Markle et al. v. The City of Toronto et al. [Indexed as: Markle v. Toronto (City)]
63 O.R. (3d) 321
[2003] O.J. No. 265
Docket No. C38157
Court of Appeal for Ontario
O'Connor A.C.J.O., Weiler and Rosenberg JJ.A.
February 3, 2003
*Application for leave to appeal to the Supreme Court of Canada dismissed November 6, 2003 (McLachlin C.J.C., Major and Fish JJ.).
Pensions -- Pension plan constituting a trust -- Amendment -- Power of Revocation -- Municipality establishing pension plan for employees -- City purporting by by-law to amend pension plan so that it could recover administrative costs -- Purported change in plan amounting to partial revocation -- Power of amendment not extending to right to revoke -- Change in pension plan not lawful and beyond authority of the City -- City of Toronto Act, 1997 (No. 2), S.O. 1997, c. 26, ss. 3, 4 -- Interpretation Act, R.S.O. 1990, c. I.11, s. 28(g) -- Municipality of Metropolitan Toronto Act, S.O. 1953, c. 73 -- Pension Benefits Act, R.S.O. 1990, c. P.8 -- Trustee Act, R.S.O. 1990, c. T.23, s. 23.1.
Trusts and trustees -- Pension plan constituting a trust -- Amendment -- Power of Revocation -- Municipality establishing pension plan for employees -- City purporting by by-law to amend pension plan so that it could recover administrative costs -- Purported change in plan amounting to partial revocation -- Power of amendment not extending to right to revoke -- Change in pension plan not lawful and beyond authority of the City -- City of Toronto Act, 1997 (No. 2), S.O. 1997, c. 26, ss. 3, 4 -- Interpretation Act, R.S.O. 1990, c. I.11, s. 28(g) -- Municipality of Metropolitan Toronto Act, S.O. 1953, c. 73 -- Pension Benefits Act, R.S.O. 1990, c. P.8 -- Trustee Act, R.S.O. 1990, c. T.23, s. 23.1.
In 1956, under the Municipality of Metropolitan Toronto Act, the council of Metropolitan Toronto ("Metro") enacted By-law 426 to establish a Pension Plan (the "Plan") for its employees. The Plan was administered by a Board of Trustees. Section 26 of the by-law required the employer to bear all expenses incurred by the Trustees and the Retirement Committee. Section 27 of the by-law gave the employer the general power to amend the Plan provided that the amendments did not recover contributions nor reduce accumulated benefits. After 1956, successor by-laws restated the Plan. In 1981, Metro Council passed a by-law which provided that subject to the approval of the Trustees certain identified expenses incurred by the Trustees were to be paid from the Plan's fund. In 1992, Metro passed By-law 15-92. Under s. 8, Metro staff were required to provide certain administrative services to the Plan. Section 8 continued the provision that, subject to the approval of the Trustees, certain identified expenses would be paid from the fund with the employer being responsible to pay the remaining expenses. Section 45 of the by-law contained a power to amend that was similar to the power to amend contained in the original by-law.
In 1997, the City of Toronto was created by the City of Toronto Act, 1997 (No. 2), which replaced the Municipality of Metropolitan Toronto Act. Section 4 permitted City Council to amend a pension by-law. On March 8, 2001, City Council passed By-law 186-2001, which purported to amend the Plan by directing that the City provide services but be entitled to recover the costs. The amendment was made retroactive to January 1, 1999. In 2001, certain members of the Board of Trustees commenced an application for the opinion and advice of the court with respect to the amending by-law. On the application, Pepall J. ruled that By-law 186 was not lawful. She held that the Plan was a trust in favour of the employees that did not contain a power of revocation [page322] and that By-law 186 constituted a partial revocation and a breach of trust. The City of Toronto appealed.
Held, the appeal should be dismissed.
By-law 426 created a trust in favour of the employees including all of the funds held by the trustees, that is both the contributions and the actuarial surplus. Pension trusts, such as the one created by By-law 426, are true trusts to which the equitable principles of trust law apply. This conclusion was not altered by the fact the Plan was created by municipal by-law. Contrary to the submission of the City, there was no power of revocation provided by the Plan nor by ss. 3 and 4 of the City of Toronto Act. While the Plan and the Act contained a power of amendment, an amending power, even a very broadly- worded one, does not bring with it the power to revoke. Sections 3 and 4 of the City of Toronto Act do not indicate an intention to confer a power of revocation as opposed to a mere power of amendment. Section 28(g) of the Interpretation Act did not assist the City; it confirms a power to revoke a by-law, but does not authorize the revocation of a trust created by a by-law. Further, there was no authority in the Pension Benefits Act that would authorize the City to revoke a pension trust plan in favour of the employee beneficiaries.
By-law 186 constituted a partial revocation and breach of trust. The essence of revocation is the removal of property or assets from a trust fund. Absent a power of revocation, once the trust assets are received by the trustee, they are held for the benefit of the beneficiary and the settlor loses all rights to control the property. The settlor also has no authority to control the trustees in exercising their discretion as fiduciaries of the trust. Pursuant to the by-law, the funds that would be used to pay the City were part of the trust fund and the retroactive requirement to pay for services already performed was inconsistent with the terms of the trust and beyond the authority of the City. Prospectively, the effect of By-law 186 was to require the Trustees to pay trust moneys for administrative services provided by the City; however, the City cannot dictate the manner in which the Trustees use the trust funds, absent a specific power to do so being reserved at the time the trust was created. Further, there was nothing in the language of s. 8 of By-law 15-92 that permitted a contribution holiday which would relieve the City from its obligation to provide administrative expenses and By-law 186 was not authorized by s. 23.1 of the Trustee Act. Accordingly, the appeal should be dismissed.
APPEAL from a judgment of Pepall J. (2002), 2002 49627 (ON SC), 213 D.L.R. (4th) 362, 44 E.T.R. (2d) 240 (Ont. S.C.J.) declaring a change in a pension plan not lawful.
Cases referred to Blow (Re) (1977), 1977 1274 (ON SC), 18 O.R. (2d) 516, 82 D.L.R. (3d) 721, 2 E.T.R. 209 (H.C.J.); Canadian Union of Public Employees - C.L.C., Local 1000 v. Ontario Hydro (1989), 1989 4209 (ON CA), 68 O.R. (2d) 620, 33 O.A.C. 63, 58 D.L.R. (4th) 552, 26 C.C.E.L. 67 (C.A.), revg (1987), 1987 4153 (ON SC), 59 O.R. (2d) 31, 36 D.L.R. (4th) 727 (Div. Ct.) (sub nom. Canadian Union of Public Employees - C.L.C., Ontario Hydro Employees Union, Local 1000 v. Ontario Hydro, Canadian Union of Public Employees - C.L.C. and Ontario Hydro (Re)); McIntyre Estate v. Ontario (Attorney General) (2002), 2002 45046 (ON CA), 61 O.R. (3d) 257, 218 D.L.R. (4th) 193, 23 C.P.C. (5th) 59 (C.A.), revg (2001), 2001 28040 (ON SC), 53 O.R. (3d) 137, 198 D.L.R. (4th) 165, 11 C.P.C. (5th) 267 (S.C.J.); Schmidt v. Air Products of Canada Ltd., 1994 104 (SCC), [1994] 2 S.C.R. 611, 20 Alta. L.R. (3d) 225, 115 D.L.R. (4th) 631, 168 N.R. 81, [1994] 8 W.W.R. 305, 4 C.C.E.L. (2d) 1, 3 E.T.R. (2d) 1 (sub nom. Stearns Catalytic Pension Plans (Re)) Statutes referred to City of Toronto Act, 1997 (No. 2), S.O. 1997, c. 26, ss. 3, 4 Interpretation Act, R.S.O. 1990, c. I.11, s. 28(g) [page323] Municipality of Metropolitan Toronto Act, S.O. 1953, c. 73 Ontario Municipal Employees Retirement System Act, R.S.O. 1990, c. O.29 Pension Benefits Act, R.S.O. 1990, c. P.8, ss. 10(1), 22 Trustee Act, R.S.O. 1990, c. T.23, s. 23.1
Darrel Smith and Andrea Denovan, for appellant. Mark Zigler and Ronald B. Davis, for respondents.
The judgment of the court was delivered by
1O'CONNOR A.C.J.O.: -- This appeal raises the issue whether an amending by-law enacted by the appellant, the City of Toronto [the "City"], lawfully entitles it to recover the internal administrative expenses of operating a pension plan from the pension fund. The pension plan was created by a 1956 by-law in order to provide pensions for City employees. The 1956 by-law, and various successor by-laws, required the City to pay the administrative expenses in issue.
2Certain members of the Board of Trustees of the pension plan ("Trustees") commenced an application in the Superior Court of Justice in which they asked for the opinion, advice and direction of the court as to whether the amending by-law, City of Toronto By-law 186-2001 ("By-law 186"), lawfully required the Trustees to pay to the City the internal administrative costs from the pension plan fund. In a decision reported at (2002), 2002 49627 (ON SC), 213 D.L.R. (4th) 362, 44 E.T.R. (2d) 240 (Ont. S.C.J.), Pepall J. ruled that By-law 186 was not lawful, finding inter alia that the pension plan created a trust in favour of the employees, that the pension plan did not contain a power of revocation, and that By-law 186 constituted a partial revocation and a breach of the trust. For the reasons that follow, I agree with the conclusions of the application judge and would, therefore, dismiss the appeal.
Facts
3In 1956, the Council of the Municipality of Metropolitan Toronto ("Metro Council") enacted By-law 426 under the Municipality of Metropolitan Toronto Act, S.O. 1953, c. 73, as amended ("Metro Act"), to provide a pension plan for its employees ("Plan"). The Plan was a contributory, defined benefit plan. Members were required to contribute five per cent of their earnings from each pay, while the employer contributed each year such amounts as [page324] were required to ensure that the stipulated benefits would be provided. The defined benefit was a percentage of the member's final earnings multiplied by his/her years of service.
4Section 26 of By-law 426 vested the administration of the Plan in a three-member Board of Trustees, who were appointed by Metro Council. The Trustees were responsible for the receipt of all contributions to the Plan fund ("Fund") and for custody of the Fund. They were also given responsibility for the investment of the Fund in securities eligible under the Trustee Act, Ontario, as revised from time to time. Section 26 directed Metro Council to appoint a Retirement Committee which was responsible for facilitating the collection of employee contributions and the payment of benefits and for keeping records with respect to Plan members. Relevant to the issues in this appeal, s. 26 stipulated that the employer was to bear "all expenses incurred by the Trustees and the Retirement Committee".
5Section 27 of By-law 426 gave the employer a general power to amend the Plan and set out two restrictions on that power: (i) the employer was not entitled to amend the plan to recover any contributions made by it into the Fund; and (ii) the employer could not amend the plan to reduce accumulated benefits which had accrued to the members.
6Since 1956, the Plan has been restated and continued on several occasions under various successor by-laws. The relevant successor by-laws are discussed below.
7Pursuant to a 1971 by-law, the Trustees were required to assume the responsibilities of the Retirement Committee. This amending by-law continued the requirement that all expenses incurred by the Trustees were to be borne by the employer.
8In 1981, Metro Council passed a by-law which provided that, subject to the approval of the Trustees, certain identified expenses incurred by the Trustees, including fees payable to advisors retained by the Trustees, were to be paid from the Fund. The employer continued to be responsible to pay all expenses not identified in the 1981 by-law.
9In 1992, Metro Council passed By-law 15-92, which is the by-law that currently governs the Plan. The sections of By-law 15-92 that are relevant to the issues in this appeal are s. 8 (payment of administrative expenses) and s. 45 (power of amendment).
10Section 8 required Metro staff to provide certain administrative services to the Plan and continued the provision that, subject to the approval of the Trustees, certain identified expenses would be paid from the Fund with the employer being responsible to pay the remaining expenses. Section 8 of By-law 15-92 reads as follows: [page325]
8(1) Subject to subsections (2) and (3), the Metropolitan Treasurer shall, through the facilities of the Metropolitan Treasury Department, provide all administrative staff and services required for the efficient operation of the Plan.
(2) The Metropolitan Clerk shall, through the facilities of the Metropolitan Clerk's Department, record the proceedings of the Board of Trustees and execute such secretarial instructions as may be received from the Board of Trustees.
(3) The Metropolitan Treasurer and the Metropolitan Auditor shall be the Treasurer and the Auditor respectively of the fund and they shall report annually to the Board of Trustees and the Metropolitan Corporation.
(4) Subject to the approval of the Board of Trustees, the following costs of administering the Plan shall be paid from the fund:
(a) fees payable to the actuary, medical practitioners, custodians and advisers retained by the Board of Trustees;
(b) direct costs arising out of the administration of the fund; and
(c) expenses actually incurred by a Trustee in the capacity as such, provided that
(i) the expenses shall be in accordance with the by-law of the Council respecting the expenses of its members; and
(ii) the expenses of the Metropolitan Chairman and any Trustee who is a member of the Council shall not be paid from the fund.
(5) The employers shall pay all costs in connection with the Plan not provided for in subsection (4), including the remuneration of the chairman of the Board of Trustees and the costs associated with subsections (1) to (3).
(Emphasis added)
11Section 45 of By-law 15-92 confers a power to amend the Plan on the employer which is essentially the same as the amending power found in the by-law that originally established the Plan. In enacting By-law 186, the by-law in issue in this appeal, the City of Toronto purported to act pursuant to the power of amendment found in s. 45. That section reads as follows:
45(1) The principal employer reserves the right to amend the Plan provided that no such amendment shall:
(a) entitle any employer to recover any contribution made by it into the fund; or
(b) reduce the accumulated benefits which have accrued in favour of the members under the Plan by reason of their service to the employer up to the date of such amendment, and with respect to which the contributions to the fund required under the Plan have already been made, except upon the termination of the Plan when as a result of insufficient funds a reduction in benefits is authorized under the PBA [Pension Benefits Act, R.S.O. 1990, c. P.8 ("PBA")]. [page326]
12By-law 15-92 also provides that on termination of the Plan, surplus is to be paid to the employer to liquidate any unfunded liability and/or expense deficiency. Any remaining surplus is to be distributed equally between employees and pensioners on the one hand and the employer on the other.
13In 1997, the City of Toronto was created by the City of Toronto Act, 1997 (No. 2), S.O. 1997, c. 26 ("City of Toronto Act"). This Act replaced the Metro Act under which the Plan had been established. Section 3(2) of the City of Toronto Act protects the pension rights and benefits of employees of the former municipality and s. 3(5) preserves the City's right to make changes with respect to a pension plan, including changes affecting the rights of employees of the former municipality"by agreement or as otherwise allowed by law". Section 4 permits City Council to amend a pension by-law passed under the Metro Act.
14By a resolution passed in April 1999, City Council recommended that the cost of administrative services provided by City staff to five pension plans, including the Plan, should be recovered from the pension plan funds rather than be paid for by the City. The cost of providing these administrative services to the five plans was calculated at $500,000. The portion of these charges allocated by the City to the Plan was $181,333.40.
15On March 8, 2001, City Council passed By-law 186 which purports to amend the Plan by directing that the City provide all administrative staff and services for the Plan and that the City shall be entitled to recover the costs of providing such staff and services from the Plan. The amendment is mandatory and does not allow for the exercise of any discretion by the Trustees regarding the payment of the costs of the administrative staff and services provided by the City. As a result of the amendment, s. 8 of By-law 15-92 now reads in part as follows:
8(1) The City shall provide all administrative staff and services required for the efficient operation of the Plan.
(3.1) The City shall be entitled to recover from the Plan in accordance with clause (4)(b) the costs of providing the staff and services described in subsections (1) to (3).
(5) The employers shall pay all costs in connection with the Plan not provided for in subsection (4), including the remuneration of the chairman of the Board of Trustees.
(Emphasis added) [page327]
16The above amendment was made retroactive to January 1, 1999, thereby purporting to entitle the City to recover from the Plan the internal administrative costs incurred during the previous 26 months.
17As of December 31, 2000, the Fund had an actuarial surplus 1 of $291,625,000. Also as of that date, the Plan covered 75 active members and 3,829 inactive members and beneficiaries, most of whom were retirees or their spouses. The Plan only applies to City employees hired before July 1, 1968. City employees hired after that date are covered by a different pension plan established under the Ontario Municipal Employees Retirement System Act, R.S.O. 1990, c. O.29.
18In a Notice of Application dated September 13, 2001, the Trustees requested the opinion, advice and direction of the Superior Court of Justice on the following issues:
(i) Does the resolution of the City of Toronto Council of April, 1999 and By-law 186-2001 subsequently enacted on March 8, 2001, lawfully require the Plan's Board of Trustees to pay the City of Toronto's internal costs for pension plan administration from the Fund?
(ii) If the answer to question (i) is yes, then can the 2001 amendment lawfully come into effect retroactively on January 1, 1999 as provided in By-law 186-2001?
(iii) In light of the opinion and advice of the court in respect of the matters set out above, may the Trustees lawfully authorize the payments to the City required pursuant to the 2001 amendment?
Issues
19This appeal requires the court to decide whether the application judge erred in concluding that:
(a) the Fund is held in trust for the employees;
(b) the City does not have the power to revoke the trust; and
(c) By-law 186 constitutes a partial revocation and a breach of trust. [page328]
20In light of my views on the trust issues, it will be unnecessary to deal with the respondent Trustees' alternative submission that the April 1999 Resolution and By-law 186 constitute a breach of contract. It will also be unnecessary to consider the Trustees' argument that the City, as agent of the Trustees, breached the fiduciary duties imposed by s. 22 of the PBA.
Analysis
Issue #1 - Is there a trust?
21I agree with the application judge that By-law 426, enacted in 1956, created a trust in favour of the employees. In reaching this conclusion, the application judge set out the proper legal principles (at p. 376 D.L.R.) and then correctly concluded, in my view, that By-law 426 was a declaration of trust and that there was a conveyance of property to the Trustees so that the trust was properly constituted (at pp. 377-78 D.L.R.).
22Moreover, I agree with the application judge that the Fund that is impressed with a trust includes all of the funds held by the Trustees, that is, both the contributions made by the respective parties as well as the actuarial surplus. Pension trusts, like the one created by By-law 426, are not mere purpose trusts; rather they are classic or true trusts to which the equitable principles of trust law apply: Schmidt v. Air Products of Canada Ltd., 1994 104 (SCC), [1994] 2 S.C.R. 611, 115 D.L.R. (4th) 631, at pp. 640-41 S.C.R., pp. 655-56 D.L.R. That being the case, absent specific wording to the contrary, all of the funds in the care of the Trustees are subject to a trust in favour of the beneficiaries. When there is no language in the document(s) that create a pension trust to indicate an intention that an actuarial surplus in an ongoing Plan is not to be held for the beneficiaries, trust law principles dictate that the ongoing actuarial surplus will be part of the trust fund: ibid. at pp. 641-43 S.C.R., pp. 656-57 D.L.R.
23The 1956 by-law that created the pension plan defined the Fund held by the Trustees as meaning "the monies, securities, negotiable instruments and other properties in the custody of the Trustees for the carrying out of the purposes of the Plan". There is nothing in this language or elsewhere in the 1956 by-law to indicate that an actuarial surplus is not to form part of the trust fund.
24Accordingly, the actuarial surplus in this case constitutes part of the trust fund held for the employees. The fact that the employees' entitlement to those funds may not crystallize until the Plan is terminated, at which point an actuarial surplus (if there is [page329] one) becomes an actual surplus, does not change the fact that the actuarial surplus is part of the trust fund and that as such it may only be dealt with during the life of the trust in a manner that is consistent with the principles of trust law or relevant statutory provisions.
25The conclusion that trust principles apply to the trust in this case is not altered by the fact that the Plan was created by a municipal by-law. Where the language of a statute or a by-law creating a pension plan indicates an intention to create a trust in favour of the employees, the courts will respect that intention in the same way as if the plan was created by private instrument. See for example, Canadian Union of Public Employees - C.L.C. Local 1000 v. Ontario Hydro (1989), 1989 4209 (ON CA), 68 O.R. (2d) 620, 58 D.L.R. (4th) 552 (C.A.) at p. 634 O.R., where this court stated that assets of a pension plan established pursuant to a provincial statute and regulation are trust assets.
Issue #2 - Does the City have a power of revocation?
26The City argues that if the Fund is impressed with a trust, it has the power to revoke the trust under which the Fund is held and that the enactment of By-law 186 was a proper exercise of that power. The City takes the position that the power of revocation may be found in two sources: in the Plan itself as well as in certain statutory provisions. I will deal with each of these below.
27In Schmidt, supra, at p. 643 S.C.R., p. 657 D.L.R., the Supreme Court of Canada held:
When a pension fund is impressed with a trust, that trust is subject to all applicable trust law principles. The significance of this for the present appeals is twofold. Firstly, the employer will not be able to claim entitlement to funds subject to a trust unless the terms of the trust make the employer a beneficiary, or unless the employer reserved a power of revocation of the trust at the time the trust was originally created. Secondly, if the objects of the trust have been satisfied but assets remain in the trust, those funds may be subject to a resulting trust.
(Emphasis added)
28The court in Schmidt, supra, accepted that a settlor of a trust may reserve a power of revocation. However, the court went on to hold at pp. 645-48 S.C.R., pp. 659-60 D.L.R. that because a power of revocation is inconsistent with the fundamental concept of a trust, such a power may only be sustained if that power is clearly and unequivocally reserved to the settlor at the time the trust is created. An amending power, even a very broadly worded one, does not bring with it the power to revoke. Amendment and revocation are two different concepts. As Cory J. said at [page330] p. 646 S.C.R., p. 659 D.L.R."amendment means change, not cancellation, which the word 'revocation' connotes".
29The City submits that s. 45 of By-law 15-92, set out at para. 11 above, contains a power of revocation. I disagree. In my view, the section confers a power of amendment only, nothing more. Section 45 uses the language of amendment, not revocation, giving the City the "right to amend", not to revoke. Section 45 does not contain the type of clear and unequivocal language that is required to reserve a right of revocation to the settlor. Accordingly, I am satisfied that the Plan does not confer a power of revocation on the City.
30The City also argues that a power to revoke may be found in ss. 3 and 4 of the City of Toronto Act. The pertinent provisions of this Act provide:
3(5) This section does not affect any power that the city or any of its local boards may have to make changes with respect to a pension or benefit plan or fund, including changes affecting the rights of persons listed in subsection (2), by agreement or as otherwise allowed by law.
4(1) The council may, by by-law, amend a by-law passed under clause 24(3)(b) of the Metro Act, as it read on December 31, 1997, or under a predecessor of that clause.
(2) A by-law under subsection (1) requires an affirmative vote of two-thirds of the members of council who are present and voting.
31The thrust of the City's argument is that the power to amend by-laws found in each of these sections gives municipalities the power to revoke pension trusts created in favour of their employees. I do not accept this argument for two reasons.
32First, such an interpretation requires the court to construe a statutory power of amendment as a power of revocation, which would be inconsistent with the common law position established by Schmidt that an amending power does not bring with it the power to revoke a trust. It is a settled principle of statutory interpretation that where the legislature intends to change the common law, it must do so expressly and in clear and unequivocal terms. See e.g. McIntyre Estate v. Ontario (Attorney General) (2002), 2002 45046 (ON CA), 61 O.R. (3d) 257, 218 D.L.R. (4th) 193 (C.A.) at p. 271 O.R., pp. 209-10 D.L.R.
33Sections 3 and 4 of the City of Toronto Act do not indicate an intention to confer a power of revocation as opposed to a mere power of amendment. There is no reason why these sections should not be interpreted in a manner consistent with the common law as conferring a power of amendment and nothing more. [page331]
34The second reason I do not accept that these sections confer a power of revocation arises from my reading of s. 3 of that Act. Section 3(2) of the City of Toronto Act expressly preserves all pension rights and benefits of employees that existed prior to the enactment of this Act. Moreover, the statutory amendment power recognized in s. 3(5) contains the explicit limitation that changes to a pension or benefit plan, including changes affecting the rights of pension plan members or beneficiaries, are limited to changes that are "otherwise allowed by law". Section 3(5) thus requires that the amendment power be read in a manner that is consistent with common law trust principles.
35Another statutory provision that the City relies on as authorizing the proposed amendment to the Plan found in By-law 186 is s. 28(g) of the Interpretation Act, R.S.O. 1990, c. I.11. This provision states:
- In every Act, unless the contrary intention appears, . . .
(g) where power is conferred to make by-laws, regulations, rules or orders, it includes power to alter or revoke the same from time to time and make others;
In my view, s. 28(g) does not assist the City. It confirms a power to revoke a by-law, but does not authorize the revocation of a trust created by a by-law.
36The City also argues that the PBA permits amendments to pension plans, including retroactive amendments, and that the PBA provides for the payment of administrative fees out of plan funds. In this regard, the City points to s. 10(1), para. 9 of the PBA, which provides:
10(1) The documents that create and support a pension plan shall set out the following information:
- The mechanism for payment of the cost of administration of the pension plan and the pension fund.
37This provision simply requires that the pension plan documents set out a description of the mechanism for paying administrative expenses. The City has not pointed to any authority in the PBA that would authorize it to revoke a pension plan trust in favour of the employee beneficiaries.
38In summary, I agree with the application judge that neither the Plan itself nor the statutes relied on by the City confer a power of revocation on the City. [page332]
Issue #3 - Does By-law 186 constitute a partial revocation and a breach of trust?
39A central element of the creation of a trust is the transfer of property. The essence of a revocation 2 is removal of property or assets from the trust fund. Absent a power of revocation, the transfer of property to a trust is absolute; the settlor disposes of the property irrevocably to the trustees in the same way that one makes an outright gift. Once the trust assets are received by the trustee they are held for the benefit of the beneficiaries and the settlor loses all rights to control the property.
40In Schmidt, supra, p. 645 S.C.R., at pp. 658-59 D.L.R., Cory J. explained the irrevocable nature of a trust as follows:
In my view the nature and purpose of the trust as it has evolved in Canada is consistent with a more restrictive interpretation as to when the trust instrument will permit a unilateral revocation of the trust. One of the most fundamental characteristics of a trust is that it involves a transfer of property. In the words of D.W.M. Waters, Law of Trusts in Canada, [2nd ed. (Toronto: Carswell, 1994)] at p. 2291:
. . . the trust is a mode of disposition, and once the instrument of creation of the trust has taken effect or a verbal declaration has been made of immediate disposition on trust, the settlor has alienated the property as much as if he had given it to the beneficiaries by an out-and-out gift. This almost self-evident proposition has to be reiterated because it is sometimes said that the trust is a mode of "restricted transfer". So indeed it is, but the restriction does not mean that by employing the trust the settlor inherently retains a right or power to intervene once the trust has taken effect, whether to set the trust aside, change the beneficiaries, name other beneficiaries, take back part of the trust property, or do anything else to amend or change the trust. By restriction is meant that he has transferred the property but subject to restrictions upon who is to enjoy and to what degree. The mode of future enjoyment is regulated in the act of transferring, but the transfer remains a true transfer.
41Not only does the settlor of an irrevocable trust alienate the property held in the trust fund, he or she also has no authority to control the trustees in exercising their discretion as fiduciaries of the trust. The control of the trust property passes to the trustees and any attempts by the settlor to indirectly exercise control through mandatory directions to the trustees other than in the terms creating the trust would constitute an impermissible fetter on the trustees' discretion: see Re Blow (1977), 1977 1274 (ON SC), 18 O.R. (2d) 516, 82 D.L.R. (3d) 721 (H.C.J.). [page333]
42By-law 186 purports to amend By-law 15-92 by requiring that the City be entitled to recover its internal costs for pension plan administration from the Fund. The by-law imposes this requirement both retroactively for services provided during the period from January 1, 1999 to the date of the by- law and prospectively for services provided in the future. The issue then is whether the imposition of either of these requirements is permitted by the power of amendment found in s. 45 of By-law 15-92. For clarity, it is helpful to deal with the retrospective and prospective requirements separately.
43As to the retrospective aspects, I note that City Council passed a resolution on April 1, 1999 to the same effect as By-law 186 which was not passed until March 8, 2001. The resolution was an indication of intention. It did not amend By- law 15-92. Under s. 8 of By-law 15-92, the City is required to provide certain administrative services without charge. It did so during the period before the enactment of By-law 186 and the attempt in By-law 186 to retroactively require the Plan to pay for these services from trust funds constitutes a partial revocation of trust. The funds that would be used to pay the City are part of the trust fund held for the employees. The requirement to pay for services already performed, where the terms of the Plan required the City to bear these expenses, is inconsistent with the terms of the trust and, therefore, beyond the authority of the City.
44Prospectively, the effect of By-law 186 will require the Trustees to pay trust moneys towards administrative services that the City will provide for the Plan. While it is correct that the Plan will receive a benefit in exchange for the payments to the City, the effect of the amendment if permitted to proceed, is nonetheless to allow the City to exercise control over the trust fund that has been transferred irrevocably to the Trustees and that is subject to their exclusive control. Whether one characterizes this effect as an improper attempt to fetter the discretion of trustees as it relates to trust property, or as a partial revocation of trust, the requirement in the by-law is inconsistent with the fundamental nature of the trust and for that reason is invalid. The City cannot dictate to the Trustees the manner in which they are to use trust funds, absent a specific power to do so being reserved at the time the trust was created.
45It is interesting to contrast the approach that the City adopted in enacting By-law 186 with that used in both the 1981 and the 1992 by-laws. Prior to 1981, the Plan provided that the employer was to bear all of the administrative expenses of the plan. Section 2 of the 1981 by-law provided that subject to the approval of the Trustees, certain identified [page334] costs shall be paid from the Fund. The by-law then set out the identified costs which were to be paid from the Fund, but importantly only with the approval of the Trustees. The 1992 by-law adopted the same approach. In neither case did the earlier by-laws seek to mandate payment or to fetter the discretion of the Trustees; rather, payments were expressly made subject to the approval of the Trustees. Framed in this fashion, the 1981 and the 1992 by-laws were neither a partial revocation of trust, nor did they constitute an improper fettering of the discretion of the trustees.
46Two arguments of the City as to why By-law 186 does not constitute a revocation of trust warrant further comment. First, relying on the Supreme Court of Canada's decision in Schmidt, the City argues that the impugned by-law is tantamount to a contribution holiday from the City's obligations to provide administrative expenses without charge and is, therefore, permissible. I disagree. In Schmidt, the Supreme Court permitted the contribution holiday because of the specific wording used in the employer contribution clause in the pension plan under review. That language, the court held, permitted a holiday (at p. 664 S.C.R., p. 672 D.L.R.). In the present case, there is nothing in the language of s. 8 of By- law 15-92, the clause requiring the City to provide administrative services free of charge, that permits a contribution holiday.
47Moreover, the question that was raised in the application in this case was not whether the City can amend the plan to discontinue providing administrative services free of charge (arguably a contribution holiday), but whether the resolution of April 1999 or By-law 186 lawfully required the Trustees to pay out of the Fund the City's internal costs of administering the Plan. It is the requirement in the by-law compelling payment from the trust fund that intrudes upon the principles of trust law.
48The City also argues that By-law 186 is authorized by s. 23.1 of the Trustee Act, R.S.O. 1990, c. T.23, which provides:
23.1 A trustee who is of the opinion that an expense would be properly incurred in carrying out the trust may,
(a) pay the expense directly from the trust property; or
(b) pay the expense personally and recover a corresponding amount from the trust property.
49The City contends that this provision allows for payment of administrative expenses out of a trust and that hence By-law 186 is not a revocation of trust property. I do not agree. Section 23.1 only refers to the authority of a trustee to pay expenses from [page335] trust property. It does not permit a non-trustee to direct the payment of trust funds and thus does not assist the City.
Disposition
50For the above reasons, I agree with the application judge's conclusion that the Fund is impressed with a trust. I also agree that the City does not have a power to revoke the trust, either in the terms of the by-law that created the trust or in the statutes relied on by the City. Finally, I conclude that the retrospective effect of By-law 186 constitutes a partial revocation and a breach of trust because, contrary to the terms of the trust requiring the employer to pay for internal administrative expenses, the amendment requires the withdrawal of trust moneys from the Fund to pay these expenses. Prospectively, By-law 186 is an improper attempt to fetter the discretion of trustees as it relates to trust property or an unlawful attempt to permit the City to withdraw trust assets where it is not a beneficiary of the trust and does not have a power of revocation.
51Accordingly, I agree with the disposition of the application judge and would dismiss the appeal. On consent, I would make no order as to costs.
Appeal dismissed without costs.
Notes
Footnotes
- An actuarial surplus exists when the actuarially determined value of the assets in a pension fund exceeds the actuarially determined amount of all of the liabilities of the fund.
- Nothing turns on the distinction between "revocation" and a "partial revocation". I note that in Schmidt no distinction is made. See p. 662 S.C.R., p. 671 D.L.R.
