Attorney General of Belize v Belize Telecom Ltd
Encyclopedia
Attorney General of Belize v Belize Telecom Ltd [2009] UKPC 10 is a case on which the Privy Council
gave advice, relevant for contract law, company law and constitutional law
. It concerns the correct method for interpretation and implication of terms into a company's articles of association
.
became the second Latin American country to privatise its telecoms network (after Chile
). Established the year after independence in 1974, the Belize Telecommunications Authority's business and assets were transferred to a corporation called Belize Telecommunications Ltd (renamed Belize Telemedia
in 2007). The government
was to gradually sell off its shares, but in the process retain a "special share" (often called a golden share
). According to the company's constitutition, among various rights over important transactions, the special shareholder could appoint two of the eight directors. Class "B" shareholders (which were all private investors, such as British Telecom) could appoint two directors and class "C" shareholders could together appoint four directors. The government owned class "C" shares, and there was a further provision that if the special shareholder still had over 37.5% of the total share capital, it would be entitled to appoint two of those four "C" directors.
In 2003 the government decided to complete the privatisation process. Legislation was passed to try to let competition into the telecoms market. In 2004 Belize Telecom bought the special share from the government. It also bought the "C" shares the government still owned. But to finance this, it got a loan from the government. In other words, the government converted its shares in Belize Telecommunications Ltd to debt. For security
until the debt was repaid the government got a pledge
on the shares it had just sold (but not the special share). Immediately Belize Telecom appointed new directors, replacing the government appointees. But unfortunately on 9 February 2005, Belize Telecom defaulted on its loan repayments. The government enforced its pledge, and now once again had over 37.5% of the "C" shares, but without the special share. The question was whether the two directors that were subject to appointment by the person who held the special share and over 37.5% of the "C" shares could be removed. As it stood, nobody held both the special share and 37.5% of the "C" shares. The company's constitution did not have any provisions about this situation.
In 2008, after the United Democratic Party
was elected on a platform of anti-corruption and honesty, this action was brought to change the board. Belize Telecom argued that those two directors were not removable. The Attorney General, for the government, argued this would be absurd and the articles should be construed as providing that a director should leave office if the specified shareholding which got him there ceased to exist. Conteh CJ in the Belize Supreme Court agreed with the government and said that a term allowing the government with its 37.5% stake should be allowed to remove those two directors and appoint new ones. But Carey JA in the Court of Appeal held that there was no "necessity" in reading in such words. Morrison JA emphasised that art 90(D)(ii) provided for appointment and removal of directors, but nothing for tenure of office, and that therefore Conteh CJ's interpretation could not be "derived from the language of the articles." The Attorney General appealed.
or an Act of Parliament
. A court should search for the meaning of any such document with all relevant contextual facts in mind, and consider the meaning it would convey to a reasonable person. He emphasised it was not relevant, in cases where a gap was left, what the parties hypothetically "would have" concluded, a hypothetical inquiry which he referred to as "barren". The important point was to ask what interpretation, and implication would be consistent with the scheme of the company constitution (or contract or Act of Parliament). For this reason, Lord Hoffmann agreed with Conteh CJ that the directors could be removed. The scheme of the privatisation programme was to balance the interests of the government and private investors according to their economic interest. As such, it would have been absurd that just because the special share and the possession of 37.5% of ordinary shares had become disjointed that the incumbent directors would be irremovable. So given the gap in the articles, it was consistent with the scheme of the company's articles that the two directors in question would be appointable by the government. Lord Hoffmann's advice on the law read as follows.
United States
Privy council
A privy council is a body that advises the head of state of a nation, typically, but not always, in the context of a monarchic government. The word "privy" means "private" or "secret"; thus, a privy council was originally a committee of the monarch's closest advisors to give confidential advice on...
gave advice, relevant for contract law, company law and constitutional law
Constitutional law
Constitutional law is the body of law which defines the relationship of different entities within a state, namely, the executive, the legislature and the judiciary....
