DIVISIONAL COURT FILE NO.: 364/06

SUPERIOR COURT FILE NO. 40518/02

DATE: 20070219

SUPERIOR COURT OF JUSTICE - ONTARIO

DIVISIONAL COURT

RE: DANIEL E. MacDOUGALL, ARTHUR J. TIERNAY, ANGUS BAKER, MALCOLM KERR, CLIFFORD McCAUL and GARY BESSERER Plaintiffs/Appellants

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THE ONTARIO NORTHLAND TRANSPORTATION COMMISSION and THE NATIONAL AUTOMOBILE, AEROSPACE, TRANSPORTATION AND GENERAL WORKERS UNION OF CANADA AND ITS LOCAL 103 (the "CAW") and BRIAN STEVENS on his own behalf and on behalf of the Employees of the Defendant, the Ontario Northland Transportation Commission ("ONTC") represented by the CAW; and

THE UNITED TRANSPORTATION UNION ("UTU") and PHILIP KONING, on his own behalf and on behalf of all members of the UTU and ITS LOCAL 1161 employed by the Defendant ONTC; and

THE BROTHERHOOD OF MAINTENANCE OF WAY EMPLOYEES ("BMWE") and RICHARD PAULIN on his own behalf and on behalf of all Members of the BMWE and its LOCALS 3 and 2697 employed by the Defendant ONTC; and

THE INTERNATIONAL BROTHERHOOD OF ELECTRICAL WORKERS-SYSTEM COUNCIL NO. 11 LOCAL 2061 ("IBEW") and GORDON LOUTTIT on his own behalf and on behalf of all members of IBEW – SYSTEM COUNCIL NO. 11, LOCAL 2601 employed by the Defendant ONTC, and

THE UNITED STEEL WORKERS OF AMERICA and its LOCAL 1976 ("USWA LOCAL 1976") and RON MARLEAU on his own behalf and on behalf of all members of the USWA, Local 1976 employed by the Defendant ONTC; and

THE BROTHERHOOD OF LOCOMOTIVE ENGINEERS ("BLE"), and SHAWN O'DONNELL, on his own behalf and on behalf of all members of the BLE employed by the Defendant ONTC Defendants/Respondents

Proceeding under the Class Proceedings Act, 1992

COUNSEL: C. Scott Ritchie, Q.C., David Williams, Jonathan Foreman, Randy Bennett for the Plaintiffs

J.A. Prestage, for the Ontario Northland Transportation Commission,

Niki S. Lundquist, for CAW-Canada and Brian Stevens on his own behalf and on behalf of the Employees of the Defendant, ONTC represented by the CAW,

James McDonald and Dona L. Campbell, for the United Steel Workers of America (Local 1976) and Ron Marleau on his own behalf and on behalf of all Members of the USWA, Local 1976 employed by the Defendant ONTC; and

BLE and Shawn O'Donnell on his own behalf and on behalf of all members of the BLE employed by the Defendant ONTC;

Michael A. Church, for the UTU and Philip Koning on his own behalf and on behalf of all the members of the UTU employed by the Defendant ONTC, and

BMWE and Richard Paulin on his own behalf and on behalf of all members of the BMWE and its Locals 3 and 2697 employed by the Defendant ONTC; and IBEW and Gordon Louttit on his own behalf and on behalf of all members of IBEW – Systems Council No. 11, Local 2061 employed by the Defendant ONTC

DIVISIONAL COURT FILE NO.: 456/06

CLIFFORD McCAUL Plaintiff (Appellant)

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THE ONTARIO NORTHLAND TRANSPORTATION COMMISSION Defendant (Respondent)

COUNSEL: Kathryn Podrebarac, for the Plaintiff/Appellant

J.A. Prestage, for the Respondent/Defendant

BEFORE: CARNWATH, JENNINGS & FERRIER JJ.

HEARD: January 22 and 23, 2007

E N D O R S E M E N T

CARNWATH J.:

[1] Daniel E. MacDougall et al. and Clifford McCaul each brought motions to certify a class proceeding against the respondent, Ontario Northland Transportation Commission ("ONTC"), regarding the status of, and amendments made to, the ONTC Pension Plan ("Plan"). The six respondent unions ("Unions"), who represent active ONTC employees, were added as defendants. The appellants appeal the June 6, 2006 decision of Hennessy J. refusing their motions to certify their proceedings as class actions under the Class Proceedings Act, 1992, S.O. 1992, c. 6 ("CPA").

