FILE NO.: 03-ST-36181
DATE: 2006/08/24
ONTARIO
SUPERIOR COURT OF JUSTICE
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Erika Margaret LeVan
Applicant
- and - Richard Bruce LeVan Respondent
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Philip Epstein and Ilana Zylberman, for the Applicant
Gerald Sadvari and Lisa Bonin, for the Respondent
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HEARD: May 29, 30, 31, June 1, 2, 5, 6, 8, and 9, 2006 |
Overview
[1] The central issue in this case is whether the parties’ marriage contract should be set aside. The parties lived together for 1 year and were married for 7 years. There are two young children who live primarily with the wife. The wife has not worked outside the home since having children.
[2] The wife knew, prior to the parties getting engaged, that the husband required a marriage contract to protect his shares in the family’s businesses. The marriage contract, signed two days prior to the wedding, excluded the husband’s very substantial business interests and severely restricted the wife’s claim to support. The wife’s valuator valued the husband’s business assets, after significant discounts and deduction of contingent taxes, at over $14 million at the date of marriage and at over $33 million at the date of separation.
[3] The husband did not value his assets or disclose his income at the time the contract was signed. Misrepresentations were made as to his assets. The wife, the husband and their respective lawyers had no idea of the extent of the husband’s wealth. The husband denies that there was any obligation under the Family Law Act, R.S.O.1990, c.F.3 to provide values for his assets or that there were misrepresentations but submits that there was no material misrepresentation because the wife had all the disclosure she wanted and she would have signed the contract, whether or not the disclosure was made.
[4] If the court finds that there has been a breach of s.56 (4) of the Family Law Act, both parties submit that the court’s discretion should be exercised in its favour, the wife submitting that the contract should be set aside, the husband that it be upheld. The husband submits that if the contract is set aside, it would be unconscionable to award the wife any part of the $10 million equalization, particularly having regard to the fact that the husband’s shares have dropped in value since separation.
[5] The husband submits that he is entitled to deduct a cottage loan of $1 million owed to his mother. The wife submits that the loan should be discounted to nil because it is unlikely that the husband will have to repay it.
[6] I have concluded that in the exercise of my discretion, the marriage contract should be set aside and that it would be unconscionable to award an equal division of net family property.
Background
[7] The parties began living together in June, 1995. They were married on June 22, 1996 and separated 7 years later on October 27, 2003. There are 2 children of the marriage, Austin, born August 9, 1997 (age 8) and Collin, born September 25, 1999 (age 6). The wife is 42 years old. The husband is 44 years old. The wife has an Honours B.A. in psychology and a teacher’s certificate. The husband has a diploma in business marketing.
[8] Before having children, the wife held jobs as a supply teacher, a waitress and as a receptionist and assistant in a financial company. In the year prior to marriage, she earned approximately $13,000. After the children were born, the wife became a full-time “stay at home” mother. She has not worked outside the home since the separation. She has always been the children’s primary caregiver. Since separation, the children have resided primarily with her and see their father on alternate weekends and for some vacation time.
[9] The husband and his family are the controlling shareholders and own the majority of shares in Wescast Industries Inc., the largest manufacturer of exhaust manifolds in the world and a publicly traded company. The husband is employed by Wescast as a quality leader. He earns employment income of $73,000/year. At the time of the marriage, the husband was a product manager at Wescast, earning employment income of approximately $52,000/year.
Issues to be Determined at Trial
[10] The following are the issues which the court must determine:
1. Property
(i) Should the husband and wife’s marriage contract be set aside?
(ii) If the marriage contract is set aside, what is the equalization payment owing to the wife?
(iii) Should a discount rate be applied to the $1 million loan that the husband claims he owed to his father and now owes to his mother?
(iv) Is the husband entitled to invoke s.5 (6) of the Family Law Act to pay a reduced equalization payment?
(v) If the marriage contract is not set aside, what is the equalization payment owing to the wife?
2. Child Support
(i) What is the husband’s income for child support purposes?
(ii) What is the amount of “retroactive” child support owing?
(iii) What is the amount of ongoing monthly child support?
3. Spousal Support
(i) What is the husband’s income for spousal support purposes? Does the husband get to exclude his dividend income for spousal support purposes?
(ii) What is the amount of “retroactive” spousal support owing?
(iii) What is the amount of ongoing monthly spousal support?
4. Relief Incidental to Child and Spousal Support
(i) Should the husband maintain the wife and both boys on his medical and dental plans for so long as he has support obligations for them and his plans permit?
(ii) Should the husband be required to obtain an appropriate amount of life insurance to secure his support obligations and designate the wife as the irrevocable beneficiary of such insurance for herself and in trust for the children?
[11] There is no issue that the parties have been separated for over one year and there is no possibility of reconciliation. A divorce will issue.
Circumstances Leading Up To and Surrounding the Formation of the Marriage Contract
[12] The husband’s father developed Wescast Industries Inc. into the world’s largest supplier of exhaust manifolds for passenger cars and light trucks. The husband’s father and mother, with the assistance of corporate and financial advisors, created a complex corporate structure which included a number of different companies and a family trust. It was always the desire of the husband’s father to protect the shares of Wescast and to ensure that the shares never went to someone outside the family. He wanted to ensure that he, his wife and their four children took the necessary steps to ensure that they would always maintain control of Wescast.
[13] The husband’s father retained the services of George Wilson at Gowlings and with his assistance, the family entered into certain agreements, the most notable of which were the Voting Trust Agreement and the Unanimous Shareholders Agreement. Attached as schedules to both of those agreements were draft marriage contracts. The Voting Trust Agreement and the Unanimous Shareholders Agreement provided that any of the family who wished to continue to hold shares in Westcast had to enter into such marriage contracts or cohabitation agreements. The husband, his three siblings and their respective partners knew of the desire to maintain control of the Westcast shares within the family and it was the subject of conversation around the dinner table and at family gatherings.
[14] By 1996, the husband and his three siblings each held 25% of the common shares of each of Ryvan Inc., Grannyco Investments Ltd. and RWL Investments Ltd. In addition, all four siblings were the beneficiaries of the LeVan Family Trust in which there were significant assets. It was the opinion of Linda Brent, the wife’s valuator, that the midpoint value of the husband’s business assets, after applying significant discounts and deducting contingent taxes, was over $14 million at the date of marriage.
[15] The husband was the first of the four siblings to enter into a marriage contract. He met the wife in early 1994 and they moved in together in June of 1995. They lived in the husband’s small apartment in Listowel, Ontario. The monthly rent was approximately $600. The wife was not able to find a teaching job in Listowel. Around December, 1995, she found a job at Craig Financial for just over minimum wage, doing reception work, data entry and basic computer work.
[16] The parties were engaged in December, 1995 and were married approximately 6 months later. The wife’s evidence in chief was that they decided not to have a long engagement because they wanted to start a family immediately after getting married as she was almost 32 years old and the husband was almost 34 years old. In late January, 1996, the wife booked a location for the wedding to be held on June 22, 1996.
[17] The wife’s evidence was that before the parties got engaged, the husband told her that if they were to get married, they would have to sign something first to protect his family’s Wescast shares. She testified that the husband told her that all of his siblings had to get marriage contracts because the husband’s father wanted to make sure that the Wescast shares stayed with the family. The wife’s evidence is that she understood that the Wescast shares were to be excluded but that she did not understand this to mean that the growth in their value was to be excluded.
[18] The husband’s evidence is that he made it clear to the wife as did his parents in discussions over the dinner table that if he expected to receive or keep any Wescast shares, he would need a marriage contract in which his wife released all claims to Wescast shares, including claims for equalization under Ontario law.
[19] Robert Reid, common-law spouse of the husband’s sister, Virginia, testified that he was aware from conversations at LeVan family dinners that the family would require spousal contracts to ensure that control of the LeVan family companies, particularly Wescast, stayed within the LeVan family. The husband’s mother testified that the purpose of requiring marriage contracts was to ensure that no stranger could come in and own Wescast shares.
[20] Shortly after the wife booked the location for the wedding, she broached the subject of the marriage contract with the husband because, based on his earlier comments, she figured that it would have to be dealt with before they could get married. She testified that he told her that his lawyers were preparing the marriage contract and not to worry about the contract because it was only to ensure that an outsider could never take over the company.
[21] The wife’s evidence is that during the time leading up to the wedding, she was very busy with the preparations. The guest list was 150 people with some travelling from as far away as Alberta, Nova Scotia, Virginia and Colorado. While working full-time at Craig Financial, she found the location for the wedding, had the invitations printed, kept track of who was coming, made arrangements for accommodations for the guests who were from out of town, arranged for a bus to get the guests to the wedding from the other hotel in town, attended three or four shower/parties, wrote thank you notes for gifts received, shopped for fabric and patterns for her wedding dress and for the flower girl, shopped for the bridal attendant’s dress and the outfit for the little boy who was in the wedding party, travelled a number of times to her parents’ home in Brucefield, Ontario for dress fittings, found a florist and ordered flowers, found a baker and ordered a cake, found a photographer, bought the wedding favours and thank you gifts and found someone to perform the ceremony.
[22] The husband’s brother-in-law, Ed Frackowiak, referred the husband to Karen Bales to do the marriage contract. Mr. Frackowiak was a director of Wescast and was married to the husband’s sister, Sally. Ms. Bales was a matrimonial lawyer at Gowling Lafleur Henderson, the corporate lawyers for the LeVan companies. George Wilson was the senior Gowling partner acting for the LeVan family companies.
[23] The husband’s evidence was that he had nothing to do with the property provisions of the marriage contract which he testified were mandated and created by his father and George Wilson. He testified that he was involved in the support provisions and the provision regarding the matrimonial home in the agreement but he left the property provisions to his father and Mr. Wilson. Mr. LeVan, Sr. died on April 29, 2003. George Wilson was not called as a witness.
[24] The husband’s first meeting with Ms. Bales was May 8, 1996. She acknowledged that her notes from their initial meeting stated that the husband did not wish to pay any support to his wife in the event of a separation. She prepared a draft agreement and sent it to him. Under that agreement, the LeVan companies were treated as excluded property, including any property into which they could be traced. There was no restriction on the wife’s right to support and it provided that there was to be a matrimonial home in which she would have a joint interest.
[25] There were changes to the agreement which made it more favourable to the husband and less favourable to the wife as drafts continued between the husband and his lawyer. A significant change in the final draft was the insertion of paragraph 8 (c ) which severely restricted the wife’s right to claim support if there was a breakdown of the marriage. That clause limited the wife’s support claim to the income and assets of the husband that were not excluded in the agreement. Ms. Bales acknowledged that under the contract that the parties signed, the wife might get nothing and in addition, might owe the husband an equalization payment.
[26] On May 16, 1996, Ms. Bales forwarded a draft marriage contract to George Wilson. Her memo that accompanied her draft stated that the husband was required to disclose all of his significant assets and liabilities and that she would like to give enough detail to satisfy the other side without providing more than is necessary. She directed his attention in the draft contract to the husband’s disclosure schedule, Schedule A, and asked if her comments in the footnote regarding the freeze value of the shares was accurate. There was no answer from Mr. Wilson recorded in Ms. Bales’ file and no change was made to Schedule A.
[27] At some point in May, 1996, the husband told the wife that she needed to hire her own lawyer to look at the marriage contract, once it was ready. She had never before had any dealings with lawyers. Based on her parents’ recommendation, she retained Paul Ross to act for her in regard to the marriage contract. Mr. Ross was called to the bar in 1967 and was a general practitioner practicing in Goderich at the time he acted for the wife. He estimated that in 1996, 40 to 50 % of his practice was family law.
[28] Mr. Ross testified that he received a telephone call from the wife in May, 1996, explaining that she was marrying on June 22, 1996 and that a marriage contract was required to protect the shares of the groom’s family companies.
[29] Mr. Ross immediately telephoned the husband’s lawyer and left her a message that he would be acting for the wife. On May 28, 1996, the husband’s lawyer sent to Mr. Ross the draft marriage contract, a corporate chart and a covering letter which gave Mr. Ross some background. The husband’s lawyer described this as a “first go-a-round” on the understanding and expectation that Mr. Ross would ask for more documentation.
[30] Paragraph 23 of the marriage contract provided that each party in Schedules A and B had fully and completely disclosed to the other the nature and extent of all his or her significant assets and all his or her significant debts or other liabilities existing at the date of the contract. Schedule A, the husband’s disclosure schedule, provided no disclosure as to his income. His net worth was disclosed as “$80,000 + LeVan Family Companies interest”. While the Schedule disclosed that he had $80,000 in RRSPs, bank accounts and the original house deposit, no values were inserted for his interest in the LeVan Companies or for his contingent beneficial interest in the LeVan Family Trust. As discussed below, the wife’s valuator, Linda Brent, after applying significant discounts and deducting contingent taxes, valued the mid-point range of the husband’s business assets at the date of marriage as $14,664,500.
[31] Schedule A disclosed that the husband owned 100 common shares in RyVan Inc. It did not disclose that the husband owned one share in Grannyco Investments Ltd. and one common share in RWL Investments Ltd. These omissions turned out to be very substantial. Ms. Brent valued the midpoint range of these two shares at the date of marriage, after applying significant discounts and deducting contingent taxes, as $1.9 million and $7.250 million respectively. Schedule A did not disclose that, in addition to being a contingent residual beneficiary in the LeVan Family Trust, the husband was also an income beneficiary.
[32] The footnote on Schedule A stated that the interests of the LeVan family members in the LeVan Family Companies were frozen through an estates freeze in January 1996 at a freeze value per share of $9.75 ( U.S.). This was inaccurate. Not all the interests in the LeVan Family Companies were frozen. Only the husband’s parents’ shares in Grannyco and RWL were frozen. The footnote did not disclose how many shares were frozen so that the $9.75/share price would have some meaning nor did it disclose what portion of Class B shares were owned directly or indirectly by the husband. The value of the Class A shares was disclosed on Schedule A but the husband did not own Class A shares. The corporations in which he held shares owned Class B shares. No value was disclosed for the Class B shares. The husband’s lawyer acknowledged that it was not possible to determine the husband’s interest in RyVan from the footnote. Ms. Brent testified that she was confused by the footnote.
[33] Ms. Bales acknowledged that it was essential that the other side know her client’s income and net worth but she did not give Mr. Ross any information other than Schedule A and the corporate chart which disclosed neither income nor net worth. Ms. Bales testified that she sent to Mr. Ross what she had. However, she had access to much more significant information about the husband’s income and net worth through the Gowling law firm and through the corporate accountants who had acted for the LeVan family companies for a number of years including when Wescast did its initial public offering, a secondary public offering and two estate freezes.
[34] The LeVan family corporate structure that the husband’s lawyer sent to Mr. Ross lists some seven companies owned by various people with multiple kinds of shares. It did not show any Class A shares of Wescast, the trading shares, but did refer to significant Class B Wescast shares.
[35] In her letter of May 28, 1996 to Mr. Ross, Ms. Bales stated that Mr. Wilson was reviewing the disclosure. There is no evidence to indicate that Mr. Wilson took any steps to add any information to the incomplete disclosure provided other than to eventually provide the RyVan financial statement on June 19, 1996.
[36] Ms. Bales acknowledged in her testimony that she had no idea of the husband’s net worth during the period leading up to and culminating in the execution of the marriage contract. The agreement did not indicate the husband’s income and there is no indication in her file anywhere that she learned of the husband’s income at any time. She did not review the husband’s tax returns.
[37] Mr. Ross’s dockets confirm that prior to meeting for the first time with the wife, he spent 2 hours reviewing the draft contract, making notes on it as he reviewed it which he retained in his file. He testified that he had difficulty understanding the contract and that Schedule A made no meaningful financial disclosure so that he could advise his client. Nevertheless, he testified that his first impression was that the contract was totally unacceptable. He stated that the two main areas which were of concern to him were the exclusions from the husband’s net family property of the LeVan family companies and the provisions for support which removed from consideration, in any future determination of the wife’s support, any income from the husband’s excluded property and the excluded property itself.
