Roger Southwind, for himself v. on behalf of the, 2021 SCC 28

SUPREME COURT OF CANADA Citation: Southwind v.

Canada, 2021 SCC 28, [2021] 2 S.C.R. 450 Appeal Heard: December 8, 2020 Judgment Rendered: July 16, 2021 Docket: 38795 Between: Roger Southwind, for himself and on behalf of the members of the Lac Seul Band of Indians and Lac Seul First Nation Appellants and Her Majesty The Queen in Right of Canada Respondent - and - Attorney General of Saskatchewan, Assembly of Manitoba Chiefs, Tseshaht First Nation, Manitoba Keewatinowi Okimakanak Inc., Treaty Land Entitlement Committee of Manitoba Inc., Anishinabek Nation, Wauzhushk Onigum Nation, Big Grassy First Nation, Onigaming First Nation, Naotkamegwanning First Nation, Niisaachewan First Nation, Coalition of the Union of British Columbia Indian Chiefs, Penticton Indian Band, Williams Lake First Nation, Federation of Sovereign Indigenous Nations, Atikameksheng Anishnawbek First Nation, Kwantlen First Nation, Assembly of First Nations, Assembly of First Nations Quebec-Labrador, Grand Council Treaty #3, Mohawk Council of Kahnawà:ke, Elsipogtog First Nation, Chemawawin Cree Nation and West Moberly First Nations Interveners Coram: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ.

Reasons for Judgment: (paras. 1 to 147) Karakatsanis J. (Wagner C.J. and Abella, Moldaver, Brown, Rowe, Martin and Kasirer JJ. concurring) Dissenting Reasons: (paras. 148 to 194) Côté J.

Roger Southwind, for himself and on behalf of the members of the Lac Seul Band of Indians and Lac Seul First Nation Appellants v.

Her Majesty The Queen in Right of Canada Respondent and Attorney General of Saskatchewan, Assembly of Manitoba Chiefs, Tseshaht First Nation, Manitoba Keewatinowi Okimakanak Inc., Treaty Land Entitlement Committee of Manitoba Inc., Anishinabek Nation, Wauzhushk Onigum Nation, Big Grassy First Nation, Onigaming First Nation, Naotkamegwanning First Nation, Niisaachewan First Nation, Coalition of the Union of British Columbia Indian Chiefs, Penticton Indian Band, Williams Lake First Nation, Federation of Sovereign Indigenous Nations, Atikameksheng Anishnawbek First Nation, Kwantlen First Nation, Assembly of First Nations, Assembly of First Nations Quebec-Labrador, Grand Council Treaty #3, Mohawk Council of Kahnawà:ke, Elsipogtog First Nation, Chemawawin Cree Nation and West Moberly First Nations Interveners Indexed as: Southwind v.

Canada 2021 SCC 28 File No.: 38795. 2020: December 8; 2021: July 16.

Present: Wagner C.J. and Abella, Moldaver, Karakatsanis, Côté, Brown, Rowe, Martin and Kasirer JJ. on appeal from the federal court of appeal Aboriginal law — Fiduciary duty — Reserve land — Remedy — Equitable compensation — Part of First Nation’s reserve land flooded to power hydroelectricity generation without consent of First Nation, without compensation and without lawful authorization — C laim filed against Canada for breach of fiduciary duty and of obligations under Indian Act and applicable treaty — Trial judge concluding that Canada breached fiduciary duty to First Nation and awarding equitable compensation for loss of flooded

land — Whether trial judge erred in assessment of equitable compensation. The Lac Seul First Nation (“LSFN”) is a Treaty 3 First Nation in Northern Ontario. Its reserve is located on the southeastern shore of Lac Seul. In 1929, a dam to power hydroelectricity generation to Winnipeg was completed pursuant to an agreement that Canada, Ontario and Manitoba had entered into. The project involved raising the water level of Lac Seul by 10 feet, or approximately 3 metres, to create a water reservoir. Canada was aware from the outset that flooding Lac Seul would cause considerable damage to the LSFN’s reserve.

Despite repeated warnings about these impacts, the project advanced without the consent of the LSFN, without any compensation, and without the lawful authorization required. As a result of the project, almost one-fifth of the best land on the LSFN reserve was permanently flooded. The damage was extensive and included the destruction of homes, wild rice fields, gardens, haylands, and gravesites. The LSFN submitted a claim for flooding damages in 1985.

In 1991, S, for himself and on behalf of the members of the Lac Seul Band of Indians, filed a civil claim against Canada in Federal Court for breach of Canada’s fiduciary duty and its obligations under the Indian Act and Treaty 3. The trial judge concluded that Canada failed to meet its fiduciary duty to the LSFN in respect of its reserve land and that the appropriate remedy was equitable compensation.

The LSFN proposed various models of compensation at trial, and led evidence regarding agreements with another First Nation in contemporaneous hydroelectric projects (“Kananaskis Falls Projects”), which the trial judge distinguished. The trial judge valued the flooded land as if it had been lawfully expropriated according to general expropriation law. In doing so, he excluded the value of the land for hydroelectricity generation. He also assessed other calculable losses and non-calculable damages for a total award of $30,000,000.

On appeal, the LSFN challenged the trial judge’s evaluation of equitable compensation for the loss of the flooded lands. The majority of the Court of Appeal dismissed the appeal. A dissenting judge would have allowed the appeal, agreeing that the value calculated for the flooded land should have taken into account downstream hydroelectricity generation and concluding that the trial judge also made a legal error in distinguishing the Kananaskis Falls Projects. Held (Côté J. dissenting): The appeal should be allowed.

The award for equitable compensation is set aside and returned to the Federal Court for reassessment. Per Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe, Martin and Kasirer JJ.: Canada breached its obligation to preserve and protect the LSFN’s interest in the reserve, which included an obligation to negotiate compensation for the LSFN on the basis of the value of the land to the hydroelectricity project. The LSFN is entitled to equitable compensation for the lost opportunity to negotiate for an agreement reflecting the value of the land to the hydroelectricity generation project.

The specific nature of the Crown’s fiduciary duty to Indigenous Peoples, especially over reserve land, informs how equitable compensation must be assessed. The Crown’s fiduciary duty is rooted in the obligation of honourable dealing and in the overarching goal of reconciliation between the Crown and the first inhabitants of Canada. The honour of the Crown — and the sui generis fiduciary duty to which it gives rise — is a vital component of the relationship between the Crown and Indigenous Peoples.

The Crown’s fiduciary duty structures the role voluntarily undertaken by the Crown as the intermediary between Indigenous interests in land and the interest of settlers. The fiduciary duty itself is shaped by the context to which it applies, which means that its content varies with the nature and the importance of the right being protected. A strong fiduciary duty arises where the Crown is exercising control over a First Nation’s land. In a case involving reserve land, the sui generis nature of the interest in reserve land informs the fiduciary duty.

The importance of the interest in reserve land is heightened where it was set aside as part of an obligation that arose out of a treaty. 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, including exploitation by the Crown itself.

In the context of a surrender of reserve land, the Court has recognized that the duty also requires that the Crown protect against improvident bargains, manage the process to advance the best interests of the First Nation, and ensure that it consents to the surrender. In an expropriation, the obligation to ensure consent is replaced by an obligation to minimally impair the protected interest. When the Crown breaches its fiduciary duty, the remedy will seek to restore the plaintiff to the position the plaintiff would have been in had the Crown not breached its duty.

Equitable compensation is the preferred remedy when restoring the plaintiff’s assets in specie is not available. It is a discretionary and restitutionary remedy that is assessed rather than precisely calculated. As its purpose is to make up the plaintiff’s loss, it aims to restore the actual value of the thing lost through the fiduciary’s breach, referred to as the plaintiff’s lost opportunity. By restoring the beneficiary’s lost opportunity, it deters wrongdoing and enforces the trust at the heart of the fiduciary relationship.

While equitable compensation is equity’s counterpart to common law damages, analogy with common law damages may not be appropriate given equity’s purpose, which differs from the purpose of obligations through tort and contract. The proper approach to equitable compensation recognizes that the applicable rules will depend both on the nature of the fiduciary relationship and the fiduciary obligations. The trial judge must begin by closely analyzing the nature of the fiduciary relationship so as to ensure that the loss is assessed in relation to the obligations owed by the fiduciary.

The loss must be caused in fact by the fiduciary’s breach, and the causation analysis is not limited by foreseeability, that is, remoteness. While the fiduciary’s breach must have caused, in fact, the plaintiff’s lost opportunity, common law limiting factors developed in legal causation will not readily apply. There must be a close relationship between the fiduciary duty and the fiduciary remedy.

