Mistake – Mistake of fact – Scope of doctrine of equitable rescission Great Peace Shipping Ltd v Tsavliris Salvage (International) Queen’s Bench Division – Commercial Court – Toulson J – 9 November 2001 There is no right to rescind in equity on grounds of common mistake a contract which is valid and enforceable on ordinary principles of contract law. Huw Davies (instructed by Stephenson Harwood) for the claimants. John Reeder and Rachael Toney (instructed by Shaw & Croft) for T Ltd. The vessel ‘Cape Providence’ suffered damage in the South Indian Ocean. The defendant salvors, T Ltd, were engaged by the vessel’s owners to assist. They approached a firm of London brokers. A tug was found, but it was five or six days away from the Cape Providence, and there was a serious concern that in the meantime the Cape Providence might do gown with the loss of her crew. The brokers contacted a third party, OR, who informed them that the nearest vessel was the claimants’ vessel ‘Great Peace’. The brokers entered into a charter agreement with the claimants for the hire of the Great Peace for a minimum of five days. It transpired however that OR’s information had been erroneous: The Great Peace was in fact several hundred miles from the Cape Providence. T Ltd purported to cancel the contract with the claimants, and refused to pay hire. The claimants issued proceedings, claiming the minimum five days’ hire in the charterparty. T Ltd argued, inter alia, that (i) the contract was void in law for fundamental mistake, in that both parties proceeded on the erroneous assumption that the Great Peace was in close proximity to the Cape Providence when she was not; and (ii) further or alternatively, any agreement was voidable by reason of mistake, and T Ltd were entitled to relief in equity by way of rescission. It was assumed for the purposes of (ii) that neither party was to blame in taking what was reported by OR at face value. TOULSON J held: The case raised the vexed subject of mistake as a vitiating factor in the law of contract. The position at law was governed by the decision of the House of Lords in Bell v Lever Bros Ltd [1932] AC 161. The effect of a mutual mistake, in cases where a consensus had been reached, depended on the proper analysis of the contract and the rights and obligations thereby created; but that analysis would necessarily be made against the background of the law generally applicable to contracts of the kind under consideration, whether it be a contract of sale of goods, a contract of insurance or a contract of some other kind. In the instant case the hire of the Great Peace was for a particular purpose, i.e. 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 five days. It could not be said that the Great Peace was so far away from the Cape Providence at the time of the contract as to defeat the contractual purpose. There had been no representation by the claimants as to the position of the Great Peace, and if T Ltd had wished for such a contractual stipulation, they could have asked for one. Mistake and equity T Ltd’s case for rescission was based on the judgment of Lord Denning in the well-known case of Solle v Butcher [1949] 2 A11 ER 1107, where he said: ‘A contract is also liable in equity to be set aside if the parties were under a common misapprehension either as to 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.’ That doctrine, by which Lord Denning had sought to outflank Bell v Lever Bros Ltd, had caused much uncertainty. The crux of the problem was what ‘fundamental’ meant in the proposition that a contract could be set aside in equity if the parties were under a fundamental misapprehension as to facts or their respective rights. That was in essence the same debate as occupied the House of Lords in Bell v Lever Bros Ltd. His Lordship reviewed the authorities, including Grist v Bailey [1966] 2 All ER 875, Magee v Pennine Insurance Co Ltd [1969] 2 All ER 891, Laurence v Lexcourt Holdings Ltd [1978] 2 All ER 810, Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1988] 3 All ER 902, William Sindall plc v Cambridgeshire County Council [1994] 3 All ER 932 and Clarion Ltd v National Provident Institution [2000] 2 All ER 265. It was evident that the authorities did not speak with a single or certain voice. His Lordship did not believe that there was in truth any right to rescind in equity on grounds of common mistake a contract which was valid and enforceable on ordinary principles of contract law. If that were wrong, his Lordship remained at a loss as to what was the test for determining the nature of the ‘fundamental mistake’ necessary to give birth to such a right. His Lordship would respectfully adopt as correct the following statement of principle in Snell’s Equity (30th edn, 2000) para 1-14: ‘It is no part of the role of the court to dissolve or vary contracts thought to be harsh on the basis of so-called equitable principles. Its role is to prevent the defendant from insisting on his strict legal rights when, owing to his behaviour, it would be unconscionable or inequitable to allow him to do so.’ If that were wrong, and there was a broad discretion in equity to set aside for common mistake a contract which was valid on ordinary principles of contract law, his Lordship would decline to exercise that discretion in the instant case. The fixing of charterparties was done mainly by professionals and it was an area in which certainty was important. For the court to set aside the present charterparty because the information supplied to the defendants by OR turned out to be incorrect would be tantamount to making the correctness of that information a condition precedent of the agreement. There was no justification for doing so. It followed that there would be judgment for the claimants. “New Law Journal” 16th November 2001