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THE TOP 20 PENSION AND BENEFITS LEGAL CASES OF 2005 _AND ITS NOT

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									THE TOP 20 PENSION AND BENEFITS LEGAL CASES OF 2005

              (AND IT'S NOT OVER YET)




                                 Prepared by Mark Zigler and
                                            Amanda Darrach
                                         Koskie Minsky LLP
THE TOP 20 PENSION AND BENEFITS LEGAL CASES OF 2005

                            (AND IT'S NOT OVER YET)



Introduction

2005 has proven to be a significant year for Court decisions pertaining to pensions and benefits.
Ranging from the Supreme Court of Canada's venture into the public versus private health care
debate to class actions, insolvencies, and other decisions involving Trustees' fiduciary duties and
responsibilities, there is much to choose from. This paper contains a summary of twenty of the
more significant cases although there are probably plenty of others. They have been chosen
primarily because they fit the themes of the paper. Also this material is being prepared in July
2005 and the year is far from over. Accordingly we have taken the liberty of including a few
2004 decisions to round out the collection. However the rest of the year promises to bring more
interesting Court decisions and legislation.

1. The Chart Topper- Chaoulli v. Quebec (Attorney General)

This case represents the Supreme Court's entrance into the public versus private health care
debate in Canada. A more detailed summary of the case is contained later on in this paper.
What is significant about the case is the Supreme Court venturing into a political policy debate
because it is required to do so under both the Quebec Charter of Rights and the Canadian
Charter of Rights. A 4 to 3 majority of the Supreme Court indicated that the sale of private
health insurance should be lawful in Quebec notwithstanding the current prohibition in Quebec's
public health insurance legislation. The key deciding Judge, Madam Justice Louise Deschamps,
made no comment on the applicability in the rest of Canada under the Charter of Rights. The six
remaining judges were deadlocked on this issue, with three of the judges joining Madam Justice
Deschamps in the majority, namely Chief Justice McLachlin and Justices Major and Bastarache,
also finding that private health insurance service may be provided under the Canadian Charter of
Rights. The dissenting Judges, Justices Binnie, Lebel and Fish found that the prohibition against
private health insurance complied with both the Canadian and Quebec Charters, and were
opposed to striking down the Quebec law.

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The main driver for the case are the waiting lists which exist for both hospital and certain
medical care in Quebec and elsewhere in Canada. The role of the Supreme Court as a matter of
constitutional law is to deal with challenges brought by parties based on the freedoms granted
under either the Quebec or Canadian Charter. While the Court says it must rise above the
political debate, the striking down of laws under the Charter that are subject to heated political
debate invariably drives the Court into that debate. Oddly, many of those who oppose the
Court's intervention in the political realm out of more conservative, non-interventionist political
views would be likely to support the Court's majority decision, while those who are more
interventionists would probably say that the Court should stay out of the political arena on
private health care.

Section 7 of the Canadian Charter prohibits the deprivation of "life liberty and security" without
"fundamental justice". The Court's debate as to whether the waiting lists are a threat to life and
security and fundamental justice that requires permitting the sale of private health insurance is a
most interesting analysis. Similarly the Quebec Charter although it makes no reference to
"fundamental justice" speaks to a right to "life and personal security, inviolability and freedom".
The Quebec Charter also requires a "regard for democratic values, public order and general well
being".

The majority found that the persistence of waiting lists and inability to obtain medical care
violated these Charter principles. However the Court was not sitting with a full panel of nine
judges due to two vacancies which were present at the time and so we do not have a decision of a
full court. The Court did however examine "two-tiered" medical systems in Western European
countries and the United States which inclined the majority to find that there was nothing
offensive about providing private health insurance in Canada in order to meet the Charter
objectives. The dissenting judges pointed to failings in these "two-tiered systems" and found
that the sale of private insurance would not necessarily improve access to health care, or at least
there was no evidence that would support striking down the prohibitions in the current law.

The immediate effects of the Chaoulli decision will be more symbolic than real. While selling
private health insurance is lawful now in Quebec, the Court did not strike down any provisions
of the Canada Health Act and did not strike down provisions of provincial legislation which
preclude doctors from providing services in both the public and private health care systems.


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They also did not strike down any of the prohibitions against establishing a private hospital
without a provincial licence. In this environment it is unlikely that Chaoulli will have direct
practical affects if the physicians or facilities required to support a "private" health insurance
system are not present. Further, the Quebec government has sought a stay of the court's decision
for eighteen months to permit it to identify, analyse and draft new rules to govern private health
care and private health care insurance. The Quebec government has also indicated that it does
not want its legislation to violate the Canada Health Act.

The case will create more political pressure for private health care in Canada and is bound to
generate more Court challenges against statutory provisions which preclude providing private
health care by private health care providers. Interestingly the Court noted that much of Canada's
health care system really is "private" by virtue of excluded services and lack of a national drug or
dental care program.

2. The Rest – Class Actions

There are many decisions involving class actions pertaining to pension issues, and health benefit
issues. Class actions seem to be the way of the future in terms of many pension and benefit plan
members, including retirees, asserting their rights. As class proceedings legislation exists in
virtually every province and these types of actions are readily being certified by judges, they
have become a useful tool in our jurisprudence. Pension funds particularly, being large pools of
capital, are susceptible to such litigation, although in many cases the members may just be suing
themselves.

Most claims have been framed in the nature of fiduciary breaches, both substantive and
procedural. The Mortson v. Omers case, recently settled, is an example of trustees being sued for
fiduciary breaches both in the procedure of making an amendment to a reciprocal agreement and
the substantive results of depriving transferring members of a benefit. As noted by Justice
Cullity in his endorsement approving the settlement, it was based on the procedural aspects and
not the substantive ones. Other class actions pertaining to rights in pension plans to indexing
such as Dinney v. Great West Life case in Manitoba and still others pertaining to allocations of
surplus such as William v. B. C. College of Trustees and Potter v. Bank of Canada, demonstrate
the growing use of class actins for pension cases. These involve retirees claiming that they did
not receive the same treatment as active employees. Retiree health benefit claims are driving

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cases of Williams v. B. C. Colleges Trustees and Kranjec v. Ontario. These types of class actions
are bound to develop further in the near future.

Cases involving fiduciary duties and the concerns that trustees must have in exercising them are
now becoming prominent. Neville v.Wynne in British Columbia deals with concerns that trustees
must have in exercising their duties to reduce benefits due to lack of funding, and the procedural
aspects of making such a decision. The Williams v. B. C. College case however deals with
trustees allegedly abdicating their duties to act even-handedly. Williams is only a certification
decision on the class action that is subject to appeal but obviously both surpluses and benefit cut-
backs are the subject matters for future fiduciary duty litigation.

Another obvious source of class action litigation is a mass breach of contract in respect of
employee benefits as is evident in the Dinney v. Great West Life case noted above and the
pending Bennett v. British Columbia litigation pertaining to premiums being charged to retirees
for provincial health care benefits which were previously free of charge.

3. Involvencies -

Insolvencies continue to be a key area of importance to those involved in the pension and
benefits field. Retiree and member activism in insolvency cases was highlighted by the Stelco
and Air Canada cases.        More recently the bankruptcies of IVACO in Canada and the
restructuring of United Airlines in the United States have brought pensions to the forefront in
terms of outstanding contributions that have to be dealt with in an insolvency, or the ability to
modify pensions and collective agreements in corporate restructuring cases. The TCT case
coming before the Supreme Court of Canada this fall will be a major test for the survival of
collective bargaining rights in an insolvency.

The insolvency area may achieve some heightened attention due to the proposed Federal Budget
changes including the establishment of a wage and pension protection fund. It remains to be
seen if this legislation will pass due to the federal government's current precarious political
situation.

Please review the detailed analysis of each of the top twenty cases contained in this paper for
more information.


                                                                                                  5
Bankruptcy and Insolvency

         1. Re Stelco, [2005] O.J. No. 730 (S.C.J.), rev'd [2005] O.J. No. 1171 (C.A.)

In a decision critical to the determination of the role employees may play in a restructuring, the
Ontario Court of Appeal overturned the decision of the lower court to remove two directors from
the Board of Directors of a company under Companies Creditors' Arrangement Act protection.
The appointment of the directors was opposed by employee and retiree groups, on the basis that
it weighted the decision making process against the consideration of employee interests.

Background

Stelco Inc., ("Stelco") had been under Companies Creditors' Arrangement Act ("CCAA")
protection since January 29, 2004, and was undergoing restructuring in a court approved capital
raising process to allow it to emerge from the process as a going concern. Accordingly, the
Board of Directors was taking part in a bid review process. During the process, two new
directors were appointed to the Board and to the restructuring committee of that Board. The
Board had not solicited new directors.

Certain stakeholders, most particularly the Salaried Retirees of Stelco, objected to the
appointment on the basis that the proposed directors might favour the maximizing shareholder
value to the detriment of proposals which might favour the interests of the employees. The
retirees felt themselves vulnerable in the restructuring process, as their pension liabilities of
several billion dollars are Stelco's largest long term liability. They argued that the appointments
of the proposed directors would allow the shareholder stakeholders access to inside information
not available to the employees.

The Directors in question were executives with companies which had formed an investor group
to make a capital proposal to Stelco. In the course of making the proposals, the proposed
directors had stated their opposition to further dilution of the shareholders' interests.
Furthermore, this group had a stated aim to represent the interests of the equity holders "in
determining the future course of Stelco." Eventually, this group had ownership of roughly 20%
of Stelco shares. Another group of six shareholders, together representing over 20% of the share
ownership, also supported the appointment of the proposed directors.


                                                                                                 6
While the Board did not inquire into the investment philosophy of the proposed directors, their
previous activities displayed an adherence to a plan which would allow the companies to sell the
shares shortly after the company emerged from CCAA protection for a premium in price. As the
Court put it, holders of such a philosophy would have "a short term horizon."

While the proposed directors would not have a veto of any particular matter, they would move
and second a matter, and the 40% support they commanded could call a shareholders meeting.
As attendance at these meeting was never complete, it was possible that the desires of the
proposed shareholders would carry the day at any such meeting.

Decision of the Superior Court

Mr. Justice James Farley of the Ontario Superior Court found that the board owes a fiduciary
duty to the corporation, and, in an insolvency situation, its primary duty is to find a way for the
company to emerge from insolvency a "new better corporation." In doing so, the board cannot
be unduly influenced by any one group of stakeholders. The test to be used is whether there is a
"reasonable apprehension of bias" as the term is understood in administrative law; that is, "what
would an informed person, viewing the matter realistically and practically—and having thought
the matter through—conclude."

The Court found that the calling of a shareholder meeting would be disruptive, having an adverse
impact on the restructuring and capital raising processes. However, the appointment of the
proposed directors was not, in the Court's view, the proper way to deal with such concerns. The
Board made the decision to appoint the new directors in a "poisoned atmosphere", under threat of
a requisitioned shareholders meeting to replace the Board should they decide against the interests
of the shareholder group.

Moreover, the decision to appoint the new directors was not a matter of the business judgement
of the Board, but rather a "quasi-constitutional aspect of the corporation entrusted albeit to the
Board pursuant to s. 111(1) of the [Canada Business Corporations Act]." Accordingly, the
decision of the Board should be accorded less deference.

The Court declined to wait and see whether the proposed directors would act in a biased manner,
citing the potential fallout should this occur. Instead, the Court chose to exercise its inherent


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jurisdiction and the discretion given to the Court under the CCAA to rescind the appointment of
the directors.

Decision of the Court of Appeal

The Court of Appeal allowed the leave to appeal motion to proceed on an expedited basis
([2005] O.J. No. 802), citing the adverse effects of delay on the restructuring process. The
motion for leave to appeal and the appeal were thus heard on the same day.

The proposed directors appealed on the basis that Farley J. did not have jurisdiction to make the
order, that the reasonable apprehension of bias test had no application to the removal of
directors, the judge should not have interfered with the business judgement of the Board, and that
the facts do not justify the removal of directors, no matter what test was used.

Jurisdiction

The Court of Appeal determined that the motions judge did not have inherent jurisdiction, as the
legislature had provided a statutory framework under CCAA. There is no inherent jurisdiction
where the legislature has spoken. The Court of Appeal drew a distinction between

                 …the court's process with respect to restructuring, on the one had, and the
                 course of action involving the negotiations and corporate actions accompanying
                 them, which are the company's process, on the other hand. The court simply
                 supervises the latter process…

Under s. 11 of the CCAA, the Court has statutory discretion to make orders overseeing the
restructuring process. However, this discretion does not permit the removal of directors, which
is an extra-ordinary remedy, unless the oppression remedy provisions in the Canada Business
Corporations Act apply. The conduct of the directors must "substantially impede" the interests
of the stakeholders, and the directors should be directly motivated by their own interests rather
than that of the company. There was no such direct evidence in this case.

Reasonable Apprehension of Bias

A director must act honestly and in good faith with a view to the best interest of the corporation.
Previous jurisprudence has illuminated the fact that the interests of the corporation cannot be
seen as identical to the interests of the shareholders, creditors, or any one group of stakeholders.
However, there cannot simply be "some risk of anticipated misconduct," but rather the level of

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risk must be judged by the Court to be sufficient to give rise to an oppression remedy. This was
not done in the case at bar.

Moreover, the Court of Appeal found that the reasonable apprehension of bias test had no place
in the "business decision-making context of corporate law."         The statutory and fiduciary
obligations owed by the directors rules their conduct, with appropriate remedies if breached, but
it must be shown that a breach has occurred before the remedy is available.

Business Judgement Rule

The Court of Appeal found that the Board should have been accorded deference. It rejected the
distinction drawn by Justice Farley between the management of the business and the quasi-
constitutional aspect, finding that such decisions go to the heart of the Board's business decision
making role.

Leave to the Supreme Court of Canada is being sought by the Salaried Retirees.

                  2. United Air Lines, Inc. (Re), [2005] O.J. No. 1044 (S.C.J.)

United Air Lines, Inc., was not permitted to cease making contributions to its Canadian pension
funds, notwithstanding its financial difficulties in the United States and elsewhere. The Ontario
Superior Court highlighted both the important role of employees and unions in restructuring, as
well as the key differences between Canadian and American pension and insolvency
arrangements.

