By S t e p h e n C a r iu s

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Every law student learns th a t one of th e potential grounds for challenging th e

I n order to be effective, the rules of the private law where both parties are labouring under the same erroneous
must be predictable. In contract, objectivity is the assumption. ‘Mutual mistake’ refers to a situation where both
principle that infuses each of these rules. The law parties are mistaken, but they are mistaken about different
is not sympathetic to a person who labours under a things. ‘Unilateral mistakes’ arise where only one party is
purely subjective misapprehension, unless that state mistaken; the other party is either oblivious to the mistake
of mind was caused by some wrongful conduct on the part or has actively induced it. In addition, a separate doctrine
of another party. And yet, to speak of a ‘doctrine of mistake’ applies where an illiterate person signs a document that they
is to accept that a mistake may be actionable even where it is do not comprehend; this is called a plea of non est fa ctu m .1 »
purely self-induced. Some cases appear to recognise mistakes
of this kind.
However, if mistake is to have any role in the law of
contract, it must be a limited one. To allow mistake a

erSafe
free rein would compromise the integrity of commercial m
transactions and undermine the purpose of having well- n
established rules with relatively predictable outcomes. This ii>1
assertion is consistent with the approach taken by the courts.
But as a matter of principle, how does one decide which International safety, ergonomics and forensic engineering
mistakes are actionable and which ones are not?
An analysis of the cases makes it difficult to discern any
unified doctrine of mistake. While there are some quite
recognisable types of case in which a ‘mistake’ is held to
Manual tasks
be operative, these cases do not appear to have much in
common. In my view, the problem arises because the term
‘mistake’ is a misnomer. All mistake cases are defined as
Vehicle accidents
such by reference to other contractual doctrines, which are
much more likely to provide guidance to practitioners as Slips,trips and falls
to the resolution of so-called ‘mistake’ disputes. On closer
inspection, there is little (if any) scope for a meaningful
doctrine of mistake, and the ‘mistake’ cases need to be
Electrical incidents
reconsidered in this context so that clients can be properly
advised as to their legal rights. Machinery incidents
Gain a clear and detailed understanding
SPECIES OF MISTAKE of all liability issues in all industries.
Let us examine the orthodox taxonomy that applies to the
doctrine of mistake. This can be found in any common Engage us early to ensure the best outcome for your case
law textbook and is frequently adopted by judges as well.
According to this scheme, there are three categories of Phone 1800 811 101 anywhere in Australia
mistake: common mistake; mutual mistake; and unilateral
w w w .in te r s a fe .c o m .a u
mistake. A ‘common mistake’ occurs in respect of a contract

