Stevens v. Stevens, 2012 ONSC 706

Stevens v. Stevens; Epstein Cole LLP et al., Added Respondents [Indexed as: Stevens v. Stevens]

109 O.R. (3d) 421

2012 ONSC 706

Ontario Superior Court of Justice,

Harper J.

February 6, 2012

Family law -- Domestic contracts -- Setting aside -- Wife intending that husband receive one-half of value of matrimonial home -- Marriage contract containing drafting error and providing that husband would receive full value of matrimonial home -- Wife's lawyer sending draft contract to husband's lawyer with cover letter specifying that wife wanted to give husband one-half of value of matrimonial home -- Husband's lawyer not seeking clarification from wife's lawyer -- Husband aware of and taking advantage of mistake in contract -- No consensus ad idem existing on fundamental term of contract -- Contract void ab initio.

Family law -- Support -- Spousal support -- Wife staying at home and raising children during 16-year marriage -- Wife entitled to compensatory support despite fact that she would receive $8 million in assets -- Husband ordered to make lump sum retroactive spousal support payment in amount of $136,182.

The parties were married for 16 years. During the marriage, the wife largely stayed at home, managed the household and raised the parties' children. The parties' respective lawyers drafted a marriage contract when the parties were trying to reconcile after the wife discovered that the husband was having an affair. The wife had invested gifted and inherited funds in the matrimonial home. She intended that the husband receive one-half the value of the matrimonial [page422] home if the marriage broke down. Paragraph 12(1)(a) of the marriage contract contained a drafting error. It stated that the wife would give the husband the full value of the matrimonial home in two installments on separation. The wife's lawyer sent a draft of the marriage contract to the husband's lawyer accompanied by a cover letter which specified that the wife wanted to give the husband one-half of the value of the matrimonial home. The contract also provided for mutual releases of spousal support. The husband knew that the wife's central motivation in securing a marriage contract was to recoup the gifted and inherited funds. He and his lawyer were aware of the inconsistency between the draft marriage contract and the covering letter but failed to seek clarification. When the contract was drafted, the wife was suffering from bipolar disorder, was not taking prescribed medication and was experiencing hypomania. The marriage broke down not long after the contract was signed. The husband applied to enforce the contract; the wife sought to set the contract aside.

Held, the wife's application should be granted.

The husband was aware that para. 12(1)(a) of the marriage contract contained a mistake and he took advantage of it. There was no consensus ad idem on the issue of the share of the value of the matrimonial home that was to go to the husband. The contract was void ab initio.

If this conclusion was wrong, the contract should be set aside on the basis that the wife lacked the capacity to understand and appreciate the nature and consequences of the agreement. Alternatively, the marriage contract should be set aside as unconscionable. The husband was aware of the wife's vulnerabilities when the contract was being drafted. He knew that clarification of a major inconsistency was needed before the contract could be finalized, yet he persisted in authorizing his lawyer to put the agreement in a form ready for signing before he obtained the required clarification. He knew that if the parties separated without a contract, he would receive an equalization payment of approximately $500,000, whereas he would receive $2,500,000 as a result of the drafting error. The wife gave away everything and received nothing.

The wife was ordered make an equalization payment to the husband in the amount of $798,453.10.

In staying at home throughout the marriage, the wife acted to her detriment relative to advancing her career and to the husband's benefit. She was entitled to compensatory support. The husband was ordered to make a lump sum retroactive spousal support payment of $136,182.

APPLICATION to set aside a marriage contract. [page424]

Cases referred toD'Andrade v. Schrage, [2011] O.J. No. 859, 2011 ONSC 1174, 99 R.F.L. (6th) 40, not folld Chutter v. Chutter, [2008] B.C.J. No. 2398, 2008 BCCA 507, [2009] 3 W.W.R. 246, 60 R.F.L. (6th) 263, 86 B.C.L.R. (4th) 233, 263 B.C.A.C. 109, 301 D.L.R. (4th) 297, consd Other cases referred to Aelbers v. Aelbers, [2008] B.C.J. No. 2291, 2008 BCSC 1624, 62 R.F.L (6th) 395, 173 A.C.W.S. (3d) 219; Bogue v. Bogue (1999), 1999 CanLII 3284 (ON CA), 46 O.R. (3d) 1, [1999] O.J. No. 4310, 126 O.A.C. 236, 1 R.F.L. (5th) 213, 92 A.C.W.S. (3d) 766 (C.A.); Bracklow v. Bracklow, 1999 CanLII 715 (SCC), [1999] 1 S.C.R. 420, [1999] S.C.J. No. 14, 169 D.L.R. (4th) 577, 236 N.R. 79, [1999] 8 W.W.R. 740, J.E. 99-703, REJB 1999-11414, 120 B.C.A.C. 211, 63 B.C.L.R. (3d) 77, 44 R.F.L. (4th) 1, 86 A.C.W.S. (3d) 1109; Davis v. Crawford (2011), 106 O.R. (3d) 221, [2011] O.J. No. 1719, 2011 ONCA 294, 277 O.A.C. 200, 332 D.L.R. (4th) 508, 201 A.C.W.S. (3d) 498, 95 R.F.L. (6th) 257; [page423] First City Capital Ltd. v. British Columbia Building Corp., 1989 CanLII 2868 (BC SC), [1989] B.C.J. No. 130, 43 B.L.R. 29, 14 A.C.W.S. (3d) 12 (S.C.); Hartog v. Colin & Shields, [1939] 3 All E.R. 566 (K.B.); Kerr v. Baranow, [2011] 1 S.C.R. 269, [2011] S.C.J. No. 10, 2011 SCC 10, 274 O.A.C. 1, 328 D.L.R. (4th) 577, 2011EXP-624, 411 N.R. 200, J.E. 2011-333, [2011] 3 W.W.R. 575, 64 E.T.R. (3d) 1, 14 B.C.L.R. (5th) 203, 300 B.C.A.C. 1, 93 R.F.L. (6th) 1, EYB 2011-186472; Knight v. Knight, [2009] B.C.J. No. 2750, 2009 BCSC 1851; Ledrew v. Ledrew, 1993 CanLII 16082 (ON SC), [1993] O.J. No. 596, 46 R.F.L. (3d) 11, 39 A.C.W.S. (3d) 139 (Gen. Div.); MacFarland v. MacFarland, 2009 CanLII 26349 (ON SC), [2009] O.J. No. 2149, 70 R.F.L. (6th) 196, 177 A.C.W.S. (3d) 450 (S.C.J.); Mannarino v. Mannarino, 1992 CanLII 14022 (ON CA), [1992] O.J. No. 2730, 43 R.F.L. (3d) 309, 37 A.C.W.S. (3d) 716 (C.A.); McMaster University v. Wilchar Construction Ltd. (1973), 1976 CanLII 757 (ON SC), 12 O.R. (2d) 512, [1973] O.J. No. 2380 (C.A.), affg 1971 CanLII 594 (ON SC), [1971] 3 O.R. 801, [1971] O.J. No. 1717, 22 D.L.R. (3d) 9 (H.C.J.); 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; Moge v. Moge, 1992 CanLII 25 (SCC), [1992] 3 S.C.R. 813, [1992] S.C.J. No. 107, 99 D.L.R. (4th) 456, 145 N.R. 1, [1993] 1 W.W.R. 481, J.E. 93-111, 81 Man. R. (2d) 161, [1993] R.D.F. 168, 43 R.F.L. (3d) 345, 37 A.C.W.S. (3d) 527, EYB 1992-67141; Patrick v. Patrick, [2002] O.J. No. 639, [2002] O.T.C. 131, 112 A.C.W.S. (3d) 302 (S.C.J.); Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678, [2002] S.C.J. No. 20, 2002 SCC 19, 209 D.L.R. (4th) 318, 283 N.R. 233, [2002] 5 W.W.R. 193, J.E. 2002-448, 98 Alta. L.R. (3d) 1, 299 A.R. 201, 20 B.L.R. (3d) 1, 50 R.P.R. (3d) 212, 111 A.C.W.S. (3d) 733; 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; S. (D.B.) v. G. (S.R.), [2006] 2 S.C.R. 231, [2006] S.C.J. No. 37, 2006 SCC 37, 270 D.L.R. (4th) 297, 351 N.R. 201, [2006] 10 W.W.R. 379, J.E. 2006-1543, 61 Alta. L.R. (4th) 1, 391 A.R. 297, 31 R.F.L. (6th) 1, 149 A.C.W.S. (3d) 626, EYB 2006-108061; S. (F.) v. H. (C.), 1994 CanLII 7515 (ON SC), [1994] O.J. No. 2630, 120 D.L.R. (4th) 432, 22 C.C.L.T. (2d) 292, 9 R.F.L. (4th) 419, 51 A.C.W.S. (3d) 497 (Gen. Div.); Spinney v. Spinney, [1996] O.J. No. 1869, 4 O.T.C. 295, 63 A.C.W.S. (3d) 878, 1996 CarswellOnt 2192 (Gen. Div.); Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, 209 D.L.R. (4th) 257, 283 N.R. 1, J.E. 2002-405, 156 O.A.C. 201, 20 B.L.R. (3d) 165, 35 C.C.L.I. (3d) 1, [2002] I.L.R. I-4048, REJB 2002-28036, 111 A.C.W.S. (3d) 935 Statutes referred to Courts of Justice Act, R.S.O. 1990, c. C.43, s. 11(2) [as am.] Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) [as am. by S.C. 1997, c. 1], s. 15.2(1), (4), (6) Family Law Act, R.S.O. 1990, c. F.3, ss. 18(1), 33(4)(a), 56(4), (b), (c), (7) Rules and regulations referred to Family Law Rules, O. Reg. 114/99 [as am.], s. 19(1) Federal Child Support Guidelines, SOR/97-175, s. 19(1)(a) Authorities referred to McCamus, John D., The Law of Contracts (Toronto: Irwin Law, 2005) Rogerson, Carol, and Rollie Thompson, Spousal Support Advisory Guidelines (Ottawa: Department of Justice Canada, 2008)

Lawrence Thacker, Matthew Lerner and Yashoda Ranganathan, for applicant. Stephen Grant and Gillian P. Kerr, for respondent. William Pepall and Shannon M. Puddister, for added respondents.

HARPER J.: --

Issues

1Whether the Marriage Contract should be set aside because: (a) there was a fundamental mistake such that there was no consensus ad idem; (b) the Marriage Contract is unconscionable; (c) Pamela Stevens lacked the capacity to enter into and/or did not understand the nature and/or the consequences of the Marriage Contract.

2In the event that the Marriage Contract is not set aside: (a) whether para. 12(a)(i) of the Marriage Contract should be set aside pursuant to s. 56(4) of the Family Law Act, R.S.O. 1990, c. F.3; (b) whether the error in para. 12(a)(i) of the Marriage Contract can be rectified.

3In the event that the Marriage Contract is set aside: (a) the amount owing pursuant to an equalization of the net family property, which includes a determination of (i) the value of the matrimonial home; (ii) whether the cottage is a matrimonial home; (iii) whether the chalet is a matrimonial home; (b) the amount, if any, owing for arrears of spousal support; (c) the amount, if any, of child support arrears; (d) whether any amount of arrears, if any, should be offset to any amount that Pamela Stevens may be owed by way of equalization; [page425] (e) whether the court should make a declaration that Joel is obligated to comply with the terms of a promissory note, such that Pamela is repaid the money she loaned to the Stevens Family Trust.

Marriage particulars

4Pamela and Joel were married on August 9, 1991. They separated on June 30, 2007. This was a 16-year marriage.

5There are three children of the marriage. Stephanie was born on August 9, 1992, Melanie was born on June 8, 1994 and Jacqueline Victoria was born May 13, 1996.

Pamela's background

6Pamela is 51 years of age. She graduated from the University of Western Ontario with a three-year Bachelor of Arts degree. At the time of marriage, she had been employed at the Toronto-Dominion Bank. When Joel was transferred to London, England in September of 1990, Pamela quit her job in Canada and joined him there in November of 1990. While in England, Pamela worked for a computer rental company for a short period of time. Joel and Pamela were later married in Canada in 1991, but they returned to England for Joel's work shortly after the wedding. Their first child, Stephanie, was born while they lived in London and is currently 19 years old. After Stephanie's birth, Pamela stopped working.

7Pamela and Joel moved back to Toronto in November of 1993. Upon moving back to Toronto, Pamela and Joel had their second child, Melanie, who is currently 17 years old. Pamela and Joel's third child, Jacqueline, is 16 years old. Pamela did not work outside of the home other than a part-time job she had as a payroll administrator for her husband's company. She did a lot of volunteer work at the hospital, cared for the children and managed the household.

Joel's background

8Joel is 50 years old. He has a Bachelor of Commerce degree from Queen's University.

9Joel worked in computer sales and was transferred by the company he was working for in 1990 to London, England. Joel and Pamela were married in Canada but returned to London for Joel to continue his employment.

10After their return to Canada in 1993, Joel started his own computer company, PC Outlet, as well as several related companies in 1994. PC Outlet started as a company that bought and sold used computers to consumers and businesses. It went [page426] through a number of transformations. It eventually dealt with sales to manufacturers and started to do consulting work with distributors. Joel has continuously worked in, controlled and operated this company from 1994 to the present time.

Major sources of assets and income

Pamela's family and gifted and inherited money

11Pamela has five siblings. Her father, Steven Cerny, created significant wealth during his lifetime. He was an astute businessman and investor. He wanted to impart his business and investment acumen to his children, as he knew he would be giving them large sums of money by gift or inheritance in the future. To further this goal, he created a family investment vehicle called the Cerny Family Trust to ensure that his children would learn the value of money and gain a certain amount of business and investment skills.

12When Pamela's father died in 2003, the Cerny Family Trust was wound up. During his lifetime, Mr. Cerny also created a company called Main Chance Investments Holdings Co. He left all his children equal shares in this company. Pamela's brother-in-law, Geoff Cornish, was the president of the company. The purpose of the company was to allow all of the Cerny family siblings to pool their funds and come to unanimous, and hopefully astute, business decisions for each of their benefit by way of a shareholders' agreement. Mr. Cornish was a major financial adviser to all of the siblings, including Pamela.

13As an example of how Pamela's father would attempt to instill a sense of business acumen to his children in dealing with large sums of money, prior to his death in 2003, Pamela's father gave her $400,000. He gave this money, in part, to see how Pamela would deal with larger sums of money. Pamela used this money to renovate the home that she had purchased with Joel.

14On April 19, 2005, the Main Chance Investments Holdings Co. interests were distributed to the children. Mr. Cornish was the portfolio manager. He also dealt with the money managers and assisted in educating the Cerny children on all of this money management. Pamela received a one-16th interest in the investment company.

15On February 3, 2005, prior to the distribution of her father's estate, Pamela requested an advance of moneys to her so that she could use it for home renovations. Her siblings agreed to this request and Main Chance Investments loaned her the money. Around this time, the siblings unanimously entered [page427] into a shareholders' agreement that defined clear rules for all of the Main Chance shareholders to be able to withdraw money.

PC Outlet

16PC Outlet's original business was in the remarketing of consumer electronic products and had direct partnerships with large computer manufacturers. PC Outlet also entered into a consulting agreement with a company in the United States to provide advice on entering into the business of distributing used, refurbished and end-of-line technology products in the United States. This contract was approximately one-year long with a one-year renewal term. PC Outlet later provided similar consulting services to the Canadian subsidiary of this same company, advising on the distribution of end-of-line technology products in Canada.

