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Citation(s) (1889) LR 14 App Cas 337, [1889] UKHL 1 Similar Hedley Byrne & Co Ltd v Hell, Edgington v Fitzmaurice, Esso Petroleum Co Ltd v, Doyle v Olby (Ironmon, Howard Marine and Dredging | ||
Derry v peek 1889 14 app cas 337
Derry v Peek [1889] UKHL 1 is a case in English contract law, overridden today by UK company law in the tort of deceit, the tort of negligent misstatement in pure economic loss, misrepresentation in contract law, fraud in contract law, and fiduciary duty in equity. The House of Lords determined there was no general duty to use ‘care and skill’ in the context of issuing a prospectus to refrain from making misstatements, and is cited, but no longer good law, in cases of pure economic loss as a result of negligent misstatement in the law of torts.
Contents
This case has been overturned 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's prospectus stated that the company had permission to use steam trams, rather than horse powered ones. In fact, it did not 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 it because permission was a mere formality. In fact, after the prospectus was issued, they did not get permission. Shareholders, represented by Sir Henry Peek, who had purchased their stakes in the company on the faith of the statement, sued when the company's business ended up in liquidation.
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. 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 in Heaven v Pender. That is, for there to be deceit or fraud (which is the same) it must be shown that a defendant knows a statement is untrue, or has no belief in its truth, or is reckless as to whether it is true or false.
Derry v Peek also outlined that no duty would be required in relationship to negligent misrepresentation, without the presence of a contract, fiduciary relationship, fraud or deceit. This was later overruled in Hedley Byrne v Heller.