CONTRA PROFERENTUM

Author: Swarnima Sharma

In a competitive market, the main goal for any big player is to claim control over it and to make the behavior of the market favorable for them to perform. The commercial world lives and breathes on the fulfillment of contracts and contractual obligations, several jobs are handed out on a contractual basis. Every time we surf the internet by clicking “I Agree” we are entering into a contract. In such situations, there are many opportunities where the act of entering into a contract could be more than just that. The process of drafting contracts is tedious and while doing so certain terms in the contract could be rigged to favor the party that is involved in framing it. There are multiple situations where one does not have an option other than to enter a contract that may or may not harm their interests in the future.

The Doctrine of Contra Proferentem is one that is followed for contractual interpretation. The phrase ‘contra proferentem’ in Latin translates to “against the offeror” which can be further interpreted as “guilt of the drafter”[1].The legal maxim for the same is‘Fortius Accipiuntur Contra Proferentem’ which translates to “words must be construed against those who use them”[2].

The rule is applied when any term of a contract is considered ambiguous leading the Judges to believe that there is some lacuna or gap in the contract. The established practice of two parties entering into a contract is characterized by one party dominating the otheri.e.,the party framing or drafting the contract is considered to have the upper hand in these situations[3].

This Doctrine finds its roots in Insurance Law and is applied in cases where the contacts between Insurance companies and their customers are ambiguous. As a rule, when the court comes across any term in an ambiguous contract, they give the benefit of doubt to the party that signed the contract to maintain some equilibrium to evade the domination that exists on the part of the party that frames the contract. Thus, the interpretation of obscure terms in a contract shall be made by the courts in such a manner that it grants favor to the party that has signed the contract.

The general scope of the Doctrine is more engaged in Insurance Law as this sector is known for adhesion contracts.Adhesion contracts are ones that offer a “take it or leave it” deal where it is very clear that one party holds power over the other. The customers are required to abide by standard terms and conditions which are non-negotiable and cannot be altered in any situation. However, these contracts are only to be enforced when they are not unreasonably one-sided but there are always chances of the exploitation of the party entering into the contract as they hardly hold any bargaining power. The blame is placed on the party that was in a position to avoid the losses that occurred in the best way possible.

Horne Coupar v. Velletta & Company[4] is a case decided by the Supreme Court of British Columbia in the year 2010. The case involves two English law firms (Horne Coupar and Velletta & Company). The dispute arose when an employee working at Velletta joined Horne, and a few months beforesuch resignationshe had re-evaluated her salary with Velletta and had gained an increment in her salary to the extent of a certain percentage of the professional fees that she was entitled to while working on client files. On her joining at Horne, the following issue arose:

“A dispute arose as to what files and clients (the lawyer) would take with her and how (the first firm) would be reimbursed for loss of those files”[5]

The decision was made on the grounds of contra proferentem and the Judges agreed unanimously that there is clear applicability of the same in this case[6]. The court reasoned as follows:

“Contra proferentem is a rule of contractual interpretation which provides that an ambiguous term will be construed against the party responsible for its inclusion in the contract. This interpretation will therefore favor the party who did not draft the term presumably because that party is not responsible for the ambiguity therein and should not be made to suffer for it.

“This rule endeavors to encourage the drafter to be as clear as possible when crafting an agreement upon which the parties will rely. This rule also encourages a party drafting a contract to turn their mind to foreseeable contingencies as failure to do so will result in terms being construed against them. That the contract is ambiguous is a requisite of the application of this rule, however, once ambiguity is established, the rule is fairly straightforward in application.”[7]

The court, therefore, ordered that Horne Coupar compensate over professional fees to Velletta on a pro-rata basis for those hours which had accrued while the matter was under Velletta’s conduct. This was done to bring effect to the consent order which was already entered into, concerning these parties.

The case of Bank of India and ors. V. K. Mohandas and ors.[8] is an example of the application of this doctrine in India. The Hon’ble Supreme Court of India opined in this case that since the Bank was responsible for the drafting of the contract then it was to be held liable when the terms of the contract are found to be ambiguous. Justice Lodhia stated that the risk of clarity is borne by the Bank itself and the other party is not at fault.

In the case of Industrial Promotion & Investment Corporation of Orissa Ltd. v. New India Assurance Company Ltd.,[9]it was stated contra proferentem means that ambiguity in the wording of the policy is to be resolved against the party who prepared it[10]. The appeal in the case was dismissed with no order to costs. The rule was explained, “as a one for resolving ambiguity in the wording of the policy by adopting the construction favorable to the insured and against the party who prepared it.”[11]

The Supreme Court in Executive Engineer, Southern Electricity Supply Co. of Orissa Limited (Southco) v. Sri Seetaram Rice Mill[12] has been careful to neither overuse the virtues of nor critique the Contra Proferentem doctrine, stating quite cautiously that[13] “...no rule of interpretation should either be overstated or overextended. It points to the conclusion that an interpretation that would attain the object and purpose of the Act has to be given precedence over any other interpretation which may not further the cause of the statute. The development of law is particularly liberated both from literal and blinkered interpretation, though to a limited extent.”

REFERENCES

[1] Julie Young, Contra Proferentem Rule, https://www.investopedia.com/terms/c/contra-proferentem-rule.asp [2]Cornish v. Accident Insurance Company, 23 Q.B. 453 (1889) [3]Arvind Thapliyal, India: Doctrine of Contra Proferentem in Contracts, https://www.mondaq.com/india/contracts-and-commercial-law/247566/doctrine-of-contra--proferentem-in-contracts# [4] 2010 BCSC 483 [5]Horne Coupar v. Velletta & Company, 2010 BCSC 483, https://www.bccourts.ca/jdb-txt/SC/10/04/2010BCSC0483.htm [6]Erik Magrake, BC injury,https://bc-injury-law.com/tag/horne-coupar-v-velletta-company/ [7]Idib (4) [8] 2009 (5) SCC 313 [9](2016) 15 SCC 315 [10] MacGillivray on Insurance Law, (9th ed., 1997) (Nicholas Legh-Jones et al, eds.) at p. 280. [11]Ibid (9) [12](2012) 2 SCC 108 [13]Sukirti Jha and Sara Mehta, Contra Proferentem: A Necessary Evil, (2018) 2.2 IJLIA 64