Sun Indalex Finance, LLC v. United Steelworkers

Sun Indalex Finance, LLC v. United Steelworkers
Collection
Supreme Court Judgments
Date
2013-02-01
Neutral citation
2013 SCC 6
Report
[2013] 1 SCR 271
Case number
34308
Judges
McLachlin, Beverley; LeBel, Louis; Deschamps, Marie; Abella, Rosalie Silberman; Rothstein, Marshall; Cromwell, Thomas Albert; Moldaver, Michael J.
On appeal from
Ontario
Subjects
Civil procedure
Pensions
Notes
SCC Case Information: 34308
Decision Content
SUPREME COURT OF CANADA
Citation: Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271
Date: 20130201
Docket: 34308
Between:
Sun Indalex Finance, LLC
Appellant
and
United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville
Respondents
And Between:
George L. Miller, the Chapter 7 Trustee of the Bankruptcy Estates
of the U.S. Indalex Debtors
Appellant
and
United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville
Respondents
And Between:
FTI Consulting Canada ULC, in its capacity as court-appointed monitor of Indalex Limited, on behalf of Indalex Limited
Appellant
and
United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville
Respondents
And Between:
United Steelworkers
Appellant
and
Morneau Shepell Ltd. (formerly known as Morneau Sobeco Limited Partnership) and Superintendent of Financial Services
Respondents
- and -
Superintendent of Financial Services, Insolvency Institute of Canada, Canadian Labour Congress, Canadian Federation of Pensioners, Canadian Association of Insolvency and Restructuring Professionals and Canadian Bankers Association
Interveners
Coram: McLachlin C.J. and LeBel, Deschamps, Abella, Rothstein, Cromwell and Moldaver JJ.
Reasons for Judgment:
(paras. 1 to 84)
Reasons Concurring in Result With Those of Deschamps J.:
(paras. 85 to 262)
Dissenting Reasons:
(paras. 263 to 280)
Deschamps J. (Moldaver J. concurring)
Cromwell J. (McLachlin C.J. and Rothstein J. concurring)
LeBel J. (Abella J. concurring)
Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271
Sun Indalex Finance, LLC Appellant
v.
United Steelworkers, Keith Carruthers, Leon Kozierok,
Richard Benson, John Faveri, Ken Waldron,
John (Jack) W. Rooney, Bertram McBride,
Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith,
Robert Leckie and Fred Granville Respondents
- and -
George L. Miller, the Chapter 7 Trustee of the Bankruptcy
Estates of the U.S. Indalex Debtors Appellant
v.
United Steelworkers, Keith Carruthers, Leon Kozierok,
Richard Benson, John Faveri, Ken Waldron,
John (Jack) W. Rooney, Bertram McBride,
Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith,
Robert Leckie and Fred Granville Respondents
- and -
FTI Consulting Canada ULC, in its capacity as court-appointed
monitor of Indalex Limited, on behalf of Indalex Limited Appellant
v.
United Steelworkers, Keith Carruthers, Leon Kozierok,
Richard Benson, John Faveri, Ken Waldron,
John (Jack) W. Rooney, Bertram McBride,
Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith,
Robert Leckie and Fred Granville Respondents
- and -
United Steelworkers Appellant
v.
Morneau Shepell Ltd. (formerly known as Morneau Sobeco
Limited Partnership) and Superintendent of Financial Services Respondents
and
Superintendent of Financial Services,
Insolvency Institute of Canada,
Canadian Labour Congress,
Canadian Federation of Pensioners,
Canadian Association of Insolvency and
Restructuring Professionals and
Canadian Bankers Association Interveners
Indexed as: Sun Indalex Finance, LLC v. United Steelworkers
2013 SCC 6
File No.: 34308.
2012: June 5; 2013: February 1.
