Skip Navigation

Pensions Newsletter - April 2016

April 27, 2016

Welcome to the 13th issue of the Blakes Pensions Newsletter. This newsletter provides a summary of recent jurisprudential developments that affect pensions and benefits and is not intended to be legal advice. 

For additional information or to discuss how any aspect of these developments may affect you, please contact a member of the Blakes Pensions, Benefits & Executive Compensation group.

IN THIS ISSUE​

PENSION ADMINISTRATION

VALUATION METHODS

COST AWARDS BEFORE A PENSION REGULATING TRIBUNAL

AGE DISCRIMINATION – EMPLOYEE BENEFITS IN UNIONIZED WORKPLACE

SHORT TERM DISABILITY

FAMILY AND ESTATE LAW

NEGLIGENT MISREPRESENTATION

PARTIAL WIND-UPS

Back to top

PENSION ADMINISTRATION

Hiscocks v. Ontario (Superintendent Financial Services), 2016 ONFST 5

Christopher Hiscocks filed a Request for Hearing asking the Ontario Financial Services Tribunal (Tribunal) to direct the Superintendent of Financial Services (Superintendent) to order DRS Technologies Canada Ltd. (DRS) to permit Mr. Hiscocks to purchase pensionable service retroactively from DRS’s employee pension plan (Plan).

Mr. Hiscocks commenced employment with Spar Aerospace Limited (Spar) in 1979. Throughout the time he was employed, Spar had a voluntary contributory defined benefit pension plan (Spar Plan). Mr. Hiscocks was eligible to join the Spar Plan at any time after completion of 12 months of employment with Spar, but he did not do so at any time while employed by Spar and waived participation in writing on at least two occasions.

In October 1997, certain assets of Spar were purchased by DRS. As a result of the asset purchase, DRS agreed to offer certain employees of Spar, including Mr. Hiscocks, employment on terms and conditions no less favourable in the aggregate to the employees than the terms and conditions which were then applicable to such employee at the time of sale. DRS also agreed to adopt a new defined benefit pension plan covering transferred employees from Spar who participated in or met (or were in the process of satisfying) eligibility requirements for participation in the Spar Plan. Mr. Hiscocks received a memorandum confirming the intended transfer of the Spar Plan and its assets to DRS and to the registration of the Plan.

In 2004, Mr. Hiscocks applied and became enrolled in the Plan. In 2013, Mr. Hiscocks emailed DRS, requesting that he be allowed to buy back service under the Plan, retroactive to his date of hire with DRS. Both DRS and the Plan’s Corporate Pension Committee denied him that request. No provision existed in the amended and restated Plan text to permit a buy-back of past service, although a prior version of the Plan allowed DRS to waive eligibility requirements and permit employees to become members earlier than the date the eligibility requirements would otherwise have been satisfied.

Mr. Hiscocks sought an order from the Superintendent directing DRS to permit the Applicant to purchase past pensionable service, which the Superintendent refused. Mr. Hiscocks then appealed to the Tribunal. The two issues before the Tribunal were (1) whether DRS contravened or was in contravention of section 25 of the Pension Benefits Act (Act) and (2) if the answer to issue (1) is yes, what order, if any, should the Tribunal direct the Superintendent to make?

Subsection 25(1) provides that the administrator of a pension plan shall provide certain information in writing to each person who will be eligible or is required to become a member of the plan, including the applicable plan provisions, the person’s rights and obligations under the plan and any other information prescribed by regulation. Subsection 25(2) provides that the administrator shall provide the information mentioned in subsection 25(1) to (a) each person who becomes a member of the pension plan, (b) each person who is likely to become eligible to become a member of the pension plan and (c) each person who becomes eligible to become a member of the pension plan upon becoming employed by the employer. The Tribunal noted that section 38(c) of Ontario Regulation 909 (Regulations) under the Act should also be read together with section 25 of the Act, as it prescribes the time periods within which the information referred to in subsection 25(1) of the Act must be provided.

