Challenging the Validity of Cohabitation and Pre-Nuptial Agreements In Alberta

Issues that may  impact the validity of a Cohabitation or Pre-Nuptial Agreement are typically  viewed far too abstractly by parties and lawyers alike. The demise of the  relationship or marriage is viewed as merely a remote possibility. Any disputes  about the agreement actually culminating in litigation are seen as even less  likely.

For sound reasons, as  with all litigation, these issues ultimately seeing the inside of a courtroom,  is hardly a recurring exercise.  That  being said, given the evolving climate, there are reasonable expectations that  these agreements will be held to scrutiny on a more frequent basis going  forward and it bears mentioning, so will the lawyers involved.

In any event, ideally, the evaluation of the merit of  challenging the validity of the Agreement is a rational and legally sound  exercise.

The following is offered  as a practical exploration of the most notable exposure points of these  agreements and the Alberta Courts’ treatment of them.

1. WHY IS THE AGREEMENT  BEING CHALLENGED?

Your client’s relationship or marriage is coming to an  end.  Reconciliation has been ruled out.  Depending on the circumstances, your client may have needed reminding of the  existence of an agreement, or perhaps the agreement has been “front and centre”  in their mind since the time of signing.  Whether they had to locate it, dust it off and  bring it in to you, or if it never left the top drawer of their nightstand following  a nightly read, it may now be the subject of exhaustive scrutiny. The prospect  of it ever ultimately being evaluated for adequacy and fairness is no longer  merely an exercise in hypotheticals, it is now a reality.

What one party was prepared to waive or forego in what  they believed to be the unlikely event of the breakdown of their relationship,  with the passage of time, may have become a little more difficult to abandon. Property  has been acquired. Debt has incurred. Incomes have changed. Opportunities have  been lost and gained. Children have been born. With the benefit of hindsight,  one of the parties may have now reached the conclusion, right or wrong, that  they are the victim of the much-feared “raw deal”.

From the client’s perspective, motivation to challenge  the validity of an agreement is sometimes inspired by the emotional response  associated with feeling exploited, abandoned and financially precarious. Those  feelings are already associated with the breakdown of a relationship. They are  all the more amplified where one party feels doubly victimized by the operation  of a Pre-Nuptial or Cohabitation Agreement; an agreement to which little  thought or attention was devoted at the time of signing.

Alternatively, perhaps the agreement genuinely does not  meet the basic legislative requirements and objectively speaking, should be the subject of further review.  Perhaps the circumstances under which it was signed were so contentious so as  to warrant an investigation into whether there was even the most basic  contractual element of consensus ad item.

2. “SETTING ASIDE” AS A LEGAL REMEDY

In any event, a party seeking to set aside one of these agreements  is obviously seeking relief that the agreement otherwise contractually  precludes.

A. Common-Law Relationships and Cohabitation Agreements

For common-law relationships, the existence of a contract  is evaluated within the context of the “unjust enrichment test” revisited most  recently in Kerr v. Baranow.

As per Kerr, recovery for unjust enrichment is permitted if  the Plaintiff can establish:

  1. an enrichment or benefit to the Defendant;
  2. a corresponding deprivation; and
  3. an absence of juristic reason for the enrichment.

Kerr seems to suggest that  once enrichment has been established, there is almost always a corresponding  deprivation. So, to some extent, the Court would seem to view those two  components as one test.

In  dealing with juristic reason, the Court in Kerr provides examples of  possible juristic reasons that would deny recovery, such as the intention to  make a gift (donative intent), a contract, or a disposition of law, such as  where a valid statute would deny recovery.

So at this stage of  analysis, the existence of a contract and its validity could conceivably be  fatal to an unjust enrichment claim. Conversely, success in having the contract  set aside is critical in advancing such a claim.

B. Legal Marriage and Pre-Nuptial Agreements

For a legal marriage where a Pre-Nuptial Agreement exists,  setting aside the Agreement would presumably be to permit the claimant to seek  what they would otherwise be entitled to pursuant to the Matrimonial Property Act or the Divorce  Act.

As per Section 8 the Matrimonial  Property Act, one of the factors to be taken into consideration in making a  distribution is:

  1. the terms of an oral or written agreement between the spouses.

Also, to the extent that a Pre-Nuptial Agreement speaks  to spousal support, the agreement would be analyzed in accordance with the Divorce Act, namely Section 15.2:

In making an order under subsection (1) or an interim  order under subsection (2), the Court shall take into consideration the  condition, means, needs and other circumstances of each spouse, including:

  1. the length of time the spouses cohabited;
  2. the functions performed by each spouse during cohabitation; and
  3. any  order, agreement or arrangement relating to support of either spouse [emphasis  added].

3. GROUNDS ON WHICH  THESE AGREEMENTS MAY BE CHALLENGED

A. Statutory Requirements Not Met

Section 37(1) of the Matrimonial  Property Act permits spouses to enter into a written agreement excluding  property from the division scheme set out in Part 1 of the Act. The most notable effect of such an agreement is to set aside  the presumption of equal distribution of property at the dissolution of the  marriage under S. 7(4) of the Act.

For a marriage contract to be valid and enforceable the  parties must understand the nature and effect of the Agreement, be aware of the  potential relinquishment of a claim otherwise available under the Act and execute the Agreement freely and  voluntarily.

