Court File and Parties

COURT FILE NO.: F14-0308 DATE: February 16, 2017

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN: PAMELA ANNE MOFFATT Applicant – and – BRIAN SPENCER KELLY Respondent

Counsel: David Howard, for the Applicant In Person, for the Respondent

REASONS FOR JUDGMENT

JOHNSTON J.

[1] These are reasons for judgment following trial. The Applicant, Ms. Moffat, seeks an order of spousal support, an order requiring the payment of insurance upon support and an order upholding the validity of a Cohabitation Agreement entered into between her and the Respondent, Mr. Kelly. Mr. Kelly, seeks to set aside the Cohabitation Agreement on the basis he did not understand it, he was unaware of the debts of the family and overall, the Agreement is unfair. He also seeks an order of Constructive Trust, in relation to Ms. Moffatt’s home.

Background

[2] The parties were each previously married; Mr. Kelly had two children from his previous relationship, Ms. Moffat has no children.

[3] The parties began cohabitation with one another in a relationship in December 2000. Mr. Kelly moved into Ms. Moffat’s house, located at 1838 County Road 2, Johnstown. It is agreed this house was owned by Ms. Moffat previously and was debt free, as a result of Ms. Moffat’s prior marriage breakdown with Mr. Steven Goodbury. Ms. Moffat received spousal support from Mr. Goodbury from their separation in 1996 until 2010.

[4] Mr. Kelly was involved in the negotiation of a Separation Agreement with his former spouse; he retained a lawyer, Mr. Gregory Best. As a result of the Agreement in that matter, he paid child support until 2008 and spousal support for two years.

[5] The parties entered into a Cohabitation Agreement dated August 13, 2013. The Agreement was in writing, drafted by Ms. Moffat’s lawyer, Ms. Addison. Mr. Kelly admits that he went to Mr. Lee, a lawyer, for independent legal advice. He maintains no real advice was obtained and he did not read the Agreement.

[6] The issues raised in this trial are:

1. Is the August 14, 2013 Agreement binding, or ought it to be set aside pursuant to Section 56 (4) of the Family Law Act? Sub-issues include: was there full financial disclosure, did Mr. Kelly understand the Agreement, was there duress or lack of voluntariness when he signed, or was the Agreement unconscionable;
2. Mr. Kelly argues if the Agreement is set aside, he should be granted ownership in the family residence, or the value thereof by way of constructive trust;
3. Is Ms. Moffat entitled to spousal support and, if so, how much and for how long?
4. Should Mr. Kelly be ordered to arrange life insurance to secure any obligation he is found to have?

Validity of the August 14, 2013 Cohabitation Agreement

[7] For the reasons that follow, I find that the Agreement is valid and binding upon the parties.

[8] Determination of this issue requires in part an analysis of the credibility of the parties. For the reasons that follow, I reject Mr. Kelly’s evidence and accept Ms. Moffatt’s on the issue of the Agreement.

Reasons for rejection of Mr. Kelly’s evidence

[9] Mr. Kelly testified that he did not read the Agreement, did not receive disclosure, did not understand the debts that he and Ms. Moffat incurred, and did not retain Mr. Lee as his lawyer. Mr. Kelly also maintains that Mr. Lee gave him inadequate legal advice with respect to the Agreement.

[10] Ms. Moffat testified that she undertook the process of drafting the Cohabitation Agreement in the summer of 2012. Ms. Moffat testified that she discussed the agreement with Mr. Kelly; she prepared drafts to be given to her lawyer. On several occasions, she says she asked Mr. Kelly if he wanted changes made to the draft she was giving to her lawyer. She testified Mr. Kelly was well aware of the reasons she wanted the agreement and the nature of the debts they each had.

[11] I accept Ms. Moffatt’s evidence about discussions she had with Mr. Kelly and, in particular, his knowledge of the debts. I accept further that this agreement was Not a last minute document prepared after she decided she would leave Mr. Kelly.

