this case because neither Samsean nor Gloss Australia were joined as parties in this action. The proceedings were allowed to continue without those companies even though, on the defendant’s case, there is a real question as to whether at least Samsean ought to have been a party to the wider agreement. If there was a wider agreement, in my opinion Gloss Australia and Samsean ought to have been parties to this action, so that the relief sought could have been given.
It is necessary to determine whether it is the contract or the wider agreement which governs the contractual relations between the parties. One difficulty which arises is that at least one of the parties to the wider agreement, Samsean, is not a party to the proceedings. Further declaratory relief is sought with respect to the beneficial ownership of the ultraviolet machines, in circumstances where neither potential beneficial owners, Samsean and Gloss Australia are parties to the action.
In order to make that determination, it is necessary to make findings in relation to the terms of the agreement between the plaintiffs and the defendant. On the defendant’s case the further question which arises, in the event that I find that there was such a wider agreement, is whether the wider agreement was frustrated.
If the court finds that the wider agreement has not been frustrated, the defendant seeks a determination as to the quantum claimed by the plaintiff; and a declaration as to the beneficial ownership of the ultraviolet machines.
As in the case of Johnson Matthey,[5] the major focus of the trial was the evidence called by the parties as to the meetings which took place between July 2000 and 4 February 2001. This evidence was principally given by Mr Frost, Mr Reid Smith and Samsean’s accountant Mr Lines. I was concerned about the admissibility of pre-contractual negotiations which would ordinarily be excluded by the parol evidence rule. I admitted the evidence however, to determine whether any collateral contract was entered into between the parties; and because those discussions may “tend to establish objective background facts which were known to both parties”.[6]
[5] supra
[6] Codelfa Construction Pty Ltd v State Rail Authority (NSW) 1981) 149 CLR 337, at 352; Johnson Matthey supra at p 194
Further, as it transpired, there was some ambiguity on the face of the contract in consequence of which the evidence of those witnesses was necessary to assist in the proper construction of the contract.[7]
[7] See Abrams & Anor v A V Jennings [2002] 84 SASR 363, Codelfa Construction Pty Ltd v State Rail Authority (NSW) (1981) 149 CLR 337
Background Facts
In 1983, the plaintiffs commenced a cleaning business named “Commercial Clean”. The business sourced cleaning contracts mainly from supermarkets. Both Mr and Mrs Frost worked in the business and it began to prosper. In 1988 Mr Reid Smith joined the plaintiffs in that business. At this time, Mr Reid Smith was a qualified certified practicing accountant who had taken a separation package from Telstra. On 19 September 1988, Samsean Pty Ltd was incorporated. In about 1999, the plaintiffs’ daughter became unwell. Mr Frost discussed with Mr Reid Smith the possibility of ceasing his involvement in the cleaning business (including all associated companies) and running a newsagency.
On about 19 July 2000, at the office of their mutual accountant, Peter Lines, Mr Reid Smith offered to pay the plaintiffs a sum of money for the plaintiffs’ interest in the Commercial Clean business. The amount offered by Mr Reid Smith at that time is the subject of dispute between Mr Frost and Mr Reid Smith.
In December 2000, Samsean became interested in an ultraviolet floor polishing machine released by Hako, that would deliver to customers a significantly superior floor polish and at the same time reduce the customer’s on-going floor cleaning and maintenance costs. The machine would allow a contractor to spread a layer of liquid chemical polymer on a large floor area, and then the ultraviolet floor-polishing machine would cure the polymer.
Hako demonstrated the UV process to the parties at premises of Floor Master at Greenacres.
In January 2001, Mr Reid Smith devised a plan that would allow both plaintiffs to sell their interest in Samsean to Mr Reid Smith. Mr Reid Smith was unable to pay a lump sum to the plaintiffs for their shares. The proposal from Mr Reid Smith was that a separate company be established to operate the new ultraviolet machines. The company, to be incorporated, would be Gloss Australia. Mr Reid Smith and Mr Frost would be equal shareholders in Gloss Australia. Mr Frost would be appointed managing director and would be in charge of the operation of the activities of Gloss Australia.
On 17 January 2001, the business name of “Permagloss” was registered to operate the new business.
On about 19 January 2001, at a meeting at the office of Mr Lines, Mr Reid Smith and/or Mr Lines demonstrated on a whiteboard some details of Mr Reid Smith’s proposal for the purchase of the plaintiffs’ shares in Samsean’s business. This meeting is described as “the January white board meeting”.
On 22 January 2001, Gloss Australia was incorporated.
On 31 January 2001, Mr Reid Smith and Mr Frost met at the office of Mr Lines and the contract was presented to Mr Frost for execution. On that occasion Mr Lines, Mr Reid Smith and Mr Frost discussed the agreement, attachment A. The notes which were the basis of attachment A were prepared by the defendant.
A written sale of shares agreement was signed by the parties on 4 February 2001. The sale of shares agreement in standard form was provided by Mr Lines.
On 13 February 2001, in accordance with the terms of the contract, the defendant paid $1,000.00 into Mr Frost’s account. These payments continued on a weekly basis. On the same day, a test floor was laid by Gloss Australia, using the ultraviolet technology.
On 28 May 2001, the real estate owned by Samsean was transferred into the superannuation fund of the defendant.
About a month after the due date, the sum of $100,000.00 was paid by the defendant to the plaintiffs in accordance with the contract.
By September 2001, a problem had arisen with the floors laid using the Hako ultraviolet system.
On 2 April 2002 Mr Lines advised Hako of a claim for $62,449.00 (plus GST), in respect of the failed ultraviolet technology. This amount included the sum of $33,739.00 (plus GST) claimed by Mr Reid Smith on behalf of Samsean for rectifying the Mildura floor. Samsean carried out the repairs on behalf of Gloss Australia. The floor needed repairing because the ultraviolet machines were defective.
In about April 2002, at Mr Lines’ office, Mr Reid Smith informed Mr Frost that the rectification of the Mildura floor had cost Samsean $37,112.90. There is a dispute between the parties as to whether an agreement was reached about this amount.
On 4 June 2002, Mr Reid Smith made his last weekly payment of $1,000.00 into Mr Frost’s account.
On 17 of June 2002, Mr Reid Smith commenced to make payments to Mr Frost by tendering two cheques of $500.00 each, one addressed to Mr Frost and the other to Gloss Australia. Mr Frost refused to bank the cheques.
