Sutherland v. Hudson's Bay Company, 2011 ONCA 606

CITATION: Sutherland v. Hudson's Bay Company, 2011 ONCA 606

DATE: 20110922

DOCKET: C47636

COURT OF APPEAL FOR ONTARIO

Gillese, MacFarland and Rouleau JJ.A.

BETWEEN

Ronald Sutherland and John Scott on their own behalf and on behalf of the current members, retirees and other beneficiaries of the defined benefit component of the Dumai Pension Plan, CCRA Registration Number 0358572 (formerly, the Simpsons, Limited Supplementary Pension Plan) who were members of the Simpsons, Limited Supplementary Pension Plan as of January 1, 1988

Plaintiffs (Respondents by way of cross-appeal)

and

Hudson’s Bay Company, Royal Trust Corporation, and Investors Group Trust Co. Ltd., and Pamela Bhikhari, John English, Gerald V. Garossino, Edward E. Shier, Helen Frizzel, Gale Ritchie and Angela Hosmar

Defendants (Appellants by way of cross-appeal)

Mark Zigler and Anthony Guindon, for the appellants

Jeff W. Galway and Kathryn Bush, for the Hudson’s Bay Company and Investors Group Trust Co. Ltd.

Warren S. Rapoport, for John English, Gerald V. Garossino and Edward E. Shier

Laura C. Young, for Pamela Bhikhari and Gale Ritchie

Heard: March 31, 2011

On appeal from the judgment of Justice Herman J.W. Siegel of the Superior Court of Justice, dated July 31, 2007, with reasons reported at 2007 ONSC 30293 (Ont. S.C.).

Reasons for Decision

Gillese J.A.:

[1] This cross-appeal raises a significant question. Has the law governing ownership of surplus pension funds been changed by Burke v. Hudson’s Bay Co., 2010 SCC 34, [2010] 2 S.C.R. 273 (Burke), a recent Supreme Court of Canada decision?

[2] Rather than changing the law, in my view, Burke affirms it. Consequently, as I explain below, I would dismiss the cross-appeal.

BACKGROUND IN BRIEF

[3] Effective December 28, 1971, Simpsons Limited (Simpsons) established a defined benefit pension plan for its employees (the Simpsons pension plan). Initially, only Simpsons made contributions to the Simpsons pension plan. However, starting in 1976, Simpsons’ employees also began contributing to it.

[4] The Simpsons pension plan was amended a number of times. It ultimately became the defined benefit component of the Dumai Pension Plan. For convenience, when referring to the pension plan from inception as the Simpsons pension plan up to and including its current form as the defined benefit component of the Dumai Pension Plan, I will refer to it as the Plan.

[5] The original Simpsons pension plan text was adopted in 1971 (the original Plan Text). It was subsequently amended and restated a number of times.[^1] The relevant Plan provisions are reproduced in the following section of these reasons.

[6] The assets of the Simpsons pension plan were held in a trust fund. The trust was established and originally governed by an agreement between Simpsons and Canada Permanent Trust Company dated December 28, 1971 (the original Trust Agreement). The original Trust Agreement went through a number of changes.[^2] The relevant provisions of the trust agreements are also set out in the following section.

[7] In 1979, the Hudson’s Bay Company (HBC or the Company) acquired Simpsons and took over administration of the Simpsons pension plan.

[8] On January 1, 1988, the Simpsons pension plan was closed to new members.

[9] Zellers Inc. and Kmart Canada Co. are wholly owned HBC subsidiaries.

[10] In 1994, HBC re-opened the Simpsons pension plan and added a defined contribution component to it. It made approximately 8,000 Zellers employees, members of the defined contribution component of the Simpsons pension plan, on a “go-forward” basis. It was at this time that the name of the Simpsons pension plan was changed to the Dumai Pension Plan.

[11] In 1998, HBC further amended the Plan to introduce Kmart employees as members of the Plan. They joined the Plan on the same basis as the Zellers employees had joined the Plan.

[12] Between January 1, 1994, and December 31, 2006, approximately $111 million of surplus assets in the Plan was applied to pay employer annual defined contribution costs for Zellers and Kmart employees.

[13] The plaintiffs in this class action are retirees who worked for Simpsons and who are members of the Simpsons pension plan. They represent members, retirees and beneficiaries of the Simpsons pension plan as of January 1, 1988.

[14] In this action, the plaintiffs alleged, among other things, that HBC improperly used surplus that had accrued in the trust fund for the Simpsons pension plan to pay for the employer contributions to the defined contribution pensions of Zellers and Kmart employees.

[15] By order dated April 28, 2005, this action was certified as a class proceeding.

[16] In early 2007, Siegel J. presided over an eight-day common issues trial.

[17] In comprehensive reasons for judgment dated July 31, 2007, the trial judge ruled, among other things, that: the Plan assets are impressed with a trust in favour of the Plan members; HBC is not a beneficiary of the trust; and, on Plan termination, the Plan members are entitled to any surplus assets in the trust fund.

[18] The plaintiffs (hereafter referred to as the respondents) appealed and HBC cross-appealed. The appeal was abandoned, leaving only the cross-appeal to be decided. In it, HBC – relying on Burke – challenges the trial judge’s conclusions that it (HBC) is neither a beneficiary of the Plan nor entitled to any surplus assets remaining on Plan termination.

THE RELEVANT TRUST AND PLAN PROVISIONS

The Original Trust Agreement

[19] Four provisions in the original Trust Agreement are relevant to this cross-appeal: articles 1, 2, 11 and 12.

[20] Article 1 annexed the Plan text and made it part of the original Trust Agreement. It reads as follows:

ARTICLE 1. The Plan as annexed and exhibited hereto, and as amended from time to time, shall form part of this Agreement to the same extent as if all of its provisions were fully set forth herein and the definitions and meanings of words and terms as used in the Plan shall have the same meanings herein unless the context indicates otherwise.

[21] Article 2(a) established the trust fund and, by means of a clause at the end of that article, stipulated that the trust fund was to be used for the exclusive benefit of Plan members and their beneficiaries. The relevant parts of art. 2 read as follows:

ARTICLE 2. (a) The Company by this Agreement establishes with the Trustee a fund (herein called the “Trust Fund”) comprising all cash and property acceptable to the Trustee now and hereafter received by it in trust for the purposes of the Plan, together with all proceeds, investments, reinvestments and income and profits arising therefrom less all payments, deductions and withdrawals therefrom authorized hereunder.

(c) The Trustee is hereby authorized to pay out

of the Trust Fund

(i) all brokerage fees, transfer taxes and other expenses incurred in connection with the sale and purchase of investments;

(ii) all property, income and other taxes of any kind at any time levied or assessed under any present or future law upon, or with respect to, the Trust Fund or any property included in the Trust Fund;

(iii) amounts on account of income tax that may be payable by persons receiving payment from the Trust Fund;

(iv) all other expenses of administering the Trust Fund including reasonable compensation for its services as may from time to time be agreed upon to the extent that such expenses have not been met or provided for by the Company.

ALWAYS PROVIDED that no part of the Trust Fund may be used for, or diverted to any purposes other than those connected with the exclusive benefit of members of the Plan and their beneficiaries.

