Doctrine of Constructive Notice

The doctrine of constructive notice is to the effect that anyone transacting business with a
company should have knowledge of the legal capacity of the company before engaging in
business transactions with the company.

There is a presumption to the effect that an outsider seeking to transact business with a company
is aware of the contents of the registered documents of the company. For instance, the
memorandum and articles of association, register of charges, debentures of the company are
public documents that are accessible on the payment of prescribed fees to the corporate affairs
commission for a copy. So, it is taken that these documents are in public purview and contents
should be known to anyone willing to transact business with a company and therefore be guarded
by such information. This is in order not to enter into a transaction that is beyond the powers of
the company (ultra vires).

The rule was laid down in Ernest v. Nicholls (1857) 6HLcases 401. Lord Wensleydale stated
“members of the public should acquaint themselves with the nature of the company from its
public documents before dealing with it. Persons dealing with the company are expected to
inspect their public documents to ascertain that the transaction falls within the competence or
object clause of the company, else he should have himself to blame”.

The doctrine of constructive notice was developed to protect the company against outsiders. In
Oakbank Oil Company v. Crum (1882) 8 AC 65, If any person enters into a contract which is
inconsistent with the company’s memorandum and articles, he shall not acquire any rights
against the company and shall bear the consequences himself.

In Re Jon Beauforte (London) Ltd case, where the insolvent company’s stated objects were to
manufacture dresses but it has for some time being making veneered panels, a combination of the
actual knowledge of the business being carried on by the company and of the constructive notice
of its stated objects resulted in all but one of the creditors claim being ultra vires.

The rule is that where the business being carried on by the company were known to the
third party, and yet transacts business with it, whether he actually knew it or not that the
business was ultra vires, he will not be able to sue the company. The rule of constructive
notice was viewed as harsh to outsiders doing business with a company as they were deemed to

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know the internal workings of the company.Where an action is within the capacity of a company,
but outside the powers of the individual representing the company because an internal procedure
was not observed. In Knopp v. Thane Investment Ltd (2003), the court found the director’s
failure to observe the articles rendered a contract unenforceable because it was not within the
articles of the company.Where the doctrine of constructive notice is strictly applied, the outsider
cannot complain about the lack of authority as they were deemed to know that there was a limit
on the actual authority of the company’s agent.

However, the doctrine of constructive notice has been abolished in Nigeria by section 92 of
the Companies and Allied Matters Act (CAMA) 2020. Except as mentioned in section 223 of
this Act, regarding particulars in the register of particulars of charges, a person is not deemed to
have knowledgeor the contents of the memorandum and articles of a company or of any other
particulars, documents, or the contents of documents merely because such particulars or
documents are registered by the Commission or referred to in the particulars or documents so
registered, or are available for inspection at an office of the company. The constructive notice
rule was viewed harsh and discriminatory, in order to ameliorate the challenges of the
constructive notice, the indoor management rule was developed.

Indoor Management Rule

The indoor rule is to protect outsiders transacting business with a company. The principle state
that those transacting business with a company do not need to have knowledge of the internal
workings of a company. A party transacting business with a company does not need to bother to
look out if the company has complied with necessary requirements of the internal workings of a
company before proceeding to do business with it.

The principle was laid down in the Royal British Bank v. Turquand (1856) 6 E. & B 327. An
action to repay a loan by the company from the bank was instituted. The company recanted that
it was not required to pay back the loan because the manager who negotiated the loan should
have been authorized by a resolution of the general meeting to borrow but he had no such
authorization. In this instance the company was leaning on the doctrine of constructive notice;
that the bank should have done due diligence, to know that the resolution that confers authority
on the manager was not in place; therefore, he had no authority to act on their behalf. The court
held that the public document only revealed that a resolution was required, not whether the

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resolution had been passed and it did not appear on the face of the public document that the
borrowing was invalid.

