Southwind v. Canada

Southwind v. Canada
Court (s) Database
Federal Court of Appeal Decisions
Date
2019-06-10
Neutral citation
2019 FCA 171
File numbers
A-337-17
Notes
A correction was made on August 29, 2019. A correction was made on September 29, 2020.
Reported Decision
Decision Content
Date: 20190610
Docket: A-337-17
Citation: 2019 FCA 171
CORAM:
NADON J.A.
WEBB J.A.
GLEASON J.A.
BETWEEN:
ROGER SOUTHWIND, FOR HIMSELF, AND ON BEHALF OF THE MEMBERS OF THE LAC SEUL BAND OF INDIANS, AND
LAC SEUL FIRST NATION
Appellants
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA and
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO and
HER MAJESTY THE QUEEN IN RIGHT OF MANITOBA
Respondents
Heard at Ottawa, Ontario, on October 23, 2018.
Judgment delivered at Ottawa, Ontario, on June 10, 2019.
REASONS FOR JUDGMENT BY:
NADON J.A.
CONCURRED IN BY:
WEBB J.A.
DISSENTING REASONS BY:
GLEASON J.A.
Date: 20190610
Docket: A-337-17
Citation: 2019 FCA 171
CORAM:
NADON J.A.
WEBB J.A.
GLEASON J.A.
BETWEEN:
ROGER SOUTHWIND, FOR HIMSELF, AND ON BEHALF OF THE MEMBERS OF THE LAC SEUL BAND OF INDIANS, AND
LAC SEUL FIRST NATION
Appellants
and
HER MAJESTY THE QUEEN IN RIGHT OF CANADA and
HER MAJESTY THE QUEEN IN RIGHT OF ONTARIO and
HER MAJESTY THE QUEEN IN RIGHT OF MANITOBA
Respondents
REASONS FOR JUDGMENT
GLEASON J.A. (Dissenting)
[1] This is an appeal from the judgment of the Federal Court in Southwind v. Canada, 2017 FC 906 (per Zinn J.), awarding the appellants $30 million in equitable compensation for breach of fiduciary duty committed by Her Majesty the Queen in right of Canada (Canada) in connection with flooding of a substantial part of the Lac Seul First Nation reserve.
[2] The appellants contend that the Federal Court erred in the assessment of a portion of the equitable compensation awarded, namely the value attributed by the Federal Court to the flooded land. Appropriate compensation for this item, in their view, should not have been premised on the fair market value of the flooded lands based on their use at the time they were flooded, but rather ought to have included the value of a revenue-sharing agreement they say Canada should have negotiated on the Lac Seul First Nation’s behalf. In the alternative, the appellants submit that value of the flooded reserve land should be calculated in a greater amount than that fixed by the Federal Court to take into account the value of the flooded lands in connection with downstream hydroelectric electricity generation.
[3] I agree in part with the appellants’ alternate submission. Thus, for the following reasons, I would allow this appeal, with costs.
I. Background
[4] It is useful to commence by reviewing the relevant background.
[5] In the 1920s, members of the Lac Seul First Nation became aware of plans to build a dam, outside their reserve at Ear Falls, to support downstream hydroelectric development to generate power for the City of Winnipeg. It was contemplated that the dam would raise the level of Lac Seul and flood the reserve lands surrounding the lake. Members of the First Nation repeatedly raised concerns with Canada about the damage that raising the level of Lac Seul might cause. Canada acknowledged these concerns, which were also borne out in studies that had been undertaken regarding the likely impact of the dam. A Department of Indian Affairs official “assured the Chief [that the] Department would look into the matter, and protect [the First Nation’s] interests as far as possible”: FC Reasons at para. 137. However, Canada did not seek the Lac Seul First Nation’s consent to surrender the land; nor did it take (or expropriate) the land. As a result, the land at issue remained, and to this day remains, part of the reserve, having been neither taken by nor surrendered to Canada.
[6] The dam was built in 1929 without the requisite approval under the Navigable Waters’ Protection Act, R.S.C. 1927, c. 140. Ten hydroelectric generating stations were later built downstream. The water level in Lac Seul gradually rose following construction of the dam and by 1936 reached the level anticipated before construction. The water now covers 11,304 acres, which represents approximately 17 percent of the Lac Seul First Nation reserve.
