Southwind v. Canada

Southwind v. Canada
Collection
Supreme Court Judgments
Date
2021-07-16
Neutral citation
2021 SCC 28
Report
[2021] 2 SCR 450
Case number
38795
Judges
Wagner, Richard; Abella, Rosalie Silberman; Moldaver, Michael J.; Karakatsanis, Andromache; Côté, Suzanne; Brown, Russell; Rowe, Malcolm; Martin, Sheilah; Kasirer, Nicholas
On appeal from
Federal Court of Appeal
Subjects
Aboriginal law
Notes
Case in Brief SCC Case Information
Decision Content
SUPREME COURT OF CANADA
Citation: Southwind v. Canada, 2021 SCC 28, [2021] 2 S.C.R. 450
Appeal Heard: December 8, 2020 Judgment Rendered: July 16, 2021 Docket: 38795
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 Respondent
- and -
Attorney General of Saskatchewan, Assembly of Manitoba Chiefs, Tseshaht First Nation, Manitoba Keewatinowi Okimakanak Inc., Treaty Land Entitlement Committee of Manitoba Inc., Anishinabek Nation, Wauzhushk Onigum Nation, Big Grassy First Nation, Onigaming First Nation, Naotkamegwanning First Nation, Niisaachewan First Nation, Coalition of the Union of British Columbia Indian Chiefs, Penticton Indian Band, Williams Lake First Nation, Federation of Sovereign Indigenous Nations, Atikameksheng Anishnawbek First Nation, Kwantlen First Nation, Assembly of First Nations, Assembly of First Nations Quebec-Labrador, Grand Council Treaty #3, Mohawk Council of Kahnawà:ke, Elsipogtog First Nation, Chemawawin Cree Nation and West Moberly First Nations Interveners
Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
Reasons for Judgment: (paras. 1 to 147)
Karakatsanis J. (Wagner C.J. and Abella, Moldaver, Brown, Rowe, Martin and Kasirer JJ. concurring)
Dissenting Reasons: (paras. 148 to 194)
Côté J.
Roger Southwind, for himself and on behalf of the members
of the Lac Seul Band of Indians and
Lac Seul First Nation Appellants
v.
Her Majesty The Queen in Right of Canada Respondent
and
Attorney General of Saskatchewan,
Assembly of Manitoba Chiefs,
Tseshaht First Nation,
Manitoba Keewatinowi Okimakanak Inc.,
Treaty Land Entitlement Committee of Manitoba Inc.,
Anishinabek Nation,
Wauzhushk Onigum Nation,
Big Grassy First Nation,
Onigaming First Nation,
Naotkamegwanning First Nation,
Niisaachewan First Nation,
Coalition of the Union of British Columbia Indian Chiefs,
Penticton Indian Band,
Williams Lake First Nation,
Federation of Sovereign Indigenous Nations,
Atikameksheng Anishnawbek First Nation,
Kwantlen First Nation,
Assembly of First Nations,
Assembly of First Nations Quebec‑Labrador,
Grand Council Treaty #3,
Mohawk Council of Kahnawà:ke,
Elsipogtog First Nation,
Chemawawin Cree Nation and
West Moberly First Nations Interveners
Indexed as: Southwind v. Canada
2021 SCC 28
File No.: 38795.
2020: December 8; 2021: July 16.
Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.
on appeal from the federal court of appeal
Aboriginal law — Fiduciary duty — Reserve land — Remedy — Equitable compensation — Part of First Nation’s reserve land flooded to power hydroelectricity generation without consent of First Nation, without compensation and without lawful authorization — Claim filed against Canada for breach of fiduciary duty and of obligations under Indian Act and applicable treaty — Trial judge concluding that Canada breached fiduciary duty to First Nation and awarding equitable compensation for loss of flooded land — Whether trial judge erred in assessment of equitable compensation.
The Lac Seul First Nation (“LSFN”) is a Treaty 3 First Nation in Northern Ontario. Its reserve is located on the southeastern shore of Lac Seul. In 1929, a dam to power hydroelectricity generation to Winnipeg was completed pursuant to an agreement that Canada, Ontario and Manitoba had entered into. The project involved raising the water level of Lac Seul by 10 feet, or approximately 3 metres, to create a water reservoir. Canada was aware from the outset that flooding Lac Seul would cause considerable damage to the LSFN’s reserve. Despite repeated warnings about these impacts, the project advanced without the consent of the LSFN, without any compensation, and without the lawful authorization required. As a result of the project, almost one‑fifth of the best land on the LSFN reserve was permanently flooded. The damage was extensive and included the destruction of homes, wild rice fields, gardens, haylands, and gravesites.
