Burke v. Hudson's Bay Co.

Burke v. Hudson's Bay Co.
Collection
Supreme Court Judgments
Date
2010-10-07
Neutral citation
2010 SCC 34
Report
[2010] 2 SCR 273
Case number
32789
Judges
McLachlin, Beverley; Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise; Rothstein, Marshall; Cromwell, Thomas Albert
On appeal from
Ontario
Subjects
Pensions
Notes
SCC Case Information: 32789
Decision Content
SUPREME COURT OF CANADA
Citation: Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273
Date: 20101007
Docket: 32789
Between:
Peter Christopher Burke, Richard Fallis and
A. Douglas Ross, personally and in a representative capacity
Appellants
and
Governor and Company of Adventurers of England Trading into Hudson’s Bay
and Investors Group Trust Company Ltd.
Respondents
Coram: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
Reasons for Judgment:
(paras. 1 to 97)
Rothstein J. (McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron and Cromwell JJ. concurring
______________________________
Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273
Peter Christopher Burke, Richard Fallis and
A. Douglas Ross, personally and in a representative capacity Appellants
v.
Governor and Company of Adventurers of England Trading into Hudson’s Bay and Investors Group Trust Company Ltd. Respondents
Indexed as: Burke v. Hudson’s Bay Co.
2010 SCC 34
File No.: 32789.
2010: May 18; 2010: October 7.
Present: McLachlin C.J. and Binnie, LeBel, Deschamps, Fish, Abella, Charron, Rothstein and Cromwell JJ.
on appeal from the court of appeal for ontario
Pensions — Pension plans — Surplus — Ongoing defined benefit pension plan — Sale of division of company resulting in employees being transferred to new company — Transferred employees removed from former employer’s pension plan and incorporated into new pension plan — At time of transfer, former employer’s pension plan had significant projected surplus — Former employer transferred enough pension funds to cover transferred employees defined benefits but no surplus funds transferred — Whether there was an obligation on former employer to transfer a pro rata portion of surplus on sale — Whether former employer’s obligations to transferred employees were satisfied by assuring their defined benefits — Pension Benefits Act, 1987, S.O. 1987, c. 35.
Pensions — Pension plans — Expenses — Whether pension plan documentation allowed employer to charge plan administration expenses to fund.
In 1961, the Hudson’s Bay Company (“HBC”) provided a contributory, defined benefits pension plan for its employees. Under this defined benefit pension plan members of the plan were guaranteed a specified benefit upon retirement. For the first twenty years of existence, the plan was in deficit and HBC made additional payments to keep the plan solvent. In 1982, the plan generated its first actuarial surplus and HBC began paying plan administration expenses out of the fund.
In 1987, HBC sold its Northern Stores Division to the North West Company (“NWC”) and approximately 1,200 employees were transferred from HBC to NWC. The companies entered into an agreement to protect the pensions of the transferred employees. The agreement provided that NWC would establish a new pension plan and would provide the transferred employees with benefits at least equal to those provided under the HBC plan. HBC agreed to transfer assets sufficient to cover the defined benefits of the transferred employees. At the time of the transfer, HBC’s pension plan had an actuarial surplus of about $94 million. The companies discussed whether a portion of the actuarial surplus should be transferred; however, HBC suggested that transferring part of the surplus would increase the purchase price and the matter went no further.
The transferred employees allege that HBC, as plan administrator, breached its fiduciary duty to treat all pension plan members with an even hand. They argue that HBC was required to transfer a portion of the actuarial surplus to the successor plan and that HBC improperly charged pension plan administration expenses to the pension fund for approximately six years prior to their transfer. The trial judge found in favour of HBC on the issue of administration expenses, but held that the surplus was subject to trust principles, and that the transferred employees, as beneficiaries of the trust, had an equitable interest in the actuarial surplus. The disparate treatment of the beneficiaries was found to be a breach of an equitable trust which required the transfer of a portion of the actuarial surplus to remedy the breach. HBC appealed the issue of surplus and the transferred employees cross‑appealed on the issue of administration expenses. The Court of Appeal allowed the appeal and dismissed the cross‑appeal.
