SCC Rules that Crown’s Fiduciary Duty is Central in Assessing Compensation for Flooded Indigenous Reserve Land

On July 16, 2021, in the case of Southwind v Canada, 2021 SCC 28 (Southwind), the Supreme Court of Canada (the Court) ruled that the C$30-million awarded to Lac Seul First Nation (LSFN) by the Federal Court was insufficient compensation for the flooding of parts of its Reserve land in the 1920s. The Court held that the trial judge erred by limiting the value of LSFN’s loss to the amount required under expropriation law and by failing to take into account the Crown’s fiduciary obligations to LSFN.
 
This case provides important guidance on how the Crown is required to approach expropriation of Indigenous land, and will impact the assessment of compensation by the Crown to Indigenous groups moving forward. More broadly, the principles discussed in the case may be brought into negotiations between Indigenous peoples and proponents of projects on Reserves.

BACKGROUND

LSFN is a Treaty 3 First Nation in northern Ontario. In 1929, a dam was constructed to provide hydroelectric power to Winnipeg pursuant to an agreement among Canada, Ontario and Manitoba. As a result of the dam, the water level of Lac Seul was raised by 10 feet.
 
The project was a “success for the three governments” but a “tragedy for the [LSFN]”. Almost one-fifth of the best land on the LSFN Reserve was permanently flooded, including homes, wild rice fields, gardens, hay lands and gravesites. The flooding also impacted fishing, hunting and trapping by LSFN members.
 
Canada was aware from the outset that flooding Lac Seul would damage LSFN’s Reserve. Despite this, it did not keep LSFN informed about the project or obtain its consent; did not compensate LSFN; and did not obtain authorization for the project. Canada’s “unlawful and egregious conduct” was described by the trial judge as “inexplicable”.
 
LSFN brought a claim against Canada in Federal Court, seeking compensation for the effects of the flooding.

LOWER COURT DECISIONS

At trial, LSFN successfully argued that Canada breached its fiduciary duty to LSFN. The trial judge held that the appropriate remedy was equitable compensation.
 
To determine compensation, the trial judge focused on what would have happened at the time had Canada not breached its duties. He held that the project was a public work which would have moved ahead regardless of LSFN’s opposition, and that Canada could have legally taken the lands through expropriation. He valued the flooded land as if it had been expropriated. In so doing, he did not take into account the value of the lands to the hydroelectricity project.
 
LSFN appealed the assessment of equitable compensation to the Federal Court of Appeal, which dismissed the appeal. LSFN appealed again to the Supreme Court of Canada.

SUPREME COURT DECISION

In an 8:1 decision, the Court allowed the appeal. The Court remitted the case to the Federal Court for reassessment of the equitable compensation to include the value of the flooded land to the hydroelectricity project.
 
The Court held that the trial judge erred by asking what Canada would have done at the time given expropriation laws, rather than what it should have done given its fiduciary obligations.
 
In cases involving Indigenous interests in land, Canada is “never entitled to proceed in the same manner as an expropriation of fee simple lands”. In expropriation cases, the law seeks to provide landowners with compensation to purchase replacement land. Conversely, Indigenous Reserves are not “fungible commodities that can easily be replaced by buying additional fee simple land”.
 
In cases of expropriation of Indigenous land, Canada is required to advance the Indigenous group’s best interests to “ensure the highest compensation possible”. Canada must keep the First Nation informed, attempt to negotiate a surrender before proceeding to an expropriation, and ensure compensation reflects the nature of the Indigenous interest and the impact on the community. Canada is also required to assess how to minimally impair the protected interest.
 
In this case, given the impact on LSFN, “the duty here clearly required Canada to capture the full potential value of the land for the LSFN”. The Court held that it could be presumed that LSFN would have consented to a negotiated settlement at the best price the Crown could have realistically obtained. The highest and best use of the land at the time was “clearly the land’s intended use as water storage for hydroelectricity generation.”

IMPLICATIONS

The Crown’s fiduciary duty to Indigenous peoples regarding Reserve land was established by the Court in the 1984 Guerin case. Southwind affirms the Crown’s fiduciary duty and provides further direction on how it applies for Indigenous peoples’ benefit.
 
In addition to impacting how compensation will be calculated in claims before the courts, the framework will also play a role in negotiations between governments and Indigenous peoples regarding future public works projects.
 
More broadly, private and quasi-Crown proponents and operators of projects on, crossing or potentially impacting Indigenous Reserves should take note. The Court’s comments with respect to the inherent value of Indigenous lands – and the differences between Reserve and fee simple values – may be invoked in negotiations and dispute resolution involving non-Crown actors.
 
For further information, please contact:
 
Roy Millen                    604-631-4220
Brittiny Rabinovitch   416-863-4258
 
or any other member of our Indigenous or Litigation & Dispute Resolution groups.