Buschau v Rogers Communication

In 1994, in the case of Schmidt v Air Products Canada Ltd, [1994] 2 SCR 611 [Schmidt], the Supreme Court of Canada (“SCC”) established a new direction for the law of pensions by holding that a pension trust is a classic trust, “subject to all applicable trust law principles.” Commentators at the time argued that the intent of that statement was to provide a default legal position where the applicable pension legislation did not effectively address an issue relating to a pension trust.

However, pension case law since the Schmidt decision has increasingly relied upon the general principle expressed to apply trust concepts to pension trusts even where those concepts contradict the clear intent of the plan documents and the legislative provisions governing the pension plan. In the recent decision of Buschau v Rogers Communications Inc, 2006 SCC 28 [Buschau], the SCC seems to have halted this trend and has arguably limited the applicability of the general law of trusts for pension trusts to situations where it can be applied consistently within the context of the plan documents, the legislative scheme governing the pension plan and the applicable social policy.

The issue in the Buschau decision was whether the classic trust doctrine of Saunders v Vautier, [1841] EWHC Ch J82, could be used by the members of the plan to terminate the pension trust and recover the existing surplus. Briefly, the rule in Saunders v Vautier provides that if the holders of all of the actual and contingent interests under a trust are sui juris and consent to the termination of the trust, the trust will be terminated notwithstanding the terms of the trust instrument and without any necessity for approval of the settlor of the trust, the trustee or any court or other third party.

An application of this doctrine by members of a pension plan to terminate a pension trust on this basis would be rare, as pension plans are inherently structured to accommodate future entrants. Thus, the potential beneficiaries of contingent interests under the trust can never be definitively identified and the consents required to satisfy the rule cannot be satisfied.

However, in this instance, the plan had been closed to new members and the British Columbia Court of Appeal had found that Rogers, the employer, was not entitled to reopen the plan on the basis of an obligation of good faith. This created an unusual situation where the members of the plan were identifiable. The Court of Appeal found that the rule in Saunders v Vautier was applicable provided that the members could satisfy the conditions of the doctrine by obtaining the consent to the termination of the trust from all potential beneficiaries of existing or contingent interests in the trust property.

The SCC found unanimously that the doctrine of Saunders v Vautier should not be applied. The basis for the decision relied upon four factors. First, unlike personal trust situations, a pension trust is not a stand-alone instrument. It is a mechanism for providing security for the funding of pension obligations created under the pension plan. In this respect, the pension plan and pension trust are intertwined and the termination of the funding entity prior to the termination of the plan itself defeats the purpose for which it was created.

Second, an extensive system for the regulation of pension plans has been created by legislation. The plan in this context was governed by the federal Pension Benefits Standards Act, 1985, RSC 1985, c 32 (PBSA), which provides specifically for the termination of pension plans and the distribution of the trust assets. The PBSA does not provide for the unilateral termination of the trust by members and to permit the application of the Saunders v Vautier doctrine would render ineffective the statutory scheme and the supervisory role of the Superintendent under the PBSA.

Third, the pension plan was created voluntarily by the employer as part of the employment relationship between the employer and employee and fourth, pension plans provide a valid social purpose by ensuring that funds are available to employees after retirement. The acceleration of payment of the pension funds to members on the basis of an early termination of the trust under the rule in Saunders v Vautier is inconsistent with the employment and social purpose of the plan.

The basis for the decision of the SCC suggests that the underlying principles should have broader application than the limited context of whether an application for termination of a trust under the rule in Saunders v Vautier should apply. The Court appears to be providing that classic trust law principles will not be invariably relevant to the determination of pension trusts. The Court is recognizing that pension trusts are created in a very different legal and social context than the traditional personal trust and that, in this context, classic trust principles cannot always be appropriately applied.

Although it seems clear that there is a continuing role for trust principles in the interpretation of pension trusts, unfortunately the parameters of this role are left unclear. Four of the seven members of the SCC continued to extend the possibility that the rule in Saunders v Vautier may still have application to a pension trust in an appropriate situation, such as a small pension plan with limited members. This suggests that the application of trust concepts may be fact dependant and that the existence of a legislative scheme will not necessarily preclude the overriding application of trust principles.

The minority of the SCC stated that it is appropriate to apply common law trust principles where there is a gap in the legislative scheme on an issue relating to pension trusts. This was the position argued as the appropriate interpretation to the statement of the SCC in Schmidt in 1994.

However, one of the bases for their decision was the denial of the availability of the rule in Saunders v Vautier on technical reasons relating to the inability of the members to obtain all necessary consents even though, in light of the substantial legislative provisions relating to termination of trust funds, the doctrine of Saunders v Vautier should be inapplicable on the broader policy basis. The continuing focus on the requirements of the rule suggests that perhaps the broader principle, limiting the application of trust principles to resolution of issues not addressed by the legislation, cannot be solely relied upon to identify the ongoing role of these common law trust concepts in the context of pension plans.

Nonetheless, the SCC is providing a change in direction for the interpretation of pension trusts. The SCC has clearly indicated that the applicability of trust principles to pension trusts should be considered having regard to the plan documents and the social and legislative context of the plan. It will remain to be seen how this guidance is interpreted in subsequent decisions to determine the ongoing extent to which common law trust concepts will continue to have a role in the area of pension plans.