[2] The issues to be decided on these appeals are:

1. Did Hennessy J. make any errors of law?

2. Did Hennessy J. commit any overriding and palpable error in her findings of fact?

3. Did Hennessy J. decide any questions of mixed fact and law that can be described as unreasonable, being "mindful of the deference which is due to the Superior Court judges who have developed expertise in this very sophisticated area of practice"? [Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673 (C.A.) leave to appeal to S.C.C. denied, [1999] S.C.C.A. No. 476]

BACKGROUND

The Plan

[3] The Plan is a defined benefit contributory pension plan established by Order-in-Council in 1939. It is ongoing and is not in wind-up. There has never been a written trust agreement or trust instrument in respect of the Plan.

The Parties

[4] ONTC was created by the Ontario Northland Transportation Commission Act, R.S.O. 1990, c. O.32, and maintains and operates rail lines, bus services and telecommunications services in Northern Ontario.

[5] The Unions represent almost eight hundred out of nine hundred and seventy-five active employees of the ONTC employees. The Unions have been involved in the administration of the Plan (including proposing and negotiating changes to it) for many years.

[6] The MacDougall appellants are all beneficiaries of the ONTC pension plan. The proposed class contains "All beneficiaries of the [Plan] with the exception of those current employees who are represented by a trade union and the members of the 2004 class [the McCaul appellants]".

[7] There are a number of sub-classes within this proposed class, each having their own named representative in the proposed class proceeding:

Sub-Class Representative

a. Residual Retirees MacDougall

b. 1996 Early Retirees Tierney

c. 1999 Enhanced Benefits Retirees Baker

d. 2000 Contribution Holiday Retirees Kerr

e. Active Non-Unionized Employees Besserer

[8] The appellant, McCaul, in a separate class proceeding, seeks to represent the class of beneficiaries who retired between November 14, 2004 and January 1, 2005, pursuant to the early retirement package and who received or are receiving the 1999 enhanced benefits and who ceased making contributions pursuant to the 2000 contribution holiday.

The Claims

[9] The appellants claim that the Plan is an irrevocable trust and that by making certain modifications to it, ONTC is in breach of trust. The appellants, however, are not entirely of one mind depending upon which sub-class they participate in. Moreover, the respondent Unions have joined the appellants on certain issues. The appellants do not seek individual assessments or awards for damages. Rather, they make certain claims and seek certain relief as set out below.

[10] The appellants say the Plan is an irrevocable trust for the exclusive benefit of pension plan members and that the ONTC is in breach of the trust due to the following amendments it made to the Plan:

a) providing that any surplus in the Plan on discontinuance belongs to the ONTC;

b) granting ONTC unilateral power to amend or terminate the Plan and retain any surplus on termination;

c) allowing for contribution holidays whereby the employer and the employees suspend contributions to the Plan;

d) providing enhanced early retirement benefits in 1996 and 2004;

e) allowing administrative expenses to be funded from the Plan; and,

f) providing enhanced retirement benefits for those retiring after 1999.

[11] If ONTC is found to be in breach of trust, the appellants seek a declaration that it remains contractually bound to continue payment of the various enhanced retirement benefits.

[12] The appellants seek an injunction to have ONTC stop dealing with pension funds and orders removing the ONTC as trustee of the Plan and appointing an independent Trustee and Review Committee.

[13] The appellants seek orders requiring ONTC to pay restitution to the Plan for monies improperly paid and an order for punitive damages.

Hennessy J.'s Decision

[14] In her decision, Hennessy J. considered and analyzed the requirements of the CPA found in ss. 5(1)(c)-(e):

5.(1) The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(c) the claims or defences of the class members raise common issues;

(d) a class proceeding would be the preferable procedure for the resolution of the common issues; and

(e) there is a representative plaintiff or defendant who,

(i) would fairly and adequately represent the interests of the class;

(ii) has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and

(iii) does not have, on the common issues of the class, an interest in conflict with the interests of other class members.

[15] Hennessy J. found there were common issues regarding whether the Plan was held in trust, who the beneficiaries of the trust were and whether the trust was irrevocable. She found the challenges to the amendments to the contribution holidays, enhanced retirement benefits, the early retirement program and the governance issue not to be common issues.

[16] She noted that to be a common issue, success for one class member must mean success for all. However, she found that if the amendments to the Plan were invalid, or if the governance of the Plan changed, different sub-classes would be affected in different, possibly adverse, ways. She found a potential conflict between retirees and active employees who (i) were enjoying the contribution holiday, (ii) would benefit from the 1999 enhanced retirement benefits, and (iii) may benefit in the future from early retirement opportunities or further improvement to the Plan.

[17] She found that opting out would not allow groups or individuals whose interests were in conflict to seek an individual group or group remedy or preserve their rights.

