AG Of Belize V Belize Telecom Applied: The New Test For Implied Terms

Mediterranean Salvage and Towage Ltd v Seamar Trading and Commerce Inc: The Reborn [2009] EWCA Civ 531 Two recent decisions, one delivered by the Privy Council1 and the other by the Court of Appeal2, have re-examined the circumstances in which the courts will find implied terms in contracts. Following the reformulation of the test by Lord Hoffmann in the Privy Council, the Court of Appeal has now applied it to an English decision.

In the Privy Council decision delivered earlier this year, Lord Hoffmann, after making some general observations in respect of the approach of the courts, stated that a court faced with a proposed implied term simply needs to ask one question: "Is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?" Lord Hoffmann highlighted that "the implication of the term is not an addition to the instrument. It only spells out what the instrument means".

The decision concerned the construction of the articles of association of a company incorporated to take over the undertaking of the Belize Telecommunications Authority, a public body which had been the monopoly provider of telecommunication services in Belize. The articles provided that any person who held both a "golden share" plus 37.5% or more of the issued ordinary shares in the company could appoint or remove two directors. The articles were silent as to what was to happen to the two directors if, as happened in this case, the golden shareholder no longer held the requisite percentage of ordinary shares.

Belize Telecom Ltd ("BTL"), which had been the golden shareholder, argued that the two directors were irremovable unless they resigned, died or vacated office under article 112 of the articles of association, which provided for vacation in circumstances of conflict of interest, bankruptcy or other specified reasons. The Attorney General of Belize (the "AG") argued that the articles should be construed as providing by implication that a director who had been appointed by a person holding the requisite percentage of ordinary shares vacated his office if his appointer ceased to hold such a shareholding.

The Court of Appeal of Belize held against the AG. However, Lord Hoffmann, who delivered the advice of the Privy Council, decided the appeal should be allowed.

Lord Hoffmann recited the established principle of construction that, in discovering what an instrument means, it may be that the meaning is not...