Background

United Air Lines, Inc. ("UAL") commenced Chapter 11 proceedings in the United States in
December 2002. Since that time, it had been in negotiations with its unions in North America,
among others, to reach accommodations that would allow the company to continue operating.
During this process, dealings with the Canadian workforce had been placed on the backburner
until the situation in the United States became stable.

In all jurisdictions but Canada and the United States, UAL had continued to meet its pension
funding obligations as required. In the United States, the company has recently reached an
agreement with the Pension Benefits Guaranty Fund, under which the Fund will fulfil the

                                                                                                 9
company's pension obligations. The company moved for an order from the Court to allow it to
stop making contributions to its Canadian funded pension plans. The Canadian Auto Workers
(the "CAW") and the International Association of Machinists and Aerospace Workers (the
"IAMAW"), the unions in collective bargains with the company, (the "unions") opposed the
motion.

In September of 2004, the company was granted a consent order to cease making such payments
until the present motion was heard.

Decision of the Court

The Court first pointed to the importance of employee interests in restructuring and insolvency
proceedings. Unions, Farley J. noted, must have both short and long term planning horizons.
They must be protective of the long term health of the company which employs its members,
while ensuring that the collective bargain is still respected. On the ground, the unions had to be
mindful of the risk that, should the company become bankrupt, the employees' pension claims
would be unsecured. The Court further noted that the approach of UAL, by sidelining the
Canadian interests, was not the approach normally taken in Canada, where the company and the
employees engage in dialogue to negotiate possible solutions to funding difficulties.

The Court noted that in previous insolvency proceedings in involving other companies, the
company had been given consent to defer pension contributions. However, such consent had
been given by the unions after negotiations, when the company had shown a bona fide need for
such an indulgence. Here, however, there had been no such negotiations. Moreover, UAL had
not led evidence that it did not have the necessary funds, nor that it its debtor in possession
("DIP") arrangement prohibited it from making the payments. Significantly, there was no
evidence that the Canadian pension payments would put undue pressure on the American
restructuring efforts, as the amounts in question were relatively insignificant in proportion to the
total size of UAL.

Furthermore, in the United States, pensions are protected by the Pension Benefit Guarantee
Corp., a safeguard which does not exist in Canada. Accordingly, UAL employees in Canada
were much more vulnerable to pension risk than those in the United States. Canadian employees



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did continue to receive pension cheques, but there was no guarantee that, barring extraordinary
returns on investments, the funds would continue to flow to the employees.

Accordingly, the Court declined to grant the order allowing the company to cease making
contributions to its pension funds.    The company was ordered to resume funding, making
arrangements with the unions for the payments of the arrears. If no such arrangement was made
within a specified time frame, the company was ordered to pay the entire amount.




Class Actions

        3. Dinney v. Great-West Life Assurance Co., [2005] M.J. No. 69 (Man. C.A.).


Retired employees of Great-West Life Assurance Company (“Great-West”) initiated a class
action against their former employer for failing to maintain certain pension indexation levels.
The employees argued that since the early 1970s, the company contractually promised through
the language of the pension plan and various internal documents and memos that indexation
would be tied to the investment performance of the pension fund.

When the company amended the pension plan in 1990 it changed the method of calculating the
annual indexation by tying the formula to the consumer price index (CPI). As a result, the
pensioners received a lower quantum of indexation, ultimately prompting this class action.

Both the trial judge and the Manitoba Court of Appeal upheld the pensioners’ contractual right to
the original 1973 method of calculating the pension indexation. Although the Company retained
the right to subsequently amend the pension plan, it did not have the right to eliminate a benefit
which vested upon retirement.

Great-West argued that the indexation amounts were not determined at the time of retirement,
but rather, in each subsequent year once either the investment performance or, since the 1990
pension plan amendments, the CPI was assessed. The company thus concluded that the inability
to determine the percentage of indexation on the date of retirement precluded any right to a
particular indexation level from vesting, such that only a discretionary, undetermined future
benefit remained. Pointing to the case law, particularly Schmidt v. Air Products Canada Ltd,

                                                                                               11
[1994] 2 SCR 611, the Company reasoned that the lack of a fixed formula meant that no right
crystallized at the time of retirement and the employees thus had no vested right to an indexation
using the original method of calculation. Lacking a vested right, the Company felt entitled to
make amendments to the pension plan which would alter the method of calculating the
indexation.

The Court of Appeal rejected the company’s argument, holding that although the specific amount
of annual indexation entitlement will depend on the performance of the fund, the connection to
the performance of the fund is in itself a mathematical and fixed formula.

The precise words of the plan were determinative of whether the employees were entitled to a
discretionary benefit or a vested right. Two provisions of the pension plan were particularly
relevant, both of which were in force at the date of retirement of the plaintiff class members. In
the first provision, section 29, the company retained the right to repeal, amend or substitute the
pension plan but such changes “shall not reduce any benefits accrued to the credit of an
employee”.

The second important provision was section 30, which provided that the retirees will receive
indexation payments not less than annually, and that the increments “shall be as the Company
may from time to time determine and will be related to the investment performance” of the
pension fund.

Thus, although the company could “from time to time determine” the indexing provisions, the
plan also required the indexing to be “related to” the investment performance of the fund.

Thus, on the one hand the plan grants the company the discretion to decide upon the indexation
of the pension, while on the other hand requiring the company to tie the calculation of the
indexation to the investment performance of the fund.

In reviewing a significant amount of both American and Canadian jurisprudence, the Court
distinguished between the nature of a vested “right” and the nature of a discretionary “benefit”.
The indexing provision of the pension plan is a distinct type of benefit provided in a predictable
way. The court held that it is “an annual right to be enjoyed as part of an ongoing plan, not a
potential interest in a surplus that may or may not crystallize at some point in the future”.


                                                                                                12
The Court used several interpretative tools to reconcile the potential contradiction in the
provision. In particular, the Court relied on the application of the contra proferentum rule
(interpreting ambiguous words against the interests of the drafter), subsequent conduct of the
company, as well as the internal memoranda and external communications. These supported the
conclusion that the 1973 amendments “introduced a contractual form of pension indexing that
was intended to be “automatic” rather than discretionary”. That is, tying the indexation to the
performance of the investments of the plan provided an ascertainable and predictable quantum of
promised future benefits.

The Court held that the company relinquished discretion to provide ad hoc indexing benefits
when it introduced the predictable formula in the early 1970’s. It became a contractual right
when the company offered the indexation formula as a term of employment, for which the
employees gave consideration by providing labour until their respective dates of retirement.
Amendments to the plan after their retirement could not affect those rights which had already
vested at retirement.

In addition to the plan provisions, the success of the class action was attributable to the specific
wording of Manitoba’s Pension Benefits Act. The Act enables the acquisition of a vested right to
annual indexation increments, that is to an undetermined future amount, by virtue of section
21(8):

         Every pension plan shall provide that a member of the pension plan who retires on or
         after reaching the normal retirement age for the pension plan is entitled to an annuity in
         accordance with the terms of the pension plan, as those terms are at the date of retirement
         and that is not less than the pension benefits in respect of service as an employee after
         January 1, 1984.

The statute reinforced the retirees’ right to rely on a term of the pension plan as it was stated at
the date of retirement. The indexation provision was essentially a contractual term no different
than any other pension promise, notwithstanding the future annual calculation of the quantum
based on the performance of the pension fund investments.

This case is important for the basic principles it articulates on the distinction between a vested
right and a discretionary benefit. Although a clear victory for retirees, the application              of the
case is limited to (a) those pension plans that provide for a predictable formula to calculate the

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vested right; and (b) those pension plans in a jurisdiction that allows for a predictable formula as
opposed to a specific quantum of the benefit to be ascertained at the date of retirement.

     4. Ontario Public Service Employees Union v. Ontario, [2005] O.J. No. 1841 (S.C.J.)

In this class proceeding certification motion, a class action against the Province of Ontario was
certified on the issues of negligent misrepresentation and breach of contractual undertaking. In
the course of its reasons, the Court surveyed a number of unusual or novel causes of action,
although it rejected most.

Background

The plaintiffs in this action, home medical care workers had previously been employed by
municipalities or private organizations. In 1997, the government of Ontario set up Community
Care Access Centres ("CCACs"), which were non-profit corporations funded by the Ministry of
Health, and "transferred" the employees to the CCACs. This change in employment rendered the
plaintiffs unable to continue participating in the Ontario Municipal Employees Retirement
System, or the Victorian Order of Nurses Pension Plan. Accordingly, they became members of
the Hospitals of Ontario Pension Plan ("HOOPP"). The plaintiffs were all members of the
Ontario Public Service Employees Union, or the former Association of Allied Health
Professionals: Ontario, which have since merged (the "Union").

Not all the pensionable service accumulated under the former plans was transferred to HOOPP.
When the employees retire, they will receive one pension from the former plans, and another
from HOOPP reflecting the post-1997 service. The employees alleged that they suffered a
financial loss due to the reduction in the combined benefits, as compared to what they would
have received had the value remained in the former plans or had been fully transferred.

The plaintiffs sought to have a class proceeding certified against the defendant province, on the
basis that the defendant was civilly liable for the loss, and also liable for special damages. The
defendant resisted certification, principally alleging that the statement of claim did not disclose a
cause of action.

Certification



                                                                                                  14
Mister Justice Maurice Cullity proceeded to address the requirements for certification as outlined
in section 5(1) of the Ontario Class Proceedings Act, 1992.

Disclosure of a Cause of Action

1. Preliminary Issues

The plaintiffs alleged that causes of action existed for negligent misrepresentations, breach of
fiduciary duty, breach of contract, taking of property, inducing breach of contract, inducing
breach of fiduciary duty and negligent failure to enact legislation that would permit class
members to remain in the former plans. In order to meet the requirement for this branch of the
certification test, it must simply not be "plain and obvious" that no cause of action existed.

The Union claimed special and punitive damages jointly with the plaintiff class. However, the
Court determined that the Union was not properly named as a plaintiff. The facts to support a
cause of action on behalf of the Union were not pled, and it did not seek an order to represent the
class. Accordingly, the claim of the Union was not allowed to proceed.

The Court also noted that the plaintiffs were not in an employment or collective bargaining
relationship with the Crown, but the CCACs, the actual employers, were not parties to the
litigation. Rather, it was in dispute whether the CCACs were controlled by the Crown, due to
funding and legislative arrangements, and the powers to remove directors and provide services.

2. Negligent Misrepresentations

The plaintiffs alleged that the defendant had represented to them that the employees would not
suffer any pension losses due to the transfer. But for the representations, the plaintiffs alleged
that they would have opposed the transfer and thus not suffered the corresponding loss. This
reliance, they claimed, was reasonable, and was reasonably foreseeable by the defendants.

In order to proceed against the Crown, all elements of the tort of negligent misrepresentation
would have to be pled against employees of the Crown; the Court found it reasonable to interpret
the Statement of Claim in that manner. As such, the five requirements from Queen v. Cognos,
[1993] 1 S.C.R. 87 were considered.

       a) Duty of Care Arising out of a "Special Relationship"

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Justice Cullity held that there were sufficient facts pled to meet the plain and obvious test with
regards to a special relationship between the employees and the Crown. It was alleged that when
the Province transferred the employees and did not enable them to retain their memberships in
the former plans, it assumed responsibility for investigating the possible adverse effects of the
transfer. Therefore, when it commissioned a report and recommended that the employees enrol
in HOOPP, all the employees relied on the efforts of the Crown to ensure that the move was in
their best interests, and acquiesced. Accordingly, it was not plain and obvious that no duty of
care existed between the parties.

The defendants submitted that, as a matter of policy, the private law duty of care claim against
the Crown should not be allowed to proceed. The Court rejected the policy argument, finding
that there was no question of indeterminate liability, and that a claim in negligent
misrepresentation could not be defended on policy grounds.

       b) Untrue, Inaccurate or Misleading Representations

Previous jurisprudence had indicated that statements relating to future events might not found a
claim for negligent misrepresentation. The statements made by the Crown appeared to be
representations of future conduct rather than statements of existing facts, and the representations
made were less than unequivocal. Regardless, due to the uncertainty in the law, and the possible
ambiguity in interpretation, it was again not plan and obvious that the claim would fail.

       c) Misrepresentations Made Negligently

The Court found that, if the Crown made statements to the effect that the Minister had committed
to preventing any pension loss, and they knew or ought to have known that the statements were
untrue, then a finding of negligence was possible.

       d) Reliance

If the plaintiffs could prove that in reliance on the statements of the Crown, they acquiesced to
the transfer and did not seek amendments to the former plans, a sufficient degree of reliance
would be present.

       e) Detriment


                                                                                                16
The plaintiffs sought special damages, measured by the value of the lost pension benefits. The
Court determined that it was not plain and obvious that the plaintiffs would not have succeeded
in obtaining amendments to the former plan, especially in light of amendments made subsequent
to their departure.

Accordingly, the Court found that the claim for negligent misrepresentation had been sufficiently
pled to disclose a cause of action.

3. Breach of Fiduciary Duty

The plaintiffs claimed that the Crown, in establishing and funding the CCACs and supervising
the transfer of the pension benefits, breached a fiduciary duty by not giving "proper
consideration" to the possible impact on the benefits awarded. They further claimed that they
were in a vulnerable position and, in the circumstances, reasonably expected that the Crown
would act in their best interest.

However, the Court determined that this claim would have no chance of success. There was no
evidence that the Crown had the power to compel the plaintiffs to enrol in the HOOPP, nor could
it be shown that the employees were in a vulnerable position. It was the CCACs which made the
final decision, and the CCACs which entered into collective bargains with the union.

4. Breach of Contractual Undertaking

The plaintiffs alleged that the Crown had bound itself contractually to ensure that the employees
would not lose pension entitlement, in consideration of which the transfer was carried out with a
minimum of labour disruption. The Court found that it was not plain and obvious that this
ground would fail.

5. Taking of Property without Compensation

The plaintiffs sought to have the failure to transfer conceived as expropriation of the pension
rights without compensation, with a corresponding lack of statutory authority to do so. The
Court disagreed, finding that there was no evidence that the rights were accordingly acquired by
the Crown, a necessary element for the claim.

