Fraudulent Misrepresentation Case Law
What is Fraudulent Misrepresentation?
It’s a false statement of fact made knowingly, without belief in its truth, or recklessly, intended to induce another party to enter into a contract. If proven, the contract can be rescinded, and damages may be awarded.
Key Elements:
A false statement of fact (not opinion or future intention).
Made knowingly, or without belief in its truth, or recklessly (i.e., with reckless disregard).
The statement was intended to induce the other party to enter into the contract.
The innocent party relied on the statement and suffered loss.
⚖️ Landmark Fraudulent Misrepresentation Cases
1. Derry v. Peek (1889)
Facts:
The company issued a prospectus stating it had the right to use steam-powered trams. This right was later denied by the government.
Held:
The House of Lords defined fraudulent misrepresentation: a false statement made knowingly, or without belief in its truth, or recklessly. Mere negligence is not fraud.
Principle:
Established the classic test for fraudulent misrepresentation — intention or recklessness is key.
2. Edgington v. Fitzmaurice (1885)
Facts:
Company directors stated in a prospectus that money raised would be used for business expansion but intended to use it to pay debts.
Held:
The court held this was fraudulent misrepresentation because the statement of intention was false and made to induce investment.
Principle:
A false statement about future intentions can be fraudulent if made dishonestly.
3. Smith v. Chadwick (1884)
Facts:
Misstatements were made in a prospectus, but the plaintiff did not rely on those statements when buying shares.
Held:
No fraudulent misrepresentation because no reliance was placed on the false statement.
Principle:
Proof of reliance by the claimant is necessary for fraudulent misrepresentation.
4. Hedley Byrne & Co Ltd v. Heller & Partners Ltd (1964)
Facts:
A negligent but innocent misstatement led to financial loss.
Held:
While not fraudulent, negligent misstatements can give rise to liability under tort for negligent misrepresentation.
Principle:
Clarified difference between fraudulent and negligent misrepresentation; fraudulent requires intention or recklessness.
5. Doyle v. Olby (Ironmongers) Ltd (1969)
Facts:
Seller misrepresented the level of business turnover to induce purchase.
Held:
Damages for fraudulent misrepresentation cover all losses directly flowing from the fraud, even if unforeseeable.
Principle:
Broad approach to damages in fraudulent misrepresentation.
6. Royal Bank of Scotland v. Etridge (No 2) (2001)
Facts:
Concerned misrepresentation in the context of undue influence and guarantees.
Held:
Clarified how banks must ensure no undue influence or misrepresentation invalidates consent.
Principle:
Illustrates interplay of misrepresentation with other doctrines affecting contract validity.
Summary Table of Principles
| Case | Principle |
|---|---|
| Derry v. Peek (1889) | Fraud requires knowledge, belief, or recklessness |
| Edgington v. Fitzmaurice (1885) | False future intention can be fraud if dishonest |
| Smith v. Chadwick (1884) | Reliance on statement is essential |
| Hedley Byrne (1964) | Negligent misrepresentation distinct from fraud |
| Doyle v. Olby (1969) | Damages cover all losses caused by fraud |
| Royal Bank v. Etridge (2001) | Interaction with undue influence & consent |
RELATED Blog
0 comments