Held: The appeal should be dismissed.
An employer is obligated to pay for administration expenses when such an obligation is imposed by statute or common law. In this case, there were no statutory or common law obligations on HBC to pay administration expenses. The original trust agreement as well as the plan text do not expressly address plan administrative expenses. Subsequent trust agreements included a provision which expressly allowed HBC to charge plan administration expenses to the fund. The new trust agreements merely confirmed what was already implicitly provided for in the original trust agreement. HBC was therefore permitted to charge plan administration expenses to the pension fund.
The issue as to whether HBC was required to transfer a portion of the actuarial surplus when it sold its Northern Stores Division to NWC raises a novel question in pension law as the sale occurred in the context of an ongoing pension plan, rather than a terminated or wound‑up plan. In all cases the interests in the surplus of a pension plan have to be determined according to the words of the relevant documents and applicable contract and trust principles and statutory provisions. Each situation must be evaluated on a case‑by‑case basis.
Here, subject to the text of the plan, the terms of the trust agreement, and relevant statutes, HBC, as plan administrator, had wide discretion with respect to the pension plan, which it could exercise unilaterally and which could affect the interests of the employees and to which exercise of discretion the employees were vulnerable. Therefore, a fiduciary relationship existed between HBC as administrator and the employees/beneficiaries under the pension plan.
Pensions legislation is not a complete code but rather it establishes minimum standards and regulatory supervision in order to protect and safeguard the pension benefits and rights of those entitled to receive them under private pension plans. Here, HBC complied with the 1987 Pension Benefits Act when it transferred the pension assets to NWC. The terms of the relevant plan and trust documentation may impose a higher standard. Thus, HBC’s compliance with the 1987 Pension Benefits Act is not a complete answer to the transferred employees’ claim. It is necessary to examine the common law and equitable principles that govern interpretation of the plan and trust documentation.
In a defined benefit pension governed by trust principles, as in this case, legal ownership of the defined benefits lies with the trustee. The funds needed to pay the employees’ defined benefits are held in trust on their behalf. As beneficiaries, the employees have an equitable interest in the funds needed to cover their defined benefits. A review of the original and subsequent pension plan documentation indicates that the only employee benefits that are provided for under the terms of the plan are the employees’ defined retirement benefits. Additionally, the pension plan documents (the pension plan text and trust agreement), having regard to the operative language of the plan as a whole, do not contain any of the language that would typically give employees an entitlement to surplus. Based on the provisions of the pension plan documentation, it cannot be said that the transferred employees had an equitable interest in the surplus on termination, and therefore no floating equity in the actuarial surplus during continuation of the plan.
The fact that HBC may have voluntarily chosen to increase pension benefits out of surplus funds or otherwise, does not change the nature of the employees’ interest in the pension fund or extend fiduciary obligations to voluntary actions of the employer. Moreover, employees have no right to compel surplus funding to provide a cushion against insolvency. As a defined benefit plan, HBC’s duty was to ensure that funds at all times meet the fixed benefits promised by the employer. The right of the employees is that their defined benefits be adequately funded, not that an actuarial surplus be funded. Just because HBC had fiduciary duties as plan administrator does not obligate it under any purported duty of evenhandedness to confer benefits upon one class of employees to which they have no right under the plan. Neither the retained nor the transferred employees had an equitable interest in the plan surplus. Thus, there was no duty of evenhandedness applicable to the surplus.
Finally, a beneficiary of a trust has the right to compel its due administration even if it does not have an equitable interest in all of the assets of the trust. In this case, because the transferred employees had an equitable interest in their defined benefits, they have the right to compel the due administration of the trust and to ensure that the employer, trustee and plan administrator are complying with their legal obligations in the pension plan documents. The circumstances of this case do not suggest that the actuarial surplus was abused by HBC or used for an improper purpose.
