Keen readers of this column will recall my bafflement at the Court of Appeal’s decision in Rainy Sky SA v Kookmin Bank. An (as it seemed) routine call on an advance payment bond was denied on the basis of one word – “such“. The word had been carelessly inserted into a clause of the bond, presumably with little thought on either side as to its meaning and effect. Adopting the restrained and temperate language that is my hallmark on such occasions, I described it as “ludicrous” and defying business common sense. I even evoked the most damming insult of all – “with respect”. I concluded by wondering if the Supreme Court would be allowed the last word on the subject.
Encouragingly, I was not alone. Several respondents to my blog agreed with my view. James Levy pointed out that one of the majority in the Court Appeal (Thorpe LJ) had found himself in an “invidious position” in a field that was “completely foreign” to him and had come to his conclusion “with considerable trepidation”. As others noted, such decision-making hardly inspires confidence in the traditional process and potentially damages English law’s hard-won reputation for commercial relevance.
Well, I am pleased to report that the Supreme Court has now considered the matter and that we have been vindicated. They have unanimously concluded that the judge at first instance was right and (the majority of) the Court of Appeal wrong. Giving the leading judgment, Lord Clarke noted this was a clear case of ambiguous drafting. In such cases, as Lord Hoffmann explained in Investors Compensation Scheme Ltd v West Bromwich Building Society, the task of the court is to determine, as best it can from the words used in the commercial context, what a reasonable businessman would understand them to mean. In doing so, if one possible interpretation of the words leads to a commercially sensible result and the other does not, the former is to be preferred, even if, read literally, it involves giving the words something other than their most natural meaning. In other words, the commercial purpose should prevail over niceties of language.
So it seems I was right all along. Maybe I have missed my vocation; I could easily be seduced by the power and privileges enjoyed by members of the Supreme Court. But, on second thoughts, I shouldn’t get ahead of myself. This was hardly the most difficult case ever to hit the Middlesex Guildhall. And I hear the wigs can be itchy and uncomfortable on a hot day. Perhaps I should stick to being a blogger after all.
Practitioners may be interested in reading the Court of Appeal’s December 2011 decision in Chalabi and others v Agha-Jaffar and another [2011] EWCA Civ 1535, which applies the principles set out by the Supreme Court in Rainy Sky, albeit in the context of a share purchase (see Legal update, Warranties: back to back share purchase (Court of Appeal)).