Court File and Parties

COURT OF APPEAL FOR ONTARIO DATE: 20240103 DOCKET: C70949

Roberts, Sossin and Dawe JJ.A.

BETWEEN

Aleya Linn El Rassi-Wight Plaintiff (Appellant)

and

Scott Kenneth Arnold Defendant (Respondent)

Counsel: D. Andrew Thomson, for the appellant David Williams, for the respondent

Heard: December 20, 2023

On appeal from the order of Justice Susan Stothart of the Superior Court of Justice, dated July 7, 2022.

Reasons for Decision

[1] The appellant and the respondent were in a long-term relationship. In March 2019, they bought a house together, with both holding title as joint tenants. A year later, in the summer of 2020, they decided to end their relationship. By this time, the house had increased in value by between $29,000 and $102,000.

[2] On August 2, 2020, the parties signed a document, stating that the respondent agreed to transfer his interest in the house to the appellant in exchange for $10,000 and a motorcycle that belonged to the appellant’s father (“the August 2 Document”). However, the respondent later refused to follow through with the terms of this agreement.

[3] The appellant brought an application seeking a declaration that the August 2 Document was a valid and binding domestic contract, and an order that the respondent’s share of the property be transferred to the appellant. In response, the respondent then brought his own application, seeking an order that the property be sold pursuant to s. 3(1) of the Partition Act, R.S.O 1990, c. P.4, and other relief.

[4] The two applications were converted to an action and heard together. The main disputed issue between the parties was whether the August 2 Document was a binding domestic contract for the purposes of Part IV of the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”).

[5] The trial judge found that it was not. She found that the August 2 Document did not comply with the requirements of s. 55(1) of the FLA because it had not been witnessed, although the respondent did not dispute that he had signed it, and the appellant had video-recorded him initialling it.

[6] Citing this court’s decision in Gallacher v. Friesen, 2014 ONCA 399, 371 D.L.R. (4th) 522, at para. 27, the trial judge stated that:

[T]he strict requirements of section 55(1) may be relaxed where the court is satisfied that the contract was in fact executed by the parties, where the terms are reasonable and where there was no oppression or unfairness in the circumstances surrounding the negotiation and execution of the contract.

[7] However, she concluded that based on the evidence that she accepted, this was not an appropriate case to relax the formal requirements of s. 55(1). Among other things, she considered it significant that in addition to the August 2 Document not having been witnessed, the respondent had not received any independent legal advice before he signed it. The trial judge also concluded that the document itself was vague and imprecise, explaining:

The terms of any domestic contract should be clear enough to give effect to the reasonable expectations of the parties. In my view the August 2 Document, drafted by the parties without legal assistance, is overly broad and vague.

[8] In particular, the trial judge singled out two clauses in which the respondent had agreed to forfeit “the house and all the assets, equity and so on”, and had stated that he would “give up all rights” in exchange for $10,000 and the motorcycle. She concluded that “[t]he words ‘and so on’ and ‘all rights’ are so broad that they are incapable of proper interpretation in this case”. The trial judge also found as fact that when the respondent signed the August 2 Document, he had not understood what these terms meant, nor had he understood what was meant by the word “equity”.

[9] In the alternative, the trial judge held that even if she had found the August 2 Document to be a valid domestic contract, she would have set it aside under s. 56(4) of the FLA.

[10] The appellant appeals to this court, raising five issues:

1. Whether the failure to have the document signed by a third-party witness was fatal to a finding that the document is a binding domestic contract, or whether the video recording and acknowledgment by the respondent of having signed the document were sufficient;
2. Whether the trial judge failed to identify the proper test to determine whether compliance with the formalities in s. 55(1) could be dispensed with in the circumstances of the case;
3. Whether the trial judge applied a test which had an unreasonably low threshold to preclude the relaxing of the formalities in s. 55(1);
4. Whether the trial judge erred in concluding that the circumstances were oppressive and unfair so as to preclude the relaxing of the formalities in s. 55(1); and
5. Whether the trial judge concluded or gave undue weight to an implicit finding that the respondent signed the document under duress when the evidence did not justify such a conclusion.

