APOCALYPSE NOW REDUX: SAFEGUARDING ENFORCEABILITY OF DOMESTIC CONTRACTS AND EXERCISING PROFESSIONAL RISK MANAGEMENT
Whether generated by the genuine good faith efforts of the parties or a subtle exploitation of leverage and ultimate capitulation, if nothing else, the Domestic Contract is the physical representation of the joint intention of the parties. Ideally, they have decided how they want to live their lives, in leaving their marriage, or in contemplation of the unfortunate event of the breakdown of their marriage.
Considering the naturally collaborative aspect of these contracts, it is somewhat remarkable that they now inspire unease, anxiety and trepidation amongst the Family Bar. With ever-evolving expectations of not just the contracts themselves, but all participants involved, most lawyers have moved their involvement in these contracts from something analogous to out-patient treatment to something closer to open heart surgery. This is as much in the interest of serving the client, as it is in the self-serving interest of the lawyer. In ensuring that the integrity of the contract is not compromised, the lawyers are at the same time protecting themselves. All efforts to safeguard the contract from future scrutiny can be considered best practices protocol that should naturally lead to avoiding a claim in professional negligence.
However, when even these best practices become prone to being viewed dubiously, or the means used to facilitate them become cost-prohibitive for clients, we see the potential for a crisis. The fact that some of the Family Bar have elected to not involve themselves in these contracts at all should arouse concern.
Exploration of these issues was the topic of my paper “Challenging the Validity of Cohabitation and Pre-Nuptial Agreements in Alberta” (May 2012). Exploration of any changes in the landscape since then is important, given recent case law. At one time, perhaps no more than a reflection on a series of cautionary tales, Alberta lawyers can now view the risks to their clients and themselves in an increasingly tangible fashion.
Lawyers encounter these contracts in various ways. Contracts entered prior to marriage (i.e., cohabitation agreements, marriage contracts and pre-nuptial agreements) are distinguishable from separation agreements in terms of their origin, purpose and application. What is largely consistent amongst them however is the judicial analysis of the circumstances surrounding these agreements, namely the factors considered in deliberations about their enforceability.
1. ANALYZING ENFORCEABILITY WITHIN THE CONTEXT OF FURTHER LEGAL REMEDY
A party seeking to set aside one of these agreements is obviously seeking relief that the agreement otherwise contractually precludes. Where an agreement exists, you can reasonably expect this to be the first point of attack for a party seeking to advance a claim for property division, unjust enrichment or support.
A. Common-Law Relationships and Cohabitation Agreements
For common-law relationships, the existence of a contract is evaluated within the context of the “unjust enrichment test” revisited most recently in Kerr v Baranow.1
As per Kerr, recovery for unjust enrichment is permitted if the Plaintiff can establish:
(a) an enrichment or benefit to the Defendant;
(b) a corresponding deprivation; and
(c) an absence of juristic reason for the enrichment.2
In dealing with juristic reason, the Court in Kerr provides examples of possible juristic reasons that would deny recovery, such as the intention to make a gift (donative intent), a contract, or a disposition of law, such as where a valid statute would deny recovery.3
The existence of a valid contract could conceivably be fatal to an unjust enrichment claim. Conversely, success in having the contract set aside is critical in advancing such a claim.
The existence of a valid contract could also be instrumental in limiting an unjust enrichment Defendant’s exposure at the remedy stage. The “joint family venture” appears to be one of three vehicles by which to advance a claim. The others being quantum meruit and a claim for a share of specific property.
One of the factors in the joint family venture analysis is the actual intention of the parties. A contract could foreseeably be considered and applied in this context, with the upside to the Defendant being avoidance of a finding of “joint family venture”. A characterization of one of the other two would seem invariably favourable to a Defendant’s exposure to a discretionary redistribution of wealth. You would expect your client to favour quantum meruit over paying the 30%-50% of increased wealth Alberta courts have quantified as the range of a successful Plaintiff’s appropriate remedy.
B. Pre-Nuptial Agreements and Separation Agreements arising from Legal Marriages
For a legal marriage where an agreement exists, setting aside the agreement would presumably permit the claimant to seek what they would otherwise be entitled to pursuant to the Matrimonial Property Act4 or the Divorce Act.5
As per Section 8 of the Matrimonial Property Act, one of the factors to be taken into consideration in making a distribution is:
(g) the terms of an oral or written agreement between the spouses.
Also, to the extent that an agreement speaks to spousal support, the agreement would be analyzed in accordance with the Divorce Act, namely Section 15.2(4):
In making an order under subsection (1) or an interim order under subsection (2), the Court shall take into consideration the condition, means, needs and other circumstances of each spouse, including:
(a) the length of time the spouses cohabited;
(b) the functions performed by each spouse during cohabitation; and
(c) any order, agreement or arrangement relating to support of either spouse. [emphasis added]
2. FINDING A “TAINT”: GROUNDS ON WHICH AGREEMENTS MAY BE SET ASIDE
Corbeil v Bebris6 considered the enforceability of a domestic contract governed by the Matrimonial Property Act. At paragraph 13 the Court states:
Moreover, no rule in equity or contract invalidates an agreement simply on account of a lack of independent legal advice. The function of the advice, in that context, is to remove a taint that, left unremoved, might, according to contract or equity law, invalidate the contract. Judges cannot therefore simply say that an agreement is unenforceable for lack of independent legal advice. At the very least, they must first find a taint.
Accordingly, exploring the susceptibility of these agreements will naturally lead to a discussion of counsel’s best practices in immunizing them.
A. Statutory Requirements Not Met
Section 37(1) of the Matrimonial Property Act permits spouses to enter into a written agreement excluding property from the division scheme set out in Part 1 of the Act. The most notable effect of such an agreement is to set aside the presumption of equal distribution of property at the dissolution of the marriage under Section 7(4) of the Act.
For a marriage contract to be valid and enforceable the parties must understand the nature and effect of the Agreement, be aware of the potential relinquishment of a claim otherwise available under the Act and execute the Agreement freely and voluntarily.
The statutory formalities for parties entering into pre-marriage agreements are set out in Section 37 and 38 of the Matrimonial Property Act as follows:
37(1) Part 1 does not apply to property that is owned by either or both spouses or that may be acquired by either or both of them, if, in respect of that property, the spouses have entered into a subsisting written agreement with each other that is enforceable under Section 38 and that provides for the status, ownership and division of that property.
37(2) An agreement under sub-section (1) may be entered into by two (2) persons in contemplation of their marriage to each other but is unenforceable until after the marriage.
37(3) An agreement under sub-section (1):
(a) may provide for the distribution of property between the spouses at any time including, but not limited to, the time of separation of the spouses or the dissolution of the marriage; and
(b) may apply to property owned by both spouses and by each of them at or after the time the agreement is made.
37(4) An agreement under sub-section (1) is unenforceable by a spouse if that spouse, at the time the agreement was made, knew or had reason to believe that the marriage was void.
38(1) An agreement referred to in Section 37 is enforceable if each spouse or each person, in the case of persons referred to in Section 37(2), has acknowledged, in writing, apart from the other spouse or person:
(a) that the spouse or person is aware of the nature and the effect of the agreement;
(b) that the spouse or person is aware of the possible future claims to property the spouse or person may have under this Act and that the spouse or person intends to give up these claims to the extent necessary to give effect to the agreement; and
(c) that the spouse or person is executing the agreement freely and voluntarily without any compulsion on the part of the other spouse or person.
38(2) The acknowledgment referred to in sub-section (1) shall be made before a lawyer other than the lawyer acting for the other spouse or person or before whom the acknowledgment is made by the other spouse or person.
Nasin v Nasin7 involved a couple that had been married in accordance with Muslim tradition. Just prior to the ceremony, they entered into a form of pre-nuptial agreement called the “Mahr” in which the husband agreed to pay the wife $10,000.00 in the event of breakdown of the marriage. There was no written contract about the Mahr. However, in finding offer, acceptance and consideration, the Court characterized it as a “contract” and as a “pre-nuptial” agreement. However, the Court held the agreement was unenforceable: Here, we have a pre-nuptial agreement that met none of the requirements. It was not in writing. There was no certificate of acknowledgment that met the requirements of s. 38 of the Act. The parties did not receive independent legal advice.  Therefore, even though the Mahr was a pre-nuptial contract, it was unenforceable.
The purpose of the statutory formalities is to offer some codified protection to spouses from marital agreements that are not the result of free and informed consent.
In Kuehn v Kuehn8 the couple had started cohabiting in November 1999 and were married in July 2000. The Husband was a successful grain farmer and the Wife was a food service worker. The Trial Judge determined that the relationship had lasted eleven years.