[7] Although Canada and Her Majesty the Queen in right of Manitoba and Ontario (Manitoba and Ontario, respectively) entered into agreements concerning compensation for losses resulting from the dam generally, there was no specific agreement about the amount of compensation that would be paid to the Lac Seul First Nation.
[8] Canada ultimately reached a settlement with Ontario in 1943, some 14 years after the dam was built and the water began to rise. Canada did not consult with the Lac Seul First Nation before entering into settlement negotiations or before agreeing to the settlement. Nor did Canada advise the First Nation of the terms of the settlement reached. After making certain deductions, Canada put settlement funds of $50,263 into the Lac Seul First Nation’s trust account. Canada did not inform the First Nation of the settlement in 1943, though it appears that members of the First Nation later became aware that some compensation had been paid.
[9] As a result of the construction of the dam at Ear Falls and resulting flooding, nearly one-fifth of the Lac Seul reserve was rendered unusable. Timber was lost, graves were desecrated and homes, gardens and fields were destroyed. In addition, portions of the reserve were severed from one another. Many years later, partly at its expense, the First Nation built a bridge connecting the two communities.
[10] In 1985, the Lac Seul First Nation filed a specific claim with Canada for the losses associated with the flooding, and the appellants initiated this action in the Federal Court in 1991. In their action, the appellants sought equitable compensation, punitive damages and a declaration that their equitable interests in the flooded lands had not been encumbered or extinguished.
[11] In terms of the relevant legal background, representatives of the Lac Seul First Nation adhered to Treaty 3 on June 9, 1874. Treaty 3, which had been signed the previous year, provided that Canada would:
[…] lay aside reserves for farming lands, due respect being had to lands at present cultivated by the said Indians, and also to lay aside and reserve for the benefit of the said Indians, to be administered and dealt with for them by Her Majesty’s Government of the Dominion of Canada, in such a manner as shall seem best, other reserves of land in the said territory hereby ceded, which said reserves shall be selected and set aside where it shall be deemed most convenient and advantageous for each band or bands of Indians, by the officers of the said Government appointed for that purpose, and such selection shall be so made after conference with the Indians; provided, however, that such reserves, whether for farming or other purposes, shall in no wise exceed in all one square mile for each family of five, or in that proportion for larger or smaller families […].
[12] The land set aside for the Lac Seul First Nation under the terms of the Treaty 3 was a “reserve” within the meaning of paragraph 2(j) of the Indian Act, R.S.C. 1927, c. 98 (the Indian Act).
[13] As it read in 1929, the Indian Act set out two means by which land could be removed from a reserve. Section 48 contemplated land being taken for a public purpose with the Governor in Council’s consent:
(1) No portion of any reserve shall be taken for the purpose of any railway, public work, or work designed for any public utility without the consent of the Governor in Council but any company or municipal or local authority having statutory power, either Dominion or provincial, for taking or using lands or any interest in lands without the consent of the owner may, with the consent of the Governor in Council as aforesaid, and subject to the terms and conditions imposed by such consent, exercise such statutory power with respect to any reserve or portion of a reserve.
(1) Nulle partie d’une réserve ne peut être expropriée pour les besoins d’un chemin de fer, d’une route, d’un ouvrage public ou d’un ouvrage destiné à quelque utilité publique sans le consentement du gouverneur en son conseil, mais toute compagnie ou autorité municipale ou locale possédant le pouvoir conféré par une loi, soit fédérale soit provinciale, d’exproprier ou utiliser des terrains ou quelque intérêt dans des terres, sans le consentement du propriétaire, peut, avec le consentement du gouverneur en son conseil comme susdit, et subordonnément aux termes et conditions imposés par ce consentement, exercer ce pouvoir conféré par une loi à l’égard de toute réserve ou partie d’une réserve.
(2) In any such case compensation shall be made therefor to the Indians of the band, and the exercise of such power, and the taking of the lands or interest therein and the determination and payment of the compensation shall, unless otherwise provided by the order in council evidencing the consent of the Governor in Council, be governed by the requirements applicable to the like proceedings by such company, municipal or local authority in ordinary cases.
