Yesterday I blogged about the Notice of Contestation of Claim, which is a process that in essence provides the Estate Trustee with the ability to require individuals with a potential claim against the estate to commence such a claim within 30 days of being served with the Notice of Contestation of Claim failing which they are deemed to have abandoned the claim such that they can no longer pursue it before the court.
The power given to an Estate Trustee by the Notice of Contestation of Claim coupled with the relatively short timeframe by which the claimant must respond could appear attractive to an Estate Trustee, potentially enticing the Estate Trustee to use such a process to flush out all potential claims at the early stages of the administration of the estate. This is turn raises questions about the kinds of claims that the Notice of Contestation of Claim can be used for, and whether it can be used for all potential claims against an estate or whether the claims against which it can be used are more limited. Could you, for example, serve a possible dependant with a Notice of Contestation of Claim, and in doing so require the alleged dependant to bring their claim for support forward within 30 days failing which they are deemed to have abandoned their claim?
The issue of whether a Notice of Contestation of Claim can be used against a potential dependant of the estate was dealt with by the Ontario Court of Appeal in Omiciuolo v. Pasco, 2008 ONCA 241, wherein the court confirmed that the Notice of Contestation of Claim could not be used in relation to a potential claim for support by a dependant under Part V of the Succession Law Reform Act. In coming to such a decision the Court of Appeal notes that historically the “claim or demand” referenced in sections 44 and 45 of the Estates Act had been interpreted to mean a “claim or demand against the estate by a ‘creditor’ for payment of money on demand“, and that it could not be used for claims such as declaratory relief or a claim for judicial sale or foreclosure.
From the Court of Appeal’s rationale in Omiciuolo v. Pasco it would appear that the “claims” against which a Notice of Contestation of Claim can be used are likely limited to claims of potential creditors of the estate (i.e. claims that the deceased owed an individual money), and that it cannot be used against other more nuanced or equitable claims such as a potential claim from a dependant for support or declaratory relief.
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What’s an Estate Trustee to do when faced with a situation in which an individual has threatened to bring a claim against the estate but has not yet actually taken any formal steps to advance the claim. As Estate Trustee you have certain obligations to the beneficiaries of the estate, including seeing to the administration in a timely manner. An Estate Trustee also has obligations to the creditors of the estate however, and needs to ensure to that all debts of the estate are paid prior to distributing the estate to the beneficiaries. If they fail to do so, the Estate Trustee could face potential personal liability to the creditors of the estate.
An active claim being commenced against the estate can significantly delay the amount of time it takes for an estate to be administered, as the Estate Trustee cannot see to the final administration of the estate while the claim remains active as they must ensure that there are requisite funds in the estate to satisfy any damages award should the estate ultimately not be successful in the claim. The same is also true for a claim that has been threatened against the estate, as the Estate Trustee may be apprehensive to distribute the estate in the face of a claim possibly being commenced for the same reason. When faced with a such a threatened claim the Estate Trustee could be put in a difficult dilemma, for on the one hand they wish to administer the estate in a timely fashion to the beneficiaries and there is no active claim that has been commenced that would otherwise stop them from doing so, yet because of the threatened claim they may be reluctant to do so for fear of their own potential liability should the claim later be commenced after the funds have been distributed. When faced with such a situation the “Notice of Contestation of Claim” could become the Estate Trustee’s new best friend.
At its most basic the Notice of Contestation of Claim provides a mechanism by which a Estate Trustee can require the potential claimant to formally advance their claim against the estate failing which they are deemed to have abandoned the claim. The “Notice of Contestation of Claim” process is governed by sections 44 and 45 of the Estates Act. If a potential claimant is served with a Notice of Contestation of Claim they are provided with 30 days to issue a “claim” pursuant to the Notice of Contestation of Claim, failing which they are deemed to have abandoned the claim. The 30 day deadline may be extended up to a maximum of three months by the court if the claimant should seek such an extension.
The process by which a Notice of Contestation of Claim is issued is governed by rule 75.08 of the Rules of Civil Procedure, providing the form (Form 75.13) that the Notice of Contestation of Claim must be in, as well as the steps that the claimant must follow to bring their claim before the court upon being served with the Notice of Contestation of Claim should they intend to pursue the matter.