[38] The draft agreement stated that each party is capable of supporting himself or herself and is presently self-supporting. He later learned from the wife that her income in 1996 was approximately $13,000.
[39] The draft agreement provided for a release of any trust claims which, as far as Mr. Ross was concerned, was inappropriate.
[40] Paragraph 11 of the draft agreement used the terms “family asset” and “family property” which Mr. Ross noted were not defined either in the agreement or in the legislation. He noted that the agreement excluded from sharing any property (other than a jointly owned matrimonial home) bought from income or gains from the husband’s excluded property. He made a note that as the length of the marriage increased, this became increasingly unfair to the wife. He noted contradictions in the agreement and that it referred to a Voting Trust Agreement and an Unanimous Shareholders Agreement which he did not have copies of so he did not understand the interrelationship between these agreements and the marriage contract.
[41] Mr. Ross testified that Schedule A did not tell him what the husband’s assets were. The impression he had from Schedule A was that the husband had assets of $80,000 plus an undisclosed amount of assets in the LeVan family companies and a contingent interest in the LeVan Family Trust. The footnote meant nothing to him. He acknowledged that he did not understand the corporate chart and, although he had practiced family law and had done other marriage contracts, he had not done one of this complexity. He immediately decided that he would seek outside corporate assistance.
[42] Mr. Ross testified that he met with the wife for the first time on June 3, 1996 for approximately one hour. This was the first time the wife saw the draft agreement She told him that she understood the purpose of the marriage agreement was to protect the LeVan family shares and to ensure that the Wescast shares did not go outside the LeVan family. He told her that the agreement that he had reviewed was complex, that he did not fully understand it, that he did not have full financial disclosure and that it was difficult to advise her regarding the agreement. He told her that from what he did understand of the agreement, it went much further than just protecting the family’s shares in Wescast and that, in his opinion, the agreement did not treat her fairly. He suggested to the wife that the marriage contract be dealt with after the wedding but she said that the husband insisted that the marriage contract be signed before the wedding.
[43] The wife’s evidence was that she tried to read the contract on her own but found it very confusing and could not make sense of it. When she told the husband that neither she nor her lawyer understood the contract, the husband reassured her that all the contract did was to provide that she would never get Wescast shares so that if the parties separated, she would not be able to take control of Wescast. The husband acknowledged in his testimony that he was dyslexic and he had difficulty reading and explaining the terms of the contract when he was testifying. The wife testified that the husband reassured her many times that all the marriage contract did was protect the Wescast shares and that this should be a simple matter. She testified that at the time the agreement was signed, she did not know how many, if any, Wescast shares the husband owned, what his interest was, if any, in the LeVan family companies or what income, if any, he received from these sources.
[44] Mr. Ross’s dockets confirm that he reviewed the contract with the client and explained its terms. However, Mr. Ross testified that throughout the time he acted for the wife, he did not feel that he had been successful in convincing her that the agreement went much further than just protecting the family shares or in getting the wife to grasp the concept of equalization of property provided for in the Family Law Act. He testified that he felt that their discussions had gone over her head. She told Mr. Ross that the husband was insistent that all the original agreement did was protect the Wescast shares and that there would be no wedding if it was not signed. Mr. Ross testified that this was an ongoing theme. He had the feeling that he was competing unsuccessfully with what the husband was telling her the effect of the agreement was and with the pressures of the impending wedding.
[45] By June 10, 1996, the wife was getting concerned because the husband had repeatedly made it clear to her that there would be no marriage without a contract and the wedding date was fast approaching. She had not heard further from Mr. Ross since meeting with him on June 3, 1996. She spoke to him and urged him to push ahead. Mr. Ross responded by telling her that the matter was very difficult. The wife responded that she understood that but, nevertheless, wished to proceed. When the husband’s lawyer had not heard from Mr. Ross by June 11, 1996, she sent him a fax with a stamp indicating that she was awaiting his reply.
[46] Mr. Ross received a draft agreement and advice from the corporate lawyer on June 12, 1996 and wrote Ms. Bales on that day expressing the view that the agreement was unfair and overreaching. He raised the prospect of a lump sum payout in consideration for what it was proposed she give up. He stated that they required the worth of the holdings in the Family Trust. Because he considered the contract so one-sided, he proposed drafting his own contract.
[47] This letter was copied to the wife. She did not recall this letter and testified that the whole month of June, 1996 was a blur in her mind. She recalled there were phone calls and a few faxes sent between Mr. Ross and herself. She testified that she forwarded any faxes to the husband and that the husband told her that Mr. Ross did not know what he was doing and was dragging things out to make more money.
[48] The wife trusted the husband completely. She was getting very anxious as the wedding date was fast approaching. She was afraid that she and the husband were not going to be able to get married if the contract did not get signed soon. She remembers crying at work a couple of times after receiving documents from Mr. Ross and then speaking to the husband.
[49] The husband’s lawyer testified that she found Mr. Ross’s letter very confusing. On June 12, 1996 she told the husband that she did not think Mr. Ross had a full grasp of what the issues were and that she did not think that he knew what he was doing. She acknowledged telling the husband this on more than one occasion.
[50] On June 13, 1996, Ms. Bales wrote Mr. Ross, stating that the husband has significant interests in family companies and trusts which control a substantial portion of the shareholdings in Wescast Industries Inc., the value of which was built up by his parents and siblings over the past number of years. The letter described the LeVan Family Trust, pointing out that it was a discretionary trust under the discretion of the husband’s parents. The husband’s lawyer did not point out that it was the intention of the trustees to treat their children equally. The children had always been treated equally under the trust until after these proceedings were commenced and the husband’s mother testified at trial that it was the intention of her and her late husband who were the trustees to treat all four children equally. The husband believed that it was always the intention of the family to treat the beneficiaries equally.
[51] The husband’s lawyer did not indicate a value of the Trust as had been requested by Mr. Ross nor did she enclose any description of the Trust assets or a financial statement of the Trust, which was available to her. She did enclose the LeVan Family Trust Agreement which disclosed that the Trust fund was settled with $100 and gave no other information about the assets in the Trust. She stated: “In light of the contingent interest that Bruce LeVan has in the trust, it will have a very minimal value at the date of the marriage.”
[52] Ms. Bales testified that there was a range of values for the husband’s interest in the Trust, depending on how it was distributed. At the date of the marriage, the Trust had assets worth $30 million. Ms. Brent valued the midpoint value of the husband’s interest in the LeVan Family Trust at the date of marriage, after applying significant discounts and deducting contingent taxes, at $3.4 million.
[53] Ms. Bales’ June 13, 1996 letter further stated: “Mr. LeVan holds 100 common shares of Ryvan Inc., which I am advised is his only vested interest in the LeVan Family group of companies at this time.” In fact, he had other vested interests in the LeVan Family Companies at this time which included his shares in Grannyco and RWL which Ms. Brent valued as having a combined worth of close to $10 million at the date of the marriage (after she had applied significant discounts and deducted contingent taxes).
[54] Pursuant to Mr. Ross’s request, the husband’s lawyer provided to him the Unanimous Shareholders Agreement and LeVan Family Voting Trust Agreement. Mr. Ross does not seem to have forwarded these to the wife. The husband’s lawyer advised Mr. Ross in the June 13, 1996 letter: “The valuation method is set out on Schedule “A” to the Unanimous Shareholder Agreement. I also direct your attention to Schedule “B” of the LeVan Family Voting Trust Agreement which sets out the minimum terms for a marriage contract pursuant to that agreement.” Mr. Ross testified that this did not assist him with respect to the value of the husband’s business assets and that he continued to have no idea of the value of the husband’s property which it was proposed be excluded.
[55] Ms. Bales suggested that Mr. Ross not do a draft agreement but provide her with specific comments with respect to changes.
[56] Ms. Bales acknowledged that the Unanimous Shareholders Agreement and the Voting Trust Agreement were very complex agreements. It was common ground that the parties jointly retained Tim Youdan at Davies, Ward and Beck to provide an opinion in this action explaining the documents and that he spent 45 hours and was paid $27,000 to do so.
[57] The husband’s lawyer testified that the marriage contract that she drafted was in accordance with the husband’s instructions. This contradicted the husband’s evidence that he had nothing to do with the property provisions of the marriage contract. She acknowledged that the marriage contract required by the husband to satisfy his obligations under the Voting Trust Agreement and Unanimous Shareholders Agreement did not require the spouse to agree to exclude assets from equalization or to limit support rights. Rather, these Agreements required a marriage contract that restricted the actions that could be taken directly against the LeVan family companies and stipulated that the method of valuation of the LeVan company shares for the purposes of a property or support claim, shall be as provided for in the Voting Trust Agreement. To satisfy the husband’s obligations under the Voting Trust Agreement, the husband’s lawyer incorporated into paragraph 14 of the marriage contract the terms of the marriage contract required under the Voting Trust Agreement. She acknowledged that paragraph 14 made no sense in the marriage agreement entered into by the parties, given the exclusion of the LeVan family companies from property and support claims. She acknowledged that to someone reading this, the agreement appeared to contemplate a valuation of the shares in the LeVan family companies.
[58] Mr. Ross forwarded his draft contract to Ms. Bales on June 13, 1996. Mr. Ross’s draft contract contained a formula which allowed the parties to share in the growth of net family property at the rate of 12.5% per year. Although his covering letter acknowledged that it would be grossly inequitable if the wife was entitled to share in the present value of the company, the contract he drafted inadvertently failed to provide for the deduction for property owned prior to the marriage that the husband would have been entitled to under the Family Law Act. Mr. Ross’s draft added the LeVan Family companies and the LeVan Family Trust as parties to the agreement, which could not have been possible, and took out the restrictive clause about spousal support. In his June 13, 1996 letter, Mr. Ross states: “From our point of view the only matter outstanding is the actual value of the assets which are to be “excluded property”. In that regard we would require values of the LeVan Family Trust and LeVan Family companies attached to the schedule of Bruce LeVan’s assets.”
[59] Mr. Ross asked for values of the Trust and Family companies, not valuations. The husband’s lawyer construed this as a request for valuations and turned down this request, advising there was limited time and that it would cost too much to undertake valuations and an actuarial analysis.
[60] On June 17, 1996, Ms. Bales wrote to Mr. Ross as follows:
“I have had an opportunity to review your letter of June 13, 1996 and the enclosures and to discuss your proposal for revisions to the contract and other matters with Mr. Bruce LeVan.
Firstly, dealing with your request for valuations of the LeVan Family Trust and the LeVan Family companies, I note that we have provided to you the LeVan Family Corporate Structure Chart which indicates the number of shares held by Bruce LeVan in each of Ryvan Limited (“Ryvan”) and RWL Investments Ltd. (“RWL”). That corporate chart also sets out the interests of those companies and the other shareholders. For instance, Bruce LeVan holds 100 common shares of Ryvan. 100 Class A shares of that company are held by Grannyco Investments Limited and 100 Class A shares are held by the LeVan Family Trust. In turn, Ryvan holds 818,293 Class B shares of Wescast Industries Inc. (“Wescast”). We have advised you in Schedule “A” to the contract that the shares of Wescast traded in May, 1996 at $15.25 ( U.S.) per share.
Bruce LeVan holds 1 common share of RWL. Mr. LeVan, Sr. holds Class A shares, 5,000 Class B shares and 8,596 Class D shares, which are the voting shares of RWL. RWL, in turn, holds 515,911 Class B shares of Wescast and 100% of 1098992 Ontario Ltd. which in turn holds 4,397,865 Class B shares of Wescast.
The LeVan Family Trust holds 197,195 Class B shares of Wescast and 100 common shares of 1098994 Ontario Ltd. which in turn holds 1,095,641 Class B shares of Wescast.
We have provided to you a copy of the LeVan Family Trust Agreement. Under that trust agreement, you will see that if the Trust is distributed during Mr. LeVan Sr.’s lifetime, then it is within the discretion of the Trustees, being Mr. and Mrs. LeVan Sr., as to which of the children shall share in the trust and in what proportion. That is it is possible for the trustees to exclude one or more of the children from the distribution. If the trust is distributed after the death of Mr. LeVan, Sr., then each of the children has an entitlement to a ¼ share of the Trust assets. If a child dies before the distribution date, then his or her issue share the deceased child’s interest in the trust in equal shares per stirpes. There is no fixed distribution date for the Trust as it is within the discretion of the Trustees.
I enclose a further corporate chart prepared for Wescast. This chart shows that there were outstanding 8,338,153 Class B shares of Wescast and 2,403,333 Class A shares. 70,000 of those Class A shares are held by employees of Wescast and 2,333,333 are held by outside investors.
I can provide no other information at this time to assist you in ascertaining the value of Bruce LeVan’s interest in the LeVan Family Companies. A full-blown valuation would take at least several weeks at a cost, we suspect of at least $10,000.00. In addition, in order to value Bruce LeVan’s interest in the LeVan Family Trust, an actuarial analysis would be required to determine the value of his interest is [sic], given its contingent nature during Mr. LeVan, Sr.’s lifetime and the possibility that Bruce LeVan might die before the Trust is finally distributed, given that there is no fixed distribution date.
With respect to the proposals that you make in your revised contract, they do not deal adequately with the LeVan Family Trust and do not exclude it from sharing. In essence, your definition in paragraph 11 provides that after eight years there will be full sharing of the value of all assets held by each of the spouses and not just the increase in their value from the date of the marriage forward. As indicated earlier, the Trust has very little value on the date of marriage and it is not excluded property under the definition in the Family Law Act, so it would be subject to full sharing with Ms. Lyon by Mr. LeVan if the marriage were to terminate. You do not deal with any provisions after the eighth anniversary date of the marriage. I presume then that the regular system under the Family Law Act would fall in but the agreement does not deal with that.
I enclose a copy of your draft contract with my handwritten initial comments regarding questions and concerns I have relating to its provisions.
Mr. LeVan instructs me that he is prepared to proceed with the Marriage Contract as drafted by this office as forwarded to you. If you have questions, comments or suggested amendments which relate to anything other than the LeVan Family Companies or the LeVan Family Trust, I would be pleased to receive then. Mr. LeVan is not prepared to consider anything other than an exclusion of his interest under the LeVan Family Trust and the LeVan Family Companies from net family property.”
[61] Ms. Bales testified that she did not ask the chartered accountants who had done the valuation for the estate freeze and had been the accountants for the LeVan family companies for a number of years to estimate a value for the husband’s assets and income. She testified that the wife’s lawyer did not ask for and so she did not produce the husband’s income tax returns, the corporate financial statements and tax returns and the Trust tax returns. She testified that had she been acting for the wife, she would have asked for the financial statements for RyVan, Grannyco and RWL, the three companies in which the husband held a substantial interest at the date of marriage and the financial statement for the Trust.
[62] Ms. Bales testified that in negotiating a marriage contract, you need to have a good idea of both parties’ income and worth. It was her view that in negotiating a marriage contract, you include values when they are readily available. Where the evidence of value is not readily available, some indication of value should be given. The husband’s lawyer acknowledged that the information about the husband’s income was critical but that there was nothing in her file regarding the husband’s income.
[63] Mr. Ross testified that Ms. Bales’ letter of June 17, 1996, did not assist him in understanding what the husband was worth. He revised his draft agreement and forwarded it to her on June 18, 1996. This time, the way the contract was drafted, it allowed the wife to share in the growth of gifts and inheritances contrary to the general provisions under the Family Law Act. Mr. Ross testified that this had not been his intention.
