Lac Seul First Nation v. Canada

Lac Seul First Nation v. Canada
Court (s) Database
Federal Court Decisions
Date
2009-05-08
Neutral citation
2009 FC 481
File numbers
T-2481-03
Notes
A correction was made on May 6, 2014
Decision Content
Federal Court
Cour fédérale
Date: 20090508
Docket: T-2481-03
Citation: 2009 FC 481
BETWEEN:
LAC SEUL FIRST NATION
As represented by The Chief and Council
Plaintiff
and
HER MAJESTY THE QUEEN
IN RIGHT OF CANADA
Defendant
REASONS FOR JUDGMENT
O’KEEFE J.
[1] This is an action by the plaintiff, Lac Seul First Nation, as represented by the Chief and Council (LSFN or Band) against Her Majesty the Queen in Right of Canada (Canada).
[2] In its statement of claim, the plaintiff claims against the defendant for:
(a) General and aggravated damages, as yet unascertained but in any case totalling more than $50,000, details of which shall be provided before trial, as a result of breach of trust and fiduciary duties, breach of treaty and statutory obligations, and accessory liability to breach of fiduciary duties, including:
(i) the defendant’s failure to secure the plaintiff’s share of proceeds which were paid, or ought to have been paid, pursuant to statute, regulation, the plaintiff’s surrender, and permits granted to third parties for timber harvesting on the Lac Seul Indian Reserve No. 28;
(ii) the defendant’s failure to protect and manage the timber resources on Lac Seul Indian Reserve No. 28 in a reasonably prudent manner, on behalf of and to the benefit of the plaintiff; and
(iii) the loss of economic development opportunities as a result of not having access to capital that the plaintiff would have, but for the negligence, breach of trust, legal obligations or fiduciary duties of the defendant to the plaintiff;
(b) Special damages as yet unascertained, but totalling more than $50,000, details of which shall be provided before trial;
(c) Punitive damages totalling more than $40,000, details of which shall be provided before trial;
(d) Pre-judgment and post-judgment interest compounded annually at a rate that the plaintiff would have obtained through investment of monies which it should have obtained but for the failures of the defendant, as set out herein, or in the alternative, pre-judgment and post-judgment interest pursuant to statute;
(e) Costs of this action on a substantial indemnity basis; and
(f) Such further and other relief that to this Honourable Court seems just.
[3] Lac Seul First Nation is an Indian band within the meaning of the Indian Act, R.S. 1985, c. I-5, located in Northwestern Ontario, with approximately 2,500 band members. David Gordon is the duly elected Chief of Lac Seul and is an “Indian” within the meaning of the Indian Act, as are the councillors and members of the plaintiff First Nation.
[4] The plaintiff brings this action against the Crown in right of Canada in the name of Her Majesty the Queen. At all material times, the Department of Indian Affairs or Branch of Indian Affairs (Indian Affairs), as it was from time to time designated, represented and acted on behalf of the defendant.
[5] On June 9, 1874, the chiefs and councillors signed an adhesion to Treaty 3 at Lac Seul. The adhesion incorporated by reference the terms of Treaty 3 which provided that a Reserve was to be set apart for the Lac Seul First Nation. The resulting Lac Seul Indian Reserve No. 28 is a Reserve within the meaning of the Indian Act, above.
[6] The merchantable timber on the Reserve was surrendered to the Crown by a surrender document dated July 2, 1919. The surrender was approved by Order-in-Council PC 1666 dated August 9, 1919.
[7] The timber on the Reserve was surrendered by the Band to the Crown on the basis that the Crown was to sell the timber “Upon such terms as the Government of the Dominion of Canada may deem most conductive to our welfare and that of our people”.
[8] After the Reserve timber lands were surrendered to the Crown, a timber cruise was carried out on the Reserve lands in 1919 by Henry J. Bury (Bury), an official of the department now known as Indian and Northern Affairs Canada (INCAC or the Department).
[9] Bury, as a result of his cruise, determined that the northern portion of the Reserve was too remote to be economically harvested at that time. His recommendation was that the Reserve be divided into two timber limits, the northern and the southern. He also recommended that the southern limit be sold first.
[10] When a license was granted to cut from the surrendered lands, the successful licensees were required to pay a number of amounts and fees. These were provided for in the Indian Timber Regulations (ITRs) of the day.
