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

Defendants chartered a ship believing it was 35 miles from a vessel in distress, when it was actually 410 miles away. They cancelled, claiming common mistake. The court held the contract was not void, as the mistake was not fundamental enough to make performance impossible.

Facts

The vessel ‘Cape Providence’ suffered serious structural damage in the South Indian Ocean and was in danger of sinking. The defendants, Tsavliris, a professional salvage company, offered a salvage service. To assist, they urgently needed to charter a nearby vessel. They were informed by Ocean Routes, a reputable maritime location organisation, that the claimants’ vessel, the ‘Great Peace’, was the nearest, at approximately 35 miles away. Relying on this information, the defendants chartered the ‘Great Peace’ for a minimum of five days to stand by and escort the ‘Cape Providence’. However, it was subsequently discovered that the vessels were, in fact, 410 miles apart. Upon learning this, the defendants found a closer vessel and promptly cancelled the contract with the claimants. The claimants sued for the cancellation fee (five days’ hire). The defendants argued the contract was void at common law for common mistake, or alternatively, that it was voidable in equity.

Issues

The primary legal issues were:
1. Whether the contract was void at common law due to the common mistake regarding the proximity of the two vessels.
2. If the contract was not void at common law, whether it was voidable and could be rescinded in equity on the grounds of common mistake, following the precedent set in Solle v Butcher.

Judgment

The Court of Appeal, delivering a single judgment, unanimously dismissed the appeal, holding that the contract was valid and not voidable. The court undertook a comprehensive review of the doctrine of common mistake at both common law and in equity.

Common Law Mistake

The court reaffirmed the stringent test for common mistake laid down by the House of Lords in Bell v Lever Brothers Ltd. Lord Phillips of Worth Matravers MR summarised the principle, stating that a contract is void only if the mistake renders the subject matter ‘essentially and radically different’ from the subject matter which the parties believed to exist. The court formulated a set of requirements for the common law doctrine to apply:

(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.

Applying this test, the court concluded that the mistake about the distance was not fundamental enough to void the contract. Performance was not impossible; the ‘Great Peace’ could still have reached the ‘Cape Providence’ and rendered valuable assistance, albeit later than anticipated. The fact that the defendants only cancelled once they had found a substitute demonstrated that the original contract was not devoid of purpose.

Equitable Mistake and Rescission

The most significant part of the judgment was the court’s examination of the equitable jurisdiction to rescind a contract for common mistake, a doctrine developed primarily by Lord Denning in Solle v Butcher. The Court of Appeal concluded that this equitable doctrine was inconsistent with the binding House of Lords authority in Bell v Lever Brothers. The court held that there was no separate, more lenient test for mistake in equity.

We are driven to the conclusion that it is impossible to reconcile Solle v Butcher with Bell v Lever Bros… We can see no way that Solle v Butcher can be reconciled with Bell v Lever Bros and, in our respectful opinion, the Court of Appeal in Solle v Butcher was in error to hold that it could.

Consequently, the court disavowed the line of authority following Solle v Butcher, effectively abolishing the equitable remedy of rescission for common mistake where the contract is valid at common law.

Implications

The decision in Great Peace Shipping significantly clarified and narrowed the English law of common mistake. By disapproving Solle v Butcher, it removed the dual system where a mistake might not be sufficient to void a contract at common law but could still make it voidable in equity. The judgment unified the doctrine under the single, strict test from Bell v Lever Brothers, prioritising contractual certainty over judicial discretion to relieve a party from a bad bargain. The case establishes that for a contract to be void for common mistake, the mistake must be so fundamental as to make performance impossible or render the subject matter radically different from that which was contracted for. This has made it considerably more difficult to successfully plead common mistake as a reason for escaping contractual obligations.

Verdict: The appeal was dismissed. The court held that the contract was not void for common mistake, and the defendants were liable for the contractual cancellation fee.

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