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Mistake And Frustration Notes

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TABLE OF CONTENTS
Part I - Mistake...................................................................................................................................... 5
I - Common Mistake........................................................................................................................... 5
I.I - Common Mistake at Common Law............................................................................................ 5
A - Leading Cases in Modern Law................................................................................................ 5
Bell v Lever Bros [1932] AC 161......................................................................................5
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] 3 WLR 1617.....5
B - Steps in the Inquiry................................................................................................................ 5 1/ Shared mistake.................................................................................................................. 5 2/ Construction...................................................................................................................... 5 a/ Risk allocation to either party......................................................................................... 5
William Sindall v Cambridgeshire CC [1994] 1 WLR 1016, 1034, 1035, 1042..................6
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (HCA).....................6 b/ Condition precedent....................................................................................................... 6
Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902.....................................6
NB Smith, "Contracts - Mistake, Frustration and Implied Terms", (1994) 110 L.Q.R. 400 6 3/ Fault.................................................................................................................................. 6
Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902.....................................6
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (HCA).....................6 4/ "Substance" of the contract/"fundamentality"..................................................................6 a/ Existence of subejct matter............................................................................................ 7
Couturier v Hastie (1856) 5 HLC 672...............................................................................7 b/ Mistake as to the seller's title......................................................................................... 7 c/ Essential quality of subject matter..................................................................................7 d/ Background assumptions............................................................................................... 7
C - Effect of Common Mistake...................................................................................................... 7
I.II - Common Mistake at Equity...................................................................................................... 7
A - Rescission on Terms............................................................................................................... 7
Solle v Butcher [1950] 1 KB 671......................................................................................8
B - Rejection of the jurisdiction.................................................................................................... 8
Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd.....................................8
II - Unilateral Mistake......................................................................................................................... 8
A - Mistake as to Terms............................................................................................................... 8
Hartog v Colin & Shields [1939] 3 All ER 566...................................................................8
Smith v Hughes (1871) LR 6 QB 597...............................................................................8
Scriven v Hindley [1913] 3 KB 564..................................................................................8
Raffles v Wichelhaus (1864) 2 H&C 906..........................................................................8
B/ Mistake as to Identity.............................................................................................................. 9 1/ Objectivity (you can't accept someone else's offer)..........................................................9 2/ Written Contract................................................................................................................ 9
Cundy v Lindsay (1878) 3 App Cas 459...........................................................................9
Shogun Finance Ltd v Hudson [2003] UKHL 62, [2004] 1 AC 919....................................9 3/ Non-existence of the identity assumed.............................................................................9 4/ Face-to-face dealings...................................................................................................... 10
Phillips v Brooks [1919] 2 KB 243..................................................................................10
Ingram v Little [1961] 1 QB 31......................................................................................10
Lewis v Averay [1972] 1 QB 198...................................................................................10
C/ Non est Factum..................................................................................................................... 10 1/ Requirements as to the seriousness of the mistake.....................................................10
Saunders v Anglia Building Soc (sub nom Gallie v Lee) [1971] AC 1004.......................11 2/ Requirements as to the nature of the claimant............................................................11
D/ Unilateral mistake at equity.................................................................................................. 11
