Court File and Parties

COURT FILE NO: FC-11-732-00 DATE: 20140116

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Rhonda Harnett Applicant

– and –

Christopher Harnett Respondent

Counsel: R. Alexander & A. Czyozqska W. Abbott

Heard: November 12th, 13th, 18th, 19th, 20th, 21st and 22nd, 2013

REASONS FOR RULING

McGee H.A.

Introduction

[1] These reasons primarily determine whether a cohabitation agreement hastily executed in late May 2002 should be set aside. The cohabitation agreement became a marriage contract the following summer by operation of section 53(2) of the Family Law Act.

[2] The trial did not begin with such a focussed question. Through a series of deliberate omissions, avoidance of court orders and no small measure of mischief, the husband found himself at the beginning of trial in an unenviable position. The wife’s counsel had obtained a significant charging order against the matrimonial home now in his sole title, and was in the process of bringing a motion to strike.

[3] Everything changed when the husband retained counsel who organized the trial, mended the prior breach and put forward a well-reasoned case to match that of the applicant mother.

[4] Counsels agreed on final orders for parenting and financial provision for the parties’ two daughters – who are adored by their parents and extended family.

[5] They also agreed that the respondent husband owes an equalization of $249,553.82[^1] to the applicant wife if the cohabitation agreement is set aside by operation of section 56(4) of the Family Law Act. The “if” thus becomes the question for these reasons. Does the applicant wife succeed in setting aside the May 28, 2002[^2] Cohabitation Agreement?

[6] Neither party has pleaded any trust remedies, be it constructive, or resulting.

[7] The reader is advised that the respondent’s trial counsel: Mr. William Abbott is not related in any manner to counsel who purported to give independent legal advice to the applicant on the cohabitation agreement: Mr. John Abbott.

September 2001 to May 2011

Purchase of the Home

[8] Rhonda Thomas and Christopher Harnett began dating in September of 2001. When out for a drive a few months later, they checked out the new homes in a subdivision where friends resided. They put in a joint offer on January 27, 2002 for 45 Dopp Cres., Brooklin Ontario; and jointly signed an Agreement of Purchase and Sale on February 6, 2002. The purchase price was $315,490. They each put $7,500 from savings for a cash deposit of $15,000.

[9] The closing for the sale was set for May 31, 2002. It was a bit of an impulse buy, but Christopher already owned a condo in Toronto which could be sold, they were in love, they each had a good income, were happy to leave Toronto and were excited about the prospect.

[10] Christopher listed his condominium for sale, and it sold quickly for $136,597 with a closing date of May 30, 2002. His real estate agent was Mark Draper. Mark referred him to a lawyer named John Abbott.

[11] In mid-April Christopher broached the subject of a cohabitation agreement. He had a lawyer friend who could draft one for them. Rhonda was not opposed. Christopher testified that Rhonda was referred to Mr. Abbott by Mark Draper when she asked for the name of a lawyer who could provide independent legal advice on the agreement.

[12] Mr. Abbott became the solicitor on the sale of Christopher’s condo, the solicitor on the purchase of the Brooklin home, and both the mortgagor and mortgagee’s lawyer on the mortgage for $164,632 to be placed on the home. The whole of proceeds from the sale of the condo was to be placed into the Brooklin home: $135,840. Rhonda would contribute the amount of $7,500.

[13] It was decided that the Brooklin home and the mortgage would be placed into Rhonda’s name. Rhonda understood and agreed to take title in her name in order to secure new homebuyer benefits. She was not fully involved in the process of purchasing the home, content to leave much of it to Christopher. She testified at trial that she “dealt with finances out of necessity,” while in contrast, “money was Christopher’s forte.”

[14] Rhonda was not copied with a handwritten and undated fax from Christopher which stated:

Hi John/Diane,

I would like to put the home in Rhonda’s name to show her my level of commitment to this relationship. I feel it will give her a real sense of trust in our relationship.

Thanks, Chris

[15] Neither was Rhonda ever shown a copy of the standard form gift letter to her that Christopher had filled in for the amount of $57,000[^3] on May 24, 2002. The document is not witnessed, and was produced very late in this proceeding. Mr. Abbott testified that the gift letter was a simple requirement of the mortgagor as the bulk of the down payment came from Christopher, but title was being placed in the name of Rhonda. Absent the monies from Christopher, Rhonda did not have sufficient equity in the property to qualify for the mortgage.

[16] Mr. Abbott also represented the lender on the $164,632 mortgage. He did not advise the bank that there was a cohabitation agreement, nor did he believe there to be such an obligation.

The Cohabitation Agreement

[17] Christopher had a friend who was a lawyer: Ms. Bonnie Roberts. After raising the issue with Rhonda in April 2002, Christopher asked Bonnie to prepare a first draft for their review. He picked it up 5-6 days before the May 30th closing.

