Arbitration Clauses in Separation Agreements – Appeal Court Confirms Priority
Fairly recently, the Ontario Court of Appeal handed down a decision that provides important clarification on the topic of arbitration clauses contained in negotiated separation agreements.
In Grosman v. Cookson, the spouses had separated in 2001 after 34 years of marriage. They agreed to participate in mediation to settle their issues, and this resulted in a freely- negotiated and comprehensive separation agreement that stipulated that the husband would pay the wife $8,500 per month in spousal support. The agreement also provided that in the event that either of them wanted to vary that particular aspect of the agreement, the issue would be settled through the use of a mutually-appointed mediator/arbitrator, rather than through the intervention of the court. (This is known as an “exclusive arbitration” clause).
After their formal divorce in 2004, the husband paid spousal support to the wife as agreed. However, the husband (who happened to be a lawyer), announced in 2010 that he intended to retire from full partnership at his law firm, but was planning to stay on as counsel to the firm, with a reduced income. This change triggered his desire to vary the support he had been paying to the wife, so a few months later they attended mediation. Unfortunately, they were unable to come to terms.
In early 2011, the husband stopped paying support entirely, and eventually owed her arrears of more than $60,000. The wife reacted by taking several legal steps: she filed the separation agreement with the Court, and asked that its terms be enforced by way of court order. She also took steps to have the agreement enforced by the Family Responsibility Office (“FRO”). Lastly, in response to the husband’s application to vary, the wife went to court to try to have that application dismissed; she asserted that the parties’ rights and obligations to each other in connection with variation disputes were already governed by the separation agreement, specifically by the exclusive arbitration clause.
At first, the judge dismissed the wife’s summary judgment application; however, she appealed to the Court of Appeal, and was successful.
In overturning the initial ruling, the Ontario Court of Appeal found that the negotiated separation agreement governed in this case. Because it clearly and specifically included the exclusive arbitration clause, and because it envisioned the particular circumstances that took place here (i.e. that the wife would file the separation agreement with the FRO), the court had no jurisdiction to hear the variation application at all.
Nothing in the relevant provisions of the Family Law Act (which allowed for the separation agreement to be filed and enforced by the FRO) could be read as intending to oust the right of the spouses to mandate for themselves the use of mediation to solve their variation-of-support disputes. Rather, their decision to include an exclusive arbitration clause in the separation agreement should be given full legal effect, without court interference. Indeed, on policy grounds the court emphasized that such arbitration clauses were an important and worthwhile means by which spouses could mutually agree to resolve their differences without recourse to time-consuming and expensive avenue of the court process.
For the full text of the decision, see:
Grosman v. Cookson, 2012 ONCA 551 http://canlii.ca/t/fspzb
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