[11] Before a timber limit was tendered, the timber limit must be cruised and its value and boundaries established. The valuation was used to establish an upset price to be used in the tendering process. Generally speaking, this figure would represent the minimum value (in addition to stumpage fees which were paid as the timber was cut) of the timber. The bid price should exceed the upset price.
[12] The licensees were also charged ground rent based on the size of the timber berth. The rate in 1888 was $3 per square mile and in 1923, the rate was increased to $5 per square mile.
[13] In 1920, the Keewatin Lumber Company (Keewatin) was awarded a tender to remove the merchantable timber from the southern portion (limit) of the Reserve. The tender price was $26,000. The ground rent charged was $3 per square mile. As noted earlier, the ground rent was increased to $5 per square mile in 1923. Keewatin’s ground rent remained at $3 per square mile until it completed its operations in 1949.
[14] Keewatin’s license was extended for ten years in June 1923 for the period 1924 to 1934. It was extended again in 1933 for a further five years for the period 1934 to 1939 and a further ten year extension was granted for the period 1939 to 1949.
[15] In 1926, a license for the northern portion (limit) was awarded to Charles W. Cox (Cox) for a tendered bonus of $26,000 plus ground rent of $5 per square mile.
[16] The Cox license was extended for a further ten years for the period 1937 to 1947. A new license was issued for the period 1947 to 1952.
Issues
[17] The issues raised are as follows:
1. Does the defendant owe a fiduciary duty to the plaintiff in relation to the management of the Band’s surrendered timber lands or resources?
2. Did the actions or omissions of the Department officials breach a fiduciary duty owed to the Band in relation to the timber resources with respect to the following:
(a) The sale of the burnt timber from the 1907 fire?
(b) Did Canada ignore the terms under which LSFN surrendered the timber?
(i) By ignoring LSFN’s desire for employment?
3. Did Canada fail to obtain the appropriate value for LSFN’s timber limit?
(a) Improper valuation of the timber limit and failing to correct the problem;
(b) Failure to collect adequate ground rent;
(c) Failure to collect adequate bonus payments.
4. Did Canada fail to re-tender the timber limits?
(a) The Keewatin extensions;
(b) The Cox extensions.
5. Did Canada breach the Indian Timber Regulations (ITRs or Regulations)?
(a) Breaches of section 18 of the 1888 ITRs;
(b) Breaches of section 12 of the 1888 ITRs;
(c) Breaches of section 22 of the 1923 ITRs;
(d) Breaches of sections 10 and 23 of the 1923 ITRs;
(e) Breaches of sections 7 and 8 of the 1923 ITRs.
6. Did Canada fail to prudently manage the licensees?
7. Did Canada fail to levy appropriate stumpage dues?
(a) Canada keeps stumpage dues low for Cox and Keewatin;
(b) Comparison with Ontario’s stumpage fees;
(c) Exemption from export fees;
(d) Canada failed to correct an error in the best interests of the beneficiary.
[18] Issue 1
General Law with respect to fiduciary duties owed by the Crown
The jurisprudence is clear that the Crown can be liable in damages to Aboriginal peoples for breach of fiduciary duties owed to them (see Guerin v. The Queen, [1984] 2 S.C.R. 335).
[19] The Supreme Court of Canada in Wewaykum Indian Band v. Canada, [2002] 4 S.C.R. 245 stated at paragraph 85:
I do not suggest that the existence of a public law duty necessarily excludes the creation of a fiduciary relationship. The latter, however, depends on identification of a cognizable Indian interest, and the Crown’s undertaking of discretionary control in relation thereto in a way that invokes responsibility “in the nature of a private law duty”, as discussed below.
The Supreme Court also stated at paragraph 81:
But there are limits. The appellants seemed at times to invoke the “fiduciary duty” as a source of plenary Crown liability covering all aspects of the Crown-Indian band relationship. This overshoots the mark. The fiduciary duty imposed on the Crown does not exist at large but in relation to specific Indian interests.
And at paragraph 83:
. . . but I think it desirable for the Court to affirm the principle, already mentioned, that not all obligations existing between the parties to a fiduciary relationship are themselves fiduciary in nature (Lac Minerals, supra, at p. 597), and that this principle applies to the relationship between the Crown and aboriginal peoples. It is necessary, then, to focus on the particular obligation or interest that is the subject matter of the particular dispute and whether or not the Crown had assumed discretionary control in relation thereto sufficient to ground a fiduciary obligation.