III - Rectification............................................................................................................................... 11
Chartbrook Ltd v Persimmon Homes Ltd [2009] UKHL 38.............................................11
Daventry District Council v Daventry & District Housing Ltd [2011] EWCA Civ 1153.....11
Part II - Frustration.............................................................................................................................. 11
I - Frustration and common mistake..........................................................................................12
*Krell v Henry [1903] 2 KB 740......................................................................................12
Griffith v Brymer (1903)................................................................................................12
II - Development of the doctrine................................................................................................ 12
Paradine v Jane (1647) Aleyn 26, 82 ER 897.................................................................12
*Taylor v Caldwell (1863) 3 B & S 826...........................................................................12
Jackson v Union Marine Insurance (1879) LR 10 CP 125................................................12
Page 1
CONTRACT: COMMON MISTAKE AND FRUSTRATION III - Frustrating circumstances................................................................................................... 12
A/ Legal impossibility........................................................................................................... 13
Metropolitan Water Bd v Dick Kerr [1918] AC 119.........................................................13
B/ Physical Impossibility....................................................................................................... 13 1/ Increased difficulty of performance caused by new and unforeseeable event and not within the commercial risks undertaken...........................................................................13
*Davis Contractors v Fareham UDC [1956] AC 696.......................................................13 2/ Parties should be allowed to know where they stand...................................................13 3/ Performance in the new circumstances radically alters the original rights and obligations........................................................................................................................ 14
*The Eugenia [1964] 2 QB 226......................................................................................14
C/ Impossibility of purpose................................................................................................... 14
Krell v Henry [1903] 2 KB 740.......................................................................................14
*Herne Bay Steamboat v Hutton [1903] 2 KB 683.........................................................14
*National Carriers v Panalpina [1981] 1 All ER 161.......................................................14
Amalgamated Investment v John Walker [1976] 3 All ER 509.......................................14
IV - Defences to Frustration....................................................................................................... 15
A/ Express allocation of risk (force majeure and hardship clauses).....................................15
B/ Implied allocation of risk (foresight?)...............................................................................15
The Eugenia.................................................................................................................. 15
C/ Self-induced frustration................................................................................................... 15 1/ Breach.......................................................................................................................... 15 2/ Anticipatory breach...................................................................................................... 15 3/ Power to elect............................................................................................................... 15
Maritime National Fish v Ocean Trawlers [1935] AC 524...............................................15
The Super Servant Two [1990] 1 Lloyd's Rep 1.............................................................15
V - Effect of frustration.............................................................................................................. 15
A/ Before the 1943 Act........................................................................................................ 16 1/ Money........................................................................................................................... 16
Fibrosa v Fairbairn [1943] AC 32...................................................................................16 2/ Non-monetary benefits................................................................................................. 16
Appleby v Myers (1867) 3 B&S 826...............................................................................16
B/ Under the 1943 Act......................................................................................................... 16 1/ Money paid or payable................................................................................................. 16
Gamerco SA v ICM [1995] 1 WLR 1226..........................................................................16
Facts: $775,000 payable by promoters of a concert to the pop group, of which
$412,500 was paid before the venue was declared unsafe and contract frustrated. The group had incurred $50,000 and promoters $450,000 in wasted expenses..................16 2/ Non-monetary benefits................................................................................................. 17
B.P. Exploration v Hunt (No. 2) [1982] 1 All ER 925 (Robert Goff J)...............................17
VI - Effect of Renegotiation........................................................................................................ 17

