ONTARIO SUPERIOR COURT OF JUSTICE
OTTAWA COURT FILE NO.: FC-09-1655 DATE: August 18, 2016
B E T W E E N:
JOHN HASLIP Applicant
Gary Blaney, for the Applicant
- and -
TERESA HASLIP Respondent
Sean Jones, for the Respondent
HEARD: November 16, 17, 18 & 19, 2015 WRITTEN SUBMISSIONS DELIVERED: January 22, 2016; February 11 and February 18, 2016
REASONS FOR DECISION
James J.
Introduction
[1] This matter proceeded as a trial of specified issues following a motion for summary judgment brought by the applicant to enforce a purported settlement made on the eve of trial.
[2] The summary judgment motion was partially successful in that it resulted in a finding that the applicant had provided adequate financial disclosure but the court held that the core issue of whether the respondent was bound to the agreement raised a genuine issue for trial.
[3] The issues to be tried are as follows:
i. Did the parties enter into a legally-binding contract of settlement?
ii. If so, are there circumstances that justify the setting aside of the contract of settlement on the basis of the Family Law Act, that is, section 56(4)(b) that the respondent did not understand the nature or consequences of the domestic contract.
[4] A series of trial management meetings followed the conclusion of the summary judgment motion. These meetings refined the issues to be tried, established the procedure to be followed including a direction that the respondent would occupy the position of plaintiff at the trial and dealt with various disclosure and scheduling issues.
[5] For the reasons that follow, I have determined that the respondent’s request to set aside the settlement agreement ought to be dismissed.
The History of the Legal Proceedings
[6] The parties were married on September 26, 1987 and separated twenty-one years later in September 2008 when they were both 46 years old. They have two children: Laurel, born October 11, 1992 and Dylan, born June 3, 1995.
[7] The applicant was the principal of a company called Object Network Inc., an information technology firm. Both parties were shareholders in the company. The respondent held a B.Sc. from Trent University and pursued further studies in Visual Arts. For most of the marriage she was engaged primarily as a mother and homemaker.
[8] The applicant’s income at the time of separation and in the years following the separation was close to $200,000 annually although according to his income tax returns his income was about $150,000. They jointly owned the matrimonial home and a cottage lot.
[9] Following separation, the respondent remained in the family home with the children and was highly-dependent upon the applicant’s support payments to pay living expenses.
[10] The applicant commenced legal proceedings about a year after separation. The respondent retained Jennifer Jolly as her lawyer.
[11] A case conference was held in October, 2009. Leading up to the case conference Ms. Jolly provided the respondent with an initial three page report summarizing basic information from the applicant’s financial statement and outlining various issues that needed to be addressed including custody, child support, spousal support and equalization. She identified that spousal support should be increased to “proper levels” and referred to a spousal support advisory guideline range of between $2,800 to $3,800 per month in addition to child support which she indicated should be about $2,062 per month, subject to income verification. Apparently the applicant was paying a total amount of $3,000 per month at that time.
[12] The respondent was concerned about her legal expenses and instructed Ms. Jolly to minimize the amount of legal work she performed.
[13] Ms. Jolly recommended that the respondent bring a motion for interim spousal support. The respondent was worried that the applicant would bring a cross-motion for the sale of the matrimonial home or claim occupation rent. Despite the respondent’s concerns, Ms. Jolly was clearly of the view that an interim spousal support motion was warranted in the circumstances. In October, 2010 Ms. Jolly wrote to the respondent urging her to give the go-ahead for a motion, saying “we should not wait on the issue of spousal support any longer.” The respondent refused to provide an authorization to do so.
[14] Disclosure of the applicant’s financial affairs, including the financial situation with Object Network Inc., was a major on-going issue. The parties agreed to proceed to questioning.
[15] In August 2011 Ms. Jolly’s retainer was terminated and the respondent hired Halia Michalko. Ms. Michalko testified that prior to becoming a lawyer she had a career in teaching. She said that partly because she has a teaching background, her practice is to explain the issues and procedures in family law matters to new clients in detail. She said the respondent asked “lots of questions” and took the binders of documents home to review.
