Monsanto Canada Inc. et al. v. Superintendent of Financial Services et al.

[Indexed as: Monsanto Canada Inc. v. Ontario (Superintendent of Financial Services)]

62 O.R. (3d) 305

[2002] O.J. No. 4407

Docket Nos. C36599, C36610, C36613

Court of Appeal for Ontario,

Laskin, Goudge and Armstrong JJ.A.

November 22, 2002

• Application for leave to appeal to the Supreme Court of Canada granted June 5, 2003 (Gonthier, Major and Arbour JJ.).

Administrative law -- Judicial review -- Standard of review -- Financial Services Tribunal's interpretation of provisions of Pension Benefits Act failing to meet reasonableness standard -- Pension Benefits Act, R.S.O. 1990, c. P.8, s. 70(5), (6).

Pensions -- Pension plan -- Surplus -- Partial wind up -- Partial wind up of defined benefit pension plan -- Judicial review -- Standard of review -- Financial Services Tribunal's interpretation of provisions of Pension Benefits Act failing to meet reasonableness standard -- Doctrine of reasonable expectations not applying -- Pensions Benefits Act, R.S.O. 1990, c. P.8, s. 70(5), (6).

Pensions -- Pension plan -- Surplus -- Partial wind up -- Partial wind up of defined benefit pension plan -- Employer obliged to distribute that part of actuarial surplus then in plan that is attributable to members of plan who are affected by partial wind up -- Pension Benefits Act, R.S.O. 1990, c. P.8, s. 70(5), (6).

As a result of a corporate reorganization, Monsanto Canada Inc. wished to proceed with a partial wind up of its defined benefit pension plan, which it [page306] maintained for employees. However, the Superintendent of Financial Services, the provincial regulator of pensions, refused to approve Monsanto's partial wind up report. The main objection was that the partial wind up made no provision for a distribution of any portion of the plan's actuarial surplus to the employees affected. The surplus was $19.1 million, representing the amount by which the estimated asset value of the plan exceeded the estimated liabilities.

In response to the Superintendent's refusal, Monsanto requested a hearing before the Financial Services Tribunal, and the Tribunal, by a two-to-one majority, ordered the Superintendent to approve the report. The majority ruled that s. 70(6) of the Pension Benefits Act does not require that on a partial wind up there be an immediate distribution of the actuarial surplus that relates to the affected members. (The dissent concluded that s. 70(6) requires that members affected by a partial wind up are to be dealt with as if there had been a full wind up at the partial wind up date.) The majority also concluded that it was appropriate in the circumstances to apply the doctrine of legitimate expectations (sometimes called estoppel against a public authority) to support the approval of Monsanto's partial wind up plan. (The dissent took the contrary view.)

The Superintendent appealed the Tribunal's decision to the Divisional Court. The Divisional Court concluded that the Tribunal's decision about s. 70(6) of the Act should be scrutinized against the standard of reasonableness, and the Divisional Court held that the Tribunal's decision was unreasonable. The Divisional Court adopted the decision of the dissent on this point. About the application of the doctrine of reasonable expectations, the Divisional Court concluded that the Tribunal's decision must be judged against the standard of correctness. Using this standard, the Divisional Court concluded that the majority of the Tribunal was not correct about the application of the doctrine of reasonable expectations. Accordingly, the Divisional Court allowed the Superintendent's appeal. With leave, Monsanto appealed to the Court of Appeal.

Held, the appeal should be dismissed.

The Divisional Court was correct in testing the majority's decision about the interpretation of s. 70(6) against a standard of simple reasonableness. In applying the reasonableness standard of review to a statutory interpretation rendered by an administrative tribunal, the task of the court is to determine whether the interpretation is clearly wrong, that is, one which the statute cannot reasonably bear. Here, the majority's decision was clearly wrong. The ordinary meaning of the words of s. 70(6) specified that members affected by a partial wind up are to be dealt with as if there had been a full wind up at the partial wind up date. It was beyond dispute that on a full wind up, all members have the rights to have the full surplus distributed. The ordinary meaning of the words in s. 70(6) accords, at the time of the partial wind up, the affected members their share of the full wind up right, namely, the right to have distributed that part of the surplus that relates to them. This meaning was reinforced by the statutory and regulatory scheme of which s. 70(6) is a part and other provisions of the statute clearly contemplated that there will be some distribution of assets on both a partial and a full wind up. It was clear that the legislature decided to treat full wind up and partial wind up in parallel. Further still, the historical origins of s. 70(6), the broad purpose of the Act, and practical considerations also supported the meaning adopted by the Divisional Court, which was that affected members have the right to have distributed that portion of the surplus that relates to that part of the pension plan being wound up. The decision of the majority of the Tribunal about the interpretation of s. 70(6) was clearly wrong and its reasoning process did not stand up to examination. The Divisional Court was correct to set [page307] aside the majority's decision and to find that Monsanto's report did not comply with s. 70(6) of the Act.

The Divisional Court was correct in rejecting the application of the doctrine of reasonable expectations, which would require as a condition precedent that the pension regulator had made a clear, unambiguous and unqualified representation of not insisting that the distribution of surplus be provided for in a partial wind up report. The majority of the Tribunal was clearly wrong or patently unreasonable in finding that such a representation had been made. Without such a finding, the doctrine of legitimate expectations could not be engaged. Moreover, even if such a finding had been properly made, the majority erred in law. First, it erred in concluding that its application of the doctrine was with respect to procedural rights. The rights to a share of the surplus was a substantive right which could not be affected by the doctrine of reasonable expectations. Second, in applying the doctrine, it erred by relying on its own incorrect interpretation of s. 70(5) of the Act. The majority erroneously read s. 70(5) to permit the approval of a wind up report that did not meet the requirements of the Act. Third, the majority erred when it concluded that the interests of third party affected members would not be adversely affected by applying the doctrine. It was appropriate to review these errors against the standard of correctness because they involved the application of a common law doctrine, a task in which the Tribunal could claim no advantage of expertise over the courts. The Divisional Court was correct in finding that the majority of the Tribunal erred in using the doctrine of reasonable expectations. Accordingly, the appeal must be dismissed.

APPEAL of a judgment of the Divisional Court (Gravely, Matlow, Marchand JJ.) (2001), 2001 40234 (ON SCDC), 10 C.C.E.L. (3d) 257 overturning a decision of the Financial Services Tribunal.