Because equity assesses the loss at the date of trial and with the benefit of hindsight, it compensates the plaintiff for the lost opportunity, regardless of whether the opportunity could have been foreseen at the time of the breach. The benefit of hindsight means that the most valuable use of the asset between breach and date of trial is not always foreseeable at the time of breach. The assessment of equitable compensation is also guided by presumptions that equity makes against breaching fiduciaries. In the instant case, the trial judge’s reasons are tainted by legal errors reviewable on a correctness standard.

The trial judge erred in concluding that a hypothetical expropriation — the minimum statutory obligation — would have fulfilled Canada’s fiduciary obligations. This legal error impacted his assessment of equitable compensation because it led him to rely on general principles of expropriation law to value the loss and to conclude that compensation would not be assessed at a higher value than the minimum required under an expropriation. The fundamental error of the trial judge was that he focused on what Canada would likely have done instead of what Canada ought to have done as a fiduciary.

The fiduciary duty required more than compensation based upon expropriation principles in this case for three reasons. First, the presence of legal discretion to take or expropriate the land in the Indian Act did not define the obligations imposed by Canada’s fiduciary duty. The fiduciary duty, not just the Indian Act , imposed substantive obligations on how Canada was to exercise its discretion over the reserve land.

The provisions in the Indian Act accommodated the exercise of the Crown’s fiduciary duty by recognizing the discretion of the Crown to negotiate, or the discretion of the Governor in Council to determine the terms of a taking or expropriation. There was therefore no conflict between the requirements of the Indian Act and the requirements imposed by the fiduciary duty.

The equitable presumption of legality or lawfulness, which prevents breaching fiduciaries from reducing compensation by arguing that they would not have complied with the law, is of little assistance in determining either the fiduciary obligations or the assessment of loss. The presumption cannot be inverted and used to limit compensation by suggesting that the fiduciary is expected to do no more than what the law, not equity, requires. Moreover, Canada’s legal powers to expropriate cannot be considered as a factor to limit compensation.

Canada is not permitted to benefit from the very discretionary power over the LSFN which is the source of its fiduciary duty. Second, the fiduciary duty required more than compensation based upon expropriation principles because the fact that the land was required for a public work did not negate the obligations imposed by Canada’s fiduciary duty. The fiduciary duty continues to apply even if the land is needed for a public work. While the Crown can decide that a public work is in the public interest and should thus proceed, the manner in which it proceeds is subject to the fiduciary duty.

Third, the fiduciary duty required more than compensation based upon expropriation principles because the principles of expropriation law are fundamentally different than those underlying Indigenous interest in land. Expropriation law is not the appropriate legal framework governing historic breaches of the Crown’s fiduciary duty to protect a First Nation’s interest in reserve land.

The fiduciary obligations in this case must reflect the nature of the interest, the impact of the loss on the First Nation, the importance of the relationship, and reconciliation, which is the overarching goal of the fiduciary duty itself, based in the honour of the Crown. In the context of an expropriation or taking, the Crown is required to minimally impair the protected interest.

Where the Crown decides that reserve land is necessary for a public work and takes that land without the consent of the First Nation, the fiduciary duty requires the Crown to seriously consider the impact on the First Nation and how best to minimize that impact. As a fiduciary, the Crown has the duty to preserve the First Nation’s quasi-proprietary interest in the land as much as possible and to ensure fair compensation reflecting the sui generis interest. The duty to preserve the interest to the greatest extent possible is not met if expropriation principles are applied in this case.

Even though the expropriation value considers the highest and best use of the land at the time of expropriation, this generally does not include the value of the land to the scheme itself because expropriation law seeks to provide landowners with the compensation necessary to purchase replacement land. Conversely, sui generis Indigenous interests in land are fundamentally different as reserve land is not a fungible commodity and Indigenous interests in land are at the centre of the relationship between the Crown and Indigenous Peoples.

Instead, given the LSFN’s sui generis interest in the reserve land and the impact on the LSFN, the duty required Canada to capture the full potential value of the land for the land’s intended use, notwithstanding its legal power to expropriate. 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. Canada ought to have first attempted to negotiate a surrender.

Canada’s fiduciary obligations required it to ensure the highest compensation possible, including compensation for the land’s anticipated use as land for hydroelectricity generation. If negotiations for a surrender of the land were unsuccessful, Canada could have proceeded through a taking or expropriation, but even in an expropriation , Canada was required to preserve the LSFN’s interest in the land to the greatest extent possible and should have secured compensation for the LSFN that reflected the nature of the interest, the impact on the community, and the value of the land to the project.

The lost opportunity in this case is the opportunity to negotiate a surrender reflecting the highest value of the land, which was its use for hydroelectricity generation: the LSFN is entitled to compensation for that lost opportunity. The valuation of the LSFN’s lost opportunity must reflect Canada’s obligation to negotiate compensation based upon the best price that could have been obtained for the land’s use for hydroelectricity generation.

In this case, the presumption of highest and best use means that the land should be valued on the basis of its actual use as flooded land for hydroelectricity generation and allows equitable compensation to focus on a successful negotiated surrender because that more clearly aligns with the nature of the breach, which included a failure to keep the LSFN informed and a failure to prevent the project from proceeding until the negotiations for compensation had been resolved.

Equity can presume that the LSFN would have consented to a negotiated settlement at the best price the Crown could have realistically obtained at the time. The value of the flooded land must be reassessed. Per Côté J. (dissenting): There is no basis to interfere with the trial judge’s equitable compensation assessment. The trial judge assessed compensation for the value of the flooded lands in 1929 based on a thorough examination of the facts as established in the record. As there is no reviewable error in the trial judge’s analysis, the appeal should be dismissed.

S and the LSFN have not established a basis for interfering with the trial judge’s valuation. The trial judge’s determination that the LSFN should have been compensated through a one-time payment in 1929 based on an expropriation model is not an extricable error, and thus not reviewable on a correctness standard. The trial judge’s findings regarding what would have actually happened in 1929 had Canada not breached its duty to the LSFN are factual determinations, not legal ones. No particular findings of fact by the trial judge have been identified as constituting a palpable and overriding error.

The trial judge made no reviewable errors. The trial judge applied settled principles of equitable compensation, including the special importance of its deterrent effect in furthering the ongoing project of reconciliation between Canada and Indigenous peoples. He looked back to when the breach occurred, and, with the benefit of hindsight and the evidentiary record, assessed what position the LSFN would have been in but for the breach. He determined that, had Canada acted legally, it would have taken the reserve lands in 1929 through expropriation or surrender.

Based on the evidence before him, the trial judge assessed the losses presuming the highest and best use and with the benefit of hindsight. While there is agreement with the majority that equitable compensation in this case should be assessed on the basis of a negotiated surrender, there is disagreement with the majority’s view that the lost opportunity equates to a lost opportunity to negotiate a

surrender of the lands for hydroelectricity generation. The value of the compensation that Canada should have negotiated for the LSFNcannot be assessed in an evidentiary or factual vacuum and the majority seeks to impose a greater obligation on a trial judge than the lawdemands. The majority’s characterization presupposes that the trial judge had the requisite factual basis to make such a finding, while itis clear from the record that he did not. At trial, no evidence was provided regarding a one-time payment for the flooded lands forhydroelectric purposes.

S and the LSFN must bear the consequences of their trial strategy, even though they have changed tack onappeal. Therefore, the trial judge was correct to find that the argument that Canada could, and should, have paid more than fair marketvalue for the lands was nothing more than optimistic speculation. The trial judge’s determination regarding the comparability of the Kananaskis Falls Projects and the Lac Seul situation is afactual determination. His finding that the Kananaskis Falls Projects were not a relevant proxy was supported by the limited evidencebefore him.

That evidence does not substantiate a finding that he made a palpable and overriding error in refusing to award a sum inexcess of the fair market value of the lands. It is simply speculation to conclude that Canada’s differing approach for the KananaskisFalls Projects leads to the conclusion that it breached its duty in this case. Moreover, the trial judge’s inclusion of a robust non-calculable loss analysis allowed him to meaningfully consider theimpact of the flooding on the LSFN. He appropriately acknowledged and incorporated the impact on the community and the LSFN’sperspective in his analysis.

The total equitable compensation awarded ensures that S and the LSFN are compensated for the value of thelands. Cases Cited By Karakatsanis J. Applied: Guerin v. The Queen, (SCC), [1984] 2 S.C.R. 335; Osoyoos Indian Band v. Oliver (Town), 2001SCC 85, [2001] 3 S.C.R. 746; Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; distinguished: Wewaykum Indian Band v.Canada, 2002 SCC 79, [2002] 4 S.C.R. 245; considered: Canson Enterprises Ltd. v. Boughton & Co., (SCC), [1991] 3S.C.R. 534; referred to: Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511; R. v.

