Attorney General of Belize vs Belize Telecoms - Coursework Example

In corporate law, articles of association and memorandum of association are document that form a company’s constitution (Andreas 4). This constitution denotes the responsibilities of the company directors, the type of business they deal in and the level of control that shareholders have on executive management. Articles of association are a principal requirement for companies in many countries all over the world. Hannigan (p9) says that in every country the terms of articles of association are set by the main judicial institution following deliberation from local courts. For a long time, English courts have avoided setting implied terms because of the varying nature in which these implied terms are used (Richard 19). However, in the case of Belize vs Belize Telecoms the attorney general contradicted this view by setting terms for implied terms1. In the case of Attorney General of Belize vs Belize Telecoms, Belize was a public company that was privatized by the government. The business assets of Belize were later transferred to a private company registered in the name and style of Belize Telecommunications. Through the deal, the government was required to sell off its shares and retain a special share. Shareholders of special shares were empowered by the company constitution to appoint two of the eight company directors. The company had graded shares into three classes: A, B and C. Class A and B shareholders had the powers to appoint two directors each and class C shareholders could appoint a total four directors. The government held class C shares and was therefore entitled to appointing two directors2. The privatization process was completed in 2003 the following year, Belize telecom bought the special shares that were held by the government. To finance this purchase, Belize Telecoms took a loan from the government and pledged the shares as collateral for the loan it had received from the government. After this pledge, they replaced the government appointees with two directors of their choice. Later on, Belize Telecoms defaulted in the loan payments. The government repossessed the shares which were over 37.5 percent but they did not retain the special share. A quagmire ensued on whether the appointed directors could be removed by shareholders with a 37.5 stake but with no special shares. Belize telecom opposed the proposition to remove the two directors because the government did not satisfy all requirements that would enable them to appoint two directors. On the other hand, the attorney General said that the directors should leave office because the shareholding that got them to that position had ceased to exist. Lack of consensus ad idem prompted a Supreme Court judge, Conteh CJ concurred with the grounds the Attorney General put forward to remove the two directors (Andreas 64). Carey CJ, a court of appeal judge, differed on this judgment terming lack of necessity in reading those words. Dissatisfied with this ruling, the attorney general appealed as a proxy for the government. Lord Hoffman, acting on the behalf of the Privy Council gave principles on interpretation of a company such as Belize Telecoms. He said the principles of interpretation were to be applied irrespective of a contract, act of parliament or company constitution. David (p25) reiterates that courts should search for the meaning of such a document keeping in mind contextual facts. He further reiterated that parties should not look at situations prima facie and every premise should be explained de facto3. Through fact finding, the final decision was to be consistent with the company constitution and it justified Lord Hoffman’s seconding of the decision by Conteh CJ to have the directors removed from office. The board found out that Belize’s board had been formulated in a way that would best serve the interests of all stakeholders in the company. Article 90(B) and (C) dictated that in the event that majority of shareholders of a given class lost confidence in any of their directors, they had powers to replace them at any time they deemed appropriate. However, they agreed that the implied terms could not go without saying citing the complexities involved. In BP Refinery (Westernport) Pty Ltd vs Shire of Hastings (1977) Lord Simon advised the board that it was not necessary to exhaustively review authorities on the implication of a term in a contract. However he said that the following conditions should be satisfied: reasonability and equitability, it must give the contract business efficacy, must go without saying, must be capable of clear expression, it must not conflict with any express term of the contract (Talbot 77). The board considered this list as exhaustive because of the principal idea that all this conditions seek to fulfill; any proposed implied term must give a clear understanding of the actual meaning of the contract. In Equitable life Assurance vs Hyman (2002) the directors of Equitable life decided to reduce the terminal bonuses of policyholders, a decision that was backed by a clause in their articles of association (Merkin 14). Hymen represented the policyholders in complaining on the unfair action taken by the directors of Equitable life. Lord