In about August 2002, the supplier of the machines, Hako offered a sum of $180,000.00 as compensation and to buy back the machines.
The Hako settlement proposal was delayed because Mr Reid Smith claimed that Samsean owned the UV machines. On 29 August 2002, Mr Reid Smith wrote a letter to Gloss Australia demanding the return of the machines to Samsean.
On 6 September 2002, the plaintiffs’ solicitors wrote to Mr Reid Smith requiring him to remedy the breach of the term of the contract relating to the obligation to make weekly payments to Mr Frost. On 12 November, the plaintiffs’ solicitors wrote to Mr Reid Smith requiring him to remedy the breach in relation to the agreement for Samsean to supply the machines to Gloss Australia.
On 6 December 2002, Mr Reid Smith notified the plaintiffs that he would not be making any further payments under the agreement.
On 30 January 2003, the plaintiffs exercised their option pursuant to the contract, to recover immediately the whole of the purchase price and other monies owing under the contract.
On 4 February 2003, the sum of $44,000.00 which was due to be paid to the plaintiffs pursuant to the contract, was not paid.
On 14 February 2003 the plaintiffs issued the current proceedings in the District Court.
On 31 March 2003 Mr Reid Smith stopped payment on the various unpresented cheques which had been sent to Mr Frost.
The Contract
The terms of Attachment ‘A’ of the sale of shares agreement are as follows:
Terms:
1.Sale includes vendor’s shares in Samsean Pty Ltd and Katelan Pty Ltd, all assets owned by these companies and the Tojo International Superannuation Fund and all joint assets owned by the Detojo Superannuation Fund.
2.$100,000 to be paid by 1^st May, 2001 (extension of time to be granted by mutual agreement – reasonable effort required to be made by purchaser to meet target date).
3.Equipment currently owned by Samsean to be made available to Gloss Australia Pt Ltd to the value of $118,000 ($59,000 of this amount represents part contribution from Jonathan Reid Smith to Gloss Australia).
4.Commencing first pay day after 4^th February 2001, and ceasing after 104 payments, the Katelan Trust will pay $1,000 per week to Thomas Frost ($500 per week represents contribution from Jonathan Reid Smith to Gloss Australia).
5.Samsean will pay into Detojo (Frost Account) $44,000 on each of the following dates: 4^th February 2003, 4^th February 2004, 4^th February 2005, and 4^th February 2006. If the value of contracts as at 4^th February fall within 2 yeas by 25% or more (based on the pricing at 4^th February 2001) the payments of $44,000 will not commence until 4^th August 2004.
6.Samsean will transfer Thomas Frost’s motor vehicle to him on 4^th February 2001. If the retail value plus 15% is less than $25,000 the shortfall is to be paid by way of bonus from Katelan. If the shortfall is less than $5000 it will be paid on 1^st May 2001, otherwise it will be paid progressively over the first 12 months commencing 4^th February 2001.
7.One ‘K’ class share will be issued to Thomas Frost in Samsean. This share will have no voting rights and will not participate in profit distributions. Future transfers of this share will be subject to the approval of Jonathan Reid Smith.
The Issues
The plaintiffs claim that they are entitled to payment for the balance of the purchase price due upon the sale of the plaintiffs’ shares in Samsean together with other assets in accordance with the contract.
The defendant says that the contract was merely part of a wider agreement which included the setting up of the business of Gloss Australia.
The defendant submitted that the wider agreement included the terms which were the subject of the contract, terms agreed orally at Mr Lines’ office, and terms which were to be inferred. The terms were to be inferred from the incorporation of Gloss Australia on 22 January 2001, the registration by Mr Frost of the business name of Permagloss Floors on 17 January 2001, and the payment by Samsean of Mr Frost’s airfares to Sydney to meet with representatives of Hako. In addition, it was submitted that the terms were to be inferred from representations, including written representations made by Mr Frost and Gloss Australia to representatives of BiLo and Coles supermarkets in relation to the ultraviolet floor system. Generally evidence as to a range of acts by the parties and documents prepared after the contract would not be admissible to identify the terms of such a contract.
The defendant claimed that the wider agreement provided that Samsean would acquire the ultraviolet floor system equipment from Hako and merely permit Gloss Australia to use that equipment, rather than passing property in that equipment from Samsean to Gloss Australia.
The defendant claimed that the wider agreement was frustrated no later than April 2002, because the Hako ultraviolet floor system could not be used for its intended purpose. The defendant said that as a result of that frustration, the defendant was discharged from further performance of the agreement pursuant to section 6 of the Frustrated Contracts Act 1988 (SA).
The defendant pleaded in the alternative, that the costs incurred by Samsean in the amount of $37,112.90 in relation to the rectification of the Mildura floor ought to be deducted from the amount payable by Mr Reid Smith pursuant to the wider agreement, or in the alternative, pursuant to the contract.
The defendant says that on 15 April 2002, at a meeting at Mr Lines’ office, Mr Frost agreed to pay to Samsean the sum of $37,112.90 in relation to the work carried out by Samsean on the Mildura floor.
Mr Frost denied such an agreement. He maintained that he sought justification for the total amount claimed by Mr Reid Smith.
During the trial, this figure was agreed at $22,000.00.
The defendant submitted that in any event, the sum of $37,112.90 ought to be set off against the plaintiffs’ claim.
The defendant further submitted that if the agreement was not frustrated, the defendant was entitled to a set off against the plaintiffs’ claim, of that part of his counterclaim which did not arise under the Frustrated Contracts Act 1988 (SA).
In the defendant’s counterclaim he sought an adjustment pursuant to section 7 of the Frustrated Contracts Act.
The defendant claimed an entitlement to the sum of $176,000.00 as money received by the plaintiffs, upon the basis of a total failure of consideration, less $22,000.00 in relation to the agreed costs of the Mildura floor.
The plaintiffs say there was no wider agreement. There was no frustration of the written sale of shares agreement. Gloss Australia was merely a venture that ultimately failed owing to the exigencies of business.
Plaintiffs’ evidence
Mr Frost was an impressive witness. He gave evidence that he completed year ten at school. Initially, he and his wife were in business. Mr Frost was able to build up the cleaning business because of his skills in achieving a package that suited the customers. Mr Reid Smith joined the business in 1988, Samsean was incorporated and Mr Lines became the accountant for Samsean. Mr Reid Smith was able to bring his financial skills to their business.
