The decision in this case has been upheld by the Court of Appeal. In a judgment delivered on October 14, 2002, the Court concluded that the 1950 case of Solle v. Butcher could not stand in the face of the earlier decision of the House of Lords in Bell v. Lever Bros. There was, therefore, no jurisdiction to grant rescission of a contract in equity on the ground of common mistake where that contract was valid and enforceable on ordinary principles of contract law. That was the case here. Click [here] for a note of the judgment in the Court of Appeal
DMC Rating Category: Developed
In this action, the owners of the vessel ‘Great Peace’ claimed from the defendant salvors, Tsavliris, the sum of US$82,500 for five days' hire of the "Great Peace". In September 1999 another vessel ‘Cape Providence’, whilst en route from Brazil to China with a cargo of iron ore, suffered serious structural damage in the South Indian Ocean and was in imminent danger of going down with the loss of her crew. Tsavliris offered its salvage services, which were accepted. However, the tug that Tsavliris proposed to use was some five or six days away from the ‘Cape Providence’. Tsavliris therefore asked a firm of London brokers to try to find a merchant vessel in the vicinity of the ‘Cape Providence’, which would be willing to assist with the evacuation of the crew.
The brokers contacted Ocean Routes, a respected organisation that provides forecasting services to the shipping industry and receives reports about vessels at sea, and were told that the ‘Great Peace’ was the nearest vessel. The brokers entered into negotiations with the managers of the ‘Great Peace’ and it was agreed that Tsavliris would hire the ‘Great Peace’ on a daily basis for a minimum of five days to divert to the ‘Cape Providence’ and to stand by pending the arrival of the tug. At no time was the exact position of the ‘Great Peace’ established by either the brokers or the managers, but the brokers did advise the managers that they understood that the ‘Great Peace’ was "in close proximity" to the ‘Cape Providence’. Shortly after the contract was concluded, Tsavliris discovered that the ‘Great Peace’ was some 400 miles away and that there was another vessel substantially nearer to the Cape Providence. Tsavliris thereupon contracted with that vessel and instructed the brokers to cancel the contract with the ‘Great Peace’.
Tsavliris refused to pay for the hire of the ‘Great Peace’ on the basis that: (i) the purported charter was void for fundamental mistake in that both parties had proceeded on the fundamental assumption that the ‘Great Peace’ was "in close proximity" to the ‘Cape Providence’; and (ii) the charter was voidable for mistake and Tsavliris was entitled to relief in equity by way of rescission.
Judgment was given for the claimant shipowners on the following grounds:
1. The Position at Common Law
In the leading case of Bell v. Lever Brothers in 1932, Lord Atkin had formulated the principle that at common law, a mistake as to the quality of the thing contracted for will not void a contract unless the mistake is a mistake of both parties "and is as to the existence of some quality which makes the thing without the quality essentially different from the thing that it was believed to be… Does the state of the new facts destroy the identity of the subject matter as it was in the original state of facts? "
Applying that test to the facts of the present case, the judge said:
‘Every contract must have some essential content…The parties may define matters which they regard as vital to the existence of an enforceable bargain between them (conditions precedent). Such conditions may also be implied, but only where necessary to reflect the essential nature of the bargain…. It is a logical corollary of this approach that….. a mutual mistake would only affect its validity if it meant that the supposed contract was an empty letter or if the true facts were such that the supposed performance of the agreement…. would be ‘essentially different’ or ‘something different in kind from the contract in its original state of affairs’… In any given case, the key lies in the proper analysis of the contract… .[and the rights and obligations thereby created]. In the present case, the hire of the ‘Great Peace’ was for a particular purpose….namely. namely, to provide escort and standby services for the saving of life at sea until the arrival of the tug which was estimated to arrive in 5 days…In the present case the contractual specification of the services to be provided by the ‘Great Peace’ involved the necessary implication that the ‘Great Peace’ was capable of providing the services required. If, to take an extreme case, the ‘Great Peace’ had been 5 days’ sailing away from the ‘Cape Providence’, there would have been a failure of that implied condition precedent. Was the ‘Great Peace’ so far away from the ‘Cape Providence’ at the time of the contract as to defeat the contractual purpose – or in other words to turn it into something essentially different from that for which the parties bargained? This is a question of fact and degree, but in my view the answer is no….. A telling point is the reaction of the defendants on learning the true position of the vessels. They did not want to cancel the agreement until they knew if they could find a nearer vessel. Evidently, the defendants did not regard the contract as devoid of purpose, or they would have cancelled at once."
The judge specifically found that it was not a term of the contract that the ‘Great Peace’ should be "in close proximity" to the ‘Cape Providence’. Not only was such an expression too vague to be of contractual effect butbut also the managers of the ‘Great Peace’ had never made any representation as to its location.
2. The Position in Equity
The defendant salvors had relied in argument upon the principle enunciated by Lord Justice Denning (as he then was) in the case of Solle v. Butcher in 1950. There Lord Denning had said: "A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to the facts or as to their relative and respective rights, provided that the misapprehension was fundamental and that the party seeking to set it aside was not himself at fault".
After an exhaustive review of the authorities and the current textbooks, the judge said that he did ‘not believe that there is in truth any right to rescind in equity on grounds of common mistake a contract which is valid and enforceable on ordinary principles of common law’. He refused to accept that there might be an inherent ‘discretion in the court to set aside a contract entered into under a fundamental mutual mistake, if the court considers that the general justice of the case merits it’ on the grounds that to adopt this doctrine would put ‘palm tree justice in place of party autonomy’. He quoted with approval a passage from the latest edition of Snell’s Equity to the effect that it was not ‘the role of the court to dissolve or vary contracts thought to be harsh on the basis of so-called equitable principles [so as to avoid unexpected windfalls or undeserved losses]. Its role is to prevent [a party] from insisting on his strict legal rights when, owing to his behaviour, it would be unconscionable or inequitable to allow him to do so'.
In conclusion, the judge added that, if he were wrong on the discretion point, he would decline to exercise it in this case.
The Editor has been informed that this decision is to be appealed. The appeal hearing is expected in June 2002.
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