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Company Law > 3) Ultra Vires > Flashcards

3) Ultra Vires Flashcards

1
Q

The power of a company to enter into a transaction was limited in two ways

A

Capacity
Authority

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2
Q

Capacity

A
  • To determine capacity was necessary to check the objects clause in the memorandum.
  • If transaction was outside of the company’s powers = ultra vires = Void and unenforceable
  • Even if ratified by shareholders
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3
Q

Asbury v Riche 1875

A

The company was not incorporated with the requisite capacity.

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4
Q

Authority

A
  • Whether the individual who contracted on the company’s behalf was authorised to do so?
  • If not transaction would be voidable at the instance of the company
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5
Q

Capacity Question under CA 2006

A

Less relevance as memorandum no longer contains an objects clause.

Under s31 CA 2006 a company’s objects are unrestricted

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6
Q

Doctrine of ultra vires

A
  • Body acts outside of its powers.
  • Doctrine deemed to apply to registered companies in order to protect creditors and shareholders.
  • If a company was unable to achieve its stated object then it was vulnerable to being wound up by courts.
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7
Q

Re German Date Coffee Co 1882
- Facts

A
  • Object was to acquire and exploit a German potent for producing coffee from dates.
  • Failed to get a german patent but got a Swedish one.
  • Company wound up since it did not achieve its stated aims
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8
Q

Problems ensuing from the doctrine of ultra vires

A
  • Objects were not permitted to be altered.
  • Registered companies often diversified and changed - creating problems.
  • Doctrine of constructive notice, combined with the ultra vires rule - caused problems with third parties seeking to enforce.
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9
Q

Objects clause was initially not permitted to be altered

A

Later legislation allowed alteration in limited circumstances until 1991, when amendments made to the Companies Act 1985 came into effect,

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10
Q

Doctrine of constructive notice

A

Deems anyone dealing with registered companies to have notice of contents of public documents. `

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11
Q

Bell Houses Ltd v City Wall Properties 1966

A

Could use a “general commercial company” as a purpose.
Permitted under s3A CA1985.
Wide objects clause

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12
Q

Re Introductions Ltd v National Provincial Bank 1970

A
  • Company was incorporated in ‘51
  • Provided foreign visitors with accomm and entertainment
    Diversified into pig breeding
  • Bank were unable to enforce a debenture as the company acted ultra vires
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13
Q

Following Re Introductions Ltd v National Provincial Bank

A
  • Recommendations for reform of the law to protect third parties.
  • Following the joining of the ECC
  • European Community Company Law Harmonisation Directive - removed the doctrine of constructive notice.
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14
Q

European Community Company Law Harmonisation Directive -

A
  • Removed doctrine of constructive notice concerning memo/articles
  • Containeed a saving provision for ultra vires transactions when transaction dealt with in good faith
    now incorporated as s 40 CA 2006
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15
Q

CA 1985 and further amendments of 1991

A
  • Allowed companies to change their objects clause (s4)
  • Companies permitted to have general commercial company clause (s3A)
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16
Q

Changes introduced by CA 2006

A
  • s39(2) CA 2006 - removing doctrine of constructive notice in relation to memo and articles.
  • s31 CA 2006 default position of unrestricted objects
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17
Q

Companies formed prior to CA 2006

A

Objects clauses are treated as if a provision of the articles (s28(1) CA 2006) continue to bind the company.
Unless altered by special resolution
* New articles adopted = objects clause removed

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18
Q

Constitutional restrictions on a company’s capacity have no bearing on…

A

Liability in tort or crime

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19
Q

Agent

A

An agent is appointed by a principle to act on their behalf, an agent contracts on the principal’s behalf and the contract will be entered into between the principal and the third party - not the agent

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20
Q

To validly represent the principal and bind the principal

A

Agent needs authority

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21
Q

Authority may be …

A

Actual (express or implied)
Deemed (by statute or under common law)

