Unacceptable mistaken assumption: Intention of parties

Note: Footnotes omitted and emphasis added

The respondents sued the appellant in the Witwatersrand Local Division for payment of the sum of R23 000 which was alleged to be due and payable in terms of an agreement of compromise, together with interest and costs. The appellant gave notice of its intention to defend the action, and the respondents applied for summary judgment, which was granted by Goldblatt J. The appellant now appeals against that decision with the leave of the court a quo.

The Labour Relations Act 28 of 1956 provides certain machinery for the resolution of disputes between employee and employer. If such a dispute is alleged to exist, either party may apply to an inspector of manpower for the appointment of a conciliation board to consider and, if possible, settle the dispute. The party concerned may at the same time apply to the industrial court for interim relief. If the dispute cannot be resolved, it may be referred to the industrial court for final determination.

The agreement in the present case arises from the termination of the respondents’ employment in December 1992. Alleging that they had been employed by the appellant, and that the termination of their employment constituted an unfair labour practice, the respondents applied for the appointment of a conciliation board to consider the dispute. At the same time they applied to the industrial court for interim relief.

A conciliation board was duly appointed, and when it met the appellant agreed in writing to pay to the respondents’ attorney the sum of R23 000 within 7 days “in full and final settlement of the dispute.”

It is common cause that the appellant failed to do so, which prompted the action to which this appeal relates.

According to the appellant, after the agreement was concluded it discovered that the respondents had been employed not by the appellant but by one of its subsidiaries in Botswana. It alleges that the assumption underlying the agreement was that the respondents had been employed by the appellant, and that because this assumption was erroneous the agreement is void.

The concept of employment as defined in the Act is wider than it is at common law. The appellant has set out no facts to support its allegation that it was not the respondents’ employer, and its allegation to this effect is no more than a conclusion of law. I have nevertheless assumed that the appellant’s allegation is well founded, and that at the time the agreement was concluded both the appellant and the respondents believed erroneously that the appellant had been the respondents’ employer.

The appellant’s counsel submitted at first that because the respondents intended to contract with their employer, which was not the appellant, there was a mistake with regard to the identity of the parties to the agreement. This is not correct. There was complete consensus as to who the contracting parties were. The only mistake was in believing that an employment relationship existed between those parties.

The Court a quo concluded that this was a mistake which went merely to the motive for concluding the contract, and that this was irrelevant to its validity.

Support for this approach is to be found in cases like Banks v Cluver 1946 TPD 451 at 458-9, and Diedericks v Minister of Lands 1964 (1) SA 49 (N) at 56C. The appellant’s counsel, on the other hand, submitted that the mistake related to an underlying assumption, and that if the assumption was unfounded the contract must fail.

Various authorities support that proposition, including

• De Wet & Yeats: Kontraktereg en Handelsreg 4th ed pp 138-9,
• Sonarep (SA) (Pty) Ltd v Motorcraft (Pty) Ltd 1981 (1) SA 889 (N) at 902A-H, and
• Hare’s Brickfields Ltd v Cape Town City Council 1985 (1) SA 769 (C) at 781B.

That terminology by itself provides little assistance in determining whether any particular case the mistake will operate to render the contract void, though it may give expression to what is in my view a more fundamental question.

Both in the case of a mistake going to motive, and a mistake relating to an underlying assumption, what is in issue is a mistaken belief by the parties at the time they contract that a particular state of affairs exists. What determines whether the contract is invalid is whether the parties have agreed, expressly or tacitly, that this should be the consequence if the state of affairs does not exist. The nature of the assumed state of affairs may be relevant to that enquiry, but is not decisive.

In some cases the belief that the state of affairs exists will be merely incidental to the parties’ intention to create a binding relationship.

While they may have contracted in the belief that it exists, they have not made their contract dependant thereon and have instead taken the risk that the state of affairs may not exist.

In Banks v Cluver, supra, at 458, de Villiers J said that a mistake afforded no redress

“. . . in the absence of any representation innocent or fraudulent . . . or any term of the contract affording relief in such a case” (my underlining).

In Diedericks v Minister of Lands, supra, at 56C, Miller J categorised such a mistake as “merely incidental to the contract”, which conveys the same idea.

Where the mistake does afford redress is where the parties have expressly or tacitly incorporated in their contract a condition that its validity will depend upon the existence of the assumed state of affairs.

In African Realty Trust v Holmes 1922 AD 389 at 403 the principle was expressed in the following terms at p 403:

“But, as a Court, we are after all not concerned with the motives which actuated the parties in entering into the contract, except in so far as they were expressly made part and parcel of the contract or are part of the contract by clear implication.”
(my underlining)

In Dickinson Motors (Pty) Ltd v Oberholzer 1952 (1) SA 443 (A), Schreiner JA said that the following extract from Huddersfield Banking Co Ltd v Henry Lister & Son Ltd (1895) 2 Ch 273, which is to the same effect, expressed

“in clear language a principle which is inherent in all developed systems of law”:
“. . . an agreement founded upon a common mistake, which mistake is impliedly treated as a condition which must exist in order to bring the agreement into operation, can be set aside, formally if necessary, or treated as set aside and as invalid without any process or proceedings to do so”
(my underlining).

In that case the assumed state of affairs was considered by Schreiner JA to be “vital to the transaction”, by which I understand him to mean that both parties intended the contract to bind them only if that state of affairs existed.

