Die Martis, 15°
Decembris, 1931,
Parliamentary
Archives,
HL/PO/JU/4/3/858
BELL AND ANOTHER
v.
LEVER BROTHERS,
LTD., AND OTHERS.
Viscount
Hailsham
Lord
Blanes-
burgh.
Lord
Warring-
ton of
Clyffe.
Lord
Atkin.
Lord
Thanker-
ton.
Lord Blanesburgh.
MY LORDS,
I understand that my noble and
learned friend Viscount Hail-
sham has read the judgment about to
be delivered by my noble and
learned friend Lord Warrington of
Clyffe and agrees with it. This
is my own opinion which I now
proceed to express.
This is an Appeal by the
Defendants from an order of the
Court of Appeal of the 17th of
November, 1930, which affirmed
a judgment of Mr. Justice Wright
of the previous 5th of June
pronounced after the trial of the
action before himself and a
City of London Special Jury. By his
judgment the learned
Judge, amongst other things, ordered that
two several agreements
—I propose to refer to them as the
agreements of settlement—
made on the 19th March, 1929,
with each of the Appellants by
the Respondents Lever Brothers,
Ltd., should be set aside and
that the moneys received under them
should be repaid to Levers.
The sum which the Appellant Mr. Bell
had thus to repay included
premiums amounting to £1,224 2s.
3d. on an endowment policy,
later to be mentioned, which under
the agreement of settlement with
him had been paid by Levers on
his behalf.
The facts of the case and the
course of the litigation make a
long story, even if, in detail,
those incidents only are dwelt upon
which have a bearing upon the
issues remaining to be dealt with
on the Appeal.
In Niger Co., Ltd., a company
of large resources, with a paid-up
capital of £4,750,000
and issues of debenture stock aggregating
£5,500,000,
Levers had as shareholders a controlling interest. They
held in
and after 1925 99.5 per cent, of the issued share capital.
The
business of Niger was to deal in West African products,
including
cocoa. It is with its cocoa business alone, exten-
sive enough in
itself, but only a portion of its total activities, that
this
case is immediately concerned. For several years before
1923
Niger had been meeting with heavy losses, and Levers, for
the
protection of their then large investment in it, had themselves
been
financing or bearing these losses. Confronted in 1923 with
the
urgent problem of securing less unfavourable results,
Levers
approached the Appellants with an invitation to undertake
between
them the reorganisation and management of Niger.
At that time Mr. Bell was joint
manager of one of the great
London banks. He had had a long
experience of banking, with
some knowledge of trade on the West
Coast. Mr. Snelling's
selection was due to the fact that he was
an accountant of excep-
tional ability who had just rendered
notable service to Levers in
bringing about a favourable
adjustment of Inland Revenue demands
upon them.
Under Mr. Bell's engagement
with his bank he was entitled
on retirement after a few further
years' service to substantial pen-
sion rights. As he would
forfeit these if he were to leave the bank
2 [2]
to take up other work, some
substituted provision on this head,
operative without reference to
the duration of the new service,
was for him of essential
importance. It does not appear that any
similar sacrifice was
involved in Mr. Snelling's acceptance of the
offer made him, and
this difference of circumstance in the two cases
is reflected in
the final agreements reached. In the result Levers'
invitation was
favourably entertained by both Appellants, and in
due course the
conditions of their employment were embodied in
letters passing
between Levers, or the late Lord Leverhulme on
Levers' behalf, and
the Appellants respectively. These letters and
the formal
agreements referentially embodying their terms—separ-
ate
agreements with each Appellant—were to the following
effect.
For Mr. Bell, Levers were to take out and pay all premiums
upon
an endowment policy on his life, but maturing at sixty or
previous
death for an amount which on death before maturity would
provide
£16,200, and on maturity would provide £1,500
per annum or
£16,200 at his option. The policy was to belong
to Mr. Bell and
the premiums were to be paid by Levers,
notwithstanding the ter-
mination of his engagement, unless it was
terminated by himself. To
this obligation on Levers' part, I must
return later. I pause now
only to observe that Mr. Bell's
secession from the service of his
bank to undertake his new
employment—an act at once complete—
was the entire
consideration for this particular promise on Levers'
part and
stands out separate from the other provisions of the
agreement.
For the rest Mr. Bell was to be
appointed and maintained by
Levers as Chairman of Niger for five
years from the 1st of Novem-
ber, 1923, at a salary of £8,000
a year, during which time he was
to devote the whole of his time
and attention during business hours
" to the business "
of Levers. Thus was it expressed in the formal
agreement of 9th
August, 1923. As to Mr. Snelling he was to
serve " in regard
to the West African interests " of Levers (note
the phrase)
for five years from the 1st October, 1923, at a salary of
£10,000
per annum to the 31st March, 1925, and of £6,000 per
annum
for the rest of the term. There was in the formal agree-
ment with
him the same provision as to his time and attention
that was
contained in the agreement with Mr. Bell.
In July, 1926, by further
agreements then entered into the
service of the Appellants was
continued. The earlier contract with
Mr. Bell was replaced by a
fresh agreement for five years from
the 1st of July, 1926, at the
same salary and insurance premium
with the addition of a
commission in certain events which never
in fact became either
actual or prospective. Mr. Bell was to be
Chairman of Niger for
the whole term.
The new agreement with Mr.
Snelling was for the same
extended period, at his same salary of
£6,000 per annum, with
the same commission as in Mr. Bell's
case. Mr. Snelling was to
be Vice-Chairman of Niger for the whole
term.
On the 14th September, 1923,
Niger formally appointed both
Appellants to be Directors of the
Company and the Appellant
Bell to be its Chairman. On the 8th of
April, 1924, Mr. Snelling
was formally by Niger appointed
Vice-Chairman of the Company.
From the autumn of 1923 until the
end of April, 1929, when their
service ceased under the agreements
of settlement now in question
the joint management of the
Appellants continued through the
exercise by them of the duties
attached to these two offices and to
the Directorate of Niger's
Associated Companies, to which also
they were appointed. With
reference to that joint management,
it is convenient at once to
observe that although in the letters of
appointment it was to the
" business " or to " the West African
interests '
of Levers that the Appellants were respectively
apparently to
attend yet from the beginning to the end of their
[3] 3
engagement as probably always
intended, it was in the business of
Niger that they were
exclusively employed. It was by their appoint-
ment to the
Chairmanship and Vice-Chairmanship of Niger and
to the directorate
of its many associated companies with all
attendant
responsibilities as such that they were clothed with the
necessary
and only powers of management and control which they
ever
exercised or possessed.
The consequences flowing from
all this are important. As
will appear later these were never
fully appreciated at the Trial
and the resultant confusion is only
now clearly revealed before your
Lordships' House. Although Lord
Leverhulme in one of his letters
to Mr. Bell did point out to him
that he would be responsible for
his actions to the shareholders
of Niger it is not plain that by
that expression Lord Leverhulme
meant more than Lever Brothers,
Limited, and it is sufficiently
clear from other indications that to
his business mind Lever's
West African Interests, Lever's West
African business, and the
Niger Company Limited, were practically
convertible terms,
notwithstanding the fact that the .5 per cent.
outstanding shares
in Niger represented 23,750 shares of £1 each
held by 300
shareholders, and that £5,500,000 Debenture Stock
was
outstanding in the hands of the public. And this view,
natural
enough perhaps to a layman of Lord Leverhulme's realism,
re-
mained persistent up to the close of the Plaintiffs' case
at
the first hearing of this action. Until then Levers were
the
only Plaintiffs: the theory still apparently being that
Niger was
so subordinate to Levers that to a suit which in
large measure was
for the vindication of its own proprietary rights
it was not even
necessary to make it party. The addition of Niger
as Plaintiff
after the first hearing corrected, formally, this miscon-
ception,
but it never entirely disappeared. Lever's West African
Interests
although there were none in question which were not the
property
of Niger was a description that survived even at your
Lordships'
Bar while the Appellants both in the summing up and in
the
questions put to the Jury were represented as servants, serving
two
masters, Lever's and Niger, each of whom had separate rights
of
dismissal depending upon identical considerations.
How serious in its present
consequences that confusion may
prove to be will emerge in the
sequel. At this stage it suffices to
observe that if regard is
had, as it must necessarily be, to the
essential separation in
personality between Levers and Niger, to
say nothing of their
possible divergence in interest, the relation in
which the
appellants ultimately stood to Levers and Niger
respectively is
not, as I think, in any way doubtful. By Levers'
agreements with
them, Levers were bound to maintain the
Appellants in their
respective offices in Niger for the prescribed
term at the
prescribed remuneration. The Appellants in return
agreed with
Levers, but with Levers only, to devote the whole of
their
business hours and abilities to the discharge of their duties.
As
between the Appellants and Niger it was in that Company's
Articles
of Association that their terms of service were to be found
(Swabey
v. Port Darwen Company 1 Meg. 38), and it was by
the
general law as modified by any provisions of these articles
that their
responsibilities and liabilities to Niger in respect of
any actions of
their own would fall to be ascertained. Costa
Rica Railway Com-
pany v. Forwood, 1901, 1 Ch. 746,757.
As a result there remained no
contract by the Appellants to
serve Levers in a post from which
Levers could " dismiss " them.
Nor is " dismissal "
the term by which their expulsion from office
by, or their
cessation of office in Niger would properly be described.
So far
as Levers were concerned they were as the result of their
agreement
bound to maintain the Appellants in office so long only as
they
fulfilled their prescribed duties as officers of Niger, devoting the
13106 A 2
4 [4]
whole of their business hours to
the discharge of these duties. So
soon as they defaulted in these
respects Levers would be justified in
stopping any further
payments to them, and would be relieved from
the obligation
of further maintaining them in their offices. But
that would be
all. For the rest Levers had to rely only on their
voting power as
shareholders of Niger. Again, so far as Niger was
concerned its
powers, never powers of " dismissal " were in no
way
dependent upon any breach of duty by the Appellants. The
Niger
shareholders as such could at any time effectively remove
the Appel-
lants by special resolution (see Article 46 (2) ), even
if, in the dis-
charge of every duty they owed to the Company,
their actions had
been beyond reproach or even criticism.
And now to proceed again with
the narrative. From July, 1925,
the Appellants' remuneration,
fixed by their agreements with Levers
was paid to them by Niger
direct, and such was the success of their
management that the
unsatisfactory position of Niger to which
they had succeeded in
1923 was transformed into a state of great
prosperity. "
Every one agrees," said Mr. Justice Wright
speaking of the
Appellants in his summing up the case to the
Jury at the Trial, "
that their conduct and their work for their
" Company [was]
most efficient devoted strenuous and successful."
And here reference must be made
to a matter which, although
only incidental, will be found finally
to colour the whole case of the
Appellants. On the Coast, during
the Appellants' management of
Niger, there were three other
concerns trading in cocoa—the African
and Eastern Trade
Corporation, Limited, the Anglo-Guinea
Produce Company, Limited,
and Frame and Company, Limited.
In 1925 and 1926 two agreements
were come to between these four
companies. They are referred to in
the proceedings as the Pool
Agreements and they were entered into
for the purpose of pro-
tecting the trade of the companies in
buying and selling cocoa.
By them provision was made for fixing by
a Committee a Pool buying
price and a Pool selling price of cocoa,
and each company was
required timeously to notify to the others
and to the Pool Committee
the quantities and prices of cocoa
purchased or sold by it, while,
for subsequent division amongst
the four constituents according to
prescribed percentages, payment
was to be made, first of a " Pool
" Tax " on all
purchases of cocoa by each of them, and secondly of
any excess sum
over a prescribed amount received on sales by any
of them. It is
not however the precise terms of these agreements
which are now
directly relevant: their immediate bearing upon the
case arises
from a clause contained in each agreement which seeks
to associate
the directors of every constituent company in the
obligations
thereby undertaken by that company. The clause in the
earlier pool
agreement is not a little confused. The clause in the
later
agreement is however free from ambiguity and it provides
that any
reference to any company party thereto shall where the
context so
admits include its directors for the time being . . .
and that
each party undertakes that its directors . . . shall
be bound by
the terms of the agreement so far as respects their
respective
dealings in cocoa (if any) and that all such dealings shall
for
all purposes be deemed to be acts of such party thereto done
under
the terms of the agreement and to be accounted for
accordingly.
These pool agreements were, of
course, well known to the
Appellants. Indeed, they were the result
of negotiations in which
one or both of them took part. The first
agreement was signed on
behalf of Niger by Mr. Snelling : the
second by Mr. Bell. Mr.
Snelling was a member of the Pool
Committee and from time to
time attended its meetings. But both
Appellants said quite
definitely and positively that actual
knowledge of the existence of
[5] 5
what may be called the
directors' clause they never had, and that
until shortly before
the institution of this action and some months
after the execution
of the agreements of settlement they had no
idea that, as a result
of any operations of their own, Niger could be
involved in any
liability to the Pool. And I can myself have no
doubt that the
Jury accepted as reliable the evidence of the
Appellants on this
point. It is clear from the answers given by them
to the series of
questions addressed to them by the learned Judge at
the Trial that
the Jury regarded the Appellants as witnesses of
truth. A perusal
of the record shows how invariably in
these answers the Jury had
accepted the Appellants' recollection
when it was in conflict with
that of other witnesses. On
this present point there was no
conflict. From its very nature
it was a subject upon which the
Appellants alone could depose.
And their statements are not
difficult of acceptance when the agree-
ments themselves and the
situation therein of the clauses in question
are examined.
And the acceptance of this
statement made by both Appellants
becomes of importance at
different stages in the case, and not least
when your Lordships
approach, as now you must, the task of
ascertaining precisely the
nature and implications of the
transactions of the Appellants
which lie at the root of the orders
under appeal. It will be
convenient to refer to these as the
offending transactions. Four
in number they all took place in the
short interval between the
4th November, 1927, and the 14th
December following. They were
transactions in cocoa differences
on the Appellants' behalf. They
were carried through on the
market by Niger's usual brokers on the
instructions of
the Appellants or one of them and, as the Jury
must
clearly be taken to have found, to the knowledge of
these
brokers that they were the Appellants' own transactions.
Three
of them were more or less unprofitable. One only was
successful
and the net result of the four was a profit of £1,360.
In
January, 1928, the transactions were closed and the profit
was
received from the brokers. And that was the end. Nothing else
of
the kind happened before or afterwards. None of the
transactions
in fact caused any damage to Niger, still less to
Levers. No use
was made by the Appellants in the course of them
either of Niger's
property or of any information obtained by them
as Directors of
Niger. Such must be the description of the
offending transactions
according to the findings of the Jury who,
on this subject also,
clearly accepted the evidence of the
Appellants as the evidence of
truth.
To this description, however,
two things must be added. The
first, that these transactions,
although the Appellants were ignorant
of the fact, involved a
breach of the directors' clause of the Pool
Agreement for which—if
these agreements were not invalid as being
in restraint of
trade—Niger might be made responsible for the other
companies
parties thereto. Apparently, however, no attempt to
ascertain the
existence or the extent of such responsibility has yet
been made.
And the second, that, although
in the end regarded by the
Jury in the light most favourable to
the Appellants, these
transactions remained at the best most
ill-advised. They had
to be executed secretly, described by
separate letters lest in the
market they should be supposed to be
the transactions of Niger.
