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TMI Blog1966 (4) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... ndal Mulcaster Bell, controls the company and its administration. The other directors were his wife and a brother of his, but the brother has left the company now. All effective dealings of the company were really done by Bell, and that was officially authorised by a resolution passed on June 10, 1955, at a meeting of the board of directors, whereby it was resolved that the administration of the company generally and with regard to sales be left for the chairman to deal with together with his principal sales agent. The directors had power to delegate in this way by virtue of article 102 of Table A in Schedule I to the Companies Act, 1948, which was incorporated in the company's articles. The method by which the business of the company was transacted was described by the chairman in evidence as being the acquisition of vacant sites for which no planning consent had been obtained, because the land is thus obtained at a cheaper price. The contract of purchase was made subject to planning consent, and the company then obtained outline planning consent and proceeded with the development of the site as a housing estate. The practice of the company was to have the sites conveyed to su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for which it could use the money, but in the course of a lunchtime meeting between one Skeggs, who is a solicitor but was acting as the agent of the defendants in financial matters, and Bell it emerged that the defendants required finance to the extent of 1,000,000 for the purpose of their current schemes what was called "bridging finance." Skeggs said that that variety of bridging finance was extremely difficult to obtain. Bell intimated that he knew of sources from which such finance could be obtained. After a few abortive attempts to obtain it from other sources, eventually the money required was to be provided by the trust. It is claimed by the plaintiff company that for that service the defendants agreed to pay a commission of 20,000. The introduction was effected, but the defendants refused to pay to the plaintiff company the amount in question. In this action the plaintiff company claims payment of this sum as due from the defendants under the alleged agreement. Alternatively, the company claims 20,000 damages on an implied term that the defendants would not prevent it earning the commission. The contract is denied in the defence, although (1) a letter of March 2, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra vires, but which I suppose went to the basis of the contract alleged by the plaintiff company. It was argued on behalf of the defendants that the dealings with them were conducted by the chairman of the plaintiff company on his own behalf and not on behalf of the plaintiff company, so that the company had no interest in the matter. This argument seems to me to be completely untenable. There is no evidence that the chairman ever claimed the benefit of the 20,000 for himself. He controlled the plaintiff company and administered it completely, and it is evident that he used the company for the purposes of the business. He was authorised by the resolution of the board of directors to conduct the administration of the company's business on behalf of the board, and it is impossible to suppose that he was distinguishing business negotiations carried out by him from the business of the company. Letters written by him in the course of this transaction were always written on the company's notepaper, and though most of his letters were signed by his Christian name, that was in accordance with the terms on which these business men were, and some of the letters, and in particular the lette ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icular but without prejudice to the generality of the foregoing to construct, alter, enlarge, erect and maintain, either by the company or other parties, sewers, roads, streets, railways, sidings, tramways, electricity works, gas-works, bridges, shops, reservoirs, factories, water-works, brick kilns and brick or tile works, timber yards, buildings, houses, offices and all other works, erections, plant, machinery and things of any description whatsoever either upon land acquired by the company or upon other land and generally; ( b ) to acquire by purchase, exchange or otherwise either for an estate in fee simple or for any interest or estate in land, whether in possession or in reversion and whether vested or contingent, any lands, tenements and premises of any tenure, whether subject or not to any charges or incumbrances and any easements or other rights in or over land and any concessions, patents, patent rights, licences, copyright, secret processes, machinery, plant, stock-in-trade and any other real or personal property and to hold or to sell, develop, let on rent, mortgage, charge or otherwise deal with all or any of such lands, tenements or premises and buildings erected ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l v. Manchester Corporation [1906] 1 Ch. 643 ; 22 TLR 261. As regards the, first of these cases, the powers of the London County Council were statutory, being derived entirely under the London County Tramways Act, 1896, under which the council had been authorised to purchase the tramways undertaking : see the statement of facts in the report below [1901] 1 Ch. 781, 784, 785. The decision of the House of Lords was simply that running omnibuses was not incidental to running tramways. In the Manchester's case ( supra ), the corporation was empowered by provisional orders and private Acts of Parliament to construct and maintain tramways, and there was a provision that " the tramways may be used for the purpose of conveying passengers, animals, goods, minerals, and parcels. " The corporation proposed to carry on a general parcels delivery business both within and beyond the area covered by their tramways, not confined to parcels and goods carried on their tramways. That business was held by Farwell J. to be beyond its powers. These two cases of statutory powers seem to me to be not directly relevant to a company formed under the Companies Act, 1948, the powers of which are esta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces could be obtained for the purpose of financing the plaintiff company's operations. The knowledge thus acquired by him was a valuable asset and was not his personal property but was the property of the company. In my opinion, the provisions of clause 3 ( q ) are also applicable. This sub-paragraph empowers the company, inter