Couturier v Hastie

A cargo of corn was shipped by A at Salonica in February 1848, for delivery in

London. On 15 May it was sold by H, a factor, who made the sale on a del credere
commission. The contract described the corn as ‘of average quality when shipped,’
and the sale was made at ‘27s per quarter f.o.b., and including freight and insurance to
a safe port in the United Kingdom, payment at, etc, upon handing shipping
documents.’ In fact the corn had, a short time before the date of the contract, been
sold at Tunis, in consequence of getting so heated in the early part of the voyage as to
render its being brought to England impossible. The contract in England was entered
into in ignorance of this fact. When the English purchaser discovered it, he repudiated
the contract. In an action for the price brought against the factor: Held the contract
contemplated that there was an existing something to be sold and bought and capable
of transfer, which not being the case at the time of the sale by the factor, he was not
liable.

Sale of Goods act Jamaica Section 7

7. Where there is a contract for the sale of specific Goods which have perished. goods,
and the goods without the knowledge of the seller have perished at the time when the
contract is made, the contract is void.

McRae v Commonwealth Disposals Commission

Defendants invited tenders for an oil tanker lying on a particular reef. Plaintiff’s
tender was accepted. The contract was confirmed by a sales advice note, which stated,
inter alia, that no warranty was given as to ‘condition, description, quality or
otherwise’. The plaintiff equipped a salvage expedition, but found that there was no
tanker on the reef: Held defendants had contracted that there was a tanker on that reef.
They could not rely on mistake to escape liability because it was caused by their own
fault. The exemption clause did not apply because it was a condition of the contract
that a tanker should be supplied.

Sheikh v Bros Ochsner

The Indian Contract Act, 1872, provides by section 20: "Where both the parties to an
agreement are under a mistake as to a matter of fact essential to the agreement, the
agreement is void." By section 56: "An agreement to do an act impossible in itself is
void. … [Paragraph 3] Where one person has promised to do something which he
knew, or, with reasonable diligence, might have known, and which the promisee did
not know to be impossible or unlawful, such promisor must make compensation to
such promisee for any loss which such promisee sustains through the non-
performance of the promise."

By a licence agreement dated December 9, 1950, the appellant company granted, inter
alia, to the first respondent licence and authority - later assigned to the second
respondent - to cut, decorticate, process and manufacture all sisal then or at any time
thereafter growing on certain lands, of which the appellant was the lessee, comprising
about 5,000 acres in Kenya. By clause 3 of the agreement the licensee undertook,
inter alia, that he would as from April 1, 1951, manufacture and deliver to the
appellant or its agents for sale sisal fibre in average minimum quantities of 50 tons per
month. The cutting and manufacture of sisal under the licence was carried on by the
licensee until January 31, 1952, when possession of the land was resumed by the
appellant at the request of the second respondent without prejudice to the rights and
remedies of the appellant under the licence agreement.

Disputes between the appellant and the licensee were referred to arbitrators, the
questions raised being, first, whether the agreement was void under section 20 of the
Indian Contract Act by reason of mutual mistake of fact inasmuch as both parties
believed, contrary to the fact, that the leaf potential of the sisal area would be
sufficient to permit the manufacture and delivery of the stipulated minimum quantities
throughout the term of the licence, and, alternatively, whether the agreement was
impossible in itself and void under section 56 of the Act of 1872 inasmuch as the leaf
potential of the sisal area made it impossible to produce the prescribed minimum
quantities.

It was contended for the appellant before the Judicial Committee (1) that the mistake
was not as to a matter of fact essential to the agreement, and (2) that even if the
licence was void under section 20, section 56 was also applicable and that therefore
on the finding of fact by the arbitrators that the appellant did not know, but the
respondents might with reasonable diligence have known, of the impossibility,
compensation was payable under section 56:-

Held, first, that having regard to the nature of the contract, which was a kind of joint
adventure, it was the very basis of the contract that the sisal area should be capable of
producing an average of 50 tons a month throughout the term of the licence, and the
mistake was as to a matter of fact essential to the agreement.

Associated Japanese Bank (International) Ltd v Credit du Nord

Under a sale and leaseback transaction the plaintiff bank purchased four specified
precision engineering machines from B and then leased them back to him. B received
£1,021,000 from the plaintiff bank under the transaction. As a condition of the
transaction, B's obligations under the leaseback agreement were guaranteed by the
defendant bank. At all times both banks believed that the four machines existed and
were in B's possession. After B failed to keep up payments under the lease it was
discovered that the machines did not in fact exist and that the transaction was a fraud
perpetrated by B. The plaintiff claimed the outstanding balance due under the lease
from B but he went bankrupt and the plaintiff then sued the defendant on the
guarantee. The defendant refused to pay, contending, inter alia, that the guarantee was
subject to an express or implied condition precedent that the machines in fact existed
and therefore the guarantee was void ab initio for common mistake.

Held – On its true construction the guarantee was subject to an express condition
precedent that there was a lease in respect of four existing machines. Alternatively, it
was reasonable to conclude that the guarantee contained an implied condition
precedent that the lease related to existing machines. It followed, therefore, that since
the machines did not exist the plaintiff bank's claim failed and would be dismissed
(see p 908 f to h and p 909 b c, post).
Bell and Lever Brothers

Contrast with japanese bank

The L. Company, who held more than 99 per cent. of the share capital of the N.
Company, agreed with one B. that he should be in the service of the L. Company for a
term of years during which he should act as chairman of the board of directors of the
N. Company at a salary of 8000l. a year. They made a similar agreement with one S.
that he should be vice-chairman of the board at a salary of 6000l. a year. While acting
as chairman and vice-chairman respectively, B. and S. entered on their own account
into secret speculations in cocoa, a commodity in which the N. Company dealt, of
such a character as, on the finding of the jury in answer to a specific question, would
have justified the L. Company in terminating their agreements of service and the N.
Company in dismissing them from their offices of chairman and vice-chairman.
Subsequently the N. Company became amalgamated with another company, and it
became necessary to cancel the appointments of B. and S. as chairman and vice-
chairman. Being unaware of the aforesaid breaches of duty by B. and S., the L.
Company agreed to pay to B. 30,000l. and to S. 20,000l. as compensation for
terminating their services; B. and S. agreed to accept these sums, and they were duly
paid. The jury, in answer to a further specific question, found that the L. Company if
they had been aware of the breaches of duty by B. and S. would have terminated their
agreements, and B. and S. would have been dismissed from their offices without any
compensation. The action in which the jury so found was brought in the first instance
by the L. Company alone, the N. Company being joined in the course of the
proceedings as co-plaintiffs, against B. and S., claiming rescission of the
compensation agreements and repayment of the sums paid thereunder on the ground
of fraudulent misrepresentation and alternatively, as the House construed the points of
claim, on the ground of unilateral mistake induced by fraud, but not on any ground of
mutual mistake innocently made by the defendants so far as they were concerned.
There was a specific alternative claim that the agreements of settlement and the
payments under them were made under a mistake of fact. The jury negatived the
charges of fraud, and found that at the time of negotiating the compensation
agreements B. and S. had not in mind their breaches of duty. Wright J., being of
opinion on the construction of the points of claim that an issue based upon an
allegation of mutual mistake was thereby raised, and the Court of Appeal, being of
opinion that if that issue were not raised the pleadings should be treated as amended
in order to raise it, held that the compensation agreements were void, having been
made under a common mistake as to the legal relation between the parties, each party
believing, contrary to the truth, that the one was entitled to claim and the other was
bound to pay compensation.

The Court of Appeal held further, although such a case had not been raised before
Wright J., that each of the defendants owed a duty to the plaintiffs to disclose their
breaches of duty, and that their non-disclosure invalidated the compensation
agreements.

The defendants appealed:-

Held, first, by Lord Blanesburgh, with special reference to the course of the trial and
the circumstances of the case, that any amendment of their pleadings to enable the
plaintiffs to raise a case of mutual mistake implying good faith on the part of the
defendants could not without injustice to them be allowed after an action based
exclusively on fraud had failed, and that accordingly the issue was not open to the
plaintiffs in this House. But on the footing that the points of claim were amended so
as to raise the issue.

Held, by Lord Blanesburgh, Lord Atkin and Lord Thankerton (Viscount Hailsham
and Lord Warrington of Clyffe dissenting), that the action failed: as to mutual
mistake, on the ground that the mutual mistake related not to the subject-matter, but to
the quality of the service contracts; as to unilateral mistake, on the ground that the
defendants under their contracts of service with the L. Company owed no duty to
them to disclose the impugned transactions.

