Nolan v. Kerry (Canada) Inc.

Nolan v. Kerry (Canada) Inc.
Collection
Supreme Court Judgments
Date
2009-08-07
Neutral citation
2009 SCC 39
Report
[2009] 2 SCR 678
Case number
32205
Judges
Binnie, William Ian Corneil; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise; Rothstein, Marshall
On appeal from
Ontario
Subjects
Administrative law
Civil procedure
Pensions
Notes
SCC Case Information: 32205
Decision Content
SUPREME COURT OF CANADA
Citation: Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678
Date: 20090807
Docket: 32205
Between:
Elaine Nolan, George Phillips, Elisabeth Ruccia, Paul Carter, R.A. Varney
and Bill Fitz, being members of the DCA Employees Pension Committee
representing certain of the members and former members of the Pension Plan
for the Employees of Kerry (Canada) Inc.
Appellants
and
Kerry (Canada) Inc. and Superintendent of Financial Services
Respondents
‑ and ‑
Association of Canadian Pension Management and Canadian Labour Congress
Interveners
Coram: Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.
Reasons for Judgment:
(paras. 1 to 133)
Reasons Dissenting in Part:
(paras. 134 to 204)
Rothstein J. (Binnie, Deschamps, Abella and Charron JJ. concurring)
LeBel J. (Fish J. concurring)
______________________________
Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678
Elaine Nolan, George Phillips, Elisabeth Ruccia, Paul
Carter, R.A. Varney and Bill Fitz, being members of the
DCA Employees Pension Committee representing certain
of the members and former members of the Pension Plan
for the Employees of Kerry (Canada) Inc. Appellants
v.
Kerry (Canada) Inc. and Superintendent of Financial Services Respondents
and
Association of Canadian Pension Management and
Canadian Labour Congress Interveners
Indexed as: Nolan v. Kerry (Canada) Inc.
Neutral citation: 2009 SCC 39.
File No.: 32205.
2008: November 18; 2009: August 7.
Present: Binnie, LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.
on appeal from the court of appeal for ontario
Pensions — Pension plans — Expenses — Whether employer responsible for paying pension plan expenses — Whether such expenses properly payable from pension trust fund.
Pensions — Pension plans — Contribution holidays — Defined benefit pension plan amended in 2000 to introduce a defined contribution component — Plan trust fund constituted in two separate funding vehicles with two separate trustees — Whether employer can use actuarially determined surplus pension funds from original defined benefit component of pension plan to satisfy its contribution obligations in respect of both defined benefit and defined contribution components of pension plan.
Civil procedure — Costs — Financial Services Tribunal — Issues before Tribunal relating to employer’s obligations under pension plan — Pension trust fund not a party to proceedings — Whether Tribunal can award costs out of pension trust fund — Whether on judicial review court should exercise its discretion to award costs out of pension trust fund — Financial Services Commission of Ontario Act, 1997, S.O. 1997, c. 28, s. 24.
Administrative law — Appeals — Standard of review — Financial Services Tribunal — Standard of review applicable to Tribunal’s decisions relating to its authority to award costs and to employer’s obligations under pension plan.
The respondent Company has administered a pension plan (“Plan”) for its employees since 1954. The Plan text required contributions from both the employees and the Company and a separate trust agreement provided that these contributions were to be paid into a trust (“Trust”) created under the trust agreement and held in a trust fund (“Fund”). By 2001, the Fund had been in an actuarially determined surplus position for a number of years. Until 1984, the Company paid the Plan expenses directly. In 1985, following amendments to the Plan documents, third‑party Plan expenses for actuarial, investment management and audit services were paid from the Fund. As of 1985, the Company also started taking contribution holidays from its funding obligations.
Prior to 2000, the Plan existed solely as a defined benefit (“DB”) pension plan. In 2000, the Plan text was amended again in order to introduce a defined contribution (“DC”) component. The DB pension component continued for existing employees, but was closed to new employees; thereafter, all newly hired employees would join the DC component. Employees who were DB members had the option of converting to the DC component. As a result of these amendments, employees were divided into Part 1 Members, who participated in the Plan’s DB provisions and Part 2 Members who, after January 1, 2000, participated in the DC part of the Plan. The Fund was constituted in two separate funding vehicles with two separate trustees. The Company announced its intention to take contribution holidays from its obligations to DC members by using the surplus accumulated in the Fund from the DB component, which still covered DB members, to satisfy the premiums owing to the DC component.