[16] Ms. Michalko obtained an income report prepared by Jean Claude Desnoyers, an accountant and chartered business valuator, estimating the applicant’s true income for the years 2008 to 2010 with projections for 2011. According to Mr. Desnoyers, the applicant’s actual income was close to $200,000. This report included a fair market value estimate for Object Network Inc. as of the date of separation.
[17] Ms. Michalko testified that she also recommended that the respondent bring a motion for interim spousal support notwithstanding the respondent’s concern that the applicant would bring a cross-motion. Again the respondent did not follow this advice.
[18] Although the date is unclear, the parties conducted questioning while Ms. Michalko was acting for the respondent. Mr. Desnoyers provided input respecting the financial questions to be posed to the applicant. It appears that there was an initial session of questioning that had taken place previously while the respondent was represented by Ms. Jolly because Ms. Jolly testified that questioning had occurred in May, 2011.
[19] A settlement conference was held in September, 2012 with Justice R. Smith presiding. A trial date was set for May, 2013.
[20] Ms. Michalko’s retainer was terminated in October, 2012. The respondent said she could not afford the on-going legal costs. She decided to represent herself. The trial was about seven months away.
[21] As the trial date approached, the respondent changed her mind about representing herself. She spoke to several lawyers who were not prepared to take on the file so close to trial. David Sinclair (“Sinclair”), however, agreed to represent her and requested a retainer of $15,000. The respondent provided the retainer in the requested amount.
[22] Sinclair testified at the trial. He said their initial meeting took place on or about April 10th, 2013. The respondent later delivered three boxes of documents for review. They met several times over the next few weeks. The meetings tended to be lengthy. The respondent disagreed with Sinclair on certain issues such as whether the respondent ought to have done more to find employment and whether income would be imputed to her by a trial judge. They also disagreed on the likelihood and amount of occupation rent being awarded to the applicant. When they disagreed, Sinclair said the respondent would sometimes say “David, stop”. He said the respondent didn’t like being pushed or challenged on an issue but he denied the suggestion that he sometimes mocked the respondent.
[23] The respondent’s evidence was that the first meeting lasted about four hours. There was an extensive discussion respecting support arrears. They disagreed on the usefulness of Mr. Desnoyers’s income report or, in the respondent’s words, “they butted heads on this”. The respondent said Sinclair didn’t seem to respect her opinion. Later Sinclair obtained an update of the applicant’s 2011 and estimated 2012 income from Mr. Desnoyers. It wasn’t clear whether the respondent authorized this additional work but at trial she agreed it was necessary.
[24] They met again on May 3rd.
[25] A last minute settlement conference was arranged for May 14th. Sinclair said the respondent was aware that the trial would proceed in the absence of a settlement. The respondent reviewed the settlement conference brief at Sinclair’s office on May 10th. He said the respondent took a long time to review it and he was worried about missing the cut-off time for filing. He was testy and curt with her because she was taking so long to approve its contents. It seems clear he was feeling the pressure of the moment. I find that he likely threatened to quit by using words to the effect, “I’m done with this”. According to the respondent, Sinclair “lost it” and yelled at her that she would be going to trial alone. Sinclair said that after the settlement conference brief was filed, he felt relieved and apologized.
[26] The settlement conference was held on Tuesday, May 14th. The presiding judge, Justice A. Trousdale, a very experienced judge in family law matters, was unable to bring the parties together on a settlement. Sinclair said that when he met with the respondent later she said that she had considered what the settlement conference judge had said and that she was ready to settle.
[27] The next day counsel for the applicant, Gary Blaney (“Blaney”), sent Sinclair a set of draft minutes of settlement for discussion purposes only. Sinclair says he emailed them to the respondent the same day. The respondent was not sure whether she met with Sinclair the next day on Thursday, May 16th. The respondent said she didn’t remember a meeting, but Sinclair’s records show that there was a meeting. Sinclair said they went through the draft document paragraph by paragraph on May 16th. I find that there was a meeting between Sinclair and the respondent on May 16th.
[28] Blaney sent a slightly different draft to Sinclair late in the day on May 16th. The respondent said she did not see this version that day.
