Ermineskin Indian Band and Nation v. Canada

Ermineskin Indian Band and Nation v. Canada
Collection
Supreme Court Judgments
Date
2009-02-13
Neutral citation
2009 SCC 9
Report
[2009] 1 SCR 222
Case number
31869, 31875
Judges
McLachlin, Beverley; LeBel, Louis; Deschamps, Marie; Fish, Morris J.; Abella, Rosalie Silberman; Charron, Louise; Rothstein, Marshall
On appeal from
Federal Court of Appeal
Subjects
Aboriginal law
Action
Constitutional law
Notes
SCC Case Information: 31875, 31869
Decision Content
SUPREME COURT OF CANADA
Citation: Ermineskin Indian Band and Nation v. Canada,
2009 SCC 9, [2009] 1 S.C.R. 222
Date: 20090213
Dockets: 31875, 31869
Between:
Chief John Ermineskin, Lawrence Wildcat, Gordon Lee, Art Littlechild, Maurice Wolfe, Curtis Ermineskin, Gerry Ermineskin, Earl Ermineskin, Rick Wolfe, Ken Cutarm,
Brian Less and Lester Fraynn, the elected Chief and Councillors of the Ermineskin Indian Band and Nation, suing on their own behalf and on behalf of all the other
members of the Ermineskin Indian Band and Nation
Appellants
and
Her Majesty The Queen in Right of Canada, Minister of Indian
Affairs and Northern Development and Minister of Finance
Respondents
‑ and ‑
Attorney General of Ontario, Attorney General of Quebec, Attorney General of Alberta, Assembly of First Nations and Lac Seul First Nation
Interveners
And Between:
Chief Victor Buffalo, acting on his own behalf and on behalf of all the other members of the Samson Indian Band and Nation, and Samson Indian Band and Nation
Appellants
and
Her Majesty The Queen in Right of Canada, Minister of Indian
Affairs and Northern Development and Minister of Finance
Respondents
‑ and ‑
Attorney General of Ontario, Attorney General of Quebec, Attorney General of Alberta, Assembly of First Nations, Saddle Lake Indian Band, Stoney Indian Band and
Lac Seul First Nation
Interveners
Coram: McLachlin C.J. and LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.
Reasons for Judgment:
(paras. 1 to 203)
Rothstein J. (McLachlin C.J. and LeBel, Deschamps, Fish, Abella and Charron JJ. concurring)
______________________________
Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222
Chief John Ermineskin, Lawrence Wildcat, Gordon Lee,
Art Littlechild, Maurice Wolfe, Curtis Ermineskin, Gerry
Ermineskin, Earl Ermineskin, Rick Wolfe, Ken Cutarm,
Brian Less and Lester Fraynn, the elected Chief and
Councillors of the Ermineskin Indian Band and Nation,
suing on their own behalf and on behalf of all the other
members of the Ermineskin Indian Band and Nation Appellants
v.
Her Majesty The Queen in Right of Canada, Minister of Indian
Affairs and Northern Development and Minister of Finance Respondents
and
Attorney General of Ontario, Attorney General of Quebec,
Attorney General of Alberta, Assembly of First Nations
and Lac Seul First Nation Interveners
- and -
Chief Victor Buffalo, acting on his own behalf and on behalf
of all the other members of the Samson Indian Band and
Nation, and Samson Indian Band and Nation Appellants
v.
Her Majesty The Queen in Right of Canada, Minister of Indian
Affairs and Northern Development and Minister of Finance Respondents
and
Attorney General of Ontario, Attorney General of Quebec,
Attorney General of Alberta, Assembly of First Nations,
Saddle Lake Indian Band, Stoney Indian Band and
Lac Seul First Nation Interveners
Indexed as: Ermineskin Indian Band and Nation v. Canada
Neutral citation: 2009 SCC 9.
File Nos.: 31875, 31869.
2008: May 22; 2009: February 13.
Present: McLachlin C.J. and LeBel, Deschamps, Fish, Abella, Charron and Rothstein JJ.
on appeal from the federal court of appeal
Aboriginal law — Crown — Fiduciary duty — Management of oil and gas royalties — Indian bands surrendering mineral rights on reserves to Crown — Crown holding bands’ oil and gas royalties in Consolidated Revenue Fund and paying interest at rate tied to the yield on long‑term government bonds but adjusted periodically — Whether Crown was obligated as fiduciary to invest oil and gas royalties — Whether Crown breached its fiduciary obligations in way in which it calculated and paid interest on royalties — Indian Act, R.S.C. 1985, c. I‑5, ss. 61 to 69 — Financial Administration Act, R.S.C. 1985, c. F‑11, ss. 2 "public money", 17(1), 21(1), 90(1)(b) — Indian Oil and Gas Act, R.S.C. 1985, c. I‑7, s. 4(1) .
