Guerin v. The Queen

Guerin v. The Queen
Collection
Supreme Court Judgments
Date
1984-11-01
Report
[1984] 2 SCR 335
Case number
17507
Judges
Laskin, Bora; Dickson, Robert George Brian; Beetz, Jean; Estey, Willard Zebedee; McIntyre, William Rogers; Chouinard, Julien; Lamer, Antonio; Wilson, Bertha
On appeal from
Federal Court of Appeal
Subjects
Aboriginal law
Notes
SCC Case Information: 17507
Decision Content
SUPREME COURT OF CANADA
Guerin v. The Queen, [1984] 2 S.C.R. 335
Date : 1984-11-01
Delbert Guerin, Joseph Becker, Eddie Campbell, Mary Charles, Gertrude Guerin and Gail Sparrow suing on their own behalf and on behalf of all the other members of the Musqueam Indian Band Appellants;
and
Her Majesty The Queen Respondent;
and
The National Indian Brotherhood Intervener.
File No.: 17507.
1983: June 13, 14; 1984: November 1.
Present: Laskin C.J.. and Ritchie, Dickson, Beetz, Estey, McIntyre, Chouinard, Lamer and Wilson JJ.
ON APPEAL FROM THE FEDERAL COURT OF APPEAL
Indians — Reserve lands — Surrender — Lease entered by Crown on Band's behalf — Lease bearing little resemblance to terms approved at surrender meeting — Whether or not breach of fiduciary duty, breach of trust, or breach of agency — Indian Act, R.S.C. 1952, c. 149, s. 18(1) — Trustee Act, R.S.B.C. 1960, c. 390, s. 98 (now R.S.B.C. 1979, c. 414).
An Indian Band surrendered valuable surplus reserve lands to the Crown for lease to a golf club. The terms obtained by the Crown, however, were much less favourable than those approved by the Band at the surrender meeting. The surrender document did not refer to the lease or disclose the terms approved by the Band. The Indian Affairs Branch officials did not return to the Band for its approval of the revised terms. Indeed, they withheld pertinent information from both the Band and an appraiser assessing the adequacy of the proposed rent. The trial judge found the Crown in breach of trust in entering the lease and awarded damages as of the date of the trial on the basis of the loss of income which might reasonably have been anticipated from other possible uses of the land. The Federal Court of Appeal set aside that judgment and dismissed a cross-appeal seeking more damages.
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Held: The appeal should be allowed.
Per Dickson, Beetz, Chouinard and Lamer JJ.: The Indians' interest in their land is a pre-existing legal right not created by the Royal Proclamation of 1763, by s. 18(l) of the Indian Act, or by any other executive order or legislative provision. The nature of the Indians' interest is best characterized by its inalienability, coupled with the fact that the Crown is under an obligation to deal with the land on the Indians' behalf when the interest is surrendered.
The nature of Indian title and the framework of the statutory scheme established for disposing of Indian land place upon the Crown an equitable obligation, enforceable by the courts, to deal with the land for the benefit of the Indians. Successive federal statutes including the present Indian Act provide for the general inalienability of Indian reserve land, except upon surrender to the Crown. The purpose of the surrender requirement is to interpose the Crown between the Indians and prospective purchasers or lessees of their land so as to prevent the Indians from being exploited. Through the confirmation in s. 18(1) of the Indian Act of the Crown's historic responsibility to protect the interests of the Indians in transactions with third parties, Parliament has conferred upon the Crown a discretion to decide for itself where the Indians' best interests lie. Where by statute, by 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.
Section 18(1) of the Indian Act confers upon the Crown a broad discretion in dealing with the surrendered land. In the present case, the document of surrender confirms this discretion in the clause conveying the land to the Crown. When, as here, an Indian Band surrenders its interest to the Crown, a fiduciary obligation takes hold to regulate the manner in which the Crown exercises its discretion in dealing with the land on the Indians' behalf. The Crown's agents promised the Band to lease the land in question on certain specified terms and then, after surrender, obtained a lease on different terms which was much less valuable. The Crown was not empowered by the surrender document to ignore the oral terms which the Band understood would be embodied in the lease. After the Crown's agents had induced the Band to surrender its land on the
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understanding that the land would be leased on certain terms, it would be unconscionable to permit the Crown simply to ignore these terms. Equity will not countenance unconscionable behaviour in a fiduciary whose duty is that of utmost loyalty to his principal. In obtaining without consultation a much less valuable lease than that promised, the Crown breached the fiduciary obligation it owed to the Band and it must make good the loss suffered in consequence. The quantum of damages falls to be determined by analogy with principles of trust law. The trial judge considered all the relevant evidence and his judgment disclosed no error of principle: his award should therefore be adopted.