Through the Notice of Contestation of Claim an Estate Trustee can force a potential claimant to make a decision regarding whether they intend to bring a claim against the estate. If the potential claimant does not take the appropriate steps following being served with the Notice of Contestation of Claim their potential claim is deemed to be abandoned and can no longer be pursued before the court, with the Estate Trustee being theoretically free to proceed with the administration of the estate.
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It is not uncommon for the lawyer who drafted a testator’s will or codicil to subsequently be retained by the Estate Trustees after the testator’s death to assist with the administration of the estate. The rationale behind the drafting lawyer being retained to assist with the administration of the estate appears fairly self-evident, for as the drafting lawyer likely has an intimate knowledge of the testator’s estate plan and assets they may be in a better position than most to assist with the administration of the estate.
While retaining the drafting lawyer to assist with the administration of the estate is fairly uncontroversial in most situations, circumstances could become more complicated if there has been a challenge to the validity of the testamentary document prepared by the drafting lawyer. If a proceeding has been commenced challenging the validity of the testamentary document, there is an extremely high likelihood that the drafting lawyer’s notes and records will be produced as evidence, and that the drafting lawyer will be called as a non-party witness as part of the discovery process. If the matter should proceed all the way to trial, there is also an extremely high likelihood that the drafting lawyer would be called as a witness at trial. As the drafting lawyer would personally have a role to play in any court process challenging the validity of the will, questions emerge regarding whether it would be proper for the drafting lawyer to continue to represent any party in the will challenge, or would doing so place the drafting lawyer in a conflict of interest?
Rule 3.4-1 of the Law Society of Ontario’s Rules of Professional Conduct provides that a lawyer shall not act or continue to act where there is a conflict of interest. In the case of a drafting lawyer representing a party in a will challenge for a will that they prepared, an argument could be raised that the drafting lawyer is in an inherent position of conflict, as the drafting lawyer may be unable to look out for the best interests of their client while at the same time looking out for their own interests when being called as a witness or producing their file. There is also the potentially awkward situation of the drafting lawyer having to call themselves as a witness, and the associated logistical quagmire of how the lawyer would put questions to themselves.
The issue of whether a drafting lawyer would be in a conflict of interest in representing a party in a will challenge was dealt with in Dale v. Prentice, 2015 ONSC 1611. In such a decision, the party challenging the validity of the will brought a motion to remove the drafting lawyer as the lawyer of record for the propounder of the will, alleging they were in a conflict of interest. The court ultimately agreed that the drafting lawyer was in a conflict of interest, and ordered that the drafting lawyer be removed as the lawyer of record. In coming to such a conclusion, the court states:
“There is a significant likelihood of a real conflict arising. Counsel for the estate is propounding a Will prepared by his office. The preparation and execution of Wills are legal services, reserved to those who are properly licensed to practise law. Counsel’s ability to objectively and independently assess the evidence will necessarily be affected by his interest in having his firm’s legal services found to have been properly provided.” [emphasis added]
Decisions such as Dale v. Prentice suggest that a lawyer may be unable to represent any party in a will challenge for a will that was prepared by their office as they may be in a conflict of interest. Should the circumstance arise where the drafting lawyer is retained to assist with the administration of the estate, and subsequent to being retained someone challenges the validity of the Will, it may be in the best interest of all parties for the drafting lawyer to indicate that they are no longer able to act in the matter due to the potential conflict, and suggest to their clients that they retain a new lawyer to represent them in the will challenge.
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I recently blogged about the growing use of home DNA tests and what impact an unexpected result could have upon your rights as a beneficiary of an estate. While such a blog was from the perspective of an individual who discovered through a home DNA test that their biological father was not in fact the individual they previously believed it to be, and the potential impact such a finding could have upon their status as a beneficiary of their “father’s” estate if their interest was based on their status as a “child”, questions would also emerge in such a scenario if you were the Estate Trustee of such an estate regarding what you should do.
