What is the Doctrine of Mistake?

With so much time spent entering into a contract, business owners need to be sure that their efforts are not wasted. This is generally the case and when a contract is agreed both parties are bound to perform the terms of that contract. However, cases exist where both parties agree to a contract while under the influence of a shared mistake about an important fact. In some circumstances, that mistaken belief could void the contract. This principle is known as the Doctrine of Mistake.

Mistake is often used as a defence to a breach of contract claim. The defendant will often aim to have the contract declared null and void. However, there’s nothing that would stop a mistake being pleaded as a basis for a declaration claim. Nor as a reply to a defence (if for example, the claimant must first overcome an agreed compromise to pursue a claim).

When will the Doctrine of Mistake apply?

Over the past century the courts have sought to formulate a workable criteria in which the doctrine of mistake applies.

In the case of Bell v Lever Brothers Limited [1931] UKHL 2, the House of Lords held that a common mistake alone would not void a contract. The contract could only be voided if the mistake was found to be imperative to the performance of the contract. The mistake must be major enough to change the nature (or as the House of Lords referred to it, identity) of the contract from what was ‘agreed’. It would there render it ‘impossible to perform’.

The ‘impossible to perform’ test was mentioned again by the Court of Appeal in the case Great Peace Shipping Limited v Tsavliris Salvage Limited [2002] EWCA Civ 1407. In Great Peace Shipping Limited, Lord Phillips set out the criteria for a mistake to void a contract:

  • There must be a common assumption as to the existence of a state of affairs;
  • There must be no warranty by either party that that state of affairs exists;
  • The non-existent state of affairs must not be attributable to the fault of either party;
  • The non-existence of that assumed state of affairs must render the performance of the contract impossible;

The Court of Appeal found that the tests for common mistake are very similar, if not identical, to the test for whether a contract has become frustrated.

The Doctrine of Mistake in action

An attempt to use common mistake as a defence to a claim can be observed in the recent case of  Triple Seven Msn 27251 Ltd and another v Azman Air Services Ltd [2018] EWHC 1348 Comm).

The Claimant was the owner of two Boeing 777-200 aircraft which were leased to the Defendant (an airline). The claim was for damages resulting from an alleged breach of contract on the part of the Defendant. The Defendant had tried to cancel the lease agreement without paying any money. The Defendant argued that the Claimant was not entitled to damages as the lease agreement was void for common mistake. The Defendant alleged that the lease agreement was entered into by both parties under the mistaken belief that they would be an approved airline to participate in the 2006 Hajj airlift. It was agreed that this was the major purpose of the agreement to lease the aircraft. Unfortunately, at the time of the execution of the lease agreement, approval had been already been withheld by the relevant national authority.

What was concluded?

The court found in favour of the Claimant. It determined that the contract was ultimately not voided by mistake. The reason being that the mistaken facts were not sufficiently central to the lease agreement. As a result, they did not change the identity of the lease agreement and the agreement was not made impossible to perform.

The judge undertook a review of all of the authorities on mistake and he condensed them into what he considered are six general principles:

  • There must have been, at the time of the agreement of the contract, an assumption as to the existence of a state of affairs substantially shared between the parties;
  • The assumption itself must have been fundamental to the contract;
  • That assumption must have been wrong at the time of the agreement of the contract;
  • By reason of the assumption being wrong, the contract or its performance will be essentially and radically different from what the parties believe to be the case at the time of the agreement of the contract. Alternatively, the contract must be impossible to perform having regard to or in accordance with the common assumption. In other words, there must be a fundamental difference between the assumed and actual state of affairs;
  • The parties, or at least the party relying on the common mistake, would not have entered into the contract had the parties been aware that the common assumption was wrong;
  • The contract must have not made provision in the event that the common assumption was mistaken.

Contact Us

Are you in a contractual dispute? If so, our experienced commercial litigation team at Levi Solicitors LLP can assist you. For a free consultation call us on 0800 988 7756 or email info@levisolicitors.co.uk.

Remedy of Mistake