Recent Developments in Aboriginal Law: Cumulative Effects, Equitable Compensation and Duty to Consult

August 30, 2021

Written By Sharon Singh, Deirdre Sheehan, David Bursey, Radha Curpen, Tegan Heywood and Erik Coates

Three important decisions relating to Indigenous peoples across Canada have been issued recently: Yahey v British Columbia, Southwind v Canada and Ermineskin Cree Nation v Canada (Environment and Climate Change). The three decisions have notable implications for development projects across Canada and the Crown’s discharge of its duty to consult. 

• Yahey v British Columbia has substantial implications for how cumulative effects are considered in project approvals. 
• Southwind v Canada provides guidance for assessment of equitable damages and breaches of fiduciary duty involving the taking of reserve land. 
• Ermineskin Cree Nation v Canada (Environment and Climate Change) confirms the importance of economic benefits derived from Treaty or Aboriginal rights.

Brief discussions of each case and their implications follow.

Yahey v British Columbia, 2021 BCSC 1287 [Yahey]

“Way of Life” – Cumulative Effects

On June 30, 2021, the Supreme Court of British Columbia (SCBC) decided that, under Treaty 8 (the Treaty), the cumulative effect of industrial development in the traditional territory of the Blueberry River First Nation (BRFN) infringed BRFN's rights and that the Government of British Columbia breached its obligations to BRFN by failing to adequately consider the cumulative effect of permitting those various development activities.

These developments include the Site C hydroelectric dam, natural gas pipelines and forestry.

Treaty 8 covers a large area stretching from northeastern British Columbia to northwest Saskatchewan and into the Northwest Territories. BRFN's traditional territory is located in northeastern British Columbia and encompasses the areas surrounding Fort St. John and Dawson Creek.

The Government of British Columbia recently decided not to appeal the Yahey decision, establishing a legal precedent on novel aspects of the case. This update will focus on the Court's analysis of finding that Treaty 8 protects of a "way of life" and the standard to establish an infringement in the context of cumulative effects.

Treaty 8 Guarantees a "Way of Life"

A central issue for the Court was the nature and scope of rights and promises embedded in Treaty 8, which the Court held are reflected not only in the written text of the Treaty but also in the oral assurances made by the Crown at the time it was negotiated.

BRFN argued the Treaty contained a promise allowing them to continue their "way of life", including the right to hunt, trap and fish on their traditional territories. The province argued that the promises in the Treaty were to allow Indigenous peoples to continue exercising these rights as an economic livelihood.

The Court noted that the ability to hunt, fish and trap are rights to maintain a culture and identity and the ability to exercise these rights is inextricably tied to the health of the environment. While the language of the Treaty did not explicitly use the terminology "way of life," the Court concluded that Treaty 8 guaranteed the Indigenous signatories and adherents the right to continue a "way of life."

Although the Treaty contains a taking up clause, allowing the Crown to take-up land from time to time for settlement, mining, lumbering, trading, or other purposes, the Court stated that this clause is subject to the fundamental promise made to the Treaty 8 nations, including the BRFN. Inherent in this promise was that the Crown would not significantly affect or destroy the basic elements or features needed for that "way of life" to continue. The Court's interpretation of Treaty 8 guaranteeing a "way of life" in turn informed the Court's analysis of whether BRFN's treaty rights had been infringed.

Infringement

Both parties agreed that BRFN had the onus of proving infringement; however, the parties disputed how the test of infringement was to be interpreted and applied. The Court was required to consider the degree of interference that would amount to an infringement of a treaty right. The Court rejected the province’s arguments that an infringement occurs when the First Nation is precluded from exercising or has no ability to exercise its rights. The Court adopted a lower standard of whether BRFN's ability to hunt, fish and trap within their territories, had been significantly or meaningfully diminished when viewed within the "way of life" from which they arise and are grounded.

The Yahey decision is the first case to consider infringement from cumulative effects arising from a variety of provincially authorized projects, developments and decisions as well as the provincial regulatory regime itself, rather than from a specific restriction or project. Ultimately, the Court considered evidence of land disturbance, impacts on wildlife and impacts to BRFN members' abilities to exercise their rights to conclude that BRFN's members' rights to hunt, fish and trap as part of their "way of life" have been significantly and meaningfully diminished. Therefore, the Court held that a "tipping point" had been reached and their rights under Treaty 8 have been infringed.

Notably, at trial the province did not seek to establish that any infringement could be justified. Therefore, whether and how a justification of an infringement due to cumulative effects could be justified remains unresolved.

Breach of Treaty Obligations

Additionally, BRFN sought a declaration that British Columbia breached its obligations to them under the Treaty by failing to diligently implement the Treaty promise to protect BRFN's "way of life" from the encroaching cumulative effects of development. Among other regulatory measures, the Court reviewed the province's existing oil and gas and forestry regulatory regimes and concluded that the regimes did not adequately protect BRFN's traditional territories from cumulative effects and did not adequately protect Treaty rights.

