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 Court said in Monsanto (speaking of the Pension Benefits Act, R.S.O. 1990, c. P.8), the PBA’s “purpose is to establish minimum standards and regulatory supervision in order to protect and safeguard the pension benefits and rights of members, former members and others entitled to receive benefits under private pension plans” (para. 38 (emphasis added)). In my opinion, s. 81(5) does exactly that — establishes a minimum standard for the transfer of pension assets. The terms of the relevant plan and trust documentation may impose a higher standard.
[46] In this way it would not be inconsistent with the legislative scheme for the plan and trust documentation to require a higher standard than that set out in s. 81. By contrast, in Buschau, the application of the trust rule in Saunders would have allowed the employees to circumvent the statutory procedure and defeat the objective of the legislative scheme (para. 28). These concerns do not arise in the present case. Requiring an employer to transfer additional funds on a sale would not interfere with the procedure set out in s. 81, and would not impede the objective of protecting employees’ pension benefits in the context of a sale. Thus, I cannot agree with HBC that compliance with the 1987 PBA is a complete answer to Burke’s claim.
[47] It is therefore necessary to turn to the common law and equitable principles that govern the interpretation of the plan and trust documentation.
(3) Common Law and Equitable Principles
[48] Where a pension plan is created in the form of a trust, trust principles will apply. If there is no express or implied declaration of trust, then the pension plan will be governed by the terms of the plan (Schmidt, at p. 639).
[49] The parties agree that the pension fund is held in trust and that it must be administered according to trust principles. Based on the text of the plan documentation, the trust extends to the total assets in the fund (art. 1, 1961 trust agreement).
[50] The trust instrument in this case incorporates the terms of the pension plan (art. 2, 1961 trust agreement). Thus, both documents are relevant in determining the rights and obligations of the employees and employer under the plan.
(a) Equitable Interest
[51] Burke relies on the statement in Schmidt that employees have an equitable interest in pension plan surplus prior to termination. He argues that “the absence of a specific legal interest in surplus . . . does not mean that no rights or obligations exist in relation to plan surplus while a pension plan is ongoing” (A.F., at para. 67 (emphasis omitted)). He argues that his equitable interest in the total assets of the fund gives him the ability to bring his claim against his employer for breach of fiduciary duty of even-handedness in its dealings (or lack thereof) with the actuarial surplus.
[52] Burke relies on the following passage in Schmidt:
While a plan which takes the form of a trust is in operation, the surplus is an actuarial surplus. Neither the employer nor the employees have a specific interest in this amount, since it only exists on paper, although the employee beneficiaries have an equitable interest in the total assets of the fund while it is in existence. When the plan is terminated, the actuarial surplus becomes an actual surplus and vests in the employee beneficiaries. The distinction between actual and actuarial surplus means that there is no inconsistency between the entitlement of the employer to contribution holidays and the disentitlement of the employer to recovery of the surplus on termination. The former relies on actuarial surplus, the latter on actual surplus. [Emphasis added; pp. 654-55.]
[53] In my view, it is necessary to first determine what is meant by the use of the phrase “equitable interest” in Schmidt and, second, to examine how this concept fits within the terms of this specific plan.
[54] Equitable interest typically means “an actual right of property, such as an interest under a trust” (J. McGhee, ed., Snell’s Equity (31st ed. 2005), at para. 2‑05). The holder of an equitable interest owns that property in equity (S. J. Hepburn, Principles of Equity and Trusts (4th ed. 2009), at p. 63). According to Snell’s Equity an equitable interest is distinct from mere equities, floating equities and equitable remedies, though the term “equity” is often used to refer to any or all of these more specific concepts (para. 2-01).
[55] The phrase “equitable interest” was only used once by Cory J. in the course of his judgment in Schmidt. The question, then, is in what sense did he use this phrase? In my view, the following observations can be made.
[56] First, it is clear that in a defined benefit pension governed by trust principles, employees have an equitable interest in their defined benefits. As in the case of a classic trust, 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.
