Court of Appeal clarifies when damages are recoverable in lieu of rescission

Summary

In Geoffrey Alan Salt v Stratstone Specialist LtdAct [2015] EWCA Civ 745, the Court of Appeal confirmed that damages in lieu of rescission under s. 2(2) of the Misrepresentation Act 1967 (the “”) could only be awarded if rescission itself was still available as a remedy. (Damages may still separately be available for non-innocent misrepresentation under s. 2(1) of the Act.) In doing so it clarified conflicting case-law in the lower courts. It also confirmed that rescission should be the normal remedy for misrepresentation where possible, but that a victim representee should not be unjustly enriched at the representor’s expense as a result of the rescission. However, it is for the representor in such a case to prove that justice requires that he should be compensated for any depreciation or use of an asset acquired as a result of the misrepresentation.

Finally, the Court confirmed that while lapse of time can become a bar to rescission, this is only where a reasonable timeinequitable has elapsed such that it would be in all the circumstances to grant rescission. What will be a “reasonable time” is highly fact specific. In this case, rescission of a contract for the sale of a car was permitted, even though the claimant had not sought to rescind until more than three years after it had been purchased.

The Facts

The Claimant, Mr Salt, bought a Cadillac from Stratstone Specialist Ltd (“Stratstone”) in September 2007. A representative from Stratstone had described the car as “brand new” prior to Mr Salt agreeing to purchase it.

Numerous defects began to emerge after Mr Salt purchased the car. Although Stratstone repaired some of the issues, by September 2008 Mr Salt had had enough and tried to return the car to Stratstone. Stratstone refused to reimburse him and in March 2009, Mr Salt issued proceedings, arguing that the car was not of merchantable quality and seeking damages. During disclosure in 2010 it came to light that the car had not been “brand new” when sold. While it had not had a registered owner previously, it had had a number of repairs prior to its sale to Mr Salt and had been involved in a collision serious enough to warrant significant repairs to its wheels. On discovering this, Mr Salt amended his particulars of claim in May 2011 to plead misrepresentation and seek rescission.

The County Court judge ruled that rescission was impossible because the parties could not be returned to their original positions, due to the fact that the car had now been registered (so could not be returned unregistered), there had been a significant lapse in time since it was purchased and the judge could not calculate (due to lack of evidence) the amount repayable for depreciation in value of the car. However, he did award Mr Salt damages, assessed as the difference between the value of the car had it been brand new and the actual value of the car at the time of purchase, together with £250 for the inconvenience caused by the defects. This amounted to £3,250. Mr Salt appealed.

The appeal judge reversed the decision, holding that it was possible to restore the parties to their original positions and therefore ordered rescission of the contract and Stratstone to repay the purchase price in return for the car. Stratstone appealed.

The Court of Appeal’s Decision

The Court of Appeal ruled that:

• The remedy of damages in lieu of rescission in section 2(2) of the Act could only arise if it was still possible to rescind the contract, thereby clarifying an area where there had been conflicting case-law.
• The first instance judge was wrong to decide that rescission had become impossible. Registration of the car did not alter the car itself – if this would bar rescission a car buyer could never rely on the remedy following a misrepresentation. The fact that the car’s value depreciated did not make rescission impossible, as Stratstone could be compensated for it. Similarly, the fact that Mr Salt obtained some, albeit limited and intermittent, enjoyment from the car did not make rescission impossible.
• The Court said that: “If “practical justice” requires a representor to be compensated for depreciation, it is for the representor to assert and prove.” In this case, Stratstone had not provided any such evidence, so the Court ruled that Stratstone was not entitled to compensation because the absence of evidence “should not operate to the disadvantage of the representee who should never have been put in the position of having a troublesome old car rather than a brand new one.”
• Stratstone also sought to argue that lapse of time prevented Mr Salt from rejecting the car and claiming damages. The Court held that Mr Salt’s delay in rejecting the car was largely due to his not discovering that it was not brand new until disclosure in the proceedings and the parties being embroiled in the litigation process. It was not inequitable to allow rescission, as the elapsed time was not unreasonable in the circumstances.

Comment

This case provides welcome clarity on when damages is available in lieu of rescission under section 2(2) of the Act and a useful reminder that rescission should be the normal remedy for misrepresentation. One of the issues considered by the Court of Appeal was whether a claimant could (and should) have a wider remedy under the Act – where rescission is available – than may be the case under the Sale of Goods legislation, where the right to return goods is limited. The Court considered that earlier case-law (prior to the Act coming into force) which suggested the two should be aligned may not be good law. As Mr Justice Roth noted in his supporting judgment, the remedies available in the context of supply of goods to consumers will soon radically change when the Consumer Rights Act 2015 comes into force. The Consumer Rights Act sets out specific timeframes within which goods may be rejected and consumers refunded, such that “it will no longer be possible to align the equitable right to rescind for pre-contractual misrepresentation with the statutory scheme governing contractual rights”, in any event.