Ultra vires under the CAMA
By Ani Ugochukwu Kingsley Esq.
The companies Allied Matters Acts did not abolish the ultra vires doctrine under the Nigeria company law. Rather, all it’s done is to modify the effect of the doctrine on an ultra vires transaction by a company in Nigeria.
The current CAMA has made up provisions removing the adverse effects of the common law doctrine. The current position on the doctrine is outlined as follows: that the doctrine is still applicable in Nigeria i.e. it has not been abolished, and the effect of the doctrine is not same as it previously was under the common law.
Under section 39(1),, there is the provision that a company shall not carry on any business not authorized by its memorandum and shall not exceed the powers conferred upon it by its memorandum or the Act. In other words, the CAMA retained the doctrine as encapsulated under the sub-section.
Then, the Act makes provisions to contend with the common law adverse effects of the prohibition. Section 39 (2) provides that a breach of the prohibition as contained in sub-section I may be asserted in any proceedings under section 300 to 313 (in other words, for the protection of the minority shareholder against oppressive or illegal acts of the majority), or under section 39(4).
Section 39 (4) provides that the court may, on the application of a member or a holder or trustee of the holders of any debenture secured by a floating charge, prohibit by injunction, the doing of any act of the conveyance or transfer of any property in breach of section 39 (1).
Its further provided that where the transaction sought to be prohibited under the proceeding are in respect of a contract to which the company is a party, the court may set aside the contract and prohibit its performance, and may allow to the company and the other party compensation for the loss or damage sustained thereby. Section 39 (3) provides that notwithstanding the prohibition in section 39 (1) “no act of a company and no conveyance or transfer of property to or by a company shall be invalid by reason of the fact that such act, conveyance or transfer was not done or made for the furtherance of any of the authorized business of the company or that company was otherwise exceeding its objects or powers.” Thus, although the company may be in breach of section 39 (1) or exercise power not in furtherance of its authorized business, persons dealing with the company may yet be protected since the breach does not make the act invalid.
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The combined effect of section 39 goes to differentiate between executed, and executory contract. Such section 2 and 4 deals on executory contract, that a member can go and secure an injunction to halt an ongoing / executory contract. But where the contract is already executed by the company and the party which is involved in the deal, what it entails is that only sub-section 3 can apply. Under its sub-section 5, any party who suffered damage as a result of failure or consequences of the contract, can claim damages. But the accruing damages must not be for expected profit or loss – that is to say that the court will not award damages for loss of anticipated profits in the transaction.
By virtue of section 68, the doctrine of constructive notice of the contents of registered documents of a company have been abrogated / abolished i.e. nobody is now presumed to know the contents of the memorandum and Articles of Association of a company simply because it’s registered at the Corporate Affairs Commission.
Furthermore, section 69 raises the presumption of regularity in favor of any person dealing with a company in Nigeria. Where the directors act contrary to the provisions of the Memorandum and Articles of the company, their acts bind the company and the third party will be left unaffected by the excesses of the directors of the company.
So, from the foregoing, it’s easy to see that even though the doctrine of ultra vires remains within the purview of our Laws, the effects of the said doctrine are no longer the same as it used to be under the common law. In other words, the harshness of the doctrine which had made people groan at its injustice under the common laws has now been countermanded by the current position of law on the doctrine.
The doctrine is less harsh than it used to be. Under section 38 (1) CAMA, a company is endowed with all the powers of a natural person. However, this is limited to power exercised to further its objects. The statement of a company’s objects lies in its protection to persons who deal with the company to know the purpose to which their cash is being applied. Secondly, it helps persons to infer the extent of the company’s powers.
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