Great Peace Shipping v Tsavliris Salvage Ltd

In September 1999, the vessel 'Cape Providence' was en route from Brazil to China
when she suffered serious structural damage in the South Indian Ocean. The
defendant salvors, T Ltd, learned that the vessel was in difficulties and offered their
salvage services, which were accepted. To find a tug they approached a firm of
London brokers, Marint, where they dealt with two individuals, L and H. L identified
a suitable tug but it would have taken five or six days to reach the Cape Province. The
Cape Province's owners therefore asked L to try to find a merchant vessel in the same
vicinity to assist, if required, with the evacuation of the crew. L was informed by an
independent organisation, OR, that the claimant's vessel 'Great Peace' was the nearest
to the Cape Providence and should be close to a rendezvous position within about 12
hours. L was, however, given an erroneous position by OR for the Great Peace,
although he did not realise it at the time. He contacted the Great Peace's manager in
Hong Kong, and after a late night discussion sent a fax requesting the assistance of the
Great Peace. The fax stated, inter alia, '… We understand from [OR] that your vessel
'Great Peace' is in close proximity to the casualty …'. Shortly after an offer was made
by the claimants for the chartering of the Great Peace, on the Bimco Towhire form
(although it was not envisaged that the Great Peace would tow the Cape Providence),
for a minimum of five days. The offer was not accepted immediately, but was
subsequently accepted in a telephone conversation between H and a representative of
the claimants. H did not at any stage in that conversation say that the agreement was
subject to any outstanding matters, nor did he make any further enquiry during the
conversation about the precise position of the Great Peace. Afterwards H sent a fax
asking the claimants to instruct the master of the Great Peace to contact the master of
the Cape Providence and alter course to rendezvous with the vessel as soon as
possible. A later, 'recap' fax was also sent, which reiterated the matters discussed and
stated 'Bimco Towhire agreement to apply subject to details'. It also requested
information about the Great Peace's speed, course and ETA. If the information from
OR had been accurate, the vessels would have been only about 35 miles apart when
the contract was concluded, but in fact the vessels were several hundred miles apart.
H made a number of unsuccessful inquiries, about which he reported to T Ltd,
recommending that the Great Peace should continue her voyage towards the Cape
Providence. At about the same time, the Cape Providence was passed by another
vessel owned by the same charterers. T Ltd thereafter purported to cancel the contract
for the Great Peace, and refused to pay any hire. The claimants issued proceedings,
claiming five days loss of hire. T Ltd argued, inter alia, (i) that any purported
agreement between the parties was void in law for fundamental mistake, in that both
parties proceeded on the erroneous assumption that the 'Great Peace' was 'in close
proximity' to the Cape Providence when she was not; and further or alternatively, (ii)
any agreement was voidable by reason of mistake, and T Ltd were entitled to relief in
equity by way of rescission. It was assumed for the purposes of (ii) that neither party
was to blame in taking what was reported by OR at face value.

The court ruled:

(1) The effect of a mutual mistake, in cases where a consensus had been reached,
depended on the proper analysis of the contract and the rights and obligations thereby
created; but that analysis would necessarily be made against the background of the
law generally applicable to contracts of the kind under consideration, whether it be a
contract of sale of goods, a contract of insurance, or a contract of some other kind. In
the instant case, the hire of the Great Peace was for a particular purpose, namely to
provide escort and standby services for the saving of life at sea until the tug's arrival,
which was estimated to require five days. There was a necessary implication that the
Great Peace was capable of providing the services specified – had it been five days'
sailing away from the Cape Providence, there would have been a failure of that
implied condition precedent. It could not be said, however, on the facts that the Great
Peace was so far away from the Cape Providence at the time of the contract as to
defeat the contractual purpose. There had been no representation by the claimants as
to the position of the Great Peace, and if T Ltd had wished for such a contractual
stipulation by the claimants, they could have asked for one; Bell v Lever Brothers
Ltd [1931] All ER 1 applied; Smith v Hughes (1871) 6 LR 6 QB 597 considered..

(2) There was no right to rescind in equity on grounds of common mistake a contract
which was valid and enforceable on ordinary principles of contract law. It was no part
of the role of the court to dissolve or vary contracts thought to be harsh on the basis of
equitable principles. The court's role was to prevent the defendant from insisting on
his strict legal rights when, owing to his behaviour, it would be unconscionable or
inequitable to allow him to do so. In the instant case, if that were wrong and there was
a broad discretion in equity to set aside for common mistake a contract which was
valid on ordinary principles of contract law, the discretion would not be exercised in
T Ltd's favour in any event. The fixing of charterparties was done mainly by
professionals and it was an area in which certainty was important. For the court to set
aside the present charter party because the information supplied to T Ltd by OR
turned out to be incorrect would be tantamount to making the correctness of that
information a condition precedent of the agreement, and there was no justification for
doing so.

Graves v Graves

The parties were married in 1992. The husband treated the wife’s son as a child of the
family, and subsequently a child of the marriage was born. The parties divorced in
1997, and in 1998 a clean break order and a maintenance order in respect of the
children were made. In 2002 the husband fell behind with the maintenance payments.
In 2003, the husband transferred to the wife, for £8,500, his half-share in a house
which the parties jointly owned. Under the agreement the wife waived the claim for
the children’s future maintenance. The agreement was not referred to the court, and
the 1998 order was not varied. As the wife was unable to maintain mortgage
payments on that house, having little income, she sold it. The wife asked if she and
the children could rent another house owned by the husband. He agreed, on the
understanding that 90% of the rent would be paid by way of housing benefit paid to
the wife. She had been told by the local authority that she was entitled to such benefit.
The husband granted the wife an assured shorthold tenancy, and she paid him £12,000
by way of deposit and £1,150 as the first month’s rent. However, the authority refused
to pay housing benefit. The wife had paid over nearly all of her capital to the husband
as the deposit, and did not have the funds to pay the next month’s rent. She offered to
leave the house if the husband paid her back £6,250. He refused, saying that he would
keep the £12,000 for rent and, when the money ran out, he would start eviction
proceedings. In February 2006, the husband commenced possession proceedings. In
her defence, the wife included a claim that the husband had failed to pay maintenance
for a considerable time. The trial of the possession action came on in September 2006,
and the judge handed down judgment in October. He decided, inter alia, that the
tenancy agreement was void for mistake or, alternatively, had been frustrated; that the
husband was entitled to possession; that the husband should pay the wife £8,050; and
that the 1998 maintenance order should be set aside and that monthly payments
should be made for the younger child. The husband appealed.
Held – The appeal would be allowed.
(1) Although the principles of frustration and mistake rested on wider principles of
law, it was necessary to decide first whether the agreement made included an implied
condition that the contract was to end if housing benefit was not payable, on the
assumption that a condition to that effect could only be implied if the new state of
facts was such that performance of the agreement was impossible or the agreement
something different in kind from the agreement in the original state of facts.
In the instant, the agreement was to provide accommodation to the wife through a
shorthold tenancy under which 90% of the rent would be paid for by the local
authority. It was plainly not impossible for the wife to perform the shorthold tenancy
agreement by paying rent. Inability to perform a contract because of impecuniosity
did not make performance impossible. However, in the particular circumstances of the
case, the agreement made was one made on the basis that 90% of the rent was to be
paid through housing benefit. When it was clear that that basis for the agreement was
one that did not in fact exist, the agreement was different in kind to that originally
contemplated. The source of financing the payment of the rent was not in fact
available. Without that source of finance, it was not a case where the wife simply
could not pay, but the husband was subject to the risk that the wife would use her
possession of the house as an indirect means of obtaining maintenance from him. A
condition should therefore be implied into the agreement on the basis of the strict
approach to the implication of terms, namely an implied condition that if housing
benefit was not payable, the tenancy would come to an end. Such a condition was, on
the evidence, obviously a term of the agreement which the parties had both plainly
intended to form part of their contract.
When, therefore, the local authority stated that housing benefit would not be paid, the
tenancy terminated. Although the judge did not decide the case on that basis, he could
and should have done so. It was not therefore necessary to consider whether the
contract was frustrated or void for mistake.
(2) The sum due to the husband was £6,388.50, being £13,163.50, less the balance of
£6,775 from the deposit.
(3) It was neither right nor fair for the judge to have embarked on the issues relating
to maintenance at the possession hearing. It was clear that nothing in the pre-trial
proceedings had occurred which could have led either party to contemplate that
maintenance would be dealt with at that hearing. Accordingly his order varying the
1998 order and ordering maintenance for the younger child would be set aside.

