Copyright 2009, Blake, Cassels & Graydon LLP
Originally published in Blakes Bulletin on Pension & Employee Benefits, September 2009
Background
On September 9, 2009, the Federal Court of Appeal released its decision in the Buschau case siding with Rogers and reinstating the decision of the Acting Superintendent of Financial Institutions (the Superintendent) permitting the pension plan in issue to be reopened to new plan members rather than requiring a plan termination and surplus distribution.
The decision of the Federal Court of Appeal is the latest chapter in a protracted series of litigation at both the provincial and federal level stemming from the acquisition by Rogers Communications Inc. (Rogers) of Premier Communications Ltd. (Premier) in 1980. When Rogers acquired Premier it tried to appropriate the actuarial surplus in the pension plan of Premier by way of a merger of the Premier pension plan (the Premier Plan) with other Rogers' pension plans (RCI Plans). The legal representative of members and former members of the Pension Plan for Employees of Premier Cable Systems Limited (the Members) initiated an action to regain the surplus, alleging that the merger was invalid and seeking to terminate the trust based on the common law rule in Saunders v. Vautier permitting a trust to be brought to an end when all of the beneficiaries consent. Engaging key trust and pensions law issues, the Buschau case was heard by the Supreme Court of Canada in 2006.
Ruling in favour of Rogers, the Supreme Court of Canada rejected the application of the rule in Saunders v. Vautier in the case of a modern pension plan. However, because the Premier Plan was registered under the Pension Benefits Standards Act (PBSA), the majority was prepared to leave to the Superintendent a number of issues for determination including the issue of whether the Premier Plan sponsor could amend the Premier Plan to add new members and the issue of whether or not the Premier Plan should be terminated in circumstances which included the cessation of employer contributions due to the existence of a surplus.
Following the Supreme Court of Canada's decision in Buschau, the Members and Rogers made submissions to the Superintendent. A central event that preceded the matter being brought before the Superintendent was the decision by Rogers to revoke the merger of the Premier Plan with RCI Plans and instead to open the Premier Plan to the employees of Rogers Cable Communications Inc. (Cable Inc.) a separate Rogers entity. The Superintendent's decision approved the amendments to the Premier Plan to revoke the merger and to reopen the Premier Plan (the Amendments) to new members and dismissed the Members' application to terminate the Premier Plan and to distribute the actuarial surplus. Central to the decision was the determination that Rogers' actions were not in contravention of the PBSA or the terms of the Premier Plan.
The Members subsequently applied for judicial review of the Superintendent's decision by the Federal Court. Upon review, the Federal Court found the Superintendent's decision unreasonable and referred the decision back to the Superintendent for redetermination. Rogers appealed the decision, and the application was taken before the Federal Court of Appeal for review (see our previous Blakes Bulletins on Pension & Employee Benefits:
1. October 2008: Federal Court Decision in the Application for Judiciary Review in the Buschau Matter
2. August 2007: Recent Case Law Developments
4. November 2005: Reorganizations — Uncertainties Ahead for Plan Mergers and "Closed" Plans).
The Decision of The Federal Court of Appeal
The Federal Court of Appeal reconsidered the Superintendent's analysis, applying a reasonableness standard to decide if the Superintendent either improperly exercised her discretion or made a reviewable error of law when she allowed Rogers/Cable Inc. to revoke the merger of the Premier Plan and to amend the The Court of Appeal reviewed the Superintendent's decision and found that it was grounded in her assessment of the policy and objectives of the PBSA, specifically, "that the continued existence of a pension plan is a worthy goal". The Court of Appeal did not disagree with this conclusion and noted that it would be difficult to say that where monies were set aside to provide pensions, the objectives of the PBSA are better served by a diversion of funds to the benefit of an employer or a particular group of employees rather than ensuring the continued existence of a properly funded, properly supervised pension plan.
The Superintendent found that Rogers' decision to merge the pension plan was not irrevocable. The Court of Appeal considered whether the Superintendent's decision was reasonable, i.e., was it possible for Rogers to revoke the merger that had been found ineffective by the lower courts. The Court of Appeal found in fact that the Superintendent's decision was not unreasonable as it was premised on the conclusion that it was possible to revoke the merger since no employee's rights were being reduced by that revocation given that the Supreme Court of Canada had found employees had no right to engage the rule of Saunders v. Vautier.
The Court of Appeal went on to review the Superintendent's decision that the plan was not terminated because there were two active members still accruing benefits and found that also to be reasonable. The Superintendent had analysed the plan documents and found that the proposed amendment reopening the plan was permitted by the plan terms and that continuing the plan better served the objectives of the Premier Plan and of the PBSA than terminating the plan, even if the terminated plan would have paid out surplus to a number of members.
Having found that the plan could be reopened, the Court of Appeal then considered whether the Superintendent should terminate the plan pursuant to section 29(2)(a) of the PBSA because of Rogers' cessation of contributions as a result of a contribution holiday. The Court of Appeal found that there was nothing unreasonable in the Superintendent's decision that 29(2)(a) should not be used in the circumstances to require the Superintendent to terminate the plan as Rogers' cessation of contributions was a contribution holiday which was authorized by the PBSA and did not threaten the solvency of the Plan or frustrate the purposes of the Plan. The Court of Appeal concluded that once the Superintendent allowed the amendment to unwind the merger and reopen the plan, the question of plan termination then had to be assessed in light of the existence of a viable plan with a growing membership. (For the same reason, the Superintendent's conclusions with respect to the application of section 11 of the PBSA, as well as her disposition of the employees' application for replacement plan administrator, were also reasonable.)
The Court of Appeal agreed that the Superintendent must act when plan members ask her to do so but it did not follow that the action the Superintendent must take must necessarily be that requested by the plan members. Rather, the Superintendent will be there to watch for any actions by the employer that would "abuse its position as administrator or its rights as employer".
The Court of Appeal, having found that the Superintendent's decision was not unreasonable, said that the question which remained was whether there was anything in the earlier court decisions that decided the issue of right to reopen such that the Superintendent was precluded from doing what she did by the application of the doctrine of res judicata. The Court of Appeal found that while the majority of the Supreme Court raised the issue of Rogers' power to amend to reopen the plan, it did not decide the question, preferring to leave it to the Superintendent, subject only to the application of res judicata.
The Court of Appeal found that the British Columbia Court of Appeal had considered the issue of merger but only in the context that there were certain member rights under the rule in Saunders v. Vautier which could not be defeated by a merger. The Court of Appeal then concluded that, given that the rule in Saunders v. Vautier was found not to apply, the argument against reopening the plan was eliminated:
"Once the premise that the rule in Saunders v.
Vautier created rights in an unrealized actuarial surplus was
set aside, the question of Rogers' right to reopen the plan
remained an open question. This is essentially the point made by
Bastarache J. in his concurring reasons. While the majority did not
adopt Bastarache J.'s reasoning, it did not reject it. In my
review, it is sound and ought to be applied to this case.
Consequently, I conclude that the application of res
judicata does not prevent the Superintendent from allowing
Rogers/Cable Inc. to revoke the merger of the Premier Plan into the
consolidated Rogers plan and to reopen the Premier Plan to new
employees of Cable Inc.".
Conclusion
The Court of Appeal decision is therefore important for a number of reasons:
- It reaffirms the deference to be paid to Superintendent's decisions.
- Its findings on the right to revoke a merger and reopen a pension plan may have significant application.
- Its clarification on when a Superintendent should terminate a pension plan where contribution holidays are being taken is of widespread interest.
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