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Pensions - Fiduciary. Monteiro v. CEO Financial Services Regulatory Authority
In Monteiro v. CEO Financial Services Regulatory Authority (Div Court, 2023) the Divisional Court considered pension claims by a long-term night-school teacher lacking credentials. Here the court considers any duties that the pension Board (here the OTPPB) owed to potential pension claimants (the Board's fiduciary duties to pensioners are not mentioned on this issue) to advise him of this problem:Issue No. 4: Did the Tribunal err in finding that the OTPPB did not breach its duties to him in failing to inform him of his pension status while he performed the Services?
[53] The Appellant argues that he should be entitled to the Credits, irrespective of the absence of LOPs, because the OTPPB failed in its duties to him. It did so by failing to proactively contact him to clarify his Plan membership and by failing to send him plan information after the 1978-79 school year (when he joined the Plan and accrued 16.5 days of Credits).
[54] The Appellant argues that the OTPPB had an obligation to track him down to inform him of his pension entitlements, even if he failed to update his contact information after 1979. It should have even placed ads in newspapers, looking for him.
[55] The Tribunal rejected these arguments for two reasons. First it found that the Appellant must bear “a significant portion of the responsibility in the circumstances for not proactively inquiring of his employers and the Board to determine his pension status between 1980 and 2003.” The Tribunal made a finding of fact that he “knew (or should have known) from his employment during those years and interaction with other teachers and from his past experience (albeit brief) as a Plan member in 1978, that Plan participation was accompanied by mandatory employee contributions, which were not being deducted from his pay at any time between 1980 and 2003.” The Tribunal also pointed to the fact that the Plan has 60,000 members in order to consider the practicality of the Appellant’s demands upon its board.
[56] Based on those findings, the Tribunal found that the OTPPB did not breach any of its duties to the Appellant under the terms of the Plan and the PBA. As stated above, it found that the standard imposed on the OTPPB was reasonableness, not perfection. It found that the OTPBB’s conduct towards the Appellant was reasonable in considering the extremely limited days of Credit the Appellant had accumulated between 1980 and 2003, the size of the pension plan, the Appellant’s own failure to stay in touch with the PTPPB or inform himself of his pension status, and the statutory standards imposed on the PTPPB.
[57] Those are findings of mixed fact and law, which are entitled to appellate deference, absent a palpable and overriding error or extricable error of law. Neither has been demonstrated in this case. . Professional Institute of the Public Service of Canada v. Canada (Attorney General)
In Professional Institute of the Public Service of Canada v. Canada (Attorney General) (SCC, 2020) the Supreme Court of Canada considered government pension plans as a fiduciary relationship, in contrast with private pension plans:[115] Chief Justice McLachlin recently listed the per se fiduciary relationships in Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011] 2 S.C.R. 261, identifying the following: trustee-cestui que trust, executor-beneficiary, solicitor-client, agent-principal, director-corporation, guardian-ward, and parent-child.
[116] In this case, the government does not fall into any of these categories. The closest category (trustee-cestui que trust) does not apply because the government is not a true trustee in equity in respect of any trust property held for the benefit of the Plan members. The appellants contend, however, that the government is in a recognized fiduciary role in its capacity as a pension plan administrator.
[117] The administrator/pension Plan member relationship was dealt with in Burke. This Court found that the indicia of an ad hoc fiduciary relationship were met.
[118] However, the authority of Burke on this point is limited to the private pension plan context. Participants in public pension plans are not subject to the same vulnerabilities or risks as participants in private pension plans. The government stands behind the pension plans that it provides for its employees, and is not subject to the same sort of credit risks as are private entities. Furthermore, this Court recognized in Elder Advocates that while the Crown is subject to the normal requirements for establishing an ad hoc fiduciary relationship, “the special characteristics of governmental responsibilities and functions mean that governments will owe fiduciary duties only in limited and special circumstances” (para. 37). McLachlin C.J. in that case quoted Dickson J., as he then was, writing for the majority in Guerin v. The Queen, 1984 CanLII 25 (SCC), [1984] 2 S.C.R. 335, at p. 385:It should be noted that fiduciary duties generally arise only with regard to obligations originating in a private law context. Public law duties, the performance of which requires the exercise of discretion, do not typically give rise to a fiduciary relationship. As the “political trust” cases indicate, the Crown is not normally viewed as a fiduciary in the exercise of its legislative or administrative function. [Emphasis added by McLachlin C.J.; para. 37.] [119] Binnie J. made the same point writing for the Court in Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245, at para. 96: “The Crown can be no ordinary fiduciary; it wears many hats and represents many interests, some of which cannot help but be conflicting . . . .” The same principle also dictates that the Crown will not be presumed to be a fiduciary based solely on its role bearing a similarity to a traditional category of fiduciary.
