COURT FILE NO.: FS-19-42419

DATE: 20210531

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

T.O.

Applicant

– and –

D.O.

Respondent

Ms. Ursula Cebulak, for the Applicant

Mr. Robert Kostyniuk, Q.C., for the Respondent

HEARD: May 25, 26 and 27, 2021

REASONS FOR JUDGMENT

Conlan J.

I. Introduction

The Parties

[1] The Applicant husband, T.O., is 62 years old. The Respondent wife, D.O., is 53 years old.

[2] The parties met in 2001. T.O. had three children from a prior relationship. D.O. had one child from a prior relationship. In 2005, the parties had a son together. They were married in 2007. They separated in 2018.

The Originating Process

[3] In July 2019, T.O. had his Application issued. He sought a variety of relief regarding the child born in 2005 and with regard to property and financial matters, but most germane to this Judgment he sought a declaration that the marriage contract (“Contract”) signed by the parties in December 2009 “is in full force and effect”.

[4] In her Answer dated September 2019, D.O., among other things, challenged the validity of the Contract. In her pleading, and this is important, she gave two reasons for disputing the validity of the Contract – (i) she signed it under “acute duress”, and (ii) she signed it in the face of “little financial disclosure from [T.O.]”.

[5] T.O. later amended his Application, and D.O. delivered an Amended Answer thereto. In that Amended Answer dated March 1, 2021, the two grounds for challenging the validity of the Contract remained the same.

The Wife’s Adjournment Request

[6] On May 20, 2021, the Court received a letter from counsel for D.O. which requested an adjournment of the trial set to begin a few days later, on May 25th. No formal motion was served or filed.

[7] On May 25th, after hearing submissions from both counsel, this Court denied the adjournment request, with reasons to follow. These are those reasons.

[8] First, I was aware from the trial office that my schedule could not have accommodated the three-day trial at any other time in 2021, and it was understood by both sides that I, as the Case Management Judge, would conduct the trial. I determined that it was not in the interests of justice to postpone the trial of a singular issue, that is the validity of the Contract, for that long.

[9] Second, the trial dates were set on March 16, 2021. T.O. was questioned by counsel for D.O. for three hours on April 6th. Three hours is a very long time to be questioned in advance of a trial that everyone knew was focussed on one issue. That the husband had not yet been questioned for a second time, as permitted by this Court’s earlier Order, is of no consequence. The lengthy time period on April 6th ought to have been devoted to questioning that would aid in preparation of the trial scheduled to begin on May 25th; the second round could have been used for other issues. That the transcript of the questioning that took place on April 6th was not received until the week before the trial should not have posed a significant obstacle to the hearing proceeding as scheduled. It was still available before the trial and could have been used for impeachment purposes. That there were some unspecified undertakings still outstanding and one refusal from the questioning of the husband on April 6th should also not have posed a serious difficulty in having the matter proceed as scheduled. Besides, I have no information about what those undertakings and refusal were. No evidence was filed on the adjournment request, including the said transcript.

[10] Third, contrary to what was asserted in the letter that was sent to the Court by counsel for the wife, there would have been prejudice arising from a decision to adjourn the trial. I knew as the Case Management Judge that the parties were anxious to have the question of the validity of the domestic contract decided as soon as possible because it was thought that the remaining issues would be significantly impacted by that determination. Further, I was of the opinion that an adjournment would unnecessarily inconvenience not only the parties but also a witness, the husband’s former lawyer, who was being called to testify at the trial.

[11] For those reasons, the wife’s adjournment request, vigorously opposed by the husband, was denied. It turned out to be moot in any event, given the way in which the trial unfolded, described in detail immediately below. There is no reason to think that an adjournment of the trial would have changed D.O.’s instructions to her counsel about the conduct of the hearing.

The Trial of an Issue

[12] After I was appointed the Case Management Judge in this matter, and with the consent of both sides, I ordered that the issue of the validity of the Contract be the subject of a trial.