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22
Q

Actual authority

A

Agent has actually been conferred on them by the principal

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23
Q

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd 1964

A

Actual relationship = relationship between principal and agent created by consensual agreement

Usual contractual principles apply

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24
Q

Implied actual authority arises from …

A
  • Appointment to a specific role
  • course of dealing
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25
Q

Implied actual authority - from appointment

A

Appointment of Managing Director carries the power of the person to do all such acts necessary to manage the company.

including acts not expressly stated in the managing director’s contract

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26
Q

Smith v Butler 2012

A
  • Court had to determine whether a MD had implied power to suspend Execitove chariperson.
  • Implied powers of managing director
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27
Q

Implied actual authority from course of dealing

A
  • Where a director or other agent continually enters into specific transactions and the board of directors either acquiesces or agrees
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28
Q

Actual authority - implied - via appointment - CASE

A

Smith v Butler 2012

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29
Q

Actual authority - implied - course of dealing - Case

A

Hely- Hutchinson v Brayhead Ltd 1968

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30
Q

Hely- Hutchinson v Brayhead Ltd 1968

A

CoA held that chairperson and CE of defendant company had implied authority from course of dealing due to entering into similar contracts without the board objecting

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31
Q

Deemed authority

A

Refers to the situation where an agent has no actual authority, yet can still bindthe principle

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32
Q

Three categories of deemed authority

A

1) Statutory deemed authority under s40 CA 2006
2) Deemed authority at common law - ostensible or “apparent” authority
3) Deemed authority at common law under the “indoor management” rule in Turquand’s case

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33
Q

Implied Authority - StatutoryUnder s 40 CA

A

Purpose: Protect third parties where there are restictions on the power of agents to bind a company.

Third parties who deal in good faith are entitled to assume that directors are free from limit
Even if articles require shareholder agreement.

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34
Q

Threshold for bad faith

A

Very high
s40(2)(b)

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35
Q

Ostensible Authority

A

Determined by looking at the relationship between the principle and the third party.

Authority of the agent as it appears to a third party.

36
Q

Ostensible authority case

A

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd 1964

37
Q

Freeman and Lockyer v Buckhurst Park Properties (Mangal) Ltd 1964

A
  • Company formed to buy and resell a large estate.
  • Four director and articles of the company required all four to constitute a quorum
  • K acted as managing director in engaging team to get planning
  • Company refused to pay the claimants fees arguing K had no authority to pay
  • CoA upheld claim on basis of ostensible authority
38
Q

Significance of quandIndoor management rule in Turquand’s case

A

lesser significance now due to s40 CA 2006

  • Still applies in certain situatioins in particular where the third party has not dealt directly with the board, or a question of agency authorisation
39
Q

Royal British Bank v Turquand
1856

A
  • Bank brought a claim for the return of money owed by the company.
  • Loan valid as constructive notice only shows that authorisation required - not that ontained.
40
Q

Indoor management rules

A

Principle of Turquand is that outsiders are entitled to assume company’s internal procedures have been complied with

41
Q

Rolled Steel Ltd v British Steel Corp
1986

A

Indoor managament rule will not apply when third party has notice of irregularity or is not acting in good faith

42
Q

Indoor regularity rule does not apply when

A
  • Third party has actual notice of irregularity or bad faith.
  • Third party is an insider
43
Q

Morris v Kanssen 1946

A

It does not apply where the third party is an insider such as a director who enters into a contract withthe company

44
Q

Ratification

A

A company is able to ratify acts that are beyond the actual authority of its agents provided that the act is within the authority of the appropriate organ of the company who are look to ratify.

45
Q

Ratification involves

A

Passing a resolution to approve the act and agree that a company will be bound by it

46
Q

Ratification key case

A

New Falmouth Resorts Ltd v International Hotels Jamaica Ltd 2013

47
Q

New Falmouth Resorts Ltd v International Hotels Jamaica Ltd 2013

A
  • Agent had no actual or ostensible authority to enter transaction.
  • No longer able to rely on the lack of authority of the agent.
  • May be adopted and ratified of with a retrospective effect.
48
Q

Pre incorporation contracts

A

The Contracts (Rights of Third Parties) Act 1999
* Allows third parties to enforce contracts where the contract expressly provides or term in contract confers a benefit on the third party, does not apply to pre-incorp contracts because these will impose obligations and not only benefit third partites.