The Band's action is not barred by either the Statute of Limitations, R.S.B.C. 1960, c. 370, or the equitable doctrine of laches.
Per Ritchie, McIntyre and Wilson JJ.: The Crown acted in breach of its fiduciary duty when it "barrelled ahead" with a lease unacceptable to its cestui que trust. The Crown owed a fiduciary duty—not a mere political obligation—to the Band arising from its control over the use to which reserve lands could be put. The Crown's discretion in deciding these uses was limited to those which were " . . . for the benefit of the Band". This fiduciary duty, although recognized by s. 18(1), existed independently of the section. Although the limited nature of Indian title meant that the Crown was not a trustee of the lands themselves under s. 18(1) it did not preclude its owing a fiduciary duty to the Band with respect to their use. This fiduciary duty, upon surrender, crystallized into an express trust of the land for the purpose specified.
While the surrender document was silent as to the terms of the lease the Crown was well aware of these terms and could not hide behind the language of its own document.
Although there was a withholding of information by Indian Affairs personnel which amounted in the circumstances to equitable fraud, it did not, in the absence of dishonesty or moral turpitude, give rise to an action for deceit at common law or support a claim for punitive damages. It did, however, disentitle the Crown to relief
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for breach of trust under s. 98 of the Trustee Act.
The lost opportunity to develop the land for a lengthy period was to be compensated as at the date of trial notwithstanding the fact that market values may have increased since the date of the breach. In equity, the presumption is that the Band would have wished to develop its land in the most advantageous way possible during the period covered by the unauthorized lease. The damage issue was properly approached on the basis of a lost opportunity for residential development and, absent an error of principle, this Court should not interfere with the quantum of damages. There was no reason to interfere with the decision to refuse pre-judgment interest and to award post-judgment interest at the statutory rate.
Per Estey J.: The essence of an agent's position is that he is only an intermediary between two other parties. Here, an agency prescribed by Parliament existed and the agent (the Crown) was bound in all its actions to serve only the interest of the native population whose rights alone are the subject of the protective measures of the statute. That the agent and principal were pre-scribed by statute neither detracted in law from the agent's legal capacity to act as agent nor diminished the rights of the principal to call upon the agent to account for the performance of the mandate. Indeed, the principal was even more secure in his rights than in situations absent a statutorily prescribed agency, for, although the statute restricts the choice of agent, it nowhere protects the agent from the consequence in law of a breach of the agency. The damages awarded by the trial judge were in no way affected by ascribing the resultant rights in the plaintiff to a breach of agency.