If you are the Estate Trustee of an estate in which a bequest is based on parentage (i.e. an intestacy or a bequest to a testator’s “issue” or “children”), and you discover that one of the beneficiaries has voluntarily taken a home DNA test which revealed that they were not in fact related to the deceased, could you still make a distribution to such a beneficiary? If you have already made a distribution to such a beneficiary, is there a risk that the other beneficiaries could now make a claim against you as Estate Trustee, alleging that you distributed the estate to the incorrect individuals and that they have suffered damages as a result?
In response to whether an Estate Trustee could potentially be liable to the other beneficiaries for historically paying out amounts to a beneficiary who it is later discovered was not actually related to the deceased, it would appear that the Estate Trustee likely would not be liable under such a scenario. In my previous blog I discussed the provisions of the Children’s Law Reform Act (the “CLRA“) which establish a person’s legal parentage in Ontario, and the various presumptions establishing an individual’s father. While sections 13(1) and 14(1) of the CLRA allow the court to make a subsequent different declaration as to a person’s parentage, section 14(2) of the CLRA provides that such an Order “does not affect rights and duties that were exercised or performed, or interests in property that were distributed, before the order was set aside“. As a result, it would appear, arguably, that if an Estate Trustee historically made a payment to an individual based off of parentage, and a subsequent declaration is made by the court that the individual in question was not actually the parent of the beneficiary, the historic payment to the beneficiary could not be put in issue or reclaimed provided that at the time the payment was made the beneficiary was still presumed and/or declared to be the child of the deceased.
The issue of what an Estate Trustee is to do if a payment has not yet been made and they discover that an individual who they previously believed to be a beneficiary is not in fact related to the deceased could be more complicated. In the event that the other beneficiaries who could be affected by the distribution do not unanimously consent to continue to allow the distribution to the individual notwithstanding the results of the DNA test, it is possible that one or all of the other beneficiaries may later bring a claim against the Estate Trustee for negligence, alleging that the Estate Trustee knew about the results of the DNA test before making the distribution and that they have suffered damages as a result of the distribution. To offset such a risk, it may be wise for the Estate Trustee in such a scenario to bring an Application for the opinion, advice and direction of the court pursuant to section 60(1) of the Trustee Act and/or rule 14.05, asking the court to determine whether the distribution may still be made to the potential beneficiary in light of the results of the home DNA test.
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One of the most gifted items this past holiday season were apparently the home DNA tests which can reveal your genetic ancestry or even if you are predisposed to certain health conditions. As anyone who has taken one of these tests (myself included) can tell you, the test results also contain a long list of other individuals who have also taken the test who you are related to, allowing you to reconnect with long lost relatives.
While my own test results did not reveal any family secrets, the same cannot be said for other individuals who have taken the test, as there have been a growing number of articles recently about how home DNA tests have revealed family secrets which otherwise may never have come to light. Although not all of these secrets are necessarily negative, such as finding a long-lost sibling, others, such as finding out that the individual who you believed to be your father was not in fact your biological father, could be life changing. For the latter, the phenomena is apparently common enough that the Atlantic has reported that self-help groups have formed around the issue, such as the Facebook group “DNA NPE Friends”, with “NPE” standing for “Not Parent Expected”.
In reading through these stories I couldn’t help but wonder if having such a result could impact your potential entitlements as a beneficiary of an estate. What happens if, for example, the individual who you previously believed to be your biological father but the test reveals was not in fact your father should die intestate, or should leave a class gift to his “children” in his Will without specifically naming the children. Could finding out that you were not actually biologically related to your “father” result in you no longer being entitled to receive a benefit as a beneficiary? Could you potentially be disinherited as a beneficiary of an estate by voluntarily taking a home DNA test if your right to the gift is founded upon you being related to the deceased individual?