[18] The agreement sets out its purpose and certain background information such as Christopher being employed with Unifirst earning $80,000 a year and Rhonda earning approximately $50,000 per annum with the Toronto Police Services. The draft is in the usual format with “separate as to property” paragraphs, and comprehensive releases.

[19] Specifically the agreement provided that:

a. The cohabitation agreement became a marriage contract should the parties marry (para 4.)

b. Each party released any right to spouse support (para 6.)

c. Both would be equally responsible for joint debts existing on date of separation (para 5.)

d. With the exception of the Brooklin property, each released all claims for trust, howsoever fashioned (para 7.)

e. Neither of them would be entitled to an equalization of property. (para 7(4.))

f. Subject to the provisions in paragraph 9, the rule of law applying a presumption of resulting trust shall not apply in questions of ownership of property between the spouses (para 8)

g. The usual clauses as to satisfaction with Financial Disclosure and Independent Legal Advice (para 11 and 13.)

[20] Christopher recalls reviewing that agreement with Rhonda while seated at the couch at his condominium. Rhonda remembers Christopher showing her a document that evening. He did not give her a copy.

[21] Christopher testified that they talked about the agreement, the release against equalization, the separate as to property section, and specifically reviewed the following paragraph:

9. Brooklin Property

(1) The parties agree that, despite the fact that title to the Brooklin Property is held by Rhonda, and despite the representation to the contrary in the Gift Letter signed by Christopher on or about May 24, 2002, the equity in the Brooklin Property is to be divided as follows:

(i) the first $135,840 in equity belongs to Christopher

(ii) the next $15,000 in equity is split equally between the parties; and

(iii) 70% of any increase in equity belongs to Christopher and the remaining 30% of the increased equity belongs to Rhonda.

(2) Should there be a breakdown in the relationship, the parties agree that Rhonda shall transfer title to the Brooklin Property to Christopher and will give up all rights and interest therein to Christopher upon:

(1) Payment by Christopher to Rhonda in an amount equal to the equity then held by Rhonda in the Brooklin Property; and

(2) Payment and discharge by Christopher of any mortgage against the Brooklin Property for which Rhonda is liable.

(3) Despite representations to the contrary contained in the Gift Letter attached as Schedule “B”,[^4] any mortgage on the Brooklin Property is the joint and equal responsibility of the parties.

[22] Christopher recalls that the draft shown to Rhonda actually gave the percentages of 80% and 20%,[^5] that they spoke that evening on the couch, and that he agreed to have it changed to 70% and 30%. He said this was the “key thing” they discussed. He could not produce any evidence of the earlier draft. The above section is transcribed from the executed version of the agreement.

[23] At trial Rhonda did not recall any mention of “70-30” or “80-20” and understood only that each was protecting their initial contribution to the purchase. She also understood that neither would share in the other’s assets. She is certain that she made no suggestion as to a change to the percentage.

[24] When Christopher received the revised copies back from Ms. Roberts, he gave them to Rhonda. He recalls the exchange being 2-3 days before the agreements were signed. He told her she had to obtain independent legal advice, and that he could not be present.

[25] Rhonda testified at trial that she trusted Christopher and had no reason to think that she ought not. She understood that the agreement was for both their benefits and that each would retain their initial contribution to the purchase of the Brooklin home and thereafter would share the value. She recalls Christopher saying,” What we put in we get out.”

[26] Rhonda recalls that Christopher had prepared a list of his assets and asked her for a list of her assets and debts – which she prepared after their discussion on the couch. No documentation was exchanged to confirm any of the values.

[27] Christopher testified to Rhonda’s comfort, if not relief at the prospect of having an agreement that would protect her employment pension. Ironically, Rhonda’s list of assets did not include reference to her pension. He testified at trial that she said her mother would be pleased that she was protecting her pension. Rhonda did not contradict that evidence.

[28] Rhonda testified that she did not really understand the terms of the agreement – nor does she now. She was candid on two points. She fully intended to enter into an agreement in which she and Christopher got back the whole of their original contributions: $135,840 for Christopher and $15,000 for her. Second, she understood that otherwise, the house was to be shared 50/50. She underscored the latter by stating that she would never have otherwise paid half the costs of the home, or allowed a joint line of credit to be placed on the property.

[29] Christopher was using John Abbott to sell his condominium, the proceeds of which were to be placed into the Brooklin home. He insists it was a matter of happenstance that Rhonda also used him for independent legal advice on the cohabitation agreement.

[30] The parties do not entirely agree on the sequence of events that saw them in the Toronto office of John Abbott on May 29th. It is agreed that both were rushed that day and that they came in separate vehicles. They met in Mr. Abbott’s parking lot around 1:00 p.m. Rhonda had just come from the CIBC and had the copies of the cohabitation agreement ready for signing. Christopher was running late for a 2:00 p.m. meeting with the home inspector.