[12] I accept the Cohabitation Agreement had been discussed on a number of occasions and a draft or version was prepared in 2012; a full year before the final Agreement was signed.

[13] Tab 2 of Exhibit 1 in this trial is a draft copy of the Agreement prepared by Ms. Moffat and given to Ms. Addison. The draft is dated November 12, 2012 and signed by both Ms. Moffatt and Mr. Kelly on each page. Both parties attached their signatures with the handwritten date of Nov. 13, 2012. The document is 14 pages, drafted by Ms. Moffatt. On the final page beside the paragraph dealing with ‘any loop holes we have not covered’, Mr. Kelly attached his initials and date and appears to have written the word, “okay”. I conclude this is evidence, on the balance of probability, that Mr. Kelly was a participant in the document, rather than someone who simply signed what was put before him.

[14] The wording of the draft agreement was not incorporated into the final Agreement prepared by Moffatt’s lawyer, Ms. Jill Addison. It is however instructive as to the debts the parties had incurred and how they agreed the debts would be paid and by whom. For example, on page one of the draft, the second and third paragraph from the bottom of the page state:

“Pamela and Brian acknowledge as of November 12, 2012 Pamela has put $5,000 of her own money (inheritances) into their joint bills and that Brian has put in $5,000 of his RRSP’s (the $16,000 after tax) into their joint bills, leaving $11,000 to go towards Brian’s accumulated debts below.”

“Brian acknowledges that he had accumulated a debt of $51,000 and was willing to get a mortgage on Pamela’s home for $80,000, knowing that he has no claim to Pamela’s house (see below for amounts and reasons as of November 12, 2012 Brian will redeem his RRSP’s as mentioned above and $11,000 will go to Brian’s debt, making it now $40,000).”

[15] Mr. Kelly would have this court believe that while he signed the draft version in November 2012 without legal counsel and again signed the final version with counsel in August 2013, he read neither document. I reject Mr. Kelly’s evidence that he did not read the draft or final Agreement. I reject that he did not know what debts had been incurred. Even if Mr. Kelly did not read each word of the draft version in 2012, he could not have helped noticing the sub-headings, including page one entitled half way down the page: “Pamela and Brian’s Debts”, pages 2, 3 and 4 deals with calculation of debts. It is not believable that Mr. Kelly signed and dated each page of the draft and was not aware of the debts incurred by him and Ms. Moffatt.

[16] Further, the debts (the mortgage and lines of credit with the Royal Bank of Canada) are in the joint names of Kelly and Moffatt. Mr. Kelly maintains he just signed the bank documents as well, without paying any attention to what they were. This evidence is preposterous and incredible.

[17] Mr. Kelly’s Answer at paragraph 32, page 4, states, “The Applicant’s pressure for the Respondent to sign a Cohabitation Agreement began in the summer of 2013”. Further, at paragraph 39 of his Answer, Mr. Kelly stated, “When the Applicant observed that the Respondent did not appear to be acting promptly to sign the Agreement, she put him under intense pressure to do so. She badgered him incessantly, making his life intolerable, until finally he decided that he would sign the Agreement just to restore some calm in the household.”

[18] This is contrary to the evidence that Mr. Kelly signed a fourteen-page draft version of the Agreement in 2012. Mr. Kelly vacillates between accusing Ms. Moffatt of ‘badgering’ him to sign on the one hand and alleging he simply signed the Agreement because he trusted Ms. Moffatt and felt his interests were protected by her.

[19] Next, Mr. Kelly admits that he went to see Mr. Lee on two separate occasions to obtain legal advice related to the Agreement. Mr. Kelly chose not to call Mr. Lee as a witness at trial. Mr. Kelly initialed each page of the Agreement and signed the Agreement, including the clause stating he received independent legal advice. Mr. Lee signed the Agreement attesting to the legal advice he provided. On the final page of the Agreement, Mr. Lee and Ms. Addison attested to the following:

“Each solicitor signs this Agreement not only in his or her capacity as witness, but also to attest that he or she:

a) Has explained to the client the meaning and implications at law of each provision in this Agreement;

b) Is convinced that his or her client is signing this Agreement voluntarily, without duress and with full mental capacity”.

