Case Comment Volume 37:1

Defining Pension Surplus Entitlement in Quebec: Sauve v. Pierre Moreault Ltee and A. Janin & Compagnie Ltee v. Allard

Table of Contents

Defining Pension Surplus Entitlement in Quebec: Sauve v.

Pierre Moreault Lte and A. Janin & Compagnie Lte v. Allard

Gary Nachshen*

Introduction

The 1980s proved a decade of great innovation in the area of corporate
finance, from currency swaps to junk bonds to flow-through shares. It should
not be surprising, then, that some corporations chose during this period to reach
for an even more original source of funding, namely the surplus assets in their
employee pension funds. In so doing, these corporations have sparked a new
form of litigation, the pension surplus entitlement case.

Since 1986, over a dozen Canadian companies have appeared in court to
argue their right to recapture the actuarial surplus in their pension funds. These
include the Bank of British Columbia’ in B.C., Gainers,2 Canadian Commercial
Bank,3 and Sulpetro4 in Alberta, and Canada Dry,’ Dominion Stores,6 Dominion
Securities,7 and Otis Elevator’ in Ontario. As a result, there is now a fairly well-

* Of Stikeman, Elliott, Montreal. The author would like to thank Andr6 Dionne of William M.
Mercer Ltd. for his comments on an earlier draft of this paper. Any errors or omissions, however,
are the responsibility of the author alone.
McGill Law Journal 1992
Revue de droit de McGill
To be cited as: (1992) 37 McGill L.J. 270
Mode de citation: (1992) 37 R.D. McGill 270
‘Hockin v. Bank of British Columbia (1989), 36 B.C.L.R. (2d) 220 (S.C.), aff’d (1990), 46
B.C.L.R. (2d) 382 (C.A.), leave to appeal ref’d [1991] 51 B.C.L.R. (2d) xxxv (S.C.C.) [hereinafter
Hockin].

70 Alta L.R. (2d) 71, [1990] 2 W.W.R. 19 (Q.B.).

2Gainers Inc. v. U.EC.W. Local 280-P (1986), 50 Alta L.R. (2d) 109 (Q.B.).
3Canada Deposit Insurance Corp. v. Canadian Commercial Bank (1989), 62 D.L.R. (4th) 498,
4Re National Trust Co. and Sulpetro Ltd (1989), 57 D.L.R. (4th) 120 (Alta Q.B.), rev’d in part
5Re Reevie and Montreal Trust Co. of Canada (1984), 6 C.C.E.L. 25, 10 D.L.R. (4th) 287
(H.C.J.), aff’d (1986), 53 O.R. (2d) 595, 25 D.L.R. (4th) 312 (C.A.), leave to appeal ref’d (1986),
56 O.R. (2d) 192 (S.C.C.) [hereinafter Reevie cited to O.R.].

(1990), 66 D.L.R. (4th) 271 (C.A.).

6Re Collins and Pension Commission of Ontario (1986), 56 O.R. (2d) 274 (H.C.J.).
7Re Heilig and Dominion Securities Piyfeld Ltd (1986), 55 O.R. (2d) 783, 29 D.L.R. (4th) 762
(H.C.J.), rev’d (1989), 67 O.R. (2d) 577, 59 D.L.R. (4th) 394 (C.A.), addendum as to costs (1989),
69 O.R. (2d) 159 (C.A.) [hereinafter Heilig].

8Otis Canada Inc. v. Ontario (Superintendent of Pensions) (1991), 2 O.R. (3d) 737 (Ct.) [here-

inafter Otis].

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CASE COMMENTS

developed body of jurisprudence in the common law provinces concerning the
entitlement to such surplus.

The pension surplus controversy was somewhat slower to develop in Que-
bec. Nonetheless, the courts in Quebec have addressed various aspects of the
issue on a number of occasions over the past ten years. Most recently, the Que-
bec Superior Court has rendered a pair of judgments which examined squarely
the question of entitlement to surplus pension assets. In the first decision, it was
held that such assets belonged to the plan participants.9 In the second decision,
the surplus was held to belong to the sponsoring employer.’0

The purpose of this comment is to examine and, if possible, reconcile these
seemingly conflicting decisions. As both decisions are currently under appeal,
it is obvious that this will not be the last word on the matter. Nevertheless, with
a growing number of surplus disputes being put before the courts in Quebec, an
extended analysis of these two decisions at this juncture should prove timely for
many jurists in Quebec. The analysis should also be of interest to observers in
other Canadian jurisdictions, since the approach of the courts in Quebec has
been free of the common law trusts analysis so often favoured by the courts in
the other provinces and so frequently criticized by legal commentators in thosd
provinces.

I. Background

Modem-day private pension plans, established by employers for their
retired employees, date back to the late 1800s. With the rise of industrialization
and the large-scale enterprise, and the breakdown of family, village, and church
assistance networks, it became necessary to devise new means of support for
those past working age. The first solution was to create employer-sponsored pri-
vate pension plans, enabling legislation for which was passed by Parliament in
1887.” The second solution was to devise a government-sponsored public pen-
sion system, which was accomplished by stages in the middle of this century.
Together with individuals’ savings, especially as amassed through registered
retirement savings plans and other tax-assisted formats, public and private pen-
sions now constitute the primary sources of income for retired Canadians.

Private pension plans today are governed at the federal level (where spon-
sored by banks, railways, airlines, and other enterprises deemed to constitute
federal undertakings pursuant to subsection 92(10) of the Constitution Act, 1867
(U.K.) 2) and in most provinces (where sponsored by any other employer) by

9Sauvi v. Pierre Moreault LtDe, [1990] R.J.Q. 1007 (C.S.), under appeal Montreal

500-09-000482-901 (C.A) [hereinafter Sauve.

‘0A. Janin & Compagnie Lte v. Allard, [1991] R.J.Q. 1737 (C.S.), under appeal Montreal

500-09-000913-913 (C.A.) [hereinafter Janin] .

“Pension Fund Societies Act, R.S.C. 1985, c. P-8.
1230 & 31 Vict., c. 3.

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pension benefits legislation. 3 The pension benefits statutes in the various Cana-
dian jurisdictions are uniform in many respects, though they do vary on some
important points.

The legislation in Quebec, the Quebec Supplemental Pension Plans Act
(QSPPA), was originally enacted in 1965 and was substantially revised in
1989.”4 This legislation sets out the standards which all private plans must meet
in order to obtain registration. Beyond these standards, however, employers and
employees are left with considerable choice as to how to structure their pension
plans.

To begin with, a pension plan may be either contributory or non-
contributory. Under a contributory plan, both employer and employee bear the
cost of financing the plan. Under a non-contributory plan, the employer alone
bears the cost.

