Court File and Parties
COURT FILE NO.: FS-20-19047 DATE: 20230404 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Emil Mihaylov, Applicant AND: Sofia Mihaylova, Respondent
BEFORE: L. Brownstone J.
COUNSEL: Desi Nikolova, counsel for the Applicant Michael Zalev and Rhea Kamin, Agents for the Respondent
HEARD: March 21, 2023
Endorsement
[1] This case involves a dispute about the accuracy and enforceability of Minutes of Settlement governing the sale of two properties the parties own together. The applicant husband and respondent wife first entered into Minutes of Settlement in relation to three properties – a commercial property, a Toronto house (the matrimonial home), and a cottage property. The initial Minutes of Settlement required the commercial property to be sold first, following which the house and cottage properties would be listed for sale. After the commercial property was sold, however, the parties engaged in further negotiations and decided that the husband would keep the cottage, the wife would keep the house, and the wife would make a payment to the husband as the house was worth more than the cottage. The relevant paragraph of the resulting Minutes of Settlement, drafted by counsel, state:
Sofia shall pay Emil FIVE HUNDRED and TWENTY THOUSAND DOLLARS ($520,000.00 CAD), being the agreed difference in equity between the matrimonial home and the cottage, notwithstanding any past or future appraisals or the possible sale of each.
[2] Within hours of signing the Minutes, the wife alerted the husband to what she considered to be a mistake in the document. The $520,000 did not reflect half of the difference in value between the properties, but the entire difference. She was to pay him only half, to equalize the value of the properties retained by each spouse. The husband disputes that there is a mistake. He acknowledges that the wife was to pay him only half the value of the difference in value between the properties, in order to equalize the financial situation of both parties, but states that the Minutes as written achieve this intention. He seeks to enforce the Minutes as written. The wife brings a cross-motion for rectification of the Minutes on the basis that they contain a mistake. In the alternative, she argues that the Minutes ought not be enforced as the parties were never in agreement on a fundamental term, namely the amount of the payment she was to make to the husband.
[3] On this motion, the court must decide whether the Minutes of Settlement represent a binding contract as written. If they do not, should the Minutes of Settlement be rectified to reflect the amount of the equalization payment owing?
[4] The applicant seeks to rely on Rule 49.09 of the Rules of Civil Procedure and Rule 18(13) of the Family Law Rules. The respondent submits that the proper basis of the motion is Rule 16 of the Family Law Rules, the summary judgment rule, because it is a motion to enforce Minutes of Settlement, not an offer to settle. Rule 18(13) only applies to the latter, and Rule 49.09 does not apply at all, given the existence of a parallel Rule in the Family Law Rules. The respondent submits, however, that the analysis is the same regardless of the Rule under which the motion proceeds.
[5] I agree that Rule 49.09 does not apply. Whether the matter may properly be decided under Rule 18(13) or whether Rule 16 of the Family Law Rules must be used appears to be unsettled: McPherson v. McPherson, 2021 ONSC 4066 at paras. 8-12; Shen v. Shen (2007), 162 A.C.W.S. (3d) 271 (Div. Ct.) at para. 17. Certainly Rule 16 is an appropriate and available mechanism to seek to enforce minutes of settlement.
[6] In proceeding under Rule 16, the court must first determine if there is a genuine issue regarding trial based only on the evidence before the court, without using the expanded fact-finding powers granted under that Rule. If that process provides the court with “the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure” (Hyrniak v. Mauldin, 2014 SCC 7 at para. 66) summary judgment will issue. If there appears to be a genuine issue requiring trial, the court then proceeds to use the powers in the summary judgment rule and determine if the need for a trial can be avoided. The trial judge “may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole”. (Hyrniak at para. 66)
[7] Neither party takes the position that there is a genuine issue requiring a trial. Both parties approached the motion on the basis that the motion process allows the court to make the appropriate findings of fact, apply the law to those facts, and is a proportionate and expeditious way to come to a just result: Chao v. Chao 2017 ONCA 701, 99 R.F.L. (7th) 281 para. 27-28. I agree. In my view it is efficient, affordable, and proportionate to resolve the issues summarily. I am able to find the facts and apply the law to reach a fair outcome, and therefore there is no genuine issue requiring a trial.
[8] First, the court must determine whether the parties had an agreement, and if so, what the terms of that agreement were. In order to answer that question, a review of the negotiations is required.
