Stearns Catalytic Pension Plans, Re, (1994) 168 N.R. 81 (SCC)

• Judge: McLachlin and Iacobucci, JJ.
• Court: Supreme Court (Canada)
• Case Date: June 09, 1994
• Jurisdiction: Canada (Federal)
• Citations: (1994), 168 N.R. 81 (SCC);115 DLR (4th) 631;73 WAC 81;3 ETR (2d) 1;1994 CanLII 104 (SCC);[1994] 8 WWR 305;JE 94-983;[1994] SCJ No 48 (QL);4 CCEL (2d) 1;168 NR 81;[1994] 2 SCR 611;155 AR 81;[1994] CarswellAlta 138;48 ACWS (3d) 439;20 Alta LR (3d) 225

Stearns Catalytic Pension Plans, Re (1994), 168 N.R. 81 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Air Products Canada, William M. Mercer Limited, Confederation Life Insurance Company and T.J. Westley v. Gunter Schmidt in his personal capacity and on behalf of the beneficiaries of the Stearns Catalytic Ltd. Pension Plans and Gunter Schmidt in his personal capacity and on behalf of the beneficiaries of the Stearns Catalytic Ltd. Pension Plans and Air Products Canada Ltd., William M. Mercer Limited, Confederation Life Insurance Company and T.J. Westley

(23047; 23057)

Indexed As: Stearns Catalytic Pension Plans, Re

Supreme Court of Canada

La Forest, L'Heureux-Dubé,

Sopinka, Gonthier, Cory,

McLachlin and Iacobucci, JJ.

June 9, 1994.

Summary:

Two companies (Stearns and Catalytic) amalgamated in 1983. The employee groups of each company had a pension plan. The pension plans were merged and held as one fund. The merged plan was terminated in 1988. The fund had a surplus of $10,100,000. An employee, on behalf of all other employees, applied for a declaration that the employees were entitled to the surplus.

The Alberta Court of Queen's Bench, in a judgment reported 104 A.R. 190, allowed the application in part. The court held that the company was entitled to the surplus respect­ing the Stearns group of employees; the Catalytic group of employees were entitled to the surplus respecting their plan. The company appealed. The employee cross-appealed.

The Alberta Court of Appeal, in a judg­ment reported 125 A.R. 224; 14 W.A.C. 224, dismissed the appeal and cross-appeal. The trial judge did not err in the result. The company appealed. The employee cross-appealed.

The Supreme Court of Canada, Sopinka and McLachlin, JJ., dissenting in part, allowed the appeal in part and dismissed the cross-appeal. The Catalytic employees were entitled to any surplus in their pension fund, but the company was permitted to take a contribution holiday. The company was entitled to all surplus funds in the Stearns pension plan and was entitled to take a contribution holiday.

Income Tax - Topic 3904

Interpretation - Interpretation bulletins or information circulars - Effect of - The Supreme Court of Canada stated that "the Information Circular is of limited legal significance" - See paragraph 35.

Master and Servant - Topic 1943.1

Remuneration - Pension benefits - Con­tribution by employer - Contribution holiday - The Supreme Court of Canada stated that "the right to take a contribution holiday can be excluded either explicitly or implicitly in circumstances where a plan mandates a formula for calculating employer contributions which removes actuarial discretion. Contribution holidays may also be permitted by the terms of the plan. When the plan is silent on the issue, the right to take a contribution holiday is not objectionable so long as actuaries continue to accept the application of exist­ing surplus to current service costs as standard practice. These principles apply whether or not the pension fund is subject to a trust. Because no money is withdrawn from the fund by the employer, the taking of a contribution holiday represents neither an encroachment upon the trust nor a reduction of accrued benefits. These gen­eral considerations are, of course, subject to applicable legislation." - See paragraph 93.