The Court’s mind must be directed to the particular interests at issue in each case in order to decide whether a fiduciary duty exists.
[20] In the present case, the issue to be dealt with deals with timber on reserve lands which have been surrendered to the Crown. This is an interest that fiduciary law will protect. The Supreme Court of Canada in Guerin above, at paragraphs 84 and 85 stated:
The fiduciary relationship between the Crown and the Indians has its roots in the concept of aboriginal, native or Indian title. The fact that Indian Bands have a certain interest in lands does not, however, in itself give rise to a fiduciary relationship between the Indians and the Crown. The conclusion that the Crown is a fiduciary depends upon the further proposition that the Indian interest in the land is inalienable except upon surrender to the Crown.
An Indian Band is prohibited from directly transferring its interest to a third party. Any sale or lease of land can only be carried out after a surrender has taken place, with the Crown then acting on the Band’s behalf. The Crown first took this responsibility upon itself in the Royal Proclamation of 1763. It is still recognized in the surrender provisions of the Indian Act. The surrender requirement, and the responsibility it entails, are the source of a distinct fiduciary obligation owed by the Crown to the Indians. . . .
[21] It is settled law that breach of the Crown’s fiduciary duties can lead to damages. In Guerin above, at paragraph 102, the Court stated:
I make no comment upon whether this description is broad enough to embrace all fiduciary obligations. I do agree, however, that where by statute, agreement, or perhaps by unilateral undertaking, one party has an obligation to act for the benefit of another, and that obligation carries with it a discretionary power, the party thus empowered becomes a fiduciary. Equity will then supervise the relationship by holding him to the fiduciary’s strict standard of conduct.
[22] Where band lands or resources are surrendered to the Crown in the language of a trust, a trust-like relationship is created. In Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344 (Blueberry River), the Supreme Court stated as follows about the relationship at paragraphs 12 and 13:
12. Although the "revocation-resurrender" description offered by Stone J.A. is one plausible construction of the 1945 agreement, I think that the true nature of the 1945 dealings can best be characterized as a variation of a trust in Indian land. In 1940, the Band transferred the mineral rights in I.R. 172 to the Crown in trust, requiring the Crown to lease those rights for the benefit of the Band. The 1945 agreement was also framed as a trust, in which the Band surrendered all of its rights over I.R. 172 to the Crown "to sell or lease". The 1945 agreement subsumed the 1940 agreement, and expanded upon it in two ways: first, while the 1940 surrender concerned mineral rights only, the 1945 surrender covered all rights in I.R. 172, including both mineral rights and surface rights; and second, while the 1940 surrender constituted a trust for "lease", the 1945 surrender gave the Crown, as trustee, the discretion "to sell or lease". This two-pronged variation of the 1940 trust agreement afforded the Crown considerably greater power to act as a fiduciary on behalf of the Band. Of course, under the terms of the trust, and because of the Crown's fiduciary role in the dealings, the DIA was required to exercise its enlarged powers in the best interests of the Band.
13. I should add that my reasons should not be interpreted to equate a trust in Indian land with a common law trust. I am well aware that this issue was not resolved in Guerin v. The Queen, [1984] 2 S.C.R. 335, and I do not wish to pronounce upon it in this case. However, this Court did recognize in Guerin that "trust-like" obligations and principles would be relevant to the analysis of a surrender of Indian lands. In this case, both the 1940 and 1945 surrenders were framed as trusts, and the parties therefore intended to create a trust-like relationship. Thus, for lack of a better label, I think that it is appropriate to refer to these surrenders as trusts in Indian land.
[23] The obligations of the Crown’s fiduciary relationships were stated as follows in Wewaykum above, at paragraph 86:
. . .
2. Prior to reserve creation, the Crown exercises a public law function under the Indian Act – which is subject to supervision by the courts exercising public law remedies. At that stage a fiduciary relationship may also arise but, in that respect, the Crown’s duty is limited to the basic obligations of loyalty, good faith in the discharge of its mandate, providing full disclosure appropriate to the subject matter, and acting with ordinary prudence with a view to the best interest of the aboriginal beneficiaries.