6. Inducing Breach of Contract

                                                                                              17
At the time of the transfer, a collective agreement existed between the employees and the
CCACs which required the employees to be enrolled in the former plans. By advising the
CCACs to transfer the pension benefits to HOOPP, and failing to amend the former plans to
allow the plaintiffs to remain in the plans, the Crown induced the CCACs to breach the collective
agreements, in the plaintiffs' estimation. The Court again disagreed, finding that the Crown was
acting within its statutory powers in at each point in the process, and that the recommendations
did not constitute an inducement to breach. Moreover, there could be no obligation on the
Crown to amend (or enact) legislation, even where a failure to do so might deprive the plaintiff
of a previously enjoyed benefit.

7. Inducing Breach of Fiduciary Duty

The plaintiffs asserted that the CCACs owed them fiduciary obligations in regards to the pension
obligations. As such, by encouraging the transfer to the HOOPP, the Crown induced the CCACs
to breach this duty. This cause of action, although novel, also failed. The Court was prepared to
accept that such a claim was possible, but in order to found it, an actual breach would have to be
shown. The plaintiffs failed to plead sufficient facts which would allow the Court to determine
that enrolment in HOOPP was a breach of fiduciary duty.

8. Negligent Failure to Act

The Court determined that no cause of action lay in the Crown's failure to make amendments to
the legislation governing the pension rights of municipal employees.

Identifiable Class

The Court determined that the class, being those members of the Unions which became
employees of the CCACs, was adequate. It was necessary that the class members be part of the
union, because the claims were confined to the results of negotiations undertaken by the Unions.

Common Issues

The common issues, which addressed the issue of liability, were satisfactory. It would be
determined whether the Crown was liable to pay damages for the loss in value of the benefits,
and the proper methodology for identifying such loss.


                                                                                               18
Preferable Procedure

The defendant claimed that the individual issues which would remain at the end of the trial of the
common issues would negate any advantage to be gained from a class proceeding. Reliance,
especially, would have to be individually determined. However, the Court disagreed, finding
that it was possible that group reliance could be inferred from the facts. The Union, as the
bargaining agent, possibly relied on the defendant's representations on behalf of the class
members. The Court also determined that the pension loss could be quantified in the aggregate,
based on common actuarial practices as used in pension valuations, although whether this was
the best possible manner in which to do so would be a matter determined at trial.

Representative Plaintiff and Litigation Plan

Both the proposed representative plaintiff and the litigation plan were accepted by the Court.

                   5. Potter v. Bank of Canada, [2005] O.J. No. 772 (S.C.J.)

The Ontario Superior Court of Justice has determined that a motion to strike under Rule 21 ("no
cause of action") is properly heard before a certification motion, especially where the result of
the motion would remove the possibility of the action being heard pursuant to the Class
Proceedings Act, 1992.

Background

Former employees of the Bank of Canada (the "Bank") proposed to bring a class action on behalf
of, among others, all members of the defined benefit pension plan ("the Plan") sponsored and
administrated by the Bank. The employees claimed that the Bank had caused internal costs and
expenses to be paid out of the Fund, causing a breach of trust and a breach of contract as the
bank had agreed in the plan trust document to pay these expenses. The employees sought
declaratory relief to the effect that the Plan and Fund were subject to an irrevocable trust for the
exclusive benefit of the Members, and associated declarations, damages for breach of trust and
contract, an order that all expenses improperly paid out of the fund be reimbursed to the
individual members, or, in the alternative, an accounting and restitution of those expenses to the
Fund.



                                                                                                 19
The Bank brought a motion to strike the claim for damages to be paid directly to the Members,
as well as a declaration that the Class Proceedings Act, 1992 (the "CPA") did not apply to the
employees' claim. The employees argued that a motion to strike should not be heard as a
preliminary matter, but rather should be heard at the same time as the certification motion, in aid
of judicial economy.

Argument

The employees submitted that, based on previous class actions jurisprudence, class actions and
other complex litigation should not be heard in "instalments" nor should a "piecemeal approach"
be taken. The Bank argued that a Rule 21 motion, a motion to strike, may be heard prior to the
certification motion, again based on previous class actions decisions.         Previous cases had
determined it was proper to hear a Rule 21 motion before the certification motion, especially
where the defendants contended that the Statement of Claim disclosed no cause of action.

The Bank wished to argue that as the Bank had not failed to pay any benefits, it would be an
improper windfall to the employees should monies be paid directly to them. Further more, trust
principles did not allow such a remedy. Moreover, the Bank contended that the proceeding
should be brought as a representative proceeding, rather than a class proceeding, as, should the
motion to strike be successful, the remainder of the claim would simply be "the determination of
a question arising in the administration of an estate or trust," in the words of Rule 10 of the
Ontario Rules of Civil Procedure.

Decision of the Court

The Court polled the possible outcomes of declining to hear the motion to strike before the
certification motion. If the Court, in hearing the motion, decided that the motion to strike was
proper, and that the CPA had no application to the matter, then the time and expense in preparing
for the certification motion would be wasted. Moreover, if both matters were heard together,
unnecessary alternative arguments would have to be presented by all parties.

If the Bank was successful on its motion to strike, not only would a certification motion be
inappropriate, a representative proceeding would be the only way in which the action could
proceed. However, causing the employees to undertake a representative motion, in that case,
would also cause unnecessary delays and expense. Therefore, the Court determined that the

                                                                                                20
motion to strike would be heard first, as it presented "the best prospect of judicial economy as
well as economy and efficiency for the litigants." If the Bank were successful, it undertook to
consent to any representative motion made by the employees.

The motion to strike was heard on June 24, 2005, but the decision is still pending.

               6. Sutherland v. Hudson's Bay Co., [2005] O.J. No. 1455 (S.C.J.)

The Ontario Superior Court of Justice granted certification of this pensions class action, but also
allowed the motion for partial summary judgement, on the basis that the Ontario Variation of
Trusts Act could not be used to consent to vary a trust on behalf of beneficiaries with existing
interests.

Background

Hudson's Bay Company (HBC) bought Simpsons, Ltd in 1979, and became administrator of the
Simpsons, Limited Supplementary Pension Plan (the "Simpsons Plan"). The Plan was in surplus,
characterized as a "run-away" surplus. HBC has taken contribution holidays from 1984 until the
present time. In the succeeding years, HBC acquired Zellers and the Zellers Inc. Pension Plan
(the "Zellers Plan"), a defined contribution plan. In 1994, HBC opened the Simpsons Plan to
members of the Zellers plan on the same defined contribution basis, renaming the plan the
Dumai Plan.     Since that time, HBC has made no contributions on behalf of the Zellers
employees, as the surplus in the Simpsons Plan would cover any necessary employer
contributions to the Zellers Plan. In 1998, HBC acquired K-Mart Canada and took the same
steps. In 2002, HBC merged the Dumai plan with the two other plans administered by the
company.

The plaintiffs alleged that the surplus in the Simpsons Plan was to be held for the exclusive
benefit of the members, the amendment which gave HBC the rights to access the surplus was
invalid, and the use of the surplus was a breach of trust. At issue in the partial summary
judgement motion was whether the order to vary the trust fund of the Simpsons Plan to allow for
an immediate distribution of certain of the assets to class members was a remedy available in
law.

Decision of the Court

                                                                                                21
Partial Summary Judgement

The plaintiffs sought to vary the trusts pursuant to the Ontario Variation of Trusts Act (the
"VTA"). Under that Act, the Court may consent to vary a trust on behalf of incapacitated or
unborn beneficiaries, or those with a future interest, provided that variation is in the interest of
the beneficiary. The defendants asserted that there was no evidence the proposed class members
had consented to the variation, that the Court could not consent on behalf of sui juris class
members, and that HBC was beneficially interested in the trust fund and thus no variation was
possible without its consent.

The Court found that it had no jurisdiction to vary the trust pursuant to the VTA; it could only
approve an arrangement placed before it on behalf of the types of beneficiaries enumerated in the
Act.     "The statute gives the court power to consent on behalf of specified categories of
beneficiaries by approving a proposed variation. The variation, if approved, is effected by such
consent and the consents of other beneficiaries that do not fall within the specified categories."
This analysis is consistent with the decision of the British Columbia Court of Appeal in Buschau
v. Rogers Communications Inc. (2004), 6 E.T.R. (3d) 236. The plaintiffs here were not seeking
the Court's approval of a variation on behalf of a class, but rather for the Court itself to vary the
trust.

The plaintiffs contended that they were persons with an interest which may arise in the future,
one of the classes under the VTA on whose behalf the Court may consent. They sought to draw
a distinction between that class, and those with an existing interest, as was done in Buschau and
the English case of Knocker v. Youle, [1986] 1 W.L.R. 934 (Ch. D.), where, in both cases, the
beneficiaries were found to have an existing interest and thus had no access to the VTA. The
Court could fine no useful distinction "between interests that are considered to exist but will vest
in interest, as well as in possession, only if the donees satisfy some contingency in the future and
those that will not arise unless and until the contingency is satisfied." The Court expressly
followed the reasoning in Buschau.

As the Plan has been closed since 1988, all the beneficiaries were either ascertained or
ascertainable, and each had enforceable rights to their benefits under the Plan. Members of a
pension plan have existing contingent rights to receive the surplus, if one exists upon the
termination of the plan.

                                                                                                  22
Moreover, the Court did not agree with the plaintiffs that previous jurisprudence allowed the
Court to approve arrangements under the VTA on behalf of sui juris beneficiaries.

In the alternative, the plaintiffs submitted that a trial of common issues under the CPA would
bind all the members of the class and thus render their consents unnecessary. The Court also
rejected this claim, finding that the question of variation would not arise until the identity and
claim of each of the beneficiaries had been ascertained. Once that had been determined, there
would no longer be a conflict between the beneficiaries and the trustees. Moreover, the Court
found that it would "beg the question" of jurisdiction to declare that a common issues
determination dispensed with the need for consent. The Court can only bind class members on
those matters within its jurisdiction independent of the CPA.

Accordingly, the Court ordered that the pleading be amended to strike the paragraphs from the
Statement of Claim which plead relief of the variation of trust, keeping the option for the claim
open should it be properly pled.

The Court did, however, explicitly leave the possibility that the VTA and the CPA might be
combined to extend the Court's jurisdiction in similar circumstances.                The particular
interpretation argued by the plaintiffs, however, would affect all trusts, not simply pension trusts,
and would lead to an impermissible widening of jurisdiction.

Certification

After initial objections, the defendants consented to certification. The Court agreed that the
pleadings disclosed a cause of action, with the exception of the order pertaining to the accounting
of the assets. Counsel for the Zellers beneficiaries objected, stating that the pleading in that
respect was vague. It was unclear whether the plaintiffs sought simply a determination of the
amount transferred, or to hold HBC liable to account for a breach of an equitable duty. The
plaintiffs indicated they wished the latter, and were directed to amend the pleading for clarity.

The class was satisfactory to the Court, and the common issues were amended in accordance
with the findings in the partial summary judgement motion. A class proceeding was found to be
the preferable procedure, and the representative plaintiff and the litigation plan adequate.

Defendants' Representation Orders

                                                                                                    23
The Court had previously ordered certain classes of defendants to be added to the proceeding as
"interested parties." The plaintiffs did not seek a remedy against them, but rather against HBC
and the Trustee. However, the Court found that the defendants should be present to ensure that
the plaintiffs only received those assets to which they were entitled.        However, the Court
determined that there was no need to certify defendant classes; it would not promote economy,
efficiency or expedition. Further, a representation order under Rule 10 would avoid the problem
of opt-out defendants, as might occur with a certification order, and ensure that all the defendants
were bound by the final determination.

     7. Williams v. College Pension Board of Trustees, [2005] B.C.J. No. 1211 (B.C.S.C.)

The British Columbia Supreme Court certified this class proceeding claim for breach of fiduciary
duty. In the process of certification, the Court had occasion to consider whether the actions of a
Board of Trustees appointed and empowered by statute were subject to judicial review.
However, the Court found it unnecessary to resolve this issue, determining instead that a class
proceeding was the preferable procedure to a judicial review in this particular instance.

Background

The College Pension Board of Trustees (the "Board") is responsible for the administration of the
College Pension Plan (the "Plan"), which provides pension benefits to instructors, librarians and
senior administrative staff. The Board and Plan were established and are governed pursuant to
the Public Sector Pension Plan Act. The Board has at least ten members, appointed by the
employers as well as the unions representing the members. The Plan is a defined benefit pension
plan and benefits are paid according to the member's length of service and earnings.
Beneficiaries are divided into three categories: active members still making contributions,
deferred vested members, who have made contributions but are not yet receiving benefits, and
retired members, who made contributions and are receiving benefits.

The Plan was in surplus, and in 2001, the Plan partners (i.e. the employers and the unions)
directed the Board to amend the rules to provide benefit improvements to be funded out of the
surplus (the "Amendment"). The Board is required to amend the Plan on the direction of the
Partners if the Partners have considered the Board's advice on the matter, and the amendment is



                                                                                                 24
not inconsistent with the Board's fiduciary responsibilities. The Plan was amended pursuant to
B.C. Regulation 314/2001.

The plaintiff, a retired member, alleged that the Amendment allocated the majority of the surplus
to the active members, in violation of the statutory and equitable fiduciary duties owed by the
Board to the beneficiaries, including the duty of impartiality and even-handedness. As a result,
the plaintiff argued, the retirees were denied a distribution proportionate to that of the active
members. They sought an accounting, distribution of lump sum or periodic cash distributions
from the fund in accordance with actuarial liabilities, and damages.

The defendants claimed that the surplus was allocated to a variety of different purposes, with no
category of beneficiary benefiting disproportionately.

At the time the case was heard, the surplus had disappeared, leaving the Plan with an unfunded
liability.

Certification

The Court proceeded to consider whether the claim should proceed as a class proceeding,
following the analysis mandated by section 4(1) of the British Columbia Class Proceedings Act.

Cause of Action

The plaintiffs were required to prove that it was not plain and obvious that no claim existed.
This low threshold was in accordance with previous class actions jurisprudence in British
Columbia and Ontario.