Present: McLachlin C.J. and LeBel, Deschamps, Abella, Rothstein, Cromwell and Moldaver JJ.
on appeal from the court of appeal for ontario
Pensions — Bankruptcy and Insolvency — Priorities — Company who was both employer and administrator of pension plans seeking protection from creditors under Companies’ Creditors Arrangement Act (“CCAA ”) — Pension funds not having sufficient assets to fulfill pension promises made to plan members — Company entering into debtor in possession (“DIP”) financing allowing it to continue to operate — CCAA court granting priority to DIP lenders — Proceeds of sale of business insufficient to pay back DIP lenders — Whether pension wind-up deficiencies subject to deemed trust — If so, whether deemed trust superseded by CCAA priority by virtue of doctrine of federal paramountcy — Pension Benefits Act, R.S.O. 1990, c. P.8, ss. 57(3), (4), 75(1)(a), (b) — Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 .
Pensions — Trusts — Company who was both employer and administrator of pension plans seeking protection from creditors under CCAA — Pension funds not having sufficient assets to fulfill pension promises made to plan members — Whether pension wind-up deficiencies subject to deemed trust — Whether company as plan administrator breached fiduciary duties — Whether pension plan members are entitled to constructive trust.
Civil Procedure — Costs — Appeals — Standard of review — Whether Court of Appeal erred in costs endorsement concerning one party.
Indalex Limited (“Indalex”), the sponsor and administrator of two employee pension plans, one for salaried employees and the other for executive employees, became insolvent. Indalex sought protection from its creditors under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA ”). The salaried plan was being wound up when the CCAA proceedings began. The executive plan had been closed but not wound up. Both plans had wind-up deficiencies.
In a series of court-sanctioned steps, the company was authorized to enter into debtor in possession (“DIP”) financing in order to allow it to continue to operate. The CCAA court granted the DIP lenders, a syndicate of pre-filing senior secured creditors, priority over the claims of all other creditors. Repayment of these amounts was guaranteed by Indalex U.S.
Ultimately, with the approval of the CCAA court, Indalex sold its business but the purchaser did not assume pension liabilities. The proceeds of the sale were not sufficient to pay back the DIP lenders and so Indalex U.S., as guarantor, paid the shortfall and stepped into the shoes of the DIP lenders in terms of priority. The CCAA court authorized a payment in accordance with the priority but ordered an amount be held in reserve, leaving the plan members’ arguments on their rights to the proceeds of the sale open for determination later.
The plan members challenged the priority granted in the CCAA proceedings. They claimed that they had priority in the amount of the wind-up deficiency by virtue of a statutory deemed trust under s. 57(4) of the Pension Benefits Act, R.S.O. 1990, c. P.8 (“PBA”), and a constructive trust arising from Indalex’s alleged breaches of fiduciary duty as administrator of the pension funds. The judge at first instance dismissed the plan members’ motions concluding that the deemed trust did not apply to wind up deficiencies. He held that, with respect to the wind-up deficiency, the plan members were unsecured creditors. The Court of Appeal reversed this ruling and held that the pension plan wind-up deficiencies were subject to deemed and constructive trusts which had priority over the DIP financing priority and over other secured creditors. In addition, the Court of Appeal rejected a claim brought by the United Steelworkers, which represented some members of the salaried plan, seeking payment of its costs from the latter’s pension fund.
Held (LeBel and Abella JJ. dissenting): The Sun Indalex Finance, George L. Miller and FTI Consulting appeals should be allowed.
Held: The United Steelworkers appeal should be dismissed.
(1) Statutory Deemed Trust
Per Deschamps and Moldaver JJ.: It is common ground that the contributions provided for in s. 75(1)(a) of the PBA are covered by the deemed trust contemplated by s. 57(4) of the PBA. The only question is whether this statutory deemed trust also applies to the wind-up deficiency payments required by s. 75(1)(b). The response to this question as it relates to the salaried employees is affirmative in view of the provision’s wording, context and purpose. The situation is different with respect to the executive plan as s. 57(4) provides that the wind-up deemed trust comes into existence only when the plan is wound up.