The statutory formalities for parties entering into  pre-marriage agreements are set out in Section 37 and 38 of the Matrimonial Property Act as follows:

37(1) Part 1 does not apply to property that is owned by either or both  spouses or that may be acquired by either or both of them, if, in respect of  that property, the spouses have entered into a subsisting written agreement  with each other that is enforceable under Section 38 and that provides for the  status, ownership and division of that property.

37(2)    An agreement under sub-section  (1) may be entered into by two (2) persons in contemplation of their marriage  to each other but is unenforceable until after the marriage.

37(3)    An agreement under sub-section  (1):

  1. may provide for the distribution of property between the spouses at any time including, but not limited to, the time of separation of the spouses or the dissolution of the marriage; and
  2. may apply to property owned by both spouses and by each of them at or after the time the agreement is made.

37(4)    An agreement under sub-section  (1) is unenforceable by a spouse if that spouse, at the time the agreement was  made, knew or had reason to believe that the marriage was void.

38(1) An agreement referred to in Section 37 is enforceable if each spouse  or each person, in the case of persons referred to in Section 37(2), has  acknowledged, in writing, apart from the other spouse or person:

  1. that the spouse or person is aware of the nature and the effect of the agreement;
  2. that the spouse or person is aware of the possible future claims to property the spouse or person may have under this Act and that the spouse or person intends to give up these claims to the extent necessary to give effect to the agreement; and
  3. that the spouse or person is executing the agreement freely and voluntarily without any compulsion on the part of the other spouse or person.

38(2) The acknowledgment referred to in sub-section (1) shall be made  before a lawyer other than the lawyer acting for the other spouse or person or  before whom the acknowledgment is made by the other spouse or person.

Nasin v. Nasin involved a couple that had been married in accordance  with Muslim tradition.  Just prior to the ceremony, they entered  into a form of pre-nuptial agreement called the “Mahr” in which the husband  agreed to pay the wife $10,000.00 in the event of breakdown of the marriage.  There was no written contract about the Mahr.  However, in finding offer, acceptance and consideration, the Court  characterized it as a “contract” and as a “pre-nuptial” agreement. However, the  Court held the agreement was unenforceable:

[22] Here, we have a pre-nuptial agreement that met none  of the requirements.  It was not in  writing. There was no certificate of acknowledgment that met the requirements  of s. 38 of the Act. The parties did  not receive independent legal advice.

[23] Therefore, even though the Mahr was a pre-nuptial  contract, it was unenforceable.

The purpose of the  statutory formalities is to offer some codified protection to spouses from marital  agreements that are not the result of free and informed consent.  A contract under the Matrimonial Property Act will not be enforceable absent the  statutory formalities. That being said, compliance with the formalities will  not necessarily make the Agreement immune from attack.

3. Inadequate Financial Disclosure

What is the standard  of financial disclosure required for agreements of this nature?

If one seeks some guidance on this issue from the  legislation, as the Court points out in Hinton  v. Hinton:

[29] Section 38 of the Matrimonial Property Act does  not speak directly to disclosure, except to the extent that the same may impact  on an awareness of the nature and the effect of the agreement, or possible  future claims to property and the intention to give up these claims to the  extent necessary to give effect to the agreement.

The standard approach  taken by lawyers drafting these agreements is the appending of “Schedules” within  the agreement outlining and describing the parties’ assets. This approach has  been the subject of some examination by the Alberta courts.

The Tardif v. Campbell decision involved a Pre-Nuptial Agreement that was executed by  the Plaintiff two days prior to the wedding and by the Defendant, a few days  after the wedding. Two  schedules within the agreement set out the property of each party at that time.

At a Trial of the  issue, the Plaintiff asserted that the Agreement should be declared null and  void because he was under pressure to sign and he signed it without the benefit  of full disclosure of the Defendant’s financial position. The Plaintiff argued  that this disclosure should have been provided, with or without request,  although none was made, including financial statements and full particulars of  all of the property.

The Plaintiff further  argued that he should have had the kind of disclosure ordinarily furnished in a Notice to Disclose. The Court  concluded that:

[38]……There is  nothing in Sections 37 or 38 of the Act which imposes such a requirement. Rather, what is required is that the  executing party be “aware of the nature and effect of the agreement” and that  it be executed “freely and voluntarily without any compulsion” on the part of  the other party, along with the formalities of execution including his  acknowledgment before a lawyer who is not acting for the other party…What the  Plaintiff knew about the Defendant’s financial position was this: It was  considerably larger than his own.

And the Court went  even further on the matter of financial disclosure:

[41] While the  Plaintiff may have not known the exact value of some of the property, he most certainly  was aware of its nature and that the Agreement sought to keep it entirely  separate from him as the Defendant’s own property in the event of separation or  divorce.

The Pre-Nuptial  Agreement was deemed valid.

Hollingshead v. Hollingshead involved  a couple that had been legally married and ultimately separated after fourteen years. At Trial, responding to the Wife’s claim  for matrimonial property division and spousal support, the Husband relied upon  the provisions of a Pre-Nuptial Agreement which purported to exhaustively deal  with both.

