Judgments - Bank of Credit and Commerce International SA (in Compulsory Liquidation) v. (1) Munawar Ali, (2) Sultana Runi Khan and Others

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    25. This difference in approach is now a matter of historic interest and no more. It is part of the history of the law of interpretation, described vividly in Wigmore on Evidence (1981), vol 9, paragraph 2461, as 'the history of progress from a stiff and superstitious formalism to a flexible rationalism'. Today there is no question of a document having a legal interpretation as distinct from an equitable interpretation.

    26. Further, there is no room today for the application of any special 'rules' of interpretation in the case of general releases. There is no room for any special rules because there is now no occasion for them. A general release is a term in a contract. The meaning to be given to the words used in a contract is the meaning which ought reasonably to be ascribed to those words having due regard to the purpose of the contract and the circumstances in which the contract was made. This general principle is as much applicable to a general release as to any other contractual term. Why ever should it not be?

    27. That said, the typical problem, as I have described it, which arises regarding general releases poses a particular difficulty of its own. Courts are accustomed to deciding how an agreement should be interpreted and applied when unforeseen circumstances arise, for which the agreement has made no provision. That is not the problem which typically arises regarding a general release. The wording of a general release and the context in which it was given commonly make plain that the parties intended that the release should not be confined to known claims. On the contrary, part of the object was that the release should extend to any claims which might later come to light. The parties wanted to achieve finality. When, therefore, a claim whose existence was not appreciated does come to light, on the face of the general words of the release and consistently with the purpose for which the release was given the release is applicable. The mere fact that the parties were unaware of the particular claim is not a reason for excluding it from the scope of the release. The risk that further claims might later emerge was a risk the person giving the release took upon himself. It was against this very risk that the release was intended to protect the person in whose favour the release was made. For instance, a mutual general release on a settlement of final partnership accounts might well preclude an erstwhile partner from bringing a claim if it subsequently came to light that inadvertently his share of profits had been understated in the agreed accounts.

    28. This approach, however, should not be pressed too far. It does not mean that once the possibility of further claims has been foreseen, a newly emergent claim will always be regarded as caught by a general release, whatever the circumstances in which it arises and whatever its subject matter may be. However widely drawn the language, the circumstances in which the release was given may suggest, and frequently they do suggest, that the parties intended or, more precisely, the parties are reasonably to be taken to have intended, that the release should apply only to claims, known or unknown, relating to a particular subject matter. The court has to consider, therefore, what was the type of claims at which the release was directed. For instance, depending on the circumstances, a mutual general release on a settlement of final partnership accounts might properly be interpreted as confined to claims arising in connection with the partnership business. It could not reasonably be taken to preclude a claim if it later came to light that encroaching tree roots from one partner's property had undermined the foundations of his neighbouring partner's house. Echoing judicial language used in the past, that would be regarded as outside the 'contemplation' of the parties at the time the release was entered into, not because it was an unknown claim, but because it related to a subject matter which was not 'under consideration'.

    29. This approach, which is an orthodox application of the ordinary principles of interpretation, is now well established. Over the years different judges have used different language when referring to what is now commonly described as the context, or the matrix of facts, in which a contract was made. But, although expressed in different words, the constant theme is that the scope of general words of a release depends upon the context furnished by the surrounding circumstances in which the release was given. The generality of the wording has no greater reach than this context indicates.

    30. The cases are legion. A few well known examples will suffice. As long ago as 1750 Lord Hardwicke LC said that it was common in equity to restrain a general release to 'what was under consideration at the time of giving it': see Cole v Gibson, 1 VesSen 503, 507. A century later, in 1839, Lord Langdale MR said that the general words of a release are to be restrained by 'the contract and the intention of the parties, that contract and intention appearing by the deed itself or from any other proper evidence that may be adduced upon the occasion': see Lindo v Lindo, 1 Beav 496, 506. In 1870 Lord Westbury said that 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': see Directors of the London and South Western Railway Co v Blackmore, LR 4 HL 610, 623. In 1926 Bankes LJ emphasised the 'necessity of ascertaining what the parties were contracting about before the court can determine the true meaning' of a release: see Richmond v Savill [1926] 2 KB 530, 540. In 1954 Dixon CJ, Fullagar, Kitto and Taylor JJ, in a joint judgment in the High Court of Australia, said that the general words of a release are confined to 'the true purpose of the transaction ascertained from the scope of the instrument and the external circumstances': see Grant v John Grant & Sons Pty Ltd, 91 CLR 112, 130.

