Ontario Teachers' Pension Plan Board v. Ontario (Superintendent of Financial Services)

[Indexed as: Ontario Teachers' Pension Plan Board v. Ontario (Superintendent of Financial Services)]

Ontario Teachers' Pension Plan Board, Applicant (Respondent in Appeal) and Superintendent of Financial Services, Respondent (Respondent in Appeal) and Anne Stairs, Respondent (Appellant in Appeal)

Ontario Divisional Court

Farley, Lane, Then JJ.

Heard: May 24, 2002 Judgment: June 18, 2002 Docket: 406/00

Ari Kaplan, for Appellant Freya J. Kristjanson, Markus F. Kremer, for Respondent Board Deborah McPhail, for Respondent Superintendent

Lane J.:

1 This is an appeal from the decision of the Financial Services Tribunal ("Tribunal") dated May 31, 2000 made under the Pension Benefits Act ("PBA") directing the respondent Superintendent not to proceed with a proposal ("Proposed Order") to order the respondent Board to pay the appellant a pre-retirement death benefit under the Ontario Teachers' Pension Plan ("Plan") in respect of the death of her former spouse, Roger Mowbray ("Roger").

Background:

2 The appellant and Roger were married in 1961. In 1965 he became a member of a predecessor teachers' pension plan and remained a member of that and succeeding plans, including the Plan, until he died in 1995, before beginning to receive payments under the Plan. In the meantime, the appellant and Roger separated in 1988, made a Separation Agreement in 1990 and divorced in 1991. During the marriage, Roger accumulated 22.995 years of credited service. In 1. 992, Roger married Catherine Mowbray ("Catherine").

3 The Separation Agreement ("Agreement") provided that the parties agreed that the wife (the appellant) had a substantial interest in the husband's (Roger) pension; that each would bear the income tax on their own portion; and the wife's interest would be calculated as: (one-half times 25 years of marriage) divided by total years of contribution times the amount payable.

4 By paragraph 10 (4) the Agreement provided:

In the event a death benefit becomes payable under the pension and the wife is not the only surviving spouse of the husband then the wife will be entitled to an interest in the death benefit as follows: [summarized: 25 x amount payable] total years of contribution

5 By paragraph 4 of the Agreement, the parties acknowledge that the Agreement was a domestic contract entered into under sec. 54 of the Family Law Act ("FLA"). A copy of the Agreement was delivered to the respondent Board by Roger in July, 1994.

6 The parties agree that Catherine was the legal spouse of Roger at the time of his death and that she has not waived any of her rights to a pre-retirement death benefit.

7 Under the Plan, section 61, if a member entitled to a pension dies before the first payment is due, "the person who is the spouse of the member on the date of death" is entitled to receive the death benefit if they were not living apart. However, the Plan must be administered in accordance with the PBA and if anything in that Act requires a different result, the Act prevails.

8 The appellant wrote to the Board on April 24, 1995, a week after Roger's death, to inquire if she was entitled to any benefits. In her letter she referred to the `Court Order' the Board had on file. On May 11, the Board responded that only the current spouse had any entitlement. On May 31, 1995, the appellant wrote referring to the Agreement. However, the Board has paid the whole of the benefit to Catherine and nothing to the appellant.

9 The appellant asked for the intervention of the Financial Services Commission of Ontario in January, 1997, requesting that the Board be ordered to pay her in accordance with the Agreement. She was in contact with the Commission until, on May 13, 1999, the respondent Superintendent served on the Board a Notice of Proposal to make an Order requiring the Board to pay the appellant in accordance with the Agreement. The Board sought a hearing before the Tribunal asking that it direct the Superintendent not to issue the Proposed Order, but approve the benefits paid to Catherine.

10 In its reasons for Decision of May 31, 2000, the Tribunal allowed the Board's application and directed the Superintendent not to issue the Proposed Order. The appellant then brought this appeal.

