“Courts have long recognized that agreements reached between spouses, particularly where they have both had independent legal advice, should be respected: Hartshorne v. Hartshorne, 2004 SCC 22, 1 S.C.R. 550 at para. 9. There are circumstances, however, where the court will set aside such agreements.
The statutory framework to set aside domestic contracts is found in s. 56(4) of the FLA, which states as follows:
(4) A court may, on application, set aside a domestic contract or a provision in it,
(a) if a party failed to disclose to the other significant assets, or significant debts or other liabilities, existing when the domestic contract was made;
(b) if a party did not understand the nature or consequences of the domestic contract; or
(c) otherwise in accordance with the law of contract.
The onus is on the party seeking to set aside the agreement to prove that it should be set aside: Dougherty v. Dougherty, 2008 ONCA 302 at para. 11.
Grounds that would justify setting aside a domestic contract include the following contractual concepts: unconscionability, undue influence, duress, uncertainty, mistake, misrepresentation, fraud, and repudiation of a term of the contract: Ward v. Ward, 2011 ONCA 178 at para. 21.
In LeVan v. LeVan, 2008 ONCA 388 (Ont. C.A.) at para. 51, the court found that there was a two-part test to consider in an application to set aside an agreement pursuant to s. 56(4) of the FLA as follows:
a) The court must determine if the party seeking to set aside the agreement can demonstrate that one or more of the circumstances in subsections (a) to (c) have been engaged; and
b) If the moving party has fulfilled the first part, the court must then consider whether it is appropriate to exercise discretion in favour of setting aside the agreement.
In Turk v. Turk, 2015 ONSC 5845, at para. 55, Kiteley J. summarized the factors the court must consider in exercising its discretion to determine if an agreement should be set aside as follows:
(a) whether there had been concealment of the asset or material misrepresentation;
(b) whether there had been duress, or unconscionable circumstances;
(c) whether the petitioning party neglected to pursue full legal disclosure;
(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.
In J.L.S. v. D.B.S., 2016 ONSC 1704, Skarica J. set out a summary of the law regarding setting aside domestic contracts at para. 29 as follows:
The Superior Court has recently clearly enunciated the law regarding the setting aside of domestic contracts in Harnett v. Harnett, [2014 ONSC 359] supra,
90 A domestic contract will be set aside when a party was unable to protect his or herself. Such cases are generally predicated upon a finding that one party has preyed upon the other or acted in a manner to deprive the other of the ability to understand the circumstances of the agreement.
91 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. The Ontario Court of Appeal in Mundinger v. Mundinger (1968), 1968 CanLII 250 (ON CA), [1969] 1 O.R. 606 (Ont. C.A.) says that the court will step in to “protect him, not against his own folly or carelessness, but against his being taken advantage of by those in a position to do so because of their position.”
92 The court must look not at which party made the better bargain but rather, to whether one party took advantage of their ability to make a better bargain. In that taking of advantage is to be found the possibility of unconscionability. See Rosen v. Rosen (1994), 1994 CanLII 2769 (ON CA), 3 R.F.L. (4th) 267 (ONCA)
93 The test for unconscionability is not weighing the end result, but rather the taking advantage of any party due to the unequal positions of the parties. See Mundinger v. Mundinger (1968), 1968 CanLII 250 (ON CA), [1969] 1 O.R. 606 (Ont. C.A.); Rosen v. Rosen (1994), 1994 CanLII 2769 (ON CA), 3 R.F.L. (4th) 267 (Ont. C.A.).
94 The onus is on the party seeking to set aside the domestic contract to demonstrate that at least one of the circumstances set out in subsection 56(4) has been met; then the court must determine whether the circumstances complained of justify the exercise of the court’s discretion in favour of setting aside the contract. It is a discretionary exercise. See LeVan v LeVan. 2008 ONCA 388 (CanLII), 2008 CarswellOnt 2738, ONCA.