SOCIETY FOR ESTATE AND TRUST PRACTITIONERS ( STEP ) ANNUAL RED DEER CONFERENCE (MAY 18, 2006)

Transcription

1 SOCIETY FOR ESTATE AND TRUST PRACTITIONERS ( STEP ) ANNUAL RED DEER CONFERENCE (MAY 18, 2006) DIFFERENT LEVELS OF MENTAL CAPACITY AND COSTS OF CAPACITY CHALLENGES Dragana Sanchez Glowicki Miller Thomson LLP Barristers and Solicitors 2700 Commerce Place Street Edmonton, AB T5J 4G8 Fax: Telephone: dsanchezglowicki@millerthomson.com

2 INDEX INTRODUCTION...1 UNDERSTANDING VARIOUS CAPACITIES Capacity to Make a Will Capacity to Make a Power of Attorney Capacity to Make a Personal Directive Capacity a Donor Requires to Ask for an Accounting Capacity to Marry Capacity to Enter into an Adult Interdependent Relationship Capacity to Enter into a Contract Representing Persons Who Lack Mental Capacity...12 COURT COSTS WHEN CAPACITY IS AN ISSUE Estate Litigation Costs Don t Wait for the Windfall The Traditional Approach A Shift Away from the Traditional Approach Court Costs In Testamentary Capacity Challenges Court Costs In Dependent Adult and Power of Attorney Challenges...18 APPENDIX A Testamentary Capacity Costs APPENDIX B Dependent Adult/Power of Attorney Costs Please Note: The reproduction of any part of this Paper is prohibited without the permission of the author.

3 - 1 - THE DIFFERENT LEVELS OF MENTAL CAPACITY AND COSTS OF CAPACITY CHALLENGES INTRODUCTION The subject of capacity often arises in estate litigation matters. However, there are many situations where a matter is not before the Court but capacity is a relevant issue. Understanding exactly what level of capacity a person must have in various situations can be confusing. This paper will explain the different levels of capacity an estate practitioner needs to be well versed in. UNDERSTANDING VARIOUS CAPACITIES 1. Capacity to Make a Will 1 The test for capacity to make a Will is set out in the case of Banks v. Goodfellow 2, as follows: It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effect; shall understand the extent of the property to which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and with a view to the latter objects, that no disorder of the mind shall poison his affections, pervert his sense of right, or pervert the exercise of this his natural faculties; that no insane delusion shall influence his will on disposing of his property and bring about a disposal of it which would not have been made otherwise. 3 The test was applied in the Supreme Court of Canada case of Ledger v. Poirier 4. The Court discussed the level of capacity required to make a Will. Given the important nature of the act, the Court stated that what was required of a person was that they have a depth of understanding beyond a simple ability to converse about ordinary and usual matters. To understand what the Court meant, the following quotation is important: There is no doubt whatsoever that we may have testamentary incapacity accompanied by a deceptive ability to answer questions of ordinary and usual matters: that is, the mind may be incapable of carrying apprehension beyond a limited range of familiar and suggested topics. A disposing mind and memory is one able to comprehend, of its own initiative and volition, the essential elements of Will-making, property, object, just claims to consideration, revocation of existing dispositions, and the like: this has been recognized in many cases Portions of this section of the Paper are taken from a paper prepared by Nancy Golding, Competency, Legal Education Society of Alberta (October 6 and 7, 1997); and Ann L. Kirker, Capacity The Dead and the Dying, Canadian Bar Association (Alberta Branch) January 28, 2000 Other useful Papers to review relating to capacity are Ducking the Third Party Liability Arrow, Estate Instruction Issues: A Medical-Legal Perspective, LESA, Banff Refresher Wills and Estates 1996; and Challenging the Validity of Wills, Ian.M. Hall, (1870), L.R. No. 5 (Q.B.) 549; [ ] All E.R.Rep. 47 ibid, Footnote No. 2, at page 56 [1944] 3 D.L.R. (1 S.C.C.), at page 11

4 2 Merely to be able to make rationale responses is not enough, nor to repeat a tailored formula of simple terms. There must be a power to hold the essential field of the mind in some degree of appreciation as a whole. 5 In the case of Scramstad v. Stannard 6, the Alberta Court separated the criteria set out in the Banks v. Goodfellow 7 case into a four-part test: (a) (b) (c) (d) the testator must understand the nature and effect of the act; the testator must understand the extent of the property of which he is disposing; the testator must be able to comprehend and appreciate the claims to which he ought to give effect to; and the testator must not be suffering from a disorder of the mind or an insane delusion which would influence his will to disposing of his property and bring about a disposal, if the mind had been sound, would not have been made. Laskin, J.A. restated the test in Banks v. Goodfellow 8 and added to it in Re Schwartz 9 stating: The testator must be sufficiently clear in his understanding and memory to know, on his own, and in a general way (1) the nature and extent of his property, (2) the persons who are the natural objects of his bounty, and (3) the testamentary provisions he is making; and he must, moreover, be capable of (4) appreciating these factors in relation to each other, and (5) forming an orderly desire as to the disposition of his property. Dr. Henry Berry, M.D., D.Psych, M.R.C.P. (Lond.), F.R.C.P. (C), in a paper titled A Neuro Psychiatric View of Testamentary Capacity 10, reviewed the role of a doctor in determining if a patient has the capacity to make a Will, and states: From a clinical and psychiatric point of view, the act of making a Will involves a number of mental components or functions. Each of these should be present and in effect at the time and it is in combination that they provide the basis of testamentary capacity. The patient (testator) should understand that nature of a Will and know something of the procedure involved. The patient should have some knowledge of the nature and amount of his assets. He should be aware of the continuities of his life, namely, his familial, social and other relationships; he should have in mind the nature, quality and continuity of those relationships, and he should be aware of his felt obligations and loyalties. He should be able to bring forth the relevant emotionally tinged memories of those past experiences and to put them in perspective. His emotions should be under control so as to avoid the distorting influence of transient anxiety, fear, anger, desperation, the impulsiveness, the moods of desperation or euphoria, and the feelings of excessive dependency ibid, Footnote No. 4, at page 12 (1996), 40 Alta. L.R. (3d) 324 (Q.B.) ibid, footnote No. 2 ibid, footnote No. 2 (1970), 10 D.L.R. (3d) 15 (Ont. C.A.) The Advocates Quarterly, Volume 10 ( ), at page 11

