DISSERTATION AN ANALYSIS OF THE APPLICABILITY OF THE …

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______________________________________________________________________________

DISSERTATION

______________________________________________________________________________

AN ANALYSIS OF THE APPLICABILITY OF THE ULTRA VIRES DOCTRINE

UNDER THE ZAMBIA COMPANY LAW

BY

CHRISTABEL CHISANGA

Being a Directed Research essay submitted to Cavendish University Law Faculty in partial

fulfilment of the requirements for the award of the Bachelor of Laws (LLB) Degree

CAVENDISH UNIVERSITY 2020

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DECLARATION

I, CHRISTABEL CHISANGA, Computer Number 005-303 do hereby declare that this

Directed Research Essay is my genuine work and to the best of my knowledge, information and

belief, no similar piece of work has previously been produced at Cavendish University or any

other Institution for the award of Bachelor of Laws Degree or any other award. All other works

cited or used in this essay are clearly acknowledge. No part of this work may be reproduced or

copied in any manner without the prior authorization in writing of the author.

………………………………………………..

CHRISTABEL CHISANGA

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FACULTY OF LAW

I recommend that the obligatory essay under my supervision

By

CHRISTABEL CHISANGA

Entitled: AN ANALYSIS OF THE APPLICABILITY OF THE ULTRA VIRES

DOCTRINE UNDER THE ZAMBIA COMPANY LAW

Be accepted for examination. I have checked it carefully and I am satisfied that it fulfills the

requirement pertaining to the format as laid down in the regulations governing obligatory essays.

SUPERVISOR: ……………………… DATE: ……………………

MR. NKOSI NDLOVU

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ABSTRACT

The ultra vires rule is a common law principle which sought to restrict the business of companies

to what was stated as objects in their memorandum of association at the time of incorporation. At

common law, any action or contract of a company that is contrary to its objects was ultra vires

and deemed to be null and void. This was the principle that was established in the case of

Ashbury Railway Carriage and Iron Co. Ltd vs Riche, (1878) L.R.7 H.L.653.

Various common law countries have passed down laws to either restrict the ultra vires doctrine

or eliminate its applicability. But still some countries have maintained the ultra vires doctrine in

its original state.

In Zambia Section 25(3) of the Companies Act No.10 of 2017 seems to restrict the business of a

company to its articles thereby hinting to the recognition of the ultra vires rule. But then, Section

23 and 24 seems to protect third parties in instances where the company violates its articles.

Given these provisions, one wonders the extent of application of the ultra vires doctrine in

Zambia.

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DEDICATION

This research essay is dedicated to my mother Mrs Margaret Mweesa Chisanga and my father

Mr Benard Chisanga that basically sacrificed their life to make certain that i get a head start and

above all its dedicated to the almighty God who continues to cause all things to work together for

my good and to those hoping to believe he can do the same for them too.

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ACKNOWLEDGMENTS

I would like to offer thanks to all who have been concerned in writing this research essay,

especially the following;

Mr Mwalongo buchiza, Mr Nkosi Ndlovu for without their guidance and proper supervision this

research would never have seen light of the day. Miss Chinambu and Mr Mwape Victor, whose

practical experience in teaching law has afforded me valuable help and guidance throughout.

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TABLE OF CASES

1. Ashbury Railway Carriage and Iron Company Ltd v. Riche (1878) L.R.7 H.L.653

2. A.G. vs Great Eastern Railway Co (1879) LR 11 Ch D 449

3. Re Jon Beauforte (London) Ltd (1953) 1 Ch.131

4. Teller vs. Chichester Midhurst Rail company 1863

5. Bell House Ltd. V City Wall Properties Ltd (1966) All ER 674

6. White and another v South Derbyshire District Council (2012) All ER (D) 91

7. Modi v Shamji Ladha (1866-1867) 4 Bom. HCR (1855)

8. A. Lakshmanaswami Mudaliar vs L.I.C AIR 1963 SC 1185

9. National Provincial Bank v. Introductions Ltd 1969] 1 Lloyd's Rep. 229.

10. Radhabari Tea Company Private Limited vs. Mridul Kumar Bhattacharjee and Other

11. Royal British Bank v Turquand 6 E&B 327

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TABLE OF STATUTES

1. The Zambian Companies Act of 2017



4. The English Companies Act of 1989

5. The English Companies Act of 2006

6. The Indian Companies Act of 2013

7. The United States Model Business Corporation Act, 2002

8. The Nigerian Companies & Allied Matters Act, 1990

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TABLE OF CONTENTS

CHAPTER ONE

1.1 Introduction…………………………………………………………………………1

1.2 Background………………………………………………………………………….1

1.3 Statement of the Problem……………………………………………………………2

1.4 Purpose of the Study…………………………………………………………………3

1.5 Research Questions…………………………………………………………………..3

1.6 Research Objectives………………………………………………………………….3

1.7 Significance of the Study…………………………………………………………….3

1.8 Scope of the Study……………………………………………………………………4

1.9 Outline of Chapters………………………………………………………………...4

1.10 Conclusion…………………………………………………………………………7

CHAPTER TWO

LITERATURE REVIEW

2.1 Introduction…………………………………………………………………………...8

2.2 The Meaning of Ultra Vires Doctrine…………………………………………………8

2.3 History of the Ultra Vires Doctrine………………………………………………..…10

2.4 Conclusion…………………………………………………………………...……….13

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CHAPTER THREE

RESEARCH METHODOLOGY

3.1 Introduction………………………………………………………………………….14

3.2 The Ultra Vires Doctrine in England…………………………………………….….14

3.3 England – Current Scenario of the Applicability of the Doctrine of Ultra Vires……16

3.4 India – Evolution of the Concept of Doctrine of Ultra Vires………….……………17

CHAPTER FOUR

LIMITATIONS

4.1 The Ultra Vires Doctrine in Zambia…………………………………………………36

4.2 Introduction………………………………………………………………………….36

4.3 Origins of the Objects Clause……………………………………………………….36

4.4 Ultra Vires Doctrine Under The Companies Act NO.10 OF 2017…………………..39

4.5 Conclusion…………………………………………………………………………..42

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CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction ………………………………………………………………………43

5.2 Overview of chapters …………………………………………………………….44

5.3 Summary…………………………………………………………………………45

5.4 Conclusion ……………………………………………………………………..46

5.5 Recommendations ……………………………………………………………..47

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CHAPTER ONE

1.1 INTRODUCTION

The aim of this Research is to determine the extent of application of the ultra vires doctrine in

Zambia. The research will be divided into five Chapters and will begin by discussing the ultra

vires doctrine at common law. The Research will then proceed to discuss the ultra vires doctrine

in various common law countries. Then finally, the Research will discuss the application of the

doctrine in Zambia.

1.2 BACKGROUND

Ultra Vires is a latin term made up of two words ―ultra‖ which means beyond and ―vires‖

meaning power or authority.1 Therefore in ordinary legal parlance, an act is ultra vires when it is

beyond authority or power.2

In the context of Company Law, anything which is done by the Company or its directors which

is beyond their legal authority or which was outside the scope of the object of the Company is

ultra vires.3

The doctrine first originated in the classic case of Ashbury Railway Carriage and Iron Co.

Ltd vs Riche, (1878) L.R.7 H.L.6534 were the House of Lords held that a contract entered into

1Suwilanji Simutenda, “A discussion on correct position on the Ultra Vires doctrine under the Companies Act

Chapter 388 of the Laws of Zambia.” – A dissertation submitted to the University of Zambia in partial fulfilment of the requirements for the award of Bachelors Laws Degree (LLB), 2011 2 Suwilanji Simutenda, “A discussion on correct position on the Ultra Vires doctrine under the Companies Act

Chapter 388 of the Laws of Zambia.” – A dissertation submitted to the University of Zambia in partial fulfilment of the requirements for the award of Bachelors Laws Degree (LLB), 2011 3 Suwilanji Simutenda, “A discussion on correct position on the Ultra Vires doctrine under the Companies Act

Chapter 388 of the Laws of Zambia.” – A dissertation submitted to the University of Zambia in partial fulfilment of the requirements for the award of Bachelors Laws Degree (LLB), 2011

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between the company and M/s Riche to finance the construction of a railway line was ultra vires

the company objects and therefore null and void. The House of Lords further held that the

shareholders of the company could not ratify the contract as that act would be ultra vires also.