[22] Article 11 gave the Company the right to amend or terminate the original Trust Agreement, so long as any change or termination did not permit or result in any part of the trust fund being used other than for the exclusive benefit of Plan members.

ARTICLE 11. The Company shall have the right at any time or by or pursuant to a resolution of its Board of Directors to change or modify by amendment any of the provisions of, and to terminate, this Agreement provided it shall first have given written notice of such amendment or termination to the Trustee and provided that –

(i) if any such amendment appears to the Trustee to affect the rights, duties or responsibilities of the Trustee, the Trustee may assent to such amendment by executing an agreement supplementary hereto or, failing to assent, the Trustee shall resign as provided in ARTICLE 9 hereof.

(ii) such change, modification or termination shall not authorize or permit or result in any part of the corpus or income of the Trust Fund being used for or diverted to purposes other than for the benefit exclusively of members of the Plan and their beneficiaries and for the payment of fees, expenses, taxes and other assessments as provided in ARTICLE 2 hereof unless with the approval of the Minister of National Revenue and such other governmental authority having governmental jurisdiction over the Plan or Fund.

[23] Article 12 required the trustee, on Plan termination, to dispose of the trust fund as directed by the Company and in accordance with the Plan provisions.

ARTICLE 12. In the event of the discontinuance of the Plan the Trustee shall dispose of the Trust Fund as directed in writing by the Company in accordance with the provisions of the Plan.

The Original Plan Text

[24] Section 13.01 of the original Plan Text contemplates the establishment of the trust fund and incorporates the trust agreement into the Plan. It reads as follows:

13.01 The Company will establish a Trust Fund for the purposes of the Plan by the execution of a Trust Agreement with individual Trustees at least three of whom shall be residents of Canada and one of whom is independent of the Company, or with a company or companies resident in Canada and licenced to carry on a trust business in the Province of Ontario. The Company may, subject to the terms of such Trust Agreement, remove or replace any Trustee or Trustees at its discretion from time to time. A copy of the Plan will be attached to such Trust Agreement which shall thereby be made part of the Plan.

[25] Section 16.01 of the original Plan Text reserves to the Company the right to amend, suspend or discontinue the Plan. Section 16.02 provides that amendment or suspension shall not operate to reduce accrued benefits and stipulates that if the Plan is terminated, no part of the Plan assets can revert to the Company until all pension and benefits have been provided to Plan beneficiaries.

16.01 While it is the intention of the Company to maintain the Plan in force indefinitely, the right to amend, suspend or discontinue the Plan, either in whole or in part, is necessarily reserved by the Company in the event that future conditions, in the opinion of the Company, warrant such action, which conditions may include, without limiting the generality of the foregoing, changes in pensions, profit sharing plans, retirement income benefits or similar benefits provided by the Company or by or pursuant to any law, regulation or other governmental authority.

16.02 Amendment to or suspension of all or part of the Plan shall not operate to reduce any benefits which have accrued under the Plan prior to the date of such amendment or suspensions, as the case may be, to Members of the Plan. In the event that the Plan is terminated, no part of the assets of the Plan shall revert to the benefit of the Company until provision has been made for all pensions and other benefits in respect of service up to the date of such termination to Members of the Plan and for all benefits to former employees and pensioners.

Subsequent Trust and Plan Documents

[26] Later Plan restatements provided that on Plan termination and wind up, surplus assets are to go to the Company. See, for example, s. 14.04 of the 1988 Plan restatement, which reads as follows:

14.04 Wind-Up Surplus

If after provisions for all pension benefits and other benefits payable on the wind-up in whole or in part of the Plan, surplus assets remain in the Pension Fund, such surplus assets shall be refunded to the Company, provided that the Company complies with the requirements of the Act and the Income Tax Act (Canada).

[27] See also s. 15.04 of the 1994 Plan text and s. 15.05 of the 2000 Plan text, to the same effect.

[28] The current Plan text took effect on January 1, 2002. Section 16.05 of the 2002 Plan text also states that surplus is to revert to the Company. It reads as follows:

16.05 Wind-Up Surplus

If, after provision for the satisfaction of all liabilities under the Plan has been made, there should remain surplus assets in the Pension Fund, such assets shall revert to the Company, or shall be used as the Company may direct, subject to requirements of law. Where required by the Act, the consent of the appropriate regulatory authority will be obtained prior to the refund of any surplus assets to the Company.

[29] Article 8.3 of the 1998 Trust Agreement contains similar language. It reads as follows:

8.3 Surplus on Termination

In the event of the termination of the Plan, in whole or in part, or the termination of this Trust Agreement, any assets remaining in the Trust Fund, after the satisfaction of all liabilities under the Plan and subject to any regulatory or judicial approvals or orders required under applicable laws, shall remain in the Plan or revert to the Company, as determined by the Company.

THE ISSUE

[30] A single issue must be decided on this cross appeal: did the trial judge err in concluding that HBC is not a beneficiary of the trust fund and not entitled to surplus assets in the trust fund on Plan termination?

A Preliminary Matter

[31] Before turning to the merits of this matter, I will briefly address the respondents’ argument that HBC is estopped from seeking a declaration that it is a beneficiary of the trust fund and entitled to surplus on Plan termination.

[32] The respondents point to HBC’s factum at trial to show that below, HBC argued that there was no need to decide the issue of surplus ownership on Plan termination. They say that HBC is using the cross-appeal to seek such a declaration for the first time and contend that it ought not to be permitted to change its position on cross-appeal.

[33] I reject this submission for two reasons.

[34] First, it is important to recognize that this is not a situation in which HBC is attempting to raise a new issue on appeal. The question of whether HBC was a beneficiary of the trust was squarely in play at trial. In fact, the first certified common issue at trial was whether the Plan assets were impressed with a trust and, if so, in favour of which beneficiaries. In deciding this issue, the trial judge expressly considered whether HBC was a beneficiary of the trust fund. Furthermore, HBC’s position at trial, albeit in the alternative, was that it was entitled to surplus on Plan termination. The trial judge makes this point at para. 134 of his reasons, in which he recites HBC’s position on the first common issue as consisting of two elements: that it was unnecessary to determine the matter but, in any event, that it (HBC) is entitled to surplus on Plan termination.

[35] Second, and in any event, it would be improper to permit this submission to succeed at this point in the proceeding. By endorsement dated August 6, 2008 (the Decision), Juriansz J.A. (in chambers) granted HBC an extension of time in which to file its notice of cross-appeal. The respondents did not seek to have the Decision reviewed.

[36] In granting the extension, Juriansz J.A. noted that this is an evolving area of law and the interests of justice warrant having the issue raised on the cross-appeal decided by this court. That is, the Decision gave HBC an extension of time so that it could pursue the cross-appeal and have the issue it raises decided on the merits. If the court were to accede to the respondents’ submission, the result would be that it would refuse to decide the cross-appeal on its merits.

