Virc v. Blair et al.
[Indexed as: Virc v. Blair]
Ontario Reports
Court of Appeal for Ontario,
Cronk, Pepall and Strathy JJ.A.
May 14, 2014
119 O.R. (3d) 721 | 2014 ONCA 392
Case Summary
Family law — Domestic contracts — Disclosure — Applicant seeking to set aside separation agreement on ground that respondent had materially misrepresented value of his date of marriage property for parties' equalization calculation — Motion judge granting respondent's motion for summary judgment on ground that applicant's failure to examine veracity of respondent's financial disclosure was fatal to her case — Applicant's appeal allowed — Motion judge erring in shifting onus to applicant to inquire as to veracity of respondent's financial disclosure after assuming that there had been deliberate misrepresentation — Burden being on party disclosing to establish actual knowledge of falsehood by recipient.
The parties entered into a separation agreement in 2008. In 2010, the applicant commenced an application to set aside the agreement on the ground that the respondent had materially misrepresented the value of his date of marriage property for the parties' equalization calculation. The respondent moved successfully for summary judgment dismissing the application. For the purposes of the summary judgment motion, the motion judge proceeded on the assumption that the date of marriage value for the respondent's company used by the respondent on his net family property statement was affected by his deliberate acts or omissions and that the equalization payment may have been substantially less than the applicant's entitlement. However, she concluded that even if the numbers provided by the respondent were deliberately false, there was no genuine issue for trial relating to the setting aside of the separation agreement, as the applicant's failure to examine the veracity of the respondent's financial disclosure was fatal to her case. The applicant appealed.
Held, the appeal should be allowed.
Once the motion judge assumed that there had been deliberate material misrepresentations, she erred in shifting the onus to the applicant to inquire as to the veracity of the respondent's financial disclosure. In the face of a deliberate material misrepresentation, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient. Moreover, the motion judge erred in granting summary judgment when relevant factors that required a determination were left unsolved. There were genuine issues requiring a trial concerning the applicant's state and extent of knowledge of the respondent's misrepresentations at the time she executed the agreement. The application should proceed to trial on all issues, with the exception of the appellant's claim that the separation agreement was unenforceable as the signature was not witnessed. The applicant admitted signing the agreement, accepted the benefits of the agreement and waited for almost two years to raise the issue of non-compliance with s. 55(1) of the Family Law Rules, O. Reg. 114/99. Moreover, a co-worker of the respondent who recognized the applicant's signature purported to witness both parties' signatures. It was not open to the applicant to successfully assert non-compliance with s. 55(1). [page722]
Armstrong v. Armstrong, 2006 32899 (ON CA), [2006] O.J. No. 3823, 215 O.A.C. 193, 32 R.F.L. (6th) 244, 151 A.C.W.S. (3d) 645 (C.A.); Butty v. Butty (2009), 99 O.R. (3d) 228, [2009] O.J. No. 5176, 2009 ONCA 852, 75 R.F.L. (6th) 16, 256 O.A.C. 258, 314 D.L.R. (4th) 692; Farquar v. Farquar (1983), 1983 1946 (ON CA), 43 O.R. (2d) 423, [1983] O.J. No. 3185, 1 D.L.R. (4th) 244, 35 R.F.L. (2d) 287, 22 A.C.W.S. (2d) 46 (C.A.); Quinn v. Epstein Cole LLP (2008), 92 O.R. (3d) 1, [2008] O.J. No. 3788, 2008 ONCA 662, 55 R.F.L. (6th) 241, 169 A.C.W.S. (3d) 1072, distd
Other cases referred to
Dochuk v. Dochuk, 1999 14971 (ON SC), [1999] O.J. No. 363, 89 O.T.C. 41, 44 R.F.L. (4th) 97 (Gen. Div.); LeVan v. LeVan (2008), 90 O.R. (3d) 1, [2008] O.J. No. 1905, 2008 ONCA 388, 51 R.F.L. (6th) 237, 167 A.C.W.S. (3d) 934; Miglin v. Miglin, [2003] 1 S.C.R. 303, [2003] S.C.J. No. 21, 2003 SCC 24, 224 D.L.R. (4th) 193, 302 N.R. 201, J.E. 2003-790, 171 O.A.C. 201, 34 R.F.L. (5th) 255, REJB 2003-40012, 122 A.C.W.S. (3d) 101; Rick v. Brandsema, [2009] 1 S.C.R. 295, [2009] S.C.J. No. 10, 2009 SCC 10, 90 B.C.L.R. (4th) 1, 385 N.R. 85, 303 D.L.R. (4th) 193, J.E. 2009-352, EYB 2009-154704, 62 R.F.L (6th) 239, [2009] 5 W.W.R. 191, 266 B.C.A.C. 1; Virc v. Blair, [2013] O.J. No. 1302, 2013 ONSC 1717, 35 R.F.L. (7th) 246, 226 A.C.W.S. (3d) 759 (S.C.J.); Waters v. Conrod, [2007] B.C.J. No. 813, 2007 BCCA 230, 282 D.L.R. (4th) 525, 240 B.C.A.C. 208, 66 B.C.L.R. (4th) 181, 37 R.F.L. (6th) 315, 156 A.C.W.S. (3d) 644
Statutes referred to
Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) [as am.]
