Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12 (21 March 1991)

A motor dealer misrepresented the deposit amount to a finance company to secure a hire-purchase agreement. The customer later dishonestly sold the car and defaulted. The Court of Appeal held that damages under s.2(1) Misrepresentation Act 1967 are assessed as for fraudulent misrepresentation, allowing recovery of all direct losses even if unforeseeable.

Facts

Maidenhead Honda Centre Ltd (the Dealer) sold a second-hand Honda Prelude to Mr Rogerson (the Customer) for £7,600 with a deposit of £1,200, leaving a balance of £6,400. Royscot Trust Ltd (the Finance Company) had a policy requiring deposits of at least 20% of the cash price. On 5th May 1987, the Dealer submitted a proposal falsely representing the cash price as £8,000 with a £1,600 deposit paid. In reliance on this misrepresentation, the Finance Company entered into a hire-purchase agreement with the Customer.

The Customer made payments totalling £2,774.76 before dishonestly selling the car to a private purchaser in August 1987 for £7,200. That purchaser obtained good title under the Hire Purchase Act 1964. The Finance Company suffered losses and sued both the Customer and the Dealer. Judgment in default was entered against both defendants for damages to be assessed.

Issues

Primary Issue

What is the correct measure of damages for innocent misrepresentation under section 2(1) of the Misrepresentation Act 1967 – the tortious measure for fraud (allowing recovery of all direct losses even if unforeseeable) or the tortious measure for negligence (limited to foreseeable losses)?

Secondary Issues

Whether the Customer’s wrongful sale of the car was reasonably foreseeable by the Dealer, and whether it constituted a novus actus interveniens breaking the chain of causation.

Judgment

The Court of Appeal, comprising Lord Justice Balcombe and Lord Justice Ralph Gibson, dismissed the Dealer’s appeal and allowed the Finance Company’s cross-appeal.

Measure of Damages under s.2(1)

Balcombe LJ held that the plain wording of section 2(1) requires damages to be assessed as if the misrepresentation had been made fraudulently. He stated:

“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.”

The court rejected academic suggestions that the negligence measure should apply, holding that such interpretation would ignore the plain words of the subsection. Balcombe LJ concluded:

“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.”

Foreseeability

The court held that wrongful disposal of cars by hire-purchase customers was reasonably foreseeable, stating:

“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.”

Novus Actus Interveniens

The court held that because the wrongful sale was reasonably foreseeable, it did not break the chain of causation. The court cited Winn LJ’s statement that where an intervening factor was reasonably foreseeable, it does not constitute a novus actus interveniens.

Ralph Gibson LJ agreed, emphasising that the plain meaning of section 2(1) imposed liability as for fraudulent misrepresentation, and that Parliament could easily have used different words if intending to impose liability only as for negligent misstatement.

Implications

This case established definitively that damages under s.2(1) Misrepresentation Act 1967 are calculated on the same basis as for the tort of deceit, not negligence. This means:

• A representee can recover all losses flowing directly from the misrepresentation
• The test of remoteness from Doyle v Olby (Ironmongers) Ltd applies, not the foreseeability test from negligence
• An innocent misrepresentor may face the same extent of liability as a fraudulent one

The decision has been subject to academic criticism for its harsh treatment of innocent misrepresentors, but remains binding authority on the interpretation of s.2(1).

Verdict: The Dealer’s appeal was dismissed and the Finance Company’s cross-appeal was allowed. Judgment was entered for the Finance Company against the Dealer in the sum of £3,625.24 with interest of £1,140.59, plus costs.

Source: Royscot Trust Ltd v Rogerson [1991] EWCA Civ 12 (21 March 1991)