2019 FCA 171, 2019 FCA 171

A-337-17 2019 FCA 171 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 and Her Majesty the Queen in Right of Ontario and Her Majesty the Queen in Right of Manitoba ( Respondents ) Indexed as: Southwind v. Canada Federal Court of Appeal, Nadon, Webb and Gleason JJ.A.—Ottawa, October 23, 2018 and June 10, 2019.

Aboriginal Peoples –– Lands –– A ppeal from Federal Court decision awarding appellants $30 million in equitable compensation for breach of fiduciary duty committed by Her Majesty the Queen in right of Canada (respondent) in connection with flooding of substantial part of Lac Seul First Nation reserve –– Appellants contending that Federal Court erring in assessment of portion of equitable compensation awarded, namely value it attributed to flooded land –– Claiming appropriate compensation should have included value of revenue-sharing agreement respondent should have negotiated on Lac Seul First Nation’s behalf –– In alternative, appellants submitting that value of flooded reserve land should be calculated in amount greater than that Federal Court fixing to take into account value of flooded lands in connection with downstream hydroelectric electricity generation –– Dam built in 1929 outside reserve of Lac Seul First Nation at Ear Falls; resulting in rising water levels on Lac Seul First Nation reserve –– Dam built without statutory approval or agreement on compensation –– One-fifth of reserve rendered unusable because of construction of dam –– Lac Seul First Nation representatives adhering to Treaty 3; land set aside under Treaty 3 considered “reserve” within meaning of 1927 Indian Act –– Under Indian Act, Lac Seul First Nation’s reserve could be surrendered, taken by respondent for public purpose –– Federal Court holding that respondent owing Lac Seul First Nation fiduciary duty in respect of land reserved for its benefit under Treaty 3; rejecting argument that respondent would have negotiated revenue-sharing agreement on Lac Seul First Nation’s behalf –– Federal Court also assessing compensation respondent required to pay to be fixed at $1.29 per acre in 1929 dollars –– Thus applying current expropriation law as opposed to that in force in 1929 –– Federal Court determining that no basis for concluding that premium beyond value of land as agricultural land would have been negotiated even though such premium had previously been paid for land acquired in connection with Kananaskis Falls development project, lands owned by the Stoney Indian Band; that both projects being different –– W hether Federal Court committed reviewable error in declining to award compensation for failure to negotiate revenue-sharing agreement; whether Federal Court erring in assessment of quantum of one-time compensation for loss of flooded land –– Per Nadon J.A. (Webb J.A. concurring): No basis to interfere with Federal Court’s decision –– Reasons Gleason J.A. giving for disposing of appeal agreed upon except in regard to issue that Federal Court erring in distinguishing Kananaskis Falls development project (Kananaskis Project) from Lac Seul situation –– Federal Court’s determination of comparability of Kananaskis Project, Lac Seul situation factual determination, not legal one –– Although distinction made on incorrect basis, error alone not overriding –– Thus, Federal Court’s determination that $1.29 per acre proper compensation for appellants’ flooded land should not be disturbed –– Evidence concerning Kananaskis Project insufficient to conclude that Federal Court erring in refusing to grant appellants sum in excess of fair market value of $1.29 per acre –– While respondent taking different approach in present matter compared to Kananaskis Project, this not leading to conclusion that respondent breached duty towards appellants herein –– Finally, regarding revenue-sharing agreement, appellants not introducing any expert evidence regarding fair market value of flooded land or any premium that should have been paid in relation thereto –– Appeal dismissed –– Per Gleason J.A. (dissenting): Federal Court not committing any error in declining to award compensation for loss of revenue-sharing agreement –– Also not committing any error in principle in reaching this conclusion –– Making no palpable, overriding error of fact or mixed fact and law in concluding that Lac Seul situation fundamentally different from situations relied on by appellants where agreements providing for ongoing payments previously negotiated –– Federal Court applying principles of equitable compensation in considering whether appellants entitled to compensation for loss of revenue-sharing agreement –– No basis to interfere with Federal Court’s conclusion that respondent would have compensated appellants in one-time payment for flooded land, would not have secured indefinite revenue-sharing agreement –– As to Federal Court’s assessment of one-time compensation for loss of flooded land, Federal Court erring to extent using law as it stood in 2017 as point of reference –– Federal Court’s finding that respondent would not have paid more than $1.29 per acre for flooded land had it expropriated land in 1929 not tainted by legal error –– Federal Court not erring in application of relevant expropriation law principles –– As to distinction of Stoney Indian Band precedent, Federal Court misapprehending nature of respondent’s power to expropriate Stoney Indian Band’s lands flooded by Kananaskis Falls dam, which was legal error –– Such error necessitating intervention by Federal Court of Appeal.

This was an appeal from a Federal Court decision awarding the appellants $30 million in equitable compensation for breach of fiduciary duty committed by Her Majesty the Queen in right of Canada (respondent) in connection with flooding of a substantial part of the Lac Seul First Nation reserve. The appellants contended that the Federal Court erred in the assessment of a portion of the equitable compensation awarded, namely the value it attributed to the flooded land.

Appropriate compensation for this item, they claimed, should not have been premised on the fair market value of the flooded lands based on their use at the time they were flooded but should have included the value of a revenue-sharing agreement the respondent should have negotiated on the Lac Seul First Nation’s behalf. In the alternative, the appellants submitted that value of the flooded reserve land should be calculated in an amount greater than that fixed by the Federal Court to take into account the value of the flooded lands in connection with downstream hydroelectric electricity generation.

In the 1920s, members of the Lac Seul First Nation became aware of plans to build a dam, outside their reserve at Ear Falls, to support downstream hydroelectric development to generate power for the City of Winnipeg. It was contemplated that the dam would raise the level of Lac Seul and flood the reserve lands surrounding the lake. Members of the First Nation repeatedly raised concerns with the

respondent about the damage that raising the level of Lac Seul might cause. While the respondent acknowledged these concerns, it did not seek the Lac Seul First Nation’s consent to surrender the land; nor did it take (or expropriate) the land. As a result, the land at issue remained, and currently remains part of the reserve. The dam was built in 1929 without the requisite statutory approval and the water level in Lac Seul gradually rose thereafter. The water now covers 11 304 acres (approximately 17 percent of the Lac Seul First Nation reserve).

There was no specific agreement about the compensation that would be paid to the Lac Seul First Nation at the time. Although the respondent ultimately reached a settlement with Ontario in 1943, it did not consult with the Lac Seul First Nation before and did not advise the First Nation of the terms of the settlement reached. As a result of the construction of the dam at Ear Falls and resulting flooding, nearly one-fifth of the Lac Seul reserve was rendered unusable. In terms of the legal background, representatives of the Lac Seul First Nation adhered to Treaty 3 in 1874, a year after it was signed.

