False Prospectus – Issuers liable in Deceit
The directors of a company issued a prospectus, falsely stating that the proceeds were to be used to complete alterations to the buildings of the company, to purchase horses and vans and to develop the trade of the company. In fact it was to pay off pressing liabilities. The company became insolvent. The plaintiff was also mistaken in thinking that the bond would be secured on the company’s assets, but this mistake was not the fault of the defendant.
Held: The directors were liable in deceit. A misrepresentation need not have been the only matter upon which a representee relied for sufficient reliance to be demonstrated. A misstatement of fact could be actionable at the suit of the plaintiffs.
Fry LJ said: ‘The prospectus was intended to influence the mind of the reader. Then this question has been raised: the Plaintiff admits that he was induced to make the advance not merely by this false statement, but by the belief that the debentures would give him a charge on the company’s property, and it is admitted that this was a mistake of the Plaintiff. Therefore it is said that the Plaintiff was the author of his own injury. It is quite true that the Plaintiff was influenced by his own mistake, but that does not benefit the Defendant’s case. The Plaintiff says: I had two inducements, one my own mistake, the other the false statement of the Defendants. The two together induced me to advance the money. But in my opinion if the false statement of fact actually influenced the Plaintiff, the Defendants are liable, even though the Plaintiff may have been also influenced by other motives. I think, therefore, the Defendants must be held liable.’
A statement of a man’s intentions may be a statement of fact. Bowen LJ said: ‘This is an action for deceit, in which the Plaintiff complains that he was induced to take certain debentures by the misrepresentations of the Defendants, and that he sustained damage thereby . . In order to sustain his action he must first prove that there was a statement as to facts which was false; and secondly, that it was false to the knowledge of the Defendants, or that they made it not caring whether it was true or false. For it is immaterial whether they made the statement knowing it to be untrue, or recklessly, without caring whether it was true or not, because to make a statement recklessly for the purposes of influencing another person is dishonest. It is also clear that it is wholly immaterial with what object the lie is told. … But, lastly, when you have proved that the statement was false, you must further shew that the plaintiff has acted upon it and has sustained damage by so doing: you must shew that the statement was either the sole cause of the plaintiff’s act, or materially contributed to his so acting.’
and ‘there must be a misstatement of an existing fact: but the state of a man’s mind is as much a fact as the state of his digestion’ and ‘The real question is, what was the state of the plaintiff’s mind, and if his mind was disturbed by the misstatement of the defendants, and such disturbance was in part the cause of what he did, the mere fact of his also making a mistake himself could make no difference. It resolves itself into a mere question of fact.’
Cotton LJ said that in a case involving misrepresentation: ‘It is true that if he had not supposed he would have a charge he would not have taken the debentures; but if he also relied on the misstatement in the prospectus, his loss none the less resulted from that misstatement. It is not necessary to show that the misstatement was the sole cause of his acting as he did. If he acted on that misstatement, though he was also influenced by an erroneous supposition, the defendants will still be liable.’
Cotton, Bowen, Fry LJJ
(1885) 29 Ch D 459, (1885) 55 LJCh 650, (1885)32 WR 849, [1885] UKLawRpCh 83
Commonlii
England and Wales
Cited by:
Re-affirmed – Standard Chartered Bank v Pakistan National Shipping Corporation, Standard Chartered Bank v Pakistan National Shipping Corporation and Others and Another and Others (Nos 2 and 4) HL 6-Nov-2002
Fraudulent Misrepresentation by Company Director
Fraudulent bills of lading had been issued in order to rely upon letters of credit issued by the bank. The director signing the bills sought to avoid personal liability, saying it was the Act of the company. The defendant company also appealed on . .
Cited – Keays v Guardian Newspapers Limited, Alton, Sarler QBD 1-Jul-2003
The claimant asserted defamation by the defendant. The parties sought a decision on whether the article at issue was a comment piece, in which case the defendant could plead fair comment, or one asserting fact, in which case that defence would not . .