17PC Outlet has two wholly owned subsidiaries: its Canadian branch, "PC Outlet Inc.", and "PC Outlet Foreign Affiliate LLC", its branch in the United States.

18Joel owns 100,000 Class A shares of PC Outlet directly, and indirectly owns 35 common shares of PC Outlet through his 100 per cent direct ownership of another company: "Joel Stevens Holdings".

19Pamela also owns 35 common shares of PC Outlet through her 100 per cent direct ownership of "Pamela Stevens Holdings". The holding companies of both Joel and Pamela are inactive holding companies whose only material assets are the shares in PC Outlet.

20In addition to PC Outlet's 70 common shares, there are 30 Class B non-voting shares. The Class B shares are owned by the 1996 Stevens Family Trust.

21Joel, through his Class A shares and control of the common shares, was in complete control of the operating company. He made all of the day-to-day decisions of the company and had full control over declaring any shareholder bonuses.

The Stevens Family Trust

22The Stevens Family Trust was set up by way of a trust agreement on November 18, 1996 to house 30 per cent of PC Outlet's shares. The trustees of the trust are Pamela, Joel and Joel's friend, Mr. Smith. The three Stevens children, as well as Pamela and Joel, are the beneficiaries of the trust.

23In 2006, Joel and Pamela received advice that led them to attempt to use tax planning in order to fund their children's education. As a result of this advice, Pamela loaned the Stevens Family Trust $982,216.75 of her inherited funds. The idea was [page428] to use any capital gains to pay for the children's education. However, this loan was made on the understanding that it be repayable upon demand. A demand promissory note was signed by both Pamela and Joel on December 23, 2005 with respect to the money with which Pamela funded the trust.

24Decisions of the trust are to be made by majority opinion of the trustees. As such, if Pamela and Joel are at odds over a decision, the compliance of Joel's friend, Mr. Smith, is required in order to form a majority.

The circumstances of separation

25According to Pamela, her marriage was in a terrible state by November of 2005. She claimed that this level of disarray did not change through March 2006, when she discovered that Joel was having an affair with another woman. According to Pamela, Joel denied the affair at first but later admitted to it.

26Pamela testified that she was devastated when she found out about the affair. She immediately felt nauseous and cried all night. Although she was distressed, she continued to try to put the children first. She describes, for example, going through Passover celebrations with Joel's extended family in order to keep the marital discord hidden from her children, even though she felt anguished over the affair.

27According to Pamela, Joel told her that he had met someone else and that he was going to leave her and move on with his life. However, Joel insisted that he would not leave the matrimonial home until a parenting agreement was put into place. Joel eventually moved down to the basement to sleep and both Joel and Pamela went to obtain their own legal advice.

The issues of mistake, unconscionability and capacity

The process of negotiation of Marriage Contract

28Both Joel and Pamela waived solicitor and client privilege from the period of time when they each consulted their respective family lawyers to the time when they signed a Marriage Contract in October of 2006.

The commencement of the negotiation process

Pamela

29Pamela saw a lawyer, Ms. Roslyn Tsao, from the Epstein Cole law firm, for a consultation on April 19, 2006. Joel had already contacted a family law lawyer at this point. [page429]

30During the initial consultation, Pamela sought legal advice with respect to a possible separation agreement. According to Pamela, she was extremely angry at Joel upon finding out about his affair and she wanted him out of the house as soon as possible.

31Ms. Tsao recalls that at the initial April 19, 2006 consultation, Pamela attended to learn about her rights and obligations if a separation occurred between her and her husband. Pamela was observed as anxious and rigid about what was going to happen.

32Ms. Tsao obtained Pamela's basic information and gave her an outline of the operation of the Family Law Act as it relates to property and support issues. On the basis of the information before her, Ms. Tsao estimated that Pamela would have to pay Joel an equalization amount of around $500,000. Pamela returned to sign a retainer agreement engaging Ms. Tsao on April 28, 2006.

33Ms. Tsao testified that she had a telephone discussion with Pamela on April 26, 2006. At that time, Pamela's anger and emotion toward her husband were described by Ms. Tsao as "exceptional". Joel would not move out of the home and was insisting on a parenting agreement as a prerequisite to his moving out.

34Ms. Tsao stated that Pamela's anger continued to escalate. By May 2006, Pamela's anger had reached a point where Ms. Tsao began to grow concerned about the children. In describing the extent of Pamela's anger, Ms. Tsao wrote in her notes "she really really needs therapy". On this occasion, she also noted that Pamela was repeating herself. Ms. Tsao was concerned enough to give Pamela the names of a couple of therapists that she might want to consult. Pamela told Ms. Tsao in this conversation that she was not sleeping and had stopped taking any medication.

Joel

35Joel first went to his corporate lawyer, Mr. Saltzman, of Cassels Brock & Blackwell LLP, to get a referral for a family law lawyer. Joel was referred to Diane Klukach, who also worked at this same law firm. Joel saw Ms. Klukach for an initial appointment on April 12, 2006. At that time, Ms. Klukach discussed certain types of domestic contracts and gave Joel an outline of the operation of the Family Law Act. She told Joel that if there were no domestic contract in place, and if the assets and values he described to her were accurate, that he [page430] would be entitled to approximately $500,000 by way of an equalization payment.

36After the initial consultation, Joel understood that there would be a fact-finding period of financial disclosure, with a draft Marriage Contract to follow. Ms. Klukach stated that Joel was interested in looking at what he termed a "stand- still agreement". He was provided with a draft Marriage Contract.

The negotiations

37Ms. Tsao sent a letter to Joel's lawyer, Ms. Klukach, asking for financial disclosure on May 18, 2006. By May 26, 2006, she had not received a response from Ms. Klukach. However, she did get a call from Pamela on this day advising her that Joel wanted to try and reconcile. During this phone call, Ms. Tsao learned that Pamela had advised Joel that she would not consider reconciliation unless he ended his affair and got tested for sexually transmitted diseases. Pamela had also told Joel that she would go out of town for one week to think about reconciliation. Ms. Tsao advised Pamela that it was advisable to put a Marriage Contract in place before reconciling so that she and Joel would not have to worry about the consequences of a failed reconciliation.

38By June 6, 2006, Pamela e-mailed her lawyer and stated that she was now anxious to start the process to obtain a Marriage Contract as soon as possible. Three days later, on June 9, 2006, Pamela told Ms. Tsao that she and Joel wanted to reconcile and that they were going to see a counsellor. She also stated that she wanted a Marriage Contract in order to "exclude and protect her father's gifted and inherited money".

39Ms. Tsao stated that Pamela had gone, within a period of approximately three weeks, from being angry and wanting Joel out of the house immediately to insisting on quickly putting a Marriage Contract into place and reconciling with Joel.

40Joel testified that he and Pamela wanted to make the marriage work and focus on rebuilding their relationship and concentrating on being parents to their children. As a result, Joel agreed with Pamela that neither of them would get extensively involved in the negative energy of negotiating the Marriage Contract. This task would be left to their respective lawyers.

41Joel and Pamela agreed to meet one time after Ms. Tsao sent out a draft of the Marriage Contract to Joel and Ms. Klukach. At this time, Joel represented to Pamela that he had ended his affair. Unbeknownst to Pamela, Joel had seen the woman with whom he was having an affair, only days earlier, while he was on a business trip in California. [page431]

Pamela's instructions to her lawyer

42Pamela directed Ms. Tsao as to the priorities and intentions she wished to see reflected in a Marriage Contract. Ms. Tsao made a contemporaneous note of a conversation she had with Pamela on July 11, 2006. That note stated:

-- lump sum equal to 1/2 of the MH at the time there a BDO Marriage

-- (or minimum $1 MILLION)

-- b/c otherwise he will have SS claim.

43Pamela sent an e-mail to Joel on June 12, 2006. That e- mail stated:

Here are my thoughts on some of the things I would like in the agreement:

Financial: All of the money that my father gave me is documented with Fasken Martineau. The money was gifted to me. I chose to use that money to enhance our lives the moment he gave it to me. I never put any of it aside for my benefit only. Therefore, if our marriage does not work out sometime in the future I would like all of the money returned to me. I think that most of the money is sitting in the house. We did pay a mortgage for a few years but it was paid off with some of this money. I will ask Al Dewling to dig up all the numbers for me.

Children: If our marriage does not work out then I will agree to co-parent the children on a 50/50 basis. You will be required to pay child support based on your income. If you make $1,000,000 per year, the law says you have to pay $15000 per month for three children.

Spousal Support: If our marriage does not work out, I will not require you support me as long as all of the money gifted to me is returned.

I may have some more thoughts after meeting with my lawyer tomorrow.

Love Pamela

44Pamela's lawyer, Ms. Tsao, did not see a copy of that e- mail until this trial. Joel's lawyer, Ms. Klukach, stated that Joel did not share the above e-mail with her.

45Nevertheless, Joel and Ms. Tsao knew by June 12, 2006 that Pamela wanted all of her father's gifted and inherited money returned to her if the marriage did not work out.

46In her second meeting with Ms. Tsao, Pamela once again stated that she wanted the Marriage Contract to give her the money she received by gift or inheritance from her father. She also told her lawyer that three gifts with an approximate total value of $2 million had already gone into the matrimonial home. Pamela wanted this money to revert to her in the event of a separation. Ms. Tsao stated that she discussed the possibility of selling the matrimonial home and putting the money into a smaller home with Pamela. It was thought that Pamela could then take [page432] the gifted and inherited money out and invest it separately, in order to gain back her exclusion.

47The evidence and the notations of both Pamela and Ms. Tsao are consistent with only one conclusion: Pamela always intended to give to Joel one-half of the value of the matrimonial home.

48In an e-mail exchange from Ms. Tsao to Pamela dated September 7 and 8, 2006, Ms. Tsao confirmed Pamela's instructions, as well as her understanding of the draft agreement. Ms. Tsao stated: "[Y]ou are agreeing to pay him 1/2 the value of the matrimonial home (whatever home it is you primarily reside in) NOT taking into account any encumbrance on it, should there be any".

49Pamela confirmed the above to be her understanding and told Ms. Tsao that it was acceptable to her. Ms. Tsao's above notes of her meeting with Pamela on October 2, 2006 serve as yet another confirmation that Ms. Tsao thought the Marriage Contract provided for a payment of one-half the value of the matrimonial home and a spousal support release given by both Joel and Pamela.

50Unfortunately, as will be further explained below, the original draft of the Marriage Contract contained a drafting error. Instead of stating that Pamela intended to give Joel one-half of the value of the matrimonial home, the Marriage Contract stated that Pamela would give him the full value of the matrimonial home in two installments.

51Based on the above evidence from Pamela and Ms. Tsao, it is clear that Pamela only ever intended to give Joel one-half of the value of the matrimonial home. I find that throughout the period of negotiations, from July 2006 until the signing of the agreement in October 2006, both Pamela and her lawyer, Ms. Tsao, were not aware that each draft of the Marriage Contract, including the document that was eventually signed, contained a drafting error.

52The start of the negotiation process had embedded within it a mistake that was one of the driving features of the conduct in this case.

The mistake

The July 13, 2006 cover letter

53The first draft of the Marriage Contract was sent to Ms. Klukach, for review by Ms. Tsao, with a cover letter dated July 13, 2006. This letter specified that Pamela wished to give Joel "one-half of the value" of the matrimonial home. This [page433] provision was structured as a form of lump sum spousal support to Joel. It also provided for mutual releases of spousal support.

54Ms. Tsao also stated in the July 13, 2006 cover letter:

The general framework of this Marriage Contract is to ensure that Ms. Stevens retains the full benefit of any funds that were gifted to or inherited by her during the marriage from her father/father's estate . . . Nevertheless, Ms. Stevens wishes to give your client some financial security in the event of marriage breakdown, such that she is proposing to pay to your client one-half of the value of the parties' matrimonial home, so that your client will have a lump sum at the time of separation.

The draft contract

55Unfortunately, the actual wording of the provision referencing this intention in the Marriage Contract contained a significant error. Paragraph 12(a)(i) of the draft Marriage Contract read:

Pamela will pay to Joel lump sum spousal support on the following terms:

(i) Amount equal to the value of the parties' matrimonial home, such value to be agreed upon by the parties if possible or by averaging the appraisals of 2 duly-qualified appraisers, one of them each selected by each party payable in installments:

(1) one-half paid by Pamela to Joel within 15 days of the breakdown of the marriage; and

(2) the remaining one-half paid by Pamela within 60 days of the breakdown of the marriage or when Joel vacates the matrimonial home, whichever is later.

56The above language from the Marriage Contract erroneously states that Pamela would give Joel the full value of the house in two installments, due 15 and 60 days after the breakdown of the marriage, respectively. In contrast, the cover letter to the contract describes Pamela's position as her intending to give Joel one-half of the value of the matrimonial home. Both parties signed the erroneously drafted Marriage Contract.

Mistake; fundamental; detected or detectable; clarified

57The determination of whether this mistake was so fundamental to the formation of a contract as to render it void or voidable and whether this mistake was detected, or detectable and not clarified, is central to the legal and/or equitable approaches I must take in this matter.

58Joel testified that the inconsistency between the cover letter and actual draft contract became apparent on or about July 26, 2006, when he spoke with Ms. Klukach. He testified that during this conversation Ms. Klukach read the cover letter and the contract to him and she advised that para. 12(a)(i) was of [page434] such importance that the contract could not be finalized until Pamela's true intention was ascertained.

59Joel stated that this inconsistency was so important to them that they agreed for Joel to try and get clarification from Pamela while Ms. Klukach would get clarification from Ms. Tsao.

60Ms. Klukach's evidence, however, was in stark contrast to that of her client. She stated that she did not recall identifying that there was an inconsistency until much later. She claimed that she did not see this inconsistency until sometime around the weekend of September 16, 2006. She insisted that had she known about the inconsistency earlier, she would have immediately sought clarification from Ms. Tsao. She strongly asserted that she would never have taken advantage of another lawyer in that way.

61Ms. Tsao stated that she did not realize there was a mistake until after the parties had separated. She testified that no one, including Ms. Klukach, pointed out the error or asked for clarification of the obvious discrepancy. Ms. Tsao stated that had this mistake been brought to her attention, she would have corrected it immediately to give effect to her client's consistent instructions that she wanted to give Joel one-half of the value of the matrimonial home.

62Pamela stated that the whole process of negotiations was a blur and she could not recall much of what happened. However, she was clear that her intention was always to give Joel one- half of the value of the matrimonial home, and she was never aware until after separation that there was a mistake in the contract that would give Joel the whole value. The mistake would result in Joel receiving in excess of $1,500,000 more than she had originally intended.

Analysis of this issue mistake

The law

63The lack of a consensus ad idem on a fundamental term of a contract negates the formation of the Marriage Contract between the parties. As stated by Thompson J. in McMaster University v. Wilchar Construction Ltd., 1971 CanLII 594 (ON SC), [1971] 3 O.R. 801, [1971] O.J. No. 1717 (H.C.J.), at p. 810 O.R., affd (1973), 1976 CanLII 757 (ON SC), 12 O.R (2d) 512, [1973] O.J. No. 2380 (C.A.):

The law also draws a distinction between mistake simply nullifying consent and mistake negativing consent. Error or mistake which negatives consent is really not mistake technically speaking in law at all, as it prevents the formation of contract due to the lack of consensus and the parties are never ad idem. It is rather an illustration of the fundamental principle that there can be no contract without consensus of all parties as [page435] to the terms intended. This is but another way of saying that the offer and the acceptance must be coincident or must exactly correspond before a valid contract results.

