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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    53. So in this case there was a particular context, namely the testamentary claim of the daughter, which limited the scope of the release. Like all the other cases, Ramsden v Hylton makes good sense in terms of ascertaining contextual meaning.

    54. It would be wearisome to take your Lordships through all the other cases upon which Mr Allen relied. But I think it is worth pausing at this point to consider why it has been possible for Mr Allen to compile, from cases decided in contexts far removed from the present, an anthology of dicta which appear to lay down generally applicable rules of construction. It is not easy to recover the intellectual background against which the 18th and even 19th century judges decided questions of construction and this is not the place for a detailed historical inquiry. What is, I think, beyond dispute is that their approach was far more literal and less sensitive to context than ours today. Courts were reluctant to admit what was called "extrinsic evidence", that is to say, evidence of background which would put the language into context. This reluctance has to do with a number of factors which are now of purely historical interest, such as trial by jury, under which the construction of documents was treated as a matter of law for the judge, the incompetence of the parties and persons interested to give evidence, the fact that most documents which came before the courts were deeds prepared by lawyers and a general feeling that the less the court took account of extrinsic evidence, the more predictable would be the construction which it gave to the document. As Popham CJ said in the Countess of Rutland's Case (1604) 5 CoRep 26a:

    "It would be inconvenient that matters in writing made by advice and on consideration and which finally important the certain truth of the agreement between the parties should be controlled by averment of the parties to be proved by the uncertain testimony of slippery memory."

    55. In this pursuit of certainty the courts, of both common law and equity, evolved what were called "rules of construction", by which certain words or expressions were treated, in the absence of contrary language, as having certain meanings. These rules no doubt reflected what in most cases the parties would have intended by using such language. And in the case of documents drawn up by lawyers, the skilled draftsman would be aware of the rules of construction and navigate their reefs and shoals to give effect to the intention of the parties, settlor or testator. But the generality with which they were expressed and their insensitivity to context, as opposed to the particular words which had been used, made them rigid and often productive of injustice. Books like Jarman on Wills are monuments to the rules of construction and a melancholy record of the occasions on which they have defeated the intentions of testators.

    56. It was this way of thinking which led 18th and 19th century judges to explain their decisions in cases like Ramsden v Hylton, 2 VesSen 304 as based upon rules of construction rather than simply an interpretation of language in its context and why Martin B in Lyall v Edwards, 6 H & N 337 thought it necessary to say, not merely that the parties did not intend the release to apply to claims outside the composition, but that his interpretation was based upon an "equitable doctrine".

    57. It was however unusual, even in the 19th century, for commercial documents to be interpreted according to rules of construction. The quest for certainty, which still dominated the construction of wills and deeds, was thought less important than the need to give effect to the actual commercial purpose of the document. There was however one remarkable example in the 20th century of a rule of construction being evolved by the courts in a commercial context. This was the rule for construing exemption clauses. But the purpose was different from that of most of the rules applied to wills and deeds. It was not to promote certainty of construction but to remedy the unfairness which exemption clauses could create. As Mr Allen also contended for a rule of construction on grounds of fairness, I think that the story of the rise and fall of the rule of construction for exemption clauses may be instructive.

    58. A vivid account of what happened was given by Lord Denning MR in George Mitchell (Chesterhall) Ltd v Finney Lock Seeds Ltd [1983] QB 284, 296-297:

    "None of you nowadays will remember the trouble we had - when I was called to the Bar - with exemption clauses. They were printed in small print on the back of tickets and order forms and invoices. They were contained in catalogues or timetables. They were held to be binding on any person who took them without objection. No one ever did object. He never read them or knew what was in them. No matter how unreasonable they were, he was bound. All this was done in the name of 'freedom of contract.' But the freedom was all on the side of the big concern which had the use of the printing press. No freedom for the little man who took the ticket or order form or invoice. The big concern said, 'Take it or leave it.' The little man had no option but to take it. The big concern could and did exempt itself from liability in its own interest without regard to the little man. It got away with it time after time. When the courts said to the big concern, 'You must put it in clear words,' the big concern had no hesitation in doing so. It knew well that the little man would never read the exemption clauses or understand them. . .

