Bell v Lever Brothers Ltd [1932] AC 161

Lever Brothers employed Bell and another senior executive under service agreements. A commercial reorganisation made their continued employment unnecessary, and the parties negotiated compensation for early termination. The employer later discovered earlier misconduct which could have justified dismissal without compensation. The employees had not had that misconduct in mind when negotiating the settlements. Lever Brothers sought to recover the payments, arguing that the agreements had been made under a shared mistake about the employees' entitlement to compensation. The dispute therefore concerned the effect of an undiscovered right to terminate the original employment contracts.

Did the shared failure to appreciate an existing right to dismiss without compensation make the subsequent termination agreements void for common mistake?

The House of Lords held by a majority that the termination agreements were not void for common mistake. Lever Brothers obtained the release from employment obligations for which it had bargained. Although knowledge of the misconduct would have enabled dismissal without compensation, that did not make the subject matter of the termination bargain essentially different.

Lord Atkin distinguished a fundamental mistake affecting the identity or essential nature of the bargain from an error about a quality or circumstance that makes it less advantageous. The employer's willingness to pay would plainly have changed had it known the facts, but that alone was insufficient. The employees' failure to volunteer the forgotten misconduct did not establish a separate basis for avoiding the agreements on the findings made.

A common mistake about a quality of the subject matter does not avoid a contract merely because the parties would otherwise have contracted differently. The mistake must satisfy a stringent requirement of fundamental difference. Allocation of risk and any relevant representation or warranty must also be considered.

Bell sets a demanding threshold for common mistake and distinguishes an unfortunate bargain from a fundamentally different transaction. Great Peace later confirmed the restrictive common law approach and rejected Solle v Butcher's separate jurisdiction to rescind contracts for common mistake in equity. Bell should not be confused with unilateral mistake or misrepresentation: those doctrines involve different requirements. Its central lesson is that discovering a better legal route to the same commercial objective does not necessarily undo a concluded bargain.