FraudMisrepresentationHouse of Lords

Derry v Peek

(1889) 14 Appeal Cases 33718891 min read
The case in brief30-second read
Facts
Directors of a tramway company stated in the prospectus that the company had the right to use steam power (instead of horses) They honestly believed this was true based on their application to the Board of Trade, but the permission was actually discretionary and was ultimately refused.
Issue
Whether directors who honestly believed a false statement was true can be liable for fraud (deceit).
Held
Fraud requires: (1) knowledge that the statement is false, OR (2) belief that it is false, OR (3) recklessness, not caring whether true or false.
Principle
Fraud requires knowledge of falsehood or recklessness; honest belief in truth, even if unreasonable, negates fraud.
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Facts

  • Directors of a tramway company stated in the prospectus that the company had the right to use steam power (instead of horses)
  • They honestly believed this was true based on their application to the Board of Trade, but the permission was actually discretionary and was ultimately refused
  • The company failed and shareholders sued for fraud

Issue

  1. Whether directors who honestly believed a false statement was true can be liable for fraud (deceit).

Held

  • Fraud requires: (1) knowledge that the statement is false, OR (2) belief that it is false, OR (3) recklessness, not caring whether true or false
  • An honest belief in truth, even if unreasonable, negates fraud
  • The directors honestly believed they would get permission and were therefore not fraudulent
  • Mere negligence or unreasonable belief is NOT fraud

Ratio decidendi

Fraud (deceit) is established only where a false statement is made knowingly, without belief in its truth, or recklessly (not caring whether true or false). Honest belief in the truth of the statement, however unreasonable that belief may be, is a complete defence to fraud. Negligence alone does not constitute fraud.

Exam use

How to use it in an answer

  • Part A: Definitive authority for the mental element required for fraud.
  • Part B: This left a gap: negligent misstatement causing loss had no remedy (filled later by statute and Hedley Byrne [1964] for negligent misstatement tort).
  • Key line: "Fraud = false statement made knowingly, without belief in its truth, or recklessly."
  • Indian application: Section 17 ICA defines fraud; Derry v Peek's mental element test informs interpretation.

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Citation

Derry v Peek (1889) 14 Appeal Cases 337

Reported: (1889) 14 Appeal Cases 337. This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.