Contra Proferentem or the Ambiguity Doctrine

The language used in contracts is often complicated, and construction contracts are no exception. 

But why, I hear you ask? 

The problem is that the drafters of contracts are trying to achieve certainty, they are seeking to ensure that the provisions they have written can be enforced should a subsequently dispute arise.

The problem is by their very nature, construction contracts are complicated, and if one is not too careful, a clause when read may be open to more than one interpretation.

When clients come to see me for advice, often they recognize that they have not performed well and that under the contract they agreed to, they are liable to pay Liquidated Damages or loss and/or expense. 

Faced with such claims, and having no entitlement to extensions of time, these clients are seeking a way of avoiding such liability.

It is under such circumstances that the Contra Proferentem rule may become of assistance.

The Contra Proferentem Rule is but one of many rules of interpretation but, with regard to provisions for extensions of time and liquidated damages, such clauses are to construed strictly contra proferentem.

This is best illustrated by the case of Bramall & Ogden v Sheffield City Council (1983) 29 B.L.R. 73. The Contract was in the form of the JCT 63, with liquidated damages expressed at the rate of £20 per week for each uncompleted dwelling. The problem was, however, that the Appendix gave only one date for completion and the works covered not only dwellings but also communal areas. On the Employer taking possession the liquidated damages were to be proportioned down, however, due to the way the damages were stated being £20 per dwelling rather than an amount for the whole of the Works, there was uncertainty how this was to be applied. The upshot was that it was held that the applicable provisions had to be construed strictly contra proferentem with the result that the provisions for liquidated damages failed.

So, when a client comes seeking a way out of liability for liquidated damages or loss and/or expense claimed by a Main Contractor, I carefully scrutinize the provisions of the Contract in regard to extensions of time and liquidated damages in the knowledge that I have a major weapon in my armoury if I can find any ambiguity – and often I do! 

The doctrine of contractual interpretation provides that an ambiguous term will be construed against the party that imposed its inclusion in the contract – or, more accurately, against the interests of the party who imposed it. This even applies when the Contract is in the standard form. 

The interpretation will therefore favour the party that did not insist on its inclusion. The rule applies only if, and to the extent that, the clause was included at the unilateral insistence of one party without having been subject to negotiation by the counter-party. Additionally, the rule applies only if a Court determines the term to be ambiguous, which often forms the substance of a contractual dispute, and such ambiguity is “latent” (i.e., not so glaring, or “patent”, as to put the other party on clear notice of a problem with the wording or interpretation).

It translates from the Latin literally to mean “against (contra) the one bringing forth (the proferens).”

The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as it can.

Additionally, the rule reflects the Court’s inherent dislike of standard-form take-it-or-leave-it contracts also known as contracts of adhesion (e.g., standard form insurance contracts for individual consumers, residential leases, etc.). The Court perceives such contracts to be the product of bargaining between parties in unfair or uneven positions. To mitigate this perceived unfairness, legal systems apply the doctrine of Contra Proferentem; giving the benefit of any doubt in favor of the party upon whom the contract was foisted. Some courts when seeking a particular result will use contra proferentem to take a strict approach against insurers and other powerful contracting parties and go so far as to interpret terms of the contract in favor of the other party, even where the meaning of a term would appear clear and unambiguous on its face, although this application is disfavoured.

Contra Proferentem also places the cost of losses on the party who was in the best position to avoid the harm. This is generally the person who drafted the contract. An example of this is the insurance contract mentioned above, which is a good example of an adhesion contract. There, the insurance company is the party completely in control of the terms of the contract and is generally in a better position to, for example, avoid contractual forfeiture. This is a longstanding principle: see, for example, California Civil Code 1654 (“In cases of uncertainty … the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist”), which was enacted in 1872. Numerous other states have codified the rule as well.

The principle has also been codified in international instruments such as the UNIDROIT Principles and the Principles of European Contract Law.

A useful doctrine for a party seeking to challenge a clause in a contract and a warning to those drafting contracts – keep your wording clear and unambiguous.

For further information please contact Richard Silver on 0845 345 1244 or by email rns@shemmingsllp.co.uk

 

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Author / Commentator: Richard Silver - 10/09/2013 


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