Family Law Act, R.S.O. 1990, c. F.3, ss. 55(1), 56(4), (a)
Family Law Reform Act, 1978, S.O. 1978, c. 2
Family Relations Act, R.S.B.C. 1996, c. 128 [Rep. by S.B.C. 2011, c. 25, s. 259], s. 61(3)
Succession Law Reform Act, R.S.O. 1990, c. S.26 [as am.], s. 4(1)
Rules and regulations referred to
Family Law Rules, O. Reg. 114/99, Rule 16 [as am.]
Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 20
Authorities referred to
Furmston, M.P., ed., Cheshire & Fifoot's Law of Contract, 10th ed. (London: Butterworths, 1981)
Swan, Angela, and Jakub Adamski, Canadian Contract Law, 3rd ed. (Markham, Ont.: LexisNexis, 2012)
APPEAL from the order of Healey J., [2012] O.J. No. 5935, 2012 ONSC 7104 (S.C.J.).
Stephen M. Grant and Bryan R.G. Smith, for appellant.
Valerie L. Brown, for respondent.
The judgment of the court was delivered by
PEPALL J.A.: —
Introduction [page723]
[1] The appellant, Patricia Anne Virc, brought an application to, among other things, set aside the separation agreement she entered into with her former husband, the respondent, Michael Blair. The respondent brought a summary judgment motion seeking to dismiss the application. The motion judge assumed, for the purposes of the motion, that the respondent had deliberately and materially misrepresented the value of his date of marriage property for the parties' equalization calculation, but found that the appellant's failure to question that value was fatal to her case. The motion judge determined that no trial judge would set aside the parties' separation agreement in those circumstances. She accordingly granted the respondent's summary judgment motion and, for the most part, dismissed the appellant's application. The appellant appeals from that decision.
[2] For the reasons that follow, I am of the view that the appeal should be allowed.
Facts
(i) Background
[3] The appellant is a lawyer who was called to the bar of Ontario in 1991. She started practising as a commercial litigation lawyer at a law firm in Toronto. She met the respondent when she became involved as litigation counsel to his corporate entities.
[4] During the parties' marriage, the respondent was the president and sole director of Renegade Capital Corporation ("Renegade") and the president and chief executive officer of Algonquin Mercantile Corporation (now Automodular Corporation). He controlled Renegade and held 60 per cent of its shares, the remaining 40 per cent being held by his first wife. He has since retired, though he continues to be Renegade's majority shareholder. The motion judge characterized the respondent as "an experienced and sophisticated businessman" who considered himself an expert in business valuations and had substantial experience in that regard. In contrast, the motion judge found that the appellant had no experience with business valuations.
[5] When they met, the appellant was 26 years old and the respondent was 46. They began cohabiting in 1992. In 1993, the appellant left her law firm to assist with the respondent's litigation. They were married on September 14, 1994. The parties' three children were born in 1994, 1997 and 1999.
[6] The appellant worked part-time as a sole practitioner and continued to do her husband's legal work until 2001. From 2001 until 2009, she was a stay-at-home mother. She completed an [page724] LL.M. in securities law in 2001. She became a shareholder of Renegade in 2000 and an officer of the corporation in 2008.
(ii) Negotiation of separation agreement
[7] The date of the parties' separation was contested and no finding was made by the motion judge in this regard. The parties began discussing a separation during the 2007/2008 Christmas season.
[8] The respondent e-mailed a pro forma separation agreement to the appellant in January 2008. It contained no financial terms. The appellant did nothing with this draft agreement; she did not respond or comment.
[9] Between January and May 2008, the respondent retained a lawyer, commissioned some valuations and appraisals, consulted with accountants and prepared various net family property scenarios. The appellant was unaware of this activity. For her part, the appellant felt frozen, depressed and unable to make a decision about the marriage. Her counsellor advised her to seek treatment about her mood and other health problems, but she did not do so.
[10] The respondent e-mailed the next draft separation agreement to the appellant on May 16, 2008. It contained no financial disclosure, no date of separation, no financial terms and no net family property statement. However, it did require the appellant to vacate the matrimonial home by June 29, 2008.
[11] On May 17, 2008, the appellant returned the draft agreement with some amendments relating to the children's expenses. She also deleted a clause stating that the parties had obtained independent legal advice and another stating that the agreement was without prejudice to either party bringing an application for equalization of net family property. On May 19, 2008, the appellant sent the respondent an e-mail attaching a further copy of the separation agreement marked "final", together with a few edits.
[12] Shortly before the agreement was signed on May 31, 2008, the respondent provided the appellant with a net family property statement showing that on the date of marriage, the respondent had property totalling $11,647,390.36, of which $1,305,607 represented a loan to Renegade, and $7,603,685.03, the book value of his shares in Renegade. As a result, after certain calculations on account of debts, excluded property, and the appellant's property, the statement revealed that the appellant owed the respondent a $954,150 equalization payment.