And they were conducted with further
secrecy so that they might
not be generally known in the office of
Niger itself. Such a pro-
cedure when it is discovered inevitably
arouses suspicion. No
transaction of a director open to the least
suggestion of association
with his company can ever hope to escape
censure or even condemna-
tion if it has been carried out in
secret. In this instance once again,
13105 A 3
6 [6]
as so often before, it was the
secrecy from Levers practised by the
Appellants that brought down
upon them the charges of dishonesty
from which they have only
escaped after a sixteen days' hearing
before a Judge and Jury.
For of course the allegations
put forward by the Respondents
with reference to these
transactions made of them something very
different. Most grave
were the charges of fraud levelled against the
Appellants in
respect of them. That however is another story which
will find its
place at a later stage of the narrative.
As has been said the cocoa
business of Niger was little more than a
minor part of its total
activities, and in amount the offending trans-
actions were a mere
fraction of Niger's current cocoa business. To
these
considerations, coupled with the view of the transactions taken
by
the Jury may be attributable the conclusion also reached by them
that
these transactions did not even remain in the minds of the
Appellants
when the agreements of settlement were made. They
were, it must be
emphasised, not known in any way to Levers until
after these
agreements had been completed.
The actual retirement of the
Appellants from the Niger service
had no connection with the
offending transactions. The neces-
sity for it came about in quite
a different way. Niger's principal
competitor on the coast had
always been the African and
Eastern Trade Corporation already
mentioned. Amalgamation
of the two concerns had in the years prior
to 1929 been the
subject of negotiation on a basis of Niger having
one fourth
or at best one third interest in the combine. But by
1929 the
position of Niger had so greatly improved both absolutely
and
relatively that in that year the amalgamation negotiations
were
revived on what has been called a fifty-fifty basis. And it
is
apparent on the record that the higher participation meant
for
Niger an increase of many hundreds of thousands of pounds
in
money's worth, the credit for which is not denied to the
Appellants.
The negotiations for this amalgamation were long and
delicate.
Mr. Snelling was on the coast while they were proceeding
but Mr.
Bell rendered valuable services in bringing them to a
successful
conclusion—services handsomely acknowledged at
the time by Mr.
D'Arcy Cooper of Levers who explained to Mr. Bell
that the way
he had put his personal position aside throughout the
negotiation
had relieved him of a great deal of difficulty.
(Record p. 383.)
What Mr. Cooper meant was that Mr. Bell had not
stood out for
any position in the new Company for himself,
although he knew
full well that if neither he nor Mr. Snelling
were to join that Com-
pany, the scheme of amalgamation must
necessarily involve
their retirement altogether from Niger, For by
the scheme
the assets of both amalgamating Companies were with
certain
reservations to be transferred to the new Company, each of
the
old Companies receiving in return equal holdings of fully
paid
shares in that Company. And the transfer actually took effect
on
the 1st May, 1929; and as from its completion Niger became a
mere
holding Company influencing by means of its voting power
the
policy and administration of United Africa Limited, the
new
Company, but with no outlet within its own constitution for
the
undivided energies of the Appellants as its Chairman and
Vice-
Chairman, respectively. All this was realised while the
negotia-
tions for amalgamation were still only in progress and
during that
interval steps were taken by Mr. Cooper acting on
behalf of Levers
to bring about, after everything had been
completed, the termina-
tion of the Appellants' employment on some
agreed terms of pay-
ment. And the ensuing negotiation conducted
with the Appellants
separately resulted in the two agreements of
settlement with which
this litigation has been mainly concerned.
[7] 7
The agreement of settlement come
to with Mr. Bell is embodied
in a letter from Mr. Cooper to him of
the 19th March, 1929, in the
following terms :
dear bell,
As promised at our interview
to-day I write to record the
agreement then arrived at between us,
viz., that on the pro-
visional agreement for the amalgamation of
the African and
Eastern Trading Corporation and the Niger
Company
becoming effective as from the 1st May next you will on
that
date retire from the Boards of the Niger Company and its
sub-
sidiaries, including H.C.B. and its subsidiaries and in
con-
sideration of your so doing Lever Brothers, Limited, will
pay
you as compensation for the termination of your
agreement(s)
and the consequent loss of office the sum of £30,000
in full
satisfaction and discharge of all claims and demands by
you
of every nature and kind and howsoever arising against
Lever
Brothers, Limited, the Niger Company, the H.C.B. and
any
company, person or firm associated with them or any of
them
either directly or indirectly.
With regard to the insurance
premium payable on the
policy on your life with the Yorkshire
Insurance Company it
was agreed that Lever Brothers will continue
to pay such
premium until the policy matures.
Will you please let me have your
reply confirming the above
arrangement.
I should like to be allowed to
say how deeply the Board
of Messrs. Lever Brothers appreciate the
work that you have
done for the Niger Company during the period
that you have
been in control.
Yours sincerely,
F. D'arcy cooper.
The agreement of settlement come
to with Mr. Snelling was on
lines similar to that reached with Mr.
Bell. Mr. Cooper's letter
to him of even date recording its terms
is, however, as interesting
for its variations from that addressed
to Mr. Bell, as it is for its
similarity thereto. It is as follows
:—
March 19th, 1929.
Dear
snelling,
As promised at our interview
to-day I write to record the
agreement then arrived at between us,
viz., that on the pro-
visional agreement for the amalgamation of
the African and
Eastern Trade Corporation and the Niger Company
becoming
effective as from 1st May next you will on that date
retire from
the Boards of the Niger Company and its subsidiaries
including
the H.C.B. and its subsidiaries and in consideration of
your
so doing Lever Brothers Limited will pay you the sum
of
£20,000 in full satisfaction and discharge of all claims
and
demands by you under your agreement of employment or in
any
other capacity whatsoever and whether in respect of
salary,
commission, bonus, expenses, compensation for loss of
office
or otherwise.
Will you please let me have your
reply confirming the
above arrangement.
I should like to be allowed to
say how deeply the Board
appreciate the work that you have done
for the Niger Company
during the period that you have been in
control.
Yours sincerely,
F. D'arcy cooper
13105 A 4
8 [8]
In due course confirmatory
letters were written and the agree-
ments were duly carried out.
The Appellants received their re-
muneration and continued in
active discharge of their duties until
the 30th of April
following. They then formally resigned all their
directorships as
required by the agreements and received from
Levers the
compensation arranged.
My Lords, while it is fully
accepted that the offending transac-
tions were entirely unknown
to and unsuspected by Mr. Cooper
when the negotiations were
proceeding, there was a serious differ-
ence of recollection
between Mr. Cooper and Mr. Bell on the ques-
tion whether Mr. Bell
did not, in order to justify a large payment
to himself, expressly
say in the course of the negotiations that he
had faithfully and
honestly served Niger during his association
with that Company.
Mr. Bell was certain that he made no such
statement in any such
connection and the Jury it is clear accepted
his recollection and,
as will be seen later, exonerated him from the
charge of
fraudulent misrepresentation based upon the allegation
that the
statement was his.
With regard to these agreements
of settlement there is one matter
which may be conveniently dealt
with while the agreements them-
selves are immediately in mind. It
is affirmed by the Respondents,
with reference to them, and the
acceptance of the allegation is
implicit in the Judgments appealed
from, that the sole considera-
tion moving from Levers for their
agreement to pay Mr. Bell
£30,000 and Mr. Snelling £20,000
was the satisfaction of what
Lever's, still in ignorance of the
offending transactions, supposed
were their respective salary
rights under enforceable agreements of
service with 2 years and 2
mouths of the term in each case unex-
pired. The suggestion
touches an issue of primary importance in
the final decision of
this appeal. It is, I think, demonstrably
incorrect. Although it
is true that in the letter to Mr. Snelling
commission is actually
mentioned, I do not find on. an examination
of the record that the
prospect of any commission being receivable
by either Appellant
was ever of substance and I feel satisfied that
it in no way
entered into the adjustment of figures. On the basis
of salary to
be lost, therefore, the maximum figure in prospect for
Mr. Bell
was £17,333 6s. 8d. and for Mr. Snelling £13,000.
But
these sums could not have been recovered even in actions for
wrong-
ful dismissal, because allowance must in each case have
been made
for the fact that the whole sum was being immediately
paid and for
the further fact that each Appellant was being
released from his
obligation of continued service and was being
left free to seek other
remunerative employment. And this
employment in the case of
Mr. Snelling at all events—Mr.
Bell it seems proposed to return
to his farm—was likely to
be immediate and on terms perhaps little
less favourable than
those attached to the post of which he was
being deprived.
Accordingly even these maxima must on this basis
have been subject
to serious reduction. Moreover that this sole
consideration did
not instruct the amounts paid is confirmed when
it is found that
these sums were not on that footing proportionate
(as seems
erroneously to have been supposed in the course of the
Trial. See
Record, p. 437). If £20,000 was on this footing the
sum
claimable by Mr. Snelling £26,666 13s. 4d. only should
have
been awarded to Mr. Bell. If Mr. Bell's payment of £30,000
was
the standard, Mr. Snelling should have received not £20,000
but
£22,500.
And this line of reasoning might
easily be further pursued, with
the result of making it, as I
think, clear that while undoubtedly
the claim for unearned salary
amounting at the remote outside in
one case to over £17,000
and in the other to £13,000 was a material
consideration for
the payments agreed to, it was neither on the terms
of either
letter nor in fact the sole inducing cause. Into that induce-
ment
there undoubtedly entered the desire tangibly to recognise the
[9] 9
exceptional services rendered to
Niger by each Appellant acknow-
ledged in each letter and even now
affirmed : still more perhaps to
enlist their support of the
amalgamation and to have their assist-
ance in carrying it through
in all its details to completion : above
all to secure on the 1st
of May following the voluntary resignation
by each Appellant of
all his offices, results of value, it may have
been of' infinite
value, to the prospects of a delicate negotiation in
the success
of which millions of pounds were involved. And these
last two
results could not have been secured if Levers, instead of
writing
through Mr. Cooper the letters of the 19th March.
1929, had, with
the real offending transactions then disclosed to
them, repudiated
all further obligations under their agreements
with the
Appellants, and as shareholders in Niger had sought, in
spite of
the Appellants' opposition—quite effective for a
sufficiently
long period—to remove them from office. The
vital significance of
this conclusion, even so far as it can be
reached on existing materials
and apart from amplification
resulting from further investigation,
will later appear.
Some two months later, as a
result of inquiries made of the
Appellants with reference to
certain cocoa transactions of Niger
of which complaint in
arbitration proceedings was being made by
other members of the
pool, the offending transactions were brought
back to the minds of
the Appellants, and for the first time, as they
asserted, they
became aware of the Directors' Clause in the pool
agreements. Mr.
Bell thereupon informed Mr. Cooper of the facts
relating to the
offending transactions in terms which in effect were
those finally
found by the Jury as above stated. There was immense
controversy
at the Trial as to the details of this conversation with
Mr.
Cooper, but it does not seem necessary to go more deeply into
that
matter now, for Levers did not and would not accept from
Mr. Bell
any innocent explanation of transactions in their view
highly
improper which, until that moment, had been completely con-
cealed
from them, and on the 7th August, 1929. they issued their
writ in
this action with themselves alone as Plaintiffs, and the
Appellants
as Defendants. The allegations made by the points of
claim were to
the effect that the Appellants were the servants of
Levers; that
it was their duty to serve Levers faithfully and honestly
and not
to act in any way prejudicial to the interests of Levers;
that the
offending transactions constituted such misconduct on the
part of
the Appellants as to entitle Levers instantly to terminate
the
service agreements with them and to dismiss them without
notice,
and that had Levers known of the offending transactions
they would
have in fact dismissed the Appellants; alternatively it
was
alleged that the Appellants had wrongfully conspired to make
secret
profits for themselves and that the agreements of settlement
were
obtained by them respectively " falsely and fraudulently con-
'
cealing from [Levers] that they and each of them had [entered
'
into the offending transactions] and also by falsely and
'
fraudulently verbally representing to [Levers] that they had
'
faithfully and honestly served Levers and /or Niger."
The 26th paragraph of the Points
of Claim was as follows :—
" Alternatively the said
agreements (i.e., the agreements
of settlement) and each of
them were made and the moneys
" paid thereunder were paid
under a mistake of fact."
Particulars being asked for of
the " mistake " it was stated to
be " that the
defendants and each of them had acted honestly in
" their
conduct of the affairs of the Niger Co. Ltd. and had not
"
dealt in cocoa on their own account and/or in so dealing on their
"
own account had not acted contrary to their duty and / or the
"
terms of their respective contracts."
The relief claimed was damages
for conspiracy and / or
fraudulent concealment, breach of duty and
breach of contract;
10 [10]
rescission of the agreements of
settlement; an account of all
transactions and dealings in cocoa
entered into by the Appellants
and payment by them of the amounts
found due on the taking of
such account.
Objections on lines already
indicated might very effectively have
been taken to the whole
scheme of the action and in particular to
the relief claimed by
Levers for themselves in respect of the offending
transactions in
a suit to which Niger was not a party. But
none such were in terms
taken. Indeed from the moment when
the Directors' Clause of the
pooling agreement was brought to the
notice of the Appellants they
refrained from any justification of
the offending transactions as
such and were ready to account for
all the profit they had made by
them. ' If I had known that [the
" Directors' Clause] existed
I would not have defended even at the
" time any of the
transactions that I did," was one of Mr.
Snelling's answers
in cross-examination; and in accord with this
attitude the £1,360
profit from these transactions had, in January,
1930, been duly
tendered to Niger by the Appellants, and had been
refused.
The action came on for trial
before Mr. Justice Wright and a
Special Jury on the 26th March,
1930, and it was opened, and
evidence was called to prove a case
of fraudulent misrepresenta-
tion and concealment only. Nothing at
all was said about such
things as mistake, or duty to disclose or
fiduciary relation or
uberrima fides. On the 4th day of the
hearing, Levers closed their
evidence, and following, as they
stated, information derived from
an examination of the brokers'
books, they applied for leave to
amend their points of claim in
order to raise against the Appel-
lants further charges of fraud,
the nature of which they fore-
shadowed. The trial had become one
of wide public interest, and
so soon as these new charges—all
of them of the gravest descrip-
tion—were stated in open
Court, the Appellants, in the interests of
their own reputations
felt, as they said, that they must be met.
Accordingly with no
discussion except as to terms, leave to amend,
on stringent
conditions, was given to Levers and the hearing, on the
amended
pleadings, was adjourned until the 13th of May to be
then heard
with a new Jury. During the interval the opportunity
was taken to
add Niger as a co-plaintiff, with the appropriation to
Niger of
the relief appertaining to the offending transactions. It
was
apparently taken for granted when Niger was added as
co-plaintiff
that its rights in the matter had not as a part of its
undertaking
passed to United Africa on the amalgamation. Per-
haps they did
not. Niger's title to sue has not been challenged
any more than
has Lever's; although if Lever's did quite justifiably
charge
against Niger the compensation paid under the agreements
of
settlement as they were charging against Niger the remuneration
of
the Appellants represented by a part of it, even the right to
claim
rescission of the agreements, of settlement may also have
passed to
United Africa as part of Niger's undertaking. But this
objection
has not been taken. Levers, who made the compensation
payments
in the first instance may have been content as between
themselves and
Niger to bear them finally, and for other reasons
there may be
nothing in the point. Accordingly I pass on.
A perusal of the other
voluminous amendments shows that the
sting of them lay in the new
allegation that the offending trans-
actions were all of them in
their origin the transactions of Niger,
subsequently appropriated
to themselves by the Appellants through
the innocent agency of the
company's brokers after it had become
clear to them that the
transactions would be profitable. Para-
graph 26 of the original
points of claim remains unaltered. But
still no case of duty to
disclose, or of fiduciary relation or of
uberrima fides was
made by the amended pleading.
