Derry v Peek · House of Lords · 1889

Is careless honesty fraud?

Short answer: No: honest belief defeats fraud.

The facts. A tram company's sales pitch to investors said it had the right to run steam trams. It had assumed approval would come; it didn't, and the company failed. Investors sued for fraud, but the directors honestly believed what they'd said.

The ruling. Derry v Peek (1889): The Lords held fraud requires a statement made without honest belief, so careless but honest directors weren't liable.

Parliament quickly passed a law on prospectuses in response. That law, the Directors Liability Act 1890, made directors answer for careless prospectuses.

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For fun, not legal advice.