Sun Indalex Finance, LLC Appellant v. United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney,, 2013 SCC 6

SUPREME COURT OF CANADA Citation: Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271 Date: 20130201 Docket: 34308 Between: Sun Indalex Finance, LLC Appellant and United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville Respondents And Between: George L. Miller, the

Chapter 7 Trustee of the Bankruptcy Estates of the U.S. Indalex Debtors Appellant and United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville Respondents And Between: FTI Consulting Canada ULC, in its capacity as court-appointed monitor of Indalex Limited, on behalf of Indalex Limited Appellant and United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W.

Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville Respondents And Between: United Steelworkers Appellant and Morneau Shepell Ltd. (formerly known as Morneau Sobeco Limited Partnership) and Superintendent of Financial Services Respondents - and - Superintendent of Financial Services, Insolvency Institute of Canada, Canadian Labour Congress, Canadian Federation of Pensioners, Canadian Association of Insolvency and Restructuring Professionals and Canadian Bankers Association

Interveners Coram: McLachlin C.J. and LeBel, Deschamps, Abella, Rothstein, Cromwell and Moldaver JJ. Reasons for Judgment: (paras. 1 to 84) Reasons Concurring in Result With Those of Deschamps J.: (paras. 85 to 262) Dissenting Reasons: (paras. 263 to 280) Deschamps J. (Moldaver J. concurring) Cromwell J. (McLachlin C.J. and Rothstein J. concurring) LeBel J. (Abella J. concurring) Sun Indalex Finance, LLC v. United Steelworkers, 2013 SCC 6, [2013] 1 S.C.R. 271 Sun Indalex Finance, LLC Appellant v. United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W.

Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville Respondents - and - George L. Miller, the

Chapter 7 Trustee of the Bankruptcy Estates of the U.S. Indalex Debtors Appellant v. United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville Respondents - and - FTI Consulting Canada ULC, in its capacity as court-appointed

monitor of Indalex Limited, on behalf of Indalex Limited Appellant v. United Steelworkers, Keith Carruthers, Leon Kozierok, Richard Benson, John Faveri, Ken Waldron, John (Jack) W. Rooney, Bertram McBride, Max Degen, Eugene D’Iorio, Neil Fraser, Richard Smith, Robert Leckie and Fred Granville Respondents - and - United Steelworkers Appellant v.

Morneau Shepell Ltd. (formerly known as Morneau Sobeco Limited Partnership) and Superintendent of Financial Services Respondents and Superintendent of Financial Services, Insolvency Institute of Canada, Canadian Labour Congress, Canadian Federation of Pensioners, Canadian Association of Insolvency and Restructuring Professionals and Canadian Bankers Association Interveners Indexed as: Sun Indalex Finance, LLC v. United Steelworkers 2013 SCC 6 File No.: 34308. 2012: June 5; 2013: February 1.

Present: McLachlin C.J. and LeBel, Deschamps, Abella, Rothstein, Cromwell and Moldaver JJ. on appeal from the court of appeal for ontario Pensions — Bankruptcy and Insolvency — Priorities — Company who was both employer and administrator of pension plans seeking protection from creditors under Companies’ Creditors Arrangement Act (“CCAA”) — Pension funds not having sufficient assets to fulfill pension promises made to plan members — Company entering into debtor in possession (“DIP”) financing allowing it to continue to operate — CCAA court granting priority to DIP lenders — Proceeds of sale of business insufficient to pay back DIP lenders — Whether pension wind-up deficiencies subject to deemed trust — If so, whether deemed trust superseded by CCAA priority by virtue of doctrine of federal paramountcy — Pension Benefits Act, R.S.O. 1990, c.

P.8, ss. 57(3) , (4) , 75(1) (a), (b) — Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36. Pensions — Trusts — Company who was both employer and administrator of pension plans seeking protection from creditors under CCAA — Pension funds not having sufficient assets to fulfill pension promises made to plan members — Whether pension wind-up deficiencies subject to deemed trust — Whether company as plan administrator breached fiduciary duties — Whether pension plan members are entitled to constructive trust.

Civil Procedure — Costs — Appeals — Standard of review — Whether Court of Appeal erred in costs endorsement concerning one party. Indalex Limited (“Indalex”), the sponsor and administrator of two employee pension plans, one for salaried employees and the other for executive employees, became insolvent. Indalex sought protection from its creditors under the Companies’ Creditors Arrangement Act , R.S.C. 1985, c. C-36 (“ CCAA ”). The salaried plan was being wound up when the CCAA proceedings began. The executive plan had been closed but not wound up. Both plans had wind-up deficiencies.

In a series of court-sanctioned steps, the company was authorized to enter into debtor in possession (“DIP”) financing in order to allow it to continue to operate. The CCAA court granted the DIP lenders, a syndicate of pre-filing senior secured creditors, priority over the claims of all other creditors. Repayment of these amounts was guaranteed by Indalex U.S.

Ultimately, with the approval of the CCAA court, Indalex sold its business but the purchaser did not assume pension liabilities. The proceeds of the sale were not sufficient to pay back the DIP lenders and so Indalex U.S., as guarantor, paid the shortfall and stepped into the shoes of the DIP lenders in terms of priority. The CCAA court authorized a payment in accordance with the priority but ordered an amount be held in reserve, leaving the plan members’ arguments on their rights to the proceeds of the sale open for determination later. The plan members challenged the priority granted in the CCAA proceedings.

They claimed that they had priority in the amount of the wind-up deficiency by virtue of a statutory deemed trust under s. 57(4) of the Pension Benefits Act , R.S.O. 1990, c. P.8 (“ PBA ”), and a constructive trust arising from Indalex’s alleged breaches of fiduciary duty as administrator of the pension funds. The judge at first instance dismissed the plan members’ motions concluding that the deemed trust did not apply to wind up deficiencies. He held that, with respect to the wind-up deficiency, the plan members were unsecured creditors.

The Court of Appeal reversed this ruling and held that the pension plan wind-up deficiencies were subject to deemed and constructive trusts which had priority over the DIP financing priority and over other secured creditors. In addition, the Court of Appeal rejected a claim brought by the United Steelworkers, which represented some members of the salaried plan, seeking payment of its costs from the latter’s pension fund. Held (LeBel and Abella JJ. dissenting): The Sun Indalex Finance, George L. Miller and FTI Consulting appeals should be allowed. Held : The United Steelworkers appeal should be dismissed.

(1) Statutory Deemed Trust Per Deschamps and Moldaver JJ.: It is common ground that the contributions provided for in s. 75(1) (

a) of the PBA are covered by the deemed trust contemplated by s. 57(4) of the PBA . The only question is whether this statutory deemed trust also applies to the wind-up deficiency payments required by s. 75(1) (b). The response to this question as it relates to the salaried employees is affirmative in view of the provision’s wording, context and purpose. The situation is different with respect to the executive plan as s. 57(4) provides that the wind-up deemed trust comes into existence only when the plan is wound up.

The wind-up deemed trust provision ( s. 57(4) PBA ) does not place an express limit on the “employer contributions accrued to the date of the wind up but not yet due”. Section 75(1) (

a) explicitly refers to “an amount equal to the total of all payments” that have accrued , even those that were not yet due as of the date of the wind up, whereas s. 75(1) (

b) contemplates an “amount” that is calculated on the basis of the value of assets and of liabilities that have accrued when the plan is wound up. Since both the amount with respect to payments ( s. 75(1) (a)) and the one ascertained by subtracting the assets from the liabilities accrued as of the date of the wind up ( s. 75(1) (b)) are to be paid upon wind up as employer contributions, they are both included in the ordinary meaning of the words of s. 57(4) of the PBA : “amount of money equal to employer contributions accrued to the date of the wind up but not yet due under the plan or regulations”.

The time when the calculation is actually made is not relevant as long as the liabilities are assessed as of the date of the wind up. The fact that the precise amount of the contribution is not determined as of the time of the wind up does not make it a contingent contribution that cannot have accrued for accounting purposes. As a result, the words “contributions accrued” can encompass the contributions mandated by s. 75(1) (

b) of the PBA . It can be seen from the legislative history that the protection has expanded from (1) only the service contributions that were due, to (2) amounts payable calculated as if the plan had been wound up, to (3) amounts that were due and had accrued upon wind up but excluding the wind-up deficiency payments, to (4) all amounts due and accrued upon wind up. Therefore, the legislative history leads to the conclusion that adopting a narrow

interpretation that would dissociate the employer’s payment provided for in s. 75(1) (

b) of the PBA from the one provided for in s. 75(1) (

a) would be contrary to the Ontario legislature’s trend toward broadening the protection. The deemed trust provision is a remedial one. Its purpose is to protect the interests of plan members. The remedial purpose favours an approach that includes all wind-up payments in the value of the deemed trust. In this case, the Court of Appeal correctly held with respect to the salaried plan, that Indalex was deemed to hold in trust the amount necessary to satisfy the wind-up deficiency. Per LeBel and Abella JJ.: There is agreement with the reasons of Deschamps J. on the statutory deemed trust issue.