[29] According to Sinclair, near the end of his meeting with the respondent on May 16th she requested that he ask for a continuation of the settlement conference with Justice Trousdale. Sinclair relayed this request to the trial coordinator.
[30] At about 10:30 a.m. on Friday, May 17th the trial coordinator advised Sinclair that Justice Trousdale was not available to continue the settlement conference, that the applicant was opposed to a continuation of the settlement conference in any event and that the case would proceed to trial on the following Tuesday, Monday being the Victoria Day holiday.
The Competing Versions of What Happened on May 17, 2013.
[31] Sinclair and the respondent met again in the morning on Friday, May 17th. They testified to significantly different versions about the course of events on May 17th. According to the respondent, the meeting started off agreeably enough but things deteriorated as the day went on. The respondent felt like her questions weren’t being answered. Sinclair imitated and mocked her when she asked a question. He hadn’t started preparing for trial. He reminded her that she may have to go to trial alone. She said he didn’t show appropriate respect. There were certain provisions in the draft agreement that the respondent said she would not accept. The sticking points included the applicant’s formula for calculating his income for support purposes, the quantum of support arrears and occupation rent.
[32] Another copy of the draft minutes of settlement, this time signed by the applicant, arrived at Sinclair’s office at about 10:40 that morning. Over the course of the day, successive versions of the draft agreement arrived at Sinclair’s office. There were few changes. The applicant’s income calculation formula remained in the new drafts. The respondent said she was not given her own copy to review and that Sinclair would not show her the full document when new drafts arrived. The respondent was tired and hungry. She felt bullied. She began to “shut down”.
[33] A clean draft signed by the applicant arrived at Sinclair’s office shortly before 5 p.m. The respondent said she was unaware that the document still contained provisions that she had rejected earlier. She said she wasn’t given an opportunity to review it fully. Sinclair held out the corners of each page for her to initial. The respondent testified that she signed because she felt she had no choice. As well, even though she signed it, she said she didn’t know the last version was final and binding. She thought that what she had signed was another draft that was still subject to negotiation. Sinclair sent a fully signed copy back to Blaney’s office at about 5:40 p.m. The respondent left Sinclair’s office exhausted without a copy of her own.
[34] The respondent’s evidence is not clear as to when she says she realized that the agreement was final. In recounting the events of late in the afternoon on May 17th, she said that when she signed the final version, she didn’t know at that moment that a binding deal had been made. She thought it was another draft. She was unable to say why she thought it was a draft when, unlike earlier versions, she had initialed each page and had signed the last page. The respondent testified that immediately after signing the document, she asked Sinclair when she would be signing the final version. He responded that “it becomes an order after a months’ time”. She was in shock and “shut down” from the negotiating process but “put two and two together.” She said she did not “consciously think anything. I went into shock… So my reaction of the shock makes me think that I realized it. Otherwise, what would I be in shock over?”
[35] The next day the respondent went to the law society’s website because she had questions about what had happened and the consequences of signing something she said she didn’t agree to. Over the following weeks she went about the determining how to have the agreement set aside. In June the respondent filed a complaint with the law society respecting the services provided by Sinclair.
[36] In Sinclair’s version of events, by the time the respondent arrived at his office in the morning on May 17th, Sinclair knew that a continuation of the settlement conference was not possible and that the case had been called for trial after the long weekend. The focus was on settlement; not trial preparation.
[37] In cross-examination Sinclair acknowledged that as of the morning of May 17th, nothing had been resolved and he hadn’t done much in the way of preparation for trial: no opening statement and no document briefs, for example, but he countered by asserting that as of May 14th the respondent had told him she was committed to settling as opposed to proceeding to trial. He said there wasn’t much left in dispute and that he had the weekend to get ready for trial if he had to. He denied the suggestion that this was a situation of a lawyer forcing a client to settle because the lawyer wasn’t prepared or willing to conduct a trial.
[38] A set of proposed minutes of settlement, this time signed by the applicant, arrived at his office by email at about 10:30 a.m. and he reviewed it in detail with the respondent. The respondent had her own copy to work with. At 2 p.m. Sinclair sent a marked up copy back to Blaney’s office with proposed deletions and amendments. Most of the handwritten changes in the document were placed there by Sinclair rather than the respondent.
