An Evaluation on the Doctrine of Unilateral Mistake in Modern UK Contract Law

Critically Assess the Law on Unilateral Mistake in modern UK contract law

The question of a unilateral mistake poses a number of quandaries for the law and the common law has sometimes taken a confused and contradictory approach in attempting to deal with the issues arising from such breakdowns in mutual intentions between contracting parties. The difficulties arise due to a certain number of conflicting principals which are over time given different emphasis by the judiciary including the sanctity of an objective contract, giving effect to the intention of the parties, and simple natural fairness. This has resulted in a splurge of cases which approach the same problem from entirely different angles and some not so convincing distinctions being drawn. More recently however I believe that the law has been somewhat clarified, though whether the final principles decided upon are correct is open to debate.

To begin to assess how the law approaches a situation whereby the contract does not reflect the intentions of one of the contracting parties we must examine the context in which such responses operate. It was generally held in Frederick E Rose (London) Ltd v William H Pim Junior & Co Ltd that once a contract is to all outward appearances in full and certain agreement, parties cannot set up either their mistake, or a common mistake even as a bar to a contracts formation unless it fails some condition the formation of the contract is dependant upon, is fraud, or there is some equitable reason to hold the contract as invalid. This shows the emphasis on the sanctity of contract as an objectively binding agreement separate from the actual intentions of the contracting parties. This I believe is justifiable on the grounds of certainty, the law needing to provide a clear distinction between which agreements should be given contractual force and which that should not. This approach appears to find much support from cases involving a unilateral mistake with regards to the quality of the subject matter, for example in Smith v Hughes it was held that a self deception by one party as to the quality of the product (in this case that the oats were old rather than new) would not nullify the contract unless there was evidence that the vendor did not disclose something he was commercially responsible to do, or if he had given some misrepresentation as to the quality. Further evidence as to the emphasis on the objective terms of a contract can be found in the decision of Raffles v. Wichelhaus whereby it was held that due to the term being ambiguous and leading to a mistake as to the quality of the product (in this case two vassals bearing the same name) the parties could not have managed a meeting of the minds and thus no contract was formed.
However it must be pointed out that the law, if left in this situation would have been very rigid and inflexible; leading to a number of injustices, thus an equitable approach which deviated from the strict objectivity of the above principle was formed offering the remedy of rectification even in cases of unilateral mistake. This occurred in the case of Thomas Bates v Wyndham’s Lingerie, whereby on the face of it there would appear to be the perfect formation of a contract, however one of the parties was aware of an omitted term which would benefit it and refrained from informing the other. The judge appeared to base his decision upon giving force to the parties’ intentions, they both originally intended to contract the arbitration term, however due to a mistake from which the omitting party would benefit, it wasn’t included in the contract. There is also an element of natural equity involved, the party who omits to inform the other must be aware of the mistake and be seeking to benefit from it. This was further developed in the case Commission for New Towns v Cooper where it was held although the party wasn’t aware of the others mistake, it was acting unconscionably thus equity could intervene to rectify the contract.

A strong example as to the need for the law to be based upon concrete and fair principles can be found in the series of cases linked to a mistake of identity, usually arising due to a fraudster impersonating another individual to induce a vendor into parting with a product. The difficulty arises when the fraudster passes the fraudulently acquired property onto an innocent third party as in this case it matters very much as to whether the mistake of identity serves to cause the contract to be void, thus the fraudster never gained any proprietal interests to pass on to the third party, or if the contract was formed but merely voidable due to fraud whereby the fraudster would have gained said interests. It basically boils down to who the law decides that the loss should lie with, the innocent vendor, or the innocent third party in possession of the goods. This is where the conflict lies and resulted in some unsatisfactory law as the courts vacillated between different approaches as to how to fairly distribute the loss. First came Cundy v Lindsay which suggested that because the negotiations were all done in a written format the actual contract did not occur between the fraudster and the company, but between the company and who the fraudster purported to be. This in itself is not so much of an issue, if we decide the loss should fall with the third party, however if consider the distinction between this case and a face to face mistake of identity of the kind seen in Lewis v Averay it becomes a rather absurd and arbitrary line to be drawn. In Lewis it was held that in cases of face to face misrepresentation the contract would be voidable rather than fully void, the loss thus falling upon the vendor rather than the third party if the vendor does not void the contract before the transfer to said third party. The reasoning for this apportionment appears to be slightly stronger than the purely technical reasoning of Cundy v Lindsay (that there was no interaction with the fraudster himself), in that the vendor has taken the risk of parting with his goods in the first instance.

The difficulty of the technical justification given in Cundy v Lindsay is further highlighted in the conflict between cases such as Ingram v Little and Lewis v Averay. Trying to define just when a party is dealing with the person in front of them and with the identity that said person has assumed is a legal construction that holds little water. It has been pointed out that if you asked the person who was selling the product whether they were dealing with G R Green as in Lewis or the person in front of them they would have replied that the question was irrelevant because they were one in the same. This carries over to the written format, what real difference is there between dealing with an individual face to face who says he is someone else and someone who has written a different name on a piece of paper? In neither case is there an opportunity to discover the truth and the end result is the same in both. Another issue arising is the question of other mediums of communication, what of phones? What of video conferencing? What of email and instant messaging? The distinctions drawn will soon descend into absurdity due to the need to draw the line lacking any clear guiding principals. It is this reason that makes the majority decision found in Shogun Finance Ltd v Hudson so unfortunate as it serves to maintain the myriad of quite simply inconsistent and unprincipled distinctions currently afflicting the common law. I would argue that the approach adopted in Lewis v Averay, that a mistake as to identity should make a contract voidable rather than void whatever the medium of communication, would be a more consistent and sustainable approach to dealing with the matter in the absence of a workable method of fair apportionment of loss as suggested by Devlin J. This is based upon the reasoning of Lord Nicholls, as he states fraud can negative legal rights, but it cannot negative facts thus we maintain the fundamental principle that an objectively judged contract is enforceable unless there are mitigating circumstances.

n conclusion I feel that the law of unilateral mistake should aim for greater clarity, based upon stronger principles than currently used and less upon fine and quite often irrelevant distinctions. This I believe could be achieved through applying a consistent apportionment of loss through all situations whereby the issue is a unilateral mistake of identity regardless of whether there was direct contact between the parties or not.