Court File and Parties
COURT FILE NO.: 16-70980 DATE: 2017/04/12 ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
CAROL LUNDY Applicant
– and –
SEAN LUNDY, CO-EXECUTOR AND TRUSTEE OF THE ESTATE OF MICHAEL LUNDY and in his personal capacity, MICHAELA MARCIA KREIM, SARA KREIM, LIAM LUNDY, TRISTAN LUNDY and THE CHILDREN’S LAWYER Respondents
Counsel: Gail S. Nicholls, for the Applicant Douglas Buchmayer, for the Respondent, Sean Lundy, as Executor and in his personal capacity No one appearing for the other Respondents
REASONS on motion
L. Sheard J.
Reasons on Motion
[1] This motion is brought by Carol Lundy (“Carol”), the surviving spouse of the late Michael Lundy, who died on June 29, 2015 (the “Deceased”).
[2] The respondent, Sean Lundy (“Sean”), is a son of the Deceased and residuary beneficiary. The other respondents did not appear on the return of this motion and include a legatee and the contingent beneficiaries, some of whom are minors. Their interests are protected by the Children’s Lawyer who also determined not to appear on this motion.
[3] More than six months have passed since the death of the Deceased. For that reason, Carol needs the leave of this Court to extend the limitation periods under the Family Law Act, R.S.O. 1990, c. F.3 (the “FLA”). Carol seeks the following relief:
(1) An order extending by six months from the date of the return of this motion, the time period within which she must file an Election and an equalization Application under the FLA;
(2) An order suspending the remaining distribution of the Estate until the expiry of the extended limitation time periods; and
(3) An order that the Estate pay Carol’s costs to retain an expert to value the Deceased’s business and real property on the date of marriage, May 22, 2004, and the date of death, June 29, 2015; and to value Carol’s life interest in 123 Leonard Avenue, Ottawa (the “Home”).
Background
[4] The Deceased left a primary Will and a secondary Will, both dated February 4, 2015 (collectively, the “Wills”). The Wills named Carol and Sean as co-estate trustees.
[5] Under the Wills, Carol receives the Deceased’s RRSP’s and RRIF’s ($248,000); all money in the Deceased’s bank account/joint account with Carol ($100,000); the furniture and household effects in the Home, and the right to remain in the Home for as long as she wishes. Carol must pay all costs associated with the Home. Carol is also entitled to receive all amounts derived from the redemption of the Deceased’s Class A and Class B preferred shares in M.P. Lundy Holdings Inc. (the “Redemption Proceeds”).
[6] The Wills also include a bequest of $25,000 to the Deceased’s sister, Mary-Anne Walker; the forgiveness of all debts owed to the Deceased by his children; and, subject to the gifts to Carol, a gift of the residue of the Estate to Sean. Importantly, subject to the spousal trust in favour of Carol of the Class A and Class B shares (i.e. the Redemption Proceeds), Sean inherits the shares in M.P. Lundy Holdings Inc. (the “Company”).
Carol’s Equalization Rights under the FLA
[7] Section 5(2) of the FLA provides for the equalization of net family property (“NFP”) upon the death of a spouse. In general terms, if the NFP of the surviving spouse exceeds the NFP of the deceased spouse, the surviving spouse is entitled to one-half the difference between them. A surviving spouse may elect to take their equalization rights under the FLA rather than the gifts left to them under the deceased spouse’s will.
[8] Unless a court orders otherwise, a surviving spouse must make the election within six months of the death of the first spouse or be “deemed’ to have chosen to take under the will. In Carol’s case, ss. 6(1), 6(10) and 7(1) of the FLA required that Carol make her election and commence an equalization application by December 29, 2015. She did not do so. As a result, by operation of ss. 6(11) of the FLA, Carol was “deemed” to have elected to take under the Wills or to receive her entitlement under the Succession Law Reform Act, R.S.O. 1990, c. S.26, (the “SLRA”) or both, as the case may be.
[9] Subsection 6(14) of the FLA prohibited the distribution of the Deceased’s estate until after December 29, 2015, unless Carol had given written consent to the distribution or a court had authorized the distribution. No order was made. The evidence is incomplete as to whether Carol consented to a partial distribution of the estate.