A promisor is not bound to fulfill a promise in a sense in which the promisee knew at the time that the promisor did not intend it. In considering this question, it matters not in what way the knowledge of the meaning is brought to the mind of the promisee, whether by express words, by conduct, previous dealings or other circumstances, If by any means he knows there was no real agreement between him and the promisee, he is not entitled to insist that the promise be fulfilled in a sense to which the mind of the promisor did not assent: see Colonial Investment Co. of Winnipeg v. Borland (1911), 1911 CanLII 274 (AB KB), 1 W.W.R. 171, 5 Alta. L.R. at p. 72, affirmed 1912 CanLII 966 (AB CA), 6 D.L.R. 211, 2 W.W.R. 960, 5 Alta. L.R. 71; Smith v. Hughes (1871), L.R. 6 Q.B. 597.

64In a similar vein, the court decided in Hartog v. Colin & Shields, [1939] 3 All E.R. 566 (K.B.) that where the buyer in a contract must have known that the seller made a mistake in drafting the contract to reflect the weight of the goods in pounds instead of another measurement, no contract was formed.

65John D. McCamus, in The Law of Contracts (Toronto: Irwin Law, 2005), explains the issue as follows, at p. 497:

The critical question is whether the parties have reached a true consensus ad idem . . . A consensus may fail, however, where each party has a different understanding of a term that is so ambiguous or vague or imprecise that neither party can insist on his or her own meaning as being the true or correct meaning of the term of which the other party has objectively assented. In such a circumstance, the common law of contract formation holds that no enforceable contract has been created. Similarly, a consensus will fail where one party is aware of the other party's mistaken understanding of a particular term. Again, the lack of consensus leads to the conclusion that no contract has been created at common law.

66In McMaster University, at pp. 810-11 O.R., Thompson J. explains that where the common law cannot intervene to vitiate a contract for lack of consent, equity can offer further relief to parties to correct honest mistakes:

As a general rule, equity follows the law in its attitude towards contracts which are void by reason of mistake. If the contract is void at common law, equity will also treat it as a nullity. Equity, however, will intervene in certain cases to relieve against the rigours of the common law, even though the mistake would not be operative at law. If, for lack of consensus, no contract comes into existence, there, of course, is nothing to which equity can attach. It is only in cases where the contract is not void at law that equity may afford relief by declaring the contract voidable. It gives relief for certain types of mistakes which the common law disregards and its remedies are more flexible. Thus, equity does not require the certainty which had led to the narrow common law doctrine of fundamental mistake. It seeks rather the more broad and more elastic approach by attempting to do justice and to relieve against hardship. In equity, to admit of correction, mistake need not relate to the essential substance of the contract, and provided that there is mistake as to the promise or as to some material term of the contract, if the [page436] Court finds that there has been honest, even though inadvertent, mistake, it will afford relief in any case where it considers that it would be unfair, unjust or unconscionable not to correct it; see Webster v. Cecil, supra; Hartog v. Colin and Shields, supra, and A. Roberts. & Co. Ltd. et al. v. Leicestershire County Council, [1961] 1 Ch. 555, [1961] 2 All E.R. 545.

67The court's powers to grant a remedy in equity stems from s. 11(2) of the Courts of Justice Act, R.S.O. 1990, c. C.43, which provides that "[t]he Superior Court of Justice has all the jurisdiction, power and authority historically exercised by Courts of Common Law and Equity in England and Ontario."

68Moreover, the court has the equitable jurisdiction to relieve against mistake in cases of fraud or circumstances amounting to the equivalent of fraud, misrepresentation or a condition express or implied, in the contract, as per First City Capital Ltd. v. British Columbia Building Corp., 1989 CanLII 2868 (BC SC), [1989] B.C.J. No. 130, 43 B.L.R. 29 (S.C.), at para. 27.

69Having established the jurisdiction of this court to grant an equitable remedy, the concept of equitable fraud must be explored. In First City Capital Ltd., at paras. 24-27, the British Columbia Supreme Court of Justice held that the level of fraud contemplated does not refer to the tort of deceit, or fraud in the strict legal sense, but equitable fraud or constructive fraud. In Performance Industries Ltd. v. Sylvan Lake Golf & Tennis Club Ltd., [2002] 1 S.C.R. 678, [2002] S.C.J. No. 20, 2002 SCC 19, at para. 39, the Supreme Court of Canada, relying on First City Capital Ltd. v. British Columbia Building Corp., defined "fraud or the equivalent of fraud" as follows:

What amounts to "fraud or the equivalent of fraud" is, of course, a crucial question. In First City Capital Ltd. v. British Columbia Building Corp. (1989), 1989 CanLII 2868 (BC SC), 43 B.L.R. 29 (B.C.S.C.), McLachlin C.J.S.C. (as she then was) observed that "in this context 'fraud or the equivalent of fraud' refers not to the tort of deceit or strict fraud in the legal sense, but rather to the broader category of equitable fraud or constructive fraud. . . . Fraud in this wider sense refers to transactions falling short of deceit but where the Court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained" (p. 37). Fraud in the "wider sense" of a ground for equitable relief "is so infinite in its varieties that the Courts have not attempted to define it", but "all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken": McMaster University v. Wilchar Construction Ltd. (1971), 1971 CanLII 594 (ON SC), 22 D.L.R. (3d) 9 (On H.C.), at p. 19. See also Montreal Trust Co. v. Maley (1992), 1992 CanLII 8264 (SK CA), 99 D.L.R. (4th) 257 (Sask. C.A), per Wakeling J.A; Alampi v. Swartz (1964), 1964 CanLII 303 (ON CA), 43 D.L.R. (2d) 11 (Ont. C.A); Stepps Investments Ltd. v. Security Capital Corp. (1976), 1976 CanLII 648 (ON SC), 73 D.L.R. (3d) 351 (Ont. H.C.), per Grange J. (as he then was), at pp. 362-63; and Waddams, supra, at para. 342.

70Accordingly, equitable relief may be granted where one party, knowing of the other's mistake as to the terms of an offer, remains silent and concludes a contract on the mistaken terms. [page437] The party seeking equitable relief need not necessarily prove actual knowledge on the part of the party seeking to uphold the contract if the circumstances are such that the mistake would have been obvious to a reasonable person in that party's situation.

71Equitable relief may also be granted if the unmistaken party ought to have known of the other party's mistake. The Ontario Court of Appeal in Bogue v. Bogue (1999), 1999 CanLII 3284 (ON CA), 46 O.R. (3d) 1, [1999] O.J. No. 4310 (C.A.), at para. 18, considered mistake in the context of a matrimonial settlement and stated:

In cases of unilateral mistake, if the unmistaken party is ignorant of the other's mistake the contract is valid in law: Fridman, supra, at p. 261. Assuming a mistake was made in this case, in that the husband agreed to the settlement without realizing that it did not contain a repayment clause, there was no evidence that the wife or her lawyer were aware of the mistake. Nevertheless, the husband may be entitled to an equitable remedy if the wife ought to have known of his mistake. [Citation omitted]

72Another situation where equitable relief may be granted is where the party seeking to uphold the contract had an indication that the mistaken party was entering the contract under a misapprehension as to a fundamental term of the contract and either proceeds on a course of wilful ignorance designed to inhibit his own actual knowledge of the other's mistake or deliberately sets out to ensure the other party does not become aware of the mistake, as per First City, at paras. 24-27.

Analysis

73Joel had received Pamela's e-mail of June 12, 2006. This e-mail clearly detailed the intent of Pamela to exclude all of her father's inherited or gifted money. According to Joel, he did not share that e-mail with his lawyer. However, his lawyer became aware of the essence of Pamela's intent when she received the cover letter from Ms. Tsao of July 13, 2006. The cover letter described the general framework of the contract as one that would "ensure" that Pamela received her father's money. All subsequent conduct of Joel and his lawyer, Ms. Klukach, must be viewed with this fundamental knowledge of Pamela's intent as a starting point.

74I was concerned about the cavalier statements of Ms. Klukach when she was cross-examined as to her understanding of the July 13, 2006 cover letter, which was attached to the Marriage Contract. She testified that she did not remember reading that letter. However, when she was advised under cross- examination of Joel's previous testimony that she had in fact [page438] read the cover letter to him in a lengthy telephone discussion, she stated that "if he said that, she had no reason to doubt it".

75Joel testified that he attempted to discuss the discrepancy with Pamela at a cottage in July of 2006, but Pamela simply responded that he would have to talk to the lawyers. Thus, he never got clarification about an issue that he stated was very important to him and his lawyer.

76Ms. Klukach made several handwritten notes on the left- hand margin of the page of the Marriage Contract where para. 12(a)(i) is explained. Ms. Klukach's notes on the draft contract read as follows. At the top of the page, she wrote: "P.C. Outlet valued at 1-1.5 million". At the top left of the page, she wrote: "Quantification of Inherited $." She also wrote: "1/2 of FMV v. Full less inherited --> 1.3".

77Ms. Klukach's evidence in relation to her above- described notes is concerning. She claimed that she could not specifically recall what she was referring to by those notations. Even when it was suggested to her in cross- examination that she was trying to rationalize the inconsistency between the cover letter and the draft by writing the notes, Ms. Klukach continued to assert that she could not recall what she meant by her notations on draft number 1.

78In my view, Ms. Klukach was attempting to hide behind a selective memory by testifying in this vague and uncertain manner. I do not accept her testimony on this issue. I find that Ms. Klukach was well aware of the inconsistency between the draft and cover letter. Her notes are an attempt to rationalize the quantification of the value of the matrimonial home and the exclusion of the gifted and inherited money. I accept Joel's evidence that Ms. Klukach told Joel that there was this inconsistency and that it was so important to the contract that it needed to be clarified.

79In response to the first draft agreement, Ms. Klukach prepared a letter to Ms. Tsao, dated August 16, 2006, that suggested some changes to the draft Marriage Contract. Notably, after discussions with Joel, she deleted a comment from the draft of this response letter that may have alerted Ms. Tsao to the inconsistency between the cover letter and the draft agreement.

80Ms. Klukach contacted Ms. Tsao via voicemail and e-mail regarding various other issues arising from the Marriage Contract in mid-September of 2006, but never mentioned the inconsistent paragraph.

81An e-mail dated September 15, 2006 from Ms. Tsao confirmed that para. 6 of the contract would have no effect on Joel's payment from Pamela, since this was based on the value and not [page439] the equity of the home. Paragraph 6 of the Marriage Contract details that the gifts and inheritance Pamela received from her father are to be excluded from her net family property, regardless of whether they are traceable to the matrimonial home.

82Ms. Klukach testified that she sought clarification of para. 12(a)(i) in a conversation with Ms. Tsao that took place on September 18, 2006. Ms. Klukach's own docket entry for this conversation references para. 6 of the agreement and the issue of the matrimonial home's "value".

83Despite the importance of such a conversation where such a fundamental term of the contract was clarified, Ms. Klukach has no notes of this call. Ms. Klukach also forwarded Joel the above September 15, 2006 e-mail from Ms. Tsao, which speaks to para. 6. On September 18, 2006, Ms. Tsao sent Ms. Klukach a revised draft of the Marriage Contract, which she forwarded to Joel.

84Similarly, Ms. Tsao's docket entry cites para. 6 and the issue of value versus equity in the home. None of the notes, e- mails or dockets refers to any clarification of the discrepancy of whether Pamela intended to give one-half or the whole value of the matrimonial home to Joel.

85If Ms. Klukach is to be believed, the only written confirmation from Ms. Tsao that Pamela meant to give the whole value of the matrimonial home to Joel was reflected in an e- mail from Ms. Klukach to Joel, dated September 15, 2006, and a short note in Ms. Klukach's billing docket.

86I found Ms. Klukach's testimony on the issue of the mistake and the alleged clarification to be very troubling and not credible. Ms. Klukach stated that she could not recall what she meant by her handwritten notes on the first draft of the Marriage Contract. It is obvious to me that there was only one meaning that could be attributed to these notations and that was that Ms. Klukach was trying to make sense of the discrepancy between the cover letter and the draft.

87Her notations are only consistent with an effort on her part to discuss with Joel whether the contract would grant him the whole or one-half of the value of the home. Granted, she was also concerned about whether Joel would receive the value or equity of the home, and must have expressed all of these concerns to him during the one and a half hour conversation they had regarding the first draft of the Marriage Contract.

88Given the wording of the cover letter, both Joel and Ms. Klukach knew that Pamela intended to receive her father's gifted and inherited money. Ms. Klukach agreed in her testimony that the inconsistency needed to be clarified. However, she [page440] claimed that she did clarify this as soon as she became aware of the discrepancy on or about September 18, 2006.

89I do not accept Ms. Klukach's evidence in this regard. I find it shocking that she had no notes of the discussions she claimed to have had with Ms. Tsao with respect to such an important issue. She also made no efforts to confirm the alleged clarification on this point by e-mail or by letter. This conduct on the part of Ms. Klukach stands in contrast to the very detailed manner in which she dealt with her own client on almost every other issue. They often had multiple drafts of responding letters after meetings, telephone conversations and e-mails. However, on this very material issue identified as needing clarification, the only documentation that Ms. Klukach presented was one billing docket and self-serving e-mails between her and her own client.

90That the error was in fact detected by Joel and Ms. Klukach is further evidenced by paras. 65 and 67 of Pamela's notice to admit:

Ms. Klukach was aware of the need to clarify what the respondent intended with respect to paragraph 12(a)(i) of the draft Marriage Contract.

The Applicant was aware of the need to clarify what the Respondent intended with respect to paragraph 12(a)(i) of the draft Marriage Contract.

91Whether it was in late July of 2006, as per Joel's testimony, or around September 18, 2006, as per Ms. Klukach's testimony, Joel and his lawyer recognized that Pamela's intention respecting para. 12(a)(i) of the Marriage Contract was a matter which required clarification before a contract valid at law could come into existence.

92I accept Ms. Tsao's version of the negotiation process. Paragraph 12(1)(a) contains a mistake that was not intended. That mistake was known by Ms. Klukach and her client, Joel. Neither Joel nor Ms. Klukach got any clarification of the mistake. A simple phone call followed by a confirmation in writing is all that was necessary. I find that without that simple clarifying act, Ms. Klukach and her client took advantage of the mistake and allowed the process to conclude, while knowing that there was no meeting of the minds on this very material issue.

93I do not agree with Joel's submissions that in making my determination I should consider that Ms. Tsao admitted her drafting mistake and would thus compensate Pamela for the loss she would suffer by having to pay Joel the full value of the house. Moreover, since Ms. Tsao would herself be covered by an insurer, Joel's counsel argues that neither Pamela nor Ms. Tsao [page441] would bear any financial loss if the contract were to be upheld and that this fact should inform my decision. I disagree.

94I am of the view that the validity of the contract, or whether it should be set aside, is an analysis that must take place independently of whether a party may be compensated for a loss by a third party. Certainly, the existence or absence of negligence insurance has no bearing on the analysis and determinations that I must make with regard to this contract. As Binnie J. commented in Whiten v. Pilot Insurance Co., [2002] 1 S.C.R. 595, [2002] S.C.J. No. 19, 2002 SCC 18, at para. 121, detailed disclosure of a party's financial information before liability is established may prematurely switch "the focus from the plaintiff's claim for compensation to the defendant's capacity to absorb punishment". As such, the issue of whether Pamela's loss would be compensated by Ms. Tsao's insurers if the Marriage Contract was upheld is irrelevant to the actual analysis of whether this contract is valid.

