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Family - Domestic Agreements - Set Aside

. El Rassi-Wight v. Arnold

In El Rassi-Wight v. Arnold (Ont CA, 2023) the Court of Appeal considered an appeal of a family law order that held a domestic agreement, ostensibly transferring an interest in the matrimonial home, to be unenforceable. In these quotes the court considers the FLA s.55 ['Form and capacity'] formal domestic agreement requirements (ie. "in writing, signed by the parties and witnessed"):

(a) The significance of the video recording

[14] With respect to the appellant’s first ground of appeal, the video recording made by the appellant confirmed the respondent’s acknowledgement that he had signed the August 2 Document. However, the purpose of the formal requirements in s. 55(1) of the FLA is not just to “provide proof that [a document] was in fact signed by the parties”, but also to “ensure a measure of formality in the execution of a domestic contract”, and to “avoid ‘kitchen table’ agreements”: Gallacher, at para. 24 (citations omitted). As Pepall J.A. explained in Virc v. Blair, 2014 ONCA 392, 119 O.R. (3d) 721, at para. 78:

The purpose of this provision is in part to provide some assurance that the parties were deliberate in reaching their agreement and understood the obligations being imposed: see A. Swan & J. Adamski, Canadian Contract Law, 3rd ed. [Toronto: LexisNexis Canada Inc., 2012], at para. 5.50.

[15] In the circumstances here, we are not persuaded that the trial judge made any error in concluding that the video recording did not serve as a complete substitute for the document having been properly witnessed. Among other things, the video recording is only around 20 seconds long, and it does not capture the full extent of the discussions that led up to the document being drafted and signed. Some portion of these discussions was also audio-recorded by the appellant, and the trial judge found that this latter recording caused her “to have concerns about the circumstances surrounding the negotiation and execution of the contract”.

(b) The legal test for relaxing the formal requirements of s. 55(1) of the FLA

[16] With respect to the appellant’s second and third grounds of appeal, we are also not persuaded that the trial judge applied the wrong legal test for deciding whether it was appropriate in the circumstances of this case to treat the August 2 Document as a valid domestic contract even though it had not been witnessed.

[17] In particular, we do not agree that there is any real inconsistency between this court’s observation in Gallacher, at para. 24, that one of the purposes of s. 55(1) of the FLA is “to ensure that [domestic contracts are] free from undue influence, coercion or duress”, and the court’s later statement at para. 27 (reproduced again here for ease of reference) that:

[T]he strict requirements of s. 55(1) may be relaxed where the court is satisfied that the contract was in fact executed by the parties, where the terms are reasonable and where there was no oppression or unfairness in the circumstances surrounding the negotiation and execution of the contract. [Citations omitted].

[18] At paras. 28-30 of Gallacher, this court went on to discuss some of the relevant factors that bear on the question of whether the formal requirements of s. 55(1) should be relaxed in a particular case. The trial judge considered and applied these factors.

[19] We also do not agree with the appellant that the test articulated in Gallacher for relaxing the formal requirements of s. 55(1) is flawed because it does not track the statutory language in s. 56(4) of the FLA for setting aside a properly formalized domestic contract. In particular, we disagree that as a matter of principle the tests ought to be the same under both sections, as the appellant contends. Rather, we agree with counsel for the respondent that this approach would unduly undermine the legislature’s decision to require domestic contracts to ordinarily have at least some degree of formality, in part to underscore their importance and ensure that the parties who sign them take them seriously.

(c) The trial judge’s application of the Gallacher test

[20] With respect to the appellant’s fourth ground of appeal – that the trial judge erred in concluding that the formalities of s. 55(1) of the FLA should not be relaxed in the circumstances here – we are satisfied that the trial judge properly considered the factors identified in Gallacher.

[21] Unlike the situation in Gallacher, the trial judge found as fact that in this case neither party had received independent legal advice before signing the August 2 Document. She also found that the document was vague, and that the respondent had not understood some key terms. The trial judge also noted that the document left important questions unresolved. For instance, while the respondent was said to be giving up “the house and all assets, equity and so on”, the document did not address which of the parties would be responsible going forward for paying the mortgage or covering the other costs associated with the property.

[22] The trial judge concluded:

In order to forgo compliance with section 55(1) of the FLA, both parties must understand the agreement they have reached and the obligations it imposes. Given the circumstances surrounding the preparation of the August 2nd agreement and the wording used, I am not satisfied that this condition has been met in this case.

[23] The appellant also relies on the Supreme Court of Canada’s recent judgment in Anderson v. Anderson, 2023 SCC 13, 481 D.L.R. (4th) 1, which was released some ten months after the trial judge’s decision in the case on appeal. We are not persuaded that anything that was said in Anderson undermines the trial judge’s analysis or conclusions.

[24] Several features of Anderson render it distinguishable from this case on the facts. First, unlike in the present case, the agreement in Anderson was witnessed. The issue with the agreement in that case was the absence of an additional safeguard under Saskatchewan legislation, namely, that “the parties formally acknowledge that they understand the nature and effect of the terms of the agreement in the presence of independent counsel”: Anderson, at para. 4.

[25] In Anderson, at para. 42, Karakatsanis J., writing for a unanimous court, emphasized the importance of statutory formalities, noting that they “serve to impress upon spouses the significance of their agreement and to encourage and preserve the validity of binding family property settlements”. She explained further at para. 35:

Concern about vulnerabilities may be countered by the presence of procedural safeguards. For example, full and frank disclosure of all relevant financial information between the parties can go far to assuage concerns of informational asymmetry …. Similarly, professional assistance, such as independent legal advice, can serve as a hallmark of a fair bargaining process … although the curative impact of legal advice in the negotiation of domestic contracts should not be taken as given. [Citations omitted].

