Top 5 Civil Appeals From The Court Of Appeal (September 2011)

1. Sutherland v. Hudson's Bay Company, 2011 ONCA 606 (Gillese, MacFarland and Rouleau JJ.A.), September 22, 2011 2. TA & K Enterprises Inc. v. Suncor Energy Products Inc., 2011 ONCA 613 (Goudge, MacFarland and Watt JJ.A.), September 27, 2011 3. The Sovereign General Insurance Company v. Walker, 2011 ONCA 597 (O'Connor A.C.J.O., Laskin and MacPherson JJ.A.), September 19, 2011 4. Morsi v. Fermar Paving Limited, 2011 ONCA 577 (MacPherson, Juriansz and Karakatsanis JJ.A.), September 8, 2011 5. Clark v. Werden, 2011 ONCA 619 (Doherty, Feldman and Epstein JJ.A.), September 30, 2011 1. Sutherland v. Hudson's Bay Company, 2011 ONCA 606 (Gillese, MacFarland and Rouleau JJ.A.), September 22, 2011 For those interested in the basic principles of pension plan surplus law, Gillese J.A.'s judgment provides an excellent primer. The result was a win for the Simpson's pension plan employees, unlike the outcome in Burke v. Hudson's Bay Co., [2010] 2 S.C.R. 273, in which the same employer prevailed in its claim to the surplus in another pension plan. The Simpson's plan was a "defined benefit plan", meaning that the employer sponsoring the plan promised members a specific level of pension on retirement. By contrast, in "defined contribution plans," members are simply promised a pension based on whatever the plan's investment experience happens to generate from the contributions. Of course, every pension plan must be funded by contributions, which can be made by the employer alone or by the employer and the employees. Only defined benefit plans can generate surpluses or deficits because investment experience can exceed or fall short of what is required to generate the defined benefits. Defined benefit plans must retain actuaries to ensure that contributions are sufficient to keep the plan on track to meeting its obligations. When ongoing defined benefit plans are more than able to meet their projected obligations, they are said to be in "actuarial surplus". If a defined benefit pension plan is wound up and is in surplus, the actuarial surplus becomes a real surplus. One might think that if the members of a defined benefit plan receive the defined benefit, they should have no complaint if the employer gets the benefit of surplus, either through a contribution holiday in the case of an ongoing plan or an actual cash payout in a winding-up. However, the law is more complicated than that. The complication arises because pension plans must be funded. Where the funding mechanism involves a trust, equitable trust principles trump common law contract principles: Schmidt v. Air Products of Canada Ltd., [1994] 2 S.C.R. 611 ("Schmidt"). This means that the provisions of the trust declaration creating the trust fund will prevail over the contractual provisions in the pension plan that embodies the bargain between the employer and the employees. Hence, depending on the language of the trust agreement, the employees may be entitled to the surplus as well as the defined benefit. In Schmidt, the Supreme Court set out a framework to determine who is entitled to a surplus: 1) examine the documentation in chronological order; 2) determine if the fund is impressed with a trust; 3) if the answer to 2 is "no", the employer wins, but if "yes", equity prevails over common law, with the result that the language of the trust declaration trumps the contractual language in the plan; 4) if the fund is subject to a trust, ask whether the employer explicitly limited the operation of the trust so that it does not apply to surplus (if so, the employer wins); 5) ask whether the employer expressly reserved a power of revocation when the trust was created (if so, the employer wins, but the revocation must be express, not merely implicit from a general power enabling the employer to amend the trust declaration). Note that step 5 means that, if the original trust declaration did not contain an express reservation of a power of revocation, the employer cannot later amend the trust declaration to access the surplus. The Simpson's trust declaration, which HBC inherited when it acquired that retailer in the 1970's, gave the employer a general power to amend and terminate the trust, but did not contain express language enabling the employer to re-appropriate money contributed to the fund. To the contrary, the trust declaration provided that any amendment or termination "shall not authorize or permit or result in any part of the corpus or income of the Trust Fund being used for or diverted to purposes other than for the benefit exclusively of members of the Plan and their beneficiaries". That language was the primary reason why the Court of Appeal held that the employees of the Simpson plan were entitled to the surplus. HBC argued that certain provisions of the pension plan itself made it clear that it was entitled to the...