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  Lacroix v. Canada Mortgage and Housing Corp.

Between
Nicole Lacroix and Rosie Ladouceur, plaintiffs, and
Canada Mortgage and Housing Corporation and Marc Rochon,
Claude Poirier-Defoy, Jim Millar, Karen Kinsley, Gerald
Norbraten, Jean-Guy Tanguay, David Metzak, and Brian Knight,
being the Trustees of the Canada Mortgage and Housing
Corporation Pension Fund, defendants

[2003] O.J. No. 2610
Court File No. 99-CV-10694

Ontario Superior Court of Justice
Charbonneau J.

Heard: July 4, October 17-18, 2002; written submissions,
December 9, 2002.
Judgment: April 4, 2003.
(65 paras.)

       Practice — Persons who can sue and be sued — Individuals and corporations, status or standing — Class or representative actions, for damages — Class actions, members of class — Class actions, certification, considerations (incl. when class action appropriate).

       Application by the plaintiffs for amendment of a class action certification order. The plaintiffs commenced the action in July 1999. They claimed damages for breach of trust and breach of fiduciary duties on behalf of themselves and all former employees of the defendant Canada Mortgage and Housing Corporation who left their employment between January 1995 and October 23, 1998. The plaintiffs claimed to be entitled to a pro-rata share of the pension surplus distribution that occurred on January 1, 1999, which was limited to persons who were still employees on October 23, 1998. They submitted that all employees who were terminated after January 1995 were entitled to a share of the surplus because the surplus was held in trust for all employees. This application was made because of substantial amendments to the statement of claim. New plaintiffs, consisting of employees who had left after October 23, 1998, were joined to the action. The plaintiffs wanted to expand the class to include employees who left up to June 4, 2002. This latter date was when the amended statement of claim was issued. New causes of action were also pleaded to deal with employees who left at different times due to the Corporation's workforce adjustment program. The plaintiffs claimed that the application of this program amounted to a partial termination of the pension plan and a crystallization of the surplus. The effect of these amendments was to completely change the nature and focus of the action. The plaintiffs also proposed five new subclasses to accommodate members who left at different times because of the adjustment program.

       HELD:  Application dismissed. The plaintiffs failed to show that the class definition had a rational relationship with the proposed common issues, so that it could be said that all class members likely shared a claim against the Corporation. There were conflicts of interest between class members that could not be resolved by the creation of sub-classes. There was a real lack of commonality between the class members. The claim as presented, with its many different groups, obvious conflicts and two very distinct theories for relief, would make this class action totally unmanageable.

Statutes, Regulations and Rules Cited:

Class Proceedings Act, s. 5, 5(1), 5(1)(b).

Pension Benefits Act, R.S.O. 1990, c. P-8, s. 70(6).

Pension Benefits Standards Act, 1985, R.S.C. 1985, c. 32, s. 29(2)(b), 29(12).

Counsel:

William J. Sammon and James B. Barnes, for the plaintiffs.
J. Brett Ledger and Lawrence E. Ritchie, for the defendants.

 1      CHARBONNEAU J.:— The plaintiffs bring this motion for an order amending the class proceedings certification order granted on May 4, 2000.

HISTORY OF THE ACTION TO DATE

 2      The action was instituted by statement of claim issued in July 1999.  The plaintiffs claimed damages for breach of trust and/or breach of fiduciary duty on behalf of themselves and all other former employees of Canada Mortgage and Housing Corporation ("CMHC") who left the employment of CMHC between January 1, 1995 and October 23, 1998.

 3      The facts giving rise to the action are fully canvassed in the parties' respective factum.  They were further summarized in Reasons for Judgment issued on July 6, 2001.  Suffice it to say that the plaintiffs claimed to be entitled to their pro-rata share of the pension plan surplus distribution which occurred on January 1, 1999 and which the defendants limited to persons who were still employees as of October 23, 1998.  The plaintiffs alleged that all employees who were terminated between January 1, 1995 and October 23, 1998 were also entitled to their share of that surplus because the surplus was held by the defendants in trust for all employees.  The defendants were alleged to have breached their trust duty in various ways, including not telling the plaintiffs that they were beneficiaries of that surplus, before the plaintiffs agreed to leave the pension plan, at a time when the defendants were contemplating distributing the surplus.  This is obviously an oversimplification of the plaintiffs' claim but it serves to generally illustrate the nature and extent of the action when first certified.

 4      The certification order was obtained on consent pursuant to minutes of settlement.  The defendants immediately brought a motion for judgment submitting that the plaintiffs had no claim to any benefits derived from the surplus as the benefits were declared and paid at a time when plaintiffs were no longer members of the plan.  That motion is still pending.

 5      However, the court first heard several other motions:  1) A motion by the defendants to strike out the affidavit of the plaintiff Rosie Ladouceur filed in reply to the motion for judgment, which motion was partially successful; 2) a motion by the defendants to decertify the action which motion was dismissed; and 3) a motion by the plaintiffs to amend the statement of claim, which motion was in large part successful.

 6      There is one other pending motion for directions from the court on the issue of whether discovery of documents should occur before or after the hearing of the motion for judgment.

 7      As a result of the amendments to the statement of claim, the plaintiffs now seek to have the certification order amended to take into account the new claim as set out in the amended statement of claim.