[64] The wife did not give Mr. Ross any instructions about the draft marriage contracts that he prepared. She did not understand what Mr. Ross was putting forward on her behalf. She does remember, however, that when the husband received it, he “blew a gasket”. When the husband was being cross-examined, he testified that he told the wife that they could not throw out the marriage contract in seven years as Mr. Ross’s draft marriage contract provided, because that was not the intent of the contract drafted by George Wilson and his father. The husband specifically stated that he would not have talked about the requirements imposed upon him by the Voting Trust Agreement and the Unanimous shareholders Agreement when he was discussing this with the wife. He testified that he was not familiar with and would not have talked about those agreements at the date the marriage contract discussions were underway This contradicted the answer the husband gave at his examination for discovery that his response to the wife was “we have a voting trust and shareholders agreement that we cannot throw the contract out after seven years.” He did not correct this answer prior to trial. When confronted with his prior testimony, he retracted the answer he provided at discovery and claimed that the answer he provided in the witness box was the true answer.
[65] The husband told the wife that Mr. Ross was an “idiot”, that he did not understand the contract and that he had no idea what he was doing.
[66] The wife was confused. She was hearing from the husband that this should be a simple matter. He told her that it was a simple contract that only required her to give up any right to get Wescast shares. On the other hand, she was hearing from Mr. Ross that the contract was far more complex and onerous than that. Her husband told her that under Mr. Ross’s draft contracts, the Wescast shares were not protected and he reassured her that Ms. Bales’ marriage contract only made sure that she would not be entitled to Wescast shares in the event of marriage breakdown. The marriage was less than a week away and she did not know which way to turn. She recalled hiding in one of the offices at her place of employment and crying.
[67] The husband’s lawyer forwarded Mr. Ross’s final draft contract to the husband on the same day she received it with her handwritten notation: “I am reviewing it now but at first glance, it doesn’t look good.” Ms. Bales acknowledged that this told the husband that unless the wife got a new lawyer, there was not going to be a marriage contract.
[68] The husband told the wife that they were not going to get a contract signed if the wife kept Mr. Ross as her lawyer. While he was not prepared to admit that he told her that Mr. Ross needed to be fired, he acknowledged that both the wife and he wanted Mr. Ross removed. The husband was reluctant to admit that he called his lawyer to say that the wife was not going to use Mr. Ross anymore. He suggested that it could have been the wife who called her. However, when confronted with Ms. Bales’ evidence, given while he was excluded from the courtroom, he accepted that he had been the one to call.
[69] Ms. Bales told the husband when he called that Mr. Ross did not know what he was doing and offered to find the wife a new lawyer.
[70] On the same day that the husband’s lawyer offered to find the wife a new lawyer, June 18, 1996, Mr. Ross had a telephone conversation with the wife. He testified that she was frantic. He testified that she told him that she was getting pressured by the husband to sign the original agreement. She told Mr. Ross that the husband insisted Ms. Bales’ agreement was okay because all it did was exclude the shares and that there would be no wedding if she did not sign it. Mr. Ross testified that he attempted to explain the difference between the two agreements but that, because of her state of mind, the wife could not grasp it. At the end of the telephone conversation, the wife indicated to Mr. Ross that she would call him back. That was the last communication Mr. Ross had with her. Mr. Ross next received a telephone message from Ms. Bales’ secretary, informing him that the husband had instructed his lawyer to have no further communications with Mr. Ross’s firm.
[71] Under cover of his letter dated June 18, 1996, Mr. Ross forwarded his final draft agreement to the wife and confirmed the explanation that he had provided her on the telephone as to the differences between Ms. Bales’ agreement and his agreement. He further confirmed that after his telephone conversation with her, he received the message from Ms. Bales’ secretary informing him of the husband’s instructions to have no further communications with Mr. Ross’s firm. Mr. Ross further stated in his letter to the wife:
“It is my opinion that the original agreement provided by Gowlings is unconscionable.
It would be my further concern that in the absence of negotiations, there is undue pressure being put upon you to sign the original Agreement, given the fact that you are to be married this Saturday, June 22, 1996.
I suggest that we meet at your convenience to review our Agreement to reassure yourself that the clauses in it are reasonable and fair.”
[72] The same day, the husband faxed to Ms. Bales a copy of a fax to Mr. Ross signed by the wife dated June 18, 1996. The wife acknowledged it was her signature but denied having drafted or typed it. It stated:
“Dear Paul:
I am writing to you to confirm my position on this marriage contract, that at this point is beginning to cause problems and taking away from our wedding on June 22.
It is my understanding that I will not be entitled to any monies from the LeVan Family Trust or from any of the companies associated with Wescast Industries at the time of separation or divorce. Also it is my understanding that any traceable money from the Trust or Companies, gifted or otherwise will be excluded. Bruce’s global assets would also exclude these items when figuring out his net worth. It is also my understanding that this is a contract between myself and Bruce, not any one else as the company and trust are excluded from this contract.
I also realize I am entitled to financial support as to the Family Law Act provides and to any increase and only the increase in value of properties less expenses purchased with money from the trust or the company and to the matrimonial home as the Family Law Act sets up.
This has been my understanding of the contract from the beginning, however in the last week this contract has been changed a number of times to the point where I’m not really sure of anything except that upon separation or divorce I will be entitled to things I thought I was not entitled to and never wanted from the beginning.
I would like to make my point clear again that I have no interest in the trust or the family business monies and have tried to make that point all along. At this time I believe that too much time has been spent on what I thought should have been a cut and dry contract with very little negotiations. I realize that you may think that you are only looking out for my best interests upon separation, however, as I stated from the very beginning, I do not want anything to do with the LeVan Family Trust or the companies associated with Wescast Industries Incorporated, except any increase in value of properties purchased.
I realize I am not a lawyer, so I hope that you can understand what I have written. I am quite frustrated at this time with the way things have progressed since our first meeting.
Please discuss these issues with Karen C. Bales and try to come up with some sort of agreement that includes section e) from the “Facts Upon Which contract Is Based”, and the issues I have referred to above.”
[73] The wife testified that the period prior to the wedding was a complete blur. She had no recollection of this document. She acknowledges signing it but testified that she knew from the way the document was worded and typed that she had not drafted or prepared it. She testified that she would not have addressed Mr. Ross as “Paul” nor would she have called Wescast, “Wescast Industries Incorporated”. She testified that she does not understand what the letter says. She testified that it is not in her typing style and that she justifies both margins. She testified that it contains language and concepts that were unknown to her. She does not remember how the letter came into being. Mr. Ross was faxed the same document from the wife’s workplace. He testified that based on the discussions he had had over time dealing with her on this matter, the terms used in the letter were not part of the wife’s vocabulary and that he considered it a “put up job”. Although the letter was faxed to Mr. Ross at the same time that it was faxed to the husband who immediately faxed it to his lawyer, the husband denied any involvement in how the letter came into being. He testified that he recognized that it was a significant document.
[74] The wife testified that she felt really badly about firing Mr. Ross and had no idea how to do it as she had never fired anyone before but the husband was telling her on a daily basis that if there was no contract they would not be married. On June 19, 1996, Mr. Ross received a handwritten fax from the wife terminating his services. The wife testified that the husband provided the wording. The husband denied any involvement in this.
[75] Mr. Ross testified that he found the whole experience upsetting from a professional point of view. He testified that there was no financial disclosure to enable him to give an opinion. Furthermore, he testified that there were no negotiations and that the wife was in a position of having to take what was offered because of this and because there was no time for negotiation. He was so troubled by these circumstances that he drafted a letter dated June 27, 1996 to Ms. Bales which he forwarded for comment to his friend, Alf Mamo. The letter was never sent to Ms. Bales. He testified that, in part, the reason for this was his concern that the wife would be the one to suffer if he did. The letter expressed the view that the Bales’ agreement was so one-sided as to be unconscionable, that there was only one telephone discussion with her at the very beginning of the file, that there were never any bona fide negotiations and, as set out in Ms. Bales’ letter of June 17, 1996, this was a take it or leave it situation. The letter also stated that his client was put under tremendous pressure to sign the original agreement throughout the short period of time from when the matter commenced to when the marriage took place.
[76] The husband’s lawyer decided that she would ask Susan Heakes, a family law specialist then working at the law firm Blake, Cassels, if she would provide the wife independent legal advice . Ms. Bales had had a number of other files with Ms. Heakes. Ms. Bales thought it would be desirable for the wife to have a lawyer in a large firm with access to corporate and trust expertise. Ms. Heakes had acted for Ms. Bales in Ms. Bales’ own family law matter which was concluded in January, 1996. This was not disclosed to the wife. The wife testified that she was told by the husband that his lawyer had found another lawyer in Toronto willing to let her sign the agreement.
[77] Four days prior to the wedding, on Tuesday, June 18, 1996, the husband’s lawyer left a message for Ms. Heakes, requesting that she act for the wife on a marriage contract. The message stated that the wedding was on Saturday and that the wife wanted to come in Thursday and have the contract explained. The message said that the husband had an interest in a publicly traded family business and that the wife had a Goderich lawyer whose drafting was awful and that the wife had “had it” with her lawyer.
[78] Ms. Heakes had very little recollection of this matter, had no memory of the file when first contacted by one of the counsel for the wife and did not recognize the wife when she attended at court to give evidence. Neither Ms. Heakes nor Blake Cassels was able to produce Ms. Heakes’ dockets or a legal account. While there are some notes in Ms. Heakes’ file, there are no notes for what one would have thought would have been important matters such as her one meeting with the wife. Ms. Heakes testified that she is an inveterate note taker. She testified that at that time, she kept notes in a separate book which notes should have been, but apparently were not, added to the file.
[79] Ms. Heakes testified that she agreed to act for the wife notwithstanding that the wedding was imminent because she was comfortable with Ms. Bales being on the other side and with the wife having had a previous lawyer. Ms. Heakes left a telephone message for Ms. Bales that she should send over the documentation. Ms. Bales decided what documentation to send. Ms. Heakes had no hand in choosing what documentation she would review. Ms. Bales provided to Ms. Heakes what she had provided to Mr. Ross, copies of the correspondence between them and a financial statement for RyVan which had not been provided to Mr. Ross but had been available since November, 1995. In addition, she provided Ms. Heakes a copy of the wife’s fax to Mr. Ross which the husband had sent to Ms. Bales. In regard to this document, Ms. Heakes stated in her reporting letter to the wife:
“As a result of your concern about timing and direction of the negotiations, you sent a facsimile dated June 18, 1996 to Mr. Ross outlining your instructions to him”.
[80] Ms. Heakes testified that she must have assumed that this fax was written by the wife and that it expressed the wife’s instructions to Mr. Ross and her understanding of the proceedings up to the point when Ms. Heakes took over.
[81] Ms. Heakes estimated that she spent two to three hours reviewing the material provided by Ms. Bales prior to meeting with the wife on June 20, 1996. She had no dockets and no notes of her review of the documentation. She did not have any background about the wife at the time of her review. She had no information whatsoever about the income of the husband and had no idea of the value of his assets.
[82] It was arranged that the wife would meet with Ms. Heakes for the first time two days prior to the wedding at her office on Thursday, June 20, 1996 at 4 p.m. Immediately after their meeting, they were to go to Ms. Bales’ office which was in the same building. The husband drove the wife to the meeting. The wife’s recollection was that she felt very nervous and anxious because she knew that the marriage contract had to be signed that day or she would not be getting married and it was already close to the end of the day. The meeting between the wife and Ms. Heakes lasted for approximately one hour. The four way meeting lasted for approximately one-half hour to one hour where the agreement was signed. The wife testified that she did not speak to Ms. Heakes prior to meeting with her on June 20, 1996. Ms. Heakes had no notes or recollection to the contrary. The June 20 th, 1996 meeting was to be the only time they met or spoke.
[83] Ms. Heakes could not recall whether she knew at the time that she met with the wife that one of the driving forces behind the marriage contract was the requirement under the Voting Trust Agreement and the Unanimous Shareholders Agreement that the shareholders enter into a form of marriage contract. She could not recall whether she reviewed these agreements with the wife and testified that it is unlikely that she would have. Ms. Bales acknowledged that the marriage contract that she drafted went way beyond what was required under these agreements. Ms Heakes acknowledged that if the husband was telling the wife that the contract he wanted her to enter into was the contract required by these agreements, these were significant documents.
[84] Ms. Heakes acknowledged that it is important to know what the parties earn and what they are worth. She did not ask Ms. Bales to insert values for the husband’s assets onto Schedule A. She acknowledged that when she met with the wife and attended upon her execution of the agreement, she had no idea of the husband’s net worth or income. She suggested that he might have been worth $1 million but acknowledged that that was a guess. She testified that she did not request or receive the husband’s income tax returns or the financial statements of the LeVan companies and Trust.
[85] The husband’s lawyer testified that she did not review the husband’s income tax returns. She testified that Ms. Heakes wanted to know if he received shares as part of his employment income. Ms. Bales recollected that she asked the husband what his income was and passed it on to Ms. Heakes. She testified that her recollection was that he had moderate income from Wescast and that he did not have significant income from other sources. In fact, in his 1994 income tax return, the husband declared $43,393 in employment income and $122,000 in income from the Family Trust. There was nothing in the files of any of the lawyers or in the agreement to confirm the disclosure of any amount for the husband’s income.
[86] Ms. Heakes testified that she had reviewed the marriage contract and her file prior to attending to give evidence. She testified that as there was no waiver of support in the marriage contract, perhaps it was not so important to know what the husband earned. However, when it was pointed out to her that the agreement restricted the wife’s support by limiting the sources of the husband’s income that could be considered to income and assets not excluded under the contract, she acknowledged the importance of knowing what his income was from all sources. Ms. Bales acknowledged that this was a serious restriction on the wife’s right to support which was not required by the Voting Trust Agreement or the Unanimous Shareholders Agreement.
[87] Ms. Heakes testified that she would have flipped through the RyVan Financial statement but testified that she did not know how the numbers in the statement related to the husband. She testified that she could not remember what the footnote to Schedule A meant to her at the time the agreement was signed. She acknowledged that she did not know how the husband participated in the estate freeze. She testified that when significant figures on the disclosure schedule are “unknown”, this is not very helpful. She testified that she would have told the wife that she had a right to get further financial disclosure and that Schedule A was not very helpful. Ms. Heakes did not ask for any additional documents to those provided to her by Ms. Bales and received nothing else.
[88] Ms. Heakes has no independent recollection of the meeting with the wife. She testified that she would have reviewed the marriage contract with the wife, paragraph by paragraph. She set out in her reporting letter the changes that were made. Ms. Heakes requested some amendments which Ms. Bales characterized as inconsequential. Ms. Bales agreed to them and according to her, they were made prior to Ms. Heakes’ meeting with the wife on June 20, 1996. Ms. Heakes did not request amendments that would have made the agreement more favourable to the wife such as a requirement to own a matrimonial home in joint tenancy , a provision for a lump sum, a removal of the restriction on the wife’s support or a provision which excluded any future business assets of the wife along with the husband’s business assets which were being excluded.
[89] One of the changes requested by Ms. Heakes deleted the background provision in the contract which stated that the wife was self-supporting which Ms. Heakes testified gave her some concern. However she did not seek nor did she change paragraph 8 (c) which was a severe limitation on the wife’s support rights. Ms. Heakes acknowledged that this was a fundamental term of the agreement. A review of the husband’s previous few years of income tax returns would have revealed that the husband’s employment income was modest and that he earned significantly more from the Trust and his corporate interests which could not be considered for the purposes of a support claim under paragraph 8 (c).
[90] In her reporting letter to the wife written three weeks after the agreement had been signed, Ms. Heakes misstates the support rights under the marriage contract and says, incorrectly, that she had deleted the references to modifying the wife’s right to support. Although Ms. Heakes testified that she would have reviewed paragraph 8 (c) with the wife as she went through the contract with her, she has no specific recollection of doing so. A reasonable inference from the reporting letter and the fact that she changed the support background clause is that she intended to make that change and failed to do so. This may be explained by the rush to get the contract signed before the impending wedding day.
