Officers and Members of Company in UK Law

A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions. A corporation has none of these: it must act through living persons, though not always one or the same person. Then the person who acts is not speaking or acting for the company. He is acting as the company and his mind which directs his acts is the mind of the company. If it is a guilty mind then that guilt is the guilt of the company.

Normally the Board of Directors, the Managing Director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company. But the Board of Directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them.

Though not essential to my reasoning, I also consider that the principle established in In re Hampshire Land Company, Belmont Finance and Attorney General's Reference (No 2 of 1982) points towards the same result It prevents a company being treated as party to a fraud committed by its officers "on" or "against" the company, at least in the context of claims by the company for redress for offences committed against the company: Belmont Finance, 261D-H, per Buckley LJ, and 271F-G, per Goff LJ, and Attorney General's Reference (No 2 of 1982), p.640A-B, per Kerr LJ; and see Edwards Karwacki Smith & Co. Pty. Ltd. v Jacka Nominees Pty. Ltd. (1994) 15 ACSR 502, 515-517.

Mr Sumption submits that the principle has no present relevance for two reasons. The first is based on its original rationale: that, since an agent deceiving a company will not disclose his own fraud to the company, the company cannot be imputed with knowledge of or treated as party to the fraud.

The words are a recognition of the fact that a limited company is more than a mere judicial entity, with a personality in law of its own: that there is room in company law for recognition of the fact that behind it, or amongst it, there are individuals, with rights, expectations and obligations inter se which are not necessarily submerged in the company structure.

What emerges is that, in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of "proximity" or "neighbourhood" and that the situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon the one party for the benefit of the other.

For reasons which will appear, in my judgment, the use of the phrase "ultra vires" should be restricted to those cases where the transaction is beyond the capacity of the company and therefore wholly void.