COURT OF APPEAL FOR ONTARIO

CITATION: Tibbett & Britten Group Canada Inc. v. Sobeys Inc., 2016 ONCA 861 DATE: 20161116

DOCKET: C 61918

Blair, Epstein and Huscroft JJ.A.

BETWEEN

Tibbett & Britten Group Canada Inc.

Respondent

(Applicant)

and

Sobeys Inc.

Appellant

(Respondent)

Jennifer McAleer, for the appellant

Peter Griffin and Kelly Hayden, for the respondent

Heard: November 1, 2016

On appeal from the order/judgment of Justice H.J. Wilton-Siegel of the Superior Court of Justice, dated March 1, 2016.

ENDORSEMENT

[1] This appeal arises out of a dispute over whether Sobeys is contractually obligated to fund the deficit in an employee pension plan following the wind-up of that plan.

[2] The wind-up was triggered when agreements for which Sobeys and Tibbet & Britten Group Canada Inc. are now responsible were terminated. Those agreements provided for the sale of certain warehouse assets by Sobeys’ predecessor to Tibbett’s predecessor, and a corresponding agreement by Tibbett’s predecessor to provide transportation services from those warehouses.

[3] Justice Wilton-Siegel held that Sobeys was obliged by its contractual relations to fund the pension deficit directly. Sobeys contests that decision and appeals.

[4] For the following reasons, we dismiss the appeal.

Factual Background

[5] The complex facts are detailed in the application judge’s thorough reasons. We need not repeat them all here, but touch on the following for the purposes of this endorsement.

[6] In an asset sale transaction in January 1995, a company known as Oshawa Foods (Sobeys’ predecessor) sold its warehousing and distribution assets in two of its warehouses to a company known as Surelink (Tibbett’s predecessor). In a parallel warehouse and transportation service transaction at the same time, Surelink agreed to provide warehousing and transportation services to Oshawa in connection with that company’s food distribution business. Under the warehousing and transportation agreement (the “WTA”) Surelink assumed responsibility for the former employees of Oshawa who were working in the warehouses, including responsibility for the benefits under the existing Pension Plan. The extent to which those obligations reverted to Sobeys (as Oshawa’s successor) on termination of the agreement is what was contested on the application.

[7] Following its acquisition of Oshawa in 1999, Sobeys terminated the agreements – for reasons open to it under the agreements – and resumed its own warehousing and transportation functions. As a result, all of the positions of the Surelink employees at the two warehouses were terminated, thereby triggering a wind-up of the Plan effective March 5, 2000. Surelink took certain steps to further the winding-up process, with the assistance of the Plan’s actuaries, Aon Consulting, and in conjunction with the Financial Services Commission of Ontario (“FSCO”) under the Pension Benefits Act, R.S.O. 1990, c. P.8 (the “PBA”).

[8] Tibbett’s position (as Surelink’s successor) is that by June 2001, Sobeys had undertaken by agreement to take over both the administration of the Plan and the obligation to fund the deficit in the Plan directly. Tibbett submits that Sobeys’ assumption of the administration of and responsibility for the Plan continued with little or no further involvement of Tibbett and with the direct involvement of Aon until April 2013, when Tibbett says it first learned that Sobeys was refusing to comply with its contractual obligation to fund the Plan deficit.

[9] The application judge held that:

(i) the termination provisions of the WTA required Sobeys to reimburse Tibbett for the amount required to fund the deficit that arose on the wind-up of the Plan; and that,

(ii) Sobeys and Tibbett had reached an agreement pursuant to which Sobeys agreed to be responsible for directly funding the Plan deficit.

[10] Sobeys does not contest that it is obliged to reimburse Tibbett for the reasonable costs incurred in funding the Plan deficit. It submits, however, that this obligation does not render it liable to reimburse Tibbett for the entirety of the present Plan deficit (this ties in with an argument that Tibbett is responsible for some contributory fault in contract).

[11] The application judge found the reimbursement obligation to arise by virtue of the termination provisions in the WTA which called for the parties to settle their financial obligations within 30 days of termination, including the settlement of “Employee Termination Payments” which embraced as well the pension obligations relating to the terminated Surelink (Tibbett) employees at the two warehouses. Section 9.12(c)(i) of the WTA addressed the settlement of those payments:

[Sobeys] shall reimburse Surelink for all other reasonable costs and expenses suffered or incurred by Surelink in connection with the expiration or termination of this agreement, including without limitation all Employee Termination Payments.

