''Bell v Lever Brothers Ltd'' UKHL 2
is an English contract law">931
UKHL 2
is an English contract law case decided by the House of Lords. Within the field of Mistake in English contract law, 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 Lever Brothers was a British manufacturing company founded in 1885 by two brothers: William Lever, 1st Viscount Leverhulme, William Hesketh Lever, 1st Viscount Leverhulme (1851–1925), and James Darcy Lever (1854–1916). They invested in and su ...

Ltd (which merged in 1930 to become

Unilever Unilever PLC () is a British multinational consumer packaged goods company headquartered in London, England. It was founded on 2 September 1929 following the merger of Dutch margarine producer Margarine Unie with British soap maker Lever B ...

) was a company which traded in

West Africa West Africa, also known as Western Africa, is the westernmost region of Africa. The United Nations geoscheme for Africa#Western Africa, United Nations defines Western Africa as the 16 countries of Benin, Burkina Faso, Cape Verde, The Gambia, Gha ...

, 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 Quakers are people who belong to the Religious Society of Friends, a historically Protestant Christian set of denominations. Members refer to each other as Friends after in the Bible, and originally, others referred to them as Quakers ...

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. 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 The United Africa Company (UAC) was a British company which principally traded in West Africa during the 20th century. The United Africa Company was formed in 1929 as a result of the merger of Royal Niger Company, The Niger Company, which had b ...

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 A golden parachute is an agreement between a company and an employee (usually an upper executive) specifying that the employee will receive certain significant benefits if employment is terminated. These may include severance pay, cash bonuses, ...

" 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 A cartel is a group of independent market participants who collaborate with each other as well as agreeing not to compete with each other in order to improve their profits and dominate the market. A cartel is an organization formed by producers ...

, 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 initial trial was held before Wright J and a City of London Special Jury.United Kingdom House of Lords
Lever Bros Ltd v Bell (1931) UKHL 2
delivered 15 December 1931, accessed 3 May 2023 The jury found that Bell and Snelling's illicit dealings breached the employment contract and that if the

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. 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.

Discussions

In an article by JC Smith, "Contracts- mistake, frustration and implied terms", it is suggested that ''Bell v. Lever Brothers'' can be analysed into cases of ''res sua'' and ''res extincta''. Lever Brothers in substance was buying the right to 'extinguish' Bell and Snelling. Both parties were under the common mistake that Lever Brothers should pay the "Golden Parachutes" to Bell and Snelling. Lever Brothers did not know Bell and Snelling were speculating while Bell and Snelling did not know their speculation would entitle Lever Brothers to dismiss them without paying anything. In the point of view of Lever Brothers, they are in substance buying a right they already had, that is extinguishing Bell and Snelling without paying a cent. This would be a case of ''res sua'', since you cannot buy something you already have. In the point of view of Bell and Snelling, it is the right of entitling the "Golden Parachutes" they are selling. This right does not exist since they speculated. The subject-matter they tried to sell, their right, no longer exist before they enter into the contract. This would be a case of ''res extincta'', the disappearance of the subject-matter of the contract. In either way, the contract would be void for mistake, though the House of Lords held that the mistake is not fundamental enough.

Significance

The case put a high standard on the finding of common mistake. This was criticized in the later cases written by

Lord Denning Alfred Thompson Denning, Baron Denning, (23 January 1899 – 5 March 1999), was an English barrister and judge. He was called to the Bar of England and Wales in 1923 and became a King's Counsel in 1938. Denning became a judge in 1944 when he w ...

such as in '' Solle v Butcher'' where Denning LJ reduced the standard by enumerating an

equitable remedy Equitable remedies are judicial remedies developed by courts of equity from about the time of Henry VIII to provide more flexible responses to changing social conditions than was possible in precedent-based common law. Equitable remedies were ...

for a shared common mistake, which rendered the agreement

voidable Voidable, in law, is a transaction or action that is valid but may be annulled by one of the parties to the transaction. Voidable is usually used in distinction to void ''ab initio'' (or void from the outset) and unenforceable. Definition The a ...

. 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'', 959AC 324 Lord Denning remarked the following, in the context to the equivalent of an unfair prejudice action under

UK company law British company law regulates corporations formed under the Companies Act 2006. Also governed by the Insolvency Act 1986, the UK Corporate Governance Code, European Union Directive (European Union), Directives and court cases, the company is th ...

. "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."

Notes

References

*C MacMillan, 'How temptation led to mistake: an explanation of Bell v Lever Brothers, Ltd' (2003) 119 Law Quarterly Review 625-659

External links

Full text at Bailii.org
{{DEFAULTSORT:Bell V Lever Brothers Ltd House of Lords cases 1931 in case law English contract case law 1931 in British law Unilever Insider trading