A level playing field for costs in pension litigation post-Kerry

While that case evolved somewhat into the so-called “pension trust” approach, Canadian courts would generally find that costs should be paid out of the pension fund to those who instituted unsuccessful challenges to the administration of the pension plan, provided that the litigation was initiated “on behalf of all plan members.” The net consequences were twofold. First, attempts were made to frame litigation so that it was on behalf of all plan members (e.g., contribution holiday cases, plan expenses, etc.). Second, there was little disincentive to litigate, as solicitor or client costs would still be paid in any event. (Costs, frequently, could be in the hundreds of thousands of dollars.)

Kerry
Beginning with the 1997 Supplementary Decision on costs by Madam Justice Gillese in the Ontario Court of Appeal, the Court completely rewrote the law on costs and synthesized the issue to a single question: “Is the litigation ‘reasonably to be considered to have been advanced for the benefit of all of the persons beneficially interested’ or is it truly adversarial litigation?”

In determining whether the litigation is “adversarial,” the Court looked at the question of whether there would be unfairness in ordering costs paid from the pension fund. For example, it would be unfair if the plan sponsor was obliged to put additional funds in the plan even if the plan sponsor was successful. If so, then that litigation would be considered to be “adversarial” and, in that event, the losing party would be obliged to pay litigation costs to the plan sponsor.

This approach was approved by the Supreme Court of Canada in the following passage: “Where litigation involves issues, such as in the present case, of a dispute between a settlor of a trust fund and some or all of its beneficiaries, the ordering of costs payable from the fund to the unsuccessful party may ultimately have to be paid by the successful party. In these types of cases, a Court will be more likely to approach costs as in an ordinary lawsuit, i.e., payable by the unsuccessful party to the successful party.”

The Court did note that, in the end, cost awards are quintessentially discretionary.

Post-Kerry
Through Kerry, the Courts’ treatment of costs in pension litigation has significantly evolved and has hopefully resolved at a more balanced and sensible point. The pension fund can be accessed only for costs where the litigation is truly necessary for the administration of the plan or trust. If instead it is adversarial, then litigants should expect that the usual judicial approach to costs will apply—namely, costs “follow the event.” In other words, the party that wins gets costs from the losing party. If the effect of litigation, where the plan sponsor is successful, requires the sponsor to pay money into the fund, then, more likely than not, that will be considered to be adversarial litigation.

Further, the Kerry case has impliedly directed pension disputes to be decided before the appropriate administrative tribunals established under the applicable pension legislation. To that should be added the arbitration process where disputes involve unionized members. If the dispute does not end at that administrative level (where costs are rarely awarded), expect more often than not that the unsuccessful party in Court either will receive no costs or will be required to pay costs to the successful party and the pension fund will remain untouched. BC

Peter McLellan is a partner with Stewart McKelvey in Halifax.

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© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the November 2010 edition of BENEFITS CANADA magazine.