Bank of Credit and Commerce International SA ((in Liquidation)) v Ali (No. 1)

JurisdictionEngland & Wales
CourtHouse of Lords
Judgment Date01 March 2001
Neutral Citation[2001] UKHL 8
Date01 March 2001

[2001] UKHL 8


Lord Bingham of Cornhill

Lord Browne-Wilkinson

Lord Nicholls of Birkenhead

Lord Hoffmann

Lord Clyde

Bank of Credit and Commerce International Sa
(In Compulsory Liquidation) (Appellants)
Munawar Ali
Sultana Runi Khan

and Others


My Lords,


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.


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.


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.


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.


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.


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."


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.


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.


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...

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