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 THE CAMBRIAN LAW REVIEW

Judical Control: Corporations and The Decline

of Ultra Vires
Harry Rajak
Introduction
The doctrine of ultra vires is familiar to at least two groups of legal
scholars, company lawyers and public lawyers. In public law, the
doctrine is the instrument which protects private rights vis-a-vis public
authority. The company law doctrine, on the other hand, is concerned
with the interpretation of a voluntarily agreed constitution, and in
particular that part of the constitution which describes the capacity of
the company (the objects clause). Yet the public law and company law
doctrines are intimately connected. According to one commentator, the
doctrine of ultra vires in Company Law "was probably derived from
public law where the courts employed it to explain why, in order to
protect private rights, they prevented public authorities from doing acts
which were not authorised by the statutes under which they
functioned."'
Aside from a pure public law role for the doctrine of ultra vires,
there are, within Company Law, at least three distinct problems to
which the ultra vires doctrine has been said to apply. Thus, the
doctrine has been held to apply, first where the company purports to
act beyond its purposes as set out in its constitution, secondly, where
the company purports to act in a way prohibited by statute and, finally,
where the company purports to act through the agency of someone
who lacks the requisite authority.
It is the purpose of this article to examine the development of ultra
vires in its application to companies, in relation to the first of these
three problems, principally in the nineteenth century. The life of this
doctrine began in the 1840's,' reached its peak in the 1870's and was
brought to an end in the 1980's by a cluster of cases' and by statute,'
after a slow and painful process which began almost as soon as the
doctrine was stated in its clearest and. most uncompromising form by

Pennington, Company Law, London, 6th ed. (1990), 91.

2 The case of Coleman v Eastern Counties Railway Company (1846) 10 Beav. 1, 50 E.R.

481 is credited with being the first case in which this doctrine was applied, see Brice The
Doctrine of Ultra Vires, preface to the 1st ed. (London, 1874), reprinted in preface to 2nd
ed. (London, 1877) x, and in the preface to 3rd ed. (London, 1893), xvii.
3 See Re Halt Garage Ltd. 119821 3 All E.R. 1016; Re Horsley & Weight Ltd. [19821 Ch.
442, [1982] 3 All E.R. 1045; Rolled Steel Ltd. v British Steel Corporation [1986] Ch. 246,
[1983] 3 All E.R. 52.
4 Ss 35, 35A and 35B, Companies Act 1985. Section 35, which is generally accepted as
abolishing the doctrine in relation to registered companies, was inserted into the
Companies Act 1985 by s. 108(1), Companies Act 1989 and came into force on 4
February 1991.
10 THE CAMBRIAN LAW REVIEW
the House of Lords in the famous case of Ashbury Railway Carriage
Company v Riche' in 1875.

The Faces of Ultra Vies

(a) Public Law
In public law, ultra vires operates to set aside a variety of public
acts, first, subordinate legislation whose enactment is flawed by a
formal or procedural defect,6 or which purports to regulate behaviour
although not authorised to do so by the statute granting the power for
such legislation.7 Secondly, it might be the basis of proceedings by an
objecting taxpayer or ratepayer to enjoin the expenditure by a local
authority for a purpose not authorised by the enabling statute.' Finally,
a decision by an inferior tribunal or by a Minister to authorise the
expropriation of private property, may be held to be ultra vires, on the
grounds that the tribunal or Minister has acted in excess of the statutory
authority conferred.9

(b) Company Law

(i) The Capacity of the Company
Until recent significant changes, it could be declared with complete
confidence that a company "is treated as having legal capacity only to
do those acts which its memorandum of association empowers it to do,
or which are incidental to or consequential on the achievement of its
express objects or the exercise of its express powers.'"" Any act beyond
the company's capacity was, thus, ultra vires which, in theory at least,
meant that the act in question was void, i.e. without any legal
significance.

(ii) Unlawful Acts

In the nineteenth century, the courts developed the rule that any
company registered under the Companies Act was required to maintain
its capital, that is apply the money and assets subscribed by the
shareholders only for the company's express purposes as set out in its
constitution. This rule was expressed first by a prohibition against the
payment of dividends out of capital (rather than out of profits)," and
subsequently by leading decisions of the House of Lords which held it
to be illegal, as contrary to the implied prohibition laid down in the
Act, for a company to purchase its own shares" or to issue shares at a

' (1875) L.R. 7 H.L. 653.

6 R v Minister of Health, ex parte Yaffe [19301 2 K.B. 98; Rollo v Minister of Town and
Counry Planning [19471 2 All E.R. 488 esp. at 496, affirmed [19481 1 All E.R. 13;
AgriculturalBoard v Aylesbury Mushrooms Ltd. [19721 1 W.L.R. 190.
7 Commissioners of Customs and Excise v cure and Deeley Ltd. [19621 1 Q.B. 340,
[1961] 3 All E.R. 641.
8 Bromley London Borough Council v GreaterLondon Council 11983] 1 A.C.
768.
9 R v Minister of Transport,ex parte Upminster Services Ltd. [1934] 1 K.B. 277; White
and Collins v Minister of Health [19391 3 All E.R. 548; Anisminic Ltd. v Foreign
Compensation Commission [19691 2 A.C. 147.
10 Pennington, Company Law, London, 6th
ed. (1990), 92.
1 Re Exchange Banking Co., Flitcroft's Case (1882) 21 Ch.D. 519.
 THE CAMBRIAN LAW REVIEW 11
discount, i.e. for a consideration less than the nominal value of the
shares. 3
Since 1862, successive Companies Acts have required any registered
company to include in its memorandum of association (one of two
documents making up a registered company's constitution), a statement
as to the company's objects as well as a statement as to the amount of
its capital.14 It was, therefore, not surprising that the courts used the
same language and concepts in developing the rules both as to
maintenance of capital and as to limitations on the company's capacity.
Thus, in Flitcroft's case,5 Cotton LJ. remarked that "[t]he assets of a
company are to be dealt with only for the purposes of its business. The
application of the capital in paying dividends was therefore a
misapplication." 6
Despite this similarity in language and legal principles, the
distinction between these two rules is significant. It was expressed
succinctly by Lord Macnaghten in Trevor v Whfitworth,'7 when he
pointed out "that if a power to purchase its own shares were found in
the memorandum of association of a limited company, it would
necessarily be void."'" This distinction was also made clear by Lord
Cairns who delivered the chief speech in the Ashbury case,' 9 and who
helpfully suggested a difference in terminology, "ultra vires" for acts
beyond the company's capacity, and "illegality" for prohibited acts
which could not be rendered valid by a redrafting of the company's
memorandum.
In both these roles, ultra vires expressed the common law rule of
prohibiting conduct which contravened a statutory provision. This was
direct in the case of a statutory company where the statute, itself, was
the company's constitution. In the case of a company registered under
the Companies Act, however, this common law rule was indirect in that
the memorandum with which the company was registered was given
statutory force by the provisions of the Companies Act.2" In either
event, those private investors who caused the company to be
incorporated had the freedom to draft the constitution, but once the
company was born, it was bound to observe the terms of that
constitution irrespective of the wishes of the incorporators and
subsequent shareholders.

(iii) Lack of Authority

" Trevor v Whitworth (1887) 12 App. Cas. 409.

13Ooregum Gold Mining Company v Roper [1892] A.C. 125.
1" S. 8 (3), (5), Companies Act 1862; for the current provision, see s. 2(1)(c), (5)

Companies Act 1985.

