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ROYSCOT TRUST v ROGERSON [1991] 2 QB 297

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ROYSCOT TRUST v ROGERSON [1991] 2 QB 297

    COURT OF APPEAL

    ROYSCOT TRUST v ROGERSON [1991] 2 QB 297

March 21 1991

Full text

Editor’s italics. Comments in red.

BALCOMBE LJ:

This appeal ... raises an issue on the measure of damages for innocent

    misrepresentation under the Misrepresentation Act 1967.

The finance company's cause of action against the dealer is based on s2(1)

    of the Misrepresentation Act 1967, which reads:

‘where a person has entered into a contract after a misrepresentation has

    been made to him by another party thereto and as a result thereof he has

    suffered loss, then, if the person making the misrepresentation would be

    liable to damages in respect thereof had the misrepresentation been made

    fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently ...’

In view of the wording of the subsection it is difficult to see how the

    measure of damages under it could be other than the tortious measure and,

    despite the initial aberrations referred to above, that is now generally

    accepted. Indeed counsel before us did not seek to argue the contrary.

The first main issue before us was: accepting that the tortious measure is

    the right measure, is it the measure where the tort is that of fraudulent

    misrepresentation, or is it the measure where the tort is negligence at

    common law? The difference is that in cases of fraud a plaintiff is entitled

    to any loss which flowed from the defendant's fraud, even if the loss

    could not have been foreseen: see Doyle v Olby (Ironmongers) Ltd

    [1969] 2 QB 158 [in the Library].

In my judgment the wording of the subsection is clear: the person making

    the innocent misrepresentation shall be ‘so liable,’ ie, liable to damages

    as if the representation had been made fraudulently.

This was also the original view of the academic writers. In an article,

    ‘The Misrepresentation Act 1967’ (1967) 30 MLR 369 by PS Atiyah and

    GH Treitel, the authors say, at pp 373-374:

‘The measure of damages in the statutory action will apparently be that in

    an action of deceit ... But more probably the damages recoverable in the

    new action are the same as those recoverable in an action of deceit ...’

Professor Treitel has since changed his view. In Treitel, The Law of

    Contract, 7th ed (1987), p 278, he says:

‘Where the action is brought under s2(1) of the Misrepresentation Act,

    one possible view is that the deceit rule will be applied by virtue of the

    fiction of fraud. But the preferable view is that the severity of the deceit

    rule can only be justified in cases of actual fraud and that remoteness

    under s2(1) should depend, as in actions based on negligence, on the test

    of foreseeability.’

The only authority cited in support of the ‘preferable’ view is Shepheard

    v Broome [1904] AC 342, a case under s38 of the Companies Act 1867,

    which provided that in certain circumstances a company director,

    although not in fact fraudulent, should be ‘deemed to be fraudulent.’ As

    Lord Lindley said, at p 346: ‘To be compelled by Act of Parliament to

    treat an honest man as if he were fraudulent is at all times painful,’ but he

    went on to say:

‘but the repugnance which is naturally felt against being compelled to do

    so will not justify your Lordships in refusing to hold the appellant

    responsible for acts for which an Act of Parliament clearly declares he is

    to be held liable.’

The House of Lords so held.

It seems to me that that case, far from supporting Professor Treitel's view,

is authority for the proposition that we must follow the literal wording of

    s2(1), even though that has the effect of treating, so far as the measure of damages is concerned, an innocent person as if he were fraudulent. [Statutory interpretation freaks, please note - this is a good example of the literal rule being followed in a relatively recent judgment - Editor].

    ...

    With all respect to the various learned authors whose works I have cited above, it seems to me that to suggest that a different measure of damage applies to an action for [negligent] misrepresentation under the section than that which applies to an action for fraudulent misrepresentation (deceit) at common law is to ignore the plain words of the subsection and is inconsistent with the cases to which I have referred. In my judgment, therefore, the finance company is entitled to recover from the dealer all the losses which it suffered as a result of its entering into the agreements with the dealer and the customer, even if those losses were unforeseeable, provided that they were not otherwise too remote.

Full text

BALCOMBE LJ:

    This appeal, from a judgment of Judge Barr given in the Uxbridge County Court on 22 February 1990, raises an issue on the measure of damages for innocent misrepresentation under the Misrepresentation Act 1967.

    The second defendant to the action and the appellant in this court, Maidenhead Honda Centre Ltd. (‘the dealer’), is a motor car dealer. At the beginning of May 1987 the first defendant, Mr. Andrew Jeffrey Rogerson (‘the customer’), agreed with the dealer to buy on hire-purchase

    a second hand Honda Prelude motor car for the price of ?7,600, of which a deposit of ?1,200 was to be paid, leaving a balance of ?6,400. The plaintiff and the respondent to this appeal, Royscot Trust Ltd. (‘the finance company’), is a company which finances hire-purchase sales. It

    does so in the usual way, that is by purchasing the car which is the subject of the sale from the dealer and then entering into a hire-purchase agreement with the customer.