[37] Consequently, in my view, the respondents’ submission amounts to a collateral attack on the Decision. Court orders are to be treated as binding unless they are set aside on appeal or lawfully quashed: see R. v. Wilson, 1983 SCC 35, [1983] 2 S.C.R. 594, at pp. 599-600. As it would be improper to permit the Decision to be attacked collaterally, the cross-appeal should be decided on its merits.

THE PARTIES’ POSITIONS

HBC’s Position

[38] HBC’s submission is based largely on the Supreme Court of Canada’s decision in Burke. To avoid confusion, recall that HBC was the respondent in the Burke case.

[39] In Burke, the Supreme Court held that the employees had no equitable interest in surplus on plan termination and, therefore, no equitable interest in the actuarial surplus while the pension plan was ongoing. Based on this determination, HBC says that Burke establishes that it (HBC) is entitled to any surplus assets that remain on the termination and wind up of the pension plan. HBC contends that the language in the Plan documents in the present case is, in all material respects, identical to that in Burke. Therefore, HBC submits, just as it was entitled to surplus in Burke, so too it is entitled to surplus in the present case.

[40] In furtherance of this general submission, HBC alleges that the trial judge erred in three specific ways.

[41] First, HBC submits that the trial judge erred in concluding that the original Trust Agreement required that any surplus on Plan termination was to be paid to Plan members.

[42] Second, HBC argues that the trial judge erred in failing to find that the surplus reversion language in s. 16.02 of the original Plan Text “trumped” the general language in arts. 2 and 11(ii) of the original Trust Agreement. HBC says that when the original Plan Text and the original Trust Agreement are read together, it is clear that the original Plan Text was intended to be the dominant document. Hence, the argument runs, s. 16.02 of the original Plan Text “trumps” any competing language in the original Trust Agreement. Further, HBC says, the trial judge misread art. 11(ii) of the original Trust Agreement by erroneously equating the termination of the original Trust Agreement with the termination of the Plan. The original Trust Agreement could be terminated (and was in 1984) without terminating the Plan by the decision to appoint a new trustee or to use a different funding vehicle to hold the Plan assets. When the original Trust Agreement – but not the Plan or the fund – was terminated, art. 11(ii) applied. If, however, the Plan as a whole had been terminated, the more specific terms of art. 12 would have been applicable.

[43] Third, HBC contends, the trial judge erred by negating the terms of art. 12 of the original Trust Agreement and s. 16.02 of the original Plan Text, which was incorporated by reference into the original Trust Agreement. This argument runs as follows. When the original Trust Agreement is read in its entirety, including the terms incorporated by reference from the original Plan Text, it is apparent that the exclusive benefit language in arts. 2 and 11 of the original Trust Agreement was intended to apply only to the use of the trust fund in the ongoing Plan, not to the use of the trust fund on Plan termination. The use of funds on Plan termination was specifically dealt with in art. 12 of the original Trust Agreement and in terms of the Plan text incorporated by reference into it. Those terms permitted HBC to receive any surplus in the Plan, if and when it was terminated.

[44] In conclusion, HBC submits, on a proper reading of the original Plan documents, the Company was entitled to surplus from the outset, no issue arises as to the validity of the various amendments and there was no purported revocation of trust.

The Respondents’ Position

[45] The respondents submit that the trial judge carefully analyzed the relevant plan and trust documentation, using the framework prescribed by the Supreme Court of Canada in Schmidt v. Air Products of Canada Ltd., 1994 SCC 104, [1994] 2 S.C.R. 611 (Schmidt). They say that the trial judge correctly allowed trust law principles to prevail in the face of conflicting contractual provisions. Finally, they say, Burke is readily distinguishable from the present case, based on differences in the wording of the pension plan documents.

ANALYSIS

[46] Schmidt was the first Supreme Court of Canada decision on entitlement to surplus monies in a pension fund on plan termination. It laid down the foundational principles through which courts are to determine the question of surplus ownership. Consequently, a careful examination of Schmidt is the starting point for deciding this cross-appeal.

[47] After considering Schmidt, I will apply its principles to the present case. In the course of that analysis, I will deal with the errors that HBC submits the trial judge made when interpreting the Plan documents. I will conclude by showing how the Plan documents in the present case are materially different from those in Burke.

Schmidt

[48] Stearns-Roger Canada Ltd. (Stearns) and Catalytic Enterprises Ltd. (Catalytic) merged and eventually became Air Products Canada Ltd. (Air Products). Both Stearns and Catalytic had defined benefit pension plans for their employees, and both plans were in surplus. The pension plans and funds were amalgamated and evolved into two virtually identical Air Products pension plans: one for employees of the Construction Division and one for members of senior management. The employees’ pension plan (the Plan) was the subject of the appeal to the Supreme Court. The Plan documentation said that surplus would revert to the Company after payment of all benefits.

[49] Following the sale of most of Air Products’ assets, the Plan was terminated. A substantial surplus remained after all benefits had been paid. Both Air Products and the employees sought a declaration of entitlement to the surplus. A majority of the Supreme Court held that Air Products was entitled to surplus traceable to the Stearns plan but that the employees were entitled to surplus traceable to the Catalytic fund.

[50] At paras. 90-93 of Schmidt, Cory J., writing for the majority, sets out the steps that courts are to use when deciding the question of surplus ownership of pension plans. Those steps can be summarized as follows.

1. Begin with a careful analysis of the pension plan and the funding structures created under it. Using ordinary trust law principles, determine whether the pension fund is impressed with a trust.

2. If the pension fund, or any part of it, is not subject to a trust, any issues relating to outstanding pension benefits or to surplus entitlement must be resolved by applying contractual interpretation principles to the pension plan.

3. If the fund is impressed with a trust, it is governed by equity and, to the extent that equitable principles conflict with plan provisions, equity must prevail.

4. The trust will generally extend to surplus but an employer may explicitly limit the operation of the trust so that it does not so apply.

5. The employer, as settlor of the trust, may reserve a power to revoke the trust. To be effective, that power must be clearly reserved at the time the trust is created. A power to revoke the trust or any part of it cannot be implied from a general, unlimited power of amendment.

6. Surplus funds on plan termination and wind up may be subject to a resulting trust. Before a resulting trust can arise, it must be clear that all of the objectives of the trust have been fully satisfied. Even when that is done, the employer cannot claim the benefit of a resulting trust if the terms of the pension plan demonstrate an intention to part outright with all money contributed to the pension fund. In contributory plans, it is not only the employer’s but also the employees’ intentions that must be considered – both are settlors of the trust.

[51] On behalf of the majority, Cory J. explained why, following these steps, he had concluded that ownership of the surplus attributable to the Catalytic plan belonged to the employees.

[52] The Catalytic plan and trust agreement established a trust for the benefit of a defined group of persons (paras. 97-99). The trust had never been terminated and so continued to exist (para. 100). Air Products could only claim the surplus by means of a resulting trust or according to the terms of the trust itself (para. 102). No resulting trust could arise because the purposes of the trust were not fully satisfied by the payment of all defined benefits. One of the objects of the trust was to use any money in the trust fund for the benefit of the employees (para. 102). This objective could be implied from the “exclusive benefit” and “non-diversion” clauses contained in the original trust agreement (para. 103). The trust objects could never be exhausted so long as some money remained in the fund and some eligible employees could be found (para. 105).

