Moral Obligation amounts to $225,000 variation

Morgan v. Pengelly, [2011] B.C.J. No. 1570

Morgan and Pengelly came together after long lives and rekindled their previous relationship.  Pengelly's previous husband had passed and Morgan had divorced and retired.  They began living in a marriage-like arrangement and eventually underwent a ceremony which had all the hallmarks of a wedding (though without a license).  Both were aware that they did not have a marriage license but Morgan was unaware of the significance of its absence until after Pengelly passed.  At the time of the ceremony, they had executed an agreement that neither would be entitled to the other's property under the Wills Variation Act.  Pengelly had also been informed her existing will would be revoked.  Later, Pengelly wished to sell one of her property's and gift $100,000 of the sale to Morgan.  The property did not sell for some time and Pengelly's health declined.  Before it was sold, she died of a heart attack.  Morgan continued to reside in one of her properties but was later told by her estate to vacate.  The estate had considerable value and her sons were to inherit the whole.  Morgan was of limited means and brought an application under the Wills Variation Act.  

The court tackled many issues relating to the ceremony, the agreement, whether Pengelly's will was valid, and the compensation both parties were entitled to.  

The court concluded by varying the will so that Morgan was to receive $225,000.  The wedding did not create a valid marriage, but the agreement between them was enforceable.  Nevertheless, this did not override the moral obligation Pengelly owed to Morgan.  

[228]      That, however, does not end the enquiry. After considering the legal obligations, if any, owed to the claimant by the decedent, the court is then obliged to consider the moral obligations. As described in Tataryn, those obligations “are found in society’s reasonable expectations of what a judicious person would do in the circumstances, by reference to contemporary community standards.” McLachlin J. (as she then was) stated, at 822-823:

...There being no clear legal standard by which to judge moral duties, these obligations are admittedly more susceptible of being viewed differently by different people. Nevertheless, the uncertainty, even in this area, may not be so great as has been sometimes thought. For example, most people would agree that although the law may not require a supporting spouse to make provision for a dependent spouse after his death, a strong moral obligation to do so exists if the size of the estate permits. Similarly, most people would agree that an adult dependent child is entitled to such consideration as the size of the estate and the testator's other obligations may allow. While the moral claim of independent adult children may be more tenuous, a large body of case law exists suggesting that, if the size of the estate permits and in the absence of circumstances which negate the existence of such an obligation, some provision for such children should be made … [citations omitted]

[229]      As was stated by Martinson J. in Steernberg, at para. 63, the moral duty is “customized to each specific claimant.” The test to determine whether the moral duty has been breached is whether the testator “properly considered the situation of his or her spouse and an appropriate standard of living for that person.”

[230]      The starting point in the Tataryn analysis is not, as suggested by the claimant, determining the entitlement of a spouse under the FRA. Nor is it by reference to what the claimant would receive on intestacy under the Estate Administration Act.

[231]      In determining the moral obligation of a testator to a surviving spouse, and after the legal obligations has been met, as stated in Tataryn, "it falls to the court to weigh the strength of each claim and assign to each its proper priority.”

[232]      In Bridger v. Bridger Estate, 2006 BCCA 230 (CanLII), 2006 BCCA 230, Mr. Justice Mackenzie addressed the competing moral claims of the surviving spouse and three independent adult children. After finding that the testator had satisfied his legal obligation to his spouse outside his estate, he found that the testator’s moral obligation was properly addressed by dividing the balance of the estate equally among the spouse and children. At para. 20, he said:

… Tataryn recognizes that there is no clear legal standard to judge moral claims and the test is more nebulous where the surviving spouse is not strictly speaking a dependent spouse and the children are all financially independent adults. While, as McLachlin J. observes inTataryn, there may be a number of options for dividing assets by a testator which are adequate, just and equitable, I do not think they include a disposition that entirely prefers the moral claims of adult independent children to those of a loyal spouse who provided care for the testator over years of debilitating decline. ...

[233]      This reasoning was echoed by Mr. Justice Low in Picketts v. Hall (Estate), 2009 BCCA 329 (CanLII), 2009 BCCA 329, at para. 62:

It seems to me that it is also not a viable option for the court to approve a disposition that substantially prefers the moral claims of adult independent children to those of a long-term, caring and dedicated spouse.

[Emphasis by Low J.A.]

[234]      Regardless of the validity of the Agreement and its provisions regarding waiver of claims under the WVA, the court retains the ultimate discretion as to the application of the WVA.