Master and Servant - Topic 1959

Remuneration - Pension benefits - Dis­tribution of surplus funds on termination of plan - A pension plan provided that sur­plus pension funds "may ... be returned to the company or may be used for the bene­fit of the [employees] ... in such equitable manner as the company may in its discre­tion determine" - Another clause provided that the plan could not be amended to divert funds for purposes other than for the exclusive benefit of the employees - The trial judge held that the plan clearly entitled the company to any surplus funds; that such right existed without any amend­ment to the plan - The trial judge stated that where the specific surplus funds pro­vision and the more general amendment provision conflicted, the specific provision would prevail - The Supreme Court of Canada affirmed that the employees were not entitled to the surplus - No trust was created and a company brochure stating the company's future "intention" to distrib­ute any surplus to employees had no legal effect - See paragraphs 117 to 147.

Master and Servant - Topic 1959

Remuneration - Pension benefits - Dis­tribution of surplus funds on termination of plan - A pension plan established in 1959 had no specific provision for distribution of surplus funds upon termination of the plan - It was a money purchase plan - The plan provided that both the company and employee contributions were irrevo­cably given to the employees - In 1966 the plan was converted to a defined benefit plan - The plan also provided that no amendment could authorize or permit any part of the fund to be used for or diverted to purposes other than for the exclusive benefit of the employees - The company amended the plan in 1978 to appropriate any surplus to itself - The trial judge held that the amendment was invalid; the employees were entitled to the surplus - The Supreme Court of Canada affirmed that the employees were entitled to the surplus, but held that the company was entitled to take a contribution holiday - See paragraphs 95 to 116.

Master and Servant - Topic 1959

Remuneration - Pension benefits - Dis­tribution of surplus funds on termination of plan - The Supreme Court of Canada stated that absent provincial legislation, the first step in determining entitlement to a pension fund surplus was to determine whether the fund was impressed with a trust - If there was no trust, surplus enti­tlement was resolved by applying contract law to interpret the plan - If the fund was impressed with a trust, it was a "classic" trust and equity prevailed - The trust extended to any surplus unless the employer explicitly limited the trust other­wise - An employer could not revoke a trust using a general unlimited power of amendment - The power must be clearly reserved to the employer when the trust was created - The court stated that "funds remaining in a pension trust following termination and payment of all defined benefits may be subject to a resulting trust" but it must be clear that "all of the objectives of the trust have been fully satisfied. Even when this is the case, the employer cannot claim the benefit of a resulting trust when the terms of the plan demonstrate an intention to part outright with all money contributed to the pension fund." - See paragraphs 88 to 92.

Master and Servant - Topic 1959

Remuneration - Pension benefits - Dis­tribution of surplus funds on termination of plan - The Supreme Court of Canada stated that "where the circumstances of a particular case do not indicate any particu­lar intention [by the employer] to part outright with money contributed to a pen­sion fund, equity and fairness would seem to require that all parties who contributed to the fund should be entitled to recoup a proportionate share of any surplus subject to a resulting trust. However, this issue should be left to be resolved when it arises." - See paragraph 73.

Trusts - Topic 2565

The settlor - Rights of settlor - Right to surplus funds in trust - [See third Master and Servant - Topic 1959 ].

Trusts - Topic 8521

Termination of trusts - Revocation by settlor - General - The Supreme Court of Canada stated that the power to revoke a trust must be clearly reserved at the time the trust is created - A power to revoke the trust or any part of it cannot be implied from a general unlimited power of amendment - See paragraph 91.

Cases Noticed:

Reevie et al. v. Montreal Trust Co. of Canada and Hunt-Wesson Canada (1986), 13 O.A.C. 233; 53 O.R.(2d) 595 (C.A.), refd to. [para. 26].

National Automobile, Aerospace and Agricultural Implement Workers Union of Canada, Local 458 v. White Farm Manufacturing Canada Ltd. (1989), 66 O.R.(2d) 535 (H.C.), affd. (1990), 39 E.T.R. 1 (Ont. C.A.), refd to. [para. 26].