[120] It is not necessary to decide the precise ambit of any potential fiduciary duty that might arise between the government, as pension plan administrator, and the beneficiaries of the Plan, or whether the relationship inherently carries with it some set of fiduciary obligations. This is because it is clear that the government had no fiduciary duty to the Plan members with respect to the actuarial surplus. This is demonstrated under the template provided for identifying ad hoc fiduciary duties in Frame v. Smith, 1987 CanLII 74 (SCC), [1987] 2 S.C.R. 99, and Elder Advocates.
[121] Beginning with Wilson J.’s dissenting opinion in Frame, and subsequently adopted by the majority of this Court (see e.g. Hodgkinson v. Simms, 1994 CanLII 70 (SCC), [1994] 3 S.C.R. 377), the following characteristics were said to identify those relationships where fiduciary obligations had been imposed.(1) The fiduciary has scope for the exercise of some discretion or power.
(2) The fiduciary can unilaterally exercise that power or discretion so as to affect the beneficiary’s legal or practical interests.
(3) The beneficiary is peculiarly vulnerable to or at the mercy of the fiduciary holding the discretion or power. [p. 136] [122] Most recently, in Elder Advocates, McLachlin C.J. stated that the aforementioned characteristics were useful but did not provide a complete code. This Court adopted the Hodgkinson factors, but added the requirement of an undertaking by the alleged fiduciary to act in the best interest of the alleged beneficiary or beneficiaries.
[123] Each lower court in this case applied the earlier version of the test, as Elder Advocates had not yet been decided.
(2) Undertaking to Act in the Best Interest of the Alleged Beneficiary
[124] It is now definitely a requirement of an ad hoc fiduciary relationship that the alleged fiduciary undertake, either expressly or impliedly, to act in accordance with a duty of loyalty. It is critical that the purported beneficiary be able to identify a forsaking of the interests of all others on the part of the fiduciary, in favour of the beneficiary, in relation to the specific interest at issue.
[125] I have been able to identify nothing in the Superannuation Acts, the FAA, or the PPRA that supports the contention that the government has undertaken to forsake the interests of all others (including taxpayers) in favour of the Plan members, with respect to the actuarial surplus — the specific interest at issue here.
[126] By contrast, Bill C-78 establishes a legislated undertaking on the part of the Board (the administrator of the new Pension Funds) to act in the best interest of contributors, but only in respect of post-April 1, 2000 contributions. Section 4(1)(a) of Bill C-78 provides that the Board is “to manage amounts that are transferred to it . . . in the best interests of the contributors and beneficiaries under those Acts”. These words are not found in the Superannuation Acts in respect of the Superannuation Accounts.
[127] I am reinforced in the view that there was no undertaking here by the Chief Justice’s comment in Elder Advocates that, where the issue relates to the exercise of a government power or discretion, the required undertaking will generally be lacking. As the Chief Justice said, at para. 44, an undertaking of a duty of loyalty by the governmentis inherently at odds with its duty to act in the best interests of society as a whole, and its obligation to spread limited resources among competing groups with equally valid claims to its assistance: Sagharian (Litigation Guardian of) v. Ontario (Minister of Education), 2008 ONCA 411, 172 C.R.R. (2d) 105, at paras. 47-49. The circumstances in which this will occur are few. The Crown’s broad responsibility to act in the public interest means that situations where it is shown to owe a duty of loyalty to a particular person or group will be rare: see Harris v. Canada, 2001 FCT 1408, [2002] 2 F.C. 484, at para. 178. And further, “[i]f the undertaking is alleged to flow from a statute, the language in the legislation must clearly support it” (para. 45). The Superannuation Acts do not. Accordingly, I would conclude that there has been no undertaking to act in accordance with a duty of loyalty with respect to the actuarial surplus at issue here. There is not, therefore, a fiduciary relationship between the government and the Plan members. However, for the sake of completeness, I will consider the other elements of the test.