The wind-up deemed trust provision (s. 57(4) PBA) does not place an express limit on the “employer contributions accrued to the date of the wind up but not yet due”. Section 75(1)(a) explicitly refers to “an amount equal to the total of all payments” that have accrued, even those that were not yet due as of the date of the wind up, whereas s. 75(1)(b) contemplates an “amount” that is calculated on the basis of the value of assets and of liabilities that have accrued when the plan is wound up. Since both the amount with respect to payments (s. 75(1)(a)) and the one ascertained by subtracting the assets from the liabilities accrued as of the date of the wind up (s. 75(1)(b)) are to be paid upon wind up as employer contributions, they are both included in the ordinary meaning of the words of s. 57(4) of the PBA: “amount of money equal to employer contributions accrued to the date of the wind up but not yet due under the plan or regulations”.
The time when the calculation is actually made is not relevant as long as the liabilities are assessed as of the date of the wind up. The fact that the precise amount of the contribution is not determined as of the time of the wind up does not make it a contingent contribution that cannot have accrued for accounting purposes. As a result, the words “contributions accrued” can encompass the contributions mandated by s. 75(1)(b) of the PBA.
It can be seen from the legislative history that the protection has expanded from (1) only the service contributions that were due, to (2) amounts payable calculated as if the plan had been wound up, to (3) amounts that were due and had accrued upon wind up but excluding the wind-up deficiency payments, to (4) all amounts due and accrued upon wind up. Therefore, the legislative history leads to the conclusion that adopting a narrow interpretation that would dissociate the employer’s payment provided for in s. 75(1)(b) of the PBA from the one provided for in s. 75(1)(a) would be contrary to the Ontario legislature’s trend toward broadening the protection.
The deemed trust provision is a remedial one. Its purpose is to protect the interests of plan members. The remedial purpose favours an approach that includes all wind-up payments in the value of the deemed trust. In this case, the Court of Appeal correctly held with respect to the salaried plan, that Indalex was deemed to hold in trust the amount necessary to satisfy the wind-up deficiency.
Per LeBel and Abella JJ.: There is agreement with the reasons of Deschamps J. on the statutory deemed trust issue.
Per McLachlin C.J. and Rothstein and Cromwell JJ.: Given that there can be no deemed trust for the executive plan because that plan had not been wound up at the relevant date, the main issue in connection with the salaried plan boils down to the narrow statutory interpretative question of whether the wind-up deficiency provided for in s. 75(1)(b) is “accrued to the date of the wind up” as required by s. 57(4) of the PBA.
When the term “accrued” is used in relation to a sum of money, it will generally refer to an amount that is at the present time either quantified or exactly quantifiable but which may or may not be due. In the present case, s. 57(4) uses the word “accrued” in contrast to the word “due”. Given the ordinary meaning of the word “accrued”, the wind-up deficiency cannot be said to have “accrued” to the date of wind up. The extent of the wind-up deficiency depends on employee rights that arise only upon wind up and with respect to which employees make elections only after wind up. The wind-up deficiency therefore is neither ascertained nor ascertainable on the date fixed for wind up.
The broader statutory context reinforces the view according to which the most plausible grammatical and ordinary sense of the words “accrued to the date of wind up” is that the amounts referred to are precisely ascertained immediately before the effective date of the plan’s wind up. Moreover, the legislative evolution and history of the provisions at issue show that the legislature never intended to include the wind-up deficiency in a statutory deemed trust. Rather, they reinforce the legislative intent to exclude from the deemed trust liabilities that arise only on the date of wind up.
The legislation differentiates between two types of employer liability relevant to this case. The first is the contributions required to cover current service costs and any other payments that are either due or have accrued on a daily basis up to the relevant time. These are the payments referred to in the current s. 75(1)(a), that is, payments due or accrued but not paid. The second relates to additional contributions required when a plan is wound up which I have referred to as the wind-up deficiency. These payments are addressed in s. 75(1)(b). The legislative history and evolution show that the deemed trusts under s. 57(3) and (4) were intended to apply only to the former amounts and that it was never the intention that there should be a deemed trust or a lien with respect to an employer’s potential future liabilities that arise once the plan is wound up.
