Find out how we are operating following the relaxation of COVID-19 restrictions I We’re here to help; contact us or read our legal insights
Get in Touch Menu

Business common sense rules

21 March 2012

We welcomed the recent decision that ‘business common sense’ should be upheld where contractual wording is unclear.

The court concluded that where the term of a contract could be interpreted in more than one way, business common sense should dictate which meaning was intended.

The case in question was Rainy Sky SA v Kookmin Bank in which an issue arose regarding a bond issued in support of a shipbuilding contract. The shipbuilder had entered into an insolvency procedure (under Korean law) and had defaulted on the contract. The buyer sought to rely on the bond – which included an undertaking to pay ‘all such sums due .. under the contract’. The bank refused to pay. Did the term ‘such sums’ refer only to certain specific payments or to all money owing upon insolvency?

Applying business common sense, The High Court took it to mean the latter. The Court of Appeal reversed the decision, saying the use of common sense should be limited to where it was necessary to avert extreme or irrational meanings of words.

The Supreme Court agreed with the first ruling and held that ‘all sums’ meant ‘all money owing’. Their ultimate aim was to establish what the parties meant.

The decision is reassuring as it confirms that courts should use common sense in establishing what the parties intended to agree. This may save a party from unclear contractual wording. However in practice, the case highlights the general rule that it is cheaper to address issues beforehand than to correct them. If you are concerned that contract terms may be ambiguous, it is better to ensure precise drafting at the outset rather than seek a remedy through costly litigation.

As always, if you need commercial and pragmatic legal advice, we’re here to help so please get in touch.

Contact us

Resources to help

Related articles

The classic car market & the law - Q&A

Classic car disputes

The classic car market is a multi-billion pound industry, not surprisingly with many legal complications, but that shouldn’t impair the joy these four-wheeled icons can bring… What kind of businesses…

Paul Gordon LLB

Turning a blind eye: the concept of 'dishonest assistance'

Litigation & dispute resolution

The court has shed light on the legal concept of ‘dishonest assistance’, in the recent case of Group Seven Limited & Others v Notable Services LLP & Others [2019]. By…

Paul Gordon LLB

A guide to intellectual property rights

Intellectual property disputes

They say that imitation is the highest form of flattery. But when it comes to intellectual property, a competitor copying your ideas can put your business’s whole operation and finances at…

Paul Gordon LLB
Contact us