Court File and Parties

COURT FILE NO.: CV-23-00694483-00CL DATE: 20240124 ONTARIO - SUPERIOR COURT OF JUSTICE – COMMERCIAL LIST

RE: Citibank Canada

BEFORE: Peter J. Osborne J.

COUNSEL: Christopher Di Matteo, for the Applicant

HEARD: January 23, 2024

Endorsement

[1] The Applicant, Citibank Canada (“Citibank”) brings this Application for rectification of the text of the Citibank Canada Pension Plan (the “Plan”).

[2] The Applicant submits that rectification is necessary to correct an unintended drafting error that was introduced into the Plan through its amended and restated text effective January 1, 2002 (the “2002 Restatement”). The Applicant further submits that rectification, if granted, will ensure that the wording of the Plan conforms to both the intended meaning of the relevant provisions and also to the manner in which the Plan has in fact been administered since 2002.

[3] The drafting error relates to the provisions of the Plan and in particular its application to those members who elect to receive pension benefits prior to their normal retirement dates. In such cases, the calculation of benefits must be adjusted because of the receipt of benefits early. Prior to the 2002 Restatement, the text of the Plan had always provided the same adjustments for two similarly situated groups of members: Early Retirement Members and Deferred Vested Members. The effect of the drafting error is to treat these two groups differently, as against the evidence of Citibank to the effect that it never intended to implement such a change and the fact that there would be no logical reason to do so.

[4] For the reasons that follow, I am satisfied that rectification is appropriate.

[5] The Applicant relies upon the affidavit of Christine Discola affirmed August 31, 2023 together with exhibits thereto (which include actuarial reports and valuations); the affidavit of Jill Wagman affirmed August 30, 2023 together with exhibits thereto (an independent actuary expert opinion); and the affidavit of Ni Mao affirmed September 11, 2023 which addresses communications to and inquiries from Plan members.

[6] The relief proceeds unopposed. In particular, the Financial Services Regulatory Authority (“FSRA”) was served with the Application Record following a dialogue with the Applicant about the proposed rectification relief, and confirmed on September 6, 2023 that FSRA had no concerns and would not be opposing the relief sought on this Application. Moreover, and as further described below, affected Plan members were provided with notice in accordance with the direction of this Court, and none opposes the relief sought.

[7] Citibank is the sponsor and administrator of the Plan which had, as of January 1, 2023, 70 active members, 113 pensioners and 212 deferred vested members. The Plan came into effect in 1957 and has been amended and restated several times since then.

[8] Prior to the 2002 Restatement, the Plan treated two groups of similarly situated Plan members equally:

a. Plan members who elected to take early retirement and receive pension benefits within 10 years of their normal retirement dates (the so-called “Early Retirement Members”); and

b. Plan members whose employment was terminated for any reason other than death or retirement and who elected to receive pension benefits within 10 years of their normal retirement dates (“Deferred Vested Members”).

[9] While the Plan members are self-evidently different in each of the two groups, the monthly pension benefits paid to members of both groups must be adjusted because both begin to receive pension benefits before their normal retirement dates.

[10] The last restatement of the Plan text prior to the 2002 Restatement was effective on January 1, 1987. In that case the same factors were used to adjust monthly pension benefits payable to members of both groups.

[11] The 1987 Restatement version of the Plan text was amended effective January 1, 1993 to bring the Plan into compliance with then recent amendments to the Income Tax Act (“ITA”). The ITA had been amended to expressly limit the amount of early retirement benefits that an individual could receive (the “ITA Early Retirement Maximum”). The provisions of the 1993 Amendment applied equally to all retirement benefits under the Plan, including in particular benefits for both Early Retirement Members and Deferred Vested Members.

[12] There was no other amendment to the Plan until the 2002 Restatement. That was not intended to make any change to the method used to calculate defined benefits under the Plan. In particular, there was no intention to change the calculation of benefits for either Early Retirement Members or Deferred Vested Members. Rather, the purpose of the 2002 Restatement was twofold: i) to add a new defined contribution provision for service on or after January 1, 2002 for new members and some existing members who satisfied certain eligibility requirements; and ii) to reflect certain administrative practices.

[13] The evidence before me is to the effect that at the time of the drafting of the 2002 Restatement, which was undertaken by the Plan Actuary at the time on behalf of Citibank Canada, the Actuary attempted to integrate the ITA Early Retirement Maximum requirement directly into the Plan provisions describing benefit calculations. It was in the course of this work that the drafting error was made.