    31. This judgment in the High Court of Australia in Grant's case contained also the observation that the surrounding circumstances to be taken into account include 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' For many years the accepted wisdom has been that evidence of the actual intention of the parties is not admissible on the interpretation of a written agreement, although such evidence is admissible for other purposes, for example, on a claim for rectification. In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913, my noble and learned friend Lord Hoffmann pointed out that the exclusion from evidence of the previous negotiations of the parties and their declarations of subjective intent is for reasons of practical policy. He added that the boundaries of this exception are in some respects unclear. Whether these reasons of practical policy still hold good today in all circumstances has become increasingly the subject of debate in recent years. The debate is still continuing: see the recent observations of Thomas J in the Court of Appeal of New Zealand in paragraphs 59 to 95 of his judgment in Yoshimoto v Canterbury Golf International Ltd (27 November 2000). This is not the moment to pursue this topic, important though it is, because the point does not arise on this appeal. I desire, however, to keep the point open for careful consideration on a future occasion.

Sharp practice

    32. Thus far I have been considering the case where both parties were unaware of a claim which subsequently came to light. Materially different is the case where the party to whom the release was given knew that the other party had or might have a claim and knew also that the other party was ignorant of this. In some circumstances seeking and taking a general release in such a case, without disclosing the existence of the claim or possible claim, could be unacceptable sharp practice. When this is so, the law would be defective if it did not provide a remedy.

    33. That is not the present case. Although BCCI through its officers may be fixed with knowledge of the corrupt activities taking place within the bank, officers of BCCI and, through them, BCCI itself were not aware that these activities might give bank employees a claim for damages for breach of their contracts of employment. In Mahmud v Bank of Credit and Commerce International SA [1998] AC 20 the House developed or, put more bluntly, changed the law. The House decided that, as a matter of law, corrupt and dishonest activities by an employer are capable of giving rise to a claim in damages. But that decision was in June 1997, seven years after Mr Naeem had signed his release form. In these circumstances there can be no question of BCCI having indulged in anything approaching sharp practice in this case. This being so, I prefer to leave discussion of the route by which the law provides a remedy where there has been sharp practice to a case where that issue arises for decision. That there is a remedy in such cases I do not for one moment doubt.

The present case

    34. I turn to the interpretation of the release signed by Mr Naeem. Clearly, BCCI and Mr Naeem are to be regarded as having intended not to confine the release signed by Mr Naeem to known claims. Specific payments were made in settlement in full of all known claims. Mr Naeem's redundancy package comprised four weeks' pay, an ex gratia payment equal to two weeks' pay, three weeks' pay in lieu of notice, and statutory redundancy pay. These items totalled £7,138. An additional amount, equal to a further one month's pay, £2,772, was paid in exchange for his signing the general release (ACAS form COT 3). Plainly, the general release was intended to 'mop up' any other claims which Mr Naeem might have. BCCI was making a specific additional payment in order to be rid of the possibility of having to face any further claims from Mr Naeem. Unfair dismissal is the most obvious example. The release specifically mentioned any application Mr Naeem could make to the industrial tribunal. But the release is not confined to a claim for unfair dismissal. It would include also matters such as a claim for wrongful dismissal.

    35. Equally clearly the release is confined to claims arising out of the employment relationship. The release cannot reasonably be regarded as embracing any claim the employee might have as a depositor or borrower. I am inclined to think that the release is to be construed even more narrowly as restricted to claims arising out of the ending of the employment relationship. What if it later came to light that due to a clerical error Mr Naeem had been significantly underpaid while employed? It would be surprising if Mr Naeem could not pursue such a claim. Whether this is so or not, I consider these parties are to be taken to have contracted on the basis of the law as it then stood. To my mind there is something inherently unattractive in treating these parties as having intended to include within the release a claim which, as a matter of law, did not then exist and whose existence could not then have been foreseen. This employee signed an informal release when he lost his job, in return for an additional month's pay. The ambit of the release should be kept within reasonable bounds. Mr Naeem cannot reasonably be regarded as having taken upon himself the risk of a subsequent retrospective change in the law. A claim arising out of such a change cannot be regarded as having been within the contemplation of the parties. I too would dismiss this appeal.


