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Rainy Sky SA v Kookmin Bank

Rainy Sky SA v Kookmin Bank

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Case Copied 2 November 2011 35 min read

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Michaelmas Term

[2011] UKSC 50

On appeal from: [2010] EWCA Civ 582

JUDGMENT

Rainy Sky S. A. and others (Appellants) v Kookmin Bank (Respondent)

before

Lord Phillips, President

Lord Mance
Lord Kerr
Lord Clarke
Lord Wilson

JUDGMENT GIVEN ON

2 November 2011

Heard on 27 July 2011

Appellants Respondent

Mark Howard QC Guy Philipps QC

Michael Ashcroft QC	James Cutress
(Instructed by Ince & Co	(Instructed by Linklaters

LLP) LLP)

LORD CLARKE, (WITH WHOM LORD PHILLIPS, LORD MANCE,

LORD KERR AND LORD WILSON AGREE)

Introduction and factual background

1. This appeal raises a short question of construction of shipbuilder’s refund guarantees given pursuant to six shipbuilding contracts (“the Contracts”). The Contracts, which were all dated 11 May 2007, were between each of the first to sixth claimants (“the Buyers”) and Jinse Shipbuilding Co Ltd (“the Builder”). Under the Contracts the Builder agreed to build and sell one vessel to each of the Buyers. The price of each vessel was US$33,300,000, payable in five equal instalments of US$6,660,000 due at specified points of time, with the final instalment payable on delivery.[1] By Article X.8 of the Contracts it was a condition

[1] There was subsequently a small reduction in the overall price and a corresponding reduction in the final

precedent to payment by the Buyers of the first instalment that the Builder would deliver to the Buyers refund guarantees relating to the first and subsequent instalments in a form acceptable to the Buyers’ financiers. As envisaged by Article X.8, by letter dated 22 August 2007 the respondent, Kookmin Bank (“the Bank”), issued six materially identical “Advance Payment Bonds” (“the Bonds”), one to each of the Buyers. The seventh claimant (“the Assignee”) is the assignee of the benefit of the Bonds.

2. On 29 August 2007, the Buyers each paid the first instalment of US$6,660,000 due under the Contracts. On 29 September 2007, the first claimant paid the second instalment of US$6,660,000 under the contract to which it is a party.

3. In 2008 the Builder experienced financial difficulties and in late January 2009 it entered into and/or became subject to a debt workout procedure under the Korean Corporate Restructuring Promotion Law 2007. On 25 February 2009 the Buyers wrote to the Builder notifying it that this development triggered Article XII.3 of the Contracts and demanding an immediate refund of all the instalments paid, together with interest at 7% per annum. The Builder refused to make any refund on the ground that Article XII.3 of the Contracts had not been triggered as alleged. The dispute between the Buyers and the Builder has been submitted to arbitration pursuant to Article XIV.3 of the Contracts.

4. On 23 April 2009, the Buyers wrote to the Bank demanding repayment under the Bonds of the instalments paid under the Contracts. The Bank refused to pay. It did so initially on the ground that it was not obliged to pay pending resolution of the dispute between the Buyers and the Builder. That argument was subsequently rejected by…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2011] UKSC 50
Decision Date

CaseChat Overview and Summary

The case of Rainy Sky SA and Others v Kookmin Bank involved a dispute over the interpretation of shipbuilder’s refund guarantees provided by Kookmin Bank under six shipbuilding contracts. The Buyers, who were the ship purchasers, had paid instalments to the shipbuilder, Jinse Shipbuilding Co Ltd, and Kookmin Bank issued Advance Payment Bonds to guarantee the refund of these instalments. When the shipbuilder faced financial difficulties and eventually became insolvent, the Buyers demanded repayment under the Bonds. Kookmin Bank refused to pay, arguing that the Bonds did not cover refunds due under a specific clause in the shipbuilding contracts. The issue before the court was whether the Bonds guaranteed the refund of instalments in the event of the shipbuilder’s insolvency.

The court considered the language of the Bonds and the surrounding circumstances, including the shipbuilding contracts. It was established that the Bonds were capable of two possible interpretations. The Buyers argued that the Bonds guaranteed the refund of pre-delivery instalments, while the Bank contended that the Bonds only guaranteed refunds in specific circumstances outlined in the Bonds themselves, excluding insolvency. The court held that where a term of a contract is open to more than one interpretation, the interpretation consistent with business common sense should be adopted. The court preferred the Buyers’ construction, finding it more consistent with the commercial purpose of the Bonds, which was to provide security for the Buyers in the event of the shipbuilder’s insolvency. The court concluded that the Bonds did guarantee the refund of instalments in the event of the shipbuilder’s insolvency and allowed the appeal, restoring the order of the original judge.

Orders