[57] Second, and importantly, when Cory J. referred to the employees’ equitable interest in the total assets of the fund, he was writing on the premise that the employees were entitled to the actual surplus on termination. This is clear from the language that follows his use of “equitable interest”, which I repeat:
Neither the employer nor the employees have a specific interest in this amount, since it only exists on paper, although the employee beneficiaries have an equitable interest in the total assets of the fund while it is in existence. When the plan is terminated, the actuarial surplus becomes an actual surplus and vests in the employee beneficiaries. [Emphasis added.]
If the employees are entitled to actual surplus on termination then they do have an equitable interest in that surplus, and, when added to their defined benefits, this constitutes the total assets of the fund. Thus, I would agree with Cory J. that, where employees are entitled to actual surplus on termination, they have an equitable interest in the total assets of the fund.
[58] Cory J. did not elaborate on the significance, or content, of that equitable interest in the surplus while the plan is ongoing. However, it seems to me that it might be somewhat analogous to a floating equity. A floating equity attaches to, for example, the residue in a will. The residuary beneficiary does not immediately obtain an equitable interest in the residue of the estate, because the assets may be needed to pay debts. Even in the case of a solvent estate, it is still unclear what property constitutes residue until the administration of the estate is complete. The residuary beneficiary is therefore said to have a “‘floating equity’, which may or may not crystallise”. A floating equity “protects the beneficiaries, not by giving them equitable interests, but by ensuring the due administration of assets by the personal representatives” (Snell’s Equity, at para. 2-06).
[59] It appears to me that entitlement to surplus on termination is analogous to the entitlement of a residuary beneficiary. The vesting of actual surplus in the employees is contingent on (a) the plan terminating, (b) there being an actual surplus once the liabilities are satisfied and (c) the employees surviving the date of the termination of the trust.
[60] Do the transferred employees in this case have a floating equity in the total assets of the HBC pension fund during its subsistence? In my view, they do not. As I will explain, the plan text limits their interest to their defined benefits and, unlike the circumstances in Schmidt, they are not entitled to surplus on termination.
(b) The Employees’ Rights and Interests Under the Plan
[61] The original pension plan text provides that the employees’ rights and interests under the plan are limited only to that which is expressly and specifically provided for in the plan.
11.03 Rights in the Trust Fund: . . . No Member or person entitled to benefits under the Plan has any right or interest in the Trust Fund except as expressly provided in the Plan; . . .
. . .
14.01 . . . There shall be no right to any benefit under this Plan except to the extent such right is specifically provided under the terms of the Plan and there are funds available therefor in the hands of the Trustee.
[62] 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.
[63] Under the original pension plan provisions in this case, the employees’ entitlements in the event of plan termination were expressly limited to their defined retirement benefits:
12.024 Apportionment of Balance of the Trust Fund to be Proportional: Any apportionment within each group, in the order stated, shall be proportionate to but not in excess of the actuarially determined present values at the date of the termination of the Plan of their respective retirement benefits and accrued retirement benefits. [Emphasis added.]
[64] At the oral hearing of this appeal, counsel for Burke argued that art. 12.024 had to be interpreted in light of art. 12.022 and 12.023, which are other provisions dealing with plan termination. Counsel submitted that the operation of these provisions required that there had to be at least some employee entitlement to surplus on plan termination (transcript, at pp. 11-19). It was argued that art. 12 required a two‑stage distribution to employees on plan termination: first, a distribution of contributions plus credited interest (under art. 12.022); and second, a distribution of defined retirement benefits (under art. 12.023). The limitation in art. 12.024, it was argued, only applied to the second distribution, which meant that “in order to fully satisfy both of these two distributions, arithmetically, there would have to be a surplus on hand to enable that to be done on plan termination” (transcript, at p. 13).
[65] HBC argued that art. 12 operated on termination to provide members with their contributions (and credited interest), and then to “top up” that amount to provide the defined retirement benefits (transcript, at p. 37). Counsel argued that the limitation in art. 12.024 applied to apportionment upon plan termination, and therefore applied with respect to both art. 12.022 and 12.023. Interpreting art. 12.024 in this manner would limit the employees’ entitlement on termination solely to their defined retirement benefits (transcript, at pp. 37‑39).
