Canada: Pension Alert: Recent Case Law Developments (July 2008)

Last Updated: July 18 2008
Article by BLG's Pension & Benefits Group

Most Read Contributor in Canada, September 2016

Since our last Pension Alert, there have been a number of developments on the litigation front of interest to the pension community. We summarize those decisions below. If you believe that one or more of these decisions may affect you, the Pensions Group at Borden Ladner Gervais LLP would be pleased to discuss them with you. By way of overview:

  • The Ontario Court of Appeal has held in Burke v. Hudson's Bay Company that when a company division is sold and employees are transferred to a new pension plan, a proportionate share of actuarial surplus need not be transferred if the employees do not own surplus.

  • The Federal Court of Appeal has held in the Marine Atlantic case that actuarial surplus does not have to be distributed on the partial termination of a federally-regulated pension plan.

  • The Alberta Court of Queen's Bench has held in Lloyd v. Imperial Oil that an employer does not owe fiduciary duties when amending its pension plan.

  • A proposed class action has been commenced against Nortel with respect to changes to its pension plan and retirement benefits.

Burke v. Hudson's Bay Company

The Ontario Court of Appeal has released its decision in Burke v. Hudson's Bay Company, overturning a lower court decision that had held that on the sale of a division of a company and transfer of employees, a proportionate share of surplus must also be transferred to the successor pension plan.

The court held that, like any surplus distribution question, the threshold question in this type of determination is whether the employees in question had an entitlement to the surplus funds in question. Based on the plan documentation at issue, the court held that the transferred employees had no entitlement to the surplus in the plan, despite slightly adverse wording in some of the pension booklets and trust agreements and the perception of some of the transferred employees that surplus would be used for benefit improvements. Since the transferred employees had no entitlement, the surplus was properly maintained in the original plan.

The court went on to consider the lower court's concern that failing to transfer surplus would benefit only the members retained in the original plan. However, the court held that since there was no termination of the pension plan, and thus no "crystallization" of surplus, the surplus was properly retained in the original plan to be accessed for improvement of benefits or contribution holidays; the transferred employees had benefited equally from the surplus up to the date of the transfer.

The payment of expenses from the pension fund was also challenged by the employees. The Court of Appeal upheld the lower court's determination that such expenses could properly be paid from the pension fund. Relying heavily on its earlier decision in Kerry (Canada) Inc. v. DCA Employees Pension Committee, the court based its decision on the pension plan documentation, mindful that silence in the documentation does not create an obligation on the employer to pay the plan expenses. The court determined that the plan text required the employer to pay for trustee compensation and expenses (which was clearly set out in the trust agreement), but not for other plan administration expenses.

In holding that actuarial surplus need not necessarily be transferred along with employees, the decision may be viewed as favourable to companies who are undergoing or are contemplating corporate transactions. However, the decision may require additional due diligence in corporate transactions. Since the decision implies that whether or not actuarial surplus must be transferred depends upon who owns the surplus, it may require companies to obtain surplus ownership opinions in cases involving the transfer of assets to a new pension plan.

Cousins v. Canada (Attorney General)

In a welcome development for sponsors of federally-regulated pension plans, the Federal Court of Appeal has held in Cousins v. Canada (Attorney General) (more often referred to as the Marine Atlantic case) that the Pension Benefits Standards Act, 1985 (Canada) (the "PBSA") does not require a portion of the actuarial surplus in a defined benefit pension plan to be distributed at the time of a partial termination.

In reaching its decision, the Federal Court of Appeal distinguished the decision of the Supreme Court of Canada in Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services) on the basis of the difference in wording between the Pension Benefits Act (Ontario) (the "PBA") and the PBSA. Specifically, the Court held that:

  • Pursuant to section 70(6) of the PBA, plan beneficiaries affected by a partial wind up are entitled to "rights and benefits that are not less than the rights and benefits they would have on a full wind up of the pension plan on the effective date of the partial wind up". "Wind up" is defined in section 1 of the PBA to mean not only the termination of the pension plan but also the "distribution of the assets of the pension fund". Correspondingly, "partial wind-up" is defined to include distribution of the assets of the pension fund related to the part of the pension plan that is terminated.

