Interpreting the Intent of Contracting Parties in Cases of Ambiguity or Uncertainty Concerning the Selected Version or Term of Incoterms: A Critical Review of Selected Iranian Judgments and Arbitral Awards

Introduction
In the fast-paced world of international trade, the need for a clear and precise interpretation of the parties’ intentions in contracts incorporating Incoterms rules is increasingly pressing. The Incoterms rules, developed by the International Chamber of Commerce (ICC), are intended solely to clarify responsibilities, costs, and the transfer of risk in commercial transactions. Nevertheless, gaps in the articulation of specific Incoterms versions and terms have led to ambiguities in interpreting contract provisions and divergent decisions by arbitral tribunals and judicial bodies.
 The core issue addressed in this article is that, in many contracts, although the parties agree to incorporate Incoterms, they do not specify the applicable version or any particular term, or they use expressions that have been removed or replaced in official versions. This legal uncertainty gives rise to disputes over the performance and interpretation of contractual obligations. Therefore, the central research question is: in cases of doubt or ambiguity regarding an Incoterms term or version, how can the parties' true intention be accurately interpreted?
The hypothesis of the study posits that the interpretation of the parties' intention must be grounded in general principles of contract law—such as the principle of effectiveness (favor contractus) and the principle of good faith—along with judicial precedents and international trade customs. Where possible, analogous or substitute terms should be applied, and nullification of the clause or the entire contract should not be treated as the default solution.
Method
This article employs a qualitative approach, using descriptive-critical analysis, to examine four major scenarios involving interpretive ambiguities. In the first scenario, the parties have merely agreed to apply Incoterms without specifying a version. Based on the authors’ analysis and arbitral precedents, the prevailing rule is that the version in force at the time of contract conclusion (typically the most recent version) shall apply unless contrary evidence is presented.
In the second scenario, a version is specified, but no particular term is selected. Here, the interpretive approach favors selecting the term that imposes the least obligation on the seller (e.g., EXW), unless there is evidence of an implied intention to adopt another term. In this context as well, arbitral and judicial decisions generally support a minimalist interpretation in favor of the principle of non-excess and the presumption of innocence.
The third scenario involves agreements that cite Incoterms 2020 but use outdated terms such as DAT or DEQ, which have been removed from the latest version. If the selected term has an equivalent or successor in the new version (e.g., the replacement of DAT with DPU), substitution should be made. However, if the term has been entirely abolished and cannot be equivalently replaced, the agreement will be deemed inconsistent and ineffective—unless trade usage or specific evidence within the case supports the position of one of the parties.
In the fourth scenario, a specific term (e.g., FOB) is selected, but the contract contains an implied condition that mirrors the effects of another term (e.g., DDP). In such cases, if a "minimum common understanding" of the parties’ intent can be discerned, the principal term should not be disregarded; rather, an expanded interpretation should be applied only where the contract overlaps with the other term. This approach aligns with legal maxims, such as favor contractus (prefer combining over discarding whenever possible), and with judicial practice and commercial realities.
Conclusion
The findings of the research indicate that a principled interpretation of the contracting parties’ intent must align with the underlying philosophy of Incoterms—namely, to reduce transaction costs, prevent disputes, and facilitate contractual relations. The article advocates that, in cases of ambiguity, instead of nullifying a clause or term, the interpretation most consistent with the parties’ intent and conduct should be preferred. It also recommends that the ICC include a section titled “Interpretative Guidelines in Cases of Silence or Conflict” in the Incoterms text, to provide arbitral and judicial authorities with a shared and authoritative interpretive framework.
In conclusion, this research not only fills a significant gap in the Iranian legal literature on the interpretation of Incoterms—particularly in relation to arbitral decisions—but also offers practical guidance for traders, arbitrators, and contract drafters. It is hoped that this approach will contribute to enhanced legal certainty and a reduction of commercial disputes at both national and international levels.