[9] The starting point for understanding the negotiations is the order made by Pinto J. in May 2021, requiring the husband to obtain an appraisal of all three properties. The husband did so in respect of the Toronto house and the commercial property, but did not obtain an appraisal for the cottage property. He stated that he attempted to obtain one, but it was difficult because appraisers were generally not interested in appraising a residential property that was commercially zoned. He acknowledged that an appraisal could have been done for $3000, but he considered that to be too expensive and therefore did not proceed with it. He produced letters of opinion valuing the cottage as between $740,000 and $785,000. The letter of opinion originally disclosed, at the lower end of the value, noted that it was not an appraisal and that “certain aspects may require more thorough analysis or investigation.” The wife always took the position that the cottage was worth significantly more than that. She had an appraisal that showed that as of December 2019 the cottage had a value of $740,000. By the time they were discussing the cottage’s value in 2021, she received and provided a letter of opinion that the cottage was worth $1.4 million.
[10] In October, 2021, at a settlement conference before O'Brien J., the parties discussed selling the properties. On this motion, the husband placed much weight on a draft order that was prepared after the settlement conference and before the February 4, 2022 Minutes of Settlement were entered into, which ascribed a minimum value to the cottage property of $750,000 and to the matrimonial home of $1,800,000. The wife takes the position that there is little to no evidentiary value to that document. First, it describes minimum values only, second, it was never agreed upon. In my view, the document, along with the letters of opinion, illustrates that there was uncertainty about the true value of the cottage property.
[11] In late January 2022, the wife brought a motion for exclusive possession of the matrimonial home and for an order that the three properties be sold. She provided emails to the husband during this time with information about cottage properties that had sold recently, and she urged the husband to consider them when making up his mind on the asking price for their cottage. Four of the six cottage properties she mentioned had sold for significantly more than $1,000,000. The parties were engaged in some communications with a third party, “Flato”, about potentially selling the cottage property to them.
[12] On February 4, 2022, the parties entered into the first Minutes of Settlement. They agreed to sell the commercial property first. Within 90 days after that property’s sale closed, the Toronto house and the cottage would each be listed for sale. The listing price for the sale of the Toronto house and the cottage would be determined by the listing agents.
[13] The sale of the commercial property closed on May 10, 2022. On May 24, 2022, the wife e-mailed the husband advising that Flato did not appear interested in purchasing the cottage, that she was getting the Toronto house ready for sale and that he should be doing the same with the cottage. The parties then exchanged the following emails, all on Tuesday, May 24, 2022:
- Husband to wife, 11:50 AM, “Flato are interested, they just need a price from you. Give a price that you would accept and I will negotiate it with them.”
- Wife to husband 11:51 AM: “1,400,000:
- Husband to wife 11:52 am “and the house?”
- Wife to husband 11:54 am: “You asked for 1,800,000. I’ll go with that or whatever the agents (sic) says”
- Husband to wife, 11:58 am: “I never asked for anything. This is what the formal valuation says. Have you done the same actual market analysis for the house like you have done for the cottage? Because the difference between the professional valuation for the cottage and your market analysis is almost double. Is the house different?”
- Wife to husband, 12:04 pm: “The same market valuation science that showed that the building is worth $2.2M? [1] Please stop with this. Both properties are going on the market.”
- Husband to wife, 12:21 pm: “can we agree on 600K difference in price between cottage and house, you keep the house or sell it if you want, I keep the cottage?”
- Wife to husband 12:38 PM: I wish it was that easy... it would have been, few months ago. Now, we can agree on $520K difference, which will take care of the $80,000 deposit I already paid for another house. Also, this agreement has to be drafted and signed by Friday, May 27th. Send me the signed agreement by Friday, and you have a deal. I close the deal for the other house on Monday, May 30th.”
[14] The husband's lawyer sent an offer to settle the next day, accompanied by an email that stated, in part: ”I am advised that our clients discussed an informal agreement, whereby your client shall keep the matrimonial home while my client the cottage, and further that your client has agreed to pay the difference in value to my client.” The relevant term in the enclosed offer provided:
As a condition of the transfers of title in paragraph 3 above, and concurrently with the same, the Respondent shall make a payment of $520,000 to the Applicant, which the parties agree is the difference in value between the respective properties, with the matrimonial home being the more costly property.
[15] However, the Minutes contained an additional term not discussed between the parties relating to a car, causing the wife to become angry and decline the settlement. After a few days, she decided to proceed with it. Her lawyer prepared Minutes of Settlement, using the husband’s offer to settle as a starting point. The Minutes were signed in the early morning hours of June 2, 2022. The paragraph regarding payment in the Minutes reads as follows:
Sofia shall pay Emil FIVE HUNDRED and TWENTY THOUSAND DOLLARS ($520,000.00 CAD), being the agreed difference in equity between the matrimonial home and the cottage, notwithstanding any past or future appraisals or the possible sale of each.
[16] Later that day, the wife realised that the Minutes contained an error. Because she and the husband had agreed that the difference in value between the properties was $520,000.00, the equalization payment should have been for $260,000.00. That payment would result in the parties’ financial positions being equalized which, she says, was the intention of the parties. At 3:36 pm June 3, she wrote her lawyer and said, “…it looks like we made a mistake”. Communications between counsel ensued. The husband’s counsel denied any error and replied in part as follows: “This is utterly unacceptable - you cannot seek to change the terms of an offer that has been accepted and signed. It's a done deal valid and enforceable.”
