Attorney General v. Great Eastern Railway, (1880) 5 AC 473

The given case talks about the concept of ultra vires and its ambit, the concept of ultra vires talks about those acts that are not mentioned in the Memorandum of Association of the company and are considered as beyond the power of the company. The case discusses those acts which are not specifically mentioned but consequentially dependent on those provisions which are mentioned in MOA, therefore those provisions ought not to be considered as ultra vires, unless expressly prohibited by the company or law.
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Introduction

This case of Attorney General v. Great Eastern Railway case, is concerned with the doctrine of ultra vires. As for the facts of the case a company was given permission to construct a railway through an act of the parliament. However, when two other companies collaborated with the first one to provide rolling stock for the railway an injunction was brought to stop the same. In the first place, the members of the company were sanctioned to hold the registered objects of the company, and when any of the members of the company is of the view that the act is ultra vires, they can ask for an injunction order to restrain the particular act and protect it. It was held that the contract was not an ultra virus and was justified by the courts stating that when a statute is passed, taking reasonable steps to achieve the purpose of the statue come under the ambit of the powers that the statute provides. The court observed that the doctrine of ultra vires shall be retained but it should be reasonably applied onto incidental objects also. Hence, the company can pursue necessary as well as incidental objects.

Facts of the case

In the given case, an appeal was filed before the House of Lords regarding the fact that the Great Eastern Railway Company entered into an agreement with two other companies (London and Blackwall Railway Companies) for the construction and extension of the railways. The agreement could be formed by taking a lease or transferring an existing lease. The Southend Company is the owner of the railways and the contract of the railways’ owner with the lessees is mentioned in the preamble of the company. It is mentioned in their preamble that the companies can enter into any agreement for the purpose of construction and extension of railways. The Great Eastern Railway Company entered into an agreement with the other companies for supplying or manufacturing of rolling stock, carriages locomotive power to the Tilbury Company. Therefore, the case filed questions whether the respondent company supplying locomotives is doing a valid act or not in conformity with the memorandum of the company.

Issues

  • Whether the respondent company is authorised and has the power to hire any other company for supplying the locomotives and rolling stock?
  • Whether if the acts performed are dependent upon the provisions of the object clause of memorandum are ultra vires or not?

Summary of the Judgement

In the given case, the house of Lords held that, a company cannot be expressly authorised and empowered with the implied capacity and power to carry on the transactions of the business that are necessary for the functioning of the company. These transactions need to be fulfilled whether they are provided in the memorandum of company or not. The House of Lords held that the act is not ultra vires. Powers granted by law shall include the right to take all the appropriate measures to achieve the statutory purpose: whatever may be considered fairly incidental or consequential to those items which the legislature has approved, unless prohibited. The court is also of the view that no company can devote any part of its funds too an object which is neither essential nor incidental to the fulfilment of its objects, how beneficial that act might seem to be. Lord Selborne LC is of the opinion that doctrine can be applied whenever the acts are not performed in uniformity or dependency on the object clause of memorandum. Lord Watson opined that the principles of Ashbury case are equally applicable to any company incorporated under the Act of Parliament. Lord Blackburn said that any company incorporated for certain specified reasons and under the act given certain rights for the same, the acts performed by the company cannot be prohibited if performed within the ambit. The bench is of the opinion that the Eastern Company can provide locomotive power and carriages to the Tilbury Company as it is working by depending of the provisions mentioned in memorandum of the company.

Analysis

The House of Lords appropriately justified its decision and to make it more reasonable it widened the scope of the Act, so that if any of the objects or actions that need to be performed consequently dependent upon the main provisions of the object clause of the memorandum and to carry out all the acts in a reasonable and fair manner. More specifically, the House of Lords expressed the opinion that a company incorporated under the Companies Act has the right to do only those acts that are permitted by the object clause of its memorandum and any provision not approved by the memorandum is ultra vires and the same cannot be ratified and made valid and applicable only without the consent of all the members. The court in Attorney General v. Great Eastern Railway case,while delivering its decision relied upon several laid down judicial precedent and the laws lay down by the legislature. The House of Lords in Attorney-General v. Great Eastern Railway case, relied upon the decision of the Ashbury case, that if a contract or act is done beyond the provisions of the object clause of the memorandum then it is considered as a void act. Even if the shareholders permit to do the act, it does not make the acts performed valid.

Conclusion

In Attorney General v. Great Eastern Railway case, after the five years of the decision of the Ashbury case, doctrine of ultra vires was seen through a different perspective. Earlier it was considered that if the act performed is not in uniformity with the object clause of the memorandum then it is not a valid act. However, the view changed in the Attorney General v. Great Eastern Railway case, if the acts performed are dependent upon the provisions of the object clause of the memorandum then the acts performed are valid unless expressly prohibited by law.

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