After the Company introduced the amendments in 2000, certain former employees of the Company and members of the Plan (the “Committee”) asked the Ontario Superintendent of Financial Services to investigate the Company’s payment of Plan expenses from the Fund and its contribution holidays. The Superintendent issued two Notices of Proposal. Under the first, the Superintendent proposed to order that the Company reimburse the Fund for expenses that had not been incurred for the exclusive benefit of Plan members. Under the second, the Superintendent proposed to refuse, among other things, to order the Company to reimburse the Fund for the contribution holidays it had taken. Both the Company and the Committee requested a hearing before the Financial Services Tribunal to challenge the Notices of Proposal. The Tribunal held that: (1) all of the Plan expenses at issue could be paid from the Fund, except for $6,455 in consulting fees related to the introduction of the DC part of the Plan; and (2) the Company was entitled to take contribution holidays while the Fund was in a surplus position. The Tribunal did recognize that the Plan documents as amended in 2000 did not permit DC contribution holidays. However, it held the Company could retroactively amend the Plan provisions to designate the DC members as beneficiaries of the Fund, thereby allowing the Company to fund its DC contributions from the DB surplus. The Tribunal also refused to award costs payable out of the Fund.
On appeal, the Divisional Court held that the expenses at issue could not be paid out of the Fund as they were not for the exclusive benefit of the employees and such payment would constitute a partial revocation of the Trust. The court, although it upheld the Tribunal’s decision that DB contribution holidays were permitted, ruled that the surplus in the Fund accumulated under the DB arrangement could not be used to fund the Company’s contribution obligations to the DC arrangement. It also held that, while the Tribunal was correct that it did not have jurisdiction to award costs out of the Fund, the court could do so. On the relevant issues, the Court of Appeal, allowed the Company’s appeal, dismissed the Committee’s cross‑appeal and upheld the Tribunal’s rulings.
Held (LeBel and Fish JJ. dissenting in part): The appeal should be dismissed.
Per Binnie, Deschamps, Abella, Charron and Rothstein JJ.: Having regard to the purpose of the Tribunal, the nature of the questions and the expertise of the Tribunal, the appropriate standard of review is reasonableness for the issues of Plan expenses and DB and DC contribution holidays. While these issues are largely questions of law, in that they involve the interpretation of pension plans and related texts, the Tribunal does have expertise in the interpretation of such texts, as it is both close to the industry and more familiar with the administrative scheme of pension law. The standard of reasonableness also applies to the issue of the Tribunal’s authority to order costs from the Fund. This issue involves the Tribunal’s interpreting its constating statute to determine the parameters of the costs order it may make. The question of costs is incidental to the Tribunal’s broad power to review the Superintendent’s decisions in the context of the regulation of pensions. A court should adopt a deferential standard of review to the Tribunal’s decision in this respect. [29‑31] [35]
With the exception of the consulting fees relating to a study of the possibility of introducing a DC component to the Plan, the Company did not have the obligation to pay the Plan expenses at issue since the Plan documents did not require, expressly or implicitly, that it pay such expenses. The provisions of the trust agreement, as amended in 1958, provided that the Company undertake to pay trustee fees and trustee expenses. As between the Company and trustee, these provisions only cover expenses incurred in the performance of the trustee’s duties and in the execution of this Trust. They do not refer to expenses otherwise incurred in the administration of the Plan. Expenses associated with the employment of actuaries, accountants, counsel and other services required for the administration of the Plan are expenses of the Plan, but they are not fees and expenses incurred in the execution of the Trust. Furthermore, the trust agreement’s 1958 amendments, which provided that taxes, interest and penalties were to be paid from the Fund, could not impose any additional obligations on the Company because these amendments also included a provision expressly stating that the amendments do not increase the Company’s original obligations with respect to the expenses for which it was responsible. Nor could the language in the trust agreement forbidding the use of trust funds for any purpose other than the exclusive benefit of the employees impose an obligation on the Company to pay the Plan expenses. The exclusive benefit language is also subject to the limitation that it will not enlarge the Company’s obligations. The payment of Plan expenses is necessary to ensure the Plan’s continued integrity and existence, and the existence of the Plan is a benefit to the employees. It is therefore to the exclusive benefit of the employees that expenses for the continued existence of the Plan are paid out of the Fund. Lastly, allowing for the Plan expenses to be paid out of the Trust does not constitute a partial revocation of the Trust. In the absence of an obligation requiring the Company to pay the Plan expenses, funds in the Trust can be used to pay reasonable and bona fide expenses and to the extent that the funds are paying legitimate expenses necessary to the Plan’s integrity and existence, the Company is not purporting to control the use of funds in the Trust. [17] [38‑39] [44] [50‑52] [55] [57] [59]