[20] Ms. Moffat testified that Mr. Lee and Mr. Kelly requested further financial disclosure and she complied. Mr. Kelly testified he did not recall discussing the debts with Mr. Lee. I do not accept this. Mr. Lee saw Mr. Kelly twice: Mr. Kelly’s description of his interaction with Mr. Lee is inconsistent with the multiple office visits he admits. While Mr. Kelly admits to two separate visits, Ms. Moffat believes he may have seen Mr. Lee on three occasions. Whether or not Mr. Kelly consulted with Mr. Lee two or three separate occasions, I find that multiple office consults are consistent with Mr. Lee reviewing the document, seeking further disclosure as alleged by the Applicant and then executing the Agreement. Further, the fact that Mr. Lee met more than once with Mr. Kelly is consistent with the attestation in the Agreement signed by Mr. Lee.

[21] Mr. Kelly acknowledged that in the course of his employment, he has read and dealt with contracts. Mr. Kelly was involved in a prior separation and negotiation of a Separation Agreement. He has familiarity with contracts. I had the opportunity to observe Mr. Kelly in this trial, during his testimony and in his capacity as his own counsel. Mr. Kelly is not legally trained, but he appears confident, self-assured and intelligent. It is difficult to reconcile the Mr. Kelly who appeared at this trial and the man who claims he was totally reliant upon Ms. Moffatt and signed whatever she told him, including banking documents, legal documents and draft documents prepared by Ms. Moffatt. I do not accept Mr. Kelly’s evidence that he did not read the drafts, did not read the final Agreement, and did not review the substantive portions with Mr. Lee.

[22] Further, Mr. Kelly testified he did not read the Agreement and did not discuss it. This is not consistent with the evidence of Diane Heward. Ms. Heward worked in the home as a homecare provider for Ms. Moffat for a number of years. Ms. Heward overheard the parties at times discussing the Cohabitation Agreement and Ms. Moffat telling Mr. Kelly they needed to enter into a budget because of their spending. Ms. Heward clearly was a supporter of Ms. Moffat, but she was balanced in her comments about Mr. Kelly.

[23] Finally, Mr. Kelly testified that he was’ flabbergasted ‘ by the price of Ms. Moffat’s engagement ring and did not know of the cost until after it was purchased. Ms. Moffat testified that Mr. Kelly was with her when they looked at rings, she picked out three she would like and he selected the one. She testified that he made nine payments in 2003 and 2004 at Positive Jewelers, the place of purchase (Exhibit 6, Tab 2). Mr. Kelly paid on his visa card and only he had access to the card. She testified further that the ring was given to her by Mr. Kelly at midnight on New Year’s Eve 2004 when he asked her to marry him. Mr. Kelly was prone in his evidence to portray Ms. Moffat as the complete controller of all finances and that he had no insight or knowledge of the family’s finances. He portrayed himself as trusting and naive and that Ms. Moffat took financial advantage of him.

[24] Upon review of all the evidence, I reject Mr Kelly’s evidence. He testified that Mr. Lee did not tell him to sign, or not sign, and did not provide meaningful advice on the Agreement and his legal rights. Yet, Mr. Kelly testified Mr. Lee did make a comment to him that Ms. Moffat was attempting to ‘feather her nest’.

[25] I conclude that Mr. Kelly did read the Agreement. Mr. Kelly is not a credible witness.

The Law

[26] Section 53 of the Family Law Act deals with Cohabitation Agreements and provides:

53. (1) Two persons who are cohabiting or intend to cohabit and who are not married to each other may enter into an agreement in which they agree on their respective rights and obligations during cohabitation, or on ceasing to cohabit or on death, including,

(a) ownership in or division of property; (b) support obligations; (c) not applicable here (d) any other matter in the settlement of their affairs. R.S.O. 1990, c. F.3, s. 53 (1); 1999, c. 6, s. 25 (23); 2005, c. 5, s. 27 (26).