[11] We would note that the appellant’s first four grounds of appeal, all of which challenge the trial judge’s conclusion that the August 2 Document was not a valid domestic contract for the purposes of Part IV of the FLA, will be of no practical consequence unless the appellant can also establish a proper basis for challenging the trial judge’s alternative holding that she would have set the contract aside under s. 56(4) of the FLA.

[12] We would not give effect to any of the appellant’s grounds of appeal, for the following reasons.

[13] It is well established that we are obliged to defer to the trial judge’s findings of fact, absent reversible error. We are not persuaded that she made any palpable and overriding errors that would permit us to interfere with her findings, or with the conclusions she arrived at based on them.

(a) The significance of the video recording

[14] With respect to the appellant’s first ground of appeal, the video recording made by the appellant confirmed the respondent’s acknowledgement that he had signed the August 2 Document. However, the purpose of the formal requirements in s. 55(1) of the FLA is not just to “provide proof that [a document] was in fact signed by the parties”, but also to “ensure a measure of formality in the execution of a domestic contract”, and to “avoid ‘kitchen table’ agreements”: Gallacher, at para. 24 (citations omitted). As Pepall J.A. explained in Virc v. Blair, 2014 ONCA 392, 119 O.R. (3d) 721, at para. 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. [Toronto: LexisNexis Canada Inc., 2012], at para. 5.50.

[15] In the circumstances here, we are not persuaded that the trial judge made any error in concluding that the video recording did not serve as a complete substitute for the document having been properly witnessed. Among other things, the video recording is only around 20 seconds long, and it does not capture the full extent of the discussions that led up to the document being drafted and signed. Some portion of these discussions was also audio-recorded by the appellant, and the trial judge found that this latter recording caused her “to have concerns about the circumstances surrounding the negotiation and execution of the contract”.

(b) The legal test for relaxing the formal requirements of s. 55(1) of the FLA

[16] With respect to the appellant’s second and third grounds of appeal, we are also not persuaded that the trial judge applied the wrong legal test for deciding whether it was appropriate in the circumstances of this case to treat the August 2 Document as a valid domestic contract even though it had not been witnessed.

[17] In particular, we do not agree that there is any real inconsistency between this court’s observation in Gallacher, at para. 24, that one of the purposes of s. 55(1) of the FLA is “to ensure that [domestic contracts are] free from undue influence, coercion or duress”, and the court’s later statement at para. 27 (reproduced again here for ease of reference) that:

[T]he strict requirements of s. 55(1) may be relaxed where the court is satisfied that the contract was in fact executed by the parties, where the terms are reasonable and where there was no oppression or unfairness in the circumstances surrounding the negotiation and execution of the contract. [Citations omitted].

[18] At paras. 28-30 of Gallacher, this court went on to discuss some of the relevant factors that bear on the question of whether the formal requirements of s. 55(1) should be relaxed in a particular case. The trial judge considered and applied these factors.

[19] We also do not agree with the appellant that the test articulated in Gallacher for relaxing the formal requirements of s. 55(1) is flawed because it does not track the statutory language in s. 56(4) of the FLA for setting aside a properly formalized domestic contract. In particular, we disagree that as a matter of principle the tests ought to be the same under both sections, as the appellant contends. Rather, we agree with counsel for the respondent that this approach would unduly undermine the legislature’s decision to require domestic contracts to ordinarily have at least some degree of formality, in part to underscore their importance and ensure that the parties who sign them take them seriously.

(c) The trial judge’s application of the Gallacher test

[20] With respect to the appellant’s fourth ground of appeal – that the trial judge erred in concluding that the formalities of s. 55(1) of the FLA should not be relaxed in the circumstances here – we are satisfied that the trial judge properly considered the factors identified in Gallacher.

[21] Unlike the situation in Gallacher, the trial judge found as fact that in this case neither party had received independent legal advice before signing the August 2 Document. She also found that the document was vague, and that the respondent had not understood some key terms. The trial judge also noted that the document left important questions unresolved. For instance, while the respondent was said to be giving up “the house and all assets, equity and so on”, the document did not address which of the parties would be responsible going forward for paying the mortgage or covering the other costs associated with the property.

[22] The trial judge concluded:

In order to forgo compliance with section 55(1) of the FLA, both parties must understand the agreement they have reached and the obligations it imposes. Given the circumstances surrounding the preparation of the August 2nd agreement and the wording used, I am not satisfied that this condition has been met in this case.