Per McLachlin C.J. and Rothstein and Cromwell JJ.: Given that there can be no deemed trust for the executive plan because that plan had not been wound up at the relevant date, the main issue in connection with the salaried plan boils down to the narrow statutory interpretative question of whether the wind-up deficiency provided for in s. 75(1) (

b) is “accrued to the date of the wind up” as required by s. 57(4) of the PBA . When the term “accrued” is used in relation to a sum of money, it will generally refer to an amount that is at the present time either quantified or exactly quantifiable but which may or may not be due. In the present case, s. 57(4) uses the word “accrued” in contrast to the word “due”. Given the ordinary meaning of the word “accrued”, the wind-up deficiency cannot be said to have “accrued” to the date of wind up.

The extent of the wind-up deficiency depends on employee rights that arise only upon wind up and with respect to which employees make elections only after wind up. The wind-up deficiency therefore is neither ascertained nor ascertainable on the date fixed for wind up. The broader statutory context reinforces the view according to which the most plausible grammatical and ordinary sense of the words “accrued to the date of wind up” is that the amounts referred to are precisely ascertained immediately before the effective date of the plan’s wind up.

Moreover, the legislative evolution and history of the provisions at issue show that the legislature never intended to include the wind-up deficiency in a statutory deemed trust. Rather, they reinforce the legislative intent to exclude from the deemed trust liabilities that arise only on the date of wind up. The legislation differentiates between two types of employer liability relevant to this case. The first is the contributions required to cover current service costs and any other payments that are either due or have accrued on a daily basis up to the relevant time.

These are the payments referred to in the current s. 75(1) (a), that is, payments due or accrued but not paid. The second relates to additional contributions required when a plan is wound up which I have referred to as the wind-up deficiency. These payments are addressed in s. 75(1) (b). The legislative history and evolution show that the deemed trusts under s. 57(3) and (4) were intended to apply only to the former amounts and that it was never the intention that there should be a deemed trust or a lien with respect to an employer’s potential future liabilities that arise once the plan is wound up.

In this case, the s. 57(4) deemed trust does not apply to the wind-up deficiency. This conclusion to exclude the wind-up deficiency from the deemed trust is consistent with the broader purposes of the legislation. The legislature has created trusts over contributions that were due or accrued to the date of the wind up in order to protect, to some degree, the rights of pension plan beneficiaries and employees from the claims of the employer’s other creditors.

However, there is also good reason to think that the legislature had in mind other competing objectives in not extending the deemed trust to the wind-up deficiency. While the protection of pension plans is an important objective, it is not for this Court to decide the extent to which that objective will be pursued and at what cost to other interests. The decision as to the level of protection that should be provided to pension beneficiaries under the PBA is one to be left to the Ontario legislature.

(2) Priority Ranking Per Deschamps and Moldaver JJ.: A statutory deemed trust under provincial legislation such as the PBA continues to apply in federally-regulated CCAA proceedings, subject to the doctrine of federal paramountcy. In this case, granting priority to the DIP lenders subordinates the claims of other stakeholders, including the plan members. This court-ordered priority based on the CCAA has the same effect as a statutory priority. The federal and provincial laws are inconsistent, as they give rise to different, and conflicting, orders of priority.

As a result of the application of the doctrine of federal paramountcy, the DIP charge supersedes the deemed trust. Per McLachlin C.J. and Rothstein and Cromwell JJ.: Although there is disagreement with Deschamps J. in connection with the scope of the s. 57(4) deemed trust, it is agreed that if there was a deemed trust in this case, it would be superseded by the DIP loan because of the operation of the doctrine of federal paramountcy. Per LeBel and Abella JJ.: There is agreement with the reasons of Deschamps J. on the priority ranking issue as determined by operation of the doctrine of federal paramountcy.

(3) Constructive Trust as a Remedy for Breach of Fiduciary Duties Per McLachlin C.J. and Rothstein and Cromwell JJ.: It cannot be the case that a conflict of interests arises simply because an employer, exercising its management powers in the best interests of the corporation, does something that has the potential to affect the beneficiaries of the corporation’s pension plan. This conclusion flows inevitably from the statutory context.

The existence of apparent conflicts that are inherent in the two roles of employer and pension plan administrator being performed by the same party cannot be a breach of fiduciary duty because those conflicts are specifically authorized by the statute which permits one party to play both roles. Rather, a situation of conflict of interest occurs when there is a substantial risk that the employer-administrator’s representation of the plan beneficiaries would be materially and adversely affected by the employer-administrator’s duties to the corporation.

Seeking an initial order protecting the corporation from actions by its creditors did not, on its own, give rise to any conflict of interest or duty on the part of Indalex. Likewise, failure to give notice of the initial CCAA proceedings was not a breach of fiduciary duty to avoid conflicts of interest in this case. Indalex’s decision to act as an employer-administrator cannot give the plan members any greater benefit than they would have if their plan was managed by a third party administrator.

It was at the point of seeking and obtaining the DIP orders without notice to the plan beneficiaries and seeking and obtaining the sale approval order that Indalex’s interests as a corporation came into conflict with its duties as a pension plan administrator. However, the difficulty that arose here was not the existence of the conflict itself, but Indalex’s failure to take steps so that the plans’ beneficiaries would have the opportunity to have their interests protected in the CCAA proceedings as if the plans were administered by an independent administrator.

In short, the difficulty was not the existence of the conflict, but the failure to address it. An employer-administrator who finds itself in a conflict must bring the conflict to the attention of the CCAA judge. It is not enough to include the beneficiaries in the list of creditors; the judge must be made aware that the debtor, as an administrator of the plan is, or may be, in a conflict of interest.

Accordingly, Indalex breached its fiduciary duty by failing to take steps to ensure that the pension plans had the opportunity to be as fully represented in those proceedings as if there had been an independent plan administrator, particularly when it sought the DIP financing approval, the sale approval and a motion to voluntarily enter into bankruptcy. Regardless of this breach, a remedial constructive trust is only appropriate if the wrongdoer’s acts give rise to an identifiable asset which it would be unjust for the wrongdoer (or sometimes a third party) to retain.

There is no evidence to support the contention that Indalex’s failure to meaningfully address conflicts of interest that arose during the CCAA proceedings resulted in any such asset. Furthermore, to impose a constructive trust in response to a breach of fiduciary duty to ensure for the pension plans some procedural protections that they in fact took advantage of in any case is an unjust response in all of the circumstances. Per Deschamps and Moldaver JJ.: A corporate employer that chooses to act as plan administrator accepts the fiduciary obligations attached to that function.

Since the directors of a corporation also have a fiduciary duty to the corporation, the corporate employer must be prepared to resolve conflicts where they arise. An employer acting as a plan administrator is not permitted to disregard its fiduciary obligations to plan members and favour the competing interests of the corporation on the basis that it is wearing a “corporate hat”. What is important is to consider the consequences of the decision, not its nature.

In the instant case, Indalex’s fiduciary obligations as plan administrator did in fact conflict with management decisions that needed to be taken in the best interests of the corporation. Specifically, in seeking to have a court approve a form of financing by which one creditor was granted priority over all other creditors, Indalex was asking the CCAA court to override the plan members’ priority. The corporation’s interest was to seek the best possible avenue to survive in an insolvency context.

The pursuit of this interest was not compatible with the plan administrator’s duty to the plan members to ensure that all contributions were paid into the funds. In the

context of this case, the plan administrator’s duty to the plan members meant, in particular, that it should at least have given them theopportunity to present their arguments. This duty meant, at the very least, that they were entitled to reasonable notice of the DIPfinancing motion. The terms of that motion, presented without appropriate notice, conflicted with the interests of the plan members. As for the constructive trust remedy, it is settled law that proprietary remedies are generally awarded only with respect toproperty that is directly related to a wrong or that can be traced to such property.

There is agreement with Cromwell J. that this conditionwas not met in the case at bar and his reasoning on this issue is adopted. Moreover, it was unreasonable for the Court of Appeal toreorder the priorities in this case. Per LeBel and Abella JJ. (dissenting): A fiduciary relationship is a relationship, grounded in fact and law, between avulnerable beneficiary and a fiduciary who holds and may exercise power over the beneficiary in situations recognized by law.

Itfollows that before entering into an analysis of the fiduciary duties of an employer as administrator of a pension plan under the PBA, it isnecessary to consider the position and characteristics of the pension beneficiaries. In the present case, the beneficiaries were in a veryvulnerable position relative to Indalex. Nothing in the PBA allows that the employer qua administrator will be held to a lower standard or will be subject to dutiesand obligations that are less stringent than those of an independent administrator.