Kyle bay v Underwriters Subscribing

The claimant operated a nightclub. In September 2001, its broker approached the
defendant insurers' agent with a request for cover on a non-average declaration-linked
basis. In November 2001, there was an arson attack on neighbouring premises, which
resulted in the club being completely gutted and unable to trade for over a year.
Disputes arose as to the cover under the insurance policy provided by the defendants,
concerning, inter alia, business interruption. The claimant's loss assessor reported that
it had received an offer of settlement that it should accept, because the underwriters
were adamant that the loss of profit was not insured on a declaration linked basis and
that the insurers would only pay out on terms that included the application of average.
That advice was accepted and the claim for business interruption was settled for
£205,511.78. Subsequently the claimant investigated and, having inspected the
brokers file and the full policy, concluded that the policy was in fact a declaration
linked policy and that average ought not to have been applied. After the claim for
physical damage to the buildings had been resolved, the claimant issued proceedings
seeking to re-open the compromise. It contended, inter alia, that the settlement
agreement was void for mistake, the mistake being as to the terms of the policy. It
further contended that it was entitled to rescind the contract for misrepresentation,
namely statements (i) that the policy was not declaration linked, (ii) that the sum
insured was subject to average, and (iii) any payment would be proportionately
reduced. The judge held there was no doubt that there had been a mistake in the
negotiation of the policy. He further held, however, that it was a unilateral mistake
and the policy was not voided as a result. Further, the alleged misrepresentations did
not concern the contents of the policy, which the claimant's loss adjuster could be
assumed to know, but the defendants' understanding of the overall effect of the policy,
namely that it was not declaration linked and that average applied. In any event, it was
not suggested that the defendants had been acting other than in good faith, so there
had been no misrepresentation. The claimant appealed.

The appeal would be dismissed.

(1) In the instant case, the mistake did not render what the parties believed to be the
subject matter of the settlement agreement essentially and radically different from
what it actually was. The parties had correctly believed they were settling a business
interruption claim resulting from a fire at certain premises at which the claimant ran a
night club; they had made no mistake as to the period of interruption or the estimated
level of gross profit, or indeed any other relevant mistake save that they had assumed
that it was on the gross profits basis rather than declaration-linked. The difference was
significant, but not an essential and radical difference.

(2) The relevant statements, viewed objectively, were contentions and not
representations. Further, they had been subjectively understood by the person to
whom they were made as contentions and not representations.
Triple Seven v Azman Air Services Ltd

The elements of a common mistake which have the effect of rendering the contract
based on that common mistake void are: (1) there was, at the time of the conclusion of
the contract, an assumption as to the existence of a state of affairs substantially shared
between the parties: (2) the assumption itself is fundamental to the contract; (3) that
assumption was wrong at the time of the conclusion of the contract; (4) by reason of
the assumption being wrong, the contract or its performance is essentially and
radically different from what the parties believed to be the case at the time of the
conclusion of the contract; alternatively, the contract is impossible to perform having
regard to or in accordance with the common assumption, that is there has to be a
fundamental difference between the assumed and actual states of affairs; (5) it is
established that the parties, or at least the party relying on the common mistake,
would not have entered into the contract had the parties been aware that the common
assumption was wrong; and (6) the contract does not make provision in the event that
the common assumption is mistaken. In relation to the inducing effect of the
commonly shared assumption upon the parties, it is necessary, but not of itself
sufficient, for the application of the doctrine if either or both of the parties would not
have entered into the contract had they known of the true state of affairs.

Where, therefore, the claimant owners sought damages from the defendant lessee
under aircraft lease agreements entered into for a five-year period from 2016 and
whose purpose was, inter alia, to transport passengers from West Africa to Saudi
Arabia for the Hajj pilgrimage, and the defendant claimed that the lease agreements
were void for common mistake as the Saudi authorities had in fact, prior to the lease
agreements being signed and unknown to the parties, excluded the defendant from
participation in the 2016 Hajj airlift—

Held, allowing the claim, that although the parties had entered into the lease
agreements on the assumptions, inter alia, that the defendant expected the Saudi
authorities to grant approval but that they had not yet done so, and those assumptions
were in fact wrong at the time of the conclusion of the agreements, given that the
2016 Hajj airlift represented only a relatively short period of the entire five-year lease
term and there was no indication that the authorities would withhold permission for
future years and given further that feasibility studies showed that the venture could be
profitable for the defendant even without the 2016 Hajj airlift, those mistaken
assumptions were not sufficiently fundamental to the lease agreements and did not
render them essentially and radically different from what the parties understood, or
impossible to perform, even though neither party was likely to have entered into the
lease agreements had they been aware that the Saudi authorities had withheld their
approval for the defendant to participate in the 2016 Hajj airlift; that, further, the lease
agreements allocated the risk of not obtaining the approval of the Saudi authorities to
be borne by the defendant; and that, accordingly, the lease agreements were not void
for common mistake, and the claimants were entitled to recover damages for the
defendant’s breaches of the lease agreements in accordance with their terms.

Mistake in equity?

The notion of an equitable doctrine of mistake took root in Solle v Butcher [1949] 2
All E R 1007. BUT the concept of mistake in equity is now dubious having regard to
the judgment in Great Peace Shipping (supra) which has discredited the doctrine. Is
there a separate and distinct test which gives rise to an equitable jurisdiction to
rescind contracts which are not void at law?

Solle v Butcher

In 1947 the landlord acquired a long lease of a war-damaged house which in 1939 had
been let in flats subject to the Rent Restrictions Acts. Thelandlord carried out repairs
and alterations to the house, in the course of which he re-constructed the flat the
subject of the present proceedings. The alterations left the outside and cubic capacity
of the house and of the flat in question unchanged, the only substantial change made
to the flat being the removal of inner walls so as to subtract from a bedroom a space
which was then incorporated into the dining-room. During the course of the work the
parties discussed whether the flat when rebuilt would be subject to the standard rent
fixed by the 1939 letting, and they came to the conclusion that it would not, the tenant
expressing that opinion. The standard rent of the flat in 1939 was £140 a year, and if
the reconstructed flat were the same dwelling it would have been possible to increase
the rent in respect of expenditure on improvements, in accordance with s 2(1) of the
Increase of Rent and Mortgage Interest (Restrictions) Act, 1920, as amended by the
Rent and Mortgage Interest Restrictions Act, 1939, sched I, to approximately £250, by
serving the necessary notices of increase. On 29 September 1947, on completion of
the work, the landlord let the flat, including a garage which had not formed part of the
1939 demise, to the tenant on a lease for seven years at a rent of £250 a year, but,
being under the impression that the rent fixed by the 1939 letting had no application
to the re-constructed flat, he served no notice of increase. The tenant paid rent at £250
a year for some time and then took proceedings in the county court for a declaration
that the standard rent of the flat was £140 a year and that he was entitled to recover
from the landlord the amount overpaid since the commencement of the tenancy. The
landlord contended that the alterations were such that the flat had become a new and
separate dwelling by reason of change of identity, but the county court judge found as
a fact that the flat was not a new and separate dwelling. The landlord further
contended that the lease should be rescinded as it had been entered into under a
mutual mistake of fact.

Held – (i) the structural alterations and improvements were not such as to destroy the
identity of the flat as let in 1939, and the inclusion of the garage had no material effect
on its identity.

(ii) (Jenkins LJ dissentiente) on the evidence, the parties had addressed their minds to
the material issue of identity of the new flat, and their mistake or common
misapprehension as to whether the flat had been so altered as to destroy its identity
was a mistake of fact, and the landlord was entitled to have the lease set aside in
equity on such terms as the court thought fit.

Some limited application of the notion whereby the court will grant equitable
remedies, eg. rectification, on the basis of mistake in certain circumstances:
Swainland Builders Limited v Freehold Properties Limited [2002] EWCA Civ 560.

Swainland Builders Ltd v Freehold Properties Ltd

Until December 1999, the claimant vendor was the freehold owner of a block of 39
flats. It had granted 99-year leases at ground rents of all the flats except nos 11 and
18. It intended to sell the block subject to the retention of flats 11 and 18, which it
initially proposed to let on shorthold tenancies, but with a view to granting long leases
at premiums in the future. In October 1998, the defendant purchaser agreed to
purchase the block for £60,000. It correctly understood that the aggregate ground
rents were £4,875, on the assumption that all 39 flats were let on the same long
leasehold terms. By September 1999, the vendor's solicitor had confirmed, by letter to
the purchaser's solicitor, that the vendor was not intending to sell flats 11 and 18, and
"in the interim [the vendor is] to be treated as any other tenant of the block".

Long leases of the two flats were never granted and the transfer of the freehold by the
vendor failed to reserve any rights to the two flats for the benefit of the vendor. On
becoming aware of that ommission, the vendor issued proceedings, claiming that
there had been a mistake, which was common to the parties and contrary to their
common intention. At trial, the judge concluded that the intention of the parties
seemed quite clear from the evidence. He ordered rectification of the transfer so as to
provide for the grant to the vendor of leases in respect of the two flats. The purchaser
appealed.