Cases referred to Ahani v. R. (2002), 2002 23589 (ON CA), 58 O.R. (3d) 107, 208 D.L.R. (4th) 66, 91 C.R.R. (2d) 145 (C.A.), revg (2002), 2002 49624 (ON SC), 90 C.R.R. (2d) 292 (Ont. S.C.J.); Aurchem Exploration Ltd. v. Canada (1992), 1992 8524 (FC), 91 D.L.R. (4th) 710 (F.C.T.D.); Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, 100 B.C.L.R. (3d) 1, 212 D.L.R. (4th) 1, 287 N.R. 248, [2002] 5 W.W.R. 1, 93 C.R.R. (2d) 189, 18 C.P.R. (4th) 289; Canada (Director of Investigation and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, 144 D.L.R. (4th) 1, 209 N.R. 20, 71 C.P.R. (3d) 417; Firestone Canada Inc. v. Ontario (Pension Commission) (1990), 1990 6833 (ON CA), 1 O.R. (3d) 122, 42 O.A.C. 176, 78 D.L.R. (4th) 52, 33 C.C.E.L. 225 (C.A.), revg (1990), 1990 6941 (ON SC), 74 O.R. (2d) 325, 72 D.L.R. (4th) 218 (H.C.J.); Gencorp Canada Inc. v. Ontario (Superintendent of Pensions) (1998), 1998 2947 (ON CA), 39 O.R. (3d) 38, 158 D.L.R. (4th) 497, 37 C.C.E.L. (2d) 69 (C.A.), affg (1995), 1995 10654 (ON SC), 26 O.R. (3d) 696, 130 D.L.R. (4th) 723, 16 C.C.E.L. (2d) 290 (Div. Ct.); Hinds v. Ontario (Superintendent of Pensions) (2002), 2002 23592 (ON CA), 58 O.R. (3d) 367 (C.A.); Huus v. Ontario (Superintendent of Pensions) (2002), 2002 23593 (ON CA), 58 O.R. (3d) 380 (C.A.); Libbey Canada Inc. v. Ontario (Ministry of Labour) (1999), 1999 1530 (ON CA), 42 O.R. (3d) 417, 169 D.L.R. (4th) 416, 40 C.C.E.L. (2d) 240, 99 C.L.L.C. 210-019 (C.A.), revg (1995), 1995 10646 (ON SC), 26 O.R. (3d) 125, 130 D.L.R. (4th) 350, 15 C.C.E.L. (2d) 1, 96 C.L.L.C. 210-001 (Div. Ct.); Moreau-Bérubé v. New Brunswick (Judicial Council), 2002 SCC 11, 245 N.B.R. (2d) 201, 209 D.L.R. (4th) 1, 636 A.P.R. 201; Pasiechnyk v. Procrane Inc., 1997 316 (SCC), [1997] 2 S.C.R. 890, 158 Sask. R. 81, 149 D.L.R. (4th) 577, 216 N.R. 1, 153 W.A.C. 81, [1997] 8 W.W.R. 517, 30 C.C.E.L. (2d) 149, 37 C.C.L.T. (2d) 1 (sub nom. Pasiechnyk v. Saskatchewan (Workers' Compensation Board)); Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 778 (SCC), [1998] 1 S.C.R. 1222, [1998] 1 S.C.R. 982, 160 D.L.R. (4th) 193, 226 N.R. 201; 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)) [page308] Statutes referred to Financial Services Commission of Ontario Act, 1997, S.O. 1997, c. 28, ss. 20(b), 21(4) Pension Benefits Act, R.S.O. 1990, c. P.8, ss. 1 "partial wind up", "surplus", "wind up", 68-77, 70(1)(c), (5), (6), 89, 91(1) Rules and regulations referred to O. Reg. 91/69 R.R.O. 1990, Reg. 909 ("Pension Benefits Act"), s. 28(2)(g), 28.1

Freya J. Krisjanson and Markus F. Kremer, for appellant Monsanto Canada Inc. J. Brett G. Ledger and Lindsay Hill, for appellant National Trust Company. Jeffrey Galway and Randy Bauslaugh, for appellant Association of Canadian Pension Management. Deborah McPhail, for respondent Superintendent of Financial Services. Mark Zigler and Ari N. Kaplan, for respondents Smallhorn, Halsall and Galbraith.

The judgment of the court was delivered by

[1] GOUDGE J.A.: -- The central issue in this case is whether an employer who implements a partial wind up of its defined benefit pension plan has a legal obligation to distribute that part of the actuarial surplus then in the plan that is attributable to the members of the plan who are affected by the partial wind up.

[2] The Divisional Court determined that s. 70(6) of the Pension Benefits Act, R.S.O. 1990, c. P.8 (the "Act") imposes such an obligation and that the employer cannot avail itself of the legal doctrine of "legitimate expectations" to negate that obligation.

[3] For the reasons that follow, I agree with both conclusions. I would therefore dismiss the appeal.

The Facts

[4] Monsanto Canada Inc. ("Monsanto") is the primary appellant in this appeal, and its pension plan is the subject matter of this litigation. Monsanto is supported by the other two appellants, the Association of Canadian Pension Management ("ACPM") and the National Trust Company ("National"). ACPM is a non-profit corporation which serves as a national voice for pension plan [page309] sponsors in Canada. National is in the same position as Monsanto in that it is seeking to proceed with a partial wind up of its pension plan without distributing any part of the plan's surplus.

[5] The respondents are the Superintendent of Financial Services (the "Superintendent"), who is the front-line regulator of pensions in Ontario, and Messrs. Smallhorn, Halsall and Galbraith, who represent members of the National pension plan seeking distribution of a portion of that plan's surplus when it is partially wound up.

[6] The plan under scrutiny in this case is the defined benefit pension plan maintained by Monsanto for its employees. Monsanto's wish to proceed with a partial wind up of the plan arose when, as a result of a corporate reorganization and a plant closure, it gave notice to 146 employees that their employment would be terminated between December 31, 1996 and December 31, 1998. Throughout these proceedings this group has been referred to as the Affected Members.

[7] Monsanto submitted a report to the provincial pension regulator on August 11, 1997 seeking approval for the partial wind up of the plan as it related to the Affected Members. At the time, there were approximately 1,600 members of the plan in all, of whom about 700, including the Affected Members, were active employees.

