WAS THE DECISION REACHED IN SHOGUN FINANCE LTD V HUDSON [2003] RIGHT?

Updated: Jun 2


‘The doctrine of mistake must be construed narrowly as the law has to determine which contracting party should bear the loss and considerable hardship.’ In common law, a unilateral mistake is where one contracting party holds a mistaken belief not held by the other. In Cundy v Lindsay (1878)[1], a fraudster wrote to the plaintiff (imitating a reputable company) to buy goods, did not pay for them, then resold the goods to the Defendant. The court held that since no contract had been made between the plaintiff and fraudster (due to misleading as to identity), the goods were to return to P despite the Defendant’s innocence. Here the law has determined that the purchaser must bear the loss and hardship.


In Phillips v Brooks [1919][2], a fraudster paid for a ring from the Plaintiff with a cheque that bounced (written under the fake name of “Sir George Bullough”). The Fraudster sold the ring to the Defendant, using a different name. The Plaintiff sued the Defendant for the ring’s return or damages on the grounds that the original contract never existed since he only intended to sell to “Sir Bullough”. Horridge J stated that the Plaintiff intended to sell to the person in front of him, regardless of his name, and therefore intention was present. The court finding for the defendant seems to contradict Lindsay, which found in Favour of the defrauded seller. Wade argues accordingly “there is no good reason to reverse [usual practice] where the owner has met the fraudulent party face-to-face” as the owner has “no better an opportunity here” to realize the fraud[3].


Ingram v Little [1961][4]was almost identical to Cundy, except with a car. The seller objected to payment via cheque until the fraudster said he was a successful business person and gave fake details that the seller looked up in the phone book. The court held that although usually a physical meeting would be sufficient (Phillips), as the Plaintiff tried to authenticate the fraudster’s (fake) identity by checking the phone book, this overturned this assumption. It is clear the courts are backtracking on a bad previous decision, but are making more complicated distinctions to avoid overruling Phillips. Sellers LJ agrees, stating “the presumption in Phillips is bad”, but because it had stood for so long he could not dispute it, however does argue that in Ingram identity was crucial as the Plaintiff made an exception.


In Lewis v Averay [1972][5], the plaintiff sold a car to a fraudster imitating a famous actor. The Plaintiff asked for proof of identity and was given film studio pass and the real actor’s photo. The Plaintiff agreed to cheque payment, allowed him to take the car, and the cheque bounced. The fraudster sold the car to the Defendant, whom the Plaintiff sued, and the court ruled in the Defendant’s favour. Lord Denning stated that Phillips and Ingram “cannot… be reconciled” and the distinction between credit worthiness and identity is irrelevant. He says where one party to a contract is mistaken about the others identity, the contract is not void, and is only voidable on this ground before another innocent person acquires the object[6].


There are still problems with this decision. Firstly, it does not show why the presumption applies to cases where the fraudster is face-to-face but not where the contract has been formed by correspondence. Secondly, the assertion that the seller ought to bear the loss rather than the innocent buyer is incorrect as placing the risk of loss on D would deter buyers from making purchases without first checking the sale’s validity, which would avoid such as well as making it harder for fraudsters to profit from their activities. Further, it is harder and less practicable for a seller to authenticate. Thirdly, the voidable-void distinction is bad since the defrauded party’s rights now depend on how quickly it takes for the fraud to become clear, and how quickly they can enforce their rights, which is unfair.


In Shogun Finance Ltd v Hudson [2003][7], a fraudster bought a car from a dealer with a fake drivers license. The details were passed to the Plaintiff (Shogun finance) who agreed to finance 90% of the price. The Fraudster then sold the car to the Defendant. The court held that the car could be claimed back.

Lord Hobhouse stated that the Plaintiff only wanted to contract with the party named to them. The identity was of crucial importance to Shogun and therefore the contract was void. He states that there is a strong presumption in face-to-face dealings that the party present is the one with whom the other intends to contract with. The justification for the distinction is in the parole evidence rule, where a document claims to contain the whole agreement, so a party is estopped from bringing other evidence. This would apply as much to the parties identity as it does to the terms and, as here, only the party named (the fake name) was party to the contract. Therefore the contract was void.


This however still relies on the shaky distinction between face-to-face and other methods of communication, such as a video-link, with no good justification. Thus in conclusion, the decision in Shogun has not been a perfect decision as there are still loose ends in the doctrine of mistake, but it was a step in the right direction since pre Lewis.


FOOTNOTES

[1] Cundy v Lindsay (1878) 3 App Cas 459 [2] Phillips v Brooks [1919] 2 KB 243 [3] Emlyn C.S. Wade, ''Mistaken Identity in the Law of Contract'' (1922) 38 L.Q.R. 201 [4] Ingram v Little [1961] 1 QB 31 [5] Lewis v Averay [1972] 1 QB 198 [6] Lewis v Averay [1972] 1 QB 198 [7] Shogun Finance Ltd v Hudson [2003] 3 WLR 1371

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