1. Sutherland v. Hudson's Bay
Company, 2011 ONCA 606 (Gillese, MacFarland and Rouleau
JJ.A.), September 22, 2011
2. TA & K
Enterprises Inc. v. Suncor Energy Products Inc., 2011 ONCA
613 (Goudge, MacFarland and Watt JJ.A.), September 27, 2011
3. The Sovereign General Insurance Company v.
Walker, 2011 ONCA 597 (O'Connor A.C.J.O., Laskin and
MacPherson JJ.A.), September 19, 2011
4. Morsi
v. Fermar Paving Limited, 2011 ONCA 577 (MacPherson,
Juriansz and Karakatsanis JJ.A.), September 8, 2011
5. Clark
v. Werden, 2011 ONCA 619 (Doherty, Feldman and Epstein
JJ.A.), September 30, 2011
1. Sutherland v. Hudson's Bay
Company, 2011 ONCA 606 (Gillese, MacFarland and
Rouleau JJ.A.), September 22, 2011
For those interested in the basic principles of pension plan
surplus law, Gillese J.A.'s judgment provides an excellent
primer. The result was a win for the Simpson's pension
plan employees, unlike the outcome in Burke v. Hudson's Bay
Co., [2010] 2 S.C.R. 273, in which the same employer prevailed
in its claim to the surplus in another pension plan.
The Simpson's plan was a "defined benefit plan",
meaning that the employer sponsoring the plan promised members a
specific level of pension on retirement. By contrast, in
"defined contribution plans," members are simply promised
a pension based on whatever the plan's investment experience
happens to generate from the contributions. Of course, every
pension plan must be funded by contributions, which can be made by
the employer alone or by the employer and the employees. Only
defined benefit plans can generate surpluses or deficits because
investment experience can exceed or fall short of what is required
to generate the defined benefits. Defined benefit plans must
retain actuaries to ensure that contributions are sufficient to
keep the plan on track to meeting its obligations. When
ongoing defined benefit plans are more than able to meet their
projected obligations, they are said to be in "actuarial
surplus". If a defined benefit pension plan is wound up
and is in surplus, the actuarial surplus becomes a real
surplus.
One might think that if the members of a defined benefit plan
receive the defined benefit, they should have no complaint if the
employer gets the benefit of surplus, either through a contribution
holiday in the case of an ongoing plan or an actual cash payout in
a winding-up. However, the law is more complicated than
that. The complication arises because pension plans must be
funded. Where the funding mechanism involves a trust,
equitable trust principles trump common law contract principles:
Schmidt v. Air Products of Canada Ltd., [1994] 2 S.C.R.
611 ("Schmidt"). This means that the
provisions of the trust declaration creating the trust fund will
prevail over the contractual provisions in the pension plan that
embodies the bargain between the employer and the employees.
Hence, depending on the language of the trust agreement, the
employees may be entitled to the surplus as well as the defined
benefit.
In Schmidt, the Supreme Court set out a framework to
determine who is entitled to a surplus: 1) examine the
documentation in chronological order; 2) determine if the fund
is impressed with a trust; 3) if the answer to 2 is
"no", the employer wins, but if "yes", equity
prevails over common law, with the result that the language of the
trust declaration trumps the contractual language in the plan; 4)
if the fund is subject to a trust, ask whether the employer
explicitly limited the operation of the trust so that it does not
apply to surplus (if so, the employer wins); 5) ask whether the
employer expressly reserved a power of revocation when
the trust was created (if so, the employer wins, but the
revocation must be express, not merely implicit from a general
power enabling the employer to amend the trust declaration).
Note that step 5 means that, if the original trust declaration did
not contain an express reservation of a power of revocation, the
employer cannot later amend the trust declaration to access the
surplus.
