Bell v Lever Brothers Ltd

Bell v Lever Brothers Ltd
Court House of Lords
Decided 15 December 1931
Citation(s) [1931] UKHL 2, [1932] AC 161, [1931] All ER 1
Transcript(s) Full judgment from Bailii
Court membership
Judge(s) sitting Viscount Hailsham, Lord Blanesburgh, Lord Warrington of Clyffe, Lord Atkin and Lord Thankerton
Keywords
Common mistake

Bell v Lever Brothers Ltd [1931] UKHL 2 is an English contract law case decided by the House of Lords. Within the field of mistake in English law, it holds that common mistake does not lead to a void contract unless the mistake is fundamental to the identity of the contract.

Facts

Lever Brothers Ltd (which merged in 1930 to become Unilever) was a company which traded in Niger, through a 99% owned subsidiary called the Niger Company (formerly the Royal Niger Company). The Niger trade was in trouble. Lord Leverhulme, the owner of Lever Bros, hired D'Arcy Cooper (a Quaker and senior partner of his Uncle's accountant firm, Cooper Brothers) to be the chairman and manage the crisis. Cooper negotiated a loan from Barclays Bank, which insisted that a professional management run the Niger subsidiary. So, Cooper hired his friend, Ernest Hyslop Bell, a senior Barclays manager in 1923 as chairman of the subsidiary. Mr Snelling, a tax consultant that had successfully got Lever Bros a big tax refund in 1921, was appointed as vice chairman. They did well, and turned a profit. The company was then merged with a former competitor (African and Eastern Trade Corporation) to form the United Africa Company in 1929.

Bell had wanted to run the new United Africa Company, because he was too old at 54 to have a job in the City, and he had left his Barclays position. At lunch in the Savoy Grill he agreed with Cooper that he would get a big compensation package (£30,000) and retire. A similar "golden parachute" of £20,000 was given to Mr Snelling. However, shortly after, it was revealed that Bell and Snelling had been part of a regional cocoa cartel, and used information on future price reductions to sell cocoa from their personal accounts. Lever Brothers Ltd therefore brought a claim for rescission of the compensation package on grounds of mistake of fact.

Judgment

Trial

The jury found that Bell and Snelling's illicit dealings breached the employment contract and that if the Lever Brothers had known they would not have entered into the agreement. Furthermore, the jury found that at the time of the agreement Bell and Snelling did not have in mind their illicit acts. Wright J therefore held the compensation agreements were void.

House of Lords

On appeal, the House of Lords found that there was no mistake and the contract could not be rescinded nor was it void on mistake. Lord Atkin was writing for the majority. Dissent was written by Warrington and held that the mistaken assumption was fundamental to the contract, and thus the contract is voidable.

The Court identified the mistake as a common mistake.

“ A mutual mistake as to some fact which, by the common intention of the parties to a contract, whether expressed or implied, constitutes the underlying assumption without which the parties would not have made the contract they did, and which, therefore, affects the substance of the whole consideration, is sufficient to render the contract void. ”

Effectively, the mistake must nullify or negative consent of the parties in order for the agreement to be void.

In order for the contract to be void by common mistake the mistake must involve the actual subject-matter of the agreement and must be of such a "fundamental character as to constitute an underlying assumption without which the parties would not have entered into the agreements".

From the facts the Court found that the mistake was not sufficiently close to the actual subject-matter of the agreement. The parties got exactly what they had bargained for.

The MacMillan article explains that the ratio was in part the result of media attention at the time, and socio-economic context of the trial.

Significance

The case put a high standard on the finding of common mistake. This was criticized in the later cases written by Lord Denning such as in Solle v Butcher where Denning LJ reduced the standard by enumerating an equitable remedy for a shared common mistake, which rendered the agreement voidable. Subsequently in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002) the Court of Appeal purported to overturn Solle v Butcher and set the standard for common mistake in line with the original Bell v Lever Brothers standard.

Also in Scottish Co-operative Wholesale Society Ltd v Meyer,[1] Lord Denning remarked the following, in the context to the equivalent of an unfair prejudice action under UK company law. "Your Lordships were referred to Bell v Lever Brothers Ltd where Lord Blanesburgh said that a director of one company was at liberty to become a director also of a rival company. That may have been so at that time. But it is at the risk now of an application under section 210 if he subordinates the interests of the one company to those of the other."

See also

Notes

  1. ↑ [1959] AC 324

References

External links