[13] The respondent also provided the appellant with a binder entitled "Blair Net Family Property Documents". It included [page725] audited financial statements for Renegade for the years ending December 31, 1994 and 2007. He did not provide her with any valuation of Algonquin, Renegade's main holding, nor any information on Algonquin's principal holdings in Pharmx Rexall Drug Stores Ltd., a drugstore chain which also owns the "Rexall" brand name, and in Dominion Citrus Limited, a wholesale distributor and packager of fresh produce. The valuation of Algonquin was received by both parties after the separation agreement was signed, though the appellant was aware it was forthcoming prior to signing the agreement.
[14] The appellant relied on the respondent's disclosure and his representation as to the value of his net family property.
[15] The motion judge found that the appellant had no experience with business valuations or with financial issues in the field of family law with the exception of the family law bar admission course she had taken. Her 2001 LL.M. provided no instruction on business valuations and no information on family law entitlements. The appellant did not obtain independent legal advice nor did she discuss the financial terms contained in the separation agreement with an accountant or with anyone with a financial background. The appellant testified that although she trusted the respondent, she was uncomfortable challenging him. She conceded that had she asked the respondent to show her documents such as minute books, he would have done so.
[16] The parties signed the separation agreement on Saturday, May 31, 2008 at their home. No witness was present. The respondent took the signed agreement to his office where a co-worker who recognized the appellant's signature purported to witness both parties' signatures. The net family property statement prepared by the respondent was attached to the agreement.
(iii) Terms of separation agreement
[17] Under the terms of the separation agreement:
the appellant was released from her obligation to make a $954,150 equalization payment;
she would receive $10,000 per month in spousal support until December 31, 2010;
Renegade would retain her as corporate secretary and general counsel until December 31, 2010, at a rate of compensation of $10,000 per month;
the parties would have joint custody of the children; [page726]
no child support was payable as the children would spend equal time with the parties. This issue was reviewable prior to December 31, 2010 and annually thereafter;
the respondent was to be solely responsible for the children's special expenses as defined by the Child Support Guidelines. The agreement listed the current expenses which amounted to $97,760 annually;
the appellant was to move out of the matrimonial home by September 2008;
the respondent would have the right to buy the matrimonial home from the appellant for $1,250,000 from which proceeds the appellant was to discharge the $500,000 mortgage;
if requested, Renegade would lend the appellant $250,000 towards the purchase of a home;
the appellant transferred or permitted a redemption of her Renegade shares for $250,000 even though the net family property statement valued them at $386,512.65;
Renegade would invest $150,000 to $250,000 in a private company the appellant was considering incorporating to carry on a business;
the respondent's annual income was described as amounting to $590,000 and the appellant's annual income inclusive of support was described as amounting to $329,000; and
the parties provided extensive releases to each other. The releases encompassed property and spousal support obligations.
[18] Third party valuations of the respondent's business interests were completed after the separation agreement was signed. The motion judge found he substantially overvalued his date of marriage assets (at para. 56):
All of the experts' valuations differ materially from the representations made by the husband and confirm that he substantially overvalued his date of marriage assets, and thereby miscalculated his net family property and the equalization payment.
(iv) Application to set aside separation agreement
[19] After the separation, the appellant took certain business courses which prompted her to think she should have taken [page727] more care in evaluating the separation agreement. She commenced an application to set aside the agreement in May 2010.
[20] In her application, the appellant advanced the following grounds in support of her request that the separation agreement be set aside:
(a) the respondent's financial disclosure contained errors and omissions and used different valuation methods for the date of marriage, and the date of separation and left out various assets;
(b) the respondent exercised undue influence over the appellant and there was a lack of balance in bargaining power, given that the respondent's income and assets were far superior to those of the appellant;
(c) the appellant was under duress which was caused by the respondent's eagerness to resolve matters within weeks of their separation;
(d) the appellant did not obtain any independent legal advice; and
(e) the separation agreement was unenforceable because the appellant's signature was not witnessed.
[21] The final ground was added when the application was later amended.
[22] At the hearing before the motion judge, the appellant asserted that the respondent overstated the value of his interest in Renegade at the date of marriage by at least $8,909,292. Among other things, he applied a book value or "cost" approach and failed to make a mark to market adjustment to the Algonquin shares and to flow that through to Renegade.1 If the respondent had done a mark to market adjustment for the Algonquin shares and flowed that adjustment through to Renegade as at the date of marriage, Renegade would be in a net deficit position and the company valued at nil. The respondent's net family property would be $4,300,417, the appellant would have been entitled to retain her own assets, and the respondent would owe the appellant an equalization payment of $1,300,000 and not the approximate $954,000 he represented that she owed [page728] him. She stated that the respondent's evidence suggested that he knew the Renegade valuation was materially in error when he provided the net family property statement to her.
[23] Additionally, among other things, the appellant claimed that the respondent provided deficient disclosure with respect to his income at the time of separation. She asserted that she was entitled to support of $14,000 per month for seven to 14 years.
