Investment of retirement accounts
Webb v. TD, 2016 ONSC 7153
In 2005, a former branch manager of TD Bank (Plaintiff), after being terminated, elected to invest the commuted value of his pension in a retirement investment account with TD Waterhouse Canada Inc., TD Waterhouse Financial Planning and Kim Myers, a financial advisor and employee of TD Waterhouse Financial Planning (Defendants). By 2009 and 2010, the Plaintiff noticed that the investment did not perform as well as initially represented in 2005, and filed a statement of claim in January 2014 alleging misrepresentation, undue influence, negligence, and failure to provide or require the Plaintiff to obtain independent legal advice in the context of presumed conflict of interest and/or undue influence. The Defendants moved for summary judgment based on a limitation defence.
In granting the Defendants’ motion, the Ontario Superior Court of Justice (Court) relied on various facts which indicated that the Plaintiff knew or ought to have known of the claim as early as 2009.
The Court further held that, even if the claim was not statute-barred, there were no facts that raise a presumption of undue influence requiring a trial. The Defendants and the Plaintiff’s relationship did not have the degree of influence and dependency that can be subject to abuse and pressure. The Court found that the Plaintiff had the capacity for independent action, made independent inquiries and made independent choices, at times against the advice of Ms. Myers. His education, training, work history and knowledge of markets and investments indicated that he was not a vulnerable party. The Plaintiff was well aware of the affiliation between the Defendants and his former employer, and sought Ms. Myers out based on his personal knowledge, rather than at her solicitation of business. He was not incapable of obtaining independent legal advice, and nothing interfered with his ability to obtain legal advice. Finally, he knew or ought to have known that there was no guarantee in the representation of returns made in 2005, based on the representation documents and his knowledge of markets.
Pension plan wind-ups
Tibbett & Britten Group Canada Inc. v. Sobeys Inc., 2016 ONCA 861
In January 1995, Oshawa Foods (Oshawa) and Surelink entered into parallel asset sale and warehouse and transportation services transactions, wherein Oshawa sold two warehouses to Surelink, and Surelink provided warehousing and transportation services to Oshawa in connection with Oshawa’s food distribution business. Under the warehousing and transportation agreement (WTA), Surelink assumed responsibility for the former employees of Oshawa who were working in the warehouses, including responsibility for the benefits under an existing pension plan (Plan). Following its acquisition of Oshawa in 1999, Sobeys Inc. (Sobeys) terminated the agreements, which terminated all of the positions of the Surelink employees at the two warehouses and triggered a wind-up of the Plan effective March 5, 2000.
In determining the extent to which the obligations for the pension benefits reverted to Sobeys on termination of the agreement, the application judge held that (1) the termination provisions of the WTA required Sobeys to reimburse Tibbett & Britten Group Canada Inc. (Tibbett), Surelink’s successor, for the amount required to fund the deficit that arose on the wind-up of the Plan, and (2) Sobeys and Tibbett reached a new agreement in or around August 2001 pursuant to which Sobeys agreed to be responsible for directly funding the Plan deficit and ongoing administration of the Plan.
Sobeys appealed the decision, arguing that (1) it was only obliged to reimburse Tibbett for the reasonable costs incurred in funding the Plan deficit, and (2) it did not agree to assume responsibility for directly funding the Plan deficit. Alternatively, Sobeys argued that Tibbett’s claim, either under the WTA or pursuant to any new agreement, was statute-barred under the Limitations Act, 2002.
Finding no palpable and overriding error in the application judge’s finding of fact or of mixed fact and law, the Ontario Court of Appeal (Court) dismissed Sobeys’ appeal. The Court found that the application judge made a factual finding that Tibbett had acted with due diligence, and saw no basis for interfering with it. Similarly, the Court agreed with the application judge’s finding of a new agreement based on the factual record, the parties’ conduct and the business context. Lastly, the Court held that the limitation period for Tibbett did not begin to run until April 17, 2013, as Tibbett was entitled to assume that Sobeys undertook to fulfill its obligations with respect to the Plan under the WTA and the subsequent agreement between the parties in the absence of indication to the contrary.
Tax treatment of foreign plans
Jacques v. The Queen, 2016 TCC 245
The taxpayer, Julie Jacques, had a sister resident in the United States who passed away. Ms. Jacques was named as the death beneficiary for her sister’s retirement plan, a 401(k) plan. The Minister of National Revenue reassessed Ms. Jacques to include the proceeds of this plan in her income for 2009. The issue to be decided was whether the proceeds received from the 401(k) plan met the definition of “superannuation or pension benefits” under s. 248(1) of the Income Tax Act (Canada), which is defined as “any amount received out of or under a superannuation or pension fund or plan.”
