February 8, 2024
In a previous article, we explained the concept of “clean hands” and how equity will not assist someone who the court decides had “unclean hands”. This brings back memories of debates with mothers over just how clean hands had to be.
The Ontario Court of Appeal considered this in a case impacting family and corporate law. In Hrvoic v Hrvoic, the spouses were also joint shareholders in a very successful corporation. The wife withdrew $600,000.00 from corporate funds after her husband cut off her normal income. The issue became whether or not , in the valuation of the company, these amounts had to be added back in and divided.
The Court found that the doctrine of clean hands did not apply for three reasons:
- There was no equitable relief involved.
- The withdrawals were unrelated to the proper division of shares.
- “the “clean hands” doctrine does not automatically disentitle a party with “unclean hands” from obtaining any relief”.
Because of the first two reasons, the comments about the reach of the clean hands doctrine – the third point- was not strictly necessary. This weakens the strength of the comment as a binding precedent, but , on the other hand, the Court obviously wanted to send out a message. They spotlighted an earlier 2005 decision which stated : “It is a matter of discretion for the trial judge whether to refuse to grant equitable relief on the basis that a litigant has not come to court with clean hands”.
Almost as if they were trying to send a message.
As the Court points out, it is important to appreciate that : “Equitable principles are not based on the application of strict rules but are applied at the judge’s discretion and are “crafted in accordance with the specific circumstances of each case”.
As the trial judge had considered the facts as carefully as a mother checking hands before dinner, the Court of Appeal upheld the ruling. The complex family dynamics in play in the case was an excuse for the wife’s conduct- the husband had started by denying his wife her normal income. In the face of suddenly having no income, the wife did what you might expect someone to do. It might not have been right, but in this case, both parties were equally wrong.
TAKEAWAYS
- “Clean hands” do not need to be spotless.
- Sometimes, what matters is why your hands look dirty.
- This is no reason to risk a bad result.
- Two wrongs do not usually make a right.
- But if you did wrong for good reason, you might be forgiven.
HOW WEILERS LLP CAN HELP YOU
When you structure and perform a transaction, or are involved in a family breakdown, the lawyers at Weilers LLP can give you sound advice as to how to keep your hands clean.
If, in spite of this, you find yourself accused of having hands that are not clean, we will respond with the appropriate arguments. We have the virtue of our counsel, Brian Babcock, having taught about equity in various courses at the Bora Laskin Faculty of Law. His knowledge in this area is available to all of our lawyers and provides the sort of guidance that our clients rely upon.
If you have a concern about keeping your hands clean, or about capturing the moral high ground, why not give us a call and see if Weilers LLP can help.