• by David Frenkel
Originally published in the OFLM 2024-02 edition
Overview
The following article summarizes the recent decision of Yin v. Feng (2024 ONSC 455) which includes the legal claims often made when attempting to set aside a separation agreement. Those claims include insufficient financial disclosure and improper legal advice. The article also addresses the relevant legal principles and some common practical considerations that family lawyers should keep in mind when executing a domestic contract.
Introduction
Family law clients attempt to set aside separation agreements quite regularly. Every few weeks or so, a reported decision comes along showing yet another unsatisfied customer that either wants to set aside all of an agreement or just part of it.
Most of the time the claimant is unsuccessful because they don’t have a genuine case to begin with. And in football terms, you can call it a Hail Mary attempt to right a self-inflicted wrong.
But as we know watching football highlights, Hail Marys do happen and thus you can’t rule out their possible success on the football field and in the court room.
Therefore, as family law lawyers, it is important to stay up to date with the reasons why certain separation agreements get set aside and why others do not.
The following example is a Hail May that did not end up being caught.
Facts
In Yin v. Feng (2024 ONSC 455), a husband tried to set aside a separation agreement that he was not particularly happy about. The case summarizes the latest legal principles associated with such a claim and also provides important lessons that family lawyers can learn from.
In Yin, the husband wanted to set aside parts of a separation agreement relating to property division for three reasons: (1) due to the wife not disclosing certain assets, (2) an alleged side agreement between the parties that should have been followed and (3) him not receiving proper legal advice.
The wife also wanted to set aside parts of the agreement, but only those dealing with parenting time.
The parties were married for 20 years, had three children, ages 12, 15 and 19. When they separated, they owned a matrimonial home, a condominium, and two cottages.
About a year after the parties separated, the husband contacted a lawyer to help them draft a separation agreement. The lawyer initially assisted both parties and worked together with them to incorporate their wishes into the draft. During this period, the parties also exchanged financial disclosure. After some time, the wife retained a different lawyer to review the draft agreement.
About three weeks later, the wife’s lawyer delivered to the husband a revised draft of the agreement which the parties executed.
About two months after signing, the parties completed the transfer of the properties. Specifically, the husband received the condominium, the wife received the matrimonial home and each of the parties received one of the two cottages.
The first argument of the husband was that at all times he was expecting the properties to be appraised so that the correct calculation would be determined. He requested the appraisals while the first lawyer was drafting the agreement and even upon signing the final draft. The draft the wife’s lawyer completed included estimated values of the properties but no formal appraisals. The wife even offered to defer the signing until the appraisals were done, but the husband insisted the agreement to be signed expeditiously.
According to the agreement, the net value of the two properties the husband received was $300,000 less than what the wife received ($1,200,000 versus $1,500,000). Subsequent appraisals showed that the difference was even greater. Unsurprisingly, this situation caused the husband to claim the inequity which he wanted to fix by setting aside the agreement.
The husband claimed that the parties always planned and agreed to obtain formal valuations of the properties and by not doing so, created an unequal and unfair result.
The husband’s second argument was that the wife failed to provide certain financial disclosure of accounts and investments that she owned.
The final argument was that the husband did not receive appropriate legal advice from his lawyer and therefore was unable to understand the risks associated with the provisions of the agreement.
Legal principles
In Yin v. Feng, the court began their analysis with section 56(4) of the Family Law Act to determine whether (a) the wife failed to disclose, (b) the husband did not understand the nature or consequences of the contract, and (c) otherwise with the law of contract.
As the court elaborated on, if any of the above three provisions had become engaged, then it needed to consider whether it was appropriate to set aside the agreement. Justice Black referred to the often-quoted cases of LeVan v. LeVan (2008 ONCA 388), Toscano v. Toscano (2015 ONSC 487) and Hashemi v. Alanimehr (2021 ONSC 8569).
As a refresher, LeVan v. LeVan, 2008 ONCA 388 (at para. 51), stands for the principle that the analysis undertaken under s. 56(4) is essentially comprised of a two-part process. First, the court must consider whether the party seeking to set aside the agreement can demonstrate that one or more of the circumstances set out within the provision have been engaged. Once that hurdle has been overcome, the court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement.
