SUPREME
COURT OF CANADA
Citation:
Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1
S.C.R. 271
|
Date:
20130201
Docket:
34308
|
Between:
Sun
Indalex Finance, LLC
Appellant
and
United
Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken
Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio,
Neil Fraser, Richard Smith, Robert Leckie and Fred Granville
Respondents
And
Between:
George
L. Miller, the Chapter 7 Trustee of the Bankruptcy Estates
of
the U.S. Indalex Debtors
Appellant
and
United
Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken
Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio,
Neil Fraser, Richard Smith, Robert Leckie and Fred Granville
Respondents
And
Between:
FTI
Consulting Canada ULC, in its capacity as court-appointed monitor of Indalex
Limited, on behalf of Indalex Limited
Appellant
and
United
Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken
Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio,
Neil Fraser, Richard Smith, Robert Leckie and Fred Granville
Respondents
And
Between:
United
Steelworkers
Appellant
and
Morneau
Shepell Ltd. (formerly known as Morneau Sobeco Limited Partnership) and
Superintendent of Financial Services
Respondents
-
and -
Superintendent
of Financial Services, Insolvency Institute of Canada, Canadian Labour
Congress, Canadian Federation of Pensioners, Canadian Association of Insolvency
and Restructuring Professionals and Canadian Bankers Association
Interveners
Coram: McLachlin C.J. and LeBel, Deschamps, Abella, Rothstein,
Cromwell and Moldaver JJ.
Reasons for
Judgment:
(paras. 1 to 84)
Reasons
Concurring in Result With Those of Deschamps J.:
(paras. 85 to 262)
Dissenting
Reasons:
(paras. 263 to 280)
|
Deschamps J. (Moldaver J. concurring)
Cromwell J. (McLachlin C.J. and Rothstein J. concurring)
LeBel J. (Abella J. concurring)
|
Sun Indalex Finance, LLC v. United Steelworkers,
2013 SCC 6, [2013] 1 S.C.R. 271
Sun Indalex Finance, LLC Appellant
v.
United Steelworkers, Keith Carruthers, Leon
Kozierok,
Richard Benson, John Faveri, Ken
Waldron,
John (Jack) W. Rooney, Bertram McBride,
Max Degen, Eugene D’Iorio, Neil Fraser,
Richard Smith,
Robert Leckie
and Fred Granville Respondents
- and -
George L. Miller, the Chapter 7 Trustee of the Bankruptcy
Estates of the U.S. Indalex
Debtors Appellant
v.
United Steelworkers, Keith Carruthers, Leon
Kozierok,
Richard Benson, John Faveri, Ken
Waldron,
John (Jack) W. Rooney, Bertram McBride,
Max Degen, Eugene D’Iorio, Neil Fraser,
Richard Smith,
Robert Leckie
and Fred Granville Respondents
- and -
FTI Consulting Canada ULC, in its capacity as court-appointed
monitor of Indalex Limited, on
behalf of Indalex Limited Appellant
v.
United
Steelworkers, Keith Carruthers, Leon Kozierok,
Richard
Benson, John Faveri, Ken Waldron,
John
(Jack) W. Rooney, Bertram McBride,
Max Degen, Eugene D’Iorio, Neil Fraser,
Richard Smith,
Robert Leckie
and Fred Granville Respondents
- and -
United Steelworkers Appellant
v.
Morneau Shepell Ltd. (formerly known as
Morneau Sobeco
Limited
Partnership) and Superintendent of Financial Services Respondents
and
Superintendent of Financial Services,
Insolvency Institute of Canada,
Canadian Labour Congress,
Canadian Federation of Pensioners,
Canadian Association of Insolvency and
Restructuring Professionals and
Canadian Bankers Association Interveners
Indexed as: Sun Indalex Finance, LLC v. United Steelworkers
2013 SCC 6
File No.: 34308.
2012: June 5; 2013: February 1.
Present: McLachlin C.J. and LeBel, Deschamps, Abella,
Rothstein, Cromwell and Moldaver JJ.
on appeal from the court of appeal for ontario
Pensions
— Bankruptcy and Insolvency — Priorities — Company who was both employer and
administrator of pension plans seeking protection from creditors under
Companies’ Creditors Arrangement Act (“CCAA ”) — Pension funds not having
sufficient assets to fulfill pension promises made to plan members — Company
entering into debtor in possession (“DIP”) financing allowing it to continue to
operate — CCAA court granting priority to DIP lenders — Proceeds of sale of
business insufficient to pay back DIP lenders — Whether pension wind-up
deficiencies subject to deemed trust — If so, whether deemed trust superseded
by CCAA priority by virtue of doctrine of federal paramountcy — Pension
Benefits Act, R.S.O. 1990, c. P.8, ss. 57(3), (4), 75(1)(a), (b) — Companies’
Creditors Arrangement Act, R.S.C. 1985, c. C-36 .
Pensions — Trusts — Company who was both
employer and administrator of pension plans seeking protection from creditors
under CCAA — Pension funds not having sufficient assets to fulfill pension
promises made to plan members — Whether pension wind-up deficiencies subject to
deemed trust — Whether company as plan administrator breached fiduciary duties —
Whether pension plan members are entitled to constructive trust.
Civil Procedure — Costs — Appeals — Standard of
review — Whether Court of Appeal erred in costs endorsement concerning one
party.
Indalex
Limited (“Indalex”), the sponsor and administrator of two employee pension
plans, one for salaried employees and the other for executive employees, became
insolvent. Indalex sought protection from its creditors under the Companies’
Creditors Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA ”). The
salaried plan was being wound up when the CCAA proceedings began. The
executive plan had been closed but not wound up. Both plans had wind-up
deficiencies.
In
a series of court-sanctioned steps, the company was authorized to enter into
debtor in possession (“DIP”) financing in order to allow it to continue to
operate. The CCAA court granted the DIP lenders, a syndicate of pre-filing
senior secured creditors, priority over the claims of all other creditors. Repayment
of these amounts was guaranteed by Indalex U.S.
Ultimately,
with the approval of the CCAA court, Indalex sold its business but the
purchaser did not assume pension liabilities. The proceeds of the sale were
not sufficient to pay back the DIP lenders and so Indalex U.S., as guarantor,
paid the shortfall and stepped into the shoes of the DIP lenders in terms of
priority. The CCAA court authorized a payment in accordance with the
priority but ordered an amount be held in reserve, leaving the plan members’
arguments on their rights to the proceeds of the sale open for determination
later.
The
plan members challenged the priority granted in the CCAA proceedings. They
claimed that they had priority in the amount of the wind-up deficiency by
virtue of a statutory deemed trust under s. 57(4) of the Pension Benefits
Act, R.S.O. 1990, c. P.8 (“PBA”), and a constructive trust arising
from Indalex’s alleged breaches of fiduciary duty as administrator of the
pension funds. The judge at first instance dismissed the plan members’ motions
concluding that the deemed trust did not apply to wind up deficiencies. He
held that, with respect to the wind-up deficiency, the plan members were
unsecured creditors. The Court of Appeal reversed this ruling and held that
the pension plan wind-up deficiencies were subject to deemed and constructive
trusts which had priority over the DIP financing priority and over other
secured creditors. In addition, the Court of Appeal rejected a claim brought
by the United Steelworkers, which represented some members of the salaried
plan, seeking payment of its costs from the latter’s pension fund.
Held
(LeBel and Abella JJ. dissenting): The
Sun Indalex Finance, George L. Miller and FTI Consulting appeals should be
allowed.
Held: The United Steelworkers appeal should be dismissed.
(1) Statutory
Deemed Trust
Per Deschamps and Moldaver JJ.: It is common ground that the contributions
provided for in s. 75(1)(a) of the PBA are covered by the deemed
trust contemplated by s. 57(4) of the PBA. The only question is
whether this statutory deemed trust also applies to the wind-up deficiency
payments required by s. 75(1)(b). The response to this question as it
relates to the salaried employees is affirmative in view of the provision’s
wording, context and purpose. The situation is different with respect to the
executive plan as s. 57(4) provides that the wind-up deemed trust comes
into existence only when the plan is wound up.
The
wind-up deemed trust provision (s. 57(4) PBA) does not place an
express limit on the “employer contributions accrued to the date of the wind up
but not yet due”. Section 75(1)(a) explicitly refers to “an amount equal
to the total of all payments” that have accrued, even those that were
not yet due as of the date of the wind up, whereas s. 75(1)(b)
contemplates an “amount” that is calculated on the basis of the value of assets
and of liabilities that have accrued when the plan is wound up. Since
both the amount with respect to payments (s. 75(1)(a)) and the one
ascertained by subtracting the assets from the liabilities accrued as of the
date of the wind up (s. 75(1)(b)) are to be paid upon wind up as employer
contributions, they are both included in the ordinary meaning of the words of s. 57(4)
of the PBA: “amount of money equal to employer contributions accrued to
the date of the wind up but not yet due under the plan or regulations”.
The
time when the calculation is actually made is not relevant as long as the
liabilities are assessed as of the date of the wind up. The
fact that the precise amount of the contribution is not determined as of the
time of the wind up does not make it a contingent contribution that cannot have
accrued for accounting purposes. As a result, the words “contributions
accrued” can encompass the contributions mandated by s. 75(1)(b) of the PBA.
It
can be seen from the legislative history that the protection has expanded from
(1) only the service contributions that were due, to (2) amounts
payable calculated as if the plan had been wound up, to (3) amounts that
were due and had accrued upon wind up but excluding the wind-up deficiency
payments, to (4) all amounts due and accrued upon wind up. Therefore, the
legislative history leads to the conclusion that adopting a narrow
interpretation that would dissociate the employer’s payment provided for in s. 75(1)(b)
of the PBA from the one provided for in s. 75(1)(a) would be
contrary to the Ontario legislature’s trend toward broadening the protection.
The
deemed trust provision is a remedial one. Its purpose is to protect the
interests of plan members. The remedial purpose favours an approach that
includes all wind-up payments in the value of the deemed trust. In this case,
the Court of Appeal correctly held with respect to the salaried plan, that
Indalex was deemed to hold in trust the amount necessary to satisfy the wind-up
deficiency.
Per LeBel and Abella JJ.: There is agreement with the reasons of
Deschamps J. on the statutory deemed trust issue.
Per McLachlin C.J. and Rothstein and Cromwell JJ.: Given
that there can be no deemed trust for the executive plan because that plan had
not been wound up at the relevant date, the main issue in connection with the
salaried plan boils down to the narrow statutory interpretative question of
whether the wind-up deficiency provided for in s. 75(1)(b) is “accrued to
the date of the wind up” as required by s. 57(4) of the PBA.
When
the term “accrued” is used in relation to a sum of money, it will generally
refer to an amount that is at the present time either quantified or exactly
quantifiable but which may or may not be due. In the present case, s. 57(4)
uses the word “accrued” in contrast to the word “due”. Given the ordinary
meaning of the word “accrued”, the wind-up deficiency cannot be said to have
“accrued” to the date of wind up. The extent of the wind-up deficiency depends on employee
rights that arise only upon wind up and with respect to which employees make
elections only after wind up. The wind-up deficiency therefore
is neither ascertained nor ascertainable on the date fixed for wind up.
The
broader statutory context reinforces the view according to which the most
plausible grammatical and ordinary sense of the words “accrued to the date of
wind up” is that the amounts referred to are precisely ascertained immediately
before the effective date of the plan’s wind up. Moreover, the legislative
evolution and history of the provisions at issue show that the legislature
never intended to include the wind-up deficiency in a statutory deemed trust. Rather,
they reinforce the legislative intent to exclude from the deemed trust
liabilities that arise only on the date of wind up.
The
legislation differentiates between two types of employer liability relevant to
this case. The first is the contributions required to cover current service
costs and any other payments that are either due or have accrued on a daily
basis up to the relevant time. These are the payments referred to in the
current s. 75(1)(a), that is, payments due or accrued but not paid. The
second relates to additional contributions required when a plan is wound up
which I have referred to as the wind-up deficiency. These payments are
addressed in s. 75(1)(b). The legislative history and evolution show that
the deemed trusts under s. 57(3) and (4) were intended to apply only to
the former amounts and that it was never the intention that there should be a
deemed trust or a lien with respect to an employer’s potential future
liabilities that arise once the plan is wound up.
In
this case, the s. 57(4) deemed trust does not apply to the wind-up
deficiency. This conclusion to exclude the wind-up deficiency from the deemed
trust is consistent with the broader purposes of the legislation. The legislature has created trusts over
contributions that were due or accrued to the date of the wind up in order to
protect, to some degree, the rights of pension plan beneficiaries and employees
from the claims of the employer’s other creditors. However, there is also good
reason to think that the legislature had in mind other competing objectives in
not extending the deemed trust to the wind-up deficiency. While the protection of pension plans is an important objective, it
is not for this Court to decide the extent to which that objective will be
pursued and at what cost to other interests. The decision as to the level of
protection that should be provided to pension beneficiaries under the PBA
is one to be left to the Ontario legislature.
(2) Priority Ranking
Per Deschamps and Moldaver JJ.: A statutory deemed trust under provincial
legislation such as the PBA continues to apply in federally-regulated CCAA
proceedings, subject to the doctrine of federal paramountcy. In this case, granting
priority to the DIP lenders subordinates the claims of other stakeholders,
including the plan members. This court-ordered priority based on the CCAA
has the same effect as a statutory priority. The federal and provincial laws
are inconsistent, as they give rise to different, and conflicting, orders of
priority. As a result of the application of the doctrine of federal
paramountcy, the DIP charge supersedes the deemed trust.
Per McLachlin C.J. and Rothstein and Cromwell JJ.: Although there
is disagreement with Deschamps J. in connection with the scope of the s. 57(4)
deemed trust, it is agreed that if there was a deemed trust in this case, it
would be superseded by the DIP loan because of the operation of the doctrine of
federal paramountcy.
Per LeBel and Abella JJ.: There is agreement with the reasons of
Deschamps J. on the priority ranking issue as determined by operation of the
doctrine of federal paramountcy.
(3) Constructive
Trust as a Remedy for Breach of Fiduciary Duties
Per McLachlin C.J. and Rothstein and Cromwell JJ.: It cannot
be the case that a conflict of interests arises simply because an employer,
exercising its management powers in the best interests of the corporation, does
something that has the potential to affect the beneficiaries of the
corporation’s pension plan. This conclusion flows inevitably from the statutory
context. The existence of apparent conflicts that are inherent in the two roles
of employer and pension plan administrator being performed by the same party
cannot be a breach of fiduciary duty because those conflicts are specifically
authorized by the statute which permits one party to play both roles. Rather,
a situation of conflict of interest occurs when there is a substantial risk
that the employer-administrator’s representation of the plan beneficiaries
would be materially and adversely affected by the employer-administrator’s
duties to the corporation.
Seeking
an initial order protecting the corporation from actions by its creditors did
not, on its own, give rise to any conflict of interest or duty on the part of
Indalex. Likewise, failure to give notice of the initial CCAA
proceedings was not a breach of fiduciary duty to avoid conflicts of interest in
this case. Indalex’s decision to act as an employer-administrator cannot give
the plan members any greater benefit than they would have if their plan was
managed by a third party administrator.
It
was at the point of seeking and obtaining the DIP orders without notice to the
plan beneficiaries and seeking and obtaining the sale approval order that
Indalex’s interests as a corporation came into conflict with its duties as a
pension plan administrator. However, the difficulty that arose here was not
the existence of the conflict itself, but Indalex’s failure to take steps so
that the plans’ beneficiaries would have the opportunity to have their interests
protected in the CCAA proceedings as if the plans were administered by
an independent administrator. In short, the difficulty was not the existence of
the conflict, but the failure to address it.
An
employer-administrator who finds itself in a conflict must bring the conflict
to the attention of the CCAA judge. It is not enough to include the
beneficiaries in the list of creditors; the judge must be made aware that the
debtor, as an administrator of the plan is, or may be, in a conflict of interest.
Accordingly, Indalex breached its fiduciary duty by failing to take steps to
ensure that the pension plans had the opportunity to be as fully represented in
those proceedings as if there had been an independent plan administrator,
particularly when it sought the DIP financing approval, the sale approval and a
motion to voluntarily enter into bankruptcy.
Regardless
of this breach, a remedial constructive trust is only appropriate if the
wrongdoer’s acts give rise to an identifiable asset which it would be unjust
for the wrongdoer (or sometimes a third party) to retain. There is no evidence
to support the contention that Indalex’s failure to meaningfully address
conflicts of interest that arose during the CCAA proceedings resulted in
any such asset. Furthermore, to impose a constructive trust in response to a
breach of fiduciary duty to ensure for the pension plans some procedural
protections that they in fact took advantage of in any case is an unjust
response in all of the circumstances.
Per Deschamps and Moldaver JJ.: A corporate employer that chooses
to act as plan administrator accepts the fiduciary obligations attached to that
function. Since the directors of a corporation also have a fiduciary duty to
the corporation, the corporate employer must be prepared to resolve conflicts
where they arise. An employer acting as a plan administrator is not permitted
to disregard its fiduciary obligations to plan members and favour the competing
interests of the corporation on the basis that it is wearing a “corporate hat”.
What is important is to consider the consequences of the decision, not its
nature.
In
the instant case, Indalex’s fiduciary obligations as plan administrator did in
fact conflict with management decisions that needed to be taken in the best
interests of the corporation. Specifically, in seeking to have a court approve
a form of financing by which one creditor was granted priority over all other
creditors, Indalex was asking the CCAA court to override the plan members’
priority. The corporation’s interest was to seek the best possible avenue to
survive in an insolvency context. The pursuit of this interest was not
compatible with the plan administrator’s duty to the plan members to ensure
that all contributions were paid into the funds. In the context of this case,
the plan administrator’s duty to the plan members meant, in particular, that it
should at least have given them the opportunity to present their arguments. This
duty meant, at the very least, that they were entitled to reasonable notice of
the DIP financing motion. The terms of that motion, presented without
appropriate notice, conflicted with the interests of the plan members.
As
for the constructive trust remedy, it is settled law that proprietary remedies
are generally awarded only with respect to property that is directly related to
a wrong or that can be traced to such property. There is agreement with
Cromwell J. that this condition was not met in the case at bar and his
reasoning on this issue is adopted. Moreover, it was unreasonable for the Court
of Appeal to reorder the priorities in this case.
Per LeBel and Abella JJ. (dissenting): A fiduciary relationship
is a relationship, grounded in fact and law, between a vulnerable beneficiary
and a fiduciary who holds and may exercise power over the beneficiary in
situations recognized by law. It follows that before entering into an analysis
of the fiduciary duties of an employer as administrator of a pension plan under
the PBA, it is necessary to consider the position and characteristics of
the pension beneficiaries. In the present case, the beneficiaries were in a
very vulnerable position relative to Indalex.
Nothing
in the PBA allows that the employer qua administrator will
be held to a lower standard or will be subject to duties and obligations that
are less stringent than those of an independent administrator. The employer is
under no obligation to assume the burdens of administering the pension plans
that it has agreed to set up or that are the legacy of previous decisions. However,
if it decides to do so, a fiduciary relationship is created with the
expectation that the employer will be able to avoid or resolve the conflicts of
interest that might arise.
Indalex
was in a conflict of interest from the moment it started to contemplate putting
itself under the protection of the CCAA and proposing an arrangement to
its creditors. From the corporate perspective, one could hardly find fault
with such a decision. It was a business decision. But the trouble is that at
the same time, Indalex was a fiduciary in relation to the members and retirees
of its pension plans. The solution was not to place its function as
administrator and its associated fiduciary duties in abeyance. Rather, it had
to abandon this role and diligently transfer its function as manager to an
independent administrator.
In
the present case, the employer not only neglected its obligations towards the
beneficiaries, but actually took a course of action that was actively inimical
to their interests. The seriousness of these breaches amply justified the
decision of the Court of Appeal to impose a constructive trust.
(4) Costs in United Steelworkers Appeal
Per McLachlin C.J. and Rothstein and Cromwell JJ.: There is
no basis to interfere with the Court of Appeal’s costs endorsement as it
relates to United Steelworkers in this case. The litigation undertaken here
raised novel points of law with all of the uncertainty and risk inherent in
such an undertaking. The Court of Appeal in essence decided that the United Steelworkers,
representing only 7 of 169 members of the salaried plan, should not without
consultation be able to in effect impose the risks of that litigation on all of
the plan members, the vast majority of whom were not union members. There is no
error in principle in the Court of Appeal’s refusal to order the United Steelworkers
costs to be paid out of the pension fund, particularly in light of the
disposition of the appeal to this Court.
Per Deschamps and Moldaver JJ.: There is agreement with the
reasons of Cromwell J. on the issue of costs in the United Steelworkers appeal.
Per LeBel and Abella JJ.: There is agreement with the reasons of
Cromwell J. on the issue of costs in the United Steelworkers appeal.
Cases Cited
By Deschamps J.
Referred
to: Husky Oil Operations Ltd. v. Minister of National Revenue,
[1995] 3 S.C.R. 453; Hydro-Electric Power Commission of Ontario v. Albright
(1922), 64 S.C.R. 306; Canadian Pacific Ltd. v. M.N.R. (1998), 41 O.R.
(3d) 606; Century Services Inc. v. Canada (Attorney General), 2010 SCC
60, [2010] 3 S.C.R. 379; Crystalline Investments Ltd. v. Domgroup Ltd.,
2004 SCC 3, [2004] 1 S.C.R. 60; Canadian Western Bank v. Alberta, 2007
SCC 22, [2007] 2 S.C.R. 3; Attorney General of Canada v. Law Society of
British Columbia, [1982] 2 S.C.R. 307; Burke v. Hudson’s Bay Co.,
2010 SCC 34, [2010] 2 S.C.R. 273; Canada Deposit Insurance Corp. v. Canadian
Commercial Bank, [1992] 3 S.C.R. 558.
By Cromwell J.
Referred
to: Century Services Inc. v. Canada (Attorney General), 2010 SCC
60, [2010] 3 S.C.R. 379; Bell ExpressVu Limited Partnership v. Rex, 2002
SCC 42, [2002] 2 S.C.R. 559; Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R.
53; Hydro-Electric Power Commission of Ontario v. Albright (1922), 64
S.C.R. 306; Canadian Pacific Ltd. v. M.N.R. (1998), 41 O.R. (3d) 606; Canada
(Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53,
[2011] 3 S.C.R. 471; Monsanto Canada Inc. v. Ontario (Superintendent of
Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152; Burke v. Hudson’s
Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273, aff’g 2008 ONCA 394, 67 C.C.P.B.
1; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2
S.C.R. 261; Lac Minerals Ltd. v. International Corona Resources Ltd.,
[1989] 2 S.C.R. 574; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd.,
2011 SCC 23, [2011] 2 S.C.R. 175; Galambos v. Perez, 2009 SCC 48, [2009]
3 S.C.R. 247; K.L.B. v. British Columbia, 2003 SCC 51, [2003] 2 S.C.R.
403; Strother v. 3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177; BCE
Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; R. v.
Neil, 2002 SCC 70, [2002] 3 S.C.R. 631; Elan Corp. v. Comiskey
(1990), 41 O.A.C. 282; Algoma Steel Inc., Re (2001), 25 C.B.R. (4th) 194;
Marine Drive Properties Ltd., Re, 2009 BCSC 145, 52 C.B.R. (5th) 47; Timminco
Ltd., Re, 2012 ONSC 506, 85 C.B.R. (5th) 169; AbitibiBowater inc.
(Arrangement relatif à), 2009 QCCS 6459 (CanLII); First Leaside Wealth
Management Inc. (Re), 2012 ONSC 1299 (CanLII); Nortel Networks Corp., Re
(2009), 75 C.C.P.B. 206; Royal Oak Mines Inc., Re (1999), 6 C.B.R. (4th)
314; Donkin v. Bugoy, [1985] 2 S.C.R. 85; Soulos v. Korkontzilas,
[1997] 2 S.C.R. 217; Peter v. Beblow, [1993] 1 S.C.R. 980; Nolan v.
Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678; Hamilton v. Open
Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303.
By LeBel J. (dissenting)
Galambos
v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247; Alberta v. Elder Advocates
of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261; Royal Oak Mines
Inc., Re (1999), 7 C.B.R. (4th) 293; Canson Enterprises Ltd. v. Boughton
& Co., [1991] 3 S.C.R. 534; Soulos v. Korkontzilas, [1997] 2
S.C.R. 217.
Statutes and Regulations Cited
Act to amend the Bankruptcy and Insolvency Act, the Companies’
Creditors Arrangement Act, the Wage Earner Protection Program Act and
chapter 47 of the Statutes of Canada, 2005,
S.C. 2007, c. 36 .
Act to establish the Wage Earner Protection Program Act, to amend
the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act
and to make consequential amendments to other Acts,
S.C. 2005, c. 47, s. 128 .
Bankruptcy and Insolvency Act, R.S.C.
1985, c. B-3 .
Bill C-501, An Act to amend the Bankruptcy and Insolvency Act and
other Acts (pension protection), 3rd Sess., 40th Parl., March 24, 2010
(as am. by the Standing Committee on Industry, Science and Technology,
March 1, 2011).
Canada Business Corporations Act, R.S.C.
1985, c. C-44, s. 122(1) (a).
Companies’ Creditors Arrangement Act,
R.S.C. 1985, c. C-36, ss. 2 “secured creditor”, 11.
Pension Benefits Act, R.S.O. 1980,
c. 373, ss. 21(2), 23, 32.
Pension Benefits Act, R.S.O. 1990,
c. P.8, ss. 1(1) “administrator”, “wind up”, 8(1)(a), 9, 10(1)12, 12,
19, 20, 22, 25, 26, 42, 56, 57, 58, 59, 68, 69, 70, 73, 74, 75.
Pension Benefits Act, 1965, S.O. 1965, c. 96,
s. 22(2).
Pension Benefits Act, 1987, S.O. 1987, c. 35,
ss. 58, 59, 75(1), 76(1).
Pension Benefits Amendment Act, 1973,
S.O. 1973, c. 113, s. 23a.
Pension Benefits Amendment Act, 1980,
S.O. 1980, c. 80.
Pension Benefits Amendment Act, 1983,
S.O. 1983, c. 2, ss. 21, 23, 32.