[31] Christopher testifies that he got to the lawyer’s office first, signed the sale of his condo documents and left to meet the home inspector. He recalls that Rhonda stayed to meet with Mr. Abbott to sign the Brooklin home purchase documents, the mortgage and the cohabitation agreement. Christopher says that he was not in the room on May 29, 2002 when Mr. Abbott reviewed the various documents with Rhonda.

[32] Rhonda testified that Christopher was in the room while she met with Mr. Abbott.

[33] The evidence of John Abbott summarized later in these reasons offers an explanation for the conflicting recollections. It is most likely, and I find on a balance of probabilities that the parties met with Mr. Abbott together to execute the real estate documents, Christopher then left, and Mr. Abbott then continued with Rhonda to review the cohabitation agreement.

[34] Rhonda testified as to her recollection of that meeting. She states that it seemed to her to be a formality. Mr. Abbott never reviewed her rights, what would happen if she later married or had children, and he did not ask about the finances. He confirmed that they would each get out what they put into the property. She signed the agreements. She does not recall leaving with the two signed agreements.

[35] Mr. Abbott signed the certificate of independent legal advice that afternoon of May 29th – but only one copy. Christopher testified that Rhonda later gave him the two signed copies of the agreement – he could not recall when exactly – and then he made an appointment to meet with Bonnie. That meeting occurred on either June 13th or 14, 2002. He signed the agreement with Ms. Roberts as witness and signatory to a certificate of independent legal advice.

[36] Christopher testified at trial that he gave one copy to Rhonda when he returned from Bonnie’s office. Rhonda does not recall ever receiving her copy of the agreement.

[37] He recalls placing his copy in a filing cabinet at the Brooklin home where it was discovered by Rhonda after separation. He testified at trial that he found the second copy in an accordion folder belonging to Rhonda. Neither attached the gift letter at the referenced Schedule. When required by this litigation, he obtained a copy of the gift letter from Ms. Roberts.

[38] Neither party spoke again about the agreement. Mr. Abbott never reported to Rhonda, nor did he keep a copy of the agreement.

Cohabitation and Subsequent Marriage

[39] The parties moved into Brooklin and equally shared the monthly mortgage payments. They built a life together. Rhonda successfully worked towards detective status. Christopher continued as a Branch Manager with Unifirst.

[40] As Rhonda readily acknowledged, Christopher enjoyed financial matters and took the helm in all such decision making. Rhonda was at best ambivalent when it came to finances, but would check in from time to time as goals were set and family projects decided.

[41] The parties’ cohabitation matured into a marriage which was celebrated on August 9, 2003. It was a first marriage for them both. Their daughter N was born December 9, 2004 and a second daughter, L. followed on December 18, 2006. Neither Rhonda nor Christopher has any other children.

[42] After N was born the parties agreed on a different sharing of financial responsibilities. Rhonda paid all the child related expenses including daycare, groceries and household expenses. Christopher paid all the fixed costs including the mortgage, utilities and property tax.

[43] On January 3, 2005 they opened a joint line of credit. It was put to many uses over the years, to pay for a pool and landscaping, fencing, and to facilitate Christopher’s day trading. Commensurate with opening the line of credit, the parties transferred title of the Brooklin home from Rhonda’s sole name to their joint names. The transfer was registered on January 19, 2005.

[44] Other than viewing the title abstract and transfer, the court received no evidence as to the circumstances of this transfer. There is no basis to believe that either put their mind to the effect of the 2002 cohabitation agreement.

[45] There were good times, but overall the marriage deteriorated. Rhonda described in her testimony a painful decline in which she felt marginalized, controlled and abused. After Christopher’s father died in 2007 he descended into depression. His drinking spiralled downward.

[46] Christopher acknowledges his bad conduct. During trial he appeared to struggle with the fact of separation, as if he was still not certain that it was over.

[47] Ultimately the marriage ended very badly. Christopher refused to let go, monitoring and following her. Rhonda’s destroyed wedding dress was left in a bag on her porch. He made bizarre Facebook postings and sent angry texts. Criminal charges against Christopher were outstanding as at the time of this trial.

[48] Officially Rhonda and Christopher separated either September 2010 or April 11, 2011. The earlier date is presented by Rhonda, the latter by Christopher. Thanks to the assistance of counsel, the date of separation need not be determined as net family property was agreed in the event the cohabitation agreement is set aside.

[49] After separation Rhonda retrieved a copy of the cohabitation agreement from the filing cabinet. Christopher denies any suggestion that Rhonda was unable to earlier access the document. He agrees that the cabinet was locked from time to time for safety reasons, but believes that Rhonda had never looked before because she was simply disinterested in financial matters.

[50] Rhonda’s 2010 income tax refund was received in 2011. Christopher opened the mail and deposited the cheque to the joint line of credit as had been the practise in previous years. Rhonda seeks an order for the return of those funds as the deposit was done without her consent.

[51] Christopher lost his employment shortly after separation and began working for Stephenson’s Rentals in 2011. He left that employment upon being served with this Application in May 2011.