[11] 11
My Lords, the Respondents took
upon themselves a very grave
responsibility in launching at that
stage against men who in all
others respects had deserved well of
them these charges so grave
as to be almost criminal in character.
I do not doubt that the
Respondents acted in good faith in making
them. But, although
persisted in to the end of the long hearing
the charges entirely
failed; and the Appellants are entitled at
the least to have that
failure remembered on any application by
the Respondents for
further indulgence in this action whether by
way of amendment of
pleadings or otherwise. .
The matters dealt with in the
evidence will in the main be found
reproduced in the questions
left by the learned Judge to the Jury
at its close. To these
questions reference has already been made.
With the answers given
by the Jury to each, I now record them :—
1. Did the Defendant Bell
and/or the Defendant Snelling
fraudulently misrepresent to
the Plaintiffs Levers that they had
faithfully and honestly served
Levers and / or Niger with the object
and effect of inducing
Levers to make the agreements or either of
them of the 19th March,
1929?
Jury's answer : No.
2. Did the Defendant Bell
and / or the Defendant Snelling
fraudulently conceal from
Levers and / or Niger that they or either
of them had had the
dealings complained of with the object and
effect of inducing
Levers to make such agreements or either of them ?
Jury's answer : No.
3. Did the Defendants or either
of them commit breaches of
contract or duty towards the Plaintiffs
in
(A.) wrongfully appropriating as
their own the contracts
referred to as C.T.C., R.T.D., G-S.2 [the
" offending transac-
tions "] or any of them being
contracts of the Niger Company
and appropriating to themselves the
profits on such contracts?
Jury's answer : No.
(B.) entering into the contracts
referred to a C.T.C.,
R.T.D. and G.S.2 or any of them as private
transactions on
their own account and for their own benefit.
Jury's answer: Yes.
(C.) in wrongfully appropriating
to their own use and
benefit the sum of £1,000 being monies
of the Niger Company.
Jury's answer: No.
(D.) If so, what damages, if
any, under (A.) or (B.) or
(C.)?
Jury's answer : (B.) £1,360.
£5 nominal damages.
4. (a) Were the
Plaintiffs Levers entitled to terminate the
contract of
service with the Defendants or either of them
(1) in January, 1928 ?
Jury's
answer: Yes.
and (2) in March, 1929?
Jury's answer : Yes.
If so, would the Plaintiffs
Levers have elected to exercise
such right at either of such
dates?
Jury's answer: Yes. .
(b) Were the Plaintiffs the
Niger Company entitled to dismiss
the Defendants or either of them
from their positions as chairman
and vice-chairman respectively :
in January, 1928?
Jury's
answer: Yes.
in March, 1929 ?
Jury's
answer: Yes.
12 [12]
If so, would tine Plaintiffs the
Niger Company have elected to
exercise such right at either of
such dates ?
Jury's answer : Yes.
5. When Levers entered into the
agreements of the 19th March,
1929, did they know of the actings
of either of the Defendants in
regard to the dealings C.T.C.,
R.T.D., G.S.2?
Jury's answer : No.
If Levers had so known would
they have made these agreements
or either of them ?
Jury's answer : No.
At the date of the respective
interviews prior to these agree-
ments, had the Defendant Bell or
the Defendant Snelling in mind
their actings in respect of these
transactions ?
Jury's answer : No.
If these questions are carefully
scrutinized it will be found that
they are based on an acceptance
of Lever's view as to the
legal position of the parties towards
each other under the service
agreements. The undue prominence thus
conceded to Levers served
further to divert attention from the
true position, never at any
time accentuated, that the claims
against the Appellants in relation
to the offending transactions
were claims of Niger only and that
the validity and extent of
these claims depended mainly if not
exclusively upon the
regulations of Niger. It is remarkable
that so far as
appears on the 'Record these regulations were
only once
mentioned—and then in the most casual way—during
the
whole of the proceedings. In the summing up they were never
referred
to at all. It will be noted also that no question was asked
upon
the issue of conspiracy—that because the learned Judge
held
that there was no evidence to support it. Lastly, with regard
to
the allegation that the Appellants (had in carrying out the
offending
transactions used the property of Niger or utilised
information
obtained by them as its Directors, the question 3 (c)
was directed
to the only matter relevant thereto, which, as a
result of the evidence,
remained in doubt and in respect of that
remaining matter also the
Jury as will be seen exonerated the
Appellants.
The fifth of the questions was
drawn up by the learned Judge
after Counsel had addressed the Jury
but before the summing up.
It was in the Court of Appeal suggested
that the question was
directed to an issue of mutual mistake and
that the Appellants'
Counsel should have thus regarded it. 1
confess that I cannot
blame him if he did not. Put at the end of a
long hearing dealing
only with grave charges of fraud and in the
course of which no
such issue had been even remotely hinted at, I
should myself have
thought, as I gather the Appellants' Counsel
did think, that it was
directed to the issue of fraudulent
concealment, an issue which had
throughout bulked prominently in
the proceedings.
It was agreed that the learned
Judge was to be entitled to draw
necessary inferences of fact
upon, any question that might arise
which had not been put to the
Jury, and in the discussion upon the
findings and the pleaded case
which took place on a later day,
Counsel for the Respondents,
after claiming that Levers were en-
titled to recession of the
agreements of settlement on the ground of
unilateral mistake,
ended by propounding the view that they were
so entitled also on
the ground of mutual mistake, that issue as they
contended having
been raised by paragraph 26 of the Points of
Claim, and found in
their favour by the Jury in their answers to
questions 4 (a)
and 5. The learned Judge after argument, and hold-
ing, as it
seems, that the issue was sufficiently raised by para-
graph
26—for he had previously intimated (Record, p. 1437) that
he
would allow no question to be put to the Jury which involved
any
amendment of the pleadings—finally held that the agreements
[13] 13
of settlement must be set aside
on the ground of mutual mistake,
and he ordered the moneys paid
thereunder, including the premiums
on Mr. Bell's policy paid by
Levers on his behalf to be repaid. The
learned Judge held that all
the parties to the agreements of settle-
ment entered into them
under the common mistake that the contracts
of service were
binding, in the sense that they could not at that
moment have been
got rid of without the Appellants' consent.
It is, I believe, the view of
all your Lordships that the order
of the learned Judge in so far
as it directed the repayment by Mr.
Bell of the premiums referred
to cannot stand. Wright J. over-
looked the fact that, even with
the agreements for settlement set
aside, the liability for payment
of these premiums would still re-
main on Levers under the
original agreement of 1923 because, apart
from Mr. Bell's
agreement so to do in the rescinded agreement of
settlement there
had been no termination of his engagement by him-
self. This point
was discussed at your Lordships' Bar and the
Respondents offered
no objection to its being taken into consideration
by the House.
Accordingly, in that respect at least, the order of the
learned
Judge must now be corrected. But that is relatively a small
matter.
The greater questions involved remain in issue.
The Appellants appealed to the
Court of Appeal. On the 17th
November, 1930, their appeal was
dismissed. The Lords Justices
took the same view on mutual mistake
as the learned Judge had
done. They also held that, although in no
way pleaded, his Judg-
ment could be supported on the ground that
the Appellants during
the negotiation with Levers for the
agreements for settlement were
under a duty to disclose their
offending transactions of 15 months
before: and that they were not
excused from disclosure by reason
of the fact that, as the Jury
had found, these transactions had
passed from their minds. Upon
the question of amendment Lord
Justice Scrutton and Lord Justice
Lawrence were of opinion that
the issue of mutual mistake had not
been pleaded, but, differing
in that respect from the learned
Judge's view, they saw no sufficient
reason why the pleadings
should not be treated as amended so that
the issue might be
decided on existing materials. In Lord Justice
Lawrence's view the
objection of the Appellants' Counsel to that
course being taken
was " technical " and " devoid of merit."
Lord
Justice Greer held that the issue of mutual mistake was
sufficiently
raised by paragraph 26 of the Points of Claim.
From this, the Appellants appeal
again to Your Lordships'
House, and upon that appeal, and for the
purpose as I assume of
obtaining a decision upon any issue open
upon the pleadings,
both parties accepted the Jury's findings as
correct. Upon this
three questions at once arise. 1st, Is this
issue of mutual mistake
open to the Respondents upon the
pleadings; 2. If not, is this
action one in which without
injustice to the Appellants the neces-
sary amendments to raise it
could after verdict and on the
application of the Respondents have
been allowed by the learned
Judge? May these even now on a like
application be allowed by
this House; and 3. If such amendments be
allowed, are the Re-
spondents entitled to judgment upon the issue
raised by them. I
propose to deal with each of these questions in
their order.
As to the first, I believe that
all of your Lordships are of opinion
that this case of mistake is
not open to the Respondents on the
pleadings as they stand. I
think no other view is tenable. In
its setting, as well as
according to its terms, paragraph 26 to me
seems quite
unambiguous. The case pleaded by the Respondents
was on the face
of it, and from beginning to end a case of deliberate
fraud on the
part of the Appellants. The points of claim at great
risk to the
Respondents in the matter of costs, were amended once
only that
the fraud charged might be more flagrant in character.
Paragraph
26 remained unaltered. Even without the particulars
13105 A 7
14 [14]
of the mistake alleged I should
not have thought that its meaning or
intent was doubtful. With the
assistance of the particulars its
meaning becomes I think
abundantly clear. That it is the state of
mind of Levers which is
alone being therein described is, surely,
shown by the fact that
the moneys are only alleged to have been
" paid " under
mistake. There is no allegation at all that the
moneys were "
received " under the same mistake. And the par-
ticulars
appear to me conclusively to show that no such allegation
was
intended to be made. Further paragraph 26 if limited to
unilateral
mistake induced by the Appellants' fraud is, even
although
alternative, consistent with all that precedes, but
mutual mistake,
innocent on the part of the Appellants, is so
entirely destructive
of everything previously alleged against
them, that no interpreta-
tion of paragraph 26 involving an
assumption of honesty on their
part could in the absence of the
clearest words properly be placed
upon it. Finally the claim made
by the Heads of Claim is for
rescission of the agreements of
settlement, relief properly conse-
quent upon a case of
voidability either for fraud or unilateral mis-
take induced by
fraud. But if the allegation, even alternative,
was that the
agreements were entered into under mutual mistake
of fact, then
these were not voidable but void ab initio, and
no order on that
footing is even hinted at in the relief sought.
The truth is that
the Respondents having decided to charge fraud
against the
Appellants did so, up to the hilt. There is no weakening
in this
respect in paragraph 26. Accordingly I am of opinion that
the case
on which the Respondents have succeeded in the Courts
below was
not open to them on the pleadings as they stand. It
is clear also
as I have said that the learned Judge only entertained
that case,
because of his view which all your Lordships consider
erroneous
that no amendment was called for.
2. This circumstance makes the
second of the above questions
of the gravest importance. Are your
Lordships in the Court of
last resort to grant an amendment which
the learned Trial Judge
himself would have refused? It is
convenient to set forth here the
amendment which the Respondents
formulated and asked for, if
amendment was held to be required.
It was as follows :
Paragraph
26 A.
Further and in the alternative
the said agreements and
each of them were made under a mutual
mistake of fact and
the moneys paid and received thereunder were
paid and received
under a mistake of fact.
Particulars.
The Plaintiffs Levers and the
Defendants and each
of them were under a mutual mistake
fundamental to the
said agreements that the said contracts of
service and each
of them existed as binding obligations upon the
said Plain-
tiffs and the Defendants respectively and that the
said
contracts respectively could not be terminated without
the
assent of the Defendants respectively.
Further or in the alternative
the Plaintiffs Levers
will rely upon the particulars set out under
paragraph 26
hereof.
Now there are of course no
limits to the power of your Lordships'
House to permit, in proper
circumstances, almost any amendment.
Nevertheless the power is not
one for arbitrary exercise and I pro-
pose in dealing with the
propriety or otherwise of its exercise now
to govern myself by two
authoritative statements of relevant prin-
ciple, one by Lord
Watson, and the other by Lord Lindley, when
Master of the Rolls.
My first and second reasons for concluding
[15] 15
that leave to amend should in
this case be refused are based upon
Lord Watson's judgment in the
Connecticut Fire Insurance Com-
pany v. Kavanagh 1892 AC 473—where the Respondent had
complained that the case which
was being maintained against
him before the Judicial Committee was
not within the Appellants'
declaration : that the evidence led at
the Trial had not been directed
to that new case, which ought not
to be entertained. Upon that
contention, Lord Watson delivering
the Judgment of the Board
said :
" When a question of law is
raised for the first time in a Court
" of last resort, upon the
instruction of a document or upon facts
" either admitted or
proved beyond controversy it is not only com-
" petent but expedient in
the interests of justice to entertain the
" plea. The expediency
of adopting that course may be doubted
" when the plea cannot be
disposed of without deriding nice ques-
" tions of fact, in
considering which the Court of ultimate review
" is placed in a much less
advantageous position than the Courts
" below. But their
Lordships have no hesitation in holding that
" the course ought not, in
any case, to be followed unless the Court
" is satisfied that the
evidence upon which they are asked to decide
" establishes beyond doubt
that the facts, if fully investigated would
" have supported the new
plea. To accept, the proof adduced by
" a defendant in order to
clear himself of a charge of fraud as
" representing all the
evidence which he could have brought forward
" in order to rebut a
charge of negligence might be attended with
" the risk of doing
injustice."
Except, that in that instance,
the new case was one of negli-
gence, whereas here the new case is
one of innocent mistake, Lord
Watson's observations seem to me to
be entirely in point, and I
base myself upon them as I proceed.
And my first reason for the
conclusion that this amendment
should not be allowed is this. It
raises, as something quite new,
and in an action hitherto based on
fraud alone, an issue with all
fraud eliminated. If the amendment
were allowed, the Appellants
in the discussion of that new issue
would find themselves faced with
and bound by the answers of the
Jury to the 4th question. But, on
examination of the learned
Judge's summing up, it appears, as I
think, quite clearly that
these answers were given by the Jury under
a direction which,
although it might have been allowed to pass as
relatively harmless
in a case based upon fraud, was one, which as
applied to a case
from which all fraud has been eliminated, cannot
in point of law,
as I think, be supported. It is not necessary to
suggest—it
may not be permissible for me even to speculate upon—
what,
under a proper direction, as applied to the new case, the
answers
of the Jury to the questions would, or should, have been.
It is
enough, for present purposes, to say, as I do. that to allow
the
Respondents to make this new case, with the Appellants bound
to
accept these answers to the 4th question as they stand, would
in my
judgment expose the Appellants to a risk of injustice from
which
they are entitled to claim protection.
My Lords, the answers to that
fourth question, of course,
depend upon what was the true nature
of the liability of the
Appellants to Niger resulting from the
offending transactions as
found by the Jury and as already
described. Did these transactions
as thus ascertained involve on
the part of the Appellants a breach
of their duty to Niger so
serious as on their discovery by Levers
fifteen months later to be
sufficient to justify an immediate dis-
claimer of all further
responsibility under the Appellants' agree-
ments of service ?
That is the question.
