Unilateral mistake in contract
134 As discussed in Carter on Contract at [22-01], contracting parties' decisions and actions are often influenced by some mistake which may relate to the perceived benefits, characteristics or value of property, goods or services bought or sold. If a party's mistake is caused by a misrepresentation made by the other party, there will often be a remedy at law. Absent a misrepresentation, though, only a limited range of mistakes will have legal consequences.
135 In contractual dealings between parties, mistaken beliefs can relate to various aspects of the transaction (the identity of the contracting party, the subject matter of the contract, the contractual terms or a fact or circumstance which is the motivation for or cause of a party entering into the contract) and may be held by one party only (usually referred to as unilateral mistake) or both parties (usually referred to as common mistake) or each party holds a different mistaken belief (usually referred to as mutual mistake): see for example Heydon on Contract at [15.40] - [15.60]; Carter on Contract at [22-010] - [22-030]; Chitty on Contracts, 33rd Ed, at [3-001] - [3-002].
136 The circumstances in which a contract may be voidable in equity on the basis of unilateral mistake are limited. The traditional position has been that, absent misrepresentation or some form of unconscionable conduct, a party to a contract is not entitled to avoid the contract on the basis that the party was mistaken as to a matter that did not form part of the contractual obligations (for example, the perceived value of the property, goods or services being sold or some characteristic of the property, goods or services), even if the other party knows that the first party holds a mistaken belief. So in Statoil ASA v Louis Dreyfus Energy Services LP [2008] EWHC 2257; 2 Lloyd's Rep 685 (Statoil), Aikens J said at [88]:
If one party has made a mistake about a fact on which he bases his decision to enter into the contract, but that fact does not form a term of the contract itself then, even if the other party knows the first is mistaken as to this fact, the contract will be binding. That was the effect of the decision of the Court of Queen's Bench, on appeal from the County Court, in Smith v Hughes (1871) LR 6 QB 597, see particularly at page 604 per Cockburn CJ, and page 607 per Blackburn J. The correctness of that decision and the analysis in it has never been doubted.
137 Smith v Hughes (1871) LR 6 QB 597 is often referred to in this context. The case concerned the sale of oats intended for horse feed. The plaintiff (a farmer) offered to sell oats to the defendant (a racehorse owner and trainer) and provided a sample to the defendant. The defendant agreed to buy the oats at an agreed price. After the oats were delivered, the defendant refused to pay because the oats were new rather than old and the defendant had contracted in the belief that he was buying old oats. The defendant contended that the plaintiff had represented that the oats were old, but that contention failed before the jury. The relevant facts upon which the judgment proceeded were stated by Cockburn CJ in the following terms (at 602): "…nothing was said on the subject of the defendant's manager desiring to buy old oats, nor of the oats having been said to be old; while, on the other hand, we must assume that the defendant's manager believed the oats to be old oats, and that the plaintiff was conscious of the existence of such belief, but did nothing, directly or indirectly, to bring it about, simply offering his oats and exhibiting his sample, remaining perfectly passive as to what was passing in the mind of the other party. The question is whether, under such circumstances, the passive acquiescence of the seller in the self-deception of the buyer will entitle the latter to avoid the contract. I am of opinion that it will not." Cockburn CJ expressed the relevant principle as follows (at 603-4):
I take the true rule to be, that where a specific article is offered for sale, without express warranty, or without circumstances from which the law will imply a warranty - as where, for instance, an article is ordered for a specific purpose - and the buyer has full opportunity of inspecting and forming his own judgment, if he chooses to act on his own judgment, the rule caveat emptor applies. If he gets the article he contracted to buy, and that article corresponds with what it was sold as, he gets all he is entitled to, and is bound by the contract…
…
Now, in this case, there was plainly no legal obligation in the plaintiff in the first instance to state whether the oats were new or old. He offered them for sale according to the sample, as he had a perfect right to do, and gave the buyer the fullest opportunity of inspecting the sample, which, practically, was equivalent to an inspection of the oats themselves. What, then, was there to create any trust or confidence between the parties, so as to make it incumbent on the plaintiff to communicate the fact that the oats were not, as the defendant assumed them to be, old oats? If, indeed, the buyer, instead of acting on his own opinion, had asked the question whether the oats were old or new, or had said anything which intimated his understanding that the seller was selling the oats as old oats, the case would have been wholly different; or even if he had said anything which shewed that he was not acting on his own inspection and judgment, but assumed as the foundation of the contract that the oats were old, the silence of the seller, as a means of misleading him, might have amounted to a fraudulent concealment, such as would have entitled the buyer to avoid the contract. Here, however, nothing of the sort occurs. The buyer in no way refers to the seller, but acts entirely on his own judgment.