Pension Benefits Amendment Act, 2010,
S.O. 2010, c. 9, s. 52(5).
Personal Property Security Act, R.S.O.
1990, c. P.10, s. 30(7).
R.R.O. 1990, Reg. 909, ss. 4(4)3, 5(1)(b), (e), 14, 29, 31.
Securing Pension Benefits Now and for the Future Act, 2010, S.O. 2010, c. 24, s. 21(2).
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Jackson, Georgina R., and Janis Sarra. “Selecting the Judicial
Tool to get the Job Done: An Examination of Statutory Interpretation,
Discretionary Power and Inherent Jurisdiction in Insolvency Matters”, in Janis P. Sarra,
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2008, 41.
Kaplan, Ari N. Pension Law. Toronto: Irwin Law, 2006.
Ontario. Legislative Assembly. Legislature of Ontario Debates:
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Sarra, Janis P. Rescue! The Companies’ Creditors
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APPEALS
from a judgment of the Ontario Court of Appeal (MacPherson, Gillese and
Juriansz JJ.A.), 2011 ONCA 265, 104 O.R. (3d) 641, 276 O.A.C. 347, 331
D.L.R. (4th) 352, 75 C.B.R. (5th) 19, 89 C.C.P.B. 39, 17 P.P.S.A.C. (3d) 194,
[2011] O.J. No. 1621 (QL), 2011 CarswellOnt 2458, setting aside a decision
of Campbell J., 2010 ONSC 1114, 79 C.C.P.B. 301, [2010] O.J. No. 974 (QL),
2010 CarswellOnt 893. Appeals allowed, LeBel and Abella JJ. dissenting.
APPEAL
from a judgment of the Ontario Court of Appeal (MacPherson, Gillese and
Juriansz JJ.A.), 2011 ONCA 578, 81 C.B.R. (5th) 165, 92 C.C.P.B. 277,
[2011] O.J. No. 3959 (QL), 2011 CarswellOnt 9077. Appeal dismissed.
Benjamin Zarnett, Frederick L.
Myers, Brian F. Empey and Peter Kolla, for the appellant
Sun Indalex Finance, LLC.
Harvey G. Chaiton and George Benchetrit, for the appellant George L.
Miller, the Chapter 7 Trustee of the Bankruptcy Estates of the U.S.
Indalex Debtors.
David R. Byers,
Ashley John Taylor and Nicholas Peter McHaffie, for the appellant
FTI Consulting Canada ULC, in its capacity as court-appointed monitor of
Indalex Limited, on behalf of Indalex Limited.
Darrell L. Brown, for the appellant/respondent the United Steelworkers.
Andrew J. Hatnay and Demetrios Yiokaris, for the respondents Keith
Carruthers, et al.
Hugh O’Reilly and Amanda
Darrach, for the respondent Morneau Shepell Ltd. (formerly known as Morneau
Sobeco Limited Partnership).
Mark Bailey, Leonard
Marsello and William MacLarkey, for the respondent/intervener the
Superintendent of Financial Services.
Robert I. Thornton and D. J. Miller, for the intervener the Insolvency
Institute of Canada.
Steven Barrett and Ethan
Poskanzer, for the intervener the Canadian Labour Congress.
Kenneth T. Rosenberg, Andrew K. Lokan and Massimo Starnino, for the
intervener the Canadian Federation of Pensioners.
Éric Vallières, Alexandre
Forest and Yoine Goldstein, for the intervener the Canadian
Association of Insolvency and Restructuring Professionals.
Mahmud Jamal, Jeremy
Dacks and Tony Devir, for the intervener the Canadian Bankers
Association.
The
judgment of Deschamps and Moldaver JJ. was delivered by
[1]
Deschamps
J. — Insolvency
can trigger catastrophic consequences. Often, large claims of ordinary
creditors are left unpaid. In insolvency situations, the promise of defined
benefits made to employees during their employment is put at risk. These
appeals illustrate the materialization of such a risk. Although the employer in
this case breached a fiduciary duty, the harm suffered by the pension plans’
beneficiaries results not from that breach, but from the employer’s insolvency.
For the following reasons, I would allow the appeals of the appellants Sun
Indalex Finance, LLC; George L. Miller, Indalex U.S.’s trustee in bankruptcy;
and FTI Consulting Canada ULC.
[2]
To improve the prospect of pensioners receiving
their full benefits after a pension plan is wound up, the Ontario legislature
has protected contributions to the pension fund that have accrued but are not
yet due at the time of the wind up by providing for a deemed trust that
supersedes all other provincial priorities over certain assets of the plan
sponsor (s. 57(4) of the Pension Benefits Act, R.S.O. 1990, c. P.8 (“PBA”),
and s. 30(7) of the Personal Property Security Act, R.S.O. 1990, c. P.10
(“PPSA”)). The parties disagree on the scope of the deemed trust. In my
view, the relevant provisions and the context lead to the conclusion that it
extends to contributions the employer must make to ensure that the pension fund
is sufficient to cover liabilities upon wind up. In the instant case, however,
the deemed trust is superseded by the security granted to the creditor that
loaned money to the employer, Indalex Limited (“Indalex”), during the
insolvency proceedings. In addition, although the employer, as plan
administrator, may have put itself in a position of conflict of interest by
failing to give the plan’s members proper notice of a motion requesting
financing of its operations during a restructuring process, there was no
realistic possibility that, had the members received notice and had the CCAA
court found that they were secured creditors, it would have ordered the
priorities differently. Consequently, it would not be appropriate to order an
equitable remedy such as the constructive trust ordered by the Court of Appeal.
I. Facts
[3]
Indalex is a wholly owned Canadian subsidiary of
a U.S. company, Indalex Holding Corp. (“Indalex U.S.”). Indalex and its related
companies formed a corporate group (the “Indalex Group”) that manufactured
aluminum extrusions. The U.S. and Canadian operations were closely linked.
[4]
In 2009, a combination of high commodity prices
and the economic recession’s impact on the end-user market for aluminum
extrusions plunged the Indalex Group into insolvency. On March 20, 2009,
Indalex U.S. filed for Chapter 11 bankruptcy protection in Delaware. On April
3, 2009, Indalex applied for a stay under the Companies’ Creditors
Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA ”), and Morawetz J.
granted the stay in an initial order. He also appointed FTI Consulting Canada
ULC (the “Monitor”) to act as monitor.
[5]
At that time, Indalex was the administrator of
two registered pension plans. One was for its salaried employees (the “Salaried
Plan”), the other for its executives (the “Executive Plan”). Members of the
Salaried Plan included seven employees for whom the United Steelworkers (“USW”)
acted as bargaining agent. The Salaried Plan was in the process of being wound
up when the CCAA proceedings began. The effective date of the wind up
was December 31, 2006. The Executive Plan had been closed but not wound up.
Overall, the deficiencies of the pension plans’ funds concern 49 persons
(members of the Salaried Plan and the Executive Plan are referred to
collectively as the “Plan Members”).
[6]
Pursuant to the initial order made by Morawetz
J. on April 3, 2009, Indalex obtained protection under the CCAA . Both
plans faced funding deficiencies when Indalex filed for the CCAA stay.
The wind-up deficiency of the Salaried Plan was estimated at $1.8 million as of
December 31, 2008. The funding deficiency of the Executive Plan was estimated
at $3.0 million on a wind-up basis as of January 1, 2008.
[7]
From the beginning of the insolvency
proceedings, the Indalex Group’s reorganization strategy was to sell both
Indalex and Indalex U.S. as a going concern while they were under CCAA
and Chapter 11 protection. To this end, Indalex and Indalex U.S. sought to
enter into a common agreement for debtor-in-possession (“DIP”) financing under
which the two companies could draw from joint credit facilities and would
guarantee each other’s liabilities.
[8]
Indalex’s financial distress threatened the
interests of all the Plan Members. If the reorganization failed and Indalex
were liquidated under the Bankruptcy and Insolvency Act, R.S.C. 1985, c.
B-3 (“BIA ”), they would not have recovered any of their claims against
Indalex for the underfunded pension liabilities, because the priority created by
the provincial statute would not be recognized under the federal legislation: Husky Oil Operations
Ltd. v. Minister of National Revenue, [1995] 3 S.C.R. 453. Although the priority was not rendered ineffective by the CCAA ,
the Plan Members’ position was uncertain.
[9]
The Indalex Group solicited terms from a variety
of possible DIP lenders. In the end, it negotiated an agreement with a
syndicate consisting of the pre-filing senior secured creditors. On April 8,
2009, the CCAA court issued an Amended and Restated Initial Order
(“Amended Initial Order”) authorizing Indalex to borrow US$24.4 million from
the DIP lenders and grant them priority over all other creditors (“DIP charge”)
in that amount. In his endorsement of the order, Morawetz J. made a finding that
Indalex would be unable to achieve a going-concern solution without DIP
financing. Such financing was necessary to support Indalex’s business until the
sale could be completed.
[10]
The Plan Members did not participate in the
initial proceedings. The initial stay had been granted ex parte. The
CCAA judge ordered Indalex to serve a copy of the stay order on every
creditor owed $5,000 or more within 10 days of the initial order of April 3. As
of April 8, when the motion to amend the initial order was heard, none of the
Executive Plan’s members had been served with that order; nor did any of them
receive notice of the motion to amend it. The USW did receive short notice, but
chose not to attend. Morawetz J. authorized Indalex to proceed on the basis of
an abridged time for service. The Plan Members were given notice of all
subsequent proceedings. None of the Plan Members appealed the Amended Initial
Order to contest the DIP charge.
[11]
On June 12, 2009, Indalex applied for
authorization to increase the DIP loan amount to US$29.5 million. At the
hearing, the Executive Plan’s members initially opposed the motion, seeking to
reserve their rights. After it was confirmed that the motion was merely to
increase the amount of the DIP charge (without changing the terms of the loan),
they withdrew their opposition and the court granted the motion.
[12]
On April 22, 2009, the court extended the stay
of proceedings and approved a marketing process for the sale of Indalex’s
assets. The Plan Members did not oppose the application to approve the
marketing process. Under the approved bidding procedure, the Indalex Group
solicited a wide variety of potential buyers.
[13]
Indalex received a bid from SAPA Holding AB
(“SAPA”). It was for approximately US$30 million, and SAPA did not assume
responsibility for the pension plans’ wind-up deficiencies. According to the
Monitor’s estimate, the liquidation value of Indalex’s assets was US$44.7
million. Indalex brought an application for an order approving a bidding
procedure for a competitive auction and deeming SAPA’s bid to be a qualifying
bid. The Executive Plan’s members opposed the application, expressing concern
that the pension liabilities would not be assumed. Morawetz J. nevertheless
issued the order on July 2, 2009; in it, he approved the bidding procedure for
sale, noting that the Executive Plan’s members could raise their objections at
the time of approval of the final bid.
[14]
The bidding procedure did not trigger any
competing bids. On July 20, 2009, Indalex and Indalex U.S. brought motions before
their respective courts to approve the sale of substantially all their assets
under the terms of SAPA’s bid. Indalex also moved for approval of an interim
distribution of the sale proceeds to the DIP lenders. The Plan Members opposed
Indalex’s motion. First, they argued that it was estimated that a forced
liquidation would produce greater proceeds than SAPA’s bid. Second, they
contended that their claims had priority over that of the DIP lenders because
the unfunded pension liabilities were subject to a statutory deemed trust under
the PBA. They also
contended that Indalex had breached its fiduciary obligations by failing to
meet its obligations as a plan administrator throughout the insolvency
proceedings.
[15]
The court dismissed the Plan Members’ first objection,
holding that there was no evidence supporting the argument that a forced
liquidation would be more beneficial to suppliers,
customers and the 950 employees. It approved the sale on July 20, 2009. The order in which it did so directed the Monitor to make a distribution
to the DIP lenders. With respect to the second objection, however, Campbell J.
ordered the Monitor to hold a reserve in an amount to be determined by the
Monitor, leaving the Plan Members’ arguments based on their right to the proceeds
of the sale open for determination at a later date.
[16]
The sale to SAPA closed on July 31, 2009. The
Monitor collected $30.9 million in proceeds. It distributed US$17 million to
the DIP lenders, paid certain fees, withheld a portion to cover various costs
and retained $6.75 million in reserve pending determination of the Plan
Members’ rights. At the closing, Indalex owed US$27 million to the DIP lenders.
The payment of US$17 million left a US$10 million shortfall in the amount owed
to these lenders. The DIP lenders called on Indalex U.S. to cover this
shortfall under the guarantee contained in the DIP lending agreement. Indalex
U.S. paid the amount of the shortfall. Since Indalex U.S. was, as a term of the
guarantee, subrogated to the DIP lenders’ priority, it became the highest
ranking creditor of Indalex, with a claim for US$10 million.
[17]
Following the sale of Indalex’s assets, its
directors resigned. Indalex U.S., a part of Indalex Group, took over the
management of Indalex, whose assets were limited to the sale proceeds held by
the Monitor. A Unanimous Shareholder Declaration was executed on August 12,
2009; in it, Mr. Keith Cooper was appointed to manage Indalex’s affairs. Mr.
Cooper was an employee of FTI Consulting Inc.
[18]
In accordance with the right reserved by the
court on July 20, 2009, the Plan Members brought motions on August 28, 2009 for
a declaration that a deemed trust equal in amount to the unfunded pension
liability was enforceable against the proceeds of the sale. They contended that
they had priority over the secured creditors pursuant to s. 57(4) of the PBA
and s. 30(7) of the PPSA. Indalex, in turn, brought a motion for an
assignment in bankruptcy to secure the priority regime it argued for in
opposing the Plan Members’ motions.
[19]
On October 14, 2009, while judgment was pending,
Indalex U.S. converted the Chapter 11 restructuring proceeding in the U.S. into
a Chapter 7 liquidation proceeding. On November 5, 2009, the Superintendent of
Financial Services (“Superintendent”) appointed the actuarial firm of Morneau
Sobeco Limited Partnership (“Morneau”) to replace Indalex as administrator of
the plans.
[20]
On February 18, 2010, Campbell J. dismissed the
Plan Members’ motions, concluding that the deemed trust
did not apply to the wind-up deficiencies, because the associated payments were
not “due” or “accruing due” as of the date of the wind up. He found that the
Executive Plan did not have a wind-up deficiency, since it had not yet been
wound up. He thus found it unnecessary to rule on
Indalex’s motion for an assignment in bankruptcy (2010 ONSC 1114, 79 C.C.P.B.
301). The Plan Members appealed
the dismissal of their motions.
[21]
The Ontario Court of Appeal allowed the Plan
Members’ appeals. It found that the deemed trust
created by s. 57(4) of the PBA applies to all amounts due with respect
to plan wind-up deficiencies. Although the court noted that it was likely that
no deemed trust existed for the Executive Plan on the plain meaning of the
provision, it declined to address this question, because it found that the
Executive Plan’s members had a claim arising from Indalex’s breach of its
fiduciary obligations in failing to adequately protect the Plan Members’
interests (2011 ONCA 265, 104 O.R. (3d) 641).
[22]
The Court of Appeal concluded that a
constructive trust was an appropriate remedy for Indalex’s breach of its
fiduciary obligations. The court was of the view that this remedy did not harm
the DIP lenders, but affected only Indalex U.S. It imposed a constructive trust
over the reserved fund in favour of the Plan Members. Turning to the question
of distribution, it also found that the deemed trust had priority over the DIP
charge because the issue of federal paramountcy had not been raised when the
Amended Initial Order was issued, and that Indalex had stated that it intended
to comply with any deemed trust requirements. The Court of Appeal found that
there was nothing in the record to suggest that not applying the paramountcy
doctrine would frustrate Indalex’s ability to restructure.
[23]
The Court of Appeal
ordered the Monitor to make a distribution from the reserve fund in order to
pay the amount of each plan’s deficiency. It also issued a costs endorsement
that approved payment of the costs of the Executive Plan’s members from that
plan’s fund, but declined to order the payment of costs to the USW from the
fund of the Salaried Plan (2011 ONCA 578, 81 C.B.R. (5th) 165).
[24]
The Monitor, together with Sun Indalex, a
secured creditor of Indalex U.S., and George L. Miller, Indalex U.S.’s trustee
in bankruptcy, appeals the Court of Appeal’s order. Both the Superintendent and
Morneau support the Plan Members’ position as respondents. A number of
stakeholders are also participating in the appeals to this Court. In addition,
USW appeals the costs endorsement. As I agree with my colleague Cromwell J. on
the appeal from the costs endorsement, I will not deal with it in these
reasons.
II. Issues
[25]
The appeals raise four issues:
1. Does the deemed trust provided for
in s. 57(4) of the PBA apply to wind-up deficiencies?
2. If so, does the deemed trust
supersede the DIP charge?
3. Did Indalex have any fiduciary
obligations to the Plan Members when making decisions in the context of the
insolvency proceedings?
4. Did the Court of Appeal properly
exercise its discretion in imposing a constructive trust to remedy the breaches
of fiduciary duties?
III. Analysis
A. Does
the Deemed Trust Provided for in Section 57(4) of the PBA Apply to Wind-up
Deficiencies?
[26]
The first issue is whether the statutory deemed
trust provided for in s. 57(4) of the PBA extends to wind-up
deficiencies. This question is one of statutory interpretation, which requires
examination of both the wording and context of the relevant provisions of the PBA.
Section 57(4) of the PBA affords protection to members of a pension plan
with respect to their employer’s contributions upon wind up of the plan. The
provision reads:
57. . . .
(4)
Where a pension plan is wound up in whole or in part, an employer who is
required to pay contributions to the pension fund shall be deemed to hold in
trust for the beneficiaries of the pension plan an amount of money equal to
employer contributions accrued to the date of the wind up but not yet due under
the plan or regulations.
[27]
The most obvious interpretation is that where a
plan is wound up, this provision protects all contributions that have accrued
but are not yet due. The words used appear to include the contribution the
employer is to make where a plan being wound up is in a deficit position. This
quite straightforward interpretation, which is consistent with both the
historical broadening of the protection and the remedial purpose of the
provision, is being challenged on the basis of a narrow definition of the word
“accrued”. I do not find that this argument justifies limiting the protection
afforded to plan members by the Ontario legislature.
[28]
The PBA sets out the rules for the
operation of funded contributory defined benefit pension plans in Ontario. In
an ongoing plan, an employer must pay into a fund all contributions it
withholds from its employees’ salaries. In addition, while the plan is ongoing,
the employer must make two kinds of payments. One relates to current service
contributions — the employer’s own regular contributions to the pension fund as
required by the plan. The other ensures that the fund is sufficient to meet the
plan’s liabilities. The employees’ interest in having the contributions made
while the plan is ongoing is protected by a deemed trust provided for in s.
57(3) of the PBA.
[29]
The PBA also establishes a comprehensive
scheme for winding up a pension plan. Section 75(1)(a) imposes on the employer
the obligation to “pay” an amount equal to the total of all “payments” that are
due or that have accrued and have not been paid into the fund. In addition, s.
75(1)(b) sets out a formula for calculating the amount that must be paid to
ensure that the fund is sufficient to cover all liabilities upon wind up.
Within six months after the effective date of the wind up, the plan
administrator must file a wind-up report that lists the plan’s assets and
liabilities as of the date of the wind up. If the wind-up report shows an
actuarial deficit, the employer must make wind-up deficiency payments.
Consequently, s. 75(1)(a) and (b) jointly determine the amount of the
contributions owed when a plan is wound up.
[30]
It is common ground that the contributions
provided for in s. 75(1)(a) are covered by the wind-up deemed trust. The only
question is whether it also applies to the deficiency payments required by s.
75(1)(b). I would answer this question in the affirmative in view of the
provision’s wording, context and purpose.
[31]
It is readily apparent that the wind-up deemed
trust provision (s. 57(4) PBA) does not place an express limit on the
“employer contributions accrued to the date of the wind up but not yet due”,
and I find no reason to exclude contributions paid under s. 75(1)(b). Section
75(1)(a) explicitly refers to “an amount equal to the total of all payments”
that have accrued, even those that were not yet due as of the date of
the wind up, whereas s. 75(1)(b) contemplates an “amount” that is calculated on
the basis of the value of assets and of liabilities that have accrued
when the plan is wound up. Section 75(1) reads as follows:
75. (1) Where
a pension plan is wound up, the employer shall pay into the pension fund,
(a) an amount equal to the total of all payments that,
under this Act, the regulations and the pension plan, are due or that have accrued
and that have not been paid into the pension fund; and
(b) an amount equal to the amount by which,
(i) the value of the pension
benefits under the pension plan that would be guaranteed by the Guarantee
Fund under this Act and the regulations if the Superintendent declares that the
Guarantee Fund applies to the pension plan,
(ii) the value of the pension
benefits accrued with respect to employment in Ontario vested under the
pension plan, and
(iii) the value of benefits
accrued with respect to employment in Ontario resulting from the
application of subsection 39 (3) (50 per cent rule) and section 74,
exceed the value of the assets of the pension
fund allocated as prescribed for payment of pension benefits accrued
with respect to employment in Ontario.
[32]
Since both the amount with respect to payments
(s. 75(1)(a)) and the one ascertained by subtracting the assets from the
liabilities accrued as of the date of the wind up (s. 75(1)(b)) are to be paid
upon wind up as employer contributions, they are both included in the ordinary
meaning of the words of s. 57(4) of the PBA: “. . . amount of money
equal to employer contributions accrued to the date of the wind up but not yet
due under the plan or regulations”. As I mentioned above, this reasoning is
challenged in respect of s. 75(1)(b), not of s. 75(1)(a).
[33]
The appellant Sun Indalex argues that since the
deficiency is not finally quantified until well after the effective date of the
wind up, the liability of the employer cannot be said to have accrued. The
Monitor adds that the payments the employer must make to satisfy its wind-up
obligations may change over the five-year period within which s. 31 of the PBA
Regulations, R.R.O. 1990, Reg. 909, requires that they be made. These parties
illustrate their argument by referring to what occurred to the Salaried Plan’s
fund in the case at bar. In 2007-8, Indalex paid down the vast majority of the
$1.6 million wind-up deficiency associated with the Salaried Plan as estimated
in 2006. By the end of 2008, however, this deficiency had risen back up to $1.8
million as a result of a decline in the fund’s asset value. According to this
argument, the amount could not have accrued as of the date of the wind up,
because it could not be calculated with certainty.
[34]
Unlike my colleague Cromwell J., I find this
argument unconvincing. I instead agree with the Court of Appeal on this point.
The wind-up deemed trust concerns “employer contributions accrued to the date
of the wind up but not yet due under the plan or regulations”. Since the
employees cease to accumulate entitlements when the plan is wound up, the
entitlements that are used to calculate the contributions have all been
accumulated before the wind-up date. Thus the liabilities of the employer are
complete — have accrued — before the wind up. The distinction between my
approach and the one Cromwell J. takes is that he requires that it be possible
to perform the calculation before the date of the wind up, whereas I am of the
view that the time when the calculation is actually made is not relevant as
long as the liabilities are assessed as of the date of the wind up. The date at which the liabilities are reported or the
employer’s option to spread its contributions as allowed by the
regulations does not change the legal nature of the contributions.
[35]
In Hydro-Electric Power Commission of Ontario
v. Albright (1922), 64 S.C.R. 306, Duff J. considered the meaning of the
word “accrued” in interpreting the scope of a covenant. He found that
the word “accrued” according to
well recognized usage has, as applied to rights or liabilities the meaning
simply of completely constituted — and it may have this meaning although it
appears from the context that the right completely constituted or the liability
completely constituted is one which is only exercisable or enforceable in
futuro — a debt for example which is debitum in praesenti solvendum in
futuro. [Emphasis added; pp. 312-13.]
[36]
Thus, a contribution has “accrued” when the
liabilities are completely constituted, even if the payment itself will not
fall due until a later date. If this principle is applied to the facts of this
case, the liabilities related to contributions to the fund allocated for
payment of the pension benefits contemplated in s. 75(1)(b) are completely
constituted at the time of the wind up, because no pension entitlements arise
after that date. In other words, no new liabilities accrue at the time of or
after the wind up. Even the portion of the contributions that is related to the
elections plan members may make upon wind up has “accrued to the date of the
wind up”, because it is based on rights employees earned before the wind-up
date.
[37]
The fact that the precise amount of the
contribution is not determined as of the time of the wind up does not make it a
contingent contribution that cannot have accrued for accounting purposes (Canadian
Pacific Ltd. v. M.N.R. (1998), 41 O.R. (3d) 606 (C.A.), at p. 621). The
use of the word “accrued” does not limit liabilities to amounts that can be
determined with precision. As a result, the words “contributions accrued” can
encompass the contributions mandated by s. 75(1)(b) of the PBA.
[38]
The legislative history supports my conclusion
that wind-up deficiency contributions are protected by the deemed trust
provision. The Ontario legislature has consistently expanded the protection
afforded in respect of pension plan contributions. I cannot therefore accept an
interpretation that would represent a drawback from the protection extended to
employees. I will not reproduce the relevant provisions, since my colleague
Cromwell J. quotes them.
[39]
The original statute provided solely for the
employer’s obligation to pay all amounts required to be paid to meet the test
for solvency (The Pension Benefits Act, 1965, S.O. 1965, c. 96,
s. 22(2)), but the legislature subsequently afforded employees the protection
of a deemed trust on the employer’s assets in an amount equal to the sums
withheld from employees as contributions and sums due from the employer as
service contributions (s. 23a, added by The Pension Benefits
Amendment Act, 1973, S.O. 1973, c. 113, s. 6). In a later version, it
protected not only contributions that were due, but also those that had
accrued, with the amounts being calculated as if the plan had been wound up (The
Pension Benefits Amendment Act, 1980, S.O. 1980, c. 80).
[40]
Whereas all employer contributions were
originally covered by a single provision, the legislature crafted a separate
provision in 1980 that specifically imposed on the employer the obligation to
fund the wind-up deficiency. At the time, it was clear from the words used in
the provision that the amount related to the wind-up deficiency was excluded
from the deemed trust protection (The Pension Benefits Amendment Act, 1980).
