COURT OF APPEAL FOR ONTARIO

CITATION: Groskopf v. Shoppers Drug Mart Inc., 2016 ONCA 486

DATE: 20160616

DOCKET: C61258

Cronk, Blair and MacFarland JJ.A.

BETWEEN

Gerald Groskopf and Robin Boys

Appellants/

Respondents by Cross-Appeal

and

Shoppers Drug Mart Inc.

Respondent/

Appellant by Cross-Appeal

Robin Boys and Gerald Groskopf, In Person

Alan B. Merskey and John M. Picone, for the respondent

Heard: June 14, 2016

On appeal and cross-appeal from the order of Justice Michael A. Penny of the Superior Court of Justice, dated October 1, 2015, with reasons reported at 2015 ONSC 5870.

By the Court:

[1] The main issue on this appeal concerns the proper interpretation of provisions of a supplementary executive retirement plan (“SERP”) funded and administered by the respondent, Shoppers Drug Mart Inc. (“Shoppers”).

I. Background in Brief

[2] Shoppers was incorporated on February 4, 2000 to purchase the Shoppers Drug Mart business previously carried on by Imasco Ltd. (“Imasco”). As part of this corporate restructuring, the employment of various Imasco employees, including that of the appellants, was terminated. Upon termination, the appellants and other affected Imasco employees became employees of Shoppers and ceased to accrue benefits under the Imasco corporate pension and supplementary pension plans.

[3] At the same time, Shoppers established a pension plan for executives (the “Shoppers Plan”) and a SERP (the “Shoppers SERP”). The Shoppers Plan, which was registered in Ontario as a defined benefit pension plan, is subject to and regulated by the Pension Benefits Act, R.S.O. 1990, c. P.8 (the “PBA”) and the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) the (“ITA”).

[4] The Shoppers SERP, in contrast, is not subject to the PBA. Rather, it is a contract between Shoppers and certain employees. Section 1.1 of the Shoppers SERP describes its purpose in these terms:

The Plan is hereby established to provide certain employees supplemental pension benefits that exceed the [ITA] limits on pensions payable under registered pension plans, or certain other supplemental pension benefits, on the terms and conditions described.

[5] The appellant Robin Boys’ employment with Shoppers was terminated on February 11, 2000. The appellant Gerald Groskopf’s employment was terminated on October 26, 2004.

[6] In 2005, the Financial Services Commission of Ontario announced its intention to order a wind-up of the Shoppers Plan with respect to those employees who lost their jobs due to the 2000 restructuring with Imasco. Consequently, Shoppers agreed to declare a partial wind-up of the Shoppers Plan, effective as of April 22, 2005, for participants whose employment was terminated between January 1, 2000 and October 26, 2004. Both appellants were included in this class of participants.

[7] As a result of the wind-up, the appellants became entitled to the benefit of the “grow-in” provision then set out in s. 74(1) of the PBA. Under this provision, on the wind-up of a pension plan, a member of the affected plan whose combination of age plus years of service was 55 or greater was entitled to receive his or her pension beginning at what would have been his or her earliest unreduced pension retirement date. In other words, s. 74(1) allowed eligible plan participants to “grow” into their registered pensions at the earliest date on which they would have been entitled to receive an unreduced pension, as if they had continued to accrue service in the wound-up plan up to that date.

[8] In this case, the effect of the s. 74(1) grow-in provision was to accelerate the age of the appellants’ eligibility to an unreduced pension from the normal retirement age of 65 under the Shoppers Plan to the earlier age of 55. This enabled the appellants to retire at age 55 with unreduced pensions.

[9] In November 2009, Shoppers gave the appellants notice of their entitlements under the Shoppers Plan and the Shoppers SERP and the options available to them. The notices made it clear that the total lump sum values of their pension entitlements increased significantly as a result of the partial wind-up to reflect their grow-in entitlements under the PBA, that is, their entitlement to receive pensions at their earliest, unreduced pension eligibility date. However, the notices also revealed that their Shoppers SERP entitlements had decreased to zero. Were it not for the wind-up and the impact of grow-in, both appellants would have been entitled to supplementary retirement benefits under the Shoppers SERP, but their unreduced pensions would not have been available until age 65.

[10] The appellants disagreed with Shoppers’ calculation of their entitlements under the Shoppers SERP. Accordingly, in November 2012, they applied to the Superior Court of Justice for a declaration that they were entitled to receive supplementary retirement benefits under the Shoppers SERP and an order, if necessary, requiring Shoppers to pay those benefits to them.