The Company was entitled to take contribution holidays with respect to the DB benefit arrangement. When plan documents provide that funding requirements will be determined by actuarial practice, the employer may take a contribution holiday unless other wording or legislation prohibits it. The right to take a contribution holiday can be excluded either explicitly or implicitly in circumstances where a plan mandates a formula for calculating employer contributions which removes actuarial discretion. Here, the Company’s contributions are determined by actuarial calculations. Clause 14(b) of the Plan, as amended in 1965, provides for contributions that will cover the members’ future retirement benefits and requires the exercise of actuarial discretion as it does not fix annual contributions. The clause therefore does not prevent the Company from taking a contribution holiday where the actuary certifies that no contributions are necessary to provide the required retirement income to members. [17] [68‑70] [76]
The Tribunal’s decision to allow contribution holidays in respect of the DC component of the Plan, once appropriate retroactive amendments are made, was not unreasonable. There is no legislative restriction prohibiting the retroactive amendment designating DC members as beneficiaries of the Trust, the creation of a single plan and trust, and the DC contribution holidays. The Plan documents do not preclude combining the two components in one plan and nothing in these documents or trust law prevents the use of the actuarial surplus for the DC contribution holidays. Having regard to the Plan documents, it was reasonable for the Tribunal to find that there was one plan and that, with a retroactive amendment, there could be one trust and that contribution holidays with respect to either or both of the DB and DC components of the Plan did not violate the exclusive benefit provision or constitute a partial revocation of the Trust. Similarly, it was not unreasonable that DC members could be designated beneficiaries of the Trust. The fact that DB and DC funds will be held by different custodians does not prevent them from belonging to the same trust. The Plan, after the retroactive amendments, would consist of DB and DC components. Members of both parts of the Plan therefore would be beneficiaries of the Trust and use of funds in the Trust to benefit either part would be allowed because the Trust explicitly provides that the funds can be used for the benefit of the beneficiaries. [84‑85] [91] [93] [103] [110] [114]
Retroactively permitting the funding of the DC component from the DB surplus does not affect the exclusive benefit provisions of the Plan. Because the amendment will be retroactive, there would be no re‑opening of a closed plan in law and no attempt to merge two independent trusts. The Plan and Trust in this case have not been terminated. Only a part of the Plan has been closed to new employees. There is, therefore, no actual surplus that has vested with the employees. The DB surplus remains actuarial and the DB members retain their right to the defined benefits provided for under the Plan. Their interest in the surplus is only to the extent that it cannot be withdrawn or misused. Retroactively amending the Plan takes no vested property right away from the DB members. They have no right to require surplus funding of the Plan in order to increase their security. [104] [106‑107] [113]
In light of s. 24 of the Financial Services Commission of Ontario Act, 1997, the Tribunal did not err in holding that it could not award costs from the Fund. Since the Fund was not a party to the proceedings, the Tribunal could not order costs from the Fund. [17] [116‑117]
The Court of Appeal correctly declined to award costs to the Committee from the Fund. The key question is whether the litigation is adversarial or whether it is aimed at the due administration of the pension trust fund. Adversarial claims will not qualify for a costs award from the trust fund. Here, the litigation was adversarial in nature because it was ultimately about the propriety of the Company’s actions and because the Committee sought to have funds paid into the Fund to the benefit of the DB members only. The Company was successful in this case and there is no reason to penalize it by diminishing the Fund surplus, thereby reducing its opportunity for contribution holidays. [17] [124] [128‑129]
