Contra proferentem – in memoriam

In a development which will please those drafting commercial contracts, but disappoint those litigating against them, the Court of Appeal has confirmed that the long-standing practice of construing a contractual provision against the party drafting it now has a very limited role.

Background

Contra proferentem (literally 'against the offeror') has long been used by the courts to interpret contracts. It was confirmed as a key tool to contract interpretation in Canada Steamship (1952). The principle is that any ambiguity in a non-negotiated clause is interpreted by the courts to the detriment of the party who introduced the term. The rationale for this rule is that if a party imposes ambiguous terms on another, then it should suffer any consequences of the defective drafting.

Along with other rules of strict interpretation, the principle was originally introduced as a means of avoiding unfair exclusion clauses. Since the introduction of the Unfair Contract Terms Act 1977 provided the judiciary with a more precise tool to avoid enforcing such terms, the relevance of the rule has steadily declined. This was confirmed by the Court of Appeal in a recent construction dispute.

Facts

In Persimmon Homes Ltd v Ove Arup & Partners Ltd (2017) the Court of Appeal was asked to consider the sentence 'Liability for any claim in relation to asbestos is excluded', contained in a contract between developers and a firm of engineers. The developers claimed the engineers had been negligent in failing to identify and report on the presence of asbestos on the development site. The engineers sought to rely on the exclusion clause, but the developers argued that the contra proferentem rule should be applied and the engineers' liability for negligence should not be excluded.

Decision

In finding for the engineers, Jackson LJ confirmed the role of the contra proferentem rule in relation to the interpretation of commercial contracts negotiated between parties of equal bargaining power was now limited. The court instead adopted a more modern approach; focusing on the words used, commercial sense and context of the provision.

The modern approach

Words used

The court found that the engineers' interpretation of the clause; that all claims relating to asbestos were excluded, was the natural interpretation of the sentence. The developers' interpretation that 'for' was to mean 'for causing' would, in the court's view lead to the sentence becoming 'bizarre, if not ungrammatical'.

Commercial sense

The developers argued that the clause excluded the engineer's liability for causing asbestos contamination but not for negligently failing to report asbestos which the engineers found. The court rejected this argument on the basis that this interpretation was contrary to business sense.

Context

The clause had been drafted in the context of allocating risk between sophisticated commercial parties. The court noted that engineers who take on less risk charge lower fees and obtain less extensive insurance. In the present case this was demonstrated by the limits of the exclusion clauses being tied to the engineers' insurance obligations. The court showed considerable reluctance to interfere with the parties' stated intentions as to who bore the risk of asbestos contamination.

Conclusion

The neglect of anachronistic principles such as the contra proferentem rule in favour of a more modern approach which attaches weight to the logical interpretation of the parties' intentions is a welcome development for those negotiating and drafting commercial contracts.

For further information, please contact Chris Willison at chris.willison@michelmores.com or Rob Bailey at rob.bailey@michelmores.com.