138 The leading case on unilateral mistake in Australia is Taylor v Johnson (1983) 151 CLR 422 (Taylor). In that case, the parties entered into a written contract for the sale of two adjoining pieces of land, each of about five acres, for a total price of $15,000. The vendor subsequently refused to proceed on the ground that when she executed the contract she believed that it provided for a price of $15,000 per acre. The NSW Court of Appeal, overturning the trial judge's factual finding, concluded that the purchaser believed that the vendor was probably mistaken as to what the contract stipulated as the price, and set aside the contract. The High Court affirmed that decision. The majority (Mason ACJ, Murphy and Deane JJ) stated (at 432):
The particular proposition of law which we see as appropriate and adequate for disposing of the present appeal may be narrowly stated. It is that a party who has entered into a written contract under a serious mistake about its contents in relation to a fundamental term will be entitled in equity to an order rescinding the contract if the other party is aware that circumstances exist which indicate that the first party is entering the contract under some serious mistake or misapprehension about either the content or subject matter of that term and deliberately sets out to ensure that the first party does not become aware of the existence of his mistake or misapprehension. What we have said is sufficient to demonstrate the broad basis of support which the authorities provide for that proposition. Moreover, and perhaps more importantly, it is a principle which is best calculated to do justice between the parties to a contract in the situation which it contemplates.
139 The majority based the applicable principle, as stated above, in the ordinary jurisdiction of equity to set aside an instrument where it would be unconscientious for one of the parties to enforce it against another observing (at 431, citations omitted):
Special circumstances will ordinarily need to be shown before it would be unconscientious for one party to a written contract to enforce it against another party who was under a mistake as to its terms or its subject matter. In Solle v. Butcher Denning L.J. gave, as examples of such special circumstances, the case where the mistake of the one party has been induced by a material misrepresentation of the other and the case where "one party, knowing that the other is mistaken about the terms of an offer, or the identity of the person by whom it is made, lets him remain under his delusion and concludes a contract on the mistaken terms instead of pointing out the mistake".
140 QBE submitted that the type of unilateral mistake that was recognised in Taylor as founding a right to rescission in equity sat within a narrow compass. It had to be a "serious mistake" about the contents of the contract in relation to a "fundamental term". QBE argued that there is no authority in Australia or the United Kingdom that a mistake as to the factual circumstances of the transaction or motive of the party seeking rescission (in the absence of misrepresentation) is sufficient to establish an entitlement to equitable relief. QBE further submitted that this is settled law as recognised in the leading texts on contract law in Australia and the United Kingdom, referring to J D Heydon, Heydon on Contract at [15.270]; Carter, Contract Law in Australia, 7th Edition at [20-49]; and Chitty on Contracts, 33rd Edition, [3-002], [3-025]. In Chitty, the principle is expressed as follows (at [3-025]):
It is not sufficient that one party knows the other has entered the contract under a mistake of some kind. The mistake must relate to the terms of the contract. If it relates, for example, to what is the subject matter that is being bought and sold (i.e. as to its contractual description), the mistake is to the terms and may prevent there being a contract; but if the mistake is merely to the quality or the substance of the thing contracted for, it will be a mistake as to the facts (or "an error in motive") and it is well established that an error in motive will not avoid a contract. … There is no equitable jurisdiction to set the contract aside where one party has made a unilateral mistake as to a fact or state of affairs which is the basis upon which the terms of the contract are agreed, but that assumption does not become a term of the contract [referring to Statoil].
141 The applicants submitted that the Court cannot rule out at this stage that the operative mistakes alleged in the proposed amended paragraph 74 come within the principle of unilateral mistake as articulated in Taylor. The applicants say that it is incorrect to characterise the alleged mistakes merely as mistakes about the facts which motivated group members to take out the policies. They say that the alleged mistaken belief that group members were required to take out the policy in order to obtain the loan and that the policy formed part of the loan were serious mistakes or misapprehensions about the contents and/or subject-matter of the terms of the contract. They also say that the alleged mistaken belief that the policies had a material value to group members is also a mistake about the subject-matter of the contract.
