Derry v Peek
Fraud requires a false statement made knowingly, without belief in its truth, or recklessly as to whether it is true.
Facts
The Plymouth, Devonport and District Tramways Company was authorised by a special Act of Parliament to run trams drawn by animal power, and, with the consent of the Board of Trade, to use steam or mechanical power. The directors issued a prospectus stating that the company had the right to use steam power, honestly believing that the Board of Trade's consent would be a formality. Mr Peek bought shares relying on the prospectus. The Board of Trade refused consent to the use of steam power on most of the lines, and the company went into liquidation. Mr Peek sued the directors in the tort of deceit.
Legal principle
The House of Lords held that the directors were not liable in deceit. Lord Herschell said that fraud is proved when it is shown that a false representation has been made knowingly, or without belief in its truth, or recklessly, careless whether it be true or false. If the maker honestly believes the statement to be true, he is not fraudulent, however unreasonable his belief may be. The directors honestly believed that consent would be given. The decision led Parliament to pass the Directors Liability Act 1890 and, much later, the courts recognised liability for negligent misstatement in Hedley Byrne v Heller.
Related cases on misrepresentation
- Attwood v Small (1838) 6 Cl & F 232
- Bisset v Wilkinson [1927] AC 177
- Car and Universal Finance Co Ltd v Caldwell [1965] 1 QB 525
- Dimmock v Hallett (1866) LR 2 Ch App 21
- Edgington v Fitzmaurice (1885) 29 Ch D 459
- Esso Petroleum Co Ltd v Mardon [1976] QB 801
- Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465
- Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574
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