The defendants argued that, based on Schmidt v. Air Products Canada Ltd., [1994] 2 S.C.R. 611,
there could not be an actionable breach of trust or fiduciary duty where the trustees were dealing
with an actuarial surplus, as the surplus is notional, and none of the parties have a specific
interest in the amount. They further pointed to Police Retirees of Ontario Inc. v. Ontario
Municipal Employees' Retirement Board (1999), 22 C.C.P.B. 49 (Ont. S.C.J.), aff'd (2000), 190
D.LR. (4th) 689 (Ont. C.A.) where the Court held that using the surplus from a supplementary
agreement to fund a liability in the main plan was not a breach of fiduciary duty, as the
beneficiaries had no legal or equitable interest in the surplus funds.


                                                                                               25
The plaintiffs argued that their cause of action was related to a breach of trust that had already
occurred, in contrast to the Police Retirees case, where the issue was that the surplus was not
being distributed, where here it was distributed in a manner inconsistent with the fiduciary duties
owed. The principles of trust law apply to the manner in which the trustees deal with a surplus,
as in Markle v. Toronto (City) (2003), 63 O.R. (3d) 321.

The defendants further argued that even if there were a breach of fiduciary duty, the only remedy
available is judicial review of the decision to adopt the Amendment, under which the remedy
would not be damages, but remittance to the Board for a re-determination. In their view, the
Board is a tribunal, and the claim was an attack on the validity of the Regulation which amended
the plan. It was within the Board's jurisdiction to decide whether the amendment was a breach of
their fiduciary duty, and thus the fiduciary duty claim was more properly characterized as a
jurisdictional claim. The Court accepted, for the purposes of the cause of action determination,
that judicial review was available. The defendants submitted that, in that case, the action
violated the collateral attack rule, by seeking to "appeal" the decision of the Board in the wrong
forum. The plaintiffs argued that, even if the decision could be appealed by way of judicial
review, the proper place for a private law claim against trustees would be in the courts.

The Court determined that it was not plain and obvious that the plaintiffs had no cause of action.
Even if the decision of the Board was an exercise of statutory power, it was not obvious that the
amendment could not be attacked first in the courts. Moreover, in light of the decision in Wells
v. Newfoundland, [1999] 3 S.C.R. 199, the common law does apply to actions of the Crown, and
so private law remedies might apply to the Board.

Identifiable Class

The class described by the plaintiffs was challenged on the basis that it failed to account for
those people who ceased to be an active member, had a vested entitlement to receive a pension a
later date, and then was employed by another participating employer in the Plan, known as
"deferred vested members." The Court, however, declined to amend the class, finding the
definition as stated to be sufficient.

Common Issues



                                                                                                26
The defendants objected to the common issues as stated, alleging they were not stated with
enough particularity, simply referring to the Statement of Claim. Moreover, the claim was
waived, in their mind, as the cheques from the surplus sent to the parties were cashed. Punitive
damages, they further felt, could not be a basis for certifying the claim.

The Court canvassed the jurisprudence on common issues, finding generally that it is required
that there are issues of fact or law common to all class members, the determination of which will
advance the interests of the class. Here, the common issue in which all class members have an
interest is whether the defendants have breached their fiduciary duties, and what relief would
flow from breach. The issue is not overly broad, and there are no significant differences between
the class members. Furthermore, punitive damages have previously been certified as a common
issue.

Preferable Procedure

The Court determined that individual actions would not be pursued, and that individual issues
could fairly be dealt with after the trial of the common issues. However, it was possible that
judicial review might be preferable.

The Court returned to the issue of judicial review as the preferable procedure. The plaintiffs
alleged that the nature of the claim, as private law, the relief requested, being damages, and the
processes available, such as discovery and production, were all unavailable by way of judicial
review. The defendants claimed that judicial review would be "cheaper, faster, and fairer."

It was first to be determined whether judicial review was, in fact, available. In Ehrcke v. Public
Service Pension Board of Trustees (2004), 32 B.C.L.R. (4th) 388, the Board of Trustees was
determined to be a private, not public body, at an arm's length from the government. The
defendants argued that here, the Board was appointed by statute, and the source of all their power
was statutory. Moreover, the nature of the Board's activities as a regulator of a pension plan for
public sector employees characterizes it is a public body. Finally, the Board is the successor
administrator to the government.

Again, however, having canvassed the arguments, the Court simply assumed without deciding
that judicial review was available, and moved to consider whether judicial review itself was the
preferable procedure. The Court distinguished the case at bar from previous cases whether the

                                                                                               27
two procedures were compared, finding that along with the plea for declaratory relief, the private
law claims for breach of fiduciary duty and corresponding damages set it apart from others. The
lack of damages as a possible remedy, along with the procedural disadvantages, pointed to a
class proceeding as the preferable procedure. The underlying conflict was in the characterization
of the claim. The defendants posited it as an administrative law jurisdictional issue, while the
plaintiffs claimed a private law issue with corresponding damages. The Court also raised the
issue of deference owed to the Board in a judicial review proceeding, which would not be an
issue in the courts. All the factors, in the Court's view, made a class proceeding the preferable
procedure.

Representative Plaintiff

The proposed representative plaintiff was a retired member of the class. The defendants raised
the issue of a possible conflict where the decision of the Board is quashed, and distribution of the
surplus has to be returned to the Board pending the final resolution. In that case, the Board
might determine that none of the Fund should be paid out, thus putting the retired members in
conflict with the rest of the class. The plaintiffs maintained that they were not seeking to quash
the decision of the Board, but rather were claiming damages for breach of a private law duty. As
such, the interests of the class members were not in conflict.

The Court conceded that there was a potential for conflict, however, there was not a conflict at
the present time. If a conflict arises, the certification order could be amended.

The litigation plan, although challenged by the defendants, was found to be adequate, as the
representative plaintiff and counsel had a grasp of the case, and provided a basic framework
within which the case could proceed.

The Court directed that the action be certified.


Conflict of Laws

  8. Vivendi Universal Canada Inc. v Ontario (Superintendent of Financial Services), [2005]
                                       O.J. No. 2085 (S.C.J.)




                                                                                                 28
In dismissing this motion for an order suspending or dismissing the application made by Vivendi
Universal Canada Inc. ("Vivendi"), the Ontario Superior Court of Justice affirmed that the
Ontario Court's jurisdiction to hear matters relating to pension issues is not ousted by the Pension
Benefits Act.

Background

In the sale of its wine and spirits business to Diageo Canada Inc. ("Diageo") Vivendi had agreed
to apply to the applicable governmental authority for approval of a transfer of assets from the
previous pension plan (the "Seagram Plan") to a new plan to be established by Diageo, in order
to provide for transferred employees. Vivendi also agreed to transfer any amount required by the
applicable regulator, without an adjustment in the purchase price. The Seagram plan had a
significant surplus.

As the Seagram plan applied to employees in both Quebec and Ontario, although a majority
resided in Ontario, the Plan was covered by the "Reciprocal Agreement." Under this agreement,
the province in which the majority of a pension plan's members reside is to exercise its own
statutory functions as well as those of the pension regulatory authorities in other provinces. The
province to which this applies is called the "major authority." However, section 3 of the
Reciprocal Agreement allows a regulatory authority to exempt itself from this provision with
respect to a particular Plan, if it gives written notice of the exemption to the major authority.

Vivendi thus applied to the Financial Services Commission of Ontario ("FSCO") for approval of
the transfer under the Ontario Pension Benefits Act ("PBA"). Under the PBA, a transfer of
surplus is not required when transferring assets from one plan to another; this is required under
the Quebec pension legislation (the "SPPA"). Vivendi asked FSCO to consider whether it was
required to comply with the SPPA, on the basis that the Exempting Regulation did not require
plans which met a "standard of solvency" under the PBA to comply with the SPPA. The Quebec
regulator ("the Regie") did not agree.

Vivendi then applied to the Court for a declaration that the Ontario Pension Benefits Act
governed the transfer, and that it was not required to comply with the SPPA. La Regie then gave
notice that it was withdrawing from the Reciprocal Agreement with respect to the Seagram Plan.
Vivendi appealed this decision in Quebec, as if the withdrawal stood, the SPPA would apply and


                                                                                                    29
Vivendi would be required to transfer over $12 million to the Diaego plan, allowing Diageo to
take contribution holidays. If the withdrawal was rejected, Vivendi had arranged to wind up the
Seagram plan and share the surplus between itself and all present and former members of the
Seagram plan.

The Regie moved to have the application before the Ontario Superior Court of Justice dismissed
or stayed.

Decision

In order to be granted a stay of proceedings under the Ontario Courts of Justice Act, the moving
party must prove that:

   1. The continuance of the action would work an injustice because it would oppressive or
       vexatious to him or would be an abuse of process of the court in some other way, but not
       merely inconvenience or expense; and

   2. The stay must not cause an injustice to the plaintiff.

Based on these conditions, the Regie argued that the Court did not have jurisdiction to hear the
application, and proceeding to hear it would be in violation of the two factors enumerated above.
In the Regie's view, the Court lacked jurisdiction because the PBA grants the Financial Services
Tribunal ("FST") the sole power to hear cases regarding pension issues, and because the issue is
moot due to the withdrawal from the Reciprocal Agreement.

Madam Justice Alexandra Hoy of the Ontario Superior Court determined that, while it would not
be a violation of the above factors to allow an application to continue where the jurisdiction of
the Court is at issue, it had heard the arguments on jurisdiction and thus would decide the issue.

Vivendi submitted that the FST did not have the power to grant declaratory relief, and moreover,
did not have expertise in interpreting Quebec pension legislation. Any decision concerning the
transfer of assets would ultimately be appealable to the Divisional Court. Furthermore, based on
the precedent of Anova Inc. Employees Retirement Pension Plan (Administrator of) v.
Manufacturers Insurance Co., [1994] O.J. No. 2938 (Gen. Div.), Ontario Courts have previously
determined that they have jurisdiction to consider Ontario pension legislation.


                                                                                                 30
The Court agreed with Vivendi that it would have finally determined the issue in any event, and
that the PBA did not oust the jurisdiction of the Court. Moreover, due to the appeals filed in
Quebec regarding the exemption from the Reciprocal Agreement, the issue was in no way moot.

The Court added that, even if the application was successful, the final resolution of the matter
would have to wait until the determination of the appeal. Accordingly, while it might be
beneficial to the Quebec Tribunal to have the Ontario Court's interpretation of the Regulation, it
might also be beneficial for the parties to wait until the appeals had been decided. Regardless,
the Court allowed the application to proceed, granting leave to the Regie to argue before the
Court that the issue is moot should the appeals in Quebec not be successful.




Fiduciary Duty

                     9. Neville v. Wynne, [2005] B.C.J. No. 712 (B.C.S.C.)

In an unstable economic climate, trustees of pension plans will increasingly by required to
impose benefit reductions as well as allocate benefit increases. However, when exercising
discretion, trustees will likely face challenges to their decisions on the basis of their duty to act
impartially as between beneficiaries. Justice Preston of the British Columbia Supreme Court has
given trustees some guidance on what to consider in order to fulfill that duty when making these
difficult decisions. When exercising the discretionary power to reduce benefits, there is no
requirement to treat all plan members equally, as long as trustees' power is used for the proper
purpose, giving due consideration to all relevant factors.

Facts

The plaintiff, Mr. Neville ("Neville") is a member and beneficiary of the Plumping and
Pipefitting Workers Local 170 Pension Plan (the "Plan") by virtue of his union membership. The
Plan is employer-funded, with contribution levels based on hours worked. All contributions are
placed in a trust fund, which is invested according to an investment policy established by the
trustees as advised by investment professionals.




                                                                                                  31
The Plan is administered by seven trustees, four of whom are elected by union members and
three of whom are selected by the employer's association, the Mechanical Industrial Relations
Association. The Plan was established in 1966 pursuant to a trust, the terms of which provide
that the trustees will provide employees with benefits "as the trustees in their sole and complete
discretion deem most advantageous to the employees."

From 1999 to 2002, the plan suffered a loss of $70 million dollars due to a decline in the equity
market. In light of the losses, the trustees could not maintain the contribution and benefit
structure previously in place.     The British Columbia Pension Benefits Standards Act (the
"PBSA") mandates that a defined benefit pension plan must have enough funding to provide
payment of all benefits.

The trust authorizes the trustees to amend the plan, provided that any such amendment does not
reduce benefits being paid or accrued. However, the trust also provides that the plan will be
administered in accordance with the PBSA. The PBSA also prohibits a reduction in benefits,
except with written consent of the Superintendent. Combining the above factors, the trustees
have discretion under the PBSA to amend the plan to reduce benefits, but only with the written
consent of the Superintendent.      The trustees applied for and received approval from the
Superintendent for a proposed benefit reduction in August 2002.

The proposed plan reduces pensions for retired and non-retired members by 13.5%. However,
non-retired members are affected by additional changes. Among the most significant changes,
their unreduced early retirement age is raised, unreduced early retirement age plus service benefit
is eliminated, future pensions are changed from joint, with a 50% survivor benefit to life only,
monthly pension for future service credits are reduced, and they accumulate benefits at a reduced
level after the changes came into force. The trustees unanimously decided to allocate more
benefit reductions to non-retired members than retired members.

The trustees justified the allocation for several valid reasons. First, percentage increases over the
last twenty years, with a few exceptions, had been double for active members than for retirees.
Second, the pensions paid to retirees and survivors were not indexed for inflation. Finally, the
non-retired members were still accumulating pension benefits.




                                                                                                  32
At trial, Neville contended that the trustees are in breach of their duties by reducing the benefits
unequally, while the trustees claimed that they are exercising their discretion on the basis of
relevant considerations, and thus there is no breach of duty.

Decision of the Court

The Court determined that pursuant to s. 59(3) of the Pension Benefits Standards Act (R.S.B.C.
1996, c.352) the trustees had the discretionary power to reduce benefits to meet funding solvency
requirements of the pension plan. All that is required is written consent of the Superintendent.