The parties had discussed a prenuptial agreement so that the Husband could protect his family farm. They did not execute an agreement until one hour prior to their wedding, when the document was provided to the Wife for signing. The Agreement was signed without financial disclosure or independent legal advice.
After the parties’ marriage, the Wife left her job to stay on the farm, although she occasionally worked outside the home and also operated a small business on the side. There were no children of the marriage.
After dismissing the Agreement as unenforceable, the Trial Judge determined that the Wife was entitled to 45% of the growth of all matrimonial assets.
The Alberta Court of Appeal varied the matrimonial property award, having determined that the Trial Judge appropriately considered all Section 8 factors, except for an error made under Section 8(g). Specifically, the Trial Judge did not adequately consider the terms of any oral or written agreement between the parties.
The Trial Judge had determined that the Agreement did not comply with the formal requirements of Section 38 of the MPA. However, the Court of Appeal noted that: …In placing no value on the evidentiary effects of the “home-made agreement”, which the Appellant cobbled together through the provision of two precedent pre-nuptial agreements, the trial judge relied on his basic finding that the Appellant, through his pre-nuptial conduct respecting the agreement, unfairly induced the Respondent into signing the agreement. The distaste for the Appellant’s actions caused the trial judge to exclude the agreement completely from his judgment.  However, an unenforceable agreement may still be relevant to the ultimate distribution of matrimonial property under section 8(g). In Corbeil v Bebris (1993), 141 AR 215, 105 DLR (4th) 759 (CA), Kearns J.A. of this Court at para. 29 held:
“I prefer a reconciliation based upon a moderated sense of the notion of enforceability. In my view, the judge cannot simply adopt and apply the agreement in the face of non‑compliance with the statutory formalities of execution. To do that would be to flout the statute. But neither does the judge pretend the agreement never happened. The judge, rather, assesses the impact of the agreement on the parties, as one of the facts in their lives and thus one of the circumstances made relevant by s. 8. That impact may be minimal or it may be significant. Difficulties may arise in applying that distinction. It is no reason to obliterate the distinction, because that too will present difficulties and raise the spectre of unjust results.”
While the Agreement was not a valid and binding agreement in accordance with the legislation, an assessment of all the evidence revealed the existence of a pre-nuptial understanding. The Trial Judge’s decision to award 45% of the growth in value of the farm was unreasonable.
The Court of Appeal determined that the Wife was only entitled to 10% of the growth in the value of the farm over the course of the marriage. However, the Court awarded each party with 50% of the growth in the value of non-exempt assets.
By way of an interesting aside, argument for an analogous approach was advanced by the appellant in Lemoine v Griffith.9
Mr. Griffith and Ms. Lemoine had lived together on a farm for 14 years. They were engaged, and at one time entered into a Matrimonial Property Agreement. The Agreement was required by a partnership agreement between Mr. Griffith and his father. The Agreement was to be effective even if the parties did not marry. They did not. After separation Ms. Lemoine commenced an action for:
- Unjust enrichment; and
- Adult Interdependent Partner Support (“AIP support”)
The Trial Judge found the Agreement was of no force and effect due to undue influence.
The Court determined that the parties were involved in a joint family venture which formed the basis of an unjust enrichment claim, and awarded Ms. Lemoine 30% ($915,440.00) of the increase in Mr. Griffith’s net worth.
Mr. Griffith appealed the unjust enrichment award.
On appeal, one of the arguments advanced by counsel for Mr. Griffith was that the Trial Judge’s disregard of the Domestic Contract in the context of an unjust enrichment claim was an error which was no different than the error committed by the Trial Judge in Kuehn in completely disregarding a Domestic Contract in the context of a matrimonial property claim.
The appellant argued that just as the Court of Appeal had reintroduced a Domestic Contract as a factor in accordance with Section 8 of the Matrimonial Property Act in Kuehn, Kerr mandated that the Court must consider the intention of the parties when a juristic reason for retaining accumulated wealth is advanced. It was argued that the impact of the agreement may be minimal or significant, but it must at least be considered. The Appellant argued that it is not an “all or nothing game”. Even those agreements that are somewhat “tainted” may be given significant weight.
The Majority referred to Kuehn and Corbeil in analyzing the proposition that unenforceable agreements may still be relied upon as evidence of parties’ intentions.
However, the Court distinguished Kuehn and Corbeil: …In those cases, the court found the agreements were unenforceable because they did not comply with the formal requirements set in the Matrimonial Property Act, RSA 2000, c M-8. This Act is not applicable to cohabiting couples, such as the parties here. More importantly, the trial judge, in the present case, found that undue influence was exerted to obtain Ms. Lemoine’s execution of the MPA. Thus, Ms. Lemoine did not sign it of her own free will and it cannot be relied upon to provide evidence of her true intentions or expectations.
The Majority also noted that the Agreement in question was signed four years into the cohabitation, and that there was no evidence Ms. Lemoine intended to give up rights and interests which she had already acquired to that point.
Based on Ms. Lemoine’s evidence, the Majority determined that the only “intent” that could be supported to uphold the Agreement was Ms. Lemoine’s intent to protect her father-in-law’s partnership interest.
The Majority concluded that the Agreement could not be relied upon to show that the parties did not intend to enter into a joint family venture, that they intended to exclude certain property from an existing joint family venture, or that there was a juristic reason for Mr. Griffith to retain the benefits of Ms. Lemoine’s contribution.
These decisions offer insight on how the Courts spin these agreements through the legislative or equitable framework to determine their applicability. The mere existence of an agreement does not place you in Summary Judgement territory. Also, despite language in the agreement that might suggest otherwise, it may not, in and of itself, act as full answer and defence to any future claims.
In addition, the most tainted agreement might not be wholly vanquished. There may be, after all, a nuanced approach to analyzing and applying these agreements as “factors”, rather than an “all or nothing” game.
B. Inadequate Financial Disclosure
What is the standard of financial disclosure required for agreements of this nature?
If one seeks guidance on this issue from the legislation, as the Court points out in Hinton v Hinton:10 Section 38 of the Matrimonial Property Act does not speak directly to disclosure, except to the extent that the same may impact on an awareness of the nature and the effect of the agreement, or possible future claims to property and the intention to give up these claims to the extent necessary to give effect to the agreement.
The standard approach taken by lawyers drafting these agreements is the appending of “Schedules” within the agreement outlining and describing the parties’ assets. This approach has been the subject of some examination by the Alberta courts.
The Tardif v Campbell11 decision involved a Pre-Nuptial Agreement that was executed by the Plaintiff two days prior to the wedding and by the Defendant, a few days after the wedding. Two schedules within the agreement set out the property of each party at that time.
At a Trial of the issue, the Plaintiff asserted that the Agreement should be declared null and void because he was under pressure to sign and that he signed it without the benefit of full disclosure of the Defendant’s financial position. The Plaintiff argued that this disclosure should have been provided, with or without request, although none was made, including financial statements and full particulars of all of the property.
The Plaintiff further argued that he should have had the kind of disclosure ordinarily furnished in a Notice to Disclose. The Court concluded that:…There is nothing in Sections 37 or 38 of the Act which imposes such a requirement. Rather, what is required is that the executing party be “aware of the nature and effect of the agreement” and that it be executed “freely and voluntarily without any compulsion” on the part of the other party, along with the formalities of execution including his acknowledgment before a lawyer who is not acting for the other party…What the Plaintiff knew about the Defendant’s financial position was this: It was considerably larger than his own.
And the Court went even further on the matter of financial disclosure: While the Plaintiff may have not known the exact value of some of the property, he most certainly was aware of its nature and that the Agreement sought to keep it entirely separate from him as the Defendant’s own property in the event of separation or divorce.
The Pre-Nuptial Agreement was deemed valid.
Hollingshead v Hollingshead12 involved a couple that had been legally married and ultimately separated after fourteen years. At Trial, responding to the Wife’s claim for matrimonial property division and spousal support, the Husband relied upon the provisions of a Pre-Nuptial Agreement which purported to exhaustively deal with both.
