Bank Of Credit & Commerce International SA v Bugshan & Ors

An interim agreement concerning money placed in escrow does not bring an unexecuted settlement deed into force as a whole unless the parties used sufficiently clear words. The court must construe the correspondence objectively, in its commercial context and in light of the agreement’s purpose. A provision that funds are to be held under the terms of an unexecuted deed may merely regulate the escrow arrangement and preserve an incentive to execute the deed. Subsequent conduct is not admissible as an aid to construction. Ancillary liquidators retain statutory power to compromise debts and claims, including in relation to assets situated abroad, subject to practical territorial limits on enforcement.

BCCI’s English liquidators brought proceedings against Saudi Arabian customers for substantial account balances. The parties negotiated a settlement under which the defendants would pay US $5.5 million and assign dividends from a Paris liquidation, with the terms to be embodied in a deed.

After repeated delay, correspondence agreed that the money already held in a Jersey escrow account would remain there under the terms of the unexecuted settlement deed pending formal completion. The defendants never executed the deed. Thomas J held that the correspondence had settled the actions on the deed’s terms and later held that the English liquidators had authority to compromise the claims. The appeal concerned the proper construction of the correspondence and the liquidators’ authority.

1. Appeal allowed. The declaration that the 1994 actions had been settled on the terms of the deed was set aside. The money judgment against the appellant was also set aside, and BCCI remained entitled to pursue the 1994 action against him.
2. The correspondence of 7 and 14 August 1997 created an interim escrow arrangement. Its purpose was to demonstrate the defendants’ further commitment to execute the settlement deed and to give them an incentive to complete. The words “presently” and “pending formal completion” indicated that the arrangement was temporary.
3. The agreement therefore did no more than prevent the defendants from requiring return of the escrow money and place it under the joint control contemplated by the escrow provisions. Clear words were required to alter the parties’ common understanding that no binding settlement would arise until execution of the deed. The court rejected the approach that the deed’s interrelated provisions necessarily came into force merely because a limited escrow arrangement would otherwise be difficult to operate.
4. Construction was governed by the objective meaning of the correspondence in its relevant background. Subsequent conduct could not be used as an aid to construction, following Whitworth Street Estates Manchester Ltd v James Miller and Partners [1970] AC 572.
5. The court also upheld the conclusion that the English liquidators had authority to compromise the claims. Section 167(1) of the Insolvency Act 1986, together with Part 1 of Schedule 4, empowered liquidators, with the necessary sanction, to compromise debts and claims. The statute imposed no restriction preventing ancillary liquidators from realising assets abroad, although practical limits could arise from the territorial effectiveness of English insolvency proceedings. The pooling agreement contained cooperation provisions and did not limit that authority.
6. Orders were made for the appellant’s costs below and two-thirds of the costs of the appeal, with the security paid out forthwith.

• Court of Appeal (Civil Division): Bank Of Credit & Commerce International SA v Bugshan & Ors [2001] EWCA Civ 244. Appeal allowed; the first-instance declaration and money judgment were set aside.
• High Court of Justice, Queen’s Bench Division, Commercial Court: Thomas J held that the parties had settled the actions on the terms of the unexecuted deed and later held that the English liquidators had authority to make the settlement.