Mistake

Mistake implies a positive belief

● In order to hold the contract to be void, the parties must have had a positive belief which was in
fact incorrect

In Chitty, 3 categories:

1. Mutual misunderstanding
2. Common mistake
3. Unilateral mistake

Mutual misunderstanding (Mistakes in communication)

● Lack of agreement or agreement ambiguous: parties contract on the basis of different

assumptions, none of which can objectively be said to constitute a shared intention
○ Cf. the subjectivity of the objective test (Smith v Hughes per Blackburn J)
○ ‘‘If, whatever a man’s real intention may be, he so conducts himself that a reasonable
man would believe that he was assenting to the terms proposed by the other party, and
that other party upon that belief enters into the contract with him, the man thus
conducting himself would be equally bound as if he had intended to agree to the other
party’s terms.’’

Famous example: Raffles v Wichelhaus (1864) 2 H & C 906 (contract to buy cotton "ex Peerless from
Bombay, 2 ships of same name, but leaving Bombay at different times)

1. May simply construe the contract objectively having all considerations of the circumstances
2. Yet the court failed to find any answer → no contract

Common mistake

● When the mistake is common, and that there is consensus ad idem (meeting of the minds),
● and that both parties contract on the basis of a shared (common) mistake on a fundamental
matter of fact of the contract (or point of law)
● The law may nullify this consent
● Not the surrounding circumstances

Three conceptual bases of mistake

 1. Res sua: a total failure of consideration
2. Res extincta: the contract is subject to an express or implied condition that the facts were as the
parties believed them to be (a condition precedent); or that it would be invalid if, on the true
construction of the contract, the essence of the obligations are impossible to perform
a. Dealt with by an analogy to frustration, derived from the “implied condition” theory
3. A separate doctrine of mistake

Common law position

1. Bell v Lever Brothers Ltd [1932] AC 161 (HL)

Facts: B agrees to end contract with L upon payment by L to B of £. Unknown to both, L could have
legitimately ended B's contract (because of B's previous breach of duty - by making private profits)
without having to pay £. L claims back £. [Lever Bros failed to claim that the contract was void under
common mistake]

Per Lord Atkin:

(1) Sale of goods - when the subject-matter ceases to exist (res extincta), or that already belongs to the
buyer (res sua) → contract will be void

(2) Mistake as to quality - “a mistake will not affect assent unless it is the 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 as it was believed to be”

Mistake as to the substance of the subject-matter contracted for vs. Mistake as to quality

1. ACheng: a matter of construing the contract (objective test) to determine whether the quality of
the subject-matter is the cornerstone of the contract

Some examples were given by Lord Atkin at p 224 -

‘‘A buys B’s horse; he thinks the horse is sound and he pays the price of a sound horse; he would
certainly not have bought the horse if he had known as the fact is that the horse is unsound. If B has
made no representation as to soundness and has not contracted that the horse is sound, A is bound and
cannot recover back the price. A buys a picture from B; both A and B believe it to be the work of an old
master, and a high price is paid. It turns out to be a modern copy. A has no remedy in the absence of
representation or warranty. A agrees to take on lease or to buy from B an unfurnished dwelling-house.
The house is in fact uninhabitable. A would never have entered into the bargain if he had known the fact.
A has no remedy.’’

(3) ‘‘Whenever it is to be inferred from the terms of a contract or its surrounding circumstances that the
consensus has been reached upon the basis of a particular contractual assumption, and that
assumption is not true, the contract is avoided; i.e. it is void ab initio if the assumption is of present
fact and it ceases to bind if the assumption is of future fact.”
(4) An implied condition precedent? - “the contract expressly or impliedly contains a term that a
particular assumption is a condition of the contract, the contract is avoided if the assumption is not true”

What actually was the contract in Bell v Lever Brothers Ltd?

1. In consideration of the sum of money, the contract was terminated earlier

2. The contract was essentially clear
3. The mistake was founded on the facts around the contract, rather than the terms
4. Common mistake should be a mistake of a fundamental term in the contract; but upon
reflection, how can this be mistaken?
5. Lord Atkin - res sua and res extincta

2. McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 [High Court of Australia]

Facts: S sells tanker lying off certain reef to B. B goes to reef, but finds no tanker. S liable on true
construction of sale contract, since S warranted tanker's existence and took risk that tanker did not exist.
[No common mistake was found]

1. Dixon and Fullagar JJ actually doubted whether there was an independent doctrine of mistake -
○ Instead, the fundamental question should be:
○ “What did the promisor really promise? Did he promise to perform his part in all events,
or only subject to the mutually contemplated original or continued existence of a
particular subject matter?... [T]he problem is fundamentally one of construction”
2. If there is a doctrine of common mistake however, a party cannot rely on a mistake consisting “of
a belief which is entertained without any reasonable ground, and… deliberately induced by him
in the mind of the other party” [misrepresentation?]
3. Need to construe contract as to allocation of risk

3. Great Peace Shipping Ltd v Tsalviris Salvage (International) Ltd [2003] QB 679 (CA)

Facts: D hire P to salvage a vessel V believed to be 35 miles away from P's ship S. But V actually 410 miles
from S. After arranging another ship to salvage V, D cancel contract with P and refuse to pay P, saying
fundamental common mistake.