[27] Section 55 of the Family Law Act deals with form of the Agreement:

55. (1) A domestic contract and an agreement to amend or rescind a domestic contract are unenforceable unless made in writing, signed by the parties and witnessed. R.S.O. 1990, c. F.3, s. 55 (1).

[28] Section 56(4) provides the circumstances for setting aside agreements:

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).

[29] The burden of proof is on the party asking for the contract to be set aside, to convince the court that the court’s discretion should be exercised in that party’s favour: Levan v. Levan, 2008 Carswell Ont 2738, 2008 ONCA 388. Accordingly, Mr. Kelly bears the burden of proof to convince the court that this Cohabitation Agreement should be set aside.

[30] Mr. Kelly must establish that one of the circumstances outlined in Section 56 (4) has been violated and, second, that the court ought to exercise its discretion and set aside the Agreement.

[31] Justice Aitken in the case of Montreuil v. Montreuil, 1999 CarswellOnt 3853, [2000] W.D.F.L. 578, 93 A.C.W.S. (3d) 503, [1999] O.J. No. 4450 reviewed a number of common law grounds in s. 56(4) (c) for setting aside a domestic contract (a separation agreement in that case) including:

(a) not receiving adequate, complete and competent independent legal advice before signing the Agreement; (b) one party exerting undue influence on the other; (c) the Agreement was an unconscionable transaction resulting from one party, being the stronger party, taking unfair advantage of the other, being the weaker party; (d) there was a material representation by one party; (e) the Agreement was procured by duress; and (f) one party owed a fiduciary duty to the other which that party breached in the manner in which that party conducted himself or herself during the negotiations leading up to the signing of the Agreement.

Analysis

[32] Mr. Kelly was well aware of the family debt as set out in the draft agreement signed by him in 2012. He received the disclosure Ms. Moffatt testified was provided to him and Mr. Lee. Mr. Kelly signed the bank documents and as between he and the Royal Bank of Canada, he is liable on the debts. There is no credible basis upon which Mr. Kelly can argue that he was surprised with the debts, or did not know the extent of the debts or that he agreed to take on a larger portion of the mortgage debt.

[33] While I accept Ms. Moffatt was responsible between the two of them for the family finances, Mr. Kelly was generally aware of the material assets and liabilities. I find no basis on the evidence to conclude that Mr. Kelly was under any duress to sign the final Cohabitation Agreement. Mr. Kelly was independently minded on some aspect of his life during the time of his cohabitation with Ms. Moffatt. He spent money on things he wanted, despite Ms. Moffatt’s objection: for example, his expenditure on cigarettes and beer. To be clear, both parties spent a lot of money and as a result incurred debt. The point is that Mr. Kelly did not on the evidence before this court, do whatever he was told. He could have said no to the terms of the Agreement. He agreed to accept a larger portion of the debt apparently (according to the 2012 draft) because he incurred a disproportionate share.

[34] I conclude Mr. Kelly signed the Agreements voluntarily in both 2012 and 2013. He had the benefit of advice from legal counsel before signing the final Agreement and was not under duress. He did understand the terms of the Agreement as explained to him by Mr. Lee (in accordance with Mr. Lee’s attestation).

[35] Finally, I consider whether the Agreement was an ‘unconscionable transaction’ resulting from Ms. Moffatt, being the stronger party, taking unfair advantage. Upon review of all of the evidence, I cannot conclude the provisions are unconscionable. While it is arguable that the parties ought to share equally the debt incurred during their years of cohabitation, they agreed otherwise and there was a rationale for the decision.

[36] Ms. Moffatt did improvements to her house. I conclude much of the renovation expense was either paid from her inheritances received or repaid from the inheritance. The fact that this court may have come to a different conclusion on the percentage split of debt is not the test. The parties turned their minds to the debt and who should pay. They agreed to a formula and did so after considerable deliberation. The court should not interfere with agreements made by parties, unless it would be unconscionable not to.