Desautel,2021 SCC 17, [2021] X S.C.R. XXX; Beckman v. Little Salmon/Carmacks First Nation, 2010 SCC 53, [2010] 3 S.C.R. 103; R. v.Sparrow, (SCC), [1990] 1 S.C.R. 1075; Manitoba Metis Federation Inc. v. Canada (Attorney General), 2013 SCC 14,[2013] 1 S.C.R. 623; R. v. Van der Peet, (SCC), [1996] 2 S.C.R. 507; Williams Lake Indian Band v. Canada(Aboriginal Affairs and Northern Development), 2018 SCC 4, [2018] 1 S.C.R. 83; Ermineskin Indian Band and Nation v. Canada, 2009SCC 9, [2009] 1 S.C.R. 222; Blueberry River Indian Band v.

Canada (Department of Indian Affairs and Northern Development), (SCC), [1995] 4 S.C.R. 344; Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co. (1966), 84 W.N. (Pt. 1)(N.S.W.) 399; Hodgkinson v. Simms, (SCC), [1994] 3 S.C.R. 377; Whitefish Lake Band of Indians v. Canada (AttorneyGeneral), 2007 ONCA 744, 87 O.R. (3d) 321; Stirrett v. Cheema, 2020 ONCA 288, 150 O.R. (3d) 561; AIB Group (UK) plc v. MarkRedler & Co. Solicitors, [2014] UKSC 58, [2015] A.C. 1503; Cadbury Schweppes Inc. v. FBI Foods Ltd., (SCC),[1999] 1 S.C.R. 142; Target Holdings Ltd. v. Redferns, [1996] 1 A.C. 421; Brickenden v.

London Loan & Savings Co., (UK JCPC), [1934] 3 D.L.R. 465. By Côté J. (dissenting) Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Whitefish Lake Band of Indians v. Canada (Attorney General),2007 ONCA 744, 87 O.R. (3d) 321; Guerin v. The Queen, (SCC), [1984] 2 S.C.R. 335; Modern Cleaning Concept Inc.v. Comité paritaire de l’entretien d’édifices publics de la région de Québec, 2019 SCC 28, [2019] 2 S.C.R. 406; Nelson (City) v. Mowatt,2017 SCC 8, [2017] 1 S.C.R. 138; Mahjoub v. Canada (Citizenship and Immigration), 2017 FCA 157, [2018] 2 F.C.R. 344; Hodgkinsonv.

Simms, (SCC), [1994] 3 S.C.R. 377; National Westminster Bank plc v. Morgan, [1985] 1 All E.R. 821. Statutes and Regulations Cited Constitution Act, 1982, s. 35. Expropriation Act, R.S.C. 1985, c. E-21. Expropriations Act, R.S.O. 1990, c. E.26. Indian Act, R.S.C. 1927, c. 98, ss. 48, 50, 51. Royal Proclamation, 1763 (G.B.), 3 Geo. 3 [reproduced in R.S.C. 1985, App. II, No. 1]. Unemployment Relief Act, 1930, S.C. 1930, c. 1. Treaties and Agreements Treaty No. 3 (1873). Authors Cited Bray, Samuel L. “Fiduciary Remedies”, in Evan J. Criddle, Paul B. Miller and Robert H.

Stikoff, eds., The Oxford Handbook ofFiduciary Law. New York: Oxford University Press, 2019, 449. Luk, Senwung. “Not So Many Hats: The Crown’s Fiduciary Obligations to Aboriginal Communities since Guerin” (2013), 76 Sask. L.Rev. 1. Mainville, Robert. An Overview of Aboriginal and Treaty Rights and Compensation for Their Breach. Saskatoon: Purich Publishing,

2001. McCabe, J. Timothy S. The Honour of the Crown and its Fiduciary Duties to Aboriginal Peoples . Markham, Ont.: LexisNexis, 2008. Oosterhoff on Trusts: Text, Commentary and Materials , 9th ed. by Albert H. Oosterhoff, Robert Chambers and Mitchell McInnes. Toronto: Carswell, 2019. Rotman, Leonard I. Fiduciary Law . Toronto: Thomson/Carswell, 2005. Rotman, Leonard I. “Understanding Fiduciary Duties and Relationship Fiduciarity” (2017), 62 McGill L.J. 975. Slattery, Brian. “The Aboriginal Constitution” (2014), 67 S.C.L.R. (2d) 319 .

APPEAL from a judgment of the Federal Court of Appeal (Nadon, Webb and Gleason JJ.A.), 2019 FCA 171 , [2020] 1 F.C.R. 745, 89 C.L.R. (4th) 1, 15 L.C.R. (2d) 99, [2019] F.C.J No. 672 (QL), 2019 CarswellNat 2362 (WL Can.), affirming a decision of Zinn J., 2017 FC 906 , 74 C.L.R. (4th) 4, [2018] 4 C.N.L.R. 63, 6 L.C.R. (2d) 73, [2017] F.C.J. No. 966 (QL), 2017 CarswellNat 5620 (WL Can.). Appeal allowed, Côté J. dissenting. Rosanne Kyle and Elin Sigurdson , for the appellants. Christopher Rupar and Michael Roach , for the respondent. P. Mitch McAdam , Q.C. , for the intervener the Attorney General of Saskatchewan.

Carly Fox , for the intervener the Assembly of Manitoba Chiefs. Christopher Devlin , for the intervener the Tseshaht First Nation. Kate Kempton , for the intervener Manitoba Keewatinowi Okimakanak Inc. Harley Schachter , for the intervener the Treaty Land Entitlement Committee of Manitoba Inc. Cynthia Westaway , for the intervener the Anishinabek Nation. David G. Leitch , for the intervener the Wauzhushk Onigum Nation. Donald R. Colborne , for the interveners the Big Grassy First Nation, the Onigaming First Nation, the Naotkamegwanning First Nation and the Niisaachewan First Nation.

Peter Millerd , for the interveners the Coalition of the Union of British Columbia Indian Chiefs, the Penticton Indian Band and the Williams Lake First Nation. Ronald S. Maurice , for the intervener the Federation of Sovereign Indigenous Nations. Steven W. Carey , for the intervener the Atikameksheng Anishnawbek First Nation. Tim Dickson , for the intervener the Kwantlen First Nation. Stuart Wuttke , for the intervener the Assembly of First Nations. Beno î t Amyot , for the intervener the Assembly of First Nations Quebec-Labrador. Kate Gunn , for the intervener the Grand Council Treaty #3.

Stacey Douglas , for the intervener the Mohawk Council of Kahnawà:ke. Alisa R. Lombard , for the intervener the Elsipogtog First Nation. Catherine J. Boies Parker , Q.C. , for the intervener the Chemawawin Cree Nation. Reidar M. Mogerman , Q.C. , for the intervener the West Moberly First Nations. The judgment of Wagner C.J. and Abella, Moldaver, Karakatsanis, Brown, Rowe, Martin and Kasirer JJ. was delivered by [ 1 ] Karakatsanis J. — At the beginning of the twentieth century, Canada needed more electricity to fuel Winnipeg’s economic growth.

The governments of Canada, Manitoba, and Ontario decided to create a water reservoir in northern Ontario to power hydroelectricity generation. They settled on Lac Seul, which flows into both Ontario and Manitoba, and determined that if they raised the water level of Lac Seul by 10 feet, or approximately 3 metres, they could generate substantial electricity. Construction of the dam was completed in 1929 and the water steadily rose through the 1930s. The project was a success for the three governments. [ 2 ] The project was also a tragedy for the Lac Seul First Nation (LSFN).

The LSFN’s reserve (Reserve) is located on the southeastern shore of Lac Seul. Almost one-fifth of its best land was flooded and its members were “deprived of their livelihood, robbed of their natural resources, and driven out of their home[s]” ( 2017 FC 906 , [2018] 4 C.N.L.R. 63, at para. 156 ). [ 3 ] Canada was aware from the outset that flooding Lac Seul by 10 feet would cause “very considerable” damage to the Reserve. In the late 1920s, the Supervisor responsible for valuing the loss warned that the Reserve would be “ruined for any purpose

[for] which it was set aside”, that the members of the First Nation were “helpless to avert this calamity”, and that they viewed their future“with utter dismay” (Trial Reasons, at paras. 152 and 156). [4] Despite repeated warnings from government officials about the impact that the project would have on the FirstNation, the project advanced without the consent of the Lac Seul First Nation, without any compensation, and without the lawfulauthorization required. [5] Since the Royal Proclamation, 1763 (G.B.), 3 Geo. 3 (reproduced in R.S.C. 1985, App.

II, No. 1), Indigenousinterests in land, including reserve land, cannot be taken or used without legal authorization from the Crown. The Indian Act, R.S.C.1927, c. 98, permitted expropriation for public works, but only with the approval of Cabinet through the Governor in Council. TreatyNo. 3 (1873), that set aside the reserve land for the LSFN, required “due compensation” for any taking or appropriation. In addition, thisCourt recognized in Guerin v. The Queen, (SCC), [1984] 2 S.C.R. 335, and subsequent decisions, that the Crown issubject to a fiduciary duty when it exercises control over Indigenous interests.

