The Belize Bank Limited v The Association of Concerned Belizeans and others (Belize)

Section 7(2) of the Finance and Audit (Reform) Act No 12 of 2005 applies only where an agreement or instrument effects a borrowing or loan to the Government above the statutory threshold. A settlement deed and scheduled note must be construed together and in context. Where they settle a pre-existing guarantee liability by replacing it with a promise to pay, they do not create a loan merely because the instrument is called a loan note, uses repayment language, or is recorded in a loan account. A loan requires an advance of funds.

The Government had guaranteed the indebtedness of Universal Health Services Company Limited to the Bank. In March 2007, the parties entered into a Settlement Deed under which the Government paid BZ$1 and delivered a Loan Note for BZ$33,545,820 with interest. The Bank agreed to discharge the guarantee and release the Government from future liabilities under it. No National Assembly resolution had authorised the transaction. The Supreme Court of Belize held the Loan Note invalid under section 7 of the Finance and Audit (Reform) Act No 12 of 2005, and the Court of Appeal upheld that decision. The central issue was whether the documents effected a borrowing or loan to the Government, or merely settled an existing liability.

Lord Clarke delivered the judgment of the Board.

1. Disposition. The appeal was allowed. The Loan Note was not invalid by reason of section 7 of the Finance and Audit (Reform) Act No 12 of 2005.
2. Construction of the transaction. The Settlement Deed and the Loan Note had to be construed together, in context and having regard to the surrounding circumstances. Their purpose was to settle the Government’s liability under the 2004 Guarantee, discharge that liability and release the Government from future liabilities under it. The existing liability was replaced by an obligation to pay the agreed principal and interest under the Loan Note. The documents contained no term providing for a loan or borrowing by the Government.
3. Nature of the Government’s liability. The lower courts’ distinction between secondary liability under the guarantee and primary liability under the Loan Note was misplaced. The Government had been a primary obligor under the 2004 Agreement. In any event, whether the former liability was primary or secondary, the documents replaced it with a payment obligation and there was no commercial reason to introduce a further loan.
4. Evidence. The reference to an amount being advanced in Mr Johnson’s affidavit merely described the legal effect of the documents and did not establish a collateral loan. Submissions, solicitors’ correspondence and accounting entries could not alter the true construction of the documents or establish borrowing where no funds had been advanced to the Government. The contemporaneous loan made to UHS was separately documented and did not support a loan to the Government.
5. Promissory note. The Board accepted that the Loan Note was a promissory note under section 85(1) of the Bills of Exchange Act. It did not base its decision on the alternative argument that a promissory note would remain enforceable despite an invalid underlying loan. The Board noted that illegality in the consideration for a promissory note would preclude enforcement under its governing law.
6. Final order. The Board advised that the appeal be allowed. The parties were directed to make written submissions on costs within 28 days.

• Privy Council: Allowed the appeal and held that the Loan Note was not invalid under section 7 of the Finance and Audit (Reform) Act No 12 of 2005.
• Court of Appeal of Belize: On 19 March 2010, upheld the Supreme Court’s decision that the Loan Note was invalid.
• Supreme Court of Belize: On 30 April 2009, held that the Loan Note was invalid as contrary to section 7 of the Finance and Audit (Reform) Act No 12 of 2005.