McCann et al v. CMHC et al, and Lacroix et al v. CMHC et al, 2015 OJ No 2088 (OSCJ Divisional Court)

The proceeding in Lacroix v. Canada Mortgage and Housing Corp. (Lacroix Action) was first certified by consent order in 2000. In August 2013, the plaintiffs in the Lacroix Action delivered a motion seeking to add four additional common issues relating to the alleged breach by the trustees of the Canada Mortgage and Housing Corporation Pension Fund of the conflict of interest provisions of the Pension Benefits Standards Act, 1985(PBSA). The remaining procedural history is beyond the scope of this summary.

As discussed in the April 2015 Pensions Newsletter, between 1995 and 2001, Canada Mortgage and Housing Corporation (CMHC) terminated 1400 employees (or approximately 50 per cent of its workforce) in various phases pursuant to a program substantially reducing its workforce known as the Work Force Adjustment Program (WFA). At the time the WFA was commenced, there was approximately C$64.8-million in surplus funds in the CMHC pension fund, which grew to C$432-million by the end of the WFA. As part of the WFA, certain benefit improvements were made for then plan members. Those who had already left the plan did not share in any of these benefit enhancements. The certified class in this action is comprised of those who took the commuted value of their pension upon dismissal between January 1995 and October 23, 1998, and did not share in either the 1999 or 2001 benefit enhancements.

The plaintiffs alleged that the defendants wrongfully deprived them of their pro rata share of the pension plan surplus by putting CMHC’s interests ahead of the interests of the plan members as they determined and implemented the WFA and the surplus review, thereby contravening the conflict of interest provisions of the PBSA. The plaintiffs further alleged that the defendants had a duty to notify the plaintiffs of the intention to use the surplus to pay enhanced benefits to members who chose to remain in the plan.

The McCann proceeding (McCann Action) is a companion action to the Lacroix Action. The plaintiffs in the McCann Action are employees who left CMHC after October 23, 1998, but before June 4, 2002 and who had shared in one or both of the pension surplus distributions.

In a decision summarized in the April 2015 Pensions Newsletter, the Ontario Superior Court granted the plaintiffs’ motion in the Lacroix Action to certify the four additional common issues proposed relating to the conflict of interest allegations. The Ontario Superior Court also certified the McCann Action as a separate class proceeding and certified the proposed conflict of interest common issues certified in the Lacroix Action.

On April 15, 2015, the Divisional Court granted an application brought by the defendants for leave to appeal the Ontario Superior Court’s decisions certifying the McCann Action as a class proceeding and certifying the additional common issues in the Lacroix Action.

The Divisional Court held that certification of the common issues was based on the allegation that the plaintiffs owned the surplus that existed in the plan when they opted to take their commuted value and leave the plan, and that the actions or inactions of CMHC were in conflict with this alleged ownership interest. The certification judge certified the conflict of interest common issues despite clearly acknowledging the principle that plan members have no interest in the surplus of an ongoing pension plan. The Divisional Court held that there was reason to doubt the correctness of the certification order for this reason and granted the applications for leave to appeal. The Divisional Court also noted in its reasons that certification of issues founded upon allegations of misrepresentation or failure to advise is questionably incorrect as a proper conflict of interest issue. In addition, the precedential value of the determination involving the conflict of interest provisions of the PBSA warranted appellate review.

Divisional Court Decision