After reviewing the relevant statutory and regulatory provisions, with respect to issue (1), the Tribunal found that DRS did not contravene section 25 in 1997, nor was it in current or continuing contravention of section 25 with respect to Mr. Hiscocks. Upon a plain reading of section 25(1), the Tribunal held that DRS was not required to provide the prescribed information because Mr. Hiscocks did not fall within any of the employee groups listed therein and therefore neither section 25 of the Act nor section 38(c) of the Regulations applied to him.

The Tribunal stated that while the best practice would be for successor employers to confirm with individuals not enrolled in the predecessor plan of their continuing eligibility on the date of sale, there is no explicit obligation under the Act to do so. The Tribunal found as fact that Mr. Hiscocks was aware of the DRS Plan, knew that Spar Plan members continued in the Plan and that since both plans were voluntary, it was reasonable for a successor employer such as DRS to accept the continuing waiver of membership by Mr. Hiscocks until such time as he applied for membership.

Even though the answer to issue (1) was no, the Tribunal went on to state that in respect of issue (2), the Act does not specify a remedy for a contravention of section 25. Even if section 25 had been breached, the requested remedy did not exist under the Plan.

Ontario Financial Services Tribunal Decision

Back to top

VALUATION METHODS

Fredericton Police Association v. Superintendent of Pensions, 2016 NBFCST 2

The City of Fredericton (City) filed an application with the New Brunswick Superintendent of Pensions (Superintendent) seeking her consent to the split of assets and liabilities of the City’s pension plan (Old Plan) into two plans: (1) a new defined benefit plan (Police and Fire Plan) for the Fredericton Police Association (Police) and the Fredericton Fire Fighters Association (Fire Fighters) and (2) the conversion of the existing plan into a shared-risk plan for the remainder of City employees (City Plan).

The Superintendent consented to the split of assets and liabilities between the plans on the basis of an actuarial report prepared by the Old Plan’s actuary. The split was calculated on the basis of the going concern apportionment method as opposed to the solvency apportionment method.

The central issue in the case was which valuation method should be applied for the split of assets and liabilities between the Police and Fire Plan and the City Plan, both of which are defined benefit plans. The Police and Fire Fighters argued that the Superintendent should have refused consent to the transfer of assets and liabilities on the basis of the going concern apportionment method and directed that the transfer be done on the basis of the solvency apportionment method. The City argued that the going concern apportionment method is correct as the Old Plan and the new City Plan benefit from a solvency exemption such that they are funded solely on a going concern basis. The Superintendent took no position on the merits of the appeal.

The Tribunal found that the transfer of assets and liabilities in this case was governed by section 70 of the New Brunswick Pension Benefits Act (Act) and section 54 of the General Regulation (Regulation) because those provisions contemplate the transfer of assets from one plan to another by the same employer. The Tribunal reached this determination even though subsection 54(1) of the Regulation appears to limit the application of section 70 of the Act to transfers of assets from a defined benefit plan into a defined contribution plan. When section 54 of the Regulation was drafted, the unique situation in this matter was not contemplated, namely the transfer of a portion of assets from a defined benefit plan to another defined benefit plan by the same employer.

However, the Tribunal held that the gap in the pension benefits legislative scheme could be remedied by applying principles of statutory interpretation. The Tribunal applied the principle that in the event of a conflict between an Act and a Regulation, the Act trumps the Regulation, so the conflicting provision of the Regulation is deemed not to apply. Section 70 of the Act does not refer to defined benefit and defined contribution plans; it simply refers to “the original pension plan” and “the new pension plan.” As a result, the Tribunal found that insofar as subsection 54(1) of the Regulation conflicts with section 70 of the Act, the conflicting provisions of subsection 54(1) become inapplicable, so the requirement that a transfer be from a defined benefit plan to a defined contribution plan does not apply. The policy goal underlying the legislation and supporting regulations should be to ensure that plan members under a defined benefit plan have equal protection irrespective of whether the successor plan is a defined contribution or a defined benefit plan.

On the basis that section 70 of the Act applied, the Tribunal found that the solvency apportionment method best protected the benefits of the members of both plans. The fact that the Old Plan and new City Plan had a solvency exemption did not assist the City’s argument because it does not exempt pension plans from being subject to solvency valuations, a concept separate from solvency exemptions under the Regulation.