Who is legally considered an individual’s “parent” in Ontario is established by the Children’s Law Reform Act (the “CLRA“). Section 7(1) of the CLRA provides that, subject to certain exceptions, the person “whose sperm resulted in the conception of a child” is the parent of a child. Section 7(2) of the CLRA further provides for a series of presumptions regarding the identity of the individual’s “whose sperm resulted in the conception of a child“, including, for example, that there is a presumption that such an individual is the birth parent’s spouse at the time the child is born, or the individual in question certified the child’s birth as a parent of the child in accordance with the Vital Statistics Act (i.e. signed the birth certificate). To the extent that there are any questions about parentage, section 13(1) of the CLRA provides that any interested individual may apply to the court at any time after a child is born for a declaration that a person is or is not the legal parent of the child.
In applying these presumptions to our previous questions about the home DNA test, if, for example, the individual who you previously believed was your biological father was your birth mother’s “spouse” at the time you were born, or signed the birth certificate, it would appear that, subject to there being a declaration under section 13(1) of the CLRA to the contrary, there would continue to be a presumption at law that the individual who you previously believed to be your biological father would continue to be your legal “parent” in accordance with the CLRA. To this respect, in the absence of a formal declaration under section 13(1) of the CLRA that the individual was no longer your legal “parent”, there would appear to be an argument in favour of the position that the individual who you previously believed to be your biological father would continue to be your legal “parent”, and that you should continue to receive any benefits which may come to you as a “child” on the death of your “father”, whether on an intestacy or a class bequest to his “children” in his Will.
This presumption, of course, is subject to the ability of any interested person (i.e. the Estate Trustee or one of the other beneficiaries) to seek a formal declaration under section 13(1) of the CLRA that you were not in fact a “child” of the individual you believed to be your biological father. If such a formal declaration is ultimately made by the court, you would cease to be the legal “child” of the individual who you previously believed to be your biological father, and would likely lose any corresponding bequests which may have been made to you on an intestacy or as a member of the class “children” in the Will.
The use of DNA tests to establish the potential beneficiaries of an estate is not a new phenomenon (see: Proulx v. Kelly). What is new, however, are people voluntarily taking such tests en masse in a public forum, potentially voluntarily raising questions about their rights to receive an interest in an estate when such questions would not have existed otherwise.
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In Milne Estate (Re), 2018 ONSC 4174 (CanLII), the court refused to grant probate to a will where there was uncertainty as to the subject matter governed by the will. We blogged and podcasted on this case here and here.
Historically, probate has been granted to wills that have not disposed of property. For example:
- In Brownrigg v. Pike (1882), 7 P.D. 61 (Eng. P.D.A.), the court probated a Will that did no more than appoint an executor;
- In Jordan, Re (1868), L.R. 1 P.& D. 555 (P.D.), the court probated a will that only appointed an executor, even though the executor had renounced;
- In Re Blow, 1977 CanLII 1274 (ON SC), the court stated that “In my view, it is not an essential element of a testamentary instrument that it have dispositive effect (although the fact that an instrument does not purport to dispose of property may be a factor to be taken into account in determining whether it was intended to have testamentary effect”. There, however, a precatory memorandum of advice to executors was not admitted to probate;
- In Tatnall v. Hankey (1838), 2 Moo. P.C. 342, 12 E.R. 1036, a will that merely executed a power of appointment was entitled to probate;
- In Barnes v. Vincent (1846) 5. Moo. P.C. 201, 13 E.R. 468, the Privy Council held that a grant of probate could be made without an inquiry into the validity of an exercise of the power of appointment, or even whether the alleged power of appointment in fact existed;
- Section 12 of the Estates Act allows for probate to be granted even if the will does not purport to dispose of any property in Ontario.
For a further and more extensive commentary on the Milne decision, see Professor Oosterhoff’s article, “What is a Will and What is the Role of a Court of Probate?”.
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The notes and records of the lawyer who assisted the deceased with their estate planning can play an important role in any estate litigation. As a result, it is not uncommon for a drafting lawyer to receive a request from individuals involved in estate litigation to provide them with a copy of their notes and files relating to the deceased’s estate planning. But can the lawyer comply with such a request?