5 3 The function of memory should be intact to such a degree that the above items of information, of relationships and considerations can be brought forth. The faculty of attention should be strong enough to hold these items in consciousness so that there is no distraction or interference. The mind should be free from delusions, hallucinations or fixed ideas without foundation which would influence the act of disposing and should be capable of the process of orderly thought, purpose and decision. Furthermore, there should also be freedom from suggestibility and vulnerability which comes from a state of excessive and pathological dependency. It is a combination of these component functions, namely, practical knowledge, memory, attention, recall, emotional stability, orderly thinking and sense of purpose, absence of interfering delusions, hallucinations and pathologic suggestability, that underlie the function of testamentary capacity. When a doctor conducts a capacity assessment on a patient who wishes to sign a Will, the doctor should question the patient to determine if the patient is aware of their assets, and to whom they are leaving those assets to and why. Then a doctor should test the patient to determine their emotional and mental condition relating to issues such as, suggestibility and influence, delusions and paranoia, fear, anger, depression and impulsiveness. Justice Picard in the case of Lynch Estate v. Lynch Estate 11 stated that one must be careful, however, not to set the standard too high or make the test for testamentary capacity too hard, or all people with diminished capacity would be precluded from making a Will. The Courts have stated that the test cannot be too strict, as people who are eccentric, mentally unbalanced or diminished in some other way may still be able to make a Will. When a lawyer meets with a client to take instructions for the preparation of a Will, as well as at the time the Will is signed, the lawyer has a duty placed upon him or her to assess the testamentary capacity of the client. The case of Re Collicutt Estate 12 sets out the following principles to assist a lawyer in fulfilling their duty when assessing testamentary capacity: (a) (b) (c) neither the superficial appearance of lucidity nor the ability to answer simple questions in an apparently rationale way are sufficient evidence of capacity; the duty upon a solicitor taking instructions for a Will is always a heavy one. When the client is weak and ill, and particularly when the solicitor knows that he is revoking an existing Will, the responsibility will be particularly onerous; the solicitor cannot discharge his duty by asking perfunctory questions, getting apparently rationale answers and then simply recording in legal form the words expressed by the client. The solicitor must first satisfy himself by a personal inquiry that true testamentary capacity exists, secondly that the instructions are freely given, and thirdly that the effect of the Will is understood (1993), 8 Alta. L.R. (3d) 29 (1994), 128 N.S.R. (2d) 81; affd. (1994), 134 N.S.R. (2d) 137 (C.A.)

6 4 However, in Re Collicut Estate the Court also cautioned against having too restrictive of an approach because that could result in many testators, especially the elderly, being stripped of the right to dispose of their assets as they see fit. 13 In assessing testamentary capacity, legal counsel and medical assessors must balance the objective requirements of the Banks v. Goodfellow 14 test with the understanding that memories do fade and relationships can be complicated. For example, the testator may forget a bank account that perhaps is not used very frequently, and may have good reasons for not discussing a potential beneficiary. To assume that because a testator cannot recollect every asset that he or she has, or does not discuss every person that could be a beneficiary, should not become an automatic assumption that the testator does not have testamentary capacity. To make such an assumption would result in an overly restrictive approach. It is important to keep in mind at all times, the instruction contained in Banks v. Goodfellow, to the effect that: just because a person s mind and memory is not what it used to be, does not mean that such person lacks testamentary capacity; the test to determine testamentary capacity is not there for certainty or satisfaction beyond a reasonable doubt. 15 Justice Montgomery in the case of Public Trustee v. Dickinson, 16 cited with approval a passage from an Ontario Court of Appeal decision in the case of Eady v. Waring. Eady v. Waring 17 described the evidence that a Court ought to consider in determining whether or not a testator has testamentary capacity. It would be prudent for lawyers taking Will instructions from a client to consider the same evidence as the Court did in Eady v. Waring, which is as follows: While the ultimate probative fact which a Probate Court is seeking is whether or not the testator had testamentary capacity at the time of the execution of the Will, the evidence from which the Court s conclusion is to be drawn, will in most cases, be largely circumstantial. It is quite proper to consider the background of the testator, the nature of his assets, his relatives and others having claims upon his bounty, and his relationship to them, and his capacity at times subsequent to the execution of the Will, to the extent that it throws light upon his capacity at the time of the making of the Will. Proven incapacity at a later date obviously does not establish incapacity at the time of the execution of the disputed Will, but neither is that fact irrelevant. It s weight depends upon how long after the crucial time the incapacity is slow to exist, and its relationship to matters that have gone before or arose at or near the time of the execution of the Will itself Capacity to Make a Power of Attorney 19 A Power of Attorney is the instrument which empowers a person (called an Attorney) to act on another person s behalf (usually referred to as the Donor). The Attorney is granted the authority by the Power of Attorney to look after the Donor s financial affairs. The Power of Attorney may be specific to one power or may be wide and general to authorize the Attorney to do anything on ibid, footnote No. 12 ibid, footnote No. 2 ibid, footnote No. 6, at page s 346 and 347 (1986), 46 Alta. L.R. (2d) 294 (Q.B.), at page 297 (1974), 43 D.L.R. (3d) 667 (Ont. C.A.) ibid, footnote No. 17, at page s 679 to 682 Portions of this section of the paper are taken from a paper prepared by Philip J. Renaud, Changes to Powers of Attorney Act, Legal Education Society of Alberta (October 6 and 7, 1997)