Course of Litigation

[52] In the first period following separation Christopher made a number of calls to the CAS alleging harm to the children while they were in Rhonda’s care. None were ever verified. Rhonda believes that he made attempts to thwart her advancement at work.

[53] Early efforts to resolve matters proved fruitless. Rhonda issued this application May 12, 2011; and amended it on April 15, 2013. Christopher answered the application. The parties were engaged by the court through a series of conferences.

[54] Much delay and expense was occasioned by Christopher’s failure to provide disclosure per the court orders of January 17, 2012, May 15, 2012, July 30, 2012, October 29, 2012 and December 17, 2012. Twice he was found in contempt for the failure to provide disclosure: October 29 and December 17, 2012. Disclosure was finally placed into good standing five days before a hearing scheduled for February 19, 2013.

[55] At the settlement conference of January 26, 2012 the parties agreed that the value of the Brooklin home would be fixed at $514,500 less a 2% deduction for notional real estate commission. The home was to be transferred from their joint names to Christopher’s name alone and he was to make a $25,000 payment towards the equalization within 30 days. The home was not to be further encumbered. The matter was expected to proceed to trial in May of 2012.[^6]

[56] At the May 15, 2012 trial management conference, the case management justice learned that title to the home had not been transferred, or the monies paid. Costs were ordered against Christopher.

[57] The matter was not reached, but on July 30, 2012 the parents agreed to a shared parenting regime on a final basis. A further amount of costs was ordered against Christopher as his disclosure obligations were still outstanding.

[58] Christopher transferred title of the home from their joint names to his name alone on October 26, 2012, ten months after the agreement to do so on January 26, 2012.

[59] On December 17, 2012 Christopher’s disclosure was found to still be outstanding. A further and significant costs order was made with an admonition that should the breach continue, his pleadings could be struck.

[60] As above, disclosure was finally completed on February 19, 2013. Another amount of costs was granted to Rhonda. The matter was to be expedited to trial.

[61] A trial management conference was completed on March 21, 2013 and the parties entered into a further agreement before the case management justice for:

a. Shared parenting of the children;

b. No base child support;

c. Section 7 expenses being shared equally up to a maximum of $2,000 per parent per year; and

d. No spousal support to be payable by either party.

[62] At the same time the parties agreed to the above order they also agreed on the issues for trial:

e. Net Family Property & Equalization;

f. Setting aside the Co-habitation Agreement;

g. Costs

h. Child Support[^7]

[64] Meanwhile, and unknown to Rhonda, Christopher had ceased making payments on the joint mortgage in June 2012.

[65] The failure to pay the mortgage is particularly exercising. At all times, Christopher has had monies in investment holdings equal to the outstanding balance on the mortgage. Irrespective of his income situation he has always had sufficient funds with which to pay the joint mortgage.

[66] Rhonda was genuinely shocked to be served on April 3, 2013 with a Statement of Claim from the TD Bank. The lawsuit placed them both, but particularly Rhonda in a dreadful position. She was liable on a mortgage and a line of credit for a property that she no longer owned.

[67] The trial was called on May 15, 2013. Christopher requested an adjournment in order to retain counsel and attempt mediation.[^8] The adjournment was granted on the condition that the trial return on a peremptory basis, and that within seven days Christopher would “resolve the issue of the outstanding mortgage and line of credit with the TD Bank including any issue of legal and administrative costs.” The matter was to return May 24th to check that the lawsuit had been resolved. Further costs were ordered to be paid.

[68] On May 24th, the court learned that the costs had been paid, but despite having the funds to put the mortgage into good standing, Christopher had not taken any steps to do so. More costs were ordered. The matter returned again on May 30, 2013. The mortgage arrears were still outstanding. The matter was to be called for trial.

[69] The next available sittings commenced November 12, 2013. On that day, the matter came before me. The reader is referred to my reasons of November 12, 13, 18 and 22 which more fully set out the next series of events. Christopher rebuffed the communications of the trial coordinator, emailed a physician’s note, did not appear for trial on the first day and later sent a friend to seek an adjournment of the trial.

[70] A summons to the physician who authored the medical note resulted in evidence that Christopher had pressed for the note on a non-medical premise. Hence the motion to strike, and the charging order.

[71] Only after the charging order did Christopher retain counsel and properly participate in the trial. His trial counsel proposed an adjournment of the motion to strike from Monday November 18th to Thursday November 21, 2013 while he arranged for a discharge of the joint mortgage, saving harmless Rhonda from further litigation by the TD Bank.

[72] With a few twists and turns, a refinancing was completed and both parties were discharged from the joint mortgage. I thus declined to strike pleadings on the basis et alia that any remaining prejudice could be cured by costs at trial.

