Bank of Nova Scotia v. Thibault

Deschamps J. — Are funds invested in a self‑directed retirement savings plans exempt from seizure in Quebec?

For the second time, the Court is faced with the delicate issue of whether a self‑directed registered retirement savings plan (“RRSP”) under the laws of Quebec is seizable (see Poulin v. Serge Morency et Associés Inc., [1999] 3 S.C.R. 351). Exemption from seizure does not result from the mere intent of the parties. The law alone can grant that protection (art. 2645 of the Civil Code of Québec, S.Q. 1991, c. 64, and art. 553 of the Code of Civil Procedure, R.S.Q., c. C-25). Because not all RRSPs are alike, the answer to the question posed above must necessarily be qualified. Financial institutions in fact go to great lengths to market innovative financial products to attract investors. Because exemption from seizure is an attractive feature, many financial institutions attempt to characterize their plans as being unseizable, while offering their clients a great deal of flexibility. This case sheds light on several of the rules that the Civil Code of Québec requires to be met in order for an RRSP to qualify as an annuity or a trust and thus be subject to a declaration of exemption from seizure.

In 1963, Guy Thibault began saving for his retirement. Between then and 1998, he made investments through a number of financial institutions using a variety of financial vehicles. In 1998, he set up a self‑directed registered retirement savings plan. The terms of the contract between the Bank of Nova Scotia Trust Company (the “Trust Company”) and Thibault are set out in a document entitled “Declaration of Trust — Scotia Protected Self‑Directed Registered Retirement Savings Plan” (the “Plan”). Under the Plan, ScotiaMcLeod Inc. (“Scotia”), the appellant, held the assets as the Trust Company’s agent. The Trust Company was described as the trustee. The application form showed Thibault as the “Registered Owner (Annuitant)”. His wife was designated as the revocable beneficiary. The sections of the Plan concerning contributions and investments, withdrawals, retirement income and exemption from seizure are relevant in delineating the rights in issue and are reproduced in full in the appendix, as are the statutory provisions referred to in these reasons.

On August 5, 1999, before the Plan matured, the Bank of Nova Scotia (the “Bank”), one of Thibault’s creditors, had a writ of seizure issued against Scotia. The Bank claimed that the assets held on Thibault’s behalf were seizable. Thibault applied to the Superior Court to have the seizure quashed.

The Superior Court dismissed his application. In the Court’s opinion, because the Plan authorized Thibault to make withdrawals, he had not alienated his capital and thus one of the prerequisites for exemption from seizure that applied to annuity contracts had not been met.

Scotia appealed the decision. Before the hearing, the Bank withdrew its opposition and consented to the appeal. Scotia was supported in its position by an intervener, the Regroupement des assureurs de personnes à charte du Québec. In a divided decision, the Court of Appeal upheld the trial judgment: [2001] R.J.Q. 2099. Chamberland and Fish JJ.A. concluded that the prerequisites for the constitution of an annuity had not been met. Chamberland J.A. also discussed, and rejected, an additional argument that the Superior Court had not addressed: that the Plan was not a trust. In dissenting reasons, Rothman J.A. stated the opinion that Thibault had alienated his capital and that the Plan therefore met this requirement for the constitution of an annuity. He also concluded that the Plan provided for the creation of a trust. In his opinion, Thibault’s creditors could therefore not seize the funds held by Scotia.

In this Court, Scotia again argued that the Plan could be characterized as an annuity or a trust — in other words, it was unseizable. Scotia also drew the Court’s attention to a statutory provision that had been enacted shortly after the Court of Appeal’s decision. According to that provision, the fact that an annuity contract allows the total or partial withdrawal of the capital does not prevent it from being considered to be an annuity contract provided that the annuity is purchased from a trust company or from an insurer.

Because the Bank was no longer contesting the appeal, the Court appointed an amicus curiae to argue in support of the conclusions in the decision of the Court of Appeal.