Unjust enrichment — Crown — Management of Indian bands’ oil and gas royalties — Statutory scheme requiring Crown to hold bands’ oil and gas royalties in Consolidated Revenue Fund and to pay interest — Whether Crown was unjustly enriched by making use of bands’ royalties and setting interest rate paid to bands.
Constitutional law — Charter of Rights — Right to equality — Money management provisions of Indian Act precluding investment of Indian moneys by Crown — Provisions creating distinction between Indians and non‑Indians — Whether distinction creating disadvantage by perpetuating prejudice and stereotyping — Canadian Charter of Rights and Freedoms, s. 15(1) — Indian Act, R.S.C. 1985, c. I‑5, ss. 61 to 68 .
The Ermineskin Nation and the Samson Nation are “bands” within the meaning of the Indian Act and are entitled to the benefit of Treaty No. 6, which was entered into in 1876. The Crown held money in trust for the bands, composed mainly of royalties derived from the oil and gas reserves found beneath the surface of the Samson Reserve and Pigeon Lake Reserve in Alberta. Under the terms of Treaty No. 6 and the Indian Act , it was necessary that the bands’ interests in the oil and gas under the reserves be surrendered to the Crown so that the Crown could enter into arrangements with third parties in order to exploit the resources. Two identical instruments of surrender were executed in 1946 and were accepted by the Crown. The statutory scheme governing the handling of Indian moneys, including the oil and gas royalties, involves the Indian Act , the Financial Administration Act (“FAA ”) and the Indian Oil and Gas Act (“IOGA ”). Under the Indian Act , Indian moneys are characterized as “capital moneys” or “revenue moneys”. There are separate revenue and capital accounts kept by the Crown for each of the bands. The royalties are characterized as “capital moneys” and have been deposited in the Consolidated Revenue Fund (“CRF”) to the credit of the Receiver General of Canada pursuant to the FAA . Interest has been paid on that money by the Crown pursuant to Orders in Council made under the Indian Act . Between 1859 and 1969 the interest rate on Indian moneys changed from time to time, ranging from 3 percent to 6 percent. In 1969, the Crown decided to tie the rate of interest to the market yield of government bonds having terms to maturity of 10 years or over (the “Indian moneys formula”). Discussions took place in the late 1970s and early 1980s between the Crown and leaders of various bands. A new Order in Council was enacted in 1981, which provided that interest would be calculated on the quarterly average of the market yields of the Government of Canada bond issues, which have terms to maturity of 10 years or over. The discussions between the Crown and the bands also led to a Crown policy of crediting interest semi‑annually, rather than annually.
Samson and Ermineskin filed statements of claim respectively in 1989 and in 1992, alleging that the Crown’s fiduciary obligations required it to invest oil and gas royalties received on behalf of the bands as a prudent investor would, that is, to invest the royalties in a diversified portfolio. They submit that the refusal or neglect of the Crown to invest their royalties has deprived them of hundreds of millions of dollars since 1972. The Federal Court dismissed their claims and a majority of the Federal Court of Appeal upheld the decision.
Held: The appeals should be dismissed.
