[Home] [Databases] [World Law] [Multidatabase Search] [Help] [Feedback]
	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Bank Of Credit & Commerce International SA v Bugshan & Ors [2001] EWCA Civ 244 (16 February 2001) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2001/244.html Cite as: [2001] EWCA Civ 244

[New search] [Printable RTF version] [Help]

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
COMMERCIAL COURT
(MR JUSTICE THOMAS)

		Royal Courts of Justice Strand London WC2 Friday, 16th February 2001

Friday, 16th February

1. LORD JUSTICE PILL: Lord Justice Tuckey will give the first judgment.
2. LORD JUSTICE TUCKEY: This is the first defendant Sheikh Ali Abdullah Bugshan's appeal from two judgments of Thomas J. In the first, given on 28th May 1999, he found that the three defendants had settled actions against them by the claimants, ("BCCI"), on the terms of a deed of settlement which they had not executed. In the second, given on 7th April 2000, he found that BCCI's English liquidators had authority to make this settlement.
3. BCCI was incorporated in Luxembourg. At the time it went into well-publicised liquidation the Saudi Arabian defendants were customers of its London branch. In 1994, suing by its joint liquidators appointed by the English and Luxembourg courts, BCCI started two actions. The first against the appellant claimed £4,079,736 as the net balance owing on his six accounts. The second, against the second and third defendants, claimed $13,003,213 as the balance owing by the second defendant on its trading account which was guaranteed by the third defendant, the appellant's brother.
4. The appellant had deposits of about 56 million French francs at the Paris branch of a related BCCI company ("Overseas") which also went into liquidation. The Paris branch was the subject of a separate liquidation, and its funds were ring fenced for the purposes of that liquidation. This meant that the appellant had no right to set off his French deposits against his English indebtedness.
5. Both before and after the 1994 actions were started there were lengthy settlement negotiations conducted by Lovell White Durrant ("LWD"), instructed by the English liquidators for BCCI and SJ Berwin & Co ("SJB") for the defendants. By the end of 1996 the basis for a settlement had been agreed. The defendants would pay $5.5 million and the appellant would assign any dividends he received from the Paris liquidator to BCCI in exchange for a release of all claims against the three defendants by the London and Luxembourg liquidators. The US $5.5 million was to be paid into an escrow account in Jersey. Any dividend paid by the Paris liquidator to the appellant was also to be paid into this account via, if necessary, a second account which was to be opened in his name with the same bank. The liquidators, LWD and SJB, were to be joint signatories on both accounts. The settlement was to be embodied in a deed, the terms of which had been largely agreed.
6. By April 1997 the liquidators were concerned about lack of progress. SJB had been holding the $5.5 million since August 1996, and to demonstrate their clients' good faith, it was agreed that this sum, plus interest, would be paid into the escrow account which had by then been opened on terms that it remained the defendants' money and would be returned to SJB on 48 hours' notice until completion, after which it would be held subject to the terms of the settlement deed. The agreed amount, less about $92,000, was paid into the escrow account on these terms at that time.
7. Completion was expected by the end of May, but there were continuing delays by the defendants. By the end of July the liquidators again became concerned. As a first step to placate them, SJB paid the balance of the interest, to which I have referred, to LWD on terms that it would be held in their client account until completion when it, (plus interest), would be paid into the escrow account. The next step resulted, BCCI contended, in settlement of the actions on the terms of the deed of settlement which by this stage had been agreed by the solicitors. It will be necessary to consider these terms later in this judgment, but first by reference to the documents I will describe what happened.
8. An LWD attendance note of 6th August 1997 records that SJB were prepared to agree that if the documentation they needed in order to complete was not forthcoming within 14 days, the defendants would pay "a further sum to the liquidators by way of penalty". $50,000 was mentioned. After saying that such an extension was unlikely to be granted, LWD suggested that the defendant should no longer be able to require the return of the money in the escrow account on 48 hours' notice, but:

" ... it could be agreed between the parties that the monies in the escrow account should be held subject to the terms of the unexecuted settlement deed, as this would show the Bugshans' clear intention to enter into the settlement deed...."