Mr Frost’s recollection was that it was in about October 2002 that Mr Reid Smith made an offer for the plaintiffs’ shares in Samsean. He said the offer was a payment of $180,000.00, the Samsean company car and employment for his father. This was rejected.

Mr Reid Smith told Mr Frost about the Hako ultraviolet machines. Samsean purchased the machines just before Mr Frost left the business.
In January 2001, at a meeting in Mr Lines’ office, Mr Frost was told of an offer by Mr Reid Smith to purchase the plaintiffs’ shares in Samsean for the sum of $412,000.00. The proposal was set out on a whiteboard. Mr Reid Smith did most of the talking and Mr Lines also assisted in explaining the separate amounts. The offer as explained to Mr Frost, included a payment to him and his wife in the sum of $1,000.00 per week in “clear funds” over the next two years.
Mr Frost said that the figure of $100,000.00 was on the white board.
There were also discussions of four annual payments of $44,000.00.
It was also a term of the proposal that the value of Mr Frost’s company car would form part of the payment for the plaintiffs’ shares in Samsean.
Mr Frost said that in relation to the ultraviolet machines, the expression ‘made available’ was explained at the time that the agreement was signed. He was told that it meant that the machines, which had been purchased by Samsean, would be owned by Gloss Australia.
The term of the agreement relating to the Samsean K class share was also explained. This was for Mr Reid Smith’s benefit in that Mr Reid Smith would be able to represent to customers that Mr Frost was still involved in the Commercial Clean business. The K class share was a share with no voting or dividend rights.
In relation to the new business of Gloss Australia, it was proposed that Mr Frost and Mr Reid Smith would each receive a 50% shareholding in the new company. Mr Frost was going to be the sole director.
Mr Frost maintained that he and Mr Reid Smith agreed only to trial the UV product on the supermarket floors.[8]
[8]T. 228.38, 230.11
They would see how the new business developed over the following two years.
It was agreed that Mr Frost would stay out of the cleaning business for about three years.
Debra Frost
The plaintiff called his wife and Mr Lines to give evidence.
I found Debra Frost to be an impressive witness, patently honest and not prone to exaggeration or reconstruction.
Debra Frost explained that by the year 2000, the plaintiffs’ were looking to leave the cleaning business of Samsean because of their daughter’s illness.
Her husband informed her that Mr Reid Smith had made an offer of $180,000.00 and that Mr Frost senior would retain his employment. She decided that was inadequate and requested her husband to inform the defendant accordingly.
In 2001, her husband informed her that the defendant had made an offer of $412,000.00. She signed the written contract.
She did not take any part in the operations of Gloss Australia. Gloss Australia was intended to simplify the lives of her family.
In cross examination she said that although her husband referred to the name “Permagloss”, she was not aware of the existence of a new machine.
She thought that they were selling their shares in Samsean and that her husband and Mr Reid Smith would conduct Permagloss.
Evidence of Mr Lines
Mr Lines was an impressive witness.
Mr Lines had a long association with Mr Reid Smith. He also knew Mr Frost. He was responsible for setting up Samsean.
He became aware that Mr and Mrs Frost wished to leave the business of Samsean because of their daughter’s ill health.
He said that the plaintiffs were looking for about $400,000.00 for their shares in Samsean. On 19 July 2000, Mr Reid Smith offered Mr Frost a sum of about $200,000.00 for the plaintiffs’ shares. Mr Frost was insulted by that offer. Although Mr Reid Smith had mentioned to him a possible offer in the order of about $350,000.00, this offer was not communicated to Mr Frost in his office.
Mr Lines disputed that at the meeting of 19 July 2000, a figure of $350,000.00 was proposed.
He maintained that the offer was for an amount of about $220,000.00 to $225,000.00.
He said that Mr Frost was adamant that he wanted a minimum of $412,000.00 for the plaintiffs’ shares in Samsean.
In relation to the terms of the agreement recorded in attachment A, Mr Lines explained that the proposal was originally presented to him by Mr Reid Smith on about 10 January 2001
Following that meeting, Mr Lines telephoned Mr Frost about Mr Reid Smith’s proposal. He explained to Mr Frost that the plaintiffs would receive the sum of $400,000.00 in funds. In addition, Mr Frost would be part of a new business with Mr Reid Smith which would also provide the mechanism for the plaintiffs to receive certain of the funds to be paid pursuant to the agreement.
At the January whiteboard meeting at Mr Lines’ office, the amounts of money which were subsequently included in attachment A, were put up on a whiteboard. Mr Lines placed the numbers on the board and explained to Mr Frost what they meant.
Mr Lines prepared the sale of shares agreement[9] from a template that was on his office computer system.
[9] Pages 109-128 of exhibit P1.10
Mr Lines said that at the initial meeting, the clauses in attachment A (except clause 6)[10] had been written up by Mr Reid Smith.
[10] Exhibit P1.10 at p 130
Mr Lines worked through Mr Reid Smith’s handwritten notes of the proposed terms of the agreement. Mr Frost modified the wording of the clause relating to the motor vehicle.
At the end of the meeting, Mr Reid Smith’s notes were left with Mr Lines’ office for typing. They became attachment ‘A’ to the contract.
Mr Lines explained that the agreement was for the plaintiffs to receive $412,000.00 for their shares. The only reason that it was not paid in one lump sum was because Mr Reid Smith did not have the resources to do so. Mr Frost clearly preferred that payment of the shares occur by way of payment of a lump sum. In order to facilitate payment by Mr Reid Smith, the plaintiffs were prepared to receive the agreed sum in accordance with Mr Reid Smith’s structured proposal over a specified period. Part of the payment was to be in kind, namely 50% of the value of the ultraviolet machines.
Clause one of the second version of Attachment ‘A’,[11] related to the investment to be made by Mr Reid Smith in Tojo International Superannuation Fund.
[11] Page 129 of exhibit P1.10
In relation to clause two of attachment ‘A’, the discussion at the whiteboard meeting focused on the timing of the payment of the sum of $100,000.00
In relation to clause three, the ultraviolet machines were to be used by Gloss Australia as a means of generating income. The value of the equipment is recorded in the attachment as $118,000.00. That was the amount paid by Samsean for the equipment.
