In the recent case of Fairfield Greenwich v Kenneth Krys (as Liquidator), the Court of Appeal unanimously dismissed an appeal against the decision of Justice Chivers in the BVI’s Commercial Court.

The Appellants acted as investment managers for the Respondents, who were BVI funds put into liquidation following the unravelling of Madoff’s Ponzi scheme. The relationship between the parties was governed by written investment management agreements which provided that the Appellants would be indemnified by the Respondents for “any and all claims, demands, liability or expenses for any loss suffered by the Funds.”

The Appellants claimed that they had suffered loss in defending claims which relating to the Funds. When those claims were rejected in the liquidations, the Appellants issued an application for the Court’s intervention. On appeal, the question was one of construction.

The Court of Appeal looked at the case law on commerciality generally. The Court applied the English Supreme Court case of Rainy Sky SA v Kookmin Bank holding that “a commercial result can be rejected even if it does not rise to the level of being absurd – it needs only be displaced by a more commercially sensible result.” However, on the facts of this case, the fact that the Appellant thought their position was more commercially sensible than the Respondents (the so called tug-of-war) was not enough.

The Court paid heed to Lord Hodge’s assessment in Wood v Capita Insurance Services that “business common sense is useful to ascertain the purpose of a provision and how it might operate in practice..[but] can rarely assist the Court in ascertaining on which side of the in the centre line marking on the tug o’ war rope lay, where the negotiations ended”. Justice Blenham presiding noted “I am cognisant of the inherent limitations of using business commercial sense in interpreting commercial contracts”.

The Court held that the phrase had no obvious meaning, but adopting Lord Neuberger’s approach in Arnold v Britton, it held that usually meaning is most obviously to be gleaned from the language of the provision. In this case, the Court looked at the surrounding language in depth.

In summary the Court was satisfied that in dismissing the appeal, their decision was loyal to the text of a commercial contract, its contextual setting and provided a commercially sensible construction, in accordance with the Rainy Sky principles.