The employer is under no obligation to assume theburdens of administering the pension plans that it has agreed to set up or that are the legacy of previous decisions. However, if it decidesto do so, a fiduciary relationship is created with the expectation that the employer will be able to avoid or resolve the conflicts of interestthat might arise. Indalex was in a conflict of interest from the moment it started to contemplate putting itself under the protection of theCCAA and proposing an arrangement to its creditors. From the corporate perspective, one could hardly find fault with such a decision.

Itwas a business decision. But the trouble is that at the same time, Indalex was a fiduciary in relation to the members and retirees of itspension plans. The solution was not to place its function as administrator and its associated fiduciary duties in abeyance. Rather, it hadto abandon this role and diligently transfer its function as manager to an independent administrator. In the present case, the employer not only neglected its obligations towards the beneficiaries, but actually took a course ofaction that was actively inimical to their interests.

The seriousness of these breaches amply justified the decision of the Court of Appealto impose a constructive trust.

(4) Costs in United Steelworkers Appeal Per McLachlin C.J. and Rothstein and Cromwell JJ.: There is no basis to interfere with the Court of Appeal’s costsendorsement as it relates to United Steelworkers in this case. The litigation undertaken here raised novel points of law with all of theuncertainty and risk inherent in such an undertaking.

The Court of Appeal in essence decided that the United Steelworkers, representingonly 7 of 169 members of the salaried plan, should not without consultation be able to in effect impose the risks of that litigation on all ofthe plan members, the vast majority of whom were not union members. There is no error in principle in the Court of Appeal’s refusal toorder the United Steelworkers costs to be paid out of the pension fund, particularly in light of the disposition of the appeal to this Court.

Per Deschamps and Moldaver JJ.: There is agreement with the reasons of Cromwell J. on the issue of costs in the UnitedSteelworkers appeal. Per LeBel and Abella JJ.: There is agreement with the reasons of Cromwell J. on the issue of costs in the UnitedSteelworkers appeal. Cases Cited By Deschamps J. Referred to: Husky Oil Operations Ltd. v. Minister of National Revenue, (SCC), [1995] 3 S.C.R. 453;Hydro-Electric Power Commission of Ontario v. Albright (1922), (SCC), 64 S.C.R. 306; Canadian Pacific Ltd. v. M.N.R.(1998), (ON CA), 41 O.R. (3d) 606; Century Services Inc. v.

Canada (Attorney General), 2010 SCC 60, [2010] 3S.C.R. 379; Crystalline Investments Ltd. v. Domgroup Ltd., 2004 SCC 3, [2004] 1 S.C.R. 60; Canadian Western Bank v. Alberta, 2007SCC 22, [2007] 2 S.C.R. 3; Attorney General of Canada v. Law Society of British Columbia, (SCC), [1982] 2 S.C.R.307; Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273; Canada Deposit Insurance Corp. v. Canadian Commercial Bank, (SCC), [1992] 3 S.C.R. 558. By Cromwell J. Referred to: Century Services Inc. v. Canada (Attorney General), 2010 SCC 60, [2010] 3 S.C.R. 379; Bell ExpressVuLimited Partnership v.

Rex, 2002 SCC 42, [2002] 2 S.C.R. 559; Ryan v. Moore, 2005 SCC 38, [2005] 2 S.C.R. 53; Hydro-Electric PowerCommission of Ontario v. Albright (1922), (SCC), 64 S.C.R. 306; Canadian Pacific Ltd. v. M.N.R. (1998), (ON CA), 41 O.R. (3d) 606; Canada (Canadian Human Rights Commission) v. Canada (Attorney General), 2011 SCC 53, [2011]3 S.C.R. 471; Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services), 2004 SCC 54, [2004] 3 S.C.R. 152; Burke v.Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273, aff’g 2008 ONCA 394, 67 C.C.P.B. 1; Alberta v.

Elder Advocates of AlbertaSociety, 2011 SCC 24, [2011] 2 S.C.R. 261; Lac Minerals Ltd. v. International Corona Resources Ltd., (SCC), [1989] 2S.C.R. 574; Sharbern Holding Inc. v. Vancouver Airport Centre Ltd., 2011 SCC 23, [2011] 2 S.C.R. 175; Galambos v. Perez, 2009 SCC48, [2009] 3 S.C.R. 247; K.L.B. v. British Columbia, 2003 SCC 51, [2003] 2 S.C.R. 403; Strother v. 3464920 Canada Inc., 2007 SCC 24,[2007] 2 S.C.R. 177; BCE Inc. v. 1976 Debentureholders, 2008 SCC 69, [2008] 3 S.C.R. 560; R. v. Neil, 2002 SCC 70, [2002] 3 S.C.R.631; Elan Corp. v.

Comiskey (1990), 41 O.A.C. 282; Algoma Steel Inc., Re (2001), (ON CA), 25 C.B.R. (4th) 194;Marine Drive Properties Ltd., Re, 2009 BCSC 145, 52 C.B.R. (5th) 47; Timminco Ltd., Re, 2012 ONSC 506, 85 C.B.R. (5th) 169;AbitibiBowater inc. (Arrangement relatif à), 2009 QCCS 6459 ; First Leaside Wealth Management Inc. (Re), 2012 ONSC 1299; Nortel Networks Corp., Re (2009), 75 C.C.P.B. 206; Royal Oak Mines Inc., Re (1999), (ON SC), 6 C.B.R.

(4th) 314; Donkin v. Bugoy, (SCC), [1985] 2 S.C.R. 85; Soulos v. Korkontzilas, (SCC), [1997] 2S.C.R. 217; Peter v. Beblow, (SCC), [1993] 1 S.C.R. 980; Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R.678; Hamilton v. Open Window Bakery Ltd., 2004 SCC 9, [2004] 1 S.C.R. 303. By LeBel J. (dissenting) Galambos v. Perez, 2009 SCC 48, [2009] 3 S.C.R. 247; Alberta v. Elder Advocates of Alberta Society, 2011 SCC 24, [2011]2 S.C.R. 261; Royal Oak Mines Inc., Re (1999), (ON SC), 7 C.B.R. (4th) 293; Canson Enterprises Ltd. v. Boughton& Co., (SCC), [1991] 3 S.C.R. 534; Soulos v.

Korkontzilas, (SCC), [1997] 2 S.C.R. 217. Statutes and Regulations Cited Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act, the Wage Earner Protection Program Actand

chapter 47 of the Statutes of Canada, 2005, S.C. 2007, c. 36. Act to establish the Wage Earner Protection Program Act, to amend the Bankruptcy and Insolvency Act and the Companies’ CreditorsArrangement Act and to make consequential amendments to other Acts, S.C. 2005, c. 47, s. 128. Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3. Bill C-501,

An Act to amend the Bankruptcy and Insolvency Act and other Acts (pension protection), 3rd Sess., 40th Parl., March 24,2010 (as am. by the Standing Committee on Industry, Science and Technology, March 1, 2011).

Canada Business Corporations Act, R.S.C. 1985, c. C-44, s. 122(1)(a). Companies’ Creditors Arrangement Act, R.S.C. 1985, c. C-36, ss. 2 “secured creditor”, 11. Pension Benefits Act, R.S.O. 1980, c. 373, ss. 21(2), 23, 32. Pension Benefits Act, R.S.O. 1990, c. P.8, ss. 1(1) “administrator”, “wind up”, 8(1)(a), 9, 10(1)12, 12, 19, 20, 22, 25, 26, 42, 56, 57, 58,59, 68, 69, 70, 73, 74, 75. Pension Benefits Act, 1965, S.O. 1965, c. 96, s. 22(2). Pension Benefits Act, 1987, S.O. 1987, c. 35, ss. 58, 59, 75(1), 76(1). Pension Benefits Amendment Act, 1973, S.O. 1973, c. 113, s. 23a.

Pension Benefits Amendment Act, 1980, S.O. 1980, c. 80. Pension Benefits Amendment Act, 1983, S.O. 1983, c. 2, ss. 21, 23, 32. Pension Benefits Amendment Act, 2010, S.O. 2010, c. 9, s. 52(5). Personal Property Security Act, R.S.O. 1990, c. P.10, s. 30(7). R.R.O. 1990, Reg. 909, ss. 4(4)3, 5(1)(b), (e), 14, 29, 31. Securing Pension Benefits Now and for the Future Act, 2010, S.O. 2010, c. 24, s. 21(2). Authors Cited Arnold, Brian J. Timing and Income Taxation: The Principles of Income Measurement for Tax Purposes. Toronto: Canadian TaxFoundation, 1983. Black’s Law Dictionary, 9th ed. St.