The land set aside for the Lac Seul First Nation under the terms of Treaty 3 was a “reserve” within the meaning of paragraph 2(

j) of the 1927 Indian Act . Given that Treaty 3 contained provisions that resembled the specific sections of the Indian Act dealing with the removal of land from a reserve, under this Act, the Lac Seul First Nation’s reserve land could be surrendered or taken by the respondent for a public purpose under certain conditions. The Federal Court held in particular that the respondent owed the Lac Seul First Nation a fiduciary duty in respect of the land reserved for its benefit under Treaty 3. It also set out the principles governing equitable compensation.

It rejected the argument that the respondent would have negotiated a revenue-sharing agreement on the Lac Seul First Nation’s behalf. The Federal Court also assessed the compensation that the respondent was required to pay, which it concluded should be fixed at $1.29 per acre in 1929 dollars. This was the value of the land as agricultural land, based on the expert evidence accepted. In so concluding, the Federal Court seemingly applied current expropriation law as opposed to that in force in 1929.

It further determined there was no basis for concluding that a premium beyond the value of the land as agricultural land would have been negotiated even though such a premium had previously been paid for land acquired in connection with the Kananaskis Falls development project, lands owned by the Stoney Indian Band. The Federal Court reasoned that the two projects were different.

The issues were whether the Federal Court committed a reviewable error in declining to award compensation for the failure to negotiate a revenue-sharing agreement ; and whether it erred in its assessment of the quantum of the one-time compensation for the loss of the flooded land. Held (Gleason J.A. dissenting), the appeal should be dismissed. Per Nadon J.A. (Webb J.A. concurring): There was no basis to interfere with the Federal Court’s decision. The reasons Gleason J.A. gave for disposing of the appeal were agreed upon except in regard to one issue.

Regarding the first issue, there was agreement with Gleason’s determination that the Federal Court correctly held that there was no basis to award compensation for loss of a revenue-sharing agreement. Further, Gleason J.A. was right in finding that the Federal Court made no palpable and overriding error in concluding that the Lac Seul situation was not comparable to the other situations relied on by the appellants. There was agreement as well with Gleason J.A.’s conclusion concerning the second issue of one-time compensation for the loss of the flooded land.

Gleason J.A. concluded that the Federal Court did not err and that its determination that, had the respondent expropriated the flooded land in 1929, it would not have paid more than the fair market value of $1.29 per acre was not a determination resulting from either an error of law or from a palpable and overriding error. Nevertheless, there was disagreement with the view of Gleason J.A. that the Federal Court erred in distinguishing the Kananaskis Falls development project (the Kananaskis Project) from the Lac Seul situation.

In the view of Gleason J.A., the Federal Court erred in drawing an erroneous distinction between the two situations. She concluded that the respondent was entitled to expropriate in both situations and that the Federal Court erred in finding that there was no right to expropriate in the Kananaskis Project. The Federal Court’s determination of the comparability of the Kananaskis Project and the Lac Seul situation was a factual determination, not a legal one and was based entirely on the historical record before it.

While the Federal Court may have distinguished the Kananaskis Project from the Lac Seul situation on an incorrect basis, this error alone did not constitute an error going to the core of the outcome: it was not overriding. On the record available, the Federal Court’s conclusion that the two situations were different was sound. Thus, the Federal Court’s determination that $1.29 per acre was the proper compensation for the appellants’ flooded land should not be disturbed.

The appellants’ argument that they were entitled to a premium on the fair market value of the flooded land on the basis that the respondent required that the land at issue in the Kananaskis Project be compensated in excess of its agricultural value was rejected. Based on the Federal Court of Appeal’s limited knowledge of the Kananaskis Project, it was not possible to determine the legal basis upon which the respondent relied to insist on a premium for the land at issue in the Kananaskis Project.

What was clear was that the land required for the Kananaskis Project was situated on the reserve and that most of the flooded land was outside of the reserve. The evidence concerning the Kananaskis Project was insufficient to conclude that the Federal Court erred in refusing to grant the appellants a sum in excess of its fair market value of $1.29 per acre.

While the respondent was not prepared to use its expropriation power with regard to the Kananaskis Project, the fact that it took a different approach in the present matter did not, per se , lead to the conclusion that the respondent breached its duty towards the appellants herein. Also, regarding a revenue-sharing agreement, the appellants did not introduce any expert evidence regarding the fair market value of the flooded land or any premium that should have been paid in relation to that land.

Per Gleason J.A. (dissenting): The Federal Court did not commit any error in declining to award compensation for loss of a revenue- sharing agreement. It also did not commit any error in principle in reaching this conclusion and correctly outlined the principles applicable to equitable compensation. Similarly, it made no palpable and overriding error of fact or of mixed fact and law in concluding that the Lac Seul situation was fundamentally different from those situations relied on by the appellants where agreements providing for ongoing payments had been negotiated.

The Federal Court also explained the concepts of equity and equitable compensation. It did not ignore the principles of equitable compensation but rather faithfully applied them in its consideration of whether the appellants were entitled to compensation for the loss of a revenue-sharing agreement.

It correctly identified the impact of the breaches of fiduciary duty committed by the respondent as being both the deprivation of an opportunity to negotiate a surrender of the flooded land in 1929 and the deprivation in 1929 of the funds that ought to have been paid had the respondent taken and exercised the right to flood the reserve land. Moreover, the situations that the appellants pointed to where agreements providing for ongoing payments were entered into were different. There was ample factual basis in the record before the Federal Court to support its conclusions that these situations were

distinguishable from the Lac Seul First Nation’s circumstances. The Federal Court therefore could not be said to have made a palpableand overriding error in distinguishing them. Thus, there was no basis to interfere with the Federal Court’s conclusion that the respondentwould have compensated the appellants in a one-time payment for the flooded land and would not have secured an indefinite revenue-sharing agreement.

With respect to the Federal Court’s assessment of the one-time compensation for the loss of the flooded land, to the extent that theFederal Court used the law as it stood in 2017 as its point of reference, it erred. Given its finding that compensation would have beenpaid in 1929, the question for the Federal Court was rather how such compensation would have been determined at that time. Theappellants’ argument that the Federal Court erred in using the figure of $1.29 per acre as forming the basis for compensation for theflooded land in a one-time payment was rejected.

The Federal Court’s finding that the respondent would not have paid more than $1.29per acre for the flooded land had it expropriated the land in 1929 was not tainted by legal error. And, the appellants failed to demonstratethat the Federal Court’s finding on this point amounted to a palpable and overriding error. Thus, the Federal Court did not err in itsapplication of the relevant expropriation law principles.

As to the Federal Court’s distinction of the Stoney Indian Band precedent where it was concluded that there was no power to expropriatein that case unlike the situation of the Lac Seul First Nation, the Federal Court erred on the basis upon which it distinguished theKananskis Falls precedent. It misapprehended the nature of the respondent’s power to expropriate the Stoney Indian Band’s landsflooded by the Kananaskis Falls dam and this was a legal error.