9. The following day, 7th August, LWD wrote to SJB. After referring to the conversation the previous afternoon, the letter said:

"Although you continue to stress that your clients do intend to enter into the settlement deed (and point to the monies held in the escrow account as evidencing this intention) the Liquidators now consider that they require a further commitment from them. In that respect the Liquidators propose:

1. Your clients be granted a further extension of one week to provide the additional documents,

2. Completion to take place on or before Friday 29 August 1997, and

3. In the event that your clients fail to provide the documents under 1 above by 15 August 1997 or if this matter does not complete by 29 August 1997 this firm should be released from its obligations to sign the appropriate payment instruction to release the monies in the escrow account with Midland Bank, Jersey ('the escrow monies') to your firm as recorded in the attached correspondence. In such circumstances your clients acknowledge that the escrow monies will upon such release be held subject to the terms of the unexecuted settlement deed."

10. SJB asked for written instructions from their clients explaining to LWD in a telephone call on 13th August that this was because the liquidator's proposals "essentially amounted to completion". SJB replied by letter the following day saying:

"We have now been instructed by our clients to accept the conditions proposed by your clients in your letter of 7 August. As all of the documentation has now arrived, and is in the process of being translated, our client's next target is to complete this matter by 29 August, failing which the funds presently in the escrow account are to be held pursuant to the terms of the Settlement Agreement pending formal completion."

11. On 21st August LWD sent two engrossments of the settlement deed for execution by the defendants and ended their letter by saying:

"We now look forward to receiving from you the executed engrossments. On receipt we will arrange for the engrossments to be executed by our clients and we will then revert to you so that the matter can be completed.

Upon completion we will provide you with one of the duplicate engrossments. In addition at completion we will arrange for the transfer of the monies being held by us to the escrow account with Midland Bank in Jersey."

12. The deeds were never executed by the defendants.
13. Up to this time the correspondence had been marked "without prejudice" or "without prejudice subject to contract". On 2nd September LWD proposed that any future correspondence should be open, but they continued to press for execution of the deed until February 1998 when they discovered that the Paris liquidator had paid out a first dividend of 40 per cent to the appellant which had not been paid into either of the Jersey accounts as the terms of the settlement deed required. After some delay, SJB replied to LWD's protests about what had happened on 7th April 1998 saying:

"We have now been able to establish the position regarding payment of the interim dividend by the liquidator of the Paris Branch. It appears that despite our writing on numerous occasions to the Paris liquidator with details of the Power of Attorney held by us payment has been made to Mr Mokaiesh who has no authority to receive these funds on behalf of Sheikh Ali Abdullah Bugshan.

We have written to Mr Mokaiesh asking him to account immediately for the funds concerned so that they can be paid into the escrow account.

In the event of his failure to do so proceedings can if necessary be taken with a view to recovering the sums as contemplated by the Settlement Agreement."

14. Mr Mokaiesh was the appellant's French lawyer. The power of attorney referred to irrevocably appointed two partners in SJB to act for the appellant in the Paris liquidation.
15. LWD then threatened to apply to seize the money in the escrow account and reactivate the 1994 proceedings unless the deed was returned executed, to which SJB replied on 28th April saying:

"We apprehend that we shall have instructions both to resist any application for a declaration in Jersey upon the basis that the misdirection of the payment by the French liquidator is not a breach by our clients. Furthermore, the basis of their defence should your clients seek to resuscitate the English proceedings would be that of accord and satisfaction."

16. The present proceedings followed. The second and third defendants accepted that there was a settlement on the terms of the settlement deed and took no part in the proceedings. At trial it was conceded that the appellant had no interest in the money in the escrow account and so with the consent of the second and third defendants the judge made an order for its release to the English liquidators.
17. After a subsequent hearing when he found that the liquidators had authority to settle with the defendants, the judge ordered the appellant to pay damages for breach of the settlement of $4,173,260, being the value of the dividend which the appellant had received, (plus interest), from the Paris liquidator.
18. At trial BCCI accepted that until 6th August 1997 it had been the common intention of the parties that there would be no binding agreement until the deed was executed. The judge held that the parties reached a binding agreement in the exchange of correspondence on 7th and 14th August 1997 because at a minimum the defendants were no longer entitled to the return of the money in the escrow account and this could only have happened by agreement. The judge therefore set himself the task of determining the scope of this agreement. As he said:

"Did the agreement only take effect in some limited way or did the parties agree that the settlement was to take effect notwithstanding the formal deed was not executed?"

19. More specifically, he said, what did SJB mean when in their letter of 14th August they agreed that failing execution on 29th August the money:

"...presently in the escrow account was to be held pursuant to the terms of the settlement agreement pending formal completion."