Paul, Minn.: Thomson Reuters, 2009, “accrued liability”. Canada. Senate. Standing Senate Committee on Banking, Trade and Commerce. Debtors and Creditors Sharing the Burden: A Reviewof the Bankruptcy and Insolvency Act and the Companies’ Creditors Arrangement Act. Ottawa: Senate of Canada, 2003. Canadian Institute of Chartered Accountants. CICA Handbook — Accounting,

Part II, Accounting Standards for Private Enterprises. Toronto: The Institute, 2012. Driedger, Elmer A. Construction of Statutes, 2nd ed. Toronto: Butterworths, 1983. Dukelow, Daphne A. The Dictionary of Canadian Law, 4th ed. Toronto: Carswell, 2011, “accrued liability”. Hogg, Peter W., Joanne E. Magee and Jinyan Li. Principles of Canadian Income Tax Law, 7th ed. Toronto: Carswell, 2010. Jackson, Georgina R., and Janis Sarra. “Selecting the Judicial Tool to get the Job Done: An Examination of Statutory

Interpretation,Discretionary Power and Inherent Jurisdiction in Insolvency Matters”, in Janis P. Sarra, ed., Annual Review of Insolvency Law 2007. Toronto: Thomson Carswell, 2008, 41. Kaplan, Ari N. Pension Law. Toronto: Irwin Law, 2006. Ontario. Legislative Assembly. Legislature of Ontario Debates: Official Report (Hansard), No. 99, 2nd Sess., 32nd Parl., July 7, 1982,

p. 3568. Sarra, Janis P. Rescue! The Companies’ Creditors Arrangement Act . Toronto: Thomson Carswell, 2007. The Mercer Pension Manual , vol. 1, by William M. Mercer Limited. Toronto: Carswell, 1994 (loose-leaf updated November 2009, release 6). Waters’ Law of Trusts in Canada , 3rd ed. by Donovan W. M. Waters, Mark R. Gillen and Lionel D. Smith, eds. Toronto: Thomson Carswell, 2005.

APPEALS from a judgment of the Ontario Court of Appeal (MacPherson, Gillese and Juriansz JJ.A.), 2011 ONCA 265 , 104 O.R. (3d) 641, 276 O.A.C. 347, 331 D.L.R. (4th) 352, 75 C.B.R. (5th) 19, 89 C.C.P.B. 39, 17 P.P.S.A.C. (3d) 194, [2011] O.J. No. 1621 (QL), 2011 CarswellOnt 2458, setting aside a decision of Campbell J., 2010 ONSC 1114 , 79 C.C.P.B. 301, [2010] O.J. No. 974 (QL), 2010 CarswellOnt 893. Appeals allowed, LeBel and Abella JJ. dissenting. APPEAL from a judgment of the Ontario Court of Appeal (MacPherson, Gillese and Juriansz JJ.A.), 2011 ONCA 578 , 81 C.B.R. (5th) 165, 92 C.C.P.B. 277, [2011] O.J.

No. 3959 (QL), 2011 CarswellOnt 9077. Appeal dismissed. Benjamin Zarnett , Frederick L. Myers , Brian F. Empey and Peter Kolla , for the appellant Sun Indalex Finance, LLC. Harvey G. Chaiton and George Benchetrit , for the appellant George L. Miller, the

Chapter 7 Trustee of the Bankruptcy Estates of the U.S. Indalex Debtors. David R. Byers , Ashley John Taylor and Nicholas Peter McHaffie , for the appellant FTI Consulting Canada ULC, in its capacity as court-appointed monitor of Indalex Limited, on behalf of Indalex Limited. Darrell L. Brown , for the appellant/respondent the United Steelworkers. Andrew J. Hatnay and Demetrios Yiokaris , for the respondents Keith Carruthers, et al. Hugh O’Reilly and Amanda Darrach , for the respondent Morneau Shepell Ltd. (formerly known as Morneau Sobeco Limited Partnership).

Mark Bailey , Leonard Marsello and William MacLarkey , for the respondent/intervener the Superintendent of Financial Services. Robert I. Thornton and D. J. Miller , for the intervener the Insolvency Institute of Canada. Steven Barrett and Ethan Poskanzer , for the intervener the Canadian Labour Congress. Kenneth T. Rosenberg , Andrew K. Lokan and Massimo Starnino , for the intervener the Canadian Federation of Pensioners. Éric Vallières , Alexandre Forest and Yoine Goldstein, for the intervener the Canadian Association of Insolvency and Restructuring Professionals.

Mahmud Jamal , Jeremy Dacks and Tony Devir, for the intervener the Canadian Bankers Association. The judgment of Deschamps and Moldaver JJ. was delivered by [ 1 ] Deschamps J. — Insolvency can trigger catastrophic consequences. Often, large claims of ordinary creditors are left unpaid. In insolvency situations, the promise of defined benefits made to employees during their employment is put at risk. These appeals illustrate the materialization of such a risk.

Although the employer in this case breached a fiduciary duty, the harm suffered by the pension plans’ beneficiaries results not from that breach, but from the employer’s insolvency. For the following reasons, I would allow the appeals of the appellants Sun Indalex Finance, LLC; George L.

Miller, Indalex U.S.’s trustee in bankruptcy; and FTI Consulting Canada ULC. [ 2 ] To improve the prospect of pensioners receiving their full benefits after a pension plan is wound up, the Ontario legislature has protected contributions to the pension fund that have accrued but are not yet due at the time of the wind up by providing for a deemed trust that supersedes all other provincial priorities over certain assets of the plan sponsor ( s. 57(4) of the Pension Benefits Act , R.S.O. 1990, c. P.8 (“ PBA ”), and s. 30(7) of the Personal Property Security Act , R.S.O. 1990, c. P.10 (“ PPSA ”)).

The parties disagree on the scope of the deemed trust. In my view, the relevant provisions and the context lead to the conclusion that it extends to contributions the employer must make to ensure that the pension fund is sufficient to cover liabilities upon wind up. In the instant case, however, the deemed trust is superseded by the security granted to the creditor that loaned money to the employer, Indalex Limited (“Indalex”), during the insolvency proceedings.

In addition, although the employer, as plan administrator, may have put itself in a position of conflict of interest by failing to give the plan’s members proper notice of a motion requesting financing of its operations during a restructuring process, there was no realistic possibility that, had the members received notice and had the CCAA court found that they were secured creditors, it would have ordered the priorities differently. Consequently, it would not be appropriate to order an equitable remedy such as the constructive trust ordered by the Court of Appeal. I.

Facts [ 3 ] Indalex is a wholly owned Canadian subsidiary of a U.S. company, Indalex Holding Corp. (“Indalex U.S.”). Indalex and its related companies formed a corporate group (the “Indalex Group”) that manufactured aluminum extrusions. The U.S. and

Canadian operations were closely linked. [4] In 2009, a combination of high commodity prices and the economic recession’s impact on the end-user market foraluminum extrusions plunged the Indalex Group into insolvency. On March 20, 2009, Indalex U.S. filed for

Chapter 11 bankruptcyprotection in Delaware. On April 3, 2009, Indalex applied for a stay under the Companies’ Creditors Arrangement Act, R.S.C. 1985, c.C-36 (“CCAA”), and Morawetz J. granted the stay in an initial order. He also appointed FTI Consulting Canada ULC (the “Monitor”) toact as monitor. [5] At that time, Indalex was the administrator of two registered pension plans. One was for its salaried employees (the“Salaried Plan”), the other for its executives (the “Executive Plan”). Members of the Salaried Plan included seven employees for whomthe United Steelworkers (“USW”) acted as bargaining agent.

The Salaried Plan was in the process of being wound up when the CCAAproceedings began. The effective date of the wind up was December 31, 2006. The Executive Plan had been closed but not wound up.Overall, the deficiencies of the pension plans’ funds concern 49 persons (members of the Salaried Plan and the Executive Plan arereferred to collectively as the “Plan Members”). [6] Pursuant to the initial order made by Morawetz J. on April 3, 2009, Indalex obtained protection under the CCAA.Both plans faced funding deficiencies when Indalex filed for the CCAA stay.

The wind-up deficiency of the Salaried Plan was estimatedat $1.8 million as of December 31, 2008. The funding deficiency of the Executive Plan was estimated at $3.0 million on a wind-up basisas of January 1, 2008. [7] From the beginning of the insolvency proceedings, the Indalex Group’s reorganization strategy was to sell bothIndalex and Indalex U.S. as a going concern while they were under CCAA and

Chapter 11 protection. To this end, Indalex and IndalexU.S. sought to enter into a common agreement for debtor-in-possession (“DIP”) financing under which the two companies could drawfrom joint credit facilities and would guarantee each other’s liabilities. [8] Indalex’s financial distress threatened the interests of all the Plan Members. If the reorganization failed and Indalexwere liquidated under the Bankruptcy and Insolvency Act, R.S.C. 1985, c.

