@B,00022165,OR
@1@Z20080515
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LeVan v. LeVan
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90 O.R. (3d) 1
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Court of Appeal for Ontario,
Doherty, Borins and MacFarland JJ.A.
May 15, 2008
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Family law -- Domestic contracts -- Setting aside -- Husband
deliberately failing to disclose existence of certain assets to
wife prior to entering into marriage contract -- Husband
seriously misrepresenting extent and value of some of disclosed
assets -- Husband misrepresenting nature and terms of marriage
contract to wife -- Wife not receiving effective independent
legal advice -- Contract extremely unfair to wife -- Trial
judge not erring in setting aside contract under s. 56(4) of
Family Law Act -- Family Law Act, R.S.O. 1990, c. F.3, s.
56(4).
Family law -- Property -- Equalization of net family property
-- Unconscionability -- Marriage contract which court has set
aside under s. 56(4) of Family Law Act not constituting written
agreement between spouses within meaning of s. 5(6)(g) of Act
-- Market-driven decrease in value of asset after valuation day
not engaging s. 5(6)(h) of Act -- Family Law Act, R.S.O. 1990,
c. F.3, ss. 5(6)(g), 5(6)(h).
The parties were married for seven years and lived together
for one year before marriage. The husband and his family owned
the majority of shares in W Inc. The husband's father wished to
ensure that shares of that company stayed within the family.
Family members entered into certain agreements which provided
that any family member who wished to continue to hold shares in
W Inc. had to enter into a marriage contract. Before the
parties' marriage, the husband informed the wife that a
marriage contract had to be signed or the wedding would not
take place. He told her that the sole purpose of the contract
was to keep shares of W Inc. in the family. The contract was
drafted by B, a matrimonial lawyer at the same firm as the
family's corporate lawyers. The contract excluded all of the
husband's business interests from net family property and
severely restricted the wife's right to support. R, the lawyer
initially retained by the wife, advised the wife that the
contract was unconscionable. R was fired. Four days before the
wedding, B asked another lawyer, H, to provide the wife with
independent legal advice. H had acted for B in B's own family
law matter. This was not disclosed to the wife. H met with the
wife on one occasion, for approximately one hour, before the
contract was signed. The wife sought to set aside the marriage
contract under s. 56(4) of the Family Law Act. The husband
submitted that if the contract were set aside, the equalization
payment claimed by the wife would be unconscionable. He relied
on ss. 5(6)(h) and 5(6)(g) of the FLA. The trial judge set
aside the marriage contract under s. 56(4) of the FLA and
rejected the husband's unconscionability argument. The husband
was ordered to pay the wife an equalization payment of $5.3
million, in addition to spousal and child support. The husband
appealed.
Held, the appeal should be dismissed. [page2 ]
The trial judge did not err in setting aside the marriage
contract under s. 56(4) of the FLA. She did so on the following
grounds. The husband did not disclose that he held certain
significant assets and he did not disclose the value of the
assets which he did disclose. The wife did not receive
effective independent legal advice, and some advice provided
was wrong. The wife did not understand the nature and
consequence of the marriage contract, and the husband
misrepresented the nature and terms of the marriage contract.
The husband's failure to disclose his entire assets to his wife
was deliberate. The husband interfered with the wife's receipt
of legal assistance from R. While the husband argued on appeal
that the trial judge erred in importing the concept of "value"
into s. 56(4), the husband's failure to disclose value for
certain interests was not critical to the disclosure analysis.
There was an abundance of evidence indicating that the husband
had failed to comply with his disclosure obligations apart from
his failure to disclose value for those assets. This failure
was compounded by the serious misrepresentations respecting the
extent and value of certain of the assets disclosed. The
marriage contract itself was misleading. The wife had no chance
of understanding what she was giving up when she signed the
contract. In deciding how to exercise her discretion under s.
56(4), the trial judge considered the "fairness" of the
contract. Fairness is an appropriate consideration in the
exercise of the court's discretion under s. 56(4). Once a judge
has found one of the statutory preconditions to exist, he or
she should be entitled to consider the fairness of the contract
together with other factors in the exercise of his or her
discretion. There was no reason to interfere with the trial
judge's exercise of her discretion.
The "written agreement between the spouses that is not a
domestic contract" referred to in s. 5(6)(g) of the FLA does
not include a marriage contract that has been set aside by the
court.
The significant market-driven decline in the value of the
husband's shares in W Inc. after the separation was not a
circumstance warranting unequal division within the meaning of
s. 5(6)(h).
There was no error in the trial judge's awards of child and
spousal support.
The trial judge did not err in awarding post-judgment
interest on the equalization payment and the lump sum spousal
support.
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Cases referred to
Arndt v. Arndt (1993), 15 O.R. (3d) 389, [1993] O.J. No. 2350,
107 D.L.R. (4th) 1, 66 O.A.C. 4, 48 R.F.L. (3d) 353, 43
A.C.W.S. (3d) 98 (C.A.), affg (1991), 6 O.R. (3d) 97, [1991]
O.J. No. 1856, 37 R.F.L. (3d) 423, 29 A.C.W.S. (3d) 838 (Gen.
Div.); Berdette v. Berdette (1991), 3 O.R. (3d) 513, [1991]
O.J. No. 788, 81 D.L.R. (4th) 194, 47 O.A.C. 345, 41 E.T.R.
126, 33 R.F.L. (3d) 113, 26 A.C.W.S. (3d) 1314 (C.A.) [Leave
to appeal to S.C.C. refused (1991), 5 O.R. (3d) xii, [1991] 3
S.C.R. v, [1991] S.C.C.A. No. 306, 85 D.L.R. (4th) viii, 137
N.R. 388n, 55 O.A.C. 397n]; Davies v. Davies, [1988] O.J. No. 458, 13 R.F.L. (3d) 278, 9 A.C.W.S. (3d) 209 (H.C.J.);
Demchuk v. Demchuk, [1986] O.J. No. 1500, 1 R.F.L. (3d) 176,
36 A.C.W.S. (2d) 498 (H.C.J.); Dochuk v. Dochuk, [1999] O.J. No. 363, 89 O.T.C. 41, 44 R.F.L. (4th) 97 (Gen. Div.); Dubin v. Dubin, [2003] O.J. No. 547, 34 R.F.L. (5th) 227, 120
A.C.W.S. (3d) 647 (S.C.J.); Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550, [2004] S.C.J. No. 20, 2004 SCC 22, 236 D.L.R.
(4th) 193, 318 N.R. 1, [2004] 6 W.W.R. 1, J.E. 2004-723,
194 B.C.A.C. 161, 25 B.C.L.R. (4th) 1, 47 R.F.L. (5th) 5, 129
A.C.W.S. (3d) 748; Heon v. Heon (1989), 69 O.R. (2d) 758,
[1989] O.J. No. 1457, 34 E.T.R. 252, 22 R.F.L. (3d) 273,
17 A.C.W.S. (3d) 74 (H.C.J.); Hickey v. Hickey, [1999] 2 S.C.R. 518, [1999] S.C.J. No. 9, 172 D.L.R. (4th) 577, 240
N.R. 312, [1999] 8 W.W.R. 485, J.E. 99-1206, 138 Man. R. (2d)
40, 46 R.F.L. (4th) 1, 88 A.C.W.S. (3d) 1044, REJB
1999-12847; [page3 []cf2]Jamal v. Moolla Dawood, Sons & Co.,
[1916] 1 A.C. 175 (J.C.P.C.); Kelly v. Kelly, [1986] O.J. No. 296, 50 R.F.L. (2d) 360, 37 A.C.W.S. (2d) 133 (H.C.J.);
Koiter v. Koiter, [1996] O.J. No. 4490, 21 O.T.C. 3, 67
A.C.W.S. (3d) 1152 (Gen. Div.); Macedo v. Macedo, [1996] O.J. No. 435, 19 R.F.L. (4th) 65, 61 A.C.W.S. (3d) 131 (Gen.
