Interpreting contracts –the end of contra proferentem?

 

In Multiplex v Dunne CILL (2017 TCC) the High Court appeared to make redundant the adverse interpretation principle of contractual interpretation. Formerly known to lawyers as “contra proferentem”, this enabled a contracting party to rely upon ambiguities and alternative meanings in a document drafted (or “proffered”) by the other party, so as to persuade the Court to apply the more lenient interpretation in its favour.  This has been a popular approach for the underdog in any contractual argument, given the ease with which unequal bargaining power can force parties to accept adverse terms churned out from a database.

 

Mr Dunne’s company had subcontracts with Multiplex.  DBCE got into financial difficulties and Multiplex extended credit backed by Mr Dunne’s guarantee that he would be immediately liable to Multiplex for payment of the sum lent, in the event of DBCE’s insolvency. In due course Multiplex sought payment from him.  One of his defences was that the document he signed was drafted and produced by Multiplex, that it could be read as creating either a secondary or a primary liability, and that he was entitled to the adverse interpretation.

Justice Fraser remarked that the “contra proferentem” interpretation may still be applicable where the parties are not of equal bargaining power (for example in consumer contracts) or possibly where the person giving the guarantee or indemnity has no commercial or material interest in the underlying transaction.  However in commercial contracts generally, contra proferentem is no longer relevant.  The approach to contractual interpretation has been clearly developed and repeated over the years, and the Courts no longer regard this rule as being necessary or useful.

 

Last year, in Wood v Capita, the Supreme Court again stated that one must begin with the plain meaning of the words, in the light of the background facts; and “where there are rival meanings, the Court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense.”  

 

This simple formula is attractive; but jettisoning all the old principles places a greater burden on the individual judge and makes prediction of the outcome of interpretation cases that much more uncertain. However, in this particular case, the judge seems to have been reacting with a pinch of salt to Mr Dunne’s pleas that he was a simple business man who did not take advice or understand the pitfalls of what he was signing – and so again it all came down to evidence.

 

 

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