Per LeBel and Fish JJ. (dissenting in part): The Company’s use of DB surplus to fund its obligations toward the DC plan is not supported by the legislative regime and constitutes a breach of the Plan provisions, the trust agreement, and the relevant principles of trust law. When the DC plan was created in 2000, the Company’s employees ceased to be members of a single plan, and the employees in the DC plan were not beneficiaries of the DB trust. While the Tribunal acknowledged that the Company’s amendments to the Plan in 2000 seeking to permit contribution holidays in the DC plan violated the terms of the 1954 trust agreement and constituted an encroachment on irrevocable trust funds, it failed to take these very principles into consideration when ordering its remedy of retroactively designating DC members as beneficiaries of the Fund. The retroactive amendment would breach the same terms of the trust agreement and the Plan’s text that prohibited the DC contribution holidays in the first place. As a result, the Tribunal’s decision that approved such an amendment was unreasonable. [135] [141]
The Court of Appeal therefore erred in upholding the Tribunal’s contribution holiday decision and in reinstating the retroactive designation remedy. First, the court failed to consider the lack of support for this type of contribution holiday in the governing legislation and regulations which do not authorize the use of surplus in a DB fund to offset an employer’s contribution obligations toward a DC plan except in the event of a full conversion from a DB to a DC plan. Full conversion has not occurred in this case. Second, the court adopted an unduly formalistic view of the pension plan and failed to appreciate the separate and distinct nature of the DB and DC plans in this case and instead focused on the formal existence of a single plan. To determine whether there is in fact a single plan in existence, it is necessary to examine the plan’s particular arrangement, which will differ from case to case. The plan documentation must clearly evince an intention to maintain a single plan and, most importantly, the plan structure must actually reflect and follow from this intention. Here, the plan documentation reveals a degree of segregation between the DB and DC plans that confirms that the amendments in 2000 effectively created a second pension plan whose members are not beneficiaries of the original fund. The DB and DC plans exist as separate entities and should not be treated as two components of a single plan. Third, the court ought to have considered the trust ramifications of the Company’s DC contribution holidays as the law of trusts forbids an employer’s attempts to control or withdraw irrevocable assets within the fund in order to take contribution holidays with respect to its obligations toward a different group of plan members. [142‑144] [158] [162] [168] [201]
While the Company has the right to amend the Plan unilaterally, plan amendments are still subject to the terms of the 1954 trust agreement that prohibit the use of funds for other than the exclusive benefit of the trust beneficiaries, who in this case are DB members. The use of fund surplus to provide contribution holidays with respect to the DC plan violates the exclusive benefit provisions in the Plan and trust agreement as it benefits all but the DB members. As well, the designation of DC members as beneficiaries of the Fund would not be for the exclusive or even primary benefit of the DB members. Only the Company and DC members, who have no more entitlement to the Fund, stand to benefit from this designation. The unlawfulness of the DC contribution holidays would not be remedied even if the DC members could be declared beneficiaries of the Fund. The withdrawal of funds to enable the Company’s DC contribution holidays would continue to violate the exclusive benefit provisions. There is no evidence that the structure of the Fund would change as a result of this designation. The Company would continue to take DC contribution holidays by withdrawing assets from the Fund and placing them in the DC members’ accounts. This movement of funds is not for the exclusive benefit of any of the beneficiaries, whether DB or DC members. [174] [176‑177] [183]
The Company’s attempt to use the DB surplus to fund its contribution obligations toward the DC plan also violates one of the hallmarks of trust law: the prohibition against the revocation of trust assets. An employer may not remove pension contributions held in trust unless a power of revocation was expressly included in the trust at the time of its inception. A general power of amendment does not amount to a power of revocation. Once assets have been placed in the trust fund, the settlor cannot interfere with them and cannot withdraw them for his or her own use without the express power to do so in the trust agreement. This principle extends not only to the corpus of the trust fund but also to any surplus in the fund, unless there is specific wording in the plan documentation that would oust the surplus from the trust’s ambit. In this case, the trust agreement contains no power of revocation, and the Company’s contribution holidays in the DC plan from the DB surplus amounted to a partial revocation of the Trust. The shifting of assets from the DB fund to the DC members’ accounts is a clear example of the Company’s exercising control over trust assets. The same conclusion would be reached even if the DC members could legitimately be designated as beneficiaries of the Fund. [191‑194] [196‑197] [200]
Cases Cited
By Rothstein J.