As a general rule, all the property in a person’s patrimony constitutes the common pledge of that person’s creditors (art. 2644 C.C.Q.). Exemption from seizure is an exception created by law (art. 2645, para. 1 C.C.Q.). Article 553(12) C.C.P. states that anything declared unseizable by law is exempt from seizure. Consequently, the exemption from seizure in section 21 of the Plan is only effective against the Trust Company (art. 2645, para. 2 C.C.Q.). That section also expressly states that the Plan is subject to the Civil Code of Québec, and the two arguments made, annuity and trust, are governed by the Code. I will address them in turn, and then briefly analyze a recent statutory amendment and determine how it relates to pension plans and RRSPs.

In Quebec, investing in a life insurance policy has long been favoured by individuals as a way of sheltering assets from creditors for the benefit of their family. In Perron‑Malenfant v. Malenfant (Trustee of), [1999] 3 S.C.R. 375, at paras. 46-47, Gonthier J. outlined the history of rights under life insurance policies and demonstrated how they are connected with the social policy objectives of the legislature. He noted that exemption from seizure did not apply to any policy whose benefit reverted to and was held by the insured (para. 47). Between 1865, when the Act to secure to Wives and Children the benefit of Assurances on the lives of their Husbands and Parents, S. Prov. C. 1865, 29 Vict., c. 17, was enacted and the major reform of insurance law in 1974 (Act respecting insurance, S.Q. 1974, c. 70, proclaimed in 1976), the philosophy underlying the provisions respecting exemption from seizure remained practically unchanged. The policy is to protect family members. This protection is preserved in art. 2457 C.C.Q.:

2457. Where the designated beneficiary of the insurance is the married or civil union spouse, descendant or ascendant of the policyholder or of the participant, the rights under the contract are exempt from seizure until the beneficiary receives the sum insured.

The only case in which that protection can be secured by designating a third party is where a contract contains an irrevocable designation (art. 2458 C.C.Q.).

In 1974, protection against seizure was extended to life and fixed‑term annuities transacted by insurers, where the requirements that apply to insurance are met (Act respecting insurance, s. 2; art. 2393, para. 2 C.C.Q.):

2393. . . .

Life or fixed‑term annuities transacted by insurers are assimilated to life insurance but remain also governed by the chapter on Annuities. However, the rules in this chapter relating to unseizability apply to such annuities with priority.

Insurers are not limited to insuring against a particular risk by promising to pay a lump sum. They may also offer life or fixed‑term annuity contracts, and the rights conferred under such contracts are exempt from seizure if the annuitant is designated in accordance with the provisions governing the designation of life insurance beneficiaries (arts. 2379 and 2457 C.C.Q.). The philosophy of protecting families remains apparent, despite the flexibility introduced into the rules governing protected contracts.

In 1987, the Quebec legislature significantly expanded the law in respect not of the persons it protected, but rather of the kinds of corporations authorized to offer potentially unseizable fixed‑term annuities. In the Act respecting trust companies and savings companies, R.S.Q., c. S‑29.01, s. 178 (formerly S.Q. 1987, c. 95, s. 178), the legislature provided that fixed‑term annuities purchased from trust companies are exempt from seizure on the same terms and conditions as annuities obtained from insurers:

178. Moneys constituting fixed‑term annuities are unseizable in the hands of the trust company as fixed‑term annuities transacted by insurers.

It is clear that the Trust Company is a trust company for the purposes of s. 178 of the Act respecting trust companies and savings companies. The central issue is therefore the characterization of the annuity contract, within the meaning of the Civil Code of Québec. The requirements for the formation of such a contract are set out in art. 2367 C.C.Q.:

2367. A contract for the constitution of an annuity is a contract by which a person, the debtor, undertakes, gratuitously or in exchange for the alienation of capital for his benefit, to make periodical payments to another person, the annuitant, for a certain time.

The capital may consist of immovable or movable property; if it is a sum of money, it may be paid in cash or by instalments.

To form an onerous annuity contract, there must then be a debtor, an annuitant, an alienation of capital, an obligation to pay and a specification of a periodic amount for a fixed time. In the Court of Appeal and in this Court, the parties directed their argument mainly to the requirement concerning the alienation of the capital, and I will focus on that argument. However, I will also later comment briefly on the other requirements.