The issue therefore became whether this legal error necessitatedintervention by the Federal Court of Appeal, which it did because it could not definitively be said that the legal error was withoutconsequence. If there was no basis for distinguishing the Kananaskis Falls development precedent, the appellants may well have beencorrect in asserting that compensation should be awarded for a surrender price in excess of $1.29 per acre. STATUTES AND REGULATIONS CITED Dominion Lands Act, 1908, S.C. 1908, c. 20, s. 35. Exchequer Court Act, R.S.C. 1927, c. 34. Expropriation Act, R.S.C. 1927, c. 64.

Expropriation Act, R.S.C., 1985, c. E-21. Expropriation Act, R.S.O. 1990, c. E.26. Federal Courts Act, R.S.C., 1985, c. F-7, ss. 2(1) “relief”, 4, 17(1). Indian Act, R.S.C. 1906, c. 81. Indian Act, R.S.C. 1927, c. 98, ss. 2(j) “reserve”, 48, 50, 51. Navigable Waters Protection Act, R.S.C. 1927, c. 140. Railway Act, R.S.C. 1906, c. 37. TREATIES AND OTHER INSTRUMENTS CITED Treaty between Canada and the United States of America relating to Cooperative Development of the Water Resources of The ColumbiaRiver Basin, January 17, 1961. Treaty No. 3 (1873). CASES CITED APPLIED: Canada v.

South Yukon Forest Corporation, 2012 FCA 165, 431 N.R. 286; In re Lucas and Chesterfield Gas and Water Board, [1909] 1K.B. 16 (C.A.); Sidney v. North Eastern Railway Co., [1914] 3 K.B. 629 (D.C.). DISTINGUISHED: Guerin v. The Queen, (FC), [1982] 2 F.C. 385, [1982] 2 C.N.L.R. 83 (T.D.). CONSIDERED: Canson Enterprises Ltd. v. Boughton & Co., (SCC), [1991] 3 S.C.R. 534, (1991), 131 N.R. 321; Heritage Capital Corp.v. Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306; Monsanto Canada Inc. v. Rivett, 2010 FCA 207, [2012] 1 F.C.R. 473; CedarsRapids Manufacturing and Power Company v.

Lacoste, (UK JCPC), [1914] A.C. 569, (1914), 16 D.L.R. 168 (P.C.);Fraser v. City of Fraserville, (UK JCPC), [1917] A.C. 187, (1917), 34 D.L.R. 211 (P.C.); The King v. Hearn (1917), (SCC), 55 S.C.R. 562; La Cité de Montréal v. Maucotel, (SCC), [1928] S.C.R. 384. REFERRED TO:

Hodgkinson v. Simms, (SCC), [1994] 3 S.C.R. 377, (1994), 171 N.R. 245; Whitefish Lake Band of Indians v. Canada(Attorney General), 2007 ONCA 744, 287 D.L.R. (4th) 480; Huu-Ay-Aht First Nations v. Canada, 2016 SCTC 14 ; Beardy’s &Okemasis Band #96 and #97 v. Canada, 2016 SCTC 15 ; Guerin v. The Queen, (SCC), [1984] 2 S.C.R. 335,(1984), 55 N.R. 161; Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245; Manitoba Metis Federation Inc. v. Canada(Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623; Blueberry River Indian Band v.

Canada (Department of Indian Affairs andNorthern Development), (SCC), [1995] 4 S.C.R. 344, (1995), 190 N.R. 89; Williams Lake Indian Band v. Canada(Aboriginal Affairs and Northern Development), 2018 SCC 4, [2018] 1 S.C.R. 83; Heron Bay Investments Ltd. v. Canada, 2010 FCA203, 405 N.R. 73; R. v. Sioui, (SCC), [1990] 1 S.C.R. 1025, (1990), 109 N.R. 22; R. v. Marshall, (SCC), [1999] 3 S.C.R. 456, (1999), 246 N.R. 83; Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222;Housen v. Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235; Benhaim v.

St-Germain, 2016 SCC 48, [2016] 2 S.C.R. 352; SemiahmooIndian Band v. Canada, (FCA), [1998] 1 F.C. 3, (1997), 148 D.L.R. (4th) 523 (C.A.); Kruger v. The Queen, (FCA), [1986] 1 F.C. 3, (1985), 17 D.LR. (4th) 591 (C.A.); Lacoste v. Cedars Rapids Manufacturing and Power Co., (UK JCPC), [1928] 2 D.L.R. 1 (P.C.); Re Ontario and Minnesota Power Co., Ltd. and Town of Fort Frances (1916), (ON CA), 28 D.L.R. 30, 35 O.L.R. 459 (S.C.(A.D.)); Raymond v. The King (1916), (CA EXC), 16 Ex.C.R. 1, 29 D.L.R. 574, affd (1918), (SCC), 59 S.C.R. 682, 49 D.L.R. 689; The King v. Quebec Gas Co. (1917), (CA EXC), 17 Ex.

C.R. 386, 42 D.L.R. 61, affd (1918), (SCC), 59 S.C.R. 677, 49 D.L.R. 692; Canada v.Brokenhead First Nation, 2011 FCA 148, 419 N.R. 289; Kelly v. Canada, 2013 FCA 171, 446 N.R. 339; Pfizer Canada Inc. v. TevaCanada Ltd., 2016 FCA 161, 483 N.R. 275. APPEAL from a Federal Court decision (2017 FC 906, 74 C.L.R. (4th) 4) awarding the appellants $30 million in equitablecompensation for breach of fiduciary duty committed by Her Majesty the Queen in right of Canada in connection with flooding of asubstantial part of the Lac Seul First Nation reserve. Appeal dismissed, Gleason J.A. dissenting. APPEARANCES William J.

Major, Yana Sobiski and Marie-France Major for appellants. Michael Roach and Sarah Sherhols for respondent Her Majesty the Queen in Right of Canada. Leonard F. Marsello and Dona Salmon for respondent Her Majesty the Queen in Right of Ontario. SOLICITORS OF RECORD Major Sobiski Moffatt LLP, Kenora, Ontario, for appellants. Deputy Attorney General of Canada for respondents. The following are the reasons for judgment rendered in English by Gleason J.A. (dissenting): [1] This is an appeal from the judgment of the Federal Court in Southwind v.

Canada, 2017 FC 906, 74 C.L.R. (4th) 4 (per Zinn J.),awarding the appellants $30 million in equitable compensation for breach of fiduciary duty committed by Her Majesty the Queen in rightof Canada (Canada) in connection with flooding of a substantial part of the Lac Seul First Nation reserve. [2] The appellants contend that the Federal Court erred in the assessment of a portion of the equitable compensation awarded,namely the value attributed by the Federal Court to the flooded land.

Appropriate compensation for this item, in their view, should nothave been premised on the fair market value of the flooded lands based on their use at the time they were flooded, but rather ought tohave included the value of a revenue-sharing agreement they say Canada should have negotiated on the Lac Seul First Nation’s behalf.

Inthe alternative, the appellants submit that value of the flooded reserve land should be calculated in a greater amount than that fixed bythe Federal Court to take into account the value of the flooded lands in connection with downstream hydroelectric electricity generation. [3] I agree in part with the appellants’ alternate submission. Thus, for the following reasons, I would allow this appeal, with costs. I.