Gloss Australia was not in a position to finance the purchase of the machines. Samsean was. Samsean’s payment of the finance costs relating to the purchase of the ultra violet machines would form part of the purchase price of the plaintiffs’ shares in Samsean.
Half of the cost of the machines was to be contributed by Mr Reid Smith into Gloss Australia. Mr Frost’s half share of the value of the equipment was to be regarded as being contributed by Mr Reid Smith as part of the purchase price of the Samsean shares.
Mr Lines said that in relation to the ownership of the machines, the words “made available” appeared in the notes provided by Mr Reid Smith. It was agreed that ownership of the machines would pass to Gloss Australia.
In relation to clause four, the payment of the weekly sum of $1,000.00 to Mr Frost, was to be a payment in respect of which no tax was to be deducted.
The amount was intended to cover the plaintiffs’ living costs. Half of the sum of $1,000.00 was to go to the plaintiffs’ from the sale of the Samsean Shares.
There was no discussion about paying the sum of $1,000.00 into Gloss Australia before the payment or any part of it was made to Mr Frost. Mr Lines said:
“Basically the agreement was that he would receive the $1,000 per week in full”.[12]
[12] T. page 444.24
In relation to the suggestion that the sum of $500.00 would be treated as a loan to Gloss Australia and then repaid to him, Mr Lines said this was not discussed either at the preliminary meeting or before the end of the financial year. It became an issue after the end of the financial year in the context of the preparation of the financial statements. When it was discussed at that later time, Mr Frost objected to it being treated in that way because it was contrary to the agreement.
He explained the differences between the two versions of attachment A[13] related to clause 1 and clause 7. Clause 1 concerned the defendant’s superannuation fund. Clause 7 concerned the K class share.
[13] Exhibit P1.10 at pages 129 and 131
This change occurred after the signing of the original agreement and it had to be re-signed.
Mr Lines explained that Thomas Frost would hold a K class share in Samsean but he would have no voting rights and he would have no right to participate in any profit or asset distributions.
This term of the agreement was the defendant’s idea for the purpose of benefiting Samsean. Samsean would continue to receive the benefit of Mr Frost’s personal following with customers if Mr Frost appeared to remain involved in Samsean.
At the whiteboard meeting there was no discussion of a partnership between Gloss Australia and Samsean. There was going to be a continuing connection between the two companies in that Gloss Australia would lay the floors and Samsean would clean them. That association would benefit Samsean because the new floors could reduce Samsean’s cleaning costs in the future.
The effect of what was agreed was that Mr Frost would sever his ties with Samsean. Mr Frost would be involved in a new business that would enable him to generate an income stream.
He said he had no recall of Mrs Frost being present at any discussions.
After the signing of the agreement, Mr Frost withdrew from Samsean and Mr Reid Smith commenced making payments to Mr Frost.
There was an ongoing business relationship between Gloss Australia and Samsean.
He did not learn that Mr Reid Smith ceased forwarding $1,000.00 in clear funds to Mr Frost.
Later, the Mildura floor was repaired by Samsean. Mr Reid Smith calculated the cost of that repair as $33,000.00.
Mr Lines agreed that Mr Frost asked for justification of the amount sought by Mr Reid Smith on behalf of Samsean.
There was a claim forwarded to Hako for compensation in respect of the defective machines, in the sum of about $60,00.00. Mr Lines expected that this would have been paid into Gloss Australia, giving Mr Frost and Mr Reid Smith an equal entitlement as equal shareholders.
Mr Lines said that the parties had not reached a final understanding in relation to the compensation money.
He confirmed in re-examination that the issue of Samsean’s recoupment for the cost of the Mildura floor repairs depended upon Mr Reid Smith justifying the amount claimed.
The Defendant’s Case
The defendant’s case is that the wider agreement included the following terms, not all of which were expressed in the contract.[14]
[14] See defendant’s closing address – para 21
21.1   The incorporation of Gloss Australia Pty Ltd to operate an ultraviolet coating business.
21.2   The business was to be called Permagloss Floors.
21.3   The director of Gloss Australia Pty Ltd was to be Mr Frost.
21.4That there was to be a continuing connection between Samsean Pty Ltd and Gloss Australia Pty Ltd
21.4.1Mr Reid Smith to own 50% of the shares of Gloss Australia Pty Ltd.
21.4.2Mr Frost to retain a nominal shareholding in Samsean Pty Ltd.
21.5That Mr Frost and Mr Reid Smith were to contribute capital to Gloss Australia to the value of $59,000 each, comprising the ultraviolet machine valued at $118,000.
21.6That Mr Frost and Mr Reid Smith were to contribute $52,000 each to Gloss Australia comprising 104 weekly payments of $500 to fund a cash payment of $1,000 per week by Mr Frost in respect of his work operating Permagloss Floors.
21.7That Mr Frost was to receive 4 annual payments of $44,000.
21.8That Mr Frost was to receive a car, valued by agreement at $25,000.
21.9That Mr Frost was to transfer his shares in various entities to Mr Reid Smith.
The defendant contended that the only areas of difference between the parties as to the terms of the agreement were as follows:[15]
22.1Mr Frost and Gloss Australia of the one part and Mr Reid Smith and Samsean of the other would jointly market their business as associated businesses.
22.2Gloss Australia would seek to obtain contracts to install ultraviolet coatings on the commercial floors.
22.3Samsean would permit Gloss Australia to enter into contracts with existing Samsean clients for the application of ultraviolet coating.
22.4Samsean, with Gloss Australia’s assistance, would obtain contracts for the cleaning of floors to which the ultraviolet coating had been applied and continue to perform existing cleaning contracts to which ultraviolet coating had been applied.
[15] See defendant’s closing address – para 22
Defendant’s Evidence
Mr Reid Smith gave evidence in support of the wider agreement.
Mr Reid Smith graduated from Flinders University with a Bachelor of Economics. He completed three years of an accounting degree. He worked in the finance department of the Postmaster General. He met Mr Frost at Telecom in the 1970’s. He joined Mr Frost in the cleaning business with Mr Lines as the advisor. Mr Reid Smith looked after the administration of the business. He was also a director of three companies.
Mr Jim Taylor, a distributor for Hako products showed him a brochure explaining new technology in relation to supermarket floors which would eliminate the need for stripping and burnishing and provided the equivalent of 30 coats of polish.
