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(i) Common Mistakes

Common mistakes are mistakes which are shared by the parties to the contract. The test which is adopted to identify when a common mistake will render a contract void is that of fundamental mistake.242 In Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd243 the Court of Appeal held that this means that the mistake must either render performance of the contract impossible or render the contract essentially different from what the parties intended it to be.244 Examples of such mistakes include mistakes as to the existence of the subject matter of the contract,245 or as to the title to the subject matter. It has also been recognized that common mistakes of law can vitiate a contract,246 but not where there is only a shared doubt as to the relevant rules of law.247

In every case it is a matter of degree whether the common mistake of the parties is so important that it relates to the very foundation of the contract. If the mistake is not as serious as this it will not operate to vitiate the parties’ intention to enter into the contract. This is illustrated by the decision of the House of Lords in Bell v Lever Brothers.248 An employer wished to terminate the service contracts of two employees and consequently agreed to make them compensatory payments. In fact, the employer could have sacked the employees summarily without compensation because they had breached their contract of employment by working on their own account when they should have been working for the employer. The House of Lords held that the employer’s mistaken assumption that it could terminate the employees’ contracts only if compensation was paid, a mistake which was shared by the employees, was not a fundamental mistake. This was presumably because the mistake did not relate to the validity or operation of the contract, but merely related to the employer’s motivation for entering into it. In other words, there was no mistake as to what was paid but only as to the reason for making the payment. Consequently, the employer was not able to recover the compensation payments which it had paid to the employees.

More recently this doctrine of common mistake was considered by the Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd.249 The defendant offered salvage services to a vessel which was in difficulties. The defendant entered into a hire contract with the claimant to provide assistance, the defendant believing that the claimant’s vessel was 35 miles away from the stricken vessel. In fact, the claimant’s vessel was 410 miles away. When the defendant discovered this, it did not immediately cancel the contract but delayed doing so for a few hours until it was able to find a vessel which was closer to provide assistance. The claimant then sued the defendant for payment offive days’ hire under a cancellation clause in the contract. The defendant argued that the contract was void for common mistake, by virtue of its belief that the claimant’s vessel was nearest to the ship which required assistance. However, the court concluded that the mistake was not such as to render the performance under the contract substantially different from that which was bargained for, as reflected by the fact that the defendant [1] [2] [3] [4] [5] [6]

had not cancelled the contract on discovering the mistake, but waited to see whether there was a nearer vessel. In other words, the mistake did not render the performance of the contract impossible; it was simply less desirable, so the mistake could not be characterized as fundamental.

The doctrine of common mistake will not be available in certain circumstances. For example, if one party has warranted the existence of a state of affairs, he or she bears the risk that the state of affairs might not exist.[7] Further, the non-existence of a state of affairs must not be attributable to the fault of either party,[8] although it remains unclear what constitutes fault in this context.[9] Clearly, if the claimant knew of the mistake there is no mistake shared by the claimant and the defendant.[10] If the claimant suspected a mistake had been made, he or she would also be prevented from relying on the doctrine.[11] The doctrine of common mistake of law will generally be inapplicable to set aside a contract of compromise, by virtue of the countervailing policy of protecting the stability of closed transactions and the difficulty in establishing the impossibility of performing the contractual venture.[12]

  • [1] Bell v Lever Brothers Ltd [1932] AC 161, 224 (Lord Atkin). See also Norwich Union Fire InsuranceSociety Ltd v Price [1934] AC 455; Midland Bank pic v Brown Shipley and Co Ltd [1991] 2 All ER 690; andGreat Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407, [2003] QB 679.
  • [2] [2002] EWCA Civ 1407, [2003] QB 679. See also EIC Services Ltd v Phipps [2003] EWHC 1507, [2003] 1WLR 2360.
  • [3] Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407; [2003] QB679, 703.
  • [4] See, for example, Couturier v Hastie (1856) 5 HL Cas 673.
  • [5] Brennan v Bolt Burdon [2004] EWCA Civ 1017, [2005] QB 303 . 247 Ibid.
  • [6] 248 [1932] AC 161. 249 [2002] EWCA Civ 1407, [2003] QB 679.
  • [7] Ibid, 703. See William Sindallplc v Cambridgeshire CC [1994] 1 WLR 1016, 1035 (Hoffmann LJ).
  • [8] Ibid. See also Solle v Butcher [1950] 1 KB 671, 693 (Denning LJ).
  • [9] Grist v Bailey [1967] Ch532, 542 (GoffJ).
  • [10] Magee v Pennine Insurance Co Ltd [1969] 2 QB 507, 516 (Lord Denning MR).
  • [11] Brennan v Bolt Burdon [2004] EWCA Civ 1017, [2005] QB 303.
  • [12] Ibid, [23] (Maurice Kay LJ), [51] (BodeyJ), [59] (SedleyLJ).
 
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