Each week Wise Law Blog will review recent decisions by the Ontario Court of Appeal.
Indalex Limited (Re). The Court of Appeal here was reviewing an appeal in a bankruptcy proceeding. Indalex Limited and its associated companies obtained protection from its creditors under the Companies' Creditors Arrangement Act in April 2009. It moved for approval of sale of its assets on a going-concern basis, generating approximately $151 million, and also to distribute proceeds of the sales to its debtor-in-possession (DIP) creditors; a previous court order created a "super-priority" charge for the DIP lenders, obligating that they be paid first in an insolvency situation. The $151 million proceeds were not enough to pay the claims of the DIP lenders. However, Indalex also operated two retirement plans, one for its salaried employees and one for its executive employees, both of which were underfunded by approximately $7 million together.
The United Steelworkers (acting for the salaried employee plan beneficiaries) and a group of former executives (acting for the executive plan beneficiaries) objected to the distribution of the sale of assets on the basis that the deemed trust provisions in the Pension Benefits Act applied to the unpaid amounts owing on their plans and that therefore the priority for monies from the sale should have been directed to the benefit plans first with the remainder then going to the DIP lenders. The CCAA judge hearing their motions dismissed them, finding that no deemed trust under the PBA existed in respect of either plan.
The CCAA judge's reasons for dismissing the motions of the executives and the USW differed with respect to the two plans. In the instance of the executives' plan, he noted that the windup of the plan had not yet taken place and therefore there were no deficiencies in payments to that plan, and thus no basis for a deemed trust. In the instance of the salaried employees' plan, the judge concluded that, since Indalex was permitted under law to make up the deficiency in the plan over five years, the amount of the payments did not actually become due until it was required to be paid, and since a due payment is what potentially created the deemed trust in this instance that therefore there was no trust in this respect either.
They appealed, with the support of the Superintendent of Financial Services and the actuarial firm appointed to administer the plans, both on the grounds that the judge had improperly decided a lack of deemed trust and also on the grounds that Indalex breached its fiduciary obligations. The principal secured creditor of Indalex's parent U.S. company, who was subrogated to the rights of the DIP lenders, requested that the Court of Appeal dismiss the appeals and that the monies be paid to it instead based on the "super-priority" charge.
The Court of Appeal allowed the appeals and declared that the pension claims took precedence over the DIP lenders' claims, and ordered the Monitor to pay amounts to satisfy the deficiency in each of the retirement plans.
s. 57(4) of the PBA deems an employer operating a pension plan to hold in trust an amount equal to the contributions "accrued to the date of windup but not yet due under the plan or regulations." The Court of Appeal agreed with the trial judge that under Ontario's Regulations, the employer had five years to make all of its required contributions, but distinguished amounts that were "accrued" from accounts that were "not yet due," on the basis that Supreme Court precedent makes clear that money is "due" when there is a legal obligation to pay it, whereas payments are "accrued" when they are constituted and the liability to pay exists.
The Court stated that s.57(4)'s intent was clearly meant to apply to all amounts owing to the pension plan, consistent with both its language and the overall intent of the PBA to establish regulatory supervision to protect and safeguard the pension benefits and rights of plan members. On this basis, the Court of Appeal decided that the deficiency owed to the salaried employees' plan was indeed a deemed trust under the PBA.
Regarding the executives' plan, the Court was less firm: they felt that the although the plain wording of the PBA did indeed concur with the judge's decision, that the idea that an insolvent company could avoid its pension obligations simply through inaction (e.g. by not winding up a pension plan) was troubling and potentially a "triumph of form over substance."
The Court also accepted the appellants' argument that Indalex breached its fiduciary obligations to the retirement plans. The Court went to Imperial Oil Ltd. v. Ontario as a precedent to explain how, when an employer is also the administrator of a pension plan, how its roles as administrator and employer differ:
The respondents had argued that the appeals should be dismissed because they constituted collateral attacks on the court orders which gave the DIP lenders their "super-priority" rights. The Court disagreed, primarily because of how the CCAA regime operates: it is designed to deal with all matters related to an insolvency, and an Initial Order under the CCAA can varied or amended on an interested party's application. This is of course what the appellants did. Furthermore, the Court noted that there was precedent for collateral attacks being allowable where they did not offend the rule of law or the administration of justice. Read-the-whole-case rating: 4. This is a long and complex case, but the issues at hand are important ones and Justice Gillese lays them out in a comprehensive, explanatory manner.
