Brennan v Bolt Burdon & Ors

A common mistake of law may in principle vitiate a contractual compromise. A state of doubt about the law is distinct from an operative mistake. A party who compromises while aware that the legal position may be reconsidered ordinarily assumes the risk of being wrong.

The finality of settlements is especially important where existing litigation is compromised for consideration. A later judicial decision which retrospectively alters the understanding of the law will not ordinarily reopen such a settlement. The party wishing to preserve that possibility should secure an express term. A compromise remains enforceable where performance is possible, even though subsequent legal developments make it disadvantageous.

The claimant brought proceedings against her landlord and former solicitors concerning personal injuries allegedly caused by carbon monoxide exposure. Her claim form was initially held to have been served out of time. Acting on legal advice, her solicitor then agreed with the landlord that the claim against it would be discontinued, with no order for costs.

A subsequent Court of Appeal decision established that the earlier understanding of the service rules had been wrong. The claimant sought to continue her original claim. Deputy Master Eastman refused the landlord’s application to enforce the compromise, and Morland J dismissed the landlord’s appeal.

The landlord brought a second appeal. The central issue was whether a compromise of existing litigation could be vitiated by a common mistake of law arising from the parties’ understanding of an earlier judicial decision.

1. Appeal allowed. The agreement to discontinue the claim against the landlord remained enforceable. Maurice Kay LJ, Bodey J and Sedley LJ agreed in the result, although Sedley LJ differed on aspects of the analysis.
2. A compromise is a contract and may in principle be vitiated by a common mistake of law. The abolition of the former distinction between mistakes of fact and law in Kleinwort Benson was not confined to restitution and extended into contract. Whether an alleged mistake has a vitiating effect is initially a question of construction.
3. Per Maurice Kay LJ and Bodey J, the evidence disclosed doubt rather than an operative mistake. Counsel had advised that the governing decision was probably wrong and that an appeal had a small prospect of success. A person who contracts while conscious of doubt assumes the risk that the legal view may prove wrong. The claimant could have tested the issue or investigated the pending appeal.
4. The settlement was a give-and-take compromise. The claimant surrendered the opportunity to resist a strike-out application or appeal an adverse decision. The landlord surrendered its potential claim for costs. The courts do not assess the adequacy of contractual consideration.
5. Per Maurice Kay LJ, the compromise remained fully performable. The later clarification of the law merely made performance disadvantageous to the claimant. Under the approach in The Great Peace, that was sufficient to place the agreement beyond the doctrine of common mistake. Sedley LJ doubted whether contractual impossibility could readily be translated to mistakes of law and suggested that the analogous inquiry would be whether any intelligible basis for the agreement would have remained had the parties known the true law.
6. The decisive consideration was the finality of compromises of existing litigation. Such agreements ordinarily allocate to each party the risk that the law may later be declared differently with retrospective effect. A party wishing to preserve a right to reopen the settlement following a future judicial decision should obtain an express term. The claimant had obtained no such reservation.
7. Sedley LJ regarded the solicitors’ shared belief as a genuine and reasonably grounded mistake. He nevertheless concurred because public policy and practicality required the compromise of existing litigation to stand where the parties knew both the current state of the law and that judicial understanding might change.

1. Court of Appeal (Civil Division): Allowed the landlord’s second appeal and held that the compromise remained enforceable: [2004] EWCA Civ 1017.
2. High Court, Queen’s Bench Division: Morland J dismissed the landlord’s appeal on 30 October 2003, holding that the compromise had been vitiated by a common mistake of law.
3. High Court: Deputy Master Eastman refused the landlord’s application to stay or strike out the first action on 11 June 2003 but granted permission to appeal.