The Validity Of No Contest Clauses

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Wills – No-Contest Clause Validity

A no-contest clause in a Will attempts to limit a beneficiary’s ability to challenge the Will.  An example of such a provision would be:

To X but if X directly or indirectly attempts to contest or oppose the validity of this Will, then X shall forfeit his or her right to the legacy, bequest or gift.

How have the BC courts treated no-contest clauses?

There have been two BC cases that have dealt with no-contest clauses.  In both of the cases, the no-contest clause was deemed invalid.  In one case the no-contest clause was deemed invalid as it breached the in terrorem doctrine by not including a gift-over provision in the no-contest clause and the other was deemed invalid on the basis of public policy as the no-contest clause attempted to circumvent the provisions of legislation formerly known as the Wills Variation Act (“WVA”).

In Bellinger v. Nuytten Estate, 2003 BCSC 563, a no-contest clause was the subject of judicial scrutiny.  The court deemed the no-contest clause void.  The court based its decisions on a breach of the in terrorem doctrine.  This doctrine is creature of equity and stands for the proposition that the will-maker had not really meant to impose the no-contest clause, and that therefore the condition could only be valid if the will-maker demonstrated, by the inclusion of an explicit gift-over clause, that the will-maker intended as the Will suggests.  So in other words, for a no-contest clause to be valid it must include an explicit gift over clause.  A gift over clause using the example above would look like this:

To X but if X directly or indirectly attempts to contest or oppose the validity of this Will, than X shall forfeit his or her right to the legacy, bequest or gift.  If X forfeits his or her right to the legacy, bequest or gift, then the forfeited gift will fall into the residue of my estate.

In Kent v Mckay, [1982] B.C.J. No. 67 the court determined that the no-contest clause was void not because of the lack of a gift over clause but on the basis of public policy.

The court observed that the no-contest clause in Kent purported to forbid “any litigation in connection with any of the provisions of this my Will.” It therefore encompassed even applications under the WVA.

The court in Kent further stated that it is a matter of public policy that support and maintenance be provided for those defined individuals under the WVA and it would be contrary to public policy to allow a testator to circumvent the provisions of the WVA by the creation of such a no-contest clause as was present in Kent. It is important to the public as a whole that widows, widowers and children be at liberty to apply for adequate maintenance and support in the event that sufficient provision for them is not made in the will of their spouse or parent.

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Executors Remuneration

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Executor’s Remuneration

When you are named as the Executor in another’s Will, there are many duties, obligations and rights associated with that designation.  One of those rights is Executor remuneration.

Executor’s remuneration in BC is guided by s. 88 of Trustee Act.  An executor can receive a maximum of 5% of the gross aggregate value of the estate for his or her care, pains, trouble and time spent in and about the executorship.  The Executor can also receive a fee of .4% of the average market value of the assets on a yearly basis for the care and management of the assets by the Executor.

In addition to the principles found in s.88 the Will itself could designate the amount of remuneration for the Executor.

In either scenario, the amount of remuneration still must be fair and reasonable and bear some reasonable relationship to the work and responsibility of the Executor.  If there is a dispute amongst the beneficiaries and Executor as to how much remuneration an Executor is entitled to, the court will have to intervene and determine the appropriate level of remuneration. The factors that a court will consider when determining Executor remuneration include:

  1. the magnitude of the estate;
  2. the care and responsibility involved;
  3. the time occupied;
  4. the skill and ability displayed; and
  5. the success achieved in the final results.

An Executor can also be reimbursed for expenses he or she may have incurred as a result of fulfilling his or her duties as Executor.  For example, an Executor may have to seek the aid of lawyers or accountants when handling the estate.  The fees that the Executor pays to these various professionals can be recovered as long as they related to the estate and for services that the Executor could not have performed themselves.

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The Family Maintenance Enforcement Program and Costs

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The Family Maintenance Enforcement Program (FMEP) and Cost Awards

The purpose of this blog will be to provide a brief overview of the purpose behind the FMEP as well as discuss the type of cost awards the FMEP will enforce.

The FMEP is a free service provided by the BC government. The FMEP enforces support orders and agreements on behalf of the person who is owed support (“Creditor”).  Once someone is enrolled in the FMEP, all support payments must be sent to the FMEP. The FMEP processes the payments and sends them on to the Creditor.

To enforce a support order or agreement, the FMEP can take all legal steps the Creditor could take on their own. The FMEP can also take other steps the Creditor cannot, like restricting the driver’s licence of the person who owes support (the “Debtor”) or taking away their passport.

If support payments are missed and arrears are owed, the enforcement steps the FMEP takes depend on how much arrears are owed, the current situation of the Debtor, and the actions the FMEP thinks have the best chance of success in the circumstances.

The FMEP can garnish wages, redirect money from government institutions, file liens on the Debtor’s property, place restrictions on the Debtor’s licence or passport and even put the Debtor in jail.

As can be seen from the above the FMEP can be a very forceful tool in enforcing payments under maintenance orders.  However, what type of court costs will the FMEP enforce?

First, what are court costs?  There are costs associated with going to court.  They can include court filing fees, legal bills, attendance at court, “disbursements” (i.e., photocopy charges, printing etc.) and other related matters.  The general rule of costs is that absent any special circumstances or considerations, a successful litigant can obtain an order for his or her costs.  This means that if you win your case, the other party may have to pick up a significant portion of your court costs.

