ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 33550/11

DATE: June 24, 2013

BETWEEN:

GARY RUSSELL LOUGHEED

Applicant

– and –

LARISSA PONOMAREVA

Respondent

John G. Cox, Counsel for the Applicant
Glenroy Bastien, Counsel for the Respondent

HEARD: June 20, 2013

REASONS FOR JUDGMENT

GRAY J.

[1] Before me are two motions: one to enforce an arbitration award, and one to set it aside. The arbitration award itself is a family arbitration award, and thus is governed both by the Arbitration Act, 1991, and the Family Law Act.

[2] For the reasons that follow, the arbitration award will be enforced; the motion to set aside the award is dismissed.

Background

[3] The relationship between these parties was somewhat unusual, but for the purposes of this proceeding it is not necessary to delve into it. It is sufficient to say that the parties were married on August 9, 2008 and separated in January, 2011. Litigation ensued. There were allegations of assaults, and there were some complicated issues regarding property. Criminal charges were laid against the respondent. At some point, the parties had agreed to purchase a rather expensive condominium in Bronte.

[4] On December 4, 2012, the parties entered into a consent to engage in mediation/arbitration with Herschel Fogelman as the mediator/arbitrator. On December 13, 2012, the parties execute a formal mediation/arbitration agreement. Attached to that agreement are Certificates of Independent Legal Advice for both parties, and acknowledgments by both parties that they have received independent legal advice, have read the Certificates of Independent Legal Advice and understand and agree with the statements in them. There is no doubt, and it is not contended otherwise, that the mediation/arbitration agreement complies with the requisites of the Arbitration Act, 1991, and the Family Law Act.

[5] Each party was represented by counsel at the mediation/arbitration. The applicant was represented by John Cox, and the respondent was represented by Alexandra Abramian and her co-counsel Brigitta Tseitlin.

[6] The parties attended at the offices of Mr. Fogelman on March 1, 2013, and after spending the best part of a day there they ultimately executed written minutes of settlement, which are signed by both parties and by their counsel.

[7] Pursuant to the minutes, the parties agreed to resolve all issues in any outstanding litigation. It was agreed that “this includes any and all issues arising out of the marriage and the breakdown thereof.” The parties agreed to the disbursement of the net proceeds of sale of certain properties and it was agreed that all of the right, title and interest in the Bronte condominium would be transferred to the respondent. It was agreed that the applicant would assign to the respondent any rights he may have as a plaintiff relating to a condominium in New York. It was agreed that Mr. Fogelman in his capacity as mediator would write to the Crown and to the respondent’s defence counsel in the criminal case advising that the parties had reached an agreement on all issues and that there is no possibility of a reconciliation of their marriage.

[8] On March 14, 2013, Mr. Cox received correspondence from the respondent’s new lawyer, Mr. Bastien, indicating that the respondent wished to set the settlement aside. On March 20, 2013, Mr. Cox wrote Mr. Bastien asking him to provide grounds for setting aside the settlement. Prior to the commencement of the proceedings before me, it does not appear that Mr. Bastien provided Mr. Cox with any grounds.

[9] On May 16, 2013, Mr. Cox requested Mr. Fogelman to convert the minutes of settlement into an award. Mr. Fogelman requested submissions from Mr. Bastien. On May 21, 2013, Mr. Bastien wrote Mr. Fogelman, but it is fair to say that his letter does not set out any specific grounds for setting the settlement aside.

[10] On May 22, 2013, Mr. Fogelman issued an arbitral award and delivered it to both counsel.

[11] Subsequently, it was agreed that the closing of the Bronte condominium would be extended to June 28, 2013 in order that the proceeding before me could be concluded.

[12] The respondent has filed an affidavit sworn on June 10, 2013, in response to the applicant’s motion, and in support of her motion to set aside the minutes of settlement and arbitral award.

[13] In substance, the respondent takes the position that she was heavily medicated during the mediation proceedings, and she was not in a position to understand what was taking place, and that the minutes of settlement are unconscionably one sided. Her position is encapsulated by the following paragraphs of her affidavit:

“20. These medications in combination prevented me from being able to understand what was taking place at the mediation. Throughout the entire mediation I was in a state of confusion, anxiety, experiencing dizziness and experiencing a decline in my ability to understand and appreciate English, especially the technical English being spoken by the mediator and my lawyer. I just wanted to get out that room. In the state of mind I was in at that time, I would have agreed to anything to get out of that room.