The LSFN submitted a claim for flooding damages in 1985. In 1991, S, for himself and on behalf of the members of the Lac Seul Band of Indians, filed a civil claim against Canada in Federal Court for breach of Canada’s fiduciary duty and its obligations under the Indian Act and Treaty 3. The trial judge concluded that Canada failed to meet its fiduciary duty to the LSFN in respect of its reserve land and that the appropriate remedy was equitable compensation. The LSFN proposed various models of compensation at trial, and led evidence regarding agreements with another First Nation in contemporaneous hydroelectric projects (“Kananaskis Falls Projects”), which the trial judge distinguished. The trial judge valued the flooded land as if it had been lawfully expropriated according to general expropriation law. In doing so, he excluded the value of the land for hydroelectricity generation. He also assessed other calculable losses and non‑calculable damages for a total award of $30,000,000. On appeal, the LSFN challenged the trial judge’s evaluation of equitable compensation for the loss of the flooded lands. The majority of the Court of Appeal dismissed the appeal. A dissenting judge would have allowed the appeal, agreeing that the value calculated for the flooded land should have taken into account downstream hydroelectricity generation and concluding that the trial judge also made a legal error in distinguishing the Kananaskis Falls Projects.
Held (Côté J. dissenting): The appeal should be allowed. The award for equitable compensation is set aside and returned to the Federal Court for reassessment.
Per Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe, Martin and Kasirer JJ.: Canada breached its obligation to preserve and protect the LSFN’s interest in the reserve, which included an obligation to negotiate compensation for the LSFN on the basis of the value of the land to the hydroelectricity project. The LSFN is entitled to equitable compensation for the lost opportunity to negotiate for an agreement reflecting the value of the land to the hydroelectricity generation project.
The specific nature of the Crown’s fiduciary duty to Indigenous Peoples, especially over reserve land, informs how equitable compensation must be assessed. The Crown’s fiduciary duty is rooted in the obligation of honourable dealing and in the overarching goal of reconciliation between the Crown and the first inhabitants of Canada. The honour of the Crown — and the sui generis fiduciary duty to which it gives rise — is a vital component of the relationship between the Crown and Indigenous Peoples. The Crown’s fiduciary duty structures the role voluntarily undertaken by the Crown as the intermediary between Indigenous interests in land and the interest of settlers.
The fiduciary duty itself is shaped by the context to which it applies, which means that its content varies with the nature and the importance of the right being protected. A strong fiduciary duty arises where the Crown is exercising control over a First Nation’s land. In a case involving reserve land, the sui generis nature of the interest in reserve land informs the fiduciary duty. The importance of the interest in reserve land is heightened where it was set aside as part of an obligation that arose out of a treaty. The fiduciary duty imposes the following obligations on the Crown: loyalty, good faith, full disclosure, and, where reserve land is involved, the protection and preservation of the First Nation’s quasi‑proprietary interest from exploitation, including exploitation by the Crown itself. In the context of a surrender of reserve land, the Court has recognized that the duty also requires that the Crown protect against improvident bargains, manage the process to advance the best interests of the First Nation, and ensure that it consents to the surrender. In an expropriation, the obligation to ensure consent is replaced by an obligation to minimally impair the protected interest.
When the Crown breaches its fiduciary duty, the remedy will seek to restore the plaintiff to the position the plaintiff would have been in had the Crown not breached its duty. Equitable compensation is the preferred remedy when restoring the plaintiff’s assets in specie is not available. It is a discretionary and restitutionary remedy that is assessed rather than precisely calculated. As its purpose is to make up the plaintiff’s loss, it aims to restore the actual value of the thing lost through the fiduciary’s breach, referred to as the plaintiff’s lost opportunity. By restoring the beneficiary’s lost opportunity, it deters wrongdoing and enforces the trust at the heart of the fiduciary relationship. While equitable compensation is equity’s counterpart to common law damages, analogy with common law damages may not be appropriate given equity’s purpose, which differs from the purpose of obligations through tort and contract.
