Introduction
Contracts form the backbone of every economy by facilitating commerce, investment and governance. When drafted ambiguously, they can disrupt economic transactions and pose a burden on the legal system. Such ambiguity often gives rise to multiple interpretations which in turn leads to prolonged dispute resolution process. About 60% of businesses[i] face legal issues due to poorly drafted contracts, further emphasizing on the magnitude of the problem. In pursuance to the same, the application of the doctrine of contra proferentem to settle the issue of ambiguity might serve as an effective solution.
Understanding the Doctrine of Contra Proferentem
The doctrine of Verba Chartarum Fortius Accipiuntur Contra Proferentem popularly known as Contra Proferentem, is a well-established rule of interpretation. The literal meaning of the term is “against the offeror”[ii] and is used when interpreting an ambiguous clause within a contract. The principle directs that such an ambiguous clause must be construed against the interest of the party who insisted on the inclusion of the same. The rationale is that the party in control of the drafting process bears the responsibility to ensure clarity.[iii]
Importance of the Doctrine in Arbitration
The significance of this doctrine becomes particularly evident in the field of arbitration. Arbitration Agreement comprises of various clauses that govern the arbitration proceedings. A single ambiguity can defy the very objective of arbitration i.e., a speedy resolution mechanism.[iv] Under arbitration, the enforceability of dispute resolution clause is the very foundation of arbitral proceedings.
Arbitration agreements are more than just procedural tools. They represent core principles of arbitration such as, party autonomy, neutrality and finality. However, the very purpose of arbitration is undermined when clauses are framed in vague or one-sided terms. This ambiguity leads to disputes about the interpretation and thus, causes delay in the resolution of substantive issues. The Supreme Court’s recent decision with respect to the enforceability of Article 20 of the Concession Agreements, serves as a striking example of this challenge.
Supreme Court’s Recent Ruling: Stern Warning Against Ambiguity
The dispute came before the Supreme Court (SC) through three linked cases[v] involving the Municipal Corporation of Delhi (MCD) and private contractors. These cases were based on concession agreements executed between the parties for construction purposes. Disputes arose due to the alleged non-fulfilment of contractual obligations by the MCD.
Following this, the private contractors had invoked the dispute resolution mechanism under Article 20 of the Concession Agreements. They contended that the Article 20 encapsulated an arbitration clause alongside mediation, arguing that the essential attributes[vi] of an arbitration agreement were fully satisfied.
On the contrary, MCD asserted Article 20 contained no reference to arbitration. Additionally, far-fetched elements could not be relied upon to construe it as an arbitration clause. The SC postulated that three core ingredients must be present to establish an arbitration agreement, namely ‘clear intent arbitrate’, ‘binding adjudicatory process’ and ‘compliance with arbitration norms.’
Absence of Clear Intent and Neutrality
In the present case, express intent to arbitrate was absent, as the clause was titled ‘Mediation by Commissioner’ and made no explicit mention of words like ‘arbitration’ or ‘arbitrator’. This upheld the absence of conscious and unambiguous agreement between the parties. Moreover, the terms of the agreement undermined the fundamental principle of neutrality under arbitration by vesting unilateral control in MCD over the appointment process. The Court further observed that the finality of a decision alone cannot be used to classify the Article 20 as an arbitration clause.
Judicial Time and Consequences of Poor Drafting
The SC lamented that the parties had spent a decade litigating about the mode of dispute resolution while the merits remained untouched.[vii] It noted that this has caused a ‘wanton wastage of judicial time’ due to the poorly drafted clauses, creating ambiguity.
Indian Judicial Application
In this context, the doctrine of contra proferentem acquires particular significance. The maxim requiring that ambiguity be construed against the drafter serves not only as a safeguard for the parties, but also as a disciplining tool in contract law. By placing the burden of clarity on the drafter, it prevents powerful entities from weaponizing vague clauses. This protects party autonomy. It ensures that one party cannot use unclear language to escape its commitments. This also ensures that judicial time is not consumed by interpretative complexities.
Application by Indian Courts
Indian courts have consistently applied this doctrine in arbitration disputes. In Flowmore Ltd. v. Skipper Ltd.,[viii] the Delhi High Court relied on the doctrine to uphold an arbitral award. The award was based on the principle that when a contract itself becomes the basis for a dispute then the ambiguous terms must be read against the drafter.