The doctrine has been recognized in so many common law jurisdictions. In Zambia, Section

25(3) of the Companies Act No.10 of 20175 provides as follows:

A company shall not carry on any business or exercise a power which the company is

restricted by its articles from carrying on or exercising, or exercise any of its powers

in a manner that is contrary to its articles.

1.3 STATEMENT OF THE PROBLEM

As shown above, Section 25(3) of the Companies Act No.10 of 2017 adopts the common law

position of the ultra vires doctrine. Essentially it forbids in mandatory terms, any business with

the company outside its articles. Meaning that any business with the company outside its articles

would be ultra vires.

However, Section 24 of the Companies Act No.10 of 20176 provides As follows:

A person shall not be affected by, or presumed to have notice of the contents of the

articles or any other document of a company, by reason only that the articles or

document is:

(a) Registered or has been lodged with the Registrar; or

(b) Available for inspection at the office of the company

The import of Section 24 above is that even if a company has restricted its business in its articles,

the restriction cannot affect a person dealing with the company. Prima facie Section 24

contradicts Section 25 of the Companies Act. It wholly abolishes the ultra vires doctrine adopted

under Section 25 of the Companies Act.

4 Ashbury Railway Carriage and Iron Co. Ltd vs Riche, (1878) L.R.7 H.L.653

5 Companies Act No.10 of 2017

6 Companies Act No.10 of 2017

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1.4 PURPOSE OF THE STUDY

Given that Section 25(3) and Section 24 of the Companies Act No.10 of 2017 appear to create a

contradiction. The purpose of this research is to resolve the said contradiction and determine the

extent to which the Ultra Vires doctrine applies in Zambia.

1.5 RESEARCH QUESTIONS

(a) Is the Ultra Vires Doctrine applicable in Zambia?

(b) If it is applicable, to what extent?

(c) Has the ultra vire doctrine been recognized in other common law countries?

(d) And if it has been recognized, to what extent?

1.6 RESEARCH OBJECTIVES

(a) To understand the ultra vires doctrine at common law.

(b) To review the laws adopting the doctrine in common law countries.

(c) To establish whether or not the ultra vires doctrine is applicable in Zambia.

(d) To explain the extent of application of the ultra vires doctrine in Zambia.

The objective of the Doctrine of Ultra Vires is to ensure the shareholders and the creditors that

the fund and assets of the company will not be used for any purpose other than those specified in

the Memorandum. Especially the creditors, while dealing with the company can make

themselves aware of the fact whether his transaction with the company is ultra vires or not. If it

is found ultra vires, he can avoid such transaction and thereby safeguard his interest.

The principles of law on this subject were first enunciated by Lord Cairons, L.J., in Ashbury

Railway Carriage & Iron Co. Ltd. V. Riche. In that case, a company was formed with the

following objects:

a. To make, sell, lend or hire, railway carriages and wagons, and

b. To purchase, lease, work and sell mines, minerals and land and buildings.

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The directors contracted to finance the construction of a railway line in Belgium with Mls Riche.

The Court held that the contract was ultra vires the company and void, so that even the

subsequent assent of the whole body of the shareholders could not ratify it.

However, later on, the House of Lords held in other cases that the doctrine of ultra vires should

be applied reasonably and unless it is expressly prohibited, a company may do an act, which is

important for, or incidental to attainment of its objectives.

1.7 SIGNIFICANCE OF THE STUDY

This research will resolve the apparent contradiction between S.24 and S.25(3) of the Companies

Act No.10 of 2017. Further it will review the extent of application of the common law doctrine

of ultra vires in Zambia and other common law countries.

Hence it will serve as a source of knowledge for both students of law and practicing lawyers.

Additionally, it will fill in the knowledge gap that has been created by the apparent contradiction

of S.24 and S.25 (3) of the Companies Act No.10 of 2017.

This will be done by analysing a variety of judicial precedents, articles, books, websites, other

laws etch. The author will analyse various authorities compared with foreign laws and then offer

a well-reasoned conclusion to answer the research questions above.

1.8 SCOPE OF THE STUDY

This study will be restricted to the study of the applicability of the doctrine of Ultra vires in

Zambia. However, it will also look at the common law position of the doctrine so as to better

appreciate the doctrine. Further, the study will also look at statutes from various common law

jurisdictions so as to compare with the Zambian position

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1.9 OUTLINE OF CHAPTERS

a) Chapter One – This is the Introductory Chapter and will introduce the research to the

reader. It clearly shows the road map of the research.

b) Chapter Two – This chapter will discuss the ultra vires doctrine at common law.

c) Chapter Three – This chapter will review various laws from common law countries

adopting the ultra vires doctrine

d) Chapter Four – This chapter will show the extent of application of the ultra vires

doctrine in Zambia.

1.13 CONCLUSION

This Chapter is the introductory part of the research. Therefore, it has sufficiently provided a

road map of the research. It has explained the need for the author to write this research paper and

how information will be obtained. In the end it has given a summary of all the chapters.

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CHAPTER TWO

LITERATURE REVIEW

a) Suwilanji Simutenda, “A discussion on correct position on the Ultra Vires

doctrine under the Companies Act Chapter 388 of the Laws of Zambia.” – A

dissertation submitted to the University of Zambia in partial fulfilment of the

requirements for the award of Bachelors Laws Degree (LLB), 2011.

In this dissertation, the Author discusses the Ultra Vires doctrine at common law in depth. He

goes on to discuss the Ultra Vires doctrine under the repealed Companies Act of 1994 chapter

388 of the laws of Zambia.

In addition to the above, this research will go on to resolve the apparent contradictions under

S.24 and S.25(3) of the Companies Act No.10 of 2017.

b) Sealy, L.S,1971,Cases and Materials in Company Law, Cambridge University

Press: London.

In this book, the Author explains the common law position of the Ultra Vires doctrine. This

research will go further to show the extent to which the common law position of the Ultra Vires

doctrine is recognized in Zambia

c) Erinda Frantzan, “The powers and authority of directors to act on behalf of a

company under South African law” – Submitted in accordance with the

requirements for the degree of Master of Law January 2019.

In this thesis, the Author begins by tracing the Ultra Vires doctrine from common law. Then he

discusses the exceptions to the doctrine at common law and under the South African Company

law.

In addition to the above, this research will discuss the ultra vires doctrine under the Zambian law.

d) Gulshan, S.S, 2012,Company Law. Lovely Professional University: New delhi

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In this book, the indian author explains the position of the Ultra Vires doctrine in India. He

further criticises the position of the law in india on the ultra vires doctrine in comparison to other

common law countries.

Additionally this research will compare the Zambian position to that of India and other common

law countries.

e) Indian Chamber of Commerce, Calcutta, A Handbook on the Companies, Act,

1965

In this article, the Indian Chamber of Commerce discusses the provisions of the Indian

Companies Act of 1965 in depth. The author discusses the ultra vires doctrine in the Indian

Companies Act by identifying the weakness in the law with regard to the doctrine and makes

recommendations.

However in this research, the author will focus on the Zambian company law, it will identify the

weaknesses inherent in the law and how the weaknesses affect the scope of the doctrine.

(e) Kenneth K Mwenda.2009.The Ultra Vires Doctrine in Zambia’s Company Law:

The case of Banks and Financial Institutions. 40 Zam. L.J.1

This article examines the legal and policy bases for doing away with the statutory requirement

for companies, such as banks and financial institutions incorporated under the Zambian

Companies Act 1994 to have a memorandum of association. The article seeks to find out if this

development entails that banks and financial institutions in Zambia are no longer required to

have an objects clause, especially that prior to the repeal of the Companies Act 1921, a company

incorporated under that Statute was required to have an objects clause at incorporation and at all

times thereafter as part of its memorandum of association.

Given that the above article focuses on the repealed Zambian Companies Act of 1994, this

research will compare with the current Companies Act No.10 of 2017. It will highlight the new

changes in the Companies Act of 2017 and how they affect the applicability of the Ultra Vires

doctrine.

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2.1 INTRODUCTION

The aim of this chapter is to discuss the Ultra Vires doctrine at common law. It will begin by

explaining the meaning of the Ultra Vires and how it was applied at common law. The chapter

will then trace the history of the doctrine at common law and in the end, a conclusion shall be

drawn.