Steyn said that an implied term could only be a term implied from the language of the instrument in its commercial context. He went on to say that the court should determine if a provision would expressly mean what the instrument is supposed to mean, something that should be done in all cases that involve implied terms. Lord Pearson added that even though questions can be posed in many ways, the implied term must go without saying and should give the contract necessary business efficacy4. The use of the term “necessary” means that how the court considers the implied terms is not enough for the parties to agree but they must be satisfied with the meaning they both derive from the contract. The term business efficacy means that a contract can work seamlessly if both parties involved stick to their express obligations (Clayton 13). The term “go without saying” means how a reasonable person will understand the terms and should not involve anyone non compos mentis. The terms that the author or supposed authors of the contract terms intended to happen should be preserved. The board ruled that the directors had breached article 65(1) of the company’s articles of association. Another case that concerned interpretation of a company’s articles of association is Imperial Hydropathic Hotel Co, Blackpool v Hampson (Linde 345). The case has a similar nature to that of Attorney general of Belize vs Belize Telecoms because it involves the hiring and firing of company directors. The articles of association of Imperial Hydropathic Hotel Co expressly declared that directors should hold the post for three years before retiring. At one of the general meetings, shareholders agreed unanimously to remove two directors who had not reached their time of retirement and elected two others to take their positions5. The Court of Appeal ruled that shareholder resolutions were not a reason to disregard the company’s articles of association. Lord Jessel MR stated that if a company feels the power of the general meeting is affected by the articles of association, they can amend them in regard of company law. In their defense, the shareholders of Imperial hotel cited the 44th clause of their articles of association that gave general meetings the power to pass resolutions that may alter the regulations of the company, irrespective of whether they are included in the articles of association, provided they formed the business of that particular meeting6. The 45th clause required that a seven day notice is given to the shareholders on the venue of meeting, the time and purpose of any scheduled meeting. The 47th clause gave the members a period of three days to submit any additional agenda for a scheduled meeting. These articles of association however lacked a clause that expressly gave the general meeting powers to remove directors from office. This gap in the terms was noticed by the judge and he declared that to uphold necessary business efficacy, the implied terms of the articles of association had to be clear in the context of the contract (Linde 345). Lieb (314) affirms to the position that law statutes and precedents are required to be unambiguous and easy to interpret for individual and entities to adhere to them7. From the case on Attorney General of Belize vs Belize Telecoms and other cases analyzed in this paper, it is rather clear that the implied terms are very dynamic. It would therefore be contradictory for the English courts to create static and unambiguous terms on how implied terms are interpreted. The reluctance that English courts have expressed in implying terms into company’s articles of associations is justified (Ellis and Amour 312). This is in consideration of the existence of contextual and circumstantial differences in each of the disputes concerning articles of association in each emerging case. Laws are a major foundation to justice and they play significant role in upholding peace. As such, company laws are required to protect corporate laws and any individuals associated with them in their course of business to provide an enabling environment. Setting specific terms on how implied terms will be interpreted on the articles of association will only undermine the fundamental principles that the rule of law is based on. Works Cited Andreas Cahn, David C. Donald. Comparative Company Law: Text and Cases on the Laws Governing Corporations in Germany, the UK and the USA. Cambridge: Cambridge University Press, 2010. Austen-Baker, Richard. Implied terms in contract law. London: Edward Elgar Publishing, 2011. David, Paul. "Contract interpretation and implied terms." UK Law Review, 2009: 23-34. Eilis Feran, John Amour. "Constructing articles of association." Journal of corporate law studies , 2009: 312. Hannigan, Brenda. Company Law. Oxford: Oxford University Press, 2012. Lieb, Doug. "Corporate laws distributive design." Yale Law Journal, 2010: 314. Linde, Kathleen Van der. "Liability of directors for corporate fault." Mercantile law journal, 2010: 345. M, Clayton. "Company Law Issues." Harvard Business Law Review, 2011: 12-25. Merkin, Robert. "Achieving business efficacy through articles of association." Journal of Business Law, 2010: 12-17. Talbot, Lorraine. Critical Company Law. London: Routledge, 2009. Read More