In challenging the validity of the agreement, the Wife challenged a provision in the agreement as false:
7. Each of the parties admits full knowledge of the nature and extent of the assets and estate of the other, as more particularly set out in Schedule “A” as to the assets and liabilities of the Husband and in Schedule “B” as to the assets and liabilities of the Wife and each has made full disclosure of assets and obligations.13
The schedules merely listed the parties’ assets. The Wife testified that while she knew the Husband was “financially well off” she was unaware of the values of all of the assets or of the specific nature of some of those assets. For instance, she was unaware that the Husband’s professional corporation owned investments. The Husband testified that he recalled the Wife having an understanding of all of his assets and that if she had asked him any questions of same he would have answered her questions.14
Further, the lawyer whom had provided independent legal advice to the Wife testified respecting her standard practice. She offered that in 1992, when the agreement was signed, it was typical for these Agreements to simply list the assets and that the practice had evolved such that values were now being used more commonly.15
The lawyer further testified that her usual practice would have had her asking the Wife whether she had any questions surrounding the list of assets and in particular, whether any follow up for values was desired. The Court accepted the lawyer’s testimony and concluded that if there were no inquiries it was because the Wife did not want the matter pursued for whatever reasons she may have then had. The Court was “satisfied that for whatever reason known to her the wife was comfortable in her level of knowledge”.16
Counsel for the Wife argued that merely possessing a “comfort level” does not correspond to the agreement’s requirement that the Wife had “full knowledge of the nature and extent” of the Husband’s assets.17
The Court held: Unfortunately, the prenuptial agreement does not define the quoted words. For instance, consider the asset of stocks. Is “full knowledge” only established by knowing the number of stocks, their purchase price, their current price, whether they are free trading or flow through, have share warrants attached, etc.? Would something less suffice? It would seem only reasonable to rely on the individual’s choice as to the information he/she wanted to know.  One could suggest that the words “nature and extent” encompass the value of the assets but there is nothing in the clause to indicate that value is to be implied nor how it is to be determined. On top of that I do not know, of course, what was the precise level of knowledge that either party had of the other’s assets. In the absence of a definition section or in the absence of some provable attempts at hiding assets or the nature of the assets or some evidence of an attempt to mislead a party regarding same, I can only conclude that when an individual, after receiving independent legal advice concerning the contents of a document is yet willing to put pen to paper, then that person at that time must have been satisfied with whatever her level of knowledge and was prepared to proceed to sign the document notwithstanding she may have been in error in the actual understanding of those assets. Examined from a different angle, the wife has not provided me with evidence to even suggest that had she known more information she may have been inspired not to sign this prenuptial. See Hinton v. Hinton 2008 CarswellAlta 409(QB), paragraphs 43 & 44.
Sporring v Collins18 involved a seven year common-law relationship that ended and following which the Plaintiff advanced an unjust enrichment claim. At the “absence of juristic reason” stage, the Court analyzed the Cohabitation Agreement signed by the parties. One of the arguments raised about the validity of this agreement was the adequacy of financial disclosure. The Plaintiff argued that although the agreement said that the parties had completely and fully disclosed to one another their current financial status, including assets and liabilities, this did not happen.
In hastily dismissing the Plaintiff’s claim of inadequate financial disclosure, the Court held: Mr. Sporring does not say there was information that should have been disclosed by Ms. Collins that may have affected his decision to sign the agreement.  It is not necessary to determine the preliminary issue of whether there was any duty to disclose in these circumstances because there is no evidence that the failure to provide disclosure was or might have been material to Mr. Sporring’s decision to enter into the agreement. Mr. Sporring does not suggest there was concealment or misrepresentation or that there was anything that he was unaware of that might be relevant to this claim.
Most would agree that the “bar was raised” for financial disclosure on marital agreements with Rick v Brandsema.19 The Supreme Court of Canada confirmed the entitlement of spouses to the other’s finances. Absent that full disclosure, any subsequent marital agreements are at risk of being set aside. The Rick decision perhaps also laid the groundwork for the same approach taken by the Court of King’s Bench of Alberta in Brown v Silvera,20 where the court held: Non-disclosure is a fundamental breach of a property settlement contract: Fercho v. DosSantos, at para. 42. Proper disclosure means presenting financial information in a clear, noncryptic form that does not require additional investigation: Fercho v. Dos Santos, at para. 45. The Alberta Court of Appeal, in discussing disclosure pursuant to matrimonial property agreements, stated that “the production of such disclosure must be regarded as fundamental to the Agreement.”: Moore v. Moore, 2000 ABCA 102 at para. 10, 185 D.L.R. (4th) 93.
… Some of this case law suggests that Silvera should have asked more questions of Brown and that she should take some responsibility for not getting complete disclosure of the property from Brown and that it was Silvera’s duty to search out the information she needed before she signed the agreement. Brandsema puts paid to the suggestion that Silvera had any duty to enquire. The strict principles of contract law are not appropriate to the context of emotional and stressed matrimonial matters (at paras. 40-41). The ability of spouses to contract independently depends on the integrity of the bargain, that is, the negotiation requires full disclosure. Brandsema makes it clear that both spouses have a duty to disclose completely and be utterly honest about the existence and the value of all of their matrimonial property.  I adopt the reasoning of Justice Erb in Fercho v. Dos Santos, at paras. 40 and 45. She held that parties to a separation agreement are not expected to engage in a “scavenger hunt”, to unweave “a complex web of corporate or other intrigue” or to “make huge expenditures to untangle complex corporate structures” just to ascertain family assets. Justice Erb stated that behaviour of concealing assets is not to be encouraged. I agree.
… Consequently, I find that Brown was obligated to disclose completely all the corporations in which he had an interest and the value of that interest. Further, I find that if he was not aware of the value of the interest, he was obligated to determine the value of the corporations or to ensure that Silvera was given a fair opportunity to determine the value. Further, if Brown was aware of uncertainty in the value of these corporations, he had a positive obligation to disclose that fact. Above all, he was obligated not to mislead Silvera about the value or the potential value of all of the corporate interests. He was obligated to disclose everything relevant about those corporations that would assist Silvera to determine the value of the corporations and whether she was interested in sharing those assets.
Siegel v Siegel21 is an Alberta Court of King’s Bench decision, subsequent to Rick and Brown, in which the Plaintiff challenged the enforceability of a Pre-Marital Agreement on grounds that included an allegation that the Defendant “fraudulently or negligently misrepresented the state of his assets at the time of marriage by not disclosing the exact interest he had in farmland described in Schedule A.”22
The Court held: In this case, however, the husband did disclose to the wife that he had an interest in the farmland and that there was money owing on the farmland, which would suggest that he did not have unencumbered title. After receiving independent legal advice, the wife did not inquire about the property or seek additional information about the proposed exemption. If the wife was unaware of the exact interest owned by the husband in the farmland, that does not take away from the fact that she was aware that she was giving up her claim to the farmland: see Tardif v. Campbell, 2008 ABQB 776 (CanLII), 2008 ABQB 776, 63 R.F.L. (6th) 220, at paras. 40-43 for a similar interpretation.  The husband’s failure to provide a more accurate disclosure of his interest in the farmland can be distinguished from the type of misleading disclosure that was found to exist in Rick v. Brandsema, 2009 SCC 10 (CanLII), 2009 SCC 10,  1 S.C.R. 295. In that case, the Supreme Court of Canada departed from the distribution arrangement set out in a separation agreement on the basis that the husband’s disclosure was misleading, the wife was psychologically vulnerable and the legal advice provided to the wife was not sufficient to compensate for her vulnerability. In the case at bar, there is no evidence that the husband attempted to mislead the wife or that the wife was psychologically vulnerable at the time she received legal advice regarding the effect of the Agreement. Even if the husband’s disclosure regarding the nature of his interest in the farmland can be characterized as incomplete, there is no evidence that this was part of a cumulative series of transgressions or improprieties. Without this type of evidence, the Court considers the Agreement to be a reflection of the mutual desire of the parties and indicative of their substantive intentions at the time of marriage: see Miglin v. Miglin, at para 83.
Given the foregoing, even following Rick and Brown, one can reasonably conclude that the Alberta Courts adopt the position that a party need not have precise knowledge of the financial circumstances of the other. Moreover, any party alleging inadequate financial disclosure should have at the very least, made further efforts to satisfy any perceived deficiencies prior to signing the agreement. In those circumstances, if one seeks to vitiate the agreement on these grounds, they would need to represent some kind of concealment or provide evidence that with the benefit of additional disclosure, they would not have signed the agreement.
C. Duress, Undue Influence and Coercion
Safeguarding a party against signing a marital contract under duress is grounded not only in traditional contract principles in the common law, but it was also presumably codified in the Matrimonial Property Act.
Again, a signing spouse needs to formally acknowledge that they are “executing the agreement freely and voluntarily without any compulsion on the part of the other spouse or person”, as per 38(1)(c) of the Matrimonial Property Act.
That being said, the spouse and lawyer’s formal endorsing of an Acknowledgement may merely act as a “road-bump” to a party challenging the validity of an agreement on the grounds of duress. That is to say, a spouse at one time formally acknowledging that they were not under duress at the time of signing does not necessarily lead to an absence of duress being deemed self-evident.