3. Once a reserve is created, the content of the Crown’s fiduciary duty expands to include the protection and preservation of the band’s quasi-proprietary interest in the reserve from exploitation.
. . .
Also at paragraph 116 of Blueberry River above, the Court put it this way:
The DIA’s duty was the usual duty of a fiduciary to act with reasonable diligence with respect to the Indians’ interest. . . .
[24] The plaintiff, in its written submissions, at paragraph 18 stated:
Therefore, according to Blueberry River, when reserve land is surrendered in trust for private purposes, as a fiduciary the Crown must:
a. Remember its role as trustee and act only in the best interests of the beneficiary;
b. Exercise any enlarged rights and powers on behalf of the beneficiary;
c. Have the utmost loyalty to the beneficiary;
d. Intervene between the beneficiary and third parties who wish to make exploitative bargains;
e. Act in the manner of a “man of ordinary prudence in managing his own affairs”;
f. Correct an error in the best interests of the beneficiary.
Having reviewed Blueberry River above, I would slightly change a and c to read:
a. Remember its role as a trustee and act in the best interests of the beneficiary;
c. Exercise the power with loyalty and care;
Otherwise, I agree with the plaintiff’s statement.
[25] In summary, I am of the opinion that the defendant did owe a fiduciary duty to the plaintiff.
[26] Issue 2
Did the actions or omissions of the Department officials breach a fiduciary duty owed to the Band in relation to timber resources with respect to the following:
(a) The sale of the burnt timber from the 1907 fire?
There was a fire on the Reserve in 1907 which destroyed timber. This was prior to the surrender by the Band to the Crown. The Crown relied on section 48 of the Indian Act, R.S.C. 1906, c. 81 which states:
Except as in this Part otherwise provided, no reserve or portion of a reserve shall be sold, alienated or leased until it has been released or surrendered to the Crown for the purposes of this Part: Provided that the Superintendent General may lease, for the benefit of any Indian, upon his application for that purpose, the land to which he is entitled without such land being released or surrendered, an may, without surrender, dispose to the best advantage, in the interests of the Indians, of wild grass and dead or fallen timber.
This section of the Act gave discretionary control over the disposition of the burnt timber to Canada. There did not have to be a release or surrender by the Band.
[27] Accordingly, Canada awarded a tender to Eastern Construction in December 1907 to harvest the burnt timber. The tender requirements were:
a. That the wood had to be removed within two years;
b. That a $500 security deposit had to be put down which would be forfeited if the licensee failed to carry out the tender’s terms; and
c. That “sworn returns of the number of ties and posts taken out will be required, and also the pieces and sizes of Red Pine logs and the prices tendered shall be paid thereon prior to the removal of the timber from the reserve.
(Taken from paragraph 40 of the plaintiff’s written submissions).
[28] The defendant’s inspector estimated that there would be 56,000 ties available for salvage and 407 of this number would be number 1 ties. In the end, the company reported that it had harvested 12,132 ties and 1,000 “cull” (inferior ties). The company had been awarded the tender in 1907 but did not report the number of ties until 1913. It did not pay for the ties until 1916.
[29] Eastern Construction did not provide to the defendant a sworn return to show the amount of ties harvested as was required by the tender.
[30] At this stage, the issue is whether the defendant breached the fiduciary duty it owed to the plaintiff.
[31] In my view, the defendant did not act with reasonable diligence in its dealings with Eastern Construction. It failed to obtain a sworn statement from Eastern Construction as to the number of ties removed. I have taken into account the fact that Eastern Construction, after the tender was awarded, informed the defendant that there were less ties than estimated. It would seem to me that since Eastern Construction claimed it only cut 12,132 ties and 1,000 cull ties as opposed to the estimated quantity of 56,000 ties, this would have been a most appropriate case for the Crown to demand the required sworn statement. It did not.
[32] I therefore conclude that the defendant breached the fiduciary duty it owed to the plaintiff by failing to require a sworn statement from Eastern Construction as to the amount of timber actually harvested.
[33] Issue 2
(b) Did Canada ignore the terms under which LSFN surrendered the timber?
(i) By ignoring LSFN’s desire for employment?
The plaintiff submitted that Canada ignored the terms under which the surrender took place as it did not provide for employment of the Band members by the successful contractor nor did it provide for the provision of cheap lumber to the Band members. The plaintiff stated that these were the reasons behind their desire to surrender the timber.