Held: P claim upheld. Mistake not as to essential quality. No equitable jurisdiction to rescind (i.e. Solle v
Butcher overruled).

Per Lord Phillips MR:

1. Only operative “where that which is expressly defined as the subject matter of a contract does
not exist”
2. Favoured the approach of Lord Atkin with the mistake as to the quality of the subject-matter
a. A mistake as to the quality of the subject-matter, will render a contract void only when
the non-existence of the state of affairs assumed by the parties rendered the
contractual adventure impossible
Rejection of an equitable doctrine of common mistake

1. In Bell (HL) did not think there was separate equitable jurisdiction in mistake
2. Denning LJ in Solle extended equitable jurisdiction
3. Distinction between "fundamental common misapprehension" in equity and "fundamental
mistake" at law unclear; no real difference between 2 concepts
4. "If coherence is to be restored to this area of our law, it can only be by declaring that there is no
jurisdiction to grant rescission of a contract on the ground of common mistake where the
contract is valid and enforceable on ordinary principles of contract law." Lord Phillips in Great
Peace at §157.

Summary of current law on common mistake

"[T]he following elements must be present if common mistake is to avoid a contract:

1. there must be a common assumption as to the existence of a state of affairs [substantially the
same mistake] → See Bell v Lever Bros Ltd per Lord Atkin and SOGO;
2. there must be no (express or implied) warranty by either party that that state of affairs exists
(i.e. the undertaking of risks) [McRae];
a. The Great Peace quoted Steyn J in the Associated Japanese Bank International Ltd v
Credit du Nord SA:

“Logically, before one can turn to the rules as to mistake, whether at common law or in
equity, one must first determine whether the contract itself, by express or implied
condition precedent or otherwise, provides who bears the risk of the relevant mistake. It
is at this hurdle that many pleas of mistake will either fail or prove to have been
unnecessary. Only if the contract is silent on the point, is there scope for invoking
mistake.’’

b. Allocation of risk by (i) law, (ii) the construction of the contract

c. Any assumed responsibility?
d. Payment for whatsoever circumstances, even for non-performance?
3. the non-existence of the state of affairs must not be attributable to the fault of either party;
a. Misrepresentation
b. One party in better position to discover the truth
4. the non-existence of the state of affairs must render performance of the contract impossible;
a. The contractual obligations are dependent on the construction of the contract
5. 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."

(Lord Phillips MR in Great Peace at §76)

Sale of Goods Ordinance (SOGO) (Cap 26)

1. Sale of thing that has never existed - SOGO s.8: "Where there is a contract for the sale of
specific goods, and the goods, without the knowledge of the seller, have perished at the time
when the contract is made, the contract is void."
2. Sale of thing that has ceased to exist - SOGO s.9: "Where there is an agreement to sell specific
goods, and subsequently the goods, without any fault on the part of the seller or buyer, perish
before the risk passes to the buyer, the agreement is thereby avoided."
a. May sue for damages for non-delivery if the seller knows the good no longer exists but
purports to sell it

Mistake as to quality

● See Bell v Lever Bros Ltd per Lord Atkin

Miscellaneous

1. Implied condition: "[T]he theory of the implied term is as unrealistic when considering common
mistake as when considering frustration."

2. For what was thought to be position in equity:

Solle v Butcher [1950] 1 KB 671 (CA) per Denning LJ

Facts: P and D believe flat not subject to rent control. D leases for 7 years at £250, although with rent
control rent should have been only £140. P claims over-payment. D seeks rescission, since 5 years left on
lease. Lease rescinded, but giving P option to accept rescission or enter into new lease at £250.

Dicta:

1. Where common mistake on some fundamental assumption, equity can treat contract as voidable
(with or without imposing conditions on party seeking to treat contract as avoided)
2. Equity can do this where the justice of a case requires, even if the contract could not be set aside
at common law
3. Rescission will only be granted where the parties can be restored to substantially the same
position they were in before contract.

Note:

1. The mistake is not of any term of the contract but rather of background circumstances
2. At common law, the contract is not void nor voidable

3. As Professor Reyes suggested, there need not be a doctrine of common mistake, which may be dealt
with using simple offer and acceptance analysis or the doctrine of consideration; hence, it is a matter of
construction

Unilateral mistake

● A contract under a mistaken assumption. B is under no misapprehension. B may or may not have
induced A's mistake. B may or may not know that A is mistaken.

