{"id":395,"date":"2019-04-24T16:07:47","date_gmt":"2019-04-24T16:07:47","guid":{"rendered":""},"modified":"2019-06-10T19:44:33","modified_gmt":"2019-06-10T19:44:33","slug":"doctrine-of-contra-proferentum-9947","status":"publish","type":"post","link":"https:\/\/www.lawteacher.net\/free-law-essays\/commercial-law\/doctrine-of-contra-proferentum-9947.php","title":{"rendered":"Doctrine of Contra Proferentum in Commercial Law"},"content":{"rendered":"

\u201cThe doctrine of contra proferentum has limited applicability in commercial cases.\u201d Critically examine this statement with reference to case law, legislation and academic commentary.<\/h4>\n

INTRODUCTION<\/h4>\n

This assignment introduces some points about the doctrine of contra proferentum<\/a>, which has limited applicability in commercial cases. In that time, the judges\u2019 behavior has changed completely in relation with the applicability that the doctrine of contra proferentum should have in commercial cases. For this reason, it will be explained how the interpretation of the judges has changed and what processes have been done, concerning the common and the statute law. Furthermore, it is essential to make a reference to the interpretation of the exclusion clauses, which has become a substantial conflict between the business parties in commercial cases. Another important elements of this assignment are the applicability of some principles, like \u201cGilbert Ash\u201d, \u201cBusiness Common Sense\u201d and  \u201cCanada Steamship\u201d, on the ambiguities that arise in commercial cases. Finally, it would be careless if there was no reference to \u201cThe Unfair Contract Terms Act 1977<\/a>\u201d (UCTA) which has a substantial connection with some remarkable cases. So, particularly at this assignment, it will be evaluated what general measures have been taken in order to increase the freedom of the contracts.<\/p>\n

THE DOCTRINE OF \u201cCONTRA PROFERENTUM\u201d AND SOME OTHER PRINCIPLES<\/h4>\n

If we wanted to
\ngive a definition of contra proferentum, we would say that this principle, in a
\ncommercial case, interprets a clause strictly against the party, which prefers
\nthe structure of the contract, has drafted it and relies upon it. Also, in
\norder this principle to have applicability, it is essential to be enforced in
\ncontracts between parties with unequal bargaining power. Generally, when there
\nare ambiguities in a contract and one of the parties does not use clear
\nwording, the court uses the above doctrine in order to protect the less power
\nparty and solve the ambiguities that arise from the misrepresentation of the
\ncontract\u2019 terms. Nowadays, the courts, although they used to interpret the
\nexclusion and limitation clauses strictly against the business common sense,
\nhave changed their behavior and recognized that the parties should set the
\nterms of a contract respecting the freedom of contract and the parties\u2019
\nautonomy[1]<\/a>.
\nAnother principle that protects the clearance of a contract is the \u201cGilbert
\nAsh\u201d principle. According to that, the parties should have decided clearly what
\nare their intentions before they draft a contract and give up their rights[2]<\/a>.
\nFurthermore, another \u201crule\u201d that has limited applicability, like the contra
\nproferentum, is the Canada Steamship. Shortly, if some of the parties intend to
\nexclude or to restrict liabilities, they have to be clear otherwise the courts
\nwill try to protect the party, which has been injured by interpreting the
\nclauses narrowly[3]<\/a>.
\nNowadays, these habits have changed and the above principles have not big
\napplicability in courts. <\/p>\n

Taking for example the Persimmon Homes Ltd v Ove Arup and Partners 2017, it is obvious that in this case the Canada Steamship and Contra Proferentum rule are now more relevant to indemnity clauses than to exclusion clauses. In this case the judge found that the parties have given effect to the exemption clause, which had been created by the allocation of risks between them. So the liability, respecting the asbestos was not excluded by cl. 4.3[4]<\/a>.<\/p>\n

EXCLUSION CLAUSES: TERMINOLOGY AND INTERPRETATION IN COURTS IN RELATION TO \u201cBUSINESS COMMON SENSE\u201d AND \u201cREASONABLE PERSON\u201d<\/h4>\n