[13] As indicated above, that trial was held before me in May 2021. It was a very short trial. The evidence was presented in less than two days. The submissions, on behalf of both sides, lasted less than one hour.

[14] It was also an unusual trial. I have much respect for both counsel. I am sure that they know, and I am sure that D.O. must know, that the manner in which the trial was conducted makes this decision close to being a fait accompli.

[15] T.O. testified at trial. He was not cross-examined at all. Not a single question. Counsel for D.O. explained to the Court that his client had specific reasons for giving those instructions, including genuine concerns about the health of T.O., who allegedly has serious substance abuse problems.

[16] The second witness for T.O. was Barbara McLeod – his lawyer at the time that the Contract was negotiated and signed. Ms. McLeod was very briefly cross-examined by counsel for D.O., limited strictly to the issue of financial disclosure. Ms. McLeod was not asked any questions about anything relevant to any other potential reason for setting aside the Contract.

[17] After T.O.’s case finished, counsel for D.O. declined to give any opening statement. D.O. then gave very brief evidence. She said nothing about the background of the relationship and gave no details whatsoever about why she thought that the Contract is invalid. She simply told the Court, reading from a prepared letter, about T.O.’s substance abuse, his declining health, her being shocked at his appearance on the video screen, and her choice to instruct her lawyer not to cross-examine T.O. and not to present any evidence to support her legal position that the Contract should be set aside. Nevertheless, she maintained her stance that she signed the Contract under duress and without proper financial disclosure from the husband.

[18] Counsel for the husband chose to cross-examine D.O. The wife stated that her own lawyer at the time that the Contract was negotiated and signed, who was not called to give evidence at trial, was a “wonderful” lawyer who advised her not to sign it. She stated, many times, that she was “naïve”. She stated that T.O. threatened her with homelessness and threatened to take their son for half the time. She stated that she was ignorant about financial matters. She described being in a “cycle of addiction and mental and emotional abuse at the hands of [T.O.]”.

[19] There was no further evidence presented by D.O. There was no reply evidence presented by T.O.

[20] In submissions, counsel for the husband addressed the arguments advanced by D.O. in her pleadings and, to a very limited extent, during her brief testimony at trial – (i) duress and (ii) inadequate financial disclosure. Counsel for the husband also made submissions about duress and inadequate financial disclosure, though it was conceded by Mr. Kostyniuk that the latter was a stronger argument than the former. In addition, however, for the first time, counsel for D.O. relied on unconscionability to set aside the Contract.

II. Analysis

[21] For the brief reasons that follow, this Court rules that the Contract is valid.

The Law

[22] Both sides agree that, under subsection 56(4) of the Family Law Act, R.S.O. 1990, c. F.3, as amended, this Court has the discretion to set aside the Contract or a provision in it if (i) a party failed to provide full and frank financial disclosure at the time that the Contract was made, or (ii) a party did not understand the Contract, or (iii) otherwise in accordance with the law of contract, which includes the notion of duress.

[23] The husband filed one case – Shair v. Shair, 2015 ONSC 5816. Paragraphs 41-44 of the decision of Justice Chiappetta, set out below and with which I am in agreement, are instructive.

[41] Section 56(4) of the Family Law Act provides that 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.

[42] Subsection 56(4)(c) of the Family Law Act codifies the common law position that ordinary contract law principles apply to domestic contracts. Under the law of contract, contracts can potentially be set aside if:

• there was undue influence at the time of signing;

• there was duress at the time of signing;

• unconscionability;

• there was a mistake as to an essential element of the contract;

• there was fraud or material misrepresentation; or

• there was a repudiation of a term in the contract.

[43] A finding that a party has violated a provision of s. 56(4) of the Family Law Act does not automatically result in the nullification of the contract. Rather, a trial judge must determine whether it is appropriate, in the circumstances, to order that the contract be set aside. This is a discretionary exercise (LeVan v. LeVan, 2008 ONCA 388, 90 O.R. (3d) 1, at para. 33).

