Ermineskin Indian Band and Nation v. Canada

Supreme Court of Canada – [2009] 1 S.C.R. 222


Alberta Fiduciary dutyIndian ActTreaties
Summary

The fiduciary obligation of the Crown is not breached because it paid interest on Indian moneys instead of investing them in a diversified portfolio. The fiduciary obligation of the Crown requires the use of discretion in the best interests of the bands; however this does not necessitate investment.

Quote

Rather than the Crown having the obligation to invest the royalties, it had the obligation to guarantee that the funds would be preserved and would increase.  Because there is no treaty right to investment by the Crown, s. 35(1) of the Constitution Act, 1982 is not engaged (para. 67 of the decision)

Issue

Does the fiduciary obligation of the Crown necessitate the investment of royalties received on behalf of the Samson and Ermineskin Indian bands? If not, does its chosen method of calculation and payment of interest constitute a breach of the fiduciary duty?

Decision

The fiduciary duty of the Crown was not breached. This obligation as applied to bands’ royalties is subject to the Indian Act, which does not allow for investment. The Crown must simply act in the best interests of the bands.

Holding the royalties in trust and paying interest on them appeared like a safe investment at the time. Although the method of calculation of interest is, in hindsight, not the one with the best returns, this does not mean that the Crown was imprudent in its choice (unanimous decision).

Parties

Between: Chief John Ermineskin, Lawrence Wildcat, Gordon Lee, Art Littlechild, Maurice Wolfe, Curtis Ermineskin, Gerry Ermineskin, Earl Ermineskin, Rick Wolfe, Ken Cutarm, Brian Less and Lester Fraynn, the elected Chief and Councillors of the Ermineskin Indian Band and Nation, suing on their own behalf and on behalf of all the other members of the Ermineskin Indian Band and Nation.

And: the Crown of Canada (and the Minister of Indian Affairs and Northern Development and Minister of Finance)

Interveners: Ontario, Quebec, Alberta, Assembly of First Nations and Lac Seul First Nation

 

Between: Chief Victor Buffalo, acting on his own behalf and on behalf of all the other members of the Samson Indian Band and Nation, and Samson Indian Band and Nation

And: the Crown of Canada (and the Minister of Indian Affairs and Northern Development and Minister of Finance)

Interveners: Ontario, Quebec, Alberta, Assembly of First Nations, Saddle Lake Indian Band, Stoney Indian Band and Lac Seul First

Facts

Since its signature in 1876, both the Ermineskin and Samson Nations (“the bands”) are parties to Treaty No. 6, which created the reserves on which they live. In order to allow for the exploitation of the oil and gas found beneath reserve lands, the bands were obliged to surrender their rights to the Crown in 1946.

The royalties thereby generated were retained by the Crown pursuant to the Indian Oil and Gas Act, the Financial Administration Act and the Indian Act. According to the Indian Act, the Crown has the obligation to pay interest to the band at a rate that is fixed by Order of Council.

Since 1981, the interest was paid twice a year, based on quarterly averages of yield on long-term government bonds. The Samson Nation filed a statement of claim in 1989 and the Ermineskin Nation did the same in 1992 : they believed the Crown should have invested the monies.

Arguments

Ermineskin and Samson Nations: The fiduciary obligation of the Crown originated from Treaty No. 6, which is protected pursuant to section 35(1) of the Constitution Act, 1982. In accordance with its fiduciary duty, the Crown has the obligation to act as a common law trustee. In this case, that would require investing the royalties in a diverse portfolio. Since the Crown neglected to do so, there is a breach of its fiduciary obligation.

If the legislative framework is found to prevent the investment of the bands’ royalties, the Crown should provide the bands with an interest rate that represents the income that could have been generated if investment was an option.

 The Crown: The fiduciary obligation of the Crown must be viewed prospectively. Without being able to predict inflation and interest rates, the Crown did not act imprudently in opting for a floating long-term interest rate.