This fiduciary duty imposes strict obligations on theCrown to advance the best interests of Indigenous Peoples. [6] The trial judge concluded that Canada failed to meet its fiduciary duty to the Lac Seul First Nation in respect of itsinterest in Reserve land.

On appeal, Canada does not dispute this conclusion. [7] Canada did not keep the LSFN informed about the project; did not consult the LSFN; did not negotiate on theLSFN’s behalf to get the best compensation possible; did not use its power to refuse to authorize the project until the other parties agreedto fair compensation; and the compensation Canada did manage to negotiate — 14 years after the flooding began — was inadequate.This was unlawful and egregious conduct, even by the standards of the time.

As the trial judge observed, this outcome was“inexplicable” (para. 298). [8] The results of Canada’s failures are tragic and well documented. Roughly 17 percent of the Reserve — 11,304 acresor approximately 4,575 hectares — is now permanently flooded. Homes were destroyed, as were wild rice fields, gardens, haylands, andgravesites. Fishing, hunting, and trapping were all impacted.

The LSFN was separated because one part of the Reserve became an island.And, despite the sacrifices suffered by the LSFN to make the hydroelectricity project possible, the Reserve was not provided withelectricity until the 1980s. [9] The LSFN challenges the trial judge’s evaluation of equitable compensation for the loss of the flooded lands. Theissue for this Court is how to assess equitable compensation for the loss caused by Canada’s breach of fiduciary duty.

The central inquiryis: what position would the beneficiary be in had the fiduciary fulfilled its obligations? [10] The trial judge valued the flooded land based on its value in 1929, with 10 percent valued as waterfront land and90 percent valued as bushland. He determined that because Canada was authorized to expropriate the land for a public work under theIndian Act provisions in force at the time, the land should be valued based upon an expropriation in 1929.

Thus, the trial judgeconcluded that the First Nation was not entitled to be compensated for any value that the land provided to the hydroelectricity projectitself. [11] In my view, this approach to equitable compensation for breach of fiduciary duty is flawed. By looking solely at theamount the LSFN would have received if Canada had complied with the general law relating to expropriation, the trial judge gave noeffect to the unique obligations imposed by the fiduciary duty. The trial judge improperly focused on what Canada would likely havedone, as opposed to what Canada ought to have done as a fiduciary.

While I agree with much of the trial judge’s analysis, this errortainted his assessment of equitable compensation. [12] The fiduciary duty imposes heavy obligations on Canada. The duty does not melt away when Canada has competingpriorities. Canada was under an obligation to preserve and protect the LSFN’s interest in the Reserve. This included an obligation tonegotiate compensation for the LSFN on the basis of the value of the land to the hydroelectricity project.

Compensation must be assessedon that basis. [13] I would allow the appeal and remit the case back to the Federal Court for reassessment of the equitable compensationto include the value of the flooded land to the hydroelectricity project. I. Background [14] The LSFN is a Treaty 3 First Nation in Northern Ontario. The members are Anishinaabe people.

According to ChiefClifford Bull, they have always been lake dwellers who travelled through the water, kept their homes and gardens near the water,cultivated wild rice in the water, fished in the water, and hunted near the water. [15] The LSFN’s traditional territory extends from the Trout Lake region in northwestern Ontario, southeast through theLac Seul region, and northeast towards Lake St. Joseph. The LSFN has one Reserve, called the Lac Seul Indian Reserve No. 28, which islocated on the southeastern shore of Lac Seul in northern Ontario.

The Reserve has three communities — Kejick Bay, Whitefish Bay,and Frenchman’s Head. [16] The Reserve was created under Treaty 3, which required Canada to select and set aside reserves that would be “mostconvenient and advantageous for each band or bands of Indians”. In 1875, the LSFN chose Lac Seul as the site of the Reserve because ofthe resources along the shoreline and the social, cultural, and spiritual importance of the area. [17] In the early twentieth century, Canada wanted to provide more electricity to Winnipeg.

By 1911, Canada identifiedLac Seul as a potential reservoir for hydroelectricity generation (Project). Lac Seul flows into the English River in Ontario, which in turnflows into the Winnipeg River in Manitoba. In 1915, the Dominion Water Power Branch, within the Department of the Interior, prepareda report noting that a 10 foot flooding of Lac Seul would increase the power potential on the English River by 233 percent.

[ 18 ] In the same year, the Manitoba Hydrographic Survey began preliminary fieldwork. Chief John Akewance of the LSFN first became aware of the potential Project through the fieldwork, and wrote to Indian Agent R. S. McKenzie in 1915 outlining his concerns. Canada advised the Indian Agent that “there is no present intention to raise the waters of Lac Seul” (Trial Reasons, at para. 127). [ 19 ] The fieldwork report was released in 1916 and noted that the Project would flood portions of the Reserve. In 1917, Canada recommended to Ontario that it obtain flowage rights over the land that would need to be flooded.

In 1919, Canada informed itself about the procedure for granting flowage rights on reserve land: If after negotiation the offer is accepted on behalf of the Indians, or amended and so accepted, the amount of compensation agreed upon is deposited with the Minister of Finance for the use of the band of Indians and the land is surrendered. (Trial Reasons, at para. 132) Canada wrote to Ontario again in 1921 urging that they reserve the flooding rights. There is no record of a response. [ 20 ] In 1924, Chief Paul Thomas met with Indian Agent Frank Edwards to express the LSFN’s concerns.

Agent Edwards told Chief Thomas that Canada would “ protect their interests as far as possible ” (Trial Reasons, at para. 137 (emphasis in original)). [ 21 ] In February 1928, Canada, Ontario, and Manitoba entered into the Lac Seul Storage Agreement which governed the construction and ownership of the Project.

The agreement apportioned the capital costs among the governments, which included “the cost of acquiring flooding privileges or other necessary easements” and “compensation for timber, buildings and improvements, including Ontario Crown Lands, Indian Lands and lands owned by private individuals” (Trial Reasons, at para. 147). [ 22 ] In April 1928, Ontario wrote to affected landowners regarding the Project. Ontario also notified the Department of Indian Affairs and indicated that the water levels would be raised by approximately 12 feet. In the summer of 1928, H. J.

Bury, the Supervisor of Indian Timber Lands, appraised the value of the LSFN’s anticipated losses at $120,200. Ontario disagreed with the estimate. Mr. Bury reiterated his position in two internal memoranda. On May 14, 1929, he wrote that “[t]he reserve is ruined for any purpose [for] which it was set aside . . . for the Indians” (Trial Reasons, at para. 156).

Two days later, he wrote: There are 688 Indians on the reserve, who are helpless to avert this calamity, and who view the future with utter dismay, but I feel that the associated governments concerned, will not permit these Indians to be deprived of their livelihood, robbed of their natural resources, and driven out of their home[s], without not only allowing them generous monetary compensation, but also make provision, during the period of years in which they will have to re-adjust themselves to new and strange conditions, for exclusive trapping rights for them in a district remote from civilization. (Trial Reasons, para. 156) [ 23 ] On May 17, 1929, the Deputy Superintendent General of Indian Affairs wrote to his superior that “[t]he situation is certainly serious; and hardship and disaster appear to face these poor Indians unless some arrangement is made at once, providing for reasonable compensation and the allocation of suitable hunting and fishing grounds elsewhere” (Trial Reasons, at para. 157).

No agreement regarding compensation to the LSFN was reached with Ontario. [ 24 ] Ontario applied for necessary approvals in July 1928. The application noted that “[i]t will be necessary in connection with the proposed work to acquire flowage rights over lands on an Indian Reserve” (Trial Reasons, at para. 159 (emphasis deleted)). Even though those rights were never acquired, the dam was completed by June 1929.

The power site, the Ear Falls Generating Station, was completed and began delivering power in February 1930. [ 25 ] The flooding of Lac Seul was delayed by disagreements between Canada and Ontario regarding timber clearing. Ontario wanted to harvest its Crown timber prior to flooding. To resolve the impasse, Canada proposed that the timber clearing could be accomplished as an unemployment project under Canada’s depression-era Unemployment Relief Act, 1930 , S.C. 1930, c. 1.

As negotiations for this relief project unfolded, Canada assured the LSFN’s members that “ their interests will be protected to the fullest possible extent ” (Trial Reasons, at para. 181 (emphasis in original)). [ 26 ] In July 1933, Canada’s Minister of the Interior signed the agreement for the relief project. A week later, the local Indian Agent and the timber supervisor assured the LSFN that the water would not be raised “for several years to come” (Trial Reasons, at para. 183). The relief project was a failure. Less than 700 acres were cleared at a cost of over $850,000 to Canada.