The Simpson's trust declaration, which HBC inherited when
it acquired that retailer in the 1970's, gave the employer a
general power to amend and terminate the trust, but did not contain
express language enabling the employer to re-appropriate money
contributed to the fund. To the contrary, the trust
declaration provided that any amendment or termination "shall
not authorize or permit or result in any part of the corpus or
income of the Trust Fund being used for or diverted to purposes
other than for the benefit exclusively of members of the Plan and
their beneficiaries". That language was the primary
reason why the Court of Appeal held that the employees of the
Simpson plan were entitled to the surplus.
HBC argued that certain provisions of the pension plan itself
made it clear that it was entitled to the surplus. The court
rejected the argument, holding that even if the language was as
clear as HBC contended, Schmidt dictates that the language
in the trust document prevails.
The Court of Appeal saw nothing in Burke to compel
the conclusion that the Supreme Court intended to alter the
Schmidt framework. It distinguished Burke, in
which the plan documents expressly excluded any entitlement of the
plan members to any part of the trust fund in excess of the defined
benefit. While the trust agreement in Burke
contained "exclusive benefit" language, that document was
only created after the plan had been set up and had to be
interpreted in the light of the language in the plan. Even more
significantly, the language occurred in a discrete provision of the
trust document that authorized the plan trustee to make payments
for taxes and administration purposes.
Thus, the result gave the former Simpson's employees the
upside of the fund's investment experience, even though the
employer remained liable for providing the defined benefits. In
economic terms, one can see the result as converting a defined
benefit plan into a defined contribution plan with a
"floor" guarantee. Was that the intent of the bargain
between the employer and employees when the plan was created? The
answer is "probably not". The "exclusive
benefit" language in pension plan trust declarations was aimed
at securing tax deductions for employers for their pension
contributions, not at giving employees a "floor"
guarantee with unlimited upside. However, perhaps such employers
should have foreseen that somewhere down the road they would be
subject to the law of unintended consequences. After all, to get
the tax deduction, they had to irrevocably part with their
contributions. Once you give away your property, you usually
aren't entitled to get it back.
2. TA & K
Enterprises Inc. v. Suncor Energy Products Inc., 2011
ONCA 613 (Goudge, MacFarland and Watt JJ.A.), September 27,
2011
Section 5 of the Arthur Wishart Act (Franchise
Disclosure), 2000, S.O. 2000 ("the Act")
requires franchisors to provide franchisees with pre-contractual
disclosure. Failure to comply enables the franchisee to sue
for rescission and the return of moneys paid to the
franchisor. However, the disclosure requirement contains
several exemptions, including
5.(7) This section does not apply to,...
(g) the grant of a franchise if,...
(ii) the franchise agreement is not valid for longer than one year and does not involve the payment of a non-refundable franchise fee...
(g) the grant of a franchise if,...
(ii) the franchise agreement is not valid for longer than one year and does not involve the payment of a non-refundable franchise fee...
To secure the benefit of this exemption, Suncor was careful to
ensure that its Retail Franchise Agreements ("RFA's")
with its gas stations had terms of less than a year with no option
to renew. Also, payments by gas stations to Suncor were
solely in the form royalties for product sold. There was no
upfront fee for the right to sell Suncor product.
The RFA between Suncor and TA&K was signed on November 11,
2008 and the term was for November 15, 2008 to November 14, 2009, a
year less a day. When Suncor's parent was acquired by
Petro-Canada in early 2009, the Competition Bureau ordered Suncor
to divest itself of a number of gas stations. Thus, in
October, 2009, Suncor advised TA&K that when the RFA expired,
it would only be extended on a month-to month basis. In early
2010, Suncor advised TA&K that there would be no extensions
after August, 2010. TA&K responded to the bad news by
bringing a class action based on the proposition that Suncor's
failure to provide pre-contractual disclosure enabled gas stations
in the same boat as it to claim rescission and the return of moneys
paid under the RFA. Suncor successfully moved for summary
judgment and TA&K appealed.
TA&K advanced several clever but unsuccessful arguments
for the proposition that the exemption did not apply. First,
it contended that even though the RFA had a term of a year less a
day, it was signed four days before the term began and was thus
"valid" for a year and three days. TA&K argued
that if Suncor had repudiated the RFA between the time it was
signed and the beginning of its term, it had the right to sue
Suncor for "anticipatory breach" and thus had a right of
action over a period longer than a year.
