BG v BA (Rev 1)

A consent financial remedy order must be construed objectively, by asking what it would convey to a reasonable person with the relevant background known to the parties. The court may correct an obvious drafting error where the language, read in context, cannot reflect the parties’ evident intention. Commercial common sense is relevant, but the court must not rewrite an imprudent bargain. Where a consent order requires one party to facilitate redemption of secured charges so as to give effect to the order, that obligation may extend beyond strict borrowings to other liabilities charged on the relevant property. Historical tax arising from undisclosed beneficial ownership is not necessarily tax incidental to conveyancing or attributable to the sale.

The wife and the estate of the deceased husband applied jointly for construction of a consent financial remedy order made in February 2012. The dispute concerned responsibility for a substantial French tax charge secured against Villa Rose, a property held through a corporate and trust structure.

The order provided for sale of the property, payment of specified sale expenses, payment of £16 million to the husband, and payment of the balance to the wife. It also required the husband to facilitate necessary redemptions of secured mortgages or charges. The central issue was whether the French tax charge was to be discharged by the husband or deducted from the wife’s share.

1. The application was determined in favour of the wife. The French tax charge was not to be deducted from the wife’s share of the sale proceeds.

2. The order had to be read as a whole and in its overall context. Applying the approach described in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] WLR 896, the relevant question was what the document would convey to a reasonable person with the background reasonably available to the parties.

3. The definition of net sale proceeds did not mention the three charges. That omission was more consistent with the husband’s undertaking to facilitate their redemption than with the wife bearing them by default. The undertaking covered the charges, including the French tax charge, and was not limited to liabilities personally owed by the husband.

4. The French tax was historical tax arising from the non-disclosure of the villa’s beneficial ownership. It was not tax incidental to the conveyancing transaction under paragraph 2(c)(ii), nor tax attributable to the sale under paragraph 2(c)(iii), although the sale would enable the French authorities to recover it.

5. The word “borrowing” in paragraph 2(c)(iv), if it required determination, was a drafting error. In context it was to be read as “liabilities”, and “reduce” was to be read as “discharge” or “pay”. This construction was consistent with the guidance on correcting careless drafting in Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101.

6. The court declined to treat the wife’s possible remedy as merely an unsecured damages claim. Under paragraph 9, the settlement was not fully effective until the relevant obligations had been complied with. If necessary during the husband’s lifetime, the wife could have been awarded a lump sum from his £16 million to discharge the tax.

First instance decision. The judgment records an earlier judgment concerning the beneficial ownership of the structure holding Villa Rose, but gives no citation for it.