 8      The amendments to the statement of claim are substantial to say the least.  The following are the main changes.  First of all, a number of additional plaintiffs were joined to the action.  Those new plaintiffs were former employees who left CMHC after October 23, 1998.

 9      The original class definition read as follows:

"... all former employees who left the Canada Mortgage Housing Corporation ("CMHC") from January 1, 1995 to October 23, 1998, due to CMHC's work adjustment (downsizing) program, who did not receive their alleged share of a pension surplus (which has been paid by what the Defendants have characterized as "benefits enhancements" funded from surplus and which the Plaintiffs allege was a distribution of surplus)".

 10      The new class definition was first proposed as follows:

"... all former employees who left CMHC after the 1st January, 1995 due to CMHC's workforce adjustment program and who withdrew from the pension plan (except to the extent they may have a transfer restriction annuity) and who allegedly did not receive their full share of a pension surplus."

 11      During oral argument, plaintiffs' counsel submitted a new class definition:

"... All former employees who left CMHC between the 1st of January, 1995 and the 4th of June, 2002, due to CMHC's workforce adjustment program and who withdrew from the pension plan, except to the extent they may have a transfer restriction annuity."  (June 4, 2002 is the date the amended statement of claim was issued.)

 12      A number of new causes of action are pleaded.  In one of the most significant amendments, the plaintiffs now seeks a declaration that the workforce adjustment program ("WFA") and/or the pension surplus review amounted to a partial termination of the CMHC pension plan and/or a crystallization of the surplus.  As a result, the plaintiffs claim they were entitled to immediately share in any actuarial surplus at the time the WFA was put in place.  The plaintiffs allege further that the defendants had a trust and fiduciary duty to objectively consider whether the WFA amounted to a partial termination and if so to notify the Superintendent of Financial Institutions.  The plaintiffs allege the defendants breached their duty in that regard.  This amendment was brought about in light of the Divisional Court decision in Monsanto Canada Inc. v. Superintendent of Financial Services, [2001] O.J. No. 963, which was recently upheld by the Court of Appeal, 62 O.R. (3d) 305, in a judgment released November 22, 2002.

 13      The effect of the amendments were to completely change the nature and focus of the action.  Initially, the crux and extent of the litigation were that the employees which had been terminated by virtue of the W.F.A. prior to October 23, 1998 had been unlawfully deprived of their share of the first surplus distribution by the defendants' breach of trust and/or breach of fiduciary duty.  Now the focus of the action is that the W.F.A. was effectively a partial termination of the plan and that all employees affected by the W.F.A. over approximately a 6.5 year period were entitled to immediately receive their pro-rata share of all the surplus existing at the time of the partial termination period.

 14      In Monsanto, the Divisional Court interpreted s. 70(6) of the Ontario Pension Benefits Act R.S.O. 1990 c. P.8 (which is almost identical to section 29(12) of the federal Pension Benefits Standards Act, 1985, R.S.C. 1985 c. 32 on which the plaintiffs now rely) to mean that when an employer implements a partial wind up of its defined benefit pension plan, the employer must immediately distribute that part of the actuarial surplus then in the plan that is attributable to the members of the plan who are affected by the partial wind up.

 15      Relying on the Monsanto rationale, the plaintiffs and class members are now effectively claiming to recover their rightful share of the surplus under both the 1998 distribution and the 2001 distribution of that surplus on the basis that the WFA gave rise to a partial termination.

 16      Different class members have left the plan at different times during the alleged period of the WFA. Moreover, some class members have shared in the first distribution and some in both distributions.  Some class members are still members of the plan to the extent of a transfer restriction annuity ("TRA").  To accommodate those various scenarios, the plaintiffs have proposed five (5) sub-classes:

"... all employees who left CMHC between the 1st January, 1995 and the 23rd October, 1998 due to CMHC's workforce adjustment program who did not receive any surplus which has been paid by what the Defendants have characterized as benefit enhancements funded from surplus and what the Plaintiffs allege was a distribution of surplus.  This sub-class will hereinafter be referred to as the "non-sharing sub-class";"

"... all employees who left CMHC between the 1st January, 1999 and the 4th June, 2002 due to the workforce adjustment program and who withdrew from the pension plan (except to the extent that they may have retained a transfer restriction annuity) after receiving the first distribution of surplus.  This sub-class will hereinafter be referred to as the "first distribution sub-class";"

"... all class members who signed a standard form release pre July 1998.  This sub-class will be referred to as the "first release sub-class";"

"... all class members who signed a standard form release post July 1998.  This sub-class will be referred to as the "second release sub-class";"

"... all class members who remained members of the CMHC pension plan as a result of receiving a transfer restriction annuity.  This sub-class will hereinafter be referred to as the "TRA sub-class";"

 17      The plaintiffs propose as representative plaintiffs for the whole class Frank McCann and Robert Raybrook who both shared in the first distribution.  They propose Rosie Ladouceur as representative of the non-sharing sub-class, David Guffie as representative for the first distribution sub-class and the second release sub-class and Nicole Lacroix as representative of the first release sub-class and TRA sub-class.