Page 2
CONTRACT: COMMON MISTAKE AND FRUSTRATION

If the contract party's assumption deviates from the state of things at the time of formation ?
mistake
If the contract party's assumption deviates from the state of things as they turn out to be due to a subsequent and unexpected change of circumstances ? frustration

PART I - MISTAKE
I - COMMON MISTAKE
I.I - COMMON MISTAKE AT COMMON LAW
A - LEADING CASES IN MODERN LAW
Bell v Lever Bros [1932] AC 161
A common mistake does not lead to a void contract unless the mistake is fundamental to identity of the contract.-

Facts: D paid PS50,000 to terminate the employment of two employees as part of his corporate reorganization. Unknown to D, the employees had breached their contracts, entitling D to dismiss them without compensation. D sought the return of the PS50,000 for fraud (failed) or common mistake. The jury found that D would never have paid if they had known the truth, and that the employees were also mistaken because they didn't have the breach in mind.
Held (HL, by 3/2 majority): there is jurisdiction to void a contract for common mistake, but in this case the mistake was not sufficiently fundamental to void the contract.

Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] 3 WLR 1617
Sets out test for common mistake to void the contract.-Facts: T in the business of salvaging ships in difficulty, and when informed of a ship in trouble,
hired a ship C that they thought was close by. However, this ship turned out not to be close by and when T found a closer ship, they terminated the contract with C. C sued for damages but T
argued that the contract was void for mutual mistake.
Held (CoA): Mistake wasn't sufficiently fundamental to void the contract. Delay of 22 hours
(difference between expected and actual distance) wasn't sufficient to make performance
"essentially different from those the parties envisaged".
Phillips MR:
o Conditions for common mistake:
-Common assumption as to existence of a state of affairs
-No warranty by either party that the state of affairs exists
-Non-existence of state of affairs not fault of either party
-Non-existence of state of affairs must make performance impossible
-State of affairs may be the existence or a vital attribute of (i) consideration or (ii)
circumstances that must subsist if performance is to be possible

Thus there is a four-step inquiry:Shared mistake: the mistake must be shared by both parties
Construction: the risk of mistake was not allocated to either party
Fault: the claimant was not at fault (ex. For inducing the other party's mistake)
Fundamentality: mistaken assumption is so serious as to make performance "impossible"

B - STEPS IN THE INQUIRY

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CONTRACT: COMMON MISTAKE AND FRUSTRATION 1/ SHARED MISTAKE
2/ CONSTRUCTION
The contract must not (i) have allocated the risk of mistake to either party or (ii) provided (expressly or impliedly) that the contract's existence is contingent on the existence of an assumed state of affairs.
A/ RISK ALLOCATION TO EITHER PARTY

William Sindall v Cambridgeshire CC [1994] 1 WLR 1016, 1034, 1035, 1042Courts usually find that one party has assumed the risk of ordinary uncertainties at time of contract formation ? that party must perform (or be liable for non-performance)

General principle of caveat emptor ins ale of goods ? risk of mistakes on the fitness of land for particular purposes means that it is allocated to the buyer. But sometimes it will be allocated to the seller:
McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (HCA)-

Facts: C invited tenders for an oil tanker in the Jourmand Reef, D successfully tendered and embarked on an expensive expedition to salvage the tanker, but turned out that both the tanker and Jourmand Reef didn't exist.
HCA held that common mistake (as to the existence of the tanker) didn't apply and C was entitled to damages for breach.
o The only proper construction of the contract was that it included a promise that there was a tanker in the position specified.
o The mistake was deliberately induced by the party seeking to rely on common mistake in the mind of the other party

B/ CONDITION PRECEDENT

If the contract provides (expressly or implicitly) that the parties' obligations are only to arise if an assumed state of affairs is true, so that no obligation arises if this condition precedent is not satisfied:
Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902Facts: A fraudster purported to sell to C machines that did not actually exist. D was sued (as the fraudster's guarantor).
Held (CoA): since the guarantee stipulated that the machines could only be substituted with the bank's consent, this was an express condition precedent that the guarantee was for existing machines (alternatively, the Court would have implied such a condition from the facts)

NB Smith, "Contracts - Mistake, Frustration and Implied Terms", (1994) 110 L.Q.R. 400-

In determining whether a contract exists, there is no room for a distinct doctrine of mistake additional to the principles of formation of contract and implied terms
Types of mistake:
o Unilateral - A intends to deal with B but actually deals with C
o Mutual - A intends to deal with subject X but B intends to deal with subject Y
o Common - parties both make the same mistake
Argues that common mistake rests on the presence or absence of an implied term

If A hires B a theatre and unknown to both parties it is destroyed 5 mins before contract or 5 mins after contract, both should lead to same outcome - if one is governed by an implied term then so too should the other

Page 4
CONTRACT: COMMON MISTAKE AND FRUSTRATION -Take case of non-existent goods (McRae): if A promises B that the goods exist, then it is easy;
otherwise, an implied promise can be imputed to the intentions of the party. The absence of an implied promise must also rest on the intentions.
Conclusion: a contract can be void because a) no offer and acceptance or b) an express or implied condition precedent to the contract is not satisfied. No room for independent doctrine of mistake.

