Article

Prior History: Butler Brothers Supplies Ltd. v. British Columbia, [2004] B.C.J. No. 1580 (B.C. Sup. Ct. 2004) [Canada] noted at 2005 Annual Survey 263.

Note: Butler Brothers Supplies Ltd.

(Applicant) established a pension plan for its employees. To remedy a deficiency, the company caused an LC to be issued for the value of CAN$174,300, naming the pension plan as Beneficiary.

Canadian law, specifically the Pension Benefits Standards Act, required employers to maintain and guarantee the solvency of their pension plans by transferring assets into the plans. The British Columbia Superintendent of Pensions ruled that Applicant was in violation of the Act, concluding that an LC is not an "asset" within the meaning of the Act. Applicant sought judicial review of the Superintendent's position.

The British Columbia Supreme Court, Wilson, J., ruled that a LC does not improve the beneficiary's liquidity or provide income, and is, therefore, not an "asset" for the purpose of the Act. The court further ruled that control of the assets provided by the LC was not placed under the control of the pension plan as is required by the Act because the LC in question was contingent on the retirement of Applicant's employees. According to the appellate court,"[a]lthough the judge thought the letter of credit seemed to him a sensible alternative to an actual payment of money into the fund, he found that the Superintendent correctly interpreted the Act and Regulation to mean that the appellant was obliged to make a cash payment." The trial court dismissed the case, allowing the decision of the Superintendent to stand. Applicant appealed the dismissal.

The British Columbia Court of Appeal, Donald, Low, and Smith, J., upheld the dismissal of the case. The appellate court agreed with the result in the trial court, but upheld the Superintendent's decision on the ground that reasonableness, rather than correctness, is the standard of review for that decision.

Donald, J., noted that "I do not share the judge's regret that a letter of credit would not have sufficed." He further noted that the plan "does not own the letter nor does it have the power to call upon the security" although it was the beneficiary. He stated that the LC "does not augment the fund in the sense that, unlike cash, it cannot be invested to earn income for the fund. By requiring that the employer "pay" into the fund, the Regulation contemplates an asset that improves the liquidity of the fund which a letter of credit is incapable of doing." He also noticed that the LC would only be available if there was a shortfall at termination, could not be assigned or invested and had no market value for auditing purposes. "Since a letter of credit is neither an investment nor cash it does not conform with the definition of asset ins. 1 of the Regulation".

The appellate court concluded that its "disagreement with the judge's expression of regret about the efficacy of a letter of credit as a means of addressing a solvency deficiency arises from the fact that the appellant's proposal serves its own business interests at the expense of the plan. Under the statutory scheme the plan is entitled to the benefit of real income producing assets."

[JEB/dgd]

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