Listen to Settlement Issues
This week on Hull on Estates, Paul Trudelle and Christopher Graham talk about settlement issues – considerations that you have to take into account and the potential implications of not settling.
Settlement Issues – Hull on Estates Podcast #122
Posted on August 5th, 2008 by Hull & Hull LLP
Paul Trudelle: Hello and welcome to Hull on Estates. You’re listening to Episode #122 of our podcast on Tuesday, August 5th, 2008.
Welcome to Hull on Estates, a series of podcasts for the Canadian legal community dealing with issues and insights surrounding estate planning in Canada. Hosted by the lawyers of Hull & Hull, the podcast will touch on some key considerations when planning estates and wills. Now, here are today’s hosts.
Paul Trudelle: Hi, I’m Paul Trudelle and welcome to another episode of Hull on Estates.
Chris Graham: And I’m Chris Graham.
Paul Trudelle: How are you Christopher?
Chris Graham: I’m great, Paul, yourself?
Paul Trudelle: Very good. We just came off of a great long weekend and I’m looking forward to a compressed but busy week ahead, but before we do that, we thought we’d put this podcast out there. So let’s get to that. We were talking about what we were going to talk about today, and we decided we would talk a bit about settlement issues, what a settlement is, and considerations that go into settling, why parties should consider settling and the implications of not settling. So let’s start on that topic.
Chris Graham: Okay, Paul, settlement is a beautiful word in estates litigation, so why don’t you tell us what a settlement is.
Paul Trudelle: Well a settlement is an agreement or a contract between the parties to end the lawsuit, to determine the matters in issue and to determine how the matter is going to be resolved. It’s a resolution that is arrived at by the parties, not judicially handed down. However there are matters that still need to be determined by the Court; but usually that is done on consent and the Orders necessary in order to wrap up or finalize the litigation are made by the Court but on the agreement of the parties.
Chris Graham: And are there any special situations where you must go to Court in order to finalize the settlement?
Paul Trudelle: Oh, there’s a number of those. Court approval is required if there are minors involved. If there’s an issue with respect to getting probate of a Will or determining what Will is to be probated, that’s a matter that’s determined by the Court as well. In most cases, you need an Order from the Court dismissing the application or action, if the litigation has actually been started. There are other times when you will need to get other incidental Orders that are necessary in order to implement the terms of the settlement.
Chris Graham: Okay, in estates litigation, experienced practitioners typically throw out the line that 95% of estates litigation matters settle without a trial. I think it might be higher, it might be more like 97 or 98%. Why do so many cases settle in this area?
Paul Trudelle: I think it’s probably by necessity. I think there’s a number of factors that come into play that make going to Court expensive, time consuming, difficult, uncertain, and all of those factors should lead the parties acting reasonably to come to a resolution in order to avoid that, in order to have the matter determined with some certainty, probably, hopefully at a cheaper cost and much quicker, without the risk and uncertainty of trial. So I think those are all factors that play into arriving at a settlement. I’m not sure what the percentages are. I know that most cases do settle outside of estate litigation and that’s probably the case or higher in estate litigation. We’ve been accused by senior counsel in our firm of being white flag waivers, but I think that’s not a fair assessment. I think that it’s something that is to the benefit of all the parties involved if the settlement can be reached at an early stage.
Chris Graham: Well we never wave a white flag. We never wave any flag. Our clients make all the calls.
Paul Trudelle: Yes. So why don’t we talk a bit about the factors, or reasons why matters settle. I think we talked or touched on one briefly, it’s the cost of proceeding.
Chris Graham: Yeah. Every litigation matter is different but it’s a ball-park figure and a fair one that a basic trial that lasts five or fewer days is going to cost $125,000 – $150,000 per party appearing in the trial, and that cost, of course, is obviously staggering, because that is a modest cost. It can easily far exceed that.