3/ FAULT
Associated Japanese Bank v Credit du Nord [1988] 3 All ER 902Held (Steyn J, approved in Great Peace Shipping): a party cannot rely on common mistake:
o Where the mistake is a belief entertained by him without any reasonable grounds for such belief.
o Where the party contracts with minimal knowledge of the facts to which the mistake relates but is content that it is a good speculative risk

McRae v Commonwealth Disposals Commission (1951) 84 CLR 377 (HCA)The mistake was deliberately induced by the party seeking to rely on common mistake in the mind of the other party

4/ "SUBSTANCE" OF THE CONTRACT/"FUNDAMENTALITY"
The mistake must result in the non-existence of a state of affairs assumed by both parties as going to the foundation ("substance", "essence"...) of the contract (Great Peace Shipping, Lord Phillips,
approving Vaughan Williams LJ in Krell v Henry).
It must relate to 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"
(Great Peace Shipping):Existence of subject matter
Mistakenly acquiring one's own property
Essential quality of the thing contracted for
Essential background assumption

NB these are only illustrations of mistakes that can (but not necessarily will) void the contract for mistake.
A/ EXISTENCE OF SUBEJCT MATTER

Couturier v Hastie (1856) 5 HLC 672Held: Goods that have perished at the time of contracting (unknown to seller) makes for a void contract for total failure of consideration and buyer is not obligated to pay the price, because on a proper construction of the contract it was for the sale of existing cargo and not for cargo whether existing or not. The risk of mistake as to the existence of the corn was allocated to the seller.

S6 Sale of Goods Act 1979 provides that a contract for the sale of specific goods is void if the goods,
without knowledge of the seller, have perished at the time of formation.However, this:
o (i) only applies to goods that once existed and perished ([?]goods that never existed)
o (ii) doesn't seem to make room for a contrary intention by the parties (so seems to automatically void contracts irrespective of construction)

Page 5
CONTRACT: COMMON MISTAKE AND FRUSTRATION B/ MISTAKE AS TO THE SELLER'S TITLE

NB S12 Sale of Goods Act 1979 creates an implied term that the seller warrants their title to the property sold so is liable for breach if this is untrue.
C/ ESSENTIAL QUALITY OF SUBJECT MATTER

There must be a mistake aobut the "existence of some quality which makes the thing without the quality essentially different from the thing as it was believed to be" (Bell v Lever): the mistake must relate to the substance and not quality of the subject matter.
D/ BACKGROUND ASSUMPTIONS

Whenever it is to be "inferred from the terms of the contract or its surrounding circumstances that the consensus has been reached upon the basis of a particular factual assumption, and that assumption is not true, the contract is avoided" (Bell v Lever).

C - EFFECT OF COMMON MISTAKE
Voidness of the contract for all purposes (thus property right will not pass under the contact and innocent third party purchasers are unprotected from actions by the original mistaken transferor to recover the property).
Contrast more flexible:Rescission ? equitable remedies that can protect third party bona fide purchasers
Unilateral mistake ? refusal of specific performance
Rectification
Frustration ? Law Reform (Frustrated Contracts) Act 1943

I.II - COMMON MISTAKE AT EQUITY
A - RESCISSION ON TERMS
Solle v Butcher was authority that an equitable doctrine of common law mistake conferred a wider scope of relief and greater remedial flexibility.
Solle v Butcher [1950] 1 KB 671-

Facts: parties agreed for PS250 yearly rental when they were subject to a PS140 limit under the
Rent Act unless a notice of increase was served, which was not done because of a common mistake as to the status of the property.
Held (Denning LJ): granted the landlord rescission of the lease on the terms that he offered the tenant a new lease for PS250.

B - REJECTION OF THE JURISDICTION
Great Peace Shipping Ltd v Tsavliris Salvage (International) LtdCoA rejected the equitable jurisdiction that would set aside contracts not void at common law,
because:

Parties have since not been inclined to argue it and lower courts haven't resisted the rejection of the jurisdiction, so there is probably no future for the equitable doctrine anymore.

II - UNILATERAL MISTAKE

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CONTRACT: COMMON MISTAKE AND FRUSTRATION

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