My Lords,

    36. I have had the advantage of reading in draft the speech of my noble and learned friend Lord Bingham of Cornhill and I gratefully adopt his statement of the facts. There are two issues in this case. First, does the respondent's claim fall within the description of claims which he agreed to release? If it does, then the second point is whether in the circumstances BCCI is entitled to rely upon the agreement.

37. I agree with my noble and learned friend that the first issue raises an ordinary question of construction. What would a reasonable person have understood the parties to mean by using the language of the document against all the background which would reasonably have been available to them at the time? But I regret that I cannot agree with his answer. It appears to me to give too little weight to the actual language and background and to rely unduly upon the expressions of judges used in other cases dealing with different documents.

    38. The language of the document is very wide. The impression it conveys is that the draftsman meant business. He has gone to some trouble to avoid leaving anything out. He uses traditional style: pairs of words like "full and final settlement", "all or any claims", "that exist or may exist" and phrases like "whether under statute, common law or in equity" and "of whatsoever nature". Admittedly, he could have gone further. Tudor Grange Holdings Ltd v Citibank NA [1992] Ch 53, 57 contains an even more elaborate release and I have seen American documents in which the release covers an entire page. But most people in this country would regard this as overkill. The modern English tradition, while still erring on the side of caution, is to avoid the grosser excesses of verbiage and trust to the judges to use common sense to get the message. I think that this tendency should be encouraged. So I think that anyone who was simply reading the document without preconceptions would accept that the draftsman was not leaving deliberate gaps. It does not however follow that the language was to be read completely literally. There may be limitations in scope to be inferred from the background, limitations from context which the draftsman may have thought too obvious to mention. But that is a different matter from saying that he did not use enough words.

    39. The background is however very important. I should in passing say that when, in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 913, I said that the admissible background included "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man", I did not think it necessary to emphasise that I meant anything which a reasonable man would have regarded as relevant. I was merely saying that there is no conceptual limit to what can be regarded as background. It is not, for example, confined to the factual background but can include the state of the law (as in cases in which one takes into account that the parties are unlikely to have intended to agree to something unlawful or legally ineffective) or proved common assumptions which were in fact quite mistaken. But the primary source for understanding what the parties meant is their language interpreted in accordance with conventional usage: "we do not easily accept that people have made linguistic mistakes, particularly in formal documents". I was certainly not encouraging a trawl through "background" which could not have made a reasonable person think that the parties must have departed from conventional usage.

    40. What is the relevant background in this case? To start with, there are three matters to which I attach considerable importance. First, there was no dispute between the parties. No doubt Mr Naeem and his union were opposed to the whole idea of making him redundant. But, given that he was being made redundant, there was no dispute about the legal consequences. Mr Naeem had a claim to salary in lieu of notice and redundancy pay which BCCI did not contest. Secondly, there was no element of compromise. All his claims known to the parties were paid in full; in fact, more than in full because there was an ex gratia increase over the statutory redundancy pay. Thirdly, the release was not simply in consideration of a settlement or compromise. It was not, as often happens, a mere ancillary tidying up. BCCI paid a separate consideration of some £2,700 specifically for the release.

    41. The absence of a dispute is important because most of the authorities on the construction of releases concern documents which were intended to settle disputes. In such a case, the scope of the dispute provides a limiting background context to the document. It is easy to infer that although the parties used very wide language - "all claims" and so forth - they meant all claims arising out of the matters in dispute. It would go without saying that they were not intending to include claims of an altogether different character. A good example is the decision of the House of Lords in Directory of the London and South Western Railway Co v Blackmore, LR 4 HL 610. In 1861 the railway company used its statutory powers to buy some of Mr Blackmore's land for railway purposes. In 1864 they had a dispute over their boundary. This was settled by an agreement that he should build a wall to be maintained at their joint expense. The agreement included a release of claims in general terms. In 1866 the railway company decided that it did not need the land it had taken and proposed to sell it as surplus land. Mr Blackmore claimed that, as the person from whom it had been taken, he had a statutory right of pre-emption under the Land Clauses Consolidation Act 1845. The railway company argued (rather faintly, it would seem, by their second counsel) that it fell within the description of claims which he surrendered when settling the boundary dispute. Lord Hatherley LC, who gave the leading judgment, did not even bother to address this point. Lord Westbury picked it up. He said, at p 623:

    "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."