(2) En ce cas, une indemnité doit être versée aux Indiens de la bande, et l’exercice de ce pouvoir et l’expropriation des terres ou l’acquisition d’un intérêt dans ces terres, ainsi que la fixation et le versement de l’indemnité doivent, à moins de dispositions contraires dans l’arrêté en conseil qui fait preuve du consentement du gouverneur en son conseil, être régis par les prescriptions applicables à des procédures similaires prises par cette compagnie, ou cette autorité municipale ou locale dans des cas ordinaires.
[…]
[…]
(4) The amount awarded in any case shall be paid to the Minister of Finance for the use of the band of Indians for whose benefit the reserve is held, and for the benefit of any Indian who has improvements taken or injured.
(4) La somme adjugée dans chaque cas est versée au ministre des Finances pour l’usage de la bande d’Indiens au profit de laquelle la réserve est affectée, et au profit de tout Indien qui y a fait des améliorations, ou lésé.
[14] Sections 50 and 51 of the Indian Act provided for land to be surrendered and forfeited to Canada with a band’s consent, as well as that of the Governor in Council:
50(1) 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; but 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, and may, without surrender, dispose to the best advantage, in the interests of the Indians, of wild grass and dead or fallen timber.
50(1) Sauf dispositions contraires de la présente Partie, nulle réserve ou portion de réserve ne peut être vendue, aliénée ni affermée, avant d’avoir été cédée ou rétrocédée à la Couronne pour les objets de la présente Partie; mais le surintendant général peut donner à bail, au profit de quelque Indien, sur sa demande, la terre à laquelle celui-ci a droit, sans cession ni abandon, et il peut, sans qu’il y ait eu abandon, disposer de la manière la plus avantageuse possible pour les Indiens des graminées sauvages et du bois mort sur pied ou du chablis.
[…]
[…]
51(1) Except as in this Part otherwise provided, no release or surrender of a reserve or a portion of a reserve, held for the use of the Indians of any and, or of any individual Indian, shall be valid or binding, unless the release or surrender shall be assented to by a majority of the male members of the band of the full age of twenty-one years, at a meeting or council thereof summoned for that purpose, according to the rules of the band, and held in the presence of the Superintendent General, or of any officer duly authorized to attend such council, by the Governor in Council or by the Superintendent General.
51(1) Sauf dispositions contraires de la présente Partie, nulle cession ou rétrocession d’une réserve ou d’une partie de réserve à l’usage d’une bande, ou d’un Indien en particulier, n’est valide ni obligatoire, à moins que la cession ou rétrocession ne soit ratifiée par la majorité des hommes de la bande qui ont vingt et un ans révolus, et ce à une assemblée ou à un conseil de la bande convoqué pour en délibérer conformément aux usages de la bande, et tenu en présence du surintendant général, ou d’un fonctionnaire régulièrement autorisé par le gouverneur en son conseil ou par le surintendant général à y assister.
(2) No Indian shall be entitled to vote or be present at such council, unless he habitually resides on or near, and is interested in the reserve in question.
(2) Nul Indien ne peut voter ni assister à ce conseil, à moins de résider habituellement dans ou près la réserve en question, ou d’y avoir un intérêt.
(3) The fact that such release or surrender has been assented to by the band at such council or meeting shall be certified on oath by the Superintendent General, or by the office authorized by him to attend such council or meeting, and by some of the chiefs or principal men present thereat and entitled to vote, before any person having authority to take affidavits and having jurisdiction within the place where the oath is administered.
(3) Le fait que la cession ou rétrocession a été consentie par la bande, à ce conseil ou à cette assemblée, doit être attesté sous serment par le surintendant général ou par le fonctionnaire qu’il a autorisé à assister à ce conseil ou à cette assemblée, et par l’un des chefs ou des anciens qui y a assisté et y a droit de vote, devant toute personne autorisée à faire prêter serment et ayant juridiction dans l’endroit où le serment est prêté.
(4) When such assent has been so certified, as aforesaid, such release or surrender shall be submitted to the Governor in Council for acceptance or refusal.
(4) Après que ce consentement a été ainsi attesté, comme susdit, la cession ou rétrocession est soumise au gouverneur en son conseil, pour qu’il l’accepte ou la refuse.