[8] Monsanto's report provided that the partial wind up was to be effective May 31, 1997. As of that date, the information supplied to the regulator by the actuaries for the plan showed that the plan had an actuarial surplus of some $19.1 million representing the amount by which the estimated asset value exceeds the estimated liabilities. The Affected Members' pro rata share of that surplus was some $3.1 million. The report made no provision for the distribution of this sum either to the Affected Members or to Monsanto.

[9] On July 1, 1998, because of the enactment of the Financial Services Commission of Ontario Act, 1997, S.O. 1997, c. 28, the Superintendent became the provincial pension regulator taking over that function from the Pension Commission of Ontario. At the same time that Commission's adjudicative functions in relation to pensions were transferred to the newly created Financial Services Tribunal (the "Tribunal").

[10] As a consequence, it was the Superintendent who, as the new provincial pension regulator, responded to the report submitted by Monsanto. On December 1, 1998, she served Monsanto with a notice of proposal to refuse to approve the company's partial wind up report. The notice set out a number of objections, but foremost among them was that the report did [page310] not provide for the distribution to the Affected Members of surplus assets relating to that part of the plan being wound up, contrary to s. 70(6) of the Act.

[11] Monsanto's response was to exercise its right under s. 89 of the Act to require a hearing by the Tribunal. In such a hearing the Tribunal's power in relation to the Superintendent's proposal to refuse to approve the partial wind up report is set out in s. 89(9) of the Act:

89(9) At or after the hearing, the Tribunal by order may direct the Superintendent to carry out or to refrain from carrying out the proposal and to take such action as the Tribunal considers the Superintendent ought to take in accordance with this Act and the regulations, and for such purposes, the Tribunal may substitute its opinion for that of the Superintendent.

[12] The Tribunal held the requested hearing and by a two-to- one majority, issued a decision ordering the Superintendent to refrain from carrying out the proposal to refuse to approve the partial wind up report, and ordering the Superintendent to approve it.

[13] The decision of the majority rested ultimately on its disposition of two issues in favour of Monsanto.

[14] First, the majority dealt with the surplus distribution issue raised by s. 70(6) of the Act. That section reads as follows:

70(6) On the partial wind up of a pension plan, members, former members and other persons entitled to benefits under the pension plan shall have rights and benefits that are not less than the rights and benefits they would have on a full wind up of the pension plan on the effective date of the partial wind up.

[15] The majority determined that this subsection does not require that on partial wind up Monsanto provide for the distribution of the actuarial surplus in the plan that relates to the Affected Members. Rather, the majority said that the subsection gives the Affected Members no more than a right to participate in a distribution of actual surplus on a full wind up if and when that subsequently occurs. That participation would be based on their membership in the plan at the partial wind up date without disqualification because they ceased to be members of the plan before the date of the full wind up.

[16] The dissent, on the other hand, concluded that s. 70(6) requires that members affected by a partial wind up are to be dealt with as if there had been a full wind up at the partial wind up date.

[17] The second issue is whether Monsanto had a sufficient legitimate expectation that the Superintendent would approve the partial wind up report, in light of the past practice and policy [page311] of the pension regulator in respect of similar reports, that the Tribunal should direct the Superintendent to approve the partial wind up report. The majority concluded that, in the circumstances, this was a proper case in which to apply the doctrine of legitimate expectations (or, as it is sometimes called, estoppel against a public authority) to compel the Superintendent to approve the partial wind up report.

[18] The dissent took the contrary view, finding that the policies of the regulator were ambiguous at best, and that the doctrine of legitimate expectations could not deny the Affected Members the rights conferred on them by s. 70(6) of the Act.

[19] On receiving the Tribunal's decision, the Superintendent availed itself of the right provided by s. 91(1) of the Act to appeal the Tribunal decision to the Divisional Court, raising both the surplus distribution issue and the legitimate expectation issue.

[20] As to the former issue, the Divisional Court found that the interpretation of s. 70(6) offered by the majority decision should be scrutinized against the standard of reasonableness. It concluded that the interpretation offered was unreasonable and must be set aside. The Divisional Court agreed with, and adopted, the interpretation of the subsection offered by the dissent.

[21] As to the latter issue, the Divisional Court found correctness to be the proper standard of review. It concluded that the reasons of the dissent were correct, and that the majority erred in using the doctrine of legitimate expectations to accord to Monsanto rights which were substantive, not simply procedural.

[22] In the result, the Divisional Court allowed the appeal, set aside the order of the Tribunal, and ordered that the Superintendent carry out the notice of proposal to refuse to approve the partial wind up report because it did not comply with s. 70(6) of the Act.

[23] With leave, Monsanto appeals to this court. It raises both the surplus distribution issue and the legitimate expectations issue. I will deal with each of these in turn. Before doing so, it should be made clear that all parties to this appeal agree that the issue of who owns the surplus -- the employer, the members or both -- is not before us. If distribution of a part of the surplus is required by law, the ownership question would have to be answered to determine the proper recipients.

The Distribution of Surplus Issue

[24] Central to this issue is the interpretation of s. 70(6) of the Act. However, in order to decide whether the Divisional Court properly set aside the interpretation offered by the majority of [page312] the Tribunal, it is necessary to consider whether it applied the appropriate standard of review in doing so.

[25] As I have said, the Divisional Court tested the majority's interpretation against a standard of reasonableness. In this court all parties argued that this was the proper approach. I agree with them.

[26] The determination of the proper standard of review of the decision of an administrative tribunal now requires application of the pragmatic and functional approach described in Pushpanathan v. Canada (Minister of Citizenship and Immigration), 1998 778 (SCC), [1998] 1 S.C.R. 982, 160 D.L.R. (4th) 193. That approach focuses on the fundamental question of whether the issue before the Tribunal was one that was intended by the legislators to be left to the exclusive decision of that Tribunal. See Pasiechnyk v. Saskatchewan (Workers' Compensation Board), 1997 316 (SCC), [1997] 2 S.C.R. 890, 149 D.L.R. (4th) 577 at para. 18.

[27] As described in Pushpanathan, supra, there are four main factors, each not conclusive in itself, that must be considered in determining the proper standard of review.

