Legal Update: Have the Courts been Inconsistent in the Application of Trust

Law?

Kathryn BushPartner

Blake, Cassels & Graydon LLP

Legal Update: Have the Courts been Inconsistent in the Application of Trust

Law?

Kathryn BushPartner

Blake, Cassels & Graydon LLP

Canadian Institute

of Actuaries

Canadian Institute

of Actuaries

L’Institut canadien desactuaires

L’Institut canadien desactuaires

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I. The Supreme Court Lays the Foundation in Schmidt v. Air Products of Canada Ltd.1. What happened in Schmidt2. Rules Emanating from Schmidt

i. Trust v. Contractual Analysisii. The Trust is the Prevailing Documentiii. A Pension Trust is not a Purpose Trustiv. Powers to Change Surplus Rights are

Limitedv. A Resulting Trust is Unlikely to Arise

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II. The Application of Trust Law Post-Schmidt1. Hockin v. Bank of British Columbia

trust surplus return and right to charge expenses

against the fund denied2. Crownx Inc. v. Edwards

contract surplus return permitted

3. Markle v. Toronto (City) trust right to charge expenses against the fund

denied

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4. Anova Inc. Employee Retirement Pension Plan (Administrator of) v. Manufacturers Life Insurance Co. trust benefit improvements were denied

5. Aegon Canada Inc. v. ING Canada Inc. trust merger prohibited

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III. The Supreme Court Clarifies Schmidt: Buschau v. Rogers Communications Inc.1. What happened in Buschau

trust merger prohibited

2. Buschau #1 trust merger prohibited members retain distinct rights

3. Buschau #2 trust law principles applied application of Saunders v. Vautier designated beneficiaries consent required

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4. Buschau #3 SCC Saunders v. Vautier found not to apply in

this case therefore not all trust principles apply to pension trusts

5. Important Comments from SCC in Buschaui. Employers have rights in pension plansii. Pension Plans are intended to be long-term

instrumentsiii. Pension benefits serve broader social goalsiv. Pension Plans are only a vehicle for holding

and managing fundsv. Pension Plans are heavily regulated

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6. Review Process Mandated by SCC in Buschaui. On the facts were the assets of the plan

impressed with a trust? If yes move on to (ii) and (iii).

ii. Which principles of trust law are applicable? Taking into consideration the context and purpose of pension plans, the terms of the particular plan documents and the specific legislation governing the pension plan.

iii. How do the applicable trust law principles apply to the pension plan in question?

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7. Where is Buschau now? Superintendent refused to order the

termination of the pension plan Federal Court ordered the Superintendent to

reconsider On appeal to Federal Court of Appeal

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IV. The Application of Trust Law Post-Buschau:1. Kerry (Canada) Inc. v. DCA Employees

Pension CommitteeFacts: - trust

- 2000 Pension Plan converted to dc for new members

- language of the plan changed to permit expenses to be charged to the pension planResult: - can added beneficiaries to a trust and dc or db benefits are permitted

- silence does not mean that the plan sponsor must pay plan expenses

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2. Sutherland v. Hudson’s Bay CompanyFacts: - trust

- 1991 HBC acquired Simpsons- 1994 and 1998 Simpsons Pension

Plan was amended to permit affiliates to participate in the pension planResult: - Court permitted the addition of the

affiliated company employees- contribution holidays permitted –

even for dc benefitsAppeal scheduled for December 1 and 2, 2008

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3. Burke v. Hudson’s BayFacts: - trust

- 1987 asset sale- pension asset transfer did not include

surplusResult: - trial decision held it was a breach of trust not to transfer surplus

- Court of Appeal reversed the lower court decision – no obligation to transfer surplusLeave to Appeal to SCC is pending

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4. Lennon v. Rockwell Automation Canada Inc.Facts: - trust

- 1997 amalgamation of companies and sought to merge the pension plans

- Superintendent permitted the mergerResult: - Financial Services Tribunal and Ontario Divisional Court found that exclusive benefit trust language did not prohibit a merger

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5. Lomas v. Rio Algom Ltd.Facts: - trust

- employees seeking the right to terminate a pension plan

Result: - Divisional Court refused to strike the claimAppeal pending

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6. Professional Institute of the Public Service of Canada v. Canada Attorney General– no trust– statutory plans– surplus and investment of pension plans

were not subject to trust rules

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7. Montreal Trust– trust– 79(3)(b) of PBA (Ontario) requires that the

pension plan provide for the payment of surplus– Superintendent refused to approve a surplus

sharing arrangement due to s. 79(3)(b)– an appeal to the Financial Services Tribunal has

been argued and a decision is pending