Case: Friedrick v. Kelturn Drywall Ltd., 2024 SKCA 54 (CanLII)

Keywords: retirement contribution arrangement; contractual interpretation

Audio: You can listen to the following case summary using the player below or on Spotify, courtesy of dicta. Recordings of the full-text of Court of Appeal and SCC reasons for judgment are available on dicta premium.

Synopsis:

The Appellant is a drywaller and employee of Kelturn Drywall Ltd. Kelturn establishes a retirement compensation arrangement (“RCA”) within the meaning of s. 248(1) of the Income Tax Act, RSC 1985, c 1 (5th Supp). The Appellant and five other employees participate in the RCA. (See paras. 1-2).

The Appellant directs that his annual bonus be contributed to the RCA. The Appellant is later terminated and seeks to have his contributions paid out to him. As it turns out, Kelturn made no contributions on his behalf, other than the bonuses he directed to be paid into the RCA. (See para. 3).

The Appellant says the terms of the RCA required Kelturn to make contributions “over and above the payment of employee bonuses”. He brings an action against Kelturn for breach of the terms of the RCA and, thereafter, an application for summary judgment for the “lost RCA contributions”. (See para. 4). The Chambers Judge interprets the RCA Contract, denies the application, and dismisses the Appellant’s claim. The Chambers Judge finds Kelturn had no obligation to contribute to the RCA “over and above” the payments directed by the Appellant. (See para. 5). The Court of Appeal (Kalmakoff, McCreary, and Drennan JJ.A.) dismisses the appeal against this decision. (See para. 6).

Importance:

As observed by the Court of Appeal, this appeal “turns on the interpretation of a retirement compensation plan” as contained in the RCA Contract. (See para. 1). As a preliminary point, the Court of Appeal declined to definitively say whether the RCA Contract was “a standard form contract” subject to correctness review, or the palpable and overriding error standard. (See para. 26). For the Court of Appeal, the Chambers Judge did not err on either standard – though, interestingly, the Court says the Chambers Judge’s interpretation was “correct” at para. 27.

The relevant provisions of the RCA Contract, as identified by the Chambers Judge, are set out at paras. 20-21 of the Court of Appeal’s reasons. For the Chambers Judge, the RCA was created “as a tax deferral vehicle and that the terms of the RCA Contract, and specifically, the RCA Plan Text, did not oblige Kelturn to contribute to the RCA over and above the payment of an employee bonus into the RCA.” (See para. 22). The Appellant argued the Chambers Judge placed undue emphasis on “the extrinsic evidence” in support of this interpretation – specifically a PowerPoint presentation which the Chambers Judge took as evidence that the intention of the RCA Contract was to defer income taxes, rather than facilitate the employer making additional contributions for the Appellants’ benefit. (See paras. 22, 28).

For the Court of Appeal, the issue turns on the word “Contribution” – specifically, when the Appellant “remitted to the RCA amounts corresponding to a bonus to which [the Appellant] was entitled”, was that a “Participant Contribution” or a “Company Contribution”? (See para. 30).

Neither of these terms was defined in the RCA Contract. (See para. 31). For the Appellant, he was making a “Participant Contribution” which ought to have been “matched” to some degree by his employer in the form of a “Company Contribution”, following the “natural” or “ordinary” meaning of the word “contribution”. (See paras. 32-33).

Although the Court of Appeal found the Appellant’s proposed interpretation was “understandable” (i.e., because “[w]ith some frequency, retirement savings plans such as employee group RRSPs or group pension plans contemplate that a participating employee may elect to make contributions, deducted from his or her income at source, with the employer required to match some specified portion of those contributions”) and that the common meaning of the word “contribution” “would appear to align with” the Appellant’s interpretation, it ultimately declined to endorse it. (See paras. 32-34).

For the Court of Appeal, the meaning of “contribution” should not be taken from its common understanding or from other forms of employee retirement arrangements because the parties “created their own dictionary”. (See para. 35; see also Mosten Investments LP v. The Manufacturers Life Insurance Company (Manulife Financial), 2021 SKCA 36). In the context of the RCA Contract, the Court of Appeal finds “the distinction between ‘Company Contributions’ and ‘Participant Contributions’ in the RCA Plan Text is based on which party remits the amount in question into the RCA Trust and consequently deducts that amount from its taxable income.” (See para. 35). For the Court of Appeal, the amounts contributed to the RCA were “Company Contributions” – with the corollary being that the Appellant “never made a ‘Participant Contribution’”. (See para. 48). One may reasonably ask, for what purpose did the Appellant contribute? For the Court of Appeal, the benefit to the Appellant was “that his bonuses were taxed on a deferred basis.” (See para. 41).

The Court of Appeal arrived at the same conclusion as the Chambers Judge, but without considering “whether the Chambers judge erred by placing weight on the PowerPoint presentation in coming to the same outcome”. (See para. 50). Ultimately, the Court affirmed that the employer had no obligation to contribute beyond the payment of the Appellant’s annual bonus into the RCA, “as requested by him”. (See para. 51).

Counsel for the Appellant: Virgil Thomson (OWZW Lawyers LLP, Regina)

Counsel for the Respondent: David Barth (Barth Law, Regina)

Discuss on CanLii Connects