Extensions of Time
[10] Section 2(8) of the FLA, permits the court, on motion, to extend a time prescribed by the FLA if it is satisfied that:
(a) there are apparent grounds for relief;
(b) relief is unavailable because of delay that has been incurred in good faith; and
(c) no person will suffer substantial prejudice by reason of the delay.
[11] Sean opposes the orders Carol seeks. Sean acknowledges that there are apparent grounds for relief, but says that Carol has failed to satisfy the requirements of ss. 2(8)(b) and (c). Sean argues that Carol’s delay in coming to the court has not been incurred in good faith and that he will suffer substantial prejudice by reason of the delay.
[12] For the reasons set out below, Carol’s motion is dismissed.
Positions of the Parties
[13] Carol says that she was not provided with timely or complete information about the value of the estate as at the dates of marriage and death, information she needs to calculate the amount she might receive on equalization.
[14] Carol also asserts that she is living alone in the Home, “an enormous house” whose carrying costs she will not be able to afford in the future. Carol would like to move out of the Home and relocate to Toronto to be close to family, but the Wills do not provide her with an alternate housing allowance. Carol is concerned that the Redemption Proceeds will eventually run out, and that when she loses this major source of income, she will not have enough money on which to live.
[15] Sean says that Carol knew about the Wills before the death of the Deceased and has been in possession of the Deceased’s financial records since his death. Sean says that Carol has been privy to the value of the estate assets as a co-estate trustee and as the person who possesses the Deceased’s financial records. Sean says that at no time prior to December 29, 2015 did Carol voice any wish to make an election under the FLA. To the contrary, Carol has assumed the role as co-estate trustee and accepted her gifts under the Wills.
[16] Sean claims that he will be prejudiced by Carol’s delay in bringing her FLA claim. Sean says that Carol knew about the Deceased’s estate plan before he died, and knew that the Deceased wanted Sean to take over the Company, the largest of the estate assets.
[17] Sean states that since June 29, 2015, he has been running the Company and made financial decisions in the belief and expectation that it is his and that it would be unfair to him to now allow Carol to seek an equalization. Sean does not provide details of the prejudice to him.
Financial Disclosure to Carol
[18] Carol seems to explain her delay on the basis that she did not have a complete picture of the estate assets until July 2016 and still needs valuation information.
[19] Sean’s affidavit sworn March 8, 2017, filed on the motion, provides some evidence about what Carol knew about the value of the estate. Attached as an exhibit to Sean’s affidavit is an email dated October 24, 2015 from Carol’s son, Shane Kovacs (“Kovacs”), addressed to Carol and Sean and others (the “Kovacs email”).
[20] The Kovacs email attaches a draft spreadsheet prepared by Kovacs of the assets and liabilities of the Deceased’s estate and the anticipated distribution amongst the beneficiaries. Kovacs provided his preliminary estimate of the market value of the estate assets and the expected tax liability.
[21] In his calculations, Kovacs assumes that the estate assets would be sold at fair market value on the day of the Deceased’s death and that any capital gains would be taxed at the highest marginal rate of 23%. Kovacs concludes that the gross value of the Deceased’s estate was $6.1 million consisting of the fair market value of the Company ($4.3 million); a combined value of $1.5 million for 121 Leonard Avenue, Ottawa and the Home; and $250,000 in a RIFF. Kovacs assumed a tax liability of $1.1 million, leaving a net value of the estate of $5 million.
[22] The Kovacs email assumes the estate would be distributed $4.1 million to Sean and $0.9 million to Carol and Mary-Anne Walker ($25,000 gift). Kovacs ascribed a value to Carol for her right to reside in the Home.
[23] The Kovacs email concludes: I hope this is helpful to you both in your capacity as executors to Mike’s [the Deceased’s] estate.
[24] Regardless of whether Kovacs is correct in his calculations, the Kovacs email ought to have alerted Carol to the size of the estate and her share of it.
[25] At paras. 26 and 27 of his affidavit, Sean claims that he provided Carol with disclosure relating to the value of the Deceased’s estate and also confirmed to Carol that, as at his death, the Deceased held the following assets:
(a) three real properties: one in Québec, 121 Leonard Avenue, Ottawa, and the Home, whose combined value is $1,616,000;
(b) three joint bank accounts held with Carol with the approximate value of $100,000;
(c) a RRIF account valued at approximately $284,837; and
(d) the company, valued at approximately $7,242,198.
