Case Brief: Derry v. Peek
📘 Case Brief: Derry v. Peek (1889) 14 App Cas 337
🔹 Court:
House of Lords (United Kingdom)
🔹 Parties:
Appellant: Derry (plaintiff)
Respondent: Peek (defendant)
🔹 Facts of the Case:
The defendants (Peek and others) were directors of a tramway company.
The company issued a prospectus stating they had the right to use steam power (instead of horse power) for running trams.
At the time, they believed that permission from the Board of Trade (a government authority) to use steam power was a formality and would be granted.
Investors (including Derry) relied on this statement and purchased shares.
Later, the Board of Trade refused permission to use steam power.
As a result, the company failed, and the share value collapsed.
Derry sued the directors for fraudulent misrepresentation (deceit).
🔹 Legal Issue:
Whether the directors were liable for fraudulent misrepresentation, i.e., did they make a false statement with intent to deceive?
🔹 Held (Judgment):
The House of Lords held in favor of the directors.
The court ruled that there was no fraud, and hence, no liability for deceit.
🔹 Key Legal Principle:
The case established the classic definition of fraudulent misrepresentation, requiring:
“A false statement made knowingly, or without belief in its truth, or recklessly without caring whether it is true or false.”
– Lord Herschell, in his judgment.
In this case:
The directors honestly believed their statement to be true.
There was no intention to deceive.
So, it was not fraud, even if the statement later turned out to be wrong.
🔹 Why It Matters (Legal Significance)
Set the standard for liability in tort of deceit.
Clarified that mere negligence or mistake is not fraud.
Introduced the concept of “reckless misrepresentation”.
Differentiated fraud from innocent misstatement and negligent misrepresentation (which was later developed in Hedley Byrne v. Heller).
🔹 Criticism and Later Development
The decision was criticised for making it too hard to prove fraud.
It limited remedies for investors who suffered due to negligent but honest statements.
This led to future development of the tort of negligent misstatement in:
Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. (1964)
Which allowed claims even without fraud, if there was a duty of care.
🔹 Summary Table
| Element | Details |
|---|---|
| Citation | Derry v. Peek (1889) 14 App Cas 337 |
| Court | House of Lords |
| Issue | Was the false statement in the prospectus fraudulent? |
| Ruling | No — the directors honestly believed it to be true |
| Legal Principle | Fraud requires knowledge of falsity or recklessness |
| Significance | Defined fraud in misrepresentation cases |
RELATED Blog
0 comments