## Facts

- Company directors issued a prospectus inviting subscriptions for debentures.
- The prospectus represented that the funds would be used to complete building alterations, acquire horses and vans, and expand a cheap-fish supply business.
- The company’s actual purpose for raising funds was to pay existing liabilities while the company was in financial difficulty.
- An investor subscribed £1,500 for debentures after reading the prospectus.
- The investor also believed (mistakenly) that the debentures would give him a first charge on the company’s property; he testified he would not have invested without such a charge.
- The investor alleged additional misleading omissions or implications concerning existing mortgages, but the core allegation was the misstatement of the fundraising purpose.
- After the company became insolvent, the investor sued the directors in deceit to recover his loss.
- The trial court found the directors liable for deceit; the directors appealed.

## Issues

1. Whether a knowingly false statement in a prospectus about the intended use of raised funds is an actionable misrepresentation of fact for deceit.
2. Whether, for deceit, the misrepresentation must be the sole inducement for the claimant’s action, or whether it is enough that it materially influenced the claimant even if another mistake also influenced the decision.

## Decision

- The Court of Appeal affirmed judgment for the investor and dismissed the directors’ appeal.
- The court held that a false statement of present intention (the stated purpose for which money would be applied) can be a misrepresentation of fact because a person’s state of mind is a fact at the time of speaking.
- The court held that the misrepresentation need not be the sole cause of the investment; it is sufficient if it materially contributed to the claimant’s decision.
- The court treated the other alleged misstatements about mortgages as comparatively weak and not necessary to sustain liability, given the fraudulent misstatement about the intended use of funds.

## Legal Principles

- Deceit requires proof that: (1) a false statement of fact was made; (2) it was made knowingly false or recklessly without caring whether it was true or false; and (3) it induced the claimant in the sense that it was a material factor in the claimant’s action.
- A statement about how funds will be used is actionable in deceit when it is a dishonest statement of present intention (a misstatement of the speaker’s then-existing state of mind).
- Reliance in deceit does not require exclusive causation; partial reliance is enough if the misrepresentation materially influenced the claimant’s conduct, even where the claimant also acted under an independent mistaken assumption.

## Conclusion

The court imposed liability in deceit because the prospectus dishonestly misrepresented the directors’ present intention for applying the debenture proceeds, and that misrepresentation materially influenced the investor’s subscription even though the investor was also motivated by his own separate mistake about obtaining a first charge.


Edgington v. Fitzmaurice, 29 Ch. D. 459 (C.A. 1885)