[28] The first of these is the presence or absence of a privative clause. Here s. 20(b) of the Financial Services Commission of Ontario Act gives the Tribunal exclusive jurisdiction to determine all questions of fact or law that arise in any proceeding before it. However, the preclusive effect of this provision is essentially neutralized by s. 21(4), which provides that an order of the Tribunal is final and conclusive for all purposes unless the Act under which the Tribunal made it provides for an appeal. As we have seen, s. 91(1) of the Pension Benefits Act provides for a full appeal from the Tribunal to the Divisional Court. Thus, this factor suggests a less deferential standard of review.

[29] The second and most important factor is the relative expertise of the Tribunal. The Act gives the Tribunal the central adjudicative role in the specialized administrative structure set up to regulate pensions in Ontario. While the Tribunal deals with other regulated sectors in addition to pensions, the Financial Services Commission of Ontario Act requires that, to the extent practicable, members are appointed with experience and expertise in the regulated sectors and that they are assigned to cases which draw on that experience and expertise. Hence the Tribunal must be seen as having a relative expertise in adjudicating questions relating to pensions. This points to a more deferential standard of review.

[30] The third factor is the purpose of the Act as a whole and, in particular, the provision under consideration. Here s. 70(6) of the Act, whatever its proper meaning, is clearly designed to [page313] create rights or entitlements. When addressing this section, the Tribunal is not dealing with what Bastarache J. in Pushpanathan, supra, called a polycentric issue requiring the concurrent balancing of costs and benefits for many different parties. This factor thus weighs on the side of lesser deference.

[31] Finally, there is the nature of the problem under review, in this case the meaning of s. 70(6) of the Act. Since it involves the interpretation of a statute within the Tribunal's area of expertise some deference is suggested even though it is a question of law and thus might normally attract a strict standard of review. See Moreau-Bérubé v. New Brunswick (Judicial Council), 2002 SCC 11, 209 D.L.R. (4th) 1 at para. 61.

[32] Taking these factors together, I think that the Tribunal decision must be accorded considerable deference and that the proper standard of review of that decision by the court is that of simple reasonableness. The strict scrutiny of the correctness standard would give inadequate recognition to the Tribunal's relative expertise and to the fact that the problem before it was the proper interpretation of an Act with which it has specialized experience. On the other hand, the great deference called for by the patent unreasonableness standard would accord too little significance to the absence of a privative clause and to the fact that the provision in question puts before the Tribunal an issue of rights or entitlements, not a polycentric problem. In my view the reasonableness standard strikes the right balance.

[33] This conclusion accords with two related decisions of this court. In Gencorp Canada Inc. v. Ontario (Superintendent of Pensions) (1998), 1998 2947 (ON CA), 39 O.R. (3d) 38, 158 D.L.R. (4th) 497 (C.A.), this court determined that the judicial assessment of an adjudication by the predecessor to the Tribunal, namely the Pension Commission of Ontario, should be done using a standard of reasonableness. Likewise in Hinds v. Ontario (Superintendent of Pensions) (2002), 2002 23592 (ON CA), 58 O.R. (3d) 367 (C.A.), this court concluded that decisions of the Superintendent, the step in the regulatory process preceding the Tribunal, should attract a reasonableness standard of review. Both these cases, while not identical to this one, are consistent with the conclusion I have reached.

[34] In describing how the reasonableness standard works in practice, courts have used language which is understandably, and perhaps necessarily, general. This standard of review (like that of correctness and patent unreasonableness) must be sufficiently flexible to permit application to a wide variety of administrative agencies in a myriad of different situations. General language is thus apt to describe its operations. [page314]

[35] In Canada (Director of Investigation and Research) v. Southam Inc., 1997 385 (SCC), [1997] 1 S.C.R. 748, 144 D.L.R. (4th) 1, Iacobucci J., speaking for the court, offered this guidance at paras. 56, 59-60:

An unreasonable decision is one that, in the main, is not supported by any reasons that can stand up to a somewhat probing examination. Accordingly, a court reviewing a conclusion on the reasonableness standard must look to see whether any reasons support it. The defect, if there is one, could presumably be in the evidentiary foundation itself or in the logical process by which conclusions are sought to be drawn from it. An example of the former kind of defect would be an assumption that had no basis in the evidence, or that was contrary to the overwhelming weight of the evidence. An example of the latter kind of defect would be a contradiction in the premises or an invalid inference.

The standard of reasonableness simpliciter is also closely akin to the standard that this Court has said should be applied in reviewing findings of fact by trial judges. In Stein v. "Kathy K" (The Ship), 1975 146 (SCC), [1976] 2 S.C.R. 802 at p. 806, Ritchie J. described the standard in the following terms:

. . . the accepted approach of a court of appeal is to test the findings [of fact] made at trial on the basis of whether or not they were clearly wrong rather than whether they accorded with that court's view of the balance of probability. [Emphasis added by Iacobucci J.]

Even as a matter of semantics, the closeness of the "clearly wrong" test to the standard of reasonableness simpliciter is obvious. It is true that many things are wrong that are not unreasonable; but when "clearly" is added to "wrong", the meaning is brought much nearer to that of "unreasonable".

[36] Then in Moreau-Bérubé, supra, at para. 62, Arbour J., speaking for the court, articulated the challenge of applying the reasonableness standard to a statutory interpretation offered by an administrative tribunal in the following language:

In light of this, and other factors reviewed above, issues of statutory interpretation by the Council should attract considerable deference and reviewing courts should not intervene unless the interpretation adopted by the Council is not one that it can reasonably bear.

[37] Thus, in applying the reasonableness standard of review to a statutory interpretation rendered by an administrative tribunal, the task of the court is to determine whether the interpretation is clearly wrong, that is, one which the statute cannot reasonably bear. In the language of Southam, supra, is the interpretation unsupported by any reasons that can stand up to a somewhat probing examination?

[38] In assessing the interpretation of s. 70(6) offered by the majority of the Tribunal against this standard, it is useful to begin with an analysis of the meaning of the subsection. To reiterate, that subsection reads as follows: [page315]

On the partial wind up of a pension plan, members, former members and other persons entitled to benefits under the pension plan shall have rights and benefits that are not less than the rights and benefits they would have on a full wind up of the pension plan on the effective date of the partial wind up.