The proper approach to equitable compensation recognizes that the applicable rules will depend both on the nature of the fiduciary relationship and the fiduciary obligations. The trial judge must begin by closely analyzing the nature of the fiduciary relationship so as to ensure that the loss is assessed in relation to the obligations owed by the fiduciary. The loss must be caused in fact by the fiduciary’s breach, and the causation analysis is not limited by foreseeability, that is, remoteness. While the fiduciary’s breach must have caused, in fact, the plaintiff’s lost opportunity, common law limiting factors developed in legal causation will not readily apply. There must be a close relationship between the fiduciary duty and the fiduciary remedy. Because equity assesses the loss at the date of trial and with the benefit of hindsight, it compensates the plaintiff for the lost opportunity, regardless of whether the opportunity could have been foreseen at the time of the breach. The benefit of hindsight means that the most valuable use of the asset between breach and date of trial is not always foreseeable at the time of breach. The assessment of equitable compensation is also guided by presumptions that equity makes against breaching fiduciaries.
In the instant case, the trial judge’s reasons are tainted by legal errors reviewable on a correctness standard. The trial judge erred in concluding that a hypothetical expropriation — the minimum statutory obligation — would have fulfilled Canada’s fiduciary obligations. This legal error impacted his assessment of equitable compensation because it led him to rely on general principles of expropriation law to value the loss and to conclude that compensation would not be assessed at a higher value than the minimum required under an expropriation. The fundamental error of the trial judge was that he focused on what Canada would likely have done instead of what Canada ought to have done as a fiduciary.
The fiduciary duty required more than compensation based upon expropriation principles in this case for three reasons. First, the presence of legal discretion to take or expropriate the land in the Indian Act did not define the obligations imposed by Canada’s fiduciary duty. The fiduciary duty, not just the Indian Act, imposed substantive obligations on how Canada was to exercise its discretion over the reserve land. The provisions in the Indian Act accommodated the exercise of the Crown’s fiduciary duty by recognizing the discretion of the Crown to negotiate, or the discretion of the Governor in Council to determine the terms of a taking or expropriation. There was therefore no conflict between the requirements of the Indian Act and the requirements imposed by the fiduciary duty. The equitable presumption of legality or lawfulness, which prevents breaching fiduciaries from reducing compensation by arguing that they would not have complied with the law, is of little assistance in determining either the fiduciary obligations or the assessment of loss. The presumption cannot be inverted and used to limit compensation by suggesting that the fiduciary is expected to do no more than what the law, not equity, requires. Moreover, Canada’s legal powers to expropriate cannot be considered as a factor to limit compensation. Canada is not permitted to benefit from the very discretionary power over the LSFN which is the source of its fiduciary duty.
Second, the fiduciary duty required more than compensation based upon expropriation principles because the fact that the land was required for a public work did not negate the obligations imposed by Canada’s fiduciary duty. The fiduciary duty continues to apply even if the land is needed for a public work. While the Crown can decide that a public work is in the public interest and should thus proceed, the manner in which it proceeds is subject to the fiduciary duty.
Third, the fiduciary duty required more than compensation based upon expropriation principles because the principles of expropriation law are fundamentally different than those underlying Indigenous interest in land. Expropriation law is not the appropriate legal framework governing historic breaches of the Crown’s fiduciary duty to protect a First Nation’s interest in reserve land. The fiduciary obligations in this case must reflect the nature of the interest, the impact of the loss on the First Nation, the importance of the relationship, and reconciliation, which is the overarching goal of the fiduciary duty itself, based in the honour of the Crown. In the context of an expropriation or taking, the Crown is required to minimally impair the protected interest. Where the Crown decides that reserve land is necessary for a public work and takes that land without the consent of the First Nation, the fiduciary duty requires the Crown to seriously consider the impact on the First Nation and how best to minimize that impact. As a fiduciary, the Crown has the duty to preserve the First Nation’s quasi‑proprietary interest in the land as much as possible and to ensure fair compensation reflecting the sui generis interest.
The duty to preserve the interest to the greatest extent possible is not met if expropriation principles are applied in this case. Even though the expropriation value considers the highest and best use of the land at the time of expropriation, this generally does not include the value of the land to the scheme itself because expropriation law seeks to provide landowners with the compensation necessary to purchase replacement land. Conversely, sui generis Indigenous interests in land are fundamentally different as reserve land is not a fungible commodity and Indigenous interests in land are at the centre of the relationship between the Crown and Indigenous Peoples. Instead, given the LSFN’s sui generis interest in the reserve land and the impact on the LSFN, the duty required Canada to capture the full potential value of the land for the land’s intended use, notwithstanding its legal power to expropriate. Canada must always keep the First Nation informed, attempt to negotiate a surrender before proceeding to an expropriation, and ensure compensation reflecting the nature of the interest and the impact on the community.
