Contra proferentem

Latin maxim: verba chartarum fortius accipiuntur contra proferentem, meaning “ambiguous words are to be construed in that sense in which a prudent and reasonable man on the otherside would understand them” (see Isaacs J in Maye v Colonial Mutual Life Assurance Society Ltd (1924) 35 CLR 14 referring to Lord President Inglis in Life Association of Scotland v Foster (1873) 11 Ct. of Sess. Cas. (3rd ser) 351).

In contract law, pursuant to the rule of contra proferentem, any ambiguous contractual term must be construed against the party that relies on it. 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. However, this rule is only used as a last resort and is rarely applied.

One of the main areas of contract law where this rule applies is in the context of exclusion clauses. 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. It is essential that these clauses are drafted with clarity. If the clause is ambiguous, the contra proferentem rule may operate to construe the clause against the party that seeks to rely on it. This means that in a situation where a party thought they would be excluded from liability, could result in an action for breach of contract.

Despite this rule only having minimal application, one area of law where it still has relevance is in the context of guarantees. In a circumstance where an ambiguity exists in a guarantee, it should be construed in favour of the guarantor. The judgment of Mason CJ, Wilson, Brennan and Dawson JJ in Ankar Pty Ltd v National Westminster Finance (Aust.) 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”.