    The finance company has a policy that it will not accept a hire-purchase transaction unless the deposit paid represents at least 20 per cent. of the total cash price. On 5 May 1987 the dealer submitted a proposal to the finance company in relation to the customer’s proposed purchase of the car, by which the dealer represented to the finance company that the total cash price payable was ?8,000 and that a deposit of ?1,600 had been paid by the customer. It will be observed that the balance under these figures, ?6,400, is the same as that which was truly payable by the customer. It is common ground that this was a misrepresentation and that in reliance upon it the finance company entered into a hire-purchase agreement with the customer dated 5 May 1987 under which the customer agreed to pay a total price (including the deposit) of ?9,878.92, of which the balance of ?8,278.92 was to be paid by 36 monthly instalments of ?229.97. At no time has it been pleaded or claimed by the finance company that in making this representation the dealer was acting fraudulently. Accordingly, in making its claim for damages the finance company relies on innocent misrepresentation under section 2(1) of the Misrepresentation Act 1967. In fact the customer paid the dealer a deposit of ?1,200, and the finance company paid the dealer the sum of ?6,400.

    The customer paid to the finance company under the hire-purchase agreement monthly instalments amounting in all to ?2,774.76. In August 1987 the customer dishonestly sold the car to a private purchaser for the sum of ?7,200; that purchaser acquired a good title to the car under the provisions of the Hire-Purchase Act 1964. The customer told the finance company in August 1988 that he had wrongfully disposed of the car a year previously and on 28 September 1988 made his last monthly payment to the finance company. The car was then said to be worth at least ?6,325.

    On 22 September 1989 the finance company issued proceedings against both the customer and the dealer in the Uxbridge County Court, and on 23 November 1989 entered judgment in default against both defendants for damages to be assessed. It was that assessment of damages which came before Judge Barr on 22 February 1990. As against the customer the judge assessed the finance company’s damages as ?5,504.16 (the balance of ?8,278.92 less the instalments paid of ?2,774.76), and judgment in that sum was entered against him. There has been no appeal

against that judgment.

    Before the judge, counsel for the finance company submitted that its loss was the difference between the sum of ?6,400 which it paid to the dealer and the sum of ?2,774.76 paid by the customer, viz., ?3,625.24. Counsel for the dealer submitted that the finance company had suffered no loss since it had acquired title to a motor car worth at least ?6,400. The judge accepted neither submission. He held that if the figures on the hire-purchase agreement had shown a deposit of ?1,200 and a cash price of ?6,000, then the finance company would have paid ?4,800 to the dealer and would have had no recourse against it since the deposit would have been correctly shown as ?1,200. Because the finance company was induced to pay an extra ?1,600 that was the relevant loss suffered by the finance company. He assessed damages in that sum with interest thereon from 1 June 1987 at the rate of 12.5 per cent. (calculated to be ?546.30), and it was for those sums that judgment for the finance company was entered against the dealer.

    Against this judgment the dealer has appealed, claiming that the damages should have been assessed at nil, and the finance company has served a respondent’s notice under R.S.C., Ord. 59, r. 6(1)(a), claiming that its judgment against the dealer should be increased to the sum of ?3,625.24 with interest.

    Before us neither side sought to uphold the judge’s assessment of damages. It assumed a hypothetical sale of the car with a deposit of ? 1,200 and a balance of ?4,800 payable by the finance company to the dealer, and there was no evidence that such a sale would ever have taken place. As was said by the Privy Council in its judgment in United Motor Finance Co. v. Addison & Co. Ltd. [1937] 1 All E.R. 425 (a case similar on its facts to the present case, save that the misrepresentations were there fraudulent), at p. 429:

‘Nor can [the dealers] modify the resulting damages on the footing that

    though in the absence of misrepresentation [the finance company] would not have made the contract with [the dealers] or with the hirer which it did in fact make, nevertheless even if it had known the facts it would have entered into some other contract and thus lost money in any event.’

    In fairness to the judge it should be said that this case was not cited to him.

    So I turn to the issue on this appeal which the dealer submits raises a pure point of law: where (a) a motor dealer innocently misrepresents to a finance company the amount of the sale price of, and the deposit paid by the intended purchaser of, the car, and (b) the finance company is thereby induced to enter into a hire-purchase agreement with the purchaser which it would not have done if it had known the true facts, and (c) the purchaser thereafter dishonestly disposes of the car and defaults on the hire-purchase agreement, can the finance company recover all or part of its losses on the hire-purchase agreement from the motor dealer?

