“The factors which should guide the court in assessing whether there were disclosure defects during the negotiation of a domestic contract that undermined the legitimacy of the bargaining process will depend on the circumstances of each case (Rick, at para. 49; Boechler v. Boechler, 2019 SKCA 120 (Sask. C.A.), at para. 34). It is clear from the court’s reasoning in Rick that not every shortcoming in disclosure will bring the integrity of an agreement into question. Rather, the court must assess the significance of any identified disclosure deficits, and must carefully consider any factors or circumstances that may be relevant to the weight, if any, that should be accorded to them. In my view, the case-law respecting section 56(4)(a) of the Family Law Act, which permits the court to set aside a domestic contract based on a failure to disclose significant debts or liabilities existing when the agreement was made, provides valuable guidance for addressing the implications of disclosure shortcomings in the context of unconscionability claims and claims to override domestic contracts pursuant to section 15.2 of the Divorce Act. In this regard, I note that the Ontario Court of Appeal has confirmed that section 56(4)(a) encompasses failure to disclose income and income changes, since a stream of income is an asset (Horner v. Horner, 2004 CarswellOnt 4246 (Ont. C.A.), at para. 77; Tadayon; see also Levan). The two-stage analysis required by section 56(4)(a) involves: a) a determination of whether there was a failure to disclose significant assets, debts or liabilities, and if so; b) a discretionary assessment as to whether it is appropriate to set aside the agreement based on the disclosure deficits. A review of the case-law respecting section 56(4)(a) and the general duty of disclosure in the context of domestic contract negotiations highlights the following non-exhaustive guiding principles and considerations for determining whether there have been relevant disclosure deficits, and if so, whether it is appropriate to exercise discretion in favour of either setting aside or overriding the agreement on the basis of the deficits:
- The duty to make full and honest disclosure before executing a domestic contract exists to protect the integrity of the bargaining process, to prevent informational and psychological exploitation by either party, and to enable the parties to determine the extent if any to which they are willing to assert or give up their rights under the law (Rick;Boechler, at para. 33). It is a positive obligation on both parties and should not be construed narrowly (Levan;Quinn).
- Although incomplete disclosure attracts a risk that an agreement may be set aside or disregarded, it does not necessarily attract this consequence in every situation. The court must in each case take a holistic approach in determining whether there has been a failure to make disclosure, and if so, whether any identified disclosure defects justify setting aside, discounting or overriding the agreement. This involves a careful balancing of all relevant circumstances and an analysis of the intentions underlying the parties’ conduct (Virc, at para. 74; Turk v. Turk, 2017 ONSC 6889(Ont. S.C.J.), at para. 192, aff’d 2018 ONCA 993 (Ont. C.A.), at para. 9; Boechler, at para. 34). The general objective of the court in carrying out this analysis should be to determine whether the disclosure provided was incomplete, inadequate or misleading to such an extent that the party seeking to avoid the agreement did not have the ability to determine what would constitute an acceptable bargain (Rick, at para. 49; Boechler, at para. 33).
- The obligation to disclose will vary according to the type of contract involved. In the case of a separation agreement involving married spouses and touching upon property issues, the duty includes disclosure of assets, debts and other liabilities as of the marriage and valuation dates (Virc, at para 92).
- The magnitude, extent and significance of the defective disclosure are important considerations (Rick, at para. 49; Virc, at para. 66; Faiello, at para. 28; Shinder, at para. 57). In this regard, the court should consider both the significance of any income, assets and liabilities that were not disclosed, inaccurately disclosed or misrepresented as well as the overall significance of any such defective disclosure for the aggrieved party based on all of the surrounding circumstances, since the two considerations are inextricably intertwined (Bruni v. Bruni, 2010 ONSC 6568(Ont. S.C.J.), at para. 102; Turk, at para. 11; Reid, at paras. 63 and 68).
- The significance of any non-disclosed assets and liabilities cannot be viewed in a vacuum. Rather, it must be assessed by measuring the value of any assets, debts or liabilities against the party’s disclosed net worth and in the context of the entire relationship between the parties (Quinn, trial decision, at para. 49; Virc 2017, trial decision, at para. 92; Turk, trial decision, at para. 192).
- Disclosure of assets and liabilities involves providing fair information about their values (Demchuk, at para. 55; Levan, trial decision at para. 55; Virc 2017, trial decision, at paras. 89 and 92; Virc 2017, at para. 59). However, it does not necessarily require that the parties exchange formal valuations of assets, particularly where the aggrieved spouse did not request such valuations during the course of the negotiations (Ramdial, at paras. 1-2).