95I find that one of the most fundamental terms of this contract was [para.] 12(1)(b), which provided for the amount to go to Joel and resulted in a mutual release of spousal support obligations. I find that was a term on which there was no consensus ad idem. I find that Joel was aware of this mistake and took advantage of it.

96As a result of my findings and application of the law, I find that this contract is void ab initio.

97I feel that it is necessary for me to consider the other issues in case I am not correct on this particular issue.

The promissory note v. the Stevens Family Trust funding the children's education

98The Stevens Family Trust was established on November 18, 1996 by way of a trust agreement in order to house 30 per cent of PC Outlet's shares. The trustees of the trust are Pamela, Joel and Joel's friend, Mr. Smith. All decisions regarding the trust must be made according to the majority vote of the trustees.

99In 2005, Pamela loaned the trust $982,216.75 of her inherited funds. These funds were understood to be repayable on demand, as evidenced by the promissory note signed between Pamela and Joel on December 23, 2005.

100This trust is referred to in para. 4 of the Marriage Contract. This paragraph explains that the educational expenses of Pamela and Joel's children would be funded from the income and/or capital of the Stevens Family Trust, with the exclusion of the PC Outlet shares, as well as the children's own RESPs. [page442]

101Pamela requested that her loan be repaid but Joel refused. He argued that para. 4 of the Marriage Contract prevents Pamela from recalling the loan until all three children have finished school, including post-secondary education.

102As Joel and his friend, Mr. Smith, together form a majority of the trustees, their refusal to allow Pamela to demand repayment of the loan must be addressed by this court.

103The issue is whether there is a mutual mistake relative to whether Pamela's funds must stay in the trust until the children have completed their education or whether the promissory note can be used by Pamela to call on the note and get her funds back.

104Pamela claims that the funds were placed in this trust in order to take advantage of beneficial treatment of capital gains for tax purposes in order to fund the children's education. The statement in the signed Marriage Contract that the trust funds are to be used to pay for the children's education is an expression of an intention. It is not a commitment to the funds being frozen and being used for that purpose until the children's education is complete. Pamela asserts that the promissory note is a demand loan and it was never altered to place any limitations on her demand.

105Joel claims that, although the promissory note was not altered to place any restrictions on Pamela's ability to demand her money back, the Marriage Contract should take precedence, as it reflects the true intention and commitment of the parties.

106I find that both the Marriage Contract and the promissory note have the potential of being in direct conflict depending on the interpretation given to the Marriage Contract. If Joel is correct, the Marriage Contract intended to freeze the trust assets in order for these funds to be utilized for the children's education and the promissory note should have no validity.

107I do not agree. Had that been the intention, the promissory note should have been amended to limit the ability of Pamela to call on the note on demand. I find that without that limitation or amendment to the promissory note, the only logical conclusion is that the Marriage Contract contains a mere expression of the desired use of the money as a category.

108In any event, neither party had a consenus ad idem on this very important issue and this clause is yet another important clause in the agreement that cannot stand.

109I declare that Joel shall take whatever steps necessary in order for Pamela to be able to realize on her demand and cause the trust to pay out the capital amount set out in the promissory note to her. [page443]

110Under the circumstances, I find that there could not be a consensus ad idem on this issue. As such, I declare that Joel has an obligation to comply with the promissory note such that Pamela has repaid the money she loaned to the Stevens Family Trust.

Mental health issues

111When Pamela was 11 years old, she was diagnosed with a disorder called trichotillomania. This is a form of anxiety disorder that results in hair-pulling. She did not get treatment for this until 1995. At that time, she was put on antidepressant medication. She remained on antidepressant medication until the spring of 2006.

112According to Pamela, she stopped taking this medication shortly after she found out about her husband having an affair. This decision was made unilaterally, without the advice of a physician, and abruptly, as she did not wean herself off the drug. After she stopped taking the drugs, Pamela's behaviour changed. She was observed by her lawyer, Ms. Tsao, to be so angry that she noted that "she really really needs therapy". In addition, Ms. Tsao noted that Pamela was hurried and repeating herself.

113Pamela's friends and family testified that, while she was previously reserved, Pamela began to act in an arrogant and grandiose fashion, refusing the advice of those whom she usually listened to in respect of legal and financial matters.

114Prior to the spring of 2006, Pamela would consistently consult with her brother-in-law, Geoff Cornish, for legal and financial advice. Mr. Cornish had practised corporate law and in the spring of 2006, he worked in the capital markets. He was a leader and advisor to the family in the management of the Cerny siblings' inherited wealth. Pamela's father had appointed him the trustee of the family trust. He was also the president of the investment holding company Main Chance Inc. that held the majority of the family's inherited wealth.

115Mr. Cornish testified that Pamela stopped seeking and listening to his advice on legal and financial matters. When he learned about Pamela's plans to purchase and renovate two cottages, he reminded her how stressful her own matrimonial home renovations had been. Mr. Cornish stated that Pamela did not really care about his thoughts on the matter. No matter what he said, Pamela was determined to go ahead with her project and asserted that she knew what she was doing and would proceed regardless of Mr. Cornish's views.

116Despite her late father's wishes to the contrary, Pamela decided to withdraw her inherited funds from Main Chance Inc. [page444] Mr. Cornish tried to dissuade her. However, Pamela once again expressed that she knew what she was doing and did not need anyone's help.

117During the negotiation period of the Marriage Contract, Pamela rarely sought the advice of her own lawyer, Ms. Tsao. She saw Ms. Tsao for a total of 3.5 hours from April 19, 2006 until the contract was signed on October 2, 2006. She stated that she did not need to talk to her.

118That is consistent with her expressed desire and entire focus on reconciliation and her intent to not involve herself in the "negative" process of negotiating. She continuously sent e-mails that came from her lawyer, as well as drafts of the Marriage Contract, directly to Joel. Pamela did not consult with her own lawyer when she purchased the cottage property and the chalet, despite this occurring in the middle of the Marriage Contract negotiations.

119At this crucial period during negotiations, Pamela was taking protected inherited money out of her own investment portfolio and placing it in real estate property, which could potentially rob these assets of their ability to be excluded under the Family Law Act.

120In addition, she purchased the chalet at a time when she did not have access to funds that were still tied up in her investment company. Instead, she did not consult her lawyer and borrowed the money from Joel.

121Pamela testified that in the spring of 2006, she had very little sleep. She felt that she simply did not need it. She stated that "she had no lack of energy". This is despite the fact that she lost approximately 20 pounds and was not sleeping. She also stated that she was bouncing off the walls and could not wait for people to wake up, in order for her to start talking to them. Her friend for approximately ten years, Ms. Robertson, stated that Pamela kept taking on more projects in a constant state of wanting to do more.

122Pamela's sister, Jennifer Cerny, described Pamela during this period as someone who was constantly moving in fast forward. Although Jennifer stated that she was concerned about the way Pamela was acting, she also commented that she was afraid of losing her if she confronted her with her actions and odd behaviour.

123Joel was the only witness to testify that he did not see any significant changes in Pamela. He asserted that she was going through an "adult growth phase". He also stated that she was more energetic; however, she had exercised before and he did not see anything out of character. [page445]

124Interestingly, however, when Pamela discussed with Joel the prospect of selling the matrimonial home in order to downsize and thus be able to divert some of her inherited money from the home to her own investments, Joel stated that he told her that she was moving a mile a minute and that she needed to slow down.

125Mr. Cornish summarized his observations of Pamela during this period as follows:

. . . her personality changed in . . . spring or early summer 2006, up till that point in time, Pamela . . . was a careful or thoughtful person when it came to making decisions . . . and listen to advice, from that point on, she not only didn't listen to advice, but started making decisions that from my perspective, were foolish and maybe even reckless, from a financial perspective.

126As well, Pamela began to exhibit abnormally high energy levels as she took on multiple projects while trying to reconcile her marriage and raising three children. The usually quiet Pamela was also viewed as extremely talkative and would often interrupt her friends and family. She describes her thoughts as "racing" during this time and testifies that she was easily distracted. Alongside this increased energy, Pamela began to take on increased goal-oriented behaviour such as taking a strong role in the development of a new business project with her sister.

127Most notably, the characteristically frugal Pamela engaged in reckless spending, as evidenced by her decision to impulsively buy two cottage properties while in the midst of her Marriage Contract negotiations. Pamela even declined to advise Ms. Tsao of these new properties.

128In order to finance the acquisition of these properties, Pamela withdrew her inherited funds from Main Chance Investments against the express wish of her deceased father and siblings. This was particularly out of character for Pamela since she had always maintained a close relationship with her late father and usually strove to respect, rather than disobey, his wishes.

129The Marriage Contract was signed October 3, 2006. On December 18, 2006, Pamela was admitted to the Centre for Addiction and Mental Health ("CAMH") with severe depression. She was an in-patient at CAMH from December 18, 2006 until January 3, 2007. Part of her treatment was that she was required to take the medication lithium. After her discharge from CAMH, she took lithium for approximately five more months. Pamela did not like how lithium made her feel. She stated that she felt like a "Zombie". According to her, she was in a continuous state of being "flat". She continued to take it because she wanted to get better. As her treatment brought her [page446] back to feeling more normal, she was taken off lithium and she testified that she hated everything that she had done from early spring 2006 until her admission to CAMH.

130While in hospital, she was diagnosed as suffering from a "bipolar -- Hypomanic phase".

131After she was released from hospital, she became aware that Joel went on a vacation in January 2007, with the woman he had previously had an affair with, and the marriage came to an end.

Pamela's mental health and its impact on capacity

132Dr. Robert G. Cooke testified as an expert witness on behalf of Pamela. Dr. Cooke is a psychiatrist. He is highly qualified with a specialty in the treatment of and research in "Mood Disorder", and is an associate professor in the Department of Psychiatry at the University of Toronto. He is also staff psychiatrist in the Mood Disorder Clinic at the Centre for Addiction and Mental Health in Toronto. He has 27 years of clinical experience in the assessment and treatment of patients diagnosed with depression and bipolar disorder.

133Dr. Cooke was retained by McCarthy Tetrault, on behalf of Pamela, in order to conduct an "Independent Medical Evaluation of Pamela Stevens". He stated that although he conducted a clinical interview of Pamela for 75 minutes and reviewed numerous documents given to him by her lawyers, including clinical records of her family doctor and CAMH, he was never in a doctor/patient relationship with Pamela. Dr. Cooke felt that his engagement was to conduct his evaluation with a view to expressing an opinion relative to whether or not Pamela suffered from a mental disorder and, if so, what impact that may have had on her ability to understand or appreciate the nature and consequences of her entering into a Marriage Contract.

134Dr. Cooke took an extensive history from Pamela during the course of his 75-minute interview with her. According to Dr. Cooke, the clinical interview is one of the most important tools that a psychiatrist has in his or her assessment, diagnosis and treatment plan formulation. After his interview and review of the documentation and clinical records, Dr. Cooke made the following comments in his report dated March 17, 2009:

On the balance of probabilities, it is highly probable and in fact virtually certain that Ms. Stevens was experiencing Hypo-Mania or Mania during the relevant period.

. . . the question of the probability that a person who is manic or hypo manic could understand the nature or consequences of a fairly complicated financial contract, is less clear. [page447]

Patients in a manic state sometimes show increased intellectual acumen and may occasionally achieve high levels of success in investing of business. However, at times they can also be easily distracted with racing thoughts and impaired concentration or may have unrealistic assessment of their own abilities and of their personal and financial prospects to the point that they may not properly comprehend or attend to the important matters. It is certainly plausible that her mental state was sufficiently impaired that she could not properly understand the nature and consequences of the agreement.

135I found Dr. Cooke to be a very knowledgeable and helpful witness. He retained his objectivity and fairly presented his opinions relative to the facts as he knew them. He did not overreach or become an advocate for his position.

136Dr. Silver testified on behalf of Joel. He was engaged by counsel for Joel in order to provide a critique of Dr. Cooke's report and evidence. Dr. Silver has not dedicated his practice to the study and treatment of mood disorders as Dr. Cooke has. He did not interview Pamela Stevens, nor did he request that he be allowed to conduct such an interview. Dr. Silver agreed with Dr. Cooke that a clinical interview is one of the most important tools that a psychiatrist has in his assessment of a patient.

137Dr. Silver expressed his opinion that Pamela was suffering from bipolar disorder; however, he was of the view that her disorder was hypomania not mania. In his direct examination, Dr. Silver described that a person who had mania would need to show symptoms that were akin to being psychotic. He was of the opinion that such a person would be acting in such a severe manner that others would be shocked by their behaviours.

138Dr. Silver stated that he could not imagine circumstances whereby an individual's manic behaviour would not cause their family or lawyer to intervene. During his direct examination, he also expressed the opinion that a person suffering from hypomania would not be so impaired, so as to prohibit their ability to understand and appreciate the consequences of a fairly complex financial agreement.

139In cross-examination, Dr. Silver did not stay with his relatively rigid opinion expressed during direct examination, which essentially equated mania with psychosis. He agreed that if a person showed marked impairment in their social functioning, they might be considered to be in a manic phase. He also agreed in cross-examination that, often times, the diagnosis of bipolar is misdiagnosed or not properly diagnosed until many years later, if at all.

140Both Dr. Silver and Dr. Cooke agreed with the characterization of the symptoms of bipolar disorder, and that one's level [page448] of functioning would depend on the degree of these symptoms. Some of the agreed upon symptoms are (a) rapid speech and thinking that would be characterized by the person moving from one topic to another; (b) little ability to focus and concentrate; (c) high energy levels with ability to function on very little sleep; (d) grandiose thoughts and a general sense that the person needed no one and could accomplish anything.

141The degree to which a person exhibits some of the above symptoms is often an indicator of the severity level of the disorder and the degree of impairment.

142Dr. Silver acknowledged in cross-examination that he was unaware of Ms. Tsao's concern for Pamela that she "really really needed counselling". Nor was he aware that Ms. Tsao gave Pamela the name of some counsellors to seek out. He was also not aware that Pamela's sister stated that she was very concerned about Pamela and that she feared that if she confronted Pamela too hard, she would disassociate from the family.

143Dr. Silver did not know that Pamela's friend, Ms. Robertson, described her as unable to focus on one thing. Pamela was described as rapidly moving from one venture to another without regard to anyone's views. Dr. Silver was unaware that Geoff Cornish described Pamela as having a significant character change from the spring of 2006, as she changed from someone who was careful, cautious and consultative to someone who rejected the opinions of those she used to rely on and trust.

144I accept the opinion of Dr. Cooke, relative to his diagnosis of Pamela and its affect on her functioning, over that of Dr. Silver. However, the acceptance of his opinion does not end my inquiry. Dr. Cooke stated that "whether someone who is Manic or Hypomanic could understand and appreciate the consequences of a fairly complex agreement is less clear".