The Crown has fiduciary obligations with respect to the bands’ royalties. However, whether the fiduciary relationship arose out of Treaty No. 6 or from the instruments of surrender, when read together with the IOGA , the FAA and the Indian Act , the Crown did not have the obligation or the authority to invest the bands’ royalties. [44] [45] [67] [80]
The language of Treaty No. 6 does not support an intention to impose on the Crown the duties of a common law trustee. All rights were relinquished to the Crown, and the Crown then agreed to set aside certain lands for use by the Indian signatories. The language and circumstances point to a conditional transfer of the land, rather than the establishment of a common law trust. Neither did the oral terms of Treaty No. 6, create a trust in the common law sense. There is no duty of a trustee at common law to guarantee against risk of loss to the trust corpus or that the corpus would increase. Therefore, even if Treaty No. 6, including the representation by the Crown that the proceeds of the sale of any part of the reserve would be “put away to increase”, constituted the basis of the Crown’s fiduciary obligation to the bands, it did not obligate investment by the Crown; rather, the Crown had the obligation to guarantee that the funds would be preserved and would increase. Because there is no treaty right to investment by the Crown, s. 35(1) of the Constitution Act, 1982 , is not engaged. [50] [56‑57] [67]
The relationship between the Crown and the bands under the 1946 instruments of surrender is a fiduciary relationship that is trust‑like in nature. Pursuant to these instruments, the Crown may only grant rights over the minerals upon terms that are most conducive to the welfare of the bands, and will hold the proceeds of the granting of those rights on behalf of the bands. Where the Crown is in the position of a fiduciary, although not strictly speaking a trustee at common law, and holds funds on behalf of a band, it is not improper to ascribe to the Crown a duty to invest those funds in the manner of a common law trustee, subject to any legislation limiting its ability to do so. The statutory framework within which the Crown must carry out its fiduciary obligations in this case limits its ability to invest the bands’ royalties. [73‑74] [80]
The Indian Act , the FAA , and the IOGA do not permit investment by the Crown of the royalties. The IOGA only confirms that the royalties in relation to oil and gas on reserves are to be paid to the Crown in trust for the bands. The IOGA does not set out any terms of trust or duties of the Crown and therefore does not limit the Crown’s fiduciary duties to the bands. Although the IOGA does not preclude investment by the Crown of the royalties, it does not purport to restrict or override application of provisions in other statutes. Because the royalties are money collected by Canada on behalf of the bands pursuant to the IOGA , they are “public money” as defined by the FAA and as such must be dealt with in accordance with the provisions of the FAA . This Act provides that the royalties must be held in the CRF and only paid out in accordance with any applicable statute (s. 21(1) ). Furthermore, the acquisition of securities by the Crown is prohibited unless authorized by an Act of Parliament (s. 90(1)(b)). In this case, the relevant applicable statute is the Indian Act because it is the statutory scheme governing the control and management of Indian moneys. It provides no authority for any expenditure or payment of Indian moneys other than for the purposes provided for in the Act. The wording of the Indian Act and the legislative changes made in 1951 indicate that no power existed after that time for the Crown to make, hold and manage investments made with Indian moneys held in the CRF. From 1859 to 1951, the Crown had not engaged in investing Indian moneys but rather paid interest at rates from 3 to 6 percent. It is reasonable to infer that in repealing the investment power in the Indian Act , the Crown was bringing the legislation into conformity with actual practice. [83] [85] [91] [94] [98] [117] [122‑123]
The Crown’s actions under the authority of the FAA and the Indian Act were consistent with its fiduciary obligations to the bands. The Crown, which is in a unique position as a fiduciary with respect to the royalties and the payment of interest, is not in a position of conflict of interest when it borrows the bands’ money held in the CRF without their consent. The borrowing is required by the legislation and a fiduciary that acts in accordance with legislation cannot be said to be breaching its fiduciary duty. The situation which the bands characterize as a conflict of interest is an inherent and inevitable consequence of the statutory scheme. The Crown’s position in the setting of the interest rate paid to the bands is also unique: the Crown must consider not only the interest of the bands but also the interests of other Canadians when it sets the interest rate paid to the bands. Within the Crown’s discretion as a fiduciary it had a number of options for setting the interest rate. Of the alternatives considered, it is apparent that short‑term rates would not have been in the best interests of the bands when it was possible for the Crown to pay interest at a higher rate in view of the Crown’s diversified borrowing patterns. A fixed rate of interest would not have been sufficiently flexible to account for changes in prevailing interest rates and inflation. Payment of interest equivalent to what might have been earned in a diversified portfolio would have required subsidization from the public treasury. A fiduciary is not required to supplement the return it is legislatively restricted to providing from its own resources, in this case, the public treasury. The two alternatives that could have been selected by a prudent person