House of Lords, 19 November 2003, Shogun Finance Limited v. Hudson - Effect of Fraudulent Misrepresentation on the Formation of a Contract

Abstract

In order to obtain possession of a car under a hire-purchase agreement with the claimant firm, a person who can only be described as a fraudster availed himself of a false identity, i.e. that of a Mr. Patel. The firm concerned, Shogun Finance, performed all the necessary identity and credit checks in relation to the Mr. Patel. The defendant duly paid a deposit, and the dealer delivered the vehicle to the fraudster. The latter then sold the car to a third party, one Norman Hudson, and disappeared with the money. Once it appeared that the fraudster had defaulted on the agreement, the claimants demanded that the vehicle be returned to them. Under S. 27 of the Hire Purchase Act 1964, Mr. Hudson could have retained the car lawfully if he could prove that the agreement between the rogue and Shogun was merely voidable by the latter. If, on the other hand, the contract had been void ab initio, the hapless Mr. Hudson would be compelled to return the vehicle to the claimants. The House of Lords, by a majority of 3 to 2, awarded the action to Shogun. The basis for their ruling was that, since the pre-contractual negotiations had not been conducted on a face-to-face basis, and since the circumstance of Mr. Patel being the purchaser was fundamental to Shogun, no contract could have been made since no agreement had been reached. Had the negotiations taken place on a face-to-face basis, the Law Lords would probably have found in favour of Mr. Hudson. In a dissenting opinion, Lords Millett and Nicholls of Birkenhead opined that, in today?s world of customer identification and credit checks, it was impossible to make a distinction between negotiations conducted face-to-face and those which took place by telephone, fax or even videolink.