Written by Barbara Stratton, Q.C., Barbara Kimmitt and Shaun Parsons
If you are a beneficiary in a will that contains a no-contest clause, and you don't like what the will directs, be careful before you question its validity. You just might lose everything.
A no-contest clause is intended to discourage costly court proceedings raised by people who might be disappointed by a will, especially where they stand to gain more from a previous will. On February 27, 2019, the Alberta Court of Appeal released its decision in Mawhinney v Scobie, 2019 ABCA 76 [Scobie], a seminal decision in the drafting and interpretation of no-contest clauses. The Alberta Court of Appeal allowed the appeal argued by Barbara Stratton, Q.C., and Sarah Huot of Bennett Jones LLP. The Court ruled that if the disappointed beneficiary gave evidence of "suspicious circumstances" relating to the will, with a view to asking the Court to direct a full hearing regarding its validity, this would constitute challenging the will itself. This would activate the no-contest clause resulting in her loss of inheritance, unless she ultimately succeeded in proving the testator lacked capacity.
A No-Contest Clause: What is it?
Simply put, a no-contest clause in a will causes a beneficiary to lose his or her entitlement under the will if he or she challenges the validity of the will and ultimately is unsuccessful in that challenge. They are famously referred to as "Frank Sinatra" clauses because Sinatra included a no-contest clause in his will. In other words, he did it his way.
Canadian law allows these clauses to be used in wills, but they require careful drafting, as the Scobie decision shows. (The will in question, including the no-contest clause, was drafted by Bennett Jones LLP.) Also, there are limits to how broadly these clauses can be applied. For example, a no-contest clause is not allowed to deprive a person of rights which arise from statute, such as maintenance and support obligations.
What did the Court of Appeal decide?
In Scobie, the will stated that if any beneficiary challenged its validity, or questioned the will in court, that beneficiary would lose his or her inheritance, unless the beneficiary was simply asking for judicial interpretation of the will, or seeking to enforce or obtain any rights or benefits allowed under the law.
The disappointed beneficiary argued that simply bringing evidence to the Court of suspicious circumstances surrounding the signing of a will is not a challenge to the will itself. She also argued that the Surrogate Rules of Alberta give people a right to ask the Court to inquire into the circumstances surrounding the will. She argued that the no-contest clause in question specifically permitted her to make an application to the Court to enforce her rights.
The Alberta Court of Appeal disagreed. The Court said that the Surrogate Rules are procedural, and do not give a person any substantive legal rights. The Court noted that: "The very essence of an application raising suspicious circumstances is to challenge the validity of the will." Moreover, the Court found that "the effect of the no contest clause is to test the fortitude of a potential challenger to the validity of the will and how strongly they believe they can successfully challenge the will. The clause is designed to discourage litigation, not prohibit it."
The takeaway from this case is that while there may be scenarios where it is worthwhile for a beneficiary to challenge a will and risk activating a no-contest clause, that person gambles with losing their inheritance if the no-contest clause is properly drafted.