Statutory interpretation also factored heavily into the Tribunal’s decision on the issue of the valuation method. The Tribunal relied upon the Supreme Court of Canada’s 2004 decision in Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services) and the Federal Court of Appeal’s 2001 decision in Villani v. Canada (Attorney General) for the proposition that the Act is public policy legislation, whose purpose is to safeguard benefits under private pension plans for all individuals that are entitled to receive them. As a result, the legislation ought to be interpreted in a broad and generous manner such that any doubt arising from the language should be resolved in favour of the claimant.

Furthermore, the Tribunal found that the Superintendent’s lack of reasons for her decision was troubling and nowhere did the legislation permit the Superintendent to consent to a transfer of assets that would provide less to pension plan members. Rather, the Superintendent has the statutory duty to protect the interests of all plan members regardless of the type of transfer, which at a minimum required a consideration of both the going concern and solvency apportionment, and ought to have further investigated the discrepancy of nine per cent in the asset transfer ratio between the Police and Fire Plan and the City Plan. The Superintendent could have taken actions other than either consenting or refusing consent, including suggesting that the solvency apportionment method be calculated to allow her to compare those figures with the going concern apportionment figures provided in the actuary’s report.

The Tribunal vacated the Superintendent’s decision and ordered consent to the transfer on the basis of the solvency apportionment method.

New Brunswick Financial and Consumer Services Tribunal Decision

Back to top


COST AWARDS BEFORE A PENSION REGULATING TRIBUNAL

General Motors of Canada Limited v. Ontario (Superintendent Financial Services), 2015 ONFST 39

This case arises out of a Financial Services Commission of Ontario Notice of Intended Decision (NOID) issued in November 2013. The Superintendent of Financial Services (Superintendent) indicated his intention to issue a variety of orders regarding the indexation provisions of the CAMI Automotive Inc. Pension Plan. The applicant, General Motors of Canada Limited (GM), initially intended to dispute the NOID and issued an intention to dispute. However, it subsequently agreed to an order directing the Superintendent to proceed with the NOID, leaving only one issue to be resolved by the Tribunal — costs. The CAMI Automotive Members Indexing Committee (Committee), a party representing some employees, requested that GM pay its costs.

The statutory framework of the Financial Services Tribunal (Tribunal) power to order costs is fairly complicated. The Tribunal is subject to the Statutory Powers Procedure Act (SPPA), which permits costs orders in limited circumstances where the conduct of the litigants makes a costs order appropriate. Furthermore, the Financial Services Commission of Ontario Act (FSCO Act) permits the Tribunal to make any costs order it deems just. In addition to these two statutory grants of authority, the Tribunal has written its own cost rules (which it has the power to do under the SPPA). These cost rules (Rules) provide for costs to be awarded based on the conduct of the litigants, specifically when the conduct is unreasonable, frivolous or vexatious, or in bad faith. According to the Rules, there is no entitlement to costs based on being the successful party.

The Committee made no allegation of unreasonable conduct against GM. The Committee argued that the Tribunal’s Rules were not exhaustive and that the Tribunal can and should go beyond them and apply the common law approach of granting costs that “follow the event.” The Committee further argued that any costs award should be paid out of the pension fund in accordance with U.K. jurisprudence known as the “Buckton Rules.” While the Buckton Rules provide that costs awards in pension litigation can be paid out of the pension fund, their application in Canada — according to the Ontario Court of Appeal’s 2008 decision in Burke v. Hudson’s Bay Company and the Supreme Court of Canada’s 2009 decision in Nolan v. Kerry (Canada Inc.) — restrict such circumstances to litigation that is to the benefit of the beneficiaries as a whole or when the litigation deals with issues involving the due administration of the plan.

Regarding the issue of whether costs should be ordered at all, the Tribunal dismissed the Committee’s request. The Tribunal refused to answer the question of whether it was permitted to order costs beyond the four corners of the Rules, stating only that if the Tribunal had such a power, it would not choose to exercise it in this circumstance.

