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Common mistake in English law: the proposed merger of common law and equity

Published online by Cambridge University Press:  02 January 2018

Andrew B.L. Phang
Andrew B.L. Phang*
Affiliation:
National University of Singapore
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Extract

Although the law relating to common mistake has engendered a plethora of conundrums, many problem areas have in fact been well-traversed in the literature. The present article does not seek to re-cover such welltrodden ground, but attempts, instead, to suggest a different and more systematic approach that would effect a merger of the common law and equitable branches of common mistake into one coherent, doctrine.

Type
Research Article
Information
Legal Studies , Volume 9 , Issue 3 , November 1989 , pp. 291 - 306
Copyright
Copyright © Society of Legal Scholars 1989

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References

1 The terminology here is variable; both the terms ‘common mistake’ as well as ‘mutual mistake’ have been utilised. For the purposes of this article, the term ‘common mistake’ will be used. This obviates any confusion with that other category or classification dealing with the lack of coincidence between offer and acceptance which at least one writer has designated as ‘mutual mistake’. By ‘common mistake’, I refer to a situation where offer and acceptance are properly effected, but where, however, both parties are mistaken as to the basis upon which they contracted. The definition set out here is rather rough, but will be elaborated upon in due course.

2 See, eg, and in the areas of both equity as well as the common law, T.H. Tylor, ‘General Theory of Mistake in the Formation of Contract’ (1948) 11 MLR 257; C.J. Slade, ‘The Myth of Mistake in the English Law of Contract’ (1954) 70 LQR 385; R.A. Blackburn, ‘The Equitable Approach to Mistake in Contract’ (1955) 7 Res Judicatae 43; K.O. Shatwell, ‘The Supposed Doctrine of Mistake in Contract: A Comedy of Errors’ (1955) 33 Can Bar Rev 164; P.S. Atiyah, ‘Couturier v Hastie and The Sale of Non-Existent Goods’ (1957) 73 LQR 340; P.S. Atiyah and F.A.R. Bennion, ‘Mistake in the Construction of Contracts’ (1961) 24 MLR 421; Lee B. McTurnan, ‘An Approach to Common Mistake in English Law’ (1963) 41 Can Bar Rev 1; and John Cartwright, ‘Solle v Butcher and the Doctrine of Mistake in Contract’ (1987) 103 LQR 594.

3 The law relating to common mistake in equity has developed apace, particularly since the leading decision was rendered by the Court of Appeal in Solle v Butcher [1950] 1 KB 671, in 1949; however, even in this rather more flexible sphere, development has, perhaps, been rather less spirited than might have been expected (see, eg, Atiyah, ‘Contract and Tort’ in Lord Denning: the Judge and the Law (Edited by J.L. Jowell and J.P.W.B. McAuslan, 1984) at 49, where the learned writer states thus: ‘The subsequent fate of Lord Denning's doctrine has been muted.’); all this notwithstanding the presence of some reported precedents: see, eg, Grist v Bailey [1967] 1 Ch 532; Magee v Pnine Insurance Co Ltd [1969] 2 QB 507; and Laurence v Lexcourt Holdings Ltd [1978] 1 WLR 1128; and see, in the Australian context, Svanosio v McNamara (1956) 96 CLR 186, and, more recently, Tylor v Johnson (1983) 151 CLR 422, which accepts a more expansive view of equitable relief, endorsing the approach of Denning LJ. in Soh v Butcher, supra. There is, however, not inconsiderable academic opinion that finds the premises of the equitable jurisdiction somewhat unsatisfactory: see, eg, Atiyah and Bennion, supra, note 2, at 439 to 442; Goffand Jones, The Law of Restitution (3rd edn, 1986), at 186 to 187 (although the authors do, in fact, endorse the flexibility of the equitable principles); Peter Birks, An Introduction to the Law of Restitution (1985) at 163 to 164; Meagher, Gummow, and Lehane, Equip - Doctrines and Remedies (2nd edn, 1984), especially at 362; and R.J. Sutton, ‘Reform of the Law of Mistake in Contract’ (1976) 7 NZULR 40 at to 45. But cf Blackburn, supra, note 2. There have also been interesting applications of Solle by Commonwealth courts: see, supra, in the context of Australia; in the New Zealand context, see, eg, Waring v SJ. Brentnall Ltd [1975] 2 NZLR 401 (and cf Dell v Beasley [1959] NZLR 89; and Fawcett v Star Car Sales Ltd [1960] NZLR 406); and, in the Canadian context, see, eg, Ivanochko v Sych (1967) 60 DLR (2d) 474; and Schonekess v Bach (1968) 66 DLR (2d) 415.

