Mr Chao buys shares in a company called Good Life Limited (GLL). The constitution of GLL has a clause in it which restricts the activities of the company to doing business in women's fashions and accessories. Since incorporation the company's main products have been up market women's clothing. There are three directors; Bill, Rick and Pam who all have expertise in women's fashion and accessories.

Since the property market has been doing so well recently the board of directors of GLL decide to diversify into property development.The board passes a unanimous resolution to do so and starts inspecting properties for sale. Mr Chao is unaware of these developments.

GLL decides to raise finance for its new venture. It applies to Big Bank (BB) for a large loan. BB has been doing business with GLL for a long time and knows their business and each of the company directors very well due to the many previous dealings they have had. On the day that the loan is approved however Bill and Pam are away. Rick takes the company's senior accountant, Gina to see BB and introduces her as a director. Rick and Gina peruse the bank documentation which states that the purpose of the loan is buy property for development and then sign as directors. The bank receives the signed documents without comment and states it is ready to advance the loan.

Mr Chao learns about this the next day and wonders if the contract with BB is binding on GLL. He also wonders whether he could stop GLL investing in property since they have not yet bought any property.

Question :

Discuss the ultra vires doctrine of company law and its effect on the contract entered into between GLL and BB. Giving reasons; discuss whether the contract may or may not be valid under the Companies Act 1993. Can Mr Chao stop GLL investing in property?