Case: Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24 ; (1982) 149 CLR 337
Outcome: referred to
During the course of pre-contractual negotiations, many things are said or written which convey, expressly or impliedly, one or more representations about matters under consideration by the parties. In Codelfa Construction Pty Limited v State Rail Authority of NSW [1982] HCA 24 ; (1982) 149 CLR 337 at 352 Mason J, in his seminal judgment, said: 'It is here that a difficulty arises with respect to the evidence of prior negotiations. Obviously the prior negotiations will tend to establish objective background facts which were known to both parties and the subject matter of the contract. To the extent to which they have this tendency they are admissible. But in so far as they consist of statements and actions of the parties which are reflective of their actual intentions and expectations they are not receivable. The point is that such statements and actions reveal the terms of the contract which the parties intended or hoped to make. They are superseded by, and merged in, the contract itself. The object of the parol evidence rule is to exclude them, the prior oral agreement of the parties being inadmissible in aid of construction, though admissible in an action for rectification.' 105 His Honour said that the reason that the actual intentions of the parties were not taken into account in determining construction to be given to a contractual provision was: '... for the very good reason that an investigation of those matters would not only be time consuming but it would also be unrewarding as it would tend to give too much weight to these factors at the expense of the actual language of the written contract.' 106 Here, of course, there was no written contract complete in itself. But the policy reasons lying behind the parol evidence rule and the objective theory of contract are recognitions of the tendency of parties to negotiations to attribute to some particular matter a significance that did not exist at the time of the conclusion of the contract. In an evolving negotiation ultimately leading to the conclusion of the contract, different positions are taken with respect to different subject matters. To attribute significance in the final expression of the parties' contractual relationship to something said earlier may create an unreal and inaccurate appreciation of the subject matter of the relationship actually entered into at the later time. Of course, many things are said and written to induce the entry of a person into a contract. Even the common law recognised that misrepresentations, innocent, negligent or fraudulent, provided grounds in particular circumstances entitling parties to relief from the consequences of entry into a contract. 107 Any statement or representation made during pre-contractual negotiations is apt to be misconstrued if taken out of context, or treated as if it were a contractual term simply because it was said or written. Negotiations to arrive at a contract are not themselves part of the contract. Sometimes, however, they may set the scene in which the contract is to be understood; on other occasions they may contain, or be the source of contractual terms. But, it is often not realistic to treat a pre-contractual statement in isolation as if it were made outside the context of an evolving negotiation, which the parties recognise is a process. That process will culminate when they finalise matters in a contract.