In this case, the s. 57(4) deemed trust does not apply to the wind-up deficiency. This conclusion to exclude the wind-up deficiency from the deemed trust is consistent with the broader purposes of the legislation. The legislature has created trusts over contributions that were due or accrued to the date of the wind up in order to protect, to some degree, the rights of pension plan beneficiaries and employees from the claims of the employer’s other creditors. However, there is also good reason to think that the legislature had in mind other competing objectives in not extending the deemed trust to the wind-up deficiency. While the protection of pension plans is an important objective, it is not for this Court to decide the extent to which that objective will be pursued and at what cost to other interests. The decision as to the level of protection that should be provided to pension beneficiaries under the PBA is one to be left to the Ontario legislature.
(2) Priority Ranking
Per Deschamps and Moldaver JJ.: A statutory deemed trust under provincial legislation such as the PBA continues to apply in federally-regulated CCAA proceedings, subject to the doctrine of federal paramountcy. In this case, granting priority to the DIP lenders subordinates the claims of other stakeholders, including the plan members. This court-ordered priority based on the CCAA has the same effect as a statutory priority. The federal and provincial laws are inconsistent, as they give rise to different, and conflicting, orders of priority. As a result of the application of the doctrine of federal paramountcy, the DIP charge supersedes the deemed trust.
Per McLachlin C.J. and Rothstein and Cromwell JJ.: Although there is disagreement with Deschamps J. in connection with the scope of the s. 57(4) deemed trust, it is agreed that if there was a deemed trust in this case, it would be superseded by the DIP loan because of the operation of the doctrine of federal paramountcy.
Per LeBel and Abella JJ.: There is agreement with the reasons of Deschamps J. on the priority ranking issue as determined by operation of the doctrine of federal paramountcy.
(3) Constructive Trust as a Remedy for Breach of Fiduciary Duties
Per McLachlin C.J. and Rothstein and Cromwell JJ.: It cannot be the case that a conflict of interests arises simply because an employer, exercising its management powers in the best interests of the corporation, does something that has the potential to affect the beneficiaries of the corporation’s pension plan. This conclusion flows inevitably from the statutory context. The existence of apparent conflicts that are inherent in the two roles of employer and pension plan administrator being performed by the same party cannot be a breach of fiduciary duty because those conflicts are specifically authorized by the statute which permits one party to play both roles. Rather, a situation of conflict of interest occurs when there is a substantial risk that the employer-administrator’s representation of the plan beneficiaries would be materially and adversely affected by the employer-administrator’s duties to the corporation.
Seeking an initial order protecting the corporation from actions by its creditors did not, on its own, give rise to any conflict of interest or duty on the part of Indalex. Likewise, failure to give notice of the initial CCAA proceedings was not a breach of fiduciary duty to avoid conflicts of interest in this case. Indalex’s decision to act as an employer-administrator cannot give the plan members any greater benefit than they would have if their plan was managed by a third party administrator.
It was at the point of seeking and obtaining the DIP orders without notice to the plan beneficiaries and seeking and obtaining the sale approval order that Indalex’s interests as a corporation came into conflict with its duties as a pension plan administrator. However, the difficulty that arose here was not the existence of the conflict itself, but Indalex’s failure to take steps so that the plans’ beneficiaries would have the opportunity to have their interests protected in the CCAA proceedings as if the plans were administered by an independent administrator. In short, the difficulty was not the existence of the conflict, but the failure to address it.
An employer-administrator who finds itself in a conflict must bring the conflict to the attention of the CCAA judge. It is not enough to include the beneficiaries in the list of creditors; the judge must be made aware that the debtor, as an administrator of the plan is, or may be, in a conflict of interest. Accordingly, Indalex breached its fiduciary duty by failing to take steps to ensure that the pension plans had the opportunity to be as fully represented in those proceedings as if there had been an independent plan administrator, particularly when it sought the DIP financing approval, the sale approval and a motion to voluntarily enter into bankruptcy.