15Above.
16(1882) 21 Ch.D. 519, 535. On this subject, see Horrwitz " Company Law Reform and
the Ultra Vires Doctrine" [1946] 62 L.Q.R. 66, esp. at 69-73.
17Above.
"' (1887) 12 App. Cas. at 436.
19(1875) L.R. 7 H.K. 653, 671-2.
20 See Ashbuiy Railway CarriageCompany v Riche at 668-70 (per Lord Cairns).
12 THE CAMBRIAN LAW REVIEW
This consequence of voidness is significant and highlights another
distinction which tended to become blurred through the indiscriminate
use of the term "ultra vires". Within the administration of a company, a
decision or transaction might be faulty either because the company
lacked capacity (ultra vires, as defined above) or because the person
acting on behalf of the company lacked authority (although the
company itself had the necessary capacity). The latter phenomenon is,
simply, an agency problem and the decision or transaction in question
will be given legal force or not depending upon a variety of factors, for
example whether there has been subsequent ratification by the
principal and whether or not the third party was misled by an
appearance of authority conveyed by the "principal" (in effect,
estoppel)."
It has not been uncommon for the courts to describe cases of lack of
authority as ultra vires. Indeed, Lord Cairns did so in Ashbury itself,
although he left no doubt as to the distinction to be drawn.

"With regard, therefore, to the memorandum of association, if you

find anything which goes beyond that memorandum, or is not
warranted by it, the question will arise whether that which is so
done is ultra vires, not only of the directors of the company but of
the company itself. With regard to the articles of association, if you
find anything which, still keeping within the memorandum of
association, is a violation of the articles of association, or in excess
of them, the question will arise whether that is anything more than
an act extra vires the directors, but intra vires the company.2 3

The terminology may have been the same, but the distinction in
legal consequences was profound. In the case of a lack of authority,
the act was (and is) voidable, and, as such, susceptible of ratification.
In the case of lack of corporate capacity, on the other hand, ratification
was irrelevant, even if every shareholder supported the transaction in
question."

The Extension of Corporate Status

For at least two hundred years from the establishment of the
Merchant Adventurers' Company in 1505, charter companies were the
chief means through which large-scale trade and commerce were
conducted in England. These were bodies of merchants incorporated
by a charter granted by the Crown and which traded for profit while
effecting a large number of foreign and trading policies on behalf of
the state.2 5 The financial crisis of 1720 culminating in the bursting of the

21 On this question, see the immensely helpful judgment of Diplock LJ in Freeman &
Lockyer v Buckhurst Park PropertiesLtd. [19641 2 Q.B. 480, [196411 All E.R. 630.
22 See, e.g. the discussion of a dictum of Buckley J. in Re David Payne
& Co. Ltd.
[19041 2 Ch. 608, 613 by Slade LJ. in Rolled Steel ProductsLtd. v British Steel Corporation
[1986 Ch. 246, 291 A-B, [1985] 3 All E.R. 52 at 82g-h.
23 Ashbury Railway Carr/age Company v Riche at 668.
24 Ibid. at 674-5.
 THE CAMBRIAN LAW REVIEW 13
South Sea Bubble and the passing of the Bubble Act, 6 struck a fatal
blow at this form of organisation for trade and commerce.
Nearly three-quarters of a century later, private finance again began
to be mobilised on a large scale for the effecting of public works - the
development of the railways, canals, roads and utilities - but this time,
the companies through which this was done were incorporated by Act
of Parliament rather than Royal charter. This form of incorporation
(statutory companies) flourished - although only in relation to the
carrying out of major public works27 - especially given the common
inclusion of a clause in the incorporating statute which limited the
liability of private investors to the amount invested.as
Corporateness was, however, restricted to those groups large
enough and rich enough to petition for an incorporating statute. All
other enterprise had to be conducted by sole traders or through the
medium of unincorporated associations such as partnerships and deed
of settlement companies. The latter presented serious commercial and
legal problems, 9 chief among which were the nightmarish difficulties
suffered by innocent creditors wishing to recover payment for goods
supplied to an entity which could not be sued in its own name, and, of
course, the absence of limited liability for investors?8
The pressure for the more general availability of corporate status and
its attendant privileges eventually achieved partial success with the
passage of the Joint Stock Companies Act in 1844.1' This Act was the
first to provide the facility for those who wished to create a company
by registrationas opposed to a company which owed its existence to a
particular statute enacted solely for the purpose of creating that
company - a "statutory company". The legislature was, however,
unpersuaded that investors in registered companies should enjoy the
privilege of limited liability and it was only after a struggle lasting a
further eleven years 2 that this was granted by the passing of the
Limited Liability Act.3 Thus, eventually by 1855, the privileges of
corporate personality and limited liability for investors were available to

25 Rajak "The Foundations of the Doctrine of Ultra Vires" in Plender (ed.) Legal History

and Comparative Law, Essays in honour of Albert Kiralfy (1990, hereafter Rajak
"Foundations") 215 at 217.
26 For an excellent summary of these events, see Gower, Principles of Modem

Company Law (5th ed., 1992), 20-30.

27 Gower, op. cit., 28-29, where it is recorded that during the last
40 years of the
eighteenth century, over 100 statutory companies were incorporated.
28 For an example, see the Act which incorporated the Eastern Counties Railway
Company (Act of Parliament, 6 & 7 William 4, c. cvi (local and personal), Clause CLIX
(quoted in Rajak, A Sourcebook of Company Law (1989, hereafter, Rajak, Sourcebook),
33-34.
29 See Formoy, The Historical Foundations of Modem Company Law (1923),
32-36
(extracted in Rajak, Sourcebook, 41-43).
'o See H. A. Shannon "The Coming of General Limited Liability" [19311 Economic
History 11, 6, reprinted in Cams-Wilson (ed) Essays in Economic History (London, 1954),
358.
3'7 & 8 Vict c 110.
32 See Gower op. cit. 41-45.
3 18 & 19 Vict. c. 133.
14 THE CAMBRIAN LAW REVIEW

any who followed the procedure laid down by statute for the
registration of companies.
At the end of the nineteenth century, in Salomon v Salomon & Co.
Ltd,34 the House of Lords in reversing a strong and unanimous Court of
Appeal,35 ensured that these privileges were not restricted to large
ventures dependant on many investors. As a result of this decision, the
sole trader, too, could enjoy these privileges provided that he or she
could find 6 other people to subscribe the company's memorandum. 6
Incorporation by registration was now simple, straightforward, cheap
and generally available. There was no longer any need for private
investors to seek incorporated status by the lengthy and expensive
process of promoting a private Act of Parliament.
The end of the nineteenth century, thus also marks the end of the
100 year period of the statutory company, the means through which
private capital was deployed to wide public use in the building of the
roads, railways, canals and utilities. The twentieth century has had its
fair share of statutory corporations but these have almost all been for
the channelling of public money into public and communal activities.
These have rarely if ever had private investors and their legal concerns
are the subject of public or administrative law rather than of company
law.

Enter Ultra Vires

At common law chartered companies were regarded as having a
legal capacity commensurate with that of natural adults. The effect of
any prohibition in the charter remains a matter of some doubt,37 but
there is no evidence of any doctrine, akin to ultra vires in terms of
which a transaction or decision of a charter company was declared
void. The likely remedy in such an event would seem to have been the
issue of a writ of scire facias or quo warrantofor the withdrawal of the
charter, "Iblut if the Crown take no steps it does not ... lie in the mouth
either of the corporation or of the person who has contracted with it,
to say that the contract into which they have entered was void as
beyond the capacity of the corporation." '
For statutory companies, however, there was to be a new regime.
Although in many ways the statutory company took over from and
performed a similar task to that of the charter company, the courts
showed an early reluctance to treat the one, simply as the successor of
the other. In Colman v Eastern Counties Railway Company,9 Lord

3' [18971 A.C. 22.