In the year 2000, Mr Frost informed Mr Reid Smith that he wished to leave Samsean’s business of Commercial Clean.
Mr Reid Smith was aware that the Frosts were looking for a payment of $400,000.00 for their shares However, Mr Reid Smith did not have the financial resources to make a lump sum payment. He said that he made an offer of about $250,000.00 and of $350,000.00 which was in the form of a package including a motor vehicle and the employment of Mr Frost senior.
In early December 2000, Mr Reid Smith and Mr Frost attended a demonstration of the Hako machines. The machines were ordered by Commercial Clean as a result of a joint decision by Mr Frost and Mr Reid Smith. It was agreed that a new business would be set up to run the ultraviolet machines. During the discussions over a period of weeks, it was agreed that the ultraviolet machines would be used on the floors of Commercial Clean customers.
There were discussions with Mr Frost before the meeting at Mr Lines’ office that included discussions about the payment of a lump sum and then layered payments, as Samsean could afford to make them.
He was not in a position to offer the plaintiffs the sum of $400,000.00 in cash.
At the January whiteboard meeting, numbers were placed on the whiteboard by Mr Lines.
It was Mr Frost who wanted to link the new business back to Samsean.[16]
[16] T. page 671
He explained that the Coles Mildura floor needed rectifying and he arranged for that to occur.
In about June 2002, he ceased making the $1,000.00 weekly payments to Mr Frost.
He sent cheques to Mr Frost addressed to Gloss Australia because he believed that he, Mr Lines and Mr Frost had agreed that the Mildura repair costs would be off-set against monies owed by him for the purchase of the Samsean shares, and that the costs were agreed at $34,000.00. Mr Reid Smith described a telephone call where Mr Frost told him that he should be paying the $1,000.00. Mr Reid Smith told him that he had agreed to set off the Mildura costs against those payments. Mr Frost disagreed.
In cross examination, he agreed that Mr Frost wanted to leave Samsean and that he wanted to be paid in cash and buy a newsagency for his family. He believed that the sum of $412,000.00 was a fair price for him to pay for the Samsean shares. In about August 2002, he formed the view that he did not have to pay for the Samsean shares.
On behalf of Samsean, he demanded the return of the ultraviolet machines from Gloss Australia because Hako had offered compensation of $180,000.00.
He relied upon the words “made available” in clause three of the contract to justify his demand for the return of the machines.
He was surprised by Mr Lines’ evidence that he and Mr Frost were at cross purposes as to whether Mr Frost had agreed to pay for the rectification of the Mildura floor.
He agreed that Mr Frost did not assist him to write the document that he took to the whiteboard meeting. He called Mr Frost the co-author of the document because he, Mr Reid Smith, was the draftsman for the ideas that had been agreed upon.
In retrospect, he had been careless in relation to the terms to be included in the contract. He (“or himself and Tom”) had made a mistake in relation to what was included in attachment A.[17]
[17] T. page 711
He explained at length what he should have included in attachment A including a term as to the manner in which Samsean and Gloss Australia would work together.
He was unable to identify with any real precision, which terms had been omitted from the contract. This difficulty did not support the defendant’s case that these matters were specifically agreed before the signing of attachment A. Mr Reid Smith agreed that he had the opportunity to include any additional terms before attachment A was signed.
In hindsight Mr Reid Smith regretted not including all of the terms of the wider agreement in the contract. [18]
[18] T. page 791
He said that the ones which were omitted were those that were taken for granted. He listed a number of terms that he “would have liked to put in”.[19]
[19] T. pages 795-796
He said:
"A“I definitely would have had a very well detailed explanation of what we considered to be the success of the UV polish and the machine by definition and what constituted a failure and that the contract would be dependent on that”.
He said that with his academic qualifications and business experience, he was a careful man.
Although the defendant pleaded that the wider agreement was reached in Mr Lines’ office, Mr Reid Smith’s evidence was less emphatic. He said each significant term was raised in some form in Mr Lines’ office.[20]
[20] T. page 794
Plaintiff’s submissions
The plaintiffs’ submitted that they had discharged all of their obligations pursuant to the contract, and that there were no impediments to the performance by Reid Smith of any of the covenants agreed to by the parties.
The plaintiffs submitted that a fundamental difference between the parties was the contention of the defendant that the supply of the ultraviolet machine was an integral part of the price of the shares. The plaintiffs submitted that this was inconsistent with Mr Reid Smith’s evidence that $412,000.00 was a fair price for the shares. In that respect, the plaintiffs relied upon the earlier rejection by Mr Frost of an offer of $180,000.00.
The plaintiffs relied upon Mr Reid Smith’s contention in evidence that the oral parts of the agreement were finalised in the office of Mr Lines[21].
[21] Transcript pages 747.1
The plaintiffs submitted that this important assertion was not supported by Mr Lines in evidence.[22]
[22] See para 7 of Defence, Transcript page 969.
The plaintiffs submitted that the contract meant that Mr Reid Smith undertook to pay part of the purchase price into a separate but complimentary venture, namely Gloss Australia. In addition, Mr Reid Smith agreed to pay an additional sum of $500.00 per week to guarantee Mr Frost’s cash flow for two years against a right to treat this money as a contribution to Gloss Australia.
Defendant’s Submissions
Counsel for the defendant submitted that Mr Frost and Mr Reid Smith entered into a contract, the terms of which were spread across a document and discussions and are partly to be inferred[23].
[23] See para 6 of Defence.

On the defendant’s case, the effect of the wider agreement was to establish a contractual relationship between Gloss Australia and Samsean.
The defendant submitted that the parol evidence rule did not arise because it applied only where the agreement is contained entirely within a document and the court is required to determine the terms of the contract.
It was submitted that the name of the document “Share Sale Agreement” did not preclude the existence of oral terms.[24]
[24] Leyland Motor Corporation of Australia Ltd v Wauer (1981) 104 LSJS 460, 463
The defendant contended that the document signed by the parties was a standard form document, produced by a financial adviser without discussion between the parties. Although it was conceded that Mr Reid Smith first produced the notes which formed the basis of the important written document – Attachment ‘A’, it was pointed out that none of those involved were lawyers.
It was submitted that it was apparent from the terms of attachment ‘A’, that the parties intended additional terms to be part of the agreement in particular, the incorporation and funding of Gloss Australia.