Calder v. Attorney General of British Columbia, [1973] S.C.R. 313, applied; Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co. (1966), 84 W.N. (Pt. l) (N.S.W.) 399; St. Catherine's Milling and Lumber Co. v. The Queen (1888), 14 App. Cas. 46; Johnson v. M'Intosh, 8 Wheaton 543 (1823), considered; Kinloch v. Secretary of State for India in Council (1882), 7 App. Cas. 619; Tito v. Waddell (No. 2), [1977] 3 All E.R. 129; Civilian War Claimants Association, Ltd. v. The King, [1932] A.C. 14; Hereford Railway Co. v. The Queen (1894), 24 S.C.R. 1, distinguished; Smith v. The Queen, [1983] 1 S.C.R. 554; Robertson v. Minister of Pensions, [1949] 1 K.B. 227; Lever Finance Ltd. v. Westminster (City) London Borough Council, [1971] 1 Q.B. 222; Kitchen v. Royal Air Force Association, [1958] 1 W.L.R. 563;
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Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302; Toronto-Dominion Bank v. Uhren (1960), 32 W.W.R. 61; Bartlett v. Barclays Bank Trust Co. (No. 2), [1980] 2 All E.R. 92; McNeil v. Fultz (1906), 38 S.C.R. 198; Penvidic Contracting Co. v. International Nickel Co. of Canada, [1976] 1 S.C.R. 267; Worcester v. State of Georgia, 6 Peters 515 (1832); Amodu Tijani v. Southern Nigeria (Secretary), [1921] 2 A.C. 399; Attorney-General for Quebec v. Attorney-General for Canada, [1921] 1 A.C. 401; Attorney-General for Canada v. Giroux (1916), 53 S.C.R. 172; Cardinal v. Attorney General of Alberta, [1974] S.C.R. 695; Western Inter—national Contractors Ltd. v. Sarcee Developments Ltd., [1979] 3 W.W.R. 631; Miller v. The King, [1950] S.C.R. 168; Laskin v. Bache & Co. Inc. (1971), 23 D.L.R. (3d) 385; Goldex Mines Ltd. v. Revill (1974), 7 O.R. 216; Pettkus v. Becker, [1980] 2 S.C.R. 834; Rathwell v. Rathwell, [1978] 2 S.C.R. 436; Central London Property Trust Ltd. v. High Trees House Ltd., [1947] K.B. 130; In Re West of England and South Wales District Branch, ex parte Dale & Co. (1879), 11 Ch. D. 772; Ontario Mining Co. v. Seybold, [1903] A.C. 73, affirming (1899), 31 O.R. 386; St. Ann's Island Shooting and Fishing Club Ltd. v. The King, [1950] S.C.R. 211; Surrey (Corporation of) v. Peace Arch Enterprises Ltd. (1970), 74 W.W.R. 380; The King v. McMaster, [1926] Ex. C.R. 68, referred to.
APPEAL from a judgment of the Federal Court of Appeal (1982), 143 D.L.R. (3d) 416, allowing an appeal and dismissing a cross-appeal from a judgment of Collier J. Appeal allowed.
M. R. V. Storrow, J. I. Reynolds, and L. F. Harvey, for the appellants.
W. I. C. Binnie, Q.C., M. R. Taylor, and M. Freeman, for the respondent.
B. A. Crane, Q.C., W. Badcock, and A. C. Pape, for the intervener.
The reasons of Ritchie, McIntyre and Wilson JJ. were delivered by
WILSON J.—The appellant, Delbert Guerin, is the Chief of the Musqueam Indian Band, the members of which are descended from the original inhabitants of Greater Vancouver. The other appellants are Band Councillors. In 1955 there were 235 members in the Band and they lived on a
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reserve located within the charter area of the City of Vancouver which contained approximately 416.53 acres of very valuable land.
The subject of the litigation is a lease of 162 acres of the reserve land entered into on January 22, 1958 on behalf of the Band by the Indian Affairs Branch of the federal government with the Shaughnessy Heights Golf Club as lessee. The trial judge [[1982] 2 F.C. 385] found that the Crown was in breach of trust in entering into this lease and awarded the Band $10 million in damages. The Crown appealed to the Federal Court of Appeal to have the trial judgment set aside and the Band cross-appealed seeking an increase in the award of damages. By a unanimous judgment [(1982), 143 D.L.R. (3d) 416] the Crown's appeal was allowed and the cross-appeal dismissed. The Band sought and was granted leave to appeal to this Court.
There are four main grounds on which the appellants submit that the trial judge's finding of liability should have been upheld in the Court of Appeal. I paraphrase them from the appellants' factum as follows:
1 Section 18(1) of the Indian Act, R.S.C. 1952, c. 149, imposes a trust or, at a minimum, fiduciary duties on the Crown with respect to reserve lands held by it for the use and benefit of Indian Bands. This trust or those fiduciary duties are not merely political in nature but are enforceable in the courts like any other trust or fiduciary duty.
2. The Federal Court of Appeal should not have allowed the Crown to put forward the concept of "political trust" as a defence to the Band's claim since, as the learned trial judge pointed out, it was not specifically pleaded as required by Rule 409 of the Federal Court Rules.
3. The leased lands were surrendered by the Band to the Crown in trust for lease to the Golf Club on very specific terms and those terms were not
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obtained. The terms which were obtained were much less favourable to the Band and the Band would not have surrendered the land for lease on those terms.