Members of the LSFN were excluded from employment in the project. [ 27 ] Despite the assurances given to the LSFN, the waters of Lac Seul began to rise in 1934. The damage was extensive. Agent Edwards estimated that at least 29 houses would need to be rebuilt — in total, one-quarter to one-third of the houses ultimately had to be moved or replaced. Between 1935 and 1939, additional damage was documented.

In August 1936, Canada’s Superintendent General of Indian Affairs wrote to Ontario’s Minister of Lands and Forests: . . . the Lac Seul Indian Reserve has been flooded to such a serious extent that we have been compelled already to construct many new houses for the Indians at a cost of $25,000 and the flood conditions have not only submerged the Indian hay lands, gardens and cultivated land, but have also seriously impaired the efforts of these Indians to earn their livelihood.

. . . The Indians of this Reserve have been definitely assured that their interests would be fully protected and they are at present much disturbed and alarmed at the damage already caused. [Emphasis deleted.] (Trial Reasons, at para. 192) [ 28 ] In March 1937, Mr. Bury wrote a memorandum regarding the ongoing failure to provide compensation. He wrote: I desire to again draw your attention to the serious breach of faith that our Department has made with the Indians of the Lac Seul Reserve, respecting promises made to them regarding flooding compensation . . . . . .

I consider that these Indians have been very shabbily treated. Their Reserve lands, timber, houses, gardens, rice beds, musk-rat swamps have been flooded now for some years, and we still procrastinate[.] [I]f it had been a white settlement, no person would have dared to flood the property, without paying compensation before flooding took place. [Emphasis deleted.] (Trial Reasons, at para. 194) [ 29 ] Negotiations between Canada and Ontario continued.

In 1940, Ontario determined that $50,000 would be a “fair valuation” of compensation, but Ontario also claimed it was owed compensation for what it viewed as excess acres on the Reserve as well as outstanding claims for timber clearing. The LSFN was not consulted nor informed of the impending settlement. [ 30 ] In 1943, Canada and Ontario finally agreed to a claim amount of $72,539, with deductions of $5,000 to pay a timber claim submitted by a lumber company and $17,276 to pay Ontario for “excess acres” on the Reserve.

The balance, $50,263, was deposited into the LSFN’s trust account on November 17, 1943. [ 31 ] By contrast, Ontario and Canada negotiated compensation with other non-Indigenous groups whose property fell within the flood plain of the dam project, such as the Anglican Church Missionary Society, the Hudson’s Bay Company, and the Canadian National Railway. For instance, the Anglican Church Missionary Society received compensation for the timber destroyed in the floods and for the costs of relocating its church and cemetery.

Similarly, the Hudson’s Bay Company engaged in protracted negotiations with the federal government that resulted in compensation not only for “Flowage Rights” over the company’s territory, but also for the value of the buildings and other facilities. [ 32 ] Canada’s conduct towards the LSFN also differs from its conduct in three earlier projects that impacted another First Nation. In the early 1910s, Calgary Power and Transmission sought permission from Indian Affairs to flood reserve lands of the Stoney Indian Band in Alberta for three hydroelectricity projects (Kananaskis Falls Projects).

For all three projects, Canada negotiated a surrender on behalf of the First Nation and insisted on compensation reflecting the value of the land to hydroelectricity generation. Calgary Power entered into three agreements which provided two forms of compensation: a one-time payment for flooded land and a yearly water power rental agreement. This compensation was based upon the value of the land to the project. [ 33 ] Here, there was never a negotiated surrender of the land by the LSFN and Canada did not at any point expropriate the land in accordance with the provisions of the Indian Act .

Nonetheless, the Project was completed in 1929 and the lands were steadily flooded throughout the 1930s. A total of 11,304 acres, approximately 17 percent of the Reserve, is now flooded. The flooding destroyed wild rice fields, gardens, and haylands for livestock. It impacted fishing and damaged homes, campsites, and shoreline infrastructure. The flooding damaged and exposed graves that were not relocated prior to the flooding.

One of the LSFN’s communities, Kejick Bay, became an island separated from the other communities. [ 34 ] In September 1985, the LSFN submitted a claim for flooding damages to the Specific Claims Branch of the Department of Indian and Northern Affairs Canada. In 1991, Roger Southwind, for himself and on behalf of the members of the Lac Seul Band of Indians, filed a civil claim against Canada. In November 2006, 63 years after the settlement, the LSFN entered into an agreement with Ontario Power Generation (OPG), the current operator of the Ear Falls Generating Station.

The agreement included $11,200,000 in compensation for losses arising from the Ear Falls Generating Station on the LSFN’s traditional territory, but expressly excluded damages caused by the flooding in the 1930s. The settlement included a plan to open a new generating station and provided the LSFN with the opportunity to purchase an equity position of 25 percent. In February 2009, OPG opened the new generating station in partnership with the First Nation. In 2009, a causeway was built to finally reconnect Kejick Bay Island and the Reserve mainland. The LSFN contributed $1,750,000 to this and a related project. A.

Trial Decision, 2017 FC 906 , [2018] 4 C.N.L.R. 63 (Zinn J.) [ 35 ] In 1991, Roger Southwind, for himself and on behalf of the members of the Lac Seul Band of Indians, filed a civil claim against Canada in Federal Court for breach of Canada’s fiduciary duty and its obligations under the Indian Act and Treaty 3. The trial, which lasted more than 50 days, began before Justice Zinn in September 2016. [ 36 ] The parties called 24 witnesses, 22 of whom were expert witnesses whose testimony included how to value the loss and bring that loss forward to present value.

The plaintiff proposed various models for assessing compensation, including a revenue- sharing agreement, the loss of revenues from traditional activities, and a land lease. The plaintiff also led evidence regarding Canada’s

arrangements with another First Nation in contemporaneous hydroelectricity projects. Both parties called expert witnesses to testify about different models for translating historic losses into present value. [ 37 ] The trial judge held that Canada owed the LSFN a fiduciary duty in respect of land reserved for its benefit under Treaty 3.

He particularized the following obligations: a duty of loyalty and good faith in the discharge of its mandate as a trustee of the Reserve land; a duty to provide full disclosure and consult with the band; a duty to act with ordinary prudence with a view to the best interests of the LSFN; and a duty to protect and preserve the band’s proprietary interests in the Reserve from exploitation (para. 226). The trial judge found that Canada breached each of these obligations. [ 38 ] Canada accepted that equitable compensation was the appropriate remedy for breach of fiduciary duty.

The trial judge summarized the principles of equitable compensation as follows: (1) the goal of equitable compensation is to restore what the plaintiff has lost due to the breach; (2) the plaintiff’s loss is an opportunity that was not realized because of the breach; (3) the plaintiff’s loss must be assessed with the benefit of hindsight and not based on what was foreseeable or known at the date of the breach; (4) the losses are to be determined on a common sense view of causation; (5) the court must assume the plaintiff would have made the most favourable use of the trust property; and (6) the court must assume that the defendant would have carried out its duties in a lawful manner (para. 285). [ 39 ] In applying these principles, the trial judge focused on what would have happened had Canada not breached its duties.

He determined that the Project was a public work and it would have been completed. Opposition from the LSFN or the Indian Affairs branch would likely not have stopped the Project. Indeed, the trial judge found that Canada could have legally taken the lands without the LSFN’s consent through expropriation. The trial judge determined that it was unlikely that the LSFN could have negotiated a revenue-sharing agreement.

He distinguished agreements reached with a First Nation in earlier hydroelectricity projects, which included both a one-time payment and annual rent, on the bases that the hydroelectricity generating stations were located on the reserves rather than downstream and the utility company in the earlier projects had no authority to expropriate the land, but Canada did have that authority in this Project. [ 40 ] In light of these findings, the trial judge determined that Canada would have likely obtained a negotiated settlement for a flowage easement or expropriated the land for the limited purpose of facilitating the Project.

He assessed the market value of the flooded land based upon a hypothetical flowage easement, valued as if it had been lawfully expropriated according to general expropriation law. In doing so, the trial judge rejected expert opinion seeking to incorporate the value of the land for hydroelectricity generation, reasoning that any value “attributable to the project” was to be excluded under both the Expropriation Act , R.S.C. 1985, c. E- 21 , and the Expropriations Act , R.S.O. 1990, c. E.26 .

He therefore assessed the value of the flooded land at $1.29 per acre based on its value as 90 percent bushland and 10 percent waterfront land, concluding that “the suggestion that Canada could and should have paid more than this for the land, amounts to nothing more than optimistic speculation” (para. 383). [ 41 ] The trial judge then assessed other calculable losses. He ordered $13,847,870 in calculable damages.