142 In my view, the circumstances in which a contracting party may be afforded equitable relief on the basis of a unilateral mistake known to the other party are not as fixed or settled in Australian law as QBE contends. Three observations can be made.
143 First, as the reasons of the majority in Taylor make clear, the principle on which the case was decided was stated narrowly. The majority did not decide that the principle so stated marked out the boundaries or limits of equitable relief for unilateral mistake. In the usual way, such boundaries will be determined case by case.
144 Second, the principle stated in Taylor may give rise to difficult questions of application which may depend upon specific factual findings. The applicants allege that certain group members acquired the policies in the mistaken belief that they were required to take out the policy in order to obtain the loan and that the policy formed part of the loan. The applicants argue that that is a serious mistake about the contents and/or subject-matter of the terms of the policy. That may or may not be so. The alleged mistake would appear to relate to the terms of the loan rather than the terms of the policies, but the applicants do not seek any relief in respect of the underlying loans. Be that as it may, in my view it would be inappropriate to rule that the allegation does not disclose a reasonable cause of action. It may be that, when all facts are considered, the circumstances are found to come within the principle stated in Taylor. The second allegation, that the policies had a material value to group members, is more difficult to bring within the principle stated in Taylor. The proposed particulars to that allegation, referring to paragraph 49 of the statement of claim, appear to be incorrect. The correct reference would appear to be paragraph 29 which alleges that the policies were of no material value. The basis for the no material value allegations, which is set out earlier in these reasons, involves a number of alleged facts and circumstances that are external to the terms of the policies save in one respect. The applicants also rely on certain exclusions contained within the policies. Depending on the facts ultimately found at trial, the applicants may establish that certain group members were mistaken as to those exclusions which may then bring the allegation within the principle in Taylor.
145 Third, and perhaps an elaboration on the first and second observations, there is a vast difference between a contract for the sale of oats by sample, or even the sale of land by description, and the sale of an insurance policy, particularly in a consumer context. The subject matter of an insurance policy is not a physical object capable of being inspected, but contractual promises. A mistake about the perceived value of the insurance policy may in fact be a mistake about the terms of the policy. While in Smith v Hughes, the court applied the principle of caveat emptor to a sale of oats by sample to a racehorse owner, that principle may have far less force in the context of an insurance policy sold by a bank to consumers in connection with a credit card or consumer loan. As observed recently by Allsop CJ in Australian Securities and Investments Commission v Australia and New Zealand Banking Group Limited (No 3) [2020] FCA 1421 at [17], in the reality of life consumers dealing with banks pursuant to standard form contracts frequently "take what they get". It is conceivable that the principle as stated in Taylor, or as developed, could apply to circumstances in which persons seeking consumer credit formed a mistaken belief that credit insurance was compulsory (or was a part of the credit contract) or that the insurance would provide cover in their personal circumstances and the bank arranging the sale of the insurance, and the insurer, were aware that the consumer held those mistaken beliefs.
146 QBE also submitted that the proposed allegations that QBE had knowledge of the alleged mistake (proposed paragraph 74A) are defective. In that regard, QBE observed that it is not alleged that QBE had any actual knowledge of the relevant circumstances indicating the unilateral mistake of all mistaken group members. Instead, it is said that ANZ had that state of mind and that ANZ's knowledge can be attributed to QBE because "ANZ acted as the agent of those insurers, as set out in paragraph 9B above". QBE argued that this appears to be an allegation that ANZ's knowledge can be attributed to QBE in accordance with common law agency principles. To establish that allegation, the applicants would need to show that the relevant information (affording knowledge of the mistaken beliefs) was acquired by ANZ in the course of carrying out a transaction on behalf of QBE and that ANZ had a duty to disclose that information to QBE: Sargent v ASL Development Ltd (1974) 131 CLR 634 at 659. QBE argues that it is impossible to understand on the pleading how the applicants intend to prove this.
