• In the case of Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] 3 WLR 1617, D contended that the test of mistake from Bell v Lever Brothers Ltd [1932] A.C. 161 should be applied in these circumstances since a mutual mistake should lead to contract rescission.
  • This contract case concerned mistake, rescission and shipping.
  • This case led to the question of whether equity or common law principles should be applied. D relied upon Solle v Butcher [1950] 1 KB 671 claiming a remedy under equity.

Facts of the Case

  • D provides salvage services to a ship to C. C and D contracted for the merchant vessel to allow about a week for crew evacuation.
  • C and D believed that the ships were in close proximity until it was established they were not. D sought contract termination refusing to pay hire charges.
  • In the lower court, it was held the contract was not void at common law because both contracting parties did not make a mutual mistake.
  • C contended in the appeal that D was liable to pay a cancellation fee.

Issues

  • Whether the contract is void.
  • Whether the contract is void under equitable principles.

Held by Court of Appeal

  • Appeal dismissed – both parties were bound by the legally binding contractual obligations hence they owed the cancellation fee.

Lord Phillips MR; May LJ; Laws LJ

Scope of mistake

  • There are mistakes that negative consent (mutual mistake and unilateral mistakes), common mistakes and equitable mistakes
  • “A mistake can be simply defined as an erroneous belief… Whether two parties have entered into a contract in this way must be judged objectively, having regard to all the material facts. It may be that each party mistakenly believes that he has entered into such a contract in circumstances where an objective appraisal of the facts reveals that no agreement has been reached as to the terms of the contract. Such a case was Raffles v Wichelhaus [1864] 2 H & C 906.” [28]

Frustration

  • The judge refers to frustration to determine that common mistake can be used when the contract does not provide any information on what to do in those circumstances.
  • “Circumstances where a contract is void as a result of common mistake are likely to be less common than instances of frustration. Supervening events which defeat the contractual adventure will frequently not be the responsibility of either party. Where, however, the parties agree that something shall be done which is impossible at the time of making the agreement, it is much more likely that, on true construction of the agreement, one or other will have undertaken responsibility for the mistaken state of affairs”. [85]

Was there an operative mistake?

  • There was no operative mistake because even though these vessels weren’t in close proximity it does not affect the contract terms and conditions.
  • The principles established by both Solle v Butcher [1950] 1 KB 671 and Bell v Lever Brothers Ltd [1932] A.C. 161 are very distinct. This case however established that rescission is unavailable for common mistake.

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