This guide was last updated in August 2011.

After a contract is signed the parties may not need to refer to it again unless a dispute arises. Imagine that you have spent months in negotiations and a happy commercial relationship looks to be on the cards. However, within a month or a year a problem develops and escalates and the contract is consulted. You might think that the relevant clause supports the stance taken by your company, but the other side could say the exact same thing. This could be because the contract was not written clearly enough in the first place.

This guide will look at some of the factors which can lead to unclear contract drafting, and provide some practical tips.

Causes of unclear drafting

Standard forms: frequently, a contract is based on someone else's standard conditions or an industry specific standard form such as JCT or NEC. There is a good chance that words which are designed to be flexible and fit as many situations as possible may not be the ideal words to be used for your particular requirements. At times, drafting can be less of an exercise in capturing the parties' intentions in a clear way and more of a struggle to crowbar them into a framework which is unsuitable from the outset.

Late night/last minute negotiations: sometimes the final wording is agreed at a point in negotiations where people are tired or desperate to meet a tight deadline. Last minute tweaks to what has been agreed often have to be made to the terms without enough time for careful analysis of the most appropriate drafting.

Doing a deal/compromise: is the way that a negotiated compromise is expressed a suitable half-way house? Or does it fall between the two camps and end up saying very little?

Using unsuitable precedents: using a precedent as the basis of a new contract can save time, but only if it is appropriate to the parties' objectives and is properly adapted to express what they actually want. It may be that the precedent has itself been adapted to suit particular circumstances, in which case parts of it may not be relevant to what you're trying to achieve, or it may incorporate errors from previous wording that nobody has picked up.

Not proof reading properly: ideally the contract should be read by a fresh pair of eyes for an objective view of its meaning, rather than the author simply checking for errors. It is easy to be complacent and incorrectly assume that the wording successfully conveys what you want it to convey.

The English language is not always as clear as we imagine it to be. When drafting legal documents, complex principles need to be conveyed. If you keep the language too simple some of what you are trying to say may get omitted, but make it too complicated and nobody will be able to understand what you're trying to say at all. Language may be used to convey a particular technical, legal or scientific meaning which may be different from everyday usage. It is important that all the parties to the contract have the same understanding of the context in which the language is going to be used.

Resolving the problem

The first step could simply be to contact the other party to see if the issue can be worked out through discussion and negotiation, on the basis that it is in everybody's interest to try to put the problem behind you. However, if that route doesn't succeed there are a number of ways a court could deal with the problem.

Rectification: sometimes both parties have made a clear mistake in the contract – something simply does not make sense or reflect the actual intentions of the parties when the contract was drawn up. In this scenario the court can step in and correct the mistakes, usually as a last resort, by rewriting the contract to reflect the parties' intentions. If only one side has made a mistake, rectification may still be available - but only if the other party noticed the mistake, is going to benefit from it and has failed to draw attention to the mistake.

Interpretation: where there has not been a clear mistake in a contract, things become more complex. A very literal reading might give one particular meaning to a clause, but another party might say that this meaning was obviously not the one which both sides had meant to achieve during negotiations or when they signed the contract. A court's first point of reference will be the Golden Rule: words should be interpreted in line with everyday usage and given their natural and ordinary meaning. This should apply unless it results in an absurdity or inconsistency with the rest of the contract. In this case, the grammar and ordinary sense of the words can be modified as far as is needed to resolve the absurdity or make business common sense of the contract if it is clear what the parties must have meant, but no further.

In assuming that words have one ordinary meaning, the Golden Rule has its limitations:

  • it takes little account of the context in which the words are used;
  • it does not accommodate trade or technical usages;
  • there is an issue where words have double meanings;
  • it may not accommodate meanings which have evolved;
  • some meanings of words die out.

When interpreting contracts, courts will try to ascertain the meaning which the document would convey to a reasonable person having all the knowledge which would reasonably be available to the contractual parties in the situation in which they were in at the time of the contract. It is therefore an objective exercise.

The ordinary meaning of words

A word's ordinary meaning is its plain, popular sense. However, its 'popular' meaning may be restricted to a small group of people in a particular class or occupation. If the court does not understand the language used in a document, it can look at a dictionary to try to clarify a word's meaning. Other ways in which words can be understood include:

  • knowledge of the background against which the wording is used – particularly where a word has more than one meaning or has been used wrongly;
  • business use – if the word is used in a business context, it should be interpreted accordingly;
  • scientific or technical terminology – the court can consult an appropriate dictionary, but if the term is in dispute the court must rely on evidence presented to it;
  • defined terms – if words or expressions are defined in the contract, the court will use these definitions in preference to any conventional meaning.

