PERFORMANCE BONDS, INTERPRETATION AND ‘UNCOMMERCIAL’ RESULTS

The Court of Appeal in Rainy Sky SA v Kookmin Bank [2010] EWCA Civ 582, [2010] All ER (D) 255 (May) has, by a majority, allowed an appeal from the decision of Mr Justice Simon (on which see our December 2009/January 2010 issue, pp.10-12). The issue before the Court of Appeal concerned the proper interpretation of the ‘advance payment bond’ which had been supplied by the defendant bank. There was no issue before the Court of Appeal as to the legal nature of a bond of this nature. In the final analysis the proper construction of the bond is only of relevance to the parties to the bond. But there is a point of wider significance which emerges from the judgment of Lord Justice Patten and that is the reluctance of the court to depart from the natural meaning of the words used by the parties in the absence of ‘a result which is so extreme as to suggest that it was unintended’.