Law Times

Law Times • November 9, 2015 Page 11 www.lawtimesnews.com The rise and fall of the downside clause BY JUDY VAN RHIJN For Law Times hile common in separa- tion agreements, the in- clusion of a catastrophic change clause isn't obliga- tory in a marriage contract, according to a recent Court of Appeal decision. The case clarifies that family lawyers aren't business advisers and they don't need to canvas the likelihood of failure of their clients' investments, particularly when they have much more experience in financial affairs than their counsel do. The case of Rider v. Grant involved a marriage contract between a wealthy en- trepreneur and his ex-wife. Mark Rider alleged his net worth had decreased to approximately $18 million at the date of separation from $40 million at the time of the marriage and sued his legal adviser, Stephen Grant, for negligently failing to include a downside clause. Among the relevant features of the case was the fact that Rider had wanted to have certainty in the event of a breakdown of the rela- tionship after two failed marriages and had refused to provide financial disclo- sure. Other features included the absence of a retainer or other written records con- firming Rider's instructions and Grant's advice. Paul Pape, who successfully represent- ed Grant, explains the absence of written evidence. "Mr. Rider's instructions were that he was going to do the negotiation himself. He wanted a template to take to the wife. He would negotiate with the wife himself and then run it by Stephen. It's not a case where Grant would say: 'Here is how I'm proposing to put your instructions into effect.' The business deal between them was Rider's idea." Pape admits the situation did leave his client open to the lawsuit. "The only real club used by the other side was that the law says that lawyers should memorialize everything. With 20/20 hindsight, you can say that you should write everything down so that you don't get into a credibil- ity contest. The way it played out, Rider was able to tell his story that he was a naïf in the world of family law, although this was patently untrue." Patrick Schmidt, a partner at Thom- son Rogers, believes any lawyer or even a layperson reading Justice Darla Wilson's decision would conclude there wouldn't have been a case if there had been a writ- ten record. "It's a very important lesson conveyed by Justice Wilson to every law- yer practising, not just in family law but in any other context. She made the im- portance of a detailed retainer very, very clear. Over and above that, there should be a letter to the client after the first ap- pointment that clearly sets out what the client's intention is, what was reviewed for the marriage contract, and what it included. Even if you don't take that step following the signing of the retainer, there should be communication and writing of reasons and, ultimately, a very detailed reporting letter. If you don't record exact- ly what happened, it comes down to the lawyer's word against the client's word, as it did in this case." Schmidt points out that it's not a case of lawyers protecting themselves from their clients. "It's that people have a dif- ferent recollection of what is discussed, particularly in family law where there is not one single issue. It's no differ- ent whether it's a marriage contract or a property settlement. It's very precarious for a lawyer to have these oral conversa- tions if you don't record your instruc- tions and the advice you gave." When it comes to the inclusion of a downside clause, many lawyers say it's not a common expression. "I felt really gratified that the experts in the case had never heard that term because I never had," says Schmidt. In fact, the experts all referred to that type of clause as a catastrophic change clause. But Schmidt points out the whole con- cept of a catastrophic change clause is the antithesis of the purpose of a marriage contract: certainty. "Even in a separa- tion agreement, if you want to protect the downside, it's not a one-way street. The other side says, 'I want protection on the upside.' Mr. Rider's greatest primary goal was not to make full disclosure. Putting a downside clause in would guarantee the need for disclosure and a necessarily detailed analysis of net worth at the time of separation in order to trigger the cata- strophic change clause. His suggestion has to be looked at as disingenuous." Pape is of the same opinion. "The problem with using a catastrophic change clause in this case was that it would have opened up negotiations and allowed the wife to say, 'I've had a catastrophic change,' or, 'I want an upside clause.' This case was framed in chutzpah and the judge saw through it." According to Pape, the case offers a larger lesson. "Acting for the wealthy in the world of family law is like walking across a minefield in the demilitarized zone. This case proved it." Schmidt believes it also serves as a warning about marriage contracts in general. "I have not done marriage con- tracts for five or six years. They are, un- fortunately, part of our social fabric but they are a time bomb waiting to go off. What other type of contract is based on the law as it exists now, knowing that the law in 10 years' time will be differ- ent? Twenty years ago, a release of spou- sal support was a bankable release. Then the Supreme Court got its hands on the Miglin [v. Miglin] case and it's no longer a solid release. There can be legitimate reasons for a marriage contract but not as an instrument of oppression or limiting someone's claim." LT FOCUS Federa 201 2016 National Family Law Program St. John's Newfoundland and Labrador July 11 - 14, 2016 Location: New St. John's Conference Centre July 10 Conference Of ce opens and late afternoon reception On line conference registration is now open! Registration fees include entrance to the conference, all program materials and light refreshments. Call to the Bar prior to 2011 registration fee is $850 plus 13% HST Call to the Bar after 2011 registration is $650 plus 13% HST All program material will be provided to registrants online. The material can be accessed on your mobile device during and after the program, and is available online for a period of two (2) years after the closing date of the program. Block room rates have been negotiated at the Delta St John's Hotel, which is connected to the new convention centre where all the program sessions will be held (rates apply 3 days pre and post conference). You can also contact the Delta St. John's at 1.709.739.6404 or book through the link on the website listed below. The conference centre is located within walking distance of restaurants and shops. Please refer to the Federation of Law Societies of Canada website www. sc.ca then click on the link to the National Family Law at the bottom of the home page for further information on registration, accommodation and tourism. Federation of Law_LT_Nov9_15.indd 1 2015-11-04 1:40 PM W 'I have not done marriage contracts for five or six years,' says Patrick Schmidt.

• Cover