As I understand the decisions in those cases, a common mistake relating to the existence of a particular state of affairs will not render the contract void unless it can be said that the parties expressly or tacitly agreed that the validity of the contract was conditional upon the existence of that state of affairs.

Even a mistake which may can be categorised as going only to the motive for concluding the contract will afford redress if that is what the parties have agreed upon (see African Realty, supra). The real question in each case is whether that was their agreement (see in this regard Christie: The Law of Contract in South Africa 2nd ed at pp 399-340).

In De Wet and Yeats, supra, at pp 138-9 a distinction is drawn between an “underlying assumption” and a condition properly so called, because of the different consequences which follow if each one fails. That difference seems to me to arise from the differing content of the conditions in each case.

However, whether or not there is a juridical distinction to be drawn between a condition which affects the validity of the contract, and one which affects merely the performance of the obligations of the under the contract, in both cases one is concerned with establishing what was agreed by the parties. Approached in that manner, the problem resolves itself into construing the particular agreement against the surrounding circumstances.

In the present case it was not expressly agreed that the parties would not be bound if an employment relationship did not exist between them. Whether there was tacit agreement to that effect must be determined in accordance with the normal rules for construing contracts.

As pointed out by Botha JA in Van den Berg v Tenner 1975 (2) SA 268 (A) at 276H, a court will be slow to read a tacit term into a contract, and will do so only if it is satisfied that it reflects what the parties actually intended (see too Alfred McAlpine & Son (Pty) Ltd v Transvaal Provincial Administration 1974 3 SA 506 A at 531-2).

The contract in the present case was one of compromise. The nature of such a contract is that it is concluded because the rights of the parties are uncertain, and they choose not to resolve that uncertainty. By the very nature of such a contract, there can be little room for finding that the parties must have intended their contract to depend upon the existence of one or other of the factors relevant to their respective rights. It is precisely to avoid testing them that they compromise.

While recognising that there may be cases in which even a compromise can be set aside for mistake, Miller JA nevertheless said the following in Gollach & Gomperts (1967) (Pty) Ltd v Universal Mills and Produce Co (Pty) Ltd and Others 1978 (1) SA 914 (A) at p 923:

“Voluntary acceptance by parties to a compromise of an element of risk that their bargain might not be as advantageous to them as litigation might have been is inherent in the very concept of compromise. This is a circumstance which the court must bear in mind when it considers a complaint by a dissatisfied party that, had he not laboured under an erroneous belief or been ignorant of certain facts, he would not have entered into the settlement agreement.”

The appellant’s counsel has submitted that the parties would not have settled the dispute had the true position been known to both of them. This is probably so. There would be few agreements of compromise at all if both parties were fully informed of the facts and the law relating to the dispute. However the question is not whether the appellant would have compromised had it been aware of one or other circumstance which excused it from liability. If the parties would have contracted even if they had known that the particular state of affairs did not exist, then clearly it cannot be said that they intended their contract to be dependant thereon, but the converse is not equally true. The real enquiry in each case is whether this was a risk which they took.

The appellant’s counsel submitted that the only risk which was taken in the present case was whether an unfair labour practice was committed. I can see nothing in the agreement itself or in the surrounding circumstances to support that submission.

There is nothing to suggest that when the parties reached their agreement they were ad idem that only one element of the dispute was to be compromised. What was in dispute was whether the appellant was liable to reinstate the respondents. It was that entire dispute which they compromised, and and not merely one aspect thereof. In my view the possibility that there was no employment relationship, even if it had not occurred to them, was one of the risks assumed by the parties by the very nature of the agreement which they reached.

It was submitted too that even if the agreement was not conditional in the sense in which I have described that term, the appellant’s error was a reasonable one which was induced by the respondents’ misrepresentation that they were employed by it, and that on these grounds too it was entitled to avoid the contract. The appellant’s counsel submitted that the facts allow for the inference that the respondents did not honestly believe that they were employed by the appellant and that their statement to this effect was made fraudulently.

There is no allegation of fraud in the appellant’s affidavit, nor is it alleged that the that the respondents were not merely mistaken, but had made the statement that they were employed by the appellant knowing that this was untrue. The appellant’s counsel submitted that it was not necessary to allege the facts necessary to establish fraud, as they arise by inference from the evidence.

To establish a defence of fraud it would be necessary for the appellant to satisfy a court not merely that this is a possible inference to be drawn from the facts, but that it is the probable one. The facts in the present case go no way towards establishing this.

The appellant’s counsel also submitted that the appellant should be allowed the opportunity of establishing fraud at a trial.

Summary judgment may be granted if a defendant has not set out in his affidavit facts which, if proved at a trial, will constitute an answer to the plaintiffs claim (Breitenbach v Fiat SA (Edms) Bpk 1976 (2) SA 226 (T)). The appellant has not done so, and it cannot avoid summary judgment merely because there is a possibility that something may come up at a trial.

While the court retains a discretion to refuse summary judgment, even where a defence has not been disclosed, that discretion is not to be exercised against a plaintiff on the basis of mere conjecture or speculation. There is nothing to suggest that the learned judge in the court a quo did not properly decline to exercise his discretion in favour of the appellant.

In my view the appellant’s affidavit did not disclose a defence, and the court a quo was entitled to grant summary judgment. The appeal is accordingly dismissed with costs.