Standard of Review:

11 In order to determine the applicable standard of review, we must apply a "pragmatic and functional" analysis: Syndicat national des employés de la commission scolaire régionale de l'Outaouais v. U.E.S., local 298, [1988] 2 S.C.R. 1048 (S.C.C.), at 1088 - 1089. This approach involves using the four factor analysis approved by the Supreme Court of Canada to appropriately place the tribunal on the spectrum of deference where "patent unreasonableness" is at one end and "correctness" is at the other end. See: Pezim v. British Columbia (Superintendent of Brokers), [1994] 2 S.C.R. 557 (S.C.C.).

12 The four factors are the presence or absence of a privative clause; the relative expertise of the body; the purpose of the Act; and whether the nature of the problem involves questions of law or fact. See: Pushpanathan v. Canada (Minister of Employment & Immigration), [1998] 1 S.C.R. 982 (S.C.C.), and Baker v. Canada (Minister of Citizenship & Immigration), [1999] 2 S.C.R. 817 (S.C.C.).

13 There is no privative clause protecting decisions of the Tribunal and there is a statutory right of appeal from decisions of the Tribunal. This factor tends to indicate lesser degree of deference.

14 The expertise of the Tribunal has been described as the most important factor to consider: Canada (Director of Investigation & Research) v. Southam Inc. (1997), 144 D.L.R. (4th) 1 (S.C.C.). The Tribunal was established by the Legislature in 1998 (Financial Services Commission of Ontario Act S.O., 1997 c. 28.) and took the functions of three existing tribunals adjudicating in the areas of pensions, insurance and mortgage brokers. One of these tribunals, the Pension Commission of Ontario, ("PCO") had been recognized as an expert tribunal attracting "considerable deference" and a standard of review of reasonableness: GenCorp Canada Inc. v. Ontario (Superintendent of Pensions) (1998), 158 D.L.R. (4th) 497 (Ont. C.A.). In that case, at page 504, Robins J.A. (for the majority) noted that:

Given the purposes of this Act, the public policy ramifications inherent in its administration and regulation, the experience and expertise of the Commission and the broad regulatory authority conferred upon it, decisions of the Commission clearly warrant a considerable degree of curial deference. The purposes of the Act are best served by deference to the decision of the Commission which, by and large, is in a better position than the courts to decide issues arising under the statute in a manner consistent with and in furtherance of the policy underlying the statute. An expert tribunal of this nature, charged as it is with this kind of legislative mandate, is, as the Supreme Court of Canada determined in Southam, supra, at pp. 775-77, to be held to a standard of reasonableness simpliciter. A court reviewing the tribunal's decision must therefore inquire whether the decision was reasonable. 1f it was, the decision must stand.

15 It is clear from this passage that the "broad regulatory authority" and the "legislative mandate" of the PCO played a significant role in the Court's determination that reasonableness simpliciter was the appropriate standard.

16 However, the 1997 amendments transferred the policy-making functions of the former PCO to the Superintendent and not to the Tribunal. As a consequence of that change, this Court held, in BICC Cables Canada Inc. v. Ontario (Superintendent of Financial Services), [2001] O.J. No. 1856 (Ont. Div. Ct.), that there was no reason why the standard should be reasonableness simpliciter when reviewing the Tribunal on a point of law; rather it should be correctness.

17 The appellant submitted that as the Tribunal, unlike the former PCO, did not oversee or administer the PBA, it did not meet the Southam test of "overseeing a complex statutory scheme whose objectives are peculiarly economic". The public policy aspects were now vested in the Superintendent. Thus, as to purely pension matters, it was the Superintendent to whom deference should be shown. There is some force in this latter submission, but it is not necessary in the facts of this appeal to come to a final conclusion. The first submission is relevant to our task.

18 The purpose of the PBA is to establish a regime of pension administration treating the various parties interested in pensions in a fair and consistent manner. The Tribunal's role is not to establish or manage this system, but to adjudicate individual disputes as to rights under the Act. It is not engaged in the delicate balancing of the interests of various constituencies in a legislative or policy making function. It hears disputes and decides them in accordance with the legislation. This factor tends to diminish the deference this court ought to pay to the Tribunal's views on the relative weight to be given to the interests of one class of person against the interests of another on policy grounds.