    42. This is rather a sweeping statement. It is almost always dangerous to say "always". But, in cases of a release given in connection with the settlement of a dispute, it is a fair generalisation.

    43. There may also be cases in which there is no dispute but the parties enter into a compromise of undisputed claims. This happens when an insolvent debtor enters into a composition with his creditors. In such a case, an ancillary release is also likely to be construed as releasing any further claim on the debts which are being compromised but not as extending to claims which did not fall within the terms of the composition. The best example is Lyall v Edwards, 6 H & N 337. Edwards and Matthie were East India and colonial brokers who suspended payment and entered into a compromise with their creditors, including the plaintiffs. The creditors agreed by a deed of composition that the assets of the partnership should be realised, a dividend paid to creditors and the defendants then given a release in general terms. After executing the deed, the plaintiffs found that they had a claim for the conversion of 22 chests of indigo of which they had not known and for which they had not claimed in the composition. The Court of Exchequer held that a replication in these terms was a good answer to the plea of release. Martin B said, at p 347:

    "The replication is founded on the equitable doctrine that if a release is given for a particular purpose, and it is understood by the parties that its operation is to be limited to that purpose, but it turns out that the terms of the release are more extensive than was intended, a court of equity will interfere and confine it to that which was in the contemplation of the parties at the time it was executed."

    44. I shall have to come back later to the question of why Martin B calls this an "equitable doctrine" rather than an illustration of the general proposition that language always takes meaning from context. It requires a certain amount of historical explanation. But nowadays, if the context satisfies the court that a release was "understood by the parties...to be limited" in some way, then that, as an ordinary matter of construction, is what the document means. The decision in Lyall v Edwards makes perfectly good sense as an example of contextual construction.

    45. In the present case, however, there is no context of a particular dispute being settled or particular claims being compromised. So the generalisations in Directors of the London and South Western Railway Co v Blackmore, (1870) LR 4 HL 610 and Lyall v Edwards, 6 H & N 337 are of little assistance. We are dealing with similar forms of words, but in a radically different situation. Nevertheless, although there was no dispute or compromise, that does not mean that there was no context whatever. The parties were making an agreement for the termination of Mr Naeem's employment. One would therefore expect that when the release referred to all his claims, it meant claims arising out of the employment relationship. He agreed that he would not make any claims in his capacity as a former employee. I doubt, however, whether a reasonable person would have understood the parties to be dealing with claims he might coincidentally have in some other capacity - for example, as a depositor with the bank.

    46. It may also be that a reasonable person would regard the release as applicable only to financial claims and not, for example, to claims for personal injury. This is a rather more difficult question, on which there is something to be said on both sides, and I shall return to it later. But what seems to me quite impossible is to exclude financial claims arising out of the employment relationship on the grounds that they were unknown, or not within the specific contemplation of the parties. Not only is there no context of compromise or dispute which suggests this, but there is an extremely strong indication which points the other way.

    47. The counter-indication, as it seems to me, is the fact that after payment of the known claims in full, BCCI paid £2,772.50 specifically for the release in the COT-3 form. This may be taken as representative of the sums paid to the 900 employees who were made redundant. So BCCI paid some £2.5m for the releases. The reasonable man is bound to ask himself: what was it paying for? If it was intended that the release should be confined to claims within the contemplation of the parties, it was getting no consideration whatever. Why did it bother to insist on the forms being signed? In my view, one of the first principles of construction is to try to give some business sense to the agreement. To exclude unknown claims makes the release nonsensical. Nor do I think it is realistic to attribute to the parties an intention to make fine distinctions between different kinds of unknown claims; for example, between those which were conceivable but not conceived of and those which (perhaps because of what was then thought to be the law) were not even conceivable. To regard such claims as nevertheless included in the class of those released does not seem to me extravagant. On the contrary, the more improbable the claim, the more likely it is that the reasonable employee would be willing to part with it for ready money. And the construction gives effect to the object of BCCI, which must have been to draw a final line under the employment relationship.

