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Ontario Cohabitation Agreement: Caselaw Update

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Ontario Cohabitation Agreement Update

Please note that the information provided herein is not legal advice and is provided for informational and educational purposes only. If you need legal advice, you should seek professional assistance.

Caselaw Update on Cohabitation Agreements in Ontario

Every now and then, we update our legal forms and DL guides to ensure that they reflect the latest judicial developments. In this blog, we’ll be looking at the case of Barton v. Sauvé, [2010] O.J. No. 1008. This case involved a challenge to a Cohabitation Agreement on various grounds. While J.A. Blishen J. of the Ontario Superior Court ultimately upheld that agreement (for the most part), the provisions dealing with a waiver of spousal support were struck down as invalid on the basis that they were UNCONSCIONABLE.

So lets get into the nitty gritty of that case, shall we?

Background

By means of background, Diana Barton and Dennis Sauvé lived in a common law relationship for 8 years. They bought a new home together and entered into a cohabitation agreement at that time to clarify their rights and obligations if they separated. Pursuant to the terms of that agreement, Mr. Sauvé would vacate the common residence in 45 days and within 90 days Ms. Barton would pay him $70,000 as compensation for his contribution to the purchase of the home. It was further agreed that, if the parties separated, neither would have the right to receive spousal support from the other and the contents of the residence would be distributed according to ownership and in kind.

Claims by Mr. Sauvé

The parties did separate and Mr. Sauvé challenged the validity of the cohabitation agreement on the basis that:

  • Ms. Barton failed to disclose significant assets or significant debts or other liabilities;
  • Mr. Sauvé did not understand the nature of the agreement and its consequences; or
  • there were various procedural deficiencies (i.e. problems) with the agreement (e.g. it was unconscionable, there were mistakes, it was entered into under duress or undue influence or as a result of misrepresentation, or the parties repudiated it).

Ruling

The Ontario Superior Court of Justice rejected most of these arguments, holding that Ms. Barton is to pay Mr. Sauvé the $70,000 she owed him under the Cohabitation Agreement.

Legal Principles

Now, before reaching its conclusion, the Court summarized some important legal principles concerning Cohabitation Agreements in general:

  • Parties are permitted and encouraged to take personal responsibility for their own financial wellbeing on the dissolution of marriage and courts should be reluctant to second guess the arrangement, particularly where independent legal advice has been obtained. Spouses may choose to structure their financial affairs in a number of ways and it is their prerogative to do so, provided that the legal boundaries of fairness are observed [Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550];
  • Once an agreement has been reached, the parties are expected to fulfill the obligations under that agreement. A party cannot simply later state that he or she did not intend to live up to his or her end of the bargain [Hartshorne v. Hartshorne, [2004] 1 S.C.R. 550].
  • “a court should be loathe to interfere with a pre-existing agreement unless it is convinced that the agreement does not comply substantially with the overall objectives” of the governing legislation [Miglin v. Miglin, [2003] 1 S.C.R. 303].
  • The court “must look at the agreement or arrangement in its totality, bearing in mind that all aspects of the agreement are inextricably linked and that the parties have a large discretion in establishing priorities and goals for themselves.” Miglin v. Miglin, [2003] 1 S.C.R. 303.
  • Courts should respect private arrangements that spouses make for the division of their property on the breakdown of their relationship, particularly where the agreement in question was negotiated with independent legal advice [Butty v. Butty, 2009 ONCA 852].

Lack of Disclosure

Now, with respect to Mr. Sauvé’s claim that the Cohabitation Agreement should be set aside on the grounds that there was a lack of financial disclosure of significant assets and debts – as is required by the Ontario Family Law Act for any Cohabitation Agreement to be valid – the Court rejected that claim. Specifically, the Court reasoned that:

  • Both parties were well aware of their significant assets and debts.
  • Neither party concealed nor misrepresented their individual circumstances.
  • Mr. Sauvé never requested further financial information, as it was not necessary.
  • Formal disclosure by way of sworn financial statements is NOT necessary to meet the disclosure obligation.
  • A party cannot fail to ask the correct questions and then rely on the lack of disclosure

Lack of Understanding

With respect to Mr. Sauvé’s argument that he failed to understand the nature or consequences of the cohabitation agreement on the basis that he was suffering from a debilitating physical injury and depression and anxiety, the Court rejected that argument too:

  • While Mr. Sauvé claims that he was so heavily medicated that he could not understand the nature of the agreement or its consequences, he WAS signing offers to purchase a new home in and around the same time as he was signing the cohabitation agreement;
  • The lawyer who represented Ms. Barton testified that he chatted with Mr. Sauvé about fitness and noted that he appeared to be a generally physically fit individual;
  • Mr. Sauvé’s own lawyer testified that Mr. Sauvé’s capacity was good enough to enter into the agreement;
  • There were discussions between Ms. Barton and Mr. Sauvé about ownership of the home.