19 The Tribunal has some expertise in the legislation which it encounters daily and one such section is central to the argument before us. In dealing with the PBA, we think the standard remains reasonableness simpliciter. However, in this particular decision, the Tribunal has ventured far from the PBA and into the field of general law, in which this court does not give it deference. It has dealt with issues of family law, the FLA, whether the death benefit is property, privity of contract and the maxim nemo dat quod non habet. On all such questions, the standard of review is correctness.

The Legislation:

20 The central piece of legislation in this case is section 48 of the PBA which deals with the consequences of the death of a member prior to the date on which he or she would have been able to draw upon the pension. So far as relevant it reads:

s. 48(1) If a member or former member of a pension plan who is entitled under the pension plan to a deferred pension described in section 37 (entitlement to deferred pension) dies before commencement of payment of the deferred pension, the person who is the spouse of the member or former member on the date of death is entitled, (a) to receive a lump sum payment equal to the commuted value of the deferred pension; or (b) to an immediate or deferred pension the commuted value of which is at least equal to the commuted value of the deferred pension. (3) Subsections (1) and (2) do not apply where the member or former member and his or her spouse are living separate and apart on the date of the death of the member or former member. (6) A member or former member of a pension plan may designate a beneficiary and the beneficiary is entitled to be paid an amount equal to the commuted value of the deferred pension mentioned in subsection (1) or (2) if, (a) the member or former member does not have a spouse on the date of death; or (b) the member or former member is living separate and apart from his or her spouse on that date. (7) The personal representative of the member or former member is entitled to receive payment of the commuted value mentioned in subsection (1) or (2) as the property of the member or former member, if the member or former member has not designated a beneficiary under subsection (6) and, (a) does not have a spouse on the date of the member or former member's death; or (b) is living separate and apart from his or her spouse on that date. (13) An entitlement to a benefit under this section is subject to any right to or interest in the benefit set out in a domestic contract or an order referred to in section 51 (payment on marriage breakdown). (14) A member and his or her spouse may waive the spouse's entitlement under subsection (1) or (2) in the form approval by the Superintendent and, for the purpose, subsections (6) and (7) apply as if the member does not have a spouse on the date of the member's death.

21 Also of importance are sections 51 and 65(1) and (3):

51(1) A domestic contract as defined in Part IV of the Family Law Act, or an order under Part I of that Act is not effective to require payment of a pension benefit before the earlier of, (a) the date on which payment of the pension benefit commences; or (b) the normal retirement date of the relevant member or former member. (2) A domestic contract or an order mentioned in subsection (1) is not effective to cause a party to the domestic contract or order to become entitled to more than 50 per cent of the pension benefits, calculated in the prescribed manner, accrued by a member or former member during the period when the party and the member or former member were spouses. (3) If payment of a pension or a deferred pension is divided between spouses ... by a domestic contract or an order mentioned in subsection (1), the administrator is discharged on making payment in accordance with the domestic contract or order. (4) If a domestic contract or an order mentioned in subsection (1) affects a pension, the administrator of the pension plan shall revalue the pension in the prescribed manner. (5) A spouse .... on whose behalf a certified copy of a domestic contract or order mentioned in subsection (1) is given to the administrator of a pension plan has the same entitlement, on termination of employment by the member or former member, to any option available in respect of the spouses' ... interest in the pension benefits as the member or former member named in the domestic contract or order has in respect of his or her pension benefits. 65(1) Every transaction that purports to assign, charge, anticipate or give as security money payable under a pension plan is void. (3) Subsections (1) and (2) do not apply to prevent the assignment of an interest in money payable under a pension plan by an order under the Family Law Act or by a domestic contract as defined in Part IV of that Act.

The Reasons of the Tribunal:

22 The Tribunal found that no amount of pre-retirement death benefit was payable to the appellant and directed the Superintendent not to issue the Proposed Order.