A second, critical distinction is that between defined contribution (or
money purchase) and defined benefit plans. In a defined contribution plan,
either the employer alone (in a non-contributory plan) or both the employer and
employee (in a contributory plan) pay(s) in a set amount, which is then invested
for the account of the pension fund. The size of the employee’s eventual pension
depends on the rate of return earned on the investment. In a defined benefit plan,
on the other hand, the employer promises the employee a certain monetary
benefit upon retirement. In order to keep that promise, the employer must invest
whatever the plan actuary estimates to be necessary to generate the required
income. It follows that a defined benefit plan is more advantageous to the
employee than a defined contribution plan, since the “market risk’
rests with
the employer in a defined benefit plan but on the employee in a defined contri-
bution plan. It also follows that an actuarial surplus can only accumulate in a
defined benefit plan, given that all deposits into a defined contribution plan
must by definition be paid out to pensioners upon retirement. 6

13Each of the provinces except British Columbia, New Brunswick, and Prince Edward Island
currently has pension benefits legislation in force. The latter three provinces have enacted but not
yet given royal assent to their statutes, and proclamation in force is expected imminently. For a
discussion of constitutional jurisdiction over pensions, see D.J. Baum, “Profit Sharing and Pension
Plans in Canada: Profile in Action – A Melding of Interests” (1971) 6 Texas Int’l L. Forum 165.
‘4S.Q. 1965, c. 25, consolidated into R.S.Q., c. R-17, as amended and partially replaced by S.Q.
15This term is used in C.A. Butler, “Pension Plan Terminations and Asset Reversions: Accom-

1989, c. 38.

modating the Interests of Employers and Employees” (1985) 19 Mich. J.L. Ref. 257 at 266.

‘6Technically, a surplus could accumulate in a defined contribution plan as a result of the for-
feiture by terminating employees of employer contributions to which their right had not yet vested.
In practice, however, such surpluses are not large, and their importance can be expected to diminish
steadily as the earlier vesting requirements legislated in most jurisdictions in the 1980s reduce the
number of such forfeitures. Moreover, such surpluses differ qualitatively from those in defined
benefit plans in that they are easily traceable to particular plan participants, so that the entitlement

1992]

CHRONIQUES DE JURISPRUDENCE

Further distinctions may be drawn between the various formulae according
to which defined benefits are calculated, such as a flat benefit formula (x dollars
per month of service), career average earnings formula (a percentage of earn-
ings over the employee’s entire career), or highest average earnings formula (a
percentage of earnings during the employee’s peak income years). Finally, pen-
sion plans generally operate either through insurance companies, as insured
plans or via a vehicle such as a deposit administration contract, or through trust
companies as trusteed plans. 7

II. Accrual of Pension Fund Surpluses

It is readily apparent that the actuary’s task in calculating the contributions
required to fund a defined benefit plan is a difficult one. The variables are
numerous, the possibilities endless. Consider the hypothetical case of an
employee aged thirty-five who is being promised a pension based on a career
average benefit formula: the actuary must estimate, among other things, whether
that employee will work for thirty more years or retire early, how fast her salary
will increase in the interim, and how interest rates will behave and various
investments will perform over a period of several decades. The uncertainty only
increases when the pension plan in question covers hundreds or even thousands
of employees, each with his or her own level of seniority and salary.

Not unnaturally, actuaries have generally preferred to err on the side of
caution. They would much prefer that the pension fund’s actual performance
show an “experience gain” (i.e., a better than anticipated return) than an “expe-
rience deficiency” (i.e., a poorer than anticipated return), as the latter can lead
to an unfunded actuarial liability which must be made up by increasing the
employer’s contributions in ensuing years. At one time, the fear was that
unfunded liabilities would overwhelm the pension system,” but beginning in the
early 1980s actuaries’ conservative assumptions and a unique confluence of
economic factors combined to push many pension funds into massive surplus
instead.

Primary among those factors were the high interest rates that accompanied
the adoption of monetarism by the U.S. Federal Reserve in 1979, the 1982-1987
stock market boom, and the recession of 1981-1982. The first two factors

issue takes on a different colouration. To date, no defined contribution surplus has been the subject
of litigation. For a description of an Australian scheme for the appropriation of defined contribu-
tion plan surpluses, see M.L. Dickson, “Pension Surplus” in T.G. Youdan, ed., Equity, Fiduciaries
and Trusts (Toronto: Carswell, 1989) 131 at 132-33.

17Trusteed plans can also operate with individual or pension fund society trustees. For statistics
on the relative popularity of the different funding and trust arrangements, see Statistics Canada,
Pension Plans in Canada 1988 (Ottawa: Minister of Supply and Services, 1990) at 23.

‘8See N.P. Stein, “Raiders of the Corporate Pension Plan: The Reversion of Excess Plan Assets

to the Employer” (1986) 5 Am. J. Tax Policy 117 at 125.

McGILL LAW JOURNAL

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allowed pension fund managers to earn a much higher rate of return than had
been forecast by plan actuaries. The last mentioned factor, meanwhile, resulted
in a series of widespread lay-offs, in many cases affecting employees who had
not yet attained enough seniority for their pension rights to vest, i.e., for the
employer’s contribution with respect to those employees to be committed irrev-
ocably to their pensions. When they lost their jobs, they also forfeited their
future pension rights, but the employer’s contributions remained in the pension
fund and either reduced the unfunded liability vis-t-vis the remaining employ-
ees or became surplus assets.

Since 1987, a new confluence of economic factors appears to have caused
most pension fund surpluses to level off, diminish, or even disappear. In addi-
tion, in late 1988 the Quebec government responded to a perceived abuse by
some corporations of their access to surpluses by inserting into the QSPPA pro-
visions imposing a temporary moratorium on the removal by employers of sur-
plus assets from their employee pension funds in all but the most extraordinary
of circumstances.” As a result, the surplus entitlement issue has lost some of its
immediacy for certain employers. Nonetheless, the question of surplus entitle-
ment remains critical for the parties to plans terminated before the imposition
of the moratorium, whose rights are now being determined in a number of cases
working their way through the courts, for the parties to plans terminated during
the moratorium, whose rights are temporarily in suspense, and for all persons
concerned with the determination of the rules which are to govern access to pen-
sion surpluses following the eventual lifting of the moratorium.

m. Early Jurisprudence

The first pension surplus cases heard by the courts in Quebec date back to
the early 1980s. These cases generally turned on considerations peculiar to their
particular fact situations and peripheral to the basic question of entitlement.

19F.A. Livsey & D.A. Short, “The Development of Funding Surpluses in Canadian Pension
Plans” in Ontario, Task Force on Inflation Protection for Employment Pension Plans: Research
Studies, vol. 2 (Toronto: Queen’s Printer, 1988) at 105-06 [hereinafter Task Force]; C. Crossen,
“Who Gets Pension Surpluses? Legislators Try to Settle Firms’ Disputes with Retirees” The Wall
Street Journal (17 December 1987) 31; Statistics Canada, Trusteed Pension Funds: Financial Sta-
tistics (Ottawa: Minister of Supply and Services, 1991).
20By S.Q. 1988, c. 79, QSPPA s. 43 was replaced and s. 43.1 was added so as to prohibit the
distribution of surplus assets from a pension plan to the sponsoring employer except where, with-
out the investment of such assets in the employer’s enterprise, the government determines that “the
survival of the enterprise would be endangered and the employments of the members would be
threatened.” For a sense of the perceived crisis which preceded the enactment of this moratorium,
see R. C6t6, “Le scandale des ‘fonds de pension’: des milliers de salaries crient au vol” La Presse
(24 October 1988) 1; D. Lessard, “Qu6bee g~le l’exc6dent des regimes de retraite” La Presse (I 1
November 1988) 1.

1992]

CASE COMMENTS

Nevertheless, in certain instances these decisions contained dicta which have
been judicially considered in the resolution of subsequent surplus cases, and
they therefore deserve to be canvassed briefly.

