Buschau: Trust Law Applied to Unilateral Termination of the Pension Plan by Members
Perhaps the most notorious in this line of cases is the Buschau v. Rogers Communications case. The Buschau case has a long history, but one ruling of the British Columbia Court of Appeal in 2004 really caught plan sponsors by surprise. Plan members—in an attempt to get at the surplus in the pension plan—tried to use a very old trust law principle (called the Rule in Saunders v. Vautier) to force a full plan termination.
The Rule in Saunders v. Vautier, from an 1841 English case, states that notwithstanding what the wishes were of the person who set up the trust, if all of the beneficiaries want to, they can vary the terms of the trust or terminate the trust, and use the trust funds as they see fit. The pension plan members in Buschau wanted to use this rule and get all the pension plan members to agree to wind up the plan and distribute the surplus amongst themselves.
While the Court of Appeal found that the members hadn’t managed to obtain the necessary consents from all the plan’s beneficiaries, it nevertheless held that this old trust law principle could in fact apply to modern pension trusts. Plan sponsors found this very surprising, since up until then the assumption was that plan terminations were in the control of the employer, which could decide if and when to terminate the pension plan. It was unheard of for plan members to have the unilateral right to terminate their own pension plan.
The Court of Appeal was clearly uncomfortable with the idea, but felt bound by the Supreme Court’s 1994 decision in Schmidt, which as noted above held that pension trusts were classic trusts, and not some special kind of trust. If they are classic trusts, then all trust law rules can apply.
Fortunately, the Supreme Court, when deciding the appeal of the Buschau decision in 2006, introduced into the pension area what many plan sponsors felt was a badly needed dose of common sense. The Supreme Court first went back to its decision in Schmidt, and the seminal finding from that case that pension trusts were “true” or “classic” trusts. What the Supreme Court had said in 1994 was that “when a pension fund is impressed with a trust, that trust is subject to all applicable trust law principles.”
In its 2006 decision in Buschau, it added to this thought, saying that: “It is thus necessary to determine which trust law principles are applicable before considering how they apply.” Whether or not in 1994 the Supreme Court had intended that the word “applicable” would carry so much weight, we may never know. By 2006, however, it became central.
In essence, the Court held that you have to look at the statutory and regulatory framework for pension plans, and not just look at them as trusts existing in a legislative void. If the statute contains rules and guidelines in a given area, then it may be that trust law principles are simply not applicable, and can’t be used to circumvent the statutory process. Because pension legislation of course contains detailed rules regarding the circumstances in which a pension plan can be terminated, the Supreme Court held that the members could not use an old trust law concept in order to unilaterally force a wind-up of their pension plan. In effect, the legislation “occupied the field,” and therefore that particular trust law principle was not applicable to the pension context, at least in respect of pension plan terminations.
After Buschau, plan sponsors wondered whether the case signalled a trend towards more practical and common-sense interpretations, or whether it was simply an anomaly. As we’ll see in our next instalment, it now seems as if the case signalled the beginning of a trend, one which has been warmly welcomed by plan sponsors.
Ian McSweeney and Douglas Rienzo are partners in Osler, Hoskin & Harcourt LLP’s Pensions & Benefits department in Toronto. This article is based on a presentation given by Ian McSweeney at the Conference Board of Canada’s 2008 Pensions Summit: Securing the Future.
