ARTICLE
19 December 2024

Supreme Court Clarifies Application Of The Honour Of The Crown To Contractual Arrangements And Government-To-Government Negotiations With Indigenous Peoples

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In Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan, 2024 SCC 3, the Supreme Court of Canada upheld a Quebec Court of Appeal decision ordering the Province of Quebec...
Canada Quebec Government, Public Sector

In Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan, 2024 SCC 3, the Supreme Court of Canada upheld a Quebec Court of Appeal decision ordering the Province of Quebec to compensate Pekuakamiulnuatsh Takuhikan for the underfunding of its Indigenous police force. Funding for the police force was governed by successive tripartite agreements between Pekuakamiulnuatsh Takuhikan, Canada and Quebec.

The case centred on whether Quebec had discharged:

  1. Its private law obligation to negotiate in good faith, as required by the Civil Code of Québec.
  2. Its public law obligation to negotiate in a manner consistent with the honour of the Crown.

The Court found that Quebec had failed to discharge both obligations.

Background

Pekuakamiulnuatsh Takuhikan is an Indian Act band council that represents the Pekuakamiulnuatsh First Nation in Mashteuiatsh, Quebec. Pekuakamiulnuatsh Takuhikan had entered into a series of successive tripartite agreements with the Governments of Canada and Quebec for the purposes of establishing and maintaining an Indigenous police force, the Sécurité publique de Mashteuiatsh (the "SPM").

The tripartite agreements included renewal clauses, which allowed for the SPM to continue operating. However, between 2013 and 2017 the funding provided by Canada and Quebec was inadequate, resulting in a shortfall of over $1.5 million. This shortfall was borne by Pekuakamiulnuatsh Takuhikan.

Pekuakamiulnuatsh Takuhikan brought a claim against Canada and Quebec seeking reimbursement for the relevant shortfall. The basis for the claim was that Canada and Quebec were aware that the SPM funding was inadequate, and yet refused to negotiate an increase in funding in successive tripartite agreements, negotiated pursuant to the renewal clauses contained in same.

Pekuakamiulnuatsh Takuhikan argued that Canada and Quebec's refusal to negotiate increases in funding for the SPM represented a breach of the requirement of good faith in private contractual performance between parties (as enshrined in the Civil Code of Québec) as well as a violation of constitutional obligations associated with the honour of the Crown.

Judicial history

At trial, the Superior Court of Quebec dismissed Pekuakamiulnuatsh Takuhikan's claim, finding the terms of the tripartite agreement clear, and the honour of the Crown not engaged. Pekuakamiulnuatsh Takuhikan appealed.

The Quebec Court of Appeal reversed the lower court's decision and ordered Canada and Quebec to each pay their share of the SPM funding shortfall. The Court of Appeal found that Canada and Quebec had violated both the private law requirement of good faith contractual performance, and the public law requirement to act in a manner consistent with the honour of the Crown. Canada paid its share of the award ordered; Quebec appealed to the Supreme Court of Canada.

A majority of the Supreme Court of Canada (Wagner C.J. and Karakatsanis, Rowe, Martin, Kasirer, Jamal, O'Bonsawin and Moreau JJ.) dismissed Quebec's appeal.

Analysis

Breach of Good Faith (Art. 1375 C.C.Q.)

The Court stated that pursuant to the Civil Code of Québec, contractual parties, including the State, must act in good faith in all stages of contractual dealings, including contract renewal negotiations. Good faith requires consideration of each other's interests, though the Court was clear that a party is not required to "subordinate its own interests to those of the other party in so doing."

In this case, the Court found that Quebec failed to act in good faith because the agreements at issue were clearly intended to provide for long-term funding of the SPM, and although Quebec continued to renew the agreements each year, it nonetheless offered funding that it knew would be insufficient to maintain the SPM's services.

The Court found that "the absence of genuine negotiations left [Pekuakamiulnuatsh Takuhikan] in a no‑win situation: renewing the agreement would add to the deficit, and failing to renew it would mean the end of the SPM and a return to the [Sûreté du Québec's, i.e. the provincial police] services, with the difficulties this would entail."

The Court noted that as a result of the underfunding, the quality of the SPM's services suffered, and it was nearly abolished. Although Quebec eventually offered additional funding of an "irregular" nature, the Court found that these actions did not cure the breach of good faith.

Breach of the Honour of the Crown

The Court also considered the claim brought by Pekuakamiulnuatsh Takuhikan under public law and the honour of the Crown. It found that the honour of the Crown applies to contracts that foster reconciliation and relate to Indigenous rights, such as (but not necessarily limited to) self-government, including the contracts at issue in this case. The Court found that for the honour of the Crown to apply to contractual undertakings, the contract in question must be:

  1. Entered into by the Crown and an Indigenous group by reason and on the basis of the group's "Indigenous difference."
  2. Relate to an Indigenous right (in this case the right of self government), whether the right is established or the subject of a credible claim.