The Committee argued that such restrictive Rules were an impediment to access to justice for plan members before the Tribunal, due to their relative size and power compared to the Superintendent, corporate entities, and pension plans. The Tribunal rejected this argument, citing the many differences between the courts of law and the Tribunal as reason for not imposing the common law cost rule of costs “following the event.” For one, there is often no clear “winner” and “loser” before the Tribunal due to the public interest at the heart of each dispute and the Superintendent’s participation in each dispute. The Superintendent is not a true adversarial litigant to either employer or employee because he is the guardian of the public interest. In this case, because the Superintendent was nominally “on the side” of the employees, the Committee (an employee interest group) could not take sole credit for their success at the Tribunal.

Another reason for rejecting the Committee’s request was that imposing a court-like costs regime on the Tribunal would cut both ways. It would expose employee parties to costs awards if they are the unsuccessful litigant, thus creating a disincentive to participate in pension litigation before the Tribunal. This is a policy reason against awarding costs.

In addition, the Tribunal rejected the Committee’s request for costs because employees before the Tribunal do not participate as a class or as all plan members represented by one employee; each employee participates as an individual.

The Committee’s final argument for costs was based on the Canadian Charter of Rights and Freedoms (Charter). According to the Committee, dignity and access to justice are Charter values that should be considered in their request for costs. This argument was rejected. The Tribunal ruled that these values were adequately protected by the statutory and regulatory costs rules.

On the issue of whether a costs award, if ordered, should be paid out of the pension fund, the Tribunal rejected the Committee’s argument that the Buckton Rules should apply to Tribunal proceedings. While it is true that Canadian jurisprudence approves of costs awards being paid out of pension funds in certain circumstances in pension litigation before the courts, the same jurisprudence very clearly rejects similar treatment before regulatory bodies. In any event, in situations where costs are awarded out of the pension fund, the court hearing the dispute must determine that it is fair to the pension fund that costs be paid out of the fund. In other words, when the litigation can be considered a proper plan administration expense, then it is fair for the fund to pay the costs.

The issue of whether costs in this proceeding were a proper pension administration expense was not argued before the Tribunal. The Committee’s request was premised on the unsupported argument that the costs award should be ordered against GM, who could then reimburse itself out of the pension fund because it was the pension administrator.

Ontario Financial Services Tribunal Decision

Back to top

AGE DISCRIMINATION – EMPLOYEE BENEFITS IN UNIONIZED WORKPLACE

Brockville Mental Health Centre v. Ontario Public Service Employees Union, Local 439, 2016 CanLII 8802 (ON LA)

Ontario Public Service Employees Union, Local 439 (Union) launched a grievance against the Brockville Mental Health Centre (Employer) for failing to provide benefits to active employees over the age of 65. The benefits were provided under an insured Manulife Financial group benefits plan (Plan). The Plan’s policy and employee booklets stated that certain benefits ceased at the age of 65, while the life insurance benefits were substantially reduced at the age of 65.

The collective agreement did not expressly provide that employees over the age of 65 would receive benefits that differ from other classes of employees. The Union argued that differential treatment of employees on the basis of age requires clear and unequivocal language in the collective agreement, and that such language was absent in the collective agreement. The Employer argued that the policy and booklets were incorporated by reference into the collective agreement and were required for a complete understanding of the collective agreement, which simply summarized the benefits available under the Plan. The Employer also argued that the Plan could not be administered based solely on the text of the collective agreement because crucial information was missing.

The arbitrator ruled on a line-by-line reading of the collective agreement, as there was no claim of discrimination under the Human Rights Code. The arbitrator held that because the long-term disability section stated that the Employer will “maintain the current . . . plan,” the Union was bound to the Plan’s terms with regards to long-term disability (as set out in the policy), including its eligibility criteria.

With regards to accidental death and dismemberment (AD&D), the collective agreement merely stated that “Employees . . . shall be entitled to [benefits] in accordance with Schedule C.” The schedule clearly showed that the Employer intended to discriminate on the basis of age for the life insurance benefit. It also stated that the AD&D benefit would be “the same as life insurance.” The arbitrator interpreted this statement to mean that, like the life insurance benefit, the AD&D benefit would continue to be available for employees over the age of 65, but the death benefit would be reduced. In terms of the optional life benefit, there was no mention in the collective agreement of differential treatment of employees over the age of 65. Consequently, the arbitrator ordered that the optional life benefit must be fully provided to employees over the age of 65.