The central concern involved for the lawyer is the duty of confidentiality which they owe to the deceased. This duty of confidentiality is codified by rule 3.3-1 of the Law Society of Ontario’s Rules of Professional Conduct, which provides:
“A lawyer at all times shall hold in strict confidence all information concerning the business and affairs of the client acquired in the course of the professional relationship and shall not divulge any such information unless expressly or impliedly authorized by the client or required by law to do so.”
The duty of confidentiality and privilege which is owed to the deceased by the lawyer survives the deceased’s death. This was confirmed by the court in Hicks Estate v. Hicks,  O.J. No. 1426, where, in citing the English authority of Bullivant v. A.G. Victoria,  A.C. 196, it was confirmed that privilege and the duty of confidentiality survive death, and continues to be owed from the lawyer to the deceased. With respect to the question of who may waive privilege on behalf of the deceased following their death, Hicks Estate v. Hicks confirmed that such a power falls to the Estate Trustee under normal circumstances, stating:
“It is clear, therefore, that privilege reposes in the personal representative of the deceased client who in this case is the plaintiff, the administrator of the estate of Mildred Hicks. The plaintiff can waive the privilege and call for disclosure of any material that the client, if living, would have been entitled to from the two solicitors.”
Simply put, the Estate Trustee may step into the shoes of the deceased individual and compel the release of the lawyer’s file to the same extent that the deceased individual could have during their lifetime.
In circumstances in which the validity of the Will has been challenged, the authority of the Estate Trustee is also being challenged by implication, as their authority to act as Estate Trustee is derived from the Will itself. In such circumstances, the named Estate Trustee may arguably no longer waive privilege and/or the duty of confidentiality on behalf of the deceased individual. Should the notes and/or records of the drafting lawyer still be required, a court order is often required waiving privilege and/or the duty of confidentiality before they may be produced.
Whether or not a lawyer can release their file following the death of a client will depend on the nature of the dispute in which such a request is being made, and who is making the request. If there is a challenge to the validity of the Will or the Estate Trustee’s authority, it is likely that a court Order will be required before the lawyer may produce their file regardless of who is requesting the file. If the dispute does not question the Estate Trustee’s authority, such as an Application for support under Part V of the Succession Law Reform Act, the lawyer should comply with the request to release their file so long as the requesting party is the Estate Trustee. If the requesting party is not the Estate Trustee, and the Estate Trustee should refuse to provide the lawyer with their authorization to release the file, matters become more complicated, and may require a court Order before the lawyer may release their file.
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In Ontario, if there is a claim to be made or continued by a deceased person or their estate, any such claim must be brought by the executor or administrator of his or her estate. If there is no executor or administrator, under Rule 9.02 of the Rules of Civil Procedure, RRO 1990, Reg 194, the court may appoint a litigation administrator, who will represent the estate for the purpose of the proceeding. A beneficiary or other person may also represent the interests of an estate, under Rule 10.02, where it appears that an estate has an interest in a matter in question in a proceeding.
In British Columbia, section 151 of the Wills, Estates and Succession Act, SBC 2009, c. 13 (“WESA”) provides an alternative way of pursuing a claim by an estate. Section 151 states that a beneficiary of an estate may, with leave of the court, commence proceedings in the name and on behalf of the personal representative of a deceased person, either to recover property or enforce a right, duty or obligation owed to the deceased person that could be recovered or enforced by the personal representative, or to obtain damages for breach of a right, duty or obligation owed to the deceased person. Section 151(3) outlines the circumstances in which the court may grant leave in this regard:
(3) The court may grant leave under this section if
(a) the court determines the beneficiary or intestate successor seeking leave
(i) has made reasonable efforts to cause the personal representative to commence or defend the proceeding,
(ii) has given notice of the application for leave to
(A) the personal representative,
(B) any other beneficiaries or intestate successors, and
(C) any additional person the court directs that notice is to be given, and
(iii) is acting in good faith, and
(b) it appears to the court that it is necessary or expedient for the protection of the estate or the interests of a beneficiary or an intestate successor for the proceeding to be brought or defended
In a document produced by the Government of British Columbia entitled “The Wills, Estates and Succession Act Explained” (“WESA Explained”), section 151 is described as overcoming a gap in the law. Previously, if a beneficiary wished for an action to be brought on behalf of an estate, and the personal representative refused to do so, the beneficiary’s sole recourse would be to apply for removal of the personal representative.