Analysis of situations by state of knowledge

(1) B induces A's mistake → Misrepresentation

(2) B knew or ought to have known of B's mistake → No meeting of minds; the offer was not properly
accepted

Cf. OT Africa v Vickers [1996] 1 Lloyds Rep 700, at 703

Facts: V mistakenly offer to settle O's claim for £150,000 instead of US$150,000. O accepts offer. V say
should have been apparent to O from negotiations that V only intending to pay in US$

Per Mance J: "Here, there is objectively agreement on a particular sum. The question is what is capable
of displacing that apparent agreement. The answer on the authorities is a mistake by one party of which
the other knew or ought reasonably to have known. I accept that this is capable of including
circumstances in which a person refrains from or simply fails to make enquiries for which the situation
reasonably calls and which would led to the discovery of the mistake. But there would have, at least, to
be some real reason to suppose the existence of a mistake before it could be incumbent on one party or
solicitor in the course of negotiations to question whether another party or solicitor meant what he or
she said."

(3) B did not induce mistake and neither knows or ought to have known of mistake → No justified
intervention; objectively, there was a valid contract thus it was not void

Also, Hartog v Colin and Shields [1939] 3 All ER 566

Facts: D offered for sale to the P some hare skins, but by mistake offered them at so much per pound
instead of so much per piece. Previous negotiations proceeded based on the price per piece. P
purported to accept the offer and sued for damages for non-delivery.

Held:

● P must have known the offer did not express the true intention of D → contract was void

Mistake as the terms of the contract

 ● One party needs to know the other party entering the contract by a mistake relating to
contractual term as opposed to a mere attribute of agreement's subject matter
● Contrast mistake as to the quality of the subject-matter → an error in motive or mistake as to
surrounding facts but not terms

Smith v Hughes (1871) LR 6 QB 597

Facts: D purchased oats from P, believing they were old oats. D was given a sample before the purchase.
In fact they were new oats and thus unsuitable for the purpose for which he wanted them. D refused to
accept and sue P for the price.

Mistaken identity

● In reality, typically, a question of creditworthiness (i.e. the attribute of the subject-matter), which
is not a term of contract
● ‘‘A person cannot constitute himself a contracting party with one whom he knows or ought to
know has no intention of contracting with him. An offer can be accepted only by the person to
whom it is addressed.’’

Face-to-face dealings

● When parties are dealing with each other face to face, there is a strong presumption that the
mistaken party “intends” to deal with the person physically present (Shogun Finance Ltd per Lord
Walker)

1. Phillips v Brooks [1919] 2 KB 243 (Horridge J)

Facts: N tells P that he is Sir George Bullough of St. James Square. P sells ring to N on credit. N pledges
ring to D. P claims ring from D.

Held: Court holds that P must have intended to contract with N as person present before him. At best
there was only a fraudulent misrepresentation. That made contract voidable, not void.

1. The mistake was to the creditworthiness of the person, not to the identity of the person
2. Cf. Lewis v Averay: rogue claimed to be a famous actor; persuaded the seller to let him take the
car immediately before clearing the cheque by showing admission pass to studio. Car was sold to
the third party and cheque bounced
a. Held: unable to recover the car from the innocent third party
b. The presumption was not rebutted - seller concerned about the creditworthiness of the
rogue but not his identity
c. Ingram v Little was decided on “special facts”
d. Phillimore LJ: these cases must be decided on the facts of the case; strong presumption
of inter praesentes
e. Megaw LJ: it had not been shown that the identity of the buyer was of vital importance
 f. Denning LJ: mistake of identity would never make a contract void

2. Ingram v Little [1961] 1 QB 31 (CA)

Facts: G tells P that he was "PGM Hutchison" of Caterham. P inspects Caterham phone directory and
finds that such a person lived in Caterham. P accept G's cheque and sell car to G. Cheque bounces. G on-
sells car to D. P claim car from D.

Held: CA (Devlin LJ dissenting) held that P offered to sell car to Hutchison, not G. Thus, no contract with
G. P could claim car from D.

1. Devlin LJ: The presumption will not be rebutted even if the the party believed the other party in
front of him was actually someone else
2. Shogun Finance Ltd (3:2): two of their lordships (one of whom was Lord Nicholls) doubted
whether the presumption could be rebutted. The tenor of their lordships’ speeches was that the
dissenting approach of Devlin LJ in Ingram v Little was to be preferred; Lord Walker said that the
case was wrongly decided
a. ACheng: narrow gap to escape the contract when the contract was formed on face-to-
face dealing; seems to be that Ingram v Little would not likely be followed

Contracts in writing

3. Cundy v Lindsay (1878) 3 App Cas 459 (HL)

Facts: B signs name as "Blenkiron" on order form to L, Blenkiron being a reputable company. L sends
goods to B under impression that dealing with Blenkiron. Blenkiron sells goods to C. L sues C for
conversion of goods.

Held: HL upholds L's claim. L all along intended to deal with Blenkiron. No offer to B, thus no contract
with B.