The Court of Appeal agreed with the motion judge that the
exemption was aimed at franchisees at minimal risk and defined the
period of risk at a year. It noted that TA&K conceded
that the exemption would apply to a stall at a three week autumn
fair that signed up more than a year in advance. As for the
point that TA&K could sue for anticipatory breach, the court
noted the observation by Professor John D. McCamus in his book,
The Law of Contracts (Toronto: Irwin Law, 2005), at pp.
651-52 that "anticipatory breach" might be more aptly
worded as "anticipatory repudiation", with the result
that it was not accurate to say that the obligations under the RFA
were valid for more than a year. The court also rejected
arguments that since certain confidentiality provisions in the RFA
continued after its expiry and the lease also continued on a
month-to-month basis after its expiry, the RFA was valid for more
than a year.
Stressing the French version of "franchise fee" in
s.5(7)(g)(ii) ("redevances de franchisage non
remboursables"), TA&K also argued that the royalty
payments were "franchise fees". It maintained that
the word "redevances" meant "any amount
required to be paid at fixed intervals". The court gave
this argument short shrift, noting that if it were right, no
franchise agreement would ever qualify for the exemption. It
also noted that the 1971 report by Samuel Grange, Q.C. (later
Grange J.A.) that eventually led to the passage of the Act excluded
royalty payments from the concept of "franchise
fees."
Despite the result in this case, one may still wonder about
the fairness of the exemption itself because of the apparent ease
with which franchisors are able to engage it by limiting the terms
of their agreements to a year less a day. The gas stations in
this case are not in the same position as vendors at country
fairs.
3.
The Sovereign General Insurance Company v.
Walker, 2011 ONCA 597 (O'Connor A.C.J.O., Laskin
and MacPherson JJ.A.), September 19, 2011
Section 132 of the Insurance Act, R.S.O. 1990, c.I.8
("the Act") allows a third-party to recover against an
insurer where its insured has failed to satisfy a judgment for
damages. However, under s.132, a third party has no greater
rights than the insured because the third party is "subject to
the equities" between the insured and the insurer. Thus,
if the insured does something to nullify coverage, the third party
can be out of luck. In this case, the insured failed to
inform the insurer of the claim. However, the insurer did get
notice of the claim from the insured's landlord, which was also
liable to the third party. Is the insurer entitled in these
circumstances to sit back and watch the claim unfold secure in the
knowledge that its insured's failure will insulate it from
liability? Also, in these circumstances, should the court
grant relief from forfeiture under s.129 of the Act?
On a cold winter's day, Marie Walker emerged from a movie
theatre in a suburban mega-mall with her family. The
conditions in the parking lot were so treacherously icy that,
despite taking due care, she lost her footing and smashed her head,
sustaining a serious injury. She sued the landlord and the
maintenance company. The landlord responded to the
claim. The maintenance company went bankrupt and failed to
defend. The landlord knew that Sovereign was the maintenance
company's insurer and forwarded all the pleadings (including
its crossclaim) to the insurer, albeit five years after the
accident. On legal advice, the insurer maintained its
silence. The Walkers settled with the landlord and obtained
default judgment against the maintenance company. They then
sued Sovereign under s. 132 of the Act and obtained summary
judgment. Sovereign appealed.
Although the insurer demonstrated that the motion judge erred
in his interpretation of one provision of the insurance policy, the
Court of Appeal dismissed the appeal for two reasons. First,
it held that the insurer received notice under the following policy
provision:
3(a) In the event of an accident or occurrence, written notice
containing particulars sufficient to identify the Insured and also
reasonably obtainable information with respect to the time, place
and circumstances thereof, and the names and addresses of the
injured and of available witnesses, shall be given promptly by or
for the Insured to the Insurer or any of its authorized
agents.
The court held that a purposive interpretation of the words
"by or for the Insured" enabled notice to be given by a
party in sufficient proximity to the insured to have knowledge of
the claim. At the very least, the court said, the provision
was sufficiently ambiguous to construe it against the
insurer.