Held: The appeal was dismissed.

The transfer did not give effect to the clear, common, continuing intention of the
parties. Although the vendor had pleaded inconsistent ways in which the pleaded
common intention could be effected, it had not pleaded inconsistent common
intentions. Although there had never been any common intention that the transfer
should contain specific provisions for the grant of long leases back to the vendor, that
did not prevent rectification in a manner appropriate to give effect to the common
intention. The transfer might have been in the form intended by the purchaser, but the
equitable remedy enabled the court to change that form to give effect to the true
intention of the parties. The provisions of Part I of the Landlord and Tenant Act 1987,
which require a vendor to give notice of the principal terms of a proposed disposal,
did not apply to the circumstances that arose in the present case.

MUTUAL MISTAKE – both parties are at cross-purposes – thinking different things.

Thus consent is negatived and, technically, no contract comes into existence.

Raffles v Wichelaus

it was agreed between the plaintiff and the defendants, to wit, at Liverpool, that the
plaintiff should sell to the defendants, and the defendants buy of the plaintiff, certain
goods, to wit, 125 bales of Surat cotton, guaranteed middling fair merchant's
Dhollorah, to arrive ex " Peerless " from Bombay ; and that the cotton should be taken
from the quay, and that the defendants would pay the plaintiff for the same at a certain
rate, to wit, at the rate of 17Jd. per pound, within a certain time then agreed upon after
the arrival of the said goods in England. Averments: that the said goods did arrive by
the said ship from Bombay in England, to wit, at Liverpool, and the plaintiff w^s then
and there ready, and willing and offered to deliver the said goods to the defendants,
&c. Breach : that the defendants refused to accept the said goods or pay the plaintiff
for them. Plea. That the said ship mentioned in the said agreement was meant and
intended by the defendants to be the ship called the " Peerless," which sailed from
Bombay, to wit, in October; and that the plaintiff was not ready and willing and did
not offer to deliver to the defendants any bales of cotton which arrived by the last
mentioned ship, but instead thereof was only ready and willing and offered to deliver
to the defendants 125 bales of Surat cotton which arrived by another and different
ship, which was also called the " Peerless," and which sailed from Bombay, to wit, in
December.

Milward, in support of the demurrer. The contract was for the sale of a number of
bales of cotton of a particular description, which the plaintiff was ready to deliver. It
is immaterial by what ship the cotton was to arrive, so that it was a ship called the "
Peerless." The words " to arrive ex ' Peerless,'" only mean that if the vessel is lost on
the voyage, the contract is to be at an end. [Pollock, C. B. It would be a question for
the jury whether both parties meant the same ship called the "Peerless."] That would
be so. if the contract was for the sale of a ship called the "Peerless"; but it is for the
sale of cotton on board a ship of that name. [Pollock, C. B. The defendant only bought
that cotton which was to arrive by a particular ship. It may as well be said, that if there
is a contract for the purchase of certain goods in warehouse A., that is satisfied by the
delivery of goods of the same description in warehouse B.] In that case there would be
goods in both warehouses; here it does not appear that the plaintiff had any goods on
board the other " Peerless." [Martin, B. It is imposing on the defendant a contract
different from that which he entered into. Pollock, C. B. It is like a contract for the
purchase of wine coming from a particular estate in France or Spain, where there are
two estates of that name.] The defendant has no right to contradict by parol evidence a
written contract good upon the face of it. He does not impute misrepresentation or
fraud, but only says that he fancied the ship was a different one. Intention is of no
avail, unless stated at the time of the contract. [Pollock, C. B. One vessel sailed in
October and the other in December.] The time of sailing is no part of the contract.
Mellish (Cohen with him), in support of the plea. There is nothing on the face of the
contract to shew that any particular ship called the " Peerless" was meant; but the
[908] moment it appears that two ships called the " Peerless " were about to sail from
Bombay there is a latent ambiguity, and parol evidence may be given for the purpose
of shewing that the defendant meant one "Peerless," and the plaintiff another. That
being so, there was no consenus ad idem, and therefore no binding contract. He was
then stopped by the Court. Per Curiam.(a) There must be judgment for the defendants.
Judgment for the defendants.

Scriven Bros v Hindley

The plaintiffs instructed an auctioneer to sell by auction a number of bales of hemp

and of tow. The goods were described in the auctioneer's catalogue as so many bales
in different lots with the same shipping marks and without disclosing the difference in
the commodities. Before the sale samples of the hemp and tow were on view in a
showroom on the floor of which the catalogue numbers of the lots of hemp and tow
were marked in chalk opposite the respective samples, and the defendants' manager
examined the hemp but not the tow, as he was not intending to bid for tow. When the
lots representing the tow were put up for sale in the auction room the defendants'
buyer made a bid which was an extravagant price for tow, and the lots were at once
knocked down to him.
In an action against the defendants for the price of the tow the jury found that the
auctioneer intended to sell tow; that the defendants' buyer intended to bid for hemp;
that the auctioneer believed that the bid was made under a mistake, but that he had
reasonable grounds for believing that the mistake was merely as to value; that the
form of the catalogue and the negligence of the defendants' manager in not more
closely examining the samples at the show-room and identifying them with the lots in
the catalogue contributed to cause the mistake:-

Held, on these findings, that the parties were never ad idem as to the subject-matter of
the proposed sale, and that there was, therefore, no contract of sale.

Held, also, that the finding of the jury as to the negligence of the defendants' manager
ought to be disregarded, as he owed no duty to the plaintiffs to examine the samples
of tow.

Smith v Hughes
The rule of law is that stated in Freeman v Cooke (1848) 2 Exch 654. If, whatever a
man's real intention may be, he so conducts himself that a reasonable man would
believe that he was assenting to the terms proposed by the other party, and that other
party upon that belief enters into the contract with him, the man thus conducting
himself would be equally bound as if he had intended to agree to the other party's
terms (Blackburn, J).

If, whatever a man’s real intention may be, he so conducts himself that a reasonable
man would believe that he was assenting to the terms proposed by the other party and
that other party upon that belief enters into the contract with him, the man thus
conducting himself would be equally bound as if he had intended to agree to the other
party’s terms (Blackburn J).

Plaintiff offered to sell to defendant oats, and exhibited a sample, defendant took the
sample, and on the following day wrote to say that he would take the oats for the price
of 34s per quarter. Defendant afterwards refused to accept the oats, on the ground that
they were new, and he thought he was buying old oats; nothing, however, was said at
the time the sample was shown as to their being old, but the price was very high for
new oats. The judge left to the jury the question whether plaintiff had believed
defendant to believe, or to be under the impression that he was contracting for old
oats, and if they were of opinion that plaintiff had so believed, he directed them to
find for defendant. The jury having found for defendant: Held there must be a new
trial (1) (Cockburn CJ) on the ground that the passive acquiescence of the seller in the
self-deception of the buyer did not entitle the latter to avoid the contract; (2)
(Blackburn J) on the ground that there is no legal obligation in a vendor to inform a
purchaser that the latter is under a mistake not induced by the act of the vendor; and
that the direction did not bring to the minds of the jury the distinction between
agreeing to take the oats under the belief that they were old, and agreeing to take the
oats under the belief that plaintiff contracted that they were old; (3) (Hannen J), on the
ground that the direction did not sufficiently explain to the jury, that in order to
relieve defendant from liability, it was necessary that they should find, not merely that
plaintiff believed defendant to believe that he was buying old oats, but that plaintiff
believed defendant to believe that he, plaintiff, was contracting to sell old oats.
If therefore in the present case plaintiff knew that defendant, in dealing with him for
oats did so on the assumption that plaintiff was contracting to sell him old oats, he
was aware that defendant apprehended the contract in a different sense to that in
which he meant it, and he is thereby deprived of the right to insist that defendant shall
be bound by that which was only the apparent and not the real bargain (Hannen J).

I take the true rule to be that where a specific article is offered for sale, without
express warranty, or without circumstances from which the law will imply a
warranty-as where, for instance, an article is ordered for a specific purpose-and the
buyer has full opportunity of inspecting and forming his own judgment, if he chooses
to act on his own judgment, the rule caveat emptor applies (Cockburn CJ).

UNILATERAL MISTAKE – one party is mistaken and usually the other party is
aware of this. a) Identity cases Many cases involving unilateral mistake have arisen in
respect of personal identity. Many of them also raise the issue of misrepresentation.
Note, however, that the legal effect of mistake is different from the legal effect of
misrepresentation.

Cundy v Lindsay
The purchaser of a chattel takes it, as a general rule, subject to what may turn out to
be informalities in the title.

By a purchase in market overt the title obtained is good against all the world.

If not so purchased, though purchased bonâ fide, the title obtained may not be good
against the real owner.