Div.); McCutcheon v. McCutcheon, [1986] O.J. No. 2509, 2
R.F.L. (3d) 327 (Dist. Ct.); Merklinger v. Merklinger (1996), 30 O.R. (3d) 575, [1996] O.J. No. 4080, 26 R.F.L. (4th) 7, 67
A.C.W.S. (3d) 322 (C.A.); Patrick v. Patrick, [2002] O.J. No.
639, [2002] O.T.C. 131, 112 A.C.W.S. (3d) 302 (S.C.J.);
Perrin v. Perrin, [1988] O.J. No. 1468, 17 R.F.L. (3d) 87
(Dist. Ct.); Serra v. Serra, [2007] O.J. No. 446, 36
R.F.L. (6th) 66, 154 A.C.W.S. (3d) 1138 (S.C.J.); Skrlj v. Skrlj, [1986] O.J. No. 404, 2 R.F.L. (3d) 305, 37 A.C.W.S.
(2d) 207 (H.C.J.); Stone v. Stone (2001), 55 O.R. (3d) 491, [2001] O.J. No. 3282, 203 D.L.R. (4th) 257, 156 O.A.C.
345, 39 E.T.R. (2d) 292, 18 R.F.L. (5th) 365, 107 A.C.W.S.
(3d) 269 (C.A.); Warne v. Warne (1992), 8 O.R. (3d) 571,
[1992] O.J. No. 591, 39 R.F.L. (3d) 392, 32 A.C.W.S. (3d)
790 (Gen. Div.)
Statutes referred to
Family Law Act, R.S.O. 1990, c. F.3, ss. 5(6), 52(1) [as am.],
56(4), (7)
Family Law Act, R.S.P.E.I. 1988, c. F-2.1, s. 6(6)
Matrimonial Property Act, R.S.N.S. 1989, c. 275
Rules and regulations referred to
Federal Child Support Guidelines, SOR/97-175
Authorities referred to
Ontario Law Reform Commission, Report on Family Law (Toronto,
Ontario: 1993)
Stark, H., and K. MacLise, Domestic Contracts: A Domestic Guide
to Marriage Cohabitation and Separation Agreements in British
Columbia and Ontario, 2nd ed. (Toronto: Thomson Carswell,
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APPEAL by husband from judgment of Backhouse J. (2006), 82 O.R. (3d) 1, [2006] O.J. No. 3584 (S.C.J.), supp. reasons, [2006] O.J. No. 4599, 32 R.F.L. (6th) 359 (S.C.J.), setting
aside the marriage contract, awarding the wife equalization
payment and ordering the husband to pay spousal and child
support.
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Alan J. Lenczner, Q.C. and Gerald P. Sadvari, for appellant.
Philip M. Epstein, Q.C. and Ilana I. Zylberman, for
respondent.
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The judgment of the court was delivered by
BORINS J.A.: --
I
[1] Richard Bruce LeVan (the "husband") appeals from the
judgment of Backhouse J., which set aside a marriage contract
that he entered into with the respondent, Erika Margaret LeVan
(the "wife") prior to their marriage for failure to comply
with s. 56(4) of the Family Law Act, R.S.O. 1990, c. F.3
("FLA"). [page4 ]The husband was ordered to pay the wife an
equalization payment of $5.3 million as well as retroactive
spousal support of $163,340. The trial judge ordered that post-
judgment interest shall accrue on the entire equalization
payment and the lump sum spousal support from the date of the
judgment. In addition, the trial judge awarded monthly spousal
support of $6,640 based on the husband's yearly income of
$370,000 commencing June 1, 2006, to be reduced pursuant to a
formula in accordance with receipt of the equalization payment
and to be credited against post-judgment interest. The husband
was also ordered to pay child support for two children in the
amount of $4,544 monthly, and retroactive child support of
$43,792. Costs of $646,602.20 were awarded to the wife.
[2] The appellant contends that the trial judge erred as
follows:
(1) In setting aside the marriage contract in accordance with
s. 56(4) of the FLA.
(2) In importing the word and concept of "value" into s. 56(4)
(a) of the FLA.
(3) In failing to find that the equalization payment claimed by
the wife is unconscionable in accordance with s. 5(6) of
the FLA.
(4) In awarding spousal and child support based on the
husband's income of $370,000 for the year 2005.
(5) In awarding post-judgment interest on the equalization
payment and the lump-sum spousal support.
[3] These issues form the basis of this appeal. For the
reasons that follow, I would dismiss the appeal.
II
[4] In lengthy and detailed reasons for judgment, the trial
judge carefully reviewed the evidence and the law, made
findings of fact and reached her conclusion. I will liberally
borrow from the trial judge's reasons for judgment in setting
out the facts leading up to her decision.
III
[5] Before reviewing the facts, it will be helpful to set out
the relevant provisions of ss. 5(6), 52(1) and 56(4) of the
FLA: [page5 ]
5(6) The court may award a spouse an amount that is more or
less than half the difference between the net family
properties if the court is of the opinion that equalizing the
net family properties would be unconscionable, having regard
to,
(g) a written agreement between the spouses that is not
a domestic contract; or
(h) any other circumstance relating to the acquisition,
disposition, preservation, maintenance or
improvement of property.
52(1) Two persons who are married to each other or intend
to marry may enter into an agreement in which they agree on
their respective rights and obligations under the marriage or
on separation, on the annulment or dissolution of the
marriage or on death, including,
(a) ownership in or division of property;
(b) support obligations;
(c) the right to direct the education and moral
training of their children, but not the right to
custody of or access to their children; and
(d) any other matter in the settlement of their
affairs.
56(4) A court may, on application, set aside a domestic
contract or a provision in it,
(a) if a party failed to disclose to the other
significant assets, or significant debts or other
liabilities, existing when the domestic contract
was made;
(b) if a party did not understand the nature or
consequences of the domestic contract; or
(c) otherwise in accordance with the law of contract.
IV
[6] The parties lived together in Listowel, Ontario, from
June 1995 until their marriage on June 22, 1996. There are two
young children of the marriage. The parties separated on
October 27, 2003. The issues involved in this dispute revolve
around a marriage contract that was signed by the parties on
June 20, 1996, two days prior to the marriage.
[7] At the time the marriage contract was signed, the husband
was a very wealthy man. The husband and his family own the
majority of shares of Wescast Industries Inc. ("Wescast"), the
world's largest manufacturer of exhaust manifolds, and a
publicly traded company. Mr. LeVan, Sr., together with his
wife, created a [page6 ]complex corporate structure that
included a number of different companies and a family trust
(the "LeVan Family Trust").
[8] In 1996, the husband and his three siblings each held 25
per cent of the common shares of three companies within the
corporate structure: RyVan Inc. ("RyVan"), Grannyco Investments
Ltd. ("Grannyco") and RWL Investments Ltd. ("RWL"). In
addition, all four siblings were the sole beneficiaries of the
LeVan Family Trust, in which there were significant assets. It
was the opinion of Linda Brent, the wife's valuator, that at
the date of marriage, the midpoint value of the husband's
business assets was over $14 million, after applying
significant discounts and deducting contingent taxes. Ms.
Brent's evidence was uncontradicted, as the husband did not
provide the court with a valuation of his net worth at the
dates of marriage, separation or trial. This would have
assisted the court in assessing the impact of the equalization
payment on his net worth.