[18] Hennessy J. rejected the submission that the ONTC was contractually obliged to continue the benefits created by the impugned amendments. She regarded any successful challenge to the amendments to be speculative since the legal consequences of a successful attack on the amendments remained an open question.

[19] Hennessy J. found that a class action was not the preferable procedure, since two of the three policy objectives of the CPA were not served by certification. She found that behaviour modification would be served because certification would lead other pension fund administrators to generally modify their conduct to ensure that conduct was in line with current judicial pronouncements on the limits of authority of Plan administrators. However, Hennessy J. was not persuaded that access to justice would be served by certifying the class action. Since the claimants did not seek individual monetary relief, improved access to justice was not achieved. She found there to be alternatives to a class proceeding, e.g., an application to the Superintendent of Financial Services or the Superintendent of Insurance, processes that could deal with the questions of the trust status of the Plan, entitlements to surplus and payment of administrative costs, without the need to define classes, sub-classes and resolve conflicts among the different groups. Another alternative for a party or group seeking primarily declaratory relief was an application by a representative under r. 12.08.

[20] Judicial economy was not served by certification since the claimants clearly established they were not pursuing individual remedies; thus, the alternative to a class proceeding was not a multitude of individual actions. Multiple actions were not required to obtain a declaration. Since the Plan was ongoing, a declaration that the Plan is a trust did not clarify the rights of Plan members to a surplus; ongoing pension plans have "actuarial surpluses" and not "actual surpluses". The claimants, she found, had no legal interest or entitlement to the actuarial surplus.

[21] Hennessy J. then turned to consider the criteria to be satisfied by a representative plaintiff. She found the conflicts between Mr. MacDougall and the main sub-classes and the conflicts among the sub-classes, to be irreconcilable. There was no appropriate representative plaintiff. She identified a conflict between retired members of the proposed class and active non-unionized members. She found the former to be enjoying the benefits of the amendments, i.e., the contribution holiday or future benefits arising from improvements in the pension formula or early retirement programs.

[22] She noted that representatives for the Plan sub-classes had indicated they would advance positions in the proceeding that the particular amendment, which appeared to be to the advantage of the individuals in the group they were representing, was a breach of trust. She found this to be contrary to the economic interests of the group they sought to represent which raised an apparent conflict.

[23] Hennessy J. noted that the plaintiffs, who were retired members of the Plan and were members of an Association of retired members, were on record as prepared to take direction with respect to the action from the Association. This she found to be in conflict with active members of the Plan on issues that would have adverse consequences on the active members. The Unions recognized this as well which explains why they are defendants in the action.

[24] Finally, she noted that Messrs. MacDougall and Kerr had held responsible positions in the administration of the Plan, either as a management employee or a member of the Pension Board. If they sought punitive damages with respect to decisions made in which they appear to have participated, this constituted a conflict on its face in Hennessy J.'s view.

[25] In her analysis of the McCaul certification motion, Hennessy J. found the class to represent two hundred and seven of two thousand, three hundred and sixty-two beneficiaries and was too-narrowly defined for certification on its own. It was necessary to have all members of the Plan before the court, if broad questions of status and governance were to be determined.

[26] She noted that Mr. McCaul sought a declaration that the ONTC as employer remained responsible for payments arising from the amendments, notwithstanding the determination of the validity of the amendments. She found this to raise serious problems as a common issue. She felt that employer obligations flow from collective agreements or individual contracts of employment and therefore, the evidentiary basis for commonality was deficient.

[27] Hennessy J. also applied the reasons given in the MacDougall action on preferable procedure to the McCaul motion for certification.

STANDARD OF REVIEW ON THE APPEAL

[28] The Supreme Court of Canada recently addressed the standard of review of an appeal from a judge's decision in Housen v. Nikolaisen (2002), 2002 SCC 33, 211 D.L.R. (4th) 577 (S.C.C.), [2002] S.C.J. No. 31. In summary:

On a pure question of law, the basic rule with respect to the review of a trial judge's findings is that an appellate court is free to replace the opinion of the trial judge with its own. Thus the standard of review on a question of law is that of correctness. (at para. 8)

The standard of review for findings of fact is that such findings are not to be reversed unless it can be established that the trial judge made a 'palpable and overriding error': Stein v. The Ship "Kathy K". (at para. 10)

Where the trier of fact has considered all the evidence that the law requires him or her to consider and still comes to the wrong conclusion, then this amounts to an error of mixed law and fact and is subject to a more stringent standard of review [than for findings of fact]. (at para. 28)

[29] With respect to the certification of a class action, in Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673 (Ont. C.A.), leave to appeal to S.C.C. denied, [1999] S.C.C.A. No. 476, the Court of Appeal said, at p. 677:

This is the first time this court has considered the certification of a class action and I am mindful of the deference which is due to the Superior Court judges who have developed expertise in this very sophisticated area of practice. The Act provides for flexibility and adjustment at all stages of the proceeding and any intervention by this court at the certification level should be restricted to matters of general principle.

