Contract – Mutual Mistake Test
Bell was director and chairman of Niger, a subsidiary of Lever Brothers Ltd who dismissed him, offering and paying pounds 30,000 compensation. Lever then discovered that Mr Bell had made secret profits at the expense of Niger for which he could have been summarily dismissed. Lever sought repayment of the pounds 30,000 and claimed rescission of the agreement for fraud. The jury found that there was no fraud, but if Lever had known of the dealings giving rise to the secret profits, it would not have paid compensation. Before the trial, Bell admitted his liability to account to Niger for his secret profits, and made a payment into court.
Held: The court laid down the test for identifying a mutual mistake in contract allowing the contract to be declared void.
The mistake must render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist. Was it the common assumption or pre-condition upon which the compromise agreement was made? The House asked whether there was a positive duty on the part of Bell and Snelling to disclose the breaches of contract they made. Lord Atkin concluded they had no such duty, saying of Healey: ‘It will be notice that Bell was not a director of Levers and with respect I cannot accept the view of Greer LJ that if he was in a fiduciary relationship with the Niger Company he was in a similar fiduciary relationship with the share holders’.
Lord Thankerton: ‘in the absence of fraud . . I am of the opinion that neither a servant nor a director of a company is legally bound forthwith to disclose any breach of the obligations arising out of the relationship so as to give the master or the company the opportunity of dismissal . . ‘ However, he also said, ‘there may well be case where the concealment of the misconduct amounts to a fraud on the master or company . . ‘
Lord Atkin considered the possible duty of disclosure of an intending partner: ‘Fraudulent concealment has been negatived by the jury; this claim is based upon the contention that Bell owed a duty to Levers to disclose his misconduct, and that in default of disclosure the contract was voidable. Ordinarily the failure to disclose a material fact which might influence the mind of a prudent contractor does not give the right to avoid the contract. The principle of caveat emptor applies outside contracts of sale. There are certain contracts expressed by the law to be contracts of the utmost good faith, where material facts must be disclosed; if not, the contract is voidable. Apart from special fiduciary relationships, contracts for partnership and contracts of insurance are the leading instances. In such cases the duty does not arise out of contract; the duty of a person proposing an insurance arises before a contract is made, so of an intending purchaser.’
Atkin L, Lord Thankerton, Lord Blanesburgh
[1932] AC 161, [1931] UKHL 2
Bailii
England and Wales
Citing:
Dictum approved – Healey v Societe Anonyme Francais Rubastic 1917
A director of the company claimed arrears of salary for work done notwithstanding that he had been summarily dismissed for misconduct. There was no question of a claim for damages for breach of duty. . .
Appeal from – Bell v Lever Brothers Ltd CA 1931
The court was asked as to the duties of a company director: ‘It does not seem to me open to question that the directors of a company occupy a fiduciary position towards the company, with the result that they cannot retain a benefit they have . .
Approved – London and Mashonaland Exploration Co Ltd v New Mashonaland Exploration Co Ltd 1891
There is nothing inherently objectionable in the position of a company director (and chairman) who, without breaching any express restrictive agreement or disclosing any confidential information, becomes engaged, whether personally or as a director . .
Cited by:
Confirmed – Great Peace Shipping Ltd v Tsavliris (International) Ltd CA 14-Oct-2002
The parties contracted for the hire of a ship. They were each under a mistaken impression as to its position, and a penalty became payable. The hirer claimed that the equitable doctrine of mutual mistake should forgive him liability.
Held: . .
Cited – William Sindall Plc v Cambridgeshire County Council CA 21-May-1993
Land was bought for development, but the purchaser later discovered a sewage pipe which very substantially limited its development potential. The existence of the pipe had not been disclosed on the sale, being unknown to the seller.
Held: . .
Cited – Associated Japanese Bank (International) Ltd v Credit du Nord SA 1988
A contract of guarantee was made, but based upon a term of fundamental importance which was mistaken as to the existence of certain machines.
