When contra proferentem does and does not apply.

The Construction rule is an interpretation of contract law which sets out how latent ambiguity within contract terms should be dealt with.

Put simply, the ambiguity should be interpreted in the favor of the party which did not draft the contract. Drafters should not hold the power to deliberately use confusing language to benefit.

A commonly cited definition is ‘ambiguity is the onus of the author’ and the Latin is translated as ‘against the drafter‘.

The term ‘construction rule’ relates to the construction of the contract document (drafting) as opposed to construction as the subject matter of the contract. The issue is not specifically aimed at the construction industry.

For example, imagine if a builder includes a term in a contract which states “the builder may complete the works by day X”.

The owner may interpret the word ‘may’ as being restrictive i.e. the builder may not take more time than noted, whereas the builder may interpret the word ‘may’ to describe an intention/aim but not an obligation i.e. may is not ‘must’.

The reason for the construction rule is that the law seeks to place the costs of losses on the party who was best place to avoid them. This is usually the party who drafted the terms.

When not to rely on the construction rule

An actual example from the UK is provided in Hollier v Rambler Motors (AMC) Ltd [1972] 2 QB 71.

As noted by the open University: “The defendant agreed to repair Mr Hollier’s motor car. While at the defendant’s garage, the car was damaged in a fire caused by the defendant’s negligence. The defendant sought to rely on a clause stating, ‘The company is not responsible for damage caused by fire to customers’ cars on the premises’. The Court of Appeal held that the clause was not incorporated into the contract but, in any event, it was not clear enough to exclude the defendant’s liability. Lord Justice Salmon (at p. 81) stated:

The ordinary man would I think say to himself: ‘Well, what they are telling me is that if there is a fire due to any cause other than their own negligence they are not responsible for it.’ To my mind, if the defendants were seeking to exclude their responsibility for a fire caused by their own negligence, they ought to have done so in far plainer language than the language here used.”

Reliance on the construction rule is common but not as safe a bet as some may believe.

Parties have freedom to contract. The courts have long sought to reach a balance between an informed parties right to contract, and the place of the court to infringe on this right. It is not the place of the courts to correct a bad bargain.

The distinction between successful application of the rule and otherwise, is one of interpretation, not freedom to use language as one sees fit.

If the meaning of the term(s) can be reasonably shown prima facie, then the contract should be upheld as per its meaning and the parties held to their contractual obligations.

Courts have upheld terms which may have reasonably inferred meanings (refer Persimmon Homes Ltd & others v Ove Arup & Partners & another [2017], EWCA Civ 373).

Exclusion clauses

Freedom to contract means the parties can expressly agree that the drafter should not be liable for latent ambiguity.

It may well be the case that the non-drafter has significant contractual knowledge and accepts the risk that it may not be aware of potential ambiguities.

Examples of terms used to negate drafters risk are becoming more prevalent within the New Zealand construction industry, particularly as contracts lean more toward avoidance of risk, often in forms similar to:

” The contra proferentem rule shall not apply and accordingly, none of the provisions hereof shall be construed against or interpreted to the disadvantage of the Party responsible for the drafting or preparation of such provision”

In light of the potential implications where ambiguity is a legitimate contractual issue, the need for professional contract reviews is emphasized.

Contracts should be checked with a fresh aye where possible and any assumptions on your part documented (and preferably addressed) prior to execution.

Summary

If you have any queries about the construction rule feel free to contact our team.

Similarly, if you have experienced being on the receiving end of ambiguous contract terms then please feel free to comment and let us know your thoughts.

Contract Control

About the author

contractcontrol

Leave a Comment