Royal Mail Case

[2] The case "fell like an atomic bomb and profoundly disturbed both the industrial and the accountancy worlds",[2] and has also been linked to reduced public trust of big businesses.

[5] The company had prospered during the First World War as the government paid to requisition its ships as military supply vessels and troop transports.

McClintock's report revealed that the company had not earned any trading profits since 1925, but was still paying dividends by taking money from the reserves.

Plender was one of the most important and reliable accountants in Britain, and under cross-examination stated that it was routine for firms "of the very highest repute" to use secret reserves in calculating profit without declaring it.

[14] Patrick Hastings said that "if my client ... was guilty of a criminal offence, there is not a single accountant in the City of London or in the world who is not in the same position.

[18] Following Kylsant's conviction the company was liquidated, and reconstituted as The Royal Mail Lines Ltd with the backing of the British government.

There were major changes, however: although the practice of secret reserve accounting remained acceptable, companies disclosed their use of this in their audit reports.

[2] The case "fell like an atomic bomb and profoundly disturbed both the industrial and the accountancy worlds",[2] and has been linked to reduced public trust of big businesses.

In the Kylsant case, the court held that the prospectus, though "strictly true", was fraudulently intended to give a misleading impression and was thereby an "untrue statement", allowing investors to sue.

In the later case of Doyle v Olby,[22] Lord Denning MR declared that a person making a fraudulent misrepresentation was liable in damages for "all direct consequences", whether the loss was foreseeable or not; whereas the general rule for the award of damages in contract is that the loss caused by the breach must be foreseeable either to the parties or to the "reasonable man", as in Hadley v Baxendale.