Distinguished: Markle v. Toronto (City) (2003), 63 O.R. (3d) 321; Kemble v. Hicks, [1999] O.P.L.R. 1; Buschau v. Rogers Communications Inc., 2006 SCC 28, [2006] 1 S.C.R. 973; considered: Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611; Hockin v. Bank of British Columbia (1995), 123 D.L.R. (4th) 538; C.U.P.E.‑C.L.C., Local 1000 v. Ontario Hydro (1989), 68 O.R. (2d) 620; Trent University Faculty Assn. v. Trent University (1997), 35 O.R. (3d) 375; Châteauneuf v. TSCO of Canada Ltd. (1995), 124 D.L.R. (4th) 308; Aegon Canada Inc. v. ING Canada Inc. (2003), 179 O.A.C. 196; Barclays Bank Plc v. Holmes, [2000] P.L.R. 339; referred to: Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152; GenCorp Canada Inc. v. Ontario (Superintendent, Pensions) (1998), 158 D.L.R. (4th) 497; Lockheed Corp. v. Spink, 517 U.S. 882 (1996); Sutherland v. Hudson’s Bay Co. (2007), 60 C.C.E.L. (3d) 64; National Grid Co. plc v. Mayes, [2001] UKHL 20, [2001] 2 All E.R. 417; Buckton v. Buckton, [1907] 2 Ch. 406; Sutherland v. Hudson’s Bay Co. (2006), 53 C.C.P.B. 154; Patrick v. Telus Communications Inc., 2008 BCCA 246, 294 D.L.R. (4th) 506; Smith v. Michelin North America (Canada) Inc., 2008 NSCA 107, 271 N.S.R. (2d) 274; Huang v. Telus Corp. Pension Plan (Trustees of), 2005 ABQB 40, 41 Alta. L.R. (4th) 107; Patrick v. Telus Communications Inc., 2005 BCCA 592, 49 B.C.L.R. (4th) 74; Burke v. Hudson’s Bay Co., 2008 ONCA 690, 299 D.L.R. (4th) 277; Ontario Teachers’ Pension Plan Board v. Ontario (Superintendent of Financial Services) (2003), 36 C.C.P.B. 154; MacKinnon v. Ontario Municipal Employees Retirement Board, 2007 ONCA 874, 288 D.L.R. (4th) 688; C.A.S.A.W., Local 1 v. Alcan Smelters and Chemicals Ltd., 2001 BCCA 303, 198 D.L.R. (4th) 504; Bentall Corp. v. Canada Trust Co. (1996), 26 B.C.L.R. (3d) 181; White v. Halifax (Regional Municipality) Pension Committee, 2007 NSCA 22, 252 N.S.R. (2d) 39; Lennon v. Ontario (Superintendent of Financial Services) (2007), 87 O.R. (3d) 736; Turner v. Andrews, 2001 BCCA 76, 85 B.C.L.R. (3d) 53.
By LeBel J. (dissenting in part)
Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190; Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611; Sutherland v. Hudson’s Bay Co. (2007), 60 C.C.E.L. (3d) 64; Barclays Bank Plc v. Holmes, [2000] P.L.R. 339; Kemble v. Hicks, [1999] O.P.L.R. 1; Lennon v. Ontario (Superintendent of Financial Services) (2007), 87 O.R. (3d) 736; Baxter v. Ontario (Superintendent of Financial Services) (2004), 43 C.C.P.B. 1; Aegon Canada Inc. v. ING Canada Inc. (2003), 179 O.A.C. 196, aff’g (2003), 34 C.C.P.B. 1; Sulpetro Ltd. Retirement Plan Fund (Trustee of) v. Sulpetro Ltd. (Receiver‑Manager) (1990), 66 D.L.R. (4th) 271; Buschau v. Rogers Communications Inc., 2006 SCC 28, [2006] 1 S.C.R. 973, rev’g 2001 BCCA 16, 195 D.L.R. (4th) 257; Imperial Group Pension Trust Ltd. v. Imperial Tobacco Ltd., [1991] 2 All E.R. 597; Bathgate v. National Hockey League Pension Society (1992), 98 D.L.R. (4th) 326, aff’d (1994), 110 D.L.R. (4th) 609; Police Retirees of Ontario Inc. v. Ontario Municipal Employees’ Retirement Board (1999), 22 C.C.P.B. 49.
Statutes and Regulations Cited
Financial Services Commission of Ontario Act, 1997, S.O. 1997, c. 28, s. 24.
Pension Benefits Act, R.S.O. 1990, c. P.8, ss. 13(2), 19, 34, 81(1), (2), 87(1), (2), 89(9).
R.R.O. 1990, Reg. 909, ss. 3, 7(3), 9, 13, 14.
Trustee Act, R.S.O. 1990, c. T.23, ss. 6(b), 27(3).
Authors Cited
Kaplan, Ari N. Pension Law. Toronto: Irwin Law, 2006.
Ontario. Expert Commission on Pensions. A Fine Balance: Safe Pensions, Affordable Plans, Fair Rules. Toronto: The Commission, 2008.
Seller, Susan Gail. Ontario Pension Law Handbook, 2nd ed. Aurora, Ont.: Canada Law Book, 2006.