21. The simple fact is that throughout this mediation I was not in my proper mind and not able to appreciate what was taking place, what I was signing and the impact it would have on my life. The fact is that if I were not under the influence of the aforementioned medication I would not have entered into the minutes of settlement and the result of the mediation would not have been so one sided. My position is that the minutes of settlement are unconscionably one sided. I have substantial debts arising from the marriage and my relationship with Lougheed and I receive absolutely zero cash in the settlement. What I did receive was a condo, the sale of which has yet to close, that requires substantial outlay of monetary resources. Money I do not have.”

[14] The respondent deposes that on March 4, 2013, she attended before a psychologist, Dr. Victoria Moskalyova. A report of Dr. Moskalyova, dated June 6, 2013, is attached to the respondent’s affidavit as an exhibit. In that report, the psychologist states that the respondent was depressed-looking and appeared to be distressed. In substance, she states that the combination of medications taken by the respondent can give rise to extreme drowsiness. She states that she was advised by the respondent that she could not understand well enough what was going on, she was not able to concentrate, and the only thing she wanted was just to finish with the process.

[15] It should be noted that nowhere in her affidavit does the respondent assert that the applicant or the applicant’s counsel was aware that she was on medication, or that she was in any difficulty in understanding what was going on or what was agreed to.

[16] In a responding affidavit sworn on June 17, 2013, the applicant addresses the respondent’s affidavit material. He notes that on the day of the mediation, the parties and their counsel met the mediator together. The mediator was back and forth between the parties throughout the day and there were meetings between counsel and the mediator. He notes that at no time was there any issue raised with respect to the respondent’s state of mind. He states that the position put forward by counsel for the respondent was logical and tenacious. He states that there was never any indication that there was a difficulty with the respondent providing instructions to her counsel and those instructions being relayed to the mediator and to the applicant and to his counsel. He notes that the respondent understands and speaks English perfectly and in any event the respondent’s lawyers speak both English and Russian.

[17] The applicant notes that financial statements had been exchanged between the parties earlier in the litigation. Substantial disclosure and production of documents was made between the parties before the mediation occurred. He states that all issues between the parties were dealt with one way or another during the mediation.

[18] The applicant asserts that after closing the Bronte condominium, all counsel estimated that the equity in the condominium would be at least $300,000, and the respondent had the funds to close the condominium transaction. He asserts that the financial settlement was not as attractive from the applicant’s perspective as he would have liked it, but he was prepared to agree to it to buy piece of mind.

[19] Also included in the applicant’s reply material is an affidavit sworn on June 17, 2013, by Alexandra Abramian, former counsel for the respondent. In that affidavit, Ms. Abramian purports to discuss what happened during the mediation, including her discussions with the respondent. She also discusses meetings she had with the respondent prior to the mediation, and expresses the opinion that the respondent was well prepared for the mediation. She deposes that the respondent well understood what was going on during the mediation and made appropriate comments and gave instructions regarding the minutes of settlement. She deposes there was no indication that the respondent was anxious, confused or did not fully understand what was taking place, what was being discussed at the mediation or the consequences of signing the minutes of settlement.

[20] I have significant concern as to the filing of this affidavit, and I will have more to say about it later.

Submissions

[21] Mr. Cox, counsel for the applicant, submits that the arbitral award should be enforced.

[22] Mr. Cox submits that the arbitral award is the product of written minutes of settlement that were arrived at after an entire day of mediation, where both parties were represented by counsel. He submits that there are simply no grounds on which either the minutes of settlement or the award can be set aside.

[23] Mr. Cox submits that it cannot be argued by the respondent that the settlement is one-sided or unfair. In any event, like any bargain it represents a package of trade-offs and it is simply unproductive to try to determine which party got the better deal. Each party obviously thought there were advantages and disadvantages to particular parts of the deal, but in the final analysis they agreed to it with their eyes open and they must live with it.

[24] Mr. Cox submits that there are very narrow grounds for a court to intervene under the Arbitration Act, 1991, and the respondent has met none of them. To the extent the respondent asserts that the minutes of settlement can be set aside on the ground that she was incapable of appreciating what was going on, Mr. Cox notes that the only evidence filed in support of that assertion is an affidavit from a psychologist, who is not qualified to render an opinion in that regard.