Background [4] It is useful to commence by reviewing the relevant background. [5] In the 1920s, members of the Lac Seul First Nation became aware of plans to build a dam, outside their reserve at Ear Falls, tosupport downstream hydroelectric development to generate power for the City of Winnipeg. It was contemplated that the dam wouldraise the level of Lac Seul and flood the reserve lands surrounding the lake. Members of the First Nation repeatedly raised concerns withCanada about the damage that raising the level of Lac Seul might cause.

Canada acknowledged these concerns, which were also borneout in studies that had been undertaken regarding the likely impact of the dam. A Department of Indian Affairs official “‘assured theChief [that the] Department would look into the matter, and protect [the First Nation’s] interests as far as possible’”: F.C. reasons, atparagraph 137. However, Canada did not seek the Lac Seul First Nation’s consent to surrender the land; nor did it take (or expropriate)the land.

As a result, the land at issue remained, and to this day remains, part of the reserve, having been neither taken by norsurrendered to Canada. [6] The dam was built in 1929 without the requisite approval under the Navigable Waters Protection Act, R.S.C. 1927, c. 140. Tenhydroelectric generating stations were later built downstream. The water level in Lac Seul gradually rose following construction of the

dam and by 1936 reached the level anticipated before construction.

The water now covers 11 304 acres, which represents approximately 17 percent of the Lac Seul First Nation reserve. [ 7 ] Although Canada and Her Majesty the Queen in right of Manitoba and Ontario (Manitoba and Ontario, respectively) entered into agreements concerning compensation for losses resulting from the dam generally, there was no specific agreement about the amount of compensation that would be paid to the Lac Seul First Nation. [ 8 ] Canada ultimately reached a settlement with Ontario in 1943, some 14 years after the dam was built and the water began to rise.

Canada did not consult with the Lac Seul First Nation before entering into settlement negotiations or before agreeing to the settlement. Nor did Canada advise the First Nation of the terms of the settlement reached. After making certain deductions, Canada put settlement funds of $50 263 into the Lac Seul First Nation’s trust account.

Canada did not inform the First Nation of the settlement in 1943, though it appears that members of the First Nation later became aware that some compensation had been paid. [ 9 ] As a result of the construction of the dam at Ear Falls and resulting flooding, nearly one-fifth of the Lac Seul reserve was rendered unusable. Timber was lost, graves were desecrated and homes, gardens and fields were destroyed. In addition, portions of the reserve were severed from one another.

Many years later, partly at its expense, the First Nation built a bridge connecting the two communities. [ 10 ] In 1985, the Lac Seul First Nation filed a specific claim with Canada for the losses associated with the flooding, and the appellants initiated this action in the Federal Court in 1991. In their action, the appellants sought equitable compensation, punitive damages and a declaration that their equitable interests in the flooded lands had not been encumbered or extinguished. [ 11 ] In terms of the relevant legal background, representatives of the Lac Seul First Nation adhered to Treaty 3 on June 9, 1874.

Treaty 3, which had been signed the previous year, provided that Canada would: … 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 such reserves, whether for farming or other purposes, shall in no wise exceed in all one square mile for each family of five, or in that proportion for larger or smaller families …. [ 12 ] The land set aside for the Lac Seul First Nation under the terms of the Treaty 3 was a “reserve” within the meaning of paragraph 2(

j) of the Indian Act , R.S.C. 1927, c. 98 (the Indian Act ). [ 13 ] As it read in 1929, the Indian Act set out two means by which land could be removed from a reserve.

Section 48 contemplated land being taken for a public purpose with the Governor in Council’s consent: 48.

(1) No portion of any reserve shall be taken for the purpose of any railway, 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.

(4) La somme adjugée dans chaque cas est versée au ministre des Finances pour l’usage de la bande d’Indiens au profit de laquelle la réserve est affectée, et au profit de tout Indien qui y a fait des améliorations, ou lésé. [ 14 ] Sections 50 and 51 of the Indian Act provided for land to be surrendered and forfeited to Canada with a band’s consent, as well as that of the Governor in Council:: 50.

(1) Except as in this Part otherwise provided, no reserve or portion of a reserve shall be sold, alienated or leased until it has been released or surrendered to the Crown for the purposes of this Part; but the Superintendent General may lease for the benefit of any Indian, upon his application for that purpose, the land to which he is entitled without such land being released or surrendered, and may, without surrender, dispose to the best advantage, in the interests of the Indians, of wild grass and dead or fallen timber. … 51.

(1) Except as in this Part otherwise provided, no release or surrender of a reserve or a portion of a reserve, held for the use of the

Indians of any and, or of any individual Indian, shall be valid or binding, unless the release or surrender shall be assented to by a majorityof the male members of the band of the full age of twenty-one years, at a meeting or council thereof summoned for that purpose,according to the rules of the band, and held in the presence of the Superintendent General, or of any officer duly authorized to attendsuch council, by the Governor in Council or by the Superintendent General.

(2) No Indian shall be entitled to vote or be present at such council, unless he habitually resides on or near, and is interested in thereserve in question.

(3) The fact that such release or surrender has been assented to by the band at such council or meeting shall be certified on oath by theSuperintendent General, or by the office authorized by him to attend such council or meeting, and by some of the chiefs or principal menpresent thereat and entitled to vote, before any person having authority to take affidavits and having jurisdiction within the place wherethe oath is administered.

(4) When such assent has been so certified, as aforesaid, such release or surrender shall be submitted to the Governor in Council foracceptance or refusal. [15] Treaty 3 contains provisions that, at least on their face, resemble sections 48 and 51 of the Indian Act.

It provides that “theaforesaid reserves of lands, or any interest or right therein or appurtenant thereto, may be sold, leased or otherwise disposed of by the saidGovernment for the use and benefit of the said Indians, with the consent of the Indians entitled thereto first had and obtained” and “thatsuch sections of the reserves above indicated as may at any time be required for Public Works or buildings of what nature soever may beappropriated for that purpose by Her Majesty’s Government of the Dominion of Canada, due compensation being made for the value ofany improvements thereon.” [16] Thus, under the Indian Act, the Lac Seul First Nation’s reserve land could be surrendered, with the band’s agreement and theGovernor in Council’s consent, or taken by Canada for a public purpose with the requisite approval of the Governor in Council.

II. Federal Court’s Reasons [17] With this background in mind, I turn now to review the portions of the Federal Court’s reasons that are germane to this appeal. [18] After reviewing the evidence given over the course of the multi-week trial, the Federal Court set out its analysis. It is noteworthythat no party to this appeal questions much of the analysis in the Federal Court’s lengthy and carefully articulated reasons.

Rather, asnoted, the appellants principally contest the basis upon which the Federal Court calculated an aspect of the equitable compensationawarded. [19] The Federal Court began its analysis by holding that Canada owed the Lac Seul First Nation a fiduciary duty in respect of theland reserved for its benefit under Treaty 3.

The Federal Court found that several specific obligations flowed from Canada’s fiduciaryduty: “1. a duty of loyalty and good faith to the [Lac Seul First Nation] in the discharge of its mandate as trustee of the Reserve lands; 2. aduty to provide full disclosure and to consult with the band; 3. a duty to act with ordinary prudence with a view to the best interest of the[Lac Seul First Nation]; and 4. a duty to protect and preserve the band’s proprietary interest in the Reserve from exploitation”: F.C.reasons, at paragraph. 226.

The Federal Court found that Canada breached each of these obligations and rejected Canada’s equitabledefence of laches. [20] The Federal Court noted that Canada accepted that equitable compensation would be the appropriate remedy if the Court heldthat Canada owed the Lac Seul First Nation a fiduciary duty, found that Canada breached its duty and concluded that Canada could notsuccessfully raise an equitable defence. [21] The Federal Court accordingly moved to next set out the principles governing equitable compensation, drawing on the SupremeCourt of Canada’s decisions in Canson Enterprises Ltd. v.

Boughton & Co., (SCC), [1991] 3 S.C.R. 534, (1991), 131N.R. 321 (Canson) (cited to S.C.R.) and Hodgkinson v. Simms, (SCC), [1994] 3 S.C.R. 377, (1994), 171 N.R. 245(Hodgkinson) (cited to S.C.R.), noting that equitable compensation aims “ ‘to restore to the [beneficiary] what has been lost as a result ofthe breach, i.e. the [beneficiary’s] lost opportunity’” [F.C. reasons, at paragraph 275] and to deter wrongdoing by fiduciaries. TheFederal Court further noted that the loss for which equity provides compensation is any that is factually caused by the breach, even if notforeseeable at the time of the breach.

The Federal Court also underscored that, in assessing compensation, a court of equity aims to putthe beneficiary in the position she or he would have been in had the fiduciary not breached and presumes that, in the non-breach scenario,the fiduciary would have both acted lawfully and put what the beneficiary lost to its most advantageous use. [22] The Federal Court considered how these principles have been applied by the Ontario Court of Appeal in Whitefish Lake Band ofIndians v.

Canada (Attorney General), 2007 ONCA 744, 287 D.L.R. (4th) 480 (Whitefish Lake), at paragraph 69 and the Specific ClaimsTribunal in Huu-Ay-Aht First Nations v. Canada, 2016 SCTC 14 and Beardy’s & Okemasis Band #96 and #97 v. Canada, 2016SCTC 15 . These decisions draw on the analytical method employed by the Federal Court in Guerin v. The Queen, (FC), [1982] 2 F.C. 385, [1982] 2 C.N.L.R. 83 (T.D.) (Guerin FC) (which, though reversed by this Court, was ultimately upheld bythe Supreme Court).

That method emphasizes the need for a court of equity (or the Specific Claims Tribunal in applying equitableprinciples) to take into account contingencies (i.e. possible, but not necessarily certain, events) in assessing compensation. [23] The Federal Court held that the dam at Ear Falls was a public work, that it was certain that the Ear Falls dam would have beenbuilt and that the land would have been flooded. It thus concluded that it need not take into account a contingency that the dam might nothave been built.

[ 24 ] The Federal Court next noted that Canada must be presumed to act lawfully and therefore concluded that, had Canada done so, it would either have secured the land’s surrender as provided for in Treaty 3 and

section 51 of the Indian Act or taken the land as provided for in Treaty 3 and

section 48 of the Indian Act . The Federal Court found Canada would, in either case, have compensated the Lac Seul First Nation for the flooded land in 1929, the year of the dam’s construction. [ 25 ] The Federal Court rejected the argument that Canada would have negotiated a revenue-sharing agreement on the Lac Seul First Nation’s behalf. In the Federal Court’s view, such an agreement would have been unprecedented, would not have been considered by Canada, Manitoba or Ontario and was not consistent with the approach taken to compensating the other landowners on Lac Seul whose lands were also flooded by the dam.

Acknowledging that Canada had previously required the negotiation of arrangements providing for ongoing payments for water power and riparian rights to the Stoney Indian Band, the Federal Court distinguished the situation involving that band because the hydroelectric generating stations were located on the Stoney Indian Band’s reserve, not downstream, as was the case for the Lac Seul First Nation.

The Federal Court likewise gave no weight to precedent of the Treaty between Canada and the United States of America relating to Cooperative Development of the Water Resources of The Columbia River Basin (the Columbia River Treaty), which was signed on January 17, 1961, long after the Ear Falls dam was built, and which involved a much more complex, international agreement.

The Federal Court thus determined that if Canada had acted in accordance with its fiduciary duties to the Lac Seul First Nation, it would not have negotiated a revenue-sharing agreement. [ 26 ] The Federal Court found that Canada would instead have obtained a flowage easement over the flooded lands of the First Nation, which was the common approach in similar cases and would have represented the least invasive method of acquiring the right to flood the lands.

However, according to the Court, the amount that ought to have been paid for the easement was identical to that which would have been payable had the land been purchased outright because “[t]he land was to be swallowed up and unavailable to the band for eternity.… it was as close to an outright sale of the land as one can have and was to be compensated accordingly”: reasons, at paragraph 359. [ 27 ] The Federal Court then moved to assess the compensation that Canada was required to pay.

It began by assessing compensation for the land, itself, which the Court concluded should be fixed at $1.29 per acre in 1929 dollars (approximately $14 500 for the 11 304 acres flooded). This was the value of the land as agricultural land, based on the expert evidence the Federal Court accepted. The Federal Court rejected the contention that the increased value of the flooded land as part of a reservoir in support of downstream hydroelectric development was to be taken into account, pointing out that the value “attributable to the project” was to be excluded under both the Expropriation Act , R.S.C., 1985, c.

E-21 and the Expropriation Act , R.S.O. 1990, c. E.26 . [ 28 ] In so concluding, the Federal Court seemingly applied current expropriation law as opposed to that in force in 1929. It also determined there was no basis for concluding that a premium beyond the value of the land as agricultural land would have been negotiated even though such a premium had previously been paid for land acquired in connection with the Kananaskis Falls development project.

The Federal Court reasoned that the two projects were different in at least one material respect in that Calgary Power had no ability to expropriate the lands of the Stoney Indian Band used for the Kananaskis Falls development project and it was therefore in an “entirely different position” than Canada was vis-à-vis the Lac Seul First Nation: reasons, at paragraph 382. [ 29 ] The Federal Court thus concluded that Canada would have paid $1.29 per acre for the flooded lands and stated that “the suggestion that Canada could and should have paid more than this for the land, amounts to nothing more than optimistic speculation”: reasons, at paragraph 383. [ 30 ] The Federal Court then turned to value other calculable losses, concluding that the Lac Seul First Nation lost timber which could have been sold for approximately $35 000 in 1929 and that it had to spend $1.75 million in 2008 to build a bridge between the parts of the reserve separated as a result of the flooding. [ 31 ] The Federal Court acknowledged that Canada received $72 539 in compensation from Ontario in 1943 and deposited $50 263 in Lac Seul First Nation’s trust account, the remainder being deducted to satisfy claims made by Ontario and the Keewatin Lumber Company.