The Court then turned to the English case of Edge et al v. Pensions Ombudsman et al. ([1998 2
All E.R. 547; aff'd [1999] 4 All E.R. 546 (C.A.)). There, the Court articulated certain factors
trustees should consider when allocating surplus assets among different members of a plan. The
court adapted these factors in the context of benefit reductions, and articulated the following
considerations:

   •   trustees should consider the circumstances in which the loss arose;

   •   trustees must be careful not to impose burdens that could endanger the employment of
       active members;

   •   trustees should consider the benefits in comparison to other similar plans or the pension
       market in general;

   •   benefit levels should not deter members from employment in the industry covered by the
       pension plan; and

   •   trustees should consider whether the retired members will receive benefits that keep up
       with the cost of living.

The Court examined these considerations to determine whether the trustees had acted
impartially. Although some members of the plan were treated differently, the Court found that
this difference was based on relevant considerations in light of the funding crisis. For example,
the trustees considered the past pattern of benefit increases and decreases, the fact that pensions
under the plan were not indexed for inflation, and that active members of the plan were still


                                                                                                   33
accumulating pension benefits.      None of these considerations were held to be irrelevant,
improper, or irrational factors.

The Court further recognized that in light of the fluctuating economic environment, it is to be
expected that pension plans will, from time to time, require benefits to be increased or decreased.
It is extremely improbable that trustees will be able to be completely "even-handed" when
making such changes, and so some members will be affected to a greater degree than others.
Therefore, it is the role of the trustee to "navigate these shoals" and strive for fairness, and not
necessarily equality.

Health Benefits

                10. Chaoulli v. Quebec (Attorney General), [2005] S.C.J. No. 33

In what is being widely regarded as a landmark judgment, the Supreme Court of Canada held
that the government of Quebec cannot prevent its citizens from purchasing private health
insurance to cover services provided under the public health care system. In the wake of the
decision, the issue of public healthcare, once a proud articulation of the values underlying
Canadian society, has once been thrust into the sphere of public debate.

Background

The case was brought by George Zeliotis and Jacque Chaoulli, two individuals driven by what
they perceive to be critical failings in the public health system. They sought a declaration that the
Quebec legislation prohibiting private health insurance for health care services that are available
in the public system is unconstitutional, and consequently invalid. Specifically, they argued that,
in view of the lengthy wait times in the public system, the legislation deprives them of a means
to access health care services without wait times, and therefore is a violation of their fundamental
rights.

Decision of the Court

The central question before the court was whether the prohibition on private insurance for public
health care is justified by the need to preserve the integrity of the public system. The seven
member court split 4 to 3 in favour of the claimants. The majority of the judges agreed that the
legislation is inconsistent with Quebec's Charter because it constitutes an unjustifiable violation

                                                                                                  34
of one's right to life and to personal security, inviolability and freedom. Three of the four
majority judges went even further, and concluded that the prohibition on private medical
insurance in Quebec violated the Canadian Charter of Rights and Freedoms ("Charter"). In
contrast, the three dissenting judges found that Quebec's prohibition against private insurance
was a rational consequence of the Province's commitment to the goals and objectives of the
Canada Health Act, and a valid law that did not offend either the Quebec or Canadian Charters.

In reaching their decision, the courts engaged in a spirited discussion regarding the merits and
failings of the public healthcare system and ultimately anchored their decision on two underlying
principals.

Firstly, it was reasoned that a delay in access to medical services may pose an unwarranted risk
to the life or health of an individuals and consequently prohibiting access to private health
insurance constitutes a barrier to timely access. Justice McLachlin and Major stated, "The
evidence before us establishes that where the public system fails to deliver adequate care, the
denial of private insurance subjects people to long waiting lists and negatively affect their health
and security of person."

Secondly, despite the government's contention that allowing access to private health care
insurances shall serve to compromise the viability of the public system, the majority of judges
found that the public system should not be protected at the cost of an individual's health. In
reaching their decision, they noted that "the evidence on the experience of other western
democracies refutes the government's theoretical contention that a prohibition on private
insurance is linked to maintaining quality public healthcare." While all the judges agreed that
the public system should be protected, the majority suggested that there is no evidence that
private participation leads to he eventual demise of public health care.

Significance

The result of this case is that residents of Quebec will be able to buy private insurance to get
medical attention faster than they would be able to access in the public system. It must be noted
however, that despite the significance of this decision, the Quebec government can pass a law
that nullifies or suspends the effect of this decision. Furthermore, the fact that one judge,
Madam Justice Dechamps, made her decision based on the Quebec Charter only, means that the


                                                                                                 35
decision may have no immediate impact on the national health care system outside of Quebec.
However, all but four of the provinces have similar legislation prohibiting insurance that covers
services in the public system, thus we can expect similar challenges to emerge elsewhere.

Despite the quick assurances from politicians at both the federal and provincial levels of their
commitment to public health care, this decision may serve to create the emergence of a private
health care insurance system in Canada. This has potential implications for sponsors of group
benefit plans which include supplementary health benefits.          It is likely that as a private
alternative emerges, there will be a corresponding increase in demand for private insurance as a
means to access such services via group benefit plans and individual policies.

In view of this decision, trustees and plan sponsors may as a measure to control healthcare costs,
specify that coverage is limited to benefits that are expressly enumerated. Indeed, it would be
prudent, particularly for Quebec-based plan sponsors and those with plan members in Quebec, to
pay particular attention to contract wording as existing plans may leave sponsors open to claims
for expanded private insurance benefits or for services available through the public system.

At this time, the decision prompts more questions than it answers. Among some of the concerns
are:   will a two-tier system of medicare emerge?        Will supplementary health care benefit
sponsors extend their coverage? Will the financial burden of healthcare shift in the long-term
from government to plan sponsors?

What is perhaps most significant about this decision is that its full effect will only be revealed
through the political response which will likely follow, underscoring the need to keep abreast of
new legislative and regulatory schemes for health care providers.

                        11. Ontario Health Insurance Premium Cases

The new Ontario Health Premium ("OHP"), proposed in the provincial government’s 2004
budget and currently being debated in the House of Commons under Bill 106, An Act to
implement Budget measures and amend the Crown Forest Sustainability Act, 1994, has given
rise to a series of grievance arbitrations under a variety of collective agreements. At issue is the
possibility that existing (but dormant) collective agreement language pertaining to the pre-1990
Ontario Health Insurance Plan ("OHIP") premium might be applicable to the newly-proposed


                                                                                                 36
OHP. This question has been decided in at least four arbitral awards recently released and many
others are pending before Ontario arbitrators.

Prior to 1990, individuals had to pay something called the Ontario Health Insurance Premium, in
order to be eligible to receive OHIP benefits.       Although this was a premium levied on
individuals, many unions bargained for their members' employers to pay this health premium on
behalf of their employees. These old provisions remained unchanged throughout the renewals of
many collective agreements over the years.

In 1990, the OHIP premium system was repealed, and in its stead, the government rolled out the
Employer Health Tax. This new tax rendered obsolete the existing collective agreement
provisions, as there was no doubt that the Employer was responsible for paying it. Despite this
change, many unions deliberately maintained the existing collective agreement language; in fact,
some added to the existing provisions language that called for their revival in the event that the
Ontario government likewise revived the old OHIP premium.

In its 2004 budget, the provincial government introduced yet another approach to raising funds
for health care. Dubbed the “Ontario Health Premium”, the OHP is apparently a health tax, as it
is deducted from pay- and pension cheques, and remitted directly to Canada Revenue Agency.
(More evidence that the OHP could be a tax: Bill 106, by which the OHP is being introduced,
proposes an amendment to the Income Tax Act.). The amount of each person’s annual OHP
depends on the taxable income of each individual payor. Persons who make below $20,000
annually are exempt from paying the OHP; above that, the premium ranges from $300 to $900
per year, with the particular dollar amount determined by a formula.

The OHP has become a source of controversy for a variety of reasons, such as many Ontarians’
displeasure at having to pay a newly-levied “tax”, as well as uncertainty as to the actual
destination of the collected funds (much debate has ensued at Parliament and elsewhere as to
whether all of the funding is in fact going to health care). These debates about the nature of the
OHP have been central to the outcomes of the early arbitral awards on the issue. It appears that
this “characterization” debate, as much as the language of the collective agreements themselves,
has determined the outcome in these recent arbitral awards. While the majority of arbitrators to
date have found that the employer as no obligation to pay the OHP, a few arbitrators have



                                                                                               37
determined that, on the basis of the language in the collective agreement, the employer must pay
the OHP.

In Goodyear Canada Inc. v. United Steelworkers of America, Local 834L, released on November
1, 2004 Arbitrator Tims respectfully disagreed with Arbitrator Barrett’s analysis in Lapointe
Fisher Nursing Home v. United Food and Commercial Workers Union, Local 175/633, [2004]
O.L.A.A. No. 519 of the OHP funding as “solely” for the purposes of OHIP; she suggested
instead that the OHP was earmarked for a broader spectrum of health spending than simply
OHIP. Moreover, Tims found that the language of the collective agreement before her was quite
different from that before Barrett. Tims was asked to rule on a provision describing a scheme
whereby one paid a “monthly premium to the Ontario Health Insurance Company […] so as to
qualify the employee” for health benefits. Defaulting on payment of the OHP is a tax offence,
but has no bearing on one’s entitlement to health care. As a result, Tims felt that the language of
this particular provision could not support the union’s request; she therefore dismissed the
grievance.

Jazz Air v. Air Line Pilots Association (unreported, September 17, 2004) was heard by Arbitrator
Martin Teplitsky. His award, the first to be decided on this issue, succinctly disposed of the
union’s grievance. Having determined by reference to Bill 106 itself that the OHP was a tax, not
a premium (the OHP is described in the bill as “the tax”), Teplitsky held that it was not captured
by existing collective agreement language that spoke of a premium; nor was such a change in the
benefits scheme contemplated by the parties while negotiating. Finally, he noted, benefits are
always specifically bargained for, and this one was not. For these reasons, the grievance was
dismissed.

Arbitrator Owen Shime followed suit in dismissing the union’s grievance in College
Compensation and Appointments Council v. Ontario Public Service Employees’ Union ([2004]
O.L.A.A. No. 665 (QL)). Shime, too, considered the OHP to be a tax, name notwithstanding,
and followed Teplitsky in his remarks to the effect that the parties did not contemplate such a
change to the benefits they bargained for in negotiations.

More recently, however, Arbitrators Swan and Knopf have found that the employer is
responsible for paying the OHP premium. Swan, in his decision in Ontario Power Generation
Inc. v. Power Workers' Union, [2005] O.L.A.A. No. 312 (May 25, 2005), states:

                                                                                                38
               I have come to the conclusion that reasonable parties in the position of the
               present Employer and Union, negotiating for the current collective agreement,
               must have intended that the language which they used would cover not just the
               particular OHIP premium in existence before 1989, but any materially and
               reasonably similar premium to be established in the future. In my view, the
               OHIP premium was a tax contributed to the consolidated revenues of the
               province with the intention that it be used to fund the OHIP health care system. I
               think that the Ontario Health Premium is materially and reasonably similar to
               that, and the distinctions which are made in how the amount is calculated and
               how deduction and payment take place are distinctions that do not create a
               sufficient difference between the two to render the collective agreement
               language inapplicable to the Ontario Health Premium.

Similarly, Arbitrator Knopf in London Hydro v. Power Workers' Union (unreported, released
June 14, 2005) found the employer liable to pay what she characterized as a tax, payable under
the specific language of the collective agreement.

The majority of the awards dismissed the unions’ attempts to make the OHP fit into old
collective agreement provisions (it should be noted that the employer from the Barrett award has
made an application for judicial review of that decision, heard in late May of 2005). At this
point, it seems unlikely that many of these dormant clauses will be drafted broadly enough to
capture the new OHP. However, nothing in these awards – nor in Bill 106 – precludes a union
from bargaining for the OHP to be paid by the employer.




Jointly Trusteed Pension Plans

                         12. McCann v. McColl [2004] O.L.R.D. No. 2052

The recent decision of the Ontario Labour Relations Board in McCann et al. v. McColl et al.
shows the type of dispute that boards of jointly trusteed pension plans may encounter, and the
mechanisms and principles invoked for reaching resolution when such disputes are referred to an
arbitrator.

The Board of Trustees of the Canadian Elevator Industry Pension Trust Fund (the "Fund") were
deadlocked over the appointment of a new actuary and referred the decision to arbitration. The
Trustees were divided into two camps: those who were appointed by the International Union
under the terms of the Trust Declaration (the "Union Trustees"), and those who were appointed
by the employer (the "Employer Trustees"). Although the Trustees agreed on the process for


                                                                                                    39
selecting the new actuary, they were divided over the final shortlist composed of three
candidates: Mercer Human Resources Consulting Limited ("Mercer"), The Segal Company Ltd.
("Segal"), and Watson Wyatt & Company ("Wyatt").

The arbitrator was asked to make the decision in the place of the Trustees. In doing so, he noted
that he should be guided by the same fiduciary principles that did or should have guided the
Trustees at first instance. The arbitrator stated he was required to act only in the best interests of
the trust and the beneficiaries in exercising the powers or performing the duties of the Trustees,
and to make the "correct" decision.

The Employer Trustees sought to adduce evidence about the decision making process and asked
the arbitrator to make findings about what was allegedly the "true motivation" of the Union
Trustees. The arbitrator declined to admit the evidence and held that it was not relevant to his
decision to make findings concerning how the Trustees came to their conclusions and what may
have motivated them, and instead confined his decision to the merits of the three short-listed
contenders.

In analyzing the three candidates, the arbitrator stated that economic considerations were of
primary importance. The least expensive choice, absent other compelling circumstances, is the
appropriate choice.

The Union Trustees expressed that they had the greatest comfort and trust in Segal, who was also
the most expensive bidder. Although the arbitrator acknowledged the union Trustees' heightened
comfort level with Segal was based on valid considerations, he determined that comfort was a
very limited factor given that there was no lack of trust in any of the three candidates. The
arbitrator ultimately eliminated Segal on the basis that it did not have offices in Quebec, which
was an important service consideration for the Fund.

Wyatt proposed the lowest bid, but had constraints with respect to its insurance coverage.
Wyatt's insurance provided a limitation on liability that set a cap on the amount of damages with
respect to its engagement. Even though Wyatt could have potentially self-insured for a greater
amount, the arbitrator found that the Trustees properly required a greater level of third-party
insurance than Wyatt proposed, and therefore was not the most appropriate choice.



