Southwind v Canada: Assessing Equitable Compensation for Taken Indigenous Land

In 1929, the creation of electrical power for Winnipeg, Manitoba resulted in the destruction of land, livelihood and community for a nearby Indigenous group. Nearly a century later, this government decision was the subject of a Supreme Court of Canada ruling. In Southwind v Canada, 2021 SCC 28 [Southwind], the question of equitable compensation — how to fairly restore a plaintiff’s loss— was put before our highest court.

 

Background

In 1929, the governments of Canada, Manitoba and Ontario chose Lac Seul in northern Ontario as the ideal location to build a water reservoir, which would be used to generate hydroelectric power for nearby cities. By raising the water levels of Lac Seul by 10 feet, the reservoir generated substantial amounts of power and continues to do so today.

 

However, the steady flooding of Lac Seul caused catastrophic damage to the Lac Seul First Nation (LSFN), whose reserve is located on the southeastern shore of Lac Seul and operates under Treaty 3. Almost one-fifth of the reserve’s best land was permanently flooded from Canada’s hydroelectricity project, including homes, wild rice beds, haylands and gravesites. The flooding was so extensive that one of the LSFN’s communities became an island separated from the reserve (Southwind, para 8).

 

Canada was aware from the outset of the project that the LSFN would suffer substantial consequences from the flooding. Despite this, Canada failed to consult or obtain consent from the Lac Seul First Nation, did not negotiate on the LSFN’s behalf to grant them the best compensation possible, and the compensation they did provide was both inadequate and 14 years overdue (Southwind, para 7). Additionally, despite the sacrifices the LSFN endured for Canada’s hydroelectricity project, the reserve itself was not provided with electricity until the 1980s (Southwind, para 8).   

 

Roger Southwind filed a civil claim for himself and on behalf of the Lac Seul Band of Indians against Canada for breach of its fiduciary duty and its obligations under the Indian Act, RSC 1927, c 98 [Indian Act] and Treaty 3.

 

The lower courts recognized an inarguable breach of Canada’s fiduciary duty towards the Lac Seul First Nation, however the question of what constituted equitable compensation perplexed the courts. Ultimately, in Southwind, the Supreme Court was left to determine whether the trial judge erred in his assessment of equitable compensation for the LSFN’s loss caused by Canada’s breach of fiduciary duty.

 

Procedural History

Trial Level

The trial judge in Southwind v Canada, 2017 FC 906, determined that Canada owed the LSFN a fiduciary duty under Treaty 3, and that it did not meet its fiduciary duty in respect of the LSFN’s interest in the reserve land. As such, equitable compensation was necessary to restore the Indigenous group to the fullest extent possible.

 

In applying principles of equitable compensation, the trial judge focused on what likely would have occurred had Canada not breached its fiduciary duties. Based on this hypothetical scenario, the trial judge assessed the market value of the flooded land based on a hypothetical flowage easement and treated the land as though it had been lawfully expropriated under general expropriation law. Notably, he rejected the idea of valuing the land for hydroelectricity generation because any value “attributable to the project” was excluded from land valuation under various expropriation acts (Southwind, para 40).

 

The trial judge awarded a total of $30,000,000 for calculable and non-calculable losses to the LSFN, stating that the suggestion for Canada to pay more for the land, per the plaintiff’s submissions, “amounts to nothing more than optimistic speculation” (Southwind, para 40). 

 

On Appeal

On appeal in Southwind v Canada, 2019 FCA 171, Roger Southwind argued that the trial judge should have included the loss of a revenue-sharing agreement when assessing equitable compensation for the LSFN. The appeal was ultimately dismissed. For the majority, Nadon J.A. stated that the trial judge did not commit any error in assessing equitable compensation (Southwind, para 45). 

 

In dissent, Gleason J.A. would have allowed the appeal. While disagreeing with the Appellant’s primary argument, she agreed that the trial judge should have considered the value of the land for the purposes of hydroelectricity generation when determining compensation (Southwind, para 44).

