No contest

When Heather Ilott was unhappy that her mother, Melita Jackson, left her nothing in her will, she challenged the lack of provision as an adult child under the Inheritance (Provision for Family and Dependants) Act 1975.

At first instance, in 2007, she was awarded £50,000. She appealed the decision and the Court of Appeal remitted the question of what should be ‘reasonable financial provision’ back to the High Court in 2011.

Ilott sought £240,000 mainly for housing needs, but Parker J declined to interfere with the original award, leaving her in no better a position. It was a pyrrhic victory and, apart from the delay placed on the estate administration meaning that charities were kept out of their benefit for about ten years, the costs associated with the action will have represented a significant drain on the estate and the parties.

In that regard, it is worth exploring whether or not a forfeiture clause or ‘no contest’ clause in such cases may be of benefit by deterring litigation.

To be clear, any such clause is only relevant if some provision is made by the will. But as long as the clause is not inconsistent with, or repugnant to, the nature of the interest given or void for uncertainty, it is likely to be valid.

In using the clause, note:

• It will be necessary to assess carefully with the client what provision may be appropriate in the particular circumstances and, in doing so, (where a claim under the Act is a risk) reference should be made to the Act to identify what the court may assess as reasonable financial provision. In this regard, the question of what is reasonable is flexible and there are a number of probable outcomes. Depending on the client’s attitude towards risk, a lower level of provision may be chosen.

• A forfeiture condition does not prevent an applicant from making a claim under the Act: an applicant has a statutory right whether the condition operates or not and, in considering the application, the court will have regard to any benefits the applicant derives from the estate. So if the condition has a confiscatory effect, that will be taken into account. But the mere deterrent effect does not make the condition
  void as contrary to public policy.

Accordingly, if an applicant forfeits their interest under the will by making a claim, it can be taken into account by the court when assessing the amount, if any provision should be awarded under the second limb of the test of section 2 of the Act.

There is a risk that an applicant fails to achieve more than their defined interest and, in so doing, loses that benefit, particularly as they also risk being penalised in costs for their action. Of course, much would depend on whether the applicant already has existing assets or whether they have any particular needs that warrant provision from the estate.

Back to Ilott’s claim, suppose Jackson had made a pecuniary legacy to her daughter of £60,000 conditional on her not pursuing a claim against the estate, i.e. an amount comfortably above what Ilott
was awarded? On the face of it, Ilott would have lost the additional sum of £10,000, an amount that may have been used to help meet the estate’s costs of
the litigation.

Of course, the act of making some provision seems to fly in the face of the testator’s wishes and perhaps perversely achieves the aims of the Act by way of a defensive play. But the real benefit of such a clause is the deterrent effect.

A ‘no contest’ clause would give the potential applicant reason to reflect clearly whether pursuing an action is likely to be beneficial, and in so doing may deter a large number of claims being made. If so, that would avoid the delay and significant costs of this type of litigation.

With careful and proper planning, as mentioned, the applicant may not wish to risk a pyrrhic victory or of losing their defined benefit under the will.

Lloyd Junor is a senior associate at Thomas Eggar

He writes the regular in-practice article on wealth structuring for Private Client Adviser

Copyright & permissions