2.2 THE MEANING OF ULTRA VIRES DOCTRINE

The object clause of the Memorandum of the company contains the object for which the

company is formed.7 An act of the company must not be beyond the objects clause, otherwise it

will be ultra-vires and, therefore, void and cannot be ratified even if all the members wish to

ratify it.8 This is called the doctrine of ultra vires. The expression ―ultra vires‖ consists of two

words: ‗ultra‘ and ‗vires‘. ‗Ultra‘ means beyond and ‗Vires‘ means powers. Thus, the expression

ultra vires means an act beyond the powers. Here the expression ultra vires is used to indicate an

act of the company, which is beyond the powers conferred on the company by the objects clause

of its memorandum. An ultra vires act is void and cannot be ratified even if all the directors wish

to ratify it. Sometimes the expression ultra vires is used to describe the situation when the

directors of a company have exceeded the powers delegated to them. Where accompany exceeds

its power as conferred on it by the objects clause of its memorandum, it‘s not bound by it

because it lacks legal capacity to incur responsibility for the action, but when the directors of a

company have exceeded the powers delegated to them. This use must be avoided for it is apt to

cause confusion between two entirely distinct legal principles. Consequently, here are restricting

the meaning of ultra vires objects clause of the company‘s memorandum.

This is called the doctrine of ultra vires, which was firmly established in the case of Ashbury

Railway Carriage and Iron Company Ltd v. Riche.9 Thus the expression ultra vires means an

7 https://www.legalindia.com/doctrine-ultra-vires-effects-exceptions

8 https://www.legalindia.com/doctrine-ultra-vires-effects-exceptions

9 Ashbury Railway Carriage and Iron Company Ltd v. Riche (1878) L.R.7 H.L.653

https://www.legalindia.com/doctrine-ultra-vires-effects-exceptions


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act beyond the powers.10

Here the expression ultra vires is used to indicate an act of the company

which is beyond the powers conferred on the company by the objects clause of its

memorandum.11

An ultra vires act is void and cannot be ratified even if all the directors wish to ratify it.12

The

doctrine provides that when a company exceeds its power as conferred on it by the objects clause

of its memorandum, it is not bound by it because it lacks legal capacity to incur responsibility for

the action.13

The ultra vires act or transaction is different from an illegal act or transaction, although both are

void, an act of the company which is beyond its objects clause is ultra vires and therefore is void,

even if it is legal,14

Similarly an illegal act will be void even if it falls within the object clause,

unfortunately the doctrine of ultra vires has often been used in connection with illegal and

forbidden acts. It should be born in mind that there are some cases which are differently decided

keeping in view the doctrine of ultra vires in its sections.15

In the case of Ashbury Railway and Iron Co- v Rich16

it was described that, ―a company

incorporated under the companies act has power to do only those things which are authorized by

the memorandum of association.17

Anything not so authorized, expressly or by implication, is

ultra Vires‖.18

The above mentioned case laid down a precedent that a company or its directors or even its

shareholders cannot ratify or made effective to the act which has been done beyond the scope of

an object Clause mentioned in memorandum of Association at any cost.19

Further it was also

urged that the act which is beyond the objects clause cannot be validated by the subsequent

agreement.20

10

https://www.legalindia.com/doctrine-ultra-vires-effects-exceptions 11



https:// graduateway.com/ultra-vires-doctrine/ 14



Ashbury Railway Carriage and Iron Company Ltd v. Riche (1878) L.R.7 H.L.653 17



https://www.bartleby.com/topics/ultra-vires 20

https://www.bartleby.com/topics/ultra-vires


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However this doctrine was made much clearer in the case of A.G. vs Great Eastern Railway

Co:21

In this case, the House of lords affirmed that the doctrine of ultra vires ought to be

reasonable and not unreasonably understood and applied and whatever may fairly be regarded as

incidental to or consequential upon those things, which the legislature has authorized, or ought

not to be held by judicial construction, to be ultra Vires, it would mealy be void in allowing the

company and its business which is incidental or which is ancillary to its object clause.22

The contract beyond the object clause of the company is an ultra vires contract and cannot be

enforced against the company, as stated in the case of Re Jon Beauforte (London) Ltd in

1953.23

It was held that the company was not liable to claim from the aforesaid claimants

because the money was taken from them for the business of veneered panels which was

admittedly ultra vires the object of the company, the court held that the memorandum is a

constructive notice to the public and therefore if an act is ultra vires, it will be void and will not

be binding on the company and the outsider dealing with the company cannot take a plea that he

had no knowledge of the contents of memorandum.24

2.3 HISTORY OF THE ULTRA VIRES DOCTRINE

The Ultra Vires doctrine was first introduced in respect of statutory companies, such as railway

etc. which grew rapidly in number significantly during the first half of nineteenth century.25

The

companies before 1855 were usually gigantic in nature and were governed by the rules of

partnership.26

21

A.G. vs Great Eastern Railway Co (1879) LR 11 Ch D 449 22

A.G. vs Great Eastern Railway Co (1879) LR 11 Ch D 449 23

Re Jon Beauforte (London) Ltd (1953) 1 Ch.131 24

Re Jon Beauforte (London) Ltd (1953) 1 Ch.131 25

Gilani, Syed Raza Shah, The 'Doctrine of Ultra Vires' and its Subsequent Development in the Frame Work of Company Law (October 1, 2011). Available at SSRN: https://ssrn.com/abstract=1936728 or http://dx.doi.org/10.2139/ssrn.1936728 26

Gilani, Syed Raza Shah, The 'Doctrine of Ultra Vires' and its Subsequent Development in the Frame Work of Company Law (October 1, 2011). Available at SSRN: https://ssrn.com/abstract=1936728 or http://dx.doi.org/10.2139/ssrn.1936728

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The rules of partnership were considered sufficient to protect the investors, during early days

this doctrine had no philosophical support and it was based on the view that a company after

incorporation is conferred on legal personality only for the purpose of the particulars, stated in

the object clause of its memorandum.27

The fact that the company could not only be restricted from doing an Ultra vires act at the suit of

his member but any contract entered into by the company beyond its power was void and could

not be enforced was finally settled in one of legendary case Teller vs. Chichester Midhurst

Rail company 1863.28

In spite of the powerful dissenting Judgment by Lord Blackburn who sought to restrict the

application of the Doctrine to action brought by the member against the company through

injunction, the theories behind the application of Ultra vires rule as regard registered companies

were laid down by the House of Lords in Ashbury Railway Carriage & Iron co v Riche 1875

case.29

The doctrine of ultra vires played an important role in the development of corporate powers.30

Though largely obsolete in modern private corporation law, the doctrine remains in full force for

government entities.31

An ultra vires act is one beyond the purposes or powers of a corporation.

The earliest legal view was that such acts were void.32

Under this approach a corporation was

formed only for limited purposes and could do only what it was authorized to do in its corporate

charter.33

This early view proved unworkable and unfair.34

It permitted a corporation to accept the benefits

of a contract and then refuse to perform its obligations on the ground that the contract was ultra

vires.35

The doctrine also impaired the security of title to property in fully executed transactions

27

Gilani, Syed Raza Shah, The 'Doctrine of Ultra Vires' and its Subsequent Development in the Frame Work of Company Law (October 1, 2011). Available at SSRN: https://ssrn.com/abstract=1936728 or http://dx.doi.org/10.2139/ssrn.1936728 28

Teller vs. Chichester Midhurst Rail company 1863 29

Alan Dignam, John Lowry. Company Law 1st

Edition, 2010 Oxford University Press 30

PL Davis Gower’s Modern Company Law (8th

Edition Sweet and Maxwell, London 2008) 31

PL Davis Gower’s Modern Company Law (8th

Edition Sweet and Maxwell, London 2008) 32

PL Davis Gower’s Modern Company Law (8th Edition Sweet and Maxwell, London 2008) 33



PL Davis Gower’s Modern Company Law (8th Edition Sweet and Maxwell, London 2008)

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in which a corporation participated.36