 

The Supreme Court Overturns the Federal Court of Appeal

In an 8-1 decision, the Supreme Court held that the trial judge erred in his calculation of equitable compensation. Fundamental to this error was that the trial judge did not factor in the value of the LSFN’s land for the purposes of hydroelectricity generation. As such, the Lac Seul First Nation should be entitled to equitable compensation based on the lost opportunity to negotiate a surrender of their reserve land for the purposes of facilitating Canada’s hydroelectricity project. The Court allowed the appeal and remitted the case back to the Federal Court for reassessment of the equitable compensation.

 

The high bar of the Crown’s fiduciary obligations as well as the unique land interests of Indigenous Peoples informed the Court’s decision.

 

The Trial Judge’s Fundamental Error

The importance of Canada’s fiduciary duty to Indigenous Peoples is the source of the trial judge’s fundamental error. Specifically, the trial judge erred in assessing equitable compensation because he focused on what Canada “would likely have done instead of what Canada ought to have done as a fiduciary” (Southwind, para 89). The Court explained that the Crown’s fiduciary duty is rooted in the obligation of honourable dealing and the overarching goal of reconciliation (Southwind, para 55). It imposes obligations on the Crown such as loyalty, good faith, full disclosure, and, when concerning reserve land, the protection and preservation of the First Nation’s quasi-proprietary interest from exploitation (Southwind, para 64). When assessing Canada’s actions, the trial judge should have held it to the high standard of what they ought to have done as fiduciaries.

 

The Court emphasized that Canada ought to have first attempted to negotiate a surrender of the LSFN’s reserve land. Its fiduciary obligations to protect the LSFN’s quasi-proprietary interest required it to ensure the highest compensation possible, which also took into consideration the land’s intended use for hydroelectricity generation. If negotiations failed and Canada proceeded through a taking, they still had a fiduciary obligation to secure compensation for the LSFN that reflected the nature of the interest, the impact on the community, and the value of the land to the hydroelectricity project (Southwind, para 113).

 

 S. 48 of the Indian Act Does Not Define the Crown’s Fiduciary Duty

The Supreme Court affirmed that s. 48 of the Indian Act “imposed a minimum—not a maximum—requirement on the exercise of the Crown’s [fiduciary] discretion” (Southwind, para 97). Under s. 48 of the Indian Act, the Crown can expropriate Indigenous reserve land for the purposes of a public work, but only with the “consent of the Governor in Council” and “subject to the terms and conditions imposed by such consent (Southwind, para 96). Per the Court, the terms and conditions of the Governor in Council’s consent do not define the scope of Canada’s obligations. Rather, alongside the conditions imposed by s. 48, Canada also had the duty to protect and preserve Indigenous groups’ quasi-proprietary interest in the reserve from exploitation—including exploitation from Canada itself.

 

General Expropriation Principles Do Not Govern Indigenous Land Interests

The Supreme Court relied on Osoyoos Indian Band v Oliver (Town), 2001 SCC 85 [Osoyoos] to emphasize that the principles of expropriation law are “fundamentally different” from Indigenous land interests (Osoyoos, para 45). The Court’s acknowledgement of the Indigenous unique sui generis land interest lies at the heart of this statement, which distinguishes it from a fee simple interest. Unlike fee simple property, Indigenous interests in land are central to the relationship between the Crown and Indigenous Peoples. For this reason, general expropriation law cannot act as the governing framework to assess equitable compensation. Instead, compensation for the LSFN’s loss “must reflect the nature of the interest, the impact of the loss on the First Nation, the importance of the fiduciary relationship and reconciliation […] based in the honour of the Crown” (Southwind, para 94).