Cited – Assicurazioni Generali Spa v Arab Insurance Group (BSC) CA 13-Nov-2002
Rehearing/Review – Little Difference on Appeal
The appellant asked the Court to reverse a decision on the facts reached in the lower court.
Held: The appeal failed (Majority decision). The court’s approach should be the same whether the case was dealt with as a rehearing or as a review. . .
Approved – St Paul Fire and Marine Insurance Co (UK) Ltd v McConnell Dowell Constructors Ltd CA 1995
The court discussed the general principles as to the meaning of ‘inducement’ in the context of insurance contract.
Held: If the three underwriters who gave evidence had been told the truth, on no view would they have underwritten the insurance . .
Cited – Spice Girls Ltd v Aprilia World Service Bv ChD 24-Feb-2000
Disclosure Duties on those entering into contract
The claimants worked together as a five girl pop group. The defendants had signed a sponsorship agreement, but now resisted payment saying that one of the five, Geri, had given notice to leave the group, substantially changing what had been . .
Cited – Oliver v The Governor and Company of the Bank of England CA 1902
Sterling LJ said: ‘It has often been held in actions for misrepresentation that where a misrepresentation is proved and is shown to have been relied upon, that is enough, although the person who enters into the transaction on the faith of the . .
Cited – Standard Chartered Bank v Pakistan National Shipping Corporation, Seaways Maritime Ltd, SGS United Kingdom Ltd, Oakprime International Ltd, Arvind Mehra (No 2) CA 27-Jul-2000
Where a deceit was established leading to an award of damages, that award of damages was not capable of being reduced under the 1949 Act through a contribution to the loss occasioned by the claimant’s own behaviour, where that behaviour did not fall . .
Cited – Man Nutzfahrzeuge Ag and Another v Freightliner Ltd CA 12-Sep-2007
. .
Cited – Derry v Peek HL 1-Jul-1889
The House heard an action for damages for deceit or fraudulent misrepresentation.
Held: The court set out the requirements for fraud, saying that fraud is proved when it is shown that a false representation has been made knowingly or without . .
Cited – BP Exploration Operating Co Ltd v Chevron Transport (Scotland) HL 18-Oct-2001
A ship owned by the defenders caused substantial damage whilst moored at the claimant’s docks. The claim was made against different members of the defendants as they asserted and denied responsibility. The last company asserted that the claim was . .
Cited – Branson v Bower (No 1) CA 24-May-2001
The test of whether comment was fair comment is simply that of whether the opinion was honestly expressed, and on the basis of facts accurately stated. There is no special rule for imputations of corruption or dishonest motives. Nor is there any . .
Cited – Morris v Jones and others CA 6-Dec-2002
. .
Cited – Regina (Williamson and Others) v Secretary of State for Education and Employment CA 12-Dec-2002
The claimants sought a declaration that the restriction on the infliction of corporal punishment in schools infringed their human right of freedom of religion. The schools concerned were Christian schools who believed that moderate corporal . .
Cited – Inland Revenue v Hashmi and Another CA 3-May-2002
The question for the court was whether when there was more than one purpose of a transaction the proscribed purpose under the section had to be dominant or not.
Held: It was not necessary for the proscribed purpose to be the dominant purpose; . .
Cited – Mayor and Burgesses of the London Borough of Waltham Forest v Roberts CA 15-Jul-2004
Secure tenancy obtained by misleading application – grant of possession order . .
Cited – AN, Regina (on the Application of) v Mental Health Review Tribunal (Northern Region) and others CA 21-Dec-2005
The appellant was detained under section 37 of the 1983 Act as a mental patient with a restriction under section 41. He sought his release.
Held: The standard of proof in such applications remained the balance of probabilities, but that . .
Cited – Hayward v Zurich Insurance Company Plc SC 27-Jul-2016
The claimant had won a personal injury case and the matter had been settled with a substantial payout by the appellant insurance company. The company now said that the claimant had grossly exaggerated his injury, and indeed wasfiully recovered at . .
Lists of cited by and citing cases may be incomplete.
Contract, Torts – Other
Leading Case
Updated: 11 November 2021; Ref: scu.182803