Ontario Labour Arbitration Award

Back to top

SHORT-TERM DISABILITY

Finning Canada v. International Association of Machinists and Aerospace Workers, 2015 CanLII 79289

In this labour arbitration, the International Association of Machinists and Aerospace Workers, Local 99 (Union) grieved Finning Canada (Employer)’s policy regarding its short-term disability (STD) benefit for employees participating in a mandatory return-to-work program of part-time work and modified duties.

The STD plan provided that a totally disabled employee would receive income replacement benefits for 105 days, after which they would move to the long-term disability (LTD) benefit. For many employees, the STD benefits were superior to the LTD benefits. Participation in mandatory rehabilitation employment by either working part time or performing modified duties did not interrupt the running of the 105 days. The Union argued that counting these days as part of the STD benefit reduces employees’ overall income replacement benefit set out in the collective agreement. Even if this practice was not an unfair reduction in benefits, the Union argued that it discriminated against disabled workers. The Union argued that part-time work or reduced duties should count as full employment and should suspend the 105-day STD period.

The Employer argued that the Union was trying to establish the STD benefit as a bank of sick days from which the employees can freely withdraw. The Employer argued that many factors are considered in determining whether an employee is totally disabled and the ability to work part time or on modified duties was only one such factor. Furthermore, the STD period could be interrupted, but only when the employee returned to work performing all pre-injury duties. The Employer argued that the Union was essentially trying to lower this threshold so that any work performed by a disabled employee would suspend the running of the STD period.

The key to this dispute was the characterization of the STD benefit. The arbitrator sided with the Employer, ruling that the STD benefits promised under the collective agreement were to provide for a specific period during which 100-per-cent income protection would be provided. The STD benefits did not provide for a specific number of disability benefit payments, which would function as a bank of sick days. The collective agreement stated that the STD plan is not intended to permit “excessive use of sick time” and that the intention of the STD plan was to have employees return to work as early as possible. The mandatory rehabilitation employment program is a reflection of these statements. For these reasons, the policy of counting part-time or reduced duty work as part of the STD time limit was found to be consistent with the collective agreement.

The Union also argued that the policy discriminated against disabled employees. Disabled employees who report to work for part-time or reduced duties must perform work while their STD period continues to run. Healthy employees who report to work do not use their STD period. The arbitrator ruled that this perception of discrimination was based on a mischaracterization of the STD benefit. The STD benefit provides a period of time in which the disabled employee is entitled to full income replacement benefits, regardless of what fraction of income replacement is required. Disabled employees are not disadvantaged by performing reduced duties; they are simply earning part of their income from work (and potentially from other sources, such as workers’ compensation benefits) and the remainder from the STD benefit.

Alberta Labour Arbitration Award

Back to top

FAMILY AND ESTATE LAW

Stephens v. Stephens, 2016 ONSC 367

The parties settled the terms of their separation, including spousal support and division of marital property. The terms in the minutes of settlement were included in an Order of Justice Nolan dated October 23, 2013. One such term was the division of Phillip Stephens’ pension in the Ironworkers Ontario Pension Plan (Plan). The administrator of the Plan had informed the parties during the course of their negotiation in 2013 that Mr. Stephens’ pension had a value of C$445,681.68. In calculating this value, the administrator used the Plan’s “transfer ratio” of 73.1 per cent. Elsie Stephens’ division was half of this amount, C$222,840.84.

In April 2015, the administrator wrote to the parties indicating that the reliance on the “transfer ratio” had been in error and the pension value should have been calculated at 100 per cent. As a result, the pension was undervalued by C$164,005.99 and Ms. Stephens’ share was undervalued by C$82,003.

Ms. Stephens applied to have the 2013 order changed to reflect the new pension value amounts, with Mr. Stephens opposed on the basis that Ms. Stephens had not independently  verified the figures originally provided by the plan administrator and that the order specified that there were to be no further claim for equalization. Justice Raikes found that he had the jurisdiction to change the order based on the doctrine of mistake. Though the original term in the minutes of settlement had been agreed to by the parties, the term was informed by the erroneous statement of the administrator and therefore there was a mistake that was mutual to both parties. The clear intention of the parties was to divide the pension in half, whatever its value.