However, removal may not always be necessary or convenient. As described in WESA Explained, such a situation could arise in the event that the personal representative’s main concern (as is often the case with executors, generally) is to preserve and distribute the estate. The personal representative is therefore likely more risk adverse and conservative in assessing the potential success of pursuing an action. The beneficiary may have differing views on the merits of the claim, and in his or her assessment of the risk and return.
Section 151 of WESA differs from the process for litigation administrators and representation orders in Ontario in that s. 151 allows the executor and beneficiary appointed to bring a claim on behalf of the estate to co-exist simultaneously.
The concept of s. 151 is similar to a derivative action, in which a shareholder or other person is permitted to bring an action on behalf of a corporation, where the corporation refuses to do so.
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In Tyrell v. Tyrell, 2017 ONSC 4063, the Ontario Superior Court of Justice was faced with a situation in which the testator died domiciled in Nevis, having drafted a Last Will and Testament which was executed in Nevis, which itself dealt with estate assets the vast majority of which were located in Nevis. The Will named the testator’s sister, who normally resided in Ontario, as Estate Trustee. Letters probate were issued to the Estate Trustee from the Nevis court following the testator’s death.
When concerns arose surrounding the Estate Trustee’s conduct following the testator’s death, certain of the beneficiaries brought an Application before the Ontario court seeking, amongst other things, the removal and replacement of the Estate Trustee, as well as an accounting from the Estate Trustee regarding the administration of the estate to date. The beneficiaries who brought such an Application were themselves located across several jurisdictions; being located in Nevis, Ontario, and New York.
In response to being served with the Application, the Estate Trustee took the position that the Ontario court was not the proper jurisdiction to seek such relief as against the Estate Trustee, maintaining that Nevis, being the jurisdiction in which the testator died domiciled, was the proper jurisdiction in which to adjudicate such disputes. The beneficiaries disagreed, arguing that the jurisdiction in which the Estate Trustee was normally resident was the proper jurisdiction in which such disputes should be adjudicated.
In ultimately agreeing with the beneficiaries, and ordering the Estate Trustee to complete certain steps regarding the administration of the estate within 60 days, the Ontario court provides the following commentary regarding Ontario’s jurisdiction over the matter:
“For the purpose of administering the Will, the most significant connecting factor is the residence of the estate trustee. Therefore, the Will is most substantially connected to the province of Ontario and the applicable law on matters relating to the administration of the Will is the law of Ontario. Thus, the Courts of Ontario have jurisdiction over matters relating to the administration of the Will.” [emphasis added]
The court’s rationale in Tyrell v. Tyrell appears to be in contrast to the Alberta Court of Appeal’s previous decision in Re: Foote Estate, 2011 ABCA 1. Although Re: Foote Estate dealt with a determination of domicile for the purpose of deciding which jurisdiction’s laws would apply in the context of a dependant’s support case, the court provided general commentary regarding what jurisdiction’s laws governed the administration of an estate. Indeed, in the opening paragraph of the Court of Appeal’s decision in Re: Foote Estate, the following comment is made:
“This appeal arises from a trial finding that the late Eldon Douglas Foote was domiciled on his death in Norfolk Island. The domicile of the deceased determines the applicable law for estate administration purposes.” [emphasis added]
Re: Foote Estate appears to suggest that it is testator’s domicile that determines which jurisdiction’s laws are to govern the administration of an estate, making no reference to the location of the Estate Trustee. Tyrell v. Tyrell appears to suggest the opposite, with the court concluding that, notwithstanding that the testator died domiciled in Nevis, the laws of Ontario governed the administration of the estate on account of the Estate Trustee being located in Ontario.
