Cotman v. Brougham[1918-19] All E.R. Rep. 265(HL)

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Sub-clause (1) of the objects clause (cl. 3) of the memorandum of association of the E.
company, authorised the company to develop certain property abroad. The remaining subclauses of cl. 3 set out a variety of objects, including the promotion of other companies and
dealing in their shares, and concluded “the objects set forth in any sub-clause of this clause
shall not, except when the context expressly so requires, be in any wise limited or restricted
by reference to or inference from the terms of any other sub-clause, or by the name of the
company. None of such sub-clauses or the object therein specified or the powers thereby
conferred shall be deemed subsidiary or auxiliary merely to the objects mentioned in the first
sub-clause of this clause, but the company shall have full power to exercise all or any of the
powers conferred by any part of this clause in any part of the world, and notwithstanding that
the business, undertaking, property, or acts proposed to be transacted, acquired, dealt with, or
performed do not fall within the objects of sub-cl. 1.” The company underwrote and took up
shares in another company the business of which was not connected with the E. company or
with the objects set out in cl. 3(1). On a summons in the liquidation of the other company it
was contended that this transaction was ultra vires the E. company.
Held: as the registrar had accepted the memorandum of the E. company, and granted a
certificate of incorporation, the validity of the memorandum could not be challenged, and its
memorandum must be construed as it stood, and so the transaction was ultra vires.
Per LORD WRENBURY: Before registering a memorandum of association the registrar
ought to consider whether the requirements of the Companies Acts have been complied with,
and to refuse registration if he conceives that they have not. The memorandum must delimit
and identify the field of industry within which the corporate activities are to be confined.
Per LORD ATKINSON and LORD PARKER: For the purpose of determining whether a
company’s substratum be gone, it may be necessary to distinguish between power and object,
and to determine what is the main or paramount object of the company, but this is not
necessary where a transaction is impeached as ultra vires.
LORD FINLAY, LC. – The Essequibo Rubber and Tobacco Estates, Ltd., is a company
which was registered on April 6, 1910. The memorandum of the association is one of a type
which unfortunately has become common. The Companies (Consolidation) Act, 1908
requires that the memorandum of association should set out (inter alia) “the objects of the
company” (s. 3). The memorandum of this company in cl. 3 set out a vast variety of objects
and wound up with the following extraordinary provision:
“(30) The objects set forth in any sub-clause of this clause shall not, except when
the context expressly so requires, be in anywise limited or restricted by reference to
or inference from the terms of any other sub-clause, or by the name of the company.
None of such sub-clauses or the objects therein specified or the powers thereby
conferred shall be deemed subsidiary or auxiliary merely to the objects mentioned in
the first sub-clause of this clause, but the company shall have full power to exercise
all or any of the powers conferred by any part of this clause in any part of the world,

and notwithstanding that the business, undertaking, property, or acts proposed to be
transacted, acquired, dealt with, or performed to do not fall within the objects of the
first sub-clause of this clause.”
WARRINGTON, L.J., expressed some doubt in his judgment in this case whether a
memorandum setting out such a profusion of objects was a compliance with the Act, and it is
possible that in some future case the question may arise on application for a mandamus if the
registrar should refuse registration, taking the ground that the Act requires that the
memorandum should be in such a form that the real objects of the company are made
intelligible to the public.
In the present case no such question arises. The registrar accepted the memorandum of
association and gave a certificate of incorporation, and that certificate is conclusive. Section
17 of the Act enacts that
“A certificate of incorporation given by the registrar in respect of any association
shall be conclusive evidence that all the requirements of this Act in respect of
registration and of matters precedent and incidental thereto have been complied with,
and that the association is a company authorised to be registered and duly registered
under this Act.”
The question is whether it was intra vires of the Essequibo Rubber Company to enter into
the transaction which has ended in the company’s name being put upon the B list of
contributories to another company, the Anglo-Cuban Oil, Bitumen and Asphalt Co., Ltd. The
Essequibo company underwrote shares in the Anglo-Cuban company and received an
allotment of 17,200 such shares. An order was made for a compulsory liquidation of the
Anglo-Cuban company, and it was ordered that the Essequibo company, which is already in
liquidation, should be placed on the B list of contributories in respect of £14,046 due upon
these shares. An application was made to strike out the name of the Essequibo company from
the list of contributories on the ground that the whole transaction was ultra vires. NEVILLE,
J., refused the application, and he was affirmed by the Court of Appeal. The question
depends on the interpretation to be put upon the third clause of the memorandum of
association. This clause has thirty heads dealing with a multitude of objects and of powers. It
is only necessary to refer to the eighth and twelfth heads of that clause, in addition to the
general provision at the end of the clause which I have already quoted:
“(8) To promote, form, issue, and be interested in any company or companies,
either in Great Britain, British Guiana, or elsewhere, and take, acquire, hold, transfer,
sell, surrender, or otherwise dispose of and deal in shares, stocks, bonds, obligations,
debentures, debenture stock, script or securities in or of any such company, and to
transfer to any such company any property of this company, and to subsidise or
otherwise assist any such company; and in the event of any property sold to such
company proving unsatisfactory, to make over to it, gratuitously or otherwise, any
other property or rights, either in lien of the property sold or transferred or
otherwise…
(12) To buy or otherwise acquire in any way and hold, sell, or deal with or in any
stocks, shares, securities, or obligations of any Government, authority, corporation,