In Hollingshead, the Plaintiff’s Wife challenged the validity of a Pre-Nuptial Agreement on grounds that included duress. She claimed that she had signed the agreement five days before her wedding after she had become financially dependent on her husband. Notwithstanding the signed acknowledgment, she claimed that she was not aware of the nature and effect of the agreement, namely the waiver of future claims.23
On the matter of duress, the Court held: The wife also complains that this pre-nuptial fails to meet the requirements of s. 38 (1)(c) of the Matrimonial Property Act i.e. that the wife lacked free will.  Counsel asserted that at the time of signing she was not acting freely and voluntarily and without any compulsion on the part of the husband…  In addition to my earlier findings I further add that there is no evidence to support a claim that the wife did not know what she was signing, nor what it meant for her future. There is no evidence that she was coerced, forced, tricked, pressured or compelled into signing this pre-nuptial. She acted as an individual exercising her own free will and not as a result of the direct or subtle wishes from the husband for her to sign. There is no evidence to support the suggestion that her signing reflected an “overwhelming imbalance of power.”  My finding in this regard equally reflects my confidence both in the testimony of Ms. MacSween [the Wife’s independent lawyer] which I unreservedly accept as well as in her signed “Certificate of Acknowledgement By Spouse.”
As further outlined and held in Hinton: The Plaintiff also says that the Defendant exercised undue influence over the Plaintiff and that she signed the Agreement under duress. She says that the fact that the Defendant is a lawyer left her with unequal bargaining power. Further, when combined with her emotionally vulnerable state arising from the suicide of her second husband in October of 1996 and the possible suicide attempt by one of her daughters, it effectively “served to put the Defendant in a unique position of undue influence over the Plaintiff.” I do not accept this suggestion….  If the Plaintiff was under stress arising out of her personal circumstances, I find that her situation was not caused by any actions of the Defendant. Further, I find that although she was undoubtedly emotionally upset subsequent to her second husband’s death in 1996, that in itself does not lead to the conclusion that she was deprived of her free will in relation to entering into this Agreement. I was not satisfied on the basis of her evidence that she felt compelled to sign the Agreement, except insofar as she wished to marry the Defendant. If that were sufficient to establish undue influence or duress, no pre-nuptial agreement would ever survive challenge.  Having considered all of the evidence, I find that any suggestion of undue influence or duress regarding the signing of the Agreement whether arising from the Defendant’s position as a lawyer or because of her emotional state has not been established on the Plaintiff’s evidence, and the allegation is further effectively met and rebutted by the evidence of Mr. Hautmann and the Acknowledgement signed by the Plaintiff which provided, in Clause 4, that the Plaintiff was executing the Agreement “freely and voluntarily without any compulsion on the part of my contemplated spouse, John Frederick Hinton“.
When determining whether a contract was entered into under duress, the test in the family law context is less onerous than the test for unconscionability as required in the common law of contract and no evidence of power imbalance is required. (Miglin v Miglin)24
However, the Court of King’s Bench of Alberta in Welch v Bancarz,25 a case which involved a Separation Agreement, recognized both a heavy onus on a Plaintiff and the emphasis on a fact-driven analysis: Equity has extended the concept to include instances where there is economic duress, as noted by Paperny J. in Hill v. Ilnicki,  A.J. No. 1219 (Q.B.). While economic pressure is not always sufficient to establish duress, I note that in Fitzgerald v. Siepierski,  N.S.J. No. 210 (S.C.), Hall J. found that a common law wife had no alternative but to accept a payment and vacate the premises on very short notice. Hall J. concluded that she clearly accepted the payment under extreme duress, which vitiated any implied agreement that she was accepting the payment in full settlement of her interest in the common property. In Hicks v. Bird, (1994), 146 N.S.R. (2d) 185 (Fam.Ct.), upheld on other grounds  N.S.J. No. 591 (S.C.), the man told his common law wife it was “this agreement or nothing” in which case the relationship would end there. Dyer J. held that given those choices and the wife’s powerless state, it was not surprising that the agreement was signed, and found that the wife was subject to duress and undue influence. See also the discussion of duress in the family law context in P. (M.L.) v. P. (G.W.) 2000 CanLII 22462 (ON SC), (2000), 12 R.F.L. (5th) 434 (Ont. S.C.J.).
… While it is true that there is a heavy onus on a party claiming duress so as to rescind a contract (Westerlund v. Ayer, 1970 CanLII 150 (SCC),  S.C.R. 131), the question will turn on the particular facts in each case and I cannot say on the limited evidence before me that the Plaintiff could not or would not succeed in establishing that she reasonably felt that she had virtually no choice in the circumstances but to sign the document in question, and that those circumstances in this case justify rescission of the agreement.
As offered by the Court in Hearn v Hearn:26 It should be noted that the duress in question is nothing that was caused directly by the Defendant. This is not a case where one spouse is said to have, for example, compelled the other to sign the agreement by threats of violence. The duress here arises from external economic circumstances. The most that can be said is that the Defendant would have been able to alleviate those economic circumstances by providing additional financial support to the Plaintiff…  There is always a certain amount of economic pressure involved in negotiating a settlement agreement. Settlement agreements, like all agreements, involve an element of give and take. Generally speaking neither party gets everything he or she wants. Often times one party is in a stronger bargaining position than the other; absent circumstances amounting to unconscionability this does not affect the enforceability of the settlement agreement.
In Tardif, the Plaintiff asserted that he signed a Pre-Nuptial Agreement in a stressful environment, fearful that his imminently pending wedding would not take place.27
The Court held: To prove that he executed the Agreement under duress, the Plaintiff must demonstrate that he was under such pressure that he no longer had an ability to exercise independent judgment.  The Plaintiff said that he felt pressured because of the short period of time between the day he signed the Agreement and the wedding itself. He felt that the Agreement was sprung on him. He agreed that while many things were going on at the time to prepare for the great day, at no time did the Defendant say or intimate to him that if he failed to sign the Agreement there would be no marriage…  I am not satisfied that the Plaintiff was under such pressure that it amounted to duress or that he was not able to exercise independent judgment…
In Mastalerz v Mastalerz,28 the Court deliberated on the validity of a Pre-Nuptial Agreement. The evidence showed that the agreement was presented to the Plaintiff Wife within days of both:
(a) The planned wedding; and
(b) Expiry of the 90 day period within which the Plaintiff, as a condition of her visa, would have to marry the Defendant.
The Plaintiff argued duress in that she was presented no practical option except to sign the agreement. She argued that she had given up the security that she had established in her native Poland and had no realistic hope, if she returned there, of reconstructing her life.
On these facts, in finding no duress, the Court held: While Ms. Mastalerz may have only had 90 days to marry Mr. Mastalerz pursuant to the terms of her visa, there is no evidence that Ms. Mastalerz was forced to enter into the Agreement. To the contrary, she had many resources in Poland and, although she had quit her job to move to Canada, there is no reason to believe that she would not have been highly employable had she chosen to return. I also have no doubt that had she chosen to return do so, Mr. Mastalerz would have paid for her return to Poland. Ms. Mastalerz admits that the only obstacle to her return was her own pride, in that she would have been embarrassed to have returned to Poland at that time because she feared that she would be perceived as a failure.
Orcheski v Hynes29 involved parties that had cohabited from 1998 to 2006. They had executed a Cohabitation Agreement in 2001, with independent legal advice. The Agreement was signed during the time that Mr. Hynes was planning to relocate from Fort McMurray to Edmonton. Ms. Orcheski stated that she signed the Agreement when she and Mr. Hynes were packed up and ready to move to Edmonton and their residence had been sold. She testified that Mr. Hynes provided her with the Agreement a few days prior to the house being sold and advised her that, if she did not sign, the relationship was over and she would not be accompanying him to Edmonton.30 There was evidence of correspondence, regarding revisions, between counsel a year before the agreement was executed.
The Court concluded that these particular circumstances did not amount to duress.31 In the face of the legal advice and the Agreement she signed, she chose to move to Edmonton with Mr. Hynes. The Court concluded she could have chosen to stay in Fort McMurray.