The principle in Toscano v. Toscano is that a party cannot resile from the consequences of failing to compel further disclosure unless that party can demonstrate that the financial disclosure provided was inaccurate, misleading or false (at para. 47).
Justice Black also referenced three more relevant cases. The first was the recent Supreme Court of Canada decision of Anderson v. Anderson (2023 SCC 13). As Black J. pointed out, Anderson stands for the proposition that an agreement negotiated between parties needs to be respected unless it arose from an unfair bargaining process. The second and third cases were Peerenboom v. Peerenboom (2020 ONCA 240 at para. 62) and Hartstein v. Ricottone (2016 ONCA 913 at para. 13). Those cases dealt with the principle that courts should examine the wording of domestic contracts based on a plain reading of it.
With respect to the lack of disclosure argument, the court referred to another seminal case, namely, Quinn v. Epstein Cole LLP et. al (2007 CanLII 45714 (ONSC)) along with Odorico v. Odorico (2021 ONSC 7290). Justice Black indicated that general awareness of the assets of the other party may be sufficient to avoid setting aside an agreement.
Again as a refresher, in Quinn v. Epstein Cole LLP the court held that parties are expected to use due diligence in ascertaining the facts underlying their agreements. A party cannot fail to ask the correct questions and then rely on a lack of disclosure. One must inquire whether the responding party withheld information or whether the information was available to the party seeking to set aside the agreement. (at para. 48)
Additionally, the court referred to Turk v. Turk (2018 ONCA 993) and noted that if more disclosure would not have changed the outcome, then that additional disclosure would not be “significant” for the purposes of s.56(4)(a).
The final argument of the husband revolved around not receiving proper legal advice. On this issue the court referred to two relevant cases.
The first case was Harnet v. Harnett (2014 ONSC 359), where Justice McGee determined that even when a lawyer provides a client with deficient legal advice, it still may not be sufficient to set aside an agreement. In Harnet, the court considered the fact that the plain reading of the agreement was sufficient to understand its nature and its consequences. Justice McGee also indicated that the court is less likely to interfere when the party seeking to set aside the agreement “is not the victim of the other, but rather his or her own failure to self-protect.” Justice McGee also referred to a 1968 Ontario Court of Appeal decision of Mundinger v. Mundinger (1968 CanLII 250 (ON CA)) that stood for the proposition that courts typically step in to protect the client against being taken advantage of “by those in a position to do so because of their position”.
The second case Justice Black referred to was Gibbons v. Mulock (2018 ONSC 4352) where Justice Jarvis dismissed a husband’s application to set aside a marriage contract finding that the husband understood the contract. Jarvis J. also noted as follows:
The issue of the competency of legal advice given to him is an issue between the husband and Mr. Baker, and is not a reason to set aside the marriage contract unless the wife knew that the husband did not understand what he was signing…
With respect to the second stage of the s.56(4) analysis, the court referred to the Dochuk factors (as affirmed in many cases including Torgersrud v. Lightstone (2023 ONCA 580 at para. 20)). Those factors include:
(a) whether there had been concealment of the asset or material misrepresentation;
(b) where there had been duress, or unconscionable circumstances;
(c) whether the petitioning party neglected to pursue full legal disclosures;
(d) whether he/she moved expeditiously to have the agreement set aside;
(e) whether he/she received substantial benefits under the agreement;
(f) whether the other party had fulfilled his/her obligations under the agreement.
Decision
Justice Black dismissed the husband’s claim to set aside the agreement (as well as the wife’s claim).
The court found that the following factors contributed to its reasoning:
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The husband was a sophisticated party who had the benefit of legal advice throughout the entire process.
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The husband did not seek to set aside the part of the agreement that indicated the parties signed it voluntarily and that they waived any need for more fulsome financial disclosure.
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The agreement was clear in that no further appraisals were to be conducted and thus contrary to the husband’s claims that the parties agreed to do so.
