The contra proferentem principle essentially states that if there is any doubt about the meaning or scope of an exclusion clause, the ambiguity should be resolved against the party seeking to rely on the exclusion clause on the basis that parties are not lightly to be taken to have intended to cut down the remedies the law provides for breach of contract, unless the contract contains clear words to that … Legal Briefings – By Mark Darwin, Partner, Brisbane and Guy Narburgh, Special Counsel, Sydney. Cas. The decision. An example of this is the insurance contract mentioned above, which is a good example of an adhesion contract. If any doubt or ambiguity arises in the interpretation of a document, the rule requires that the doubt or ambiguity should be resolved against the party who drafted it. Delco Australia (the Claimant/Respondent) entered into an agreement with Darlington Futures Ltd (the Defendant/Appellant), for the provision of brokerage services by the Defendant to the Claimant. Ltd (1987) 162 CLR 549 lends weight to this view whereby their Honours stated: “At law, as in equity, the traditional view is that the liability of the surety is strictissimi juris [meaning that the law should be applied in the strictest manner] and that ambiguous contractual provisions should be construed in favour of the surety”. AU - McCunn, Joanna. Thus, the two parties can agree that the less risk-averse side will formulate the contract, thus reducing the cost of the transaction. (2019), Learn how and when to remove this template message, standard-form take-it-or-leave-it contracts, "Section 69 of the Consumer Rights Act 2015", https://en.wikipedia.org/w/index.php?title=Contra_proferentem&oldid=988797635, Articles needing additional references from April 2013, All articles needing additional references, Creative Commons Attribution-ShareAlike License, This page was last edited on 15 November 2020, at 08:49. This article sheds light on the function of the rule by examining its historical development. A rule of legal interpretation primarily applying to documents. Justice Byrne construed a no-win no-fee costs agreement in Maurice B Pty Ltd v Burmingham [2009] VSC 20. 2018. PAUL J. HAYES BARRISTER-AT-LAW •The‘contraproferentemprinciple’.Exclusionclauses(orevenpermissiveclauses infavourofoneparty,ie. such were to be read strictly contra proferentem 8 . Australian law is based on the law of the United Kingdom, and until the passing of the Australia Act 1986 (Cth), the UK Parliament could legislate for Australia and the Privy Council was the ultimate court of appeal in the Australian hierarchy. 3. The principle is codified in international instruments such as the UNIDROIT Principles and the Principles of European Contract Law. the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Abstract. 1 Rating. In this context a promise is an undertaking by one person to do something or refrain from doing something if another person does something or refrains from doing something or makes a promise in return. Sunland Group Limited & Anor v. Gold Coast City Council Case No. PY - 2018/7/18 . Demagogue Pty Ltd v Ramensky [1992] FCA 557; (1992) 110 ALR 608; (1992) 39 FCR 31 See, e.g. The general rule is that contract interpretation is subject to deference from an appeal court. Contra Proferentem is a Latin term which means “against the offeror.” It refers to a standard in contract law which states that if a clause in a contract appears to be ambiguous, it should be interpreted against the interests of the person who insisted that the clause be included. The contra proferentem rule, which requires any ambiguity in an exemption clause or indemnity clause to be resolved against the party who put the clause forward and relies upon it, originates in English law from the Privy Council decision in Canada Steamship Lines Ltd v The King [1952] AC 192. (59) Conclusion. Application of this rule is a three-step process: (1) The court examines the policy language to determine whether it is ambiguous. The Doctrine of Contra Proferentem is generally applied by the Judges in the later case where a contract appears ambiguous to them. Importantly, the CA provided guidance on various fundamental issues regarding the nature of contractual ambiguity as well as the application of the contra proferentem rule. While the history of applying the contra proferentem doctrine to insurance cases, as well as the history of the development of the bad faith concept, has largely involved mass consumer coverages (disability, homeowners, automobile, etc. 563, 580 (2005). Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party, including without limitation, the doctrine commonly known as contra proferentem, shall not be applicable to this Agreement. If there is any ambiguity, then the contra proferentem rule applies. contra proferentem. ), commercial insureds have been far from shy in invoking the doctrines to their own advantage in disputes with their insurers. the preparation of this [deed/agreement] or any part of it", excludes the contra proferentem rule (ie that in the event of ambiguity, a contract, or clause in a contract, should be construed against the draftsman or interests of the party who provided the wording). The contra proferentem rule of construction provides that ambiguity in a contract “is interpreted as against him who has stipulated and in favour of him who has contracted the obligation. Last Modified Date: November 22, 2020. • An exclusion clause can be interpreted again st the interests of the p referred p arty . The court perceives such contracts to be the product of bargaining between parties in unfair or uneven positions. Each and every provision of this Agreement shall be construed as though both parties participated equally in the drafting of same, and any rule of construction that a document shall be construed against the drafting party, including without limitation, the doctrine commonly known as contra proferentem, shall not be applicable to this Agreement. An exclusion clause is one which excludes or restricts a party's contractual liability, whether by imposing time limits for instituting claims, narrowing or qualifying definitions of loss, restricting parties' recourse to rights or remedies, or curtailing the application of the rules of evidence or procedure. The general rule is that contract interpretation is … Paper presented at Obligations IX conference ., Melbourne, Australia. [4], The reasoning behind this rule is to encourage the drafter of a contract to be as clear and explicit as possible and to take into account as many foreseeable situations as it can. Contra proferentem, meaning “against the offeror,” is a rule of contract law that requires any ambiguous clause to be interpreted with the meaning that is most in favor of the party that did not draft or request the clause. The doctrine is not, however, directly a… Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 (16 December 1986) Exclusion clauses - contra proferentem rule . And the upshot? The contra proferentem rule The contra proferentem rule has been under sustained attack in recent years, as judges doubt whether it has any role to play in modern commercial contract law. Interpretation of a standard form contract is an exception. In Uri Weiss, The Regressive Effect of Legal Uncertainty, 2019 J. Disp. / McCunn, Joanna. Contra proferentem in Australian contract law In Australia , the four corners rule has been adopted in preference over the idea of a "fundamental breach". Construction Update. 