[9] It was always the desire of Mr. LeVan, Sr. to protect the
shares of the family company. Thus, any child contemplating
marriage was instructed to enter into a pre-nuptial agreement,
or marriage contract, in which it was provided that the
proposed spouse release all claims to Wescast shares. In this
way, Mr. LeVan, Sr. intended to keep the shares of the family
company within the family.
[10] Mr. LeVan, Sr. retained the services of George Wilson at
Gowling LaFleur Henderson ("Gowlings") as his corporate legal
adviser. With Mr. Wilson's assistance, the LeVan family members
entered into a Voting Trust Agreement and a Unanimous
Shareholders Agreement, to which were attached model marriage
contracts. Each agreement provided that any family member, who
was to be married and who wished to continue to hold shares in
Wescast, had to enter into a marriage contract based on the
model contract. As it was frequently the subject of
conversation around the dinner table at family gatherings, the
husband, his siblings and their prospective partners knew of
the desire to maintain control of Wescast shares within the
family.
[11] The model marriage contract contained provisions to
protect the LeVan family's control of Wescast. However, it did
not require the prospective spouse to agree to exclude assets
from equalization or to limit support rights. Rather, the
agreements restricted the actions that could be taken directly
against the LeVan family companies and stipulated the method of
valuation of the LeVan company shares for the purposes of a
property or support claim.
[12] The husband was the first of the four siblings to enter
into a marriage contract. Before their engagement in December
1995, [page7 ]the wife was aware that if she and Mr. LeVan were
to marry, they would have to enter into a marriage contract as
Mr. LeVan, Sr. wanted to make sure that the Wescast shares
stayed within the family. A month or so after the engagement,
and shortly after the wedding venue was booked for June 22,
1996, the wife broached the subject of the marriage contract
with the husband as she thought it would have to be dealt with
before the wedding. The husband told her not to worry because
there was a lot of time until the wedding. He said that his
lawyers were working on it. He reassured the wife, telling her
that the marriage contract was only to ensure that if they
split up, there would be no possibility of an outsider taking
over Wescast.
[13] However, the husband did nothing about the marriage
contract until May 8, 1996, six weeks before the wedding date.
On that occasion, for the first time, he met with Karen Bales,
a family law lawyer at Gowlings, the corporate lawyers for the
LeVan companies. The husband testified that he had nothing to
do with the property provisions of the marriage contract which
were created and mandated by his father and Mr. Wilson. As
confirmed by Ms. Bales, the husband was only interested in
support provisions and the provision regarding the matrimonial
home. He did not wish to pay the wife support in the event of a
marriage breakdown. Mr. LeVan, Sr. died in April 2003. Mr.
Wilson was not called as a witness.
V
[14] Ms. Bales' first draft of the contract, which she sent
to the husband, provided that the LeVan companies were to be
treated as excluded property, including any property into which
they could be traced. However, there was no restriction on the
wife's right to support and she was entitled to a joint
interest in the matrimonial home. Subsequent changes to the
first draft made the marriage contract more favourable to the
husband and less favourable to the wife. Subsequent drafts
maintained this inequity. A significant change in the final
draft was the insertion of para. 8 (c), which severely
restricted the wife's right to claim support if there was a
marriage breakdown. That clause limited the wife's support to
the income and assets that were not excluded in the contract.
These changes extended far beyond the model marriage contract
attached to the Voting Trust Agreement and the Unanimous
Shareholders Agreement.
[15] On May 16, 1996, Ms. Bales sent the draft marriage
contract to Mr. Wilson. Her accompanying memo informed Mr.
Wilson that under the FLA the husband was required to disclose
to the [page8 ]wife all of his significant assets and
liabilities. She told him that she would like to provide enough
detail to satisfy the other side, without providing more
information than was necessary. She directed Mr. Wilson's
attention to Schedule A to the contract, which constituted the
husband's disclosure. She also directed his attention to a
footnote in that Schedule, which stated that the interests of
the LeVan family members in the LeVan Family Companies were
frozen through an estate freeze in January 1996 at a freeze
value per share of US$9.75. Mr. Wilson did not reply to Ms.
Bales' memo.
[16] Schedule A was the only financial disclosure provided by
the husband. It indicated that the husband had no debts. His
net worth was disclosed as "$80,000 + LeVan Family Companies
interest". It disclosed that the $80,000 was held in RRSPs,
bank accounts and the original house deposit. It disclosed that
the husband owned 100 common shares in RyVan Inc. This Schedule
was accompanied by a declaration that each party had fully and
completely disclosed to the other the nature and extent of all
of his or her significant assets.
[17] However, there was a great deal of information that was
not included in the Schedule A disclosure. The Schedule
provided no disclosure of the husband's income. No values were
inserted for his interest in the LeVan Companies or for his
contingent beneficial interest in the LeVan Family Trust. The
absence of this information proved to be significant, as the
wife's valuator valued the mid-point range of the husband's
business assets at the date of marriage at $14,664,500. In
addition, the husband did not disclose that he owned one common
share in each of Grannyco and RWL. Ms. Brent valued the
midpoint range of these two shares at the date of marriage as
$1.9 million and $7.25 million respectively.
[18] In addition, the footnote included in the Schedule was
later found to have been inaccurate, since not all the interest
in the LeVan Family companies were frozen. The footnote also
failed to disclose how many shares were frozen or how many
shares the husband held. It was of no help in providing
disclosure of the husband's assets. Indeed, as Ms. Bales
acknowledged, the footnote was meaningless as it disclosed
insufficient information.
[19] In late May, the wife was provided with a copy of the
final draft of the marriage contract. The husband advised her
to get her own lawyer to review the contract. She had never had
any dealings with a lawyer. Based on her parents'
recommendation, she retained Paul Ross, a general practitioner
in Goderich, Ontario, who had experience in family law. [page9
[20] On May 28, 1996, Ms. Bales sent Mr. Ross the draft
marriage contract with a covering letter that gave him some
background. She described this as a "first go-round" in the
expectation that Mr. Ross would ask for more information. Mr.
Ross did request additional information. He asked for the
values of the husband's interest in the LeVan companies and for
the holdings in the Family Trust. Although she acknowledged in
her testimony that it was essential that the wife know the
husband's income and her worth, Ms. Bales did not give Mr. Ross
any information other than Schedule A. She testified that she
sent Mr. Ross the information that had been provided to her.
However, as the trial judge observed, Ms. Bales had access to
much more significant information about the husband's income
and net worth through Gowlings and the corporate accountants of
the LeVan Family Companies.
[21] Mr. Ross first met with the wife on June 3, 1996. At
that time, she informed him that her understanding was that the
purpose of the contract was to protect the shares in the LeVan
Family Companies and to ensure that the Wescast shares did not
go outside the family. She also told him that her husband had
said that there would be no marriage unless she signed the
contract. Mr. Ross informed her that the agreement went much
further than merely protecting the family's shares in Wescast
and that, in his opinion, it did not treat her fairly.
[22] In written correspondence to Ms. Bales, Mr. Ross
expressed the view that the contract was unfair and
overreaching and continued to request disclosure of the value
of the holdings in the Family Trust. He even proposed drafting
his own contract. In subsequent correspondence, Ms. Bales
provided some more detailed information concerning the
husband's share holdings, however, she did not provide values.
[23] The further disclosure provided by Ms. Bales was
seriously misleading and littered with informational gaps. Ms.
Bales failed to disclose that [the] husband and his three
siblings had always been treated equally under the LeVan Family
Trust, and that it was his parents' intention to continue to
treat the children equally. She misrepresented that the
husband's contingent interest in the Trust had a "very minimal
value" at the date of marriage, whereas Ms. Brent valued the
holdings of the Trust at $30 million. She responded to Mr.
