ULTRA VIRES ANSWER

The phrase ultra vires literally means beyond the powers, and in company law it
usually refers to a situation in which a registered company has committed to a course
of action that falls outside the powers of the objects clause contained in its own
constitution (formerly contained in the Memorandum of Association.)
Historically, the objects clause could have significant ramifications for a company.
Contracts outside a companys objects were illegal, void ab initio, and unratifiable. As
held in ASHBURY RAILWAY & IRON CO. V RICHE,
It was the intention of the legislature, not implied, but actually expressed, that
the corporations, should not enter having regard to this memorandum of association,
into a contract of this description.
The objects of the Ashbury Co were to make and sell, or lend on hire, railway
carriages and wagons. The directors entered into a contract for the building of a
railway in Belgium, sub-contracting the work to Mr. Riches firm. Ashburys
shareholders disapproved of the deal and repudiated the contract with Mr. Riche. The
House of Lords held that the construction of a railway, as opposed to the sale of
rolling stock, fell outside the scope of the objects clause of the company. As the
contract was thus void, Mr. Riche was not entitled to compensation for breach of it
this has led to criticism of the doctrine regarding the harsh effects on aggrieved
contracting parties.
This led to the draftsmen of company memorandums developing the multiple objects
clause by which, in a series of sub-clauses, the companys objects to all sorts of
potential activities. In addition, things which had previously been left to be implied as
powers ancillary to the companys objects were specified as independent objects, e.g.
the power to borrow money. The courts fought back against this development,
ostensibly for the protection of investors and lenders, and where the court identified
the companys main object, and found that this had been abandoned, it was able to
wind up the company for failure of its raison detre i.e., destruction of the
companys substratum. Hence, in RE GERMAN DATE AND COFFEE CO a court
(by applying the main objects rule of construction) was able to wind up a company on
just and equitable grounds on a petition from two minority shareholders on the
grounds that the companys main object (to acquire a German coffee making patent)
was defeated.
The court in COTMAN V BROUGHAM took a divergent approach, and was forced
to recognize the validity of a clause to the effect that all of the objects in each of the
sub-clauses of the objects clause were equal and independent to one another. A further
development came in BELLHOUSES V CITY WALL PROPERTIES recognized
the validity of the subjective objects clause whereby companies could carry on any
other trade or business which in the opinion of the directors could be carried on
alongside the other business of the company. Finally, RE HORSLEY & WEIGHT
LTD recognized the possibility of in the into the objects clause of non-commercial
objects: political and charitable donations. Political donations are now regulated by
CA 2006, Part 14, ss. 362-379. The statute also covers ex gratia payments to
employees and ex-employees: s. 247.

As a result, it may be asserted that, by the end of the twentieth century, the problem
of the ultra vires doctrine had largely been drafted out of existence GRIFFIN
(2001). Thus in RE INTRODUCTIONS, a company that had started out providing
facilities for foreign visitors to the 1951 Festival of Britain and which was now
engaged in pig farming, borrowed money on a secured loan from a bank for the
purpose of this new, ultra vires, activity. In seeking to enforce its rights as a secured
creditor, the bank relied on an independent object contained in a sub-clause
empowering the company to borrow. The court held that the power to borrow could
not be an independent object in itself, it was merely a power that had to be exercised
for the legitimate purposes of the company.
The distinction between objects and powers was largely removed by the decision in
ROLLED STEEL PRODUCTS LTD V BRITISH STEEL CORPN. RSPhadtwo
directors one of whom owed a substantial sum to a subsidiary of BS through a
companyheowned.RSPenteredintoaguaranteetoBSforthedebtofthecompany
ownedbyoneoftheRSPdirectors.TheobjectsclauseofRSPstatedthatithadthe
powerofmakingaguarantee.Attheboardmeetingatwhichtheguaranteewasgiven
thedirectorconcerneddidnotdeclarehispersonalinterestinit.BSreceivedacopyof
theboardminutesitwasheldtheyshouldhaverealisedthatthedecisiontoguarantee
thedebtwasinvalid.Thisdecisionhighlightstheinternalaspectofthe ultravires
doctrine.
As regards the external aspect of the doctrine, in RE JON BEAUFORTE
(LONDON)LTD,thecompanywasauthorisedbyitsmemorandumtocarryonthe
businessofcostumersandgownmakers.Thecompanythenstartedthebusinessof
making veneered panels. This was ultra vires of the companys memorandum.
Buildersbuiltthefactory,cokesupplierssoldthecompanycoke.Thecokecompany
knewfromthecorrespondencethatthecompanywasengagedinveneerproduction.
Theythereforewereunderconstructivenoticeofthecontentsofthememorandum,
and could not specifically enforce an unfulfilled contractual obligation on the
companyspart.
TheimpetusforreformcamefromARTICLE9(1)oftheFIRSTCOMPANYLAW
DIRECTIVE. SincetheUKwasnotamemberstateofthethenEECatthetime,
therewasnoofficialEnglishtextofthedirectiveand,moreimportantly,noinput
concerningtheUK.Asaresult,transpositionofthedirectiveintoUKlawhastakena
longtime,anditisdebatableastowhetherornotithasbeenfullyimplemented.The
main problem concerned the term organs of the company, which is a direct
translation oftheFrench term organes.Since English law limits the concept of
directorsasorganstotheidentificationtheoryforcorporatecriminalandtortious
liability,thetermwasalsotranslatedasdirectorsandboardofdirectors.