. It concerns the correct method for interpretation and implication of terms into a company's articles of association
Articles of Association
The Continental Association, often known simply as the "Association", was a system created by the First Continental Congress in 1774 for implementing a trade boycott with Great Britain...
.
Facts
In 1989 BelizeBelize
Belize is a constitutional monarchy and the northernmost country in Central America. Belize has a diverse society, comprising many cultures and languages. Even though Kriol and Spanish are spoken among the population, Belize is the only country in Central America where English is the official...
became the second Latin American country to privatise its telecoms network (after Chile
Chile
Chile ,officially the Republic of Chile , is a country in South America occupying a long, narrow coastal strip between the Andes mountains to the east and the Pacific Ocean to the west. It borders Peru to the north, Bolivia to the northeast, Argentina to the east, and the Drake Passage in the far...
). Established the year after independence in 1974, the Belize Telecommunications Authority's business and assets were transferred to a corporation called Belize Telecommunications Ltd (renamed Belize Telemedia
Belize Telemedia
Belize Telemedia Limited , formerly Belize Telecommunications Limited, is a telecommunications company in Belize. Established in 1972 as the Telecommunications Authority, it rapidly became Belize's leading telecommunication provider in the 1980s and 90s. Today, it enjoys the most subscribers to...
in 2007). The government
People's United Party
The People's United Party is one of two major political parties in Belize, and currently the main opposition party. It is a Christian Democratic party; the current Party Leader is Francis Fonseca....
was to gradually sell off its shares, but in the process retain a "special share" (often called a golden share
Golden Share
A Golden Share is a nominal share which is able to outvote all other shares in certain specified circumstances, often held by a government organization, in a government company undergoing the process of privatization and transformation into a stock-company....
). According to the company's constitutition, among various rights over important transactions, the special shareholder could appoint two of the eight directors. Class "B" shareholders (which were all private investors, such as British Telecom) could appoint two directors and class "C" shareholders could together appoint four directors. The government owned class "C" shares, and there was a further provision that if the special shareholder still had over 37.5% of the total share capital, it would be entitled to appoint two of those four "C" directors.
In 2003 the government decided to complete the privatisation process. Legislation was passed to try to let competition into the telecoms market. In 2004 Belize Telecom bought the special share from the government. It also bought the "C" shares the government still owned. But to finance this, it got a loan from the government. In other words, the government converted its shares in Belize Telecommunications Ltd to debt. For security
Security interest
A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation, usually the payment of a debt. It gives the beneficiary of the security interest certain preferential rights in the disposition of secured assets...
until the debt was repaid the government got a pledge
Pledge (law)
A pledge is a bailment or deposit of personal property to a creditor to secure repayment for some debt or engagement, The term is also used to denote the property which constitutes the security....
on the shares it had just sold (but not the special share). Immediately Belize Telecom appointed new directors, replacing the government appointees. But unfortunately on 9 February 2005, Belize Telecom defaulted on its loan repayments. The government enforced its pledge, and now once again had over 37.5% of the "C" shares, but without the special share. The question was whether the two directors that were subject to appointment by the person who held the special share and over 37.5% of the "C" shares could be removed. As it stood, nobody held both the special share and 37.5% of the "C" shares. The company's constitution did not have any provisions about this situation.
In 2008, after the United Democratic Party
United Democratic Party (Belize)
The United Democratic Party is one of the two major political parties in Belize, and currently the ruling party, having won the 2008 general elections. A centre-right conservative party, it is currently led by Dean Barrow.-Founding:...
was elected on a platform of anti-corruption and honesty, this action was brought to change the board. Belize Telecom argued that those two directors were not removable. The Attorney General, for the government, argued this would be absurd and the articles should be construed as providing that a director should leave office if the specified shareholding which got him there ceased to exist. Conteh CJ in the Belize Supreme Court agreed with the government and said that a term allowing the government with its 37.5% stake should be allowed to remove those two directors and appoint new ones. But Carey JA in the Court of Appeal held that there was no "necessity" in reading in such words. Morrison JA emphasised that art 90(D)(ii) provided for appointment and removal of directors, but nothing for tenure of office, and that therefore Conteh CJ's interpretation could not be "derived from the language of the articles." The Attorney General appealed.