NOVEMBER / DECEMBER 2009 ISSUE 95 PRECEDENT 3 1

The aforementioned categories refer to the form of the or materiality.6 Thus, a contract is void on the grounds
mistake without telling us anything about the substance of it. of a common mistake only if the mistake is - for want of
Different considerations arise depending on the substantive a better word - ‘fundamental’. The problem arises when
nature of the mistake and (to an extent) different rules apply. distinguishing between fundamental and non-fundamental
It is useful to note the major categories of substantive mistakes.
mistake that can arise: The problem is best resolved by disregarding an
(a) mistake over the subject matter of a contract (either its independent concept of ‘common mistake’ altogether and
existence or its qualities); adopting what Lord Atkin called ‘the alternative mode
(b) mistake as to the identity of the contracting parties; and of expressing the result of a mutual [sic] mistake’.7 This
(c) mistake in the text of a written document. approach has found favour in the leading High Court case
As we shall see, the courts intervene to varying degrees, of McRae v Commonwealth Disposals Commission.8 In this
depending on the substantive nature of the mistake. case, the Commission sold an oil tanker and its contents,
Finally, mistakes can also be categorised according to their which were said to be wrecked at Jourmaund Reef. It turned
legal consequences. The remedies that are available will out that there was no such oil tanker at that location and
depend largely on whether the mistake is operative at law or McRae sued for damages. The Commission claimed that
in equity. Mistake is fundamentally a common law concept. the contract was void because both parties laboured under a
At common law, a contract is either valid or void and where common mistake about the existence of the oil tanker.
a mistake is operative a contract may be declared void. In The reasoning adopted by the High Court was based
equity, however, a contract may be voidable (that is, the party solely on contractual construction. It held that if the
who is aggrieved by the mistake has a right to elect either common assumption of fact constitutes an implied condition
to rescind the contract or to affirm it). Equity has remedies precedent, which must be satisfied for the contract to come
at its disposal that are not available at law (for example, into existence, then the failure of that condition precedent
rectification). The scope for equity’s intervention in cases will render the contract void. In this case, the Court found
where a mistake is operative is highly contentious. While no such condition precedent. Rather the vendor had
equity’s intervention is discretionary, a number of rules guide promised that the goods were in existence and, as such,
this discretion, and it is important to understand what role (if McRae was entitled to sue for damages.9 The implied term
any) it has in the present context. This matter is explored in approach is clearly applicable whether the mistake pertains to
the analysis of each of the categories of mistake below. the existence of the subject matter of a contract or the quality
thereof, and it provides a more principled explanation for the
Common mistake at law decisions in cases of ‘common mistake’. In my view, this is
A contract may be void on the basis of a common mistake. the correct approach to such cases in Australia and, as such,
In this situation, the parties have entered the contract on any reference to ‘common mistake’ is unnecessary.
the basis of a common assumption of fact that later proves
to be erroneous. This is usually a mistake about the subject Common mistake in equity
matter of the contract (for example, the existence thereof In Solle v Butcher,w Lord Denning advanced the view that
or its quality). The early case of Couturier v Hastie2 is an there is a distinct form of mistake recognised in equity. The
example of such a mistake. This case concerned a contract scope of equitable mistake is even more controversial and
for the sale of corn. Unknown to both parties, the corn had its very existence is highly questionable given the foregoing
been destroyed by the time of the sale. The House of Lords discussion. In Solle v Butcher, Lord Denning did not
held that since both parties entered the contract upon the articulate the limits of mistake in equity except to indicate
‘common mistake’ that the corn actually existed, and since that it was a broader and more flexible doctrine than that
it had in fact perished, the contract was void. A rule to this expressed in Bell v Lever Brothers.11 The existence of an
effect has now been codified in each of the Sale of Goods independent equitable jurisdiction for mistake has found
Acts3 of each of the states. Importantly, the court in Couturier some positive comment in Australia,12 but has not been
resolved this question, not by reference to a stand-alone authoritatively applied. Recently, in Great Peace Shipping Ltd
doctrine of mistake, but rather by an exercise in contractual v Tsavliris Salvage (International) Ltd ,13 the English Court of
construction.4 Appeal rejected the equitable form of mistake as formulated
In addition, there are some rare cases in which a contract in Solle v Butcher.14 In my view, the authorities cannot sustain
will be void because of a common mistake as to the quality the claim that there is (in Australia) an independent equitable
of the subject matter. In Bell v Lever Brothers ,5 a company doctrine of mistake that may render an otherwise valid
reached a compromise agreement terminating the services of contract voidable at the suit of an aggrieved party.
its managing director. The company later discovered that, This is not to imply that there is no role for equity. Equity
at the time of the compromise, it had grounds to terminate has jurisdiction to intervene to ameliorate the harsh effects
the manager’s contract for misconduct. It argued that the of common law rules. One example applicable to certain
compromise agreement was therefore void. The House of kinds of genuine mistake is the remedy of rectification.
Lords rejected this argument, holding that while a contract However, where rectification is concerned, the mistakes in
could be rendered void on the basis of a ‘common mistake’, question are not mistakes about the agreement itself; rather,
the mistake in this case was not of sufficient importance they are mistakes about the document that purports to