    "Faced with this abuse of power - by the strong against the weak - by the use of the small print of the conditions - the judges did what they could to put a curb upon it. They still had before them the idol, 'freedom of contract.' They still knelt down and worshipped it, but they concealed under their cloaks a secret weapon. They used it to stab the idol in the back. This weapon was called 'the true construction of the contract.' They used it with great skill and ingenuity. They used it so as to depart from the natural meaning of the words of the exemption clause and to put upon them a strained and unnatural construction. In case after case, they said that the words were not strong enough to give the big concern exemption from liability; or that in the circumstances the big concern was not entitled to rely on the exemption clause. If a ship deviated from the contractual voyage, the owner could not rely on the exemption clause. If a warehouseman stored the goods in the wrong warehouse, he could not pray in aid the limitation clause. If the seller supplied goods different in kind from those contracted for, he could not rely on any exemption from liability. If a shipowner delivered goods to a person without production of the bill of lading, he could not escape responsibility by reference to an exemption clause. In short, whenever the wide words - in their natural meaning - would give rise to an unreasonable result, the judges either rejected them as repugnant to the main purpose of the contract, or else cut them down to size in order to produce a reasonable result."

    59. Lord Denning went on, at pp 298-299 to explain that everything had now changed as a result of the passing of the Unfair Contract Terms Act 1977. "We should no longer have to go through all kinds of gymnastic contortions to get round them". A few years earlier, in Photo Production Ltd v Securicor Transport Ltd [1980] AC 827, 843 Lord Wilberforce had said much the same thing:

    "There was a large number of problems, productive of injustice, in which it was worse than unsatisfactory to leave exception clauses to operate. Lord Reid referred to these in Suisse Atlantique Société d'Armement Maritime SA v NV Rotterdamsche Kolen Centrale [1967] 1 AC 361, 406, pointing out at the same time that the doctrine of fundamental breach was a dubious specific. But since then Parliament has taken a hand: it has passed the Unfair Contract Terms Act 1977. This Act applies to consumer contracts and those based on standard terms and enables exception clauses to be applied with regard to what is just and reasonable. It is significant that Parliament refrained from legislating over the whole field of contract. After this Act, in commercial matters generally, when the parties are not of unequal bargaining power, and when risks are normally borne by insurance, not only is the case for judicial intervention undemonstrated, but there is everything to be said, and this seems to have been Parliament's intention, for leaving the parties free to apportion the risks as they think fit and for respecting their decisions."

    60. My Lords, the lesson which I would draw from the development of the rules for construing exemption clauses is that the judicial creativity, bordering on judicial legislation, which the application of that doctrine involved is a desperate remedy, to be invoked only if it is necessary to remedy a widespread injustice. Otherwise there is much to be said for giving effect to what on ordinary principles of construction the parties agreed.

    61. Whether such a rule of construction is necessary in this case can best be considered after I have dealt with the second point, namely whether BCCI is precluded on grounds of fairness and equity from relying upon the ordinary meaning of the release. It will then be possible to say whether the law is adequate to deal with cases of unfairness, so as to make it unnecessary to approach the matter by an artificial rule of construction. When judges say that "in the absence of clear words" they would be unwilling to construe a document to mean something, they generally mean (as they did in the case of exemption clauses) that the effect of the document is unfair. It will therefore be essential to examine whether this is true of the present case.

    62. The disappearance of artificial rules for the construction of exemption clauses seems to me in accordance with the general trend in matters of construction, which has been to try to assimilate judicial techniques of construction to those which would be used by a reasonable speaker of the language in the interpretation of any serious utterance in ordinary life. In Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, 912, I said with the concurrence of three other members of the House: "Almost all the old intellectual baggage of 'legal' interpretation has been discarded". But if Mr Allen's submissions on the rules of construction are accepted, a substantial piece of baggage will have been retrieved. Lord Keeper Henley's ghost (Salkeld v Vernon, 1 Eden 64) will have struck back. I think it would be an unfortunate retreat into formalism if the outcome of this case were to require employers using the services of Acas to add verbiage to the form of release in order to attain the comprehensiveness which it is obviously intended to achieve.

