Canada: Court’s Halloween Decision Spooks Pension Plan Administrators

Last Updated: November 8 2012
Article by Mark Newton

The Ontario Court of Appeal released its decision in Carrigan v. Carrigan Estate on Halloween, October 31, 2012: 2012 ONCA 736.  The decision is a surprise to pension plan administrators and overturns longstanding practice.

The facts of this case are straightforward.  Two spouses of a deceased pension plan member had competing claims for a pre-retirement death benefit from a defined benefit pension plan.  The plan member and the legal spouse were separated several years prior to the member's death.  The member had a common law spouse at the time of his death.  The question for the court was simply whether the legal spouse or the common law spouse was entitled to the death benefit.  Surprisingly, the court decided in favour of the legal spouse.

The scheme of the Ontario Pension Benefits Act  (the "PBA"), since it was overhauled as of January 1, 1988, is to provide minimum death benefits to surviving spouses of pension plan members.  Prior to that time, the PBA did not contain such protection.  The benefit is provided to a spouse who is living with the plan member as of the date of death or, using the wording in the PBA, is not living separate and apart from the member as of such date.

The benefit, in the case of a pre-retirement death as in the case at hand, is the full commuted value of the benefit the member had earned under the pension plan to date of death.  In the case of the death of a plan member after pension payments have started to be paid, the death benefit is a 60% survivor pension payable for the life of the surviving spouse.  This is provided on an "actuarially equivalent" basis (i.e., at no additional cost to the pension plan or plan sponsor).

There is some interesting legislative history concerning the definition of "spouse" in the PBA.  When the PBA was overhauled as of January 1, 1988, it did not recognize same-sex spouses.  The definition of "spouse" in the PBA referred to a "man and a woman" who were either legally married or cohabiting in a common law relationship.  The recognition in the PBA of same-sex spouses was made in a 1997 amendment with the addition of a definition of "same-sex partner".  The PBA was somewhat cumbersome as a result.  Later, in 2005, the definition of same-sex partner was dropped from the PBA in order to have a single definition of spouse.

When the definition of same-sex partner was removed from the legislation, the concepts of spouse and same-sex partner effectively merged into one, with the result that the words "man and woman" were deleted and replaced by "two persons".  Surprisingly, it is the reference to "two persons" that the court found to be determinative of the issue.  However, the court did not discuss the legislative history which led to the drafting of the definition of "spouse" or the inclusion of "two persons".

Specifically, the reference to "two persons" led the court to conclude that a legal spouse, living separate and apart from a plan member, disentitles a common law spouse who is cohabiting with the member, to pre-retirement death benefits under the PBA.  In the court's reasoning, if a plan member were to have two spouses, a legal spouse and a common law spouse, that would be "three persons" in total and not "two persons", therefore the definition of "spouse" cannot apply to all three persons.

The court also held that the provision in the PBA that denies a spouse from entitlement to a death benefit on account of living separate and apart, cannot even apply to common law spouses, because once they are apart they are not spouses!  The court stated:

"In the context of the PBA, it is not possible for a common law spouse to be living separate and apart from the member any more than a man can be pregnant."

However, if this is true, then the former wording of the PBA that referred to same-sex partners living separate and apart would not have been valid either.

As a result, according to the court's decision, where there is a legal spouse and that spouse is living separate and apart from the member, not only is the legal spouse disentitled to the protection under the PBA, but also the common law spouse.  The result in this case is that the plan member's designated beneficiary was entitled to the death benefit who, in this case just happened to be the legal spouse and daughters.

The scheme of the PBA, then, according to the court, is that if a plan member has a legal spouse, a common law spouse cannot qualify for the automatic death benefit protection under the PBA.  The common law spouse could, of course, qualify for a benefit as a designated beneficiary.  There could also be a domestic contract entered into between the plan member and the legal spouse which could disentitle the legal spouse.  In this case, there was no separation agreement. 

There could therefore, for example, be a legal marriage of short duration between a plan member and a spouse, followed by a separation and then a 40-year common law relationship with another spouse up to the point of the death of the plan member.  Under the court's reasoning, the common law spouse would not qualify for the minimum death benefit under the PBA.  That would seem to run directly contrary to the intent of the PBA.

Of course, the member could designate the common law spouse as a beneficiary, or the spouse could qualify for part or all of the death benefit through the member's estate.  However, the legislature's intent behind the minimum protection in the PBA is to qualify the spouse who is living with the member at the time of death to the prescribed death benefit.  The same applies to the 60% post-retirement death benefit. 

The entitlement of a spouse to a pre-retirement or post-retirement death benefit should not be subject to the whim of the plan member, otherwise the legislative scheme would be subverted.  Spouses of plan members would be left without protection as was the case prior to 1988.   This decision puts into question the spousal protections in the PBA and the administration of both pre-retirement and post-retirement death benefits.

Hopefully, leave to appeal to the Supreme Court of Canada will be sought in this case.  Otherwise, the issue can only be corrected through legislative action, which could take some time.

In the meantime, here are some reflections on statutory interpretation from the pre-eminent 20th century English jurist, Lord Denning:

"Whenever a statute comes up for consideration it must be remembered that it is not within human powers to foresee the manifold sets of facts which may arise, and, even if it were, it is not possible to provide them free from all ambiguity.  The English language is not an instrument of mathematical precision.  Our literature would be much poorer if it were. 

This is where the draftsmen of Acts of Parliament have often been unfairly criticized.  A judge, believing himself to be fettered by the supposed rule that he should look to the language and nothing else, laments that the draftsmen have not provided for this or that, or have been guilty of some or other ambiguity.  It would certainly save the judges trouble if Acts of Parliament were drafted with divine prescience and perfect clarity. 

In the absence of it, when a defect appears a judge cannot simply fold his hands and blame the draftsman.  He must set to work on the constructive task of finding the intention of parliament, and he must do this not only from the language of the statute, but also from consideration of the social conditions which gave rise to it, and of the mischief which it was passed to remedy, and then he must supplement the written word so as to give 'force and life' to the intention of the legislature... 

A judge should ask himself the question: 'If the makers of the Act had themselves come across this ruck in the texture of it, how would they have straightened it out?'  He must then do as they would have done.  A judge must not alter the material of which it is woven, but he can and should iron out the creases."

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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