Collins and Batchelor et al. v. Pension Commission (Ont.) and Dominion Stores Ltd. (1986), 16 O.A.C. 24; 56 O.R.(2d) 274 (Div. Ct.), dist. [para. 30].

King Seagrave Ltd. v. Canada Permanent Trust (1986), 13 O.A.C. 305 (C.A.), affing. (1985), 51 O.R.(2d) 667 (H.C.), refd to. [para. 35].

Hockin v. Bank of British Columbia (1990), 71 D.L.R.(4th) 11 (B.C.C.A.), refd to. [para. 48].

Bathgate v. National Hockey League Pen­sion Society (1992), 11 O.R.(3d) 449 (Gen. Div.), refd to. [para. 49].

Campbell-Renton v. Cayley, [1960] O.R. 550 (H.C.), refd to. [para. 60].

Canada Trust Co. v. Cantol Ltd. (1979), 103 D.L.R.(3d) 109 (B.C.S.C.), refd to. [para. 68].

Martin & Robertson Administration Ltd. v. Pension Commission (Man.) (1980), 2 A.C.W.S.(2d) 249, refd to. [para. 72].

Davis v. Richards & Wallington Industries Ltd., [1991] 2 All E.R. 563 (Ch. D.), refd to. [para. 72].

Canadian Union of Public Employees - C.L.C., Ontario Hydro Employees Union, Local 1000 v. Ontario Hydro (1989), 33 O.A.C. 63; 68 O.R.(2d) 620 (C.A.), refd to. [para. 77].

Askin et al. v. Ontario Hospital Associ­ation et al. (1991), 46 O.A.C. 278; 2 O.R.(3d) 641 (C.A.), refd to. [para. 78].

Maurer v. McMaster University (1991), 4 O.R.(3d) 139 (Gen. Div.), refd to. [para. 79].

Trent University Faculty Association v. Trent University (1992), 60 O.A.C. 225; 99 D.L.R.(4th) 451 (Div. Ct.), refd to. [para. 80].

Harris v. Simpson (Robert) Co., [1985] 1 W.W.R. 319; 56 A.R. 201 (Q.B.), refd to. [para. 132].

Courage Group's Pension Schemes, Re, [1987] 1 W.L.R. 495 (Ch. D.), refd to. [para. 185].

Washington-Baltimore Newspaper Guild, Local 35 v. Washington Star Co. (1983), 555 F. Supp. 257 (D.C.), refd to. [para. 186].

C.D. Moyer Co. Trust Fund, Re (1977), 441 F. Supp. 1128 (E.D. Pa.), refd to. [para. 186].

Pollock v. Castrovinci (1979), 476 F. Supp. 606 (S.D.N.Y.), refd to. [para. 186].

Wilson v. Bluefield Supply Co. (1987), 819 F.2d 457 (4th Cir.), refd to. [para. 186].

Bryant v. International Fruit Products Co. (1986), 793 F.2d 118 (6th Cir.), refd to. [para. 186].

Audio Fidelity Corp. v. Pension Benefit Guaranty Corp. (1980), 624 F.2d 513 (4th Cir.), refd to. [para. 186].

Murphy v. McSorley, [1929] S.C.R. 542, refd to. [para. 199].

Statutes Noticed:

Employment Pension Plans Act, S.A. 1986, c. E-10.05, sect. 42(2) [para. 38].

Employment Pension Plans Act Regula­tions (Alta.), Reg. 364/86, sect. 34(9)(b) [para. 39].

Income Tax Act, S.C. 1970-71-72, c. 63, generally [para. 32].

Income Tax Act, Information Circular No. 72-13R7, generally [para. 183]; Infor­mation Circular No. 72-13R8, generally [para. 167].

Income Tax Act Regulations (Can.), Income Tax Regulations, sect. 8502(c), sect. 8503(4)(c) [para. 167].