Regardless of this breach, a remedial constructive trust is only appropriate if the wrongdoer’s acts give rise to an identifiable asset which it would be unjust for the wrongdoer (or sometimes a third party) to retain. There is no evidence to support the contention that Indalex’s failure to meaningfully address conflicts of interest that arose during the CCAA proceedings resulted in any such asset. Furthermore, to impose a constructive trust in response to a breach of fiduciary duty to ensure for the pension plans some procedural protections that they in fact took advantage of in any case is an unjust response in all of the circumstances.
Per Deschamps and Moldaver JJ.: A corporate employer that chooses to act as plan administrator accepts the fiduciary obligations attached to that function. Since the directors of a corporation also have a fiduciary duty to the corporation, the corporate employer must be prepared to resolve conflicts where they arise. An employer acting as a plan administrator is not permitted to disregard its fiduciary obligations to plan members and favour the competing interests of the corporation on the basis that it is wearing a “corporate hat”. What is important is to consider the consequences of the decision, not its nature.
In the instant case, Indalex’s fiduciary obligations as plan administrator did in fact conflict with management decisions that needed to be taken in the best interests of the corporation. Specifically, in seeking to have a court approve a form of financing by which one creditor was granted priority over all other creditors, Indalex was asking the CCAA court to override the plan members’ priority. The corporation’s interest was to seek the best possible avenue to survive in an insolvency context. The pursuit of this interest was not compatible with the plan administrator’s duty to the plan members to ensure that all contributions were paid into the funds. In the context of this case, the plan administrator’s duty to the plan members meant, in particular, that it should at least have given them the opportunity to present their arguments. This duty meant, at the very least, that they were entitled to reasonable notice of the DIP financing motion. The terms of that motion, presented without appropriate notice, conflicted with the interests of the plan members.
As for the constructive trust remedy, it is settled law that proprietary remedies are generally awarded only with respect to property that is directly related to a wrong or that can be traced to such property. There is agreement with Cromwell J. that this condition was not met in the case at bar and his reasoning on this issue is adopted. Moreover, it was unreasonable for the Court of Appeal to reorder the priorities in this case.
Per LeBel and Abella JJ. (dissenting): A fiduciary relationship is a relationship, grounded in fact and law, between a vulnerable beneficiary and a fiduciary who holds and may exercise power over the beneficiary in situations recognized by law. It follows that before entering into an analysis of the fiduciary duties of an employer as administrator of a pension plan under the PBA, it is necessary to consider the position and characteristics of the pension beneficiaries. In the present case, the beneficiaries were in a very vulnerable position relative to Indalex.
Nothing in the PBA allows that the employer qua administrator will be held to a lower standard or will be subject to duties and obligations that are less stringent than those of an independent administrator. The employer is under no obligation to assume the burdens of administering the pension plans that it has agreed to set up or that are the legacy of previous decisions. However, if it decides to do so, a fiduciary relationship is created with the expectation that the employer will be able to avoid or resolve the conflicts of interest that might arise.
Indalex was in a conflict of interest from the moment it started to contemplate putting itself under the protection of the CCAA and proposing an arrangement to its creditors. From the corporate perspective, one could hardly find fault with such a decision. It was a business decision. But the trouble is that at the same time, Indalex was a fiduciary in relation to the members and retirees of its pension plans. The solution was not to place its function as administrator and its associated fiduciary duties in abeyance. Rather, it had to abandon this role and diligently transfer its function as manager to an independent administrator.
In the present case, the employer not only neglected its obligations towards the beneficiaries, but actually took a course of action that was actively inimical to their interests. The seriousness of these breaches amply justified the decision of the Court of Appeal to impose a constructive trust.
(4) Costs in United Steelworkers Appeal
Per McLachlin C.J. and Rothstein and Cromwell JJ.: There is no basis to interfere with the Court of Appeal’s costs endorsement as it relates to United Steelworkers in this case. The litigation undertaken here raised novel points of law with all of the uncertainty and risk inherent in such an undertaking. The Court of Appeal in essence decided that the United Steelworkers, representing only 7 of 169 members of the salaried plan, should not without consultation be able to in effect impose the risks of that litigation on all of the plan members, the vast majority of whom were not union members. There is no error in principle in the Court of Appeal’s refusal to order the United Steelworkers costs to be paid out of the pension fund, particularly in light of the disposition of the appeal to this Court.