[15] Treaty 3 contains provisions that, at least on their face, resemble sections 48 and 51 of the Indian Act. It provides that “the aforesaid reserves of lands, or any interest or right therein or appurtenant thereto, may be sold, leased or otherwise disposed of by the said Government for the use and benefit of the said Indians, with the consent of the Indians entitled thereto first had and obtained” and “that such sections of the reserves above indicated as may at any time be required for Public Works or buildings of what nature soever may be appropriated for that purpose by Her Majesty’s Government of the Dominion of Canada, due compensation being made for the value of any improvements thereon.”
[16] Thus, under the Indian Act, the Lac Seul First Nation’s reserve land could be surrendered, with the band’s agreement and the Governor in Council’s consent, or taken by Canada for a public purpose with the requisite approval of the Governor in Council.
II. Federal Court’s Reasons
[17] With this background in mind, I turn now to review the portions of the Federal Court’s Reasons that are germane to this appeal.
[18] After reviewing the evidence given over the course of the multi-week trial, the Federal Court set out its analysis. It is noteworthy that no party to this appeal questions much of the analysis in the Federal Court’s lengthy and carefully articulated Reasons. Rather, as noted, the appellants principally contest the basis upon which the Federal Court calculated an aspect of the equitable compensation awarded.
[19] The Federal Court began its analysis by holding that Canada owed the Lac Seul First Nation a fiduciary duty in respect of the land reserved for its benefit under Treaty 3. The Federal Court found that several specific obligations flowed from Canada’s fiduciary duty: “1. a duty of loyalty and good faith to the [Lac Seul First Nation] in the discharge of its mandate as trustee of the Reserve lands; 2. a duty to provide full disclosure and to consult with the band; 3. a duty to act with ordinary prudence with a view to the best interest of the [Lac Seul First Nation]; and 4. a duty to protect and preserve the band’s proprietary interest in the Reserve from exploitation”: Reasons at para. 226. The Federal Court found that Canada breached each of these obligations and rejected Canada’s equitable defence of laches.
[20] The Federal Court noted that Canada accepted that equitable compensation would be the appropriate remedy if the Court held that Canada owed the Lac Seul First Nation a fiduciary duty, found that Canada breached its duty and concluded that Canada could not successfully raise an equitable defence.
[21] The Federal Court accordingly moved to next set out the principles governing equitable compensation, drawing on the Supreme Court of Canada’s decisions in Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534, 131 N.R. 321 (cited to S.C.R.) (Canson) and Hodgkinson v. Simms, [1994] 3 S.C.R. 377, 171 N.R. 245 (cited to S.C.R.) (Hodgkinson), noting that equitable compensation aims “‘to restore to the [beneficiary] what has been lost as a result of the breach, i.e. the [beneficiary’s] lost opportunity’” and to deter wrongdoing by fiduciaries. The Federal Court further noted that the loss for which equity provides compensation is any that is factually caused by the breach, even if not foreseeable at the time of the breach. The Federal Court also underscored that, in assessing compensation, a court of equity aims to put the beneficiary in the position she or he would have been in had the fiduciary not breached and presumes that, in the non-breach scenario, the fiduciary would have both acted lawfully and put what the beneficiary lost to its most advantageous use.
[22] The Federal Court considered how these principles have been applied by the Ontario Court of Appeal in Whitefish Lake Band of Indians v. Canada (Attorney General), 2007 ONCA 744 at para. 69, 287 D.L.R. (4th) 480 (Whitefish Lake) and the Specific Claims Tribunal in Huu-Ay-Aht First Nations v. Canada, 2016 SCTC 14 and Beardy’s & Okemasis Band #96 and #97 v. Canada, 2016 SCTC 15. These decisions draw on the analytical method employed by the Federal Court in Guerin v. The Queen, [1982] 2 F.C. 385, 2 C.N.L.R. 83 (T.D.) (Guerin FC) (which, though reversed by this Court, was ultimately upheld by the Supreme Court). That method emphasizes the need for a court of equity (or the Specific Claims Tribunal in applying equitable principles) to take into account contingencies (i.e. possible, but not necessarily certain, events) in assessing compensation.
[23] The Federal Court held that the dam at Ear Falls was a public work, that it was certain that the Ear Falls dam would have been built and that the land would have been flooded. It thus concluded that it need not take into account a contingency that the dam might not have been built.
