Setting Aside a Domestic Contract

By James Peluch

The recent 2020 Ontario case of Caparello v Henkenhaf provides an excellent illustration of what sometimes happens when disputes arise after matrimonial issues are settled between lawyers outside the court process by way of written agreements. Regardless of how the contract might be interpreted after it is signed, the court will tend to look at all of the circumstances surrounding the negotiation and execution of the agreement to determine whether it “stands” as a valid, binding contract, or, ought to be disregarded and set aside for legitimate reasons.

In Caparello, the parties each benefited from experienced family law lawyers assisting them in mediation. Two related agreements were signed in December 5, 2018 and March 25, 2019. These agreements dealt with how parenting plans, child support, spousal support and property division were to occur given they together owned two successful restaurants. When problems arose later on with respect to how one of the restaurants was to be sold, the wife claimed the husband was concealing some of his financial disclosure and was deliberately trying to frustrate the wife’s efforts in terms of selling one of the two restaurants they owned.

The husband rejected the claims by the wife, stating that the negotiations were always conducted in good faith with capable family law counsel who noted the parties had utilised corporate counsel, a business valuator, and chartered accountant; all of whom were well acquainted with the food/hospitality industry.

The husband further argued that the agreements were rational, served the interests of both parties and involved compromises made by each side. He essentially stated that there was no inequality of bargaining power, no mental health issues existed and the process was not rushed into through careless or reckless measures. The court looked at section 56 of the Family Law Act which narrowly circumscribes the circumstances under which a domestic contract can be set aside. The court also looked at the Supreme Court of Canada case of Miglin v Miglin, which permits a broader inquiry to examine the manner in which the impugned contract was negotiated.

The court concluded there was sufficient financial disclosure made available for the wife at the time negotiations were taking place to allow her to ultimately make an agreement that was in her best interests. No medical disability or underlying personal vulnerability was being exploited. There were significant monetary benefits that flowed from the contract to the wife, notwithstanding her level of disappointment with respect to a potential sale price for one of the restaurants. The objectives behind the Divorce Act were indeed satisfied by the agreement and therefore the court granted Summary Judgment to the husband and dismissed the wife’s Court Application to try to reopen the issues of child and spousal support and other forms of relief.

Although each case has it’s own unique features to be considered, re-opening a settled contract is clearly a matter not to be taken lightly, as summarized by the presiding judge in Caparello as follows: “Where an agreement has been negotiated under impeccable circumstances, and each party has had access to competent legal and other expert advice, it should only be a rare case where an agreement will be set aside.”

 

** This article is intended only to inform and educate. It is not legal advice. Be sure to contact a lawyer to obtain legal advice on any specific matter.