Canada ought to have first attempted to negotiate a surrender. Canada’s fiduciary obligations required it to ensure the highest compensation possible, including compensation for the land’s anticipated use as land for hydroelectricity generation. If negotiations for a surrender of the land were unsuccessful, Canada could have proceeded through a taking or expropriation, but even in an expropriation, Canada was required to preserve the LSFN’s interest in the land to the greatest extent possible and should have secured compensation for the LSFN that reflected the nature of the interest, the impact on the community, and the value of the land to the project.
The lost opportunity in this case is the opportunity to negotiate a surrender reflecting the highest value of the land, which was its use for hydroelectricity generation: the LSFN is entitled to compensation for that lost opportunity. The valuation of the LSFN’s lost opportunity must reflect Canada’s obligation to negotiate compensation based upon the best price that could have been obtained for the land’s use for hydroelectricity generation. In this case, the presumption of highest and best use means that the land should be valued on the basis of its actual use as flooded land for hydroelectricity generation and allows equitable compensation to focus on a successful negotiated surrender because that more clearly aligns with the nature of the breach, which included a failure to keep the LSFN informed and a failure to prevent the project from proceeding until the negotiations for compensation had been resolved. Equity can presume that the LSFN would have consented to a negotiated settlement at the best price the Crown could have realistically obtained at the time. The value of the flooded land must be reassessed.
Per Côté J. (dissenting): There is no basis to interfere with the trial judge’s equitable compensation assessment. The trial judge assessed compensation for the value of the flooded lands in 1929 based on a thorough examination of the facts as established in the record. As there is no reviewable error in the trial judge’s analysis, the appeal should be dismissed.
S and the LSFN have not established a basis for interfering with the trial judge’s valuation. The trial judge’s determination that the LSFN should have been compensated through a one‑time payment in 1929 based on an expropriation model is not an extricable error, and thus not reviewable on a correctness standard. The trial judge’s findings regarding what would have actually happened in 1929 had Canada not breached its duty to the LSFN are factual determinations, not legal ones. No particular findings of fact by the trial judge have been identified as constituting a palpable and overriding error.
The trial judge made no reviewable errors. The trial judge applied settled principles of equitable compensation, including the special importance of its deterrent effect in furthering the ongoing project of reconciliation between Canada and Indigenous peoples. He looked back to when the breach occurred, and, with the benefit of hindsight and the evidentiary record, assessed what position the LSFN would have been in but for the breach. He determined that, had Canada acted legally, it would have taken the reserve lands in 1929 through expropriation or surrender. Based on the evidence before him, the trial judge assessed the losses presuming the highest and best use and with the benefit of hindsight.
While there is agreement with the majority that equitable compensation in this case should be assessed on the basis of a negotiated surrender, there is disagreement with the majority’s view that the lost opportunity equates to a lost opportunity to negotiate a surrender of the lands for hydroelectricity generation. The value of the compensation that Canada should have negotiated for the LSFN cannot be assessed in an evidentiary or factual vacuum and the majority seeks to impose a greater obligation on a trial judge than the law demands. The majority’s characterization presupposes that the trial judge had the requisite factual basis to make such a finding, while it is clear from the record that he did not. At trial, no evidence was provided regarding a one‑time payment for the flooded lands for hydroelectric purposes. S and the LSFN must bear the consequences of their trial strategy, even though they have changed tack on appeal. Therefore, the trial judge was correct to find that the argument that Canada could, and should, have paid more than fair market value for the lands was nothing more than optimistic speculation.
The trial judge’s determination regarding the comparability of the Kananaskis Falls Projects and the Lac Seul situation is a factual determination. His finding that the Kananaskis Falls Projects were not a relevant proxy was supported by the limited evidence before him. That evidence does not substantiate a finding that he made a palpable and overriding error in refusing to award a sum in excess of the fair market value of the lands. It is simply speculation to conclude that Canada’s differing approach for the Kananaskis Falls Projects leads to the conclusion that it breached its duty in this case.
Moreover, the trial judge’s inclusion of a robust non‑calculable loss analysis allowed him to meaningfully consider the impact of the flooding on the LSFN. He appropriately acknowledged and incorporated the impact on the community and the LSFN’s perspective in his analysis. The total equitable compensation awarded ensures that S and the LSFN are compensated for the value of the lands.
Cases Cited
By Karakatsanis J.