Ross' request for values for the husband's business interests
as a request for full valuations and refused to provide such on
the basis of cost and time.
[24] In addition, at the request of Mr. Ross, she sent him
copies of the Voting Trust Agreement and the Unanimous
Shareholders Agreement, and directed his attention to the
Schedules to those [page10 ]agreements which set out the
minimum terms of the model marriage contract. This simply
served to enhance Mr. Ross' confusion since the marriage
contract prepared by Ms. Bales did not contemplate equalization
of net family property and was substantially and materially
different from the model contracts in the two agreements.
[25] As the wedding approached and without a contract signed,
the husband began to undermine the wife's relationship with,
and confidence in, Mr. Ross. On June 18, 1996, Mr. Ross
received a message from Ms. Bales' secretary informing him of
the husband's instructions that Ms. Bales have no further
communications with him. Mr. Ross wrote to the wife advising
her that the contract was "unconscionable" and expressing his
concern that undue pressure was being put on her to sign the
contract. It would appear that the wife disregarded this
advice.
[26] With Mr. Ross out of the picture and the wedding a few
days away, Ms. Bales decided to ask Susan Heakes, a family law
specialist with Blake, Cassels and Graydon, if she would
provide independent legal advice to the wife. On Tuesday, June
18, 1996, Ms. Bales left a voicemail for Ms. Heakes requesting
that she act for a wife on a marriage contract. She explained
that the wedding was on Saturday and that the wife wanted to
see her on Thursday to have the contract explained. Ms. Heakes
agreed to act for the wife notwithstanding that the wedding was
imminent because she was comfortable with Ms. Bales being on
the other side and with the wife having had a previous lawyer.
Ms. Heakes had acted for Ms. Bales in her recent divorce. This
was not disclosed to the wife. The wife testified that she was
told by the husband that his lawyer had found another lawyer in
Toronto willing to let her sign the contract.
[27] Ms. Heakes met alone with the wife for approximately one
hour two days before the wedding. During this meeting the
wife's disclosure statement was prepared and a change was made
to the contract to reflect that the house deal had fallen
through. As such, the trial judge found that it was unlikely
that the contract was reviewed in detail. Ms. Heakes relied
entirely on documents provided by Ms. Bales, which consisted of
the same documents provided to Mr. Ross, as well as
correspondence between counsel. These documents contained the
misrepresentations about the husband's financial position. She
did not ask Ms. Bales to insert values for the husband's assets
into Schedule A. Ms. Heakes did not appreciate that the model
marriage contracts did not require the exclusion of business
assets from equalization of net family property. She testified
that she did not remember if she reviewed with the wife the
model marriage [page11 ]contracts contained in the Voting Trust
Agreement and the Unanimous Shareholders Agreement.
[28] The marriage contract was signed on the day the wife met
with Ms. Heakes. The husband testified that up to the day the
contract was signed, he was continuing to tell the wife that if
the contract was not signed, there would be no marriage. As the
trial judge found, in the contract that was signed, the wife's
ability to claim spousal support, contrary to the model
marriage contracts, was significantly compromised. She gave up
her right to share in the increase in value of virtually all of
the husband's assets without knowing the husband's income from
all sources, and without having any idea of his net worth.
Moreover, Ms. Heakes also did not possess this information at
the time she provided legal advice to the wife for the purpose
of signing the marriage contract. Even though she testified
that she would not advise a client without financial
disclosure, she failed to request financial disclosure from Ms.
Bales. Consequently, Ms. Heakes was in no position to advise
the wife in a meaningful way about the marriage contract.
VI
[29] The trial judge thoroughly reviewed the evidence of the
wife's valuator, Linda Brent. She accepted Ms. Brent's
evidence. Using the midpoint, Ms. Brent's opinion was that the
net value of the husband's business interests was $33,277,161
at the date of the separation, and $14,664,500 at the date of
the marriage. The increase in value amounts to $18,612,661.
Based on the closing price of $14 a share on May 29, 2006, Ms.
Brent estimated the value of the husband's holding company to
be $13 million. According to the husband's financial statement
sworn on May 15, 2006, shortly before the trial, his personal
assets totalled $2,112,700. It is important to note that by the
time of trial, there had been a sharp decline in the price of
Wescast shares.
[30] In terms of liquidity, Ms. Brent testified that the
husband had [$] 1.6 million in his personal stock portfolio on
December 31, 2005 and that he could use his holding company to
pay him the redemption amount of his preference shares.
However, this would be limited to $6.3 million of the $9.3
million redemption amount because of a limiting provision in
the company's articles. She thought that other family members
had the financial ability to buy the husband's shares.
[31] Ms. Brent imputed yearly income to the husband of
$496,000 for 2004 and $370,000 for 2005. The wife's position
was that the husband should pay child and spousal support on an
annual imputed income of $370,000. [page12 ]
VII
[32] The trial judge spent considerable time reviewing the
testimony of the witnesses and making findings of credibility.
Her principle finding of fact was that husband had breached his
statutory obligation to provide financial disclosure to the
wife. She found that he didn't make the required disclosure for
two reasons. First, he did not want his wife to know his income
or the value of his assets because he wanted to control their
lifestyle during marriage. Second, he was afraid that full
disclosure might lead to more aggressive demands and a less
favourable contract. Thus, the trial judge concluded that the
husband had deliberately breached s. 56(4)(a) of the FLA by
choosing not to make complete financial disclosure to the wife
of his income and his assets when entering into the contract.
[33] It is now well established that a finding that a party
has violated a provision of s. 56(4) of the FLA does not
automatically render the contract a nullity. Rather, a trial
judge must determine whether it is appropriate, in the
circumstances, to order that the contract be set aside. This is
a discretionary exercise. See Dochuk v. Dochuk, [1999] O.J. No. 363, 44 R.F.L. (4th) 97 (Gen. Div.). Here, the trial judge
determined that it was appropriate to set aside the marriage
contract. She recognized that it was appropriate to exercise
that discretion not simply because of the failure to disclose,
but also because of other factors relevant to s. 56(4), such as
the wife's failure to understand the nature and consequences of
the contract in accordance with s. 56(4)(b).
[34] The trial judge relied upon the following findings to
set aside the marriage contract apart from the husband's
failure to disclose the value of his significant assets:
(1) The husband failed to disclose his income tax returns.
(2) The husband failed to disclose shares that he held in
Grannyco and RWL.
(3) The footnote to Schedule A was inaccurate and did not
contain sufficient information to be meaningful.
(4) The disclosure provided was misleading. For example, the
husband's lawyer stated that his interest in the Family
Trust had a very "minimal value".
(5) The husband's lawyer failed to disclose that he had three
siblings, and that the four LeVan children had always been
treated equally under the Family Trust. [page13 ]
(6) The financial statements for RWL, Grannyco and the Family
Trust were not provided.
(7) The husband's lawyer failed to disclose that, in addition
to being a capital beneficiary of the Trust, the husband
was also an income beneficiary.
[35] The trial judge recognized each of these factors in
support of her determination that the husband had failed to
comply with his disclosure obligation under s. 56(4)(a) of the
FLA. In exercising her discretion to set aside the marriage
contract, the trial judge further identified the following
factors:
(1) The wife did not receive effective independent legal advice
and some advice provided was wrong.
(2) The wife did not understand the nature and consequence of
the marriage contract.
(3) The husband misrepresented the nature and terms of the
marriage contract to the wife.
(4) The husband's failure to disclose his entire assets to his
wife was deliberate.
(5) The husband interfered with the wife's receipt of legal
assistance from her first lawyer, Mr. Ross.