                                                                                                   40
The arbitrator selected Mercer for the contract for actuarial services. The proposal submitted by
Mercer did not have either of the limitations of Segal and Wyatt, and presented the median costs
to the Fund.

The appointment of an actuary by a board of trustees is a significant decision that has
fundamental consequences for a pension plan. Actuaries employ varying assumptions in their
practice, and these assumptions are used to value a plan, which in turn dictate how a plan will be
funded and create its financial picture. The actuary has enormous potential to influence plan
design, the availability of benefits improvements, and application of surplus monies.
Accordingly, the determination of who will perform the role of actuary is of central concern to
Trustees.

Multi-Employer Pension Plans

  13. Halifax (Regional Municipality) Pension Committee v. Nova Scotia (Superintendent of
                             Pensions), [2005] N.S.J. No. 35 (N.S.S.C.)

The Nova Scotia Supreme Court has found that the Administrators of a pension plan subject to a
Reciprocal Transfer Agreement may charge a fee to those who wish to transfer in order to recoup
the added actuarial expenses associated with such a transfer. While this relieves the burden on
other Plan members, it may partially off-set the benefits to employees of entering into such
agreements.

Background

The Halifax Regional Pension Committee (the "Committee") is the administrator of the
municipal pension plan (the "Plan"), which is jointly funded by the municipality and its
employees.     The Plan is part of Reciprocal Transfer Agreements ("RTA") with other
governments, to allow employees to change plan membership from one plan to another. In order
to effect a transfer, actuarial calculations must be made by both the importing and exporting
plan. It had been the practice of the Committee to charge a $500 fee to persons requiring
actuarial calculations for a transfer.

The Superintendent of Pensions contested the Committee's authority to charge the fees. The key
issue was whether the transfer done by the employees was a portability transfer under s. 50 of the

                                                                                               41
Nova Scotia Pension Benefits Act ("PBA") or a transfer pursuant to the RTAs. The testimony
was that transfers done under s. 50 are relatively straightforward, and the calculations required
are not complex, while transfers under RTAs require complicated and onerous calculations.
Under the s. 50 of the PBA, pension administrators cannot charge fees for transfers.

Under s. 50, the value of service under the plan is converted into money, and this "commuted
value" is transferred into the new plan. This value is rarely converted into service by the new
plan, and is usually accounted for separately, by transfer into an RRSP. Under an RTA, by way
of contrast, service credits are transferred from one plan to another. As stated by the expert for
the Committee, "A section 50 transfer is really transfer of a commuted value on a pension
entitlement out of the pension plan," while "a reciprocal transfer agreement is an agreement
between two [or more] employers… to exchange service between their respective pension
plans."

The Superintendent disagreed, finding that the right to transfer pursuant to an RTA arises out of
s. 50 of the PBA. An RTA, she found, simply "uses a greater basis for determining the transfer
value" than the minimum required by the Regulation. Accordingly, an administrator has no right
to charge a fee, no matter whether the transfer is pursuant to an RTA or s. 50.

Decision of the Court

The Committee appealed the determination of the Superintendent, and the Court agreed that it
was to review the decision on a correctness standard.

The Court found that the Superintendent was wrong in her interpretation of the statute, and thus
in her determination. Section 50 of the PBA entitles a former member of a pension plan to
require the administrator of the plan to pay the commuted value of the pension into any of three
vehicles. The Court pointed to the fact that the Regulation simply adopted the actuarially
approved calculation of commuted value; how then, the Court asked, could an RTA require more
to be paid out if it was governed by s. 50?

Moreover, even where an RTA was in place, a member could still require the administrator to
pay out under s. 50. The PBA deals with RTAs separately, leading to the conclusion that the
legislature intended them to be in addition to s. 50 portability rights. Therefore, the PBA does


                                                                                               42
not prevent the administrator from charging additional fees for the added requirements of an
RTA transfer.

The Court then turned its mind to what, if anything, authorizes such a fee. The Plan allowed the
Committee to enter into RTA only where this did not have an adverse financial impact.
Furthermore, the Committee was empower to do whatever was necessary to accomplish the
objectives of the Plan and reap the greatest benefits for the beneficiaries. As transfers under
RTA were significantly more expensive to the Plan, and the benefits of the transfers were only
available to a few members, to cause the entire membership to bear the costs of the transfer
would be inequitable. Accordingly, charging a fee to those who take advantage of the transfer,
in order to counterbalance the financial impact is permitted by the Plan.




Pension Plan Amendments

  14. Association provinciale des retraité d'Hydro-Québec c. Hydro-Québec, [2005] J.Q. no
                                        1644 (Q.C.C.A.)



The Québec Court of Appeal recently held that an employer and its unions need not seek the
consent of retired employees prior to passing amendments to a pension plan affecting a surplus.
Hydro-Québec's ("Hydro") pension fund was originally established in 1946. In response to a
projected deficit, Hydro contributed $200,000,000 to the fund between 1968 and 1985. By 1985,
the fund was found to have a surplus, which led to a number of subsequent amendments to the
plan.

During the 1980s, under a series of negotiated agreements with its unions, Hydro reduced both
employee and employer contributions to the plan, created an early retirement option for
employees, and adopted a more generous indexation package. Between 1991 and 1993, the plan
was altered, such that all future management and administrative costs associated with the plan
would be assumed by the fund. In exchange, employees received an extended dental benefits
package.




                                                                                              43
Further amendments were agreed to in 1997, including a lowering of the age at which employees
could opt for early retirement, a reduction of the employer's contributions to the fund, and
minimum employer contribution levels.

The plan was amended in 1998, such that contributions would no longer be required of
employees due to receive an annuity of $26,000 or less.

In 1999, an amendment was agreed to, whereby neither the employer nor active plan participants
would make contributions to the fund so long as the fund maintained a rate of capitalisation
equal to 110%. Furthermore, employees were given the option of repurchasing a certain number
of years and so reduce their required contributions.

In none of the amendments to the plan subsequent to 1984 was the consent of retirees sought.

In 1997, retired employees applied for and received certification for a class action, which was
approved in 1999, with the plaintiffs seeking $377,500,000 in damages. The association of
retirees objected to the amendments to the plan from which they did not directly benefit, on the
grounds that their consent to such amendments had not been obtained.

Cohen J. of the Superior Court of Québec rejected the action of the retirees on the authority of
Schmidt, noting particularly that employees do not have a claim to a pension surplus until the
plan is wound up.

The decision of Cohen J. was unanimously upheld on appeal to the Québec Court of Appeal. The
Court framed its analysis through the proposition that pension plans are but one element among
many, such as renumeration, which constitute the valid subject of negotiation in the context of
collective bargaining. The mere fact that an employee ceases to be an active member of the
bargaining unit upon retirement does not fundamentally alter the nature of the contract between
the employee and the employer. Accordingly, benefit plans negotiated by the union may be
subsequently amended in future rounds of collective bargaining.

In the subsequent amendments to the pension plan, the Court noted that all relevant provisions of
the governing legislation, the Supplemental Pension Plans Act (S.P.P.A.), had been complied
with, and hence, on its face, the actions of the employer and its unions were legal. As in other
jurisdictions in Canada, the S.P.P.A. does not accord any rights to retirees to pension surpluses,

                                                                                               44
save in specific contexts, such as at the time of the wind-up of a plan. Given that none of the
circumstances enumerated in the S.P.P.A. as granting specific rights and remedies to employees
were applicable, the Court found no violation of the S.P.P.A.

The Court did stress, however, that neither the employer (nor the union) can amend or change the
retirees' accrued benefits. In this case, the Appellant recognized that there was no real abrogation
of accrued benefits.

While rejecting the appeal, Dalphond C.J.C. did note that it was within the power of the Court to
intervene to prevent the misappropriation of a pension surplus. However, such circumstances
would be rare, and restricted to situations where there is a potentially illegal appropriation of
funds from the surplus, or where the union and employer, prior to the imminent termination of a
pension fund, seek to divide the benefits between them, to the detriment of retirees.

With regards to the Appellant's argument that the employer owed a fiduciary duty to the retirees,
the Court suggested that it would be more appropriate to bring such a claim against the union
than the employer, should the union fail in its duty of fair representation. (764 words)




Pension Plan Contributions

  15. Superintendent of Financial Services of Ontario and Board of Trustees of the Electric
            Industry of Ottawa Pension Plan v. Brosseau FST File No. P0183-2002


The Financial Services Tribunal ("FST") recently determined that the Trustees of a multi-
employer pension plan properly interpreted and applied provisions regarding temporary lay-off
periods and members' accrual of credited service when working for an employer who did not
participate in the pension plan.

The Applicant, Mr. Brosseau, is a member of the Electrical Industry of Ottawa Pension Plan (the
"Plan"), which is a multi-employer pension plan including members of the International
Brotherhood of Electrical Workers, Local 586 (the "union").          Mr. Brosseau worked for a
participating employer under the Plan from January 1974 to the date of the hearing, save for an
almost two year period between November 1983 and August 1985 when he was temporarily laid

                                                                                                 45
off. During the temporary lay-off period Mr. Brosseau was employed with a non-union company
who did not participate in the Plan, but continued to remit his union dues. Mr. Brosseau briefly
returned to his participating employer for a two-week period in September 1984.

Mr. Brosseau did not receive pension credits in the Plan for the temporary lay-off period, except
for the first 90 days which was required under the Plan. Under the terms of the Plan, an
employee is entitled to his or her insurance benefits for a period of ninety days following a
cessation of employment so long as the employee remains a member of the union and is "ready,
willing and able to work in the electrical industry".

The Board of Trustees took the position that because Mr. Brosseau was working for an employer
outside the electrical industry, he did not meet the "ready, willing and able" criteria to accrue
credited service during the remainder of the temporary lay-off period.

Mr. Brosseau asserted that he relied on advice from a union business manager who, he said,
never advised him that he would lose pension credits if he worked for a non-union employer
during the lay-off period. Rather, Mr. Brosseau believed that he would continue to accrue
service under the Plan so long as he paid his union dues.

The Superintendent of Financial Services of Ontario agreed with the Board of Trustees, and
issued a Notice of Proposal to issue an Order that the Trustees interpreted the Plan in compliance
with the Pension Benefits Act, the Plan text, and the Declaration of Trust.        Mr. Brosseau
requested a hearing before the FST.

The issue for determination by the FST was whether Mr. Brosseau should be granted credited
service for the period when he continued to be a member of the union, but was employed with a
non-union employer.

The FST found as fact that not only had Mr. Brosseau worked for a participating employer up to
November 1983 and after August 1985, but also for the two week period in September 1984.

The FST held that the Trustees had properly interpreted the Plan and adequately exercised their
discretion in denying credited service to members of the Plan when they had a break in service
and were employed by a non-union employer who did not participate in the Plan. A previous
case in the Ontario Superior Court stood as a precedent for this interpretation. The FST also held

                                                                                               46
that despite Mr. Brosseau's belief that his credited service would continue during his temporary
lay-off, it is the practice of the Trustees that determines his eligibility under the Plan. Mr.
Brosseau was, however, entitled to receive credited service for the two week period in September
1984, when he briefly returned to work for a participating employer, and for the 90 day period
following.

                    16. Huang v. Drinkwater, [2005] A.J. No. 50 (Alta. Q.B.)



The Alberta Court of Queen's Bench recently heard an action for breach of trust brought by
plaintiff employees against the trustees of the Telus Corporation Pension Plan ("TCPP"). The
employees claimed that the trustees of the TCPP wrongly refused to include certain incentive
bonuses in their pensionable earnings, from which contributions were not deducted.            In
dismissing the action the Court held that the trustees had acted in a manner consistent with the
intention of the settlors by interpreting the term "earnings" to require a linkage between
pensionable earnings and mandatory pension contributions. The Court commented on limitation
periods as they apply to retirement pension payments in finding that several plaintiffs were
barred from bringing an action, as they were past the statutory limitation period, and awarded
costs on a solicitor-client basis to the plaintiffs despite their unsuccessful claim.

Background

The plaintiffs were among a number of employees of AGT (now Telus) who accepted offers of
employment with a related company, Stentor Resource Centre Inc. In transferring their TCPP
entitlements to the Stentor Pension Plan, employees were offered both defined benefit and
defined contribution options. The plaintiffs opted for a joint-contribution, defined benefit plan
which excluded incentive payments from pensionable earnings. Hence, the plaintiffs made no
contributions on that incentive pay.

Upon the wind-up of Stentor, the plaintiffs were repatriated to Telus between 1996 and 1999,
and joined its TCPP defined benefit plan which included a form of incentive pay from which
pension contributions were deducted. Several employees inquired as to whether their incentive
pay at Stentor would now be included in their pensionable earnings. The trustees informed the
plaintiffs' representative in May, 1999, that the exclusion of their incentive payments while at


                                                                                              47
Stentor was appropriate. The plaintiffs were terminated between June 1999 and July 2000 and
were provided with a pension "estimate". The action was commenced in February, 2002.




Limitation Periods with respect to Retirement Pension Payments

As a result of the Alberta Limitations Act, R.S.A. 2000, c. L-12, several plaintiffs faced a
statutory bar for their claim. The plaintiffs argued that they were seeking declaratory relief,
which would have exempted them from the 2-year initiation period in the Act. Moreau J.
rejected this assertion, and held that the "thrust" of the claim was for a retroactive institution of
benefits.   Consequently, the claim was remedial in nature, and thus caught by the 2-year
limitation period.

Further, Moreau J. rejected an analogy to disability insurance payments, which in Ontario have
been held to renew a potential cause of action with each payment received. Whereas a disability
may be continuing and require the insurer to review the insured's condition on an ongoing basis,
Moreau J. held that the ongoing obligation to make retirement pension payments did not involve
an ongoing evaluation of eligibility. Therefore, he held that this action crystallized when the
employees were terminated and notified of estimates of their pension entitlement, thereby
excluding certain members of the plaintiff group.