In Stelco Inc. v. Rjgie des rentes du Quibec,21 the pension plan in question
stipulated that all pension fund assets were to serve for the exclusive benefit of
the participants, whereas the funding agreement between the employer and the
trust company which had custody of the pension fund provided that surplus
assets could be returned to the employer upon plan termination. The Superior
Court held that the trust agreement formed a part of the pension plan and was
subsidiary to the plan text itself, so that the inconsistency between the two doc-
uments had to be resolved in favour of the plan text. As a result, the Court held
that the employer was not entitled to recapture the surplus assets, and this deci-
sion was upheld by the Court of Appeal.

The Stelco decision is unlikely to serve as a critical precedent except where
an employer has not been careful enough to ensure consistency among all the
relevant documents as to surplus entitlement. The decision is of interest from a
Canadian comparative law perspective, however, in that it runs directly counter
to the Ontario courts’ holding in Heilig v. Dominion Securities Pitfield Ltd’ and
Re Lear Siegler Industries Ltd and Canada Trust Co. 3 that a conflict between
a plan text provision which permits the employer access to surplus and a trust
agreement provision reserving surplus for the plan participants must be resolved
in favour of the trust agreement. It is true that the Stelco, Heilig, and Lear Sie-
gler decisions might possibly be reconciled as all standing for the proposition
that any carelessness in the drafting of plan documents must redound to the
advantage of the plan participants, who after all are rarely involved in this draft-
ing process. On a close reading of the decisions, however, one is compelled to
conclude that the opposing orderings of document priority stem from the differ-
ent roles of the trust in the civil law and the common law, such that the decisions
are ultimately not reconcilable. The effect on pension surplus entitlement of the
differing civil and common law appreciations of trusts is a point which will be
returned to in greater detail below. At this time, it is interesting merely to note
as an aside that the recent Ontario Court of Justice (General Division) decision
in Maurer v. McMaster Universit24 adopted the same relative weighting as
between the plan text and the trust agreement as did Stelco, although without
referring either to Stelco or the previous Ontario decisions.

21(15 December 1982), Quebec 200-05-003291-817, J.E. 83-144 (C.S.) aff’d (17 July 1985),

Quebec 200-09-000039-831 (C.A.) [hereinafter Stelco].

22Supra, note 7.
23(1988), 66 O.R. (2d) 342, C.E.B. & P.G.R. 8077 (H.C.J.) [hereinafter Lear Siegler cited to

O.R.].

24(1991), 4 O.R. (3d) 139 at 155.

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A second early Quebec case of note was that of J.J. Newberry Canadian
Ltd v. Rigie des rentes du Quibec.’ This case arose in the context in which sur-
plus disputes are most frequently brought before the courts, namely the original
plan text reserved all plan assets for the exclusive benefit of the participants and
the employer subsequently attempted to amend the plan so as to provide that the
surplus would revert to the employer upon plan termination. In this particular
instance, the Rigie des rentes du Quebec (the government agency charged with
regulating pension plans registered in Quebec) refused to approve the said
amendment. The Superior Court ruled against the employer, only to be over-
turned by the Court of Appeal. The decision of the Court of Appeal turned more
on the extent of the Rigie’s powers than on the merits of the proposed amend-
ment itself. The decision is therefore of greater interest from the point of view
of administrative law than pension law per se.

The remaining decisions rendered by the courts in Quebec prior to 1990 in
situations involving pension surplus were all restricted either to procedural
jurisdiction, 7 or other tangential matters.2″ As of 1990, the courts in
issues,’
Quebec had much less experience with and much less of a fixed approach to
pension surplus cases than, say, the courts in Ontario. The stage was thus set for
the first significant judicial efforts to define pension surplus entitlement in this
province.

IV. Sauvi v. Pierre Moreault Lte

The first of the two decisions which form the subject of this comment is
Sauv v. Pierre Moreault Lte,29 decided by Tessier J. in the Superior Court on
March 7, 1990. Sauvi was an action for declaratory judgment and injunction by
a group of twenty-nine former employees of the defendant company, asking that
a pension surplus of $166 636 be distributed amongst the plaintiffs. As will be
described further below, Tessier J. found in favour of the plaintiffs, though his
decision is currently under appeal.

25(14 November 1980), Montreal 500-05-016900-753, J.E. 81-8 (C.S.), rev’d [1986] R.J.Q. 1884

(C.A.).

26See, for example, Chdteauneuf v. La Compagnie Singer du Canada LtWe (23 September 1988),
Iberville (Saint-Jean-sur-Richelieu) 755-06-000001-871, J.E. 88-1298 (C.S.); Cllteauneuf v. La
Compagnie Singer du Canada Lte, [1990] R.J.Q. 216 (C.S.).
27See, for example, Montreal Trust Co. v. Reng (20 November 1989), Quebec
28See, for example, Le Rigime des rentes des employis dA Syndicat de Quebec v. Paquet-
Syndicat Inc., [1986] R.J.Q. 1695 (C.S.), which turned on a deficiency in the corporate governance
of the pension plan in question, such pension plan being constituted, exceptionally, as a
corporation.

200-05-001082-895, J.E. 90-166 (C.S.).

29Supra, note 9.

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CHRONIQUES DE JURISPRUDENCE

A. The Facts

The facts in Sauvj were essentially as follows. The pension plan in ques-
tion was established in 1973, pursuant to the terms of a collective bargaining
agreement. All Pierre Moreault Ltre employees who belonged to the union
which negotiated the collective agreement were apparently required to join the
plan. The plan was a non-contributory defined benefit plan, under which pen-
sions were computed according to a flat benefit formula. It operated at all times
through an insurance company, Crown Life. When the employer, a Molson dis-
tributor in the Hull area, lost its distribution contract with the brewery as of June
30, 1986, it laid off all twenty-nine employees, closed its doors, and undertook
the procedures necessary to terminate the pension plan. As it happens, the
employees began work the following day with the new Molson distributor in
Hull and enrolled in the new distributor’s pension plan.

On the termination of the Pierre Moreault Ltre pension plan, a surplus of
$166 636 remained in the pension fund. The actuary’s termination report recom-
mended that this surplus be returned to the employer, but the Rdgie des rentes
refused to rule on the matter until a judicial determination of the parties’ rights
was issued. The ex-employees then brought an action before the Superior Court,
which gave rise to the decision presently under examination.

B. The Decision

Tessier J. boiled the case down to four questions. First, did the amendments
made to the plan by the employer over the years require the employees’ consent,
and if so, was such consent given? Second, did the various contractual docu-
ments create a stipulation pour autrui (i.e., a stipulation for the benefit of
another, the tripartite relationship between stipulator, promissor, and third party
beneficiary described in art. 1029 of the Civil Code of Lower Canada (Civil
Code) which, once accepted by the beneficiary, becomes irrevocable), and if so,
what was its scope? Third, did the employer’s contributions to the plan consti-
tute a condition of employment? Fourth, did the employees acquire a right to the
surplus in spite of the fact that on termination the plan contained a stipulation
favouring the employer?3″

In coming to grips with these questions, the judge had recourse to a wide
range of documents. In addition to the plan text and the various amendments
thereto, he examined the successive collective bargaining agreements, the group
pension policy, the pension portfolio contract, and the pension service contract
entered into by Pierre Moreault Ltre and Crown Life, and the explanatory bro-
chure distributed by the employer to plan participants.3 As will be described in

3Ibidl at 1009.
311bid. at 1010.