B-3 (“BIA”), they would not have recovered any of their claimsagainst Indalex for the underfunded pension liabilities, because the priority created by the provincial statute would not be recognizedunder the federal legislation: Husky Oil Operations Ltd. v. Minister of National Revenue, (SCC), [1995] 3 S.C.R. 453.Although the priority was not rendered ineffective by the CCAA, the Plan Members’ position was uncertain. [9] The Indalex Group solicited terms from a variety of possible DIP lenders. In the end, it negotiated an agreementwith a syndicate consisting of the pre-filing senior secured creditors.

On April 8, 2009, the CCAA court issued an Amended and RestatedInitial Order (“Amended Initial Order”) authorizing Indalex to borrow US$24.4 million from the DIP lenders and grant them priorityover all other creditors (“DIP charge”) in that amount. In his endorsement of the order, Morawetz J. made a finding that Indalex wouldbe unable to achieve a going-concern solution without DIP financing. Such financing was necessary to support Indalex’s business untilthe sale could be completed. [10] The Plan Members did not participate in the initial proceedings. The initial stay had been granted ex parte.

TheCCAA judge ordered Indalex to serve a copy of the stay order on every creditor owed $5,000 or more within 10 days of the initial orderof April 3. As of April 8, when the motion to amend the initial order was heard, none of the Executive Plan’s members had been servedwith that order; nor did any of them receive notice of the motion to amend it. The USW did receive short notice, but chose not to attend.Morawetz J. authorized Indalex to proceed on the basis of an abridged time for service. The Plan Members were given notice of allsubsequent proceedings.

None of the Plan Members appealed the Amended Initial Order to contest the DIP charge. [11] On June 12, 2009, Indalex applied for authorization to increase the DIP loan amount to US$29.5 million. At thehearing, the Executive Plan’s members initially opposed the motion, seeking to reserve their rights.

After it was confirmed that themotion was merely to increase the amount of the DIP charge (without changing the terms of the loan), they withdrew their oppositionand the court granted the motion. [12] On April 22, 2009, the court extended the stay of proceedings and approved a marketing process for the sale ofIndalex’s assets. The Plan Members did not oppose the application to approve the marketing process. Under the approved biddingprocedure, the Indalex Group solicited a wide variety of potential buyers. [13] Indalex received a bid from SAPA Holding AB (“SAPA”).

It was for approximately US$30 million, and SAPA didnot assume responsibility for the pension plans’ wind-up deficiencies. According to the Monitor’s estimate, the liquidation value ofIndalex’s assets was US$44.7 million. Indalex brought an application for an order approving a bidding procedure for a competitiveauction and deeming SAPA’s bid to be a qualifying bid. The Executive Plan’s members opposed the application, expressing concern thatthe pension liabilities would not be assumed.

Morawetz J. nevertheless issued the order on July 2, 2009; in it, he approved the biddingprocedure for sale, noting that the Executive Plan’s members could raise their objections at the time of approval of the final bid. [14] The bidding procedure did not trigger any competing bids. On July 20, 2009, Indalex and Indalex U.S. broughtmotions before their respective courts to approve the sale of substantially all their assets under the terms of SAPA’s bid. Indalex alsomoved for approval of an interim distribution of the sale proceeds to the DIP lenders.

The Plan Members opposed Indalex’s motion.First, they argued that it was estimated that a forced liquidation would produce greater proceeds than SAPA’s bid. Second, theycontended that their claims had priority over that of the DIP lenders because the unfunded pension liabilities were subject to a statutorydeemed trust under the PBA.

They also contended that Indalex had breached its fiduciary obligations by failing to meet its obligations asa plan administrator throughout the insolvency proceedings. [15] The court dismissed the Plan Members’ first objection, holding that there was no evidence supporting the argumentthat a forced liquidation would be more beneficial to suppliers, customers and the 950 employees. It approved the sale on July 20, 2009.The order in which it did so directed the Monitor to make a distribution to the DIP lenders.

With respect to the second objection,however, Campbell J. ordered the Monitor to hold a reserve in an amount to be determined by the Monitor, leaving the Plan Members’arguments based on their right to the proceeds of the sale open for determination at a later date.

[ 16 ] The sale to SAPA closed on July 31, 2009. The Monitor collected $30.9 million in proceeds. It distributed US$17 million to the DIP lenders, paid certain fees, withheld a portion to cover various costs and retained $6.75 million in reserve pending determination of the Plan Members’ rights. At the closing, Indalex owed US$27 million to the DIP lenders. The payment of US$17 million left a US$10 million shortfall in the amount owed to these lenders. The DIP lenders called on Indalex U.S. to cover this shortfall under the guarantee contained in the DIP lending agreement.

Indalex U.S. paid the amount of the shortfall. Since Indalex U.S. was, as a term of the guarantee, subrogated to the DIP lenders’ priority, it became the highest ranking creditor of Indalex, with a claim for US$10 million. [ 17 ] Following the sale of Indalex’s assets, its directors resigned. Indalex U.S., a part of Indalex Group, took over the management of Indalex, whose assets were limited to the sale proceeds held by the Monitor. A Unanimous Shareholder Declaration was executed on August 12, 2009; in it, Mr. Keith Cooper was appointed to manage Indalex’s affairs. Mr.

Cooper was an employee of FTI Consulting Inc. [ 18 ] In accordance with the right reserved by the court on July 20, 2009, the Plan Members brought motions on August 28, 2009 for a declaration that a deemed trust equal in amount to the unfunded pension liability was enforceable against the proceeds of the sale. They contended that they had priority over the secured creditors pursuant to s. 57(4) of the PBA and s. 30(7) of the PPSA .

Indalex, in turn, brought a motion for an assignment in bankruptcy to secure the priority regime it argued for in opposing the Plan Members’ motions. [ 19 ] On October 14, 2009, while judgment was pending, Indalex U.S. converted the

Chapter 11 restructuring proceeding in the U.S. into a

Chapter 7 liquidation proceeding. On November 5, 2009, the Superintendent of Financial Services (“Superintendent”) appointed the actuarial firm of Morneau Sobeco Limited Partnership (“Morneau”) to replace Indalex as administrator of the plans. [ 20 ] On February 18, 2010, Campbell J. dismissed the Plan Members’ motions, concluding that the deemed trust did not apply to the wind-up deficiencies, because the associated payments were not “due” or “accruing due” as of the date of the wind up. He found that the Executive Plan did not have a wind-up deficiency, since it had not yet been wound up.

He thus found it unnecessary to rule on Indalex’s motion for an assignment in bankruptcy ( 2010 ONSC 1114 , 79 C.C.P.B. 301). The Plan Members appealed the dismissal of their motions. [ 21 ] The Ontario Court of Appeal allowed the Plan Members’ appeals. It found that the deemed trust created by s. 57(4) of the PBA applies to all amounts due with respect to plan wind-up deficiencies.

Although the court noted that it was likely that no deemed trust existed for the Executive Plan on the plain meaning of the provision, it declined to address this question, because it found that the Executive Plan’s members had a claim arising from Indalex’s breach of its fiduciary obligations in failing to adequately protect the Plan Members’ interests ( 2011 ONCA 265 , 104 O.R. (3d) 641). [ 22 ] The Court of Appeal concluded that a constructive trust was an appropriate remedy for Indalex’s breach of its fiduciary obligations.

The court was of the view that this remedy did not harm the DIP lenders, but affected only Indalex U.S. It imposed a constructive trust over the reserved fund in favour of the Plan Members. Turning to the question of distribution, it also found that the deemed trust had priority over the DIP charge because the issue of federal paramountcy had not been raised when the Amended Initial Order was issued, and that Indalex had stated that it intended to comply with any deemed trust requirements.

The Court of Appeal found that there was nothing in the record to suggest that not applying the paramountcy doctrine would frustrate Indalex’s ability to restructure. [ 23 ] The Court of Appeal ordered the Monitor to make a distribution from the reserve fund in order to pay the amount of each plan’s deficiency.

It also issued a costs endorsement that approved payment of the costs of the Executive Plan’s members from that plan’s fund, but declined to order the payment of costs to the USW from the fund of the Salaried Plan ( 2011 ONCA 578 , 81 C.B.R. (5th) 165). [ 24 ] The Monitor, together with Sun Indalex, a secured creditor of Indalex U.S., and George L. Miller, Indalex U.S.’s trustee in bankruptcy, appeals the Court of Appeal’s order. Both the Superintendent and Morneau support the Plan Members’ position as respondents. A number of stakeholders are also participating in the appeals to this Court.

In addition, USW appeals the costs endorsement. As I agree with my colleague Cromwell J. on the appeal from the costs endorsement, I will not deal with it in these reasons. II. Issues [ 25 ] The appeals raise four issues: 1. Does the deemed trust provided for in s. 57(4) of the PBA apply to wind-up deficiencies? 2. If so, does the deemed trust supersede the DIP charge? 3. Did Indalex have any fiduciary obligations to the Plan Members when making decisions in the context of the insolvency proceedings? 4.

Did the Court of Appeal properly exercise its discretion in imposing a constructive trust to remedy the breaches of fiduciary duties? III. Analysis

A. Does the Deemed Trust Provided for in Section 57(4) of the PBA Apply to Wind-up Deficiencies? [ 26 ] The first issue is whether the statutory deemed trust provided for in s. 57(4) of the PBA extends to wind-up deficiencies. This question is one of statutory

interpretation, which requires examination of both the wording and context of the relevant provisions of the PBA . Section 57(4) of the PBA affords protection to members of a pension plan with respect to their employer’s contributions upon wind up of the plan. The provision reads: 57. . . .

(4) Where a pension plan is wound up in whole or in part, an employer who is required to pay contributions to the pension fund shall be deemed to hold in trust for the beneficiaries of the pension plan an amount of money equal to employer contributions accrued to the date of the wind up but not yet due under the plan or regulations. [ 27 ] The most obvious

interpretation is that where a plan is wound up, this provision protects all contributions that have accrued but are not yet due. The words used appear to include the contribution the employer is to make where a plan being wound up is in a deficit position. This quite straightforward

interpretation, which is consistent with both the historical broadening of the protection and the remedial purpose of the provision, is being challenged on the basis of a narrow definition of the word “accrued”. I do not find that this argument justifies limiting the protection afforded to plan members by the Ontario legislature. [ 28 ] The PBA sets out the rules for the operation of funded contributory defined benefit pension plans in Ontario. In an ongoing plan, an employer must pay into a fund all contributions it withholds from its employees’ salaries.

In addition, while the plan is ongoing, the employer must make two kinds of payments. One relates to current service contributions — the employer’s own regular contributions to the pension fund as required by the plan. The other ensures that the fund is sufficient to meet the plan’s liabilities. The employees’ interest in having the contributions made while the plan is ongoing is protected by a deemed trust provided for in s. 57(3) of the PBA . [ 29 ] The PBA also establishes a comprehensive scheme for winding up a pension plan. Section 75(1) (

a) imposes on the employer the obligation to “pay” an amount equal to the total of all “payments” that are due or that have accrued and have not been paid into the fund. In addition, s. 75(1) (

b) sets out a formula for calculating the amount that must be paid to ensure that the fund is sufficient to cover all liabilities upon wind up. Within six months after the effective date of the wind up, the plan administrator must file a wind-up report that lists the plan’s assets and liabilities as of the date of the wind up. If the wind-up report shows an actuarial deficit, the employer must make wind-up deficiency payments. Consequently, s. 75(1)(

a) and (

b) jointly determine the amount of the contributions owed when a plan is wound up. [ 30 ] It is common ground that the contributions provided for in s. 75(1)(

a) are covered by the wind-up deemed trust. The only question is whether it also applies to the deficiency payments required by s. 75(1)(b). I would answer this question in the affirmative in view of the provision’s wording, context and purpose. [ 31 ] It is readily apparent that the wind-up deemed trust provision ( s. 57(4) PBA ) does not place an express limit on the “employer contributions accrued to the date of the wind up but not yet due”, and I find no reason to exclude contributions paid under s. 75(1)(b). Section 75(1)(

a) explicitly refers to “an amount equal to the total of all payments” that have accrued , even those that were not yet due as of the date of the wind up, whereas s. 75(1)(

b) contemplates an “amount” that is calculated on the basis of the value of assets and of liabilities that have accrued when the plan is wound up. Section 75(1) reads as follows: 75.

(1) Where a pension plan is wound up, the employer shall pay into the pension fund, (

a) an amount equal to the total of all payments that, under this Act, the regulations and the pension plan, are due or that have accrued and that have not been paid into the pension fund; and (

b) an amount equal to the amount by which, (

i) the value of the pension benefits under the pension plan that would be guaranteed by the Guarantee Fund under this Act and the regulations if the Superintendent declares that the Guarantee Fund applies to the pension plan, (ii) the value of the pension benefits accrued with respect to employment in Ontario vested under the pension plan, and (iii) the value of benefits accrued with respect to employment in Ontario resulting from the application of subsection 39 (3) (50 per cent rule) and

section 74, exceed the value of the assets of the pension fund allocated as prescribed for payment of pension benefits accrued with respect to

employment in Ontario. [32] Since both the amount with respect to payments (s. 75(1)(a)) and the one ascertained by subtracting the assets fromthe liabilities accrued as of the date of the wind up (s. 75(1)(b)) are to be paid upon wind up as employer contributions, they are bothincluded in the ordinary meaning of the words of s. 57(4) of the PBA: “. . . amount of money equal to employer contributions accrued tothe date of the wind up but not yet due under the plan or regulations”.

As I mentioned above, this reasoning is challenged in respect of s.75(1)(b), not of s. 75(1)(a). [33] The appellant Sun Indalex argues that since the deficiency is not finally quantified until well after the effective dateof the wind up, the liability of the employer cannot be said to have accrued. The Monitor adds that the payments the employer mustmake to satisfy its wind-up obligations may change over the five-year period within which s. 31 of the PBA Regulations, R.R.O. 1990,Reg. 909, requires that they be made.

These parties illustrate their argument by referring to what occurred to the Salaried Plan’s fund inthe case at bar. In 2007-8, Indalex paid down the vast majority of the $1.6 million wind-up deficiency associated with the Salaried Planas estimated in 2006. By the end of 2008, however, this deficiency had risen back up to $1.8 million as a result of a decline in the fund’sasset value. According to this argument, the amount could not have accrued as of the date of the wind up, because it could not becalculated with certainty. [34] Unlike my colleague Cromwell J., I find this argument unconvincing.

I instead agree with the Court of Appeal onthis point. The wind-up deemed trust concerns “employer contributions accrued to the date of the wind up but not yet due under the planor regulations”. Since the employees cease to accumulate entitlements when the plan is wound up, the entitlements that are used tocalculate the contributions have all been accumulated before the wind-up date. Thus the liabilities of the employer are complete — haveaccrued — before the wind up.

The distinction between my approach and the one Cromwell J. takes is that he requires that it be possibleto perform the calculation before the date of the wind up, whereas I am of the view that the time when the calculation is actually made isnot relevant as long as the liabilities are assessed as of the date of the wind up. The date at which the liabilities are reported or theemployer’s option to spread its contributions as allowed by the regulations does not change the legal nature of the contributions. [35] In Hydro-Electric Power Commission of Ontario v.

Albright (1922), (SCC), 64 S.C.R. 306, Duff J.considered the meaning of the word “accrued” in interpreting the scope of a covenant.

He found that the word “accrued” according to well recognized usage has, as applied to rights or liabilities the meaning simply of completelyconstituted — and it may have this meaning although it appears from the context that the right completely constituted or the liabilitycompletely constituted is one which is only exercisable or enforceable in futuro — a debt for example which is debitum in praesentisolvendum in futuro. [Emphasis added; pp. 312-13.] [36] Thus, a contribution has “accrued” when the liabilities are completely constituted, even if the payment itself will notfall due until a later date.

If this principle is applied to the facts of this case, the liabilities related to contributions to the fund allocated forpayment of the pension benefits contemplated in s. 75(1)(

b) are completely constituted at the time of the wind up, because no pensionentitlements arise after that date. In other words, no new liabilities accrue at the time of or after the wind up.

Even the portion of thecontributions that is related to the elections plan members may make upon wind up has “accrued to the date of the wind up”, because itis based on rights employees earned before the wind-up date. [37] The fact that the precise amount of the contribution is not determined as of the time of the wind up does not make ita contingent contribution that cannot have accrued for accounting purposes (Canadian Pacific Ltd. v. M.N.R. (1998), (ON CA), 41 O.R. (3d) 606 (C.A.), at p. 621). The use of the word “accrued” does not limit liabilities to amounts that can be determinedwith precision.

As a result, the words “contributions accrued” can encompass the contributions mandated by s. 75(1)(

b) of the PBA. [38] The legislative history supports my conclusion that wind-up deficiency contributions are protected by the deemedtrust provision. The Ontario legislature has consistently expanded the protection afforded in respect of pension plan contributions. Icannot therefore accept an

interpretation that would represent a drawback from the protection extended to employees.