[26] At para. 28, Sean estimated the liabilities as at the date of death to be: funeral expenses of $15,000; legal fees of $15,000; accounting fees of $7,500; and 2015 income tax and capital gain taxes of $1,653,871.
[27] Sean asserts that he runs the Company and was its “leader, strategist and main contributor to the profits” and says that the Deceased was very open with Carol and the other members of his family about his wishes and his estate planning and that, to his knowledge, Carol raised no issue about it with the Deceased.
[28] Sean says he has provided Carol with disclosure regarding the value of the Estate assets and that Carol is in possession of the Deceased’s personal papers and documents, which were left in the Home. Sean says that he believes that Carol has had significant disclosure about the Deceased’s assets in her possession since the death of the Deceased.
Delay in Asserting a Claim or a Request to Extend Limitation Periods
[29] In her affidavit, Carol asserts that she has had many discussions with Sean, and that her lawyer has had many discussions with Sean’s lawyer to determine the extent of Carol’s interest under the Wills and to ascertain the value of her NFP.
[30] Carol’s affidavit does not mention the Kovacs email. Rather, Carol claims that on July 11, 2016 she was told by Sean’s lawyers that the after-tax fair market value of the estate was $7,689,165 and that the after-tax fair market value of the Deceased’s assets as at the date of marriage was $3,454,206.
[31] If the Court were to accept those values, and to assume that Carol has a $0 NFP, the equalization payment to her might be in the range of $2,117,479. On its face, that figure appears significantly more than the $0.9 million Kovacs estimated that Carol would receive under the Wills.
[32] In her affidavit, Carol says that her lawyer had been engaged in settlement discussions with Sean’s lawyer whereby Carol would forgo her FLA and SLRA claims and her entitlement under the Wills in exchange for a cash payment that would allow her to move to Toronto where her two daughters live. As the settlement discussions have not “borne fruit”, Carol says that she must now examine other options. Carol no longer wishes to remain in the Home: it is too large for her and she cannot afford to carry it.
[33] Carol has been represented by counsel since December 2015. She retained her current lawyer in March or April 2016. Carol’s evidence lacks details and any documents that might support her somewhat vague explanation for her delay in bringing this motion. Carol does not assert, nor could it be concluded on the evidence, that the estate is estopped by its conduct from strictly enforcing the FLA limitation periods.
[34] Carol’s claim that she was not given full or timely financial disclosure from the estate, seems to be contradicted to some extent by the Kovacs email. The Court accepts that Carol does not know the exact value of her equalization claim but, based on the evidence filed on this motion, by July 2016 at the latest, Carol knew about her FLA rights. By then Carol should also have known that Sean was not prepared to extend the FLA limitation period and that she would need to bring this motion.
[35] Sean asserts that the first notice he received that this motion would be brought was when he was served with the motion record on January 27, 2017.
Was Carol’s Delay Incurred in Good Faith?
[36] Sean says that Carol cannot show that her delay was incurred in good faith. Sean says that as co-estate trustee, Carol has had access to all the estate financial information. Moreover she acted as co-estate trustee and accepted her entitlement under the Wills. Among other things, Carol accepted the monthly Redemption Proceeds and has continued to live in the Home.
[37] In his affidavit, Sean states that on June 10, 2016 he provided Carol’s lawyer with a copy of the Company’s corporate documents. Those documents include a copy of the Shareholders’ Register which records the transfer of the Class A and Class B preferred shares to Sean, in trust for Carol. It also records the transfer to Sean of the Company’s Common and remaining Preferred Shares. This document shows that by June 10, 2016 the estate had already distributed the shares of the Company.
[38] Neither party provided evidence to show whether or not Carol consented to or otherwise participated as a co-estate trustee in the distribution of the shares of the Company. However, the record is clear that Carol knew of this transfer at least by June 10, 2016.
[39] Sean says that Carol retained a lawyer in December 2015 to advise her and that it was not until January 12, 2016 that he first learned that Carol was considering bringing a claim under the FLA. Sean then asked Carol to resign as co-estate trustee. She refused.