[25] Mr. Bastien, counsel for the respondent, submits that the minutes of settlement and the arbitral award should be set aside. If they are set aside, the arbitral award obviously cannot be enforced.

[26] Mr. Bastien objects to the inclusion of the affidavit of Ms. Abramian in the material. He submits that the affidavit and its contents seriously violate solicitor and client privilege and there is no waiver of any privilege by the respondent.

[27] Mr. Bastien submits that the evidence is uncontradicted that the respondent was unable to understand what was taking place at the mediation. She was in an extreme state of anxiety on the day on question and she had taken a number of medications which, in combination, rendered her incapable of understanding what was going on. As a result, the minutes of settlement must be set aside. Since the arbitral award was a product of the minutes of settlement, it also must be set aside.

Analysis

[28] It is clear what is at issue is a “family arbitration award” as referred to in the Arbitration Act, 1991 and the Family Law Act. Attached as an Appendix to these reasons are the relevant provisions of both statutes.

[29] As a preliminary matter, I will address the inclusion of the affidavit of Alexandra Abramian in the material. In my view, there is considerable concern as to whether the inclusion of that affidavit in the material is proper.

[30] This case bears similarities to Bell v. Smith, 1968 17 (SCC), [1968] S.C.R. 664. In that case, there was a purported settlement, which was disputed. Counsel for the defendant called as a witness the solicitor for the plaintiff who had acted in the matter and had the solicitor disclose his entire file, including memoranda and other material, as well as communications with his client regarding the matters in issue.

[31] Spence J. for the Court held that this was improper. He stated at p. 671:

“This regrettable occurrence was occasioned by insufficient concern for a fundamental rule, namely, the duty of a solicitor to refrain from disclosing confidential information unless his client waives the privilege.”

[32] He also stated on the same page:

“Because the solicitor owes to his former client a duty to claim the privilege when applicable, it is improper for him not to claim it without showing that it has been properly waived. Especially is this so when, as here, the circumstances are such as to make it most unlikely that a waiver would be given. Also, because it is improper to induce a breach of duty, I have serious doubts about the propriety of putting to a solicitor questions that involve the disclosure of confidential information without first bringing in evidence of a proper waiver. In any case, because the client’s privilege is a duty owed to the Court, no objection ought to be necessary and the evidence in violation of the privilege should not be received.”

[33] Mr. Cox argues there was an implied waiver of privilege here. That is far from clear: see Bryant, Lederman and Fuerst, The Law of Evidence in Canada (third edition, Lexis Nexis Canada Inc., 2009), at pages 959-962.

[34] In my view, the affidavit is probably inadmissible. At its highest, its admissibility is uncertain. The safer course is to ignore it, and I have done so.

[35] As noted, Mr. Cox argues that the grounds for setting aside an award pursuant to the Arbitration Act, 1991 are narrow. However, fundamentally the respondent attacks the minutes of settlement. If the minutes of settlement are set aside, the award based on them must be set aside. Like any agreement, the minutes of settlement can be attacked on any legally-sustainable ground.

[36] In this case, the respondent seeks to set aside the minutes of settlement on the ground that she was emotionally and mentally incapable of understanding what was going on. That is certainly a legally-sustainable ground for attacking the minutes of settlement. However, in my view the respondent has simply not made out that ground here.

[37] The respondent’s bald assertion that she did not know what was going on must be assessed as against the surrounding circumstances.

[38] The respondent was represented by two experienced counsel. They both understood Russian as well as English. One can assume, without evidence to the contrary, that counsel would not permit their client to sign minutes of settlement if there was any suggestion that the client did not understand what was going on.

[39] The parties met with their counsel and with the mediator, together and separately. There is no evidence that any party to the proceedings observed conduct on the part of the respondent that suggested that she did not know what was going on.

[40] The psychological report prepared by Dr. Moskalyova does not assist the respondent. Dr. Moskalyova is a psychologist. She is not a physician or a pharmacologist. It is doubtful that she can express an opinion as to whether the respondent was incapable of understanding the proceedings or what was agreed to.

[41] In any event, Dr. Moskalyova gives no such opinion. At most, she says that the combination of drugs can produce extreme drowsiness. She relates what she was told by the respondent. She does not express any opinion as to whether the respondent was capable or incapable of understanding the proceedings or what was agreed to.