32 PRECEDENT ISSUE 95 NOVEMBER / DECEMBER 2009

express the parties’ intentions. Where, through some error, particularly where the proliferation of information databases
a written document does not correspond to the intention of has increased the risk of identity fraud. The standard
the parties who negotiated it, a court of equity may rectify problem is simply stated. Suppose A contracts with B,
this defect.15 The remedy of rectification may be sought believing him to be C. The transaction is completed. B
in cases of both common and unilateral mistake.16 The sells the subject matter of the transaction to D and then A
party seeking rectification bears the onus of proof, and the discovers that B is an impostor and cannot fulfil his side
evidence must be quite persuasive.17 However, the court will of the bargain. We shall assume that B is insolvent or has
intervene only in limited circumstances where it would be emigrated to Majorca so A has only one practical remedy;
unconscionable for a party to rely on the strict terms of the namely, to sue the other innocent party, D. Whether A
written document.18 A detailed discussion of rectification is has any cause of action against D depends on whether the
beyond the scope of this paper, but it is a remedy that needs transaction between A and B was void or merely voidable.
to be considered in cases of common and unilateral mistake. There have been a number of reported decisions invoking
disputes of this kind.20 In these cases, there is a distinction
Mutual mistake between mistakes of identity where the parties negotiate
The second species of mistake is the ‘mutual’ mistake. This face-to-face21 and those where they negotiate in absentes.22
is a circumstance where the parties are simply at cross­ Regrettably, there remains a division of opinion about the
purposes. For example, A intends to contract with B to legal consequences of such transactions.
purchase X and B intends to contract with A to sell Y. Both The recent House of Lords decision of Shogun Finance Ltd v
parties are mistaken, but in a substantively different way. In Hudson23 illustrates this problem. In this case, a rogue signed
my view, to characterise this kind of dispute as a ‘mutual a hire-purchase agreement with Shogun using a false identity
mistake’ is quite incorrect. Essentially, this is a contractual (Mr Patel) and was given possession of a motor vehicle. The
dispute about the terms of the agreement. next day, the rogue sold the vehicle to Mrs Hudson who
Courts are frequently called upon to resolve competing purchased it in good faith and without knowledge of the
claims as to the meaning of a contract, and they do not need hire-purchase agreement. While at common law the rogue
to resort to a doctrine of mistake. In the usual course of did not have good title, Mrs Hudson sought to rely on a
events, the court will consider the verbal and non-verbal statutory exception whereby a debtor to a hire-purchase
evidence probative of the parties’ intentions and determine, agreement is allowed to transfer the creditor’s title if the »
objectively, which parties’ contention as to the meaning of
the contract is correct.19 Alternatively, if the court is unable
to ascertain any objective common intention, then the
contact is void. However, such a purported contract is void
not because it is vitiated by a mutual mistake but, rather,
because there is a lack of correspondence between offer and
acceptance.
It follows that where the parties have radically different
expectations about the performance of a contract, their
dispute can be resolved in one of two ways: firstly, the court
can declare that the contract is void for lack of a true meeting
of minds; alternatively, if the court finds that there was a
meeting of minds, it is simply a matter of construction to
determine which party’s expectations should be fulfilled. Any
reference to a concept of mistake and any incorporation of
this term in the resolution of such disputes is likely to lead to
incoherent reasoning and unpredictable results. Once again,
cases of so-called ‘mutual mistake’ are incorrectly designated,
and practitioners should eschew such terminology when is the number of legal firms across Australia
making an assessment of their clients’ prospects. that use us for expert liability opinion.

Unilateral mistake
The last category to be considered is the unilateral mistake. 1 0 . 0 0 0
‘Unilateral mistakes’ refer to situations where one party is is the number of forensic reports we have
under a misapprehension but the other party is not. Such written.
mistakes usually arise with respect to the subject matter
of the contract or the identities of the contracting parties. Engage us early to ensure the best outcome for your case
But the reference to ‘mistake’ in this context is just another
misnomer. Phone 1800 811 101 anywhere in Australia
Consider the case of a unilateral mistake as to the identity
w w w .in te r s a fe .c o m .a u
of a contracting party. This is a field of growing interest,