Information Circulars, Income Tax Act - see Income Tax Act.

Pension Benefits Act, R.S.A. 1980, c. P-3, generally [para. 40].

Pension Benefits Act, R.S.M. 1987, c. P-32, generally [para. 36].

Pension Benefits Act, R.S.O. 1990, c. P-8, generally [para. 36].

Pension Benefits Standards Act, S.B.C. 1991, c. 15, generally [para. 36].

Authors and Works Noticed:

Adell, Bernard, Pension Plan Surpluses and the Law: Finding a Path for Reform, in Report of the Task Force on Inflation Protection for Employment Pension Plans, Research Studies (1988), vol. 2, p. 242 [para. 189].

Ezra, D. Don, The Struggle for Pension Fund Wealth (1983), generally [para. 176].

Hanscom, Deborah K., A Surplus of Un­certainty: The Question of Entitlement After Hockin (1991), 10 Est. & Tr. J. 258, generally [para. 2].

Nachshen, Gary, Access to Pension Fund Surpluses: The Great Debate, in New Developments in Employment Law (1988), generally [para. 2].

Ontario, Report of the Task Force on Inflation Protection for Employment Pension Plans (1988), vol. 2 [para. 2].

Scott, Austin Wakeman, The Law of Trusts (3rd Ed. 1967), vol. 3, generally [para. 162].

Scott, Austin Wakeman, The Law of Trusts (4th Ed. 1987), vol. 4, pp. 346 to 348 [para. 61].

Treitel, G.H., The Law of Contract (4th Ed. 1975), pp. 128 to 129 [para. 199].

Waters, D.W.M., Law of Trusts in Canada (2nd Ed. 1984), pp. 127 to 128 [para. 49]; 291 [para. 63]; 299 [para. 213]; 322 [para. 214].

Counsel:

Dennis R. O'Connor, Q.C., Anne Corbett and Barry L. Glaspell, for the appellants, Air Products Canada Ltd., William M. Mercer Ltd., Confederation Life Insur­ance Co. and T.J. Westley;

Neil C. Wittman, Q.C., and Kenneth J. Warren, for the respondents, Gunter Schmidt in his personal capacity and on behalf of the Beneficiaries of the Cata­lytic Enterprises Ltd. - Pension Plan;

Aleck H. Trawick and Leslie O'Donoghue, for the appellants on the cross-appeal, Gunter Schmidt in his personal capacity and on behalf of the Beneficiaries of the Stearns Catalytic Ltd. Pension Plans;

Dennis R. O'Connor, Q.C., for the respon­dents on the cross-appeal, Air Products Canada Ltd., William M. Mercer Ltd., Confederation Life Insurance Co. and T.J. Westley.

Solicitors of Record:

Borden & Elliott, Toronto, Ontario, for Air Products Canada Ltd., William M. Mer­cer Ltd., Confederation Life Insurance Co. and T.J. Westley;

Code, Hunter, Calgary, Alberta, for the Former Beneficiaries of the Catalytic Enterprises Pension Plan;

Blake, Cassels & Graydon, Calgary, Alberta, for Gunter Schmidt in his per­sonal capacity and on behalf of the For­mer Beneficiaries of the Stearns - Roger Canada Ltd. Pension Plan.

This appeal was heard on December 1, 1993, before La Forest, L'Heureux-Dubé, Sopinka, Gonthier, Cory, McLachlin and Iacobucci, JJ., of the Supreme Court of Canada.

On June 9, 1994, the judgment of the Supreme Court of Canada was delivered in both official languages and the following opinions were filed:

Cory, J. (La Forest, L'Heureux-Dubé, Gonthier and Iacobucci, JJ., concur­ring) - see paragraphs 1 to 153;

Sopinka, J., dissenting in part - see paragraphs 154 to 169;

McLachlin, J., dissenting in part - see paragraphs 170 to 220.