[73] There was much evidence led at trial with respect to Christopher’s conduct; both directly to Rhonda, her counsel and within the litigation. It is to the parents’ considerable credit that shared parenting is more or less working. I suspect that it is primarily due to Rhonda’s careful and child centred approach. At trial I found her evidence to be honest, thoughtful and self-effacing. She is a credit to her children and her profession.

[74] Christopher’s trial counsel rightly presses the court to not become distracted by much of the evidence of Christopher’s actions. The matters to be decided are factual and legal. I concur. At the same time, the conduct of the respondent father does inform the court’s findings of credibility. Unless otherwise stated, where the evidence of Rhonda conflicts with that of Christopher, the former is preferred.

The May 28, 2002 Cohabitation Agreement

The Evidence of John Abbott

[76] John Abbott testified at trial as follows:

a. By 2002 he had practised for 25 years, primarily in real estate.

b. Christopher was a real estate client for the sale of his condominium concurrent with a cohabitation agreement being signed.

c. That Rhonda was his client on the purchase of the Brooklin property, although he also took instructions from Christopher. He believes that at one point he was acting for them both, but was unclear as to which periods. He also acted for the lender – TD Bank.

d. That Rhonda was his client on the cohabitation agreement.

e. He was not friends with Christopher and met him for the first time when the real estate transaction was closing. At no time did he discuss the cohabitation agreement with Christopher.

f. He could not be certain who booked Rhonda’s appointment, but that “it must have been her.”

g. He had one meeting with Rhonda – on May 29th, 2002 and her demeanour throughout was pleasant. She did not appear anxious or nervous. She gave the agreement to him. He cannot recall if the Rhonda said when she obtained it.

h. The meeting took about 30 minutes. 15 minutes would have been spent on the cohabitation agreement during which time Christopher was not present. The balance was for the signing of the purchase and mortgage documents.

i. He cannot recall whether the parties signed the real estate documents before or after the cohabitation agreement was executed, but he thinks it was before.

j. Neither party required the cohabitation agreement be signed before the real estate documents were signed.

k. He told Rhonda that he did not practice matrimonial law and she was encouraged to retain a family law colleague in his building.

l. Rhonda indicated she had read the agreement and the terms were as discussed between her and Christopher.

m. He did not open up a file for Rhonda Thomas, did not have her sign a retainer agreement, did not communicate in any manner with the lawyer who had drafted the agreement, did not seek financial disclosure, request tax returns or financial statements.

n. He did not take notes of the meeting.

o. He did not keep a copy of the agreement.

p. He did not report to Rhonda.

q. He recalls reviewing the section about the financial allocation of 70-30 and the release of equalization. They did not discuss what would happen if the parties were married.

r. When he reviews an agreement, he is making certain that it is not unconscionable. Rhonda did not give him any reason why he ought not sign the agreement.

s. In addition he explained the Family Law Act provisions of the agreement to the Applicant and explained to her Parts I and II. He did not recall if she had any questions.

t. He also spoke about section 52 and 53 of the Family Law Act.

u. He followed the guidelines established by the LSUC for giving ILA.

v. That he was absolutely satisfied that Rhonda was not signing the agreement under duress. He knows what it means when someone is under duress. He asked her if she was under duress or pressure. He specifically asked her if he could sign the ILA certificate.

w. In doing this exercise he recalled that in the past he has had someone first say they could sign a domestic contract and then after asking questions, change their position.

x. In all cases where giving ILA he wants to make sure that the domestic agreement is not unconscionable;

y. Rhonda did not disclose anything that would warrant not signing the agreement. She was specifically asked if she knew about the financial ramifications of signing the Agreement and she confirmed she did. She was not under duress. The house sale would have closed whether or not the cohabitation agreement was signed.

z. The ILA certificate was reviewed with him and he confirmed he fully explained the cohabitation agreement with her and she acknowledged she understood the cohabitation agreement.

aa. There were no comments about the schedule of assets and liabilities attached to the agreement. He specifically recalls reviewing the financial division of the equity for the jointly owned home.

bb. The Gift Letter was required by the lender to confirm the source of the down payment for the property. It was used solely for the purpose of meeting the Bank’s equity ratio on the mortgage. He did not disclose the terms of the cohabitation agreement to the lender and believed that he had no obligation to do so.

cc. After signing the Cohabitation Agreement, Rhonda took the copies of it with her.

dd. Up until being served with the Summons to Witness for this trial Rhonda had never contacted him about any aspect of the cohabitation agreement including prior to or during marriage.

Discussion

[77] I accept Mr. Abbott’s testimony regarding the parties’ demeanor and his current understanding of his obligations as a solicitor.

[78] I do not find credible his assertion that he performed all the described ILA functions within the 15 minutes in which he met with Rhonda. His testimony at trial of his advice to her took the better part of an hour.