In 1983, the legislature made a distinction between the deemed trust for
ongoing employer contributions and the one for certain payments to be made upon
wind up (ss. 23(4)(a) and 23(4)(b), added by Pension Benefits Amendment Act,
1983, S.O. 1983, c. 2, s. 3). In that version, the wind-up deficiency
payments were still excluded from the deemed trust. However, the legislature
once again made changes to the protection in 1987. The 1987 version is, in
substance, the one that applies in the case at bar. In the Pension Benefits
Act, 1987, S.O. 1987, c. 35, a specific wind-up deemed trust was
maintained, but the wind-up deficiency payments were no longer excluded from
it, because the limitation that had been imposed until then with respect to
payments that were due or had accrued while the plan was ongoing had been
eliminated. My comments to the effect that the previous versions excluded the
wind-up deficiency payments do not therefore apply to the 1987 statute, since
it was materially different.
[41]
Whereas it is clear from the 1983 amendments
that the deemed trust provided for in s. 23(4)(b) was intended to include only
current service costs and special payments, this is less clear from the
subsequent versions of the PBA. To give meaning to the 1987
amendment, I have to conclude that the words refer to a deemed trust in respect
of all “employer contributions accrued to the date of the wind up but
not yet due under the plan or regulations”.
[42]
The employer’s liability upon wind up is now set
out in a single section which elegantly parallels the wind-up deemed trust
provision. It can be seen from the legislative history that the protection has
expanded from (1) only the service contributions that were due, to (2) amounts
payable calculated as if the plan had been wound up, to (3) amounts that were
due and had accrued upon wind up but excluding the wind-up deficiency payments,
to (4) all amounts due and accrued upon wind up.
[43]
Therefore, in my view, the legislative history
leads to the conclusion that adopting a narrow interpretation that would
dissociate the employer’s payment provided for in s. 75(1)(b) of the PBA from
the one provided for in s. 75(1)(a) would be contrary to the Ontario
legislature’s trend toward broadening the protection. Since the provision
respecting wind-up payments sets out the amounts that are owed upon wind up, I
see no historical, legal or logical reason to conclude that the wind-up deemed
trust provision does not encompass all of them.
[44]
Thus, I am of the view that the words and
context of s. 57(4) lend themselves easily to an interpretation that includes
the wind-up deficiency payments, and I find additional support for this in the
purpose of the provision. The deemed trust provision is a remedial one. Its
purpose is to protect the interests of plan members. This purpose militates
against adopting the limited scope proposed by Indalex and some of the
interveners. In the case of competing priorities between creditors, the
remedial purpose favours an approach that includes all wind-up payments in the value
of the deemed trust in order to achieve a broad protection.
[45]
In sum, the relevant provisions, the legislative
history and the purpose are all consistent with inclusion of the wind-up
deficiency in the protection afforded to members with respect to employer
contributions upon the wind up of their pension plan. I therefore find that the
Court of Appeal correctly held with respect to the Salaried Plan, which had
been wound up as of December 31, 2006, that Indalex was deemed to hold in trust
the amount necessary to satisfy the wind-up deficiency.
[46]
The situation is different with respect to the
Executive Plan. Unlike s. 57(3), which provides that the deemed trust
protecting employer contributions exists while a plan is ongoing, s. 57(4)
provides that the wind-up deemed trust comes into existence only when the plan
is wound up. This is a choice made by the Ontario legislature. I would not
interfere with it. Thus, the deemed trust entitlement arises only once the
condition precedent of the plan being wound up has been fulfilled. This is true
even if it is certain that the plan will be wound up in the future. At the time
of the sale, the Executive Plan was in the process of being, but had not yet
been, wound up. Consequently, the deemed trust provision does not apply to the
employer’s wind-up deficiency payments in respect of that plan.
[47]
The Court of Appeal declined to decide whether a
deemed trust arose in relation to the Executive Plan, stating that it was
unnecessary to decide this issue. However, the court expressed concern that a
reasoning that deprived the Executive Plan’s members of the benefit of a deemed
trust would mean that a company under CCAA protection could avoid the
priority of the PBA deemed trust simply by not winding up an underfunded
pension plan. The fear was that Indalex could have relied on its own inaction
to avoid the consequences that flow from a wind up. I am not convinced that the
Court of Appeal’s concern has any impact on the question whether a deemed trust
exists, and I doubt that an employer could avoid the consequences of such a
security interest simply by refusing to wind up a pension plan. The
Superintendent may take a number of steps, including ordering the wind up of a
pension plan under s. 69(1) of the PBA in a variety of circumstances
(see s. 69(1)(d) PBA). The Superintendent did not choose to order that
the plan be wound up in this case.
B. Does the Deemed Trust Supersede the DIP Charge?
[48]
The finding that the interests of the Salaried
Plan’s members in all the employer’s wind-up contributions to the Salaried Plan
are protected by a deemed trust does not mean that part of the money reserved
by the Monitor from the sale proceeds must be remitted to the Salaried Plan’s
fund. This will be the case only if the provincial priorities provided for in
s. 30(7) of the PPSA ensure that the claim of the Salaried Plan’s
members has priority over the DIP charge. Section 30(7) reads as follows:
30.
. . .
(7)
A security interest in an account or inventory and its proceeds is subordinate
to the interest of a person who is the beneficiary of a deemed trust arising
under the Employment Standards Act or under the Pension Benefits Act.
The effect of s. 30(7) is to enable
the Salaried Plan’s members to recover from the reserve fund, insofar as it
relates to an account or inventory and its proceeds in Ontario, ahead of all
other secured creditors.
[49]
The Appellants argue that any provincial deemed
trust is subordinate to the DIP charge authorized by the CCAA order.
They put forward two central arguments to support their contention. First, they
submit that the PBA deemed trust does not apply in CCAA
proceedings because the relevant priorities are those of the federal insolvency
scheme, which do not include provincial deemed trusts. Second, they argue that
by virtue of the doctrine of federal paramountcy the DIP charge supersedes the PBA
deemed trust.
[50]
The Appellants’ first argument would expand the
holding of Century Services Inc. v. Canada (Attorney General), 2010 SCC
60, [2010] 3 S.C.R. 379, so as to apply federal bankruptcy priorities to CCAA
proceedings, with the effect that claims would be treated similarly under the CCAA
and the BIA . In Century Services, the Court noted that there are
points at which the two schemes converge:
Another
point of convergence of the CCAA and the BIA relates to
priorities. Because the CCAA is silent about what happens if
reorganization fails, the BIA scheme of liquidation and distribution
necessarily supplies the backdrop for what will happen if a CCAA
reorganization is ultimately unsuccessful. [para. 23]
[51]
In order to avoid a race to liquidation under
the BIA , courts will favour an interpretation of the CCAA that
affords creditors analogous entitlements. Yet this does not mean that courts
may read bankruptcy priorities into the CCAA at will. Provincial
legislation defines the priorities to which creditors are entitled until that
legislation is ousted by Parliament. Parliament did not expressly apply all
bankruptcy priorities either to CCAA proceedings or to proposals under
the BIA . Although the creditors of a corporation that is attempting to
reorganize may bargain in the shadow of their bankruptcy entitlements, those
entitlements remain only shadows until bankruptcy occurs. At the outset of the
insolvency proceedings, Indalex opted for a process governed by the CCAA ,
leaving no doubt that although it wanted to protect its employees’ jobs, it
would not survive as their employer. This was not a case in which a failed
arrangement forced a company into liquidation under the BIA . Indalex
achieved the goal it was pursuing. It chose to sell its assets under the CCAA ,
not the BIA .
[52]
The provincial deemed trust under the PBA
continues to apply in CCAA proceedings, subject to the doctrine of
federal paramountcy (Crystalline Investments Ltd. v. Domgroup Ltd., 2004
SCC 3, [2004] 1 S.C.R. 60, at para. 43). The
Court of Appeal therefore did not err in finding that at the end of a CCAA
liquidation proceeding, priorities may be determined by the PPSA’s
scheme rather than the federal scheme set out in the BIA .
[53]
The Appellants’ second argument is that an order
granting priority to the plan’s members on the basis of the deemed trust
provided for by the Ontario legislature would be unconstitutional in that it
would conflict with the order granting priority to the DIP lenders that was
made under the CCAA . They argue that the doctrine of paramountcy
resolves this conflict, as it would render the provincial law inoperative to
the extent that it is incompatible with the federal law.
[54]
There is a preliminary question that must be
addressed before determining whether the doctrine of paramountcy applies in
this context. This question arises because the Court of Appeal found that
although the CCAA court had the power to authorize a DIP charge that
would supersede the deemed trust, the order in this case did not have such an
effect because paramountcy had not been invoked. As a result, the priority of
the deemed trust over secured creditors by virtue of s. 30(7) of the PPSA
remained in effect, and the Plan Members’ claim ranked in priority to the claim
of the DIP lenders established in the CCAA order.
[55]
With respect, I cannot accept this approach to
the doctrine of federal paramountcy. This doctrine resolves conflicts in the
application of overlapping valid provincial and federal legislation (Canadian
Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R. 3, at paras. 32 and 69). Paramountcy is a question of law. As a result,
subject to the application of the rules on the admissibility of new evidence,
it can be raised even if it was not invoked in an initial proceeding.
[56]
A party relying on paramountcy must “demonstrate that the federal and provincial
laws are in fact incompatible by establishing either that it is impossible to
comply with both laws or that to apply the provincial law would frustrate the
purpose of the federal law” (Canadian Western Bank, at para. 75). This Court has in fact applied the doctrine of
paramountcy in the area of bankruptcy and insolvency to come to the conclusion
that a provincial legislature cannot, through measures such as a deemed trust,
affect priorities granted under federal legislation (Husky Oil).
[57]
None of the parties question the validity of
either the federal provision that enables a CCAA court to make an order
authorizing a DIP charge or the provincial provision that establishes the
priority of the deemed trust. However, in considering whether the CCAA court
has, in exercising its discretion to assess a claim, validly affected a
provincial priority, the reviewing court should remind itself of the rule of
interpretation stated in Attorney General of Canada v. Law Society of British
Columbia, [1982] 2 S.C.R. 307 (at p. 356), and reproduced in Canadian
Western Bank (at para. 75):
When a federal statute can be properly
interpreted so as not to interfere with a provincial statute, such an
interpretation is to be applied in preference to another applicable
construction which would bring about a conflict between the two statutes.
[58]
In the instant case, the CCAA judge, in
authorizing the DIP charge, did not consider the fact that the Salaried Plan’s
members had a claim that was protected by a deemed trust, nor did he explicitly
note that ordinary creditors, such as the Executive Plan’s members, had not
received notice of the DIP loan motion. However, he did consider factors that
were relevant to the remedial objective of the CCAA and found that
Indalex had in fact demonstrated that the CCAA ’s purpose would be
frustrated without the DIP charge. It will be helpful to quote the reasons he
gave on April 17, 2009 in authorizing the DIP charge ((2009), 52 C.B.R. (5th)
61):
(a) the Applicants are in need of the additional financing in
order to support operations during the period of a going concern restructuring;
(b) there is a benefit to the breathing space that would be
afforded by the DIP Financing that will permit the Applicants to identify a
going concern solution;
(c) there is no other alternative available to the Applicants for
a going concern solution;
(d) a stand-alone solution is impractical given the integrated
nature of the business of Indalex Canada and Indalex U.S.;
(e) given the collateral base of Indalex U.S., the Monitor is
satisfied that it is unlikely that the Post-Filing Guarantee with respect to
the U.S. Additional Advances will ever be called and the Monitor is also
satisfied that the benefits to stakeholders far outweighs the risk associated
with this aspect of the Post-Filing Guarantee;
(f) the benefit to stakeholders and creditors of the DIP
Financing outweighs any potential prejudice to unsecured creditors that may
arise as a result of the granting of super-priority secured financing against
the assets of the Applicants;
(g) the Pre-Filing Security has been reviewed by counsel to the
Monitor and it appears that the unsecured creditors of the Canadian debtors
will be in no worse position as a result of the Post-Filing Guarantee than they
were otherwise, prior to the CCAA filing, as a result of the limitation of the
Canadian guarantee set forth in the draft Amended and Restated Initial Order .
. . ; and
(h) the balancing of the prejudice weighs in favour of the approval
of the DIP Financing. [para. 9]
[59]
Given that there was no alternative for a going-concern
solution, it is difficult to accept the Court of Appeal’s sweeping intimation
that the DIP lenders would have accepted that their claim ranked below claims
resulting from the deemed trust. There is no evidence in the record that gives
credence to this suggestion. Not only is it contradicted by the CCAA
judge’s findings of fact, but case after case has shown that “the priming of
the DIP facility is a key aspect of the debtor’s ability to attempt a workout”
(J. P. Sarra, Rescue! The Companies’ Creditors Arrangement Act (2007),
at p. 97). The harsh reality is that lending is governed by the commercial
imperatives of the lenders, not by the interests of the plan members or the
policy considerations that lead provincial governments to legislate in favour
of pension fund beneficiaries. The reasons given by Morawetz J. in response to
the first attempt of the Executive Plan’s members to reserve their rights on
June 12, 2009 are instructive. He indicated that any uncertainty as to whether
the lenders would withhold advances or whether they would have priority if
advances were made did “not represent a positive development”. He found that,
in the absence of any alternative, the relief sought was “necessary and
appropriate” (2009 CanLII 37906, at paras. 7-8).
[60]
In this case, compliance with the provincial law
necessarily entails defiance of the order made under federal law. On the
one hand, s. 30(7) of the PPSA required a part of the proceeds from the
sale related to assets described in the provincial statute to be paid to the
plan’s administrator before other secured creditors were paid. On the other
hand, the Amended Initial Order provided that the DIP charge ranked in priority
to “all other security interests, trusts, liens, charges and encumbrances,
statutory or otherwise” (para. 45). Granting priority to the DIP lenders
subordinates the claims of other stakeholders, including the Plan Members. This
court-ordered priority based on the CCAA has the same effect as a
statutory priority. The federal and provincial laws are inconsistent, as they
give rise to different, and conflicting, orders of priority. As a result of the
application of the doctrine of federal paramountcy, the DIP charge supersedes
the deemed trust.
C. Did Indalex Have Fiduciary
Obligations to the Plan Members?
[61]
The fact that the DIP financing charge
supersedes the deemed trust or that the interests of the Executive Plan’s
members are not protected by the deemed trust does not mean that Plan Members
have no right to receive money out of the reserve fund. What remains to be
considered is whether an equitable remedy, which could override all priorities,
can and should be granted for a breach by Indalex of a fiduciary duty.
[62]
The first stage of a fiduciary duty analysis is
to determine whether and when fiduciary obligations arise. The Court has
recognized that there are circumstances in which a pension plan administrator
has fiduciary obligations to plan members both at common law and under statute
(Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273, at para.
41). It is clear that the indicia of a fiduciary relationship attach in this
case between the Plan Members and Indalex as plan administrator. Sun Indalex and the Monitor do not dispute
this proposition.
[63]
However, Sun Indalex and the Monitor argue that
the employer has a fiduciary duty only when it acts as plan administrator —
when it is wearing its administrator’s “hat”. They contend that, outside the
plan administration context, when directors make decisions in the best
interests of the corporation, the employer is wearing solely its “corporate
hat”. On this view, decisions made by the employer in its corporate capacity
are not burdened by the corporation’s fiduciary obligations to its pension plan
members and, consequently, cannot be found to conflict with plan members’
interests. This is not the correct approach to take in determining the scope of
the fiduciary obligations of an employer acting as plan administrator.
[64]
Only persons or entities authorized by the PBA
can act as plan administrators (ss. 1(1) and 8(1)(a)). The employer is one of
them. A corporate employer that chooses to act as plan administrator accepts
the fiduciary obligations attached to that function. Since the directors of a
corporation also have a fiduciary duty to the corporation, the fact that the
corporate employer can act as administrator of a pension plan means that s.
8(1)(a) of the PBA is based on the assumption that not all decisions
taken by directors in managing a corporation will result in conflict with the
corporation’s duties to the plan’s members. However, the corporate employer
must be prepared to resolve conflicts where they arise. Reorganization
proceedings place considerable burdens on any debtor, but these burdens do not
release an employer that acts as plan administrator from its fiduciary
obligations.
[65]
Section 22(4) of the PBA explicitly
provides that a plan administrator must not permit its own interest to conflict
with its duties in respect of the pension fund. Thus, where an employer’s own
interests do not converge with those of the plan’s members, it must ask itself
whether there is a potential conflict and, if so, what can be done to resolve
the conflict. Where interests do conflict, I do not find the two hats metaphor
helpful. The solution is not to determine whether a given decision can be
classified as being related to either the management of the corporation or the administration
of the pension plan. The employer may well take a sound management decision,
and yet do something that harms the interests of the plan’s members. An
employer acting as a plan administrator is not permitted to disregard its
fiduciary obligations to plan members and favour the competing interests of the
corporation on the basis that it is wearing a “corporate hat”. What is
important is to consider the consequences of the decision, not its nature.
[66]
When the interests the employer seeks to advance
on behalf of the corporation conflict with interests the employer has a duty to
preserve as plan administrator, a solution must be found to ensure that the
plan members’ interests are taken care of. This may mean that the corporation
puts the members on notice, or that it finds a replacement administrator,
appoints representative counsel or finds some other means to resolve the
conflict. The solution has to fit the problem, and the same solution may not be
appropriate in every case.
[67]
In the instant case, Indalex’s fiduciary
obligations as plan administrator did in fact conflict with management
decisions that needed to be taken in the best interests of the corporation.
Indalex had a number of responsibilities as plan administrator. For example, s.
56(1) of the PBA required it to ensure that contributions were paid when
due. Section 56(2) required that it notify the Superintendent if contributions
were not paid when due. It was also up to Indalex under s. 59 to commence
proceedings to obtain payment of contributions that were due but not paid.
Indalex, as an employer, paid all the contributions that were due. However, its
insolvency put contributions that had accrued to the date of the wind up at
risk. In an insolvency context, the administrator’s claim for contributions
that have accrued is a provable claim.
[68]
In the context of this case, the fact that
Indalex, as plan administrator, might have to claim accrued contributions from
itself means that it would have to simultaneously adopt conflicting positions
on whether contributions had accrued as of the date of liquidation and whether
a deemed trust had arisen in respect of wind-up deficiencies. This is
indicative of a clear conflict between Indalex’s interests and those of the
Plan Members. As soon as it saw, or ought to have seen, a potential for
conflict, Indalex should have taken steps to ensure that the interests of the
Plan Members were protected. It did not do so. On the contrary, it contested
the position the Plan Members advanced. At the very least, Indalex breached its
duty to avoid conflicts of interest (s. 22(4) PBA).
[69]
Since the Plan Members seek an equitable remedy,
it is important to identify the point at which Indalex should have moved to
ensure that their interests were safeguarded. Before doing so, I would stress
that factual contexts are needed to analyse conflicts between interests, and
that it is neither necessary nor useful to attempt to map out all the
situations in which conflicts may arise.
[70]
As I mentioned above, insolvency puts the employer’s
contributions at risk. This does not mean that the decision to commence
insolvency proceedings entails on its own a breach of a fiduciary obligation.
The commencement of insolvency proceedings in this case on April 3, 2009 in an
emergency situation was explained by Timothy R. J. Stubbs, the then-president
of Indalex. The company was in default to its lender, it faced legal
proceedings for unpaid bills, it had received a termination notice effective
April 6 from its insurers, and suppliers had stopped supplying on credit. These
circumstances called for urgent action by Indalex lest a creditor start
bankruptcy proceedings and in so doing jeopardize ongoing operations and jobs.
Several facts lead me to conclude that the stay sought in this case did not, in
and of itself, put Indalex in a conflict of interest.
[71]
First, a stay operates only to freeze the
parties’ rights. In most cases, stays are obtained ex parte. One of the
reasons for refraining from giving notice of the initial stay motion is to
avert a situation in which creditors race to court to secure benefits that they
would not enjoy in insolvency. Subjecting as many creditors as possible to a
single process is seen as a way to treat all of them more equitably. In this
context, plan members are placed on the same footing as the other creditors and
have no special entitlement to notice. Second, one of the conclusions of the
order Indalex sought was that it was to be served on all creditors, with a few
exceptions, within 10 days. The notice allowed any interested party to apply to
vary the order. Third, Indalex was permitted to pay all pension benefits.
Although the order excluded special solvency payments, no ruling was made at
that point on the merits of the creditors’ competing claims, and a stay gave
the Plan Members the possibility of presenting their arguments on the deemed
trust rather than losing it altogether as a result of a bankruptcy proceeding,
which was the alternative.
[72]
Whereas the stay itself did not put Indalex in a
conflict of interest, the proceedings that followed had adverse consequences.
On April 8, 2009, Indalex brought a motion to amend and restate the initial
order in order to apply for DIP financing. This motion had been foreseen. Mr.
Stubbs had mentioned in the affidavit he signed in support of the initial order
that the lenders had agreed to extend their financing, but that Indalex would
be in need of authorization in order to secure financing to continue its
operations. However, the initial order had not yet been served on the Plan
Members as of April 8. Short notice of the motion was given to the USW rather
than to all the individual Plan Members, but the USW did not appear. The Plan
Members were quite simply not represented on the motion to amend the initial
stay order requesting authorization to grant the DIP charge.
[73]
In seeking to have a court approve a form of
financing by which one creditor was granted priority over all other creditors,
Indalex was asking the CCAA court to override the Plan Members’
priority. This was a case in which Indalex’s directors permitted the
corporation’s best interests to be put ahead of those of the Plan Members. The
directors may have fulfilled their fiduciary duty to Indalex, but they placed
Indalex in the position of failing to fulfil its obligations as plan
administrator. The corporation’s interest was to seek the best possible avenue
to survive in an insolvency context. The pursuit of this interest was not
compatible with the plan administrator’s duty to the Plan Members to ensure
that all contributions were paid into the funds. In the context of this case,
the plan administrator’s duty to the Plan Members meant, in particular, that it
should at least have given them the opportunity to present their arguments.
This duty meant, at the very least, that they were entitled to reasonable
notice of the DIP financing motion. The terms of that motion, presented without
appropriate notice, conflicted with the interests of the Plan Members. Because
Indalex supported the motion asking that a priority be granted to its lender,
it could not at the same time argue for a priority based on the deemed trust.
[74]
The Court of Appeal found a number of other
breaches. I agree with Cromwell J. that none of the subsequent proceedings had
a negative impact on the Plan Members’ rights. The events that occurred, in
particular the second DIP financing motion and the sale process, were
predictable and, in a way, typical of reorganizations. Notice was given in all
cases. The Plan Members were represented by able counsel. More importantly, the
court ordered that funds be reserved and that a full hearing be held to argue
the issues.
[75]
The Monitor and George L. Miller, Indalex U.S.’s
trustee in bankruptcy, argue that the Plan Members should have appealed the
Amended Initial Order authorizing the DIP charge, and were precluded from
subsequently arguing that their claim ranked in priority to that of the DIP
lenders. They take the position that the collateral attack doctrine bars the
Plan Members from challenging the DIP financing order. This argument is not
convincing. The Plan Members did not receive notice of the motion to approve
the DIP financing. Counsel for the Executive Plan’s members presented the
argument of that plan’s members at the first opportunity and repeated it each time
he had an occasion to do so. The only time he withdrew their opposition was at
the hearing of the motion for authorization to increase the DIP loan amount
after being told that the only purpose of the motion was to increase the amount
of the authorized loan. The CCAA judge set a hearing date for the very
purpose of presenting the arguments that Indalex, as plan administrator, could
have presented when it requested the amendment to the initial order. It cannot
now be argued, therefore, that the Plan Members are barred from defending their
interests by the collateral attack doctrine.
D. Would an Equitable Remedy Be Appropriate in the
Circumstances?
[76]
The definition of “secured creditor” in s. 2 of
the CCAA includes a trust in respect of the debtor’s property. The
Amended Initial Order (at para. 45) provided that the DIP lenders’ claims
ranked in priority to all trusts, “statutory or otherwise”. Indalex U.S. was
subrogated to the DIP lenders’ claim by operation of the guarantee in the DIP
lending agreement.
[77]
Counsel for the Executive Plan’s members argues
that the doctrine of equitable subordination should apply to subordinate
Indalex U.S.’s subrogated claim to those of the Plan Members. This Court
discussed the doctrine of equitable subordination in Canada Deposit
Insurance Corp. v. Canadian Commercial Bank, [1992] 3 S.C.R. 558, but did
not endorse it, leaving it for future determination (p. 609). I do not need to
endorse it here either. Suffice to say that there is no evidence that the
lenders committed a wrong or that they engaged in inequitable conduct, and no
party has contested the validity of Indalex U.S.’s payment of the US$10 million
shortfall.
[78]
This leaves the constructive trust remedy
ordered by the Court of Appeal. It is settled law that proprietary remedies are
generally awarded only with respect to property that is directly related to a
wrong or that can be traced to such property. I agree with my colleague
Cromwell J. that this condition is not met in the case at bar. I adopt his
reasoning on this issue.
[79]
Moreover, I am of the view that it was
unreasonable for the Court of Appeal to reorder the priorities in this case.
The breach of fiduciary duty identified in this case is, in substance, the lack
of notice. Since the Plan Members were allowed to fully argue their case at a
hearing specifically held to adjudicate their rights, the CCAA court was
in a position to fully appreciate the parties’ positions.
[80]
It is difficult to see what gains the Plan
Members would have secured had they received notice of the motion that resulted
in the Amended Initial Order. The CCAA judge made it clear, and his
finding is supported by logic, that there was no alternative to the DIP loan
that would allow for the sale of the assets on a going-concern basis. The Plan
Members presented no evidence to the contrary. They rely on conjecture alone.
The Plan Members invoke other cases in which notice was given to plan members
and in which the members were able to fully argue their positions. However, in
none of those cases were plan members able to secure any additional benefits.
Furthermore, the Plan Members were allowed to fully argue their case. As a
result, even though Indalex breached its fiduciary duty to notify the Plan
Members of the motion that resulted in the Amended Initial Order, their claim
remains subordinate to that of Indalex U.S.
