Bell v Lever Bros Ltd

A common mistake makes a contract void only where it concerns the existence of the subject matter, or a quality whose absence makes that subject matter essentially different from what the parties believed it to be. A mistake which merely affects value, motive or the availability of another means of obtaining the same result does not suffice.

Outside recognised contracts of utmost good faith and special fiduciary relationships, a contracting party ordinarily has no duty to disclose a material fact. In particular, an employee has no general duty to confess past misconduct when negotiating the termination of employment.

Lever Brothers Ltd employed Mr Bell and Mr Snelling to manage the Niger Company Ltd. Their successful management was followed by an amalgamation which made their services unnecessary. By agreements dated 19 March 1929 they undertook to resign their offices in return for compensation of £30,000 and £20,000 respectively.

After payment, Lever Brothers discovered that the appellants had made undisclosed private cocoa transactions while in office. A jury rejected fraudulent misrepresentation and concealment, but found breaches of duty and that Lever Brothers could and would have terminated the service agreements had it known the facts.

Wright J set aside the settlement agreements for mutual mistake. The Court of Appeal unanimously affirmed. The questions before the House were whether mutual mistake made the agreements void, whether innocent non-disclosure made them voidable, and whether mutual mistake was properly open on the pleadings.

1. Appeal allowed by a majority of three to two. Lord Atkin and Lord Thankerton held that the settlement agreements were neither void for common mistake nor voidable for innocent non-disclosure. Lord Blanesburgh agreed with those conclusions and also held that mutual mistake had not been pleaded and that amendment should be refused. Viscount Hailsham agreed with Lord Warrington of Clyffe, who would have dismissed the appeal.

2. Per Lord Atkin, a mistake as to the quality of the subject matter affects assent only if it is shared by both parties and concerns a quality whose absence makes the thing essentially different from what they believed it to be. The mistake must concern substance, not merely motive, value or a collateral advantage.

3. The service agreements existed and remained binding until Lever Brothers exercised its right to terminate them. The settlements procured the termination of those identical agreements and the appellants' resignations. The fact that Lever Brothers could have achieved termination without compensation did not change the identity of what it received. Per Lord Thankerton, the possibility of another method of termination was not an essential and integral element of the subject matter.

4. Per Lord Atkin and Lord Thankerton, mere non-disclosure of a material fact ordinarily gives no right to avoid a contract. A duty of disclosure arises only within recognised classes, including contracts of utmost good faith and special fiduciary relationships. An ordinary contract terminating service falls outside those classes. Neither an employee nor a company director has a general legal duty to disclose past misconduct merely to give the employer or company an opportunity to dismiss.

5. Per Lord Blanesburgh, the pleaded case alleged unilateral mistake induced by fraud, not innocent mutual mistake. Allowing a new case after verdict would risk injustice because the trial and jury directions had addressed fraud, and the appellants had not developed evidence about the additional consideration and commercial benefits supplied by the settlements. Amendment was therefore refused.

6. The orders below setting aside the settlement agreements were discharged. The appellants remained accountable to Niger Company Ltd for the £1,360 profit and nominal damages arising from the cocoa transactions.

1. House of Lords: By a majority of three to two, allowed the appeal and discharged the order of the Court of Appeal.
2. Court of Appeal: On 17 November 1930, unanimously dismissed the appellants' appeal from Wright J and affirmed the setting aside of the settlement agreements.
3. High Court: Wright J, following trial with a special jury, set aside the agreements for mutual mistake and ordered repayment of the compensation.