49
Q

Section 51 CA 2006

A

Promoters bear personal liability
* Makes pre-incorp contracts enforceable as personal contracts against persons purportedly on the company’s behalf (promoters)

50
Q

Phonogram Ltd v Lane 1982

A

Necessary to determine whether there was an express agreement that the signatory would not be personally bound bythe contract

51
Q

Cases that follow the interpretation s51 CA 2006

A
  • Hepburn v Revenue and Customs Commissioners 2013
  • Royal Mail Etates v Teesdale 2015
52
Q

Hepburn v Revenue and Customs Commissioners 2013

A
53
Q

Royal Mail Estates v Teesdale 2015

A
  • Applying Phonogram v Lane
  • Judge did not consider that the wording excluded the effect of s51 as it did nto expressly indicate intention to exclude the effect of s 51
    neither of the parties was aware that the company had not been incorporated
54
Q

Pre-incorporation contracts - ratification

A

A company cannot ratify a contract made before it came into existence.
Ratification is only possible for acts which a company could have authorised at the time

55
Q

A company cannot ratify a contract made before it came into existence

A

Since the company did not exist at the time the contract was formed.

Could not have authorised an agent to act on its behalf so is not able to retrospectively authorise purported agents

Kelner v Baxter 1866

56
Q

Kelner v Baxter
1866

A

As the company did not exist at the time the contract was formed.
Could not authorise an agent to act on its behalf - so cannot to so retrospectively

57
Q

Natal Land Co & Colonization Ltd v Pauline Colliery and Development Syndicate Ltd 1904

A

Only way to obtain benefit of a contract made on its behalf before it came into existence novate the contract

58
Q

Only way a company can obtain benefit of a contract made on its behalf before it came into existence

A

Novate the contract

59
Q

Where a company is formed from a n existing shelf company

A

s51 does not apply

Because shelf company is already formed = a legal person

60
Q

Oshkosh B’Gosh INc v Dan Marbbel Inc Ltd 1989

A

Individual in negotiation of a contract formed between a shelf company and third party before shelf company is renamed is not personally liable

61
Q

Pre incorporation contracts - liability of the agent or promoter

A

Liable under the contract under s51 but also can enforce the contract

62
Q

Braymist Ltd v Wise Finance Co Ltd

A
  • Case involved a contract for the sale of land entered into by solicitors on behalf of a company.
  • Developers changed their mind, solicitors sought to enforce the contract.
  • Solicitor entitled to do so.
63
Q

Usual rules of contract apply - misrepresentation about the identity of the party of the contract (the future company) induced the other party to enter the contract to it’s detriment

A

Other party can rescind the contract

64
Q

Agents or promoters must beware entering into contracts on behalf of a company before it is incorporated

A

Likely to lead to them assuming personal liability for contracts, and being entitled to personal benefit

65
Q

Liability in tort

A

Two ways that a company may be liable int tort
* Primary Liability
* Vicarious Liability

66
Q

Primary Liability

A

Company itself committed the tort through the acts of an individual attributed to the company

67
Q

Vicarious Liability

A
  • Individual within the company personally liable.
  • Company vicariously liable for that person’s act or omission
    Individual and the company are jointly liable
68
Q

Attribution of primary liability

A
  • Comes from case law
  • Courts identify the controlling mind of the Company,
    = Attribution theory
69
Q

Attribution Theory - difficulty

A

Requires a particular individual within a corporate organisational structure to be identified as the controlling or guiding mind