Section 93 CAMA 2020 has given statutory flavour to the rule, there is a presumption of
regularity. The rule protects third party dealing with a company and has been applied in Nigeria
In Metalimpex v. AG Leventis & Co. Nig. Ltd (1976) 2 S.C, where most of the earlier
authorities were considered by the Supreme Court, the court held applying the rule, that a person
dealing with a company is entitled to assume, in the absence of facts putting him on inquiry that
there has been due compliance with all matters of internal management and procedure required
by the articles, and is not required to inquire into the internal working of the company. In that
case, the appellant, Metalimpex, was owed N1, 347, 022.00 by the (West African Steel and Wire
Co. Ltd. (WASCO). The Leventis and Co. as guarantor of WASCO endorsed 12 bills of
exchange payable to it and accepted by WASCO to cover each of the 12 monthly instalment
payments to appellant as agreed. The negotiations relating to the payment scheme were carried
out by a director of Leventis and Co. who endorsed the 12 bills of exchange issued to appellant.
When the second bill was presented for payment, it was dishonoured. Appellant sued Leventis
and Co. for the amount of the dishonoured bill as indorsers of the bill and as guarantors of a
contractual undertaking made to it by WASCO. Leventis and Co. denied liability claiming that
the director who signed the guarantee had no authority to commit the company as a guarantor or
to indorse the bills. The Supreme Court held that the appellant was entitled to assume that the
director of the respondent company had the authority to indorse the bill of exchange in the
absence of any suspicious circumstances which could have put the appellant on inquiry.

In Trenco Nig. Ltd v. African Real Estate Ltd (1978) 1LRN 146, the Supreme Court also
held, applying this rule, that the defendants were entitled to assume that the Chairman of the
plaintiff company had the authority to enter into a binding contract with the defendant company
on behalf of the plaintiff company. See also Obaseki v. African Continental Bank Ltd (1966)
NMLR 35.

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Section 93 of the Act states that a person dealing with a company or with someone deriving title
under the company, is entitled to make the following assumptions and the company and those
deriving title under it shall be estopped from denying their truth that:

(a) the company's memorandum and articles have been duly complied with;

(b) every person described in the particulars filed with the Commission pursuant to sections 36
(4} (c)319 and 337 of this Act as a director, managing director or secretary of the company, or
represented by the company, acting through its members in general meeting, board of directors,
or managing director, as an officer or agent of the company, has been duly appointed and has
authority to exercise the powers and discharge the duties customarily exercised or performed by
an officer or agent of the type concerned

(c) The secretary of the company and every officer or agent of the company having authority to
issue documents or certified copies of documents on behalf of the company has authority to
warrant the genuineness ofthe documents or the accuracy of the copies so issued; and

(d) a document has been duly sealed by the company if it bears what purports to be the seal of
the company attested by what purports to be the signatures of two persons who, in accordance
with paragraph (b), can be assumed to be a director and the secretary of the company.

However, there are exceptions to the rule as stated under section 94

1. Suspicion of irregularity: If a party suspects or have actual knowledge of irregularity, and
yet proceeds on that suspicion without having recourse to due diligence then the rule is
not applicable. A person will not be allowed to rely on the rule where he knows that the
internal procedures of the company have not been complied with. The rationale for this is
that such a person lacks good faith and should not be allowed to presume in his own
favour that things are rightly done when he is aware that they are irregularly done. In
Afolabi v. Polymera Industries (Nigeria) Limited (1961), (2) A.L.R. Comm, 205 the
plaintiff claimed that he had been appointed a sole agent by the defendant to sell their
products. He based his action, for money due as commission and damages for breach of
contract, on a letter written by MrOkusanya, a subordinate employee of the company,
purporting to appoint the plaintiff as defendant’s agent. The court found that neither the
Managing Director, nor any other director had proposed the terms set out in the letter to

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 the plaintiff; that MrOkusanya was not directed to write such a letter. The court further
found that “the plaintiff was maintaining a rather sinister association with some members
of the defendant’s staff and was wielding a somewhat unwholesome influence on them
and that such led to the issue of the letter looks like fraud”. It was held that no contract
existed between the parties. This is because the plaintiff knew of the internal irregularity
and therefore, lacked good faith.