[91] The rushed way in which this matter was handled is also evidenced by the simple mathematical errors in the wife’s disclosure schedule. The agreement was amended to reflect that a house deal had fallen through by June 20, 1996. However, this amendment resulted in a provision less favourable to the wife . In earlier drafts there was a guarantee of a matrimonial home. In the final draft that was signed on June 20, 1996, the wife was entitled to share jointly in a matrimonial home if one was purchased but there was no longer a requirement to purchase one.
[92] The husband testified that up to the day the contract was signed, he was continuing to say to the wife that if the contract was not signed, there would be no wedding. Ms. Bales’ testimony, then, was somewhat surprising that if Ms. Heakes had suggested that the agreement be postponed until after the wedding, she would have recommended that to the husband. This was never suggested by Ms. Heakes who testified that if she had been aware that the husband was telling the wife that unless she signed the contract, there would be no wedding, Ms. Heakes would not have continued on with the marriage contract.
[93] Ms. Heakes’ July 16, 1996 reporting letter states in part:
“This letter will report briefly on the advice which I provided to you with respect to a Marriage Contract dated June 20, 1996 between you and R. Bruce LeVan (“Bruce”).
You had originally retained Paul Ross to represent you with respect to this matter. Bruce retained Ms. Bales of Gowling, Strathy & Henderson to act on his behalf. Ms. Bales sent Mr. Ross a draft marriage contract on May 28, 1996. Mr. Ross first wrote to Ms. Bales on June 12, 1996 with comments respecting the agreement. After critiquing the contract, he asked for a “version” of the agreement which would be more easily understood by him, to be presented no later than Friday, June 14, 1996.
There were subsequent discussions between Ms. Bales and Mr. Ross which are in part recorded in the above-noted correspondence. The bottom line is that they were unable to come to an agreement with respect to the marriage contract. As a result of your concern about timing and the direction of the negotiations, you sent a facsimile date June 18, 1996 to Mr. Ross outlining your instructions to him.
I was contacted by Ms. Bales on June 19, 1996 to see if I would be able to provide you with independent legal advice respecting the marriage contract. I agreed and was provided with the above-noted documents.
When you and I met on June 20, 1996, in addition to obtaining background information from you, I reviewed with you your rights under the Family Law Act, the Succession Law Reform Act, and at common law. We reviewed in detail the draft marriage contract prepared by Ms. Bales.
…
The Marriage Contract
You and I reviewed the marriage contract, word by word, in our offices on June 20, 1996. We discussed the following significant matters.
1. Facts upon Which Contract is Based : We deleted the provision which indicated that you are self-supporting, This provision did not add anything to the agreement, and caused me some concern given that you are not currently employed in a position which makes maximum use of your skills.
2. Purpose of Contract: We deleted the references to modifying your right to support. Your right to support continues to be governed by the Family Law Act and the Divorce Act.
3. Property Not Included in Net Family Property: We deleted the reference to Bruce’s shares of the LeVan Family Companies which could be purchased by him in the future, which have been purchased by him, or which he receives as compensation or bonus. Such property will be treated as any other property under the Family Law Act.
4. Secondary Residence: It is understood that any portion of any secondary residence (i.e. cottage or country home) which is purchased with money given to either you or Bruce by your families would be excluded from sharing, but the increase in the value of the secondary residence would be included in your net family properties.
5. Election Upon Death of Spouse: This provision was amended so that there is no reference to co-habiting for a period of at least ninety days before the death of either spouse.
6. Disclosure: We provided information to Ms. Bales respecting your financial disclosure and, in addition, Bruce’s financial disclosure was clarified. We deleted any reference to the home in Listowel which you and Bruce had intended to buy but which was no longer an issue.
In the future, because of the way this agreement is set up, you and Bruce should keep careful records if you intend to purchase a secondary residence. These records would include the source of all the funds used to purchase the secondary residence. Also, if you purchase any household furnishings, artwork, or other goods which you do not intend to share with each other, you should put this in writing pursuant to Paragraph 18 of the agreement.
I trust that this letter satisfactorily sets out the highlights of the advice which I have provided to you, and the information which you provided to me. It was a pleasure meeting with you, and I wish you and Bruce the best in the future.”
[94] Although Ms. Heakes’ reporting letter refers to subsequent discussions between Ms. Bales and Mr. Ross after the presentation of his draft contract, both Mr. Ross and Ms. Bales testified that there were none. The wife testified that she did not receive Ms. Heakes’reporting letter which appears to have been sent to the parties’ residence.
[95] Ms. Heakes was unable to explain the discrepancies in the provisions in the marriage contract dealing with secondary residences. Her reporting letter confirms that she advised the wife that under the marriage contract, any portion of any secondary residence purchased with gifted money was excluded from sharing but any increase was to be included. She testified that this was her understanding of what was intended in the contract. However, upon reviewing the contract, she testified that it is not clear whether the wife is entitled to this under the contract. Ms. Bales testified that the idea that the wife might share in the increase in the secondary residence was illusory under the contract and that she was mistaken in her reporting letter to the husband about that issue.
[96] Both Ms. Bales and Ms. Heakes acknowledged that they did not know the husband’s net worth or his income. Ms. Bales testified that she knew Wescast was a very successful company but she did not know what part the husband had in it. She assumed that at the end of the day because there were four siblings, the husband would end up with ¼ of the family’s interest, everything else being equal. Ms. Heakes testified that she would have assumed that the husband was worth over $1 million. Ms. Heakes in cross-examination by Mr. Sadvari agreed with his assertion that she and the wife understood that whatever the husband was worth, it was a lot. This contradicted the wife’s evidence that she had no idea of the husband’s income or net worth. There was nothing in Ms. Heakes’ file to support that this was discussed with the wife and Ms. Heakes testified that she had very little independent recollection.
[97] The husband’s testimony was consistent with the wife’s that he had no idea of what his net worth was and did not think of the LeVan business assets as his.
[98] Ms. Heakes testified that when she stated in her reporting letter that “Bruce’s financial disclosure was clarified”, all that was clarified was the trading price of the Wescast Class A shares on June 19, 1996. She acknowledged that this did nothing to clarify the husband’s financial position. Ms. Bales confirmed in her reporting letter to the husband that there were no requests for financial disclosure made by Ms. Heakes that were not dealt with. What that fails to note is that there were no requests for financial disclosure from Ms. Heakes and she relied solely upon what Ms. Bales had decided to provide to her.
[99] In the marriage contract that was signed, the wife’s right to spousal support was significantly compromised. She gave up her rights to share in the increase in value of virtually all of the husband’s assets, save the matrimonial home and potentially a secondary residence, all without knowing what the husband’s income was from all sources and without having any idea of the husband’s net worth.
[100] The wife’s evidence was that during her meeting with Ms. Heakes, Ms. Heakes read out loud and talked about the marriage contract very quickly and she showed her the corporate chart. The wife testified that she remembered Ms. Heakes telling her that if the parties broke up, their home would be split and if they had a cottage, she would be entitled to one-half of the increase of its value. She also recalls Ms. Heakes telling her that there would be support if the marriage broke up. She recalls there being a change about support and, at one point, Ms. Heakes telephoned Ms. Bales about it and the change was made. She could not recall any discussions with Ms. Heakes about the value of the Wescast shares and what would happen if the value of the shares went up during their marriage. Her evidence was that while she had the opportunity to ask Ms. Heakes questions about it, she did not because the husband had reassured her that the marriage contract was fair and only made sure that she would not get Wescast shares. She also knew that if the contract was not signed on that Thursday afternoon, there would be no wedding.
[101] The wife acknowledged on cross-examination that Ms. Heakes went through the contract and that Ms. Heakes explained things as they went but that their meeting was short.
[102] The wife’s evidence was that she did not know what “100 common shares of Ryvan” and “contingent residuary beneficiary, LeVan Family Trust” meant in Schedule A or their value but assumed it related to protecting the LeVan family shares in Wescast. She testified that she had no idea of the extent of the husband’s wealth. The parties lived very modestly. She did not think that the husband was wealthy. She knew his parents were comfortable and lived a nice lifestyle but had no idea that they were multi-millionaires. At the time the marriage contract was signed, the husband’s parents were not flying in a private Wescast airplane when they travelled, as they later did. The wife testified in her evidence in chief that it was sometime after they were married that her husband pointed out that the Globe & Mail business magazine listed his father in the top 100 richest people in Canada.
[103] At the date the marriage contract was signed, the wife understood that the marriage contract was necessary to protect the husband’s family’s shares in Wescast. She testified that she did not understand what the footnote at the bottom of the husband’s disclosure schedule meant and thought that it was something to do with his parents. She does not remember anyone explaining the footnote to her.
[104] On cross-examination the wife was asked if she would have signed the contract if the husband had disclosed what he was worth. She testified that she did not know if that would have made any difference to her. On cross-examination the wife was asked:
“Q. If this page, Schedule A, had said that Bruce’s interest in these companies was worth between $12 and $17 million would that have made any difference to you?
A. I do not know if it would have or not.
Q. You still would have signed or there’d be no marriage right?
A. Yes.
Q. So, it would not matter what number was in there you were going to sign because you wanted to get married.
A. Yes, because I was signing this contract to protect Bruce’s interest in Wescast…”
[105] The wife acknowledged that the husband’s parents were relying on the marriage contracts for their financial planning to protect the family interest in Wescast. Ms. Brent acknowledged that when the LeVan Family Trust was replaced and then wound up in 1997, it could have been structured to create an exclusion for the husband’s shares.
[106] The wife’s evidence is that she did not see the contract again until after the marriage broke up. The husband told her he would pay for all the legal fees as it was him that needed the marriage contract signed. She never saw an account from Ms. Heakes.
[107] The parties received a lot of money as wedding gifts. The husband’s parents gave them $100,000. The wife remembers feeling overwhelmed by this gift as she had never before seen that kind of money. The husband put the money from his parents into his own account. They did not have a joint account. The wife deposited some of their gift money into her account and used it to purchase dishes, glasses, cutlery and other things they needed for the rental house they were moving into. The husband’s evidence was that the $100,000 wedding gift from his parents was a gift to him alone.
[108] The husband was the first of his siblings to enter into a marriage contract. Robert Reid, the common law partner of the husband’s sister, Ginny LeVan, and Ed Frackowiak, the husband of the husband’s sister, Sally Frackowiak, testified that they had entered into domestic contracts on October 3 rd, 2002 and November 28 th, 1997, respectively. Both contracts excluded the growth of the LeVan business interests from net family property. Both contracts differed in significant ways from the contract the parties signed. The disclosure schedule in the Reid agreement estimated that Ginny LeVan had Class B shares of Wescast worth $96,264,721 plus an interest in the LeVan Family Trust. There was no restriction on support in either contract.
The Cottage
[109] The husband and his mother both testified that Mr. LeVan, Sr. loaned the husband $1 million to buy a cottage on the basis that when he was ready to tear down the existing cottage and build a new one, he would repay it. There was no documentation to support that this was a loan. Mr. LeVan, Sr. is deceased and there is no mention of the loan in his Will. The husband’s mother testified that it had not been paid back.
[110] The husband used the $1 million to buy some land with a cottage and cabin on it near the LeVan compound in Muskoka for a purchase price of $1,139,300. The husband’s evidence was that he added $225,000 of his own funds towards the purchase price and repairs and maintenance. The parties installed a new large dock, two new large decks on both the cottage and the guest cabin, painted the exterior of all of the buildings, paid to have some trees cut down and removed and did stonework on the cottage walkway. They did work on the fireplace, bought two boats, one cruiser and another fishing/ski boat, purchased a snowmobile, water “toys” such as water skis, tubes and an extensive collection of very expensive fishing gear. The wife’s evidence was that the cottage renovations, improvements, decorations, furnishings and all of the toys cost at least $250,000.
[111] The husband’s mother testified that the Family Trust distributed Muskoka property on which to build cottages to each of her two daughters. She did not know the value of the land that each daughter received but knew it was all equally done. She testified that in 2005 she gave $250,000 to each of the children including the husband and $1 million to each of the children excluding the husband. The husband was excluded, according to his evidence and that of his mother, to prevent the wife from benefiting but expected to collect $1 million from his mother when the trial was over.
Lifestyle during the marriage
[112] The husband’s evidence in chief was as follows: that the parties and their two sons have always lived modestly, as if the Wescast shares did not exist. He testified that they planned from the outset to live off their employment income with everything else he received going into his holding company. He testified that his dividend money was not used for family purposes. Other than the children’s school fees in 2001 and 2002 (that are no longer paid) and some gifts at Christmas, the husband’s position was that their household was completely financed by his earned employment income. They kept their finances separated. He deposited his entire paycheque into an account in the wife’s name and she paid their family bills from that.
[113] On cross-examination the husband conceded that during the marriage, there were, on average, approximately $2,800/month of family related expenses charged to his visa each month and paid out of his dividend income. These expenses included the following: the wife’s cell phone, the wife’s car repairs, groceries, repairs to the home and cottage (including one repair to the home of more than $9,000), home and car insurance, liquor, take out and delivery meals, expensive restaurant meals, vacations including airfare, car rentals, clothing for the wife, husband and children, hockey for Austin, activities for the children at the golf club in Muskoka, Christmas and birthday gifts and birthday parties, bikes and fishing gear for the children, newspaper subscriptions, landscaping costs, Home Depot purchases and purchases for the cottage, including furniture, a BBQ, water toys, water coolers, a bar fridge for the boathouse and expensive linens.
[114] In addition, on cross-examination, the husband acknowledged that he withdrew approximately $400-$500 per week for spending from his dividend account. In his examination in chief he minimized the cost of expenditures made for the benefit of the family. For example, he stated that he bought only a couch and two chairs as furniture for the cottage. On cross-examination, he admitted that the couch and two chairs cost nearly $6,000. In addition, he minimized his purchase of two boats by testifying in chief that they were “used.” On cross-examination, he acknowledged that these boats together cost approximately $65,000. In his evidence in chief, he responded to the wife’s evidence that he had purchased a hot tub after separation by stating that he got a used hot tub from a friend who “let me have it”. On cross-examination, he acknowledged that he spent $3,800 on this hot tub at a pool store and that his friend “set up” the purchase.
[115] After the marriage, the parties purchased a home in a mid- to-upper-class neighborhood for $319,000 which they renovated and landscaped for approximately $150,000. The house was finely furnished, with a high-end home gym, expensive electronic equipment and a limited edition crystal collection. They had a ride-on lawnmower to maintain the one-half acre of grounds. The house was surrounded by gardens in which the wife planted 1,500 tulips. The husband drove an Audi All-Road that Wescast paid for. He purchased her cars with cash. She drove a Ford Taurus wagon and then a fully loaded Volvo station wagon. From time to time the husband gave the wife expensive gifts including a Rolex watch, diamond earrings and expensive camera equipment.
[116] The parties travelled as a family to Florida every year from 1998 to 2003. In the last two years they flew on Wescast’s private airplane. They flew to Sea Island Georgia, on the Wescast plane for a work related holiday. In the spring of 2001, they travelled to a friend’s place in Jamaica for a long weekend. They travelled to the Keys in Florida for a long weekend. The husband also traveled to many places on his own both through work and for pleasure including a 10-day trip to Mexico with a friend in January 2003.
[117] Occasionally the parties or the husband on his own used the Wescast plane to get to the cottage for the weekend. They used the Wescast’s smaller floatplane to take them to the remote and luxurious fishing resort which the husband owned with other family members. The husband initially invested approximately $175,000 into this private fishing resort and additional funds every year. When the husband and his family are not using the property, it is rented out for between $5,600 and $7,200 for each three-night period.
[118] The wife took the Wescast plane to Chicago with other family members and the husband took the Wescast plane to many other places including Montreal for a hockey game, North Carolina for golfing and Florida for boat shows.
[119] The children each attended private pre-schools and Austin attended a Montessori school for two years. The cost for the pre-schools was approximately $1,700 per year for each boy to attend two mornings a week. The Montessori school cost approximately $3,500 per year for half days. The husband is a member of a private and exclusive country club, Muskoka Lakes Golf and Country Club where he took people golfing, treated them to lunch or dinner and drinks.
