DeCraemer v. DeCraemer, 2012 ONSC 1182

SUPERIOR COURT OF JUSTICE - ONTARIO

COURT FILE NO.: FS- 07-059169-00
DATE: 2012-02-22

RE: PATRICK DECRAEMER and ANNE DECRAEMER

BEFORE: Justice Thomas A. Bielby

COUNSEL:
K. Klukach, for the applicant
G. Joseph and K. Stock, for the respondent

ENDORSEMENT

INTRODUCTION

1This motion is brought by the respondent, who asks the court to enforce a consent arbitration award between the parties, dated March 3, 2011. The minutes of settlement from which were the basis of the award were signed February 28, 2011.

2In the alternative, the respondent seeks child support and contribution to the section 7 expenses for the four children.

3The applicant, in response, asks the court to enforce the award and, in doing so, make an order finding that it is an implied term of the award that the respondent indemnifies the applicant for any tax arrears that might be attributed to the applicant as a result of the respondent’s tax appeal and the Canada Revenue Agency (CRA).

4In the alternative, the applicant asks for an order under Rule 25(19) of the Family Law Rules changing the award to include the aforementioned indemnity on the grounds that the award contains a mistake and/or was obtained by fraud.

5The applicant also asks for an order reducing the amount owed to the respondent in the award, as a result of an arithmetic error.

6As a further alternative, the applicant seeks an order setting aside the award.

BACKGROUND

7The parties were husband and wife and at the date of separation both owned shares in a company called Bird Construction. The respondent wife alleges that the shares resulted from the applicant’s employment and that some of these shares were put into her name for tax reasons. She alleges that during the marriage any taxes owed relating to the shares in issue were paid by the applicant.

8In 2006, after separation, shares in the name of the respondent were converted to an income fund which triggered capital gains and thereby taxes.

9The respondent took the position with the CRA that the taxes were owed by the applicant, and not her. The matter is currently before the Tax Appeal Court.

10The taxes allegedly owed amount to approximately $485,000.00 together with interest and possibly penalties.

11On or about April 6, 2011, after the arbitration award was issued, the applicant was contacted by the Department of Justice and advised that the Crown may make him a party to the appeal as the respondent was alleging the taxes were owed not by her but rather by the applicant.

ARGUMENT

12The applicant argues that the minutes of settlement which formed the basis of the award were a settlement of all issues between the parties including the tax issue. He submits that, since the respondent did not pursue the issue she raised by making a claim for compensation in regards to her tax liability, she is responsible for the debt and that it is an implied term of the minutes of settlement that she should indemnify him if, as a result of her tax appeal, he is called upon to pay these taxes.

13After his conversation with the Department of Justice, on April 6, 2011, the applicant refused to complete the settlement unless the respondent agreed in writing to indemnify him with respect to the tax debt.

14The respondent seeks to enforce the agreement “as is” and opposes the inclusion of any indemnity clause. She argues that if the CRA calls upon the applicant to pay the taxes, it is an issue between the applicant and the CRA and not one between the parties.

15It would seem, therefore, that both parties wish to enforce the settlement but disagree as to who was to be responsible for the tax debt.

ANALYSIS

16The amended answer filed by the respondent in November 2009 asks for an unequal division of net family properties and:

An order for the applicant to reimburse the respondent for 100 percent of the capital gains taxes the respondent has been found or may be found owing to CRA as a result of the income splitting the applicant structured.

17The respondent included in her document brief, prepared for the arbitration, her notice of tax appeal, reply, and the supporting documentation. These documents were filed on the morning of February 28, 2011, the day the arbitration was to take place. The applicant submits that this documentation was never disclosed prior to this.

18The applicant further alleges that in the negotiations resulting in the minutes of settlement the tax issue was never raised or discussed and that he never turned his mind to this potential liability and never sought an indemnification.

19It would appear that the respondent never sought to address this issue that she originally raised and was still intent on pursuing in the arbitration proceedings.

20In fact, both parties, while seeking to enforce the consent award, take the position that, had they known at the time that they would be responsible for the tax debt, neither would have ever agreed to the settlement.

21From these facts I find the following:

(1) The applicant had notice of this claim prior to the settlement. While the respondent’s documents relating to the tax appeal were not provided to him until the day the agreement was signed, he had actual knowledge of the claim in the answer, and imputed knowledge with respect to the information contained in the albeit late disclosure by the respondent.

