ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JASON CARVALHO
Applicant
– and –
SANDRA COUTO
Respondent
Gida Deti, Agent for the Applicant
R. Avery Zeidman, Agent for the Respondent
HEARD: May 1, 2022
VELLA, J.
REASONS FOR DECISION
1The Respondent Mother brought a motion to set aside paragraph 12 of the parties' Minutes of Settlement dated September 27, 2021 ("child support provision"). This provision releases the Applicant Father from child support obligations. In the alternative, she seeks to set aside the entire Minutes of Settlement.
2The Mother also seeks an order for child support, retroactively, and asks this court to impute income to the Applicant Father.
3At the motion, the Father consented to setting aside both paragraph 12 and also paragraph 13 of the Minutes of Settlement ("s. 7 expenses provision"). The latter provision set out a formula for section 7 expenses and defined the eligible expenses.
4Accordingly, on consent, paragraphs 12 and 13 of the Minutes of Settlement are set aside.
5Furthermore, the Father has agreed to pay child support effective May 1, 2023, on a without prejudice basis (with income still to be determined) in the sum of $1,076 per month based on an income of $54,000 even though his Notice of Assessment for 2021 shows an income of $49,000. However, the Mother rejects this proposal and seeks a higher income to be imputed to the Father, and also retroactive child support.
6The remaining issues are:
(a) Should the entire Minutes of Settlement be set aside on this motion?
(b) Should the court impute income, and award retroactive child support and s. 7 expenses?
Background
7The following facts are either undisputed or based on my evidentiary findings.
8The parties were married on November 27, 2010 and separated on May 17, 2017.
9They have three children: James born August 11, 2011, Jason also born August 11, 2011, and Jayden born August 6, 2013.
10On September 27, 2021, after numerous communications were exchanged between the parties' respective lawyers, the parties signed the Minutes of Settlement. The Minutes of Settlement addressed all issues as between the parties including decision making authority, primary residence of the children and day to day care and control of the children (vested in the Mother), equalization of net family property including by way of trust claims (there was to be none), child and spousal support (both waived) and 50/50 split of s. 7 expenses which were specifically defined, and a parenting schedule, and consent to proceed with an uncontested divorce.
11The Minutes of Settlement is based on a non-severable global offer to settle from the Mother.
12As stated each party was represented by their own respective lawyers. The Mother is a lawyer called to the bar of Ontario, and practiced some family law, though she deposes she was primarily a document review lawyer. In 2012, ceased full time practice to she stay at home with the children and did contract based document review. The Father is a businessman. He worked at and/or operated a bakery (Jack's Bakery & Pastry Inc.) and restaurant (Jack's Grill House). The Mother alleges he was the beneficial owner of both of these businesses. The Father states that he was a mere employee of the bakery at the time of separation, which was owned by his father. The corporation that owns the restaurant was incorporated under the Father’s name, but he says in fact it was beneficially owned by his father and put into his name for legal purposes. The restaurant was incorporated in 2014.
13This dispute arose when the Mother refused to sign a final Order reflecting the terms of the signed Minutes of Settlement. By this time, the Mother had a dispute with the lawyer who negotiated the Minutes of Settlement on her behalf and had terminated his services. She maintains that she declined to sign the Order because of the alleged financial disclosure deficiencies. She has since retained a new lawyer and brought this motion.
Issue 1: Should the Minutes of Settlement be set aside in its entirety.
14The Mother's primary argument is that the Father grossly misrepresented his financial affairs, that he hid significant income and assets. Therefore, the Minutes of Settlement should be set aside as unconscionable. In her Notice of Motion, it is worthwhile repeating that she claimed this relief secondary and in the alternative to the primary relief sought: namely, setting aside the child support provision of the Minutes of Settlement only. Furthermore, in her affidavit, the Mother also deposes that she is making her affidavit in support of her motion, inter alia, to set aside section 12 of the Minutes.
15Harkening back to her Notice of Motion in which she frames the issues to be adjudicated, she seeks "in the alternative" an order setting aside the entire Minutes of Settlement under s. 56(4) of the Family Law Act, on the basis that:
(a) The Father failed to disclose significant assets, debts and/or income at or around the time when the Minutes were made;
(b) The Father misrepresented his financial situation;
(c) The Terms of the Minutes are ambiguous and/or uncertain; and/or
(d) The Terms of the Minutes are unconscionable.
16At the motion, the Mother did not pursue item (c). Furthermore, she framed the unconscionability argument under the rubric of items (a) and (b).