Applied: Guerin v. The Queen, [1984] 2 S.C.R. 335; Osoyoos Indian Band v. Oliver (Town), 2001 SCC 85, [2001] 3 S.C.R. 746; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; distinguished: Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245; considered: Canson Enterprises Ltd. v. Boughton & Co., [1991] 3 S.C.R. 534; referred to: Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511; R. v. Desautel, 2021 SCC 17, [2021] X S.C.R. XXX; Beckman v. Little Salmon/Carmacks First Nation, 2010 SCC 53, [2010] 3 S.C.R. 103; R. v. Sparrow, [1990] 1 S.C.R. 1075; Manitoba Metis Federation Inc. v. Canada (Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623; R. v. Van der Peet, [1996] 2 S.C.R. 507; Williams Lake Indian Band v. Canada (Aboriginal Affairs and Northern Development), 2018 SCC 4, [2018] 1 S.C.R. 83; Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222; Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), [1995] 4 S.C.R. 344; Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co. (1966), 84 W.N. (Pt. 1) (N.S.W.) 399; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; Whitefish Lake Band of Indians v. Canada (Attorney General), 2007 ONCA 744, 87 O.R. (3d) 321; Stirrett v. Cheema, 2020 ONCA 288, 150 O.R. (3d) 561; AIB Group (UK) plc v. Mark Redler & Co. Solicitors, [2014] UKSC 58, [2015] A.C. 1503; Cadbury Schweppes Inc. v. FBI Foods Ltd., [1999] 1 S.C.R. 142; Target Holdings Ltd. v. Redferns, [1996] 1 A.C. 421; Brickenden v. London Loan & Savings Co., [1934] 3 D.L.R. 465.
By Côté J. (dissenting)
Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Whitefish Lake Band of Indians v. Canada (Attorney General), 2007 ONCA 744, 87 O.R. (3d) 321; Guerin v. The Queen, [1984] 2 S.C.R. 335; Modern Cleaning Concept Inc. v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, 2019 SCC 28, [2019] 2 S.C.R. 406; Nelson (City) v. Mowatt, 2017 SCC 8, [2017] 1 S.C.R. 138; Mahjoub v. Canada (Citizenship and Immigration), 2017 FCA 157, [2018] 2 F.C.R. 344; Hodgkinson v. Simms, [1994] 3 S.C.R. 377; National Westminster Bank plc v. Morgan, [1985] 1 All E.R. 821.
Statutes and Regulations Cited
Constitution Act , 1982 , s. 35 .
Expropriation Act , R.S.C. 1985, c. E‑21 .
Expropriations Act, R.S.O. 1990, c. E.26.
Indian Act, R.S.C. 1927, c. 98 , ss. 48, 50, 51.
Royal Proclamation, 1763 (G.B.), 3 Geo. 3 [reproduced in R.S.C. 1985, App. II, No. 1].
Unemployment Relief Act, 1930, S.C. 1930, c. 1.
Treaties and Agreements
Treaty No. 3 (1873).
Authors Cited
Bray, Samuel L. “Fiduciary Remedies”, in Evan J. Criddle, Paul B. Miller and Robert H. Stikoff, eds., The Oxford Handbook of Fiduciary Law. New York: Oxford University Press, 2019, 449.
Luk, Senwung. “Not So Many Hats: The Crown’s Fiduciary Obligations to Aboriginal Communities since Guerin” (2013), 76 Sask. L. Rev. 1.
Mainville, Robert. An Overview of Aboriginal and Treaty Rights and Compensation for Their Breach. Saskatoon: Purich Publishing, 2001.
McCabe, J. Timothy S. The Honour of the Crown and its Fiduciary Duties to Aboriginal Peoples. Markham, Ont.: LexisNexis, 2008.
Oosterhoff on Trusts: Text, Commentary and Materials, 9th ed. by Albert H. Oosterhoff, Robert Chambers and Mitchell McInnes. Toronto: Carswell, 2019.
Rotman, Leonard I. Fiduciary Law. Toronto: Thomson/Carswell, 2005.
Rotman, Leonard I. “Understanding Fiduciary Duties and Relationship Fiduciarity” (2017), 62 McGill L.J. 975.
Slattery, Brian. “The Aboriginal Constitution” (2014), 67 S.C.L.R. (2d) 319.
