VocabuLaw

Ultra Vires Act

What is it and what does it mean?

Description of the legal term Ultra Vires Act:

Ultra vires is a Latin term that means “beyond the powers.” In British law, this term is used to delineate any act or decision made by an entity that falls outside the scope of its legal power or beyond what the law authorizes it to do. This can apply to official bodies, from government departments to local authorities, and corporate entities. When an act is considered ultra vires, it is void and has no legal effect, and it can potentially lead to legal action against the entity that has overstepped its bounds.

Ultra vires acts can occur in various contexts. For example, a company might pass a resolution that is beyond the powers granted to it by its articles of association. Or, a public authority may take action that is not within the limits set by legislation. The doctrine of ultra vires was originally a control mechanism in administrative law to prevent abuse of power and ensure that public authorities adhere to the law. However, over time, this doctrine has expanded to include private legal entities such as corporations.

In the administrative context, the ultra vires doctrine has been essential in establishing judicial review. Courts have used this principle to hold government bodies accountable for their actions. When an administrative body makes a decision, it must do so within the limits of the authority given to it by Parliament. If it acts beyond its powers, the decision can be subjected to judicial review and possibly be invalidated.

Similarly, in corporate law, the ultra vires doctrine protects shareholders and creditors by ensuring that the company directors or management operate within the authority given to them by the company’s constitution and the Companies Act. Before the Companies Act 1989 and other moderating reforms, if a company acted ultra vires, the act was void, which could be harsh for third parties who entered into contracts with the company in good faith. Nowadays, there are certain protections in place to ensure that third parties dealing with a company are not unfairly disadvantaged if the act was ultra vires.

The significance of ultra vires acts continues to evolve, as legal reforms aim to balance the need for entities to follow the laws and the reality that overly strict application of the doctrine could lead to unfairness or impracticalities in certain situations.

Legal context in which the term Ultra Vires Act may be used:

An example within local government could involve a local council making a decision to invest in a commercial property enterprise, despite this activity not being within the council’s statutory powers as outlined in local government law. The council’s decision can be challenged by a local citizen or group, who may argue that the council is acting ultra vires by investing in areas not permitted by the law. A British court could agree with this challenge and declare the decision void. The importance of such checks is that they maintain democratic integrity by ensuring public institutions cannot wield power arbitrarily and outside the parameters defined by legislation.

Another example could be a company that issues shares without the necessary authority outlined in its articles of association or failing to follow the proper procedure as per company law. An aggrieved shareholder could take this matter to court claiming the share issuance to be an ultra vires act. The court may then decide to void the shares issued. Reforms have, however, moderated the impact of the ultra vires doctrine in corporate law, notably through ‘constructive notice’ and later reforms, focusing on enabling companies to cure such deficits in authority retroactively, thus protecting third parties who may otherwise suffer due to rigid interpretations of corporate powers.

The doctrine of ultra vires acts remains a cornerstone in British law, instrumental in maintaining legal boundaries for organizations, ensuring adherence to legislative and constitutional provisions, and offering a basis for legal recourse when those boundaries are overstepped. It highlights the underlying principle that lawful authority is circumscribed and that actions taken outside such authority can be scrutinized and potentially invalidated to protect both public interest and private rights.

This website is for informational purposes only and may contain inaccuracies. It should not be used as a substitute for professional legal advice.