or company which may be considered capable of being profitably held or dealt in or
with by the company.”
I agree with both courts below in thinking that it is impossible to say that the acquisition
of these powers was ultra vires of the Essequibo company.
It is well worthy of consideration whether, if it should appear that the law as it stands is
not sufficient to cope with such abuses as are exemplified in the memorandum now in
consideration, the Companies Act should not be amended so as to bring the practice into
conformity with what must have been the intention of the framers of the Act. But the only
question before us now is the construction of the memorandum as it stands, and in my opinion
this appeal must be dismissed with costs.
LORD PARKER (read by LORD ATKINSON) – I agree. It may well be that the
memorandum of association in the present case is not framed on the lines contemplated by the
Companies (Consolidation) Act, 1908. This point would no doubt have been open to
argument on proceedings for a mandamus had the registrar refused to accept it. Possibly also
it might have been raised in proceedings on behalf of the Crown to cancel the company’s
certificate of incorporation. It cannot, however, be raised in these proceedings because the
seventeenth section of the Act makes the certificate of incorporation conclusive evidence that
(inter alia) the provisions of S. 3 as to stating the objects of the company in its memorandum
of association have been duly complied with. The only point, therefore, open to your
Lordship’s House is the true construction of such memorandum, and on this point I find
myself in such complete agreement with the Lord Chancellor that I have little to add. Clause
3(8) and (12) of the memorandum are in their terms amply wide enough to cover the
transaction in question, and the concluding words of sub-cl. (30) were clearly introduced to
preclude the operation of these (among other) sub-clauses being cut down by considerations.
Counsel for the liquidator suggested that, in considering whether a particular transaction
was or was not ultra vires a company, regard ought to be had to the question whether at the
date of the transaction the company could have been wound-up on the ground that its
substratum had failed. Upon consideration I cannot accept this suggestion. The question
whether or not a company can be wound-up for failure of substratum is a question of equity
between a company and its shareholders. The question whether or not a transaction is ultra
vires is a question of law between the company and a third party. The truth is that the
statement of a company’s objects in its memorandum is intended to serve a double purpose.
In the first place, it gives protection to subscribers, who learn from it the purposes to which
their money can be applied. In the second place, it gives protection to persons who deal with
the company and who can infer from it the extent of the company’s powers. The narrower the
objects expressed in the memorandum the less is the subscribers’ risk, but the wider such
objects the greater is the security of those who transact business with the company.
Moreover, experience soon showed that persons who transact business with companies do not
like having to depend on inference when the validity of a proposed transaction is in question.
Even a power to borrow money could not always be safely inferred, much less such a power
as that of underwriting shares in another company. Thus arose the practice of specifying
powers as objects, a practice rendered possible by the fact that there is not statutory limit on

the number of objects which may be specified. But even thus, a person proposing to deal with
a company could not be absolutely safe, for powers specified as objects might be read as
ancillary to and exercisable only for the purpose of attaining what might be held to be the
company’s main or paramount object and on this construction no one could be quite certain
whether the court would not hold any proposed transaction to be ultra vires. At any rate, all
the surrounding circumstances would require investigation. Fresh clauses were framed to
meet this difficulty, and the result is the modern memorandum of association with its
multifarious list of objects and powers specified as objects, and its clauses designed to prevent
any specified object being read as ancillary to some other object. For the purpose of
determining whether a company’s substratum be gone, it may be necessary to distinguish
between power and object, and to determine what is the main or paramount object of the
company, but I do not think this is necessary where a transaction is impeached as ultra vires.
A person who deals with a company is entitled to assume that a company can do everything
which it is expressly authorised to do by its memorandum of association, and need not
investigate the equities between the company and its shareholders.
The only other point which I need mention is the company’s name. In construing a
memorandum of association, the name of the company, being part of the memorandum can,
of course, be considered; but where the operative part of the memorandum is clear and
unambiguous, I do not think its obvious meaning ought to be cut down or enlarged by
reference to the name of the company. It should be remembered that the name is susceptible
of alteration, and it would be impossible to hold that such alteration could diminish or enlarge
company’s powers. On the other hand the name may be very material if it be necessary to
consider what is the company’s main or paramount object in order to see whether its
substratum is gone. I think the appeal should be dismissed with costs.
LORD WRENBURY – On April 16, 1910, the Essequibo Rubber and Tobacco Estates,
Ltd. were incorporated by registration under the Companies (Consolidation) Act, 1908. To
obtain the advantage of that incorporation, the law required that “the memorandum must
state…the objects of the company”: [S. 3(1)(iii)]. There is some guidance furnished by the
Act as to the meaning of these words. There are other matters which the Act requires to be
stated in the memorandum. Section 7 and S. 45 speak of all collectively as “conditions
contained” in the memorandum of association; S. 41 as “conditions of its memorandum.”
Section 9 speaks of the “provisions of its memorandum” with respect to the objects. Section
9 shows that the Act contemplates that the company will as a consequence of “the provisions
of its memorandum” have what the Act calls “its business” and will have a “main purpose.”
Section 9(e) speaks of the “objects specified in the memorandum.” The meaning of the Act in
this respect is not without authority, which, at any rate, is some guidance. One ground for
winding up is that the court is of opinion that it is just and equitable that the company should
be wound-up: S. 129(vi). Re German Date Coffee Co. [(1882) 20 Ch. D. 169] is the leading
authority for the proposition that when that which is called the substratum of the company is
gone, a winding-up order may be made under S. 129(vi). The substratum is gone when the
“main purpose” has become impossible. This class of cases recognises the existence of a
“main purpose” in a memorandum which names a host of acts in the clause which has to state
the objects.

