{"id":423,"date":"2019-04-10T11:23:22","date_gmt":"2019-04-10T11:23:22","guid":{"rendered":""},"modified":"2019-06-07T12:43:00","modified_gmt":"2019-06-07T12:43:00","slug":"contra-proferentem-limited-applicability-6628","status":"publish","type":"post","link":"https:\/\/www.lawteacher.net\/free-law-essays\/commercial-law\/contra-proferentem-limited-applicability-6628.php","title":{"rendered":"Does the Doctrine of Contra Proferentem Have Limited Applicability?"},"content":{"rendered":"

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

Introduction.<\/h2>\n

The present paper is tasked with examining and critically evaluating the limited applicability of \u201ccontra proferentem\u201d doctrine in commercial cases. Further on, the aim is to explore the \u201cmodern\u201d interpretation methods that Judges adopted in respect to the \u201cfreedom of contract<\/a>\u201d principle.<\/p>\n

At the beginning of the paper a definition of \u201ccontra proferentem\u201d doctrine will be given. Thereafter, exclusion and limitation clauses in commercial contracts will be analyzed and a reference will be made to Canada steamship rule. Also, contract interpretation methods will be examined. Therefore, the significance of \u201cBusiness common sense\u201d term and the limited applicability of contra proferentem doctrine in cases will be explored. Moreover, the restriction to particular contract contents under the Unfair Contract Terms Act 1977<\/a> and the \u201creasonableness test\u201d which has raised, will be evaluated. <\/p>\n

Definition of \u201ccontra proferentem\u201d doctrine.<\/h2>\n

Contra proferentem means \u201cagainst the offeror\u201d and is
\nalso known as the ambiguity doctrine.[1]<\/a>
\nContract composition requires long negotiations, in which each party looks to
\nachieve its own interest. This can lead a party to use intentionally vague
\nlanguage in order to interpret the contract in a different way from the other
\nparty but ostensibly looking as being each party\u2019s favor and this is where
\ncontra proferentem applies. <\/p>\n

If a contract includes a term which can considered as
\nambiguous, generally when there is doubt about the meaning of a contract, contra
\nproferentem interprets that term against the party\u2019s interests who insisted on
\nincluding the particular clause[2]<\/a>.
\nThe doctrine is often applied to standardized contracts, when parties have unequal
\npower. However, when both parties have included the ambiguous clause and are
\nimplicated with the wording of the contract, the doctrine has no application.
\nContra proferentem does not apply in cases when ambiguity is not genuine.<\/p>\n

Exclusion \u2013 limitation clauses in commercial contracts.<\/h3>\n

In order to allocate risks, parties in contracts may
\nwish to exclude or limit their liability or negligence in the event of default,
\nas law has entitled them to do so. However, parties should have great reasons
\nto cut down or limit the remedies which are provided by the law for breach of
\nimportant contractual obligations[3]<\/a>
\n. Using clear an unambiguous wording in order to properly reflect their
\nintentions is of utmost importance, as well the content must be balanced under
\nthe Unfair Contract Terms Act 1977[4]<\/a>.<\/p>\n

In case of limiting liability
\nfor negligence, Canada Steamship rule arise, even though currently meets
\nlimited applicability. According to that principle, exclusion of negligence
\nmust be expressed clearly. Otherwise if the language leads to a doubt because
\nis not wide enough to cover negligence, it will be construed against the party
\nwhich relying on the clause. If the above statement is satisfied, the clause is
\nexamined if is capable to cover other liability and if so, clause will not
\ncover negligence[5]<\/a>.<\/p>\n

Interpretation of exclusion clauses in commercial contracts and the significance of \u201cBusiness common sense\u201d.<\/h3>\n

Contra proferentem
\ndoctrine is no longer the first option when it comes to commercial contracts, courts
\nseem to find less ambiguity in such cases and as a result effect was given to
\ndifferent approaches in contractual interpretation.<\/p>\n

In Rainy Sky SA v
\nKookmin Bank [2011], the Supreme court developed a new approach in commercial
\ncontracts by suggesting \u201cBusiness common sense\u201d[6]<\/a>.
\nIn this case two different interpretations of key provisions were possible.<\/p>\n

The court in order to
\ninterpret the provision, approached Lord\u2019s Hoffmann definition of \u201creasonable
\nperson\u201d in Investors Compensation Scheme Ltd v West Bromwich Building Society
\n[1997] [7]<\/a>.
\nGround was given to what the parties wording could made a person with all the
\nbackground knowledge understand at the time of contract[8]<\/a>.
\nThe court stated that between two possible interpretations, the most consistent
\nwith business common sense should apply otherwise, the result will be
\nuncommercial [9]<\/a>. <\/p>\n

This case had a
\nparagraph capable of two meanings. Court looked beyond the words used and preferred
\nthe construction which was more consistent with the commercial purpose of the
\nbonds. Contra proferentem doctrine did not applied in this case, as court based
\nits decision on the \u201ccommerciality\u201d of the competing construction.
\nNevertheless, courts tend to adopt more business-friendly approaches in
\ncommercial cases in respect of \u201cFreedom of contract\u201d and parties\u2019 intentions
\nrather than applying the \u201cpunitive\u201d doctrine.<\/p>\n

