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|Judgments - Bank of Credit and Commerce International SA (in Compulsory Liquidation) v. (1) Munawar Ali, (2) Sultana Runi Khan and Others
HOUSE OF LORDS
Lord Bingham of Cornhill Lord Browne-Wilkinson Lord Nicholls of Birkenhead Lord Hoffmann Lord Clyde
OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT
IN THE CAUSE
BANK OF CREDIT AND COMMERCE INTERNATIONAL SA (IN COMPULSORY LIQUIDATION)
SULTANA RUNI KHAN AND OTHERS
ON 1 MARCH 2001
 UKHL 8
LORD BINGHAM OF CORNHILL
1. The liquidators of the Bank of Credit and Commerce International SA appeal against a decision of the Court of Appeal ( ICR 1410) reversing a decision of Lightman J ( ICR 1068). These decisions were made on an issue ordered to be tried to determine the effect, validity and enforceability of an agreement made between the bank and certain of its employees about a year before application was made for the winding up of the bank. Two cases were selected for trial as test cases on this issue, but one of the cases has been compromised. Mr Naeem is thus the sole respondent to this appeal.
2. The facts giving rise to this litigation have been agreed between the parties and are comprehensively summarised by Lightman J in paragraph 3 in his judgment at first instance and Chadwick LJ in paragraphs 42-49 of his judgment in the Court of Appeal. It is unnecessary to rehearse that detailed history again. The salient facts are these. Mr Naeem was employed by the bank in the United Kingdom from June 1985. In the spring and early summer of 1990 the bank embarked on an extensive reorganisation of its worldwide business which made a number of its UK employees redundant. Mr Naeem was one of these. Following consultation with the Advisory, Conciliation and Arbitration Service ("Acas") and the employees' trade union a notice was sent to Mr Naeem among other employees on 18 June 1990 terminating his employment on 30 June 1990. The notice said that he would receive his full notice entitlement, a statutory redundancy payment (plus accrued holiday pay) and an ex gratia payment. A schedule was attached to the notice summarising the payment on offer. Reference was made to potential set-offs for credit card debts, season ticket loans and current account overdraft balances owed to the bank (in Mr Naeem's case no such debts existed) and Mr Naeem was offered the option of receiving an additional month's gross salary in addition to the total payment set out in the schedule if he was willing to sign an Acas form acknowledging that the payment he would receive from the bank was in full and final settlement. In the notice Mr Naeem was offered a meeting with an officer of Acas and he accepted this offer.
3. The meeting took place on 4 July 1990, just after the termination of Mr Naeem's employment. Following a short interview with an Acas official Mr Naeem signed and a representative of the bank countersigned Acas Form COT-3 which recorded:
Under the agreement Mr Naeem received a total of £9,910.79, of which £2,772.50 was paid in consideration of Mr Naeem signing the form of release. If he had not signed the form of release, he would not have received that part of the total.
4. On 5 July 1991 application was made that the bank be wound up by the High Court. It quickly became clear and generally known that the bank was and had for some years been seriously insolvent and that a significant part of its business had been carried on in a corrupt and dishonest manner. In the course of the liquidation a number of employees sought to claim (or counterclaim) damages caused to the employees by their association with the bank, the stigma of which association was said to handicap the employees in obtaining other employment. Such damages were attributed to the bank's breach of an implied duty owed to the employees not to carry on a dishonest or corrupt business. It was also contended that the employees had been induced to work for the bank by the false representation that it was an honest and creditworthy financial institution.
5. The liquidators rejected the employees' claims for stigma damages and damages for misrepresentation, and their rejection of the stigma claims was upheld by the courts until, in Mahmud v Bank of Credit and Commerce International SA  AC 20, the House of Lords ruled that such claims were sustainable in principle. A number of employees including Mr Naeem wish to pursue such claims. The liquidators contend that Mr Naeem (the claimant chosen for the purpose of resolving this issue) is debarred from claiming such damages by the terms of the release which he signed on 4 July 1990.
6. In paragraph 56 of his judgment in the Court of Appeal (at page 1431 of the report) Chadwick LJ helpfully summarised the issues and the factual setting in which they must be resolved:
7. Lightman J and a majority of the Court of Appeal (Chadwick and Buxton LJJ) held that the general language of the release was sufficiently comprehensive to embrace the claims which Mr Naeem sought to pursue. Since all the claims known to the parties were identified and met in full, the broad language of the release must (they held) be taken to refer to other claims, not at that stage known or identified. Sir Richard Scott V-C took a different view. He held in paragraph 34 of his judgment (at 1422) that the appeal should be allowed
Mr Naeem's appeal against Lightman J's dismissal of his claim was allowed, since all members of the Court of Appeal held that it would in all the circumstances be unconscionable for the bank to rely on the release in order to bar Mr Naeem's claim.