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The agreement was clear that the parties were not following the equalization regime under the FLA and that it was a “full and final agreement between the parties”.
The agreement indicated that only the joint accounts were to be divided and thus the existence and extent of other accounts that may have not been disclosed by the wife were irrelevant. (*However, the court also said that had the wife’s undisclosed assets were more substantial or significant, its conclusion would have been harder to maintain.)
The husband was generally aware of the existence of the wife’s personal accounts and that he made no inquiry or particular effort to determine their worth.
Understanding the contract
Regarding the claim of the husband not understanding the contract and not having sufficient legal advice, his arguments also failed.
Justice Black found that the husband was bright, sophisticated and the English language was not an issue. The husband also had an “acute grasp” of financial concepts and was “adept” at working with numbers generally.
Despite the husband’s expectations that the division of properties between the parties would be adjusted after formal appraisals, the agreement clearly precluded such interpretations.
In essence, the husband “understood or ought to have understood” that when signing the agreement, “he risked or accepted not having any further recourse once the deal was executed.”
Moreover, the husband also benefited from the agreement being signed. It allowed the process to occur expeditiously. It allowed him to receive and refinance the two properties before potentially losing his job and losing a potential ability to qualify for the mortgage loans.
Whatever deficiency was present with respect to the legal advice the husband received, the court found no evidence that he was pressured by his wife to sign the agreement or that he did not understand it.
Second stage of the s.56(4) analysis
The court held that the husband did not meet any one of the statutory reasons to set aside the agreement.
Still, Justice Black went through the second stage of the analysis to determine whether there was any discretion to set the agreement aside.
In going through the Dochuk factors as discussed above, the court found no compelling basis on which any of the factors would cause him to exercise his discretion.
Practical considerations
The decision of Yin v. Feng reinforces several steps that family lawyers should take when drafting and executing separation agreements.
The first step is to review the main parts of seminal cases that address the issue of setting aside agreements. The reason being is that during the period of finishing a case, the mind may overlook the real possibility that your client or the opposing counsel’s client may attempt to set aside the agreement in the future.
When representing the client that is provided with deficient or outstanding disclosure, we have an obligation to advise them of their responsibility to be vigilant in seeking additional disclosure. Significant omissions in disclosure production can result in an inequitable division of property or receiving support that is not reflective of available income. If this occurs and a client is unsuccessful to set an agreement aside, they may turn to their lawyer for recourse. At that point, you would have wished that you sufficiently documented your advice to seek additional disclosure.
On the other hand, if you are representing the client that is not providing sufficient disclosure and that omission is significant, then the risk is that that omission can be a contributing factor in the agreement being set aside in the future. At that point, the client may also turn to you unless you have warned them at the time of executing the agreement that this could occur. Hypothetically, they can say that they were not advised that the outstanding disclosure can contribute to an agreement being set aside.
With respect to the issue of a client understanding the agreement itself, there are practical considerations arising from this as well.
When representing clients that are about to enter into a separation agreement, it would be prudent to discuss the important terms with them way ahead of any signing dates. Following such meetings, a reporting letter should be sent summarizing the discussions. This way, the client has sufficient time to digest what you are advising and have it also in writing as an opportunity to reflect on the discussions.
Often times after an important mediation session or court appearance, clients walk away in a fog and their recollections hazy. They are bombarded with a lot of information in a short period of time. They hear legal terms that they likely will not fully understand. They are making critical decisions while under very high levels of stress.
Therefore, it is important to regularly document your discussions with clients to allow them an opportunity to strengthen their knowledge and understanding. This way, when it does come to the day when an agreement may be reached within a short period of time, they are prepared as best as they can and their stress-inducing factors minimized.
As lawyers, we can’t predict all issues that arise when executing a separation agreement, but we can anticipate most of them.
Our job is to communicate this information to our clients clearly and effectively with sufficient notice. We also need to anticipate their particular stresses at various stages of the litigation and negotiation.
If we succeed in informing our clients of what they can expect to experience with sufficient clarity, then we have made their journey with us a bit less stressful, and our work, that much more satisfying.