Wednesday, 12 March 2014

Chp 13 Ultra vires

Rolled Steel Products Ltd v British Steel corp- Browne Wilkinson suggested to limit the use of the term "ultra vires" to its strict sense

Small v Smith - the UV doctrine was never harshly applied. Because the court accept that whatever might be regarded as incidental to the objects specified, should be held to be inside the power of the company.

Re Balgan Hall Colliery - however all company soon to draft very wide object clause

London Financial Asso v Kelk - but these words will be held only to cover operations of a similar nature

Cotman v Brougham - starting with a para "company to acquire rubber", then subsequent para "to underwrite stocks". The underwriting power would be viewed as ancillary to the acquisition of rubber 

Bell House  v City Hall Properties - whatever objects director think fit. Held: within power

Introductions v National Provincial Bank - oversea visitors of Festival of Britain > Pig breeding
power vs objects. power to borrow had to be used for the legitimate purpose.Since the purpose (for big breeding) is UV, the borrowing itself was UV.

Re Horsley & Weight Ltd - object: business of shopfitters. authorise to "grant pensions to employees and directors". CA: granting of pensions was capable of being a "object" instead of "power".

Roller Steel Products Ltd v British Steel Corp -guarantee and debentures are powers, not objects. So not binding. If an act performed to an ancillart power, incidental to the substantive objects, it will not be rendered UV merely becuase in particular instance it is done for other purpose

The UV rule is to protect shareholders and creditors from risky and wasteful spending by the directors. At the same time, other rules were developed to protect them are strengthened (e.g. funds which could be used to pay dividends, or make other distributions to shareholders). Insolvency legislation also prevent unwarranted disposals of corporate funds . Accounting and reporting obligations become more onerous. Fiduciary duties and specific personal liabilities also served as deterrents against abuse of directors.

Corporate gifts:

Charterbridge v Llyods Bank –

S39 CA 2006 – it is to prevent that lack of capacity could be raised as a defence to contractual claim against the company. It is a two-way effect, operate to protect both the company and outsiders

Whether an act is done by the company is determined by reference to agency principles, as modified by the Turquand rule and by s 40 CA 2006.

Just and equitable wind-up

Shareholder who object to a company undertaking new type of business may petition under s.122g IA 1986, that the substratum of the company, the main object for which it was incorporated, cease to exist. But now a company is not required to have an object at all, it may be difficult to conclude that a company’s substratum no longer exists.

Authority to bind the company

Art 3 of Model articles – general power to manage will be conferred upon the board of directors.

Art 5- the board can delegate the managing power to one or more managing directors

Grant v UK Switchback Railway – any want of authority can be cured by ratification by a resolution of the shareholders in general meeting by ordinary resolution.

Apparent authority – a person who has no actual authority to act on the company’s behalf may be able to bind the company if he has been held out by someone with appropriate authority as a duly authorized agent of the company.

S 40 – the power of directors to bind the company….is deemed to be free of any limitation under the company’s constitution.

Interpretation Act – directors include singular form (director)

CL principles of law of agency –

This extension from plural to singular form has rendered the CL principles of law of agency redundant.

Model art Art 7 – any decision taken by the directors must be a collective decision.
The question is whether Art 7 is a limitation on the powers of the directors to bind the company which is overcome by s 40, thus allowing individual directors to bind the company without proper authorization or a decision taken at a board meeting/


Cases:

¢ Ashbury Carriage Company v Riche [1875] LR 7 HL 653
¢ Re Jon Beauforte (London) Ltd [1953] Ch 131
¢ Re Introductions Ltd v National Provincial Bank [1970] Ch 199
¢ Royal British Bank v Turquand [1856] 6 E & B 327

Chp 12 of Lowry


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