1. When the identity of the person is material, and that the offer is communicated to B that is
intended only for A → contract is avoided based on mistake
2. Cf. Shogun Finance Ltd v Hudson per Lord Phillips
a. ‘‘Just as the parties must be shown to have agreed on the terms of the contract, so they
must also be shown to have agreed the one with the other. If A makes an offer to B, but
C purports to accept it, there will be no contract. Equally, if A makes an offer to B and B
addresses his acceptance to C there will be no contract. Where there is an issue as to
whether two persons have reached an agreement, the one with the other, the courts
have tended to adopt the same approach to resolving that issue as they adopt when
considering whether there has been agreement as to the terms of the contract. The
court asks the question whether each intended, or must be deemed to have intended,
to contract with the other.”

4. Shogun Finance Ltd v Hudson [2004] 1 AC 919 (HL)

Facts: Dealer offers car on hire-purchase (HP) to X who uses stolen driving licence (belonging to Q) to
prove identity. Copy of licence copied to HP credit company P. X pays deposit with bad cheque and then
on-sells car to D. P claims car from D.

Under Hire Purchase Act 1964 s.27, where vehicle bailed under HP agreement and debtor sells car
before property vested in him, creditor's title to vehicle passes to bona fide purchaser from debtor.

Held: But HL holds by a majority (Lords Nicholls and Millett dissenting) that offer made to Q. P only
wished to deal with a person who had established identity by production of certain docs.

Further, extrinsic evidence not permissible to vary apparent terms of written contract.

Hence, HP agreement with Q, not X. Debtor was regarded as Q, not X. 1964 Act not applicable.

Lords Nicholls and Millett point out that no material distinction between face-to-face dealings and
dealings by correspondence. Offer made to person with whom one is dealing (X), although one is under
impression that X is named Q. followed.

1. But the majority held that when the dealings are carried out by correspondence in writing, and
certainly when the contract is reduced to a writing, the identification of the parties to the
agreement is a question of the construction of the putative contract. (A matter of construction)
2. If an individual is unequivocally identified by the description in the writing, that precludes any
finding that the party to the agreement is anyone other than the person so described
3. Identity vs. Creditworthiness

5. King’s Norton Metal Co v Edridge, Merrett & Co Ltd

Facts: P despatched goods to one Wallis, posing as a firm name “Hallam & Co” [non-existent person];
Wallis subsequently sold the goods to D, who were in good faith and for value

Held: P had intended to contract with the rogue (the writer of the letter)

● Shogun Finance per Lord Phillips: ‘‘... the plaintiffs intended to deal with whoever was using
the name Hallam & Co. Extrinsic evidence was needed to identify who that was but, once
identified as the user of that name, the party with whom the plaintiffs had contracted was
established. They could not demonstrate that their acceptance of the offer was intended for
anyone other than Wallis.’’

Effect of unilateral mistake at common law

1. Apparently agreed contract?

2. Actually agreed contract?
3. Other bases of liability, such as misrepresentation?

Unilateral mistake: Equity

 ● Professor Reyes suggested no basis for unilateral mistake in equity

Contrast Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] SGCA 2 (CA)

Facts: S' website mistakenly offers to sell printers at $66 instead of $3,854 each. D "snap up" substantial
numbers of printers over internet. S refuses to honour contracts with D. D held to have known of S'
mistake. Contracts accordingly void for unilateral mistake.

● May be a simple analysis of offer and acceptance

Chao Hick Tin JA (at §74):-

"We would be loath to hold that there is no equitable jurisdiction in the courts with regard to unilateral
mistake just because it may be difficult to delineate the scope or extent of that jurisdiction. By its very
nature, the manner in which equity should be applied must depend on the facts of each case and the
dictates of justice. Equity has intervened in many aspects of human dealings in the contractual setting....
Often, a case on innocent misrepresentation does raise issues of mistake. Additionally, it should be
noticed that two subsequent English High Court decisions, Hayton SA v. Distribuidora Internacional de
Productos Agricolas SA de CV [2003] 2 Lloyds Rep 780 and Harrison v. Halliwell Landau [2004] EWHC
1316, had accepted that the equitable remedy of rescission for unilateral mistake still survived."

1. Court concludes that "unconscionability" based on what the non-mistaken party knows or ought
to have known should found equitable relief for unilateral mistake. Thus, constructive knowledge
with "an additional element of impropriety" can trigger the equitable jurisdiction. Carelessness
by mistaken party, though relevant, would not alone bar relief
2. See Kelvin Low, “Unilateral Mistake at Common Law and in Equity” [2005] LMCLQ 423: “The
result [in Chwee] is clearly correct and the Court of Appeal is to be lauded for dispelling the myth
that equitable intervention somehow entails unacceptable commercial uncertainty.”
3. Hayton decided about same time as Great Peace decision. CA did not think it necessary given
factual conclusions to hear argument on effect of Great Peace on equitable jurisdiction in
unilateral mistake. See §§414, 454-65.
4. Harrison does not discuss Great Peace. Judge Eccles QC found no unilateral mistake on the facts.

