The Ontario Court of Appeal has reinforced the validity of arbitration provisions with its decision late last month that it won’t vary spousal support in cases where there’s a separation agreement containing an exclusive arbitration clause.
“I think there would have been a very serious mischief had the court not intervened,” says Harold Niman, a family lawyer at Niman Zemans Gelgoot LLP in Toronto, who acted for Penny-Lynn Cookson.
“It’s very important that courts respect agreements between parties,” says family lawyer Philip Epstein, a partner at Epstein Cole LLP.
“It clearly reflects the court’s desire to permit parties to manage the resolution of their issues outside of court if they so contract,” says Robert Halpern, head of the family law group at Torkin Manes LLP.
The case arises from the end of the 34-year marriage between Brian Grosman and his former wife, Cookson. The couple entered into a separation agreement in February 2004 that set out that Grosman would pay spousal support of $8,500 per month.
Another term of the agreement is that if either party seeks to vary the amount of support, Stephen Grant would act as the mediator or arbitrator.
On March 30, 2010, Grosman advised Cookson of his intention to retire as a partner from his law firm at the end of the year and proposed a variation of spousal support. The parties attended mediation in September 2010. The effort failed.
On Feb. 1, 2011, Grosman stopped making spousal support payments, the appeal court ruling noted. As a result, Cookson filed the separation agreement with the court with a view to enforcing its provisions under s. 35(1) of the Family Law Act.
The director of the Family Responsibility Office subsequently notified Grosman that he must make support payments to it. On June 14, 2011, Grosman brought an application to the court to vary or terminate spousal support.
On Sept. 6, 2011, the Family Responsibility Office sent a notice to Grosman indicating support arrears totalled $61,212.39 and that the director would take steps to suspend his driver’s licence.
Grosman then brought a motion under s. 35 of the Family Responsibility and Support Arrears Enforcement Act for an order that the director refrain from suspending his licence.
The court granted the motion and required Grosman to pay $1,400 per month in support pending a hearing of his application to vary support.
Cookson subsequently brought a motion to dismiss Grosman’s application to vary support. She argued the court lacked jurisdiction because the separation agreement required the parties to deal with the issue by way of arbitration.
The motions judge stated that because Cookson sought the benefit of the enforcement provisions under the Family Law Act, she couldn’t argue the court had no jurisdiction to vary spousal support.
There was also the fact that a condition of the order directing the Family Responsibility Office to refrain from suspending Grosman’s licence was that he also seek to vary the support order.
Therefore, the motion judge concluded he had jurisdiction to hear the application to vary support and dismissed Cookson’s motion for summary judgment.
The appeal court disagreed, holding that the Family Law Act allows parties to contract out of the court variation procedure under s. 37 but doesn’t allow them to contract out of the ability to file a domestic contract and have it enforced by the court under s. 35(1) and (2)(a).
Associate Chief Justice Dennis O’Connor, writing for the court, stated that an “agreement to pay a specific amount of spousal support is not self-executing.
The parties require an enforcement mechanism to ensure that each is kept to the bargain. However, it remains open to the parties to contract for exclusive arbitration to vary the substantive terms. In such cases, the court may enforce the domestic contract as it finds it.”
The court noted that to hold that s. 35 of the Enforcement Act allows the court jurisdiction to vary would create perverse incentives.
Specifically, it would lead to scenarios where parties enter into a domestic contract that contains an exclusive arbitration clause, but if one of them wants to vary the terms without going to arbitration, that spouse has an incentive to default on the support obligations and hope the other party seeks enforcement under the Family Law Act.
Then, when the Family Responsibility Office attempts to enforce the contract, the defaulting party can bring a motion to the court to vary the support obligation, thereby circumventing the arbitration agreement.
The appeal court didn’t agree with this interpretation of the Enforcement Act, indicating that this “may lead to a chilling effect on spouses submitting their contracts for enforcement.”
Epstein says it didn’t strike him that seeking to enforce a support agreement would vitiate the requirement to arbitrate the matter. He believes the appeal court analyzed the problem correctly.
“Obviously, it’s an important case to those of us who practise family law,” says Niman, who notes parties in family law cases are increasingly using mediation and arbitration.
Grosman’s counsel, R. Steven Baldwin, thinks this is “a new and important decision,” but for different reasons.
He suggests the effect of the appeal court’s decision is that if the Family Responsibility Office seeks to suspend a driver’s licence as a means of enforcement and there’s a private arbitration agreement, the arbitrator can prevent it from doing so.