In distinguishing its features from duress in Lemoine, the trial judge found the Agreement was of no force and effect due to undue influence: Duress, in any form, is the coercion of another’s will so as to vitiate consent: Hill v. Illnicki, 273 A.R. 131 at para. 52, citing Pao On v. Lau Yiu Long,  3 All E.R. 65 (H.K. P.C.) at 78. It is, in other words, a threat. In this case, Connie was told that if she did not sign the Agreement, Jamie’s father would force her to move off his land. Certainly this is a threat.  Traditionally, however, economic duress is usually only found sufficient to vitiate a contract where there has been a threat and the pressure exerted by that threat must be “illegitimate” in nature: Stott v. Merit Investment Corporation (1988), 48 DLR (4 ) 288 at 308 th (Ont. C.A.).  The threat of an illegal act is almost always illegitimate. On the other hand, not all lawful acts are necessarily legitimate. There are four factors for determining when an otherwise lawful act amounts to illegitimate pressure and is sufficient to establish a defence of duress: (1), where the threat involves an abuse of the legal process; (2), where the demand is not bona fide; (3), where the demand is not reasonable; and (4), where the demand is unconscionable: Nelson Enonchong, Duress, Undue Influence and Unconscionable Dealing, (London, UK: Sweet & Maxwell, 2006) at 3-022.  The problem in this instance is that what Connie thought she was signing was a waiver of all rights to claim against the farming partnership only. To be even more specific, she was told she had to waive all potential claims she might one day make with regard to Griffith Farms. That was, moreover, the requirement that Jamie and his father had entered into under their partnership agreement. While I recognize that this would have brought significant pressure to bear on Connie, I do not think that it amounted to duress.  Undue influence is an equitable doctrine that seeks to protect people from victimization by those they rely on. The focus of the legal enquiry centres on “the ability of one person to dominate the will of another, whether through manipulation, coercion, or outright but subtle abuse of power.” Goodman Estate v. Geffen,  2. SCR 353 at 377, per Wilson J.  The equitable defence of undue influence arises in two sets of circumstances. The first is where evidence can be adduced to prove that actual influence was exerted, unduly, in order to gain agreement to a particular transaction. Strong persuasion is not sufficient. The second is a presumption of undue influence that arises from the nature of the relationship between the parties, particularly at the time the transaction is being negotiated and carried out.  I consider that undue influence was at play in the circumstances surrounding the signing of the agreement. Connie was told the agreement was only with regard to the partnership. She was told she would have to leave the farm if she did not sign. She never got an advance copy of the agreement to review, she was taken to Jamie’s lawyers’ offices where his lawyer “went through” the agreement, in Jamie’s presence, and then she was sent off with a complete stranger who spent approximately 15 minutes with her before she signed the agreement.
The undue influence was deemed not to be rehabilitated by independent legal advice because the advising lawyer spent too little time with Ms. Lemoine, and his fee was paid by Mr. Griffith.
The finding of undue influence went undisturbed by the Court of Appeal. However, in a relentlessly scathing dissent, Slatter J.A. illustrates exactly how much consensus was lacking on this issue at the appellate level, but also serves to illuminate the fundamental concerns surrounding a finding of undue influence as it relates to domestic contracts of this nature.
Slatter J.A. noted that the nature of a relationship between parties cannot per se amount to undue influence, otherwise no matrimonial property agreement would be valid. The law assumes that each of the parties to a matrimonial relationship has the capacity, free will, and ability decide what is in the best interest of each, and what arrangement they will have.
He also noted that the possibility that Ms. Lemoine would need to leave the farm could not amount to actual undue influence. The possibility that a failure to sign an agreement might end the relationship cannot amount to either duress or undue influence because it is a potential consequence of any pre-marriage agreement. No pre-marriage agreement would then be enforceable.
He agreed that an agreement invalidated due to duress or undue influence cannot be a reliable indication of intent, but noted that, in this case, there was other evidence of intention on the record: The trial judge also found that the matrimonial property agreement was unenforceable as it was unsupported by consideration:
122 Despite the fact that an agreement of this nature is specialized, it is still a contract and the basic law of contract applies. One of the most basic principles of contract law is that consideration is required. In this case, the agreement is said to be made “in consideration of their cohabitation, the entry into marriage by each and the mutual promises and covenants contained herein.” The cohabitation pre-existed the contract. Marriage, however, never occurred. As for the mutual promises and covenants in the agreement, they do not in any way confer a benefit by one party to another: on the contrary, they purport to prevent either party from receiving any financial benefit from the other.
When parties expend the effort to have a formal contract drawn up, and then execute it before lawyers, with the necessary certificates under the Matrimonial Property Act, the court should not embrace artificial arguments that render it unenforceable. The law of consideration was never intended to generate that sort of result. The agreement recited that it was made in expectation of the marriage of the parties, and contemplated the continued cohabitation of the parties. A promise to marry, marriage, and by analogy cohabitation have long been recognized as valuable consideration “of the highest kind”: Floyer v Bankes (1863), 3 De G J & S 306 at p. 312, 46 ER 654; O’Reilly v O’Reilly (1910), 21 OLR 201 at pp. 208-9 (CA); Attorney-General of Ontario v Perry,  OR 617,  3 DLR 255 at p. 259 (CA). Cohabitation is something that either party is entitled to terminate at any time at will, and thus a covenant to continue to cohabit is good consideration. It is increasingly common for couples to meet, cohabit, and then marry. A matrimonial property agreement could be entered into at any time along this continuum. The law should recognize this reality, and not make any agreement entered into during cohabitation or marriage vulnerable to attack after the fact.  There was a time when the common law was unsure whether mutual promises were sufficient consideration to support a contract. However, since the 16th century it has been accepted that a promise for a promise is good consideration: West v Stowel (1577), 2 Leon 154, 74 ER 437. The mutual promises respecting the claims that each party would or would not make against the property of the other were in and of themselves sufficient consideration to support the agreement. The mutual promises do “confer a benefit by one party to another”. Mutual covenants that no claim will be made against the property of the other are clearly sufficient consideration for the contract; the limit on the claims that will be made is valuable to each of them. The approach of the trial judge assumes without legal justification that matrimonial property agreements containing a “separation of property” regime are unenforceable.  In summary, the conclusion that there was no consideration for the contract reflects reviewable error.
Echoing the sentiments of previous decisions, Slatter, J.A. further articulates the caution to be exercised by Courts in scrutinizing domestic contracts: The Legislature has recognized and endorsed matrimonial property agreements by statute. The Act says that if a contract regarding matrimonial property is entered into, and the necessary certificates under s. 38 are attached, the courts will enforce them. In this overall context, it is untenable to suggest that matrimonial property agreements, while recognized by statute, are somehow unenforceable at common law, for example because they “lack consideration”.  The proper role of the courts is to enforce matrimonial property agreements, not to impose on the spouses what is perceived to be a just matrimonial property arrangement. In any event, “fairness” is to some extent in the mind of the beholder. One thing that will often lead to unfairness is to allow the parties to cohabit for a lengthy period of time under the expectation that their relationship is governed by a matrimonial property agreement, only to have the agreement pulled out from under their feet at a trial. Any perceived “fairness” to one of the spouses by doing that will usually be offset many times over by unfairness to the other party. Further unfairness arises from the court having “gone behind” the statutory certificate attached to the agreement; whether this is permissible as a matter of law was not argued. So far as he knew, the appellant had complied fully with the law. He had no way of knowing whether the privileged advice provided by the lawyer who signed the certificate of independent advice was adequate, or the circumstances under which it was given. It is unfair, 13 years later, to advise him that the agreement is unenforceable.  In summary, the approach taken at trial to the enforceability, legitimacy, and validity of the matrimonial property agreement was tainted by several errors of law. The approach taken appears to have undermined the whole analysis of the proper weight to be given to the agreement in the unjust enrichment analysis. In the face of those errors, the trial judgment cannot stand.
D. The Unconscionable Agreement
Slatter, J.A. can be seen as implying that the Court’s interference should be reserved for those agreements that can be seen as unconscionable, a principle that has been well explored in the context of domestic contracts.
In Rick, the Supreme Court, referencing its earlier decision in Miglin, set out the common law test of unconscionability that should be applied to matrimonial agreements: 32 Based on these realities, the Court in Miglin stated that judicial intervention would be justified where agreements were found to be procedurally and substantively flawed. [W]here the parties have executed a pre‑existing agreement, the court should look first to the circumstances of negotiation and execution to determine whether the applicant has established a reason to discount the agreement. The court would inquire whether one party was vulnerable and the other party took advantage of that vulnerability. The court also examines whether the substance of the agreement, at formation, complied substantially with the general objectives of the Act. [para. 4]  Miglin represented a reformulation and tailoring of the common law test for unconscionability to reflect the uniqueness of matrimonial bargains: [W]e are not suggesting that courts must necessarily look for “unconscionability” as it is understood in the common law of contract. There is a danger in borrowing terminology rooted in other branches of the law and transposing it into what all agree is a unique legal context. There may be persuasive evidence brought before the court that one party took advantage of the vulnerability of the other party in separation or divorce negotiations that would fall short of evidence of the power imbalance necessary to demonstrate unconscionability in a commercial context between, say, a consumer and a large financial institution. [para. 82].  Where, therefore, “there were any circumstances of oppression, pressure, or other vulnerabilities”, and if one party’s exploitation of such vulnerabilities during the negotiation process resulted in a separation agreement that deviated substantially from the legislation, the Court in Miglin [page311] concluded that the agreement need not be enforced (paras. 81‑83).  Notably, the Court also stressed the importance of respecting the “parties’ right to decide for themselves what constitutes for them, in the circumstances of their marriage, mutually acceptable equitable sharing” (para. 73). Parties should generally be free to decide for themselves what bargain they are prepared to make. And it is true that most separating spouses appear to determine their agreements without judicial participation (Craig Martin, “Unequal Shadows: Negotiation Theory and Spousal Support Under Canadian Divorce Law” (1998), 56 U. T. Fac. L. Rev. 135, at p. 137).
