Legal Update: Have the Courts been Inconsistent in the Application of Trust Law? Kathryn Bush

1. Canadian Institute of Actuaries L’Institut canadien des actuaires Legal Update: Have the Courts been Inconsistent in the Application of Trust Law? Kathryn Bush Partner Blake, Cassels & Graydon LLP

2. The Supreme Court Lays the Foundation in Schmidt v. Air Products of Canada Ltd. • What happened in Schmidt • Rules Emanating from Schmidt • Trust v. Contractual Analysis • The Trust is the Prevailing Document • A Pension Trust is not a Purpose Trust • Powers to Change Surplus Rights are Limited • A Resulting Trust is Unlikely to Arise

3. The Application of Trust Law Post-Schmidt • Hockinv. Bank of British Columbia • trust • surplus return and right to charge expenses against the fund denied • Crownx Inc. v. Edwards • contract • surplus return permitted • Markle v. Toronto (City) • trust • right to charge expenses against the fund denied

4. Anova Inc. Employee Retirement Pension Plan (Administrator of) v. Manufacturers Life Insurance Co. • trust • benefit improvements were denied • Aegon Canada Inc. v. ING Canada Inc. • trust • merger prohibited

5. The Supreme Court Clarifies Schmidt: Buschau v. Rogers Communications Inc. • What happened in Buschau • trust • merger prohibited • Buschau #1 • trust • merger prohibited • members retain distinct rights • Buschau #2 • trust law principles applied • application of Saunders v. Vautier • designated beneficiaries consent required

6. Buschau #3 • SCC • Saunders v. Vautier found not to apply in this case therefore not all trust principles apply to pension trusts • Important Comments from SCC in Buschau • Employers have rights in pension plans • Pension Plans are intended to be long-term instruments • Pension benefits serve broader social goals • Pension Plans are only a vehicle for holding and managing funds • Pension Plans are heavily regulated

7. Review Process Mandated by SCC in Buschau • On the facts were the assets of the plan impressed with a trust? If yes move on to (ii) and (iii). • Which principles of trust law are applicable? Taking into consideration the context and purpose of pension plans, the terms of the particular plan documents and the specific legislation governing the pension plan. • How do the applicable trust law principles apply to the pension plan in question?

8. Where is Buschau now? • Superintendent refused to order the termination of the pension plan • Federal Court ordered the Superintendent to reconsider • On appeal to Federal Court of Appeal

9. The Application of Trust Law Post-Buschau: • Kerry (Canada) Inc. v. DCA Employees Pension Committee Facts: - trust - 2000 Pension Plan converted to dc for new members - language of the plan changed to permit expenses to be charged to the pension plan Result: - can added beneficiaries to a trust and dc or db benefits are permitted - silence does not mean that the plan sponsor must pay plan expenses

10. Sutherland v. Hudson’s Bay Company Facts: - trust - 1991 HBC acquired Simpsons - 1994 and 1998 Simpsons Pension Plan was amended to permit affiliates to participate in the pension plan Result: - Court permitted the addition of the affiliated company employees - contribution holidays permitted – even for dc benefits Appeal scheduled for December 1 and 2, 2008

11. Burke v. Hudson’s Bay Facts: - trust - 1987 asset sale - pension asset transfer did not include surplus Result: - trial decision held it was a breach of trust not to transfer surplus - Court of Appeal reversed the lower court decision – no obligation to transfer surplus Leave to Appeal to SCC is pending

12. Lennon v. Rockwell Automation Canada Inc. Facts: - trust - 1997 amalgamation of companies and sought to merge the pension plans - Superintendent permitted the merger Result: - Financial Services Tribunal and Ontario Divisional Court found that exclusive benefit trust language did not prohibit a merger

13. Lomas v. Rio Algom Ltd. Facts: - trust - employees seeking the right to terminate a pension plan Result: - Divisional Court refused to strike the claim Appeal pending

14. Professional Institute of the Public Service of Canada v. Canada Attorney General • no trust • statutory plans • surplus and investment of pension plans were not subject to trust rules

15. Montreal Trust • trust • 79(3)(b) of PBA (Ontario) requires that the pension plan provide for the payment of surplus • Superintendent refused to approve a surplus sharing arrangement due to s. 79(3)(b) • an appeal to the Financial Services Tribunal has been argued and a decision is pending