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further detail below, he also analyzed closely former QSPPA regulation 3.13
(enacted in 1976,32 renumbered in 1981 as regulation 38,” and repealed for most
purposes in 1990′), which reads as follows:

Lors de la terminaison totale d’un rdgime, l’administrateur de celui-ci doit rdpartir
entre les participants, au prorata de leur crddit de rente, le solde de l’actif non uti-
lis, sauf si le r6gime stipule que tel solde retourne h l’employeur.35
[When a plan is terminated in whole, the administrator thereof shall distribute to
the members the unused assets according to their proportionate shares of the fund,
except where the Plan provides that such assets shall revert to the employer].

Tessier J. found that the collective agreement, Crown Life contracts, and
explanatory brochure did not contain any provisions helpful to the determina-
tion of surplus entitlement. Rather, he focused on certain clauses of the original
1973 plan text and amendments 10 and 11 thereto, effective in 1980 and 1982,
respectively. Specifically, he honed in on s. XIX, which set out the rules regard-
ing amendment and termination of the plan. At the outset in 1973, s. XIX read
in part as follows:

L’Employeur se rdserve le droit, sans le consentement des membres, d’amender,
de modifier ou de rdsilier le rdgime en tout temps; cependant, l’Employeur n’aura
pas le droit d’amender, de modifier ou de rdsilier le rdgime de fagon A ce que quel-
que partie de ou des fonds rdserv~e aux membres serve a des fins autres que l’in-
tdr& exclusif de ces derniers ou de leurs brn6ficiaires. A ]a cessation du rdgime,
1’Employeur n’effectuera plus aucune contribution et il verra au partage 6quitable
de la partie du ou des Fonds A laquelle les anciens membres et les membres actuels
ont droit. Les montants du ou des Fonds ainsi partagds serviront A constituer des
rentes de retraite aupr~s de l’Assureur… .36

No provision of the original 1973 plan text spoke directly to surplus entitlement.

Effective 1980, by virtue of amendment 10, the paragraph set forth below

was added to s. XIX:

Si apr;s la cration de ces prestations il reste un actif dans le ou les fonds, cet actif
sera rembours6 h l’Employeur ou employ6 conformdment A ses instructions. 37
Finally, in 1982, amendment 11 replaced the paragraph added to s. XIX

two years previously with a passage that read as follows:

Si apr~s ]a cr6ation de ces prestations il reste un actif dans le(s) fonds, cet actif est
(i) enti~rement rembours6 A ‘Employeur ou (ii) rdattribu6 entre les participants
pour crder un suppldment de rente de retraite ne d~passant pas la prestation max-
imum indiqu6e de temps
autre dans les circulaires d’information publides par le

320.C. 2312-76, G.O.Q. 1976.1.4835.
33R.R.Q. 1981, c. R-17, r. 1.
340.C. 11:58-90, s. 69, G.O.Q. 1990.I1.2318.
35Supra, note 9 at 1013.
36Ibid. at 1015.
37Ibid. at 1019.

1992]

CASE COMMENTS

Minist~re du Revenu National. Tout actif restant dans le fonds par suite du choix
de l’option (ii) est rembours6 A l’employeur.38
Faced with these texts, Tessier J. found as follows. While the plan spoke
in 1973 of the “intdrt exclusif’ (i.e., exclusive benefit) of the members and
their beneficiaries, this reference was in the context of a reference to the “fonds
rfservfs aux membres” (i.e., funds reserved for the members). Thus, by impli-
cation it was only that part of the fund necessary to pay the promised defined
benefits, and not the surplus, to which the plan members were entitled. The evi-
dence did not permit one to conclude that the parties to the plan considered
either the employer’s contributions or the members’ pension credits as deferred
compensation.39 On the grounds that a group annuity policy constitutes a stip-
ulation pour autrui,4 Tessier J. assumed without further ado that the plan in
question represented such a stipulation, but he held that at its inception in 1973
s. XIX did not create a stipulation for the benefit of the plan members in respect
of any actuarial surplus.4′

With the enactment of regulation 3.13 in 1976, however, he appeared to
consider that the situation had changed. He wrote as follows regarding the effect
of this regulatory enactment:

[e]n 1976, lors de r’adoption de l’article 3.13, le r6gime ne stipulait pas, i.e., 6non-
gait clairement et expressdment, que le solde de l’actif non utilis~e retourne
l’employeur. Telle stipulation n’a 6t6 formulae qu’en 1982…. A compter de ‘en-
trde en vigueur de cette disposition r6glementaire en 1976, les salari6s peuvent rai-
sonnablement invoquer un droit au surplus, puisque de faqon r6siduaire le r6gime
d6faut de stipulation valable contraire favorisant
leur profite exclusivement,
‘remployeur quant A la disposition du surplus d’actif.4 2

In support of his interpretation of the verb “stipuler” as signifying a clear and
express enunciation, he cited the general (i.e., non-legal) dictionary definition
set out below:

4 3

“stipuler” signifie: “6noncer comme conditions dans un contrat, un acte” ou “faire
savoir expressdment”. “Enoncer” signifie: “exprimer en termes nets, sous une
forme arritfe (ce qu’on a dire)”. Stipuler, c’est done exprimer en termes nets et
explicites.
Tessier J. then turned to the effect of amendment 10. In his view, the state-
ment therein that any surplus would be “rembours6 A l’Employeur ou employ6
conformfment A ses instructions” gave the employee a right of first refusal to

38Ibid. at 1020.
391bid. at 1018.
40Ibid., citing Toussaint v. Cie d’assurance-vie Crown Life (21 January 1983), Montreal
411bid.
421bid. at 1017.
43P. Robert, Dictionnaire alphabitique et analogique de la langue franaise (Paris: Soci&t6 du

500-09-001108-794, J.E. 83-164 (C.A.).

Nouveau Littr6, 1988), cited ibid. at 1015 n. 17.

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[Vol. 37

the surplus, for in the event both employer and employee requested the refund,
the “exclusive benefit” language in s. XIX required that the employee’s request
prevail.” He therefore held:

Depuis a tout le moins le 31 juillet 1980, sinon depuis l’adoption de la disposition
r6glementaire en 1976, une stipulation pour autrui existe en faveur du salari6,
laquelle est devenue aussit6t irr6vocable, quant aux sommes non requises pour
l’acquittement des cr6dits de rente en cas de terminaison du rgime. Cette stipu-
lation vaut 4 l’6gard de la totalit6 des fonds. Ce droit au surplus constitue une con-
dition de travail int6gr6e
la convention collective sign~e le 2 juillet 1980 et en
vigueur du Ier janvier 1980 au 31 d6cembre 1982. Les salari6s n’ont pas par ]a
suite consenti 1 ’61imination de ce droit acquis. 5

In other words, a stipulation pour autrui in favour of the members in respect of
the surplus was created at least from the effective date of amendment 10 in
1980, if not from the adoption of regulation 3.13 in 1976, and formed a condi-
tion of their employment.