[24] The Federal Court next noted that Canada must be presumed to act lawfully and therefore concluded that, had Canada done so, it would either have secured the land’s surrender as provided for in Treaty 3 and section 51 of the Indian Act or taken the land as provided for in Treaty 3 and section 48 of the Indian Act. The Federal Court found Canada would, in either case, have compensated the Lac Seul First Nation for the flooded land in 1929, the year of the dam’s construction.
[25] The Federal Court rejected the argument that Canada would have negotiated a revenue-sharing agreement on the Lac Seul First Nation’s behalf. In the Federal Court’s view, such an agreement would have been unprecedented, would not have been considered by Canada, Manitoba or Ontario and was not consistent with the approach taken to compensating the other landowners on Lac Seul whose lands were also flooded by the dam. Acknowledging that Canada had previously required the negotiation of arrangements providing for ongoing payments for water power and riparian rights to the Stoney Indian Band, the Federal Court distinguished the situation involving that band because the hydroelectric generating stations were located on the Stoney Indian Band’s reserve, not downstream, as was the case for the Lac Seul First Nation. The Federal Court likewise gave no weight to precedent of the Treaty between Canada and the United States of America relating to Cooperative Development of the Water Resources of The Columbia River Basin (the Columbia River Treaty), which was signed on January 17, 1961, long after the Ear Falls dam was built, and which involved a much more complex, international agreement. The Federal Court thus determined that if Canada had acted in accordance with its fiduciary duties to the Lac Seul First Nation, it would not have negotiated a revenue-sharing agreement.
[26] The Federal Court found that Canada would instead have obtained a flowage easement over the flooded lands of the First Nation, which was the common approach in similar cases and would have represented the least invasive method of acquiring the right to flood the lands. However, according to the Court, the amount that ought to have been paid for the easement was identical to that which would have been payable had the land been purchased outright because “[t]he land was to be swallowed up and unavailable to the band for eternity. […] it was as close to an outright sale of the land as one can have and was to be compensated accordingly”: Reasons at para. 359.
[27] The Federal Court then moved to assess the compensation that Canada was required to pay. It began by assessing compensation for the land, itself, which the Court concluded should be fixed at $1.29 per acre in 1929 dollars (approximately $14,500 for the 11,304 acres flooded). This was the value of the land as agricultural land, based on the expert evidence the Federal Court accepted. The Federal Court rejected the contention that the increased value of the flooded land as part of a reservoir in support of downstream hydroelectric development was to be taken into account, pointing out that the value “attributable to the project” was to be excluded under both the Expropriation Act, R.S.C. 1985, c. E-21 and the Expropriation Act, R.S.O. 1990, c. E.26.
[28] In so concluding, the Federal Court seemingly applied current expropriation law as opposed to that in force in 1929. It also determined there was no basis for concluding that a premium beyond the value of the land as agricultural land would have been negotiated even though such a premium had previously been paid for land acquired in connection with the Kananaskis Falls development project. The Federal Court reasoned that the two projects were different in at least one material respect in that Calgary Power had no ability to expropriate the lands of the Stoney Indian Band used for the Kananaskis Falls development project and it was therefore in an “entirely different position” than Canada was vis-à-vis the Lac Seul First Nation: Reasons at para. 382.
[29] The Federal Court thus concluded that Canada would have paid $1.29 per acre for the flooded lands and stated that “the suggestion that Canada could and should have paid more than this for the land, amounts to nothing more than optimistic speculation”: Reasons at para. 383.
[30] The Federal Court then turned to value other calculable losses, concluding that the Lac Seul First Nation lost timber which could have been sold for approximately $35,000 in 1929 and that it had to spend $1.75 million in 2008 to build a bridge between the parts of the reserve separated as a result of the flooding.
[31] The Federal Court acknowledged that Canada received $72,539 in compensation from Ontario in 1943 and deposited $50,263 in Lac Seul First Nation’s trust account, the remainder being deducted to satisfy claims made by Ontario and the Keewatin Lumber Company. Both of these deductions, in the Federal Court’s view, were improper as the Lac Seul First Nation was not responsible for either claim.
