Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] 3 WLR 1617

KEY POINTS

• Making a common mistake, even on a fundamental issue, does not render a contract void, although it does give rise to the possibility of it being voided on the basis of equity.

FACTS

• In September 1999, the "Cape Providence," a distressed ship, sought help in the South Indian Ocean, and the defendants offered their salvage services. They contacted the "Great Peace" to assist but based their decision on incorrect information from Ocean Routes about the ship's location.

• A charter agreement was almost reached between the defendants and Mr. Pierre Lee, representing the "Great Peace," to assist the "Cape Providence." However, the vessels were actually much farther apart than initially believed, causing complications. Captain Lambrides, representing “Cape Providence,” explored other options and eventually contracted with the "Nordfarer" for assistance, leading the defendants to cancel the "Great Peace" charter.

• The claimants are now seeking $82,500 in compensation for the canceled charter, which was supposed to last five days at a daily rate of $16,500.

JUDGEMENT

• There was not a common mistake.

COMMENTARY

• Great Peace v Tsavliris Salvage is a notable case that reaffirms key principles of contract law, including mutual agreement, objective intent, and the importance of clear communication. It serves as a reminder that courts are to scrutinize the circumstances surrounding contract formation to determine the parties' true intentions and enforce contracts accordingly.

ORIGINAL ANALYSIS

• Defendant needed to hire a ship that was near ship X which was in danger and therefore agreed to hire a ship from Plaintiff, which, relying on a TP, both Defendant and Plaintiff considered was near X. In fact it was not.

• Defendant refused to pay claiming the contract was void on the grounds of common mistake.

• CA allowed Plaintiff’s claim for payment. 

Lord Phillips MR

• For a common mistake to void a contract the following five conditions are needed:

(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;

(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.

• The test is narrow, as demonstrated by the examples Lord Atkins gives (see above). He also agrees with Steyn J that the non-existence of the goods leads to an “essentially different” type of contract to the one envisioned.

• Here, the question is whether the vessels were so far apart as to confound the common assumption and render performance impossible. They were not since, before not paying for the ship in question, Defendant looked for closer ships i.e. that this ship would do if there was nothing better. 

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McKendrick: The requirement of impossibility shows how narrow this test is.  

CA held that there was no “equitable jurisdiction to grant rescission for common mistake in circumstances that fell short of those in which the common law held a contract void.” The HL in Bell did not mention a remedy in equity not because of an oversight but because no such remedy could have been applied.

“There is no jurisdiction to grant rescission of a contract on the ground of common mistake where that contract is valid and enforceable on ordinary principles of contract law.”

Solle v Butcher cannot stand given the contradictory authority from Bell. To allow it to stand would be to create uncertainty and incoherence as to what the law actually says. The scope of equity means that a less “fundamental” mistake would needed than would be required in ordinary common law, despite the assertion in Solle that it still has to be fundamental.

How can there be degrees of fundamental”? It is also not the law’s job to dissolve or vary valid contracts since fraud, misrepresentation and undue influence were all doctrines that dealt with areas of unfairness on more certain terms. It was also uncertain how Denning’s test of “fundamental” mistake varied from Lord Atkin’s test (in Bell on an essentially different” contract).

RELATED CASES

• Solle v Butcher

• Bell v Lever Bros