    48. For these reasons, I think that Miss Booth, who appeared for Mr Naeem before Lightman J [1999] ICR 1068, was realistic and right to concede that as a matter of construction her client's claim fell within the terms of the release. Lightman J proceeded on this assumption. A majority of the Court of Appeal [2000] ICR 1410 also thought that she was right. I think that even Sir Richard Scott V-C accepted that, as a matter of objective construction, giving the document the meaning it would have conveyed to a reasonable man aware of all the background available to the parties, the claim was covered by the release. But he laid stress on matters which were known to only one of the parties, namely the knowledge by the higher management of the BCCI fraud and their knowledge that Mr Naeem and other employees were unaware of it. He said, in paragraph 30, at p 1421:

    "In a case such as the present, in which Mr Naeem was unaware of the facts but BCCI was aware of them and was aware of Mr Naeem's ignorance, a conclusion on construction which attributed to the parties an objectively ascertained intention that the COT-3 release should bar the 'stigma' claim would reward dishonesty at the expense of the innocent. The only honest intention that BCCI could have had in the circumstances of this case would have been an intention that left the stigma claim outside the scope of the COT-3 release."

    49. I read this passage as meaning that on ordinary principles of objective construction, Mr Naeem's claim was barred, but that BCCI's knowledge and conduct made it inequitable, wrong, unfair, for BCCI to rely on that construction. This is an argument with which I shall in due course have to deal, but it does not go to the first question I identified at the beginning of my speech - the question of what the document means. It goes to the second question - whether BCCI is entitled to rely upon the document. It would be contrary to basic principles of construction for the meaning of a document to be affected by facts which were known to one party but not reasonably available to the other.

    50. The main contrary argument which Mr Allen put before your Lordships was an argument based on authority. He referred the House to a number of cases, going back to the 18th century, from which he culled general statements much along the lines of those which I have already cited from Directors of the London and South Western Railway Co v Blackmore, LR 4 HL 610 and Lyall v Edwards, 6 H & N 337. From these he invited your Lordships to hold that there was a general presumption that, in the absence of what were described as "clear words to the contrary", general words of release would be confined to matters which were within the specific contemplation of the parties. And he urged your Lordships to adopt this construction even in a case in which there were obviously no claims within the specific contemplation of the parties.

    51. My Lords, I have a number of difficulties with this argument, the first of which goes to the root of the process of interpretation. If interpretation is the quest to discover what a reasonable man would have understood specific parties to have meant by the use of specific language in a specific situation at a specific time and place, how can that be affected by authority? How can the question of what a reasonable man in 1990 would have thought BCCI and Mr Naeem meant by using the language of an Acas form be answered by examining what Lord Keeper Henley said in 1758 (Salkeld v Vernon, 1 Eden 64? I can understand that if parties in a legal context use words in what appears to have been a technical sense, it may be necessary to ascertain that technical meaning from authorities. But there is nothing of that kind here.

    52. My second difficulty is that Mr Allen's citations of authority were almost entirely context-free. He read a number of general statements of the kind which I have already cited without inviting your Lordships to examine in any detail the facts of the cases in which they were made. But that does not seem to me a proper use of authority. The remarks of judges, however general, have to be read in context no less than the general words of contractual documents. Let me add to the two cases I have already mentioned another containing remarks upon which Mr Allen particularly relied. In Ramsden v Hylton, 2 VesSen 304 John Hylton married the daughter of Sir Richard Musgrave in 1693 and the Musgrave family provided £2,000 for a marriage settlement. The trusts after the deaths of the husband and wife were to any sons in tail male and in default of male issue to trustees to create a portions term to raise £8,000 for portions for any daughters. John Hylton died in 1707 leaving two sons and four daughters. Both sons died without issue, so the trusts to raise portions for the daughters took effect. But no one had been aware of the terms of the settlement. It was found among some family papers after the death of the second son, also called John. Until then it had been assumed that the elder son and then John were absolutely entitled to the settled property. When the settlement was found, the daughters claimed their portions. As against one of the daughters, John's estate pleaded a release in general terms contained in a deed made between her and John in 1728. The background to the deed was that John had owed his sister £1,000 under a family testamentary disposition and had given a bond for £2,000 as security. By the deed, she agreed to give up the bond and accept a mortgage over the settled estate, which everyone assumed to belong to John. The release stated that she accepted the mortgage in satisfaction of all her claims against him. This was the context in which Lord Hardwicke LC said, at p 310:

    "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 (Cole v Gibson, 1 VesSen 507), which was under the contemplation of the parties, and intended to be released. The particular point in consideration was not relative to this estate, but what they could have against him as representative to his mother, brother, or father's personal estate, to which the words are particularly confined. 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."

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