What occurred between HBC and NWC was a legitimate commercial transaction. HBC and NWC negotiated over the purchase price of the assets, including the pension plan. HBC was agreeable to transferring a portion of the surplus so long as NWC was willing to pay for the benefit of acquiring a plan in surplus. NWC was not willing to pay. Both companies complied with the legislative requirements, lending further support to the legitimacy of the transaction. In executing the transfer, HBC was entitled to rely on the terms of the plan. Under the plan documentation, the employees’ rights and interests were limited to their defined benefits. HBC’s legal obligations with respect to its employees, including the fiduciary duties that it owed to the transferred employees, were satisfied in this case by protecting their defined benefits. Based on the plan documentation, HBC did not have a fiduciary obligation to transfer a portion of the actuarial surplus.
Cases Cited
Applied: Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678; distinguished: Buschau v. Rogers Communications Inc., 2006 SCC 28, [2006] 1 S.C.R. 973; referred to: North West Co. v. Hudson’s Bay Co., [1991] O.J. No. 2449 (QL); Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611; Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; Frame v. Smith, [1987] 2 S.C.R. 99; Saunders v. Vautier (1841), Cr. & Ph. 240, 41 E.R. 482; Burke v. Hudson’s Bay Co., 2008 ONCA 690, 241 O.A.C. 245.
Statutes and Regulations Cited
Act to amend the Pension Benefits Act, S.O. 2010, c. 9, s. 68.
Pension Benefits Act, 1965, S.O. 1965, c. 96.
Pension Benefits Act, 1987, S.O. 1987, c. 35, ss. 56(1), 81.
Authors Cited
Hepburn, Samantha J. Principles of Equity and Trusts, 4th ed. Sydney: Federation Press, 2009.
Kaplan, Ari N. Pension Law. Toronto: Irwin Law, 2006.
Snell’s Equity, 31st ed. by John McGhee, ed. London: Sweet & Maxwell, 2005.
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.
APPEAL from a judgment of the Ontario Court of Appeal (Doherty, Weiler and Gillese JJ.A.), 2008 ONCA 394, 236 O.A.C. 140, 67 C.C.P.B. 1, 40 E.T.R. (3d) 157, [2008] O.J. No. 1945 (QL), 2008 CarswellOnt 2801, reversing in part a decision of Campbell J. (2005), 51 C.C.P.B. 66, 25 E.T.R. (3d) 161, 2005 CanLII 47086, [2005] O.J. No. 5434 (QL), 2005 CarswellOnt 7334. Appeal dismissed.
David C. Moore and Kenneth G. G. Jones, for the appellants.
J. Brett Ledger, Christopher P. Naudie and Craig T. Lockwood, for the respondents.
The judgment of the Court was delivered by
Rothstein J. —
I. Introduction
[1] This appeal arises out of the sale of a division of the Hudson’s Bay Company (“HBC”) to the North West Company (“NWC”). The employees of the division were retained, but transferred to NWC in the sale, and their pensions were assured. The transferred employees were removed from the HBC pension plan and incorporated into a new successor plan. At the time of the transfer, the HBC plan had a projected surplus. HBC transferred enough of the pension fund to cover the transferred employees’ defined benefits but did not transfer any of the surplus funds.
[2] The transferred employees allege that the employer breached its fiduciary duty to treat all pension plan members with an even hand. They argue that HBC was required to transfer a portion of the projected surplus to the successor plan. They argue that the result was uneven treatment: the remaining HBC employees benefited from a plan in surplus but the transferred employees did not. As a subsidiary issue, the transferred employees also argue that HBC improperly charged pension plan administration expenses to the pension fund for approximately six years prior to their transfer.
[3] In the reasons that follow, I conclude that the transferred employees’ claims fail on both grounds. I conclude that the pension plan documentation allowed HBC to charge plan administration expenses to the fund. I also conclude that there was no obligation on HBC to transfer a pro rata portion of the surplus on the sale. HBC’s obligations to the transferred employees were satisfied by assuring their defined benefits.
