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The law on mistake has been much criticized for its uncertainty especially in the areas of
mistake to identity and common mistake under common law and equity. This essay will
consider the landmark decisions of Shogun Finance v Hudson [2004] 1 AC 919 [Shogun]
and Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ
1407 [Great Peace] with regard to their respective areas and discuss the benefits they
have brought and whether they caused more problems with injecting more uncertainty
into the law and thus tied the proverbial Gordian knot.

Shogun: Mistake to identity

Shogun stands for the HL position that there is a distinction between mistakes made to the
identity when formed via written communications and face-to-face transactions. First, the
context of these two situations will be set out. Thereafter, the benefits of Shogun and the
uncertainty it injected into the law will be considered. Finally, it will illustrate that while
Shogun brought about uncertainty, it did not tie a Gordian knot in the law.

In considering cases regarding written communications, Cundy v Lindsay (1878) 3 AC

459 [Cundy] has stated that a mistake to identity can render a contract void. On the other
hand, cases regarding face-to-face transactions have been decided differently where a
mistake to identity would not suffice to render the contract void because the law
presumes that claimants would intend to deal with the party in front of them (Phillips v
Brooks [1919] 2 KB 243 [Phillips]). However, it must be noted the law governing faceto-face transactions had been in a state of uncertainty because of Ingram v Little [1961] 1

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QB 31 [Ingram], where the contract was held void because the checking of the
telephone directory was crucial to the creation of the contract (Ingram at 62). This
decision was in stark contrast to Phillips because the facts in both cases were largely the
same and thus difficult to distinguish. Subsequently, Lewis v Averay [1972] 1 QB 198
[Lewis] affirmed the position of Phillips, which had been good law for over fifty years
(Lewis at 208), and confined Ingram to its special facts (Lewis at 202). Although
Ingram was not expressly overruled, it can be taken to an outlier because of its deviation
to the general rule in Phillips and Lewis that the identity of the party in face-to-face
transactions is not fundamental enough to render the contract void.

On the outset, the reasoning in both areas of law appears sound because a fair outcome is
reached when both situations are considered in isolation. The problem arises when an
attempt is made to justify why a distinction exists. In light of the advances of technology
blurring the line between written communications and face-to-face transactions (e.g.
telephone calls, credit card transactions), the reasons behind maintaining or removing this
distinction becomes even more pertinent, which the HL in Shogun unfortunately failed to
provide.

Shogun can be argued to have injected even more uncertainty into this area of mistaken
identity. First, it can be attributed to the fact that it was a split decision of 3:2, showing
that the HL themselves were divided over this matter. Secondly, compelling reasons were
provided by the dissenting judges to remove the distinction between written
communications and face-to-face transactions who opined that such a distinction should

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not exist so that the reasoning and outcome in both classes of cases would be uniform.
The distinction was criticized as unprincipled, where it would be ludicrous that a
claimant would be dependent on the precise mechanics of the fraud which had been
perpetrated on him (Shogun at para 108 (Lord Millet)). Thirdly, it would be preferable
as a matter of legal policy to protect the innocent third party even in cases of written
communications since the loss is more appropriately borne by the person who takes the
risks inherent in parting with his goods without receiving payment (Shogun at para 35
(Lord Nicholls)). All these considerations strongly demand for a justification in
preserving such a distinction, which Shogun unfortunately failed to provide.

Instead, Shogun maintained a distinction between both cases by asserting that the sanctity
of the contract is paramount. Lord Hobhouses judgment, in particular, highlighted the
importance of the parole evidence rule and literal construction of interpreting contracts.
While this might not directly justify the preserving of the distinction, Shogun nonetheless
affirms the courts general unwillingness to interfere with written contracts. In addition,
Shogun has also elucidated the area of face-to-face transactions. While Ingram was not
overruled, it was suggested that there was a strong presumption of a claimant intending to
deal with parties who were present, thus affirming the position in Phillips and Lewis.

While it might be easy to simply insist on the parole evidence rule, this might lead to
problems in justifying, in greater detail, the existence of the distinction between written
communications and face-to-face transactions now that the parole evidence rule is
waning. For example, Singapore is shifting to a more contextual approach to interpreting

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contracts (Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design &
Construction Pte Ltd [2008] 3 SLR (R) 1029 at [133]). In light of the parole evidence
rules weakening grip, it would lead to courts having to provide another justification in
maintaining a distinction instead of solely basing an approach on the parole evidence
rule.

Ultimately, Shogun might be excused for failing to discuss about the distinction in greater
detail because Shogun was a consumer credit transaction where the identity of the
customer is arguaby more fundamental than in sale of goods contracts. Moreover, it is
difficult to balance the considerations of preserving the distinction which would lead to
inconsistency in the law and removing the distinction which would effectively abolish the
doctrine of mistaken identity and result in greater rigidity (Andrew Phang, Pey-Woan Lee
and Pearlie Koh, Mistaken Identity in the House of Lords (2004) 63:1 Cambridge LJ
24 at 26). Shogun merely postponed this problem to the future, where courts would have
to grapple with the same issues again. While Shogun has not particularly elucidated the
area of mistaken identity, it also cannot be said that it fastened the Gordian knot because
it leaves the state of the law as it was before. Until another similar case comes before the
consideration of an apex court again, the best solution to deal with such cases in the
meantime could be, as Lewis suggested, be confined to an analysis of its special facts.

