What Did Derry v Peek Decide?
Though it is tangential to my argument, I want briefly to say something about the way that Derry v Peeky regarded as the ultimate culprit when accounting for the inadequate reach of liability prior to Hedley Byrne and the Misrepresentation Act, has been interpreted.
I again do not purport to engage in detail with the relevant law.[610] I will flatly make some claims about Derry v Peek and then apply what I have said to Candler and Hedley Byrne.Derry v Peek did not confine liability for misrepresentation to fraud. One element of its ratio was that liability in the tort of deceit had to be based on proof of‘actual fraud’.[611] Another element was that liability for negligence normally had to be grounded in contract, but contract, ‘implied as well as express’,[612] could incorÂporate fiduciary relationships.[613] Other non-contractual ‘special relationships’ could be and had been found by the courts ‘ to exist in particular cases’. [614] All this was, of course, wholly arguable, and the initially residual category of special relaÂtionship has come to dominate the law of negligent misstatement in response to the perceived shortcomings of contract tout court.[615] But, putting aside the general inaccuracy of this perception, it is even wrong to say that Derry v Peek meant that contract could not flexibly generate negligence liability. However, for this to work properly, such liability has to be seen alongside fraud, and this is precisely what has not happened in many decisions believed to be constrained by Derry v Peek.
In Derry v Peek, a prospectus drawn up by directors seeking to encourage investÂment in their limited company included a seriously misleading statement about a very important aspect of the legal position of the company. This was found to have induced the claimant’s disastrous investment,[616] but, given the finding that the statement was not made fraudulently, it was right that the claimant investor had no remedy.
His investment took the form of a purchase of equity and, to point out the obvious, the reason he had recourse to litigation was that his holding was renÂdered worthless when the company was wound up. An action brought against the directors personally failed, but this was the result of the working of incorporation and limited liability, not of the law of contract. One may deplore this, as I myself do,[617] but one cannot base company law, including investment in shares, on limited liability and then just pierce the veil when it suits.[618]It is of course entirely right that the veil is pierced when fraud is found, but it is clear that in D erry v Peek and a great number of similar cases of the period an enthusiasm to encourage entrepreneurship which the contemporary sensibility finds so extreme that it cannot be of any relevance to the development of current law lay behind the high threshold placed on a finding of actual fraud.[619] In Peek v Gurney, the defendants did not even deny that they had intentionally misled the claimant investor in the most serious way, but they did so thinking it was best for all concerned, including the investor, that he (and the entire public) should be kept in the dark so that the company could flourish to the benefit of all. It was only after it had been given extensive consideration that a defence that the crucial informaÂtion had been given, as the Master of the Rolls who heard the case put it, ‘honestly concealed from the public',[620] was rejected.[621] Though Derry v Peek was right to set the threshold of fraud high, it must be understood in the context of Victorian understandings of entrepreneurship which are an outright barrier to its being in this respect a useful source of law today. Trying to do otherwise is like basing conÂtemporary views of the responsibilities of a woman on reading T he Old Curiosity Shop, long after Wilde had passed the modern judgement on the character and conduct of Little Nell.[622] [623] The finding in Candler that the advice was drawn up merely negligently but not fraudulently is questionable. Hedley Byrne was quite different and I regretfully must return to just how very bad a case it was to explain this aspect of it. It is in my view most implausible to think the advice given was negligent. If it was negligent, then it would have been fraudulent to represent it as good advice. The steps taken in Hedley Byrne were taken because there was no fraud. But there was no fraud because there was no negligence! It would be absurd to maintain that Derry v Peek has not led to a great many problems, which persist.[624] [625] Proof of fraudulent intent is very difficult and civil proceedings are not really the best place to try to deal with such difficulty. One cannot, however, entirely regret this as a successful proof leads to liability to the remedies for deceit, and by far the best possible description of the law on this point is simply to say that it throws the book at the defendant. In my opinion, the issue fundamentally is one of drawing the boundary between criminal and civil liability which was canvassed in Rookes v Barnard,37 and since that case we have done no more to improve the law of deceit in this respect than we have improved the law of exemplary damages.[626] But if we put this to one side, then I submit that the criticism of Derry v Peek that underlies Hedley Byrne is much overdone. Even with all its defects, the law of fraud and contractual liability in Derry v Peek could have provided a perfectly satisfactory way of dealing with Candler and with Hedley Byrne itself. It would not, however, have been the way those who thought the law of contract was itself the problem would have wished. In Hedley Byrne, it would have been its opposite, and it was this entirely correct outcome that was thought a mischief in Hedley Byrne. V.