Court of Appeal for Ontario

Date: October 4, 2017 Docket: C61974

Judges: Hoy A.C.J.O., Huscroft and Paciocco JJ.A.

Parties

Between

Tsur Moses as Estate Trustee For the Estate of Ora Moses, deceased Plaintiff (Respondent)

and

Oded Metzer Defendant (Appellant)

Counsel

For the Appellant: Simon Morris and John Adair

For the Respondent: Igor Ellyn and Ryan Kniznik

Hearing and Appeal

Heard: September 15, 2017

On appeal from: The judgment of Justice Wendy Matheson of the Superior Court of Justice at Toronto, Ontario, dated March 14, 2016, with reasons reported at 2016 ONSC 1765.

Decision

By the Court:

Overview

[1] This appeal arises from a dispute between the appellant, Oded Metzer, and the respondent, the Estate of Ora Moses. Ora Moses was the appellant's former spouse. The couple never married and separated before her death. The main issue at trial was whether broadly-worded waivers of property rights in the couple's Cohabitation Agreement applied to three development properties.

[2] Under the Cohabitation Agreement, dated July 23, 2007, the rights of ownership were stated to govern property division, the parties waived any claims to beneficial ownership, they agreed to deal with their property as though they were unmarried, and they specifically waived rights to the property of the other.

[3] At trial, the respondent claimed, amongst other relief, either a constructive or resulting trust interest in the property municipally known as 21 Parkwood Avenue, Toronto Ontario, to which the appellant alone held title, or an order setting aside clauses 9, 10, 11 and 12 of the Cohabitation Agreement.

Trial Decision

[4] The trial judge found that though never formalized, a property development agreement (the "PDA") existed between the appellant and Ora Moses. She further found that despite the express wording of the Cohabitation Agreement, there was convincing evidence that the PDA and not the Cohabitation Agreement governed 21 Parkwood and two other development properties in which the parties invested. The evidence of the PDA included, amongst other things, the appellant's own testimony of the understanding between him and Ora Moses, and two letters, both dated after the execution of the Cohabitation Agreement, which confirmed that the parties had a clear agreement about their respective interests in the development properties. The letters also set out the specific nature of this agreement. Namely, that after the settlement of all related debts, each party would be refunded his or her share of the initial investment in the property, with the remaining profit shared equally between them.

[5] The trial judge found that the PDA was not an enforceable agreement to amend the Cohabitation Agreement because it was not in writing, signed by the parties, and witnessed, as required by s. 55(1) of the Family Law Act, R.S.O. 1990, c. F.3 (FLA). However, relying on s. 56(4)(b) of the FLA, the trial judge set aside the Cohabitation Agreement as it applied to the three development properties. She granted judgment in favour of the respondent in the amount of $3,325,000 for amounts owing under the PDA as well as pre- and post-judgment interest and costs in the amount of $315,000.

Grounds of Appeal

[6] At the hearing, the appellant narrowed his arguments to the following. The trial judge erred:

(1) in setting aside the Cohabitation Agreement, only as it applied to the development properties;

(2) in not setting aside the whole Cohabitation Agreement, including the waiver of support clause; and

(3) in calculating the amount owing under the terms of the PDA.

[7] We address each alleged error in turn.

Issue 1: Partial vs. Complete Set-Aside of the Cohabitation Agreement

Legal Framework for Setting Aside Domestic Contracts

[8] The Cohabitation Agreement is a domestic contract as defined by the FLA. Section 56(4) permits a court, on application, to set aside a domestic contract or a provision in it under certain circumstances. In this case, the trial judge held that s. 56(4)(b) – "if a party did not understand the nature or consequences of the domestic contract" – was engaged.

[9] As the trial judge herself explained, in LeVan v. LeVan, 2008 ONCA 388, 90 OR (3d), this court approved of the two-part approach to applying s. 56(4) articulated in Dochuk v. Dochuk (1999), 44 RFL (4th) 97 and Demchuk v. Demchuk, [1986] O.J. No. 1500 before that. First, the party seeking to set aside must demonstrate that one of the listed circumstances within s. 56(4) has been engaged. This is a necessary but insufficient condition for invoking the power to set aside. The court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement or a provision within it.

Application to This Case

[10] This is precisely the approach the trial judge took in this case. She first found that there was "overwhelming evidence that neither party to the Cohabitation Agreement understood its consequences in regard to their property development venture" (para. 139). This conclusion was amply supported by the record and, in his oral submissions, counsel for the appellant ultimately conceded that there is no basis for this court to interfere with that factual finding.