 18      Finally, the plaintiffs propose that the following common issues be certified:

I - Partial Termination/Crystallization of Surplus

a)

Did the workforce adjustment program and/or the pension surplus review, in the circumstances of this case, amount to a partial termination of the CMHC pension fund?
b)

Did the workforce adjustment program and/or the pension surplus review, in the circumstances of this case, crystallize the pension surplus for the benefit of the Plaintiff class?
c)

Did the Defendants have a trust, fiduciary, or other duty to the Plaintiffs to objectively consider whether the workforce adjustment program and/or the pension surplus review may have amounted to a partial termination of the pension plan and, if so, did they breach such duty?
d)

Did the failure of the Defendants to advise the Superintendent of Financial Institutions that the workforce adjustment program and/or the pension surplus review may have resulted in a partial termination of the pension plan amount to a breach of trust or fiduciary duty?
e)

Did the failure of the Defendants to advise the Superintendent of Financial Institutions that the workforce adjustment program and/or the pension surplus review may have resulted in a partial termination of the pension plan amount to negligence?
f)

Did the Defendants have a trust, fiduciary, statutory or other duty to the Plaintiffs to treat, in the circumstances of this case, the workforce adjustment program and/or the pension surplus review as a partial termination of the pension fund and, if so, was such duty breached?
g)

If the answer to either a), b), c), d), e) or f) above is yes, are the class members entitled to any remedy and, if so, on what basis?

II -

Benefit Enhancement/Surplus Distribution and Crystallization

h)

If the answers to a), b), c), d), e) and f) above are no, did the members of the proposed class have an equitable and/or beneficial interest in the pension fund surplus which entitled them to an equitable share of what the Defendants have characterized as "benefit enhancements" funded out of surplus?
i)

Did the election by a member to take the commuted value of his/her pension terminate any beneficial right or interest he or she might have had in the surplus by virtue of the trust and/or fiduciary relationship?
j)

If the answer to (i) above is yes, does the wording of the CMHC drafted standard releases pre and/or post July 1998 amount to a representation which would estop the Defendants from alleging the class members are no longer plan members and thus not entitled to share in the pension surplus, assuming that the representation was relied upon?
k)

If the answer to i) above is yes, are the Defendants estopped by conduct amounting to a breach of trust and/or fiduciary duty or negligence from alleging the class members are no longer plan members and thus not entitled to share in the pension surplus, assuming the conduct was relied on;
l)

If the answer to i) above is no, or the answers to (j) and/or (k) are yes, did the failure of the Defendants to include members of the proposed class to the extent of their equitable share in what the Defendants have characterized as "benefits enhancement" funded from the surplus amount to a breach of trust or fiduciary duty?
m)

If the answer to (l) is yes, are the class members entitled to any remedy and, if so, on what basis, or are further individual inquiries into reliance by class members necessary to determine liability?

III - TRA Issue

n)

Despite the answers to common issues (h) and (i), should the class members (the TRA sub-class) who took their commuted value but retained a transfer restriction annuity be entitled to share in the surplus to the same degree and extent as existing and retired members or only to the extent as presently permitted by the Defendants?

ANALYSIS

 19      A certification order should only be granted if the plaintiffs have established the existence of all the requirements of section 5 of the Class Proceedings Act which states:

"5.

(1)  The court shall certify a class proceeding on a motion under section 2, 3 or 4 if,

(a)

the pleadings or the notice of application discloses a cause of action;
(b)

there is an identifiable class of two or more persons that would be represented by the representative plaintiff or defendant;
(c)

the claims or defences of the class members raise common issues;
(d)

a class proceeding would be the preferable procedure for the resolution of the common issues; and
(e)

there is a representative plaintiff or defendant who,

(i)

would fairly and adequately represent the interests of the class,
(ii)

has produced a plan for the proceeding that sets out a workable method of advancing the proceeding on behalf of the class and of notifying class members of the proceeding, and
(iii)

does not have, on the common issues for the class, an interest in conflict with the interests of other class members. 1992, c. 6, s. 5(1)."

 20      The defendants submit that certification should be denied on any of the following grounds:

"(a)

the proposed class is improperly defined and is clearly not identifiable;
(b)

the proposed Representative Plaintiffs have failed to show the requisite level of commonality of issues necessary for certification;
(c)

a class proceeding would not be the preferable procedure;
(d)

the proposed Representative Plaintiffs have conflicts of interests with the class or subclasses they purport to represent;
(e)

there is a conflict of interest among various groups within the proposed class and the overlapping and conflicting interests cannot be resolved through the creation of subclasses; and
(f)

the Proposed Representative Plaintiffs have failed to provide a workable litigation plan necessary for the complex instant action."

 21      I have come to the conclusion that the plaintiffs' motion must be dismissed for the following three reasons:

a)

The plaintiffs have failed to show that the class definition has a rational relationship with the proposed common issues concerning the alleged partial termination.
b)

There exists real present conflicts of interest between the class members which cannot be resolved by the creation of sub-classes.  As a result, there is a real lack of commonality between the class members.
c)

The action as presented with its many different groups, obvious conflicts and two very distinct theory for relief will make this class action totally unmanageable.

IDENTIFIABLE CLASS

 22      S. 5(1)(b) of the Act requires the plaintiffs to show that there is an identifiable class of two or more individuals.  The class definition serves three (3) purposes:

a)

to identify those persons who have a potential claim for relief against the defendants.
b)

to define the parameters of the lawsuit so as to identify those persons who are bound by the result; and;
c)

to describe who is entitled to notice.