Where the original owner has parted with the chattel to A. upon a de facto contract,
though there may be circumstances which enable that owner to set aside that contract,
the bonâ fide purchaser from A. will obtain an indefeasible title.

The question, therefore, in many such cases will be, was there a contract between the
original owner and the intermediate person.

L. was a manufacturer in Ireland; Alfred Blenkarn, who occupied a room in a house

looking into Wood Street, Cheapside, wrote to L., proposing a considerable purchase
of L.'s goods, and in his letter used this address - "37, Wood Street, Cheapside," and
signed the letters (without any initial for a christian name) with a name so written that
it appeared to be "Blenkiron & Co." There was a respectable firm of that name, "W.
Blenkiron & Co," carrying on business at 123, Wood Street. L. sent letters, and
afterwards supplied goods, the letters, the goods, and the invoices accompanying the
goods, being all addressed to "Messrs. Blenkiron & Co., 37, Wood Street." The goods
were received by Blenkarn at that place, and disposed of to the Defendants, who were
entirely ignorant of the fraud:-

Held, that no contract was made with Blenkarn, that even a temporary property in the
goods never passed to him, so that he never had a possessory title which he could
transfer to the Defendants, who were consequently liable to the Plaintiffs for the value
of the goods.
Phillips v Brooks

The plaintiff, who was a jeweller, sued the defendants, who were pawnbrokers, for the
return of a ring or, alternatively, its value, and damages for its detention.

On April 15, 1918, a man entered the plaintiff's shop and asked to see some pearls and
some rings. He selected pearls at the price of 2550l. and a ring at the price of 450l. He
produced a cheque book and wrote out a cheque for 3000l. In signing it, he said: "You
see who I am, I am Sir George Bullough," and he gave an address in St. James's
Square. The plaintiff knew that there was such a person as Sir George Bullough, and
finding on reference to a directory that Sir George lived at the address mentioned, he
said, "Would you like to take the articles with you?" to which the man replied: "You
had better have the cheque cleared first, but I should like to take the ring as it is my
wife's birthday to-morrow," whereupon the plaintiff let him have the ring. The cheque
was dishonoured, the person who gave it being in fact a fraudulent person named
North who was subsequently convicted of obtaining the ring by false pretences. In the
meantime, namely on April 16, 1918, North, in the name of Firth, had pledged the
ring with the defendants who, bona fide and without notice, advanced 350l. upon it.

In his evidence the plaintiff said that when he handed over the ring he thought he was
contracting with Sir George Bullough, and that if he had known who the man really
was he would not have let him have it. In re-examination he said that he had no
intention of making a contract with any other person than Sir George Bullough.

Ingram v Little

Where, in negotiations for a contract conducted orally inter praesentes, apparent

agreement is reached but there is deception as to the identity of a proposed party, the
test by which to determine whether there is a contract despite the deception is to
answer a question of fact, viz whether, contrary to the primâ facie presumption that an
offer is made to the person to whom it is addressed, the offeror is not contracting with
the physical person to whom he utters the offer but with another individual whom he
believes the person physically present to be. In answer to an advertisement of a car
being for sale, a swindler called on two sisters, joint owners with a third person of the
car, and agreed with one of the sisters E, who negotiated for the owners, to purchase
the car for £717. On her categorically refusing to accept a cheque in payment, he tried
to convince her that he was a reputable person and said that he was a Mr PGM
Hutchinson and lived at Stanstead House, Stanstead Road, Caterham. While the
discussion was going on, the other sister went to the local post office near by and
returned to say that she had checked the name and address in the telephone directory.
E thereupon decided to accept the cheque, on which the swindler wrote the name and
address of Hutchinson, and the owners parted with the car to him. The cheque was
dishonoured and the man, who was not Mr PGM Hutchinson, disappeared. In an
action by the owners to recover the car or its value from a purchaser to whom the
swindler had sold it within a few days of obtaining it, and who had bought it in good
faith, the court found that E had intended to part with the property in the car to the
swindler in the belief that he was the PGM Hutchinson named in the telephone
directory, but that otherwise the sisters would not have accepted the cheque or parted
with the car. On appeal: Held the offer to sell on payment by cheque was made only
to the person (Mr PGM Hutchinson) whom the swindler had represented himself to
be, and, as the swindler knew this, the offer was not one which was capable of being
accepted by him; therefore there had been no contract for the sale of the car by
plaintiffs and they were entitled to recover the car or damages from defendant.

Lewis v Averay

The plaintiff L in Bristol advertised his car for sale for £450. A rogue, introducing
himself as G, called on L in the evening, tried the car, and said he liked it. They then
went to the flat of L's fiancee where there was general social conversation in which
the rogue represented himself as being connected with the film world in which "R.G"
was a well-known television actor. The rogue said he would like to buy the car and
take it away that night, and he wrote a cheque for £450 on a Beckenham bank and
signed it "R.A.G." As it was then 11 p.m., L asked for proof that the rogue was
"R.A.G." The rogue brought out a pass to well-known film studios bearing that name
and his photograph with an official-looking stamp. L thereupon handed him the
logbook and allowed him to take the car. The cheque having come from a stolen
cheque book, was dishonoured. Within a few days A, who had advertised for a car.
received a call from a man who said he was L, the owner of the car, and who
produced the logbook bearing L's name and address. A bought the car from the man
for £200 but when he wrote to L to ask for the workshop manual the full fraud was
revealed. The rogue was not traced.

In an action by L against A for the return of the car or its value and damages for its
detention, Deputy Judge Ellison found that there was no contract between L and the
person with whom he had dealt so that no title passed to the rogue or from him to A;
and he awarded L the damages claimed.

On appeal by A:-

Held allowing the appeal, that there was nothing to displace the presumption that
when the plaintiff accepted the cheque and handed over the car and logbook, he
concluded a contract with the person physically present with whom he had been
dealing. Under that contract the property in the goods passed to that person, albeit a
rogue, and his subsequent sale to the innocent purchaser gave the purchaser the
property in the car as against the plaintiff.

Per Lord Denning M.R. A mistake by one party as to the identity or attributes of the
person with whom he is contracting does not render the contract void ab initio, even
where the mistake is induced by fraud, though the contract may be avoided before an
innocent third party has acquired rights under it (post, p. 207A-C).

Per Megaw L.J. Even though a contract may be voidable by reason of a unilateral
mistake as to the identity of the opposite party, nothing in the present evidence
supports a finding that when the plaintiff offered to sell the car to the man physically
present he regarded that man's identity as a matter of vital importance (post, p. 209A-
D).

Shogun Finance Ltd

A dealer agreed a price for the sale of a motor vehicle on hire-purchase to a fraudster
who produced a stolen driving licence as proof of his identity. The dealer faxed to the
claimant hire-purchase company a copy of the licence and a draft hire-purchase
agreement that the fraudster had signed, forging the signature on the licence. Having
completed a satisfactory credit check of the person named on the licence the claimant
approved the sale. The fraudster paid the agreed 10% deposit to the dealer partly in
cash and partly by way of a cheque, which was subsequently dishonoured, and was
allowed to take the vehicle. The defendant purchased it in good faith from the
fraudster the following day. On the claimant's action against the defendant for, inter
alia, damages for conversion the defendant counterclaimed that he had acquired good
title to the vehicle within the meaning of section 27 of the Hire-Purchase Act 19641.
The judge gave judgment for the claimant, and the Court of Appeal by a majority
dismissed the defendant's appeal.

On appeal by the defendant—

Held, dismissing the appeal (Lord Nicholls of Birkenhead and Lord Millett
dissenting), that under section 21(1) of the Sale of Goods Act 1979 the title to the
vehicle had at all material times been in the claimant and accordingly the defendant
could not have acquired title to it from the fraudster save under the provisions of
section 27 of the 1964 Act; that the purported contract between the fraudster and the
claimant was constituted by the hire-purchase agreement under which the hirer
purported to be the person named on the driving licence, and oral evidence could not
be adduced to contradict the terms of the written agreement so as to demonstrate that,
in a face-to-face transaction, the fraudster had been the true hirer; that, in any event,
there had not been the necessary consensus ad idem between the fraudster and the
finance company; and that, accordingly, the fraudster had not been the debtor under
the agreement within the meaning of section 29(4) of the 1964 Act and the defendant
had not acquired title to the vehicle under the provisions of section 27 (post, paras 42-
47, 49-50, 117, 119, 166-170, 178, 180, 183, 191, 193).

Cundy v Lindsay (1878) 3 App Cas 459, HL(E), Phillips v Brooks Ltd [1919] 2 KB
243, Ingram v Little [1961] 1 QB 31, CA, Lewis v Averay [1972] 1 QB 198, CA
and Hector v Lyons (1988) 58 P & CR 156, CA considered.