 

Given the LSFN’s sui generis interest in their reserve land and the impact of the flooding on their community, Canada’s fiduciary duty required them to capture the full potential value of the land in negotiations. The highest and best use of the land at the time of the breach included the land’s intended use as a water reservoir for the hydroelectricity project.

 

Implications

The Supreme Court’s decision in Southwind highlights the paramount importance of the Crown’s fiduciary duty towards Indigenous Peoples of Canada. Rather than minimizing the scope of obligations or supplanting them with others from the Indian Act or Expropriation Act, RSC 1985, c E-21, the Court explains that the Crown’s pre-existing fiduciary duty is an unyielding bedrock that lies beneath any land interaction between Indigenous groups and Canada. As such, this ruling acts as a powerful deterrent against those trying to skirt around the Crown’s profound obligations imposed by the fiduciary duty.

 

Southwind also has implications for those seeking to apply general land principles to Indigenous reserve land. As the Court reaffirms, the Indigenous sui generis interest in land speaks to the unique relationship that Indigenous groups have to their land, as well as the unique role it plays between Indigenous-Crown relations.

 

The Abstract Justification of “the Honour of the Crown”

Despite its widespread use in Southwind, the Supreme Court once again missed an opportunity to meaningfully interact with the constitutional principle of “the honour of the Crown”. While this term is largely evoked in Aboriginal law jurisprudence, its precise definition remains somewhat unclear.

 

The Court failed to provide a concrete explanation in Southwind, instead stating that the Crown’s fiduciary duty is “rooted in the honour of the Crown” and describing it as a “vital component of the relationship between the Crown and Indigenous Peoples” (Southwind, paras 55, 60). They relied on McLachlin C.J.’s explanation in Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73 [Haida Nation]:

 

[The] process of reconciliation flows from the Crown’s duty of honourable dealing toward Aboriginal peoples, which arises in turn from the Crown’s assertion of sovereignty over […] land and resources that were formerly in the control of that people (Haida Nation, para 32).

 

The vagueness of the Court’s definition of the “honour of the Crown” reads as both an abstract and hallowed promise to do better by Indigenous groups, although divorced from any real meaning. After all, one is left to question the “honour” in asserting sovereignty over Indigenous land without any legal justification. While perhaps out of scope in Southwind, enhanced clarity on this constitutional principle would have led to a more robust legal analysis.

 

What’s Missing: The Indigenous Perspective

What becomes clear is the overwhelming need to focalize Indigenous voices in matters concerning their land. Although the Court acknowledged that an important cultural component exists surrounding Indigenous ties to land, they could have gone further in understanding the Indigenous perspective. Several calls to action emerge from Indigenous intervenors’ factums regarding the assessment of equitable compensation, including from the Assembly of Manitoba Chiefs:

 

[In assessing equitable compensation,] courts should hear, consider, and apply evidence from a First Nation, including oral history evidence, when valuing a claim, to shift away from wholly relying on experts who throughout the valuation process are divorced from the true loss caused by the breach (Intervenor Factum, para 18).

 

This intervenor’s perspective is especially enlightening when put into conversation with the Supreme Court’s explanation of “serious consideration”. Karakatsanis J. explained in Southwind that when the Crown seizes reserve land without the consent of the affected Indigenous group, the Crown’s fiduciary duty requires them to “seriously consider the impact on the First Nation and how best to minimize that impact” (Southwind, para 104). In doing so, the Crown should “consider both the nature of the interest and the impact of the taking on the First Nation in assessing how to minimally impair the protected interest” (Southwind, para 109).

 

The open-endedness of the Court’s directive to “seriously consider the impact” on Indigenous groups leaves room for the Crown to potentially minimize the effects suffered by Indigenous groups at the hands of colonial expropriation. In minimizing these effects, the Crown may feel as though they have done their due diligence in accommodating affected Indigenous groups when in reality, they are the ones most distanced from the issue. In circumstances like these, welcoming Indigenous perspectives is not only helpful but crucial in advancing meaningful reconciliation.