Oops I did it again - can a mistake render a contract void?
08 June 2018
In Triple Seven v Azman the court found that although the parties had entered into aircraft leasing contracts on the basis of a common assumption, which turned out to be wrong, the mistake was not sufficiently fundamental to render the contracts void. Even if it had been, the parties had allocated that risk.
Nigerian airline Azman leased aircraft from lessors in the Veling group. Azman’s business plan included carrying pilgrims to Saudi Arabia for the 2016 Hajj. This needed approval from the Saudi Civil Aviation Authority. The parties assumed Azman would receive approval. However, hours after signing, Azman received a letter from the aviation authority stating that approval had not been granted. The lessors tendered the aircraft for delivery. Azman said it was not in a position to accept delivery as it was no longer participating in the 2016 Hajj. The lessors terminated the contracts and sued for damages.
Azman argued that the lease was void under the doctrine of common mistake. The judge reviewed the case law including the test set out in Great Peace Shipping. Summarising, he said common mistake would render a contract void if:
- the parties shared an assumption, fundamental to the contract, which was wrong at the time of concluding the contract;
- by reason of the assumption being wrong, the contract would be radically different from what the parties believed at the time of concluding the contract; and
- the contract did not make provision for the common assumption being mistaken.
Here, although there had been a mistake (a shared assumption that approval would be obtained), it was not deemed sufficiently fundamental. The leases had five year terms and Azman stood to make a substantial profit during that period without participating in the 2016 Hajj. Further, the parties had included a clause which dealt with the possibility that the common assumption was mistaken: Azman’s obligations under the leases were "absolute and unconditional, irrespective of any contingency or circumstance whatsoever". This clearly placed the risk of failure to obtain approval on Azman, and was reason enough on its own to rule out common mistake.
Those looking for certainty in their contracts can take some comfort from this case, which confirms that the doctrine of common mistake will be limited to sufficiently fundamental mistakes which radically alter the contract, and that it will not apply where contracts properly allocate the risks of an assumption turning out to be wrong.
So the answer is yes, a mistake can render a contract void, but not here, and probably only in limited circumstances.