[39] I begin with the ordinary meaning of the words of the subsection. In their grammatical and ordinary sense they provide three things:

[40] First, they accord certain rights at a specified time, namely, on the partial wind up of a pension plan.

[41] Second, they accord those rights to a specified group described in the subsection as "members, former members and other persons entitled to benefits under the pension plan". All parties to this appeal agree that, despite its infelicitous wording, this refers to those affected by the partial wind up, in this case the Affected Members. Indeed that was the conclusion of the majority of the Tribunal and this finding has not been challenged in the appeal process.

[42] Third, the words of the subsection specify the rights accorded. They are "rights and benefits that are not less than the rights and benefits they would have on a full wind up of the pension plan on the effective date of the partial wind up". The Affected Members get the rights they would have if there were a full wind up on the date of the partial wind up. In the words of the dissenting member of the Tribunal, "It says that in effect members affected by a partial wind up are to be dealt with as if there had been a full wind up at the partial wind up date."

[43] It is uncontested and indeed beyond dispute that on a full wind up, all members have the right to have the full surplus distributed. The ordinary meaning of the words in s. 70(6) accords to the Affected Members at the time of the partial wind up their share of that full wind up right, namely, the right to have distributed that part of the surplus that relates to them. This is the same right that they and all members would have if there were a full wind up at that date.

[44] This ordinary meaning is informed not just by the language of the subsection, but by that statutory and regulatory scheme of which it is a part. I refer particularly to the following:

(a) The definition section of the Act, s. 1, provides parallel definitions of "partial wind up" and "wind up". It also provides a definition of "surplus". These are set out in the following terms:

"partial wind up" means the termination of part of a pension plan and the distribution of the assets of the pension fund related to that part of the pension plan; [page316]

"surplus" means the excess of the value of the assets of a pension fund related to a pension plan over the value of the liabilities under the pension plan, both calculated in the prescribed manner;

"wind up" means the termination of a pension plan and the distribution of the assets of the pension fund;

[45] These definitions make clear that the surplus in a pension plan comprises those assets which are in excess of the plan's liabilities. Just as a full wind up entails the distribution of the assets of the plan including those making up the surplus, a partial wind up is defined to mean the distribution of the assets including those making up that part of the surplus related to the part of the plan being wound up.

(b) Other provisions of the statutory and regulatory scheme clearly contemplate that there will be some distribution of assets (including those making up the surplus) on both a partial wind up and a full wind up. Section 70(1)(c) of the Act requires a plan administrator, where the plan is to be wound up either in whole or in part, to file a wind up report setting out the methods of allocating and distributing the assets of the plan. Section 8(1) of Regulation 909, the general regulation enacted under the Act, sets out two methods by which payments may be made out of surplus when a plan is being wound up either in whole or in part. Section 28.1 of that Regulation requires that if there is a surplus on the wind up of a pension plan in whole or in part, the administrator must provide to those affected certain information including the method of distributing the surplus assets and the formula for allocating them among plan beneficiaries. Its predecessor (s. 28(2)(g) of the Regulation which was in force at the time of this partial wind up) was to identical effect.

(c) In a more general sense, ss. 68 to 77, which appear in the Act under the heading "Winding Up", deal in the same way with both partial wind up and full wind up. For example, s. 73(1) provides for the immediate vesting of benefits on the winding up of a plan either in whole or in part. Similarly, s. 74 provides for "grow in" rights in both wind up circumstances, allowing those meeting the threshold of years of age and service to receive a pension once they reach normal retirement age despite having ceased to be employees after the full or partial wind up. Another example of this legislative treatment is s. 68(1): [page317]

68(1) The employer or, in the case of a multi-employer pension plan, the administrator may wind up the pension plan in whole or in part.

[46] It is clear that the legislature has chosen to treat full wind up and partial wind up in parallel throughout the winding up provisions of the Act. When s. 70(6) provides that on a partial wind up surplus distribution must parallel what occurs on a full wind up, it is simply another instance of this legislative approach.

[47] The historical origins of s. 70(6) also support the meaning I have set out above. As the appellant Monsanto says in its factum, the equivalent of s. 70(6) was first enacted in Ontario in 1969 as a regulation. That regulation (O. Reg. 91/ 69) reads as follows:

Where a pension plan is terminated or wound-up in part, the rights and interests of those employees and former employees thereby affected shall be not less than those to which such employees and former employees would have been entitled if the whole of the pension plan had been terminated or wound-up on the same date as such partial termination or winding-up.

[48] Moreover, such an interpretation manifests the broad purpose of the Act. In Firestone Canada Inc. v. Ontario (Pension Commission) (1990), 1991 8352 (ON CA), 1 O.R. (3d) 122, 78 D.L.R. (4th) 52 (C.A.) at p. 127 O.R., this court described that purpose in the following words:

The Act is clearly intended to benefit employees. It prescribes minimum standards for all pension plans in the Province of Ontario. Section 20(1) and (2) makes it applicable to all pension plans whether or not they have been amended to comply with it.

In particular, the Act evinces a special solicitude for employees affected by plant closures.

[49] This special solicitude needs no explanation. Employees affected by plant closures, like the Affected Members here, have just lost their jobs. In this important respect they are not in the same situation as continuing employees, and they ought not to be required to await a full wind up at some indeterminate future date to share in the distribution of surplus.

[50] Finally, a number of practical considerations support this interpretation of s. 70(6). It is clearly possible to calculate the portion of surplus attributable to that part of the pension plan which is being wound up. The actuaries of the plan did so in this case. On the other side of the coin, as the majority acknowledged, there are practical difficulties if there is no distribution on partial wind up and the affected members are forced to await a full wind up at an indeterminate future date. As time passes it will become increasingly difficult to locate the members of the partial wind up group who may long since have severed all connection with the employer and the pension plan.

[51] Both before the Tribunal and in this court, the appellant Monsanto argued on the basis of its expert evidence that serious [page318] practical consequences would flow from the interpretation of s. 70(6) that I have attempted to elucidate. For example, it alleged that the employers will fund pension plans less conservatively than at present. It also alleged that the Affected Members would be better off than those whose surplus entitlement must await a full wind up.