managing his or her own affairs but modified by the constraints applicable to the Crown were the fluctuating rate approach adopted by the Crown and the laddered bond approach. When the Indian moneys formula was adopted in 1969, interest rates were tending upwards. In hindsight, because interest rates have tended downwards since the 1980s, investment in a laddered bond portfolio would have produced higher returns for the bands since that time than the long‑term floating rate approach that was adopted. However, compliance by the Crown with its fiduciary obligations to the bands must be viewed prospectively. Without knowing the direction of interest rates and anticipated inflation, it cannot be said that the adoption of a floating long‑term rate was an imprudent choice by the Crown. It was a way of contending with interest rates and inflation risk. Therefore, in selecting the floating rate methodology of the Indian moneys formula, there was no breach of the fiduciary duty owed by the Crown to the bands. [124] [126‑129] [132] [147‑149]
As an alternative to the payment of interest by the Crown, s. 64(1)(k) of the Indian Act provided authority for the transfer of capital moneys from the Crown to either the bands themselves or to an independent trust for the bands. However, in accordance with its fiduciary obligations and s. 64(1) (k), the Crown had to be satisfied that any transfer was in the best interests of the bands. With respect to Samson, the evidence indicates that the Crown was supportive of the band’s proposals to transfer money for the establishment of trust funds by the bands. However, due to difficulties uncovering information as to the disposition of a previous transfer of money, the failure of Samson to provide adequate financial plans and assurances of band support, and conflict within the Samson band council, the Crown was unable to assure itself that transferring further funds would be in the best interests of Samson. Having regard to the evidence, for the Crown to have agreed to further transfers prior to 2005 would have been imprudent. As for Ermineskin, in the event of a transfer, the Crown’s fiduciary obligations with regard to the funds had to come to an end. The Crown could not be expected to remain responsible for funds over which it no longer had control. In the absence of a release from the band to the Crown, the Crown could not be expected to transfer funds from the CRF to Ermineskin. [150‑152] [169‑170] [181]
The Crown was not unjustly enriched by making use of the bands’ royalties and paying the rate of interest that it did. This was an inevitable result of the statutory scheme, which requires that the Crown hold the bands’ royalties in the CRF and pay interest to the bands. The basis for determining whether the Crown was enriched is a comparison with what would have been the case had the Crown not had access to the royalties in the CRF. The trial judge found that the Crown could have obtained replacement funds at a lower cost than the interest it actually provided on the royalties. [182] [184]
Finally, the money management provisions found in ss. 61 to 68 of the Indian Act do not infringe s. 15(1) of the Canadian Charter of Rights and Freedoms . There is a distinction between Indians and non‑Indians, but that distinction is not discriminatory. The provisions of the Indian Act that prohibit investment of the royalties by the Crown do not draw a distinction that perpetuates disadvantage through prejudice or stereotyping. The provisions do not preclude investment, provided the investments are made by the bands or trustees on their behalf after expenditure of funds from the CRF to the bands and the release of the Crown from further responsibility with respect to the royalties. Such an approach involves greater control and decision making by the bands themselves. Any expenditure of the funds for investment is required to be in the best interests of the bands. Until the funds are expended by the Crown for the purposes of investment by the bands or trustees on their behalf, they are held by the Crown in the CRF and the bands are provided with liquidity and a return on the royalties. [190] [201‑202]
Cases Cited
Referred to: R. v. Marshall, [1999] 3 S.C.R. 456; R. v. Sioui, [1990] 1 S.C.R. 1025; Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302; R. v. Badger, [1996] 1 S.C.R. 771; Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344; Guerin v. The Queen, [1984] 2 S.C.R. 335; McInerney v. MacDonald, [1992] 2 S.C.R. 138; Authorson v. Canada (Attorney General), 2003 SCC 39, [2003] 2 S.C.R. 40; Authorson (Litigation Administrator of) v. Canada (Attorney General), 2007 ONCA 501, 86 O.R. (3d) 321, leave to appeal refused, [2008] 1 S.C.R. v; Barrie Public Utilities v. Canadian Cable Television Assn., 2003 SCC 28, [2003] 1 S.C.R. 476; McDiarmid Lumber Ltd. v. God’s Lake First Nation, 2006 SCC 58, [2006] 2 S.C.R. 846; Lac Minerals Ltd. v. International Corona Resources Ltd., [1989] 2 S.C.R. 574; Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245; Garland v. Consumers’ Gas Co., 2004 SCC 25, [2004] 1 S.C.R. 629; Andrews v. Law Society of British Columbia, [1989] 1 S.C.R. 143; R. v. Kapp, 2008 SCC 41, [2008] 2 S.C.R. 483; R. v. Turpin, [1989] 1 S.C.R. 1296; Samson Indian Nation and Band v. Canada, 2005 FC 136, [2005] 2 C.N.L.R. 358.
Statutes and Regulations Cited
Canadian Charter of Rights and Freedoms, s. 15 .
Constitution Act, 1982, ss. 35(1) , 52 .
Financial Administration Act, R.S.C. 1985, c. F‑11, ss. 2 “public money”, “Consolidated Revenue Fund”, “securities”, 17(1), 18 [rep. 1999, c. 26, s. 20], 21, 90(1).
Indian Act , R.S.C. 1927, c. 98, ss. 92 , 93 .
Indian Act, R.S.C. 1985, c. I‑5, ss. 2 “band”, 4, 61 to 69.
Indian Act, S.C. 1951, c. 29, s. 123.
Indian Oil and Gas Act, R.S.C. 1985, c. I‑7, s. 4(1) .
Indian Oil and Gas Regulations, 1995, SOR/94‑753, s. 33(5).
Treaty
Treaty No. 6 (1876).
