| Shogun Finance Ltd v Hudson | |
|---|---|
| Court | House of Lords |
| Date decided | 19 December 2003 |
| Citation(s) | [2004] 1 AC 919; [2003] UKHL 62 |
| Transcript(s) | Decision from parliament.uk |
| Judge(s) sitting | Lord Nicholls of Birkenhead, Lord Hobhouse of Woodborough, Lord Millett, Lord Phillips of Worth Matravers, Lord Walker of Gestingthorpe |
| Case history | |
| Prior action(s) | [2001] EWCA Civ 1000 |
Shogun Finance Ltd v Hudson [2003] UKHL 62 is an English contract law decided in the House of Lords, on the subject of mistaken identity as a basis for rescission of a contract. The case has been the subject of much criticism in failing to effectively clarify the area of mistake to identity[1][2][3].
Contents |
A rogue went to buy a Mitsubishi Shogun on hire purchase. The rogue told Shogun Finance Ltd that his name was Mr Patel and produced Mr Patel’s driving licence. The finance company did a credit check on Mr Patel, finding no problems, and the rogue drove away. Then, the rogue sold the car to Mr Norman Hudson. Under s.27 Hire Purchase Act 1964 a non-trade buyer of a car who buys in good faith from a hirer under a hire purchase agreement becomes the owner, so Mr Hudson would have been the owner if the hire purchase agreement were valid. Shogun Finance argued that it was not on the basis that there was a mistake as to identity. They therefore claimed against Mr Hudson for conversion.
The majority of the House of Lords (Lord Hobhouse, Lord Phillips and Lord Walker) held there was no contract (rescission) of hire purchase between Shogun Finance and the rogue, so that the car was not Mr Hudson's. This followed the principle established in Cundy v Lindsay, that written agreements do not infer a presumption to sell to the immediate purchaser, where identity is of key importance to contracting. Lord Nicholls and Lord Millett dissented.
The judgments of Lord Nicholls and of Lord Millett are of interest, in their arguments to overrule Cundy v Lindsay, in effect protecting the third party purchaser:
| “ | Accordingly, if the law of contract is to be coherent and rescued from its present unsatisfactory and unprincipled state, the House has to make a choice: either to uphold the approach adopted in Cundy v Lindsay and overrule the decisions in Phillips v Brooks Ltd and Lewis v Averay, or to prefer these later decisions to Cundy v Lindsay.
I consider the latter course is the right one, for a combination of reasons. It is in line with the direction in which, under the more recent decisions, the law has now been moving for some time. It accords better with basic principle regarding the effect of fraud on the formation of a contract. It seems preferable as a matter of legal policy. As between two innocent persons the loss is more appropriately borne by the person who takes the risks inherent in parting with his goods without receiving payment. This approach fits comfortably with the intention of Parliament in enacting the limited statutory exceptions to the proprietary principle of nemo dat non quod habet.[4] |
” |
Such an idea was proposed by the Law Reform Committee in 1966, in their twelfth report. This would mean that in all cases of mistake to identity, contracts would be voidable, rather than immediately void. Therefore, should the original seller not repudiate the contract before the goods have been sold on, the third party would be protected.
The result of Shogun Finance Ltd v Hudson is that the area of mistake to identity retains the 'face to face' distinction. This is that contracts of immediate vicinity differ from contracts made over distance. Such a distinction has been labelled "artificial and unfair"[5] to third parties, who bear the entire loss, where - at least in the instant case - it is argued that Shogun Finance Ltd had far better means to uncover the rogue's fraud, than the independent purchaser[6]; in any case, the original seller is usually in the better position to protect and insure against such risks[7].