Paul First Nation v K & R, 2021 ABQB 32

Court of Queen’s Bench of Alberta Citation: Paul First Nation v K & R 2014 Inc, 2021 ABQB 32 Date: 20210112 Docket: 1503 17193 Registry: Edmonton Between: Paul First Nation and 399250 Alberta Ltd. Plaintiffs - and - K & R 2014 Inc., K & R Incorporated, Kelly Haberman, Ritchie Bros. Auctioneers (Canada) Ltd. and Casey Bird Defendants _______________________________________________________ Reasons for Judgment of the Honourable Mr. Justice K.S.

Feth _______________________________________________________ [ 1 ] This lawsuit concerns transactions involving six parcels of land (the “Lands”) located near the Paul First Nation Reserve (“Reserve”), which were held in trust by K&R 2014 Inc. (“K&R 2014”). The trustee allegedly breached that trust by selling the Lands to Ritchie Bros. Auctioneers (Canada) Ltd. (“Ritchie Bros”). [ 2 ] Ritchie Bros asserts that it was a bona fide purchaser for value without notice of any breach of trust and applies for

summary dismissal of the Plaintiffs’ claim against it on the basis that the claim has no merit. [ 3 ] The Plaintiffs oppose the application. K&R 2014, K & R Incorporated and Kelly Haberman support the application. Casey Bird takes no position. [ 4 ] For the reasons which follow, the application for

summary dismissal is granted.

Background [ 5 ] The Paul First Nation (“First Nation”) is a “band” as defined in s 2(1) of the Indian Act , RSC 1985, c I-5 . The First Nation was the beneficial owner of the Lands, which were acquired between 1998 and 2000 using funds obtained by the First Nation from the Government of Canada through the settlement of a land claim (“Land Claim Settlement”). Historically, the Lands were not part of the Reserve. [ 6 ] 399250 Alberta Ltd. (“399”) is a holding company for the First Nation. It held legal title to the Lands in fee simple.

Casey Bird was at the relevant time the Chief of the First Nation (“Chief Bird”). He was the sole shareholder of 399, holding the shares in trust for the benefit of the First Nation. [ 7 ] K&R 2014 and K & R Incorporated are related companies operating as business development consultants. Kelly Haberman is the principal of both companies. [ 8 ] In 2014, each of K&R 2014 and K & R Incorporated entered into a services agreement with the First Nation by which they were to develop business opportunities in relation to lands owned, controlled or used by the First Nation.

Chief Bird signed both agreements on behalf of the First Nation.

The services agreement with K & R Incorporated was also signed by four Band Council members. [ 9 ] The services agreement for K&R 2014 stated the corporation had the “ability to act and speak on behalf of the Chief and Council of the Paul First Nation.” The services agreement for K & R Incorporated stated the corporation was engaged as the First Nation’s “agent”. [ 10 ] The exact scope and value of the work undertaken by K&R 2014 and K & R Incorporated is contested by the Plaintiffs in this litigation. [ 11 ] During 2014 and 2015, the First Nation was suffering from cash flow problems and financial difficulties.

In April 2015, the Band Council discussed various approaches to raising funds, including the possibility of selling, leasing or mortgaging some or all of the Lands. [ 12 ] On or about April 21, 2015, legal title to the Lands was transferred from 399 to K&R 2014, as trustee of the Lands, for $1.00 so that a sale of the Lands might be pursued. [ 13 ] The Plaintiffs contend the Lands were transferred to K&R 2014 without the knowledge or consent of the Directors of 399 and the Band Council.

Further, the Plaintiffs state the First Nation had not decided to sell the Lands. [ 14 ] Minutes of a “Special Resolution of the Directors and Shareholders of 399250 Alberta Ltd.” dated April 21, 2015 and signed by Chief Bird purport to reflect a decision by the Directors of 399 to sell the Lands and to enter into a “Bare Trust Agreement” with K&R 2014 “for the purpose of having [K&R 2014] negotiate and complete a sale of the [Lands] without alerting a potential buyer to the identity of the beneficial owner.” The First Nation denies that the Directors met and made that decision.

The Plaintiffs contend that Chief Bird acted on his own, without authority. [ 15 ] The Band Council passed a Band Council Resolution two weeks before the transfer terminating all agreements with K & R Incorporated and effectively ending the services relationship between that corporation and the First Nation. By that time, a dispute had arisen between K & R Incorporated, K&R 2014 and the Band Council about the cost of services for which K & R Incorporated and K&R 2014 were invoicing the First Nation.

By April 23, 2015, K&R 2014 and K & R Incorporated were allegedly claiming the First Nation owed them $500,000. [ 16 ] Prior to May 13, 2015, Ritchie Bros was approached by Joel Melanson, who worked with Mr. Haberman, about the possibility of selling the Lands by auction. Mr. Melanson told Ritchie Bros that he was representing the First Nation through a consulting company. [ 17 ] Discussions ensued about the structure of a possible sale.