My Lords, I have already given
my reasons for the view that in
the fourth question the real
relation between the parties is not pro-
perly appreciated. I have
also explained why I think it so un-
16 [16]
fortunate that the learned Judge
should have directed the Jury, as
he did, that the answers to
Question 4 (a) and Question 4 (b) should
be based
upon the same considerations. All this, however, is
relatively
unimportant here. Even the further direction, to which
I am now
about to refer, might have been allowed to pass, had the
fraud
referred to in Question 3 (c) been found, for with that
fraud
brought home to the Appellants the action would have really
been
undefended. But that charge, like all the other charges of
fraud,
failed and has disappeared, and the precise character in
legal
responsibility of the offending transactions stripped of
fraud
becomes of essential importance. And here the point to be
noted is
that these transactions involved no contract or
engagement in
which, either for profit or loss, Niger was at all
concerned. The
contracts involved were all contracts by which the
Appellants alone
were bound for their own benefit or burden to
some outside party
exclusive of Niger altogether. And this
distinction is vital:
because the liability of a Director in
respect of profits made by him
from a contract in which his
company also is concerned is quite
different from his liability,
if any there be, in respect of his profits
from a contract in
which the company has no interest at all. In the
first case,
unless by the company's regulations the Director is per-
mitted,
subject to or without conditions, to retain his profit, he
must
account for it to the company. In the second case, the
company has
no concern in his profit and cannot make him
accountable for it
unless it appears—this is the essential
qualification—that in earning
that profit he has made use
either of the property of the company
or of some confidential
information which has come to him as a
Director of the company.
Now, unfortunately, the learned
Judge here so far as his
observations had precision directed the
Jury as if the offending
transactions were, in the first class,
and not, as was the fact, in the
second, and he gave his direction
without any reference at all to the
regulations of Niger.
The relevant duties of a
director were laid down by him in terms
of the following quotation
which he read to the Jury. Their duties
were:—
" So to act as to promote
the best interests of the Company.
" No one having such
duties to perform can be allowed to
" enter into engagements
in which he has or can have a per-
" sonal interest which
conflicts or may possibly conflict with the
" interests of
those whom he is bound to protect. No question
" is liable
on such occasion to be raised as to the fairness or
"
unfairness of the dealing. It may be impossible to demon -
"
strate how far the interest of the Company is affected. No
"
inquiry on that subject is permitted."
The learned Judge did not give
the source of his quotation,
and I have not succeeded in tracing
it. But both from its wording,
and also from its close similarity
to Lord Cranworth's locus
classicus on the subject printed
in the head note to Aberdeen
Railway Coy. v. Blaikie, 1
Macq. 461, I can have little doubt that
like Lord Cranworth's
statement, the quotation is concerned with
a company's contracts
in which, on the other side of the table, a
director is
interested, and with reference to which the company's
regulations
are silent. The quotation is not addressed to a
director's own
contracts in which the company has no financial
interest at all.
The regulations of Niger are
illuminating with reference to both
classes of contracts. Article
47 concedes to its Directors in very
wide terms, and subject to
exceptionally easy conditions the
privilege of being concerned in
contracts with the Company. And
the Article also clearly
contemplates that a Director may be a
Director of another company
and entitled to his privileges as such.
[17] 17
And this brings me to the
position of a Director in relation to
contracts of the second
class, with which we are here alone con-
cerned. The principle
will be found in the case usually cited
in relation to it,
although reported only in the Weekly Notes, of The
London and
Mashonaland Exploration Company v. New Mashona-
land
Exploration Company, 1891, W. N. 165, where it was held,
that
it not appearing from the regulations of the Company that
a
Director's services must be rendered to that Company and to
no
other Company he was at liberty to become a Director even of
a
rival Company, and it not being established that he was making
to
the second Company any disclosure of information obtained
con-
fidentially by him as a Director of the first Company he
could not
at the instance of that Company be restrained in his
rival
directorate. And in the present case that principle is not
affected
by the agreements of each Appellant with Levers to devote
all his
time during business hours to the Niger service. There is
no
corresponding provision in the regulations of Niger, and it was
not
because the offending instructions were instructed during the
day
and not in the evening that they are impugned. It was not
sug-
gested that the Appellants were in any way precluded by
virtue of
their engagement from at any time entering into private
speculations
of their own in outside things as e.g. stocks and
shares. Indeed
any such suggestion was expressly disclaimed by the
Respondents.
Moreover my Lords, the Respondents did endeavour to
establish that
in relation to these transactions the Appellants
did make use of
Niger's property and information, and question 3
(c) is directed to
the only instance alleged which after
the evidence remained open.
and it was answered in the negative.
Accordingly I reach the con-
clusion that, so far, the Appellants
in relation to the offending trans-
actions were under no
liability whatever to Niger.
But all this is apart from the
Pool Agreement. There remains
the question of the liability of the
Appellants to Niger by reason of
the Directors' clause in that
agreement, and as to this, the Appel-
lants in my judgment were
quite right in recognising so soon as that
clause was brought to
their notice that they should not retain the
profit they bad made
from these transactions.
Instead, therefore, of the
direction to the Jury on this matter
being what it was, that
direction, on the supposition that the facts
would be found as
they have been, should, I think, have been to the
effect that in
the absence of any proof that the Appellants in carry-
ing out the
offending transactions had utilized for their own pur-
poses any
property of Niger or any confidential information obtained
by them
as its Directors, they were not, apart from the Pool Agree-
ment,
under liability to account in respect of these offending
transactions
to Niger, or to Levers, or at all. It was the Directors'
clause in
the Pool Agreement alone which left the Appellants under
any
liability in the matter, and it must lie taken that the existence
of
that clause was unknown to them until some months after
the
agreements of settlement, and many months after the
offending
transactions. Nor should the renunciation of their
profit by the
Appellants after 'knowledge of the clause be
overlooked in the con-
sideration of the question whether the
offending transactions of the
Appellants would have justified more
than a year after the event
a repudiation by Levers of further
liability under the contracts of
service.
Upon the actual direction given
to the Jury it is not surprising
that they found in reply to
question 4 (a) that Levers, and in answer
to 4 (b) that
Niger were respectively entitled to terminate the
Appellants'
contracts of service not only in January, 1928, but also
in March,
1929. What would be the answer to the proper questions
of a Jury
directed on the lines just indicated ? I give no answer.
save
this, that it would in my judgment be unjust to the Appellants
to
expose them to the hazard of this amendment bound by the
13105
A
9
18 [18]
answers to question (4) as they
stand, for it cannot be affirmed
that under a proper direction,
applicable to the facts as found that
answer would be forthcoming.
And it will not be forgotten that in
its absence the whole issue
of mutual mistake remains, as an issue,
stillborn. Such, then, is
my first reason for disallowing this
amendment.
My second reason is that the
Appellants have not had the oppor-
tunity of showing by evidence
the extent to which Levers received
consideration for the
settlement agreements over and above their
release from liability
for the further payments for which, on the
hypothesis, it was by
all parties assumed that they remained liable.
I have already
indicated the general nature of the advantages
derived by Levers
from the settlement agreements, as these appear
on the record, but
this aspect of the case has not been developed
in evidence because
in the action as fought it was not either relevant
or necessary so
to do. It may be, indeed I am far from saying
that, even on, the
existing record, the Appellants have not sufficient
evidence on
this point to displace the new plea altogether. But
here again it
would, I think, be unfair to leave them exposed to the
hazard of
the amendment with that answer to it quite undeveloped.
My third reason for disallowing
the amendment is based on
the principle enunciated by Lindley,
M.R., which I nave already
foreshadowed. It would be wrong, Lord
Lindley said, in Nocton
v. Ashburton (see 1914, A.C. 963),
" to allow a case based on serious
'' charges of fraud to be
turned into a comparatively harmless case
" based " in
that instance also upon negligence. The qualification
of his
statement made in this House, in the special circumstances
of that
case, in no way questioned its essential soundness, and
further
illustrations of its application will be found in Halsey
v.
Brotherhood, 43 L.T. 466, 470, and Noad v.
Murrow, 40 L.T. 100.
In my judgment it applies here
with compelling force. The
first amendment made by the Respondents
charging further frauds
against the Appellants with their failure
after a prolonged hearing
to make any of them good, as I think
furnishes, when the services
of the Appellants to Niger are
remembered, a convincing reason why
this complete change of front
after all else has failed should not be
permitted to the
Respondents.
I cannot therefore hold with the
view that the Appellants'
objections to this amendment are either
technical or destitute of
merit. On the contrary, the objection
seems to me to be funda-
mental, and in the interests of fairness
in litigation it is, I think,
optimi exempli, that in such
a case as this they should be sustained.
I am prepared, therefore, to
allow this appeal on this head solely
on the ground that no case
other than their pleaded case is open to
the Respondents in this
House and mutual mistake has not been
pleaded.
But, my Lords, if, contrary to
my own notions of the fitness of
things, the Appellants, bound by
the Jury's answers to question 4,
were to be put at risk by having
this question of mutual mistake
determined on existing materials,
I should not wish it to be sup-
posed that in my judgment the
Appellants would fail. On the
contrary, they would, I think, even
so handicapped, still succeed
on that question. There I find
myself in entire accord with the
conclusions of my noble and
learned friends Lord Atkin and
Lord Thankerton, whose judgments I
have had the advantage
of reading. I refrain from adding to a
deliverance already too
long any further observations on the case
so regarded. My noble
friends begin where I am content to end. But
I follow them also
to their goal.
But I would add a word on the
second ground relied upon by
the Lords Justices in support of the
learned Judge's order namely
[19] 19
that it could be upheld for the
reason that Levers' unilateral mistake
which was certainly pleaded
resulted from a neglect on the part of
the Appellants of their
duty when negotiating the agreements of
settlement to disclose to
Levers their offending transactions.
My Lords I am in entire
agreement with the answer given to
this suggestion by my two noble
friends opposite made on the
assumption, that Levers were the
employers of the Appellants and
that the " offence in their
transactions had only temporarily passed
from their minds.
But if the true position be, as
I have tried to show, that the
Appellants were not in any relevant
sense the servants of Levers and
that the only reason why their
transactions were " offending " was
that they involved
Niger in a breach of the Directors Clause of the
Pool agreement of
the existence of which the Appellants were not
merely forgetful
but were in complete ignorance, what then I would
ask remains of
any duty on their part to disclose? My Lords, in
that view of the
situation the duty was I suggest plainly non-
existent. The action
therefore, in my judgment, so far as it was
contested, entirely
fails.
My Lords, I confess that I
arrive without reluctance at this
conclusion of the whole matter.
It appears to me to accord with
a sound view both of justice and
of fairness. I should have
deemed it unfortunate if the Appellants
had been left in enjoy-
ment of the profit accruing from the
offending transactions and if
they had not been required to pay
the nominal damage which the
Jury considered these transactions
occasioned to Niger. But that
result has not followed. For both
the profit and the damage they
remain accountable, as is
wholesome.
Acceptance, however, by your
Lordships' House of the orders
appealed from would have meant that
after the complete failure
of the grave charges of fraud preferred
against officials whose
ability and services had brought to Niger
advantages of untold
value these officials, the Appellants, would
have been left exposed
to the same consequences as if the charges
had all been true. Speak-
ing only for myself I feel relieved to
be able to take a view of equity
and procedure which shields the
Appellants from such a consequence.
Nor is it to my mind unjust
that, their profit accounted for,
the Appellants should be left in
possession by way of remuneration
for their services of sums
which, while they may seem bountiful to
minds disciplined in a
school of progressive austerity, would doubt-
less, by those
engaged in great business, be regarded as no more
than adequate to
the occasion.
In the result it will be right
that the order of the Court of
Appeal should be discharged, with
further consequential directions
which will be given later.
Viscount
Hailsham.
Lord
Blanes-
burgh.
Lord
Warring-
ton
of
Clyffe.
Lord
Atkin.
Lord
Thank-
erton.
[20]
BELL and ANOTHER
v.
LEVER BROTHERS, LTD., AND ANOTHER.
Lord Warrington of Clyffe.
MY LORDS,
This is an appeal by the
Appellants Ernest Hyslop Bell and
Walter Edward Snelling (the
Defendants in the action) from a
unanimous judgment of the Court
of Appeal (Scrutton Lawrence
and Greer L.JJ.) dated the 17th
November, 1930, affirming a
judgment of Mr. Justice Wright (dated
the 5th June, 1930) pro-
nounced upon the trial of the action
before himself and a special
jury of the City of London. By that
judgment certain agreements
made between the Respondents (Lever
Brothers, Ltd., and the two
Appellants respectively) were declared
void and were set aside and
the Appellants respectively were
ordered to repay to the Respondents
(Lever Brothers, Ltd.) the
sums of money paid to them thereunder.
The. substantial question raised
by the Appeal is whether in
point of law upon certain findings of
the jury, and upon such
inferences of fact as could properly be
drawn from those findings
and the evidence, the two agreements
were liable to be set aside on
the ground of mutual mistake of
fact affecting what is alleged by
the Respondents to be a
fundamental assumption accepted on both
sides as the basis on
which the agreements were made.
A minor point of procedure was
raised and decided against the
Appellants in both Courts, viz.,
whether having regard to the
pleadings and the conduct of the
trial it was open to the learned
judge to decide the case on the
point referred to above.
It is unnecessary for me to
repeat the detailed statement of the
facts already made; it is
quite enough to give a short summary of
them in order to explain
the conclusions at which I have arrived.
In 1923 Lever Brothers, Ltd.,
having very large interests in the
Niger Company, Ltd. (the
Respondents of that name), a Company
trading in cocoa and other
produce on the West Coast of Africa,
were desirous of obtaining
the services of persons of experience
and repute in the financial
and commercial world to undertake and
improve in their interests
as shareholders the conduct of the affairs
of the Niger Company,
and with this object approached the two Ap-
pellants. The result
was the making of a service agreement with each
of the Appellants,
that with the Appellant Bell being dated the 9th
August, 1923, at
a salary of £8,000 per annum, and that with the
Appellant
Snelling being dated the 9th October, 1923, at a salary
of £6,000
per annum. Mr. Bell's agreement was for five years
from the 1st
October, and Mr. Snelling's was for five years
from the 1st
November, 1923. Each period was subsequently
extended to five
years from the 1st July, 1926. By each agreement
the Appellant
concerned agreed to serve the Lever Company and
to devote the
whole of his time and attention during business hours
to the
business of the Lever Company. The sphere of his service
was so
far defined that in Mr. Bell's case he was to be appointed
and
maintained as Chairman of the Niger Company during his
service
with the Lever Company. In Mr. Snelling's case no such
specific
agreement was made, but he as well as Mr. Bell was
appointed a
director of the Niger Company, and while Mr. Bell
was appointed
Chairman of the Board Mr. Snelling was appointed
[21] 2
a Vice-chairman. Each of them
thus undertook direct obligations
towards the Niger Company as
well as those obligations towards
the Lever Company which resulted
from his service agreement.
The salary of each was borne and paid
by the Lever Company.
By two letters dated the 1st
July, 1926, signed by Mr. D'Arcy
Cooper on behalf of the Lever
Company and addressed in the one
case to Mr. Bell and in the other
to Mr. Snelling, the then existing
service agreements were varied,
first by extending the period of
service as above mentioned, and
secondly by giving to each of the
two gentlemen a commission on
the profits of the Niger Company
as thereby defined in addition to
his salary, which continued as
before.
It is not disputed that the
services of the two Appellants in
their several capacities were of
great value to the Lever Company
and to the Niger Company.
Early in the year 1929 certain
arrangements for the amalga-
mation of the Niger Company and
another company called the
African and Eastern Trading Company
were made, which on their
becoming effective on the 1st May in
that year would involve the
termination of the two service
agreements before the period fixed
for their continuance, viz.,
the 1st July, 1931.
Under these circumstances Mr.