Mastalerz in concisely summarizing the jurisprudence, captures the significant onus on a party alleging unconscionability: 33 …In determining the question of unconscionability, the Court must take into account all the circumstances and determine whether the bargain was so bad as to constitute a fraud perpetuated upon the party who is seeking rescission of the agreement.
Mere unfairness would be inadequate grounds to set aside an agreement. As held in the Siegel decision: 34 As a general principle, if all the formal requirements are met, courts are reluctant to interfere with a domestic contract absent evidence of unconscionable conduct or evidence that one party is unable to protect his or her own interests. This is the case despite the fact that it results in a party to the agreement receiving less than he or she would have been received under the statutory division of family property: Miglin v. Miglin, 2003 SCC 24 (CanLII), 2003 SCC 24,  1 S.C.R. 303, and Clayton v. Clayton 1998 CanLII 14840 (ON SC), (1998), 40 O.R. (3d) 24, 38 R.F.L. (4th) 320. The onus of demonstrating unconscionable conduct or duress rests with the party making the claim and is evaluated based on the cumulative effect of any transgressions or improprieties.
Bastarache J.’s comments in Hartshorne v Hartshorne,35 at para. 67 are perhaps the most instructive in offering most Courts’ applied approach to the issue of unconscionability:
Once an agreement has been reached, albeit a marriage agreement, the parties thereto are expected to fulfill the obligations that they have undertaken. A party cannot simply later state that he or she did not intend to live up to his or her end of the bargain. It is true that, in some cases, agreements that appear to be fair at the time of execution may become unfair at the time of the triggering event, depending on how the lives of the parties have unfolded. However, in a framework within which private parties are permitted to take personal responsibility for their financial well‑being upon the dissolution of marriage, courts should be reluctant to second‑guess their initiative and arrangement, particularly where independent legal advice has been obtained.
3. “TAINT REMOVAL”: INDEPENDENT LEGAL ADVICE….AND ALL THAT COMES WITH IT
If a party who seeks to set aside a domestic contract obtained independent legal advice prior to signing, their challenge will be greater. They would have to establish that this advice was profoundly flawed.
Even if one were confronted with an agreement that was the product of inadequate financial disclosure, signed under duress or unconscionable, a signing party – via independent legal advice – would have been presumably sufficiently informed of any problems with the agreement or its surrounding circumstances.
What is “independent legal advice”? By way of Section 38(2), the Matrimonial Property Act operates to encourage independent legal advice. That being said, any guidelines from the case law as to what exactly that independent legal advice entails can be seen as ever evolving.
In Brosseau v Brousseau,36 a father and daughter, both lawyers, joined forces to assist the father’s brother and his wife with negotiating a matrimonial settlement. The daughter prepared the document and referred her aunt, the Plaintiff, out for independent legal advice. The Plaintiff stated that she viewed the lawyer as nothing more than “rubber-stamping” what was essentially an agreement approved by her lawyer niece and spent little time with the independent lawyer.
The Court held:
The term “independent advice” is not one of precision. It may cover the situation in which a lawyer explains, independently, the nature and consequences of an agreement. We conclude that X did that. It may extend, as it does in cases of undue influence, to the need to give informed advice. For example, looking solely at a question of maintenance, a client should have some appreciation of the circumstances in which a court would order ongoing, rather than term, maintenance and the basis on which this is done.
We doubt that any hard and fast rule can be laid down and the peculiar circumstances of this case are not appropriate for the formulation of such a rule, in any event.37
The Court continued:
The unimpeachability of final support agreements is predicated upon the parties reaching that agreement through informed legitimate agreements; neither is labouring under a legally recognized disadvantage. A conflict of interest is such a disadvantage.38
The Court, in essence, held that mere compliance with the provisions of Section 38 of the Matrimonial Property Act will not be enough where either party labours under a “legally recognized disadvantage”. That disadvantage could be the “taint” that may ultimately expose an agreement to being set aside, namely, inadequate financial disclosure, duress or unconscionability.
So, the adequacy of the independent legal advice, not surprisingly, will be dictated by the facts at hand.
Corbeil considered the enforceability of a Separation Agreement governed by the Matrimonial Property Act.39 As previously referenced, at paragraph 13 the Court states:
Moreover, no rule in equity or contract invalidates an agreement simply on account of a lack of independent legal advice. The function of the advice, in that context, is to remove a taint that, left unremoved, might, according to contract or equity law, invalidate the contract. Judges cannot therefore simply say that an agreement is unenforceable for lack of independent legal advice. At the very least, they must first find a taint.
Tardif involved a Plaintiff who sought to have a Pre-Nuptial Agreement declared null and void because of inadequate financial disclosure and duress.40 The Court offered: Section 38 of the Matrimonial Property Act, R.S.A. 2000, c.M-8 requires that the party executing an available [sic] under the Act; and execute the agreement “freely and voluntarily without any compulsion” by the other party. There is a requirement for acknowledgments that the formalities have been met.  There is nothing in the Act which requires each party to have independent legal advice nor does it invalidate an agreement for want of it: Corbeil v. Bebris reflex, (1993), 49 R.F.L. (3d) 77 (ABCA). A lawyer retained for that purpose is merely required to make certain enquiries and to be satisfied that the client acted freely, with full awareness of the right to an equal division and judicial review. As Corbeil indicates, as long as the “statutory formalities” were met, the Agreement should stand.  A pre-marriage agreement is a contract between two parties. Generally speaking, the right of contracting parties to make agreements whether advantageous or not is well established. Unless it can be shown that one party took advantage of the other by duress or undue influence or concealed facts which would have made a difference to the decision, private agreements are generally upheld.
As for Cohabitation Agreements not expressly governed by the Matrimonial Property Act, the Sporring decision would seem to offer some insight on the matter of independent legal advice.41
In that case, the parties had a seven year common-law relationship. Mr. Sporring advanced an unjust enrichment claim seeking property division and at the juristic reason stage, the Court considered a Cohabitation Agreement signed by the parties, without independent legal advice.
The Court held:There is no authority in Alberta that requires couples who enter into agreements concerning the ownership and division of property to receive independent legal advice before they enter into such an agreement or permits the court to set aside such an agreement simply because it was entered into without independent legal advice…
… The agreement does not say the parties actually received legal advice or they were required to obtain independent legal advice. It says they acknowledge that they have had the opportunity to consult with counsel of their choice. There is no evidence that Mr. Sporring was unable to obtain legal advice before signing it had he wished. Ms. Collins testified that Mr. Sporring told her he did not need a lawyer, providing the detail that he said million-dollar deals were made with a handshake on the 19th hole.
Again, the ability of a party to set aside a Cohabitation Agreement on the basis that they did not understand “the nature or consequences of the agreement” is moderated by independent legal advice. Consulting with an independent lawyer suggests that the lawyer’s knowledge and understanding was “downloaded” to the client.
That being said, one can quickly distinguish Sporring from other decisions in that no “taint” was found in the agreement, nor did the Court see one as adequately proffered.
A. Webb v. Birkett: A New Benchmark and the Sounding of an Alarm
As recently pointed out by a prominent Canadian family lawyer, it “has become an industry attacking these agreements and it’s a secondary industry attacking lawyers who do these agreements”. As we have learned in Webb v Birkett42 if sufficiently motivated, an aggrieved party would be as interested in venturing into the coverage limits of their former counsel’s professional liability insurance as they would be in seeking to re-open potential claims against their former spouse.
Ms. Webb retained Ms. Birkett, a collaborative family law lawyer, to assist her with matrimonial issues. The Husband retained another registered collaborative lawyer. The parties all signed a collaborative law participation agreement prior to commencing a four-way settlement meeting. Two financial experts were retained to participate in the process.
Ms. Birkett obtained some financial information from Ms. Webb, but did not get full financial disclosure from the Husband’s lawyer before the parties entered into a settlement agreement. In fact, the parties reached a settlement before all disclosure, appraisals by experts, and exchange of tax information was completed.
The parties reached a settlement based on one financial statement provided by the Husband. The settlement was to be paid out in installments over several years, but after difficulties in collecting from the Husband, Ms. Webb retained another lawyer to assist her. The lawyer sued the Husband on the settlement, and an action against Ms. Birkett was commenced for a breach of her duty of care.