23 The Tribunal acknowledged that the words of section 48(13) "may lend themselves" to the present appellant's position, but stated it preferred a "plain reading" which "takes into account the priority of entitlements expressed" in that section and "the fact that it cannot be simply any domestic contract that can override or interfere with the payment of .." pre-retirement death benefits otherwise payable. The Tribunal argued that section 48(13) must refer to domestic contracts binding on the later surviving spouse. It did not find the section sufficient to bind that spouse and relied on the rule that contracts can only be sued on by a party and only a party can be subjected to liability. It also held that the death benefit was not property and therefore Roger had no interest which he could convey. There needed to be a clear legislative expression of intent to take away the rights of the second spouse.

24 The Tribunal acknowledged that in Suchostawsky v. Metropolitan Life Insurance Co., [1993] O.J. No. 1650 (Ont. Gen. Div.) the court enforced a provision in a divorce judgment requiring payment of a portion of a pre-retirement death benefit to a former spouse even though there was also a surviving spouse. However, the Tribunal did not follow that case, claiming that there was little to show how the result was reached and that the case failed to give the priority to the surviving spouse which the Tribunal claimed was the intent of the Act. It found the provisions in the Separation Agreement ineffective to convey any rights to the appellant.

Submissions of the Parties:

The Appellant:

25 The appellant submitted that the quantum of a joint and survivor pension to a subsequent surviving spouse is payable subject to whatever pension credits were previously divided with a former spouse. In this respect, the Tribunal misconstrued or misunderstood those provisions relating to post-retirement death benefit rights. First, the quantum of the subsequent spouse's survivor benefit is simply based on what is net of the member's pension after it is revalued to take into account the terms of the separation agreement. Second, the PBA was substantially amended in 1987 to specifically provide for credit splitting arrangement on marriage breakdown. The case of Britton Estate y Britton (1993), 1 C.C.P.B. 236 (Ont. Gen. Div.), relied on by the Tribunal, had no application.

26 Section 48(13) of the PBA creates a "priority entitlement" interest making payment of any pre-retirement death benefit "subject to" that which is provided to a former spouse under a separation agreement. In this case, the quantum of Catherine's entitlement to Roger's pre-retirement death benefit was subject to the appellant's right to or interest in the benefit set out in the Separation Agreement at paragraph 10(4).

27 The Tribunal wrongly applied the nemo dat quod non habet maxim in saying that Roger had no proprietary or other interest in the benefit and therefore could not grant entitlement to it through a contract. Despite some limitations as to the timing of the payout, pensions are proprietary. In addition, the applicable legislation accords property status to the benefit. Moreover, the fact that the benefit, if not payable to one of his spouses, is payable to Roger's estate, is consistent with the proprietary character of the pension. The Separation Agreement is not a mere "contractual agreement". It is a domestic contract under family law legislation. Consequently, it is akin to a court order and is accorded special status under the PBA. The Tribunal's attempt to distinguish the case of Suchostawsky is an error in law.

The Superintendent:

28 The respondent Superintendent submitted that the Tribunal's interpretation of section 48(13) was not one that the words of that section can reasonably bear. Moreover, in the application of doctrines under the common law, the interpretation of jurisprudence under the Family Law Act and determination of the word "property" the Tribunal was required to be correct. Ultimately, the Tribunal's lack of expertise in matters of family law led the Tribunal to interpret the PBA unreasonably and perhaps incorrectly. In this respect, the Tribunal concentrated its attention on protecting the current spouse's entitlement. The PBA provides that the current spouse of a pension plan member who dies before retirement and who is entitled to a deferred pension has the right to receive pre-retirement death benefits as long as none of the exceptions to this general principle apply. In this case there is an exception for the domestic contract under s. 48(13).

29 The fact that the PBA permits a plan member to designate a beneficiary for pre-retirement death benefits if the plan member has no spouse indicates that the benefit must be proprietary. In addition, there are policy reasons for the inclusion of future benefits as assets under the current family law property regime. The PBA states that a pension plan shall be administered in accordance with the PBA. Therefore, even if the Plan does not provide that the current spouse's entitlement to pre-retirement death benefits is subject to a domestic contract, it must be deemed to so provide in order to comply with the PBA. The Suchostawsky decision was the only case before the Tribunal that dealt with competing claims to pre-retirement death benefits in the context of section 48 of the PBA. The Tribunal unreasonably and incorrectly rejected this decision. There, the only factual distinction was that the claim was between a beneficiary designated by the plan member and the plan member's former spouse, as opposed to between the plan member's current spouse an former spouse. In addition, in Suchostawsky the claim arose from a court equalizing net family property. Such distinctions are immaterial to any entitlement under section 48.