[11] The dispute among the parties centres on the proper interpretation and application of s. 2.24 of the Shoppers SERP. That section reads, in material part, as follows:

Supplemental Pension Benefit at any time of a Participant means, for an individual who is a member of the Executive [Registered] Plan [the Shoppers Plan]:

(a) The full amount of the Participant’s pension benefit, if any, determined at that time in accordance with the Executive Registered Plan, but without regard to: (i) the 35-year limit on Pensionable Service (as defined in the Executive Registered Plan); and (ii) [ITA] limits on pension benefits payable under the registered pension plans.

Furthermore, for purposes of the Plan and notwithstanding the provisions of the Executive Registered Plan, the Accrued Pension (as defined in the Executive Registered Plan) at the time for a Participant who joined the ICPP on or after January 1, 1990, but before January 1, 1995, shall be calculated as 2% of the Participant’s Final Average Remuneration (as defined in the Executive Registered Plan) at that time multiplied by the Participant’s Pensionable Service at that time.

(b) PLUS any other pension benefit that may be granted to the Participant, or recognized for the purposes of the Plan, by the Employer, including under a Severance Agreement, if applicable;

provided that, notwithstanding any other provisions of this section 2.24, the sum of the amounts determined under section 2.24(a) and section 2.24(b) shall not exceed 70% of the Participant’s remuneration (as defined in the Executive Registered Plan) during the last 12 months of the Participant’s Continuous Service (as defined in the Executive Registered Plan);

(c) LESS the total pension benefit earned by the Participant under the Executive Registered Plan and the ICPP and any other pension plan of the Company or its Affiliates or its subsidiaries that is registered in Canada or qualified elsewhere.

Notwithstanding anything to the contrary in the Plan, the amount of pension benefit described in sections 2.24(a) and 2.24(b) above shall not be subject to any grow-in provisions as provided for in applicable provincial legislation [the “Proviso”]. [Emphasis added.]

[12] Both parties led expert actuarial evidence regarding the appropriate interpretation of s. 2.24, in particular, the Proviso, and its application to the appellants’ circumstances. The appellants relied on the opinion evidence of Peter Gorman in this regard, while Shoppers relied on that of Towers Watson. The experts each advanced differing interpretations of s. 2.24. However, neither suggested that the other’s methodology or calculations were fundamentally incorrect or contrary to proper actuarial principles. There was no dispute that s. 2.24(b) was inapplicable to the appellants’ circumstances. The controversy, therefore, concerned the proper interpretation of ss. 2.24(a) and (c) and the Proviso.

[13] Towers Watson explained its interpretation of the combined effect of these provisions in a February 2014 email:

Although grow-in applied to enhance the benefit entitlement under the Executive [Shoppers] Plan, to determine the benefit entitlement under section 2.24(a) of the [Shoppers SERP], section 2.24 specifically states that: “Notwithstanding anything to the contrary in the Plan, the amount of pension benefit described in sections 2.24(a) and 2.24(b) above shall not be subject to any grow-in provisions as provided for in applicable provincial pension legislation”.

Because grow-in must not be considered when determining the benefits calculated in section 2.24(a) or 2.24(b) of the [Shoppers SERP] the reduction factor that is applied in determining these entitlements must be in accordance with the termination provision of the Executive Plan (section 12) and as such an actuarial equivalent reduction was applied.

[14] To effect this approach, Towers Watson employed a commencement date of 55 years for the s. 2.24(a) benefit calculation. On this basis, Towers Watson’s calculations indicated that the appellants’ pension entitlements were as follows:

Without Wind-up and Grow-in

With Wind-up and Grow-in

Boys: $1,478 per month, at age 55

$2,408.74 per month, at age 55

Groskopf: $337,406 lump sum, or $2,048 per month, at age 55

$514,209 lump sum, or $3,070 per month, at age 55

[15] The appellants, supported by Mr. Gorman, argued that the Towers Watson approach to the s. 2.24(a) calculation, reflecting a retirement date at 55 years of age, was neither authorized nor supported by the terms of the Shoppers SERP. They maintained that, properly construed, the Proviso in s. 2.24 required that the s. 2.24(a) calculation must ignore the effect of grow-in on the age at which a member was entitled to an unreduced pension. Consequently, the calculation under s. 2.24(a) should be based on the ‘before grow-in’ normal retirement age of 65 years. This approach, they submitted, would ensure that a participant’s “full pension benefit” under s. 2.24(a) was calculated as of age 65, without regard to ITA limits or grow-in rights. As they put it in their factum before the application judge:

If grow-in rights are to be ignored [under s. 2.24(a)], then there is no reason for [Shoppers] to assume pension commencement at age 55. It is consistent with non grow-in situations to assume a pension commencement age of 65.

[Section] 2.24 does not require consistency [between the calculations under ss. 2.24(a) and (c)], and in fact directs the opposite: it requires grow-in rights to be ignored for purposes of calculating (a) but not (c). Use of the same age [55] for calculating (a) and (c) is not mandated by the words of s. 2.24, nor is it actuarially required that the two sections must use the same pension commencement date.

