Tort of deceit

The tort of deceit, also known as "fraud", dates in its modern development from "Pasley v. Freeman". [(1789) 3 T.R. 51] Here the defendant said that a third party was creditworthy to the claimant, knowing he was broke. The claimant loaned the third party money and lost it. He sued the defendant successfully.

Deceit occurs when a person makes a factual misrepresentation, knowing that it is false (or having no belief in its truth and being reckless as to whether it is true) and intending it to be relied on by the recipient, and the recipient acts to his or her detriment in reliance on it.

The leading case in English law is "Derry v. Peek" (1888) LR 14 App Cas 337.

Relationship with negligence

"Derry v. Peek" was decided before the development of the law on negligent misstatement. In "Hedley Byrne & Co Ltd v. Heller & Partners Ltd" it was decided that people who make statements which they ought to have known were untrue because they were negligent, can in some circumstances, to restricted groups of claimants be liable to make compensation for any loss flowing. This falls under the so called "voluntary assumption of responsibility" test.

In "Bradford Equitable B S. v Borders" [Bradford Equitable B S. v Borders [1941] 2 All E.R. 205, HL] it was held that in addition the maker of the statement must have intended for the claimant to have relied upon the statement.

The main difference between suing in deceit and in negligence is the caps on remoteness of damages. In deceit, to mark the law's disapproval of fraud, the defendant is liable for all losses flowing directly from the tort, whether they were foreseeable or not. ["Smith New Court Securities Ltd v. Scrimgeour Vickers (Asset Management) Ltd" 1997 AC 254; "Clef Aquitaine SARL v. Laporte Materials (Barrow) Ltd" [2000] 2 All ER 493] In "Doyle v. Olby (Ironmongers) Ltd" Lord Denning MR remarked, "it does not lie in the mouth of the fraudulent person to say that they could not reasonably have been foreseen." ["Doyle v. Olby (Ironmongers) Ltd" [1969] 2 QB 158, 167] So where there is a sudden downturn in the property market, a person guilty of deceitful misrepresentation is liable for all the claimants losses, even if they have been increased by such an unanticipated event. ["Slough Estates Ltd v. Welwyn-Hatfield District Council" [1996] 2 PLR 50] This is subject to a duty to mitigate the potential losses. ["Downs v. Chappell" [1997] 1 WLR 426, where a conned car buyer only recovered losses up to the time he should have sold the car on]

Also, contributory negligence is no defence in an action for deceit. ["Alliance and Leicester BS v. Edgestop Ltd" [1993] 1 WLR 1462] Moreover under the Limitation Act 1980 s. 32(1)(a) the time clock in which to sue does not start running until the claimant discovers the deceit or could with reasonable diligence have discovered it. [per Millett LJ, "Paragon Finance plc v. Thakerar & Co" [1999] 1 All ER 400, 418]

However, despite the more claimant friendly rules, proving deceit is far more difficult that proving negligence, and alleged dishonesty is a far riskier course of action. Under the English bar rules, lawyers can be subject to sanctions for alleging fraud when there is no basis on which to do so.

ee also

*Tort law
*Misrepresentation

Notes