[42] Further, and in any event, in order for the respondent to rely on her alleged lack of capacity, it would be necessary for her to show that the other party was aware of her lack of capacity, or had constructive notice of it by virtue of circumstances that should have put the other party on his inquiry as to the state of mind of the respondent: see Fridman, The Law of Contract (5th Edition, Thomson Carswell, 2006), at pages 159 and 160.

[43] Even in cases of mental incompetence, a party seeking to escape the terms of a contract must show not only that he or she was mentally incompetent, but also that the other party knew it. In Imperial Loan Co. v. Stone, [1982] 1 Q.B. 599 (C.A.), Lord Esher M.R. stated, at p.601:

“When a person enters into a contract, and afterwards alleges that he was so insane at the time that he did not know what he was doing, and proves the allegation, the contract is as binding on him in every respect, whether it is executory or executed, as if he had been sane when he made it, unless he can prove further that the person with whom he contracted knew him to be so insane as not to be capable of understanding what he was about.”

[44] This rule has been relaxed somewhat where it can be shown that the other contracting party was aware of facts that should have put that party on notice that the state of mind of the mentally incompetent party was in question: see Grant v. Imperial Trust Co., 1935 335 (SCC), [1934] O.W.N. 370 (C.A.); aff’d. 1935 327 (SCC), [1935] 3 D.L.R. 660 (S.C.C.).

[45] As noted earlier, there is no evidence that the applicant, or his counsel, was aware of any circumstance that would or should have made them aware that there was an issue as to the respondent’s capacity to participate in the proceedings or to understand what was going on.

[46] The fairness of the contract is not a relevant consideration except to the extent that it might be one of the factors that could put a party on notice of an issue regarding the mental competence of the other party. It is not an independent ground for setting aside a contract involving a mentally incompetent person: see Hart v. O’Connor, [1985] 2 All E.R. 880 (P.C.); see also Cameron v. Dorcic (1987), 1987 9297 (NS SC), 80 N.S.R. (2d) 152 (T.D.); aff’d 1988 9670 (NS CA), 83 N.S.R. (2d) 85 (C.A.)

[47] In any event, the respondent has not persuaded me that the contract is unfair or improvident. To a large extent, such considerations are in the eye of the beholder. It is clear that the respondent receives, as part of the settlement, the condominium in Bronte. The applicant asserts that there will be $300,000 in equity in the condominium. Of that, I make no finding. However, it was obviously something the respondent wanted and indeed she still wants to close the transaction

[48] Most agreements represent a package of trade-offs and it is sometimes said that the best agreement is one that neither party is particularly happy with. The applicant says he is not particularly happy with this one. In the final analysis, it is impossible to say that the agreement is so unfair or one-sided that it should cause concern as to the capacity of one of the parties to make it.

[49] For the foregoing reasons, the applicant’s motion to enforce the award is granted and the respondent’s motion to set aside the minutes of settlement and the award is dismissed.

[50] I will entertain brief written submissions with respect to costs, not to exceed three pages together with a costs outline. Mr. Cox shall have five days to file submissions, and Mr. Bastien shall have an additional five days. Mr. Cox shall have three days to reply.

Gray J.

Released: June 24, 2013

APPENDIX

Excerpts from the Arbitration Act, 1991 and the Family Law Act

(a) Arbitration Act, 1991

Definitions

1. In this Act,

“family arbitration” means an arbitration that,

(a) deals with matters that could be dealt with in a marriage contract, separation agreement, cohabitation agreement or paternity agreement under Part IV of the Family Law Act, and

(b) is conducted exclusively in accordance with the law of Ontario or of another Canadian jurisdiction; (“arbitrage familial”)

“family arbitration agreement” and “family arbitration award” have meanings that

correspond to the meaning of “family arbitration”. (“convention d’arbitrage familial”,

“sentence d’arbitrage familial”)

Family arbitrations, agreements and awards

2.1 (1) Family arbitrations, family arbitration agreements and family arbitration awards are governed by this Act and by the Family Law Act.

Conflict

(2) In the event of conflict between this Act and the Family Law Act, the Family Law Act prevails.