145I must make findings of fact that would allow me to determine how far Pamela's symptoms were on the spectrum described by the doctors in order to apply those findings to the legal determination of capacity to understand and appreciate the consequences of the Marriage Contract as set out in the Family Law Act. [page449]

146I find that during the period from March 2006 until October 3 2006, Pamela suffered from bipolar disorder as defined in the criteria set out in the DSM IV. (a) She was grandiose in her ideas. She went from one possible venture to another without consulting anyone and, at times, without having any background to support that such a venture could be successful. (b) She wanted to buy properties, renovate them and make money on them. This was despite being reminded how stressful similar projects had been for her in the past. (c) She wanted to start a restaurant business without having any background to sustain such a venture. (d) She felt that whatever she touched would turn to gold and would not entertain any other thoughts. (e) I find that Pamela did change in her personality. Prior to March 2006, she was a careful, thoughtful person who would not only consult with friends and family, but listen to their advice. (f) Prior to March of 2006, Pamela had the greatest of respect for everything that her father had given and created by way of family wealth and business acumen. She subsequently withdrew from Main Chance Investment Inc.; that was the very vehicle set up by her father in order to preserve and protect the family fortune for his children. (g) During the period between March and October 2006, she conducted herself in a manner that was at least careless, and at times reckless, in her disregard for everything that was important to her. (h) She purchased a cottage and subsequently a chalet without consulting the lawyer working for her in negotiating a Marriage Contract. She took money that was excluded from any net family property and placed that money into assets that had the potential of losing that exclusion. This was at a time when the Marriage Contract was not completed, and may not have been completed. (i) When she purchased the chalet, she did not have access to the money that she needed to complete the purchase and borrowed this money from Joel. [page450] (j) She was rude and disrespectful to those that she formerly loved and trusted. I find that the Pamela that was functioning from March to October 2006 was not the Pamela that functioned both socially and financially prior to March 2006.

147I find that Pamela's conduct was so extreme that she was not able to understand or appreciate the consequences of the Marriage Contract. One of the most significant features of her conduct that allows me to draw this conclusion is that Pamela was not open to hearing the information that she needed to hear during the crucial Marriage Contract negotiation period.

148She refused to be a part of the negotiations. She often flipped e-mails and drafts of contracts directly from her lawyer to Joel without regard to the appropriateness of this. She became solely fixated on the prospect of reconciliation, as well as her concern that participation in the negotiations would move her to a negative space and jeopardize the chances of reconciliation.

149As a result of the above findings and analysis of the law, I would also set the Marriage Contract aside on the basis of Pamela's lack of capacity to understand and appreciate the nature and consequences of the agreement as per s. 56(4)(b) of the Family Law Act.

Unconscionability

The law

150The question of whether the Marriage Contract between Pamela and Joel can be set aside must first consider the core provisions of ss. 56(4) and 33(4)(a) of the Family Law Act, which allow the court to set aside a domestic contract on the grounds of unconsionability.

151Under s. 56(4)(b), this court may exercise its discretion to set aside a Marriage Contract, or any provision in it, if a party did not understand its nature or consequences. This provision reads as follows:

Setting aside domestic contract

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. [page451]

152As per the above, s. 5(4)(c) allows the court to set aside a Marriage Contract for any reason in accordance with the law of contract. Due to the operation of s. 56(7) of the Family Law Act, no party may contract out of the court's supervisory jurisdiction in this regard.

153Since both Pamela and Joel agreed to a mutual release of spousal support in the Marriage Contract, s. 33(4)(a) of the Family Law Act also gains relevance. This section grants this court the power to set aside a support provision or waiver of support if it results in unconscionable circumstances and reads as follows:

Setting aside domestic contract

33(4) The court may set aside a provision for support or a waiver of the right to support in a domestic contract and may determine and order support in an application under subsection (1) although the contract contains an express provision excluding the application of this section, (a) if the provision for support or the waiver of the right to support results in unconscionable circumstances[.]

154The Supreme Court of Canada in Rick v. Brandsema, [2009] 1 S.C.R. 295, [2009] S.C.J. No. 10, 2009 SCC 10 commented on the unique circumstances in which domestic contracts are negotiated. At paras. 43 and 44 of this judgment, Abella J.A stated:

Miglin represented a reformulation and tailoring of the common law test for unconscionability to reflect the uniqueness of matrimonial bargains:

[W]e are not suggesting that courts must necessarily look for "unconscionability" as it is understood in the common law of contract. There is a danger in borrowing terminology rooted in other branches of the law and transporting it into what all agree is a unique legal context. There may be persuasive evidence brought before the court that one party took advantage of the vulnerability of the other party in separation or divorce negotiations that would fall short of evidence of the power imbalance necessary to demonstrate unconscionability in a commercial context between, say, a consumer and a large financial institution.

Where, therefore "there are any circumstances of oppression, pressure, or other vulnerabilities", and if one party's exploitation of such vulnerabilities during the negotiation process resulted in a separation agreement that deviated substantially from the legislation, the Court in Miglin concluded that the agreement need not be enforced (paras. 81-83).

155In Brandsema, the Supreme Court of Canada stressed the importance of respecting the "parties" right to decide for themselves what constitutes for them, in the circumstances of their marriage, mutually acceptable and equitable sharing. Abella J. stated, at para. 45, that "[p]arties should generally be [page452] free to decide for themselves what bargain they are prepared to make". However, the court also emphasized, at para. 50:

In other words, the best way to protect the finality of any negotiated agreement in family law, is to ensure both its procedural and substantive integrity in accordance with the relevant legislative scheme.

156MacLachlin C.J.C., in Miglin v. Miglin, [2003] 1 S.C.R. 303, [2003] S.C.J. No. 21, 2003 SCC 24, set out a two-step approach for determining whether a domestic contract should be set aside. The first stage of the Miglin approach involves a two-pronged analysis of the circumstances in which the initial agreement was made. In the first prong, the court should consider whether the agreement was negotiated fairly. In the second prong, the court should consider whether the agreement conforms to the objectives of the statute.

157If the agreement fails on either of these analyses, the court may set aside the agreement. Although the court in Miglin was considering whether the agreement conformed to the objectives and factors of the Divorce Act, R.S.C. 1985, c. 3 (2nd Supp.) relative to support, the Supreme Court made it clear in Brandsema, at para. 39, that the same approach offers guidance for the conduct of negotiations for agreements generally, including negotiations for the division of matrimonial assets.

Fairness of the negotiation process

158Given my findings set out above relative to the mental health of Pamela and my findings that Joel should have at least been aware that Pamela had been acting in a manner that was significantly out of character for her, I find that Pamela was in a vulnerable state throughout the negotiation process.

159Joel was aware of the following vulnerabilities of Pamela from March 2006 to October 2006: (1) he knew that she had been on antidepressant medication for over a ten-year period and she abruptly stopped taking that medication without the direction and oversight of a doctor; (2) he observed that Pamela was "moving at a lightning speed" when she was considering selling the matrimonial home and downsizing. At this time when her conduct had the potential of affecting him negatively, he told her to slow down; (3) when Pamela was moving at even greater speed in order to purchase a cottage and a chalet, at a time when the agreement was still being negotiated, Joel did not discourage her [page453] from doing this. Instead, he encouraged her and even loaned her the money for the chalet purchase; (4) he observed that Pamela would simply flip him e-mail communication from her lawyer and drafts of contracts, at a time when he knew that some of this was privileged communication that he should not have been receiving from Pamela; (5) he knew that clarification of a major inconsistency was needed before a contract could be finalized, and yet he persisted in authorizing his lawyer to get the agreement in a form ready for signing before any clarification was obtained; (6) he knew that Pamela's central motivation in securing a Marriage Contract was to get back any of her father's money that had been gifted or inherited. Despite that knowledge, he pursued the signing of an agreement that did not achieve what he knew was the most important thing that Pamela wanted to achieve -- the return of her father's money.

160When considering whether Pamela was vulnerable and whether Joel took advantage of her vulnerabilities, I feel that it is necessary to consider all of the parties' actions cumulatively.

The declaration of $1 million bonus and use of funds

161PC Outlet was the only major source of income for Pamela and Joel throughout their marriage. Although Pamela and Joel each had a 35 per cent share holding and the Stevens Family Trust had the remaining 30 per cent share holding, Joel had special shares that gave him complete control of the company. At a time when Pamela was taking large sums of money from her father's gifted and inherited funds in order to make significant renovations to the matrimonial home and pay off outstanding indebtedness on that home, Joel declared himself a bonus from PC Outlet in the amount of $1 million. He placed those funds in an investment in his name only. That investment remained in his name throughout.

162When Pamela was hurriedly purchasing a chalet during the negotiation of the Marriage Contract, and at a time when Pamela did not have access to sufficient funds in order to make the down payment on the chalet, Joel chose to lend, rather than give, Pamela the funds. Despite this behaviour, Joel claimed that the chalet was something that he and Pamela had wanted to purchase for the family for many years. [page454]

The disparity between payout with and without a contract

163Joel knew from the very first consultation with his lawyer that if the parties were to separate without a contract, he would receive something in the range of $500,000 by way of an equalization payment.

164He later knew that with the erroneous drafting of the contract, he would receive the "full value" of the matrimonial home, which granted him $2,500,000. With this huge disparity that entitled him to two million more dollars than he would otherwise receive, he deliberately chose to not seek clarification of this inconsistency between the cover letter and the Marriage Contract.

Payment of legal fees from PC Outlet Inc.

165When Joel was negotiating the Marriage Contract, he caused PC Outlet to pay in excess of $11,000 toward his own legal fees for such negotiations without the knowledge of Pamela, despite the fact that she was a 35 per cent shareholder of that company. I find that Joel improperly used these corporate funds for his own personal use. This is another of many examples where Joel acted in a manner that was blind pursuit of his own personal gain without any regard for others' rights or interests.

The affair and promise of reconciliation

166Joel admitted to Pamela that he was having an affair with another woman. This admission catapulted Pamela into a highly emotional state. She was so angry that she wanted him out of the house immediately and was even angrier that he would not leave until he had a parenting agreement in place. Within a matter of approximately three weeks, her anger flipped to a total dedication towards reconciling with Joel and putting a Marriage Contract into place, though without her active participation in its negotiation.

167Pamela had three preconditions to reconciliation. The centrepiece of these conditions was that Joel stop his affair immediately and commit to the reconciliation process. Joel represented to Pamela that he terminated his affair. He told her that he was in the wrong and that the most important thing to him was the survival of their marriage and family. On that representation, Pamela went out of town to consider reconciling with Joel.

168Pamela agreed to the reconciliation process upon her return. She was so committed to the success of this process that she refused to participate in Marriage Contract negotiations, which she thought would cast a negative cloud of energy on the [page455] reconciliation process. Her subsequent actions gave effect to that level of commitment. Pamela only saw her lawyer for a maximum of 3.5 hours and she constantly told her lawyer to get the contract ready for signature.

169Joel's promise that he would be committed to reconciliation and devoted to making the marriage work imposes on him a heightened requirement of good faith during the Marriage Contract negotiations.

170In the case of D'Andrade v. Schrage, [2011] O.J. No. 859, 2011 ONSC 1174, Sachs J. decided that a person did not have to disclose that they were having an affair while negotiating a Marriage Contract. Sachs J. found that the Family Law Act and Family Law Rules, O. Reg. 114/99 confined disclosure to financial matters. She was also of the view that conduct was no longer a consideration in family law matters.

171In making her decision, Sachs J. considered the case of Patrick v. Patrick, [2002] O.J. No. 639, [2002] O.T.C. 131, 112 A.C.W.S. (3d) 302 (S.C.J.), where Mesbur J. made the following comments [at para 54.]:

Unlike separation agreements, marriage contracts are contracts uberrimae fidei, contracts requiring the utmost fidelity and good faith between the parties. A greater duty of dealing in good faith is owed in marriage contracts. Because of the special relationship between the parties as intended spouses, they are not entirely at arm's length and thus owe one another duties of good faith and fair dealing.

172Sachs J. then concluded, at paras. 78-83:

To require spouses to disclose their thoughts about the likelihood of separation or their involvements in extra- marital sexual activity before signing a marriage contract could have serious implications for the survival of marital relationships. If the obligation to disclose is limited to thoughts of separation, the question becomes how serious those thoughts of separation were. Does there have to be evidence that the decision to separate has been actually made? If there does, the evidence in this case does not reach that threshold. Among other things, it was Mr. Schrage who actually made the decision that he and Ms. D'Andrade should separate. If this is not the threshold, then what is? Is it any thought of separation or only serious thoughts of separation? If it is the latter, how "serious" is serious enough?

I raise these questions to demonstrate some of the difficulties inherent in accepting the proposition put forward by Mr. Schrage. That being said, if public policy demands it, the law has and should enforce obligations that may be nuanced, requiring an individual determination on the facts of each case.

In this case, the public policy implications of requiring married couples to disclose their thoughts of separation or their involvement in extra-marital relationships before executing a marriage contract are negative rather than positive. In recognition of the fact that marriages are complicated institutions, whose failure can rarely be attributed to one party or the other, the law has evolved in a fashion that by and large eliminates conduct from [page456] the analysis of financial entitlement. In essence, Mr. Schrage is seeking to reintroduce conduct into the consideration of whether a marriage contract should be set aside. This is a road the law has been down before and, based on that experience, it is a road to be avoided unless justice demands it.

In assessing whether justice demands that the disclosure requirements owed by one party to another when negotiating a marriage contract include the matters alleged by Mr. Schrage, it is important to consider the purpose of the contract in question. It is not to enforce personal obligations such as the duty to remain faithful or the commitment to remain in the relationship. While people may feel that these obligations are part of the marriage "contract", these are not the obligations that domestic contracts are meant to deal with.

Domestic contracts are financial arrangements. Subject to certain very limited exceptions (eg. the Part II rights under the Family Law Act and child support) couples are given the freedom to "opt out" of the financial obligations that the law would impose on them if they did not have a domestic contract. When negotiating such a contract couples have an absolute obligation to disclose anything that would be relevant to the purpose of the contract. Since the purpose of the contract is financial, that obligation demands the utmost good faith and fair dealing in disclosing their financial positions. The obligation does not extend to disclosing the existence of an extra-marital affair or the intention to separate.

Thus, I reject Mr. Schrage's submission that the December 2007 agreement should be set aside because Ms. D'Andrade failed to tell Mr. Schrage about her affair or that she was contemplating separation.

173Mesbur J. also stated in Patrick, at para. 54:

David also relies on Pruss v. Pruss to support his view that his lack of disclosure should not affect the validity of the agreement. In Pruss, a wife failed to have a separation agreement set aside on the basis of lack of financial disclosure. There, the court held that there was no evidence the wife only discovered the existence of the undisclosed asset after the agreement was signed. Pruss, of course, again deals with a separation agreement, rather than a marriage contract. Similarly in Rosen v. Rosen, the Court of Appeal reversed the trial judge's decision to set aside a separation agreement because the wife had a somewhat accurate idea of the value of her husband's assets and had consulted with several matrimonial lawyers prior to signing the agreement. A fundamental difference, however, between these cases and the current situation is that here, the domestic contract is a marriage contract. Unlike separation agreements, marriage contracts are contracts uberrimae fidei, contracts requiring the utmost fidelity and good faith between the parties. A greater duty of dealing in good faith is owed in marriage contracts. Because of the special relationship between the parties as intended spouses, they are not entirely at arm's length and thus owe one another duties of good faith and fair dealing.

174Expanding on this concept, Greer J. in S. (F.) v. H. (C.), 1994 CanLII 7515 (ON SC), [1994] O.J. No. 2630, 120 D.L.R. (4th) 432 (Gen. Div.) considered the issue of extramarital affair disclosure as it related to contracts and torts, and stated the following, at paras. 17-18: [page457]

Non-disclosure and uberrima fides

The former husband also argues that the contract is invalid because there was an obligation on the former wife to disclose material facts to him. The general rule is that mere silence is not misrepresentation. There are, however, three sets of circumstances in which silence or non-disclosure affords a ground for relief, namely:

1. where silence distorts positive representation;

2. where the contract requires uberrima fides such as contracts of insurance, for the purchase of shares, or agreements to do with family arrangements;

3. where a fiduciary relationship exists between the contracting parties.