Ritchie Bros received the legal descriptions for the Lands and a recent property appraisal identifying the First Nation as the party that sought the appraisal. [ 18 ] On or about May 13, 2015, Ritchie Bros delivered an auction proposal to the First Nation, care of Mr. Melanson, for the sale of the Lands (“Proposal”). The Proposal contemplated a public auction, a 7.5% commission on the sale, an advance of $500,000, a marketing budget between $15,000 and $20,000, and various expenses to be covered initially by Ritchie Bros, but for which it would be reimbursed after the sale.

The advance payment was subject to the Lands being free of all financial encumbrances. [ 19 ] On May 27, 2015, Ritchie Bros, through its legal counsel, was provided with a Letter of Authority as Acting Agent from K&R 2014, via its lawyer, which addressed K&R 2014’s authority to represent 399 in the sale of the Lands (the “Letter of Authority”). The relevant parts stated: The following is to notify that K&R 2014 Inc. has been formally authorized to act as agent to 399250 Alberta Ltd. in the consignment of the following Lands to be sold.

K&R 2014 Inc is authorized, through this note, to proceed with acceptance of an advance towards the auctioning off of said lands in Parkland County by Ritchie Bros auctioneers, as 399250 Alberta Ltd’s agent. (As per Ritchie Bros Proposal) K&R 2014 Inc will hold funds in trust in a segregated account for disbursement as directed by Casey Bird for 399250 Alberta Ltd. [ 20 ] The Letter of Authority was signed by representatives of 399 and K&R 2014.

[ 21 ] On or about June 4, 2015, Ritchie Bros and K&R 2014 entered into three related agreements concerning the sale of the Lands:

a) an Agreement to Purchase and Sell (“Purchase Agreement”) by which Ritchie Bros acquired legal title to the Lands from K&R 2014 for an advance payment of $500,000 (the “Advance”);

b) an Agreement to Participate in Sale Proceeds by which Ritchie Bros and K&R 2014 agreed on the auction sale process for the Lands and the division of the auction sale proceeds. On receipt of those proceeds, Ritchie Bros would receive a commission of 7.5% and reimbursement of the Advance (plus interest), $20,000 in marketing expenses, legal costs on a full indemnity basis, and other expenses associated with the Lands. K&R 2014 would receive the balance of the proceeds; and

c) a brokerage agreement (with All West Realty Ltd. as an additional party) for the marketing and conveyancing of the Lands. [ 22 ] During June 2015, Ritchie Bros paid the Advance to K&R 2014 and legal title to the Lands transferred to Ritchie Bros. [ 23 ] Between June and late October 2015, Ritchie Bros actively marketed the Lands for a public auction to be held on October 29, 2015. [ 24 ] Approximately one week before the scheduled public auction, Ritchie Bros received information that the Plaintiffs might not have approved the selling of the Lands and that efforts to proceed with the sale would be met by demonstrators who would disrupt the auction.

As a consequence, Richie Bros pulled the Lands from the auction. [ 25 ] By letter dated November 5, 2015, signed by Chief Bird, the First Nation demanded confirmation from Ritchie Bros that the Lands would not be sold. [ 26 ] Ritchie Bros has continued to own and maintain the Lands since then. [ 27 ] None of the Advance has been returned to Ritchie Bros. Most of the funds were retained by K&R 2014, but the First Nation received some of the money (approximately $60,000 to $80,000).

The dispute between the First Nation, K& R 2014, K & R Incorporated and Kelly Haberman concerning breach of trust and unpaid fees for consulting services remains outstanding. Positions of the Parties [ 28 ] Ritchie Bros submits that it was a bona fide purchaser for value without notice and has good title to the Lands. It seeks to proceed with a sale by auction and to honour the Agreement to Participate in Sale Proceeds.

However, recognizing that a dispute exists between the Plaintiffs, K&R 2014 and K & R Incorporated about entitlement to the net proceeds of any sale, Ritchie Bros proposes to pay those net proceeds into Court after deducting various taxes and amounts owing to Ritchie Bros. [ 29 ] The Plaintiffs oppose a sale by Ritchie Bros and seek the return of the Lands to 399. They assert the dispute is not appropriate for

summary disposition. In particular, they argue that the following issues require a trial:

a) The Lands were Special Reserve lands, as contemplated by the Indian Act , and therefore could not be sold to Ritchie Bros; and

b) Ritchie Bros had knowledge of the breach of trust, or was at least wilfully blind about the breach of trust, and holds the Lands as a constructive trustee for the Plaintiffs. [ 30 ] K&R 2014, K & R Incorporated and Kelly Haberman contend their dispute with the Plaintiffs has no bearing on the Plaintiffs’ claim against Ritchie Bros. They seek the simplification of the litigation and support the

summary dismissal application.

Summary Dismissal [ 31 ] Rule 7.3(1) (

b) of the Alberta Rules of Court , Alta Reg 124/2010 (the “ Rules ”) allows a defendant to apply for

summary dismissal if “there is no merit to a claim or part of it.” [ 32 ] When considering an application for

summary judgment (including dismissal), the Court applies the principles from Hryniak v Mauldin , 2014 SCC 7 [ Hryniak ].