[17] The husband’s position is that the $520,000 represents half of the difference in value between the two properties. He states that the cottage was worth $750,000, and the house $1,800,000, rendering the difference between them $1,050,000. $560,000 represents approximately half of that value. He testified on cross examination that although the parties used the words “difference in price” in their May 24 email exchange, the conversation was about a buyout amount.
Q. Why does it say difference in price then? A. Well, it's the lingo we use, but the word itself is not indicative of the intent behind this conversation.
[18] Thus, the parties agree that the payment to be made was an equalization payment. They disagree on whether they agreed at the time of executing the Minutes of Settlement that the difference in value between the two properties was $520,000 (the wife’s position) or $1,050,000 million (the husband’s position).
Analysis
Should the contract be enforced as written?
[19] The husband argues that there is a strong presumption in favor of enforcing settlement agreements, unless, in limited circumstances, the court is satisfied that there is a risk of clear injustice. He acknowledges that in order to enforce Minutes of Settlement, the court must find that there was a mutual intention to create a legally binding relationship and that there was agreement on all of the essential terms of the settlement. (L-Jalco Holdings Inc. v. Lawrynowicz & Associates, 2018 ONSC 4002 at paras. 33-36). He argues that the court should not be quick to find ambiguity.
[20] Of course, in order for a valid and enforceable contract to exist, the parties must be ad idem on its fundamental terms: Stevens v. Stevens, 2012 ONSC 706 at paras. 63 and 65, affirmed 2013 ONCA 267 at para. 4.
[21] The husband argues that the court should refrain from speculating on a party’s subjective state of mind – it is the objective language of the agreement that should be considered. He argues there was a meeting of the minds that a payment of $520,000, representing half of the difference in value between the properties be paid by the wife, and that the agreement objectively reflects this.
[22] The term in question is clearly ambiguous. It reflects neither party's position on this motion. For it to be clear and unambiguous in the husband's favor, it would have had to include the following change:
Sofia shall pay Emil FIVE HUNDRED and TWENTY THOUSAND DOLLARS ($520,000.00 CAD), being half of the agreed difference in equity between the matrimonial home and the cottage, notwithstanding any past or future appraisals or the possible sale of each.
[23] On the basis of the emails exchanged on March 24, 2022, and the wife’s consistent view of the value of the cottage property, I have no doubt that, had the wife been presented with an agreement in the wording above, she would not have agreed with the term. It is clear that there was no meeting of the minds on the husband’s interpretation, namely that $520,000 represents half of the difference in equity between the two properties. The agreement cannot therefore be enforced as the husband requests. His motion to enforce the Minutes of Settlement is dismissed.
Should the contract be rectified?
[24] The wife argues that the contract should be rectified. She argues that the evidence overwhelmingly supports that the parties did have a meeting of the minds, namely that the difference in value between the properties was $520,000, and therefore the payment owing by her would be $260,000. It was a simple mathematical error that resulted in the wrong figure being included in the Minutes of Settlement, and it should be corrected to read as follows:
Sofia shall pay Emil T WO HUNDRED and SIXTY FIVE HUNDRED and TWENTY THOUSAND DOLLARS ( $260,000 520,000 CAD), being half of the agreed difference in equity between the matrimonial home and the cottage, notwithstanding any past or future appraisals or the possible sale of each.
[25] Rectification is available where a document incorrectly expresses the parties’ true agreement. The purpose of rectification “is to give effect to the party's true intentions, rather than to an erroneous transcription of those true intentions”. The premise underlying this remedy is that it would be unfair to hold a person to be bound by a transaction they never agreed to: Canada (Attorney General) v. Collins Family Trust, 2022 SCC 26 at para. 42 and Canada (Attorney General) v. Fairmont Hotels Inc, 2016 SCC 56 at paras. 12 and 13. It is not available where a party seeks a different agreement; it is meant for a situation where there is an error in recording the agreement entered into. That is, “ … rectification aligns the instrument with what the parties agreed to do, and not what, with the benefit of hindsight, they should have agreed to do.” (Fairmont Hotels at para. 19).
[26] Rectification may be granted on the basis of a common or unilateral mistake (Fairmont Hotels at paras. 14 and 15).
[27] In order for the court to rectify on the basis of a common mistake, the moving party must show, on a balance of probabilities, that there was a prior agreement with ascertainable and definite terms, that it was still in effect at the time the agreement was executed, that the instrument fails to accurately record the agreement, and the instrument, if rectified, would carry out the prior agreement (Fairmont Hotels at para. 38 and Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., 2002 SCC 19; [2002] 1 SCR 678 at paras. 37 to 41).
