Derry v. Peek
Encyclopedia
Derry v Peek LR 14 App Cas 337 is a case in English law
on the tort of deceit. 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.
's consent. The company had applied, and honestly believed that they would get it because permission was a mere formality. In fact, after the prospectus was issued, they did not get permission. Shareholders who had purchased their stakes in the company on the faith of the statement's truth sued when the company's business went down and ended up in liquidation.
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.
English law
English law is the legal system of England and Wales, and is the basis of common law legal systems used in most Commonwealth countries and the United States except Louisiana...
on the tort of deceit. The House of Lords
House of Lords
The House of Lords is the upper house of the Parliament of the United Kingdom. Like the House of Commons, it meets in the Palace of Westminster....
determined there was no general duty to use ‘care and skill’ in the context of issuing a prospectus to refrain from making misstatements.
Facts
A tram 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 TradeBoard of Trade
The Board of Trade is a committee of the Privy Council of the United Kingdom, originating as a committee of inquiry in the 17th century and evolving gradually into a government department with a diverse range of functions...
's consent. The company had applied, and honestly believed that they would get it because permission was a mere formality. In fact, after the prospectus was issued, they did not get permission. Shareholders who had purchased their stakes in the company on the faith of the statement's truth sued when the company's business went down and ended up in liquidation.
Judgment
The shareholders' action failed, because it was not proved that the director lacked honest belief in what they had said. Lord Herschell however did point out that though 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."
Context
The tort of deceitTort of deceit
The tort of deceit, also known as "fraud", dates in its modern development from Pasley v. Freeman. Here the defendant said that a third party was creditworthy to the claimant, knowing he was broke. The claimant loaned the third party money and lost it...
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.