Chapter 8 – Contractual Impossibility and Risk: Frustration and Common Mistake

Essay question

Critically discuss the current operation of the doctrine of common mistake.

Essay question answer guidance

Sometimes parties to a contract will have entered into the contract on the basis of a (shared) mistaken belief (for example, that the subject matter of the contract, such as a cargo of grain, is in existence whereas, in fact, the cargo has already been destroyed).  As a result one party may claim that the ‘contract’ is void for common mistake.  However, the doctrine of common mistake operates in a relatively small space.  In particular it will not apply if the risk of the mistake has been allocated, expressly or by implication, to one of the parties to the contract (see William Sindall plc v Cambridgeshire County Council (1994)).  Where the risk has not been allocated to one of the parties the courts might hold that the contract is void for common mistake at common law although the courts have been reluctant to do so on the ground that this might undermine the sanctity of contracts.  A classic situation to which the doctrine of common mistake might apply is the situation of res extincta (mistaken belief that the goods subject to the contract are still in existence).  In Bell v Lever Bros Ltd (1932) the House of Lords suggested a wider doctrine of common mistake at common law including mistakes as to quality where the mistake as to quality rendered the thing without that quality ‘essentially different’, but the decision in Bell v Lever Bros Ltd (1932) again demonstrates a very narrow approach.  You should consider some of the difficulties of terminology in this area (Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002) and Triple Seven MSN 27251 Ltd v Azman Air Services Ltd (2018)).  You should also consider whether the more flexible doctrine of equitable common mistake suggested by Denning LJ in Solle v Butcher (1950) (and disapproved of by the Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd (2002)) was a welcome development.

Problem question

Radha is an avid rugby fan. Last month she organised a trip to Twickenham for her local rugby club. She entered into a contract with Howden Coaches Ltd to transport her and her local rugby club to Twickenham on the day of the match. The contract stated that Howden Coaches Ltd would use one of its two ‘superior deluxe’ coaches to perform the contract. Radha was required to pay for the coach in advance which she did. On the morning of the trip to Twickenham, Howden Coaches Ltd telephoned Radha to tell her that the trip would need to be cancelled as one of its ‘superior deluxe’ coaches had broken down and they had engaged the other ‘superior deluxe’ coach to transport a group to Anfield for a football match.

Advise Radha. Would your answer be different if, instead of the coach breaking down, the rugby match at Twickenham had been cancelled as the result of a terrorist alert?

Problem question answer guidance

It appears that Radha and Howden Coaches Ltd have entered into a contract to transport Radha’s local rugby team to Twickenham. Howden Coaches Ltd is potentially in breach of contract by not performing the contract. However, did the contract make provision for one or more of the coaches breaking down? Did the contract contain cancellation provisions? Did the contract contain an exemption clause? If the contract did not expressly, or by implication, allocate the risk of the coaches breaking down, Howden Coaches Ltd might try to argue that it has a defence to a claim of breach of contract – frustration. It is helpful to define the doctrine of frustration as well as the limitations on that doctrine (see Davis Contractors Ltd v Fareham UDC (1956)). In particular, the defence of frustration will not apply if the frustrating event is the fault of one of the parties (self-induced frustration) and, following J Lauritzen AS v Wijsmuller BV, The Super Servant Two (1990), the mere existence of a choice may be sufficient to establish self-induced frustration (choosing to allocate another vessel to another contract). In the second situation the cancellation of the rugby match might frustrate the contract meaning that the contract is discharged and Radha can potentially reclaim some or all of her payment (Law Reform (Frustrated Contracts) Act 1943, s.1(2)). One potential difficulty is whether or not a trip to Twickenham is still potentially possible (even if there is no rugby match) and this requires a discussion of Krell v Henry (1903).