(1) Alienation of Capital

The question is whether it can be concluded, from the requirements of the Plan, that Thibault alienated his capital to the Trust Company when he signed the contract. The Superior Court and Chamberland and Fish JJ.A. concluded that it could not. I believe that they were correct.

The contractual relationship between the Trust Company and Thibault is governed by the Plan. The application form signed by Thibault before entering into the agreement informs its interpretation. The application form for the Plan describes Thibault as the “Registered Owner (‘Annuitant’)”. That description may seem unimportant, but when we read the Plan it is apparent that it sets out the actual stages that are an inherent part of the structure of the contract. I will use the expression “owner‑annuitant” to refer to the participant in the Plan.

The second paragraph of section 6 of the Plan demonstrates the mechanism established by the contract:

On the maturity date, the Trustee shall liquidate the assets of the Plan and apply the proceeds therefrom, after deducting applicable costs, fees, expenses and disbursements, so as to ensure that the Annuitant receives retirement income in the form of a fixed‑term annuity and subject to the expiry date determined by the Annuitant as provided herein. Such fixed‑term annuity shall be provided by the Trustee at its rates for such annuities then in effect or, at the Annuitant’s request, by any insurer authorized to provide fixed‑term annuities in Canada. [Emphasis added.]

Under that paragraph, the proceeds of the liquidation of the assets in the Plan are not applied to an annuity until the maturity date. Before maturity, under section 3, “the Trustee’s sole obligation . . . will be confined to executing the directions of the [owner‑annuitant]” and “maintaining . . . the investments”. During that first stage, which is the one that concerns us here, the rights of the owner‑annuitant are almost absolute. Under section 4, owner‑annuitants may ask the trustee to distribute to them all or part of the assets, without the withdrawals affecting the survival of the contract, in whole or in part, or the benefits associated with the annuity. The trustee’s sole right is to decline to make an investment, inter alia if the investment does not comply with the trustee’s administrative requirements (section 3). Nowhere in the Plan does it provide that the owner‑annuitant alienates the property or the value of the funds to the Trust Company before the maturity date. Not only is ownership of the funds not transferred, but the owner‑annuitant does retain complete control over them.

In other words, until the assets are liquidated by the Trust Company, they are treated as property of which Thibault is the owner, and in fact this is how he is described in the application form. If an annuity is constituted, this juridical act can be carried out only in the second stage of the contract, that is, after the maturity date of the Plan. It is not until that point that the assets come under the Trust Company’s control and are applied to a retirement income.

The respondent argued that in In re: Les Coopérants; Firstcliff Development Inc. v. Raymond, Chabot, Fafard, Gagnon Inc., [1994] R.L. 268 (“Coopérants”), the Court of Appeal agreed that a contract does not cease to be an annuity contract notwithstanding any authorization to make withdrawals. That argument must be qualified. The case in question concerned a refund of the surrender value of the annuity that terminated the contract. The right to terminate a contract was in effect a resolutory clause. No such right is provided for in the Plan. Under section 4, the section respecting withdrawals, the Plan can continue to exist even if all the assets are withdrawn. The ability to withdraw the assets cannot be equated in this case with the consensual resolution of a contract, as was the case for the policies issued in Coopérants.

Scotia also submitted that it can be concluded from the change in the wording of art. 2367 C.C.Q. that withdrawals are permitted. Article 1787 of the Civil Code of Lower Canada addressed the procedure for constituting an annuity and made an express reference to the permanent manner in which the debtor held the annuity:

1787. Constitution of rent is a contract by which parties agree that yearly interest shall be paid by one of them upon a sum of money due to the other or furnished by him, to remain permanently in the hands of the former as a capital of which payment shall not be demanded by the party furnishing it, except as hereinafter provided.

It is subject with respect to the rate of interest to the same rules as loans upon interest. [Emphasis added.]

Scotia pointed out that art. 2367 C.C.Q. (cited supra at para. 15) does not include this requirement, and deduced that the omission of the word “permanently” indicates the legislature’s intent to allow the assets to be taken back.