The FMEP will enforce maintenance payments and included in the definition of maintenance under the Family Maintenance Enforcement Act is fixed costs awarded under the regulations in favour of the director or a creditor.  Section 15 of the Family Maintenance Enforcement Regulations (the “Regulations”) say that the court can award costs if the court believes the default under the maintenance order could have been avoided.  This would lead to the conclusion that the FMEP will only enforce court costs that stem from s.15 of the Regulations.

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Tax Evasion vs Tax Avoidance

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Tax Evasion vs Tax Avoidance

The purpose of this blog is to give an overview of the main differences between tax evasion and tax avoidance.  Everyone wants to avoid paying taxes but it is simply not possible to avoid paying them all together.  Many businesses and individuals devise schemes and plans with third parties (accountants, lawyers) to limit their amount of tax payable.  It is important know the line between what is legal and what is not.  This leads to the first and likely most important takeaway: tax avoidance complies with the letter of the law whereas tax evasion does not.

The Canada Revenue Agency (“CRA”) says that tax avoidance is legal but “is inconsistent with the overall spirit of the law”.  In other words, tax avoidance occurs when the taxpayer does not provide false information to the CRA, but the provisions of the law are used in a manner that was not intended by Parliament.  Even though tax avoidance is legal, the CRA can still use s. 245 of the Income Tax Act, the general anti-avoidance rule, to invalidate tax savings if the benefit came from a series of transactions done with no commercial purpose other than avoiding tax.  Notwithstanding the ‘legality’ of tax avoidance, the CRA can still recapture some of your avoided tax.

The CRA has legitimate avenues available for individuals and businesses to reduce their taxes.  These avenues are referred to as “effective tax planning” by the CRA.  Examples of effective tax planning would be taking advantage of RRSP tax deductions and using tax credits or gaining benefit form certain small business deductions.  Where effective tax planning starts to turn into something more sinister is when the CRA starts to become concerned.  For example, if you start to divert your business income to family members that can be a legitimate way of reducing tax.  However if it is discovered that you are diverting your business income to your 8 year old child, that would likely be considered unscrupulous by the CRA as there is likely no commercial purpose behind the income diversion besides the avoidance of tax.

This leads to a discussion regarding tax evasion.  The CRA describes tax evasion as deliberately ignoring a specific part of the law.  For example, those participating in tax evasion may under-report income or claim deductions for receipts or expenses that are non-deductible or overstated. They might also attempt to evade taxes by willfully refusing to comply with legislated reporting requirements.  Tax evasion violates the object, spirit and letter of the law.  A very important distinction to be made aware is that tax evasion, unlike tax avoidance, has criminal consequences. Tax evaders can face prosecution in criminal court.

Both tax avoidance and tax evasion are not looked at kindly by the CRA as they both violate the spirit of the law.  However, tax evasion goes one step further in actually breaking the law.  This is an important distinction which can result in significant consequences for the tax-payer if they are not careful in their tax planning strategies.

 

 

 

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Contract Language – Best Efforts vs Reasonable Efforts

Best Efforts vs Reasonable Efforts
Contracts require the performance of certain obligations. These obligations can be in the form of mandatory obligations which are referred to as covenants. Covenants are usually drafted with imperative language such as “shall” or “must”. There are also contingent obligations which arise upon certain events occurring. They are usually drafted with “If…then” clauses. There can also be obligations that are based on an objective standard. An example of those types of obligations in a contract would be if the contract stipulated a party to use its “best efforts”, “reasonable efforts” or “commercially reasonable efforts”.
One looking at a contract would not probably put much thought into the implications of the words “best efforts” and “reasonable efforts”. However, at law there is a legally significant difference between these standards.
In general, the case law has established that an obligation to use “best efforts” imposes a higher standard than some of the other common phrases found in contracts such as “reasonable efforts”. The leading case on the interpretation of “best efforts” is Atmospheric Diving Systems Inc. v. International Hard Suits Inc. (1994), 89 B.C.L.R. (2d) 356 (B.C. S.C.) [Atmospheric].

The court summarized the principles relating to “best efforts” as follows:

1. “Best efforts” imposes a higher obligation than a “reasonable effort”.

2. “Best efforts” means taking, in good faith, all reasonable steps to achieve the objective, carrying the process to its logical conclusion and leaving no stone unturned.

3. “Best efforts” includes doing everything known to be usual, necessary and proper for ensuring the success of the endeavour.

4. The meaning of “best efforts” is, however, not boundless. It must be approached in the light of the particular contract, the parties to it and the contract’s overall purpose as reflected in its language.

5. While “best efforts” of the defendant must be subject to such overriding obligations as honesty and fair dealing, it is not necessary for the plaintiff to prove that the defendant acted in bad faith.

6. Evidence of “inevitable failure” is relevant to the issue of causation of damage but not to the issue of liability. The onus to show that the failure is inevitable regardless of whether the defendant made “best efforts” rests on the defendant.

7. Evidence that the defendant, had it acted diligently, could have satisfied the “best efforts” test, is relevant evidence that the defendant did not use its “best efforts”.

“Best efforts” does not require a party to disadvantage themselves economically to the point of bankruptcy but it does require for the interests of the other party to be of high priority.
When a contract requires “reasonable efforts” or “commercially reasonable efforts” something less than “best efforts” is required but more than no effort at all. Generally, the courts have interpreted “reasonable efforts” to mean efforts that are reasonable in the circumstances all things considered.

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