Early on October 7, The Supreme Court of Canada released its decision in the case of Burke v. Hudson’s Bay Company (HBC), on the issues of transfer of assets between pension plans and use of pension plan assets for plan administration expenses. The Court ruled in favour of the sponsoring employer on both issues.
The case arose out of a 1987 transaction, in which HBC sold its Northern Stores division to the North West Company. As part of the transaction, HBC transferred assets out of its defined benefit pension plan equal to the accrued defined benefits of the employees affected by the deal, to a new pension plan established for those employees by their new employer. At the time, the HBC pension plan stood in surplus. The transferred employees went to court to argue that the transferred assets should have been topped up by their pro rata share of the plan surplus.
The employees also argued that HBC had diverted plan assets for the payment of administration expenses when the plan documents did not so allow.
At trial, the employees were successful on the asset transfer issue and unsuccessful on the expenses issue.
The Ontario Court of Appeal in a unanimous decision written by Madame Justice Gillese, ruled in 2008 for the employer on both issues, and the Supreme Court has now unanimously upheld that ruling.
Mr. Justice Rothstein’s reasons for recent judgement echo those of the Justice Gillese at the Court of Appeal.
Interestingly, the same two judges played the same respective roles in the seminal Nolan v. Kerry Canada Inc. case.
Burke now has the imprimatur of the Supreme Court, and as this latest decision contains some interesting and novel observations on some of the key principles underlying the case, it will take on added significance in the rapidly-growing Canadian pension law jurisprudence.
The Burke decision on plan expenses was unsurprising, consistent as it is with Kerry. The principal significance of the Supreme Court’s reasons for judgement lies in the discussion on the asset transfer issue.
Here the Court upheld Justice Gillese’s interpretation of the historical plan documents as not giving the plan members any entitlement to surplus, and holding that HBC could therefore validly cause all surplus assets to be retained in its pension plan when some of that plan’s members transferred to a successor employer’s plan.
In particular, Justice Rothstein rejected the affected employees’ argument that HBC had a duty to “hold an even hand” between transferring and non-transferring employees in its allocation and use of surplus. He noted that such duty is fiduciary in nature, and while HBC has a fiduciary duty in its role as plan administrator, that role required only that the company protect the members’ defined benefits.
Its actions in regard to surplus were held not to be fiduciary in nature, and therefore not to be subject to the duty of even-handedness.
This analysis reflects the well-known “two hats” doctrine of pension law, even if it does not expressly use that terminology. That is, the same corporation may act administrator of a pension plan for certain purposes and will be considered as a fiduciary for those purposes, while it may act as sponsoring employer for other purposes and it will not be considered as a fiduciary for those other purposes.
It would appear that the Supreme Court has implicitly blessed the two hats doctrine and, in doing so, has offered some novel thoughts on how that doctrine should be applied.
The Court noted that its decision was based on the particular wording of the HBC plan documents, and other asset transfer cases will be decided in accordance with the specific documentation of those plans.
As a general statement, this assertion cannot be disputed. However, this Supreme Court ruling will hopefully prove to be of considerable persuasive value in future asset transfer cases, as well as in other cases where it is necessary to delineate between the administrator role and the sponsoring employer role in pension plan operation.