[34] In August 1918, Indian agent R. S. McKenzie confirmed to his superiors that the Chief of Lac Seul shared his earlier opinion that he sent to his superiors that “the Indians would reap quite a benefit from the operation as they would get employment in the lumber camps”.
[35] Mr. McKenzie’s August 1918 letter to his superiors stated in part as follows:
Chief John Ackewance arrived here today and states that his band are very anxious to surrender the timber on their Reserve to the Department, and that a portion of it should be sold now to Mr. Farlinger or others, so that they could have work during the winter to make a living.
Mr. McKenzie also attached a header of a petition from Chief Ackewance with the names of 106 members of the Lac Seul Band which read:
We the undersigned members of the Band of Indian Reserve number 28 herewith petition you, being desirous that a portion of the timber on the Reserve be sold, in order that the members of our Band may have employment cutting the timber and also secure cheaper lumber for the construction of our houses, as well as securing some revenue for the timber located on the Reserve. We pray that you may favourably consider our petition, and arrange for the sale of a portion of the timber.
[36] In my view, this shows that the Band was surrendering its merchantable timber at least in part, so that Band members could obtain employment, secure cheap lumber and some revenue.
[37] In Blueberry River above, the Supreme Court made the following statements at paragraph 6 concerning the interpretation of surrenders:
. . . For this reason, the legal character of the 1945 surrender, and its impact on the 1940 surrender, should be determined by reference to the intention of the Band. Unless some statutory bar exists (which, as noted above, is not the case here), then the Band members’ intention should be given legal effect.
And at paragraph 7:
An intention-based approach offers a significant advantage, in my view. As McLachlin J. observes, the law treats aboriginal peoples as autonomous actors with respect to the acquisition and surrender of their lands, and for this reason, their decisions must be respected and honoured. It is therefore preferable to rely on the understanding and intention of the Band members in 1945, as opposed to concluding that regardless of their intention, good fortune in the guise of technical land transfer rules and procedures rendered the 1945 surrender of mineral rights null and void. In a case such as this one, a more technical approach operates to the benefit of the aboriginal peoples. However, one can well imagine situations where that same approach would be detrimental, frustrating the well-considered plans of the aboriginals. In my view, when determining the legal effect of dealings between aboriginal peoples and the Crown relating to reserve lands, the sui generis nature of aboriginal title requires courts to go beyond the usual restrictions imposed by the common law, in order to give effect to the true purpose of the dealings.
[38] The ITRs gave authority for the defendant to impose conditions on the sale of the timber limits. As well, Cox’s renewed license for the Gull Bay Reserve required him to employ LSFN members from the Reserve in his timber harvesting operations.
[39] It is my finding that the defendant breached the fiduciary duty it owed to the Band in not protecting the Band’s employment interests and the Band’s desire to have cheaper lumber to build houses on the Reserve.
[40] Issue 3
Did Canada fail to obtain the appropriate value for LSFN’s timber limit?
(a) Improper valuation of the timber limit and failing to correct the problem
The plaintiff submitted that the defendant did not receive a proper return for the Lac Seul’s timber. In Alexander Band No. 134 v. Canada (Minister of Indian Affairs and Northern Development), [1991] 2 F.C. 3 (F.C.T.D.) at page 14, the Court stated:
With respect to the first point, having regard to the historical relationship between the Crown and Indians, I believe the fiduciary’s duty of “utmost loyalty to his principal” would in general oblige the Crown to seek to achieve as good a return from the property of the beneficiary of the fiduciary obligation as could reasonably and lawfully be achieved. . . .
[41] A similar comment was expressed in Blueberry River above, at paragraph 104 where the Supreme Court stated:
The matter comes down to this. The duty on the Crown as fiduciary was “that of a man of ordinary prudence in managing his own affairs”: Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302, at p. 315. A reasonable person does not inadvertently give away a potentially valuable asset which has already demonstrated earning potential. Nor does a reasonable person give away for no consideration what it will cost him nothing to keep and which may one day possess value, however remote the possibility. The Crown managing its own affairs reserved out its minerals. It should have done the same for the Band.
[42] It was a requirement of the ITRs that the timber limit had to be valued in order to determine the amount of the upset price for the tendering process. The upset price would represent the minimum amount of the bid which would be accepted by the Department of Indian Affairs (DIA). The Band, of course, would also be paid stumpage fees.
[43] Mr. Bury, the defendant’s timber inspector, set the size of the Reserve at 49,000 acres which was the same size set by Mr. Vaughan in 1882 when Mr. Vaughan was calculating the size of the Reserve for treaty purposes. The actual size of the Reserve was 66,000 acres. According to the evidence, Mr. Bury did not spend a lot of time in valuating the Reserve.
[44] The Crown was told of the error in the size of the Reserve by the Surveyor General of Ontario in February 1929. The new acreage was accepted by the Crown.
[45] The mistake in the size of the Reserve would result in a lower bonus price for the sale of the timber berths and, as I will address later, a decreased amount of ground rent.
[46] In my view, this conduct by the defendant was another breach of the fiduciary duty owed to the Band by the defendant.
[47] The conduct of the defendant does not meet the standard stated in Alexander Band No. 134 above, and Blueberry River above.
[48] Issue 3
(b) Failure to collect adequate ground rent
The defendant collected ground rent from Mr. Cox on the northern limit of the Reserve based on the incorrect size of 31 square miles. The correct size was 59 square miles. When Mr. Cox received the tender for the northern limit in 1926, he only paid ground rent for 31 square miles. The Crown found out in February 1929 that ground rent should be charged on 59 square miles but did not correct the amount of ground rent to be paid by Mr. Cox. The Crown did not correct the amount of ground rent until October 1940 and then it only increased the amount of the ground rent for the time frame from 1940 onward. There was no collection of the additional ground rent from 1926 to 1940.
[49] In Blueberry River above, Madam Justice McLachlin found that section 64 of the Indian Act created a fiduciary duty “to rectify errors prejudicing the interests of the Indians”. She stated at paragraph 115:
In my view, the DIA was under a duty to use this power to rectify errors prejudicing the interests of the Indians as part of its ongoing fiduciary duty to the Indians. The fiduciary duty associated with the administration of Indian lands may have terminated with the sale of the lands in 1948. However, an ongoing fiduciary duty to act to correct error in the best interests of the Indians may be inferred from the exceptional nature of s. 64. That section gave the DIA the power to revoke erroneous grants of land, even as against bona fide purchasers. It is not unreasonable to infer that the enactors of the legislation intended the DIA to use that power in the best interests of the Indians. If s. 64 above is not enough to establish a fiduciary obligation to correct the error, it would certainly appear to do so, when read in the context of jurisprudence on fiduciary obligations. Where a party is granted power over another's interests, and where the other party is correspondingly deprived of power over them, or is "vulnerable", then the party possessing the power is under a fiduciary obligation to exercise it in the best interests of the other: Frame v. Smith, supra, per Wilson J.; and Hodgkinson v. Simms, supra. Section 64 gave to DIA power to correct the error that had wrongly conveyed the Band's minerals to the DVLA. The Band itself had no such power; it was vulnerable. In these circumstances, a fiduciary duty to correct the error lies.
I believe that the Crown breached its fiduciary duty to the Band when it failed to even attempt to rectify the problem until it was notified of the problem for a second time in October 1940 and then only for the period 1940 forward. I would note that Mr. Cox’s license was extended for the period 1937 to 1947.
[50] The plaintiff alleges that inadequate ground rent was collected from Keewatin as the ground rent set by the Regulations increased to $5 per square mile from $3 per square mile in 1888. The increase was never passed on to Keewatin despite extensions or renewals to its contract or license.
[51] Applying the principles outlined in Blueberry River above, I am of the opinion that the Crown breached its fiduciary duty to the Band in this respect also.
[52] Issue 3
(c) Failure to collect adequate bonus payments
The value of the timber on the northern portion of the Reserve was lowered because in June 1926, Mr. Bury claimed a fire destroyed approximately seven square miles of timber. This represented less than 12% of the 59 square miles contained in this part of the Reserve. In addition, Mr. Bury had stated in April 1926 that no fires had been reported on the Reserve since he cruised the Reserve forest land in 1919.
[53] As a result of alleged damage from the 1923 fire, Mr. Bury made a 60% reduction in his assessment of red and white pine, made a reduction in jack pine from six million to four million F.b.M. and spruce and balsam from eight million down to six million F.b.M. If there was a fire in this area at all in 1923, these are large deductions for damage that covered up to12% of the Reserve.
