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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


Lord Bingham of Cornhill Lord Browne-Wilkinson Lord Nicholls of Birkenhead Lord Hoffmann Lord Clyde











ON 1 MARCH 2001

[2001] UKHL 8


My Lords,

    1. The liquidators of the Bank of Credit and Commerce International SA appeal against a decision of the Court of Appeal ([2000] ICR 1410) reversing a decision of Lightman J ([1999] 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:

    "The Applicant [Mr Naeem] agrees to accept the terms set out in the documents attached in full and final settlement of all or any claims whether under statute, Common Law or in Equity of whatsoever nature that exist or may exist and, in particular, all or any claims rights or applications of whatsoever nature that the Applicant has or may have or has made or could make in or to the Industrial Tribunal, except the Applicant's rights under the Respondent's [the bank's] pension scheme."

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 [1998] 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:

    "The first issue on this appeal is whether the court should construe the general words used so as to include the stigma claims. The second issue is whether, if that is the effect of those words as a matter of construction, the court should allow BCCI to rely upon a construction which has that effect. Those issues arise in a factual context in which (i) BCCI must be treated as having knowledge at the relevant time that it was engaged in a dishonest and corrupt business - that is accepted for the purposes of the Acas COT-3 issue; (ii) Mr Naeem must be treated as not having that knowledge at the relevant time - that, also, is accepted for the purposes of the issue; (iii) it was a necessary incident of the way in which BCCI was carrying on its business that the dishonest and corrupt nature of that business should be concealed from the general body of employees, including Mr Naeem; (iv) BCCI must be taken to have known that Mr Naeem did not have that knowledge at the relevant time - it was BCCI's intention to conceal the dishonest and corrupt nature of its business from the general body of its employees and there is no reason to think that it had not achieved that objective; (v) without that knowledge Mr Naeem could not have appreciated that there had been a breach of the implied term on which the stigma claim is founded; and (vi) the possibility that BCCI - a bank authorised by the Bank of England under the Banking Act 1987 to carry on banking business in London - would be carrying on a dishonest and corrupt business was so remote that Mr Naeem could not have been expected to appreciate that it might exist, or that BCCI might be in breach of its obligation not to abuse the trust and confidence which he was entitled to place in it as his employer."

    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

    "on the ground that the COT-3 agreement, properly construed on the assumed facts and in the context of the parties' knowledge at the time it was signed, does not bar Mr Naeem's 'stigma' claim."

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 [1998] 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):

    "No doubt it is possible a priori that the release was framed in general terms in the hope of blotting out, so to speak, all conceivable grounds of further disputes or claims between all or any two or more parties to the deed, whether in respect of matters disclosed by a party against whom a claim might be made or undisclosed, of matters within the knowledge of a party by whom a claim might be made or outside it. If so the case would fall within the exception which, in the passage already cited, Lord Northington [Lord Keeper Henley] made from his proposition that a release ex vi termini imports a knowledge in the releasor of what he releases, namely the exception expressed by the words 'unless upon a particular and solemn composition for peace persons expressly agree to release uncertain demands' (Salkeld v Vernon)."

The proposition was roundly asserted by the Vice-Chancellor in the present case. In paragraph 11 of his judgment (at 1415) he said:

    "The law cannot possibly decline to allow parties to contract that all and any claims, whether or not known, shall be released. The question in a case such as the present is to ascertain, objectively, whether that was the parties' intention or whether, in order to correspond with their intentions, a restriction, and if so what restriction, should be placed on the scope of the release."

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):

    "I will not say, there may not be such a confirmation or release given, as may release the remedy of the party; for it is hard to say that in a court of equity, a man having a right of action or suit to be relieved in equity, and knowing the whole of the case, may not release that, on whatever consideration it arises, so far as regards himself: but it must be applied to that particular case, doing it with his eyes open, and knowing the circumstances."