(2) The tax issue is one that arose between the parties and, on February 28, 2011, remained an issue between the parties. It was not only an issue between the applicant and the CRA as argued by the respondent. The respondent raised the issue with the CRA and therein implicated the applicant. The issue could easily be resolved by the respondent withdrawing her appeal. It is incorrect for the respondent to say that she has no control over what steps the CRA takes.

22When the parties reached their settlement, both were represented by counsel.

23The minutes of settlement are in the form of an offer of settlement originally drafted by the applicant, and then amended by the parties to give effect to the settlement reached.

24The minutes can be found at Exhibit C of the affidavit of A. Savaglio, sworn September 6, 2011. The document starts with the preamble, “Patrick DeCraemer and Anne DeCraemer agree to settle all issues in this matter on a final basis as follows:” The document then sets out the terms of the settlement.

25The settlement contains two indemnifications, one relating to the matrimonial home and the other to a TD loan. Further, the parties release each other from any claim for spousal support. Any references to the preparation of a separation agreement were crossed out. The document was signed by both parties and witnessed by counsel.

26The document does not include the general release paragraphs usually seen in separation agreements. There is no reference therein to the tax issue whatsoever. The agreement calls for the respondent to receive total compensation of over $1,600,000.00, which includes a lump sum payment for child support of $840,000.00.

27Both parties claim that, if either of them is called upon to pay in excess of $485,000.00 to CRA, it substantially and significantly changes the compensation package to which they agreed. As referenced above, neither party would have agreed to the settlement had they thought they would be responsible for this debt.

28Clearly, on February 28, 2011, the respondent knew she had an appeal outstanding. While the knowledge of it can be imputed to the applicant, his attention, in fact, may not have been drawn to the specific documents and their implications.

29As well, there is nothing to suggest that the respondent turned her mind to the tax issue.

30I accept that, given the size of the settlement and the size of the potential liability, the risk of paying this amount would be a “game changer” for both.

31The risk is so large that one would think it would have been an issue specifically addressed.

32The applicant relies on the preamble arguing that, because the agreement was to settle “all” issues, the respondent is liable for the tax debt as it was a claim of the respondent’s and that it is deemed to be resolved.

33The applicant seeks the inclusion of an indemnity. However, as I see it, this request is also something that could or perhaps should have been included in the settlement. Just as the applicant argues the settlement of all issues includes the tax debt, it could also be argued that the settlement of all issues precludes the issue of indemnification.

34The Family Law Act , sections 59.6 and 59.8 allow for the enforcement of arbitration awards by the court. I find that the agreement met the criteria set out therein and that the agreement is enforceable. Accordingly, I can make an order in accordance with the award. An action remains outstanding and the matter was properly brought before the court by way of a motion.

35If an order is made incorporating an arbitration award, it is subject to all the powers of the court: Thibodeau v. Thibodeau, 2009 CarswellOnt 2638 . The court has the authority to make orders on the same terms as the award: Gray v. Brushy, 2008 CarswellOnt 4045 .

36Rule 25 of the Family Law Rules allows the court to vary an order if there has been mistake or fraud or whether the order needs to be changed to deal with a matter that was before the court but that it did not decide. In the matter before me, the facts do not suggest there has been a fraud of any kind.

37Further, agreements and contracts, by common law, can be set aside on the grounds of mistake.

38It would appear that the court has the power to vary an arbitration award as if it were an order of the court. Neither counsel, in their submissions, argued otherwise.

39With respect to whether or not I should amend the award to include an implied indemnity, on the facts before me I cannot conclude that indemnification is an implied term necessary to give effect to the settlement or to give business efficacy to the agreement. I cannot conclude that it was the parties’ intention that the respondent was to be responsible for the tax debt which would imply an indemnification in favour of the applicant.

40On the issue of implied terms, I have had regard to the decision in Wilkins v. Wilkins, 1992 CarswellNB 369 which, at paragraph 24 , references the decision in CP Hotels v. Bank of Montreal, 1987 55 (SCC) , 40 DLR (4 th ) 385 (SCC) .

41In referencing that case, the court in Wilkins stated at para. 24:

The Court found that for an implied term to exist, based on custom and usage, there would have to be evidence to support an inference of an understanding between the parties. Quite the contrary, both parties in this case were aware of tax implications but it was simply left out of the proposal.

42In the matter before me, I conclude no such evidence exists. Both parties in this case were aware of tax implications and the financial risk but the issue was simply left out of the proposal.