Consider innocent misrepresentation by B inducing mistaken assumption on A's part:

1. If B under same misapprehension → common mistake

2. If B unaware that his conduct has induced mistake on A's part, how unconscionable?
a. If B becomes aware of A's mistake, then typical situation of unilateral mistake at
common law
b. If B unaware but ought to have known of A's mistake, also typical situation of unilateral
mistake at common law
3. In what situation, then would equity have to intervene?
a. Professor Reyes firmly rejected a doctrine of unilateral mistake in equity
Estoppel by convention

● See Chitty vol. 1, §§3-107 to 3-114 (pp.367-377)

Where the parties contract:-

1. on the basis of an assumption of fact (or law); and,

2. it would be inequitable to allow the parties to go back on the assumption,

the parties will be estopped from asserting that facts (or law) are in actuality contrary to their
assumption

1. But there must be a "crossing of the line" as far as the assumption is concerned
2. i.e. mistaken assumption of the party claiming the benefit of the estoppel must have been
shared or acquiesced in by the party alleged to be estopped
3. and so conduct themselves on the basis on the shared assumption
4. It ‘‘requires communications to pass across the line between the parties. It is not enough that
each of two parties acts on an assumption not communicated to the other”
5. That is, one party should be aware that the other was conducting himself on the basis of the
assumption.

Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84
(CA). (Surety estopped from going back on understanding that guarantee covered a loan, even though on
true construction the guarantee did not do so.)

The "VISTAFJORD" [1988] 2 Lloyds Rep 343 (CA). (Shipowner estopped from denying that agent entitled
to claim commission under an agreement, even though on true construction the agreement did not so
provide.)

→ Thus, in some cases, despite a fundamental common mistake, a party may be estopped from treating
a contract as inoperative

● To prevent the denial of fact, i.e. the assumed promise has been made → existence, legal validity

Any need for a law of mistake in contract? [A summary of Professor Reyes’ view on mistake]

See J. C. Smith, "Contracts -- Mistake, frustration and Implied Terms" (1994) 110 LQR 400. Cf.
Greenwood, “Is Mistake Dead in Contract Law?” (2004) 34 HKLJ 495, at 513 (“[T]here are still a number
of cases, albeit small in number, where mistake provides the only possible remedy”)

Smith concludes (at 419):-

"It is submitted that:-

1. an apparent contract between A and B may be void:-

 a. because there has been no offer and acceptance by A and B; or
b. because an express or implied condition precedent to the contract is not satisfied;
2. if there has been a valid offer and acceptance and there is no such express or implied term, the
contract is not void for mistake
3. [t]here is no room for an independent doctrine of mistake rendering a contract void;
4. there is no closed list of implied conditions precedent to the existence of a contract but they
include the case of the sale of res sua and res extincta and do not, according to the decision in
Bell v Lever Bros, include a common mistake as to some quality of the subject-matter of the
contract, however fundamental;
5. Bell v Lever Bros is arguably wrongly decided under the law which the House itself accepted as
valid, namely the principles relating to res sua and res extincta, which their Lordships failed to
notice were applicable to the facts of the case;
6. Solle v Butcher is not reconcilable with the decision in Bell v Lever Bros and with the principles
of caveat emptor as stated in such long established cases as Smith v Hughes"

Footnote 1:-

Smith suggests that Bell v Lever Bros may be read as Lever buying Bell's right to continue in Lever's
employment. Since that right did not in fact exist, Lever was effectively buying something which had
ceased to exist. Smith comments: "Everything depends on how you define the subject-matter of the
contract. If you say it was the contract of service, then the voidability or otherwise of that contract was a
quality; but if you say the subject-matter was the right to continue in employment, then the subject-
matter did not exist."

Footnote 2:-

Smith v Hughes (1871) LR 6 QB 557 (CA)

Facts: P offers to sell oats to D who examines sample. D offers to buy at 34s per quarter, thinking that
"old oats". On delivery, D refuses as goods were in fact "new oats" worth much less than 34s. Judge put
2 questions to jury: (1) whether P represented oats to be old and (2) whether P knew D contracting for
old oats. If either affirmative, jury directed to find for D. Jury found for D. But case remitted by CA for re-
trial.)

Blackburn J (at 606-7) on caveat emptor (i.e. buyer purchases at his own risk for there is no warranty):-

"I agree that on the sale of a specific article, unless there be a warranty making it part of the bargain
that it possess some particular quality, the purchaser must take the article he has bought though it
does not possess that quality. And I agree that even if the vendor was aware that the purchaser thought
that the article possessed that quality, and would not have entered into the contract unless he had do
thought, still the purchaser is bound, unless the vendor was guilty of some fraud or deceit upon him, and
that a mere abstinence from disabusing the purchaser of that impression is not fraud or deceit; for
whatever may be the case in a court of morals, there is no legal obligation on the vendor to inform the
purchaser that he is under a mistake, not induced by the act of the vendor."
Unilateral mistake and rectification

● Rectification is an equitable remedy and requires a high standard of proof

(1) Question: On the basis of what prior transaction can a later agreement be rectified?

Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101 (HL). See the opinion of Lord Hoffmann which
Lord Hope and Lord Walker refer to with "admiration".

1. Initially, thought that could only rectify where a written agreement failed accurately to record a
prior agreement. Thus, parties must be shown to have been under a common mistake as to the
terms recorded in the subsequent written agreement. Prior agreement to be established
objectively.
2. Now established that rectification possible even where no binding antecedent agreement but
parties had a "common continuing intention" not properly reflected in a written agreement.
Common continuing intention to be established objectively ("the words and acts of the parties
demonstrating their intention, not the inward thoughts of the parties").

(2) Problem:-

Wimpey contracting with VIC on mistaken basis that +E part of a formula. In fact, +E omitted from
written contract. Without +E term, contract highly disadvantageous to Wimpey. All along during
negotiations Wimpey advised by some of the best lawyers. Contract had also been put forward to
Wimpey's board which approved the same after deliberation. Can Wimpey apply for rectification?

CA in George Wimpey UK v VIC [2005] EWCA Civ 77 refers to criteria for rectification in Thomas Bates &
Sons Ltd v Wyndham's (Lingerie) Ltd [1981] 1 WLR 505:-

1. A erroneously believed that the document sought to be rectified contained or omitted a

particular term;
2. B aware of the omission or inclusion and that such was due to A's mistake;
3. B omitted to draw inclusion or omission to A's notice;
4. A's mistake must be to B's benefit.

But what does it mean to be aware? Cf. Peter Gibson J's Baden Delvaux categories:-

1. Actual knowledge;
2. Wilfully shutting one's eyes to the obvious;
3. Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would
make;
4. knowledge of circumstances which would indicate the facts to an honest and reasonable man;
5. knowledge of circumstances which would put an honest and reasonable man on inquiry.

No evidence of types (i), (ii) or (iii) knowledge on part of VIC. Sedley LJ (at paras.60-62):-
"The phrase 'honest and reasonable' is not a term of art. It is a judicial attempt to sketch a line beyond
which conduct may be regarded as unconscionable or inequitable. Its duality, however, is a recognition
that honesty alone is too pure a standard for business dealings because it omits legitimate self-interest;
while reasonableness alone is capable of legitimising Machiavellian tactics.

Mistake is a concept which sits awkwardly in this space. Absent prior accord which has simply not been
carried into effect, absent also a dishonest inducement to contract, one is looking for a mistake on the
claimant's own part which the defendant was honour-bound, despite his own legitimate business
interests, to point out to him. I am unable to accept that this was such a case on any tenable view of the
evidence.

There are at least two kinds of mistake. One is a literal misunderstanding of some fact material to the
proposed contract. The other is an error of judgment in entering into the contract. I find it difficult to
think that the second kind has any relevance to the law of unilateral mistake. Nobody is bound, even in
honour, to help his opposite number to negotiate to the best advantage."

(3) Question: Will any mistake suffice?

Statoil ASA v Louis Dreyfus [2008] EWHC 2257 (Comm). Alleged error in demurrage calculation in
charterparty. Error apparently due to claimant wrongly believing that discharge completed on 13
October (instead of 24 October).

Aikens J (para.87-88):-

"The general rule at common law is that if one party has made a mistake as to the terms of the contract
and that mistake is known to the other party, then the contract is not binding. The reasoning is that
although the parties appear, objectively, to have agreed terms, it is clear that they are not in agreement.
Therefore the normal rule of looking only at the objective agreement of the parties is displaced and the
court admits evidence to show what each side subjectively intended to agree by way of terms. If it is
clear from such evidence that there was not consensus, then there can be no contract, because the
parties have not truly agreed on the terms. Some of the cases talk of such a contract being 'void', but I
think it is clearer to say that there never was a contract at all.

However, if one party has made a mistake about a fact on which he bases his decision to enter into the
contract, but that fact does not form a term of the contract itself, then, even if the other party knows
that the first is mistaken as to this fact, the contract will be binding. That was the effect of the decision
of the Court of Queen's Bench, on appeal from the County Court in Smith v Hughes [1871] LR 6 QB 597...
The correctness of that decision and the analysis in it has never been doubted."

Refers to Chwe Kin Keong.

But a wider principle in equity? What if one party A knows other B has made a mistake about a
fundamental assumption and that assumption is the basis for B contracting? Refers to Huyton SA v
Distribuidora Internacional d Productos Agricolas SA [2003] 2 Lloyds Rep 780 (para.455) seeming to
endorse a wider rule in equity. However, queries basis for that wider rule since Huyton only refers to
cases of common mistake.