[36] Virtually all of the trial judge's findings that I have
outlined, in one way of another, were material to the wife's
decision to sign the marriage contract.
[37] In exercising discretion to set aside the marriage
contract, the trial judge rejected the husband's position that
even though he failed to disclose his assets, the wife would
have signed the contract in any event because she was intent on
marrying him. At para. 226, the trial judge commented:
It is submitted on behalf of the husband that regardless of
what his net worth and income were and regardless of whether
there were misrepresentations about his finances, they were
not material as the wife would have signed the contract
anyway. It is clear that the wife wanted to get married and
that the husband was insisting that the contract be signed
before getting married. The wife stated on cross-examination
that no matter what number was in the husband's Schedule A,
that she was going to sign the contract because she wanted to
get married and "because she was signing this contract to
protect Bruce's interest in Wescast". I find that the wife
was acknowledging that she understood that there would be no
marriage without a marriage contract. I do not agree that she
was acknowledging that she would sign any contract regardless
of its terms and regardless of the extent of her future
husband's income and assets. She was prepared to "protect
[page14 ]Bruce's interest in Wescast". I find that she
understood that the contract did this because of her future
husband's misrepresentations. Had the husband disclosed the
value of his assets and his income, this would have given the
wife's lawyers an opportunity to negotiate provisions less
onerous to the wife. I find that had he fully disclosed as
required, it is likely that the marriage contract would have
been more favourable to the wife, or that the wife,
recognizing how unfair it was, would have refused to sign it.
VIII
[38] Having set aside the marriage contract, the trial judge
was then required to determine how to properly equalize the
parties' net family property. She relied on the evidence of the
wife's valuator to determine the husband's net family property
to be $20,654,416.52 and that of the wife to be $211,298.45.
She held that the equalization payment by the husband to the
wife would be $10,221,559.04. The husband argued that under s.
5(6)(g) and (h) of the FLA there should be an unequal payment.
He stated that in the circumstances it would be unconscionable
to equalize the net family properties. He relied on the
decrease in value of the Wescast shares and the terms of the
marriage contract. He submitted that given the restrictions on
the transfer of the Wescast shares, it would be unconscionable
to place any value on the shares other than their current
value. The husband further submitted that any equal division
would result in his entire net worth being given to the wife,
which would be unconscionable.
[39] The wife's position was that it is the value of the net
family properties on the valuation date, in this case, the date
of separation, that is determinative. As it is to be expected
that market values or conditions will have changed from the
date of separation to the date of trial, this cannot be said to
be unconscionable. Counsel for the wife submitted that if the
decrease in value of Wescast shares was relevant, then only the
decrease that occurred after the husband could reasonably have
sold his shares should be considered, as he must assume
responsibility for any loss arising from his delay in failing
to sell his shares. Counsel for the wife told the court that if
the contract was set aside, the wife was willing to accept an
equalization payment of $5.3 million. He stated that it would
not be unconscionable to require the husband to pay
approximately 50 per cent of the equalization payment
calculated by Ms. Brent and accepted by the trial judge.
[40] The trial judge stated that the proper approach to the
application of s. 5(6), as stated by this court in Stone v. Stone (2001), 55 O.R. (3d) 491, [2001] O.J. No. 3282 (C.A.), at
para. 39, is as follows: [page15 ]
(1) Establish each spouse's net family property pursuant to s.
4 of the FLA by determining and valuing the property owned
by each spouse on the valuation date;
(2) Apply s. 5(1) of the FLA and determine the equalization
payment; and
(3) Decide whether, in view of circumstances in s. 5(6), it
would be unconscionable to equalize net family properties.
See, also, Berdette v. Berdette (1991), 3 O.R. (3d) 513, [1991]
O.J. No. 788 (C.A.). As the first two steps had been
determined, the trial judge said that what remained was to
decide whether unconscionability applied. She added, correctly,
that the circumstances which are claimed to be unconscionable
must come within at least one of the subsections of s. 5(6):
Berdette v. Berdette, supra.
[41] The trial judge found that s. 5(6)(g) did not apply as
the "written agreement" contemplated by that provision does not
include a marriage contract that the court has set aside.
[42] The trial judge considered the more difficult issue to
be whether a decrease in net family property that is solely
market driven and not caused by a party's conduct falls within
s. 5(6)(h). No case was provided by counsel on whether such a
decrease has been recognized as a basis for unconscionability
under s. 5(6)(h). The trial judge developed the conclusion that
s. 5(6)(h) was not engaged on the facts of this case. In
reaching this determination, she relied on the Ontario Law
Reform Commission's 1993 Report on Family Law, that expressed
the view that s. 5(6) did not authorize the court to consider
post-valuation date fluctuations in value of net family
property, and that recommended that the FLA be amended to
provide such authorization.
[43] Notwithstanding this conclusion, the trial judge went on
to consider what her view would have been if the decrease in
the value of the Wescast shares could have been the basis for a
finding of unconscionability under s. 5(6). At para. 270, she
concluded as follows:
The husband did not do a valuation of his net worth at the
date of separation or trial. Ms. Brent's rough estimate of
the husband's net worth at trial was approximately $15
million. This is a heavily discounted value. An equalization
payment of $10 million would leave the husband with
substantially less in value than the wife. In my opinion,
this result shocks my conscience and I find it
unconscionable.
[44] The trial judge then proceeded to calculate an unequal
division of the parties' net family property on the ground of
unconscionability notwithstanding her finding that s. 5(6) did
not [page16 ]apply. The trial judge adopted counsel for the
wife's submission that the correct approach is to fix an amount
that is closest to the equalization payment in the particular
circumstances of the case. This was in contrast to the approach
advanced by the husband's counsel, who argued that the court
should determine the variation based on principles of
"fairness", approaching the matter from an equitable
perspective. At para. 274, the trial judge said:
In my respectful opinion, Mr. Epstein's submission [counsel
for the wife] is more consistent with the Act. Instead of
imposing one's own assessment of fairness, the court
determines when unconscionability ends. In this way, the
basic principle of equal division is only departed from to
the extent necessary to avoid unconscionability. Many equal
divisions may be unfair. But, unless unconscionable, these
are operative.
[45] Clearly influenced by the wife's compromise offer to
accept approximately one half of the equalization payment to
which the trial judge found she was entitled, at para. 275 the
trial judge concluded:
In my opinion, $5.3 million which is all that is requested,
is not unconscionable. I base this conclusion on the fact
that the shares did not decrease in value immediately. The
husband could have protected himself by a disposition. He
chose not to. Placing the entire loss on the wife would be
unfair. Sharing it more or less equally results in a net
family property of $5,000,000 plus the house or $5.3 million.
IX
[46] In assessing child support, the trial judge accepted Ms.
Brent's calculation of $370,000 as the husband's annual income
for 2005. Applying the Federal Child Support Guidelines, SOR/
97-175, she ordered that he pay support for the two children
in the monthly amount of $4,544. She further found, on the
basis of Ms. Brent's calculations, that the husband was
required to pay the wife $43,792 for retroactive child support.
[47] In an addendum to her reasons for judgment, the trial
judge dealt with spousal support and post-judgment interest. As
she had imputed $370,000 as the husband's annual income for
child support, she accepted the same amount for spousal
support. She awarded $6,640 a month, and provided a formula for
its reduction, and awarded retroactive spousal support of
$163,340.
[48] Without any discussion, the trial judge ordered that
post-judgment interest accrued from the date of judgment on the
entire equalization payment and the lump sum spousal support.
