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Contract Law: Mistake (Mistakes negativing consent
(no consensus ad idem…
Contract Law: Mistake
Mistakes negativing consent
(no consensus ad idem (meeting of the minds))
(formation/communication mistakes)
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Objective theory of contract utilised
General
Mistake and related doctrines
- frustration: supervening events occurs after formation of contract; deals with discharge of contract
- mistake: misapprehension or event occurs prior to making of contract; deals with formation of contract
- misrepresentation: induced mistake, making of false statement induces claimant to enter into contract
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Mistake in equity
Common mistake in equity
Pre-Great Peace Shipping
Equity is flexible
- lease valid at law
- however, in equity, lease should be set aside on terms (both parties mistakenly believing it was free from rent control)
- as this would cause considerable hardship to tenant, he was given option to re-enter a new lease at correct price i.e. 250 pounds
- Lord Denning: ‘misapprehension fundamental and party setting it aside not at fault’ (at 693)
- a wider doctrine of ‘fundamental mistake’ in equity (encompasses a broader range of mistakes)
- mistake in equity renders a contract voidable
- greater remedial flexibility in equity to set aside contract on terms ie. impose conditions for rescission
(ppt)
(Solle v Butcher (1950) CA)
Equity only comes in if contract is valid
- narrow doctrine of common law mistake in Bell supplemented by more flexible doctrine of mistake in equity as developed in Solle v Butcher
- ‘entirely sensible & satisfactory state of the law’
- contract void: no role for equity to play
- otherwise, if contract valid equity may come in (ppt)
(Assoc Japanese Bank v Credit du Nord)
Solle and Butcher disapproved
- there is no jurisdiction in equity to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable at common law
(Great Peace Shipping [2002] UKCA)
- only applicable to UK, only can be determinatively concluded by UKSC
Common mistake in equity still law in SG
- Solle v Butcher is good law
(Application of English Law Act)
(Olivine Capital)
Unilateral mistake
- Great Peace Shipping applicable only to common mistake, not to unilateral mistake
- actual/Nelsonian knowledge on part of non-mistaken party will render contract void: common law doctrine, not equity, applies
- equity comes in where there is only (1) constructive knowledge of the mistake, provided there is also (2) some “impropriety” or “sharp practice” on the part of the non-mistaken party
(2) e.g. the conduct of deliberately not bringing the suspicion of a possible mistake to the attention of the mistaken party could constitute such impropriety
(Chwee Kin Keong v Digilandmall.com Pte Ltd; Olivine Capital affirmed; Chong Sze Pak v Har Meng Ho HC)
Criticisms in dicta: single doctrine
- the element of ‘impropriety’ utilises the concept of unconscionability which is itself unsettled and may give rise to unintended side-effects if applied to unilateral mistake in equity (at [72])
- preferable to have one doctrine in unilateral mistake having the same test [of knowledge], differing only in consequences (at [71]) (merger of position in common law and equity for unilateral mistake)
(Wellmix Organics (International) Pte Ltd v Lau Yu Man (HC))
cf Great Peace Shipping position applies where there has been no misrepresentation by the other party (just failure to inform/silence)
(Statoil ASA v Louis Dreyfus Services)
Mistakes nullifying consent
(common mistake/expectation mistakes)
(common fundamental assumption is mistaken, invalidating or cancelling an existing agreement)
(there was meeting of minds and agreement)
Common mistake in law
- narrow doctrine, contract hardly ever held to be void
- Courts prefer to uphold rather than destroy contracts; respect the sanctity of contract and autonomy of parties
- doctrine inapplicable if contract expressly or impliedly provides for risk allocation, i.e. who bears the risk of the relevant mistake
Elements to be proved
(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;
(if there is warranty -> term, breach)(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.
- elements (ii) and (iii) are examples of risk allocation
(Great Peace Shipping v Tsavliris [2002] UKCA)
(iii) fault and (ii) promise
- contract subsisted
- CDC cannot avoid contract on ground of common mistake as to existence of subject matter because it was at fault
- on true construction, contract included promise by CDC that tanker existed in the position specified (ppt)
- implied risk allocation device, no application of common mistake
(McRae v Commonwealth Disposals Commission Aus HC)
Who bears the risk of the mistake -- any risk allocation device?
- only if none, then can one consider common mistake
(Assoc Japanese Bank v Credit du Nord)
Mistake as to quality not good enough, mistake as to substance only
- paid 50,000 pounds to two employees to terminate employment, to facilitate corporate reorganisation
- unknown to L, the two employees had breached contract, and L could have dismissed them without paying compensation
- failed on ground of fraud; alternate ground of common mistake
- jury found that both parties were mistaken + majority found that mistake was not sufficiently fundamental to avoid compensation contract
- mistake as to quality 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 (Lord Atkin)
- even if L had known, they would have still paid compensation due to urgency in reorganisation -> fatal to claim because not fundamental
(Bell v Lever Bros UKHL)
cf. line between quality and substance
- both parties mistakenly believed that painting was by famous artist Constable
- seller said it was by Constable
- obiter: only a mistake as to quality
- action based on misrepresentation only (not mistake)
- Trietel thinks the dicta is not conclusive, because the parties sued under misrep only, not mistake
(Leaf v International Galleries)
Non-existence of subject matter a fundamental importance/substance
- fraudster scheme of sale and lease back of machinery, bank agreed to buy from fraudster the machine, and lease it back to him
- bank insisted that the lease be guaranteed (guarantor was Credit du Nord)
- machinery was non-existent;
- HELD: guarantee upon true construction contained an implied undertaking in favour of defendant bank that the machine was in existence
- DICTA (alternative ground): common mistake applied
- guarantee of a lease with non-existent machines fundamentally different from guarantee of lease of existing machines
- non-existence of subject-matter of principal contract (lease) is of fundamental importance
BUT: if the subject matter is the lease itself, then common mistake does not apply since the lease was in existence -> court took an overall view and focused on machinery(Assoc Japanese Bank v Credit du Nord)
Total failure of consideration: non-existence of subject matter (res extincta)
- agreement to buy cargo of corn not knowing it had turned bad and was disposed
- sale of existing cargo of corn, not one for a cargo existing or not (buyer did not take the risk)
- total failure of consideration by seller (no reference to mistake which was not yet fully developed)
(Couturier v Hastie, UKHL, old case decided before Bell)
consider SGA s6 applying to goods which once existed but perished
- specific goods: goods identified and agreed upon by both contracting parties (s61)
- may not be contracted out of; applies irrespective of risk allocation
Common assumption not defefated
- Pending arrival of rescue ship, distressed ship T contracted with Great Peace
- GP was actually 400 miles away not 35 miles away, and there was a vessel nearer
- T refused to pay for hire for the GP
- HELD: contract not void for common mistake
- distance of ‘Great Peace’ to distressed ship not so far away as to defeat parties’ common assumption that it could still act as a backup
- reinforced by T’s failure to cancel agreement on discovering actual situation until they found and hired a nearer vessel to assist
- GPS entitled to recover 5 days hire
(Great Peace Shipping v Tsavliris CA)
Analytical framework :red_flag:
2 principles:
(i) upholding contracts rather than destroying them
(ii) applies only to unexpected and wholly exceptional circumstances
2 preconditions:
(i) there must have been no allocation of risk to either party of the consequences occasioned by the mistake; and
(ii) the mistake is not attributable to the fault of either party (reasonable grounds).
2 requirements:
(i) the mistake, relating to facts or law, must be shared by both parties before the contract was concluded; and
(ii) the mistake must render the subject matter fundamentally different from that which the parties contracted on as constituting the basis of their contract.
(Phang & Goh; Olivine Capital Pte Ltd and another v Chia Chin Yan [2014]) :
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