[66] Articles 12.022 and 12.023, as set out in the original pension plan, are as follows:
12.022 Allocation of the Trust Fund: The Retirement Board shall then allocate to each Member, Retired Member (including Joint Annuitants and Beneficiaries, if any) and Terminated Members (including Beneficiaries, if any) a benefit, payable monthly, of an amount actuarially equivalent to (or, in lieu of such benefit, if so determined by the Retirement Board with respect to any or all such Members, Retired Members and Terminated Members, a lump sum payment equal to) the total of his own contributions plus Credited Interest to the date the Plan is terminated, less any retirement benefits, or returns of his own contributions and Credited Interest in accordance with the Plan, theretofore received by him. If the Trust Fund is insufficient for this purpose, it shall be allocated to each Member, Retired Member ([including] Joint Annuitants and Beneficiaries, if any) and Terminated Members (including Beneficiaries, if any) in the proportion that the amount of his contributions plus Credited Interest to the date the Plan is terminated, less any retirement benefits, or returns of his own contributions plus Credited Interest in accordance with the Plan, theretofore received by him, bears to the total of such amounts with respect to all such Members, Retired Members and Terminated Members.
12.023 Application of Balance of the Trust Fund: If any balance of the Trust Fund shall remain, it shall then be applied in the following manner:
First, for the benefit of Retired Members and such of the Terminated Members who have reached their Normal Retirement Date and are entitled to retirement benefits under Article 6 of the Plan, in each case upon the basis of their retirement benefits; and
Second, as to any balance remaining, for the benefit of all Members and such of the Terminated Members who are entitled to retirement benefits under Article 6 of the Plan but who have not yet reached their Normal Retirement Date, in each case upon the basis of their accrued retirement benefits at the date of such termination of contributions.
[67] I do not agree with counsel for Burke that art. 12 requires two distributions and operates to provide employees with an entitlement to a portion of the surplus on plan termination.
[68] When art. 12.022, 12.023 and 12.024 are examined, there is nothing in the wording used that indicates there are two separate distributions. Article 12.022 discusses the allocation of the trust fund between three groups of members: members, retired members and terminated members. Under art. 12.022, each of the members is allocated a sum that represents contributions plus credited interest less any retirement benefits already received. The opening words of art. 12.023 are, “[i]f any balance of the Trust Fund shall remain”. It therefore deals with the application of the funds remaining after the initial allocation under art. 12.022. Article 12.023 acts to “top up” the amounts allocated to the three groups under art. 12.022 to a maximum of their defined benefits. It is not a separate distribution. Article 12.024 then operates in conjunction with art. 12.022 and 12.023, and deals with the apportionment of funds within the three groups of members. Article 12.024 expressly limits the apportionment within each of the three groups to the defined retirement benefits. Therefore, under art. 12, there is only one distribution of funds, which is expressly limited to the defined retirement benefits.
[69] Additionally, the pension plan documents (the pension plan text and trust agreement) do not contain any of the language that would typically give employees an entitlement to surplus. Except for the 1984 trust agreement, none of the pension plan documents include the “exclusive benefit” or “non‑diversion” language which was found to result in an employee entitlement to surplus in Schmidt (p. 659). (Below, I will discuss why the inclusion of this language in the 1984 trust agreement also does not provide the employees with such an entitlement to the surplus.) Instead of using the language in Schmidt, the pension plan text indicates that the trust fund was held exclusively for the purposes of the plan and that no part could be diverted except for the purposes of the plan (e.g. art. 11.02 of the 1961 plan text).
[70] At the oral hearing, counsel for Burke argued that the purpose of the plan was to exclusively benefit employees, and that such a purpose could be inferred from the preamble to the trust agreement text (transcript, at pp. 8‑10). If that purpose could be inferred, it was argued, an employee entitlement to the surplus existed in a similar manner to the employee entitlement to surplus that existed in one of the pension plans in Schmidt.
