“It Goes Without Saying” - A New Approach To Implied Terms

AG of Belize & Ors v Belize Telecom Ltd &

Anor (Privy Council)

Background

Belize Telecom Ltd ("the Company") was incorporated to

take over the undertaking of the Belize Telecommunications

Authority. The purpose of the incorporation was to allow the Belize

Government to sell all or part of its financial interest to

investors, whilst also retaining a degree of control over the

Company. The Articles of Association provided that holders of

certain classes of shares would have certain rights in relation to

running the company. The Articles provided that where the holder of

the Special Share also held 'C' shares to the amount of

37.5% or more of the issued share capital they would be entitled

to:

appoint two directors designated as special 'C'

directors; and

remove any director so appointed and appoint another in his or

her place.

In 2004 the Company acquired the Special Share and the majority

of the issued share capital, both 'B' and 'C'

shares, from the Government of Belize and appointed a number of

directors to the board, including special 'C' directors.

Subsequently the Company encountered financial problems and the

Government acquired a number of shares from the Company under a

separate agreement. This resulted in the Company owning the Special

Share but less than the 37.5% of the issued share capital of

'C' shares.

The Issue

The key issue was whether or not the two special 'C'

directors appointed to the board remained in office once the

Company ceased to hold the necessary amount of 'C' shares,

which meant that they could remain in office indefinitely or did

they automatically lose office. Under the Articles of Association,

only the entity which held the Special Share and 'C' shares

to the amount of 37.5% or more of the issued share capital could

remove the special 'C' directors from office.

The appellants pleaded that such a state of affairs would be

absurd and the Articles of Association should be construed so that

a term was implied providing that in a situation where the holder

of the Special Share fails to maintain 'C' shares to the

amount of 37.5% or more, the special 'C' directors should

also vacate office.

Judgment

The Privy Council made some general observations about the

process of implying terms into legal documents and stated that the

various tests which had been laid down by the Courts previously

were all essentially asking the same question: what would the

relevant contract be understood to mean by a reasonable person

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