Per Deschamps and Moldaver JJ.: There is agreement with the reasons of Cromwell J. on the issue of costs in the United Steelworkers appeal.
Per LeBel and Abella JJ.: There is agreement with the reasons of Cromwell J. on the issue of costs in the United Steelworkers appeal.
Cases Cited
By Deschamps J.
Referred to: Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453; Hydro-Electric Power Commission of Ontario v. Albright (1922), 64 S.C.R. 306; Canadian Pacific Ltd. v. M.N.R. (1998), 41 O.R. (3d) 606; Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379; Crystalline Investments Ltd. v. Domgroup Ltd., 2004 SCC 3, [2004] 1 S.C.R. 60; Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3; Attorney General of Canada v. Law Society of British Columbia, [1982] 2 S.C.R. 307; Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273; Canada Deposit Insurance Corp. v. Canadian Commercial Bank, [1992] 3 S.C.R. 558.
By Cromwell J.
Referred to: Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, [2002] 2 S.C.R. 559; Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53; Hydro-Electric Power Commission of Ontario v. Albright (1922), 64 S.C.R. 306; Canadian Pacific Ltd. v. M.N.R. (1998), 41 O.R. (3d) 606; Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3 S.C.R. 471; Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152; Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273, aff’g 2008 ONCA 394, 67 C.C.P.B. 1; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175; Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247; K.L.B. v. British Columbia, 2003 SCC 51, [2003] 2 S.C.R. 403; Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R. 631; Elan Corp. v. Comiskey (1990), 41 O.A.C. 282; Algoma Steel Inc., Re (2001), 25 C.B.R. (4th) 194; Marine Drive Properties Ltd., Re, 2009 BCSC 145, 52 C.B.R. (5th) 47; Timminco Ltd., Re, 2012 ONSC 506, 85 C.B.R. (5th) 169; AbitibiBowater inc. (Arrangement relatif à), 2009 QCCS 6459 (CanLII); First Leaside Wealth Management Inc. (Re), 2012 ONSC 1299 (CanLII); Nortel Networks Corp., Re (2009), 75 C.C.P.B. 206; Royal Oak Mines Inc., Re (1999), 6 C.B.R. (4th) 314; Donkin v. Bugoy, [1985] 2 S.C.R. 85; Soulos v. Korkontzilas, [1997] 2 S.C.R. 217; Peter v. Beblow, [1993] 1 S.C.R. 980; Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678; Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303.
By LeBel J. (dissenting)
Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261; Royal Oak Mines Inc., Re (1999), 7 C.B.R. (4th) 293; Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; Soulos v. Korkontzilas, [1997] 2 S.C.R. 217.
Statutes and Regulations Cited
Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Wage Earner Protection Program Act and chapter 47 of the Statutes of Canada, 2005, S.C. 2007, c. 36 .
Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act and to make consequential amendments to other Acts, S.C. 2005, c. 47, s. 128 .
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Pension Benefits Amendment Act, 1980, S.O. 1980, c. 80.
Pension Benefits Amendment Act, 1983, S.O. 1983, c. 2, ss. 21, 23, 32.
Pension Benefits Amendment Act, 2010, S.O. 2010, c. 9, s. 52(5).
Personal Property Security Act, R.S.O. 1990, c. P.10, s. 30(7).
R.R.O. 1990, Reg. 909, ss. 4(4)3, 5(1)(b), (e), 14, 29, 31.
Securing Pension Benefits Now and for the Future Act, 2010, S.O. 2010, c. 24, s. 21(2).
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Waters’ Law of Trusts in Canada, 3rd ed. by Donovan W. M. Waters, Mark R. Gillen and Lionel D. Smith, eds. Toronto: Thomson Carswell, 2005.