2. The doctrine of indoor management does not protect the negligent.

Where a director or agent of a company does something which ordinarily does not come
under his power, the third party should make a reasonable inquiry that the person has
authority to act. A.L Underwood Ltd v. Bank of Liverpool (1924) 1KB 775. A person
who was a sole director and principal shareholder of the company deposited into his
account cheques drawn in the favor of the company. It was held that, the bank should
have made inquiries as to the power of the director to deposit company cheques into his
personal account.

3. Cases of Forgery
Where the documents relied on by the third party is forged, the rule cannot be relied
upon. Ruben v. Great Fall Consolidated (1906) AC 439 the rule is designed to cover
mere irregularities in a genuine transaction, not a case of forgery. In that case, appellants
in good faith advanced a sum of money to the secretary of the respondent company for
his own purposes. They relied for security on a share certificate of the company’s register
of shareholders as transferees of the shares. The seal had been fixed, without authority,
by the secretary who had also forged the signatures of the two directors required to sign
by the articles.

4. Cases Involving Insiders (Directors, secretaries)

Under this exception, a director or a purported director or someone so closely related to

the company as to have been taken to know of the internal irregularity would not be
allowed to rely on the rule to escape liability. In Howard v. Patent Ivory
Manufacturing Co. (1883) 38 Ch. D 156 debentures had been issued for an amount

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which under the articles required authorization by resolution of the general meeting. No
such resolution had been passed. All the debenture holders who were directors of the
company were not allowed to rely on the rule by the Court since they must be taken to
have known that the internal requirements of the company had not been observed and
the debentures were invalid. (the article of the company empowered directors to borrow
up to 1000 pounds only. However, they could extend the limit of 1000 pounds by
consent in general meeting. Without such permission, they took 3500 pounds from one
of the directors who took debentures. Later on, the company refused to pay back. The
court held that the company is only liable to pay back 1000 pounds because the director
had notice about the limit and condition that needed to be satisfied but was not).

In Morris v. Kanssen (1946) AC 459. C. whose appointment as director had ceased,

and S., who had never been appointed a director, purported to hold a board meeting and
appoint M. a director. Then all three purported to allot shares to M. M. sought to rely on
the rule to validate his appointment and the allotment of shares to him. It was held that
the rule would not apply since M. purported to act as a director in the transaction.

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PROSPECTUS

Public issue of securities (shares, bonds, debentures) is a major channel for raising large amounts
as long term capital by companies. However, only public companies can raise funds through
public issue of securities. Section 67 of the Investment and Securities Act provides “No person
shall make any invitation to the public to acquire or dispose of any securities of a body corporate
or to deposit money with anybody corporate for a fixed period or payable at call, whether
bearing or not bearing interest unless the body corporate concerned is a public company,
statutory body or bank, court or tribunal.

Eligibility for Invitation to acquire or dispose securities

- Section 67 (a) Public company: Quoted or unquoted and in compliance with section 73-87 of
ISA

- Section 67 (b) a statutory body or bank established by or pursuant to an Act of the National
Assembly and is empowered to accept deposits and savings from the public or issue its own
securities (as defined under this Act), promissory notes, bills of exchange and other instruments

- Court or tribunal

Requirements before making invitation to the public section 73-87 ISA

The Securities and Exchange Commission requires that issuers of securities must make frank and
full disclosure of material fact concerning the securities sought to be offered to the public in what
is referred to as a “prospectus”. Section 315 of the Investment and Securities Act defines
prospectus as:

"prospectus" means any written or electronic information, notice, advertisement or other

forms of invitation offering to the public for subscription or purchase, any shares, debentures
or other approved and recognised securities of a company and other issues or scheme. It is a
legal document inviting the public to subscribe to the securities of a company.