[30] In Carom v. Bre-X Minerals Ltd. (2000), 2000 16886 (ON CA), 51 O.R. (3d) 236 (C.A.) at 247-8, MacPherson J.A. repeated this principle when he noted that judges assigned to hear certification motions "develop an expertise which should be recognized and respected by appellate courts".

[31] In Cloud v. Canada (Attorney General) 2004 45444 (ON CA), 73 O.R. (3d) 401 (C.A.), the Ontario Court of Appeal referred to Carom, supra, with approval. The Court noted that the case before it was somewhat complicated since a judge for the majority of the Divisional Court and the dissenting judge were both part of that small group of judges with expertise. We reject the submission that this set of circumstances in any way diminishes the principles referred to in Anderson and Carom, above.

1. Did Hennessy J. make any errors of law?

[32] In para. 54 of her reasons, Hennessy J. correctly set out the elements of the test for certification as found in s. 5(1) of the CPA.

[33] In para. 56, she correctly placed the onus of proving the five criteria in s. 5(1) on the appellants.

[34] In para. 60, Hennessy J. correctly stated that a class must be defined by objective criteria, must be bounded, i.e., not unlimited, and that there must be a rational relationship between the proposed class and the common issues. This statement is confirmed in Hollick v. Toronto (City), 2001 SCC 68, [2001] 3 S.C.R. 158. Her finding that the proposed class has no rational connection to the common issues is discussed later in these reasons.

[35] Hennessy J. noted that the appellants' claim alleges that the amendments to the Plan identified in para. 10(a)-(f) above, were breaches of trust. She correctly concluded that if breaches of trust were established, the respective amendments would be invalid. (See, Schmidt v. Air Products Canada Ltd., 1994 104 (SCC), [1994] 2 S.C.R. 611; Maurer v. McMaster University (1995), 1995 766 (ON CA), 23 O.R. (3d) 577 (C.A.)) She concluded, in para. 76, that whether ONTC as employer would be contractually bound to make payments pursuant to an invalid Plan amendment might not be properly before the court in the class action.

[36] In paras. 94-98, Hennessy J. correctly described the analysis to employ when considering if a class action is the preferable procedure. She cited Hollick, above, at 177-179:

"preferable" was meant to be construed broadly. The term was meant to capture two ideas: first the question of 'whether or not the class proceeding would be a fair, efficient and manageable method of advancing the claim', and second, the question of whether a class proceeding would be preferable 'in the sense of preferable to other procedures such as joinder, test cases, consolidation and so on'.

[37] In para. 96, she correctly set out the test of "preferable procedure" – to examine the issue in light of the goals of the CPA. These goals are access to justice, judicial economy and behaviour modification. Her analyses of these goals are discussed later in these reasons.

[38] In par. 112, Hennessy J. correctly concluded that the appellants had no current interest or entitlement to the ongoing Plan's actuarial surplus. See, Schmidt, above.

[39] In para. 121, Hennessy J. correctly concluded that certification required a representative plaintiff who would fairly and adequately represent the interests of the class, has produced a valuable litigation plan and does not have a conflict of interest with other class members on the common issues.

[40] My review of Hennessy J.'s reasons discloses no errors of law.

2. Did Hennessy J. commit any overriding and palpable error in her findings of fact?

[41] In paras. 1-13 of her reasons, Hennessy J. sets out her identification of the Plan, the parties, the sub-classes and the claims. I can find no overriding or palpable error in her findings. Indeed, none was alleged by the appellants.

3. Did Hennessy J. decide any questions of mixed fact and law that can be described as unreasonable, being "mindful of the deference which is due to the Superior Court judges who have developed expertise in this very sophisticated area of practice"? [Anderson v. Wilson (1999), 1999 3753 (ON CA), 44 O.R. (3d) 673 (C.A.) leave to appeal to S.C.C. denied, [1999] S.C.C.A. No. 476]

[42] In paras. 67-92, Hennessy J. analyzes at considerable length the question of common issues. She concludes in para. 92 by finding that the challenges to the amendments to the Plan – contribution holidays, enhanced retirement benefits, the early retirement program and the governance questions could not be common issues among the plaintiffs' proposed class. I find this to be exactly the sort of conclusion to which this court must show deference. Hennessy J. falls within that class of judges with special expertise in class action matters. Moreover, she has case-managed the matter over a period of several years. The test for the Divisional Court is not whether the panel would have come to a different conclusion but, rather, is the result reasonable and one to which Hennessy J. was entitled to come on the evidence before her? I find this to be the case.