[4] At the outset, it might be useful to set out the pension terminology relevant to the facts of this case. HBC provided a defined benefit pension plan to its employees. This means that the members of the plan were guaranteed a specified benefit upon retirement. A defined benefit plan stands in contrast to a defined contribution plan, where retirement benefits are based on contributions and the earnings on the contributions set out in the pension plan. Under either type of plan, contributions may be made by both the employer and employees or just the employer. In order to fund the defined benefits in this case, both HBC and the employees made contributions to the pension plan. For employees who obtained five years seniority, pension plan participation was a mandatory condition of employment at HBC. Employees were required to contribute to their pensions. The basic employee contribution requirement was set at 5% of annual earnings. HBC contributed any additional amount needed to ensure coverage of the employees’ defined benefits. HBC’s contribution was based on the assessment of an actuary. The actuary’s calculations rested on certain assumptions — inflation rates, investment returns, and future employees, amongst other things. This is an exercise in estimation that frequently results in deviation between the actuary’s assessment and the real state of the pension fund.
[5] An ongoing pension fund may be said to have an actuarial surplus when the actuary’s prediction is that the fund has more assets than liabilities (i.e. the defined benefits). Where the prediction is that the liabilities are greater than the assets, the fund is said to be in deficit. Because of the nature of the actuarial predictions, it is sometimes said that an actuarial surplus or deficit only exists on paper. If the pension plan is terminated, or wound-up, the assets and liabilities can be tallied and whether a fund is actually in deficit or surplus can be determined. Therefore, it is sometimes said that an actual surplus only crystallizes on plan termination.
[6] The employer’s and employees’ respective rights and obligations with respect to the defined benefits, contributions and surplus are set out in the pension plan documentation. In the present case there are two types of pension plan documents: the pension plan text and the fund management agreement (also referred to as the trust agreement). Gillese J.A. succinctly described the role of each document in her reasons (2008 ONCA 394, 236 O.A.C. 140, at paras. 35-36). To paraphrase her reasons, the pension plan text is a contract between the employer and the employee. The plan text sets out the administration of the pension plan and addresses matters such as funding obligations of the employer and employees, defined benefits and the method by which the plan will be administered. The plan text is not a stand-alone document, however, as it is not a tool for accumulating funds. Therefore, a second document is required. In this case, there is a trust agreement between HBC and the trustees of the pension fund. This document established and requires the maintenance of the HBC pension trust fund. Certain provisions of the pension text and the trust agreement will be reviewed in more detail in the analysis that follows below.
II. Facts
[7] HBC provided a pension plan for its employees (“the plan”). It is a contributory, defined benefits pension plan.
[8] The plan was established in 1961. For the first twenty years of existence, the plan was in deficit — the fund did not contain enough assets to cover the defined benefits of the employees. HBC made additional payments to keep the plan solvent. In 1982, the plan generated its first actuarial surplus. In response to the surplus, HBC began taking contribution holidays — meaning that it did not have to continue contributing to cover the defined benefits. The actuarial surplus also allowed HBC to pay for plan administration expenses out of the fund without affecting the defined benefits. In 1986, HBC attempted to withdraw $35 million of the estimated $76 million surplus in the fund. It abandoned this process, at least in part, because of the employees’ adverse reaction.
[9] Although the original 1961 plan documentation provided that HBC’s contributions were “entirely voluntary” and that payment of defined benefits under the plan were not guaranteed, the documentation also states that HBC intended to contribute the amounts deemed necessary on the basis of actuarial computations to provide the retirement benefits under the plan (art. 4 and 11.01). As indicated, HBC did make the payments that were required to fund the defined benefits under the plan when it was in deficit.
[10] In 1965, The Pension Benefits Act, 1965, S.O. 1965, c. 96, came into force which required employers to pre-fund their defined benefit pension plans to maintain prescribed solvency levels (A. N. Kaplan, Pension Law (2006), at p. 43). In the Pension Benefits Act, 1987, S.O. 1987, c. 35 (“1987 PBA”) (the Act in force at the time relevant to this appeal), s. 56(1) provided:
A pension plan is not eligible for registration unless it provides for funding sufficient to provide the pension benefits, ancillary benefits and other benefits under the pension plan in accordance with this Act and the regulations.
[11] In the 1985 plan that was amended and restated on January 1, 1985, art. 4.04 provided that HBC was obligated to make contributions sufficient to cover the defined benefits under the plan. Article 4.04 provided in part:
The company shall from time to time, but not less frequently than annually, contribute such amounts to the Plan as are necessary, in the opinion of the Actuary, to provide the pension benefits accruing to Members during the current year and to amortize any initial unfunded liability or experience deficiency in accordance with the requirements of the Act, after taking into account the assets in the Trust Fund, the earnings thereon, the required contributions of Members during the year and all other relevant factors.