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Rationale for Issuing a Prospectus
- Decision making: The prospectus is to assist investors in deciding whether to invest, or
not to invest in any securities.
- Statutory requirement: The Securities and Exchange Commission requires that important
information concerning the issuer and the securities must be provided to the investing
public.
- Protection of the Investing Public: This requirement is important because investors need
to be protected against issuers who may easily take advantage of investors
- Disclosure: places the burden of disclosure of pertinent information that will guide the
public in their decision making.
- It is a guide to the public to know the status of the company the public is investing in; by
giving information on the past, present and forseeable future to be able to assess the
performance of the company

Section 78 of the Investment and Securities Act provides that notwithstanding section 67
which controls the invitation to the public to acquire or dispose of securities it shall be lawful to
make an invitation to the public to dispose of or acquire any securities of a company if within six
months before the invitation, there has been delivered to the Commission and registered by it a
prospectus as required by the Act. A copy of the prospectus must have been supplied to every
person to whom the invitation is made (unless exempted under section 78(2)), and every copy of
the prospectus must state on its face that it had been at the time when the invitation was first
made, registered and the date of registration must be reflected on it.

Section 82 of the Investment and Securities Act provides that where a company allots or agreed
to allot any securities in the company with a view to all or any of those securities being offered
for sale to the public, any document by which the offer for sale to the public is made, is for all
purposes, deemed to be a prospectus issued by the company. Such a document is, unless the
contrary is proved, evidence that an allotment of, or an agreement to allot securities was made
with a view to the shares being offered was made within six months or that at the date of the
offer, the whole consideration to be received by the company had not been received.

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Accordingly, Section 76 of the Investment and Securities Act provides that apart from cases
where a certificate of exemption is granted by a securities exchange or capital trade point under
Section 76 where the company makes a general invitation in other words, invites the public to
acquire any securities of a public company, the prospectus by which the offer is made shall-
(a) State the matters specified in Part 1 of the 3rd schedule of the Act; and
(b) Set out the report specified in Part II of the 3rd schedule.

This requirement does not apply to an invitation by a company in respect of the shares of that
company to its associated company, made only to the existing shareholders of that company, or
which in all respect are uniform with the shares of the company previously issued and for the
time being dealt on an approved securities exchange or capital trade point.

On the other hand, where there is a restricted invitation, in other words, an invitation to the
public to acquire or dispose of any securities of a public company, not being a general invitation
either because it does not invite the public to acquire any securities or because it is otherwise
exempted, a prospectus relating to such an invitation may not state all the matters or set out all
the report specified in the 3rd schedule, but it must not contain any untrue statement.

If the securities to which it relates are dealt on in any securities exchange or capital trade point or
if application has been or is being made to a securities exchange or capital trade point for
permission to deal in the securities, the prospectus shall state or contain the matters specified in
section 79 (3) (a)-(c). In any other case, the prospectus shall state that the securities are not dealt
in any securities exchange or capital trade point.

Section 80 of the Investment and Securities Act provides for registration of prospectus thus.
No prospectus shall be issued by or on behalf of a company or in relation to an intended
company unless, on or before the date of its publication, there has been delivered to the
commission a copy of the prospectus for registration, signed by every person who is named in it
as a director of the company, or by his agent authorized in writing and having endorsed on it or
attached to it –

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(a) Any consent to the issue of the prospectus required by section 68 from any person as an
expert; and
(b) In the case of a prospectus issued generally, a copy in English of any contract required by
paragraph II of the 3rd schedule to this Act to be stated in the prospectus; or
(c) In the case of a prospectus deemed by virtue of a certificate granted under section 67 of this
Act to comply with the requirement of the 3rd schedule, a contract or a copy of such contract or a
memorandum of a contract which was made available for inspection in connection with the
application made under the section to the securities exchange or capital trade point; and
(d) Where the persons making any report required by part II of the 3rd schedule to this Act have
made in it or without giving the reason have indicated in it any such adjustment as are mentioned
in paragraph 21 of the 3rd schedule, a written statement signed by those persons setting out the
adjustment and giving the reasons for them.

