The law regarding common mistake can be somewhat conflicting. In Solle v Butcher, the rules governing common mistake were loosened by the addition of requirements for common mistake in equity, as even Lord Steyn stated: -
“Throughout the law of contract two themes regularly recur: respect for the sanctity of contract and the need to give effect to the reasonable expectations of honest men.”
Despite this, the rules made in the Solle v Butcher case were later heavily criticized in the case of Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd. A contract can only be deemed to be void now if the mistake prevents the formation of a contract. Before the fusion of equity and the common law, in order to do justice, the common law courts would extend the doctrine of mistake beyond its’ limits and render void what was actually only voidable, hence doing injustice upon the third parties that had acted on the assumption that there was infact a contract. Now however, in equity, the contract can be set aside if both the parties are under the same misapprehension regarding the facts or if it is fundamental and the parties that are seeking to set it aside were not at fault. A mistake in equity will render the contract voidable and therefore with the resulting possibility of rescission. Therefore, one could argue that the law of common mistake is made more flexible by usage of equity, as by applying equity which makes the contract voidable, means that the remedy of rescission may not actually follow if it would be too harsh or unfair in relation to the circumstances. Over the years, the courts have sometimes been more inclined to find a mistake operative in equity rather than at law, as shown in Taylor v Johnson.
It is not surprising that in relation to Lord Steyns’ statement, there has been some confusion and an overlapping in the application of these two jurisdictions which has caused inconsistency in successive court rulings regarding common mistake. Even Lord Atkins admits that cases relating to mistake as to quality are more difficult to deal with! (In the case of Bell v. Lever Bros. )
Indeed, this can be highlighted by comparing the cases of Bell v. Lever Bros. with McGee v. Pennine Insurance. The Bell v. Lever Bros. case is one of the leading cases on mistake as to quality, where two employees of Lever Bros. were given “Golden Handshakes” of £30 000 and £20 000 respectively in consideration of an early termination of their contract. However, it was later discovered by the company that Bell had committed several breaches of his contract of employment, which would have meant Lever Bros. could have fired him without paying him £30 000. Not surprisingly, Lever Bros. sought to recover this money by using the argument that the termination payment contract was void for mistake at law. However, Lord Atkin states that Lever Bros got what they bargained for; the early termination of a contract of employment. Hence, it was ruled there was no operative mistake here. There was only a mistake in relation to the quality of their service contracts of the employees and this was not considered to be sufficiently fundamental to render the contract void at law as Lord Atkin stated that mistake as to quality: -
“will not affect assent unless it is a mistake of both parties”. One can gleam from this case that it is only in an extremely unlikely event that a mistake as to quality will render a contract void from the beginning.
Great Peace Shipping Ltd v Tsavliris (International) Ltd must be noted as a fundamental development within the context of the doctrine of mistake. The general principle held was that where parties enter into a contract which by all interpretations is impossible to perform at the time which the agreement was made, the contract will be void for common mistake. Contrastingly, in this case, it was viewed that the contract was not void as the judges viewed that the rescue effort was found not to be impossible to perform. The judge did not grant the defendant rescission by way of an equitable remedy, as they had done in Solle v Butcher and arguably this decision was reversed in Great Peace Shipping, where a ship called ‘Cape Providence’ suffered difficulties mid voyage and so informed the nearest ship to them (Great Peace) which they thought at the time could reach Cape Providence. However, it later became evident that it was 39 hours away and hence the owners of Cape Providence tried to claim that the contract was void ab initio for mistake, or alternatively, that it should be rescinded by equity. Instead, it was held that the contract would take neither of these claims, as it was Tsavliris Salvage acting on behalf of Cape Providence that obtained the position of the stricken Cape Providence and therefore they carried the risk that this information could be incorrect. The risk that the performance of the task could be impossible was declared irrelevant and so the contract was still valid. It was also held by the Court of Appeal that five elements were required for common mistake to void a contract : - a common assumption regarding the existence of a state of affairs, no warranty by either party that the state of affairs does exist, the non-existence of the state of affairs is not accountable to the fault of either party, the non-existence of the state of affairs will render performance of the contract impossible and finally, the “state of affairs” refers to a vital factor which has to be present in order for the contractual duty to be performed.
Overall, the law of common mistake is arguably confusing as the flexible nature upon which equity rests can seem to be too vague and inconsistent and can sometimes not relate to the subject matter or indeed other terms of the contract. However, one could argue this equitable remedy has shaped a more flexible doctrine of common mistake.
Bibliography
- Case
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Couturier v Hastie (1856) 5 HLC 673
- Galloway v Galloway [1914] 30 T.L.R. 531
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Cooper v Phibbs (1867) LR 2 HL 149
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Solle v Butcher [1950]1 KB 671
- Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902 p1
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Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002]
- Taylor v Johnson (1983) 151 CLR 422
- Bell v Lever Bros Ltd [1932] AC 161 HL
- Magee v. Pennine Insurance Co Ltd [1969] 2 QB 507
2. Legislation
3. Case Comment
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Patrick Atiyah “An Introduction to the Law of Contract“(1995 5th Ed.) Clarendon Law Series, p989
- Dr Robert N Moles ‘ Losing Their Grip - The Case of Henry Keogh’
<>accessed 26 February 2012
Patrick Atiyah “An Introduction to the Law of Contract“(1995 5th Ed.) Clarendon Law Series, p989
Couturier v Hastie (1856) 5 HLC 673
Section 6 Sale of Goods Act 1979
Galloway v Galloway [1914] 30 T.L.R. 531
Cooper v Phibbs (1867) LR 2 HL 149
Solle v Butcher [1950]1 KB 671
Associated Japanese Bank (International) Ltd v Credit du Nord SA [1988] 3 All ER 902 p1
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002]
Dr Robert N Moles ‘ Losing Their Grip - The Case of Henry Keogh’
<>accessed 26 February 2012
Taylor v Johnson (1983) 151 CLR 422
Bell v Lever Bros Ltd [1932] AC 161 HL p 997
Bell v Lever Bros Ltd [1932] AC 161 HL
Magee v. Pennine Insurance Co Ltd [1969] 2 QB 507
Bell v Lever Bros Ltd [1932] AC 161 HL p 997
Bell v Lever Bros Ltd [1932] AC 161 HL p947