Shogun Finance Ltd v Hudson 2003

January 03, 2024

Shogun Finance Ltd v Hudson [2003] UKHL 62 is an English contract
law concerning mistaken identity and its implications for the rescission of a
contract. The case centred around a rogue individual who, using false
information, purchased a Mitsubishi Shogun on hire purchase from a dealer,
misrepresenting himself as Mr Patel and presenting Mr Patel's driving licence.
Shogun Finance, upon communication with the dealer, conducted a credit
check on Mr Patel and authorised the hire purchase agreement, unaware of
the rogue's deception.

The rogue subsequently sold the car to Mr Norman Hudson, who had no
knowledge of the vehicle's status as subject to a hire purchase agreement
with Shogun Finance. When Shogun Finance sought the return of its vehicle,
Mr Hudson relied on Section 27 of the Hire Purchase Act 1964, arguing that
as a non-trade buyer who purchased the car in good faith from a hirer under a
hire purchase agreement, he became the owner.

In a 3-2 decision, the majority of the House of Lords held that there was no
valid contract of hire purchase between Shogun Finance and the rogue. As a
result, Section 27 of the Hire Purchase Act did not apply, and the car did not
legally belong to Mr Hudson. The majority followed the precedent set in Cundy
v Lindsay [1878], emphasising that a contract where identity is crucial
becomes void if the purchaser lies about their identity. The face-to-face
exemption established in Phillips v Brooks Ltd [1919] was deemed
inapplicable, as the seller in this case was the finance company, not the
dealer.

Lord Nicholls and Lord Millett dissented, advocating for a policy that would
protect the good-faith purchaser in all cases, regardless of the face-to-face
distinction. They argued that contracts involving mistaken identity should be
voidable rather than immediately void, allowing for protection of third parties if
the original seller did not repudiate the contract before the goods were sold
on.
The decision in Shogun Finance Ltd v Hudson maintained the face-to-face
distinction in cases of mistaken identity, which has been criticised as artificial
and unfair to third parties. Critics argue that this distinction places an undue
burden on innocent third parties, who bear the entire loss in situations where
the original seller could have taken better measures to uncover fraud. The
case underscores the ongoing debate about the appropriate legal treatment of
contracts involving mistaken identity and its impact on innocent third parties.

Shogun Finance Ltd v Hudson [2003] 3 WLR

1371
By OXBRIDGE LAW TEAMUpdated 04/01/2024 06:59
Reviewed ByOXBRIDGE LAW TEAM
Judgement for the case Shogun Finance Ltd v Hudson
Table Of Contents
KEY POINTSFACTSJUDGMENTCOMMENTARYORIGINAL ANALYSISLord
Hobhouse (NB with majority)Lord Nicholls (Dissenting)RELATED CASES
KEY POINTS
 If a purchaser provides false information about their identity in a contract
where identity is crucial, the contract becomes void. In such a case, an
innocent third party cannot rely on good faith.

FACTS
 The appellant, Mr. Hudson, fell victim to a fraudulent scheme orchestrated by
a fraudster who presented himself to be “Mr. Patel.” Said fraudster used
stolen personal information to pose as a legitimate customer and applied for
financing to purchase a car from the respondent, Shogun Finance.
 Shogun Finance, unaware of the fraudulent scheme and believing the
fraudster, carried out the transaction and provided financing for the car
purchase. Later, when the true identity of the parties was revealed, it became
evident that “Mr. Patel” had committed a fraud by impersonation to obtain the
financing.
 Mr. Hudson, as an innocent third party who purchased the car from the
fraudster, sought protection under the innocent third party rule, arguing that
he acquired the rights to the car in good faith and without any knowledge of
the fraudulent scheme.
JUDGMENT
 The House of Lords dismissed the appeal, holding that “section 27 of the Hire
Purchase Act 1964 did not avail Mr Hudson because the crook was not the
hirer named in the written hire-purchase agreement and therefore he was not
the debtor under the agreement.” [17]

COMMENTARY
 This case underscores that the mistake of identity must go to the root of the
contract and be of such significance that it affects the identity of the
contracting party with whom the innocent party intended to contract.