7 5 behalf of the Donor, so long as it relates to the Donor s finances. Such powers, for example, can include the management or administration of the Donor s property or the maintenance, education, benefit and advancement of the Donor, as well as any spouse or dependant children that the Donor may have. Section 3 of the Power of Attorney Act 20 provides that a Power of Attorney is void if the Donor is mentally incapable of understanding the nature and effect of the Power of Attorney at the date that the Power of Attorney is signed. The Power of Attorney allows testamentary capacity to be assessed on two occasions. The first occasion is when the Donor is signing the Power of Attorney, and the second occasion is at the time of the Power of Attorney coming into effect. Unless a Power of Attorney is immediate (meaning that it takes effect immediately upon it being signed), the Power of Attorney will not have any legal effect until such time as the Donor loses capacity. The Donor s loss of capacity will be determined by the medical doctor assessing the Donor and providing a document indicating that the Donor has lost capacity and that the Power of Attorney has come into effect. The English decision of in Re Kay 21 summarizes the elements which the Donor should understand when signing an unrestricted Power of Attorney: (a) (b) (c) the Attorney will be able to assume complete control over the Donor s affairs; the Attorney will, in general, be able to do anything with the Donor s property which the Donor himself could have done; if the Power of Attorney is Enduring, then the Donor must also understand that (i) (ii) the Attorney s authority will continue if the Donor should become mentally incapable; and in the event of the Donor s incapacity, the Power of Attorney will be irrevocable. In the case of Godelier v. Pauli (Committee of) 22, the Court added a fourth condition for the Donor to understand: R.S.A. 2000, c. P-20 [1988] 2 W.L.R. 781; see also Eglin v. Eglin (2005), B.C.C.A., wherein the Court of Appeal considered what should be the appropriate test for mental capacity when a person signs a Power of Attorney: Should it be the same as a Will or should it be a different test? The Court stated that it may not be necessary to treat the test for testamentary capacity as being the standard required for valid execution of a power of attorney, yet the donor must have a general appreciation of the enabling power he or she is bestowing upon the donee of the power. The donor must be cognizant of the circumstances that the donee is being granted a broad power to deal with the property of the donor. The Court further commenced that the capacity of the donor will always be a factual decision for a trial Court to make based on the evidence. (1990), 39 E.T.R. 40 (Ont. Dist. Ct.)

8 6 (d) the Donor must understand the nature of his property and affairs, over which the Attorney will be entitled to assume control. One can see that the test for determining capacity to sign a Will is different from the test to determine the capacity one needs to sign a Power of Attorney. The Donor signing the Power of Attorney only needs to understand the purpose of the instrument, and in a general way, the nature of his property, but not the extent of his property. It is therefore possible for a person not to have the capacity to sign a Will, but, to have the capacity to sign a Power of Attorney. When dealing with clients who want to sign a Power of Attorney, it is therefore important to determine what the clients true capacity is. The reason being is, the client may be able to sign a very simple Power of Attorney but may not be able to sign a more complicated Power of Attorney because they may not be able to understand all of the specific conditions and/or restrictions set out in the more complicated Power of Attorney. It is recommended that legal counsel take the time necessary to ascertain the Donor s level of capacity and to determine not only if they are able to sign a Power of Attorney, but what type of a Power of Attorney (a simple Power of Attorney vs. a more complicated one) they are able to sign. On December 1, 1997, the Power of Attorney Act 23 was amended. The amendment resulted in the Certificate of Legal Advice and the Explanatory Notes, both which were previously required to be attached to the Power of Attorney, are no longer required. Both of these documents were important as they relate to the Donor s capacity. Firstly, the Certificate of Legal Advice required the Donor s lawyer to verify that the Donor understood the nature and effect of the document and that the Donor understood the Explanatory Notes. The Donor s lawyer was required to sign the Certificate of Legal Advice which verified that the capacity test had been administered to the Donor. The Explanatory Notes explained to the Donor, in plain language, the nature and effect of the Power of Attorney. The Donor was required to sign the Explanatory Notes indicating that they understood the purpose of the Power of Attorney. Some lawyers still attach these documents to their Power of Attorneys regardless of the December 1, 1997 amendment to the Power of Attorney Act. The author s practice is not to attach these documents to Powers of Attorney when capacity is not an issue. However, it is prudent to take extra time and care to do so in some situations. The author recommends that these two documents are attached to a Power of Attorney if there is some question as to the Donor s capacity at the time that the Power of Attorney is signed. The author believes that attaching these two documents to a Power of Attorney in certain circumstances, rather than attaching them as a rule of thumb, is evidence that extra time, care and attention was taken to assess the true capacity of the Donor. 3. Capacity to Make a Personal Directive 24 A Personal Directive is a document which contains information and instructions with respect to any personal matter (a non-financial matter), such as health care, accommodations, with whom the person may live and associate with, participation in social and educational type activities, etc ibid, footnote No. 20 ibid, footnote No. 19