APPEALS from a judgment of the Ontario Court of Appeal (MacPherson, Gillese and Juriansz JJ.A.), 2011 ONCA 265, 104 O.R. (3d) 641, 276 O.A.C. 347, 331 D.L.R. (4th) 352, 75 C.B.R. (5th) 19, 89 C.C.P.B. 39, 17 P.P.S.A.C. (3d) 194, [2011] O.J. No. 1621 (QL), 2011 CarswellOnt 2458, setting aside a decision of Campbell J., 2010 ONSC 1114, 79 C.C.P.B. 301, [2010] O.J. No. 974 (QL), 2010 CarswellOnt 893. Appeals allowed, LeBel and Abella JJ. dissenting.
APPEAL from a judgment of the Ontario Court of Appeal (MacPherson, Gillese and Juriansz JJ.A.), 2011 ONCA 578, 81 C.B.R. (5th) 165, 92 C.C.P.B. 277, [2011] O.J. No. 3959 (QL), 2011 CarswellOnt 9077. Appeal dismissed.
Benjamin Zarnett, Frederick L. Myers, Brian F. Empey and Peter Kolla, for the appellant Sun Indalex Finance, LLC.
Harvey G. Chaiton and George Benchetrit, for the appellant George L. Miller, the Chapter 7 Trustee of the Bankruptcy Estates of the U.S. Indalex Debtors.
David R. Byers, Ashley John Taylor and Nicholas Peter McHaffie, for the appellant FTI Consulting Canada ULC, in its capacity as court-appointed monitor of Indalex Limited, on behalf of Indalex Limited.
Darrell L. Brown, for the appellant/respondent the United Steelworkers.
Andrew J. Hatnay and Demetrios Yiokaris, for the respondents Keith Carruthers, et al.
Hugh O’Reilly and Amanda Darrach, for the respondent Morneau Shepell Ltd. (formerly known as Morneau Sobeco Limited Partnership).
Mark Bailey, Leonard Marsello and William MacLarkey, for the respondent/intervener the Superintendent of Financial Services.
Robert I. Thornton and D. J. Miller, for the intervener the Insolvency Institute of Canada.
Steven Barrett and Ethan Poskanzer, for the intervener the Canadian Labour Congress.
Kenneth T. Rosenberg, Andrew K. Lokan and Massimo Starnino, for the intervener the Canadian Federation of Pensioners.
Éric Vallières, Alexandre Forest and Yoine Goldstein, for the intervener the Canadian Association of Insolvency and Restructuring Professionals.
Mahmud Jamal, Jeremy Dacks and Tony Devir, for the intervener the Canadian Bankers Association.
The judgment of Deschamps and Moldaver JJ. was delivered by
[1] Deschamps J. — Insolvency can trigger catastrophic consequences. Often, large claims of ordinary creditors are left unpaid. In insolvency situations, the promise of defined benefits made to employees during their employment is put at risk. These appeals illustrate the materialization of such a risk. Although the employer in this case breached a fiduciary duty, the harm suffered by the pension plans’ beneficiaries results not from that breach, but from the employer’s insolvency. For the following reasons, I would allow the appeals of the appellants Sun Indalex Finance, LLC; George L. Miller, Indalex U.S.’s trustee in bankruptcy; and FTI Consulting Canada ULC.
[2] To improve the prospect of pensioners receiving their full benefits after a pension plan is wound up, the Ontario legislature has protected contributions to the pension fund that have accrued but are not yet due at the time of the wind up by providing for a deemed trust that supersedes all other provincial priorities over certain assets of the plan sponsor (s. 57(4) of the Pension Benefits Act, R.S.O. 1990, c. P.8 (“PBA”), and s. 30(7) of the Personal Property Security Act, R.S.O. 1990, c. P.10 (“PPSA”)). The parties disagree on the scope of the deemed trust. In my view, the relevant provisions and the context lead to the conclusion that it extends to contributions the employer must make to ensure that the pension fund is sufficient to cover liabilities upon wind up. In the instant case, however, the deemed trust is superseded by the security granted to the creditor that loaned money to the employer, Indalex Limited (“Indalex”), during the insolvency proceedings. In addition, although the employer, as plan administrator, may have put itself in a position of conflict of interest by failing to give the plan’s members proper notice of a motion requesting financing of its operations during a restructuring process, there was no realistic possibility that, had the members received notice and had the CCAA court found that they were secured creditors, it would have ordered the priorities differently. Consequently, it would not be appropriate to order an equitable remedy such as the constructive trust ordered by the Court of Appeal.