ORIGINAL ANALYSIS
 X, a fraudster, bought a car from M, whom he gave a fake driving licence as
evidence of his identity. M passed X’s (fake) details on to Plaintiff (a finance
company) who approved them and agreed to part finance the car (pay 90% of
the price which X would repay) so that X could drive it away.
 X then sold on the car to Defendant (BF TP) and absconded.
 HL held that Plaintiff was entitled to claim the vehicle from Defendant.

Lord Hobhouse (NB with majority)

 Plaintiff only wished to deal with the party that was named to them and they
knew of no other party than the name that was sent to them. Therefore they
wished to deal with that customer specifically and not anyone whose details
were sent to them.
 The identity was of crucial importance to Plaintiff and therefore the contract
was void.
 There is a strong, rebuttable presumption in face-to-face dealings that the
party physically present is the one with whom Plaintiff intended to contract.
The justification for the distinction is the parole evidence rule (that where a
document purports to contain the entire agreement) a party is estopped from
bringing evidence to the contrary. This applies as much to the identity of the
parties to the contract as it does to terms and, as here, only the party named
(the fake name used by X) was a party to the contract.
 Therefore, since X was never a party to the contract, and nor was the person
whom he purported to be, the contract was void.
o This relies on the dodgy distinction between face-to-face and other
methods of communication, such as a video-link up, for which there is
no good reason.
o Lord Millett’s suggestion that the contract should be considered as
relating to the party with whom Plaintiff was physically dealing, whether
face-to-face or by correspondence.
Lord Nicholls (Dissenting)
 (dissenting, together with Lord Millett his reasoning was in the minority)
 The distinction between misrepresentations as to identity and as to assets is a
non-distinction: Nobody is ever really interested in the buyer themselves but in
their ability to pay, while its also unfair that where the loss should be placed
should depend on what type of misrepresentation (identity or attributes) was
engaged.
 An agreement exists where there is a meeting of the minds: The seller intends
or “appears to intend” to sell the goods and the buyer to buy them.
 Fraud does NOT negative intention and hence it cannot negative the
agreement. Therefore contracts made on the basis of fraud as to X’s
identity/assets/attributes etc has effect by Plaintiff may decline to follow its
requirements. It is voidable but not void. Fraud doesn’t vitiate consent either.
Intention, consent etc are facts which fraud doesn’t vitiate. Legal rights and
obligations alone can be vitiated by fraud.
 Hence if A fraudulently induces B to buy goods that A knows are not the same
goods as B intends or are of a different quality, the contract itself is still valid,
but can be voided on account of fraud. Same where A sells to B when B
makes fraudulent statements as to his ability to pay, the contract is valid, but
can be voided if A discovers the truth.
 The “voidable, not void” rule operates clearly in face-to-face cases. In face-to-
face dealings, as Devlin LJ suggested, there should be a rebuttable
presumption that Plaintiff intended to contract with the party before him which
cannot be overturned by evidence that Plaintiff would not have contracted had
she known that X was not who he claimed to be (then how can it possibly be
overturned: this is really a conclusive presumption- Lord Nicholls concedes
this).
 The same reasoning, including the presumption that Plaintiff “intends to
contract with the person with whom he is actually dealing, whatever be the
mode of communication” applies. It therefore applies where X is not physically
present since, although correspondence may be addressed to X’s fake name,
it is really being sent to X with the intention that X should contract.
 Therefore a voidable, not void, contract exists where Plaintiff has been
fraudulently induced by X by correspondence. There is no reason to have a
distinction between face-to-face and correspondence deals.
 Cundy is overruled. The person who gives up his property to a fraudster is
more blameworthy than BF purchaser and should bear the risk.