This argument cannot be accepted. Although the mechanism for constituting an annuity has not been changed, the wording of the article in question has been completely revised. Article 1787 C.C.L.C. did not use the word “alienation” as art. 2367 C.C.Q. does. In civil law, the act of alienation has a precise meaning. That act involves the idea of permanence. When property is alienated, the transfer from patrimony to another is final; it is permanent. That meaning is also consistent with the concept that applied in Roman law (Les cinquante livres du Digeste ou des Pandectes de l’empereur Justinien, Book L, 1805, Title XVI, p. 608, para. 67), which had a strong influence on French civil law and was part of the legal tradition of Lower Canada at the time the Civil Code of Lower Canada was enacted (J. E. C. Brierley and R. A. Macdonald, Quebec Civil Law: An Introduction to Quebec Private Law (1993), Nos. 9 and 130). There is no need to add an adverb to the word “alienation”, particularly using a word which is questionably correct in French.

With life insurance, payments made by the policy holder become the property of the insurer, who must make the agreed payment to the policy holder upon the occurrence of the event contemplated in the contract, as was the case in Jobin, Blais, Fortier, Touché, Ross Ltée v. Monarch Life Assurance Co., [1986] R.J.Q. 1755 (C.A.), and Coopérants, supra. The policy holder may have all or part of the surrender value refunded only by terminating the contract or in return for a reduction of the benefits under the contract, and only where there is a provision in the contract that allows this: D. Lluelles, Précis des assurances terrestres (3rd ed. 1999), at pp. 407 and 413. This is not the mechanism provided in the Plan, and the analogy with Coopérants cannot assist Scotia.

I conclude from this that before the maturity date of the Plan, during the period we are concerned with here, the Plan does not provide for the constitution of an annuity. This conclusion is based on three factors. First, a contract that reserves the investor’s ownership and control of his or her capital does not reflect the historical objectives of the exemption of insurance policies and annuities from seizure. The family receives no benefit from the assets, which can be freely disposed of by Thibault. Second, it cannot be concluded from the wording of the provisions respecting annuities that the law that applied under the Civil Code of Lower Canada has been changed. And third, an analysis of the parties’ rights under the Plan, from the point when the funds are given to Scotia until they are liquidated, shows that there was no alienation of the funds. The fact that there was no alienation, combined with the fact that control remained with the owner, demonstrates that the relationship established is not the same as the relationship protected by the legislature.

(2) Other Prerequisites for a Declaration of Exemption From Seizure

I mentioned at the beginning of my analysis that five requirements must be met in order for an annuity contract to be formed. Because I have found that there was no alienation of the capital, there is no need to analyse the other requirements. However, it would be incorrect to conclude, as the dissenting judge of the Court of Appeal did, that the contract could be characterized as an annuity without even scrutinizing the Plan having regard to those other factors.

It is not clear that under the terms of the Plan, the Trust Company can be characterized as a debtor or is obliged to make periodic payments. Even if this is so, it does not necessarily follow that the amount that the Trust Company promised to pay is determinable. Furthermore, in order to be protected and thus to be possible for him to get the seizure quashed, the annuitant would still have to have been designated in accordance with the rules respecting contracts of insurance which relate to beneficiaries and subrogated holders (art. 2379, para. 2 C.C.Q.). In this case, Thibault is designated as the annuitant. He is not one of the persons referred to in art. 2457 C.C.Q. Can the designation of a “beneficiary” who is not a party to the annuity contract operate to designate a subrogated holder and trigger the protection mechanism? Is this an exception to the rules governing gifts mortis causa (art. 1819 C.C.Q.)? These arguments were not addressed, but should be discussed before concluding that a seizure should be quashed.

As the foregoing analysis shows, even if there was an alienation of capital, a number of other issues would have to be decided in the appellant’s favour in order for the argument based on the exemption of the Plan from seizure to succeed.