[43] In paras. 99-107, Hennessy J. engaged in an analysis of the access to justice goal of the CPA. She found there were alternatives to a class proceeding for a ruling on the status of the Plan and the validity of the amendments. These alternatives included the obtaining of a ruling from the Superintendent of Financial Services, an appeal to the Financial Services Tribunal and, ultimately, to the Divisional Court. Another alternative she identified was for a party or group to seek declaratory relief and an application under r. 12.08 of the Rules of Civil Procedure. She compared the fact situation in the within matter with several cases where class actions were certified in pension disputes and found those cases to be considerably different.

[44] She concluded her analysis of access to justice by finding that a class proceeding was not the preferable method of interpreting the Plan and determining the validity of the amendments of an ongoing Plan in a contest between groups of beneficiaries. This was a conclusion to which she was entitled to come on the evidence and which is owed deference by this court.

[45] In paras. 108-117, Hennessy J. analyzed the impact on judicial economy if certification was granted. She found that where a single restitution award would flow from the question of entitlement, there were no economies to be realized by a class proceeding. She noted the plaintiffs themselves asserted that the case began and ended with a determination of the primary issue on the status of the Plan and the amendments. She concluded by finding that the resolution of the common issues did not substantially advance the litigation. This was a conclusion to which she was entitled to come on the evidence before her and should not be disturbed by this court.

[46] In paras. 121-132, Hennessy J. analyzes the appropriateness of the plaintiffs in the light of who would fairly and adequately represent the interest of the class, produce a workable litigation plan and did not have a conflict of interest with other class members on the common issues. Her analysis satisfied her that the named plaintiffs, who are retired members of the Plan, had a fundamental and irreconcilable conflict with active members of the Plan on the issues which would have adverse consequences on the active members. Eighty percent of the active members, as represented by trade unions, recognized those adverse consequences, resisted initial attempts to be joined as plaintiffs and adopted their status as defendants who oppose certification. She examined each of Messrs. Tiernay, Baker, Kerr and Besserer and identified them as individuals who have evidenced an intention to pursue positions which would be contrary to the economic interests of the group they sought to represent.

[47] She concluded that the proposed plaintiffs could not fairly and adequately represent the interests of their class or sub-class. She found further that the role played by Mr. MacDougall with respect to his former involvement in the management of the Plan and his concession that he would take directions from an Association of retired pensioners led her to conclude that the named plaintiffs could not fairly and adequately represent the interests of the class and that they had conflicts on the common issues with other members of the class. This was a conclusion to which she was entitled to come on the evidence before her and which attracts deference from this court.

[48] In paras. 136-141, Hennessy J. found that the 2004 class in the McCaul action represented two hundred and seven of two thousand, three hundred and sixty-two beneficiaries. She found the proposed class was too-narrowly defined for certification on its own. She found the McCaul action also suffered from the same defects as the MacDougall action with respect to a deficiency in commonality and on preferable procedure.

[49] Hennessy J. concluded that the plaintiffs had proposed a definition of the class and common issues which presented insurmountable problems. The common issues as framed brought into sharp focus the fundamental conflicts within the proposed plaintiff group, a conflict that was not resolved by the proposed sub-classes. She found the conflicting interests of active versus retired members of the pension plan to be self-evident; she found the conflicting interests among the various sub-groups of pensioners could be more economically and efficiently resolved through a judicial application or an application through the administrative scheme. She found no economies evident where the complex and cumbersome class proceeding litigation either avoided multiple individual actions or set the foundation for the resolution of the individual claims. It was not a preferred procedure. This was a conclusion to which she was entitled to come on the evidence and which is owed deference by this court.

[50] Underlying the submissions of the appellants was the suggestion that the plaintiffs' attempts to litigate this matter have taken almost four years with little progress. While this may be so, it was the plaintiffs who decided to choose the class action route with its attendant complexities. That they are now no further ahead is not the fault of the defendants, nor should it influence the disposition of the appeal.

[51] (a) The appeals are dismissed.

(b) An order will go on consent permitting the introduction of fresh evidence with respect to the 2004 financial statements of the Plan.

(c) An order will go amending the title of proceedings to show the IBEW as the International Brotherhood of Electrical Workers System Council, rather than as shown in the title of proceedings on the appeal book; and,

(d) The parties may make brief written submissions as to costs within fifteen days after the date of issue of these reasons.

CARNWATH J.

JENNINGS J.

FERRIER J.

DATE: 20070219