9 7 A Personal Directive will take effect with respect to only personal matters when the Maker lacks capacity to make such decisions. Capacity is defined in s. 1(b) of the Personal Directives Act 25 as: 1(b) Capacity means the ability to understand the information that is relevant to the making of a personal decision and the ability to appreciate the reasonably foreseeable consequences of the decision. A personal decision is defined as: 1(j) personal decision means a decision that relates to a personal matter and includes, without limitation, the giving of consent, the refusal to give consent or the withdrawal of consent to health care. Personal matter is defined as: 1(l) personal matter means, subject to the regulations, any matter of a non-financial nature that relates to an individual s person and, without limitation, includes: 1. health care; 2. accommodation; 3. with whom the person may live and associate; 4. participation in social, education or employment activities; 5. legal matters; and 6. any other matters prescribed by the regulations. These sections give a broad overview of the types of decisions contemplated to be made by an Agent, and the information a Maker must understand in order to be able to sign a Personal Directive. It should be noted that, pursuant to paragraph 3(2) of the Personal Directives Act, a person who is at least 18 years of age is presumed to understand the nature and effect of a Personal Directive. When assessing capacity to make a Personal Directive, the first focus must be on whether the Maker understands that the Personal Directive gives the Agent the power to make personal decisions on the Maker s behalf. If the Maker understands the first matter only, then the Maker may be capable of signing a very simple Personal Directive basically naming the Agent and giving the Agent a general power to make their personal decisions. A simple Personal Directive would not contain any specific clauses, for example detailing when life support ought to be withheld. Secondly, if a Maker has the requisite capacity as set out in section 1(b) of the Personal Directives Act, then they could prepare a more complex Personal Directive which could give the Agent specific instruction on a number of different medical or personal circumstances. The Alberta Law Reform Institute prepared Report No. 11 titled Advanced Directives and Substitute Decision-Making in Personal Health Care 26. The Report contains the following important passage: R.S.A. 2000, c. P-6 Report for Discussion No. 11 (Edmonton: November 1991)

10 8 In our view it would be inconsistent with the principles to require individuals to be capable of making health care decisions in order to appoint the health care Agent. So long as they are capable of understanding that they are authorizing someone else to make these decisions for them, they have sufficient capacity to appoint an Agent. Capacity for the present purposes should be defined as the capacity to understand the nature and effect of the advanced Directive. We view this as more consistent with established legal principles and easier to apply in practice. Therefore it is not necessary that the Maker him/herself have capacity to be able to make all of the decisions that the Agent could make in order to appoint an Agent when signing a Personal Directive. The Maker must understand the nature and effect of the Personal Directive and know that they are giving instructions and naming an Agent to make personal decisions for them. It is not even necessary for a person to be able to make health or other personal decisions for themselves, it is only necessary for a person to know that they have given their power away to an Agent, and the Agent will be making these personal decisions on their behalf. Again, it is important to determine what the Maker s true capacity is in order to determine what type of Personal Directive the Maker is capable of signing. As is evident by the definition of capacity as set out in the Personal Directives Act, the capacity to make a Personal Directive is judged by a less onerous test than the capacity necessary to make a Power of Attorney or a Will. Therefore, it is possible for a person not to have the capacity to make either a Power of Attorney or a Will, but still be able to make a Personal Directive. 4. Capacity a Donor Requires to Ask for an Accounting In order to request an accounting of one s assets from his or her Attorney, a Donor requires the mental capacity to: (i) (ii) (iii) make an informed decision regarding whether to request the accounts from the Attorney; understand the accounts, or have the ability to seek professional assistance in understanding them; and revoke the power of attorney if the accounts indicate mismanagement on the part of the Attorney Capacity to Marry Another issue which sometimes affects people who may have capacity issues is the ability to enter into the contract to marry. It is common for older people who may have lost their spouse to wish to share their later years with a new partner. It is also common for younger people (although over the age of 18) who may have capacity issues to want to marry against their parent s wishes. It is equally common for the children, grandchildren and other family members to disapprove of the marriage and to claim that there was a lack of capacity to enter into the marriage. The family members will usually object by stating that the person has lost capacity or has been manipulated or coerced by the new partner and not able to understand and appreciate the contract of marriage. 27 Enduring Powers of Attorney, Report for Discussion No. 7 (Edmonton: Alberta Law Reform Institute, 1990) at page 72.