D'Arcy Cooper entered into
negotiation with each of the two
Appellants for fixing the amount
of compensation to be paid to
them respectively for the premature
termination of their
employment by the Lever Company. These
resulted in the two
agreements the subject of this Appeal.
By each of these agreements the
Appellant concerned agreed
that on the 1st May, 1929, he would
retire from the Boards of the
Niger Company and its subsidiaries
and in consideration of his so
doing the Lever Company would pay
him as compensation for the
termination of his agreement and the
consequent loss of office in
the case of Mr. Bell the sum of
£30,000 and in that of Mr. Snelling
£20,000 in full
satisfaction and discharge of all claims and
demands by him of
every nature and kind and howsoever arising
against the Lever
Company, the Niger Company and other com-
panies and persons
therein mentioned. In Mr. Bell's case pro-
vision was made for the
continued payment by the Lever Company
of an insurance premium
therein mentioned which will be referred
to later on.
These agreements were duly
carried into effect by the resigna-
tion by Mr. Bell and Mr.
Snelling of their several offices and by
payment to them
respectively of the agreed compensation.
I now come to the circumstances
giving rise to the present
litigation.
Between the 4th November and the
14th December, 1927, the two
Appellants entered on their own
behalf into certain speculative
transactions in cocoa referred to
in the proceedings at the trial as
contracts C.T.C., R.T.D., and
G.S.2. These transactions resulted
in a net profit to the
Appellants of £l,360. The fact that these
transactions had
taken place was not disclosed to and was not
known by any of the
Directors or officials of either the Niger Com-
pany or the Lever
Company, except, of course, the Appellants
themselves, until after
the conclusion of the agreements now in
question, and the payment
of the compensation payable thereunder.
In or about June, 1929, in the
course of certain arbitration pro-
ceedings, the particulars of
which it is unnecessary to state, the
Appellants, in answer to
enquiries made on behalf of the Niger
Company, disclosed the
transactions above referred to and their
result.
In answer to questions put to
them by the learned judge the
jury found that the Appellants
committed breaches of contract or
duty towards the Respondents by
entering into the contracts above
referred to as private
transactions of their own and for their own
benefit. The
correctness of this finding is not disputed.
8 [22]
The present action was commenced
by the Lever Company alone
on the 9th August, 1929. By an
amendment made on the 2nd April,
1930, the Niger Company were
added as Co-Plaintiffs.
As ultimately submitted for
decision the case of the Respon-
dents contained charges of
fraudulent misrepresentation and con-
cealment by both Appellants
with the object and effect of inducing
the Lever Company to make
the agreements of the 19th March,1929, charges of
wrongfully appropriating as their own the con-
tracts above
mentioned being as alleged contracts of the Niger Com-
pany, and
appropriating to themselves the profits on such contracts
and a
charge of appropriating to their own use and benefit £1,000
the
monies of the Niger Company. All these charges were nega-
tived by
the jury and their findings in this respect are accepted.
The points of claim after the
allegations of fraudulent mis-
representation and concealment
above mentioned contained the
following clause :—
" 26. Alternatively the
said agreements and each of them
" were made and the moneys
paid thereunder were paid under
" a mistake of fact."
and the Plaintiffs claimed
rescission of the two agreements of the
19th March, 1929, and
repayment of the moneys paid thereunder,
and a declaration that
previously to the making of such agree-
ments the Plaintiffs were
entitled to terminate the contracts of
service and to dismiss the
Defendants without notice by reason of
their alleged conduct.
The Appellants admitted their
liability to account to the Niger
Company for the £1,360 the
profits on the transactions above men-
tioned, and this sum was
duly paid into Court.
Ultimately the case was decided
against the Appellants on the
alternative point above referred to,
the mistake there mentioned
being treated as a mutual and not as a
unilateral mistake.
The questions material to the
issue of mistake as put to the
jury and their answers thereto were
as follows:—
' 3 (B). Did the Defendants or
either of them commit
' breaches of contract or duty towards
the Plaintiffs in
' entering into the contracts referred to as
C.T.C., R.T.D.,
' and G.S.2 or any of them as private
transactions on their
' own account and for their own benefit?
"
Answer: " Yes."
" 4 (a). Were the
Plaintiffs (Levers) entitled to deter-
" mine the contracts
of service with the Defendants or either
"of them? '
Answer : " Yes."
" (1.) In January,
1928."
Answer : " Yes."
" And (2) in March, 1929.
If so would the Plaintiffs
"(Levers) have elected to
exercise such right at either of such
"dates?"
Answer : " Yes."
" (b) Similar
questions and answers as to the position
" of the Niger
Company in reference to the offices therein held
" by the
Defendants respectively.
"5. When Levers entered
into the agreements of the 19th
" March, 1929, did they know
of the actings of either of the
" Defendants in regard
to the dealings C.T.C., R.T.D.,
"G.S.2?"
Answer : " No."
" If Levers had so known
would they have made these
" agreements or either of them?
"
Answer: "No."
" At the date of the
respective interviews prior to these
" agreements had the
Defendant Bell or the Defendant
[23] 4
" Snelling in mind
their actings in respect of these
" transactions?
'
Answer: " No."
The final question was put to
the jury at the suggestion of the
learned judge, and obviously is
only relevant to the issue whether
there was a mutual mistake. No
objection to it was taken on the
part of the Appellants. Moreover,
it is quite obvious that an
argument founded on unilateral mistake
had not the slightest
chance of success, and it must have been
clear to both parties that
the learned judge was going to deal
with the case as one of mutual
as distinguished from unilateral
mistake. I will assume for the
present that either on the
pleadings as rightly understood, or on
the manner in which the
case was conducted, or on the assumption
that all the evidence
reasonably likely to be forthcoming on the
point was before the
Court the learned judge was entitled to deal
with the matter on
the footing of mutual mistake, and will consider
the case on that
footing.
The learned judge thus describes
the mistake invoked in this
case as sufficient to justify a Court
in saying that there was no
true consent, viz., " Some
mistake or misapprehension as to some
" facts . . . which by
the common intention of the parties, whether
" expressed or
more generally implied, constitute the underlying
"
assumption without which the parties would not have made the
"
contract they did." That a mistake of this nature common to
both
parties is, if proved, sufficient to render a contract void is,
I
think, established law.
I will refer to two cases only
amongst several in which the
principle was acted on. The first is
one at Common Law, viz.,
Strickland v. Turner, 7
Exch. 208. In that case a contract for
sale of an annuity, under
which the purchase money had been paid,
was held to be void at law
and the money was ordered to be repaid,
on its being discovered
that the person on whose life the annuity
depended had without the
knowledge of either party died before the
date of the contract of
sale. The parties were treated as having
intended to contract on
the basis of something of value actually
existing, and as this
proved not to have been the case the contract
failed to be
binding.
The other case (Scott v.
Coulson, 1903, 2 Ch. 249) is an example
of the application
of the same principle in a Court of Equity. A
contract for the
sale of a policy was set aside on its being dis-
covered that the
assured was dead at its date, both parties being
in ignorance of
that fact. I cite this case for the sake of a passage
in the
judgment of Vaughan Williams, L.J. He says: " If we
' are
to take it that it was common ground that at the date of the
'
contract for the sale of their policy both the parties to the con-
'
tract assumed the assured to be alive, it is true that both parties
'
entered into the contract on the basis of a common affirmative
'
belief that the assured was alive; but as it turned out that there
'
was a common mistake the contract was one which cannot be
'
enforced. This is so at law and the Plaintiffs do not require to
'
have recourse to equity to rescind the contract if the basis which
' both parties recognised as the basis is not true."
This principle, however, is
confined to cases in which " the
" mistake is as to the
substance of the whole consideration going
" as it were to
the root of the matter " (Kennedy v. Panama
Mail
Company, L.R., 2 Q.B., 580, p. 588), and does not apply
where
the mistake is only as to some point, a material point it
may be,
and even one which may have been the actuating motive of
one of
the parties, an error as to which does not affect the
substance of
the whole consideration.
Kennedy v. The Panama Mail
Company is a case in which it
was held that the error relied
on did not affect the substance of the
consideration and the
contract in question was accordingly
5 [24]
enforced. The contract was one
to take shares in a company. The
prospectus on the faith of which
the Plaintiff had applied for
shares contained a representation
made in good faith that the
company had obtained a valuable
contract for the carriage of
mails. The representation was
intended to, and did in fact, in-
duce the Plaintiff to apply for
shares. It was untrue, for though
at the time the application for
shares was made and accepted
there were reasonable grounds for
expecting that such a contract
would be obtained, it was never in
fact concluded. It is to be
observed that the error did not affect
the shares themselves the
subject of the contract impeached; they
were, notwithstanding the
error, the very thing about which the
parties were contracting. All
that was affected were the prospects
of the company earning profits
available for payment of dividends.
Accordingly the Plaintiff's
action brought for the purpose of
setting aside the contract and
obtaining repayment of his
subscription was dismissed.
In Smith v. Hughes, L.R.,
6 Q.B. 597, the result was the same,
but for a different reason,
viz., that there was no sufficient finding
that the mistake was
mutual. It was alleged that the vendor was
intending to sell and
the purchaser intending to buy and believed
he was buying old oats
whereas the actual parcel of oats, the sub-
ject of the contract,
consisted of new oats. The purchaser's claim
to be relieved of the
contract failed because the learned Judge at
the trial did not
point out the necessity of finding not only that
the purchaser
believed the oats were old but that he also believed
that the
vendor was selling them as old.
This kind of difficulty does not
arise in the present case. It is
in my opinion clear that each
party believed that the remunerative
offices compensation for the
loss of which was the subject of the
negotiations were offices
which could not be determined except by
the consent of the holder
thereof, and further believed that the
other party was under the
same belief and was treating on that
footing.
The real question therefore is
whether the erroneous assump-
tion on the part of both parties to
the agreements that the service
contracts were undeterminable
except by agreement was of such a
fundamental character as to
constitute an underlying assumption
without which the parties
would not have made the contract they
in fact made, or whether it
was only a common error as to a material
element but one not going
to the root of the matter and not affecting
the substance of the
consideration.
With the knowledge that I am
differing from the majority of
your Lordships I am unable to
arrive at any conclusion except that
in this case the erroneous
assumption was essential to the contract
which without it would
not have been made.
It is true that the error was
not one as to the terms of the
service agreements, but it was one
which, having regard to the
matter on which the parties were
negotiating, viz., the terms on
which the service agreements were
to be prematurely determined
and the compensation to be paid
therefor, was in my opinion as
fundamental to the bargain as any
error one can imagine.
The compensation agreed to be
paid was in each case the amount
c>f the full salary for the
two years and a half unexpired with the
addition in Mr. Bell's
case of £10,000 and in Mr. Snelling's of
£5,000. It is
difficult to believe that the jury were otherwise than
correct in
their answer to the second branch of the group of ques-
tions
numbered 5, viz., that had Levers known of the actings of
the
Appellants in regard to the dealings in question they would
net
have made the agreements now impeached or either of them. It
is
true that such a finding is not in the strict sense one of
fact, but it
is an inference which the jury were entitled to draw
from the
evidence and from all the circumstances of the case, it
is one which
the learned judge and the Court of Appeal have also
drawn, and
if, I may say so with respect, it is one I should draw
myself. I
[25] 6
also agree with the learned
judge that looking at the matter from
the side of the Appellants
the existence of an agreement giving them
rights which could only
be compromised by compensation was in the
same way the root and
basis of the cancellation agreements.
In my opinion therefore,
assuming that the point was open, the
appeal on the main question
ought to be dismissed.
As to the question whether the
point was open I agree that it is
at least doubtful whether mutual
mistake as to a fundamental fact
was sufficiently pleaded either
in the pleading itself or by the par-
ticulars subsequently given,
but I have no hesitation in coming to
the same conclusion as that
arrived at by Scrutton and Lawrence
L. J.J., viz., that having
regard to the proceedings at the trial effect
ought not to be
given to a technical objection such as that in ques-
tion—no
further evidence was in my opinion needed or could
reasonably be
expected to be forthcoming on the question and no
substantial
prejudice has been sustained by the Defendants.
But while I think the appeal
ought to be dismissed, there is one
point which appears to have
been overlooked at the trial and in
reference to which in my
judgment there should if the appeal were
dismissed be a variation
in the order.
The service agreement with Mr.
Bell provided that Lord Lever-
hulme was to take out in the Atlas
Assurance Company and Lever
Brothers to pay all premiums on an
Endowment Policy on Mr. Bell's
life maturing at the age of 60 or
previous death for an amount
which would provide £1,500 per
annum or £16,200 at his option.
This policy was to belong to
him, the premiums being paid by Lever
Brothers, notwithstanding
the termination of his engagement unless
the same should be
terminated by him. The cancellation agreement
preserved this
obligation on the part of Lever Brothers, and if this
is set aside
the original agreement stands. I cannot think that
the conduct of
Mr. Bell amounts to a termination by him of the
engagement within
the meaning of the provision above-mentioned,
and if the judgment
appealed From were to stand provision should
be made for the
continued payment by Lever Brothers of the pre-
miums, and the
repayment to Mr. Bell of any premiums paid by
him.
I have purposely avoided dealing
with the question whether the
Appellants were under an obligation
as servants to disclose to Lever
Brothers their breaches of the
service agreements. In the view I
take the question is immaterial.
If such an obligation existed it
would merely afford a further
ground for the termination by Lever
Brothers of the service
agreements, for which such breaches them-
selves afforded a
sufficient ground.
This case seems to me to raise a
question as to the application
of certain doctrines of common law,
and I have therefore not
thought it necessary to discuss or
explain the special doctrines and
practice of Courts of Equity in
reference to the rescission on the
ground of mistake of contracts,
conveyances and assignments of
property and so forth or to the
refusal on the same ground to decree
specific performance, though
I think in accordance with such
doctrines and practice the same
result would follow.
[16]
BELL AND ANOTHER
v.
LEVER BROTHERS
LIMITED AND OTHERS
Viscount
Hailsham.
Lord
Blanes
burgh.
Lord
Warring-
ton
of
Clyffe.
Lord
Atkin.
Lord
Thanker-
ton.
Lord
Atkin.
my lords.
This case involves a question
of much importance in the forma-
tion and dissolution of
contracts. The facts are not very com-
plicated, though in the
course of eliciting them the legal proceedings
have undergone
vicissitudes which have made the task of deter
mining the issues
more difficult than need be. In 1923 The Niger
Co. Ld. was
controlled by Lever Brothers Ld. whom I shall call
Levers, who
held over 99 per cent, of its shares. The Niger Co.
dealt in
West African produce including cocoa and at this time
appears to
have been making trading losses. To restore the position
Levers
approached the appellant Bell who had banking experience
and the
appellant Snelling, a chartered accountant, with a view to
their
taking part in the management of the Niger Co.'s affairs.
In
August, 1923. an agreement was made between Levers and
Bell,
under which Bell entered the service of Levers for a term
of five
years from 1st November. 1923, on the terms of letters
of 8th
August, 1923, which provided that Bell's salary was to be
£8.000
a year. Levers were to pay the premiums on an
endowment policy
maturing at the age of 60 for a sum of £16.200.
Levers were to
appoint and maintain Bell as Chairman of the
Niger Co. during
his service. Bell was only to be responsible
to the Committee of
Control of Lever Bros, and to the
shareholders of the Niger Co.
