Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902

• X promised to sell his machines and lease them back from Plaintiff, and Defendant made a guarantee that X would perform his obligations.

• X did not and was fraudulent (the machines did not exist).

• Plaintiff sued Defendant but Steyn J held that the guarantee was void.

Steyn J

• The guarantee was subject to an implied condition that the machines existed. He summarises the law of mistake as the dictum of Lord Atkin in Bell (and said that Lord Thankerton’s approach was really the same).

• Here both parties were under the impression that there would be a lease of machines, which is “essentially different ”to a lease where there are no machines. Therefore common mistake as to the existence of the thing is enough to make the contract of an essentially different nature and therefore void.

• “Logically, before one can turn to the rules as to mistake...one must first determine whether the contract itself, by express or implied condition...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.”

• He rejects the assertion that since the HL rejected the claim in Bell on the facts, the courts will only really allow mistake to operate where it is a mistake as to the existence of the thing. He says this is wrong and that mistake can void a contract where it rendered the contract “essentially and radically different” to the one that the parties believed they were making.  

• Steyn J (NB in obiter): Equity will give relief against common mistake in cases where the common law will not, and it provides more flexible remedies including the power to set aside the contract on terms. 

RELATED CASES

• Bell v Lever Bros