4. The Crown, by misrepresenting the terms it could and would obtain on the lease, induced the Band to surrender its land and thereby committed the tort of deceit.
In any case of alleged breach of trust the facts are extremely important and none more so than in this case. We are fortunate, however, in having very careful and extensive findings by the learned trial judge and, although counsel on both sides roamed at large through the transcript for evidence in support of their various propositions, I have considered it desirable to confine myself very closely to the trial judge's findings.
1. The Facts
There can be little doubt that by the mid '50s the Indian Affairs Branch was well aware that the appellants' reserve was a very valuable one because of its location. Indeed, offers to lease or buy large tracts of the reserve had already been received. We know this from a report dated October 11, 1955 made by Mr. Anfield who was in charge of the Vancouver agency at the time to Mr. Arneil, the Indian Commissioner for British Columbia. Both these men are since deceased which is unfortunate since Mr. Anfield played a lead role in the impugned lease transaction. In a later report to Mr. Arneil, Mr. Anfield suggested that a detailed study should be made of the Band's requirements of its reserve lands so that the surplus, if any, could be identified and turned to good account for the Band's benefit. He suggested that not only should they obtain an appraisal of land values but that a land use planning survey should be prepared aimed at maximum development in order to provide long-term revenue for the Band. He continued:
It seems to me that the real requirement here is the services of an expert estate planner with courage and vision and whose interest and concern would be as much
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the future of the Musqueam Indians as the revenue use of the lands unrequited by these Indians. It is essential that any new village be a model community. The present or any Agency staff set up could not possibly manage a project like this, and some very realistic and immediate plans must be formulated to bring about the stated wish of these Musqueam people, the fullest possible use and development for their benefit, of what is undoubtedly the most potentially valuable 400 acres in metropolitan Vancouver today.
Mr. Anfield went on to speak in terms of "another potential 'British Properties' " and suggested that all parties interested in the land should be advised that the land not required by the Band for its own use, when defined and surrendered, would be publicly advertised.
About this time the Shaughnessy Heights Golf Club was looking for a new site. Its lease from the Canadian Pacific Railway was due to expire in 1960 and the club had been told that it would not be renewed. The club turned its attention therefore to the Musqueam Reserve. At the same time an active interest in the reserve was being displayed by a representative of a prominent Vancouver real estate firm on behalf of a developer client interested in a long-term lease. Although his contact had been directly with the Indian Affairs Branch in Ottawa, Messrs. Arneil and Anfield were both aware of it. Indeed, when he suggested to them that he meet with the Chief and Councillors of the Band to try to work out some arrangement, he was told by Mr. Anfield not to do so but to deal only through Indian Affairs personnel. That he followed this advice is made clear from the evidence of the Band members who testified. They were told of no interest in their land other than that expressed by the golf club.
The learned trial judge dealt specifically with the issue of the credibility of the members of the Band because he was very conscious of the fact that neither Mr. Arneil nor Mr. Anfield was alive to testify. He found the Band members to be "honest, truthful witnesses" and accepted their testimony.
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The Band agreed that its surplus land should be leased and authorized a land appraisal to be made and paid for out of Band funds. In fact the appraisal was done by Mr. Howell of the Veterans Land Act Administration. Although he was a qualified appraiser, he was not a land use expert. He divided the reserve for valuation purposes into four areas, the first of which included the 162 acres leased to the golf club. This area comprised 220 acres classified by Mr. Howell as "First Class Residential area" and valued at $5,500 per acre making a total of $1,209,120. The other three areas which were all low lying he valued at $625 per acre. The Band was not given a copy of his report and indeed Mr. Arneil and Mr. Anfield had difficulty getting copies. They were very anxious to get the report because they were considering a lease of 150 acres to the golf club at "a figure of say $20,000 to $25,000 a year". The documentary evidence at trial showed that meetings and discussions had taken place between Mr. Anfield and the president of the golf club in 1956 and in the early part of 1957. It is of interest to note that Mr. Anfield had told the president of the golf club about the appraisal which was being carried out and had subsequently reviewed Mr. Howell's report with them. The golf club was, of course, advised that any proposal made by it would have to be laid before the Band for its approval.