(3) Were the Plan Members Vulnerable to the Exercise of Discretion by the Government?
[128] The second element of an ad hoc fiduciary relationship, following Elder Advocates, at para. 33, requires (1) a defined person or class of persons (i.e., the beneficiary or beneficiaries), who is or are (2) vulnerable to the fiduciary, (3) in that the fiduciary has a discretionary power over them.
[129] In this case, there is no doubt that there is a defined class of persons capable of being the beneficiaries in the alleged fiduciary relationship. The class consists of the current and former employee-contributors and their beneficiaries. The issue is whether the government had a discretionary power over this class of persons in relation to the Superannuation Accounts. Following Bill C-78, the Pension Investment Board and the Treasury Board had clear discretionary powers in relation to the management of the new Pension Funds, including the setting of employee contribution rates (the latter only following January 1, 2004). As the appellants seek an equitable interest in the Superannuation Accounts as they stood on March 31, 2000, the question is whether the government had a discretionary power in relation to the administration of the Superannuation Accounts prior to Bill C-78 coming into force (April 1, 2000).
[130] If, as the trial judge found, the Superannuation Acts constituted a complete code with respect to the actuarial surplus, the government would have no discretionary power to exercise with respect to the surplus so as to affect any interest the Plan members may have in the surplus. The concept of a “complete code” was discussed in Gladstone v. Canada (Attorney General), 2005 SCC 21, [2005] 1 S.C.R. 325. In that case, the Department of Fisheries and Oceans seized and sold spawn that Donald and William Gladstone were accused of attempting to sell in violation of the Fisheries Act, R.S.C. 1985, c. F-14. Pursuant to that Act, the Department deposited the net proceeds of the sale in the CRF. The proceedings against the Gladstones were eventually stayed, and the net proceeds from the sale were paid to them. However, the Attorney General refused to pay interest.
[131] This Court concluded that the Fisheries Act is a “complete code” dealing with the return of seized property (Gladstone, at para. 9). Major J. reasoned that the Act “creates a comprehensive framework for dealing with issues arising from seizure” (para. 10). Thus, the Act did not create an obligation on the Crown to pay interest on the proceeds of seized property.
[132] I agree with Gillese J.A. that the Superannuation Acts were not “complete codes” as these are described in Gladstone, before the amendments made by Bill C-78 on April 1, 2000. Prior to that bill coming into force, the Superannuation Acts did not address the surpluses in the Superannuation Accounts. While the Superannuation Acts dealt with the accounting of deficits, there was no mention of surpluses. Thus, the FAA — which gave the President of the Treasury Board and the Minister of Finance discretion to include adjustment accounts in the Public Accounts — was employed to supplement the accounting rules in the Superannuation Acts (FAA, s. 64(2)(d)). The government was entitled to exercise its discretion to amortize the surplus because of the absence of provisions in the Superannuation Acts governing the actuarial surpluses. Gillese J.A. correctly concluded that the Superannuation Acts were not a complete code prior to April 1, 2000.
[133] However, as I have explained, the accounting treatment of the surpluses (the amortization) in respect of which the government exercised a discretion did not alter the accounting balances in the Superannuation Accounts; it only altered the representation of the financial position of the Government of Canada in the Public Accounts.
[134] As earlier determined, prior to Bill C-78 coming into force, the government exercised discretion in respect of the surplus in the Public Accounts. Section 63(2) of the FAA provides that the Receiver General “shall cause accounts to be kept to show such of the assets and direct and contingent liabilities of Canada and shall establish such reserves with respect to the assets and liabilities as, in the opinion of the President of the Treasury Board and the Minister, are required to present fairly the financial position of Canada”. Further, s. 64(2)(d) of the FAA provides that the Public Accounts shall include “such other accounts and information relating to the fiscal year as are deemed necessary by the President of the Treasury Board and the Minister to present fairly the financial transactions and the financial position of Canada”.
[135] While the FAA requires the Receiver General to present fairly the financial position of Canada, the President of the Treasury Board and the Minister of Finance have flexibility when it comes to establishing the necessary accounts and adjustments. The amortization, which included the creation of the “Estimate of Pension Adjustments” accounts to set off the overstated liabilities (the actuarial surplus) in the Superannuation Accounts, may be seen as an example of a discretionary decision directed at the accurate presentation of the Public Accounts.
