A recent decision of the Alberta Court of Queen’s Bench highlights the importance of carefully reviewing settlement agreements prior to their execution.
In Anderson Estate (Re), 2020 ABQB 428, the Alberta Court of Queen’s Bench revisited a settlement that had been negotiated during a judicial mediation.
Mr. Anderson had left a Last Will and Testament executed roughly one month prior to his death that directed that the residue of his estate be distributed to his three children, who were the parties to the litigation. The Will addressed certain advances made to his children during his lifetime, the disposition of real property, and declared the testator’s intent that the parties be treated equally.
One son, who later brought the motion with respect to the interpretation of the agreement, had previously disclaimed real property gifted to him under the Will because the value assigned to the property in the Will itself was significantly higher than the appraised value of the property (with a discrepancy of $2 million), such that he would take a correspondingly lower distribution from the residue of the estate to reflect his acceptance of the gifted property. The judicial mediation process had been initiated with the intention of resolving interpretation issues in respect of the Will arising from the son’s disclaimer of the property. The terms of the Will and the settlement agreement were not straightforward, but the settlement provided in part that the son would receive at a value of $4 million a different property than that bequeathed to him under the Will that he had disclaimed.
Pursuant to the terms of the settlement agreement, the matter returned to the case management judge for the determination of its proper interpretation. The son sought an interpretation of the agreement that provided that he had substituted his receipt of one property for the other at a notional cost corresponding to advances tied to the first property.
Justice Jones reviewed the law in general relating to ambiguities appearing in contracts, such as the settlement agreement that the parties had executed (at paragraphs 35 through 40, briefly summarized below):
- true legal ambiguity arises where a phrase is reasonably susceptible on its face to more than one meaning;
- courts can consider surrounding circumstances that include everything that affected the language of the document from the perspective of a reasonable person;
- extrinsic evidence, however, is intended to serve “as an objective interpretative aid to determine the meaning of the words the parties used”, with limitations set out by the Alberta Court of Appeal in Hole v Hole, 2016 ABCA 34;
- the goal of the courts is to give effect to the objective intentions of the parties, rather than to “second-guess the contract”;
- even in the absence of ambiguity, a judge is to consider relevant surrounding circumstances in interpreting the contract.
The judge found that the settlement agreement was not susceptible to more than one meaning, stating as follows (at para 84):
A retrospective determination that one entered into an agreement on terms less commercially favourable that one now thinks should have prevailed does not evidence ambiguity.
This decision may serve as a reminder to take care in ensuring that the meaning of a settlement agreement is properly understood by all parties and clearly set out without room for ambiguity. Remaining silent on certain points that should properly be addressed during the dispute resolution process may limit the rights of the parties to pursue them, even where the settlement agreement will otherwise lead to the distribution of an estate that may be perceived as unfair.
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When making testamentary gifts in a Will, if a specific bequest fails for any reason, the assets in question will fall into the residue of the estate. However, if a gift of residue fails, the distribution of whatever assets are affected by the failure will be governed by the intestacy provisions set out in Part II of the Succession Law Reform Act, R.S.O. 1990, c. S.26.
The recent decision of Sabetti v Jimenez, 2018 ONSC 3523 in part considers the interpretation of a residue clause in order to determine whether there is a partial intestacy in respect of the estate of Ms. Valdes.
The applicant, Mr. Sabetti, was Ms. Valdes’ second husband. She had three adult children from her prior marriage. Ms. Valdes’ Will provided that the residue of her estate was to be divided into four equal shares. The first share was to be held in trust for Mr. Sabetti during his lifetime, and on his death, whatever amount was remaining was to fall into and form part of the residue. The remaining three shares were to be transferred to Ms. Valdes’ three children.
Mr. Sabetti claimed that because of the gift-over of his share of the residue, which provides that it is to form part of the residue, the beneficiaries of the first share of the residue were not named with sufficient certainty, and a partial intestacy must result. Ultimately, the Honourable Justice Dunphy concluded that Ms. Valdes’ intention was clear on the face of the will, and found that there was no partial intestacy.
In its decision, the Court goes through an interesting analysis of the residue clause, outlining the rules applicable to construction of documents. Where there are two possible interpretations, one of which creates an absurd result, and one of which is in line with the apparent intention of the maker of the document, the latter is to be preferred. It is also preferable to construe a will so as to lead to a testacy over an intestacy, if it is possible to do so without straining the language of the Will or violating the testator’s intention.
In this case, the Court found that to interpret the term of the residue according to Mr. Sabetti’s position would lead to an absurd result. In terms of Ms. Valdes’ intention, the Court was of the view that the intended beneficiaries of the remainder interest were clearly the other three shares of the residue. The Court found no difficulty in discerning the testator’s intention or in applying it, and was able to read the Will in such a way as to avoid an intestacy.
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In drafting testamentary documents, the careful and precise use of language is of the utmost importance. After all, once the testator is dead and their will takes effect, the testator is no longer around to clarify any potential misunderstandings or ambiguous terms.