Under the Civil Code of Lower Canada it was clear, despite the use of terms such as “trust” or “trustee”, that RRSPs of the type contemplated by the Plan could not constitute a genuine trust (Cie Trust Royal v. Caisse populaire Laurier, [1989] R.J.Q. 550 (C.A.)). The trust found in the Civil Code of Lower Canada could be constituted only by gift or will (art. 981a C.C.L.C.). When the legislature enacted the Civil Code of Québec, it expanded the methods of constituting a trust. The question therefore arises again: is a trust constituted by establishing an RRSP?

Article 1260 C.C.Q. governs the requirements for constituting a trust:

1260. A trust results from an act whereby a person, the settlor, transfers property from his patrimony to another patrimony constituted by him which he appropriates to a particular purpose and which a trustee undertakes, by his acceptance, to hold and administer.

Three requirements must therefore be met in order for a trust to be constituted: property must be transferred from an individual’s patrimony to another patrimony by appropriation; the property must be appropriated to a particular purpose; and the trustee must accept the property. Although some of those requirements are the same as the requirements for the constitution of an annuity, we will examine them in the context of a trust.

(1) Transfer of Property to a Patrimony by Appropriation

Section 3 of the Plan states that the trustee holds the contributions. The manner in which the contributions are held is not qualified in any way, but, as noted above, it can be concluded from the fact that there is no clause providing for a transfer, combined with the wording of section 4, the clause dealing with withdrawals, that the property was not transferred to a patrimony by appropriation, at the very least, before the maturity date of the Plan. Since the assets may be withdrawn in whole or in part before the maturity date of the Plan, we must conclude that during this initial stage of the Plan, the owner‑annuitant has not divested himself of his assets in favour of a patrimony by appropriation.

Scotia argued, based on a comparison of arts. 1256 and 1260 C.C.Q., that the transfer does not have to be irrevocable. It pointed out that with respect to foundations, the legislature has required, in art. 1256 C.C.Q., that there be an irrevocable appropriation of property, while in Scotia’s submission, art. 1260 C.C.Q. does not require that the transfer of property to a trust be irrevocable. That argument cannot be accepted. First, in the French text of art. 1256 C.C.Q., the use of the verb “affecte”, in the case of a foundation, makes a qualification necessary, because in itself, it does not involve divestiture as is the case for the verb “transfère” used in art. 1260 C.C.Q. Second, in the case of a foundation, the assets can never be reclaimed by the settlor, and so it is relevant to use the word “irrevocably”. In the case of a trust, not only may a settlor stipulate that the capital be returned to him or her at the termination of the trust (art. 1281 C.C.Q.), but the settlor is also entitled to it where he or she has not named a beneficiary (art. 1297 C.C.Q.). Consequently, the word “irrevocably”, which is neither necessary nor appropriate in the context of a trust, takes on its full significance in the case of a foundation.

The transfer must have complete legal effect. As is the case for an annuity contract, there must be alienation of property, which occurs only when the assets are liquidated on the maturity date of the Plan.

(2) Appropriation to a Particular Purpose

Section 6 of the Plan states that when the assets are liquidated, the trustee is to apply the proceeds so that the owner‑annuitant receives a retirement income. This does not occur until the maturity date:

On the maturity date, the Trustee shall liquidate the assets of the Plan and apply the proceeds therefrom, after deducting applicable costs, fees, expenses and disbursements, so as to ensure that the Annuitant receives retirement income in the form of a fixed‑term annuity . . . .

Thus for the period we are concerned with, the period before the maturity date, the assets are not appropriated to the annuity, and can still be freely disposed of by the owner‑annuitant.