NOVEMBER / DECEMBER 2009 ISSUE 95 PRECEDENT 3 3

third-party transferee purchased in good faith and without 2. Where the parties are at cross-purposes as to the terms of
knowledge of the hire-purchase agreement. an agreement, this dispute must be resolved by a process
The case turned on whether the rogue was a ‘debtor of construction unless the parties' intentions are so at
within the meaning of the Act. In other words, was the hire- odds that there is a lack of correspondence between offer
purchase agreement void (in which case the rogue was not a and acceptance.
debtor) or voidable? The House of Lords was split 3:2 on the 3. Where one party is under a misapprehension about an
question. The majority held that upon a proper construction agreement but the other party is not, the agreement will
of the written agreement, there was no contract between be construed objectively according to its terms unless
Shogun and the rogue; the contract was therefore void.24 there is either (a) a lack of correspondence between
Lord Millett and Lord Nicholls of Birkenhead disagreed. offer and acceptance; or (b) some inducement by the
They held that where two parties deal with each other, then unmistaken party rendering the contract voidable at the
a contract arises between them notwithstanding the fact that election of the mistaken party.
one of the parties has deceived the other about his identity. 4. Where a mistake occurs in the text of a document, such
On this view, the contract was voidable on the basis of the that the document does not reflect the parties’ real
fraudulent misrepresentation, not void.25 This question intentions, there is an equitable jurisdiction to rectify the
has not been resolved in Australia, but the position of the written terms of the document. ■
majority of the House of Lords is likely to be persuasive. Notes: 1 This is not discussed in this paper but, for reference, see:
A unilateral mistake can also arise in respect of the terms Saunders v Anglia Building Society [1971] AC 1004, 1019; Petelin v
of the agreement. In this context, the case of Smith v Cullen (1975) 132 CLR 355 at 359; Muskham Finance Ld v Howard
[1963] 1 QB 904, 912 per Donovan LJ; Saunders v Anglia Building
Hughes26 is significant. A farmer entered an oral contract to Society [19711AC 1004, 1019 per Lord Pearson; LF v RA (2006) 2
purchase a particular parcel of oats (sold by sample). The Qd R 561, 568-9 per White J; Frank Fat NG v Ha Duk Chong [2005]
purchaser believed that the oats were ‘old oats' but he was NSWSC 270, [21] per Hamilton J; Perpetual Trustees o f Victoria
v Ford (2008) 70 NSWLR 611, 626-7 per Harrison J; Downham v
mistaken. He argued that because of this mistake, there McCallum [2008] TASSC 81, [78] per Porter J; Cellnet Group Ltd v
was no meeting of minds and thus no contract. The court Fan-Min (Michael) Kong & Anor [2007] QDC 005.
rejected this argument. There was no evidence that the 2 (1856) 5 HLC 673; 10 ER 1065. 3 Section 11, Sale o f Goods Act
1923 (NSW); s11 Sale of Goods Act 1954 (ACT); s10 Sale o f Goods
other party knew of this misconception or did anything to Act 1972 (NT); s9 Sale of Goods A ct 1896 (Qld); s6 Sale of Goods
induce it.27 Upon a proper construction of the transaction, Act 1895 (SA); s11 Sale o f Goods A ct 1896 (TAS); s11 Goods Act
the purchaser had agreed to purchase the oats. Where one 1958 (VIC); s6 Sale of Goods Act 1895 (WA) 4 Couturier v Hastie
(1856) 5 HLC 673 at 68 1.5 [1932] AC 161.6 Bell v Lever Brothers
of the parties is aware of the mistake or has induced it, then
[1932] AC 161, 225-6 per Atkin LJ. 7 Ibid, 224-5 per Atkin LJ. Here