After a thorough review of the tripartite agreements, the Court found that they were aimed at providing culturally appropriate policing managed by the Indigenous community, and this was sufficiently connected to implementing an Indigenous right of self-government and thus the honour of the Crown was engaged. The Court held that "the tripartite agreements must be characterized as contracts that engage the honour of the Crown, because they were entered into [...] for the establishment and maintenance of an Indigenous police force."

Although the Court was clear that the application of the honour of the Crown did not cause the agreement to become a treaty in the sense of agreements formally recognized as such under s. 35 of the Constitution Act, 1982, it held "that the honour of the Crown requires the Crown, in negotiating and performing an agreement that has reconciliation as its backdrop, to meet a standard of conduct that is higher than in the context of an ordinary contractual relationship."

As to whether the standard imposed by the honour of the Crown had been met, the Court found that, similar to its finding respecting liability under the Civil Code, Quebec had not met the obligations required of it. The Court specifically pointed to Quebec's refusal "to consider Pekuakamiulnuatsh Takuhikan's repeated requests to renegotiate the level of funding for its police force even though it knew that the police force was underfunded and that the respondent would accept an inadequate level of funding to avoid resorting to the [Sûreté du Québec's] ill‑adapted services."

The Court also found that the failure to meaningfully engage in genuine negotiations served to impermissibly undermine the ongoing process of reconciliation between the Crown and Indigenous peoples.

Remedies

Respecting remedy, as noted above, the Court held that Quebec's conduct could be characterized as both a private civil fault under the Civil Code and a breach of a public law obligation. However, each breach engaged different considerations with respect to potential remedies.

The Court held that while the available evidence did not allow for a precise calculation of compensatory damages flowing from the breach under the Civil Code, a breach of obligations flowing from the honour of the Crown resulted in the availability of a broader range of remedies, including damages and other coercive relief.

In response to an argument from Canada (which intervened in the case despite itself not appealing the Court of Appeal's decision), the Court held that issuing declarations is not the only way to remedy a breach of the honour of the Crown, emphasizing that the Indigenous perspective, especially if it is reasonable, is a factor that must be considered. Referring to its earlier decision relating to treaty interpretation and implementation in Ontario (Attorney General) v. Restoule, 2024 SCC 27, the Court held that, when a breach of the honour of the Crown is at issue, "reconciliatory justice" is required, not only to compensate the Indigenous claimant harmed, but also to restore Crown-Indigenous relationships and "place the parties back on the path to reconciliation."

Ultimately, Quebec was ordered to pay $767,745.58, its share of the SPM funding shortfall.

Dissent

In dissent Côté J. found that since the agreements expressly limited the federal and provincial financial contributions and specify Pekuakamiulnuatsh Takuhikan is responsible for deficits incurred in excess of the financial contributions, there ought to be no issue of contractual liability. While Côté J. agreed with the majority of the Court that the tripartite agreement engaged the honor of the Crown she found that this principle cannot give rise to an implied obligation inconsistent with the express terms of the contract.

Implications going forward

This decision provides much-needed clarity regarding when the honour of the Crown, a constitutional principle, may apply to the Crown's contractual dealings and government-to-government negotiations with Indigenous peoples. While in this case the agreements at issue related to the implementation of an Indigenous right of self-government, the Court left open the possibility of the honour of the Crown similarly applying to agreements that deal with other types of rights.

While the Court was clear that the application of the honour of the Crown to contractual arrangements does not have the effect of transforming the agreements in question into formal treaties, the Court's decision nonetheless places at least some contractual arrangements on a more equal footing with comprehensive treaty arrangements that have been negotiated over the course of many years and which have formal legal status as treaties under s. 35(1) of the Constitution Act, 1982.

This decision also reaffirms, in the non-treaty context, the principle that the Crown must "avoid even the appearance of 'sharp dealing'" in government-to-government negotiations with Indigenous peoples and demonstrates that the Crown cannot seek to implement Indigenous rights via contractual arrangements, only to then take actions which serve to undermine the goal of those same agreements such as refusing to negotiate, or otherwise engaging in conduct directed to avoiding the obligation.

Finally, the Court's requirement that a remedy imposed by a court to rectify a breach of the honour of the Crown must weigh the Indigenous perspective and have as its goal "reconciliatory justice" capable of returning the parties on the path to reconciliation is likely to become an emerging focus, especially following the Court's earlier decision in Restoule, a case which dealt with a formal treaty.

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