APPEAL from a judgment of the Federal Court of Appeal (Nadon, Webb and Gleason JJ.A.), 2019 FCA 171, [2020] 1 F.C.R. 745, 89 C.L.R. (4th) 1, 15 L.C.R. (2d) 99, [2019] F.C.J No. 672 (QL), 2019 CarswellNat 2362 (WL Can.), affirming a decision of Zinn J., 2017 FC 906, 74 C.L.R. (4th) 4, [2018] 4 C.N.L.R. 63, 6 L.C.R. (2d) 73, [2017] F.C.J. No. 966 (QL), 2017 CarswellNat 5620 (WL Can.). Appeal allowed, Côté J. dissenting.
Rosanne Kyle and Elin Sigurdson, for the appellants.
Christopher Rupar and Michael Roach, for the respondent.
P. Mitch McAdam, Q.C., for the intervener the Attorney General of Saskatchewan.
Carly Fox, for the intervener the Assembly of Manitoba Chiefs.
Christopher Devlin, for the intervener the Tseshaht First Nation.
Kate Kempton, for the intervener Manitoba Keewatinowi Okimakanak Inc.
Harley Schachter, for the intervener the Treaty Land Entitlement Committee of Manitoba Inc.
Cynthia Westaway, for the intervener the Anishinabek Nation.
David G. Leitch, for the intervener the Wauzhushk Onigum Nation.
Donald R. Colborne, for the interveners the Big Grassy First Nation, the Onigaming First Nation, the Naotkamegwanning First Nation and the Niisaachewan First Nation.
Peter Millerd, for the interveners the Coalition of the Union of British Columbia Indian Chiefs, the Penticton Indian Band and the Williams Lake First Nation.
Ronald S. Maurice, for the intervener the Federation of Sovereign Indigenous Nations.
Steven W. Carey, for the intervener the Atikameksheng Anishnawbek First Nation.
Tim Dickson, for the intervener the Kwantlen First Nation.
Stuart Wuttke, for the intervener the Assembly of First Nations.
Benoît Amyot, for the intervener the Assembly of First Nations Quebec‑Labrador.
Kate Gunn, for the intervener the Grand Council Treaty #3.
Stacey Douglas, for the intervener the Mohawk Council of Kahnawà:ke.
Alisa R. Lombard, for the intervener the Elsipogtog First Nation.
Catherine J. Boies Parker, Q.C., for the intervener the Chemawawin Cree Nation.
Reidar M. Mogerman, Q.C., for the intervener the West Moberly First Nations.
The judgment of Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe, Martin and Kasirer JJ. was delivered by
[1] Karakatsanis J. — At the beginning of the twentieth century, Canada needed more electricity to fuel Winnipeg’s economic growth. The governments of Canada, Manitoba, and Ontario decided to create a water reservoir in northern Ontario to power hydroelectricity generation. They settled on Lac Seul, which flows into both Ontario and Manitoba, and determined that if they raised the water level of Lac Seul by 10 feet, or approximately 3 metres, they could generate substantial electricity. Construction of the dam was completed in 1929 and the water steadily rose through the 1930s. The project was a success for the three governments.
[2] The project was also a tragedy for the Lac Seul First Nation (LSFN). The LSFN’s reserve (Reserve) is located on the southeastern shore of Lac Seul. Almost one-fifth of its best land was flooded and its members were “deprived of their livelihood, robbed of their natural resources, and driven out of their home[s]” (2017 FC 906, [2018] 4 C.N.L.R. 63, at para. 156).
[3] Canada was aware from the outset that flooding Lac Seul by 10 feet would cause “very considerable” damage to the Reserve. In the late 1920s, the Supervisor responsible for valuing the loss warned that the Reserve would be “ruined for any purpose [for] which it was set aside”, that the members of the First Nation were “helpless to avert this calamity”, and that they viewed their future “with utter dismay” (Trial Reasons, at paras. 152 and 156).
[4] Despite repeated warnings from government officials about the impact that the project would have on the First Nation, the project advanced without the consent of the Lac Seul First Nation, without any compensation, and without the lawful authorization required.
[5] Since the Royal Proclamation, 1763 (G.B.), 3 Geo. 3 (reproduced in R.S.C. 1985, App. II, No. 1), Indigenous interests in land, including reserve land, cannot be taken or used without legal authorization from the Crown. The Indian Act, R.S.C. 1927, c. 98 , permitted expropriation for public works, but only with the approval of Cabinet through the Governor in Council. Treaty No. 3 (1873), that set aside the reserve land for the LSFN, required “due compensation” for any taking or appropriation. In addition, this Court recognized in Guerin v. The Queen, [1984] 2 S.C.R. 335, and subsequent decisions, that the Crown is subject to a fiduciary duty when it exercises control over Indigenous interests. This fiduciary duty imposes strict obligations on the Crown to advance the best interests of Indigenous Peoples.