The most significant aspect of this decision, however, was the
court's treatment of s.129 of the Act:
129. Where there has been imperfect compliance with a
statutory condition as to the proof of loss to be given by the
insured or other matter or thing required to be done or omitted by
the insured with respect to the loss and a consequent forfeiture or
avoidance of the insurance in whole or in part and the court
considers it inequitable that the insurance should be forfeited or
avoided on that ground, the court may relieve against the
forfeiture or avoidance on such terms as it considers just.
First, because Sovereign had received actual, albeit late,
notice of the claim, the court held that this was a case of
"imperfect compliance" within the meaning of s.129, as
opposed to non-compliance: see Falk Bros. Industries Ltd.
v. Elance Steel Fabricating Co., [1989] 2 S.C.R. 778.
Therefore, the motion judge had the discretion to grant
relief. His exercise of discretion was justified by two
factual findings. First, there was no bad faith by the
maintenance company, the landlord or the Walkers. Second,
even if Sovereign had received more timely notice, there was
nothing it could have done differently.
Despite the outcome in this case, one can easily imagine
circumstances where injured people will not be able to obtain
recovery in similar circumstances. The Walkers would have been out
of luck if the landlord had not sent the pleadings package to
Sovereign. There may be a story here that did not make its way into
the record. It would be interesting to know the circumstances
of the settlement with the landlord and whether there is any
connection between the settlement and the landlord's decision
to provide the insurer with notice of the claim.
One other fact is worth mentioning – the slip and
fall occurred on January 30, 1999. It took a dozen years for
litigation to conclude. Assuming a life span of 80 years, the
case consumed a full one sixth of a lifetime. So, be very careful
the next time you are in an icy parking lot. The hurt can last a
long time.
4. Morsi v.
Fermar Paving Limited, 2011 ONCA 577 (MacPherson,
Juriansz and Karakatsanis JJ.A.), September 8, 2011
Although the statutory duty of municipalities to maintain
their roads has an affinity with the common law duty of care, this
tragic case reminds us that the duties are different. The
statutory duty is found in s. 44 of the Municipal Act,
2001. S.O. 2001, c.25: it requires municipalities to
keep highways under their jurisdiction "in a state of repair
that is reasonable in the circumstances". A long line of
cases, including decisions of the Supreme Count of Canada, holds
that this means that the road must be kept in a state that allows
people to use it safely by exercising ordinary care: see, e.g.,
Housen v Nikolaisen, 2002 SCC 33 at para.60.
In June, 2005, York Region was resurfacing Major Mackenzie
Drive just west of Highway 27. About 400 metres to the west
of the intersection, the fresh asphalt ended and westbound drivers
had to negotiate a transition to a road surface that was still in
the process of being treated. The speed limit was 60 km/h and
signs indicated a construction zone. Just before the
transition point, there was a curve with a posted advisory speed of
40 km/h. About 385 metres from the transition point, back
near Highway 27, there was a "Pavement Ends" sign.
Unfortunately, Mr. Morsi, who was driving at 117 km/h, lost control
of his Volkswagen Jetta at the transition point and fatally crashed
into a utility pole.
The trial judge found that Mr. Morsi was largely to blame but
still imposed liability on the municipality: see 2010 ONSC
3851. First, he held that the municipality failed to inspect
the road properly and was not fully aware of the slippery nature of
the surface of the portion of the road under treatment. Second, he
found that the "Pavement Ends" sign was inadequate on two
grounds. First, such a sign only indicates a change from pavement
to gravel, as opposed to a change from pavement to fresh treated
surface. There was evidence that "fresh treated
surface" signs were recommended in the Ontario Provincial
Standard Specifications (OPSS) 304 beginning in 2006. He also
held that the sign should have been posted 30 metres, not 385
metres, from the transition point.
However, the trial judge also made another finding, which
resulted in the Court of Appeal's reversing his judgment: if
Mr. Morsi had been driving at the speed limit or even
"modestly above it," he would not have lost control.