[53] Therefore, Air Products could be entitled to the surplus only under the terms of the trust (para. 106). The validity of the amendments to the trust which purported to give surplus to Air Products depended on the terms of the original trust agreement (para. 108). The original trust agreement contained the following provision:

ARTICLE V

MODIFICATION AND TERMINATION

1. Subject as herein and in the PLAN provided, [Air Products] reserves the right at any time and from time to time to amend, in whole or in part, any or all of the provisions of the PLAN (including this Agreement) provided … that without the approval of the Minister of National Revenue no such amendment shall authorize or permit any part of the FUND to be used for or diverted to purposes other than for the exclusive benefit of such persons and their estates as from time to time may be designated in or pursuant to the PLAN as amended from time to time … .

[54] In art. V, Air Products reserved to itself a general amending power, subject to the provisos that no amendment could reduce accrued benefits or allow the trust fund to be used in any way other than for the employees’ exclusive benefit. However, Air Products had not expressly reserved the power to revoke the trust. Such a power cannot be implied under the broad general amendment power (para.109).

[55] Therefore, the amendments purporting to give Air Products the right to surplus on termination were invalid. They represented attempts to partially revoke the original trust made in favour of the employees (para. 111).

[56] Applying these same steps, Cory J. explained why Air Products was entitled to the surplus attributable to the Stearns plan. The funds for the Stearns plan were not subject to a trust. Its funding vehicle was a group annuity policy with the Mutual Life Assurance Company. Furthermore, all relevant versions of the Stearns plan gave the employer discretion over distribution of surplus on plan termination.

The Schmidt Approach Applied

[57] Schmidt dictates that the first step in determining surplus entitlement is a careful historical review of the Plan documentation. It is important to start with the originating documents because, as we see from Schmidt itself, plan and trust amendments may not be valid.

[58] It is readily apparent that the pension fund in the current case is impressed with a trust – see art. 2 of the original Trust Agreement, which establishes the trust fund, and s. 13.01 of the original Plan Text, in which the Company undertakes to establish a trust fund for the purposes of the Plan. Accordingly, the second step in Schmidt does not apply.

[59] As the pension fund is impressed with a trust, the third step applies. Thus, the pension fund is governed by equity and, to the extent that equitable principles conflict with plan provisions, equity must prevail.

[60] The fourth step in Schmidt requires the court to determine whether the employer explicitly limited the operation of the trust so that it does not apply to surplus. Again, it is abundantly clear in the present case that there is no such limitation: the trust explicitly extends to the surplus. Article 2 of the original Trust Agreement provides that the trust fund is comprised of “all cash and property … now and hereafter received by [the trustee] in trust for the purposes of the Plan, together with all … income and profits arising therefrom”.

[61] The fifth step directs the court to determine whether the employer reserved a power of revocation at the time the trust was created. Only an express power of revocation is sufficient. In this case, no such power of revocation was reserved to the Company. And, as Schmidt makes clear, the power of revocation cannot be implied from the general power of amendment in art. 11.

[62] Because of the significance of art. 11 of the original Trust Agreement to the following analysis, it is set out again now.

ARTICLE 11. The Company shall have the right at any time or by or pursuant to a resolution of its Board of Directors to change or modify by amendment any of the provisions of, and to terminate, this Agreement provided it shall first have given written notice of such amendment or termination to the Trustee and provided that –

(i) if any such amendment appears to the Trustee to affect the rights, duties or responsibilities of the Trustee, the Trustee may assent to such amendment by executing an agreement supplementary hereto or, failing to assent, the Trustee shall resign as provided in ARTICLE 9 hereof.

(ii) such change, modification or termination shall not authorize or permit or result in any part of the corpus or income of the Trust Fund being used for or diverted to purposes other than for the benefit exclusively of members of the Plan and their beneficiaries and for the payment of fees, expenses, taxes and other assessments as provided in ARTICLE 2 hereof unless with the approval of the Minister of National Revenue and such other governmental authority having governmental jurisdiction over the Plan or Fund. [Emphasis added.]

[63] Given that there is no express power of revocation, just as in the case of the Catalytic plan in Schmidt, HBC can claim the surplus on termination only if the terms of the trust so provide. Do they? To answer that, we must determine the objectives of the trust (the sixth step in Schmidt).

[64] The emphasized words in art. 11 of the original Trust Agreement, above, clearly demonstrate the Company’s intention to establish an irrevocable trust for the exclusive benefit of Plan members and their beneficiaries.

[65] Article 2 of the original Trust Agreement reinforces this as it reflects the Company’s intention to part outright with all money contributed to the pension fund. It will be recalled that the salient parts of art. 2 read as follows:

ARTICLE 2. (a) The Company by this Agreement establishes with the Trustee a fund (herein called the “Trust Fund”) comprising all cash and property acceptable to the Trustee now and hereafter received by it in trust for the purposes of the Plan, together with all proceeds, investments, reinvestments and income and profits arising therefrom less all payments, deductions and withdrawals therefrom authorized hereunder.

ALWAYS PROVIDED that no part of the Trust Fund may be used for, or diverted to any purposes other than those connected with the exclusive benefit of members of the Plan and their beneficiaries.

[66] Therefore, just as in the case of the Catalytic plan, amendments to the Plan documents (texts and trust agreements) that purport to permit surplus to revert to the Company on Plan termination are invalid.

[67] The foregoing analysis disposes of the first and third alleged errors by the trial judge of which HBC complains. It will be recalled that the first alleged error was that the trial judge incorrectly concluded that the original Trust Agreement required that any surplus on Plan termination is to be paid to the Plan members. The third alleged error was that arts. 2 and 11 were intended to apply only to the use of the trust fund in the ongoing Plan, not to its use on Plan termination as the trial judge found. There is no such limiting language in arts. 2 and 11. In this regard it is worthy of note that the exclusive benefit language in arts. 2 and 11 of the original Trust Agreement is similar to the language in art. V of the Catalytic Plan in Schmidt, language which the Supreme Court found created surplus entitlement in the Plan members despite later amendments purporting to give surplus to the company.

[68] It remains to deal with the second error that HBC submits the trial judge made, namely, that the trial judge erred in failing to give proper effect to s. 16.02 of the original Plan Text. According to HBC, s. 16.02 of the original Plan Text and art. 12 of the original Trust Agreement show an intention that surplus on termination is to go to the Company. In any event, HBC says that s. 16.02 “trumps” the exclusive benefit provisions in the original Trust Agreement because the Plan documents show an intention that the original Plan Text was to be the dominant document. Further, HBC says the trial judge misread art. 11(ii) by erroneously equating the termination of the original Trust Agreement with the termination of the Plan.

[69] I reject all parts of this submission.

[70] There is nothing in either the original Trust Agreement or the original Plan Text that expressly provides that the Plan Text is to be the dominant document. And, I see nothing in the originating documents that would lead to that conclusion. For example, while it is correct that s. 13.01 of the original Plan Text incorporates by reference the terms of the original Trust Agreement, art. 1 of the original Trust Agreement incorporates by reference the original Plan Text.