[79] Providing independent legal advice means more than being satisfied that a party understands the nature and the contents of the agreement and consents to its terms. Gurney v. Gurney, 2000 BCSC 6, 2000 CarswellBC 90 (B.C. S.C.) The lawyer should make inquiries of the party so as to be fully apprised of the circumstances surrounding the agreement. The party should be advised of her legal rights and obligations. Simply stated, a client must understand the legislative scheme out of which she is opting.

[80] It is the lawyer who should offer his or her opinion on whether it is appropriate for the party to sign the agreement, and not leave that question to the party.

[81] It is only with comprehensive advice that a party can make an informed decision about the advisability of entering into an agreement as opposed to pursuing some other course. Only with comprehensive advice can a party appreciate the future risks and obligations of the agreement, and how best to organize one’s affairs accordingly.

[82] I am troubled that I cannot reconcile Rhonda’s recollection that she did not take the copies with her with Mr. Abbott’s testimony that she did. In the ordinary course, four originals are always executed: one for each solicitor’s file, and one for each party to the agreement. Mr. Abbott never obtained his original, or made certain that Rhonda received hers. He never reported to her.

[83] In short, there was little if any service provided to Rhonda in the 30 minutes in which John Abbott met with her on May 29, 2002 – 15 minutes of which was most likely with Christopher present to sign the real estate documents.

[84] I find that Mr. Abbott only saw his duty to Rhonda as bearing witness to her execution of the agreement. He assured himself that Ms. Thomas had read the agreement, was signing voluntarily and did not have any questions. He did not take time to understand her circumstances, her options or provide advice on the rights that she was releasing. He did not contrast the holding of title to the home with the division of equity within the agreement. He expressed no opinion as to whether or not she ought to sign it. In doing so he left her without the benefit of any meaningful independent legal advice.

Setting Aside the May 28, 2002 Agreement: The Law

[85] section 53(2) of the Family Law Act provides that regardless of whether contemplated at the time, when parties to a cohabitation agreement marry, the agreement shall be deemed to be a marriage contract. [^9]

[86] Per section 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. R.S.O. 1990, c. F.3, s. 56 (4).

[87] As a general rule, courts will uphold the terms of a valid enforceable domestic contract: Hartshorne v Hartshorne, 2004 SCC 22, 2004 CarswellBC 603 (SCC.)

[88] It is desirable that parties settle their own affairs: Farquar v. Farquar (1983), 35 R.F.L. (Ont. C.A.) and courts are generally loathe to set aside domestic contracts. See page 297:

“the settlement of matrimonial disputes can only be encouraged if the parties can expect that the terms of such settlement will be binding and will be recognized by the courts ... as a general rule ... courts should enforce the agreement arrived at between the parties.... The parties to the agreement need to be able to rely on [them] as final in the planning and arranging of their own future affairs"

[89] Parties are expected to use due diligence in ascertaining the facts underlying their agreements. A party cannot fail to ask the correct questions and then rely on a lack of disclosure: Clayton v Clayton 1998 CanLII 14840 (ON SC), 1998 CarswellOnt 2088.

[90] A domestic contract will be set aside when a party was unable to protect his or herself. Such cases are generally predicated upon a finding that one party has preyed upon the other, or acted in a manner to deprive the other of the ability to understand the circumstances of the agreement.

[91] The court is less likely to interfere when the party seeking to set aside the agreement is not the victim of the other, but rather his or her own failure to self-protect. The Ontario Court of Appeal in Mundinger v. Mundinger (1968), 1968 CanLII 250 (ON CA), [1969] 1 O.R. 606 (Ont. C.A.) says that the court will step in to "protect him, not against his own folly or carelessness, but against his being taken advantage of by those in a position to do so because of their position."

[92] The court must look not at which party made the better bargain but rather, to whether one party took advantage of their ability to make a better bargain. In that taking of advantage is to be found the possibility of unconscionability. See Rosen v. Rosen (1994), 1994 CanLII 2769 (ON CA), 3 R.F.L. (4th) 267 (ONCA)

[93] The test for unconscionability is not weighing the end result, but rather the taking advantage of any party due to the unequal positions of the parties. See Mundinger v. Mundinger (1968), 1968 CanLII 250 (ON CA), [1969] 1 O.R. 606 (Ont. C.A.); Rosen v. Rosen (1994), 1994 CanLII 2769 (ON CA), 3 R.F.L. (4th) 267 (Ont. C.A.).

[94] The onus is on the party seeking to set aside the domestic contract to demonstrate that at least one of the circumstances set out in subsection 56(4) has been met; then the court must determine whether the circumstances complained of justify the exercise of the court's discretion in favour of setting aside the contract. It is a discretionary exercise. See LeVan v LeVan. 2008 ONCA 388, 2008 CarswellOnt 2738, ONCA.

[95] A finding that a party violated a provision of s. 56(4) of the FLA does not automatically render the contract a nullity. Rather, a trial judge must determine whether it is appropriate, in the circumstances, to order that the contract be set aside. It is a discretionary exercise: LeVan paragraph 33.