I cannot doubt that, when the Act says that the memorandum must “state the objects”, the
meaning that it must specify the objects; that it must delimit and identify the objects in such
plain and unambiguous manner that the reader can identify the field of industry within which
the corporate activities are to be confined. The purpose, I apprehend, is twofold. The first is
that the intending corporation who contemplates the investment of his capital shall know
within what field it is to be put at risk. The second is that anyone who shall deal with the
company shall know without reasonable doubt whether the contractual relation into which he
contemplates entering with the company is one relating to a matter within its corporate
objects. The objects of the company and the powers of the company to be exercised in
effecting the objects are different things. Powers are not required to be and ought not to be
specified in the memorandum. The Act intended that the company, if it be a trading company,
should by its memorandum define the trade, not that it should specify the various acts which it
should be within the power of the company to do in carrying on the trade. The third schedule
of the Act contains model forms of memoranda of association. These ought to be followed.
Section 118 enacts that those forms, “or forms as near thereto as circumstances admit”, shall
be used in all matters to which those forms refer.
There has grown up a pernicious practice of registering memoranda of association which
under the clause relating to objects contain paragraph after paragraph not specifying or
delimiting the proposed trade or purpose, but confusing power with purpose and indicating
every class of act which the corporation is to have power to do. The practice is not one of
recent growth. It was in active operation when I was a junior at the Bar. After a vain struggle
I had to yield to it, contrary to my own convictions. It has arrived now at a point at which the
fact is that the function of the memorandum is taken to be, not to specify, not to disclose, but
to bury beneath a mass of words the real object or objects of the company, with the intent that
every conceivable form of activity shall be found included somewhere within its terms. The
present is the very worst case of the kind that I have seen. Such a memorandum is not, I think,
a compliance with the Act.
The Act throws on the registrar a great responsibility when it provides, as it does, that his
certificate of incorporation “shall be conclusive evidence that all the requirements of this Act
in respect of registration and of matters precedent and incidental thereto have been complied
with.” Before registering a memorandum of association the registrar ought to consider
whether the requirements of the Act have been complied with and to refuse registration if he
conceives that they have not, bearing in mind that if he does not take that course he may put
the court in the position in which your Lordships find yourselves in the present case – a
position in which it must assume that all requirements in respect of matters precedent and
incidental to registration have been complied with, and confine yourselves to the construction
of the document. I shall take care that the committee which is now sitting to inquire as to
amendments desirable in the law relating to joint stock companies looks into this question and
considers whether amendment is desirable both to strengthen the requirements as to definition
of objects and to control in some proper way the finality of the registrar’s certificate.
I turn to consider the transaction in question in this case and to see whether it falls within
the company’s objects upon a true construction of the memorandum of association, assuming,
as I am bound to do, that this is a valid instrument. The transaction was as follows. A

company, called the Anglo-Cuban Oil, Bitumen and Asphalt Co., Ltd., was in November,
1910, being promoted by a company called the London and Mexico Exploitation Co., Ltd.
The Essequibo company, in November, 1910, sub-underwrote 20,000 shares of 10s. each in
the Anglo-Cuban company for a commission of £600 in cash and £5,000 in cash or shares
upon one Chansay, who was the promoter undertaking to purchase at par on or before
November 30, 1911, any shares which the Essequibo company might have to take up. The
Essequibo company had to take up 17,200 shares. On November 29, 1910, they applied for
that number, and they were allotted to them. On September 6, 1912, they transferred the
shares to the London and Mexican company. On November 12, 1912, an order was made to
wind-up the Anglo-Cuban company. The Essequibo company have been put upon the B list of
contributories. They, by their liquidator (for they also are in liquidation), applied to vary the B
list by excluding their name therefrom. The ground of that application was that the transaction
was ultra vires the Essequibo company. The only question open on this appeal is whether
upon the construction of the memorandum of association the transaction was ultra vires. The
construction of the instrument does not admit of reasonable doubt. Clause 3(8) and (12) are in
terms so wide that an obligation in a contingent event to take up shares falls within them. The
language of cl. 3(30) is such that I cannot say that such a transaction was ultra vires because it
was not ancillary to or connected with or in furtherance of something which I find elsewhere
in the company’s memorandum to have been “its business.” Upon the narrow question upon
which alone it is, unfortunately, within the competence of this House to determine, I think the
decision below was right. It follows that this appeal must be dismissed with costs.