Bank of Credit and Commerce International SA (in Compulsory Liquidation) v. (1) Munawar Ali, (2) Sultana Runi Khan and Others [2001] UKHL 8

House of Lords

[2001] UKHL 8

Between

Bank of Credit and Commerce International SA (in Compulsory Liquidation)Appellant

(1) Munawar Ali, (2) Sultana Runi Khan and OthersRespondent

Before

Lord Bingham of Cornhill

Lord Browne-Wilkinson

Lord Nicholls of Birkenhead

Lord Hoffmann

Lord Clyde

Date 1 March 2001

[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. LORD BROWNE-WILKINSON 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. LORD NICHOLLS OF BIRKENHEAD 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.'

[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. LORD HOFFMANN 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 L ondon 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,

[51]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 th

[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,

[60]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,

[68]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,

[69]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. LORD CLYDE 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".

[78]In the construction of any agreement the problem for a court is to determine:

"the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract"

. Investors Compensation Scheme Ltd v West Bromwich Building Society

[1998] 1 WLR 896

, 912, per Lord Hoffmann. The knowledge reasonably available to them must include matters of law as well as matters of fact. The problem is not resolved by asking the parties what they thought they intended. It is the imputed intention of the parties that the court is concerned to ascertain. The parties may well have never applied their minds to the particular eventuality which has subsequently arisen, so that they may never in fact have had any conscious intention in relation to that eventuality. It is an objective approach which is required and a solution should be found which is both reasonable and realistic. The meaning of the agreement is to be discovered from the words which they have used read in the context of the circumstances in which they made the agreement. The exercise is not one where there are strict rules, but one where the solution is to be found by considering the language used by the parties against the background of the surrounding circumstances.

[79]I agree with the view expressed in the Court of Appeal

[2000] ICR 1410

that there are no "rules of equitable construction". Such guides to construction as have been identified in the past should not be allowed to constrain an approach to construction which looks to commercial reality or common sense. If they are elevated to anything approaching the status of rules they would deservedly be regarded as impedimenta in the task of construction. But they may be seen as reflections upon the way in which people may ordinarily be expected to express themselves. Generally people will say what they mean. Generally if they intend their agreement to cover the unknown or the unforeseeable, they will make it clear that their intention is to extend the agreement to cover such cases. If an agreement seeks to curtail the possible liabilities of one party, he, if not both of them, will generally be concerned to secure that the writing clearly covers that curtailment.

[80]On the face of it, if one were to take a strict or literal approach, the words of the agreement seem to include every claim of any kind, whether then identifiable or not, which Mr Naeem might have in any capacity against the bank at any time, then or in the future. But such a comprehensive disclaimer would in my view be a remarkable thing for him to be giving, and indeed it is not suggested that its scope does extend to such a universality. It is accepted that it does not relate to sums which Mr Naeem might have in any account which he had with the bank. So this is not a case where the plain meaning of the words can be taken as conclusive. There is then a real problem as to the precise scope of the disclaimer.

[81]At one extreme the respondents in their statement of claim argued that the agreement properly construed was a compromise in respect of their claims for statutory redundancy pay, wages in lieu of notice and unfair dismissal only. But that contention was not persisted in before Lightman J and it is clearly too narrow a solution. It fails to recognise the reference to claims at common law or in equity, and the width of the reference to claims "of whatsoever nature". On the other hand the immediate context of the form COT-3 suggests that at least at the forefront of the parties' minds were the claims which Mr Naeem might present to an industrial tribunal. Indeed Acas had been brought in to assist in the arrangements being made for the considerable number of cases where the bank was terminating employments and endeavouring to reach settlements of claims which would arise on such terminations. In the statement which had been prepared by Acas to explain the terms of the proposed settlement it was stated that Acas had been asked by the employer to "assist in reaching settlements of claims which might be made to an industrial tribunal arising out of the ending of your employment". The statement went on to explain that in return for the sum of money and other benefits which were specified in the employer's letter:

"you would agree to waive certain rights which you may have relating to possible claims to an industrial tribunal, (including unfair dismissal), or any other court."