I. Facts
[3] Indalex is a wholly owned Canadian subsidiary of a U.S. company, Indalex Holding Corp. (“Indalex U.S.”). Indalex and its related companies formed a corporate group (the “Indalex Group”) that manufactured aluminum extrusions. The U.S. and Canadian operations were closely linked.
[4] In 2009, a combination of high commodity prices and the economic recession’s impact on the end-user market for aluminum extrusions plunged the Indalex Group into insolvency. On March 20, 2009, Indalex U.S. filed for Chapter 11 bankruptcy protection in Delaware. On April 3, 2009, Indalex applied for a stay under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA ”), and Morawetz J. granted the stay in an initial order. He also appointed FTI Consulting Canada ULC (the “Monitor”) to act as monitor.
[5] At that time, Indalex was the administrator of two registered pension plans. One was for its salaried employees (the “Salaried Plan”), the other for its executives (the “Executive Plan”). Members of the Salaried Plan included seven employees for whom the United Steelworkers (“USW”) acted as bargaining agent. The Salaried Plan was in the process of being wound up when the CCAA proceedings began. The effective date of the wind up was December 31, 2006. The Executive Plan had been closed but not wound up. Overall, the deficiencies of the pension plans’ funds concern 49 persons (members of the Salaried Plan and the Executive Plan are referred to collectively as the “Plan Members”).
[6] Pursuant to the initial order made by Morawetz J. on April 3, 2009, Indalex obtained protection under the CCAA . Both plans faced funding deficiencies when Indalex filed for the CCAA stay. The wind-up deficiency of the Salaried Plan was estimated at $1.8 million as of December 31, 2008. The funding deficiency of the Executive Plan was estimated at $3.0 million on a wind-up basis as of January 1, 2008.
[7] From the beginning of the insolvency proceedings, the Indalex Group’s reorganization strategy was to sell both Indalex and Indalex U.S. as a going concern while they were under CCAA and Chapter 11 protection. To this end, Indalex and Indalex U.S. sought to enter into a common agreement for debtor-in-possession (“DIP”) financing under which the two companies could draw from joint credit facilities and would guarantee each other’s liabilities.
[8] Indalex’s financial distress threatened the interests of all the Plan Members. If the reorganization failed and Indalex were liquidated under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3 (“BIA ”), they would not have recovered any of their claims against Indalex for the underfunded pension liabilities, because the priority created by the provincial statute would not be recognized under the federal legislation: Husky Oil Operations Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453. Although the priority was not rendered ineffective by the CCAA , the Plan Members’ position was uncertain.
[9] The Indalex Group solicited terms from a variety of possible DIP lenders. In the end, it negotiated an agreement with a syndicate consisting of the pre-filing senior secured creditors. On April 8, 2009, the CCAA court issued an Amended and Restated Initial Order (“Amended Initial Order”) authorizing Indalex to borrow US$24.4 million from the DIP lenders and grant them priority over all other creditors (“DIP charge”) in that amount. In his endorsement of the order, Morawetz J. made a finding that Indalex would be unable to achieve a going-concern solution without DIP financing. Such financing was necessary to support Indalex’s business until the sale could be completed.
[10] The Plan Members did not participate in the initial proceedings. The initial stay had been granted ex parte. The CCAA judge ordered Indalex to serve a copy of the stay order on every creditor owed $5,000 or more within 10 days of the initial order of April 3. As of April 8, when the motion to amend the initial order was heard, none of the Executive Plan’s members had been served with that order; nor did any of them receive notice of the motion to amend it. The USW did receive short notice, but chose not to attend. Morawetz J. authorized Indalex to proceed on the basis of an abridged