[71] The preamble provided in part:
WHEREAS the Company has established a Pension Plan (hereinafter referred to as “the Plan”) for the benefit of employees engaged in its Canadian business . . . .
It is obvious that the plan was established for the benefit of employees. But the wording says nothing about the specific entitlements of the employees under the plan. Nothing about those entitlements can be inferred from the words of the preamble. To determine those entitlements it is necessary to have regard to the operative language of the plan as a whole.
[72] I agree with Gillese J.A. (at para. 44 of her reasons) that, when read as a whole, the plan provisions indicate that the purpose of the plan is to provide employees with their defined retirement benefits. In Schmidt, in addition to the preamble, the operative language of the pension plan documents, including that the trust fund was for the “exclusive benefit” of employees, “non‑diversion” language, and other provisions re‑allocating the contributions of certain employees who left the plan, allowed the inference to be drawn that the employees were entitled to actual surplus on termination (see Schmidt, at pp. 658-59). The operative language of the HBC plan is to the contrary.
[73] Article 12.024 in the original plan expressly limited the entitlement of the employees on termination of the plan to their defined benefits. The provisions dealing with plan termination were amended by HBC in 1980 with the addition of art. 12.025 and restated in 1985 with art. 14.05, which expressly referred to surplus, specifically providing that HBC was entitled to the surplus on termination:
12.025 Refund of Surplus to Company:
If any balance of the Trust Fund shall remain after the satisfaction of all obligations of the plan in accordance with the provisions of this article 12, such balance shall be paid to the Company.
14.05 Excess Assets
If after provision for the satisfaction of all liabilities under the Plan has been made, there should remain assets in the Trust Fund, such assets shall revert to the Company or be used as the Company may direct, subject to the provisions of the Act and the rules and regulations of the Department of National Revenue as amended from time to time.
[74] With respect to the 1984 trust agreement, I am in agreement with the analysis of Gillese J.A. (at paras. 49 to 53 of her decision) that the inclusion of “exclusive benefit” and “non-diversion” language in that trust agreement does not give the employees an entitlement to surplus. Burke argued that art. 2(d) and 11(ii) of the 1984 trust agreement confirm that employees have an entitlement to surplus. I agree with Gillese J.A.’s reasons for rejecting this argument. The 1984 trust agreement has to be read consistently with the then existing provisions of the pension plan, including art. 12.025. To read art. 2(d) and 11(ii) in the manner suggested by Burke would result in an inconsistency with art. 12.025 of the pension plan, which expressly confers the surplus on termination on HBC.
[75] Article 2(d) deals with expenses incurred for the sale and purchase of investments, taxes and other expenses and costs of administering the funds by the Trustee. It provides in part:
The Trustee is hereby authorized to pay out of each of the appropriate Funds:
(i) all brokerage fees, transfer taxes . . .
(ii) all property, income and other taxes . . .
(iii) amounts on account of income tax . . .
(iv) all other expenses and costs of administering the Funds . . . .
ALWAYS PROVIDED that no part of the funds may be used for, or diverted to any purposes other than those connected with the exclusive benefit of members of the respective Plans and their beneficiaries.
[76] It is in the context of authorized expenses that no part of the funds may be used for or diverted to any purpose other than those associated with the exclusive benefit of members. Having regard to the context, it is clear that these words do not afford a new entitlement to surplus which had not previously existed and which is expressly addressed in art. 12.025.
[77] Article 11(ii) provides in part:
The Bay . . . shall have the right at any time . . . to change or modify by amendment any of the provisions of, and to terminate, this Agreement . . . provided that
. . .
(ii) such change, modification or termination shall not authorize or permit or result in any part of the corpus or income of the Funds being used for or diverted to purposes other than for the benefit exclusively of members of the Plans . . . .
[78] Article 11(ii) is addressed to changes. In other words, the “benefit exclusively of members” language must be read in the context of what the employees were entitled to before any change. The entitlements before any change were the defined benefits. No change may result in the funds being used other than for those defined benefits, except as specified. The provision does not confer on employees a new and additional entitlement they did not previously have.