X
[49] I will now address the two main issues involved in the
appeal, followed by the remaining issues. First, I will
consider [page17 ]whether the trial judge erred in setting
aside the marriage contract in accordance with s. 56(4) of the
FLA. As for the second, the court was asked to articulate the
proper approach to the unequal division of net family property
under s. 5(6)(h) of the Act. As I will explain, in my view it
is not appropriate to consider this question given that the
trial judge found that s. 5(6) was not engaged. How the trial
judge was able to make an unequal division in these
circumstances is not entirely clear from her reasons. In any
event, as I understand the husband's appeal, it is contended
that the trial judge erred in the amount awarded to the wife on
an unequal division of the parties' net family properties.
[50] Section 56(4) of the FLA was designed to address and
codify prior concerns maintained by courts that both parties
fully understood their rights under the law when contracting
with their spouses. [See Note 1 below] It has been characterized
as the "judicial oversight" provision of marriage agreements:
Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550, [2004] S.C.J. No. 20, 2004 SCC 22, at para. 14. The provision is of such significance that, in
accordance with s. 56(7), it cannot be waived by the parties.
[51] The analysis undertaken under s. 56(4) is essentially
comprised of a two-part process: Demchuk v. Demchuk, [1986]
O.J. No. 1500, 1 R.F.L. (3d) 176 (H.C.J.). First, the court
must consider whether the party seeking to set aside the
agreement can demonstrate that one or more of the circumstances
set out within the provision have been engaged. Once that
hurdle has been overcome, the court must then consider whether
it is appropriate to exercise discretion in favour of setting
aside the agreement. This approach was adopted and applied by
the trial judge in this case.
[52] As discussed, the issue of focus at trial was whether
the husband had complied with his financial disclosure
obligation under s. 56(4)(a). In Patrick v. Patrick, [2002]
O.J. No. 639, 112 A.C.W.S. (3d) 302 (S.C.J.), the husband
failed to disclose either the existence or value of his RRSPs
prior to entering into a marriage contract. At trial, the
husband argued that his failure to disclose was immaterial,
since the RRSPs were not to be shared at any time, regardless
of their value. Mesbur J. rejected this argument, noting at
para. 53 that "[p]arties are, therefore, not even permitted to
contract out of the obligation to disclose" and ordered that
the contract be set aside for failure to make financial
disclosure in accordance with s. 56(4)(a). In reaching this
[page18 ]conclusion, at para. 52 the trial judge emphasized
the importance of ensuring that parties have a full
understanding of their rights before entering into such
contracts:
Marriage contracts are a device by which parties can opt out
of most or part of the Family Law Act, its property
provisions, its support provisions, or both. Fundamental to a
choice to opt out of the legislative scheme is a clear
understanding of what one's rights and obligations might be
if there were no marriage contract. It is in this context
that financial disclosure is critical.
[53] This view is reinforced in Dubin v. Dubin, [2003] O.J.
No. 547, 34 R.F.L. (5th) 227 (S.C.J.), at para. 32:
. . . knowing assets and liabilities at the date of the
agreement is fundamental to an eventual calculation of net
family property. A party needs to know what asset base might
potentially grow, in order to determine what he or she is
being asked to give up in the agreement. Coupled with
financial disclosure is the notion of understanding legal
rights and obligations under the legislative scheme. This
second notion carries with it the concept of independent
legal advice. Thus, a party must know what assets and
liabilities exist at the date of the contract, and must
understand the general legislative scheme in order to know
what he or she is giving up in the proposed agreement.
[54] In this case, the disclosure provided by the husband was
insufficient to enable the wife to have a clear understanding
of exactly what rights she was giving up by entering into the
contract. The husband failed to disclose that he held shares in
Grannyco and RWL, which were found to be of significant value.
He failed to provide any financial statements for Grannyco, RWL
or the Family Trust. No income tax returns were provided for
the husband and there was no disclosure whatsoever of his
income. Overall, the information provided by the husband made
it impossible to calculate or determine his net worth.
[55] While he disclosed his interest in "significant assets"
such as the LeVan Companies and the LeVan Family Trust, he
failed to disclose values for these interests. At trial, the
husband's interest in the Family Trust was valued at $3.4
million at the date of marriage. The trial judge found that the
husband's disclosure obligation required him to disclose the
value of these significant assets.
[56] On appeal, the husband argued that the trial judge erred
in importing the word "value" into s. 56(4)(a), contrary to the
plain wording of the section. He noted that the term "value" is
used extensively throughout other parts of the statute. Thus,
the legislature is presumed to have expressly excluded "value"
from s. 56(4). In addition, the husband submitted that it would
be onerous and expensive to require valuations for marriage
contracts and would often result in parties making estimates of
values, thereby creating a risk of misrepresentation, which in
itself could be a basis to set aside the agreement. [page19 ]
[57] The trial judge relied on the decision in Demchuk v.
Demchuk, supra, in support of her conclusion that the
disclosure obligation under s. 56(4)(a) encompasses an
obligation to disclose the value of the assets. There is no
case law that supports the husband's position that the positive
obligation required by s. 56(4)(a) can be met by providing only
a list of significant assets without some indication of value
being attributed to them. Having said this, I note that the
trial judge did not engage in a detailed statutory
interpretation of the absence of the term "value" from the
provision. As such, I see no reason to engage in such an
analysis here. Moreover, the trial judge's findings of fact
which I have outlined in paras. 34 and 35 fully support her
decision to set aside the marriage contract, essentially on the
basis of the husband's reprehensible conduct leading to the
signing of the marriage contract.
[58] In the circumstances of this case, it is my view that
the husband's failure to disclose value for his interests in
the LeVan Companies and the Family Trust is not critical to the
disclosure analysis. As the trial judge indicated in her
findings, there is an abundance of evidence indicating that the
husband had failed to comply with his disclosure obligation
apart from his failure to disclose value for these assets. As
discussed, this failure was compounded by the serious
misrepresentations respecting the extent and value of certain
of the assets disclosed.
[59] In addition, the marriage contract itself was
misleading. Ms. Bales incorporated the terms of the model
marriage contract under the Voting Trust Agreement which
stipulated the method of valuation of the LeVan company shares
for the purpose of a property or support claim. As admitted by
Ms. Bales, someone reading this agreement might believe that it
contemplated a valuation of the shares in the LeVan family
companies. These facts coupled with the wife's misunderstanding
about the effect of the contract meant that the wife had no
chance whatsoever of understanding what she was giving up when
she signed the contract.
[60] Based upon the trial judge's 12 findings of fact that I
have outlined, she properly exercised her discretion to set
aside the contract for failure to comply with s. 56(4)(a). In
deciding how to exercise discretion, the trial judge considered
the "fairness" of the contract. The appellant emphasizes that
unfairness in a contract is not a proper basis for setting aside
marriage contracts in Ontario. [See Note 2 below] Although there
is nothing in the governing legislation [page20 ]that suggests
that fairness is a consideration in deciding whether or not to
set aside a marriage contract, I do not see why fairness is not
an appropriate consideration in the exercise of the court's
discretion in the second stage of the s. 56(4)(a) analysis. In
my view, once a judge has found one of [the] statutory
preconditions to exist, he or she should be entitled to consider
the fairness of the contract together with other factors in the
exercise of his or her discretion. It seems to me that a judge
would be more inclined to set aside a clearly unfair contract
than one that treated the parties fairly.
[61] However, this was not the only reason the trial judge
articulated in support of her decision to set aside the
contract. As I have stated, in exercising her discretion, the
trial judge also made the following findings: (i) the husband
had interfered the wife's lawyer of choice; (ii) the wife's
lawyers were unable to appreciate the consequences of the
contract and impart them to the wife due to lack of financial
disclosure and misrepresentations; (iii) the wife had not
received effective independent legal advice and some advice
provided was wrong; and (iv) the wife did not understand the
nature or consequences of the contract she signed.
