In Lawrence v Ciantar  NSWSC 464, Justice Henry was required to resolve a dispute regarding a property development joint venture. Lawrence, a registered builder, claimed that he had entered into a joint venture with the property owners by which he would carry out preparatory works and provide funding for the balance of the development in exchange for receiving a one third equity interest in the property. The property owners claimed that the agreement required Lawrence to complete a broader scope of sub-division works.
In construing the disputed agreement, Justice Henry took into account evidence of prior negotiations on two separate grounds:
- first, because evidence of prior negotiations is admissible to the extent that it establishes objective facts known to both parties and the subject matter of the contract, which can be taken into account when construing a contract; and
- separately, because of the "true rule" identified by the High Court in Codelfa Construction Pty Ltd v State Rail Authority of New South Wales (1982) 149 CLR 337: 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.
By reference to evidence of negotiations leading up to the execution of the disputed joint venture agreement, Justice Henry concluded that the genesis of the contract was Lawrence's approach to the owners of the property following the property being advertised for sale, where Lawrence's role as a registered builder was an objective fact known to all parties. This supported an interpretation of the disputed agreement whereby Lawrence was obliged to deliver the full scope of sub-division works, and not merely preparatory works.
This conclusion was supported by Lawrence's subsequent conduct. Justice Henry confirmed that subsequent conduct cannot be used to construe a contractual clause insofar as the conduct evidences the parties' subjective beliefs. However, evidence of subsequent conduct can be used to establish the existence of a contract or specific terms, such as a term requiring the completion of sub-division works, particularly where the contract is not wholly in writing. The relevant conduct included Lawrence applying for a construction certificate from the local council that was would only be necessary if Lawrence was obliged to complete more than merely preparatory works, and actually carrying out some of the sub-division works.