35 Sub. nom. Broderip v Salomon [1895] 2 Ch. 323.
36 To satisfy the then current requirement that there be at least 7 members, s. 6,
Companies Act 1862. Aron Salomon was fortunate in this regard in having a large family.
His wife, daughter and 4 sons were the other 6 members. As recently as 1992, the
minimum of persons for the registration of a company was reduced from 2 to 1, s 1(1),
(3A), Companies Act 1985.
37 See the discussion in Rajak, "Foundations" 231-33.
38 Richie v Ashbury Railway CarriageCo (1874) L.R. 9 Ex. 224 at 263-4, per Blackburn
J., relying on the Case of Sutron's Hospital (1612) 10 Co Rep la, 23a; 77 ER 937, 960.
 THE CAMBRIAN LAW REVIEW 10
Langdale referred to statutory companies as having "so recently been
introduced into this country, that neither the Legislature nor Courts of
Justice have been yet able to understand all the different lights in
which their transactions ought properly to be viewed."4
The prevailing legal and philosophical ideas, which emphasised the
importance of the individual, encouraged judicial activism. In the
opening words of their treatise on Administrative Law,4" Griffith and
Street observed that,

"[t)he key-note of nineteenth century thought was individualism ...

the emphasis of the common law was on freedom of property,
freedom of contract and freedom of the person; interferences with
these freedoms were not to be tolerated".

The courts responded accordingly. They insisted that the powers of

the statutory corporations be carefully scrutinised,4 they tried to lean in
favour of the individual when the latter appeared put upon by public
and quasi public officials,43 and they created the ultra vires doctrine.

The new era of the statutory company created much for the courts to
be concerned about. Landowners and businessmen were vulnerable to
the growing might of these new legal monsters created in the wake of
the industrial revolution. The building of the railways may have been a
matter of great public importance, but this necessitated large-scale
expropriation of private property. Moreover, to judge from at least two
of the leading cases,44 another major cause for concern at the growth of
the statutory companies, was the economic damage suffered by
business rivals. Whereas many of the charter companies had enjoyed
de iure monopolies," successful statutory companies clearly presented
a serious threat by creating and enjoying de facto monopolies.46
The legal basis for these judicial developments, including that of
ultra vires, lay in the fact that the statutory corporation owed its

39(1846) 10 Beav 1, 50 E.R. 481.

40 At 13, 486.
41 4th ed (London, 1967), 1.
42 See e.g. Cooper v Wandsworth Board of Works 14 CB (NS) 180; Gray v Liverpool
and Bury Railway Company 9 Beav. 391, esp at 394; Webb v Manchester and Leeds
Railway Co 4 Ny. & Cr. 116 at 120; The Queen v Wycombe Railway Co 2 G.B. 310, 320;
Sparrow v Oxford etc Rwy 2 De G.M. & G. 94; Grosvenor v HampsteadJunction Ry Co 1
De G. & J. 446; Re London & Birmingham Railway Company's Act 20 L.J. Ch 1; Eversfield
v Mid-Sussex Ry Co 3 De G. & J. 286; Bell v Hull and Selby Rwy Co 1 Ry. & Can. 612,
636; Kemp v London and Brighton Rwy Co 1 Ry. & Can. 495, 504.
43 For some illustrations, see Queen v Archbishop of Canterbury (1859) 1 El. and El.
545; Painter v Liverpool Oil Gas Light Company (1863) 3 Ad. & E. 433; Cape] v Child
(1832) 2 C. &J. 558; Cooper v Wandsworth Board of Works (1863) 14 C.B. (N.S.) 180;
Bonakerv Evans (1850) 16 Q.B. 163.
44Colman v Eastern Counties Railway Company (above) and Attorney-General v Great
Eastern Railway (1880) 5 App. Cas. 473.
45Carr, Select Charters of Trading Companies A.D. 1530-1707, (Seldon Society, Vol 28,
1913), xx-xxvii.
46Atiyah, Rise and Fall of Freedom of Contract,(Oxford, 1979), 366-7.
10 THE CAMBRIAN LAW REVIEW

existence to an Act of Parliament. The jurisdiction of the court over

statutory corporations thus derived from the power of statutory
interpretation. This, more than anything else, served to underline the
distinction between the statutory company and its chartered
predecessor. Whereas at common law, a charter company possessed
the capacity of a natural adult, a statutory company was the creature of
Parliament. It was a truism that Parliament had the power to alter the
common law and thereby, it could restrict its creature's capacity.
Blackburn J. played a major role in resisting the development of a
doctrine likely to inhibit the growth of these new companies and
sought as far as was possible to assimilate them to their chartered
forbears.47 Yet, he accepted that the court had jurisdiction to restrict the
activities of statutory companies,

" ...the legislature, with a view to public policy, does sometimes

expressly, sometimes by implication, prohibit the doing of certain
acts by companies thus incorporated, and when an act is thus made
malum prohibitum, any contract to do it is illegal ... The question
whether a particular thing is thus prohibited by the statutes must in
every case depend upon the true construction of them."48

Later, when considering this question in relation to a registererd

company, he expressed a similar sentiment:4 9

"...if on the true construction of a statute creating a corporation it

appears to be the intention of the legislature, expressed or implied,
that the corporation shall not enter into a particular contract, every
Court, whether of law or equity, is bound to treat a contract entered
into contrary to the enactment as illegal, and therefore wholly void,
and to hold that a contract wholly void cannot be ratified."

There was, thus, no doubt that the fact of constitution by Act of

Parliament established a doctrine in terms of which the transactions of
a statutory company would be enjoined if not in conformity with its
constitution. There was, however, wide disagreement as to the
principle on which the constitution was to be construed. While it was
clear that where the statute expressly or by clear implication prohibited
certain conduct, any attempt by the company to engage in such
conduct was void, was the company free to pursue purposes in
relation to which the constituting Act was silent?
This issue was first raised in Colman v Eastern Counties Railway

47See below, footnote 66.

48 In Taylor v Chichester and Midhurst Railway Co (1867) L.R. 2 Ex. 356 at 379 (where
Blackburn J. dissented, although the decision of the Court of Exchequer Chamber, of
which he was a member, was reversed on appeal, (1870) LR 4 HL 628).
49 Riche v Ashbury Railway Cariage Co (1874) L.R. 9 Ex. 224 at 262. This, too,
was
reversed on appeal to the House of Lords, although this time Blackburn, J. had been on
the winning side below.
 THE CAMBRIAN LAW REVIEW 17
Company,' in which the plaintiff shareholder was seeking to restrain
the defendant, a statutory company, from underwriting the capital of a
steam packet company whose success would have been likely to
benefit the defendant. The directors of the defendant had hoped that,
by supporting the establishment of this steam packet company, which
was to provide communication between Harwich and the northern
parts of Europe, there would be increased traffic on the company's
railway line between London and Harwich and consequently higher
profits for the defendant. Lord Langdale accepted the plaintiffs
submission that the proposed underwriting agreement was
unauthorised by the company's constituting Act of Parliament and
granted the injunction sought.
The doctrine of ultra vires was seen as essential for the protection of
the investing public.