Every prospectus must, on the face of it, state that a copy has been delivered for registration as
required by the section and specify or refer to the statement included in the prospectus which
specified any document required by this section to be entered on or attached to the copy so
delivered.

The Commission cannot register a prospectus unless it is satisfied that

(a) It is dated and signed as required by section 80 (1).
(b) It has endorsed on it, or attached to it the documents (if any) specified; and
(c) The prospectus otherwise complies with the requirements of the Act and the rules and
regulations 54-56.

If a prospectus is issued without a copy of it being delivered or without the copy so delivered
having endorsed on it or attached to it the required documents, the company and every person
who is knowingly a party to the issue of the prospectus, commit an offence punishable by fine.
Section 77 of the investment and securities act provides for expert statement on prospectus

Remedies for breach of section 67 (1)

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Any person that acquires or disposes of any securities, or deposits money with any company, as a
result of any invitation to the public made in breach of subsection (1) of this section, he shall be
entitled to:
(a) rescind such transactions; and
(b) either in addition to or in place of rescinding the transaction, recover compensation for any
loss sustained by him from any person who is liable whether convicted or not, in respect of the
breach.
(4) Where, in accordance with subsection (3) of this section, any person claims to rescind any
transaction, he shall do so within a reasonable time and shall not be entitled to rescind any
transaction with the body corporate or to recover compensation from it unless he takes steps to
rescind the transaction before the commencement of the winding up of the body corporate

Liability of officers for breach of section 67 (1)

All persons making the invitation and every officer who is in default or anybody corporate
making the invitation shall each be separately liable to a penalty of N500,000 in the case of a
body corporate and N100,000 in the case of an individual, section 67 (2)

Meaning of Invitation to the public Section 69 ISA

An invitation is to the public to make an offer for subscription for the securities of the company.
Mode of Invitation include:
(a) published, advertised or disseminated by newspaper, broadcasting, cinematograph or any
other means whatsoever;
(b) made to or circulated among any persons whether selected as members or as debenture
holders of the company concerned or as clients of the persons making or circulating the
invitation or in any other manner;
(c) made to anyone or more persons upon the terms that the person or persons to whom it is
made may renounce or assign the benefit of the offer or invitation or any of the securities to be
obtained under it in favour of any other person or persons;
(d) made to any one or more persons to acquire any securities dealt in by a securities exchange or
capital trade point or in respect of which the invitation states that an application has been or shall
be made for permission to deal in those securities on a securities exchange or capital trade point

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An invitation by a public company to the public to subscribe to its securities must issue a
prospectus as stated in the third schedule part I and II of the ISA while the requirement for a
prospectus is dispensed with if company securities:
(a) is made solely to the existing shareholders of that company; or
(b) which in all respects is uniform with its existing listed shares requirements in third
schedule part I and II will not be stated in respect of securities

Procedure before making an invitation to the public

The company must obtain the written consent of the Securities and Exchange Commission (SEC)
Section 68 (1)

If consent of SEC is granted, the Commission may require that any advertisement or circular to
be used in connection with the invitation be registered with or approved by the Commission
section 68 (2)

Procedure during invitation to the public

Applications made to the public must be accompanied with a prospectus Section 71 (1) ISA. The
effective date of a prospectus is the date of publication section 72 ISA

PART 1 Contents of a prospectus S. 73

1. The Company’s Proprietorship and Management
2. Capital Requirement
3. Details Relating to the Offer
4. The number, description and amount of any shares or debentures
5. The prospectus shall state the number and amount of shares and debentures issued or to
be issued
6. Property acquired or to be acquired by the Company
7. Names of vendors
8. Amount payable for the properties
9. Commissions, Preliminary Expenses, etc
10. Contracts