[44] The party who seeks to set aside a marriage contract carries the burden of proof. That party must first show that his or her case comes within s. 56(4) of Family Law Act and then persuade the court to exercise its discretion in his or her favour to set aside a contract or a provision in it (LeVan v. LeVan, at para. 177).

[24] Paragraph 62 of the decision in that case, which confirms the discretion of a court to uphold a domestic contract despite imperfect financial disclosure at the time that it was made, is reproduced below.

[62] In my view, it is therefore appropriate to exercise the court’s discretion to enforce the terms of the marriage contract independent of the breach of s56(4)(a), as the shortcomings in disclosure did not impact significantly upon the final agreement reached between the parties.

[25] Counsel for D.O. filed a few decisions but relied principally on that of Justice Olah in Baxter v. Baxter, 2003 CanLII 1992 (ON SC). I agree with Mr. Kostyniuk that Justice Olah’s decision is very helpful, and thus I set out below paragraphs 5 through 13 of the Amended Reasons.

[5] The relevant statutory provisions are set out below:

Section 56 (4) of the Family Law Act states as follows:

“SETTING ASIDE DOMESTIC CONTRACT -

A court may, on application, set aside the 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).”

This section provides that a domestic contract may be set aside if one of the parties fail to make full financial disclosure. Even if the contract is valid according to general principles of the law of contract, it may still be set aside under section 56 (4) (a) if a party has failed to disclose significant assets or liabilities.[1] It is a discretionary provision, as it provides that a court may set aside a domestic contract on the basis of the three criteria set out in section 56 (4).

[6] Recent court decisions make it clear that a spouse has an obligation to make ongoing disclosure during settlement negotiations and that failure to do so may result in a court setting aside all or part of the resulting agreement. Factors that emerge from these cases as relevant to the court's discretion in setting aside an order or agreement where the duty to provide financial disclosure has not been met include:

1. Whether the funds existed at the time of the signing of the agreement (Francis);

2. Whether the party seeking to set aside on this basis knew the facts were different than originally stated but decided not to inquire further about details, or neglected to pursue full legal disclosure (Demchuk);

3. Whether there was concealment or misrepresentation (Demchuk);

4. Whether there was duress, or unconscionable circumstances (Demchuk);

5. Whether the non-disclosure was material; how important would the non-disclosed information have been to the negotiations (Dochuk);

6. Whether the agreed-upon terms are reasonable and fair; would they have been different had all the facts been known;

7. Whether the request to set aside is made expeditiously (Demchuk).

[7] In Francis v. Baker (1997), 1997 CanLII 12242 (ON SC), 28 R.F.L. (4th) 437 (Ont.Gen.Div.) additional reasons at (July 18, 1997), Doc. 31715/88 (Ont.Gen.Div.) affirmed (1998), 1998 CanLII 4725 (ON CA), 34 R.F.L. (4th) 317 (Ont. C.A.); affirmed (1999), 1999 CanLII 659 (SCC), 50 R.F.L. (4th) 228 (S.C.C.) the court refused to set aside the parties' separation agreement on the basis of lack of financial disclosure, even though the husband acquired a large amount of money shortly after the separation. The wife had no proof that the money existed at the time of separation or when the agreement was signed. At that time, the husband prepared a statement of net worth for the bank and did not disclose other assets. However, the case at bar is distinguishable as the sale of the shares took place prior to the signing of the separation agreement, such that the funds were available at that time.

[8] In Dochuk v. Dochuk (1999), 1999 CanLII 14971 (ON SC), 44 R.F.L. (4th) 97 (Ont.Gen.Div.), the court held that a person seeking to set aside a contract on the basis of non-disclosure must prove that an omission was material and operative. In this case, although the husband had failed to disclose significant details about his retirement savings during the negotiations of the parties' separation agreement, the court refused the wife's application to have the agreement set aside. The court held that the undisclosed assets would not have made any difference in negotiations. The facts of the Dochuk case were such that the wife did have some knowledge of the existence of the pension plan, but did not pursue disclosure as she wanted to follow strict a timeline. She needed a settlement as quickly as possible in order to be free of a mortgage and other liabilities.