[120] Despite these luxuries, the wife testified that the husband required her to manage on a very strict budget. He deposited his Wescast salary into her account which was approximately $2,800 to $3,000 /month. She was to be responsible for paying all of the household bills and expenses, including property taxes, cable bills, telephone bills, utility bills, groceries, clothing for the boys and herself, gas, landscaping expenses, the cleaning lady, entertainment and dining expenses and anything else for the house or the children. At some point, the husband also told her that she was required to cover the utility bills for the cottage.
[121] The wife testified to the following in her evidence in chief. She had a very difficult time trying to manage financially on the husband’s budget. A night at the movies or a meal with a friend would be stressful because there was not enough money in her bank account to pay for it. The husband gave the wife a visa card but stipulated that it was to be used strictly for emergencies such as her car breaking down or a medical emergency. If she used it for anything else, the husband demanded that she pay back the money to him. She only resorted to using his visa because she had no money to buy the basics herself so was not able to pay him back. The husband told the wife that she could either work with the budget she was given by him or find a job. He also said that if she was unhappy with the set up, then maybe they should end the marriage and he would find someone who was more appreciative. He suggested that she should get a job at Tim Horton’s or McDonald’s or at some of the restaurants that their friends frequented to supplement her budget. He told the wife that she was spending more than he was bringing in and he did not want any debt. He acknowledged telling her that if she did not have enough money within the budget to manage, then he would sell the house and buy something smaller and less expensive.
[122] While the husband was restricting the wife to his budget, he was spending significant sums of money on himself, his hobbies and his own entertainment and recreation. While he thought nothing of spending a couple of hundred dollars or more on a dinner at the golf club, he insisted that she pay him back out of her budget for lunches that she and the children had at the club after the children’s swimming and tennis lessons.
[123] In 2001, the wife was not able to save enough money to pay the house taxes. Because the husband had threatened her that he would sell the house and get a smaller, less expensive one if she could not manage on the budget, she collapsed some of her RRSP money to pay the taxes. When she later admitted to the husband that she had done this, he neither questioned it nor did he offer any extra money to her so that she would not have to cash any more of her RRSPs in the future.
[124] In 2002, the wife used part of her RRSPs towards a Christmas gift for the husband. She decided to commission a special piece of art for the cottage for $1000. Because the husband always told her not to spend his money on him, she decided to spend her RRSP money on it. She ended up using the rest of her RRSP savings in that year on other household expenses, bills, property taxes and babysitting. She did not tell the husband about the last withdrawals from her RRSP as she knew he would criticize her. Her 2001 and 2002 income tax returns show that she cashed in all of her RRSPs in the approximate amount of $13,800 which also represented her entire life savings. In contrast, the husband purchased approximately $160,000 of RRSPs for himself during the marriage. The wife testified that while she was aware during the marriage that the husband received dividend income and considered it his, she was shocked when she learned during these proceedings the amount he had been spending and that he had so much money.
Support payments
[125] The wife’s evidence is that although the husband knows that the support he gives her is the only money she has to pay for the things the children and she need, he has not paid support willingly and has made things very difficult for her. He does not always pay the support on time which he knows is a problem for her because she is generally overdrawn on her bank account after the first of the month. The husband in his examination in chief denied the wife’s statement that he is not always on time with his support payments. On cross-examination, he admitted that he declined to provide post-dated cheques, that he made the February 1, 2005 payment on Friday February 4 th which then could not be deposited until Monday, February 7 th, he made the March 1, 2005 payment on Friday, March 4 th which could not be deposited until Monday, March 7 th and he mailed the June 1, 2005 payment on June 2 nd to the former matrimonial home with the wrong address on the envelope which meant the wife did not receive the payment until June 8 th.
[126] He denied in his examination in chief that he was slow in providing reimbursement to the wife for expenses she incurred for herself and the children that were covered under his health plan. On cross-examination, he admitted that on May 31, 2006, he gave the wife a reimbursement cheque dated March 27, 2006. He has deducted from the reimbursement cheque amounts that he feels he was owed. He has refused to have those cheques sent directly to her as he is able to do under the policy.
S.7 Expenses
[127] The wife concedes that if child support is awarded in accordance with her request, hockey fees in the future will be subsumed in the monthly table amount. There are camp expenses for the children. There may be medical expenses and other s.7 expenses in the future.
Spousal support
[128] Counsel have agreed to defer making submissions on spousal support until after I have issued a judgment on the other issues. Accordingly, that part of the judgment relevant to spousal support will be made after counsels’ submissions have been made.
Valuators’ Evidence
[129] There was agreement that both valuators’ reports would be exhibits in addition to the valuators testifying. The wife’s valuator was Linda Brent, a senior chartered business valuator who received the highest mark in Canada when she attained her CBV in 1986. She has a MBA and is a Fellow of the Canadian Institute of Chartered Business Valuators and a Fellow of the Institute of Chartered Accountants of Ontario. The husband’s valuator, James DeBresser, received his CBV in 1998. Both are designated specialists in Investigative and Forensic Accounting with the Ontario Institute of Chartered Accountants. Both do valuations principally in the family law field.
[130] Ms. Brent was retained to do a valuation of the husband’s business interests and his interest in the LeVan Family Trust at the date of marriage and the date of separation and an income analysis. Ms. Brent’s report was a comprehensive valuation report, the highest level of report. Mr. DeBresser’s report was a limited critique report which offered no opinion on the value of the husband’s assets at the date of marriage or date of separation. He did not do an income analysis.
[131] Ms. Brent asked for disclosure and was provided with the financial statements for the LeVan family companies, the tax returns and some limited information from the husband. She was not provided with a great deal of the disclosure she requested. She was not provided the access she requested to management. Her report was qualified by these scope restrictions. The husband took the position that under the marriage contract, the wife was not entitled to this disclosure in these proceedings.
[132] At the date of the marriage, the husband and his siblings held shares in a number of holding companies that held shares in Wescast Industries Inc., the operating company. Wescast became a publicly traded company in 1994. At the date of the marriage, it was the largest manufacturer and supplier of exhaust manifolds for passenger cars and light trucks in North America with a 34% overall share of the market. In 1995, its sales and net earnings were approximately $167 million and $18 million respectively.
[133] There are two types of shares in Wescast, Class A subordinate voting shares which trade in the public market and multiple voting Class B shares held by the husband’s family members through their holding companies at the valuation dates. Each Class B common share carries five votes. At the date of marriage and date of separation, the Class B shares held by the LeVan family represented 94.6% and 86.6% of the total votes.
[134] At the date of marriage, the husband and his three siblings each owned 100 common shares of RyVan Inc., 1 common share in Grannyco Investments Ltd. and 1 common share in RWL Investments Ltd. Ms. Brent has estimated the husband’s interest in these assets at the date of marriage at $3,274,500, $1,659,000 and $6,331,000 respectively (midpoint values after taking significant discounts and deducting contingent disposition costs).
[135] In each of these companies, the husband owned 25% of the shares, as did his siblings. RyVan held 818,283 Class B shares of Wescast Industries Inc. Grannyco was controlled by the husband’s mother. It held 154,140 Class B shares directly in Wescast and 100% of 1098993 Ontario Limited, a holding company that held 1,155,108 Class B shares in Wescast. RWL was controlled by the husband’s father. It held 515,911 Class B shares directly in Wescast and 100% of 1098992 Ontario Limited, a holding company that held 4,397,865 Class B shares in Wescast.
[136] In addition, at the date of marriage, the husband was a discretionary income and capital beneficiary along with his siblings and their issue in the LeVan Family Trust which held 197,195 Class B shares in Wescast, 100% of the common shares in 1098994 Ontario Limited, a holding company which held 1,095,641 Class B shares in Wescast and 100 Class A shares in RyVan Inc. The trustees were the husband’s parents. Ms. Brent has estimated the husband’s interest in the LeVan Family Trust at the date of marriage at $3 million (midpoint values after taking significant discounts and deducting contingent disposition costs).
[137] At the date of separation, the husband owned a 100% interest in 1250238 Ontario Ltd., a holding company which held 25 %of the issued and outstanding shares of RyVan and 2 common shares of FWDAJ Ltd. that represented 25% of the common shares. Both RyVan and FWDAJ held multiple voting Class B common shares of Wescast.
[138] At the date of separation, there was a second family trust, “Family Trust II”. The shares of 1098994 Ontario Ltd. were transferred in from the first trust and converted into preference shares redeemable for $37,276,000 in total. The husband received 25% of these preference shares and 25% of the common shares which were transferred into his holding company, 1250238 Ontario Ltd.
[139] Ms. Brent estimated the husband’s interest in his wholly owned holding company at the date of separation at $33,277,161 (midpoint value after taking significant discounts and deducting contingent disposition costs).
[140] By the date of marriage, the LeVan family had entered into two agreements: the Voting Trust Agreement which governed the family with respect to Class B multiple voting shares and the Unanimous Shareholders Agreement which governed the family with respect to RyVan shares. The parties jointly retained Tim Youdan at Davies Ward to explain the effect of these agreements.
[141] Using the adjusted book value approach, Ms. Brent took the assets and liabilities in each company and restated them to fair market value. The largest asset by far was the shares in Wescast. Ms. Brent used the valuation method for the Wescast shares stipulated under the Voting Trust Agreement. Under that agreement, if a family member wished to sell shares, the family members have a the right of first refusal to acquire the shares on a pro-rata basis at the weighted average selling price of Class A shares during the 30 trading day period commencing fifteen trading days before notice was given and ending thirty trading days later (“the Voting Trust valuation method”). If the family members do not exercise their right of first refusal, the Class B shares convert to Class A shares before they can be sold.
[142] Paragraph 14(d) of the parties’ marriage contract provides:
“14(d) Erica agrees that in any claim pursuant to the Family Law Act or any other legislation which provides for a division of property between spouses whether in Ontario or any other jurisdiction at law or in equity, and further any claim for maintenance or support pursuant to the Family Law Act or any other legislation the method of valuation of any of the shares of the LeVan Family Companies including the shares of Westcast Industries Inc. held by Bruce shall be the method described in Section 6.1.1 in the LeVan Family Voting Trust Agreement in relation to the determination of a offer price and with respect to any shares of Ryvan Inc. shall be the method described in the Unanimous Shareholders’ Agreement.”
[143] Ms. Brent used the Voting Trust valuation method to arrive at $25.17 and $38.87 for the value of the Wescast shares at the date of marriage and date of separation, respectively. This is the only aspect of the Brent analysis with which Mr. DeBresser takes issue .
[144] Ms. Brent pointed out that the Voting Trust Agreement does not appear to contemplate a reduction in value for contingent taxes but she deducted 50% of the taxes that could be incurred by the company/trust on disposition. Her report stated that this was in order to reflect the uncertainty of the timing of disposition and an assumption of a long-term holding period.
Minority/illiquidity/restrictions discount
[145] At both valuation dates, the husband and/or his holding company held shares that represented a minority interest in a company that was controlled by either of his parents. At the date of separation, 11250238 Ontario Ltd. held a minority interest in FWDAJ, over which his mother had voting control. At the date of marriage, the husband held a minority interest in Grannyco, over which his mother had voting control and in RWL over which his father had voting control. In addition, at the date of marriage, the husband had a contingent income and capital interest in the LeVan Family Trust which was controlled by his parents.
[146] In addition to the above, 11250238 Ontario Ltd. and the husband held a 25% interest in RyVan at the date of separation and date of marriage, respectively, which represented 25% of the votes of this company. The husband or his holding company was an equal shareholder of RyVan with his three siblings. Ms. Brent considered this situation different from the minority situations of the other companies noted above with respect to the issues of control and liquidity and considered the appropriate discount to be applied separately.
Discount to be applied to business assets controlled by husband’s parents
[147] In order to determine the minority/illiquidity discount to be applied to the first situation, Ms. Brent considered various factors including:
(a) the husband had insufficient votes to control the Board of Directors. With respect to the Family Trust, the husband was a contingent beneficiary and could not influence the appointment of trustees;
(b) the husband had a negligible percentage of the votes and had no ability to influence the payment of dividends;
(c) the history of dividend payments;
(d) the family relationships;
(e) restrictions on share transfer under the Voting Trust Agreement;
(f) the application of generally accepted valuation principles that assume that this general restriction would be lifted;
(g) the other provisions of the Voting Trust Agreement;
(h) Ms. Brent used the same discount for the husband’s interest in the LeVan Family Trust at the date of marriage as for his minority shareholdings but noted that it arguably would be subject to a higher discount (which would be less advantageous to the husband) because all distributions under the Trust were at the complete discretion of the trustees and the distribution date she assumed under the 21 year rule was still 6 years away in the future.
[148] Ms. Brent concluded that a minority/illiquidity discount of 40% to 60% was appropriate in the circumstances to be applied to FWDAJ at the date of separation and to Grannyco, RWL and the LeVan Family Trust at the date of marriage.
Discount to be applied to RyVan
[149] Ms. Brent considered various factors in order to determine the discount to be applied to the husband’s direct or indirect interest in RyVan at the valuation dates which included:
(a) none of the shareholders had control of RyVan. The husband had no power to control the flow of dividends. If he wished to dispose of his shares, it is likely that one or more of the three remaining shareholders would want to purchase his shares in order to prevent one from increasing their shareholding;
(b) history of dividends;
(c) all the shareholders were family members;
(d) restrictions under the Unanimous Shareholders Agreement;
(e) generally accepted accounting principles; and
(f) right of first refusal by the company after the other common shareholders had first exercised such a right.
[150] Ms. Brent considered that a minority /illiquidity discount of 15% to 25% was appropriate in the circumstances to be applied to RyVan at the valuation dates.
[151] Using the midpoints, Ms. Brent’s opinion was that the net value of the husband’s business interests was $33,277,161 at the date of separation and $14,664,500 at the date of marriage. The increase is $18,612,661.
[152] Ms. Brent was asked to calculate the present value of the husband’s business assets. Based on the closing price on May 29, 2006 of $14/share, she estimated the net value to be $13 million. Although the share price has declined dramatically since separation, the decline took place over a period of two years on a gradual declining basis and because of market conditions. The closing price of the Class A Wescast shares did not drop below $30 until March 22, 2005, almost one and one-half years after separation. The decline below $20 did not occur until November 16, 2005.
[153] In Mr. DeBresser’s opinion, it is inappropriate to rely on the trading price of the shares in determining the en bloc value of the interests of the husband’s business interests because there may be significant differences between the en bloc values of these businesses and the value implied by the trading price. It was his opinion that full valuations of Wescast are required as at both dates before conclusions pertaining to the value of the husband’s business interests can be made. He relied upon a number of recognized authorities for this proposition.
[154] Ms. Brent responded to Mr. DeBresser’s evidence as follows. She testified that she was valuing a minority interest in a company which owns shares of a publicly traded company. She agreed with the authorities relied upon by Mr. DeBresser that when you are doing an en bloc valuation, there may well be a difference between the trading price of the shares and the en bloc value of the company. Ms. Brent testified that the authorities relied upon by Mr. DeBresser do not say that where a shareholder has a minority interest in a company which owns shares in a publicly traded company that an en bloc valuation is required. Ms. Brent was not aware of any authorities which required this.
[155] Ms. Brent testified that there were a number of reasons that made it inappropriate to do an en bloc valuation:
1) The husband was just a minority shareholder. Ms. Brent did not consider the husband to be part of a control group. If she had, she would not have applied a minority discount;
2) The Youdan report told her that the husband had no ability to directly sell the Wescast shares;
3) The Voting Trust Agreement and the Unanimous Shareholders Agreement specified the method of valuation of the LeVan company shares;
4) The requested disclosure and access to management was not given and the husband had not had a valuation done of his assets.
