Rainy Sky SA et al v Kookmin Bank [2010] All ER (D) 255 (May) In our Spring 2010 e-news we reported on the case of Kookmin Bank which dealt with the interpretation of a refund guarantee between Kookmin Bank (the “Bank”) and the customer of an insolvent shipyard. The Bank issued a refund guarantee to secure obligations assumed by its customer Jinse Shipbuilding (the “Builder”). The agreement required the Bank to repay on demand all of the instalments paid by the buyer, Rainy Sky, on the occurrence of a default event under the refund guarantee. The Builder became insolvent triggering a default under the building contract. The buyer tried to claim under the building contract for the repayment of US$46m it had already paid under the building contract. The Builder was unable to repay the instalments, therefore the buyer made a claim under the refund guarantee. The Court of Appeal reversed the original decision and decided that the Bank had no liability to the buyer under the refund guarantee as there was no obligation on the Bank to provide a full refund to the buyer in any circumstance other than those listed as default events under the refund guarantee and the insolvency of the Builder was not listed as a default event.

The decision does not seem to create new law as the judgement given by the Court of Appeal was heavily dependent upon the rather unusual provisions of the particular refund guarantee. In a conventional scenario, the buyer would be looking for the refund guarantee and building contract to cover defaults such as prolonged delay, failure to comply with the specification and insolvency. On this basis, should a default occur, the buyer would be entitled to rescind the building contract and recover advance payments from the builder. Should the builder not pay up, the bank issuing the refund guarantee would need to pay under the terms of the guarantee.