the situation may be quite different. The courts do not 'mutual mistake' means 'common mistake'. 8 (1951) 84 CLR 377.
allow an unscrupulous party to ‘snap up’ an offer where it 9 McRae v Commonwealth Disposals Commission (1951) 84 CLR
would be unconscionable to do so.28 In particular, where 377, 407 per Dixon and Fullagar JJ. 10 [1950] 1 KB 671 11 Solle
v Butcher [1950] 1 KB 671, 693-4 per Lord Denning 12 McRae v
the mistake arises from an innocent, negligent or fraudulent Commonwealth Disposals Commission (1951) 84 CLR 377 at 402,
misrepresentation, the contract is rendered voidable and may 407 ; Svanosio v McNamara (1956) 96 CLR 186 at 195-6; Taylor y
be rescinded at the suit of the aggrieved party. Johnson (1983) 151 CLR 422 at 429-31; 45 ALR 265 at 269-71 per
Mason ACJ, Murphy and Deane JJ. 13 [2003] QB 679. 14 Great
Thus, while the law of ‘unilateral mistake’ is not entirely Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2003] QB
settled, none of the cases needs to rely on an independent 679, 724-6 per curiam 15 Riverlate Properties Ltd v Paul [1975]
doctrine of mistake. There is no advantage (and considerable Ch 133. 16 A Roberts & Co Ltd v Leicestershire County Council
[1961] Ch 555 per Pennycuick J. 17 Pukallus v Cameron (1982)
disadvantage) in referring to ‘mistakes’ in these cases. 180 CLR 447 at 452; per Wilson J; Atlantic Marine Transport Corp
Disputes of this kind are resolved by reference to the rules v Coscol Petroleum Corp (The Pina) [1991 ] 1 Lloyd's Rep 246 at
of offer and acceptance (where the contract is held to be 250; Mangistaumunaigaz Oil Production Association v United World
Trade Inc [1995] 1 Lloyd's Rep 617 at 621 per Potter J.
void) or to vitiating factors such as innocent, negligent or 18 Riverlate Properties Ltd v Paul [1975] Ch 133, 140-1. 19 Raffles
fraudulent misrepresentation. v Wichelhaus (1864) 2 H & C 906. 20 Cundy v Lindsay (1878) 3
App Cas 459; Phillips v Brooks Ltd [1919] 2 KB 243; Ingram v Little
[1961] 1 QB 3L Lewis v Averay [1972] 1 QB 198; Hector v Lyons
CONCLUSION (1988) 58 P & CR 156; Shogun Finance Ltd v Hudson [2003] 3 WLR
Confronted with a contractual dispute in which one party 1371.21 Lewis v Averay [1972] 1 QB 198, 207 per Lord Denning.
alleges a mistake, practitioners should attempt to re-classify 22 Cundy v Lindsay (1878) 3 App Cas 459, 465 per Lord Cairns.
23 [2004] 1 AC 919. 24 Shogun Finance Ltd v Hudson [2004] 1 AC
the dispute in order to place it on a more principled
919, at 942-942 (per Lord Hobhouse), at 976 (per Lord Phillips of
foundation. While references to mistake continue to be Worth Matravers), and at 979 (per Lord Walker of Gestingthorpe).
made in both the cases and the literature, this arises more for 25 Shogun Finance Ltd v Hudson [2004] 1 AC 919, at 937-938 (Lord
historical reasons and seldom has any bearing on the legal Nicholls of Birkenhead) and 953 [81 ]-[82] (Lord Millett).
26 (1871) LR 6 QB 597. 27 Smith v Hughes (1871) LR 6 QB 597,
rule used to resolve the dispute. In general terms, the legal 609 per Blackburn J. 28 Taylor v Johnson (1983) 151 CLR 422, 433
position may be summarised as follows: per Mason ACJ, Murphy and Deane JJ.
1. Where the parties purport to enter an agreement on the
basis of a common erroneous assumption, the agreement Stephen Carius BSc, B A JD , Grad. Dip Legal Prac, MCIArb
will be void if they impliedly agreed that the common (Lond) is a Brisbane-based barrister practising principally in
assumption was a condition precedent to the formation commercial and estate litigation. PHONE 07 3012 7070
of the said agreement. EMAIL [email protected].

34 PRECEDENT ISSUE 95 NOVEMBER / DECEMBER 2009