Paul Trudelle: Yeah, the costs, I think, are one of the biggest factors as to why things should settle. There was a lot of talk in the newspapers last week I think, about the cost of proceeding and the fact that most middle-class people in Ontario couldn’t afford or can’t afford to proceed with full-blown litigation. It’s just simply too cost prohibitive. And I think that’s a real consideration why things should settle. You know every case is different, but I think what they all have in common is that the expense of proceeding is simply too high and it’s something that the parties all have a difficult time in bearing and in most cases can’t warrant that. In fact, no case should warrant the full cost of proceeding to trial. And that’s a factor that’s got to be taken into account as you proceed and when you turn your mind towards a resolution from the outset.
Chris Graham: You know, typically, when clients come in, of course we see all kinds of cases, strong cases, weak cases, people asking questions about the strength of their case or whether they even have a legal issue. But certainly, I just named three or four different scenarios. What ties them all together is risk. Can you tell us a little about the risks that litigants face in terms of why those risks may create incentive to settle?
Paul Trudelle: I think that no case that is going to become litigious is without risk. I think there are very few cases that are sure things and any case, if anybody tells you that a case is a sure thing, well I don’t know if that’s a fair thing to say. I think that there are risks involved, issues arise as matters proceed. There’s uncertainty with respect to who your judge is, how he or she is going to see the evidence, the evidence you’re going to be able to get, the evidence that’s going to be admitted, how the witnesses are going to present on a particular day, what their recollection is going to be, whether your witnesses are going to survive and be able to testify as it goes to trial, because of the delays involved and other uncertainties in life that we all know about. There’s just a myriad of risk and uncertainty as matters go to trial and we’re always told in mediation that you can avoid that by coming to a mediated settlement or some agreement that avoids that risk, takes the matter out of the hands of a third party in deciding this and lets the parties come to a resolution. The avoidance of that risk is a paramount concern.
Chris Graham: Absolutely. Even for parties who may be justified at a particular point in time in feeling like they have a very strong case. The longer the procedure, the process evidence gathering goes, the longer they’re exposed to the risk of evidence that really doesn’t favour them emerging. A phantom letter coming out of nowhere, some long lost relative emerging, a doctor coming forth with notes. It happens, and not to say it happens in every case, but it really does happen and strong cases may get a lot weaker right before trial.
Paul Trudelle: That’s right. And playing into that is just the time that it takes to get to trial. Unfortunately, it takes months, if not years in most cases, in order to get a matter to trial if you want a trial date that’s, you know, three or four or five days or more. I know that in certain jurisdictions in Ontario they are now setting trials in 2010-2011, which seems like it’s a lifetime away, although it’s quickly creeping up on us. But it does take a long time to get to Court and that’s a factor as well. It’s better to have the settlement funds in your pocket today than win at trial and get that money at a later date.
Chris Graham: And that’s also doubly the case in estates litigation where typically you’re fighting over assets that, a very common one is a house where it has a carrying cost but it may not necessarily be appreciating, or a small business worth $1.5 to $2,000,000. You need a trustee in there managing it, it may not be making money, the estate may be deteriorating in value over the course of this litigation. And you may wait for two years to get to trial, have a great case that only gets stronger, and find that your ultimate result is far inferior to the settlement you could have taken 2½ years ago that also would have paid you 2½ years of peace of mind.
Paul Trudelle: Yeah, that’s right. I think that the passage of time exacerbates both the costs by necessity and the risk involved and it may mean that you’re dealing with a smaller pie at the end of the day because of that and simply because of the passage of time. One of the things we didn’t mention is that after your trial, there is always the likelihood or prospect of an appeal which may add another year or two years to the matter before it’s finally determined.
Chris Graham: Okay, what we’ve told you so far is generic information about the trial system with a bit of an estates flavour, but generally most of it applies to general litigation as well as estates. But estates, of course, is a specialized area and there are significant differences with other areas. Can you lead us through some of them, Paul?