20. So far no criticism is made of the judge's approach. The appellant contends however that he answered these questions incorrectly. What the judge said was:

"It is clear, having regard to what the parties agreed in the exchange of letters, that no other conclusion is possible than they agreed to the monies in the escrow account being held on the terms of the settlement agreement and that the terms of the settlement agreement can only be read as taking effect as a whole; they cannot be separated. It is in my view impossible to see how monies can be held in the escrow account on the terms of the deed without the obligations relating to the other terms of the deed also coming into effect, as they are inextricably linked together."

21. This brings me to the terms of the deed. Clause 1 recited that US $5.5 million plus interest had been paid into the escrow account and provided that it was to be held "subject to the terms of this deed". Clauses 2 to 7 set out the obligations of the appellant to pay any dividends received from the Paris liquidator into the Jersey accounts. By clause 8.2 if they were paid into the account in his name, they were to be transferred to the escrow account within 72 hours. Clause 8.3 said that all monies in the Jersey accounts were to be held in escrow and:

"For the avoidance of doubt will not belong beneficially or legally... to any of the parties hereto until one of three events occurred."

22. Those events were, (and I summarise) : (a) the receipt by the defendants of a deed of release binding on the liquidators appointed by the courts in London and Luxembourg and releasing the Bugshan parties from all claims. In that event the funds would belong to the BCCI's liquidators; (b) a claim by the defendants to an indemnity under clause 9.2 of the deed which would be available to them if proceedings were brought against them. In that event the funds would belong to them to the extent necessary to satisfy the indemnity; (c) breach of the provisions requiring the appellant to pay over dividends from the Paris liquidator. In that event the liquidators would have a right to terminate the deed and the provisions of clause 12 would apply.
23. By clause 9 the liquidators agreed to release or indemnify the defendants, as the case might be, in the events contemplated by clause 8.3(a) or (b), the consideration for which was expressed to be payment of the US $5.5 million and the dividend payments to be made under clause 2 into the escrow account. The liquidator's acceptance of such payments was expressed to be the consideration for the defendants' release contained in clause 10.
24. Clause 12 was a default clause. Clause 12.3 says:
25. "In the event that (the appellant) is in breach of any of the payment terms of this deed and fails to remedy such breach..." The liquidators were to be entitled to receive the monies in the Jersey accounts absolutely and be at liberty to restore the 1994 proceedings or issue proceedings for specific performance of the deed.
26. Much of the argument before the judge and before us focused on whether it was possible for the parties to have intended to invoke only those terms of the deed relating specifically to the monies in the escrow account without also invoking its other provisions, notably the obligation to pay over any dividends received from the Paris liquidator.
27. There is no doubt that the appellant has had great difficulty in explaining exactly how the agreement could have worked in any limited way. The way now suggested by Mr Lyon, who did not appear below, is apparently the fifth way in which the matter has been put. BCCI say of course that the reason for this is obvious. There is no possible way in which the terms of the deed can be given limited effect because its provisions are inextricably linked. The judge agreed, and it was this which led him to his conclusion. No other conclusion was possible, he said.
28. In considering whether the judge was right, I think one must first start by examining the purpose of the agreement against the background of repeated delay by the defendants in response to which the liquidators had been prepared to accept various tokens of good faith. There can be little doubt from the attendance note of the 6th and the letter of 7th August that what was being discussed was some further measure by which the defendants could demonstrate that they really did intend to execute the deed. Hence "this would show the Bugshans' clear intention to enter into the settlement deed", in the attendance note and "the liquidators now require a further commitment" (in the letter). The measure proposed was designed to give the defendants an incentive to execute. So it was not designed to bring the whole agreement into effect if the deed was not executed.
29. The words used in the letters of 7th and 14th August do not say that this is what was intended either. If one looks at numbered paragraph 3 in LWD's letter of 7th August, the last sentence starting with the words " In such circumstances" is clearly linked to the previous sentence which relates to what the parties did agree, which was that the defendants would no longer be able to call for the return of the $5.5 million on 48 hours' notice. By making this money subject to the terms of the deed, it seems to me that the parties intended no more than to make it clear that this money would now be escrow money, properly so-called, held to the joint order of the liquidators and the defendants. The parties clearly contemplated that the deed would be executed within a relatively short time and so there was no obvious need to provide at this stage for what would happen if it never was executed. The agreement gave the defendants an incentive to sign by 29th August because if they did not they would lose control over the money in any event.