Authors Cited
Canada. House of Commons. House of Commons Debates, vol. I, 1st Sess., 30th Parl., October 21, 1974, p. 558.
Canada. House of Commons. House of Commons Debates, vol. II, 4th Sess., 21st Parl., March 16, 1951, p. 1352.
Waters, Donovan W. M., Mark R. Gillen and Lionel D. Smith, eds. Waters’ Law of Trusts in Canada, 3rd ed. Toronto: Thomson Carswell, 2005.
APPEALS from a judgment of the Federal Court of Appeal (Richard C.J. and Sexton and Sharlow JJ.A.), 2006 FCA 415, [2007] 3 F.C.R. 245, 357 N.R. 1, [2007] 2 C.N.L.R. 51, [2006] F.C.J. No. 1961 (QL), 2006 CarswellNat 4511, affirming decisions of Teitelbaum J., 2005 FC 1623, 269 F.T.R. 188, [2005] F.C.J. No. 1992 (QL), 2005 CarswellNat 3953, and 2005 FC 1622, 269 F.T.R. 1, [2006] 1 C.N.L.R. 100, [2005] F.C.J. No. 1991 (QL), 2005 CarswellNat 3959. Appeals dismissed.
Marvin R. V. Storrow, Q.C., Maria A. Morellato, Q.C., Joseph C. McArthur and Joanne Lysyk, for the appellants Chief John Ermineskin et al.
James A. O’Reilly, Edward H. Molstad, Q.C., Marco Poretti, L. Douglas Rae, Nathan Whitling and David Sharko, for the appellants Chief Victor Buffalo et al.
Mitchell R. Taylor, Q.C., W. Clarke Hunter, Q.C., and Michele E. Annich, for the respondents.
E. Ria Tzimas, for the intervener the Attorney General of Ontario.
Sylvain Leboeuf and Monique Rousseau, for the intervener the Attorney General of Quebec.
Stanley H. Rutwind, Q.C., for the intervener the Attorney General of Alberta.
Jack R. London, Q.C., and Bryan P. Schwartz, for the intervener the Assembly of First Nations.
W. Tibor Osvath, for the interveners the Saddle Lake Indian Band and the Stoney Indian Band.
Joseph Eliot Magnet and William Major, for the intervener the Lac Seul First Nation.
TABLE OF CONTENTS
Paragraph
I. Introduction 1
II. Facts 4
III. Issues 20
IV. Judgments Below 23
A. Federal Court 23
B. Federal Court of Appeal 30
(1) Richard C.J. and Sharlow J.A. 30
(2) Sexton J.A. 38
V. Analysis 44
A. The Source of the Crown’s Fiduciary Obligations 44
B. Treaty No. 6 49
C. The 1946 Surrenders 68
D. The Statutory Framework 80
(1) The Indian Oil and Gas Act 82
(2) The Financial Administration Act 89
(3) The Indian Act 99
(a) Section 64(1)(k) 105
(b) Other Moneys Management Provisions 110
(c) The 1951 Amendments 112
(4) Section 21(1) of the Financial
Administration Act 120
E. The Crown’s Fiduciary Obligations to the Bands 124
F. The Test for Determining the Obligations of
the Crown in Providing a Return to the Bands 132
(1) Flat Rate 133
(2) Short‑Term Treasury Bill Return 134
(3) Diversified Portfolio Return 135
(4) Adjusted Long‑Term Rate 137
(5) Laddered Bond Portfolio 141
(6) Conclusion Respecting the Methodology
Selected by the Crown 147
G. Transfer of Funds to the Bands 150
(1) Samson 153
(2) Ermineskin 171
H. Unjust Enrichment 182
I. Section 15(1) of the Canadian Charter 185
of Rights and Freedoms
VI. Conclusion 203
The judgment of the Court was delivered by
Rothstein J. —
I. Introduction
[1] These two appeals were heard together and mark the culmination of a very long process, including a lengthy joint trial lasting for a number of years. This judgment concerns only a portion of the issues that were dealt with at trial.
[2] The appellants submit that the Crown’s fiduciary obligations required it to invest oil and gas royalties received on behalf of the appellants as a prudent investor would, that is, to invest the royalties in a diversified portfolio. Instead, the Crown retained the royalties in the Consolidated Revenue Fund (“CRF”) and credited interest to the appellants in accordance with a formula based on the market yield of long-term government bonds. The appellants say that the refusal or neglect of the Crown to invest their royalties has deprived them of hundreds of millions of dollars since 1972.
[3] The Federal Court dismissed the appellants’ claims and a majority of the Federal Court of Appeal dismissed their appeals. For the reasons that follow I am also of the opinion that both appeals should be dismissed.