17In light of the Father's agreement to set aside not only the child support but also the s. 7 expenses provisions is sufficient to deal with the issue at this stage of the proceedings. It is therefore not necessary to determine the Mother's alternative argument that the Minutes of Settlement should be dismissed in their entirety. Accordingly, the Mother’s relief that s. 12 of the Minutes of Settlement be set aside is granted. Furthermore, s. 13 of the Minutes of Settlement is also set aside.
18However, as the Father requests a final Order in accordance with the terms of the Minutes of Settlement, save sections 12 and 13, and it was fully argued, I will deal with the Mother’s request that the entire agreement be set aside in the alternative.
19The burden is on the Mother to demonstrate that her case falls under s. 56(4) of the Family Law Act, and then must persuade the court to exercise its discretion to set aside the Minutes of Settlement. Material non-disclosure of financial assets, debts, or income can satisfy the test (Virc v. Blair, 2014 ONCA 393 at para. 52; LeVan v. LeVan, 2008 ONCA 505, at paras. 51 and 183; Dochuk v. Dochuk, 1999 14971 (ON SC) at para. 17 - 17). However, even if the Mother establishes a ground under s. 56(4), the court must still determine whether it is appropriate, in the circumstances, to set aside the contract (Faiello v. Faiello, 2019 ONCA 710, at para. 20).
20The courts will respect the rights of individuals who enter into separation agreements and the associated expectation that the parties sought certainty without the need to have their claims adjudicated before the courts (Goulding v Keck, 2014 ABCA 138, at paras. 26-27). Accordingly, courts will be reluctant to interfere with an agreement, validly made, so long as there are no legitimate grounds under the legislation for setting it aside (Nisbett v. Nisbett, 2010 ONSC 4381, at para. 51).
21In my view, there are significant issues of credibility of material issues of fact including whether the Father significantly misrepresented his financial affairs at the time the Minutes of Settlement was entered into, and whether and to what extent the Mother was aware of the revenue and assets which she now complains about at the time of entry into the Minutes of Settlement.
22The Mother's main complaints regarding misrepresentation and non-disclosure of the Father's financial affairs are:
(a) Undervaluation of the restaurant and bakery businesses;
(b) Failure to disclose the existence of cryptocurrency assets;
(c) Failure to accurately represent his income, thereby misrepresenting the business values, based on there being "hundreds of thousands of dollars in deposits that were not recorded as revenue in his accounting records";
(d) Failure to disclose that he was repaid a loan by his father in the sum of $90,000;
(e) The ownership of two properties located in Portugal.
23The Father replies that in fact the Mother was aware of his financial assets at the time the Minutes of Settlement were signed and before. She knew of the existence of the two Portuguese properties and that his position was that he held them in trust for his parents. She was aware of the two businesses and his involvement in them. The $90,000 amount was disclosed in his sworn 2018 Financial Statement and it was not a secret repayment of a loan to him by his father. He listed it as an outstanding debt he owed to his parents, to the knowledge of the Mother. While he did not reveal the cryptocurrency transactions, they, and the related business, were ultimately a failure. She did not press for further details or disclosure prior to entering into the Minutes of Settlement.
24The Father states that the restaurant, it was closed at the time of separation because of a lawsuit and had been for three years or so. The business was wrongfully locked out by the landlord thereby effectively closing it down. While the lawsuit eventually settled in favour of the restaurant/tenant, resulting in a payment of $90,000, there is evidence that suggests that settlement occurred in 2019 and that the settlement funds were retained by his father as the beneficial owner of the restaurant.
25Furthermore, the Mother admitted that she took $110,000 from the parties' joint account to "protect herself" after separation in 2017 because the Father had "loaned" $90,000 to his father for the restaurant business. This amounted to approximately 50% of the joint bank account's holdings at the time of separation.
26The Mother admits that her lawyer made repeated requests for financial disclosure relative to the disputed assets, but in her view the disclosure requests were never fulfilled. Nonetheless, she made the global offer to settle all issues in 2021 notwithstanding the fact that she says she was not satisfied by the level of financial disclosure made by the Father and knew about most of the assets.
27With respect to the true ownership of the restaurant business, it is not possible to determine whether and to what extent the Father's father was the beneficial owner. The evidentiary record is lacking and it is not just in this case to make a determination of the intention of the Father and his father on this deficient paper record. There is also a live issue as to what profits were generated by the bakery business during the material time, prior to the execution of the Minutes. Again, the evidentiary record is deficient. For example, an expert business valuator or comparable financial expert may be required to provide opinion evidence.
28With respect to the cryptocurrency assets the Mother alleges the Father concealed from her prior to the execution of the Minutes, the evidentiary record is thin. The Mother relies on podcast interviews where the Father describes his partnership interest in a Metaverse corporation, Nata$World, and that he had been an cryptocurrency investor for two years, which she alleges existed prior to the execution of the Minutes and which she did not know about. The Father denies that he held any significant cryptocurrency assets and that Nata$World was a pilot project that was not successful. However, he did not disclose his interest in the business or his cryptocurrency investments.
