contra proferentem

Contra proferentem is a general rule of contractual interpretation which says that Courts should construe a contractual provision against the party to litigation who seeks to rely upon it. There are two arms to this rule. Firstly, where a party seeks to rely upon a clause and there is ambiguity in respect of its application, the clause is construed against that party in favour of the other. In addition to this, contracts are interpreted against the interest of the person which drafted them.

Where the terms of contracts are negotiated by both parties such that each of them contributed to the terms, ambiguity in the clause is construed against the person who insisted on the inclusion of the particular term of the contract in favour of the other party. The 'proferens' is the party from which the initiative came to include the term in the contract, whether by presenting standard terms of contract, drafting the particular term, and/or the party to the dispute seeking to rely upon it.

Application of Contra Proferentem

The rule is of general application to contracts, however it has particular application in the context of limitations of liability and exclusion clauses in business contracts. This is the rule of contractual interpretation which has led to broad (and intended to be) all encompassing contractual limitations of liability and exclusion clauses. When considering clauses such as these, English Courts are likely to take a strict construction of such clauses and require that events relied upon by the relevant party in the context of limitations of liability fall squarely within the terms of the contract.

When a strict construction is applied against the backdrop of the parties' objective intentions in respect to the contract and the commercial purpose of the contractual document, frequently ambiguity exists in respect of whether or not the relevant events do fall within the terms of the limitation, so as to give rise to doubt as to whether the limitation of liability is actually effective.

Having regard for the ordinary meaning of words and the difficulty of actually anticipating what events may be relevant to exclude at the time of the contract it is difficult, if not impossible to anticipate all possible events which may take place which would lead a party wishing to rely on an exclusion of liability. There are a range of avenues available to courts to interpret clauses.

On one extreme a court is unlikely to relieve a party of all liability arising from all possible events under a contract as this would mean that contracts become mere discretionary promises to perform rather than legally binding contracts. On the other is taking a careful and analytical approach to interpreting the words used in the contract.

Examples: Contra Proferentem

For example, suppose a contract provides:

1. "The company gives no warranty in respect to quality or standard of goods supplied".
   A clause such as this is more than likely to be the proferens of the supplier. Supposing the supplier delivers defective goods to the customer. It stands to reason that a specific exclusion of the warranty would not apply to breaches of conditions of the contract. Accordingly, the supplier would probably be liable for damages if the goods delivered were so grossly defective so as to amount to a breach of a condition of the contract, as opposed to a warranty.
2. "The supplier shall not be liable for loss sustained by not delivering the quantity of goods ordered by the specified delivery date".
   Suppose the supplier failed to deliver any goods by the specified date. It would seem that the effect of the limitation of liability would be avoided so that the customer could claim damages, because the supplier has not made a short delivery. The supplier did not supply any goods under the contract, thereby placing the supplier in breach of contract and liable for damages.

This rule of interpretation is not often negated in business contracts, as may introduce high levels of uncertainty in interpretation and legal effect of the contract.

[US: Contra proferentum]