[12] Therefore, notwithstanding the apparent voluntary nature of HBC’s contributions at the outset in 1961, HBC did make all contributions necessary to fund the defined benefits under the plan. In any event, HBC, pursuant to art. 4.04, expressly undertook and was required to satisfy the defined benefits prescribed under the plan.
[13] In 1987, HBC sold its Northern Stores Division to NWC. NWC agreed to retain the Northern Stores employees. This resulted in approximately 1,200 employees being transferred from HBC to NWC. As part of the sale, HBC and NWC entered into an agreement to protect the pensions of the transferred employees. The agreement provided that NWC would establish a new pension plan and would provide the transferred employees with benefits “at least equal to those presently provided under [the HBC plan]”. HBC agreed to transfer assets sufficient to cover the defined benefits of the transferred employees. The actuarial report showed that HBC had to transfer approximately $12.6 million to cover the defined pension benefits of the transferred employees.
[14] At the time of the transfer, the HBC plan had a significant actuarial surplus estimated to be about $94 million. HBC and NWC discussed whether a portion of the actuarial surplus should be transferred. However, HBC suggested that transferring part of the surplus would increase the purchase price and the matter went no further.
[15] NWC contested the transferred amount on the basis that it did not sufficiently account for early retirement benefits. The matter was heard before the Superintendent of the Pension Commission of Ontario. The Superintendent agreed with NWC and found that the transferred amount did not account for early retirement benefits. However, the Superintendent found that he did not have the jurisdiction to order a transfer of further funds to cover the shortfall. NWC brought an application in court to determine its rights under the agreement. Gotlib J. of the Ontario Court of Justice agreed with NWC and ordered the transfer of an additional $1.27 million to cover early retirement benefits (North West Co. v. Hudson’s Bay Co., [1991] O.J. No. 2449 (QL)).
[16] The issue of transferring the actuarial surplus was presented to the Superintendent. He held that he did not have the jurisdiction to determine issues of surplus entitlement.
III. Lower Court Decisions
A. Ontario Superior Court of Justice (2005), 51 C.C.P.B. 66
[17] Peter Burke, Richard Fallis and A. Douglas Ross were Northern Stores employees who were transferred to NWC. They were appointed representatives of all the pension plan beneficiaries who were transferred to NWC. In their personal and representative capacity they claimed to be entitled to a portion of the actuarial surplus that existed in the HBC pension at the time of the transfer. They also sought to recover plan administration expenses that HBC charged to the fund, as well as the actuarial surplus funds that HBC used to take contribution holidays.
[18] Campbell J. heard the transferred employees’ claims at the Ontario Superior Court of Justice. He concluded that the surplus was subject to trust principles, and that the transferred employees, as beneficiaries of the trust, had an equitable interest in the actuarial surplus. Campbell J. reasoned that the remaining employees stood to benefit from a greater pool of assets, because the entire actuarial surplus remained with HBC. Conversely, the transferred employees were deprived of the actuarial surplus that would have provided greater security for the payment and potential improvement of their benefits. The trial judge concluded that the disparate treatment of the beneficiaries was a breach of an equitable trust which required the transfer of a portion of the actuarial surplus to remedy the breach. The details of the remedy would be determined after further submissions from the parties.
[19] Campbell J. found in favour of HBC on the issue of expenses and concluded, based on contract principles, that HBC was entitled to charge plan administration expenses to the pension fund. Campbell J. also concluded that HBC was permitted to take contribution holidays. His conclusion on the latter issue was not appealed.
B. Ontario Court of Appeal, 2008 ONCA 394, 236 O.A.C. 140
[20] HBC appealed the issue of surplus to the Court of Appeal and the transferred employees cross-appealed on the issue of expenses. Gillese J.A., for a unanimous court, allowed the appeal and dismissed the cross-appeal.