Justice Raikes also found that s. 67.3(10) of the Pension Benefits Act did not bar relief. That provision states that once a transfer is made to a former spouse, that former spouse has no “further claim” against the pension plan. Justice Raikes found that this situation was not a “further claim,” but rather a correction of a mistake regarding a claim already made and therefore a further transfer of C$82,000 (plus interest) be made from the Plan to Ms. Stephens.

Ontario Superior Court Decision

Back to top

Estate A.B.C. v. Respondent 1 and the Superintendent of Pensions, 2016 NBFCST 1

This proceeding was an appeal to the New Brunswick Financial and Consumer Services Tribunal (Tribunal) of the decision of the Superintendent of Pensions (Superintendent) finding that a widower, Mrs. C, was entitled to the death benefit under the pension plan of her late husband. The proceedings before the Superintendent were a review, requested by the deceased’s three children (Estate), of the pension plan administrator’s finding that Mrs. C was entitled to the benefit under the deceased’s pension plan.

The Estate argued that it was entitled to the death benefit and Mrs. C was not entitled because (1) their father and Mrs. C cohabited for only one year and eight months, which is less than the three years required by the New Brunswick Pension Benefits Act (Act), (2) Mrs. C was not substantially dependent upon the deceased for support and (3) regardless of whether Mrs. C was their father’s spouse, their claim had priority over Mrs. C’s claim pursuant to subsection 1(2) of the Act. Mrs. C argued that she is the deceased’s spouse as that term is defined in the Act and is therefore entitled to the death benefit.

The Tribunal concluded that pursuant to subsection 43(2) of the Act — the provision that provides for entitlement to the spouse of a deceased person — Mrs. C was entitled to the death benefit from the deceased’s pension plan because Mrs. C was the deceased’s spouse at the time of his death and her claim had priority over that of the Estate. Mrs. C was the deceased’s spouse within the meaning of subsection 1(1) of the Act because she was able to prove that her and the deceased cohabited continuously for a period of not less than three years in a conjugal relationship in which she was substantially dependent upon the deceased for support.

In arriving at its decision, the Tribunal applied and assessed the seven factors listed in Molodowich v. Penttinen, [1980] O.J. No. 1904 and Thauvette v. Malyon (1996), 23 R.F.L. (4th) 217 to consider in determining if two people cohabited. The Tribunal stated that it is well recognized law that cohabitation can be under two roofs and living in two locations does not necessarily negate continuous cohabitation. The issue of conjugality was not in dispute. The Tribunal applied the case law interpreting the words “substantially dependent” in the spousal support context to the pensions context and found that Mrs. C demonstrated on the facts that she was substantially dependent upon the deceased for support during their cohabitation.

On the issue of whether the priority in subsection 1(2) — which provides that the entitlement of a person as a spouse of a member shall not diminish the entitlement of any person lawfully married to the member or a child of that marriage — or subsection 43(5) of the Act applied, the Tribunal found that subsection 43(5) applied. Although the two provisions appear to be conflicting, the Tribunal applied the “implied exception principle” of statutory interpretation, which states that when two provisions are in conflict and one of them deals specifically with the matter in question while the other is of more general application, the conflict may be avoided by applying the specific provision to the exclusion of the more general one. Given that subsection 43(5) is part of the section in the Act dealing with pre-retirement death benefits, the Tribunal held that this was the more specific provision and should be applied to the exclusion of the general priority provision contained in subsection 1(2).

New Brunswick Financial and Consumer Services Tribunal Decision

Back to top

Morrison Estate (Re), 2015 ABQB 769

Cameron Morrison applied to the court for advice and direction relating to the registered retirement income fund (RRIF) of his father, the deceased John Robert Morrison. Cameron sought to have the RRIF declared an asset of the deceased’s estate. The respondent, Douglas Morrison, another son of the deceased, claimed the RRIF as the designated beneficiary.