(v) Income of the parties
[24] In 2008, the appellant's taxable income was $150,000, which primarily consisted of spousal support and professional fees from Renegade.
[25] The appellant obtained employment in April 2009, at an annual salary of $145,000. Her position with Renegade was terminated at that time. She continued with that employer until November 2010, when her employer went into receivership. Subsequently, she worked as a sole practitioner until she obtained employment with a law firm in September 2011. In 2011, her taxable income was $121,818.
[26] The respondent's line 150 tax return income was $592,929 in 2007; $773,488 in 2008; $724,436 in 2009; $1,070,756 in 2010; and $1,430,260 in 2011. Considering his share of profit or loss for Renegade and deducting the taxable dividends he received, his net income was treated by the motion judge as $675,721 in 2007; $695,857 in 2008; $490,532 in 2009; $1,346,155 in 2010; and $2,433,280 in 2011. The respondent retired on December 31, 2011.
(vi) Summary judgment motion
[27] Following the exchange of materials and cross-examinations, the respondent brought a summary judgment motion and requested that the appellant's application be dismissed. The outcome of this motion is the subject matter of this appeal.
Reasons of the Motion Judge
[28] The motion judge agreed with the respondent's position and determined that there was no genuine issue requiring a trial on the issues pertaining to the separation agreement, property, spousal support and occupation rent. She therefore dismissed these aspects of the appellant's application.
(i) Rule 16
[29] In conducting her analysis, the motion judge commenced by applying Rule 16 of the Family Law Rules, O. Reg. 114/99, which governs summary judgment motions in family law matters. [page729] She determined that, unlike Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, which governs civil proceedings generally, Rule 16 precluded her from assessing credibility, weighing the evidence or drawing factual conclusions.
(ii) Test to set aside separation agreement
[30] She then considered s. 56(4) of the Family Law Act, R.S.O. 1990, c. F.3 ("FLA"), as amended. It provides that a court may set aside a domestic contract (a) if a party failed to disclose significant assets, significant debts or other liabilities, existing when the contract was made; (b) if a party did not understand the nature or consequences of the contract; or (c) otherwise in accordance with the law of contract.
[31] At para. 20 of her reasons, the motion judge identified the test for setting aside a domestic contract, that is, the two-step process contemplated by s. 56(4) of the FLA and described by this court in LeVan v. LeVan (2008), 90 O.R. (3d) 1, [2008] O.J. No. 1905, 2008 ONCA 388, at para. 51: does one of the s. 56(4) circumstances apply and, if so, is it appropriate for the court to exercise its discretion to set aside the contract? In considering whether to exercise discretion, at para. 21, she applied Dochuk v. Dochuk, 1999 14971 (ON SC), [1999] O.J. No. 363, 44 R.F.L. (4th) 97 (Gen. Div.), noting that a court may consider
-- a concealment of assets or material misrepresentation;
-- duress or unconscionable circumstances;
whether the moving party neglected to pursue full legal disclosure;
whether the moving party moved expeditiously to have the contract set aside;
whether the moving party received substantial benefits under the contract;
whether the respondent fulfilled his or her obligations under the contract;
whether the non-disclosure was a material inducement to entering into the agreement and its importance to the negotiations.
[32] At paras. 22 and 23, the motion judge also observed that where a contract is based on incorrect information, it is more vulnerable to being set aside, but this depends on the extent of the defective disclosure, the degree to which it was deliberate, [page730] and the extent to which the resulting negotiated terms are at variance with the objectives of the governing legislation: Rick v. Brandsema, [2009] 1 S.C.R. 295, [2009] S.C.J. No. 10, 2009 SCC 10. She stated, at para. 25, that ultimately the decision to set aside an agreement is discretionary.
(iii) Respondent's non-disclosure and the appellant's failure to inquire
[33] The motion judge stated, at para. 91, that whether the misrepresentation of Renegade's value either as at the date of marriage or the date of separation was deliberate was a question that could not be determined given the constraints on the court's ability to evaluate credibility. In her view, this was a genuine issue for trial.
[34] For the purposes of the summary judgment motion, however, the motion judge accepted the facts advanced by the appellant or admitted to at her questioning. The motion judge therefore proceeded on the assumption that the date of marriage value for Renegade used by the respondent on his net family property statement was affected by his deliberate acts or omissions and that the equalization payment may have been substantially less than the appellant's entitlement.2
[35] However, she concluded that even if the numbers provided by the respondent were deliberately false, and even though the equalization payment that the appellant received may have been substantially less than her entitlement, there was no genuine issue for trial relating to the setting aside of the separation agreement. This was because the appellant was in a position and had information that should have caused her to question the value assigned by the respondent to Renegade and his interest in it. The motion judge purported to apply this court's decisions in Armstrong v. Armstrong, 2006 32899 (ON CA), [2006] O.J. No. 3823, 32 R.F.L. (6th) 244 (C.A.), Butty v. Butty (2009), 99 O.R. (3d) 228, [2009] O.J. No. 5176, 2009 ONCA 852 and Farquar v. Farquar (1983), 1983 1946 (ON CA), 43 O.R. (2d) 423, [1983] O.J. No. 3185 (C.A.). It was the motion judge's view that these decisions imposed an onus on the recipient of information to take steps to question it if he or she did not [page731] accept its veracity. She held that "where the recipient spouse has a reason to question the information provided, but does not, no misrepresentation or omission could result in the contract being avoided" (at para. 83). In this regard, she relied on M.P. Furmston, ed., Cheshire & Fifoot's Law of Contract, 10th ed. (London: Butterworths, 1981), at p. 244, which stated that knowledge of the untruth of a representation is a complete bar to relief.