(3) Acceptance by a Trustee

Under section 3 of the Plan, decisions respecting investments are the exclusive prerogative of the owner‑annuitant. The only constraints on the owner‑annuitant relate to administrative formalities. That section also states that Scotia’s only obligations are to carry out the owner‑annuitant’s instructions regarding investments and to maintain the assets. This limited role is different from the role of a trustee under the Civil Code of Québec. In the case of a trust, the trustee has the control and exclusive administration of the trust patrimony (art. 1278 C.C.Q.). While the trust deed can circumscribe what the trustee may do, once the trustee accepts the assets the settlor loses the ability to control and administer those assets. The scope of the powers granted to a trustee cannot be limited to the point that they become something else entirely (M. Cantin Cumyn, Traité de droit civil: L’administration du bien d’autrui (2000), at p. 241). Acceptance by the trustee thus divests the settlor and charges the trustee with the administration of the property (art. 1265 C.C.Q.). The only restriction imposed on the trustee is the supervision of the trustee’s administration by the settlor and the beneficiary (art. 1287 C.C.Q.). The settlor or the beneficiary may act as trustee, but only jointly with a third party (art. 1275 C.C.Q.), and the Plan does not meet this requirement.

In other words, under the terms of the Plan, the rights and responsibilities of the trustee and the owner‑annuitant are the reverse of those set out in the Civil Code of Québec for trustees and settlors. The holder of the assets of the Plan is a trustee in name only.

The argument that the Plan constitutes a trust appears to be dictated more by expediency than derived from the structure of the Plan or justified by a quest for legal coherency. In fact, the trust argument is difficult to reconcile with the annuity argument that was made in the Superior Court. The two legal characterizations are incompatible because in an annuity contract, the debtor is personally obligated to pay, whereas in a trust, the trustee has no personal obligation to the beneficiary as the periodic payments must be made out of the trust assets. Consequently, although the requirement that the capital be alienated is common to both contracts, the obligations created by each are dissimilar.

The trust argument is, to a certain extent, a mirage. The trust patrimony may not be seized to pay the debts of the settlor or of the beneficiary because the property does not belong to them. However, the patrimonial rights of the beneficiary or of the settlor under the trust contract, like any personal patrimonial right, are seizable.

Moreover, it would be a mistake, in my view, to give a sympathetic hearing to the idea of extending trusts to include a contract in which a party reserves the right to deal with the assets. In 1991, the legislature sought to establish a more flexible mechanism than the one provided for under the Civil Code of Lower Canada, but it certainly did not intend to create a vehicle by which a settlor could use the assets in the patrimony by appropriation as he or she saw fit and even go so far as to appropriate them for himself or herself. The very concept of patrimony by appropriation would have been eroded and it would cease to have any purpose. The reform of the civil law trust met a real need. The Civil Code of Québec now allows trusts to be used outside the context of liberalities, which were a straightjacket imposed by the Civil Code of Lower Canada. The trust model cannot, however, be dressed up to encompass contracts under which the settlor retains all rights in the patrimony. I must therefore conclude that the Plan does not have the characteristics of a trust.

On December 19, 2002, after the Court of Appeal had rendered its decision, the Quebec legislature enacted s. 187 of the Act to amend the Act respecting insurance and other legislative provisions, S.Q. 2002, c. 70, in which it declared that the ability to make a partial or total withdrawal of capital does not prevent a contract constituting an annuity from being considered an annuity. In the submission of the parties, that section was inserted without much consultation, at a parliamentary committee meeting held just two days before the law was enacted. The section reads as follows:

187. Any stipulation in a contract for the constitution of an annuity which allows the total or partial withdrawal of the capital does not prevent the contract from being considered an annuity contract within the meaning of article 2367 of the Civil Code provided that the annuity is purchased from a trust company pursuant to section 178 of the Act respecting trust companies and savings companies (R.S.Q., chapter S‑29.01) or from an insurer.

This section is declaratory but does not infringe upon the rights of the parties in cases pending before the courts on 16 December 2002. However, insurers and trust companies having entered into annuity contracts containing a stipulation allowing the total or partial withdrawal of the capital must compensate the contracting party or, as the case may be, the annuitant, the holder of the contract or the beneficiary under the contract, on request, for any seizure, within the scope of a proceeding commenced or ended before the above‑mentioned date, of the annuity capital, up to the amounts seized.