[156] Mr. DeBresser estimated the cost of his doing a valuation of the husband’s business assets at the date of marriage and date of separation to be in excess of $500,000. His report states that he was advised by Mr. Sadvari that the marriage contract exempts the husband from any requirement to value his business assets and, accordingly, had not instructed him to prepare an independent valuation report. He had not reviewed the marriage contract and was unaware that the parties had agreed to use the Voting Trust valuation method to value the husband’s business interests.
[157] Ms. Brent testified that in the discount rate she applied, she had considered Mr. Youdan’s report and his opinion. She testified that “prohibited transfer” in the Youdan report does not mean it cannot occur. It is a defined term that triggers the right of first refusal by the siblings and then a conversion of the shares into Class A shares. If the husband wishes to dispose of his holding company shares, she testified that it is not clear from the Voting Trust Agreement whether there is any mechanism for transferring the Wescast shares before a conversion takes place.
[158] Ms. Brent’s evidence was that by the date of separation, the husband’s parents could no longer stop him from disposing of the shares of his holding company of which he owned 100%. The husband had more liquidity at the date of separation than at the date of marriage due to the significant changes in the corporate structure. This would tend to support a lower discount rate at the date of separation which would increase his net family property. Ms. Brent testified that she used the same discount rate at the date of marriage and date of separation which was a more conservative approach.
[159] Ms. Brent testified that the husband had a right to redeem his preference shares in RyVan. She testified that in RyVan, the husband’s three siblings had rights of first refusal which creates a market and some liquidity. She testified that the siblings would probably pay a higher amount because they are part of a control group. She pointed out that the siblings could borrow to buy the shares and use the shares as security. She testified that if the siblings did not exercise the right, RyVan or the husband’s mother could purchase the husband’s shares. Ms. Brent was more conservative and applied a discount. RyVan has an obligation to redeem the husband’s Class A special shares on five days notice or it must pay interest to him. These shares may be purchased by RyVan for the lesser of $9.3 million or the net realizable value of RyVan.
[160] If the right of first refusal is not exercised, there is a wider market. Ms. Brent agreed that the Wescast shares are thinly traded and that that is a factor which she recognized in her discount rate. She pointed out that there are block trades by institutional buyers in Wescast shares and gave examples of institutions owning blocks of shares where there was very little discount from the trading price . Wescast’s proxy circulars from 2005 and 2006 indicate that in a span of approximately one year, one institutional investor, Brandes International increased its share holding from 667,900 Class A shares to 1.1 million Class A shares. There is also evidence that in 2001, BMO was willing to purchase 1.5 million shares through a bought deal.
[161] Ms. Brent’s evidence that there are potentially institutional buyers for large blocks of Wescast shares was disputed by Mr. DeBresser who pointed to a failed attempt by the husband’s parents to sell 1.5 million shares in 2001. The evidence was limited on this attempted sale in 2001. However, it appears that the husband’s father wanted to sell the shares at the top of the market, did not want to pay the commission or discount proposed by BMO for a “bought deal” and rather than selling through a secondary offering or through institutional investors which Ms. Brent testified was the prudent way to sell the shares, sold shares directly into the market.
[162] In terms of liquidity, Ms. Brent testified that the husband had $1.6 million in his personal stock portfolio as at December 31, 2005 and that he can cause his holding company to pay him the redemption amount of his preference shares but would be limited to $6.3 million of the $9.3 million redemption amount because of a provision in the company’s Articles which limit the amount that can be received to the net realizable value of RyVan’s assets. In terms of whether other family members would have the ability to buy the husband’s shares, Ms. Brent noted that $35 million of the LeVan family’s wealth is held in FWDAJ in marketable securities (not Wescast shares) and that there is $2.3 million in cash and T-Bills. She noted that the husband’s mother has preference shares worth $60 million and access to all the money in FWDAJ.
[163] Ms. Brent referred to Minutes of several LeVan family business meetings where discussions occurred about selling shares or selling Wescast. The evidence of the wife who attended LeVan family quarterly business meetings, was that the family talked about selling the company.
[164] Mr. DeBresser acknowledged that the discount percentages used by Ms. Brent were conservative. Ms. Brent did not apply either a premium for a control block (of which the husband is a member) or a premium for a special purchaser, which it was reasonably open to her to do.
[165] Mr. DeBresser noted in his report that the differences between the en bloc value and trading price are illustrated by the actual experience of public company takeovers in the open market. He cites a recent study of public company buyouts where over 16% of the transactions studied took place at less than the trading price. He acknowledged on cross-examination that 84.1% of the companies studied sold for higher than the trading price.
Husband’s Income
[166] In his most recent financial statement sworn May 15, 2006, the husband swore his yearly income was $114,111. He proposes that he should pay child support based on his employment income of $94,941 plus $100,000 for dividend income.
[167] Since separation, the husband’s income tax returns reflect only his employment income and benefits. After separation, the husband stopped withdrawing dividends from his personal holding company, 1250238 Ontario Limited, even though the quarterly Wescast dividends continued to flow up to the husband’s holding company.
[168] Ms. Brent calculated the husband’s income as follows:
2001- $351,000
2002- $486,000
2003- $362,000
2004- $496,000
2005- $370,000
[169] Ms. Brent looked at the husband’s income tax returns and corporate and trust returns. She included the pre-tax income from the husband’s holding company on the basis that as a holding company, there are no business reasons for maintaining retained earnings in the corporation. She did not, however, include the pre-tax income of RyVan or FWDAJ because the husband did not control those companies. The husband has two portfolios of marketable securities both of which are under-performing. She adjusted the portfolio income to the T-bill rate. This accounted for only a minor adjustment to income. She grossed up the dividends received by the husband at a lower tax rate. She testified that 2005 was a preliminary number because she did not have the holding company’s financial statement but she did review an email between the LeVan siblings which disclosed the dividends paid out in that year. The 2005 income arrived at by Ms. Brent reflects that in February, 2005, Wescast cut its dividend payments in half.
[170] The husband’s counsel did not cross-examine Ms. Brent on her income report.
[171] The wife submits that the husband should pay child support based on an annual income imputed to him of $370,000.
Retroactive Child Support
[172] Based on Ms. Brent’s calculations of the husband’s income, the wife claims “retroactive child support” in the amount of $43,792.00 plus $3,717 in Section 7 expenses as shown at Tab 8 C, E and H to the Applicant’s Closing Submissions. The s.7 expenses relate to hockey and camp. As the amounts claimed accrued after the wife’s application was commenced, it is perhaps better described as child support accruing prior to trial rather than as “retroactive child support”.
The Statutory and Legal Framework to set aside domestic contracts
[173] TheFamily Law Act permits parties to enter into a marriage contract in which they can agree upon their respective rights and obligations upon separation with respect to the ownership and division of property and their support obligations and other matters in the settlement of their affairs. There are certain limitations such as a prohibition against interfering with a possessory right of the matrimonial home and determining custody and child support rights. In addition, there are judicial oversight provisions contained in s. 56 (4) of the Family Law Act.
[174] The central issue between the parties turns on whether the marriage contract between the parties should be set aside under s. 56(4) which states:
“s.56 (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.”
[175] It seems to me that the proper approach is to determine whether the wife can bring herself within one of the subsections and then, if she can, determine whether the court should exercise its discretion in favour of setting the contract aside. In my opinion, the issue of whether the wife has brought herself within s.56 (4) (a), (b), or (c) is analytically different from whether the court’s discretion should be exercised, the condition for its exercise having been satisfied. Because no argument was addressed with respect to this matter, I am proceeding on the basis that the wife must persuade me to exercise my discretion in her favour if she brings herself within one of the subsections. It would be a possible application of the statute to conclude that where a litigant has brought herself within one of the subsections, the onus then shifts to the other party to persuade the court not to exercise its discretion to set aside the agreement. On the approach I am following, the party who seeks to set aside the contract carries the burden of proof throughout.
Failure to make Disclosure
[176] The legislature considered the duty to disclose under s.56 (4) so important that s.56 (7) expressly provides that it cannot be waived. It states:
“s.56 (7) Subsections (4), (5) and (6) apply despite any agreement to the contrary.”
[177] Justice Mesbur expressed the purpose of this disclosure as follows:
“Marriage contracts are a device by which parties can opt out of most or part of the Family Law Act, its property provisions, its support provisions or both. Fundamental to a choice to opt out of the legislative scheme is a clear understanding of what one’s rights and obligations might be if there were no marriage contract. It is in this context that financial disclosure is critical.”
Patrick v. Patrick, 2002 CarswellOnt. 593 (S.C.J.) at para.52
[178] Furthermore, Justice Mesbur stated:
“A party needs to know what asset base might potentially grow, in order to determine what he or she is being asked to give up in the agreement. Coupled with financial disclosure is the notion of understanding legal rights and obligations under the legislative scheme. This second notion carries with it the concept of independent legal advice. Thus, a party must know what assets and liabilities exist at the date of the contract, and must understand the general legislative scheme in order to know what he or she is giving up in the proposed agreement.”
Dubin v. Dubin , (2003), 34 R.F.L. (5 th) 227 (Ont.S.C.J.) at para.32
[179] I agree with these observations. It has been held that the obligation of spouses to make full disclosure is not to be construed narrowly. (Hicks v. Hicks (2002), 26 R.F.L. (5 th) 370 (Ont. S.C.J.) at para.44). The 1996 Law Society of Upper Canada Bar Admission Course Materials for Family Law state that s.56 (4) places a positive duty on every spouse to make complete, fair and frank disclosure of all financial affairs before the contract is entered into. It states that this must be done whether or not there has been a request for information. It provides that sworn financial statements may not be necessary in the case of marriage contracts and cohabitation agreements and that statements of net worth with an indication of how value was arrived at may suffice.
[180] The case law is clear that proper disclosure requires both parties to disclose values. It is not enough to only include a list of assets, debts and other liabilities. (Demchuk v. Demchuk, (1986), 1 R.F.L. (3d) 176 (Ont. H.C.J.) at paras. 54 and 55; Montreuil v. Montreuil[1999], Carswell Ont. 3853 (S.C.J.) at paras.98 and 100; Patrick v. Patrick, supra at para. 53; Dubin v. Dubin, supra at para. 33 and 34).
[181] It has been held that s. 56(4) (a) also includes a requirement to disclose income. The Divisional Court specifically adopted this proposition. It stated:
“We agree with the conclusion of the learned trial judge (reported at, (1994), 3 R.F.L.(4 th) 457 (Ont.Gen.Div.,) that the husband was required by r.69.14(13) to inform the wife of the increase in his salary from about $50,000 per annum to about $65,000 per annum and that the failure to do so constituted a failure to disclose “other significant assets” within the meaning of s.56(4) (a) of the Family Law Reform (sic) Act. The stream of income from his salary was an asset”.
Underwood v. Underwood, (1994), 3 R.F.L.(4 th) 457 (Ont. Gen. Div. at para.26., aff’d, (1995) 11 R.F.L.(4 th) 361 (Ont. Div,Ct.) at 363)
This conclusion is completely consonant with the policy which requires disclosure before rights are surrendered. Such disclosure is particularly relevant when the marriage contract seeks to limit spousal support which might otherwise be payable.
[182] I turn then to the wife’s submission that the husband failed to make disclosure as required by s. 56 (4) (a) of the Family Law Act. It is submitted by the wife that the husband had a positive obligation to disclose the extent and value of his significant assets, that he failed to do so and that accordingly, the wife could not have understood her potential rights under the Family Law Act and what she was giving up when she signed the agreement. It is submitted by the husband that the disclosure made was more than adequate, that the legislation does not require values in Part I and Part IV of the Family Law Act, that the information provided readily reveals an amount similar to Ms. Brent’s, that the wife and her advisers knew that the LeVan Family Companies and in turn, the husband, were worth “a lot of money” and the wife did not care how much the husband was worth.
Evidentiary Findings re Failure to Disclose
[183] I make the following evidentiary findings. Paragraph 23 of the marriage contract provided that each party in Schedules A and B had fully and completely disclosed to the other the nature and extent of all his or her significant assets existing at the date of the contract. Schedule A to the marriage contract disclosed that the husband had $80,000 in RRSPs, bank accounts and the original house deposit. No value was disclosed for his LeVan Companies’ interest or for the beneficial interest the husband had in the LeVan Family Trust. These assets were valued by Ms. Brent, prior to discounts and contingent taxes, at $30 million at the date of the marriage.
[184] Schedule A disclosed that the husband had 100 common shares in RyVan Inc. It omitted to disclose that he also held shares in Grannyco and RWL. These omissions turned out to be very substantial: Ms. Brent valued these interests, after applying discounts and deducting contingent taxes, at over $10 million at the date of the marriage. The footnote to Schedule A was inaccurate and contained insufficient information to be meaningful. The husband’s lawyer tried unsuccessfully to get Ms. Brent to testify that it was possible from the footnote to do a simple calculation and determine the husband’s net worth. Ms. Brent’s evidence was that she was confused by the footnote. Mr. DeBresser admitted that Schedule A did not disclose what the husband was worth.
[185] In addition to Schedule A, the husband’s lawyer also sent a corporate chart to the wife’s lawyer. The husband’s lawyer testified that she considered this sufficient disclosure for a “first go-around”. The further disclosure provided was seriously misleading. The husband’s lawyer’s letter of June 13, 1996 to Mr. Ross stated that the husband’s contingent interest in the Trust had “a very minimal value” at the date of the marriage. It was not disclosed that the Trust had assets worth $30 million at that date. Mr. Ross specifically requested the value of the assets in the Trust in his letter of June 12, 1996. This was never provided. It was not disclosed that the children had always been treated equally under the Trust. The husband’s lawyer’s letter of June 13, 1996 stated that the husband’s only vested interest in the LeVan companies was 100 common shares of RyVan. This left out Grannyco and RWL. A subsequent letter from the husband’s lawyer to Mr. Ross referred to the husband owning one share of RWL but still did not disclose Grannyco and no values were disclosed. Most significantly, Mr. Ross asked for values for the husband’s business interests and Ms. Bales chose to characterize this as a request for full valuations which she declined to do on the basis of cost and time.
[186] It is significant that the husband’s lawyer acknowledged in her testimony that in the 300 domestic contracts that she had done, she had always sought financial disclosure. While she had not requested valuations and did not need to know an individual’s net worth “to the last nickel”, she had to have an idea of both the income and the net worth.
[187] It is significant that there was no disclosure whatsoever of the husband’s income.
[188] While the RyVan financial statement was provided to Ms. Heakes (although it was not provided to Mr. Ross, notwithstanding that it was available), financial statements for RWL, Grannyco and the Trust were not provided nor were income tax returns for the husband.
[189] The husband’s lawyer had access to these documents. Her law firm had been the corporate counsel for the LeVan companies and had acted for Wescast when it went public. Her law firm also acted in the two estate freezes. The husband’s lawyer was the husband’s agent for the purposes of negotiating this contract. She testified that had she been acting for the wife, she would have asked for the financial statements and was surprised that the wife’s lawyer did not. It was the husband’s lawyer who decided what financial disclosure to provide to Ms. Heakes.
[190] Ms. Heakes was first contacted four days prior to the wedding and two days before the contract was signed. She reviewed the documentation provided by the husband’s lawyer prior to meeting the wife. She had no hand in choosing what documentation she would review. She had no real time to discover what she did not know and no time to discover what documents she should be asking for.
[191] The husband submits that the disclosure provided to Mr. Ross and Ms. Heakes shows that the value of the husband’s holdings was approximately $30 million. I disagree. The evidence of Ms. Bales, Mr. Ross, Ms. Heakes and the parties was remarkably consistent- no one knew the husband’s net worth or income. They had no idea he was worth millions of dollars in his own right or that his income included a substantial amount of dividend income.
[192] I find that the husband breached his obligation of financial disclosure.