Therefore, the courts adopted the view that such acts were

Voidable rather than void and that the facts should dictate whether a corporate act should have

effect.37

Over time a body of principles developed that prevented the application of the ultra vires

doctrine.38

These principles included the ability of shareholders to ratify an ultra vires

transaction; the application of the doctrine of Estoppel, which prevented the defense of ultra

vires when the transaction was fully performed by one party; and the prohibition against

asserting ultra vires when both parties had fully performed the contract.39

The law also held that

if an agent of a corporation committed a tort within the scope of the agent's employment, the

corporation could not defend on the ground that the act was ultra vires.40

Despite these principles the ultra vires doctrine was applied inconsistently and erratically.41

Accordingly, modern corporation law has sought to remove the possibility that ultra vires acts

may occur.42

Most importantly, multiple purposes clauses and general clauses that permit

corporations to engage in any lawful business are now included in the articles of incorporation.43

In addition, purposes clauses can now be easily amended if the corporation seeks to do business

in new areas.44

For example, under traditional ultra vires doctrine, a corporation that had as its

purpose of manufacturing shoes could not, under its charter, manufacture motorcycles.45

Under

modern corporate law, the purposes clause would either be so general as to allow the corporation

to go into the motorcycle business, or the corporation would amend its purposes clause to reflect

the new venture.46

Government entities created by a statute are public corporations governed by municipal charters

and other statutorily imposed grants of power.47

These grants of authority are analogous to a

36









L Sealy and S Worthington, Cases and Materials in Company Law (9th

edn OUP, Oxford 2010) 45

L Sealy and S Worthington, Cases and Materials in Company Law (9th edn OUP, Oxford 2010) 46


L Sealy and S Worthington, Cases and Materials in Company Law (9th edn OUP, Oxford 2010)

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private corporation's articles of incorporation.48

Historically, the ultra vires concept has been

used to construe the powers of a government entity narrowly.49

Failure to observe the statutory

limits has been characterized as ultra vires.50

In the case of a private business entity, the act of an employee who is not authorized to act on the

entity's behalf may, nevertheless, bind the entity contractually if such an employee would

normally be expected to have that authority.51

With a government entity, however, to prevent a

contract from being voided as ultra vires, it is normally necessary to prove that the employee

actually had authority to act.52

Where a government employee exceeds her authority, the

government entity may seek to rescind the contract based on an ultra vires claim.53

2.4 CONCLUSION

This chapter has discussed the ultra vires doctrine at common law. It began by explaining the

meaning of the ultra vires doctrine. It explained that this doctrine sought to null any act by the

company that violates the objects clause in the memorandum of association. The chapter also

traced the background of the doctrine. It explained the rationale for its formulation which was to

protect innocent investors. It also explained that presently the doctrine applies to statutory

organizations.

48






L Sealy and S Worthington, Cases and Materials in Company Law (9th edn OUP, Oxford 2010)

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CHAPTER THREE

RESEARCH METHODOLOGY

This research will substantially take the form of qualitative research which includes analysis of

primary and secondary data. The Author will identify and draw information from relevant

Statutes, Statutory Instruments, Judicial Precedents, Books, Articles, Websites etch. Throughout,

the research will be mostly deskwork.

3.1 INTRODUCTION

This chapter aims to discuss the Ultra vires doctrine in England, India, United States of America,

and Nigeria. It will analyse the extent to which the doctrine is recognized England, India, United

States of America, and Nigeria. It will begin by tracing the extent to which the doctrine was

recognized in those countries both in the past and in the present. In the end a conclusion shall be

drawn. 54

3.2 THE ULTRA VIRES DOCTRINE IN ENGLAND

In England many a times discussions took place about the doctrine of ultra vires and probably at

the end of Second World War a committee was appointed under the chairmanship of Justice

Cohen to review various requirements pertaining to formation of the companies and other affairs

of companies, including the safeguards/ protections which could be afforded to the investors etc.

The report of this committee was presented to the British Parliament in June 1945.This

committee was also known as English companies Law Amendment Committee since it made

various suggestions and proposals to be incorporated in the future companies Act 1948 after

being debated in the British parliament. And it was observed thereafter that most of the proposals

and suggestions of the committee were accepted and incorporated in the new Companies Act

1948, except the recommendation of abolishing the doctrine of ultra vires. As regard this

doctrine is concerned the Cohen committee reviewed on the pattern which was being used in

framing the objects clause by draftsmen using tendency of inserting more and more objects in the

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objects clause. The committee also 979 AIR 1944 Bom. 131 350 reviewed the judicial response

pertaining to the doctrine of ultra vires during last 65 years as a result of which the committee

made a striking proposal to abolish the doctrine. In support of the abolition statement, it was

mentioned in the report submitted to British Parliament that due to the reasons of liberal drafting

the memorandum vary widely by the draftsmen and thereby conferring all the ancillary powers to

attain all activities which form part of objects clause renders the doctrine of ultra vires an illusory

protection for the shareholders and may be pit fall for the third parties dealing with the company,

It was further stated that it served no positive purpose because of unnecessary prolixity and

vexation. It was further suggested that company should have as regards the third persons same

powers as an individual and the memorandum in future should operate as a contract between a

company and its shareholders. However, these suggestions were not totally incorporated in the

Companies Act 1948. It was further recommended that if the company possesses the same

powers as an individual, it will be held liable to the third persons for its ultra vires acts and if the

memorandum operates as a contract, then the company will also be answerable to the

shareholders and investors for the money invested by them. Most of the recommendations of the

Cohen committee were accepted and also incorporated in the companies Act 1948, but the

recommendation pertaining to the abolition of the doctrine of ultra vires was not accepted. At the

Same time, the company law was evolving alternative rules to protect shareholders and the

directors from funds made available to the company. The English legislature did not seem fit to

accept the suggestion of the Cohen Committee that the doctrine should be so limited as to define

the powers of the company between the shareholders and the directors,980 but as regards to the

outsiders the company should have all powers. Thereafter in the year 1962 the Jenkins

Committee reconsidered the question of ultra vires, and recommended that the constructive rule

should also be abolished, and that the actual knowledge of the contents of the memorandum

should not deprive a third party of its right to enforce the contract, if the contract was made in

bona-fide faith.981 980 Palmer‘s Company Law (1959) 20th Ed. 141 981 Excerpt from Jenkins

Committee Report 1962 351 The committee suggested that the ultra vires rule should not be

repealed but protection should be provided to the third parties contracting with the companies in

good faith, because in the view of the committee, it rarely led unjust result.

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In England, the Doctrine was used for the first time in joint stock companies in 1860 in the case

of Simpson V. West Minister Palace Hotel.55

Essentially, the company‘s memorandum stated

that it could purchase land and construct hotels on those lands.56

However that it could be

responsible for the upkeep and maintenance of the hotels. The land would not be used for any

other purpose apart from that of a hotel.57

The company would also have the authority to use the

land in a manner that would help in the upkeep of the hotel and would further the cause of

maintaining a hotel e.g. – constructing a swimming pool would be a legitimate use of the land

because it furthers the cause of maintaining and running a hotel.58

In this case, the plaintiff sold his building to the defendants for the hotel to be used as a hotel.

The building could not function as a hotel in its current state and needed to be re-modelled in

part.59

During the course of the construction of the hotel, a large part of the building was

demolished and re-modelled to create a structure that was more conducive to being a hotel.60

The

plaintiff filed a case against the defendants on the grounds that they had acted outside the scope

of the object clause in the Memorandum of Association by demolishing large parts of the

building.61

Thus, they needed to be punished and a compensation was sought. However, the

Courts held that the defendants had not acted outside the scope of the object clause of the

Memorandum of Associations.62

In 1875, in the case Ashbury Railway carriage & Iron Co. V Riche63

, the company in

question- Ashbury Railway Carriage & Iron Co. - entered into an agreement to construct a

railway line in Belgium with a man named Mr Riche.64

However, the object clause of the

Memorandum of Association of the Company did not include in its scope the construction of

railway lines. Owing to this fact, the company repudiated the contract.65

Mr. Riche filed a suit for

damages against the company on the grounds of cancellation of the contract. Also, he

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strengthened his argument by stating that the company had ratified the agreement with the

majority of the stakeholders in the company. Hence, it was binding.66

The Court held that the object clause of the memorandum is, essentially, the purpose of the

company i.e. it states what a company is supposed to do. It is the most important document of a

company and cannot be overridden by ratification of the stake holders.67

Thus, the contract will

be considered wholly void because of an invalid consideration. Mr. Riche was not awarded any

compensation due to the lack of a void contract. This case was extremely important in the

development of the concept of doctrine of ultra vires.68

Over time, the importance and scope of the doctrine of ultra vires has reduced dramatically in