Justice Graham was tasked with determining whether the 401(k) plan is a superannuation or pension fund or plan. This was a question of fact. In analyzing the 401(k) plan, Justice Graham looked for factors that set the plan apart from an ordinary savings plan. The factors he found that leant themselves to the 401(k) plan being a superannuation or pension fund or plan are (1) the employer was expected to make contributions and (2) the vesting schedule of employer contributions. Certain factors were neutral: the purpose of the plan; the ability of an employee to opt out of the plan; and an employee’s ability to direct investments. Many factors suggested the plan is more like a savings plan: the ability to significantly vary employee contributions (up to 50 per cent); the ability to withdraw amounts early; and the distribution methods available out of the plan.
Justice Graham stated that the distribution methods were the most significant feature. According to Canadian jurisprudence, a superannuation or pension fund or plan provides payment of “regular post-retirement income.” The 401(k) plan in question paid out lump sums by default, and employees aged 59.5 or older were permitted to withdraw some or all of their balance and continue to work. Any employees retiring before age 70.5 were required to take a lump sum. In fact, Justice Graham identified that the only way to receive regular payments post-retirement was to work past age 70.5 and then choose to not receive a lump-sum payment, thereby triggering minimum annual distributions. In that situation, the employee would still be entitled to withdraw lump sums at will.
Justice Graham concluded that, upon a total review of the plan in question, it was not a superannuation or pension fund or plan, and allowed Ms. Jacques’s appeal of her income tax reassessment by referring the matter back to the Minister of National Revenue for reconsideration and reassessment.
ERISA WITHDRAWAL LIABILITY
Walter Energy Canada Holdings, Inc. (Re), 2016 BCSC 107; 2016 BCSC 1746
The Walter Group, a U.S.-based metallurgical coal-exporting group of companies, purchased Canadian coal mines in 2011. Due to the decline in global demand for its product, the Canadian coal mines, as well as other Walter Group coal mines across the world, were idled and the Walter Group experienced major financial difficulties. The Walter Group filed for Chapter 11 bankruptcy protection in the United States, and its Canadian operations filed for creditor protection under the Companies’ Creditors Arrangement Act (CCAA). The initial order in the CCAA proceedings was granted in December 2015. In early 2016, the parties sought various forms of relief to assist in the restructuring plan, including the court approval of a sale and solicitation process and the appointment of further professionals to manage that process; the approval of an employment retention plan; and an extension of the stay against creditors’ collection efforts. In her decision on January 26, 2016, Justice Fitzpatrick granted the requested relief and noted the novel objections made by the United Mine Workers of America 1974 Pension Plan and Trust (1974 Pension Plan), discussed below.
One of the American entities within the Walter Group is Jim Walter Resources Inc. (JWR). This company is party to a collective agreement with the United Mine Workers of America. In December 2015, the bankruptcy court in the United States ruled that JWR was permitted to reject the collective agreement and further ruled that the sale of the U.S. assets of the Walter Group would be free and clear of any liabilities under the collective agreement. In response, the trustees of the 1974 Pension Plan filed a proof of claim in the U.S. bankruptcy proceedings for a contingent claim against JWR for a potential “withdrawal liability” under the Employee Retirement Income Security Act of 1974 (USA) (ERISA) of approximately US$900-million. In this CCAA proceeding, the 1974 Pension Plan argued that, under ERISA, all companies under common control with JWR are jointly and severally liable for this withdrawal liability. The 1974 Pension Plan alleges that certain Canadian companies within the Walter Group fall within this joint and several liability provision. The claim, if valid, would have the potential to overwhelm most other claims against the estate of the Canadian operations.
In August 2016, the company sought approval of the sale of one of the Canadian mining operations. At the same hearing, the petitioners sought an order governing the distribution of the proceeds of the sale. In her September 23, 2016 decision, Justice Fitzpatrick addressed the ERISA claim directly. Her ruling indicates that due to the procedural and legal complexity of the claim, the parties had agreed to not file a proof of claim under the CCAA proceedings (which is the ordinary procedure for a claim against a CCAA protected company), and instead the petitioner would file an independent civil claim. Therefore, the merits of the ERISA claim were not decided, but will be litigated in the near future in parallel proceedings, to which the parties on the service list for the CCAA proceedings would be entitled to participate.