Ermineskin Indian Band and Nation v Canada: No Trust in the Crown

The recent SCC decision in Ermineskin Indian Band and Nation v Canada, 2009 SCC 9, found that the Crown does not have an obligation to invest oil and gas royalties received on behalf of the Ermineskin Nation and the Samson Nation (the “Bands”). This case is significant because the Bands claimed deprivation of hundreds of millions of dollars since 1972 flowing from the Crown’s failure to prudently invest their royalties. The Crown’s position was that even if it has a fiduciary duty to invest the royalties, this duty was limited by legislation and subsequently satisfied.

The Treaty and Legislative Framework

The Bands are entitled to oil and gas royalties under the 1876 Treaty No. 6 from the Pigeon Lake Reserve and Samson Reserve in Alberta. Under the terms of Treaty No. 6. the Bands surrendered their interests and the Crown entered into arrangements with third parties to exploit the oil and gas resources.

In 1946 two identical instruments of surrender were executed and accepted by the Crown. The Bands argued under the 1946 surrender the Crown had the obligation of a common law trustee to invest their royalties:

TO HAVE AND TO HOLD the same unto his said Majesty the King, his Heirs and Successors, forever, in trust to grant in respect of such land the right to prospect for, mine, recover and take away any or all minerals contained therein, to such person or persons, and upon such terms and conditions as the Government of the Dominion of Canada may deem most conducive to our welfare and that of our people. [Emphasis added by Rothstein J.]

Under the statutory scheme of the Indian Act, RSC 1985, c I-5, and the Indian Oil and Gas Act, RSC 1985, c I-7, revenues are divided into “capital moneys” and “revenue moneys” and held in separated accounts. Capital moneys are deposited in the Consolidated Revenue Fund pursuant to the Financial Administration Act, RSC 1985, c F-11. For the period from 1859 to 1969 the interest rate on these funds varied from 3 percent to 6 percent. After 1969 the rate was tied to the market rate on government bonds with terms of maturity over 10 years.

In 1989 and 1992 the Samson and Ermineskin Nations filed statements of claim alleging “the Crown’s fiduciary obligations required it to invest oil and gas royalties received on behalf of the bands as a prudent investor would, that is, to invest the royalties in a diversified portfolio.”

Judgments from the Federal Courts

At trial, Teitelbaum J. dismissed the Ermineskin’s and Samson’s actions respectively in Ermineskin v Canada, 2005 FC 1623, and Buffalo v Canada, 2005 FC 1622. The trial judge found the legislation did not permit the Crown to invest the royalties and the Crown discharged its duty to the Bands by paying the interest rate prescribed under s. 61(2) of the Indian Act.

The Federal Court dismissed their claims and a majority of the Federal Court of Appeal upheld the decision. A majority comprised of Richard C.J. and Sharlow J.A. dismissed the Bands’ appeals in Ermineskin Indian Band and Nation v. Canada, 2006 FCA 415. The basis of the majority judgment was that the Crown’s obligations as a trustee differ from those of a common law trustee due to the Indian Act and Financial Administration Act. The majority found that if Parliament had intended the Crown have a duty to invest it would have enacted legislation to that effect.

Sexton J.A. dissented at the Federal Court of Appeal. He found a breach of the Crown’s duty to act as a trustee at common law and invest the royalties based on the surrenders of 1946. The minority judgment required the Crown to exercise the same diligence as a man of ordinary prudence in managing his own affairs. The scope of this duty would oblige the Crown to: (1) Assess the circumstances of the fund and beneficiaries to determine appropriate investments; (2) Build a diversified portfolio; (3) Where appropriate seek expert advice; and (4) Obtain the best possible return based on sound investment practices.

In obiter Sexton J.A. commented the trial judge’s interpretation of the legislation violated s. 15(1) of the Charter. He held that “the legislation subjects Indians to inferior and discriminatory treatment based on their Indian status and membership in a band.”

The SCC Decision

A unanimous 7 person SCC panel found the Crown does have a fiduciary relationship with respect tho the Bands’ royalties but it does not have the obligation or authority to invest these royalties. Justice Rothstein, writing for the court, held that under Treaty No. 6 “all rights were relinquished to the Crown, and the Crown then agreed to set aside certain lands for use by the Indian signatories.” The 1946 surrender created a fiduciary relationship that is “trust-like in nature” but not strictly a trustee at common law. The SCC concluded the Crown had only the obligation to guarantee the royalty funds would be preserved and increase but there is no treaty right to investment.

The SCC held that the adjusted long term rate or the laddered bond approach “could have been selected by a prudent person managing his or her own affairs but modified by the constraints applicable to the Crown.” No breach of the fiduciary duty owed to the Bands was found based on the Crown’s investment methodology. Professor Nigel Bankes from the University of Calgary provided an excellent summary of the other statutory and investment analyses conducted by the SCC.

Commentary

I share Professor Bankes’ critique that the SCC undertook an unduly “fossilized and technical [treaty interpretation] approach”. That is, the fact that the risk of investment loss could not be contemplated in 1876 should not dictate that prudent investment of royalties could be expected under the treaty in 2009. Perhaps Justice Rothstein’s view that “all rights were relinquished to the Crown” under Treaty No. 6 does not align with the relationship envisaged by the Ermineskin Nation and the Samson Nation with the Crown. Professor Bankes captures this defect best: “What seems to be missing from this case is any sense of a relationship in which the parties might talk about the best interests of the First Nation and how to protect them. And this ignores reality.”