Does the law of England and Wales need a doctrine of common mistake?

In the sale of goods, the case of Couturier v. Hastie6, holds the precedent. The case involves a cargo of corn, where the owner of the corn believing the corn to be in transit, sold the corn to a buyer. However because the corn had begun to rot, the master of the ship sold the corn en route, hence before the contract of sale had been entered into. The seller argued that the buyer should pay for the entire cargo because on accepting the cargo, he accepted it risks and all. The House of Lords held that there was no liability due to the fact that the seller didn’t have the goods to sell at the time he made the contract. There are some inconsistencies with the judgement because if the decision by the courts is based on the fact that the contract was invalidated due to common mistake, then we have to state that there was no actual contract made anyway, hence how can it be void? The issue in this case seemed to be whether the contract was subject to conditions such as the goods needing to be present rather than being one of mistake. This case is seen to have been the basis for section 6 of the Sale of Goods Act, which states that “where the contract is for the sale of specific goods, and the goods without the knowledge of the seller have perished at the time when the contract is made, the contract is void.” This section demands the goods to have existed then for them to vanish, this does not cover the idea that sometimes the goods have never existed as is the instance in the Australian high court case of McRae v. Commonwealth Disposals Commission7. In this case the commission requested and accepted tenders for a salvage expedition to a shipwrecked oil tanker. The plaintiff’s went to considerable trouble and expense to search for a tanker that it appeared was never present in the first place. The distinction between this case and the Couturier v. hastie, is the fact that the court held that the commission had assumed contractual liability for the existence of the tanker and hence damages could be awarded.

Another aspect of common mistake at common law, is the idea of res sua. This is mainly a mistake concerning the ownership of property. The leading case in this area is the case of Cooper v. Phibbs8, where Cooper agreed to lease a salmon farm from Phibbs, whilst both believing that the farm belonged to Phibbs. However, Cooper was life tenant and thus he didn’t need to lease the farm from Phibbs, and Phibbs had no right to grant it. The contract was made void, but the court allowed Phibbs compensation for money spent on the farm when he thought it was his. This case is sometimes also seen as an example of a mistake in equity as the remedy was one of equity. This is because in equity the contract can be set aside on certain terms as occurred in this case.

The leading case dealing with a common mistake in quality, is Bell v. Lever Brothers Ltd., where Lord Atkin set down the principles used for the discussion on the principle of a common mistake at law. The general rule is thus, if a contract “expressly or impliedly contained a term that a particular assumption is a condition of the contract, the contract is avoided if the assumption is not true”.9 This test relies on the need for an essential difference in what has been implied and what is actually being offered. The only problem with this test is that what is considered to be ‘essential’ has been narrowed down so severely that not many options are covered. In the Leaf10 case, the plaintiff bought a painting, which he believed to be the work of the old master, Constable, and when he discovered that it wasn’t, he couldn’t have the original contract of sale put aside. This wasn’t only due to the lapse of time, but the Court of Appeal stated that there was no remedy due to the fact that the difference is not essential. So we have to wonder what exactly is considered to be ‘essential’ enough to warrant a remedy for mistake of quality. Here, we see that even in cases where it appears as though there is a doctrine to cover that particular area of common mistake there are still so many questions surrounding the idea that many discrepancies arise.