It was submitted that when one added up the figures in the contract, the total sum arrived at supported the defendant’s case.
The defendant submitted that the evidence of Mr Reid Smith confirmed that the supermarket trials were a first step in a long term strategy between Mr Frost and Mr Reid Smith, involving the installation of ultraviolet coating at supermarkets where Commercial Clean had contracts.
The defendant relied upon the Bilo presentation document (Ex D11) as supporting the inference of the wider agreement. For example, the defendant pointed to reference in the document to the connection between Permagloss Floors and Commercial Clean.
The defendant contended that the whole of the wider agreement had been terminated as a result of frustration by operation of law which had the result that all future performance of the wider agreement was suspended. It was submitted that, as a consequence of that frustration, it was necessary for an adjustment to be made of the rights and duties of the parties under the Frustrated Contracts Act (SA).
It was submitted that where there was a conflict in the evidence of the parties, the evidence of Mr Reid Smith ought to be preferred to that of Mr Frost. It was acknowledged that there were “limitations” upon the evidence of Mr Reid Smith in relation to his discussions with Mr Frost. However, it was submitted that Mr Reid Smith’s evidence was consistent with certain surrounding circumstances which were not in dispute.[25]
[25] see para 31 of defendant’s outline
Counsel for the defendant made detailed criticisms of the reliability and credibility of Mr Frost. He pointed for example, to Mr Frost’s admission that he had made a statement in a letter to Bilo dated the 29^th of January 2001, which was untrue. He referred to Mr Frost’s evidence that what was written in certain documents of which he was the author, was not what he meant. The defendant submitted that Mr Frost attempted to resile from accurate statements.[26]
[26] See para 35 of defendant’s outline
Indeed, the defendant’s counsel described Mr Frost’s evidence as “disingenuous” and put forward a number of examples.[27]
[27] See para 36 of defendant’s outline
The defendant’s counsel pointed to the previous history of both Mr Frost and Mr Reid Smith, the conduct of each of them in relation to the Gloss Australia venture and the unlikelihood that they would embark upon “ground breaking and market leading technology” without an agreement to bind each other for their mutual benefit.[28] The defendant pointed to Mr Frost’s evidence that he would not have signed the contract if the new business of Gloss Australia was not going to be set up.
[28] See para 26 of defendant’s outline
Hence, it was submitted that the court ought to find that there was a wider agreement which included, in particular, a term that Mr Frost and Gloss Australia would engage in conduct to market and sell the ultraviolet coating to the clients of Commercial Clean.
Credibility Findings
The determination of the issues requires a consideration of the evidence of each of the witnesses. There are important conflicts between the evidence of Mr Frost and of Mr Reid Smith which are central to my findings.
Insofar as there is a conflict between the evidence of Mr Frost and the evidence of Mr Reid Smith, I prefer the evidence of Mr Frost on the balance of probabilities. I have had regard to the various criticisms of Mr Frost’s evidence by counsel for the defendant. I found that Mr Frost’s account of the circumstances leading up to and surrounding to the signing of the agreement had the ring of truth. His account was tested thoroughly during cross examination. I found that he gave his evidence in a straightforward and clear manner.
Although I accept that Mr Reid Smith when giving evidence, experienced difficulty in understanding the direction of some questions and the need to provide a responsive answer, I am of the view that his evidence was unreliable. At times, he was extremely defensive.[29]
[29] T. page 788
I find that Mr Reid Smith was an educated person who had experience in land ownership, directorships and in business. Mr Frost did not have a tertiary education. Mr Frost relied upon and trusted Mr Reid Smith in relation to the drafting of the terms of the contract.
I am of the view that Mr Reid Smith’s description of Mr Frost as the ‘co-author’ of the written document because he “may have seen it” was indicative of an attempt by Mr Reid Smith to resile from the leading role which he played in determining what would be included in the agreement.
Mr Reid Smith chose not only how terms were expressed but which terms were included and which terms were excluded. Mr Reid-Smith chose not to include a clause which required an interdependency between the operation of Samsean and Gloss Australia.
I consider Mr Frost’s subsequent conduct is supportive of his version of events relating to the signing of the contract.
I consider that he was supported in important respects by the contract itself and by the evidence of Mr Lines. By way of example, I refer to the evidence about the K class share which Mr Frost would continue to hold in Samsean.
The defendant submitted that the K class share was a formal way of embodying the wider agreement between the parties. Mr Frost’s evidence was that it would allow Samsean to represent that Mr Frost was still in the business although he had no interest in it whatsoever.
Mr Frost’s evidence as to his understanding of this clause was supported by the evidence of Mr Lines.[30] The defendant submitted that the evidence of Mr Frost and Mr Lines was incorrect.[31] I prefer the evidence of Mr Frost and Mr Lines to that of Mr Reid Smith on this topic.
[30] T. 441.2
[31] Submissions transcript 901.12
Mr Reid Smith said that the ultraviolet machines were not the property of Gloss Australia,[32] but rather, belonged to Samsean.
[32] T. pages 816-817
He could not recall the explanation being given that the expression “made available” in the contract meant that the ultraviolet machines would become the property of Gloss Australia.[33] He could not recall that this was agreed.[34] He maintained that the agreement was that Gloss Australia would ‘use’ the machines.
[33] T. page 818
[34] T. page 820
Mr Reid Smith understood that if the machines belonged to Samsean, any compensation paid by Hako would belong to Samsean and not to Gloss Australia.[35]
[35] T. page 817
The defendant’s case very much depends upon the accuracy of Mr Reid Smith’s recollection of agreed oral terms in Mr Lines’ office. His lack of recollection as to the specific discussion about the ownership of the ultraviolet machines, where it is crucial to the determination of which company is entitled to the Hako compensation, is an example of the unreliability of Mr Reid Smith’s evidence.
Mr Reid Smith said that the effect of the agreement reached was that Mr Frost would be doing essentially the same job he did, prior to his expressed intention to leave Samsean. I find that this is inconsistent with Mr and Mrs Frost’s evidence in relation to their purpose in wanting to sell their shares in Samsean.
Mr Reid Smith said that he was “absolutely confident”[36] that Mr Frost had agreed to allow Mr Reid Smith a credit of $37,000.00 for work carried out by Samsean in rectifying the Mildura floor, against monies that Mr Reid Smith was required to pay the plaintiffs for the Samsean shares. Mr Frost denied such an agreement. In this respect, Mr Lines supported Mr Frost’s evidence, namely that Mr Frost had requested justification for the expense before any amount would be paid.[37] I note that during the hearing, the defendant agreed to pay a significantly lesser amount in respect of that floor.