"Do the powers to construct, maintain, regulate the traffic, and to do

all that is necessary for the purpose of carrying on and working the
railroad, imply that the directors are to be at liberty to pledge the
funds of the company for a completely different transaction, in the
hope that it may turn out a profitable one, and by being itself
profitable, add to the profits of the railway company? Surely there is
nothing in the powers given by the Act of Parliament which can
authorise that.

if there is any one thing more desirable than another, after

...
providing for the safety of all persons travelling on the railways, it is
this, that the property of railway companies should be itself safe;
that a railway investment should not be considered a wild
speculation, exposing those engaged in it to all sorts of risks,
whether they intended it or not. Considering the vast property which
is now invested in railways, and how easily it is transferable,
perhaps one of the best things which could happen to them would
be, that the investment should be of such a safe nature, that prudent
persons might, without improper hazard, invest their monies in it.
Quite sure am I that nothing of that kind can be approached, if
railway companies should be at liberty to pledge their funds in
support of any plausible speculations, not authorised by their legal
powers, and which might, ... lead to extraordinary losses on the part
of the railway company."'"

These worthy sentiments were not the only inspiration for ultra
vires. Colman's case was the first of many occasions on which ultra
vires, designed to protect investors and creditors, was deployed in
support of dubious commercial interests such as the suppression of
competition and the avoidance of debt. Colman was the agent of
another company, whose interests were threatened by the commercial

50 (1846) 10 Beav. 1, 50 E.R. 481.

s' Ibid., 17-18; 487-88.
16 THE CAMBRIAN LAW REVIEW

collaboration between the steam packet company and the defendant.

This, it would seem, far more than the protection of his investment in
the Eastern Counties Railway Company inspired Colman to object to
the company's constitutional impropriety.
But one issue, at least, seemed resolved. The doctrine of ultra vires
was to apply to any proposed activity for which no express
authorisation was provided by the company's constitution. In the
language sometimes used to describe the argument, ultra vires was to
be a wide rather than a narrow doctrine, striking down any transaction
not expressly provided for, rather than just those' expressly or by
necessary implication, prohibited. Some thirty years later, this view of
the doctrine was twice approved by the House of Lords, first in relation
to a registered company,52 then a statutory company." In this
intervening period the argument between the wide and narrow views
was frequently before the courts. And so deep were the political and
commercial interests in which the doctrine of ultra vires operated, that
the second endorsement by the House of Lords in 1880 stimulated
further, rather than stilled, the debate.

Ultra Vires - WIde or Namw

The wide view of ultra vires was underpinned by concern for the
possible social, economic and political damage which corporations
might inflict. "Joint stock companies," according to Lord Langdale
M.R.,54

"have funds so extremely large and exercise power so extensive and

so materially affecting the rights and interest of other persons and
the rights which the public or the subjects of Her Majesty have been
accustomed to enjoy under the protection of the laws established in
this Kingdom, that to look upon a railway company in the light of a
common partnership, and as subject to no greater vigilance than
common partnerships are, would I think, be greatly to mistake the
functions which they perform, and the powers which they exercise
of interference, not only with the public but with the private rights
of all individuals in this realm."

Lord Langdale repeated his view of the doctrine in Salomons v

Laing"5 and Munt v Shrewsbury and Chester Railway Company,' and
this was firmly underlined by all four judges of the Queens Bench
Division before whom East Anglian Rlys. Co v Eastern Counties Rly.
Co '7 was argued. Whereas in Colman's case, ultra vires was applied as

52 Ashbury Railway Carnage Co v Riche (1875) L.R. 7 H.L. 653.

53 Attorney General v Great Eastern Railway (1880) 5 App. Cas. 473.
54 In Colman's case (above) at pp. 13-14, 486; although he used
the term "joint stock
companies", he was clearly referring to large commercial entities, including statutory
companies.
55 (1850) 12 Beav. 339, 50 E.R.
1091.
56 (1850) 20 LJ. Ch. (N.S.) 169, 13 Beav. 1, 51 E.R. 1.
 THE CAMBRIAN LAW REVIEW 19
between the company and one of its stockholders, the East Anglian
case showed how the doctrine might be applied to relieve the
company from an obligation undertaken vis-a-vis a third party. The
defendant railway company had agreed to take a lease of several
railway lines owned by the plaintiff and also to bear the cost incurred
by the plaintiff in promoting certain Bills in Parliament designed to
modify and improve those lines. The plaintiff incurred expenses in
excess of £20,000 in promoting these Bills, but the action to recover
this sum failed on the ground that the defendant had no power to enter
into the agreement.
The defendant had been incorporated for the purpose of building
and maintaining a railway line from London to Norwich and Yarmouth.
This, it was argued on behalf of the defendant, was its sole purpose.
Jervis C.J. agreed. The statute incorporating the defendant gave no
authority to assist in the promoting of the Bills presented to Parliament
by the plaintiff. The contract was therefore void. Although the
application of the doctrine of ultra vires could be justified, first on
behalf of the shareholders ("when he takes shares, [he] has a right to
expect that the conditions upon which the act was obtained will be
performed"),' and secondly the public (which "has an interest in the
proper administration of the powers conferred by the act")," the fact
remained that the doctrine was the means by which the defendant
escaped the consequences of a contract freely entered into with the
plaintiff, but which subsequently the defendant wished to dishonour.
This dilemma punctuated the subsequent cases. Lord Campbell C.J.,
a confirmed exponent of the wider application of the doctrine boldly
tried to cut the Gordian knot in Mayor of Norwich v Norfolk Ry. Co.'
"We cannot," he urged,61 "be influenced by the consideration whether
the defence set up is becoming or ungracious, being bound to decide
the case according to the strict rules of law." Lord Hatherley, L.C., on
the other hand, was deeply struck by this dilemma. To allow the
bargain to be set aside because this may involve wasted expenditure
by the company, he declared, "would strike at the root of all contracts
and engagements whatever, and the consequences would be most
serious and mischievous to all railway companies"."
Lord Hatherley's concern would, of course, have been met by the
narrow view of ultra vires, although there is no evidence that this was
his position.63 Nevertheless, this view of ultra vires, that a corporation,
once formed, should be able to develop to its full potential, constrained
only by prohibitions in its constitution, was widely supported in the

17 (1851) 11 CB 775, 138 E.R. 680, the first occasion, according to Brice, when the ultra

vires doctrine was endorsed at law as opposed to equity, loc. cit. (footnote 2, above).
5 At 811, 695.
59 At 812, 695.
60 (1855) 4 E & B 397, 119 E.R. 143.
61 At 436, 158.
62 Taylor v Chichester and Midhurst Railway Co (1870) L.R. 4 H.L. 628 at 644.
63 if anything, the reverse. He delivered a concurring speech in Asbbury Railway

CarriageCo v Riche (1875) L. R. 7 H. L. 653, see below.