Paul Trudelle: Yeah, I think one of them is that in estates matters, for example, usually if we’re talking about the example of a Will challenge, there’s usually a fixed amount, like we talked about the pie, we know what the size of the pie is. Usually by, early on in the litigation or as it proceeds, everyone gets a firm grasp of what the pie is, what the size of the estate is. So you have a pretty good handle on what it is you’re fighting for, and unlike a personal injury case where that’s another variable, everyone knows what the size of the pie is. I think that allows the parties to, it should make it easier to settle the case because you know what you’re fighting over as opposed to a personal injury case where that’s something that the parties may differ on what the quantum of the damages is going to be. Here, although they’re not damages, you know what the damages are.
Chris Graham: Yeah, and that leads us, because there’s that pot of gold, that leads us into another difference, and this is a huge fundamental difference between estates litigation and say, contract litigation, where you sue someone for breach of contract $2,000,000 or $3,000,000, you win, they may pay, they probably will pay at least some of your costs. How does estates litigation differ in that respect?
Paul Trudelle: In estate litigation there’s another possibility with respect to the costs awards in normal, not normal litigation, not the right word, but in traditional litigation. Fees are payable by the winner or loser. That may be varied according to the conduct of the parties, or any offers to settle that are made. But it’s the parties that will end up paying the costs. In estate litigation, that is often the case and that seems to be the trend now, that the winner or the loser will pay the costs. However, there is that third possibility which is that some or all of the costs will come out of the estate. And I think that extra variable leads to the uncertainty, it also leads to the risk on the parties. Historically, costs would always come out of the estate and that would reduce the risk; now the Courts are moving away from or have moved from that and I think that just increases the risk that at the end of the day, someone’s going to be very upset by the outcome.
Chris Graham: Exactly, and let’s take a simple example. If you’re fighting over a $500,000 estate and you have a basic trial, $125,000 a piece, so you’ve got a quarter of a million, half of the estate in legal fees. There’s the risk for the winner. There’s the remote risk that the winner may have to pay his own lawyers, the other side’s lawyers and get the $500,000. So the winner may win and only get a quarter of a million, there’s an outside risk that that person who won may actually lose, pay all his fees, pay all the other side’s fees, so you’re down three quarters of a million dollars, well you’re down a quarter of a million but you’ve lost out on the estate, and those are the two worst-case scenarios. But, I mean, right there, $500,000, you were fighting over $500,000 and your worst-case scenario is negative $250,000, it’s a pretty huge spread.
Paul Trudelle: Yes. I think another difference in estate litigation that you don’t see in other types of litigation is that in a Will challenge, for example, if you can settle it, you can settle it on the basis of some fair division or a division of the estate that would satisfy everyone. When you go to Court though, the Court isn’t able to make that division, it’s not able to split the pie so to speak — Will challenge is an all or nothing prospect. When it goes to Court, either the Will is valid or it’s invalid. If it’s valid, you may get nothing or you may get everything. Whereas, if you’re able to negotiate a settlement, you can come to some resolution that’s somewhere between those two extremes. So I think that’s an important factor and another reason why estate litigation settlements make sense and are very important to consider.
Chris Graham: And with the types of assets that we typically encounter, a businessman may die and have a growing business that may roll over into his spouse’s spousal trust so there aren’t taxes, capital gains taxes payable. There are all kinds of opportunities in settlement negotiations to come to genuine win-win bargains where both parties avoid huge risk and potentially come out on top. Sometimes, even on top of where they may have ended up in a “total victory” scenario minus legal fees.
Paul Trudelle: Well that’s great, Chris. Why don’t we end it on a win-win and wrap up for this week. If you have any comments or questions, we hope you can pass them on to us. We love to hear from you. You can send us an e-mail at firstname.lastname@example.org, or just pick up the phone and leave us a message on our comment line at 206-350-6636. And be sure to visit our blog at estatelaw.hullandhull.com where you’ll find even more information about today’s practice of estate law.
Chris Graham: We hope you enjoyed the show. I’m Chris Graham.
Paul Trudelle: And I’m Paul Trudelle. Thank you.
This has been Hull on Estates with the lawyers of Hull & Hull. The podcast you have been listening to has been provided as an information service. It is a summary of current legal issues in estates and estate planning. It is not legal advice and you are reminded to always talk with a legal professional regarding your specific circumstances.
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