Louie v. Lastman

[Indexed as: Louie v. Lastman (No. 2)]

61 O.R. (3d) 459 [2002] O.J. No. 3522 Docket No. C36584

Court of Appeal for Ontario, Catzman, Rosenberg and Cronk JJ.A. September 17, 2002

Contracts -- Rescission -- Releases -- Plaintiff and defendant had extramarital affair which resulted in birth of two children and then ended in 1971 and -- Plaintiff executed release in 1974 -- Plaintiff bringing [page460] action in 2000 seeking rescission of release on basis of undue influence -- Defendant moving successfully to strike action under Rule 21 of Rules of Civil Procedure -- Equitable claims must be brought promptly -- Special promptitude required where rescission sought -- Plaintiff's lengthy delay showed that she acquiesced in defendant's conduct -- Attempt to rescind release certain to fail -- Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 21.

The plaintiff and the defendant allegedly had an extramarital affair which ended in 1971. The affair allegedly resulted in the birth of two children. In 1974, the plaintiff executed a "Release", forever releasing the defendant from all causes of action and claims in exchange for $27,500. The plaintiff had a lawyer and received independent legal advice before executing the release, but alleged that she was suffering from a debilitating health condition and was emotionally and financially desperate, and that the release was a result of undue influence and coercion. In 2000, the plaintiff brought an action asserting equitable claims for breach of fiduciary duty, unjust enrichment and rescission of the release. The defendant moved successfully under Rule 21 of the Rules of Civil Procedure to strike the claim. The plaintiff appealed.

Held, the appeal should be dismissed.

The motions judge was correct in finding that it was plain and obvious that the claim could not succeed. There is no statutory limitation period in Ontario for equitable claims such as rescission. However, equitable claims are to be brought promptly, and special promptitude is required for certain classes of claims such as rescission. It was apparent from the statement of claim that the plaintiff knew all of the facts which gave rise to the claim, but never sought to set aside the release during the time that she could have obtained child support. The only reasonable conclusion available on the facts pleaded was that she acquiesced in the defendant's conduct. Her acquiescence defeated her claim for rescission.

APPEAL from an order of Benotto J. (2001), 2001 28066 (ON SC), 54 O.R. (3d) 301, 199 D.L.R. (4th) 741 (S.C.J.) striking a statement of claim. [page461]

M. (K.) v. M. (H.), 1992 31 (SCC), [1992] 3 S.C.R. 6, 96 D.L.R. (4th) 289, 142 N.R. 321, 14 C.C.L.T. (2d) 1, apld Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 49 B.C.L.R. (2d) 273, 74 D.L.R. (4th) 321, 117 N.R. 321, [1990] 6 W.W.R. 385, 4 C.C.L.T. (2d) 1, 43 C.P.C. (2d) 105 (sub nom. Hunt v. T & N plc), consd Other cases referred to Erlanger v. New Sombrero Phosphate Co. (1878), 3 A.C. 1218, 39 L.T. 269, 27 W.R. 65, 48 L.J. Ch. 73 (H.L.), affg (1877) 5 Ch. D. 73 (C.A.) (sub nom New Sombrero Phosphate Co. v. Erlanger); Logan v. Williams (1989), 1989 8855 (BC CA), 41 B.C.L.R. (2d) 34, 24 R.F.L. (3d) 72 (C.A.); Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R. 834, 117 D.L.R. (3d) 257, 34 N.R. 384, 8 E.T.R. 143, 19 R.F.L. (2d) 165 Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 21 Authorities referred to Meagher, R.P., W.M.C. Gummow and J.R.F. Lehane, Equity -- Doctrines and Remedies, 3rd ed. (Sydney: Butterworths, 1992)

Paul E. McInnis, for appellant. Sheila R. Block and Frank Cesario, for respondent.

The judgment of the court was delivered by

1ROSENBERG J.A.: -- This is one of two appeals heard by this court arising out of an alleged relationship between the appellant and the respondent. On motions under Rule 21 [of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194], Benotto J. struck out the appellant's claims and most of those of her two sons. All three plaintiffs sought damages from the respondent for, in effect, failing to provide adequate support. I agree with the result reached by the motions judge and would dismiss this appeal. I have reached a similar conclusion in respect of the sons' claims in separate reasons being released concurrently.

