Understanding The Parol Evidence Rule In Australian Contract Law

What is Parol Evidence Rule?

Question:

Write an essay on The “Parole Evidence Rule” according to the Contract law of Australia.

The “Parole Evidence Rule” according to the Contract law of Australia is a substantive common law rule. It prevents the parties of a written contract against presenting the evidence that is extrinsic and discloses the ambiguity and adds or clarifies it to the written term of Contract that appears to be the whole[1]. Australian Contract Law is derived from the English Common Law System and its statutory specifications are applicable to some parts of Australia. Later on the Contractual Laws has been implemented by the Australian Parliament and also by the Australian Courts since the year 1980[2].

The term parol means “words” and is derived from the sources of Anglo-Norman, Anglo French or Legal French word. In support to the rational rules it is stated that according to the contracting parties there is a reduction in the agreement to any final and single writing or extrinsic evidence derived from the past and those terms shouldn’t be considered while the writing is being interpreted[3]. As the parties decided to leave the agreement or those terms shouldn’t be considered while writing as it’s the decision of the parties to leave each other from the contract. In other way it can also be stated that that the evidence prior to written contract shouldn’t be contradictory to the writing[4]. The rules also states that in order to make it effective  the contract should be first and finally be integrated in writing. According to the judgment of the Court it must be Final Agreement which is accepted by the parties.

The objective approach of parol evidence rule discusses the manner in which the parol evidence rule is applicable and used in the territories in Australia. It is an evident fact which is observed since many years that the Australian contract law has always had an objective approach towards contracting and it is equally evident that that existence of the parol evidence rule has always been a centre of controversies in Australia[5]. Thus, even after the objective approach of contracting in Australia, the supporters of the parol evidence rule in the recent times have raised their concern whether the said parol evidence rule should be applied and made a regular usage or a law giving it a proper statute. The parol evidence rule in Australia got popular after it was intensely discussed in a famous Australian case called the Codelfa Constructions v State Rail Authority of New South Wales which was decided in the year 1982[6]. In the said case, the State Rail Authority of New South Wales had entered into a contract with the Codelfa Construction to built and erect two tunnels in Sydney for an expansion of the railway network which was planned many months in advance. The Codelfa Construction was given a deadline or a due date by which they had to complete the said work of erecting two tunnels and the final completion date for the said work was thus finalized. As the work was under a dead line, the Codelfa Construction started the work immediately trying to finish the same under the dead line by making their employees work in three shifts throughout the day. However, due to the noise that the construction work created all throughout the day, an injunction was soon issued against the Codelfa Construction. Thus, the third shift of the work was stopped for a while and Codelfa Construction was made to promise to try and minimize and reduce the construction noise between 10 pm to 6 am. Thus, the Codelfa Construction levied certain extra charges from the State Rail Authority of New South Wales to meet the needs of the changed working schedules. Thus, the primary issue in the said case of Codelfa Constructions v State Rail Authority of New South Wales is implications on the term of the contract, however while deciding the case the Judge Mason also discussed the admission on parol evidence rule in detail. Thus, the said case is considered to be one of the most important Australian case laws where the parol evidence rule was discussed and examined in great length[7]. 

Objective Approach of Parol Evidence Rule in Australia

Thus, in the judgment of the said case, Justice Mason highlighted and examined the parol evidence rule and stated that the broader objective of the parol evidence rule is to not include extrinsic evidence (except surrounding situations) and including direct statement in relation to intention and various negotiations to add to, subtract from, change or contradict or violate the language of the written agreement, contract or instrument[8].  Thus, the said clarification concerning the parol evidence rule was sufficient and most suitable to be applicable even in the American Courts.

However, the said clarification when compared to the objective approach of the contracting rules in Australia, the said clarification is fundamentally different and the primary difference is that the parol evidence rule in Australia consists of a clear exception of evidence rules which realte to surrounding situations.

Thus, while delivering the decision in the said case, Justice Mason reffered to the simple meaning and approach f contracts in Australia, according to which the any other additional evidence in any other form is generally avoided by the Court, if the meaning of the contract is clear and definite. However, Justice Mason even accepted that the plain meaning and approach needs the admission and acceptance of another evidence especially in situations surrounded by the formation of a contract which is necessary and required to interpret the contract if any uncertainty about it is created in a later period[9]. However, the American Courts since many years have raised the same concern rejecting the parol evidence rule stating that it allows the Court to believe that a document is allowed to have more than one or multiple meanings which makes it impossible for the Court to reach or conclude a single and accepted meaning for the said document. However, with the objective approach of contracting which is used in Australia, the American approach for the same becomes unacceptable and unnecessary as in the said case the Courts and the Judges do not try to determine what the contracting parties try to mean in their written contracts but only try to establish what a reasonable person would conclude if he was in the similar situation of the people writing the contract[10].

During the first half of the 20^th century the English Courts and the Australian courts have insisted that the Court can explain a contract without even considering the circumstances based on which the contract was executed. However, in the year 1971 the House of Lords have held that while evidence shall be executed based on the intentions of the parties to the contract. It is irrelevant to the structure of the contract and that contracts should be excluded from evidence of the general background of the contract that is known to parties at the time when the contract was entered into. This means that though the Court will reject the terms of the contract that were not part of the written agreement, the Court will however, question the parties and shall ask them to explain what their intention or explanation had been if such a contract was part of the written contract. Justice Mason held that such terms should be included as part of evidence only when the terms were known to the contracting parties of the contract and that they were aware of the facts[11]. 

