Legal Case Summary
Derry v Peek (1889) 14 App Cas 337
Tort law – False representation
Facts of Derry v Peek
In the prospectus released by the defendant company, it was stated that the company was permitted to use trams that were powered by steam, rather than by horses. In reality, the company did not possess such a right as this had to be approved by a Board of Trade. Gaining the approval for such a claim from the Board was considered a formality in such circumstances and the claim was put forward in the prospectus with this information in mind. However, the claim of the company for this right was later refused by the Board. The individuals who had purchased a stake in the business, upon reliance on the statement, brought a claim for deceit against the defendant’s business after it became liquidated.
Issue in Derry v Peek
It is important to note that the law regarding false misrepresentation was still developing and this was an important case in doing so. In this case, the court was required to assess the statement made by the defendant company in its prospectus to see whether the statement was fraudulent or simply incorrect.
Decision/Outcome of Derry v Peek
The claim of the shareholders was rejected by the House of Lords. The court held that it was not proven by the shareholders that the director of the company was dishonest in his belief. The court defined fraudulent misrepresentation as a statement known to be false or a statement made recklessly or carelessly as to the truth of the statement. On this basis, the plaintiff could not claim against the defendant company for deceit.
Updated 19 March 2026
This summary of Derry v Peek (1889) 14 App Cas 337 remains legally accurate. The case is still good law and continues to be the foundational authority for the tort of deceit in English law, establishing the three-limb test for fraudulent misrepresentation: a false statement made (i) knowingly, (ii) without belief in its truth, or (iii) recklessly as to whether it is true or false. This principle has been consistently applied and affirmed in subsequent case law, including by the House of Lords in Smith New Court Securities Ltd v Citibank NA [1997] AC 254.
One contextual point worth noting: the legislative response to Derry v Peek is relevant to a full understanding of the area. Parliament passed the Directors Liability Act 1890 shortly after the decision to address the gap in liability for negligent (as opposed to fraudulent) misstatements in company prospectuses. That statutory regime has since been superseded and the modern framework governing liability for misrepresentation in a broader contractual context is found in the Misrepresentation Act 1967, which introduced liability for negligent misrepresentation under s.2(1). The article does not discuss these developments, but the core common law principles it describes remain accurate.
