11th July 2018
The High Court has rejected a defendant’s attempt to avoid liability for damages, holding that a contract remained valid despite the parties’ common mistake as to shared assumptions at the time the contract was entered into. Walker Morris’ Managing Partner and Commercial Dispute Resolution specialist Malcolm Simpson looks at the law of mistake and reviews the recent case of Triple Seven Msn 27251 Ltd v Azman Air Services Ltd .
When faced with a claim, inevitably a defendant will look to avoid liability if that is at all possible. If there is no clear cut factual defence available, defendants may also wish to examine legal arguments providing potential defences to a claim. That is what the defendant did in this case, albeit, in the particular circumstances, the legal defence raised was unsuccessful.
The parties had entered into two five-year aircraft leases, with both parties operating on the assumption that the Saudi authorities would grant approval for the defendant to participate in the 2016 Hajj airlift of pilgrims to Mecca. (In fact, at the time the contract was completed, the Saudi authorities had already decided to withhold that approval, and so the leases were completed under a common mistake as to fact.)
When, during the term of the leases, the defendant failed to accept delivery of the aircraft and defaulted on its rent, the claimant sued for damages. The defendant was unable to mount a defence by disputing the facts, so it sought to avoid liability by arguing, instead, that the contract was void by reason of the parties’ shared mistake.
Concluding that a contract is void is a fairly draconian step. In practice, the courts generally prefer to uphold the contract wherever possible; and to adjust the parties’ obligations through the interpretation of its terms, or even implying terms where considered necessary. In this case the High Court undertook a comprehensive review of the relevant authorities, and helpfully distilled six principles to determine whether a contract is void for mistake:-
On the facts, the High Court found that, although there was a common mistaken assumption that the Saudi authorities would grant the 2016 Hajj airlift approval, it was not sufficient to render the contract void. One key reason was that the 2016 Hajj airlift would only have lasted for a relatively short part of the overall 5-year lease period. Another was that the leases contained provisions which made it clear that the defendant’s obligations would be unaffected by “any contingency or circumstance whatsoever”. Those contingency provisions in the contract were found to have covered the possibility that Saudi approval would not be granted. The claimant was therefore entitled to damages for breach of contract. In this case that included: the claimant’s loss of profit which it would otherwise have earned under the leases; expenses incurred with trying to find alternative leases; costs incurred negotiating the leases with the defendant; and interest at the contract rate.
What should you do if you face an unfavourable contractual term (possibly included erroneously)?
For further advice or assistance, please do not hesitate to contact Malcolm Simpson or any member of Walker Morris’ Commercial Dispute Resolution Team.
  EWHC 1348 (Comm)
  UKSC 36
 See Walker Morris’ earlier briefings on contractual interpretation and implying terms.