Advice
Giving the advice for the Privy Council, Lord Hoffmann set out the principles for interpretation of a company's articles such as this. He stated that the same principles of interpretation apply whether it is a company's constitution, a contractContract
A contract is an agreement entered into by two parties or more with the intention of creating a legal obligation, which may have elements in writing. Contracts can be made orally. The remedy for breach of contract can be "damages" or compensation of money. In equity, the remedy can be specific...
or an Act of Parliament
Act of Parliament
An Act of Parliament is a statute enacted as primary legislation by a national or sub-national parliament. In the Republic of Ireland the term Act of the Oireachtas is used, and in the United States the term Act of Congress is used.In Commonwealth countries, the term is used both in a narrow...
. A court should search for the meaning of any such document with all relevant contextual facts in mind, and consider the meaning it would convey to a reasonable person. He emphasised it was not relevant, in cases where a gap was left, what the parties hypothetically "would have" concluded, a hypothetical inquiry which he referred to as "barren". The important point was to ask what interpretation, and implication would be consistent with the scheme of the company constitution (or contract or Act of Parliament). For this reason, Lord Hoffmann agreed with Conteh CJ that the directors could be removed. The scheme of the privatisation programme was to balance the interests of the government and private investors according to their economic interest. As such, it would have been absurd that just because the special share and the possession of 37.5% of ordinary shares had become disjointed that the incumbent directors would be irremovable. So given the gap in the articles, it was consistent with the scheme of the company's articles that the two directors in question would be appointable by the government. Lord Hoffmann's advice on the law read as follows.
See also
- Imperial Hydropathic Hotel Co, Blackpool v HampsonImperial Hydropathic Hotel Co, Blackpool v HampsonImperial Hydropathic Hotel Co, Blackpool v Hampson 23 Ch D 1 is a UK company law case, concerning the interpretation of a company's articles of association...
(1883) 23 Ch D 1 - Chartbrook Ltd v Persimmon Homes LtdChartbrook Ltd v Persimmon Homes LtdChartbrook Ltd v Persimmon Homes Ltd [2009] is an English contract law case concerning interpretation of contracts. It creates a so called "red ink" rule, that there is no limit to verbal rearrangement that the court may deploy to give a commercial sensible meaning when construing a contract in...
[2009] UKHL 38 - The Achilleas
- Liverpool CC v Irwin
- Pepper v HartPepper v HartPepper v Hart [1992] UKHL 3, is a landmark decision of the House of Lords on the use of legislative history in statutory interpretation...
- Holmes v Lord Keyes [1959] Ch 199
- Rayfield v HandsRayfield v HandsRayfield v Hands is a UK company law case, concerning the enforceability of obligations against a company.-Facts:Mr Rayfield sued the directors of Field Davis Ltd to buy his shares...
[1960] Ch 1
United States
- United States v. American Trucking AssociationsUnited States v. American Trucking AssociationsUnited States v. American Trucking Associations, 310 U.S. 534 , was a landmark United States Supreme Court case which marked a shift from evaluating the "plain meaning" of statutes to a judicial effort to determine "legislative intent."...
310 US 534, 543 (1940) when the plain meaning of a statute is inconsistent with legislative history, then a literal reading need not be taken - INS v. Cardoza-Fonseca 480 US 421, 432 (1987)
- AL Corbin, Corbin on Contracts (2nd edn 1964) and Restatement (Second) of ContractsRestatement (Second) of ContractsThe Restatement of the Law of Contracts is one of the most well-recognized and frequently-cited legal treatises in all of American jurisprudence. Every first year law student in every law school in the United States is exposed to it, and it is probably the most-cited non-binding authority in all...
(1979), where the idea of implied terms being part of the broader process of construction originates