 23      The definition must be set out in objective terms so as to make membership in the class action readily ascertainable.  Inclusion in the class must not depend on the merits of the claim or outcome of the litigation and the criteria defining the class should bear a rational relationship to the common issues.

 24      The various criteria were succinctly outlined by Chief Justice McLachlin in Bennett Jones Vercheres v. Western Canadian Shopping Centres Inc. (2000), 201 D.L.R. (4th) 385 at para 38 (S.C.C.) as follows:

"... First, the class must be capable of clear definition.  Class definition is critical because it identifies the individuals entitled to notice, entitled to relief (if relief is awarded), and bound by the judgment.  It is essential, therefore, that the class be defined clearly at the outset of the litigation.  The definition should state objective criteria by which members of the class can be identified.  While the criteria should bear a rational relationship to the common issues asserted by all class members, the criteria should not depend on the outcome of the litigation.  It is not necessary that every class member be named or known.  It is necessary, however, that any particular person's claim to membership in the class be determinable by stated, objective criteria:  ..."

 25      The plaintiffs propose the following class definition:

"... All former employees who left CMHC between the 1st of January, 1995 and the 4th of June, 2002, due to CMHC's workforce adjustment program and who withdrew from the pension plan, except to the extent they may have a transfer restriction annuity."

 26      Within that class, different individuals are differently positioned in relation to the exact relief claimed, their exact status as continuing member of the Plan to the extent of their transfer restriction annuity ("TRA") and as to the potential effect of the wording of the release they signed.  Two standard forms of release were signed, one before and one after July 1998.  As a result of this, the plaintiffs proposed the five (5) sub-classes.

 27      The defendants' first objection to the class definition, as initially proposed, was to indicate that the words "and who allegedly did not receive their full share of a pension surplus" improperly referenced the merits of the action and depended on the outcome of the action.  The plaintiff conceded this point by deleting the impugned words from the definition.

 28      The defendants further submit that the members of the class are not readily identifiable because in order to be a member of the class, the former employee must have left CMHC "due to CMHC's workforce adjustment program" and, the defendants submit, that expression means different things at different times.  The defendants therefore argue it will be impossible to determine whether any given individual meets that condition before determining what exactly WFA encompasses.

 29      It is impossible at the certification stage to fully canvass all the evidence to ascertained perfectly the meaning and reach of a program such as the WFA in this case. However, my review of the evidence satisfies me that whatever the variables that may have existed in the program from time to time between 1995, when the WFA was first implemented, and the end of December 2002, when the defendants indicate it finally stopped, it will be possible to determine whether a given individual left "due to CMHC's workforce adjustment program".  The defendants appeared not to have much difficulty identifying all former employees affected by the WFA when required to do so during the cross-examination of Mr. Millar.

 30      The defendants further submit that the class is not properly identified because the class is now necessarily defined by membership in the "Partial Wind Up Group".  The defendants point out that that group is impossible to identify at this time as the court will first have to define if and when the statutory pre-conditions for a partial termination were met namely whether any part of the business of the defendant was effectively discontinued, if so at what time it occurred and finally which class members were employed in that business at the relevant time.  The defendants contend the class members will not include all those who left due to the W.F.A.  On that basis, the class membership, it is argued, is not properly identified as the definition does not have any rational relationship with the proposed common issues concerning the alleged partial termination.

 31      The defendants rely for this argument on various judicial pronouncements.  In Mouhteros v. DeVry Canada Inc. 41 O.R. (3d) 63 Winkler J. had to deal with a motion for certification involving a claim by former students of DeVry who alleged that the defendant school had misrepresented the quality of its programs and facilities and the marketability of its graduates such that by relying on these misrepresentations the proposed class members had suffered damages.  The proposed class was defined as all persons who attended the school between 1990 and 1996.  Finding that the definition was overinclusive since it included all former students whether or not they received a misrepresentation, whether or not they relied on the misrepresentation and whether or not they suffered any damages, Winkler J., in rejecting the class definition as a proper one for certification, stated:

"In my view, there must be some connection between the class definition and the common issues.  The mere fact that a group of people is identifiable is not sufficient to render them a class for the purposes of the Act. Indeed, such a connection is contemplated by the wording of s. 5(1)(c), which mandates that the claims or defences of the class members raise common issues.  It is not necessary that the claims or defences of the class members all raise the same common issues, some differences can be accommodated through the creation of subclasses."

 32      In Hollick v. City of Toronto (2001), 205 D.L.R. (4th) 19, McLachlin C.I.C. dealt with this issue as follows:

"[19] In this case there is no doubt that, if each of the class members has a claim against the respondent, some aspect of the issue of liability is common within the meaning of s. 5(1)(c).  For any putative class member to prevail individually, he or she would have to show, among other things, that the respondent emitted pollutants into the air.  At least this aspect of the liability issue (and perhaps other aspects as well) would be common to all those who have claims against the respondent.  The difficult question, however, is whether each of the putative class members does indeed have a claim - or at least what might be termed a "colourable claim" - against the respondent.  To put it another way, the issue is whether there is a rational connection between the class as defined and the asserted common issues:  see Western Canadian Shopping Centres, at para. 38 ("the criteria [defining the class] should bear a rational relationship to the common issues asserted by all class members").

