Statoil ASA v Louis Dreyfus Energy Services LP (The Harriette N)
High Court
Citations: [2008] EWHC 2257 (Comm); [2009] 1 All ER (Comm) 1035; [2008] 2 Lloyd’s Rep 685.
Facts
The claimant was a Norwegian oil and gas company. The defendant was part of a commodities trading corporate group in the US. The parties contracted for the sale of propane gas.
The claimant later sued the defendant for the balance of demurrage (a fee payable for failure to load or unload a ship on time) owed under the contract. The defendant alleged that the contract required demurrage claims to be made within 90 days. If they not, the claimant forfeited the claim.
The parties were also in dispute as to the amount of the demurrage due. Their representatives had reached an agreement on the sum (the first settlement agreement). However, the claimant’s representative made a mistake in the calculations. The defendant’s representative realised the mistake, but decided to stay quiet about it. The defendant now argued that if they were required to pay demurrage, it was the sum due under the mistaken agreement.
The claimant responded that the agreement was either void for unilateral mistake at common law or voidable under an equitable doctrine of mistake. Alternatively, they claimed that the parties had agreed to correct the mistake during a later phone call (the second settlement agreement). The defendant denied that the parties made any such agreement.
Issue(s)
- Did the contract make late demurrage claims invalid?
- Was the contract void for unilateral mistake?
- Is there an equitable doctrine of mistake, and does it apply to these facts?
- Had the parties made a second agreement to modify the demurrage sum agreed?
Decision
The High Court held that the final version of the contract did not contain any time-bar clause. The first settlement agreement was not void for mistake. This was because the claimant was not mistaken as to the contract terms. They were merely mistaken about a background fact on which they based the contract. However, the second settlement agreement did exist and allowed the claimant’s claim for the full demurrage.
This Case is Authority For…
The common law defence of mistake only applies where a party is mistaken about a term of the contract. This includes facts which become terms of the contract. It does not apply where a party is merely mistaken about a fact which influences him to contract but does not become a contract term.
Aikens J rejected the existence of an equitable defence of mistake applicable to cases where a party makes a mistaken fundamental assumption about the basis for entering the contract. He confirmed that the decision in Great Peace Shipping Ltd v Tsavliris Salvage International) Ltd [2003] QB 679 had already rejected such an idea.
Other
Aikens J explained the basis of the common law defence of mistake:
‘The general rule at common law is that if one party has made a mistake as to the terms of the contract and that mistake is known to the other party, then the contract is not binding. The reasoning is that although the parties appear, objectively, to have agreed terms, it is clear that they are not in agreement. Therefore the normal rule of looking only at the objective agreement of the parties is displaced and the court admits evidence to show what each side subjectively intended to agree by way of terms.’
He commented that while mistake is sometimes referred to as making the contract void, the reality is that there is never a contract to begin with, since the parties are never in agreement.