    63. Before leaving the question of construction, I must deal with some subsidiary arguments which Mr Allen made. The first was what I might call the all-or-nothing argument. If I have understood it correctly, it went as follows. BCCI's construction depends upon a literal reading of the release clause. It involves reading any claim to mean absolutely any claim whatever. But BCCI concedes that context would almost certainly limit the clause to claims arising out of the employment relationship. In so doing, they have sold the pass and allowed Mr Naeem to put forward a different principle of limitation for which the context provides no support - indeed, which the separate consideration for the release actually contradicts - namely that it does not apply to claims which were unknown to the parties, or at any rate those which were entirely unknown or unimaginable. A similar argument is advanced on the basis of the concession that it was arguable that the release did not apply to personal injury claims. I find it difficult to deal with this argument because it seems to me so entirely irrational.

    64. The following conversation may be imagined. A motorist is stopped by a park warden driving down a road which is signposted "No cars allowed". He says "But I am driving a green car". The warden points out that it is nevertheless a car. The motorist says "But the words cannot be read literally. Do you suggest that they forbid children's toy cars?" The warden concedes that the context suggests a prohibition for the protection of pedestrians frequenting the park and that it does not apply to toy cars. "And what about police cars going to an emergency? Surely there is an implied exception for emergency vehicles?" "Yes, perhaps there is". "Well then" says the motorist "if it cannot be read literally, why should it apply to green cars?"

    65. The fact is that BCCI is not contending for a literal meaning. It is contending for a contextual meaning, but submitting that while the context excludes claims outside the employee relationship, it includes unknown claims. As for personal injuries, I agree with Mr Jeans who appeared for BCCI that this is a debatable area. Mr Allen, who has considerable experience of the use of the COT-3 form, told us that in industries in which long-term industrial injury claims are common, it is customary to have a specific clause excluding personal injury claims from the release. This would suggest that the parties otherwise expect that they would or might be caught by the general words. I am not sure that Mr Naeem would have been entitled to bring a claim after leaving his employment on the ground that he was suffering from repetitive strain injury caused by his use of the BCCI computer. BCCI might be entitled to say that it paid the extra money in return for not having to hear from Mr Naeem in his capacity as employee again. If, however, a court decided that it did not come within the class of claims released, it would not be on the ground that it had not been known at the time to the parties. On the contrary, one would be much more likely to conclude that the parties intended to exclude such a claim from the release if it was known to the parties. If both parties knew that Mr Naeem had a personal injury claim which was potentially worth, say, £30,000, the court would be reluctant to interpret the agreement as amounting to its release in consideration of less than £3,000. But the principle of exclusion would have to be that personal injury claims, as such, were outside the scope of the agreement. It would not support the exclusion of claims for some entirely different reason.

    66. Another suggestion was that the clause should not be construe to release claims arising out of a wrongful act of BCCI. This was put forward by analogy with the construction of exemption clauses, on which there is authority for saying that they should prima facie not be read to exempt a contracting party from liability for negligence. I have already referred to the change which has taken place in the court's approach to exemption clauses. But in any case, there seems to me no real analogy. The reason for the traditional hostility of the courts to exemption clauses was that they often amounted to taking with one hand what had been given with the other. A contracting party undertook various obligations and then provided that he was not to be liable if he failed to perform them. But the release in this case is quite different. BCCI is paying a sum of money specifically to buy its release from any possible future claim by the employee. If there was such a claim, it was almost bound to be founded upon some wrongful act of BCCI - a breach of contract or statutory obligation, or else a tort. It is hard to imagine what other kind of claim there could be. So the release involved the employee taking a sum of money in return for giving up the speculative possibility that he might have such a claim. This has nothing in common with an exemption clause.

