The Contra Proferentem Rule I

Where an agreement is ambiguous, the preferred meaning should be the one that works against the interests of the party who provided the wording. The principle is Contra Proferentem, also known as ‘interpretation against the draftsman’. Such rules are rarely if ever of any assistance when it comes to construing commercial contracts. The principle may still sometimes be of help when construing a contract which is in the standard form of one of the parties.

Hon’ble Justice Vikramajit Sen has described the Contra Proferentem rule to be “of a vintage which brooks no contradiction” [See, Central Bank of India v. Virudhunagar Steel Rolling Mills Ltd., Civil Appeal No. 3654 of 2006]. Interestingly, SC has not had much to say on the principle/rule since it was quoted first in 1964. Two sentences each in a 1966 Judgment and a 2009 Judgment is all that there is.

V. Niranjan notes, at least, the following in an instructive post:

In Hin-Pro v. Compania Sud Americana De Vapores SA, Hin-Pro was a freight forwarder registered in Hong Kong. CSAV was an international shipping company. Bills of Lading issued by CSAV contained the following jurisdiction clause:

This Bill of Lading and any claim or dispute arising hereunder shall be subject to English Law and the jurisdiction of English High Court of Justice in London. If, notwithstanding the foregoing, any proceedings are commenced in another jurisdiction, such proceeding shall be referred to ordinary Courts of Law.

In 2012, Hin-Pro commenced a number of actions in Chinese Courts for damages alleging, CSAV had released its cargo without the production of the original Bills of Lading. CSAV commenced an action in an English Court. A number of orders restraining Hin-Pro from continuing the Chinese proceedings were passed but these were ignored. Andrew Smith J found Hin-Pro to be in contempt and committed its sole director to prison. Evidently not deterred by this, Hin-Pro commenced a further 23 actions in China. CSAV then sought a declaration in English Court that Hin-Pro was bound by the jurisdiction clause in the Bills of Lading to sue in England only. Cooke J made this declaration and granted a permanent injunction restraining Hin-Pro from pursuing the Chinese litigation.

In Court of Appeal, Christopher Clarke LJ rejected Hin-Pro’s attempt to invoke the Contra Proferentem rule, that is, the argument that any ambiguity in the Bill of Lading should be resolved against CSAV as the proferens of the clause. The usual consequence of applying this rule is to choose a construction of a clause that is adverse to the proferens (eg pay more, accept less) compared to an alternative construction (eg pay less, accept more). Christopher Clarke LJ made the important point, even if the rule applies, it is impossible to tell at the time the contract is made which construction of a jurisdiction clause is adverse to one party. How could either CSAV or Hin-Pro have known in 2010 whether it would be to their advantage to sue in England or in China with respect to disputes that had not yet arisen? Which jurisdiction was advantageous would depend entirely on the nature of the dispute, the applicable limitation period, and many other factors that could have had no purchase on the date of conclusion of the contract.