[14] The 2002 Restatement made no change to the calculation of pension benefits for Early Retirement Members. However, Article 8 of the 2002 Restatement addressed members whose employment was terminated, including the Deferred Vested Members, and set out a specified formula for the calculation of pension benefits commencing on the member’s normal retirement date. Section 8.02 then went on to describe how pension benefits were to be adjusted for Deferred Vested Members and it is in this section that the drafting error was made, and reference was included to paragraph 6.02 (b) rather than 6.02 in its entirety.

[15] As set out in the Discola affidavit, pension benefits for Early Retirement Members are defined pursuant to section 6.02 as the lesser of the amounts described in subparagraph 6.02(a) or (b). In contrast, pursuant to section 8.02, pension benefits for Deferred Vested Members were not reduced according to the formula in section 6.02 as a whole (i.e., the lesser of the amounts in 6.02(a) or (b)). Instead, section 8.02 mistakenly refers only to the amount set out in paragraph 6.02 (b), (i.e., the provision describing the ITA Early Retirement Maximum).

[16] The evidence in the Record is to the effect that as a general matter, the amount calculated under paragraph 6.02(a) tends to be less than the amount calculated pursuant to paragraph 6.02(b) for a Plan member.

[17] Citibank became aware of this error only recently. The evidence of Ms. Discola is clear and unchallenged to the effect that Citibank never intended to change the benefit formula for Deferred Vested Members, or to treat them differently from Early Retirement Members. Indeed, the reference to subparagraph (b) in the 2002 Restatement was inserted without it ever having been discussed within Citibank and without it being approved by the Citibank Board or the Pension Committee, at least knowingly and intentionally, and it reflected the intention of none of those entities.

[18] Regrettably, however, the error was not realized, with the result that the 2002 Restatement was approved by the Citibank Board on November 21, 2003, having been discussed at an earlier Board meeting on May 31, 2001. The Board materials and minutes for both meetings, however, reflect no evidence that Citibank ever considered changing the manner in which pension benefits for Deferred Vested Members were calculated.

[19] Moreover, the Plan Actuarial Report prepared as at December 31, 2002, being the first actuarial valuation of the Plan effective after the effective date of the 2002 Restatement, did not reflect the cost of this benefit enhancement which, had it been intentional, the Report would have done since the liabilities associated with Deferred Vested Members would have significantly increased.

[20] The evidence before me is to the effect that both the Plan Actuary who signed the Actuarial Report as at December 31, 2022 as well as the Plan’s current Actuary, have confirmed that this Actuarial Report does not indicate any change to the benefit calculations for Deferred Vested Members as compared to the period before the 2002 Restatement came into force.

[21] The effect of the drafting error, if left unrectified, would be that generally, Deferred Vested Members would have more generous pension benefits than would Early Retirement Members. This would be extremely unusual as well as, on the evidence here, completely unintended and illogical: there would be no good reason to prefer that group of members (i.e., those who left Citibank for another job or were dismissed, before they were old enough to receive pension benefits). This is corroborated by the evidence of Ms. Wagman, the independent actuary retained for the purposes of this Application.

[22] Having gone unnoticed, the drafting error was carried forward in subsequent Plan amendments and restatements in both 2013 and 2018 without it having been realized. Moreover, the Plan has been consistently administered since the 2002 Restatement in accordance with the original intention of the document. In other words, all benefits under the Plan have been calculated for both Early Retirement Members and Deferred Vested Members in the same way.

[23] Plan members are provided with annual or biennial pension statements that reflect the estimate benefit that that particular Plan member will receive. Pension option statements are also provided to Plan members terminating or retiring. In all of those documents, benefits have consistently been described, and benefit estimates consistently calculated, in those statements as if the drafting error had not been made.

[24] It was only shortly prior to the commencement of this Application that the drafting error was brought to the attention of Citibank by FSRA staff who were reviewing the document in the context of an application by Citibank to wind up the Plan.

[25] In late 2020, Citibank determined to wind up the defined-benefit provision of the Plan effective January 1, 2022. However, since a partial wind up of the Plan was not permitted, Citibank moved the defined contribution provision into a standalone plan effective January 1, 2021, with the result that the Plan reverted to having a defined-benefit provision only, in order for the wind up to proceed. When the Plan Actuary submitted a wind up valuation report to FSRA, it was reviewed and FSRA staff noticed that the wind up valuation report description of the early retirement factor for Deferred Vested Members did not match the description in the Plan text due to the error described above.