[12] “Employee Termination Payments” were defined in Schedule A to the WTA to include pension benefits:

Employee Termination Payments shall include any and all reasonable payments required to be made by Surelink to any pension or other employment benefit plans … in respect of Surelink Employees or former Surelink Employees …

[13] The application judge found that his interpretation of the foregoing provisions, holding Sobeys responsible to reimburse Tibbett for the amounts required to fund the Plan deficit, was supported by the business context in which the asset sale and the WTA arrangements had been made and by the post-contractual conduct of the parties. As noted above, Sobeys does not contest its obligation to reimburse under the WTA but does contest the extent of that obligation.

[14] Sobeys vigorously attacks the application judge’s finding that it agreed to assume responsibility for directly funding the Plan deficit, however.

Discussion

[15] On the appeal, Ms. McAleer advanced four primary arguments. In her submission, the application judge erred in finding or holding that:

(i) the parties had entered into a new agreement in or around August, 2001, whereby Sobeys would assume responsibility for the administration of the Plan and for directly funding the Plan deficit;

(ii) Sobeys’ contractual obligation to fund the “reasonable” costs of employee termination rendered it responsible for the entirety of the present Plan deficit;

(iii) the doctrine of contributory fault in contract did not apply; and in any event, that,

(iv) Tibbett’s claim, either under the WTA or pursuant to any new agreement, was not statute barred under the Limitations Act, 2002, S.O. 2002, c. 24 Sch. B.

[16] We reject these submissions, essentially for the thorough and careful reasons provided by the application judge, with which we agree.

[17] During the application the parties acknowledged that the documentary and evidentiary foundation for the application did not fully tell the story. It is accepted that there may have been documents created during the termination and post-termination period that could not be located. Entities had changed at Sobeys and Tibbett/Surelink, and at Aon, and personnel had come and gone. The parties gathered and put forth the evidence they could and the application judge was required to make his findings and draw inferences of fact on the basis of the record before him.

[18] In doing so, he conducted a comprehensive review of both the available documentary evidence and affidavit testimony, and he based his analysis and conclusions regarding the issues on the application on the results of that exercise.

[19] As noted above, his interpretation of the provisions of the WTA grounding Sobeys’ liability to reimburse Tibbett for the costs of funding the Plan deficit were buttressed by his appraisal of the business context in which the asset sale and the WTA – and the termination of these agreements – took place, and on his consideration of the post-termination conduct of the parties. His interpretation of the WTA and his finding that Sobeys and Tibbett had entered into a new agreement with respect to the funding of the Plan in conjunction with the settlement of their financial affairs after termination, were based on a detailed examination of the record before him, including the foregoing.

[20] We see no palpable and overriding error in his findings of fact or of mixed fact and law. They were all open to him on the record.

The “New Agreement” and the Requirement for Written Amendments

[21] We do not agree that the application judge erred in finding the parties entered into a further agreement – following the performance of their obligations upon termination of the WTA – that pertained to the ongoing administration of the Plan, including the wind-up of the Plan and the Plan deficit. This finding is consistent with his earlier determination that there had been a financial closing of all matters pertaining to the termination of the WTA in or about August, 2001, and that this closing incorporated matters relating to the funding of the Plan and the Plan deficit as at that time.

[22] This analysis is supported, as the application judge found, by documentation created at the time of the financial closing, most notably: (a) the July 2001 Reconciliation setting out the balance sheet treatment of the closing out of the financial relations (which contained an entry “CO [Company] Portion of pension clearing: $547,449.22); (b) a Credit Note from Surelink to Sobeys (reflecting the transfer of that amount from Surelink to Sobeys; and (c) an internal Sobeys’ email exchange confirming the transfer. The application judge concluded that the $547,449.22 represented the return to Sobeys of money paid to Surelink for which Surelink accrued, but did not pay, a liability and that the crediting of those amounts to Sobeys was associated with a quantification of the Plan’s funding requirements and the expenses of the Plan wind-up as at that time.

[23] This finding was amply supported on the record, not only by the foregoing documentation but also by the fact that Sobeys thereafter accrued a liability on its books for the pension deficit, until it decided – without communicating that decision to anyone apparently – that it was not responsible to fund the deficit directly and reversed the entry in February 2009. In addition, the application judge found validation for his finding in business logic (it was to Sobeys’ advantage to take direct responsibility and thereby be able to control the outcome, particularly since a number of the warehouse employees had returned to Sobeys); in the fact that Sobeys exercised all control over the Plan investments post-2001; and in the fact that Aon accepted and acted upon Sobeys’ instructions only thereafter, with no subsequent correspondence or conduct between Aon and Tibbett/Surelink or between Sobeys and Tibbett/Surelink on the subject.

[24] All of this provided the basis for the application judge’s determination that the parties had finalised all matters relating to the WTA, including matters pertaining to the wind-up expenses and the funding of the Plan deficit to that point in time as of August, 2001, and had terminated that agreement and entered into a further one respecting the ongoing administration of the Plan and the finalization of the wind-up and the deficit.