[79] Additionally, the pension plan documents have made the pension plan text the dominant document over the trust agreement. For example, art. 23 of the 1961 trust agreement provided that it could be amended but that “[n]o such amendment shall authorize or permit any part of the Fund to be used for or diverted to purposes other than those specified in the Plan” and art. 11.03 of the 1961 pension plan provided that “[n]o Member . . . has any right or interest in the Trust Fund except as expressly provided in the Plan”. The pension plan text and the trust agreement have to be read together, so if art. 2(d) and 11(ii) of the 1984 trust agreement were interpreted in the manner suggested by Burke, there would be a conflict with art. 12.025 of the pension plan text. However, even if one were to conclude that art. 2(d) and 11(ii) should be interpreted in a manner that creates such a conflict, which I do not, the conflict would be resolved in favour of art. 12.025, as the pension plan is the dominant document.
[80] Thus, the pension plan documents in this case use language different than that found in Schmidt. The documents do not contain language that would give the employees an entitlement to the surplus.
[81] Burke relies on Schmidt to argue that employee entitlement to surplus may only be restricted if the language of the documentation is “explicit”, which he argues is not the case here. As HBC has pointed out, “explicit” does not prescribe a word formula. HBC’s entitlement to surplus must be clear. In my opinion, it is. As Gillese J.A. noted at para. 8 of her reasons, and as the foregoing analysis demonstrates, the documentation in this case limited the employees’ entitlement to their defined benefits provided for in the plan.
[82] 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.
(c) Fiduciary Duty of Even-Handedness
[83] Burke says that HBC undertook to improve pension benefits from time to time. He argues that the transferred employees’ interest in the actuarial surplus stems from the lost possibility of future improvements to their defined benefits as such improvements might be received by the employees retained by HBC. Therefore, HBC breached its fiduciary duty of even-handedness by treating retained and transferred employees differently. I cannot agree. For the reasons I have given, employees, either retained or transferred, have no equitable interest in the surplus. The fact that an employer may voluntarily choose 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. The employees’ equitable interest is limited to their defined benefits.
[84] At the oral hearing, counsel for Burke also argued that failing to transfer part of the surplus deprived the transferred employees of any protection against solvency swings that would be available to retained employees and that HBC was again in breach of its fiduciary duty of even-handedness (transcript, at p. 23). Although in practice actuarial surplus may provide a cushion against insolvency, employees have no right to compel surplus funding to provide this extra protection (Kerry, at para. 113). In the absence of such a right, no fiduciary obligation of even-handedness applies. As the plan was a defined benefit plan, HBC assumed the risk of ensuring that sufficient assets existed to fund the liabilities (i.e. defined benefits) of the pension. The employer’s duty is to ensure that funds at all times meet the fixed benefits promised by the employer. Unlike defined contribution pension plans in which the employee bears the risk of fluctuations in capital markets, the risk of unfunded liabilities falls on HBC, as it is obligated under its defined benefit plan to provide the employees with their defined benefits. The right of the employees is that their defined benefits be adequately funded, not that an actuarial surplus be funded.
[85] The duty of even-handedness must be anchored in the terms of the pension plan documentation. It does not operate in a vacuum. The duty of even-handedness requires that where there are two or more classes of beneficiaries, each class receives exactly what the terms of the documentation confer (Waters’, at p. 966). In its role as pension plan administrator, HBC was a fiduciary and had fiduciary obligations. However, just because HBC has fiduciary duties as plan administrator does not obligate it under any purported duty of even-handedness to confer benefits upon one class of employees to which they have no right under the plan. It was the obligation of HBC to carry out the terms of the pension plan documents and to ensure that in the administration of the plan they do not give an advantage or impose a burden when that advantage or burden is not found in the terms of the plan documents (Waters’, at pp. 966-67). Neither the retained nor the transferred employees had an equitable interest in the plan surplus. Accordingly, there is no duty of even-handedness applicable to the surplus.