However the most queries arise in the doctrine, or lack thereof, of common mistake in regards to equity. It has seen that the doctrine of common mistake in equity is a much broader scope and it has been accepted that if a contract can not be made void or at least set aside due to common mistake at law, it can be voided by common mistake in equity. Evans LJ in the William Sindall11 case ascertained that equity can have “regard to a wider and perhaps more unlimited category of fundamental mistake”,12 as opposed to common law mistakes which were limited to mistakes regarding the subject-matter. The main doctrine regarding common mistake in equity is found in the judgement of Lord Denning in the case of Solle v. Butcher13, where he effectively created a new doctrine so as to arrive at what he thought to be the correct result. The main basis of his doctrine was that equity would grant a remedy where it is not easy to recognise which party was to bear the risk of the contract. As lord Denning placed it, a contract may be set aside by equity if there is a “common misapprehension either…to the facts or… their relative and respective rights.”14 in this case, Lord Denning also set up three points that were the cornerstone of the doctrine of mistake in equity. These points were that equity will relieve a party from the consequences of his mistake as long as there is no injustice to third parties, the court can set aside when it believes that it would be wrong of the other party to benefit from the legal position he has achieved, and thirdly, if one party knowingly allows the second party to enter a contract in a deluded state as to the terms of the offer rather than pointing out the mistake. In any of these three instances, equity will set the contract aside according to Lord Denning. However, a plea of common mistake in law has to be heard first before the court will consider allowing a plea of common mistake in equity. Even if a plea of common mistake in law has succeeded, a plea of mistake in equity may still be considered. Several cases took this approach, including the case of Grist15, where the court first considered the matter as a “one of law”16, then moved onto the question of equity. The contract was set aside having been found to be sufficiently entrenched in equity due to the fact that the vendor allowed the purchaser the chance to but the property at its true value. Likewise, in the Magee case17, the Court of Appeal decided to set aside the contract for settlement of an insurance claim because the parties had been given inaccurate information as to the entitlement. The doctrine got most of its recognition due to the judgement of Lord Steyn in the Associated Japanese Bank case18, where he openly used Lord Denning’s judgement in the Solle case as the basis for his judgement. He claimed that the combination of the narrow rules set out in the Bell case dealing with the common mistake in law, and the more “flexible doctrine” of mistake in equity developed in the Solle case, leads to an “entirely sensible and satisfactory state of law.”19According to Lord Steyn, equity would cover any unfair judgements which appeared as a result of the narrow doctrine of common mistake at law, nevertheless, the doctrine would not allow a contract to be set aside in favour of a party which was at fault.

This idea of Lord Steyn’s was developed further by Lord Evans in the Williams Sindall case, where he added the need for the mistake to include a change in the subject-matter that was “essentially and radically different” and he then went on to add that equity allows for a wider and more “unlimited category of ‘fundamental mistake”20. Still this comment with its lack of necessary elaboration led to misinterpretations of what was meant, as he made it appear as though any mistake could be placed under equity and receive a remedy. This led to the clarification by Rimer J in the Clarion case21, that equity would not grant a remedy in cases where the mistake is only in relation to commercial aspects of the contract. In this case, he made the distinction that if the defendant had made a bad bargain, it was not the duty of the doctrine of mistake in equity to help him get out of the contract.

All these problems with the doctrine of common mistake were brought to the forefront by the case  late last year, this was the Great Peace Shipping case22 where all the problems of the doctrine were discussed in a bid to come to a reasonable conclusion. In the matter of the contract being made void as a matter of law, Toulson J decided that the vessel the Great Peace was close enough to have provided the necessary services required, i.e. as an escort service for the damaged vessel the Cape providence, and therefore the contract was not turned into something ‘essentially different’ from the original bargain. Also the defendant should have taken it upon himself to ensure that there was a contractual stipulation covering that eventuality. In the second matter, whether the contract was voidable in equity, Toulson found it had to determine what was considered to be ‘fundamental’ and he was at a loss as to decide what an appropriate test for it should be. Due to these discrepancies the judge was unwilling to use the broad discretion allowed to him under the doctrine of equity at the present time.

This indicates that the two doctrines are not refined enough to provide a clear, concise and followable doctrine that the judiciary have the confidence to follow and apply. I believe that Lord Steyn was correct in his ambition to merge the flexibility of the equity and the narrowness of the law to create on manageable doctrine to cover all the necessary eventualities. There seems to be little to distinguish the two as we have seen so a combination of the two doctrines would not appear to be difficult, but the doctrine would have to reflect all the notions put forward by all the judges in the above cases which could prove to be a hard task. This continuing co-existence of the two doctrines as we have seen in the Great Shipping case is leading to confusion and lack of conviction in the judicial decisions in such matters which indicates a real need for a doctrine of common mistake in England and Wales. Basically all theses rules have been set up by various judges with no real indisputable backing which has led to not only confusion but also critics who raise queries about the rules leading to more questions and the doctrine ends up with holes all over it as we have seen in the above examples. The judges having witnessed first hand the way the doctrines are unable to co-exist should come up with a single set of rules that works for them because although that is what Lord Atkin and Lord Denning have attempted to do, the haven’t achieved much success and hence this highlights the need for a more substantive doctrine.

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