Canada: Ctrl-Alt-Delete: When Judges Delete Provisions In Your Minutes Of Settlement

The devil is always in the details... especially when you're negotiating the terms of your divorce. The Court of Appeal for Ontario's decision in Assayag-Shneer v. Shneer, 2023 ONCA 14 serves as a reminder of the importance of investing time and energy into drafting minutes of settlement and considering whether the agreement should be made into a court order.

The parties in Assayag-Shneer agreed to the terms of their divorce by signing an agreement, also known as 'Minutes of Settlement.' The agreement provided for the husband's payment of spousal support and included a penalty clause, which would be triggered in the event that the husband failed to pay. If the husband failed to pay the spousal support on time, he would owe double the remaining support outstanding plus $50,000. The terms of the agreement were incorporated into the parties' divorce order.

The husband failed to make the agreed-upon spousal support payments, which triggered the penalty clause, resulting in him owing over $50,000, payable immediately. The husband brought a motion before the court to delete the penalty clause from the order and reduce the amount of support owing on the grounds that there had been a material change in his circumstances. The motion judge found that there was no material change in circumstance, but nonetheless relied on the principles of contract law and concluded that the penalty clause was unenforceable and deleted the clause from the order. The wife appealed the decision.

THE ROLE OF MATERIAL CHANGE IN CIRCUMSTANCES

Under the Divorce Act, a court can vary spousal support orders only if there has been a material change in condition, means, needs, or other circumstances after the order was made. In short, and leaving aside (important) nuance, a material change in circumstances is something that is important, wasn't known at the time the judge made the initial order, and which, if the judge had known it, would have resulted in a different order. Demonstrating a material change in circumstances is required before a court can entertain the possibility of varying a support order.

AGREEMENTS VS. COURT ORDERS

The crucial distinction in this case is between agreements and court orders. Agreements are generally governed by contract law, which encompasses principles such as offer and acceptance, consideration, and the capacity to freely negotiate and enter into contracts.

On the other hand, court orders are legal judgments issued by a court. They differ significantly from private agreements in that they are issued by a judicial authority, and parties are obligated to comply with them, whether they agree to them or not.

In the context of family law, divorce judgments are court orders that often dictate the terms of spousal support, child custody, and other related matters. When parties have the opportunity to negotiate and agree on terms that are subsequently incorporated into a court order, they effectively cede some of their control over the terms of the order to the court. The court has the final say in determining the appropriateness and fairness of these terms.

While parties may have reached an agreement that is subsequently incorporated into a court order, the court order stands as a distinct legal entity. It is no longer a matter of private agreement between the parties, and the principles of contract law do not govern the enforcement or modification of court orders.

In Assayag-Sheer, the divorce judgment was issued by a court after the parties had reached a settlement, and it became a court order upon issuance. This transformation is vital because it means that the court has exercised its authority to determine the terms of the judgment. Once this court order is in place, the parties are legally obligated to adhere to its terms.

THE COMMON LAW DOCTRINE ON CONTRACTUAL PENALTIES

Under common law, penalty clauses in contracts are generally considered unenforceable unless they constitute a genuine pre-estimate of damages. The doctrine surrounding contractual penalties is based on the principle that penalties should not be used to punish a party for failing to meet their contractual obligations. Instead, damages should be compensatory in nature, reflecting the actual loss suffered by the innocent party.

In the context of family law agreements, this doctrine can apply when parties enter into private agreements but is not directly transferable to court orders. Once an agreement is incorporated into a court order, any contractual remedy under the common law is lost. Questions of whether a clause in a family law agreement is valid must be raised before it is incorporated into an order. After an order containing the clause is issued, the entire order is presumed to have been made in accordance with the law of contract.

THE APPELLATE DECISION

The Court of Appeal for Ontario reinstated the penalty clause, finding that the motion judge did not have the authority under the Divorce Act to vary an order if there was no material change in circumstance. The common law doctrine of contractual penalties also did not apply since the Minutes of Settlement had been read into a court order. If the husband wished to avoid the enforcement of the penalty clause, he should have addressed it at the time the Minutes of Settlement were incorporated into a court order.

CONCLUSION

Assayag-Sheer presents a cautionary tale for those wishing to include a penalty clause in the terms of a family law agreement. When parties reach an agreement that is subsequently incorporated into a court order, the order becomes paramount. It is essential that lawyers understand the different treatment that may apply if an agreement is left as is, or incorporated into a former court order.