Telecommunication Employees Association of Date:, 2012 MBCA 13

Citation: Telecommunication Employees Association of Date: 20120210 Manitoba Inc. et al. v. Manitoba Telecom Services Inc. Docket: AI 10-30-07355 et al., 2012 MBCA 13 IN THE COURT OF APPEAL OF MANITOBA Coram: Mr. Justice Richard J. Chartier Madam Justice Holly C. Beard Mr. Justice Alan D. MacInnes B E T W E E N: TELECOMMUNICATION EMPLOYEES )) C. R. Huband, ASSOCIATION OF MANITOBA INC. ─ )) P. B. Forsyth and INTERNATIONAL FEDERATION OF )) K. T. Williams PROFESSIONAL AND TECHNICAL )) for the Appellants ENGINEERS LOCAL 161, COMMUNICATIONS, )) ENERGY AND PAPERWORKERS UNION OF )) B. J.

Meronek, Q.C., CANADA LOCAL 7, INTERNATIONAL )) K. M. Saxberg, BROTHERHOOD OF ELECTRIC WORKERS, )) L. R. Bernas and LOCAL UNION 435, HARRY RESTALL, ON )) D. T. Masi HIS OWN BEHALF AND ON BEHALF OF )) for the Respondents, CERTAIN RETIRED EMPLOYEES OR THE )) excluding Communications, WIDOWS/WIDOWERS THEREOF OF )) Energy and Paperworkers MANITOBA TELECOM SERVICES INC., )) Union of Canada Local 7 MTS COMMUNICATIONS INC., )) MTS MOBILITY INC. AND MTS ADVANCED INC., )) R. L. Zaparniuk and and LARRY TRACH, ON HIS OWN BEHALF AND )) D. R.

Kochan ON BEHALF OF ALL UNIONIZED EMPLOYEES )) for the Respondents OF MANITOBA TELECOM SERVICES INC., )) Communications, Energy MTS COMMUNICATIONS INC., )) and Paperworkers Union MTS MOBILITY INC., MTS ADVANCED INC., )) of Canada Local 7 and ALL UNIONIZED EMPLOYEES OF )) MTS MEDIA INC. WHO WERE TRANSFERRED )) Appeal heard: TO YELLOW PAGES GROUP CO.

PURSUANT )) December 13 to 15, 2010 TO A SALE ON OCTOBER 2, 2006 )) )) Judgment delivered: (Plaintiffs) Respondents )) February 10, 2012 ) ) - and - ))) )) MANITOBA TELECOM SERVICES INC., and )) MTS ALLSTREAM INC. (as successor to )) MTS COMMUNICATIONS INC., )) MTS MOBILITY INC. and MTS ADVANCED INC.) )) )) (Defendants) Appellants )) ) MacINNES J.A.

1 The plaintiffs sued the defendants for various relief arising from their alleged loss of pension rights and benefits upon the privatization of The Manitoba Telephone System effective January 1, 1997. 2 The plaintiffs are, or are representatives of, the employees and retirees (including their successors) of the defendants.

I will refer hereinafter to the plaintiffs as the “Employees” and to the defendants as “MTS.” 3 The action proceeded to trial in 2008 and judgment was delivered January 19, 2010, wherein the report of an independent actuary as to equivalency in the value of pension benefits was set aside and MTS was ordered to pay the Employees the sum of $43,343,000 plus interest. All other claims of the Employees for relief were dismissed. 4 MTS now appeals the monetary judgment against it and the Employees cross appeal in respect of certain claims for relief which were dismissed.

BACKGROUND 5 In 1939, the Government of Manitoba (Manitoba) introduced a pension plan for its employees and those of its Crown corporations and agencies. That pension plan was created by statute, which at all times material to this litigation was The Civil Service Superannuation Act , C.C.S.M., c. C120 (the CSSA ). The CSSA was both the constating legislation and the plan text for that pension plan (the Prior Plan). At inception and continuing until 1961, both the employee members and the employers made regular monthly contributions to the Prior Plan.

Those contributions were paid into a trust fund called the Civil Service Superannuation Fund (CSSF), out of which the pension benefits were paid to retirees. 6 In 1961, an agreement was reached between Manitoba and the employees’ association whereby, in exchange for improved benefits, Manitoba was no longer required to pay into the CSSF regular monthly contributions matching those made by the employee members. 7 Thus, after 1961, the CSSF was made up only of the employee contributions, together with income earned thereon.

When the pension benefits came due to the retirees each month, Manitoba would pay from its consolidated revenue fund into the CSSF an amount equal to 50 per cent of the pension benefits due the retirees. The full amount of the pension benefit payment due the retirees was then paid out of the CSSF to them, 50 per cent coming from the “pay-as-you-go” contribution from Manitoba and the other 50 per cent coming from the accumulated contributions of the employees to the CSSF. 8 Included in the pension benefit payments were annual cost of living adjustments (COLA) set forth in the Prior Plan.

The Superannuation Adjustment Account (the SAA) was established under the Prior Plan for the purpose of COLA. Monies were credited to the SAA from the employees’ pension contributions into the CSSF as mandated by the Prior Plan. COLA was paid out of the CSSF to the retirees as part of their monthly pension benefit payment.

Contributions to the COLA portion of the monthly pension benefit were made equally by the employees from the SAA and by Manitoba as part of its “pay-as-you-go” contribution to the pension payments. 9 As at December 31, 1996, there were approximately 42,000 employee/retiree members of the Prior Plan, of which approximately 7,000 were active or retired employees of MTS. 10 The Manitoba Telephone System Reorganization and Consequential Amendments Act , S.M. 1996, c. 79 (the Reorg Act ) received royal assent November 28, 1996, to take effect (subject to certain exceptions, see s. 39 thereof) January 1, 1997. 11 Pursuant to the Reorg Act , The Manitoba Telephone System ceased to be a Crown corporation and was continued as a publicly traded corporation.

The active employees of the old corporation were continued as employees of MTS. In addition, the active employees, the retirees and their successors who had been members of the Prior Plan were continued as members of the pension plan of the newly privatized MTS created under s. 15 of the Reorg Act . 12 Ultimately, the new pension plan consisted of s. 15 of the Reorg Act , the Memorandum of Agreement (the MOA), the New Plan text (the Plan Text) and the Trust Agreement (which created the Trust Fund for the new plan), which hereinafter collectively are called the New Plan.

The pension rights and benefits enjoyed by the Employees under the Prior Plan were transferred to and continued under the New Plan. 13 I have set out in

Schedule A to this judgment the provisions of the documents comprising the New Plan which, in my opinion, are relevant to the issues on this appeal. 14 The pension assets of the Prior Plan attributable to the Employees were transferred to the New Plan Trust Fund (the Trust Fund), as were the corresponding pension liabilities, the latter of which were assumed by MTS, all as provided for in the Reorg Act . 15 As the pension benefits payable to the employees under the Prior Plan were contributed to equally by the Employees and Manitoba, it was understood that a determination would be made as to the value of the pension assets of the Prior Plan attributable to the Employees which were being transferred to the New Plan, as compared with 50 per cent of the value of the pension liabilities attributable to the Employees which were being assumed by MTS. 16 Both the Employees and MTS anticipated that there would be a surplus in the value of such assets as compared with 50 per cent of the pension liabilities assumed by MTS.

The Employees were thus concerned that this surplus be recognized and used for their benefit. 17 It was determined that the value of such assets was $424,000,000 and that the value of the pension liabilities assumed was $750,000,000, one-half of which was $375,000,000. The difference was quantified by the trial judge at $43,343,000, and became known as the “Initial Surplus.”

18 Unlike the Prior Plan, which was funded by the employer on a “pay-as-you-go” basis, the New Plan was not. Under the New Plan, MTS was required to contribute monthly to the Trust Fund, as were the Employees. The Employees’ contributions continued to be the same as they had been under the Prior Plan.

MTS’s contributions were determined annually on the basis of actuarial calculations, although it is common ground that, but for those years in which it took a contribution holiday (about which more will be said later), its annual contributions exceeded those of the Employees. 19 Under the New Plan, the Pension Benefit Adjustment Account (the PBAA) was established for purposes of COLA. It was a notional account, about which more will be said later. Following the initial contributions made into that account at inception, the Employees and MTS funded it equally on a monthly basis.

As well, income earned on the PBAA was attributed to it. 20 Under the Prior Plan, the Employees were required to fund pension deficits. Under the New Plan, they are not. Their sole obligation under the New Plan is to make their monthly prescribed contributions and MTS is solely responsible to fund the balance of the full cost of their pensions, including guaranteed COLA, pursuant to the terms of the Plan Text and without regard to any deficits that may arise under the Trust Fund.

As well, while the annual COLA adjustment was not guaranteed under the Prior Plan, it is guaranteed by MTS under the New Plan. 21 The Employees first learned of the possibility of the privatization of MTS in February 1996. In May 1996, Bill 67 (which ultimately was passed as the Reorg Act ) was introduced for first reading in the Legislature. Shortly thereafter, the Employee Retiree Pension Committee (ERPC) was formed. Harry Restall was elected its Chair. As well, certain of the unions representing the Employees became involved.

The involvement of the ERPC and of the unions in question was to ensure that the pension benefits which the Employees enjoyed under the Prior Plan would be continued under the New Plan. 22 The ERPC retained Louis Ellement to assist it in its efforts and to provide advice in that regard. The plaintiff Communications, Energy and Paperworkers Union of Canada Local 7 (CEP), though it proceeded independently of the ERPC, operated on a parallel course with it. CEP retained John Corp. Both were actuaries conversant with defined benefit pension plans, including, in particular, the Prior Plan. Mr.

Restall was likewise conversant with the Prior Plan, having been a member of the Liaison Committee, a committee mandated under the Prior Plan to represent the employees in consultations respecting pension benefits under the Prior Plan. 23 Thereafter, there were meetings and communications between representatives of MTS, including its then President, William Fraser, and representatives of the Employees, including Mr. Restall, one Kenneth Beatty (who was then retired, having been a lawyer employed by MTS as the head of its Legal Department), the two actuaries, Mr. Ellement and Mr.

Corp, and the Employees’ legal counsel, Brian Meronek, Q.C. 24 On October 31, 1996, Mr. Meronek, on behalf of ERPC, made a presentation to the Standing Committee on Public Utilities and Natural Resources, the Legislative Committee considering Bill 67. He explained the concerns of the Employees who were members of the Prior Plan and advocated for amendments to s. 15 of the Bill. On November 1, a petition from Employees who were members of the Prior Plan was presented to the Legislature expressing their concerns. 25 At the request of the Minister responsible for MTS, a memorandum under Mr.

Fraser’s signature was provided dated November 6, 1996, giving the Minister an update on various issues with respect to implementation of the New Plan. A copy of that memorandum was provided that day to Mr. Restall by a senior employee of Manitoba. He inquired as to whether the memorandum was acceptable in satisfying the Employees’ concerns respecting the New Plan. Mr. Restall advised that it was not. Later that day his committee, the ERPC, confirmed Mr. Restall’s response. 26 This led to a meeting on November 7, 1996, for the purpose of reaching an agreement on the Employees’ outstanding concerns.

An agreement was reached and the Employees, MTS and Manitoba signed the MOA on November 7, 1996. 27 By this time, MTS had been working on drafting the Plan Text for the New Plan. A draft of the Plan Text was provided to the Employees and their advisors. Thereafter, there were correspondence and meetings between the Employees’ advisors and MTS with respect to the Plan Text. These resulted in some amendments to it.

Ultimately, the Employees’ representatives signed off on the Plan Text with the exception of two issues, those of governance and the ability to share in ongoing surplus under the New Plan. 28 The Plan Text had to be submitted to and accepted by the Canada Revenue Agency and by the Office of the Superintendent of Financial Institutions and registered under both the Income Tax Act (the ITA ), and the Pension Benefits Standards Act, 1985 (the PBSA ). This occurred. 29 Equivalency in the value of pension benefits under the New Plan with those under the Prior Plan was mandated by s. 15(2) (

a) of the Reorg Act . 30 Following execution of the MOA, three amendments were made to Bill 67 on November 8, 1996. Section 15(3) was added. It provided that the Provincial Auditor would appoint an independent actuary, who was to review the New Plan to determine whether the benefits under it were equivalent in value to those under the Prior Plan, as required by s. 15(2) (a). At the same time, s. 15(4) was also added by amendment.

It required that MTS take any steps necessary to resolve any concerns raised by the independent actuary in his report as to equivalency of benefits. 31 The Employees’ concern relating to the Initial Surplus was addressed in the MOA. This led to the third amendment, the addition of s. 15(11), which provided that nothing in s. 15 was to be interpreted as nullifying the effect of the MOA. 32 Clifford Fox was appointed as independent actuary. On March 5, 1997, he reported that the pension benefits under the New Plan were equivalent in value to those under the Prior Plan.

It was not long thereafter that the Employees began a process to obtain background information leading to the Fox report, which ultimately culminated in commencement of this action against MTS.

33 The relief sought by the Employees in their action at trial was described by the trial judge as follows (at para. 11): Plaintiffs seek the following relief: (

a) payment of $43,343M plus interest at the New Plan rate of return since January 1, 1997 to be used to enhance pension benefits on the understanding that the enhanced benefits will not result in an increase of MTS’s costs; (

b) maintain a separate accounting for the COLA account so that surpluses resulting from employee contributions from time to time are available to enhance pension benefits on the understanding that those enhancements do not increase MTS’s costs; (

c) a declaration that Fox’s March 5, 1997 opinion on equivalency is invalid and of no force and effect; (

d) a declaration that the New Plan is to be governed on the basis of consensus through the operation of a two-thirds vote of the Pension Committee with respect to all changes to the plan that would impact on benefits. 34 In his judgment, the trial judge found that Mr. Fox had not acted fairly or independently and declared that his opinion on equivalency was invalid and of no force and effect. He also concluded that it was “neither necessary nor appropriate” (at para. 457) to return the matter to Mr. Fox for reconsideration. Instead, he proceeded to decide the issues raised before him by the Employees. 35 The trial judge decided that the “benefits” referred to in s. 15(2)(

a) of the Reorg Act included issues of surplus, both initial and ongoing, as well as issues of governance. He then proceeded to find MTS in breach of the MOA, which he characterized as a breach of contract. He held that the Initial Surplus, being $43,343,000, had effectively been taken by MTS by way of contribution holidays and should be returned by MTS to the Employees, plus interest.

He concluded that the Employees had not been “deprived of any significant governance prerogatives” (at para. 500) and had no right to ongoing surpluses, assuming the initial contributions of MTS and the Employees were equalized in the New Plan. He made no mention of any tort claims, including misrepresentation. 36 The trial judge thus: (

a) declared that Mr. Fox’s March 5, 1997 opinion on equivalency was invalid and of no force and effect; (

b) ordered that the Employees would receive payment from MTS in the amount of $43,343,000 plus interest at the New Plan rate of return from January 1, 1997, to date of payment, which is to be used to enhance pension benefits on the understanding that the enhanced benefits will not result in an increase of MTS’s costs; and (

c) dismissed the Employees’ claim for relief in respect of governance and their claim to entitlement to share in ongoing surpluses under the New Plan. 37 From that decision, MTS has appealed and the Employees have cross appealed. THE APPEAL AND CROSS APPEAL 38 There were certain concessions made by both MTS and the Employees in their written and oral submissions before this court. MTS agreed that the opinion on equivalency of the independent actuary, Mr. Fox, dated March 5, 1997, should be set aside and be of no force and effect.

The Employees abandoned their appeal from the trial judge’s dismissal of their claim to be entitled to share in ongoing surpluses under the New Plan. 39 In the result, the issues before this court on appeal and cross appeal are the following: THE APPEAL 1. Did the trial judge misapprehend pension law in Canada and the nature of the actuarial surplus? 2. Did the trial judge misapprehend MTS’s funding obligations under the New Plan? 3. Did the trial judge err in his

interpretation of the Reorg Act ? 4. Did the trial judge err in his

interpretation of the MOA? 5. Did the trial judge err in his approach to the Undertaking? 6. Did the trial judge err in his approach to damages? 7. Did the trial judge err in substituting his own decision for the decision of the independent actuary? 8. Did the trial judge err in his selection of the appropriate remedy for any breach that he found? THE CROSS APPEAL 1. Did the trial judge err in failing to find that the Initial Surplus should be quantified as the amount by which the Employees’ contributions exceeded their one-half of actuarial liabilities?

2. Did the trial judge err by finding that there was equivalency in value in terms of governance by failing to find that theEmployees’ approval is required before MTS can make any changes to the level of benefits or the structure of benefits under the NewPlan?

Issue 7: Did the trial judge err in substituting his own decision for the decision of the independent actuary? 40 I propose to deal firstly with this issue as it is my view that if MTS is correct in its argument that the trial judge did so err,then not only should determination of equivalency in value of benefits be remitted to a newly appointed independent actuary pursuant tos. 15(3) of the Reorg Act, but so too, pursuant to para. 5 of the MOA, should the dispute between the Employees and MTS pertaining tothe matters described in para. 3 of the MOA. 41 In effect, if I accept MTS’s argument on this issue, then, but for the trial judge’s declaration setting aside the Fox opinion onequivalency (about which no dispute now exists), all of the remaining issues on the appeal would be encapsulated in the remission fordetermination by an independent actuary. 42 As regards the question of equivalency in benefits, ss. 15(2)(a), 15(3) and 15(4) of the Reorg Act provide: New plans established 15(2) On or prior to the implementation date, the corporation shall establish (

a) the new plan which shall provide for benefits which on the implementation date are equivalent in value to the pensionbenefits to which employees have or may have become entitled under The Civil Service Superannuation Act .... Independent actuary to review plan 15(3) As soon as possible after this Act receives royal assent, the Provincial Auditor shall appoint an independent actuary to reviewthe plan proposed by the corporation for the purposes of clause (2)(

a) to determine whether the benefits under the proposed plan areequivalent in value as required by that clause. Concerns of independent actuary to be addressed 15(4) The corporation shall take any steps necessary to resolve any concerns raised by the independent actuary in a report prepared forthe purposes of subsection (3). 43 As regards the issue in dispute pertaining to para. 3 of the MOA, it and para. 5 of the MOA are as follows: 3. MTS will provide a minimum cost of living adjustment of 2/3 of CPI with a maximum CPI of 4%.

However, if the cost of livingadjustment account in any particular year is able to fund a higher increase, then a higher increase would be given for that year. Anyinitial surplus from the CSSF would be allocated to the new pension plan trust fund to fund future costs of living adjustments.

Insubsequent years the financial position of the COLA Account will be reviewed by the plans [sic] actuary, if sufficient additional assetsexist in the account beyond those required for the stated COLA increase for a particular year then pension benefits may be increasedprovided that the liability for the pension plan in total does not increase due to the change in benefits. 5.

In the event of any dispute in relation to the matters described in paragraph ... three above an actuary appointed by theProvincial Auditor as proposed by the Act (Bill 67) will resolve any dispute. 44 MTS argues that the question whether the trial judge erred in substituting his own decision for that of the independentactuary raises questions of law as to the remedies available on judicial review and that the standard of review is that of correctness. 45 The Employees agree that the standard of correctness applies to this issue, being one relating to the appropriate remedyavailable to the trial judge. 46 I do not agree with the parties’ submissions.

In my view, the question raised by this issue is not one for which there is onlyone right answer. Rather, the answer is dependent upon the overall circumstances which inform the decision of the trial judge and is adiscretionary decision for which the standard of review is one of great deference. 47 This was described by Freedman J.A. of this court, who wrote in Towers Ltd. v.

Quinton’s Cleaners Ltd. et al., 2009 MBCA81, 245 Man.R. (2d) 70 (at para. 25): A discretionary decision ... is reviewed on appeal according to a highly deferential standard, often described in this way; see Elsom v.Elsom, (SCC), [1989] 1 S.C.R. 1367; 96 N.R. 165 (at p. 1375): ... [A]n appellate court will be justified in intervening in a trial judge’s exercise of his discretion only if the trial judge misdirects himselfor if his decision is so clearly wrong as to amount to an injustice. ...

That standard of review is not restricted to matters of family law, but is universally applicable to discretionary decisions made by trialjudges. ARGUMENT 48 MTS says that the trial judge had jurisdiction to set aside Mr. Fox’s opinion as being neither fair nor independent,characterizing this aspect of the case as an application for, and decision in the nature of, judicial review.

49 However, MTS submits that the trial judge could not substitute his decision for the opinion being set aside. Rather, it assertsthat the trial judge should instead have ordered a new review by a new independent actuary appointed by the Provincial Auditor andshould have remitted the matter for that purpose. 50 As well, MTS argues, relying on para. 5 of the MOA, that the trial judge had no jurisdiction to award damages in respect ofany dispute concerning the MOA, including alleged breaches thereof.

This too, it says, should have been remitted for determination bythe independent actuary. 51 MTS asserts that the Legislature clearly opted for a non-judicial remedy in respect of the issue of equivalency of benefits andthat the parties themselves agreed, pursuant to para. 5 of the MOA, for a non-judicial remedy in respect of disputes concerning thematters referred to in para. 3 of the MOA.

Thus, the only remedy available to the trial judge, absent affirmation of the Fox report, was toremit the matter to the Provincial Auditor for appointment of a new independent actuary, who would then undertake the tasks outlinedfor him or her in s. 15(3) of the Reorg Act and para. 5 of the MOA. 52 The Employees acknowledge that in a judicial review proceeding the usual remedy after quashing a decision is remission ofthe matter to the original tribunal for reconsideration. They assert, however, that this action was not one for judicial review.

Rather,they say that their claim was a hybrid involving a claim not only for a declaration of invalidity, but also claims for breach of contract,negligent misrepresentation and damages, claims which are not amenable to resolution by judicial review. 53 They also argue that to remit the matter at this stage would be inconsistent with the object and purposes of the Reorg Act inthat the position of the independent actuary was not intended to be a continuing position or office. Rather, it was a process mandated tobe performed as soon as possible following royal assent of the Reorg Act.

They say the process envisaged by the Reorg Act has nowbeen spent. They make the same argument with respect to the MOA.

The clear intent of both was that issues between the partiespertaining to all aspects of the transfer of pension benefits and obligations would be resolved quickly. 54 As well, the Employees assert that to remit the matter to a new independent actuary would be a remedy inferior to thelengthy litigation and trial that has already taken place to decide all of the issues and would result only in further delay and additionalexpense in respect of a procedure that has already gone on for over 13 years at considerable expense. 55 In addition, the Employees argue that it is too late for MTS to invoke a jurisdiction argument.

They say that MTS ought tohave raised this issue a long time ago, but did not, and instead chose to participate fully in the litigation process and trial. 56 Further, CEP argues that The Arbitration Act, C.C.S.M., c. A120, and, in particular, s. 7 thereof, applies so that if MTSwished to have the issues of equivalency of pension benefits, governance and use of the Initial Surplus determined by arbitration, it oughtto have moved for an order staying the action. CEP argues that, not having done so, the matter should not now be remitted for an arbitraldecision.

ANALYSIS 57 It is settled law that the usual practice in administrative matters involving judicial review is to remit the matter to theoriginating administrative tribunal, rather than have the court resolve the dispute on its merits. As well, a court’s jurisdiction to considera matter may be constrained by specific statutory provisions assigning certain matters to designated bodies or individuals. It is also thecase, however, that The Court of Queen’s Bench Act, C.C.S.M., c.

C280, provides wide powers to that court to resolve disputes that comebefore it. 58 In my opinion, this case is not a judicial review application dressed up as an action. Rather, this case essentially raises issuesof private law between the Employees and MTS having to do with the pension rights of the Employees and the pension obligations ofMTS.

While it is correct that the supervisory jurisdiction of the court was invoked by the Employees in respect of Fox’s opinion, therewas much more to this case as pleaded and litigated, such that the case extensively engaged the trial court’s original jurisdiction, thus, inmy view, expanding the remedial options available to the trial judge. 59 Therefore, whether to remit the issue of equivalency under the Reorg Act and the relevant issues arising from the MOA to theindependent actuary for determination pursuant to s. 15(3) of the Reorg Act and para. 5 of the MOA, or to decide the case on the merits,was ultimately a decision within the jurisdiction and discretion of the trial judge. 60 The process contemplated by s. 15(3) was not that of arbitration, but of valuation.

The difference between the two wasdescribed by Walker J. in Montgomery Agencies Ltd. v. Krischke (1989), (SK KB), 76 Sask.R. 143 (Q.B.), where hewrote (at para. 8): .... The distinction between valuation and arbitration is usually expressed by saying that an arbitrator is appointed to determine a certainmatter ... for the purpose of settling a dispute which has arisen between the parties, but that a valuer is appointed to determine such amatter before any dispute has arisen and with the object of preventing any dispute (39 Halsbury’s Laws of England (3d Ed.) 1, at p. 4).

An arbitration presupposes a controversy or difference to be decided, and arbitrators proceed in a judicial way. On the other hand, avaluation is generally a mere auxiliary feature of a contract of sale, the purpose of which is not to adjudicate the controversy but to avoidone. .... See also Pfeil v. Simcoe & Erie General Insurance Co. and McQueen Agencies Ltd. (1986), (SK CA), 45 Sask.R. 241(C.A.), and Sport Maska Inc. v. Zittrer, (SCC), [1988] 1 S.C.R. 564. 61 While para. 5 of the MOA was more akin to one contemplating the arbitration of a dispute as opposed to a valuation so as to

avoid a dispute, I note that, in both situations, the designated decision-maker was a one-time appointee who was not required to have any adjudicative skills from an administrative law perspective or otherwise, nor was there any provision establishing or giving direction as to the form or structure of such a resolution process. 62 It was and is beyond dispute that many of the Employees are elderly and to further delay the decision of these issues was not in their interests. Moreover, there were no steps taken by MTS to seek a stay of the action and a determination of the issues by an independent actuary.

Nor did MTS make any serious objection, if at all, until raised on appeal, to the Employees proceeding with their entire claim as they did. Privatization occurred effective January 1, 1997. The trial was decided approximately 13 years later, the action having continued for more than 10 years.

Those factors, together with the time and expense already incurred and the additional time and expense attendant upon remission of the matter, are valid considerations in the analysis and determination by the trial judge as to whether to remit or to retain the matter and decide it. 63 While the usual course is to remit, there is considerable jurisprudence which makes clear that the factual circumstances may give rise to the judge deciding in his or her discretion not to remit, but to decide the issues raised in the litigation.

It cannot be said that the trial judge, in deciding this issue, misdirected himself, nor can it be said that his decision was so clearly wrong as to amount to an injustice. Indeed, in all of the circumstances, it is my opinion that the trial judge correctly exercised his discretion in deciding not to remit the matter, but rather to decide the issues raised and fully litigated by the parties. 64 In light of this conclusion, it is not necessary to address The Arbitration Act argument. 65 I now turn to consider Issue 3 on this appeal. Issue 3 : Did the trial judge err in his

interpretation of the Reorg Act ? 66 This issue raises the question of the trial judge’s

interpretation of ss. 15(2) (

a) and 15(11) of the Reorg Act . 67 MTS argues that this issue, being one of

interpretation of the words of a statute, raises a question of law for which the standard of review is correctness. 68 The Employees argue that this issue is one of mixed law and fact and that the standard of review is the more deferential standard of palpable and overriding error. 69 In my opinion, this issue is one of statutory

interpretation, for which the standard of review is correctness. While one does not look only at the words to be interpreted, still, the essence of the issue is, and the task for the trial judge was, to interpret correctly the meaning of the legislative provisions in question. ARGUMENT 70 MTS argues that the intention of the Reorg Act , apparent from the plain language of the legislation, was to ensure that the Employees’ pension benefits did not decrease as a result of the privatization of MTS; that is, that a retiree was not to notice any reduction in the amount of money he or she received each month as a result of transferring to the New Plan. 71 MTS asserts that s. 15(2) (

a) of the Reorg Act contained a clear stipulation as to the form of pension plan MTS was to provide, namely, the New Plan was to provide for “benefits” which, on the implementation date, were “equivalent in value” to the “pension benefits” that existed under the Prior Plan. 72 It asserts that the trial judge disregarded both elementary pension law principles and the basic rules of statutory

interpretation and, thus, erred by importing a strained and artificial

interpretation to s. 15(2)(

a) which the words of that

section were not intended to, and will not, bear. 73 MTS argues that while the term “benefits” was not specifically defined under the Reorg Act , it is clear that it was to have the same meaning as “pension benefits” under the CSSA , where it was a specifically defined term, namely, “the aggregate monthly or other periodic payments of superannuation allowance to which an employee is, or may become entitled under this Act upon retirement or to which any other person is entitled under this Act by virtue of the death of the employee after his retirement.” 74 In addition, MTS argues and relies upon the presumption of statutory

interpretation that the Legislature uses language carefully and consistently to achieve harmony, coherence, and consistency between statutes dealing with the same subject-matter. It says that this presumption is especially strong where, as here, it is apparent that two statutes were intended to operate together. 75 As well, MTS argues that the normal or usual meaning of “benefits” in the context of pension plans is that of the amount which an employee will become entitled to receive upon retirement, or is receiving following retirement, under a pension plan.

In support of that assertion, MTS refers to the definition of “pension benefit” in other Canadian pension legislation, at the relevant time, including: • The Pension Benefits Act , C.C.S.M., c. P32. Prior to May 31, 2010, section 1(1) thereof defined “pension benefit” to mean the aggregate annual, monthly or other periodic amounts to which an employee is or will become entitled upon retirement or to which any other person is entitled under a pension plan by virtue of the death of the employee after his retirement. • The Teachers’ Pensions Act , C.C.S.M., c. T20.

Section 1(1) thereof defined “pension benefit” to mean the aggregate monthly or other periodic amounts to which a teacher is or will become entitled under this Act upon retirement or to which any other person is entitled by virtue of the death of the teacher after his retirement. • The Pension Benefits Standards Act, 1985 . Section 2(1) thereof defined “pension benefit” to mean the periodic amount to which, under the terms of a pension plan, a member or former member, or the spouse, other beneficiary or estate of a member or former member

is or may become entitled. 76 MTS points to the fact that Bill 67, which became the Reorg Act , was amended following execution of the MOA. It was then that s. 15(3), 15(4) and 15(11) were added. Notably, it says, there was no amendment of s. 15(2) (a). That

section was identical upon passage of the Reorg Act in November 1996 to its language when introduced for first reading in the Legislature in May 1996 as Bill 67. 77 MTS asserts that it would have been very simple for the Legislature to amend s. 15(2) (

a) when the other amendments were made, had it intended to change the meaning of “benefits” and enlarge the meaning beyond the definition contained in the Prior Plan. 78 MTS argues that there is only one plausible and legally correct

interpretation of s. 15(2)(a). It submits that, on both a plain and purposive reading, the evident intention of s. 15(2) (

a) was to ensure that the Employees did not feel any adverse impact on the pension payment they received each month as a result of the privatization of MTS. MTS asserts that this result was achieved and has been so admitted by the Employees. 79 The Employees argue that the intention of the Legislature in enacting s. 15 of the Reorg Act was that the New Plan be equivalent to the Prior Plan in all items of importance respecting their pensions. 80 They assert that the intent was to replicate for them all of the benefits which they had enjoyed under the Prior Plan.

They say that this included not simply the payment of their monthly pensions, but more, including an entitlement under the New Plan to the Initial Surplus and to share in ongoing surpluses and in governance. 81 The Employees refer to the presentation made by their counsel on October 31, 1996, to the Legislature’s Standing Committee on Public Utilities and Natural Resources, and the negotiations leading to the MOA.

They submit that those, and their expressions of concern made to MTS and Manitoba as the matter of privatization moved forward, were recognized by the Legislature when, on November 8, 1996, it amended Bill 67 by the addition of ss. 15(3), 15(4) and 15(11) . They argue that the effect of s. 15(11) was to separate and protect the provisions of the MOA, including the use of the Initial Surplus, from every clause in s. 15 of the Reorg Act , such that whatever was in the Plan Text would be overridden by the MOA. 82 The Employees argue that the effect of s. 15(11) was to cause equivalency in value under s. 15(2) (

a) to mean equivalency of plan in areas of funding, surplus and governance. Thus, they assert that “benefits” came to include governance rights which the Employees had under the Prior Plan and which in their submission ought to be equivalent under the New Plan. ANALYSIS 83 In respect of this issue, the trial judge, in his judgment, wrote (at paras. 512-15): Following the MOA, the Reorg Act was amended to add two significant provisions.

The first was that an independent actuary would be retained to determine whether the New Plan provided for benefits which on the implementation date were equivalent in value to the pension benefits to which employees had or may have become entitled under the Old Plan. Also added to the Reorg Act by way of amendment was s. 15(11) which provided that the MOA was to supersede any other provision of s. 15. Notwithstanding the use of the word “benefit” in s. 15(2) (a), I am not convinced the intention was to restrict that word in the manner as suggested by the defendants and their expert FitzGerald.

There never was any issue about those benefits. The circumstances leading up to the MOA, the various undertakings and assurances made by the Government, the wording of the MOA and the inclusion of s. 15(11) by way of amendment following the November 7, 1996 meeting all persuade me that “benefits” was intended to include issues of surplus, both initial and ongoing, as well as issues of governance. 84 In my opinion, the trial judge erred in his

interpretation as to the meaning of “benefits” under s. 15(2)(

a) of the Reorg Act . This occurred, in my view, because he did not focus upon the relevant legislation to determine what exactly “benefits” meant under s. 15(2)(a). 85 Rather, the trial judge drew upon the evidence of many of the Employees’ witnesses who testified as to their understanding of the expectations of the Employees concerning what was to be accomplished by virtue of the Reorg Act and the MOA. This included the evidence of the Employees’ actuarial expert, Thomas Levy, whose evidence the trial judge accepted over that of MTS’s actuarial expert, Brian FitzGerald. 86 But, like the trial judge, Mr.

Levy did not focus on the pivotal question, namely, what exactly “benefits” meant under s. 15(2) (a). He admitted that he had not read the CSSA before testifying.

He described his task as being a comparison of “programs” not of “pension benefits.” He admitted that he treated the Employees’ expectations as rights and that he had opined as to whether they were equivalent in value to that which the Employees described as rights they had under the Prior Plan. 87 The evidence at trial was that “equivalency in value” was not a normal actuarial term, but, in my opinion, it is not difficult to discern the meaning of the phrase. What needed to be done, but was not, was to first determine the meaning of what it was that was to be equivalent in value, namely, the benefits.

In my view, that meaning is clear. There is no ambiguity as to it in the language of s. 15(2)(a). 88 Section 15(2) (

a) of the Reorg Act provides: New plans established 15(2) On or prior to the implementation date, the corporation shall establish

(

a) the new plan which shall provide for benefits which on the implementation date are equivalent in value to the pensionbenefits to which employees have or may have become entitled under The Civil Service Superannuation Act ....

While “benefits” was not a defined term under the Reorg Act, there can be no doubt that it was meant to equate to the “pension benefits”under the CSSA. “Pension benefit” was a defined term under the CSSA, namely: “pension benefit” means the aggregate monthly or other periodic payments of superannuation allowance to which an employee is ormay become entitled under this Act upon retirement .... Neither governance nor surplus (either initial or ongoing) was included in this definition. 89 The cardinal rule of statutory

interpretation today is that set forth in Rizzo & Rizzo Shoes Ltd. (Re), (SCC),[1998] 1 S.C.R. 27, wherein the Supreme Court adopted with approval the statement of principle first enunciated by Professor Elmer A.Driedger in Construction of Statutes, 2d ed. (Toronto: Butterworths, 1983) at 87 (at para. 21): Today, there is only one principle or approach, namely, the words of

an Act are to be read in their entire context and in their grammaticaland ordinary sense harmoniously with the scheme of the Act, the object of the Act and the intention of Parliament. This principle has effectively nullified the plain-meaning rule alone and calls for the words of the text to be read in their entire context. 90 As MTS argued, there is a presumption of statutory

interpretation that the Legislature uses language carefully to achieveharmony, coherence and consistency between statutes dealing with the same subject-matter. This presumption is especially strong ininstances as exist here, where there is express reference in s. 15(2)(

a) to the other statute and it is apparent that both statutes (the CSSAand the Reorg Act) were intended to operate together. 91 In my opinion, there is also no doubt as to the intent of the Legislature. Section 15(2)(

a) of the Reorg Act, as passed, isidentical to that provision as it was when introduced for first reading in Bill 67 in May 1996.

It was not changed in any way thereafternotwithstanding the ongoing discussions between the Employees and MTS, the submission made by the Employees’ counsel to theLegislature’s Standing Committee considering the proposed legislation at second reading, nor as the result of the discussions whichfollowed with Ministers of the Crown, including the Minister then responsible for MTS, or the meeting which negotiated and led toexecution of the MOA. 92 As well, I note, as the parties have argued, that following the negotiation and execution of the MOA, there were threeamendments made to Bill 67 on November 8, 1996, namely, the addition of ss. 15(3), 15(4) and 15(11).

Clearly, the Legislature wasopen to amending Bill 67 prior to its passage. It would have been easy for it to amend s. 15(2)(

a) and require equivalency in value of thepension plans as opposed to equivalency in the value of benefits had it been disposed to do so.

Yet it did not. 93 This, in my view, provides powerful, if not conclusive, evidence of its intention that the benefits under the Reorg Act, whichwere to be equivalent in value to the pension benefits under the CSSA, were to be the pension benefits as that term was defined under theCSSA, namely, the aggregate monthly or other periodic payments of superannuation allowance to which an employee is or may becomeentitled under the CSSA upon retirement. 94 In reaching his conclusion on equivalency of benefits, I note that the trial judge found that s. 15(11) provided that the MOAwas to supersede any other provision of s. 15.

That clearly is wrong. What the

section said was that nothing in s. 15 was to override theprovisions of the MOA, not that the MOA was to override or supersede the provisions of s. 15. 95 Whether this may have led the trial judge to conclude, as he did, that “benefits” was intended to include issues of surplus,both initial and ongoing, as well as issues of governance, is impossible to say. But as I have said, I find his

interpretation, both of themeaning of “benefits” under s. 15(2)(

a) and of the effect of s. 15(11) in respect of the MOA, to be in error. 96 Having determined the meaning of “benefits” under s. 15(2)(a), I conclude that such benefits under the New Plan wereequivalent in value to the pension benefits under the Prior Plan. Indeed, having determined the meaning of “benefits,” as I have, therewas no issue between the parties as to equivalency in value.

Counsel for the Employees so indicated in their submissions, witnesses forthe Employees so admitted at trial, and the trial judge so stated in his judgment most clearly (at para. 510): The concerns which were being voiced by the employees/retirees were several but what is clear is that the actual benefits to be providedby the New Plan was not one of them.

Relatively early in the privatization process, the employees/retirees satisfied themselves that theNew Plan would produce the same pension benefits as had the Old Plan and that the costs to the employees for those benefits wouldremain unchanged. .... 97 I will now turn to address Issues 1, 2, 4 and 5 of the appeal.

I have chosen to deal with these issues together because, in myview, each is related to the other and must be considered together in order to decide the essential question whether or not the trial judgecorrectly concluded that MTS had breached the MOA by utilizing the Initial Surplus to take contribution holidays, thus effectively takingthe Initial Surplus from the Employees, and therefore should be ordered to return the amount of the Initial Surplus, $43,343,000 plusinterest, to the Employees. Issue 1: Did the trial judge misapprehend pension law in Canada and the nature of the actuarial surplus?

Issue 2: Did the trial judge misapprehend MTS’s funding obligations under the New Plan? Issue 4: Did the trial judge err in his

interpretation of the MOA? Issue 5: Did the trial judge err in his approach to the Undertaking?

98 MTS asserts that each of these issues raises a question of law and that the standard of review in connection with each is thatof correctness. 99 The Employees assert that each of these issues raises a question of mixed law and fact and that the standard of review is thatof palpable and overriding error. 100 In the recent decision of King v. Operating Engineers Training Institute of Manitoba Inc., 2011 MBCA 80, 270 Man.R. (2d)63, this court had occasion to consider the standard of review in contractual

interpretation matters, which, in my view, is the essence ofIssues 2, 4 and 5 relating, in particular, to the MOA. 101 In King, Steel J.A. wrote (at paras. 20-23, 26): Until recently, the standard of review in contractual

interpretation matters was always considered to be a question of law reviewable byan appellate court on a standard of correctness (Geoff R. Hall, Canadian Contractual

Interpretation Law (Markham: LexisNexisCanada Inc., 2007) at 106-107). At present, the standard of review is dependent on the nature of the question. The appropriate standard will depend upon the degree towhich the trial judge made factual findings based on the particular case in question to come to his decision. So, for example, errors oflaw reviewable on a standard of correctness, in the area of contractual

interpretation, include the application of an incorrect principle, thefailure to consider a required element of a legal test, or the failure to consider a relevant factor. See Prairie Petroleum Products Ltd. v.Husky Oil Ltd. et al. (2008), 2008 MBCA 87 , 231 Man.R. (2d) 1; 437 W.A.C. 1; 2008 MBCA 87, at para. 36; Plan Group etal. v. Bell Canada (2009), 2009 ONCA 548 , 252 O.A.C. 71; 96 O.R. (3d) 81; 2009 ONCA 548, at para. 135, Gillesse, J.A.,dissenting; and Midnight Marine Ltd. v.

Underwriters, Lloyd’s London (2010), 2010 NLCA 64 , 302 Nfld. & P.E.I.R. 85;938 A.P.R. 85; 325 D.L.R. (4th) 254; 2010 NLCA 64, at para. 44.

A trial judge’s determination of the factual matrix or surrounding circumstances, drawing inferences from a finding of fact, findings as tocredibility or good faith, consideration of extrinsic evidence and consideration of the evidence as a whole, are questions of fact andreviewable on a standard of palpable and overriding error (Hall, at p. 109), or the functional equivalent of “palpable and overriding error”such as, “clearly wrong”, “unreasonable” or “not reasonably supported by the evidence”. See H.L. v.

Canada (Attorney General) etal., 2005 SCC 25 , [2005] 1 S.C.R. 401; 333 N.R. 1; 262 Sask.R. 1; 347 W.A.C. 1; 2005 SCC 25, at para. 110. And seeCastledowns Law Office Management Ltd. v. 1131102 Alberta Ltd. et al. (2009), 2009 ABCA 148 , 454 A.R. 328; 455W.A.C. 328; 78 R.P.R. (4th) 1; 2009 ABCA 148, at para. 61, by Slatter, J.A. Most commonly, issues of contractual

interpretation raise questions of mixed fact and law. Generally, a question of mixed fact and lawarises when the trial judge applies the legal principles to the language of the specific contract in the context of the relevant facts andinferences. Such questions are generally reviewable on the palpable and overriding error standard (Hall, at p. 109). However, the palpable and overriding error standard is applicable to questions of mixed fact and law only where they are inextricablyintertwined. If the question of law can be separated or “extricated” from the factual considerations involved and the task of

interpretationis to put meaning to the words, then it can be treated as a question of law and evaluated on the standard of correctness. See PrairiePetroleum, at para. 36; Bell Mobility Inc. v. MTS Allstream Inc. (2009), 2009 MBCA 28 , 236 Man.R. (2d) 167; 448 W.A.C.167; 2009 MBCA 28, at paras. 30-35; Barcode Systems Inc. v.

Symbol Technologies Canada Inc. et al. (2008), 2008 MBCA 47, 225 Man.R. (2d) 312; 419 W.A.C. 312; 2008 MBCA 47, at para. 29. 102 In this case, the trial judge had to ascertain and correctly apply the common law principles respecting defined benefit pensionplans, and, in particular, the meaning, nature and effect of actuarial surplus and contribution holidays, as well as contract law. All of thisinformed and was necessary to the correct

interpretation of the MOA and determination of the essential question which I have stated inpara. 97 of these reasons. 103 Thus, I would conclude that the standard of correctness would apply to Issues 1 and 2. As regards Issues 4 and 5, while theyraise questions of mixed law and fact, it is my opinion that there are extricable legal questions raised to which the standard of correctnesswould apply.

ARGUMENT ARGUMENT OF MTS ON ISSUES 1 AND 2 Issue 1: Did the trial judge misapprehend pension law in Canada and the nature of the actuarial surplus? 104 MTS argues that the trial judge’s disposition of this action depended upon his finding that there existed an identifiable surplusthat “belonged” to the Employees.

It says this finding is wrong in law. 105 MTS asserts that the surplus of assets over liabilities which existed in the CSSF at the time of transfer to the New Plan was anactuarial surplus, something which cannot be owned by or belong to the employees while the pension plan is in operation. 106 MTS says that a pension plan is in operation so long as the employees continue to receive their promised benefits and the planis not wound up. Surplus crystallizes in a defined benefit pension plan when the plan winds up.

Only then does an actuarial surplusbecome an actual surplus that is capable of belonging to anyone. 107 MTS asserts that s. 15(7) of the Reorg Act provided that MTS would assume the liabilities of the CSSF in relation to theEmployees. Thus, the Prior Plan was not terminated or wound up in respect of the Employees, but continued as an operating plan, theNew Plan. Nothing crystallized and the Employees had no rights to the surplus (which was an actuarial surplus) transferred from thePrior Plan.

108 MTS says that the trial judge did not refer to any jurisprudence regarding pension law and surplus, and thus, without any such guidance, found that the Employees had an entitlement to that surplus and a right to be compensated, if such surplus was not used in accordance with their wishes. This, MTS asserts, was clear error. 109 MTS argues that, as a matter of law, the mere fact that an employee contributes money to a pension plan does not create any right to control that money.

Once the money is contributed to the plan, entitlement to it is governed by the plan text and/or trust agreement without regard to who paid the money in, as is the case with any general trust. While in a given case the common law may be altered by the provisions of an applicable statute, agreement or plan text, MTS says that that did not occur here.

Nothing in the Prior Plan or the New Plan provides any support for the Employees’ theory that the surplus belonged to them and/or that they were entitled to control it. 110 MTS submits that for something to belong to someone at law, that person must have the exclusive right to do with it what he or she wants, to the exclusion of others. It says that the trial judge acknowledged that such characteristics of ownership were not available to the Employees in this case, yet inexplicably found that MTS violated a supposed “entitlement” of the Employees to benefit improvements funded with the surplus.

Nowhere, however, did the trial judge explain the legal source of any such “entitlement.” 111 MTS agrees that the assets in the Prior Plan were derived from the Employees’ contributions, but says it does not follow that any of those assets belonged to the Employees in any sense that implies legal control over them.

MTS therefore asserts that the Employees’ argument and, ultimately, the judgment in this case depend upon an unstated and fundamentally false premise about surplus in an ongoing defined benefit pension plan. 112 MTS argues that the trial judge’s conclusions as to the Employees’ interest in surplus were contrary to Canadian pension jurisprudence, were not supported by the text of the Prior Plan or the New Plan and were inconsistent with the fact that both plans are, and always have been, defined benefit pension plans.

It says that the trial judge’s concept of the Employees’ ownership of surplus was central to his view of the case and that the sweeping remedy ordered by him, including the judgment in favour of the Employees for $43,343,000 plus interest, depended upon this underlying and erroneous assumption about the Employees’ ownership of surplus. Thus, argues MTS, the trial judge’s decision must be reversed.

Issue 2 : Did the trial judge misapprehend MTS’s funding obligations under the New Plan? 113 MTS argues that the trial judge made equally serious errors in his apparent conclusion that contribution holidays taken by MTS somehow used the Initial Surplus. Again, says MTS, the trial judge failed to consider binding case law concerning contribution holidays in an ongoing defined benefit pension plan. 114 MTS asserts the law is well settled that contribution holidays are a permissible use of surplus. They do not result in any money or assets being withdrawn from the plan trust fund.

They do not encumber the fund, nor do they reduce or affect the earned pension benefits of the employees. 115 Alternatively, MTS says that, even if one were to disregard the jurisprudence, it is unclear how the trial judge’s finding could be made in circumstances where, as here, there was only one Trust Fund and the Initial Surplus, while identifiable in amount, was not identifiable in specie . It says the evidence clearly shows that there were assets which could have permitted the taking of contribution holidays without touching the Initial Surplus.

MTS argues that the trial judge made bald conclusions as to the use of the Initial Surplus by MTS without any evidence to justify his conclusions. His conclusory statement that MTS used the Initial Surplus to take contribution holidays, it asserts, is not apparent from or supported by the evidence. 116 The evidence, says MTS, disclosed that in 1997, the first year of the New Plan’s operation, MTS did not take a contribution holiday. Rather, it contributed $11,732,000 to the Trust Fund.

In that year, the Trust Fund assets, which included the annual amounts contributed by the Employees as well as by MTS, experienced investment gains of $92,507,000 and the plan assets grew by over $100,000,000. 117 Thus, MTS contends that there were substantial assets in the Trust Fund available for it to take a contribution holiday when it first did so in 1998 and thereafter without touching any of the Initial Surplus, even if one were to accept the Employees’ fallacious assumption that the Initial Surplus belonged to the Employees.

ARGUMENT OF THE EMPLOYEES ON ISSUES 1 AND 2 Issue 1 : Did the trial judge misapprehend pension law in Canada and the nature of the actuarial surplus? Issue 2 : Did the trial judge misapprehend MTS’s funding obligations under the New Plan? 118 The Employees argue that the trial judge was not required to provide a treatise on pension law.

They say the general principles of pension law relied upon by MTS have no application in this case because the Prior Plan is a government pension plan which is unique in that the funding is fundamentally different from the defined benefit pension plans which existed in the legal authorities relied upon by MTS. 119 The Employees also assert that the New Plan is not an ongoing plan, but a new plan. They rely upon s. 15(1) of the Reorg Act , which defined “new plan” as the plan to be created by MTS. They say there are several other references to “new plan” in s. 15.

They argue there were no assets in the Trust Fund until assets were received by the transfer of the amount from the CSSF, which money was not to be transferred to the New Plan without the benefit of equivalence. 120 The Employees argue that there was no provision for a partial wind-up of the Prior Plan because government plans do not wind up and that any option of terminating involvement in the Prior Plan was made unilaterally by MTS without impetus or input from

the Employees. 121 The Employees submit that MTS never argued during the privatization process that it was entitled to the Initial Surplus. The Employees accept the trial judge’s finding that, since MTS bore the sole risk for unfunded liabilities under the New Plan going forward, it was fair that MTS would control surplus. They assert that, for the same reason, the Initial Surplus should not be scooped by MTS when it arose under the Prior Plan by reason only of the Employees’ contributions and where, under the Prior Plan, the risk resided with the Employees in terms of their funding obligations.

They say that if the entitlement to ongoing surplus under the New Plan, as found by the trial judge, is based on a risk/reward scenario, then the same should apply with respect to the Initial Surplus in terms of the Employees’ entitlement, based on the risk to which they were exposed in the Prior Plan. 122 The Employees argue that the MOA and the evidence of all witnesses was that the Initial Surplus had a particular application: to benefit Employees, not MTS. They assert that it superseded or overrode any contrary wording, or the absence of wording to that effect, in the Plan Text.

ARGUMENT OF MTS ON ISSUES 4 AND 5 Issue 4 : Did the trial judge err in his

interpretation of the MOA? 123 MTS argues that the trial judge erred in his

interpretation of the MOA by finding in essence that MTS had breached the MOA by taking contribution holidays between 1998 and 2003. 124 It asserts that the trial judge’s reasoning was predicated on a fundamental misunderstanding of the nature of contribution holidays and that it ignored the plain language of the MOA.

It says that he disregarded the relevant documents and elevated Employee expectations to contractual entitlements that exceeded and superseded what was actually agreed to in the MOA. 125 MTS submits that it set up and operated the PBAA consistent with the position advanced by the Employees’ counsel in a letter which he wrote to Mr. Fraser on September 25, 1996, and exactly as provided in the MOA.

It argues that, while the MOA was silent as to the concept of a 20-year pre-funding requirement with respect to the PBAA, that requirement was provided for in s. 15.4 of the Plan Text and was known to the Employees and their representatives prior to the inception date of the New Plan.

As well, the 20- year pre-funding requirement was a provision that existed under the CSSA for exactly the same purpose in respect of the SAA, the equivalent account under the Prior Plan, namely, to measure the ability of the SAA to fund COLA at a higher rate than the guaranteed rate. 126 The 20-year pre-funding requirement related to the funded status of the PBAA.

Where, in the opinion of the plan actuary, the actuarial value of the assets in the PBAA were sufficient to ensure its ability to make all guaranteed COLA payments on a continuing basis for the immediately ensuing period of 20 years, the 20-year pre-funding requirement would be met. 127 MTS says that the Employees’ actuary, Mr. Ellement, confirmed on cross-examination that the 20-year pre-funding requirement better assured that all members of the New Plan, the retirees and those to become retirees, would be treated fairly. As well, MTS refers to the evidence of Mr.

Restall that he was aware of the 20-year pre-funding requirement set out in s. 15.4 of the Plan Text and that neither he, nor, to his knowledge, Mr. Ellement, nor any of the other Employees’ unions or representatives raised the 20-year pre-funding requirement as a concern prior to, at, or for some considerable time following the implementation date. 128 MTS argues that the Employees were aware of the Plan Text which made clear that the PBAA would be a notional account containing a 20-year pre-funding requirement and that they have not demonstrated how the structure of the PBAA violated para. 3 of the MOA.

Rather, says MTS, the Plan Text was entirely consistent with the MOA, the Initial Surplus went into the PBAA and, as required, it was in fact used to fund ongoing cost of living increases. 129 MTS asserts that the Employees’ claim is based upon their expectations that MTS would operate the PBAA in a manner that went beyond what was required under the terms of para. 3 of the MOA. It refers to Mr.

Ellement’s admission on cross-examination that his expectation as to what would occur under the MOA related not to what MTS was obligated to do under it, but to what it had the ability to do. 130 MTS argues that the trial judge essentially accepted the Employees’ submissions that MTS’s obligations under para. 3 of the MOA should be determined by the Employees’ expectations rather than by the plain words of the agreement and that, just as with the Reorg Act and his erroneous conclusion as to the meaning of “benefits,” the trial judge erroneously focussed upon the Employees’ expectations rather than upon the language of the MOA and the Plan Text.

Issue 5 : Did the trial judge err in his approach to the Undertaking? 131 MTS says that, in two items of correspondence and one memorandum, Mr. Fraser made a statement that has come to be known as the undertaking (the Undertaking). The statement was that the Initial Surplus “will not be used to reduce MTS’s cost of, or share of contributions to, the New Plan.” The statement was first made in a letter dated August 27, 1996, from Mr. Fraser to Mr. Beatty, replying to a specific question of Mr. Beatty. The statement was repeated in a letter dated October 23, 1996, to Mr.

Meronek, replying to specific questions from him. The statement was again repeated in a briefing memorandum on November 6, 1996, from Mr. Fraser to Mr. Findlay, the Minister then responsible for MTS. 132 MTS argues that the trial judge viewed the Undertaking as a promise not to take contribution holidays and relied heavily upon this

interpretation in giving judgment against MTS. MTS submits that the trial judge erred in his

interpretation of the Undertaking. It argues that the Undertaking was not enforceable as a contract. Nor was it actionable as a misrepresentation. 133 MTS asserts that the reasons for judgment do not disclose whether, or on what basis, the Undertaking is legally enforceable.

It says there is no basis in the record for the trial judge to have found that the Undertaking was enforceable as a contract. The statements now described collectively as the Undertaking were offered as answers to specific requests for information, not as a contractual commitment. It says that a contract is an exchange of promises, acts, or promises and acts, as a result of which each side receives something from the other. The trial judge made no finding as to what consideration the Employees gave to support enforcement of the Undertaking as a contractual promise not to take contribution holidays.

There is no evidence that the Employees offered anything to MTS in exchange for such a contractual promise and a bare undertaking unsupported by consideration is unenforceable as a contract. 134 MTS also asserts that there is no basis in the reasons or in the evidence to conclude that the Undertaking is actionable as a negligent misrepresentation. It argues that the Undertaking was not as to an existing fact(s), but, at best, a statement as to how MTS would act in the future.

It says that to be actionable as a misrepresentation, the representation must not be a promise, but rather a representation as to an existing fact. Even if the Undertaking amounted to a representation, MTS argues that the Employees cannot meet the test to establish liability for negligent misrepresentation. It asserts that the Undertaking was not untrue, inaccurate or misleading, it was not relied upon by the Employees in a reasonable manner or at all, and there is no evidence as to damages suffered by the Employees as a result.

In addition, the record does not disclose that any of the Initial Surplus was actually used to take a contribution holiday. 135 MTS argues that while the Employees may have had the opportunity to negotiate for a contractual promise not to take contribution holidays, the fact is that they did not. The MOA is silent on the issue of contribution holidays. ARGUMENT OF THE EMPLOYEES ON ISSUES 4 AND 5 Issue 4 : Did the trial judge err in his

interpretation of the MOA? Issue 5 : Did the trial judge err in his approach to the Undertaking? 136 The Employees say that they contributed $424,000,000 to the assets in the New Plan, whereas the liabilities being assumed by MTS totalled $750,000,000, one-half of which was $375,000,000. Thus, their contributions in assets exceeded one-half of the assumed liabilities by $49,000,000. They assert that if the MOA does not produce enhanced benefits for the Employees, the effect is that the Employees have paid $49,000,000 for the same benefits which they had under the Prior Plan.

Paying more for the same benefits is not equivalent. 137 The Employees assert that the trial judge was entitled to receive parol evidence at trial concerning the objective intent of the parties and the general factual matrix within which the MOA was created. They say that the modern principles of contractual

interpretation permit judges to consider contractual language in light of the objective evidence relating to the factual matrix or surrounding circumstances of the agreement. 138 The Employees say the trial judge was correct in his finding that the November 7, 1996 meetings and the resulting MOA were an attempt by Manitoba to address and placate the concerns of the Employees.

They argue that the evidence of the witnesses directly involved in negotiating the MOA is fairly consistent, namely, that the Initial Surplus was to be used for new benefits in the form of higher COLA than the guarantee, and/or for other improvements. The only real differences in position, say the Employees, are whether the 20-year pre-funding requirement applies and, related to that, the proper constitution of the PBAA. 139 The Employees argue that the subject of a 20-year pre-funding requirement was not discussed on November 7, 1996, or included specifically in the MOA.

As well, the Employees say there was no discussion of the PBAA being a notional account, of how the account would work in practice, of what interest rate would be applied, of lump sum transfers out of the account, or of what assets would go into the PBAA other than the Initial Surplus. 140 The Employees assert that all of the witnesses agreed that the objective of the MOA was to achieve a benefit for employees and that the hope was that, by placing the Initial Surplus into the PBAA, that account would grow sufficiently to produce enhanced benefits for the Employees. 141 The Employees say that they wanted to know if MTS was going to match the Initial Surplus and, if not, wanted assurances that MTS would not use it to reduce its funding obligations. 142 The Employees argue that one fact is beyond dispute in this case, namely, that the Initial Surplus did not lead to any benefit enhancement.

They say that this is because of the operation and design of the notional PBAA. They argue that the PBAA exists only on paper as credits and debits, but that there is no physical account. The pluses and minuses that MTS unilaterally chose to apply to the account made it inevitable that the account would not produce any benefits. They argue that the assets related to the COLA guarantee are not even credited to the PBAA and that, in short, the account is a sham.

They assert that MTS’s talk about the PBAA and the 20- year pre-funding requirement is a shell game which hides the truth of what really happened, namely, that MTS did exactly what it promised it would not do: it used the Initial Surplus to reduce its “cost or share of contributions” to the New Plan. ANALYSIS 143 In this case, as I have previously stated, the CSSA was not only the constating legislation, but the plan text for the Prior Plan. The New Plan consists of s. 15 of the Reorg Act , the MOA, the Plan Text and the Trust Agreement. The MOA is a contract between Manitoba, the Employees and MTS.

The Plan Text is a contract between the Employees and MTS. 144 While the Employees described the Prior Plan as a “hybrid plan,” both the Prior Plan and the New Plan are defined benefit pension plans. The essence of such a plan is that, upon retirement, the employees, in exchange for contributions and services, are guaranteed payment of a pension determined by a formula set forth in the plan itself.

This was so under the Prior Plan, notwithstanding that only the employees made regular advance contributions to the CSSF, whereas the employer funding was done on a “pay-as-you-go” basis, and notwithstanding that the employees were required to contribute further money if the pension fund was in deficit. 145 Under the Prior Plan, the contributions of both the employees and the employer were paid into the trust fund and the pension

benefits were paid out of it pursuant to the pension benefit formula stipulated in the plan. The same is true under the New Plan as itrelates to the Employees and MTS. The Law 146 The trial judge’s task in deciding the issues before him was succinctly stated by Rothstein J. in Nolan v. Kerry (Canada) Inc.,2009 SCC 39, [2009] 2 S.C.R. 678 (at para. 86): ....

The role of the courts is to ascertain and uphold the rights of the parties in accordance with the applicable statutory and common lawand the terms of the relevant documentation. …. 147 The basic common law principles applicable to a defined benefit pension plan and relevant to the issues to be decided in thisappeal have been set out clearly in several recent leading cases decided by the Supreme Court of Canada, including, in particular,Schmidt v. Air Products Canada Ltd., (SCC), [1994] 2 S.C.R. 611; Nolan; and Burke v.

Hudson’s Bay Co., 2010 SCC34, [2010] 2 S.C.R. 273. 148 Those relevant principles which can be gleaned from the jurisprudence, including the three Supreme Court cases in question,are: • Contribution to a defined benefit pension plan is made each year on the basis of an actuarial estimate of the amount which mustbe presently invested in order to provide the stipulated benefits at the time the pension is paid out.

The actuary’s estimate of the presentvalue of future benefits to members of the plan is known as the “current service cost.” • In a contributory defined benefit pension plan, the employees must contribute a set amount, which is usually a definedpercentage of salary.

The employer’s contribution to the fund is the amount equal to the difference between the employee contributionsand the amount which the actuary determines is needed to cover the current service costs of the plan. • While a plan which takes the form of a trust is in operation, all contributions made by the employees and the employer aremade into the trust and become property of the trust. • Where the plan actuary determines that the estimated value of the assets in the trust fund at a specific point in time is greaterthan the estimated value of all of the liabilities of the fund at that time (i.e., pension benefits owed or to be owed members), the fund issaid to have an actuarial surplus. • Where the plan actuary determines that the estimated value of the assets in the trust fund at a specific point in time is lowerthan the estimated value of all of the liabilities of the trust fund at that time, the fund is said to be in deficit. • While a plan which takes the form of a trust is in operation, any surplus is simply an actuarial surplus.

Neither the employernor the employees have a specific interest in this amount, since it only exists on paper. It results from actuarial calculations and is afunction of the assumptions used by the actuary at the time of valuation. • It is only when a defined benefit pension plan is terminated or wound up that the assets and liabilities of the pension plancrystallize and the existence of a surplus, if any, can be calculated and/or determined. Such a surplus is an actual surplus as distinct froman actuarial surplus as described above.

The employees may then become entitled to some right to such actual surplus, depending uponthe terms of the plan/trust. • When an actuarial surplus is determined to exist, the employer may take a contribution holiday, in which event the surplus isused to cover the employer’s contribution obligations to the fund. • Contribution holidays may be taken in such a circumstance so long as the legislation and plan documentation permit.

Evenwhen not expressly permitted to do so by the legislation and plan documentation, where the plan documentation provides that fundingrequirements will be determined by actuarial practice, the employer may take a contribution holiday unless other plan wording orlegislation prohibits it. • To take a contribution holiday does not reduce the corpus of the fund, nor does it amount to applying the monies contained inthe fund to something other than the exclusive benefit of the employees. The entitlement of the trust beneficiaries is not affected by acontribution holiday.

Their entitlement is to receive from the trust fund upon retirement the defined benefits guaranteed them under thepension plan from the trust and, depending upon the terms of the trust, to receive a share of any surplus remaining upon termination ofthe plan. 149 I refer, as well, to the comments of Gillese J.A. in the Ontario Court of Appeal decision of Burke et al. v. Hudson’s Bay Co. etal., 2008 ONCA 394, 236 O.A.C. 140, where she wrote (at paras. 35, 37): The pension plan text is a contract between the employer and the employee.

It governs the administration of the pension plan, providingfor such things as eligibility for membership in the plan; benefits on events such as retirement, termination and death; the method bywhich the plan will be funded; and the method by which the pension plan will be administered. I wish to make two further comments .... The first comment arises as a result of para. 173 of the reasons of the trial judge.

In thatparagraph, the trial judge writes that where a pension plan is not terminated or wound up, in the absence of legislative directives, “it isreasonable to look at the history of conduct of the parties to determine what their expectation in respect of surplus was at any point intime”. If this statement means that the parties’ rights and obligations are to be decided on the basis of conduct, rather than the governinglegal documents, I must respectfully disagree. Schmidt is clear. So too are the myriad of other pension cases decided to date in which

surplus has been an issue. The starting point for any determination of the rights and obligations of the parties to a pension plan is the Plan documentation. Was the Prior Plan Terminated or Wound-up? 150 The Prior Plan was neither terminated nor wound up. That is made clear from ss. 15(5) and 15(7) of the Reorg Act . The former provided effectively that the assets of the CSSF attributable to the contributions from the Employees (including income earned thereon) be transferred into the Trust Fund under the New Plan.

The latter provided that the liabilities of the CSSF to the Employees be assigned to and assumed by MTS and become liabilities, rights and obligations of the Trust Fund under the New Plan. 151 The Employees have argued that the New Plan was a “new plan” and is so defined as such under s. 15 of the Reorg Act .

However, the use of the phrase “new plan” does not mean that the Prior Plan was wound up or terminated as regards the Employees. 152 Had that been its effect, the assets attributable to the Employees would have been quantified, the liabilities due the Employees would have been actually determined, not actuarially estimated, and the surplus, if any, would have become an actual surplus, to be dealt with pursuant to the terms of the Prior Plan, which gave the Employees no right to surplus.

There would have been no assets transferred to, nor liabilities assumed by, the Trust Fund of the New Plan, nor any need for para. 3 of the MOA. The Initial

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