- Failure to disclose relevant financial information includes making a material misrepresentation about the true value of an asset or liability (Quinn, trial decision, at para. 49; Butty;Virc 2017, trial decision, at para. 92).
- Evidence of deliberate concealment or misrepresentation of relevant financial information, or that a party refused to disclose information after being requested to do so, will be important considerations and may make the agreement vulnerable to judicial intervention (Rick, at para. 9; Levan, trial decision, at para. 200; Virc, at paras. 65, 73; Virc 2017, at para. 59; Turk, trial decision, at para. 195, Court of Appeal decision at para. 15). It is no answer for a party who is guilty of this type of misconduct to state that the other spouse could have independently tested the veracity of their representations or taken further steps to ferret out the truth (Virc, at paras. 56-59; Butty).
- The fact that the party challenging the contract knew of financial misrepresentations by the other party when they executed the agreement may be a bar to a subsequent claim to avoid the agreement based on defective financial disclosure founded upon those misrepresentations (Virc 2017, at para. 62). However, in Virc, the Ontario Court of Appeal indicated that this will only be a bar to relief if the court is satisfied that the spouse seeking to avoid the contract had actual and complete knowledge of the misrepresentations. Constructive or fragmentary knowledge will not suffice to meet this burden, nor will evidence that the aggrieved spouse had a suspicion of misrepresentation. As the Court of Appeal stated in Virc, at para. 69, “a mere suspicion of lack of veracity does not absolve a fraudster of responsibility.”
- Formal disclosure by way of sworn Financial Statements prior to the execution of an agreement is not necessarily required to satisfy the obligation to disclose (Quinn, trial decision, at para. 48; Butler v. Butler, 2015 ONSC 6796(Ont. S.C.J.), at para. 48). Furthermore, the fact that the party seeking to enforce the agreement neglected to include an item in a Financial Statement is not determinative of whether they failed to disclose it and its value. The court should consider whether the parties exchanged relevant financial information through other avenues, including the exchange of documentation, the provision of information through correspondence or discussions about relevant financial matters (Ward; Shinder, at para. 54; Faiello, at para. 27).
- Evidence that the party seeking to avoid the agreement had a general awareness of the other party’s assets and liabilities and their values and did not pursue further disclosure may be sufficient to avoid setting aside or overriding an agreement, particularly where there is no evidence of deliberate misrepresentation or concealment by the other party (Ward, at paras. 32-36; Quinn, trial decision, at para. 48; Dougherty, at para. 28; S. (J.) v. S. (D.B.), 2016 ONSC 1704(Ont. S.C.J.), at para. 48, aff’d [Smith v. Smith] 2017 ONCA 759 (Ont. C.A.), at para. 11; Turk, trial decision, at para. 195; Faiello, at para. 27; Verkaik, at para. 4).
- In considering whether a party had knowledge of the other party’s assets, liabilities and income, the court must also consider the extent of their lawyer’s knowledge of these matters. It is a general principle of the law of agency that in the ordinary case, the knowledge of an agent is imputed to their principal. This tenet is based on the presumption that an agent will communicate their knowledge to the principal since it is their duty to do so (Durbin v. Monserat Investments Ltd. (1978), 87 D.L.R. (3d) 593(Ont. C.A.), at p. 595; Vescio v. Peterman, (1999) 45 O.R. (3d) 613(Ont. C.A.), at para. 2; Shinder, at para. 50). This principle extends to the relationship between legal counsel and their client (Vescio, at para. 2; Acharya Holdings Ltd. v. Standard Trust Co., 2014 NLCA 13, 346 Nfld. & P.E.I.R. 348 (N.L. C.A.), at para. 15, leave to appeal to S.C.C. refused, [2014] S.C.C.A. No. 187 (S.C.C.); Shinder, at para. 50).
