Associated Japanese Bank v Credit Du Nord SA [1989] 1 WLR 255
Contract – Common Mistake – Fraud – An Example of a Rogue – Void – Mutual Mistake – Bankruptcy
Facts
The complainants, Associated Japanese Bank, bought three engineering machines from a client that turned out to be a rogue. They bought this machinery and as part of the contract, they leased it back to him, with a guarantee from the defendants, Credit Du Nord SA. The rogue had failed to keep up with the payments agreed by the lease and went bankrupt. In response, the complainants sued the defendants for the money. However, the parties discovered that the engineering machines did not exist.
Issues
The issue in this case was whether the contract between the complainant and the defendant could be set aside or made void, due to the engineering machines not actually existing.
Decision/Outcome
The court held that the contract between the complainants and defendants was void. The machines were fundamental to the contract and the mistake to their existence was shared by both parties, making the subject matter of the contract very different from what they had believed they had entered in to. The court stated that for common mistake to render a contract void, the subject matter must be ‘essentially and radically different’ from what the parties believed to exist. The mistake must go to the root of the contract and cannot simply be made as an excuse to avoid unwanted obligations. Thus, since the three engineering machines did not exist, the contract was void by common mistake.
Updated 19 March 2026
This case summary remains legally accurate. Associated Japanese Bank (International) Ltd v Crédit du Nord SA [1989] 1 WLR 255 is still a leading authority on common mistake at common law, and Steyn J’s formulation that a mistake must render the subject matter ‘essentially and radically different’ from what the parties believed continues to be cited in English contract law.
Readers should be aware of one important subsequent development: the Court of Appeal in Great Peace Shipping Ltd v Tsavliris Salvage (International) Ltd [2002] EWCA Civ 1407, [2003] QB 679 confirmed and refined the common law doctrine of common mistake, approving the approach in Associated Japanese Bank. Significantly, Great Peace Shipping also held that there is no equitable jurisdiction to rescind a contract for common mistake where the mistake is not sufficiently fundamental to void the contract at common law, departing from the earlier Court of Appeal decision in Solle v Butcher [1950] 1 KB 671. This limits the available relief compared to what some earlier commentaries suggested, and students should ensure they consider Great Peace Shipping alongside this case when analysing common mistake. The core principles described in this article remain good law.