IV. Conclusion
[81]
There are good reasons for giving special
protection to members of pension plans in insolvency proceedings. Parliament
considered doing so before enacting the most recent amendments to the CCAA ,
but chose not to (An Act to amend the Bankruptcy and Insolvency Act, the
Companies’ Creditors Arrangement Act, the Wage Earner Protection Program Act
and chapter 47 of the Statutes of Canada, 2005, S.C. 2007, c. 36, in
force September 18, 2009, SI/2009-68; see also Bill C-501, An Act to amend
the Bankruptcy and Insolvency Act and other Acts (pension protection), 3rd
Sess., 40th Parl., March 24, 2010 (subsequently amended by the Standing
Committee on Industry, Science and Technology, March 1, 2011)). A report of the
Standing Senate Committee on Banking, Trade and Commerce gave the following
reasons for this choice:
Although
the Committee recognizes the vulnerability of current pensioners, we do not
believe that changes to the BIA regarding pension claims should be made at this
time. Current pensioners can also access retirement benefits from the
Canada/Quebec Pension Plan, and the Old Age Security and Guaranteed Income
Supplement programs, and may have private savings and Registered Retirement
Savings Plans that can provide income for them in retirement. The desire
expressed by some of our witnesses for greater protection for pensioners and
for employees currently participating in an occupational pension plan must be
balanced against the interests of others. As we noted earlier, insolvency – at
its essence – is characterized by insufficient assets to satisfy everyone, and
choices must be made.
The
Committee believes that granting the pension protection sought by some of the
witnesses would be sufficiently unfair to other stakeholders that we cannot
recommend the changes requested. For example, we feel that super priority
status could unnecessarily reduce the moneys available for distribution to
creditors. In turn, credit availability and the cost of credit could be
negatively affected, and all those seeking credit in Canada would be
disadvantaged.
(Debtors
and Creditors Sharing the Burden: A Review of the Bankruptcy and Insolvency Act
and the Companies’ Creditors Arrangement Act (2003), at p. 98; see also p.
88.)
[82]
In an insolvency process, a CCAA court
must consider the employer’s fiduciary obligations to plan members as their
plan administrator. It must grant a remedy where appropriate. However, courts
should not use equity to do what they wish Parliament had done through
legislation.
[83]
In view of the fact that the Plan Members were
successful on the deemed trust and fiduciary duty issues, I would not order
costs against them either in the Court of Appeal or in this Court.
[84]
I would therefore allow the main appeals without costs in this
Court, set aside the orders made by the Court of Appeal, except with respect to
orders contained in paras. 9 and 10 of the judgment of the Court of Appeal in
the former executive members’ appeal and restore the orders of Campbell J.
dated February 18, 2010. I would dismiss USW’s costs appeal without costs.
The
reasons of McLachlin C.J. and Rothstein and Cromwell JJ. were delivered by
Cromwell J. —
I. Introduction
[85]
When a business becomes insolvent, many
interests are at risk. Creditors may not be able to recover their debts,
investors may lose their investments and employees may lose their jobs. If the
business is the sponsor of an employee pension plan, the benefits promised by
the plan are not immune from that risk. The circumstances leading to these
appeals show how that risk can materialize. Pension plans and creditors find
themselves in a zero-sum game with not enough money to go around. At a very
general level, this case raises the issue of how the law balances the interests
of pension plan beneficiaries with those of other creditors.
[86]
Indalex Limited, the sponsor and administrator
of employee pension plans, became insolvent and sought protection from its
creditors under the Companies’ Creditors Arrangement Act, R.S.C. 1985,
c. C-36 (“CCAA ”). Although all current contributions were up to
date, the company’s pension plans did not have sufficient assets to fulfill the
pension promises made to their members. In a series of court-sanctioned steps,
which were judged to be in the best interests of all stakeholders, the company
borrowed a great deal of money to allow it to continue to operate. The parties
injecting the operating money were given a super priority over the claims by
other creditors. When the business was sold, thereby preserving hundreds of
jobs, there was a shortfall between the sale proceeds and the debt. The pension
plan beneficiaries thus found themselves in a dispute about the priority of
their claims. The appellant, Sun Indalex Finance, LLC, claimed it had priority
by virtue of the super priority granted in the CCAA proceedings. The
trustee in bankruptcy of the U.S. Debtors (George L. Miller) and the Monitor
(FTI Consulting) joined in the appeal. The plan beneficiaries claimed that they
had priority by virtue of a statutory deemed trust under the Pension
Benefits Act, R.S.O. 1990, c. P.8 (“PBA”), and a constructive trust
arising from the company’s alleged breaches of fiduciary duty.
[87]
The Ontario Court of Appeal sided with the plan
beneficiaries and Sun Indalex, the trustee in bankruptcy and the Monitor all
appeal. The specific legal points in issue are:
A. Did the Court of Appeal err in finding that the statutory
deemed trust provided for in s. 57(4) of the PBA applied to the salaried
plan’s wind-up deficiency?
B. Did the Court of Appeal err in finding that Indalex breached
the fiduciary duties it owed to the pension plan beneficiaries as the plans’
administrator and in imposing a constructive trust as a remedy?
C. Did the Court of Appeal err in concluding that the super
priority granted in the CCAA proceedings did not have priority by virtue
of the doctrine of federal paramountcy?
D. Did the Court of Appeal err in its cost endorsement
respecting the United Steelworkers (“USW”)?
[88]
My view is that the deemed trust does not apply
to the disputed funds, and even if it did, the super priority would override
it. I conclude that the corporation failed in its duty to the plan
beneficiaries as their administrator and that the beneficiaries ought to have
been afforded more procedural protections in the CCAA proceedings.
However, I also conclude that the Court of Appeal erred in using the equitable
remedy of a constructive trust to defeat the super priority ordered by the CCAA
judge. I would therefore allow the main appeals.
II. Facts and Proceedings Below
A. Overview
[89]
These appeals concern claims by pension fund
members for amounts owed to them by the plans’ sponsor and administrator which
became insolvent.
[90]
Indalex Limited is the parent company of three
non-operating Canadian companies. I will refer to both Indalex Limited
individually and to the group of companies collectively as “Indalex”, unless
the context requires further clarity. Indalex Limited is the wholly owned
subsidiary of its U.S. parent, Indalex Holding Corp. which owned and conducted
related operations in the U.S. through its U.S. subsidiaries which I will refer
to as the “U.S. debtors”.
[91]
In late March and early April of 2009, Indalex
and the U.S. debtors were insolvent and sought protection from their creditors,
the former under the Canadian CCAA, and the latter under the United
States Bankruptcy Code, 11 U.S.C., Chapter 11. The dispute giving rise to these
appeals concern the priority granted to lenders in the CCAA process for
funds advanced to Indalex and whether that priority overrides the claims of two
of Indalex’s pension plans for funds owed to them.
[92]
Indalex was the sponsor and administrator of two
registered pension plans relevant to these proceedings, one for salaried
employees and the other for executive employees. At the time of seeking CCAA
protection, the salaried plan was being wound up (with a wind-up date of
December 31, 2006) and was estimated to have a wind-up deficiency (as of the
end of 2007) of roughly $2.252 million. The executive plan, while it was not
being wound up, had been closed to new members since 2005. It was estimated to
have a deficiency of roughly $2.996 million on wind up. At the time the CCAA
proceedings were started, all regular current service contributions had been
made to both plans.
[93]
Shortly after Indalex received CCAA
protection, the CCAA judge authorized the company to enter into debtor
in possession (“DIP”) financing in order to allow it to continue to operate.
The court granted the DIP lenders, a syndicate of banks, a “super priority”
over “all other security interests, trusts, liens, charges and encumbrances,
statutory or otherwise”: initial order, at para. 35 (Joint A.R., vol. I, at pp.
123-24). Repayment of these amounts was guaranteed by the U.S. debtors.
[94]
Ultimately, with the approval of the CCAA
court, Indalex sold its business; the purchaser did not assume pension
liabilities. A reserve fund was established by the CCAA Monitor to
answer any outstanding claims. The proceeds of the sale were not sufficient to
pay back the DIP lenders and so the U.S. debtors, as guarantors, paid the
shortfall and stepped into the shoes of the DIP lenders in terms of priority.
[95]
The appellant Sun Indalex is a pre-CCAA
secured creditor of both Indalex and the U.S. debtors. It claims the reserve
fund on the basis that the US$10.75 million paid by the guarantors would
otherwise have been available to Sun Indalex as a secured creditor of the U.S.
debtors in the U.S. bankruptcy proceedings. The respondent plan beneficiaries
claim the reserve fund on the basis that they have a wind-up deficiency which
is covered by a deemed trust created by s. 57(4) of the PBA. This deemed
trust includes “an amount of money equal to employer contributions accrued
to the date of the wind up but not yet due under the plan or regulations”
(s. 57(4)). They also claim the reserve fund on the basis of a constructive
trust arising from Indalex’s failure to live up to its fiduciary duties as plan
administrator.
[96]
The reserve fund is not sufficient to pay back
both Sun Indalex and the pension plans and so the main question on the main
appeals is which of the creditors is entitled to priority for their respective
claims.
[97]
The judge at first instance rejected the plan
beneficiaries’ deemed trust arguments and held that, with respect to the wind-up
deficiency, the plan beneficiaries were unsecured creditors, ranking behind
those benefitting from the “super priority” and secured creditors (2010 ONSC
1114, 79 C.C.P.B. 301). The Court of Appeal reversed this ruling and held that
pension plan deficiencies were subject to deemed and constructive trusts which
had priority over the DIP financing and over other secured creditors (2011 ONCA
265, 104 O.R. (3d) 641). Sun Indalex, the trustee in bankruptcy and the Monitor
appeal.
B. Indalex’s CCAA Proceedings
(1) The Initial Order (Joint A.R., vol. I,
at p. 112)
[98]
As noted earlier, Indalex was in financial
trouble and, on April 3, 2009, sought and obtained protection from its
creditors under the CCAA . The order (which I will refer to
as the initial order) also contained directions for service on creditors and
others: paras. 39-41. The order also contained a so-called “comeback clause”
allowing any interested party to apply for a variation of the order, provided
that that party served notice on any other party likely to be affected by any
such variation: para. 46. It is common ground that the plan beneficiaries did
not receive notice of the application for the initial order but the CCAA
court nevertheless approved the method of and time for service. Full
particulars of the deficiencies in the pension plans were before the court in
the motion material and the initial order addressed payment of the employer’s
current service pension contributions.
(2) The DIP Order (Joint A.R., vol. I, at
p. 129)
[99]
On April 8, 2009, in what I will refer to as the
DIP order, the CCAA judge, Morawetz J., authorized Indalex to borrow
funds pursuant to a DIP credit agreement. The judge ordered among many other
things, the following:
- He approved abridged notice: para. 1;
- He allowed Indalex to continue making current service
contributions to the pension plans, but not special payments: paras. 7(a) and
9(b);
- He barred all proceedings against Indalex, except by consent
of Indalex and the Monitor or leave of the court, until May 1, 2009: para. 15;
- He granted the DIP lenders a so-called super priority:
THIS COURT ORDERS that each of the
Administration Charge, the Directors’ Charge and the DIP Lenders Charge
(all as constituted and defined herein) shall constitute a charge on the
Property and such Charges shall rank in priority to all other security
interests, trusts, liens, charges and encumbrances, statutory or otherwise
(collectively, “Encumbrances”) in favour of any Person. [Emphasis added; para. 45.]
- He required Indalex to send notice of the order to all known
creditors, other than employees and creditors to which Indalex owed less than
$5,000 and stated that Indalex and the Monitor were “at liberty” to serve the
Initial Order to interested parties: paras. 49-50.
[100]
In his endorsement for the DIP order, Morawetz
J. found that “there is no other alternative available to the Applicants
[Indalex] for a going concern solution” and that DIP financing was necessary:
(2009), 52 C.B.R. (5th) 61 (Ont. S.C.J.), at para. 9(c). He noted that the
Monitor in its report was of the view that approval of the DIP agreement was
both necessary and in the best interests of Indalex and its stakeholders,
including its creditors, employees, suppliers and customers: paras. 14-16.
[101]
The USW, which represented some of the members
of the salaried plan, was served with notice of the motion that led to the DIP
order, but did not appear. Morawetz J. specifically ordered as follows with regard
to service:
THIS COURT
ORDERS that the time for service of the Notice of Application and the
Application Record is hereby abridged so that this Application is properly
returnable today and hereby dispenses with further service thereof. [DIP order,
at para. 1]
(3) The DIP Extension Order (Joint A.R.,
vol. I, at p. 156)
[102]
On June 12, 2009, Morawetz J. heard and granted
an application by Indalex to allow them to borrow approximately $5 million more
from the DIP lenders, thus raising the allowed total to US$29.5 million.
[103]
Counsel for the former executives received the
motion material the night before. Counsel for USW was also served with notice.
At the motion, the former executives (along with second priority secured
noteholders) sought to “reserve their rights with respect to the relief
sought”: 2009 CanLII 37906 (Ont. S.C.J.), at para. 4. Morawetz J. wrote that
any “reservation of rights” would create uncertainty for the DIP lenders with
regard to priority, and may prevent them from extending further advances.
Moreover, the parties had presented no alternative to increased DIP financing,
which was both “necessary and appropriate” and would, it was to be hoped,
“improve the position of the stakeholders”: paras. 5-9.
(4) The Bidding Order ((2009), 79 C.C.P.B.
101 (Ont. S.C.J.))
[104]
On July 2, 2009, Indalex brought a motion for approval
of proposed bidding procedures for Indalex’s assets. Morawetz J. decided that
a stalking horse bid by SAPA Holding AB (“SAPA”) for Indalex’s assets could
count as a qualifying bid. Counsel on behalf of the members of the executive
plan appeared, with the concern that “their position and views have not been
considered in this process”: para. 8. In his decision, Morawetz J. decided
that these arguments could be dealt with later, at a sale approval motion:
para. 10. The judge said:
The
position facing the retirees is unfortunate. The retirees are currently not
receiving what they bargained for. However, reality cannot be ignored and
the nature of the Applicants’ insolvency is such that there are insufficient
assets to meet its liabilities. The retirees are not alone in this respect.
The objective of these proceedings is to achieve the best possible outcome for
the stakeholders. [Emphasis added; para. 9.]
(5) The Sale Approval Order (Joint A.R., vol. I, at p. 166)
[105]
On July 20, 2009, Indalex brought two motions
before Campbell J.
[106]
The first motion sought approval for the sale of
Indalex’s assets as a going concern to SAPA. SAPA was not to assume any
pension liabilities. Campbell J. granted an order approving this sale.
[107]
The second motion sought approval for an interim
distribution of the sale proceeds to the DIP lenders. Counsel on behalf of the
executive plan members and the USW, representing some of the salaried
employees, objected to the planned distribution of the sale proceeds on grounds
that a statutory deemed trust applied to the deficiencies in their plans and
that Indalex had breached fiduciary duties that it owed to them. Campbell J.
ordered the Monitor to pay the DIP agent from the sale proceeds, but also
ordered the Monitor to set up a reserve fund in an amount sufficient to answer,
among other things, the claims of the plan beneficiaries pending resolution of
those matters. Campbell J. ordered that the U.S. debtors be subrogated to the
DIP lenders to the extent that the U.S. debtors were required under the
guarantee to satisfy the DIP lenders’ claims: para. 14.
(6) The Sale and Distribution of Funds
[108]
SAPA bought Indalex’s assets on July 31, 2009.
Taking the reserve fund into account, the sale did not produce sufficient funds
to repay the DIP lenders in full and so the U.S. debtors paid US$10,751,247 as
guarantor to the DIP lenders: C.A. reasons, at para. 65.
(7) The Order Under Appeal
[109]
On August 28, 2009, Campbell J. heard claims by
the USW (appearing on behalf of some members of the salaried plan) and counsel
appearing on behalf of the executive plan members that the wind-up deficiency
was subject to a deemed trust. He rejected these claims in a written decision
on February 18, 2010. He decided that the s. 57(4) PBA deemed trust did
not apply to wind-up deficiencies. The executive plan had not been wound up,
and therefore there was no wind-up deficiency to be the subject of the deemed
trust. As for the salaried plan, Campbell J. held that the wind-up deficiency
was not an obligation that had “accrued to the date of the wind up” and as a
result did not fall within the terms of the s. 57(4) deemed trust.
[110]
Indalex had asked for the stay granted under the
initial order to be lifted so that it could assign itself into bankruptcy. Because
he did not find a deemed trust, Campbell J. did not feel that he needed to
decide on the motion to lift the stay.
(8) The Decision of the Ontario Court of
Appeal
[111]
The Ontario Court of Appeal allowed an appeal
from the decision of Campbell J.
[112]
Writing for a unanimous panel, Gillese J.A. decided that the s. 57(4) deemed trust is
applicable to wind-up deficiencies. She took the view that s. 57(4)’s
reference to “employer contributions accrued to the date of the wind up but not
yet due” included all amounts that the employer owed on the wind-up of its
pension plan: para. 101. In particular, she concluded that the deemed trust
applied to the wind-up deficiency in the salaried plan. Gillese J.A. declined,
however, to decide whether the deemed trust also applied to deficiencies in the
executive plan, which had not been wound up by the relevant date: paras. 110-12. A decision on this latter point was unnecessary given her
finding on the applicability of a constructive trust in this case.
[113]
Gillese J.A. found that the super priority
provided for in the DIP order did not trump the deemed trust over the salaried
plan’s wind-up deficiency. Morawetz J. had not “invoked” the issue of
paramountcy or made an explicit finding that the requirements of federal law required
that the provincially created deemed trust must be overridden: paras. 178-79.
Gillese J.A. also took the view that this Court’s decision in Century
Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R.
379, did not mean that provincially created priorities that would be
ineffective under the Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3
(“BIA ”), were also ineffective under the CCAA : paras. 185-96.
The deemed trust therefore ranked ahead of the DIP security.
[114]
In addition to her
findings regarding deemed trusts, Gillese J.A. granted
the plan beneficiaries a constructive trust over the amount of the reserve fund
on the ground that Indalex, as pension plan administrator, had breached
fiduciary duties that it owed to the plan beneficiaries during the CCAA proceedings.
[115]
She held that as a plan administrator who was
also an employer, Indalex had fiduciary duties both to the plan beneficiaries
and to the corporation: para. 129. In her view, Indalex was subject to both
sets of duties throughout the CCAA proceedings and it had breached its
duties to the plan beneficiaries in several ways. While Indalex had the right
to initiate CCAA proceedings, this action made the plan beneficiaries
vulnerable and therefore triggered its fiduciary obligations as plan
administrator: paras. 132-33. Gillese J.A. enumerated the many ways in which
she thought Indalex subsequently failed as plan administrator: it did nothing
in the CCAA proceedings to fund the deficit in the underfunded plans; it
applied for CCAA protection without notice to the beneficiaries; it
obtained DIP financing on the condition that DIP lenders be granted a super
priority over “statutory trusts”; it obtained this financing without notice to
the plan beneficiaries; it sold its assets knowing the purchaser was not taking
over the plans; and it attempted to enter into voluntary bankruptcy, which
would defeat any deemed trust claims the beneficiaries might have asserted:
para. 139. Gillese J.A. also noted that throughout the CCAA proceedings
Indalex was in a conflict of interest because it was acting for both the
corporation and the beneficiaries.
[116]
Indalex’s failure to live up to its fiduciary
duties meant that the plan beneficiaries were entitled to a constructive trust
over the amount of the reserve fund: para. 204. Since the beneficiaries had
been wronged by Indalex, and the U.S. debtors were not, with respect to
Indalex, an “arm’s length innocent third party” the appropriate response was to
grant the beneficiaries a constructive trust: para. 204. Her conclusion on this
point applied equally to the salaried and executive plans.
III. Analysis
A. First Issue: Did the Court of Appeal Err in Finding That
the Deemed Statutory Trust Provided for in Section 57(4) of the PBA Applied to
the Salaried Plan’s Wind-up Deficiency?
(1) Introduction
[117]
The main issue addressed here concerns whether
the statutory deemed trust provided for in s. 57(4) of the PBA applies
to wind-up deficiencies, the payment of which is provided for in s. 75(1)(b).
[118]
The deemed trust created by s. 57(4) applies to
“employer contributions accrued to the date of the wind up but not yet due
under the plan or regulations”. Thus, to be subject to the deemed trust, the
pension plan must be wound up and the amounts in question must meet three
requirements. They must be (1) “employer contributions”, (2) “accrued to the
date of the wind up” and (3) “not yet due”. A wind-up deficiency arises
“[w]here a pension plan is wound up”: s. 75(1). I agree with my colleagues that
there can be no deemed trust for the executive plan, because that plan had not
been wound up at the relevant date. What follows, therefore, is relevant only
to the salaried plan.
[119]
The wind-up deficiency payments are “employer
contributions” which are “not yet due” as of the date of wind up within the
meaning of the PBA. The main issue before us, therefore, boils down to
the narrow interpretative question of whether the wind-up deficiency described
in s. 75(1)(b) is “accrued to the date of the wind up”.
[120]
Campbell J. at first instance found that it was
not, while the Court of Appeal reached the opposite conclusion. In essence,
the Court of Appeal reasoned that the deemed trust in s. 57(4) “applies to all
employer contributions that are required to be made pursuant to s. 75”, that
is, to “all amounts owed by the employer on the wind-up of its pension plan”:
para. 101.
[121]
I respectfully disagree with the Court of
Appeal’s conclusion for three main reasons. First, the most plausible
grammatical and ordinary sense of the words “accrued to the date of the wind
up” is that the amounts referred to are precisely ascertained immediately
before the effective date of the plan’s wind up. The wind up deficiency only
arises upon wind up and it is neither ascertained nor ascertainable on the date
fixed for wind up. Second, the broader statutory context reinforces this view:
the language of the deemed trusts in s. 57(3) and (4) is virtually exactly
repeated in s. 75(1)(a), suggesting that both deemed trusts refer to the
liability on wind up referred to in s. 75(1)(a) and not to the further and
distinct wind-up deficiency liability created under s. 75(1)(b). Finally, the
legislative evolution and history of these provisions show, in my view, that
the legislature never intended to include the wind-up deficiency in a statutory
deemed trust.
[122]
Before turning to the precise interpretative
issue, it will be helpful to provide some context about the employer’s wind-up
obligations and the deemed trust provisions that are the subject of this
dispute.
(2) Employer Obligations on Wind Up
[123]
A “wind up” means that the plan is terminated
and the plan assets are distributed: see PBA, s. 1(1), definition of
“wind up”. The employer’s liability on wind-up consists of two main
components. The first is provided for in s. 75(1)(a) and includes “an amount
equal to the total of all payments that, under this Act, the regulations and
the pension plan, are due or that have accrued and that have not been paid into
the pension fund”. This liability applies to contributions that were due as at
the wind-up date but does not include payments required by s. 75(1)(b)
that arise as a result of the wind up: A. N. Kaplan, Pension Law (2006),
at pp. 541-42. This second liability is known as the wind-up deficiency amount.
The employer must pay all additional sums to the extent that the assets of the
pension fund are insufficient to cover the value of all immediately vested and
accelerated benefits and grow-in benefits: Kaplan, at p. 542. Without going
into detail, there are certain statutory benefits that may arise only on wind up,
such as certain benefit enhancements and the potential for acceleration of
pension entitlements. Thus, wind up will usually result in additional employer
liabilities over and above those arising from the obligation to pay all
benefits provided for in the plan itself: see, e.g., ss. 73-74; Kaplan, at p.
542. As the Court of Appeal concluded, the payments provided for under s.
75(1)(a) are those which the employer had to make while the plan was ongoing,
while s. 75(1)(b) refers to the employer’s obligation to make up for any wind-up
deficiency: paras. 90-91.
[124]
For convenience, the provision as it then stood
is set out here.
75. (1) Where a pension plan is wound up in whole or in part,
the employer shall pay into the pension fund,
(a) an amount equal to the total of all payments that, under this Act,
the regulations and the pension plan, are due or that have accrued and that
have not been paid into the pension fund; and
(b) an amount equal to the amount by which,
(i) the value of the pension benefits under the pension plan that would be
guaranteed by the Guarantee Fund under this Act and the regulations if the
Superintendent declares that the Guarantee Fund applies to the pension plan,
(ii)
the value of the pension benefits accrued with respect to employment in
Ontario vested under the pension plan, and
(iii)
the value of benefits accrued with respect to employment in Ontario
resulting from the application of subsection 39 (3) (50 per cent rule) and
section 74,
exceed the value of the assets of
the pension fund allocated as prescribed for payment of pension benefits
accrued with respect to employment in Ontario.
[125]
While a wind up is effective as of a fixed date,
a wind up is nonetheless best thought of not simply as a moment or a single
event, but as a process. It begins by a triggering event and continues until
all of the plan assets have been distributed. To oversimplify somewhat, the
wind-up process involves the following components.
[126]
The assets and liabilities of the plan as of the
wind-up date must be determined. As noted earlier, the precise extent of the
liability, while fixed as of that date, will not be ascertained or
ascertainable on that date. The extent of the liability may depend on
choices open to plan beneficiaries under the plan and on the exercise by them
of certain statutory rights beyond the options that would otherwise have been
available under the plan itself. The plan members must be notified of the wind-up
and have their entitlements and options set out for them and given an
opportunity to make their choices. The plan administrator must file a wind-up
report which includes a statement of the plan’s assets and liabilities, the
benefits payable under the terms of the plan, and the method of allocating and
distributing the assets including the priorities for the payment of benefits: PBA,
s. 70(1), and R.R.O. 1990, Reg. 909, s. 29 (the “PBA Regulations”).
[127]
Benefits to members may take the form of “cash refunds,
immediate or deferred annuities, transfers to registered retirement saving
plans, . . . . In principle, the value of these benefits is the present value
of the benefits accrued to the date of plan termination”: The Mercer
Pension Manual (loose-leaf), vol. 1, at p. 10-41. That present value is an
actuarial calculation performed on the basis of various assumptions including
assumptions about investment return, mortality and so forth.
[128]
If, when the assets and liabilities are
calculated, the assets are insufficient to satisfy the liabilities, the
employer (i.e. the plan sponsor) must make up for any wind-up deficiency: PBA,
s. 75(1)(b). An employer can elect to space these payments out over the course
of five years: PBA Regulations, s. 31(2). Because these payments are
based on the extent to which there is a deficit between assets in the pension
plan and the benefits owed to beneficiaries, their amount varies with the
market and other assumed elements of the calculation over the course of the
permitted five years.