30 In the end, the determination that the Separation Agreement did not qualify as a domestic contract under 48(13) is unreasonable. Alternatively, the findings of the Tribunal are incorrect.

The Board:

31 The respondent Board submitted that the Tribunal has significant pension expertise relative to the courts and was particularly well suited to interpret section 48(13) of the PBA. The hearing before the Tribunal was de novo and the Tribunal was not required to show any deference to the Superintendent. As a result, the appropriate standard of review of its interpretation of the PBA is reasonableness simpliciter. While the Tribunal did consider principles of family law and common law, it did so in the broader context of the Tribunal' s interpretation of its home statute and such matters were not determinative of its interpretation.

32 The question was whether the Tribunal's interpretation of the relevant provisions of the PBA was one that the statute could reasonably bear. The Tribunal based its reasons on a number of grounds. First, section 48(1) creates a high entitlement of the current spouse to receive the death benefit. Second, while the section refers to domestic contracts, it cannot mean that any domestic contract can override the payment of the benefit: it can only apply to domestic contracts that bind or are enforceable against Catherine. Third, the benefit is not "property" within the meaning of section 1 of the FLA and the deceased had no proprietary interest in the benefit. Further, there was no clear and unequivocal legislative intent to deprive Catherine of the benefit. Last, the case of Suchostawsky is distinguishable. There the contest was between the former spouse and the designated beneficiary.

33 The Board further submitted that the combined effect of sections 48(6) and 48(14) meant that the benefit may only be waived jointly, i.e., by both the member and the spouse. There is only a limited capacity to designate a beneficiary. Consequently, a member does not have the ability to agree by contract with a third party that the death benefit under the plan will be paid to a particular person. In this respect, the Separation Agreement was a violation of the Plan terms and was therefore not a valid domestic contract. The Plan is a contract between the Board and its members, who alone can amend it. Nothing in section 48(13) shows a clear and unequivocal legislative intention to take away the rights of Catherine. Death benefits are not the property of a Plan member. Moreover, courts have held that death benefits are not property under the FLA.

34 The contractual duty imposed on the administrators is to pay the entire benefit to the current spouse. If the Board were to pay a part of the benefit to the appellant, the Board would be open to an action for breach of contract. Thus, absent a court declaration of entitlement in every case where more than one person claims an interest, the plan sponsor can never be assured of a discharge. Such a situation could also result in considerable inconvenience and expense for plan administrators who might then have to investigate other potential claims.

Analysis:

35 We agree with the submissions of the appellant and the Superintendent. The statutory scheme is straightforward. The surviving spouse is entitled to the benefit unless the spouses were living apart at death or the survivor had waived the right by a written waiver, but the entitlement to it is subject to a prior domestic contract or order as provided in sec. 48(13). Subsection 13 specifically contemplates the existence of a previous marriage breakdown and the allocation of a share in the benefit to a former spouse. That is what section 51, referred to in subsection 13, is all about.

36 Section 51 recognizes and enforces domestic contracts splitting pension benefits between spouses on marriage breakdown. It is not confined to pre-retirement death benefits, but includes them. By section 51(3), where a pension benefit is "divided between spouses" by a domestic contract, the plan administrator is discharged by making payment accordingly. We observe that the legislation uses the phrase "between spouses". We read the language as including domestic contracts involving the member and a person who was a spouse at the time of the domestic contract, but is not one at the time of death, which is consistent with the clear overall intent of this section. Section 51(4) requires the plan administrator to revalue the member's pension in accordance with the provisions of a domestic contract affecting it. By section 51(5) the options available to a member on termination of employment are available to the spouse who has filed a copy of the relevant domestic contract with the administrator. Here again, we read the term spouse as including one who was a spouse of the member at the time of the contract, but is not at the time of death.