147 I do not accept QBE's submission. Proposed paragraph 74A alleges that each of the respondents, including QBE, was aware that circumstances existed which indicated that the applicants and group members acquired the policies under the alleged mistaken beliefs. It can be accepted that that allegation must be particularised (see r 16.43 of the FC Rules). By way of particulars, the applicants have stated the basis on which they say that ANZ had the requisite knowledge and then state that ANZ's knowledge is attributable to the other respondents because, in arranging the issue of the policies, ANZ acted as their agents. The applicants have also expressly reserved the opportunity to provide further particulars after discovery. In my view, the applicants have provided sufficient particulars to sustain the allegation at this early stage of the proceeding and before discovery (cf Sadie Ville Pty Ltd v Deloitte Touche Tohmatsu [2017] FCA 1202 at [64] (Moshinsky J); Imobilari Pty Ltd v Opes Prime Stockbroking Ltd [2008] FCA 1920; 252 ALR 41, [37]-[41] (Finkelstein J)). Procedural fairness usually requires that the applicants are held to their particulars. Therefore, it will be incumbent on the applicants to provide any further particulars they wish to rely upon in due course and before the respondents are required to file evidence.
148 Finally, on this aspect of the pleading, QBE submitted that the unilateral mistake claim (in so far as it relates to the ANZ Loan Protection policy) should be confined to the second applicant's personal claim as the claim does not present any substantive common issues of fact or law, as required by s 33C of the FCA Act. QBE observed that, in the proposed amended originating application, the applicants do not list any of the factual or legal issues arising on the unilateral mistake claim as common questions. QBE argued that it is difficult to think of a cause of action that is less suitable for determination in a representative proceeding. The whole basis of the jurisdiction is the subjective understanding of the individual claimant and the respondents' knowledge of that understanding. The claim is therefore inherently idiosyncratic and individually fact-dependent.
149 While QBE's concern has substance in a practical sense, I reject the contention that the unilateral mistake claim does not satisfy the requirements of s 33C(1) of the FCA Act. That section provides as follows:
Subject to this Part, where:
(a) 7 or more persons have claims against the same person; and
(b) the claims of all of those persons are in respect of, or arise out of, the same, similar or related circumstances; and
(c) the claims of all of those persons give rise to a substantial common issue of law or fact,
a proceeding may be commenced by one or more of those persons as representing some or all of them.
150 A claim is not the cause of action pleaded: King v GIO Australia Holdings Ltd (2000) 100 FCR 209 at [23]-[24] and at [34]-[35] per Moore J. As explained by Lindgren J in Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (1998) 84 FCR 512 at 523, the provisions of Part IVA make clear that "claims" have an existence independent of, and antecedent to, the commencement of the proceeding. The requirements of s 33C are threefold: that 7 or more persons have claims against the same person; that the claims are in respect of, or arise out of, the same, similar or related circumstances; and that the claims give rise to a substantial common issue of law or fact.
151 In the present case, the unilateral mistake claim readily satisfies the first two conditions. The policies had standard terms and were offered by ANZ on those terms to a large number of consumers in connection with its credit card and personal loan facilities. While each transaction with a consumer is in one sense an individual transaction, the nature of large-scale consumer transactions is that there is a high degree of standardisation in the product sold, the circumstances of sale and the sales processes. In relation to the third condition, in my view the unilateral mistake claim gives rise to common issues of law and fact that are substantial. As to facts, a substantial common question is whether the policies had material value to the applicants and group members. The answer to that question depends on many factual allegations that are common to the applicants and group members. As to law, a substantial common question is whether the facts as alleged can sustain a claim for equitable rescission of the contracts on the ground of unilateral mistake, as discussed above. For those reasons, the claim satisfies s 33C.
152 As I have noted, though, QBE's concern about the individuality of the unilateral mistake claim has substance in a practical sense. The cause of action requires the Court to find that an individual claimant held the alleged mistaken beliefs and that one or more of the respondents were aware of that fact. Findings made by the Court in relation to the individual claims of the applicants or sample group members may or may not lead to a resolution of the claims of all group members. However, it is too early in the proceeding to form any judgment about such matters. It is possible that the evidence will cause the Court to infer that group members inevitably held certain beliefs that were mistaken, and infer that the respondents were aware of that fact. It is also possible that the evidence will not rise to that level. Part IVA provides the Court with ample procedural powers to progress the claims of represented persons as a group or as individual claims as is considered appropriate as the proceeding progresses (see particularly ss 33N, 33Q and 33R).