KOOKMIN BANK V RAINY SKY SA

[2010] EWCA Civ 582, Court of Appeal (Civil Division), Lord Justice Thorpe, Lord Justice Patten and Sir Simon Tuckey, 27 May 2010

Ship finance - Advance payment bond issued by bank to guarantee shipbuilder's repayment of instalments to buyer - Bond providing for repayment of "all such sums due to you under the contract" - Whether this included pre-paid sums in the event of builder's insolvency - Appeal of summary judgment

This was the appeal of a summary judgment for the claimant against the defendant bank under six materially identical on demand advance payment bonds or guarantees issued by the bank. The bonds had been issued by the bank to secure obligations assumed by its customer, a shipbuilder. The claimant was the assignee of the rights of the buyers of the ships. The bank had obtained permission to appeal. It argued that the obligation in the shipbuilding contracts to provide a full refund in the event of the shipbuilder's insolvency was not covered by the bonds.The Court of Appeal allowed the appeal (Sir Simon Tuckey dissenting). A natural and obvious construction of the bond provided that the shipbuilder's insolvency was excluded from the scope of the bond. Merely to say that no credible commercial reason had been put forward for the limited scope of the bond was to substitute one's own judgment of the commerciality of the transaction for that of those who were actually party to it.