The recent Federal Court decision in Canada (Attorney General) v. Aéroport de Québec inc. will serve as a reminder to employers that there may only be a relatively short window of time to challenge decisions rendered by pension regulators. Failure to act within that period can prevent an employer from successfully challenging the decision at a later time regardless of the merits of the claim.
This case involves a small federally regulated pension plan sponsored by Aéroport de Québec inc. (the Employer) that was terminated effective October 15, 2008. While examining the wind-up documentation, the Office of the Superintendent of Financial Institutions (OSFI) came to the conclusion that the Employer had failed to exercise an appropriate level of diligence and care in connection with the investment of the plan assets as required by subsections 8(3), 8(4) and 8(4.1) of the Pension Benefits Standards Act, 1985 (the PBSA).
On February 2010, the Superintendent issued a direction requiring the Employer to pay $263,000 plus interest in the fund as a result of the breach. The Employer did not file an application for a judicial review of the direction and it then failed to pay the amount as directed. On May 13, 2010, the Attorney General filed an application with the Federal Court for the enforcement of the direction in accordance with section 33.1 of the PBSA.
The Employer opposed the application, mainly on the basis that it had properly administered the pension fund and that the direction was therefore unreasonable. It argued that the Court has a broad discretion under section 33.1 that allows it to refuse to enforce an unreasonable direction.
The Court first found that the defence raised by the Employer was essentially a collateral attack on the validity of the direction. The Court then concluded that the Parliament did not intend an application for the enforcement of a direction to be an opportunity to challenge the validity of such direction. As part of its analysis, the Court noted that the adoption of the Employer's interpretation of section 33.1 would indirectly create a right of appeal of the Superintendent's direction whereas the legislative scheme clearly contemplates that directions should be challenged by judicial review. The Court thus ordered the Employer to comply with the direction.
At first glance, the result may seem somewhat harsh for the plan sponsor as it was basically prevented from defending its investment strategy for what may seem to be a fairly procedural point. However, the result is not necessarily surprising given the applicable provisions of the PBSA.
This case should alert employers, whether under federal or provincial jurisdiction, that they must act promptly to challenge regulatory orders or directions issued by pension regulators or they may not be able to do so later on. Legal advice should therefore be sought as soon as possible upon receipt of a direction or other type of regulatory order.
Julien Ranger-Musiol advises employers, pension fund administrators and service providers on issues such as plan mergers, use of surplus assets, contribution holidays, administration expenses and plan administration and compliance.
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