[39] A new version was returned by Blaney at about 3:30 p.m. It contained a compromise amount for spousal support. This draft also contained a new paragraph 5.5 which refined and amplified the applicant’s insistence in paragraph 5.4 that his line 150 income (with an adjustment) form the basis of calculating his income for support purposes. The respondent testified that paragraph 5.5 was never brought to her attention and if she had known, she wouldn’t have agreed to it.
[40] A further marked-up copy was returned to Blaney by Sinclair at about 4:25 p.m. Some but not all Sinclair’s changes to the objectionable provisions in Blaney’s previous draft were re-iterated in Sinclair’s latest marked-up copy. Blaney returned a new version to Sinclair at about 5 p.m. with the changes the applicant was prepared to accept. This is the version that was signed by the respondent and sent back to Blaney as a fully executed agreement at about 5:35 p.m.
[41] It should be noted that as these drafts were being exchanged, the “track changes” function was not used so each version had to be read carefully to see what had been changed and what had not.
[42] Sinclair said that during the process of reviewing successive drafts, the respondent had her own copy to review. His assistant, Kerry Tierney, confirmed that she made copies for the respondent to review when new versions arrived at the office. Tierney agreed that the respondent appeared to be under stress during the course of the day but said that in her experience, that is not uncommon during settlement negotiations. She said she overheard Sinclair say to the respondent that she shouldn’t sign the agreement unless she was sure.
[43] In cross-examination Tierney agreed that she was mistaken in her examination in chief when she said the drafts arrived by fax from Blaney’s office. In fact, the evidence was clear that the drafts were exchanged by email.
[44] Sinclair acknowledged that at some point the respondent may have expressed difficulty in continuing due to pressure and stress but he denied that she said she wanted to stop or leave.
[45] In response to the respondent’s assertion that she was hadn’t eaten and was exhausted, Tierney said she offered to get the respondent something to eat but the respondent declined.
[46] In Sinclair’s version of events, the respondent was aware that the parties had made a final settlement when she left his office that day but he was unable to say why the respondent had not been given a copy of the minutes of settlement to take with her.
Position of the Respondent
[47] The respondent says she did not understand the nature and consequences of signing the minutes of settlement. Her lawyer did not explain the terms of the agreement to her. Sinclair had been hired about six weeks before trial. There was a substantial quantity of documentation to review. As the trial drew closer and the last minute settlement conference with Justice Trousdale did not result in an agreement, Sinclair became highly stressed at the prospect of running a trial against an experienced, well-prepared and well-financed adversary.
[48] The respondent said that Sinclair was ill-equipped to conduct a trial for several reasons. His trial experience was minimal. He had not done his trial preparation. He had not arranged for the respondent’s financial expert to attend trial. He had used up the respondent’s retainer already.
[49] In addition, the respondent was never told that the spousal support advisory guidelines made a distinction between the “with and without child” support calculations. She did not appreciate that with the possibility of the parties’ son Dylan finishing secondary school and not continuing on to college, the quantum of spousal support to which she was entitled may be subject to an increase. Without this critical knowledge, it could not be said that the respondent understood the consequences of signing a final agreement with this possibility lurking in the background unaddressed.
[50] During the last day of negotiations Sinclair bullied the respondent into finalizing the issues of spousal support, including areas of support, and the equalization of net family property when the respondent had no understanding as to what these terms meant. He didn’t give the respondent a reasonable opportunity to review and consider various drafts of the proposed agreement. He threatened to withdraw as her lawyer if she did not sign. Sinclair forced the respondent to accept terms that she did not agree to by not showing her the full text of new drafts as they arrived at his office for review.
[51] The respondent says that a valid contract of settlement was never entered into and she is not bound by the minutes of settlement. The application should be allowed to proceed to trial on all issues. Alternatively, if the agreement was validly entered into, it should be set aside pursuant to the provisions of section 56(4) of the Family Law Act. If the agreement is upheld and not set aside, the respondent invites the court to make a variation order “without the necessity of having to take the appropriate steps to consider same, provide financial disclosure and follow the appropriate procedure.”
