Canada: Ontario Court Of Appeal Reminds Those Communicating With Plan Members Of Fiduciary Duties

Another recent decision of the Ontario Court of Appeal, in Ault v. Canada, has continued the trend in jurisprudence to hold plan administrators and others who are responsible for communicating with pension plan members to a very high fiduciary standard, including a legal duty to disclose accurate information about the implications of any elections made by members.

In this case, members of the Public Service Superannuation Plan (the PSSP) had the option of transferring pension monies from the PSPP to private pension plans by means of a reciprocal transfer agreement (RTA). These RTAs were negotiated by the Treasury Board Secretariat (the TBS).

An actuary/pension consultant established a consulting company, Loba Limited, which had its own pension plan. He proposed that federal employees resign from their employment with the public service, join Loba, and transfer their pension monies to the Loba plan. Once their pension monies were transferred, they would quit Loba and transfer their monies out of the Loba plan, which was structured to permit cash payouts. The TBS agreed to the RTA with Loba, but had concerns about the legitimacy of the Loba pension scheme. As a result, the TBS put a hold on transfers to the Loba plan during the summer of 2000. The Canada Revenue Agency shared these concerns and set them out in a letters to the TBS and the actuary. These letters were not broadly distributed, as requested by the CRA.

In the meantime, a number of employees quit the public service and commenced employment with Loba. They subsequently learned that transfers to the Loba plan had been suspended, and eventually that the registration of the Loba plan had been revoked. The former public service employees commenced an action against the federal government, claiming the difference between: (1) the benefits (salary, pension, severance pay, health coverage, life insurance coverage) they would have received between the date of resignation from the public service and the date they likely would have retired from the public service had they not joined Loba; and (2) the benefits (earnings, pension, etc.) they actually received over the same period. The federal government in turn brought third party actions against Loba, the actuary and his actuarial consulting firm (the Loba defendants) for negligent misrepresentation and breach of fiduciary duty.

The Court of Appeal began by finding that the federal government as employer and administrator of the plans owed a duty of care to the employees.

[T]here is a special relationship between the administrator of a pension plan and the members of the plan and, as a result, the administrator has an obligation to be mindful of plan members' interests when administering the plan.

Further, the Court held that the federal government had misrepresented the availability of the ability to transfer to the Loba plan. For example, the Court noted "the disconnect between what senior TBS administrators knew in the months running up to the October 15, 2000 cut off date for RTAs about the significant risks associated with transfers to the Loba plan and the ignorance of the lower level compensation advisors – the people who actually met with and assisted the employees – about those risks." The Court then concluded that these misrepresentations had caused the damages suffered by the employees.

The Court of Appeal also found that, as between the plaintiffs and the Loba defendants, there was a fiduciary duty even before the plaintiffs became employees of Loba. The court stated that there were "elements of trust, reliance, confidence and vulnerability in the relationship and dealings between the parties" before the employees left the public service.

Fiduciary law focuses on relationships. It is the nature of the relationship at issue as well as the surrounding circumstances that give rise to fiduciary duties.

The Court also confirmed that "a duty of loyalty is 'inherent to any professional relationship', including that of an actuary and his or her client."

Finding that the actuary and the other Loba defendants acted in a fiduciary capacity, the Court affirmed that they had breached such duties and increased their apportionment of liability (from 20% as determined by the trial judge) to 40%.

The Ontario Court of Appeal has shown an ever increasing willingness to broadly apply fiduciary duties not only to pension plan administrators, but also employers and others responsible for communicating information to plan members. (Also see our Osler Update regarding the Court's recent decision in the Indalex case.) The Ault case is also a reminder of the high legal duties applicable to fiduciaries to communicate all relevant information to plan members who are making elections that can affect their pension benefits. This is a positive legal duty that applies even if the members do not make any inquiries.

Paul Litner is Chair of the Pensions & Benefits Department. His practice relates exclusively to pensions, benefits and compensation plans and their related investment arrangements

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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