Standard of Review and Breach of Trust

Moreau J. held that the appropriate considerations used in reviewing the interpretation of pension
plan provisions by trustees turned in part on whether the plan was impressed with a trust. Due to
the explicit declaration of trust in this case, the Court looked at whether the Trustees'
interpretation was consistent with the intentions of the settlors, fair, and equitable in all the
circumstances. It cited approvingly the decision of Rivett v. Hospitals of Ontario Pension Plan,
[1995] O.J. No. 3270 (Ont. Gen. Div.) where Justice Farley exercised his review jurisdiction by
determining whether the administrator "operated appropriately" in interpreting pension plan
provisions "in a reasonable and even-handed" manner.

The Court went on to hold that the trustees' interpretation of "earnings" so as to exclude the
incentive pay accumulated at Stentor was consistent with the settlors' intentions because a)

                                                                                                  48
"remuneration" was not defined in the TCPP; b) "earnings" did not refer to "all" remuneration
paid by a reciprocating employer; and c) the provision for mandatory pension deductions from
earnings indicated the settlors' intent to link pensionable earnings to mandatory pension
contributions. The trustees gave effect to this "linkage" in excluding the incentive pay at Stentor
from which the plaintiffs did not make pension contributions.

Moreover, even though the pension plan operated by Stentor was in considerable surplus,
Moreau J. noted that surplus cannot be used for the benefit of a particular group of beneficiaries.
Although the recognition of the incentive pay received by the plaintiffs at Stentor would not
diminish the pension benefits of other members of the TCPP since it could be funded by the
surplus, the decision to exclude it was nevertheless held to be equitable and even-handed.

The court concluded that the trustees' decision to exclude the incentive bonuses from pensionable
earnings in the case of repatriated employees was consistent with the trust documents, and was
fair and equitable in the circumstances.

Costs

The Court held that although the proceedings were commenced by a statement of claim which
sought a remedial order as against the trustees, this did not disentitle the plaintiffs from
requesting costs. Although the corpus of the pension fund would be reduced by the amount of
costs, the reasonableness of the costs claimed could be addressed through an assessment or
"taxation" proceeding.     Further, the manager of pension administration for Telus had
communicated his concern to the trustees about establishing a precedent for other employees
who might request the inclusion of non-pensionable earnings. Accordingly, the Court held that
clarification as to the meaning of "earnings" was of importance not only to the plaintiffs, but also
to other members of the TCPP. Costs were awarded to the plaintiffs on a solicitor-client basis.

In holding that the action crystallized upon termination and notification of the pension estimates,
and in awarding solicitor-client costs to the unsuccessful plaintiffs, the Court made useful
commentary for future breach of trust claims brought by pension plan members.

          17. MacGillivray v. Telus Communications, [2004] B.C.J. No. 2227 (S.C.).




                                                                                                  49
The British Columbia Supreme Court has reaffirmed that pension payments made pursuant to a
jointly funded defined benefit plan are not required to be deducted from the reasonable notice
period or from a wrongful dismissal award. However, the Court has left open the question as to
whether this reasoning will apply to an employer-funded plan. The Court also held that where an
employer, under the terms of a pension plan, must give consent before an employee can "retire"
and receive pension payments that consent is at the discretion of the employer.

Facts

Robert MacGillivray ("MacGillivray") had been an employee with Telus Communications Inc.
("Telus") for 30 years when his employment was terminated during a corporate downsizing. At
the time of his termination, MacGillivray was a Sales Director, in roughly the fifth or sixth tier of
Telus' management structure. MacGillivray was a member of Telus' B.C. Pension Plan for
Management and Exempt Employees (the "Plan").             This defined benefit plan provides for
retirement at age 65, or early retirement where the employee has reached 55 and the sum of age
and years of service was 80. An employee could also take early retirement where the employee's
term of service was 30 or more years, and the company gave its consent.

Two days after MacGillivray reached this 30 year threshold, he was terminated. Telus offered an
18 month salary continuance period, with eligibility for an unreduced pension at the end of the
continuance period.     MacGillivray rejected these terms. Notwithstanding his refusal, the
company paid him the salary continuance for the 18 months, as well as medical and dental
coverage and pension plan contributions.

Shortly after he was notified of his termination, MacGillivray informed the company that, as he
had reached 30 years of service, he expected his full, unreduced pension payments to commence
on the date of termination, along with his salary continuance. The company responded that it
would consent to his retirement, and therefore commence payment of his pension, only after the
expiry of the salary continuance period.

Decision of the Court

MacGillivray sought a declaration regarding his pension rights, as well as damages for wrongful
dismissal.

Notice Period and Employment Issues


                                                                                                  50
MacGillivray contended that the appropriate notice period was 24 months, not the 18 months the
company had offered to him. The Court, after surveying the applicable authorities, found that,
based on his seniority and placement in the company's hierarchy, 21 months was the appropriate
notice period. As such, MacGillivray was awarded an additional 3 months base salary and
commission, as well as reimbursement for payments for health and dental benefits during the
additional three months. He was also awarded reimbursement for payments for long term
disability benefits during the entire period.

Pension Plan Issues

Under the terms of the Plan, Telus had an absolute right to withhold its consent for an employee
to receive a pension who had reached 30 years of service without reaching the requisite age.
MacGillivray was aware that the granting of consent was discretionary, and although he was
under the impression that the company had never before withheld its consent, the Court held that
this did not mean that it could not do so in this particular case. Moreover, the company had made
various communications to employees regarding its discretion to grant consent, and indicated
that it would consider such factors as the cost of the Plan, operational impacts, the employee's
circumstances and the cost to Telus.

Accordingly, the Court held that there was no implied term that Telus would consent to
MacGillivray's retirement, Telus did not waive the right to withhold consent, and Telus was not
estopped from relying on its right to withhold consent. On these facts, the Court found that it
was reasonable for consent to be withheld while MacGillivray was receiving payments
equivalent to his salary.

The Court went on to consider the impact of the additional 3 months notice period, during which
MacGillivray had received his full pension payments and was, pursuant to the Court's decision,
now in receipt of full salary. Telus contended that those payments should be deducted from the
notice period award. The Court disagreed and did not order the pension payment to be deducted
from its award, holding itself bound by Girling v. Crown Cork & Seal Canada Inc., (1995), 127
D.L.R. (4th) 448 (B.C.C.A.). In that case, it was found that pension benefits were "collateral"
benefits which should not be deducted from damages granted for lack of proper notice of
termination of employment.




                                                                                              51
The Court distinguished this case from what occurred in Sylvester v. British Columbia, [1997] 2
S.C.R. 315. In Sylvester, the Supreme Court held that disability payments could be deducted
from damages for wrongful dismissal, as both were integral components of the employment
contract, and the disability payments were intended to be a substitute for the employee's regular
wages. The Court in Mr. MacGillivray's found that it was bound by Girling, and noted that in
Sylvester, the Supreme Court explicitly held that its decision did not apply where the employee
had made contributions to the plan giving rise to the other benefit. Moreover, the nature of
disability payments differs from pension payments; pension payments are not necessarily
intended to take the place of all income, while with disability payments the employee is by
definition no longer able to work in any capacity. The Court also pointed to evidence that on
other occasions Telus had agreed to pay both wrongful dismissal damages and pension benefits,
and so such an award was not unprecedented.




Pension Plan Mergers

18. T. Stewart Baxter et al v. Superintendent of Financial Services et al, [2004] O.J. No. 4909,
               (Div. Ct., File No. 416/02, Dec. 1, 2004)




In 2000, National Steel Car Ltd. (NSC) merged its pension plan for salaried employees with its
plan for hourly-paid employees. In 2001, members of the salaried plan requested a hearing at the
Tribunal after the Superintendent allowed a transfer of surplus assets from their plan to the
hourly plan to cover funding requirements. The salaried employees argued that by allowing the
asset transfer, the Superintendent failed to protect their benefits.

The Tribunal determined that it did not have jurisdiction to conduct a hearing in respect of the
members' request.     The members brought an appeal to Divisional Court to challenge the
Tribunal's refusal to hold a hearing and to have the merits of their application considered.

Tribunal Failed to Uphold Fair Process

According to the Ontario Divisional Court in National Steel Car, the Tribunal did have
jurisdiction to conduct a hearing and its denial to do so amounted to unfair process. The

                                                                                               52
Tribunal refused the hearing after concluding that only NSC had the right to a hearing because
the issue was the company's application to the Superintendent for approval of the asset transfer.
In other words, only a party whose application to the Superintendent has been denied can then
complain to the Tribunal.

The Divisional Court disagreed with the Tribunal's interpretation of Ontario's Pension Benefits
Act ("PBA"), stressing that the legislature intended equal protection for employers and employees
on reviews of decisions by the Superintendent. Section 89(4) required the Superintendent to
notify the applicant of its consent to the asset transfer. NSC argued unsuccessfully that because
s. 89(4) only mentions the applicant, they are the only party who has a right to seek review of the
decision.

When both employers and employees have substantial interests at stake, to deny the right of one
party to be heard while protecting the right of the other party, is inequitable. Referring to the
recent Supreme Court of Canada decision in Monsanto Canada Inc. v. Superintendent of
Financial Services et al., the Divisional Court emphasized that while the legislature has amended
the PBA over the years, "the importance of maintaining a fair and delicate balance between
employer and employee interests…[has] been a consistent theme."

This decision marks another occasion where the Tribunal has been criticized for reading its
legislation too narrowly with regard to procedural rights. The Divisional Court has specifically
held that a right of review exists for both employers and employees pursuant to s. 89(4), despite
the awkward language of that section. This decision is far-reaching. It means that when the
Superintendent makes a decision whether or not to consent to or approve the registration of a
pension plan, the purchase of a pension, the transfer of an employee's commuted value, the
unlocking and refund of an employee's contributions, the commutation or surrender of a benefit
in cases of financial hardship, wind up reports, plan mergers, or a continuation payment of
pension benefits from a pension plan after it has been wound up, both employers and employees
have a right to challenge the decision at a hearing before the Tribunal.

Tribunal held to Standard of Reasonableness

The Divisional Court held the Tribunal to a standard of reasonableness with respect to transfers
of assets pursuant to s. 81(5). The Court held that under this particular section, the Tribunal was


                                                                                                53
granted "broad discretionary powers that involve the balancing of multiple sets of interests of
competing constituencies" and therefore, it should be afforded more deference when under
review. The Divisional Court further stated that asset transfers lie at the core of the Tribunal's
expertise and mandate.

The Divisional Court distinguished this case from the Supreme Court of Canada's 2004 decision
in Monsanto where the Court held the Tribunal is a general body that, unlike its predecessor the
Pension Commission of Ontario, adjudicates in a variety of regulated sectors and has no policy
functions as part of its pension mandate. The Supreme Court also held that the Tribunal does not
have special pensions expertise and should be held to a standard of correctness.

The Divisional Court limited the Monsanto standard of review to cases involving s. 70(6) of the
PBA, although some would argue that the statements made by the Supreme Court regarding
expertise should have been applied more broadly.

Interpretation of Recent Merger Cases Creates New Uncertainty

While the appellants were successful on the jurisdictional issue, their claim failed on the merits.
They argued the assets of their plan could not be used in the merged plan to fund contributions
for hourly-paid employees because those assets are protected by s.81(5) of the PBA. The
appellants claimed an exclusive right to all of the assets, including the surplus, that had been
contributed to their plan.

The Divisional Court denied that the appellants were entitled to the surplus assets of their
pension plan following the merger. The Court concluded that the appellant's plan was not
subject to a trust until 1994. By that time, the plan had been validly amended to entitle the
employer to any surplus funds in the plan. The Court further relied on the terms of the pre-trust
plans which expressly stated the plans could be merged.

This case essentially turned on the facts and it was arguably unnecessary for the Divisional Court
to delve into any detailed interpretations of previous case law. However, the Divisional Court
did discuss earlier decisions such as Aegon Canada Inc. and Transamerica Life Canada v. ING
Canada Inc. (2003) ("Transamerica") and Buschau v. Rogers Cable Systems Inc. (2001)
("Buschau"), stating that those decisions turned on very specific facts. In its reasoning, the Court


                                                                                                 54
has created new uncertainty about how broadly these decisions should apply to plan mergers in
the future.

In the Transamerica decision, the Ontario Court of Appeal held that surplus assets derived from
a pension plan that was subject to a trust could not be used to fund liabilities of another plan that
was not subject to that trust. Transamerica could apply broadly to discourage plan mergers any
time there is a trust because it seems to prohibit any transfer of assets that does not protect the
pension benefits and other benefits of exporting plan members.            The Divisional Court in
National Steel Car, however, appears to limit the scope of Transamerica because it suggests that
Transamerica only applies when a plan is subject to a trust that specifically precludes a plan
merger.

Similarly, the Divisional Court stresses that in the Buschau case, where plan beneficiaries were
found to be entitled to segregation and an accounting of their trust assets following the merger of
their plan with another, the trust documents at issue did not preclude a merger. Therefore, the
merger was allowed to proceed as long as the trust assets were segregated.

The Court's treatment of Transamerica and Buschau would suggest that when there is a trust,
plan mergers are permitted as long as the plan does not expressly prohibit mergers. On the other
hand, in following the British Columbia Court of Appeal in Bower v. Cominco Limited (2003),
the Divisional Court seems to state that when there is a trust, plan mergers are permitted if the
trust expressly allows for a merger. This second approach is less conducive to future plan
mergers when a plan is subject to a trust.

In other words, it is unclear whether the Divisional Court in National Steel Car would prohibit
plan mergers when there is a trust unless mergers are expressly permitted, or whether it would
permit plan mergers when there is a trust unless the merger is expressly prohibited. This
uncertainty will surely lead to further litigation on these issues.

Pension Plan Wind-Up

19. Cape Breton Development Corp. (Devco) v. United Mine Workers of America et al., [2004]
                                         C.L.A.D. No. 492.




                                                                                                  55
A recent arbitration decision of retired Supreme Court of Canada Justice Peter Cory, dealt with
whether the surplus funds of the Non-Contributory and Contributory Pension Plans established
for the benefit of the employees, former employees and their dependants of the Cape Breton
Development Corporation ("Devco") are impressed with a trust in favour of the beneficiaries.
Arbitrator Cory ultimately found that the Cape Breton coal miners were entitled to $40 million in
pension surplus funds.

