Setting aside an “unconscionable” separation agreement in Rick v. Brandsema 2009 SCC

Ms. Rick and Mr. Brandsema were married in 1973. They separated in February 2000 and divorced in January 2002. In December, 2001, they signed a separation agreement, the validity of which was the subject of this case.

Over the course of their marriage, the parties acquired land and established a dairy farm, Brandy Farms Ltd., to which they were equal shareholders. They had five children, one of who died in early childhood. During the marriage, the wife was primarily a homemaker, but also contributed to the operation of the farm.

At the time of separation, it was the parties’ undisputed intention to divide their assets equally. The parties entered into negotiations when the wife was mentally unstable and the husband was aware of this fact. The wife retained a lawyer in October 2000 to commence the divorce proceedings. In February 2001, the parties engaged the services of a mediator, who prepared a “memorandum of understanding.” This memorandum stated that the husband would keep the farm and another business and the wife would retain the house and receive the sum of $750,000.00 as an equalization payment. The wife’s lawyer then made several request to the husband’s lawyer for the production of a financial statement. The parties then entered into discussions with a new mediator in the fall of 2001 at which time the husband provided his financial statement. A second memorandum of understanding was agreed to which was substantially the same as the first one.

Before signing the separation agreement, the husband organized the necessary transfers of property. The resulting transaction involved the transfer by both husband and wife of all the shares to a new company that would be indirectly controlled by the husband. The wife was to receive $750,000.00 in an equalization payment less $19,000.00 in accounting services fees. A separation agreement was signed in December 2001.

In March 2003, the wife sought to set aside the separation agreement and related share transfer agreement on the grounds of unconscionability and misrepresentation.

The husband argued that the wife’s negotiating tactics were deliberate and manipulative. The trial judge rejected the arguments of the husband, finding that at the time of separation the wife had a serious mental condition and that the husband had exploited this condition to obtain a settlement that was inequitable. It was revealed at the trial that the husband had engaged in several dishonest behaviours at the time of separation. He had written a cheque to himself from the parties’ joint account for the sum of $79,954.36. He had advanced $154,000.00 to the wife’s brother, who was a close friend of his. In addition, the trial judge concluded that the husband had knowingly presented misleading financial information to the wife during the negotiations. For example, he significantly underrepresented the value of two additional properties in which the parties had a one-half interest and exaggerated the corporate debt figure.

The trial judge concluded that the separation agreement was unconscionable as the husband had taken advantage of his wife’s vulnerabilities resulting in an equalization payment that fell $649,680.00 short of the wife’s entitlement under B.C. legislation. The trial judge’s remedy for unconscionably was to order the husband to pay the wife an amount representing the difference between the negotiated equalization payment and the wife’s entitlement under the B.C. legislation.

The Court of Appeal allowed the husband’s appeal and reversed most of the trial judge’s decision concluding that the wife knew what she was doing when she signed the separation agreement. The Court of Appeal concluded that the trial judge failed to consider the wife’s failure to avail herself of professional assistance.

The Supreme Court of Canada allowed the wife’s appeal and restored the trial judge’s decision. It concluded that the trial judge’s findings of fact were well supported. The Supreme Court reiterated the importance of giving deference to a trial judge’s findings of fact since a trial judge is in the best position to assess the facts of a case. It also concluded that the presence of professional assistance did not automatically neutralize the wife’s vulnerabilities, as the Court of Appeal had suggested. Rather, they agreed with the trial judge who felt that the wife’s emotional and mental condition left her unable to make use of such assistance.

The Supreme Court warned that due to how emotionally charged matrimonial matters are, special care must be taken to ensure that negotiations between spouses are fair and free from “information and psychological exploitation.”

They referred to the landmark case of Miglin v. Miglin 2003 SCC in which the court had stated that due to the uniqueness of the negotiating environment, bargains between spouses on marriage breakdown should not be subject to the same rules as those applicable to commercial contracts. In order to safeguard contracts entered into by spouses, a spouse must refrain from exploitative tactics.

In the case of Brandsema, the Supreme Court agreed with the trial court that the husband had engaged in exploitative conduct. He failed to make full and honest disclosure and took advantage of his wife’s mental instability. As such, the resulting separation agreement was found to be unconscionable.

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