[11] The trial judge then went on to consider whether it was appropriate to exercise her discretion to set aside all or part of the Cohabitation Agreement. In LeVan, this court held, at para. 60, that fairness was an appropriate consideration in the exercise of the court's discretion in the second stage of the s. 56(4)(a) analysis. Here, the trial judge set aside the Cohabitation Agreement as it applied to the development properties because in her view, "it would be a failure of justice to broadly enforce the property clauses in the Cohabitation Agreement in the circumstances of this case" (para. 148).

[12] The trial judge's conclusion that enforcing the property clauses in the Cohabitation Agreement would be "a failure of justice" was based on detailed factual findings which were in our view amply supported by the record.

Court's Modification

[13] Having so found, we do however agree with the appellant that the trial judge erred in setting aside the property waiver clause of the Cohabitation Agreement only as it related to the development properties.

[14] Section 56(4) of the FLA permits a court to "set aside a domestic contract or a provision in it". This contemplates setting aside a contract or provision in its entirety. It does not permit the court to, in effect, amend a domestic contract by providing that it does not apply to certain assets. Moreover, the respondent did not seek that relief at trial. Rather, the respondent sought an order setting aside in their entirety clauses 9, 10, 11 and 12 of the Cohabitation Agreement.

[15] Counsel for the Appellant argues that given the inadequate financial disclosure provided by both parties prior to signing the Cohabitation Agreement, the effect of setting aside clauses 9, 10, 11 and 12 cannot be known such that setting aside the clauses is inappropriate.

[16] We disagree. Neither party argued inadequate disclosure as a basis for setting aside the Cohabitation Agreement. And the only property put in issue by the pleadings was 21 Parkwood. There is no evidence that setting aside clauses 9, 10, 11 and 12 would have any effect on any other property.

[17] To give effect to the trial judge's factual findings and conclusions, we would modify the application of s. 56(4) to set aside in their entirety clauses 9, 10, 11 and 12 of the Cohabitation Agreement.

Issue 2: Setting Aside the Spousal Support Waiver

[18] The appellant argues in the alternative that the trial judge should have set aside the whole Cohabitation Agreement, including the waiver of spousal support, and that this court should do so. He submits that to do otherwise is to upset the balance of the bargain.

[19] We do not agree.

[20] The appellant made this same argument before the trial judge. The trial judge declined to set aside the spousal support waiver saying, at para. 147, that she did "not find a particular unfairness arising from the waiver of spousal support in the Cohabitation Agreement." Her conclusion was based on the entirety of the record including the significant cash gifts that Ora Moses had given to the appellant. And contrary to the appellant's submissions, the appellant receives a not-inconsiderable sum in the form of 50% of the profits earned on all three development properties.

[21] The decision to leave the spousal support waiver intact was open to the trial judge. Further, we agree with it.

[22] Unlike with the reach of the property clauses, there was no finding that the parties did not understand or did not intend any aspect of the spousal support waiver. And if the property clauses were never understood or intended to apply to the development properties, then there is no merit to the appellant's argument that declining to set aside the support waiver disturbs the balance of the bargain.

[23] It was clear that the trial judge sought to fashion a remedy directed at the parties' property rights only. Informed by the trial judge's extensive factual findings, we would give effect to her intent by setting aside clauses 9, 10, 11 and 12 of the Cohabitation Agreement.

Issue 3: Calculation of Amount Owing Under the PDA

[24] Finally, we reject the appellant's argument that the trial judge's conclusion as to the amount that Ora Moses contributed to one of the development properties, and therefore the amount owing under the PDA, was the result of a palpable and overriding error. The trial judge relied on an updated expert report in finding the amount that Ora Moses contributed. And, contrary to the appellant's assertion, the expert's opinion is supported by bank statements produced by the appellant.

Disposition

[25] For these reasons, we replace the trial judge's decision to set aside the Cohabitation Agreement as inapplicable to the development properties with a decision to set aside clauses 9, 10, 11 and 12 of the Cohabitation Agreement. The appeal is otherwise dismissed.

[26] Since the Cohabitation Agreement does not govern property ownership or division without clauses 9, 10, 11 and 12, the PDA, which on the facts of this case is also consistent with common law trust principles, determines the division of the proceeds of sale of 21 Parkwood Avenue. The trial judge's order for the return to the respondent of Ora Moses' investment in the 21 Parkwood Avenue and half of the profits from the sale of that property therefore stands.

[27] The judgment amount of $3,145,682.88 plus accumulated interest and costs shall be paid out to the respondent. The remainder of the amount previously paid into court shall be paid out to the appellant.

[28] The respondent shall be entitled to costs in the sum of $25,000, inclusive of HST and disbursements.

Released: October 4, 2017

Alexandra Hoy A.C.J.O.

Grant Huscroft J.A.

D.M. Paciocco J.A.