The term "uberrima fides" is defined in Black's Law Dictionary as meaning the most abundant good faith; absolute and perfect candour or openness and honesty; the absence of any concealment or deception, however slight. Our courts have held that while parties are still married to each other, a duty lies on each to deal with the other in the utmost good faith: see Lamers v. Lamers (1978), 6 R.F.L. (2d) 283 at 285 (Ont. H.C.) and Travis v. Travis (1993), 1993 CanLII 1015 (BC SC), 46 R.F.L. (3d) 444 (B.C.S.C.). Each of these cases dealt with non-disclosure of assets or values of assets on marriage breakdown. Zelinski J. in Best v. Best (1990), 1990 CanLII 8099 (ON SC), 30 R.F.L. (3d) 279 quoted from Gabriel v. Hamilton Tiger-Cat Football Club Ltd. (1975), 1975 CanLII 532 (ON SC), 8 O.R. (2d) 285 at 290 (H.C.), the following obiter dicta:

. . . there is a limited class of contracts in which one of the parties is presumed to have means of knowledge which are not accessible to the other and is, therefore, bound to tell him everything which may be supposed likely to affect his judgment. They are known as contracts uberrimae fidei, and may be avoided on the grounds of non-disclosure of material facts. Contracts of insurance of every kind are in this class. There are other contracts, though not contracts of uberrimae fidei in the same sense, which impose a duty of full disclosure of all material facts by the parties entering into them.

Contracts for family settlements and arrangements fall into this category.

The term "family settlements" normally involves either the settlement of family trusts or the entering into of marriage contracts. Separation agreements, on the other hand, involve the breakup of families and the settling of their financial differences and custody and access and support issues. The Best case, supra, involved a marriage contract, not a separation agreement.

175I do not agree that the fact that one of the parties to the negotiations of a Marriage Contract is having an extramarital affair, at the time of negotiating that Marriage Contract, should not be disclosed in all circumstances. This is especially so when the Marriage Contract is being negotiated in circumstances of attempted reconciliation. In my view, the concept of uberrimae fides becomes very important when parties start their reconciliation process and negotiation of a Marriage Contract with the prerequisite condition that an affair that had been acknowledged is [page458] over. The potential continuance reflects on the bona fides of the spouse that may be relevant to the fairness of the negotiation process.

176In this case, Joel told Pamela that he had ended the affair and that his total dedication was to seeing the marriage work. This fact alone was a prerequisite for Pamela to entertain the idea of entering into a process of reconciliation and, eventually, give this process priority over her involvement in the negotiation process of the Marriage Contract, which dealt with her most substantial assets.

177I find that the perception created in Pamela's mind that Joel was committed to the marriage due to the termination of his affair renders evidence that he continued to see this woman during the negotiation process of the Marriage Contract relevant.

178Having said that, I cannot find on the evidence in this case that Joel continued to have an affair with this other woman during the negotiation process. In this regard, I find the following: (1) Joel admitted to Pamela that he was having an affair and that he wanted out of the marriage at the end of March 2006. (2) Although he stated in his evidence that he ended the affair when he committed to reconciliation, he admitted that he continued to see this same woman during the negotiation period. The woman with whom Joel was having an affair lived in California and he admitted to travelling through California in July 2006 in the midst of the Marriage Contract negotiations. Admitting to continuing to see her does not allow me to conclude that he was continuing the affair. (3) The Marriage Contract was signed on October 3, 2006. Pamela experienced a serious depression that required hospitalization from December 18, 2006 until the first week in January 2007. Immediately after Pamela was released from CAMH on lithium, Joel stated that he needed a rest and he went on a three-week holiday to Mexico with the same woman he had been having an affair with immediately prior to his representing to Pamela that he was dedicating himself to reconciliation. He stated during cross-examination:

Q. All right. My question was, within days after Pam being discharged from CAMH, that's the time that you went to the Baha Peninsula with your girlfriend?

A. I went to Los Cabos in February of 2007. [page459]

Q. That was in January, January the 2nd?

A. No sir.

Q. Really, I thought it was January 2nd?

A. January 2nd was the date of Pam's discharge from CAMH.

Q. Right, and right after that, you went to Los Cabos?

A. Sometime later in February.

Q. So, you went to Cabos and then you were still expecting Pam to work on the marriage, is that the idea, this was somehow going to be an incentive, an . . .

A. That is what I expected, yes.

179I do not find that Joel's affair with this other woman impacted on the negotiation process. Although Joel's resumption of his affair, at the time that his wife was in the extreme vulnerable state that she was, is reprehensible, such conduct cannot be connected to the issue of whether this Marriage Contract should be set aside.

Findings regarding unconscionability

180I find the following: (1) The result of Marriage Contract is extremely disparate with what Joel would gain under the Family Law Act without a contract. He was aware of this fact from his first consultation with his lawyer in April 2006. By way of equalization under the statutory scheme, he would have received an amount in the range of $500,000 to $700,000. Under the contract, he stood to gain $2,500,000. (2) Joel has always controlled and operated PC Outlet Inc. This company has been successful since its start up in the early 1990s. The average earnings (not considering the extraordinary year in which he declared a $1 million bonus to himself) that would be realistically available to him is an amount that would exceed $200,000 annually. Given that fact, it is not probable that he would have received spousal support. As a result, his covenant in the Marriage Contract releasing Pamela from paying spousal support was of very little benefit to Pamela. (3) I find that given the roles played in the marriage, Pamela acted to her detriment relative to placing herself in a competitive employment market or career. She followed him to England for his career. She did not work outside the home [page460] for most of the marriage other than minimal jobs for brief periods and followed him back to Canada in order for him to pursue his private business interests. Pamela primarily cared for all three children while Joel devoted his time to PC Outlet Inc. Despite this, the Marriage Contract provided that Pamela was to give up her spousal support entitlement. This operated as a significant benefit to Joel, while granting none to Pamela. (4) I find that the mistake that Joel took advantage of increased the amount he would receive from Pamela by at least $1,800,000 relative to the lump sum set out in the contract. I find that this payment was inconsistent with the essence of what Pamela wanted to achieve, which was the return of her father's money. I also find that Joel was aware that this intent was fundamentally important to Pamela. (5) In addition, the Marriage Contract provided that Joel would receive the immediate transfer of PC Outlet, without Pamela receiving any value for her shares. This value is in the range of $318,000. (6) With regards to the Stevens Family Trust, Joel insists on an interpretation of the contract that would freeze a further $1 million of Pamela's gifted or inherited money in order to finance all of the children's education until its completion. This would result in Joel not having to contribute anything toward his children's education, despite his history of supporting the family through his company PC Outlet. This would also completely ignore the demand promissory note in favour of Pamela.

181If I am wrong in my finding that there was no contract formed, or that it should be set aside in equity due to equitable fraud, I find that this contract is shocking in what it provides for Joel and takes away from Pamela. I agree with the submissions of Mr. Grant on behalf of Pamela; she gave away everything and received nothing. The contract was grounded on a fundamental mistake that was taken advantage of by Joel. Not only did he take advantage of Pamela by not clarifying a major inconsistency in the Marriage Contract, he also took advantage of her while she was vulnerable due to her suffering from hypomania, and exhibiting behaviour that he ought to have known was exceptionally out of character for her.

182For all of the above reasons, the Marriage Contract signed October 3, 2006 is set aside. [page461]

Outstanding claims

183As a result of my rulings and findings, the following issues remain in dispute: (1) Property: (a) Value of the matrimonial home (b) Value of PC Outlet (i) Valuation method (ii) Maintainable earnings (iii) Capitalization rate (c) Whether the vacation properties, cottage and chalet, are matrimonial homes (2) Support: (a) Income (b) Entitlement to spousal support, both retroactive and ongoing (c) Child support, both retroactive and ongoing (d) Special expenses (3) Property: (a) Value of the Matrimonial Home

Position of Joel

184Joel claims that the matrimonial home located at [address omitted], Toronto, Ontario should be valued at $2,500,000 as of the separation date. No valuations were entered into evidence by either party. Joel asserts that an unsolicited offer was received on the home for $2,700,000 in 2010. However, he told his lawyer, Ms. Klukach, at his first meeting with her in April of 2006, that the home was worth $2 million. He also represented in his sworn financial statement filed at the time of his answer that the home was worth $2 million. He affirmed in his testimony that he had previously described the value of the home to be $2 million when testifying in 2009. His only justification for claiming the home was worth more than his previous testimony was the unsolicited offer that did not go through in 2010. [page462]

Position of Pamela

185Pamela had a real estate agent look at the home in 2006. That agent did not do an appraisal of the home. The agent expressed her view to Pamela that the home was worth $2,500,000. Ms. Tsao testified that it is not unusual for agents to value properties at higher prices than their market value in order to get the listing.

186The Marriage Contract drafts and the final executed agreement set the value of the matrimonial home, as shown on schedule "C" to that contract, to be $2,055,237.09.

Finding of value of matrimonial home

187It is always difficult for judges to make findings of value when the supporting evidence was either produced in a litigation context or for the purposes of settlement.

188Under the circumstances, I find that the fairest approach in this case is to set the value at an amount that is most consistent with what the parties were prepared to accept for the purposes of settlement. This amount most often reflects the value set out by the parties throughout the litigation. I find that the value of the matrimonial home at separation is $2,055,237.09.

Value of PC Outlet

189Both Pamela and Joel presented evidence of their own business valuators.

Position of Joel

190The most significant difference between Pamela and Joel's valuators is their position as to whether it was necessary for certain funds of $500,000 to remain in PC Outlet in order to keep the company afloat. Joel's valuator contends that these funds were vital to the viability of the company, while Pamela's valuator disputes this claim.

191Joel claimed that since PC Outlet had lost its only consulting contract, he would need to either seek out and secure new consulting contracts or return the company to its original business of selling computers. The latter would require funds to purchase inventory. This requirement forced him to keep funds in the company instead of using them to pay himself an income. This income would have provided for Pamela's spousal support. As a result of Joel's valuator accepting this representation from Joel, she did not consider the excess cash of $500,000 that Joel chose to keep in the company to be a redundant asset. [page463]

Position of Pamela

192Pamela's valuator, Ms. Alterman, was of the view that the funds held in the company represented a redundant asset. It was her view that the history of the company did not justify the position that those funds were needed to maintain its viability. She relied on the following facts:

-- the company never resorted to debt financing in order to fund asset purchases;

-- there was no evidence that any lending institution was requiring funds to be held in the company. In fact, Joel did not even seek out lending institutions to secure funds to finance inventory;

-- the capital asset debt ratio would be at 1.5, even with the withdrawal of the $500,000 funds in question. It was her opinion that ratio represents a "healthy company".

193I accept the opinion of Pamela's business valuator on this issue. Joel's valuator accepted Joel's representations without scrutiny. I find that Joel always operated the company without borrowing, even when his major business source was sales. He offered no valid reasons why he could not finance any inventory purchases in any other way but using the $500,000 left in the company.

194Joel did not offer any evidence of what efforts he had made to secure other consulting contracts once the company lost its big contract. Nor did he offer any evidence of what recent activity he was pursuing in order to re-adjust his business to the resale of computer inventory.

195His only evidence was that he had no contracts, was generally seeking out new contracts and that he planned to re- adjust PC Outlet to the resale of computers as the major income generating source of the company. However, details that he should have brought before this court relative to specific efforts he was making in both these areas was lacking. Disclosure of these efforts was requested and he did not provide them to Pamela's lawyers.

196I draw an adverse inference against him for this lack of evidence.

197Moreover, courts are cautious in relying on the evidence of the spouse alone that they must retain the corporate profits in the company when there is no other evidence to reasonably suggest that must be done. The onus lies with the payor to provide [page464] the necessary evidence that the corporate pre-tax income is not available to him and he did not provide such evidence in this case (Knight v. Knight, [2009] B.C.J. No. 2750, 2009 BCSC 1851; Aelbers v. Aelbers, [2008] B.C.J. No. 2291, 2008 BCSC 1624, 62 R.F.L. (6th) 395).

198I accept the opinion of Pamela's expert on the value of PC Outlet and set the value at $2,050,000.

The vacation properties: What is a matrimonial home?

199The Family Law Act, s. 18(1) defines matrimonial home as follows:

18(1) Every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home.

200Smith J. in Ledrew v. Ledrew, 1993 CanLII 16082 (ON SC), [1993] O.J. No. 596, 46 R.F.L. (3d) 11 (Gen. Div.), at para. 21, stated:

The ordinary occupation which is required of a home in order to qualify as a matrimonial home is that it be occupied by the parties as a family residence. This requires that a significant part of the spouses' time together be spent in and around the home and that the occupation of the home is not merely occasional or casual.

201In MacFarland v. MacFarland, 2009 CanLII 26349 (ON SC), [2009] O.J. No. 2149, 70 R.F.L. (6th) 196 (S.C.J.), Mackinnon J. dealt with the issue of whether a cottage property was ordinarily used by the family as a family residence at the time of separation. She made the following comments commencing, at para. 21:

Mr. MacFarland relies on Ledrew v Ledrew, 1993 CanLII 16082 (ON SC), [1993] O.J. No. 596, 1993 CarswellOnt 312 (Gen. Div.). In that case, the court found that the parties had not stayed together at the cottage since 1985 and separated in 1989. Further, the court found that the family had used the cottage occasionally in the early 1980s. On the basis of those facts, the court held that, even if the cottage could have been characterized as a matrimonial home during the early 1980s, it had ceased to be so used before the separation. The court stated at para. 17:

Mrs. Ledrew's evidence, which I accept, is that at the time of separation in May of 1989, the White Cottage was not ordinarily occupied by the parties as a family residence. She had inherited the cottage from her mother in 1968, subject to a life interest granted to her father. Her father had exercised that life interest, utilizing the cottage initially on a part-time basis and ultimately on a full year round basis up until the end of 1979. Thereafter, the parties herein started to first rent out, and then use themselves, the White Cottage. Their use was only minimal, the odd weekends and in the summertime, never on a regular year round basis. The evidence is that after 1984, Mrs. Ledrew preferred to go to the White Cottage without her husband, just in the company of her daughters. The last family function that the husband attended at [page465] the White Cottage took place on Thanksgiving Day in 1985. Thereafter, for the four years that followed until their separation in 1989, the parties spent no time together whatsoever at the White Cottage.

202Mr. MacFarland also relied on Spinney v. Spinney, [1996] O.J. No. 1869, 1996 CarswellOnt 2192 (Gen. Div.), about a couple that was married for four years [at paras. 5, 6 and 9]:

The respondent purchased the cottage in June, 1990 for the price of $128,000.00. His mother provided the $30,000.00 down payment and the balance of the cottage was paid for by obtaining a loan against his prior matrimonial home. The cottage was in the name of the respondent alone. On the date of marriage, the cottage was still in the respondent's name. Shortly after marriage, Mr. Spinney transferred ownership of the cottage to he and his wife as joint tenants. At the date of marriage, I find that the value of the cottage was $128,000.00. The cottage today, according to an appraisal done in March, 1995 has a value of $145,000.00. I accept this valuation.

