Court says Plenary Group Canada 'expressly' undertook fiduciary duties concerning the funds
The Manitoba Court of King’s Bench has awarded $259 million to employee pension and injured workers funds, finding that a public infrastructure developer breached its fiduciary duties to the funds when it sold its entire business and prepaid long-term loans to the funds en masse.
Justice David Kroft wrote in his Nov. 29 decision that Plenary Group Canada and its entities “owed duties of loyalty, to avoid conflicts of interest, to account and to act in the best interests of the funds."
Kroft added that he specifically rejected the developer’s characterization of the sale "as no more than Plenary selling its assets and using the proceeds to pay out the plaintiffs' loans. That description runs contrary to the facts as I have found them to be and, to some degree, trivializes its relationship with the plaintiffs.”
The funds involved in the case are WSIB Investments (Infrastructure) Pooled Fund Trust and 1697125 Ontario Inc. WSIB is owned by the Workplace Safety and Insurance Board of Ontario and pays out workplace safety and illness claims to Ontarians. 1697125 Ontario Inc. is owned by the Colleges of Applied Arts and Technology Pension Plan and provides defined pension plans for pension members.
To help meet their payment obligations to beneficiaries, the two plans began partnering with Plenary in 2010 to invest in P3s—public infrastructure projects in which private sector companies assume a large share of the financing, construction, and long-term maintenance. The parties agreed to a bespoke arrangement in which the plaintiffs were designated as limited partners and contributed a predetermined amount of capital to a fund.
When the plaintiffs agreed to a P3 project, Plenary, the general partner in the arrangement, would borrow money from the plaintiffs’ fund for Plenary entities to invest in the project. The entities would then repay the money, with interest, to the fund over the course of the project’s life.
In 2020, Plenary sold its business to the Caisse de depot et placement du Quebec (CDPQ), including all its loans with the plaintiffs. At the time of the sale, the plaintiffs had set up three funds with Plenary to pursue P3 investments in Canada and the US, which held 33 loans averaging more than 30 years.
To facilitate its sale to CDPQ, Plenary had its entities prepay all its loans to the plaintiffs en masse, arguing it was allowed to do so based on a provision in each loan agreement that allowed the borrower to prepay a loan with five days’ notice. The plaintiffs sued Plenary, arguing that the developer’s surprise sale breached its contractual partnership with the plaintiffs and the fiduciary duties it owed to them.
In his decision, Kroft sided with the plaintiffs, finding that the loan agreements did not allow Plenary to “pre-pay the loans en masse for reasons unconnected to the loan itself or the project it funds.”
While this is clear from the “common sense interpretation” of the loan agreements’ prepayment provisions, Kroft said the circumstances surrounding the negotiation of Plenary’s partnership with the plaintiffs also support this conclusion. This includes the fact that "the essence of the arrangement between the plaintiffs and [Plenary] was intended to be an exclusive, long-term investment partnership, providing reliable equity funding for PG Canada and long-term stable cashflows for the plaintiffs.”
The court found Plenary “expressly” undertook fiduciary duties concerning the plaintiffs in the context of their partnership and breached them with the en masse prepayments. The court also found that Plenary entities, officers, and directors were liable for knowingly being involved in the breaches of fiduciary duty and profiting off the CDPQ sale.
Dena Varah, a partner at Lenczner Slaght who represented the plaintiffs, told Canadian Lawyer Kroft’s decision confirmed that “the structure of an arrangement actually matters” and partnerships like the one between the plaintiffs and Plenary involved duties “that are not going to be so easily displaced, certainly not without significant discussion and agreement.
“That was an important part of our case… the vulnerability that our clients had to that structure and to the fiduciaries who were running it,” Varah says. She added that Kroft’s decision was “a reinforcement, really, of what the court has done vis-à-vis contractual interpretation over the last 10 years.”
“It is a reinforcement of fiduciary relationships, and also it's a reinforcement of, you don't get to profit from those fiduciary relationships,” Varah adds. “The remedy of a disgorgement says you have to give back what was basically self-dealing. You took advantage of this. You took what belonged to the limited partners for yourself, and you don't get to keep it.”
Counsel for Plenary did not respond to a request for comment.