[20] The respondent is of course correct to state that implicit in the "identifiable class" requirement is the requirement that there be some rational relationship between the class and common issues.  Little has been said about this requirement because, in the usual case, the relationship is clear from the facts.  In a single-incident mass tort case (for example, an airplane crash), the scope of the appropriate class is not usually in dispute.  The same is true in product liability actions (where the class is usually composed of those who purchased the product), or securities fraud actions (where the class is usually composed of those who owned the stock).  In a case such as this, however, the appropriate scope of the class is not so obvious.  It falls to the putative representative to show that the class is defined sufficiently narrowly.

[21] The requirement is not an onerous one.  The representative need not show that everyone in the class shares the same interest in the resolution of the asserted common issue.  There must be some showing, however, that the class is not unnecessarily broad - that is, that the class could not be defined more narrowly without arbitrarily excluding some people who share the same interest in the resolution of the common issue. Where the class could be defined more narrowly, the court should either disallow certification or allow certification on condition that the definition of the class be amended:  see W.K. Branch, Class Actions in   Canada (1998), subsection 4.205; Webb v. K-Mart Canada Ltd. (1999), 45 O.R. (3d) 389 (S.C.J.) (claim for compensation for wrongful dismissal; class definition overbroad because included those who could be proven to have been terminated for just cause); Mouhteros v. DeVry   Canada Inc. (1998), 41 O.R. (3d) 63 (Gen. Div.)(claim against school for misrepresentations about marketability of students after graduation; class definition overinclusive because included students who had found work after graduation)."

 33      The plaintiffs' answer to the defendants' contention is to say that the issue raised in relation to partial termination is simply whether the WFA amounted to a partial termination.  If the answer is yes than all those who left due to the WFA would be entitled to their rightful share of the surplus in accordance with the principles enunciated in Monsanto (supra).

 34      Paragraphs 15 and 15.2 to 15.5 of the statement of claim stipulate as follows:

"15

From 1995 to now, CMHC has downsized by approximately 1400 employees or approximately fifty percent of its workforce, including the plaintiffs and class members.  The downsizing was to make CMHC more entrepreneurial and cost effective.

15.2

The Plaintiffs state that the downsizing and/or pension surplus review resulted in a crystallization of the pension surplus and/or a partial termination of the CMHC pension plan.

15.3

Pursuant to s. 29(12) of the PBSA where a plan is terminated in part, the rights of members affected shall not be less than what they would have been if the whole of the plan had been terminated on the same date as the partial termination.

15.4

The Plaintiffs state that the workforce adjustment program and/or the pension surplus review were events which resulted in the crystallization of the pension fund surplus and/or a partial termination of the pension fund which would have imposed upon the Defendants a duty to divide the pension fund into two parts; assets and liabilities relating to the ongoing members and would have required the Defendants to transfer to the downsized employees, including the Plaintiffs and class members, their proportionate share of the pension fund surplus either as of the date of the partial windup or the date of the crystallization of the pension fund surplus.

15.5

In other words, if the plan had partially terminated on the 1st January, 1999 or at some other time as declared by the Court, the surplus standing to the credit of the plan of $240 million as of January 1, 1999 or such other time as declared by the Court should have been divided between the downsized employees and the ongoing members in the plan on a proportionate and equitable basis."  [My emphasis]

 35      The statement of claim goes on to allege that the defendants had to consider whether the WFA may have amounted to a partial termination and their failure to do so was a breach of trust.  In the alternative, the plaintiffs allege the defendants' failure to do so amounted to a breach of fiduciary duty, a breach of statutory duty or negligence.

 36      The partial termination issue is a much more complex issue than the plaintiffs seem to suggest.  It carries with it a number of threshold questions based on the statutory provisions which create the concept of partial termination. It is highly unlikely that all former employees who left from 1995 to June 2002 due to WFA would also be covered by partial termination.  The scope of the class is far from obvious.  The plaintiffs clearly concede this in paragraph 15.5 of the amended amended statement of claim by indicating that the court may find that partial termination occurred at one time or another.  The onus rests on the plaintiffs to provide an evidentiary basis to show how the WFA will fit within the statutory concept of partial termination and that it is at least likely that all the members of the class will be covered by partial termination if a partial termination is found to have occurred.  Otherwise, the definition is unnecessarily broad and the representative plaintiffs have failed to show that everyone in the class has a claim or at least a "colourable claim" against the defendants and hence that a rational connection exists between the class as defined and the partial termination common issues.

 37      A partial termination is a creation of statute. The Benefits Standards Pension Act defines the concept as follows:

"29(2)

The Superintendent may declare the whole or part of a pension plan terminated where

(a)

(...)
(b)

the employer has discontinued or is in the process of discontinuing all of its business operations or a part thereof in which a substantial portion of its employees who are members of the pension plan are employed;"

 38      Section 29(12) states:

"(12)

Where a plan is terminated in part, the rights of members affected shall not be less than what they would have been if the whole of the plan had been terminated on the same date as the partial termination."

 39      The evidence before the court establishes that the W.F.A. was instituted as a tool in a general restructuring of CMHC's corporate organization.  The new restructuring model adopted by CMHC called for elimination of many positions as a result of a new focus on certain activities to be done directly by CMHC and other activities which were deemed to be better done by outsourcing.  Throughout the existence of the W.F.A., employees whose positions were declared redundant became eligible for either a departure allowance or early retirement.  The exact terms and conditions of the termination varied throughout the implementation and extension of the program from May 10, 1995 to December, 2002.  Obviously, CMHC has not "discontinued ... all of its business operations". Can it be said that CMHC has "discontinued ... part of its business operations in which a substantial portion of its employees (...) are employed"?  If so, can it be said that all class members were employees in that discontinued part of the business?

