October 3, 2014

In the recent case of Cowderoy v. Sorkos Estate, 2014 ONCA 618, the Ontario Court of Appeal considered the question of how competing claims against an estate are to be appropriately balanced.

Gus Sorkos and Victoria Cowderoy were in a common-law relationship until Victoria’s death in 2001.  During that time, Gus became close with Victoria’s two grandchildren, Mark and Paul Cowderoy. Following Victoria’s death, Gus married Rena, a childhood friend from Greece.

Gus died in 2008.  In his will, he left his wife Rena $250,000, a RRIF, and a few other bequests. The rest of the estate went to his siblings. Rena brought a claim for dependant’s support against the estate.  The Cowderoy brothers also brought a claim against the estate to enforce certain promises Gus made to them while alive.

The trial judge declined to consolidate the two cases and instead heard them separately, with the Cowderoys’ action being heard first. At that trial, the judge found that Gus had promised to give the Cowderoy boys his farm and cottage properties after he died in exchange for their help while he was alive. The judge held that the Cowderoys were entitled to the farm and cottage properties and ordered that the properties be transferred to them immediately.

At the hearing of Rena’s application, the judge granted her some additional support from the estate. However, the trial judge calculated the amount of support based on the estimated value of the estate after discounting the cottage and farm property (the two most valuable assets of the estate), which he had already ordered to be transferred to the Cowderoy boys.

The estate trustees appealed the Cowderoy decision. New evidence was introduced at the appeal showing that once the cottage and farm were transferred out of the estate, the estate liabilities exceeded the remaining estate assets. As a result, there were not enough funds in the estate to meet Rena’s support obligations.

The Court of Appeal held that it was a mistake not to hear the Cowderoys’ action together with Rena’s application for support. Although the Court of Appeal agreed with the trial judge’s finding that Gus had made a promise to leave a bequest to the Cowderoy boys, the agreement between them was for the properties to be given in Gus’s will, and not simply transferred. Therefore, pursuant to s. 71 of the Succession Law Reform Act (“SLRA”), the court could still consider the properties as part of the estate when calculating the amount of dependant support.

The appeal court provided a brief overview of the purpose of s. 71 of the SLRA, which is to balance the testator’s contractual obligation to gift property on death with a dependant’s right to receive support from the estate.  The appeal court held that s. 71 allows the court to claw back into the estate the value of the property gifted by contract up to the amount of actual consideration received. In other words, where a testator promised a $1 million dollar property in exchange for $250,000 worth of work, s. 71 allows the court to claw back $750,000 of the $1 million dollar property into the estate for the purpose of calculating dependant support.

Given the mistakes found to have been made by the trial judge, the Court of Appeal ordered a new trial to determine the amount of Rena’s dependant support.

This decisions illustrates the legislative power the court has to ensure dependants are adequately protected. Even an asset that appears to be subject to a binding contract between the deceased and another party may be clawed back pursuant to section 71 of the SLRA.