[37] The division of family debt may or not be equal, but the provisions of the Agreement are not unconscionable.

[38] The Agreement is therefore found to be valid and upheld.

[39] Accordingly, Mr. Kelly’s claim for constructive trust is barred by the terms of the Agreement (paragraph 13) and is dismissed.

[40] Pursuant to the Cohabitation Agreement, [Paragraph 18] Mr. Kelly shall be responsible for payment of the following:

(a) The Mortgage: ¾ owing by Mr. Kelly and ¼ owing by Ms. Moffatt. Mr. Kelly shall make ¾ of the monthly payment until the debt can be paid in full and Pamela Moffatt will continue to make ¼ of the monthly payment. All payments by Brian Kelly will be made to Pamela Moffatt, who will then apply the payments to the outstanding debts. (b) The lines of credit shall be divided equally between the parties: Kelly and Moffatt. Both Brian Kelly and Pamela Moffatt will continue to make ½ of the monthly payments on the lines of credit, until they are paid in full.

[41] Ms. Moffatt outlines the RBC debts in her financial statement at Tab 2 of the Trial Record, totaling $159,928. Mr. Kelly’s share of the debt according to the RBC Homeline accounts is as follows:

¾ of Mortgage: $65,042.23, Mr. Kelly’s share is $48,781.50 ½ of the Lines of Credit: $40,000, Mr. Kelly’s share is $20,000.00 ½ of the Line of Credit: $39,937.12, Mr. Kelly’s share is $19,969.00 ½ of the Line of Credit #3: $14,949.37, Mr. Kelly’s share is $ 7,474.68

[42] The total of Mr. Kelly’s share is $96,225. Mr. Kelly’s debt to Ms. Moffatt is reduced by: the sum of $ 16,450.00, representing the after tax contribution by Mr. Kelly from his RRSP. [as agreed to by counsel in submissions] Accordingly, Mr. Kelly owes to Ms. Moffatt the sum of $ 79,775.

[43] Mr. Kelly’s share in accordance with the Cohabitation Agreement shall be paid at the minimum rate of $653 per month, commencing August 1, 2016 and the first day of each month thereafter. The monies shall be paid to Ms. Moffatt, who shall forthwith pay the full amount provided to the RBC, until the debt is paid in full. Given the Respondent’s financial circumstance, I decline to Order his instalment payments retroactive to the date of Separation.

[44] All other terms of the Cohabitation Agreement shall be followed as it relates to the debts, including the requirement for insurance and Mr. Kelly to pay his cost of insurance on his amount owing, pursuant to Paragraph 18.5.

[45] While the Agreement references a mortgage in the amount of $80,000.00, the disclosure reveals the mortgage is now at lower amount, but there are three lines of credit. In my view, the terms of the Agreement specified only the mortgage is to be repaid by Mr. Kelly in the higher amount (i.e. ¾ versus ½). The Agreement ought to be strictly construed; otherwise, the lines of credit are to be equally repaid by each party.

[46] Justice Pedlar ordered Mr. Kelly to pay to Ms. Moffatt the sum of $510 per month; this Order was continued until date of this decision. The payments ordered shall be applied toward Mr. Kelly’s share of the debts herein.

Spousal Support

[47] I now turn to Ms. Moffatt’s claim for spousal support. Ms. Moffatt claims she is unable to work due to her illnesses. Her income is derived from CPP and rental income.

[48] Section 33 of the Family Law Act provides the statutory framework for spousal support.

[49] 33(8) An order for the support of a spouse should,

(a) recognize the spouse’s contribution to the relationship and the economic consequences of the relationship for the spouse; (b) share the economic burden of child support equitably; (c) make fair provision to assist the spouse to become able to contribute to his or her own support; and (d) relieve financial hardship, if this has not been done by orders under Parts I (Family Property) and II (Matrimonial Home). R.S.O. 1990, c. F.3, s. 33 (8); 1999, c. 6, s. 25 (5); 2005, c. 5, s. 27 (9).

