It concerns the correct method for interpretation and implication of terms into a company's articles of association.

It was approved by the UK Supreme Court in Société Générale, London Branch v Geys[1] and Marks and Spencer plc v BNP Paribas Securities Services Trust Company (Jersey) Ltd.[2] In 1989 Belize privatised its telecommunications network.

According to the company's constitution, among various rights over important transactions, the special shareholder could appoint two of the eight directors.

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.

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 brought him there ceased to exist.

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".

Giving the advice of the Privy Council, Lord Hoffmann set out the principles for interpretation of a company's articles such as this.

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).

Before discussing in greater detail the reasoning of the Court of Appeal, the Board will make some general observations about the process of implication.

The court has no power to improve upon the instrument which it is called upon to construe, whether it be a contract, a statute or articles of association.

It will be noticed from Lord Pearson's speech 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.

The first, conveyed by the use of the word "business", is that in considering what the instrument would have meant to a reasonable person who had knowledge of the relevant background, one assumes the notional reader will take into account the practical consequences of deciding that it means one thing or the other.

In the case of an instrument such as a commercial contract, he will consider whether a different construction would frustrate the apparent business purpose of the parties.

The second, conveyed by the use of the word "necessary", is that it is not enough for a court to consider that the implied term expresses what it would have been reasonable for the parties to agree to.

The danger lies, however, in detaching the phrase "necessary to give business efficacy" from the basic process of construction of the instrument.

Likewise, the requirement that the implied term must "go without saying" is no more than another way of saying that, although the instrument does not expressly say so, that is what a reasonable person would understand it to mean.

The imaginary conversation with an officious bystander in Shirlaw v Southern Foundries (1926) Ltd [1939] 2 KB 206, 227 is celebrated throughout the common law world.

Like the phrase "necessary to give business efficacy", it vividly emphasises the need for the court to be satisfied that the proposed implication spells out what the contact would reasonably be understood to mean.

The need for an implied term not infrequently arises when the draftsman of a complicated instrument has omitted to make express provision for some event because he has not fully thought through the contingencies which might arise, even though it is obvious after a careful consideration of the express terms and the background that only one answer would be consistent with the rest of the instrument.

The Board considers that this list 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.

In the opinion of the Board it is no answer to say that the special shareholder could have thought of the problem in advance and removed the Government Appointed Directors before redemption.

That means that the whole basis upon which they are distinguished from ordinary C directors appointed by the majority of the C shareholders under article 90(D)(i) has ceased to exist.

In such a case too, the implication is required to avoid defeating what appears to have been the overriding purpose of the machinery of appointment and removal of directors, namely to ensure that the board reflects the appropriate shareholder interests in accordance with the scheme laid out in the articles.

Morrison JA referred to Holmes v Keys [1959] Ch 199, 215, where Jenkins LJ said: "I think that the articles of association of the company should be regarded as a business document and should be construed so as to give them reasonable business efficacy, where a construction tending to that result is admissible on the language of the articles, in preference to a result which would or might prove unworkable."

The company was set up to acquire and manage a property divided into flats which also included "amenity areas" (tennis courts, swimming pool, gardens).

It was argued that there should be implied into the articles of association an obligation on the part of each flat owner/member to contribute to the expenses of maintaining the amenity areas.

Because the articles are required to be registered, addressed to anyone who wishes to inspect them, the admissible background for the purposes of construction must be limited to what any reader would reasonably be supposed to know.

The implication as to the composition of the board is not based upon extrinsic evidence of which only a limited number of people would have known but upon the scheme of the articles themselves and, to a very limited extent, such background as was apparent from the memorandum of association and everyone in Belize would have known, namely that telecommunications had been a state monopoly and that the company was part of a scheme of privatisation.

For these reasons the Board will humbly advise Her Majesty that the appeal should be allowed with costs before the Board and in the Court of Appeal and the declarations made by the Chief Justice restored.The case of AG of Belize v Belize Telecom Ltd has been widely cited as the new and all encompassing statement on implied terms.

I predict that his analysis will soon be as much referred to as his approach to the construction of contracts in Investors Compensation Scheme v West Bromwich Building Society [1997] CLC 1243 at 1257–8; [1998] 1 WLR 896 at 912–3.