In challenging the validity of the agreement, the Wife  challenged a provision in the agreement as false:

7.  Each of the  parties admits full knowledge of the nature and extent of the assets and estate  of the other, as more particularly set out in Schedule “A” as to the assets and  liabilities of the Husband and in Schedule “B” as to the assets and liabilities  of the Wife and each has made full disclosure of assets and obligations.

The schedules merely listed the parties’ assets.  The Wife testified that while she knew the  Husband was “financially well off” she was unaware of the values of all of the  assets or of the specific nature of some of those assets.  For instance, she was unaware that the Husband’s  professional corporation owned investments. The Husband testified that he recalled  the Wife having an understanding of all of his assets and that if she had asked  him any questions of same he would have answered her questions.

Further, the lawyer whom had provided independent legal  advice to the Wife testified respecting her standard practice. She offered that  in 1992, when the agreement was signed, it was typical for these Agreements to  simply list the assets and that the practice had evolved such that values were  now being used more commonly.

The lawyer further testified that her usual practice  would have had her asking the Wife whether she had any questions surrounding  the list of assets and in particular, whether any follow up for values was desired.   The Court accepted the lawyer’s testimony  and concluded that if there were no inquiries it was because the Wife did not  want the matter pursued for whatever reasons she may have then had.  The Court was “satisfied that for whatever  reason known to her the wife was comfortable in her level of knowledge”.
Counsel for the Wife argued that merely possessing a  “comfort level” does not correspond to the agreement’s requirement that the  Wife had “full knowledge of the nature and extent” of the Husband’s assets.

The Court held:

[65] Unfortunately,  the prenuptial agreement does not define the quoted words. For instance,  consider the asset of stocks.  Is “full  knowledge” only established by knowing the number of stocks, their purchase  price, their current price, whether they are free trading or flow through, have  share warrants attached, etc.? Would something less suffice? It would seem only  reasonable to rely on the individual’s choice as to the information he/she  wanted to know.

[66] One could  suggest that the words “nature and extent” encompass the value of the assets  but there is nothing in the clause to indicate that value is to be implied nor  how it is to be determined. On top of that I do not know, of course, what was  the precise level of knowledge that either party had of the other’s assets. In  the absence of a definition section or in the absence of some provable attempts  at hiding assets or the nature of the assets or some evidence of an attempt to  mislead a party regarding same, I can only conclude that when an individual,  after receiving independent legal advice concerning the contents of a document  is yet willing to put pen to paper, then that person at that time must have  been satisfied with whatever her level of knowledge and was prepared to proceed  to sign the document notwithstanding she may have been in error in the actual  understanding of those assets. Examined from a different angle, the wife has  not provided me with evidence to even suggest that had she known more  information she may have been inspired not to sign this prenuptial. See Hinton v. Hinton 2008  CarswellAlta 409(QB), paragraphs 43 & 44.

Sporring v. Collins involved a seven year common-law relationship that ended  and following which the Plaintiff advanced an unjust enrichment claim. At the “absence of juristic reason” stage, the Court analyzed the Cohabitation  Agreement signed by the parties. One of the arguments raised about the validity  of this agreement was the adequacy of financial disclosure. The Plaintiff  argued that although the agreement said that the parties had completely and  fully disclosed to one another their current financial status, including assets  and liabilities, this did not happen.

In hastily dismissing the Plaintiff’s claim of inadequate  financial disclosure, the Court held:

[139] Mr. Sporring does not say there was information  that should have been disclosed by Ms. Collins that may  have affected his decision to sign the agreement.

[140] It is not necessary to determine the preliminary  issue of whether there was any duty  to disclose in these circumstances because there is no evidence that the  failure to provide disclosure was or might have been material to Mr. Sporring’s  decision to enter into the agreement.   Mr. Sporring does not suggest there was concealment or misrepresentation  or that there was anything that he was unaware of that might be relevant to  this claim.

Most would agree that the “bar was raised” for financial  disclosure on marital agreements with Rick v. Brandsema. The Supreme Court of Canada confirmed the entitlement of spouses to the other’s  finances. Absent that full disclosure, any subsequent marital agreements are at  risk of being set aside. The Rick decision  perhaps also laid the groundwork for the same approach taken by the Court of  Queens’ Bench of Alberta in Brown v.  Silvera, where the court held:

[36] Non-disclosure is a fundamental breach of a property settlement  contract: Fercho v. DosSantos,  at para. 42. Proper disclosure means presenting financial information in a  clear, noncryptic form that does not require additional investigation: Fercho v. Dos Santos, at para. 45.  The Alberta Court of Appeal, in discussing disclosure pursuant to matrimonial  property agreements, stated that “the production of such disclosure must be  regarded as fundamental to the Agreement.”: Moore v. Moore, 2000 ABCA 102 at para. 10, 185 D.L.R. (4th)  93.

[40] Some of this case law suggests that Silvera  should have asked more questions of Brown and that she should take some  responsibility for not getting complete disclosure of the property from Brownand that it was Silvera’sduty to search out the information she  needed before she signed the agreement. Brandsema puts paid to the suggestion that Silvera had  any duty to enquire. The strict principles of contract law are not appropriate  to the context of emotional and stressed matrimonial matters (at paras. 40-41).  The ability of spouses to contract independently depends on the integrity of  the bargain, that is, the negotiation requires full disclosure. Brandsema makes it clear  that both spouses have a duty to disclose completely and be utterly honest  about the existence and the value of all of their matrimonial property.