Waters, Donovan W. M., Mark R. Gillen and Lionel D. Smith, eds. Waters’ Law of Trusts in Canada, 3rd ed. Toronto: Thomson Carswell, 2005.
APPEAL from a judgment of the Ontario Court of Appeal (Laskin, Gillese and Rouleau JJ.A.), 2007 ONCA 416, 86 O.R. (3d) 1, 282 D.L.R. (4th) 227, 225 O.A.C. 163, 60 C.C.P.B. 67, [2007] O.J. No. 2176 (QL), 2007 CarswellOnt 3493, setting aside a decision of the Divisional Court (O’Driscoll, Jarvis and Molloy JJ.) (2006), 209 O.A.C. 21, 52 C.C.P.B. 1, [2006] O.J. No. 960 (QL), 2006 CarswellOnt 1503, and restoring the decisions of the Financial Services Tribunal, [2004] O.F.S.C.D. No. 192 (QL) and [2004] O.F.S.C.D. No. 193 (QL). Appeal dismissed, LeBel and Fish JJ. dissenting in part.
Ari N. Kaplan, Kirk M. Baert and David Rosenfeld, for the appellants.
Ronald J. Walker, Christine P. Tabbert and Peggy A. McCallum, for the respondent Kerry (Canada) Inc.
Deborah McPhail, for the respondent the Superintendent of Financial Services.
Jeff W. Galway and Kathryn M. Bush, for the intervener the Association of Canadian Pension Management.
Steven Barrett, for the intervener the Canadian Labour Congress.
The judgment of Binnie, Deschamps, Abella, Charron and Rothstein JJ. was delivered by
Rothstein J. —
I. Introduction
[1] This appeal raises issues related to the obligations of an employer under a pension plan for its employees. In particular, the appeal concerns (1) whether the employer was responsible for paying plan expenses or whether such expenses were properly payable from the pension trust fund; (2) whether the employer could use actuarially determined surplus pension funds to satisfy its contribution obligations in respect of both defined benefit (“DB”) and defined contribution (“DC”) components of the pension plan. In addition, the appeal raises two issues with respect to costs: first, whether the Financial Services Tribunal (“Tribunal”) had the authority to award costs to the appellants out of the pension trust fund; second, when on judicial review of a pension decision, a court should exercise its discretion to award costs out of the pension trust fund.
[2] The Ontario Court of Appeal found in favour of the respondents on all issues before this Court. I am in agreement and I would dismiss this appeal.
II. Facts
[3] The respondent employer (the “Company”) is presently named Kerry (Canada) Inc.; its predecessors include DCA Canada Inc. It has administered a pension plan (the “Plan”) for its employees since 1954. The terms of the Plan were set out in a pension plan text dated December 31, 1954. The Plan text required contributions from both the employees and the Company. A predecessor of the Company and the National Trust Company Limited entered into a separate trust agreement, also dated December 31, 1954. Contributions were paid into a trust (the “Trust”) created under the trust agreement and held in a trust fund (the “Trust Fund” or the “Fund”).
[4] The Plan has about 80 members. By 2001, the Fund had been in an actuarially determined surplus position for a number of years.
[5] The Plan text and the Trust Agreement have been amended a number of times. Until 1984, the Company paid the Plan expenses directly. In 1985, following amendments to the Plan documents, third-party Plan expenses for actuarial, investment management and audit services were paid from the Fund. Between 1985 and 2002, approximately $850,000 was paid from the Fund to cover these expenses.
[6] As of 1985, the Company also started taking contribution holidays from its funding obligations, that by 2001 were worth approximately $1.5 million.
[7] Prior to 2000, the Plan existed solely as a DB pension plan. In 2000, the Plan text was amended again in order to introduce a DC component. The DB pension component continued for existing employees, but was closed to new employees; thereafter, all newly hired employees would join the DC component. Employees who were DB members had the option of converting to the DC component. As a result of these amendments, employees were divided into Part 1 Members, who participated in the Plan’s DB provisions and Part 2 Members who, after January 1, 2000, participated in the DC part of the Plan. The Trust Fund was constituted in two separate funding vehicles with two separate trustees. The Company announced its intention to take contribution holidays from its obligations to DC members by using the surplus accumulated in the Fund from the DB component, which still covered DB members, to satisfy the premiums owing to the DC component.