There are plenty of problems that can arise when interpreting a Will, from bequests to charities which no longer exist to the proper use of “per stirpes”. Even the most seemingly straightforward terms used in testamentary documents can lead to a great amount of discord among those with an interest in an estate. Today, I’ll look at one particular term which seems innocuous enough: “next of kin”.
Dictionaries, such as the Oxford Dictionary, defines “next of kin” in a straightforward manner as “a person’s closest living relative or relatives”. While seemingly simple, this term has lead to confusion in the past. In 2003, the Court of Appeal addressed this issue in Thomann v. Armgardt Estate, 170 OAC 11. In that case, the deceased left a Will relating to her assets in Canada in which she left the residue of her “Estate in Canada” to her next of kin in equal shares. She also had a will relating to her assets in Germany. At the time of her death, the testator had one sister and nieces and nephews living in Germany, along with one niece and a great-niece and great-nephew living in Canada. The testator’s sister died, however, before the estate was distributed.
The application judge found that “next of kin” had to be interpreted in conjunction with “equal shares” such that the testator intended for her estate to be left to a plurality of beneficiaries. Additionally, based on the use of a German will (which only provided specific bequests to German relatives) and the Canadian will (which only made a specific bequest to a Canadian relative), the application judge found that each will was only meant to benefit relatives living in the country to which the will applied. The judge thus found that the testator intended to leave the residue of her Canadian estate to her relatives (niece, great-niece, and great-nephew) living in Canada equally.
The Court of Appeal, on the other hand, made it clear that “next of kin” is to be defined by its ordinary meaning, i.e. as being one’s closest living relatives. Hence the Court found that the estate was to be distributed to the estate of the testator’s sister.
While it’s important to be as specific as possible and always good to define terms wherever possible, this case perhaps best serves to illustrate the point that you can’t prepare for every possible misinterpretation.
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I recently came across the decision in Campbell v Campbell, 2017 ONSC 2139. This is a recent decision with respect to two motions brought within an application for the interpretation of the last will and testament (the “Will”) of the late Howard Campbell (the “Deceased”). While the decision focuses on the various procedural matters at issue in the motions rather than the interpretation question at issue in the application, the decision also provides a brief summary of the facts which raised an interesting question for me regarding the admissibility of extrinsic evidence.
The interpretation concerns the Deceased’s Will, which contains three seemingly incompatible bequests, as follows:
- Paragraph 3(b) of the Will directs the estate trustee “to pay my debts, funeral and testamentary expenses, and to transfer the residue of my estate to my wife, if she survives me for a period of thirty days, for her own use absolutely”;
- Paragraph 3(c) of the Deceased’s Will directs the estate trustee “to deliver to my wife, for her use and enjoyment for life, all articles of personal domestic and household use or ornament belonging to me at the time of my death…and on her death, to divide all such articles among my children…”; and
- Paragraph 3(d) of the Will directs the estate trustee “to divide the residue of my estate equally between my wife (if she survives me for a period of thirty days) and my children, Kim, Howard, Rory, Cherie, Gina, Casey and Patrick, if then alive…”.
There appear to be four possible interpretations of the Deceased’s Will based on the above clauses:
- One hundred percent of the estate is left to the Deceased’s wife;
- The Deceased’s wife is given a life interest in personal property, which is later to be divided amongst the Deceased’s children;
- Fifty percent of the Deceased’s estate is to be left to his wife, and the other fifty percent is to be divided amongst the Deceased’s children; or
- The Deceased’s wife and the Deceased’s children are each to receive one-seventh of the estate.
In interpreting wills, Courts must first look to the language of the will to ascertain whether the testator’s intention can be discerned from the will itself. If the Court is unable to determine the testator’s intention from the will alone, it may then consider the surrounding circumstances known to the testator at the time that he or she made his or her will.
The surrounding circumstances that may be considered include only indirect extrinsic evidence, and not direct extrinsic evidence. Indirect extrinsic evidence consists of such circumstances as the character and occupation of the testator, the amount, extent and condition of his property, the number, identity, and general relationship to the testator of the immediate family and other relatives, the persons who comprised his circle of friends, and any other natural objects of his bounty. Direct extrinsic evidence would include, for example, instructions given by the testator to his solicitor in respect of the preparation of his will, or direct evidence from other third parties about the testator’s intentions.
As discussed in the decision of Rondel v Robinson Estate, 2011 ONCA 493, an exception to the general rule that direct extrinsic evidence is not admissible is in circumstances where there is an “equivocation” in the will, meaning that the words of the will in question apply equally well to two or more persons or things. Equivocation should not be equated with either ambiguity or mere difficulty of interpretation
One of our recent blog posts discusses a case where extrinsic evidence was not permissible. In that case, the court found that the language of the will in question was not equivocal, and accordingly, extrinsic evidence was not admitted. However, in the facts described above, it appears that the Deceased’s Will may provide an example of a situation where there is an equivocation, given that there seem to be four alternative interpretations.
As further discussed in the Rondel v Robinson decision, when direct extrinsic evidence, such as third party evidence of a testator’s intentions are admitted, this can give rise to reliability and credibility issues. Accordingly, it is important that the admissibility of direct extrinsic evidence be restricted, and permitted only when the rules of interpretation and construction are insufficient to interpret equivocal language.
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