January 29, 2024

Rule 1.03 of the Ontario Rules of Civil Procedure defines a person under a disability as being a minor or someone mentally incapable within the meaning of section 6 or 45 of the Substitute Decisions Act, 1992, S.O. 1992, c.30, in respect of an issue in the proceeding. In estate litigation, the rights of minor or incapable beneficiaries are often impacted. When these types of case are resolved, Rule 7.08 requires that any settlement involving an incapable person be approved by a judge before it is binding on the incapable person. Rule 7.08(1) states:

No settlement of a claim made by or against a person under disability, whether or not a proceeding has been commenced in respect of the claim, is binding on the person without the approval of a judge.

Generally, the duty of the Court in these proceedings is to ensure that the settlement is in the best interests of the party under disability. In particular, the Court must ensure that the legal rights of the party under disability are not compromised or surrendered without proper compensation (Wu, Re, 2006 CanLII 16344). The Court should consider the complete factual matrix, evidentiary record, and likely outcomes when assessing whether the proposed settlement is fair and reasonable, and in the best interests of the person under disability. It is relevant that further litigation will increase costs and may risk a lower award or adverse result at trial (Cheryl Braithwaite v. Yervant Kouyoumdjian, 2017 ONSC 1376).

Further, there are specific requirements for a Rule 7 motion, and approval by the Court is by no means perfunctory. In particular, Rule 7.08(4) provides:

On a motion or application for the approval of a judge under this rule, there shall be served and filed with the notice of motion or notice of application,

(a) an affidavit of the litigation guardian setting out the material facts and the reasons supporting the proposed settlement and the position of the litigation guardian in respect of the settlement;

(b) an affidavit of the lawyer acting for the litigation guardian setting out the lawyer’s position in respect of the proposed settlement;

(c) where the person under disability is a minor who is over the age of sixteen years, the minor’s consent in writing, unless the judge orders otherwise; and

(d) a copy of the proposed minutes of settlement. R.R.O. 1990, Reg. 194, r. 7.08 (4); O. Reg. 69/95, s. 18; O. Reg. 575/07, s. 10.

In specific reference to Rule 7.08(4)(b), there may be occasion where a litigation guardian has not been appointed on behalf of a minor or an incapable person. This may be because the minor or incapable individual were not named as a party, or for other reasons. However, the Court may indeed approve a settlement under Rule 7.08 notwithstanding that the person under disability was not represented by a litigation guardian. In Marek v. McKinnon, the Court held that it may invoke its Rule 7.08 jurisdiction “to scrutinize a settlement agreement entered into by a party with no litigation guardian.”

Moreover, estate trustees have the authority to negotiate settlements on behalf of incapable beneficiaries, notwithstanding that they are not formally appointed as litigation guardian. This authority flows from Section 48 (2) of the Trustee Act, R.S.O. 1990, c. T.23, which authorizes an estate trustee to settle claims on a discretionary basis. Section 48(2) states:

Security and settlement
(2) A personal representative, or two or more trustees acting together, or a sole acting trustee, where, by the instrument, if any, creating the trust, a sole trustee is authorized to execute the trusts and powers thereof may, if and as they may think fit, accept any composition or any security, real or personal, for any debt or for any property, real or personal, claimed, and may allow any time for payment for any debt, and may compromise, compound, abandon, submit to arbitration or otherwise settle any debt, account, claim or thing whatever relating to the testator’s or intestate’s estate or to the trust, and for any of these purposes may enter into, give, execute, and do such agreements, instruments of composition or arrangement, releases, and other things as seem expedient without being responsible for any loss occasioned by any act or thing done in good faith.

Section 48 (2) provides an estate trustee with wide discretion to compromise and settle claims involving an estate, subject only to one criterion: that they act in good faith (Ontario (Public Trustee) v. Rzadkowski Estate, 1999 CarswellOnt 1703).

It is important for litigants and their counsel to be mindful of the impact of their application or claim upon a person under disability. While the settlement of litigation is usually a good development in everyone’s interests, one of the overriding considerations in such cases will be the best interests of the person under disability. As such, Rule 7.08 must be well understood and adhered to.