20 THE CAMBRIAN LAW REVIEW
period between Colman's casefM and Ashbury Railway Carriage Co. v
Riche." Lord Blackburn was, perhaps, its most vigorous exponent,' but
there was also direct support for this view by Lord St. Leonard in
Eastern Counties Ry Co v. Hawkes,67 and Willes J. in Taylor v
Chichester and Midhurst Railway Co.,' where he joined Blackburn J.
(as he then was) in disagreeing with the majority on the Court of
Exchequer. This minority view was upheld by the House of Lords.'M
In Taylor's case, the plaintiff was suing on a covenant in terms of
which the defendant agreed to pay him £2,000 in exchange for the
withdrawal of his opposition to the defendant's proposed railway bill
under which the defendant sought power to construct a railway line
which would have seriously damaged the plaintiffs property. In the
event, although the Bill was passed (the condition to which the
payment of the £2,000 was subject), the defendants decided not to
construct the railway line. Their defence to the action was that to
commit the corporation's funds to a project unconnected with running
their railway, was ultra vires.
Willes J. relied on the decision of Scottish North Eastern Railway
Company v Stewar ° and in particular the following dicta:"

"There can be no doubt, that a corporation is fully capable of

binding itself by any contract under its common seal in England,
and without it in Scotland, except when the statutes by which it is
created or regulated, expressly or by necessary implication prohibit
such contract between the parties. Prima facie all its contracts are
valid, and it lies upon those who impeach any contract to make
out that it is avoided."

On one thing, however, the two sides to this debate did agree. The
matter was simply one of the construction of the incorporating statute.
Where a transaction was held to be ultra vires, whether on the narrow
or wide view of this doctrine, it was void. It did not matter whether
either or both the parties to the transaction were ignorant of the terms
of the company's constitution or, indeed, whether the shareholders
gave full approval to the proposed transaction.
The Ashbury Case

6' Above.
65 Above.

6 See Taylor v Chichesterand Midhurst Railway Co. (1867) L.R. 2 Ex. 356, 384 and Riche v
Ashbury Railway CarriageCo. (1874) L.R. 9 Ex. 224, 263-4. He was a member of the House of
Lords in Attorney-General v GreatEastern Railway (above) which confirmed the wider view of
the doctrine applied in Ashbury Railway Carriage v Riche (and where Lord Blackburn view had
been overruled), but the actual result in A.G. v G.E.R. accorded with his sentiment and, arguably,
opened the way to the reception of the narrow view.
67(1855) 5 H.I.C. 331, 373, 10 E.R. 928, 944.
68Above.
69(1870) L.R. 4 H.L. 628.
7o3 MacQ. 382.
71Lord Wensleydale at 415, quoted at (1867) L.R. 2 Ex. at 391.
 THE CAMBRIAN LAW REVIEW 21
72
Twice, in the thirty years from Colman's case to Ashbury Railway
Carriage Co.v Riche,73 the House of Lords considered the ultra vires
doctrine, but in neither was it necessary to decide between the narrow
and wide views. In both Taylor v Chichester and Midhurst Railway Co.74
and Eastern Counties Ry. Co v Hawkes (the facts of which closely
resembled those in Taylor), the House of Lords held the respective
transactions to be within the express powers recorded in the
constituting statute of each company.
It is one of the more notorious facts of company law that in Ashbury
Railway Canage Co v Riche,76 - a case of a registered company - the
House of Lords laid down the wider application of the doctrine. A
company was only capable of those acts for which power was
expressly or by necessary implication conceded by its constitution. The
decision was all the more emphatic for being a unanimous rejection of
the opposite view on which the judgment below was based.'
The Ashbury Railway Carriage Co. was incorporated under the
Companies Act, 1862, with a memorandum of association authorising it

"to make, or sell, or lend on hire railway carriages and wagons and
all kinds of railway plant, fittings, machinery and rolling stock; to
carry on the business of mechanical engineers and general
contractors; to purchase, lease, work and sell mines, minerals, land
and buildings; to purchase and sell as merchants, timber, coal, metal
or other materials and to buy and sell any such materials on
commission or as agents."

The House of Lords held ultra vires an undertaking by the company

to finance the construction of a railway line in Belgium. All fourteen
judges who heard these proceedings 8 agreed, as a matter of
construction, that the term "general contractors" in the company's
objects clause had to be interpreted eiusdem generis and did not
therefore cover the transaction in question. Nor was it relevant that all
the shareholders of the company approved the transaction.79 A
transaction that was ultra vires was incapable of ratification.
Blackburn J in the Court of Exchequer Chamber had held the

72 Above.
71(1875) L.R. 7 H.L. 653.
74Above see footnote 69.
75(1855) 5 H.L.C. 331, 10 E.R. 928.
76 Above.
77Riche v Ashbury Railway CarriageCo. (1874) L.R. 9 Ex. 224.
78Three (Barons Martin, Bramwell and Channell) in the Court of Exchequer, (1874) L.R. 9
Ex. 224, six (Blackburn, Brett, Grove, Archibald, Keating and Quain JJ.) in the Exchequer
Chamber, (1874) L.R. 9 Ex. 249 and five (Lords Cairns L.C., Chelmsford, Hatherley, O'Hagan
and Selborne) in the House of Lords (1875) L.R. 7 H.L. 653.
79Any doubts on this were finally laid to rest in the Ashbury case (1875) L.R. 7 H.L. 653,
where the point was made in each separate opinion; see at 672 (Lord Cairns), 679 (Lord
Chelmsford); 683-4 (Lord Hatherley), 691-2 (Lord O'Hagan), 694-5 (Lord Selborne). Lord
Langdale in Colman's case had shuddered at the thought that shareholders might be left to decide
this matter for themselves, 10 Beav at 15, 50 E.R. at 486-87.
2Z THE CAMBRIAN LAW REVIEW

transaction valid because at common law a corporation was endowed

with all the legal capacities of a natural human being, irrespective of
whether the corporation was created by charter, statute or registration.
Thus, a registered company might act as a natural person, except to the
extent prohibited by the Companies Acts, or any other statute. And
here, for Blackburn J., there were no relevant statutory prohibitions.
Lord Cairns in the House of Lords began not with the common law,
but with the Companies Act, 1862, section 6 of which provided:

"Any seven or more persons associated for any lawful purpose may,
by subscribing their names to a memorandum of association, and
otherwise complying with the requisitions of this Act in respect of
registration, form an incorporated company with or without limited
liability".

This section, according to Lord Cairns L.C.' did not

"... speak of that incorporation as the creation of a corporation with

inherent common law rights such rights as are by common law
possessed by every corporation, and without any other limit than
would by common law be assigned to them, but it speaks of the
company being incorporated by reference to a memorandum of
association....

and if there is a covenant that no change shall be made in the

objects for which the company is established, ... that includes within
it the engagement that no object shall be pursued by the company
or attempted to be attained by the company in practice, except an
object which is mentioned in the memorandum of association."

Superficially, the difference between Blackburn J. and Lord Cairns

rested on opposing interpretations of the Companies Act, 1862. It is
clear, however, that statutes are not construed in a vacuum and the
differing approaches in the Ashbury case show how important initial
assumptions are to the end result. For Blackburn J., the common law
which, as far as possible, assimilated the capacity of corporations to
that of a natural adults, applied unless negatived by statute. For Lord
Cairns L.C., delivering the major speech in the House of Lords, the
starting point was the statute; the corporation could only have such
capacity as the statute conferred. These respective initial assumptions,
that a corporation was capable of growth and development until halted
by express or necessarily implied prohibitions, and that the corporation
was restricted within the terms in which it was created, dictated the
different results.