Position of the Applicant
[52] The applicant says he proceeded in good faith to negotiate and finalize a settlement. He did nothing wrong. His financial disclosure was complete. The respondent was represented by competent counsel and had ample time to investigate, consider and understand the issues involved in the litigation. When the respondent signed the agreement that Friday afternoon, she knew that she was making a final settlement and she also knew that if she didn’t sign, the trial would start after the weekend.
[53] The applicant also says that the respondent is not credible when she says that she didn’t appreciate the nature and consequences of the settlement agreement. He points to the clause in the agreement where the respondent acknowledged that she understood her rights and obligations under the agreement, understood its nature and consequences and confirmed that she was not under undue influence or duress. Coupled with this was the respondent’s admission that she was aware that the agreement contained these specific terms when she signed it. That the respondent says she still thought it was just a draft, subject to further discussion, is not credible either.
[54] The applicant notes that the respondent put particular emphasis on the respondent’s lack of appreciation of the difference between the “with child support” and “without child support” aspects of the spousal support advisory guidelines in conjunction with the concept of material change in circumstances. At the time of the final negotiations it was unclear whether Dylan would be pursuing post-secondary schooling. The applicant’s position is that the respondent was familiar with the concept of material change of circumstances because Sinclair said he had explained it and that it had likely been addressed at some point during the respondent’s representation by her two previous lawyers. Although the respondent testified that she was never told about this previously and only learned of the concept during the course of this trial, Blaney referred to an affidavit sworn by the respondent in November, 2013, after the settlement but two years before the trial, where she said in reference to Dylan not continuing his education, “a variation to spousal support is already needed due to this change in circumstance as it was not addressed in the settlement…” [1]
[55] The applicant also notes the lack of medical evidence to support the respondent’s assertion that she was in shock or serious emotion or psychological distress when she signed the agreement.
Discussion and Analysis
[56] The respondent’s focus at trial and in her written submissions was on section 56(4)(b) of the Family Law Act which gives a court the power to set aside a domestic contract upon establishing that one of the parties did not understand the nature or consequences of the contract.
[57] The onus lies with the party seeking to have the agreement set aside.
[58] An analysis under section 56(4) involves a two-step process. Firstly, has one of the preconditions (in this case a failure to appreciate the nature and consequences of the agreement) been established and if so, then secondly, should the agreement be set aside in the particular circumstances of the case? These two elements are analytically different and one does not automatically follow from the other.
[59] The power to set aside an agreement under the Family Law Act is similar to, but broader than, the comparable common law remedies. Under section 56(4), even where a party understands the basic nature of the agreement being signed, the consequences of signing may not be well understood and relief can be granted on this basis alone. Consequences brings into the discussion the effect or impact on the spouses’ affairs, including property and support (see Dillon v. Dillon, 2014 ONSC 2236 at para. 202).
[60] The presence or absence of independent legal advice is an important factor. In family law matters this includes a requirement that the client understand the legislative scheme involved and the risks and benefits of pursuing other options (see Harnett v. Harnett, 2014 ONSC 359 at para. 79).
[61] When credibility considerations are engaged, as they are here, the court has to determine what allegations it will accept as true and what allegations ought to be rejected. Fact-finding in the face of contradictory evidence involves assessing the credibility of witnesses. Generally speaking, the assessment of credibility involves observing witnesses as they give their evidence, considering conflicting evidence in relation to known facts, determining the presence or absence of inconsistencies and determining the presence or absence of corroborating evidence. This is not a complete list of factors to be taken into account. A judge may accept some, none or all of a witness’s testimony. The standard of proof is on a balance of probabilities.
[62] The respondent presented as an intelligent, strong-minded individual. I have difficulty accepting the suggestion she could be easily pushed around and forced to settle when she didn’t want to. She was prepared to reject the advice of her two previous lawyers that she should bring a motion for interim spousal support. The respondent was assertive in giving her testimony. She reminded her counsel during examination in chief to ask a question on a topic she wanted to address. She criticized opposing counsel during cross-examination for being too repetitive and on one occasion balked at answering a question on cross-examination that was quite proper and that had not been objected to by her counsel.
