Jul 30, 2014

High Bar for Bifurcation

Lakhoo v Lakhoo, 2014 ABCA 98 (CanLII)

Originally published July 24, 2014

An application for leave to appeal to the Supreme Court of Canada from the decision of the Alberta Court of Appeal in Lakhoo v Lakhoo was recently denied. The Court of Appeal had overturned the decision of Madame Justice Horner of the Court of Queen’s Bench to bifurcate (or sever) the issues of the validity of a pre-nuptial agreement from the remainder of the issues in question.

The Lakhoos were married in 1995. At the time of their marriage, they entered into a pre-nuptial agreement as contemplated under the Matrimonial Property Act. The pre-nuptial agreement waived the parties’ rights to division of matrimonial property in the event of a divorce. It had no provisions with respect to spousal support. Mrs. Lakhoo challenged the validity of the pre-nuptial agreement on the basis that, despite receiving independent legal advice before signing it, she never in fact read the agreement and was under duress when she signed it.

Mrs. Lakhoo brought a claim for further disclosure of financial records by Mr. Lakhoo in order to determine the issues of division of matrimonial property and spousal support. Mr. Lakhoo sought to sever the issue of the validity of the pre-nuptial agreement from the issues of division of property and support. Madame Justice Horner found that since the question of division of property hinged on the validity of the pre-nuptial agreement, the validity issue ought to be bifurcated from the remainder of the issues.

The Court of Appeal disagreed, finding that the issue of spousal support would require full disclosure in any event and therefore bifurcation of the issues would not save any time or resources. It re-iterated the test for bifurcation that the savings anticipated by severing an issue should be clear, or at least probable.

The Court of Appeal’s decision, and the rejection of leave to appeal by the Supreme Court of Canada, reinforce the high bar that must be met by a party seeking to bifurcate or sever an issue to be tried separately. As the Court of Appeal noted in its decision in Edmonton Flying Club v Edmonton Regional Airports Authority, “severing the trial must be likely to result in disposing of all or part of a claim, or substantially shortening the trial, or saving expense, or some combination thereof.” In that case, the Court also noted that the anticipated increase in speed, efficiency and economy in a severed trial are often not realized.

Parties contemplating the severing of an issue to be tried first should keep in mind that such a procedure is exceptional. It will typically be appropriate only where the issue sought to be severed is determinative of a major issue, such as liability, or where the entire trial depends on the determination of a single issue.

As a side note, this case also highlights the importance of strict compliance with the Matrimonial Property Act during the signing of a pre-nuptial agreement. The party who requires such an agreement must also take extra care to ensure that there can be no implication that they coerced the other party during the signing process. Where there is any factual basis for a party to a pre-nuptial agreement to argue they were under duress or coerced, enforcing the pre-nuptial agreement can become an expensive proposition, even if the agreement is ultimately upheld.

Finally, it is worth noting that the pre-nuptial agreement in this case was not comprehensive. Had the agreement covered all aspects of a potential divorce, expensive litigation may have been avoided. Certainly, the likelihood of successfully severing the issue of the validity of the agreement would have been significantly higher.