[41] I adopt the reasoning of Justice Erb in Fercho v. Dos Santos, at paras. 40  and 45. She held that parties to a separation agreement are not expected to  engage in a “scavenger hunt”, to unweave “a complex web of corporate or other  intrigue” or to “make huge expenditures to untangle complex corporate  structures” just to ascertain family assets. Justice Erb stated that behaviour  of concealing assets is not to be encouraged. I agree.

[43] Consequently, I find that Brown was obligated to disclose  completely all the corporations in which he had an interest and the value of  that interest. Further, I find that if he was not aware of the value of the  interest, he was obligated to determine the value of the corporations or to  ensure that Silvera was given a fair opportunity to determine the value.  Further, if Brown was aware of uncertainty in the value of these corporations,  he had a positive obligation to disclose that fact. Above all, he was obligated  not to mislead Silvera about the value or the potential value of all of the  corporate interests. He was obligated to disclose everything relevant about  those corporations that would assist Silvera to determine the value of the  corporations and whether she was interested in sharing those assets.

Siegel v. Siegel is an Alberta Court of Queen’s Bench decision, subsequent  to Rick and Brown, in which the Plaintiff challenged the enforceability of a  Pre-Marital Agreement on grounds that included an allegation that the Defendant  “fraudulently or negligently misrepresented the state of his assets at the time  of marriage by not disclosing the exact interest  he had had in farmland described in Schedule A.”

The Court held:

[13] In this case, however, the husband did disclose  to the wife that he had an interest in the farmland and that there was money  owing on the farmland, which would suggest that he did not have unencumbered  title. After receiving independent legal advice, the wife did not inquire about  the property or seek additional information about the proposed exemption. If  the wife was unaware of the exact interest owned by the husband in the  farmland, that does not take away from the fact that she was aware that she was  giving up her claim to the farmland: see Tardif v. Campbell, 2008 ABQB 776 (CanLII) , 2008 ABQB 776, 63 R.F.L. (6th)  220, at paras. 40-43 for a similar interpretation.

[14] The husband’s failure to provide a more accurate  disclosure of his interest in the farmland can be distinguished from the type  of misleading disclosure that was found to exist in Rick v. Brandsema, 2009 SCC 10 (CanLII) , 2009 SCC 10, [2009] 1 S.C.R.  295. In that case, the Supreme Court of Canada departed from the distribution  arrangement set out in a separation agreement on the basis that the husband’s  disclosure was misleading, the wife was psychologically vulnerable and the  legal advice provided to the wife was not sufficient to compensate for her  vulnerability. In the case at bar, there is no evidence that the husband  attempted to mislead the wife or that the wife was psychologically vulnerable  at the time she received legal advice regarding the effect of the Agreement.  Even if the husband’s disclosure regarding the nature of his interest in the  farmland can be characterized as incomplete, there is no evidence that this was  part of a cumulative series of transgressions or improprieties. Without this  type of evidence, the Court considers the Agreement to be a reflection of the  mutual desire of the parties and indicative of their substantive intentions at  the time of marriage: see Miglin v.  Miglin, at para 83.

Given the foregoing, even following Rick and Brown, one can  reasonably conclude that the Alberta Courts adopt the position that a party  need not have precise knowledge of the financial circumstances of the other.  Moreover, any party alleging inadequate financial disclosure should have at the  very least, made further efforts to satisfy any perceived deficiencies prior to  signing the agreement. In those circumstances, if one seeks to vitiate the  agreement on these grounds, they would need to represent some kind of  concealment or provide evidence that with the benefit of additional disclosure,  they would not have signed the agreement.

C. Duress

Safeguarding a party from signing a marital contract  under duress is grounded not only in traditional contract principles in the  common law, but it was also presumably codified in the Matrimonial Property Act.

Again, a signing spouse need formally acknowledge that they are “executing  the agreement freely and voluntarily without any compulsion on the part of the  other spouse or person”, as per 38(1)(c) of the Matrimonial Property Act.

That being said, the spouse  and lawyer’s formal endorsing of an Acknowledgement will merely act as an  obstacle to a party challenging the validity of an agreement on the grounds of  duress. That is to say, a spouse at one time formally acknowledging that they were not under duress at the time  of signing does not necessarily lead to an absence of duress being deemed  self-evident so as to prevent future litigation on the issue.

In Hollingshead, the Plaintiff’s Wife challenged the validity of a Pre-Nuptial Agreement  on grounds that included duress. She claimed that she had signed the agreement five  days before her wedding after she had become financially dependent on her  husband. Notwithstanding the signed acknowledgment, she claimed that she was  not aware of the nature and effect of the agreement, namely the waiver of  future claims.

On the  matter of duress, the Court held:

[67] The wife also complains that this  pre-nuptial fails to meet the requirements of s. 38 (1)(c) of the Matrimonial Property Act i.e. that the wife lacked free will.