[25] It follows from this as well that the application judge did not err in determining that the provision in the WTA requiring any modification or amendment of the WTA to be by an agreement in writing was not engaged. There was no modification or amendment of the WTA. The parties entered into a new agreement.

[26] While it may be that the application judge’s statement in the penultimate paragraph of his reasons – that Tibbett is entitled to a declaration under section 9.12 of the WTA – is confusing, it is clear from the wording of his order itself that the declaratory relief granted is based both on s. 9.12 and the new agreement. The Order provides for a declaration that Sobeys is to pay the Plan deficit “to the Plan”. The Order does not provide for Sobeys to reimburse Tibbett for the amount of the deficit, which is what would have been consistent with the language of section 9.12(c)(i) itself.

The Limitation Period Argument

[27] Sobeys submits that Tibbett’s claim is barred by the two-year limitation period provided for in the Limitations Act.

[28] The argument is based on the submission that Tibbett knew or ought reasonably to have known that the Plan deficit had not been funded nor the wind-up completed within the requisite five-year period, namely by March 5, 2005 and accordingly that the limitation period began to run at that point. This, in turn, is founded on the argument that Tibbett retains the statutory obligation to fund and to wind-up the Plan under the PBA, that Tibbett was therefore responsible for knowing that the wind-up and funding were not completed by March 2005, and that accordingly Tibbett must reasonably have known that these matters were still outstanding because Sobeys had not performed its contractual obligations and had disavowed them at least as early as 2009.

[29] There are a number of difficulties with this position, as the application judge noted.

[30] First, Tibbett’s statutory obligations with respect to the Plan under the PBA were not the issue on the application (the application judge found, and Tibbett does not contest, that it remains subject to those obligations). What was at issue was the nature of the contractual obligations as between Sobeys and Tibbett whereby Sobeys undertook to fulfill those obligations. In the absence of some indication to the contrary, Tibbett was entitled to assume that Sobeys was doing so and we see no error in the application judge’s conclusion that, in these circumstances, Sobeys was not entitled in law to convert Tibbett’s statutory obligation into a de facto contractual duty to Sobeys to ensure that Sobeys complied with its contractual obligations, particularly in the absence of any notice to Tibbett that something was amiss.

[31] Secondly, there was no such notice. Sobeys concedes that it did not advise Tibbett, or Aon, or FSCO, that the Sobeys Pension Committee had determined at a meeting in February 2009 that Sobeys was not responsible for the Plan and that Sobeys shortly thereafter reversed its balance sheet liability for the Plan deficit. Aon became concerned about the growing size of the deficit in 2010, but there was no communication between Sobeys or Aon and Tibbett until Aon advised Tibbett in a letter dated April 17, 2013 that there remained outstanding issues pertaining to the Plan. The application judge accepted this evidence, as he was entitled to do.

[32] Finally, in a finding relating also to Sobeys’ contributory fault argument, the application judge determined that Tibbett had not failed to act with “due diligence” in connection with its wind-up and deficit-funding obligations. That finding was open to him on the record.

[33] Based on the foregoing, as more fully canvassed in his reasons, the application judge found that the limitation period did not begin to run until April 17, 2013. Tibbett’s application was therefore timely.

“Reasonable Costs” and Contributory Fault

[34] Although Sobeys accepts that it is liable to reimburse Tibbett for the “reasonable costs and expenses” in relation to the wind-up and Plan deficit, it submits that this responsibility does not extend to reimbursement of the entire amount of the present Plan deficit. There appear to be two components to this position.

[35] Sobeys submits, first, that Tibbett/Surelink acted unreasonably and without the requisite due diligence in its approach to winding up the Plan and dealing with the Plan investments. As a result, the amount sought by Tibbett – either on a reimbursement or direct funding basis – does not constitute a reasonable payment as required under section 9.12(c)(i) of the WTA. Secondly, Sobeys submits that the application judge should have found Tibbett/Surelink responsible for contributory fault in contract.

[36] Both of these submissions are essentially factually-based, however, and the application judge made a finding, for reasons explained in his decision, that Tibbett had acted with due diligence. He was entitled to make this determination on the record and we see no basis for interfering with it. The “reasonable payment” and “contributory fault” ground of appeal cannot succeed.

Disposition

[37] The appeal is dismissed.

[38] The respondent is entitled to its costs of the appeal fixed in the amount of $22,000 inclusive of disbursements and all applicable taxes.

[39] We understand that one issue remains to be determined by the application judge in terms of the costs of the application, namely whether it is entitled to its costs on a full indemnity basis under the WTA. Nothing in this order is intended to affect the resolution of that outstanding issue.

“R.A. Blair J.A.”

“Gloria Epstein J.A.”

“Grant Huscroft J.A.”