II. Facts
[4] The appellants in the Ermineskin appeal (“Ermineskin”) are Chief John Ermineskin and the Councillors of the Ermineskin Indian Band and Nation (“Ermineskin Nation”), acting on their own behalf and on behalf of the other members of the Ermineskin Nation. The appellants in the Samson appeal (“Samson”) are the Samson Indian Band and Nation (“Samson Nation”) and Chief Victor Buffalo, acting on his own behalf and on behalf of the other members of the Samson Nation.
[5] The Ermineskin Nation and the Samson Nation are “bands” within the meaning of the Indian Act, R.S.C. 1985, c. I-5, s. 2 . They are referred to as such in these reasons. Additionally, they are “bands” entitled to the benefit of Treaty No. 6, which was entered into in 1876. I have used the term “the bands” in these reasons to refer to all appellants collectively.
[6] The respondents in both appeals are Her Majesty the Queen in Right of Canada, the Minister of Indian Affairs and Northern Development and the Minister of Finance. I have used the term “the Crown” to refer to the respondents collectively. Indian and Northern Affairs Canada is the “applied title” of the Department of Indian Affairs and Northern Development (“DIAND”). I have used the legal title DIAND throughout these reasons.
[7] Due to the large number of claims, both the Ermineskin and Samson actions have been divided into phases. The trial leading to the present appeals dealt with the first two phases: the “General and Historical Phase”, concerning the historical and background evidence relating to the specific claims in the other phases, and the “Money Management Phase”, concerning allegations that the Crown has breached its obligations with respect to money held in trust for the bands. The issues on appeal here relate to the “Money Management Phase”.
[8] The money held in trust for the bands is composed mainly of royalties derived from the oil and gas reserves found beneath the surface of the Samson Reserve and Pigeon Lake Reserve in Alberta. The Samson Reserve was established in 1889 pursuant to Treaty No. 6 for the Samson Nation. The Pigeon Lake Reserve was established in 1896 pursuant to Treaty No. 6 for four bands (often referred to as the “Four Bands”), including the Samson Nation and the Ermineskin Nation. The reserve belonging to the Ermineskin Nation exclusively has not produced any royalties.
[9] Under the terms of Treaty No. 6 and the Indian Act , it was necessary that the bands’ interests in the oil and gas under the reserves be surrendered to the Crown so that the Crown could enter into arrangements with third parties in order to exploit the resources. The Four Bands in respect of the Pigeon Lake Reserve and Samson in respect of the Samson Reserve executed instruments of surrender in 1946 (“Surrenders”). The Surrenders were accepted by the Crown. The terms of the two surrenders were identical.
[10] The statutory scheme governing the handling of Indian moneys, including the oil and gas royalties at issue in this case, involves the Indian Act , the Financial Administration Act, R.S.C. 1985, c. F-11 (“FAA ”), and the Indian Oil and Gas Act, R.S.C. 1985, c. I-7 (“IOGA ”). The relevant legislative and regulatory provisions referred to in these reasons are contained in the Appendix.
[11] Under the Indian Act , Indian moneys are characterized as “capital moneys” or “revenue moneys”, and accounts for each of the two are kept separately by the Crown. There are separate revenue and capital accounts for each of the Four Bands, including the Samson Nation and Ermineskin Nation.
[12] The royalties are characterized as “capital moneys” and have been deposited in the CRF to the credit of the Receiver General of Canada pursuant to the FAA . Interest has been paid on that money by the Crown pursuant to an Order in Council made under s. 61(2) of the Indian Act .
[13] In 1859, the interest rate on Indian moneys was fixed by the Province of Canada at 6 percent. In 1861, an Order in Council lowered the rate on newly received money to 5 percent but continued the rate of 6 percent on money already held by the Crown in Right of the Province and, after Confederation in 1867, the Crown in Right of the Dominion of Canada. Between 1861 and 1969, the rate of interest changed from time to time, ranging from 3 percent to 5 percent, although it does appear that the rate of 6 percent remained for those funds in trust prior to 1861.
[14] In 1969, it was proposed by the Minister of Indian Affairs and Northern Development to tie the rate of interest to the market yield of government bonds having terms to maturity of 10 years or over (the “Indian moneys formula”), as well as to discontinue the guarantee of 6 percent on pre-1861 money. The Crown adopted those proposals. As a result, the interest rate has varied with the changes in the market yield on long-term government bonds.
[15] Discussions took place in the late 1970s and early 1980s between the Crown and leaders of various bands, including those of Samson and Ermineskin. This was in part because of an inversion, a situation that resulted in the market yield on short-term debt being greater than that on long-term debt. This situation did not last, but a new Order in Council was enacted in 1981.