8. I consider first the proper construction of this release. In construing this provision, as any other contractual provision, the object of the court is to give effect to what the contracting parties intended. To ascertain the intention of the parties the court reads the terms of the contract as a whole, giving the words used their natural and ordinary meaning in the context of the agreement, the parties' relationship and all the relevant facts surrounding the transaction so far as known to the parties. To ascertain the parties' intentions the court does not of course inquire into the parties' subjective states of mind but makes an objective judgment based on the materials already identified. The general principles summarised by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society  1 WLR 896, at 912-913 apply in a case such as this.
9. A party may, at any rate in a compromise agreement supported by valuable consideration, agree to release claims or rights of which he is unaware and of which he could not be aware, even claims which could not on the facts known to the parties have been imagined, if appropriate language is used to make plain that that is his intention. This proposition was asserted by Lord Keeper Henley in Salkeld v Vernon (1758) 1 Eden 64, 28 ER 608, in a passage quoted in paragraph 11 below. It was endorsed by the High Court of Australia in Grant v John Grant & Sons Pty Ltd (1954) 91 CLR 112 where Dixon CJ (speaking for himself and Fullagar, Kitto and Taylor JJ) said (at 129):
The proposition was roundly asserted by the Vice-Chancellor in the present case. In paragraph 11 of his judgment (at 1415) he said:
The Vice-Chancellor made a similar point in paragraph 19 of his judgment. This seems to me to be both good law and good sense: it is no part of the court's function to frustrate the intentions of contracting parties once those have been objectively ascertained.
10. But a long and in my view salutary line of authority shows that, in the absence of clear language, the court will be very slow to infer that a party intended to surrender rights and claims of which he was unaware and could not have been aware. In Cole v Gibson (1750) 1 VesSen. 503, 27 ER 1169, Lord Hardwicke LC said (at 507, 1171):
Lord Hardwicke returned to the question in Ramsden v Hylton (1751) 2 VesSen. 304, 28 ER 196 (at 310, 200):
11. Lord Keeper Henley, in Salkeld v Vernon (above), at 67-68, 609, held:
Lord Langdale MR spoke to similar effect in Lindo v Lindo (1839) 1 Beav. 496, 48 ER 1032 (at 505-506, 1036), declining to construe general words as having an effect not contemplated by any of the parties at the time.
12. In Lyall v Edwards (1861) 6 H & N 337, 158 ER 139, the issue was whether the terms of a general release should be construed to cover potential claims in conversion of which the parties (or at any rate the releasor) were unaware at the time of the agreement. Pollock CB held (at 347, 143):
Martin B confined himself to considering the relief which a court of equity would give if a release executed for a limited purpose was expressed in terms more extensive than intended. Wilde B advanced a rule of construction (at 348, 144):
13. This approach was echoed by Lord Westbury in Directors of the London and South Western Railway Co v Blackmore (1870) LR 4 HL 610 at 623-624:
14. Ecclesiastical Commissioners for England v North Eastern Railway Co (1877) 4 ChD 845 again raised the question whether general words of release were to be held as covering claims of which one party was unaware at the date of the agreement. Malins V-C did not consider this question at any length in his judgment, but appears to have concluded (at 853) that the release would have been treated as covering the claims in question had the plaintiffs known the true facts, which they did not. In Turner v Turner (1880) 14 ChD 829 at 834 he held:
A similar expression of opinion is to be found in Cloutte v Storey  1 Ch 18 at 34. In Grant v John Grant & Sons Pty Ltd, above, the High Court of Australia referred with approval to a number of these authorities, including a statement by Sir Frederick Pollock in his Principles of Contract (13th ed.), where he wrote:
Then the High Court concluded (at 129-130):
15. A search of the Australian case law shows that the Grant case has been frequently cited and relied upon. In Torrens Aloha Pty Ltd v Citibank NA (1997) 77 FCA (21 February 1997) it was held that a waiver executed in 1987 should not be construed to cover a claim which was not the subject of consideration by the parties at the time and would have been doomed to failure until the High Court in effect created a new cause of action five years later.
16. Reflections of such an approach are found in the judgment of Lord Denning MR (but not the other members of the court) in Arrale v Costain Civil Engineering Ltd  1 Lloyd's Rep 98. The plaintiff had lost his left arm in an industrial accident in Dubai and had accepted a paltry sum in local currency, the full sum to which he was entitled under a local ordinance, "in full satisfaction and discharge of all claims in respect of personal injury whether now or hereafter to become manifest arising directly or indirectly from an accident which occurred on 3 July 1998." The issue was whether the release applied to claims for common law damages. The Master of the Rolls, in agreement with Stephenson LJ (Geoffrey Lane LJ dissenting), held that it did not. But he also held that if, contrary to his view, the release did cover common law claims there was no consideration for the plaintiff's promise. As he put it (at 102):
17. In his judgment in the present case Sir Richard Scott V-C held (in paragraph 22 of his judgment):
Buxton LJ (in paragraph 88.4 of his judgment) agreed with the Vice-Chancellor's proposition. I also agree with it. More than a century and a quarter have passed since the fusion of law and equity and it would be both destructive of that great reform, and altogether anomalous, if it were not correct. But acceptance of that proposition should not lead one to regard the authority cited above as spent, or as a dead letter. Some of the cases, I think, contain statements more dogmatic and unqualified than would now be acceptable, and in some of them questions of construction and relief were treated almost indistinguishably. But I think these authorities justify the proposition advanced in paragraph 10 above and provide not a rule of law but a cautionary principle which should inform the approach of the court to the construction of an instrument such as this. I accept, as my noble and learned friend Lord Hoffmann forcefully points out, that authorities must be read in the context of their peculiar facts. But the judges I have quoted expressed themselves in terms more general than was necessary for decision of the instant case, and I share their reluctance to infer that a party intended to give up something which neither he, nor the other party, knew or could know that he had.