4 I refer, in particular, to the recent judgment by Steyn J in Associated Japanese Bank (International) Ltd v Credit du Nord SA [1989] 1 WLR 255. This case is interesting for many points relating to the law of common mistake (especially at common law) which are, however, outside the purview of the present piece. Of especial interest is the learned judge's express endorsement of a ‘larger’ doctrine of mistake, which point figures in later discussion; this view is, incidentally, approved by Professor Treitel: see G.H. Treitel, ‘Mistake in Contract’ (1988) 104 LQR 501 at 503. For other comments on the instant case, see John Cartwright, ‘Mistake in Contract’ [1988] LMCQ 300; and Dimity Kingsford-Smith, ‘Two Cases on Common Mistake: Effect on Formation of Contract and Scope of contract Terms’ [1988] 4 JIBL 176.

5 See Schonekess v Bach (1968) 66 DLR (2d) 415at 422(per Seaton J).

6 See C. Grunfeld, ‘A Study in the Relationship between Common Law and Equity in Contractual Mistake’ (1952) 15 MLR 297, especially at 300, 302, and 310. See, also, by the same author, ‘Reform in the Law of contract’ (1961) 24 MLR 62 at 83 Contra, McTurnan, supra, note 2, especially at 49 to 50, who argues (at 50) that ‘… the certainty of rules governing promissory liability deserves priority over the need for appropriate remedies’.

7 [1932] AC 161.

8 [1989] 1 WLR 255.

9 The term ‘false and fundamental assumption’ is coined in Anson's Law of Contract (26th edn, 1984) by A.G. Guest at 263. In another text, this ‘larger’ doctrine is simply termed either ‘an independent doctrine of common mistake’ or a ‘general doctrine of mistake’, viz, one that extends beyond the categories of res extincta and res sua referred to above: see Cheshire, Fifoot and Furmston's Law of contract (11th edn, 1986) by M.P. Furmston at 223 and 225, respectively.

10 See Treitel, supra, note 4.

11 There are, however, difficulties which have to do with the actual illustrations and authorities cited - which do not, it is submitted, give a sufficiently clear idea as to what in practice might constitute an operative mistake at common law; most of the illustrations, in fact, focus upon categories that could have been subsumed in any event under the narrower categories of either res cxtincta or res sua: see, eg, [1932] AC 161 at 217and 218.

12 And cf the judgment of Wright J in Lever Bros Ltd v Bell [1931] 1 KB 557, especially at 564. See, also, per Scrutton LJ at 584 to 585; per Lawrence LJ at 589 to 590; and per Greer LJ at 594 to 597. And the formulations by Lord Atkin and Lord Thankerton in the House of Lords (as to which see, infra, notes 14 to 16, and the accompanying main text, and also per Lord Thankerton in [1932] AC 161 at 236) do, as mentioned in this very paragraph, support the broader doctrine of common mistake, despite some possible reservations as to the illustrations utilised (see, supra, note II); the language used is not, however, always consistent; see, eg, per Lord Atkin [1932] AC 161 at 223 to 224, although this might arguably be interpreted as strict application of a broader principle. See, also, Scott v Coulson [1903] 2 Ch 249, which, although not strictly speaking a situation of res extincta as such, was one in which the contract was held void for common mistake. The facts are, however, somewhat difficult to rationalise on the basis of common mistake, having regard to the fact that before the actual completion of the contract, one party had reason to believe that the assured was dead, but did not disclose this fact to the other party - a situation that might, it is suggested, fall more appropriately within the scope of unilateral mistake instead. The reader is also referred to the interesting discussion in McTurnan, supra, note 2, especially at 12 to 13, and 23 to 25.

13 See [1989] 1 WLR 255at 265to 266.

14 [1932] AC 161at 218 (emphasis added).

15 [1989] 1 WLR 255at 266.

16 [1932] AC 161 at 235 (emphasis mine). And see Birks, supra, note 2, at 162:‘… in the formation of contract, the test of operative mistake is not “but for”: a “causative mistake” is not enough. The mistake must be “fundamental”. Imprecise as that word is, it signifies something very serious as opposed to something merely causative, and it takes its meaning precisely from the contract between the two words: whatever else it is, fundamental mistake is something more than a caustive mistake.

17 [1950] 1 KB 671.

18 [1950] 1 KB 671at 692to 693 (emphasis added).

19 And cf cartwright, supra, note 2, at 612.

20 (1867) LR 2 QB 580 at 587. It should be noted that Blackburn J delivered the judgment of the Court.

21 [1932] AC 161; and a point stressed by Steyn J in the Associated Japanese Bank case: see [1989] 1 WLR 255 at 268.

22 (1951) 84 CLR 377.

23 [1989] 1 WLR 255 at 268 to 269 (emphasis mine). Steyn J cites the McRae case, supra, note 22, at 408. He gives an illustration (at 268): ‘An extreme example is that of the man who makes a contract with minimal knowledge of the facts to which the mistake relates but is content that it is a good speculative risk.

24 See, eg, per Goff J in Crist v Bailey [1967] 1 Ch 532 at 542 (‘There remains one other point, and that is the condition laid down by Denning LJ that the party seeking to take advantage of the mistake must not be at fault. Denning LJ did not develop that at all and is not, I think, with respect, absolutely clear what it comprehends. Clearly, there must be some degree of blameworthiness beyond the mere fault of having made a mistake, but the question is, how much, or in what way? I think each case must depend on its own facts …’). And see, generally, Cartwright, Supra, note 2, at 612 to 614, where another decision, Laurence v Lexcourt Holdings Ltd [1978] 1 WLR 1128, is also discussed. An interesting decision in the New Zealand context is by Chilwell J in Waring v SJ. Brentnall Ltd [1975] 2 NZLR 401, where the learned judge reformulates (at 409) this requirement in terms of unconscionability.

25 See Cartwright, supra, note 4, at 301.

26 (1951) 84 CLR 377 at 408 (emphasis added).

27 See (1951) 84 CLR 377 at 408to 409, and 410.

28 Which is Cartwright's argument: see, supra, note 25.

29 Eg, Sheikh Bros Ltd v Arnold Julius Ochsner [1957] AC 136 (which dealt with the Indian Contract Act).

30 Eg, Nicholson and Venn v Smith Murriott (1947) 177 LT 189: see criticisms by Atiyah and Bennion, supra, note 2, at 433; as well as by McTurnan, supra, note 2, at 18 to 19.

31 [1932] AC 161.

34 cf the comments by Cheshire, Fifoot and Furmston, supra, note 9, at 225 to 226.

33 See the rationalisation of the actual decision in Bell by Steyn J in the Associated Japanese Bank case via a detailed consideration of the merits of the case by way of an equally detailed analysis of the factual matrix concerned: see [1989] 1 WLR 255 at 267 - a re-interpretation that does indeed have support from the very judgments in Bell itself (see, eg, [1932] AC 161 at 199, per Lord Blanesburgh); as well as from Professor Treitel: see Treitel, supra, note 4, at 505. It is, however, suggested, with respect, that Steyn J's approach should be modified to take into account only the relevant merits of the case, thus minimising uncertainty in an area that is, by its very nature, fraught with uncertainty.

34 cf the point made with regard to Atiyah and Bennion's argument at, infra, note 48.

35 [1989] 1 WLR 255at 268.

36 [1989] 1 WLR 255at 268 (emphasis mine).

37 See, generally, G.H. Treitel, The Law of Contract (7th edn, (1987), Chapter 20; Anron's Law of Contruct, supra, note 9, Chapter XIV; Cheshire, Fifoot and Furmston's Law of Contract, supra, note 9, Chapter 20; and Chitty on Contracts, Vol I (25th edn, 1983), Chapter 23, for an overview of the doctrine itself.

38 This point is hinted at in Cartwright, supra, note 4, at 301, note 8, and is somewhat more clearly stated (by way of analogy only) by the same author in his article cited at note 2, supra, at 603 See, also, per Scrutton LJ in Lever Bros Ltd v Bell [1931] 1 KB 557 at 584 to 585; and Lord Atkin's brief reference to the frustration cases in Bell v Lever Bros itself: see [1932] AC 161, especially at 226. McTurnan points out, however, that despite the similarity in theoretical basis, the application of the doctrines of frustration and common mistake is quite different: see, supra, note 2, at 25 to 26.

39 See, eg, Amalgamated Investment and Property Co Ltd v John Walker and Sons Ltd [1977] 1 WLR 164. See, also, the observations of Lord Thankerton in Bell v Lever Bros [1932] AC 161 at 237; the rather interesting decision of Wright J in Griffith v Brymer (1903) 19 TLR 434; and McTurnan, supra, note 2, at 23.

40 Though cf Atiyah and Bennion, supra, note 2, at 436 to 437; Cartwright, supra, note 2, at 604, note 48; and McTurnan, supra, note 2, at 25 to 26. It is, however, submitted that the strictness of application for both doctrines is incontrovertible, although these writers probably differ in so far as their perceptions of relative strictness are concerned.

41 Which has generated much discussion, a good judicial example of which may be found in the relatively recent House of Lords decision of National Carriers Ltd v Panalpina (Northern) Ltd [1981] AC 675. And see, generally, the academic writings cited at note 37, supra.

44 See Treitel, The Law of Contract, supra, note 37, at 218. See, also, Tylor, supra, note 2. And for some apparent judicial support, see per Blackburn J in Kennedy v Panama, New Zealand, and Australian Royal Mail Company (Ltd) (1867) LR 2 QB 580, especially at 587 to 588.

43 [1950] 1 KB 671.

44 These include decisions already cited in the present article, viz, Grist v Bailey [1967] 1 Ch 532; Magee v Pennine Laurence Co Ltd [ 1969] 2 QB 507; and Laurence v Lexcourt Holdings Ltd [1978] 1 WLR 1128; and, not forgetting the Associated Japanese Bank case itself where, however, Steyn J dealt with the point rather briefly (see [1989] 1 WLR 255 at 270). This point does not, of course, take into account unreported cases where the argument of common mistake in equity might have failed. In the absence, however, of further evidence, this query must, unfortunately, remain unanswered.

45 [1969] 2 QB 507.

46 Cartwright, supra, note 2, at 609. See, also, ibid, at 610. See, further, a judicial expression of this sentiment by Chilwell J in the New Zealand decision of Waring v S.J. Brentnall Ltd [1975] 2 NZLR 401 at 407.

47 This argument is clearly supported by at least one article that, however, focuses upon the comparative sphere: see E. Sabbath, ‘Effects of Mistake in Contracts - A Study in Comparative Law’ (1964) 13 ICLQ 798, especially at 798 and 811 cf, also, Shatwell, supra, note 2, especially at 171 to 172, and 184, note 72; McTurnan, supra, note 2, especially at 45 to 46; Cartwright, supra, note 2, at 612; and Sutton, supra, note 3, at 49, 54, and 62.

48 This would also explain the distinction Devlin LJ draws in Ingram v Little [1961] 1 QB 31. Contra, Atiyah and Bennion, supra, note 2, at 422. Cf also, McTurnan, supra, note 2, at 2.

49 Cf the argument of McTurnan at, supra, note 6.

50 See Grunfeld, ‘A Study in the Relationship between Common Law and Equity in Contractual Mistake’, supra, note 6, especially at 319; and Sabbath, supra, note 47, at 828 to 829.

51 See both articles by Grunfeld, supra, note 6, at 315 to 318, and 83, respectively; and also McTurnan, supra, note 3, at 57 to 65.

52 6 & 7 Geo 6, c 40.

53 Or, to be more precise, on a restitutionary basis. See, in particular, B.P. Exploration Co (Libya) Ltd v Hunt [1979] 1 WLR 783; affirmed (for the most part) in [1981] 1 WLR 236 and [1983] 2 AC 352.

54 See, also, per Devlin LJ (albeit in a somewhat different context) in Ingram v Little [1961] 1 QB 31 at 73 to 74; and McTurnan, supra, note 2, especially at 48 to 49.

55 See Ronald Dworkin, Low's Empire (1986) at 76to 86.

56 For general overviews of the Critical Legal Studies Movement, see, eg, The Politics of Law (edited by David Kairys, 1982); Roberto Mangabeira Unger, The Critical & gal Studies Movement (1986); and Mark Kelman, A Guide to Critical Legal Studies (1987). See, also, Dworkin, supra, note 55, at 271 to 274.

57 See, eg, Snell's Principles of Equity (28th edn, 1982, by P.V. Baker and P.St.J. Langan) at 12to 13, and 17; Meagher, Gurnmow, and Lehane, supra, note 3, at 43 and 45 to 47; and Hanbury and Maudsley - Modem Equity (12th edn, 1985, by Jill E. Martin) at 16 (though cf infa, note 61).

58 See, eg, Evershed, ‘Equity after Fusion: Federal or Confederate’ (1948) 1 JS PTL 171; ‘Reflections on the Fusion of Law and Equity after 75 Years’ (1954) 70 LQR 326; and ‘Equity is Not to be Presumed to be Past the Age of Child-Bearing’ (1953) 1 Sydney L Rev 1.

59 See Meagher, Gummow, and Lehane, supra, note 3, especially at 46 to 47.

60 [1978] AC 904.

61 And cf the ostensibly moderate compromise positions adopted in Hanbury and Maudsley - Modem Equity, supra, note 57, at 22 to 26; L.A. Sheridan and George W. Keeton, The Nature of Equity (1984) especially at 35 to 37; and P.V. Baker, ‘The Future of Equity’ (1977) 93 LQR 529, especially at 536 to 540. It should be noted that although Baker raises many interesting and persuasive arguments against the creation of entirely novel legal principles that are neither common law nor equitable principles, his approach acknowledges that both the common law and equity can and do, in fact, influence each other.

62 See, in the New Zealand context (and in a general, albeit critical, vein), Francis Dawson, ‘The New Zealand Contract Statutes’ [1985] LMCQ 42, especially at 43 to 44, and 48 to 51; and, by the same author, ‘The Contractual Mistakes Act 1977: Conlon v Ozolins’, (1985) II NZULR 282. But cf on balance, J.F. Burrows, ‘Contract Statutes: The New Zealand Experience’ [1983] Stat LR 76.

63 I am grateful to Professor F.M.B. ReynoldsProfessor J.A. Andrews, and an Anonymous assessor for their very helpful comments on an earlier draft of this article. I am responsible, of course, for all errors as well as infelicities in style and language.