[16] The new Order in Council provided that interest would be calculated on the quarterly average of the market yields of the Government of Canada bond issues as published each Wednesday by the Bank of Canada, which have terms to maturity of 10 years or over. The discussions between the Crown and the bands also led to a Crown policy of crediting interest semi-annually, rather than annually. From April 1980 to the present, interest has been credited semi-annually at the rate determined in accordance with the 1981 Order in Council.
[17] The Samson statement of claim was filed in 1989 and the Ermineskin statement of claim in 1992.
[18] Pursuant to an order of the trial judge dated December 22, 2005, on February 1, 2006, capital moneys belonging to Samson were transferred from the Samson capital account in the CRF to the Kisoniyaminaw Heritage Trust Fund.
[19] The amounts of money involved in this case are very large. The bands presented evidence at trial estimating the additional amounts which they argued might have been earned had their royalties been invested rather than earning interest under the Indian moneys formula. Using approximate numbers, these estimates ranged from $239 million to $1.53 billion for Samson, and from $156 million to $217 million for Ermineskin.
III. Issues
[20] The primary issue in these appeals is whether the Crown was obligated as a fiduciary to invest the oil and gas royalties that it was holding on behalf of the bands. If it is determined that there was no such obligation, the issue is then whether the Crown breached its fiduciary obligations in the way in which it calculated and paid interest on the royalties.
[21] The bands also argued that the Crown breached its obligations to the bands because it was in a conflict of interest as a fiduciary by “borrowing” the royalties without permission, and that the Crown was unjustly enriched by this “borrowing”.
[22] The appellants have also argued that if ss. 61 to 68 of the Indian Act do preclude the Crown from investing the royalties, those provisions infringe their right to equality under s. 15 of the Canadian Charter of Rights and Freedoms .
IV. Judgments Below
A. Federal Court
[23] Teitelbaum J., the trial judge, dismissed Ermineskin’s and Samson’s actions against the Crown: 2005 FC 1622, 269 F.T.R. 1, and 2005 FC 1623, 269 F.T.R. 188.
[24] Teitelbaum J. noted that the Crown conceded that it was a trustee of the royalties, but he stated that he would have found the Crown to be a trustee even if the Crown had not conceded that it was.
[25] He did not agree with the bands that the trust arose from the historical relationship between the Crown and Aboriginal peoples or from Treaty No. 6. The words of the Surrenders were sufficient to create a trust; they contained the required certainties of intent, subject matter and object, and explicitly contemplated a trust.
[26] Teitelbaum J. held that the legislation informed the Crown’s duties as trustee and did not permit the Crown to invest the royalties. While the Crown, as a trustee, has the duty to invest according to the standard of “reasonable care and skill of an ordinary prudent person” (Samson reasons, at para. 670, Ermineskin reasons, at para. 278), the Crown discharged its duty as trustee to invest by paying a rate of interest under s. 61(2) of the Indian Act .
[27] On the issue of whether the provisions of the Indian Act infringed or were inconsistent with the bands’ rights under s. 35(1) of the Constitution Act, 1982 , Teitelbaum J. held that Samson had not established Aboriginal or treaty rights regarding either self-government or the Indian moneys. Ermineskin made no claim for self-government, but did assert that if the legislation deprived Ermineskin of its rights as a beneficiary, then the legislation would be constitutionally invalid. However, since he held that the trust arose from the Surrenders, the rights of the bands were not treaty rights.
[28] Further, he held that the bands were not individuals for the purposes of the Charter and that they therefore had no standing to bring a s. 15(1) claim.
[29] Finally, he found that the Crown was not enriched by the “borrowing” of the bands’ money. He also determined that the statutory scheme provided a juristic reason even if there had been enrichment.
B. Federal Court of Appeal
(1) Richard C.J. and Sharlow J.A.
[30] Richard C.J. and Sharlow J.A. dismissed the appeals of Samson and Ermineskin: 2006 FCA 415, [2007] 3 F.C.R. 245. They held that the Crown’s obligations as trustee of the royalties differ substantially from the obligations of a common law trustee because of the combined effect of the Indian Act and the FAA . If Parliament had intended the Crown to have a duty to invest, it would have enacted appropriate legislation to provide it with that authority. The majority held that as both Samson and Ermineskin conceded that neither of their band councils had provided consent to use capital money for investment, the Crown could not have used the money to make investments for the bands’ benefit in any event.