Then at para.105: "I must disagree ... that there is an equitable jurisdiction to grant rescission of a
contract where one party has made a unilateral mistake as to a fact or state of affairs which is the
basis upon which the terms of the contract are agreed, but that assumption does not become a term
of the contract. None of the cases [cited in the] judgment is authority for the existence of that
jurisdiction. The Great Peace decision strongly suggests that there is no such jurisdiction in the case of a
unilateral mistake. If there is no such jurisdiction in the case of a common mistake, I fear I am unable to
see how, in logic, one can devise a rationale for an equitable jurisdiction in the case of a unilateral
mistake, at least where there has been no misrepresentation by the other party."

→ For some interesting insights into the role of equity generally where contracts are not avoided at law
despite a mistake by one party, see Redevco UK One Ltd v WH Smith [2008] NIQB 116 (24.10.2008)
(Gillen J).

“Non est factum mihi!”

1. If a party has been misled into executing a deed or signing a document essentially different from
that which he intended to execute or sign → can plead non est factum
2. Successful pleads usually involve a mistake induced by fraud
3. Similar to “offer and acceptance”:
○ Foster v Mackinnon per Byles J:
○ ‘‘ … it is invalid not merely on the ground of fraud, where fraud exists, but on the ground
that the mind of the signor did not accompany the signature; in other words, that he
never intended to sign, and therefore in contemplation of law never did sign, the
contract to which his name is appended.’’
4. Llyods Banks Plc v Waterhouse: If involving fraud or misrepresentation by the other party to the
contract, and no third party involved → should be dealt with as one of misrepresentation; the
other party knew that the document did not represent the intention of the signor → unilateral
mistake
5. Tends to protect the innocent third party that relied on the signed document
6. Document signed in blank: what is inserted afterwards may not be essentially different from the
transaction intended; onus is on the person signing the document that he acted carefully

Saunders v Anglia Building Society [1971] AC 1004 (HL)

Facts: an elderly lady signed what she believed to be a deed of gift to her house to her nephew but
which was in fact an assignment on sale to a third party who mortgaged the house to the defendants
and kept the proceeds.

Held: Unsuccessful claim of non est factum; different between what she thought to have signed and
actually signed was not sufficient to establish that she did not consent to it (i.e. not essentially different)
 1. Lord Reid: “a heavy burden of proof on the person who seeks to invoke this remedy”
2. Disability/Trickery: ‘‘Originally this extension [of the plea] appears to have been made in favour
of those who were unable to read owing to blindness or illiteracy and who therefore had to trust
someone to tell them what they were signing. I think it must also apply in favour of those who
are permanently or temporarily unable through no fault of their own to have without
explanation any real understanding of the purport of a particular document, whether that be
from defective education, illness or innate incapacity.’’
3. Negligence as a bar to non est factum → to prove the exercise of reasonable care when signing
the document

Mistakes of law and compromises

(1) Problem: X compromises his dispute with Y under a mistaken view that the law is P which is against
X's case. The Court then rules in an unrelated case that the law is not P but Q which favours X's case.

Can X apply to set aside the compromise agreement on the basis of common mistake?

Suppose that X compromised the dispute with Y as a result of Y's misrepresentation that the law was P
not Q. Can X rescind the settlement agreement on the ground of misrepresentation?

1. Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349 (HL)

Facts: Preliminary issue whether KB's mistake as to law on legality of interest rate swap agreements with
local authorities was actionable in mistake. If yes, then KB could rely on Limitation Act 1980 s.32(1)(c)
and limitation would not run until after discovery of mistake. Otherwise, KB's claim out of time.

Lord Browne-Wilkinson:-

-- 2 questions: (a) when common law changed by judicial decision, have all payments made on basis of
previous law been made under mistake of law? (b) Does the previous law have to be established by a
clear judicial decision or is it enough that a generally accepted view of the law has been upset?

-- Describes declaratory theory as "fairy tale". Accepts that judges change law. Accepts that money paid
under a mistake of law should be recoverable.

-- But believes that effect should not be retrospective. In the circumstances, believes that should be left
to legislation with strong indication by HL that change desirable.

Lord Goff:-

-- Traces history of rule to Bilbie v Lumley (1802) 2 East 469 (Insurer pays policy claim, although could
have repudiated liability. Insurer knew facts, but did not realise gave right to repudiate liability at law.
Claim for recovery under mistake failed.) Rationale of Lord Ellenborough (Bilbie (at 472)): "Every man
must be taken to be cognisant of the law, otherwise there is no saying to what extent the excuse of
ignorance might not be carried. It would be urged in almost every case."

-- But rule has been criticised: Unjust; distinction between mistakes of fact and law capricious; judges
manipulate distinction to achieve practical justice leading to uncertainty. Cf. Kelly v Solari (1841) 9 M &
W 54 (Similar to Bilbie. But here insurer did not realise could repudiate because premium not paid. Claim
to recover payment succeeded).