[8] The appellants are members of the DCA Employees Pension Committee and former employees of the Company who participated in the Plan (the “Committee”). The Committee was created by employees of the Company and is distinct from the Retirement Committee created under the Plan documents. After the Company introduced the 2000 amendments, the Committee asked the Superintendent of Financial Services (“Superintendent”), the other respondent in this case, to make a number of orders under the Pension Benefits Act, R.S.O. 1990, c. P.8 (“PBA”), relating to the payment of Plan expenses from the Fund and the Company’s contribution holidays.
[9] The Superintendent issued two Notices of Proposal. Under the first Notice of Proposal, the Superintendent proposed to order that the Company reimburse the Fund for expenses that had not been incurred for the exclusive benefit of Plan members. Under the second, the Superintendent proposed to refuse, among other things, to order the Company to reimburse the Fund for the contribution holidays it had taken. The Company requested a hearing before the Tribunal to challenge the Notice of Proposal regarding expenses. The Committee challenged the second Notice of Proposal concerning contribution holidays before the Tribunal. The Superintendent was a party to both hearings.
[10] On the issues relevant in this appeal, the Tribunal generally ruled in favour of the Company. At the first hearing, it held that all of the Plan expenses at issue could be paid from the Fund except for $6,455 in consulting fees related to the introduction of the DC part of the Plan ([2004] O.F.S.C.D. No. 192 (QL)).
[11] In the second hearing, the Tribunal held that the Company was entitled to take contribution holidays while the Fund was in a surplus position ([2004] O.F.S.C.D. No. 193 (QL)). The Tribunal did recognize that the Plan documents as amended in 2000 did not permit DC contribution holidays. However, it held that the Company could retroactively amend the Plan provisions to designate the DC members as beneficiaries of the Trust Fund, thereby allowing the Company to fund its DC contributions from the DB surplus.
[12] The Tribunal also refused to award costs ([2004] O.F.S.C.D. No. 190 (QL) and [2004] O.F.S.C.D. No. 191 (QL)). With respect to costs in the second hearing, a majority of the Tribunal held it did not have the authority to order costs from the Fund and that regardless it did not think a costs award against either party was justified.
[13] The Committee appealed these decisions to the Divisional Court.
III. Lower Court Rulings
[14] The Divisional Court ruled that the payment of Plan expenses out of the Trust Fund constituted a partial revocation of the Trust, noting that this Court’s decision in Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611, forbids revoking a trust unless a specific power to do so was reserved at the time the trust was constituted. The Divisional Court upheld the Tribunal’s ruling that DB contribution holidays were permitted as nothing in the Plan texts precluded them.
[15] However, it ruled that the surplus in the Fund accumulated under the DB arrangement could not be used to fund the employer’s contribution obligations to the DC arrangement. It ruled that the 2000 Plan text created two separate funds — one for the DB arrangement and one for the DC arrangement. It concluded that there were “in law” two plans and two pension funds, which could not be joined.
[16] The Divisional Court held that the Tribunal was correct that it did not have jurisdiction to award costs out of the Fund ((2006), 209 O.A.C. 21). However, it held that the court could award costs from the Fund. It ordered the Company to pay the Committee’s costs on a partial indemnity basis ((2006), 213 O.A.C. 271). It also ordered that the difference between these costs and the Committee’s solicitor-client costs be paid to them out of the Fund.
[17] Gillese J.A., writing for a unanimous Ontario Court of Appeal, allowed the Company’s appeal, dismissed the Committee’s cross-appeal and upheld the Tribunal’s rulings on the issues before this Court: 2007 ONCA 416, 86 O.R. (3d) 1, and 2007 ONCA 605, 282 D.L.R. (4th) 625.
IV. Issues
[17a] 1. Did the Tribunal err in concluding that the Company did not have the obligation to pay the expenses at issue?
2. Did the Tribunal err in concluding that the Company was entitled to take contribution holidays with respect to the DB arrangement?
3. Did the Tribunal err in concluding that the Company was entitled to take contribution holidays with respect to the DC arrangement?
4a. Did the Tribunal err in holding that it could not award costs from a pension trust fund?
4b. Did the Court of Appeal err in declining to award costs to the Committee from the Trust Fund?
[18] An issue surrounding the notice given by the Company in relation to its 2000 amendments was raised before the Tribunal and the courts below. It was not argued before this Court.