[36] The motion judge reviewed the appellant's access to her husband's financial records and her knowledge of his affairs, and remarked that in spite of that knowledge and access, she chose to sign the agreement without receipt of the valuations. At paras. 94 and 95, the motion judge wrote:
Even accepting that the information provided by the husband may have been grossly inaccurate, it remains a fact that there was nothing done by the husband that prevented the wife from exercising her own due diligence to examine and question the value placed on Renegade by the husband[.]
None of the disclosure provided by the husband placed an obstacle in the way of the wife to pursue such information.
[37] Relying on a June 7, 2009 e-mail sent by the appellant to the respondent, the motion judge stated that on the date of signing the separation agreement, the appellant suspected that the date of marriage value of Renegade was incorrect even though she did not know the worth of the Renegade shares. The motion judge also concluded, at para. 99, that a reasonable person would have questioned the disclosure provided:
Accordingly, the wife was at all times in receipt of information that would have led a reasonable person to question the value placed on such a sizeable deduction, which had such a significant effect on the husband's net family property calculation.
[38] As such, according to the motion judge, the appellant was unable to show that her application to set aside the separation agreement had a real chance of success at trial.
[39] The motion judge fortified her conclusion by noting the appellant's acceptance of the benefits under the separation agreement, the respondent's compliance with his obligations under the separation agreement, the respondent volunteering to fund the appellant's further education, the appellant's waiver of independent legal advice and the appellant's two-year delay in commencing her application.
(iv) Undue influence, duress, unconscionability and lack of independent legal advice
[40] The appellant argued that the parties' inequality of bargaining power resulted in undue influence, that the respondent's [page732] eagerness to resolve matters created duress, that the terms regarding child support and the matrimonial home were unconscionable, and that she did not receive independent legal advice.
[41] The motion judge determined that there was no genuine issue requiring a trial on the issue of whether the separation agreement should be set aside on any of these grounds. In her view, there was no vulnerability on the appellant's part that was exploited by the respondent and no unconscionability in the negotiating process or its result.
(v) Spousal support
[42] The motion judge then addressed whether there was a genuine issue requiring a trial on the issue of whether the terms of the separation agreement should be altered to provide for an order for spousal support. In this regard, she applied the test established by the Supreme Court of Canada in Miglin v. Miglin, [2003] 1 S.C.R. 303, [2003] S.C.J. No. 21, 2003 SCC 24. She held, at para. 133, that the separation agreement "was negotiated under unimpeachable circumstances and was in substantial compliance with the objectives of the Divorce Act both at the time of negotiation and subsequently, remaining so to the date of hearing of this motion". Accordingly, in her view, there was no genuine issue requiring a trial on this issue as well.
(vi) Witness requirement under s. 55(1) of the FLA
[43] Lastly, the motion judge addressed the fact that the agreement was signed at the parties' home with no witness present. The respondent's co-worker signed as a witness to both the appellant's and the respondent's signatures two days later, in the absence of the appellant.
[44] The motion judge referred to s. 55(1) of the FLA, which requires that a domestic contract be witnessed. She determined that the appellant's signature did not need to be witnessed at the time of execution. The appellant had admitted that she signed the agreement, affirmed her acceptance of it by receiving all benefits owed under the agreement, and the co-worker recognized the appellant's signature. The appellant did not raise any issue surrounding the formalities of execution until her proceeding was commenced. Based on this, the motion judge concluded that it would be manifestly unfair to allow the appellant to resile from the agreement in these circumstances, and that therefore there was no genuine issue requiring a trial on the formal validity of the agreement. [page733]
[45] Accordingly, the motion judge granted the respondent's motion for summary judgment in full. She dismissed most, but not all, of the appellant's claims.
Positions of the Parties
(i) The appellant
[46] The appellant requests that the summary judgment dismissing portions of her application be set aside. The appellant's principal position is that the motion judge improperly shifted the respondent's disclosure obligation from the respondent to the appellant and absolved the respondent of his strict obligation to make full and accurate disclosure. She contends that the motion judge accepted that the respondent overstated his date of marriage assets by $8,909,292, thereby creating the illusion that she owed him $954,000. She submits that the motion judge erroneously held that no trial judge would set aside the agreement even if the respondent's misrepresentations were deliberate.
[47] The appellant also submits that the motion judge erred in determining that the statutory requirement that domestic contracts be witnessed is satisfied if the witness merely verifies the signature.
