“Courts act with care in determining when it is appropriate to exercise their discretion in favour of setting aside an agreement. This is in large part due to the weight which is placed on private citizens being able to negotiate and make their own arrangements with respect to an agreement, especially when independent legal advice was obtained: Butty v. Butty, 2009 ONCA 852, 99 O.R. (3d) 228 (Ont. C.A.) at para. 50, per curiam [“Butty”]. The Applicant is essentially asking the court to accommodate her change of mind.
In LeVan v. LeVan (2008), 90 O.R. (3d) 1, [2008] O.J. No. 1905, 2008 ONCA 388, at para. 51, the Court of Appeal held that s. 56(4) comprises a two-stage analysis:
a) Can the party seeking to set aside the agreement demonstrate that one or more of the s. 56(4) circumstances isengaged?
b) If so, is it appropriate for the court to exercise its discretion to set aside the agreement?
The Court of Appeal, in Virc v. Blair, 2014 ONCA 392 (CanLII), 119 O.R. (3d) 721 [“Virc”], set out the approach to be taken by the Court on a motion for summary judgment to dismiss a spouse’s application to set aside a separation agreement. In Virc, the applicant sought to set aside the separation agreement she had entered into with her former husband. She argued that her husband had deliberately and materially misrepresented the value of his interest in a company, with the result that she had received an equalization payment that was substantially less than what she was entitled to. The respondent/husband moved for summary judgment dismissing her claim.
This Ontario Superior Court, in a decision reported at [2012] O.T.C. Uned. 7104, granted the husband’s motion. The motions judge concluded that, even if the values provided by the husband were false, there was no genuine issue for trial because the wife had information that should have caused her to question the husband’s disclosure before she signed the separation agreement. The wife appealed. The Court of Appeal allowed the appeal and ordered that the wife’s application proceed to trial.
The wife in Virc argued that, besides the non-disclosure, the parties’ inequality of bargaining power resulted in undue influence, that the husband’s eagerness to resolve matters created duress, that the terms regarding child support and the matrimonial home were unconscionable, and that the terms of the agreement should be altered to provide for spousal support.
The Court of Appeal held that assessing whether the agreement complied with the objectives of the Divorce Act, R.S.C., 1985, c. 3 (2nd Supp.) respecting spousal support was a genuine issue requiring a trial, and that given the unresolved issues, the allegations of undue influence, duress and unconscionability also should have been determined by a trial judge on a full factual record: Virc, para. 76.
In Virc, the motion judge held, at para. 55, that the fact that the appellant “had information that should have caused her to question” the veracity of the husband’s disclosure precluded any chance of successfully setting aside the agreement, even if the respondent had, in fact, deliberately made false disclosure. In other words, the motion judge determined that the appellant ought to have known that the value her husband attributed to his date of marriage interest in his company was overstated. In making this determination, the motion judge relied on an excerpt from Cheshire & Fifoot. She wrote, at para. 83 of her reasons:
Further, where the recipient spouse has a reason to question the information provided, but does not, no misrepresentation or omission could result in the contract being avoided. I refer to Cheshire and Fifoot, The Law of Contract, 10th ed., at p. 244, and quoted in Farquar, at para. 35:
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 . . .”.
The Court of Appeal noted that the motion judge had failed to mention that the authors of Cheshire & Fifoot went on to write:
It must be carefully noticed, however, that relief will not be withheld on his ground except upon clear proof that the plaintiff possessed actual and complete knowledge of the true fact – actual not constructive, complete, not fragmentary. The onus is on the defendant to prove that the plaintiff had unequivocal notice of the truth. In particular, the mere fact that a party has been afforded an opportunity to investigate and verify a representation does not deprive him of his right to resist specific performance or to sue for rescission. As Lord Dunedin once said:
No one is entitled to make a statement which on the face of it conveys a false impression and then excuse himself on the ground that the person to whom he made it had available the means of correction. [page 736]
. . . . .
[I]t is no answer to a suit for relief to say that inspection of the contracts or of the lease or of the bills of costs was expressly invited but was not accepted.
The Court of Appeal in Virc concluded:
[58] Once the motion judge assumed that there had been deliberate material misrepresentations, she erred in shifting the onus to the appellant to inquire as to the veracity of the respondent’s financial disclosure. In the face of a deliberate material misrepresentation, the onus is not appropriately placed on the recipient spouse. Rather, the burden is on the party disclosing to establish actual knowledge of the falsehood by the recipient. The respondent could point to no authority for the proposition that the suggested duty of a spouse receiving financial disclosure in a matrimonial case, to investigate or test the veracity of the information provided, overtakes deliberate material non-disclosure by the other spouse.
The effect of non-disclosure on the integrity of a Separation Agreement is not limited to instances of deliberate misrepresentation. It applies equally to circumstances involving deliberate and material non-disclosure. The Court of Appeal in Virc stated, in part:
[62] In Butty v. Butty, (2009), 99 O.R. (3d) 228, [2009] O.J. No. 5176, 2009 ONCA 852 this court overturned the trial judge’s determination that the marriage contract should be set aside pursuant to s. 56(4)(a) because the husband had failed to disclose significant assets or debts when the contract was made. … in the case under appeal, the finding of actual knowledge on the part of the appellant is lacking.
[63] In Quinn [Quinn v Epstein Cole LLP, (2008), 92 O.R. (3d) 1, 2008 ONCA 662], this court noted, at para. 4, that a spouse could not resile from the consequences of failing to pursue further disclosure “unless she demonstrated that [the husband’s] financial disclosure was inaccurate, misleading or false.” In Quinn, unlike the case under appeal, the appellant had no evidence of non-disclosure but maintained that more such evidence might be forthcoming as a result of examinations for discovery.
….
[64] Next, the motion judge erred in granting summary judgment when relevant factors that required a determination were left unresolved.
[65] In Rick v. Brandsema, [2009] 1 S.C.R. 295, [2009] S.C.J. No. 10, 2009 SCC 10, the Supreme Court of Canada considered the implications of the deliberate failure of a spouse to provide all the relevant financial information in negotiations for the division of assets….
[66] The Supreme Court held that the deliberate failure to make full and honest disclosure of all relevant financial information may render the agreement vulnerable to judicial intervention where the result is a negotiated settlement that is substantially at variance from the objectives of the governing legislation….
[67] The motion judge erred by making a determination in the absence of a resolution of these key factors….
[Emphasis added, citations added]
This Court followed the Virc approach in Turk v. Turk, 2015 ONSC 5845 [“Turk”], where an order for summary judgment was not granted as the court was not confident that it could make findings of the necessary facts and apply the relevant legal principles so as to resolve the issue of setting aside a separation agreement.”