[21] On the issue of surplus, Gillese J.A. determined that the matter could only be resolved by first determining whether the transferred employees had any entitlement to the actuarial surplus at the time of the transfer. If they did not, then HBC could not have had any obligation to transfer a portion of the actuarial surplus. Surplus entitlement is a matter of construction. Gillese J.A. analysed the language of the plan documentation and found that the documents did not contain any of the language that courts have found to establish employee entitlement to surplus. On the basis of several provisions in the plan text, Gillese J.A. found that the employees were entitled to only the defined benefits provided by the terms of the plan.
[22] Gillese J.A. agreed with the trial judge that a fundamental principle of trust law is that the beneficiaries are to be treated with impartiality and an even hand. However, she noted, this principle is subject to the terms of the trust instrument. Gillese J.A. found that the plan documentation displaced the duty of even-handedness with respect to the actuarial surplus. Because the employees were only entitled to the defined benefits at the time of the transfer, the duty of even-handedness only required ensuring that the defined benefits were protected. In her opinion, the considerable discretion afforded to the employer on the use of actuarial surplus supported her conclusion.
[23] Based on the text of the plan documentation, Gillese J.A. found that HBC was entitled to charge plan administration expenses to the fund. Silence does not create a positive obligation on the employer to pay expenses. The plan text was silent on plan administration expenses; therefore, HBC was not obliged to pay out of its own pocket. Subsequent amendments to the documentation made this explicit, stating that administration costs could be paid out of the pension fund.
[24] Mr. Burke et al. (“Burke”) appeal the decision on both issues.
IV. Issues
[25] I will deal with the issues in the reverse order of the Court of Appeal. First, did HBC properly pay the plan administration expenses from the pension fund? Second, was HBC obligated to transfer a portion of the actuarial surplus in the sale of Northern Stores?
V. Analysis
[26] Both issues in this appeal concern HBC’s obligations with respect to surplus in the pension plan. Pension surpluses raise contentious issues that this Court has considered previously: Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611; Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152; Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678. In all these cases the interests in the surplus of the pension plan have been determined according to the words of the relevant documents and applicable contract and trust principles and statutory provisions.
A. Plan Administration Expenses
[27] In 1982, when the pension fund had its first actuarial surplus, HBC began paying plan administration expenses out of the fund. Burke alleges that HBC improperly charged these expenses to the fund and that HBC, itself, should have paid the expenses. They seek to reclaim the funds used to pay expenses from 1982 until they were transferred to NWC in 1987.
[28] This Court recently addressed the issue of plan administration expenses in Kerry. While this Court’s reasons in Kerry were released after the Court of Appeal’s decision in the present appeal, my view is that the issue was correctly decided by Gillese J.A. I will briefly address why HBC properly paid the expenses from the fund in accordance with the principles in Kerry, but the Court of Appeal’s decision correctly analyses this issue in more detail.
[29] In Kerry, this Court determined that absent a statutory or common law authority creating an obligation on the employer to pay for expenses, such an obligation must arise from the text and the context of the pension plan documents (para. 40). There was no statutory obligation on HBC to pay expenses. Accordingly, Burke argues that the obligation on HBC derives from the plan documents and the common law. This argument was rejected at the Court of Appeal, and for the following reasons I would also reject this argument.
[30] Burke argues that art. 21 of the original 1961 trust agreement imposes an obligation on the employer to pay plan administration expenses. The article provides:
21. COMPENSATION OF TRUSTEE
The Trustee shall be entitled to such compensation as may from time to time be mutually agreed in writing with the Company. Such compensation and all other disbursements made and expenses incurred in the management of the Fund shall be paid by the Company.
Burke puts particular emphasis on the last sentence of the provision and argues that “all other disbursements made and expenses incurred in the management of the Fund” is an ambiguous phrase and could include not only trustee expenses, but also additional plan administration expenses.
[31] In light of this broad wording, Burke argues that the ambiguity should be resolved having regard to the statements made in booklets distributed to the employees by HBC for the purpose of explaining their pension benefits. The HBC pension booklets for 1961, 1975 and 1980 stated that the entire cost of administering the plan will be borne or paid by the Company. Therefore, Burke argues that the combined effect of art. 21 and these booklets is that HBC improperly charged the plan administration expenses to the fund.
