Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10

Key point

  • Implication is treated as part of the interpretation process, the test being whether the reasonable person would imply a term

Facts

  • Articles of association of Belize Telecom stipulated that shareholders that held a certain share percentage could appoint a fixed number of directors
  • D purchased a share percentage that entitled it to appoint two directors to the board but subsequently went into liquidation
  • The articles provided that directors could only be removed on grounds such as lunacy and bankruptcy
  • C sought a declaration that the articles include an implied term that directors can be removed when the shareholder with the required shareholding to support his appointment ceased to exist

Held (Privy Council)

  • The Privy Council implied the term into the articles of association

Lord Hoffmann

Construction

  • “The Board will make some general observations about the process of implication. The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association. It cannot introduce terms to make it fairer or more reasonable. It is concerned only to discover what the instrument means. However, that meaning is not necessarily or always what the authors or parties to the document would have intended. It is the meaning which the instrument would convey to a reasonable person having all the background knowledge which would reasonably be available to the audience to whom the instrument is addressed.  It is this objective meaning which is conventionally called the intention of the parties, or the intention of Parliament, or the intention of whatever person or body was or is deemed to have been the author of the instrument.”: [16]

Implication as a form of construction

  • ‘The process of implying a term is part of the exercise of interpretation’: [25]
  • The implication of the term is not an addition to the instrument. It only spells out what the instrument means: [18]
  • ‘There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?’: [21]
  • The other formulations of implication are not distinct tests and there is a danger with detaching them from the process of construction: [22]

Traditional tests

Business efficacy test

  • In the phrase ‘necessary to give business efficacy to the contract’, ‘business’ simply means that a reasonable person would consider whether a different construction would frustrate the parties’ business purposes and ‘necessary’ means that the implied term cannot just be reasonable, but it must be what the contract actually means: [22] – [23]
  • The danger of this test is that under it an implication might work perfectly well but might be contradictory to a reasonable interpretation of the contract: [23]

Officious bystander test

  • The phrase ‘goes without saying’ simply means what a reasonable person would understand it to mean: [25]
  • Its danger is that it creates a misconception that the need for the implied term must be immediately apparent, when it might be obvious only through careful consideration: [25]

Current case

  • The implication of the term is necessary to avoid defeating the overriding purpose of the machinery for appointing directors which was to ensure that the board of directors reflected the type and degree of shareholder interests

Commentary

  • 3 important points from Lord Hoffmann’s judgment
    • A parallel drawn between implication and interpretation in principle
    • It is a break from the past by diminishing traditional tests
    • The central point: ‘the process of implying a term is part of the exercise of interpretation’
  • It is interesting to note that Lord Hoffmann in Chartbrook also sought to bring rectification for common mistake in line with the principles of contextual interpretation he laid down in ICS v West Bromwich
  • Lord Hoffmann’s judgments in Chartbrook and this case has blurred the lines between interpretation, rectification and implication as separate doctrines