Facts
- The "Cape Providence," a vessel in distress, required rescue assistance.
- Tsavliris Salvage was engaged to provide standby rescue services and sought a nearby ship for this purpose.
- Through brokers, Tsavliris contacted the owners of the "Great Peace," believing it to be approximately 35 miles from the troubled ship.
- In reality, both parties were mistaken; the "Great Peace" was 410 miles away.
- Upon discovering the true distance, Tsavliris cancelled the agreement and secured another, closer vessel.
- The owners of the "Great Peace" sued Tsavliris for breach of contract, while Tsavliris claimed the contract was void due to a common mistake regarding the ship's location.
Issues
- Whether the contract between Tsavliris and the "Great Peace" could be rescinded on the ground of common mistake.
- What test should apply to determine if a common mistake renders a contract void.
- How the doctrines of common mistake and frustration are distinguished in English contract law.
Decision
- The House of Lords unanimously rejected Tsavliris’s claim for rescission based on common mistake.
- The court held the mistake regarding distance, though significant, did not render performance impossible; the "Great Peace" could still fulfill the contract, albeit less efficiently.
- The court clarified that for common mistake to void a contract, the error must fundamentally alter the contract's nature so that performance is unworkable or pointless.
- Tsavliris was liable for breach of contract.
Legal Principles
- Equitable rescission for common mistake in English law is confined to situations where the shared mistake makes contractual performance impossible or fundamentally different from what was originally contemplated.
- The threshold for common mistake is strict; a contract is not voided by mere inconvenience, increased expense, or reduced utility.
- The doctrine of common mistake deals with errors present at the time of contract formation, while frustration applies to unforeseen events that occur afterwards.
- The "Great Peace" test requires proof that the mistake makes the core obligation commercially unviable, not merely less convenient or profitable.
Conclusion
The decision in Great Peace Shipping Ltd v Tsavliris (International) Ltd established a narrow scope for equitable rescission due to common mistake, requiring that the parties’ shared mistake renders performance fundamentally unworkable or different. This promotes contractual certainty and demarcates the boundary between common mistake and frustration in English contract law.