Finally, Tessier J. examined the text of s. X[X as revised in 1982 pursuant
to amendment 11, which for the first time expressly reserved at least a portion
of any surplus (i.e., that portion exceeding the assets necessary to pay the max-
imum pension benefits permitted by the Department of National Revenue) for
the employer. He determined that the plan members had not consented to this
amendment,’ and accordingly held that Pierre Moreault Lt6e could not deprive
them of their acquired right to the surplus by invoking its power of unilateral
plan amendment.47

In consequence, Tessier J. responded as follows to the four questions he
had posed at the beginning of his judgment. First, the plan amendments required
the employees’ consent, and such consent was not given, at least in the critical
case of amendment 11. Second, the entire arrangement constituted a stipulation
pour autrui, whose scope included the surplus assets as from either 1976 or
1980. Third, an entitlement to the surplus generated by the employer’s contri-
butions constituted a condition of employment. Fourth, the employees were
entitled to the surplus even though the plan as it read at termination stated other-
wise. His decision to allocate the $166 636 surplus amongst the twenty-nine
plaintiffs pro rata to their pension credits flowed naturally from the responses
he formulated to the four questions at issue.

C. Analysis

It is a truism to assert that every judicial decision turns on its own facts,
and the courts in most pension surplus cases have hastened to affirm that their
opinion might change in the presence of a different plan text, trust agreement,

“Ibid. at 1019.
45Ibid. at 1019-20.
461bid. at 1020.
47Ibid. at 1021.

1992]

CHRONIQUES DE JURISPRUDENCE

or other circumstances.4″ Nonetheless, Sauvd contains a number of elements
which transcend the particular facts of the Pierre Moreault Ltre pension plan
and will be germane to many other pension surplus disputes.

First, Tessier J. was prepared to determine entitlement to surplus assets on
the basis of an interpretation not only of the official plan text, but also of other
documents including the explanatory brochure distributed to employees. Such
brochures have been subjected to judicial examination before,49 but Sauv6 is the
first reported pension surplus case in Quebec where they were enumerated as
potentially relevant documents. The message should not be lost on plan spon-
sors: any statement contained in an employee brochure or summary which is of
even tangential relevance to surplus entitlement (e.g., a description of the use
to which employer contributions to the plan will be put) could be determinative.
Plan sponsors ought therefore to ensure that the texts of such brochures are con-
sistent with the official plan texts. Any inconsistency could well be resolved in
favour of the plan participants.

Second, Tessier J. found as a fact that neither the company contributions
nor the pension credits constituted deferred compensation in the eyes of the par-
ties to the plan. While this finding had no bearing on his decision in the case,
it exemplifies the courts’ reluctance to treat pensions as deferred compensation.
Since the ultimate argument invoked by proponents of reserving actuarial sur-
plus for plan members is that employer contributions do in fact represent a form
of employee remuneration, this judicial statement should undercut much of the
philosophical basis for employee entitlement to surplus. Rather, such entitle-
ment should be founded only on narrower considerations peculiar to the circum-
stances of each case, if at all.

A third important element of the decision is the characterization of the
Pierre Moreault Ltre pension plan as a stipulation pour autrui. Given that the
common law trusts analysis adopted by the Ontario Court of Appeal in Reevie5″
is clearly inapplicable in Quebec civil law, jurists have debated the legal nature
of a pension plan in this province.” Sauvj has weighed into this debate by
describing a pension plan operated through an insurance company as a stipula-
tion pour autrui. If this characterization is correct, then the rules governing
every stipulation pour autrui, set out at article 1029 et seq. of the Civil Code,
would apply to insurance company-operated pension plans as well. Most nota-

Supreme Court in Hockin, supra, note 1 at 224.

48See, for example, the Ontario Court of Appeal in Reevie, supra, note 5 at 596 and the B.C.
49See, for example, Otis, supra, note 8.
50Supra, note 5.
51See, for example, R. Cr&e, “Les rgimes complrmentaires de retraite au Quebec: une institu-
tion h dcouvrir en droit civil” (1989) 49 R. du B. 177 at 187-200; J. Laurent, “Droit des partic-
ipants aux surplus des caisses de retraite” (1990) 50 R. du B. 959 at 968-86. See also infra, note
82 and accompanying text.

McGILL LAW JOURNAL

[Vol. 37

bly, the rule that a stipulation becomes irrevocable upon acceptance (whether
express or tacit) by the third party beneficiary could operate so as to render
irrevocable any provision in such a plan attributing surplus to the participants,
even where the plan sponsor reserved a power of amendment.

This neat juridical characterization has a certain initial appeal, fitting as it
does many pension plans into one of the Civil Code’s nominate categories of
legal arrangements. Unfortunately, Tessier J. appears to have confused insured
pension plans with pension plans operated through insurance companies. He
describes the Pierre Moreault Lt6e pension plan as an insured plan,52 but ordi-
narily any surplus in an insured pension plan would be for the benefit of the
insurer, not the employer or participants as in this case. Most probably, the pen-
sion plan at issue was actually a non-insured plan which just happened to oper-
ate through an insurance company, whether through a deposit administration
contract, segregated fund, or otherwise; the Sauv9 decision, however, does not
specify. Assuming the latter to be the case, though, the participants’ pensions
would in the normal course have been paid from the Pierre Moreault Lt6e pen-
sion fund held by Crown Life, not from Crown Life’s general funds. It would
not then make sense to speak of a tripartite stipulator-promissor-beneficiary
relationship as exists in a true insurance arrangement, which is the classic sti-
pulation pour autrui.

A fourth important element, and one that could be critical in the case of
many pension plans that were established prior to 1976, is the discussion in
Sauvj as to the effect of former regulation 3.13. If Tessier J. is right, then no
employer who sponsored a plan in 1976 could ever recover the plan surplus
unless the plan stated clearly and explicitly at that time that upon termination
the surplus reverted to the employer. Because many plans in existence in 1976
had been established in an earlier period when the Department of National Rev-
enue would not register pension plans for tax purposes unless they provided that
all employer contributions were irrevocable, 3 then in the absence of a pre-1976
amendment such plans would not have contained a surplus reversion provision
of the type envisaged in regulation 3.13 at the time such regulation was enacted.

With respect, it is submitted that the learned judge’s application of former
regulation 3.13 is erroneous on two counts. First, his equating of the French
verb “stipuler” with a clear and express statement would seem an excessively
narrow understanding of the meaning of that term. That the expression “stipu-
ler” does not necessarily connote an express statement is indicated by the
judge’s own words, in the passage of his decision where he states that s. XIX
“ne stipule pas explicitement” that surplus is to be returned to the employee.’

5 2Supra, note 9 at 1013.
5 3Dickson, supra, note 16 at 135.
54Supra, note 9 at 1017 (emphasis added).

19921

CASE COMMENTS

Presumably he would not have felt the need to modify “stipule” by “explicite-
ment” if “stipule” itself connoted an explicit statement. His suggestion that any
pension plan which attributed surplus to the employer only implicitly rather
than explicitly would thereby fail to meet the test set out in former regulation
3.13, then, is open to some doubt.

Even if the interpretation he gives to the verb “stipuler” is correct, how-
ever, a more fundamental objection to his application of former regulation 3.13
can be made. Specifically, that regulation merely stated that for an employer to
recover surplus, the plan had to provide for such recovery. Nowhere in the text
of former regulation 3.13 was it indicated that such a provision was necessary
at the time of the regulation’s enactment in 1976 or that, failing such provision
at that time, the plan could not be amended. Indeed, in the absence of such a
statement in the regulation, it would seem more reasonable to search for the
required provision at the point in the plan’s history of greatest relevance for sur-
plus recapture purposes, i.e., plan termination, not the entirely arbitrary date of
1976.