The Facts

2As this was a motion under Rule 21, the facts contained in the statement of claim are assumed to be true. Those facts may be summarized as follows. The appellant met the respondent when she worked for him in his appliance store. She was 25 years of age and married. She alleges that from 1957 to 1971, she and the respondent, who was also married, carried on a secret extramarital affair. She claims that the appellant is the biological father of two children she had during that time. Kim Louie was born in 1958 and Todd Louie was born in 1962. The appellant and the respondent agreed that the appellant's husband would be shown on the children's birth certificates as the father.

3The appellant and the respondent had intimate relations on a regular basis during the 14 years of the affair. They spoke on a regular basis and travelled together, staying in motels and resorts at different times in Ontario, Europe and Africa. They provided one another with "comfort and care and shared intimate confidences". The appellant "made herself available to the [respondent] for emotional support and affection". The respondent purchased expensive gifts for the appellant. The respondent was known to the children as the appellant's good friend.

4The appellant alleges that she kept her relationship with the respondent secret "because of her love for the [respondent] and because of her concern for its impact upon the children, especially as the [respondent's] public profile increased". She was afraid that the respondent would reject the children and afraid of the consequences if the fact of their relationship and the boys' paternity became public. In 1997, the appellant admitted to [page462] Kim Louie that the respondent is his father and the father of Todd Louie.

5The appellant was financially impecunious during the child-rearing years and had to struggle to make ends meet. She suffered from a debilitating health condition during this time. After the appellant separated from her husband, the respondent paid her rent for one year. The appellant was on public assistance but this was insufficient to cover the family's needs.

6On November 12, 1974, the appellant executed a "Release". For the sum of $27,500 (including $2,500 for legal fees), the appellant released and forever discharged the respondent "from all manner of actions, causes of action, suits, debts, dues, accounts, bonds, covenants, contracts, claims and demands whatsoever" that she "ever had, now have . . . by reason of any cause, matter or thing whatsoever existing up to the present time". The release also included the following:

It is understood and agreed that the payment by the Releasee to the Releasor is made solely on compassionate grounds and that the Releasee does not by the payment aforesaid or otherwise admit any liability whatsoever to the Releasor and that any such liability is denied by him and that the Releasor withdraws any allegation or suggestion that he is the father of her children, Kim Nathan Louie and Todd Sheldon Louie or either of them.

7The appellant acknowledges that she had a lawyer and received independent legal advice before executing the release. She alleges, however, that she was suffering from a debilitating health condition, was financially and emotionally desperate, afraid and had no means to provide for herself or the children. She alleges that the release was a result of undue influence and coercion exerted upon her by the respondent. She states that the amount was wholly insufficient to provide for the children's necessities of life and that she was forced to go on welfare. She claims that the release was an unconscionable transaction, which resulted in unconscionable circumstances, and that it is contrary to public policy.

8The appellant says that the respondent had immeasurable wealth, authority and power while she was impoverished. After receiving the lump sum payment, the appellant occasionally sought further financial assistance from the respondent that was desperately needed and the respondent provided her with wholly insufficient amounts.

Reasons of the Motions Judge

9The appellant's claim is based on several causes of action. The motions judge found that none of them could succeed. In this [page463] court, the appellant pursued only her equitable claims for breach of fiduciary duty, unjust enrichment and rescission of the release. I will summarize the motions judge's reasons with respect to those claims.

10The motions judge found that the respondent's obligation to support the children during their dependency was statutory and there was no separate civil duty of care. The appellant's claim for breach of fiduciary duty because the respondent failed to support the children therefore could not succeed. That claim was also defeated by the appellant's delay.

11The appellant's claim of unjust enrichment had two foundations: first, that the respondent was unjustly enriched because he did not pay support for the children, and second, that the appellant provided him affection, emotional support, childcare and homemaking services for the children, thereby enriching him. The motions judge thought it unlikely that a claim for unjust enrichment rooted in a secret extramarital affair could succeed. She was not prepared, however, to strike out the claim for that reason alone. Rather, she found that the claim could not succeed because it had not been brought promptly. The 30-year delay in bringing the claim after the affair ended was fatal to its success. The doctrine of laches will defeat an equitable claim where the plaintiff by delaying the institution of a claim has acquiesced in the defendant's conduct. In this case, the appellant knew all of the facts giving rise to the claim either in 1971 when the affair ended or at the latest in 1980, when the youngest child turned 18. Any possible claim she had could have been brought then. Delay also defeated the attempt to rescind the release.