On April 7, 1957 the Band Council met, Mr. Anfield presiding. The trial judge found that the golf club proposal was put to the Chief and Councillors only in the most general terms. They were told the lease would be of approximately 160 acres, that it would be for an initial term of fifteen years with options to the club for additional fifteen year periods and that it would be "on terms to be agreed upon". In fact the rent that had been proposed by the club was $25,000 a year for the first fifteen years with the rent for each successive fifteen-year period being settled by mutual agreement or failing that by arbitration. However, under the proposal the rent for the renewal periods
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was subject to a ceiling increase of 15 per cent of the initial rent of $25,000.
The learned trial judge found that when Mr. Bethune, the Superintendent of Reserves and Trusts in Ottawa, was advised of the $25,000 rental figure he questioned its adequacy and suggested to Mr. Arneil that he consult with Mr. Howell, the appraiser, as to what a proper return on the 160 acres would be. Unfortunately, Mr. Howell was not given all the facts. He was not told of the 15 per cent ceiling on rent increases. He was not told that the golf club would have the right to remove all improvements on termination of the lease although he was told that the club proposed to spend up to a million dollars in buildings and improvements on the leased land. Mr. Howell therefore recommended acceptance of the golf club's offer stating: "These improvements will revert to the Band at the end of the lease" and "the Department will be in a much sounder position to negotiate an increase in rental in fifteen years' time when the club will have invested a considerable amount of capital in the property, which they will have to protect." Mr. Howell testified at trial that he would not have recommended acceptance of the golf club's offer had he known that the improvements would not revert to the Band and that the rental on renewal periods was subject to a 15 per cent ceiling increase.
Mr. Howell's letter was forwarded to Ottawa with the request that surrender documents be prepared for submission to the Band and this was done. It is interesting to note, however, that in the letter forwarding the surrender documents Mr. Bethune indicated to Mr. Arneil that he would like to see the 15 per cent ceiling on rent removed and rent for subsequent periods established either by mutual agreement or by arbitration.
A Band Council meeting was held on July 25, 1957 again with Mr. Anfield in the chair. There was further discussion of the proposed lease to the golf club and two Councillors expressed the view that the renewal period should be at ten year
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intervals rather than fifteen. It was at this meeting that the resolution was passed to hold a general meeting of Band members to consider and vote on the surrender of the 162 acres to the Crown for purposes of the lease. The meeting of the Band was held on October 6, 1957 but prior to that there was another meeting of Councillors on September 27, 1957. Mr. Harrison and Mr. Jackson of the Shaughnessy Golf Club attended this meeting and Mr. Anfield, who had in the interval been promoted to Assistant Indian Commissioner for British Columbia, was there along with a Mr. Grant who was described as "Officer in charge—Vancouver Agency". In the presence of the golf club representatives Chief Sparrow took issue with the $25,000 per annum rental figure and stipulated for something in the neighbourhood of $44,000 to $44,500 per annum. The golf club representatives balked at this and they were asked to step outside while the Band Council and the Indian Affairs personnel had a private discussion.
Mr. Anfield expressed the view that the $44,000 figure was unreasonable and suggested $29,000 to which the Councillors agreed on the understanding that the first lease period would be for ten years and subsequent rental negotiations would take place every five years. Mr. Grant testified that Mr. Anfield advised the Council to go ahead with the lease at the $29,000 figure and in ten years demand a healthy increase from the golf club. Mr. Grant also testified that the Council objected to any ceiling on future rental and Mr. Anfield said that he would convey their concern to the Department of Indian Affairs. On that basis the Council, according to Mr. Grant, reluctantly accepted the $29,000 figure.
At the meeting of the Band on October 6, 1957 ("the surrender meeting") Chief Sparrow was present along with the Councillors and members. Mr. Anfield presided as usual. The learned trial judge made specific findings as to what occurred at the meeting and I reproduce them from his reasons:
(a) Before the Band members voted, those present assumed or understood the golf club lease would be,
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aside from the first term, for 10-year periods, not 15 years.
(b) Before the Band members voted, those present assumed or understood there would be no 15% limitation on rental increases.
(c) The meeting was not told the golf club proposed it should have the right, at any time during the lease and for a period of up to 6 months after termination, to remove any buildings or structures, and any course improvements and facilities.