11 9 Particularly in the case of elderly people, there could be significant legal and estate implications when entering into the marriage. Some examples of such claims are for support, division of property, claims by the surviving spouse (who is often much younger) on the elderly person s estate once they pass away. Furthermore, a marriage revokes a previous Will and the elderly person may not have the capacity to create a new Will after the marriage. Therefore, it is important to determine if the marriage is being entered into with full knowledge, understanding and free will. Solemnization of marriage is covered by section 27 of the Alberta Marriage Act 28. Section 27 deals specifically with marriage of the mentally disabled, and states as follows: Section 27(1): No person shall issue a marriage license or solemnize a marriage when the person knows or has reason to believe that there is, in effect, with respect to a party to the intended marriage: (a) (b) a committee under the Mentally Incapacitated Act, R.S.A c.232; a guardianship order or trusteeship order under the Dependent Adults Act, R.S.A C. D-11; or Section 27(2): (c) a certificate of incapacity under the Dependent Adults Act, R.S.A c. D-11 unless there is delivered to the person a certificate under section (2) and when there is a trustee or guardian of a person to the intended marriage, proof that the trustee or guardian has given 14 days notice to the issuance of the license or solemnization of the marriage, as the case may be. A physician may certify in writing that in the physician s opinion, a party described in subsection 27(1)(a) or (b) has the capacity to understand the nature of the contract of marriage and the duties and responsibilities relating to it. 29 Furthermore, the Alberta Court of Appeal in the case of Chertkow v. Feinstein 30 set out the capacity necessary to enter into a valid contract of marriage. The requisite capacity necessary is defined as capacity to understand the nature of the contract and the duties and responsibilities which it creates. 31 In the recent case of Barrett Estate v. Dexter 32, the Court considered the issue of capacity to marry and applied the test from Chertkow v. Feinstein. The Court in Barrett Estate held that due to the numerous doctor s opinions attesting to the fact that Mr. Barrett lacked mental capacity and Ms. Dexter acknowledged that she was aware that the marriage would cancel Mr. Barrett s existing Will, the marriage was invalid and a nullity. The effect of the Court s declaration that the marriage was a nullity meant that the Court voided the marriage. By the Court voiding the marriage, it was like the marriage had never happened which did not give Ms. Dexter an ability R.S.A. 2000, c.m-5 ibid, footnote No. 28 [1929] 3 D.L.R. 339 ibid, footnote No. 30, at page 342 [2000] A.J. No. 955 (Alta. Q.B.), online: QuickLaw (A.J.) [hereinafter Barrett Estate ]

12 10 to claim any spousal support or matrimonial assets from Mr. Barrett during the time that they were married. The Court could have held that the marriage was valid but voidable. If the Court had held the marriage to be valid, and then proceeded to void the marriage, the result would have been that even though the parties would no longer have been married, Ms. Dexter could have made a claim against Mr. Barrett s estate seeking spousal support and a division of matrimonial property for the time that they were married. The distinction between a void and voidable marriage, and marriages that can be annulled are very important in this context. This Paper does not deal with this issue at any length. The author does however direct you to Fulvio M. Durante s Paper, prepared for the Legal Education Society of Alberta, and titled Elder Law - Advising the Elderly Client The Elderly and Legal Process (June 17 and 24, 2004). Mr. Durante s Paper is an excellent resource for understanding how a marriage can be annulled, declared void or voidable. The case of Banton v. Banton 33 also discusses the capacity to marry as well as to sign a new Will and a new Power of Attorney. In this case a 92 year old man married a much younger woman (31 years old) and after their marriage Mr. Banton signed a new Power of Attorney naming his new wife as the Attorney and a new Will leaving his new wife the residue of his estate. Mr. Banton s family questioned his capacity to marry, as well as prepare the new Will and the new Power of Attorney. The Court found that Mr. Banton had the necessary capacity to marry and declared the marriage valid. The Court also held that Mr. Banton could sign a Power of Attorney and declared the Power of Attorney to be valid. However, the Court found that Mr. Banton did not have the necessary capacity to sign a new Will. The result of the Court s decision was that the new wife could validly manage Mr. Banton s financial affairs by relying on the Power of Attorney, the marriage was valid, and Mr. Banton no longer had a Will as it was voided by the marriage. The fact that the Will was voided by the marriage was the greatest problem. Since Mr. Banton could not prepare a new Will because the Court found he did not have a the capacity to do so, a substantial portion of his estate would flow, upon his passing, by intestacy, to the new spouse. This did not make Mr. Banton s family very happy. The Court, in trying to explain the effect of its decision on Mr. Banton s estate when he passed away, said the following: While marriage had an affect on proprietary rights and obligations, to treat the ability to manage property as essential to the relationship would be to give inordinant weight to the proprietary aspect of the marriage Capacity to Enter into an Adult Interdependent Relationship Pursuant to section 3 of the Adult Interdependent Relationship Act 35, a person becomes an adult interdependent partner if the person has lived with another person in a relationship of interdependence for a continuous period of not less than three (3) years, or of some permanence if there is a child of the relationship by birth or adoption. For the purpose of the Act, a relationship of interdependence means a relationship outside of marriage in which any two (2) persons share one another s lives, are emotionally committed to one another, and function as an economic and domestic unit. The Act has several criteria which deal with determining whether [1998] O.J. No (Ont. Gen. Div.), online: QuickLaw (O.J.) ibid, footnote No. 33 R.S.A. 2000, c.w-2