[129]
To take the salaried plan as an example, at the
time of wind-up, all regular current service contributions had been made: C.A.
reasons, at para. 33. The wind-up deficiency was initially estimated to be
$1,655,200. Indalex made special wind-up payments of $709,013 in 2007 and
$875,313 in 2008, but as of December 31, 2008, the wind-up deficiency was
$1,795,600 — i.e. higher than it had been two years before, notwithstanding
that payments of roughly $1.6 million had been made: C.A. reasons, at para.
32. Indalex made another payment of $601,000 in April 2009: C.A. reasons, at
para. 32.
(3) The Deemed Trust Provisions
[130]
The PBA contains provisions whose purpose
is to exempt money owing to a pension plan, and which is held or owing by the
employer, from being seized or attached by the employer’s other creditors:
Kaplan, at p. 395. This is accomplished by creating a “deemed trust” with
respect to certain pension contributions such that these amounts are held by
the employer in trust for the employees or pension beneficiaries.
[131]
There are two deemed trusts that we must examine
here, one relating to employer contributions that are due but have not been
paid and another relating to employer contributions accrued but not due.
This second deemed trust is the one in issue here, but it is important to
understand how the two fit together.
[132]
The deemed trust relating to employer
contributions “due and not paid” is found in s. 57(3). The PBA and PBA
Regulations contain many provisions relating to contributions required by
employers, the due dates for which are specified. Briefly, the required
contributions are these.
[133]
When a pension is
ongoing, employers need to make regular current service cost contributions.
These are made monthly, within 30 days after the month to which they relate: PBA
Regulations, s. 4(4)3. There are also special payments, which relate to
deficiencies between a pension plan’s assets and liabilities. There are “going-concern”
deficiencies and “solvency” deficiencies, the distinction between which is
unimportant for the purposes of these appeals. A plan administrator must
regularly file actuarial reports, which may disclose deficiencies: PBA
Regulations, s. 14. Where there is a going-concern deficiency the
employer must make equal monthly payments over a 15-year period to rectify it: PBA
Regulations, s. 5(1)(b). Where there is a solvency deficiency, the employer
must make equal monthly payments over a five-year period to rectify it: PBA
Regulations, s. 5(1)(e). Once these regular or special
payments become due but have not been paid, they are subject to the s. 57(3)
deemed trust.
[134]
I turn next to the s.
57(4) deemed trust, which gives rise to the question before us. The subsection
provides that “[w]here a pension plan is wound up . . ., an employer who is
required to pay contributions to the pension fund shall be deemed to hold in
trust for the beneficiaries of the pension plan an amount of money equal
to employer contributions accrued to the date of the wind up but not yet due under the plan or regulations”.
[135]
When a pension plan is
wound up there will be an interrupted monthly payment period, which is
sometimes referred to as the stub period. During this stub period regular and
special liabilities will have accrued but not yet become due. Section 58(1)
provides that money that an employer is required to pay “accrues on a daily
basis”. Because the amounts referred to in s. 57(4) are not yet due, they are
not covered by the s. 57(3) deemed trust, which applies only to payments that
are due. The two provisions, then, operate in tandem to create a trust
over an employer’s unfulfilled obligations, which are “due and not paid” as
well as those which have “accrued to the date of the wind up but [are] not yet
due”.
(4) The Interpretative Approach
[136]
The issue we confront is one of statutory
interpretation and the well-settled approach is that “the words of an Act are
to be read in their entire context and in their grammatical and ordinary sense
harmoniously with the scheme of the Act, the object of the Act, and the
intention of Parliament”: E. A. Driedger, Construction of Statutes (2nd
ed. 1983), at p. 87; Bell ExpressVu Limited Partnership v. Rex, 2002 SCC
42, [2002] 2 S.C.R. 559, at para. 26. Taking this approach it is clear to me
that the sponsor’s obligation to pay a wind-up deficiency is not covered by the
statutory deemed trust provided for in s. 57(4) of the PBA. In my view,
the deficiency neither “accrued”, nor did it arise within the period referred
to by the words “to the date of the wind up”.
(a) Grammatical and Ordinary Sense
of the Words “Accrued” and “to the Date of the Wind Up”
[137]
The Court of Appeal
failed to take sufficient account of the ordinary and grammatical meaning of
the text of the provisions. It held that “the deemed trust in s. 57(4) applies
to all employer contributions that are required to be made pursuant to s. 75”:
para. 101 (emphasis added). However, the plain words of the section show that
this conclusion is erroneous. Section 75(1)(a) refers to liability for employer
contributions that “are due . . . and that have not been paid”. These
amounts are thus not included in the s. 57(4) deemed trust, because it
addresses only amounts that have “accrued to the date of the wind up but
[are] not yet due”. Amounts “due” are covered by the s. 57(3) deemed trust
and not, as the Court of Appeal concluded by the deemed trust created by s.
57(4). The Court of Appeal therefore erred in finding, in effect, that amounts
which “are due” could be included in a deemed trust covering amounts “not yet
due”.
[138]
In my view, the most plausible grammatical and
ordinary sense of the phrase “accrued to the date of the wind up” in s. 57(4)
is that it refers to the sums that are ascertained immediately before the
effective wind-up date of the plan.
[139]
In the context of s. 57(4), the grammatical and
ordinary sense of the term “accrued” is that the amount of the obligation is
“fully constituted” and “ascertained” although it may not yet be payable. The
amount of the wind-up deficiency is not fully constituted or ascertained (or
even ascertainable) before or even on the date fixed for wind up and therefore
cannot fall under s. 57(4).
[140]
Of course, the meaning of the word “accrued” may
vary with context. In general, when the term “accrued” is used in relation to
legal rights, its common meaning is that the right has become fully constituted
even though the monetary implications of its enforcement are not yet known or
knowable. Thus, we speak of the “accrual” of a cause of action in tort when all
of the elements of the cause of action come into existence, even though the
extent of the damage may well not be known or knowable at that time: see,
e.g., Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53. However, when the
term is used in relation to a sum of money, it will generally refer to an
amount that is at the present time either quantified or exactly quantifiable
but which may or may not be due.
[141]
In some contexts, a liability is said to accrue
when it becomes due. An accrued liability is said to be “properly chargeable”
or “owing on a given day” or “completely constituted”: see, e.g., Black’s
Law Dictionary (9th ed. 2009), at p. 997, “accrued liability”; D. A.
Dukelow, The Dictionary of Canadian Law (4th ed. 2011), at p. 13,
“accrued liability”; Hydro-Electric Power Commission of Ontario v. Albright
(1922), 64 S.C.R. 306, at p. 312.
[142]
In other contexts, an amount which has accrued
may not yet be due. For example, we speak of “accrued interest” meaning a
precise, quantified amount of interest that has been earned but may not yet be
payable. The term “accrual” is used in the same way in “accrual accounting”. In
accrual method accounting, “transactions that give rise to revenue or costs are
recognized in the accounts when they are earned and incurred respectively”: B.
J. Arnold, Timing and Income Taxation: The Principles of Income Measurement
for Tax Purposes (1983), at p. 44. Revenue is earned when the recipient
“substantially completes performance of everything he or she is required to do
as long as the amount due is ascertainable and there is no uncertainty about
its collection”: P. W. Hogg, J. E. Magee and J. Li, Principles of Canadian
Income Tax Law (7th ed. 2010), at s. 6.5(b); see also Canadian Institute of
Chartered Accountants, CICA Handbook — Accounting, Part II, s.
1000, at paras. 41-44. In this context, the amount must be ascertained at the
time of accrual.
[143]
The Hydro-Electric Power Commission case
offers a helpful definition of the word “accrued” in this sense. On a sale of
shares, the vendor undertook to provide on completion “a sum estimated by him
to be equal to sinking fund payments [on the bonds and debentures] which
shall have accrued but shall not be due at the time for completion”: p. 344
(emphasis added). The bonds and debentures required the company to pay on July
1 of each year a fixed sum for each electrical horsepower sold and paid for
during the preceding calendar year. A dispute arose as to what amounts were
payable in this respect on completion. Duff J. held that in this context
accrued meant “completely constituted”, referring to this as a “well recognized
usage”: p. 312. He went on:
Where . . . a lump sum is made payable
on a specified date and where, having regard to the purposes of the payment or
to the terms of the instrument, this sum must be considered to be made up of an
accumulation of sums in respect of which the right to receive payment is
completely constituted before the date fixed for payment, then it is quite
within the settled usage of lawyers to describe each of such accumulated parts
as a sum accrued or accrued due before the date of payment. [p. 316]
Thus, at every point at which a
liability to pay a fixed sum arose under the terms of the contract, that
liability accrued. It was fully constituted even though not yet due because the
obligation to make the payment was in the future. In reaching this conclusion,
Duff J. noted that the bonds and debentures used the word “accrued” in contrast
to “due” and that this strengthened the interpretation of “accrued” as an
obligation fully constituted but not yet payable. Similarly in s. 57(4), the
word “accrued” is used in contrast to the word “due”.
[144]
Given my understanding of the ordinary meaning
of the word “accrued”, I must respectfully disagree with my colleague, Justice
Deschamps’ position that the wind-up deficiency can be said to have “accrued”
to the date of wind up. In her view, “[s]ince the employees cease to accumulate
entitlements when the plan is wound up, the entitlements that are used to
calculate the contributions have all been accumulated before the wind-up date”
(para. 34) and “no new liabilities accrue at the time of or after the wind up”
(para. 36). My colleague maintains that “[t]he fact that the precise amount of
the contribution is not determined as of the time of the wind up does not make
it a contingent contribution that cannot have accrued for accounting purposes”
(para. 37, referring to Canadian Pacific Ltd. v. M.N.R. (1998), 41 O.R.
(3d) 606 (C.A.)).
[145]
I cannot agree that no new liability accrues on
or after the wind up. As discussed in more detail earlier, the wind-up
deficiency in s. 75(1)(b) is
made up of the difference between the plan’s assets and liabilities calculated
as of the date of wind up. On wind up, the PBA accords statutory
entitlements and protections to employees that would not otherwise be
available: Kaplan, at p. 532. Wind up therefore gives rise to new liabilities.
In particular, on wind up, and only on wind up, plan beneficiaries are
entitled, under s. 74, to make elections regarding the payment of their
benefits. The plan’s liabilities cannot be determined until those elections are
made. Contrary to what my colleague Justice Deschamps suggests, the extent of
the wind-up deficiency depends on employee rights that arise only upon wind up
and with respect to which employees make elections only after wind up.
[146]
Moreover, the wind-up
deficiency will vary after wind up because the amount of money necessary to
provide for the payment of the plan sponsor’s liabilities will vary with the
market. Section 31 of the PBA Regulations allows s. 75 payments to be
spaced out over the course of five years. As we have seen, the amount of the
wind-up deficiency will fluctuate over this period (I set out earlier how this
amount in fact fluctuated markedly in the case of the salaried plan in issue
here). Thus, while estimates are periodically made and
reported after the wind up to determine how much the employer needs to pay, the
precise amount of the wind-up deficiency is not ascertained or ascertainable on
the date of the wind up.
[147]
I turn next to the ordinary and grammatical
sense of the words “to the date of the wind up” in s. 57(4). In my view, these
words indicate that only those contributions that accrue before the date of
wind up, and not those amounts the liability for which arises only on the day
of wind up — that is, the wind-up deficiency — are included.
[148]
Where the legislature intends to include the
date of wind up, it has used suitable language to effect that purpose. For
example, the English version of a provision amending the PBA in 2010 (c.
24, s. 21(2)), s. 68(2)(c), indicates which trade unions are entitled to notice
of the wind up:
68. . . .
(2)
If the employer or the administrator, as the case may be, intends to wind up
the pension plan, the administrator shall give written notice of the intended
wind up to,
. . .
(c) each trade union that represents
members of the pension plan or that, on the date of the wind up,
represented the members, former members or retired members of the pension plan;
In contrast to the phrase
“to the date of wind up”, “on the date of wind up” clearly includes the date of
wind up. (The French version does not indicate a different intention.)
Similarly, s. 70(6), which formed part of the PBA until 2012 (rep. S.O.
2010, c. 9, s. 52(5)), read as follows:
70. . . .
(6)
On the partial wind up of a pension plan, members, former members and other
persons entitled to benefits under the pension plan shall have rights and
benefits that are not less than the rights and benefits they would have on a
full wind up of the pension plan on the effective date of the partial wind
up.
The words “on the effective date of
the partial wind up” indicate that the members are entitled to those benefits
from the date of the partial wind up, in the sense that members can claim their
benefits beginning on the date of the wind up itself. This is how the
legislature expresses itself when it wants to speak of a period of time
including a specific date. By comparison, “to the date of the wind up” is
devoid of language that would include the actual date of wind up. This
conclusion is further supported by the structure of the PBA and its
legislative history and evolution, to which I will turn shortly.
[149]
To sum up with respect to the ordinary and
grammatical meaning of the phrase “accrued to the date of the wind up”, the
most plausible ordinary and grammatical meaning is that such amounts are fully
constituted and precisely ascertained immediately before the date fixed as the
date of wind up. Thus, according to the ordinary and grammatical meaning of the
words, the wind-up deficiency obligation set out in s. 75(1)(b) has not “accrued
to the date of the wind up” as required by s. 57(4). Moreover, the liability
for the wind-up deficiency arises where a pension plan is wound up (s.
75(1)(b)) and so it cannot be a liability that “accrued to the date of the
wind up” (s. 57(4)).
(b) The Scheme of the Act
[150]
As discussed earlier, s. 57 establishes deemed
trusts over funds which must be contributed to a pension plan, including the
one in s. 57(4), which is at issue here. It is helpful to consider these deemed
trusts in the context of the obligations to pay funds which give rise to them.
Specifically, the relationship between the deemed trust provisions in s. 57(3)
and (4), on one hand, and s. 75(1), which sets out liabilities on wind up on
the other. According to my colleague Justice Deschamps, s. 75(1) “elegantly
parallels the wind-up deemed trust provision” (para. 42) such that the deemed
trusts must include the wind-up deficiency. I disagree. In my view, the deemed
trusts parallel only s. 75(1)(a), which does not relate to the wind-up
deficiency. The correspondence between the deemed trusts and s. 75(1)(a), and
the absence of any such correspondence with s. 75(1)(b), makes it clear that
the wind-up deficiency is not covered by the deemed trust provisions.
[151]
I would recall here the difference between the
deemed trusts created by s. 57(3) and (4). While a plan is ongoing, there may
be payments which the employer is required to, but has failed to make. The s. 57(3) trust applies to these payments
because they are “due and not paid”. When a plan is wound up, however,
there will be payments that are outstanding in the sense that they are fully
constituted, but not yet due. This occurs with respect to the so-called stub
period referred to earlier. During this stub period, regular and special
liabilities will accrue on a daily basis, as provided for in s. 58(1), but may
not be due at the time of wind up. While s. 57(3) cannot apply to these
payments because they are not yet due, the deemed trust under s. 57(4) applies
to these payments because liability for them has “accrued to the date of the
wind up” and they are “not yet due”.
[152]
The important point is how these two deemed
trust provisions relate to the wind-up liabilities as described in ss. 75(1)(a)
and 75(1)(b). The two paragraphs refer to sums of money that are different in
kind: while s. 75(1)(a) refers
to liabilities that accrue before wind up and that are created elsewhere in the
Act, s. 75(1)(b) creates a completely new liability that comes into existence
only once the plan is wound up. There is no dispute, as
I understand it, that these two paragraphs refer to different liabilities and
that it is the liability described in s. 75(1)(b) that is the wind-up deficiency
in issue here. The parties do
not dispute that s. 75(1)(a) does not include
wind-up deficiency payments.
[153]
It is striking how closely the text of s.
75(1)(a) — which does not relate to the wind-up deficiency — tracks the
language of the deemed trust provisions in s. 57(3) and (4). As noted, s. 57(3)
deals with “employer contributions due and not paid”, while s. 57(4) deals with
“employer contributions accrued to the date of the wind up but not yet due”.
Section 75(1)(a) includes both of these types of employer contributions. It
refers to “payments that . . . are due . . . and that have not been paid” (i.e.
subject to the deemed trust under s. 57(3)) or that have “accrued and that have
not been paid” (i.e. subject to the deemed trust under s. 57(4) to the extent
that these payments accrued to the date of wind up). This very close tracking
of the language between s. 57(3) and (4) on the one hand and s. 75(1)(a) on the
other, and the absence of any correspondence between the language of these
deemed trust provisions with s. 75(1)(b), suggests that the s. 57(3) and (4)
deemed trusts refer to the liability described in s. 75(1)(a) and not to the
wind-up deficiency created by s. 75(1)(b). It is difficult to understand why,
if the intention had been for s. 57(4) to capture the wind-up deficiency
liability under s. 75(1)(b), the legislature would have so closely tracked the
language of s. 75(1)(a) alone in creating the deemed trusts. Thus, in my
respectful view, the elegant parallel to which my colleague, Justice Deschamps
refers exists only between the deemed trust and s. 75(1)(a), and not between
the deemed trust and the wind-up deficiency.
[154]
I conclude that the scheme of the PBA
reinforces my conclusion that the ordinary grammatical sense of the words in s.
57(4) does not extend to the wind-up deficiency provided for in s. 75(1)(b).
(c) Legislative History and Evolution
[155]
Legislative history and evolution may form an
important part of the overall context within which a provision should be
interpreted. Legislative evolution refers to the various formulations of the
provision while legislative history refers to evidence about the provision’s
conception, preparation and enactment: see, e.g., Canada (Canadian Human
Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011] 3
S.C.R. 471, at para. 43.
[156]
Both the legislative evolution and history of
the PBA show that it was never the legislature’s intention to include
the wind-up deficiency in the deemed trust. The evolution and history of the PBA
are rather intricate and sometimes difficult to follow so I will review them
briefly here before delving into a more detailed analysis.
[157]
The deemed trust was first introduced into the PBA
in 1973. At that time, it covered employee contributions held by the employer
and employer contributions that were due but not paid. In 1980, the PBA was
amended so that the deemed trust was expanded to include employer contributions
whether they were due or not. Also, new provisions were added allowing for
employee elections and requiring additional payments by the employer where a
plan was wound up. The 1980 amendments gave rise to confusion on two fronts:
first, it was unclear whether the payments that were required on wind up were
subject to the deemed trust; second, it was unclear whether a lien over some
employer contributions covered the same amount as the deemed trust. In 1983,
both these points were clarified. The sections were reworded and rearranged to
make it clear that the wind-up deficiency was distinct from the amounts covered
by the deemed trust, and that the lien and the deemed trust covered the same
amount. A statement by the responsible Minister in 1982 confirms that the
deemed trusts were never intended to cover the wind-up deficiency.
[158]
My colleague, Justice Deschamps maintains that
this history suggests an evolution in the intention of the legislature from
protecting “only the service contributions that were due . . . to all amounts
due and accrued upon wind up” (para. 42). I respectfully disagree. In my view,
the history and evolution of the PBA leading up to and including 1983
show that the legislature never intended to include the wind-up deficiency in
the deemed trust. Moreover, legislative evolution after 1983 confirms that this
intention did not change.
(i) The Pension Benefits Amendment Act,
1973, S.O. 1973, c. 113
[159]
So far as I can determine, statutory deemed
trusts were first introduced into the PBA by The Pension Benefits
Amendment Act, 1973, S.O. 1973, c. 113, s. 6. Those amendments created
deemed trusts over two amounts: employee pension contributions received by
employers (s. 23a(1), similar to the deemed trust in the current s.
57(1)) and employer contributions that had fallen due under the plan (s. 23a(3),
similar to the current s. 57(3) deemed trust for employer contributions “due
and not paid”). The full text of these provisions and those referred to below,
up to the current version of the 1990 Act, are found in the Appendix.
(ii) The Pension Benefits Amendment Act, 1980,
S.O. 1980, c. 80
[160]
Ontario undertook significant pension reform
leading to The Pension Benefits Amendment Act, 1980, S.O. 1980,
c. 80; see Kaplan, at pp. 54-56. I will concentrate on the deemed trust
provisions and how they related to the liabilities on wind up and, for ease of
reference, I will refer to the sections as they were renumbered in the 1980
consolidation: R.S.O. 1980, c. 373. The 1980 legislation expanded the deemed
trust relating to employer contributions. Although far from clear, the new
provisions appear to have created a deemed trust and lien over the employer
contributions whether otherwise payable or not and calculated as if the plan
had been wound up on the relevant date.
[161]
It was unclear after the reforms of 1980 whether
the deemed trust applied to all employer contributions that arose on wind up.
According to s. 23(4), on any given date, the trust extended to an amount to be
determined “as if the plan had been wound up on that date”. However, the
provisions of the 1980 version of the Act did not explicitly state what
such a calculation would include. Under s. 21(2) of the 1980 statute, the
employer was obligated to pay on wind up “all amounts that would otherwise have
been required to be paid to meet the tests for solvency . . . , up to the date
of such termination or winding up”. Under s. 32, however, the employer had to
make a payment on wind up that was to be “[i]n addition” to that due under s.
21(2). Whether the legislature intended that the trust should cover this latter
payment was left unclear.
[162]
It was also unclear whether the lien applied to
a different amount than was subject to the deemed trust. According to s. 23(3),
“the members have a lien upon the assets of the employer in such amount that in
the ordinary course of business would be entered into the books of account
whether so entered or not”. This comes in the middle of two portions of the
provision which explicitly refer to the deemed trust, but it is not clear
whether the legislature intended to refer to the same amount throughout the
provision.
(iii) The Pension Benefits Amendment Act, 1983,
S.O. 1983, c. 2
[163]
The 1983 amendments substantially clarified the
scope of the deemed trust and lien for employer contributions. They make clear
that neither the deemed trust nor the lien applied to the wind-up deficiency;
the responsible Minister confirmed that this was the intention of the
amendments.
[164]
The new provision was amended by s. 3 of the
1983 amendments and is found in s. 23(4) which provided:
23. . . .
(4) An employer who is required by a
pension plan to contribute to the pension plan shall be deemed to hold in trust
for the members of the pension plan an amount of money equal to the total of,
(a) all moneys
that the employer is required to pay into the pension plan to meet,
(i) the
current service cost, and
(ii) the
special payments prescribed by the regulations,
that are
due under the pension plan or the regulations and have not been paid into the
pension plan; and
(b) where
the pension plan is terminated or wound up, any other money that the employer
is liable to pay under clause 21 (2) (a).
Section 21(2)(a) provides that on
wind up, the employers must pay an amount equal to the current service cost
and the special payments that “have accrued to and including the date of
the termination winding up but, under the terms of the pension plan or the
regulations, are not due on that date”; the provision adds that these amounts
shall be deemed to accrue on a daily basis. These provisions make it clear
that the s. 23(4) deemed trust applies only to the special payments and current
service costs that have accrued, on a daily basis, up to and including the date
of wind up. The deemed trust clearly does not extend to the wind-up deficiency.
[165]
The provision referring to the additional
payments required on wind up also makes clear that those payments are not
within the scope of the deemed trust. These additional liabilities were
described by s. 32, a provision very similar to s. 75(1)(b). These amounts are
first, the amount guaranteed by the Guarantee Fund and, second, the value of
pension benefits vested under the plan that exceed the value of the assets of
the plan. Section 32(2) specifies that these amounts are “in
addition to the amounts that the employer is liable to pay under subsection
21 (2)” (which are the payments comparable to the current s. 75(1)(a) payments)
and that only the latter fall within the deemed trust. The inevitable
conclusion is that, in 1983, the wind-up deficiency was not included in the
scope of the deemed trust.
[166]
The 1983 amendments also clarified the scope of
the lien. They indicated that the scope of the lien was identical to the scope
of the deemed trust. Section 23(5) specified that the lien extended only to the
amounts that were deemed to be held in trust under s. 23(4) (i.e. the current
service costs and special payments that had accrued to and including the date
of the wind up but are not yet due).
[167]
This makes two things clear: that the lien
covers the same amounts as the deemed trust, and that neither covers the wind-up
deficiency.
[168]
A brief, but significant piece of legislative
history seems to me to dispel any possible doubt. In speaking at first reading
of the 1983 amendments, the Minister responsible, the Honourable Robert Elgie
said this:
The
first group of today’s amendments makes up the housekeeping changes needed for
us to do what we set out to do in late 1980; that is, to guarantee pension
benefits following the windup of a defined pension benefit plan. These
amendments will clarify the ways in which we can attain that goal.
In
Bill 214 [i.e. the 1980 amendments] the employees were given a lien on the
employer’s assets for employee contributions to a pension plan collected by the
employer, as well as accrued employer contributions. . . .
Unfortunately,
this protection has resulted in different legal interpretations on the extent of
the lien. An argument has been advanced that the amount of the lien
includes an employer’s potential future liability on the windup of a pension
plan. This was never intended and is not necessary to provide the required
protection. The amendment to section 23 clarifies the intent of Bill 214.
[Emphasis added.]
(Ontario
(Hansard), No. 99, 2nd Sess., 32nd Parl., July 7, 1982, p. 3568)
The 1983 amendments made
the scope of the lien correspond precisely to the scope of the deemed trust
over the employer’s accrued contributions. It is thus clear from this statement
that it was never the legislative intention that either should apply to “an
employer’s potential future liability” on wind up (i.e. the wind-up
deficiency). In 1983, there is therefore, in my view, virtually irrefutable
evidence of legislative intent to do exactly the opposite of what the Court of
Appeal held in this case had been done.
[169]
Subsequent legislative evolution shows no change
in this legislative intent. In fact, subsequent amendments demonstrate a clear
legislative intent to exclude from the deemed trust employer liabilities that
arise only upon wind up of the plan.
(iv) Pension Benefits Act,
1987, S.O. 1987, c. 35
[170]
Amendments to the PBA in 1987 resulted in
it being substantially in its current form. With those amendments, the extent
of the deemed trusts was further clarified. The provision in the 1983 version
of the Act combined within a single subsection a deemed trust for employer
contributions that were due and not paid (s. 23(4)(a)) and employer
contributions that had accrued to and including the date of wind up but which
were not yet due (s. 23(4)(b), referring to s. 21(2)(a)). In the 1987
amendments, these two trusts were each given their own subsection and their
scope was further clarified. Moreover, after the 1987 revision, one no longer
had to refer to a separate provision (formerly s. 21(2)(a)) to determine the
scope of the trust covering payments that were accrued but not yet due. Thus,
while the substance of the provisions did not change in 1987, their form was
simplified.