England. The reason for this was the straight jacketed approach utilized by Courts previously.69

Sometimes, it may happen that an action/ transaction is not explicitly mentioned in the object

clause but is necessary and legitimate for the betterment of the business. In such cases, the

doctrine of ultra vires was becoming more of a hindrance than a protection to shareholders and

creditors.70

In 1880, in the case of Attorney General V. Great Eastern Railway Co. the courts stated for

the first time that if a particular activity is for the benefit of the business, then despite the fact

that it is not mentioned in the object clause, it will not be deemed ultra vires.71

This was the first

time that the Courts had taken a decision reducing the importance of the doctrine.72

In 1966, in the case Bell House Ltd. V City Wall Properties Ltd,73

the Courts held that if the

directors of the company are convinced that a particular activity should be performed for the

furtherance of the main business or some ancillary purpose, then such an activity will be

considered intra vires and not ultra vires.74

Normally, before this case, the directors did not have

any discretionary powers to decide whether a particular activity was within the scope of the

object clause or not. However, after this case, the Court recognized this discretionary power

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given to directors. It, essentially, meant the death of the doctrine of ultra vires.75

After 1966, the

Courts have the final say in whether a particular activity is intra vires or ultra vires.76

3.3 ENGLAND- CURRENT SCENARIO OF THE APPLICABILITY OF THE

DOCTRINE OF ULTRA VIRES

The straight jacket method of following the object clause of the memorandum has, to a very

large extent, been done away with. S. 110 of the Companies Act, 1989 of the English Act.77

Further the said section reiterates the importance of having an expansive object clause and

judging each action on its merit whether it is benefitting the business or not.78

Further S. 3116 and S.3917 of the Companies Act, 2006 of England has greatly reduced the

significance of the doctrine of ultra vires in England.79

S. 31 clearly states that any objective that

is not explicitly excluded from the object clause of the memorandum will not be deemed ultra

vires. Further, the object clause can be ratified by the consensus of the shareholders to remove or

add particular objectives to the object clause.80

Similarly, S. 39 also reiterates that the final decision on whether certain activities are within or

outside the scope of the business will be determined by Courts on the basis of the merit of the

case.81

As recently as in 2013, the case of White and another v South Derbyshire District Council,82

the English Courts held that an ultra vires act does not become ultra vires immediately, the

Courts will first examine the credibility and legitimacy of the act and accordingly decide whether

it needs to be censured or can continue to remain in force.83

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It can be safely said that even though the doctrine of ultra vires has not been eradicated from

England completely- its applicability has been curbed.84

Till date, the doctrine can be invoked in

Courts of Law, but the final decision lies with the judge.85

Over a period of time, legislation

encouraging expansive object clauses and encouraging judges to consider each case on merit

have also contributed to the reduced emphasis on the doctrine of ultra vires.86

It is, however, a brilliant concept that was the need of the hour back in 1855 when it was

introduced.87

The fact that it has stood the test of time and is still in operation, is, in itself, a great

deal.88

3.4 INDIA- EVOLUTION OF THE CONCEPT OF DOCTRINE OF ULTRA VIRES

In India, prior to the introduction of Limited Liability Partnerships, the need for the doctrine of

ultra vires was not very grave. Post the introduction of Limited Liability Partnerships, the

doctrine of ultra vires gained notoriety in the legal fraternity. The first time the concept of ultra

vires was accepted in India was through the case Jahangir R. Modi V Shamji Ladha89

in

1866.90

The facts of this case were as follows: the plaintiff had purchased 601 shares in a particular

company.91

The directors- also the defendants in this case- purchased 1422 shares of the

company. The object clause of the memorandum of the company did not allow the directors to

purchase and sell shares.92

However, the directors went ahead and purchased shares anyways.93

The plaintiff filed a suit

against the directors in the Court and asked for compensation for the losses incurred due to such

84






Modi v Shamji Ladha (1866-1867) 4 Bom. HCR (1855) 90





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purchase.94

The Court exercised the Doctrine of Ultra Vires in this case. It was held that the

defendants had acted outside of the scope of the object clause of the memorandum.95

Since the

memorandum was the most important document of any company, an action/transaction

overriding the document will be completely void.96

Thus, the defendants were held guilty as per

the doctrine of ultra vires.97

This case paved the way for the doctrine in India.98

With Limited Liability Partnerships just

having been introduced, there were several cases of partners/owners/directors of companies

misusing their limited liability position with respect to the company.99

Since this case, the scope

of the doctrine of ultra vires has increased manifold and is of great importance as of now.100

Another important case that has helped in shaping the doctrine of ultra vires in India is A.

Lakshmanaswami Mudaliar vs L.I.C.101

In this case, the company‘s memorandum stated that

the directors should donate a part of the company‘s profit to charitable organisations that help the

general public or undertake useful objects.102

In accordance with this, the directors donated Rs. 2

lacs to a charitable organization.103

At that point in time, LIC had taken over the said business and questioned the charitable

donation stating that it was out of the scope of the object clause of the memorandum.104

That the

object clause did not mean for the company to donate to any charitable organization, but only to

a cause related to the business in some manner or furthers the business objectives of the

company.105

The charitable organisation that was donated to did not fall under either category.

Therefore, the Courts deemed the charity as an ultra vires act and not an intra vires act.106

Donating to research facilities that focus on certain business processes followed by the company

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or to non-profits making men and woman employable in companies would have been considered

intra vires and valid.107

Further, in National Provincial Bank v. Introductions Ltd108

it was stated that if a bank or any

other lending institution lends money to a company for a purpose that is out of the scope of the

object clause of the memorandum of association of the company, then such a loan cannot be

recovered with the help of any remedy that would normally be used for the recovery of such

loans.109

This is because any action that is outside the scope of the object clause falls under the

doctrine of ultra vires and is wholly void.110

3.5 INDIA- CURRENT SCENARIO OF THE APPLICABILITY OF THE DOCTRINE

OF ULTRA VIRES

In a developing country like India, the economy is still growing.111

New companies need to be

formed to increase the GDP of the country.112

The doctrine of ultra vires basically restricts the

company from acting outside the scope of its object clause as mentioned in the Memorandum of

Association, this gives new companies an opportunity to be formed.113

Thus, the doctrine is important in India.114

Also, with new businesses being formed frequently,

banks and lending institutions need to give out loans to such new companies.115

The doctrine of

ultra vires protects the lenders by giving them a guarantee of money back should the companies

act outside the scope of their object clause.116

The doctrine of ultra vires plays a very important

role in India till date.117

In 2009, in the case of Radhabari Tea Company Private Limited vs. Mridul Kumar

Bhattacharjee and Other,118

the Court decided that any action taken by the board of directors

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of a company or the company itself beyond the scope of powers conferred on the company

and/or its directors by the object clause of the memorandum of association of the company, is

ultra vires.119

In the new Companies Act, 2013 of India, S. 245 (1) (a) 23 states that any company that acts

outside the scope of the object clause of the memorandum of association will be censured under

the Doctrine of Ultra Vires.