[68] Counsel asserted that at the time  of signing she was not acting freely and voluntarily and without any compulsion  on the part of the husband…

[69] In addition to my earlier findings  I further add that there is no evidence to support a claim that the wife did  not know what she was signing, nor what it meant for her future. There is no  evidence that she was coerced, forced, tricked, pressured or compelled into  signing this pre-nuptial. She acted as an individual exercising her own free  will and not as a result of the direct or subtle wishes from the husband for  her to sign. There is no evidence to support the suggestion that her signing  reflected an “overwhelming imbalance of power.”

[70] My finding in this regard equally  reflects my confidence both in the testimony of Ms. MacSween [the Wife’s  independent lawyer] which I unreservedly accept as well as in her signed  “Certificate of Acknowledgement By Spouse.”

As further outlined and held in Hinton:

[52] The Plaintiff also says that  the Defendant exercised undue influence over the Plaintiff and that she signed  the Agreement under duress. She says that the fact that the Defendant is a  lawyer left her with unequal bargaining power. Further, when combined with her  emotionally vulnerable state arising from the suicide of her second husband in  October of 1996 and the possible suicide attempt by one of her daughters, it  effectively “served to put the Defendant in a unique position of undue  influence over the Plaintiff.” I do not  accept this suggestion….

[54] If the Plaintiff was under  stress arising out of her personal circumstances, I find that her situation was  not caused by any actions of the Defendant. Further, I find that although she  was undoubtedly emotionally upset subsequent to her second husband’s death in  1996, that in itself does not lead to the conclusion that she was deprived of  her free will in relation to entering into this Agreement. I was not satisfied  on the basis of her evidence that she felt compelled to sign the Agreement,  except insofar as she wished to marry the Defendant. If that were sufficient to  establish undue influence or duress, no pre-nuptial agreement would ever  survive challenge.

[55] Having considered all of the  evidence, I find that any suggestion of undue influence or duress regarding the  signing of the Agreement whether arising from the Defendant’s position as a  lawyer or because of her emotional state has not been established on the  Plaintiff’s evidence, and the allegation is further effectively met and  rebutted by the evidence of Mr. Hautmann and the Acknowledgement signed by the  Plaintiff which provided, in Clause 4, that the Plaintiff was executing the  Agreement “freely and voluntarily without any compulsion on the part of my  contemplated spouse, John Frederick Hinton”.

When determining whether a contract was entered into  under duress, the test in the family law context is less onerous than the test  for unconsionability as required in the common law of contract and no evidence  of power imbalance is required. (Miglin  v. Miglin)

However, the Court of Queen’s Bench of Alberta in Welch v. Bancarz, a case which involved  a Separation Agreement, recognized both the heavy onus on a Plaintiff and the  emphasis on a fact-driven analysis:

[10] Equity has extended the concept to  include instances where there is economic duress, as noted by Paperny J. in Hill v. Ilnicki, [2000] A.J. No. 1219 (Q.B.). While economic  pressure is not always sufficient to establish duress, I note that in Fitzgerald v. Siepierski, [2001] N.S.J. No. 210 (S.C.), Hall J. found  that a common law wife had no alternative but to accept a payment and vacate  the premises on very short notice. Hall J. concluded that she clearly accepted  the payment under extreme duress, which vitiated any implied agreement that she  was accepting the payment in full settlement of her interest in the common  property. In Hicks v. Bird,  (1994), 146 N.S.R. (2d) 185 (Fam.Ct.), upheld on other grounds [1994] N.S.J. No. 591 (S.C.), the man told his  common law wife it was “this agreement or nothing” in which case the  relationship would end there. Dyer J. held that given those choices and the  wife’s powerless state, it was not surprising that the agreement was signed,  and found that the wife was subject to duress and undue influence. See also the  discussion of duress in the family law context in P. (M.L.) v. P. (G.W.) 2000 CanLII 22462 (ON SC) , (2000), 12 R.F.L. (5th) 434 (Ont. S.C.J.)….

[12] While it is true that there is a  heavy onus on a party claiming duress so as to rescind a contract (Westerlund v. Ayer, 1970 CanLII 150  (SCC) , [1971] S.C.R. 131), the question will turn on the  particular facts in each case and I cannot say on the limited evidence before  me that the Plaintiff could not or would not succeed in establishing that she  reasonably felt that she had virtually no choice in the circumstances but to  sign the document in question, and that those circumstances in this case  justify rescission of the agreement.

As offered by the  Court in Hearn v. Hearn:

[46] It should be  noted that the duress in question is nothing that was caused directly by the  Defendant. This is not a case where one spouse is said to have, for example,  compelled the other to sign the agreement by threats of violence. The duress  here arises from external economic circumstances. The most that can be said is  that the Defendant would have been able to alleviate those economic  circumstances by providing additional financial support to the Plaintiff…

[47] There is  always a certain amount of economic pressure involved in negotiating a  settlement agreement. Settlement agreements, like all agreements, involve an  element of give and take. Generally speaking neither party gets everything he  or she wants. Often times one party is in a stronger bargaining position than  the other; absent circumstances amounting to unconscionability this does not  affect the enforceability of the settlement agreement.

In Tardif,the Plaintiff asserted that he signed a  Pre-Nuptial Agreement in a stressful environment, fearful that his imminently  pending wedding would not take place.

The Court held:

[33] To prove that he executed the  Agreement under duress, the Plaintiff must demonstrate that he was under such  pressure that he no longer had an ability to exercise independent judgment.

