The Contra Proferentem Rule

22 July 2014

The contra proferentem rule states, broadly, that where there is doubt about the meaning of the contract, the words will be construed against the person who put them forward. The courts only apply the principle in cases where the clause under question is ambiguous. The principle operates against the drafters of the contract for two (2) reasons:

First, they rely upon the [impugned] clause to exclude or to limit the liability alleged against them; and

Secondly, they are responsible for introducing during the negotiating process the particular parts of the clause on which they now rely on.

The principle is applied to encourage the drafter of a contract to be as clear, precise and explicit as possible and to take into account as many foreseeable situations as possible. The rule reflects an inherent rejection of standard-form contract and allows room for negotiation and a balanced document. The contra proferentem rule further places the cost of losses on the party that was in the best position to avoid the harm (by drafting the contract intelligently).

The courts, therefore, emphasize on scrutinizing the plain and clear meaning of the words with particular care before applying the principle, if required (see, BHP Petroleum Limited vs. British Steel Plc, [2000] 2 All ER (Comm) 133).

The superior courts in Pakistan have discussed this rule as follows:

(1) Munib Akhtar, J, in Muhammad Shahnawaz vs. Karachi Electric Supply, 2011 PLC (C.S.) 1579 (Sindh High Court) explained the principle of contra proferentem.

Under this principle, the court held that “any ambiguity or doubt in the scope of the power should be construed against the employer and in favour of the employee” where the employer was the drafter of the contract. 

(2) In Muhammad Amin Brothers (Pvt.) Limited vs. Pakistan Agricultural Storage and Services Corporation Limited, 2007 CLD 1445 (Lahore), and Bari Rice Mills Limited vs. Passco, 2007 CLD 857 (Lahore), the Lahore High Court highlighted the scope of the principle:

… Principle of contra proferentem can be resorted to if there is an ambiguity which makes the contract difficult to ascertain the intention of the contracting parties ….

(3) In Muhammad Shahnawaz vs. Karachi Electric Supply Company, supra, Clause 1.2 of the contract conferred a power on Karachi Electric Supply Company to alter the termination clause of the contract. The Court held that the rule of contra proferentem would apply in order to remove the ambiguity in the Clause.

(4) In Bari Rice Mills Limited vs. Passco, supra, applying the same rule, the courts held that the words under question were considered to be sufficiently clear in order to not apply the principle of contra proferentem.

 … There is no warrant whatsoever for construing the term “as is where is” as overriding the clear and unambiguous obligation of the respondent to supply Basmati Special Rice. In this view of the matter, I do not need to consider the argument advanced on behalf of the appellant that the principle of contra proferentem be applied for interpreting the contract (Exh.P.2) which was drafted by the respondent. This principle can be resorted to if there is an ambiguity which makes it difficult to ascertain the intention of the contracting parties…. (emphasis added)

The principle of contra proferentem has been discussed by the similar jurisdictions of India and the United Kingdom and in the writings of legal publicists and scholars. It has also been codified in international instruments such as the UNIDROIT Principles and the Principles of European Contract Law.

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Myra Khan is a Barrister-at-Law from the Honourable Society of Lincoln’s Inn and Vice Chairperson Women Rights Committee of the Lahore High Court Bar Association. She is currently practicing law in Lahore, Pakistan.

Any queries may be directed to lawyereadia@gmail.com

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