Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257 (Comm); [2008] 2 Lloyd’s Rep 685

Key point

There is no equitable doctrine of unilateral mistake under which contracts are voidable in English law.

Facts

  • Statoil (C), the seller, entered into a contract of sale with Louis Dreyfus (D), the buyer, under which D was to indemnify C for any demurrage it was liable to the owner of the ship it chartered (Demurrage means liquidated damages for delays on loading or discharging cargo paid by a charterer to the ship owner)
  • C calculated the wrong sum of demurrage due to on a mistake on the date discharge of cargo and entered into a settlement agreement with D according to that sum
  • When C discovered the mistake, it sought to claim that the settlement agreement was either void in common law or voidable in equity for unilateral mistake

Held (High Court)

  • The settlement agreement was valid, it was neither void in common law nor voidable in equity

Aikens J

No Common Law Rule for Unilateral Mistake of Fact

  • A unilateral mistake about a fact that did not form a term of the contract does not void a contract even if the other person knows of it (Smith v Hughes (1871) LR 6 QB 597): [88]
  • Thus, even though D had known of C’s mistake the settlement agreement was not void: [93]

No Equitable Jurisdiction for Unilateral Mistake

  • There was no wider equitable jurisdiction to grant rescission of a contract where one party had made a unilateral mistake as to a fact or state of affairs that was the basis upon which the terms of the contract were agreed, but that assumption did not become a term of the contract: [105]
  • The Great Peace decision strongly suggests that there is no such jurisdiction in the case of a unilateral mistake: [105]
  • Even if there was an equitable jurisdiction it should not be exercised since the mistake is entirely due to C’s carelessness: [106]

Commentary

Unilateral mistake: objective or subjective?

  • Aikens J treats the doctrine of unilateral mistake at common law as an exception to the normal rule of objectively searching for an agreement, where what the parties subjectively intended are taken into account: see [87]
  • This is contrary to what some academic lawyers such as Timothy Endicott and Mindy Chen-Wishart have argued, that unilateral mistake at common law is consistent with objectivity as a person who knows of the mistake of the other party cannot reasonably think that the mistaken party intends to act on its mistake

Equitable doctrine of unilateral mistake

  • Under the now defunct equitable doctrine of unilateral mistake, a contract can be voidable in equity if there is
    1. an unilateral mistake by one party as to a fundamental assumption he has made,
    2. which is known to the other party as being the basis for concluding the contract,
    3. even if that assumption does not become a term of the contract: Huyton SA v Distribuidora Internacional De Productos Agricolas SA de CV [2003] 2 Lloyd’s Rep 780