Exclusion clause contra proferentem rule

Natural meaning of the clause Jackson LJ identified that the exclusion clause in the agreement and the warranties had three separate limbs: Contra- Proferentem places the cost of losses on the party who was in the best position to avoid the harm.

With the passage of time, the Judges have started appreciating the significance of this doctrine. The contra proferentem rule now had a very limited role in relation to commercial contracts negotiated between parties of equal bargaining power.

So, it is clear that the courts consider that the literal and natural meaning of the words used in the clause is to be of primary importance in interpreting exclusion clauses.

It will only be in circumstances where the wording is truly ambiguous, that the courts will be prepared to consider the application of the contra proferentem principle. The justification for this doctrine is that many a times, the parties to a contract do not stand at the same level while signing it, and it has been noticed that usually one party dominates on the other.

However this principle has largely fallen away, particularly in relation to commercial contracts made between sophisticated parties which are usually negotiated on both sides. In commercial contracts to which the Unfair Contract Terms Act does not apply, parties should be free to allocate risks as they see fit, and this clause was an example of that.

The judge found that the exemption clause excluded all liability relating to asbestos, whether arising from negligence or not. He held that, as with the modern approach to interpretation, "the court must still use all its tools of linguistic, contextual, purposive and common-sense analysis to discern what the clause really means", but where ambiguity remained, this principle would apply to provide a narrower construction of the exclusion clause in question.

In determining which meaning should be preferred the courts have often considered whether the contra proferentem rule remains relevant to the interpretation of an exclusion clause. As the meaning of the words in question was not ambiguous or unclear, the contra proferentem rule was not relevant.

In Bank of India vs. In the case of exclusion clauses this means the narrower interpretation should be applied. Exemption clauses are part of the contractual apparatus for distributing risk. In the recent case of Persimmon Homes v Ove Arup []the Court of Appeal has declined to apply the contra proferentem rule to an exclusion clause in a major commercial contract.

Sometimes, even in a perfect agreement, an interpretive problem may arise. However, the SPA included a clause which excluded liability for breach of warranty if a claim was not brought within a specified time period: Generally speaking it is still sensible to expressly reference negligence when excluding or limiting liability.

Persimmon sued ARUP for breach of contract and statutory duty, and negligence. Both parties had provided warranties and the contract imposed similar time limits on both parties; accordingly, he said, "there is no reason to apply such a canon of construction to mutual rights and limitations".

Exclusion clause

It is somewhat like the 'reasonable man' test in tort: At that moment, the doctrine of Contra Proferentem is helpful to protect the rights of the Consumers.

If the exclusion clauses mention "negligence" explicitly, then liability for negligence is excluded. Only the innocent and negligent misrepresentation and non disclosure were excluded effectively.

Interpretation of exclusion clauses

The rule can only apply if an ambiguity arises about the true meaning of a contractual clause which cannot be resolved by looking at the commercial context and business commons sense of the transaction.

The Unfair Contract Terms Act renders many exemption clauses ineffective. Asbestos was subsequently discovered on the site and Persimmon believed that Arup had been negligent by failing to identify and report the presence of asbestos at an early stage.

The clause recognizes a potential breach of contractand then excuses liability for the breach. If "negligence" is not mentioned, then liability for negligence is excluded only if the words used in the exclusion clause are wide enough to exclude liability for negligence.

Now this doctrine will be applicable even in the cases of indemnity clause, exclusion clause and liquidated damages clause.

With the passage of time, the Judges have started appreciating the significance of this doctrine. In other words, the Judge will be more oriented towards the interpretation which goes against the party who has inserted the ambiguous or the disputed clause in the agreement.

The courts have a tendency of requiring the party relying on the clause to have drafted it properly so that it exempts them from the liability arising, and if any ambiguity is present, the courts usually interpret it strictly against the party relying on the clause.

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Interpretation of exclusion clauses

If the meaning of a term is unclear then the court will decide in favour of the party who had no influence on the drafting of the contract. In determining which meaning should be preferred the courts have often considered whether the contra proferentem rule remains relevant to the interpretation of an exclusion clause.

Doctrine of contra - proferentem in contracts

There is a growing recognition that parties to commercial contracts should be free to allocate risks as they see fit. Lord Justice Jackson noted that, in major commercial contracts, parties commonly agree how to allocate the risks between themselves and who will insure against what.

The Doctrine of Contra Proferentem is generally applied by the Judges in the later case where a contract appears ambiguous to them. Contra- Proferentem places the cost of losses on the party who was in the best position to avoid the harm. The Court of Appeal agreed stating: The most important task of the Judges while interpreting the agreement is to honor the intention of the parties who have knowingly signed the contract.

The King [11] held that:Contra currclickblog.com rule of construction will apply in the interpretation of this Agreement to the disadvantage of one Party on the basis that such Party put forward or drafted this Agreement or any provision of this Agreement. This principle is of similar effect to the traditional rule that exclusion clauses should be construed "contra proferentem".

However, the Court of Appeal in this case rejected that underlying rationale for the principle that exclusion clauses should be construed narrowly, saying it has nothing to do with the identification of the party putting. Exclusion clauses The contra proferentem rule This rule 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.

The contra proferentem rule was invoked in a decision by a Hong Kong court 2 in relation to a point we touched on in our previous Bulletin, namely that the best way to ensure the clause excludes.

A PLC Commercial "Legal FAQs" article about whether the contra proferentem rule can be excluded by a clause in the contract. Request a free trial To access this resource and thousands more, register for a free, no-obligation trial of Practical Law. Interpretation of exclusion clauses and contra proferentem 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.

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Exclusion clause contra proferentem rule
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