The calculable damages included: $3,272,572 for the hypothetical flowage easement, based on the $1.29 per acre value in 1929; $7,836,252 for timber dues; $1,959,094 for the excess acreage deduction; and $1,913,949 for community infrastructure. He then deducted amounts that Canada had previously paid. [ 42 ] The trial judge also added $16,152,130 in non-calculable damages for a total award of $30,000,000.

The trial judge assessed the non-calculable losses based on factors including the amount of the calculable loss, the duration of the non-quantifiable losses, the loss of hayland, gardens, and rice fields, and the separation of two LSFN communities. B. Appeal Decision, 2019 FCA 171 , [2020] 1 F.C.R. 745 (per Nadon and Webb JJ.A., Gleason J.A. Dissenting) [ 43 ] Roger Southwind, for himself, and on behalf of the members of the Lac Seul Band of Indians and the Lac Seul First Nation (LSFN or Appellant), appealed the assessment of equitable compensation to the Federal Court of Appeal.

The Appellant’s primary argument was that the trial judge should have included the loss of a revenue-sharing agreement in the compensation. In the alternative, the Appellant argued that the trial judge was incorrect in his approach to assessing compensation for the flooded land, in applying current expropriation law instead of the law applicable in 1929, and in distinguishing the Kananaskis Falls Projects. [ 44 ] In dissent, Gleason J.A. would have allowed the appeal.

While she rejected the primary argument that the breach resulted in the loss of a revenue-sharing agreement, she agreed that the value calculated for the flooded land should have taken into account downstream hydroelectricity generation. The trial judge was wrong to discount the possibility that Canada could have pursued a negotiated settlement that would have included a premium on the land in light of the Project.

As a fiduciary, Canada “was arguably required to pursue a negotiated surrender before proceeding to expropriation as a negotiated resolution would probably have been less detrimental to the Lac Seul First Nation” (para. 84). The trial judge also made a legal error in distinguishing the Kananaskis Falls Projects. Canada had identical legal powers in each case but behaved differently. [ 45 ] For the majority, Nadon J.A. (Webb J.A. concurring) dismissed the appeal. He disagreed with Gleason J.A. that the trial judge committed any error of law or any palpable and overriding error.

More specifically, he disagreed that the trial judge erred in distinguishing the Kananaskis Falls Projects. Comparing the two projects was a factual determination; there was no palpable and overriding error of fact; and there was no legal error that went to the core of the determination. Thus, the trial judge was entitled to distinguish the projects and assess the fair market value of the land at $1.29 per acre. C. Applicable Provisions [ 46 ] The provisions of the Indian Act in force in 1929 provided two ways to remove land from a reserve.

Section 48 governed takings for a public purpose:

48. No portion of any reserve shall be taken for the purpose of any railway, road, public work, or work designed for any public utility without the consent of the Governor in Council, but any company or municipal or local authority having statutory power, either Dominion or provincial, for taking or using lands or any interest in lands without the consent of the owner may, with the consent of the Governor in Council as aforesaid, and subject to the terms and conditions imposed by such consent, exercise such statutory power with respect to any reserve or portion of a reserve. 2.

In any such case compensation shall be made therefor to the Indians of the band, and the exercise of such power, and the taking of the lands or interest therein and the determination and payment of the compensation shall, unless otherwise provided by the order in council evidencing the consent of the Governor in Council, be governed by the requirements applicable to the like proceedings by such company, municipal or local authority in ordinary cases. . . . 4.

The amount awarded in any case shall be paid to the Minister of Finance for the use of the band of Indians for whose benefit the reserve is held, and for the benefit of any Indian who has improvements taken or injured. [ 47 ] Land could also be surrendered by consent under ss. 50 and 51. [ 48 ] Treaty 3 states: And Her Majesty the Queen hereby agrees and undertakes to lay aside reserves for farming lands, due respect being had to lands at present cultivated by the said Indians, and also to lay aside and reserve for the benefit of the said Indians, to be administered and dealt with for them by Her Majesty’s Government of the Dominion of Canada, in such a manner as shall seem best, other reserves of land in the said territory hereby ceded, which said reserves shall be selected and set aside where it shall be deemed most convenient and advantageous for each band or bands of Indians, by the officers of the said Government appointed for that purpose, and such selection shall be so made after conference with the Indians; provided, however, . . . that the aforesaid reserves of lands, or any interest or right therein or appurtenant thereto, may be sold, leased or otherwise disposed of by the said Government for the use and benefit of the said Indians, with the consent of the Indians entitled thereto first had and obtained. . . .

It is further agreed between Her Majesty and Her said Indians that such sections of the reserves above indicated as may at any time be required for Public Works or buildings of what nature soever may be appropriated for that purpose by Her Majesty’s Government of the Dominion of Canada, due compensation being made for the value of any improvements thereon. II. Parties’ Submissions [ 49 ] The LSFN submits that the courts below erred in their application of the principles of equitable compensation.

The central issue is how to compensate the LSFN in a manner that accords with equitable and constitutional principles, including reconciliation and the honour of the Crown. The trial judge erred in considering how Canada would likely have proceeded before considering how Canada as a fiduciary ought to have proceeded. A hypothetical expropriation is the wrong paradigm and improperly shifts the analysis from restoring what the LSFN lost to fixing Canada’s unlawful conduct.

A hypothetical expropriation also ignores Canada’s fiduciary obligations and, even if an expropriation had been pursued, Canada had to impair the LSFN’s interest as little as possible. It was also incorrect to view Canada’s breaches as inevitable, and, in any event, whether the flooding was inevitable does not break the causal connection between Canada’s breach and the LSFN’s loss. The Appellant submits that the trial judge did not properly consider the LSFN’s perspective and the unique nature of its losses and connection to the land.

Finally, the Appellant submits that the trial judge’s approach does not deter Canada’s behaviour. [ 50 ] Canada submits that the trial judge fairly compensated the LSFN for its losses. On the merits of the appeal, Canada submits that the principles of equitable compensation are settled and were properly applied by the courts below. The LSFN cannot be compensated for a scenario that would have never occurred. At trial, the LSFN was claiming compensation for a loss — a revenue- sharing agreement — that was not caused by the breach.

The trial judge referred to a hypothetical expropriation scenario to determine what likely would have happened without a breach, in line with this Court’s jurisprudence. The determination that Canada would have obtained a flowage easement was appropriate in light of the evidence and would have fulfilled Canada’s duty to minimally impair the right. Finally, Canada submits that the compensation award respects the goal of reconciliation and fulfills the deterrent requirement.

[51] Canada also submits that the LSFN is improperly making a new argument before this Court by asking that the land bevalued on the basis of its use for flooding purposes. The pleadings, Canada argues, show that the plaintiff sought a revenue-sharingagreement at trial, not the value of the land for flooding purposes. It asks that this Court not entertain what it submits is a new issue. III. Analysis [52] The issue in this appeal is whether the trial judge erred in his assessment of equitable compensation, specifically inrelation to the value of the flooded land.

To determine whether the trial judge erred, I must consider the content of the fiduciary duty inthis case, what obligations it imposed, and how the trial judge assessed equitable compensation in light of those obligations. [53] My analysis proceeds in three parts. First, I consider the relevant principles of the Crown’s relationship to IndigenousPeoples, and more specifically of the fiduciary duty that may arise. Second, I consider the principles of equitable compensation forbreach of fiduciary duty. Third, I apply those principles to the trial judge’s assessment of equitable compensation. A.

Canada’s Fiduciary Duty to Indigenous Peoples [54] The existence of a fiduciary duty is not in dispute in this appeal. Canada does not contest the trial judge’sdetermination that Canada owed a fiduciary duty to the LSFN and breached that duty. However, the specific nature of the Crown’sfiduciary duty to Indigenous Peoples, especially over reserve land, informs how equitable compensation must be assessed. [55] The Crown’s fiduciary duty is rooted in the obligation of honourable dealing and in the overarching goal ofreconciliation between the Crown and the first inhabitants of Canada (Haida Nation v.

British Columbia (Minister of Forests), 2004 SCC73, [2004] 3 S.C.R. 511, at paras. 17-18). Professor Slattery describes the honour of the Crown as a “grounding postulate of Canadianconstitutional law” (B. Slattery, “The Aboriginal Constitution” (2014), 67 S.C.L.R. (2d) 319, at p. 320).

McLachlin C.J. explained inHaida Nation that the “process of reconciliation flows from the Crown’s duty of honourable dealing toward Aboriginal peoples, whicharises in turn from the Crown’s assertion of sovereignty over an Aboriginal people and de facto control of land and resources that wereformerly in the control of that people” (para. 32; see also R. v. Desautel, 2021 SCC 17, [2021] X S.C.R. XXX, at para. 22). This is anongoing project that seeks the “reconciliation of Aboriginal and non-Aboriginal Canadians in a mutually respectful long-termrelationship” (Beckman v.

