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Pension class actions a growth area

|Written By Julius Melnitzer

"Class actions are the prevalent form of litigation in today''s pension environment," says Jeff Galway of Blake Cassels & Graydon LLP.

Retired employees have the time and knowledge to focus on pension class action litigation, says Jeff Galway.

Indeed, Galway says, pension class action litigation continues to be a growth area. He cites four reasons: the huge amounts at stake, often involving tens or hundreds of millions of dollars; the opportunity for windfalls to plaintiffs' lawyers whose contingency fees can be in the 15- to 30-per-cent range; retiree activism; and heightened awareness of plan litigation by plan members generally.

According to Galway, plaintiffs in pension class actions are often sophisticated former management employees with a considerable base of knowledge about the history and workings of their plans.

"To the extent that these class members are retirees," he says, "they will have time to focus on litigation."

And with many, but not all, decisions in recent years coming down in employees' favour, the publicity that goes with these cases increases the exposure of plan members generally to the possibilities of litigation.

Indeed, as long ago as June 2003, Justice Ontario Superior Court Justice Warren Winkler, speaking at the Canadian Employees Benefit Conference, warned plan sponsors or plan advisors about the increased risk of litigation where plan members believed that they were not doing their job properly. He added that there was a greater willingness on the part of plan members today to commence litigation.

"That pension and benefit class actions are the way of the future should serve as a warning to these individuals that the previous barriers surrounding this type of litigation no longer exist," he said. "The bottom line is that trustees, plan administrators, advisors, professionals, among others, should assume that if they do not fulfill their fiduciary or other duties or do not do their jobs properly, they 'will' be sued.

"The days of being insulated by cost and psychological barriers that previously affected individuals are gone."

Perhaps surprisingly, however, the focus of pension class action litigation really hasn't changed over the past few years.

"The focus continues to be on plan surplus," Galway says. "So far we haven't seen a lot of litigation dealing with pension plan deficits and those allegedly responsible for them, nor have we seen litigation around the administration of defined contribution plans."

Surplus litigation breaks down as follows:

- surplus entitlement on wind-ups and partial wind-ups;

- surplus utilized through contribution holidays;

- surplus utilized to pay plan expenses; and

- surplus used to enhance benefits to some members but not to others.

The plaintiffs' bar has also been persistent in its attempts to find ways to get surpluses into the hands of active plan members.

"What we have seen over the years are various creative arguments by the plaintiffs' bar that these monies shouldn't go back into the fund, but should go directly to the members," says Galway. "For the most part, these arguments have been unsuccessful."

Interestingly, these arguments can arise when members have been successful in challenging the employer's right to take a contribution holiday or the employer's ability to charge expenses from the fund. Because the traditional remedy is to require the plan sponsor to repay the monies, surpluses become larger when members succeed.

Potter v. Bank of Canada, for example, was a case where a group of retired employees from the Bank of Canada started a class action alleging that the bank had improperly paid expenses from the pension fund. The plaintiffs asked the Ontario Superior Court to order that the improperly charged expenses be returned to the members as damages or as an equitable allocation.

The bank successfully brought a motion to strike these claims. The court concluded that the appropriate remedy was the return of money to the trust because active members were not entitled to actuarial surplus from an ongoing plan. Any such damages would be a windfall.

Continuing to haunt defence lawyers, however, is the famous quote by Winkler in Omrod, where he opined that pensions and retiree benefits were the "quintessential type of class action."

But Galway believes that the courts are beginning to re-evaluate this statement.

"For example, courts today are more sensitive to the potential conflicts that may exist between various groups of plan members who make up the proposed class," says Galway.

Indeed, the Superior Court noted the conflicts issue in denying certification in MacDougall v. Ontario Northland Transport-ation Commission.

In these types of cases, defence counsel argue either that plaintiff's counsel has a conflict in acting for disparate groups of plan members with competing interests, or that the representative plaintiff is unfit because she does not adequately represent the views of the class.

Defence counsel are also maintaining that class actions are not the appropriate procedure where declaratory relief is the only relief sought.

Recently, the Superior Court accepted the argument in Potter. After striking out the damages claim, the court ruled that the balance of the claim seeking a declaration as to whether it was appropriate to pay expenses out of the fund should be brought as a representative action rather than as a class action.

And while many pension cases settle, the path to approval of these settlements isn't always entirely smooth. Four recent cases - Ontario's Punit v. Wawanesa, Quebec's HSBC Bank Canada v. Hocking, Saskatchewan's England v. Pfizer Canada Inc., and Newfound-land's Pardy v. Boyer Inc. - raise concerns about whether a class action certified in one province is enforceable against plan members in another province.

"The cases raise the prospect of having to appear in a number of provincial superior courts to obtain approval of a pension class action settlement," Galway says.

Finally, on the issue of costs, lawyers should be aware of Justice Maurice Cullity's recent decision in Sutherland v. Hudson's Bay, where he granted a certification order on consent after allowing the defendant's claim for partial summary judgment.

Both parties sought costs. The plaintiffs also argued that costs with respect to the certification motion should be on a substantial indemnity scale and should be paid from the fund.

Cullity ruled that it was not appropriate to have costs paid out of the pension fund in this case. While there were situations where such an order might be appropriate, the usual rule of "loser pays" should apply to contested litigation.

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