R. v. Marquardt. This case is one of the Charles Smith cases, and another where the former pediatric forensic pathologist's history of providing evidence provided grounds for the appeal. In this case, the defendant's original appeal to the court was dismissed in 1998, but in 2009 as a result of the ongoing reinvestigation of the various cases where Smith had testified, the Supreme Court granted her application for leave to appeal and remanded the case to the Court of Appeal.
Ms. Marquardt was accused of the second degree murder of her two-year-old son Kenneth. At her trial, Smith testified that her son died of asphyxia and that his findings were consistent with the theory that the child had been suffocated. The Crown also led evidence that after the death Ms. Marquardt had confessed to others that she had killed Kenneth. Defence led evidence that Kenneth had suffered from epileptic seizures, and that Ms. Marquardt's statements after the death were made from guilt at her inability to save her son's life because she had forgotten how to perform CPR.
During the Chief Coroner's review of Smith's cases in 2005, experts consulted provided the opinion that there was insufficient evidence for Smith to have diagnosed asphyxia in Ms. Marquardt's case. In her appeal, Ms. Marquardt retained a forensic pathologist who stated that, in addition to there being insufficient evidence to diagnose asphyxia as cause of death, several other possible causes of death could not be excluded - including sudden unexpected death from epilepsy. The Crown retained a pathologist who agreed with these points, and then at that pathologist's suggestion both the Crown and the defense retained pediatric neurologists to provide opinions on the possibility that Kenneth's epilepsy might have contributed to his death. Both experts agreed that this was possible.
The Court therefore ordered a new trial. They felt, considering that the statements made by Ms. Marquardt and her description of events leading up to Kenneth's death were part of why she had been convicted, that an acquittal was not appropriate. However, regarding the obvious and massed expert disapproval of Smith's evidence, a new trial was absolutely necessary. Read-the-whole-case rating: 3.
The United Steelworkers (acting for the salaried employee plan beneficiaries) and a group of former executives (acting for the executive plan beneficiaries) objected to the distribution of the sale of assets on the basis that the deemed trust provisions in the Pension Benefits Act applied to the unpaid amounts owing on their plans and that therefore the priority for monies from the sale should have been directed to the benefit plans first with the remainder then going to the DIP lenders. The CCAA judge hearing their motions dismissed them, finding that no deemed trust under the PBA existed in respect of either plan.
The CCAA judge's reasons for dismissing the motions of the executives and the USW differed with respect to the two plans. In the instance of the executives' plan, he noted that the windup of the plan had not yet taken place and therefore there were no deficiencies in payments to that plan, and thus no basis for a deemed trust. In the instance of the salaried employees' plan, the judge concluded that, since Indalex was permitted under law to make up the deficiency in the plan over five years, the amount of the payments did not actually become due until it was required to be paid, and since a due payment is what potentially created the deemed trust in this instance that therefore there was no trust in this respect either.
They appealed, with the support of the Superintendent of Financial Services and the actuarial firm appointed to administer the plans, both on the grounds that the judge had improperly decided a lack of deemed trust and also on the grounds that Indalex breached its fiduciary obligations. The principal secured creditor of Indalex's parent U.S. company, who was subrogated to the rights of the DIP lenders, requested that the Court of Appeal dismiss the appeals and that the monies be paid to it instead based on the "super-priority" charge.
The Court of Appeal allowed the appeals and declared that the pension claims took precedence over the DIP lenders' claims, and ordered the Monitor to pay amounts to satisfy the deficiency in each of the retirement plans.
s. 57(4) of the PBA deems an employer operating a pension plan to hold in trust an amount equal to the contributions "accrued to the date of windup but not yet due under the plan or regulations." The Court of Appeal agreed with the trial judge that under Ontario's Regulations, the employer had five years to make all of its required contributions, but distinguished amounts that were "accrued" from accounts that were "not yet due," on the basis that Supreme Court precedent makes clear that money is "due" when there is a legal obligation to pay it, whereas payments are "accrued" when they are constituted and the liability to pay exists.