[32] Based on expert evidence concerning the interest that would have been paid on the funds had they been deposited in an Indian Trust Account maintained by Canada and upon concluding that no further deduction needed to be made for consumption by the members of the Lac Seul First Nation, the Federal Court determined that the present value of the compensation owed for calculable losses was $15 million, from which it deducted $1.1 million (the present value of the compensation Canada deposited in the Lac Seul First Nation’s trust account in 1943).
[33] To this, the Federal Court added $16.1 million as compensation for non-calculable losses for a total award of $30 million. The Federal Court considered a range of non-calculable losses, including the loss of livelihood on and off the reserve, as well as the loss of easy shore access and of natural beauty. The amount of non-calculable losses awarded was influenced by the following factors enumerated by the Federal Court at paragraph 512 of its Reasons:
1. The amount of the calculable losses;
2. That many of the non-quantifiable losses created in 1929 persisted over decades, and some are still continuing;
3. The failure to remove the timber from the foreshore created an eyesore and impacted the natural beauty of the Reserve land;
4. The failure to remove timber from the foreshore also created a very long-term water hazard effecting travel and fishing for members of the [Lac Seul First Nation];
5. The flooding negatively affected hunting and trapping requiring members to travel further to engage in these pursuits and the number of animals were reduced for some period as a result of the flooding;
6. Although Canada supplied the materials to build the replacement houses, the [Lac Seul First Nation] members supplied their own labour;
7. The [Lac Seul First Nation] docks and other outbuildings were not replaced;
8. [Lac Seul First Nation] hay land, gardens and rice fields were destroyed;
9. The hunting and trapping grounds on the Reserve were negatively impacted;
10. Two [Lac Seul First Nation] communities were separated by water and one became an island, impacting the ease of movement of the people who lived there;
11. Canada failed to keep the [Lac Seul First Nation] informed and never consulted with the band on any of the flood related matters that affected it, creating uncertainty and, doubtless, some anxiety for the band; and
12. Canada failed to act in a prompt and effective manner to deal with compensation with the [Lac Seul First Nation] prior to the flooding and did not do so for many years after the flooding, despite being aware of the negative impact on the band members.
[34] The Federal Court dismissed the appellants’ claim for punitive damages, but awarded them their costs.
III. The Issues
[35] I turn now to outline the issues in this appeal.
[36] The appellants raise several interconnected arguments. In support of their primary contention that the Federal Court ought to have included in its award compensation for the loss of a revenue-sharing agreement, the appellants first argue that the Federal Court incorrectly defined Canada’s breach of fiduciary duty by failing to recognize that the breach consisted in permitting the unauthorized use of reserve lands. They compare the situation to that in Guerin FC, where the Crown had entered into an unauthorized lease and say that, as in Guerin FC, they are owed compensation for the highest and best use of the flooded lands, assessed as of the date of trial. In their view, this should lead to compensation for the value of a lost revenue-sharing agreement, akin to the one the First Nation more recently negotiated with Ontario Power Generation in respect of one of the downstream generating stations.
[37] Closely tied to the foregoing point, the appellants contend that the Federal Court’s analysis is premised on an impoverished understanding of the nature of the fiduciary duties owed to the Lac Seul First Nation by Canada in that the Federal Court improperly allowed Canada to benefit from a retrospective expropriation of the flooded lands. They also submit that the Federal Court improperly considered the First Nation’s lack of bargaining power in 1929, noting that Canada’s fiduciary obligations prevent it from placing any reliance on this fact as it was obliged to achieve the best possible result for the First Nation.
[38] The appellants further argue that the Federal Court incorrectly determined what likely would have happened in 1929, had Canada not breached its fiduciary duties to the Lac Seul First Nation, submitting that the evidence led at trial does not support the conclusion that Canada would have expropriated the flooded lands. They contend that, as opposed to only considering what Canada would have paid had it expropriated the lands, the Federal Court should also have considered what sort of agreement Canada ought to have made in the context of a willing surrender. They claim that such an agreement would have involved a revenue-sharing agreement. The appellants say that the Federal Court incorrectly discounted the precedent from the Stoney Indian Band and erred in distinguishing it.
[39] In the alternative, even if the Federal Court were right not to award the value of a revenue-sharing agreement, the appellants submit that the Federal Court was incorrect in its approach to setting compensation for the flooded land. They make two arguments in this regard.
