The Court of Appeal for Ontario considered the liability of a former employer/pension plan administrator and the consulting actuary/new employer in a failed public to private pension transfer which was disallowed by the Canada Revenue Agency ("CRA").
The plaintiffs were former public employees who accepted a deal crafted by Mr. Sylvain Parent, an actuary and principal of Welton Parent Inc. and Loba, and the federal government specifically the Treasury Secretariat Board ("TBS"). The plaintiffs were told that if they resigned from their federal employment, their public pensions could be transferred to private ones by means of a reciprocal transfer agreement. TBS communicated its concern about whether the plan complied with tax laws to the CRA. The CRA sent letters to TBS and Welton Parent/Loba which set out the risks that the money from the federal pension would not be transferred to the Loba Plan. Eventually, the CRA disallowed the Loba Plan. The plaintiffs sued their former employer for the difference between the benefits they would have received had they stayed in the public service until retirement and what they did receive under the failed scheme. TBS added Mr. Parent, Loba, and Welton Parent as third parties.
At trial, the judge held the government liable in negligent misrepresentation and the Loba Parties liable in negligent misrepresentation and for breach of fiduciary duty. The judge held that the fiduciary duty came into existence only after the plaintiffs became Loba Plan members.
TBS appealed on a number of grounds including that the trial judge erred in finding that TBS owed the plaintiffs a duty of care. TBS submitted that there is no established duty of care at common law for an employer to provide information about the viability of a prospective new employer’s pension plan. The court held that the plaintiffs’ “longstanding and current status as employees” in the federal public service grounds the duty of care – not their potential new employment with a different employer. TBS created an apparatus to convert pensions to approved employers and had a duty to the plaintiffs when it held out the Loba Plan as meeting the approval requirements. Additionally, it is well established that a pension plan administrator owes a duty of care to the members of the pension plan. TBS owed a duty of care and was held liable for failing to disclose its concern about the tax legitimacy of the proposed scheme.
The court agreed with TBS that the fiduciary duty owed by the actuary to the plaintiffs came into existence earlier than was determined by the trial judge. On all of the evidence, it was clear that the elements of a fiduciary relationship including trust, reliance, vulnerability, and confidence were present when the plaintiffs first consulted the actuary. The breach of fiduciary duty occurred before they became plan members. This conclusion was relevant to the court’s reapportionment of damages as between the defendants.
February 28, 2011
Link to Decision
Julia Wilkes
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