The SC in Bank of India v. K. Mohan Das reinforced this principle. It directed the bank to bore the consequences of any ambiguity in the contract as the agreement was drafted by them. However, the SC carved out an exception that the maxim cannot be applied[ix] in commercial contracts. The rationale is that parties to such contract are assumed to have reasonable knowledge and therefore, they have equal bargaining power.
Supreme Court Observations on Drafting
In the present situation, the SC ultimately ruled that Article 20 of Concession Agreements was not an arbitration clause. However, its reasoning underscored the very spirit of contra proferentem by noting that “arbitration clauses are worded with piercing precision and clarity”. It directed courts to reject shoddily drafted clauses and even advised invoking suo motu power to hold counsel and law firms personally accountable for inserting ambiguous clauses.
This warning reflects the broader concept behind the maxim that the deliberate or negligent act leading to ambiguity, distorts justice. Thus, reinforcing the spirit of contra proferentem by placing responsibility squarely on the drafter.
International Application of Contra Proferentem in Arbitration
In the international parlance, the rationale for applying contra proferentem with respect to arbitration is not always uniform. Some view it as a rule that protects the weaker party, while others see it as a tool to deter mala fide intention of drafting a clause with ambiguity to escape from it when dispute arises.[x]
Application Under ICC Arbitration
Arbitral tribunals have applied it in practice under the ICC Rules in various instances.
| Case | Issue | Tribunal’s Approach |
|---|---|---|
| ICC Case No. 9772 (SA Alfac v. Société Imac) | Clause referred to “arbitration in Paris in accordance with the rules of the International Arbitration Association”, but no such Association existed. | The arbitrator and the Paris Court of Appeal held that any ambiguity must be construed against the party who drafted the clause. |
| ICC Case No. 17768 | Respondent initially agreed to ICC arbitration but later claimed the ICC clause violated local law. | The sole arbitrator dismissed the argument, stating that the party cannot contradict itself by trying to retract its commitment that was freely entered into.[xii] |
| ICC Case No. 11869 | Poorly drafted clause providing only for “arbitration in Vienna, Austria in accordance to the rules of arbitration”, with no institution named and vague reference to ICC. | The sole arbitrator applied contra proferentem and in favorem validitatis, ruling in favour of the Claimant and upholding the ICC arbitration agreement as valid.[xiii] |
The International cases show a clear pattern of the usage of doctrine by the tribunals. This approach maintains the integrity of arbitration as a dispute resolution mechanism.
Conclusion
Thus, the doctrine of contra proferentem plays a significant role in arbitration. This helps in keeping the process fair and transparent. But the rule has certain limitations.
- Firstly, as per the view established, the doctrine is applied as a last resort which was further affirmed by the arbitral tribunal established in UK v. Germany.[xiv]
- Secondly, it can only be applied in cases involving unequal bargaining power or unilaterally imposed clauses.
The doctrine must be applied carefully. It should not override the fundamentals favouring the validity of arbitration agreements such as, party autonomy. By ensuring clarity in contract drafting, parties can avoid the very disputes that consume judicial resources. References:
- https://blog.ioux.in/did-you-know-60-of-businesses-face-legal-issues-due-to-poor-contracts-heres-how-digital-solutions-can-help/
- https://www.law.cornell.edu/wex/contra_proferentem
- Michelle E. Boardman, Contra Proferentem: The Allure of Ambiguous Boilerplate, 104 MICH. L. REV. 1105 (March 2006)
- Enercon (India) Ltd. v. Enercon GmbH (2014)
- https://s3.courtbook.in/2025/05/supreme-court-condemns-ambiguously-drafted-arbitration-clauses-urges-suo-motu-action-in-malafide-cases.pdf
- http://certification.manupatra.in/assets/pdf/subjectwise-case-guide/MANU-SC-0092-1998.pdf
- https://www.scconline.com/blog/post/2025/05/16/supreme-court-suo-motu-powers-misleading-arbitration-clauses/
- https://www.livelaw.in/pdf_upload/flowmore-ltd-versus-skipper-ltd-457186.pdf
- https://indiankanoon.org/doc/163386936/
- Margaret N. Kniffin, Corbin on Contracts, 1998, Vol. 5, p. 306
- SA Alfac v. Société Imac importacão, (2002) 2 Revue de l’Arbitrage 413, 414
- ICC Award No. 17768, (2017) XLII Yearbook Commercial Arbitration 102, 130
- ICC Award No. 11869, (2011) XXXVI Yearbook Commercial Arbitration 47, 59, para. 38
- Agreement on German External Debts case, Award of 16 May 1980, Report of International Arbitral Awards, Vol. XIX, p. 110, para. 40