[62] These findings are reasonably supported by the evidence
presented at trial. I therefore see no reason to interfere with
them in this case. In essence, the trial judge found that the
husband failed to make full disclosure of his significant
assets, that his disclosure was incomplete and inadequate and
that his failure to make full disclosure was a deliberate
attempt to mislead his wife. As such, the trial judge's
decision to set aside the contract should be upheld.
XI
[63] Section 5(6) of the Family Law Act empowers the court to
award a spouse an amount that is more or less than one-half the
difference between their net family properties where the court
is of the view that equalization would be unconscionable. The
court's authority to order unequal division is severely
restricted to those circumstances that are "unconscionable" and
that fall within the specific circumstances set out in clauses
(a) through (h) of s. 5(6).
[64] In this case, the husband advanced the argument at trial
that s. 5(6)(g) and (h) applied to support an unequal division
of matrimonial property.
[65] As noted, the trial judge concluded that s. 5(6)(g) was
not applicable since the marriage contract had been set aside
in its [page21 ]entirety. I agree with that view. Section 5(6)
(g) was not designed to include a marriage contract that has
been set aside by the court.
[66] In finding that the significant decline in the value of
the husband's shares after separation was not a circumstance
warranting unequal division within the meaning of s. 5(6)(h),
the trial judge stated the following at para. 267:
The legislature chose a specific day for valuation. Increases
and/or decreases after this day will frequently occur. Some
of these will be large. The longer the delay between
valuation day and the trial date, the more likely that
fluctuations may occur. I recognize that the threshold of
unconscionability is a high one, but had the legislature
intended that post valuation date increases and decreases in
value might form the basis of a s. 5(6) application, I think
it likely, given the frequency of these events, that it would
have included a provision to this effect.
[67] In assessing this issue, it is important to note that
Ontario's FLA does not give rise to a proprietary entitlement,
nor does it provide either spouse with an interest in the
assets accumulated during the marriage. Instead, the FLA
provides for an equalization payment on the date of separation.
A sum of money must be assessed as a substitute for the
property that the spouse would have had at the end of the
marriage. As a result, the spouse with the lower net family
property becomes an unsecured creditor of the spouse with the
higher net family property in the amount of the equalization
payment.
[68] The framework established by the legislation introduces
a debtor-creditor regime that focuses on the sharing of the net
value of the property acquired during marital cohabitation. See
Berdette v. Berdette, supra. The debt crystallizes and becomes
owing on the date of separation. Thereafter, financial
increases or decreases experienced by the debtor are of no
concern to the creditor, unless the debtor files for
bankruptcy. [See Note 3 below]
[69] The rationale behind the trial judge's finding in this
case finds support in the decision of Warne v. Warne (1992), 8
O.R. (3d) 571, [1992] O.J. No. 591 (Gen. Div.), in which Walsh
J. stated [at para. 26]: [page22 ]
Given the carefully crafted complex property scheme
propounded in Part I of the Act, dependant as it is on events
prior to separation, it is difficult to conceive that the
legislature, without so specifically providing, intended one
subsection thereof, s. 5(6)(h) to entirely change this scheme
and permit consideration of post-separation events.
[70] This view has since been adopted in a number of cases.
In Kelly v. Kelly, [1986] O.J. No. 296, 50 R.F.L. (2d) 360
(H.C.J.), the court held that a decline in the value of
farmlands post-separation was not a circumstance that warranted
unequal division. The court noted that "other circumstances"
within the meaning of s. 5(6)(h) were circumstances relating to
pre-valuation date circumstances. This view was also adopted in
Arndt v. Arndt (1991), 6 O.R. (3d) 97, [1991] O.J. No. 1856
(Gen. Div.), Skrlj v. Skrlj, [1986] O.J. No. 404, 2 R.F.L.
(3d) 305 (H.C.J.), and Heon v. Heon (1989), 69 O.R. (2d) 758, [1989] O.J. No. 1457 (H.C.J.).
[71] In Arndt, Conant J. stated at p. 103 O.R.:
I am mindful and have considered s. 5(6) of the Family Law
Act, 1986 as to unequal payment. Although the market has
considerably declined since the valuation date, a declining
market is not one of the factors set out in s. 5(6) and I am
not empowered to vary the equalization payment on that basis.
In Kelly v. Kelly (1986), 50 R.F.L. (2d) 360 (Ont. H.C.J.),
Potts J. was of the view that s. 5(6) refers to circumstances
in existence prior to, or as of the date of separation. He
seriously doubted that, even if a decrease in the value of
property after separation created an unconscionable result,
one could vary the equalization payment under s. 5(6). At p.
366, he stated the following:
. . . even if I had decided that it was unconscionable, I
seriously doubt that s. 5(6) has any application because
valuation is determined as of the date of separation and
"debts or other liabilities" mentioned in para. (f) and
"other circumstances" mentioned in para. (h) refer to
debts or other liabilities and other circumstances in
existence prior to, or as of, the date of separation. There
are no transitional provisions in the Family Law Act which
would apply in these circumstances.
Accordingly, there will be no adjustment for declining
prices of real estate under that section.
[72] An appeal to this court was dismissed: (1993), 15 O.R. (3d) 389, [1993] O.J. No. 2350 (C.A.). While both the
majority and the dissenting reasons offer some support for the
position of Conant J., in my view it cannot be said that the
issue was decided by this court.
[73] More recently, in Serra v. Serra, [2007] O.J. No. 446,
36 R.F.L. (6th) 66 (S.C.J.), Herman J. refused to impose an
unequal division under s. 5(6)(h) where the value of the
husband's business had declined significantly after separation.
The trial judge noted the following at paras. 134 and 135:
Turning to the language of s. 5(6)(h) itself, a market-
driven decline in value does not appear to come within the
"acquisition, disposition, preservation, maintenance or
improvement" of a property. This is to be contrasted [page23
]to a situation in which the conduct of a spouse had an
impact on the value of the property.
I conclude that the circumstances in which a court may
order an unequal division of net family property under s.
5(6) do not include a market-driven decline in the value of
the property.
[74] However, the courts have not fully rejected the
possibility of considering post-separation circumstances under
s. 5(6). On some occasions, courts have interpreted s. 5(6) as
permitting the adjustment of the equalization payment in light
of all circumstances existing at the time the case is decided.
See the brief endorsement in Merklinger v. Merklinger (1996),
30 O.R. (3d) 575, [1996] O.J. No. 4080, 26 R.F.L. (4th) 7
(C.A.). Such approach clearly suggests that the court may
account for post-valuation date events in considering the
application of s. 5(6). This approach was also adopted in the
following cases: Davies v. Davies, [1988] O.J. No. 458, 13
R.F.L. (3d) 278 (H.C.J.); McCutcheon v. McCutcheon, [1986] O.J. No. 2509, 2 R.F.L. (3d) 327 (Dist. Ct.); Perrin v. Perrin,
[1988] O.J. No. 1468, 17 R.F.L. (3d) 87 (Dist. Ct.); and
Macedo v. Macedo, [1996] O.J. No. 435, 19 R.F.L. (4th) 65 (Gen.
Div.). However, it is important to point out that in each of
these cases, the court's decision to order an unequal division
under s. 5(6) was related to the conduct of one of the spouses
post-separation, or, in the case of Perrin, related to the
medical condition of the wife post-separation.