[235]      In Steernberg, Martinson J. dealt with the impact of a marriage agreement on a WVA claim by a surviving spouse, concluding that “such prenuptial agreements do not bar a wills variation claim and are just one factor to consider.” She stated:

[70]      Tataryn did not deal with the question of the significance of prenuptial agreements in the wills variation context. The leading Court of Appeal decisions in British Columbia considering the effect of prenuptial agreements are cases in which there was an express waiver of the right to apply under the WVA. The Court in those cases concluded that such prenuptial agreements do not bar a wills variation claim and are just one factor to consider: Boulanger v. Singh 1984 CanLII 403 (BC CA), (1984), 59 B.C.L.R. 383, 16 D.L.R. (4th) 131, 18 E.T.R. 1 (C.A.); Wagner v. Wagner Estate 1991 CanLII 5739 (BC CA), (1991), 62 B.C.L.R. (2d) 1, 85 D.L.R. (4th) 699, 44 E.T.R. 24 (C.A.), leave to appeal to S.C.C. denied (1992), 89 D.L.R. (4th) vii; Lobe v. Lobe Estate (1996), 13 E.T.R. (2d) 126 (B.C.S.C.), aff’d 1997 CanLII 2834 (BC CA), (1997), 37 B.C.L.R. (3d) 138, 17 E.T.R. (2d) 275 (C.A.); Howard v. Howard Estate 1997 CanLII 3553 (BC CA), (1997), 32 B.C.L.R. (3d) 1, 16 E.T.R. (2d) 161 (C.A.); and Chutter v. Chutter Estate, 2000 BCCA 205 (CanLII), 2000 BCCA 205.

[71]      It has been suggested that in view of the Supreme Court of Canada’s decision in Hartshorne v. Hartshorne, 2004 SCC 22 (CanLII), 2004 SCC 22, prenuptial agreements will likely be treated with more deference by the courts in the wills variation context: see for example. AnnaMarie Laing; Use of Marriage/Separation Agreements to Defeat Wills Variation Act Claims, Estate Litigation: Attaching the Will 2005, Trial Lawyers Association of British Columbia (May 2005); and Edward F. Macaulay, An Update on the Wills Variation Act, Estate Litigation – 2005 Update The Continuing Legal Education Society of British Columbia (November 2005).

[72]      I have concluded, with respect, that the Court’s analysis in Hartshorne is of limited assistance in the wills variation context.Hartshorne dealt with Part V of the Family Relations Act, R.S.B.C. 1996, c. 128, (the “FRA”). The scheme of the FRA is that, in the absence of a prenuptial agreement, each spouse is entitled to an undivided one-half interest in family assets (s. 56) subject to the Court’s power to change the division if it is unfair having regard to the six factors set out in s. 65(1). That section states:

...

[79]      There are a number of reasons why I have concluded that the Court’s analysis in Hartshorne is of limited assistance in the wills variation context. First, the Court in Hartshorne was specifically focused on only one legal obligation owed after separation, that relating to the division of property under the FRA. Other legal obligations are found in the law of unjust enrichment and the Divorce Act.

[80]      Second, the Court in Tataryn concluded that the second part of the two-part wills variation test, dealing with moral obligations, is distinct from and goes beyond legal obligations. As noted above, the Court said that most people would agree that although the law may not require a supporting spouse to make provisions for a dependent spouse after death, a strong moral obligation to do so exists if the size of the estate permits.

[81]      Third, the FRA explicitly provides that a marriage agreement will prevail unless a spouse can prove that it is unfair. Hartshorne was decided in that context. There is no such provision in the WVA.

[82]      Finally, while both the WVA and the FRA consider fairness, each does so in a different context. The FRA is concerned with the situation in which a relationship breaks down and each person continues with his or her separate life; the WVA is generally concerned with a relationship that would have sustained but for the death.

[236]      As stated in Mawdsley, the agreement is a relevant consideration, but is not conclusive. It does not oust the court’s jurisdiction under theWVA:

[329]   It is settled that the agreement between Joan and Dennis to maintain separation of their assets free of claims by the other does not oust the Court’s discretionary jurisdiction under the WVA to vary Joan’s will in appropriate circumstances: Wagner v. Wagner Estate 1991 CanLII 5739 (BC CA), (1991), 5 B.C.A.C. 55, 62 B.C.L.R. (2d) 1 (C.A.); Steernberg v. Steernberg Estate, 2006 BCSC 1672 (CanLII), 2006 BCSC 1672, 28 E.T.R. (3d) 1; Bridger v. Bridger, 2005 BCSC 269 (CanLII), 2005 BCSC 269, 13 E.T.R. (3d) 279, aff’d 2006 BCCA 230 (CanLII), 2006 BCCA 230, 53 B.C.L.R. (4th) 235. Their agreement is a relevant consideration but is not conclusive. In my opinion, it does not negate Joan’s moral duty to Dennis.

[237]      Just as the oral agreement in Mawdsley vitiated the decedent’s legal obligation to the claimant, the Agreement here has the same effect. The question remains, did the Agreement vitiate the decedent’s moral obligation to the claimant?