    The finance company’s cause of action against the dealer is based on section 2(1) of the Misrepresentation Act 1967, which reads:

    ‘Where a person has entered into a contract after a misrepresentation has been made to him by another party thereto and as a result thereof he has suffered loss, then, if the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable notwithstanding that the misrepresentation was not made fraudulently ...’

    As a result of some dicta by Lord Denning M.R. in two cases in the Court of Appeal - Gosling v. Anderson [1972] E.G.D. 709 and Jarvis v. Swans Tours Ltd. [1973] Q.B. 233, 237 - and the decision at first instance in Watts v. Spence [1976] Ch. 165, there was some doubt whether the measure of damages for an innocent misrepresentation giving rise to a cause of action under the Act of 1967 was the tortious measure, so as to put the representee in the position in which he would have been if he had never entered into the contract, or the contractual measure, so as to put the representee in the position in which he would have been if the misrepresentation had been true, and thus in some cases give rise to a claim for damages for loss of bargain. Lord Denning M.R.’s remarks in

    Gosling v. Andersonwere concerned with an amendment to a pleading, while his remarks in Jarvis v. Swans Tours Ltd. were clearly obiter. Watts v. Spence was disapproved by this court in Sharneyford Supplies Ltd. v. Edge [1987] Ch. 305, 323. However, there is now a number of decisions

    which make it clear that the tortious measure of damages is the true one. Most of these decisions are at first instance and will be found in Chitty on Contracts, 26th ed. (1989), vol. 1, p. 293, para. 439, note 63, and in McGregor on Damages , 15th ed. (1988), pp. 1107-1108, para. 1745. One at least, Chesneau v. Interhome Ltd. (1983) 134 N.L.J. 341; Court of Appeal (Civil Division) Transcript No. 238 of 1983, is a decision of this court. The claim was one under section 2(1)of the Act of 1967 and the appeal concerned the assessment of damages. In the course of his judgment Eveleigh L.J. said:

    ‘[Damages] should be assessed in a case like the present one on the same principles as damages are assessed in tort. The subsection itself says: ‘if

    the person making the misrepresentation would be liable to damages in respect thereof had the misrepresentation been made fraudulently, that person shall be so liable ...’ By ‘so liable’ I take it to mean liable as he

    would be if the misrepresentation had been made fraudulently.’

    In view of the wording of the subsection it is difficult to see how the measure of damages under it could be other than the tortious measure and, despite the initial aberrations referred to above, that is now generally accepted. Indeed counsel before us did not seek to argue the contrary.

    The first main issue before us was: accepting that the tortious measure is the right measure, is it the measure where the tort is that of fraudulent misrepresentation, or is it the measure where the tort is negligence at common law? The difference is that in cases of fraud a plaintiff is entitled to any loss which flowed from the defendant’s fraud, even if the loss could not have been foreseen: see Doyle v. Olby (Ironmongers) Ltd. [1969] 2 Q.B. 158. In my judgment the wording of the subsection is clear: the person making the innocent misrepresentation shall be ‘so liable,’ i.e., liable to damages as if the representation had been made fraudulently. This was the conclusion to which Walton J. came in F. & B.

    Entertainments Ltd. v. Leisure Enterprises Ltd. (1976) 240 E.G. 455, 461. See also the decision of Sir Douglas Frank Q.C., sitting as a High Court judge, in McNally v. Welltrade International Ltd. [1978] I.R.L.R. 497. In each of these cases the judge held that the basis for the assessment of damages under section 2(1) of the Act of 1967 is that established in Doyle v. Olby (Ironmongers) Ltd. This is also the effect of the judgment

    of Eveleigh L.J. in Chesneau v. Interhome Ltd.already cited: ‘By ‘so liable’ I take it to mean liable as he would be if the misrepresentation had

    been made fraudulently.’

This was also the original view of the academic writers. In an article,

    ‘The Misrepresentation Act 1967’ (1967) 30 M.L.R. 369 by P. S. Atiyah

    and G. H. Treitel, the authors say, at pp. 373-374:

‘The measure of damages in the statutory action will apparently be that in

    an action of deceit ... But more probably the damages recoverable in the

    new action are the same as those recoverable in an action of deceit ...’

Professor Treitel has since changed his view. In Treitel, The Law of

    Contract, 7th ed. (1987), p. 278, he says:

‘Where the action is brought under section 2(1) of the Misrepresentation

    Act, one possible view is that the deceit rule will be applied by virtue of

    the fiction of fraud. But the preferable view is that the severity of the

    deceit rule can only be justified in cases of actual fraud and that

    remoteness under section 2(1) should depend, as in actions based on

    negligence, on the test of foreseeability.’