29The Father counters that the Mother made no financial disclosure at all but that he was content to accept her global offer to settle. He states that she declined to produce her income tax returns and produced a letter from his lawyer dated March 24, 2021 requesting same. The Mother disputes this. He denies that he received the restaurant's settlement funds from his father, or that he received $90,000 from his father by way of repayment of the loan which he says was made jointly by himself and the Mother. Rather, he deposes that he received $90,000 as a loan from his parents and it was set out in his Financial Statement sworn August 17, 2018.
30There is credible evidence beyond mere bald allegations that supports each party's position. For example, there is evidence that the Mother was aware of the two Portuguese properties that the Father says he holds in trust for his parents at the time of the entry into the minutes of settlement, and that she was also aware of the status of the two businesses as revealed on his Sworn Financial Statement dated August 17, 2018. As well he disclosed the personal loan he ostensibly received from his parents in the sum of $90,000. However, it is noted that it may appear curious that the figure the Father states was a loan from his parents, is the same as the amount of settlement proceeds from the landlord and tenant dispute in close temporal proximity.
31The evidentiary record does not allow for a determination of the issues raised by the Mother as forming the basis of her claim that the Father misrepresented and/or concealed significant assets and revenues at the time the Minutes were executed.
32Furthermore, while the Mother deposes that she would never have made the global offer had she known the full extent of the Father's financial assets.
33However, notwithstanding the foregoing, the Father raises the argument that, notwithstanding the alleged misrepresentations and concealment, the Mother entered into these Minutes of Settlement with her eyes wide open. Neither side arguably had full financial disclosure, and yet both parties determined to enter into the Minutes of Settlement. Both sides were represented by independent legal counsel. The Mother made her global offer to settle, ultimately accepted by the Father and reflected in the Minutes of Settlement, knowing that some of her lawyer’s request for further financial disclosure had not been answered.
34The Father relies on Faiello v Faiello, 2019 ONCA 710 for the proposition that where parties are sophisticated and enter into, in that case, a separation agreement with the knowledge that full financial disclosure has not been made, the court will uphold the agreement notwithstanding the lack of financial disclosure. Notably, this appeal arose from a trial decision in which the trial judge set aside the spousal support provision of the parties’ separation agreement, but upheld the provisions in relation to property. The Court of Appeal, at paras 27- 29, upheld the trial judge’s determination that the father had not satisfied that the mother failed to disclose significant assets when the agreement was executed, that the values were not sufficiently significant to warrant setting aside the agreement since he was aware generally of her assets and debts, and that the father did not require those values as a condition of entering into the separation agreement.
35In T.O. v. D.O., 2021 ONSC 3949, the court declined to set aside the domestic agreement where the wife and her counsel failed to ask for more documents if they were not satisfied with the level of financial disclosure. In this case, the determination of the validity of the domestic contract was made after a trial of an issue. The husband was not cross examined as a result of the wife’s instructions to her counsel. In that case, at paras. 38-39, there was no evidence that any of the alleged undisclosed information would have altered the wife’s position. In this case, on the paper record before me, there is some evidence that the Mother did alter her position. Furthermore, unlike in T.O. at paras 40, in this case the Mother appears to have moved expeditiously to set aside the Minutes of Settlement.
36Both Faiello and T.O. were decisions concerning the validity and enforceability of a domestic contract after the court had the benefit of viva voce evidence at trial. This illustrates the importance of the court ensuring that it can make determinations under s. 56(4) of the Family Law Act based on a written evidentiary record. In this case, the written evidentiary record was deficient perhaps in part because the Mother’s focus in her materials was on setting aside s. 12 of the Minutes of Settlement.
37In my view, there is a genuine issue requiring a trial with respect to the issue of whether there was a material misrepresentation and/or concealment of the Father's revenues, income and assets and, if so, whether she would not have made the global offer to settle resulting in the Minutes of Settlement had the Father’s alleged true state of financial affairs been properly and accurate disclosed. There is an inadequate evidentiary record upon which to make material findings of fact, some of which will require an assessment of credibility (e.g.: determining whether the Father was the beneficial owner of the restaurant and bakery businesses, and the true extent of the Father’s interest and value of his undisclosed cryptocurrency business and transactions at the time of the entry into the Minutes of Settlement, and the true nature of the $90,000 debt listed by the Father in his sworn 2018 Financial Statement).
