Derry v Peek
House of Lords
Citations: (1889) 14 App Cas 337; (1889) 5 TLR 625.
The directors of a tramway company issued a prospectus which stated that the company had statutory authority to use steam power instead of horses. The claimant bought shares in the company on the strength of this statement. In fact, the company’s application for statutory authority was still in progress. It was ultimately refused. The company was wound up as a result.
The claimant sued the directors for deceit. The directors responded that they had honestly believed that the statement in the prospectus was true.
- Were the directors liable for deceit?
The House of Lords held in favour of the directors. Since they had believed the statement, they had not been fraudulent.
This Case is Authority For…
An action for deceit requires the claimant to prove fraud. This means showing that the defendant either knew his statement was false, believed it was false, or made the statement recklessly without caring whether it was true or false.
The court noted that the fact that the defendant made a statement carelessly and without reasonable grounds to believe it may be evidence for fraud, but it is not conclusive. A person can carelessly and unreasonably make a statement while honestly believing it is true – and that is not fraud.