In May of this year, the Ontario Court of Appeal strengthened the authority and importance of arbitration clauses in valid separation agreements, by ruling that it will not vary spousal support in situations where the agreement explicitly provides a clause for doing so through arbitration.
The parties separated and attended mediation where they entered in a separation agreement providing that the husband would pay spousal support in the amount of $8,500.00 per month.
The separation agreement provided that in the case either party seeks to vary the amount of support, the mediator will be appointed as the mediator/arbitrator pursuant to the mediation/arbitration agreement.
In March 2010, the husband informed his wife that he was planning on retiring as a partner at his law firm, however he would continue to act as counsel for the firm with a reduce income.
In September 2010, the parties attended mediation, however, it failed. In February 2011, the husband stopped paying spousal support to his wife altogether. As a result, the wife filed the separation agreement with the Court pursuant to s. 35(1) of the Family Law Act (“FLA”) in order to enforce its terms.
In June 2011, the husband filed an application with the court seeking to vary or terminate his obligation under the separation agreement to pay spousal support. In September 2011, the Family Responsibility Office (“FRO”) notified the husband that his support arrears totalled $61,212.39, and that the Director would be taking steps to suspend his driver’s license.
The husband then brought a motion under s.35 (1) of the Enforcement Act for an order that the FRO refrain from suspending his driver’s license. His motion was granted and he was ordered to pay $1,400.00 per month for spousal support pending the hearing of his application to vary payment.
The wife brought a motion to dismiss the husband’s application and argued that the Court lacked jurisdiction as the separation agreement explicitly stated that the parties were to deal with support variations by way of arbitration. The motion judge dismissed the wife’s summary judgement and, as such, the wife appealed that dismissal.
The Appeal Court disagreed with the lower Court, stating that a Court does not have jurisdiction to vary the amount of spousal support in a valid separation agreement contrary to an exclusive arbitration provision, if the payee spouse filed the agreement for enforcement under s. 35 of the Family Law Act.
Section 35 of the FLA states:
(1) a person who is a party to a domestic contract may file the contract with the clerk of the Ontario Court of Justice or of the Family Court of the Superior Court of Justice together with the person’s affidavit stating that the contract is in effect and has not been set aside or varied by a court or agreement.
(2) a provision of support or maintenance contained in a contract that is filed in this manner,
(a) may be enforced;
(b) may be varied under section 37…
…as if it were an order of the court where it is filed . . .
(4) Subsection (1) and clause (2) (a) apply despite an agreement to the contrary.
Section 37 of the FLA provides for an application to the court for variation of an order made or confirmed under Part III of the FLA.
The husband argued that the FLA specifically permits a variation application to the court where a domestic contract is filed with the court under s. 35(1) even where the contract contains an exclusive arbitration clause.
However, the Judge dismissed this idea by stating that s.35 of the FLA does not replace the parties’ agreement in a domestic contract to arbitrate rather than litigate disputes about varying spousal support. He stated that s. 35(4) of the FLA does not apply to s. 35(2)(b) (the variation provision) and with reason. Support payments are not self-executing and therefore parties need a mechanism by which to enforce payments – the Court. However, when there is an agreement already in place regarding how the parties are to deal with varying such support, this is not the jurisdiction of the Court.
In the alternative, the husband argued that the interpretation of s. 35 of the FLA does not apply where the FRO has initiated the process to suspend the payor’s driver’s licence.
The husband sought an order under s. 35(1) of the Enforcement Act that the Director of the FRO refrains from suspending his licence. That section provides:
35. (1) If a payor is served with a first notice under section 34 and makes a motion to change the support order, the payor may also, on notice to the Director, make a motion for an order that the Director refrain from directing the suspension of the payor’s driver’s licence under subsection 37(1), on the terms that the court considers just, which may include payment terms.
The Court rejected this argument and instead stated that the s. 35 of the Enforcement Act can be read harmoniously with s. 35 of the FLA. It confirmed that if the FLA does not allow the parties to avoid their promise to use private arbitration as the exclusive means of settling disputes neither does s. 35 of the Enforcement Act.
Along with other reasons the Court reached this conclusion by illustrating a possible situation where parties sign a domestic contract which includes a clause for exclusive arbitration to vary terms. If one spouse wants to change the terms and does not want to go to arbitration, that party could just default on its obligations and hope that the other party files the contract for enforcement under s. 35 of FLA. If the party does file, the FRO can attempt to enforce the contract by suspending the defaulting party’s licence, resulting in the defaulting party bringing a motion to vary the underlying obligation, thus circumventing the arbitration agreement altogether.
In another scenario, if parties are aware of the above mentioned scenario they might be reluctant to submit their domestic contract for enforcement, as there is a possibility the party would risk losing the negotiated terms of their agreement.
By allowing the wife’s appeal, the Court reinforces the importance of arbitration clauses in Family Law by not allowing parties to simply run to the Court, try and find loopholes, and ultimately escape a valid agreement between both parties.