Codelfa Constructions v State Rail Authority of New South Wales

Notably, it may held that the evidence that was earlier admissible based on the factual background of the agreement shall now be not regarded as part of the evidence. Such evidence shall only be admissible if the contracting parties knew the facts of the case and nothing shall be taken as evidence unless such a clause was not part of the written agreement. This is regarded as objective theory of the contracting rule, as per this rule the original intentions of the contracting parties are considered as relevant and true and the only thing that matters here is the objective of the parties who have formed a contract together. By relying on this approach the Courts of Australia have allowed the background information to come into force as evidence that is accepted by the Court. The Court construes the written contract in a way that is understood by the parties and interprets it the way the parties to the contract should have understood it at par with the irrelevant parol evidence rule[12]. Mason J has construed the objective rule by saying that, “There may perhaps be one situation in which evidence of the actual intention of the parties should be allowed to prevail over their presumed intention. If it transpires that the parties have refused to include in the contract a provision which would give effect to the presumed intention of persons in their position it may be proper to receive evidence of that refusal. After all, the court is interpreting the contract that the parties have made and in that exercise the court takes into account what reasonable men in that situation would have intended to convey by the words chosen. However, is it right to carry that exercise to the point of placing on the words of the contract a meaning which the parties have united in rejecting? It is possible that evidence of mutual intention, if amounting to concurrence, is receivable so as to negative an inference sought to be drawn from surrounding circumstance[13].”

Sometimes Justice Mason seemed to adopt the subjective theory of contracting law. The subjective theory of law relied more on the terms and conditions of the contract. In a jurisdiction that seems to be adopting the objective theory of the contract then it nothing would be wrong if the court relied on such a theory for interpretation and analysis of the contract. It is hence understandable the reason why Justice Mason have a more positive inclination towards the objective reasoning of the contract. However, this is not the only rationale why Justice Mason has relied on the objective theory; there are many other reasons why the Judge seems to accept the objective reasoning of the contract. Once such reason may include that he feels that it would be unfair on the part of the Court to completely reject the intention of the parties and not to understand their point of view who were very well aware of the facts and circumstances of the case.  This notion is absolutely opposite to the rule that is followed in America, wherein, it was seen that in most of the cases the Courts rely on the contractual terms and conditions rather than relying on the intention of the parties. Hence, we may conclude that in Australia, in most cases, the Judges prefer on relying on the objective theory.

Comparison with American Courts

In this essay, there is the stipulation of the fact that neither the objective nor the subjective theories of making a contract are absolutely consistent in making the treatment of the rule of parole evidence. In the practical terms both the theories enable the establishment of the fact of the correct nature of contract[14].

The approach of the objective help in the identification of the idea that while entering into a contract, the parties tend to do some different thing than the terms that are agreed for working together to reach a certain goal. The relationship between the parties has received formality and it has been taken out from that realm that is social. Based on this view, the contract that is in the written form is not considered as a record that is long lasting and reliable as the agreement has been entered into between the parties a long time back and the performance that occurs results in a distinct type of social action. During the time of formalizing a contract in which the parties has made or performed a separate kind of action that is public and makes the drawing of the practices of the society that makes the dealings with the relationships in between the non-intimates. The practices that are formulated to ensure the fairness and predictability in the contractual relationships are directed primarily to make the resolution of the disputes that is without any concern for the continuing viability of the contractual relationship. Hence, from this perspective it can be said that the interpretation of the contract is made for the purpose of judging the objectivity of the contract. The relationships between the parties to the contract are irrelevant. The goal of the interpreter of any written contract is not to make the finding of the intention of the parties to the contract but the primary goal of interpretation of contract is make the interpretation of the contractual behavior as an act of the public. 

The comparison between the subjective and the objective theory of rules of contract makes the emphasis of the actors, which play a major part in the making of contract. The main actors are regarded as the people and the factors of social integration that are in the background of the contract formation. The comparison of the rule of parole evidence acts as least applicable to those agreements that are having the close acquaintance. In the likely term there would be the several presumptions and understanding in between the parties to the contract that may form in the background at the time of entering into the contract, which would be impossible to understand at the time when the agreement is reached[15]. The agreement that lies between the family members that are close are dominantly personal and unavoidable. The basis of understanding of the contracts between the close family members is to make the understanding of the terms that make the contract personal. The consideration that is relevant is the nature of the contracting behavior[16].        

Historical Background

According to the referred matter we can state that regarding the case of writing contract we can state that the Parol Evidence Rule obstructs the admission of further extrinsic evidence in order to clarify the terms of the Contract. It basically consist of identifying and construction which means that identifying prevents the extrinsic evidence from being included into the contradict or vary terms regarding the contract as practicably they appear to be in the contract and on the other side we can also state that construction limits evidence which might be added to the explanation of those as the rule of parol works as confines.

As regarded in the project the term extrinsic evidence means anything other than that of the contractual agreement in writing. This also includes oral conversation, negotiation in early stage, letters and drafts done earlier in the contract. The parol evidence rule in purpose of identifying helps in preventing admission of extrinsic evidence[17]. Parol rule is only applicable to the contract which is wholly made in writing. This means that Courts will include extrinsic evidence in order to identify the terms of those contracts which are made in writing partially. The parol evidence also applies in order to prevent the applicability of extrinsic evidence in order to construct the3 terms and conditions of the existing contract. Extrinsic evidence is also practicable in resolving the ambiguity for the terms of construction regarding the rules and regulations of the contract[18].   

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