How to handle ambiguity in contract wording
Harry King, Junior Associate, Quigg Golden
IT is common to enter into a contractual agreement only to later find an ambiguously worded clause. This can lead to disputes, particularly concerning payment, the scope of work, variations, delay and each party’s responsibilities.
Ambiguity as to the scope and timeline of a project, for example, can create misunderstandings between employers and contractors that result in delay and unexpected costs. For example, if a contractor is required to perform work it had not been expecting, its costs will increase and the project may be delayed, but the employer may have believed that the extra work was included in the initial quote. This will likely result in a dispute with substantial risk involved for the parties.
Avoiding ambiguity
Key terms should be defined, usually at the beginning of a contract and any uncertainty around a term used in the contract should be clarified and agreed upon.The easiest way to handle ambiguity is to avoid it altogether. However, this is often easier said than done. Reviewing contracts in detail and consulting with a solicitor before signing are two of the most important tools in ensuring all contract terms and conditions are properly drafted and understood by the parties to have the same meaning.
If you are unsure of the meaning of any clause, this should be raised and discussed with the other party before signing. This will enable amendments to be made to avoid any future issues arising from ambiguity. Key terms should be defined, usually at the beginning of a contract and any uncertainty around a term used in the contract should be clarified and agreed upon.
Generally, a clause setting out the order of precedence of the various documents making up a contract is advisable, so that any ambiguity or contradiction between documents can be resolved via an agreed hierarchy.
Accurate records should be kept of the discussion and negotiation involved in the formation of the contract, for future reference. Contracts should be drafted to account for likely changes to the bill of quantity or amendments to the scope, while ensuring the intended scope of the work is properly set out. Clauses relating to performance requirements should be clearly set out and enforceable.
Generally, a clause setting out the order of precedence of the various documents making up a contract is advisable, so that any ambiguity or contradiction between documents can be resolved via an agreed hierarchy.Related clauses, and in particular those relating to payment and termination, should clearly set out the circumstances in which they apply and the rights of the parties in the relevant circumstances.
Finally, using unamended standard forms such as JCT, NEC or FIDIC will help to eliminate the risk of ambiguity, as these contracts are drafted with the avoidance of ambiguity in mind, and have established best practice and case law on the meaning of their terms and conditions.
Regardless of whether a standard form or bespoke contract is being used, making use of contractual documents that you are familiar with will similarly reduce the chance of being caught out by ambiguity.
How to handle existing ambiguity?
If faced with an ambiguous contract, it is important to clarify the other party’s understanding of the clause as soon as possible. If no dispute exists in relation to said clause, it may be possible to agree upon a meaning or include a contractual amendment post-signing to avoid future disputes.
Regardless of whether a standard form or bespoke contract is being used, making use of contractual documents that you are familiar with will similarly reduce the chance of being caught out by ambiguity.However, if a dispute has arisen regarding an ambiguous term, options for mitigating risk become limited. It is at this point where detailed records of the discussions and negotiations surrounding the formation of the contract will likely be vital in determining which interpretation of an ambiguous clause is likely to be upheld in court.
Contra proferentem
The classical approach of the courts in interpreting an ambiguously drafted contractual provision is known as the contra proferentem rule, also known as ‘interpretation against the draftsman’. This broadly means that where there is doubt about the meaning of the contract, the wording will be construed against the party that put it forward.
The justification for this is to counteract the perceived advantage enjoyed by the party who provided the wording, who may hold unequal bargaining power. From a public policy perspective, it encourages the party drafting a clause to use clear and straightforward language and to ensure all foreseeable consequences are dealt with under the wording of the contract.
This rule is not absolute, however. Generally, the courts will be reluctant to construe the meaning of wording in an agreement away from its clearly intended purpose. In Persimmon Homes & others v Ove Arup & Partners & another (2017) EWCA Civ 373 the contract between the parties included a clause that sought to exclude Ove Arup & Partner’s liability for asbestos claims.
Generally, the courts will be reluctant to construe the meaning of wording in an agreement away from its clearly intended purpose.The site was found to be heavily contaminated by asbestos and Persimmon Homes sought to argue that the wording ‘liability for any claim in relation to asbestos’ was ambiguous and under the contra proferentem rule should be construed against Arup, so as not to cover negligent advice.
The Technology Construction Court considered that the clause had wide meaning, applying to ‘any claim in relation to asbestos’ as stated in the wording. On referral, the Court of Appeal upheld this ruling, that the wording excluded all liability relating to asbestos, including liability arising from negligence.
In the view of the court, the wording was clear and absolute, and so the contra proferentem rule did not apply. Accordingly, contra proferentem should be used only in cases of genuine ambiguous wording, and a last-ditch attempt to rely on it to exclude an unsavoury clause is not likely to succeed outside of these circumstances.
Harry King, Junior Associate, Quigg Golden