The estate was to be paid out in equal amounts to each of Mr. Morrison's four children, two of whom were the adverse parties, Cameron and Douglas. However, C$11,000 was to be deducted from the share of another son, Robert Morrison, to account for a past loan. That C$11,000 was to be paid out equally to Mr. Morrison's grandchildren. However, as Mr. Morrison had declared Douglas as a non-spouse beneficiary of his RRIF, his death triggered a deemed disposition which caused the estate to incur approximately C$25,000 in tax liability. Because of this tax liability, and the fact that the RRIF funds were not a part of the estate (if the beneficiary designation was valid), the estate did not have the assets to give C$11,000 to the grandchildren, therefore frustrating Mr. Morrison's intentions in his will.

Cameron sought to have the RRIF declared an asset of the estate, held in trust by Douglas, on the basis that there was no consideration for the beneficiary designation and no evidence that Mr. Morrison intended to gift Douglas the RRIF. According to the Supreme Court of Canada’s 2007 decision in Pecore v. Pecore (Pecore), in the case of a disputed gratuitous transfer, there is a presumption of resulting trust to the transferor’s estate. Applied to this case, Pecore would require Douglas to prove that Mr. Morrison intended to gift him the RRIF. If he fails to prove this, then the RRIF will be deemed to be held in trust for the estate.

Justice Graesser reluctantly followed Pecore. His reluctance stemmed from his belief that subjecting routine beneficiary designations to resulting trust principleswould create uncertainty and litigation strain in the investment and brokerage industry, where he presumed that most beneficiary designations could be challenged in court by disappointed siblings. According to Pecore, Douglas, as the transferee, was required to prove that his father intended to gift him the RRIF without consideration. On the evidence, Justice Graesser found that Mr. Morrison intended to give Douglas the RRIF as a gift.

However, Justice Graesser also ruled regarding the tax treatment of the RRIF. By naming a non-spouse as the beneficiary of his RRIF, Mr. Morrison triggered a deemed disposition when he died. The value of the RRIF was paid out to Douglas, while the tax liability stemming from the deemed disposition remained with the estate. This outcome caused the estate to have insufficient assets to pay the C$11,000 to Mr. Morrison's grandchildren.

Justice Graesser found that this outcome was grossly unfair. He found by implication of this unfair outcome that Mr. Morrison was either mistaken about the tax treatment of his RRIF, or that he intended Douglas to pay the tax liabilities of the RRIF on behalf of the estate. As a result, Douglas had received an unintended and unexpected benefit by receiving the RRIF funds and not incurring the RRIF’s tax liability. According to the principle of unjust enrichment, he was required to pay the value of the tax liability to the estate, providing sufficient funds to pay the C$11,000 bequest to Mr. Morrison’s grandchildren. Justice Graesser found the authority to order this remedy under s. 8 of the Judicature Act, which gives him with broad discretionary remedy powers.

Justice Graesser noted, in obiter, that he did not consider this decision to be definitive in finding that Pecore applies to all beneficiary designations. He suggested that this problem be proactively dealt with by redrafting beneficiary designations to provide for the designator’s intention to make a gift to the beneficiary on the face of the document. This would make it unnecessary to rely on evidence of intention afterward if a designation were challenged.

Court of Queen’s Bench of Alberta Decision

Back to top

Carleton University c. Threlfall, 2016 QCCS 406

Carleton University (Carleton) commenced proceedings in November 2014 against Lynn Threlfall seeking reimbursement of an amount of C$497,332.64 for overpaid pension plan benefits. George Roseme was a retired professor receiving pension benefits from Carleton. He signed an agreement at the time of his retirement stating that his pension payments would cease upon his death. Mr. Roseme disappeared on September 9, 2007. Ms. Threlfall was appointed his tutor on February 4, 2008, upon a motion for the Institution of a Tutorship to the Absentee under section 86 of the Civil Code of Québec.

Upon learning of Mr. Roseme’s disappearance, Carleton informed Ms. Threlfall that it intended to cease paying his pension benefits of C$7,122.23 per month. Ms. Threlfall’s lawyer responded to Carleton stating that Mr. Roseme’s death had not been established and he would be presumed to be alive for a period of seven years following his disappearance, as per section 85 of the Civil Code of Québec. On this basis, Carleton reinstated Mr. Roseme’s pension payments retroactively.

