Comment on Attorney General of Belize v Belize Telecom Ltd - Essay Example

Belize privatized its telecom network in 1989. Under the privatization, the government was to gradually seal off its shares and, in the process, retained a special share (Redfem, 2004). According to the company’s constitution, 8 directors would be appointed as per the shareholding in the following manner:
• The special shareholder can appoint 2 of the 8 directors. In this case, the government had a special share which entitled it to appoint two directors.
• Class “B” shareholders comprising private investors could appoint two directors.
• Class “C” shareholders could appoint four directors. The government also owned Class “C” shares.
• A further provision for the election directors was made, stating that if a special shareholder possessed over 37.5% of the share capital in total, it would appoint two of the 4 Class “C” directors.
The government in 2003 completed the privatization process. A law was passed to this effect to enable the completion (Richardson, 2004).
In 2004, Belize Telecommunications bought the special share and the Class “C” shares from the government. To enable Belize Telecommunications to purchase the shares, the government changed its shares into a loan to enable Belize to finance the transaction. Since this was a loan from the government, it needed security from Belize. Belize gave the government a ‘pledge’ on the shares that it had just sold, i.e. the Class “C” shares, but not on the special share until the debt was repaid (Robertson, 2006).
In February 2005, Belize defaulted in the loan repayment and the government’s pledge under the loan agreement was enforced. The government now had more than 37.5% of the class “C” shares but without the special share. Belize now had less than 37.5% of shares. The main issue of the case is whether the directors subject to appointment by the special shareholder with over 37.5% of class “C” shares could be removed. In this instance, there was no shareholder who held both the special share and over 37.5% of class “C” shares.
Belize Telecommunications argued that the two directors were not removable whereas the Attorney General argued otherwise. The argument was that the articles of association regarding the appointment of directors should be made to provide that vacation of office by a director should happen if the shareholding specification that brought him there ceased existing. The Belize Supreme Court’s Chief Justice agreed with the government. With its 37.5% shareholding, the government should be given the power to dismiss the two directors and recruit new ones (Olivelle, 2005).
Analysis
Court Analysis. The Chief Justice in the Belize Supreme Court agreed with the Attorney General that the government may be allowed to remove the directors in question and appoint new ones. The Privy Council’s advice through Lord Hoffman came up with the principles of interpreting the company’s articles of association.
• The interpretation principles apply, whether it is an act of Parliament or a company contract.
• A search for the meaning of the documents should be done by the court, and the documents, in this case, are the contextual facts in mind and articles of association, and should consider their meaning to a reasonable person.
• In a hypothetical situation, it was not relevant, but it was critical to ask what implication and interpretation would be consistent with the constitution of the company.
Lord Hoffman agreed with the Chief Justice that the directors may be removed. Initially, Belize Telecommunications was privatized in order to balance the government’s interests and those of private investors. It was, therefore, not reasonable because there was no shareholder with both the special share and over 37.5% shareholding so that the incumbent directors cannot be removed (Olivelle, 2005).
Author’s Analysis
The Chief Justice’s ruling was in order. The fact that there was no existing shareholder with the special share and 37.5% ordinary shares was not enough given the interpretation and implication of the articles of association regarding the appointment of the two directors and the other facts. The events that occurred regarding the government loan and default of the same were unforeseen by the drafter of the articles of association. Lord Hoffman’s rationale of using the principles of interpretation of a company contract, with the relevant facts and the meaning conveyed to a reasonable person, holds. The Chief Justice was right in allowing the two directors in question to be removed. There was no provision on what should be done if there is no special shareholder with over 37.5% of ordinary shares as was the case. The scenario was unforeseen when the articles of association were being drafted (Olivelle, 2005).
Conclusion
The case dealt with the interpretation of the articles of association of Belize Telecommunications as regards the appointment of directors by the different classes of shareholders. In giving the opinion of the Privy Council, Lord Hoffman had to address the basis upon which a term can be implied in a contract in general terms. This case was a question of implication as a matter of deciding what the articles of association read against the relevant background that would be reasonably understood.