COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UXBRIDGE COUNTY COURT
(HIS HONOUR JUDGE BARR)
B e f o r e :
LORD JUSTICE RALPH GIBSON
| ROYSCOT TRUST LIMITED
|(1) ANDREW JEFFREY ROGERSON
(2) MAIDENHEAD HONDA CENTRE LIMITED
MR N.J. SPENCER-LEWIS, instructed by Messrs Edge & Ellison (Birmingham), appeared for the Respondent (Plaintiff).
Crown Copyright ©
LORD JUSTICE BALCOMBE: This appeal, from a judgment of His Honour Judge Barr given in the Uxbridge County Court on 22nd 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 £1200 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% of the total cash price. On 5th 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 £1600 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 5th May 1987 under which he 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 £1200, 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 28th September 1988 made his last monthly payment to the Finance Company. The car was then said to be worth at least £6,325.
On 22nd September 1989 the Finance Company issued proceedings against both the Customer and the Dealer in the Uxbridge County Court, and on 23rd 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 22nd 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 they 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 £1200 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 £1200. Because the Finance Company were induced to pay an extra £1600 that was the relevant loss suffered by the Finance Company. He assessed damages in that sum with interest thereon from 1st June 1987 at the rate of 12.5% (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 Order 59, rule 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 £1200 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  1 All E.R. 425, 429 (a case similar on its facts to the present case, save that the misrepresentations were there fraudulent):
"Nor can they [the dealers] modify the resulting damages on the footing that though in the absence of misrepresentation the plaintiff firm [the finance company] would not have made the contract with the defendants [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."
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?
based on section 2(1) of the Misrepresentation Act 1967. This
subsection reads (so far as relevant) as follows:
"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  E.G.D. 709 and Jarvis v. Swans Tours  QB 233, 237 - and the decision at first instance in Watts v. Spence  Ch. 165, there was some doubt whether the measure of damages for an innocent misrepresentation giving rise to a cause of action under the 1967 Act 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's remarks in Gosling v. Anderson were concerned with an amendment to a pleading, while his remarks in Jarvis v. Swans Tours were clearly obiter. Watts v. Spence was disapproved by this court in Sharneyford Supplies Ltd v. Edge  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 Contract (26th ed.) para. 439, note 63 and in McGregor on Damages (15th ed.) para. 1745. One at least, Chesneau v. Interhome Ltd (1983) 134 N.L.J. 341 is a decision of this court. The claim was one under section 2(1) of the 1967 Act and the appeal concerned the assessment of damages. In the course of his judgment Eveleigh L.J. said (C. A. Transcript 83, No. 238 p.5):
"[Damages] should be assessed in a case like the present one on the same principles as damages are assessed in tort. The sub-section 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  2 QB 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 Franks Q.C. sitting as a Deputy High Court Judge in McNally v. Welltrade International Ltd  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 1967 Act is that established in Doyle v. Olby. 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."
the authors say (at p.373):
"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."
"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  AC 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 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.) 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 Furntston's Law of Contract (11th ed.) 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."
"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 Customer, it was reasonably foreseeable that the Customer might wrongfully sell the car.
Mr Kennedy's next submission was that the Customer's wrongful sale of the car was novus actus interveniens. This issue was considered by the judge, although the brief note of his judgment on this point is corrupt and is not agreed by counsel. It is implicit in his decision to award £1600 damages to the Finance Company that the sale was not novus actus interveniens: otherwise on the figures in this case he would have been bound to find that the Finance Company had suffered no loss. However, the judgment contains no indication of how he came to that conclusion.
In the present case the Customer was a free agent and his act in selling the car was unlawful. Nevertheless neither of these facts is conclusive in determining whether the sale of the car was a novus actus sufficient to break the chain of causation. See generally Clerk and Lindsell on Torts (16th ed.) paras. 1-117 to 1-121; McGregor on Damages (15th ed.) paras. 152-166. However, if the Dealer should reasonably have foreseen the possibility of the wrongful sale of the car, then that is a strong indication that the sale did not break the chain of causation. As Winn L.J. said in Iron and Steel Holding and Realisation Agency v. Compensation Appeal Tribunal  1 W.L.R. 480, 492:
"In my opinion, wherever any intervening factor was itself foreseen or reasonably foreseeable by the actor, the person responsible for the act which initiated the chain of causes leading to the final result, that intervening cause is not itself, in the legal sense, a novus actus interveniens breaking the chain of causation and isolating the initial act from the final result."
I doubt whether further citation of authority will be helpful: in this field authority is almost too plentiful. For the reasons I have already given, in my judgment the Dealer should reasonably have foreseen the possibility that the Customer might wrongfully sell the car. In my judgment, therefore, the sale was not novus actus interveniens and did not break the chain of causation.
