Business Common Sense Should Prevail Says Supreme Court

Where there are two possible ways to interpret a contract, the court is entitled to prefer the interpretation which is consistent with business common sense. This was the view of the Supreme Court in its decision in Rainy Sky SA v Kookmin Bank issued on 2 November 2011.

Background

The case concerned the interpretation of Bonds issued under shipbuilding contracts. The issue was whether Rainy Sky and five others (the buyers of the ships) were entitled to payment under the Bonds which had been issued by Kookmin Bank following the builder of the ships going into a form of insolvency in Korea.

The buyers had each paid pre-delivery instalments of over $6million to the builder for the ships. The buyers argued that they were entitled to have their instalments repaid but the Bank argued the contrary. Everything turned on the interpretation of a clause in the Bonds.