Summary judgment is appropriate where the moving party establishes the facts in issue on a balance of probabilities and demonstrates there is no genuine issue requiring a trial: Weir-Jones Technical Services Incorporated v Purolator Courier Ltd , 2019 ABCA 49 at para 47 [ Weir-Jones ] ; H annam v Medicine Hat School District No 76 , 2020 ABCA 343 at para 5 [ Hannam ] . [ 33 ] While the facts must be proven on a balance of probabilities, the mere establishment of the facts to that standard is not a proxy for

summary adjudication: Weir-Jones at paras 33 and 47 (b). The evidence must be such that the judge is confident the dispute can be fairly resolved without a trial: Weir-Jones at para 36 ; Hannam at para 12 . [ 34 ] The defendant seeking

summary dismissal must initially meet the burden of showing “no merit” through facts proven on a balance of probabilities and the absence of any genuine issue requiring a trial. If the defendant meets this burden, the resisting party then has an evidentiary burden to demonstrate that a triable issue remains and must put its best foot forward: Weir-Jones at paras 32, 35 and 37 . [ 35 ] The record must allow the Court to make the necessary findings of fact and determine the law applicable to those facts. The Court must also consider whether the claim or part of it may be fairly and justly resolved at this stage of the litigation, including whether

summary disposition is a proportionate, more expeditious and less expensive means to achieve a just result: Hryniak at para 49 ; Weir-

Jones at para 48. The outcome need not be obvious for

summary determination: Hannam at para 12. Analysis [36] The Plaintiffs submit that complex legal issues involving the transfer of Aboriginal lands, trust agreements between multipleentities and overriding principles of Aboriginal ownership raise genuine issues requiring a trial.

a) Special Reserve Lands [37] The Plaintiffs contend that the Lands are “reserve lands” as contemplated by the Indian Act and that any private sale is void:ss 28(1) and 37(1) of the Indian Act. A constructive trust in their favour is allegedly the result. [38] The Lands have not been designated as reserve lands by the federal Crown. Instead, to establish that the Lands are reservelands, the Plaintiffs rely on s 36.1 of the Indian Act dealing with “special reserves” that are not Crown land: 36.1 Where lands the legal title to which is not vested in Her Majesty had been set apart for the use and benefit of a band before thecoming into force of this section, the effect of

section 36 of this Act, as it read immediately before the coming into force of this section,continues in respect of those lands and this Act applies as though the lands were a reserve within the meaning of this Act. [emphasisadded] [39] Immediately before s 36.1 came into force in 2014, s 36 of the Indian Act read: 36 Where lands have been set apart for the use and benefit of a Band and legal title thereto is not vested in Her Majesty, this Act appliesas though the lands were a reserve within the meaning of this Act. [40] The Plaintiffs assert the Lands were either implicitly or explicitly “set apart” for the use of the First Nation pursuant to theLand Claim Settlement.

They contend the settlement agreement allocated $300,000 for the acquisition of additional reserve lands, theLands were purchased with those proceeds, and the Crown committed to adding those lands to the existing Reserve. [41] A review of the settlement records, however, does not support that

interpretation of the agreement nor the postulated outcome. [42] The settlement agreement between the federal Crown and the First Nation does not mention the Lands, does not state theLands were acquired as part of the settlement and does not set apart the Lands for the use and benefit of the First Nation. The agreementmerely acknowledges that the members of the First Nation had directed the Band Council to expend $300,000 of the settlement proceedsfor the “acquisition of land to be added to the reserve,” without identifying the particular lands.

The actual contractual terms do notstipulate that any settlement proceeds were dedicated to that purpose. [43] The settlement records also include a Memorandum of Intent executed by the Governments of Canada and Alberta, the FirstNation and the local county government, which states in part: In the event the Paul Band is able to acquire the fee simple title to any of the lands, including mines and minerals, enumerated inSchedule “D”, subject to the lands meeting the criteria of the Additions to Reserves policy, Canada will add those lands to the existingReserve. [44]

Schedule “D” mentions most, but not all, of the Lands. Nevertheless, several problems arise in the Plaintiffs’ position. [45] First, the Memorandum expressly acknowledges that its terms are not binding on the parties until such time as a finalagreement is negotiated, ratified and executed. No final agreement is in evidence and none appears to have been created. [46] Second, the fee simple titles to the Lands do not include the mines and minerals. [47] Third, converting the Lands into special reserve lands does not find support within the federal Crown’s Additions to Reservespolicy. The policy states in relevant part: 3.1

Section 36 of the Indian Act is of historical importance only, its predecessors having originally been enacted to bring within theauthority of the Indian Act lands held by churches or charitable organizations in trust for Indian communities in pre-confederation days.Special Reserves were few in number and existed only in four of the original five provinces of Confederation (Quebec having none).Title to all of those lands have since been acquired by Canada and the lands have subsequently been “normalized” into ordinary reservesunder the Indian Act. 3.2 While the continued existence of

section 36 in the Indian Act points to the continued ability to create further special reserves, nospecial reserve may be created except with the agreement of the Federal Crown as reserve creation requires the exercise of the RoyalPrerogative.