18. So I turn to consider the agreement made between the bank and Mr Naeem. His employment was terminated on grounds of genuine redundancy. The agreement provided for payment in full of salary in lieu of notice and redundancy pay. It took account of matters such as holiday pay and season ticket loans. It plainly covered the ordinary incidents of the employer-employee relationship. But the liquidators contend that it cannot have been limited to such incidents or to claims which might be made to an industrial tribunal: otherwise the reference to "all or any claims whether under statute, Common Law or in Equity of whatsoever nature that exist or may exist" would lack any field of potential reference. This is a compelling submission which has, understandably, found favour with the courts below and with my noble and learned friend Lord Hoffmann. But the liquidators accept that the language of the clause is subject to some implied limitations: where ex-employees have had deposits with the bank, the liquidators have not (very properly) sought to resist claims for repayment in reliance on the general release. Such claims, they say, fall outside the clause because they do not relate to the employer-employee relationship. That would be true, if employees were entirely free to make whatever banking arrangements they chose. But acceptance of these claims involves acceptance that the clause does not mean all it might be thought to say. What of a latent claim for industrial disease or personal injury caused to the employee by the negligence of the employer but unknown to both parties? Mr Jeans QC for the liquidators, in the course of an admirable argument, recognised the difficulty of submitting that such a claim would be precluded by the provision, even though it would relate to the employer-employee relationship. I would not myself infer that the parties intended to provide for the release of such a claim. The same would in my view be true if, unknown to the employee, the bank had libelled him as an employee. The clause cannot be read literally.
19. What, then, of the claim for stigma damages which lies at the heart of this appeal? The bank, through its senior employees, is fixed with knowledge of the bank's insolvency and nefarious practices, although it seems unlikely that those negotiating with the employees were alert to these facts, very carefully concealed from the world. Mr Naeem had no such knowledge. Neither the bank, even when fixed with such knowledge, nor Mr Naeem could realistically have supposed that such a claim lay within the realm of practical possibility. On a fair construction of this document I cannot conclude that the parties intended to provide for the release of rights and the surrender of claims which they could never have had in contemplation at all. If the parties had sought to achieve so extravagant a result they should in my opinion have used language which left no room for doubt and which might at least have alerted Mr Naeem to the true effect of what (on that hypothesis) he was agreeing.
20. On this ground, essentially the first ground of the Vice-Chancellor's conclusion (in paragraph 34), I would dismiss the appeal. This makes it unnecessary to consider whether, on the liquidators' construction, Mr Naeem would be entitled to relief against enforcement of the agreement on grounds of unconscionability, and I prefer to express no opinion on that matter. I would order the liquidators to pay the costs of these proceedings here and below, subject to any costs-sharing order which may be or become applicable.
21. I have had the advantage reading in draft the speech prepared by my noble and learned friend Lord Bingham of Cornhill. For the reasons which he gives I too would dismiss the appeal.
LORD NICHOLLS OF BIRKENHEADMy Lords
22. This appeal raises a question of interpretation of a general release. By a general release I mean an agreement containing widely drawn general words releasing all claims one party may have against the other. The release given by Mr Naeem was of this character. Mr Naeem accepted a payment from BCCI 'in full and final settlement of all or any claims . . . of whatsoever nature that exist or may exist'.
23. The circumstances in which this general release was given are typical. General releases are often entered into when parties are settling a dispute which has arisen between them, or when a relationship between them, such as employment or partnership, has come to an end. They want to wipe the slate clean. Likewise, the problem which has arisen in this case is typical. The problem concerns a claim which subsequently came to light but whose existence was not known or suspected by either party at the time the release was given. The emergence of this unsuspected claim gives rise to a question which has confronted the courts on many occasions. The question is whether the context in which the general release was given is apt to cut down the apparently all-embracing scope of the words of the release.
24. In times past the common law courts and the Court of Chancery differed in their approach to this question. In particular, the Court of Chancery was readier to admit extrinsic evidence as an aid to interpretation than were the common law courts. Sir Frederick Pollock summarised the matter thus in the first edition of his work Principles of Contract (1876), p 414: