Heenan Blaikie

Heenan Blaikie MEMORANDUM RECIPIENT(S) Melinda Heidsma COPY SENDER Peter A. Gall, Q.C. and Geoff Plant, Q.C. DATE October 15, 2012 SUBJECT O/REF. HBT We have been asked to review correspondence that many Community Service agencies have received in recent days from the Healthcare Benefit Trust (HBT) and their legal counsel. We have also been asked to comment upon recent media reports. The first letter is from the HBT's Chief Financial Officer and appears to be addressed to agencies who are still members of the HBT. It includes a section entitled "legal precedent", which implies that the BC Supreme Court has ruled on the merits of the HBT's exit levy claims. The same letter also suggests that agencies who wish to leave the HBT will be prohibited from doing so, unless they pay their exit levy in full or agree to HBT's payment plan. To the best of our knowledge, the merits of the exit levy issue have never been considered by our courts. What the HBT has obtained, as far as we can tell, is default judgments, in which the agencies never appeared to defend the case. Therefore, an order was granted without the matter ever being considered by a judge. Those agencies could be in an awkward position if they do not have a good reason for their failure to defend. However, it is misleading to suggest that these default judgments are a "legal precedent" with respect to the merits of the claim against any other agency. Second, the issue of a payment plan is addressed in detail in a second letter we have been asked to review, which comes from a law firm and appears to be addressed to agencies that have left the HBT and have been assessed an exit levy. That letter includes a document entitled "settlement agreement". With respect to the settlement agreement, it requires employers to provide guarantees, such as a mortgage against their home: s. 1.1.c. In addition, employers are required to sign a consent order for judgment, in advance, so that if the employer fails to comply with any term of the agreement, the HBT can act on the guarantee (e.g., seize your car or home): s. 1.2. Finally, the document requires employers to agree that if the HBT is wrong about anything, even if the facts are completely different than what is presently believed to be true, the employer assumes this risk and must continue to pay: s. 3.5. Heenan Blaikie LLP , an Alberta Limited Liability Partnership Lawyers | Patent and Trade-mark Agents Vancouver Victoria Calgary Montreal Toronto Ottawa Québec Sherbrooke Trois-Rivières Paris Singapore Page 2 A settlement agreement, by its very nature, usually involves a compromise. For example, in exchange for payment, the creditor will usually provide a substantial discount. HBT is not offering any discount. What they are offering to do is to finance the full amount claimed if agencies will agree to onerous terms that HBT would otherwise not be entitled to. In our opinion, even if an agency wanted to give in to the HBT's claims and simply pay the exit levy, they would be better off going to a bank and borrowing the money. We could not recommend these settlement terms to any of our clients, unless they wanted out and had no other way of financing the alleged debt. Finally, we have reviewed recent newspaper reports, which quote the CEO of HBT as saying that if agencies refuse to pay the exit levies, the trust will sue and likely win. "The courts would say, "you signed a contract. This is a legitimate obligation." In our view, the matter is not that simple. The contractual obligation to pay an exit levy may be an unenforceable penalty clause. But even if the clause is enforceable, serious legal questions are raised about whether the large unfunded liabilities, which HBT is now attempting to recover from departing agencies as an exit levy, resulted from mismanagement, neglect and improper government directions which would prevent HBT from collecting the levy (in whole or in part) in legal proceedings. We have not addressed these legal issues in any detail in this memorandum, which should not be construed as legal advice. We also wish to make it clear that distinct legal issues may arise for individual agencies, depending upon the circumstances. Moreover, the situation of agencies that are members of HEABC may be different because of the unique history of the CSSEA involvement with HBT. We understand that a meeting has been arranged for October 22, 2012, in Richmond, BC at which these issues will be discussed in greater detail. We are aware that some agencies already have legal representation in respect of these matters – those agencies do not need to attend this meeting. We do strongly urge all agencies to seek independent legal advice before signing or agreeing to anything. HBdocs - 13497402v1 Heenan Blaikie .

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