As the Court of Appeal noted, this finding clearly implied
that drivers using ordinary care could have safely negotiated the
transition point. It therefore followed that the road was in
a state of repair that was reasonable in all of the
circumstances.
Although the trial judge had referred to the statutory wording
and correctly enunciated the test in the Supreme Court cases, the
Court of Appeal found that he failed to apply that test. An
examination of the trial judge's reasons reveals that he also
cited a number of common law negligence cases, including road
maintenance cases from British Columbia, where the road
authority's duty is a common law duty.
This case, therefore, highlights the difference between the
statutory and common law duties. The trial judge here found
negligence on the basis that the municipality could have reasonably
done more to improve the safety do the road. However, the statutory
test only requires the municipality to do as much as is necessary
to ensure that ordinary drivers using ordinary care can negotiate
it safely. The difference between the two tests may be subtle, but
it is real.
The paving company in this case was governed by the common
law, not the statute. However, the court also allowed its
appeal. The trial judge had found that the paving company
ought to have foreseen that drivers would speed over the transition
point. The Court of Appeal held that the company was not
obliged to foresee that Mr. Morsi would drive over it at almost
twice the posted speed limit and three times the advisory
speed. The court concluded that the sole cause of the tragedy
was Mr. Morsi's own "reckless" driving.
Is there anything left in Ontario of the ancient law of
maintenance and champerty other than An Act Respecting
Champerty, R.S.O. 1897, c. 327, which, although never
repealed, was not included in the last version of Ontario's
revised statutes? This case suggests "probably
not."
Clark, Werden and Muller were once friends. Clark and
Werden, however, had a falling out. Muller loaned Werden
$120,000 but Werden defaulted. Muller and Clark then agreed
that Muller would assign the debt to Clark. Clark paid
nothing to Muller for the assignment, but they agreed that they
would talk later about how to divide the money once it was
collected. Clark then sued Werden. Werden attacked the
assignment, alleging maintenance and champerty. Clark
obtained judgment. Werden appealed.
Werden's position was that Muller would not have pursued
him on the debt, and that it was Clark who sought the assignment
with no previous interest other than bad feeling toward him.
Clark had been an employee of Werden's and then left to start a
competing business which triggered litigation in which Werden
succeeded.
At trial and on appeal, Werden relied on NRS Block
Brothers Realty Ltd. v. Minerva Technology Inc. (1997), 145
D.L.R. (4th) 448 (B.C.C.A), which sets out the indicia of
maintenance: "element of officious intermeddling; no previous
commercial connection; the assignee is speculating on a personal
gain from the lawsuit; there is a stirring up of strife; the
assignee initiates or promotes the commencement of the
lawsuit."
The trial judge held that all of the indicia were
irrelevant because, as long as the assignment of the debt complied
with s. 53(1) of the Conveyancing and Law of Property Act,
R.S.O. 1990, c. C.34, the motives of the assignee are of no concern
to the law. The assignee was simply asserting a property
right.
The Court of Appeal agreed. It relied on the judgment of
McLachlin J. A. (now C.J.C.) in Fredrickson v. I.C.B.C,
[1986] 3 B.C.L.R. (2d) 145 (C.A.), which the Supreme Court adopted
at [1988] 1 S.C.R 1089. In that case, however, the assignee
was a judgment creditor who took an assignment of his debtor's
cause of action against a third party in satisfaction of the
debt. The assignee thus had a pre-existing commercial
interest. By contrast, Clark had no such pre-existing
commercial interest. He only had an axe to grind. In
Frederickson, however, McLachlin J.A. referred to
Fitzroy v. Cave, [1905] 2 K.B. 364 (C.A.) in which
Cozens-Hardy L.J. likened the transfer of a debt, which is a
chose in action, to the transfer of property in a
"bale of goods" and said that it was "not easy to
see" how maintenance and champerty have any application to
assignments.
Indeed, a century later, it is "not easy" to see how
the law of maintenance and champerty has any application to
anything any longer.
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.