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International SA v. Munawar Ali, Sultana Runi Khan and Others [2001] UKHL 8; [2001] 1 All ER 961; [2001] 2 WLR 735
(1st March, 2001)
URL: http://www.bailii.org/uk/cases/UKHL/2001/8.html
Cite as: [2001] 2 WLR 735, [2002] 1 AC 251, [2002] AC 251, [2001] Emp LR 359, [2001] 1 All ER 961, [2001] IRLR 292,
[2001] UKHL 8, [2001] ICR 337

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Bank of Credit and Commerce International SA v. Munawar

Ali, Sultana Runi Khan and Others [2001] UKHL 8; [2001] 1 All
ER 961; [2001] 2 WLR 735 (1st March, 2001)
HOUSE OF LORDS

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

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT

IN THE CAUSE

BANK OF CREDIT AND COMMERCE INTERNATIONAL SA (IN COMPULSORY LIQUIDATION)

(APPELLANTS)

v.

(1)

MUNAWAR ALI

(2)

SULTANA RUNI KHAN AND OTHERS

(RESPONDENTS)

ON 1 MARCH 2001

[2001] UKHL 8
LORD BINGHAM OF CORNHILL

My Lords,

1. The liquidators of the Bank of Credit and Commerce International SA appeal against a
decision of the Court of Appeal ([2000] ICR 1410) reversing a decision of Lightman J ([1999] ICR
1068). These decisions were made on an issue ordered to be tried to determine the effect, validity
and enforceability of an agreement made between the bank and certain of its employees about a
year before application was made for the winding up of the bank. Two cases were selected for trial
as test cases on this issue, but one of the cases has been compromised. Mr Naeem is thus the sole
respondent to this appeal.

2. The facts giving rise to this litigation have been agreed between the parties and are
comprehensively summarised by Lightman J in paragraph 3 in his judgment at first instance and
Chadwick LJ in paragraphs 42-49 of his judgment in the Court of Appeal. It is unnecessary to
rehearse that detailed history again. The salient facts are these. Mr Naeem was employed by the
bank in the United Kingdom from June 1985. In the spring and early summer of 1990 the bank
embarked on an extensive reorganisation of its worldwide business which made a number of its
UK employees redundant. Mr Naeem was one of these. Following consultation with the Advisory,
Conciliation and Arbitration Service ("Acas") and the employees' trade union a notice was sent to
Mr Naeem among other employees on 18 June 1990 terminating his employment on 30 June
1990. The notice said that he would receive his full notice entitlement, a statutory redundancy
payment (plus accrued holiday pay) and an ex gratia payment. A schedule was attached to the
notice summarising the payment on offer. Reference was made to potential set-offs for credit card
debts, season ticket loans and current account overdraft balances owed to the bank (in Mr
Naeem's case no such debts existed) and Mr Naeem was offered the option of receiving an
additional month's gross salary in addition to the total payment set out in the schedule if he was
willing to sign an Acas form acknowledging that the payment he would receive from the bank was
in full and final settlement. In the notice Mr Naeem was offered a meeting with an officer of Acas
and he accepted this offer.

3. The meeting took place on 4 July 1990, just after the termination of Mr Naeem's
employment. Following a short interview with an Acas official Mr Naeem signed and a
representative of the bank countersigned Acas Form COT-3 which recorded:

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

Under the agreement Mr Naeem received a total of £9,910.79, of which £2,772.50 was paid in
consideration of Mr Naeem signing the form of release. If he had not signed the form of release,
he would not have received that part of the total.

4. On 5 July 1991 application was made that the bank be wound up by the High Court. It
quickly became clear and generally known that the bank was and had for some years been
seriously insolvent and that a significant part of its business had been carried on in a corrupt and
dishonest manner. In the course of the liquidation a number of employees sought to claim (or
counterclaim) damages caused to the employees by their association with the bank, the stigma of
which association was said to handicap the employees in obtaining other employment. Such
damages were attributed to the bank's breach of an implied duty owed to the employees not to
carry on a dishonest or corrupt business. It was also contended that the employees had been
induced to work for the bank by the false representation that it was an honest and creditworthy
financial institution.