[23] The appellant also relies on the Supreme Court of Canada’s recent judgment in Anderson v. Anderson, 2023 SCC 13, 481 D.L.R. (4th) 1, which was released some ten months after the trial judge’s decision in the case on appeal. We are not persuaded that anything that was said in Anderson undermines the trial judge’s analysis or conclusions.

[24] Several features of Anderson render it distinguishable from this case on the facts. First, unlike in the present case, the agreement in Anderson was witnessed. The issue with the agreement in that case was the absence of an additional safeguard under Saskatchewan legislation, namely, that “the parties formally acknowledge that they understand the nature and effect of the terms of the agreement in the presence of independent counsel”: Anderson, at para. 4.

[25] In Anderson, at para. 42, Karakatsanis J., writing for a unanimous court, emphasized the importance of statutory formalities, noting that they “serve to impress upon spouses the significance of their agreement and to encourage and preserve the validity of binding family property settlements”. She explained further at para. 35:

Concern about vulnerabilities may be countered by the presence of procedural safeguards. For example, full and frank disclosure of all relevant financial information between the parties can go far to assuage concerns of informational asymmetry …. Similarly, professional assistance, such as independent legal advice, can serve as a hallmark of a fair bargaining process … although the curative impact of legal advice in the negotiation of domestic contracts should not be taken as given. [Citations omitted].

[26] Karakatsanis J. held further that the domestic agreement in that case, which was in writing, and signed and witnessed, should be enforceable despite the absence of the additional safeguard stipulated in the Saskatchewan legislation that the parties acknowledge their understanding of it in the presence of a lawyer. Importantly, however, she also held at para. 71, that “there was nothing to suggest that the parties did not understand the terms or effect of their agreement”.

[27] In contrast, the trial judge in the case at bar found as fact that the respondent did not understand key aspects of the August 2 Document, in part because the agreement itself was “overly broad and vague”. As we have already noted, we are required to defer to her assessment of the evidence and her findings of fact.

(d) Setting aside the contract under s. 56(4) of the FLA

[28] Turning to the appellant’s fifth ground of appeal, we see no basis to interfere with the trial judge’s alternative conclusion that even if the August 2 Document was a valid domestic contract, despite not having been prepared in accordance with s. 55(1) of the FLA, she would have set it aside pursuant to s. 56(4).

[29] In this regard, we do not agree with the appellant’s argument that the trial judge made any implicit finding that the respondent signed the document under duress, nor do we agree that s. 56(4) required her to make any such finding.

[30] As Karakatsanis J. noted in Anderson, at para. 3, “in deciding how much weight to give the agreement, a reviewing judge generally examines both the fairness of the bargaining process and the substance of the agreement, in accordance with the legislative scheme”. In Ontario, s. 56(4) of the FLA permits courts to set aside domestic contracts on multiple bases, including when “a party did not understand the nature or consequences of the domestic contract” (s. 56(4)(b)). While a finding of duress might have entitled the trial judge to invoke s. 56(4)(c), which authorizes the setting aside of domestic contracts “otherwise in accordance with the law of contract”, s. 56(4)(b) does not require a finding of duress.

[31] The trial judge found as fact that the respondent did not understand precisely what he was giving up, noting that “[n]either party reviewed any of their financial records prior to signing the document”, and finding further that the respondent, in particular, did not understand the meaning of the term “equity”. In our view, these findings would have given the trial judge a sufficient basis to allow her to set aside the contract under s. 56(4)(b), had it been necessary for her to do so.

(e) Disposition

[32] In summary, we see no basis to interfere with the trial judge’s conclusion that the August 2 Document was unenforceable pursuant to s. 55(1) and/or s. 56(4) of the FLA. The appellant does not take issue with the trial judge’s further conclusion that if the August 2 Document is unenforceable, sale of the property should be ordered.

[33] In the result, the appeal is dismissed. Counsel have agreed that costs of the appeal should be fixed at $4,411.17 all inclusive, payable to the respondent.

“L.B. Roberts J.A.”

“L. Sossin J.A.”

“J. Dawe J.A.”