Ambiguity and Vagueness in Contract Drafting.

Overview

Ambiguity and vagueness are among the most pervasive and detrimental errors in contract drafting. Ambiguity occurs when the wording of a contractual provision permits two or more reasonable interpretations, resulting in uncertainty regarding the parties’ rights and obligations under the agreement. In contrast, vagueness refers to language that is imprecise or lacking sufficient detail, leaving parties without clear guidance on how performance or compliance is to be achieved.

Both ambiguity and vagueness undermine the fundamental purpose of a contract, which is to establish clear, enforceable duties and expectations. The resulting uncertainty can lead to disputes, protracted negotiations, or costly litigation to resolve interpretative conflicts.

Illustrative Example: Ambiguity

Consider a clause in a supply agreement stating that the supplier will deliver “approximately 1,000 units monthly.” The term “approximately” is ambiguous: does it allow for a 5% deviation, 10%, or more? If the buyer receives 850 units one month and alleges breach, the supplier might argue the clause permits this variance, while the buyer claims it does not.

Illustrative Example: Vagueness

A contract requiring a party to provide “adequate security measures” is vague. The phrase “adequate security” is subjective and fails to specify the standards or criteria to be met. Without clear parameters, performance cannot be objectively measured, inviting disagreements.

Causes of Ambiguity and Vagueness

Several factors contribute to the frequent occurrence of ambiguity and vagueness in contracts:

1. Inadequate Drafting Expertise: Draftsmen lacking specialized knowledge may fail to anticipate interpretative issues or draft precise language.
2. Reliance on Boilerplate or Template Clauses: Using standard clauses without tailoring them to the transaction context often introduces ambiguous terms inappropriate for the specific deal.
3. Deliberate Flexibility: Parties or drafters may intentionally use vague terms to preserve discretion or avoid committing to rigid obligations. While this may serve short-term interests, it risks future disputes.
4. Lack of Appreciation for Specificity: A failure to recognize the importance of clear and detailed terms often results in reliance on general language that lacks legal precision.

Consequences

The impact of ambiguous or vague contractual provisions can be significant:

• Disputes and Litigation: Ambiguous terms are a primary source of disagreements between parties. Without clarity, disputes often escalate to litigation or arbitration to resolve interpretation issues.
• Judicial Interpretation Against Drafter: Courts commonly apply the doctrine of contra proferentem, construing ambiguous language against the party who drafted the provision, often imposing unfavorable liabilities on that party.
• Commercial Uncertainty: Ambiguity hinders parties’ ability to confidently perform their contractual obligations, affecting business planning and relationships.
• Increased Transaction Costs: Time and resources must be expended to clarify or renegotiate ambiguous terms, thereby increasing overall transaction costs.

How to Address the Mistake

Legal practitioners can mitigate ambiguity and vagueness through the following practices:

1. Employ Clear and Precise Language: Use plain English and legal terms consistently, avoiding vague qualifiers such as “reasonable,” “appropriate,” or “best efforts” unless specifically defined.
2. Include Detailed Definitions: Create a dedicated definitions section that explicitly explains all critical terms, removing uncertainty about meaning.
3. Use Objective Criteria: When flexibility is necessary, specify objective benchmarks or measurable standards rather than subjective terms.
4. Iterative Review Process: Conduct multiple rounds of drafting and review with input from commercial teams and external experts to identify potential ambiguities.
5. Incorporate Interpretation Clauses: Include provisions outlining the rules of contract construction to guide courts in the event of disputes.

Necessary Corrections and Remedial Measures

When ambiguity or vagueness is identified in a contract, the following steps should be taken to rectify the problem:

• Revisit and Revise Problematic Clauses: Amend the language to remove multiple possible interpretations and replace vague terms with explicit standards or quantifiable measures.
• Expand Definitions: Supplement or revise the definitions section to comprehensively cover key terms and phrases used throughout the agreement.
• Add Interpretative Provisions: Draft clauses that clarify how the contract should be interpreted, for example, stipulating that the contract is to be interpreted as a whole and in good faith.
• Seek Clarification or Confirmation: If ambiguity is discovered post-execution, parties should seek to agree on written clarifications or amendments to avoid disputes.

Case Illustration

In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, the House of Lords emphasized the importance of construing contracts based on the commercial purpose and the intentions of the parties rather than a literal reading of ambiguous language. The judgment underscored the risks of ambiguity and the judiciary’s role in resolving such uncertainties, often applying interpretative principles that may not align with the drafter’s expectations.

Conclusion

Ambiguity and vagueness pose significant risks to contractual certainty and enforceability. Their prevalence is rooted in practical pressures and drafting habits that prioritize expediency or flexibility over precision. By adopting disciplined drafting techniques, engaging in thorough review, and emphasizing clarity, legal practitioners can minimize these risks. A clear, well-defined contract not only protects parties’ interests but also fosters stable commercial relationships and reduces the likelihood of costly disputes.

Recommended Further Reading

McKendrick, Ewan – Contract Law: Text, Cases, and Materials (Oxford University Press, 9th ed., 2021)
An authoritative source combining cases, statutes, and commentary, offering a strong doctrinal foundation for understanding contract law.

Stark, Tina L. – Drafting Contracts: How and Why Lawyers Do What They Do (Aspen Publishers, 2nd ed., 2013)
A leading text on the art and technique of contract drafting, explaining both principles and practice.

Garner, Bryan A. – Legal Writing in Plain English (University of Chicago Press, 2nd ed., 2013)
A practical guide to improving clarity, conciseness, and readability in legal drafting.