The defendant railway company indicated in a company prospectus that its carriages would shortly be moved by steam power and not animal power as was then the case. The plaintiff purchased shares in the railway company based on the information contained in the prospectus. The railway company then failed to obtain the necessary government approval for steam power and the company dissolved.
The plaintiff then brought an action in deceit against the railway company for fraudulent misrepresentation. The House of Lords held that in order to establish a cause of action resulting in damages for misrepresentation, the statement must be fraudulent, or must be equivalent to being fraudulent, which will be the case if the statement is made recklessly, not caring whether it be true or false.
A statement made by a person honestly believing it to be true will not expose the maker to an action in deceit. The House of Lords allowed the appeal and held the defendants not liable because they had honestly believed the statement to be true when they placed it in their prospectus. Note that the doctrine of negligent misrepresentation was developed subsequent to this case. Derry v Peek (1888) (1888) LR 14 App Cas 337 (HL).
The defendant tram company advertised in its prospectus that it would employ steam power, and intimated that it had the authority of the Board of Trade to do so. In the end, the Board refused consent to steam power, and the company was wound up. The claimant investor brought an action in the TortOfDeceit, which ultimately failed in the HouseOfLords. While there was no doubt that the defendants' claim was unfounded, the House held that deceit required actual Dishonesty — Negligence, however culpable was not enough.
Derry v Peek was heard before the development of the modern law of Negligence and, as a result, it became established law that there was no liability in tort for NegligentMisstatement. This largely remained the case until HedleyByrneVHeller1963. (a) It can be difficult to distinguish a misrepresentation from a `puff', that is, an advertising or promotional statement which is not intended to be binding (Dimmock v Hallett (1866), in which it was representated that land was `fertile and improveable).
A statement of opinion is not a representation (Bisset v Wilkinson (1927)) unless the opinion of the person making the representation has some special weight, e. g. , he or she is a professional employed to give such opinion (Esso v Mardon (1976)). (c) A statement of intention – if honestly held – cannot be a misrepresentation; however, my intention is a fact and it can be dishonestly represented — Edgington v Fitzmaurice (1885).