[63] The respondent had ample opportunity to familiarize herself with the issues during the several years the litigation was underway. There were at least two settlement conferences when presumably all major issues were considered and competing arguments advanced.
[64] The respondent was understandably concerned about potential legal costs and sought to minimize costs where possible. It seems improbable to me on the issue of legal expenses that the respondent was not prepared to pay for an interim motion, but was prepared to risk the costs of a trial. On my view of the evidence, the respondent had decided following the settlement conference with Justice Trousdale that she would not be going to trial; that she resolved to negotiate the best deal she could and to settle without the risk and expense of a trial.
[65] It may well be the case that the respondent harboured questions and concerns about the applicant’s true financial situation, that she was reluctant to accede to the applicant’s insistence on an income formula, that she found herself on the eve of trial wanting more time to consider her position but at bottom she realized that if she didn’t sign, there would be no deal and the case would go to trial, which she did not want to do. There was undoubtedly pressure to settle, some of which likely came from Sinclair, but I find that her will was not overborne by improper influence from her lawyer. The respondent knew when she signed the agreement she was committing to a final settlement. The respondent was aware of the nature and consequences of the agreement.
[66] I am led to this view by a consideration of the history of the litigation, the testimony of the three lawyers who represented the respondent, the respondent’s capabilities as an intelligent and fully-engaged litigant, the representations the respondent agreed to as contained in the minutes of settlement and the fact that the respondent had advice from legal counsel at critical stages of the lawsuit. In addition, the respondent had two lengthy sessions to review and consider what was being proposed, each session a day apart.
[67] Alternatively, assuming that the respondent was not aware of all the nuances of the spousal support guidelines and had not been told of the implications that the termination of Dylan’s child support might have for her spousal support, assuming that the respondent was not aware of the consequences of signing the agreement, I would not exercise my discretion to set aside the agreement.
[68] The settlement included provisions for both child and spousal support, compensation for the respondent’s shares in the company, the payment of an allowance for spousal support arrears and equalization of net family property. In my view, the agreement was not fundamentally unfair. The bargaining was obviously protracted and difficult. I agree that in terms of bargaining power during the negotiations, the respondent was not on the same footing as the applicant but this is often the case. In this case, the applicant effectively controlled the corporation and the flow of revenue it generated despite their joint ownership of shares. The respondent did not have an equivalent source of funding available to her.
[69] While the respondent clearly feels she was short-changed by the settlement, the end result was not inconsistent with the objectives of the Divorce Act. It is true that the applicant was successful in establishing a favourable framework for determining his income for support purposes but unlike many of the cases where section 56(4) is successfully invoked, the respondent was not required to forego any fundamental rights. Courts should only intervene in agreements where the terms of settlement are outside “the generous ambit within which reasonable disagreement is possible.” (see Leopold v. Leopold, [2000] O.J. 4604 (S.C.J.) at para. 143). Also, it is not appropriate to focus on a few clauses of an agreement in isolation as a basis to conclude that an agreement is tainted and ought to be set aside.
[70] It is important to distinguish between the issues the respondent has with the quality of her representation by Sinclair and whether the agreement passes or fails a section 56(4) assessment. It is also important to consider that this case was not framed as a professional liability case. The appropriate standard of care was not addressed or assessed except in the context of other considerations. Different evidentiary issues are engaged in different types of cases.
[71] At the same time, while the applicant certainly did not make it easy to achieve an agreement, there is no suggestion that the applicant did anything to taint the legality of the agreement. The disclosure issues were determined by the summary judgment motion and the respondent acknowledged at the outset of the hearing that the applicant did not improperly prey upon the respondent’s vulnerabilities.
[72] In the result, I find that the contract of settlement is valid and enforceable. The respondent’s request to have the agreement set aside is dismissed. In addition, I am not persuaded that I should vary any of the terms of the agreement.
[73] On the issue of legal costs, if the parties are unable to agree, they may make written submissions within thirty days on a schedule agreed to by counsel.
Mr. Justice Martin James
DATE RELEASED: August 18, 2016
Footnotes
[1] The directions for trial included a provision that previous affidavits were admissible as evidence at the trial.