(d) Due Administration of the Fund
[86] Burke argues that it is their equitable interest in the total assets of the pension fund that allows them to compel due administration of the pension fund which they say would require transfer of a portion of the actuarial surplus. I agree that Burke has a right to compel the due administration of the pension trust fund, but not because they have an equitable interest in the surplus.
[87] A beneficiary of a trust has the right to compel its due administration even if he does not have an equitable interest in all the assets of the trust. In this case, because Burke has 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 (see Snell’s Equity, at para. 27-24; Waters’, at pp. 1203-4).
[88] Thus, the employer does not have free rein in its use of the actuarial surplus. The obligations of the employer are governed by the terms of the pension plan. Thus, an employer is only permitted to use actuarial surplus in a way that is consistent with the plan documentation.
[89] It is the trustee’s obligation to ensure that funds held in trust are distributed in a manner that is consistent with the terms of the trust. In the present case, this obligation on the trustee was made express in the original trust agreement:
The Retirement Board may from time to time require the Trustee to make payments out of the Fund to an insurer and to such persons, beneficiaries, personal representatives in such amounts, for such purposes and in such manner as the Retirement Board may from time to time in writing direct; provided that no payments shall be made out of the Fund until the Retirement Board shall have certified to the Trustee in writing that such payments are in accordance with the terms and conditions of the Plan. [Emphasis added.]
The trustee’s role is to ensure that the funds are distributed in accordance with the plan and that any actuarial surplus is not abused by the employer and used for an improper purpose.
[90] While the record before this Court is sparse on the details of the communications between HBC and the trustees of its pension fund, I find it difficult to see how the circumstances of this case could suggest an improper purpose on the part of HBC.
[91] 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.
[92] 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. The plan documentation permitted HBC to take contribution holidays and charge administrative expenses to the plan. Moreover, if an individual employee had left HBC, either voluntarily or by reason of discharge, that individual employee would not be entitled to any portion of the actuarial surplus under the terms of the plan.
[93] 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.
VI. Conclusion
[94] I would dismiss the appeal on the issue of plan administration expenses. The HBC pension plan did not impose an obligation on HBC to pay plan administration expenses. HBC was permitted to charge plan administration expenses to the pension fund. The issue of whether HBC was permitted to take contribution holidays was not appealed. However, the language in the pension plan documents indicates that the employer’s contributions were determined by an actuary. Therefore, the trial judge was correct in concluding that HBC was permitted to take contribution holidays.
[95] I would also dismiss the appeal on the issue of the transfer of the surplus. Gillese J.A. correctly found that the transferred employees did not have an equitable interest in the surplus of the pension fund. Their only interest was in their defined benefits. As the defined benefits were protected in the transfer, HBC did not breach any fiduciary obligation that it owed.
[96] I should emphasize that this decision depends upon the text and context of the pension plan documentation that was before this Court. An analysis of that documentation leads to the finding that the employees are not entitled to any portion of the surplus on their transfer to NWC. This decision does not purport to deal with other situations involving actuarial surplus and plan transfer. Each situation must be evaluated on a case‑by‑case basis. Specifically, the resolution of the issue of surplus transfer when the pension plan documents indicate that employees are entitled to surplus on plan termination is best left to another case where that issue arises.
[97] The Court of Appeal’s ruling on costs was not challenged in this Court. Gillese J.A. found that for this case it was appropriate for costs to be paid out of the pension trust fund because this case dealt with issues surrounding the due administration of the pension trust fund and was for the benefit of all the beneficiaries (Burke v. Hudson’s Bay Co., 2008 ONCA 690, 241 O.A.C. 245). The parties submit that this is an appropriate case for costs in this Court to be paid to both parties on a full-indemnity basis out of the trust fund. Therefore, in accordance with the terminology used in this Court, I order costs on a solicitor-and-client basis in this Court, including costs of the leave application, to be paid to both parties out of the trust fund.
Appeal dismissed with costs.
Solicitors for the appellants: Bellmore & Moore, Toronto.
Solicitors for the respondents: Osler, Hoskin & Harcourt, Toronto.