[32] I cannot accept this argument. In my opinion, art. 21 is not broad nor ambiguous. Article 21 deals with expenses incurred by the trustee “in the management of the Fund” and does not address plan administration expenses. The plan text, which deals with the administration of the plan, is silent on plan administration expenses. This Court reached the same conclusion in Kerry, where a similar article was found to impose an obligation on the employer to pay only for trustee expenses and not plan administration expenses. In my opinion, art. 21 is not ambiguous, as Burke suggests. The article clearly outlines HBC’s obligation with respect to trustee expenses and nothing else.
[33] In 1971, HBC entered into a new trust agreement. This new trust agreement included a provision which expressly allowed HBC to charge plan administration expenses to the fund. Again, in 1984, HBC entered into a new trust agreement. The 1984 trust agreement also expressly allowed HBC to charge plan administration expenses to the fund. Since the new trust agreements merely confirmed expressly what was already implicitly provided for in the original trust agreement, there is no need to discuss whether the new versions were valid as they introduce no new obligations or rights with respect to plan administration expenses.
[34] What, then, is the effect of the HBC pension booklets that stated that HBC would bear the entire cost of administering the pension plan? In light of my conclusion that art. 21 was unambiguous, it is not necessary to look to the booklets as an interpretative aid. Burke did not advance the argument in this Court that the statement in the booklets was a binding promise and created an estoppel.
[35] I would dismiss this ground of the appeal.
B. Transfer of Surplus
[36] The primary issue on this appeal is whether HBC was required to transfer a portion of the actuarial surplus when it sold Northern Stores to NWC in 1987. This is a novel question in pension law. The novelty arises from the fact that the sale occurred in the context of an ongoing pension plan, rather than a terminated or wound-up plan.
[37] Burke argues that, because the transfer occurred in the context of an ongoing plan, plan administration principles should govern the transfer. He says that he has an equitable interest in the total assets of the fund and therefore he can bring a claim against HBC for breach of fiduciary duty and compel due administration of the fund. He says HBC, as a fiduciary, had the obligation to treat the beneficiaries of the fund with an even hand and that in not transferring a portion of the surplus in the fund for the benefit of the transferred employees, HBC breached its fiduciary duty of even-handedness.
[38] I will first address the question of whether HBC is a fiduciary in the circumstances of this case. Second, I will address the role of the 1987 PBA in the transfer of assets to NWC. I will then turn to Burke’s argument that he has an equitable interest in the total assets of the fund. After that, I deal with the even-handedness argument and finally the obligations of HBC in the due administration of the pension fund.
(1) HBC as Fiduciary
[39] In Hodgkinson v. Simms, [1994] 3 S.C.R. 377, at p. 408, La Forest J. endorsed the indicia that help recognize a fiduciary relationship set forth by Wilson J. in Frame v. Smith, [1987] 2 S.C.R. 99, at p. 136:
(1) [S]cope for the exercise of some discretion or power; (2) that power or discretion can be exercised unilaterally so as to effect the beneficiary’s legal or practical interests; and, (3) a peculiar vulnerability to the exercise of that discretion or power.
La Forest J. wrote that “Wilson J.’s mode of analysis has been followed as a ‘rough and ready guide’ in identifying new categories of fiduciary relationships” (see also D. W. M. Waters, M. R. Gillen and L. D. Smith, eds., Waters’ Law of Trusts in Canada (3rd ed. 2005), at p. 42).
[40] At para. 55 of her reasons, Gillese J.A. found that HBC, as pension plan administrator, was a fiduciary. Article 11.01 of the 1985 restatement of the pension plan designates HBC as the plan administrator with the power to “conclusively decide all matters relating to the administration, interpretation, overall operation and application of the Plan”. Article 11.01 provides:
11.01 Company Administration
The Plan shall be administered by the Company which shall determine all questions relating to the length of Continuous Service, eligibility, early or postponed retirement, and rates and amounts of Annual Earnings and Average Earnings for the purposes of the Plan and shall conclusively decide all matters relating to the administration, interpretation, overall operation and application of the Plan, consistent, however, with the text of the Plan, the terms of the Trust Agreement, and the Act and the Income Tax Act (Canada). [Emphasis added.]