Under the second paragraph, this section is not meant to affect the rights of the parties in this case. It is therefore not appropriate for the Court to rely on this paragraph to determine the rights of the parties. However, because the provision is declaratory, it must be considered in the context of all the rules governing insurance and annuities. Scotia also argued that this Act eliminated the discrimination between an employee pension plan and a RRSP, which are the only vehicles to which self‑employed workers have access. Thibault filed a factum in which he stated that, as the manager of a small business, he had specifically sought to invest in a protected vehicle. It is therefore worth considering the legislature’s actions in the more general context of the law governing the exemption of pension plans from seizure.

(1) The Declaratory Nature of the Act

The legislature may act to state the law, but in so doing it does not change the law. Pierre‑André Côté explains the rule clearly in The Interpretation of Legislation in Canada (3rd ed. 2000), at pp. 516-17:

No formal constitutional provisions prevent the legislature from at times interpreting its own legislation, although this is in principle the responsibility of the courts. Interpretive or declaratory acts serve “. . . to remove doubts existing as to common law, or the meaning or effect of any statute”.

(See Craies on Statute Law (7th ed. 1971), at p. 58.)

In s. 187 the legislature stated the law: a stipulation that allows total or partial withdrawal does not prevent an annuity contract from being considered an annuity. There had already been a judicial ruling with respect to a stipulation that allows total withdrawal: it had been decided in Coopérants, supra, that a surrender option, in the context of the termination of the contract, did not change the nature of an annuity contract. The issue in that case was the application of the rule governing life insurance contracts, for which the existence of a surrender stipulation did not change the nature of the contract. In the case of life insurance, it is settled that where the contract contains a stipulation to that effect, the insured may terminate the contract by exercising the right to the surrender value. By operation of the surrender, the insurer’s obligations are extinguished (Lluelles, supra, at pp. 407-8). What the declaratory legislation makes clear is that a stipulation which allows partial withdrawal also does not prevent the contract from being considered an annuity. However, to remain consistent with the existing law and maintain the declaratory nature of the Act, we must consider partial withdrawals in the context of changes to the benefits. In the case of life insurance, the insured may also, where there is a stipulation to that effect, receive an advance on the policy, and the effect of this is to reduce the insurer’s obligations (Lluelles, supra, at p. 413). The declaration by the legislature therefore dispels any ambiguity with respect to partial withdrawals, by stating that the same flexibility is available for annuities as for life insurance contracts.

The amendment does not change the rule requiring that capital be alienated, which is the central element of an annuity contract and which is missing in this case. The conclusion to which the analysis done earlier led therefore cannot be altered on the basis of the declaration by the legislature. In the case of an insurance policy, the insurer retains ownership of the capital, subject to the provision that the contract may be terminated or the insurer’s obligations reduced. The same rule applies to an annuity contract.

With respect to the broader effects of the provision, there is no need to analyse its cryptic wording for the purposes of this case. Certainly the legislature will have to examine the actual concept of withdrawals, in order to incorporate it coherently into the mechanism for constituting an annuity.

(2) Protection for Pension Plans

Scotia submits that s. 187 shows that the legislature wanted to protect new financial vehicles created by insurers and trust companies. In its submission, all such vehicles, whether in the form of a retirement plan, life insurance or an annuity, should have the same protection because they are all designed to provide retirement income. To dispose of this argument, a brief review of the history of retirement plans is in order.

As mentioned above, the philosophy guiding the protection of rights under insurance policies and, by statutory extension, annuities, whether constituted by an insurer or a trust company, was the desire to protect the family of the insured person or settlor. Parallel to that scheme, the legislature enacted a number of statutes that contained exemptions from seizure for rights under employee pension plans. Protection under those statutes is not limited to plans where a family member is the beneficiary. Certainly the most far-reaching statute is the Supplemental Pension Plans Act, R.S.Q., c. R‑15.1 (formerly S.Q. 1965, 13-14 Eliz. II, vol. I, c. 25), but there are also several other narrower statutes to the same effect, such as the Act respecting the teachers pension plan, R.S.Q., c. R‑11, s. 77, or the Act respecting the civil service superannuation plan, R.S.Q., c. R‑12, s. 113, to name just a few. Under those Acts, rights granted under retirement plans are exempt from seizure, but that protection ends when the capital becomes part of the employee’s patrimony. In fact, the dispute that was the subject of the decision in Poulin, supra, arose out of a refund of capital and the investment of that capital in a self-directed RRSP. The protection applies only as long as the assets remain locked in. None of those plans allows contributing employees to use the funds as they see fit during the life of the plan.