Thus, it is amply clear the doctrine of ultra vires is still playing a very important and dominant

role in India.120

It will continue to retain its importance in times to come.121

It is a safeguard for

investors and shareholder. Its prominence is not going to diminish any time soon.122

3.6 ANALYSIS OF THE APPLICATION OF THE DOCTRINE OF ULTRA VIRES

IN THE UNITED STATES OF AMERICA

The Model Business Corporation Act, 2002 majorly reduced the applicability of the doctrine of

ultra vires in United States Of America (USA).123

Its application could still be found in certain

non-profit organizations and state run corporation.124

The doctrine of ultra vires is still applied in-

125

1. Charitable contributions and political contributions;

2. Guaranty of indebtedness of another person;

3. Loans to officers or directors of the company;

4. Pensions, bonuses, stock option plans, job severance payments, and other fringe benefits given

to employs;

5. The power to acquire shares of other corporations; and

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6. The power to enter into partnerships

The reason why the applicability of the doctrine of ultra vires has been restricted so prominently

in USA is because of the economy.126

USA is a land of multinationals and big corporations. A

large part of the country‘s GDP comes from such multinationals and big corporations.127

The

doctrine of ultra vires forces companies to stick to the object clause of the company‘s

memorandum with very little scope to do something different- even if the action/transaction will

help the business eventually.128

Restricting business practices merely because they are not included in the object clause of the

company‘s memorandum seems redundant in the USA scenario.129

The US government

promotes corporations to expand and try new ways of raking in profits as this will eventually

help in the country‘s growth.130

Thus, the doctrine of ultra vires is fundamentally against the

principles of the country‘s economy.131

On the other hand, in India, the doctrine of ultra vires has been codified in the most recent

Companies Act, 2013.132

This act of codification just emphasizes the need for the doctrine to

control unscrupulous business practices undertaken by directors and employees of a company

alike.133

India is still developing. If corporations are allowed to have expansive object clauses,

then new businesses will find it difficult to incorporate themselves for the lack of new ideas in

the market.134

No businessman is going to want to start a business that has already been

undertaken by another.135

Thus, the doctrine of ultra vires gives a fair playing field to all and

allows for the country‘s economic growth at the same time.136

Also, the protection given to

creditors and shareholders is an important added benefit of the doctrine.137

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3.7 THE PRESENT STATE OF ULTRA VIRES DOCTRINE IN NIGERIAN

COMPANY LAW

Before the examination of the present state of ultra vires doctrine in Nigeria Company Law, it is

imperative for the purposes of clarity and emphasis, that the relevant sections of Companies &

Allied Matters Act, 1990 are reproduced here. The said relevant sections provide as follows:

S.38(1) Except to the extent that the company‘s memorandum or any enactment otherwise

provides, every company shall, for the furtherance of its authorized business or objects, have all

the power of a natural person of full capacity.

S.39(1) A company shall not carry on any business not authorized by its memorandum and shall

not exceed the powers conferred upon it by its memorandum or this Act.

S. 39(2) A breach of subsection (1) of this section, may be asserted in any proceedings under

sections 300 to 313 of this Act or under subsection 4 of this section.

S.39(3) Notwithstanding the provisions of subsection (1) of this section, no act of a company and

no conveyance or transfer of property to or by a company shall be invalid by reason of the fact

that such act, conveyance or transfer was not done or made for the furtherance of any of the

authorized business of the company or that the company was otherwise exceeding its objects or

powers.43

S.39(4) On the application of – (a) any member of the company; or (b) the holder of any

debenture secured by floating charge over all or any of the company‘s property or by the trustee

of the holders of any such debentures. The court may prohibit by injunction, the doing of any act

or the conveyance or transfer of any property in breach of subsection (1) of this section.

S.39(5) If the transaction sought to be prohibited in any proceeding under subsection (4) of this

section are being, or are to be performed or made pursuant to any contract to which the company

is a party, the court may, if it deems the same to be equitable and if all the parties to the contract

are parties to the proceedings, set aside and prohibit the performance of such contract, and may

allow to the company or to the other parties to the contract compensation for any loss or damage

sustained by them by reason of the setting aside or prohibition of the performance of such

36 | P a g e

contract but no compensation shall be allowed for loss of anticipated profits to be derived from

the performance of such contract.

S.68. Except as mentioned in section 197 of this Act, regarding particulars in the register of

particulars of charge, a person shall not be deemed to have knowledge of the contents of the

memorandum and articles of a company or of any other particulars, documents, or the contents

of documents merely because such particulars or documents are registered by the commission or

referred to in any particulars or documents so registered, or are available for inspection at any

office of the company.

S.69. Any person having dealings with a company or with someone deriving title under the

company shall be entitled to make the following assumptions and the company and those

deriving title under it shall be stopped from deriving their truth that – (a) the company ‘s

memorandum and articles have duly complied with; Provided that – (i) a person shall not be

entitled to make such assumption as aforesaid, if he had actual knowledge to the contrary or if,

having regard to his position with or relationship to the company, he ought to have known the

contrary;

Section 68 abolished the doctrine of constructive notice.138

By section 69(a), any person dealing

with the company or dealing with someone that derived title from the company is entitled to

presume that the company or the person that derived title from the company complied with the

Memorandum and Articles of association however, a person is not entitled to make this

presumption if he had actual knowledge that the company did not comply with its Memorandum

and Articles of association or having regard to his position with or relationship with the

company, he ought to know that the company did not comply with its Memorandum and Articles

of association.139

Section 38(1) endows every company with all the powers of a natural person of full capacity for

the furtherance of its authorized business or object.140

Consequently, a company can only enjoy

its power like a natural person to contract, but must be within the scope of its business or object,

138




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contained in its Memorandum of association.141

Section 39(1) retains the ultra vires doctrine.142

It recognizes and affirms that a company being a creation of the statute for a specific purpose

should keep within its authorized objects and powers.143

However, the effect was whittled down by section 39 subsections (2) to (5). Section 39(3) is to

the effect that even if a company exceeds its objects or powers, the act will be valid.144

The

purport of this subsection is that where a company has executed a contract with a third party,

neither the company nor the third party to the contract can bring an action to set aside the

contract or transaction on the ground that it is ultra vires.145

It doesn‘t matter whether or not the third party knew that the company acted outside the scope of

its objects.146

In other words, a party who has performed his part of the contract can sue to

enforce the performance of the other party and the defaulting party cannot plead ultra vires in

order to avoid the obligations of the contract.147

This subsection weakened the principle of

constructive notice (notwithstanding that it has been abolished by section 68) and the exception

provided thereto under section 69(a).

3.8 CONCLUSION

This paper has clearly explained the process of evolution of the concept of the doctrine of ultra

vires in England, India and Nigeria. Also, an analysis of the application of the doctrine in USA

and India has been given to further understand the various aspects of the doctrine of ultra vires

and the extent to which it has been followed in various countries.

This paper has made it clear that the ultra vires doctrine is an integral safeguard which ensures

that companies follow the objects in the memorandum of association. However it has also

highlighted that in other countries the doctrine has been weakened to pave way for corporations

to grow.

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CHAPTER FOUR

LIMITATIONS

There are very few foreseeable limitations in this study given that it will mostly rely on

secondary data. However, the author may experience challenges when accessing foreign statutes

as some foreign statutes are not online. Further the author is likely to experience limitations such

as costs for internet bundles for online materials, slow internet, and delays in accessing authentic

foreign statutes.

4.1 THE ULTRA VIRES DOCTRINE IN ZAMBIA

4.2 INTRODUCTION

This chapter examines the debate on the legal issues surrounding the applicability of the ultra

vires doctrine in Zambia under the Companies Act No.10 of 2017. The Chapter compares the

Companies Act of 1921 and the provisions of the Companies Act of 1994. Finally it analyses the

applicability of the ultra vires doctrine under the current Companies act no.10 of 2017. In the end

a conclusion will be drawn.

4.3 ORIGINS OF THE OBJECTS CLAUSE

A company on incorporation under the Companies Act cap 388 gives it a corporate personality

which means that it gains the status of a separate legal entity from its shareholders or

members.148

However, as an artificial person, the company cannot make decisions and as such

has to rely on humans to make decisions on its behalf.149

Therefore, the decisions and actions by

148

Section 16 of the Companies Act No.10 of 2017 149

Davies, L. P., Principles of Modern Company Law, 8th Edn, Sweet and Maxwell, 2008

39 | P a g e

the company officers, employees or indeed its agents will be taken to be those of the company

which shall bear the liability.150

As such, as the company is to be regarded as an artificial person, the courts developed the view

that its legal capacity had to be limited to its objects and on incorporation to include the objects

clause in its memorandum of association which formed part of the Companies constitution.151

This was with a view of safeguarding the interests of both the shareholders and the creditors by

way of the doctrine of ultra vires.152

In summing up, it can be said that an objects clause is that provision in a company‘s constitution

which provides for the purposes and the power to undertake only the activities for which the

company was formed as was the case before the coming into force of the Companies Act cap

388.153

Under the Companies Act of 1921 of Zambia, promoters were required to state the objects of the

company on the memorandum of association before applying for the registration of the company.

Once the objects of the company were stated, the company was required to conduct its business

in line with the objects clause.154

Any act beyond the objects clause was rendered ultra vires and

void. To that extent the common law doctrine of ultra vires was applicable.155

In 1994, the Companies Act of 1921 was repealed and replaced with the Companies Act of 1994.