[54] There was a further problem with the calculation of the upset price for the northern portion of the Reserve. Mr. Bury stated that there were only 13,000 railway ties available. The jack pine saw logs that were on the northern portion of the Reserve would have converted to 130,000 railway ties worth six cents each, amounting to a total value of $7,800. Mr. Bury, however, used the figure of 13,000 ties making a value of $780. This resulted in Mr. Bury calculating an upset price of $20,380 instead of $27,400.
[55] The tender offers received by the defendant were $21,500 and $26,000, neither of which would have been above the upset price, calculated correctly.
[56] It is interesting to note the following statement contained in an investigation into the matter in 1938:
[t]he valuation of the timber as submitted to the Department for bonus purposes amounted to $20,380.00. In this valuation the estimated number of jack pine ties was 13,000. This should have read 130,000, and at a value of 6 cents each would have increased the cash value of the timber by $7,020.00 or the total valuation would have read $27,400.00 instead of $20,380.00.
[57] The defendant submitted that the Crown took reasonable steps from 1907 to 1926 to ensure that the Band received fair value for its timber. The defendant stated that the DIA surveyed both portions of the Reserve and held public tenders.
[58] Based on the evidence, including the fact that the Crown found out in 1938 about Mr. Bury’s error but yet did nothing to rectify the matter, I cannot agree that the Crown did not breach its fiduciary duty to the Band. There was a $7,020 error in the upset price which was not corrected.
[59] Issue 4
Did Canada fail to re-tender the timber limits?
The process used to tender the timber limits was that the tenderor would submit a tender to remove timber, let’s say for a period of four years. The successful tenderor would then have to apply annually to have the yearly license renewed. The tender submitted would have to be at least as much as the upset price set by the DIA. In addition, the successful tenderor would pay additional fees set in the ITRs, i.e. ground rent and stumpage fees.
[60] When applying for the annual renewal, the license holders were supposed to have paid all the applicable fees. The ITRs also required the applicant to work the limit each year or give an explanation under oath as to why the limit had not been worked. This was provided for in section 12 of the Regulations which states:
No renewal of any license shall be granted unless the limit covered thereby has been properly worked during the preceding season, or sufficient reason be given under oath, and the same be satisfactory to the Superintendent General of Indian Affairs, for the non-working of the limit, and unless or until the ground rent and all costs of survey, and all dues to the Crown on timber, saw-logs or other lumber cut under and by virtue of any license, other than the last preceding, shall have been first paid.
[61] Issue 4
(a) The Keewatin extensions
In the present case, Keewatin won its tender in 1920 for a period of four years. It was given three extensions, without any retendering, i.e. 1924 to 1934, 1934 to 1939 and 1939 to 1949. The ground rent remained the same at $3 per square mile although the ITRs had increased the ground rent from $3 to $5 per square mile in 1923. No new bonus price was set and there was no public tender or auction.
[62] Issue 4
(b) The Cox extensions
Charles Cox won his first tender in 1926 to harvest the timber on the northern portion of the Lac Seul Reserve. The term was ten years. In 1936, Cox’s license was renewed for a further 10 years without tender until 1946. In 1947, Mr. Cox was given new harvesting rights for an additional five years until 1952. These extensions were given without any public auction or tender and without obtaining any new bonus price.
[63] In the surrender, the timber was referred to as merchantable timber. At the time of the surrender, it was accepted that merchantable timber was timber ten inches or more in diameter as specified in the ITRs. As time went on, the ITRs were amended to allow cutting of timber smaller than ten inches in diameter. In fact, Mr. Cox’s license allowed him to harvest timber six inches and more in size.
[64] As well, the growth of trees provides a larger supply of merchantable timber over a period of time.
[65] As a result of not retendering the limits, no new bonuses were collected for the benefit of the Band. If, at the end of the tender period, a new tender process had been initiated instead of simply extending the timber operators’ harvesting rights, a new bonus or upset price would have been established, thus providing more revenue to the Band. This would also have the effect of the operators having to pay for the growth in the timber over the preceeding years.
[66] In addition, the evidence establishes that harvesting periods were extended when the dues from previous years were not paid and no sworn declarations were given as to why the limit had not been worked in the previous year.