[34] The Plaintiff said that he felt  pressured because of the short period of time between the day he signed the  Agreement and the wedding itself. He felt that the Agreement was sprung on him.  He agreed that while many things were going on at the time to prepare for the  great day, at no time did the Defendant say or intimate to him that if he  failed to sign the Agreement there would be no marriage…

[35] I am not satisfied that the  Plaintiff was under such pressure that it amounted to duress or that he was not  able to exercise independent judgment...

In Mastalerz v. Mastalerz,  the Court deliberated on the validity of a Pre-Nuptial Agreement. The evidence showed that the agreement was presented to the Plaintiff Wife  within days of both:

  1. The planned wedding; and
  2. Expiry of the 90 day period within which the Plaintiff, as a condition of her visa, would have to marry the Defendant.

The Plaintiff argued duress in that she was presented no  practical option except to sign the agreement. She argued that she had given up  the security that she had established in her native Poland and had no realistic  hope, if she returned there, of reconstructing her life.

On these facts, in finding no duress, the Court held:

[39] While Ms. Mastalerz may have only  had 90 days to marry Mr. Mastalerz pursuant to the terms of her visa, there is  no evidence that Ms. Mastalerz was forced to enter into the Agreement. To the  contrary, she had many resources in Poland and, although she had quit her job  to move to Canada, there is no reason to believe that she would not have been  highly employable had she chosen to return. I also have no doubt that had she  chosen to return do so, Mr. Mastalerz would have paid for her return to Poland.  Ms. Mastalerz admits that the only obstacle to her return was her own pride, in  that she would have been embarrassed to have returned to Poland at that time  because she feared that she would be perceived as a failure.

Orcheski v. Hynes involved parties that had cohabited from 1998 to 2006. They  had executed a Cohabitation Agreement in 2001, with independent legal advice.  The Agreement was signed during the time that Mr. Hynes was planning to  relocate from Fort McMurray to Edmonton. Ms. Orcheski stated that she signed  the Agreement when she and Mr. Hynes were packed up and ready to move to  Edmonton and their residence had been sold. She testified that Mr. Hynes  provided her with the Agreement a few days prior to the house being sold and  advised her that, if she did not sign, the relationship was over and she would  not be accompanying him to Edmonton. There was evidence of correspondence, regarding revisions, between counsel a  year before the agreement was executed.

The Court concluded that these particular circumstances  did not amount to duress. In the face of the legal advice and the Agreement she signed, she chose to move  to Edmonton with Mr. Hynes. The Court concluded she could have chosen to stay  in Fort McMurray.

Although dealing with an application to set aside a Minutes of Settlement following  separation, the Dickieson v. Dickieson decision explores and applies a well-grounded test for  duress:

[22] The test, then, as set out in Roenisch v. Bangs is as follows:

  1. whether the person alleged to have been coerced, protested;
  2. whether, at the time he or she was allegedly coerced into making the contract, he or she had an alternative course open to him such as an adequate legal remedy;
  3. whether he or she was independently advised; and
  4. whether after entering the contract, he or she took steps to avoid it.

[23] A power imbalance or vulnerability does not  necessarily lead to a finding of duress. There is always economic pressure  involved in negotiating a contract and often the person holding the property is  in a better bargaining position. However, again, that does not necessarily  affect the validity of the contract. The negotiation of a contract in the  context of family law is governed by the same principles, but is complicated by  the power relationship and the emotional vulnerability of the parties.

D. Unconscionability

In Rick, the Supreme Court, referencing its earlier decision in Miglin, set out the common law test  of unconscionability that should be applied to matrimonial agreements:

[42] Based on these realities, the Court in Miglin stated that  judicial intervention would be justified where agreements were found to be  procedurally and substantively flawed.

[W]here the parties have executed a pre‑existing agreement, the court  should look first to the circumstances of negotiation and execution to  determine whether the applicant has established a reason to discount the  agreement. The court would inquire whether one party was vulnerable and the  other party took advantage of that vulnerability. The court also examines  whether the substance of the agreement, at formation, complied substantially  with the general objectives of the Act. [para. 4]

[43] Miglin represented a reformulation and  tailoring of the common law test for unconscionability to reflect the  uniqueness of matrimonial bargains:

[W]e are not suggesting that courts must necessarily look for  "unconscionability" as it is understood in the common law of  contract. There is a danger in borrowing terminology rooted in other branches  of the law and transposing it into what all agree is a unique legal context.  There may be persuasive evidence brought before the court that one party took  advantage of the vulnerability of the other party in separation or divorce  negotiations that would fall short of evidence of the power imbalance necessary  to demonstrate unconscionability in a commercial context between, say, a  consumer and a large financial institution. [para. 82].

[44] 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 [page311] concluded that the agreement need not be enforced (paras. 81-83).

[45] 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).

Mastalerz in  concisely summarizing the jurisprudence, captures the significant onus on a  party alleging unconsionability:

[32] …In determining the question of  unconscionability, the Court must take into account all the circumstances and  determine whether the bargain was so bad as to constitute a fraud perpetuated  upon the party who is seeking rescission of the agreement.