5. The liquidators rejected the employees' claims for stigma damages and damages for
misrepresentation, and their rejection of the stigma claims was upheld by the courts until, in
Mahmud v Bank of Credit and Commerce International SA [1998] AC 20, the House of Lords ruled
that such claims were sustainable in principle. A number of employees including Mr Naeem wish
to pursue such claims. The liquidators contend that Mr Naeem (the claimant chosen for the
purpose of resolving this issue) is debarred from claiming such damages by the terms of the
release which he signed on 4 July 1990.

6. In paragraph 56 of his judgment in the Court of Appeal (at page 1431 of the report)
Chadwick LJ helpfully summarised the issues and the factual setting in which they must be
resolved:

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

7. Lightman J and a majority of the Court of Appeal (Chadwick and Buxton LJJ) held that the
general language of the release was sufficiently comprehensive to embrace the claims which Mr
Naeem sought to pursue. Since all the claims known to the parties were identified and met in full,
the broad language of the release must (they held) be taken to refer to other claims, not at that
stage known or identified. Sir Richard Scott V-C took a different view. He held in paragraph 34 of
his judgment (at 1422) that the appeal should be allowed

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

Mr Naeem's appeal against Lightman J's dismissal of his claim was allowed, since all members of
the Court of Appeal held that it would in all the circumstances be unconscionable for the bank to
rely on the release in order to bar Mr Naeem's claim.
 8. I consider first the proper construction of this release. In construing this provision, as any
other contractual provision, the object of the court is to give effect to what the contracting parties
intended. To ascertain the intention of the parties the court reads the terms of the contract as a
whole, giving the words used their natural and ordinary meaning in the context of the agreement,
the parties' relationship and all the relevant facts surrounding the transaction so far as known to
the parties. To ascertain the parties' intentions the court does not of course inquire into the
parties' subjective states of mind but makes an objective judgment based on the materials already
identified. The general principles summarised by Lord Hoffmann in Investors Compensation
Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912-913 apply in a case such
as this.

9. A party may, at any rate in a compromise agreement supported by valuable consideration,

agree to release claims or rights of which he is unaware and of which he could not be aware, even
claims which could not on the facts known to the parties have been imagined, if appropriate
language is used to make plain that that is his intention. This proposition was asserted by Lord
Keeper Henley in Salkeld v Vernon (1758) 1 Eden 64, 28 ER 608, in a passage quoted in paragraph
11 below. It was endorsed by the High Court of Australia in Grant v John Grant & Sons Pty Ltd
(1954) 91 CLR 112 where Dixon CJ (speaking for himself and Fullagar, Kitto and Taylor JJ) said (at
129):

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

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

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

The Vice-Chancellor made a similar point in paragraph 19 of his judgment. This seems to me to be
both good law and good sense: it is no part of the court's function to frustrate the intentions of
contracting parties once those have been objectively ascertained.

10. But a long and in my view salutary line of authority shows that, in the absence of clear
language, the court will be very slow to infer that a party intended to surrender rights and claims
of which he was unaware and could not have been aware. In Cole v Gibson (1750) 1 VesSen. 503,
27 ER 1169, Lord Hardwicke LC said (at 507, 1171):

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

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

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

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

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

Lord Langdale MR spoke to similar effect in Lindo v Lindo (1839) 1 Beav. 496, 48 ER 1032 (at 505-
506, 1036), declining to construe general words as having an effect not contemplated by any of
the parties at the time.

