Rex v Kylsant

[1932] 1 King's Bench 442Court of Criminal Appeal1932Company Law

Rule established

A half-truth that creates a false impression is as much an untrue statement as a direct lie; misleading omission in a prospectus amounts to misstatement

Facts

The Royal Mail Steam Packet Company issued a prospectus stating that it had paid regular dividends over many years
While this was literally true, the dividends had been paid out of secret reserves and tax refunds, not from trading profits
The company was actually running at a loss during several of those years
Lord Kylsant (chairman) was prosecuted under s.84 of the Larceny Act 1861 for circulating a false prospectus

Issue

Whether a statement in a prospectus that is literally true but misleading by reason of material omission constitutes an "untrue statement" for the purposes of criminal liability.

Held

The court held that a statement may be literally true yet nonetheless constitute an untrue statement if it is designed or calculated to create a false impression. The omission of the fact that dividends were paid from reserves rather than profits rendered the prospectus misleading. Lord Kylsant's conviction was upheld.

Ratio Decidendi

An untrue statement is not limited to outright falsehoods. A statement that is literally true but which, by reason of things omitted, creates a false impression in the mind of the reader is as much an untrue statement as a direct lie. In the context of a prospectus, the duty of disclosure requires presenting a full and fair picture. Selective truth-telling that creates a misleading impression violates this duty.

How to use it in an exam

Essential case for prospectus questions involving the meaning of "untrue statement" and the concept of misleading omission/half-truth. Shows that criminal liability can attach even to literally true statements.
Key quotable line: "A half-truth which creates a false impression is as much an untrue statement as a direct lie."

Source

Source: King's Bench Reports

This is an educational summary, not the judgment itself. Cite the reported version in professional or academic work.

Cited in study notes

Prospectus and Liability for MisstatementMisleading omission = misstatement