    67. Finally it was submitted that although, for the reasons I have advanced, the release applied to unknown claims, it should not be read as applying to claims of which the employer actually knew, and in particular claims which he knew were unknown to the employee. There are two forms in which this argument can be put. One, as I have already said, was that adopted by Sir Richard Scott V-C [2000] ICR 1410. It involved relying as background upon the actual fact that BCCI knew of its own misconduct and knew that it was unknown to the employee. But these facts, whatever argument they may support to preclude BCCI from relying on the agreement, cannot affect its construction. They are not admissible background. An alternative is to put the proposition in general terms: no release of unknown claims should be construed to extend to claims which were known to the party obtaining the benefit of the release but not to the other party. My difficulty with this proposition is, that it involves another artificial rule of construction. In view of the principles upon which the beneficiary of a release can be precluded from relying upon it because he has been guilty of sharp practice, to which I shall in a moment refer, I think that it is unnecessary to create such a rule of construction. There is again an analogy with exemption clauses and the 1977 Act.

    68. My Lords, I turn now to the question of whether BCCI is entitled to rely upon the terms of the release. Mr Jeans said that BCCI was under no obligation to disclose to Mr Naeem that it had been guilty of breaches of the implied term of trust and confidence in the contract of employment. The House of Lords decided in Bell v Lever Brothers Ltd [1932] AC 161 that the employment relationship was not a contract uberrimae fidei and that an employee negotiating the terms upon which his employment would be terminated had no obligation to disclose to the employer that he had been guilty of conduct which would have justified his summary dismissal. The same must be true of an employer.

    69. My Lords, I think that this argument presses the principle in Bell v Lever Brothers Ltd too far. It was not a case which concerned a general release. A transaction in which one party agrees in general terms to release another from any claims upon him has special features. It is not difficult to imply an obligation upon the beneficiary of such a release to disclose the existence of claims of which he actually knows and which he also realises may not be known to the other party. There are different ways in which it can be put. One may say, for example, that inviting a person to enter into a release in general terms implies a representation that one is not aware of any specific claims which the other party may not know about. That would preserve the purity of the principle that there is no positive duty of disclosure. Or one could say, as the old Chancery judges did, that reliance upon such a release is against conscience when the beneficiary has been guilty of a suppressio veri or suggestio falsi. On a principle of law like this, I think it is legitimate to go back to authority, to Lord Keeper Henley in Salkeld v Vernon, 1 Eden 64, 69, where he said: "no rule is better established than that every deed obtained on suggestio falsi, or suppressio veri, is an imposition in a court of conscience".

    70. In principle, therefore, I agree with what I consider Sir Richard Scott V-C [2000] ICR 1410, 1421 to have meant in the passage in paragraph 30 of his judgment which I have quoted (ante, paragraph 11), and with Chadwick LJ, that a person cannot be allowed to rely upon a release in general terms if he knew that the other party had a claim and knew that the other party was not aware that he had a claim. I do not propose any wider principle: there is obviously room in the dealings of the market for legitimately taking advantage of the known ignorance of the other party. But, both on principle and authority, I think that a release of rights is a situation in which the court should not allow a party to do so. On the other hand, if the context shows that the parties intended a general release for good consideration of rights unknown to both of them, I can see nothing unfair in such a transaction.

    71. It follows that in my opinion the principle that a party to a general release cannot take advantage of a suggestio falsi or suppressio veri, in other words, of what would ordinarily be regarded as sharp practice, is sufficient to deal with any unfairness which may be caused by such releases. There is no need to try to fill a gap by giving them an artificial construction.

72. I am therefore in complete agreement with Chadwick LJ on both the construction of the document and the principles which determine whether or not BCCI may rely upon it. Where I respectfully part company from him is on the application of the law to the facts. In my opinion, there are no grounds for holding that in July 1990 BCCI knew that Mr Naeem had or might have a claim for stigma against the bank of which he himself was unaware. The representative of the bank who negotiated the agreement was also unaware of the central fraud, but I shall for present purposes assume that the knowledge of the higher management should be attributed to BCCI. The bank would therefore have known that it had been continuously in breach of its implied obligation of trust and confidence. But that breach had not caused any damage to Mr Naeem in the past and there was nothing to suggest that, now that he was leaving the bank, it would give rise to a claim in the future. The bank was going to go on trading from Abu Dhabi and did not contemplate an imminent disclosure of the fraud which might affect Mr Naeem's prospects of re-employment. And even if BCCI knew or ought to have known that such might be the case, any lawyer whom it consulted in 1990 would have advised that such consequences were too remote to form the subject matter of a claim. It was not until Bank of Credit and Commerce International SA Mahmud v BCCI [1998] 2 AC 20 that it would have occurred to anyone. So the concealment of the central fraud was extremely reprehensible conduct in relation to the depositors and the public at large, but there was no reason to think it in any way relevant to the bank's dealings with Mr Naeem in 1990. Accordingly I do not think that a case of suppressio veri as been made out.

    73. It follows that in my opinion the stigma claim falls within the description of claims which Mr Naeem agreed to release and there is no reason why BCCI should not rely upon the release. My Lords, I do not think that there is any injustice in this result. Of course I sympathise with Mr Naeem, who, after a long and unblemished career in banking in Pakistan and then, from 1974, in this country, found himself made redundant at the difficult age of 49. But this is regrettably a very common occurrence. The claim that his subsequent difficulties in finding another job are attributable to his having worked for BCCI is however extremely speculative. In Mahmud's case, at p 53 Lord Steyn drew attention to the formidable practical obstacles to such a claim presented by the limiting principles of causation, remoteness and mitigation. So it has turned out. In 1999 Lightman J. tried five representative cases out of the 369 which had been commenced by former BCCI employees. None of them succeeded in proving that his unemployment was attributable to stigma. Four of the cases tried by Lightman J. appear to have concerned employees who were dismissed by the liquidators when the bank collapsed in 1991. By contrast, Mr Naeem and the others made redundant in 1990 face the additional hurdle of having to explain why their unemployment is attributable to stigma when they were unable to find jobs for a year before any stigma attached to them. The present position is that this vastly expensive litigation, which has been twice to the House of Lords and given rise to two lengthy trials before Lightman J, has produced benefits for no one except the lawyers involved and has been at the expense, not of the fraudulent villains but of the public and the unfortunate creditors of BCCI.

    74. Mr Naeem says that despite all his difficulties, he should be entitled to have his day in court. He should not be struck out merely because he accepted £2,772 for a general release in 1990. In Mahmud's case Lord Nicholls of Birkenhead said, at pp 41-42, that he was:

    "conscious that the outcome of the present appeals may be seen by some as opening the door to speculative claims, to the detriment of admitted creditors. Claims of handicap in the labour market, and the other ingredients of the cause of action now under consideration, may give rise to lengthy and costly investigations and, ultimately, litigation. If the claims eventually fail, liquidators may well be unable to recover their costs from the former employees . . . I am aware of the dangers here, but it could not be right to allow 'floodgates' arguments of this nature to stand in the way of claims which, as a matter of ordinary legal principle, are well founded."

75. In general, I would respectfully agree. Justice is a matter of individual right which cannot be subjected to an ordinary utilitarian calculation. But there are limits. There are some people who assume that life itself is literally priceless; that no expense for the purpose of saving a life can possibly be too much. But the fact is that resources even for these purposes are not unlimited. Choices have to be made: see the judgment of Sir Thomas Bingham MR in R v Cambridge Health Authority, Ex parte B [1995] 1 WLR 898. Similarly there comes a point at which the object of achieving perfect justice for everyone has to be tempered by some consideration of the resources required to investigate every possible claim. In the present case, this point does not arise. The House has decided that the stigma claims should go forward and so they must. But I see no reason in justice to add to the expense by giving the language of the release a strained construction which will require BCCI to answer claims from which it paid to be free.

    76. I would allow the appeal and restore the judgment of Lightman J.


My Lords,

    77. This case seems to me primarily to involve a question of construction. On 4 July 1990 Mr Naeem signed a formal agreement with the appellant bank. The agreement was typed on a printed form, headed "Advisory Conciliation and Arbitration Service." It bears the reference COT-3. From the provision for a "Tribunal case number" and the descriptive headings to the agreement the form appears to have been intended for use in connection with applications made or about to be made to the industrial tribunal. After specifying the parties to the agreement the printed text states "Settlement reached as a result of conciliation action". But these parts of the form are not of immediate relevance. The critical words are:

    "The applicant 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 pension scheme."

The documents attached appear to have been a statement of "redundancy disbursements" and a statement of "redundancy package calculation".

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