[71] In any event, Schmidt is a full answer to the suggestion that s. 16.02 of the Plan Text “trumps”. At para. 92 of Schmidt, Cory J. reiterates that where the pension fund is impressed with a trust, the trust is governed by equity and to the extent that equitable principles conflict with plan provisions, equity must prevail. To the extent that s. 16.02 of the original Plan Text implies that HBC can take surplus remaining after payment of all pension benefits, it conflicts with those provisions of the original Trust Agreement that give the employees entitlement to surplus on Plan termination and wind up. Equitable principles prevail; therefore, it is the original Trust Agreement, not the original Plan Text, that “trumps”.

[72] The final element of this submission is the argument that art. 11 of the original Trust Agreement governs the termination of the trust agreement, not what occurs on Plan termination. I disagree.

[73] I accept that the introductory paragraph of art. 11 gives the Company the right to change, modify or terminate the original Trust Agreement. However, clause (ii) of art. 11 is not limited to the termination of the original Trust Agreement – it governs any and all modifications to the trust. Article 11(ii) stipulates that no change, modification or termination shall “authorize or permit or result in any part of the corpus or income of the Trust Fund” being used other than for the exclusive benefit of Plan members and their beneficiaries. There is nothing in the exclusive benefit language in art. 11 which limits its application to the termination of the original Trust Agreement.

[74] Comparison to art. V of the Catalytic plan in Schmidt is instructive on this point. Article V of the Catalytic trust agreement gave Air Products the right to amend the plan and the trust agreement, provided that no amendment authorized or permitted any part of the trust fund to be used other than for the exclusive benefit of the plan beneficiaries. In Schmidt, as we have seen, the exclusive benefit language in art. V of the trust agreement led the Supreme Court to conclude that the intention was that the object of the trust was to use the money for the employees and that the trust objects could never be exhausted so long as money remained in the fund and some eligible employees could be found.

[75] The exclusive benefit language in art. 11 of the original Trust Agreement is very similar to the exclusive benefit language in art. V of the Catalytic trust agreement and leads necessarily to the same conclusion: that the intention was that the object of the trust was to use the money for the employees and the trust objects cannot be exhausted so long as money remains in the pension fund and some eligible employees can be found. Indeed, the scope of art. 11 in the present case is even broader and more all encompassing than that of art. V of the Catalytic trust agreement. Where art. V addressed only amendments, art. 11 covers any change, modification or termination. And, where art. V of the Catalytic trust agreement prohibited any amendment that should “authorize or permit” any part of the trust fund to be used other than for the exclusive benefit of employees, art. 11 of the original Trust Agreement expands the prohibition. Article 11 stipulates – in addition to that which is prohibited by art. V – that no change, modification or termination can “result in any part of the corpus or income of the Trust Fund” being used other than for the exclusive benefit of the employees.

[76] A careful review of the facts in Schmidt reinforces the conclusion that art. 11 extends to cover any changes to the trust fund and not merely changes to the trust agreement. In Schmidt, the Catalytic trust agreement was established in 1959. The trust agreement was actually brought to an end in 1974 when the Company transferred control of the pension fund to Confederation Life Insurance Company, pursuant to the terms of an investment contract (para. 100). Despite the ending of the trust agreement, the Supreme Court held that the trust was never terminated and the monies in the trust fund continued to be impressed with a trust in favour of the employees (para. 102). Put another way, Schmidt tells us that where an irrevocable trust in favour of employees has been established, the ending of the trust agreement does not signify the end of the trust. Thus, in the present case, while art. 11 of the original Trust Agreement gave the Company the right to terminate the agreement, in light of the exclusive benefit language in clause (ii) of that provision, it did much more than that: it created an irrevocable trust in favour of the Plan members and beneficiaries, a conclusion that is reinforced by the concluding clause of art. 2 of the original Trust Agreement.

[77] Therefore, based on the Schmidt analysis, the cross-appeal should be dismissed. Now we must consider how, if at all, Burke alters the preceding analysis.

Burke Distinguished

[78] I begin by noting that in Burke, Rothstein J., writing for a unanimous Supreme Court, explicitly followed the Schmidt scheme of analysis when determining whether the employees had an equitable interest in surplus: see, for example, paras. 26, 48 and 53-59 of Burke. Hence my opening comment in these reasons that far from changing the law on surplus entitlement, Burke reinforces it.

[79] As I will explain, Burke is readily distinguishable from the present case because the plan documentation is materially different. Unlike the present case, the originating pension plan documents in Burke gave the employees entitlement only to the defined pension benefits on retirement. In the present case, as I have explained, since its inception, all of the plan assets have been held in an exclusive benefit trust in favour of the Plan members and their beneficiaries.

[80] A brief factual overview of Burke will place these comments in context.

[81] HBC used to own the Northern Stores Division (the Division). In 1987, HBC sold the Division to the North West Company (NWC). As a result of the sale, approximately 1,200 HBC employees were transferred to NWC.

[82] As part of the sale, HBC and NWC entered into an agreement to protect the transferred employees’ pensions. NWC agreed to establish a pension plan that would provide the transferred employees with benefits at least equal to those provided under the HBC pension plan. The transferred employees were removed from the HBC plan and placed into the NWC successor plan. HBC transferred assets from its pension fund sufficient to cover the accrued benefits of the transferred employees. Despite a sizeable surplus in the HBC pension fund, it transferred no share of the surplus.

[83] The transferred employees brought an action in which they sought, among other things, to have a portion of the surplus transferred to the NWC pension plan. The Supreme Court held that the employees had no equitable interest in surplus on plan termination and, therefore, no equitable interest in the actuarial surplus while the pension plan was ongoing. Thus, HBC was not obliged to transfer any share of the surplus assets.

[84] In reaching this conclusion, Rothstein J. began by considering the original plan documents. Based on ss. 11.03 and 14.01 of the original plan text, he concluded that the employees’ rights were limited to those expressly and specifically provided for in the plan text (para. 61).

11.03 Rights in the Trust Fund: … No Member or person entitled to benefits under the Plan has any right or interest in the Trust Fund except as expressly provided in the Plan; …

14.01 … There shall be no right to any benefit under this Plan except to the extent such right is specifically provided under the terms of the Plan and there are funds available therefor in the hands of the Trustee.

[85] A review of the plan documents showed that the only employee benefits provided for under the terms of the plan are the employees’ defined retirement benefits (para. 62).

[86] Furthermore, as Rothstein J. explains at para. 63, under the original plan provisions, the employees’ entitlement on plan termination was expressly limited to their defined retirement benefits:

12.024 Apportionment of Balance of the Trust Fund to be Proportional: Any apportionment within each group, in the order stated, shall be proportionate to but not in excess of the actuarially determined present values at the date of the termination of the Plan of their respective retirement benefits and accrued retirement benefits. [Emphasis added by Rothstein J.]

[87] The conclusion that Rothstein J. reaches in para. 69 of Burke is very significant to its disposition, so I will set it out in full.

