Judicial Activism?

We would be hard pressed to find a more contorted interpretation of statute law than was on display in the recent decision of Justice de Sa in Cotnam v. Rousseau, 2018 CarswellOnt 69.  This was an application under Part V of the Succession Law Reform Act (“SLRA”) initiated by Shelly Cotnam (“Shelly”), the 37-year old daughter from the deceased’s first marriage, who was developmentally delayed (and hence considered to be a dependant of the deceased for purposes of the statute) and for whom, it was alleged, the deceased had not made adequate provision.  The deceased’s second wife, Mabel Ann Rousseau (“Mabel”), had claimed a pre-retirement death benefit (PRDB) in the approximate amount of $368,000, payable under the deceased’s pension plan with his employer (because the deceased’s pension was not yet “in pay” when he died).  Shelly urged the court to treat the PRDB as part of the “notional estate” described by section 72 of the SLRA – assets that would not otherwise be available to the claim of any other creditor against the estate, but which were available to the court for the purpose of making a support order.

Shelly argued that because the deceased had described Mabel not only as his “spouse” but also as his “beneficiary” on the form provided by the pension plan administrator, this necessarily brought the PRDB within the scope of paragraph 72(1)(g) of the SLRA: “any amount payable under a designation of beneficiary under Part III [of the SLRA]”.  Mabel quite rightly countered that under subsection 48(6) of the Pension Benefits Act, a member of a pension plan who was living with a spouse at the time of death was not entitled to designate a beneficiary.  That is, it was Mabel’s status as a spouse that entitled her to the PRDB.   

Despite the court’s acknowledgment that the pension jurisprudence supported Mabel’s position, that was not the end of the matter:

While I acknowledge the Respondent’s position has support in the jurisprudence, I disagree with this interpretation of the interaction between section 48 of the PBA and section 72 of the SLRA. While subsection 48(6) clearly creates a statutory priority between a “spouse” and other designated beneficiaries with respect to pre-retirement death benefits, I do not agree that this spousal priority shelters pre-retirement death benefits paid to a spouse from the “claw back” provisions of the SLRA.  If Parliament intended such an exception to apply to the pre-retirement death benefit, they would have been explicit in this regard.  

On the contrary, the provisions of the SLRA specifically contemplate a balancing of the assets between spouses and other dependants (see section 62 of the SLRA).[1] To ignore the pre-retirement death benefit altogether would not only be arbitrary, but it may unduly skew the “balancing” envisioned under section 62 of the SLRA. The purposes of the SLRA could easily be thwarted altogether if the Respondent’s interpretation were accepted. In many instances, the pre-retirement death benefit may be the only asset available to the deceased at the time of death.

On this point, consider a situation where the deceased recently married, and has two dependant children from a previous marriage. The primary asset upon death is the pre-retirement death benefit with a value of five million dollars. The estate itself has no other meaningful assets. If the Respondent’s position were correct, the judge in determining an “equitable” distribution would not be entitled to apportion that five million dollar pension towards the dependant children.  The absurdity of this result seems evident. Even without section 72(g) of the SLRA, the dependant children would likely have a claim to a portion of these funds based on pure equitable principles (constructive trust).

Justice de Sa went on to say that even though he had concluded that the PRDB was available to satisfy Shelly’s dependant support claim, that did not preclude a determination that the appropriate award in all of the circumstances might be to leave the entire PRDB with Mabel (who was also a “dependant” and whose needs the court was therefore obliged to consider).  In the end, he allocated the PRDB equally between Mabel and Shelly.  (While Shelly would be immediately taxable on her share of the PRDB, Mabel had the right to take one of three options: (i) being taxed on her share immediately; (ii) transferring that amount on a tax-deferred basis to a registered retirement savings plan; and (iii) electing to receive an immediate or deferred annuity payout, which would be taxable as the payments were received.)

It is hard to know where to begin with our criticism.  But let’s give it a try:

1.                  Broadly stated, section 72 of the SLRA “claws back” assets that would otherwise pass outside the deceased’s estate, whether intended or not, as a result of the deceased’s organization of his or her financial affairs.  By contrast, the Pension Benefits Act (“PBA”) prevents a member of a pension plan who has a spouse at the time of death from taking any steps (other than separating) to affect the entitlement to the PRDB.  In this respect, the PRDB is entirely different in character from all of the other categories.  For that reason, we see no justification for reading the PRDB into that list. 

2.                  Section 72 offers extraordinary access to assets for the purpose of satisfying a dependant support claim.  It would be turning statutory interpretation principles upside down to suggest, as the court did here, that the legislature’s failure expressly to exclude the PRDB from the itemized list must mean that it is included.

3.                  Twenty years ago, paragraph 72(f.1) – “any amount payable on the death of the deceased under a policy of group insurance” – was nowhere to be found in the SLRA.  Let’s go back in time and postulate a slightly different set of facts.  Imagine that Mr. Cotnam had died in 1998, having no assets of any value and having been insured for $400,000 under a group insurance contract between his employer and an insurance carrier.  Suppose he had designated Mabel as his beneficiary.   Where would Shelly be in that case?  Sadly, out of luck, as there was ample Ontario jurisprudence^[1] that, absent special circumstances that would support the view that an insured “owned” the group policy,^[2] group insurance with a designated beneficiary was not within the scope of section 72 as it stood at the relevant time.  Indeed, it was deemed necessary and appropriate to amend the SLRA^[3] to add new paragraph (f.1) to the notional estate.  Presumably, Justice de Sa would have found it necessary to do what other courts left for the legislature, in order to avoid “the absurdity of this result.”

4.                  Justice de Sa suggested that even without section 72 of the SLRA, equitable principles (in the form of a judicial finding of a constructive trust) could be invoked to make the PRDB available to the court for a dependant support claim.  As already noted, the PRDB is statutorily given to the surviving spouse of a deceased member of a pension plan.  The member has no control over that entitlement (short of separating).  Where, we respectfully ask, is there room to graft a constructive trust onto the PDRB?    

5.                  According to Mabel’s counsel, his factum referred to section 114 of the Pension Benefits Act (“PBA”), which states: “In the event of a conflict between this Act and any other Act, except the Financial Services Commission of Ontario Act, 1997, this Act prevails unless the other Act states that it is to prevail over this Act.”  Why did Justice de Sa make no reference to that argument?  That it was incumbent upon him to do so is, in our view, easily demonstrated by a slight change of the facts.  Suppose that Mr. Cotnam’s first wife, Faye (who acted as Shelly’s litigation guardian in the proceeding), had been receiving spousal support at the time of his death.  She would be included in the class of persons qualifying as a “dependant” under Part V of the SLRA.   The PBA is crystal clear that Faye would have no entitlement to the PRDB, as she was not a surviving spouse. What Cotnam v. Rosseau would do, evidently, is give Faye back-door access to the PRDB (via the SLRA) that is expressly denied to her through the front door (via the PBA).  A more glaring example of a conflict between two statutes we would be hard-pressed to find.

As noted earlier, the PBA gives the surviving spouse different options in relation to the PRDB.  Where a court is prepared to interfere with the surviving spouse’s entitlement to the PRDB in order to satisfy a dependant support claim, the option selected by the surviving spouse may give rise to complications:  first, from an income tax perspective; and second, from the pension administrator’s viewpoint. 

We understand from speaking with Mabel’s counsel that neither party is interested in taking the matter on appeal.  In our view, that is unfortunate.  Is this not analogous to the situation in Dagg v. Cameron?  In that case, the trial decision was so troubling to the family law bar that the matter was taken on appeal to the Ontario Court of Appeal, even though the parties had settled their dispute.  Given the import of the trial decision, the appellate court was persuaded to hear the matter, notwithstanding that settlement.   Are there any stakeholders out there who think it is sufficiently important to take a similar step here?

About the author

Barry Corbin

Corbin Estates Law