II. Application Judge’s Decision

[16] The application judge rejected the appellants’ urged interpretation of s. 2.24. He held that the limitation imposed by the Proviso had “nothing to do with age” (at para. 58). Rather, in his view, the Proviso was specifically intended to exclude from the calculation under s. 2.24(a) the benefit received by the appellants from the application of the s. 74(1) PBA grow-in rule, and to include that benefit in the calculation of the deduction to be made under s. 2.24(c) (at para. 61). He concluded, at paras. 64-5:

Section 2.24 is not ambiguous. It is clear. One calculates the full amount of the registered pension benefit excluding the [ITA] limit and excluding any grow-in benefits. From that, one subtracts the total registered plan benefit actually earned (i.e., the pension benefits subject to the [ITA] limit and including any benefit from grow-in). If the difference is a positive number, that is the amount of the supplementary benefit. If the difference is a negative number or zero, the supplementary benefit is nil.

This interpretation is consistent with the articulated purpose of the [Shoppers SERP] and with the plain words of s. 2.24. The Towers methodology for calculating the entitlement (or lack of entitlement) to supplementary benefits under the [Shoppers SERP], in my view, gives effect to the clear words, intent and purpose of s. 2.24 of the [Shoppers SERP]. [Emphasis in original.]

[17] Accordingly, the application judge dismissed the appellants’ application. Contrary to the appellants’ request, he also declined to order that the appellants’ costs of the application be paid from the Shoppers SERP. Instead, for reasons he explained, he declined to award any costs of the application.

[18] The appellants appeal from the dismissal of their application and from the application judge’s costs ruling. In the event that the appeal is allowed, Shoppers cross-appeals, arguing that the appellants’ claim for benefits under the Shoppers SERP is statute-barred due to the expiry of the two-year limitation period set out under s. 4 of the Limitations Act, 2002, S.O. 2002, c. 24, Sched. B.

III. Discussion

(1) Interpretation of Section 2.24

[19] As we have said, the main issue on appeal is whether the application judge erred in his interpretation of s. 2.24 of the Shoppers SERP, in particular, whether he erred in concluding that the Proviso in s. 2.24 required the exclusion of grow-in benefits from the benefit amount calculated under s. 2.24(a) but their inclusion in the deduction amount calculated under s. 2.24(c).

[20] In our view, the application judge made no reversible error in his construction of s. 2.24. To the contrary, his interpretation is supported by the stated purpose of the Shoppers SERP, the words of s. 2.24, and the actuarial opinion evidence of Towers Watson. We say this for the following reasons.

[21] First, at the outset of his analysis, the application judge identified the applicable principles governing contractual interpretation (at para. 53). He noted, correctly, that a reviewing court is required to construe a disputed contract in its entirety, with the objective of determining the intentions of the parties based on the language used in the contract at issue, having regard to the surrounding circumstances based on objective evidence of the factual matrix or context pertaining to the negotiations and the operation of the contract. See Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47; Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16.

[22] Second, in our view, the application judge applied the governing principles of contractual interpretation correctly. He had regard to the stated purpose of the Shoppers SERP, the underlying factual matrix as known to the parties – including the various pension and retirement benefit components of the Imasco pension plan and the Shoppers Plan and SERP – and the language employed in s. 2.24. He noted, in this regard, at para. 55, that the Shoppers SERP was “intended to operate as a top-up of the benefits available under the [Imasco and Shoppers] registered plans. The need for a top-up arises largely from a limit imposed on registered pension plans by the [ITA].” We agree with this description of the purpose of the Shoppers SERP.

[23] Third, the Shoppers SERP expressly provides, at ss. 4.5 and 4.6, that Shoppers has “the exclusive right to interpret the [Shoppers SERP] and to decide any matters arising with respect to its administration”, that its interpretations “shall be conclusive and binding on all persons having an interest in the Plan”, and that its good faith determination of “the amount and timing of the payments under the [Shoppers SERP] shall be conclusive”. The application judge’s reasons confirm that he was alert to these important terms of the Shoppers SERP.

[24] Fourth, the application judge’s construction of the Proviso is grounded in the specific language of that provision. The Proviso explicitly states that the quantum of the benefits under s. 2.24(a) and (b) is to exclude the grow-in provisions of the PBA. It makes no mention of a similar exclusion under s. 2.24(c). Indeed, the Proviso contains no reference to s. 2.24(c) at all. This strongly tells in favour of the conclusion that grow-in benefits were not intended to be excluded from s. 2.24(c).