[6] The trial judge concluded that Canada failed to meet its fiduciary duty to the Lac Seul First Nation in respect of its interest in Reserve land. On appeal, Canada does not dispute this conclusion.
[7] Canada did not keep the LSFN informed about the project; did not consult the LSFN; did not negotiate on the LSFN’s behalf to get the best compensation possible; did not use its power to refuse to authorize the project until the other parties agreed to fair compensation; and the compensation Canada did manage to negotiate — 14 years after the flooding began — was inadequate. This was unlawful and egregious conduct, even by the standards of the time. As the trial judge observed, this outcome was “inexplicable” (para. 298).
[8] The results of Canada’s failures are tragic and well documented. Roughly 17 percent of the Reserve — 11,304 acres or approximately 4,575 hectares — is now permanently flooded. Homes were destroyed, as were wild rice fields, gardens, haylands, and gravesites. Fishing, hunting, and trapping were all impacted. The LSFN was separated because one part of the Reserve became an island. And, despite the sacrifices suffered by the LSFN to make the hydroelectricity project possible, the Reserve was not provided with electricity until the 1980s.
[9] The LSFN challenges the trial judge’s evaluation of equitable compensation for the loss of the flooded lands. The issue for this Court is how to assess equitable compensation for the loss caused by Canada’s breach of fiduciary duty. The central inquiry is: what position would the beneficiary be in had the fiduciary fulfilled its obligations?
[10] The trial judge valued the flooded land based on its value in 1929, with 10 percent valued as waterfront land and 90 percent valued as bushland. He determined that because Canada was authorized to expropriate the land for a public work under the Indian Act provisions in force at the time, the land should be valued based upon an expropriation in 1929. Thus, the trial judge concluded that the First Nation was not entitled to be compensated for any value that the land provided to the hydroelectricity project itself.
[11] In my view, this approach to equitable compensation for breach of fiduciary duty is flawed. By looking solely at the amount the LSFN would have received if Canada had complied with the general law relating to expropriation, the trial judge gave no effect to the unique obligations imposed by the fiduciary duty. The trial judge improperly focused on what Canada would likely have done, as opposed to what Canada ought to have done as a fiduciary. While I agree with much of the trial judge’s analysis, this error tainted his assessment of equitable compensation.
[12] The fiduciary duty imposes heavy obligations on Canada. The duty does not melt away when Canada has competing priorities. Canada was under an obligation to preserve and protect the LSFN’s interest in the Reserve. This included an obligation to negotiate compensation for the LSFN on the basis of the value of the land to the hydroelectricity project. Compensation must be assessed on that basis.
[13] I would allow the appeal and remit the case back to the Federal Court for reassessment of the equitable compensation to include the value of the flooded land to the hydroelectricity project.
I. Background
[14] The LSFN is a Treaty 3 First Nation in Northern Ontario. The members are Anishinaabe people. According to Chief Clifford Bull, they have always been lake dwellers who travelled through the water, kept their homes and gardens near the water, cultivated wild rice in the water, fished in the water, and hunted near the water.
[15] The LSFN’s traditional territory extends from the Trout Lake region in northwestern Ontario, southeast through the Lac Seul region, and northeast towards Lake St. Joseph. The LSFN has one Reserve, called the Lac Seul Indian Reserve No. 28, which is located on the southeastern shore of Lac Seul in northern Ontario. The Reserve has three communities — Kejick Bay, Whitefish Bay, and Frenchman’s Head.
[16] The Reserve was created under Treaty 3, which required Canada to select and set aside reserves that would be “most convenient and advantageous for each band or bands of Indians”. In 1875, the LSFN chose Lac Seul as the site of the Reserve because of the resources along the shoreline and the social, cultural, and spiritual importance of the area.
[17] In the early twentieth century, Canada wanted to provide more electricity to Winnipeg. By 1911, Canada identified Lac Seul as a potential reservoir for hydroelectricity generation (Project). Lac Seul flows into the English River in Ontario, which in turn flows into the Winnipeg River in Manitoba. In 1915, the Dominion Water Power Branch, within the Department of the Interior, prepared a report noting that a 10 foot flooding of Lac Seul would increase the power potential on the English River by 233 percent.
[18] In the same year, the Manitoba Hydrographic Survey began preliminary fieldwork. Chief John Akewance of the LSFN first became aware of the potential Project through the fieldwork, and wrote to Indian Agent R. S. McKenzie in 1915 outlining his concerns. Canada advised the Indian Agent that “there is no present intention to raise the waters of Lac Seul” (Trial Reasons, at para. 127).
