Great Peace Shipping Ltd v Tsavliris (International) Ltd [2002] 3 WLR 1617

Key Points

  • The equitable doctrine of mistake laid down in Solle v Butcher was rejected
  • A contract is void for common mistake only when the mistake renders the contract impossible to perform

Facts

  • D offered their salvage services to a ship that suffered damage
  • D chartered The Great Peace that was supposedly 35 miles away, but was actually 410 miles away
  • D contracted with a nearer vessel and cancelled the charter with C
  • The charter provided that D have to pay compensation in the event of cancellation, but D refused to pay
  • C made claim for cancellation fee, D argues that contract was void under common law or voidable under equity for common mistake

Held (Court of Appeal)

  • C’s claim succeeded as there was no common mistake
  • There is no doctrine of equitable common mistake

Lord Phillips MR

Equitable doctrine of mistake rejected

  • It is impossible to reconcile Solle v Butcher and Bell v Lever Bros, Solle v Butcher should be overruled
  • Bell v Lever Bros was not oblivious to equity, it considered that the intervention of equity took place in circumstances where common law would have rendered the contract void anyways
  • To restore coherence to the law, there should be no jurisdiction to grant rescission of contract on the ground of common mistake where that contract is valid and enforceable in common law
  • There is scope for legislation to temper the common law on mistake to grant greater flexibility, just as the Law Reform (Frustrated Contracts) Act 1943 did to frustration

Theoretical basis of the doctrine of mistake

  • The implied term theory (whether parties implied agreed that a contract would not be binding if assumptions were mistaken) is rejected
  • The ground of mistake is a rule of law that voids a contract if performance is impossible

Requirements for common mistake

  1. There must be a common assumption as to the existence of a state of affairs
  2. There must be no warranty as to the existence
  3. The non-existence must not be attributable to the fault of either party
  4. The non-existence must render performance impossible

Impossibility of performance

  • Whether performance is impossible requires construction of the contract
  • If it is determined that performance is impossible, contract has to be construed to determine whether any party has undertaken the risk of the impossibility

Current case

  • The greater distance than expected did not render performance impossible, the Great Peace could still have arrived and rendered services
  • The quality of the contract was not essentially different

Commentary

  • It is ironic that the court calls for legislation for flexibility that it just wiped out
  • Solle v Butcher had stood for 50 years prior and had been applied several times and in other common law countries
  • The result in this case seemed to suggest that a contract is not void for common mistake as long as performance is still possible even if performance was deprived of all utility