Commercial Purpose and Business Common Sense in Contractual Interpretation

Abstract

What is the role to be played by considerations of business common sense in determining what the parties meant? In a pithy and unanimous judgment, Lord Clarke writing for the Supreme Court in Rainy Sky SA v Kookmin Bank1 held that where a term of a contract is open to more than one interpretation, one should adopt the interpretation that is most consistent with business common sense. This case is significant: not only does it shed light on when and how business common sense can be deployed by the courts, the dicta can be read as an important qualification of the circumstances in which courts can depart from the clear and unambiguous meaning of the words in a contract in order to give effect to its commercial purpose or to make the contract more commercially sensible. Thus, the fifth principle of interpretation enunciated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society2 ('ICS') may have to be carefully applied in light of the qualified approach in Rainy Sky.