(ii) The respondent
[48] The respondent submits that the motion judge did not find deliberate misrepresentations but, assuming their existence, she correctly held that the appellant had an obligation for her own due diligence. The respondent submits that there was ample evidence and admissions that the appellant had knowledge of the valuation issues she raises. He also supports the motion judge's treatment of the witnessing of the separation agreement.
Analysis
Rule 16
[49] The appellant takes the position that the motion judge was correct in holding that the court's expanded fact-finding powers under Rule 20 of the Rules of Civil Procedure do not apply to a Rule 16 Family Law Rules motion for summary judgment, but argues that the motion judge erred in her application of the Rule 16 test for summary judgment. The respondent agrees that Rule 16 governs this proceeding and does not import the expanded powers reflected in Rule 20 of the Rules of Civil Procedure, and contends that the motion judge did not err in her application of Rule 16. The expanded powers under Rule 20 of [page734] the Rules of Civil Procedure include the power to weigh evidence, evaluate credibility and draw reasonable inferences.
[50] For the purposes of this appeal, I am assuming, without deciding, that the expanded powers are unavailable under Rule 16 of the Family Law Rules. Both parties agree on this issue and the availability of the Rule 20 expanded powers in family law summary judgment motions should await a case where the issue is fully argued.
Test to set aside a separation agreement
[51] The applicable test to set aside a separation agreement is found in s. 56(4) of the FLA, which provides:
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.
A domestic contract includes a separation agreement.
[52] In LeVan, at para. 51, this court held that s. 56(4) comprises a two-stage analysis:
(i) Can the party seeking to set aside the agreement demonstrate that one or more of the s. 56(4) circumstances is engaged?
(ii) If so, is it appropriate for the court to exercise its discretion to set aside the agreement?
[53] In my view, although the motion judge recognized this test, she erred in its application for the following reasons.
(i) Onus improperly shifted to recipient of disclosure
[54] The motion judge concluded that the appellant was unable to show that her application to set aside the separation agreement had a real chance of success at trial. She reached this conclusion because the appellant had had an opportunity to examine the veracity of the respondent's financial disclosure, but failed to avail herself of that opportunity. Specifically, the motion judge held (at para. 91):
Whether the misrepresentation as to the value of Renegade was deliberate, either at the date of marriage or the date of separation, is a question [page735] that cannot be determined on the evidence given the constraints of the court's ability to evaluate credibility. Accordingly, there is a genuine issue for trial on this issue. However, this is a case that turns on the issue of whether the wife had information that should have caused her to question this value, and, given the amounts in issue, on the facts of this case her failure to do so is fatal to her case. Even though the equalization payment that she received may have been substantially less than her entitlement under the equalization provisions of s. 4 of the Family Law Act, I conclude that there is no genuine issue for trial as to whether a court, even if the numbers provided by the husband were deliberately false, would exercise its discretion to set aside this separation agreement.
[55] In the motion judge's view, the fact that the appellant "had information that should have caused her to question" the veracity of the husband's disclosure precluded any chance of successfully setting aside the agreement even if the respondent had, in fact, deliberately made false disclosure. In other words, the motion judge determined that the appellant ought to have known that the value her husband attributed to his date of marriage interest in Renegade was overstated; the appellant was in a position and had information that should have caused her to question the value assigned to Renegade and the respondent's interest in it.
[56] In making this determination, the motion judge relied on an excerpt from Cheshire & Fifoot. She wrote, at para. 83 of her reasons:
Further, where the recipient spouse has a reason to question the information provided, but does not, no misrepresentation or omission could result in the contract being avoided. I refer to Cheshire and Fifoot, The Law of Contract, 10th ed., at p. 244, and quoted in Farquar, at para. 35:
Knowledge of the untruth of a representation is a complete bar to relief, since the plaintiff cannot assert that he has been misled by the statement, even if the misstatement was made fraudulently. In such a case, "the misrepresentation and concealment go for just absolutely nothing . . .".
[57] However, the motion judge failed to mention that the authors of Cheshire & Fifoot went on to write:
It must be carefully noticed, however, that relief will not be withheld on this ground except upon clear proof that the plaintiff possessed actual and complete knowledge of the true facts -- actual not constructive, complete not fragmentary. The onus is on the defendant to prove that the plaintiff had unequivocal notice of the truth. In particular, the mere fact that a party has been afforded an opportunity to investigate and verify a representation does not deprive him of his right to resist specific performance or to sue for rescission. As Lord Dunedin once said:
No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction. [page736]
[I]t is no answer to a suit for relief to say that inspection of the contracts or of the lease or of the bills of costs was expressly invited but was not accepted.
(Emphasis added)
[58] Once the motion judge assumed that there had been deliberate material misrepresentations, she erred in shifting the onus to the appellant to inquire as to the veracity of the respondent's financial disclosure. In the face of a deliberate material misrepresentation, the onus is not appropriately placed on the recipient spouse. Rather, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient. The respondent could point to no authority for the proposition that the suggested duty of a spouse receiving financial disclosure in a matrimonial case, to investigate or test the veracity of the information provided, overtakes deliberate material non-disclosure by the other spouse.