[9] In Demchuk v. Demchuk (1986) 1986 CanLII 6295 (ON SC), 1 R.F.L. (3d) 176 (Ont. H.C.), the court held that non-disclosure does not necessarily render the agreement inoperative. The court applied general principles of contract law to find that a mistake, misrepresentation or actionable non-disclosure only affects the validity of the contract where it is material and operative. In this case, the respondent wife argued that the separation agreement should be rescinded or amended on the basis of the provisions of section 56 (4). She argued that the husband failed to disclose his pension and deferred profit-sharing plan at the time of the making of the agreement. The court found as a fact that, in the course of negotiations, the wife had knowledge of the pension and deferred profit-sharing plan, and was informed by her solicitor that she could obtain full financial disclosure on application to the court. However, the wife elected to reject that advice, preferring to settle all outstanding issues out of court. Here, as the non-disclosure did not amount to an "inducement", the contract remained valid. This case is similar to the case at bar, in that the wives in both instances had knowledge of the asset in question. However, in Demchuk the wife specifically rejected the opportunity to obtain full financial disclosure about the pension plan. Demchuk is distinguishable from Baxter, where the wife believed that she had full knowledge of the value of her husband's shares when she signed the agreement.

[10] In the present case, I believe that the failure to disclose the sale of the shares and the sale price does constitute a material non-disclosure. While it is true, as argued by the husband, that the sale took place two years after the date of separation, and therefore may not be relevant to the net equalization payment, the sale still, nonetheless, resulted in income to the payor and therefore, at the very least, was relevant to the determination of child and/or spousal support.

[11] Further, the minutes of settlement state that the provisions dealing with child support and those dealing with the division of property are "inextricably intertwined". Accordingly, it would not be possible for the court to simply set aside those provisions dealing with child support without disrupting the balance of the agreement.

[12] The Family Law Rules, as well as the Family Law Act contemplate that custody, access, support and property agreements, as well as minutes of settlement relative to these issues are contracts of utmost good faith. Although there may not be a general duty to disclose all in bargaining before entering minutes of settlement on issues of custody, access, child support and property, there are mandatory statutory and rule disclosure requirements in respective of these issues to which parties must strictly adhere. The husband had a positive obligation to disclose in advance of the execution of the minutes of settlement.

[13] In light of the above, the entire agreement and the order is set aside.

The Law as Applied to our Case

[26] Because of the most unusual way that the trial unfolded, I find that it would be highly unfair to T.O., and to Ms. McLeod, to give much consideration to the submissions advanced on behalf of D.O. concerning duress and unconscionability.

[27] What occurred here could only be described as being a gross violation of the well-recognized procedural rule of fairness that we know as the rule in Browne v. Dunn, an 1893 decision of the House of Lords in England.

[28] T.O. was not questioned at all about the alleged threats and abuse spoken (very briefly) about by the wife. And those together are the entire basis for the duress argument.

[29] T.O. was not questioned at all about what provisions of the Contract are allegedly unconscionable, or shockingly unfair, or whatever similar expression one wishes to employ. Neither was Ms. McLeod, who was intimately involved in the negotiations and the drafting of the Contract and whose professional integrity would be impacted by a finding that the Contract is unconscionable, asked a single question about that.

[30] Ms. Cebulak had no reason to anticipate that unconscionability would even be argued at trial. It is not mentioned in the wife’s pleadings. It was not the subject of any evidence, questioning, or address at trial until the closing submissions delivered on behalf of the wife.

[31] Thus, I place no weight on D.O.’s very brief evidence at trial about the alleged threats and abuse which support the duress claim, and I refuse to entertain the unconscionability argument at all, and thus the only legitimate issue is whether the Contract should be declared invalid because of a lack of proper financial disclosure by T.O. at the time that it was made.

