Restricted businesses and powers
- (1) A company must not
(a) carry on any business or exercise any power that it is restricted by its memorandum or articles from carrying on or exercising, or
(b) exercise any of its powers in a manner inconsistent with those restrictions in its memorandum or articles.
(2) No act of a company, including a transfer of property, rights or interests to or by the company, is invalid merely because the act contravenes subsection (1).”
This section does appear contradictory at first glance, seeming to allow companies to violate their articles where certain conditions can justify their actions. However, I think there is a much less cynical way to take this section: as a protective shield for the interests of third parties. Where a director transfers property, rights or interests to a third party in contravention of the company’s articles, the company cannot use s.33(1) to automatically make these transfers invalid.
To see if this is how the courts have interpreted this section, I looked up related cases on Westlaw. Only one case popped up, Barry v Kamloops Hangers Ltd., but it did include this useful tidbit: “Section 33 cannot be raised as a defence to third party claims, unless there is actual knowledge by the third party of the restriction”. I would say this is very consistent with the idea that s.33(2) is intended to limit the power of s.33(1)’s potential detrimental effects on third parties.
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Anna, I appreciate you taking the time to research a case regarding the scope of s.33(2). It is great to know that the jurisprudence has stated that s.33(2) has been interpreted to limit the power of s.33(1)’s potential detrimental effects on third parties. Thanks again!
Very interesting to have the jurisprudence – thanks Anna! This makes sense in terms of how I was thinking about s 33 – (1) seems to be a strong suggestion (strong mostly by being expressed in statute) that corporations should not do things forbidden by their constitutional documents, while (2) seems to mostly be present to allow extra room for equity and judicial discretion. If it’s been used to protect third party interests, I think that outcome supports that reading.
I agree with your thoughts on this Anna and thanks for doing the research. I find it interesting that there’s nothing further written about what would qualify as something that wouldn’t be invalid despite contravening subsection (1). I wonder if a court would apply the bona fide requirement and just what steps would be required on the part of a third-party. Do they need to have any knowledge of what a company is or isn’t allowed to do?