[75] Thus, there does seem to be room within s. 5(6) to
consider post-separation circumstances in limited situations,
such as where the conduct of one spouse post-separation has
resulted in a significant depletion of assets. Nevertheless, the
cases that have considered post valuation date fluctuations in a
spouse's net family property are uniform that this factor does
not come within the stipulated grounds in s. 5(6). [See Note 4
below] However, in the context of this case, for the reasons
that follow, I am of the view that it is not appropriate in this
case to consider the decrease in the value of the husband's
assets subsequent to the valuation date.
[76] First, it is as a result of the husband's
misrepresentations and his own conduct in failing to provide
proper financial disclosure that has put him into the situation
of having his property and the value of the shares subject to
the equalization provisions of the FLA. [page24 ]
[77] Second, as determined by the trial judge, the husband
could have disposed of his shares to hedge against the setting
aside of the contract, but he chose not to do so. In making
this determination, the trial judge considered the evidence of
the legal experts, Tim Youdan and Michael Disney of Davies,
Philips, Vineberg, who produced a report that provided that the
husband had no ability to directly sell the Wescast shares. At
para. 243, the trial judge makes the following finding in this
regard:
I accept [the evidence of Ms. Brent] that "prohibited
transfer" in the Youdan report does not mean that a sale of
the husband's shares cannot occur. Rather, it is a defined
term that triggers the right of first refusal by the siblings
and then a conversion of the shares into Class A shares.
[78] The trial judge also accepted the evidence of Ms. Brent
that the husband had the right to redeem his preference shares
in RyVan at any time, and that the right of first refusal by
his family created a market and some liquidity. There was also
evidence that Wescast shares could be sold through secondary
offerings and through "bought deal" arrangements with
institutional investors. In my view, it is not unconscionable
to force the husband to bear the consequences of his choices in
light of the trial judge's finding that "[t]he husband could
have protected himself by a disposition".
[79] Third, no one would suggest that any ordinary creditor
share the burden of a debtor's reversal of fortune. For all
other purposes, including bankruptcy, the wife is treated as an
ordinary unsecured creditor. The application of this rule is
consistent with the common law in relation to publicly traded
shares. When there is a breach of contract and shares of a
publicly traded company are involved, Lord Wrenbury's decision
in Jamal v. Moolla Dawood, Sons & Co., [1916] 1 A.C. 175
(J.C.P.C.) has been consistently applied. Lord Wrenbury says
at p. 179, if the seller retains the shares after the breach,
the speculation as to the way the market will subsequently turn
is the speculation of the seller, not of the buyer; the seller
cannot recover from the buyer the loss below the market price
at the date of the breach if the market falls, nor is he liable
to the purchaser for the profit if the market rises.
[80] For these reasons, I would not interfere with the trial
judge's finding that s. 5(6) is not engaged on the facts of
this case.
[81] The husband did not challenge the $5.3 million
equalization payment on the ground that the trial judge
exceeded her authority in ordering an unequal division of the
net family properties once she found that none of the
circumstances in s. 5(6) of the FLA were engaged. It is to be
recalled that after reaching this conclusion, she went on to
consider what her view would have [page25 ]been if the decrease
in value of the Wescast shares could have been the basis for a
finding of unconscionability under s. 5(6). It would, however,
appear that the trial judge would have found that an
equalization payment of $10 million was unconscionable as it
would leave the husband with substantially less in value than
the wife. However, it is significant that the ultimate
equalization payment of $5.3 million ordered by the trial judge
was a result of the wife's compromise proposal to accept that
amount as conveyed by her counsel during argument, being an
amount that counsel and the trial judge felt was not
unconscionable. I can find no reason other than the wife's
compromise for the trial judge's award of an unequal division
of the net family properties. This was the reason the trial
judge awarded an unequal equalization payment, a result that
clearly benefited the husband.
[82] Whether the trial judge had authority under the FLA to
make this award, which I doubt, was not raised by either party
as a ground of appeal. Rather, the husband challenged the $5.3
million payment on the ground that he could not afford to pay
this amount. However, having found that s. 5(6) was not
engaged, the trial judge could not have been criticized had she
awarded the wife an equalization payment of $10 million on the
basis of Ms. Brent's calculations. As I have indicated, the
husband received a substantial benefit when the trial judge
reduced the equalization payment to $5.3 million.
[83] Counsel for the parties presented substantial trial
submissions on the proper approach to an unequal division to
net family properties when s. 5(6) is engaged. As I have
indicated, as s. 5(6) was not engaged, it would not be
appropriate to deal with this issue.
[84] Therefore, I would not vary the equalization payment of
$5.3 million.
XII
[85] The remaining grounds of appeal allege error on the part
of the trial judge in awarding child and spousal support based
on the husband's income of $370,000 for the year 2005, and in
awarding post-judgment interest on the equalization payment of
$5.3 million and on the retroactive support of $163,340 payable
to the wife.
[86] In my view, the trial judge did not err in awarding
child support and spousal support on what was an essentially
imputed annual income of the husband for 2005 of $370,000 as
determined by the wife's valuator, Ms. Brent. In Hickey v. Hickey, [1999] 2 S.C.R. 518, [1999] S.C.J. No. 9, at paras.
10-12, the Supreme Court held that appeal courts should not
overturn support orders unless the trial judge's reasons
disclose an error in principle, a [page26 ]significant
misapprehension of the evidence or that the award is clearly
wrong. In my view, the husband failed to demonstrate any of
these factors.
[87] The husband did not produce an income report, nor did
his counsel cross-examine Ms. Brent on her income report. The
trial judge was entitled to accept Ms. Brent's calculation. I
would not interfere with the trial judge's awards of child and
spousal support based on an imputed 2005 income of $370,000.
[88] As for the wife's entitlement to post-judgment interest,
the trial judge ordered that the equalization payment and the
retroactive spousal support payment be paid over a period of
about two years. She did so not on the basis that the husband
lacked the present ability to pay, but on the basis of the
wife's concession and because it was a reasonable period of
time for the husband to liquidate his stocks. Where
equalization payments are payable over a period of years, the
courts award post-judgment interest as a matter of course. In
Koiter v. Koiter, [1996] O.J. No. 4490, 67 A.C.W.S. (3d) 1152
(Gen. Div.), at para. 22, the court noted that "it should be
the rule, rather than the exception" that an equalization
payment attracts interest. To do otherwise would effectively
alter the amount of the equalization payment found owing in the
first place, due to the time value of money. Therefore, I would
not give effect to this ground of appeal.
XIII
[89] For all of the above reasons, I would dismiss the appeal
with costs. Counsel for the respondent has ten days from the
release of these reasons to make brief submissions in respect
to costs. Counsel for the appellant will have seven days to
reply.
Appeal dismissed.
Notes
Note 1: H. Stark and K. MacLise, Domestic Contracts: A
Comprehensive Guide to Marriage Cohabitation and Seperation
Agreements in British Coloumbia and Ontario, 2nd ed. (Toronto:
Thomson Carswell, 2006), at p. 1-52.
Note 2: This is in contrast with the approach in British
Columbia, where the primary policy objective guiding the courts'
role in division of assets on marital breakdown is fairness:
Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550, [2004] S.C.J. No. 20, 2004 SCC 22, at para. 8.
Note 3: This is in contrast to the approach in some other
provinces such as Nova Scotia which, under the Matrimonial
Property Act, R.S.N.S. 1989, c. 275, provides the spouses with
an equal right to share in the assets accumulated during
marriage. Under this approach, it might make more sense for the
court to account for post-separation decreases in the value of
the property since the legislation provides a spouse with the
right to a share of the actual asset.
Note 4: There are provinces where family law legislation
expressly permits the court to consider this factor in
equalization of the parties' property. See, e.g., Family Law
Act, R.S.P.E.I. 1988, c. F-2.1, s. 6(6).
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