Among other declarations, the Court declared—but suspended for six months to allow the parties to negotiate a resolution—that:

• the province may not continue to authorize activities that breach the promises included in the Treaty, including the province’s honourable and fiduciary obligations associated with the Treaty, or that unjustifiably infringe BRFN’s exercise of its treaty rights; and
• the parties must consult and negotiate to establish timely enforceable mechanisms to assess and manage the cumulative effect of industrial development on BRFN’s treaty rights to ensure these constitutional rights are respected.

Southwind v Canada, 2021 SCC 28 [Southwind]

Equitable Compensation and Fiduciary Duty

On July 16, 2021, the Supreme Court of Canada (SCC) released its decision in Southwind, providing important direction on the content of the Crown's fiduciary duty and equitable compensation for breaches of fiduciary duty as it applies to reserve land. In the early part of the 20th century, the Lac Seul dam was constructed, which resulted in the Lac Seul First Nation (LSFN) reserve lands being flooded to create a hydroelectricity power facility (the Project).

The Project was constructed in 1929 leading to the flooding of almost 20 percent of the LSFN reserve, without the consent of the LSFN, without any compensation and without the authorization required under the Indian Act. The LSFN brought a successful civil suit against Canada for, among other things, breach of fiduciary duty. At issue before the SCC was the appropriate assessment of equitable compensation for Canada's breach. The SCC determined that Canada's fiduciary duty included an obligation to preserve and protect the LSFN interests in the LSFN reserve and an obligation to negotiate compensation for the LSFN on the basis of the value of the land to the hydroelectricity project. 

Content of Fiduciary Duty

The SCC confirmed that fiduciary duty varies depending on the nature and importance of the protected rights. Exercising control over Indigenous land calls for a strong fiduciary duty and is heightened where it arises from a treaty. The SCC stated that, "the fiduciary duty imposes the following obligations on the Crown: loyalty, good faith, full disclosure and, where reserve land is involved, the protection and preservation of the First Nation’s quasi-proprietary interest from exploitation."

The Crown further has a duty "to ensure fair compensation reflecting the sui generis interest." This applies even when the taking is considered to be in the public interest.

Equitable Compensation

The SCC confirmed that equitable compensation for the Crown's breach of fiduciary duty aims "to restore the value of the thing lost through the Crown's fiduciary breach, referred to as the plaintiff's lost opportunity." Equitable compensation in the context of flooding of reserve lands means not only the value of the flooded land, but also the value of the lost opportunity to negotiate an agreement reflecting the value of the flooded land.

The SCC further stated that causation must always be considered when determining equitable compensation for the Crown's breach of fiduciary duty but that the causation analysis will not import foreseeability. Furthermore, the presumption is that the beneficiary would have put the asset to its most favourable use.

Applying these principles, the Court found that the trial judge erred in his assessment of equitable compensation by concluding that the minimum statutory obligation, that of a hypothetical expropriation, would have fulfilled Canada's fiduciary obligation.

The SCC cited three reasons to explain why equitable compensation under the Indian Act and the Crown’s related fiduciary obligation must be based on more than expropriation principles related to fee simple land.

• First, Canada's obligations resulting from its fiduciary duty to the LSFN are not fettered by the legal discretion to expropriate land in the Indian Act, and its fiduciary obligation requires that it do more than the legal minimum. The Court held: "Obviously, Canada is not permitted to use its legal power over the beneficiary to force an unfair settlement on the beneficiary." Doing so would allow Canada to benefit from the very discretionary power over the LSFN that is the source of its fiduciary duty.
• Second, the fact that the land was required for a public work does not negate or limit the obligations resulting from Canada's fiduciary duty. Canada could have decided to proceed with the hydroelectric facility, because it was in the public interest, but the manner in which it proceeded must have been subject to Canada's fiduciary duty.
• Third, expropriation law is not the appropriate legal framework governing Canada's breach of its fiduciary duty to the LSFN over Indigenous land. Expropriation law is intended to provide landowners with compensation to purchase replacement land. Indigenous land is not a fungible commodity and cannot be replaced. The Crown's fiduciary duty required it to capture the full potential value of the land for the LSFN, and the highest and best use of the land at the time of breach was the land's intended use as water storage for hydroelectricity generation. "Canada must always keep the First Nation informed, attempt to negotiate a surrender before proceeding to an expropriation and ensure compensation reflecting the nature of the interest and the impact on the community."

The valuation of the loss to LSFN must therefore reflect Canada's obligation to negotiate compensation based on the best price that could have been obtained for the land's use for hydroelectricity generation in 1929, without the limitations of expropriation law.

The Court set aside the Federal Court of Canada's award for equitable compensation and returned it to that Court for reassessment in accordance with the Court's reasoning.

Ermineskin Cree Nation v Canada (Environment and Climate Change), 2021 FC 758 [Ermineskin]

Duty to Consult – Loss of Project Benefits

On July 19, 2021, the Federal Court decided in Ermineskin that the duty to consult extends to include any impact on the economic rights and benefits closely related to and derived from Aboriginal rights. The Court found that the Minister for the Environment and Climate Change Canada (the Minister) had a duty to consult with Ermineskin Cree Nation (ECN) due to its economic rights and benefits under an Impact Benefits Agreement related to the Vista Coal Mine, before ordering that the mine be a designated project under the Impact Assessment Act (the Designation Order).

Background

In 2019, ECN entered into an Impact Benefit Agreement (IBA) with Coalspur Mines (Operations) Ltd. (Coalspur) for Phase II of Coalspur's Vista Coal Mine (the Vista Mine Expansion). Under the IBA, Coalspur would provide valuable economic and other benefits to ECN. A similar IBA was entered into in 2013 between ECN and Coalspur for the ongoing Phase I of the Vista Mine Expansion. Both IBAs were intended to compensate ECN for the potential impacts of Coalspur’s operations on ECN's Aboriginal and Treaty rights.

In December 2019, following a consultation with Indigenous communities, including ECN, the Minister decided not to designate Phase II as a reviewable project. This decision was in line with the Impact Assessment Agency's recommendation. However, the Minister reversed his original decision and issued the Designation Order following a request from two other Indigenous nations and environmental groups. Unlike its 2019 non-designation decision, the Minister failed to consult with ECN when issuing the Designation Order despite being made aware by Coalspur of agreements with ECN and other impacted Indigenous nations. 

ECN challenged and sought to quash the Designation Order on several grounds, including that the Designation Order triggered the Crown's duty to consult and that it was not fulfilled.

Triggering of Duty to Consult

The Court held that the duty to consult was triggered by the Designation Order.

The Crown argued that ECN's economic interests through an agreement with Coalspur are distinct from the substance of Aboriginal and Treaty rights and do not relate to the promise of section 35 of the Constitution Act, 1982 or the principle of the honour of the Crown and therefore did not trigger the duty to consult. The Court rejected this narrow interpretation of Aboriginal and Treaty rights holding that

…the important and valuable economic and community benefits negotiated in compensation of Aboriginal and Treaty rights, as achieved by ECN in 2019 IBA, are entitled to the protection through the honour of the Crown construed generously and purposefully, and through its concomitant duty to consult, because they are closely related to and derivative from the underlying Aboriginal or Treaty rights.

The Court highlighted that a generous and purposive approach to the duty to consult and the honour of the Crown is required, in part, because of the objective of reconciliation between Canada and Indigenous peoples. A generous and purposive approach to the duty to consult was not taken by the Crown, as it considered the potential economic impacts of the Designation Order too speculative to warrant consultation.

Duty to Consult Not Fulfilled

The Court held that the Crown breached its duty to consult by not consulting with or even giving notice to the ECN before making the Designation Order. As the Court stated, "Not only was there no consultation at all, but I find ECN was inexplicably frozen out of this very one-sided process. I say one-sided because for whatever reason the Agency and Minister, in relation to Aboriginal and Indigenous input, decided to hear only from Indigenous voices seeking the Designation Order."

As a result the Designation Order was quashed and a judicial review of it was granted.

Takeaways

Yahey has substantial implications for resource extractive industries and how cumulative effects are considered in project approvals. The decision re-affirmed that the provinces do not have an unencumbered right to take-up treaty land and governments may be held liable if they take-up land in a way that diminishes a meaningful exercise of treaty rights. There are 11 numbered treaties across Canada that cover territory from British Columbia to Ontario. Many of these treaties employ similar language around land take-up clauses and harvesting rights. While this decision is from the British Columbia Supreme Court, it may have implications in other provinces.

Southwind provides guidance for assessment of equitable damages and breaches of fiduciary duty involving the taking of reserve land. Although limited to the taking of reserve land, the decision has broader implications for assessing the scope of the Crown's fiduciary duty owed to Indigenous peoples in other circumstances. This decision confirms the importance of the Crown’s careful discharge of its fiduciary duty when exercising power over reserve lands. In addition, the Court's guidance in this decision may inform the Crown's conduct in protecting Indigenous peoples' interests in future public projects.

Ermineskin confirms the importance of economic benefits derived from Treaty or Aboriginal rights. The decision confirms that the Crown must be careful to take a broad approach in consultation in upholding Honour of the Crown and consult with Indigenous nations irrespective of whether their view is contrary to the future policy aspirations of the current government. The decision also underscores the importance of relationships and agreements with Indigenous nations when pursuing projects in or near their territory. The decision will be important to the ongoing proceedings in other mining projects based on similar grounds.

While the three decisions relate to s. 35 of the Constitution Act, 1982, the decisions will likely inform British Columbia's and the federal government's implementation of the United Nations Declaration on the Rights of Indigenous Peoples. If you have questions regarding how any of these decisions may affect your business interests, please contact a member of the Bennett Jones Aboriginal Law group. 

Authors