[28] Rectification is also available when a unilateral mistake is made if the party resisting rectification knew or ought to have known about the mistake, and permitting the party to take advantage of the mistake would be fraud or the equivalent of fraud (Fairmont Hotels at para. 15, Performance Industries at para. 38). Fraud in this context can be “equitable fraud or constructive fraud” and may include unfair dealings and unconscionable conduct (Performance Industries para. 39). The inquiry is an objective one. “The question is what a reasonable observer would have thought in the circumstances, taking into consideration the evidence of the parties and the documentary evidence.” McCabe v Tissot 2015 ONSC 2557 at para. 46.
[29] The wife argues that rectification is available on the basis of a common mistake, in that the husband always meant to receive only half of the equalization, which is $260,000. In the alternative, she argues that it is available on a unilateral mistake, because the husband knew or ought to have known about the mistake and it would be the equivalent of fraud, as described above, to allow him to receive a significant windfall at her expense.
Was there a mistake?
[30] Both parties agree that the intention of the Minutes was that the wife would pay half of the difference in value between the properties, thus equalizing the parties’ financial position once the property transfers had been effected. After a series of questions on this issue in cross-examination of the husband, the following exchange occurred:
Q. As a general principle, you will agree with me that if one of you was going to keep the matrimonial home and the other was going to keep the cottage, the party who was going to keep the matrimonial home, which is the more expensive property, would owe the other 50 per cent of the difference in value between the two properties, right? A. Right.
[31] The question is therefore, did the parties agree that the difference in value between the properties was $520,000, on May 24, 2022?
[32] The wife argues that the husband’s position fundamentally contradicts the content of the May 24 e-mail exchange, which was about the “difference in price”. The husband claims that although that was the “lingo”, it was not the intent.
[33] The husband argues that the wife’s request for an $80,000 reduction from his proposed figure of $600,000, to account for the exact amount of the deposit she had made on another property, indicated to him that the $520,000 was a buy-out figure. Otherwise, he reasons, she would have sought a reduction of $160,000, which would have rendered her portion of the savings $80,000. Unfortunately, what is missing from the email exchange between the parties is the final statement: Wife will pay husband X amount, which is half of the difference in value between the properties.
[34] In his affidavit, the husband swore “in my discussions with [my lawyer], it was clear that the same was her understanding as well, which is why we both believed that a $520,000 payment from the respondent was an equitable agreement in the circumstances.” When asked to produce evidence about the discussions with his lawyer about the May 24 emails and Minutes of Settlement, he refused and claimed privilege. The wife argues that the court should draw an adverse inference against the husband for trying to rely on privilege to refuse to disclose relevant information, particularly where he has already selectively or tactically disclosed other privileged communications in support of his position (Cook v. Joyce 2017 ONCA 49 at para. 99; 2405416 Ontario Ltd. v. 2405490 Ontario Inc., 2016 ONSC 3893 at paras. 35-37, affirmed 2016 ONCA 696 without comment on this point; Morassut v. Jaczynski, 2015 ONSC 502 at paras. 29-30). She asks that the court conclude, by adverse inference, that the information she requested about his communications with his lawyer would have supported her position that the difference in value between the homes was agreed to be $520,000, that she only owes him an equalization payment of $260,000, and therefore that the Minutes contain a common mistake.
[35] Given the husband’s logic, the gulf between what the parties had each communicated the cottage property was worth on earlier occasions, and the lack of precision in the email exchange, I find that there was not a prior agreement with ascertainable and definite terms (Fairmont Hotels at para. 38; Performance Industries Ltd. at paras. 37 to 41). Even assuming that the husband’s communications with his lawyer would not have fully supported his position, I find that there is insufficient basis to order rectification of the contract on the basis of mutual mistake based on the ambiguities above. Nor do I find that rectification should issue on the basis of unilateral mistake. There is no unconscionable result or windfall if the Minutes are set aside. Both parties agreed that, if the June 2, 2022 Minutes of Settlement are set aside, the February 4, 2022 Minutes of Settlement operate. Both properties will be listed for sale in accordance with those Minutes.
Disposition
[36] The husband’s motion to enforce the Minutes of Settlement as written is dismissed. The wife’s cross-motion to rectify the Minutes of Settlement is dismissed. The Minutes of Settlement dated June 2, 2022 are set aside. The February 4, 2022 Minutes of Settlement remain valid.
[37] The parties are encouraged to agree on costs. If they are unable to agree, the respondent may send submissions of no more than five pages each, double spaced, with attached bill of costs and any offers to settle within seven days. The applicant may respond within seven days of receiving the husband’s submissions. There shall be no reply submissions. Submissions may be sent to my judicial assistant at linda.bunoza@ontario.ca.
L. Brownstone J. Date: April 4, 2023
Footnotes
[1] The husband's appraisal had estimated the price of the commercial property at substantially less than what it ultimately sold for.