Setting Aside Agreements Respecting Property and Debt Division (Part 2)
Part One of this article considered the circumstances in which a separation agreement governing the division of property and debt may be set aside by the court on grounds such as improper disclosure or advantage obtained by one party giving rise to significant unfairness. Part Two considers common law grounds that may also invalidate an agreement on the basis of it being significantly unfair.
Section 93(3) (d) of the FLA is essentially a catchall provision that permits the court to set aside or replace a previous court order on common law grounds (i.e. judge made law). Common law grounds may include: mistake, duress, or lack of capacity.
At law there are three types of mistakes: common, mutual and unilateral. Common mistake occurs when both parties operate under the same misapprehension. For example, a spouse intends to sell a painting that unbeknownst to both spouses has been damaged and both parties are unaware of its present condition. Mutual mistake occurs when both parties have made a mistake but their mistakes are different, while unilateral mistake involves only one party: Hannigan v Hannigan, 2007 BCCA 365. In practice, mutual and/or common mistake are often used interchangeably. Generally, the courts are more inclined to set aside an agreement based on mutual or common mistake on account of a failed “meeting of the minds” and thus the contract is void ab initio (i.e. invalid from the outset).
Examples of common/mutual mistakes warranting setting aside an agreement include:
- spouses operating under the mistaken belief as to the amount of equity in their property: Brandt v Brandt,  B.C.J. No. 448 (QL) (S.C.)
- spouses operating on the misapprehension that one party did not have an interest in a company: Hannigan v. Hannigan, 2007 BCCA 365.
However, there are limits. The court has been clear that a unilateral misapprehension of facts or law will not on its face immediately call into question the validity of a settlement agreement: Akenhead v Akenhead, (2000) BCCA 249 – particularly, if a spouse who seeks to have an agreement set aside is in some manner the author of his/her own misfortune. For example, a spouse initially fails to properly ascertain an asset’s true value and subsequently raises a legal argument on the basis of the harm the spouse now suffers. In this situation, the court will be less apt to assist the spouse by setting aside an agreement to benefit them on account of their earlier inattention or carelessness.
The courts have defined duress as being any “form of oppressive contractual conduct directed by one party towards another to compel them to act to their disadvantage”: G. (G.C.) v. T. (M.J.), 2016 BCSC 1277. To establish a claim of duress a party will need to show that he/she did not enter into a separation agreement of their own free will. The courts have distinguished between two types of duress: emotional and economic.
Emotional duress is the notion that a party’s mental or physical liberty is under attack. Importantly, the courts in British Columbia have held that emotional distress is insufficient to establish emotional duress. A party alleging emotional duress must show that they were facing – what the courts characterize as –“emotionally oppressive conduct” under the threat of physical harm or imprisonment to themselves or that of their family members.
Separately, advancing a claim of economic duress must demonstrate that they were subject to urgent and compelling economic pressures that which vitiated their ability to consent to the agreement: Jonasson v. Jonasson,  B.C.J. No. 1052 (QL) (S.C.).
In resolving whether economic duress is proven the court will consider the following factors as set out in Gordon v Roebuck, ( 1992), 9 O.R. (3d) 1 (C.A):
- Did the party protest the signing the agreement?
- Was an alternative option available to the party?
- Did the party receive independent legal advice?
- After entering into the agreement did the party take steps to avoid it?
Lack of Capacity
Legal capacity is a concept that a person has the attributes to govern his or her own personal, financial and legal affairs. If a person does not have soundness of mind or capability to appreciate decisions made about their personal or financial affairs it may be said that he or she lacked capacity.
Proving that a party lacked capacity is not without challenge. There must be compelling evidence (often in the form of medical opinion) that a person was incapable of understanding the terms of the agreement. Case authorities in British Columbia suggest that alcohol or drug addiction is generally not enough to show that a person lacked of capacity. Something more is required, such as evidence of a chronic cognitive impairment or other mental infirmities such as severe depression.
To be sure, setting aside a separation agreement on common law grounds is a highly fact specific exercise that requires forceful evidence. In all cases, the onus remains on a party seeking to set aside a separation agreement on grounds of mistake, duress, or lack of capacity to convince the court that it is justified in the circumstances.