The Contra Proferentem Rule (Ambiguity in a Contract Term or Clause)

The Contra Proferentem Rule where there is Ambiguity in a Contract Term or Clause

Frequently an area of dispute in the Malaysian construction industry results from disagreement or a differing opinion of the parties as to the correct interpretation of a particular contract term or clause and its subsequent context in respect of the overall contract.

Certain ambiguities, between the documents making up the contract documents are commonly cleared up with reference a priority of documents or similar clause which is contained within most standard forms of contract. In the absence of provisions in the contract, the general rules of contract will interpretation apply.

Where such a dispute arises, finally it will be the Courts not the parties, that interpret the contract terms, ascertaining their ‘true meaning’ in order to give effect to the intention of the parties. The law strives for, and promotes, certainty in agreements. As a general rule a written agreement stands alone as a solitary expression of the parties’ intentions.  The parties’ intentions must be ascertained from it, “according to the ordinary grammatical meaning of the words used therein”

The Courts have various rules of interpretation available to assist them in construing the intentions of the parties as shown in the English Courts Judgment in the Investors Compensation Scheme Ltd v  West Bromwich Building Society [1998].

The Contra Proferentem Rule

One particular rule of interest which may be applied by the Courts in interpretation contracts, albeit sometimes misunderstood, is the contra proferentem rule.

This rule is limited in its application to when the following two specific occasions occur:

1) Only to an ambiguity (e.g. where a clause has two or more meanings)

2) Where all other rules of construction have failed to resolve it.

Under this rule, the ambiguous contract term may be interpreted by the Courts against the Profferer (the person who drafted / tendered the document to the other contracting party), applying an interpretation of the contract term which is most favourable to the other party.

In construction contracts this rule is more likely to apply to one party’s unilateral terms i.e. bespoke construction contracts / bespoke amendments to standard forms of contract. These often seek to give a distinct advantage to the profferer over the other party.

It is very doubtful that this rule would ever be applied to un-amended international recognised standard form of Contract (e.g. FIDIC) as whilst selected for use by the Employer, these are not unilateral and in most instances have been negotiated by representatives from all sides of the industry. Both Keating [See 3-331; Keating on Building Contracts, 7th Edition (Sweet & Maxwell)] and Hudson [Hudson Building and Engineering Contracts, 11th Edition (Sweet & Maxwell)] appear to support this view.  It however, may be applicable to domestic standard forms which have been developed by the Employer such as the Government standard forms  (eg. PWD 2003, JKR forms and PWD D/B 2007 form)

In summary, those charged with drafting or amending construction contracts need to ensure that they incorporate terms which are concise and unambiguous, preferably in plain, intelligible language. Otherwise, if there is doubt about the meaning of any written term, they may find that an interpretation more favourable to the other party is applied, in appropriate circumstance. This may be contrary to their original intentions, and in certain circumstances, may prove to be financially disastrous.

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