Specifically, it was alleged that Ms. Birkett failed to give Ms. Webb proper and complete legal advice. Ms. Webb alleged that as a result she improvidently entered into a matrimonial property settlement and waived her entitlement to spousal support, and that with full financial disclosure, she would have received a larger sum.
The action was commenced in May 2006, 3.5 years after the settlement was reached.
The Trial Judge determined that the context of the agreement and alleged breach, namely the collaborative law context, was important. The parties committed to settlement rather than litigation, and the Trial Judge found that in the collaborative law method the client has control over the process, and is responsible for making decisions respecting the outcome.
The Trial Judge found that Ms. Birkett advised Ms. Webb of her entitlement to disclosure, that Ms. Webb knew Ms. Birkett did not have complete disclosure, and that she properly advised Ms. Webb of the process available to verify financial information provided. It was up to Ms. Webb to decide how much investigation was needed to satisfy herself that the information provided by the Husband was correct.
The Trial Judge further determined that the action was barred by the provisions of the Limitation Act because Ms. Webb retained new counsel in January 2004, and all of the pertinent information was provided to counsel at that time. No important or critical information surfaced after that, so the action brought in May 2006 was out of time.
On appeal, the Court determined that the Trial Judge erred on the limitation issue. They determined that Ms. Webb neither knew nor should have known that she had a claim against Ms. Birkett for negligence until May 2004, when she first received financial statements. The trial judge made a palpable and overriding error in concluding otherwise.
The Court noted that in order to trigger the running of the limitation period, the claimant must know or have been reasonably able to discover that an injury had occurred. Ms. Webb’s counsel was retained in January of 2004, but it was not until late May 2004, when he reviewed Ms. Birkett’s file and requested financial statements, that he realized the full nature of the Husband’s company’s value. The action was commenced just under two years later.
Also, the Court of Appeal held that the Trial Judge erred in law by effectively finding that a lower standard of care applied to lawyers engaged in the collaborative family law process.
The Court found that: …the effect of [the Trial Judge’s] decision was to relieve Ms. Birkett of her obligation to advise Ms. Webb that, at the time the settlement agreement was negotiated, she did not have sufficient information to determine what Ms. Webb was legally entitled to receive by way of spousal support and through a division of matrimonial property. Further, he relieved Ms. Birkett of her obligation to advise Ms. Webb that, by settling prior to receiving full disclosure and on the basis of information entirely provided by her husband without independent verification, she was at risk of accepting less than she was entitled to receive legally (i.e., what she would likely receive at trial, or through a further negotiation once full disclosure had been made).  The trial judge found, in effect, that any advice, action or inaction engaged in by Ms. Birkett was unimpeachable in the interest of getting any collaborative family law settlement for Ms. Webb, even one which resulted in Ms. Webb unwittingly agreeing to accept less than what she was entitled to receive at law. He found that Ms. Webb’s goals of maintaining a positive ongoing relationship with her child, her husband and her father-in-law, which lead to her desire to use the collaborative family law process, justified Ms. Birkett in proceeding to confirm the settlement although she had received inadequate information from Mr. Todd and his counsel.
Webb certainly appears to have set the benchmark for a lawyer’s duty of care in domestic and matrimonial matters. The decision is most instructional as a general best practices guide for lawyers providing independent legal advice on any and all domestic contracts:43
(a) to obtain sufficient reliable information to be able to ascertain what the client would likely receive or be required to pay for spousal support, child support and matrimonial property division should the matter be resolved at trial and to so advise the client;
(b) to give the client a description of options to any proposed settlement, an opinion on whether any proposed settlement is reasonable and a discussion of the pros and cons of that settlement in comparison to the other options so that any decision to settle is an informed decision; and
(c) to tell a client who takes the position that he or she wants to settle without having received full information from the other side that they may therefore be accepting less or paying more than what would be required according to law and to provide to that client an assessment of the impact of the risk, including estimates of the value of what might be lost or paid above what was necessary, to the extent possible, on the basis of the information then available. A prudent solicitor would put this advice in writing to avoid later allegations of misunderstanding.
Also, many years earlier, a unanimous Alberta Court of Appeal in Corbeil seemed to articulate the onus on a lawyer to give “value-laden” advice to ensure that their client avoids the proverbial “raw deal”:
12. But I distinguish attendance on execution from advice about the wisdom of entering into the agreement. The term “independent legal advice” has a very specific meaning in law. The duty of advising counsel has been summarized in Halsbury’s Laws of England, Fourth Edition, Vol. 18, Para. 343, at p.157:
The duty of the independent adviser is not merely to satisfy himself that the donor understands the effect of and wishes to make the gift, but to protect the donor from himself as well as from the influence of the donee. A solicitor who is called upon to advise the donor must satisfy himself that the gift is one that is right and proper in all the circumstances of the case, and if he cannot so satisfy himself he should advise his client not to proceed.
B. “Perception is Reality”: Guarding Against the Optics of Out-Patient Independent Legal Advice
As useful as Webb, Corbeil and other decisions are in offering a theoretical guide of the role of Independent Legal Advice, it is informative to view how this plays out in the field. Having now had the unique perspective of directly observing how a Court might receive the testimony of Counsel as against the testimony of the parties in these circumstances, it seems appropriate to offer a view of Independent Legal Advice through that prism.
At Trial, Justice Hunt-McDonald made it clear that she favoured the evidence of Ms. Lemoine over that of her lawyer, some 13 years after the signing of this Agreement. What the Wife’s lawyer did or did not do, in many ways, became the cornerstone of the Trial Judge’s decision.
The Trial Judge not only concluded, but emphasized the following:
- The Wife did not formally retain the lawyer in question.
- The lawyer was presented to the Wife by her husband’s lawyer in her husband’s lawyer’s office.
- The Wife had not met the lawyer before.
- The Wife did not become a client of the lawyer after the execution of the Agreement.
- The Wife was not given an opportunity to review the Agreement before going to the lawyer’s office to sign it.
- The Agreement was read to her by her husband’s lawyer.
- No file was opened by the lawyer that gave the wife independent legal advice.
- The Wife’s legal advice was paid for by the Husband’s lawyer.
- The Wife’s meeting with her lawyer was deemed to be inappropriately brief.
These circumstances were deemed sufficiently questionable to arouse the concern of the Court. Accordingly, they should be integrated into every Family Lawyer’s list of “don’ts” Having said that, anecdotally speaking, there are some aspects of the protocol employed by Ms. Lemoine’s counsel that were not all that unique for 1999.
At the Lemoine Trial, expert witnesses were offered as to the standard of care for a reasonably competent Alberta family lawyer when signing a Pre-Nuptial Agreement or Cohabitation Agreement in 1999. For example, both experts agreed that in 1999, there was no requirement for financial disclosure. The Husband’s expert went further to say that the Schedules attached to the Lemoine Agreement were in excess of the disclosure generally obtained in 1999 when executing Prenuptial or Cohabitation Agreements. The allegation of inadequate financial disclosure was ultimately abandoned by Ms. Lemoine’s counsel in closing arguments at Trial.
Consider the fact that agreements that might be making their way in front of dissecting eyes today, may have been drafted several years ago. Consider the fact that agreements that you are involved in today, might be scrutinized several years from now.
With that in mind, what standard of care would apply to you?
- Will you be held to the Webb v Birkett standard?
- Will you be measured against the standards as offered by your peers in Legal Education Seminars such as these?
- Will the standard of care have evolved even further at that point, and right or wrong, be deemed a reasonably foreseeable future standard against which you will be judged?
You would be well advised to integrate at least some measure of all of these standards into your own best practices protocol. Not surprisingly, a good source of best practices might be the very entity that would field a complaint against you. The Law Society of Alberta Practice Advisors offer a link with the following tips, many of which are applicable to Domestic Contracts:44
Giving Independent Legal Advice
A person seeking independent legal advice is as much your client as any other. There’s not a different standard of service because your meeting is brief and you may not see the client again.
Giving independent legal advice is never routine, not even if the person seeking advice has already made a decision and just wants it rubber stamped. Your consultation may be the client’s only opportunity to consider objectively a transaction that exposes the client to significant liability or prejudice while primarily benefiting some other party. It’s essential that you diligently interview, gather information, analyze the issues, and formulate your advice.
- Give independent legal advice only if you are competent in the area of law in question.
- Identify the client in accordance with the Law Society’s Client Identification and Verification rules.
- If the client needs an interpreter, have a neutral party interpret rather than a member of the family.
- Gather enough information about the circumstances surrounding the transaction to be able to explain them to your client and predict problems. In particular, gather information on the client’s age and level of experience, the client’s motivation, the relationship of the parties, and their relative bargaining power. Find out enough about the client’s financial situation to know the financial impact of the transaction.