[69] Additionally, the pension plan documents (the pension plan text and trust agreement) do not contain any of the language that would typically give employees an entitlement to surplus. Except for the 1984 trust agreement, none of the pension plan documents include the “exclusive benefit” or “non-diversion” language which was found to result in an employee entitlement to surplus in Schmidt (p. 659). (Below, I will discuss why the inclusion of this language in the 1984 trust agreement also does not provide the employees with such an entitlement to the surplus.) Instead of using the language in Schmidt, the pension plan text indicates that the trust fund was held exclusively for the purposes of the plan and that no part could diverted except for the purposes of the plan (e.g. art. 11.02 of the 1961 plan text). [Emphasis added. Italics in original.]

[88] At para. 72, Rothstein J. reiterates that the purpose of the plan was to provide employees with only their defined retirement benefits.

[89] He then considered art. 2(d) of the 1984 trust agreement, the relevant portion of which reads as follows:

The Trustee is hereby authorized to pay out of each of the appropriate Funds:

(i) all brokerage fees, transfer taxes …

(ii) all property, income and other taxes ..

(iii) amounts on account of income tax …

(iv) all other expenses and costs of administering the Funds …

ALWAYS PROVIDED that no part of the funds may be used for, or diverted to any purposes other than those connected with the exclusive benefit of members of the respective Plans and their beneficiaries.

[90] At para. 76 of Burke, Rothstein J. concluded that it was in the context of authorized expenses that no part of the funds may be used for or diverted to any purposes other than the exclusive benefit of members – “Having regard to the context, it is clear that these words [i.e. the exclusive benefit language] do not afford a new entitlement to surplus which had not previously existed and which is expressly addressed in art. 12.025”.

[91] In other words, the exclusive benefit language in art. 2(d) of the 1984 trust agreement had to be read in the context of what the employees were entitled to before art. 2(d) was inserted. Their previous entitlement had been only to the defined benefits. Therefore, art. 2(d) did not confer on employees a new and additional entitlement (para. 78).

[92] In the present case, HBC points to art. 2(d) of the 1984 trust agreement in Burke and says that it is essentially the same as the exclusive benefit provisions in the original Trust Agreement in the present case. Therefore, HBC says, it is entitled to surplus in the present case.

[93] I disagree. First, this submission completely ignores art. 11 of the original Trust Agreement, a provision very similar to the one in the Catalytic plan in Schmidt that was held to give the employees entitlement to surplus. Second, as we have seen, the decision in Burke did not turn on the 1984 trust agreement provisions. It turned on the language and intentions expressed in the original (1961) plan and trust documentation, language which is materially different from the language of the original Trust Agreement in this case. In Burke, the original plan documentation expressly limited the employees’ rights to receipt of their pension benefits on retirement. In the present case, the original plan documentation expressly created an irrevocable trust, over all of the assets in the pension trust fund, for the exclusive benefit of the employees.

[94] Thus, as I have said, Burke is readily distinguishable from the present case. Burke involved the interpretation of non-conflicting provisions of a different pension plan and trust agreement which, from inception, gave the employees the right only to the promised defined pension benefits. While art. 2(d) of the 1984 trust agreement in Burke raised a question as to whether those rights had been expanded, the absence of exclusive benefit language in the originating documents led the Court to conclude that it created no new rights in the employees. That is not this case.

[95] In the present case, as we have seen, the originating Plan documents established an irrevocable trust for the exclusive benefit of the Plan members and their beneficiaries. In accordance with Schmidt, later amendments purporting to strip the employees of that right are invalid.

CONCLUSION

[96] There is no basis in the present case to distinguish it from the ruling in Schmidt relating to the Catalytic plan. While the trial judge did not have the benefit of Burke at the time he rendered his decision, he carefully analyzed the relevant plan and trust documentation using the framework prescribed by the Supreme Court of Canada in Schmidt. That framework has not changed.

[97] The trial judge correctly recognized that in the absence of specific language to the contrary, trust law principles are to prevail in the face of conflicting contractual provisions. He correctly concluded that the Plan assets are impressed with a trust in favour of the Plan members and that it is the Plan members who are entitled to any surplus assets in the trust fund on Plan termination and wind up.

DISPOSITION

[98] Accordingly, I would dismiss the cross-appeal. If the parties are unable to resolve the matter of costs, they may make brief written submissions on the matter, such submissions to be received by the court within 15 days of the date of the release of these reasons.

RELEASED: September 22, 2011 (“E.E.G.”)

“E.E. Gillese J.A.”

“I agree J. MacFarland J.A.”

Rouleau J.A. (Dissenting):

Overview

[99] I have had the opportunity to read the reasons of my colleague and respectfully disagree. For the reasons that follow, I would allow the cross-appeal, set aside that portion of the judgment finding that HBC is not a beneficiary of the trust fund of the Plan, and substitute an order that under the plan and trust documentation, as currently worded, HBC is entitled to the surplus, if any, remaining upon discontinuance of the plan.

[100] As I will explain, when read together there is no conflict between the two documents. The combined effect of Article 12 of the original Trust Agreement and s. 16.02 of the original Plan Text is to clearly entitle HBC to the surplus. This is not a case like Schmidt, where the company attempted to create a right to the surplus through amending documents; rather, as was the case in Burke, HBC’s right to the surplus was clearly established by the original Plan and Trust Agreements.

Analysis

I. The original Plan and Trust Agreements must be read together

[101] The Plan and Trust Agreements must be read together; this much is beyond dispute. The pension trust does not stand alone. The two agreements are inseparable and together form an integrated whole: see Buschau v. Rogers Communication Inc., 2006 SCC 28, [2006] 1 S.C.R. 973, at paras. 29 and 90.

[102] As a matter of contractual interpretation, both documents must be interpreted in a manner that, if possible, avoids conflict and gives effect to all provisions: see Bundy of Canada Ltd. v. Canada Trust Co. (1997), 17 C.C.P.B. 12 (Ont. C.A.), at para. 3; Chitty on Contracts, 29th ed. (London: Sweet & Maxwell Limited, 2004), at 738-739; and G.H.L. Fridman, The Law of Contract in Canada, 5th ed. (Toronto: Thomson Carswell, 2006), at 457.

[103] Above and beyond these well established principles of interpretation, it is abundantly clear in the present case that the Plan and Trust Agreement must be read together as each document explicitly refers to and incorporates the text of the other. Article 1 of the original Trust Agreement expressly states:

ARTICLE 1. The Plan as annexed and exhibited hereto, and as amended from time to time, shall form part of this Agreement to the same extent as if all of its provisions were fully set forth herein and the definitions and meanings of the words and terms as used in the Plan shall have the same meanings herein unless the context indicates otherwise.

In unambiguous terms, this provision requires the Plan and Trust Agreements to be treated as if they were one self-contained document.

II. When read together there is no conflict between the documents

(a) The original agreements give HBC the express right to the surplus

[104] Since inception, the original documents have given HBC the express right to the surplus. Article 12 of the Trust Agreement provides:

Article 12. In the event of the discontinuance of the Plan the Trustee shall dispose of the Trust Fund as directed in writing by the Company in accordance with the provisions of the Plan.