A special reserve cannot be created by unilateral act of a third party. 3.3 The Department’s policy is that no special reserves will be created. [48] The Lands do not fall within the historical scope of special reserves: only four special reserves have been recognized by thefederal Crown since the Indian Act was proclaimed in 1876, all of them involved lands held in trust by churches and charitableorganizations, and the last of those trusts ceased to exist in 1949: Musqueam Holdings Ltd v British Columbia (Assessor of Area No 09– Vancouver), at para 53 (BCSC) [Musqueam #1], affirmed 2000 BCCA 299, leave to appeal refused [2000] SCCANo 354 (SCC).

[ 49 ] Nothing suggests the federal Crown has abandoned or made an exception to the prohibition on creating special reserves described in clause 3.3 of the policy.

Further, the Plaintiffs’ corporate representative, Aaron Bird, acknowledged in his Affidavit and suggested at Questioning that the First Nation likely did not meet other necessary requirements to convert the Lands into reserve lands (including the amount of land). [ 50 ] Fourth, the Crown has not designated the Lands as a special reserve whether by the Royal Prerogative or otherwise despite the passage of many years. [ 51 ] Even if the Memorandum of Intent created a good faith obligation on the part of the federal Crown to consider an application by the First Nation to add the Lands to the Reserve, whether as a special reserve or a community addition to the existing Reserve, no such application has ever been made. [ 52 ] Further, the effect of the Plaintiffs’ position is to give the First Nation the ability to unilaterally create a special reserve.

However, a band cannot, by unilateral declaration, convert lands it owns to reserve lands under s 36: Musqueam #1 and Musqueam First Nation v British Columbia (Assessor of Area #09) , 2012 BCCA 178 at para 57 . [ 53 ] I agree with Holmes J in Musqueam #1 that allowing First Nations to unilaterally create special reserves without the involvement of the Crown is contrary to the limited historical recognition of special reserves.

Such an approach also invites absurd results arising from any of the following: the fragmentation of reserve lands; disruptions to land planning by local governments; interference with the interests of adjoining private property owners and surface rights holders; jurisdictional conflict between municipal, provincial, federal and First Nation governments; and interference with the Torrens system of land registration.

Permitting a First Nation, by unilateral declaration, to convert private property to the status of reserve lands is also incompatible with the carefully developed policy the federal Crown follows for negotiating any addition to a reserve and exposes the Crown to an indeterminate financial burden in maintaining reserve lands. It runs contrary to the historical operation of the Indian Act . [ 54 ] Moreover, such an approach undermines the ability of First Nations to acquire and leverage private property for community and economic investment.

Access to capital assists with the development of First Nation communities.

However, lenders would likely be reluctant to accept any private property owned by a First Nation as security given the risk that the property might be unilaterally converted to reserve land and immunized from occupation or seizure to recover the debt as a consequence of the constitutional and statutory restraints on trespass and alienation: Royal Proclamation of 1763 , RSC 1985, App II, No 1; ss 28(1) and 29 of the Indian Act . [ 55 ] The record demonstrates that the Lands also do not comply with the legal principles addressing the recognition of reserves more generally.

To determine that a particular tract of land is a reserve, four requirements must be established: intention, authority, setting apart and acceptance. The Supreme Court of Canada elaborated in Ross River Dena Council Band v Canada , 2002 SCC 54 at para 67 [ Ross River ]: ... the Crown must have had an intention to create a reserve. This intention must be possessed by Crown agents holding sufficient authority to bind the Crown.

For example, this intention may be evidenced either by an exercise of executive authority such as an Order- in-Council, or on the basis of specific statutory provisions creating a particular reserve. Steps must be taken in order to set apart land. The setting apart must occur for the benefit of Indians. And, finally, the band concerned must have accepted the setting apart and must have started to make use of the lands so set apart. Hence, the process remains fact-sensitive.

The evaluation of its legal effect turns on a very contextual and fact-driven analysis... [ 56 ] The evidence, on a balance of probabilities, fails to show that the Crown intended to add the Lands to the Reserve. The Memorandum of Intent demonstrates a willingness to consider such a request from the First Nation, but no agreement was finalized. Prerequisites contemplated by the parties were not satisfied. No request was actually made by the First Nation.

No intention to make a designation was communicated through an agent holding sufficient authority to bind the Crown. [ 57 ] The First Nation has not provided evidence that it accepted a setting apart and started to make use of the Lands, so set apart, as reserve lands.

To the contrary, from March to September 2015, the Band Council was actively exploring the possibility of selling the Lands. [ 58 ] Even if the Lands were set apart, the remaining requirements of intention, authority and acceptance demanded by Ross River are not satisfied. [ 59 ] The legal principles and the facts are sufficiently plain that I may fairly and justly determine that no genuine issue remains: the Lands are not reserve lands. [ 60 ] During the hearing before me, Ritchie Bros noted that the issue of the Lands being reserve lands was not properly pleaded in the Amended Amended Statement of Claim and not raised until the Plaintiffs provided their brief in response to this application.

No prejudice was identified in allowing an amendment to properly advance the issue. [ 61 ] A functional approach should be taken to pleadings in Aboriginal land cases. Where pleadings outline the material allegations and relief sought, minor defects should be overlooked in the absence of clear prejudice: Tsilhqot’in Nation v British Columbia , 2014 SCC 44 at para 20 . [ 62 ] An amendment is permissible after the close of pleadings, even on the Court’s own motion: Rule 3.65(1) and (4) of the Rules ; United Inc v Canadian National Railway Company , 2020 ABQB 413 at para 154 .