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 11. Auditors
12. Interests of Directors

Part II: Auditors’ and Accountants’ Reports to be Set Out in Prospectus

Sections 64 (1), 67 (1)
16 Company auditors report
17 Accountants’ Report
18 Application of proceeds of issue

N.B
(Students should see the full details of the content of the prospectus in the third schedule
part I and II of the Investment and Securities Act 2007)

Exemptions from issuance of prospectus when issue is:

- to be made to the existing members of a company
- of a prospectus or form of application relating to securities which are to be in all respects
uniform with securities previously issued and for the time being dealt in or quoted on a
securities exchange or capital trade point.
-
Statement in Lieu of Prospectus Section 84 ISA

This is a statement requirement for securities issued in-house and not to the public. It is a
document prepared by a public company that wants its shares to be subscribed to privately
without going public with their subscription.

N.B
Students should please check the format of the statement in lieu of prospectus in the fourth
schedule to the Investment and Securities Act 2007

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7. Liabilities for Mis-statement in Prospectus
Civil Liabilities for Mis-statement
Section 85 of the investment and Securities Act provides for civil liabilities for misstatement in
prospectus thus: where a prospectus invites persons to subscribe for shares in a company, the
persons referred to in subsection (2) of this section shall be liable to pay compensation to all
persons who subscribed for shares or debentures relying on the prospectus for the loss or
damages they may have sustained by reasons of any untrue statement or misstatement
included in it.

A person liable to pay compensation under subsection (1) of this section includes
(a) Any director of the company at the time of the issue of the prospectus.
(b) Any person who consented to be named and is named in the prospectus as a director or as
having agreed to become a director either immediately or after an interval of time.
(c) Any employee of the company who participated in or facilitated the production of the
prospectus; and
(d) The issuing house and its principal officers”

Section 85 (4) of the Investment and Securities Act provides for general exception as follows:
No person shall be liable under subsection (1) of this section if he proved
a) That having consented to become a director of the company, he withdrew his consent in
writing before the issue of the prospectus, and that it was issued without his authority or consent.
b) That the prospectus was issued without his knowledge or consent, and that on becoming aware
of its issue, he immediately gave reasonable public notice that it was issued without his
knowledge or consent.
c) That after the issue of the prospectus and before allotment, he on becoming aware of any
untrue statement or misstatement in it, withdrew his consent in writing and gave reasonable
public notice of the withdrawal and the reason for his withdrawal; or
d) That as regard every untrue statement or misstatement-
(i) Not purporting to be made on the authority of an expert, or of an official public document or
statement, he had reasonable ground to believe and did up to the time of the allotment of the
shares, as the case may believe that the statement was true.

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(ii) Purporting to be a statement by an expert or contained in what purports to be a copy of or an
extract from a report or valuation of an expert, it fairly represented the statement, or was a
correct and fair copy of or extract from the report or valuation and he had reasonable ground to
believe and did up to the time of the issue of the prospectus believe that the person making the
statement was competent to make it and that persons had given the consent required by Section
77 of this Act to the issue of the prospectus and has not withdrawn that consent before delivery
of copy of the prospectus, for registration, and
(iii) Purporting to be a statement made by an official person or contained in what purports to be a
copy of or an extract from an official public document, it was a correct and fair representation of
the statement or copy of or extract from the document.”

The provisions or subsection (4) of this section shall not apply in the case of a person liable by
reason of his having given a consent required of him by Section 77 of this Act as a person who
has authorized the issue of a prospectus in respect of an untrue statement purporting to be made
by him as an expert. Therefore, an expert cannot escape liability.

Section 77 of the Investment and Securities Act provides for expert statement on prospectus. An
expert who has given his consent will not be liable in respect of an untrue statement, if he proves
that he withdrew his consent in writing before delivery of a copy of the prospectus for
registration, or that after delivery of the prospectus for registration and before allotment, he
withdrew his consent and gave public notice of it, and he was competent to make the statement
and had reasonable grounds to believe up to the time of the allotment, that the statement was
true.