[59] At para. 82 of her reasons, the motion judge relied on certain jurisprudence in support of her conclusion that there is an onus on the recipient of disclosure in a family law situation to question the veracity of the disclosure provided. However, in my view, the cases relied upon are distinguishable from the case under appeal.
[60] In Armstrong, this court wrote a four-paragraph endorsement holding that there was no evidence of a failure to make full disclosure at the time of the separation agreement. In contrast, in the case under appeal, the motion judge noted that the expert valuations of the husband's business interests at the date of marriage and date of separation differed materially from the representations made in the separation agreement. The facts in Armstrong were therefore dissimilar to the case under appeal.
[61] Farquar was decided under the Family Law Reform Act, 1978, S.O. 1978, c. 2, predecessor legislation to the FLA. That legislation did not have a provision equivalent to s. 56(4) of the FLA that sets out a procedure for setting aside a domestic contract and the circumstances in which a court may do so. Moreover, there was no suggestion of a deliberate misrepresentation in that case.
[62] In Butty, this court overturned the trial judge's determination that the marriage contract should be set aside pursuant to s. 56(4)(a) because the husband had failed to disclose significant assets or debts when the contract was made. In that case, the court held that a party cannot enter into an agreement knowing of its shortcomings in disclosure and then rely on those shortcomings to have the agreement set aside. The wife had actual knowledge and understood that the marriage contract [page737] ended her interest in the farm property, was aware of the uncertainty as to the value of her husband's interest in the farm because of a third party's interest in the property, and had been given documents disclosing this and other valuation uncertainties. In contrast, in the case under appeal, the finding of actual knowledge on the part of the appellant is lacking.
[63] In Quinn v. Epstein Cole LLP (2008), 92 O.R. (3d) 1, [2008] O.J. No. 3788, 2008 ONCA 662, this court noted, at para. 4, that a spouse could not resile from the consequences of failing to pursue further disclosure "unless she demonstrated that [the husband's] financial disclosure was inaccurate, misleading or false". In Quinn, unlike the case under appeal, the appellant had no evidence of non-disclosure but maintained that more such evidence might be forthcoming as a result of examinations for discovery.
(ii) Unresolved relevant factors
[64] Next, the motion judge erred in granting summary judgment when relevant factors that required a determination were left unresolved.
[65] In Brandsema, the Supreme Court of Canada considered the implications of the deliberate failure of a spouse to provide all the relevant financial information in negotiations for the division of assets. The trial judge in that case concluded that the husband knowingly presented misleading financial information to his wife and that this ultimately culminated in both parties entering into an agreement based "on what he alone knew to be erroneous financial information" (Brandsema, at para. 28).
[66] The Supreme Court held that the deliberate failure to make full and honest disclosure of all relevant financial information may render the agreement vulnerable to judicial intervention where the result is a negotiated settlement that is substantially at variance from the objectives of the governing legislation. The decision concluded that whether a court will actually intervene will depend on the circumstances of each case, including the extent of the defective disclosure and the degree to which it is found to have been deliberately generated (Brandsema, at para. 49).
[67] The motion judge erred by making a determination in the absence of a resolution of these key factors. The appellant and the respondent disagreed on the magnitude and extent of the defective disclosure. Moreover, the motion judge herself conceded that she could not make a finding as to whether the respondent's inaccurate disclosure was deliberate given her understanding of the constraints on her ability to evaluate credibility in the context [page738] of the Rule 16 motion, and that this was therefore a genuine issue for trial (at para. 91).
[68] It is one thing to disclose assets and liabilities and their values believing the disclosure to be true. It is quite another to deliberately misrepresent the values of assets and liabilities knowing them to be untrue. The law does not entitle a liar to succeed just because the recipient of the falsehoods has not ferreted them out.
[69] Furthermore, a clear finding of actual knowledge of the misrepresentation is required. While, as noted in Cheshire and Fifoot, actual knowledge of the falsehood may constitute a defence, a mere suspicion of lack of veracity does not absolve a fraudster of responsibility. In this case, there was insufficient evidence to conclude that the appellant had knowledge of the respondent's misrepresentations.
[70] In addition, the motion judge grounded her finding of the appellant's suspicion about the date of marriage value for Renegade and the respondent's interest in it on an exhibit attached to the respondent's affidavit sworn October 3, 2012, which was served late and after questioning had been held. The exhibit was an e-mail sent by the appellant to the respondent more than one year after the execution of the separation agreement. In that e-mail, she had stated she had not accepted the respondent's equalization calculation as correct but was too overcome by grief and guilt to fight about it and decided she could live with what he had offered.
[71] After referencing this e-mail, the motion judge referred to Butty, stating "a party to the marriage contract cannot enter into it knowing of its shortcomings in disclosure and then rely on those shortcomings as the basis to have the contract set aside".
[72] In my view, notwithstanding this evidence, there were genuine issues requiring a trial concerning the appellant's state and extent of knowledge of the respondent's misrepresentations at the time she executed the agreement.
