Shogun Finance Ltd v Hudson

Shogun Finance Ltd v Hudson
Court House of Lords
Decided 19 December 2003
Citation(s) [2004] 1 AC 919; [2003] UKHL 62
Transcript(s) Decision from parliament.uk
Case history
Prior action(s) [2001] EWCA Civ 1000
Court membership
Judge(s) sitting Lord Nicholls of Birkenhead, Lord Hobhouse of Woodborough, Lord Millett, Lord Phillips of Worth Matravers, Lord Walker of Gestingthorpe
Keywords
mistaken identity, rescission

Shogun Finance Ltd v Hudson [2003] UKHL 62 is an English contract law case 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]

Facts

A rogue went to a dealer to buy a Mitsubishi Shogun on hire purchase. The rogue told them that his name was Mr Patel and produced Mr Patel’s driving licence. The dealer communicated with Shogun Finance, which did a credit check on Mr Patel. Finding no problems, Shogun Finance authorized the hire purchase agreement and the rogue drove away.

The rogue then 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. The rogue could not be found; they therefore claimed against Mr Hudson for conversion.

Judgment

In a 3-2 decision, the majority of the House of Lords held there was no contract of hire purchase between Shogun Finance and the rogue, so that the car was not Mr Hudson's. Lord Hobhouse, Lord Phillips and Lord Walker followed the principle established in Cundy v Lindsay, that a contract where identity is of key importance is void if the purchaser lies about their identity. The face-to-face exemption established by Phillips v Brooks Ltd did not apply, because the seller was not the dealer but the finance company.

Lord Nicholls and Lord Millett dissented, arguing that a better policy would be to remove the face-to-face distinction and protect the good-faith purchaser in all cases:

“ [This] 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 quod non 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.

Reception

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]

See also

Notes

  1. ↑ Elliot 2004
  2. ↑ Foster 2004
  3. ↑ MacMillan 2004, p. 373
  4. ↑ [2003] UKHL 62, at [34], [35]
  5. ↑ Elliott 2004, p. 385
  6. ↑ Elliot 2004, p. 386
  7. ↑ Foster 2004, p. 13

References

External links