Both of these deductions, in the Federal Court’s view, were improper as the Lac Seul First Nation was not responsible for either claim. [ 32 ] Based on expert evidence concerning the interest that would have been paid on the funds had they been deposited in an Indian Trust Account maintained by Canada and upon concluding that no further deduction needed to be made for consumption by the members of the Lac Seul First Nation, the Federal Court determined that the present value of the compensation owed for calculable losses was $15 million, from which it deducted $1.1 million (the present value of the compensation Canada deposited in the Lac Seul First Nation’s trust account in 1943). [ 33 ] To this, the Federal Court added $16.1 million as compensation for non-calculable losses for a total award of $30 million.

The Federal Court considered a range of non-calculable losses, including the loss of livelihood on and off the reserve, as well as the loss of easy shore access and of natural beauty. The amount of non-calculable losses awarded was influenced by the following factors enumerated by the Federal Court at paragraph 512 of its reasons: 1. The amount of the calculable losses; 2. That many of the non-quantifiable losses created in 1929 persisted over decades, and some are still continuing; 3. The failure to remove the timber from the foreshore created an eyesore and impacted the natural beauty of the Reserve land; 4.

The failure to remove timber from the foreshore also created a very long-term water hazard effecting travel and fishing for members of the [Lac Seul First Nation]; 5. The flooding negatively affected hunting and trapping requiring members to travel further to engage in these pursuits and the number of animals were reduced for some period as a result of the flooding;

6. Although Canada supplied the materials to build the replacement houses, the [Lac Seul First Nation] members supplied their own labour; 7. The [Lac Seul First Nation] docks and other outbuildings were not replaced; 8. [Lac Seul First Nation] hay land, gardens and rice fields were destroyed; 9. The hunting and trapping grounds on the Reserve were negatively impacted; 10. Two [Lac Seul First Nation] communities were separated by water and one became an island, impacting the ease of movement of the people who lived there; 11.

Canada failed to keep the [Lac Seul First Nation] informed and never consulted with the band on any of the flood related matters that affected it, creating uncertainty and, doubtless, some anxiety for the band; and 12. Canada failed to act in a prompt and effective manner to deal with compensation with the [Lac Seul First Nation] prior to the flooding and did not do so for many years after the flooding, despite being aware of the negative impact on the band members. [ 34 ] The Federal Court dismissed the appellants’ claim for punitive damages, but awarded them their costs. III.

The Issues [ 35 ] I turn now to outline the issues in this appeal. [ 36 ] The appellants raise several interconnected arguments. In support of their primary contention that the Federal Court ought to have included in its award compensation for the loss of a revenue-sharing agreement, the appellants first argue that the Federal Court incorrectly defined Canada’s breach of fiduciary duty by failing to recognize that the breach consisted in permitting the unauthorized use of reserve lands.

They compare the situation to that in Guerin FC , where the Crown had entered into an unauthorized lease and say that, as in Guerin FC , they are owed compensation for the highest and best use of the flooded lands, assessed as of the date of trial.

In their view, this should lead to compensation for the value of a lost revenue-sharing agreement, akin to the one the First Nation more recently negotiated with Ontario Power Generation in respect of one of the downstream generating stations. [ 37 ] Closely tied to the foregoing point, the appellants contend that the Federal Court’s analysis is premised on an impoverished understanding of the nature of the fiduciary duties owed to the Lac Seul First Nation by Canada in that the Federal Court improperly allowed Canada to benefit from a retrospective expropriation of the flooded lands.

They also submit that the Federal Court improperly considered the First Nation’s lack of bargaining power in 1929, noting that Canada’s fiduciary obligations prevent it from placing any reliance on this fact as it was obliged to achieve the best possible result for the First Nation. [ 38 ] The appellants further argue that the Federal Court incorrectly determined what likely would have happened in 1929, had Canada not breached its fiduciary duties to the Lac Seul First Nation, submitting that the evidence led at trial does not support the conclusion that Canada would have expropriated the flooded lands.

They contend that, as opposed to only considering what Canada would have paid had it expropriated the lands, the Federal Court should also have considered what sort of agreement Canada ought to have made in the context of a willing surrender. They claim that such an agreement would have involved a revenue-sharing agreement.

The appellants say that the Federal Court incorrectly discounted the precedent from the Stoney Indian Band and erred in distinguishing it. [ 39 ] In the alternative, even if the Federal Court were right not to award the value of a revenue-sharing agreement, the appellants submit that the Federal Court was incorrect in its approach to setting compensation for the flooded land.

They make two arguments in this regard. [ 40 ] They first say that the Federal Court erred in applying current expropriation law to determine how compensation would be calculated and that under 1929 expropriation law such compensation would reflect the possibility that the Lac Seul First Nation’s land adjoining Lac Seul could be used to expand the lake’s capacity as a reservoir in support of downstream hydroelectric development.

This would, according to the appellants, give the land a far greater value than the $1.29 per acre found by the Federal Court. [ 41 ] The appellants secondly say that the Federal Court erred in distinguishing the Stoney Indian Band situation, where, in addition to entering into an agreement providing for annual payments for water power and riparian rights, Calgary Power also paid a premium to the Band for the land acquired.

The appellants contend that the Federal Court erred in distinguishing the Stoney Indian Band situation on the basis that Calgary Power lacked the ability to expropriate the land as in that case, like the situation of the Lac Seul First Nation, Canada could have expropriated the land in question under

section 48 of the Indian Act . [ 42 ] While these were the only arguments advanced orally by the appellants, they raised other arguments in their memorandum of fact and law. They there contended that the Federal Court exceeded its jurisdiction in granting an easement or, alternatively, failed to afford the appellants procedural fairness by granting the easement without soliciting the parties’ submissions.

However, they abandoned these arguments during the hearing. [ 43 ] In addition, in their memorandum of fact and law, the appellants submitted that the Federal Court erred in taking into account off- reserve losses of livelihood and that the award is insufficient to deter Canada from breaching its fiduciary duties.

They finally say that the Federal Court erred in relying on the appropriation provisions in Treaty 3 in the absence of any historical evidence from or reliance by the parties on the Treaty. [ 44 ] Canada, for its part, says that the Federal Court correctly identified the principles of equitable compensation and committed no palpable and overriding error in applying them.

In Canada’s view, the Federal Court made no palpable and overriding error in rejecting the appellants’ claim that the compensation they are due should reflect the value of an agreement Canada should have negotiated on their behalf to share in a portion of the revenue generated by downstream hydroelectric generating stations. Moreover, according to

Canada, the Federal Court’s approach to assessing compensation for the flooded land is consistent with the common law ofexpropriation as it stood in 1929, and the Federal Court did not err in distinguishing the Stoney Indian Band situation. Canada adds thatthe Federal Court did not err in its treatment of Treaty 3, could take into account losses of livelihood off-reserve in its assessment ofequitable compensation and that the overall award is sufficient to deter future wrongdoing. [45] Ontario and Manitoba were third parties in the action before the Federal Court.

