HAVE THE COURTS INTERPRETED THE LAW OR GONE BEYOND THE INTENTION OF THE PARLIAMENT IN RELATION TO THE

QUANTUM OF DAMAGES FOR SEC 2(1) OF MISREPRESENTATION ACT 1967

Royscott v Rogerson [1991] 2 QB 297 Court of Appeal i

Maidenhead Honda Centre Ltd ("the Dealer"), is a motor-car dealer. In 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 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 hirepurchase sales. 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.

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, the Finance Company entered into a
hire-purchase agreement with the Customer. The Finance Company did not claim the Dealer was
acting fraudulently. Accordingly the Finance Company relies on misrepresentation under section 2(1)
of the Misrepresentation Act 1967.

The Finance Company issued proceedings against both the Customer and the Dealer, 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.

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.

Judge Barr 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.

Since the Finance Company was induced to pay an extra £1600, it was argued; that is the relevant
loss suffered by the Finance Company.

The issue on this appeal which the Dealer submits raises a pure point of law:

(a)where 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?

Page 1 of 5
The last mentioned issue will be the highlight of this article.

What is the basis of the awarding damages under Section 2(1) of the Misrepresentation Act 1967?

It is worth noting the contents of the provision before we could proceed further. Sec 2(1) ii states;

“"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..."

The statute seems to suggest that the representor will be liable for damages as though the
misrepresentation was made fraudulently even if the misrepresentation was not made fraudulently.

What should be the interpretation that should be adopted here?

The courts in previous cases had some views ranging from a measure in contract to that of
negligence. Let’s see some of the views put forward by these cases.

In two cases in the Court of Appeal, Gosling v. Anderson iii and Jarvis v. Swans Tours iv and the
decision at first instance in Watts v. Spence v, there was some doubt whether the measure of
damages for an 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.

Watts v. Spence was disapproved in Sharneyford Supplies Ltd v. Edge vi. It is now clear that the
tortious measure of damages should be adopted. These decisions are at first instance and will be
found in Chitty on Contractvii, and in McGregor on Damages viiiand Chesneau v. Interhome Ltd ix

Is the measure where the tort is that of fraudulent misrepresentation, or is it the measure where the
tort is negligence at common law?

The wording of the subsection is clear: the person making the 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 xand McNally v. Welltrade International Ltd xi.

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 : "By 'so liable' means liable as he would be if the
misrepresentation had been made fraudulently."

Page 2 of 5
Atiyah in an article on the 1967 Act in xii says,

"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."

Treitel xiii says:

"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."

It seems that to suggest that if a different measure of damage is applied to an action under the
section than that which applies to an action for fraudulent misrepresentation (deceit) at common
law, than we will totally ignore the plain words of the subsection and this is inconsistent with the
cases to which was referredxiv.

The only authority cited in support of the "preferable" view xv is Shepheard v. Broome xvi, 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 saidxvii:

"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".

It is therefore clear that the quantum of damages to be awarded under Section 2(1) of the
Misrepresentation Act should be based on tort of deceit.

Hence what is the legal outcome of this case?

When a claimant sues the defendant for misrepresentation, the quantum of damages recoverable
seems to surpassing that of breach of contract. After this decision, a reprsentor can made liable for
the following losses;

1. loss of profits,
2. expenses incurred,
3. the difference in price between the contract and the actual market value and
4. non-financial losses.

This direction has been approved and applied in the case of East of Maurer xviii which was decided
after Royscott v Rogerson.

Page 3 of 5
As a result, the question arises whether the courts have gone beyond what the Parliament has
intended. In this article we have explored what the courts have done. It is clear that they have opted
to interpret the law and avoided the making of the laws. It can be stated to be correct but producing
harsh consequences. Should the courts therefore avoid these consequences? We will explore in the
next article what are the criticisms levied against this finding.

Page 4 of 5
i
www.bailii.org extracted on 7 May 2012

ii
Extract from Misrepresentation Act 1967
iii
[1972] E.G.D. 709
iv
[1973] Q.B. 233, 237
v
[1976] Ch. 165
vi
[1987] Ch. 305, 323
vii
(26th ed.) para. 439
viii
(15th ed.) para. 1745
ix
(1983) 134 N.L.J. 341
x
(1976) 240 E.G. 455, 461
xi
[1978] I.R.L.R. 497
xii
30 M.L.R.
xiii
Law of Contract (7th ed.) at p.278
xiv
Ibid page 2
xv
Ibid page 3
xvi
[1904] A.C. 342
xvii
Shepheard v. Broome at p.346
xviii
[1990] EWCA Civ 6