[40] Sean says that it was not until April 2016, when Carol retained her current counsel, that Carol requested additional financial disclosure. Sean said he gave Carol what she asked for and attaches emails to prove it. By emails of June 10, 2016 and July 11, 2016 Sean’s lawyer sent financial disclosure to Carol’s lawyer.
[41] The July 11, 2016 email included a spreadsheet setting out the estimated fair market value of most of the estate assets as at the date of marriage and the date of death. Excluded from the assets was the date of marriage value of the Home (which receives special treatment under the FLA) and the date of death values of the joint accounts held with Carol. Sean says that Carol has that information and she has been asked to provide it to the estate.
Analysis
[42] In her Factum, Carol refers to three decisions in which the Court granted an extension of time to the applicant.
[43] In Mischuk v. Mischuk, 2013 ONSC 4122, the Court granted the applicant/surviving spouse an extension of time to file her election under the FLA. The facts in Mischuk are very different from those here. In Mischuk, the surviving spouse retained a lawyer within a month of the death of the deceased and told the estate trustee, in writing, that his client would pursue her FLA equalization rights. The lawyer also asked for a copy of the Will.
[44] The court found that there were apparent grounds for relief and determined that the delay had been incurred in good faith. In reaching that conclusion, the court noted that the surviving spouse had advised the estate of her intention to seek an equalization claim; that the estate had made several settlement offers outside of the 6-month limitation period, without referring to the expiration of the limitation period; and, that the applicant’s lawyer had put the estate’s lawyer on notice that he would be seeking an extension of the 6 months, if necessary. Finally, the surviving spouse was not provided with a copy of the Deceased’s Will until 11 months after his death.
[45] The court in Mischuk found that the third of the three-part test under s. 2(8) was also satisfied because the estate was responsible for much of the delay. Finally, the court found that there was no evidence before the motions judge upon which to find “substantial prejudice”.
[46] Here, unlike in Mischuk, Carol has had a copy of the Wills and, according to the evidence filed, was aware of the Deceased’s estate plan before he died. Here, Carol has not voiced an intention to seek an equalization claim. To the contrary, she has accepted the gifts under the Wills and either acquiesced or, possibly, even participated in the distribution of the Company, the single largest asset of the estate.
[47] Here, unlike in Mischuk, it was not until January 2017, almost 17 months after the death of the Deceased, that Carol gave the estate written notice of her intention to bring a motion for an extension of time to consider her FLA equalization rights. In the meantime, Sean, as co-estate trustee and residuary beneficiary, proceeded both to administer the estate and to operate the Company, left to him under the Wills.
[48] Although his affidavit provides scant detail, Sean asserts that he operated the Company on the assumption that it was his and that he will suffer prejudice now if the value of the business is included for the purposes of equalization.
[49] The second case referred to by Carol is the 2011 decision of Justice Greer in Slaven v Slaven Estate, 72 E.T.R. (3d) 1. In Slaven, the surviving widow was not provided with a copy of the deceased’s Will until approximately eight months after his death. The widow had been assured by the deceased that he would name her as a beneficiary of his RSPs, which he did not do. The widow was also assured by the estate trustees that she would be taken care of financially by them. The widow did file her election within 6 months of the death of the deceased but failed to commence her equalization application within that time-period.
[50] In Slaven, not only were the estate trustees on notice that an election had been filed, they had received a letter from the widow’s lawyer telling them that they should refrain from making a distribution of the deceased’s estate. Despite this, the estate trustees “moved with haste to administer the Estate and distribute the assets to the three beneficiaries”. (p. 5)
[51] In granting the widow an extension of time to bring her equalization application, the court concluded that no one would suffer substantial prejudice by reason of the delay; that the beneficiaries were aware of the widow’s need for financial support; and the fact that she had filed an election and that the delay in bringing the application was a “slip up”. The court concluded that the delay had been incurred in good faith; that the widow had acted in “blameless ignorance” and was negotiating in good faith with the estate trustees who appeared not to have been acting in good faith. The court concluded that the widow acted on what she viewed to have been a promise by the estate trustees to assist her financially and acted honestly and with no ulterior motive.
[52] The facts here are different from Slaven. Here, Carol has not expressed an intention to make an election or taken steps to file an election or to bring an application. There have been no promises made to her with respect to financial assistance; to the contrary, the evidence on the motion supports the conclusion that Sean has made it clear to Carol that he always intended to follow the terms of the Will.