alia, to "turn to account," and to "deal with or dispose of . . . all or any of the property and assets for the time being of the company for such consideration as the company may think fit." It seems to me than in communicating to the defendants information as to sources of finance, the chairman, in the administration of the company, was turning to account, dealing with and disposing of an asset of the company as authorised by this sub-clause. Finally, there is the general provision in clause 3 ( u ) of the company's memorandum, but it does not seem to be necessary for the company to rely upon this sub-clause in the present case. I turn now to the authorities. Ashbury Railway Carriage Iron Co. Ltd. v. Riche [1875] LR 7 Hl 653, HL (E), is, of course, the leading authority on the relation of companies formed under the Companies Acts, 1862 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny was established were stated to be "the carrying on the business of a bill-broker and scrivener; the drawing, accepting, endorsing, discounting, and rediscounting bills of exchange and promissory notes ; the making advances and procuring loans on, and the investing in, securities ; the borrowing and lending of money ; the guaranteeing payment of bills of exchange, promissory notes, and advances ; and the doing of all such things as the directors shall consider incidental or conducive to the attainment of the above objects. " Shares in a banking company called Barned's Banking Co. Ltd. were paid for out of the company's money and transferred into the names of some of the directors as nominees of the company, pursuant to a resolution of the board of directors : "That as the board consider that the formation of a limited joint stock bank on the basis of the absorption of the old firm of Messrs J. Barned Co. of Liverpool, will be most conducive to the interests of the company by increasing its connections, the company, or its nominees, assist the same by applying for 10,000 shares in the proposed bank on the terms above stated." Orders were subsequently made for the winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any are. In construing this memorandum of association, or any other memorandum of association in which there are general words, care must be taken to construe those general words so as not to make them a trap for unwary people. General words construed literally may mean anything; but they must be taken in connection with what are shown by the context to be the dominant or main objects. It will not do under general words to turn a company for manufacturing one thing into a company for importing something else, however general the words are. Taking that as the governing principle, it appears to me plain beyond all reasonable dispute that the real object of this company, which, by the by, is called the German Date Coffee Co. Ltd., was to manufacture a substitute for coffee in Germany under a patent, valid according to German law. It is what the company was formed for, and all the rest is subordinate to that. The words are general, but that is the thing for which the people subscribe their money. " As Salmon L.J. observed in the course of the argument, if the company's main business is given up, something else cannot be ancillary to it. There is no suggestion that the plaintiff compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt or conducive to the objects aforesaid or any of them." Bacon, V.-C, in the course of a long judgment, discussed Ibid. 138 the effect of those words, and seems to have thought that they had some purpose and effect but they had to be limited by reference to the objects of the company. This is no doubt so, but in any case he held that the transaction which was connected with the unfortunate Alexandra Palace which was burnt down on June 2, 1873, almost immediately after completion, was within the company's powers, distinguishing the Ashbury Railway Carriage's case ( supra ). In In re, Crown Bank [1890] 44 Ch. D. 634, the company had been formed primarily for carrying on the business of banking, as a country bank, with an office in London. After a time it gave up its country office, ceased to do banking business and carried on in London land speculation, promoting a company in a foreign country and the business of investing in shares and securities. The objects of the company were expressed in very wide terms "So wide," North J. said Ibid. 641, "that it might be said to warrant the company in giving up banking business and embarking in a business with the object of establishi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matter, unless some one wishes to wriggle out of some obligation. In any case, as Lord Parker of Waddington Ibid. 519 pointed out, section 17 of the Companies (Consolidation) Act, 1908 (now section 15 of the Companies Act, 1948), made the certificate of incorporation conclusive evidence that, inter alia, the provisions of the Act as to stating the objects of the company in its memorandum of association have been duly complied with. He said [1918] AC 514, 520 : "The truth is that the statement of a company's objects in its memorandum is intended to serve a double purpose. In the first place it gives protection to subscribers, who learn from it the purposes to which then-money can be applied. In the second place it gives protection to persons who deal with the company, and who can infer from it the extent of the company's powers. The narrower the objects expressed in the memorandum the less is the subscribers' risk, but the wider such object the greater is the security of those who transact business with the company. "Moreover, experience soon showed that persons who transact business with companies do not like having to depend on inference when the validity of a proposed tran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1932] AC 650 ; 48 TLR 459. The next case is Oxford Group v. Inland Revenue Commissioners [1949] WN 343; [1949] 2 All. ER 537, CA. The objects of the company there may be summarised as : ( a ) the advancement of the Christian religion ; ( b ) the maintenance of the Oxford Group movement ; ( c ) (9) to establish and support any charitable or benevolent associations or institutions; and (10) "To do all such other things as are incidental, or the association may think conducive, to the attainment of the above objects or any of them," It was held that the objects of the company extended beyond purely religious activities and so the company could not gain exemption from income tax. The relevance of that case is that Cohen L.J. said[1949] 2 All. ER 537, 544, 545 : "Then, again, under paragraph (10) of sub-clause ( c ), the association is empowered to do, not merely things which are incidental or conducive to the attainment of the main object, but also such things as the association may think conducive to it. In other words, the question which the court would have to decide, if any activity of the association was being challenged as being ultra vires, would be not whether, in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unctions of the board of directors, as he was entitled to do, by virtue of the resolution of the board of directors of June 10, 1955. It was his opinion which decided whether certain business activities should be carried out on behalf of the plaintiff company. His opinion is evident from what he did and from his evidence. Further, the facts support his opinion. For the reasons which I have mentioned earlier in this judgment, this transaction was justified and was within the powers of the company under the terms of clause 3 ( c ). The position is also assisted by the terms of sub-clauses ( q ) and ( u ). I feel no doubt that the transaction with the defendants was within the powers of the company and was not ultra vires. The result is that the question whether a defence of ultra vires could be raised by the defendants does not arise and we have not thought it necessary to have it argued. In my opinion, the appeal should be allowed, and the preliminary point decided in the plaintiff company's favour. Salmon L.J. In this action the plaintiff company claimed 20,000 under a contract which it alleged it had made with the defendants in 1962 one Bell acting for the plaintiff ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided in favour of the defendants, and the claim was dismissed. The point is conspicuously lacking in merit of any kind. The defendants are of course entitled to take the point and to succeed upon it if they can make it good just as, in other circumstances, a defendant would be entitled to plead the Gaming Act, 1845. In my judgment, however, the point is hopelessly bad. It depends primarily upon clause 3 (the objects clause) of the plaintiff company's memorandum of association. I need not repeat sub-clauses ( a ) or ( b ) of that clause, which in effect respectively provide that carrying on the business of building and land development are among the plaintiffs' objects. Sub-clause ( c ) is of great importance and reads as follows : "To carry on any other trade or business whatsoever which can, in the opinion of the board of directors, be advantageously carried on by the company in connection with or as ancillary to ... the general business of the company." As a matter of pure construction, the meaning of these words seems to me to be obvious. An object of the plaintiff company is to carry on any business which the directors genuinely believe can be carried on advantageously ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause 3 ( c ), "in the opinion of the directors," could be ignored. North J. had expressed the view that a clause containing similar words would not be a statement of the objects of the company as required by the Act of Parliament and could be disregarded by the courts. In that North J. was mistaken, for the statute makes the registration of the memorandum of association conclusive evidence that it complies with the Act, and thereafter the courts are confined to the construction of the documents (see per Lord Wrenbury in Cotman v. Brougham [1918] AC 514, 523). Moreover in In re Crown Bank 44 Ch.D. 634, the court decided only that the substratum of the company had gone and that it was, accordingly, just and equitable that the company should be wound up. The shareholders had subscribed on the faith of a prospectus asking for money for a banking business. When the company ceased to carry on a banking business the shareholders successfully objected to their money being used for entirely different purposes. Mr. Templeman, who has made a valiant and skilful attempt to make bricks without straw, also relied upon In re German Date Coffee Co. 20 Ch. D. 169. That was another subst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that he had not formed the necessary opinion, but when he gave evidence at the trial, it was not even suggested to him in cross-examination by counsel then appearing for the defendants that he had not genuinely formed the opinion that the contract sued upon constituted business which could be advantageously carried on by the plaintiff company in conection with or as ancillary to its general business. If follows that, in my view, the contract was clearly intra vires sub-clause ( c ). Moreover, in my judgment, the plaintiff company is also entitled to succeed under sub-clause ( u ) of clause 3, for the making of the contract was in fact as well as in the chairman's opinion " incidental and conducive " to the plaintiffs' objects of carrying on the business of building and land development. Finance for the acquisition of land was vital to the plaintiff company. It is true that the mechanics of the company's operations involved the land being bought by investment companies owned by the chairman with money borrowed for this purpose by the investment companies. The evidence shows, however, that the money would not have been advanced unless in the first place the plaintiff company had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the plaintiff company having fully performed its part under the contract and the defendants having obtained all the benefits under the contract, the defendants could successfully take the point that the contract was ultra vires the plaintiff company and so avoid payment. It seems strange that third parties could take advantage of a doctrine, manifestly for the protection of the shareholders, in order to deprive the company of money which in justice should be paid to it by the third parties. In Cotman v. Brougham Lord Parker of Waddington said [1948] AC 514, 520 : ". . . the statement of a company's objects in its memorandum is intended to serve a double purpose. In the first place it gives protection to subscribers, who learn from it the purposes to which their money can be applied. In the second place it gives protection to persons who deal with the company, and who can infer from it the extent of the company's powers. The narrower the objects expressed in the memorandum the less is the subscribers' risk, but the wider such objects the greater is the security of those who transact business with the company." What Lord Parker was contemplating was that third parties prop ..... X X X X Extracts X X X X X X X X Extracts X X X X
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