The New South Wales Court of Appeal, considering the wording of a business interruption policy in the context of a Covid-19 claim, dealt with the contra proferentem rule which provides that any ambiguity in a policy of insurance should be resolved by adopting the construction favourable to the insured. The court remarked that the contra proferentem rule is now generally regarded as a doctrine of last resort. This is because interpretation of contracts takes into account the background and purpose (surrounding circumstances) of the transaction. However the rule still plays a role in insurance and other standard form contracts. That is for two reasons. First, by their nature, standard form contracts are not negotiated between the parties, and the surrounding circumstances relevant to the entry into one contract or another are less likely to shed much light on the meaning of the written words. Secondly, the contra proferentem rule complements the principle that standard form contracts should be interpreted from the point of view of the offeree. The offeror has the opportunity to, and should, make its intentions plain.
The justification for the rule is that the party drafting the words of a standard form contract or policy is in the best position to look after its own interests, and has had the opportunity to do so by clear words. The contra proferentem rule must however only be applied for the purpose of resolving a doubt, and not for the purpose of creating a doubt, or magnifying an ambiguity.
This type of reasoning will be familiar to South African courts although the basis of interpretation is wider than surrounding circumstances.
Read our recent blog on interpreting contracts here.