Edgington v Fitzmaurice: CA 7 Mar 1885

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
England and Wales
Cited by:
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. .
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. .
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Contract, Torts – Other

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Updated: 11 November 2021; Ref: scu.182803