The Federal Court dismissed Canada’s third partyclaim and Canada did not appeal that aspect of the Federal Court’s judgment. Accordingly, Manitoba did not participate in this appeal.Ontario did, but only to argue that the Federal Court did not grant an easement. As this has been conceded by the appellants, Ontario’ssubmissions are not relevant to the disposition of this appeal. IV. Analysis [46] The appellants and Canada agree on a wider set of issues than they had before the Federal Court.

It is therefore useful tocommence by summarizing the points on which the parties agree so as to focus the analysis on the areas of disagreement. [47] The parties agree that Canada owed the Lac Seul First Nation a fiduciary duty by reason of the discretionary control it assumedover the reserve land. They are correct in this assertion: see Guerin v. The Queen, (SCC), [1984] 2 S.C.R. 335, at page385, (1984), 55 N.R. 161 (per Dickson J. (as he then was)); Wewaykum Indian Band v. Canada, 2002 SCC 79, [2002] 4 S.C.R. 245(Wewaykum), at paragraph 86; Manitoba Metis Federation Inc. v.

Canada (Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623, atparagraph 51. [48] They also agree that Canada breached that duty by failing to meet the standard of care expected of a fiduciary. This standard isthat of a person of ordinary prudence in managing their own affairs. Once again, this reflects a correct

interpretation of the applicableequitable principles: see Blueberry River Indian Band v. Canada (Department of Indian Affairs and Northern Development), (SCC), [1995] 4 S.C.R. 344, (1995), 190 N.R. 89, at paragraph 104; Wewaykum, at paragraph 94; Williams Lake Indian Bandv.

Canada (Aboriginal Affairs and Northern Development), 2018 SCC 4, [2018] 1 S.C.R. 83 (Williams Lake), at paragraphs 46 and 48. [49] The parties further agree that the Federal Court properly exercised its discretion as a court of equity to award a remedy andappropriately selected the remedy of equitable compensation, a remedy that has previously been awarded and one that was open to theFederal Court: see, Canson, at page 589; Wewaykum, at paragraph 107; see also Federal Courts Act, R.S.C., 1985, c. F-7,subsection 2(1),

section 4, subsection 17(1) (defining “relief” as encompassing “every species of relief” including “by way of …payment of money”; establishing the Federal Court as, among other things, a court of equity; and granting the Federal Court concurrentoriginal jurisdiction in an action in which relief is claimed against Canada). [50] The parties also accept the Federal Court’s finding that the Ear Falls dam would have been built by the summer of 1929 and thatthe land would have flooded thereafter.

They also agree that the dam was a public work and that prior to the dam’s construction and theresulting flooding, Canada, had it acted in compliance with its fiduciary duties, could have obtained the right to flood the land througheither of the two routes established by the Indian Act as it read in 1929: (1) taking for public purposes authorized by order in councilmade under

section 48 of the Indian Act or (2) surrender with the band’s approval authorized by order in council made under

section 51. [51] Implicit in the Federal Court’s reasoning on this point is that Treaty 3 would not have impeded Canada from taking reserve landfor public purposes without securing the Lac Seul First Nation’s consent. Though they did not press the point at the hearing, as noted,the appellants argued in their memorandum of fact and law that the Federal Court compromised trial fairness by interpreting Treaty 3without the parties having made submissions on the issue. As Canada rightly points out, both it and the appellants referred to Treaty 3 intheir pleadings, putting its

interpretation squarely in issue before the Federal Court. The appellants therefore cannot now claim to havebeen surprised that the Federal Court addressed the

interpretation of Treaty 3 in its reasons: see Heron Bay Investments Ltd. v. Canada,2010 FCA 203, 405 N.R. 73, at paragraphs 22–24. [52] The appellants also submit that the Federal Court erred in interpreting Treaty 3 in the absence of historical evidence. Althoughhistorical evidence is often necessary for treaty

interpretation as was noted in R. v. Sioui, (SCC), [1990] 1 S.C.R. 1025,at page 1045, (1990), 109 N.R. 22; R. v. Marshall, (SCC), [1999] 3 S.C.R. 456, (1999), 246 N.R. 83, at paragraph 11;and Ermineskin Indian Band and Nation v. Canada, 2009 SCC 9, [2009] 1 S.C.R. 222, at paragraphs 54–55, the parties’ choice not tolead such evidence cannot prevent the Federal Court from interpreting Treaty 3 to the extent the Court needed to do so to resolve theissues before it. Moreover, the appellants do not allege any specific error that the Federal Court made in its

interpretation. There is thusno basis for this Court to disturb the Federal Court’s conclusions on Treaty 3. [53] Having reviewed the points on which the parties agree (and having dealt with the appellants’ arguments regarding Treaty 3), Iturn now to the points on which the parties disagree. The appellants and Canada principally part ways on the Federal Court’s applicationof the principles governing equitable compensation. [54] Delineation of the relevant equitable principles is reviewable on a standard of correctness: see, by analogy, Heritage CapitalCorp. v.

Equitable Trust Co., 2016 SCC 19, [2016] 1 S.C.R. 306, at paragraph 24 (correctness applies to the “interpretation [of] thecommon law”). Their application to the facts, absent an extricable error of principle, is reviewable on a standard of palpable andoverriding error: see, by analogy, Monsanto Canada Inc. v. Rivett, 2010 FCA 207, [2012] 1 F.C.R. 473, at paragraphs 22–23(commenting that appellate review of an award of damages is to be done in accordance with the standards of review identified in Housenv.

Nikolaisen, 2002 SCC 33, [2002] 2 S.C.R. 235 and adding that such an approach is equally applicable to review of an accounting ofprofits, an equitable remedy). [55] Palpable and overriding errors are significant errors. As this Court explained in a passage in Canada v. South Yukon ForestCorporation, 2012 FCA 165, 431 N.R. 286, at paragraph 46, that the Supreme Court quoted with approval in Benhaim v.

St-Germain,2016 SCC 48, [2016] 2 S.C.R. 352, at paragraph 38, “[p]alpable and overriding error is a highly deferential standard of review .…‘Palpable’ means an error that is obvious. ‘Overriding’ means an error that goes to the very core of the outcome”. [56] I turn now to the errors that the appellants allege.

A. Did the Federal Court commit a reviewable error in declining to award compensation for the failure to negotiate a revenue-sharing agreement? [57] Contrary to what the appellants submit, I see no error having been committed by the Federal Court in declining to awardcompensation for loss of a revenue-sharing agreement. The Federal Court did not commit any error in principle in reaching thisconclusion and it correctly outlined the principles applicable to equitable compensation.

Similarly, it made no palpable and overridingerror of fact or of mixed fact and law in concluding that the Lac Seul situation was fundamentally different from those situations relied onby the appellants where agreements providing for ongoing payments had been negotiated. [58] Turning first to the equitable precepts, as the Federal Court explained, equitable compensation is a form of monetary reliefassessed according to equitable principles and with the benefit of several equitable presumptions.