The respondent seeks to deduct $128,000.00 from his net family property. The petitioner argues that the cottage is a matrimonial home within the meaning of the Family Law Act and therefore no deduction is allowable. In the alternative, the petitioner argues that the respondent held title to the cottage on a resulting trust for both parties at the date of marriage. . . . . .

On the evidence before me, I find that although the cottage property was occasionally used by the parties, both before and after marriage, its use was not sufficient to establish that the property was occupied as a family residence. The cottage was not used on a year-round basis and was infrequently used on odd weekends and to entertain other friends and family. Significant renovations were made to the cottage during which period of time the cottage was completely unfit for use. The petitioner testified that in a two-year period of time she used the cottage on five occasions. I accept that at some point in the future the parties may have intended the cottage to be used as a matrimonial home. However, due to the deterioration in the marriage, that never occurred. At the date of separation, this property was not ordinarily occupied by the parties as their matrimonial home.

203In this matter, I find that the cottage property was purchased by Pamela by her entering into an agreement of purchase and sale on the weekend of September 18, 2006, which closed shortly after.

204Pamela was an in-patient at CAMH from December 18, 2006 until the first week of January 2007. She was discharged from the hospital on lithium medication. She went to the cottage on only one occasion with Mr. Stevens. The parties separated in June 2007. After Pamela got out of the hospital in January 2007, Joel went to Mexico on a holiday with his girlfriend. Under these circumstances, it cannot be said by any stretch of the definition of matrimonial home that Pamela and Joel ordinarily used this property as a family residence. [page466]

205With respect to the chalet, it was purchased in October 2006. The parties separated in June 2007. For the approximate seven months that this property was owned by Pamela, I apply the same reasoning and facts that I applied with respect to the cottage.

206After Pamela was discharged from hospital, she was on lithium for approximately five months. She felt flat and like a zombie. She despised the chalet so much that she chose to rent it out, while she and her children would rent a hotel when she visited Collingwood. I find that this property was also not ordinarily used as a family residence at the time of separation and is not a matrimonial home.

Net family property

207I have thus far made several findings that will impact Pamela's net family property. First, the setting aside of the Marriage Contract means that Pamela maintains full ownership of the matrimonial home. Moreover, as Pamela will benefit from the equalization provisions under the Family Law Act, she will be able to exclude the money that her late father gifted or bequeathed to her. Finally, my findings that the cottage and chalet are not matrimonial homes will maintain Pamela as the exclusive owner of these properties.

208With respect to the "household goods and furniture", neither party presented any evidence that was helpful to a finding of value. Pamela gave an estimate of $10,000. She retained all of the contents of the home. Joel estimated the value to be $50,000. No valuators were called to provide any evidence of a realistic value to be assigned. This places the court in a very difficult position. It is the duty of every party to provide evidence of realistic values of their assets. That is lacking with respect to this issue. However, proportionality requires a final determination of all of the issues between the parties. The fairest approach to value that I can take is to infer that this home of over $2 million in value would not have contents valued at only $10,000. However, to set a value of $50,000 would have no basis. I find that discounting Joel's estimate by one-half is the only reasonable approach left to me. That approach takes into account that the value assigned may reflect what the contents could be sold for after considering that these items would have depreciated over time. I set the value at $25,000 to be allotted to Pamela on her net family property.

209The following represents my findings as to the net family property to be assigned to each party and the resultant equalization payment owning by Pamela. A chart of the parties' net family property as described above is as follows: [page467]

[QL:GRAPHIC NAME="109OR3d421-1.jpg"/]

[page468]

[QL:GRAPHIC NAME="109OR3d421-2.jpg"/]

Spousal support

The law -- factors and objectives

210I begin by setting out the factors and objectives of s. 15.2(4) and (6) of the Divorce Act regarding an order of spousal support:

Factors

15.2(4) In making an order under subsection (1) or an interim order under subsection (2), the court shall take into consideration the condition, means, needs and other circumstances of each spouse, including (a) the length of time the spouses cohabited; (b) the functions performed by each spouse during cohabitation; and (c) any order, agreement or arrangement relating to support of either spouse. . . . . .

Objectives of spousal support order

(6) An order made under subsection (1) or an interim order under subsection (2) that provides for the support of a spouse should (a) recognize any economic advantages or disadvantages to the spouses arising from the marriage or its breakdown; (b) apportion between the spouses any financial consequences arising from the care of any child of the marriage over and above any obligation for the support of any child of the marriage; (c) relieve any economic hardship of the spouses arising from the breakdown of the marriage; and (d) in so far as practicable, promote the economic self-sufficiency of each spouse within a reasonable period of time.

Entitlement

211In this judgment, I set out my view that Pamela acted to her detriment relative to advancing any career or employment and to the benefit of Joel. This may entitle her to compensatory support.

212In Bracklow v. Bracklow, 1999 CanLII 715 (SCC), [1999] 1 S.C.R. 420, [1999] S.C.J. No. 14, the court affirmed three conceptual bases for spousal support: (1) compensatory, (2) contractual and (3) non- compensatory. The court continued to note, at para. 49: [page469]

Marriage, as this Court held in Moge (at p. 870), is a "joint endeavour", a socio-economic partnership. That is the starting position. Support agreements are important (although not necessarily decisive), and so is the idea that spouses should be compensated on marriage breakdown for losses and hardships caused by the marriage. Indeed, a review of cases suggests that in most circumstances compensation now serves as the main reason for support. However, contract and compensation are not the only sources of a support obligation. The obligation may alternatively arise out of the marriage relationship itself.

213In the current case, Pamela is entitled to compensatory support based on the reasoning detailed in Moge v. Moge, 1992 CanLII 25 (SCC), [1992] 3 S.C.R. 813, [1992] S.C.J. No. 107, at para. 70:

Women have tended to suffer economic disadvantages and hardships from marriage or its breakdown because of the traditional division of labour within that institution. Historically, or at least in recent history, the contributions made by women to the marital partnership were non-monetary and came in the form of work at home, such as taking care of the household, raising children, and so on. Today, though more and more women are working outside the home, such employment continues to play a secondary role and sacrifices continue to be made for the sake of domestic considerations. These sacrifices often impair the ability of the partner who makes them (usually the wife) to maximize her earning potential because she may tend to forego educational and career advancement opportunities. These same sacrifices may also enhance the earning potential of the other spouse (usually the husband) who, because his wife is tending to such matters, is free to pursue economic goals. This eventually may result in inequities. As stated by G. C. A. Cook, in "Economic Issues in Marriage Breakdown" in R. S. Abella and C. L'Heureux-Dubé, eds., Family Law: Dimensions of Justice (1983), 19, at p. 22: . . . . .

Hence, while the union survives, such division of labour, at least from an economic perspective, may be unobjectionable if such an arrangement reflects the wishes of the parties. However, once the marriage dissolves, the kinds of non- monetary contributions made by the wife may result in significant market disabilities. The sacrifices she has made at home catch up with her and the balance shifts in favour of the husband who has remained in the work force and focused his attention outside the home. In effect, she is left with a diminished earning capacity and may have conferred upon her husband an embellished one.

214Pamela's situation closely mirrors that described in Moge. She did not work outside of the home and I accept her evidence that she stayed at home and managed the household. I also accept her evidence that she was the primary caregiver to all three children throughout most of the marriage. This had the effect of removing Pamela from any real competitive ability in the work force, given the length of time she did not work outside and advance her career options.

215I find that the role Pamela played in PC Outlet was that of a bookkeeper and payroll manager. At best, she might be able to sustain an income in the same range as that income that was [page470] given to her by PC Outlet. Pamela's counsel submits that her income should be set at $50,028.42 for support calculation purposes. Both Pamela and Joel had experts testify as to what the proper amount of income should be available to Pamela and Joel.

216Beyond diminishing her own career potential, Pamela's role in PC Outlet is also deserving of compensation since it furthered the business interest of her husband's company. On this matter, the court in Moge commented, at para. 83:

A spouse may contribute to the operation of a business, typically through the provision of secretarial, entertainment or bookkeeping services, or may take on increased domestic and financial responsibilities that enable the other to pursue licenses, degrees or other training and education. (See N. Bala, "Recognizing Spousal Contributions to the Acquisition of Degrees, Licences and Other Career Assets: Towards Compensatory Support" (1989), 8 Can. J. Fam. L. 23; J. M. Krauskopf, "Recompense for Financing Spouse's Education: Legal Protection for the Marital Investor in Human Capital" (1980), 28 Kan. L. Rev. 379, and Payne, "Management of a Family Law File with Particular Regard to Spousal Support on Divorce", supra, at pp. 441-42.) To the extent that these activities have not already been compensated for pursuant to the division of assets, they are factors that should be considered in granting spousal support.

217The Supreme Court of Canada was clear in Moge, at para. 73, that the economic consequences of marriage breakdown must be shared equally, given that work inside the home has an undeniable value. In this respect, Pamela is entitled to compensatory support, both for her role in maintaining the household while sacrificing her career potential but also because her limited paid work served to further Joel's financial interests. As such, Joel must compensate Pamela for her contributions to their marriage.

218Having established the basis for compensatory support, I now turn to the issue of the quantum and form of support that Pamela will receive.

219In order to assess the appropriate quantum of support, it is necessary to consider how the property division impacts the condition, means and other circumstances of the parties. The British Columbia Court of Appeal commented on this issue in Chutter v. Chutter, [2008] B.C.J. No. 2398, 2008 BCCA 507. At paras. 79-80, Rowles J. had the following observations:

In my view, the trial judge's emphasis on his finding that the assets the appellant received in the division of property can provide her with a standard of living comparable to that which she enjoyed during the marriage overlooks the principles underlying compensatory support where one spouse has been disadvantaged by the marriage or its breakdown relative to the other spouse. As this Court held in Tedham, at para. 60, a spousal support award based on compensatory principles should continue until compensation is achieved, even if the recipient spouse has achieved a degree of self- sufficiency. In arriving at that conclusion, this Court cited Allaire, in which the Ontario Court of Appeal rejected the husband's argument that any [page471] disadvantages flowing from the marriage must defer to the fact that the wife, at the time of trial, was nevertheless able to earn a reasonable income (para. 21). That opinion was echoed by this Court in Beese v. Beese, 2008 BCCA 396. In Beese, the wife was awarded compensatory spousal support for the economic disadvantage she had suffered as a result of the marriage, notwithstanding the fact that following the separation she had been living with, and supported by, another partner and that, as of the date of trial, she was fully employed and earning an income not substantially less than that of the husband.

Generally, the case authorities support the view that even in the context of high asset cases such as this one, entitlement to spousal support is not precluded: Metzner v. Metzner (1997), 1997 CanLII 3772 (BC CA), 28 R.F.L. (4th) 166, 34 B.C.L.R. (3d) 314 (C.A.); Francis v. Baker; R. v. R. (2002), 2002 CanLII 41875 (ON CA), 58 O.R. (3d) 656, 24 R.F.L. (5th) 96 (C.A.); Brown v. Rae, 2001 ABQB 809, 24 R.F.L. (5th) 293; Tauber v. Tauber (2001), 203 D.L.R. (4th) 168, 2001 CanLII 28234 (ON SC), 18 R.F.L. (5th) 384 (Ont. Sup. Ct.), aff'd (2003), 2003 CanLII 8918 (ON CA), 64 O.R. (3d) 229, 34 R.F.L. (5th) 450 (C.A.); Macdonald v. Macdonald, 2005 BCCA 23, 10 R.F.L. (6th) 423; Spiers v. Spiers, 2003 ABQB 830, 48 R.F.L. (5th) 198; Martin v. Martin (2004), 2004 CanLII 48712 (ON SC), 12 R.F.L. (6th) 415, [2004] O.T.C. 1139 (Sup. Ct.), aff'd (2006), 2006 CanLII 27225 (ON CA), 81 O.R. (3d) 495, 40 R.F.L. (6th) 32 (C.A.); Greither v. Greither, 2004 BCSC 1183, 10 R.F.L. (6th) 338, aff'd 2005 BCCA 550, 22 R.F.L. (6th) 10; Modry v. Modry, 2005 ABQB 262, 375 A.R. 198; and Hodgkinson v. Hodgkinson. For a summary of these cases, as well as a number of high asset cases in which the court has not awarded spousal support, see Lawrence A. Kahn and Sarah R. Picciotto, "Are There Cracks in the Glass Ceiling?: A Survey of Spousal Support Awards in High-asset Cases since Moge" Continuing Legal Education Society of B.C. (Sept. 2006).

220In Chutter, both the husband and the wife received approximately $4 million in assets. However, the wife's income was substantially lower than the husband's income. After finding that the wife was entitled to compensatory support, the court awarded her support but at a level that was lower than the Guideline amount.

221I agree with this approach. My findings and the resultant substantial asset base of the wife do not disentitle her to compensatory support. The fact that she will be receiving approximately $8 million in assets is a factor in the amount of support that she will receive. The Spousal Support Advisory Guidelines are a measure of that support. It must never be forgotten that they are a "guide" and a measure that is to be used by judges to assess the level of support in the proper exercise of their discretion. All of the factors and objectives of the legislation must also direct the determination of the proper level of support.

222This is a marriage that spanned from August 9, 1991 until June 30, 2007. For most of the 16 years of marriage, Pamela did not work outside of the home. She moved to England and gave up her job to support Joel and his career pursuit. She moved back to Canada with Joel and her children and continued to fully support Joel's endeavour to start and build a successful computer business. In addition to being the primary caregiver for the children, she also managed the household and did [page472] bookkeeping for Joel's company. Pamela is now 51 years old. She is limited in what she would be able to do in a competitive job market. Her only security is what income she might be able to yield from investing her substantial assets. No evidence was placed before me that would allow me to make a finding of what income she could earn. I am left with looking at the history of what I accept as to what she has earned in the past as a predictor of the present and future.

223I must also assess the conditions, means and other circumstances of Joel having regard to my findings and the resultant property division. Joel is left with his investments and the shares in the company that he has used to generate income since approximately 1993. I find that the respective incomes of the parties since 2005 are as follows.

224Joel's expert, Ms. Abate, of Rosen and Associates, describes his income as follows. In 2005, he made $1,020,000. In 2006, this figure dropped to $256,000, and further dropped to $169,000 in 2007. Joel's income climbed in 2008 to $395,000, and dipped to $158,000 in 2009. In 2010, Joel was said to have earned $151,000, according to his expert.

225This same expert did not calculate an income for Pamela for 2005. However, Rosen and Associates calculated Pamela's income to be $175,000 in 2006 and $732,000 in 2007. For 2008, Pamela's income was stated to be $195,000. Her 2009 income was calculated at $168,000, and no figure was entered for her 2010 income.

226The above incomes were calculated using line 150 of Joel and Pamela's T1 income tax returns as a base, though several adjustments were made. For example, the carrying charges and interest expenses as reported on their personal tax returns were deducted, as recommended by the Federal Child Support Guidelines, SOR/97-175. The taxable dividends of Pamela and Joel were also reduced to reflect the actual amount of dividends they received and increased to reflect the actual amounts of capital gains earned.

227Pamela's income was reduced for the expenses she incurred in relation to her rental investment income that was not accounted for in line 150 of her tax return. As well, recurring monthly payouts to Pamela of $10,000 drawn against the capital in her investment account were also included.

228Several assumptions were made as well. The monthly cash withdrawals made by Pamela were included in her income calculations. Her salary from PC Outlet was considered to be at market level, and it was noted that she did not receive any benefit from her PC Outlet shares other than as listed on her T4 slip. [page473] Finally, it was assumed that PC Outlet did not incur any costs on behalf of Joel that were personal in nature, other than those expenses that he reimbursed the company for.

