It is settled law that the government of Canada (“Canada”) owes a fiduciary duty to Indigenous Nations when it deals with reserve lands.^[1] Recently, the Supreme Court of Canada’s (“SCC”) decision in Southwind v Canada^[2] (“Southwind”) provided some important guidance on the calculation of equitable compensation for breaches of this fiduciary duty.

In Southwind, the SCC clarified that equitable compensation for breaches of the Crown’s fiduciary duty are to be calculated in a manner that reflects the Crown’s duty to preserve an Indigenous Nation’s interest in their lands as much as possible and, where lands are taken up, to ensure that fair compensation is provided, reflective of the Nation’s interest in the particular lands and the value of those lands to the underlying project or purpose.

Facts

The Lac Seul First Nation (“LSFN”) is located in Northern Ontario. They are Anishinaabe people whose traditional territory consisted of numerous lakes that cover the region. Under Treaty 3, LSFN were given one reserve, located on the southern shores of Lac Seul, in exchange for a promise that the lands would be managed in their best interest.

Beginning in the 1910’s, the governments of Canada, Manitoba, and Ontario began to develop a hydroelectric dam which would involve raising the water level of Lac Seul by approximately ten feet. Although the authorities were aware of the damage the flooding would cause to the LSFN’s reserve and way of life, the project was allowed to proceed. Nearly one-fifth of LSFN’s total reserve land was submerged. In contrast to the treatment of other private landowners in the area, LSFN’s land was neither sold nor expropriated in accordance with the provisions of the Indian Act (“Act”). Ultimately, in 1943 a payment of $50,000 compensation was made to LSFN.  In 1985, the LSFN filed a lawsuit against Canada for additional damages resulting from Canada’s breach of its fiduciary duty

Procedural History

At trial, Canada’s actions were held to be a breach of its fiduciary duty. The trial judge noted that had Canada followed the expropriation process set out in the Act that Canada’s fiduciary obligations would have been fulfilled. The trial judge calculated damages based on what Canada would have paid pursuant to the expropriation process set out in the Act and awarded LSFN $30,000,000. On appeal, the Federal Court of Appeal dismissed LSFN’s claim that damages ought to also include the value of a possible revenue-sharing agreement. LSFN then appealed to the  SCC.

Decision

The SCC allowed LSFN’s appeal. First, the SCC emphasized the importance of Canada’s fiduciary duty to Indigenous peoples, which 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 duty requires that the Crown:

• Protect and preserve the First Nation’s quasi‑proprietary interest from exploitation, including exploitation by the Crown itself;
• In the context of a land surrender, protect against improvident bargains, manage the process to advance the best interests of the First Nation, and ensure that it consents to the surrender; and
• In the context of an expropriation, to minimally impair the protected interest.^[3]

Agreeing that Canada breached these duties, the SCC next set out the applicable principles of equitable compensation. Equitable compensation is used where the plaintiff’s particular assets cannot be recovered. It is more flexible than common law damages and must be “determined in light of the characteristics of the obligation in question.”^[4] In this case, Canada’s obligation was to manage reserve lands in accordance with the best interests of LSFN. As a result, the SCC found that the trial judge erred in determining that minimal compliance with the expropriation process under the Act would have fulfilled Canada’s fiduciary obligations and, resultingly, that the trial judge’s damage assessment was flawed.

The SCC held that Canada’s fiduciary duty required that it should have first sought to fairly negotiate a surrender of the land.  Failing that, Canada was required to ensure minimal impairment of LSFN’s interests and provided fair compensation that reflected the nature of the interest, the impact on the community and value of land to the project.^[5]

Based on these obligations, the SCC concluded that the LSFN was entitled to equitable compensation for the lost opportunity to negotiate an agreement reflecting the value of the land to the hydroelectricity project. The award was sent back to the Federal Court for re-assessment in light of the SCC’s guidance.^[6]

For more information or any related questions, please contact our Indigenous Law Group.