Unlike before, the Companies Act of 1994 did not have a mandatory requirement for companies

incorporated under it to have a memorandum of association which would contain the objects

clause.156

Under the 1994 Companies Act promoters were only required to lodge an Application

for Incorporation, proposed Articles, Statutory Declaration, Signed Consent from each person

150

Davies, L. P., Principles of Modern Company Law, 8th Edn, Sweet and Maxwell, 2008 151




www.jstor.org › stable 155

www.jstor.org › stable 156

The Companies Act 1994 Cap. 388 of the Laws of Zambia

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named in the application for incorporation as a director or secretary of the company or if the

company is limited by guarantee, a declaration of guarantee.157

Section 6 of the Companies Act of 1994 Cap. 388158

provided as follows:

(1) Subject to this Act, any two or more persons associated for any purpose may form

an incorporated company by subscribing their names to an application for incorporation

that satisfies this section and lodging it with the Registrar, together with Application for

incorporation:

(a) any proposed articles of the company;

(b) a statutory declaration in accordance with section nine;

(c) a signed consent from each person named in the application as a director or

secretary of the company to act in the relevant capacity; and

(d) a declaration of guarantee by each subscriber, if the company is to be

limited by guarantee.

Further Section 23 and 24 of the Companies Act 1994 weakened the Ultra Vires doctrine in

Zambia. This is because by S.23 even if an act of the company was contrary to its articles, that

act was legal.159

To that extent, the ultra vires doctrine could not apply. Section 24 further

strengthened that position by stating that no person shall be presumed to have notice of company

documents lodged with the registrar of companies.160

Section 215 of the Companies Act of 1994161

provided as follows:

(1) The business of a company shall be managed by the directors, who may pay all

expenses incurred in promoting and forming the company, and may exercise all

such powers of the company as are not, by this Act or the articles, required to be

exercised by the company by resolution.

(2) Without limiting the generality of subsection (1), the directors may exercise the

powers of the company to borrow money, to charge any property or business of the

157

S.6 of the Companies Act 1994 of 1994 158

S.6 of the Companies Act 1994 of 1994 159

S.23 of the Companies Act 1994 Cap 388 160

S. 24 of the Companies 1994 Cap 388 161

S. 215 of the Companies 1994 Cap 388

41 | P a g e

company or all or any of its uncalled capital and to issue debentures or give any

other security for a debt, liability or obligation of the company or of any other

person.

Section 23 of the Companies Act of 1994 provided as follows ―No act of a company, including

any transfer of property to or by a company, shall be invalid by reason only that the act or

transfer is contrary to its articles or this Act.‖

Further Section 24 of the Companies Act of 1994 provided as follows, ―No person dealing with

a company shall be affected by, or presumed to have notice or knowledge of, the contents of a

document concerning the company by reason only that the document has been lodged with the

Registrar or is held by the company available for inspection.‖

4.4 ULTRA VIRES DOCTRINE UNDER THE COMPANIES ACT NO.10 OF 2017

The Companies Act No.10 of 2017 has adopted the position of its predecessor the Companies

Act of 1994. Section 23 of the Companies Act No.10 of 2017 provides as follows:

(1) A person dealing with the company or any person who has acquired rights from the

company, in good faith, shall not be prejudiced by the company or a guarantor of an

obligation of the company by reason only that—

(a) the articles have not been complied with;

(b) a person named as director of the company in the most recent notice received by the

Registrar is not—

(i) a director or an employee of the company;

(ii) duly appointed; or

(iii) authorised to exercise powers performed by a

director or executive officer; or

(c) a director, nominee or chief executive officer of the company acted fraudulently or

forged a document, that was signed on behalf of a company.

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(2) Subject to subsection (3), a document executed on behalf of a company by a

director, nominee or chief executive officer of the company with actual authority to

execute the document, shall be valid.

This Section like its predecessor Section 23 of the Companies Act of 1994 seeks to validate

contracts and actions affecting third parties despite the said contracts or actions violating the

companies‘ articles. This is there to protect the interests of third parties who would lose out if

companies were allowed to assert the ultra vires rule so as to avoid complying with obligations

under contracts.

Section 24 of the Companies Act No.10 of 2017 provides as follows:

A person shall not be affected by, or presumed to have notice of the contents of the

articles or any other document of a company, by reason only that the articles or

document is—

(a) registered or has been lodged with the Registrar; or

(b) available for inspection at the office of the company.

This means that the interests of the third party who deals with a company is entitled to assume

that it has the power to do anything it wishes are not affected[6] unless he was actually aware

(notice or knowledge) of the restrictions. Therefore, section 24 basically abolishes the ultra vires

rule against third parties who have no knowledge of the company‘s objects and are meant to

assume that the director, agent or company employee they deal with has the power to make

decisions. This has been acknowledged in the case of Freshint Ltd & Others v Kawambwa Tea

Company [2008] ZMSC 26 at (763) where it was held that ―in practice most people dealing with

companies rely on the rule in Turquand‘s case and do not bother to inspect the articles. …… The

company‘s authorized agents bound the company to comply with the contract and such liability

cannot be avoided.

Just like the Section 24 of the Companies Act of 1994 this Section formalizes the principle

well known as the Turquand rule established in the case of Royal British Bank v Turquand 6

E&B 327 where it was held that people transacting with companies are entitled to assume that

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internal company rules are complied with, even if they are not.162

At common law this rule

restricted the application of the Ultra Vires doctrine to instances were third parties had actual

knowledge of the Companies Articles.

Section 25 seems to contradict the position that the Ultra Vires doctrine has been abolished in

Zambia. It provides as follows:

25. (1) A company shall have articles of association that regulate the conduct of the

company.

(2) The articles may contain restrictions on the type of business that a company may

carry on or the powers exercisable by the company.

(3) A company shall not carry on any business or exercise a power which the company

is restricted by its articles from carrying on or exercising, or exercise any of its powers

in a manner that is contrary to its articles. [Emphasis Mine]

Section 25(3) of the Companies Act No.10 of 2017 suggests that it is mandatory for the

company to comply with its Articles. However it is subject to S.23(1)(a) of the Companies Act

No.10 of 2017 which states that a third party cannot be prejudiced by simply that the company

did not comply with its articles of association.

Despite the above provisions which try to eliminate the application of the Ultra Vires doctrine in

Zambia, the author strongly argues that it is still applicable to Zambia. Firstly Section 23(2) of

the Companies Act No.10 of 2017 provides as follows:

(2) Subject to subsection (3), a document executed on behalf of a company by a

director, nominee or chief executive officer of the company with actual authority to

execute the document, shall be valid.

Further Section 23(3) of the Companies Act No.10 of 2017 provides as follows:

(3) A document specified in subsection (2), shall be void if, at the time the document

was executed, a person dealing with the company or acquired rights from the company,

knew or ought to have known, by virtue of that person‘s relationship with the company,

of the facts specified in subsection (1).

162

Royal British Bank v Turquand 6 E&B 327

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Even though Section 23(1) of the Companies Act No.10 of 2017 validates a contract with a

third party signed by an officer of the company without authority to do so, Section 23(3) of the

Companies Act seems to consider the contract void if the third party knew or ought to have

known that the officer of the company did not have authority to sign the document in question.

Therefore Section 23(3) extends the ultra vires doctrine to cases were a third party dealing with

the company knew or ought to have known that an officer of the company did not have authority

to sign the contract.

Using the above logic, one can therefore argue that the ultra vires doctrine also applies to

Statutory Corporations because the law specifies the officers of the company who have powers to

sign contracts. The ultra vires rule can apply since everyone is presumed to know the law.

4.5 CONCLUSION

This chapter has analysed the applicability of the ultra vires doctrine under the Companies Act

No.10 of 2017. It has explained that generally the ultra vires doctrine does apply in Zambia,

however if a third party dealing with a company knew or ought to have known that the contract

in question was ultra vires the article of the company, then that contract will be void. To that

extent, the ultra vires doctrine applies to cases were a third party knows or is deem to know the

internal affairs of the company.

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CHAPTER FIVE

CONCLUSION AND RECOMMENDATIONS

5.1 Introduction

This chapter presents the conclusion of each chapter of the research, the general conclusion of

the study and recommendations, based on the findings in the previous chapters, of what Zambia

needs to do.