This interpretation of regulation 3.13’s effect is supported by the decision
of the Ontario High Court of Justice in Re King Seagrave Ltd. and Canada Per-
manent Trust Co.55 In this case, the equivalent Ontario regulation, former
Ontario Pension Benefits Act regulation 14(4)(c), was at issue. Former regula-
tion 14(4)(c) read as follows:

Notwithstanding the terms of the plan, where a pension plan is terminated or
wound up, no part of the assets of the plan shall revert to the benefit of the
employer unless, …

(c) where proceedings for termination or winding up of the plan are com-
menced on or after the 1st day of January, 1982, the pension plan provides for
such reversion to the employer.56

In its judgment, the High Court stated that King Seagrave Ltd. could have
amended its plan at any time prior to termination to insert the necessary provi-
sion, which amendment would have sufficed to satisfy the requirement set forth
in former regulation 14(4)(c).57 The judge did not at any point suggest that the
employer was enjoined from making such an amendment as from the enactment
of former regulation 14(4)(c). Sauvi, however, does not refer to King Seagrave.

It is not entirely clear whether the interpretation given to former regulation
3.13 forms part of the ratio decidendi of Sauvi. At certain points in his opinion,
Tessier J. implies that the plan members’ entitlement to the surplus arose in
1976;”s elsewhere, he seems to indicate that it stemmed only from the adoption

55(1985), 51 O.R. (2d) 667 [hereinafter King Seagrave].
56R.R.O. 1980, Reg. 746.
57Supra, note 55 at 675.
58See text accompanying note 42.

REVUE DE DROIT DE McGILL

[Vol. 37

of amendment 10 effective 1980.”9 On the basis of the doubts as to the correct-
ness of his interpretation raised in the preceding paragraphs, it would probably
be preferable to opt for the latter and treat his remarks on former regulation 3.13
strictly as obiter dicta.

This leads to the fifth and final element of the Sauvg decision worthy of
closer analysis, namely the discussion of amendment 10’s impact. As noted
above, Tessier J. interpreted the phrase “cet actif sera rembours6
l’Employeur
ou employ6 conform6ment A ses instructions” as giving the employee a right of
first refusal to the surplus. This interpretation would require the word
“employ6” to be translated as “employee”, which makes no sense, for it is
impossible for any amount in a non-contributory plan to be “remboursd” (i.e.,
refunded) to a participant who never contributed anything in the first place. A
more plausible translation of “employ6” would be “employed”, such that the
phrase as a whole should be interpreted as providing that the surplus could be
refunded to the Employer or employed as the Employer instructed. It is there-
fore arguable that amendment 10 should not entitle the participants to the sur-
plus. At most, this provision could be invoked in support of the proposition that
any ambiguity, carelessness or inconsistency in the drafting of pension plan doc-
umentation should be resolved in favour of the participants, although as pointed
out earlier the cases which seem prima facie to stand for that proposition are
actually better understood in a different perspective.’

In summary, Sauvg is noteworthy for its emphasis on the contents of the
employee brochure and its rejection of the deferred compensation argument in
support of employee entitlement to surplus. It is submitted, with respect, that the
decision goes astray in its application of the rules governing stipulation pour
autrui to what appears to have been an uninsured pension plan and in its inter-
pretation of former QSPPA regulation 3.13. Unless the not entirely logical word-
ing of amendment 10 can be held to have disqualified the employer from enti-
tlement to surplus on the grounds of carelessness or inconsistency, then, it is
arguable that the case was wrongly decided.

V. A. Janin & Compagnie Lte v. Allard

The second of the two decisions which form the subject of this comment
is A. Janin & Compagnie Lte v. Allard,6 decided by Trudeau J. in the Superior
Court on May 15, 1991. Janin was a motion by the employer and its trustee in
bankruptcy for a declaratory judgment to the effect that the employer was enti-

59See text accompanying note 45.
6See text accompanying notes 21-24.
61Supra, note 10. This decision should not be confused with that regarding a preliminary pro-
cedural skirmish between the same parties, reported with the same style of cause at [1990] R.J.Q.
1056 (C.S.).

19921

CHRONIQUES DE JURISPRUDENCE

tled to a pension surplus of $10 465 000. This motion was contested by 174
former employees of the company who belonged to the pension plan in ques-
tion. As will be described further below, Trudeau J. found in favour of the
employer, but his decision has been appealed.

A. The Facts

The facts in Janin can be summarized as follows. A. Janin & Compagnie
Lt~e unilaterally established a defined contribution plan in 1958. Under the
plan, employer and employee each contributed to the plan an amount equal to
5% of the employee’s salary. Employee contributions were deposited into a
group annuity contract with an insurance company, North American Life, while
the employer’s contributions were placed in a trust fund held by a trust com-
pany, Royal Trust.

In 1971, the plan was substantially revised. Most significantly, the plan
was converted from a defined contribution plan to a defined benefit plan. The
employee contribution was maintained at 5% of salary, while the employer’s
contribution henceforth varied in accordance with the plan’s needs for funding
of a highest average earnings benefit. As from 1971, employee and employer
contributions were both directed to insurance companies, Sun Life and Desjar-
dins Life, respectively.

Throughout the 1970s, the pension fund stood in deficit, only to move into
a surplus position in the early 1980s. Upon plan termination in August 1988, the
surplus stood at $10 465 000. The company cited its parlous financial situation
to apply in 1989 to the government for a refund of some $9 million of the sur-
plus, invoking an exception to the 1988 moratorium on surplus removals for
sums necessary to save the jobs of plan members.62 The government withheld
a decision on the application pending a judicial determination of the company’s
entitlement to the surplus; hence the motion which led to the decision here
under review.

B. The Decision

Trudeau J. identified four questions requiring resolution in order to come
to a decision. First, was the 1971 plan a continuation of the 1958 plan or a sep-
arate and distinct plan? For reasons which are not of great general interest, he
found that the 1971 plan was a continuation of the 1958 plan.63 Second, was the
insertion into the plan text in 1971 of language providing that surplus could be
returned to the employer legal? Third, did the employer fulfil its obligation to
the employees to inform them of the plan’s contents and the amendments

62See text accompanying note 20.
63Supra, note 10 at 1742-44.

McGILL LAW JOURNAL

(Vol. 37

thereto? Finally, was the survival of the enterprise a relevant criterion for the
Court to consider in arriving at its decision?’