Mr Kennedy's final submission was that the normal rule is that the plaintiff's loss must be assessed as at the date of his reliance upon the misrepresentation: since the Finance Company paid £6,400 to the Dealer and in return acquired title to a car which was worth at least that sum, its loss assessed at that date was nil. This submission again falls into the error of treating the transaction according to its technicalities: that the Finance Company was interested in purchasing the car. That was not the reality: the Finance Company was interested in receiving the totality of the instalments from the Customer. Once the transaction is looked at in this way the authorities on which Mr Kennedy relied to support this submission, being all concerned with misrepresentations leading to the acquisition of chattels, can be seen to be of little assistance. But even in such a case the rule is not a hard and fast one - see the recent case of Naughton v. O'Callaqhan  3 All E.R. 191. So I reject this submission also.
Accordingly, I would dismiss the Dealer's appeal. I would allow the Finance Company's cross-appeal, set aside the judgment of 22nd February 1990 and direct that in its place judgment be entered for the Finance Company against the Dealer in the sum of £3,625.24 together with interest. The Finance Company accepts that it will have to give credit for any sums that it may receive from its judgment against the Customer.
LORD JUSTICE RALPH GIBSON: I agree that the Dealer's appeal should be dismissed and that judgment should be entered for the Finance Company against the Dealer for £3,625.24 with interest as proposed by my Lord Lord Justice Balcombe.
Upon proof of the misrepresentation which induced the Finance Company to purchase the car, and to enter into the hire-purchase agreement with the Customer, and upon failure by the Dealer to prove the defence of reasonable ground of belief under section 2 of the Act of 1967, the Finance Company was, in my judgment, entitled to recover the loss suffered by them as a result of entering into the two contracts as if the misrepresentation had been made fraudulently. That seems to me to be the plain meaning of section 2 of the 1967 Act as explained by Balcombe L.J. I find it impossible to attribute to Parliament the intention, by the use of the words in section 2(1), of causing the maker of such a representation to be liable as for a negligent statement. If that had been the intention I have no doubt whatever that apt words would have been used to express it.
Liability as for a fraudulent misrepresentation is to make reparation for all the actual damage directly flowing from the fraudulent inducement: see Doyle v. Olby (Ironmongers) Ltd  2 QB 158 per Lord Denning M.R. at page 167B: subject, of course, to remoteness. The loss suffered by the Finance Company was caused by the failure by the hirer to comply with the terms of the hire-purchase agreement and, in particular, the Finance Company lost the security which they would have had from the ownership of the car because of the dishonest sale of the car by the hirer. That loss seems to me to have resulted directly from the entry into the two contracts by the Finance Company.
If it were necessary for the Finance Company to prove that their loss was reasonably foreseeable by the Dealer as a consequence of the Dealer's negligent statement, which was intended to induce the Finance Company to enter into the two contracts and did so induce them, I would hold without hesitation that it was foreseeable. The particular damage suffered was loss through dishonest sale of the car, but it is clear law that, in determining foreseeability of damage for the tort of negligence, the essential factor in determining liability is whether the damage is of such kind as the reasonable man should have foreseen: see the discussion of the authorities in Bangue Keyser Ullmann S.A. v. Skandia (UK) Insurance Co. Ltd  1 Q.B. 665 at 761-769 per Slade L.J. The speeches in the House of Lords in that case:  3 W.L.R. 364: seem to me to cast no doubt upon that part of the reasoning of the Court of Appeal.
Since the Finance Company, by the misrepresentation which is for this purpose taken to have been a negligent statement, was induced to enter into a hire-purchase agreement with the hirer into which it would not have entered on the true terms agreed between the hirer and Dealer; and since the Dealer must have known that the purpose of the Finance Company in requiring a minimum deposit of at least 20% of the total cash price was to reduce the risk of placing contracts with hirers who would or might default in compliance with the terms of the hire-purchase agreement; it was plainly foreseeable that, by reason of the negligent statement, the Finance Company would be exposed to an increased risk of the kind of damage which can be described as damage by default on the part of the hirer. Both the Dealer and the Finance Company are, as I think, to be taken to have known that that kind of damage could take many forms: examples are simple non-payment; negligent damage to the car with no or ineffective insurance; disappearing with the car; and wrongful sale of the car with or without payment by the hirer of the hire rents for a longer or shorter period of time. The damage suffered was, I think, clearly foreseeable.
Order: Appeal dismissed; cross-appeal allowed; judgment below set aside; judgment to be entered for the plaintiffs in the sum of £3,625.24 with interest of £1,140.59; plaintiffs to have their costs here and below on scale 3.