[31] The majority said that the Crown is a trustee of the royalties because “[s]ection 4 of the Indian Oil and Gas Act says so” and that “[i]f there had been any doubt about the existence of a trust, that doubt could not have survived the enactment of the Indian Oil and Gas Act ” (para. 109). Additionally, the majority said that had the IOGA not been enacted, the Crown would have been a trustee by virtue of Treaty No. 6 and the Indian Act .
[32] The majority found that if the bands requested capital money from the CRF for investment by the bands themselves, it would be reasonable for the Crown to require an investment plan to satisfy itself that the expenditure was for the benefit of the bands as required by s. 64(1) (k) of the Indian Act . There was no obligation on the part of the Crown to propose an investment plan to the bands. It was the intention of Parliament to give bands that initiative with respect to use of their capital money, and the bands would generally be in a better position than the Crown to determine what expenditures are required.
[33] The majority found that the decision of the Governor in Council regarding the interest rate and the methodology of the Indian moneys formula should be assessed against a standard of reasonableness. Those choices are essentially discretionary, but that discretion is exercised in circumstances in which the Crown has fiduciary obligations and in which the honour of the Crown is engaged. If the discretionary decision is based on rational factors and not on irrelevant considerations, and is within the “margin of manoeuvre contemplated by the legislation that grants the discretionary authority”, it will be permitted to stand (para. 167). Although the trial judge produced only short reasons on this point, there was a “sufficient evidentiary foundation to support the Judge’s conclusion that the rates of interest paid were reasonable” (para. 168). Additionally, the Crown appropriately consulted with the bands regarding the fixing of the rate whenever the bands requested consultation.
[34] The majority dismissed the bands’ arguments based on s. 35(1) of the Constitution Act, 1982 . They held that the repeal of the statutory investment power in 1951 did not infringe or deprive the bands of any rights under Treaty No. 6. They found that the Crown never promised that the investment power in the Indian Act would remain unchanged.
[35] The majority dismissed the bands’ arguments regarding s. 15(1) of the Charter . They held that even if the individual band members had standing, they would have no interest to enforce because their claims related to the management of band property and not a personal right. Although the claims were representative actions, that fact did not convert the communal claims into personal claims.
[36] The claims relating to unjust enrichment and conflict of interest were dismissed. The Crown was not enriched based on the facts as determined by the trial judge. Any conflict of interest was an unavoidable consequence of the statutory scheme and was lawful.
[37] The majority dismissed the bands’ appeals.
(2) Sexton J.A.
[38] Sexton J.A. dissented and would have allowed the appeals. In his view, the source of the trust was the Surrenders. The Crown was primarily required to act as a trustee at common law and had the power to invest the royalties of the bands. In his opinion, the provisions of the Indian Act did not prohibit investment by the Crown and did not require that Indian moneys remain in the CRF indefinitely.
[39] The standard of care and diligence required of the Crown was that of a man of ordinary prudence in managing his own affairs. This required the Crown, among other things, to assess the circumstances of the fund and the beneficiaries to ascertain appropriate investments, build a diversified portfolio where appropriate, monitor the investments, seek expert advice and maintain an even hand between successive beneficiaries. The Crown was required to obtain the best possible return in a manner consistent with sound investment practices. The Crown breached its duties by failing to seek expert advice about prudent investment strategies, by failing to propose an investment plan to the bands, by failing to engage in any active management of the funds, and by failing to ascertain the circumstances of the fund.
[40] Sexton J.A. noted that there was a great deal of expert evidence on the issue of whether the rate of return paid by the Crown was reasonable. He held that it was “far from clear that the rate of return on the [bands’ money] was reasonable” (para. 296).
[41] Because of his conclusion that the Crown breached its duty to invest, it was not necessary for him to deal with the issue of s. 15(1) of the Charter . However, he did comment that in his view, the interpretation of the legislation adopted by the trial judge would result in a violation of s. 15(1) because the legislation subjects Indians to inferior and discriminatory treatment based on their Indian status and membership in a band, as compared to non-Indians. Because the action was a representative action brought on behalf of all individual members of the bands, there was standing to maintain the claim.
[42] Finally, Sexton J.A. held that it was not necessary to resolve the question of conflict of interest or unjust enrichment. However, he did say that the Crown did not receive any benefit or enrichment and that he would not set aside the trial judge’s findings on that point. On the conflict of interest issue, the Crown should have sought to avoid being in a conflict by putting together prudent investment plans on a continual basis for approval by the bands.
[43] Sexton J.A. would have allowed the appeals and remitted the matter to the Federal Court for the assessment of damages.
V. Analysis
A. The Source of the Crown’s Fiduciary Obligations
[44] There is no doubt that the Crown in this case has fiduciary obligations w