30. Looking at SJB's letter of 14th August, the words "presently" and "pending formal completion" show clearly the interim nature of the agreement and give no support for the argument that even if there was no formal completion all the terms of the settlement agreement would apply. The judge thought that use of the word "formal" was significant. I do not. Completion is always in some ways formal. Here it was common ground that up to 6th August there would be no binding agreement until the deed was executed. Clear words were required to change this state of affairs. I do not see them in the relevant exchanges between the solicitors.
31. Both sides placed some reliance on what happened after 14th August. There are clearly points to be made each way but the judge attached little, if any, weight to what happened, and as a matter of law I think this was right. The judge was concerned to determine the scope of the agreement which had been made. That was a question of construction. It is not legitimate to use subsequent conduct as an aid to construction ( Whitworth Street Estates Manchester Limited v James Miller and Partners [1970] AC 572).
32. On my analysis of the purpose of the agreement and its terms it is not necessary to grapple with the question which forced the judge to reach the conclusion he did, and I do not intend to do so. If, as I think, the purpose of the agreement was to make the defendants further committed to sign the deed to bring the settlement into effect, then it is obviously wrong to construe it, as the judge did, as one which committed the defendants to the terms of the settlement whether they signed the deed or not. The judge appears to have overlooked this and to have been driven to his conclusion by a process of deduction based on the detailed terms of the deed. I do not think the terms of the interim agreement, which he had to construe, compelled him to do this, still less that they compelled the conclusion that all the terms of the agreement would be binding even if the defendants did not execute the deed, although no one had said this at the time. If all that can be spelled out of what was agreed was that the defendants no longer have the right to call for the return of the money in the escrow account, that may not have given BCCI as much as was intended, but if it did not that is because the common intention was not made clear. It certainly does not justify the conclusion that all the terms of the settlement agreement became binding because any intermediate position invoking just some of those terms was unworkable.
33. It follows from what I have said that I think the judge was wrong to conclude that the 1994 actions were settled on the terms of the deed of settlement. This means that the money judgment against the appellant has to be set aside and that the 1994 action against him can still be pursued by BCCI.
34. These conclusions make it unnecessary to consider the other point raised on this appeal about the authority of the English liquidators. But as this point has been fully argued and is no doubt of some importance to the liquidators, I propose to deal with it shortly.
35. The liquidation of BCCI and Overseas was (and presumably still is) extremely complex. As BCCI was incorporated in Luxembourg, the English liquidation is ancillary to the Luxembourg liquidation, but the liquidators have entered into a pooling agreement together with the Cayman Liquidators of Overseas which provides for a pooling of assets to ensure fair distribution to creditors. Under this agreement the English liquidators are required to transmit all BCCI assets to the Luxembourg liquidators after making provision for a number of specified matters.
36. It is common ground that the situs of the original debt owed by the appellant to BCCI was his place of residence, Saudi Arabia. Any realisation of the asset represented by this debt would therefore be of an asset outside the jurisdiction. It is the appellant's contention that the English liquidators had no authority to make any compromise in relation to such an asset without the consent of the Luxembourg liquidators which had not been obtained.
37. In support of this contention Mr Lyon submits that one would not expect ancillary liquidators to have the authority to collect or administer assets in other jurisdictions and, he submits, the pooling agreement gave them no such authority. Approval of the pooling agreement, by the English courts in BCCI SA(No 3) [1993] BCLC 106, (the Vice Chancellor) and 1490, (Court of Appeal) impliedly limited the liquidators statutory powers, he submits.
38. Like the judge, I do not accept these submissions. Section 167(1) of the Insolvency Act 1986 enables liquidators to exercise the powers specified in part 1 of Schedule 4 to the Act with the sanction of the Court or the Liquidation Committee. These powers include the power to compromise debts and claims. The compromise with the defendants was sanctioned by the English Liquidation Committee in 1995. There is no statutory restriction which prevents English ancillary liquidators from realising assets abroad, although there may be practical restrictions on their ability to do so. This was recognised by Sir Richard Scott, (Vice Chncellor), in BCCI (No. ID.) [1997] Ch 213, where at page 241 he said:

"The effective jurisdiction of the Court is, for winding up purposes, necessarily territorial. English liquidators can get in assets of the company that are within the jurisdiction of the court. But they can only get in assets of the company that are outside the territorial jurisdiction of the court if or to the extent that their title to control the company is recognised by the courts of the country in which the assets are situated. The English statutory insolvency scheme purports to have worldwide, not merely territorial, effect. Every creditor of the company, wherever he may be resident and whatever may be the proper law of his debt, can prove in an English liquidation. The liquidators must get in and realise the company's assets as best they may whatever may be the country in which the assets are situated. But, if the company is incorporated abroad, English liquidators' ability to get in and realise the company's foreign assets will be very limited. It follows that, if a foreign company has a winding up order made against it in its country of incorporation and a winding up order made against it in England, the English liquidators' role is likely, perforce to be limited to getting in, realising and distributing the English assets."

39. In my judgment this position is not affected by the pooling agreement which, quite clearly, does not seek to limit the English liquidators' authority. Mr Lyon relies on clause 5.2 of that agreement which says:

"... the English Liquidators shall co-operate with SA [that is BCCI], the Luxembourg Liquidators, Overseas and the Cayman Liquidators by the exchange of information, in the joint conduct of litigation, and by other means, as from time to time may seem expedient, with a view to the realisation by the Luxembourg Liquidators and/or the Cayman Liquidators of Overseas Property wherever situated and of SA Property situated outside the jurisdiction of the English Court."

40. Clause 5.1 is in similar terms requiring the other liquidators to co-operate with the English liquidators to enable them to realise BCCI's property within the jurisdiction of the English courts. These are clearly co-operation clauses and do not deal at all with questions of authority. Nor do any of the other provisions of the pooling agreement. There is nothing in the judgments approving the pooling agreement to show that the English courts intended to limit the liquidator's statutory powers.
41. For these reasons and the further reasons he gave, I have no doubt that the judge was right to reject the argument that the English liquidators had no authority to make the settlement.
42. But for the reasons I have already given, I would allow the appeal from the first of the judge's decisions.
43. SIR RONALD WATERHOUSE: I agree with what my Lord, Lord Justice Tuckey, has said in relation to both of the major issues in this appeal.
44. LORD JUSTICE PILL: I also agree. The case turns upon the construction of the letters of 7th August and 14th August 1997. My Lord, Lord Justice Tuckey, has read the relevant parts.
45. The parties had been negotiating for some time toward the execution of the settlement deed. The respondents submit that the effect of the agreement contained in those letters was to bring into force the agreement contained in the settlement deed. By the letters funds were to be held "pursuant to the terms of the settlement agreement". It is submitted that the terms of the settlement deed relating to the escrow account were so interwoven with other terms, including the obligation to pay over funds received from the French liquidators, that the effect of the agreement in the letters was inevitably to bring into effect the terms of the settlement deed.
46. Mr McQuator has not submitted that the letter of 7th August was a deliberate attempt by subtle means to bring into effect the terms of the settlement deed, in effect surreptitiously, and I fully accept that. The submission is that the linkage of the terms was such that the effect of the agreement in the letters was, upon objective analysis, to bring in effect the entire agreement even if that was not in the minds of the parties at the time.
47. I cannot accept that submission for the reasons given by Lord Justice Tuckey. It had for a long time been contemplated that the agreement would be executed. That is abundantly established in the documents. In my judgment the effect of the letter was no more than that the sum presently held in the escrow account would henceforth be held "in escrow to the joint order of the liquidators and the relevant parties", as provided by the opening words of clause 8.3 of the settlement deed.
48. There was no intention to bring into effect the agreement as a whole and that was not the effect of the agreement. The fourth of the principles stated by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR at page 913. Is in my view apt. It provides:

"The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of a document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words that are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749."

49. To reach the conclusion I have in this case it is not necessary to go as far as Lord Hoffman contemplated and to hold that the wrong words were used in the letter. It is sufficient to say that in the context of this case the words used do not have the broad meaning and effect for which the respondents contend. The effect of the words was limited in the way that I have indicated. It was still intended that formal completion of the deed was required in order to bring its terms into effect.
50. I also agree with Lord Justice Tuckey on the jurisdictional point which has been the subject of argument. This appeal is allowed.
(Appeal allowed; declaration of court below set aside; money order set aside; appellant to have their costs below and two-thirds of the costs in the appeal, sum paid by way of security to be paid out to them forthwith; terms of judgment not be drawn up for 14 days with liberty to apply to this court) (Order does not form part of approved Judgment)