Mere unfairness would be inadequate grounds to set aside  an agreement. As held in the Siegel decision:

[11] As a general principle, if all the  formal requirements are met, courts are reluctant to interfere with a domestic  contract absent evidence of unconscionable conduct or evidence that one party  is unable to protect his or her own interests. This is the case despite the  fact that it results in a party to the agreement receiving less than he or she  would have been received under the statutory division of family property: Miglin v. Miglin, 2003 SCC 24  (CanLII) , 2003 SCC 24, [2003] 1 S.C.R. 303, and Clayton v. Clayton 1998 CanLII  14840 (ON SC)  , (1998), 40 O.R. (3d) 24,  38 R.F.L. (4th) 320. The onus of demonstrating unconscionable conduct or duress  rests with the party making the claim and is evaluated based on the cumulative  effect of any transgressions or improprieties.

Bastarache J.’s comments in Hartshorne, at para. 67 are perhaps the most  instructive in offering most Courts’ applied approach to the issue of  unconscionability:

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 a 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.

4. THE ROLE OF  INDEPENDENT LEGAL ADVICE

As recently pointed out by a prominent Canadian family lawyer,  it “has become an industry attacking these agreements and it’s a secondary  industry attacking lawyers who do these agreements”. This is partially a  function of the circumstances typically surrounding these agreements. If a  party who seeks to set aside an agreement obtained independent legal advice  prior to signing, their challenge will be greater. They would have to establish  that this advice was profoundly flawed.

Even if one were confronted with an agreement that was the  product of inadequate financial disclosure, signed under duress or  unconscionable, a party - via independent legal advice - would have been  presumably sufficiently informed to be aware of any problems with the  agreement.

What is “independent legal advice”? By way of Section  38(2), the Matrimonial Property Act is one of the few pieces of legislation that operates to encourage independent  legal advice. That being said, any guidelines from the case law as to what  exactly that independent legal advice entails can be seen as still evolving.

In Brosseau v.  Brousseau, a father and daughter, both lawyers, joined forces to assist the  father’s brother and his wife with negotiating a matrimonial settlement. The daughter prepared the document and referred her aunt, the Plaintiff, out  for independent legal advice. The Plaintiff stated that she viewed the lawyer  as nothing more than “rubber-stamping” what was essentially an agreement  approved by her lawyer niece and spent little time with the independent lawyer.

The Court held:

The term  "independent advice" is not one of precision. It may cover the  situation in which a lawyer explains, independently, the nature and  consequences of an agreement. We conclude that X did that. It may extend, as it  does in cases of undue influence, to the need to give informed advice. For  example, looking solely at a question of maintenance, a client should have some  appreciation of the circumstances in which a court would order ongoing, rather  than term, maintenance and the basis on which this is done.

We doubt that any  hard and fast rule can be laid down and the peculiar circumstances of this case  are not appropriate for the formulation of such a rule, in any event.

The Court continued:

The unimpeachability  of final support agreements is predicated upon the parties reaching that  agreement through informed legitimate agreements; neither is labouring under a  legally recognized disadvantage. A conflict of interest is such a disadvantage.

The Court, in essence, held that mere compliance with the  provisions of Section 38 of the Matrimonial  Property Act will not be enough  where either party labours under a “legally recognized disadvantage”. That  disadvantage could be the “taint” that may ultimately expose an agreement to  being set aside, namely, inadequate financial disclosure, duress or  unconscionability.

So, the adequacy of the independent legal advice, not  surprisingly, will be dictated by the facts at hand.

Corbeil v.  Bebris considered the  enforceability of a Separation Agreement governed by the Matrimonial Property Act.  At paragraph 13 the Court states:

Moreover, no rule in equity or contract invalidates  an agreement simply on account of a lack of independent legal advice. The  function of the advice, in that context, is to remove a taint that, left  unremoved, might, according to contract or equity law, invalidate the contract.  Judges cannot therefore simply say that an agreement is unenforceable for lack  of independent legal advice. At the very least, they must first find a taint.

Tardif involved a Plaintiff who sought to have a Pre-Nuptial  Agreement declared null and void because of inadequate financial disclosure and  duress. The Court offered:

[24] Section 38 of the Matrimonial Property Act, R.S.A. 2000,  c.M-8 requires that the party executing an available [sic]  under the Act; and execute the agreement “freely and voluntarily without  any compulsion” by the other party. There is a requirement for acknowledgments  that the formalities have been met.

[25] There is nothing in the Act which  requires each party to have independent legal advice nor does it invalidate an  agreement for want of it:  Corbeil v. Bebris reflex , (1993), 49 R.F.L. (3d) 77 (ABCA). A lawyer retained for  that purpose is merely required to make certain enquiries and to be satisfied  that the client acted freely, with full awareness of the right to an equal  division and judicial review. As Corbeil indicates, as long as the “statutory formalities” were met, the Agreement  should stand.

[26] A pre-marriage agreement is a  contract between two parties. Generally speaking, the right of contracting  parties to make agreements whether advantageous or not is well established.  Unless it can be shown that one party took advantage of the other by duress or  undue influence or concealed facts which would have made a difference to the  decision, private agreements are generally upheld.

As for Cohabitation Agreements not expressly governed by  the Matrimonial Property Act, the Sporring decision would seem to offer  some insight on the matter of independent legal advice.

In that case, the parties had a seven year common-law  relationship. Mr. Sporring advanced an unjust enrichment claim seeking property  division and at the juristic reason stage, the Court considered a Cohabitation  Agreement signed by the parties, without independent legal advice.