The contrasting decisions of Tyrell v. Tyrell and Re: Foote Estate likely leave more questions than answers. Whether the fact that Tyrell v. Tyrell is a decision of the Ontario court, while Re: Foote Estate is from Alberta (although from the Court of Appeal), could also potentially play a role. An interesting hypothetical would be what would happen if a testator died domiciled in Ontario with an Estate Trustee located in Alberta. In accordance with Tyrell v. Tyrell, notwithstanding that the testator died domiciled in Ontario, the laws of Alberta would apply to the administration of the estate on account of the location of the Estate Trustee. In accordance with Re: Foote Estate however, Alberta law dictates that it is the law of the jurisdiction in which the testator died domiciled which governs the administration of the estate, which could have Alberta send the matter back to Ontario. Confusion abounds.
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The recent Ontario Superior Court of Justice decision of Zecha v Zecha Estate, 2017 ONSC 1972, 2017 CarswellOnt 4882, raises the issue of how separation agreements ought to be interpreted in circumstances where one party to the contract has predeceased the other.
In this case, a separation agreement was entered into by the plaintiff and her husband, who had since died. With respect to the sale of the couple’s matrimonial home, the separation agreement, dated May 31, 2012, stipulated as follows:
- The plaintiff and the deceased would advise one another of all offers to purchase the matrimonial property;
- If the plaintiff received an offer to purchase the property for less than $1,500,000.00, the deceased could require that the plaintiff accept the offer, but, upon compelling her to do so, would be responsible for paying any shortfall between the sale amount and $1,500,000.00;
- If the property had not been sold within 18 months of the date of the agreement (and the plaintiff had not declined an unconditional offer to purchase the property for a price higher than $1,500,000.00):
- The deceased would assume carriage of the sale;
- The plaintiff would cooperate with the sale process and sign any documents to give effect to the sale; and
- If the property sold for less than $1,500,000.00, the deceased would be responsible for any shortfall between the purchase price and $1,500,000.00.
The plaintiff listed the matrimonial property for sale on October 29, 2012. On April 30, 2014 (23 months after the execution of the separation agreement), the plaintiff entered into an agreement of purchase and sale, and sold the property for $1,180,000.00. There was no evidence before the Court that the plaintiff had advised the deceased that she had received or accepted an offer to purchase the property for less than $1,500,000.00. The deceased died on November 28, 2014, and the plaintiff commenced proceedings against the deceased’s estate for the difference between the sale price of $1,180,000.00 and $1,500,000.00, relying upon the terms of the separation agreement.
At trial, the plaintiff submitted that, pursuant to the terms of the separation agreement, she was entitled to $320,000.00, representing the difference between the sale price of the property and $1,500,000.00, because the property had been sold more than 18 months from the date of the separation agreement. The deceased’s estate asserted that the plaintiff could not enforce the terms of the separation agreement, as she had not complied with its terms as to which party would control the sale of the property if it took place more than 18 months after execution of the separation agreement. Pursuant to the separation agreement, the deceased was only responsible for paying the shortfall if (a) he had compelled the plaintiff to accept an offer to purchase the property for less than $1,500,000.00 within 18 months of the date of the separation agreement, or (b) he had assumed control of the sale of the property 18 months after the date of the separation agreement and accepted an offer to purchase the property for less than $150,000.00.
The Court found that the separation agreement was a properly executed contract and should be interpreted as a whole, giving meaning to all of its terms and avoiding an alternative interpretation that would render a term ineffective (in a manner consistent with commercial law principles). Accordingly, the Court dismissed the action, declining to order payment of the $320,000.00 shortfall by the estate to the plaintiff. The Court stated that the plaintiff had interpreted the terms of the contract too narrowly, in an attempt to obtain a greater payout from the proceeds of sale of the matrimonial property. The Court found that, pursuant to the separation agreement, the deceased had a clear right to decide if an offer to purchase the property for less than $1,500,000.00 would be accepted at the time of its sale, being more than 18 months after the execution of the separation agreement, and the plaintiff could not rely upon the corresponding provisions of the separation agreement.
Circumstances like these, in which one party to a separation agreement has died and the assistance of the Court is required in interpreting the contract for the purposes of considering a claim made (or if an entitlement is apparently limited) under the contract, are not uncommon. It can be important for estate lawyers who may encounter this issue to understand how separation agreements are most likely to be interpreted by the courts.
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