[36] T. page 755
[37] Mr Lines’ evidence pp 459-461
A crucial area of conflict between Mr Frost and Mr Reid Smith related to the circumstances of the preparation and signing of the contract.
Mr Reid Smith’s evidence in relation to the oral terms was vague and at times contradictory. At one stage, he agreed that all the terms agreed were ventilated in Mr Lines’ office.
However, at another point, he said that some of the terms were not agreed at Mr Lines’ office and he referred to the agreement that the businesses would work together. It was plain that Mr Reid Smith experienced great difficulty in distinguishing between what was talked about and what was actually the subject of agreement between the parties.
Counsel for the defendant submitted that the failure of Mr Reid Smith to include in the contract the additional terms for which he now contends as part of the wider agreement, was an error by Mr Reid Smith.
I find that Mr Reid Smith did not make an error in omitting terms. Rather, I find that Mr Reid Smith drafted the terms in order to provide Samsean and himself with a mechanism to provide the purchase price for the Samsean shares over a period of time.
I find that Mr Reid Smith’s description of the wider agreement is in reality a reconstruction and serious of rationalisations arrived at by him after a compensation claim arose in relation to the ultraviolet machines and he decided that he was not going to pay the balance of the purchase price for the shares in Samsean.
It is plain that the hindsight proposed terms of Mr Reid Smith were aimed at interdependence between Samsean and Gloss Australia which would result in a focus upon the successful operation of the ultraviolet machines from Hako. That is, in hindsight, Mr Reid Smith would have included a term which provided that all contractual arrangements between the parties would fail in the event that the machines failed.[38]
[38] T. pages 796-797
I find that Mr Reid Smith drew the terms of the contract which were incorporated by Mr Lines’ staff, into a standard form agreement for the sale of shares.
Findings in Relation to the Agreement
I find that Mr Reid Smith agreed that the consideration provided for the Samsean shares would ensure that the plaintiffs received the asking price of $412,000.00. It was agreed that the terms of Attachment A would provide the structure as to the payment of the agreed purchase price.
The agreement between the parties was not for the purpose of restructuring their affairs[39] Rather, the plaintiffs wished to cease their involvement in the business of Samsean.
[39] see Defence – paragraph 4
I find that there was no wider agreement as alleged by the defendant. At most, there was a common intention that Samsean and Gloss Australia would operate in association with each other.
I find that there was no discussion between the plaintiffs (or Mr Frost on behalf of the plaintiffs) and Mr Reid Smith[40] about an agreement for interdependency between the two companies. The defendant pleaded that the wider agreement, including its oral terms, was made in Mr Lines’ office. There was no evidence that Mr Frost acted on behalf of his wife in relation to the formation of any wider agreement.
[40] See para 6 of the defendant’s defence.
Mrs Frost was unaware of any wider agreement beyond the sale of the Samsean shares.
I find that the reason for inclusion in the contract of the term referring to the K class share was to give Samsean the benefit of being able to rely upon Mr Frost’s continued connection with Samsean whilst at the same time depriving Mr Frost of any control, responsibility or benefits in relation to Samsean. I find that this term of the contract does not support the defendant’s claim of a joint venture involving both companies.
Extensive evidence was received about discussions between the parties in the lead up to the signing of the contract. According to the defendant’s case, those discussions were relevant to the terms of the wider agreement. Such evidence is ordinarily inadmissible. However, there is no need to consider that matter any further because I have found that there was no wider agreement.
I find that until 15 March 2002[41] Mr Reid Smith was prepared to honour his obligations under the contract.
[41] Exhibit P20
I find that the contract contains all the agreements relevant to the sale of the plaintiffs’ shares in Samsean and related assets.
Beneficial Ownership of Ultraviolet Machines
I find that Mr Frost was reassured that the ultraviolet machines to be financed in the name of Samsean, would be the property of Gloss Australia. I find that, in this important respect, Mr Frost’s evidence is supported by Mr Lines.
I find that it was as a result of the representations by Mr Reid Smith that Mr Reid Smith would provide the consideration for the sale of the Samsean shares which included the assurance in relation to the ultraviolet machines, that the plaintiffs were induced to enter into the contract.
I find that the contract is capable of being construed according to the words appearing in it. If I am wrong about that, I consider that parol evidence can be relied upon to resolve either a patent or latent ambiguity on the face of the document.[42]
[42]Sinclair Scott & Co Ltd v Naughton (1929) 43 CLR 310, 327; Watcham v A-G of the East Africa Protectorate [1919] AC 533; 540
I find that the expression “made available” in attachment ‘A’ is susceptible of more than one meaning. I refer to what Mason J said in Codelfa Constructions:
The true rule is that evidence of surrounding circumstances is admissible to assist in the interpretation of the contract if the language is ambiguous or susceptible of more than one meaning. But it is not admissible to contradict the language of the contract when it has a plain meaning.[43]
[43] Codelfa Construction Pty Ltd v State Rail Authority of NSW (1981) 149 CLR 337, 352
I find that the words “made available” in the context of the contract mean that the parties intended that the property in the ultraviolet machines would pass to Gloss Australia. This is also supported by the evidence of Mr Frost and Mr Lines.
I find that the sole agreement between the parties is that contained in the contract. However, the partes requested that the court make a declaration in relation to the beneficial ownership of the ultraviolet machines. Although it is not appropriate to make a declaratory order, I have no doubt that the parties intended that the property in the ultraviolet machines was to pass to Gloss Australia. It is clear that it was for Mr Reid Smith’s purposes only, which appear to have been taxation purposes, that the expression “made available” was used in the written contract.
Conclusions
I find that the plaintiffs have both performed all their obligations in relation to the contract. The defendant has performed some of his obligations. There is no impediment to the defendant performing the remainder of those obligations, should he choose to do so.
I find that the defendant accepted unconditionally the obligation to complete the terms of the contract on the date of its execution.
Although proceeds from the performance of the agreement were applied in part to a contemporaneous joint venture between two of the three parties to the contract, the application of the proceeds in that way did not qualify the terms of the contract, nor support the existence of a wider agreement that is partly oral and partly to be inferred.