[50] 33(9) Determination of amount for support of spouses, parents

In determining the amount and duration, if any, of support for a spouse or parent in relation to need, the court shall consider all the circumstances of the parties, including,

(a) the dependant’s and respondent’s current assets and means; (b) the assets and means that the dependant and respondent are likely to have in the future; (c) the dependant’s capacity to contribute to his or her own support; (d) the respondent’s capacity to provide support; (e) the dependant’s and respondent’s age and physical and mental health; (f) the dependant’s needs, in determining which the court shall have regard to the accustomed standard of living while the parties resided together; (g) the measures available for the dependant to become able to provide for his or her own support and the length of time and cost involved to enable the dependant to take those measures; (h) any legal obligation of the respondent or dependant to provide support for another person; (i) the desirability of the dependant or respondent remaining at home to care for a child; (j) a contribution by the dependant to the realization of the respondent’s career potential; (k) REPEALED: 1997, c. 20, s. 3 (3). (l) if the dependant is a spouse, (i) the length of time the dependant and respondent cohabited, (ii) the effect on the spouse’s earning capacity of the responsibilities assumed during cohabitation, (iii) whether the spouse has undertaken the care of a child who is of the age of eighteen years or over and unable by reason of illness, disability or other cause to withdraw from the charge of his or her parents, (iv) whether the spouse has undertaken to assist in the continuation of a program of education for a child eighteen years of age or over who is unable for that reason to withdraw from the charge of his or her parents, (v) any housekeeping, child care or other domestic service performed by the spouse for the family, as if the spouse were devoting the time spent in performing that service in remunerative employment and were contributing the earnings to the family’s support, (v.1) REPEALED: 2005, c. 5, s. 27 (12). (vi) the effect on the spouse’s earnings and career development of the responsibility of caring for a child; and (m) any other legal right of the dependant to support, other than out of public money. R.S.O. 1990, c. F.3, s. 33 (9); 1997, c. 20, s. 3 (2, 3); 1999, c. 6, s. 25 (6-9); 2005, c. 5, s. 27 (10-13).

[51] The Order made with respect to Property and division of family debt in my view addresses any issues arising from the parties cohabitation and in particular, having regard to Section 33 (8)(a) and (c) of the FLA, ss (b) and (d) are not applicable in this case. Ms. Moffatt owns her own home, Mr. Kelly does not. Ms. Moffatt’s income is modest, but so is Mr. Kelly’s, he earned $37,000 in the past year. Mr. Kelly is obligated to re pay a higher portion of accumulated family debt.

[52] Ms. Moffatt loaned a neighbour $40,000 in 2014, which appears to largely remain unpaid. Ms. Moffatt received inheritances during the period of cohabitation. Ms. Moffatt could have used this sum to support herself.

[53] Part of the reason the parties agreed Mr. Kelly would pay a higher percentage of the mortgage was that for the first three years of living together, Mr. Kelly did not pay rent and was supported by Ms. Moffatt.

[54] Ms. Moffatt claims one of the reasons for separation was Mr. Kelly’s spending habits. Accordingly, I do not find Ms. Moffatt has established a compensatory claim for support.

[55] It is unlikely that a person in need of support would lend $40,000.

[56] Given the foregoing and the fact Mr. Kelly is paying the debts ordered herein, I decline to order spousal support.

Costs

[57] If the parties are unable to agree upon the issue of costs, given the mixed success of the parties at trial, I will accept written submissions. The Applicant if she desires, shall serve and file a Bill of Costs, together with written submissions, no more than three pages in length within 21 days. The Respondent shall have the right to reply, written submission no more than three pages in length to be served and filed with the Court within 21 days of service upon him of the Applicant’s submissions.

The Honourable Mr. Justice J. M. Johnston

Released: February 16, 2017