43I will now turn to the issue of mistake.

44In my considerations of this matter, I am drawn to the decision of Linhares de Sousa J. in Wilde v. Wilde [2000] O.J. No. 2395 . In this case, the parties on the eve of trial entered into minutes of settlement. The final minutes included a term by which the wife released all interest in her husband’s federal government pension. Throughout the history of the case and the settlement negotiations, the wife had always sought an interest in the pension as part of the equalization of net family properties.

45Shortly after the minutes were signed, the wife realized the error, that is, her release of the pension, and through counsel conveyed the mistake to the husband’s lawyer.

46The court concluded that the pension release was a mistake on the part of the wife’s lawyer and that there was no binding agreement between the parties.

47Commencing at paragraph 24, the court discusses the issue of mistake. If there was a mutual or unilateral mistake, the contract could be set aside. The court refers to the decision in Re Lem Estate , 1987 CarswellOnt 385 , 16 C.P.C. (2d) 139 , where it states:

17 In mutual mistake, the parties misunderstand each other and are at cross-purposes.

In a unilateral mistake, one only of the parties is mistaken. The other knows, or must be taken to know, of the mistake.

18 The approach of the Court to mutual and unilateral mistake differs. For mutual mistake the Court applies what might be called an objective test, i.e., would a reasonable man in the circumstances decide that an agreement had been reached between the parties. In the case of unilateral mistake the party making the mistake is allowed to show the effect of that mistake on his own mind as opposed to the mind of a reasonable man.

48In the Wilde case the court concluded there was a unilateral mistake notwithstanding an explicit pension release in the body of the minutes of settlement. The court concluded at paragraph 33 that:

The jurisprudence clearly establishes that the alleged agreement must be examined in the context of the history and development of the negotiations preceding it.

49The court determined that an examination of the history leads to the conclusion that exclusion of any reference to the wife sharing the pension was an error. At paragraph 36, the court concluded that the wife had no intention of giving up her claim to an interest in the pension.

50The court, in the Wilde case, refused to enforce the agreement.

51That case has some similarity to the one before me. It is a family law case which involved an issue known to the parties prior to the settlement. In the matter before me, the tax issue was put before the court and the arbitration by the respondent. In both cases the issue was significant. The pension interest in Wilde was in excess of $250,000.0 and the issue before me has a value of almost twice that amount.

52In the Wilde case, the mistake was considered to be unilateral, one that the husband and his lawyer were aware of based on the history of the matter.

53I believe the matter before me can be described as one of mutual mistake. On an objective basis, a reasonable man would say that the parties misunderstood one another and are at cross-purposes. The potential tax liability is so large that one would think it should have been specifically addressed.

54If a clause in an agreement specifically releasing a pension interest is not binding, then certainly a preamble set in less than formal minutes of settlement, being a combination of an offer of settlement, and hand written changes and inclusions, cannot be said to be binding.

55Both parties acknowledge they would have not agreed to the deal if they knew they would be responsible for the debt. Given the value of the risk as compared to the overall settlement, a reasonable man could conclude a mutual mistake.

56Either by mutual or unilateral mistake, I have the authority to set aside the settlement.

57The learned judge in Wilde , at paragraph 27, references the case, Bourgeois v. Smith, (1921) 1921 409 (NB SC) , 58 D.L.R. 515 . From that case relating to unilateral mistake, I quote:

If the Court is satisfied that the true intention of one of the parties was to do one thing, and he by mistake has signed an agreement to do another, that agreement will not be enforced against him, but the parties will be restored to their original position, and the agreement will be treated as if it had never been entered into.

58With respect to unilateral mistake, I find that the applicant did not contemplate that he would be at risk in regards to the tax debt and that it was not his intention to bear that risk.

59I find that, on the basis of the doctrine of mistake, the agreement ought not to be enforced and, in fact, it is set aside. Given the facts of the case, that is the only equitable thing to do.

60The parties can continue with their litigation.

61In that regard and with respect to child support and section 7 expenses, I made an interim order on September 20, 2011 addressing these issues. Pending further order of this court, that order is to remain in full force and effect.

62As to costs, I will accept the written submissions of both sides, restricted to three pages each. I do note that both counsel wanted the award enforced and both failed in that regard. I do not think it can be said either party was successful but I will consider the submissions of counsel in that regard.

Bielby J.