The Great Eastern Railway Case

At 668, 670.
 THE CAMBRIAN LAW REVIEW 25

Five years later, the House of Lords extended the wide interpretation
of ultra vires to statutory companies. "I assume," Lord Selbome
L.C.declared,8" "that your Lordships will not now recede from anything
that was determined in the Ashbury Railway Company v Riche; it
appears to me to be important that the doctrine of ultra vires, as it was
explained in that case, should be maintained." Their Lordships (who
now included the former Blackburn J.) did, indeed, not so recede. They
also agreed with the Lord Chancellor when he continued:

"But ... this doctrine ought to be reasonably, and not unreasonably,

understood and applied and that whatever may fairly be regarded as
incidental to, or consequential upon, these things, which the
legislature has authorised, ought not (unless expressly prohibited) to
be held, by judicial construction, to be ultra vires."' 2

The G.E.R. was the successor to two other railway companies (the
Eastern Counties was one) and under the authority of an agreement
granted to its predecessors, the G.E.R.. worked a stretch of railway
from East and West Ham (then in Essex) to Southend Pier ("the
Southend line"). Working the Southend line included the provision of
locomotives and rolling stock. In or about 1877, the Southend company
succeeded to the lease of the Southend line and entered into an
agreement with the G.E.R. for the latter to continue servicing the line.
This transaction was attacked as ultra vires in proceedings brought
by the Attorney General in a relator action on behalf of the Locomotive
Manufacturers' Association and the Railway, Carriage and Waggon
Builders' Association. The Associations objected to the manufacture,
sale and lease of locomotives and -rolling stock by the G.E.R. Their
legal objection was that this enterprise was not authorised by any of
the G.E.R.'s constituting statutes; 3 their motive was to thwart the
increased business opportunities which the G.E.R. was proposing to
pursue. They felt threatened because the G.E.R. was manufacturing
rolling stock not simply for use on its own railway, but also in excess
thereof, for sale and hire.
Each of the three concurring speeches insisted that this was a clear
case of the G.E.R. being expressly empowered to undertake the
disputed transaction. The dicta quoted above were, therefore, obiter,
yet they had considerable influence on the future developments of ultra
vires. These dicta were addressed to the serious conflict between the
majority and minority positions in the Court of Appeal.'
James L.J., who spoke for the majority in the Court of Appeal, saw

8'Attorney-General vs Great Eastern Railway (1880) 5 App. Cas. at 478.

82 Ibid.
83 The fact that the G.E.R. was the successor to two smaller railway companies, which were

not only statutory companies themselves, but had also been the subject of subsequent amending
and further enabling statutes, made this a complicated case. This may be an inevitable
consquences of a privatised rail service!
' (1879) II Ch.D. 449.
24 THE CAMBRIAN LAW REVIEW

danger in an active ultra vires doctrine having a stultifying effect on

industry.

"Where is this notion of ultra vires to extend to? Is it ultra vires for a
railway company to make a profit from the sale of meat and drink at
its refreshment rooms? Would it be ultra vires for the two companies
whose lines are connected, to have joint workshops for the
construction or repair of their rolling stock or joint depots of coals
and other stores, or to enter into a joint contract with such persons
as the relators for the hire of rolling stock and to apportion the costs
and expenses between themselves according to the respective train
miles run on their several lines? Would it be ultra vires for one
company to let another company have the use of part of its offices,
warehouses and ground?"85

Yet, for Baggalay LJ. who dissented,

"the manufacture and supply by Railway Company A of engines or

rolling stock under contract to Railway Company B must necessitate
the providing and keeping in good working order of a greater
number of engines, or a larger quantity of rolling stock, whether
manufactured by Company A, or otherwise acquired, than would be
requisite for the proper working of its own railway; and the
maintenance of such a supply of engines and rolling stock would
render necessary the employment of a portion of the funds of
Company A. It can in no way be said that in the absence of special
powers, such an employment of its funds would be within the scope
of the constitution of Company A; however profitable the carrying
on of such a trade of business might be it would not be one of the
purposes for which the company was incorporated." '

The Mitigation of Ultra Vires

(a) DMsin hing Between Objects and Powers
A.G. v G.E.R. is also significant for the light it throws on the
difference between objects and powers. There was no doubt that
manufacturing and using rolling stock and engines was a legitimate
means (i.e. a power) by which to pursue the purpose of running a
railway. As has been pointed out, there was no challenge to the G.E.R.
manufacturing its own rolling stock during the period it was running
the Southend line. The problem was, thus, seen to arise where this
activity was pursued as an end or purpose in itself, not as a power to
facilitate the purpose of running a railway. But to outlaw this activity as
ultra vires would have called for a commercially damaging distinction
to be drawn between the manufacture of locomotives and rolling stock
as a means and as an end. The House of Lords resolved this problem,
by the "incidental to or consequent upon" formula.
This significance in the distinction between objects and powers had
85 (1879) 11 Ch.D. at 480-81.
86 At 491-92 (my emphasis)
 THE CAMBRIAN LAW REVIEW Z:

been observed as early as Colman's case, where Lord Langdale,

seemingly aware of the absurd commercial consequences which might
follow, cautioned against a too rigid application of the doctrine in the
following terms:

"... I am far from saying that there may not be many small things,
perhaps small excesses of authority, which are obviously so
beneficial, that the shareholders would all acquiesce in them, and
never think of complaining of them. It does not therefore follow that
they cannot do the least thing not expressly mentioned in the Act. I
believe they have the power to do all such things as are necessary
and proper for the purpose of carrying out the intention of the Act
of Parliament, and they have no power of doing anything beyond
it."87

This theme was taken up in Mayor of Norwich v Norfolk Railway

Company.' The defendants were authorised by their constituting
statute to construct a railway bridge to cross the river Yare at points A
and B. Were they acting ultra vires by constructing the bridge to cross
at points C and D? Lord Campbell C.J. had no doubt they were.

"This company had power to erect a bridge across the River Yare at
a particular place fixed by the Act of Parliament; but they had no
power to erect a bridge at another place, beyond the specified
limits, across the River Yare, more than across the River Tyne.'

For Coleridge J., on the other hand, the degree, rather than simply
the fact, of deviation was of the essence. For him, the dicta of Lord
Langdale were "language [which] points to an undenied distinction
between a difference of purpose and a difference of means and modes
by and through which the same purpose is to be effected ° Was what
the company had done or was attempting to do a "substantial
difference of purpose", where for example the "corporation has been
created for the purpose of carrying on a particular trade or making a
railway from one place to another, and it attempts to substitute another
trade, or to make its railway to another place"? Or was this a case
"where the corporation merely adopts different means or modes by or
through which the original purpose is to be effected"?9'
These dicta were approved by Lord St. Leonards, in Eastern Counties
v Hawkes,92 and, spurred on by the analysis in A.G. v G.E.R., had
become trite law by the end of the nineteenth century. 3
(b) Drafting Away Ultra es

87 10 Beav. at 17-18, 50 E.R. at 487.

8
s 4E. & B. 397, 119 E.R. 143.
9 At 442.
90 At 432.
9' At 432-33.
92 (1855) 5 h.I.C. 331 at 372-3, 10 E.R. 928 at 944.
93 GeneralAuction Estate and Monetary Company v Smith [1891] 3 Ch. 432.
26 THE CAMBRAN LAW REVIEW
Distinguishing between objects and powers and establishing the
principle that all powers necessary for the carrying out of the
expressed objects were permissible certainly liberalised the doctrine of
ultra vires as laid down in the Ashbury decision, but it still left powers
tied to objects. The draftsmen of company memoranda were, however,
soon to cut this umbilical cord by the simple device of setting out the
objects and powers in extenso and including what became known as
the independent objects clause. The latter avoided the possible
restrictive interpretation that the company had only one "main object"
and that rest of the objects clause, however long, could only be
pursued as ancillary to the main object.
Despite serious reservations and ill-concealed disapproval, the
House of Lords felt unable to withold its blessing from this device in
1918.94 Another drafting device - the subjective objects clause - received
the approval of the Court of Appeal in 1966.1 This decision, it has been
authoritatively observed, administered the coup de grace to the ultra
vires doctrine' and since it is closely intertwined with the growth in the
power of the board of directors, it is discussed in (d) below.