12. In Lyall v Edwards (1861) 6 H & N 337, 158 ER 139, the issue was whether the terms of a
general release should be construed to cover potential claims in conversion of which the parties
(or at any rate the releasor) were unaware at the time of the agreement. Pollock CB held (at 347,
143):

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

Martin B confined himself to considering the relief which a court of equity would give if a release
executed for a limited purpose was expressed in terms more extensive than intended. Wilde B
advanced a rule of construction (at 348, 144):

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

13. This approach was echoed by Lord Westbury in Directors of the London and South Western
Railway Co v Blackmore (1870) LR 4 HL 610 at 623-624:

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

14. Ecclesiastical Commissioners for England v North Eastern Railway Co (1877) 4 ChD 845
again raised the question whether general words of release were to be held as covering claims of
which one party was unaware at the date of the agreement. Malins V-C did not consider this
question at any length in his judgment, but appears to have concluded (at 853) that the release
would have been treated as covering the claims in question had the plaintiffs known the true
facts, which they did not. In Turner v Turner (1880) 14 ChD 829 at 834 he held:

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

A similar expression of opinion is to be found in Cloutte v Storey [1911] 1 Ch 18 at 34. In Grant v

John Grant & Sons Pty Ltd, above, the High Court of Australia referred with approval to a number
of these authorities, including a statement by Sir Frederick Pollock in his Principles of Contract
(13th ed.), where he wrote:

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

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

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

15. A search of the Australian case law shows that the Grant case has been frequently cited and
relied upon. In Torrens Aloha Pty Ltd v Citibank NA (1997) 77 FCA (21 February 1997) it was held
that a waiver executed in 1987 should not be construed to cover a claim which was not the
subject of consideration by the parties at the time and would have been doomed to failure until
the High Court in effect created a new cause of action five years later.

16. Reflections of such an approach are found in the judgment of Lord Denning MR (but not
the other members of the court) in Arrale v Costain Civil Engineering Ltd [1976] 1 Lloyd's Rep 98.
The plaintiff had lost his left arm in an industrial accident in Dubai and had accepted a paltry sum
in local currency, the full sum to which he was entitled under a local ordinance, "in full satisfaction
and discharge of all claims in respect of personal injury whether now or hereafter to become
manifest arising directly or indirectly from an accident which occurred on 3 July 1998." The issue
was whether the release applied to claims for common law damages. The Master of the Rolls, in
agreement with Stephenson LJ (Geoffrey Lane LJ dissenting), held that it did not. But he also held
that if, contrary to his view, the release did cover common law claims there was no consideration
for the plaintiff's promise. As he put it (at 102):
 ". . . I would say that, if there was a true accord and satisfaction, that is to say, if Mr Dohale,
with full knowledge of his rights, freely and voluntarily agreed to accept the one sum in
discharge of all his claims, then he would not be permitted to pursue a claim at common law.
But in this case there is no evidence of a true accord at all. No one explained to Mr Dohale
that he might have a claim at common law. No one gave a thought to it. So there can have
been no agreement to release. There being no true accord, he is not barred from pursuing
his claim at common law."

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

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

Buxton LJ (in paragraph 88.4 of his judgment) agreed with the Vice-Chancellor's proposition. I also
agree with it. More than a century and a quarter have passed since the fusion of law and equity
and it would be both destructive of that great reform, and altogether anomalous, if it were not
correct. But acceptance of that proposition should not lead one to regard the authority cited
above as spent, or as a dead letter. Some of the cases, I think, contain statements more dogmatic
and unqualified than would now be acceptable, and in some of them questions of construction
and relief were treated almost indistinguishably. But I think these authorities justify the
proposition advanced in paragraph 10 above and provide not a rule of law but a cautionary
principle which should inform the approach of the court to the construction of an instrument such
as this. I accept, as my noble and learned friend Lord Hoffmann forcefully points out, that
authorities must be read in the context of their peculiar facts. But the judges I have quoted
expressed themselves in terms more general than was necessary for decision of the instant case,
and I share their reluctance to infer that a party intended to give up something which neither he,
nor the other party, knew or could know that he had.

