(1889) LR 14 App
Cas 337
1. The
prospectus of a train company (defendant Company) stated that on the basis of a
new law they could use steam powered trams instead of horse powered ones.
2. On the basis
of this information, the plaintiff bought shares in the company.
3. However, the
information was not completely accurate since the use of steam power was
subject to approval of the Board of Trade. The right to use had never been
refused before and the defendant company honestly believed that they would get
the approval.
4. The Board of
Trade refused and the company wound up. The plaintiff sued the Chairman and 4
directors of the defendant company.
5. It was held by
the House of Lords that the statement was made in honest belief and hence did
not amount to fraud. A statement would be fraudulent only if made (a) knowing
it to be false; (b) without believing it to be true; (b) recklessly without
taking care if it was true or not.
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