Held: The court must first look to the nature of the purported agreement. Steyn J said: ‘Logically, . .
Distinguished – Horcal Ltd v Gatland ChD 1983
Directors have a positive duty to disclose breaches of fiduciary duty. A failure by a director of a company, as opposed to an employee, to disclose an earlier breach of fiduciary duty would render an agreement terminating his contract of service (on . .
Cited – Horcal Ltd v Gatland CA 1984
The court considered the arguments presented as to the duty of a director of a company to disclose his own breach of fiduciary duty: ‘Counsel . . submitted, as a general proposition, that, putting fraud on one side, there is no general duty on . .
Cited – EIC Services Ltd European Internet Capital Ltd v Phipps, Paul, Barber CA 30-Jul-2004
Whether issue of additional shares had been properly authorised . .
Cited – Item Software (UK) Ltd v Fassihi and Others ChD 5-Dec-2002
Enforcement of confidentiality clause in contract of employment on termination. . .
Cited – Fassihim, Liddiardrams, International Ltd, Isograph Ltd v Item Software (UK) Ltd CA 30-Sep-2004
The first defendant (F) had been employed by a company involved in a distribution agreement. He had sought to set up a competing arrangement whilst a director of the claimant, and diverted a contract to his new company.
Held: A company . .
Mentioned – Ultraframe (UK) Ltd v Fielding and others ChD 27-Jul-2005
The parties had engaged in a bitter 95 day trial in which allegations of forgery, theft, false accounting, blackmail and arson. A company owning patents and other rights had become insolvent, and the real concern was the destination and ownership of . .
Cited – Halpern and Another v Halpern and others ComC 24-Mar-2006
The deceased parents, being orthodox Jews, had first made standard wills and then made provision accoding to Jewish law. A dispute after the second death was referred to a Beth Din arbitration. After an initial resolution, various distributions were . .
mentioned – Islington v Uckac and Another CA 30-Mar-2006
The council’s tenant had unlawfully secured assignment of a secure tenancy to the defendant. The council sought possession.
Held: A secure tenancy granted by an authority pursuant to a misrepresentation by the tenant is nonetheless valid. The . .
Cited – Simms v Conlon and Another CA 20-Dec-2006
Solicitors within a practice sued each other, and one wished to plead the fact of a finding of professional misconduct.
Held: The defendant’s appeal succeeded. It was not an abuse for the appellant to continue to assert his innocence, and the . .
Cited – Graves v Graves and others CA 3-Jul-2007
The parties had divorced and settled financial provision, but the former wife and her children came to need a house and one of the claimant’s properties became vacant, and she was allowed to occupy it as a tenant, with the majority of the rent being . .
Cited – Butters and Others v BBC Worldwide Ltd and Others ChD 20-Aug-2009
In the insolvency of Woolworths plc, a subsidiary sought to have valued its shareholding in a company in which the defendants were co-shareholders. It was argued that an earlier agreement between them had not be fully superceded by a subsequent one. . .
Cited – Helmet Integrated Systems Ltd v Tunnard and others CA 15-Dec-2006
Whilst employed by the claimants as a salesman, the defendant came to want to develop his idea for a modular helmet suitable for fire-fighters and others. He took certain steps including showing the proposal confidentially to a competitor, and then . .
Cited – Balston Ltd v Headline Filters Ltd and Another ChD 1990
The claimant, a manufacturer of filter tubes, employed the defendant as a director. He gave notice to leave, but during his notice period, he was contacted by a customer who informed him of a meeting between that customer and the company at which . .
Cited – Lehman Brothers International (Europe) v Exotix Partners Llp ChD 9-Sep-2019
The parties had contracted to trade global depository notes issued by the Peruvian government. Each made mistakes as to their true value, thinking them scraps worth a few thousand dollars, whereas their true value was over $8m. On the defendant . .
Lists of cited by and citing cases may be incomplete.
Contract, Company
Leading Case
Updated: 29 November 2021; Ref: scu.181343