As I understand it, what we are doing here is providing that if a company does something that is outside its scope of activities as laid down in its memorandum, the officers of the company, be they directors or otherwise, will be liable for having done so but that a purchaser or other contracting party dealing with that company will not be in danger of having his contract set aside because this sort of activity was not visualised in the articles. That is the way I understand the recommendations of the Company Law Reform Committee.
SECTION 8
Question proposed : " That Section 8 stand part of the Bill ".
That is the correct understanding.
I do not think it is the correct interpretation of the section. As I read the section now, people who are contracting with the company must still go and read the memorandum of the company to see whether the memorandum includes express prohibition, because the last words of subsection (2) say :
" unless such provision expressly prohibited the doing by the company of such act or thing. "
I understood that the aim of the Law Reform Committee was to ensure that a contracting party would not have to go to the offices of the company and read the memorandum of the company—that such a party would only have to do it if something went wrong. The phrase " and is not to have express notice " undoubtedly means in the absence of something specific to the contrary. One of the things a contracting party should do to get express notice is to read the company's memorandum. That is what every solicitor must do when he is dealing with the affairs of a company. If he inspects the company's memorandum in the company's offices, then he is put under notice.
I agree that is not what is intended in the section. It does seem that an obligation would be put on a third party. From that point of view I think it will become necessary to amend that provision in order to convey its true meaning.
What is the purpose of this subsection ?
Take the ordinary law of principal and agent. Say I specifically instruct my agent to do a certain thing. Say I asked Deputy Costello to drive my car from here to the Hibernian Hotel down Moles-worth Street and in no other way. If he insists on driving to the hotel via Nassau Street and Dawson Street and he hurts somebody en route, I, as principal, am opted out of any obligation.
It was really the purpose of this subsection I was talking about. I fully understand the purpose of the section as a whole. Subsections (1) and (3) are clear, but what is the purpose of subsection (2) ?
To define " express notice " as set out in subsection (1), line 6.
I take it you are assuming that a third party has notice, by virtue of the fact that the company is there, that there are articles and a memorandum in existence and that if such articles and memorandum are in existence the third party has notice. Without this subsection, the articles and memorandum may be construable as giving, or not giving, a power of activity. The purpose of the subsection would be, I imagine, to make it clear that it is only where the articles are explored that the person will be deemed to have notice. Is that right ?
As I read the subsection, it is meant to give a bit more protection. Although it is meant to give a bit more protection, I think you might be better off leaving it out altogether. Subsection (1) provides relief for a person who had not at the time express notice.
What is " express notice " ? The difference between it and implied notice becomes very thin.
If you know what the prime objects of a company are. For instance, you would know that a building company would not have, as its principal operation, the printing of books—that would be express notice. If you have some reason for knowing what the memorandum contained but did not know it gave this discretion——
If you take out this subsection will you not impose the obligation of looking up the memorandum ?
Does this section correspond with the recommendations of the Company Law Reform Committee on Section 5 of the English Act of 1948 ?
No. To some extent, we are pioneering in this respect.
The Committee strongly recommended that the provisions of the 1948 English Act be adopted.
Surely there is a weakness in the subsection in the phrase " by reason of the fact that he was aware of some provision " ? That seems to me to be terribly vague. It is an inherent weakness of it because the awareness of some person could be held to cover almost anything.
Deputy Costello is probably correct when he says a person dealing with a company would have better protection if subsection (2) did not exist at all.
In the case of a general fact of law such as the rule that every company must have a memorandum as a matter of law and that therefore everybody knows there are a memorandum and articles of association, is that sufficient notice to put the purchaser or the contractor on the basis of having express notice ? If he is on notice of the existence of the memorandum, is he not then bound by it and is there not a necessity for doing what the Minister wants to do—to say that the person will be only deemed to have express notice for the purposes of this section if the articles are clear by being expressly prohibitive ?
That is not the intention.
I think we should clear our minds as to what we want. As I understand it, what we want is to provide that if any officer does anything that the company is not authorised to do that officer will be liable to the appropriate penalties but that if anybody who is a contractor with the company, merely because there is not included a permissive right and there is included a prohibition, that the contracting party cannot have his contract set aside unless it can be clearly shown he knew about it. Is not that what we want to do ?
That is the point.
If anybody wants to make a contract with a company it is not necessary for him to go to the company's offices and read the memorandum.
Deputy de Valera has raised the point that if we do not make some provision about it the court would interpret this matter on the basis that a person knows there is a memorandum and articles of association when he is dealing with a limited company.
Express notice means one must know and ascertain——
This is a statutory fact. An Act prescribes in effect— and everybody knows it—that you cannot have a company without having a memorandum. I should like that there would be protection from somebody who would come along and say that knowledge was express notice where articles of association were in existence. I am not a lawyer—at least, not now—and what I was about to suggest was that, agreeing with the principle advocated by Deputy Sweetman, you would want to make it clear cut and say that a person would not be deemed to have express notice of the articles of association——
I do not think we would be allowed to go that far. There would be circumstances in trade where a person seeking a contract would have to act quickly against very active competition.
Would you not put in a provision making it explicitly not necessary to search the articles of association ? Would that be dangerous ?
If there is no objection—I think it is the feeling of the Committee—I can have the section re-examined to see that it is properly expressed to achieve that intention.
Subsection (3) says :
" The Court may, on the application of any member or holder of debentures of a company, restrain such company from doing any act or thing which the company has no power to do. "
This type of thing arises in lots of these statutes where it is said that " the court may ". In some cases it is interpreted by the Central Office that you must proceed by plenary summons. There may be something in the Bill covering different matters but I think it should be made clear that the application should be made in a summary manner.
That would mean revising all the rules of court.
It will be necessary therefore to amend the rules of court.
Ordered : That the Debate be now adjourned.
The Committee adjourned at 12.30 p.m. until 2.30 p.m.