[171]
The new s. 58(3) (which is exactly the same as
the current s. 57(3)) replaced the former s. 23(4)(a). This created a trust
for employer contributions due and not paid. Section 58(4) (which is exactly
the same as s. 57(4) as it stood at the time) replaced the former s. 23(4)(b)
and part of s. 21(2)(a) and created a trust that arises on wind up and covers
“employer contributions accrued to the date of the wind up but not yet
due”.
[172]
The 1987 amendment also shows that the
legislature adverted to the difference between “to the date of the wind up” and
“to and including” the date of wind up and chose the former. This is reflected
in a small but significant change in the wording of the relevant provisions.
The former provision, s. 23(4)(b), by referring to s. 21(2)(a) captured current
service costs and special payments that “have accrued to and including
the date of the termination or winding up.” The new version in s. 58(4)
deletes the words “and including”, putting the section in its present form.
This deletion, to my way of thinking, reinforces the legislative intent to exclude
from the deemed trust liabilities that arise only on the date of wind
up. Respectfully, the legislative record does not support Deschamps J.’s view
that there was a legislative evolution towards a more expanded deemed trust.
Quite the opposite.
[173]
To sum up, I draw the following conclusions
from this review of the legislative evolution and history. The legislation
differentiates between two types of employer liability relevant to this case.
The first is the contributions required to cover current service costs and any
other payments that are either due or have accrued on a daily basis up to the
relevant time. These are the payments referred to in the current s. 75(1)(a),
that is, payments due or accrued but not paid. The second relates to additional
contributions required when a plan is wound up which I have referred to as the
wind-up deficiency. These payments are addressed in s. 75(1)(b). The
legislative history and evolution show that the deemed trusts under s. 57(3)
and (4) were intended to apply only to the former amounts and that it was never
the intention that there should be a deemed trust or a lien with respect to an
employer’s potential future liabilities that arise once the plan is wound up.
(d) The Purpose of the Legislation
[174]
Excluding the wind-up deficiency from the deemed
trust is consistent with the broader purposes of the legislation. Pension
legislation aims at important protective purposes. These protective purposes,
however, are not pursued at all costs and are clearly intended to be balanced
with other important interests within the context of a carefully calibrated
scheme: Monsanto Canada
Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152, at
paras. 13-14.
[175]
In this instance, the
legislature has created trusts over contributions that were due or accrued to
the date of the wind up in order to protect, to some degree, the rights of
pension plan beneficiaries and employees from the claims of the employer’s
other creditors. However, there is also good reason to think that the
legislature had in mind other competing objectives in not extending the deemed
trust to the wind-up deficiency.
[176]
First, if there were to be a deemed trust over
all employer liabilities that arise when a plan is wound up, much simpler and
clearer words could readily be found to achieve that objective.
[177]
Second, extending the deemed trust protections
to the wind-up deficiency might well be viewed as counter-productive in the
greater scheme of things. A deemed trust of that nature might give rise to
considerable uncertainty on the part of other creditors and potential lenders.
This uncertainty might not only complicate creditors’ rights, but it might also
affect the availability of funds from lenders. The wind-up liability is
potentially large and, while the business is ongoing, the extent of the
liability is unknown and unknowable for up to five years. Its amount may, as
the facts of this case disclose, fluctuate dramatically during this time. A
liability of this nature could make it very difficult to assess the
creditworthiness of a borrower and make an appropriate apportionment of payment
among creditors extremely difficult.
[178]
While I agree that the protection of pension
plans is an important objective, it is not for this Court to decide the extent
to which that objective will be pursued and at what cost to other interests. In
her conclusion, Justice Deschamps notes that although the protection of pension
plans is a worthy objective, courts should not use the law of equity to re-arrange
the priorities that Parliament has established under the CCAA . This is a
matter of policy where courts must defer to legislatures (reasons of Justice
Deschamps, at para. 82). In my view, my colleague’s comments on this point are
equally applicable to the policy decisions reflected in the text of the PBA.
The decision as to the level of protection that should be provided to pension
beneficiaries is one to be left to the Ontario legislature. Faced with the
language in the PBA, I would be slow to infer that the broader
protective purpose, with all its potential disadvantages, was intended. In
short, the interpretation I would adopt is consistent with a balanced approach
to protection of benefits which the legislature intended.
[179]
For these reasons, I am
of the respectful view that the Court of Appeal erred in finding that the s.
57(4) deemed trust applied to the wind-up deficiency.
B. Second Issue: Did the Court of
Appeal Err in Finding That Indalex Breached the Fiduciary Duties it Owed to the
Pension Beneficiaries as the Plans’ Administrator and in Imposing a
Constructive Trust as a Remedy?
(1) Introduction
[180]
The Court of Appeal found that during the CCAA
proceedings Indalex breached its fiduciary obligations as administrator of the
pension plans: para. 116. As a remedy, it imposed a remedial constructive
trust over the reserve fund, effectively giving the plan beneficiaries recovery
of 100 cents on the dollar in priority to all other creditors, including
creditors entitled to the super priority ordered by the CCAA court.
[181]
The breaches identified by the Court of Appeal
fall into three categories. First, Indalex breached the prohibition against a
fiduciary being in a position of conflict of interest because its interests in
dealing with its insolvency conflicted with its duties as plan administrator to
act in the best interests of the plans’ members and beneficiaries: para. 142.
According to the Court of Appeal, the simple fact that Indalex found itself in
this position of conflict of interest was, of itself, a breach of its fiduciary
duty as plan administrator. Second, Indalex breached its fiduciary duty by
applying, without notice to the plans’ beneficiaries, for CCAA
protection: para. 139. Third, Indalex breached its fiduciary duty by seeking
and/or obtaining various relief in the CCAA proceedings including the
“super priority” in favour of the DIP lenders, approval of the sale of the
business knowing that no payment would be made to the underfunded plans over
the statutory deemed trusts and seeking to be put into bankruptcy with the
intention of defeating the deemed trust claims: para. 139. As a remedy for
these breaches of fiduciary duty the court imposed a constructive trust.
[182]
In my view, the Court of Appeal took much too
expansive a view of the fiduciary duties owed by Indalex as plan administrator
and found breaches where there were none. As I see it, the only breach of
fiduciary duty committed by Indalex occurred when, upon insolvency, Indalex’s
corporate interests were in obvious conflict with its fiduciary duty as plan
administrator to ensure that all contributions were made to the plans when due.
The breach was not in failing to avoid this conflict — the conflict itself was
unavoidable. Its breach was in failing to address the conflict to ensure that
the plan beneficiaries had the opportunity to have representation in the CCAA
proceedings as if there were independent plan administrators. I also conclude
that a remedial constructive trust is not available as a remedy for this
breach.
[183]
This part of the appeals requires us to answer
two questions which I will address in turn:
(i)
What fiduciary duties did Indalex have in its
role as plan administrator and did it breach them?
(ii)
If so, was imposition of a constructive trust an
appropriate remedy?
(2) What Fiduciary Duties Did Indalex
Have in its Role as Plan Administrator and Did it Breach Those Duties?
(a) Legal Principles
[184]
The appellants do not dispute that Indalex, in
its role of administrator of the plans, had fiduciary duties to the members of
the plan and that when it is acting in that role it can only act in the
interests of the plans’ beneficiaries. It is not necessary for present
purposes to decide whether a pension plan administrator is a per se or ad
hoc fiduciary, although it must surely be rare that a pension plan
administrator would not have fiduciary duties in carrying out that role: Burke
v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273, at para. 41, aff’g
2008 ONCA 394, 67 C.C.P.B. 1, at para. 55.
[185]
However, the conclusion that Indalex as plan
administrator had fiduciary duties to the plan beneficiaries is the beginning,
not the end of the inquiry. This is because fiduciary duties do not exist at
large, but arise from and relate to the specific legal interests at stake: Alberta
v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, at
para. 31. As La Forest J. put it in Lac Minerals Ltd. v. International
Corona Resources Ltd., [1989] 2 S.C.R. 574:
The obligation imposed [on a
fiduciary] may vary in its specific substance depending on the relationship
. . . . [N]ot every legal claim arising out of a relationship with fiduciary
incidents will give rise to a claim for breach of fiduciary duty. . . .
. . .
It is only in relation to
breaches of the specific obligations imposed because the relationship is one
characterized as fiduciary that a claim for breach of fiduciary duty can be
founded. . . . [Emphasis added; pp. 646-47.]
[186]
The nature and scope of the fiduciary duty must,
therefore, be assessed in the legal framework governing the relationship out of
which the fiduciary duty arises: see, e.g., Sharbern Holding Inc. v.
Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175, at para.
141; Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247, at paras. 36-37;
K.L.B. v. British Columbia, 2003 SCC 51, [2003] 2 S.C.R. 403, at para.
41. So, for example, as a general rule, a fiduciary has a duty of loyalty
including the duty to avoid conflicts of interest: see, e.g., Strother v.
3464920 Canada Inc., 2007 SCC 24, [2007] 2 S.C.R. 177, at para. 35; Lac
Minerals, at pp. 646-47. However, this general rule may have to be modified
in light of the legal framework within which a particular fiduciary duty must
be exercised. In my respectful view, this is such a case.
(b) The Legal Framework of Indalex’s
Dual Role as a Plan Administrator and Employer
[187]
In order to define the nature and scope of
Indalex’s role and fiduciary obligations as a plan administrator, we must
examine the legal framework within which the administrator functions. This
framework is established primarily by the plan documents and the relevant
provisions of the PBA. It is to these sources, first and foremost, that
we look in order to shape the specific fiduciary duties owed in this context.
[188]
Turning first to the plan documents, I take the
salaried plan as an example. Under it, the company is appointed the plan
administrator: art. 13.01. The term “Company” is defined to mean Indalex
Limited and any reference in the plan to actions taken or discretion to be
exercised by the Company means Indalex acting through the board of directors or
any person authorized by the board for the purposes of the plan: art. 2.09.
Article 13.01 provides that the “Management Committee of the Board of Directors
of the Company will appoint a Pension and Benefits Committee to act on behalf
of the Company in its capacity as administrator of the Plan. The Pension and
Benefits Committee will decide conclusively all matters relating to the
operation, interpretation and application of the Plan”. Thus, the Pension and
Benefits Committee is to act on behalf of the company and by virtue of art.
2.09 its acts are considered those of the company. Article 13.02 sets out the
duties of the Pension and Benefits Committee which include the “performance of
all administrative functions not performed by the Funding Agent, the Actuary or
any group annuity contract issuer”: art. 13.02(1).
[189]
The plan administrator also has statutory powers
and duties by virtue of the PBA. Section 22 lists the general duties of
plan administrators, three of which are particularly relevant to these appeals:
22. (1) [Care, diligence and skill] The administrator of a pension plan
shall exercise the care, diligence and skill in the administration and
investment of the pension fund that a person of ordinary prudence would
exercise in dealing with the property of another person.
(2)
[Special knowledge and skill] The administrator of a pension plan shall use
in the administration of the pension plan and in the administration and
investment of the pension fund all relevant knowledge and skill that the
administrator possesses or, by reason of the administrator’s profession,
business or calling, ought to possess.
. . .
(4) [Conflict
of interest] An administrator or, if the administrator is a pension committee
or a board of trustees, a member of the committee or board that is the
administrator of a pension plan shall not knowingly permit the administrator’s interest
to conflict with the administrator’s duties and powers in respect of the
pension fund.
[190]
Not surprisingly, the powers and duties
conferred on the administrator by the legislation are administrative in nature.
For the most part they pertain to the internal management of the pension fund
and to the relationship among the pension administrator, the beneficiaries, and
the Superintendent of Financial Services (“Superintendent”). The list includes:
applying to the Superintendent for registration of the plan and any amendments
to it as well as filing annual information returns: ss. 9, 12 and 20 of the PBA;
providing beneficiaries and eligible potential beneficiaries with information
and documents: s. 10(1)12 and 25; ensuring that the plan is administered in
accordance with the PBA and its regulations and plan documents: s. 19;
notifying beneficiaries of proposed amendments to the plan that would reduce
benefits: s. 26; paying commuted value for pensions: s. 42; and filing wind-up
reports if the plan is terminated: s. 70.
[191]
Of special relevance for this case are two
additional provisions. Under s. 56, the administrator has a duty to ensure
that pension payments are made when due and to notify the Superintendent if
they are not and, under s. 59, the administrator has the authority to commence
court proceedings when pension payments are not made.
[192]
The fiduciary duties that employer-administrators
owe to plan beneficiaries relate to the statutory and other tasks described
above; these are the “specific legal interests” with respect to which the
employer-administrator’s fiduciary duties attach.
[193]
Another important aspect of the legal context
for Indalex’s fiduciary duties as a plan administrator is that it was acting in
the dual role of an employer-administrator. This dual role is expressly
permitted under s. 8(1)(a) of the PBA, but this provision creates a
situation where a single entity potentially owes two sets of fiduciary duties
(one to the corporation and the other to the plan members).
[194]
This was the case for Indalex. As an employer-administrator,
Indalex acted through its board of directors and so it was that body which owed
fiduciary duties to the plan members. The board of directors also owed a
fiduciary duty to the company to act in its best interests: Canada Business
Corporations Act, R.S.C. 1985, c. C-44, s. 122(1) (a); BCE
Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560, at para.
36. In deciding what is in the best interests of the corporation, a board may
look to the interests of shareholders, employees, creditors and others. But
where those interests are not aligned or may conflict, it is for the directors,
acting lawfully and through the exercise of business judgment, to decide what
is in the overall best interests of the corporation. Thus, the board of
Indalex, as an employer-administrator, could not always act exclusively in the
interests of the plan beneficiaries; it also owed duties to Indalex as a
corporation.
(c) Breaches of Fiduciary Duty
[195]
Against the background of these legal
principles, I turn to consider the Court of Appeal’s findings in relation to
Indalex’s breach of its fiduciary duties as administrator of the plans. As
noted, they fall into three categories: being in a conflict of interest
position; taking steps to reduce pension obligations in the CCAA proceedings;
and seeking bankruptcy status.
(i) Conflict of Interest
[196]
The questions here are first what constitutes a
conflict of interest or duty between Indalex as business decision-maker and
Indalex as plan administrator and what must be done when a conflict arises?
[197]
The Court of Appeal in effect concluded that a
conflict of interest arises whenever Indalex makes business decisions that have
“the potential to affect the Plans beneficiaries’ rights” (para. 132) and that
whenever such a conflict of interest arose, the employer-administrator was
immediately in breach of its fiduciary duties to the plan members.
Respectfully, this position puts the matter far too broadly. It cannot be the
case that a conflict arises simply because the employer, exercising its
management powers in the best interests of the corporation, does something that
has the potential to affect the plan beneficiaries.
[198]
This conclusion flows inevitably from the
statutory context. The existence of apparent conflicts that are inherent in the
two roles being performed by the same party cannot be a breach of fiduciary
duty because those conflicts are specifically authorized by the statute which
permits one party to play both roles. As noted earlier, the PBA
specifically permits employers to act as plan administrators (s. 8(1)(a)).
Moreover, the broader business interests of the employer corporation and the
interests of pension beneficiaries in getting the promised benefits are almost
always at least potentially in conflict. Every important business decision has
the potential to put at risk the solvency of the corporation and therefore its
ability to live up to its pension obligations. The employer, within the limits
set out in the plan documents and the legislation generally, has the authority
to amend the plan unilaterally and even to terminate it. These steps may well
not serve the best interests of plan beneficiaries.
[199]
Similarly, the simple existence of the sort of
conflicts of interest identified by the Court of Appeal — those inherent in the
employer’s exercise of business judgment — cannot of themselves be a breach of
the administrator’s fiduciary duty. Once again, that conclusion is inconsistent
with the statutory scheme that expressly permits an employer to act as plan
administrator.
[200]
How, then, should we identify conflicts of
interest in this context?
[201]
In R. v. Neil, 2002 SCC 70, [2002] 3
S.C.R. 631, Binnie J. referred to the Restatement Third, The Law Governing
Lawyers (2000), at § 121, to explain when a conflict of interest
occurs in the context of the lawyer-client relationship: para. 31. In my view,
the same general principle, adapted to the circumstances, applies with respect
to employer-administrators. Thus, a situation of conflict of interest occurs
when there is a substantial risk that the employer-administrator’s
representation of the plan beneficiaries would be materially and adversely
affected by the employer-administrator’s duties to the corporation. I would
recall here, however, that the employer-administrator’s obligation to represent
the plan beneficiaries extends only to those tasks and duties that I have
described above.
[202]
In light of the foregoing, I am of the view that
the Court of Appeal erred when it found, in effect, that a conflict of interest
arose whenever Indalex was making decisions that “had the potential to affect
the Plans beneficiaries’ rights”: para. 132. The Court of Appeal expressed both
the potential for conflict of interest or duty and the fiduciary duty of the
plan administrator much too broadly.
(ii) Steps in the CCAA Proceedings to
Reduce Pension Obligations and Notice of Them
[203]
The Court of Appeal found that Indalex breached
its fiduciary duty simply by commencing CCAA proceedings knowing that
the plans were underfunded and by failing to give the plan beneficiaries notice
of the proceedings: para. 139. As I understand the court’s reasons, the
decision to commence CCAA proceedings was solely the responsibility of
the corporation and not part of the administration of the pension plan: para.
131. The difficulty which the Court of Appeal saw arose from the potential of
the CCAA proceedings to result in a reduction of the corporation’s pension
obligations to the prejudice of the beneficiaries: paras. 131-32.
[204]
I respectfully disagree. Like Justice Deschamps,
I find that seeking an initial order protecting the corporation from actions by
its creditors did not, on its own, give rise to any conflict of interest or
duty on the part of Indalex (reasons of Justice Deschamps, at para. 72).
[205]
First, it is important to remember that the
purpose of CCAA proceedings is not to disadvantage creditors but rather
to try to provide a constructive solution for all stakeholders when a company
has become insolvent. As my colleague, Deschamps J. observed in Century
Services, at para. 15:
.
. . the purpose of the CCAA . . . is to permit the debtor to continue to
carry on business and, where possible, avoid the social and economic costs of
liquidating its assets.
In the same decision, at
para. 59, Deschamps J. also quoted with approval the following passage from the
reasons of Doherty J.A. in Elan Corp. v. Comiskey (1990), 41 O.A.C. 282,
at para. 57 (dissenting):
The
legislation is remedial in the purest sense in that it provides a means whereby
the devastating social and economic effects of bankruptcy or creditor initiated
termination of ongoing business operations can be avoided while a court-supervised
attempt to reorganize the financial affairs of the debtor company is made.
For this reason, I would
be very reluctant to find that, simply by virtue of embarking on CCAA proceedings,
an employer-administrator breaches its duties to plan members.
[206]
Second, the facts of this case do not support
the contention that the interests of the plan beneficiaries and the employer
were in conflict with respect to the decision to seek CCAA protection.
It cannot seriously be suggested that some other course would have protected
more fully the rights of the plan beneficiaries. The Court of Appeal did not
suggest an alternative to seeking CCAA protection from creditors, nor
did any of the parties. Indalex was in serious financial difficulty and its
options were limited: either make a proposal to its creditors (under the
CCAA or under the BIA ), or go bankrupt. Moreover, the plan
administrator’s duty and authority do not extend to ensuring the solvency of
the corporation and an independent administrator could not reasonably expect to
be consulted about the plan sponsor’s decision to seek CCAA protection.
Finally, the application for CCAA proceedings did not reduce pension
obligations other than to temporarily relieve the corporation of making special
payments and it was the only step with any prospect of the pension funds
obtaining from the insolvent corporation the money that would become due.
There was thus no conflict of duty or interest between the administrator and
the employer when protective action was taken for the purpose of preserving the
status quo for the benefit of all stakeholders.
[207]
The Court of Appeal also found that it was a
breach of fiduciary duty not to give the plan beneficiaries notice of the
initial application for CCAA protection. Again, here, I must join
Deschamps J. in disagreeing with the Court of Appeal’s conclusion. Section
11(1) of the CCAA , as it stood at the time of the proceedings, provided
that parties could commence CCAA proceedings without giving notice to
interested persons:
11. (1) Notwithstanding anything in the Bankruptcy and Insolvency
Act or the Winding-up Act, where an application is made under this
Act in respect of a company, the court, on the application of any person
interested in the matter, may, subject to this Act, on notice to any other
person or without notice as it may see fit, make an order under this section.
[208]
This provision was renumbered but not
substantially changed when the Act was amended in September of 2009 (S.C. 2005,
c. 47, s. 128 , in force Sept. 18, 2009, SI/2009-68). Although it is not
appropriate in every case, CCAA courts have discretion to make initial
orders on an ex parte basis. This may be an appropriate — even necessary
— step in order to prevent “creditors from moving to realize on their claims,
essentially a ‘stampede to the assets’ once creditors learn of the debtor’s
financial distress”: J. P. Sarra, Rescue! The Companies’ Creditors
Arrangement Act (2007), at p. 55 (“Rescue!”); see also Algoma
Steel Inc., Re (2001), 25 C.B.R. (4th) 194, at para. 7. The respondents did
not challenge Morawetz J.’s decision to exercise his discretion to make an ex
parte order in this case.
[209]
This is not to say, however, that ex parte
initial orders will always be required or acceptable. Without attempting to be
exhaustive or to express any final view on these issues, I simply note that
there have been at least three ways in which courts have mitigated the possible
negative effect on creditors of making orders without notice to potentially
affected parties. First, courts have been reluctant to grant ex parte orders
where the situation of the debtor company is not urgent. In Rescue!,
Janis P. Sarra explains that courts are increasingly expecting applicants to
have given notice before applying for a stay under the CCAA : p. 55. An
example is Marine Drive Properties Ltd., Re, 2009 BCSC 145, 52 C.B.R.
(5th) 47, a case in which Butler J. held that “[i]nitial applications in CCAA
proceedings should not be brought without notice merely because it is an
application under that Act. The material before the court must be sufficient to
indicate an emergent situation”: para. 27. Second, courts have included “come-back”
clauses in their initial orders so that parties could return to court at a
later date to seek to set aside some or all of the order: Rescue!, at
p. 55. Note that such a clause was included in the initial order by Morawetz
J.: para. 46. Finally, courts have limited their initial orders to the issues
that need to be resolved immediately and have left other issues to be resolved
after all interested parties have been given notice. Thus, in Timminco
Ltd., Re, 2012 ONSC 506, 85 C.B.R. (5th) 169, Morawetz J. limited
the initial CCAA order so that priorities were only granted over the
party that had been given notice. The discussion of suspending special payments
or granting creditors priority over pension beneficiaries was left to a later
date, after the parties that would be affected had been given notice. A similar
approach was taken in the case of AbitibiBowater inc. (Arrangement relatif à),
2009 QCCS 6459 (CanLII). In his initial CCAA order,
Gascon J. put off the decision regarding the suspension of past service
contributions or special payments to the pension plans in question until the
parties likely to be affected could be advised of the applicant’s request:
para. 7.
[210]
Failure to give notice of the initial CCAA
proceedings was not a breach of fiduciary duty in this case. Indalex’s decision
to act as an employer-administrator cannot give the plan beneficiaries any
greater benefit than they would have if their plan was managed by a third party
administrator. Had there been a third party administrator in this case, Indalex
would not have been under an obligation to tell the administrator that it was
planning to enter CCAA proceedings. The respondents are asking this
Court to give the advantage of Indalex’s knowledge as employer to Indalex as
the plan administrator in circumstances where the employer would have been
unlikely to disclose the information itself. I am not prepared to blur the line
between employers and administrators in this way.
[211]
I conclude that Indalex did not breach its
fiduciary duty by commencing CCAA proceedings or by not giving notice to
the plan beneficiaries of its intention to seek the initial CCAA order.
[212]
I turn next to the Court of Appeal’s conclusion
that seeking and obtaining the DIP orders without notice to the plan
beneficiaries and seeking and obtaining the sale approval order constituted
breaches of fiduciary duty.
[213]
To begin, I agree with the Court of Appeal that
“just because the initial decision to commence CCAA proceedings is
solely a corporate one . . . does not mean that all subsequent decisions made
during the proceedings are also solely corporate ones”: para. 132. It was at
this point that Indalex’s interests as a corporation came into conflict with
its duties as a pension plan administrator.
[214]
The DIP orders could easily have the effect of
making it impossible for Indalex to satisfy its funding obligations to the plan
beneficiaries. When Indalex, through the exercise of business judgment, sought CCAA
orders that would or might have this effect, it was in conflict with its duty
as plan administrator to ensure that all contributions were paid when due.
[215]
I do not think, however, that the simple existence
of this conflict of interest and duty, on its own, was a breach of fiduciary
duty in these circumstances. As discussed earlier, the PBA expressly
permits an employer to be a pension administrator and the statutory provisions
about conflict of interest must be understood and applied in light of that
fact. Moreover, an independent plan administrator would have no decision-making
role with respect to the conduct of CCAA proceedings. So in my view, the
difficulty that arose here was not the existence of the conflict itself, but
Indalex’s failure to take steps so that the plan beneficiaries would have the
opportunity to have their interests protected in the CCAA proceedings as
if the plans were administered by an independent administrator. In short, the
difficulty was not the existence of the conflict, but the failure to address
it.
[216]
Despite Indalex’s failure to address its
conflict of interest, the plan beneficiaries, through their own efforts, were
represented at subsequent steps in the CCAA proceedings. The effect of
Indalex’s breach was therefore mitigated, a point which I will discuss in
greater detail when I turn to the issue of the constructive trust.
[217]
Nevertheless, for the purposes of providing some
guidance for future CCAA proceedings, I take this opportunity to briefly
address what an employer-administrator can do to respond to these sorts of
conflicts. First and foremost, an employer-administrator who finds itself in a
conflict must bring the conflict to the attention of the CCAA judge. It
is not enough to include the beneficiaries in the list of creditors; the judge
must be made aware that the debtor, as an administrator of the plan is, or may
be, in a conflict of interest.