[53] Based on the evidence on the motion, the Court cannot conclude that Carol was ignorant about her rights; she has been represented by counsel since December 2015. For the same reason, in the absence of any evidence to suggest otherwise, it is reasonable to conclude that Carol either knew of and/or participated in the partial distribution of the Company. There is no doubt that she knew of the transfer by June 2016 but, even then, Carol neither advised Sean that she was seeking an extension of time to make an equalization claim or that she wished to make an equalization claim, nor did she resign as co-estate trustee or refuse to accept the gifts to her under the Wills.
[54] The Court was not provided with any evidence upon which to conclude that there was any acquiescence by the estate or holding out to Carol that she need not worry about the expiration of the limitation period. Again, the evidence suggests the contrary.
[55] The final case referred to by Carol was the 2002 Ontario Superior Court of Justice decision in Curtner v. McNally, 2002 CarswellOnt 4125. In that case, the limitation period for launching a support claim under the FLA had expired either in September or December of 2000. Prior to the expiration of the limitation period, counsel for the defendant advised that he was leaving on a lengthy summer vacation and that if the claimant spouse sought to initiate a claim, the defendant could not respond until after return from vacation. The claimant’s lawyer advised that he would be content to await the other lawyer’s return from vacation before proceeding. In fact, no proceedings were commenced until January 2001, after the expiration of the limitation period.
[56] The court concluded that there were apparent grounds for relief and that the defendant would not suffer substantial prejudice by reason of the delay. In determining that the delay had been incurred in good faith, the court concluded that the claimant had made it clear all along that she was pursuing a claim and that the claimant and her lawyer acted honestly and without ulterior motive.
[57] The court quoted from the 1990 decision of Justice Mendes da Costa in Hart v. Hart, 27 RFL (3d) 419 who held that to establish “good faith” a party must show that he or she acted honestly and with no ulterior motive. Further, that a mere failure to make enquiries would not necessarily negate good faith “provided that the absence of inquiry does not constitute wilful blindness or does not otherwise, in all the circumstances, fall below community expectations. As I have stated, my assessment of the evidence is that the wife was ignorant of her rights under the Act and I believe that her state of mind was one of blameless ignorance…”.
[58] The court in Curtner concluded that the surviving spouse did not fail to make enquiries, but in fact made abundant enquiries. Here, the evidence suggests that Carol either had sufficient information to make an informed choice or to know that she needed to seek an extension of time to make her choice. Also, it is not until after the expiration of the limitation period that Carol requests more financial information.
[59] Both the language used in ss. 2(8) and the cases referred to by Carol make it clear that the relief granted is discretionary.
[60] In her submissions on the motion, Carol’s counsel confirmed that there are assets in the estate worth perhaps close to $2 million and that Carol is still entitled to bring a claim for support pursuant to the SLRA.
[61] In concluding that the extension of time ought not to be given, I have determined that Carol has not shown that her delay in bringing this motion was incurred in good faith. Carol has not really explained why she failed to assert a claim or, if she believed that she needed further information, why she failed to seek an extension of the FLA limitation periods to allow her time to investigate and evaluate her FLA claim. Further, the evidence leads to a conclusion that Carol was deliberate in her actions to act as co-estate trustee even when asked to resign; she accepted her gifts under the Wills; and may have participated, or at least tacitly acquiesced, in the distribution of the Company shares. As a result, Carol has not satisfied the requirement of ss. 2(8)(b).
[62] While there is little detail from Sean as to what prejudice he has suffered by Carol’s delay, I find that the partial distribution of the estate, namely the transfer to Sean of the Company’s shares, is evidence of some prejudice.
[63] Finally, in exercising discretion not to grant the relief sought, the Court recognizes that Carol may not be left without any remedy, as she may still be able to pursue a claim under the SLRA.
Costs
[64] If the parties are unable to agree on costs, the parties shall serve and file written costs submissions, not to exceed three (3) pages, plus a Bill of Costs, and copies of any Offers to Settle. Sean’s costs submissions shall be delivered within 15 days of the date of the release of these Reasons and Carol’s shall be delivered 15 days after she was served with Sean’s submissions.
L. Sheard, J.