Procedural Deficiencies

With respect to challenging the Cohabitation Agreement on the basis of contractual principles (i.e. procedural deficiencies), the Court rejected THOSE ARGUMENTS TOO! Here’s what the Court wrote at paragraphs 67 through to 70:

67 In this case Mr. Sauvé was a somewhat vulnerable party. However, he did receive independent legal advice, understood the nature and consequences of the agreement and signed it voluntarily. At that time, he was signing offers regarding the potential purchase of a new home, was discussing the cohabitation agreement with Ms. Barton and was indicating his desire to have the new Cypress Lane property registered in both their names, although Ms. Barton would be paying the purchase price. He was therefore, bargaining with Ms. Barton and negotiating with her. It is true that Ms. Barton was the one with the large inheritance but she had paid off all the joint debts resulting in a significant advantage to Mr. Sauvé. She was also offering him $70,000 in the event of a separation. I cannot find that she was in any way taking advantage of Mr. Sauvé to the extent contemplated in the law of contract.

68 There is no evidence that there was undue influence or duress imposed upon Mr. Sauvé. He has not met the burden of proof on him to show on a balance of probabilities sufficient intimidation and duress such that he was coerced into signing the agreement. Obviously Mr. Sauvé was under a significant amount of stress which was exacerbated by his physical condition. However, he actively participated in the settlement negotiations, bargained with Ms. Barton and signed the agreement all of which imply that he had an operating mind and freely and voluntarily signed the agreement.

69 It is not pled nor is there any evidence that the agreement should be overturned based on mistake, repudiation or misrepresentation.

70 Finally, as noted above, Mr. Sauvé did receive independent legal advice from a lawyer with 33 years’ experience. That lawyer, Mr. Gauthier, was clear that Mr. Sauvé understood the agreement and was signing it consensually, having previously reviewed and considered it. Mr. Gauthier was clear that he would never have let Mr. Sauvé sign the agreement if he had any concerns. He did not. Where a lawyer certifies that he or she has provided independent legal advice, so far as the opposite party is concerned, that should end the matter: non est factum will not be available unless the opposite party knew or was wilfully blind to the fact that the other party did not understand the agreement. A solicitor’s certification is dispositive evidence of comprehension. See Mantella v. Mantella, [2006] O.J. No. 1337 (S.C.J.).

Based on all of the above, the Court upheld the Cohabitation Agreement and ordered Ms. Barton to pay Mr. Sauve $70,000 plus prejudgment interest.

Spousal Support

Now, even though the Court upheld the validity of the Cohabitation Agreement, when it came to the issue of SPOUSAL SUPPORT, the Court rejected the spousal support waiver found in the Cohabitation Agreement and ordered Ms. Barton to pay $462 per month periodic spousal support for a 6-year period which, in a lump sum, results in $25,000 payment to Mr. Sauvé. The reason? Because the spousal support provisions in the Cohabitation Agreement were found to be UNCONSCIONABLE.

Here is how the Court got there…

Subsection 33(4) of the Family Law Act allows a party to challenge a domestic contract (i.e. a Cohabitation Agreement) “if the…waiver of the right to support results in unconscionable circumstances”. Next the Court cited the case of Scheel v. Henkelman (2001), 52 OR. (3d) 1 (C.A.), where the Court of Appeal held that section 33(4) concerns unconscionable CIRCUMSTANCES and NOT unconscionable AGREEMENTS. The Court of Appeal in that case also defined the word “unconscionable” as “that which is contrary to the conscience of the Court”. It is defined in the Webster’s New Collegiate Dictionary as shockingly unfair or unjust. Whether “unconscionable” is used in a legal or non-legal sense, it can best be described as “something which is shocking, oppressive, not in keeping with a caring society”.

Now, based on these legal principles, the Court concluded that the result of the Cohabitation Agreement’s waiver of spousal support was unconscionable because:

  • Mr. Sauvé is disabled and unable to return to meaningful employment;
  • Mr. Sauvé resided in a small one bedroom apartment, has minimal income, cannot provide for his children, has no assets other than a van (on which there is a loan), and is unable to purchase a home;
  • Ms. Barton has the ability to earn significant interest income;
  • Ms. Barton lives in a home she bought for $340,000 in 2007, has a new relationship and a comfortable lifestyle; and
  • Ms. Barton can provide for her children and meet their needs.

After reviewing these factors, the court concluded: “I find it shocking to the conscience that Mr. Sauvé be left in such a situation. Therefore the waiver of spousal support provision in the cohabitation agreement is set aside pursuant to section 33(4) on the basis that it has resulted in unconscionable circumstances. I find that Mr. Sauvé is entitled to spousal support”. After reviewing the relevant laws in determining spousal support for unmarried adults under the Family Law Act, the Court held that Mr. Sauvé was entitled to $462 per month for a 6 year period, or a lump sum payment of $25,000.

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