[218]
Given their expertise and their knowledge of
particular cases, CCAA judges are well placed to decide how best to
ensure that the interests of the plan beneficiaries are fully represented in
the context of “real-time” litigation under the CCAA . Knowing of the
conflict, a CCAA judge might consider it appropriate to appoint an
independent administrator or independent counsel as amicus curiae on
terms appropriate to the particular case. Indeed, there have been cases in
which representative counsel have been appointed to represent tort claimants,
clients, pensioners and non-unionized employees in CCAA proceedings on
terms determined by the judge: Rescue!, at p. 278; see, e.g., First
Leaside Wealth Management Inc. (Re), 2012 ONSC 1299 (CanLII); Nortel
Networks Corp., Re (2009), 75 C.C.P.B. 206 (Ont. S.C.J.). In other
circumstances, a CCAA judge might find that it is feasible to give
notice directly to the pension beneficiaries. In my view, notice, though
desirable, may not always be feasible and decisions on such matters should be
left to the judicial discretion of the CCAA judge. Alternatively, the
judge might consider limiting draws on the DIP facility until notice can be
given to the beneficiaries: Royal Oak Mines Inc., Re (1999), 6 C.B.R.
(4th) 314 (Ont. Ct. J. (Gen. Div.)), at para. 24. Ultimately, the appropriate
response or combination of responses should be left to the discretion of the CCAA
judge in a particular case. The point, as well expressed by the Court of
Appeal, is that the insolvent corporation which is also a pension plan
administrator cannot “simply ignore its obligations as the Plans’ administrator
once it decided to seek CCAA protection”: para. 132.
[219]
I conclude that the Court of Appeal erred in
finding that Indalex breached its fiduciary duties as plan administrator by
taking the various steps it did in the CCAA proceedings. However, I
agree with the Court of Appeal that it breached its fiduciary duty by failing
to take steps to ensure that the plan beneficiaries had the opportunity to be
as fully represented in those proceedings as if there had been an independent
plan administrator.
(iii) The Bankruptcy Motion
[220]
Indalex also applied to lift the CCAA
stay so that it could file an assignment into bankruptcy. As Campbell J. put
it, this was done “to ensure the priority regime [it] urged as the basis for
resisting the deemed trust”: para. 52. The Court of Appeal concluded that this
was a breach of Indalex’s fiduciary duties because the motion was brought “with
the intention of defeating the deemed trust claims and ensuring that the
Reserve Fund was transferred to [the U.S. debtors]”: para. 139. I respectfully
disagree.
[221]
It was certainly open to Indalex as an employer
to bring a motion to voluntarily enter into bankruptcy. A pension plan
administrator has no responsibility or authority in relation to that step. The
problem here is not that the motion was brought, but that Indalex failed to
meaningfully address the conflict between its corporate interests and its
duties as plan administrator.
[222]
To sum up, I conclude that Indalex did not
breach any fiduciary duty by undertaking CCAA proceedings or seeking the
relief that it did. The breach arose from Indalex’s failure to ensure that its
pension plan beneficiaries had the opportunity to have their interests
effectively represented in the insolvency proceedings, particularly when
Indalex sought the DIP financing approval, the sale approval and the motion for
bankruptcy.
(3) Was Imposing a Constructive Trust
Appropriate in This Case?
[223]
The next issue is whether a remedial
constructive trust is, as the Court of Appeal concluded, an appropriate remedy
in response to the breach of fiduciary duty.
[224]
The Court of Appeal exercised its discretion to
impose a constructive trust and its exercise of this discretion is entitled to
deference. Only if the discretion has been exercised on the basis of an
erroneous principle should the order be overturned on appeal: Donkin v.
Bugoy, [1985] 2 S.C.R. 85, cited in Soulos v. Korkontzilas, [1997] 2
S.C.R. 217, at para. 54, by Sopinka J. (dissenting, but not on this
point). In my respectful view, the Court of Appeal’s erroneous conclusions
about the scope of a plan administrator’s fiduciary duties require us to
examine the constructive trust issue anew. Moreover, the Court of Appeal, in my
respectful opinion, erred in principle in finding that the asset in this case
resulted from the breach of fiduciary duty such that it would be unjust for the
party in breach to retain it.
[225]
As noted earlier, the Court of Appeal imposed a
constructive trust in favour of the plan beneficiaries with respect to funds
retained in the reserve fund equal to the total amount of the wind-up
deficiency for both plans. In other words, upon insolvency of Indalex, the plan
beneficiaries received 100 cents on the dollar as a result of a judicially
imposed trust taking priority over secured creditors, and indeed over other
unsecured creditors, assuming there was no deemed trust for the executive plan.
[226]
I have explained earlier why I take a different
view than did the Court of Appeal of Indalex’s breach of fiduciary duty. In
light of what I conclude was the breach which could give rise to a remedy, my
view is that the constructive trust cannot properly be imposed in this case and
the Court of Appeal erred in principle in exercising its discretion to impose
this remedy.
[227]
I part company with the Court of Appeal with
respect to several aspects of its constructive trust analysis; it is far from
clear to me that any of the conditions for imposing a constructive trust were
present here. However, I will only address one of them in detail. As I will
explain, a remedial constructive trust for a breach of fiduciary duty is only
appropriate if the wrongdoer’s acts give rise to an identifiable asset which it
would be unjust for the wrongdoer (or sometimes a third party) to retain. In
my view, Indalex’s failure to meaningfully address conflicts of interest that
arose during the CCAA proceedings did not result in any such asset.
[228]
As the Court of Appeal recognized, the governing
authority concerning the remedial constructive trust outside the domain of
unjust enrichment is Soulos. In Soulos, McLachlin J. (as she then
was) wrote that a constructive trust may be an appropriate remedy for breach of
fiduciary duty: paras. 19-45. She laid out four requirements that should
generally be satisfied before a constructive trust will be imposed: para. 45.
Although, in Soulos, McLachlin J. was careful to indicate that these are
conditions that “generally” must be present, all parties in this case accept
that these four conditions must be present before a remedial constructive trust
may be ordered for breach of fiduciary duty. The four conditions are these:
(1) The defendant must have been under an equitable obligation,
that is, an obligation of the type that courts of equity have enforced, in
relation to the activities giving rise to the assets in his hands;
(2) The assets in the hands of the defendant must be shown to
have resulted from deemed or actual agency activities of the defendant in
breach of his equitable obligation to the plaintiff;
(3) The plaintiff must show a legitimate reason for seeking a
proprietary remedy, either personal or related to the need to ensure that
others like the defendant remain faithful to their duties and;
(4) There must be no factors which would render imposition of a
constructive trust unjust in all the circumstances of the case; e.g., the
interests of intervening creditors must be protected. [para. 45]
[229]
My concern is with respect to the second
requirement, that is, whether the breach resulted in an asset in the hands of
Indalex. A constructive trust arises when the law imposes upon a party an
obligation to hold specific property for another: D. W. M. Waters, M. R.
Gillen and L. D. Smith, Waters’ Law of Trusts in Canada (3rd ed. 2005),
at p. 454 (“Waters”). The purpose of imposing a constructive trust as a
remedy for a breach of duty or unjust enrichment is to prevent parties “from
retaining property which in ‘good conscience’ they should not be permitted to
retain”: Soulos, at para. 17. It follows, therefore, that while
the remedial constructive trust may be appropriate in a variety of situations,
the wrongdoer’s conduct toward the plaintiff must generally have given rise to
assets in the hands of the wrongdoer (or of a third party in some situations) which
cannot in justice and good conscience be retained. That cannot be said here.
[230]
The Court of Appeal held that this second
condition was present because “[t]he assets [i.e. the reserve fund monies] are
directly connected to the process in which Indalex committed its breaches of
fiduciary obligation”: para. 204. Respectfully, this conclusion is based on
incorrect legal principles. To satisfy this second condition, it must be shown
that the breach resulted in the assets being in Indalex’s hands, not
simply, as the Court of Appeal thought, that there was a “connection” between
the assets and “the process” in which Indalex breached its fiduciary duty.
Recall that in Soulos itself, the defendant’s acquisition of the
disputed property was a direct result of his breach of his duty of loyalty
to the plaintiff: para. 48. This is not our case. As the Court observed, in the
context of an unjust enrichment claim in Peter v. Beblow, [1993] 1
S.C.R. 980, at p. 995:
. . . for a constructive trust to
arise, the plaintiff must establish a direct link to the property which is the
subject of the trust by reason of the plaintiff’s contribution.
[231]
While cases of breach of fiduciary duty are
different in important ways from cases of unjust enrichment, La Forest J. (with
Lamer J. concurring on this point) applied a similar standard for proprietary
relief in Lac Minerals, a case in which wrongdoing was the basis for the
constructive trust: p. 678, quoted in Waters, at p. 471. His comments
demonstrate the high standard to be met in order for a constructive trust to be
awarded:
The constructive trust awards a right
in property, but that right can only arise once a right to relief has been
established. In the vast majority of cases a constructive trust will not be the
appropriate remedy. . . . [A] constructive trust should only be awarded if
there is reason to grant to the plaintiff the additional rights that flow from
recognition of a right of property. [p. 678]
[232]
The relevant breach in this case was the failure
of Indalex to meaningfully address the conflicts of interest that arose in the
course of the CCAA proceedings. (The breach that arose with respect to
the bankruptcy motion is irrelevant because that motion was not addressed and
therefore could not have given rise to the assets.) The “assets” in issue here
are the funds in the reserve fund which were retained from the proceeds of the
sale of Indalex as a going concern. Indalex’s breach in this case did not give
rise to the funds which were retained by the Monitor in the reserve fund.
[233]
Where does the respondents’ claim of a
procedural breach take them? Taking their position at its highest, it would be
that the DIP approval proceedings and the sale would not have been approved.
This position, however, is fatally flawed. Turning first to the DIP approval,
there is no evidence to support the view that, had Indalex addressed its
conflict in the DIP approval process, the DIP financing would have been
rejected or granted on different terms. The CCAA judge, being fully
aware of the pension situation, ruled that the DIP financing was “required”,
that there was “no other alternative available to the Applicants for a going
concern solution”, and that “the benefit to stakeholders and creditors of the
DIP Financing outweighs any potential prejudice to unsecured creditors that may
arise as a result of the granting of super-priority secured financing”:
endorsement of Morawetz J., April 8, 2009, at paras. 6 and 9. In effect, the
respondents are claiming funds which arose only because of the process to which
they now object. Taking into account that there was an absence of any evidence
that more favourable financing terms were available, that the judge’s decision
was made with full knowledge of the plan beneficiaries’ claims, and that he
found that the DIP financing was necessary, the respondents’ contention is not
only speculative, it also directly contradicts the conclusions of the CCAA judge.
[234]
Turning next to the sale approval and the
approval of the distribution of the assets, it is clear that the plan beneficiaries
had independent representation but that this did not change the result.
Although, perhaps with little thanks to Indalex, the interests of both plans
were fully and ably represented before Campbell J. at the sale approval and
interim distribution motions in July of 2009.
[235]
The executive plan retirees, through able
counsel, objected to the sale on the basis that the liquidation values set out
in the Monitor’s seventh report would provide greater return for unsecured
creditors. The motions judge dismissed this objection “on the basis that
there was no clear evidence to support the proposition and in any event the
transaction as approved did preserve value for suppliers, customers and
preserve approximately 950 jobs”: trial reasons of Campbell J., at para. 13
(emphasis added). Both the executive plan retirees and the USW, which
represented some members of the salaried plan, objected to the proposed
distribution of the sale proceeds. In response to this objection, it was agreed
that those objections would be heard promptly and that the Monitor would retain
sufficient funds to satisfy the pensioners’ claims if they were upheld: trial
reasons of Campbell J., at paras. 14-16.
[236]
There is no evidence to support the contention
that Indalex’s breach of its fiduciary duty as pension administrator resulted
in the assets retained in the reserve fund. I therefore conclude that the Court
of Appeal erred in law in finding that the second condition for imposing a
constructive trust — i.e. that the assets in the defendant’s hands must be
shown to have resulted from the defendant’s breaches of duty to the plaintiff —
had been established.
[237]
I would add only two further comments with
respect to the constructive trust. A major concern of the Court of Appeal was
that unless a constructive trust were imposed, the reserve funds would end up
in the hands of other Indalex entities which were not operating at arm’s length
from Indalex. The U.S. debtors claimed the reserve fund because it had paid
on its guarantee of the DIP loans and thereby stepped into the shoes of the DIP
lender with respect to priority. Sun Indalex claims in the U.S. bankruptcy
proceedings as a secured creditor of the U.S. debtors. The Court of Appeal put
its concern this way: “To permit Sun Indalex to recover on behalf of [the U.S.
debtors] would be to effectively permit the party who breached its fiduciary
obligations to take the benefit of those breaches, to the detriment of those to
whom the fiduciary obligations were owed”: para. 199.
[238]
There are two difficulties with this approach,
in my respectful view. The U.S. debtors paid real money to honour their
guarantees. Moreover, unless there is a legal basis for ignoring the separate
corporate personality of separate corporate entities, those separate corporate
existences must be respected. Neither the parties nor the Court of Appeal
advanced such a reason.
[239]
Finally, I would note that imposing a
constructive trust was wholly disproportionate to Indalex’s breach of fiduciary
duty. Its breach — the failure to meaningfully address the conflicts of
interest that arose during the CCAA process — had no adverse impact on
the plan beneficiaries in the sale approval process which gave rise to the
“asset” in issue. Their interests were fully represented and carefully considered
before the sale was approved and the funds distributed. The sale was
nonetheless judged to be in the best interests of the corporation, all things
considered. In my respectful view, imposing a $6.75 million penalty on the
other creditors as a remedial response to this breach is so grossly
disproportionate to the breach as to be unreasonable.
[240]
A judicially ordered constructive trust, imposed
long after the fact, is a remedy that tends to destabilize the certainty which
is essential for commercial affairs and which is particularly important in
financing a workout for an insolvent corporation. To impose a constructive
trust in response to a breach of fiduciary duty to ensure for the plan
beneficiaries some procedural protections that they in fact took advantage of
in any case is an unjust response in all of the circumstances.
[241]
I conclude that a constructive trust is not an
appropriate remedy in this case and that the Court of Appeal erred in principle
by imposing it.
C. Third Issue: Did the Court of Appeal Err in Concluding
That the Super Priority Granted in the CCAA Proceedings Did Not Have Priority
by Virtue of the Doctrine of Federal Paramountcy?
[242]
Although I disagree with my colleague Justice
Deschamps with respect to the scope of the s. 57(4) deemed trust, I agree that
if there was a deemed trust in this case, it would be superseded by the DIP
loan because of the operation of the doctrine of federal paramountcy: paras. 48-60.
D. Fourth
Issue: Did the Court of Appeal Err in its Cost Endorsement Respecting the USW?
(1) Introduction
[243]
The disposition of
costs in the Court of Appeal was somewhat complex. Although the costs appeal
relates only to the costs of the USW, it is necessary in order to understand
their position to set out the costs order below in full.
[244]
With respect to the costs of the appeal to the
Court of Appeal, no order was made for or against the Monitor due to its prior
agreement with the former executives and the USW. However, the court ordered
that the former executives and the USW, as successful parties, were each
entitled to costs on a partial indemnity basis fixed at $40,000 inclusive of
taxes and disbursements from Sun Indalex and the U.S. Trustee, payable jointly
and severally: costs endorsement, 2011 ONCA 578, 81 C.B.R. (5th) 165, at para.
7.
[245]
Morneau Shepell Ltd., the Superintendent, and
the former executives reached an agreement with respect to legal fees and
disbursements and the Court of Appeal approved that agreement. The former
executives received full indemnity legal fees and disbursements in the amount
of $269,913.78 to be paid from the executive plan attributable to each of the
14 former executives’ accrued pension benefits, allocated among the 14 former
executives in relation to their pension entitlement from the executive plan.
In other words, the costs would not be borne by the other three members of the
executive plan who did not participate in the proceedings: C.A. costs
endorsement, at para. 2. The costs of the appeal payable by Sun Indalex and the
U.S. Trustee were to be paid into the fund of the executive plan and allocated
among the 14 former executives in relation to their pension entitlement from
the executive plan.
[246]
USW sought an order for payment of its costs
from the fund of the salaried plan. However, the Court of Appeal declined to
make such an order because the USW was in a “materially different position”
than that of the former executives: costs endorsement, at para. 3. The latter
were beneficiaries to the pension fund (14 of the 17 members of the plan), and
they consented to the payment of costs from their individual benefit
entitlements. Those who had not consented would not be affected by the payment.
In contrast, the USW was the bargaining agent (not the beneficiary) for only 7
of the 169 beneficiaries of the salaried plan, none of whom was given notice
of, or consented to, the payment of legal costs from the salaried plan.
Moreover, the USW sought and seeks an order that its costs be paid out of the
fund. This request is significantly different than the order made in favour of
the former executives. The former executives explicitly ensured that their
choice to pursue the litigation would not put at risk the pension benefits of
those members who did not retain counsel even though of course those members
would benefit in the event the litigation was successful. The USW is not
proposing to insulate the 162 members whom it does not represent from the risk
of litigation; it seeks an order requiring all members to share the risk of the
litigation even though it represents only 7 of the 169. The proposition
advanced by the USW was thus materially different from that advanced on behalf
of the executive plan and approved by the court.
(2) Standard
of Review
[247]
In Nolan v. Kerry (Canada) Inc., 2009 SCC
39, [2009] 2 S.C.R. 678, Rothstein J. held that “costs awards are
quintessentially discretionary”: para. 126. Discretionary costs decisions
should only be set aside on appeal if the court below “has made an error in
principle or if the costs award is plainly wrong”: Hamilton v. Open Window
Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303, at para. 27.
(3) Analysis
[248]
I do not see any basis to interfere with the
Court of Appeal’s costs endorsement in this case. In my view, the USW’s
submissions are largely based on an inaccurate reading of the Court of Appeal’s
costs endorsement. Contrary to what the USW submits, the Court of Appeal did not
require the consent of plan beneficiaries as a prerequisite to ordering payment
of costs from the fund. Nor is it correct to suggest that the costs endorsement
would “restrict recovery of beneficiary costs to instances when there is a
surplus in the pension trust fund” or “preclude financing of beneficiary action
when a fund is in deficit”: USW factum, at paras. 71 and 76. Nor would I read
the Court of Appeal’s brief costs endorsement as laying down a rule that a
union representing pension beneficiaries cannot recover costs from the fund
because the union itself is not a beneficiary.
[249]
The premise of the USW’s appeal appears to be
that it was entitled to costs because it met what it refers to in its
submissions as the Costs Payment Test and that if the executive plan members
got their costs out of their pension fund, the union should get its costs out
of the salaried employees’ pension fund. Respectfully, I do not accept the
validity of either premise.
[250]
The decision whether to award costs from the
pension fund remains a discretionary matter. In
Nolan, Rothstein J. surveyed the various factors that courts have taken
into account when deciding whether to award a litigant its costs out of a
pension trust. The first broad inquiry considered in Nolan was into
whether the litigation concerned the due administration of the trust. In
connection with this inquiry, courts have considered the following factors: (1)
whether the litigation was primarily about the construction of the plan
documents; (2) whether it clarified a problematic area of the law; (3) whether
it was the only means of clarifying the parties’ rights; (4) whether the claim
alleged maladministration; and (5) whether the litigation had no effect on
other beneficiaries of the trust fund: Nolan, at para. 126.
[251]
The second broad inquiry discussed in Nolan
was whether the litigation was ultimately adversarial: para. 127. The following
factors have been considered: (1) whether the litigation included allegations
by an unsuccessful party of a breach of fiduciary duty; (2) whether the
litigation only benefited a class of members and would impose costs on other
members if successful; and (3) whether the litigation had any merit.
[252]
I do not think that it is correct to elevate
these two inquiries (which constitute the Costs Payment Test articulated by the
USW) to a test for entitlement to costs in the pension context. The
factors set out in Nolan and other cases cited therein are best
understood as highly relevant considerations guiding the exercise of judicial
discretion with respect to costs.
[253]
The litigation undertaken here raised novel
points of law with all of the uncertainty and risk inherent in such an
undertaking. The Court of Appeal in essence decided that the USW, representing
only 7 of 169 members of the plan, should not without consultation be able to
in effect impose the risks of that litigation on all of the plan members, the
vast majority of whom were not union members. Whatever arguments might be
raised against the Court of Appeal’s decision in light of the success of the
litigation and the sharing by all plan members of the benefits, the failure of
the litigation seems to me to leave no basis to impose the cost consequences of
taking that risk on all of the plan members of an already underfunded plan.
[254]
The second premise of the USW appeal appears to
be that if the executive plan members have their costs paid out of the fund, so
too should the salaried plan members. Respectfully, however, this is not an
accurate statement of the order made with respect to the executive plan.
[255]
The Court of Appeal’s order with respect to the
executive plan meant that only the pension fund attributable to those members
of the plan who actually supported the litigation — the vast majority I would
add — would contribute to the costs of the litigation even though all members
of the plan would benefit in the case of success. As the Court of Appeal noted:
The individual represented Retirees,
who comprise 14 of 17 members of the Executive Plan, have consented to the
payment of costs from their individual benefit entitlements. Those who have
not consented will not be affected by the payment. [Costs endorsement, at para.
3]
[256]
The Court of Appeal therefore approved an
agreement as to costs which did not put at further risk the pension funds
available to satisfy the pension entitlements of those who did not support the
litigation. Thus, the Court of Appeal did not apply what the USW refers to as
the Costs Payment Test to the executive plan because the costs order was the
product of agreement and did not order payment of costs out of the fund as a
whole.
[257]
In the case of the USW request, there was no
such agreement and no such limitation of risk to the supporters of the
litigation.
[258]
I see no error in principle in the Court of
Appeal’s refusal to order the USW costs to be paid out of the pension fund,
particularly in light of the disposition of the appeal to this Court. I would
dismiss the USW costs appeal but without costs.
IV. Disposition
[259]
I would allow the Sun Indalex, FTI Consulting
and George L. Miller appeals and, except as noted below, I would set aside the
orders of the Ontario Court of Appeal and restore the February 18, 2010 orders
of Campbell J.
[260]
With respect to costs, I would set aside the
Court of Appeal’s orders with respect to the costs of the appeals before that
court and order that all parties bear their own costs in the Court of Appeal
and in this Court.
[261]
I would not disturb paras. 9 and 10 of the order
of the Court of Appeal in the former executives’ appeal so that the full
indemnity legal fees and disbursements of the former executives in the amount
of $269,913.78 shall be paid from the fund of the executive plan attributable
to each of the 14 former executives’ accrued pension benefits, and specifically
such amounts shall be allocated among the 14 former executives in relation to
their pension entitlement from the executive plan and will not be borne by the
other three members of the executive plan.
[262]
I would dismiss the USW costs appeal, but
without costs.
The
reasons of LeBel and Abella JJ. were delivered by
LeBel J. (dissenting) —
I. Introduction
[263]
The members of two pension plans set up by Indalex
Limited (“Indalex”) stand to lose half or more of their pension benefits as a
consequence of the insolvency of their employer and of the arrangement approved
by the Ontario Superior Court of Justice under the Companies’ Creditors
Arrangement Act, R.S.C. 1985, c. C-36 (“CCAA ”). The Court of
Appeal for Ontario found that the members were entitled to a remedy. For
different and partly conflicting reasons, my colleagues Justices Deschamps and
Cromwell would hold that no remedy is available to them. With all due respect
for their opinions, I would conclude, like the Court of Appeal, that the remedy
of a constructive trust is open to them and should be imposed in the
circumstances of this case, for the following reasons.
[264]
I do not intend to summarize the facts of this
case, which were outlined by my colleagues. I will address these facts as
needed in the course of my reasons. Before moving to my areas of disagreement
with my colleagues, I will briefly indicate where and to what extent I agree
with them on the relevant legal issues.
[265]
Like my colleagues, I conclude that no deemed
trust could arise under s. 57(4) of the Pension Benefits Act, R.S.O.
1990, c. P.8 (“PBA”), in the case of the Executive Plan because
this plan had not been wound up when the CCAA proceedings were
initiated. In the case of the Salaried Employees Plan, I agree with Deschamps
J. that a deemed trust arises in respect of the wind-up deficiency. But, like
her, I accept that the debtor-in-possession (“DIP”) super priority prevails by
reason of the application of the federal paramountcy doctrine. I also agree
that the costs appeal of the United Steelworkers should be dismissed.
[266]
But, with respect for the opinions of my
colleagues, I take a different view of the nature and extent of the fiduciary
duties of an employer who elects to act as administrator of a pension plan
governed by the PBA. This dual status does not entitle the employer to
greater leniency in the determination and exercise of its fiduciary duties or
excuse wrongful actions. On the contrary, as we shall see below, I conclude
that Indalex not only neglected its obligations towards the beneficiaries, but
actually took a course of action that was actively inimical to their interests.
The seriousness of these breaches amply justified the decision of the Court of
Appeal to impose a constructive trust. To that extent, I propose to uphold the
opinion of Gillese J.A. and the judgment of the Court of Appeal (2011 ONCA
265, 104 O.R. (3d) 641).
II. The Employer as Administrator of a Pension Plan: Its
Fiduciary Duties
[267]
Before entering into an analysis of the
obligations of an employer as administrator of a pension plan under the PBA,
it is necessary to consider the position of the beneficiaries. Who are they? At
what stage are they in their lives? What are their vulnerabilities? A fiduciary
relationship is a relationship, grounded in fact and law, between a vulnerable
beneficiary and a fiduciary who holds and may exercise power over the
beneficiary in situations recognized by law. Any analysis of such a
relationship requires careful consideration of the characteristics of the
beneficiary. It ought not stop at the level of a theoretical and detached
approach that fails to address how, very concretely, this relationship works or
can be twisted, perverted or abused, as was the situation in this case.