5.2 Overview of Chapters

5.2.1 Summary

Chapter one has strived to introduce the rundown of the research, outlining the research question,

objectives, and its significance. It has also defined the methodology employed for the research

and the chapter layout.

It is also the Introductory Chapter and which introduces the research to the reader. It clearly

shows the road map of the research.

Chapter Two – discusses the ultra vires doctrine at common law.

Chapter Three –it reviews various laws from common law countries adopting the ultra vires

doctrine

Chapter Four – it shows the extent of application of the ultra vires doctrine in Zambia

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General Conclusion

This purpose of this research was to resolve the apparent contradiction between S.24 and S.25

(3) of the Companies Act No.10 of 2017. Further it reviewed the extent of application of the

common law doctrine of ultra vires in Zambia and other common law countries.

Hence its serve as a source of knowledge for both students of law and practicing lawyers.

Additionally, it will fill in the knowledge gap that has been created by the apparent contradiction

of S.24 and S.25 (3) of the Companies Act No.10 of 2017.

This research was done by analysing a variety of judicial precedents, articles, books, websites,

other laws etch. I had to analyse various authorities compared with foreign laws and then offer a

well-reasoned conclusion to answer the research questions above.

Analysing the applicability of the ultra vires doctrine under the Companies Act No.10 of 2017.

It has explained that generally the ultra vires doctrine does apply in Zambia, however if a third

party dealing with a company knew or ought to have known that the contract in question was

ultra vires the article of the company, then that contract will be void. To that extent, the ultra

vires doctrine applies to cases were a third party knows or is deem to know the internal affairs of

the company.

This paper has clearly explained the process of evolution of the concept of the doctrine of ultra

vires in England, India and Nigeria. Also, an analysis of the application of the doctrine in USA

and India has been given to further understand the various aspects of the doctrine of ultra vires

and the extent to which it has been followed in various countries.

This paper has made it clear that the ultra vires doctrine is an integral safeguard which ensures

that companies follow the objects in the memorandum of association. However it has also

highlighted that in other countries the doctrine has been weakened to pave way for corporations

to grow.

After having studied the historical background of the doctrine of ultra vires, along with its

nature, concept, origin, development and applicability, we can conclude that this rule was first

developed by the courts in the 17th century and hence this doctrine is a judge- made rule and

there is no enacted law on this subject, like any other. It is further clarified from conducting this

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study that from its very beginning till now the doctrine has remained static, continuously present

and apparent in one form or other in the corporate world and it has been hammering the

defaulting corporate enterprises by means of various judicial pronouncements, as and when

delivered by appropriate judicial authorities.

Notwithstanding the recommendations for abolishing this doctrine by various committees and

attacking this doctrine by draftsmen by framing lengthy objects clauses thereby restricting its

effect, the rule has gained favourable and positive response from courts. The enterprises

managers and directors have always preferred profit making activities to be attached to their

present activities and have tried to prove the same as more advantageously to be carried on with

the existing one, but in such cases also the judicial authorities have minutely analysed the objects

clause contained in the memorandum of association and have declared the same to be ultra vires.

It is pertinent to mention here that few countries specially the Westerns are not serious about the

protection of this doctrine, and the same has been described as dead horse also, since they mainly

think of protecting the interests of third parties dealing with the company, means that the

recommendations of Cohen Committee for abolition of the doctrine is not fully acceptable to

Western World and the recommendations of Jenkins committee regarding protection of third

parties dealing with the company is soundly acceptable. However we have to agree that this

doctrine is going to lose its value day by day and can be said to be in a fatal condition because

the purpose for which this doctrine was used is now being taken by the codified laws.

In the series of the same thought, in England section 9(1) of the European Communities Act

1972 was adopted which was further given the shape of section 35 of the U.K. Companies Act

1985, followed by further improvements by U.K. Companies Act 1989 which further enacted

section 35 of 1985 act as new section 35960 in 1989 Act, and lastly section 31 and 39 of the

English Companies act 2006, thereby reducing the applicability of the doctrine in England. In

corporate law, ultra vires describes acts attempted by a corporation that are beyond the scope of

powers granted by the corporation‘s objects, articles of association or in any clause or in its by-

laws, in the laws authorizing a corporation‘s formation, or similar founding documents. Acts

attempted by a corporation that are beyond the scope of its charter are void or voidable. An ultra

vires transaction cannot be ratified by shareholders, even if they wish it to be ratified. The

doctrine of estoppels usually precluded reliance on defence of ultra vires where the transaction

48 | P a g e

was fully performed by one party. A fortiori, a transaction which was fully performed by both

parties could not be attacked. If the contract was fully executor, the defence of ultra vires might

be raised by either party. If the contract was partly performed, and the performance was held to

be insufficient to bring the doctrine of estoppels into play, a suit for quasi-contract for recovery

of benefits conferred was available.

Recommendations

The law in question must:

1. A contract entered into between a company and another party, (including a

shareholder contracting otherwise than in his capacity as a shareholder)

contracting with the company in good faith should not be held invalid as against

the other party on the ground that it was beyond the powers of the company: he

should not, however, be allowed to enforce the contract without submitting to

perform his part of it so far as it is unperformed.

2. When entering into such contract the other party should be entitled to assume

without investigation that the company is in fact possessed of the necessary

power, and should not by reason of his omission so o investigate be deemed not to

have acted in good faith, or be deprived of his right to enforce the contract on the

ground that at the time of entering into it he had constructive notice of any

limitations on the powers of the company, or on the powers of any directors or

other person to act on the on the company‘s behalf, imposed by its articles of

association.

3. The other party should not be deprived of his right to enforce the contract on the

ground that he had actual knowledge of the contents of the memorandum or

articles at the time of entering into the contract if he honestly and reasonably

failed to appreciate that they had the effect of precluding the company or any

director or other person on its behalf from entering into the contract in question

49 | P a g e

4. There should be no change in the position of a company in relation to ultra vires

contracts entered into by it.

5. With respect of the protection of shareholder through the Doctrine of ultra vires.

The provision should be made that for diversion of funds of the company by the

directors to the object not specified in the memorandum a special meeting of

shareholders should be convened for their approval before agreement with third

parties. In resolution if any group of shareholders is dissatisfied. They should be

allowed to take recourse to the court (Company law Board). Till (234) pending

the decision no diversion of funds should be allowed. Once the agreement is

finalized with third parties shareholders should also not be allowed to take the

benefit of the doctrine of ultra vires on the ground they themselves beings the

members of the company should be considered expert in company matters.

The aforesaid recommendations may be helpful for reforms of the ultra-rule to care

for the interests of company shareholders, creditors, employees, consumers and the

society.

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REFERENCES

BOOKS

1. Davies, L. P., Principles of Modern Company Law, 8th Edn, Sweet and Maxwell,

2008

2. L Sealy and S Worthington, Cases and Materials in Company Law (9th edn OUP,

Oxford 2010)

3. PL Davis Gower‘s Modern Company Law (8th Edition Sweet and Maxwell, London

2008)

4. Alan Dignam, John Lowry. Company Law 1st Edition, 2010 Oxford University Press

ARTICLES

1. Jcil.lsyndicate.com/wp-content/uploads/2016/09/publication-submission

2. Gilani, Syed Raza Shah, The 'Doctrine of Ultra Vires' and its Subsequent

Development in the Frame Work of Company Law (October 1, 2011). Available at

SSRN: https://ssrn.com/abstract=1936728 or http://dx.doi.org/10.2139/ssrn.1936728

3. Suwilanji Simutenda, ―A discussion on correct position on the Ultra Vires doctrine

under the Companies Act Chapter 388 of the Laws of Zambia.‖ – A dissertation

submitted to the University of Zambia in partial fulfilment of the requirements for the

award of Bachelors Laws Degree (LLB), 2011

WEBSITES

1. www.jstor.org › stable

2. http://shodhganga.inflibnet.ac.in:8080/jspui/bitstream/10603/9793/17/17

3. https://www.bartleby.com/topics/ultra-vires

4. https://www.legalindia.com/doctrine-ultra-vires-effects-exceptions

5. https:// graduateway.com/ultra-vires-doctrine/

http://dx.doi.org/10.2139/ssrn.1936728

http://shodhganga.inflibnet.ac.in:8080/jspui/bitstream/10603/9793/17/17

https://www.bartleby.com/topics/ultra-vires


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