Section 85(7) of the Investment and Securities Act provides that where a prospectus contains the
name of a person as a director and he has either not consented or as such or has withdrawn his
consent before the issue, or has not authorized or consented to the issue where his consent is
required, such a person is entitled to be indemnified by the director of the company (except those
who did not know of a consent to the issue) against all liabilities resulting from the issue, by the
inclusion of his name in the prospectus as such director, and also in defending himself against

15
any proceeding brought against him in respect of such prospectus. Section 94 of the Investment
and Securities Act provides for action for rescission.

Criminal Liability for Mis-statement

Mis-statement in a prospectus

86 (1) Where a prospectus includes any untrue statement or mis-statement, any director or
officer who authorised the issue of the prospectus commits an offence and is liable-
(a) on conviction to a fine of not less than N1,000,000:000 or to imprisonment for a term not
exceeding three years, or to both such fine and imprisonment; or
(b) on summary conviction, to a fine of not less than N 1,000,000:000 or to imprisonment for a
term not exceeding three months or to both such fine and imprisonment, unless he proves either
that the untrue statement or mis-statement was immaterial or that he had reasonable ground to
believe and did, up to the time of the issue of the prospectus, believe that the statement was true.
(2) A person shall not be deemed for the purposes of this section to have authorised the issue of a
prospectus by reason only of his having given the consent required by section 77 of this Act to
the inclusion in it of a statement purporting to be made by him as an expert.

Mis-statement in lieu of prospectus

Section 87 (1) made provision to the effect that if a statement in lieu of prospectus includes any
untrue statement or misstatement, any person who authorised the delivery of the statement in lieu
of prospectus for registration commits an offence and is liable-
(a) on conviction to a fine of not less than N 1,000,000:000 or to imprisonment for a
term not exceeding three years or to both such fine and imprisonment; or
(b) on summary conviction, to a fine not exceeding N 1,000,000:000 or to
imprisonment for a term not exceeding three months or to both such fine and
imprisonment, unless he proves either that the untrue statement or mis-statement was
immaterial or that he had reasonable ground to believe and did, up to the time of the
delivery for registration of the statement in lieu of prospectus, believe that the untrue
statement or mis-statement was true.

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(2) For the purposes of this section-
(a) any information included in a statement in lieu of prospectus shall be deemed to
be untrue if it is misleading in the form or context in which it is included; and
(b) an information shall be deemed to be included in a statement in lieu of prospectus
if it is contained in the prospectus or in any report or memorandum appearing on the
face of it or by reference incorporated in it.

Where a person issues or permits the issue of a prospectus containing statement which turn out to
be untrue, any person who acts upon such untrue statement and suffers loss or damage can hold
the issuer, or the person who permitted the issue, liable for such loss or damage. The person who
suffers the loss or damages has these remedies both at common law and under the Act. In New
Brunswich and Canada Railway Co. v Maggeridge (1860) 1 Dr and Sun 365.
Kingdersley V.C emphasized the duty of those who issued a prospectus as follows:
Those who issue a prospectus, holding out to the public the great advantages which will accrue
to persons who take shares in a proposed undertaking, and inviting them to take shares on the
faith of the representations therein contained, are bound to state everything with strict and
scrupulous accuracy, and not only to abstain from stating as facts that which is not so, but to omit
no one fact within their knowledge, the existence of which might, in any degree, affect the
nature, or extent, of quality of the privilege and advantages which the prospectus holds out as
inducement to take shares. See also Henderson v Lacon(1867) LR 5 E.Q 249 at 252.
A false statement may consist of a half-truth represented as whole truth and Section 83 of the
Investment and Securities Act now provides that a statement included in a prospectus shall be
deemed to be untrue if it is misleading in the form and context in which it is included, thus
giving statutory effect to the decision in R v Kylsant. (1932) I KB 442.

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