Contracting Out

3. The parties to an arbitration agreement may agree, expressly or by implication, to vary or exclude any provision of this Act except the following:

4. In the case of an arbitration agreement other than a family arbitration agreement,

i. subsection 5 (4) (“Scott v. Avery” clauses),

ii. section 19 (equality and fairness),

iii. section 39 (extension of time limits),

iv. section 46 (setting aside award),

v. section 48 (declaration of invalidity of arbitration),

vi. section 50 (enforcement of award).

2. In the case of a family arbitration agreement,

i. the provisions listed in subparagraphs 1 i to vi,

ii. subsection 4 (2) (no deemed waiver of right to object),

iii. section 31 (application of law and equity),

iv. subsections 32 (3) and (4) (substantive law of Ontario or other Canadian jurisdiction), and

v. section 45 (appeals).

Waiver of right to object

4. (1) A party who participates in an arbitration despite being aware of non-compliance with a provision of this Act, except one mentioned in section 3, or with the arbitration agreement, and does not object to the non-compliance within the time limit provided or, if none is provided, within a reasonable time, shall be deemed to have waived the right to object.

Exception, family arbitrations

(2) Subsection (1) does not apply to a family arbitration.

Court intervention limited

6. No court shall intervene in matters governed by this Act, except for the following purposes, in accordance with this Act:

7. To assist the conducting of arbitrations.

8. To ensure that arbitrations are conducted in accordance with arbitration agreements.

9. To prevent unequal or unfair treatment of parties to arbitration agreements.

10. To enforce awards.

Binding nature of award

37. An award binds the parties, unless it is set aside or varied under section 45 or 46 (appeal, setting aside award).

Family arbitration award

45 (6) Any appeal of a family arbitration award lies to,

(a) the Family Court, in the areas where it has jurisdiction under subsection 21.1 (4) of the Courts of Justice Act;

(b) the Superior Court of Justice, in the rest of Ontario.

Setting aside award

46. (1) On a party’s application, the court may set aside an award on any of the following grounds:

47. A party entered into the arbitration agreement while under a legal incapacity.

48. The arbitration agreement is invalid or has ceased to exist.

49. The award deals with a dispute that the arbitration agreement does not cover or contains a decision on a matter that is beyond the scope of the agreement.

50. The composition of the arbitral tribunal was not in accordance with the arbitration agreement or, if the agreement did not deal with that matter, was not in accordance with this Act.

51. The subject-matter of the dispute is not capable of being the subject of arbitration under Ontario law.

52. The applicant was not treated equally and fairly, was not given an opportunity to present a case or to respond to another party’s case, or was not given proper notice of the arbitration or of the appointment of an arbitrator.

53. The procedures followed in the arbitration did not comply with this Act.

54. An arbitrator has committed a corrupt or fraudulent act or there is a reasonable apprehension of bias.

55. The award was obtained by fraud.

56. The award is a family arbitration award that is not enforceable under the Family Law Act. 1991, c. 17, s. 46 (1);

Family Arbitration Awards

50. (1) A person who is entitled to enforcement of an award made in Ontario or elsewhere in Canada may make an application to the court to that effect.

(b) Family Law Act

Family arbitrations, agreements and awards

59.1 (1) Family arbitrations, family arbitration agreements and family arbitration awards are governed by this Act and by the Arbitration Act, 1991.

Contracting out

59.3 Any express or implied agreement by the parties to a family arbitration agreement to vary or exclude any of sections 59.1 to 59.7 is without effect.

No agreement in advance of dispute

59.4 A family arbitration agreement and an award made under it are unenforceable unless the family arbitration agreement is entered into after the dispute to be arbitrated has arisen.

Conditions for enforceability

59.6 (1) A family arbitration award is enforceable only if,

(a) the family arbitration agreement under which the award is made is made in writing and complies with any regulations made under the Arbitration Act, 1991;

(b) each of the parties to the agreement receives independent legal advice before making the agreement;

(c) the requirements of section 38 of the Arbitration Act, 1991 are met (formal requirements, writing, reasons, delivery to parties); and

(d) the arbitrator complies with any regulations made under the Arbitration Act, 1991.

Enforcement

59.8 (1) A party who is entitled to the enforcement of a family arbitration award may make an application to the Superior Court of Justice or the Family Court to that effect.

COURT FILE NO.: 33550/11

DATE: June 24, 2013

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

GARY RUSSELL LOUGHEED

Applicant

– and –

LARISSA PONOMAREVA

Respondent

REASONS FOR JUDGMENT

Gray J.

Released: June 24, 2013