 40      When an employer downsizes its operation, it does not necessarily equate to discontinuing part of that employer's business.  Moreover, even if part of the business is discontinued, it does not mean that a substantial portion of its employees were employed in that part of the business. The issues are varied and may lead to many conclusions.  The plaintiff's bare assertion in paragraph 15 of their supplementary factum that "everyone who left CMHC due to the workforce adjustment program and left the company's pension plan (...)" will be affected by partial termination, if partial termination is found by the court, is not a sufficient answer to the defendants' objection on this point.  The common issues under Part I of the proposed common issues, namely the existence of a duty and the breach of that duty will only be common to those members of the class who are found by the court to have been actually affected by a partial termination.

 41      The plaintiffs have not set out in their material how they intend to prove that the W.F.A. amounted to a partial termination.  In fact, except for the reference to the Monsanto decision, the plaintiffs' factum is silent on the subject.  As indicated, the plaintiffs have an obligation to present evidence to show that each class member has a "colourable claim" against the defendants in common with all other class members.  In other words, all class members must be affected by the partial termination which the court is asked to declare.  I find that there is a real lack of evidence on that aspect of the certification request.

 42      Recently, in Chada v. Bayer Inc., 63 O.R. (3d) 22, released January 14, 2003, the Court of Appeal, in emphasizing the need for a proper evidentiary record at the certification stage, had this to say:

"The Supreme Court also noted that this evidentiary scheme represented the existing practice in Ontario, referring to the case of Caputo v. Imperial Tobacco Ltd. (1997), 34 O.R. (3d) 314 at 319 (Gen. Div.), where the Court held that the adequacy of the record on a certification motion was of "primary concern".  The Supreme Court also quoted with approval from the case of Taub v. Manufacturers Life Insurance Co. (1998), 40 O.R. (3d) 379 (Gen. Div.).  The relevant passage in Hollick reads as follows:

"[The court wrote (at pp. 380-1) that `the CPA requires the representative plaintiff to provide a certain minimum evidentiary] basis for a certification order'.  While the Class Proceedings Act, 1992 does not require a preliminary merits showing, `the judge must be satisfied of certain basi[c] facts required by s. 5 of the C.P.A. as the basis for a certification order' (para. 24).

McLachlin C.J.C. concluded:

"In my view, the class representative must show some basis in fact for each of the certification requirements set out in s. 5 of the Act, other than the requirement that the pleadings disclose a cause of action (para. 25)."

 43      Although this is a motion to amend the certification order, the plaintiffs must meet the same requirements.  The introduction of the partial termination issue is not a simple modification of the original claim.  It is a radically different claim.  On that aspect of the certification request, the record is totally insufficient to allow the court to satisfy itself that the class definition is not overinclusive in relation to one of the main common issues.  The scope of the class is really left in the air. The class is too broad because it includes members who left due to the W.F.A. but who were not affected by a partial termination.

 44      The proposed class definition cannot be certified because the plaintiffs have failed to show that the class definition has a rational relationship with the proposed common issues concerning the alleged partial termination so that it can be said that all class member within the definition likely share a claim against the defendants.

COMMON ISSUES

 45      The plaintiffs must also show that the action raises issues common and essential to the claim of each and every member and that the resolution of those issues will meaningfully advance the litigation.  McLachlin C.J.C. described this element as follows in Bennett Jones (supra) at para 39 and 40:

"[39] Second, there must be issues of fact or law common to all class members.  Commonality tests have been a source of confusion in the courts.  The commonality question should be approached purposively.  The underlying question is whether allowing the suit to proceed as a representative one will avoid duplication of fact-finding or legal analysis.  Thus an issue will be "common" only where its resolution is necessary to the resolution of each class member's claim.  It is not essential that the class members be identically situated vis-à-vis the opposing party.  Nor is it necessary that common issues predominate over non-common issues or that the resolution of the common issues would be determinative of each class members' claim.  However, the class members' claims must share a substantial common ingredient to justify a class action.  Determining whether the common issues justify a class action may require the court to examine the significance of the common issues in relation to individual issues.  In doing so, the court should remember that it may not always be possible for a representative party to plead the claims of each class member with the same particularity as would be required in an individual suit.

[40] Third, with regard to the common issues, success for one class member must mean success for all.  All members of the class must benefit from the successful prosecution of the action, although not necessarily to the same extent.  A class action should not be allowed if class members have conflicting interests." [emphasis added]

 46      The defendants submit that the definition covers a number of individuals with distinct and conflictual circumstances and that as such there is insufficient commonality between the class members to support certification.  Indeed, the defendants argue there is obvious conflict between the various groups of class members.

 47      The plaintiffs counter this argument by saying that the commonality can be found in the fact that all members advance the same claim namely that the surplus was trust property which the defendants "wrongfully appropriated for themselves and the ongoing employees".  What the plaintiffs are seeking is damages equal to the misappropriation namely $120 millions and therefore there is no conflict in relation to which part of the actual surplus one group gets as compared to another group.

 48      The plaintiffs rely on the decision of the Court of Appeal in Anderson v. Wilson 44 O.R. (3d) 673.  In that case, the court was faced with the certification of a claim by individuals who were infected with the Hepatitis B virus when undergoing an EEG at the defendants' clinics.  The class consisted of infected patients, persons who contracted Hepatitis B from infected patients and non-infected patients. In dismissing the argument that the action should not be certified because of conflict within the class, Campbell J. at the Divisional Court level, 37 O.R. (3d) 235 p. 250 had this to say:

"A number of the cross-infected patients and infected patients may have potential conflicts of interest because some cross-infected patients might have claims against the infected patients for negligent or deliberate infection.

There is however no indication of the degree of the potential for claims by cross-infected patients against infected patients.  It is not apparent at this stage that the cross-infected patients, to paraphrase s. 6, share common issues which are not shared by all the class members or that they have, on their common issues, an interest in conflict with the interests of the infected patients or the cross-infected patients.

This issue appears largely hypothetical at this state. If it becomes an issue during the course of the proceedings, or if the present litigation plan proves inadequate to address any potential problem arising from this issue, further motions may be made to the case management judge.

This is not a case like Amchem Products v. Windsor, 521 U.S. 591 (U.S.S.C.), June 25, 1997, where there was a crystallized conflict of interest, in the proposed settlement of asbestos claims, between sick claimants who needed generous immediate payments and "exposure only" claimants who might never get sick.

In this case, anyone who will get sick from Hepatitis is sick already.  Any conflict of interest between class members in this case at this stage is hypothetical at best.

Any emerging conflicts can be dealt with as they arise. As Montgomery J. said in Bendall v. McGhan Medical Corp. (1993), 14 O.R. (3d) 734 at p. 747, 16 C.P.C. (3d) 156 at p. 171 (Gen. Div.)

The court maintains a supervisory role under the Act to
ensure a fair and expeditious determination.  Subclasses
can be determined as the need arises." [emphasis added]

 49      In the subsequent appeal in Anderson, the Court of Appeal substantially restricted the common issues of those plaintiffs which were actually infected, to only one issue namely:  "whether the defendants breached the standard of care for infection control practices".  In relation to potential conflict between infected patients and cross-infected patients, Carthy J.A. stated:

"There were other arguments concerning family claimants and cross-infected claimants and the creation of subclasses for each.  I agree with the disposition of these issues by the Divisional Court (...)  There will be later opportunities to make adjustments as may be justified by events, and with the more restricted common issue, there is little likelihood that this will be necessary, before the trial of the issue." (emphasis added)

 50      The plaintiffs argue that any conflicts raised by the defendants are only at best hypothetical conflicts of the same nature as encountered in Anderson (supra), which can all be dealt in due course.

 51      On the one hand, there is no doubt that the action raises substantial issues common to all class members. In many respect, it would make good sense to deal with these common issues in the context of a class action.  For example, issues h), i) and l) are common issues the resolution of which would meaningfully advance the litigation for all class members.  However, in this case the common issues are pleaded in the alternative.  The plaintiffs indicate that they will first pursue their claim under the partial termination aspect of the action.  If they are successful, there really will be no need to decide the other issues.

 52      The class definition proposed by the plaintiffs is such a broad one in relation to all the proposed common issues that it had to be qualified by resort to five (5) sub-classes.  The members of the five (5) sub-classes each have a claim which is in substance different from the claim of the members of the other sub-classes.

 53      The different groups have been described as follows by the defendants in para 87 of their factum:

"(a)

persons who left the employment of CMHC during the WFA (...) and who ceased to be Members prior to January 1, 1999 (the "Non-sharing" Group).  These individuals did not participate in the benefit improvements established by either the 1998 or 2000 Surplus Review;
(b)

persons who left the employment of CMHC during the WFA (...) who remained Members as at January 1, 1999 but left the employ of CMHC prior to January 1, 2001, (the "First Distribution Group").  Therefore, these individuals participated in the benefit improvements implemented pursuant to the 1998 Surplus Review but did not share in any benefits resulting from the 2000 Surplus Review;
(c)

persons who left the employment of CMHC during the WFA (...) and who remained Members as at January 1, 1999 to the extent of a Transfer Restriction Annuity (the "TRA 1998 Group").  These individuals participated in the benefits improvements implemented under the 1998 Surplus Review and 2000 Surplus Review only to the extent of their TRA interest;
(d)

persons who left the employment of CMHC during the WFA (...) and who remained Members as at January 1, 2001 to the extent of a Transfer Restriction Annuity (the "TRA 2000 Group").  Therefore, these individuals participated fully in the improvements implemented under the 1998 Surplus Review and to the extent of their TRA interest under the 2000 Surplus Review;
(e)

persons who left CMHC during the WFA after January 1, 2001 and received benefit enhancements arising from both the 1998 and 2000 Surplus Reviews but do not participate in benefit enhancements arising from any further surplus reviews (the "Future Group") and
(f)

members, in any, of the Partial Wind-Up Group as defined in paragraph 80 above, (the "Partial Wind-Up Group"),

 54      The main impediment to certification appear to be real conflicts between class members.  I agree with the defendants that the various groups have real and presently existing conflicting interests which are not resolved by simply creating sub-classes.  As a result of these conflicts, the litigation strategy from the very outset will dictate different approaches.  The court's decision on the timing of the partial termination, the validity of the first distribution, exactly what wrongful conduct (misrepresentation or otherwise) can be imputed to the defendants before October 1998 and/or after October 1998 or before January 2001 and after January 2001 will affect whether any given member or group of members has a valid claim.  This will call for different and conflicting arguments by the various groups and will impact on what evidence each competing group will want to adduce.  The most obvious example of that is in relation to the members of the group which has already shared in both distribution.  If the members of the non-sharing group are successful with their claim, the members of the group who have already shared in both distribution will see their share reduced accordingly.  In the end "success for class members would not mean success for all".