In October an agreement was made
between Snelling and Levers
whereby Snelling was to be in the
service of the company for five
years from 1st October. 1923, on
the terms of a letter of 12th
September, which provided that
Snelling was to serve Levers in
regard to its West African
interests at a salary of £10.000 per
annum to 31st March,
1925, and £6,000 for the remainder of the
five years.
On 14th September both Bell and Snelling were
appointed
by the Niger Co. directors of the company, and
Bell
was appointed chairman of the Board. In April,
1924,
Snelling was appointed a vice-chairman. The result of
the appoint-
ments1 was a success. The Niger Co.
began to prosper and in July,
1926, the agreements of both Bell
and Snelling with Levers were
cancelled and new agreements
substituted for a further period of
five years from 1st July,
1926, at the same salaries but with a com-
mission on the profits
of the Niger Co. The Niger Co. continued
to prosper, and in
March, 1929. arrangements were concluded
for an amalgamation
between the Niger Co. and its principal trade
competitor, the
African and Eastern Trading Corporation. The
terms of the
amalgamation appear to have left no room for Bell or
Snelling.
It was necessary, therefore, to dispose of the agreements
between
them and Levers. Mr. D'Arcy Cooper, the chairman of
Levers,
saw both gentlemen and arranged terms with them which
are
recorded in two letters of 19th March, 1929. The letter to
Bell
is as follows. [Set out letter at p. 210.] The letter
to Snelling
is in similar terms except that the compensation
given was £20,000.
Both sums were only paid on 1st May,
1929, on which date the
two appellants retired from their service
with Levers and from the
Boards of the Niger Co. and various
subsidiary companies to which
they had been appointed. Very
little attention appears to have
been paid at the trial to these
subsidiary companies, and there is
[27] 2
a scarcity of evidence about
them. The position in regard to them
may demand further
consideration; at present I leave them on one
side. The position
then is that in March, 1929, the two appellants
left the service
of Levers with substantial compensation in their
pockets and
mutual expressions of respect and esteem.
In July, 1929, Levers discovered
facts which indicated that their
expenditure of £50,000 and
their expressions of regard had been
misplaced, for the years
October-October, 1926-7, 1927-8, and
1928-9, the .Niger Co.,
together with three of its trading com-
petitors, including the
African and Eastern Trade Corporation,
had been parties to what
were called "Pooling Agreements," under
which the
parties undertook to disclose to one another their dealings
in
Gold Coast cocoa; not to buy cocoa produced elsewhere without
the
consent of the Pool Committee; agreed to fix from time to time
buying
and selling prices and not to sell without consent below the
agreed
selling price; and made provision for distributing in
agreed
proportions the proceeds of the pool. It appears to have
been con-
sidered necessary that the operations of the Niger Co.
under the
pool should be carried out without excessive publicity;
and the
brokers' contracts for the Niger Co. were recorded under
initials.
In November and December, 1927, the two appellants, at a
time
when the Pool Committee were lowering the pool purchase price
of
cocoa, on several occasions sold cocoa short; and closing in a
few
days at the reduced price made profits. A few days later
they
bought for the rise and made a small profit.
Altogether the
dealings resulted in a profit of £1,360.
The transaction was of
course conducted without the knowledge of
Levers or any responsible
official of the Niger Co. It was
carried out in secrecy; and pay-
ment of the profit was made by
the brokers at the appellants'
request in a draft for American
dollars. No defence can be offered
for this piece of
misconduct. The appellants were acting in a
business in which
their employers were concerned; their interests
and their
employers conflicted; they were taking a secret advantage
out of
their employment; and committing a grave breach of duty
both to
Levers and to the Niger Co. The jury have found that
had the
facts been discovered during the service, Levers could and
would
have dismissed them, and no objection can be taken to this
finding.
Having made this discovery it
naturally occurred to Levers that
instead of spending £50,000
to cancel the two service agreements
they might, if they had known
the facts, have got rid of them
for nothing. They therefore
claimed the return of the money from
the appellants, as well as
the amount of the profits made; and on
7th August, 1929, issued
the writ in the present action, claiming
damages for fraudulent
misrepresentation and concealment; an
account of the defendants'
dealings in cocoa; and repayment of
money paid under a mistake of
fact.
The pleadings were in conformity
with the endorsement on the
writ. The defendants admitted the
dealings in cocoa, alleging that
they were speculative dealings in
differences. They denied that
they were wrongful but pleaded
tender of the profit of £1,360
which sum by an amended
defence they paid into Court. It was
not disputed in the Court of
Appeal or before this House that the
dealings were wrongful; and
no question remains on this issue or
as to the remedy ordered in
respect of it.
The trial began on 24th March,
1930, before Wright J. and
a City of London Special Jury. On the
fourth day on the con-
clusion of their evidence the plaintiffs
sought and obtained
permission to amend their pleadings by
alleging a series of
fraudulent dealings in cocoa by the
defendants involving misappro-
priation of the Niger Co.'s funds.
At the same time for the
first time the Niger Co. were added as
plaintiffs. The
3 [28]
defendants were eventually
acquitted of all the new charges. On
5th May, 1930, the trial
commenced anew before the same Judge
and a new Jury. At the
conclusion of the evidence there was some
discussion as to the
questions to be put to the Jury. The Court
adjourned for a day or
two before the summing up of the Judge.
There had been some
discussion as to the issue raised by the plea
of mistake, and when
the case was resumed counsel for the
plaintiffs suggested an
additional question : " Did the plaintiffs
" in entering into the said
agreements for the payment of and in
" paying the £30,000
and £20,000 respectively act in ignorance of
" the
defendants' conduct (my Lord that avoids the word
" '
mistake ' to which Your Lordship took objection) and was such
" ignorance due to
non-disclosure by the defendants of such
'' conduct ? ' So far
this seems to have been the only reference to
the matter of
mistake in the proposed questions. The learned
Judge said : "
I have been thinking about that matter; probably
" yours is
better; but what I thought of asking was this: ' When
" '
Levers entered into the agreement of 19th March, 1929, did
"
' they know of the actings of the defendants or either of them
"
' in regard to the dealings C.T.C., R.T.D. and G.S.2? If Levers
'
had known would they have made these agreements or either of
"
' them? At the date of the respective interviews prior to these
"
' agreements had the defendants or either of them in mind their
"
' actings in respect of these transactions?
To the last question Mr. Pritt
for the defendants objected
that there was no evidence that they
had. Whereupon the Judge
said: " The point must really
arise; that issue of fact will have •
" to be dealt
with by the Jury when they are considering the ques-
" tion of fraudulent
misrepresentation or fraudulent concealment.
" On the other
hand the verdict of the Jury on this point may
" have some
bearing hereafter on the question of mistake."
The circumstances under which
this last question was admitted
are relevant to the complaint of
the appellants as to the subsequent
admission of any issue as to
mutual mistake. They say that the
only issue raised by the
pleadings was as to a unilateral mistake
by the plaintiffs; that
the question propounded by the plaintiffs
shows this; and that it
cannot be assumed that the Judge, while
stating that the
plaintiffs' questions might be better, but he pre-
ferred his own,
should have asked a question for the purpose of
solving an issue
as to mutual mistake which was not upon the plead-
ings and upon
which no witness had been examined or cross-
examined and on which
no word bad been said to the jury by counsel
on either side. At
present it is unnecessary to say more on the
topic.
The questions as finally left to
the jury and their answers have
been stated to the House and I
need not repeat them. The Judge
heard argument as to how judgment
should be entered. At some
stage of the proceedings the parties
had agreed that rescission of
the agreements must be left to the
Judge and that on any point left
to him he must have leave to draw
inferences of fact. Eventually
the Judge gave judgment for
apparently both plaintiffs for £31,224
against the defendant
Bell and £20,000 against the defendant
Snelling, on the
ground that " there was a total failure of considera-
tion
such as to vitiate the bargain " because " the parties
dealt
' with one another under a mutual mistake as to their
respective
' rights." On appeal this judgment was affirmed.
The three
Lords Justices accepted the view of Mr. Justice Wright
that there
was a mutual mistake which entitled the plaintiffs to
recover. They
were also agreed that there was a duty upon the
defendants to
disclose to the plaintiffs their misconduct as to
the cocoa dealings
and that the contracts under which the money
was paid were in
consequence voidable.
[29] 4
Before the Court of Appeal and
before this House the appellants
contended that no issue as to
mutual mistake had been raised by the
pleadings, and that it was
not open to the learned Judge or to the
Court of Appeal to
determine the case without an amendment of
the pleadings and upon
an issue of fact which was not submitted to
the jury. The Lords
Justices appear to have held varying
views on this point. Lord
Justice Scrutton thought that the point
was not pleaded, but that
it was the practice of the Courts to deal
with the legal result of
pleaded facts, though the particular legal
result is not pleaded
except where to ascertain the validity of the
legal result would
require the investigation of new and disputed
facts which had not
been investigated at the trial. Here he thought
that there were no
such disputed facts, and the question could be
dealt with without
amendment. Lord Justice Lawrence on the
assumption that mutual
mistake was not pleaded thought that all
the facts relevant to
mutual mistake had been fully investigated
and ascertained at the
trial: and that the objection was a mere
technical objection
without merits. Lord Justice Greer thought
that mutual mistake was
sufficiently pleaded.
I think it is sufficient to say
for present purposes that it seems
to me clear when the pleadings
and particulars are examined that
the pleading was confined to
unilateral mistake. In these circum-
stances the Judge on a trial
with a jury has without consent of the
parties no jurisdiction to
determine issues of fact not raised by the
pleadings: nor in my
opinion would a general consent to determine
issues not decided by
the jury include a power without express
further consent after the
jury had been discharged to amend plead-
ings so as to raise
further issues of fact. Similarly the powers of
the Court of
Appeal, which under 0. 58 r. 4 are wider than those
of the Judge,
are limited in the case of trials by jury to determine
issues of
fact in cases where only one finding by a jury could be
allowed to
stand. Further, I think that the Court of Appeal
cannot without
amendment decide a case upon an unpleaded issue
of Law which
depends upon an unpleaded issue of fact. If the issue
of fact can
be fairly determined upon the existing evidence they
may of course
amend : but in any such case amendment appears to
me to be
necessary. In this House in the course of the hearing
an amendment
was tendered by the plaintiffs which did aver a
mutual mistake. In
the view that I take of the whole case it
becomes unnecessary to
deal finally with the appellants' complaint
that the points upon
which the plaintiffs succeeded were not
open to them. 1 content
myself with saying that much may be said
for that contention.
Two points present themselves
for decision. Was the agree-
ment of March 19, 1929, void by
reason of a mutual mistake of Mr.
D'Arcy Cooper and Mr. Bell ?
Could the agreement of March 19,
1929, be avoided by reason
of the failure of Mr. Bell to disclose
his misconduct in regard to the
cocoa dealings ?
My Lords, the rules of law
dealing with the effect of mistake on
contract appear to be
established with reasonable clearness. If
mistake operates at. all
it operates so as to negative or in some cases
to nullify consent.
The parties may be mistaken in the identity of
the contracting
parties, or in the existence of the subject matter of
the contract
at the date of the contract, or in the quality of the
subject
matter of the contract. These mistakes may be by one party,
or by
both, and the legal effect may depend upon the class of mistake
above
mentioned. Thus a mistaken belief by A that he is contract-
ing
with B, whereas in fact he is contracting with C, will
negative
consent where it is clear that the intention of A was to
contract only
with B. So the agreement of A and B to purchase a
specific article
5 [30]
is void if in fact the article
had perished before the date of sale. In
this case, though the
parties in fact were agreed about the subject
matter, yet a
consent to transfer or take delivery of something not
existent is
deemed useless; the consent is nullified. As codified in.
the Sale
of Goods Act the contract is expressed to be void if the
seller
was in ignorance of the destruction of the specific chattel.
I
apprehend that if the seller with knowledge that a chattel
was
destroyed purported to sell it to a purchaser, the latter
might sue
for damages for non-delivery though the former could not
sue for
non-acceptance, but I know of no case where a seller has
so com-
mitted himself. This is a case where mutual mistake
certainly and
unilateral mistake by the seller of goods will
prevent a contract
from arising. Corresponding to mistake as to
the existence of the
subject matter is mistake as to title in
cases where unknown to the
parties the buyer is already the owner
of that which the seller
purports to sell to him. The parties
intended to effectuate a transfer
of ownership : such a transfer
is impossible : the stipulation is
naturali ratione inutilis.
This is the case of Cooper v. Phibbs,
L.R. 2
H.L. 149 (1867), where A agreed to take a lease of a fishery
from
B. though contrary to the belief of both parties at the time A
was
tenant for life of the fishery and B appears to have had no
title
at all. To such a case Lord Westbury applied the principle
that if
parties contract under a mutual mistake and misapprehen-
sion as
to their relative and respective rights the result is that
the
agreement is liable to be set aside as having proceeded upon
a
common mistake. Applied to the context the statement is
only
subject to the criticism that the agreement would appear to
be void
rather than voidable. Applied to mistake as to rights
generally it
would appear to be too wide. Even where the vendor
has no title
though both parties think he has, the correct view
would appear to
be that there is a contract, but that the vendor
has either com-
mitted a breach of a stipulation as to title, or
is not able to perform
his contract. The contract is unenforceable
by him but is not void.
Mistake as to quality of the
thing contracted for raises more
difficult questions. In such a
case a mistake will not affect assent
unless it is the mistake of
both parties and is as to the existence of
some quality which
makes the thing without the quality essentially
different from the
thing as it was believed to be. Of course it may
appear that the
parties contracted that the article should possess
the quality
which one or other or both mistakenly believed it to
possess. But
in such a case there is a contract and the inquiry is a
different
one. being whether the contract as to quality amounts to a
condition
or a warranty, a different branch of the law. The
principles to be
applied are to be found in two cases which as far
as my knowledge
goes (have always been treated as authoritative
expositions of the
law.
The first is Kennedy v.
Panama Royal Mail Co., L.R. 2 Q.B.
580 (1867). In that
case the plaintiff had applied for shares in the
defendant company
on the faith of a prospectus which stated falsely
but innocently
that the company had a binding contract with the
Government of New
Zealand for the carriage of mails. On dis-
covering the true
facts the plaintiff brought an action for the
recovery of the
sums he had paid on calls. The defendants brought
a cross
action for further calls. Blackburn J. in delivering the
judgment
of the Court (Cockburn C.J., Blackburn, Mellor and
Shee J.J.)
said at p. 586 : ' The only remaining question is one of
' much
greater difficulty. It was contended by Mr. Mellish on
' behalf
of Lord Gilbert Kennedy that the effect of the prospectus
' was to
warrant to the intended shareholders that there really was
' such
a contract as is there represented, and not merely to represent
'
that the company bona fide believed it; and that the
difference in
' substance between shares in a. company with such a
contract and
[31] 6
" shares in a company whose
supposed contract was not binding,
'' was a difference in
substance in the nature of the thing; and that
" the
shareholder was entitled to return the shares as soon as he
''
discovered this quite independently of fraud on the ground that
"
he had applied for one thing and got another. And if the
"
invalidity of the contract really made the shares he obtained
"
different things in substance from those which he applied for
"
this would we think be good law. The case would then resemble
"
Gompertz v. Bartlelt and Gurney v. Womersley
where the person
'' who had honestly sold what he thought a
bill without recourse to
"him, was nevertheless held bound to
return the price on its
" turning out that the supposed bill
was a forgery in the one case
" and void under the stamp laws
in the other; in both cases the
" ground of this decision
being that the thing handed over was
" not the thing paid
for. A similar principle was acted on in
" Ship's case.
