Wednesday, 2 November 2011

UK: England and Wales: the construction of commercial contracts - the importance of business common sense

The Supreme Court gave judgment today in Rainy Sky S.A. v Kookmin Bank [2011] UKSC 50 (on appeal from [2010] EWCA Civ 582). A single, composite opinion was given by Lord Clarke, with whom the other justices agreed: see here or here (pdf). A summary of the opinion is available here (pdf). The appeal concerned the construction of shipbuilder's refund guarantees and required the court to consider the role played by considerations of business common sense in determining what the parties meant. In this regard, Lord Clarke stated (at para. [21]):

The language used by the parties will often have more than one potential meaning. I would accept ... that the exercise of construction is essentially one unitary exercise in which the court must consider the language used and ascertain what a reasonable person, that is a person who has all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract, would have understood the parties to have meant. In doing so, the court must have regard to all the relevant surrounding circumstances. If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other."

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