In the judge’s eyes, the key question was the second one.65 Accordingly, he
dissected the pertinent provisions of the 1958 and 1971 plans. The pertinent pro-
vision of the 1958 plan was clause 29, set out in part below:

The Company expects to continue the Plan indefinitely, but necessarily must and
does reserve the right to modify or discontinue the Plan, should future conditions
in the judgment of the Company warrant such action. However, all contributions
made by the Company are irrevocable and together with all contributions made by
the Members, may only be used exclusively for the benefit of Members, retired
Members, their beneficiaries and estates, and Joint Annuitants. No change or mod-
ification will affect any right which a Member may have had with respect to the
terms of payment of the amount of pension provided by contributions made by the
Member and the company on his behalf prior to the effective date of such change
or modification.66

The pertinent provision from the 1971 plan was art. XV-2(a), which read as
follows:

Si le rdgime est interrompu par la compagnie, toutes les sommes gardfes en fidu-
cie seront affectfes, apr~s avoir pourvu aux frais du r6gime, a des cat6gories, dans
un ordre de priorit6. Ces catdgories seront dfterminfes par la compagnie, avec
l’aide de ‘actuaire, en considrant une distribution 6quitable des sommes dispon-
ibles et aussi les exigences de la Loi sur les regimes supplfmentaires de rentes.
Apr~s avoir rempli tous les engagements vis-a-vis toutes les prestations du regime,
les sommes qui restent seront remboursfes A la compagnie. 67
In the course of his analysis, Trudeau J. engaged in an exhaustive discus-
sion of numerous precedents both from the courts in Quebec and from the courts
in the common law provinces. With regard to the Quebec cases, he distin-
guished each as a cas d’espkce which could not aid in the interpretation of the
A. Janin & Compagnie Ltfe pension plan. In particular, he dismissed Sauve on
the grounds that the pension plan there in question was installed bilaterally by
the employer and union, but the critical plan amendment was enacted unilater-
ally by the employer without being submitted to the participants.”

Insofar as the common law cases were concerned, he considered that the
decisions cited by the employees would not have been decided as they were but
for the principles of trust law. 9 He maintained that this position applied even in
respect of Reevie, the leading Ontario pension surplus case and one where the
plan’s power of amendment clause was all but identical to that in clause 29 of

64Ibid. at 1741.
651bicL at 1744.
66Cited ibid.
67Cited ibid. at 1740.
681bid. at 1760.
691bid. at 1759.

1992]

CASE COMMENTS

A. Jdnin & Compagnie Ltde’s 1958 plan. Specifically, the relevant clause in the
Canada Dry pension plan considered in Reevie read in part as follows:

However, all Contributions made by the Company are irrevocable and, together
with all Contributions made by Members, may only be used exclusively for the
benefit of Members, retired Members, Eligible Spouses, Contingent Annuitants or
their Beneficiaries, and no change or modification will affect any rights which a
Member may then have with respect to the terms of payment of, or the annual
amount of, pension which the Contributions made by the Member and/or the Com-
pany prior to the effective date of such change or modification will provide. 70

On the basis of the Supreme Court of Canada’s decision in Crown Trust Co. v.
Higher,7 he held the principles of common law trusts to be inapplicable in Que-
bec law,72 intimating that Reevie could in any case be distinguished on the
grounds that the Canada Dry plan was terminated immediately after the surplus
reversion amendment, while A. Janin & Compagnie Ltde maintained its plan for
seventeen years following the crucial 1971 amendment. 73

In the result, Trudeau I. highlighted the fact that the 1958 plan was a
defined contribution plan and focused on the closing words of clause 29 to the
effect that no amendment could “affect any right … with respect to the terms of
payment of the amount of pension provided by contributions made … prior to
the effective date” of the amendment. He held that art. XV-2(a) of the 1971 plan
did not violate this restriction and was therefore legal. He summarized his rea-
soning in the following passage, which represents the critical portion of his
judgment:

En l’espkce, le Tribunal est d’avis que rien dans la 16gislation, la doctrine ou la
jurisprudence ne permet d’inf6rer qu’un employeur qui a unilatrralement instaur6
un r6gime de retraite pour le bfnrfice de ses employ6s, ne puisse, m~me unilat6-
ralement, l’amender, s’il s’est r6serv6 ce droit,
la condition toutefois qu’il n’en-
lve aux participants aucun des avantages qu’ils ont acquis avant cet amendement.
C’est par ailleurs le postulat qui se d~gage de lajurisprudence qu6brcoise et meme
canadienne, sauf qu’au niveau d’une certaine jurisprudence canadienne on ait fait
jouer A l’encontre de cette proposition les imp~ratifs du trust law, qui ne sont aucu-
nement applicables en droit qurbfcois. Le Tribunal decide en consequence que,
dans le contexte d’un seul regime fondamentalement modifi6 en 1971, Janin pou-
vait 16galement par amendement pr6voir le retour en sa faveur du surplus d’actif.74

Thus, in the absence of trust law considerations, he laid down the principle that
an employer which unilaterally establishes a pension plan may unilaterally
amend such plan if it has reserved a power of amendment and as long as it does
not thereby deprive the participants of any acquired rights.

7Cited supra, note 5 at 597.
71[1977] 1 S.C.R. 418, 69 D.L.R. (3d) 404.
72Supra, note 10 at 1758-59.
731bid. at 1759.
741bid. at 1760-61.

REVUE DE DROIT DE McGILL

[Vol. 37

Once he had resolved this second question in the employer’s favour, Tru-
deau J. dealt briefly with the two remaining questions. With regard to the ques-
tion of the employer’s obligation to inform participants of the plan contents and
amendments, the participants complained that a statement contained in a 1987
explanatory brochure to the effect that all company contributions to the plan
were for their exclusive benefit was false, given the provisions of article
XV-2(a). Trudeau J. found that the extent of the employer’s power of amend-
ment under the 1958 plan and its right to recover surplus under the 1971 plan
had been duly communicated to the members, and that the official plan text was
at all times available for their inspection. Consequently, he held that the com-
pany had properly fulfilled its obligation.75 In regard to the fourth question,
regarding the relevance of the enterprise’s survival as a criterion for the Court’s
consideration, he stated flatly that it was not relevant.76

The four questions he had put thus answered, Trudeau J. declared the
employer to be entitled to the plan surplus, subject to the rights of the trustee
in bankruptcy. He referred the parties back to the Rigie des rentes to determine
the precise amount of the surplus and the modalities of the refund process.

C. Analysis

As in Sauvi, Janin contains several elements which transcend the particu-
lar facts of the pension plan there in issue. The discussion which follows will
examine these elements and, where appropriate, contrast them with Sauvd.

The first noteworthy element in Janin is Trudeau J.’s dismissal of the par-
ticipants’ argument that the reference in the explanatory brochure to the com-
pany’s contributions as being for their exclusive benefit should estop the com-
pany from recovering the surplus generated by those contributions. Ordinarily,
such brochures contain a cautionary note to the effect that in case of conflict
between the brochure and the official plan text, the official text governs. Assum-
ing the brochure distributed in this case contained such a cautionary note, Tru-
deau J.’s decision in this regard would appear to be correct; however, he does
not indicate whether the brochure did in fact include a caveat of that sort. In any
event, his ruling would seem to militate against an interpretation of earlier deci-
sions such as Stelco, Heilig, and Lear Siegler as requiring absolute consistency
in all plan or plan-related documents in order for the employer to be entitled to
surplus, especially as he cited all of those decisions at one point or another in
his ruling. Nevertheless, prudence would still seem to dictate that plan sponsors
avoid making any assertions in explanatory brochures that could be construed
as conferring on members any rights in addition to those granted under the plan
itself.

75Ibid. at 1762.
761bid at 1763.

