What constitutes fraud?


The meaning of fraud (at Common Law) was laid down by the House of Lords in the leading case of Derry v Peek (1889, England).52


Lord Herschell stated:

An absence of honest belief is therefore essential to constitute fraud.54



Every statement is explicitly or implicitly a statement as to the belief of the speaker, and if that belief does not exist the statement is knowingly and wilfully false.54A


With regard to the statement itself, it is not necessary to prove any specific representation to have been false. It is fraud intentionally to give a false impression and induce a person to act upon it, even though each fact stated taken by itself may be literally true.55 So it is possible by stating a thing partially to make a statement which, in the sense that it must be known it will be understood, is really false. A half-truth may be fraudulent because further relevant facts are suppressed.55A


The false statement may be made either by words or by conduct. Any conduct designed to deceive another by leading him to believe that a certain fact exists is equivalent in law, as in morals, to a statement in words that that fact does exist.56

Active concealment of a fact is equivalent to a positive statement that the fact does not exist. By active concealment is meant any act done with intent to prevent a fact from being discovered.58 

Note! A deliberate silence by a party under a duty to disclose material facts must be seen to have logical equivalence to a deliberate concealment of those material facts. And, again, IF there is also a dishonest intent to make gain from the decision of the deceived party, THEN such dishonest concealment must be seen to constitute criminal fraud.

The facts of Pearson v Dublin Corporation (1907, Ireland — Again, remember Ireland was under British Rule at this time, so this represents the Law in both jurisdictions) show that fraud can exist even when the representor does not necessarily know that his statement is false.59

During the tendering process for a construction contract with Dublin Corporation (the defendant), S.Pearson & Son Ltd. (the plaintiff) was told by the defendant’s agent that a wall had been built on the construction site and that the foundations of the wall were nine feet deep. This statement was untrue, and it adversely affected the price contained in the tender subsequently submitted by the plaintiff.59A Pearson & Son Ltd. performed the contract, and brought an action of deceit against the Corporation, claiming damages for false representations as to the position, dimensions and foundations of the wall, whereby they were compelled to execute more costly works than would otherwise have been required.60


When the agent told the plaintiff that the foundations of the wall stood on the site the agent did not know if this was true or false: the statement was nevertheless fraudulent.61

There was the absence of any genuine belief — the presence of conscious ignorance of the truth of the matter. 


Note!  Although an absence of reasonable grounds for believing a statement to be true is not in itself a ground for liability, it is important evidence that no such belief really exists and therefore that the defendant is guilty not of Negligence but of Fraud.62


Note!  An important precedent was set in the case of Pearson v Dublin Corporation. While the plaintiffs were induced to enter into the contract as a result of fraudulent statements by the defendant’s agent, clauses in the contract provided that the plaintiff had to verify all representations for himself and not rely on their accuracy. Palles, Chief Baron, held that this provision was effective and he refused to leave an issue to the jury, dismissing the action. The House of Lords granted a new trial. The statement was made by the agent fraudulently; several members of the House of Lords said that, in general, a person cannot avoid the effect of his or her agent’s fraudulent statements by inserting a clause in the contract that the other party shall not rely on them. Any other rule would encourage fraudulent practices.63

N.B. The burden of proving Fraudulent Misrepresentation, under Common Law, rests with the party alleging fraudulent misrepresentation.


At Common Law a fraudulent misrepresentation not only renders the contract voidable, and therefore allows the representee to obtain rescission of the contract, but also gives rise to an action for damages in respect of the deceit.64 (These matters will be discussed in detail later in this Chapter, in Section 2.8.1 and Section 2.8.2.)

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