[73] While this does not foreclose the possibility that the respondent may ultimately be successful in resisting the claim to set aside the separation agreement, it was inappropriate for the motion judge to make a determination about the validity of the agreement in the absence of findings of actual knowledge, the extent of the respondent's defective disclosure and the degree to which it was deliberate.
[74] As the motion judge herself noted, the court is required to take a holistic approach in determining whether there has been a failure to make disclosure under s. 56(4) of the FLA. This requires a careful balancing of the circumstances, including [page739] those set out in LeVan. In my view, in this case, that balancing required a detailed analysis of the intentions underlying the parties' conduct. That analysis was not possible on this Rule 16 family law summary judgment motion.
[75] For all these reasons, there were genuine issues requiring a trial in order to determine whether the separation agreement should be set aside.
Spousal support, undue influence, duress and unconscionability
[76] Miglin requires the court to consider the extent to which a separation agreement takes into account the factors and objectives listed in the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.). This analysis requires the court to look at the agreement in its totality. The spousal support provisions cannot be considered in isolation as they are inextricably linked to other aspects of the agreement. The property settlement and spousal support provisions in this agreement were negotiated in tandem and, given the potential extent of the respondent's misrepresentations, a court would need to review both aspects of the agreement together. Under these circumstances, assessing whether the agreement with respect to spousal support complies with the objectives of the Divorce Act is a genuine issue requiring a trial. I am additionally of the view that given the unresolved issues, the allegations of undue influence, duress and unconscionability should also be left to be determined by the trial judge on a full factual record.
Witness requirement under s. 55(1) of the FLA
[77] Section 55(1) of the FLA provides:
55(1) A domestic contract and an agreement to amend or rescind a domestic contract are unenforceable unless made in writing, signed by the parties and witnessed.
[78] The purpose of this provision is in part to provide some assurance that the parties were deliberate in reaching their agreement and understood the obligations being imposed: see A. Swan & J. Adamski, Canadian Contract Law, 3rd ed. (Markham, Ont.: LexisNexis, 2012), at para. 5.50.
[79] In contrast, another statute that addresses formal execution, the Succession Law Reform Act, R.S.O. 1990, c. S.26 ("SLRA"), has more specific execution requirements than the FLA. Section 4(1) of the SLRA provides:
4(1) Subject to sections 5 and 6, a will is not valid unless,
(a) at its end it is signed by the testator or by some other person in his or her presence and by his or her direction; [page740]
(b) the testator makes or acknowledges the signature in the presence of two or more attesting witnesses present at the same time; and
(c) two or more of the attesting witnesses subscribe the will in the presence of the testator.
[80] In Waters v. Conrod, [2007] B.C.J. No. 813, 2007 BCCA 230, 66 B.C.L.R. (4th) 181, the British Columbia Court of Appeal addressed s. 61(3) of the Family Relations Act, R.S.B.C. 1996, c. 128, the language of which is substantially similar to s. 55(1) of Ontario's FLA and which, like the FLA, imposes a witness requirement on marriage agreements. The British Columbia Court of Appeal upheld the enforceability of an agreement in circumstances where the parties signed it and only afterwards met with a notary whom the trial judge found to have "'witnessed' the agreement". The court concluded that to hold otherwise would defeat the statute's purpose, which was to give no effect to agreements that were not freely made.
[81] The language of s. 55(1) of the FLA is not as strict as s. 4(1) of the SLRA. In unusual circumstances such as those found in the case under appeal, the language of s. 55(1) allows for a less strict application of the witnessing requirement rule. Here, the appellant admitted signing the agreement, accepted the benefits of the agreement and waited for close to two years to raise the issue of non-compliance with s. 55(1). Moreover, the co-worker witness recognized and was able to identify the appellant's signature. In these circumstances, it was not open to the appellant to successfully assert non-compliance with s. 55(1) of the FLA and the motion judge was correct in determining that this was not a genuine issue requiring a trial.
Conclusion
[82] I would allow the appeal and set aside the summary judgment dismissing the appellant's application. I would order that the application proceed to trial on all issues with the exception of the appellant's claim of invalidity of the separation agreement based on s. 55(1) of the FLA.
[83] On the issue of costs, counsel for the respondent indicated that she had no complaint with the appellant's request that the trial costs awarded to the respondent of $104,939.50 be reversed and I would so order. I would also order the costs of the appeal in favour of the appellant, fixed in the amount of $50,000, inclusive of disbursements and applicable taxes.
Appeal allowed.
Notes
1 The motion judge described this as an adjustment of the carrying value of a security to market value if the original carried cost of the security differs from its market value.
2 In her subsequent costs endorsement dated March 21, 2013 [Virc v. Blair, 2013 ONSC 1717, [2013] O.J. No. 1302, 2103 ONSC 1717 (S.C.J.)] the motion judge wrote, at para. 7, that "[n]o findings were made by the court with respect to either parties' evidence, and therefore it would be flawed to proceed from the premise, as though it was a proven fact, that the husband's disclosure was false and misleading".
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