On July 16, 2021, the Supreme Court of Canada released its judgment in Southwind v. Canada, 2021 SCC 28, in which the Court allowed an appeal brought by Lac Seul First Nation regarding the amount they were owed for reserve lands taken in 1929, without a surrender or expropriation. The Court remitted the case back to the Federal Court for reassessment of the compensation. The case focuses on how to measure the equitable compensation owing and the scope of fiduciary duty. There was no question that some compensation is owed to Lac Seul First Nation.
The Lac Seul First Nation, a signatory to Treaty 3, is located on the shores of Lac Seul in Northwestern Ontario. In 1928, Canada approved construction of the Ear Falls Storage Dam to produce hydroelectric power for Manitoba and Ontario. The project was completed in 1929, and resulted in flooding nearly one-fifth of the Lac Seul reserve and severing the reserve land. Canada was aware from the outset that the project would cause "very considerable" damage to Lac Seul's reserve, and the First Nation had no ability to "avert this calamity". Canada advanced the project without Lac Seul's consent, without compensating Lac Seul, and without the lawful authorization required.
The Lac Seul First Nation initiated this action in 1991 seeking equitable compensation, punitive damages, and a declaration.
Lower Court Decisions
The Federal Court found that Canada breached its fiduciary obligations toward the Lac Seul First Nation and awarded Lac Seul approximately $30 million in equitable compensation. The Federal Court calculated the compensation owing and fixed the price per acre in 1929 dollars. The Federal Court also included off-reserve losses in their calculation of compensation owing.
The Lac Seul First Nation appealed to the Federal Court of Appeal, which, in a split decision, upheld the Federal Court's ruling.
The Supreme Court of Canada Decision
The Court's analysis consisted of three parts: (1) the relationship between the Crown and Indigenous Peoples, and the corresponding fiduciary duty; (2) the principles of equitable compensation for breach of fiduciary duty; and (3) the application of these principles to the trial judge's assessment of equitable compensation.
At the Supreme Court of Canada, there was no dispute between the parties that Canada had breached its fiduciary duty to the Lac Seul First Nation and some compensation was owing. The question, however, was how to value that compensation and whether the use and value of the land going forward ought to be taken into account. The Supreme Court disagreed with the lower courts that Canada's duty only required it to compensate the Lac Seul First Nation according to general expropriation law. The Court noted that in a negotiated surrender of the lands, Canada "would have to advance the best interests of the [Lac Seul First Nation] and protect it from an improvident bargain." This is in contrast to expropriation principles, which do not account for the duty to preserve and protect the Lac Seul First Nation's sui generis (meaning "of its own kind or class") interests in the reserve. In other words, as stated by the Court, the focus should not be on "what Canada would likely have done" but on "what Canada ought to have done as a fiduciary".
The majority found the scope and content of the Crown's fiduciary duty arises when the Crown has discretionary control over cognizable Indigenous interests, and is shaped by the context. In this case, which involved the loss of reserve land, the Crown's duty included loyalty, good faith, full disclosure and protection and preservation of the First Nation's quasi-proprietary interest from exploitation. In order to be compensated for a breach of fiduciary duty, the breach must have caused the loss. Moreover, equitable principles require the court to presume the First Nation would have made the most favourable use of the land.
The majority applied this test to conclude that Canada's fiduciary duty to the Lac Seul required compensation for the lost opportunity to negotiate a surrender of the flooded land. This negotiation could take into account the value of the land for the generation of hydroelectric power instead of only the value of the land if expropriated in 1929. The court therefore allowed the appeal and remitted it back to the Federal Court to reassess damages.
In dissent, Justice Côté, writing for herself, followed an analysis similar to the lower courts and would not have allowed the appeal.
Implications of the Court's Decision
This case provides general guidance on the content of the Crown's fiduciary duty, particularly in relation to reserve land, and the valuation of compensation that should flow from a breach. The sui generis nature of rights to reserve land requires an approach to equitable compensation that accounts for the First Nation's quasi-proprietary interest in the land. This decision will likely have immediate application in the Specific Claims process set up by Canada to address historic breaches.
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