12The motions judge concluded with this comment [at p. 313 O.R.]:

There is, however, another reason that the claim cannot succeed. Taken as a whole, the claim does amount to a claim for retroactive support that was never claimed. In the overall context of the facts, and in light of the statutory obligations to pay child support, the claim cannot succeed.

The damages claimed by the [appellant] can only be measured against the reasonable child support the [respondent] would have been required to pay had the claim been before the courts at the appropriate time. The purpose of child support is to meet the ongoing needs relating to the upbringing of children. An award for retroactive support, disguised as damages, would completely destroy the character of the remedy intended by the legislature.

The [appellant] chose to give her children the name of her husband, raise them in his household with their other siblings and keep secret the identity of their biological father. Represented by counsel, she arrived at a settlement of her claims and signed a release. She made no claims against him for twenty-seven years. She did not seek to set aside the release or seek more child support at any point during the dependency of the children. She made [page464] no claims for herself either. On the basis of the law relating to child support, on the basis of equity and on the basis of common sense, the claim cannot be made now.

Analysis

13I agree with the motions judge's conclusion that it is plain and obvious that the appellant's claim cannot succeed. I will start with the appellant's claim for rescission, since if the release cannot be set aside it stands as a complete answer to the appellant's equitable claims: Meagher, Gummow & Lehane, Equity -- Doctrines and Remedies, 3rd ed. (Sydney: Butterworths, 1992) at 3506. The motions judge held that the appellant's delay in seeking rescission of the release was fatal to that claim.

14There is no statutory limitation period in Ontario for equitable claims such as rescission. However, equitable claims are to be brought promptly. As Lord Blackburn wrote in Erlanger v. New Sombrero Phosphate Co. (1878), 3 A.C. 1218 at p. 1279, 39 L.T. 269 (H.L.)"a Court of Equity requires that those who come to it to ask its active interposition to give them relief, should use due diligence, after there has been such notice or knowledge as to make it inequitable to lie by". This doctrine has given rise to the equitable defence of laches.

15La Forest J. considered the problem of delay in bringing an equitable claim in M. (K.) v. M. (H.), 1992 31 (SCC), [1992] 3 S.C.R. 6, 96 D.L.R. (4th) 289. After referring to several authorities, he summarized the laches doctrine as follows at pp. 77-78 S.C.R.:

Thus there are two distinct branches to the laches doctrine, and either will suffice as a defence to a claim in equity. What is immediately obvious from all of the authorities is that mere delay is insufficient to trigger laches under either of its two branches. Rather, the doctrine considers whether the delay of the plaintiff constitutes acquiescence or results in circumstances that make the prosecution of the action unreasonable. Ultimately, laches must be resolved as a matter of justice as between the parties, as is the case with any equitable doctrine [emphasis added].

16This case turns on whether the appellant's delay constituted acquiescence, which La Forest J. explained at p. 78 S.C.R.: "after the deprivation of her rights and in the full knowledge of their existence, the plaintiff delays. This leads to an inference that her rights have been waived". Knowledge is the critical element. La Forest J. continued at pp. 78-79 S.C.R.:

It is not enough that the plaintiff knows of the facts that support a claim in equity; she must also know that the facts give rise to that claim . . . However, this Court has held that knowledge of one's claim is to be measured by an objective standard . . . [T]he question is whether it is reasonable for a plaintiff to be ignorant of her legal rights given her knowledge of the underlying facts relevant to a possible legal claim. [page465]

17After referring to statutory limitation periods, La Forest J. concluded at p. 80 S.C.R."[i]n equity, however, there is a residual inquiry: in light of the plaintiff's knowledge, can it reasonably be inferred that the plaintiff has acquiesced in the defendant's conduct? That question depends on the circumstances of each case".