[105] The Plan text further provides in s. 16.02:

16.02 Amendment to or suspension of all or part of the Plan shall not operate to reduce any benefits which have accrued under the Plan prior to the date of such amendment or suspensions, as the case may be, to Members of the Plan. In the event that the Plan is terminated, no part of the assets of the Plan shall revert to the benefit of the Company until provision has been made for all pensions and other benefits in respect of service up to the date of such termination to Members of the Plan and for all benefits to former employees and pensioners. [Emphasis added.]

[106] Though in most cases a trust will extend to any surplus, a settlor may reserve the right to the surplus, if this is clearly done at the time the trust is created (Schmidt, at p. 655). Keeping in mind that Article 1 requires the Plan and Trust Agreements to be treated as one document, the effect of the above provisions is to do just that – to create an express entitlement in favour of HBC to the surplus on termination.

[107] These provisions existed from the outset. As a result, therefore, HBC had reserved the right to direct payment to itself of those portions of the Trust Fund that upon termination of the Plan are not required to fund the benefits of the members of the Plan, from the outset. In my view, Article 12 of the Trust Agreement is central to this appeal and the interpretation of the agreements adopted by my colleague simply does not give full effect to it.

(b) There is no conflicting provision vesting all of the trust funds, including the surplus to the members

[108] Acknowledging that equity dictates that the trust agreement must prevail in the event of a conflict between trust and plan agreements, there is no such conflict in the present case. At its highest, the “exclusive benefit” language found in Articles 2 & 11 of the Trust Agreement refers to use of the actual funds in the ongoing plan; however, on termination, when the plan ceases to exist and a surplus may arise, Article 12 and s. 16.02 determine how those funds may be used, to wit, “as directed in writing by the Company in accordance with the provisions of the Plan.” In any event, as I will explain, the “exclusive benefit” language in Articles 2 and 11 of the Trust Agreement is of limited application and does not purport as to confer on the Plan members a general entitlement to the Trust Fund.

(i) At its highest, the “exclusive benefit” language refers to the use of the funds during the Plan’s existence – not on termination

[109] Section 13.01 of the Plan and Article 2(a) of the Trust Agreement provide that the Trust was established to receive and hold funds for the purposes of the Plan. It is also clear from both the text of the Trust Agreement and the text of the Plan that for as long as the Plan remains in existence that “purpose” is to hold funds in the Trust so as to ensure that the benefits to which the members of the Plan are entitled will be paid. There are clear limits as to the type of payments the trustees can make.

[110] However, on termination when the surplus, if any, arises, the Trust Agreement provides that a different regime applies. Article 12 and s. 16.02 provide that in the sole event of termination the trust fund is to be paid out “as directed in writing by the Company [HBC] in accordance with the provisions of the Plan.”

[111] It is only upon termination of the Plan that a surplus is created. It is, therefore, neither surprising nor inappropriate for a trust agreement to provide that a different regime applies in the event of a plan’s termination. Before termination there is no surplus and “neither the employer nor the employees have a specific interest in this amount, since it only exists on paper” (Schmidt, at p. 654). At any rate, as I have set out below, the “exclusive benefit” referred to in Articles 2 and 11 is of limited scope.

(ii) The interpretation of Articles 2 and 11 does not confer an entitlement to the surplus on the Plan members

[112] In support of her conclusion that the Plan members are entitled to the surplus on termination, my colleague interprets Article 11 of the Trust Agreement, as reinforced by Article 2 of that Agreement, as demonstrating HBC’s intention to establish an irrevocable trust for the exclusive benefit of Plan members and their beneficiaries. For the reasons that follow, I do not interpret these articles as demonstrating HBC’s intention to go as far as conferring an entitlement on the Plan members to the surplus in the event of the Plan’s discontinuance. Such an interpretation would have the effect of rendering nugatory the clear wording of Article 12.

Interpreting Article 11

[113] Article 11 appears in the original Trust Agreement. It reads as follows:

Article 11. The Company shall have the right at any time or by or pursuant to a resolution of its Board of Directors to change or modify by amendment any of the provisions of, and to terminate, this Agreement provided it shall first have given written notice of such amendment or termination to the Trustee and provided that –

(i) if any such amendment appears to the Trustee to effect the rights, duties or responsibilities of the Trustee, the Trustee may assent to such amendment by executing an agreement supplementary hereto or, failing to assent, the Trustee shall resign as provided in Article 9 hereof.

(ii) such change, modification or termination shall not authorize or permit or result in any part of the corpus or income of the Trust Fund being used for or diverted to purposes other than for the benefit exclusively of mebers [sic] of the Plan and their beneficiaries and for the payment of fees, expenses, taxes and other assessments as provided in Article 2 hereof unless with the approval of the Minister of National Revenue and such other governmental authority having governmental jurisdiction over the Plan or Fund.

[114] The provision gives HBC the right to change, modify or terminate the Trust Agreement. However, Article 11(ii) is not a right granting provision. It is a provision that limits HBC’s ability to make changes. It provides that any change, modification or termination made by HBC cannot affect the existing rights or entitlements of the Plan members.

[115] Read in context, this provision is neither a vesting provision nor does it conflict with Article 12 of the Trust Agreement and s. 16.02 of the Plan. Article 12 and s. 16.02 existed in the original texts and the rights they conferred on HBC were not the product of a “change, modification or termination” of the Trust Agreement.

[116] In Burke, Rothstein J. specifically rejected the submission that an identically worded Article 11(ii) conferred any entitlement to the Plan members that they did not previously have. At para. 78 he stated:

Article 11(ii) is addressed to changes. In other words, the “benefit exclusively of members” language must be read in the context of what the employees were entitled to before any change. The entitlements before any change were the defined benefits. No change may result in the funds being used other than for those defined benefits, except as specified. The provision does not confer on employees an additional entitlement they did not previously have.

[117] In other words, Article 11(ii) does not define the benefits; it simply provides that changes to the Trust Agreement cannot reduce those benefits that the members already have. If the Trust Agreement does contain a provision granting the Plan members the right to the surplus, so as to trump the combined effect of Article 12 and s. 16.02, that right must be found elsewhere in the documents.

[118] This is not, therefore, a case of deciding which provision governs, Article 11 or Article 12. It is a case of reading all of the provisions in the Trust Agreement and the Plan together in a manner that if possible avoids conflict and gives effect to all of them.

[119] Article 11 deals with amendments or termination of the Trust Agreement. There can, of course be many amendments or terminations. As noted by my colleague, there has already been at least one termination of the Trust Agreement. There will however, be only one termination of the Plan. It is only upon the termination of the Plan that a surplus may be created and that a “specific interest” in the surplus is created. This unique event is precisely what Article 12 of the Trust Agreement and s. 16.02 of the Plan provide for.

Interpreting Article 2

[120] Article 2 is of some importance. It provides in part:

Article 2: (a) The Company by this Agreement establishes with the Trustee a fund (herein called the “Trust Fund”) comprising all cash and property acceptable to the Trustee now and hereafter received by it in trust for the purposes of the Plan, together with all proceeds, investments, reinvestments and income and profits arising therefrom less all payments, deductions and withdrawals therefrom authorized hereunder.