There is, however, a very important difference
" between
oases where a contract may be rescinded on account
" of
fraud, and those in which it may be rescinded on the ground
''
that there is a difference in substance between the thing bargained
"
for and that obtained. It is enough to show that there was a
"
fraudulent representation as to any part of that which induced
''
the party to enter into the contract which he seeks to rescind;
"
but where there has been an innocent misrepresentation or mis-
"
apprehension it does not authorise a rescission unless it is such
"
as to show that there is a complete difference in substance between
"
what was supposed to be and what was taken so as to con-
"
stitute a failure of consideration. For example, where a horse
"
is bought under a belief that it is sound, if the purchaser was
"
induced to buy by a fraudulent representation as to the horse's
"
soundness the contract may be rescinded. If it was indirectly an
"
honest misrepresentation as to its soundness, though it may be
"
clear that both vendor and purchaser thought that they were
"
dealing about a sound horse and were in error, yet the purchaser
"
must pay the whole price unless there was a warranty, and even
"
if there was a warranty he cannot return the horse and claim
"
back the whole price unless there was a condition to that effect
"
in the contract—Street v. Blay."
The Court came to the conclusion
in that case that though there
was a misapprehension as to that
which was a material part of the
motive inducing the applicant to
ask for the shares, it did not
prevent the shares from being in
substance those he applied for.
The next case is Smith v.
Hughes, L.R. 6 Q.B. 597 (1871), the
well-known case as to
new and old oats. The action was in the
County Court, and was for
the price of oats sold and delivered and
damages for not accepting
oats bargained and sold. Cockburn C. J.
at p. 604 cites Story on
contracts as follows : " Mr. Justice Story
" in his work
on Contracts (Vol. 1, s. 516) states the law as to con-
"
cealment as follows : ' The general rule, both of law and equity,
"
in respect to concealment is that mere silence with regard to a
"
material fact which there is no legal obligation to divulge will
not
" avoid a contract although it operate as an injury to
the party
" from whom it is concealed. Thus,' he goes on (s.
517),
" although a vendor is bound to employ no artifice or
disguise for
" the purpose of concealing defects in the
article sold since that
" would amount to a positive fraud on
the vendee, yet under this
" general doctrine of caveat
emptor he is not ordinarily bound to
" disclose any
defect of which he may be cognisant, although his
" silence
may operate virtually to deceive the vendee. But,' he
continues
(s. 518), ' an improper concealment or suppression of a
"
material fact which the party concealing is legally bound to dis-
"
close and of which the other party has a legal right to insist
"
that he shall be informed is fraudulent and will invalidate a
"
contract.' Further distinguishing between extrinsic circum-
7 [32]
" stances affecting the
value of the subject-matter of a sale and the
" concealment
of intrinsic circumstances appertaining to its nature,
"
character and condition, he points out (s. 519) that with reference
"
to the latter the rule is ' that mere silence as to anything which
"
'the other party might by proper diligence have discovered and
"
' which is open to his examination is not fraudulent unless a
"
' special trust or confidence exist between the parties or be
"
' implied from the circumstances of the case.' In the doctrine
"
thus laid down I entirely agree."
In a further passage he says : "
It only remains to deal with an
" argument which was pressed
upon us that the defendant in the
" present case intended to
buy old oats and the plaintiffs to sell
" new, so that the
two minds were not ad idem and that conse-
" quently
there was no contract. This argument proceeds on the
"
fallacy of confounding what was merely a motive operating on
"
the buyer to induce him to buy with one of the essential condi-
"
tions of the contract. Both parties were agreed as to the sale
"
and purchase of this particular parcel of oats. The defendant
"
believed the oats to be old and was thus induced to agree to buy
"
them, but he omitted to make their age a condition of the con-
"
tract. All that can be said is that the two minds were not
"
ad idem as to the age of the oats; they certainly were ad
idem
" as to the sale and purchase of them. Suppose a
person to buy
" a horse without a warranty believing him to
be sound and the
" horse turns out unsound, could it be
contended that it would be
" open to him to say that as he
had intended to buy a sound horse
'' and the seller to sell an
unsound one the contract was void because
" the seller must
have known from the price the buyer was willing
" to give or
from his general habits as a buyer of horses that he
"
thought the horse was sound. The cases are exactly parallel."
Blackburn J. said, p. 606 : "
In this case I agree that on the
" sale of a specific
article unless there be a warranty making it
" part of the bargain that
it possesses some particular quality the
" purchaser must take the
article he has bought though it does not
" possess that quality.
And I agree that even if the vendor was
" aware that the purchaser
thought that the article possessed that
" quality, and would not
have entered into the contract unless he
" had so thought, still the
purchaser is bound unless the vendor
" was guilty of some fraud
or deceit upon him, and that a mere
" abstinence from
disabusing the purchaser of that impression is
" not fraud or deceit; for
whatever may be the case in a court of
" morals, there is no
legal obligation on the vendor to inform the
" purchaser that he is
under a mistake not induced by the act of
" the vendor."
The Court ordered a new trial.
It is not quite clear whether
they considered that if the
defendants' contention was correct the
parties were not ad idem
or there was a contractual condition that
the oats sold were
old oats. In either case the defendant would
succeed in defeating
the claim.
In these cases I am inclined to
think that the true analysis is
that there is a contract, but that
the one party is not able to supply
the very thing, whether goods
or services, that the other party con-
tracted to take : and
therefore the contract is unenforceable by
the one if executory,
while if executed the other can recover back
money paid on the
ground of failure of the consideration.
We are now in a position to
apply to the facts of this
case the law as to mistake so far as it
has been stated. It is essential
in this part of the discussion to
keep in mind the finding of the
jury acquitting the defendants of
fraudulent misrepresentation or
concealment in procuring the
agreements in question. Grave
injustice may be done to the
defendants : and confusion introduced
into the legal conclusion
unless it is quite clear that in considering
[33] 8
mistake in this case no
suggestion of fraud is admissible and must
sternly be rejected by
the Judge who has to determine the legal
issues raised. The
agreement which is said to be void is the agree-
ment contained in
the letter of 19th March, 1929, that Bell would
retire from
the Board of the Niger Co. and its
sub-
sidiaries and that in consideration of his
doing so Levers
would pay him as compensation for the
termination of his agree-
ments and consequent loss of office the
sum of £30,000 in full satis-
faction and discharge of all
claims and demands of any kind against
Lever Bros., the Niger Co.
or its subsidiaries. The agreement
which as part of the
contract was terminated had been broken so
that it could be
repudiated. Is an agreement to terminate a
broken contract
different in kind from an agreement to terminate
an unbroken
contract assuming that the breach has given the one
party the
right to declare the contract at an end ? I feel the weight
of
the Plaintiffs' contention that a contract immediately determin-
able
is a different thing from a contract for an unexpired term
and
that the difference in kind can be illustrated by the immense
price
of release from the longer contract as compared with the
shorter.
And I agree that an agreement to take an assignment of
a lease
for five years is not the same thing as to take an assignment
of a
lease for three years, still less a term for a few months. But
on
the whole I have come to the conclusion that it would be wrong
to
decide that an agreement to terminate a definite specified con-
tract
is void if it turns out that the agreement had already been
broken
and could have been terminated otherwise. The contract
released
is the identical contract in both cases : and the party
paying
for release gets exactly what he bargains for. It seems
immaterial
that he could have got the same result in another way :
or that if
he had known the true facts he would not have entered
into the
bargain. A. buys B.'s horse : he thinks the horse is sound
and
he pays the price of a sound horse : he would certainly not
have
bought the horse if he had known, as the fact is, that the horse
is
unsound. If B. has made no representation as to soundness and
has
not contracted that the horse is sound, A. is bound, and
cannot
recover back the price. A. buys a picture from B. : both
A. and B.
believe it to be the work of an old master and a high
price is paid.
It turns out to be a modern copy. A. has no
remedy in the absence
of representation or warranty. A. agrees
to take on lease or to
buy from B. an unfurnished dwelling house.
The house is in fact
uninhabitable. A. would never have
entered into the bargain if
he had known the fact. A. has no
remedy: and the position is the
same whether B. knew the facts or
not, so long as he made no
representation or gave no warranty.
A. buys a roadside garage
business from B. abutting on a public
thoroughfare : unknown to
A. but known to B. it has already been
decided to construct a bye-
pass road which will divert
substantially the whole of the traffic
from passing A.'s garage.
Again A. has no remedy. All these
cases involve hardship on A.
and benefit B. as most people would
say unjustly. They can be
supported on the ground that it is of
paramount importance that
contracts should be observed : and that
if parties honestly comply
with the essentials of the formation of
contracts, i.e., agree in
the same terms oil the same subject matter,
they are bound : and
must rely on the stipulations of the contract
for protection from
the effect of facts unknown to them.
This brings the discussion to
the alternative mode of expressing
the result of a mutual mistake.
It is said that in such a case as
the present there is to be
implied a stipulation in the contract that
a condition of its
efficacy is that the facts should be as understood
by both
parties, viz., that the contract could not be terminated
till the
end of the current term. The question of the existence of
conditions
express or implied is obviously one that affects not the
formation
of contract, but the investigation of the terms of the
9 [34]
contract when made. A condition
derives its efficacy from the con-
sent of the parties express or
implied. They have agreed, but on
what terms. One term may be that
unless the facts are or are
not of a particular nature, or unless
an event has or has not
happened, the contract is not to take
effect. With regard to future
facts such a condition is obviously
contractual. Till the event
occurs the parties are bound. Thus the
condition (the exact terms
of which need not here be
investigated), that is generally accepted
as underlying the
principle of the frustration cases is contractual:
an implied
condition. Sir John Simon formulated for the
assistance of your
Lordships a proposition which should be recorded
" Whenever
it is to be inferred from the terms of a contract or
" its
surrounding circumstances that the consensus has been reached
"
upon the basis of a particular contractual assumption, and that
"
assumption is not true the contract is avoided, i.e., it is void
"
ab initio if the assumption is of present fact and it ceases
to
" bind if the assumption is of future fact."
I think few would demur to this
statement but its value depends
upon the meaning of " a
contractual assumption " and also upon
the true meaning to be
attached to " basis," a metaphor which may
mislead. When
used expressly in contracts for instance in policies
of insurance
which state that the truth of the statements in the pro-
posal is
to be the basis of the contract of insurance, the meaning
is
clear. The truth of the statements is made a condition of
the
contract, which failing the contract is void unless the
condition is
waived. The proposition does not amount to more than
this that
if the contract expressly or impliedly contains a term
that a par-
ticular assumption is a condition of the contract the
contract is
avoided if the assumption is not true. But we have not
advanced
far on the inquiry how to ascertain whether the contract
does con-
tain such a condition. Various words are to be found to
define
the state of things which makes a condition. " In the
contemplation
" of both parties fundamental to the continued
validity of the
" contract," " a foundation
essential to its existence," ' a funda-
" mental reason
for making it " are phrases found in the
important judgment
of Scrutton L.J. in the present case. The
first two phrases appear
to me to be unexceptionable. They
cover the case of a contract to
serve in a particular place, the
existence of which is fundamental
to the service, or to procure the
services of a professional
vocalist whose continued health is essen-
tial to performance. But
" a fundamental reason for making a
" contract "
may with respect be misleading. The reason of one
party only is
presumedly not intended, but in the cases I have
suggested above
of the sale of a horse or of a picture,
it might be said that the
fundamental reason for making the con-
tract was the belief of
both parties that the horse was sound or
the picture an old
master, yet in neither case would the condition
as I think exist.
Nothing is more dangerous than to allow oneself
liberty to
construct for the parties contracts which they have not
in terms
made by importing implications which would appear to
make the
contract more businesslike or more just. The implica-
tions to be
made are to be no more than are '' necessary '' for giving
business
efficacy to the transaction : and it appears to me that both
as to
existing facts or future facts a condition should not be
implied
unless the new state of facts makes the contract something
different
in kind from the contract in the original state of
facts. Thus in
Krell v. Henry 1903 : 2 K.B. at p. 754
Vaughan Williams L.J.
finds that the subject of the contract was "
rooms to
"view the procession": the postponement
therefore made
the rooms not rooms to view the procession. This
also
is the test finally chosen by Lord Sumner in Bank Line
v.
Capel 1919 A.C. 436 agreeing with Lord Dunedin in Metro-
[35] 10
politan Water Board v.
Dick Kerr 1918 A.C. at p. 128 where deal-
ing with the
criterion for determining the effect of interruption in
"
frustrating " a contract he says, " an interruption so long
as to
" destroy the identity of the work or service with the
work or
" service when interrupted." We therefore get a
common
standard for mutual mistakes and implied conditions whether
as
to existing or as to future facts. Does the state of the new
facts
destroy the identity of the subject matter as it was in the
original
state of facts ? To apply the principle to the infinite
combinations
of facts that arise in actual experience will
continue to be difficult:
but if this case results in establishing
order into what has been
a somewhat confused and difficult branch
of the law it will have
served a useful purpose.
I have already stated my reasons
for deciding that in the present
case the identity of the subject
matter was not destroyed by the
mutual mistake, if any, and need
not repeat them.
It now becomes necessary to deal
with the second point of the
plaintiffs, viz., that the contract
of 19th March, 1929, could be
avoided by them in consequence of
the non-disclosure by Bell of his
misconduct as to the cocoa
dealings. 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 relation-
ships contracts for partnership and contracts
of insurance are the
leading instances. In such cases the duty
does not arise out of con-
tract; the duty of a person proposing
an insurance arises before a
contract is made; so of an intending
partner. Unless this contract
can be brought within this limited
category of contracts uberrimae
fidei it appears to me that
this ground of defence must fail. I see
nothing to differentiate
this agreement from the ordinary contract
of service; and I am
aware of no authority which places contracts
of service within the
limited category I have mentioned. It seems
to me clear that
master and man negotiating for an agreement of
service are as
unfettered as in any other negotiation. Nor can I
find anything in
the relation of master and servant when estab-
lished that places
agreements between them within the protected
category. It is said
that there is a contractual duty of the servant
to disclose his
past faults. I agree that the duty in the servant to
protect his
master's property may involve the duty to report a
fellow servant
whom he knows to be wrongfully dealing with that
property. The
servant owes a duty not to steal, but having stolen
is there
superadded a duty to confess that he has stolen? I am
satisfied
that to imply such a duty would be a departure from
the
well-established usage of mankind and would be to create
obliga-
tions entirely outside the normal contemplation of the
parties con-
cerned. If a man agrees to raise his butler's wages,
must the butler
disclose that two years ago he received a secret
commission from the
wine merchant; and if the master discovers it,
can he without
dismissal or after the servant has left avoid the
agreement for the
increase in salary and recover back the extra
wages paid? If he
gives his cook a month's wages in lieu of notice
can he on discovering
that the cook has been pilfering the tea and
sugar claim the return
of the month's wages ? 1 think not. He
takes the risk; if he wishes
to protect himself he can question
his servant, and will then be
protected by the truth or otherwise
of the answers.
I agree with the view expressed
by Avory J. in Healey v. Societe
Anonyme Francaise,
1917, 1 K.B. 946, on this point. It will be
11 [36]
noticed that Bell was not a
director of Levers, and with respect I
cannot accept the view of
Greer L.J. that if he was in a fiduciary
relationship to the Niger
Co. he was in a similar fiduciary relation-
ship to the
shareholders, or to the particular shareholders (Levers)
who held
99 per cent, of the shares. Nor do I think that it is
alleged or
proved that in making the agreement of 19th March,
1929, Levers
were acting as agents for the Niger Co. In the matter
of the
release of the service contract and the payment of £30,000
they
were acting quite plainly for themselves as principals. It
follows
that on this ground also the claim fails.