(c) Knowledge and Benefit to the Company

In the Ashbury case, the House of Lords promulgated the doctrine in
an uncompromising form. A transaction was ultra vires or not by
reference only to the company's constitution. Approval, even by 100%
of the shareholders was irrelevant. If necessary, the Attorney General,
on behalf of an outsider had locus standi to have suspect transactions
scrutinised by the court and, where appropriate, declared ultra vires. It
was irrelevant whether either or both parties to the transaction knew of
its ultra vires nature and whether or not the transaction was for the
benefit of the company. The application of the doctrine depended
solely on the interpretation of the company's constitution, which was a
public document. If a third party chose to enter into a transaction with
a company where the latter had no power to do so, he, she or it,
however much an innocent victim, could not complain.97
Yet, as has. already been pointed out,98 there was considerable
concern at the fact that this might endanger freely negotiated bargains.
This concern expressed itself largely in the espousal of the view that
ultra vires should be applied as a narrow and not a wide doctrine,'
although the idea that a contract should only be void if the third party
knew, or ought to have known, that it was ultra vires, was clearly
appreciated by the judges and counsel involved in Eastern Counties

9 Cotman v Brougham [1981] A.C. 514; see per Lord Finlay L.C. at 519, per Lord Parker at
519 and per Lord Wrenbury at 523.
95Bell Houses Ltd v City Wall Properties Ltd. [1966] 1 Q.B. 207, [1965] 3 All E.R. 427
(Mocatta J.), reversed [1966] 2 Q.B. 656, [1966] 2 All E.R. 674 (Court of Appeal).
96 Wedderburn in an appropriately entitled article, "The Death of Ultra Vires?" [1966] 29
M.L.R. 673.
9 See text attached to footnote 61 above.
98Above, text attached to footnotes 62 to 63.
99As defined above; see the text attached to footnotes 52-71.
 THE CAMBRIAN LAW REVIEW 27
'
Railway Company v Hawkes in 1855. 0 This idea, that an ultra vires act
by the company should be voidable and not void seems, however, to
have been swept aside shortly afterwards, presaged, perhaps, by the
°
following exchange in the argument in Hawkes:"2

Lord Campbell: "If the contract is ultra vires with the knowledge of
the party making it, he cannot afterwards enforce it; but if he has no
such knowledge it would be binding in his favour."

The Solicitor General (Sir Richard Bethell): "It is submitted that the
principle of the cases here referred to did not warrant that
distinction."

In the important area of loans to the company, however, the courts

upheld as valid, loans where the money borrowed was used for ultra
vires purposes, as long as the lender was ignorant of the purpose of
the loan;"°2 and it struck down as void only those loans where the
lender knew or ought to have known of the ultra vires use which the
company intended to make of the money. 3 Once it had been
established that a company had the implied power to borrow,"° as well
as to do all things that were necessarily incidental to and consequential
upon the expressed objects, 5 it was no longer possible to apply the
doctrine to a transaction which could satisfy the description of being a
power in furtherance of any object. Borrowing was the obvious
example, and it was soon followed by the making of gifts. As long as
the lender did not know what the company was planning to do with
the borrowed money, and the donee could reasonably believe that the
gift was for the benefit of the company," 6 the doctrine had no
application.
The importance of such subjective notions - what did the lender
know? could it be said that the company did or would benefit from the
transaction? - destroyed the cut and dried nature of the ultra vires
inquiry. The language may have remained tough, but a doctrine whose
application had, at its grandest moment been formulated as simply a
matter of construction without input of who thought what or who

'00(1855) 5 H.L.C. 331, 10 E.R. 928.

'0' At 338, 931; see also at 350, 935 (per Lord Cranworth L.C.) and at 355-6, 938 (per Lord
Brougham).
102Young v David Payne [1904] 2 Ch. 608.
103Re Jon Beauforte (London) Ltd. [1953] Ch 131 (where the lender, in fact an unpaid
creditor, should have known); Introductions Ltd. v National Provincial Bank [1970] Ch. 199
(where the bank did know).
'04 GeneralAuctionEstate and Monetary Company v Smith [1891] 3 Ch. 432.
105Attorney Generalv Great Eastern Railway (1880) 5 App. Cas. 473.
'06 Contrast Hutton v West Cork Railway Company (1883) 23 Ch.D. 654 (where the donees
were taken to know that the gratuitous payments could not have been for the benefit of the
company because the latter was in liquidation) with Evans v Brunner,Mond & Co. Ltd. [1921] 1
Ch. 359 (where the gift, scholarships at London University, was made by a thriving company
which could benefit through the employment of people educated with the assistance of those
scholarships).
26 THE CAMBRIAN LAW REVIEW
knew what, soon afterwards had become prey to a series of internal
and subjective inquiries.
There is no shortage of examples which illustrates the confusion
caused by using the language of ultra vires to describe an abuse of
powers by the directors rather than the pursuit of unauthorised objects
by the company."°7 It took three masterful judgments, in Rolled Steel
Ltd. v British Steel Corporation,'" to bring order to this chaos. This was
done by treating excesses of corporate conduct as voidable rather than
void acts, the solution which had been suggested by Lord Cambell 130
years before.' °9 The remedy was thus transformed into either a suit for
compensation against those who caused the company to act
unconstitutionally or, where a third party had assisted those in control
of the company to abuse their powers, by depriving that third party of
any benefit from the company's unconstitutional conduct."'

(d) The lnaeasng Power of the Board of Drectois and the Subjective
Objects Clause
Although the ultra vires doctrine had placed a powerful weapon in
the hands of any shareholder or, given a liberal view on locus standi,
any competitor, to control the actions of the board of directors, strong
shareholder control of the directors never materialised. Towards the
end of the nineteenth century, the power of the board began to
increase at the expense of the shareholders, 1' a development with
which a strong ultra vires doctrine would not have been compatible.
Lord Justice James already noted this trend in the 1870's in A-G.v
G.E.R. (indeed, he may have helped to create it) when he declared:

...whether as regards a private partnership, a joint stock company

or an incorporated company, in the absence of fraud or deliberate
perversion, the majority of managing partners may be trusted, in
determining for themselves what they may do and to what extent
they may go in matters indirectly connected with, or arising out of,
their business relations with others."" 2
This phenomenon can be seen as linked with the drafting device
107 Re Lee, Behrens & Co. Ltd. [1932] 2 Ch. 46, with which Penncuick V.C. struggled in
Charterbridge Corporation Ltd. v Lloyds Bank Ltd. [1970] Ch. 62 and which was finally
overruled by Rolled Steel Ltd. v British Steel Corporation [1986] Ch. 246. See also Parke v
Daily News Ltd. [1962] Ch. 927, [1962] 2 All E.R. 929; Re Roith Ltd. [1967] 1 W/.L.R. 432,
[1967] 1 All E.R. 427 and finally Re Horsley & Weight Ltd. [1982] Ch. 442, [1982] 3 All E.R.
1045, in which the remedy sought--described as ultra vires-was compensation from the
directors for causing the company to enter into a particular transaction for which it allegedly had
no power. There was never any suggestion of seeking the avoidance of the transaction.
"0sVinelott J. at first instance, [1982] Ch. 478, [1982] 3 All E.R. 1057; Slade and Brown-
Wilkinson UJ in the Court of Appeal, [1986] Ch. 246, [1985] 3 All E.R. 1.
Above, text referred to by footnote 101.
'09
10As in the case of Rolled Steel itself.
.. The high water mark of shareholder control was Isle of Wight Rwy. v Tahourdin (1883) 25
Ch.D. 320. By the time Automatic Self-Cleansing Filter Syndicate v Cunninghame [1906] 2 Ch.
34 was decided, the balance had been significantly tilted in favour of the directors. See Gower,
op. cit. 147-52.
"' (1879) 11 Ch.D. at 480.
 THE CAMBRIAN LAW REVIEW ZY

known as the subjective clause. In Bell Houses Ltd.v City Wall

PropertiesLtd.,"' the transaction in question - the arrangement by the
plaintiff company of loan facilities for the defendant - could claim no
authorisation as an express object in the plaintiffs memorandum of
association. There was a clause, however, which enabled the company
"to carry on any other trade or business whatsoever, which [could] in
the opinion of the Board of Directors be advantageously carried on by
[the plaintiff company] in connexion with or as ancilliary to any of the
...businesses or the general business of [the plaintiff company]."
This clause cut no ice at first instance.

"[TIhe mere fact that the board of directors of a company may be of

the opinion that an activity can be advantageously carried on by the
company, even if their opinion be well founded, will not per se
make that activity intra vires"."'

For Mocatta J., this was essentially, a matter of construction without

any inquiry as to what the directors considered advantageous.
The Court of Appeal, however, disagreeed and upheld the
transaction as intra vires. For Danckwerts L.J., with whom Salmon and
Sellers LJJ agreed, the issue was "a matter of internal management,
principally." In language which echoed that of James L.J., quoted
above,"5 he concluded:

"On the balance of the authorities it would appear that the opinion
of the directors if bona fide can dispose of the matter; and why
should it not decide the matter? The shareholders subscribe their
money on the basis of the memorandum of association and if that
confers the power on directors to decide whether in their opinion it
is proper to undertake particular business in the circumstances
specified, why should not their decision be binding?""'6

Conclusion
Although the courts had fashioned the doctrine of ultra vires into a
powerful means of control over the activities of companies, they did
surprisingly little with it. As has already been pointed out, by the end
of the nineteenth century, statutory companies had been replaced by
registered companies" 7 and apart from an occasional genuflection in
the direction of restraint which caused not a little commercial absurdity
and political embarrassment,"8 the courts presided over the withering
away of the doctrine as it applied to registered companies. The House

"' [1966] 1 Q.B. 207, [196513 All E.R. 427 (Mocatta J.), reversed [1966] 2 Q.B. 656; [1966]
2 All E.R. 674 (Court of Appeal).
"4 [1966] 1 Q.B. at 229G; [1966] 1 All E.R. at 438H.

"5 See the text to which footnote 112 refers.

16 [1966] 2 Q.B. at 683-4; [1966] 2 All E.R. at 683G.
"7 See above, text following footnote 36.

"8 See e.g. Re John Beauforte (London) Ltd [1953] Ch. 131; Parke v Daily News Ltd [1962]
Ch. 927.
50 THE CAMBRIAN LAW REVIEW

of Lords inveighed against but nevertheless accepted the device of the

independent objects clause and the Court of Appeal gave its blessing to
the subjective objects clause which meant that careful and
comprehensive drafting could eliminate the efficacy of the doctrine. All
in all the courts of the twentieth century adopted a much more liberal
approach to the construction of objects clauses than had the courts of
the nineteenth century." 9
Although rooted in the fundamental principle of the illegality of
conduct which contravened a statutory provision, the ambiguity of lang-
uage and the dependence of the doctrine on principles of construction
which necessarily incorporated different juducial assumptions, meant
that ultra vires was rarely free from controversy. Harold Laski, himself
no stranger to controversy, wrote mockingly of the doctrine.'

"Now this theory of ultra vires is fundamental in the law of

corporations. What is to be said for it? This, of a certainty, that it is
in some wise needful to protect the corporators. A man who gives
his money to a railway company does not expect it to engage in
fishing; he ought to be protected against such activity. But an act
incidental to the purposes of the company is not ultra vires. What is
so incidental? It is incidental to the business of the South Wales
Railway Company to run steamboats from Milford Haven; 2 ' but that
function was seemingly beyond the competence of the Great
Eastern.' One steamship company may without hindrance sell all its
vessels;23 but another company makes the mistake of retaining two
of its boats, and its act is without law.' There were two railway
companies within recent memory which agreed to pool their profits
and divide them with judicial blessing;'25 but two other railway
companies speedily discovered their powerlessness when they
attempted partnership.' 6 It is fitting, so the courts have held, that
Wigan and Ashton should supply their citizens with water;' 27 but
there was, so we suppose, something unfitting when Southampton
and Sheffield attempted that enterprise.'
The doctrine of ultra vires was doomed to a slow and sometimes

'9 Contrast the approach of the House of Lords on the construction of the phrase "general
contractors" in Ashbury Railway Carriage Company v Riche (above) with the construction of
"merchant" in New Finance & Mortgage Co. Ltd. [1975] 1 All E.R. 684 and contrast the
approach in Re German Date Coffee Company (1882) 20 Ch.D. 169 with that in Re Kitson and
Company Ltd. [1946] 1 All E.R. 435.
120"The Personality of Associations" [1915-16] 29 H.L.R. 404, 410-11 (footnotes re-
numbered).
121 South Wales Ry. Co. v Redmond, 10 C.B. N.S. 675 (1861).
122Colman v Eastern Counties Ry. Co., 10 Beav. 1 (1846).
Wilson v Miers, 10 C.B. N.S. 348 (1861).
123
'24 Gregory v Patchett, 33 Beav. 595 (1864).
25
1 Hare v London & N. W. Ry. Co., 2 J. & H. 80 (1861).
126Charlton v Newcastle & Carlisle Ry. Co., 5 Jur. N.S. 1096 (1859).
127Bateman v Mayor, etc. of Ashton-under-Lyme, 3 H. & N. 323 (1858), and Attorney-
General v Mayor, etc. of Wigan, 5 DeG. M. & G. 52 (1854).
Attorney-Generalv Andrews, 2 Mac. & G. 225 (1850); Sheffield Waterworks Co. v Carter,
128
8 Q.B. 632 (1882).
 THE CAMBRIAN LAW REVIEW 51

painful demise almost from the time of its strongest judicial support.
This was, however, the doctrine of ultra vires known to company
lawyers. As the courts began to relax their grip on commercial,
privately financed organisations, they tightened it on publicly financed
ones. The statutory corporation in the twentieth century became the
form of organisation for the channelling of public finance into public
projects. The wide variety and growing power of these public
corporations brought a swift response from the courts, and ultra vires
was as often as not the means by which that control was to be
effected.'29 But that, as they say, is another story.

129See e.g. London County Council v Attorney General [19021 A.C. 165; Roberts v Hopwood
[1925] A.C. 578; London Borough ofBromley v Greater London Council [1983] 1 A.C. 768.