(c) The Trustee is hereby authorized to pay out of the Trust Fund:

(i) all brokerage fees, transfer taxes and other expenses incurred in connection with the sale and purchase of investments;

(ii) all property, income and other taxes of any kind at any time levied or assessed under any present or future law upon, or with respect to, the Trust Fund or any property included in the Trust Fund;

(iii) amounts on account of income tax that may be payable by persons receiving payment from the Trust Fund;

(iv) all other expenses of administering the Trust Fund including reasonable compensation for its services as may from time to time be agreed upon to the extent that such expenses have not been met or provided for by the Company.

ALWAYS PROVIDED that no part of the Trust Fund may be used for, or diverted to any purposes other than those connected with the exclusive benefit of members of the Plan and their beneficiaries.

[121] My colleague reads the paragraph that appears at the end of Article 2 as qualifying Article 2 in its entirety, not just s. 2(c). It is then argued that if the final paragraph is read as qualifying subparagraph (a) of Article 2, it suggests that HBC intended to part outright with all money contributed to the Pension Fund.

[122] I respectfully disagree. Firstly, the formatting of Article 2(c) is significant. The reproduction above appears in the same format as it did in the actual Trust Agreement. In my view, the lay-out of the provision shows that the final paragraph qualifies only subsection (c) of Article 2, the subparagraph dealing with the payment of expenses listed therein, and not Article 2 in its entirety.

[123] More importantly however, Rothstein J. dealt with an identically worded provision in Burke and interpreted the same proviso as qualifying the trustee’s power to pay the expenses listed in the subsection. He found that:

It is in the context of authorized expenses that no part of the funds may be used for or diverted to any purpose other than those associated with the exclusive benefit of members. Having regard to the context, it is clear that these words do not afford a new entitlement to surplus which had not previously existed and which is expressly addressed in art. 12.025 (at para. 76).

There is no mention of s. 2(a) being relevant, nor did Rothstein J. or this court in the Burke decision, suggest that this final paragraph qualified s. 2(a).[^3]

[124] As in Burke, in the present case there are provisions expressly addressing the surplus. In Burke, Article 12.025 provided that upon termination of the Plan “if any balance of the Trust Fund shall remain after the satisfaction of all obligations of the plan … such balance shall be paid to the Company.” Article 12 of the Trust Agreement and s. 16.02 of the Plan, though structured slightly different than Article 12.025 of Burke, have precisely the same effect. They provide that if the Plan is terminated, HBC can direct how the Trust Fund is to be disposed of subject only to the limitation contained in s. 16.02 of the Plan - the same limitation as Article 12.025 of Burke, that “no part of the assets of the Plan shall revert to the benefit of the Company [HBC] until provision has been made for all pensions and other benefits in respect of service up to the date of such termination to members of the Plan and for all benefits to former employees and pensioners.” After providing for the pensions, HBC has, from the outset, reserved the right to direct payment of the surplus to itself.

[125] It is suggested that Burke can be distinguished on the basis that in the present case Articles 2 and 11 were part of the original Trust Agreement, whereas in Burke the similar provisions were added to the Trust Agreement by amendment.[^4] I disagree. The texts are the same. The fact that they were added to the Trust Agreement by way of an amendment in Burke is not a basis to give the same provisions different meaning in the circumstances of this case. Agreements, whether the product of amendments or not must be read as a whole.

[126] In Burke the provisions were interpreted in the manner they were so as not to conflict with the originating documents which gave the company a right to the surplus. The amending documents had to be read in light of the originating documents; they had to be read as a whole. Because the originating documents gave the company an express right to the surplus, if the amendments were to limit that right they would have had to have done so clearly, otherwise the provisions would be in conflict.

[127] The case at bar presents a similar situation. The “exclusive benefit” language contained in Articles 2 and 11 has to be read in light of the whole document. By virtue of Article 1 of the Trust Agreement the whole document is the sum total of the original Plan and Trust Agreements. These two agreements must be read to avoid conflict and give meaning to all of the provisions contained therein - they must be read as whole. The interpretation of these provisions favoured by my colleague does not treat the documents as a cohesive whole; rather, it leaves Article 12 and s. 16.02 without purpose and meaning. Such a result is not in keeping with basic rules of contractual interpretation and could not have been intended by the settlor.

III. Schmidt distinguished

[128] I agree with my colleague that Schmidt laid down the foundational principles through which courts are to determine questions of surplus ownership. I also agree that Burke has not changed that law. However, because s. 16.02 of the Plan and Article 12 of the Trust Agreement expressly deal with what is to happen to the Trust Fund in the event of the Plan’s termination and none of the other provisions in the two documents conflict with this directive, the intention of the settlor of the Trust is clear.

[129] Schmidt, therefore, can be distinguished on the facts. In Schmidt the original plan and trust documents created no entitlement to the surplus in favour of the company. It was only through later amendments to the Trust and Plan documents that the company purported to give itself a right to the surplus. In Schmidt, the court found that these later amendments were an attempt to partially revoke a trust originally established for the exclusive benefit of the employees (at p. 662).

[130] In contrast to Schmidt, the Trust Agreement in the present case provided from the very outset that upon termination of the Plan, HBC could direct how the Trust Fund would be paid out subject only to the limitation in the Plan that the benefits of the Plan members be provided for. The intention of the settlor of the trust is clear. After provision is made for the benefits of the members, HBC can at its discretion direct the trustees to pay the surplus to HBC. The payment of the surplus to HBC was thus provided for in the original text. This right to direct payment has been a part of the objects of the Trust from the outset, albeit only in the singular event of the Plan’s termination.

Conclusion

[131] In my view, therefore, the original Trust Agreement and Plan entitled HBC to the surplus. None of the subsequent amendments have impeded or removed that right. As the Plan is ongoing and the Plan and Trust Agreement can be amended before termination, the present decision only applies to the Plan and Trust Agreement as presently worded.

[132] In conclusion, I would allow the cross-appeal and set aside that portion of the judgment ordering that HBC is not a beneficiary of the Trust Fund of the Plan and substitute an order declaring that under the Trust and Plan Agreements as presently worded, HBC would be entitled to any surplus if the Plan were terminated as of the date of the hearing of the action. I would also order that, if the parties are unable to resolve the matter of costs, they are to make brief written submission on the matter and such submissions are to be received by the court within 15 days of the release of these reasons.

“Paul Rouleau J.A.”

[^1]: The original Plan Text was amended and/or restated in 1976, 1988, 1994, 2000 and 2002.

[^2]: The original Trust Agreement was replaced with a trust agreement with Investors Group Trust Co. Ltd. in 1984. In 1998, Royal Trust Corporation of Canada replaced Investors Group as trustee and a new trust agreement was entered into effective November 1, 1998.

[^3]: Article 2(a) in the Burke matter was substantially the same as Article 2(a) in the present case. Although Article 2 in Burke had four subsections, the formatting of the final paragraph was the same and s. 2(d) of Burke is substantially the same as s. 2(c) of the present Trust Agreement.

[^4]: In Burke, the provisions were added when the company entered into a new trust agreement with Investors Group.