Decision of the Court of Appeal [2001] EWCA Civ 1000; [2002] QB 834; [2002] 2
WLR 867; [2002] 4 All ER 572 affirmed.

Documents mistakenly signed – The general principle is that a person is bound to the
terms of a contract he has signed. However, pleas of non est factum (this is not my
deed) are likely to succeed if it is shown that the document signed was fundamentally
different from what the signatory believed it to be, provided he was not careless about
signing it.

Saunders v Anglia Building Society

G., a widow aged 78, who had a leasehold interest in a house, gave the deeds to her
trusted nephew, intending to make a gift to him to take effect immediately. She knew
that her nephew wished to raise money on the house and that L., her nephew's
business associate, was to collaborate with the nephew in raising money on the house.
In June, 1962, L. asked her to sign a document. She had broken her spectacles and
could not read it. She asked what it was and L. told her that it was a deed of gift of the
house to her nephew. She executed it in that belief, and the nephew witnessed the
execution, it being part of his arrangements with L. that L. should raise money on the
house and repay it to the nephew by installments. The document signed was in fact an
assignment of the house by her to L. for £3,000. The £3,000 was never paid nor
intended to be paid to her. L., having obtained the deeds and a reference as to his
reliability from the nephew, mortgaged the house for £2,000 to a building society, but
used the money so raised to pay his debts and defaulted on the mortgage installments.
The building society sought to obtain possession of the house.

G., at the nephew's instigation, began an action, in which she pleaded non est factum,
against L. and the building society and asked for a declaration that the assignment was
void and that the title deeds should be delivered to her. The judge found that G. did
not read the document, that L. represented it to her as a deed of gift to the nephew;
that she executed it in that belief; and that a sale or gift to L. was something which she
did not and would not ever have contemplated; and he held that the plea of non est
factum was established and granted the declaration asked for.

The Court of Appeal reversed the decision. On appeal to the House of Lords:-

Held, that the plea of non est factum which would make the assignment void against
the innocent building society had not been established. G., having signed what was
obviously a legal document on which money was advanced on the faith of it being her
document, could not now disavow her signature.

Per Lord Reid. The plea of non est factum could not be available to anyone who
signed without taking the trouble to find out at least the general effect of the
document. Nor could it be available to a person whose mistake was really a mistake as
to the legal effect of the document. There must be a radical or fundamental difference
between what he signed and what he thought he was signing (post, pp. 1016F, 1017B-
E).

Per Lord Hodson. The difference to support a plea of non est factum must be in a
particular which goes to the substance of the whole consideration or to the root of the
matter (post, pp. 1018H - 1019A).

Per Viscount Dilhorne. It will not suffice if the signer thought that in some respect the
document would have a different legal effect from what it has; nor will it suffice if in
some respects it departs from what he thought it would contain. The difference must
be such that the document signed is entirely or fundamentally different from that
which it was thought to be, so that it was never the signer's intention to execute the
document (post, p. 1022G-H).

Per Lord Wilberforce. A document should be held to be void (as opposed to voidable)
only when the element of consent to it is totally lacking, i.e., when the transaction
which the document purports to effect is essentially different in substance or in kind
from the transaction intended (post, p. 1026A-B).
Per Lord Pearson. The essential features of the doctrine are expressed by Byles J.
in Foster v. Mackinnon (1869) L.R. 4 C.P. 704, 711 (post, p. 1035F-G).

Lloyds Bank plc v Waterhouse

The defendant, who had been a tenant farmer for many years, had recently bought the
property he farmed, with the assistance of a loan from Barclays Bank Ltd, the family
bank. As a result of the loan, he could not provide any security for further credit or for
the purpose of guaranteeing a further loan. In 1981 his eldest son, who had been
farming with him, embarked upon the purchase of a farm property of his own, and in
order to raise the purchase price he approached the plaintiff bank and suggested to the
manager of the local branch that his father might help with a guarantee. The father
signed an unsupported guarantee for £110,000 on 1 October 1981 on the
understanding, as he alleged, that he was doing no more than guaranteeing enough
money to enable his son to buy the farm, and that his position would be protected by
the sale of the land if that proved necessary – in other words, that it was a guarantee
for land only and not an 'all monies' guarantee. The father was illiterate (although the
bank did not realise this). The bank made a claim, based on the guarantee, against the
father for £193,163.33, representing the son's indebtedness to them. The judge found
for the bank, rejecting the four defences relied upon by the father, ie: (1)
misrepresentation by the bank as to the liability incurred by him as guarantor; (2) non
est factum; (3) negligence or breach of duty owed by the bank to the father; and (4)
misrepresentation by the son acting as agent for the bank. The father appealed, relying
on the second and third of these grounds.

Held – allowing the appeal –

Per Purchas LJ: for the defence of non est factum the defendant had to establish:
(a) that he was under a disability, in the present case illiteracy; (b) that the document
which he had signed was fundamentally different from the document he thought he
was signing; and (c) that he was not careless in that he had not failed to take proper
precautions to ascertain the significance of the document he was signing. Since the
first requirement was not in dispute, and the 'all monies' guarantee which the
defendant signed was different within the concept of non est factum from the
guarantee restricted to money borrowed for the purchase of land which he thought he
was signing, and since, furthermore, the defendant had made exhaustive inquiries of
the bank's representatives which, notwithstanding that he had not disclosed his
illiteracy, were sufficient to satisfy the heavy burden of proof upon him with regard to
the third requirement (Woolf LJ dissenting) the defence of non est factum was
established. By the same token, the answer he received to his inquiries, to the effect
that the reason why the bank required a guarantee over and above the value of the
land was that it was a matter of the bank's standard practice, amounted in the context
in which it was given to negligent misrepresentation.

Per Woolf LJ: as the misrepresentation made to the defendant in answer to his
inquiries made by the bank's representative had led him to enter into the guarantee, it
followed that, whether on the basis of misrepresentation or on the basis of breach of
duty, the bank was not entitled to rely on the guarantee.

[1993] 2 FLR 97 at 98
 Per Sir Edward Eveleigh: in all the circumstances the bank's representative ought
to have known that the defendant was not aware of the extent of the obligation in the
guarantee, that the defendant would only be willing to undertake a liability which
would be covered by the sale of the farm and that the guarantee as printed could lead
to the defendant suffering a loss far greater than he was prepared to accept.
Consequently, the guarantee was signed under a mistake which was negligently
induced by the bank's representative and therefore the mistake prevented the signature
from having a binding effect inter partes.

For a concise statement on the law of mistake, see the Jamaican case, Clacken v
Causwell Supreme Court no. 2008 HCV 01834, delivered 12 Nov 2010, paras. 151-
157 (available on ourVLE). Note court’s reluctance to vitiate contracts on the basis of
other types of unilateral mistake: Statoil v Louis Dreyfus Energy Services [2008]
EWHC 2257 (Comm).

Kleinwort Benson v Lincoln County Council

I have had the advantage of reading in draft the speech of my noble and learned
friend, Lord Goff of Chieveley which contains yet another major contribution to the
law of restitution.

Were it not for one matter, I would be in full agreement with his views. But
unfortunately he and the majority of your Lordships take the view that when
established law is changed by a subsequent decision of the Courts, money rightly paid
in accordance with the old established law is recoverable as having been paid under a
mistake of law. I take the view that the monies are not recoverable since, at the time
of payment, the payer was not labouring under any mistake.

The majority view is that the decision in Hazell v. London Borough of

Hammersmith and Fulham [1992] 2 A.C. 1 established that the swaps agreements
were void; that although the decision in Hazell post-dated the last of the payments
made by Kleinworts to the local authorities the decision operated retrospectively so
that under the law as eventually established Kleinworts were labouring under a
mistake at the time they made each payment in thinking that they were liable to make
such payment. Therefore, in their view, Kleinworts can recover payments made under
a mistake of law. My view, on the other hand, is that although the decision in Hazell
is retrospective in its effect, retrospection cannot falsify history: if at the date of each
payment it was settled law that local authorities had capacity to enter into swap
contracts, Kleinworts were not labouring under any mistake of law at that date. The
subsequent decision in Hazell could not create a mistake where no mistake existed at
the time.

There are two questions to be considered. First, when the common law is changed
by later judicial decision, have all payments made on the basis of the previous law
been made under a mistake of law? Second, in what circumstances can it be said that
there was earlier law which was changed by judicial decision? Does there have to be a
clear judicial decision overruled by a later judicial decision of a higher court or is it
enough that, at the date of payment, there was a generally accepted view of the law
which view was upset by the later decision?
Where the law is established by judicial decision subsequently overruled

I will take the case where the law has been established by a single decision of the
Court of Appeal made in 1930. In 1990 the payer makes a payment which would only
have been due to the payee if the Court of Appeal decision was good law. The payer
was advised that the Court of Appeal decision was good law. In 1997 this House
overruled the Court of Appeal decision. Is the plaintiff entitled to recover the payment
made in 1990 on the ground of mistake of law?