[40] They first say that the Federal Court erred in applying current expropriation law to determine how compensation would be calculated and that under 1929 expropriation law such compensation would reflect the possibility that the Lac Seul First Nation’s land adjoining Lac Seul could be used to expand the lake’s capacity as a reservoir in support of downstream hydroelectric development. This would, according to the appellants, give the land a far greater value than the $1.29 per acre found by the Federal Court.
[41] The appellants secondly say that the Federal Court erred in distinguishing the Stoney Indian Band situation, where, in addition to entering into an agreement providing for annual payments for water power and riparian rights, Calgary Power also paid a premium to the Band for the land acquired. The appellants contend that the Federal Court erred in distinguishing the Stoney Indian Band situation on the basis that Calgary Power lacked the ability to expropriate the land as in that case, like the situation of the Lac Seul First Nation, Canada could have expropriated the land in question under section 48 of the Indian Act.
[42] While these were the only arguments advanced orally by the appellants, they raised other arguments in their memorandum of fact and law. They there contended that the Federal Court exceeded its jurisdiction in granting an easement or, alternatively, failed to afford the appellants procedural fairness by granting the easement without soliciting the parties’ submissions. However, they abandoned these arguments during the hearing.
[43] In addition, in their memorandum of fact and law, the appellants submitted that the Federal Court erred in taking into account off-reserve losses of livelihood and that the award is insufficient to deter Canada from breaching its fiduciary duties. They finally say that the Federal Court erred in relying on the appropriation provisions in Treaty 3 in the absence of any historical evidence from or reliance by the parties on the Treaty.
[44] Canada, for its part, says that the Federal Court correctly identified the principles of equitable compensation and committed no palpable and overriding error in applying them. In Canada’s view, the Federal Court made no palpable and overriding error in rejecting the appellants’ claim that the compensation they are due should reflect the value of an agreement Canada should have negotiated on their behalf to share in a portion of the revenue generated by downstream hydroelectric generating stations. Moreover, according to Canada, the Federal Court’s approach to assessing compensation for the flooded land is consistent with the common law of expropriation as it stood in 1929, and the Federal Court did not err in distinguishing the Stoney Indian Band situation. Canada adds that the Federal Court did not err in its treatment of Treaty 3, could take into account losses of livelihood off-reserve in its assessment of equitable compensation and that the overall award is sufficient to deter future wrongdoing.
[45] Ontario and Manitoba were third parties in the action before the Federal Court. The Federal Court dismissed Canada’s third party claim and Canada did not appeal that aspect of the Federal Court’s judgment. Accordingly, Manitoba did not participate in this appeal. Ontario did, but only to argue that the Federal Court did not grant an easement. As this has been conceded by the appellants, Ontario’s submissions are not relevant to the disposition of this appeal.
IV. Analysis
[46] The appellants and Canada agree on a wider set of issues than they had before the Federal Court. It is therefore useful to commence by summarizing the points on which the parties agree so as to focus the analysis on the areas of disagreement.
[47] The parties agree that Canada owed the Lac Seul First Nation a fiduciary duty by reason of the discretionary control it assumed over the reserve land. They are correct in this assertion: see Guerin v. The Queen, [1984] 2 S.C.R. 335 at p. 385, 55 N.R. 161 (per Dickson J. (as he then was)); Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245 at para. 86 (Wewaykum); Manitoba Metis Federation Inc. v. Canada (Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623 at para. 51.
[48] They also agree that Canada breached that duty by failing to meet the standard of care expected of a fiduciary. This standard is that of a person of ordinary prudence in managing their own affairs. Once again, this reflects a correct interpretation of the applicable equitable principles: see Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344 at para. 104, 190 N.R. 89; Wewaykum at para. 94; Williams Lake Indian Band v. Canada (Aboriginal Affairs and Northern Development), 2018 SCC 4, [2018] 1 S.C.R. 83 at paras. 46, 48 (Williams Lake).
[49] The parties further agree that the Federal Court properly exercised its discretion as a court of equity to award a remedy and appropriately selected the remedy of equitable compensation, a remedy that has previously been awarded and one that was open to the Federal Court: see, Canson at p. 589; Wewaykum at para. 107; see also Federal Courts Act, R.S.C. 1985, c. F-7, ss. 2(1), 4, 17(1) (defining “relief” as encompassing “every species of relief” including “by way of […] payment of money”; establishing the Federal Court as, among other things, a court of equity; and granting the Federal Court concurrent original jurisdiction in an action in which relief is claimed against Canada).