[268]
The beneficiaries were in a very vulnerable
position relative to Indalex. They did not enjoy the protection that the
existence of an independent administrator might have given them. They had no
say and no input in the management of the plans. The information about the
plans and their situation came from Indalex in its dual role as employer and
manager of the plans. Their particular vulnerability arose from their
relationship with Indalex, acting both as their employer and as the
administrator of their retirement plans. Their vulnerability was substantially
a consequence of that specific relationship (Galambos v. Perez, 2009 SCC 48, [2009]
3 S.C.R. 247, at para. 68, per Cromwell J.). The nature of this
relationship had very practical consequences on their interests. For example,
as Gillese J.A. noted in her reasons (at para. 40) the consequences of the
decisions made in the course of management of the plan and during the CCAA
proceedings signify that the members of the Executive Plan stand to lose one-half
to two-thirds of their retirement benefits, unless additional money is somehow
paid into the plan. These losses of benefits are, in all probability, permanent
in the case of the beneficiaries who have already retired or who are close to
retirement. They deeply affect their lives and expectations. For most of them,
what is lost is lost for good. No arrangement will allow them to get a start on
a new life. We should not view the situation of the beneficiaries as regrettable
but unavoidable collateral damage arising out of the ebbs and tides of the
economy. In my view, the law should give the members some protection, as the
Court of Appeal intended when it imposed a constructive trust.
[269]
Indalex was in a conflict of interest from the
moment it started to contemplate putting itself under the protection of the CCAA
and proposing an arrangement to its creditors. From the corporate perspective,
one could hardly find fault with such a decision. It was a business decision.
But the trouble is that at the same time, Indalex was a fiduciary in relation
to the members and retirees of its pension plans. The “two hats” analogy offers
no defence to Indalex. It could not switch off the fiduciary relationship at
will when it conflicted with its business obligations or decisions. Throughout
the arrangement process and until it was replaced by an independent
administrator (Morneau Shepell Ltd.) it remained a fiduciary.
[270]
It is true that the PBA allows an
employer to act as an administrator of a pension plan in Ontario. In such
cases, the legislature accepts that conflicts of interest may arise. But, in my
opinion, nothing in the PBA allows that the employer qua administrator
will be held to a lower standard or will be subject to duties and obligations
that are less stringent than those of an independent administrator. The
employer remains a fiduciary under the statute and at common law (PBA,
s. 22(4)). The employer is under no obligation to assume the burdens of
administering the pension plans that it has agreed to set up or that are the
legacy of previous decisions. However, if it decides to do so, a fiduciary
relationship is created with the expectation that the employer will be able to
avoid or resolve the conflicts of interest that might arise. If this proves to
be impossible, the employer is still “seized” with fiduciary duties, and cannot
ignore them out of hand.
[271]
Once Indalex had considered the CCAA process
and decided to proceed in that manner, it should have been obvious that such a
move would trigger conflicts of interest with the beneficiaries of the pension
plans and that these conflicts would become untenable, as per the terms of s.
22(4) of the PBA. Given the nature of its obligations as administrator
and fiduciary, it was impossible to wear the “two hats”. Indalex had to
discharge its corporate duties, but at the same time it had to address its
fiduciary obligations to the members and beneficiaries of the plans. I do not
fault it for applying under the CCAA , but rather for not relinquishing
its position as administrator of the plans at the time of the application. It
even retained this position once it engaged in the arrangement process. Other
conflicts and breaches of fiduciary duties and of fundamental rules of
procedural equity in the Superior Court flowed from this first decision.
Moreover, Indalex maintained a strongly adversarial attitude towards the
interest of the beneficiaries throughout the arrangement process, while it was
still, at least in form, the administrator of the plans.
[272]
The option given to employers to act as
administrators of pension plans under the PBA does not constitute a
licence to breach the fiduciary duties that flow from this function. It should
not be viewed as an invitation for the courts to whitewash the consequences of
such breaches. The option is predicated on the ability of the employer-administrator
to avoid the conflicts of interests that cause these breaches. An employer
deciding to assume the position of administrator cannot claim to be in the same
situation as the Crown when it discharges fiduciary obligations towards certain
groups in society under the Constitution or the law. For those cases, the Crown
assumes those duties because it is obligated to do so by virtue of its role,
not because it chooses to do so. In such circumstances, the Crown must often
balance conflicting interests and obligations to the broader society in the
discharge of those fiduciary duties (Alberta v. Elder Advocates of Alberta
Society, 2011 SCC
24, [2011] 2 S.C.R. 261, at paras.
37-38). If Indalex found itself in a situation where it had to balance
conflicting interests and obligations, as it essentially argues, it could not
retain the position of administrator that it had willingly assumed. The
solution was not to place its function as administrator and its associated
fiduciary duties in abeyance. Rather, it had to abandon this role and
diligently transfer its function as manager to an independent administrator.
[273]
Indalex could apply for protection under the CCAA .
But, in so doing, it needed to make arrangements to avoid conflicts of
interests. As nothing was done, the members of the plans were left to play
catch up as best they could when the process that put in place the DIP
financing and its super priority was initiated. The process had been launched
in such a way that it took significant time before the beneficiaries could
effectively participate in the process. In practice, the United Steelworkers
union, which represented only a small group of the members of the Salaried Employees
Plan, acted for them after the start of the procedures. The members of the
Executive Plan hired counsel who appeared for them. But, throughout, there were
problems with notices, delays and the ability to participate in the process.
Indeed, during the CCAA proceedings, the Monitor and Indalex seemed to
have been more concerned about keeping the members of the plans out of the
process rather than ensuring that their voices could be heard. Two paragraphs
of the submissions to this Court by Morneau Shepell Ltd., the subsequently
appointed administrator of the plan, aptly sums up the behaviour of Indalex and
the Monitor towards the beneficiaries, whose representations were always deemed
to be either premature or late:
When counsel for the
Retirees again appeared at a motion to approve the bidding procedure, his
objections were considered premature:
In
my view, the issues raised by the retirees do not have any impact on the
Bidding Procedures. The issues can be raised by the retirees on any application
to approve a transaction — but that is for another day.
Only when counsel
appeared at the sale approval motion, as directed by the motions judge, were
the concerns of the pension plan beneficiaries heard. At that time, the
Appellants complain, the beneficiaries were too late and their motion
constituted a collateral attack on the original DIP Order. However, it cannot
be the case that stakeholder groups are too early, until they are too late. [R.F.,
at paras. 54-55]
[274]
I must also mention the failed attempt to assign
Indalex in bankruptcy once the sale of its business had been approved. One of
the purposes of this action was essentially to harm the interests of the
members of the plans. At the time, Indalex was still wearing its two hats, at
least from a legal perspective. But its duties as a fiduciary were clearly not
at the forefront of its concerns. There were constant conflicts of interest
throughout the process. Indalex did not attempt to resolve them; it brushed
them aside. In so acting, it breached its duties as a fiduciary and its
statutory obligations under s. 22(4) PBA.
III. Procedural Fairness in CCAA Proceedings
[275]
The manner in which this matter was conducted in
the Superior Court was, at least partially, the result of Indalex disregarding
its fiduciary duties. The procedural issues that arose in that court did not
assist in mitigating the consequences of these breaches. It is true that, in
the end, the beneficiaries obtained, or were given, some information pertaining
to the proceedings and that counsel appeared on their behalf at various stages
of the proceedings. However, the basic problem is that the proceedings were not
conducted according to the spirit and principles of the Canadian system of
civil justice.
[276]
I accept that those procedures are often urgent.
The situation of a debtor requires quick and efficient action. The turtle-like
pace of some civil litigation would not meet the needs of the application of
the CCAA . However, the conduct of proceedings under this statute
is not solely an administrative process. It is also a judicial process
conducted according to the tenets of the adversarial system. The fundamentals
of such a system must not be ignored. All interested parties are entitled to a
fair procedure that allows their voices to be raised and heard. It is not an
answer to these concerns to say that nothing else could be done, that no other
solution would have been better, that, in substance, hearing the members would
have been a waste of time. In all branches of procedure whether in
administrative law, criminal law or civil action, the rights to be informed and
to be heard in some way remain fundamental principles of justice. Those
principles retain their place in the CCAA , as some authors and judges
have emphasized (J. P. Sarra, Rescue! The Companies’ Creditors Arrangement
Act (2007), at pp. 55-56; Royal Oak Mines Inc., Re (1999), 7 C.B.R.
(4th) 293 (Ont. C.J. (Gen. Div.)), at para. 5, per Farley J.). This was
not done in this case, as my colleagues admit, while they downplay the
consequences of these procedural flaws and breaches.
IV. Imposing a Constructive Trust
[277]
In this context, I see no error in the decision
of the Court of Appeal to impose a constructive trust (paras. 200-207). It was
a fair decision that met the requirements of justice, under the
principles set out by our Court in Canson Enterprises Ltd. v. Boughton &
Co., [1991] 3 S.C.R. 534, and in Soulos v. Korkontzilas, [1997]
2 S.C.R. 217. The remedy of a constructive trust was justified in order to
correct the wrong caused by Indalex (Soulos, at para. 36, per
McLachlin J. (as she then was)). The facts of the situation met the four
conditions that generally justify the imposition of a constructive trust (Soulos,
at para. 45), as determined by Justice Gillese in her reasons, at paras.
203-4: (1) the defendant was under an equitable obligation in relation to the
activities giving rise to the assets in his or her hands; (2) the assets in the
hands of the defendant were shown to have resulted from deemed or actual agency
activities of the defendant in breach of his or her equitable obligation to the
plaintiff; (3) the plaintiff has shown a legitimate reason for seeking a
proprietary remedy, either personal or related to the need to ensure that
others like the defendants remain faithful to their duties; and (4) there are
no factors which would render imposition of a constructive trust unjust in all
the circumstances of the case, such as the protection of the interests of
intervening creditors.
[278]
In crafting such a remedy, the Court of Appeal
was relying on the inherent powers of the courts to craft equitable remedies,
not only in respect of procedural issues, but also of substantive questions.
Section 9 of the CCAA is broadly drafted and does not deprive courts of
their power to fill in gaps in the law when this is necessary in order to grant
justice to the parties (G. R. Jackson and J. Sarra, “Selecting the Judicial
Tool to get the Job Done: An Examination of Statutory Interpretation,
Discretionary Power and Inherent Jurisdiction in Insolvency Matters”, in J. P.
Sarra, ed., Annual Review of Insolvency Law, 2007 (2008), 41, at pp. 78-79).
[279]
The imposition of the trust did not disregard
the different corporate personalities of Indalex and Indalex U.S. It properly
acknowledged the close relationship between the two companies, the second in
effect controlling the first. This relationship could and needed to be taken
into consideration in order to determine whether a constructive trust was a
proper remedy.
[280]
For these reasons, I would uphold the imposition
of a constructive trust and I would dismiss the appeal with costs to the respondents.
APPENDIX
The Pension
Benefits Amendment Act, 1973, S.O. 1973, c. 113
6. The said Act is
amended by adding thereto the following sections:
23a.—(1) Any sum received by an
employer from an employee pursuant to an arrangement for the payment of
such sum by the employer into a pension plan as the employee’s contribution
thereto shall be deemed to be held by the employer in trust for payment
of the same after his receipt thereof into the pension plan as the employee’s
contribution thereto and the employer shall not appropriate or convert any part
thereof to his own use or to any use not authorized by the trust.
(2) For the purposes of subsection 1, any sum
withheld by an employer, whether by payroll deduction or otherwise, from moneys
payable to an employee shall be deemed to be a sum received by the employer
from the employee.
(3) Any sum required to be paid into a
pension plan by an employer as the employer’s contribution to the plan shall,
when due under the plan, be deemed to be held by the employer in trust for
payment of the same into the plan in accordance with the plan and this Act and
the regulations as the employer’s contribution and the employer shall not
appropriate or convert any part of the amount required to be paid to the fund
to his own use or to any use not authorized by the terms of the pension plan.
Pension
Benefits Act, R.S.O. 1980, c. 373
21. . . .
(2) Upon the termination or winding up of a
pension plan filed for registration as required by section 17, the employer is
liable to pay all amounts that would otherwise have been required to be paid to
meet the tests for solvency prescribed by the regulations, up to the date of
such termination or winding up, to the insurer, administrator or trustee of the
pension plan.
. . .
23.—(1) Where a sum
is received by an employer from an employee under an arrangement for the
payment of the sum by the employer into a pension plan as the employee’s
contribution thereto, the employer shall be deemed to hold the sum in trust for
the employee until the sum is paid into the pension plan whether or not the sum
has in fact been kept separate and apart by the employer and the employee has a
lien upon the assets of the employer for such amount that in the ordinary
course of business would be entered in books of account whether so entered or
not.
. . .
(3) Where an employer is required to make
contributions to a pension plan, he shall be deemed to hold in trust for the
members of the plan an amount calculated in accordance with subsection (4),
whether or not,
(a) the employer contributions are payable
into the plan under the terms of the plan or this Act; or
(b) the amount has been kept separate and
apart by the employer,
and the members have a lien upon the assets of the employer in such
amount that in the ordinary course of business would be entered into the books
of account whether so entered or not.
(4) For the purpose of determining the amount
deemed to be held in trust under subsection (3) on a specific date, the
calculation shall be made as if the plan had been wound up on that date.
. . .
32. In addition to any amounts the
employer is liable to pay under subsection 21 (2), where a defined benefit
pension plan is terminated or wound up or the plan is amended so that it is no
longer a defined benefit pension plan, the employer is liable to the plan for
the difference between,
(a) the value of the assets of the plan; and
(b) the value of pension benefits guaranteed
under subsection 31 (1) and any other pension benefit vested under the terms of
the plan,
and the employer shall make payments to the insurer, trustee or
administrator of the pension plan to fund the amount owing in such manner as is
prescribed by regulation.
Pension
Benefits Amendment Act, 1983, S.O. 1983, c. 2
2. Subsection 21 (2) of the said Act is repealed and the
following substituted therefor:
(2) Upon the termination or winding up of a registered
pension plan, the employer of employees covered by the pension plan shall pay
to the administrator, insurer or trustee of the pension plan,
(a) an amount equal to,
(i) the current service cost, and
(ii) the special payments prescribed by the
regulations,
that have accrued to and including the date of the termination or
winding up but, under the terms of the pension plan or the regulations, are not
due on that date; and
(b) all other payments that, by the terms of the
pension plan or the regulations, are due from the employer to the pension plan
but have not been paid at the date of the termination or winding up.
(2a) For the purposes of clause (2) (a), the current
service cost and special payments shall be deemed to accrue on a daily basis.
3. Section 23 of the said Act is repealed and the following
substituted therefor:
23.—(1) Where an employer
receives money from an employee under an arrangement that the employer will pay
the money into a pension plan as the employee’s contribution to the pension
plan, the employer shall be deemed to hold the money in trust for the employee
until the employer pays the money into the pension plan.
(2) For the purposes of subsection (1), money withheld by an
employer, whether by payroll deduction or otherwise, from moneys payable to an
employee shall be deemed to be money received by the employer from the
employee.
(3) The administrator or trustee of the pension plan has
a lien and charge upon the assets of the employer in an amount equal to the
amount that is deemed to be held in trust under subsection (1).
(4) An employer who is required by a pension plan to
contribute to the pension plan shall be deemed to hold in trust for the members
of the pension plan an amount of money equal to the total of,
(a) all moneys that the employer is required to pay
into the pension plan to meet,
(i) the current service cost, and
(ii) the special payments prescribed by the
regulations,
that are due under the pension plan or the regulations and have not
been paid into the pension plan; and
(b) where the pension plan is terminated or wound
up, any other money that the employer is liable to pay under clause 21 (2)
(a).
(5) The administrator or trustee of the pension plan has a lien
and charge upon the assets of the employer in an amount equal to the
amount that is deemed to be held in trust under subsection (4).
(6) Subsections (1) and (4) apply whether or not the moneys
mentioned in those subsections are kept separate and apart from other money.
. . .
8. Sections 32 and 33 of the said Act are repealed and the
following substituted therefor:
32.—(1) The employer of
employees who are members of a defined benefit pension plan that the employer
is bound by or to which the employer is a party and that is partly or wholly
wound up shall pay to the administrator, insurer or trustee of the plan an
amount of money equal to the amount by which the value of the pension benefits
guaranteed by section 31 plus the value of the pension benefits vested under
the defined benefit pension plan exceeds the value of the assets of the plan
allocated in accordance with the regulations for payment of pension benefits
accrued with respect to service in Ontario.
(2) The amount that the employer is required to pay under
subsection (1) is in addition to the amounts that the employer is liable
to pay under subsection 21 (2).
(3) The employer shall pay the amount required under
subsection (1) to the administrator, insurer or trustee of the defined benefit
pension plan in the manner prescribed by the regulations.
Pension
Benefits Act, 1987, S.O. 1987, c. 35
58.—(1) Where an employer receives money from an
employee under an arrangement that the employer will pay the money into a
pension fund as the employee’s contribution under the pension plan, the employer
shall be deemed to hold the money in trust for the employee until the employer
pays the money into the pension fund.
. .
.
(3) An employer who is required to pay contributions to a
pension fund shall be deemed to hold in trust for the beneficiaries of the
pension plan an amount of money equal to the employer contributions due and not
paid into the pension fund.
(4) Where a pension plan is wound up in whole or in part,
an employer who is required to pay contributions to the pension fund shall be
deemed to hold in trust for the beneficiaries of the pension plan an amount of
money equal to employer contributions accrued to the date of the wind up but
not yet due under the plan or regulations.
. .
.
59.—(1) Money that an employer
is required to pay into a pension fund accrues on a daily basis.
(2) Interest on contributions shall be calculated and
credited at a rate not less than the prescribed rates and in accordance with
prescribed requirements.
. .
.
75.—(1) A member in Ontario of
a pension plan whose combination of age plus years of continuous employment or
membership in the pension plan equals at least fifty-five, at the effective
date of the wind up of the pension plan in whole or in part, has the right to
receive,
(a) a pension in accordance with the terms of the
pension plan, if, under the pension plan, the member is eligible for immediate
payment of the pension benefit;
(b) a pension in accordance with the terms of the
pension plan, beginning at the earlier of,
(i) the normal retirement date under the pension
plan, or
(ii) the date on which the member would be
entitled to an unreduced pension under the pension plan if the pension plan
were not wound up and if the member’s membership continued to that date; or
(c) a reduced pension in the amount payable under
the terms of the pension plan beginning on the date on which the member would
be entitled to the reduced pension under the pension plan if the pension plan
were not wound up and if the member’s membership continued to that date.
. .
.
76.—(1) Where a pension plan is
wound up in whole or in part, the employer shall pay into the pension fund,
(a) an amount equal to the total of all payments
that, under this Act, the regulations and the pension plan, are due or that
have accrued and that have not been paid into the pension fund; and
(b) an amount equal to the amount by which,
(i) the value of the pension benefits under the
pension plan that would be guaranteed by the Guarantee Fund under this Act and
the regulations if the Commission declares that the Guarantee Fund applies to
the pension plan,
(ii) the value of the pension benefits accrued
with respect to employment in Ontario vested under the pension plan, and
(iii) the value of benefits accrued with respect
to employment in Ontario resulting from the application of subsection 40 (3)
(50 per cent rule) and section 75,
exceed the value of the assets of the pension fund allocated as
prescribed for payment of pension benefits accrued with respect to employment
in Ontario.
Pension
Benefits Act, R.S.O. 1990, c. P.8
57.
(1) [Trust property] Where an employer receives money from an
employee under an arrangement
that the employer will pay the money into a pension fund as the employee’s contribution
under the pension plan, the employer shall be deemed to hold the money in trust
for the employee until the employer pays the money into the pension fund.
(2) [Money withheld] For the purposes of
subsection (1), money withheld by an employer, whether by payroll deduction or
otherwise, from money payable to an employee shall be deemed to be money
received by the employer from the employee.
(3) [Accrued contributions] An employer who is
required to pay contributions to a pension fund shall be deemed to hold in
trust for the beneficiaries of the pension plan an amount of money equal to the
employer contributions due and not paid into the pension fund.
(4) [Wind up] Where a pension plan is wound up
in whole or in part, an employer who is required to pay contributions to the
pension fund shall be deemed to hold in trust for the beneficiaries of the
pension plan an amount of money equal to employer contributions accrued to the
date of the wind up but not yet due under the plan or regulations.
. .
.
58. (1) [Accrual] Money that an employer is
required to pay into a pension fund accrues on a daily basis.
(2) [Interest] Interest on contributions shall be
calculated and credited at a rate not less than the prescribed rates and in
accordance with prescribed requirements.
. . .
74. (1) [Activating
events] This section applies if a person ceases to be a member of a pension
plan on the effective date of one of the following activating events:
1. The wind up of a
pension plan, if the effective date of the wind up is on or after April 1,
1987.
2. The employer’s
termination of the member’s employment, if the effective date of the termination
is on or after July 1, 2012. However, this paragraph does not apply if the
termination occurs in any of the circumstances described in subsection (1.1).
3. The occurrence of
such other events as may be prescribed in such circumstances as may be specified
by regulation.
(1.1) [Same, termination of
employment] Termination of employment is not an activating event if the
termination is a result of wilful misconduct, disobedience or wilful neglect of
duty by the member that is not trivial and has not been condoned by the
employer or if the termination occurs in such other circumstances as may be
prescribed.
(1.2) [Exceptions,
election by certain pension plans] This section does not apply with respect to
a jointly sponsored pension plan or a multi-employer pension plan while an
election made under section 74.1 for the plan and its members is in effect.
(1.3) [Benefit] A member
in Ontario of a pension plan whose combination of age plus years of continuous
employment or membership in the pension plan equals at least 55 on the
effective date of the activating event has the right to receive,
(a) a pension in accordance with the terms of the
pension plan, if, under the pension plan, the member is eligible for immediate
payment of the pension benefit;
(b) a pension in accordance with the terms of the
pension plan, beginning at the earlier of,
(i) the normal retirement date under the pension
plan, or
(ii) the date on which the member would be
entitled to an unreduced pension under the pension plan if the activating event
had not occurred and if the member’s membership continued to that date; or
(c) a reduced pension in the amount payable under
the terms of the pension plan beginning on the date on which the member would
be entitled to the reduced pension under the pension plan if the activating
event had not occurred and if the member’s membership continued to that date.
(2) [Part year] In
determining the combination of age plus employment or membership, one-twelfth
credit shall be given for each month of age and for each month of continuous
employment or membership on the effective date of the activating event.
(3) [Member for 10
years] Bridging benefits offered under the pension plan to which a member
would be entitled if the activating event had not occurred and if his or her
membership were continued shall be included in calculating the pension benefit
under subsection (1.3) of a person who has at least 10 years of continuous
employment with the employer or has been a member of the pension plan for at
least 10 years.
(4) [Prorated bridging benefit] For the purposes
of subsection (3), if the bridging benefit offered
under the pension plan is not related to periods of employment or membership in
the pension plan, the bridging benefit shall be prorated by the ratio that the
member’s actual period of employment bears to the period of employment that the
member would have to the earliest date on which the member would be entitled to
payment of pension benefits and a full bridging benefit under the pension plan
if the activating event had not occurred.
(5) [Notice of
termination of employment] Membership in a pension plan that is wound up
includes the period of notice of termination of employment required under Part
XV of the Employment Standards Act, 2000.
(6) [Application of subs.
(5)] Subsection (5) does not apply for the purpose of calculating the amount
of a pension benefit of a member who is required to make contributions to the
pension fund unless the member makes the contributions in respect of the period
of notice of termination of employment.
(7) [Consent of
employer] For the purposes of this section, where the consent of an employer
is an eligibility requirement for entitlement to receive an ancillary benefit,
the employer shall be deemed to have given the consent.
(7.1) [Consent of
administrator, jointly sponsored pension plans] For the purposes of this
section, where the consent of the administrator of a jointly sponsored pension
plan is an eligibility requirement for entitlement to receive an ancillary
benefit, the administrator shall be deemed to have given the consent.
(8) [Use in calculating
pension benefit] A benefit described in clause (1.3) (a), (b) or (c) for which
a member has met all eligibility requirements under this section shall be
included in calculating the member’s pension benefit or the commuted value of
the pension benefit.
. . .
75. (1) [Liability of
employer on wind up] Where a pension plan is wound up, the employer shall pay
into the pension fund,
(a) an amount equal to the total of all payments
that, under this Act, the regulations and the pension plan, are due or that
have accrued and that have not been paid into the pension fund; and
(b) an amount equal to the amount by which,
(i) the value of the pension benefits under the
pension plan that would be guaranteed by the Guarantee Fund under this Act and
the regulations if the Superintendent declares that the Guarantee Fund applies
to the pension plan,
(ii) the value of the pension benefits accrued
with respect to employment in Ontario vested under the pension plan, and
(iii) the value of benefits accrued with respect
to employment in Ontario resulting from the application of subsection
39 (3) (50 per cent rule) and section 74,
exceed the value of the assets of the pension fund allocated as
prescribed for payment of pension benefits accrued with respect to employment
in Ontario.
Appeals
of Sun Indalex Finance, George L. Miller and FTI Consulting allowed, LeBel and Abella JJ. dissenting. Appeal of USW dismissed.
Solicitors
for the appellant Sun Indalex Finance, LLC: Goodmans, Toronto.
Solicitors
for the appellant George L. Miller, the Chapter 7 Trustee of the
Bankruptcy Estates of the U.S. Indalex Debtors: Chaitons, Toronto.
Solicitors
for the appellant FTI Consulting Canada ULC, in its capacity as court-appointed
monitor of Indalex Limited, on behalf of Indalex Limited: Stikeman
Elliott, Toronto.
Solicitors
for the appellant/respondent United Steelworkers: Sack Goldblatt
Mitchell, Toronto.
Solicitors
for the respondents Keith Carruthers, et al.: Koskie Minsky,
Toronto.
Solicitors
for the respondent Morneau Shepell Ltd. (formerly known as Morneau Sobeco
Limited Partnership): Cavalluzzo Hayes Shilton McIntyre &
Cornish, Toronto.
Solicitor
for the respondent/intervener the Superintendent of Financial Services: Attorney
General of Ontario, Toronto.
Solicitors
for the intervener the Insolvency Institute of Canada: Thornton
Grout Finnigan, Toronto.
Solicitors
for the intervener the Canadian Labour Congress: Sack Goldblatt
Mitchell, Toronto.
Solicitors
for the intervener the Canadian Federation of Pensioners: Paliare,
Roland, Rosenberg, Rothstein, Toronto.
Solicitors
for the intervener the Canadian Association of Insolvency and Restructuring
Professionals: McMillan, Montréal.
Solicitors for the
intervener the Canadian Bankers Association: Osler, Hoskin &
Harcourt, Toronto.