Dear All,

 

In the recent Privy Council decision in Attorney General of Belize & Oths v Belize Telecom Limited (available from http://www.privy-council.org.uk/output/Page540.asp), the Judicial Committee (Lords Hoffmann, Rodger, Carswell and Brown and Baroness Hale) reviewed the various ways of expressing the test for an implication of a term into an instrument (in this case Articles of Association).

 

The Board held that there is only one question that needs to be answered to determine whether a term should be implied:

 

“21.       It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.  It will be noticed from Lord Pearson’s speech [in Trollope & Colls Ltd v North West Metropolitan Regional Hospital Board [1973] 1 WLR 601] that this question can be reformulated in various ways which a court may find helpful in providing an answer – the implied term must “go without saying”, it must be “necessary to give business efficacy to the contract” and so on – but these are not in the Board’s opinion to be treated as different or additional tests.  There is only one question: is that what the instrument, read as a whole against the relevant background, would reasonably be understood to mean?”

 

The Board referred to the oft-cited speech of Lord Simon of Glaisdale giving the advice of the majority of the Board in BP Refinery (Westernport) Pty Ltd v Shire of Hastings (1977)  180 CLR 266 at 282-283 where he stated that it was “not … necessary to review exhaustively the authorities on the implication of a term in a contract” but that the following conditions (“which may overlap”) must be satisfied: “(1)        it must be reasonable and equitable; (2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it; (3) it must be so obvious that ‘it goes without saying’ (4) it must be capable of clear expression; (5) it must not contradict any express term of the contract”.

 

The Board outlined what it saw as the “dangers in treating these alternative formulations of the question as if they had a life of their own” (at [22] – [27]) and stated [27] that the list in Lord Simon’s speech “is best regarded, not as series of independent tests which must each be surmounted, but rather as a collection of different ways in which judges have tried to express the central idea that the proposed implied term must spell out what the contract actually means, or in which they have explained why they did not think that it did so.”  

 

There is also a brief discussion about extent of the background which is admissible in construing articles of association– see [35] – [37].

 

Best wishes,

 

David

 

David Lascelles

Barrister

 

Littleton Chambers