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ABORIGINAL LANDS - Reserve lands - Duties of the Crown - Damages

Friday, July 16, 2021 @ 1:52 PM  

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Appeal by Southwind and Lac Seul First Nation (“LSFN”) from a decision of the Federal Court of Appeal that dismissed their appeal from an equitable compensation award against Canada for breach of fiduciary duty. Canada entered into an agreement for a hydroelectricity project that involved raising the water level of Lac Seul to create a water reservoir. Canada was aware that flooding Lac Seul would cause considerable damage to the LSFN’s reserve, which was located on the shore of Lac Suel. The project advanced without the LSFN’s consent, without compensation and without the lawful authorization required. As a result of the project, almost one-fifth of the best land on the LSFN reserve was permanently flooded. The damage included the destruction of homes, fields, gardens and gravesites. The appellants filed a civil claim against Canada for breach of Canada’s fiduciary duty. The trial judge found Canada had breached its fiduciary duty to the LSFN and awarded equitable compensation for the loss of the flooded land. The trial judge valued the flooded land as if it had been lawfully expropriated and excluded the value of the land for hydroelectricity generation in arriving at a damages award of $30,000,000. The Federal Court of Appeal dismissed the appellants’ challenge to the trial judge’s evaluation of equitable compensation.

HELD: Appeal allowed. Canada’s fiduciary duty included the obligations of loyalty, good faith, full disclosure and where reserve land was involved, the protection and preservation of the First Nation’s quasi-proprietary interest from exploitation. Canada’s obligation to preserve and protect the LSFN’s interest in the reserve, which it breached, included an obligation to negotiate compensation for the LSFN on the basis of the value of the land to the hydroelectricity project. The trial judge erred in concluding a hypothetical expropriation would have fulfilled Canada’s fiduciary obligations and by relying on the principles of expropriation law to value the LSFN’s loss. The trial judge erred by focusing on what Canada would likely have done instead of what it ought to have done as a fiduciary. Equitable compensation aimed to restore the actual value of the thing lost through the fiduciary’s breach. Canada’s fiduciary duty required more than compensation based on expropriation principles. Canada’s fiduciary obligations required it to ensure the highest compensation possible, including compensation for the land’s anticipated used as land for hydroelectricity generation. The LSFN was entitled to equitable compensation for the lost opportunity to negotiate for an agreement that reflected the value of the land to the project, given the nature of the interest and the impact on the LSFN. The award for equitable compensation was set aside and returned to the Federal Court for reassessment. Dissenting reasons were provided.

Southwind v. Canada, [2021] S.C.J. No. 28, Supreme Court of Canada, R. Wagner C.J. and R.S. Abella, M.J. Moldaver, A. Karakatsanis, S. Côté, R. Brown, M. Rowe, S.L. Martin and N. Kasirer JJ., July 16, 2021. Digest No. TLD-Jul122021011-SCC