70
Q

Attribution Theory - Key Cases

A
  • Lennard’s Carrying Co Ltd v Asiatic Petroleum Co Ltd 1915
  • Tesco Supermarkets Ltd v Nattrass 1972
  • Meridian Global Funds Management Asia Ltd v Securities Commission 1995
  • SFO v Barclays PLC and another 2018
71
Q

Lennards Carrying Co Ltd v Asiatic Petroleum Co 1915

A
  • Liability under the **Merchant Shipping Act 1894* - required fault.
  • Necessary to identify an individual who was the “directing mind and will of the corporation”
  • That person has the required fault and the can be attrinuted to the company
72
Q

Tesco Supermarkets Ltd v Nattrass

A
  • Tesco charged under Trade Descriptions Act 1968
  • For advertising goods at reduced price and selling for full.
  • Argued that it was the manager of a particular store, not the company.
    Court found the manager was no tthe “guiding mind” therefore Tesco could not be liable for his actions
73
Q

Lord Hoffmann opened up the possibility of finding liability based on assessment of the controllers of the company for the purposes of attribution rather than searching for the “guiding mind” of the company

A

Makes liability easier to establish

74
Q

Meridian Global Funds Management Asia Ltd v Securitie Commission
1995

A
  • Reall issue was who the “controllers” of the company for the purposes of attribution.
  • Not about the “guiding minds”
  • Controllers were found to be two senior managers, enabled attributions of the liability.
75
Q

SFO v Barclays PLC and another 2018

FACTS

A
  • Serious Fraud Office sought to bring charges against Barclays in connection with fraudulent fundraisings in response to the banking crisis.
  • Considered whether the alleged criminal dishonesty of senior officers who misled boards and committees.
  • Does this render Barclays criminally liable?
76
Q

SFO v Barclays PLC and another 2018

HELD

A
  • As they were acting dishonesty
  • Individuals did not have the “full discretion” to act independently
  • Could not have been directing mind, and will of a company to the role and responsibilities of the company.
    *
77
Q

Davis LJ

A

Acknowledged that the law set a high standard for all but small companies to be found liable.

“open to parliament to draft statutory offences with the position of corporations in mind”

78
Q

Economic Crime and Corporate Transparency Act 2023

A
  • In response to SFO v Barclays Gov reformed the identification principle
  • So if “a senior manager of a body corporate or partnership acting within the actual or apparent scope”
    Then company also guilty of offence
  • Only applies to economic, fraud and funding of terrorism
79
Q

ECCTA 2023

A

Economic Crime and Corporate Transparency Act 2023

Only applies to economic crimes, fraud and funding of terrorism.

Government have stated a desire to extend this list to all criminal offences in due course

80
Q

Criminal liability for companies difficult to establish even after

A

Meridian Globa Finds Management Asia Ltd v Securities Commission 1995

81
Q

Zeebrugge P&O ferries (Dover) Ltd 1991

A
  • 7 individuals within P&O were charged with gross negligence manslaughter
  • Company charged with corporate manslaughter
  • Case collapsed but set a precedent that a company many be charged with corporate manslaughter
82
Q

Corporate Manslaughter and Corporate Homicide Act 2007

A

Enacted to establish the offence of corporate manslaughter

83
Q

Corporate Manslaughter

A
  • Offence committed by a company if the manner in which its activities are managed or organised by its senior management causes the death of a person and amounts to gross breach of the relevant duty of care owed to the person.
  • Conduct fell far below what can reasonably be expected of the organisation in the circumstances
    If found guilty then the company may be liable for a fine
84
Q

First company convicted under Corporate Manslaughter and Corporate Homicide Act 2007

A
  • Cotswold Geotechnical Holdings Ltd in 2011
  • Company convicted and fined £385,000
  • Death of an employee who entered an unsupported pit during the course of soil investigation work which collapsed
85
Q

R v Cotswold Geotechnical Holdings Ltd 2011

A
  • Cotswold Geotechnical Holdings Ltd in 2011
  • Company convicted and fined £385,000
  • Death of an employee who entered an unsupported pit during the course of soil investigation work which collapsed

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