There is, as I understand it, no dispute that in order to recover the plaintiff has to
have been labouring under the mistake at the date of payment and to have made the
payment because of that mistake. Certainly that position has been accepted by
Kleinworts in their written reply and by my noble and learned friend, Lord Goff. The
question is whether the subsequent overruling of the 1930 Court of Appeal decision
requires the court to hold that at the date of payment (1990) the law (contrary to what
the plaintiff had been advised) was not the law established by the Court of Appeal
decision of 1930.

The theoretical position has been that judges do not make or change law: they
discover and declare the law which is throughout the same. According to this theory,
when an earlier decision is overruled the law is not changed: its true nature is
disclosed, having existed in that form all along. This theoretical position is, as Lord
Reid said, a fairy tale in which no-one any longer believes. In truth, judges make and
change the law. The whole of the common law is judge-made and only by judicial
change in the law is the common law kept relevant in a changing world. But whilst
the underlying myth has been rejected, its progeny--the retrospective effect of a
change made by judicial decision--remains. As Lord Goff in his speech demonstrates,
in the absence of some form of prospective overruling, a judgment overruling an
earlier decision is bound to operate to some extent retrospectively: once the higher
court in the particular case has stated the changed law, the law as so stated applies not
only to that case but also to all cases subsequently coming before the courts for
decision, even though the events in question in such cases occurred before the Court
of Appeal decision was overruled.

Therefore the precise question is whether the fact that the later overruling decision
operates retrospectively so far as the substantive law is concerned also requires it to
be assumed (contrary to the facts) that at the date of each payment the plaintiff made a
mistake as to what the law then was. In my judgment it does not. The main effect of
your Lordships' decision in the present case is to abolish the rule that money paid
under a mistake of law cannot be recovered, which rule was based on the artificial
assumption that a man is presumed to know the law. It would be unfortunate to
introduce into the amended law a new artificiality, viz., that a man is making a
mistake at the date of payment when he acts on the basis of the law as it is then
established. He was not mistaken at the date of payment. He paid on the basis that the
then binding Court of Appeal decision stated the law, which it did: the fact that the
law was later retrospectively changed cannot alter retrospectively the state of the
payer's mind at the time of payment. As Deane J. said in the High Court of Australia
in University of Wollongong v. Merwally 158 C.L.R. 447 at p. 478:
 "A parliament may legislate that, for the purposes of the law which it controls, past
facts or past laws are to be deemed and treated as having been different to what they
were. It cannot however objectively expunge the past or alter the facts of history."

If that be true of statutory legislation, the same must a fortiori be true of judicial
decision. In my judgment, therefore, if a man has made a payment on an
understanding of the law which was correct as the law stood at the date of such
payment he has not made that payment under a mistake of law if the law is
subsequently changed.

I am fortified in that view by considering what will be the effect of your Lordships'
decision. A payment which was initially irrecoverable will subsequently become
recoverable. Consider the hypothetical case I have put. A payment was made in 1990
when the Court of Appeal decision was still valid. Under the existing law, the claim in
restitution should apparently have arisen at the date of such payment: see Baker v.
Courage & Co. [1910] 1 K.B. 56. Yet at that date there could be no question of any
mistake. It would not have been possible to issue a writ claiming restitution on the
grounds of mistake of law until the 1997 decision had overruled the 1930 Court of
Appeal decision. Therefore a payment which, when made, and for several years
thereafter, was entirely valid and irrecoverable would subsequently become
recoverable. This result would be subversive of the great public interest in the security
of receipts and the closure of transactions. The position is even worse because all your
Lordships consider that the claims to recover money paid under a mistake of law are
subject to section 32(1)(c) of the Limitation Act 1980, i.e. that in such a case time will
not begin to run until the "mistake" is discovered. A subsequent overruling of a Court
of Appeal decision by the House of Lords could occur many decades after payments
have been made on the faith of the Court of Appeal decision: in such a case "the
mistake" would not be discovered until the later overruling. All payments made
pursuant to the Court of Appeal ruling would be recoverable subject only to the
possible defence of change of position.

With one possible exception, such judicial and other authority as there is favours
the view that there is no relevant mistake of law if the payment is made on the basis of
the law as it stood at the date of payment. As to non-judicial authority the Law
Commission has taken the view that there would be no relevant mistake: Report No.
227 "Restitution: Mistakes of Law and Ultra Vires Public Authority Receipts and
Payments" (Cm. 2731), paras. 5.2-5.16. Not surprisingly, Professor Beatson shares
that view: see 1995 R.L.R. 280 at p. 284; see also Professor Burrows Law of
Restitution pp. 118-120.

As to judicial authority there is a dearth of decisions directly in point. Since the

payment of money under a mistake of law was not recoverable in any event, there is
little discussion as to what constitutes a mistake of law in that context. However, there
are two English cases which throw some light. In Henderson v. Folkestone
Waterworks Co. (1885) 1 T.L.R. 329, the plaintiff had paid water rates to the
defendant calculated in accordance with the law as it was held to be by the Court of
Appeal. Subsequent to the date of payment, the House of Lords in the Dobbs case
changed the law: if calculated under the changed law the plaintiff had overpaid. He
sought to recover the overpayments on the ground that he had paid under compulsion
and under a mistake of law. It was apparently accepted by the Court that if both these
factors (i.e. compulsion and mistake of law) were present, the overpayment could be
recovered. Counsel having submitted that the payments had been made in ignorance
of the law, Lord Coleridge C.J. (who had been a member of the Court of Appeal
overruled in Dobbs case) said:

"Of what law? I was ignorant of it before the decision of the House of Lords. I had
held to the contrary, and two eminent judges agreed with me. Can that be put as
ignorance of law? Just see what consequences would follow--that wherever there has
been a reversal of judgment all the money that has been paid under the previous
notion of the law can be recovered back! Has that ever been held? Can it be that every
reversal of a decision may give rise to hundreds of actions to recover back money
previously paid?"

In his judgment, Lord Coleridge dismissed the plaintiff's claim on the grounds both
that there was no element of compulsion in the payment and that there was no
relevant mistake of law. He said:

"But here at the time the money was paid, which was before Dobbs case, the law was
in favour of the company, and there was no authority to show that it could be
recovered back on account of a judicial decision reversing the former understanding
of the law."

The other member of the court concurred but it is not clear on which of the two
grounds. The decision therefore is not of major authority but it does show that Lord
Coleridge was of the view that money was not paid under a mistake of law just
because a later change in the law altered the law as it had been at the date of payment.

The other English case is Derrick v. Williams [1939] 2 All E.R. 559. In that case
the plaintiff had accepted a payment into court on the basis that a Court of Appeal
decision declared the law in a form which precluded the recovery of certain types of
damages. Subsequently the House of Lords reversed the Court of Appeal decision and
held that such damages were recoverable. The plaintiff in Derrick v. Williams was
trying to re-open the matter on the grounds that the subsequent decision of the House
of Lords showed that he had been proceeding under a mistake of law when he
accepted the money paid in. He relied on the equitable principle set out in In re
Roberts [1905] 1 Ch. 704 that a compromise made under a mistake of law can be set
aside. The plaintiff's claim failed. Sir Wilfrid Greene M.R. said, at p. 565, that he
rejected a contention that the mistake was one of fact and continued:

"It was a mistake of law, and consisted of the fact that the plaintiff was under the
belief that the law as laid down by this court . . . was correctly laid down. In that he
was wrong, and he is asking the court to say that, having acted upon the basis of a
mistaken view of the law, now that the law has been enunciated by the highest
tribunal, he is entitled to make another attempt. That is the thing which, it seems to
me, cannot be permitted on principle. It appears to me to be completely indefensible.
No shadow of authority was cited to us which would justify the proposition that,
where, pursuant to the rules of court, a claim has been satisfied by money paid into
court by the defendant, the plaintiff can afterwards come and say: 'I was wrongly
advised as to the law when I did this, because the law was not as then laid down by
the Court of Appeal, but as subsequently enunciated by the House of Lords.' It would
be an intolerable hardship on successful litigants if, in circumstances such as these,
their opponents were entitled to harass them with further litigation because their view
of the law had turned out to be wrong, and, unless I were constrained by binding
authority, I should be quite unable, on principle, to accept any such proposition."

It is not clear to me whether this case was decided on the ground that payment into
court raised special questions, or on the ground that there was no mistake of law
because at the date of the withdrawal of the monies paid into court the law was as
stated by the Court of Appeal and not as subsequently stated by the House of Lords.
But the decision is at least consistent with the view that in deciding whether a person
has acted under a mistake of law at a particular time, the question is whether they
mistook the law as it then was without reference to subsequent retrospective change
by later decisions.

