Legal mistakes: humorous or costly?

Legal BRIEF

THERE is an entertaining story about a lawyer in North Carolina who bought a box of rare and expensive cigars, then insured them against fire.

A few weeks later, after smoking all the cigars, he filed a claim against the insurance company, claiming the cigars had been destroyed “in a series of small fires”.

Unsurprisingly, the insurance company refused to pay, arguing he had consumed the cigars in the normal way.

The lawyer sued and won. The judge concluded that, on the wording of the policy, the insurance company was liable – it had failed to limit its liability by defining what would amount to an “unacceptable fire”.

The company, rather than incur the costs of appeal, paid up $15 000, whereupon it reported the lawyer to the police.

He was arrested and subsequently convicted on 24 counts of arson – intentionally burning insured property – and sentenced to two years’ imprisonment and a fine.

The story is not true, but it does illustrate the importance of ensuring that parties to an agreement are appraised of all the facts, clear on what they are agreeing to and that related contracts are properly drafted. not help a party who wants to avoid honouring an agreement to argue after the fact that it was entered into as the result of a mistake.

This was essentially the finding by the Supreme Court of Appeal in the recent case of Botha v RAF.

The good news for Mr Botha was that he had entered into a settlement agreement with the RAF.

The bad news was that a significant portion of his expenses, which should have been included in the settlement agreement, were excluded as the result of an error.

Importantly, this error came from Mr Botha’s camp and was unknown by the RAF at the time the settlement agreement was concluded.

Mr Botha tried to argue that the mistake was grounds to effectively cancel or amend the agreement.

The SCA held that because the mistake was not common to both parties and it was reasonable for the RAF to assume there was consensus, the mistake could not be relied on as grounds for cancellation.

The lesson again is that it is important for parties to agreements to be appraised of the facts, clear on what they are agreeing to and for related contracts to be properly drafted.

• Simon Watson is a partner in the Cox Yeats commercial and natural resources law team. He is the author of Commentary and Precedents for Joint Ventures in South Africa and the Lexisnexis Guide to Mergers and Acquisitions. Simon is qualified as a South African and an Australian lawyer. He can be contacted on 0315368500 or via e-mail: swatson@coxyeats.co.za