Great Peace: Common mistake under common law

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The law of common mistake has been governed by common law and equity for over fifty
years. The decision in Great Peace is huge because it overruled Solle v Butcher [1950] 1
KB 671 [Solle] which introduced mistake in equity. This part of the answer will first
focus on explaining the development of common mistake in both jurisdictions before
explaining why the decision in Great Peace might have caused more problems.

Under common law, the test for an actionable common mistake is whether the mistake
makes the [agreement] essentially different from the [agreement] as it was believed to
be (Bell v Lever Bros [1932] 1 AC 161 [Bell] at 218 (Lord Atkin)). Only a mistake
fundamental to the contract can render it void. In the case of Bell, even the massive sum
of 50,000 was not considered fundamental, suggesting that the threshold for what is a
fundamental mistake is very high under common law.

Under equity, the test was in terms of a misapprehension that was fundamental as
introduced in Solle at 693 by Lord Denning. Although being bound by the decision in
Bell, Lord Denning distinguished Solle on the basis that Bell was an authority for the
doctrine of mistake in common law and he was considering mistake in equity instead.
The primary purpose of equity is to relieve parties from the consequences of their own
mistake so long as it could do so without injustice to third parties (Solle at 692).
Accordingly, a lower threshold was provided for what can be constituted as a
fundamental mistake.

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In Great Peace, Solle was overruled because it did not follow the HL decision. While the
EWCA did recognize that mistake in equity can on occasion be a passport to a just
result (Great Peace at para 152), Solle was impossible to reconcile with Bell (Great
Peace at para 157) and the effect of Solle was not to supplement or mitigate the common
law [but was] to say that Bell was wrongly decided (Great Peace at para 156). The
EWCA also proposed that the introduction of mistake in equity served to undermine the
effectiveness of the common law because it assumed that for some reason the common
law cannot cure itself (Great Peace at 156). The EWCAs preference for the legal
certainty brought about by considering common mistake only under one jurisdiction is
understandable. Difficulties arise from having two separate jurisdictions considering
common mistake because courts would be unable to develop a clear distinction of what
fundamentality means under common law as opposed to equity since they have
different thresholds (Ang Houfu, A Test of Fire: Relooking Mistake in Contract (2007)
Sing L Rev 90 at 103). Essentially, [w]hat [lay] at the heart of [the EWCAs] reasoning
is the need for doctrinal consistency, rather than any attempt to evaluate past exercises of
the equitable jurisdictions on their merits (Edwin Peel, Treitel on The Law of Contract,
12th Ed (London: Sweet & Maxwell, 2007) at 8-030). However, this is insufficient to
allay the concerns that there should be mistake in equity.

Another issue with Great Peace is that while it did overrule Solle on the basis of stare
decisis, it did not explicitly reject the possibility of an equitable jurisdiction in the UK.
Accordingly, this does not rule out the possibility of an equitable jurisdiction being

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introduced in future. However, it still seems like a stretch to suggest that the EWCA left
an open door for common mistake in equity in what was a harsh renouncement of Solle.

Mistake in equity has provided many benefits, being warmly received for mainly three
reasons. First, the scope in equity is wider and can encompass a broader range of
fundamental mistakes. Second, mistake in equity renders a contract voidable and not
void to protect the rights of innocent third parties. Finally, mistake in equity allows for
courts to have greater remedial flexibility. This flexibility in equity had granted courts
greater discretion in deciding on a just result and was thus beneficial.

In the Singapore context, the SGCA has upheld the usefulness for mistake in equity in
contrast to Great Peace (Chwee Kin Keong v Digilandmall.com Pte Ltd [2005] SGCA 2
at [74]). Although the SGCA mainly considered unilateral mistake in equity, this can be
extrapolated to include common mistakes because the benefits equity provides for both
classes of mistakes are similar. While the SGCA recognized that the price for equitable
justice is uncertainty (at [81]), they weighed it against the dictates on justice [at [81])
and concluded that there was room for the doctrine of equity in Singapore as a
supplement to the common law, which would be sensible and satisfactory (at [55]).

Ultimately, it is difficult to see why the EWCA was so concerned about equity
outflanking the law since [t]his has been equitys role in many areas of the law (N
Seddon, R Bigwood & M Ellinghaus, Cheshire & Fifoot Law of Contract 10th Australian
Ed (Australia: LexisNexis Butterworths, 2012) at 12.26). While the UK courts may

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defend their decision on the grounds that it has brought consistency within the body of
mistake, it might be that they have lost an effective tool which had allowed them greater
flexibility in achieving justice. The rigidity created by the absence of equity has indeed
tied their hands with a Gordian knot. In the meantime, the UK would have to wait for a
UKSC decision to reintroduce this jurisdiction or perhaps for Parliamentary intervention
in the form of legislation to cut through the knot that they have fastened.