1. LEGAL RISKS AS A PENSION ACTUARY April 15, 2008 - Le 15 avril 2008 Montr é al, Q uébec Jana Steele, Goodmans LLP CIA Pension Seminar

2. Overview The Role of the Actuary Bases of Legal Actions: –Negligence –Breach of Fiduciary Duty –Breach of Contract Quasi-criminal proceedings Limiting Your Liability Jana Steele, Goodmans LLP

3. The Role of the Actuary Certain functions mandated by statute: –Actuarial valuation reports and cost certifications Other functions often performed by an actuary: –Plan design –Plan amendments –Regulatory filings –Employee communications –Funding policies Jana Steele, Goodmans LLP

4. Claims in Negligence Civil action Tort at law A breach of a legal duty of care that results in damage to another person or his/her property Jana Steele, Goodmans LLP

5. Claims in Negligence Jurisprudence –British Columbia Automobile Association et al. v. Manufacturers Life Insurance Company et al. Successful claim in negligence –Wynne v. William M. Mercer Ltd. Successful claim in negligence –Givogue v. Burke Claim alleging breach of fiduciary duty and negligence. Class action certified. –Fata v. Simon Fraser University Administrator/Union Staff Pension Plan Unsuccessful action in negligence Jana Steele, Goodmans LLP

6. Standard of Care – Statutory (Ontario PBA) 22(1) Administrator must exercise the care, diligence and skill in the administration and investment of the pension fund that a person of ordinary prudence would exercise in dealing with the property of another person. 22(2) Administrator must use all relevant skill and knowledge in administering the pension plan and fund and in investing the fund that the administrator possesses or, by reason of its business, calling or profession, ought to possess. 22(4) Administrator prohibited from knowingly permitting its interest to conflict with its duties and powers in respect of the pension fund. Jana Steele, Goodmans LLP

7. Standard of Care – Statutory (Ontario PBA) 22(5) Administrator can employ one or more agents to carry out any act required to be done in the administration of the pension plan and in the administration and investment of the fund. 22(8) An employee or agent of an administrator is also subject to the standards that apply to the administrator under subsections 22(1), 22(2) and 22(4). Jana Steele, Goodmans LLP

8. What is an “Agent” Generally? A person authorized by another person to act on his or her behalf. Jana Steele, Goodmans LLP

9. Is an Actuary an “Agent”? Yes. Jana Steele, Goodmans LLP

10. Is an Actuary an “Agent”? Jurisprudence –R. v. Norton case “In my view, the meaning of “agent” as set out in Section 22 of the Act can and does embrace the actions and role of Norton, as an actuary, vis a vis the Administrator, as principal…” Jana Steele, Goodmans LLP

11. Is an Actuarial Firm an “Agent”? R. v. Norton case (cont’d) –In this case, Aon, the firm that employed the individual actuary, not an agent. –Involved preparation of actuarial reports – under PBA the reports must be prepared by an actuary. –Court found that Aon was not an actuary or an actuarial firm. Aon could not therefore be an agent with respect to this function. Jana Steele, Goodmans LLP

12. Is an Actuarial Firm an “Agent”? There are many other functions actuarial or consulting firms are retained to perform. Could be an agent. Jana Steele, Goodmans LLP

13. What is a Fiduciary? Certain characteristics of a relationship may indicate that it is fiduciary: –One person is vested with discretion or power. –That power can be exerted such that the interests of some other person are affected. –That other person is particularly vulnerable to the exercise of the power or discretion by the fiduciary. Jana Steele, Goodmans LLP

14. Fiduciary Standards – Common Law Where a fiduciary relationship exists, certain standards are imposed: –Duty of loyalty. –Duty to act honestly and prudently. –Duty to not delegate decision making power. –Duty to not let own personal interests conflict with duties as a fiduciary. –Duty to not profit. –Duty to maintain an even hand between competing interests. Jana Steele, Goodmans LLP

15. Could an Actuary be a Fiduciary? Need to examine nature of relationship Certainly possible Case by case determination Jana Steele, Goodmans LLP

16. Could an Actuary be a Fiduciary? Jurisprudence –Wynne v. William M. Mercer Ltd. Unsuccessful on basis of breach of fiduciary duty (successful on basis of negligence) –McLaughlin v. Falconbridge Ltd. Unsuccessful on claim for breach of fiduciary duty Judge indicated that it could be found that the actuary in this case was a fiduciary –Givogue v. Burke Class action alleging breach of fiduciary duty and negligence. Certification granted Jana Steele, Goodmans LLP

17. Could an Actuary be a Fiduciary? Jurisprudence (cont’d) –Sadler v. Watson Wyatt and Co. Class action based on breach of fiduciary duty –Askin v. Ontario Hospital Association Lower court indicated actuary in this case not a fiduciary or agent –Langlois v. Roy Allegations include breach of fiduciary duty by actuary. Ongoing class action proceeding. Jana Steele, Goodmans LLP

18. Claims for Breach of Contract Actuary retained by client to perform certain functions for consideration – contract If contract not fulfilled, potential action for breach of contract Jana Steele, Goodmans LLP

19. Claims for Breach of Contract Jurisprudence –Froese v. Montreal Trust Co. of Canada Obiter statement – “It is obvious that the relationship between the Company with the investment manager, the actuary and the defendant is largely contractual…For example, both the investment manager and the actuary obviously owed a contractual duty to the Company, and possibly also to the beneficiaries although I need not decide that question in this case…” Jana Steele, Goodmans LLP

20. Statutory Offences (Ontario PBA) s.109 Every person who contravenes the PBA or the regulations is guilty of an offence. s.110 Every person who is guilty of an offence under the PBA is liable on 1 st conviction to a fine of up to $100,000, and on each subsequent conviction to a fine of up to $200,000. Jana Steele, Goodmans LLP

21. Statutory Offences (Ontario PBA) s.110(2) Every director, officer, official or agent of a corporation and every person acting in a similar capacity or performing similar functions in an unincorporated association is guilty of an offence if the person, (a) causes, authorizes, permits, acquiesces or participates in the commission of an offence referred to in section 109 by the corporation or unincorporated association; or (b) fails to take all reasonable care in the circumstances to prevent the corporation or unincorporated association from committing an offence referred to in section 109. Jana Steele, Goodmans LLP

22. Statutory Offences (Ontario PBA) Jurisprudence R. v. Norton Jana Steele, Goodmans LLP

23. Vicarious Liability of Employer R. v. Norton –No primary duty under the PBA on the company in this case (as it was not an actuary within definition in PBA) –As no primary duty on the company under PBA, “employer cannot be vicariously liable in this quasi criminal context, for these strict liability offences, for the actions of its employees.” –Court left open possibility of civil recourse Jana Steele, Goodmans LLP

24. Quasi-criminal Offences Strict Liability Offences –No mens rea need to be established –Doing of act = offence –Can defend against these charges (e.g. reasonable belief in mistaken facts, due diligence) Jana Steele, Goodmans LLP

25. Limiting Liability Breach of contract – can contract to limit liability to gross negligence or willful misconduct (limitation of liability clause in contract) Fiduciary liability – this is liability imposed by nature of the relationship Statutory liability – cannot contract out of the liability – it is minimum standards law Jana Steele, Goodmans LLP

26. Limiting Liability Practice Management Skills: –Retain notes –Retain draft reports –Continuing education –Confirmation of instructions/retainers –Compliance with Standards of Practice –Peer review Jana Steele, Goodmans LLP

27. QUESTIONS? Jana Steele, Goodmans LLP