[96] The lack of independent legal advice is not by itself determinative. It is only one factor: Dougherty v. Dougherty 2008 ONCA 302, 2008 CarswellOnt 2203 ONCA; Raaymakers v. Green 2004 CarswellOnt 2712

Analysis

[97] The applicant does not seek relief based on 56(4) (a): significant non-disclosure. Although there were errors within the statement of assets and debts (police services pension excluded, mortgage stated as joint) and the amounts were never evidenced, it is not proposed that the statement was inimical to the execution of the agreement.

[98] Nor does the applicant make a case that there was concealment of an asset, material misrepresentation or non-disclosure that was a material inducement to entering into the agreement. Rather, Rhonda makes that case that the agreement should be set aside because she did not understand the nature and the consequences of the agreement and thus falls within the meaning of section 56(4) (b.) [^10]

[99] Rhonda thought that the parties shared in the home 50/50, and did not appreciate at the time the operation of an equalization payment. She testified that she would not have conducted her affairs as she did, had she appreciated that she only would receive 30% of the increase in equity in the home.

[100] The court appreciates her dilemma. At the same time, the terms of the agreement are amenable to plain reading.

[101] Paragraph 9 sets out in clear terms the two lines that she acknowledges: return of the initial contributions of $135,840 and $15,000. The third and fourth line immediately following state the proportionate sharing of equity: 70/30.

[102] There is no evidence that Rhonda was given an alternative document, or told by Christopher that she would receive 50% of the equity irrespective of the terms of the agreement.

[103] What the evidence does support is a finding that Rhonda had a general, and not unreasonable expectation that she would share equally in any increase in the value of the property; and that she failed to check whether those terms were recorded in the agreement. At one point in her testimony at trial she acknowledged that she did not really read the agreement until after separation.

[104] Rhonda may have been disinterested in financial affairs, but at no time was she incapable in financial or legal matters. She was 28 years of age, a skilled police officer, literate and articulate. There was no physical or emotional abuse at the time of the agreement.

[105] Rhonda knew that they were organizing their affairs separate as to property. They had only just begun to cohabitate and both wished to protect their assets acquired to date, including her police services pension.

[106] Provision of independent legal advice is an important factor in ensuring that parties understand the nature and consequences of the contract they are signing. I find that the quality of the advice provided by Mr. Abbott in this regard was woefully deficient.

[107] At the same time, it is equally clear that the deficiency was not caused by the respondent. There is no evidence that Christopher required Rhonda to sign the agreement as a condition to closing on the house, that he interfered with her choice of counsel, or that he in any manner duped Rhonda into the terms of the agreement. He testified that if the house had not closed he would have just moved into his mother’s home.

[108] Rhonda and Christopher spoke about getting a cohabitation agreement in advance of purchasing the home. A draft was not produced until the week prior to closing, but there was a discussion, and Rhonda was given the draft, a few days prior to the meeting with Mr. Abbott. She arrived independently at Mr. Abbott’s office with the agreements. There were still two business days before the house sale was to close. The agreement was not executed by Christopher for a further two weeks – well after the sale of the home had closed.

[109] I do not find that Rhonda signed under duress. The party’s relationship at the time was excellent. There was no marriage contemplated, or any event placing pressure on her to sign the agreement.

[110] Neither do I find that the contract should be set aside on the basis of unconscionability. The terms were not inappropriate to their circumstances at the time. Rhonda enjoyed certain benefits. Title was in her name. Although she had only invested $7,500 (5% of the down payment) she would receive a 30% share of the equity as well as a return of her initial investment. Rhonda also had some creditor protection as paragraph 9(3) provided that the mortgage in her name would be a joint and equal responsibility of the parties, despite the terms of the Gift Letter.

[111] Upon separation, title to the Brooklin home would pass to Christopher and he was required to assume the mortgage.[^11]

[112] Counsel for the applicant makes much of the undated handwritten fax in which Christopher instructs Mr. Abbott to place title in Rhonda’s name. In my view, the fax does not evidence any nefarious purpose, but rather gives an additional reason from Christopher’s perspective for sole title to be placed with Rhonda. At all times Rhonda knew that the house was being placed in her name.

[113] In summary, there is no evidence of Christopher taking advantage of Rhonda at the time of signing the contract, or preying upon her to secure an unfair advantage for himself in the manner explained in Rosen v. Rosen (1994), 1994 CanLII 2769 (ON CA), 3 R.F.L. (4th) 267 (ONCA) at pages 273-274.

[114] It was the subsequent events that transformed the cohabitation agreement – now a marriage contract, into a document that creates prejudice to Rhonda. Their marriage the following summer, the birth of their daughters and particularly the 2005 joint line of credit were events that significantly changed their financial relationship.

[115] The latter draws particular attention as the line of credit was used by Christopher to build investments in his own name. With a release of equalization, Rhonda is unable to share in those assets that were developed from their joint credit facility.