Exclusion clauses are introduced to a contract in order to restrict or exclude liability between the parties. Although, the courts have started to interpret the contracts by shortening the limitations and narrowing the definitions of loss under the umbrella which is called \u201cexclusion clauses\u201d. Furthermore, have become more business-friendly place to litigate and express the parties\u2019 autonomy. Also they give effect to the parties\u2019 agreement and enforce the contractors to charge for accepting large risks[5]<\/a>. Recently the Court of Appeal has described the appropriate approach about commercial cases. The parties with equal bargaining power should judge the fairness of their contracts, including the fairest terms in their agreement. Yet, they should consider whether the terms contain reasonableness. Although, the court should not interfere because the negotiation of the parties have been made from reasonable businessmen and this interference would be in contrast with the freedom of the contract[6]<\/a>. The above statements are explained by the summary of the Transocean Drilling UK Ltd v Providence Resources Plc. [2016]. In this case the judgment stated that the court would have been wrong if she had imposed a restricted construction on the clause, where the parties had agreed liabilities for consequential loss[7]<\/a>. Generally, a party, which relies upon on exclusion or limitation clauses should make clear that the requirements of reasonableness and fairness can be proved by evidences, otherwise the court will not interfere and will respect the parties\u2019 agreement. Furthermore, the lack of judicial interpretation is essential when parties express their intentions clearly and take their risks as they see fit. The most remarkable case that represents business common sense is Rainy Sky v Kookmin Bank. In this case, the court asked what a reasonable person would have decided. So they thought what the intention of the parties were when they were constructing their contract. The court stated that when there are two possible interpretations, they have to apply that, which is more consistent with the business common sense. For this reason they agreed with the Buyer\u2019s opinion. The lesson that we take from this case is that the first intention of the parties is to construe a contract without ambiguities. But when some ambiguities remain because of an unexpected fact the court should apply a commercial and not a literal explanation. So in this case particularly, the conclusion was as Longmore LJ have said in Barclays Bank plc. v HHY Luxembourg SARL [2010]: When there are two possible meanings it is better to apply the more than the less business common sense approach[8]<\/a>. <\/p>\n

THE UNFAIR CONTRACT TERMS ACT 1977 AND SOME REMARKABLE CASES IN RELATION TO THIS ACT<\/h4>\n

Firstly, the basic purpose of the Unfair
\nContract Terms Act 1977 (UCTA) is to restrict the liability in a contract,
\nwhich can be excluded for breach of contract and negligence. This restriction
\nis made by reference to a reasonable test and in some cases by a specific
\nprohibition. Most of the provisions of UCTA apply to business liability. If you
\nhave included some exclusion clauses into your contract, they will be judged in
\nrelation to the time and the circumstances the contract has been construed. One
\nof the important things while the parties are negotiating their contract is to
\nassess if the terms and conditions they have set apply the reasonable test and
\njustify that the court would think that you have included a limitation clause
\nreasonably. Furthermore, it s important to be certain that the risk and
\nliability that have been excluded could not been covered by an insurance in
\norder the court to be determined for the reasonableness of the exclusion. The
\nUCTA set some rules, which ensure the fairness and reasonableness of the
\ncontract. One of the guidelines states that it should be evaluated the
\nbargaining power between the parties and if the one party had given the
\nessential incentives before the other signed the contract. Also, it plays a big
\nrole, whether there was an ability to construe a contract with similar or
\ndifferent terms[9]<\/a>.<\/p>\n

Taking for example the Photo Production Ltd v Securior Transport Ltd, it is concluded that when the risk of the contract is coming from insurance and the parties have equal bargaining power, the case does not need interpretation and the parties should take risks as they see fit. So, the UCTA did not apply to this case for the above reasons and because the contract had been construed before that. Eventually, in this case the wording was sufficient to exclude liability[10]<\/a>. In addition, in Granville Oil and Chemicals Ltd v Davis Turner and Co. Ltd through Tuckey LJ stated that: Parties with equal bargaining power should be bound by their own exclusions and terms[11]<\/a>.<\/p>\n

In conclusion, in Regus (UK) Ltd v Epcot Solutions Ltd, the exclusions of liability were reasonable under UCTA. Although, Epcot challenged that the exclusion of liability for loss and damage were enforceable and unreasonable under the Act, the Court of Appeal found that the clauses 23(3) met the requirements of reasonableness and the clause 23(4) was independent from the previous[12]<\/a>.<\/p>\n

CONCLUSIONS<\/h4>\n

Summarizing it is obvious that the doctrine of
\ncontra proferentum has limited applicability in commercial cases nowadays. As
\nwe have evaluated in the above statements, the main reason that the courts most
\nof the times protect the parties, which rely upon the ambiguities in contracts
\nis because they have adopted a more business common sense behavior in relation
\nto the interpretation of the exclusion and limitation clauses. There is the
\nconfidence that the parties should take risks as they see fit and they should
\nrely upon to these risks although they seem ambiguous. Furthermore, other
\nprinciples and Acts rarely apply to commercial cases, so the direction to more
\nreasonable and fairness contracts are more frequent. It is understandable that
\nthe courts\u2019 behavior has been changed completely the last years and it is
\nobvious approaching a more business-friendly plan in order to interpret the
\ncases.<\/p>\n

BIBLIOGRAPHY<\/h2>\n

Cases:<\/h3>\n