  • While the PBSA provides that on a "partial termination" of a pension plan the rights of affected members "shall not be less than what they would have been if the whole of the plan had been terminated on the same date as the partial termination", a "termination" is not defined to include or require the distribution of pension assets. The PBSA defines "termination" and "winding-up" separately, with only the latter including the distribution of assets. Under the PBSA, therefore, "termination" and "winding-up" occur at different times.

  • Accordingly, Monsanto was distinguishable, since it was based upon differently-worded legislation that requires the distribution of surplus on a full wind-up of a pension plan and therefore grants beneficiaries affected by a partial wind-up an equivalent right to share in a portion of any actuarial surplus existing at the time. By contrast, members affected by a partial termination under the PBSA are entitled only to rights equivalent to those they would have on a full termination of the plan, not on a full winding-up.

  • Surplus distribution on winding-up will be governed by the terms of the relevant plan documents.

The plan members have until September 25, 2008 to seek leave to appeal to the Supreme Court of Canada from the decision of the Federal Court of Appeal.

Lloyd v. Imperial Oil Limited

The Alberta Court of Queen's Bench dismissed a claim by former employees of Imperial Oil in a mirror case to the 1995 Pension Commission of Ontario (the "PCO", now the Financial Services Tribunal of Ontario) decision in Re Imperial Oil. In both cases, the employees claimed that an amendment to an early retirement provision requiring that employees be terminated for "reasons of efficiency" before accessing the unreduced early retirement decisions was improper as a breach of the applicable statute and the employer's fiduciary duty.

The Alberta court held that the issue had been definitively determined by the Ontario tribunal. In case it was incorrect that the issues had been previously decided, the court went on to address the employees' claim. It determined that the amendment was proper; it did not reduce an accrued benefit, as none of the affected employees had reached the eligibility age at the time of the amendment. Secondly, the court held (as had the PCO) that the employer did not owe fiduciary duties to the employees when making the amendment. It was acting as plan sponsor; fiduciary duties arise when acting as the plan administrator. Finally, the court held that the employer had not breached the duty of good faith, as there was no breach of the plan or legislation. The employer is permitted to act in its self-interest as long as its acts are consistent with the pension scheme. This decision thus reinforces the "two hats" doctrine, under which an employer's two roles as plan sponsor and plan administrator, and the consequences of acting in each role, are recognized.

Nortel Class Action

In a case that bears watching, a proposed class action was launched against Nortel Networks Corporation and Nortel Networks Limited on June 20, 2008 regarding changes to their pension plan and retirement benefits.

The representative plaintiff is a Nortel employee who is a member of Nortel's defined benefit ("DB") pension plan. According to the Statement of Claim, Nortel announced on June 26, 2006 that it intended to end the DB program as of January 1, 2008, and replace it with a defined contribution ("DC") pension plan. Members of the DB plan would be eligible to be grandfathered if they met certain criteria consisting of various combinations of age and years of service. Age and service criteria also had to be met in order to continue to be eligible for retiree benefits. Finally, effective January 1, 2008, Nortel would no longer take into account future salary increases when calculating the value of members' pensions.

The claim is brought on behalf of DB plan members who did not meet the grandfathering criteria to remain in the DB plan, and those members who no longer qualify for retiree benefits. It seeks a declaration that the changes are void for failing to provide the notice to members required under the PBA, or damages arising from the failure to provide notice. Alternatively, the Statement of Claim proposes that members of the class were entitled to reasonable notice of the changes as an implied term of their employment contracts. Compensation for loss of retiree benefits is sought on the basis of the greater of the replacement cost of the benefits, or the value of the lost benefits.

About BLG

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.