Court of Appeal Clarifies Onus for Disclosure for Separation Agreements

Court of Appeal Clarifies Onus for Disclosure for Separation Agreements

Court of Appeal Clarifies Onus for Disclosure for Separation Agreements

In a decision that many family law litigants and lawyers will receive with open arms, the Ontario Court of Appeal has clarified the law with respect to financial disclosure in the family law context. In particular, the Court was asked to address the issue of whether the recipient of deliberately false, misleading disclosure in the context of concluding a separation agreement has a duty to question its accuracy.

The appellant, Patricia Anne Virc, had been a commercial litigator until she had me the respondent, Michael Blair, when she left her firm to work as in-house counsel for her husband’s companies. Mr. Blair, for his part, held interests in a number of corporations. After twenty years of marriage, the couple decided to separate in the winter of 2007. After months of negotiation, the two concluded a separation agreement in May 2008 which showed the appellant as owing nearly $1 million in equalization payments to the respondent husband. In concluding the agreement, the appellant relied on the husband’s financial disclosure, which consisted of a number of audited statements for the husband’s corporations, but which noticeably did not provide any valuations for the shares those corporations held in other corporations, which were of significant value. Despite having suspicions about the veracity and accuracy of the respondent’s financial disclosure, the appellant took no steps to verify the information, and signed the agreement without obtaining independent legal advice.

Over the intervening years, Ms. Virc enrolled in a number of business classes, which “prompted her to think she should have taken more care” in evaluating and executing the agreement. In 2010, Ms. Virc brought an application to set aside the separation agreement on various grounds, including that the respondent’s financial disclosure was inadequate and that he had exercised undue influence over her in getting her to sign the agreement. The respondent brought a motion for summary judgment seeking to dismiss the appellant’s application.

In deciding the motion, the motions judge considered the test for setting aside a separation agreement, established in LeVan v. LeVan in determining whether there were any genuine issues which would require a trial, the main question on a motion for summary judgment . Under the LeVan framework, a party seeking to set aside an agreement must show that one of the factors for setting aside the contract listed in s.56(4) of the Family Law Act is present, and  then convince the judge to exercise their discretion in setting it aside. In considering the wife’s arguments, the motion’s judge found that there was no genuine issue for trial in respect of whether the husband’s deficient disclosure was sufficient to set aside the agreement. The judge held that, even assuming that all that the appellant alleged was true, she was not entitled to succeed, as she did not exercise the requisite due diligence in verifying the husband’s disclosure. As she wrote,

Even accepting that the information provided by the husband may have been grossly inaccurate, it remains a fact that there was nothing done by the husband that prevented the wife from exercising her own due diligence to examine and question the value placed on Renegade by the husband.

None of the disclosure provided by the husband placed an obstacle in the way of the wife to pursue such information.

Relying on an email sent months before the agreement was signed which showed the applicant had doubts about the extent of Mr. Blair’s disclosure, the motions judge held,

the wife was at all times in receipt of information that would have led a reasonable person to question the value placed on such a sizeable deduction, which had such a significant effect on the husband’s net family property calculation.

In her estimation, the motions judge held that the fact that the wife had information that would have caused a reasonable person to question the veracity of the other party’s disclosure was sufficient to preclude setting the agreement aside.  In doing so, she relied on the following passage from Cheshire & Fifoot, a noted authority on the law of contracts:

Knowledge of the untruth of a representation is a complete bar to relief, since the plaintiff cannot assert that he has been misled by the statement, even if the misstatement was made fraudulently.  In such a case, “the misrepresentation and concealment go for just absolutely nothing…”.

On appeal, the Court disagreed with the motion judge’s statement of the law, and held that the “knowledge” that the applicant had regarding the untruths of her ex-husband’s financial statement was not sufficient to defeat her application. In particular, the Court of Appeal looked to a portion of Chesire’s definition which the motions judge had failed to appreciate,

It must be carefully noticed, however, that relief will not be withheld on this ground except upon clear proof that the plaintiff possessed actual and complete knowledge of the true facts - actual not constructive, complete not fragmentary.  The onus is on the defendant to prove that the plaintiff had unequivocal notice of the truth.  (emphasis in original)

The Court held that once the motions judge had assumed that there had been deliberate material misrepresentations, she erred in shifting the onus to the applicant to show that she had undertaken all due diligence in inquiring as to the veracity of the disclosure. Instead, the Court held that once deliberate, material misrepresentations have been shown, the onus remains on the party who made such misrepresentations to show that the other party had actual knowledge of the falsehood. Without proof of actual knowledge, the Court of Appeal held that the respondent could not show that her application to set aside the agreement was a sure fail. As such, the Court allowed the appeal, set aside the order for summary judgment and ordered the matter to proceed to trial. It should be remembered, however, that this hearing was on the propriety of the motion judge’s reasoning, and not on the merits of the case itself, which will be decided at the parties’ trial.