[193] In Ms. Bales’ interoffice memo to George Wilson, she stated that she would like to give enough detail to satisfy the other side without providing more than is necessary. The impression I formed was that documents and information were provided which gave the appearance of disclosure. Documents which would have been meaningful such as financial statements and income tax returns were not provided. It was submitted on behalf of the husband that for him to disclose the value of his assets would have been misleading because the wife would have expected the husband to live like a millionaire. After the marriage, the husband kept the wife in the dark about his LeVan corporate and Trust income and required her to live on his employment income. I find that although the husband wanted the protection of the marriage contract, he did not make the required disclosure for two reasons. First, he did not want the wife to know his income or the value of his assets. This was because he wanted to control their lifestyle during marriage. Second, he was afraid that full disclosure might lead to more aggressive demands and a less favourable contract. The evidence leads me to conclude that the husband deliberately chose not to make financial disclosure to the wife of his income and assets when entering into the contract.
Grounds to set aside the contract under s.56 (4) (b) and (c)
[194] The s. 56 (4) (a) obligation based on failure to disclose is new. It was not a feature of the common law. Section 56 (4) (b) and (c) continue common law causes of action which may also result in the setting aside of a contract, although it may be that s. 56 (4) (b) is broader than “non est factum” at common law.(Chandra v. Chandra, (1999), 174 Nfld. & P.E.I.R.136 (Nfld. C.A.);Grant-Hose v. Grant-Hose, (1991), 32 R.F.L.(3d) 26 (Ont.Unif.Fam.Ct.)).
[195] Although the wife’s main thrust was that the husband failed to make the required disclosure, she also argued that there were grounds to set the contract aside under s.56 (4) (b) and (c). It is unnecessary, having found a breach of s.56 (4) (a), to address s. 56 (4) (b) and (c) further. However, in the exercise of discretion, I will consider and make findings with respect to these other allegations.
Exercise of Discretion to set aside domestic contract
[196] Notwithstanding the importance of disclosure, it is not every breach of disclosure which will result in a setting aside of the contract. (E.E.C. v. M.A.C., [2002] B.C.J. No. 1459 (B.C.S.C.) at para.33 ( varied on appeal); Freake v. Freake,[2004], CarswellNfld. 185 (C.A.) at para. 28; Dochuk v. Dochuk, [1999] O.J. No.363 (Gen.Div.) at para. 19; Klinger v. Klinger,[1993] O.J. No.170 (Gen.Div.) at paras.28-29; Mittler v. Mittler,[1988], CarswellOnt.303 (H.C.J.) at para.31).
[197] Public policy support the making of domestic contracts. Courts should not lightly interfere with such agreements.
[198] Several cases have suggested that when exercising their discretion, trial judges should consider the following factors originally set out by Clarke L.J.S.C. in Demchuk v. Demchuk, supra and recently reiterated by Lack, J. at paras. 18 and 19 of Dochuk v. Dochuk, supra:
(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 disclosures;
(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;
(g) whether the non-disclosure was a material inducement to the aggrieved party entering into the agreement.
(Demchuk v. Demchuk, supra at para. 57; Dochuk v. Dochuk, supra at paras. 18 and 19; Freake v. Freake, supra at para.54).
[199] The Family Law Act provides a regime which allows considerable protection for wealth owned at marriage, and for inherited or gifted property. Parties may seek even greater protection or certainty. The conditions which must be satisfied to obtain this comfort are not onerous. In this case, as I have found, the failure to disclose was deliberate.
[200] The wife submits that the husband misrepresented the terms of the contract to her, that she did not understand the nature or consequences of the contract and that the circumstances under which the contract was negotiated were such that she did not have independent legal representation.
[201] It is submitted on behalf of the wife that she needed to and did not understand the regime and principles set out in the Family Law Act, how the Family Law Act applied to her particular circumstances, the nature, extent and value of the husband’s business and trust interests, the terms of the marriage contract and how the contract affected her rights and entitlements under the Family Law Act. It is submitted that she did not and could not have made an informed decision in the circumstances in which she found herself a short time before her wedding date.
[202] The husband submits that it would be unfair to set aside the contract for the following reasons:
1) The wife would have signed the contract whether or not the husband made disclosure.
2) Given the reliance placed on it, it would be unfair to the husband and his entire family.
3) At today’s trading value, the wife would end up with everything and the husband would end up with nothing.
4) The wife made no contribution to the value of the Wescast shares.
5) The husband would have to cause the windup of RyVan.
6) The wife challenged the contract’s validity only after the marriage ended.
[203] The husband submits that the same points are relevant when considering whether s. 5 (6) of the Family Law Act should be applied. Section 5(6) permits the court to divide the net family property unequally, if it would be unconscionable to follow the usual rule of equal division. I have concluded that I should exercise my discretion in favour of setting aside this marriage contract. My reasons are as follows.
Misrepresentation as to the Effect of the Contract
[204] Prior to the parties getting engaged, the wife understood that they had to enter into a marriage contract to protect the LeVan family’s shares, as did the husband’s other siblings and their spouses. This was a requirement under the Voting Trust Agreement and the Unanimous Shareholders Agreement which the husband and his siblings had entered into.
[205] I find that neither party fully understood the provisions of their marriage contract. I consider it likely that the husband’s lawyer drafted a contract that she thought would protect the husband and the LeVan family companies and that the husband did not appreciate at that time, that the contract she drafted went well beyond what was required under the aforesaid agreements. The agreement is complex. It has provisions in it about which the lawyers were clearly confused when they testified at trial. It has provisions in it which were imported from the wording in the draft marriage contract required under the Voting Trust Agreement and the Unanimous Shareholders Agreement which had no application to the contract the parties entered into. The husband is dyslexic and had difficulty reading and explaining the terms of the contract while he was testifying.
[206] I accept that the wife was unable to understand the agreement when she read it. She trusted the husband. I find that when the wife told the husband that neither she nor her lawyer understood the contract, he reassured her that all the contract did was to ensure that she would never get Wescast shares if a separation occurred. He led her to believe that all the contract did was protect the shares and that this was a simple matter which should be concluded quickly. Mr. Ross’s evidence corroborated the wife’s evidence as to what the husband told her the contract did and that Mr. Ross had the feeling that he was competing unsuccessfully with what the husband was telling her the effect of the agreement was. Mr. Ross testified that when he tried to explain the concept of equalization to the wife, he did not think that she grasped it. I accept Mr. Ross’s evidence. He was a credible witness. He was conscientiously attempting to fulfill his duty to his client.
[207] I find that the husband misrepresented to the wife that the contract had a very narrow purpose of ensuring that she would not get shares in the LeVan family companies. This was very different from what the marriage contract actually did which was to exclude all of the husband’s business interests from net family property and to severely restrict the wife’s right to support.
Ability to understand Nature and Consequences of Agreement
[208] The wife was confused. She was hearing one thing from the husband and another from Mr. Ross. The marriage date was fast approaching. The husband acknowledged repeatedly telling the wife that there would be no marriage without a contract. In addition to the pressure of all the wedding arrangements and her job responsibilities, she had the pressure that the marriage would not take place at all if the contract was not signed. Mr. Ross concluded that the wife was under undue pressure to sign, given the impending wedding, which he confirmed in the unsent letter he drafted to the husband’s lawyer.
[209] The husband submits that the evidence is clear that Mr. Ross and Ms. Heakes explained to the wife her rights under the Family Law Act and the effect of the contract on those rights. This is only partially accurate. Moreover, the circumstances under which the wife received advice must be considered.
[210] I accept Mr. Ross’s testimony that he felt he was competing unsuccessfully with what the husband had told the wife the contract said and what it actually said. He testified that he did not think the wife grasped his explanations. In addition, I find that the husband seriously undermined the wife’s relationship with Mr. Ross. The husband’s lawyer acknowledged telling the husband that Mr. Ross did not know what he was doing. The husband knew from his lawyer that she was of the view that unless the wife got a new lawyer, there was not going to be a marriage contract. The wife testified that this is what the husband told her and that Mr. Ross had to be fired. There is no doubt that the parties were discussing the marriage contract between them. It is logical that the husband would have told the wife what his lawyer had told him. When the husband received the contract drafted by Mr. Ross, I find that he told the wife that Mr. Ross was an idiot, that Mr. Ross did not understand the contract and had no idea of what he was doing. I find that the husband told the wife that Mr. Ross needed to be fired and he asked his lawyer to assist in finding the wife a new lawyer. On cross-examination, the husband suggested that the wife may have been the one to call his lawyer to seek her assistance in finding a new lawyer. It was only after it was put to him that Ms. Bales had testified that he had called her to seek her assistance in finding the wife a new lawyer that he was prepared to admit this
[211] The wife’s evidence was convincing and I accept that she felt badly about firing Mr. Ross, had no idea how to do it, never having fired anyone before and that the husband provided the wording for the hand-written fax she sent Mr. Ross terminating his services. I do not find the husband’s evidence to be credible, particularly given his initial reluctance to admit that he had called his lawyer to seek her assistance in finding the wife a new lawyer.
[212] Mr. Ross felt at the time that the wife was under undue pressure to sign the contract without financial disclosure or negotiation and with the impending wedding close at hand.
[213] The extent to which the husband was pressuring the wife is apparent from the June 18, 1996 fax signed by her and sent to Mr. Ross. It is of particular significance that the letter was faxed to the husband at the same time that it was faxed to Mr. Ross and that the husband immediately faxed it to his lawyer. It is strange that a letter that is supposed to have been written by the wife to provide instructions to her lawyer would be sent to the husband’s lawyer within minutes of it being conveyed to her lawyer. Clearly the parties acted in concert with respect to this letter. The impression I formed at the trial was that the language used in the fax was not language or concepts with which the wife was familiar. It was Mr. Ross’s opinion at the time he received it that the terms used in the fax were not part of the wife’s vocabulary and he concluded that it was a “put up job”. I find that the wording in the fax was not drafted by the wife. I find that it is probable that this document was prepared and sent at the husband’s instigation and under his instructions. This fax was then forwarded by Ms. Bales to Ms. Heakes who did not know that it had not been drafted by the wife. She relied upon it as expressing the wife’s instructions to her first lawyer and for her understanding of the proceedings at the point she took over from Mr. Ross.
[214] The letter Mr. Ross drafted but never sent to Ms. Bales sets out his feelings close to the time the events occurred and is the best evidence of his perspective at the time the contract was being negotiated. The letter expressed his view that the agreement was so one-sided as to be unconscionable, that there were never any bona fide negotiations, that this was a take it or leave it situation and that the wife was put under tremendous pressure to sign the agreement during the short period of time from when the matter commenced to when the marriage took place.
[215] Ms. Heakes did her best to tell the court what had happened ten years ago but had no memory of the matter when she was first contacted about this lawsuit. She did not recognize the wife in the courtroom. She had no recollection of her one meeting with the wife. Her file contained few notes, no dockets and no account. I find that her evidence of what her general practice was and what she believes she would have done, to have no probative value in this case. For example, I do not accept her evidence that she is confident that she would have pointed out the significant restriction on the wife’s right to support in paragraph 8 (c) of the contract when reviewing the contract with the wife. She had no recollection of doing so. Similarly, her evidence that she assumes she would have advised the wife that she had the right to more financial disclosure is not confirmed in any notes or in her reporting letter and I do not accept this evidence. Pressures of time and trust in Ms. Bales led Ms.Heakes to depart from her usual practices.
[216] The representation the wife received from Ms. Heakes was problematic. She had represented Ms. Bales on her own family law matter which was not disclosed to the wife and should have been. Ms. Heakes testified that one of the reasons she agreed to act for the wife, notwithstanding that the wedding was imminent, was because she was comfortable Ms. Bales being on the other side. The relationship of trust between the two lawyers may have inadvertently caused Ms. Heakes, particularly given the urgency to get the agreement signed, to rely on the husband’s lawyer more than she should have.
[217] Ms. Heakes did not have sufficient time to get the background of the matter. She understandably but incorrectly assumed that the June 18, 1996 fax to Mr. Ross signed by the wife and forwarded to Ms. Heakes by Ms. Bales expressed the wife’s legal instructions to Mr. Ross and her understanding of the proceedings up to the point when Ms. Heakes took over. She did not appreciate that a driving force behind the marriage contract was the requirement for a marriage contract under the Voting Trust Agreement and the Unanimous Shareholders Agreement and that the draft marriage contracts to those agreements did not require exclusion of business assets. She did not review those agreements with the wife or the less onerous marriage contracts which they required. She did not learn what Mr. Ross knew, namely that the husband was continuing to say to the wife that if the contract was not signed, there would be no wedding. Ms. Heakes testified that if she had been told that, she would not have continued on with the marriage contract. She did not request any additional documents to those the husband’s lawyer provided to her which essentially were the same that had been provided to Mr. Ross and considered sufficient only for a “first go-around.” These documents contained the misrepresentations about the husband’s financial position. While Ms. Bales provided the RyVan financial statement to Ms. Heakes, she did not provide the other financial statements or income tax returns that were available to her.
[218] Ms. Heakes’ reporting letter states that she reviewed the wife’s rights with her under the Family Law Act, Succession Law Reform Act and at common law and reviewed in detail the marriage contract. I accept that she did so. However, Ms. Heakes’ meeting with the wife lasted an hour, during which the wife’s disclosure schedule was prepared and a change was made to the contract to reflect that a house deal had fallen through . The rushed and hurried fashion in which Ms. Heakes’ representation occurred is apparent from the simple mathematical errors in the wife’s disclosure schedule. It is also apparent from the amendment to reflect that the house deal had fallen through which resulted in a provision which no longer required the husband to purchase a house in joint tenancy and thus was less favourable to the wife. It is also apparent from the failure to make any change to the significant restriction on the wife’s support in paragraph 8 (c) while requesting that the background provision be deleted which stated that the wife was self-supporting. Ms. Heakes misstates the wife’s support rights under the marriage contract in her reporting letter written three weeks after the agreement had been signed and says, incorrectly, that she had deleted the references which modified the wife’s right to support. In her testimony at trial, Ms. Heakes did not appreciate until it was pointed out to her that the contract contained a significant restriction on the wife’s right to support. I find that what she expressed in her reporting letter was her understanding of the contract and is what she told the wife- that is, that the reference to modifying the wife’s right to support had been deleted. In these circumstances, the wife could not have understood the significant consequences of the marriage contract on her support rights.
[219] The changes made by Ms. Heakes were inconsequential. Significantly, there was no attempt to exclude any business assets the wife might acquire, thus avoiding the potential that she would owe the husband an equalization payment if the marriage ended.
[220] Most significantly, Ms. Heakes had no idea as to the nature and extent of the husband’s significant assets or his income. Ms. Heakes was not in a position to appreciate the consequences of the agreement and impart them to the wife in the absence of knowing what the wife was giving up. Without financial disclosure, the wife’s lawyers were deprived of the opportunity to advise her in a meaningful way of what her likely rights might be under the Family Law Act.
[221] In Hartshorne v. Hartshorne, , [2004] 1 S.C.R., 550, the court upheld a marriage contract where the wife had received independent legal advice that the agreement was grossly unfair and a strong recommendation that she not execute it in its present form. In Gurney v. Gurney[2000], CarswellB.C. 90 (S.C.) at para. 29 it was held:
“In the family law context, providing independent legal advice must mean more than being satisfied that a party understands the nature and the contents of the agreement and consents to its terms. The solicitor should make inquiries of the party so as to be fully apprised of the circumstances surrounding the agreement. The party should be advised of his or her legal rights and obligations in relation to the subject matter of the agreement and advised of the consequences associated with a refusal to sign. The solicitor should offer his or her opinion on the question of whether it is appropriate for the party to sign the agreement in all of the circumstances. It is only with that kind of advice that the party can make an informed decision about the advisability of entering into the agreement as opposed to pursuing some other course.”