38I decline to exercise my discretion to set aside, or uphold, the Minutes of Settlement in its entirety. It is premature to decide whether a final order ought issue validating the balance of the Minutes of Settlement.
39The Mother is still at liberty to advance her alternative position that the entire Minutes of Settlement should be set aside at trial.
Issue 2: What is the appropriate temporary order for child support? Should the court adjudicate on the issue of imputing income to the Father?
40It is noteworthy that in the Mother’s Notice of Motion she does not seek an order imputing income to the Father. In fact, her Notice of Motion simply asks that the child support provision of the Minutes of Settlement (s. 12) be set aside. It does not seek that the special expenses provision (s. 13) be set aside, nor does it specifically seek an order for child support, much less an order imputing income or on a retroactive basis.
41However, it is appropriate that I adjudicate on the issue of the void left by setting aside s. 12 and s. 13 of the Minutes of Settlement, recognizing that child support is the entitlement of the child. It is in the best interests of the children that this void be filled on a temporary, without prejudice, basis.
42Pursuant to s. 34(a) of the Family Law Act, upon setting aside a waiver of the right to support in a domestic contact, the court may determine and order support. Accordingly, I have jurisdiction to determine the appropriate level of child support, which I will do on a temporary and without prejudice basis (income not having been finally determined).
43That said, I am not prepared to rule on whether income should be imputed to the Father and if so how much as these issues raise genuine issues of fact that, again, require a better evidentiary base than is in the existing evidentiary record. Furthermore, it would be unfair to the Father to adjudicate on this issue given the lack of notice by way of the Notice of Motion. Parties are constrained by the issues advanced and relief sought by how they frame their notices of motion. They cannot tag on issues by way of a factum or a mention in the accompanying affidavit evidence, as was done in this motion.
44It is appropriate, and in the best interests of the children, that the court intervene to make a temporary, interim, and without prejudice, child support order that is consistent with the Table amounts prescribed on the basis of the evidentiary record before it, without imputing income. To be clear, I have made no determination with respect to the Mother’s claim in argument that the court ought to impute income to the Father for determining the ultimate amount of child support payable.
45Section 15.1(2) of the Divorce Act, RSC 1985, c. 3 (2nd supp), provides that this court may make an order requiring a spouse to pay for the support of the children of the marriage on an interim basis.
46The court is to presumptively make a child support order in accordance with the Federal Child Support Guidelines, SOR/97-175. Pursuant to s. 3(1) of the Guidelines, unless otherwise provided under the Guidelines, the amount of child support for children under the age of majority is,
(a) The amount set out in the appliable table, according to the number of children under the age of majority to whom the order relates and the income of the spouse against whom the order is sought; and
(b) The amount, if any, determined under s. 7.
47The Father's 2021 Notice of Assessment listed his income at $49,939.00. This would yield a Table amount of $888.00 per month pursuant to the Guidelines.
48The Father has agreed to pay table support from May 1, 2023, on a temporary and without prejudice basis, in the sum of $1,076 per month, on a without prejudice and interim basis, based on an income of $54,000 per year.
49I see no reason to adjust that figure and order that the Father shall pay monthly child support in the sum of $1,076.00 effective May 1, 2023. However, this is a temporary order and is made without prejudice to either party challenging that monthly amount once the Father's income is determined at trial.
50Furthermore, the Father is to pay s. 7 expenses in an amount proportionate to his income of $54,000 per year. I make this award in order to fill the void left by the Father’s agreement to set aside s. 13 of the Minutes of Settlement. This award is also made on an interim, without prejudice basis, with income to be determined.
51The issue of whether child support should be awarded retroactively was not argued. Accordingly, this is a live issue to be determined.
Orders
52Sections 12 and 13 of the Minutes of Settlement are hereby set aside.
53The Father will pay child support in the amount of $1,076.00 per month effective May 1, 2023, on an interim, without prejudice, basis with income to be determined by the trial judge.
54The issue of whether or not the Minutes of Settlement should be set aside in their entirety raises genuine issues of fact requiring a trial.
55The child support order is without prejudice to the Mother seeking retroactive child support.
56If costs cannot be agreed upon, the moving party will deliver her cost outline and written submissions within 5 business days from today. The responding party will deliver his cost outline and responding written submissions within 5 days thereafter. The written submissions will not exceed 3 double spaced pages from each party. These documents should be uploaded to the Portal to my attention, and provided to my judicial assistant by email.
Justice S. Vella
Released: September 1, 2023
COURT FILE NO.: FS-21-24850
DATE: 20230901
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JASON CARVALHO
Applicant
– and –
SANDRA COUTO
Respondent
REASONS FOR JUDGMENT
Vella, J.
Released: September 1, 2023