High Court

In the Commercial Court, Simon J, in a summary judgment, ruled that the bond did cover Jinse's obligation to repay on insolvency. He emphasised "all such sums" in paragraph 3, and stated that Kookmin's construction "has the surprising and uncommercial result that the Buyers would not be able to call on the Bond on the happening of the event which would be most likely to require the first class security."

Court of Appeal

Kookmin appealed, and in the Court of Appeal, Patten LJ (with whom Thorpe LJ agreed) supported their interpretation. Patten LJ ruled that the word "such" in paragraph 3 could not be ignored, and that, while it was possible that it referred only to the "pre-delivery installments" mentioned in paragraph 2, as a matter of grammar, it was more likely ("[not] in any way evenly balanced") that it referred to the sums defined in paragraph 2 as a whole (namely, those due on rejection, termination, cancellation, rescission, or total loss). He stated that the alternative interpretation "robs paragraph 2 of any purpose or effect." The critical issue was therefore whether or not Kookmin's interpretation was commercially unreasonable. After citing earlier authorities (Wickman v Schuler [1974] AC 235, The Antaios [1984] AC 191 and Chartbrook v Persimmon [2009] UKHL 38), he ruled that, because Kookmin's interpretation was not "absurd or irrational" or "so extreme as to suggest that it was unintended", merely unfavourable to Rainy Sky, it should be accepted. The alternative course would "put us in real danger of substituting our own judgment of the commerciality of the transaction for that of those who were actually party to it."

However, Sir Simon Tuckey delivered a dissenting judgement, in which he stated that Simon J's first-instance view that Kookmin's interpretation was "surprising and uncommercial" was a legitimate reason for rejecting that interpretation, and that the judgement therefore should not be overturned.^[2]

Supreme Court

The Supreme Court allowed Rainy Sky's appeal. Lord Clarke delivered the judgement. Citing the case of Co-operative Wholesale Society Ltd v National Westminster Bank plc [1995] 1 EGLR 97, he accepted the principle that "where the parties have used unambiguous language, the court must apply it", no matter how commercially unreasonable the result. However, in cases of ambiguity, the court should choose the interpretation that is "most consistent with business common sense" - there is no obligation on the party contesting the interpretation to prove that it is so extreme that the parties could not have intended it in any circumstances, as Patten LJ's test would imply.

Referring to Barclays Bank plc v HHY Luxembourg SARL [2010] EWCA Civ 1248, he held that the correct test was stated by Longmore LJ in that case:

"If a clause is capable of two meanings, as on any view this clause is, it is quite possible that neither meaning will flout common sense. In such circumstances, it is much more appropriate to adopt the more, rather than the less, commercial construction."