Bank of Credit and Commerce International v. Ali and Others

A general release is construed by ordinary objective principles. It may extend to unknown or unforeseen claims where sufficiently clear language and the contractual context show that intention. Mere ignorance of a claim does not itself exclude it.

General words nevertheless reach no further than the subject matter and purpose indicated by the surrounding circumstances. There is no separate rule of equitable construction, but courts should be slow to infer the surrender of rights which neither party knew or could reasonably have contemplated. An employment-termination release did not encompass later-recognised stigma and misrepresentation claims arising from concealed corporate wrongdoing. Those claims lay beyond the reasonable scope of the settlement, and more precise language was required to release them.

The liquidators of Bank of Credit and Commerce International SA contended that a former employee, Mr Naeem, was barred from pursuing stigma damages and damages for misrepresentation by an Acas COT-3 agreement. On redundancy, he had received an additional month's salary in return for releasing all claims under statute, common law or equity, except pension rights.

After the bank's corruption and insolvency became public, the House held in Mahmud v Bank of Credit and Commerce International SA [1998] AC 20 that stigma claims based on breach of the implied obligation of trust and confidence were sustainable in principle. Mr Naeem then sought to pursue such claims.

Lightman J held that the release barred the claim: [1999] ICR 1068. The Court of Appeal allowed the employee's appeal: [2000] ICR 1410. Its majority considered that the words covered the claim but that reliance upon them would be unconscionable; Sir Richard Scott V-C held that the release did not cover the claim when properly construed. The central issue before the House was whether the general release encompassed claims which were unknown and could not reasonably have been contemplated when the agreement was made.

1. Disposition. The House dismissed the liquidators' appeal by a majority of four to one. Lord Bingham delivered the leading speech, with which Lord Browne-Wilkinson agreed. Lord Nicholls and Lord Clyde reached the same result in separate speeches. Lord Hoffmann dissented.

2. Ordinary principles of construction. Per Lord Bingham, a release is construed objectively by reading its words in their contractual and factual context. Parties may release unknown or even unimaginable claims if sufficiently clear language shows that intention. There are no separate rules of equitable construction. The older authorities instead establish a cautionary principle: absent clear language, a court should be slow to infer the surrender of rights of which the parties were unaware and could not have been aware.

3. Scope of the release. Per Lord Bingham, the words could not be read literally. The liquidators themselves accepted that the release did not encompass an employee's claims as a bank customer. The agreement arose from an ordinary redundancy exercise and principally addressed the incidents and termination of employment. Neither side could realistically have supposed that a claim based on the bank's concealed corruption fell within the realm of practical possibility. More precise language was required to release so remote a claim.

4. Unknown claims and subsequent legal development. Lord Nicholls emphasised that mere ignorance of a claim does not remove it from a general release, since such releases commonly seek finality against later-emerging claims. Their scope nevertheless depends upon the subject matter at which they are directed. This release concerned the ending of employment. Mr Naeem could not reasonably be treated as having assumed the risk of a subsequent retrospective development of the law through Mahmud v Bank of Credit and Commerce International SA [1998] AC 20.

5. The Acas context. Per Lord Clyde, the form and accompanying documents focused on claims arising from termination and possible proceedings before an industrial tribunal. Sections 140(1) and 140(2)(d), (e) and (g) of the Employment Protection (Consolidation) Act 1978 explained why an additional payment might reasonably be made to secure finality. References to common-law and equitable claims extended beyond tribunal claims, but did not encompass the exceptionally remote stigma and misrepresentation claims.

6. Alternative relief and dissent. Lord Bingham and Lord Clyde found it unnecessary to decide whether enforcement could independently be restrained as unconscionable. Lord Nicholls regarded remedies for sharp practice as available in an appropriate case, but held that no such issue arose because the possible legal claim was unknown to the bank. Lord Hoffmann would have allowed the appeal: the wide language, separate consideration and absence of any existing dispute showed that unknown financial claims arising from employment were released, and no suppressio veri had been proved.

• House of Lords: By [2001] UKHL 8, dismissed the liquidators' appeal by a majority of four to one and left the Court of Appeal's order undisturbed.
• Court of Appeal: By [2000] ICR 1410, allowed the employee's appeal. Chadwick and Buxton LJJ held that the release covered the claims but that reliance upon it would be unconscionable. Sir Richard Scott V-C held that the release did not cover the stigma claim when properly construed.
• High Court: Lightman J, in [1999] ICR 1068, held that the release barred the claim and dismissed it.