However, the court cannot use previous negotiations between the parties as evidence of intention. These can only be considered in an action for rectification – see above.

Imprecise meaning: many words have fairly broad meanings and are not limited to precise factual situations. Others have shades of meaning which vary according to the context in which they are used. A court may well form a decision as a matter of the impression that it forms of a term's meaning, reaching a clear conclusion without it always being possible to describe the reasoning that has led to that conclusion. For example, in a case concerning an airline contract the court decided to prefer the definition of 'summer' used by the International Air Transport Association even though there was no evidence that it was widely accepted for such contracts.

Customary meanings: if a word is used in a particular way in a specific line of business or trade, or in a specific locality, evidence can be put before the court that the parties intended to use the word in that particular way. The word should then be interpreted accordingly. A dozen may mean thirteen if you're a baker, and 'thirty' days may refer to a calendar month. However, a customary meaning must be well-established – the court will not admit evidence from members of a particular trade or industry giving their views on what the term might mean.

Missing words: sometimes a dispute can arise because the final version of a contract omits a phrase or a clause of the agreed draft version. In such cases the court will try to reflect the parties' intentions. Even if there is more than one possible version of the replacement wording, this should not prevent the court from carrying out its usual task of choosing between competing interpretations.

What evidence is admissible?

Parol evidence rule: this prevents a party to a written contract from presenting additional evidence outside of the contract that contradicts or adds to the written terms of the contract. However, there are many exceptions. Evidence can be admitted:

  • to show that a contract is not yet in force because a condition precedent, which must be completed before the contract becomes valid, has not been fulfilled;
  • to show that the written contract was not supposed to make up the entire contract between the parties;
  • to prove a collateral contract, unless an entire agreement clause is present in the original contract to demonstrate beyond doubt that the parties meant to limit the terms of their agreement to the original contract;
  • to identify the parties to a contract, or its subject matter or any additional consideration;
  • to prove custom;
  • to prove the true nature of a transaction;
  • to challenge the validity of a contract.

It is arguable that there are so many exceptions to this rule that it now exists more as a principle than a rule of law. It can be said that the principle amounts to a presumption that the contract contains the whole of the agreement between the parties. The presumption can be overturned so if parties are keen to ensure that the terms of the agreement between them are limited to what they have written in the contract they can add an entire agreement clause to the contract, which states expressly that the contract contains the whole agreement between them.

Pre-contractual negotiations: evidence of pre-contractual negotiations is not usually admitted to help in the interpretation of a contract. However, it has been suggested that this should not be treated as a hard and fast rule and in some situations it may be appropriate to consider this form of evidence with all due caution. That aside, there are exceptions to the rule even as it currently stands. Evidence of pre-contractual negotiations might be admitted:

  • to establish the parties' state of knowledge of facts and circumstances at the time of forming the contract;
  • to clarify ambiguities;
  • to ascertain whether a term of a consumer contract has been individually negotiated, in relation to whether the Unfair Terms in Consumer Contracts Regulations apply;
  • to establish who drafted a clause;
  • to assist in rectification.

Draft agreements: these are not admissible as they do not usually represent a final consensus. However if the draft does represent a final consensus (for example, a draft lease annexed to an agreement for a lease) it may be admissible.

Explanatory notes: these can be taken into account in questions of interpretation. However a note will not override the plain meaning of a contract, and the contract itself will prevail if the note contradicts its content.

Contemporaneous documents: a document which is executed at the same time as, or shortly after, a contract can be used to help in interpretation so long as it forms part of the same transaction, as this will give a fuller picture of the transaction.

Conduct of the parties: conduct after a contract has been formed is not usually permitted as evidence in court. However, if an agreement is partly oral, subsequent conduct can be allowed as evidence in order to try to determine all the terms of the full contract. It is worth noting that this basic rule conflicts with what is allowed in many other jurisdictions, where evidence of subsequent conduct is admissible.

Exclusion clauses

Sometimes a clause is put into a contract to limit or exclude one party's liability. If there is ambiguity in this clause, the 'contra proferentem' principle will be applied – meaning that the clause will be interpreted against the party seeking to rely on the exclusion clause.

Practical drafting tips

The clearer the drafting of a contract, the less room there is for ambiguity and dispute. Here are some tips to make drafting clearer:

  • avoid jargon – technical language can be misinterpreted;
  • use clear definitions;
  • avoid tautology (saying the same thing twice in different words) and excessive numbers of adjectives;
  • cut out superfluous words and padding;
  • use short sentences and paragraphs;
  • use the active voice and avoid the passive if possible;
  • avoid ambiguity – take care that your words can only be interpreted in one way;
  • avoid similar-sounding words which may confuse a layman;
  • proof read the contract – or, preferably, get somebody else to proof read it.