[52] In my view, these assertions can have no impact on the proper interpretation of s. 70(6). There was contrary expert evidence before the Tribunal to that on which Monsanto founded its representations. The majority expressly declined to make findings resolving this conflict. Moreover, the assertions are to some extent speculation. For example, whether those employees who stay until full wind up will fare better or worse than the Affected Members will depend entirely on unpredictable future events. Their pro rata share of surplus could be smaller or larger than that received by the Affected Members on partial wind up.

[53] In summary, I think that the right interpretation of s. 70(6) is that made by the minority of the Tribunal and adopted by the Divisional Court. Members affected by a partial wind up are to be dealt with as if there had been a full wind up at the partial wind up date. The Affected Members have the right to have distributed that portion of the surplus that relates to that part of the pension plan being wound up.

[54] The necessary corollary to this conclusion is that the interpretation of s. 70(6) offered by the majority of the Tribunal is wrong. To reiterate, the majority found that s. 70(6) accords to the Affected Members no more than a right to participate in a distribution of surplus on a full wind up, if and when it takes place in the future, but without disqualification because they have ceased to be members of the plan before the full wind up date. The question I must address, however, is whether this interpretation is not just wrong but unreasonable, in terms of the standard of review described earlier.

[55] For a number of reasons I would answer that question in the affirmative, as did the Divisional Court.

[56] First, and most important, the majority's interpretation accords to the Affected Members at partial wind up only the rights they would have on a full wind up at some indeterminate date in the future. It does not accord to them the rights they would have if there were a full wind up on the date of the partial wind up. Yet the subsection requires that the affected employees receive "the rights and benefits they would have on a full wind up of the pension plan on the effective date of the partial wind up" (emphasis added). The majority's interpretation might be plausible if the subsection ended before the underlined phrase. However, that interpretation gives that phrase no meaning. In other words, the majority interpretation [page319] simply reads the underlined phrase out of the subsection. The correct interpretation, on the other hand, gives that phrase full recognition. In my view, where an incorrect statutory interpretation unnecessarily reads a phrase out of the section, it is a strong indicator that the unreasonableness standard has been met.

[57] In addition, the majority's interpretation gives no recognition to the statutory context of s. 70(6) -- either those provisions that contemplate distribution on partial wind up or those provisions that reflect a legislative desire to treat partial wind up and full wind up on the same footing.

[58] Nor is the majority's interpretation consistent with the genesis of the obligation contained in s. 70(6), namely O. Reg. 91/69, which makes crystal clear that the rights accorded to the Affected Members are not less than what they would have been entitled to if the whole of the pension plan had been wound up on the same date as the partial wind up.

[59] Finally, the majority's interpretation extends no special solicitude to the Affected Members who have been impacted by plant closing and downsizing. It requires them to wait in hope that there will be a full wind up at some point and a surplus distribution in which they will share with those who have been fortunate enough to keep their jobs. In my view, this accords inadequate recognition to the purpose of the Act.

[60] Taking these considerations together, I conclude, as did the Divisional Court, that the interpretation of s. 70(6) offered by the majority of the Tribunal is not just incorrect. It is clearly wrong. It is an interpretation which the subsection cannot reasonably bear.

[61] Moreover, in my view, the majority used a flawed reasoning process to reach its conclusion. In the language of Southam, supra, I do not think that its reasons can stand up to a somewhat probing examination.

[62] In rendering its statutory interpretation, the majority decision does not address the conundrum presented for that interpretation by the last phrase in the subsection. Nor does it draw any assistance from the statutory context in which the subsection sits. Indeed that context is given short [shrift]. The statutory definition of partial wind up is said to provide no assistance. A number of provisions of the Act and Regulation are said to be procedural only and as such of little assistance in determining the meaning of s. 70(6). Specific provisions of the Regulation are said to be of limited value in the interpretation task since they are subordinate legislation.

[63] In my view, this approach pays inadequate attention to the ordinary meaning of the words of the subsection and the legislative context in which they appear. The important role of context in statutory interpretation was described by Iacobucci J. in [page320] Bell ExpressVu Limited Partnership v. Rex, 2002 SCC 42, 212 D.L.R. (4th) 1 at para. 27 in these words:

The preferred approach recognizes the important role that context must inevitably play when a court construes the written words of a statute: as Professor John Willis incisively noted in his seminal article "Statute Interpretation in a Nutshell" (1938), 16 Can. Bar Rev. 1, at p. 6, "words, like people, take their colour from their surroundings".

[64] In this case, the Act and the Regulation provide an integrated scheme regulating pensions in Ontario. In Gencorp, supra, at p. 43 O.R., this court described the scheme this way at:

Turning to these factors, the Pension Benefits Act is clearly public legislation establishing a carefully calibrated legislative and regulatory scheme prescribing minimum standards for all pension plans in Ontario.

[65] Thus the task of statutory interpretation called for in this case requires a careful assessment of the ordinary meaning of the text of the subsection in light of the overall statutory and regulatory scheme. In my view, the reasoning process of the majority was not as faithful to this as it needed to be.

[66] The second respect in which the majority's reasoning process was flawed concerns the significant reliance placed on Schmidt v. Air Products of Canada Ltd., 1994 104 (SCC), [1994] 2 S.C.R. 611, 115 D.L.R. (4th) 631. The majority appears to draw from that case the proposition that there can be no surplus on partial wind up, but only on full wind up, and therefore, since there can be no surplus on partial wind up, there can be no legal obligation to distribute a part of it on a partial wind up. Indeed that was the position of the appellant Monsanto in this court.

[67] In my view, Schmidt cannot be taken for this proposition, at least in Ontario where s. 70(6) is part of the legislative regime. The central issue in that case involved the resolution of competing claims to the surplus in a pension plan when the plan is fully wound up and it is in this context that the discussion of surplus must be read. The Supreme Court of Canada held that, in the absence of provincial legislation, this resolution must be done by a careful analysis of the pension plan and its funding structures against the backdrop of the common law. Schmidt simply does not speak to the question of the right to the distribution of surplus when there is a partial wind up, let alone a partial wind up when there is an applicable legislative provision in the terms of s. 70(6). In my view it is flawed reasoning to base the answer to the surplus distribution issue in this case on Schmidt.

[68] In summary, not only did the majority of the Tribunal give an interpretation to s. 70(6) that it could not reasonably bear, but its reasoning process cannot stand up to examination. Its conclusion [page321] thus reaches the threshold of unreasonableness required for judicial review. The Divisional Court was correct to set it aside and find that the Monsanto report did not comply with s. 70(6) of the Act. The first ground of appeal must therefore fail.

