Answering techniques during exam
Mid Sem Sep 2008 Exam Paper: Answer to Part B, Q2 (c)
This question asks you about the ultra vires rule, which means when the
company acts" out of its power"....I am attaching the whole - full case of
Ashbury Railway in attachment format. We will do this case during Tutorial
5 as well.
a) “Any matter not expressly or impliedly authorised by a company’s object clause
would be one which would be beyond the capacity of the company or ultra vires……”
House of Lord in the case of Ashbury Railway Carriage and Iron Co v Riche
With reference to the Companies Act 1965 and relevant case, discuss the development of
doctrine of ultra vires and its application in Malaysia.
What you must do to answer this question .
Scenario one: You are in exam hall - never read abt this question before, so how do
you answer? you have another question you know the answer better...yahoo, jump to
that question, dont do this question.
Scenario two : You are in exam hall - never read abt this question before, so how do
you answer? The other question is more difficult. You are going to try this one..
1) Don't panic
2) You know a little about ultra vires rules - start writing about it. ( we have
discussed this case in class as well) - ultra vires means out side of companies power.
"The rule states that a contractual transaction which goes beyond a company’s
corporate capacity is a void transaction. If it is held to be void, not even the unanimous
consent of the company’s shareholders could validate the transaction."
3) Mention that case holds the "hallmark" of the meaning of ultra vires.....blah blah
4) You remember you read about this on chapter/topic 2 - topic 2 is about MA, right?
so talk a little about MA adn write down what you think the situation Malaysia is (you
dont know but try to make an intelligent guess, our Companies Act is much later than
UK companies Act, so definitely we have certain sections allocated to it to make
strong i.e. company cannot act outseide its power).
((Question allocates 10 marks, You would surely get at least 5 to 6 marks for this ...Bravo.))
Scenario three: You know the answer, this is how you should write it down.
1) Write a proper intro about Ultra Vires means -
"The determination of a company’s capacity to enter into contractual obligations was historically
dominated by the ultra vires rule.The rule states that a contractual transaction which goes
beyond a company’scorporate capacity is a void transaction. If it is held to be void, not even the
unanimous consent of the company’s shareholders could validate the transaction........"
2) write the facts of Ashbury's case briefly....
."Ashbury Railway Carriage and Iron Co v Riche Facts:
The company was incorporated under the Companies Act 1862 and had as its objects the
following: "The object for which the company is established are to make and sell, or
lend on hire,railway-carriages and wagons, and all kinds of railway plant, fittings,
machinery, and rollingstock;to carry on the business of mechanical engineers and
general contractors; to
purchase and sell, as merchants, timber, coal, metals, or other materials; and to buy
and sell any such materials on commission, or as agents."
It entered into a contract to finance the building of a railway in Belgium by Riche but later
wanted to get out of the contract. It consequently argued that is was UV. In the courts below,
much had turned on whether or not the transaction had been ratified because the company
had an old deed of settlement clause in its articles which provided for extension of the objects
by special resolution.
The House Of Lords held that the transaction was ultra vires. The company had only such objects
as were specified in its object clause. Benjamin QC had argued the ratification point but the HOL
rejected this argument on the basis that the act was void and it was not possible to ratify a void
3) Write more explanation ....
"By acting as finance agents the company had acted ultra vires; the transaction was void. The
justification for the HOLs’ strict interpretation of the CA 1862, and indeed the rationale for the UV
rule, was couched in terms of both shareholder and creditor protection. The UV rule protected
shareholders by allowing them a right to seek an injunction to restrain the company from
entering into an UV transaction, or if a company’s main object (substratum) had failed, by
allowing a shareholder to petition to the court for a winding-up order.".........."The UV rule was
not conducive to commercial business in so far as a person contracting with a company was
deemed to have constructive notice of the company’s object clause. A person who dealt with a
company could not therefore subsequently complain if a transaction, to which he was a party,
conflicted with a company’s object clause and was avoided by the company. In an attempt to
rectify the restrictive nature of the UV rule, the judiciary was, in subsequent cases, to weaken the
strict approach taken by the House of Lords in Ashbury. Shortly after this case, the HOL realised
that its ruling had been somewhat draconian, and in the case of A-G v Great Eastern Railway Co,
it relaxed the rule by recognising implied powers which were reasonably incidental to the
carrying out of the express objects......."
4) Write about the situation in Malaysia ....compare with England....
The Position in England
The first statutory intervention was made following the recommendations of the Cohen
Committee report in 1945. By the Companies Act 1948, Parliament made it possible for
companies to alter their objects clause by the passing of a special resolution (today-
The Position in Malaysia
The Ultra Vires doctrine has been modified by
:S4 CA 1985). Whilst this reform gave companies more flexibility and scope to alter the direction
of their corporate purposes, it obviously did not protect third parties in situations where a
company entered into a new type of business venture without having altered its objects
clause." ........... :S20(1) Companies Act 1965 which provides that “No act or purported act of a
company……….and no conveyance or transfer of property ……….to or by a company shall be
invalid by reason only of the fact that the company was without capacity or power to do the act
or to execute or take the conveyance or transfer.? Executive Aids Sdn Bhd v Kuala Lumpur
Finance Bhd  1 MLJ 89
5) State the conclusion ......whatever/however you think is right you can write it
((you will get 9 to 10 marks for this answer...))