However, amending a statement of claim will be refused if “there is no genuine issue for trial, and the amended claim would not survive a

summary judgment application”: CHS v Alberta (Director of Child Welfare) , 2006 ABQB 528 at para 11 , affirmed 2006 ABCA 355 ; see also Waquan v Canada , 2000 ABQB 899 at para 7 . [ 63 ] As I have found no genuine issue requiring a trial, and the issue has not survived a

summary dismissal application, an amendment to the pleadings is not warranted.

b) Liability of Ritchie Bros as a Stranger to the Trust [64] A trust creates proprietary interests that may affect the rights of third parties who deal with the trust property. The courts havelong protected the interests of a bona fide purchaser for value without notice of a breach of trust, as the consensual acts of those whocreated the trust should not prejudice the rights of innocent third parties.

Proprietary rights arising from the trust will be extinguished ifthe property comes into the hands of such a third party: Brookfield Bridge Lending Fund Inc v Karl Oil & Gas Ltd, 2009 ABCA 99 atpara 9. [65] The Lands were transferred from 399 to K&R 2014 in trust. The Plaintiffs contend that K&R 2014 fraudulently breached itstrust obligations by selling the Lands to Ritchie Bros without proper authorization and for the improper purpose of converting most ofthe $500,000 advance to its own use. [66] Ritchie Bros knew the First Nation was the beneficial owner of the Lands.

By implication, Ritchie Bros understood that theLands were held in trust by K&R 2014. The Plaintiffs submit that Ritchie Bros knowingly participated in or was knowingly enriched byK&R 2014’s breach of trust and therefore holds the Lands as a constructive trustee. [67] Ritchie Bros was not a party to the trust between 399 and K&R 2014. However, a stranger to a trust can be held liable forbreach of trust as a constructive trustee in three situations:

a) Where the stranger to the trust is a trustee de son tort, meaning a person who is not regularly appointed trustee but takes on actingas such – that person can be held liable for losses to the trust caused by possessing, administering or interfering with trust property;

b) Where the stranger to the trust knowingly assisted in a fraudulent and dishonest design on the part of the trustee (commonly called“knowing assistance”);

c) Where the stranger to the trust is knowingly in receipt and chargeable with trust property (commonly called “knowing receipt”).

See: Gold v Rosenberg, (SCC), [1997] 3 SCR 767 at paras 26-27 (in dissent but not on these points) [Gold]; CitadelGeneral Assurance Co v Lloyds Bank Canada, (SCC), [1997] 3 SCR 805 at para 19 [Citadel]. [68] The Plaintiffs contend that a genuine issue requiring a trial arises because Ritchie Bros is liable as a constructive trustee byoperation of the doctrines of either “knowing assistance” or “knowing receipt.” No claim is advanced on the basis of Ritchie Bros beinga trustee de son tort. [69] A knowing assistance claim imposes “fault-based” liability on a person outside the trust because that person has participatedin the fraud by acquiring trust property while knowing of the rogue trustee’s dishonest and fraudulent breach of trust: Gold at para 33. [70] To establish “knowing assistance”, the Plaintiffs must prove three elements:

a) The property was subject to a trust in favour of the claimant (the Plaintiffs or either of them);

b) The trustee (K&R 2014) perpetrated a dishonest and fraudulent breach of trust concerning the property;

c) The defendant (Ritchie Bros) participated in and had knowledge of the trustee’s dishonest and fraudulent breach of trust. See: Gold at para 34; Eaton v HMS Financial Inc, 2010 ABQB 635 at para 36 [Eaton]. [71] The knowledge component of the third element is established by showing actual knowledge or that the defendant was wilfullyblind or reckless: Gold at para 32; Citadel at paras 22-23; Air Canada v M & L Travel Ltd, (SCC), [1993] 3 SCR 787 at811; Eaton at paras 51-52.

Constructive knowledge does not suffice: Citadel at paras 23, 48. [72] Wilful blindness occurs “where a person who has become aware of the need for some inquiry declines to make the inquirybecause he does not wish to know the truth. He would prefer to remain ignorant”: Sansregret v The Queen, (SCC),[1985] 1 SCR 570 at 584 [Sansregret].

Wilful blindness is “a subjective standard of fault that depends on the stranger’s actual state ofmind” rather than a failure to take reasonable steps to inform oneself of the existence of facts: Caja Paraguaya de Jubilaciones yPensiones del Personal de Itaipu Binacional v Garcia, 2020 ONCA 412 at para 37 [Caja Paraguaya]; R v Stewart, 2020 ABCA 252 atpara 56.

A finding of wilful blindness can be made where a person “shut his eyes because he knew or strongly suspected that lookingwould fix him with knowledge”: R v Briscoe, 2010 SCC 13 at para 21; Caja Paraguaya at para 35. [73] Recklessness involves “knowledge of a danger or risk and persistence in a course of conduct which creates a risk that theprohibited result will occur”: Sansregret at 584. [74] In contrast, the essence of a “knowing receipt” claim is that a person has been unjustly enriched, at the expense of another, byreceiving trust property. The claim is “restitution-based”: Gold at para 41.