 Interveners: The Saddle Lake Indian Band and Stoney Indian Band held that the intent behind the Indian Oil and Gas Act was to maximize the benefits received by the bands. The honour of the Crown and the letter of the law thus create a fiduciary obligation to invest the bands’ royalties.

Decision of the lower courts

The Federal Court: The Crown did not breach its duty as a trustee in complying with legislation that prevented the investment of royalties. The fiduciary duty was established by Treaty No. 6. In paying interest to the bands, the Crown acted prudently, as is required by its duty as a trustee.

The Federal Court of Appeal: The lower judgement is upheld. The obligations of the Crown as a trustee of the bands’ royalties are enshrined in the Indian Oil and Gas Act and are not the same as those of an ordinary trustee. There is no obligation to invest, the rate of interest is reasonable and the Crown did not act dishonorably.

Reasons for Judgement

Jury

McLachlin, LeBel, Deschamps, Fish, Abella, Charron, Rothstein

Reason

The Source of the Crown’s Fiduciary Obligations

When the bands gave up their rights to the oil and gas resources, the Crown gave them a part of the profit, in the form of royalties.

Since it is now the Crown that holds the resource and the royalty money, the bands are in a vulnerable position due to the power of discretion that the Crown has. As a result, the stronger party has the obligation to act with integrity and manage the money in the best interest of the aboriginals. This was specified by Treaty No. 6; the royalties are held in trust and will increase with time.

This duty also exists in common law, under the name of “fiduciary duty”. The trustee has a duty towards the other party to ensure the protection and growth of his or her money. Neither the wording of Treaty No. 6 nor its oral terms impose the duties of a common law trustee on the Crown. Instead, it provided for a transfer of land by the Crown on the condition that the bands would relinquish their rights to the resources surrendered.

The Statutory Framework

Although not identical to a common law trust, the fiduciary duty of the Crown is trust-like in that the Crown possesses discretionary power that must be exercised in the best interests of the bands. Legislative limitations may be imposed insofar as they do not limit the discretionary power of the Crown.

The Indian Oil and Gas Act confirms that the payment of royalties is to be made to the Crown, without imposing any restrictions on the exercise of its fiduciary duty. According to the Financial Administration Act, an investment in the public securities market is not authorized unless expressly allowed by law.

It is therefore necessary that there be an explicit provision for investment in the Indian Act. The legislative provisions of the Indian Act provide for expenditures that are physically related or connected to the reserve and the activities that take place on it. They can in no way be stretched to include investments made and controlled by the Crown with the goal for obtaining income. A former provision that expressly authorized investment by the Crown was repealed in 1951 and not replaced.

Conclusion

The Crown’s fiduciary duty does not require payment of monetary compensation for what could have been earned as interest if there were no legislative limitations on its discretion. The Crown cannot be required to use the public treasury to compensate for the income that it was legally prevented from earning.

The decision of the Crown to adopt the floating interest rate was prudent and offered a certain protection against inflation. Without knowing the direction of anticipated inflation and interest rates in advance, it cannot be said that the Crown acted imprudently in choosing a methodology that, in hindsight, was not the one with the best returns.

Impact

Since the source of the fiduciary obligation of the Crown in this case is not a treaty, there is no constitutional protection afforded by section 35(1) of the Constitution Act, 1982. As a result, the fiduciary obligation is wholly subject to other legislative provisions and limitations. Statutory obligations take precedence.

In previous cases, the Court found that the discretion of the Crown can be restricted while its fiduciary obligations cannot. In this case, however, the Court makes no distinction. Moreover, the Court previously considered the fiduciary obligation between the Crown and Aboriginal peoples to be born from the historical relationship between the two parties. As such, there was no need to find a legal source for the fiduciary duty before judging whether it was breached. The fiduciary obligation served as an interpretive aide for statutes and a protection from the legislature. The current case only recognizes such a protection in the instance that the fiduciary obligation is clearly stated in a treaty, which considerably limits the application of fiduciary duty as compared to prior case law.

The Assembly of First Nations regretted that decision. According to some people, the decision bypasses the relationship between the Crown and First Nations, and prevents them from effectively managing their monies (Banks, 2009).

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