[116] Surprisingly, Rhonda never took steps to set the agreement aside prior to separation, or to conduct her affairs in accordance with the agreement. For example, she could have chosen to only pay 30% of the house expenses pending a revision of the agreement; placed her savings into investments that were not subject to equalization, or refused to enter into a joint line of credit.

[117] With independent legal advice, she may have better understood how to conduct her affairs in accordance with the contract, and when it was necessary to her interests to revisit the agreement.

[118] These are very different grievances than can be addressed by section 56(4).

[119] In summary, I am satisfied that as of May 29, 2002 a plain reading of the agreement was available to the applicant and sufficient to an understanding of the nature and consequence of the agreement per section 56(4)(b); that there was no undue influence and that the terms of the agreement were not unconscionable.

[120] The May 28, 2002 cohabitation agreement is not set aside.

[121] It is possible that Rhonda has an available trust remedy. Paragraph 7 of the May 28, 2002 Cohabitation Agreement provides that each party waives any claims of equity in assets held by the other by way of constructive, implied or resulting trust, with the exception of the Brooklin property.[^12]

[122] No trust remedies were pleaded in this action, or sought at trial. In order for relief to be sought at trial, it must be contained in the pleadings. See Braaksma v Braaksma, 1996 CanLII 904 (ON CA), 1996 CarswellOnt 4501 (ONCA) at para. 3, and Pirhosseinlou v Pirhosseinlou, 2012 CarswellOnt 11726 (SCJ) at para 54.

[123] The failure to claim a particular form of relief in the pleadings ties the hands of the court: Moreira v Garcia Domingues, 2012 CarswellOnt 2741, at para. 227.

Orders

[124] The respondent shall forthwith pay $6,831.17, being the full amount of the 2010 income tax refund to the applicant with prejudgment interest.[^13]

[125] The respondent shall forthwith pay to the applicant a sum of money calculated in accordance with paragraph 9 of the May 28, 2002 agreement, less the $25,000 previously advanced, plus prejudgment interest since the order of January 26, 2012. I may be spoken to in the event that the calculation of that sum is in dispute.

[126] There shall be no payment of equalization by either party. Specifically, there shall be no sharing of the applicant’s pension credits, sick leave or employment benefits as of the date of separation.

Costs

[127] Costs of this trial, and those reserved to the trial judge within earlier endorsements may be addressed by written submissions to be filed in the continuing record, by the respondent within 20 days of release, by the applicant 20 days thereafter, and reply by the respondent 10 days later. A letter is to be forwarded to my judicial secretary to confirm when submissions are filed. Submissions are limited to three pages exclusive of any Rule 18 Offers to Settle and/or Bills of Cost. Rule 24(11)(b) will be reviewed.

[128] Within 14 days of release of this decision, the parties are to exchange Offers to Settle the costs arising from this decision.

Justice H.A. McGee

Released: January 16, 2014

[^1]: Calculated on the basis that the former matrimonial home remains in the title of the husband (transferred post separation,) and is treated as if in his name on date of separation, in the value agreed to on January 26, 2012: $514,500 less 2.5% notional deduction for a value of $501, 637. [^2]: The face of the agreement is dated May 28th although it was signed by Rhonda on May 29th , and by Christopher on June 13 or 14, 2002. [^3]: I heard no evidence on how this amount was calculated. [^4]: There is no Schedule “B” attached to the document. [^5]: The actual percentages each made to the down payment of $150,840 were 95% by Christopher ($135,840 + 7,500) and 5% (7,500) by Rhonda. [^6]: It is irregular (and exceedingly unadvisable) for an owner of property to transfer title while leaving him or her on a mortgage registered on title. I was assured that it seemed like a good idea at the time. It fixed the value of the home – thus narrowing an issue for trial, moved the parties forward, and it was anticipated that the matter would shortly settle or be heard for trial. [^7]: It was agreed at trial on a final basis that neither party shall pay table child support to the other. [^8]: Mediation was never suggested, nor did he retain counsel. [^9]: This provision is also stated at paragraph 4 of the May 28 2002 cohabitation agreement. [^10]: I was not certain in closing submissions whether counsel for the applicant was relying on a doctrine of unfairness to set aside the agreement. Unfairness has significant mention in the case of Hartshorne. However, Hartshorne is a case decided under the British Columbia Family Relations Act, R.S.B.C. 1996, c. 128 which provides for a consideration of fairness within section 65. Section 56(4) of the Family Law Act, R.S.O. 1990, c. F.3 has no such provision. [^11]: Christopher’s failure to do so in a timely manner during the course of litigation cannot be projected into the question of appropriateness of the terms of the agreement at the time of execution. The breaches of court orders through the litigation have been directly addressed by various costs awards. [^12]: Emphasis added. [^13]: Given that the agreement speaks to a separation of property, there is no basis for him to have applied the applicant’s monies to the joint debt.