-- Rule should no longer form part of English law. Saw no good reason to wait for Parliament.

-- Follows declaratory theory. Sees no injustice. Although change of position may be a defence, a settled
understanding of the law cannot be one.

-- Rejects defence of honest receipt (once suggested by Brennan J in David Securities Pty Ltd. v.
Commonwealth Bank of Australia (1992) 175 CLR 353 (at 399)), completed transaction (since no total
failure of consideration or mistake spent). Former too wide; latter inconsistent with principle that
mistake operates from time of transfer.

-- Thus, limitation period starts from time when mistake ought to have been discovered.

Lord Lloyd agrees with Lord Browne-Wilkinson.

Lord Hoffmann: Agrees with Lord Goff. Whether settled or unsettled view, enrichment unjust. Settled
view, purely utilitarian. Over-ruling supposed bar to recovery for mistake of law is a matter of justice.
Solution is for legislature to amend Limitation Act, if it sees fit.

Lord Hope: Agrees with Lord Goff. Better to be pragmatic, face up to the reality that all judicial decisions
operate retrospectively.

See Hedley (1999) 58 CLJ 21 for a critique of the HL decision. But is the critique fair?

2. BCCI SA (in liquidation) v Ali [2002] 1 AC 251 (HL)

Facts: BCCI terminates N's employment under compromise agreement. N seeks to rescind compromise
agreement on ground of misrepresentation. N says bank falsely represented that it was engaged in
honest business. As a result, N subject to "stigma damage," being unable to find new employment. At
time of compromise, stigma damages unknown.

Claim for stigma damages only upheld by HL in Mahmud v. BCCI [1998] AC 20. Q: Could N by the
compromise surrender his right to claim for stigma damages which neither side contemplated when
entering agreement? HL (Lord Hoffmann dissenting largely on application of law to facts) says "yes" if
clear language is used.

3. Brennan v Bolt Burdon [2005] 1 QB 303 (CA)

Facts: PI claim. Judge holds that claim form served on D2 outside validity period of claim form. Limitation
period expired. Claimant settles with D2, each side to bear own costs. Case relied on by judge over-ruled.
Claimant appeals against judge's decision. D2 seeks stay on basis of compromise. Q: Was compromise
void for common mistake?

Kay LJ: KB ruling deals with restitutionary claim, but "it cannot be doubted that its effect now permeates
the law of contract" (at §10).

Identifies the following propositions (at §17):-

"(1) As with any other contracts, compromises or consent orders may be vitiated by a common mistake
of law.

(2) It is initially a question of construction as to whether the alleged mistake has that consequence.

(3) Whilst a general release executed in a prospective or nascent dispute requires clear language to
justify an inference of an intention to surrender rights of which the releasor was unaware and could not
have been aware (Ali's case), different considerations arise in relation to the compromise of litigation
which the parties have agreed to settle on a give-and-take basis: see the Huddersfield Banking case.

(4) For a common mistake of fact or law to vitiate a contract of any kind, it must render the performance
of the contract impossible: see Great Peace Shipping Co. Ltd. v. Tsalviris Salvage Ltd. [2003] QB 679."

Here not a true mistake of law, but a give-and-take.

Bodey J: Refers to discussion in KB and endorsement by commentators.

At §26: "These various considerations more or less compel a conclusion that in the English law of
contract the former distinction between mistakes of fact and mistakes of law no longer pertains. For a
different approach to survive as between the law of restitution and the law of contract would seem
illogical and difficult to justify."

At §§41-2:-

"What if any terms should be implied where the parties to a compromise do not expressly cover what is
to happen if a subsequent declaration as to the law changes the law as it had appeared to be at the time
of the contract?

By parity of reasoning with everything set out above, the answer in my view should be that the
subsequent re-declaration of the law is by implication not intended to unpick that which was agreed. It
follows that it must be for the party wishing to be allowed to reopen the compromise concerned to
include in it an express terms to provide for such reopening, rather than for the other party thereto to
do the opposite (i.e. to include a term to the effect that 'this settlement is to stand even if the law should
later change or be declared differently."

At §§51-2:-

"So important is the principle of seeking to uphold contracts of compromise that in my view the court
should not permit them to be reopened for mistake of law created by the retrospective impact of the
declaratory theory of judicial decisions except where, for some truly exceptional reason, justice clearly
demands.

The degree of inconvenience, uncertainty and potential unfairness involved in reviving once-settled
litigation is so obvious as not to need emphasis here. It leads me to agree ... that, if this case had been
argued on the basis of public policy, then that might well have provided”

Footnote:-

Huddersfield Banking Co. Ltd. v. Henry Lister & Son Ltd. [1895] 2 Ch 273 (CA):-

"A compromise takes place when there is a question of doubt and the parties agree not to try it out, but
to settle it between themselves by a give-and-take arrangement. I quite agree that if this was a case of
that kind it would be extremely difficult to interfere with the order." (Kay LJ at 285).