13 11 persons function as an economic and domestic unit. If you are required to ascertain if two persons function as an economic and domestic unit, the author refers you to the Adult Interdependent Relationship Act which lists the relevant criteria to be considered. The Act refers to a person s capacity to formalize their legal obligations, intentions and responsibilities towards one another. It could therefore be argued that if there is a lack of intention to form a partnership, or to become an adult interdependent partner, proof of this, may be enough to remove a person from the adult interdependent partnership, which partnership would automatically be established once the person lived with another person for three years. When considering whether someone has the requisite capacity to enter into an adult interdependent relationship, it is important to consider the following: (a) (b) (c) whether the person is able to formalize their legal obligations, intentions and responsibilities towards the other party to the relationship; the test set out in the Chertkow v. Feinstein 36 case, which defines capacity as one s ability to understand the nature and effect of the contract of marriage and the duties and responsibilities which it creates; and the factors governing one s capacity to enter into a contractual relationship of any sort. Pursuant to section 8 of the Adult Interdependent Relationship Act 37, an adult interdependent partner agreement will be invalid if one of the parties lacks the mental capacity to understand the nature and effect of the agreement. Therefore, if one of the parties uses an adult interdependent relationship agreement to claim that their relationship with another person exists, the relationship could be invalid if the other party did not have the requisite capacity to understand the nature of the agreement and therefore could not contract to the agreement. Since a valid interdependent relationship gives rise to all of the same rights as married couples have such as spousal support and property claims in equity, such relationships are very important when it comes to people who may lack capacity to enter into them. 7. Capacity to Enter into a Contract 38 Contractual capacity is the ability to understand and appreciate the nature of a consensual agreement and the consequences which result from the agreement. There is no single test to determine capacity to enter into a contract. Instead, issues of capacity arise most often when it is alleged that one of the parties to the contract is mentally incompetent. Therefore, a contract entered into by a person who has previously been found to be incapacitated by judicial determination will be void. If there has not been any judicial determination of incapacity, but the person is unable to appreciate the nature of the contractual transaction, the ibid, footnote No. 30 ibid, footnote No. 35 Portions of this section of the paper are taken from a paper prepared by Anna L. Kirker, Capacity The Dead and the Dying, Canadian Bar Association (Alberta Branch) January 28, 2000

14 12 contract will be voidable at the option of the incapacitated person. The contract will be said to be void-ab-initio where the other contracting party has actual or constructed knowledge of the incapacity of the other party at the time of entering into the contract Representing Persons Who Lack Mental Capacity Representing people who are or may be incapacitated may be tricky. The Law Society of Alberta deals with this issue in the Code of Professional Conduct. Rule 7.1, Chapter 9 The Lawyer as Advisor, The Law Society of Alberta s Code of Professional Conduct reads: 7.1 When a client is unable to provide proper instructions in a matter due to incapacity: (a) (b) the lawyer must make reasonable efforts to cause the appointment of a legal representative for the client; and pending such appointment, the lawyer must continue to act in the best interests of the client to the extent that instructions are implied or as otherwise permitted by law. 40 Because of Rule 7.1 it may be proper, in some circumstances, to accept instructions from a client who appears or has been adjudged to lack capacity to make decisions in relation to certain matters. Rule 7.2, Chapter 9 The Law Society of Alberta s Code of Professional Conduct further states: 7.2 In an emergency where the health, safety or a financial interest of a person lacking capacity is threatened with imminent and irreparable harm, a lawyer may take legal action on behalf of such a person even though the person is unable to establish a client/lawyer relationship or to make or express considered judgments about the matter, when the person lacking capacity or another acting in good faith on that person s behalf has consulted the lawyer. 41 It is clear from the Law Society of Alberta s Code of Professional Conduct that people with diminished capacity and in vulnerable positions, who could be subject to abuse, can retain counsel to protect their interests. COURT COSTS WHEN CAPACITY IS AN ISSUE 1. Estate Litigation Costs Don t Wait for the Windfall It is trite law that costs are a wholly discretionary matter for the Court. This is confirmed by s.21 of the Court of Queen s Bench Act 42, Rule 601(1) of the Alberta Rules of Court, and Rule 90(h) Hunt v. Texaco Exploration Co.; Hunt v. Thom, [1955] 3 D.L.R. 555 (Alta. S.C.) Law Society of Alberta, Code of Professional Conduct, Chapter 9, Commentary to Rule 7.1 Law Society of Alberta, Code of Professional Conduct, Chapter 9, Commentary to Rule 7.2 R.S.A. 2000, c.c-31