Knowing receipt is “at base, simply a question of who has thebetter claim to the disputed property”: Gold at para 49. [75] To establish “knowing receipt”, the Plaintiffs must demonstrate:

a) The property was subject to a trust in favour of the claimant (the Plaintiffs or either of them);

b) The property was taken from the claimant in a breach of trust;

c) The defendant (Ritchie Bros) received the property for its own use and benefit;

d) The defendant (Ritchie Bros) did not receive the property as a bona fide purchaser for value without notice of the breach of trust. See: Gold at paras 48 and 53 ; Citadel at paras 25 ; Eaton at para 25 . [ 76 ] The fourth element engages a degree of knowledge about the breach of trust consisting of any of the following:

a) Actual knowledge;

b) Wilfully shutting one’s eyes to the obvious;

c) Wilfully and recklessly failing to make such inquiries as an honest and reasonable man would make;

d) Knowledge of circumstances which would indicate the facts to an honest and reasonable man; and

e) Knowledge of circumstances which would put an honest and reasonable man on inquiry. See: Gold at para 74 ; Eaton at para 28 . [ 77 ] The threshold of knowledge required in “knowing receipt” of trust property claims is therefore lower than in “knowing assistance” claims.

Constructive knowledge – that is, knowledge of facts sufficient to put a reasonable person on notice to inquire – will suffice for restitutionary liability: Citadel at para 48 . [ 78 ] Ritchie Bros does not deny the existence of a trust in favour of the Plaintiffs, or at least one of them, and concedes the presence of issues requiring a trial around the alleged breach of trust. No contest is raised about Ritchie Bros receiving the Lands for its own use or benefit. [ 79 ] Ritchie Bros submits, however, that no genuine issue requiring a trial remains for the final element under either claim.

Whether the Plaintiffs’ claim against Ritchie Bros is grounded in “knowing assistance” or “knowing receipt,” Ritchie Bros asserts the knowledge threshold is not satisfied. Accordingly, the Plaintiffs’ claim against Ritchie Bros must fail. [ 80 ] The evidence disclosed between the parties is substantial. Record production has been completed. Questioning for discovery has been conducted of Kelly Haberman, Chief Bird, Jerry Hodge (the Real Estate Manager of Ritchie Bros who dealt with Mr. Haberman) and Mr. Melanson. Affidavits have been tendered for this

summary judgment application and each party has been obligated to put its best foot forward in addressing any triable issues. [ 81 ] The uncontroverted evidence of what Ritchie Bros knew or was told prior to concluding the purchase of the Lands is as follows:

a) During the course of negotiations, Ritchie Bros (represented primarily by Mr. Hodge) dealt with Mr. Haberman and Mr. Melanson. Ritchie Bros understood that K&R 2014 represented the First Nation as its consultant;

b) Ritchie Bros received from Mr. Haberman or Mr. Melanson a professional appraisal report for the Lands dated April 29, 2015, which stated expressly that the report was prepared at the request of and provided to the First Nation;

c) The appraisal report stated that the “purpose in undertaking this analysis is to provide an estimate of the market value of the [Lands] ... to aid in sale thereof”;

d) The appraisal report referred to the municipal development and structure plans, and a county land use bylaw, which included the Lands and characterized the future land use for the properties as primarily agricultural. The report’s authors concluded that the continuing optimal use of the Lands would be as agricultural holdings;

e) The report described the property rights being appraised as those of the “fee simple estate” including the “right to use the property, to sell it, to lease it, to enter it, or to give it away.” Nothing was said about Aboriginal title or reserve claims, or any First Nation interest that might limit the disposition of the interests in the Lands;

f) Mr. Melanson and Mr. Haberman verbally expressed to Mr. Hodge that they had authority to sell the Lands to Ritchie Bros and to share in the auction proceeds;

g) Emails from Mr. Melanson to Mr. Hodge described Mr. Melanson as “Business Advisor & Senior Negotiator K & R on behalf of Paul First Nation”;

h) Chief Bird spoke with Mr. Hodge on the telephone on one occasion. Chief Bird’s comments left Mr. Hodge with the impression that K&R 2014 had the authority to deal with the Lands. Chief Bird gave no indication that K&R 2014 did not have the authority, right and ability to deal with the Lands;

i) Chief Bird, Mr. Melanson and Mr. Haberman have provided no evidence contesting Mr. Hodge’s actual understanding (prior to Ritchie Bros buying the Lands) that K&R 2014 had authority to sell the Lands;

j) Mr. Hodge was never told the specific reason for the Lands being sold through K&R 2014, but he knew that title to the Lands had never been in the name of the First Nation;

k) On May 27, 2015, Ritchie Bros was provided with the Letter of Authority, signed by Chief Bird, which confirmed that K&R 2014 was authorized to act as agent to 399 in the consignment sale of the Lands and to receive the Advance, which would be held in trust by K&R 2014 in a segregated account for disbursement as directed by Chief Bird;

l) The Letter of Authority was provided by K&R 2014’s lawyer who described it as “an authorization from the Band”;

