Is Failure to Serve a Beneficiary Fatal to a Will Challenge?

An analysis of Rule 9.01(1) and (2)and Lev v. Lev

In estates and trusts related matters, both Ontario’s Rules of Civil Procedure and Manitoba’s Court of King’s Bench Rules permit litigation being brought against a trustee without joining beneficiaries as parties subject to certain exceptions. In Manitoba, failure to join beneficiaries will be fatal to the attack on a trust. In Ontario, however, we could not find one case that addresses this issue. The purpose of this blog is to review the Manitoba case in question and assess the viability of such a defence to an attack on a testamentary document in Ontario.

Subrules 9.01(1) and (2) of Ontario’s Rules of Civil Procedure and Manitoba’s King’s Bench Rules have similar language and provide that “[a] proceeding may be brought by or against a personal representative or trustee as representing an estate or trust and its beneficiaries without joining those beneficiaries as parties.”  Subrule 2 sets out the exceptions to the general rule in subrule (1). Ontario’s Subrule (1) does not apply to five types of proceedings including “to establish or contest the validity of a will”. Manitoba’s Rules are a little different and list this exception to subrule (1) as being  “to establish or contest the validity of a will or trust.” For the purposes of this blog it is a difference with no real distinction. Our question is whether a failure to join beneficiaries as required by the Rules would be fatal in Ontario.

So here’s what happened in the case of Lev v. Lev¹ that was heard by the Manitoba Court of Appeal. Mr. and Mrs. Lev were involved in a very nasty divorce. One of the many issues involved Mrs. Lev attacking the validity of a trust. The proceeding she commenced did not join the children who were beneficiaries of the trust. The Court of Appeal for Manitoba held:

35      A final issue requires some comment. The children were not made parties to the action. Counsel for Mr. Lev argued, for the first time in this court, that it is improper for the wife to challenge the validity of the trust without the beneficiaries having been joined as parties.

36      The rule in effect at the time the proceedings were commenced was former Queen’s Bench Rule 57(1), which provided:

Trustees, executors, and administrators may sue and be sued on behalf of, or as representing, the property or estate of which they are trustees or representatives, without joining any of the persons beneficially interested, and shall represent them; but the court may at any time order any of them to be made parties in addition to, or in lieu of, the previous parties.

The present Queen’s Bench Rule 9.01(1) came into effect on March 1, 1989, and provides as a general rule:

A proceeding may be brought by or against a personal representative or trustee as representing an estate or trust and its beneficiaries without joining those beneficiaries as parties.

Subrule (2) codifies the situations in which it would be inappropriate for the representatives alone to be parties and where the persons beneficially entitled should be joined. Included in this list are proceedings “to establish or contest the validity of a will or trust.”

38      Counsel for the wife argues that Mr. Lev, and through him the children, were notified by letter to Mr. Lev’s counsel in November 1989 (during the accounting process before the master) that the wife was contesting the validity of the trust. This is hardly an answer to the specific requirements of the rule.

39      In my opinion, the children should have been added as parties when the validity of their trust was put in issue in the proceedings. The failure to do so is fatal to the wife’s attack on the trust. That does not mean that substance is giving way to form. Had I concluded that there was no evidence to support the conclusion of the trial judge that the father had demonstrated a certainty of intention to create the trust, I would be reluctant to find, on the evidence on the record and without the interests of the children being represented in the proceedings, that a valid trust did not exist.

This Manitoba Court of Appeal decision is not binding in Ontario; nonetheless, it is persuasive authority for the proposition that the failure to serve beneficiaries would be fatal to an attack on the validity of a testamentary document. But, persuasive does not necessarily mean that an Ontario court would follow it (one should note that the trust was not held to be invalid and, as such, no beneficiary was prejudiced).