12 This may reduce the chance that the other party will misunderstand the contract; it also may facilitate judicial interpretation of the contract.”[5] Uri Weiss claimed: "The Contra Proferentem rule motivates the less risk-averse drafter to refrain from manipulating the other side by making the contract unclear. Another reason would be the obvious infringement good faith would have on … * If a claim on another basis can be made, then liability for negligence is not covered by the exclusion clause. Want to see the step-by-step answer? star. Stephen Warne on professional negligence, regulation and discipline around the world. Court approach to limitation and exclusion clauses, contra proferentem rule Facts. However, this rule is only used as a last resort and is rarely applied. A classic example in which this might come up is when someone sues an insurer. [43] As well the terms which formulate good faith are already implied terms in law and can be utilised by the courts where relevant. star. The prevailing rule is that contra proferentem does not apply to cases involving sophisticated parties. A contract is generally only enforceable by and against parties to the contract. It is an aid of construing a contract in the case of an ambiguity and should not be used for the purpose of creating an ambiguity. CONTRA PROFERENTEM : Halsbury's Laws of England explains contra proferentem as under:- "Where there is ambiguity in the policy the court will apply the contra proferentem rule. CONTRA PROFERENTEM : Halsbury's Laws of England explains contra proferentem as under:- "Where there is ambiguity in the policy the court will apply the contra proferentem rule. Daulia Ltd v Four Millbank Nominees Ltd [1978] 2 All ER 557 Acceptance of unilateral contracts . Contra proferentem (Latin: "against [the] offeror"),[1] also known as "interpretation against the draftsman", is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. An exclusion clause in a contract is a clause that reduces or excludes a party’s liability for conduct that would otherwise amount to a breach of contract. Since the general rules of contract interpretation resolved the ambiguity, it wasn’t necessary to use the contra proferentem rule or the physical or systemic connectedness test. • P had no entitlement to LDs at all • Any entitlement to general law damages limited by LDs which would have been payable – some doubt cast on this principle recently in academic writings but it is consistent with underlying principle that a party cannot profit from its own wrong 9 . M3 - Conference Paper. If the clause is ambiguous, the contra proferentem rule may operate to construe the clause against the party that seeks to rely on it. In a circumstance where an ambiguity exists in a guarantee, it should be construed in favour of the guarantor. contra proferentem rule of construction by which the words of a contract are construed against a party proffering them remains a valid rule of construction in Australia. by: -Interpreting ambiguous words narrowly -Not giving the clause scope to apply to events which fall outside th e four . It is an unfortunate fact, however, that despite the efforts of even the best contract drafter, no contract will be perfectly clear, and every contract … Australia is a common law jurisdiction. Eric Posner claimed: "The contra proferentem rule, for example, might encourage the drafter to be more explicit and to provide more details about obligations. See Answer. Insurers are notorious for having very strict contracts and being unwilling to negotiate with customers. The contra proferentem rule for the construction of certain written contracts remains available to this day. Secondary rules designed to assist in the application of the primary rule. - Property legislation across Australia . In an ideal world, the wording of contracts would be clear, easy to read and unambiguous. This usually comes up when a contract is challenged in court. In contract law, pursuant to the rule of contra proferentem, any ambiguous contractual term must be construed against the party that relies on it. asecurityarrangement)shouldwhereambiguous,be interpreted as any other clause, and if capable of one or more meanings, be Y1 - 2018/7/18. , Int’l Multifoods v. Commercial Union Ins. These include estoppel and the contra proferentem rule. Check out a sample Q&A here. Contra proferentem in Australian contract law In Australia, the four corners rule has been adopted in preference over the idea of a "fundamental breach". The rule has been part of English contract law for over 600 years, playing very different roles at each stage of its development. check_circle Expert Answer. Contra proferentem, meaning “against the offeror,” is a rule of contract law that requires any ambiguous clause to be interpreted with the meaning that is most in favor of the party that did not draft or request the clause. This article sheds light on the function of the rule by examining its historical development. Want to see this answer and more? Interpretation of a standard form contract is an exception. Despite this rule only having minimal application, one area of law where it still has relevance is in the context of guarantees. Welcome to Law At First Sight ours objective is to provide important case laws and doctrines and principles within few minutes. Menu About; Reviews; Posted on 27 March, 2009 18 April, 2010 by Stephen Warne. Contra proferentem typically comes into play when a contract is challenged in court. Contra proferentem (Latin: "against [the] offeror"), also known as "interpretation against the draftsman", is a doctrine of contractual interpretation providing that, where a promise, agreement or term is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. The rule is used when there is some ambiguity about the extent of powers conferred on the benefiting party. It now appears that many courts have accepted that they will apply a variety of interpretational devices in the face of insurance policy ambiguities short of automatic invocation of contra proferentem. Contra Proferentem Rule — a universally applied rule that ambiguities in an insurance policy will be strictly interpreted against the insurer. 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