18The appellant signed the release in November 1974. She commenced her action against the appellant in November 2000, 26 years later. She says that the execution of the release was a result of unspecified undue influence and coercion exerted upon her by the respondent. She used the money from the release to put a down payment on a house and purchase furniture and a car for her eldest son. She claims that the children were forced to work in order to support themselves and their mother but that even with their help she was unable to keep up the mortgage payments. She says that she was dependent on welfare. After signing the release, she on occasion sought further financial assistance from the respondent and the respondent provided her with wholly insufficient amounts. These facts set out in the statement of claim establish the appellant's acquiescence and defeat her claim for rescission. It is apparent from the statement of claim that the appellant knew all of the facts that could give rise to the claim. After the release, she pursued the respondent for further funds. However, she never sought to set aside the release during the time that she could have obtained child support. She had a lawyer and independent legal advice. The only reasonable conclusion available on the facts pleaded is that the appellant acquiesced in the respondent's conduct.

19The authorities indicate that while equitable claims must in general be made promptly"special promptitude" is required for certain classes of claims such as rescission. See Logan v. Williams (1989), 1989 8855 (BC CA), 41 B.C.L.R. (2d) 34, 24 R.F.L. (3d) 72 (C.A.) at pp. 40-41 and Meagher et al., supra, at 3606.

20The appellant points out that laches must be resolved as a matter of justice as between the parties. She therefore submits that the laches issue can only be determined after a trial at which all of the facts are presented. In Hunt v. Carey Canada Inc., 1990 90 (SCC), [1990] 2 S.C.R. 959, 74 D.L.R. (4th) 321, Wilson J. dealt at length with the test for striking out a claim because it fails to disclose a cause of action. In Hunt, the court was considering a motion under Rule 19(24)(a) of the British Columbia Rules of Court. After affirming that the test is whether it is plain and obvious that the statement of claim discloses no reasonable cause of action, she said the following at p. 980 S.C.R.: [page466]

Neither the length and complexity of the issues, the novelty of the cause of action, nor the potential for the defendant to present a strong defence should prevent the plaintiff from proceeding with his or her case. Only if the action is certain to fail because it contains a radical defect ranking with the others listed in Rule 19(24) of the British Columbia Rules of Court should the relevant portions of a plaintiff's statement of claim be struck out under Rule 19(24)(a).

(Emphasis added)

21In my view, Hunt does not preclude a court from striking out a claim on the basis that it discloses no cause of action because of the existence of an unanswerable defence. The issue is whether, assuming the alleged facts to be true, the action is nevertheless certain to fail. The almost 30 years of delay in circumstances that conclusively show that the appellant acquiesced in the respondent's conduct demonstrate that, as the motions judge held, the attempt to rescind the release is certain to fail. Since the appellant cannot set aside the release, her other equitable claims are equally destined to fail.

22This conclusion is sufficient to dispose of this appeal and I will therefore make only brief comments on the substance of the appellant's other claims.

23The appellant claims that the respondent was unjustly enriched because he did not pay child support and thereby saved moneys that should have been contributed to the support of the children. She therefore seeks a constructive trust in the property that the respondent acquired as a consequence. To the extent that this claim is nothing more than an attempt to obtain retroactive child support, my reasons in the companion appeal concerning the appellant's children apply.

24The appellant also claims that the respondent was unjustly enriched because the appellant provided him with affection and emotional support and provided all of the child care and homemaking services for the children. The motions judge doubted that such a claim could succeed, but resolved the issue on the basis of delay. I share the motions judge's skepticism about the likely success of this claim. There are three requirements for an unjust enrichment: an enrichment, a corresponding deprivation and absence of any juristic reason for the enrichment. It is difficult to see how the appellant can meet any of those requirements, especially the third. In Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R. 834 at p. 849, 117 D.L.R. (3d) 257, Dickson J. explained the basis for finding an unjust enrichment in these terms:

As for the third requirement, I hold that where one person in a relationship tantamount to spousal prejudices herself in the reasonable expectation of receiving an interest in property and the other person in the relationship [page467] freely accepts benefits conferred by the first person in circumstances where he knows or ought to have known of that reasonable expectation, it would be unjust to allow the recipient of the benefit to retain it.

25The relationship between the appellant and the respondent bears none of these characteristics. As the respondent points out, the statement of claim indicates that the affection and support between the appellant and the respondent was mutually exchanged. The respondent therefore could not have known that the appellant would expect to be paid for the provision of affection to him and care to the children.

Disposition

26Accordingly, I would dismiss the appeal. In his factum, the respondent did not seek costs and I would award none.