Little Salmon/Carmacks First Nation, 2010 SCC 53, [2010] 3 S.C.R. 103, at para. 10). [56] This Court first acknowledged a fiduciary duty in Guerin. In Guerin, Canada argued that it could not be subject to afiduciary duty and, at best, the Crown’s control over Indigenous interests in land is a political trust which is unenforceable by the courts(p. 371). Dickson J., writing for a majority, rejected Canada’s argument.

Instead, he found that Indigenous interests in land are “a pre-existing legal right not created by Royal Proclamation, by s. 18(1) of the Indian Act, or by any other executive order or legislativeprovision” (p. 379; see also J. T. S. McCabe, The Honour of the Crown and its Fiduciary Duties to Aboriginal Peoples (2008), atpp. 150-51). In other words, the Indigenous interest in land did not flow from the Crown; it pre-existed the Crown’s assertion ofsovereignty. [57] Through the Royal Proclamation, 1763, the Crown undertook discretionary control over these pre-existing Indigenousinterests in land.

The Proclamation provided: “And We do hereby strictly forbid, on Pain of our Displeasure, all our loving Subjects frommaking any Purchases or Settlements whatever, or taking Possession of any of the Lands above reserved, without our especial leave andLicence for that Purpose first obtained.” The Indian Act and its predecessor statutes formalized the process for setting aside reserve landand the Crown’s legal control over that land. The Crown thus undertook the “historic responsibility . . . to act on behalf of the Indians soas to protect their interests in transactions with third parties” (Guerin, at p. 383).

In Guerin, this Court recognized that a fiduciary dutyarose because the Crown interposed itself between Indigenous lands and those who want to lease or purchase the land, therebyexercising discretionary control over the land (pp. 383-84). The Crown has a duty that is “in the nature of a private law duty” (p. 385). [58] In Osoyoos Indian Band v. Oliver (Town), 2001 SCC 85, [2001] 3 S.C.R. 746, Gonthier J., dissenting, but not on thatpoint, clarified that the same fiduciary duty applies even where the reserve is not situated on traditional territory in which the First Nationmay have a pre-existing legal interest.

He noted: “. . . an interest in reserve lands to which no aboriginal title attaches and an interest innon-reserve lands to which aboriginal title does attach are the same with respect to the generation of a fiduciary obligation on the part ofthe Crown” (para. 163). [59] Guerin set to rest the idea that the trust-like language of historic treaties, laws, and proclamations constituted a mere“political trust” unenforceable in courts.

Instead, an enforceable sui generis fiduciary duty arose where the Crown asserted discretionarypower over Indigenous Peoples’ specific Aboriginal interests and assumed responsibility for those interests (R. v. Sparrow, (SCC), [1990] 1 S.C.R. 1075, at p. 1108). This relationship is not paternalistic in nature; it emerged in a context where the militarycapacities of Indigenous Peoples were strong and the Crown needed to mitigate the risk of conflict between Indigenous Peoples andsettlers (Manitoba Metis Federation Inc. v.

Canada (Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623, at para. 66; Slattery, atpp. 322 and 326). [60] Rooted in the honour of the Crown, the Crown’s fiduciary duty exists to further a socially important relationship. Itstructures the role voluntarily undertaken by the Crown as the intermediary between Indigenous interests in land and the interest ofsettlers.

Professor Rotman, in the context of fiduciary relationships generally, puts it this way: “. . . while it may appear that the fiduciaryconcept exists to protect beneficiaries’ interests, that effect is merely ancillary to its protection of fiduciary relationships” (L. I. Rotman,“Understanding Fiduciary Duties and Relationship Fiduciarity” (2017), 62 McGill L.J. 975, at pp. 987-88). In the context of our nationalhistory, the relationship between the Crown and Indigenous Peoples goes to the very foundation of this country and to the heart of itsidentity.

Indeed, the need to reconcile the assertion of Crown sovereignty with the pre-existence of Indigenous Peoples, and to reconcileIndigenous and non-Indigenous Canadians is of “fundamental importance” (R. v. Van der Peet, (SCC), [1996] 2 S.C.R.507, at para. 310, per McLachlin J., dissenting, but not on this point). The honour of the Crown — and the sui generis fiduciary duty towhich it gives rise — is a vital component of the relationship between the Crown and Indigenous Peoples. [61] However, not all aspects of this relationship are fiduciary in nature (Haida Nation, at para. 18; Wewaykum IndianBand v.

Canada, 2002 SCC 79, [2002] 4 S.C.R. 245, at paras. 81 and 83). The fiduciary duty does not attach to every interest of

Indigenous Peoples. As Binnie J. stated in Wewaykum, “[t]he fiduciary duty imposed on the Crown does not exist at large but in relationto specific Indian interests” (para. 81). The fiduciary duty imposes heavy obligations when it does arise. The fiduciary duty may arisewhen the Crown exercises discretionary control over cognizable Indigenous interests or where the conditions of a private law ad hocfiduciary relationship are met (Williams Lake Indian Band v.

Canada (Aboriginal Affairs and Northern Development), 2018 SCC 4,[2018] 1 S.C.R. 83, at para. 44; Manitoba Metis, at paras. 48-50; Wewaykum, at para. 85). [62] The fiduciary duty itself is shaped by the context to which it applies, which means that its content varies with thenature and the importance of the right being protected (Williams Lake, at para. 55; Wewaykum, at para. 86; Manitoba Metis, at para. 49).The Crown’s control over Indigenous interests in land is at the core of the relationship between the Crown and Indigenous Peoples.Consequently, a strong fiduciary duty arises where the Crown is exercising control over a First Nation’s land.

The same is true where theCrown is exercising control over Aboriginal and treaty rights that are protected under s. 35 of the Constitution Act, 1982 (ErmineskinIndian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222, at para. 46). [63] In a case involving reserve land, the sui generis nature of the interest in reserve land informs the fiduciary duty.Reserve land is not a fungible commodity. Instead, reserve land reflects the essential relationship between Indigenous Peoples and theland.

In Osoyoos, Iacobucci J. wrote that Aboriginal interests in land has an “important cultural component that reflects the relationshipbetween an aboriginal community and the land and the inherent and unique value in the land itself which is enjoyed by the community”(para. 46).

The importance of the interest in reserve land is heightened by the fact that, in many cases such as this one, the reserve landwas set aside as part of an obligation that arose out of treaties between the Crown and Indigenous Peoples. [64] The fiduciary duty imposes the following obligations on the Crown: loyalty, good faith, full disclosure, and, wherereserve land is involved, the protection and preservation of the First Nation’s quasi-proprietary interest from exploitation (Williams Lake,at para. 46; Wewaykum, at para. 86).

The standard of care is that of a person of ordinary prudence in managing their own affairs(Williams Lake, at para. 46). In the context of a surrender of reserve land, this Court has recognized that the duty also requires that theCrown protect against improvident bargains, manage the process to advance the best interests of the First Nation, and ensure that itconsents to the surrender (Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), (SCC), [1995] 4 S.C.R. 344, at paras. 35 and 96).

In an expropriation, the obligation to ensure consent is replaced by anobligation to minimally impair the protected interest (Osoyoos, at para. 54). B. Principles of Equitable Compensation [65] The basic principles of equitable compensation are not in dispute in this appeal. However, the parties disagree abouttheir application to breaches of the Crown’s fiduciary duty in relation to land held for the benefit of Indigenous Peoples. [66] As I shall explain, equitable compensation is a loss-based remedy that deters wrongdoing and enforces the trust atthe heart of the fiduciary relationship.

It differs from common law damages because of the “unique foundation and goals of equity”(Canson Enterprises Ltd. v. Boughton & Co., (SCC), [1991] 3 S.C.R. 534, at p. 543, per McLachlin J.). The trial judgemust begin by closely analyzing the nature of the fiduciary relationship so as to ensure that the loss is assessed in relation to theobligations owed by the fiduciary.

The loss must be caused in fact by the fiduciary’s breach, and the causation analysis is not limited byforeseeability (to use the language in Canson, at p. 552, where foreseeability was used synonymously with remoteness in this context). [67] This Court’s decision in Guerin explained that, although a fiduciary relationship is different than a traditional trustrelationship, breach of the Crown’s fiduciary duty gives rise to the same equitable remedies as breach of trust (p. 376; see alsoWewaykum, at para. 94).

The available equitable remedies include, among others, accounting for profits, constructive trust, and equitablecompensation (Canson, at p. 588, per La Forest J.) Accounting for profits and constructive trust are gains-based remedies, meaning theyare measured by the fiduciary’s gain rather than the plaintiff’s loss. The purpose is to undo the fiduciary’s gain. Equitable compensation,on the other hand, is a loss-based remedy; the purpose is to make up the plaintiff’s loss (S. L. Bray, “Fiduciary Remedies”, in E. J.Criddle, P. B. Miller and R. H.