Lord Hardwicke returned to the question in Ramsden v Hylton (1751) 2 VesSen. 304, 28 ER 196 (at 310, 200):

    "The strongest and most material objection is the release; but I am of opinion, it would not be construed as a release of this demand, either in point of law, or in a court of equity. First, it is certain, that if a release is given on a particular consideration recited, notwithstanding that the release concludes with general words, yet the law, in order to prevent surprise, will construe it to relate to the particular matter recited (1 Ves Sen 507), which was under the contemplation of the parties, and intended to be released . . . But there is no occasion to rely on the law for this; for it is clear, that it would not in a court of equity, it being admitted on all hands, and it must be so taken, that this settlement was unknown to all the parties: nor did the daughters know of this contingent provision, beside which they had no other provision out of this estate; and all they could be intitled to must arise out of the personal estate of their father or other relations. It is impossible then to imply within the general release that which neither party could have under consideration, and which it is admitted neither side knew of; and as this release cannot have its effect to bar this demand, so it cannot be set up against them in a court of equity."

    11. Lord Keeper Henley, in Salkeld v Vernon (above), at 67-68, 609, held:

    "Now a release ex vi termini imports a knowledge in the releasor of what he releases, unless upon a particular and solemn composition for peace persons expressly agree to release uncertain demands."

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):

    "It is a principle long sanctioned in Courts of equity, that a release cannot apply, or be intended to apply to circumstances of which a party had no knowledge at the time he executed it, and if it is so general in its terms as to include matters never contemplated, the party will be entitled to relief."

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):

    "The doctrine of a Court of equity is, that a release shall not be construed as applying to something of which the party executing it was ignorant, and we have now to act on that doctrine in a Court of law."

    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:

    "The general words in a release are limited always to that thing or those things which were specially in the contemplation of the parties at the time when the release was given. But a dispute that had not emerged, or a question which had not at all arisen, cannot be considered as bound and concluded by the anticipatory words of a general release."

    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:

    "In a case of this kind it is the duty of the Court to construe the instrument according to the knowledge of the parties at the time, and according to what they intended, and not to extend it to property which was not intended to be comprised within it . . . I quite agree with the assertion made by Mr Woods and other of the learned counsel that the words of release are in themselves abundantly sufficient, and if the deed is to be read literally and to be considered as including everything which they had known or might hereafter know, it is quite clear that this suit is barred by that release. But it has always been the rule of this Court to construe releases and documents of that kind with regard to the intention of the parties, and to refer in such cases to the state of the property which was known at the time."

A similar expression of opinion is to be found in Cloutte v Storey [1911] 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:

    ". . . in equity 'a release shall not be construed as applying to something of which the party executing it was ignorant'. . . ."

Then the High Court concluded (at 129-130):

    "From the authorities which have already been cited it will be seen that equity proceeded upon the principle that a releasee must not use the general words of a release as a means of escaping the fulfilment of obligations falling outside the true purpose of the transaction as ascertained from the nature of the instrument and the surrounding circumstances including the state of knowledge of the respective parties concerning the existence, character and extent of the liability in question and the actual intention of the releasor."

    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 [1976] 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):

    ". . . I would say that, if there was a true accord and satisfaction, that is to say, if Mr Dohale, with full knowledge of his rights, freely and voluntarily agreed to accept the one sum in discharge of all his claims, then he would not be permitted to pursue a claim at common law. But in this case there is no evidence of a true accord at all. No one explained to Mr Dohale that he might have a claim at common law. No one gave a thought to it. So there can have been no agreement to release. There being no true accord, he is not barred from pursuing his claim at common law."

    17. In his judgment in the present case Sir Richard Scott V-C held (in paragraph 22 of his judgment):

    "In my judgment, there are no such things as rules of equitable construction of documents."

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.


My Lords,

    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.


My 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:

    'We have seen that courts of law as well as courts of equity have assumed a power to put a restricted construction on general words when it appears on the face of the instrument that it cannot have been the real intention of the parties that they should be taken in their apparent general sense. But courts of equity will do the like if the same conviction can be arrived at by evidence external to the instrument. . . . This jurisdiction is exercised chiefly in dealing with releases.'