I find that the defendant is bound to discharge the balance of his obligations pursuant to the contract.
I find that the defendant has not only failed to perform his obligations pursuant to the contract, but he has repudiated it. I find that he decided to repudiate the contract after the business of Samsean began to decline.[44]
[44] T. pages 787, 790. Exhibit P20
I find that the defendant repudiated the contract not later than the 26^th of November 2002 and he refused to comply with a notice to rectify.[45]
[45] Exhibit P1.4.8
The defendant’s counter claim
On the balance of probabilities, I reject the defendant’s counter claim that there was a wider agreement of which the written sale of shares agreement was only a part.
Frustration – The Defendant’s Submission
The defendant submitted that there were necessary terms of the wider agreement which had become impossible or radically different to those agreed, so as to constitute a frustration.
The defendant submitted that frustration occurred if, on the true construction of the terms of the contract, the terms are not wide enough to apply to the changed situation.[46]
[46] Davis Contractors Ltd v Fareham Urban District Council [1956] AC 696, 728-729
If a comparison between the contemplated situation as indicated by the terms of the contract, and the situation resulting from the frustrating events shows a fundamentally different situation, the contract is terminated by operation of law.[47]
[47] Brisbane City Council v Group Projects Pty Ltd & Anor (1979) 145 CLR 143, 159, 163.
The defendant also referred to Ardee Pty Ltd v Collex,[48] Codelfa Constructions Pty Ltd v State Rail Authority of NSW,[49] and Beaton v McDivitt & Anor.[50]
[48] [2001] NSWSC 836
[49] (1981) 149 CLR 337, 357
[50] (1987) 13 NSWLR 162, 177
I note that ordinarily commercial failure does not constitute frustration.[51]
[51] Clark v Local Government Training Authority SA Inc [2001] SASC 273
The defendant submitted that the relevant frustrating event occurred in April 2002, when all trials of the equipment ended and it became clear that the technology was not fit for its purpose.
The defendant was thereby discharged from all contractual obligations including those contained in the written sale of shares agreement.[52]
[52] Frustrated Contracts Act s6
Frustration - Conclusion
I have found that there is no wider agreement as contended for by the defendant to which the frustrating event identified by the defendant applies.
I find that the two businesses were not interdependent. Therefore, I find that no issue of frustration arises.
The question of frustration is not relevant to the obligations set out in the contract because there is no substantial change in the obligation to pay the agreed price for the property which has already been conveyed.
Although the proceeds of the contract were applied in part to a contemporaneous commercial venture between two of the three parties and that venture has subsequently failed, this does not affect the performance of the contract. I do not consider that any changed circumstances make performance of the contract radically different than that which was contemplated upon the true construction of the contract.
Severance
The Frustrated Contracts Act 1988 applies only if there is an event of frustration and even then it is subject to saving provisions.
The defendant submitted that the frustrating event destroyed the commercial sense of the wider agreement.
The defendant contended that severance was not appropriate for a number of reasons including that the supply of the ultraviolet machines was an integral part of the “price” for the shares, that it constituted an essential element of both the share sale object of the agreement and the new business venture object of the agreement, and that Mr Frost would not have entered into the agreement but for the setting up of the new business venture.[53]
[53] Para 61 of the defendant’s submissions

The defendant submitted that the frustration went to the root of the contract because the arrangement between the parties was a singular arrangement to achieve both the sale of the shares and the setting up of the new business of Gloss Australia.
I have found that the contract is a separate and complete agreement. If I am wrong about that and it formed part of a wider agreement as contended by the defendant, then I find that the obligations under the contract are severable in the sense that the terms of the contract remain intelligible if the wider oral and inferred terms are severed.[54]
[54] Section 5 and 6 Frustrated Contracts Act; Carney v Herbert & Ors [1985] AC 301
The relief claimed by the Plaintiff
The defendant contends that if the defendant’s claim is rejected, the amount claimed by the plaintiffs is incorrect and that the plaintiffs are only entitled to a payment of $176,000.00 less $22,000.00 in relation to the costs incurred by Samsean in rectifying the Mildura floor.[55]
[55] See para 64-66 of respondent’s outline
I have already found that the terms of the agreement reached between the parties are those contained in the contract.
I find that the plaintiffs are entitled to payment for their shares in accordance with the contract. However, one of the payments, namely for the supply of the ultraviolet machines, was to be made to Gloss Australia.
I find that the parties intended that property in the ultraviolet machines would pass to Gloss Australia in accordance with the contract.
I find that the plaintiffs are entitled to be paid the outstanding amounts in respect of the weekly instalments of the purchase price and of income as outlined in the plaintiffs’ closing address,[56] and in closing submissions.[57] However, there was some uncertainty as to the precise amounts outstanding at the time that final submissions were made. I will receive further submissions, if necessary as to the specific outstanding amounts in respect of those items.
[56] At paragraph 48
[57] T. page 956
I find that the plaintiffs are entitled to be paid the sum of $176,000.00 namely the balance of annual instalments of $44,000.00.
I find that the plaintiffs are entitled to interest from 26 November 2002 upon the total amount owed to the plaintiffs.
Counsel for the defendant submitted that, in any event, the sum of $22,000.00 agreed as to the cost of rectification of the Mildura floor, ought to be set off against any sum awarded to the plaintiffs.[58]
[58] T. page 928
I do not consider that the plaintiffs are personally liable for the costs of the repair of the Mildura floor. I make no findings as to whether Mr Reid Smith or Samsean may have a separate claim against Hako or whether Mr Reid Smith may have an entitlement to part of any compensation paid by Hako to Gloss Australia.
I find that there was no agreement reached between the plaintiffs and the defendant that the plaintiffs would deduct from monies owed to the plaintiffs by the defendant, the costs incurred by Samsean in relation to the Mildura floor.
The parties seek an order declaring Gloss Australia to be the beneficial owner of the ultraviolet machines. In this case, I was in effect being asked to make a declaration as to the respective entitlements of Gloss Australia and Samsean. However, neither Gloss Australia nor Samsean were parties to the action.[59]
[59] See Forstaff supra FN 3
The parties had requested that I proceed in this way in order to determine the terms of the agreement between Mr and Mrs Frost and Mr Reid Smith.
In those circumstances, I do not consider it is appropriate to make the declaration sought without hearing from the parties further.