 55      I have come to the conclusion that the conflicts in this case are real and present.  The class proposed by the plaintiffs is really a grouping of disparate classes with competing interests.  As a result, the action cannot be certified.

PREFERABLE PROCEDURE

 56      The defendants submit that the plaintiffs have failed to show that a class proceeding is the preferable procedure.  The defendants advance four grounds for that submission:

a)

the proposed class proceeding is essentially four distinct and independent lawsuits sought to be encompassed into one;
b)

the class proceeding would be unmanageable;
c)

the common issues as proposed are now overwhelmed by numerous individual issues so that the resolution to any common issues will not meaningfully advance this litigation; and
d)

the provisions of the PBSA or alternative forms of court proceedings provide an efficient alternative process.

 57      The plaintiffs respond by submitting that although the plaintiffs' claim alleges a number of different causes of action, all of these are based on the same factual underpinnings namely the employment relationship of the plaintiffs and the defendants, the defendants' trust obligations, the W.F.A., the defendants' improper exercise of their discretion, the defendants' conflict arising out of their control and management of the pension fund.

 58      The plaintiffs further contend that:

a)

The class action is not unmanageable since the plaintiffs have been able to propose an acceptable litigation plan.
b)

The only individual issues remaining after the common issues are resolved would be reliance and damages and these are not complex issues nor do they overwhelm the common issues because the plaintiffs are relying on straightforward common representations.  Indeed the individual issues may never arise.
c)

None of the alternative proceedings namely trial of a central issue, test case or PBSA proceedings before the superintendent would serve to meet the goals of access to justice and/or judicial economy.

 59      In Hollick, supra, the Supreme Court of Canada set out the principles which should guide the court in determining whether a class proceeding would be the preferable procedure for the resolution of the common issues as required by s. 5(1)(d).  These principles are set out at pages 34 and 35 and may be summarized as follows:

1)

The preferability inquire should be conducted keeping in mind the three (3) goals of the Act namely judicial economy, access to justice, and behaviour modification.
2)

The court must not look to the common issues in isolation but they must be viewed contextually, in light of all the issues raised by the overall claim of the plaintiffs.
3)

The inquiry should take into account the availability of all reasonable alternative avenues of redress apart from individual actions.

 60      I am satisfied that the resolution of the common issues in a class proceeding would significantly advance the resolution of this litigation.  It is true that there will remain a number of individual issues to be resolved.  However, that should not be an impediment because the resolution of the common issues will sufficiently advance the litigation to amply justify resort to a class proceeding.  The common issues are in themselves complex and will take substantial judicial resources to resolve.  For many class members, resolution of the common issues will bring their claim very close to final resolution.  In other words, the common issues are the real significant issues herein and it would make immense sense to deal with them in the context of a class proceedings.

 61      There are no reasonable alternative which are at least as efficient to bring about a resolution of the plaintiffs' claim.  On the one hand, a test case would not be binding on all the parties.  Secondly, the procedure under the PBSA is very limited in its scope and will simply leave many common issues unresolved.  It would amount to a waist of judicial time and resources.  This is particularly so when one contemplates the appeals which will likely follow the superintendent's decision.

 62      However, I have nevertheless come to the conclusion that the class action is not the preferable procedure because this class proceeding is likely to be unmanageable.  In Hollick (supra), at p. 34, the Supreme Court of Canada referred to and adopted the proposition of the Attorney General's Advisory Committee to the effect that "preferable" meant also "whether or not the class proceeding would be a fair, efficient and manageable method of advancing the claim".

 63      In large part, the difficulty stems from the extensive conflicts of interest between the various groups of class members discussed above.  On the one hand, the individual issues would not only be numerous but distinctive for the various sub-classes and for individuals within those classes.  In some cases, individual trials will be required on more than one basis of liability as the numerous causes of action will not apply to all members.  This has already been discussed above in the context of the partial termination issue.  As the facts are more clearly defined, through discovery, the discrepancies between various groups of class members will likely increase.

 64      There are too many differences in the circumstances of the proposed class members.  The conflicts of interest between the class members will likely lead to inquiries and motions without end.  Some of the issues raised by the conflicting positions will likely not be capable of resolution within the context of one common class proceeding. It is highly likely that defences will be raised which only affect certain sub-classes or which affect sub-classes differently to the extent that different and incompatible replies to these defences will be warranted.  The legal effect of the different releases come to mind.  Limitation defences may apply to some members and not to others and to some causes of action and not to others.  I agree with the defendants that a class proceeding of the action as presently framed would soon become a "monster of complexity and costs".

CONCLUSION

 65      For all of the above reasons, the plaintiffs' motion is dismissed.  Counsel may submit written submissions on costs within twenty (20) days, if so advised.

CHARBONNEAU J.

QL UPDATE:  20030827 cp/e/nc/qw/qlrme/qlkjg/qlltl