The result is that in the
present case servants unfaithful in some
of their work retain
large compensation which some will think they
do not deserve.
Nevertheless it is of greater importance that well
established
principles of contract should be maintained than that a
particular
hardship should be redressed; and I see no way of giving
relief to
the plaintiffs in the present circumstances except by con-
fiding
to the Courts loose powers of introducing terms into contracts
which
would only serve to introduce doubt and confusion where
certainty
is essential.
I think therefore that this
appeal should be allowed; and I agree
with the order to be
proposed by my noble and learned friend Lord
Blanesburgh.
[37]
Viscount
Hailsham.
Lord
Blanes-
burgh.
Lord
Warring-
ton of
Clyffe.
Lord
Atkin.
Lord
Thanker-
ton.
ERNEST HYSLOP BELL and WALTER EDWARD
SNELLING
(Appellants)
v.
LEVER BROTHERS LIMITED and NIGER COMPANY
LIMITED
(Respondents).
Lord Thankerton.
MY LORDS,
The detailed facts of this case
have been sufficiently stated
already by your Lordships. The
findings of the jury were accepted
by all parties, who were also
agreed that the Court should have
leave to draw inferences of
fact generally.
The two main contentions
between the parties are whether the
agreements of March, 1929,
are liable to be set aside (a) on the
ground of mutual
mistake or error, or (b) by reason of the non-
disclosure
of material facts by the Appellants, whereby Lever
Brothers were
induced to enter into these agreements.
The judgment of both Courts
below was unanimously against
the Appellants on the first point,
and, while Wright J. expressed
no opinion, the Court of
Appeal was also unanimously against the
Appellants on the second
point, though the first point was sufficient
for their disposal
of the case. The Appellants, however, must
succeed on both points
in order to succeed in their appeal.
Both these points raise
important questions of principle and I
regret to find myself
unable to agree with the conclusions of the
Courts below on
either point. In this view, it is unnecessary for
me to deal with
the two further questions, namely, whether the
first point is
open to the Respondents on the pleadings and the
course of
procedure, and whether the obligation in Mr. Bell's ser-
vice
agreement as to payment by Lever Brothers of the premiums
on an
endowment policy remains binding, despite the setting aside
of
the agreement of March, 1929.
The findings of the jury
establish that the Appellants' four
cocoa transactions in
November and December, 1927, constituted
a breach of contract or
duty towards the Respondents, which would
have entitled Lever
Brothers to terminate the Appellants' contracts
of service either
in January, 1928, or March, 1929, and that Lever
Brothers would
have exercised such right at either of these dates.
The jury also
found that the Niger Company would have been
entitled to dismiss
the Appellants from their positions as chairman
and vice-chairman
respectively on either of these dates and would
have done so. The
jury further found that Lever Brothers entered
into the
agreements of March, 1929, in ignorance of these trans-
actions
of the Appellants and that, if Lever Brothers had known
of them,
they would not have entered into these agreements. As
regards the
state of the Appellants' mind, the question and answer
was as
follows :- 'At the date of the respective interviews prior
' to
these agreements, had the Defendant Bell or the Defendant
'
Snelling in mind their actings in respect of these
transactions?",
to which the jury's answer was " No."
By their earlier answers
the jury had acquitted the Appellants of
inducing Lever Brothers
to enter into the agreements of March,
1929, by fraudulent mis-
representation of faithful and honest
service or by fraudulent
concealment of their cocoa transactions.
13105 A 11
[38]
2
It will be convenient to deal
first with the question whether
the Appellants had a duty to
disclose their cocoa transactions to
Lever Brothers when
negotiating the agreements of March, 1929.
If there was such a
duty, there is no doubt that the failure to dis-
close—though
innocent—amounted to a misrepresentation as to
material
facts which induced Lever Brothers to enter into these
agreements,
and which would entitle the latter to rescind them.
The learned
Judges of the Court of Appeal appear to regard the
duty to
disclose as arising at the time of negotiating the contract,
but I
am unable to see that any such duty could arise out of
the
circumstances of these agreements; in my opinion, the first
ques-
tion must be whether the Appellants incurred a duty to
disclose
these transactions at the time that they were completed.
The
failure to account for the profits to the Niger Company on
which
some of the learned Judges lay stress, was an integral part
of the
breach of duty to that Company. The Appellants had just
as
much—or just as little—right to continue drawing
their salaries
without disclosure as they had to negotiate two
years later for the
commutation of these same salaries. In truth,
the negotiations in
March, 1929, were at arm's length, and not on
the footing of the
relationship of master and servant, but for the
termination
of that relationship, and, if there was not an already
existing
breach of an obligation to disclose, I am unable to see
how the
circumstances of the agreements of March, 1929, could be
held to
create such an obligation.
In the absence of fraud, which
the jury has negatived, I am of
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; on
subsequent discovery, the master
or company will not be entitled
to hold the dismissal as operating
from the date of the breach,
but will be liable for wages or salary
earned by the servant
during the intervening period. In my
opinion Healey v.
Societe Anonyme Francaise Rubastic, (1917)
1 K.B. 946,
which was the case of the managing director of a
company, was
rightly decided. There may well be cases in which
the concealment
of the misconduct amounts to a fraud on the master
or company, but
the jury have excluded that view in the present
case. The other
cases to which we were referred relate to a duty
to disclose all
material facts on formation of a contract, and form
exceptions to
the general rule, which does not impose such a duty.
The most
familiar of these exceptions is found in the case of policies
of
insurance, as to which Blackburn J. says in Fletcher v.
Krell,
(1873) 28 L.T. 105, " mercantile custom has
established the rule
' with regard to concealment of material
facts in policies of
' insurance, but in other cases there must be
an allegation of moral
' guilt or fraud." Other exceptions
are found in cases of trustee
and cestui qui trust and of a
company issuing a prospectus and an
applicant for shares, but the
number of exceptions is limited, and
no authority has been cited
which extends the exceptions to cover
a case such as the present.
Accordingly, I am of opinion
that the Appellants had no legal
duty to disclose their cocoa
transactions either at the time of their
commission or in
negotiation for the agreements of March, 1929.
Turning next to the question of
mutual error or mistake, I
think that the Respondents' contention
may be fairly stated as
follows, vizt., that in concluding the
agreements of March, 1929,
all parties proceeded on the mistaken
assumption that the
Appellants' service agreements were not liable
to immediate ter-
mination by Lever Brothers by reason of the
Appellants' miscon-
[39] 3
duct, and that such common
mistake involved the actual subject
matter of the agreements, and
did not merely relate to a quality
of the subject matter.
The cases on this branch of the
law are numerous, and in seek-
ing the principle on which they
rest, I will at first confine my
attention to those which relate
to innocent mutual mistake on
formation of the contract, as it
appears to me that the cases relat-
ing to facts arising
subsequently to the formation of the contract
may be found to rest
on a somewhat different principle.
But first let me define the
exact position as at the date of the
agreements of March, 1929.
The service agreements of both
Appellants were then existing as
binding legal contracts, although
it was in the power of Lever
Brothers, had they then known of
the Appellants' breach of
contract, to have terminated the con-
tracts; but, until the
exercise of such power, the contracts remained
binding. It is also
clear that an essential purpose of the agree-
ments of March,
1929, was to secure the termination of these service
agreements.
The mistake was not as to the existence of agreements
which
required termination—for such did exist—but as to
the
possibility of terminating them by other means.
A clear exposition of the
principles to be applied in such a case
as the present is to be
found in the judgment of the Court of
Queen's Bench (Cockburn
C.J., Blackburn, Mellor and Shee J.J.),
in
Kennedy v. Panama &c. Co., (1867) L.R. 2 Q.B. 580,
delivered
by Blackburn J., who, as Lord Blackburn,
reaffirmed this opinion
in 1881 in Mackay v. Dick, 6 App Cas 251, at 265. In Kennedy's
case the Plaintiff had
taken shares in a further issue of capital
by the Panama Company,
being induced by a statement in the
prospectus that the purpose of
the issue was to enable the company
to carry out a contract
recently entered into with the Government
of New Zealand for the
carriage of mails. That contract had been
made with the agent of
the New Zealand Government, both parties
believing that he had
authority to make it; but it turned out that
he had no such
authority and the Government refused to ratify it.
Having failed
on. the charge of fraud and deceit against the
directors of the
company for making the statements in the
prospectus, the Plaintiff
submitted a second contention, which is
stated in the judgment as
follows (at p. 586 foot), " It was contended
" that the
effect of the prospectus was to warrant to the intended
"
shareholders that there really was such a contract as is there
"
represented, and not merely to represent that the company bona
"
fide believed it; and that the difference in substance
between
" shares in a company with such a contract and shares
in a com-
" pany whose supposed contract was not binding, was
a difference
" in substance in the nature of the thing; and
that the shareholder
" was entitled to return the shares as
soon as he discovered this,
" quite independently of fraud,
on the ground that he applied for
" one thing and got
another. And, if the invalidity of the con-
" tract really
made the shares he obtained different things in sub-
" stance
from those which he applied for, this would, we think,
" be
good law. The case would then resemble Gompertz v.
"
Bartlett " (2 E. & B. 849; 23 L.J. (Q.B.) 65) "and
Gurney v.
" Womersley " (4 E. & B.
133; 24 L.J. (Q.B.) 46) " where the
" person, who had
honestly sold what he thought a bill without
" recourse to
him, was nevertheless held bound to return the price
" on its
turning out that the supposed bill was a forgery in the
" one
case, and void under the stamp laws in the other; in both
"
cases the ground of decision being that the thing handed over
"
was not the thing paid for."
4 [40]
The Respondents' contention in
the present appeal is
in effect the same as the above contention;
they maintain that
the service agreements surrendered to them are
not the service
agreements paid for, in respect that they were
immediately
defeasible by them. Blackburn J. proceeds (at
p. 587) : " There
" is, however, a very important
difference between cases where a
" contract may be rescinded
on account of fraud, and those in
" which it may be rescinded
on the ground that there is a difference
" in substance
between the thing bargained for and that obtained.
" It is
enough to show that there was a fraudulent representation
"
as to any part of that which induced the party to enter into
"
the contract which he seeks to rescind; but where there has been
"
an innocent misrepresentation or misapprehension, it does not
"
authorise a rescission unless it is such as to show that there is
"
a complete difference in substance between what was supposed to
"
be and what was taken, so as to constitute a failure of considera-
"
tion. For example, where a horse is bought under a belief that
"
it is sound, if the purchaser was induced to buy by a fraudulent
"
representation as to the horse's soundness, the contract may be
"
rescinded. If it was induced by an honest misrepresentation as
"
to its soundness, though it may be clear that both vendor and
"
purchaser thought that they were dealing about a sound horse
' and
were in error, yet the purchaser must pay the whole price,
'
unless there was a warranty." After referring to the passages
in
the Digest of Civil Law and the way the question is there
mooted,
Blackburn J. says (at p. 588) " the answers
given by the great
' jurists quoted are to the effect that, if
there be misapprehension
' as to the substance of the thing, there
is no contract; but if it
' be only a difference in some quality
or accident, even though
' the misapprehension may have been the
actuating motive to the
' purchaser, yet the contract remains
binding." And he adds
' And, as we apprehend, the principle
of our law is the same as
' that of the civil law." This
passage makes clear that it is not
enough for the purchaser to
prove that the misapprehension was
the inducing cause to him and
that, if he had known, he would
not have entered into the
contract. The earlier passage as to the
sale of an unsound horse
also shows that it is not enough that a
grossly excessive price
has been paid for a bad article. In that
case it was held that the
shares obtained by Kennedy in the com-
pany were not substantially
different things but that the case was
analogous to that of the
horse supposed to be sound.
It is pointed out in Kennedy's
case that, if the directors had
known that the contract was not
valid, the contract might have
been avoided on the ground of a
fraudulent misrepresentation. In
the present case, there being no
obligation to disclose, the
Appellants, if they had had their
misconduct in mind, would have
been entitled to say nothing about
it, and the Respondents, in the
absence of fraud, would have been
bound by the contracts, even
though, if they had known, they would
not have entered into the
contracts, but would have terminated the
service agreements. I
have difficulty in seeing how the fact that
the Appellants did not
remember at the time is to put the
Respondents in a better position.
The phrase '' underlying
assumption by the parties," as applied
to the subject matter
of a contract, may be too widely interpreted
so as to include
something which one of the parties had not neces-
sarily in his
mind at the time of the contract; in my opinion it
can only
properly relate to something which both must necessarily
have
accepted in their minds as an essential and integral element of
the
subject matter. In the present case, however probable it may
be,
we are not necessarily forced to that assumption. Cooper
v.
Phibbs, (1867) LR 2 HL 149, is a good
illustration, for both
[41]
parties must necessarily have
proceeded on the mistaken assump-
tion that the lessor had the
right to grant the lease and that the
lessee required a lease.
Lord Westbury says (at p. 170) " the
" Respondents
believed themselves to be entitled to the property,
" the
petitioner believed that he was a stranger to it, the mistake
"
is discovered, and the agreement cannot stand."
In Scott v. Coulson, (1903) 1 Ch 453. affirmed (1903) 2 Ch 249,
it was common ground that at
the date of the contract for sale of
the life policy both parties
supposed the assured to be alive, the
result being that the
Plaintiffs were willing to accept as the best
price they could get
for the policy a sum slightly in advance of
its surrender value
and very much below the sum due on the death
of the assured. As a
matter of fact the assured was dead. It
was therefore clear that
the subject matter of the contract was a
policy still current with
a surrender value and that accordingly
the subject matter did not
exist at the date of the contract.
Couturier v. Hastie,
(1856) 5 H.L. 673, where the cargo sold was
held not to have
existed at the date of sale, and Strickland v.
Turner,
(1852) 7 Exch. Cas. 208, where the annuitant was in fact
dead
at the date of sale of the annuity, were cases where the
subject
matter was not in existence at the date of the contract.
There
are many other cases to the same effect, but I think that it
is true
to say that in all of them it either appeared on the face
of the
contract that the matter as to which the mistake existed
was an
essential and integral element of the subject matter of the
contract
or it was an inevitable inference from the nature of the
contract
that all the parties so regarded it.
In the present case the terms of
the contracts throw no light
on the question, and, as already
indicated, I do not find sufficient
material to compel the
inference that the Appellants, at the time
of the contracts,
regarded the indefeasibility of the service agree-
ments as an
essential and integral element in the subject matter
of the
bargain.
The range of authorities
relating to some alteration in circum-
stances subsequent to the
date of the contract do not, in my opinion,
raise a question of
mutual error or mistake; in them the formation
of the contract is
complete and binding, but subsequent events arise
which critically
affect the contract, but whose occurrence has not
been provided
for in the contract. However it may be stated,
when relief from
the contract is given, the Court, as it appears
to me, rests such
relief on an implied condition which forms part
of a complete and
binding contract, but which, on the happen-
ing of certain events,
terminates the contract. These authorities
appear to me,
therefore, to have no bearing on the question of error
or mistake
as rendering a contract void owing to failure of
consideration.
Accordingly, I am of opinion
that the Appellants are entitled
to succeed in their appeal and
that the judgments of the Courts
below so far as appealed against
by them, should be reversed. I
therefore concur in the
motion to be proposed by my noble and
learned friend Lord
Blanesburgh.
(13105-50) Wt.55-11 14 12/31
P. St. G.311