Stikoff, eds., The Oxford Handbook of Fiduciary Law (2019), 449, at pp. 449 and 456). [68] When the Crown breaches its fiduciary duty, the remedy will seek to restore the plaintiff to the position the plaintiffwould have been in had the Crown not breached its duty (Guerin, at p. 360, citing Re Dawson; Union Fidelity Trustee Co. v. PerpetualTrustee Co. (1966), 84 W.N. (Pt. 1) (N.S.W.) 399 (S.C.); Hodgkinson v.

Simms, (SCC), [1994] 3 S.C.R. 377, at p. 440)When it is possible to restore the plaintiff’s assets in specie, accounting for profits and constructive trust are often appropriate (seeGuerin, at pp. 360-61; Hodgkinson, at pp. 452-53). When, however, restoring the plaintiff’s assets in specie is not available, equitablecompensation is the preferred remedy (Canson, at p. 547). The LSFN seeks equitable compensation in this case because what it lost —its land — cannot be returned.

It is therefore unnecessary to consider gains-based remedies. [69] Equitable compensation is equity’s counterpart to common law damages (see Whitefish Lake Band of Indians v.Canada (Attorney General), 2007 ONCA 744, 87 O.R. (3d) 321, at para. 48). It is discretionary and restitutionary in nature, aiming torestore the actual value of the thing lost through the fiduciary’s breach, referred to as the plaintiff’s lost opportunity (Canson, at pp. 547-48, 551-52, 555 and 585).

(1) Causation [70] To award equitable compensation, there must be factual causation: the fiduciary’s breach must have caused, in fact,the plaintiff’s lost opportunity (Canson, at p. 551; see also Stirrett v. Cheema, 2020 ONCA 288, 150 O.R. (3d) 561, at para. 69).

Thisbasic principle, that equitable compensation restores the lost opportunity caused in fact by the fiduciary’s breach, is uncontroversial.However, there has been debate about the extent to which the causation analysis should borrow from the common law of damages andimport limiting factors such as foreseeability. [71] In concurring reasons in Canson, McLachlin J. stressed the differences between equitable remedies and common lawdamages, explaining that the purpose of equity is to enforce the trust which lies at its heart (p. 543).

Analogy with common law damagesmay not be appropriate given this misalignment between the purpose of fiduciary obligations and obligations through tort and contract.The same point was adopted by Lord Reed J.S.C. in AIB Group (UK) plc v. Mark Redler & Co. Solicitors, [2014] UKSC 58, [2015]

A.C. 1503, at para. 83: In negligence and contract the parties were taken to be independent and equal actors, concerned primarily with their own self-interest.Consequently, the law sought a balance between enforcing obligations by awarding compensation, and preserving optimum freedom forthose involved in the relationship. The essence of a fiduciary relationship, by contrast, was that one party pledged herself to act in thebest interests of the other. The freedom of the fiduciary was diminished by the nature of the obligation she had undertaken.

The fiduciaryrelationship had trust, not self-interest, at its core. [72] Another difference between equitable compensation and common law damages is that equity is especially concernedwith deterring wrongful conduct by fiduciaries. As Professor Rotman observed, “[b]eneficiaries are . . . implicitly dependent upon andpeculiarly vulnerable to their fiduciaries’ use, misuse, or abuse of power over their interests” (p. 991). It is therefore crucial that equitableremedies deter fiduciaries from misusing their powers.

By restoring the beneficiary’s lost opportunity, equitable compensation enforcesthe fiduciary relationship and deters the fiduciary’s wrongful conduct. [73] Due to these differences, rather than relying on common law principles, McLachlin J. explained that the properapproach to equitable compensation “is to look to the policy behind compensation for breach of fiduciary duty and determine whatremedies will best further that policy” (Canson, at p. 545). McLachlin J.’s approach was subsequently followed by this Court in CadburySchweppes Inc. v.

FBI Foods Ltd., (SCC), [1999] 1 S.C.R. 142, and recognizes that the applicable rules will dependboth on the nature of the fiduciary relationship and the fiduciary obligations: “Differences between different types of fiduciaryrelationships may, depending on the circumstances, dictate different approaches to damages” (Canson, at p. 546). In other words, “[t]herules appropriate to a breach of duty by a trustee . . . have to be determined in the light of the characteristics of the obligation in question”(AIB, at para. 93).

There must be a close relationship between the fiduciary duty and the fiduciary remedy, and the fiduciary duty must“forcefully shape the content of [the] fiduciary remed[y]” (Bray, at p. 451).

Thus, while factual causation will always apply to equitablecompensation in the sense that the fiduciary’s breach must cause in fact the plaintiff’s loss, common law limiting factors will not readilyapply because of the nature of the fiduciary relationship and obligations. [74] Equity assesses the loss at the date of trial and with the benefit of hindsight (Guerin, at pp. 361-62, per Wilson J.;Canson, at p. 556; Target Holdings Ltd. v. Redferns, [1996] 1 A.C. 421 (H.L.), at pp. 437-39).

This means that equity compensates theplaintiff for the lost opportunity caused by the breach, regardless of whether that opportunity could have been foreseen at the time ofbreach. McLachlin J. described the analysis as follows: The plaintiff’s actual loss as a consequence of the breach is to be assessed with the full benefit of hindsight.

Foreseeability is not aconcern in assessing compensation, but it is essential that the losses made good are only those which, on a common sense view ofcausation, were caused by the breach. (Canson, at p. 556) [75] McLachlin J.’s use of the phrase “common sense view of causation” in Canson should not be taken to mean that thecausation analysis in equitable compensation cases will always have an “intuitively obvious answer” (AIB, at para. 95). This is notalways the case; trial judges are often faced with difficult questions of causation in claims for equitable compensation.

Instead, thephrase “common sense” clarifies that the rules developed in legal causation, such as foreseeability, do not readily apply in equity: “Therequirement that the loss must result from the breach of the relevant equitable duty does not negate the fact that ‘causality’ in the legalsense as limited by foreseeability at the time of breach does not apply in equity” (Canson, at p. 552). Professor Rotman explains the samepoint as follows: Each starts with the idea of “but for,” “cause-in-fact,” or “sine qua non,” causation.

This generally satisfies Equity, but the common lawrequires more; it demands a finding of materiality or substantial cause to link the impugned activity with the harm to the plaintiff.Further, the common law imports ideas of foreseeability (or reasonable contemplation) and remoteness into its assessment of causality.. . . These other considerations do not readily enter into Equity’s assessment of fiduciary accountability. (Fiduciary Law (2005), at p. 634).

See, also, Target Holdings, where Lord Browne-Wilkinson observed that “the common law rules of remoteness of damage and causationdo not apply” (p. 434). [76] Canada argues that in valuing the loss the benefit of hindsight cannot mean that the beneficiary is put in a betterposition than it would have been in had the fiduciary observed its duty at the time of breach. This argument was explicitly rejected bythis Court in Blueberry River, where McLachlin J. wrote that concern about “unexpected windfall” amounted to “bringing foreseeabilityinto the fiduciary analysis through the back door” (para. 103).

Similarly, in Guerin, compensation was assessed at a higher level thanwould have been possible at the moment of breach because the most valuable use of the asset between breach and date of trial was notforeseeable at the time of breach. Concerns about a “windfall” cannot therefore subtract from the “equitable approach of looking at whatactually happened to values in later years” (Canson, at p. 551).

Equity will not be limited by foreseeability, unless it is “necessary toreach a just and fair result” (Hodgkinson, at p. 443, per La Forest J.). [77] There are very good reasons why foreseeability does not apply to the Crown’s breach of fiduciary duty in this case.

InCanson, La Forest J. held that it would not apply where a fiduciary has discretionary control over a beneficiary’s property (p. 578).Indigenous interests in land are quasi-proprietary in nature; they are at the heart of the Crown-Indigenous relationship and are central toIndigenous identity and culture (Wewaykum, at paras. 74 and 86; Osoyoos, at para. 46). Moreover, in Guerin, Wilson J. accepted thatforeseeability would not apply to breaches of the Crown’s fiduciary duty towards Indigenous Peoples (pp. 360-62; see also WhitefishLake, at paras. 52-55).

The Crown’s fiduciary duty is grounded in the honour of the Crown and breaches of the duty are different in kind

than private law breaches of contract or tort.

(2) Equitable Presumptions [78] To achieve these purposes of equitable compensation, the assessment is also guided by presumptions that equitymakes against breaching fiduciaries. [79] Equity presumes that the plaintiff would have made the most favourable use of the trust property (Guerin, at pp. 362-63; Canson, at p. 545; Oosterhoff on Trusts: Text, Commentary and Materials, by A. H. Oosterhoff, R. Chambers and M. McInnes (9thed. 2019), at p. 1018). In Guerin, for example, the Musqueam India

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