18. So I turn to consider the agreement made between the bank and Mr Naeem. His
employment was terminated on grounds of genuine redundancy. The agreement provided for
payment in full of salary in lieu of notice and redundancy pay. It took account of matters such as
holiday pay and season ticket loans. It plainly covered the ordinary incidents of the employer-
employee relationship. But the liquidators contend that it cannot have been limited to such
incidents or to claims which might be made to an industrial tribunal: otherwise the reference to
"all or any claims whether under statute, Common Law or in Equity of whatsoever nature that exist
or may exist" would lack any field of potential reference. This is a compelling submission which
has, understandably, found favour with the courts below and with my noble and learned friend
Lord Hoffmann. But the liquidators accept that the language of the clause is subject to some
implied limitations: where ex-employees have had deposits with the bank, the liquidators have
not (very properly) sought to resist claims for repayment in reliance on the general release. Such
claims, they say, fall outside the clause because they do not relate to the employer-employee
relationship. That would be true, if employees were entirely free to make whatever banking
arrangements they chose. But acceptance of these claims involves acceptance that the clause
does not mean all it might be thought to say. What of a latent claim for industrial disease or
personal injury caused to the employee by the negligence of the employer but unknown to both
parties? Mr Jeans QC for the liquidators, in the course of an admirable argument, recognised the
difficulty of submitting that such a claim would be precluded by the provision, even though it
would relate to the employer-employee relationship. I would not myself infer that the parties
intended to provide for the release of such a claim. The same would in my view be true if,
unknown to the employee, the bank had libelled him as an employee. The clause cannot be read
literally.
 19. What, then, of the claim for stigma damages which lies at the heart of this appeal? The
bank, through its senior employees, is fixed with knowledge of the bank's insolvency and
nefarious practices, although it seems unlikely that those negotiating with the employees were
alert to these facts, very carefully concealed from the world. Mr Naeem had no such knowledge.
Neither the bank, even when fixed with such knowledge, nor Mr Naeem could realistically have
supposed that such a claim lay within the realm of practical possibility. On a fair construction of
this document I cannot conclude that the parties intended to provide for the release of rights and
the surrender of claims which they could never have had in contemplation at all. If the parties had
sought to achieve so extravagant a result they should in my opinion have used language which
left no room for doubt and which might at least have alerted Mr Naeem to the true effect of what
(on that hypothesis) he was agreeing.

20. On this ground, essentially the first ground of the Vice-Chancellor's conclusion (in
paragraph 34), I would dismiss the appeal. This makes it unnecessary to consider whether, on the
liquidators' construction, Mr Naeem would be entitled to relief against enforcement of the
agreement on grounds of unconscionability, and I prefer to express no opinion on that matter. I
would order the liquidators to pay the costs of these proceedings here and below, subject to any
costs-sharing order which may be or become applicable.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

73. It follows that in my opinion the stigma claim falls within the description of claims which Mr
Naeem agreed to release and there is no reason why BCCI should not rely upon the release. My
Lords, I do not think that there is any injustice in this result. Of course I sympathise with Mr
Naeem, who, after a long and unblemished career in banking in Pakistan and then, from 1974, in
this country, found himself made redundant at the difficult age of 49. But this is regrettably a very
common occurrence. The claim that his subsequent difficulties in finding another job are
attributable to his having worked for BCCI is however extremely speculative. In Mahmud's case, at
p 53 Lord Steyn drew attention to the formidable practical obstacles to such a claim presented by
the limiting principles of causation, remoteness and mitigation. So it has turned out. In 1999
Lightman J. tried five representative cases out of the 369 which had been commenced by former
BCCI employees. None of them succeeded in proving that his unemployment was attributable to
stigma. Four of the cases tried by Lightman J. appear to have concerned employees who were
dismissed by the liquidators when the bank collapsed in 1991. By contrast, Mr Naeem and the
others made redundant in 1990 face the additional hurdle of having to explain why their
unemployment is attributable to stigma when they were unable to find jobs for a year before any
stigma attached to them. The present position is that this vastly expensive litigation, which has
been twice to the House of Lords and given rise to two lengthy trials before Lightman J, has
produced benefits for no one except the lawyers involved and has been at the expense, not of the
fraudulent villains but of the public and the unfortunate creditors of BCCI.
 74. Mr Naeem says that despite all his difficulties, he should be entitled to have his day in court.
He should not be struck out merely because he accepted £2,772 for a general release in 1990. In
Mahmud's case Lord Nicholls of Birkenhead said, at pp 41-42, that he was:

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

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

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

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
 y j g g g g
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.

88. I would dismiss the appeal.

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