Judicial Committee of the Privy Council –  2 D.L.R. 37
Even when a part of reserve lands is surrendered to a company for the purposes of construction work, the company does not become owner. The government of Canada has an obligation regarding the lands and the company must comply with its requirements. It can be liable for compensation to the Indians in the case of damage.
Can a company be held liable for all damages sustained to an Indian reserve after the territory is flooded due to the company dam?
A company can be liable for damages to reserve lands to Canada and to Indians.
Between: Ontario and Minnesota Power Company Ltd
And: the Crown of Canada
In 1873, Treaty No. 3 authenticated the surrender of lands by the Salteaux Tribe of the Ojibway Indians to the Crown. It was subject to a stipulation that particular reserves should be selected and set aside for them by the Government of the Dominion of Canada. The Government of Canada had retained the power to take portions of the reserves in cases where they would be needed for public works or buildings, making the ensuing compensation for the value of any improvements thereon. In 1875, the Government of Canada set aside some portions of the lands previously surrendered by the Salteaux Tribe to create reserves for their benefit.
In 1905, Ontario made a grant to E.W. Backus, representing the Ontario and Minnesota Power Company Ltd, for a part of the riverbed of the Rainy River, which was within reserve boundaries, in exchange for the construction of a hydroelectric dam across the river to develop and supply electricity. The grant had a provision that prohibited the company from raising the water to a level higher than a certain benchmark without consulting the Government of Canada beforehand.
In 1909, the dam was completed. A few years later, three reserves were partially or entirely flooded due to the presence of the dam. The water exceeded the benchmark set by the Government of Canada. Crops were destroyed, buildings were damaged, trees died and the soil became eroded. The Government of Canada through its Attorney-General filed an action in damages against the Ontario and Minnesota Power Company Ltd.
The Ontario and Minnesota Power Company Ltd did not deny their fault in the flooding of the lands in question, but argued that they held title to the land subject to the grant of 1905, which permitted them to build a dam and raise the water to a benchmark of 497.
The Crown argued that the Ontario and Minnesota Power Company Ltd must be liable by the Crown and by Indians for the damages caused by the flooding and erosion of particular reserves surrounding the Rainy Lake. The deed gave no power to the company to damage reserve lands, which were under the protection of the federal government.
Exchequer Court of Canada (1920): When the reserves were created, a right of passage along the shore of the Rainy Lake was excluded. The “raising of the water of the lake up to the benchmark 497 was authorized by the grant of 1905 and the title acquired by the Dominion in 1915 was subject to an exception of the road-space and to the terms of the grant of 1905.” As a result, Canada only had the right to compensation for the damage to the property situated outside the road-space 2 chains in depth. The Court estimated the damages at $500.
Supreme Court of Canada (1920) [unreported]: reversed the Exchequer Court’s decision. The Court ordered that all damages should be recovered and sent the case back to the Exchequer Court for determination of the amount to be awarded to the victims.
Viscount Cave, Lord Dunedin, Lord Carson, Lord Blanesburgh.
The grant allowed the company to build a dam with water reaching the high water mark. Under the terms of the grant, the dam was to be equipped with the relevant system regulating the level of water. This condition was meant to supersede the rights granted in the deed and to oblige the company to seek the permission of the Canadian government if their work had the effect of raising the water beyond its ordinary level, thus causing damages to neighbouring proprieties.
Certain parts of the ceded lands were never fully set aside by the Canadian government; therefore a reserve in the meaning of the Indian Act was never created. The two Indian settlements remained under the control of Ontario. A part of the other reserve that was flooded in 1916 was surrendered to the Crown, and the right of action followed. The Government can no longer claim damages for this part of the reserve. Only a personal right to compensation remains for the Indians.