If this case were heard in Ontario, Mrs. Lev may have made the following arguments to avoid her application being set aside:

• Ontario’s Rule 01(1) provides that a failure to comply with these rules is an irregularity and does not render a proceeding or a step, document or order in a proceeding a nullity, and the court may grant all necessary amendments or other relief, on such terms as are just, to secure the just determination of the real matters in dispute or only where and as necessary in the interest of justice, may set aside the proceeding. For example, in Boltyansky v. Joseph Walker,² the Court of Appeal for Ontario validated the lower court decision to grant summary judgment notwithstanding that

“the respondents failure to serve the seven syndicated mortgage lenders who are not parties to the consolidated action. Even though she recognized that these mortgage lenders were necessary parties to the Mortgage Action and should have been added by the respondents as defendants, she was entitled to exercise discretion to invoke the curative provision in r. 2.01(1)(a). In our view, her approach was sensible and workable. And we find no merit in the submission that in making this decision, she failed to consider that the seven syndicated mortgage lenders may have supported the appellants’ case had they been parties to the proceeding. This is a speculative suggestion, and the failure to add them as parties did not prevent the appellants from presenting any evidence that these seven lenders may have been able to contribute.”

The challenge with such an argument is that the need to join beneficiaries is not merely a procedural requirement. Such beneficiaries have standing to participate given their equitable interests are directly impacted by litigation respecting the validity of a trust or a Will.

A beneficiary has an interest in a trust or Estate. Where that litigation directly implicates the existence of that interest (like a challenge to the validity of a Will or a trust), that person has standing. As the beneficiary is not an owner, they may not be a necessary party on the face of the litigation but that beneficiary has conventional standing to participate. Hence the rule that they should be joined as per r. 5.01 – “Every person whose presence is necessary to enable the court to adjudicate effectively and completely on the issues in a proceeding shall be joined as a party to the proceeding.”

When discussing this point with my colleague Professor David Freedman, he expressed the view that the question is not just a matter of service,  and the failure to name/join the beneficiary as a party is not just a technical non-compliance with the Rules such that the failure to join is a mere irregularity.

In Lev v Lev, there was an attack on a trust as being a sham without joining the beneficiaries. The attack failed and hence the Court held that the failure to join wasn’t important. However, from a strategic perspective, the failure to join would be fatal to actually getting an order invalidating the trust.

• By analogy one would look at the case law that deals with the consolidation of proceedings and joinder of claims under Ontario’s Rules 5 and 6. It is beyond the scope of this blog to give it full treatment, but suffice to say these rules deal with combining multiple claims in a single suit or combining different proceedings into a single proceeding. Whether for tactical, cost  or limitations issues some of the parties may resist efforts to combine claims or be added to another proceeding. For joinder, the Rules provide a right to join claims which is subject to severance under r. 5.05 based on a test of prejudice.³  Consolidation requires a motion to be brought where the essential considerations are efficiency and a lack of prejudice.⁴ If Lev v. Lev took place in Ontario, Mrs. Lev could potentially seek to add the beneficiaries as parties (through a motion to amend the pleadings)⁵ to the proceedings and thereby allow the trust challenge to continue.

What might Mr. Lev have argued? He might have argued, by analogy, that there are instances where the failure to serve a party was determined to be fatal to the proceeding ab initio.  The common sense argument could be that the absence of notice is prejudicial to the public interest because it meant that the beneficiaries entitled to make submissions were denied the opportunity to do so. This is why in  Eaton v. Brant County Board of Education,⁶ the Supreme Court of Canada held that the failure to give notice to the proper parties of a constitutional issue invalidates a decision made in its absence.

Conclusion and Takeaways

In the context of estate litigation, the types of cases being dealt with almost always fall under Rule 9.01(2).  As such, counsel must do a thorough analysis to determine if the beneficiaries need to be joined as parties and served appropriately.

If one were to forget to name and serve the beneficiaries in Toronto it’s entirely likely the judge on the first hearing for scheduling appointments would send counsel back to rectify the situation.

There is mandatory mediation in Toronto as well.  If the failure to name and serve the proper parties somehow still got overlooked, an experienced mediator would point it out to the parties and it would be dealt with at that point.

If after mediation the proceeding still continued without the proper parties being named in the proceeding or served, then it remains to be seen if any decision that followed would be set aside by an Ontario court for the reasons set out in Lev v. Lev.