I will notreproduce the relevant provisions, since my colleague Cromwell J. quotes them. [39] The original statute provided solely for the employer’s obligation to pay all amounts required to be paid to meet thetest for solvency (The Pension Benefits Act, 1965, S.O. 1965, c. 96, s. 22(2)), but the legislature subsequently afforded employees theprotection of a deemed trust on the employer’s assets in an amount equal to the sums withheld from employees as contributions and sumsdue from the employer as service contributions (s. 23a, added by The Pension Benefits Amendment Act, 1973, S.O. 1973, c. 113, s. 6).

Ina later version, it protected not only contributions that were due, but also those that had accrued, with the amounts being calculated as ifthe plan had been wound up (The Pension Benefits Amendment Act, 1980, S.O. 1980, c. 80). [40] Whereas all employer contributions were originally covered by a single provision, the legislature crafted a separateprovision in 1980 that specifically imposed on the employer the obligation to fund the wind-up deficiency.

At the time, it was clear fromthe words used in the provision that the amount related to the wind-up deficiency was excluded from the deemed trust protection (ThePension Benefits Amendment Act, 1980). In 1983, the legislature made a distinction between the deemed trust for ongoing employercontributions and the one for certain payments to be made upon wind up (ss. 23(4)(

a) and 23(4)(b), added by Pension BenefitsAmendment Act, 1983, S.O. 1983, c. 2, s. 3). In that version, the wind-up deficiency payments were still excluded from the deemed trust.However, the legislature once again made changes to the protection in 1987. The 1987 version is, in substance, the one that applies in thecase at bar.

In the Pension Benefits Act, 1987, S.O. 1987, c. 35, a specific wind-up deemed trust was maintained, but the wind-updeficiency payments were no longer excluded from it, because the limitation that had been imposed until then with respect to paymentsthat were due or had accrued while the plan was ongoing had been eliminated. My comments to the effect that the previous versionsexcluded the wind-up deficiency payments do not therefore apply to the 1987 statute, since it was materially different. [41] Whereas it is clear from the 1983 amendments that the deemed trust provided for in s. 23(4)(

b) was intended toinclude only current service costs and special payments, this is less clear from the subsequent versions of the PBA. To give meaning tothe 1987 amendment, I have to conclude that the words refer to a deemed trust in respect of all “employer contributions accrued to the

date of the wind up but not yet due under the plan or regulations”. [ 42 ] The employer’s liability upon wind up is now set out in a single

section which elegantly parallels the wind-up deemed trust provision. It can be seen from the legislative history that the protection has expanded from (1) only the service contributions that were due, to (2) amounts payable calculated as if the plan had been wound up, to (3) amounts that were due and had accrued upon wind up but excluding the wind-up deficiency payments, to (4) all amounts due and accrued upon wind up. [ 43 ] Therefore, in my view, the legislative history leads to the conclusion that adopting a narrow

interpretation that would dissociate the employer’s payment provided for in s. 75(1) (

b) of the PBA from the one provided for in s. 75(1) (

a) would be contrary to the Ontario legislature’s trend toward broadening the protection. Since the provision respecting wind-up payments sets out the amounts that are owed upon wind up, I see no historical, legal or logical reason to conclude that the wind-up deemed trust provision does not encompass all of them. [ 44 ] Thus, I am of the view that the words and context of s. 57(4) lend themselves easily to an

interpretation that includes the wind-up deficiency payments, and I find additional support for this in the purpose of the provision. The deemed trust provision is a remedial one. Its purpose is to protect the interests of plan members. This purpose militates against adopting the limited scope proposed by Indalex and some of the interveners.

In the case of competing priorities between creditors, the remedial purpose favours an approach that includes all wind-up payments in the value of the deemed trust in order to achieve a broad protection. [ 45 ] In sum, the relevant provisions, the legislative history and the purpose are all consistent with inclusion of the wind- up deficiency in the protection afforded to members with respect to employer contributions upon the wind up of their pension plan.

I therefore find that the Court of Appeal correctly held with respect to the Salaried Plan, which had been wound up as of December 31, 2006, that Indalex was deemed to hold in trust the amount necessary to satisfy the wind-up deficiency. [ 46 ] The situation is different with respect to the Executive Plan. Unlike s. 57(3), which provides that the deemed trust protecting employer contributions exists while a plan is ongoing, s. 57(4) provides that the wind-up deemed trust comes into existence only when the plan is wound up. This is a choice made by the Ontario legislature. I would not interfere with it.

Thus, the deemed trust entitlement arises only once the condition precedent of the plan being wound up has been fulfilled. This is true even if it is certain that the plan will be wound up in the future. At the time of the sale, the Executive Plan was in the process of being, but had not yet been, wound up. Consequently, the deemed trust provision does not apply to the employer’s wind-up deficiency payments in respect of that plan. [ 47 ] The Court of Appeal declined to decide whether a deemed trust arose in relation to the Executive Plan, stating that it was unnecessary to decide this issue.

However, the court expressed concern that a reasoning that deprived the Executive Plan’s members of the benefit of a deemed trust would mean that a company under CCAA protection could avoid the priority of the PBA deemed trust simply by not winding up an underfunded pension plan. The fear was that Indalex could have relied on its own inaction to avoid the consequences that flow from a wind up.

I am not convinced that the Court of Appeal’s concern has any impact on the question whether a deemed trust exists, and I doubt that an employer could avoid the consequences of such a security interest simply by refusing to wind up a pension plan. The Superintendent may take a number of steps, including ordering the wind up of a pension plan under s. 69(1) of the PBA in a variety of circumstances (see s. 69(1)(

d) PBA ). The Superintendent did not choose to order that the plan be wound up in this case. B. Does the Deemed Trust Supersede the DIP Charge? [ 48 ] The finding that the interests of the Salaried Plan’s members in all the employer’s wind-up contributions to the Salaried Plan are protected by a deemed trust does not mean that part of the money reserved by the Monitor from the sale proceeds must be remitted to the Salaried Plan’s fund. This will be the case only if the provincial priorities provided for in s. 30(7) of the PPSA ensure that the claim of the Salaried Plan’s members has priority over the DIP charge. Section 30(7) reads as follows: 30. . . .

(7) A security interest in an account or inventory and its proceeds is subordinate to the interest of a person who is the beneficiary of a deemed trust arising under the Employment Standards Act or under the Pension Benefits Act . The effect of s. 30(7) is to enable the Salaried Plan’s members to recover from the reserve fund, insofar as it relates to an account or inventory and its proceeds in Ontario, ahead of all other secured creditors. [ 49 ] The Appellants argue that any provincial deemed trust is subordinate to the DIP charge authorized by the CCAA order.

They put forward two central arguments to support their contention. First, they submit that the PBA deemed trust does not apply in CCAA proceedings because the relevant priorities are those of the federal insolvency scheme, which do not include provincial deemed trusts. Second, they argue that by virtue of the doctrine of federal paramountcy the DIP charge supersedes the PBA deemed trust. [ 50 ] The Appellants’ first argument would expand the holding of Century Services Inc. v.

Canada (Attorney General) , 2010 SCC 60 , [2010] 3 S.C.R. 379, so as to apply federal bankruptcy priorities to CCAA proceedings, with the effect that claims would be treated similarly under the CCAA and the BIA . In Century Services , the Court noted that there are points at which the two schemes converge: Another point of convergence of the CCAA and the BIA relates to priorities.

Because the CCAA is silent about what happens if reorganization fails, the BIA scheme of liquidation and distribution necessarily supplies the backdrop for what will happen if a CCAA reorganization is ultimately unsuccessful. [para. 23] [ 51 ] In order to avoid a race to liquidation under the BIA , courts will favour an

interpretation of the CCAA that affords

creditors analogous entitlements. Yet this does not mean that courts may read bankruptcy priorities into the CCAA at will. Provinciallegislation defines the priorities to which creditors are entitled until that legislation is ousted by Parliament. Parliament did not expresslyapply all bankruptcy priorities either to CCAA proceedings or to proposals under the BIA. Although the creditors of a corporation that isattempting to reorganize may bargain in the shadow of their bankruptcy entitlements, those entitlements remain only shadows untilbankruptcy occurs.

At the outset of the insolvency proceedings, Indalex opted for a process governed by the CCAA, leaving no doubtthat although it wanted to protect its employees’ jobs, it would not survive as their employer. This was not a case in which a failedarrangement forced a company into liquidation under the BIA. Indalex achieved the goal it was pursuing. It chose to sell its assets underthe CCAA, not the BIA. [52] The provincial deemed trust under the PBA continues to apply in CCAA proceedings, subject to the doctrine offederal paramountcy (Crystalline Investments Ltd. v.

Domgroup Ltd., 2004 SCC 3, [2004] 1 S.C.R. 60, at para. 43). The Court of Appealtherefore did not err in finding that at the end of a CCAA liquidation proceeding, priorities may be determined by the PPSA’s schemerather than the federal scheme set out in the BIA. [53] The Appellants’ second argument is that an order granting priority to the plan’s members on the basis of the deemedtrust provided for by the Ontario legislature would be unconstitutional in that it would conflict with the order granting priority to the DIPlenders that was made under the CCAA.

