In Rainy Sky S.A. and others v Kookmin Bank the Supreme Court considered the correct approach to the construction of contractual wording that was capable of two meanings, both of which meanings were possible and arguable.
The point at issue was the interpretation of a clause contained in a bond (a “refund guarantee bond”) given by a bank to a purchaser, by instalments, of a ship. The bond would pay out on the occurrence of certain events. If the bank’s argument was successful, the bond would not refund instalments paid by the purchaser of the ship in the event of the insolvency of the shipbuilder. If the purchaser’s argument was successful, the wording of the bond meant that the bank would have to pay out if the shipbuilder entered insolvency. The shipbuilder became insolvent.
At first instance, the court found for the purchaser but this was overturned by a 2-1 verdict in the Court of Appeal. The purchaser appealed to the Supreme Court.