Great Peace Shipping Ltd. v Tsavliris (International) Ltd [2002] EWCA Civ 1407 (14 October 2002)

Salvors contracted with Great Peace to escort a damaged vessel, believing the ships were close. They were actually 410 miles apart. The salvors sought to avoid the contract for common mistake. The Court of Appeal held the contract was valid, rejecting an equitable doctrine of mistake separate from common law.

Facts

The Cape Providence suffered serious structural damage in the South Indian Ocean. The defendants (Tsavliris), acting as salvors, sought a vessel to stand by the casualty to assist with crew evacuation if necessary while a salvage tug was en route from Singapore. They were informed by Ocean Routes that the Great Peace was the nearest vessel. Based on this information, which indicated the vessels were approximately 35 miles apart, the defendants contracted with the claimants (Great Peace Shipping) to provide escort and stand-by services for a minimum of five days at US$16,500 per day.

After the contract was concluded, it emerged that the vessels were in fact approximately 410 miles apart, meaning the Great Peace would take about 39 hours to reach the Cape Providence rather than a few hours as contemplated. The defendants did not immediately cancel but waited until another vessel (the Nordfarer) became available. They then purported to cancel the contract and refused to pay the minimum hire.

Issues

Primary Issues

1. Whether the contract was void at common law for common mistake.

2. Whether there exists an equitable jurisdiction to rescind a contract for common mistake where the contract remains valid at common law, as suggested in Solle v Butcher [1950] 1 KB 671.

Judgment

The Court of Appeal (Lord Phillips MR, May LJ, and Laws LJ) dismissed the appeal and upheld Toulson J’s decision.

Common Mistake at Common Law

The Court conducted an extensive review of the law of common mistake, starting with Bell v Lever Brothers Ltd [1932] AC 161. The Court held that for a contract to be void for common mistake at common law, the mistake must render the subject matter of the contract essentially and radically different from the subject matter which the parties believed to exist. The test is whether performance of the contract in the circumstances as they turned out to be would have been fundamentally different from performance as contemplated.

The Court identified the following requirements for common mistake to render a contract void: (i) there must be a common assumption as to the existence of a state of affairs; (ii) there must be no warranty by either party that that state of affairs exists; (iii) the non-existence of the state of affairs must not be attributable to the fault of either party; (iv) the non-existence of the state of affairs must render performance of the contract impossible; (v) the state of affairs may be the existence, or a vital attribute, of the consideration to be provided or circumstances which must subsist if performance of the contractual adventure is to be possible.

Equitable Jurisdiction

The Court held that Solle v Butcher cannot be reconciled with Bell v Lever Brothers. The Court concluded that there is no separate equitable jurisdiction to rescind a contract for common mistake where the contract is valid and enforceable at common law. The purported equitable doctrine in Solle v Butcher was not supported by the authorities cited for it, particularly Cooper v Phibbs (1867) LR 2 HL 149, and effectively sought to outflank the House of Lords’ decision in Bell v Lever Brothers.

Application to the Facts

On the facts, the Court held that while both parties believed the vessels were in closer proximity than they actually were, this mistake did not render the contractual adventure impossible. The Great Peace could still have provided several days of escort service. The defendants’ own reaction in not cancelling immediately demonstrated that the services the Great Peace could provide were not essentially different from those contemplated.

Implications

This decision is highly significant for the law of common mistake. It clarifies that the test for common mistake at common law is narrow and that Solle v Butcher’s wider equitable doctrine does not represent good law. Contracts will only be void for common mistake where the mistake is so fundamental that it renders the subject matter essentially different from what was believed. The decision emphasises the importance of contractual certainty and the allocation of risk through contractual terms. Where parties wish to protect against particular assumptions proving false, they should do so through express contractual provisions.

Verdict: Appeal dismissed. The contract was held to be valid and enforceable. The defendants were liable to pay the cancellation fee of five days' hire. There is no equitable jurisdiction to rescind a contract for common mistake where the contract is valid at common law; Solle v Butcher was held to be irreconcilable with Bell v Lever Brothers Ltd.

Source: Great Peace Shipping Ltd. v Tsavliris (International) Ltd [2002] EWCA Civ 1407 (14 October 2002)