37 ' These sections, as we interpret them, cast no onerous burden on plan administrators for they cannot be expected to react to domestic contracts of which they have no notice. In the present case, they had the Separation Agreement well before Roger's death.

38 We also note that section 65(1) of the PBA makes void every transaction that purports to assign, charge, anticipate or give as security money payable under a pension plan, but by section 65(3) this prohibition does not apply to assignments made in a domestic contract.

39 These provisions are all enacted to deal with marriage breakdown and show that the interests of a member in pension benefits are transferable in part to a spouse under a domestic contract on marriage breakdown. It is no use arguing that such benefits are not property and so not transferable when the Legislature has made them transferable. In part, the Tribunal fell into error because it did not decide these issues in the context of the statutory scheme for dealing with marriage breakdown under the FLA as well as in the context of the PBA.

40 In our view, the legislation shows that pension benefits are transferable pursuant to domestic contracts, and at least to that extent are property. The husband here had the right he exercised in the domestic contract and the maxim nemo dat quod non habet has no application. To require, as the Tribunal did, that the domestic contract be one to which the spouse at the time of the death of the member consented, is unreasonable: it removes all meaning from the statutory scheme. In our view, the statute itself makes the contract binding on the person who is the spouse at the time of death, even though that person is not a party to the domestic contract. Once Roger assigned a portion of his pension benefits to his former wife, there remained only what was still unassigned for the subsequent spouse, subject to the limits in sections 51(1) and (2).

41 In Suchostawsky, supra, Scott J. of this court determined that the pre-retirement death benefit was payable to the designated beneficiary but subject to the "priority entitlement" under section 48(13), of the former spouse based on the terms of the divorce judgment dissolving her marriage to the deceased. Unlike the Tribunal, we find no lack of reasons for this result. Scott J. derived it from the plain words of the section in paragraphs 13 through 18 of the reasons, much as we do.

42 The Board also submitted that the domestic contract did not actually convey any interest to the appellant after she and Roger- were divorced and she ceased to be a `spouse'. It was intended to provide the appellant with an interest in the death benefit for only the interim period between the separation and the final divorce. It provides, "in the event a death benefit becomes payable under the pension and the wife is not the only surviving spouse of the husband...". The Board submitted that, by claiming entitlement when she was not a spouse on the date of Roger's death, the appellant sought to alter the terms of the Separation Agreement.

43 We do not agree. The domestic contract must be interpreted in the context of the marriage breakdown and the rights under the PBA. These parties knew that the appellant was to become an ex-spouse shortly and they bargained for protection for her in the future. We note that the contract provides that wife' continues to mean the appellant whether or not the husband and wife are subsequently divorced. The passage relied on by the Board is part of a larger scheme dealing with the wife's right to a share in the husband's pension. The parties agreed that the wife had a substantial' interest in the husband's pension; that each would be liable for tax on their own share as received; that the husband would pay the wife her share as he received it; and that the wife's share would be paid as support for the joint lives of the parties. All these provisions signal that the wife's interest in the pension was not for a brief interval between the domestic contract and the divorce, but was intended to extend for the joint lives of the parties. Both knew that the pension was not payable and would not be payable for many years after their contract. When paragraph 4 is approached with this context in mind, it is clear that the parties did not intend the interpretation urged on us by the Board. These parties intended to divide the pension and, if it fell due, the death benefit, by the formulae set out in the contract even if, as they expected, the parties were divorced.

44 In summary, the Tribunal's interpretation of section 48 and the related sections of the PBA and its application of the general law are both unreasonable and incorrect as outlined above.

Disposition:

45 For these reasons, the appeal is allowed and the order of the Tribunal is set aside. An order is substituted directing the Superintendent to direct the Board to make the payment to the appellant according to the formula in the domestic contract, subject to the restrictions in sections 51(1) and (2).

46 Costs of the appeal to the appellant payable by the respondent Board fixed at $5500. The Superintendent did not ask for costs.

Appeal allowed.