[25] Fifth, on a plain reading of the provision, s. 2.24(c) requires the deduction, from the benefit amounts calculated under ss. 2.24(a) and (b) without regard to ITA limits and grow-in provisions, of the “total pension benefit earned… under the [Shoppers Plan]” and any other “registered” pension plan. In this case, on the application judge’s factual findings, the total pension benefit earned by each of the appellants included amounts significantly augmented by the s. 74(1) PBA grow-in provision. And, based on Towers Watson’s expert evidence, age 55 generated the highest lump sum value for the appellants’ benefits under the Shoppers Plan because it recognized the benefit of the 10-year income stream between ages 55 and 65 that arose from the application of grow-in.

[26] Sixth, and critically, the application judge was confronted with conflicting actuarial evidence regarding the interpretation of s. 2.24 and the appropriateness of the use of age 55 as a basis for the s. 2.24(a) benefit calculation. That evidence essentially established two differing, reasonable interpretations of s. 2.24. The application judge accepted Towers Watson’s interpretive approach, concluding, at paras. 60-61:

I see nothing unreasonable or inappropriate in adopting retirement at age 55 as the basis for Towers’ calculations. That is, in fact, when the applicants decided to start receiving their unreduced pensions. That is the age at which their most favourable pension benefit scenario crystalized. Both applicants were entitled to, and received, benefits resulting from the grow-in rules which enabled them to retire on unreduced pensions at 55.

To ignore retirement on unreduced pensions at 55 and assume there is no entitlement to unreduced retirement benefits until age 65 ignores what happened. More importantly, it ignores the significant benefit which the applicants and their actuary admit they actually received as a result of the partial wind-up and the application of Ontario’s grow-in rules.

We see no error in this reasoning. Indeed, we agree with it.

[27] Further, the application judge recognized that the Towers Watson interpretive approach, under which the appellants’ pension entitlement at age 55 was reduced, was simply one method of ensuring that grow-in rights were excluded from the s. 2.24(a) benefit calculation, as mandated by the Proviso. He noted, at para. 62:

It is not in controversy that, on a present value basis, statutory grow-in rights under s. 74 of the PBA constituted a very material enhancement of the applicants’ pensions. It is that enhancement, one way or another, which the proviso in s. 2.24 of the [Shoppers SERP] requires be excluded from the s. 2.24(a) calculation and not excluded from the s. 2.24(c) calculation.

[28] It was open to the application judge to prefer the interpretation urged by Towers Watson. That interpretation was supported by the words of s. 2.24, achieved the intended purpose of the overall formula established by that section, and gave full effect to the Proviso.

[29] Finally, we appreciate that the appellants raised several additional arguments at the appeal hearing in support of their attack on the application judge’s interpretation of s. 2.24. However, as the appellants properly acknowledged, those arguments were raised for the first time on appeal and were neither advanced before the application judge nor supported by the evidence of Mr. Gorman, the appellants’ own expert. That said, we have considered those arguments on the merits. They do not alter our conclusion concerning the application judge’s interpretive ruling.

[30] We therefore reject the appellants’ challenge to the application judge’s interpretation of s. 2.24. In our view, his interpretation was reasonable.

(2) Costs Ruling

[31] The appellants’ appeal from the application judge’s costs ruling may be dealt with summarily. The application judge’s ruling attracts considerable deference from this court. Absent an error in principle or unless the award is plainly wrong, appellate intervention is precluded.

[32] The application judge provided detailed reasons for his decision to award no costs of the application. He considered the relevant Supreme Court authorities on the circumstances in which costs may be awarded payable from a pension fund, including Nolan v. Kerry (Canada) Inc., 2009 SCC 39, [2009] 2 S.C.R. 678, and applied the principles enunciated in those cases to the facts as he found them. He also addressed the appellants’ arguments supporting an award of costs payable from the Shoppers SERP and provided clear and cogent reasons for rejecting them. Finally, he took account of conduct by Shoppers that, in his view, disentitled it to its costs of the application. This clearly operated to the appellants’ benefit.

[33] In all these circumstances, we see no basis upon which to interfere with the application judge’s discretionary costs ruling.

(3) Cross-Appeal

[34] In light of our conclusion that the appeal must be dismissed, we do not reach the limitations issue raised on Shoppers’ cross-appeal. We note that, while technically the limitations issue may not be raised by way of cross-appeal (because it is an appeal from the decision of a different Superior Court judge, albeit in the same proceeding), the parties agreed to deal with it in that fashion for the purpose of the proceeding before this court. Since it is unnecessary to address the limitations issue, we need not consider any procedural questions that may arise from that agreement by the parties.

IV. Disposition

[35] For the reasons given, the appeal and the cross-appeal are dismissed. Shoppers is entitled to its costs of this appeal, fixed in the aggregate amount of $20,000, inclusive of disbursements and all applicable taxes.

Released:

“JUN 16 2016” “E.A. Cronk J.A.”

“EAC” “R.A. Blair J.A.”

“J. MacFarland J.A.”