Then we will discuss them together. I shall begin by referring to amendment No. 11. On Second Reading, I made a reference to the fact that if the body were to be incorporated under the Companies Act, it would give the benefit of section 8 to persons who traded with that body and who found themselves in difficulty if the company did something which they had no power to do and the persons dealing with the company did not know that the company did not have this power under the Act. I shall not waste the time of the House on the language of amendment No. 11. It is, quite simply, to repeal section 8 of the Companies Act of 1963 and to substitute "a body corporate to which a body corporate status relates."
The Minister has said he does not wish to be drawn into legal discussions on these matters but, unfortunately, legal discussions are necessary. In the course of some of his remarks, the Minister has referred to the position of certain chartered bodies. It is necessary to remind the House of the position of chartered bodies—that is to say bodies chartered by virtue of the exercise of the Royal Prerogative. I quote now from a recent edition of Palmer's standard textbook on company law to show that there is a difference between a chartered company and a company formed under an Act of Parliament:
There is a difference of fundamental character between a chartered company and a company formed by or under an Act of Parliament. At common law a corporation created by royal charter, has power, as was determined in the Sutton's Hospital case, to deal with its property, to bind itself by contracts, and to do all such acts as an ordinary person can do, and so complete is this corporate autonomy that it is unaffected even by a direction contained in the creating charter in limitation of the corporate powers. For the common law has always held that such a direction of the Crown—though it may give the Crown a right to annul the charter if the direction is disregarded-cannot derogate from that plenary capacity with which the common law endows the company, even though the limitation is an essential part of the so-called bargain between the Crown and the corporation. This feature—the unrestricted corporate capacity of the chartered company—is in marked contrast to the strict delimitation to defined objects which is characteristic of all corporations created by, or under, an Act of Parliament. In short, the ultra vires doctrine, which applies to all corporations of the latter type, does not apply to chartered corporations.
The ultra vires doctrine will apply to the bodies to be incorporated pursuant to this Bill, that is to say, the bodies will be confined in their powers to the powers they take in the constitution which they establish. This matter came under consideration by a committee established by the United Kingdom Parliament and known as the Cohen Committee. I quote from paragraph 35 of the report:
The nature and effect of the ultra vires doctrine in relation to companies incorporated under the Companies Act, 1948, and its predecessors are concisely stated by the Cohen Committee in this passage from paragraph 11 of their report:
"The memorandum of a company defines its objects and a company's objects are limited to those expressly mentioned and such as are ancillary to the expressed objects. A contract made by the directors upon a matter not within the ambit of the company's objects is ultra vires the company, and, therefore, beyond the powers of the directors. This principle is intended to protect both those who deal with the company, and its shareholders.”
In paragraph 12 the Cohen Committee went on to refer to the practice "of drafting memoranda of association very widely and at great length so as to enable the company to engage in any form of activity in which it might conceivably at some later date wish to engage and so as to confer on it all ancillary powers which it might conceivably require in connection with such activities" and concluded that "in consequence the doctrine of ultra vires is an illusory protection for the shareholders and yet may be a pitfall for third parties dealing with the company...”
May I pause at this moment to ask the House to take it from me that amendment No. 10 is intended to remove the application of the ultra vires doctrine from bodies to be incorporated under this Bill?
The report continues:
The ready proposed by the Cohen Committee for this unsatisfactory state of affairs was that "every company... should, notwithstanding anything omitted from its memorandum of association, have as regards third parties the same powers as an individual" and that "existing provisions in memoranda as regards the powers of companies, and any like provisions introduced into memoranda in future should operate solely as a contract between a company and its shareholders as to the powers exercisable by the directors". In conjunction with this proposal the Cohen Committee expressed the view that "it would then be a sufficient safeguard if such provisions, i.e. provisions in memoranda as regards the powers of companies taking effect solely as a contract between a company and its shareholders as to the powers exercisable by the directors' were altered by special resolution without the necessity of obtaining the sanction of the Court."
Amendment No. 10 is designed to make those bodies, that is bodies which would be incorporated, as strong legally as bodies which were chartered by the Crown by virtue of its Royal Prerogative. I cannot think of anything which would more completely remove the embarrassments of the Minister in his negotiations with those bodies as this amendment conferring this power because the ultra vires doctrine is peculiar to the common law countries, if my understanding is correct, and such a doctrine does not exist in many continental countries. I do not think it exists under the Napoleonic code as that exists all over Europe and is imitated in other parts of the world.
I will give one incidence of the troubles created by the ultra vires doctrine, which is John Beauforte (London) Limited, 1 Chancery Division. 1953. This company was authorised by its memorandum of association to carry on the business of costumiers, gown makers and other activities ejusdem generis. The company decided to undertake the business of making veneered panels which was admittedly ultra vires and for this purpose erected a factory at Bristol. The company later went into compulsory liquidation. A number of proofs of debt were lodged which were rejected by the liquidator on the grounds that the contracts to which they related were ultra vires. Applications by way of appeal were lodged by three creditors, none of whom had actually realised that the veneer business was ultra vires. They lost in their proofs. They were not admitted to proof. They did not get their money back. In that particular case it was the people dealing with the company which went into liquidation who were in trouble.
In another case where the international body was established by body corporate status such, for example, as this sample document proposes, there is no bank in Ireland which would even lend those people bridging finance to do anything because it would be ultra vires the constitution established by body corporate status. If, however, my amendment is accepted they could borrow as freely as any chartered corporation can do. Amendment No. 10 is the one I would like to have accepted but if it is not acceptable then amendment No. 11 would at least put those people dealing with those bodies in the same position as they would be in if they were companies incorporated under the Companies Acts but the bodies themselves would suffer some disadvantage.
As this matter may be receiving further consideration I should tell the House that it was also considered by our Company Law Reform Committee in 1952 and so that there would be nothing disingenuous in what I say both it and the Jenkins Committee recommended a continuation of the ultra vires doctrine but did so on the grounds that in fact as a result of the development of the techniques of drafting memoranda of associations can be as long as from here to the end of the room because they put in power to do everything you can think of to be quite sure that you would never be in the position that you could not, in fact, enter safely into any particular contract.
The Minister has talked about those bodies being bothered about having to go to lawyers. I am doing my best to avoid their having to go to lawyers in making this particular proposal to the House because here they will really have a strong position. If they get an order under this Bill when it is enacted they will be in great difficulty in the matter of the extent of the powers they have. I would like Senator O'Higgins, Senator Mary Bourke and any others who have had an opportunity of looking at this to say what they think. I think the courts here would divide this document up into two parts and say that one part represents the powers this body has and the other part represents its internal constitution. It will be construed quite strictly. If the powers are limited and if they have taken only five powers under clause 3 of the constitution, they will be very restricted and find all sorts of things they want to do which they will not be able to do if it remains in that condition. On the other hand, if they want to get safe they will have to get sewn up into the sort of document which will drive the Minister mad. I recommend the consideration of the House particularly to amendment No. 10.