Keywords: Binding Financial Agreement – Ambiguous recital (purporting to define when the parties would be deemed to have separated) construed as referring to their actual separation date; determination by way of construction; section 90DA Family Law Act

The case of Cuo & Ming and Ors [2016] FamCA 495 (12 May 2016) concerned a complex property matter between Ms Cuo, “the wife” and Mr Ming, “the husband”.  The husband and wife sought equitable relief in terms of determining ownership of quite substantial property holdings.  The husband’s parents “the interveners”, intervened in the proceedings, and were seeking equitable remedies.  Benjamin J made a preliminary determination as to the meaning of a recital in a Binding Financial Agreement that set out the circumstances in which the parties would be considered to have separated.

 

Background

The couple started living together in 2005.  Whist still in a defacto relationship, they made a Binding Financial Agreement (“the Agreement”) in 2009 pursuant to s90UC and s90B of the Family Law Act 1975 (Cth)(the “Act”).  The Agreement was intended to deal with property matters should the couple separate either prior to or after marriage.  Recital “G” set out the circumstances that would determine the couple had separated. They married in February 2011, and separated on 7 June 2013.   Under the Agreement, the husband would pay the wife half the net value of the assets of a particular trust within thirty days of the separation.  The date that the couple had separated would affect the settlement amount the wife would receive from the husband.

What was the date of ‘separation’?

The recital stipulated that “the parties shall separate if either or both of them sign a statement to the effect that they have separated; are living separately and apart…”   It was, according to Benjamin J, “not clear and … capable of more than one construction.”

Both parties agreed that they had separated on 7 June 2013; which is when they started living apart.  This date was not in dispute and was corroborated in both their affidavits.  The husband applied for a divorce and the order was granted on 3 February 2015, taking effect on 4 March 2015.  Whilst the husband did not provide a separation declaration, the wife effected one on 23 March 2015, which was served on the husband’s solicitors three days later.  At court, the husband and wife both provided different dates of separation – the wife sought to have the date the declaration was served as the date of the separation, pursuant to the Recital.

 

Construction Principles

In considering how to construct the Recital, His Honour looked at the High Court decision in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37, which sets out the governing principles for interpreting contract terms. It is an objective test, and the rights and liabilities of the parties to a contract “are determined objectively, by reference to its text, context … and purpose.”   Another important consideration in determining how to construe a contract was that the parties “intended to produce a commercial result”, it therefore should be construed “so as to avoid it ‘making commercial nonsense’”.  A similar approach had  been adopted earlier by the Full Court in Sanger & Sanger [2012] FamCAFC 210.

 Section 90DA

 His Honour considered: “the issue of construction is whether Recital G is facilitative as asserted by the husband and the interveners or whether it constructs another date, perhaps more akin to the application of s 90DA in terms of a declaration.”

The wife’s senior counsel adopted a narrow construction of the Recital.  He argued that the application of the provisions of s 90DA of the Act, specifically s 90DA(4) applied to the Recital.   He claimed that the most logical construction of the document would require recognising that the Agreement should begin to operate from the same time as the Act gave it “force and effect”.  Thus, the provision in the Agreement was activated when either party issued a separation declaration, in this case the wife.  He further argued that this approach would avert any controversy as to the operation of s 90DA(1).

 

Section 90B

His Honour instead found favour with the construction of the Recital that was put forward by the counsel for the interveners.  The senior counsel argued that the wife’s interpretation of the Recital “flies in the face of common sense”, for among other things, it would allow the actual separation to be “disconnected and temporally remote from the breakdown of the marriage” as required in s90B(2) of the Act.

Moreover, His Honour acknowledged that such a construction would also entail that the distribution of property, that follows the breakdown of a marriage, pursuant to s 90B(2) would only occur if one of the parties were to sign a document that fulfilled the requirements as set out in Recital G.

He went on to say that were such a literal interpretation of the Recital to be applied, then it would follow that separation could arguably occur through the issuing of a declaration, to satisfy the requirements of the Recital, but presumably without necessarily informing the other party.  His Honour felt that objectively, that could not have been the intention of the parties.  He accepted the arguments put forward by counsel for the husband and the interveners.  The document had been prepared as a Binding Financial Agreement to comply with s 90B(2) of the Act.

Ultimate Decision

The Agreement had been drafted to particularise the financial rights and liabilities of the husband and wife, in contract form, with conditions that applied if the parties separated.  Therefore it was intended to come into force after the actual separation.  In order to determine the meaning of the Agreement, His Honour also needed to consider objectively “what a reasonable party to such an agreement would have understood the recital to mean”.  It was to function in the context of the breakdown of the parties’ relationship.  Although some of the terms in the recital were ambiguous, His Honour felt that the “context and nature of the agreement was a relevant consideration”.  He therefore found that the parties had separated on 7 June 2013.

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