[238]      I conclude that it did not.

[239]      As in Mawdsley, I am of the view that there is a strong moral duty on behalf of the decedent to have made provision for the claimant in the event she predeceased him while they continued to reside together as man and wife. In Mawdsley, Ballance J. stated:

[331]   Contemporary standards, modern values and expectations contemplate a wide variety of living and financial arrangements among unmarried spouses in the Canadian landscape. In the recent Court of Appeal decision of Picketts v. Hall (Estate), 2009 BCCA 329 (CanLII), 2009 BCCA 329, the Court canvassed the relevant considerations in assessing the strength of a variation claim brought by a common law spouse, and particularly the moral duty owed to her.

[332]   Having regard to the length of their marriage-like relationship, the lack of any legal obligation owed by Joan to any of her children, the magnitude of the assets passing to the Meshen children under the Joan Meshen Trust and in consequence of the other pre-death transactions undertaken by Joan, Dennis’s comparably inferior financial stature and his advanced age, I find that Joan’s moral obligation to Dennis is a heavy one that overtakes any legal duty she may have owed.

[333]   In weighing the totality of the evidence in light of the animating legal principles, I conclude that Joan did not make adequate provision from her estate for Dennis and that her failure to leave anything to him under the Last Will falls below the moral obligation of a contemporary judicious spouse in all of the circumstances.

[240]      Counsel for the respondents note that in Mawdsley, the value of Ms. Meshen’s estate exceeded $10 million before the creation of the trusts which significantly reduced the estate.

[241]      In the present case, the decedent owed no legal duty to any of her adult children. It is clear she intended them to have the whole of the estate. However, she recognized a moral obligation to the claimant when she advised her sons she wished to provide the claimant with $100,000 from the intended sale of the Celista property. Later, just before she died, although not in contemplation of death, she augmented that direction by including provision for a new automobile to help overcome the physical difficulty the claimant was experiencing with his existing transport.

[242]      In fairness, all three sons expressed a willingness to abide those wishes and communicated that to the claimant. He acknowledged he was satisfied with those arrangements, but, presumably, changed his mind after seeking counsel.

[243]      I conclude that the net value of the estate, when adjusted for taxes payable and the overly optimistic view of the Celista property set out in the Affidavit of Inventory and Value, is approximately $2.2 million.

[244]      As stated in Tataryn, I am to vary the decedent’s Will only to the extent necessary to achieve the objectives of the WVA. The quantification of the moral obligation must also pay deference to the express wishes of the testatrix.

[245]      The analysis neither starts, nor ends, with an assessment of what the claimant’s entitlement would have been under the FRA had the parties separated prior to the Ms. Pengelly’s death. As was stated in Picketts:

[59]      In the present case, the size of the estate makes it possible to fully address the moral obligations of Mr. Hall toward all beneficiaries. A proper adjustment in favour of Ms. Picketts can be arrived at without risking any harm to the lesser moral obligation Mr. Hall owed to his two sons. On the other hand, testamentary autonomy always has to be considered and I do not see that the Act, as interpreted in Tataryn, requires the moral claims of the beneficiaries to be placed in a hierarchy with the beneficiaries ultimately receiving portions of the estate in correspondingly decreasing percentages. This is particularly so where the estate is substantial as is the case here.

[246]      There a number of obvious distinctions between the claimant in Picketts and Mr. Morgan. The length of cohabitation here is much shorter. InPicketts, there was no agreement, written or otherwise. No career aspirations were given up by Mr. Morgan which made him dependent upon Ms. Pengelly, nor did he deplete his resources to pay for things which Ms. Pengelly ought to have provided for him. There was no period where he cared for Ms. Pengelly in the same sense as Ms. Picketts. No promises were made to Mr. Morgan. Most importantly, the sizes of the estates are vastly different.

[247]      On the other side of the coin, the claimant is 81 years of age. He was a loyal and loving companion to Ms. Pengelly for nine years. They were married to one another in every sense but legally.

[248]      Each of the named beneficiaries in the Will is independent and self-sufficient.

[249]      Unlike the claimant in Mawdsley, Mr. Morgan has a modest net worth and similarly modest income. The estate of Ms. Pengelly is significantly less than the global assets of the decedents in Mawdsley or Picketts.

[250]      While I conclude that the Will ought to be varied, I do so only to the extent required to provide the justice to the claimant that the Will failed to achieve, commensurate with the decedent’s moral obligations.

[251]      In the result, I vary the Will to provide for a bequest to the claimant in the amount of $225,000. This amounts to approximately 10% of the net value of the decedent’s estate. The residue is to be split equally between her three sons, Derek, Craig, and Stewart Pengelly.