In Commissioner of State Revenue v. The Royal Insurance Australia Ltd. (1994)

182 C.L.R. 51 the High Court of Australia had to consider a payment made in
pursuance of a statute which was subsequently repealed with retrospective effect, i.e.
the case was analogous to that where the common law is changed by a later common
law decision. The majority held that monies paid under the retrospectively repealed
statute were not paid under a mistake of law at common law: see per Brennan J., p. 69
(with whom Toohey and McHugh JJ. agreed) and Dawson J. at p. 75. In my judgment
this is strong authority in favour of the view which I hold.

The only authority pointing the other way is a recent case in the Court of Appeal
decided since the conclusion of the argument in this case: Evans v. Governor of H.M.
Prison Brockhill [1998] (unreported). In that case the plaintiff had been sentenced to a
term of imprisonment. She was detained by the Governor for a period correctly
calculated in accordance with the law as then laid down by a series of decisions in the
Divisional Court. That method of calculating the duration of the sentence was
subsequently disapproved by a later decision of the Divisional Court which laid down
(everyone has assumed correctly) a different method of calculation. If that new
method of calculation was adopted the plaintiff had been detained for 59 days too
long. The plaintiff claimed damages for false imprisonment. The majority (Lord
Woolf M.R. and Judge L.J., Roch L.J. dissenting) held that the retrospective effect of
the change in the law produced by the last Divisional Court decision prevented the
Governor from relying as a defence on the law as it had been declared by the earlier
Divisional Court decisions which at the time of the 59 days' detention laid down the
relevant law. The Master of the Rolls described the result as being "highly artificial":
it involved the acceptance of Lord Reid's fairy tale but he held that the Court of
Appeal could not abandon the fairy tale. I do not propose to comment on that decision
(which may be coming on appeal to your Lordships' House) beyond distinguishing it
from the present case. In that case the question was one of substantive law: what was
the correct duration of the sentence? In the view of the Court of Appeal, that fell to be
determined by the law as finally declared. Once that view had been reached, the Court
of Appeal were not concerned with the law as at the date of the detention: such law
was irrelevant since it could provide no defence. On the other hand, in the present
case what needs to be determined is not the substantive law at a particular time but the
state of the mind of the payer at that time. Was he then under a mistake as to the law
then current? That is a different question.
 In my view therefore, if, at the date of payment, the law was settled by clear
judicial authority then a payment in accordance with such law was not made under a
mistake of law even if the law has subsequently been changed by later judicial
decision. I am fortified in this view by the fact that the appellants in their written
submissions in reply (paras. 32 and 33) expressly accepted this proposition. They
concentrated their submissions on the question whether it is ever possible to establish
that at a particular date the law was "settled" in the absence of a judicial decision to
that effect. I find it surprising that the majority of your Lordships are finding the law
to be that which neither of the parties contended for.

Settled law in the absence of judicial decision?

It is not suggested in the present case that before the decision of this House in
Hazell there was any judicial decision which established that local authorities had the
capacity to enter into swap agreements. What is said is that, even in the absence of
such a decision, there was a "settled view" that local authorities had the necessary
capacity and that swap agreements were therefore valid. It is not for your Lordships
on these preliminary issues to seek to determine whether in fact there was such a
settled view of the law. However, your Lordships do have to decide whether, if at the
trial such a settled view is proved to have existed, it would prevent Kleinworts from
recovering the monies paid on the basis of monies paid under a mistake of law.

Much commercial and property activity occurs on the basis of law which is not laid
down by judicial decision. Such "law" consists of the practice and understanding of
lawyers skilled in the field. If, before payment, the payer had sought advice in some
cases he would have been told that the law was dubious: if having received such
advice he paid over, he must have taken the risk that the law was otherwise and
cannot subsequently recover what he has paid. In other cases, he would have been told
that the law was clear and he could safely act on it. If in this latter case the payer acted
on the law as so advised and subsequently a court held that the law was not as
advised, can the payer recover his payment as monies paid under a mistake of law? In
the ordinary case, the payer's adviser will just have given wrong legal advice: as a
result the payment will have been paid under a mistake of law and will be
recoverable. But in a limited number of cases, of which this may be one, it is not
really possible to say that the legal adviser made a mistake in advising as he did.
There are areas of the law which are sparsely covered by judicial decision, for
example, real property, banking and regulatory law. In such areas the commercial
world acts, and has to act, on the generally held view of lawyers skilled in the field. In
such cases, a payer who sought advice would receive the same advice from everyone
skilled in the field. It used to be said that the practice of conveyancers of repute was
strong evidence of real property law: see In re Hollis' Hospital and Hague's Contract
[1899] 2 Ch. 540 at 551. As late as the middle of this century, Denning L.J. said in In
re Downshire Settled Estates [1953] Ch. 218: "The practice of the profession in these
cases is the best evidence of what the law is: indeed it makes law."
 I doubt whether today anyone would claim that a uniform practice of the profession
makes the law. But in the present context it does have a significant impact. In holding
that money paid under a mistake of law is recoverable, an essential factor is that the
retention of the money so paid would constitute an unjust enrichment of the payee.
What constitutes the unjust factor is the mistake made by the payer at the date of
payment. If, at the date of payment, it was settled law that payment was legally due, I
can see nothing unjust in permitting the payee to retain monies he received at a time
when all lawyers skilled in the field would have advised that he was entitled to
receive them and the payer was bound to pay them. Again it is critical to establish the
position at the time of payment: if, at that date, there was nothing unjust or
unmeritorious in the receipt or retention of the monies by the payee in my judgment it
was not an unjust enrichment for him subsequently to retain the monies just because
the law was, in one sense, subsequently changed.

In New Zealand and Western Australia the legislatures have provided that monies
shall not be recoverable on the grounds of mistake of law if paid at a time when there
was a "common understanding" that they were payable: New Zealand Judicature
Amendment Act 1958, section 94A(2); Western Australian Law Reform (Property,
Perpetuities and Succession) Act 1962, section 23(1). The Law Commission (Report
No. 227) was not happy with the concept of "common understanding" but did
recommend that money should not be recoverable if paid "in accordance with a settled
view of the law at the time"; see Report (supra), paras. 5.1-5.13 and draft Bill, clause
3. The Law Commission considered that the law fell to be treated as "settled" not only
by judicial decision but also by reference to the legal advice which the payer would
have received if he had sought it:

MISTAKES OF LAW. Up until 1999, mistakes of law could not have the effect of
invalidating a contract. But see: Kleinwort Benson v Lincoln County Council [1999]
2 A C 349 which abolished the rule and held that monies paid under a mistake of law
were recoverable. Is there an attempt to limit the scope of the Kleinwort Benson v
LCC principle? See: Brennan v Bolt Burdon [2004] EWCA Civ 1017. In Deutsche
Morgan Grenfell Group v Inland Revenue [2006] UKHL 49 at para 27, it was stated,
referencing Bolt Burdon: “[T]he circumstances in which a payment is made may
show that the person who made the payment took the risk that, if the question was
fully litigated, it might turn out that he did not owe the money. Payment under a
compromise is an obvious example”.

Brennan v Bolt Burdon

The claimant had a claim for damages for personal injury. The claim form was issued
on 7 June 2001, four months before the expiry of the limitation period, and served on
the defendants on 6 October 2001. On an application by the defendants to strike out
the claim form the judge held that the form had been served on 8 October which was
outside the four-month period from the date of issue specified in the CPR. In reliance
on that decision the claimant agreed with the second defendant to compromise the
action. The case on which the judge had relied to reach his decision was subsequently
overruled, whereupon the claimant appealed the decision that the claim form had not
been served in time. That appeal was allowed and the claimant withdrew her offer to
compromise the claim. The defendants applied to stay the proceedings on the ground
that there was a binding contractual compromise. The master held that the contract of
compromise was void because of a common mistake of law and dismissed the
application.

On the defendants' appeal—

Held , dismissing the appeal, that the principle that a contract based on a common
mistake of law was void ab initio applied to all contracts including a compromise
agreement; that since compromises of litigation were in the public interest the courts
should be slow to declare compromise agreements void on the ground of common
mistakes of fact or law; that, in the circumstances the common mistaken assumption
as to the law was the fundamental basis for and precondition of the compromise
agreement; and that, accordingly, the compromise agreement was void (post,
paras 36, 41, 50, 52).

Kleinwort Benson Ltd v Lincoln City Council [1999] 2 AC 349, HL(E) applied.

S v S (Ancillary Relief: Consent Order) [2003] Fam 1 considered.