    The only authority cited in support of the ‘preferable’ view is Shepheard

    v. Broome [1904] A.C. 342, a case under section 38 of the Companies

    Act 1867, which provided that in certain circumstances a company

    director, although not in fact fraudulent, should be ‘deemed to be

    fraudulent.’ As Lord Lindley said, at p. 346: ‘To be compelled by Act of

    Parliament to treat an honest man as if he were fraudulent is at all times

    painful,’ but he went on to say:

‘but the repugnance which is naturally felt against being compelled to do

    so will not justify your Lordships in refusing to hold the appellant

    responsible for acts for which an Act of Parliament clearly declares he is

    to be held liable.’

The House of Lords so held.

It seems to me that that case, far from supporting Professor Treitel’s view,

    is authority for the proposition that we must follow the literal wording of

section 2(1), even though that has the effect of treating, so far as the

    measure of damages is concerned, an innocent person as if he were

    fraudulent.

Chitty on Contracts, 26th ed. (1989), vol. 1, p. 293, para. 439, says:

‘it is doubtful whether the rule that the plaintiff may recover even

    unforeseeable losses suffered as the result of fraud would be applied; it is

    an exceptional rule which is probably justified only in cases of actual

    fraud.’

No authority is cited in support of that proposition save a reference to the

    passage in Professor Treitel’s book cited above.

Professor Furmston in Cheshire, Fifoot and Furmston’s Law of Contract,

    11th ed. (1986), p. 286, says:

‘It has been suggested’ - and the reference is to the passage in Atiyah and

    Treitel’s article cited above - ‘that damages under section 2(1) should be

    calculated on the same principles as govern the tort of deceit. This

    suggestion is based on a theory that section 2(1) is based on a ‘fiction of

    fraud.’ We have already suggested that this theory is misconceived. On

    the other hand the action created by section 2(1) does look much more

    like an action in tort than one in contract and it is suggested that the rules

    for negligence are the natural ones to apply.’

The suggestion that the ‘fiction of fraud’ theory is misconceived occurs at

    p. 271, in a passage which includes:

‘Though it would be quixotic to defend the drafting of the section, it is

    suggested that there is no such ‘fiction of fraud’ since the section does not

    say that a negligent misrepresentor shall be treated for all purposes as if

    he were fraudulent. No doubt the wording seeks to incorporate by

    reference some of the rules relating to fraud but, for instance, nothing in

    the wording of the subsection requires the measure of damages for deceit

    to be applied to the statutory action.’

With all respect to the various learned authors whose works I have cited

    above, it seems to me that to suggest that a different measure of damage applies to an action for innocent misrepresentation under the section than that which applies to an action for fraudulent misrepresentation (deceit) at common law is to ignore the plain words of the subsection and is inconsistent with the cases to which I have referred. In my judgment, therefore, the finance company is entitled to recover from the dealer all the losses which it suffered as a result of its entering into the agreements with the dealer and the customer, even if those losses were unforeseeable, provided that they were not otherwise too remote.

    If the question of foreseeability had been the only issue in this appeal, the judgment so far would have rendered it unnecessary to decide whether, in the circumstances of the present case, the wrongful sale of the car by the customer was reasonably foreseeable by the dealer. Since the judge did not expressly deal with this point in his judgment, it might have been preferable that we should not do so. Nevertheless there is a separate issue whether the wrongful sale of the car was novus actus interveniens and thus broke the chain of causation, and the reasonable foreseeability of the event in question is a factor to be taken into account on that issue. Accordingly, it is necessary to deal with this matter. Mr. Kennedy, for the dealer, submitted that while a motor car dealer might be expected to foresee that a customer who buys a car on hire-purchase may default in payment of his instalments, he cannot be expected to foresee that he will wrongfully dispose of the car. He went on to submit that, in the particular circumstances of this case, where the customer was apparently reputable, being a young married man in employment, it was even less likely that the dealer could have foreseen what might happen. There appears to have been no oral evidence directed to this particular point.

    In my judgment this is to ignore both the reality of the transaction and general experience. While in legal theory the car remains the property of the finance company until the last hire-purchase instalment is paid, in practice the purchaser is placed in effective control of the car and treats it as his own. Further, there have been so many cases, both civil and criminal, where persons buying a car on hire-purchase have wrongfully disposed of the car, that we can take judicial notice that this is an all too frequent occurrence. Accordingly I am satisfied that, at the time when the finance company entered into the agreements with the dealer and the

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