In contrast with the commercial
\npurpose approach which was adopted in the previous case, is Arnold v Britton
\n[2015], which was considered as a shift to a more literal contractual
\ninterpretation[10]<\/a>. The
\ncase was examined because tenants found variable wordings to leasing. \u201cBusiness
\ncommon sense\u201d had not a significant role in this case. Therefore, greater
\nweight to the original and ordinary meaning of the words as at the overall
\npurpose of the clause was given by lord Neuberger. However, subjective evidence
\nof each parties\u2019 intensions cannot be taken into consideration. He also observed
\nthat court in order to identify parties\u2019 intentions, has to make the
\n\u00abreasonable person\u201d approach, i.e. What a reasonable person could understand
\nthem to mean by the language used[11]<\/a>.\n<\/p>\n

In the above case,
\ntenants had made a very bad bargain. Thus, contra proferentem did not applied
\nas the agreement which they made was clear, unambiguous and they were bound of
\nit. Moreover, If the wording was uncertain, courts could apply more logic
\ninterpretation. However, as lord Neuberger stated, reliance can be placed in
\nbusiness common sense but this cannot cover the clear wording[12]<\/a>.<\/p>\n

In Persimmon Hommes Ltd
\nv Ove Arup [2017], defendant\u2019s negligence was excluded in the commercial
\ncontract[13]<\/a>.
\nClaimants, relying on \u201ccontra proferentem\u201d and \u201cCanada steamship\u201d asserted that
\nthe exclusion clauses were not wide enough to exclude liability.<\/p>\n

However, court stated
\nthat between equal parties in commercial contracts contra proferentem has a
\nlimited role, also by common law the factual content as the commercial sense
\nare enough to define the meaning[14]<\/a>.Thus,
\nin relation to Canada Steamship rule, courts tend to use it as a guidance in
\ncommercial cases, mainly in indemnity clauses as courts have soften their
\napproach in both exclusion and indemnity clauses[15]<\/a>.Moreover,
\nthe wording was clear and contra proferentem did not applied as courts have
\nadopted a different interpretation approach.<\/p>\n

Exclusion clauses and enforceability under \u201cUnfair Contract Terms Act 1977\u201d<\/h3>\n

Unfair Contract Terms
\nAct, is a statutory control which applies to commercial contracts and regulates
\nthe exclusion and restriction of liability for breach of contractual
\nobligations in order to provide protection to parties[16]<\/a>.\n<\/p>\n

When it comes to
\ncontract composition in standard terms, parties should have in mind the Act\u2019s
\nrestrictions and their contract must meet the requirements that \u201creasonable\u201d
\ntest sets.<\/p>\n

 In order for a term to be reasonable under
\nUCTA, great importance is given to the circumstances that the contract was made
\nas term\u2019s own fairness[17]<\/a>.
\nAccording to Schedule 11 (2) which provides guidelines that determine whether a
\nterm satisfy the reasonableness test, in commercial contracts parties
\nbargaining power positions are included, as well as whether the customer
\nreasonably ought to know or knew the term extent[18]<\/a>.
\nHowever, subject to reasonableness cannot be under s.2 the limitation or
\nexclusion of liability for death or injury related to negligence. Exclude
\nliability for fraud is forbidden as also the misrepresentation of the terms.<\/p>\n

In Regus Ltd v Epcot
\nSolution, the issue was If a clause that excluded liability was unreasonable
\nunder UCTA[19]<\/a>.
\nFirst judge held that the clause was unreasonable. However, Court of appeal,
\nexamined the case under Schedule (2) and barraging power was equal as Epcot was
\naware for the terms at the time they composited the contract, the exclusion
\nclause also suggested to protect themselves by insurance as it would be easier
\nfor them to insurance their own business[20]<\/a>.\n<\/p>\n

In this case, Court of
\nAppeal overturned the High Court\u2019s decision by giving effect in the contractual
\nterms that parties have agreed and freely negotiated.<\/p>\n

Goodlife Foods Ltd v
\nHall Fire, is an interesting case as an unlawful exclusion was made under section
\n2(1)[21]<\/a>.
\nThe main point that court had to determine was if all the clause should
\nconsider ineffective also because of its wide meaning. Thus, court found that the
\nrest of the clause met reasonableness as parties had equal power, similar
\ncontent is found to other contracts of the industry and a following clause
\noffered insurance[22]<\/a>.
\nHowever, the offending part did not affect the rest validity of the clause and
\nconsidered as partly invalid.<\/p>\n

When exclusion clauses
\nare broadly expressed caution should be taken in order to be harmonized under
\nUCTA\u2019s requirements. In contrast, contracts which intend to protect against
\ncommon insured risks such as fire, such clauses may consider reasonable.<\/p>\n

Conclusion<\/h2>\n

In commercial
\ncontracts, when both negotiated parties are sophisticated, courts tend to give
\neffect to their agreement by consider the natural meaning or the contractual
\ncommerciality rather than applying \u201ccontra proferentem\u201d and other traditional
\nrules. Exclusion clauses are now considered as a way of allocating risks and
\nthe doctrine may apply only in extreme ambiguous cases. <\/p>\n

However, \u201cUCTA\u201d does
\nnot apply to negotiated clauses but limits the applicability of unreasonable
\nterms, with no need to consider \u201ccontra proferentem\u201d doctrine. Summarizing,
\ncourts tend to support freedom of the contract and parties\u2019 intentions.<\/p>\n

Bibliography <\/h2>\n

Cases<\/h3>\n