Estate settlements frequently involve payment terms designed to resolve disputes while protecting the interests of all parties. One common settlement structure might require a party to secure settlement payment obligations through a mortgage on a property, with settlement provisions triggering property sales. If the party obliged to make payment does not meet the deadline, is the remedy of relief from forfeiture under section 98 of the Courts of Justice Act available?
The Legal Framework: Section 98 of the Courts of Justice Act
Relief from forfeiture is an equitable remedy that allows courts to prevent the harsh or unconscionable loss of property, rights, or money that would otherwise be automatically forfeited due to a party’s breach of contract or failure to comply with specified conditions.
Section 98 of the Courts of Justice Act provides the foundational authority for relief from forfeiture, stating simply:
“A court may grant relief against penalties and forfeitures, on such terms as to compensation or otherwise as are considered just.”
Relief from forfeiture is granted sparingly, and the burden of proof lies with the party seeking relief to demonstrate that it would be unjust to enforce the forfeiture.
In contrast to specific forfeiture provisions in other legislation, section 98 provides the courts with broad discretion to create equitable remedies to fit the particular facts of each case.
Though traditionally used between lenders and insurance companies on the one hand and individuals on the other, this wide discretionary jurisdiction may find application outside classic commercial situations to cover estate litigation settlements, at least where forfeiture would yield unconscionable consequences.
Estate Settlement Structures and Forfeiture Risk
A typical settlement scenario may involve a beneficiary who retains property subject to payment obligations to other family members or creditors. The settlement may require the beneficiary to:
- Secure these obligations through a mortgage on the inherited property or make periodic payments according to a defined schedule; and
- Face automatic sale of the property if the mortgage is not secured or payments are missed beyond the specified grace periods.
These arrangements serve legitimate purposes, including ensuring other beneficiaries receive their entitlements and providing security for substantial financial obligations. However, they also create forfeiture risks when individuals encounter unexpected financial difficulties, health crises, or other circumstances that impair their ability to meet the strict terms of the settlement.
The Competing Tests for Relief from Forfeiture
Ontario courts have grappled with two primary approaches to determining when relief from forfeiture should be granted, each offering different analytical frameworks for estate settlement contexts.
The Saskatchewan River Bungalows Test
Under Saskatchewan River Bungalows, various criteria are to be considered in determining whether or not to grant relief from forfeiture, namely (1) the conduct of the party seeking relief, (2) the gravity of the breach of contract, (3) whether the right of forfeiture was intended to secure the payment of money and (4) whether there was a “substantial disparity between the value of the property forfeited and the damage caused” by the breach.
This approach examines the totality of circumstances surrounding the forfeiture.
The Stockloser v. Johnson Test
Conversely, under Stockloser v. Johnson, which was addressed by the Court of Appeal for Ontario in 2017 in Redstone Enterprises Ltd. v. Simple Technology Inc, two things are necessary for the equity to relieve the buyer from forfeiture: (1) the sum forfeited must be out of all proportion to the damage, and (2) it must be unconscionable for the seller to retain the money.
Canadian courts have tended to apply the test set out in the Stockloser case in situations involving forfeiting a deposit paid.
Drafting Settlement Terms
Practitioners should carefully consider forfeiture in estate settlements, recognizing that overly harsh terms may prove unenforceable. Although not an absolute bar to a party seeking relief from forfeiture, settlement provisions to consider might include:
- The Nature of the Settlement Itself: Some settlement frameworks may involve forfeiture of property simply to secure the settlement payment, while in other cases, the forfeiture itself is a fundamental term of the settlement that the parties are explicitly acknowledging as a compromise of the deal reached if the payment is not made. If this is the case, this could be specified in the settlement agreement, and the parties may consider specifically acknowledging that a party may not seek relief against forfeiture.
- Graduated Remedies: Rather than immediate forfeiture, settlements can provide for escalating consequences, including additional security, increased interest rates, or accelerated payment schedules before forcing the property sale.
- Notice and Cure Periods: Generous notice provisions and meaningful opportunities to cure defaults help demonstrate reasonableness and may influence judicial discretion to grant relief.
- Proportionality Safeguards: Settlement terms can include maximum forfeiture amounts or damage calculation methods that prevent disproportionate results.
Conclusion
The application of relief from forfeiture requires careful analysis of competing policy considerations, including enforcing settlement agreements while preventing unconscionable results.
Thanks for reading,