(d) The meeting was not told that future rent on renewal periods was to be determined as if the land were still in an uncleared and unimproved condition and used as a golf club.
(e) The meeting was not told that the golf club would have the right at the end of each 15-year period to terminate the lease on six-month's prior notice.
Neither (d) nor (e) were in the original golf club proposal and first appeared in the draft lease following the surrender meeting. They were not brought before the Band Council or the Band at any time for comment or approval. The Band voted almost unanimously in favour of the surrender.
By the surrender document the Chief and Councillors of the Band acting on behalf of the Band surrendered 162 acres to the Crown:
TO HAVE AND TO HOLD the same unto Her said Majesty the Queen, her Heirs and Successors forever in trust to lease the same to such person or persons, and upon such terms as the Government of Canada may deem most conducive to our Welfare and that of our people.
AND upon the further condition that all moneys received from the leasing thereof, shall be credited to our revenue trust account at Ottawa.
AND WE, the said Chief and Councillors of the said Musqueam Band of Indians do on behalf of our people and for ourselves, hereby ratify and confirm, and promise to ratify and confirm, whatever the said Government may do, or cause to be lawfully done, in connection with the leasing thereof.
It will be noted that there is no reference in the surrender to the proposed lease to the golf club. The position of the Crown at trial was that once
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the surrender documents were signed the Crown could lease to anyone on whatever terms it saw fit.
After the surrender there was considerable correspondence between Mr. Anfield and personnel in the Indian Affairs Branch in Ottawa particularly over the more controversial provisions of the lease but none of this correspondence was communicated to the Band Council nor were they given a copy of the draft lease which would have drawn these controversial provisions to their attention. The trial judge states at p. 409:
Put baldly, the band members, regardless of the whole history of dealings and the limited information imparted at the surrender meeting, were not consulted.
But it was their land. It was their potential investment and revenue. It was their future.
The learned trial judge accepted that the Chief, the Councillors and the Band members were wholly excluded from any further discussions or negotiations among the Indian Affairs personnel, the golf club officers and their respective solicitors with respect to the terms of the lease. The trial judge found an explanation, although not a justification, for this in the possibility that Indian Affairs personnel at the time took a rather paternalistic attitude towards the Indian people whom they regarded as wards of the Crown.
I turn now to the essential terms of the lease as entered into in January 22, 1958 as described by the learned trial judge at p. 412:
1. The term is for 75 years, unless sooner terminated.
2. The rent for the first 15 years is $29,000 per annum.
3. For the 4 succeeding 15-year periods, annual rent is to be determined by mutual agreement, or failing such agreement, by arbitration
... such rent to be equal to the fair rent for the demised premises as if the same were still in an uncleared and unimproved condition as at the date of each respective determination and considering the restricted use to which the Lessee may put the demised premises under the terms of this lease ...
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4. The maximum increase in rent for the second 15-year period (January 1, 1973 to January 1, 1988) is limited to 15% of $29,000, that is $4,350 per annum.
5. The golf club can terminate the lease at the end of any 15-year period by giving 6 months' prior notice.
6. The golf club can, at any time during the lease and up to 6 months after termination, remove any buildings or other structures, and any course improvements and facilities.
Mr. Grant stated in evidence that the terms of the lease ultimately entered into bore little resemblance to what was discussed and approved at the surrender meeting and the learned trial judge agreed. He found that had the Band been aware of the terms in fact contained in the lease they would never have surrendered their land.
So much for the facts as found by the learned trial judge. What recourse in law, if any, does the Band have in such circumstances?
2. Section 18 of the Indian Act
The appellants contend that the Federal Court of Appeal erred in failing to find that s. 18 of the Indian Act imposed on the Crown a fiduciary obligation enforceable in the courts. The section reads as follows:
18. (1) Subject to the provisions of this Act, reserves shall be held by Her Majesty for the use and benefit of the respective bands for which they were set apart; and subject to this Act and to the terms of any treaty or surrender, the Governor in Council may determine whether any purpose for which lands in a reserve are used or are to be used is for the use and benefit of the band.
Mr. Justice Le Dain, after concluding on the authorities that there was nothing in principle to prevent the Crown from having the status of a trustee in equity, found that s. 18 nevertheless did not have that effect. It merely imposed on the Crown a governmental obligation of an administrative nature. It was a public law obligation rather than a private law obligation. Section 18 could not therefore afford a basis for an action for breach of trust.
