Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (The Great Peace)

A contract is void for common mistake only where a shared assumption, for which neither party has assumed the risk, makes performance of the contractual adventure impossible. The mistake must make the subject matter or performance essentially and radically different from that contemplated. A mistake producing a bad bargain, or a performance still capable of providing the contracted service, does not suffice.

There is no separate equitable jurisdiction to rescind a contract for common mistake where it remains valid and enforceable at common law. Solle v Butcher could not stand with Bell v Lever Brothers Ltd and was not followed.

The appellants chartered the respondents’ vessel, the Great Peace, to escort and stand by the damaged Cape Providence pending the arrival of a salvage tug. Both parties believed the vessels were close together. They were in fact about 410 miles apart.

When another vessel became available, the appellants cancelled. The charterparty provided for a cancellation fee equal to five days’ hire. Toulson J in the Commercial Court rejected the appellants’ defence of common mistake and awarded the contractual sum.

On appeal, the appellants contended that the contract was void at common law or rescindable in equity because the distance made the agreed service fundamentally different. The appeal also raised whether an equitable doctrine of common mistake survived Bell v Lever Brothers Ltd [1932] AC 161.

1. Appeal dismissed. The charterparty remained binding and the appellants were liable for the agreed cancellation fee.

2. Common mistake avoids a contract only where the parties share an assumption about an existing state of affairs, neither warrants its existence or bears the relevant risk, neither is at fault, and its non-existence renders performance of the contractual adventure impossible. Construction of the contract, including its express and implied allocation of risk, is the necessary starting point.

3. The common-law test is stringent. The mistake must make the subject matter or performance essentially and radically different from that contemplated. The doctrine fills a gap where performance is impossible. It does not relieve a party from a bad bargain merely because the known facts would have altered its decision to contract.

4. There was no independent equitable power to rescind a contract for a common mistake which did not make it void at law. Solle v Butcher [1950] 1 KB 671 was irreconcilable with Bell v Lever Brothers Ltd [1932] AC 161 and could not be followed. Equity did not create a wider, undefined category of fundamental common mistake.

5. The incorrect estimate of distance did not make the contracted escort and stand-by service essentially different or impossible. The Great Peace could still arrive in time to provide several days of service. The appellants’ decision to wait while seeking a nearer vessel confirmed that the adventure retained value. They exercised their contractual cancellation right and thereby incurred the stipulated fee.

• Court of Appeal (Civil Division): appeal dismissed; Toulson J’s Commercial Court judgment was affirmed.
• Commercial Court: Toulson J rejected the defence of common mistake and awarded the respondents the sum claimed. The judgment appealed is not otherwise cited.