Rainy Sky SA v Kookmin Bank

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.