While I am in agreement that s. 18 does not per se create a fiduciary obligation in the Crown with respect to Indian reserves, I believe that it recognizes
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the existence of such an obligation. The obligation has its roots in the aboriginal title of Canada's Indians as discussed in Calder v. Attorney General of British Columbia, [1973] S.C.R. 313. In that case the Court did not find it necessary to define the precise nature of Indian title because the issue was whether or not it had been extinguished. However, in St. Catherine's Milling and Lumber Co. v. The Queen (1888), 14 App. Cas. 46, Lord Watson, speaking for the Privy Council, had stated at p. 54 that "the tenure of the Indians ... [is] a personal and usufructuary right". That description of the Indian's interest in reserve lands was approved by this Court most recently in Smith v. The Queen, [1983] 1 S.C.R. 554. It should be noted that no constitutional issue such as arose in the St. Catherine's and Smith cases arises in this case since title to Indian reserve land in British Columbia was transferred to the Crown in right of Canada in 1938: see British Columbia Orders in Council 208 and 1036 passed pursuant to Article 13 of the Terms of Union of 1870.
I think that when s. 18 mandates that reserves be held by the Crown for the use and benefit of the Bands for which they are set apart, this is more than just an administrative direction to the Crown. I think it is the acknowledgment of a historic reality, namely that Indian Bands have a beneficial interest in their reserves and that the Crown has a responsibility to protect that interest and make sure that any purpose to which reserve land is put will not interfere with it) This is not to say that the Crown either historically or by s. 18 holds the land in trust for the Bands. The Bands do not have the fee in the lands; their interest is a limited one. But it is an interest which cannot be derogated from or interfered with by the Crown's utilization of the land for purposes incompatible with the Indian title unless, of course, the Indians agree. I believe that in this sense the Crown has a fiduciary obligation to the Indian Bands with respect to the uses to which reserve land may be put and that s. 18 is a statutory acknowledgment of that obligation. It is my view, therefore, that while the Crown
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does not hold reserve land under s. 18 of the Act in trust for the Bands because the Bands' interests are limited by the nature of Indian title, it does hold the lands subject to a fiduciary obligation to protect and preserve the Bands' interests from invasion or destruction.
The respondent submits, however, that any obligation imposed on the Crown by s. 18(1) of the Indian Act is political only and unenforceable in courts of equity. Section 18, he says, gives rise to a "trust in the higher sense" as discussed in Kinloch v. Secretary of State for India in Council (1882), 7 App. Cas. 619 (H.L.), and Tito v. Waddell (No. 2), [1977] 3 All E.R. 129 (Ch.) Mr. Justice Le Dain, delivering the judgment of the Federal Court of Appeal, adopted this approach. He expressed the view, at p. 467, that these cases indicate that "in a public law context neither the use of the words 'in trust' nor the fact that the property is to be held or dealt with in some manner for the benefit of others is conclusive of an intention to create a true trust". He found that the discretion conferred on the Crown by s. 18(1) evidenced an intention to exclude the equitable jurisdiction of the courts.
With respect, while I agree with the learned justice that s. 18 does not go so far as to create a trust of reserve lands for the reasons I have given, it does not in my opinion exclude the equitable jurisdiction of the courts. The discretion conferred on the Governor in Council is not an unfettered one to decide the use to which reserve lands may be put. It is to decide whether any use to which they are proposed to be put is "for the use and benefit of the band". This discretionary power must be exercised on proper principles and not in an arbitrary fashion. It is not, in my opinion, open to the Governor in Council to determine that a use of the land which defeats Indian title and affords the Band nothing in return is a "purpose" which could be "for the use and benefit of the band". To
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so interpret the concluding part of s. 18 is to deprive the opening part of any substance.
Moreover, I do not think we are dealing with a purely public law context here. Mr. Justice Le Dain agrees that a Band has a beneficial interest in its reserve. I believe it is clear from s. 18 that that interest is to be respected and this is enough to make the so-called "political trust" cases inapplicable.