The rules governing insurance and annuities have already been discussed at length. Neither of those vehicles allows the policy holder or settlor to use the funds placed with the insurer or the annuity debtor as would an owner.

The Quebec legislature clearly demonstrated its desire to protect not only employees’ families, but also their retirement income, provided that the assets used to generate that income are invested in a particular legal vehicle, whether it be an annuity, an insurance policy or a pension plan. Has the legislature demonstrated a desire to extend that protection to RRSPs in general?

In 1957, in response to pressure from professionals who did not have access to pension plans for which tax benefits were available, the federal government decided to allow all taxpayers to defer the tax payable on a portion of their income if that portion was used to set up a retirement fund (W. E. Crawford, “Taxation and Retirement Planning” (1995), 43 Can. Tax J. 1343, at p. 1349). Parliament amended the Income Tax Act (S.C. 1957, c. 29, s. 17(1)) and created the first RRSPs. Fifteen years later, Quebec enacted a similar provision (Taxation Act, S.Q. 1972, c. 23, s. 684). Under the early plans, authorized investments were limited to insurance policies, annuities, deposit certificates and certain classes of shares. Over the years, the investment rules were relaxed and self‑directed RRSPs of the type in issue in this case became very popular.

The Quebec legislature, however, did not direct its attention to the legal status of RRSPs in civil law. While RRSPs are subject to both federal and provincial tax legislation, they are still governed by the rules of contract law that apply to the vehicle used. Thus, with respect to exemption from seizure, there was no statutory provision that operated to cover all RRSPs. To determine whether assets were seizable, reference had to be made to the legal nature of the vehicle in which the assets were invested.

The original investment rules for RRSPs allowed and still allow funds to be used to purchase insurance policies or annuities and consequently allow investors to arrange for some protection against seizure. Thus self‑employed workers can have the protection provided by exemption from seizure and suffer no discrimination in comparison with employees who have access to pension plans covered by the Supplemental Pension Plans Act.

Scotia nevertheless argues that self‑employed workers are treated unfairly in comparison with employees because, in its submission, the rules governing retirement plans are very flexible. In my opinion, that argument cannot succeed. Pension plans impose strict rules on transfers of funds throughout the period when a participant is making contributions. Those rules are not more favourable, overall, than the rules that apply to self‑employed workers.

Flexible plans of the kind offered by Scotia are more attractive to investors because the investors are still able to dispose of their assets as they see fit, subject only to tax constraints. That flexibility, which is not shared by pension plans subject to the Supplemental Pension Plans Act, comes at a price, because the assets held in such a plan are seizable.

The declaration made by the legislature in 2002 did not change the rules governing exemption from seizure in general, nor does it suggest that the legislature wanted to change the protection given to RRSPs. If that had been the legislature’s intention, it would not have limited itself to declaring the law that applies to partial or total withdrawals of the assets that are to be used to pay an annuity. The action taken by the legislature was therefore simply another narrow change following on the change that provided annuity contracts established by trust companies with access to the same protection as contracts with insurers. Contracts covered by the exemption from seizure are still the exception.

RRSPs, by their nature, cannot be assigned a one-size-fits-all label. They may establish rules that allow for the purchase of a life insurance policy or annuity that is exempt from seizure, and even for a trust to be constituted. To accomplish that, however, they must comply with the rules that apply to those contracts. In the case of the Scotia RRSP, a fundamental rule, that there be alienation, was not met, and this means that it cannot be characterized as an annuity or trust. Even if we were to assume that partial or total withdrawals were not a bar to that characterization, the assets in this case are still in the hands of the person who continues to be the owner until the maturity date of the Plan. In this case, that owner is Thibault.

For these reasons, I would dismiss the appeal without costs, except as regards the amicus curiae whose costs will be paid in accordance with the order rendered upon its appointment.