The Court stated that s.57(4)'s intent was clearly meant to apply to all amounts owing to the pension plan, consistent with both its language and the overall intent of the PBA to establish regulatory supervision to protect and safeguard the pension benefits and rights of plan members. On this basis, the Court of Appeal decided that the deficiency owed to the salaried employees' plan was indeed a deemed trust under the PBA.
Regarding the executives' plan, the Court was less firm: they felt that the although the plain wording of the PBA did indeed concur with the judge's decision, that the idea that an insolvent company could avoid its pension obligations simply through inaction (e.g. by not winding up a pension plan) was troubling and potentially a "triumph of form over substance."
The Court also accepted the appellants' argument that Indalex breached its fiduciary obligations to the retirement plans. The Court went to Imperial Oil Ltd. v. Ontario as a precedent to explain how, when an employer is also the administrator of a pension plan, how its roles as administrator and employer differ:
Its role as employer permits it to make the decision to create a pension plan, to amend it and to wind it up. Once the plan and fund are in place, it becomes an administrator for the purposes of management of the fund and administration of the plan. If we were to hold that an employer was an administrator for all purposes once a plan was established, of what use would a power of amendment be? An employer could never use the power to amend the plan in a way that was to its benefit, as opposed to the benefit of the employees.As regards Indalex, the Court stated that although Indalex had the right as an employer to commence proceedings under the CCAA, this did not make decisions regarding the pension plans strictly corporate ones; it still had the duties of an administrator to fulfill its fiduciary responsibilities to the beneficiaries of the plans, and when it did not make up the deficiencies in the plans while also giving DIP lenders a "super-priority" charge on sales of its assets, it was breaching that responsibility due to a conflict of interest, both under the common law and also as per s.22(4) of the PBA.
The respondents had argued that the appeals should be dismissed because they constituted collateral attacks on the court orders which gave the DIP lenders their "super-priority" rights. The Court disagreed, primarily because of how the CCAA regime operates: it is designed to deal with all matters related to an insolvency, and an Initial Order under the CCAA can varied or amended on an interested party's application. This is of course what the appellants did. Furthermore, the Court noted that there was precedent for collateral attacks being allowable where they did not offend the rule of law or the administration of justice. Read-the-whole-case rating: 4. This is a long and complex case, but the issues at hand are important ones and Justice Gillese lays them out in a comprehensive, explanatory manner.
R. v. Marquardt. This case is one of the Charles Smith cases, and another where the former pediatric forensic pathologist's history of providing evidence provided grounds for the appeal. In this case, the defendant's original appeal to the court was dismissed in 1998, but in 2009 as a result of the ongoing reinvestigation of the various cases where Smith had testified, the Supreme Court granted her application for leave to appeal and remanded the case to the Court of Appeal.
Ms. Marquardt was accused of the second degree murder of her two-year-old son Kenneth. At her trial, Smith testified that her son died of asphyxia and that his findings were consistent with the theory that the child had been suffocated. The Crown also led evidence that after the death Ms. Marquardt had confessed to others that she had killed Kenneth. Defence led evidence that Kenneth had suffered from epileptic seizures, and that Ms. Marquardt's statements after the death were made from guilt at her inability to save her son's life because she had forgotten how to perform CPR.
During the Chief Coroner's review of Smith's cases in 2005, experts consulted provided the opinion that there was insufficient evidence for Smith to have diagnosed asphyxia in Ms. Marquardt's case. In her appeal, Ms. Marquardt retained a forensic pathologist who stated that, in addition to there being insufficient evidence to diagnose asphyxia as cause of death, several other possible causes of death could not be excluded - including sudden unexpected death from epilepsy. The Crown retained a pathologist who agreed with these points, and then at that pathologist's suggestion both the Crown and the defense retained pediatric neurologists to provide opinions on the possibility that Kenneth's epilepsy might have contributed to his death. Both experts agreed that this was possible.
The Court therefore ordered a new trial. They felt, considering that the statements made by Ms. Marquardt and her description of events leading up to Kenneth's death were part of why she had been convicted, that an acquittal was not appropriate. However, regarding the obvious and massed expert disapproval of Smith's evidence, a new trial was absolutely necessary. Read-the-whole-case rating: 3.
- Christopher Bird, Toronto
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