m) In the Purchase Agreement, K&R 2014 represented and warranted to Ritchie Bros that the Lands were free and clear of any and all registered and unregistered liens and encumbrances, and that K&R 2014 was duly authorized to enter into the Purchase Agreement;

n) In the Brokerage Agreement, K&R 2014 represented to Ritchie Bros that it was the registered owner of the Lands and unaware of any “adverse circumstances” relating to the Lands;

o) The certificates of title for the Lands disclosed no registered encumbrances or caveats from the First Nation restricting or cautioning about the sale of the Lands; and

p) Ritchie Bros had no actual knowledge of a breach of trust. [ 82 ] Prior to purchasing the Lands, Ritchie Bros was not shown any trust agreement between K&R 2014 and either of the Plaintiffs, nor was Ritchie Bros told that any breach of trust had occurred. Further, Ritchie Bros was not told and did not receive information addressing any of the following:

a) The Lands were intended to be part of the Reserve;

b) The Lands had been purchased under a land claim settlement agreement;

c) K&R 2014 did not have the authority to enter into the Purchase Agreement, the Agreement to Participate in Sale Proceeds and the brokerage agreement with Ritchie Bros;

d) The Plaintiffs did not approve of the prior transfer of the Lands from 399 to K&R 2014;

e) The Plaintiffs did not approve of the transfer of the Lands from K&R 2014 to Ritchie Bros;

f) The Plaintiffs did not want to sell the Lands;

g) The First Nation owed money to K&R 2014; and

h) The payment of the Advance to K&R 2014 was in breach of a trust agreement. [ 83 ] Accordingly, Ritchie Bros contends that no knowledge of a breach of trust is present. [ 84 ] The Plaintiffs assert that Ritchie Bros was wilfully blind or should have been suspicious about the transaction, triggering a duty to inquire, for the following reasons:

a) Ritchie Bros knew the First Nation was the beneficial owner of the Lands, yet the First Nation was “marginalized” and not directly involved in the transaction;

b) The Letter of Authority contemplated a “consignment” sale of the Lands, but the sale did not proceed on that basis;

c) The Land was worth much more than $500,000, so the consideration paid by Ritchie Bros was below market value; and

d) Ritchie Bros knew the Lands were contiguous to the Reserve and should have realized that Aboriginal rights and possibly the First Nation’s traditional lands and even Reserve lands might be involved, demanding a heightened level of inquiry. [ 85 ] I will address each of the Plaintiffs’ concerns. [ 86 ] First, the absence of the First Nation from any direct dealings in the sale is explained by the surrounding context. The Lands had never been owned directly by the First Nation. To all appearances, professional business consultants had been retained by the First Nation to manage and effect the sale of the Lands.

Delegation of the sale process to a consultant with the necessary expertise did not suggest an irregularity or an impropriety.

Ritchie Bros’ interaction with Chief Bird both by telephone and through his signature on the Letter of Authority suggested the First Nation was not wholly removed from the process. [ 87 ] Concealing the true identity of the seller did not suggest an irregularity or an impropriety and might have been done for any of several reasons, including those found in the record: the First Nation was concerned that its creditors would attempt to seize the proceeds of sale and it did not want prospective buyers to know of its involvement for “negotiation purposes.” [ 88 ] Second, the auction sale process negotiated by K&R 2014 with Ritchie Bros was compatible with the reference to a “consignment” in the Letter of Authority.

In a formal legal sense, a consignment involves the sale of goods rather than land. However, a consignment in the ordinary commercial sense denotes that property is committed to the consignee for custody or sale: Brian A Garner, ed in chief, Black’s Law Dictionary , 11 th ed, (St. Paul, Minnesota: Thomson Reuters, 2019). The Letter of Authority was a simplistically worded document.

I find that it was reasonably interpreted by Ritchie Bros as a confirmation of authority to arrange for the sale by auction and to deliver an advance payment to the agent, as contemplated by the Proposal referenced in the Letter of Authority, rather than a technical restriction on the process by which the Lands were to be sold. [ 89 ] Third, the $500,000 paid by Ritchie Bros to K&R 2014 was an advance payment against the sale proceeds from the anticipated sale at auction. It was not understood to be the full purchase price or all of the consideration for the Lands.

Ritchie Bros provided an advance of $500,000 because that was the limit permitted under the company’s internal rules. Ritchie Bros knew the actual consideration for the Lands also included the proceeds that would flow to K&R 2014 following the auction. Under the Agreement to Participate in Sale Proceeds, K&R 2014 would receive the bulk of the auction proceeds, less repayment of the Advance, Ritchie Bros’ commission, and reimbursement of various expenses. The amount of the Advance paid for the Lands under the Purchase Agreement

cannot be viewed in isolation from the balance of the arrangement. [ 90 ] Fourth, the Lands were owned by 399 for approximately 15 years. Nothing in the record suggests the Lands were perceived publicly as part of the Reserve, or as traditional lands of the First Nation, or as land that had a special meaning to or purpose for the First Nation.

The appraisal report described the Lands as vacant agricultural parcels with farming activities as the optimal use. [ 91 ] In considering the Plaintiffs’ claim, I recognize that the wilful blindness allegation demands an inquiry into the subjective state of mind of Ritchie Bros. Since Mr. Hodge was the primary representative and directing mind of Ritchie Bros for this transaction, this part of the analysis focuses on his understanding.

