Posts tagged ‘Creditors’

March 29, 2011

Priority Issues Among Creditors of Deceased

Priorities among creditors of a deceased are often an issue to be dealt with where an estate’s debts exceed its assets.  In a recent Ontario Superior Court of Justice case, Re Greeley Estate, the court was required to determine whether a lawyer’s fees and disbursements in connection with personal injury litigation services provided to the deceased should have priority over unpaid child support.  The issue was complicated by the fact that the assets available in the estate were the result of a settlement negotiated on behalf of the deceased (before he passed) by the lawyer.  The court determined that child support had priority in this situation.  While the court found that, as a general matter, the lawyer would have a first charge over funds obtained through his or her efforts, the court noted that there was discretion to order otherwise.  The court did so, giving priority to the child support claim based on three findings of fact.  Firstly, the court found that the lawyer had notice of the outstanding child support order prior to proceeding to mediation (where a settlement was reached) and did not move for a charging order at that time.  Secondly, the outstanding child support order predated the existence of the settlement of the litigation by more than eight years.  Thirdly, and I suggest most importantly, the court found that the intention of the Legislature was to give priority to child support orders over other debts as evidenced by the Creditors Relief Act and the Family Responsibility and Support Arrears Enforcement Act

While in this situation it may be difficult to suggest that the result should have been otherwise, the reasoning does raise some concern.  Firstly, given that the deceased was still alive at the time that the settlement was reached, I would suggest it is unlikely that any lawyer would be seeking a charging order at the time the settlement was reached.  The result could require lawyers to make assessments of their clients’ financial wherewithal and seek charging orders as a matter of course.  This is highly unlikely, in particular in personal injury matters where cases are generally taken on a contingency or deferred fee basis and lawyers are paid out of settlement proceeds.  In many of these instances, the plaintiff is unable to pay legal fees up front.  The use of charging orders in all of these instances would be impractical.  Although the case does not indicate the nature of the settlement, perhaps the outcome might also have been different if the settlement had specifically allowed for payment of fees and disbursements to the lawyer.  I suggest though that this case is an unusual situation where the court found the greater need to be that of the children deprived of child support and found a way of dealing with that need – difficult to argue with that result.

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