15 13 of the Surrogate Court Rules. Such discretion is, of course, to be exercised judicially and upon correct legal principles, as recently observed, in Dansereau Estate v. Vallee. 43 Where estate litigation is involved, the Courts have developed a number of traditional approaches to costs which depart in one way or another from those principles found in other types of civil litigation. This Paper will first discuss the traditional approach to costs, and then it will track recent developments in the law of costs in estate litigation. The reader will see that some of the traditional approaches to costs are being reformulated, driven partly by a shift in the policy, the reasons being emphasized by present-day Courts. Parties seeking to pursue estate litigation must be aware of these recent developments, particularly the decreasing propensity for the Court to allow all parties costs particularly those who are unsuccessful to be paid from the estate. This Paper does not seek to exhaustively review the jurisprudence in this area. For those seeking a comprehensive survey of the law on point, we direct you to Dennis J. Pelkie s two articles, Costs presented at the May 1990 Banff Refresher Course, and Costs in Estate Litigation presented at the April 2002 Banff Refresher Course. 2. The Traditional Approach i) All Parties Costs Are Paid Out of the Estate In estate litigation proceedings, the Courts have traditionally exercised their discretion regarding costs in a manner unique to this area of practice. They have done so by frequently awarding costs of all parties to the action to be paid out of the estate on a solicitor-client basis, regardless of the outcome of the matter. This contention is supported in specialized commentary on point, as well as numerous cases. One author has described this traditional approach to costs as follows: For decades, in the vast majority of estate litigation cases, the courts ordered that all, or most, of the costs of the parties be paid out of the estate. Not only has the court been disinclined to require the unsuccessful party to pay the costs of the successful party, it has also directed that the unsuccessful party be partially or wholly indemnified by the estate. 44 The general rule in this regard is further confirmed by Ian M. Hull. Hull states that where an issue arises in an estate which can be said to reasonably deserve the scrutiny of the Court it would seem that the costs of all parties will most likely be ordered to be paid out of the assets of the estate on a solicitorclient basis to all parties. 45 The Alberta cases in support of the traditional approach to costs are (2000) A.B.Q.B. 288, at para. 16; further note that this observation was also cited with approval in the recent judgment of Johnstone J. in Serdahely (Estate of), 2005 (A.B.Q.B.) 861. B.A. Schnurr, Estate Litigation Who Pays the Costs? (1991), 11 E.T.J. 52 at 53 [hereinafter Schnurr ]. I.M. Hull, Costs in Estate Litigation (1998), 18 E.T.R. (2d) 218 [hereinafter Hull ].

16 14 numerous. 46 However, in recent years, the Courts have departed from the traditional approach. For example, in Kolacz v. Burdeinei, 47 Justice P. Smith, in her judgment on costs, stated: I am mindful of the growing willingness of the courts to decline in estate matters to award costs wholly against the estate in appropriate circumstances. In my view, the case is one in which the circumstances cry out for a departure from the historical method of awarding costs to be paid from the estate assets. Justice Smith found that the litigation arose through no fault of the testator, and that the testator s wishes in the Will were, in fact, crystal clear. The challenge to the Will on the basis of lack of testamentary capacity and undue influence was maintained on exceedingly precarious grounds and the challenger should have known this after conducting Discoveries of the plaintiff, executor. As a result, the Court held that in addition to the challenger being deprived of her costs from the estate, she was required to contribute towards the costs of the other parties. Also, in the very recent case of Serdahely (Estate of), 48 although Johnstone J. refers to the traditional treatment of costs in estate litigation by stating, [h]istorically, estate litigation has been treated somewhat differently. Courts have often ordered that the costs of both parties be paid from the estate, she decided to order the unsuccessful respondents to pay their own costs, and to also pay a portion of the successful applicant s costs. Greater insight into the traditional rule can be gleaned from a consideration of the policy reasons behind the rule. As summarized by one commentator, there are two general policy considerations in making a costs award in estate litigation matters. 49 Firstly, in such cases the difficulties, conflicts and ambiguities that may be at issue can often be said to stem, at least somewhat, from the actions of the testator. Secondly, the Courts have a responsibility to ensure, on behalf of society in general, that Wills under which estates are distributed are valid and that the provisions of the Will are accurately understood and carried out. Parties concerned in such matters should not, therefore, be as hesitant to bring their concerns to the Courts in matters relating to estates, as they might be in other types of disputes. The Courts are cognizant that they must strike a balance between safeguarding policy concerns and not encouraging unfounded estate litigation. The Ontario Court, in Logan v. Herring, 50 stated: There is, perhaps, too much litigation in this province growing out of disputed Wills. It must not be fostered by awarding costs lightly out of the estate. Parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others. On the other hand, there is the contrasted danger of letting doubtful Wills pass See, for example, Re Pape [1946] 4 D.L.R. 700 (Alta.S.C.); Re Goodwin (1969), 3 D.L.R. (3d) 281 (Alta.S.C.); Re Roenisch Estate (1978), 14 A.R. 424 (Alta.S.C.T.D.); Johnson v. Beers [1999] A.J. No (Q.B.), at para.8; Hegedus Estate v. Paul (1998), 71 Alta. L.R. (3d) 179 (Q.B.), at para.22. [1997] A.J. No. 492 (Q.B.), page 2 of online: QuickLaw 2005 A.B.Q.B. 861, at para. 22 [hereinafter Serdahely ] ibid, footnote No. 44, at pages 53 and 54; Also note that Johnstone J., in Serdahely, ibid footnote No. 48, expressly cited Schnurr s summary of these two types of policy concerns. [1990] 19 P.R. 168