The Court held:

[134]There is no  authority in Alberta that requires couples who enter into agreements concerning  the ownership and division of property to receive independent legal advice  before they enter into such an agreement or permits the court to set aside such  an agreement simply because it was entered into without independent legal  advice…

[136] The agreement does not say  the parties actually received legal advice or they were required to obtain  independent legal advice. It says they acknowledge that they have had the opportunity to consult with counsel of their choice. There is no evidence that Mr.  Sporring was unable to obtain legal advice before signing it had he wished. Ms.  Collins testified that Mr. Sporring told her he did not need a lawyer,  providing the detail that he said million-dollar deals were made with a  handshake on the 19th hole.

Again, the ability for one party to have a Court set  aside the Cohabitation Agreement on the basis that it did not understand “the  nature or consequences of the agreement” is mitigated by independent legal  advice. Consulting with an independent lawyer suggests that the lawyer’s  knowledge and understanding was “downloaded” to the client.

Webb v. Birkett certainly appears to have set the new benchmark for a  lawyer’s duty of care in domestic and matrimonial matters. It cannot be said  that this benchmark has yet been expressly applied by the Alberta Courts to a  lawyer’s duty of care in offering independent legal advice on a Pre-Nuptial  Agreement or Cohabitation Agreement. That being said, going forward, it may be  most instructional as a “best practices guide” for lawyers providing  independent legal advice on any and all domestic contracts:

  1. to obtain sufficient reliable information to be able to ascertain what the client would likely receive or be required to pay for spousal support, child support and matrimonial property division should the matter be resolved at trial and to so advise the client;
  2. to give the client a description of options to any proposed settlement, an opinion on whether any proposed settlement is reasonable and a discussion of the pros and cons of that settlement in comparison to the other options so that any decision to settle is an informed decision; and
  3. to tell a client who takes the position that he or she wants to settle without having received full information from the other side that they may therefore be accepting less or paying more than what would be required according to law and to provide to that client an assessment of the impact of the risk, including estimates of the value of what might be lost or paid above what was necessary, to the extent possible, on the basis of the information then available. A prudent solicitor would put this advice in writing to avoid later allegations of misunderstanding.

CONCLUSION

With the case law as  our guide, what can we take away as the Alberta Bench’s approach to the validity  of Pre-Nuptial and Cohabitation Agreements? It would be fair to say that, to  date, these Agreements are overwhelmingly held valid and enforceable when  challenged. There remains a significant burden of proof on a party seeking to  set aside one of these agreements and a consistent reluctance on the part of  Alberta courts to do so.

The types of agreements  that should be consistently set aside are perhaps best represented in Kuehn v. Kuehn .  That minority of agreements, the circumstances  of which are so suspect, any enforcement would offend legislation and common  law.

In Kuehn, the  best man presented the bride with the final Pre-Nuptial Agreement, prepared by  the groom, half-an-hour prior to the wedding ceremony. There had been  misrepresented financial disclosure by the groom and no independent legal  advice. In examining the Plaintiff Wife’s entitlement to matrimonial property  division with reference to Section 8(g) of the Matrimonial Property Act, the Court held:

8(g) the terms of an oral or written agreement between the spouses;

[40] Notwithstanding counsel for the Defendant’s very  able argument on this point I put no value or emphasis on the Agreement that Sharon  Kuehn was compelled to  sign an hour before the wedding ceremony. It is not an Agreement she had input  in, it is not an Agreement that provided any disclosure from the side who  wanted the Agreement and the shadowy nature of extracting her signature all  lead me to exclude it completely from any calculation or judgment. Farley Kuehn  may have in fact lived by the Agreement faithfully but an Agreement must have  at minimum some form of consensus ad idem which in my view the June 29,  2000 document does not.

This is perhaps an extreme example, but a reminder that by no means are these  agreements immune from a principled challenge. The facts will occasionally call  for further exploration into the circumstances surrounding an agreement’s generation  and execution.

Traditionally, the steps taken toward finalizing these  agreements differ from those associated with separation agreements. For reasons  that include the stigma and embarrassment often associated with these agreements,  there are certainly shortcuts taken towards completion. The agreement is the  “elephant in the chapel”, so to speak. In the eyes of the couple, the less  attention brought to it, the better. As a result, these agreements are often  prepared in some haste, with insufficient attention to detail and in extreme  situations, as an “ultimatum” prior to commitment to marriage.

There are typically no 4-way settlement meetings. No  formal Questioning takes place for  obvious reasons. And the scope and extent of financial disclosure may not be as  thorough as that exchanged following the breakdown of a relationship, although  that is something that is perhaps evolving amongst lawyers.

That being the case, if one were to challenge the validity  of one of these agreements, the relative dearth of documentation and absence of  procedural steps would certainly be in their favour. If their plan is to  characterize the circumstances surrounding the preparation and execution of the  agreement as at all murky, they would be half-way there. Also, the passage of  time and the vague memories of all parties involved might also conspire to sufficiently  obfuscate the facts to one party’s unwarranted advantage.

Chances are that at least one of the parties saw the  agreement as a mere “nuisance”. Counsel should commit to best practices that ensure  that they will not take the same approach.