The Legitimate Expectations Issue

[69] The second issue on this appeal is whether, even if s. 70(6) of the Act gives the Affected Members the right to require distribution on partial wind up, the common law doctrine of legitimate expectations insulates Monsanto from having to accord this right to them.

[70] The Agreed Statement of Facts placed before the Tribunal stated that, during the period from November 1992 to November 1998, 156 partial wind up reports were filed with the pension regulator (the Superintendent or her predecessor, the Pension Commission of Ontario) in respect of plans which were in a surplus position, but where there was no proposal for the distribution of such surplus. The pension regulator neither approved nor refused to approve these partial wind up reports and thus, prior to this case, had never issued a Notice of Intent to Refuse in respect of a partial wind up on the grounds that the surplus was not to be distributed.

[71] In each of these cases the pension regulator responded to the report with form letters noting s. 70(6) of the Act and indicating that the rights and benefits which it provides to members affected by the partial wind up may include any entitlement to surplus that would exist on a full wind up. The letters made clear that approval of the partial wind up report required that the surplus attributable to the affected members be dealt with in accordance with the Act.

[72] In addition, the pension regulator published several policy guidelines during these years that also addressed this issue.

[73] With these facts before it, the majority of the Tribunal posed the question this way:

The final issue is whether Monsanto had a legitimate expectation that the Superintendent would approve the Partial Wind Up Report in light of the past practice or policy of the pension regulator in respect of similar reports with the result that the Tribunal should direct the Superintendent to approve the Partial Wind Up Report. Put another way, the issue is whether the Superintendent was estopped from disapproving the Partial Wind Up Report on the grounds that Monsanto had relied on the past practice of policy of the pension regulator, with the result that the Tribunal should direct the Superintendent to approve the Partial Wind Up Report.

[74] The majority concluded that the pension regulator had a clear and unambiguous policy and practice of not insisting that the [page322] distribution of surplus be provided for, or even dealt with, on a current basis in a partial wind up report. The majority also found that in structuring this partial wind up without a distribution of surplus, Monsanto had relied to its detriment on this policy and practice.

[75] The majority then considered but dismissed several potential limitations on the doctrine that were argued to apply here.

[76] First, while it acknowledged that the doctrine cannot preclude a public official from exercising a statutory duty, it found that s. 70(5) of the Act gives the pension regulator a discretion in dealing with a partial wind up report. The use of the doctrine to require approval of this particular partial wind up report did not offend this limitation.

[77] Second, while acknowledging that the doctrine could accord procedural but not substantive rights, the majority found that ordering approval of this report did no more than that.

[78] Third, while it agreed that prejudice to the interests of third parties may provide a reason for declining to apply the doctrine, that was not relevant here because the regulator's representations about its policy and practice were made to the entire pension community including the third parties, the Affected Members.

[79] In the end, the majority concluded that this was a proper case to apply the doctrine and ordered that the Superintendent approve the partial wind up report. Contrary to the argument of the appellant Monsanto in this court, I do not think that the majority purported to exercise a discretion under s. 70(5) of the Act in making this order. Rather, it simply answered the question it had originally posed to itself by finding that Monsanto had a legitimate expectation that the Superintendent would approve the partial wind up report and, as a result, the Superintendent should be ordered to do so.

[80] In dissent, the minority of the Tribunal found that the policy and practice of the pension regulator was ambiguous at best. Moreover, the doctrine of legitimate expectations could not be used to deny the Affected Members the rights conferred on them by the Act.

[81] On appeal, the Divisional Court rejected the majority reasoning and adopted the reasons of the minority, finding that since the doctrine can at most give rise to procedural rights, and cannot justify any disregard of the requirements of the Act, it cannot be a basis for ordering the approval of the partial wind up report in this case.

[82] In addressing whether the Divisional Court erred in its conclusion on this issue, I turn first to the majority's finding of a clear and unambiguous policy and practice of not insisting that the distribution of surplus be provided for in a partial wind up report before it could be approved. [page323]

[83] There is no dispute that, as a matter of law, a finding of a clear, unambiguous and unqualified representation by the pension regulator is a condition precedent to the operation of the doctrine of legitimate expectations in this case. See Libbey Canada Inc. v. Ontario (Ministry of Labour) (1999), 1999 1530 (ON CA), 42 O.R. (3d) 417, 169 D.L.R. (4th) 416 (C.A.) at pp. 435-36 O.R.

[84] In my view, the finding of fact by the majority that there was such a clear and unambiguous representation is clearly wrong, or palpably unreasonable, for several reasons.

[85] Although the pension regulator had never proposed to disapprove a partial wind up report that failed to provide for the distribution of surplus relating to that part of the plan being wound up, the regulator had never approved such a report either. There was no practice of approving a partial wind up report that made no provision for the distribution of surplus.

[86] Moreover, the majority's finding appears to ignore the fact that in every case the pension regulator advised that s. 70(6) gives rights to the members affected by the partial wind up, that may include any entitlement that would exist on a full wind up, and that approval of the partial wind up report required that this portion of the surplus be dealt with in accordance with the Act.

[87] Finally, the policy guidelines published by the pension regulator do not set out the clear and unambiguous representation found by the majority. Indeed, some clearly leave the opposite inference, namely that the distribution of surplus related to the partial wind up must be provided for in the partial wind up report if it is to be approved. For example, the policy entitled "partial wind up -- identification and administration of surplus -- compliance with PBA ss. 70(6)" effective June 23, 1994 said the following:

It is the Commission's position that the rights and benefits referred to in subsection 70(6) include any entitlement to surplus that would exist assuming that a full wind up of the plan occurred on the date of partial wind up. Where a surplus would exist on full wind up, it is not acceptable to identify partial wind up assets as those equal only to the partial wind up liabilities.

If a plan would be in a surplus position if it fully wound up at the date of the partial wind up, the failure to identify surplus related to the partial wind up is inconsistent with the following requirements of the PBA and the Regulation:

-- Subsection 70(6) and clause 70(1)(c) of the PBA.