Background

In 1967, the coal mining industry was the major employer in Cape Breton. However, the
industry was in a state of crisis and it was expected that the mines would be economically
exhausted within the next 15 years. In 1968, Parliament enacted the Cape Breton Development
Corporation Act (the "Act"), establishing Devco. Devco's Coal Division was to provide for the
reorganization, operation and orderly closure of the mines, while the Industrial Development
Division would prepare for the re-education of Cape Bretonners into other types of work.

Section 18 of the Act provided that Devco shall "provide for the establishment, management and
administration of (i) pension arrangements for the benefit of persons, and dependants of persons,
employed by [Devco] in connection with the coal mining and related works and undertakings" of
Devco. This provision also provided pension benefits for employees of predecessor corporations
whose work Devco was to take over.

Section 20(2) of the Act required that all moneys received by Devco "be administered and
expended by [Devco] exclusively in the exercise and performance of the powers, duties and
functions" in relation to its Coal Division.

The provisions in the Act pertaining to funding demonstrate that the main objective of the Act
was to provide for the welfare of employees of Devco and former employees of Devco's
predecessor companies. The Act as a whole provided Devco with broad powers so that the
closure of the mines would be effected with as much benefit as possible to the miners, and with
as minimal detriment as possible to the Cape Breton economy.

The Pension Plans



                                                                                              56
From 1968 continuing into 1973, Devco made the requisite monthly pension payments for Devco
and for the employees of its predecessor companies. Such funds were provided to Devco by the
governments of Canada and Nova Scotia.

The Non-Contributory Plan

Based on Devco's obligations, a 1968 bylaw granted pensions to employees of Devco and its
predecessor companies (the "1968 Bylaw"). The Bylaw provided that "in the event that the plan
was terminated, the fund was to be applied by the pension board in an equitable manner and in
accordance with the winding up provisions of the Pension Benefits Standards Act for the benefit
of pensioners and employees." This provision made it clear that the pension funds, and by
extension any surplus, were for the exclusive benefit of the employees.        The 1968 Non-
Contributory Plan (the "1968 Plan") contained the same provision as the Bylaw in regard to plan
termination.

The 1973 Non-Contributory Plan consolidation (the "1973 Plan") contained an almost identical
provision with respect to termination as the 1968 Bylaw and Plan, further supporting that all
pension funds were for the benefit of the employees.       There was no provision stipulating
payment of any pension funds to Devco. In 1983, however, the Plan was amended to provide
surplus to Devco upon the satisfaction of all pension obligations. No notice was provided to the
Plan beneficiaries of this amendment.

The Contributory Plan

The Contributory Pension Plan came into effect in April 1974 as a way to "top up" the Non-
Contributory Plan. This Plan was the result of an agreement between the union and Devco. The
trust agreement between Devco and Montreal Trust in regard to this Plan contained a provision
providing surplus to Devco.

The Decision of the Arbitrator

Arbitrator Cory interpreted the Act in accordance with the principles articulated by the Supreme
Court of Canada in Bell ExpressVu Limited Partnership v. Rex, [2002] S.C.R. 559 and Monsanto
Canada Inc. v. Ontario (Superintendent of Financial Services) 2004 S.C.C. 54 (QL), finding that


                                                                                             57
the statute was enacted at a time of emergency and that the miners were to be protected by an
orderly closure of the mines. According to Cory, the intent and purpose of the Act was to
provide benefits to the miners, as mandated by section 18. Cory stated:

               This means that all funds derived from the pension plans were to be used for the
               benefit of the miners and not diverted to Devco.

               …

               There is no suggestion in the Act nor any inference that can be drawn from it
               that the pension arrangements were to benefit Devco or that their fund or any
               part of their funds were to accrue to the benefit of Devco.


Arbitrator Cory noted that Tom Kent, President and chief executive officer of Devco at the time
of the enactment of the 1973 Bylaw stated in his affidavit, that the Plan was to "safeguard
Devco's employees against an uncertain future" and that the Plan was "deferred income of the
employees belonging in the future to them and their dependants, not to Devco."

Arbitrator Cory applied the analysis in the leading pension surplus decision of Schmidt v. Air
Products Canada Ltd., [1994] 2 S.C.R. 611, which he had authored during his time on the
Supreme Court bench. With respect to the Non-Contributory Plan, the Schmidt analysis first
addressed whether the pension plan was impressed with a trust.                      Cory rejected Devco's
contention that to set up a trust without a fund, as was done in this case, is to create a shell
without content and, consequently, a trust was never created. To constitute a trust, the settlor
must alienate the trust property or declare itself to be a trustee with respect to its own property.
Cory found that the intention to create a trust is clear from the 1968 and 1973 Plans which create
an irrevocable trust for the exclusive benefit of the employees.                 Further, Devco's monthly
pension contributions "amounted to proof of the intention and the determination of Devco to part
with its interest in the asset". In short, all funds received by Devco were impressed with a trust
to provide pensions to the miners.

According to Arbitrator Cory, even if the pension payments made from 1968 to 1973 were not
paid pursuant to a trust agreement, the 1973 Bylaw created a trust arrangement. Given that
neither the 1973 Bylaw nor the trust agreement of that year were revoked, the trust funds were
impressed with a trust pursuant to that Bylaw.


                                                                                                      58
The next question in the Schmidt analysis concerned whether the rights of the beneficiaries
included surplus entitlement. The Arbitrator noted that it has been held that, in the absence of
language to the contrary, a trust will extend to the surplus [see Schmidt and Markle v. Toronto
(City) (2003), 63 O.R. (3d) 321 (C.A.)]

Although Devco argued that the 1974 Trust Agreement, and subsequent agreements, provided
that any surplus would be paid to Devco, Arbitrator Cory rejected this position, finding that
Devco did not reserve a power of revocation. As a result, and because the trust in its original
form and in 1973 provided that all funds were the property of the beneficiaries, Devco's
purported revocation was not valid (and would be contrary to the terms of the Act). Cory found:

              In this case, Devco's empowering statute imposed an obligation upon it to pay
              pension benefits to the employees.        Devco owed a fiduciary duty to the
              employees to fulfill the terms of its obligations. In these circumstances, it would
              be inequitable to allow the employer to use a broad and unilateral amending
              power as a means of revoking the trust.


On the matter of statutory pension plans, Arbitrator Cory cited Markle and Canadian Union of
Public Employees v. Ontario Hydro (1989), 68 O.R. (2d) 620 for the principle that if a statute or
bylaw creates a pension plan, the trust is a classic trust to which trust principles apply.
Consequently, the trust cannot be revoked unless the settlor reserved an express power of
revocation. The arbitrator reiterated that the Act included a statutory obligation to provide
pensions and provided that all funds in the trust existed exclusively for the benefit of the
beneficiaries. He concluded that the surplus of the Non-Contributory Plan fund must be paid to
its beneficiaries, being the employees of Devco and its predecessor companies.

Arbitrator Cory reached similar conclusions with respect to the surplus of the Contributory Plan,
noting that section 18 of the Act directs Devco to provide for the establishment, management and
administration of "pension arrangements", with such arrangements being for the benefit of the
employees of Devco and its predecessor companies. Consequently, applying Guerin v. Canada,
[1984] 2 S.C.R. 335, he found that because the Act imposes a fiduciary duty upon Devco to
establish the pension fund for the benefit of employees, Devco must act in good faith and it
cannot exercise its powers so as to personally benefit from the relationship. Accordingly, Cory



                                                                                                    59
concluded that the surplus funds in the Contributory Plan must also go to the employees of
Devco and its predecessor companies.

At the end of the decision, Arbitrator Cory notes this case's uniqueness in light of its governing
statute. While this may be true, particularly in that the Act seeks to benefit the miners and their
dependents, who can contribute to the Cape Breton economy, the language of section 18 is quite
basic. That he ruled that the language of this provision was sufficient to impose an obligation on
Devco to pay pensions to its employees, and that Devco owed the miners a fiduciary duty to
fulfill this obligation and could not use its broad amending power as a means of revoking the
trust, makes this case significant in that it confirms the low bar, intended by the Supreme Court
in Schmidt, to establish surplus entitlement on the part of employees.



 20. Imperial Oil Ltd. v. Atlantic Oil Workers Union, Local No. 1, [2004] N.S.J. No. 380 (N.S.
                                              S.C.)

The Nova Scotia Supreme Court held that employees were unjustly enriched when they collected
severance and enhanced pension benefits under a separation agreement, in addition to grow-in
benefits pursuant to a partial wind-up of their pension plan directed by the Superintendent of
Pensions. In the course of its reasons, the Court confirmed that the Pensions Benefit Act is an
employment related statute, establishing a floor below which an employer cannot contract.

Background

The plaintiff was the successor owner and operator of a Texaco refinery in Nova Scotia where
the defendant employees (collectively, the "Employees") worked. Some of the defendants were
members of the defendant union (the "Union"). Texaco administered a non-contributory pension
plan for the employees (the "Plan"). In 1988, in light of a contemplated share sale, Texaco
adopted the Texaco Canada Severance Allowance Program ("TCSAP"), which provided
employees with a lump sum cash payment upon termination without cause within 24 months of a
"change in control" of the company. The TCSAP also provided enhanced pension benefits
through amendments to the Plan. Acceptance of the severance package required each employee
to release the employer from all claims upon termination, including pension issues and "any
benefits or allowance prescribed by employment statutes."

                                                                                                60
Imperial Oil (the "Company") took control of the refinery in 1989 and kept the TCSAP program.
In 1990, the Company sold the refinery to a third party, which resulted in the termination of
many employees who participated in the TCSAP program. Some of these same employees were
concerned about preserving their pension benefits after the transfer of the Plan to the third party,
and applied to the Superintendent of Pensions for a partial wind-up of the Plan. The partial
wind-up was granted and unsuccessfully appealed by the Company.               The partial wind-up
triggered grow-in benefits for some employees under s. 79 of the Nova Scotia Pension Benefits
Act.

Decision of the Court

The Company brought an action in the Nova Scotia Superior Court against the Employees who
had applied for the partial wind-up. The company asserted that the Employees had breached their
contractual obligation under the release by seeking the partial wind-up, and that it was thereby
entitled to recover the TCSAP payments made to them.

Preliminary Issues

The Court first determined several preliminary matters. It found that it had jurisdiction to hear
the claim against the unionized employees, as no provisions could be found in the collective
agreement or the Trade Union Act to place the issue within the exclusive jurisdiction of an
arbitrator. It was unclear to the Court whether resolution of pension issues could fall within an
arbitrator's jurisdiction where the pension plan was not incorporated into the collective
agreement. Next, the Court determined that the Company's claim had not previously been
determined in the pension wind-up proceeding; as it was not the same cause of action. Further,
the Company was not administering a collateral attack, as the claim at issue before the court was
to determine the relationship between the TCSAP and the wind-up order, or to interpret both the
TCSAP and the release signed by the employees in the context of the wind-up order.

Employment Statute

The Court then moved to determine whether the Pension Benefits Act was an "employment
statute" within the meaning of TCSAP. The term was not defined within the program text. The
Court referred to Parry Sound (District) Social Services Administration Board v. O.P.S.E.U.,
Local 324 (2003), 230 D.L.R. (4th) 257 where the court discussed "employment-related statutes"

                                                                                                 61
as legislation which establishes a floor beneath which the employer cannot contract. Any
distinction, as posited by the defendants, between an "employment statute" and an "employment-
related statute" was rejected. Moreover, if the defendants intended to rely on the jurisdiction of
the arbitrator, they could not contend that a pension plan was not employment related.
Therefore, the Pension Benefits Act was found to be an employment statute.

Breach of Release

The Court determined that the Employees had not breached the release by seeking and obtaining
a wind-up order. The language of the release did not specifically prohibit an application to the
Superintendent, but rather released specific named companies.

Unjust Enrichment

Even though the Employees had not breached the release, the Court held that they had been
unjustly enriched by receiving both the TCSAP and grow-in benefits, and that the Company was
correspondingly deprived of the funds it paid out.

The Court found that while there may be circumstances in which a pension plan or a collective
agreement may provide a juristic reason for unjust enrichment, this was not such a situation.
Here, the collective agreement and the Plan were to be considered in light of the TCSAP
agreement, and therefore no juristic reason existed.

The Employees took the position that there is a distinction between pension benefits and other
income benefits. In previous cases, courts have held that other employment benefits should be
paid regardless of whether grow-in benefits are provided. The Court made an analogy with
wrongful dismissal damages, wherein it has been held that pension benefits should not be
deducted from any damages award. Similarly, it has been previously held that benefits should be
considered part of the wage package and thus paid for by the employee. In the wrongful
dismissal context, where an employee was drawing early retirement benefits during the notice
period, it was held that pension benefits should be non-deductible from compensation for lost
salary. Ultimately, however, the court found the analogies to other employment income benefits
unpersuasive. The explicit terms of the TCSAP stated that the purpose of the system was to
provide for severance and pension entitlements. Thus, it could not suffice as a juristic reason for
the Employees enrichment.

                                                                                                62
The Employees also argued that the TCSAP was a contractual obligation assumed by the
Company, and that TCSAP payments were to compensate for the termination of employment,
while the grow-in payments were to compensate for the absence of a comparable pension plan
under the new owners. The Court accepted the Company's submission that the unjust enrichment
did not arise from receiving the pension amounts, but rather from retaining the TCSAP payments
and seeking and receiving the pension amounts. Therefore, the Employees were compensated
twice without a juristic reason.                             There was no suggestion that this result was within the
reasonable contemplation of the parties at the time the TCSAP was negotiated.

The Court also stated, although it was unnecessary for its decision, that the release was not an
illegal contract. The benefits available under TCSAP could have exceeded the benefits available
under all applicable legislation and the wind-up order. Furthermore, it was not a certainty that
the Superintendent would issue the wind-up order, and thus it was not an absolute statutory
benefit to which they were entitled. Even if the contract was illegal, the Court would still apply
unjust enrichment principles to deny the Employees the double benefits.

Thus, the Court held that the Employees who had collected both the TCSAP benefits and the
grow-in benefits under the wind-up order had been unjustly enriched. The Court made no
finding as to remedy.




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