V. Preliminary Matters
A) Pension Terminology
[19] There are two main categories of pension plans. Defined Benefit plans (“DB” plans) guarantee the employees specific benefits on retirement. The employer is usually responsible to make contributions which ensure the plan’s trust fund can cover the expected future benefits that it will pay out to retiring employees. Actuaries are generally retained to estimate the contributions needed. Should the actuary determine that the funds in the trust are greater than the amount needed to cover future benefits, the plan is said to be in surplus. If the legislation and plan documentation permits, the employer may take a contribution holiday, whereby the surplus funds are used to cover the employer’s contribution obligations. Should the actuary determine that the trust has less money than is needed to cover future benefits, the plan is in deficit and the employer is required to make the necessary contributions to ensure the benefit obligations can be met.
[20] In Defined Contribution plans (“DC” plans), the employer guarantees the amount of contribution it will make for each employee. The benefits on retirement are determined by these contributions and any earnings from their investment. Since no benefits are guaranteed, DC plans do not have surpluses or deficits.
[21] A further distinction exists between terminating, winding up, and closing a pension plan. Termination and wind-up are part of the process of discontinuing a pension plan, whereby contributions cease being made, benefits cease being paid out and assets are distributed. Generally earned employee benefits are paid into a new retirement vehicle for the employees: see A. N. Kaplan, Pension Law (2006), at pp. 502 ff. and S. G. Seller, Ontario Pension Law Handbook (2nd ed. 2006), at pp. 61 ff. Closing a plan’s membership, by contrast, does not imply discontinuing it or liquidating its assets. A closed plan will continue to pay benefits to its members and may continue to require contributions. However, it will no longer accept new members.
B) Standard of Review
[22] On the issues before this Court, the Divisional Court reviewed the Tribunal’s decision on a correctness standard. The Court of Appeal reviewed the issues of Plan expenses, DB contribution holidays and DC contribution holidays on a reasonableness standard, though it would have upheld the Tribunal’s rulings on a correctness review as well. It reviewed the issue of the Tribunal’s authority to award costs from the Fund on a correctness standard.
[23] Since the Court of Appeal released its decision in this case, this Court has revisited the analytical framework for determining standard of review in Dunsmuir v. New Brunswick, 2008 SCC 9, [2008] 1 S.C.R. 190. That decision established a two-step process for determining the applicable standard of review (para. 62).
[24] Under the first step of the process, the court must “ascertain whether the jurisprudence has already determined in a satisfactory manner the degree of deference to be accorded with regard to a particular category of question” (para. 62). In Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152, this Court applied a standard of correctness to the Tribunal’s ruling involving the interpretation of the PBA. This case does not involve the interpretation of the PBA. It is, therefore, necessary to consider the second step of the Dunsmuir process.
[25] The second step involves applying the “standard of review analysis”, which Bastarache and LeBel JJ. explained this way in Dunsmuir, at para. 64:
The analysis must be contextual. As mentioned above, it is dependent on the application of a number of relevant factors, including: (1) the presence or absence of a privative clause; (2) the purpose of the tribunal as determined by interpretation of enabling legislation; (3) the nature of the question at issue, and; (4) the expertise of the tribunal. In many cases, it will not be necessary to consider all of the factors, as some of them may be determinative in the application of the reasonableness standard in a specific case.
[26] In this case, there is no privative clause.
[27] Under the PBA, the purpose of the Tribunal is to review decisions of the Superintendent of Financial Institutions in the context of the regulation of the pension sector. Where it is of the opinion that the PBA is not being followed, the Superintendent “may require an administrator or any other person to take or to refrain from taking any action in respect of a pension plan or a pension fund” (s. 87(1) and (2)). The PBA provides a right of appeal to the Tribunal for many of these orders at the proposal stage. At s. 89(9), it grants the Tribunal the power to
direct the Superintendent to carry out or to refrain from carrying out the proposal and to take such action as the Tribunal considers the Superintendent ought to take in accordance with this Act and the regulations, and for such purposes, the Tribunal may substitute its opinion for that of the Superintendent.
The Tribunal, therefore, serves an adjudicative function within Ontario’s pension regulation scheme.
[28] The purpose of the PBA was explained at para. 13 of Monsanto, citing GenCorp Canada Inc. v. Ontario (Superintendent, Pensions) (1998), 158 D.L.R. (4th) 497 (Ont. C.A.), at para. 16:
[T]he Pension Benefits Act is clearly public policy legislation establishing a carefully calibrated legislative and regulatory scheme prescribing minimum standards for all pension plans in Ontario. It is intended to benefit and protect the interests of members and former members of pension plans, and “evinces a special soli