[67] The evidence also shows that the defendant’s own Indian agent had concerns. Agent Frank Edwards wrote to Ottawa concerning the decision to allow Keewatin to defer harvesting its limit for the seventh year in a row. His letter stated as follows:
Replying to your letter #30130-6 of 24th ulto re operation by the Keewatin Lumber Company on the southern portion of Lac Seul Reserve.
The Company could not do very much on the Reserve, and ship to their mill at Kenora, until a railway was put in, but pulpwood and ties could be cut and shipped to the mills at Fort William and I would respectfully suggest that if the Company do not operate themselves next winter they should at least permit the Indians to cut some ties or pulpwood themselves for sale, and so give them some occupation instead of tying up the resources for such a long period.
In my opinion it will be several years before a railway is in operation, on which they could ship the timber to Kenora. I understand they have had surveyors out, but the exact route is not yet definitely decided on, and no construction has been started even from Kenora, they have not yet started to clear the right-of-way. The Company is reliable, and I do not wish to be unreasonable to them, as they have always, in my opinion been kind to the Indians, but it appears to me some operation should be insisted on for next winter, as it is impossible to complete the Railway by then.
(Emphasis added)
[68] In my view, the Crown did not act in a prudent manner and in the best interests of the Band. It did not sell the timber rights “upon such terms as the Government of the Dominion of Canada may deem most conducive to our Welfare and that of our people.” as stated in the surrender document.
[69] By failing to retender the limits, the Crown did not meet its fiduciary duty “to seek to achieve as good a return from the property of the beneficiary . . . as could reasonably and lawfully be achieved”.
[70] I do not agree with the defendant’s submissions with respect to the extension of licenses or more specifically, harvesting periods. These submissions are contained in paragraphs 206 and 207 of the defendant’s aid to argument. This approach would allow the timber limit to be tied up for many years; in the case of Keewatin, there were no new tenders being called from 1920 to 1949. The Band would lose the financial benefit of having new upset prices calculated to account for the growth in the timber and the increase in the harvested amounts due to the lowering of the diameter of the timber that could be cut from ten inches to six inches in diameter.
[71] I am of the opinion that the Crown breached the fiduciary duty it owed to the Band by not retendering the timber limits.
[72] Issue 5
Did Canada breach the Indian Timber Regulations?
(a) Breaches of section 18 of the 1888 ITRs;
(b) Breaches of section 12 of the 1888 ITRs;
(c) Breaches of section 22 of the 1923 ITRs;
(d) Breaches of sections 10 and 23 of the 1923 ITRs;
(e) Breaches of sections 7 and 8 of the 1923 ITRs.
At paragraph 236 of the plaintiff’s written submissions, the plaintiff submits that Canada failed to meet the standards set out in the ITRs in the following respects:
a. Failed to obtain security bonds from licensees in contradiction of s. 18 of the Regulations;
b. Granted yearly license renewals despite the fact that license-holders often did not provide the proper paper work required by s. 12 of the Regulations;
c. Allowed hazardous harvesting practices on the Reserve in contradiction of s. 22 of the Regulations;
d. Allowed for timber dues to be sent in without a licensed scaler checking the amounts and kinds of timber cut, as well as allowing timber operators to neglect or mark their timber in contradiction to s. 23 and s. 10 of the 1923 Timber Regulations;
e. Allowed license renewals regardless of dues being paid on time in contradiction of s. 7 of the Regulations; and
f. Allowed license renewals despite receiving repeatedly late applications for renewal in contravention of s. 8 of the Regulations.
The evidence presented in this trial proves that these types of breaches did occur. The issue is whether this conduct amounts to breaches of the fiduciary duty owed to the Band by the Crown. I have come to the conclusion that these ITRs are in place to assist with the proper management of the timber limits after they have been tendered. By way of example, the requirement to mark the timber provides a way in which the timber taken from the Reserve can be identified. There was a problem in the present case as certain timber was not marked and as a result, it could not be determined whether it came from Reserve lands or from other lands.
[73] I have come to the conclusion that following the Regulations would allow for proper management of the timber limits after they were tendered. The Crown breached its fiduciary duty owed to the Band when it did not comply with the ITRs.
[74] Issue 6
Did Canada fail to prudently manage the licensees?
At paragraph 290 of its written submissions, the pla