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Claim allowed to proceed against pension consultants who assisted employer in converting from DB Plan to DC Plan

Jurisdiction: - British Columbia

The case of Dawson v. Tolko Industries Ltd. involves a lawsuit that has been filed by 47 current and 17 former employees of Tolko Industries ("Tolko") in relation to the conversion of their pension plan from a defined benefit ("DB") plan to a defined contribution ("DC") plan. The trial is currently set for August 2010.

The recent decision in Dawson v. Tolko Industries Ltd., 2010 BCSC 346 involved a pre-trial application by certain defendants to have the case dismissed against them.

Background

In or around 1997,Tolko offered its employees a cash amount in exchange for agreeing to convert from a DB pension plan to a DC plan.  The 65 current and former employees accepted the offer. The basis of the lawsuit is that the value of the pension benefits under the DC plan is much less than it would have been under the DB plan.

In addition to Tolko, the current and former employees also named as defendants the following:

  1. Towers Perrin, a firm of actuaries and pension consultants, whom Tolko retained to advise and assist in connection with the conversion of the pension plan, and 
  2. a named Towers Perrin employee who worked on the matter.

Pre-Trial Application

When their employment had been terminated by Tolko, the 17 former employees had received a severance payment from Tolko. In exchange for the severance payment, the employees had each signed a release of all claims (the "Releases").

The 17 former employees had discontinued their claims against Tolko in relation to the pension plan/benefits dispute, presumably because they recognized that the Releases they signed would result in their claims beiong not successful. However, they had maintained their claims against Tower Perrin and its named employee.

Towers Perrin and its named employee made a pre-trial application to have the claims by the 17 former employees dismissed against them on the basis that Towers Perrin and its employee were protected by the Releases.

In dismissing the the application by Towers Perrin and its named employee, the court assessed whether:

  1. In light of the Releases, Towers Perrin and its named employee had been released from the claims in the lawsuit. While the Releases had not expressly included Towers Perrin or its employee, it did cover Tolko's "agents"; and
  2. Towers Perrin and the named employee were "joint tortfeasors" in respect of the wrongs alleged and, if so, did the release of Tolko result in the release of these defendants? 

Based on the wording of the Releases, is Towers Perrin and the named employee released from the Claim?

In answering this question, the court reviewed three sub-issues:

Are Agents of Tolko covered by the Releases?

The court first concluded that based on the awkward grammar/construction of the Releases, it was ambiguous  as to whether the word "agents" referred to agents of Tolko (the company) or to agents of the "officers, directors and employees" of Tolko and its affiliates, parents and subsidiary companies. 

The court ruled that because Tolko had drafted the Releases, the legal principle of contra proferentum mandated that the ambiguity be resolved by construing the Releases in favour of the interests of the employees. As such, "agents" was not to be construed as "agents" of Tolko.

Does the term "agents" include Towers Perrin and its named employee?

The court's analysis of the first question was a full answer to the application.

However, the court went on to say that in the event it had been wrong in its conclusion on the first question, not all of the actions of Towers Perrin and its named employee would have been captured by the term "agents" anyways.

Specifically, the court stated that the former employees had signed the Releases in the context of settling their wrongful dismissal claims. As such, they had not intended to
release any party "who did something for Tolko for remuneration or not" (para. 35). This would have been beyond the reasonable contemplation of the parties.

 Rather, the parties had intended to release a "limited category of agents":

...who represented Tolko in such a way as to be able to affect its legal position in respect of strangers to the relationship.  I would not limit the meaning of agency as it is used in the Releases to the representation of Tolko in the making of contracts
or disposition of property.  I would include agents who represented Tolko in activities that are similar to the making of contracts or disposition of property. 
This would include situations where an agent represented Tolko with regard to the establishment or alteration of its legal position with governments or regulatory agencies.  Limiting the definition of agency in this way would be consistent with Tolko's intent to be released for activities it undertook on its own behalf through its employees and legal representatives.  It would also be consistent with the employees' wish to grant a full release to Tolko, but not one that could cover unintended actors (para. 36).

Further to this analysis, the court then concluded that:

...some of the activities undertaken by the Towers Defendants fall within the limited definition of agency but some do not.  Since most of the allegations of breach relate to activities performed by the Towers Defendants when they were not acting within the restricted definition of agent, I conclude that they are not fully released by virtue of falling within the definition of "agents" as that term is used in the Releases (para. 37).

Does the doctrine of privity of contract prevent Towers Perrin and its named employee from obtaining the benefit of the Releases?

The former employees had also argued that even if Towers Perrin and its named employee were found to be "agents" as used in the Releases, Towers Perrin and its named employee were "third parties" to the Releases (i.e., contracts) and, accordingly, could not obtain any benefit from the Releases.

On this point, the court noted that: "As a rule, the doctrine of privity provides that a contract can neither confirm rights nor impose obligations on third parties." (para. 38).

The court then cited the four requirements that must be met by a third party intending to rely on the benefit of a release:

  1. it must be clear from the release that the third party is intended to be protected by the provisions which limit liability;
  2. it must be clear from the release that the contracting party is contracting not only on its own behalf but also on behalf of its agents;
  3. the contracting party must have authority from the third party to contract for a release of liability on its behalf; and
  4. the third party must have given consideration for the release.

Based on the court's assessment, Towers Perrin and its named employee could not satisfy the last three requirements.

The court also concluded that the Towers Perrin and its named employee could not rely on the "principled exception to the privity doctrine" first considered in London Drugs Ltd. v. Kuehne & Nagel International Ltd., 1992 CanLII 41 (S.C.C.) and explained in Fraser River Pile & Dredge Ltd. v. Can-Dive Services Ltd., 1999 CanLII 654 (S.C.C.)

Are Tolko and Towers Perrin and its named employee "joint tortfeasors"?

Towers Perrin and the named employee also argued that they were joint tortfeasors with Tolko based on the allegations in the claim. The court noted that the five tests for determining whether defendants are joint tortfeasors are:

The same evidence would support an action against each defendant;

  1. One defendant is the principal of the other;
  2. One defendant is vicariously responsible for the other;
  3. A duty imposed jointly on the defendants is not performed; and
  4. There is concerted action between the defendants to a common end.

The court ruled that this issue could not be properly decided on a summary trial application. In reaching this conclusion, the court noted that, among other things, the issues to decided were novel and complex and that the courts had yet adjudicate upon the scope of the duties owed by an employer and an actuary in the context of a pension plan conversion.