In July 2013, human remains were found in the backyard of Mr. Roseme’s neighbour. The coroner’s report in April 2014 determined that these remains were Mr. Roseme’s and that his death had occurred in 2007. Carleton argued that the contract signed by Mr. Roseme at the time of his retirement clearly stipulated that all benefit payments would cease at the time of his death. Therefore, payments after January 1, 2008 had become undue and should be reimbursed. Ms. Threlfall argued that Mr. Roseme’s death was only established in April 2014, when Carleton ceased making payments. Therefore she should not have to reimburse any amounts.

Justice Bédard ruled that Carleton had the legal obligation to maintain Mr. Roseme’s pension benefits because of the legal presumption of life in section 86 of the Civil Code of Québec, but that the payments became an error once the presumption had been refuted by the discovery of Mr. Roseme’s death. Since the coroner’s report stated that Mr. Roseme’s death occurred in 2007, Justice Bédard found that the date of death should be established at the last day of 2007. He held that the payments made to Ms. Threlfall after that date were made in error and therefore subject to restitution. Furthermore, Ms. Threlfall admitted to using C$106,000 from Mr. Roseme’s estate to pay her own personal debts. For this reason, she was deemed to have accepted the succession of Mr. Roseme, the result being that she became liable for the debt of the succession. Ms. Threlfall was found personally liable to Carleton’s claim against Mr. Roseme’s estate and ordered to pay the amount of C$497,332.60 (plus interest) to Carleton.

Quebec Superior Court Decision

Back to top

NEGLIGENT MISREPRESENTATION

Feldstein v. 364 Northern Development Corporation, 2016 BCSC 108

The plaintiff, Cary Feldstein, sued his employer, 364 Northern Development Corporation (364), for negligent misrepresentation relating to statements made by a 364 employee about 364’s long-term disability (LTD) benefits. Mr. Feldstein is a long-time sufferer of cystic fibrosis. As a result of his health condition, he was very diligent about his health-care needs and expectations. He knew that he would eventually require a double lung transplant.

During the course of his pre-employment discussions with 364, the plaintiff disclosed his health status and specifically asked about 364’s disability benefits and coverage for pre-existing conditions. The benefits summary provided to Mr. Feldstein by 364 indicated that there was a “proof of good health” requirement. Eugene Nizker, 364’s Chief Information Officer, whom had been Mr. Feldstein’s primary contact with 364, told him that the proof of good health requirement would be satisfied if he worked for three months without illness.

Approximately two years into his employment, Mr. Feldstein sought to receive LTD benefits as he was preparing to undergo the long-awaited double lung transplant. His claim was denied above the non-evidence maximum of C$1,000 on the basis that he had not filled out a medical questionnaire when he originally enrolled in the plan. This denial came as a surprise to both Mr. Feldstein and Mr. Nizker, who expected the plaintiff to be fully covered.

Justice Power of the Supreme Court of British Columbia found that the statement made by Mr. Nizker to the plaintiff regarding the “proof of good health” requirement was a negligent misrepresentation. The plaintiff reasonably relied on the statement to conclude that he would be covered by the LTD benefits after the expiration of the three month waiting period. Given the plaintiff’s demonstrated diligence regarding his health, Justice Power concluded that the plaintiff would likely not have accepted employment with 364 had he not been fully satisfied with his LTD coverage.

Justice Power ordered damages for 30 months of lost LTD benefits, less the C$1,000 per month Mr. Feldstein had received under the non-evidence maximum (to a total of C$83,336). She also ordered C$10,000 for mental distress, notwithstanding the fact that Mr. Nizker’s misrepresentation was based on an honest mistake and his efforts in assisting Mr. Feldstein.

British Columbia Supreme Court Decision

Back to top

PARTIAL WIND-UPS

Leave to Appeal in Navistar Denied

In the October 2015 Pensions Newsletter, we discussed Navistar Canada Inc. v. Superintendent of Financial Services, 2015 ONSC 2797 (Divisional Court). Navistar Canada Inc. applied for leave to appeal this decision. On December 21, 2015, leave to appeal was denied by the Ontario Court of Appeal. As a result, on December 23, 2015, the Financial Services Commission of Ontario ordered the Navistar Canada Inc. Non-Contributory Retirement Plan partially wound up.

FSCO Order

Back to top

​​​​