The much awaited Supreme Court of Canada decision in Sun
Indalex Finance, LLC et al. v. United Steelworkers et al.
(Indalex) was released on February 1, 2013. The Supreme Court
was split, but agreed with the Court of Appeal that a deemed trust
arose from s. 57(4) of the Pension Benefits Act, Ontario
(PBA) for wind-up deficiency payments. However, the Supreme Court
unanimously disagreed with the Court of Appeal and held that the
deemed trust would not have "super-priority" over DIP
lenders. The Supreme Court did agree with the Court of Appeal that
Indalex had a fiduciary duty in respect of its pension plans, and
had breached that duty. Despite this, the majority of the Court
disagreed with the Court of Appeal's remedy and held that a
constructive trust was not the appropriate remedy for the
The Indalex case involves restructuring proceedings under the
CCAA in Canada and an underfunded pension plan. At the time the
proceedings began, Indalex was in the process of winding up its
salaried pension plan, which was in deficit. The CCAA court
authorized Indalex to enter into debtor in possession (DIP)
financing in order for it to operate. Indalex subsequently sold the
business, but the proceeds were not enough to pay back the DIP
lenders. The members of the Indalex pension plans challenged the
priority and claimed that the pension plan deficiency had
"super-priority" as a result of a statutory deemed trust
under the PBA and a constructive trust that would arise
from Indalex's breach of fiduciary duty as administrator of the
Deemed Trust: The Supreme Court found that
under the PBA, a deemed trust did arise for the entire
amount of the wind-up deficiency, even if the precise amount of the
contribution could not be determined as of the time of the
Priority of DIP Charge: The Court declined to
give the deemed trust priority over DIP lenders, based on the
doctrine of paramountcy, in which federal law prevails over
conflicting provincial law.
Fiduciary Duty: The Court was unanimous in
confirming that Indalex had fiduciary duty in respect of its
pension plans, and that it had breached that duty. The Court
acknowledged that a conflict can arise where an employer, who is
also plan administrator, has conflicting fiduciary duties to the
corporation and to plan members. In this case, Indalex failed to
address the conflict in the appropriate manner.
Remedy: The majority of the Court declined to
impose a constructive trust as a remedy as there was no evidence
that the acts gave rise to an identifiable asset that would be
unjust for Indalex to retain.
This is a pragmatic decision which will be comforting to those
who lend to companies in distress, as they will be assured that
their secured claims will not be superseded by the claims of
members of an underfunded pension plan. This is particularly
relevant as many employer pension plans in Canada are in deficit.
The decision does confirm, however, the importance of recognizing
the conflicts of interest faced by the sponsor and administrator of
a pension plan. The Supreme Court made it clear that companies must
take steps to address these conflicting duties.
Unfortunately, reasonable accommodation for employees in the workplace continues to be the source of significant litigation and even today we continue to see outrageous examples of employers behaving badly.
We are now beginning to see reported cases involving charges and subsequent fines laid against employers for failing to provide information, instruction and supervision to protect a worker from workplace violence.
On October 13, 2016, the Supreme Court of Canada denied leave to appeal an Ontario Court of Appeal decision which ordered an employer to pay a former employee 37 months of salary and benefits following termination.
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