The agreement was evidently intended to deal principally with claims which could be taken to the industrial tribunal. Hence the reference in the agreement "in particular" to claims of that kind. But the reference to claims at common law and in equity of whatsoever nature must bring in matters beyond the scope of the jurisdiction of the industrial tribunal.

[82]Claims at common law or in equity could at least include matters relating to the calculation or payment of past wages or other benefits to which the employee was entitled in terms of his contract. A claim at common law for wrongful dismissal could also be included. It seems to me that the context of the agreement is the termination of the employment and the desire of the employer to finalise any contractual debts due to the employees whose employment was being terminated together with all statutory or common law obligations arising upon the termination of the contract.

[83]Regard should also be given to the statements of redundancy disbursements and redundancy payment calculation. It appears from these documents that the basic package which the employer was offering sought to meet any claim for statutory redundancy pay and for sums due in lieu of notice. It also allowed for settlement of other obligations and debts current between the parties in respect of mortgage subsidy, outstanding season ticket loan balance, current account overdraft and certain outstanding credit card debts. These all seem to relate to a final accounting between the parties of any indebtedness by the employee towards the employer on the termination of their relationship. But the employer was evidently to remain liable to the former employee in respect of any credit balances in any account he had with the bank and in respect of the pension rights expressly mentioned in the agreement.

[84]The package also included an additional payment upon signing the form COT-3. The sum appears to have been one twelfth of the gross annual salary. Given that what the parties principally had in mind was the possibility of resort to the industrial tribunal it seems to me that an additional sum might not unreasonably be offered in order to secure finality and to avoid such a possibility. The provisions of section 140(2)(d), (e) and (g) of the Employment Protection (Consolidation) Act 1978 are relevant in this connection. By virtue of those provisions the involvement of Acas in the settlement of certain claims or potential claims to an industrial tribunal may exclude the operation of section 140(1), a section which otherwise would avoid any agreement such as the one here in issue to preclude an employee from bringing proceedings before the tribunal. The benefit which the employer might well consider worth paying a month's salary for was the security of obviating any proceedings before the tribunal arising out of the termination of the employment.

[85]The alternative is to suppose that the sum was meant to discharge all future claims whether they arose out of the termination of the employment or not. While I can accept that it was intended to exclude any claims which the employee could then have made relating to the settlement of accounts at the termination of the employment, it seems to me improbable that the parties, in the context in which they were making this agreement, were intending to cut out all future claims of any kind not related to the termination. It was not resolved in the course of the argument whether a claim for personal injury based on the negligence of the bank was meant to be covered by the agreement. I should have thought that if that had been intended , and if the amount of the month's salary was intended to cover that sort of future claim, some more specific indication of that would have been given in the terms of the agreement.

[86]But the claim which the respondent now seeks to present for stigma damages is a far more remote possibility than a claim for personal injuries on the ground of negligence. The stigma claim is one which neither party could have contemplated even as a possibility as the law stood at the time when the agreement was made. At that time it would not be known whether or not the employee would have any difficulty at all in finding alternative employment. The bank's conduct had not yet achieved the notoriety which could create the stigma. But even if those facts had been even suspected as a possibility the prospect of any liability falling on the bank to a former employee is something which must have been far beyond the reasonable contemplation of the parties. Even without formulating any definition of the precise scope of the agreement, it seems to me that if the parties had intended to cut out a claim of whose existence they could have no knowledge they would have expressed that intention in words more precise than the generalities which they in fact used. In so far as Mr Naeem may also seek to present a claim in tort for fraudulent misrepresentation inducing him to start the employment in the first place or to continue in it thereafter, while the legal basis for such a claim may not be particularly novel, the idea of such a claim at the time when the parties made the agreement at the termination of the employment seems to me correspondingly remote from what the parties might reasonably be taken in the circumstances to have contemplated.

[87]The point has been stressed that claims for stigma damages may be extraordinarily difficult of proof and while the construction which I have preferred opens the door to Mr Naeem to present the claim, the hurdles which he may yet face may be very difficult to overcome. But that is of course a consideration entirely irrelevant to the question of construction raised in this case. Having reached the view which I have on the matter of construction it is unnecessary to say anything about any equitable considerations which might operate to prevent the bank relying upon the agreement, were it wide enough to comprehend the stigma claim. I would dismiss the appeal.

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