They argue that the doctrine of paramountcy resolves this conflict, as it would render theprovincial law inoperative to the extent that it is incompatible with the federal law. [54] There is a preliminary question that must be addressed before determining whether the doctrine of paramountcyapplies in this context. This question arises because the Court of Appeal found that although the CCAA court had the power to authorize aDIP charge that would supersede the deemed trust, the order in this case did not have such an effect because paramountcy had not beeninvoked.

As a result, the priority of the deemed trust over secured creditors by virtue of s. 30(7) of the PPSA remained in effect, and thePlan Members’ claim ranked in priority to the claim of the DIP lenders established in the CCAA order. [55] With respect, I cannot accept this approach to the doctrine of federal paramountcy. This doctrine resolves conflicts inthe application of overlapping valid provincial and federal legislation (Canadian Western Bank v. Alberta, 2007 SCC 22, [2007] 2 S.C.R.3, at paras. 32 and 69). Paramountcy is a question of law.

As a result, subject to the application of the rules on the admissibility of newevidence, it can be raised even if it was not invoked in an initial proceeding. [56] A party relying on paramountcy must “demonstrate that the federal and provincial laws are in fact incompatible byestablishing either that it is impossible to comply with both laws or that to apply the provincial law would frustrate the purpose of thefederal law” (Canadian Western Bank, at para. 75).

This Court has in fact applied the doctrine of paramountcy in the area of bankruptcyand insolvency to come to the conclusion that a provincial legislature cannot, through measures such as a deemed trust, affect prioritiesgranted under federal legislation (Husky Oil). [57] None of the parties question the validity of either the federal provision that enables a CCAA court to make an orderauthorizing a DIP charge or the provincial provision that establishes the priority of the deemed trust.

However, in considering whetherthe CCAA court has, in exercising its discretion to assess a claim, validly affected a provincial priority, the reviewing court shouldremind itself of the rule of

interpretation stated in Attorney General of Canada v. Law Society of British Columbia, (SCC), [1982] 2 S.C.R. 307 (at p. 356), and reproduced in Canadian Western Bank (at para. 75): When a federal statute can be properly interpreted so as not to interfere with a provincial statute, such an

interpretation is to be applied inpreference to another applicable construction which would bring about a conflict between the two statutes. [58] In the instant case, the CCAA judge, in authorizing the DIP charge, did not consider the fact that the Salaried Plan’smembers had a claim that was protected by a deemed trust, nor did he explicitly note that ordinary creditors, such as the Executive Plan’smembers, had not received notice of the DIP loan motion.

However, he did consider factors that were relevant to the remedial objectiveof the CCAA and found that Indalex had in fact demonstrated that the CCAA’s purpose would be frustrated without the DIP charge. Itwill be helpful to quote the reasons he gave on April 17, 2009 in authorizing the DIP charge ((2009), 52 C.B.R. (5th) 61): (

a) the Applicants are in need of the additional financing in order to support operations during the period of a going concernrestructuring; (

b) there is a benefit to the breathing space that would be afforded by the DIP Financing that will permit the Applicants to identify agoing concern solution; (

c) there is no other alternative available to the Applicants for a going concern solution; (

d) a stand-alone solution is impractical given the integrated nature of the business of Indalex Canada and Indalex U.S.; (

e) given the collateral base of Indalex U.S., the Monitor is satisfied that it is unlikely that the Post-Filing Guarantee with respect to theU.S. Additional Advances will ever be called and the Monitor is also satisfied that the benefits to stakeholders far outweighs the riskassociated with this aspect of the Post-Filing Guarantee;

(

f) the benefit to stakeholders and creditors of the DIP Financing outweighs any potential prejudice to unsecured creditors that mayarise as a result of the granting of super-priority secured financing against the assets of the Applicants; (

g) the Pre-Filing Security has been reviewed by counsel to the Monitor and it appears that the unsecured creditors of the Canadiandebtors will be in no worse position as a result of the Post-Filing Guarantee than they were otherwise, prior to the CCAA filing, as aresult of the limitation of the Canadian guarantee set forth in the draft Amended and Restated Initial Order . . . ; and (

h) the balancing of the prejudice weighs in favour of the approval of the DIP Financing. [para. 9] [59] Given that there was no alternative for a going-concern solution, it is difficult to accept the Court of Appeal’ssweeping intimation that the DIP lenders would have accepted that their claim ranked below claims resulting from the deemed trust.There is no evidence in the record that gives credence to this suggestion. Not only is it contradicted by the CCAA judge’s findings of fact,but case after case has shown that “the priming of the DIP facility is a key aspect of the debtor’s ability to attempt a workout” (J.

P.Sarra, Rescue! The Companies’ Creditors Arrangement Act (2007), at p. 97). The harsh reality is that lending is governed by thecommercial imperatives of the lenders, not by the interests of the plan members or the policy considerations that lead provincialgovernments to legislate in favour of pension fund beneficiaries. The reasons given by Morawetz J. in response to the first attempt of theExecutive Plan’s members to reserve their rights on June 12, 2009 are instructive.

He indicated that any uncertainty as to whether thelenders would withhold advances or whether they would have priority if advances were made did “not represent a positivedevelopment”. He found that, in the absence of any alternative, the relief sought was “necessary and appropriate” ( ,at paras. 7-8). [60] In this case, compliance with the provincial law necessarily entails defiance of the order made under federal law.

Onthe one hand, s. 30(7) of the PPSA required a part of the proceeds from the sale related to assets described in the provincial statute to bepaid to the plan’s administrator before other secured creditors were paid. On the other hand, the Amended Initial Order provided that theDIP charge ranked in priority to “all other security interests, trusts, liens, charges and encumbrances, statutory or otherwise” (para. 45).Granting priority to the DIP lenders subordinates the claims of other stakeholders, including the Plan Members. This court-orderedpriority based on the CCAA has the same effect as a statutory priority.

The federal and provincial laws are inconsistent, as they give riseto different, and conflicting, orders of priority. As a result of the application of the doctrine of federal paramountcy, the DIP chargesupersedes the deemed trust. C.

Did Indalex Have Fiduciary Obligations to the Plan Members? [61] The fact that the DIP financing charge supersedes the deemed trust or that the interests of the Executive Plan’smembers are not protected by the deemed trust does not mean that Plan Members have no right to receive money out of the reserve fund.What remains to be considered is whether an equitable remedy, which could override all priorities, can and should be granted for abreach by Indalex of a fiduciary duty. [62] The first stage of a fiduciary duty analysis is to determine whether and when fiduciary obligations arise.

The Courthas recognized that there are circumstances in which a pension plan administrator has fiduciary obligations to plan members both atcommon law and under statute (Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273, at para. 41). It is clear that the indicia ofa fiduciary relationship attach in this case between the Plan Members and Indalex as plan administrator. Sun Indalex and the Monitor donot dispute this proposition. [63] However, Sun Indalex and the Monitor argue that the employer has a fiduciary duty only when it acts as planadministrator — when it is wearing its administrator’s “hat”.

They contend that, outside the plan administration context, when directorsmake decisions in the best interests of the corporation, the employer is wearing solely its “corporate hat”. On this view, decisions madeby the employer in its corporate capacity are not burdened by the corporation’s fiduciary obligations to its pension plan members and,consequently, cannot be found to conflict with plan members’ interests.

This is not the correct approach to take in determining the scopeof the fiduciary obligations of an employer acting as plan administrator. [64] Only persons or entities authorized by the PBA can act as plan administrators (ss. 1(1) and 8(1)(a)). The employer isone of them. A corporate employer that chooses to act as plan administrator accepts the fiduciary obligations attached to that function.Since the directors of a corporation also have a fiduciary duty to the corporation, the fact that the corporate employer can act asadministrator of a pension plan means that s. 8(1)(

a) of the PBA is based on the assumption that not all decisions taken by directors inmanaging a corporation will result in conflict with the corporation’s duties to the plan’s members. However, the corporate employermust be prepared to resolve conflicts where they arise. Reorganization proceedings place considerable burdens on any debtor, but theseburdens do not release an employer that acts as plan administrator from its fiduciary obligations. [65] Section 22(4) of the PBA explicitly provides that a plan administrator must not permit its own interest to conflictwith its duties in respect of the pension fund.

Thus, where an employer’s own interests do not converge with those of the plan’smembers, it must ask itself whether there is a potential conflict and, if so, what can be done to resolve the conflict. Where interests doconflict, I do not find the two hats metaphor helpful. The solution is not to determine whether a given decision can be classified as beingrelated to either the management of the corporation or the administration of the pension plan. The employer may well take a soundmanagement decision, and yet do something that harms the inter

[…]