[41] Subject to the text of the plan, the terms of the trust agreement, and relevant statutes, there is no doubt that HBC had wide discretion with respect to the pension plan, which it could exercise unilaterally and which could affect the interests of the employees, and to which exercise of discretion the employees were vulnerable. Therefore, I agree with Gillese J.A. that in these circumstances HBC, as plan administrator, was a fiduciary and that a fiduciary relationship existed between HBC as administrator and the employees/beneficiaries under the pension plan. As Gillese J.A. wrote, at para. 55, “[h]ad there been a legal obligation to transfer part of the surplus at the time of Sale and had it been found that the Bay failed to cause that to occur, the proper nomenclature would have been a finding that the Bay was in breach of its fiduciary obligations to the Transferred Employees.” The question is whether there was such a legal obligation.
(2) The Pension Benefits Act, 1987
[42] HBC argues that s. 81 of the 1987 PBA is a specialized regime for transferring pension assets and that it was simply required to comply with this regime, which it did. It says this situation is like that in Buschau v. Rogers Communications Inc., 2006 SCC 28, [2006] 1 S.C.R. 973, where this Court found that the general trust rule in Saunders v. Vautier (1841), Cr. & Ph. 240, 41 E.R. 482 (Ch. D.), which allows beneficiaries to collapse a trust in certain circumstances, was displaced by legislative provisions.
[43] The transfer of pension assets to NWC was subject to the 1987 PBA (decision of the Superintendent of the Pension Commission of Ontario, April 30, 1990, Reference C‑8389). I note that this statute has been subsequently amended, with the most recent revision receiving Royal Assent as of May 2010. I would also note that the issue of surplus transfer when there is a transfer of pension assets is dealt with under the yet to be proclaimed s. 80(13) of the amended statute (S.O. 2010, c. 9, s. 68). Section 81 of the 1987 PBA deems the transfer of pension assets in this case to be a continuation of the HBC plan, and it ensures the protection of the employees’ defined benefits already accrued, as well as any other benefits provided under the plan. This section provides:
81.—(1) Where an employer who contributes to a pension plan sells, assigns or otherwise disposes of all or part of the employer’s business or all or part of the assets of the employer’s business, a member of the pension plan who, in conjunction with the sale, assignment or disposition becomes an employee of the successor employer and becomes a member of a pension plan provided by the successor employer,
(a) continues to be entitled to the benefits provided under the employer’s pension plan in respect of employment in Ontario or a designated province to the effective date of the sale, assignment or disposition without further accrual;
(b) is entitled to credit in the pension plan of the successor employer for the period of membership in the employer’s pension plan, for the purpose of determining eligibility for membership in or entitlement to benefits under the pension plan of the successor employer; and
(c) is entitled to credit in the employer’s pension plan for the period of employment with the successor employer for the purpose of determining entitlement to benefits under the employer’s pension plan.
(2) Clause (1) (a) does not apply if the successor employer assumes responsibility for the accrued pension benefits of the employer’s pension plan and the pension plan of the successor employer shall be deemed to be a continuation of the employer’s plan with respect to any benefits or assets transferred.
(3) Where a transaction described in subsection (1) takes place, the employment of the employee shall be deemed, for the purposes of this Act, not to be terminated by reason of the transaction.
(4) Where a transaction described in subsection (1) occurs and the successor employer assumes responsibility in whole or in part for the pension benefits provided under the employer’s pension plan, no transfer of assets shall be made from the employer’s pension fund to the pension fund of the plan provided by the successor employer without the prior consent of the Superintendent or contrary to the prescribed terms and conditions.
(5) The Superintendent shall refuse to consent to a transfer of assets that does not protect the pension benefits and any other benefits of the members and former members of the employer’s pension plan or that does not meet the prescribed requirements and qualifications.
[44] I am not persuaded that s. 81 resolves the issue. Nor do I see this as analogous to the situation in Buschau.
[45] Pensions legislation is not a complete code (Buschau, at para. 35). As this C