[26] Karakatsanis J. held further that the domestic agreement in that case, which was in writing, and signed and witnessed, should be enforceable despite the absence of the additional safeguard stipulated in the Saskatchewan legislation that the parties acknowledge their understanding of it in the presence of a lawyer. Importantly, however, she also held at para. 71, that “there was nothing to suggest that the parties did not understand the terms or effect of their agreement”.

[27] In contrast, the trial judge in the case at bar found as fact that the respondent did not understand key aspects of the August 2 Document, in part because the agreement itself was “overly broad and vague”. As we have already noted, we are required to defer to her assessment of the evidence and her findings of fact.

. El Rassi-Wight v. Arnold

In El Rassi-Wight v. Arnold (Ont CA, 2023) the Court of Appeal considered an appeal of a family law order that held a domestic agreement, ostensibly transferring an interest in the matrimonial home, to be unenforceable. In these quotes the court considers the FLA s.56 ['Provisions that may be set aside or disregarded'] set aside provisions:

(d) Setting aside the contract under s. 56(4) of the FLA

[28] Turning to the appellant’s fifth ground of appeal, we see no basis to interfere with the trial judge’s alternative conclusion that even if the August 2 Document was a valid domestic contract, despite not having been prepared in accordance with s. 55(1) of the FLA, she would have set it aside pursuant to s. 56(4).

[29] In this regard, we do not agree with the appellant’s argument that the trial judge made any implicit finding that the respondent signed the document under duress, nor do we agree that s. 56(4) required her to make any such finding.

[30] As Karakatsanis J. noted in Anderson, at para. 3, “in deciding how much weight to give the agreement, a reviewing judge generally examines both the fairness of the bargaining process and the substance of the agreement, in accordance with the legislative scheme”. In Ontario, s. 56(4) of the FLA permits courts to set aside domestic contracts on multiple bases, including when “a party did not understand the nature or consequences of the domestic contract” (s. 56(4)(b)). While a finding of duress might have entitled the trial judge to invoke s. 56(4)(c), which authorizes the setting aside of domestic contracts “otherwise in accordance with the law of contract”, s. 56(4)(b) does not require a finding of duress.

[31] The trial judge found as fact that the respondent did not understand precisely what he was giving up, noting that “[n]either party reviewed any of their financial records prior to signing the document”, and finding further that the respondent, in particular, did not understand the meaning of the term “equity”. In our view, these findings would have given the trial judge a sufficient basis to allow her to set aside the contract under s. 56(4)(b), had it been necessary for her to do so.

. Torgersrud v. Lightstone

In Torgersrud v. Lightstone (Ont CA, 2023) the Court of Appeal considered the statutory test for setting aside a domestic agreement under the FLA (here it was a Quebec domestic agreement):

[7] The application judge added that, if she was in error, she would exercise her discretion to set aside the contracts based on s. 56(4) of the FLA, because the husband had failed to disclose significant assets and the wife did not appreciate the instruments’ nature and consequences. The husband’s parents had both died before the marriage, and he was their sole heir. The wife did not know the extent of the husband’s financial position at the time the instruments were executed. She knew his family had interests in shopping malls in Montreal but was not made aware of the details of the ownership, including the value of the ownership interests. The husband also did not make the necessary inquiries to enable him to fulfil his duty of full financial disclosure. He did not know the value of his future inheritances until several years later. His disclosure in this proceeding indicates his net worth at the date of the marriage was approximately $4 million. This amount was the value of the first tranche of his inheritance from his mother’s estate, which came to him at age 25, a few months after the marriage. He did not make his wife aware of this.

[8] The application judge decided to exercise her discretion to set aside the contract. This was a long marriage and if the Quebec contracts were upheld, the wife would not be entitled to an equalization of net family properties under Ontario law. She signed the contracts without discussion of the parties’ financial circumstances and without receiving an inventory of the husband’s assets. She was trying to keep the peace and appease the husband. She was hurt that the husband was putting his family above her but also trusted him when he said they needed to execute the contracts to protect his family’s business. Referring to the factors in Dochuk v. Dochuk (1999), 1999 CanLII 14971 (ON SC), 44 R.F.L. (4th) 97 (Ont. Gen. Div.) and Demchuk v. Demchuk (1986), 1986 CanLII 6295 (ON SC), 1 R.F.L. (3d) 176 (Ont. H.C.), the application judge held that this was a proper case to set aside the marriage contracts.

....

[11] The application judge determined that s. 56(4) of the FLA was engaged and exercised her discretion under that section to set aside the contracts.

[12] Section 56(4) provides:

Setting aside domestic contract

(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).

[13] With respect to s. 56(4)(a), the application judge found, at para. 246, that

the husband failed to disclose the value of assets as of the date of the marriage contract, specifically that he was about to receive 1/3 of his mother’s estate (as declared in his financial statement and NFP statement, for a total of approximately $4M). This is not a paltry sum.

[14] The application judge found that the wife “met her onus” under s. 56(4)(b), because she did not understand her entitlements under the law and therefore did not understand what rights she was renouncing in signing the contract. The meetings with the notary were short with little time to reflect, and the instruments did not contain details of her legal entitlements at the marriage breakdown and did not provide detailed waivers and releases which would have directed her to understand what wealth she might otherwise be entitled to share under the governing legislation.

[15] The application judge concluded, at para. 260:

I find that the wife would have rethought her position and what she was giving up if she knew she was renouncing her future rights to a division of property of that magnitude.