[136] Prior to Bill C-78, the surpluses reflected in the Superannuation Accounts were left intact. The surpluses were not debited until Bill C-78 required such debiting after April 1, 2000. The amortization in the 1990s was reflected only in the Public Accounts, for the purpose of accurately presenting the true net state of Canada’s deficit or surplus and net debt. This was an accounting decision, not a decision going to the substance of the Plan members’ entitlements or interests. As the appellants’ expert accountant asserted on cross-examination, accounting does not determine the substance of a transaction.
[137] I agree that there was a discretionary power exercised in connection with the amortization of the Superannuation Accounts in the 1990s. However, this particular discretion existed for, and was exercised in connection with, the presentation of the Public Accounts, rather than the administration of the Plan members’ pensions. The Plan members’ entitlement to their statutorily defined benefits remained unchanged and remained subject to Parliament’s legislative prerogative, not the government’s discretion. Therefore, the discretion exercised by the government in respect of the Public Accounts was irrelevant to the existence of a fiduciary duty in favour of the Plan members. I conclude that the appellants are unable to establish vulnerability to the government’s exercise of discretion.
(4) Did the Plan Members Have a Substantial Legal or Practical Interest in the Actuarial Surplus?
[138] In order to establish an ad hoc fiduciary relationship, the purported beneficiary must have an “identifiable legal or vital practical interest that is at stake” (Elder Advocates, at para. 35). In Elder Advocates, the Chief Justice gave the following examples of sufficient interests: “. . . property rights, interests akin to property rights, and the type of fundamental human or personal interest that is implicated when the state assumes guardianship of a child or incompetent person” (para. 51). A statutory interest may also qualify in some circumstances: “. . . a statute that creates a complete legal entitlement might also give rise to a fiduciary duty on the part of government in relation to administering the interest” (para. 51).
[139] As I have concluded that the Superannuation Accounts do not contain assets, the amortization of the surpluses cannot have put any of the Plan members’ legal or equitable interests at risk. However, the Court of Appeal suggested that the members had a vital practical interest at stake. According to that court, “the exercise of Discretion led to the situation where the employees were obliged to contribute more towards the cost of their pensions” (para. 90).
[140] Though the Court of Appeal did not finally decide the matter, in my respectful opinion, its perception of the effect of the exercise of discretion on contribution rates is not supported by the evidence. I cannot agree that the amortization or debiting of the Superannuation Accounts caused increases in contribution rates. The government says that in 2006, the Minister started exercising the discretion conferred upon him by Bill C-78 to raise the employee contribution rates up to a maximum of 40 percent of the total required from both employees and the government. In oral argument, the government indicated that during Parliamentary debates on Bill C-78, the government explained that the Minister would be given discretion to increase rates because the contribution ratios between government and Plan members had gone from 60/40, historically, to 70/30, and were projected to go to 80/20. The government indicated that it desired a return to the historical 60/40 contribution rate.
[141] In any event, as the Chief Justice explained in Elder Advocates, the interest at issue must be a specific private law interest, and the entitlement at stake “must not be contingent on future government action” (para. 51). Federal employees are not entitled to any specific contribution rate, whether the contribution is determined by Parliament (as it was prior to January 1, 2004), or by the Treasury Board (starting January 1, 2004). The Plan members did not have a specific private law interest in any prescribed contribution rates such as to ground a fiduciary duty.
(5) Conclusion on Fiduciary Relationship
[142] For these reasons, I conclude that there was no ad hoc fiduciary relationship between the government and the Plan members with respect to the actuarial surplus reflected in the Superannuation Accounts. Most importantly, the government did not undertake, either expressly or impliedly, to act in the best interests of the Plan members with respect to the actuarial surplus. Without such an undertaking of loyalty in favour of these particular stakeholders, the government’s duty was to act in the best interests of society as a whole. This is inconsistent with the existence of a fiduciary duty. Moreover, while the government exercised discretion in its accounting treatment of the surpluses in the Superannuation Accounts, the Plan members were not vulnerable to that discretion, nor did they have any legal or practical interest at stake. The effect of the amortization was to disclose more accurately Canada’s actual pension obligations, not to affect Plan members’ statutory entitlements under the Plans.
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