- Another important consideration is whether the party challenging the contract was aware of shortcomings respecting disclosure but decided nonetheless to complete the agreement without pursuing full disclosure. Parties may decide to execute a domestic contract without obtaining full and robust disclosure and valuations, and doing so will not necessarily jeopardize the integrity and enforceability of the agreement (Ramdial, at paras. 1-2; Petruzziello v. Albert, 2014 ONCA 393(Ont. C.A.), at para. 23; Tozer v. Tassone, 2019 ONCA 285(Ont. C.A.), at para. 8). There may be various legitimate reasons for parties to proceed without full disclosure, including cost/benefit and proportionality considerations associated with valuations and exhaustive documentary disclosure. Where there is no evidence of deliberate concealment, misrepresentation or inaccurate disclosure by the party seeking to uphold the agreement, and the other party freely and voluntarily decided to forego disclosure of financial information, the court may decline a subsequent request by that party to set the agreement aside or override it based on failure to disclose that information (Butty, at para. 53; Virc, at para. 63; Turk, trial decision, at para. 195, Court of Appeal decision at para. 15). This principle applies even if there was an order in effect requiring the other party to disclose the information, or if the other party did not fully respond to all requests for disclosure. Exhausting pretrial disclosure remedies is not a precondition to a valid domestic contract (Petruzziello, at para. 23; Quinn, trial decision, at paras. 55-56, Court of Appeal decision, at para. 3). In these types of situations, the court must consider all relevant circumstances surrounding the execution of the agreement to determine whether the aggrieved spouse’s decision to proceed without full disclosure was influenced by any concerning conduct by the other party or other circumstances, and whether the defects in disclosure were such as to undermine the integrity and enforceability of the agreement. Whether the aggrieved party had independent legal representation in deciding to proceed without complete disclosure will also be a relevant consideration in these types of circumstances (Butty, at para. 53; Quinn, Court of Appeal decision, at para. 3).
- A party who executes a domestic contract despite legal advice to pursue further disclosure, or after discharging counsel who was in the midst of pursuing additional disclosure, will face great difficulty challenging the contract at a later date on the basis of failure to produce the information in question (Butty, at para. 54).
- There is an important distinction between deliberate misrepresentation regarding income and the value of assets and liabilities on the one hand and uncertainty respecting same on the other. Evidence that there were income or valuation uncertainties when the parties executed the contract, or uncertainties about the potential future value of assets, will not necessarily support a claim to avoid the agreement, particularly where there is no evidence that the party seeking to enforce the agreement was guilty of deliberate concealment, misrepresentation or inaccurate reporting of financial information (Murray v. Murray, 2005 CarswellOnt 3900 (Ont. C.A.), at paras, 24-25; Ward, at paras. 37-39; Butty;Virc;Reid, at paras. 66-68). This is particularly so with respect to income where both parties were clearly aware that the income of the party seeking to uphold the agreement fluctuated or was likely to be in a state of flux (Ward).
- If problems respecting disclosure are identified, the court should also consider whether the defective disclosure would have changed the outcome for the aggrieved spouse. In considering this issue, the court must consider all aspects of the agreement globally, taking into consideration concessions made by the parties to address their unique concerns and circumstances (Butty, at para. 53; Shinder, at para. 58; Turk, Court of Appeal decision, at paras. 7, 12-14; Hillman v. Letchford, 2015 ONSC 3670(Ont. S.C.J.), aff’d 2017 ONCA 117(Ont. C.A.)).
- Other factors which the courts have considered in the analysis are:
a) Whether the problematic disclosure was coupled with duress or unconscionable circumstances;
b) Whether the moving party moved expeditiously to have the agreement set aside;
c) Whether the moving party received substantial benefits under the agreement;
d) Whether the party seeking to uphold the contract has fulfilled their obligations under the agreement; and
e) Whether the defective disclosure was a material inducement to the aggrieved party entering into the agreement; in other words, how important would the non-disclosed information have been to the negotiations?
(Turk, Court of Appeal decision, at para. 15; Smith, Court of Appeal decision, at para. 11; Quinn, at para. 47; Levan; Demchuk, at paras. 58-69; Dochuk, at para. 17)).
The Supreme Court of Canada emphasized in both Miglin and Rick that concerns regarding the circumstances in which a domestic contract was negotiated and executed, whether they are in the nature of vulnerabilities, defective disclosure or otherwise, may be compensated for by effective legal representation or other professional assistance during the negotiation process (Miglin, at para. 83; Rick, at para. 61). However, the court cannot simplistically view such assistance in and of itself as a panacea for concerns surrounding the bargaining process. As the court stressed in Rick, whether professional assistance effectively mitigated such concerns is a matter of fact to be decided in each case (Rick, at para. 61; see also Downer, at paras. 51-52). In addressing this question, the court should consider all relevant circumstances, including the nature, extent and quality of the advice received, and whether there were concerns regarding the party’s ability to comprehend and appreciate the advice (Downer, at para. 51). For example, in Rick, the court upheld the trial judge’s decision that the concerns relating to the circumstances of execution were not in fact compensated for by the fact that the wife had received legal advice and professional assistance from mediators, since the wife was unable to make effective use of that help due to her serious emotional and mental instability (at para. 62).”