''Derry v Peek''
UKHL 1is a case on
889
UKHL 1is a case on English contract law,
fraudulent misstatement, and the
Misrepresentation">fraudulent misstatement, and the tort of deceit">tort.html" ;"title="Misrepresentation">fraudulent misstatement, and the tort">Misrepresentation">fraudulent misstatement, and the tort of deceit.
''Derry v Peek'' established a three-part test for fraudulent misrepresentation, whereby the defendant is fraudulent if he:
:(i) knows the statement to be false, or
:(ii) does not believe in the statement, or
:(iii) is
reckless as to its truth.
The Judicial functions of the House of Lords">House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the lower house, the House of Commons of the United Kingdom, House of Commons, it meets in the Palace of Westminster in London, England. One of the oldest ext ...
determined that, when issuing a
prospectus, a company has as no general duty to use "care and skill" in to avoid making misstatements. This point is
no longer good law in cases where pure economic loss">economic loss flows from non-fraudulent misstatements.
Within company law, this case has been qualified by statute, codified today in the Companies Act 2006, which now recognises the fundamental importance of full disclosure in securities markets, to avoid financial crises.
Facts
The Plymouth, Devonport and District Tramways company issued a prospectus stating that the company had permission to use steam trams, In fact, the company had no such permission because the right to use steam power was subject to the
Board of Trade's consent. The company applied, honestly believing that they would get permission because it was a mere formality. In reality, after the prospectus was issued, permission was refused and the company ended up in liquidation.
Led by
Sir Henry Peek, shareholders who had purchased their stakes in the company on the faith of the statement sued the directors in misrepresentation.
Judgment
The House of Lords held that the shareholders' action failed because it was not proved that the director lacked honest belief in what they had said.
[14 App Cas, 337, 376] Lord Herschell, however, pointed out that although unreasonableness of the grounds of belief is not deceitful, it is evidence from which deceit may be inferred. There are many cases,
"where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the court that it was not really entertained, and that the representation was a fraudulent one."
Significance
The
tort of deceit would have been established only if the misstatements had been fraudulently made. ''Derry v Peek'' thus validated the perspective of the majority judges in the
Court of Appeal
An appellate court, commonly called a court of appeal(s), appeal court, court of second instance or second instance court, is any court of law that is empowered to Hearing (law), hear a Legal case, case upon appeal from a trial court or other ...
in ''
Heaven v Pender''. That is, for there to be deceit or fraud (which is the same) it must be shown that a defendant (i) knows a statement is untrue, or (ii) has no belief in its truth, or (iii) is
reckless as to whether it is true or false.
''Derry v Peek'' also outlined that no duty would be required in relationship to non-fraudulent misrepresentation, without the presence of a contract, a
fiduciary relationship,
fraud
In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...
or deceit; but this was later overruled in ''
Hedley Byrne v Heller''.
The finding of fact that the directors "had an honest belief in the statement" runs contrary to the evidence that although they expected to get planning permission as a mere formality, they plainly knew that they did not yet have that permission.
See also
*
English tort law
English tort law concerns the compensation for harm to people's rights to health and safety, a clean environment, property, their economic interests, or their reputations. A "tort" is a wrong in civil law, rather than English criminal law, crimi ...
*
Contract law
A contract is an agreement that specifies certain legally enforceable rights and obligations pertaining to two or more Party (law), parties. A contract typically involves consent to transfer of goods, Service (economics), services, money, or pr ...
*
Equity
References
External links
Full text on Bailii{{law
1888 in case law
House of Lords cases
English tort case law
English misrepresentation case law
1888 in British law
United Kingdom company case law