229Pamela's expert, Ms. Alterman, from AP Valuations Limited, provided different income figures. Most notably, AP Valuations attributed 100 per cent of the pre-tax earnings of PC Outlet to Joel. This was because Joel had control of the distribution of funds and payout of salaries and expenses, and because PC Outlet had the liquidity to pay the funds. As such, Joel's income was adjusted to $1,170,000 for 2005, $493,000 for 2006, $529,000 for 2007, $847,000 for 2008 and $302,000 for 2009.

230AP Valuations also adjusted Pamela's income as reflected on line 150 of her income tax return. In line with Joel's expert, AP Valuations deducted carrying charges and interest expenses from Joel's income. It also adjusted his income to reflect his dividends.

231Pamela's expert diverged from Joel's in assessing the wages paid for her bookkeeping and payroll services for PC Outlet. She chose to add back the portion of the wages paid to Pamela that were in excess of an estimated market salary for a part-time bookkeeper. As such, the estimated market salary for Pamela's services was $24,000. The amount paid to Pamela in excess of $24,000 was considered to be non-arm's length in nature.

232Once the above adjustments are taken into account, Pamela's income is as follows. In 2005, her employment income was $37,118. This income remained relatively unchanged at $37,121 in 2006, $37,122 in 2007 and $18,561 in 2008. When the $24,000 was subtracted for each year in question, Pamela had $13,118 in excess of market salary in 2005, $13,121 in excess in 2006, $13,122 in 2007 and $6,561 in 2008.

233I agree with the income assessments of Pamela's expert evaluator. As Joel ran the day-to-day operations of PC Outlet, he had complete control over the payout of his salary, which funds he could declare as a bonus and which funds would be held in the company. Since Joel benefitted the most from the financial strength of PC Outlet, his income should be adjusted as per the AP Valuations' estimate to reflect this augmentation to his income. I also accept AP Valuations' calculation of Pamela's income.

234Based on AP Valuations' calculation of Joel and Pamela's income, I conclude that Pamela will receive a lump sum retroactive spousal support payment of $136,182. Her children will also receive $293,216 in retroactive child support payments. I will provide further details of how these figures were reached further below in this judgment. [page474]

Retroactivity

Retroactive spousal support

235In Kerr v. Baranow, [2011] 1 S.C.R. 269, [2011] S.C.J. No. 10, 2011 SCC 10, at para. 207, the Supreme Court of Canada affirmed that the principles governing the propriety of retroactive spousal support are similar to the principles described in S. (D.B.) v. G. (S.R.), [2006] 2 S.C.R. 231, [2006] S.C.J. No. 37, 2006 SCC 37 concerning retroactive child support. The court described these factors as follows:

Specifically, these factors are the needs of the recipient, the conduct of the payor, the reason for the delay in seeking support and any hardship the retroactive award may occasion on the payor spouse.

236Cromwell J. continued to note, at para. 212:

Other relevant considerations noted in D.B.S. include the conduct of the payor, the circumstances of the child (or in the case of spousal support, the spouse seeking support), and any hardship occasioned by the award. The focus of concern about conduct must be on conduct broadly relevant to the support obligation, for example, concealing assets or failing to make appropriate disclosure: D.B.S., at para. 106.

237While the considerations for retroactive spousal and child support are largely similar, the court in Kerr, at para. 207, was clear to point out that the above factors must be considered and weighed in light of the different principles and objectives of these two kinds of support.

238The court commented, at para. 208, that "concerns about notice, delay and misconduct generally carry more weight in relation to claims for spousal support". This conclusion was reached because child support is automatic and therefore does not raise the same issues of notice in a spousal support context since payor parents ought to know of their general duty to support their children.

239For this same reason, it is the child who is prejudiced due to a delay in child support, whereas this prejudice may fall on the payor spouse in the spousal support context. Finally, there is no presumptive entitlement to spousal support as there is for child support. For this reason, the payor spouse is under no obligation to look out for the recipient spouse's legal interest.

240I find that there was no unreasonable delay in Pamela putting Joel on notice that she was seeking to set aside the Marriage Contract and pursuing both child and spousal support. The parties separated on June 30, 2007. Mr. Grant sent a letter to Joel on September 19, 2007, setting out his client's position. From that point forward, Joel was put on notice. [page475]

241I have alluded to many concerning examples that demonstrate Joel's propensity to structure financial arrangements for his exclusive benefit while dispensing with the needs of his family. Another example of this is the evidence that in April of 2010, Joel wrote directly to the Honourable Justice Horkins requesting that she lower the amount he was obligated to pay for child support. This obligation was as a result of a consent interim order that set his projected income for 2009 at $260,000. He did not copy Pamela or her counsel on this letter, nor did he bring a motion in order to accomplish a reduction.

242Shortly before the trial commenced in July 2011, Joel wrote to Pamela directly asking if she would relieve him from his child support obligations for the time being. He claimed that he was in financial difficulties as a result of his company losing its major contract. Joel did not disclose nor bring forth evidence at trial of any particulars of corporate restructuring and efforts he had made to obtain other contracts. Nor did he disclose or bring forward any evidence at trial of any particulars of his lawsuit against the company he was suing for breach of contract. He simply asked Pamela to relieve him of his support obligations. During cross- examination at this trial, Joel admitted that despite his alleged financial distress, he had just returned from a holiday in Bali in May 2011. He also admitted that he was planning a further two-week vacation in Bali for August of 2011.

243I find that Joel's conduct placed Pamela in a situation where she had to resort to using her capital assets to live on since separation. After separation, he dismissed her as an employee of PC Outlet. He took the position that the demand promissory note that both he and Pamela signed calling for the return to Pamela of $912,000 was somehow limited by the Marriage Contract. As a result, he refused to sign the documents that would allow the transfer of that large sum of money back to Pamela. This effectively further reduced capital that she would have access to in order to earn income.

244Since separation of the parties, Joel did not contribute to any of the children's expenses for education fees. Those expenses were in the amount of $2,500 [per] month.

245I find that all of the actions of Joel amount to bad conduct. Bad conduct is one of the factors that must be looked at when assessing whether there should be support ordered retroactively. Joel took the position from the outset that the Marriage Contract was valid and, unless a court ordered otherwise, he was only going to make payments required by his interpretation of that contract. Given my findings, Joel was wrong. [page476]

246The complete asset base that is now available to Pamela was not available to her from the date of separation of the parties on June 30, 2007. I find that the fairest approach to assessing spousal support is to allow for a retroactive spousal support in the lump sum of $136,182. That would bring the spousal support to the end of January 2012. That amounts to four years and eight months of support on a no tax consequence basis.

247One of the considerations set out in the Divorce Act is allowing for finality and self-sufficiency. I find that the struggles of this family need to be over as between husband and wife, and therefore, such a lump sum amount, in my view, allows for appropriate compensation to Pamela yet recognizes the need for finality in this case. It also takes into account the considerable assets that Pamela would have in order to continue to be self-sufficient. It allows Joel to continue to use his successful company in order to provide for himself and his children. In my view, this is the type of result that was contemplated by the Ontario Court of Appeal in Davis v. Crawford (2011), 106 O.R. (3d) 221, [2011] O.J. No. 1719, 2011 ONCA 294 when considering when a lump sum spousal support award should be considered.

248In Davis v. Crawford, the court affirmed the broad discretion conferred on judges by the Divorce Act to make a lump sum award. Section 15.2(1) of the Divorce Act reads as follows:

15.2(1) A court of competent jurisdiction may, on application by either or both spouses, make an order requiring a spouse to secure or pay, or to secure and pay, such lump sum or periodic sums, or such lump sum and periodic sums, as the court thinks reasonable for the support of the other spouse.

249The court in Davis commented that there is no legislative support for the proposition that lump sum awards should only be made in the extremely limited and special circumstances described in Mannarino v. Mannarino, 1992 CanLII 14022 (ON CA), [1992] O.J. No. 2730, 43 R.F.L. (3d) 309 (C.A.).

250While noting that lump sum awards should not be used as a proxy for redistributing assets, the court held that such orders can be made to relieve against financial hardship, if this has not otherwise been achieved by the Family Law Act.

251One of the central considerations to keep in mind when considering a lump sum payment is the payor's future self- sufficiency. In this case, Joel's income from the commencement of his operation of PC Outlet in 1993 to the start of this litigation demonstrates that he would remain financially viable as he had been throughout the marriage if such an order was made against him.

252I must also weigh the advantages and disadvantages of ordering a lump sum payment. One advantage in this case would [page477] be the finality that both Pamela and Joel would receive with such a payment, since it reduces future spousal ties between them and leaves them to focus on being parents to their children.

253The court in Davis also commented that a lump sum payment is the most efficient manner for a payor to satisfy their retroactive spousal support obligations. In the current case, Joel owes Pamela retroactive spousal support. For this reason, ordering a lump sum award in the amount of fairly calculated retroactive spousal support is the fairest and most efficient approach to the ultimate resolution of this issue in the circumstances of this case.

254In terms of the disadvantages of ordering a lump sum payment, there remains, as always, the possibility that the means and needs of Pamela and Joel will change in the future. However, I am confident that the following circumstances will place Pamela in a very financially secure position, such that she will likely not require future spousal support from Joel. I am equally confident that Joel will continue his historical record of running a successful business.

255Joel has never paid spousal support. The income of the parties for support purposes is as follows. In 2007, Joel's income was $529,000 and Pamela earned $904,947. This year, no support was payable from Joel to Pamela. In 2008, Joel earned $847,000 and Pamela earned $117,793. For this year, Joel owed Pamela $71,280 in spousal support, based on monthly payments of $5,940. This amount reflects the mid-range of spousal support amounts calculated on the basis of the federal Spousal Support Advisory Guidelines (Ottawa: Department of Justice Canada, 2008).

256In 2009, Joel earned $302,000 and Pamela earned $79,108. Again, no support was payable for that year since Pamela would have already had a 49.9 per cent NDI if she received child support at $4,846 per month.

257For 2010, I impute Joel's income to be $559,333. This number is an average of his income from 2007, 2008 and 2009. Under s. 19(1)(a) of the Federal Child Support Guidelines, SOR/ 97-175, the court may impute income to a spouse where the spouse is intentionally underemployed. This section reads as follows:

19(1) The court may impute such amount of income to a spouse as it considers appropriate in the circumstances, which circumstances include the following: (a) the parent or spouse is intentionally under- employed or unemployed, other than where the under-employment or unemployment is required by the needs of a child of the marriage or any child under the age of majority or by the reasonable educational or health needs of the parent or spouse[.][page478]

258As mentioned before in this judgment, Joel did not attempt to restructure PC Outlet, nor gain other lucrative contracts once his main contract was cancelled. Although he stated that he was going to sue this other company for breach of contract, he did not adduce any particulars of this at trial. I find that Joel did not make an effort to regain his previous level of earnings and, as such, was under-employed. For this reason, I impute an income to him of $559,333 for 2010. For this time period thus, Joel owes Pamela $56,364 in spousal support, which falls along the mid-range of values calculated when using the Spousal Support Advisory Guidelines.

259From January to June of 2011, Joel earned $151,459.44 and Pamela earned $50,028.42. He owes Pamela $8,538 for this time period, which also falls on the mid-range of spousal support available under the Spousal Support Advisory Guidelines. The chart below outlines Joel and Pamela's income for the time period in question.

[QL:GRAPHIC NAME="109OR3d421-3.jpg"/]

260In total, Joel owes Pamela $136,182 in spousal arrears from 2008 to June of 2011.

261I hereby make the order that Joel must pay arrears of $136,182 to Pamela forthwith.

Retroactive child support

262Having outlined the basis for the retroactive child support owed by Joel, the issue of quantification must now be established. In 2007, Joel's income was $529,000. For this year, he was supposed to pay a total of $8,228 in child support. Thus, the outstanding balance for 2007 is $49,368. [page479]

263In 2008, Joel made $847,000 and was due to pay $12,966 per month. His arrears for this year are $155,592.

264In 2009, Joel's income rose to $302,000 and he was under an obligation to pay $4,846. Joel paid $3,326 per month in child support with the exception of August 2009. As such, he is liable for $21,566 for 2009.

265For 2010, the average of Joel's income for the past three years is $559,333. This figure implies that Joel would have to pay $8,680 per month. In 2010, Joel paid $3,326 from January to March of 2010 and then $2,572 from April to December of 2010. His arrears for this period of time are thus $71,034.

266Based on Joel's 2010 income as per his income tax return, Joel would have had to pay $2,602 in child support per month in 2011. Seeing as how Joel paid $3,326 from January to June of 2011, he overpaid by $724 per month. As such, he receives a credit of $4,344 for this time.

267I am not presented with evidence of whether Joel paid child support from July 2011 to January 2012. I can only state that Joel was liable to pay child support in the amount of $2,602 per month from July to December of 2011, which comes to a total of $15,612. In January of 2012, amendments to the Federal Child Support Guidelines came into effect. Based on the changes to this legislation, outlined in detail below, Joel owes $8,505 in child support for January 2012. Thus, from June 2011 to January 2012, Joel owed $24,117 in child support. I order that Joel pays this amount. If Joel made child support payments from July 2011 to January 2012, I order that this amount be deducted from the $20,671 outstanding for this time period.

268When all of these figures are combined, Joel owes $317,333 in retroactive child support. I order that Joel must pay these arrears immediately.

Ongoing child support

269As mentioned above, I drew an adverse inference against Joel's lack of reliable evidence regarding his 2010 income. As such, I imputed an income of $559,333 for 2010, which reflects an averaging of his 2007, 2008 and 2009 income.

270Based on the amendments to the Federal Child Support Guidelines effective January 1, 2012, Joel shall pay to Pamela $5,059 in child support per month.

271This is based on the formula for child support set out in the Guidelines table. This table mandates a baseline amount of $2,611 in child support, in addition to 1.44 per cent of any income above $150,000. As Joel's income for 2010 was $559,333, the outstanding amount of his income over and above $150,000 [page480] was $409,333. When 1.44 per cent of $409,333 is calculated, the figure of $5,894.36 is rendered. Thus, Joel owes the table amount of $2,611 payable per month for the support of his three children, in addition to $5,894.36. Thus, in total, Joel must pay child support of $8,505 per month.

Order

272As a result of my above findings, I make the following orders: (1) Pamela shall pay Joel $798.453.10 as an equalization payment, subject to the deductions set out below. (2) Joel shall pay to Pamela lump sum spousal support in the amount of $136,182. This amount is in satisfaction of any retroactive and future spousal support. (3) Joel shall pay to Pamela retroactive child support in the amount of $317,333. (4) The amounts set out in paras. 2 and 3, above, shall be a deduction from the equalization payment set out in para. 1. (5) Joel shall pay ongoing child support in the amount of $8,505 per month for the three children of the marriage. (6) Joel shall sign any documentation that is required to cause the Stevens Family Trust to pay to Pamela the sum of $912,000 in satisfaction of the promissory note signed by Pamela and Joel and dated December 23, 2005. (7) Joel shall pay to Pamela one-half of all of the children's education costs since separation. I accept the costs to be $2,500 per month. This amount totals $75,000 for a period of 60 months. This amount shall also be a deduction from the equalization payment owing by Pamela as per para. 1. (8) Both Joel and Pamela shall pay the children's education costs in accordance with the ratio of the expenses in relation to their respective incomes as set out in the Child Support Advisory Guidelines.