- Ensure that your client understands not only the nature and effect of the document, but also the client’s underlying rights and entitlements.
- Rather than ask clients if they understand the document in question, have them explain in their own words their understanding of the transaction.
- Ensure clients are exercising their own free will. Be especially diligent if a guarantor is a relative of the borrower, subservient to the borrower, or an unsophisticated party.
- Be sure the form is complete in all respects before you or the client sign.
- If you advise against signing but the client chooses to sign, have a witness present while you explain your advice. Have the client sign an acknowledgement that they are signing against your advice. (Sometimes it’s better to write a letter outlining the advice given rather than sign the certificate.)
- Open a file. Keep copies of everything the client signs. Keep your notes on the facts you gathered and the advice you gave. Note the time you spent on the file.
- It is advisable to accept payment from the client, not from someone with an interest contrary to the client’s. If a third party is paying the legal fees, ensure again that the client is free of any undue influence.
See the accompanying Checklist for giving independent legal advice.
Sending a person for independent advice
1. Some times when you should or must send a person for independent legal advice:
- where required by statute
- where the person is an unrepresented opposite party
- if you draw up a separation or settlement agreement for both parties to a matrimonial dispute
- if you represent estate beneficiaries who disagree
- if you represent a lending institution that has a fiduciary relationship with a borrower
- if you are doing business with a client
- if you’ve made an error that will harm your client
- where you may be acting in a potential conflict of interest and have a concern about the client’s ability to give an informed consent
2. Especially if one party is receiving all the financial benefit of the transaction and the other is unsophisticated, it may not be sufficient to recommend that the unsophisticated party obtain independent legal advice. You may need to ensure that they do so.
3. Don’t refer a party to your associate or partner for independent legal advice. Rather, give them a list of names of lawyers practising in the relevant area.
4. BALANCING ADEQUATE INDEPENDENT LEGAL ADVICE WITH THE PUBLIC’S ACCESS TO JUSTICE
We have all been contacted by that potential client seeking an appointment to merely have their agreement “notarized”. We have also been contacted by that potential client seeking to have a “letter” drafted confirming property division and support rights entering or exiting a marriage.
Once a deal is reached, many clients expect the closing steps to not only be an academic exercise, but a relatively inexpensive one. However, after the potentially sobering reality of independent legal advice sets in, you may be left with a client questioning the platitudes they had heard about the virtues of Domestic Contracts over Trial. The closer the finalization of a Domestic Contract starts to resemble a process as opposed to an event, the quicker your client grows disillusioned and frustrated.
As identified by the Action Committee on Access to Justice in Civil and Family Matters in its 2013 report,45 of those who do not seek legal assistance, between 42% and 90% identified perceived cost as the reason for not doing so. When considered within the context of an often complicated legal framework that legislatively and equitably codifies and reinforces the need for independent legal advice, one quickly sees the potential for a crisis.
This same judicial system that has expressed concerns about an access to justice crisis has done little to mitigate that with the Lemoine decision. At Trial, one of the exhibits most often referred to was the Statement of Account issued by Mr. Griffith’s lawyer, in which the disbursement to pay the Wife’s legal fees was itemized, and from which Ms. Lemoine’s lawyer’s investment of time could be inferred.
The qualitative value of the Wife’s legal advice was inferred directly from the quantitative cost of the legal fees and the lawyer’s investment of time:46 Next, I consider whether legal advice was given. Neither Jamie nor Mr. Quigley has any memory of what took place. Thus the only direct evidence on point is Connie’s, and she recalls spending no more than 10 or 15 minutes with Mr. Quigley. This memory is supported by the fact that Mr. Quigley billed only $75 for his services, despite having a stated hourly rate of $150 to $250.  $75 represents 18 – 30 minutes of time spent on the matter, in a situation where there would be absolutely no reason for Mr. Quigley to discount his time. Nor is there any evidence that he was ever asked to do so. Instead, he evinced a certain amount of surprise when told that only $75 had been billed for his time.
… I therefore find that Mr. Quigley did, in fact, spend no more than 15 minutes with Connie at the time he is alleged to have provided her with his “independent legal advice.” Backing out as little as another 15 minutes to cover the time he spent prior to the meeting reviewing the document and exchanging telephone calls with Mr. Young, as well as the time it took him to sign the Matrimonial Property Act Acknowledgement and Certificate, as well as the Certificate of Independent Legal Advice, that means he could not possibly have had time to provide Connie with independent legal advice about the implications of the Agreement. No valid juristic reason exists to justify the enrichment, and Connie is therefore entitled to make claims for division of property as well as support for herself and for their child.
Obviously, the emergence of improved practices of lawyers dealing with these contracts will safeguard not only the contracts, but protect the lawyers themselves. However, from the legal community’s perspective, increased risks associated with a particular service invariably leads to increased costs associated with that service. This may be inconsequential for a certain segment of our client pool, but for the majority, it matters. If we are indeed expected to “put the public first” as implored by the Action Committee, a balance must be struck.
It would be fair to say that counsel in smaller and rural communities had developed similar habits to some of those condemned in Lemoine, as a function of a smaller population of lawyers and their clients’ reasonable expectations of lower cost. Also, clients who have elected to formally enter the protocols of Alternative Dispute Resolution or more formally, Collaborative Law, have likely been motivated to do so for reasons that include cost and efficiency.
It remains to be seen how the Family Bar, in a reasonably cost-effective fashion, consistently meets the standards of these best practices. Until then, client expectations must be managed accordingly. Perhaps we, as counsel, can only articulate to clients that it would be prudent to earmark a commensurate portion of any entitlement or consideration received via an agreement, tangible or otherwise, toward the proverbial “cost of doing business”.
- Kerr v Baranow, 2011 SCC 10,  1 SCR 269 [Kerr].
- Ibid at 32.
- Ibid at 41.
- Matrimonial Property Act, RSA 2000, c M-8.
- Divorce Act, RSC 1985, c 3 (2nd Supp).
- Corbeil v Bebris, 49 RFL (3d) 77, 141 AR 215 (ABCA) [Corbeil].
- Nasin v Nasin, 2008 ABQB 219, 443 AR 298.
- Kuehn v Kuehn, 2010 ABQB 805, 195 ACWS (3d) 1065; 2012 ABCA 67, 23 RFL (7th) 24.
- Lemoine v Griffith, 2012 ABQB 685, 73 Alta LR (5th) 276; 2014 ABCA 46, 41 RFL (7th) 114.
- Hinton v Hinton, 2008 ABQB 189, 441 AR 258 [Hinton].
- Tardif v Campbell, 2008 ABQB 776, 63 RFL (6th) 220 [Tardif].
- Hollingshead v Hollingshead, 2008 ABQB 659,  AWLD 636 [Hollingshead].
- Ibid at 54.
- Ibid at 55.
- Ibid at 57.
- Ibid at 58-62.
- Ibid at 64.
- Sporring v Collins, 2009 ABQB 141,  AWLD 484 [Sporring].
- Rick v Brandsema, 2009 SCC 10,  1 SCR 295 [Rick].
- Brown v Silvera, 2009 ABQB 523, 17 Alta LR (5th) 37; 2011 ABCA 109, 39 Alta LR (5th) 201 [Brown]
- Siegel v Siegel, 2011 ABQB 540, 206 ACWS (3d) 550 [Siegel].
- Ibid at 12.
- Supra note 12.
- Miglin v Miglin, 2003 SCC 24,  1 SCR 303 [Miglin].
- Welch v Bancarz, 2009 ABQB 350,  AWLD 1049.
- Hearn v Hearn, 2004 ABQB 75, 352 AR 260.
- Supra note 11 at 31.
- Mastalerz v Mastalerz, 2007 ABQB 416, 419 AR 323.
- Orcheski v Hynes, 2007 ABQB 194,  WDFL 3846 [Orcheski].
- Ibid at 29.
- Ibid at 39.
- Supra note 19.
- Supra note 28.
- Supra note 21.
- Hartshorne v Hartshorne, 2004 SCC 22,  1 SCR 550 [Hartshorne].
- Brosseau v Brosseau, 70 Alta LR (2d) 247, 100 AR 15.
- Ibid at 21.
- Ibid at 25.
- Supra note 6.
- Supra note 11.
- Supra note 18.
- Webb v Birkett, 2011 ABCA 170, 505 AR 311.
- Supra note 42 at 54.
- “Practice Advisors: Giving Independent Legal Advice”, online: The Law Society of Alberta <www.lawsociety.ab.ca>.
- Action Committee on Access to Justice in Civil and Family Matters, “Access to Civil & Family Justice: A Roadmap for Change”, online: Federation of Law Societies of Canada <http://flsc.ca>.
- Supra at note 9.