In Kinloch, supra in which Lord Selborne L.C. first advanced the idea of the political trust, the issue was whether a Royal Warrant that "granted" booty of war to the respondent Secretary of State for India "in trust" for the officers and men of certain forces created a trust enforceable in the courts. It was held that it did not, the effect of the Warrant being to constitute the Secretary of State an agent of the Crown for the distribution of the booty rather than a trustee. In Civilian War Claimants Association, Ltd. v. The King, [1932] A.C. 14, the plaintiffs, as the assignees of civilian claimants who had suffered loss at the hands of the Germans during World War I, alleged, inter alia, that money received by the Crown as war reparations from Germany pursuant to treaty was being held for the claimants on trust. Their claim was rejected by the House of Lords. In Hereford Railway Co. v. The Queen (1894), 24 S.C.R. 1, money alleged by the plaintiff railway to have been granted by the legislature as a subsidy was held not to be subject to a trust enforceable in the courts. In all these cases the funds at issue were the property of the Crown (or, at least, as in Kinloch, supra, in the possession of the Crown) and none of those laying claim to them as beneficiaries could show a right to share in the funds independent of the treaty, statute or other instrument alleged to give rise to an enforceable trust.
[page 352]
In Tito v. Waddell (No. 2), supra, the plaintiff Banaban Islanders asserted that certain royalties payable to the local government Commissioner as a result of mining operations on their land gave rise to trusts in their favour. In rejecting their claims on the basis of a number of different considerations, Megarry V.C. found at pp. 225-26 that there was not a sufficient relationship between the land on which the mining operations took place and the royalties to give rise to a fair inference that a true trust of the royalties was intended. The royalties were exclusively Crown property and the fact that the Banaban Islanders owned the land did not give them an interest in the royalties. I believe it is implicit in Megarry V.C.'s reasons that if the Banaban Islanders could have shown an interest in the royalties themselves, a stronger case would have arisen in favour of a trust.
It seems to me that the "political trust" line of authorities is clearly distinguishable from the present case because Indian title has an existence apart altogether from s. 18(1) of the Indian Act. It would fly in the face of the clear wording of the section to treat that interest as terminable at will by the Crown without recourse by the Band.
Continuing with the analysis of s. 18, it seems to me quite clear from the wording of the section that the Governor in Council's authority to determine in good faith whether any purpose to which reserve lands are proposed to be put is for the use and benefit of the Band is "subject to the terms of any treaty or surrender". I take this to mean that if a Band surrenders its beneficial interest in reserve lands for a specific purpose, then the Governor in Council's authority under the section to decide whether or not the purpose is for the use and benefit of the Band is pre-empted. The Band has itself agreed to the purpose and the Crown may rely upon that agreement. It will be necessary to consider this in greater detail in connection with the surrender which in fact took place in this case.
[page 353]
3. The Failure to Plead the Defence of "Political Trust"
The second ground of appeal put forward by the appellants concerns the fact that the defence of "political trust" which was accepted by the Federal Court of Appeal and formed the basis of its decision was not specifically pleaded as required by Rule 409 of the Federal Court Rules.
I need say very little about this ground since I think the case falls to be decided on the substantive rather than the procedural issues. However, I agree with the appellants' submission that the Crown's tactics in this regard left a lot to be desired. It is quite apparent that when the trial judge indicated a willingness to permit an amendment at trial but went on to order discovery on the issue, the Crown renounced the defence both at trial and through ministerial statements made out of court. It nevertheless went ahead and sought and obtained leave to raise it in the Federal Court of Appeal. Even although, as the Court of Appeal pointed out, the defence is a strictly legal one and the Band was probably not prejudiced by the absence of discovery, the Crown's behaviour does not, in my view, exemplify the high standard of professionalism we have come to expect in the conduct of litigation.
4. The Surrender
Reference has already been made to the language of s. 18 and in particular to the fact that the Crown's fiduciary duty under it is "subject to the terms of any . . . surrender". The implications of this have to be considered in the context of the learned trial judge's finding that the Band surrendered the 162 acres to the Crown for lease to the golf club on specific terms which were not obtained. The trial judge found that the surrender itself created a trust relationship between the Crown and the Band. The subject of the trust, the trust res, was not the Band's beneficial interest in the land but the land itself. The Crown prior to the
[page 354]
surrender