[222] There is no evidence that Ms. Heakes offered the wife an opinion on whether the contract was fair in the circumstances and whether the wife should sign it. There is nothing in Ms. Heakes’ reporting letter confirming that such an opinion was given. There is no evidence that Ms. Heakes advised the wife that in order to understand what she was giving up, she needed to know the value of the husband’s assets. Moreover, a lawyer cannot give proper independent legal advice when he or she does not understand the client’s situation. (Brosseau v. Brosseau, (1989), 100 A.R. 15 (C.A.) at para.19; leave to appeal to the S.C.C. refused (1990) 65 D.L.R. (4 th) vii.)
[223] I conclude that the wife did not understand the effect of the marriage contract on her rights and that she did not receive appropriate independent legal advice, in large part because of the husband’s interference with her relationship with Mr. Ross.
Was the Disclosure Irrelevant to the Wife?
[224] It is submitted on behalf of the husband that regardless of what his net worth and income were and regardless of whether there were misrepresentations about his finances, they were not material as the wife would have signed the contract anyway. It is clear that the wife wanted to get married and that the husband was insisting that the contract be signed before getting married. The wife was asked the following on cross-examination:
Q. “If this page, Schedule A, had said that Bruce’s interest in these companies was worth between $12 and $17 million would that have made any difference to you?
A. I do not know if it would have or not.
Q. You still would have signed or there’d be no marriage right?
A. Yes.
Q. So, it would not matter what number was in there you were going to sign because you wanted to get married.
A. Yes, because I was signing this contract to protect Bruce’s interest in Wescast…”
[225] I find that the wife was acknowledging that she understood that there would be no marriage without a marriage contract. I do not agree that the wife was acknowledging that she would sign any contract regardless of its terms and regardless of the extent of her future husband’s income and assets. She was prepared to “protect Bruce’s interest in Westcast.” I find that she understood that the contract did this because of her future husband’s misrepresentations. Had the husband disclosed the value of his assets and his income, this would have given the wife’s lawyers an opportunity to negotiate provisions less onerous to the wife. I find that had he fully disclosed as required, it is likely that the marriage contract would have been more favourable to the wife, or that the wife , recognizing how unfair it was, would have refused to sign it.
Fairness of the Contract
[226] The contract the wife entered into could have resulted in the husband having assets in excess of one hundred million dollars and the wife receiving nothing under the contract and owing him an equalization payment. She significantly compromised her right to spousal support and gave up her rights to share in the increase in value of virtually all of the husband’s assets, save the matrimonial home, if there was one, and potentially the growth in a secondary residence, although that is not clear. She did this without knowing what his income was from all sources and without having any idea of his net worth. In surrendering virtually all of her rights and agreeing to contract out of the provisions of the Family Law Act, she did so without any meaningful information about the husband’s assets and income, coupled with seriously misleading information about his net worth. In my opinion, the marriage contract was not reasonably fair to the wife.
[227] Had the husband’s failure to disclose been restricted to his income, I would have considered only setting aside Paragraph 8 (c).
Detrimental Reliance by the Husband and his Family
[228] The Family Law Act provides a regime which allows considerable protection for wealth owned at marriage and for inherited or gifted property. Parties may seek even greater protection or certainty. The conditions which must be satisfied to obtain this comfort are not onerous.
[229] The husband deliberately breached the disclosure obligations. His reliance on the agreement was misplaced and is not entitled to any consideration. He interfered with the wife’s attempts to receive independent legal advice. He wanted a marriage contract. He was indifferent to whether it was fair.
[230] The husband’s family are not parties to the marriage contract. Their alleged reliance is irrelevant.
The Wife’s Delay in Moving to Set the Contract Aside
[231] In my opinion, there was no operative delay. It would be unreasonable to expect a party to move to set the contract aside while the marriage was ongoing, especially when many of the facts which led to setting it aside were unknown to her until after the marriage had ended. Moreover, this is not a case where the wife took benefits under a marriage contract and then moved to set it aside.
[232] In the result, because of the cumulative weight of these factors, namely:
(1) the failure to disclose was deliberate;
(2) the husband misrepresented the purpose and extent of the contract;
(3) the husband interfered in the wife’s receipt of independent legal advice;
(4) the wife did not understand the terms of the contract;
(5) the wife did not receive independent legal advice and some of the advice was wrong;
(6) the contract was unfair
I exercise my discretion and declare the marriage contract set aside.
Findings re Cottage loan
[233] The evidence of the husband and his mother was that the husband’s father loaned the husband $1 million to purchase the parties’ family cottage and the loan had not been repaid. The husband’s mother made it clear in her testimony that it had always been the intention of Mr. LeVan, Sr. and her to treat the children equally and the reason she had gifted $ 1 million to the husband’s siblings but not to him was because she did not want the wife to benefit from it. The wife submits that the likelihood that the husband will have to repay the loan to his mother is very remote and the loan should be discounted to zero. The husband submits that it would be unconscionable to discount the loan if the marriage contract is set aside because there were other easy steps the LeVans could have taken to protect this asset which were not taken, in reliance on the marriage contract.
[234] The value of a loan can be discounted based on the likelihood that the lender will not insist on payment. Some of the factors courts have considered in deciding whether and how much a loan should be discounted are:
(a) The lender does not demand repayment.
(b) The borrower does not intend to repay the loan.
(c) There were no demands for repayment until after separation.
(d) The loan would not have been repaid if the parties had not separated.
(e) The lender does not need the money.
Poole v. Poole, (2001), 16 R.F.L. (5 th) 397 (Ont.Sup.Ct. at para.41; Cade v. Rotstein,[2002], CarswellOnt. 3871 (Ont.Sup.Ct.) at para.61
[235] I find that it is highly doubtful that the husband will have to repay this loan to his mother. The husband’s mother is very wealthy and does not need the loan repaid. It has always been the intention of the husband’s parents and continues to be the intention of his mother to treat the children equally. The other siblings have already received gifts from their mother in the same amount of the cottage loan. There have never been any demands for repayment.
[236] I do not accept that it is unconscionable to discount the loan if the marriage contract is set aside because there were other easy steps the LeVans could have taken to protect this asset which were not taken, in reliance on the marriage contract. It is only reasonable to rely on a contract which has met the requirements under the Family Law Act. In general, a party should not be able to benefit from a domestic contract that was sufficiently flawed to be set aside. (Patrick v. Patrick, supra at para.62).
[237] Accordingly, I find that the loan should be discounted to zero.
Findings re Valuators’ Evidence
[238] I prefer the evidence of Ms. Brent over that of Mr. DeBresser for the following reasons.
[239] Ms. Brent is a senior and respected business valuator who did a comprehensive valuation report, the highest level of report. She gave her evidence the way an independent expert witness ought to-fairly, independently and objectively. At no time did she act as an advocate. She withstood a vigorous cross-examination and was not shaken in any aspect of her testimony.
[240] Mr. DeBresser produced a limited critique of Ms. Brent’s report, disagreeing with only one aspect. He took issue with her failure to determine the en bloc value of Wescast. He provided no opinion on the value of the husband’s assets at the date of marriage and valuation date. He did not do an income analysis. He did not question any other valuation issues in Ms. Brent’s report, including the corporate taxes, discounts and any other aspects of her report. He was very defensive on cross-examination.
[241] Ms. Brent’s opinion of value is the only evidence before the court as to the value of the husband’s assets. She took a conservative approach to value. I am satisfied not only that the approach she took was appropriate for valuing the husband’s minority interest in a company which owns shares of a publicly traded company but that an en bloc valuation was inappropriate for the reasons she gave. To perform an en bloc valuation, she required the disclosure she had requested and access to management which she was not given.
[242] Ms. Brent’s approach to valuing the Wescast Class B shares was similar to the formulas stipulated by the Voting Trust Agreement and the Unanimous Shareholders Agreement which the family members chose as their valuation method for transfers of shares between family members and also in their marriage contracts.
[243] I accept Ms. Brent’s evidence that the husband had more liquidity at the date of separation than at the date of marriage due to significant changes in the corporate structure. I accept that “prohibited transfer” in the Youdan report does not mean that a sale of the husband’s shares cannot occur. Rather, it is a defined term that triggers the right of first refusal by the siblings and then a conversion of the shares into Class A shares. I accept her evidence that the husband had the right to redeem his preference shares in RyVan, that the right of first refusal by his family created a market and some liquidity and that there is a wider market in block trades through institutional investors or through a secondary offering. I am satisfied that in the discount rate she used, Ms. Brent took into account that the Wescast shares are thinly traded.
[244] I have no hesitation in accepting her midpoint value of the husband’s business interests after applying significant discounts and deducting debts and contingent disposition costs. I find that the husband’s business interests are valued at $33,277,161 at the date of separation and $14,664,500 at the date of marriage.
[245] The parties have agreed upon the other items of net family property, apart from the value of the husband’s business interests and the cottage loan. Based on my findings regarding the value of the husband’s business assets and the discounting of the cottage loan, the husband’s net family property is $20,654,416.52. The wife’s net family property is $211,298.45. The equalization payment would be $10,221,559.04. This assumes that the parties each retain a one-half interest in the matrimonial home.
Unequal Division
[246] The wife’s lawyer submitted that if the contract was set aside, I should award the wife $5,000,000 plus the house. He submitted that this result could be achieved in either of two ways. First, the wife is only seeking $5,000,000. Second, the court could apply s. 5 (6) of the Family Law Act because of the decrease in the post valuation date value of the shares.
[247] The husband’s lawyer submitted that I should apply s. 5(6) both for the reason advanced by the wife’s lawyer and because the shares were gifted to the husband. In his submission, there is no rational basis to distinguish pre and post marriage gifts, although the Family Law Act does so.
[248] Section 5(6) provides:
“The court may award a spouse an amount that is more or less than half the difference between the net family properties if the court is of the opinion that equalizing the net family properties would be unconscionable , having regard to,
(a) a spouse’s failure to disclose to the other spouse debts or other liabilities existing at the date of the marriage;
(b) the fact that debts or other liabilities claimed in reduction of a spouse’s net family property were incurred recklessly or in bad faith;
(c) the part of a spouse’s net family property that consists of gifts made by the other spouse;
(d) a spouse’s intentional or reckless depletion of his or her net family property;
(e) the fact that the amount a spouse would otherwise receive under subsection (1) (2) or (3) is disproportionately large in relation to a period of cohabitation that is less than five years;
(f) the fact that one spouse has incurred a disproportionately larger amount of debts or other liabilities than the other spouse for the support of the family;
(g) a written agreement between the spouses that is not a domestic contract; or
(h) any other circumstance relating to the acquisition, disposition, preservation maintenance or improvement of property.”
[249] The steps for applying s.5 (6) are as follows:
(a) First establish each spouse’s net family property;
(b) Second, apply s.5(1) FLA and determine the equalization payment; and
(c) Third, decide whether it would be unconscionable to equalize net family properties in the circumstances.
(Stone v. Stone , (2001), 55 O.R.(3d) 491 ( C.A.) at para.39)
[250] The onus is on the party claiming an unequal division to establish that an equal division would be unconscionable. (Abdilla v. Abdilla, 2004 CarswellOnt. 4524 (Sup.Ct.) at paras.27 and 28).
[251] “Unconscionability” is a much more difficult test to meet than “fairness” and as a result, the courts have only minimal discretion to order anything other than an equal division of family property. (Ferguson v. Kalupnieks, (1997), 27 R.F.L. (4 th) 437 (Ont. Gen. Div.) at para.19). Unconscionable conduct has been defined as, among other things, conduct that is harsh and shocking to the conscience, repugnant to anyone’s sense of justice, or shocking to the conscience of the court. (MacDonald v. MacDonald, (1997), 33 R.F.L. (4 th) 75 (Ont. C.A.) at para.17; Braaksma v. Braaksma, (1992), 41 R.F.L. (3d) 304 (Ont. Unif.Fam.Ct.) at paras. 12 to 15, aff’d , (1996), 25 R.F.L. (4 th) 307 ( C.A.)
[252] After much consideration, and some hesitation, I have concluded that this is an appropriate case to divide the net family property unevenly. My reasons are as follows.
[253] First, the Ontario Court of Appeal stated in Rawluk v. Rawluk (1987), 10 R.F.L.(3d) 113, that it may be appropriate to consider the application of s.5(6) of the Family Law Act to award an unequal division in a case involving a decrease in the value of the property after the valuation date.
[254] Although ordinarily a post valuation day decrease in the price of shares controlled by a party is not a basis for an unequal division, in this case the husband does not have unencumbered control of these shares. He could not have sold them readily at valuation day. He would have had to offer them first to his siblings and destroyed the family wish that each sibling be equal in their shareholdings. I am satisfied that he did not continue to hold his shares with a view to their increasing in value – an increase, if it occurred, in which the wife would not have shared. Second, although the marriage is greater than five years in duration, it is less than ten years. This is not a long marriage and the wife is still relatively young.
[255] Third, the husband’s role in the company is a relatively minor one. His efforts have not contributed to the value of the shares. The shares were gifted to him. This consideration by itself would not likely trigger a finding of unconscionability, given the legislative scheme which distinguishes pre-marriage gifts from post-marriage gifts. However, where other factors exist, it may be considered because it is a circumstance relating to the acquisition of the property as provided in Section 5(6) (h). Finally, although the husband treated himself better than the family, overall the family lifestyle was more modest than his wealth would have permitted.
[256] In the result, I find that it would be unconscionable to divide the net family property equally. I allow the wife 15% of their net family property (15% x ($20,654,416-$211,298). Based on this, the wife is entitled to an equalization payment of $3,066,467. The husband submitted that his half interest in the matrimonial home could be transferred to the wife. As there was no up to date appraisal at trial, the parties shall have the home jointly appraised and the wife may purchase the husband’s interest therein at one-half the appraised value.
Findings re Child Support
[257] I accept Ms. Brent’s calculation of the husband’s income which I consider reasonable. She was not cross-examined on her report and Mr. DeBresser offered no opinion.
[258] While grossing up the dividends received by the husband at a lower tax rate is not mandatory, it is a circumstance that the court is specifically directed to consider in s.19 (1)(h) of the Child Support Guidelines, Can.Reg./97-175, when imputing income. Whether or not the husband controls the dividend flow is not relevant. So long as the husband receives the dividends, it is reasonable to gross them up for the tax differential. Accordingly, the husband’s yearly income for the purposes of child support is $370,000. He shall pay child support to the wife for two children in the amount of $4,544/month. At present, the only s.7 expenses are camp. The parties’ proportionate shares will be determined after the issue of spousal support has been determined.
Retroactive Child Support
[259] I find that the wife is entitled to be paid by the husband $43,792 for child support plus $3,617 in s.7 expenses accruing prior to trial, based on Ms. Brent’s calculations of the husband’s income and the amounts shown at Tab 8 C, E and H to the Applicant’s Closing Submissions. The camp and hockey expenses incurred prior to trial and paid by the wife are necessary and reasonable, given the means of the parties and their spending pattern prior to the separation.
Conclusion
[260] In the result:
(i) The marriage contract is set aside.
(ii) The $1 million cottage loan is discounted to zero.
(iii) Pursuant to s.5 (6) of the Family Law Act, it is unconscionable to equalize net family properties. The wife is entitled to 15% of the net family property or $3,066,467. The wife may buy the husband’s half-interest in the matrimonial home for one-half of its appraised value.
(iv) The husband’s yearly income for child support purposes is $370,000.
(v) The amount of child support owing to the wife for child support accruing prior to trial is $43,792 plus $3,617 for s.7 expenses.
(vi) The husband shall pay the table amount of $4,544/month to the wife for two children.
(vii) The husband shall maintain the wife and children on his medical and dental plans for so long as he has support obligations for them and his plans permit.
(viii) The husband shall maintain an appropriate amount of life insurance to secure his support obligations and shall designate the wife as the beneficiary in trust for the children.
[261] The issues that remain to be determined are spousal support, pre-judgment interest and costs. Counsel may arrange a mutually convenient date through the trial coordinator to attend to make submissions, if they are unable to agree upon these matters.
___________________________
Backhouse, J.
Released: August 24, 2006
