To commercial parties accustomed to relying on refund guarantees in international commerce, the Court of Appeal’s majority decision in Kookmin Bank v. Rainy Sky SA 1 may come as somewhat of a surprise. It is no doubt baffling to some that the majority decided, following the insolvency of a seller, that there were no grounds for payment to be made under bonds issued pursuant to a shipbuilding contract, despite the fact that the shipbuilding contract provided that, in the event of the seller’s insolvency, pre-paid instalments should be refunded to the buyer. Commercial parties need not, however, fear. This decision should serve as a reminder of the oft-repeated message to lay parties that careful drafting to reflect parties’ (commercial) intentions is key to securing the (commercial) protection that English law provides.

Kookmin Bank appealed against the decision of Simon J,2 who, sitting in the Commercial Court, gave summary judgment in favour of a beneficiary under advance payment bonds in an action against the bank for monies due under the bonds. Buyers had entered into shipbuilding contracts, each of which required the buyers to pay the contract price in pre-delivery instalments and entitled the buyers, in the event of the shipbuilder’s insolvency, to a refund of any instalments paid. The contracts also required the provision of refund guarantees for the pre-delivery instalments. On the facts, these were provided in the form of bonds. The bonds, at paragraph 2, entitled the buyers, upon rejection of the vessel, to repayment of any pre-delivery instalments. Crucially, paragraph 2 did not (unlike the shipbuilding contract) expressly refer to the insolvency of the shipbuilder. Pursuant to paragraph 3, Kookmin Bank undertook to pay “all such sums due to you under the contract”.