Attorney General of Belize v Belize Telecom Ltd
Privy Council (Belize)
Citations: [2009] UKPC 10; [2009] 1 WLR 1988; [2009] 2 All ER 1127; [2009] 2 All ER (Comm) 1; [2009] BCC 433; [2009] 2 BCLC 148.
Facts
The Government of Belize formed a company to provide telecommunications services in the country. The aim was for the company to take over operations from the public body that previously provided those services. This would allow the Government to privatise the market while still retaining some control. To this end, the company had three kinds of shares. These were known as ‘B-shares’, ‘C-shares’ and a special kind of share-type which could only be owned by a Government-approved entity. The kind of share owned determined who could appoint which directors, as follows:
- Owners of the special share-type had exclusive powers to appoint and remove two of the eight company directors.
- B-share-owners could appoint another two of those directors, while C share-owners would appoint the remaining four.
- If special share-type owner had 37.5% of the C-shares, they could appoint two of the four C-share directors. They could do this even if the majority of the remaining C-share-owners did not agree.
The defendant bought the special share-type, a long with 37.5% of the C-shares. They appointed two of the directors using its special shares and two using their C-shares. The defendant later ran into financial difficulties, and lost its 37.5% C-shares. The company’s Articles of Association did not say what should happen to the C-share directors it appointed in this scenario. The claimant sought a declaration that the two directors should vacate office. They argued that there was an implied term in the Articles requiring this.
Issue(s)
- Did the implied term proposed by the claimant exist?
Decision
The Privy Council granted the declaration. The overriding purpose of the Articles’ machinery for appointing and removing directors was to ensure that the board reflected the appropriate balance of interests between the various kinds of shareholders. In light of this, there had to be an implied term requiring the two directors to vacate office if a special-share-owner lost their 37.5% C-share-holding.
This Case is Authority For…
The Court has no power to improve contractual documents. It is limited to discovering what the parties intended through implication and interpretation. As Lord Hoffman explained:
‘The question of implication arises when the instrument does not expressly provide for what is to happen when some event occurs. The most usual inference in such a case is that nothing is to happen. If the parties had intended something to happen, the instrument would have said so….If the event has caused loss to one or other of the parties, the loss lies where it falls.’
When deciding whether to imply a term, the court must consider whether that term ‘would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean…the implication of the term is not an addition to the instrument. It only spells out what the instrument means.’
Other
Lord Hoffman noted that two tests are sometimes used to determine when a term should be implied:
- The Officious Bystander Test: Whether an officious and reasonable bystander would think it was obvious that the parties would have included the term in the contract had they been asked at the time of contracting;
- The Business Necessity Test: Whether the term is necessary to give business efficacy to the contract.
Lord Hoffman thought that these were not two separate tests. Rather, they were aspects of the same test: what should the instrument reasonably be understood to mean? He argued that there were problems treating these two tests as sufficient on their own. For example, the express terms may technically work perfectly well in business in a way that contradicts what a reasonable person would consider the contract to mean.
