In allowing Rio Algom’s appeal of a 2008 Ontario Divisional Court decision, the Ontario Court of Appeal has laid to rest the question of whether a pension plan sponsor can be ordered by a court to wind up its pension plan. The Court of Appeal stated that “it is plain and obvious that the court does not have the authority to order Rio Algom to commence wind up proceedings under the PBA.”

In 2006, Alexander Lomas, a retired Rio Algom employee, commenced litigation against his former employer alleging that Rio had made improper amendments to its pension trust intended to provide the company with surplus ownership and contribution holiday rights contrary to its trust, contractual and fiduciary duties. The main purpose of the litigation was to force a surplus distribution to plan members - so Mr. Lomas took the position that if his claims succeeded, the court should order the wind up of the Rio pension plan to facilitate such distribution. However, when the Supreme Court of Canada (SCC) released its June 2006 decision in Buschau v. Rogers Communications Inc. (Buschau) Mr. Lomas had a problem. Buschau held that the courts do not have the authority to order pension plans to be wound up at the instigation of plan members, primarily because applicable pension legislation confers exclusive wind up jurisdiction on the pension regulators and on the employer sponsoring the plan.

Undaunted, Mr. Lomas forged on and while conceding that Buschau precluded him from asking the court to declare a pension plan wind up directly, it did not prevent the court from indirectly ordering Rio, as plan sponsor, to initiate wind up proceedings under s.68(1) of the Ontario Pension Benefits Act (PBA). In permitting this indirect remedy to remain part of Mr. Lomas’ claim, the motions judge reasoned that the remedy did not require the court to usurp the pension regulator’s role as supervisory authority, but rather sought to compel Rio to do something the PBA permitted it to do (wind up) which the regulator would then oversee. Rio appealed the motion judge’s decision to the Ontario Divisional Court which upheld the lower court ruling, on the basis that while Buschau may prevent a direct court-ordered plan wind up, equity and trust law principles allow a court to order an employer to initiate a wind up in appropriate circumstances. The majority of the Divisional Court stated:

While the role of trust law may well be limited in some respects, nothing in the two sets of reasons in Buschau seems to me to rule out resort to trust law when the facts make trust principles ‘applicable’ and what is applicable is to be determined on a case by case basis.

Many (including the dissenting Divisional Court judge) found the majority’s rationale difficult to accept, particularly since the alternative remedy would allow members to circumvent pension legislation by seeking a court order, and the SCC had rejected a similar alternative remedy requested by the plaintiffs in Buschau.

In overturning the Ontario Divisional Court’s decision, the Ontario Court of Appeal held that the kind of remedy sought by Mr. Lomas (a restorative mandatory injunction) is available to a plaintiff only to protect an existing right. Since both the reasoning in Buschau and the legislative scheme governing pension plan wind ups lead to the conclusion that Mr. Lomas, as a plan member, does not have the right to compel a wind up, a mandatory injunction to that effect is not available.

The Court of Appeal stated that under Ontario pension legislation, the courts have no original jurisdiction to order the wind up of a pension plan and that there is no difference between an order requiring an employer to wind up a pension plan and an order requiring an employer to commence wind up proceedings under the PBA. As there is no power in the court to order the former, there is no power in the court to order the latter.

In addition, the Court of Appeal questioned the Divisional Court majority’s finding (see quote above) that courts have some inherent power to terminate a pension trust based on trust law principles. In rejecting this finding, the Court of Appeal concluded that apart from the rule in Saunders v. Vautier (which had been rejected as inapplicable to pension plans by the SCC in Buschau ) it was unaware of any trust law principle that allows the court to terminate a trust before the purposes of the trust have been fulfilled.

This decision is an important step in the clarification of member rights in relation to plan wind ups and provides plan sponsors with confirmation that forced wind-ups of their pension plans will not be permitted, other than by the pension regulator in accordance with the enumerated grounds set out in applicable pension legislation. Members will not be permitted to facilitate their surplus distribution claims by instigating independent wind up proceedings.