Challenging the Validity of a Matrimonial Property Agreement

The requirements for entering into a written agreement with respect to the ownership and division of matrimonial property are set out at sections 37 and 38 of the Matrimonial Property Act, RSA 2000, c M-8 and include:

(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 the Matrimonial Property 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, and

(d) that the agreement be acknowledged before a lawyer other than the lawyer acting for the other spouse.

The Alberta Court of Appeal has cautioned against scrutinizing matrimonial property agreements completed in compliance with the Matrimonial Property Act:

The Legislature has recognized and endorsed matrimonial property agreements by statute. The [Matrimonial Property] 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.

(Lemoine v Griffith, 2014 ABCA 46 at paras 101 & 102)

Nevertheless, the courts have frequently been asked to reflect upon the validity of matrimonial property agreements. The Supreme Court of Canada in Miglin v Miglin, 2003 SCC 24 at pages 305 – 306, set out the procedure to be followed in reviewing the validity of a separation agreement as follows:

1.   The Court is to first look at the circumstances in which the agreement was negotiated and executed, and
2.   Then it is to assess whether the agreement reflects the original intentions of the parties and the extent to which it is still in substantial compliance with the objectives of the Matrimonial Property Act.

The caselaw suggests that there are a very limited number of established grounds on which a party may seek to challenge the validity of an agreement drafted and executed in compliance with sections 37 and 38 of the Matrimonial Property Act, those being duress, undue Influence, misrepresentation, inadequate financial disclosure, mistake and unconscionability, each of which are discussed briefly below.

Duress

In order to establish duress, there must be evidence that one party was under such pressure that he or she no longer had the ability to exercise independent judgement. The courts have recognized that there is always a certain amount of economic pressure involved in negotiating an agreement, and that one party may possess stronger bargaining power, however, these factors do not necessarily affect the validity of the agreement. (Tardif v Campbell, 2008 ABQB 776 at para 33, Orcheski v Hynes, 2007 ABQB 194 at para 24)

Undue Influence

Undue influence can arise in circumstances where there is evidence of an actual exertion of influence in order to gain agreement to a particular transaction or from the nature of the relationship between parties at the time a transaction was negotiated or carried out. (Lemoine v Griffith, 2014 ABCA 46 at para 87, citing the reasons at trial)

Misrepresentation

The court in Chateauvert v Chateauvert, 2018 ABQB 2 summarized the law of fraudulent misrepresentation and negligent misrepresentation in the family law context.

The four elements of fraudulent misrepresentation were set out at para 30, as follows:

1.   A false representation or statement;
2.   Which was knowingly false;
3.   Which was made with the intention to deceive the representee; and

Which materially induced the representee to act, causing her damage.And the five elements of negligent misrepresentation were set out at para 242, as follows:

1.   There must be a duty of care based on a “special relationship” between the representor and representee;
2.   The representation in question must be untrue, inaccurate, or misleading;
3.   The representor must have acted negligently in making said misrepresentation;
4.   The representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
5.   The reliance must have been detrimental to the representee in the sense that damages resulted.

Inadequate Financial Disclosure

Section 38 of the Matrimonial Property Act does not speak directly to the disclosure requirements necessary to effect an enforceable matrimonial property agreement except in so far that disclosure could impact the parties’ awareness of the nature of the agreement (Hinton v Hinton, 2008 ABQB 189 at para 29).

What is clear, however, is that the disclosure typical of a response to notice to disclose application is not necessary in order to create a binding agreement. Furthermore, the precise value of an asset or the financial circumstances of a party need not be known in order to reach a binding Agreement.

(Tardif v Campbell, 2008 ABQB 776 at para 38, Siegel v Siegel, 2011 ABQB 540 at paras 13 & 14)

Mistake

Generally, the law of contract adopts an unsympathetic approach toward parties who have entered contracts under mistaken beliefs, such that those disappointed are left to bear the costs of their own mistakes.

(Stephanie Ben-Ishai & David Percy, Contracts: Cases and Commentaries, 8^th Ed (Thomson Reuters Canada Limited: Toronto, 2009) at p 541).

In any event, the Court in Chateauvert v Chateauvert, 2018 ABQB 2 at para 297 cites the Alberta Court of Appeal in Ron Ghitter Property Consultants Ltd v Beaver Lumber Co, 2003 ABCA 221 at para 12 for its summary the three types of mistakes, as follows:

There are three types of mistake: common, mutual and unilateral see Cheshire, Fifoot & Furmston, Law of Contract, supra at 252-53 for a summary of each. Common mistake occurs when the parties make the same mistake. For example, one party contracts to sell a vase to another when unbeknown to both, the vase was destroyed and no longer exists. Mutual mistake occurs when both parties are mistaken, but their mistakes are different. In this event, the parties misunderstand each other and are, to use the vernacular, “not on the same page”. Unilateral mistake involves only one of the parties operating under a mistake. If the other party is not aware of the one party’s erroneous belief, then the case is one of mutual mistake but if the other party knows of it, of unilateral mistake. What adds to the confusion is that the distinction between mutual and common mistake is sometimes blurred when courts use the two terms interchangeably.

The requirements for rectifying a contract on the basis of a unilateral mistake were set out at paragraph 299, as follows:

1.   The mistaken party must show the existence and content of an inconsistent prior agreement;
2.   The mistaken party must show that at the time of the execution of the written document the other party knew or ought to have known of the error of the mistaken party, such that any attempt to rely on the erroneous written document would amount to “fraud or the equivalent of fraud”;
3.   The mistaken party must show the “precise form” in which the written instrument can be made to express the prior intention; and
4.   The mistaken party must establish the prior three pre-conditions by “convincing proof”.

Furthermore, the requirements for rectifying a contract on the basis of a mutual or common mistake were set out at paragraph 300, as follows:

1.   The existence and nature of a common intention by the parties prior to the making of the document or instrument alleged to be deficient;
2.   That this common intention remained unchanged at the date that the document or instrument was made; and
3.   That the alleged document or instrument, by mistake, does not conform to the parties’ prior common intention.

Unconscionability

Unconscionability may arise where there is an improvident bargain and inequality in the positions of parties. (Stephanie Ben-Ishai & David Percy, Contracts: Cases and Commentaries, 8^th Ed (Thomson Reuters Canada Limited: Toronto, 2009), at p 697).

The Supreme Court of Canada in Rick v Brandsema, 2009 SCC 10 at paras 44 to 45, referring to itself in Miglin v Miglin, 2003 SCC 24, set out the common law test of unconscionability in the family law context, as follows:

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 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).

What is clear is that mere unfairness does not amount to unconscionability. Courts must be hesitant to interfere with a domestic contract even where the contract results in a party receiving less than he or she would have received pursuant to the Matrimonial Property Act. (Siegel v Siegel, 2011 ABQB 540 at para 11)

Furthermore, in discussing unconscionability, the Supreme Court of Canada in Hartshorne v Hartshorne, 2004 SCC 22 at para 67, concluded that one cannot simply claim unfairness in the face of circumstances which arise after the agreement has been entered:

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 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. They should not conclude that unfairness is proven simply by demonstrating that the marriage agreement deviates from the statutory matrimonial property regime.