[26] Prior to the hearing of this Application on the merits, Citibank brought a motion to address the issue of notice on potentially affected Plan members. Pursuant to order dated May 19, 2023, Steele, J. directed that a specifically approved notice be distributed to Plan members whose defined pension benefits were determined according to the Plan text after the effective date of the 2002 Restatement. The method of delivery for the notice was specifically provided. The notice instructed Plan members to contact Citibank by a certain date if they wished to obtain any additional information or if they wished to make submissions to the Court at the hearing of the Application.

[27] Three Plan members contacted Citibank requesting further information. No Plan member has indicated to Citibank that he or she intended to make submissions at the hearing, and indeed none appeared.

The Test for Rectification

[28] The Supreme Court of Canada has addressed the requirements for rectification in such circumstances: see Canada (Attorney General) v. Fairmont Hotels Inc., 2016 SCC 56, [2016] 2 S.C.R. 720 (“Fairmont”), at paras. 14 and 38. It set out four requirements that must be satisfied:

a. the parties had reached a prior agreement whose terms are definite and ascertainable;

b. the agreement was still effective when the instrument was executed;

c. the instrument failed to record accurately that prior agreement; and

d. if rectified as proposed, the instrument would carry out the agreement.

[29] Rectification is a discretionary and equitable remedy. This Court has the discretion pursuant to section 96 of the Courts of Justice Act, R.S.O. 1990, c. C.43 to grant such a remedy where appropriate.

[30] As observed by the Supreme Court, rectification allows a court to “achieve correspondence between the parties’ agreement and the substance of the legal instrument intended to record that agreement, when there is a discrepancy between the two.” Its purpose is to give effect to the true intentions of the parties where, for example, a term of a legal instrument incorrectly expresses the parties’ agreement, rather than to give effect to an “erroneous transcription” of those true intentions: Fairmont, at para. 12.

[31] The party or parties seeking rectification, in this case the Applicants, bear the onus of establishing, with evidence that is sufficiently clear, convincing and cogent, that the true substance of their unilateral intention or agreement with another party was not accurately recorded in the instrument to which they nonetheless subscribed: Fairmont, at para. 36.

[32] Rectification is intended to correct documents that erroneously fail to accurately record a clear and unequivocal agreement. It is not available to amend the bargain, in the sense of amending to fix “errors of judgment” in that antecedent agreement: Fairmont, at paras. 3 and 13.

[33] Rectification has been specifically granted in pension plans and related documents including those providing for the calculation of retirement benefits. (See, for example, Kraft Canada Inc. v. Pitsadiotis; MTD Products Ltd. v. Baldin, 2010 ONSC 1344; and Re Amcor Packaging Inc., 2012 ONSC 6168.

[34] For the reasons set out above, I am satisfied on the basis of the evidence in the Record before me that Citibank (as both the sponsor and administrator of the Plan) never intended to alter the manner in which pension benefits were adjusted for Deferred Vested Members and in particular never intended to provide an enhanced benefit to Deferred Vested Members in contrast to Early Retirement Members. Indeed, this is further reflected by the manner in which the Plan was administered at all times since the 2002 Restatement.

[35] While not determinative, I draw comfort in my conclusion from both the fact that the regulator, FSRA, was put on notice and does not oppose the relief sought, and from the fact that the affected Plan members who were specifically put on notice pursuant to the earlier order made in this Application proceeding, do not oppose the relief sought.

[36] Simply put, this is a classic but unfortunate example of the very circumstance for which the doctrine of rectification exists: an unintentional and inadvertent error that never reflected the intention of the authors of the documents now sought to be rectified.

[37] The requirements for rectification are met here.

[38] Order to go in the form signed by me today to the effect that the written text of the Plan as registered with FSRA, including the equivalent provisions and all written amendments and restatements thereof, be and is hereby rectified by deleting the reference to “paragraph 6.02(b) in section 8.02 of Part 3 of the Plan text effective as of each of January 1, 2002 and January 1, 2013, and in each case replacing it with “section 6.02”; and deleting the reference to “paragraph 6.2(b)” in section 8.2 of Part 3 of the Plan text effective as of December 31, 2018 and replacing it with “section 6.2”. No order as to costs.

Osborne J.