[50] The parties also accept the Federal Court’s finding that the Ear Falls dam would have been built by the summer of 1929 and that the land would have flooded thereafter. They also agree that the dam was a public work and that prior to the dam’s construction and the resulting flooding, Canada, had it acted in compliance with its fiduciary duties, could have obtained the right to flood the land through either of the two routes established by the Indian Act as it read in 1929: (1) taking for public purposes authorized by order-in-council made under section 48 of the Indian Act or (2) surrender with the band’s approval authorized by order-in-council made under section 51.
[51] Implicit in the Federal Court’s reasoning on this point is that Treaty 3 would not have impeded Canada from taking reserve land for public purposes without securing the Lac Seul First Nation’s consent. Though they did not press the point at the hearing, as noted, the appellants argued in their memorandum of fact and law that the Federal Court compromised trial fairness by interpreting Treaty 3 without the parties having made submissions on the issue. As Canada rightly points out, both it and the appellants referred to Treaty 3 in their pleadings, putting its interpretation squarely in issue before the Federal Court. The appellants therefore cannot now claim to have been surprised that the Federal Court addressed the interpretation of Treaty 3 in its Reasons: see Heron Bay Investments Ltd. v. Canada, 2010 FCA 203 at paras. 22-24, 405 N.R. 73.
[52] The appellants also submit that the Federal Court erred in interpreting Treaty 3 in the absence of historical evidence. Although historical evidence is often necessary for treaty interpretation as was noted in R. v. Sioui, [1990] 1 S.C.R. 1025 at p. 1045, 109 N.R. 22; R. v. Marshall, [1999] 3 S.C.R. 456 at para. 11, 246 N.R. 83 and Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222 at paras. 54-55, the parties’ choice not to lead such evidence cannot prevent the Federal Court from interpreting Treaty 3 to the extent the Court needed to do so to resolve the issues before it. Moreover, the appellants do not allege any specific error that the Federal Court made in its interpretation. There is thus no basis for this Court to disturb the Federal Court’s conclusions on Treaty 3.
[53] Having reviewed the points on which the parties agree (and having dealt with the appellants’ arguments regarding Treaty 3), I turn now to the points on which the parties disagree. The appellants and Canada principally part ways on the Federal Court’s application of the principles governing equitable compensation.
[54] Delineation of the relevant equitable principles is reviewable on a standard of correctness: see, by analogy, Heritage Capital Corp. v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306 at para. 24 (correctness applies to the “interpretation [… of] the common law”). Their application to the facts, absent an extricable error of principle, is reviewable on a standard of palpable and overriding error: see, by analogy, Rivett v. Monsanto Canada Inc., 2010 FCA 207, [2012] 1 F.C.R. 473 at paras. 22-23 (commenting that appellate review of an award of damages is to be done in accordance with the standards of review identified in Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 and adding that such an approach is equally applicable to review of an accounting of profits, an equitable remedy).
[55] Palpable and overriding errors are significant errors. As this Court explained in a passage in Canada v. South Yukon Forest Corporation, 2012 FCA 165 at para. 46, 431 N.R. 286 that the Supreme Court quoted with approval in Benhaim v. St-Germain, 2016 SCC 48, [2016] 2 S.C.R. 352 at para. 38, “[p]alpable and overriding error is a highly deferential standard of review […] ‘Palpable’ means an error that is obvious. ‘Overriding’ means an error that goes to the very core of the outcome […]”.
[56] I turn now to the errors that the appellants allege.
A. Did the Federal Court commit a reviewable error in declining to award compensation for the failure to negotiate a revenue-sharing agreement?
[57] Contrary to what the appellants submit, I see no error having been committed by the Federal Court in declining to award compensation for loss of a revenue-sharing agreement. The Federal Court did not commit any error in principle in reaching this conclusion and it correctly outlined the principles applicable to equitable compensation. Similarly, it made no palpable and overriding error of fact or of mixed fact and law in concluding that the Lac Seul situation was fundamentally different from those situations relied on by the appellants where agreements providing for ongoing payments had been negotiated.
[58] Turning first to the equita