[19] The fieldwork report was released in 1916 and noted that the Project would flood portions of the Reserve. In 1917, Canada recommended to Ontario that it obtain flowage rights over the land that would need to be flooded. In 1919, Canada informed itself about the procedure for granting flowage rights on reserve land:
If after negotiation the offer is accepted on behalf of the Indians, or amended and so accepted, the amount of compensation agreed upon is deposited with the Minister of Finance for the use of the band of Indians and the land is surrendered.
(Trial Reasons, at para. 132)
Canada wrote to Ontario again in 1921 urging that they reserve the flooding rights. There is no record of a response.
[20] In 1924, Chief Paul Thomas met with Indian Agent Frank Edwards to express the LSFN’s concerns. Agent Edwards told Chief Thomas that Canada would “protect their interests as far as possible” (Trial Reasons, at para. 137 (emphasis in original)).
[21] In February 1928, Canada, Ontario, and Manitoba entered into the Lac Seul Storage Agreement which governed the construction and ownership of the Project. The agreement apportioned the capital costs among the governments, which included “the cost of acquiring flooding privileges or other necessary easements” and “compensation for timber, buildings and improvements, including Ontario Crown Lands, Indian Lands and lands owned by private individuals” (Trial Reasons, at para. 147).
[22] In April 1928, Ontario wrote to affected landowners regarding the Project. Ontario also notified the Department of Indian Affairs and indicated that the water levels would be raised by approximately 12 feet. In the summer of 1928, H. J. Bury, the Supervisor of Indian Timber Lands, appraised the value of the LSFN’s anticipated losses at $120,200. Ontario disagreed with the estimate. Mr. Bury reiterated his position in two internal memoranda. On May 14, 1929, he wrote that “[t]he reserve is ruined for any purpose [for] which it was set aside . . . for the Indians” (Trial Reasons, at para. 156). Two days later, he wrote:
There are 688 Indians on the reserve, who are helpless to avert this calamity, and who view the future with utter dismay, but I feel that the associated governments concerned, will not permit these Indians to be deprived of their livelihood, robbed of their natural resources, and driven out of their home[s], without not only allowing them generous monetary compensation, but also make provision, during the period of years in which they will have to re-adjust themselves to new and strange conditions, for exclusive trapping rights for them in a district remote from civilization.
(Trial Reasons, para. 156)
[23] On May 17, 1929, the Deputy Superintendent General of Indian Affairs wrote to his superior that “[t]he situation is certainly serious; and hardship and disaster appear to face these poor Indians unless some arrangement is made at once, providing for reasonable compensation and the allocation of suitable hunting and fishing grounds elsewhere” (Trial Reasons, at para. 157). No agreement regarding compensation to the LSFN was reached with Ontario.
[24] Ontario applied for necessary approvals in July 1928. The application noted that “[i]t will be necessary in connection with the proposed work to acquire flowage rights over lands on an Indian Reserve” (Trial Reasons, at para. 159 (emphasis deleted)). Even though those rights were never acquired, the dam was completed by June 1929. The power site, the Ear Falls Generating Station, was completed and began delivering power in February 1930.
[25] The flooding of Lac Seul was delayed by disagreements between Canada and Ontario regarding timber clearing. Ontario wanted to harvest its Crown timber prior to flooding. To resolve the impasse, Canada proposed that the timber clearing could be accomplished as an unemployment project under Canada’s depression-era Unemployment Relief Act, 1930, S.C. 1930, c. 1. As negotiations for this relief project unfolded, Canada assured the LSFN’s members that “their interests will be protected to the fullest possible extent” (Trial Reasons, at para. 181 (emphasis in original)).
[26] In July 1933, Canada’s Minister of the Interior signed the agreement for the relief project. A week later, the local Indian Agent and the timber supervisor assured the LSFN that the water would not be raised “for several years to come” (Trial Reasons, at para. 183). The relief project was a failure. Less than 700 acres were cleared at a cost of over $850,000 to Canada. Members of the LSFN were excluded from employment in the project.
[27] Despite the assurances given to the LSFN, the waters of Lac Seul began to rise in 1934. The damage was extensive. Agent Edwards estimated that at least 29 houses would need to be rebuilt — in total, one‑quarter to one-third of the houses ultimately had to be moved or replaced. Between 1935 and 1939, additional damage was documented. In August 193