17 15 into probate by making the costs of opposing them depend upon successful opposition. It is only by the careful adjustment of costs that these opposite risks can be guarded against. ii) The Rule in Mitchell v. Gard Upon closer review of the traditional case law on point, it becomes apparent that it is not entirely accurate to characterize the traditional rule as simply one wherein all parties costs are paid out of the estate. Regard must be had to the classic and still frequently cited case of Mitchell v. Gard 51. In this case, the Court set down the following rules: (Rule 1) where the cause of the litigation takes its origin in the fault of the testator or those interested in the residue, the costs may properly be paid out of the estate; and (Rule 2) if there are sufficient and reasonable grounds (looking to the knowledge and means of knowledge of the party who unsuccessfully opposed probate) to question the validity of the Will, the unsuccessful party may properly be relieved from the costs of his successful opponent. Thus, we can see that the traditional approach to estate litigation was never just a blanket policy that all parties costs were to come out of the estate. Rather, costs in these types of proceedings deviated from the general rule that costs follow the event in two types of circumstances. These two rules were articulated in the case of Spiers v. English, 52 wherein the Court stated: In deciding questions of costs one has to go back to the principles which govern cases of this kind. One of these principles is that if a person who makes a Will or persons who are interested in the residue have been really the cause of the litigation, a case is made out for costs to come out of the estate. Another principle is that, if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them. The two rules derived from Mitchell have come to be known as the two great principles upon which the Court acts in estate litigation matters with respect to costs. The two great principles continue to be cited today see, for example the Stevens v. Crawford 53 case at para. 55. iii) Conclusion It is submitted, therefore, that the traditional approach to costs in estate litigation matters is a delicate concept that is sometimes not understood. It may also be that, for a time, the case law may have disregarded the two great principles from Mitchell, and begun to award costs out of the estate without further discussion or consideration. The result, for a time, was an anomalous approach to costs in estate litigation, wherein all parties generally received all costs out of the estate (1863), 164 E.R [ hereinafter Mitchell ] [1907] page 122 [hereinafter Spiers ] (2000) A.B.Q.B. 515; this case was upheld on appeal, at 2001 (A.B.C.A.) 195 [Berger J.A. dissenting]; Leave to appeal to the Supreme Court of Canada was refused, at [2001] (S.C.C.A.) No.483 [hereinafter Stevens ].

18 16 Whatever the reason behind the body of case law and commentary suggesting that all parties costs are to come out of the estate, it seems clear that the Courts are shifting away from such an approach and such, case law and commentary should be approached with extreme caution. 3. A Shift Away from the Traditional Approach (i) Introduction It is now reasonable to say that costs in estate litigation are no longer a forgone conclusion. Those who pursue this kind of litigation should not proceed on the basis that they will be indemnified for their costs out of the estate regardless of the particular circumstances. In other words, those who commence estate litigation proceedings confident in a costs windfall, no matter the outcome or circumstances, do so at their peril. Two themes can be extracted from a reading of the most recent case law on this point. The first theme is that Courts appear to have returned strongly to the application of the two great principles from Mitchell, particularly the second rule. The second rule in Mitchell provides that unsuccessful parties should not, in fact, be awarded any costs, unless an unsuccessful party s position has been based on reasonable grounds and the claim has been pursued in a reasonable manner. The second theme is that the Courts are taking more time and care to consider all of the surrounding circumstances and the various factors that come into play when they are exercising their discretion as to costs, which the Courts usually do in other types of civil litigation. (ii) Recent Alberta Jurisprudence Criticism of the traditional rule that all costs are to be paid out of the estate can be found sporadically in the case law and commentary, particularly during the 1990s. For instance, in Stevenson & Cote s Civil Procedure Guide, the authors observed: the Courts tend to be too free in ordering costs of all parties out of the estate 54. These comments were noted by Veit J. in her 1998 judgment in Hegedus Estate v. Paul (Public Trustee Of). 55 The writer argued the costs portion of the Hagedus case, and suffice it to say that although successful in convincing the Court to pay all of the costs out of the estate, it was not a small or easy task. By the year 2000, it seems that the Courts in Alberta shifted away from freely ordering costs to all parties from the estate. A particularly good example of the Court s reasoning behind this shift can be found in the Stevens case. After the Court acknowledged that there was a tradition in estate matters that costs were prima facie awarded from the estate to all parties, Belzil J. went on to consider a number of other principles rather than follow the traditional rule. Firstly, Belzil J. cited Spiers, the case in which, as discussed above, the two principles from Mitchell were reaffirmed by the Court. 56 Belzil J. then applied the second principle from Mitchell by inquiring into whether or not the unsuccessful challengers of the Will had reasonable grounds upon which to be suspicious and pursue investigation of the matter. Belzil J. found that the unsuccessful party should not be awarded any costs from the estate W.A. Stevenson & J.E. Cote, Civil Procedure Guide, 1992 (Edmonton: Juriliber, 1992). (1998) 71 Alta. L.R. (3d) 179 (Q.B.), at para. 23. [hereinafter Hegedus ] ibid, footnote No. 53, at para.55.