Canada: Quebec Court of Appeal Refuses to Authorize Pension Class Action

The recent Quebec Court of Appeal decision in Rousselet v. Corporation de l'École polytechnique confirmed some useful legal principles in its analysis:

  • the pension committee of a registered pension plan is a legal entity separate from the plan sponsor and is thus liable for its own actions and omissions;
  • the time limit to challenge a plan amendment starts to run from the day plan members are notified of the change even if damages will not be incurred until some time in the future; and
  • while there may be a low evidentiary threshold at the authorization stage, the courts must rigorously scrutinize the viability of a plaintiff's claim based on the pleadings at the certification stage.

Background

The Corporation de l'École polytechnique (an engineering school based in Montreal) is the sponsor of a defined benefit pension plan (the Plan). As required by the Quebec Supplemental Pension Plans Act (SPPA), the Plan is administered by a pension committee (which is similar to a board of trustees) composed of plan members, retirees and a majority of members appointed by the Corporation.

Prior to 2004, the Plan provided that benefits were to be indexed at 50 % of the consumer price index (CPI), leaving the Corporation the discretion to grant supplementary pension increases representing the other 50 % of the CPI. In 2002, the pension committee recommended that the Plan be amended so that the supplementary increases be automatically granted on January 1st of each year beginning in 2004, provided that the Plan's actuary could confirm on that date that the Plan has a specified reserve (on a going concern basis). The pension committee sent a summary of the proposed amendment to Plan members in April 2002 and asked them to vote on the proposal. Following a favourable vote, the Corporation amended the Plan so as to grant supplementary increases automatically on a January 1st if: (i) the specified reserve is met and (ii) the Plan does not have a solvency deficiency.

Shortly after the 2003 indexation was announced, the Association des retraités de l'École polytechnique (a group representing retirees) contested the indexing rate approved by the Corporation. The parties were unable to find a common ground on this issue for nearly three years. The parties eventually agreed to amend the Plan to address this particular issue. The Corporation would obtain the right to take contribution holidays equivalent to the amount of the special solvency payments made to the Plan and in return, the retirees would be entitled to a retroactive pension increase. Once again, the pension committee provided a summary of the proposed Plan amendments to members and asked them to vote in late 2005. The Corporation then amended the Plan to provide that the retroactive increase would be paid once the Corporation would have recovered its special solvency payments.

In 2007 and 2008, the specified reserve on a going concern basis was attained, but the Plan had a solvency deficiency. Supplementary increases were therefore not awarded. The Association filed a motion for authorization to institute a class action alleging that the solvency requirement had not been approved by Plan members as part of the 2002 vote. They also claimed that the addition of a priority of the contribution holidays over the retroactive pension increase had also not been approved by the members as part of the 2005 vote.

The motion was dismissed by the Quebec Superior Court. The Court concluded that the plaintiff failed to establish a viable cause of action as required by section 1003(b) of the Civil Code of Procedure.

Quebec Court of Appeal Decision

The Quebec Court of Appeal upheld the decision of the Superior Court and refused to authorize the class action to proceed.

The undisputed evidence showed that all the information relating to the Plan amendments at issue was provided to Plan members by the pension committee, not by the Corporation. The Court of Appeal expressly confirmed for the first time that the pension committee of a registered pension plan is a separate legal entity from the plan sponsor and is thus liable for its own actions and omissions. It follows that the Corporation could not be liable for the alleged failure of the pension committee to explain the solvency requirement and the priority of the contribution holidays to Plan members. As a side note, we can presume that the Association did not want to sue the pension committee as it would have meant a lawsuit against some of its own members who were members of the pension committee at the relevant times.

The Court of Appeal then noted that based on a plain reading of the Plan terms, the Corporation had the sole authority to amend Plan with respect to pension increases. Since amendments relating to pension increases did not have to be approved by Plan members in the first place, the votes organized by the pension committee could not be binding on the Corporation.

Lastly, the Court concluded that since the action was only brought in December 2009, more than three years after the announcement of the Plan amendments at issue, it was clearly time-barred. The Court notably rejected the plaintiff's argument that the applicable 3-year time limit could not start to run until retirees were actually denied the increases for the first time in 2007. The Court held that their damages (i.e. the loss of pension increases) were sufficiently crystallized when the amendments were made even though they could not know exactly when they would be incurred.

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