Practicing in the Danger Zone

Yvonne Bernstein

Agenda

Focus today is on domestic contracts Why they are the “danger zone” of family law How clients (and lawyers) find themselves in the danger zone/lessons

learned Best practices

Background

What statistics show us about the breakdown of family law claims Charts: Percentage breakdown of family law claims by categories Cost associated with each of the categories Underlying causes of claims

Family Law Claims Categories

Categories by Cost

Underlying Causes of Claims

Recap

2 primary danger zones: domestic contracts and settlements Combine: 42% by count and 60% by cost Domestic contracts: 22% by count and 42% by cost Communication errors account for 42% of the claims

The FLA

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

The FLA

(c) otherwise in accordance with the law of contract.

s. 33(4) : The court may set aside a provision for support or a waiver of the right to support in a domestic contract…if the provision for support or the waiver results in unconscionable circumstances.

Discussion today is focussed on s. 56(4)

LeVan v. LeVan

Marriage contract set aside under s.56(4) FLA Husband failed to disclose, provided misleading financial

disclosure Wife did not receive effective/accurate ILA Wife did not understand nature and terms of the contract/

husband misrepresented nature and terms of the contract Trial judge found (Court of Appeal agreed) that

LeVan v. LeVan

in light of all the foregoing, it was appropriate to set aside the marriage contract

Wife awarded equalization payment of $5.3 million Egregious circumstances of this case have inspired countless

challenges to domestic contracts

The Danger Zone

Most common pathway: lack of disclosure/inadequate disclosure leading to client either paying or receiving less than they could or should have received

Importance of financial disclosure: “We should not need any more lessons or case law about financial disclosure. The courts have made it abundantly clear that there are two important things to remember. First, there is an obligation

The Danger Zone

for full, frank and complete financial disclosure and, secondly, the financial disclosure must be accurate. They are not complicated principles, but it is staggering how many cases turn on the parties not fulfilling those duties.”

Rick v. Brandsema: duty to make full and honest disclosure is required to protect the integrity of the result of negotiations

The Danger Zone

Rick v. Brandsema: the best way to protect the finality of any negotiated agreement in family law is to ensure both its procedural and substantive integrity in accordance with the relevant legislative scheme

In the absence of full disclosure, not only is procedural integrity compromised, it is impossible to assess the substantive integrity of the agreement

The Danger Zone

and how far it departs from the statutory objectives How do potentially flawed contracts come into existence? – why

do clients enter into them and why do lawyers act for those clients?

Several cases discussed in written materials which shed some light on this question

Typical scenario: client retains lawyer to

The Danger Zone

document, in the form of an agreement, a deal they have negotiated directly with their spouse

Time is of the essence, they are satisfied with the terms, they do not want further negotiation, they know all the details of the financial circumstances of the parties

Once the dust settles and the pressures of the moment have dissipated, regret often develops

The Danger Zone

Typical example: Marcus v. Cochrane Parties agreed between themselves to the terms and prepared

their own draft agreement Client had already entered into a binding agreement for the

purchase of a new home Bank required a signed separation agreement providing that the

client would receive $87,000 for her share of the equity of the matrimonial home

The Danger Zone

and that neither party owed spousal or child support to the other Lawyer advised client against signing the agreement w/o

obtaining financial disclosure, warned against the release of spousal support and recommended a partial or interim agreement to address the bank’s immediate requirements with a final agreement to follow after financial disclosure

The Danger Zone

Client confirmed her intentions to enter into a final agreement containing the same terms as the original agreement (with a few modifications)

One year later: client tried, unsuccessfully, to have the agreement set aside and then commenced an action against her lawyer

The result: action dismissed with costs, decision upheld on appeal

The Danger Zone

Where a lawyer gives appropriate advice to a client who chooses not to accept such advice, she cannot later assert that the lawyer was negligent for not forcing her to listen

A client has the right to enter into an improvident agreement so long as the client is aware of the consequences

The Danger Zone

Marriage contracts: the ticking time bomb Toscano v. Toscano: 18 year marriage, contract signed 11 days

before wedding following a period of negotiation between the parties and their respective solicitors

Wife tried to have the contract set aside on the basis of lack of disclosure, lack of understanding as to the nature/consequences of the agreement,

The Danger Zone

unconscionability, undue influence, duress, misrepresentation and lack of ILA

Result: action dismissed as all of the wife’s allegations were proven to be unfounded and her testimony lacked credibility

Both lawyers testified at trial Wife’s lawyer had a well documented file with notes and sent a

reporting letter which refuted the

The Danger Zone

allegations made by the wife The moral of these stories: a client’s perception and recollection

often becomes distorted with the passage of time A well documented file is worth it’s weight in gold If you have acted on a contract which is subsequently challenged,

you will be a witness and you should not act

The Danger Zone

One or both parties will seek access to your file Issues of privilege will need to be addressed You may be asked to toll a limitation period or an action may be

commenced against you Report to LawPRO as soon as possible

Drafting Errors

What happens if a contract contains a drafting error? Stevens v. Stevens: parties entered into marriage contract to

promote reconciliation Wife intended for the husband to receive one half the value of

the matrimonial home if they separated Contract as drafted said husband to get the value

Drafting Errors

But lawyer’s cover letter said wife wanted to give husband one half the value

Contract signed – no effort made by husband or his lawyer to clarify the discrepancy between the clause and the letter

Wife sought to set aside the contract or to rectify the clause; husband sought to uphold contract

Husband aware that the contract contained a

Drafting Errors

mistake and he took advantage of the mistake Parties were not as idem and the contract was void ab initio Husband acted in bad faith, acted unreasonably, refused to accept

reasonable offers Husband ordered to pay $925,000 to wife and $400,000 to our

insured/LawPRO

Best Practices

Assume that every domestic contract will be challenged andpractice accordingly

Keep a comprehensive checklist in each file and refer to it whendrafting the contract

Use the LawPRO Domestic Contracts Tool Kit which containsuseful checklists and reminders

Systems and checklists need to be used consistently and diligently

Best Practices

Wrap up the file – do not leave loose ends dangling - assign responsibility and confirm – diarize to keep track of follow up items

Confirm, report and document important decisions, steps, instructions

Know your limits

Last but not least…..

Make sure you have sufficient insurance Take the time to review your policy Assess your ongoing needs in the context of retirement,

appointment to the bench, etc. Please do not destroy your files!

Thank You!