Conversely, for the inquiry into what Ritchie Bros should have known or done, I have used an objective standard of what an honest and reasonable commercial auction house should have known or done. [ 92 ] While I have considered the full factual matrix, I note in particular that Mr. Hodge and Ritchie Bros communicated with two consultants who expressly held themselves out as advisors and negotiators for the First Nation and represented that K&R 2014 had authority to sell the Lands. Mr. Hodge communicated with the Chief of the First Nation, who left Mr. Hodge with the impression that the sale was authorized.

K&R 2014 was represented by legal counsel, who provided a Letter of Authority confirming K&R 2014’s authority to act as agent on a sale, signed by Chief Bird, and described by the lawyer as “an authorization from the Band.” The appraisal report, requested by and addressed to the First Nation, confirmed that the appraisal was sought to aid in a sale of the Lands. The certificates of title, which depicted indefeasible fee simple ownership by K&R 2014, registered no encumbrances or caveats suggesting any restriction imposed by the First Nation.

The nature and historical use of the Lands did not suggest a unique Aboriginal interest or connection to the Reserve. An advance of funds to K&R 2014 was expressly contemplated by the Letter of Authority signed by Chief Bird. Such an advance was within the scope of commercial practice for Ritchie Bros. [ 93 ] In these circumstances, I find that Mr. Hodge did not know about any fraudulent and dishonest breach of trust and was not wilfully blind. He did not remain deliberately ignorant because he knew or strongly suspected that looking would fix him or Ritchie Bros with knowledge of a breach of trust.

Similarly, I conclude that he was not reckless. The record reveals no other basis by which to conclude that Ritchie Bros had actual knowledge of a fraudulent and dishonest breach of trust or was wilfully blind or reckless. I am satisfied that those findings are so obvious that I may reach them fairly and justly without a trial. [ 94 ] In relation to the “knowing receipt” claim, I have also considered whether a genuine issue remains about Ritchie Bros having constructive knowledge.

To that end, I have reviewed whether knowledge of the circumstances would indicate the breach of trust to an honest and reasonable commercial auction house or put that auction house on notice to make inquiries. For the reasons already provided, I have concluded that even on this objective standard, Ritchie Bros’ knowledge of the circumstances did not reasonably indicate that a breach of trust had occurred nor did it invite follow up inquiries. Again, I am satisfied that those findings are so obvious that I may come to them fairly and justly without a trial. [ 95 ] In

summary, the knowledge component of both “knowing assistance” and “knowing receipt” is not sufficiently demonstrated to raise a genuine issue requiring a trial. The absence of this essential element is fatal to the Plaintiffs’ claim against Ritchie Bros. [ 96 ] The Plaintiffs raise one additional argument to suggest that at least the “knowing receipt” claim requires a trial.

Specifically, they contend that Ritchie Bros is not a bona fide purchaser for value without notice because the transaction by which Ritchie Bros acquired legal ownership of the Lands was really just a security interest protecting the repayment of the Advance and the other compensation to which Ritchie Bros was entitled under the Agreement to Participate in Sale Proceeds. Beneficial ownership of the Lands did not pass to Ritchie Bros. [ 97 ] The jurisprudence does not support the Plaintiffs’ narrow

interpretation of a bona fide purchaser for value. A “purchaser” in this context is “a person who acquires any interest in property, whatever its quantum and whether absolutely or by way of security”: Bank of Montreal v i Trade Finance Inc , 2011 SCC 26 at para 64 . Consequently, even if Ritchie Bros’ ownership of the Lands is subject to equitable constraints, the interest is still sufficient to bring Ritchie Bros within the scope of a bona fide purchaser for value.

Conclusion [ 98 ] The Plaintiffs’ action against Ritchie Bros is summarily dismissed. [ 99 ] Counsel for Ritchie Bros provided a proposed form of Order containing various provisions addressing corollary relief, including directions about a sale by public auction, the distribution of sale proceeds, discharges of a Vendor’s Lien Caveat and Certificates of Lis Pendens, the extinguishment of other interests in the Lands claimed by parties to this action and costs.

Those terms were not addressed in the submissions before me. [ 100 ] If the parties cannot settle those terms, they are given 30 days from the date of these Reasons to provide, in writing, their positions on the proposed terms of the Order. I retain jurisdiction to resolve those issues. [ 101 ] If the parties cannot settle the issue of costs, they may contact me within 30 days to arrange for a process to resolve costs as well. Heard on the 10 th day of November, 2020. Dated at the City of Edmonton, Alberta this 12 th day of January, 2021.

K.S. Feth J.C.Q.B.A. Appearances: Randy Langley Henning Byrne LLP for the Plaintiffs, Paul First Nation and 399250 Alberta Ltd Ryan Quinlan Duncan Craig LLP for the Defendant, Ritchie Bros. Auctioneers (Canada) Ltd. Bryan Kwan McLennan Ross LLP for the Defendants, K & R 2014 Inc., K & R Incorporated and Kelly Haberman Eleni Loutas Brownlee LLP for the Defendant, Casey Bird