Derry v Peek (1889)

Court: House of Lords

Facts: The Plymouth, Devonport and District Tramways Company issued a prospectus claiming that it had the permission of the Board of Trade to use steam trams. In reality, such permission was contingent on the Board's approval, which the company had not yet obtained. The company genuinely believed it would receive the permission and applied for it after issuing the prospectus. However, the Board of Trade ultimately denied the application, leading to the company's liquidation. Shareholders, led by Sir Henry Peek, who had invested based on the misrepresentation, sued the directors for fraudulent misrepresentation.

Issue: Whether the directors were liable for fraudulent misrepresentation under the tort of deceit, given that they genuinely believed in the truth of their statement.

Held: The House of Lords held that the shareholders’ action failed because it was not proven that the directors lacked an honest belief in the statement made. The court established a key test for fraudulent misrepresentation, requiring proof that the defendant knew the statement was false, did not believe in its truth, or was reckless as to its truth or falsity.

Key Judicial Statement - Lord Herschell: "Fraudulent misrepresentation requires proof of the defendant’s knowledge of the falsehood, disbelief in the statement, or recklessness regarding its truth or falsity."

💡 Leveluplaw: The case highlights that to prove fraudulent misrepresentation, it is not enough to show that a statement was false; there must be evidence that the defendant acted with fraudulent intent. An honest belief in the truth of the statement, even if misguided, does not constitute fraud. This principle underscores the necessity of proving actual fraudulent intent to establish a claim for deceit.