Rainy Sky

The Member entered in to shipbuilding contracts with a yard and paid several instalments of the contract price. The yard had established bank refund guarantees in respect of those payments, in the event the Member was entitled to rescind, cancel or terminate the contract. Neither the contract nor the guarantees envisaged the yard entering in to statutory insolvency protection and, when this occurred, the Member sought payment under the guarantees.  The bank resisted the Member’s demands, arguing on strict interpretation that insolvency was not specified as an event that triggered liability under the guarantees.

The Supreme Court in the UK applied a “commercial common sense” approach of what a reasonable person would have expected the parties to have intended in their drafting and held that insolvency fell within the scope of the guarantees.