1992]

CHRONIQUES DE JURISPRUDENCE

Second, it is noteworthy that references to a pension plan as a stipulation
pour autrui are conspicuously absent from Janin. This is so despite the fact that
employee contributions between 1958 and 1971 were made under a group annu-
ity contract with North American Life and from 1971 employee and employer
contributions were deposited under unspecified arrangements with Sun Life and
Desjardins Life, respectively. For the reasons described above77 it is submitted
that Trudeau J. was wise to avoid the temptation to characterize this insurance
company-funded pension plan as a stipulation pour autrui. Given that Janin
postdates Sauvi, and subject to the emergence of further details as to the precise
modalities of both plans’ operation, it can be tentatively concluded that at this
time the courts in Quebec do not consider any pension plan but a true insured
plan as a stipulation pour autrui.

A third noteworthy element, and one which is especially interesting from
a Canadian comparative law point of view, is Trudeau J.’s evaluation of the role
of trust law in the common law precedents which he cited.7″ Specifically, he
considered that the two main cases relied on by the participants, Re National
Trust Co. and Sulpetro Ltd79 and Reevie, would not have been decided against
the plan sponsors by the Alberta and Ontario Courts of Appeal, respectively, but
for the appellate judges’ feeling constrained to apply basic principles of trust
law.” Although some might consider that statement by a court in a non-common
law jurisdiction to border on presumptuousness, nevertheless it does lend judi-
cial support to those commentators who have criticized the judiciary’s rote
application of trust law to defined benefit pension plans which ought instead to
be understood in a contractual context.”‘

While he does not say so explicitly, Trudeau J. does indeed treat the non-
negotiated defined benefit pension plan as a sort of sui generis contract, the
terms of which are unilaterally established by the employer. It is submitted that
this characterization most accurately reflects the reality of the defined benefit
pension plan under either the civil law or the common law, and is preferable to
characterization as either a stipulation pour autrui or a classic trust.” A uniform

77Supra, notes 50-52 and accompanying text.
78The judge divided the precedents he cited into two categories. The cases decided by Quebec
courts he labelled “Jurisprudence qurb~coise” (supra, note 10 at 1745); the cases decided by courts
in the other provinces and, in one instance, an American court (In re C.D. Moyer Co. Trust Fund,
441 F. Supp. 1128 (1977)) he labelled “Jurisprudence canadienne” (supra, note 10 at 1747). It
would have been preferable had he selected a more legally and politically accurate label, such as
“Common law jurisprudence,” for the second category.

79Supra, note 4.
80Supra, note 10 at 1759.
8tSee, for example, D. Waters, “The Use of Surpluses in Pension Plans Operating in Ontario”
in Task Force, supra, note 19; and R.E. Scane, “Legal Position in Ontario on Withdrawals of Sur-
pluses” in Task Force, supra, note 19.

82Note that QSPPA, s. 6 characterizes a pension plan as a contract and the pensionffund of every
uninsured plan as a “trust patrimony.” The expression “trust patrimony” imports a certain fiduciary
quality to the pension arrangement, a quality that will be strengthened upon the enactment in the

McGILL LAW JOURNAL

[Vol. 37

characterization of the defined benefit plan under both the civil and common
laws is especially desirable in light of the fact that pension benefits legislation
is nearly uniform across the country, with many pension plans registered in
Quebec and funded pursuant to Quebec’s rules having members in other prov-
inces and vice versa. For the moment, though, we are left in the curious position
where the same power of amendment clause has been interpreted as allowing an
employer to give itself access to surplus in Quebec (Janin) but not in Ontario
(Reevie).

This point ties in with the final element of the Janin decision worthy of fur-
ther analysis, namely the principle laid down therein that an employer which
unilaterally establishes a pension plan may unilaterally amend such a plan if it
has reserved a power of amendment and as long as it does not thereby deprive
the participants of any acquired rights. This principle, which represents the ratio
decidendi of the case, is eminently sensible from the point of view of most plan
sponsors. It must be noted, however, that the case could have been decided in
favour of the employer on much narrower grounds, i.e., that the 1958 plan being
a defined contribution plan the terms thereof should not bind the plan sponsor
in respect of actuarial surplus which could not even have arisen until the 1971
transmogrification into a defined benefit plan. While Trudeau J. did note the
conversion in plan type, his reference to the conversion in the critical passage
of his decision cited above 3 (“Le Tribunal decide […] dans le contexte d’un seul
regime fondamentalement modifi6 en 1971”) is too ambiguous to allow a guess
as to whether he would have decided the case the same way had the plan pro-
vided defined benefits as from inception in 1958. If his decision is upheld, it
will be interesting to see whether the Court of Appeal chooses the narrower
ground of the defined contribution-defined benefit conversion or acts boldly to
affirm the validity of the broad principle laid down by the Superior Court.

In summary, Janin is noteworthy for its refusal to permit a vague statement
on employer contributions in an employee brochure to override the provisions
of the official plan text on surplus attribution. It is significant for its implicit
rejection of the theory that an insurance company-operated pension plan consti-
tutes a stipulation pour autrui and its implicit characterization of the non-
negotiated defined benefit plan as a sui generis unilateral contract, a character-
ization which has important implications in both the civil law and common law
systems in Canada. It remains to be seen whether this decision will be read

forthcoming Civil Code revision (Bill 125, Civil Code of Quebec, 1st Sess., 34th Leg. Qu6., 1990)
of art. 1266, which describes the pension trust as a form of onerous private trust. Nonetheless, the
fundamental characterization of a pension plan as a contract in QSPPA s. 6 will remain. It is also
noteworthy that s. 6 refers to the pension fund as being appropriated “mainly” for the payment of
pensions to plan members and their beneficiaries, the implication being that the plan sponsor is (at
least potentially) a subsidiary beneficiary of such trust fund.

S3Supra, note 74.

1992]

CASE COMMENTS

down or instead continue to stand for the broad proposition laid down by the
Superior Court that an employer which unilaterally establishes a pension plan
may unilaterally amend such plan if it has reserved a power of amendment and
as long as it does not thereby deprive the participants of any acquired rights.

Conclusion

Can Sauvi and Janin be reconciled? They can certainly be distinguished,
on the basis that Sauvi involved a negotiated pension plan and Janin one estab-
lished unilaterally, that the Pierre Moreault Ltre plan was a defined benefit plan
from its inception while the A. Janin & Compagnie Ltre plan was converted
from a defined contribution to a defined benefit plan, or on any one of a number
of other narrow grounds. In this sense, they are indeed reconcilable.

On a more fundamental level, though, they seem to reflect differing judi-
cial appreciations of an arrangement that is just now beginning to be understood
by judges and jurists in Quebec, the defined benefit pension plan. In this obser-
ver’s view, Janin seems to evince a greater sensitivity to the nature of such a
plan and the roles and expectations of the parties thereto than does Sauv6. It is
to be hoped that both of these decisions will accelerate that understanding proc-
ess, especially in regard to the determination of pension surplus entitlement.’
For a better understanding is essential to the success of the forthcoming effort
to replace the current surplus removal moratorium in Quebec with a set of per-
manent rules governing entitlement, as well as to the resolution of all future dis-
putes regarding surplus entitlement both in Quebec and the rest of Canada.

84As this comment was going to press, yet another pension surplus decision was rendered in the
Superior Court, Syndicat national des salarfis des Outils Simonds v. Eljer Manufacturing Canada
Inc. (12 December 1991), Bedford (Granby) 460-05-000183-884, J.E. 92-170 (C.S.). In a long and
rambling opinion, Frdchette J. held in favour of the plan participants. It is noteworthy that this case
was pleaded after the publication of Sauvi but prior to the release of Trudeau L’s ruling in Janin.