[32] On that issue, the main authority relied upon by D.O., the decision of Justice Olah in Baxter, leads inescapably to the conclusion that this Contract must be upheld. On several of the factors outlined in paragraph 6 therein, in fact all of them except the inapplicable first item, the wife’s argument fails.

[33] The first item, whether the “funds” existed at the time of the signing of the Contract, cannot be applied here because I do not know what specifically the wife is alleging she discovered later but which existed at the material time and was not disclosed. There was no evidence from D.O. in that regard. Perhaps the retained earnings in company 743 (Exhibit 13)? Or the extent of the assets in company 753 (Exhibit 16)? Or both? Or something else? I do not know.

[34] In any event, if we assume for the sake of the discussion that specified after-the-fact discovered financial circumstances did exist but were undisclosed at the time that the Contract was signed, everything else discussed by Justice Olah at paragraph 6 of the Baxter decision clearly runs against the wife’s position.

[35] Look at factor number two – whether D.O. decided not to inquire further about details or neglected to pursue full financial disclosure. The Contract itself expressly names all of the corporate interests of T.O., all four companies. If the wife and her independent counsel at the time were not satisfied with what had already been provided in terms of financials for those companies, they could and should have asked for more.

[36] Look at factor number three - whether there was concealment or misrepresentation. Again, the Contract itself expressly names all of the husband’s corporate interests. The negotiations persisted for years, each party with independent counsel. Multiple drafts were exchanged. Amendments were requested by and made in favour of D.O. Two very lengthy and thorough financial briefs (in April 2007 and in September 2009) were delivered by the husband. And, finally, section 25.14 of the Contract states that the parties “have each investigated the other’s financial circumstances to his or her satisfaction”.

[37] Look at factor number four – whether there was duress or unconscionable circumstances. As indicated above, I am unable to make any finding in that regard.

[38] Look at factor number five – whether the non-disclosure was material and how important the undisclosed information would have been to the negotiations. There is no evidence before the Court that any of the alleged undisclosed information, including Exhibit 20 (the CI Investments statement relied upon in submissions by counsel for the wife), and the audited financials for the three numbered companies (also relied upon in those submissions), as examples, would have made any difference to D.O. and/or her lawyer at the time of the making of the Contract.

[39] Look at factor number six – whether the agreed-upon terms are reasonable and fair or whether they would have been different had all of the facts been known at the material time. There is no evidence before the Court, and no submissions were made, about what terms are unreasonable and/or unfair, any why. Further, there is no evidence before the Court about what terms would have been different, and why, if all or some of the alleged undisclosed financial information was known by the wife at the time of the making of the Contract.

[40] Finally, look at factor number seven – whether the request to set aside the Contract was made expeditiously. Clearly, it was not. The parties separated in 2018. It was not D.O. who commenced this proceeding. She did not challenge the validity of the Contract until she filed her Answer in September 2019, a year after the separation and ten years after the Contract was signed.

[41] Assuming that the financial disclosure provided by T.O. was imperfect/incomplete in some respects, this is not a case where this Court would consider setting aside the Contract under section 56(4) of the Family Law Act. In that regard, even making that assumption, I reach the same conclusion as Justice Chiappetta did at paragraph 62 of Her Honour’s decision quoted above.

III. Conclusion

[42] The Contract is valid.

[43] Frankly, once the decision was made by D.O. to proceed at trial in the fashion that she did, which decision this Court respects and which may have been a very unselfish thing for her to do in the best interests of the parties’ son, she ought to have abandoned her challenge to the validity of the Contract and ended the trial, saving costs and time for both sides.

[44] Costs will be awarded in favour of the husband. If the quantum cannot be agreed upon, written submissions will be accepted by the Court. They shall be very brief – no more than two pages excluding attachments. The husband shall file first, followed by the wife, on a timetable agreed upon by counsel but no later than with everything filed by the end of July 2021. No reply is permitted without leave of the Court.

(“Original signed by”)

Conlan J.

Released: May 31, 2021