-- The definition of partial wind up under Section 1 of the PBA which provides that, "partial wind up" means the termination of a part of a pension plan and the distribution of the assets of the pension fund related to that part of the pension plan. [page324]

-- Clause 28(2)(q) of the Regulation which requires, ". . . a statement of the method of distribution and, if applicable, the formula for allocation of any surplus among the plan beneficiaries."

Whatever determination the Administrator makes concerning surplus identified on partial wind up, it must be in accordance with the PBA, the Regulation and any relevant Commission policies, procedures and administrative practices. Distribution of the assets related to a partial wind up must conform with the proposals set out in the partial wind up report approved by the Superintendent. A supplement to a partial wind up report will be required if the surplus distribution proposals are not reflected in the initial report.

[88] Thus, the position taken by the pension regulator on this question was, at the very least, ambiguous. The finding by the majority of the clear and unambiguous representation necessary for the application of the doctrine of legitimate expectations is, in my view, clearly wrong. It is unreasonable and cannot stand.

[89] Without such a finding, the doctrine of legitimate expectations cannot be engaged in this case. However, even if such a finding had been properly made, the majority erred in law in several respects in the application of the doctrine.

[90] It is appropriate to review these errors against the standard of correctness rather than reasonableness because they involve the application of a common law doctrine, a task in which the Tribunal can claim no advantage of relative expertise over the courts. The absence of a specialized expertise in relation to this particular issue when taken together with the other factors relevant to the standard of review discussed earlier, tilt the scales towards the least deferential standard of review, namely that of correctness.

[91] The first error is that the majority concluded that its use of the doctrine created only procedural rights. There is no dispute that the doctrine is limited to according certain rights of procedural fairness and cannot create substantive rights. See Ahani v. R. (2002), 2002 23589 (ON CA), 58 O.R. (3d) 107, 208 D.L.R. (4th) 66 (C.A.) per Laskin J.A. at para. 59.

[92] The majority of the Tribunal applied the doctrine to require the Superintendent to approve this partial wind up report thus granting Monsanto the right to partially wind up its pension plan without distribution of that portion of the surplus that related to the part of the plan being wound up. The right to keep that portion of the surplus in the plan is not merely a procedural right; it is a substantive right to deal with a part of the surplus. Moreover, it is a right which would override the statutory obligation to distribute, which is found in s. 70(6) of the Act. In using the doctrine of legitimate expectations to create a substantive [page325] right for Monsanto, particularly a right that would override its statutory obligation, the majority erred in law.

[93] Second, while the majority acknowledged that the doctrine of legitimate expectations cannot preclude the Superintendent from exercising a statutory duty, it held that this did not prevent the use of the doctrine to require the approval of this report even though the report failed to comply with the distribution obligation arising from s. 70(6). The majority reached this conclusion by interpreting s. 70(5) of the Act to permit the Superintendent to approve a partial wind up report that fails to comply with the requirements of the Act. Section 70(5) reads as follows:

70(5) The Superintendent may refuse to approve a wind up report that does not meet the requirements of this Act and the regulations or that does not protect the interests of the members and former members of the pension plan.

[94] In my view, this is a misinterpretation of s. 70(5). That subsection sets out the two circumstances which lead to a refusal to approve a wind up report: where the report fails to meet the requirements of the Act, or where those requirements are met but the Superintendent finds that the report does not protect the interests of the members of the plan. To read the subsection as the majority did, namely that the Superintendent may approve a wind up report that does not meet the requirements of the Act or that does not protect the interests of members and former members, is to read out of the subsection the words "refuse to".

[95] Moreover, the Act and the Regulation set up an extensive and detailed regulatory regime. In my view, it would take much more explicit language than s. 70(5) to evince a legislative intention to allow the Superintendent to act in disregard of that regime. This is not a case like Aurchem Exploration Ltd. v. Canada (1992), 1992 8524 (FC), 91 D.L.R. (4th) 710 (F.C.T.D.), which was relied on by the majority. There the legislation set out the duties of the public official, a mining recorder. It also provided in detailed and specific language that a claimant's failure to comply with precisely specified provisions of the legislation did not invalidate a claim where the mining recorder determined that there had been an honest attempt to follow the provisions as nearly as possible, with no intent to mislead others in the vicinity. The Act in this case contains no comparable provision.

[96] The interpretation of s. 70(5) offered by the majority would not just allow the Superintendent to approve a wind up report that did not comply with the Act. It would also allow her to approve a report that did not protect the interests of the members [page326] and former members of the plan. This would be contrary to the "high duty" owed by the Superintendent to the employees with Ontario pension plans that was articulated by this court in Huus v. Ontario (Superintendent of Pensions) (2002), 2002 23593 (ON CA), 58 O.R. (3d) 380 (C.A.) at p. 387. It would also be contrary to the clear intention of the Act to benefit employees, especially those affected by plant closures, as described in Firestone Canada Inc., supra.

[97] Thus I think that the majority erred in law in its reading of s. 70(5) of the Act. As a result, it erroneously applied the doctrine of legitimate expectations in a way that precluded the Superintendent from exercising her duty to require that a wind up report comply with the statutory guarantee provided by s. 70(6) of the Act.

[98] Third, the majority erred when it concluded that the interests of third party Affected Members would not be adversely impacted by applying the doctrine to order approval of the partial wind up report because those members would have had the same expectations as Monsanto. The statutory rights of third parties cannot be erased by representations made by public officials. See Libbey Canada Inc., supra, at p. 435 O.R. What matters in determining whether the interests of third party Affected Members should preclude the application of the doctrine is whether their statutory rights under s. 70(6) would be negated as a result, not whether a representation has been made to them by the pension regulator that this would happen. The majority erred in law in applying the doctrine where the result would be just such a negation.

[99] In my opinion, the Divisional Court was correct in finding that the majority of the Tribunal erred in using the doctrine of legitimate expectations to order that the partial wind up report be approved. The majority was clearly wrong in finding the necessary clear and unambiguous representation, and it erred in law in several ways in its application of the doctrine. As a result this ground of appeal must also fail.

[100] In summary, I conclude that the appeal must be dismissed. The Divisional Court did not err in allowing the appeal, setting aside the order of the Tribunal, and substituting a direction to the Superintendent to carry out the proposals to refuse to approve the Monsanto report.

[101] Given that the court was advised that no one is seeking costs, there will be no order as to costs.

Appeal dismissed.