For the purposes of this appeal, sufficeit to say that a court of equity can order equitable compensation for any losses factually caused by the breach of fiduciary duty, includinglosses that were not foreseeable at the date of breach, but that have become known by the date of judgment: Canson, at pages 547–551and 555. Equity’s objective is not only to put the beneficiary in “as good a position as he or she would have been [in] had the breach notoccurred”: Hogkinson, at pages 440 and 443, but also to deter wrongdoing by fiduciaries: Canson, at pages 543–544 and 547.

A fiduciaryis presumed to act in accordance with the law: see Whitefish Lake, at paragraph 69. As a result, a fiduciary shown to have breached itsduty cannot reduce the compensation it is meant to pay by claiming that it would have acted unlawfully in the non-breach scenario.Likewise, a fiduciary is presumed to have put that which the beneficiary lost to its most advantageous use between the date of breach andthe date of judgment: Canson, at page 545; Semiahmoo Indian Band v.

Canada, (FCA), [1998] 1 F.C. 3, (1997), 148D.L.R. (4th) 523 (C.A.) (Semiahmoo), at paragraphs 109–115; Whitefish Lake, at paragraph 49. [59] Contrary to what the appellants submit, the Federal Court did not ignore these principles, but rather faithfully applied them in itsconsideration of whether the appellants were entitled to compensation for the loss of a revenue sharing agreement.

The loss suffered inthis case is different from that suffered in Guerin FC, relied on by the appellants, as here, unlike in Guerin FC, Canada had the right totake the flooded land in 1929 because the land was to be used for a public purpose.

Thus, the Federal Court correctly identified theimpact of the breaches of fiduciary duty committed by Canada as being both the deprivation of an opportunity to negotiate a surrender ofthe flooded land in 1929 and the deprivation in 1929 of the funds that ought to have been paid had Canada taken and exercised the rightto flood the reserve land. [60] In my view, the appellants’ invocation of the principle that equitable compensation is assessed with the “full benefit of hindsight”is misplaced.

Equity gives a beneficiary the full benefit of hindsight by allowing the beneficiary to recover for losses that may not havebeen foreseeable at the time of the breach, but become known by the date of judgment: Canson, at page 555. However, the losses mustnevertheless still flow from the breach: Canson, at pages 551 and 555–556; Semiahmoo, at paragraph 112. Likewise, the presumption ofmost advantageous use does not support the appellants’ position.

That presumption only applies to what the beneficiary has actually lostas a result of the breach of fiduciary duty. [61] For the appellants to recover the value of a revenue-sharing agreement, they must be able to establish that it forms part of whatthe Lac Seul First Nation lost as a result of Canada’s breach: see Canson, at page 551 (“equitable compensation must be limited to lossflowing from the [fiduciary’s] acts in relation to the interest he undertook to protect”).

The Federal Court found that there was noevidence supporting the view that the Lac Seul First Nation lost the opportunity to share in the revenue from downstream hydroelectricgeneration for two main reasons. [62] First, none of the others whose lands were flooded as a result of the Ear Falls dam were offered such an agreement and they werenot compensated in lieu for the value of such an agreement. Second, the situations that the appellants were able to point to whereagreements providing for ongoing payments were entered into were different.

The Columbia River Treaty was negotiated much later andwas a much more complex, international agreement: reasons, at paragraph 349. In the situation of the Stoney Indian Band, thehydroelectric stations were built at least partly on reserve land: reasons, at paragraph 346. There was ample factual basis in the recordbefore the Federal Court to support its conclusions that these situations were distinguishable from the Lac Seul First Nation’scircumstances.

The Federal Court therefore cannot be said to have made a palpable and overriding error in distinguishing them. [63] I accordingly do not believe that there is any basis to interfere with the Federal Court’s conclusion that Canada would havecompensated the appellants in a one-time payment for the flooded land and would not have secured an indefinite revenue-sharingagreement. B.

Did the Federal Court err in its assessment of the quantum of the one-time compensation for the loss of the flooded land? [64] I turn now to the appellants’ alternate position, namely, that the Federal Court erred in using the figure of $1.29 per acre asforming the basis for compensation for the flooded land in a one-time payment. It will be recalled that the appellants make twoarguments in support of this contention. They first submit that the Federal Court erred in using current as opposed to 1929 expropriationlaw, which they claim would lead to a different result.

Second, the appellants say that the Federal Court erred in distinguishing theKananaskis Falls situation as a relevant precedent for determining that Canada would not have negotiated a premium for the land, basedon its intended use as a reservoir in support of downstream hydroelectric generating stations. I disagree with the first of these argumentsbut do accept the second. [65] Turning to the first argument, I agree with the appellants that had Canada taken (or expropriated) the land, compensation wouldhave been determined in accordance with the common law as it stood in 1929.

In the taking scenario, subsection 48(2) of the Indian Actdid not specify the method by which compensation was to be assessed when the federal Crown was the taker: see Kruger v. The Queen, (FCA), [1986] 1 F.C. 3 (C.A.), at pages 39–40, (1985), 17 D.LR. (4th) 591 (per Urie J.A., concurring). Thus,reference would have been made to the background common law to determine the compensation due to the Lac Seul First Nation. [66] I agree with the appellants that, to the extent that the Federal Court used the law as it stood in 2017 as its point of reference, iterred.

Given its finding that compensation would have been paid in 1929, the question for the Federal Court was rather how suchcompensation would have been determined at that time. However, I disagree with the appellants that had the Federal Court followed the

law as it stood in 1929, it would have reached a different conclusion. [67] In 1929, the leading cases on compensation for expropriation were the decisions of the Judicial Committee of the Privy Council,then Canada’s final court of appeal, in Cedars Rapids Manufacturing and Power Company v. Lacoste, (UK JCPC),[1914] A.C. 569, (1914), 16 D.L.R. 168 (P.C.) (Cedars Rapids) (cited to A.C.) and Fraser v. City of Fraserville, (UKJCPC), [1917] A.C. 187, (1917), 34 D.L.R. 211 (P.C.) (Fraser) (cited to A.C.). The appellants also referred to Lacoste v.

Cedars RapidsManufacturing and Power Co., (UK JCPC), [1928] 2 D.L.R. 1 (P.C.), which reaffirms the principles in Cedars Rapids,and Re Ontario and Minnesota Power Co., Ltd. and Town of Fort Frances (1916), (ON CA), 28 D.L.R. 30, at page 38,35 O.L.R. 459 (S.C.(A.D.)), which likewise refers to Cedars Rapids, but does not elaborate on its teachings. [68] In Cedars Rapids, at page 576, Lord Dunedin gave the reasons of the Board, noting that the “law of Canada as regards theprinciples upon which compensation for land taken is to be awarded is the same as the law of England, and it has been explained …nowhere with greater precision than in the case of Lucas v.

Chesterfield Gas and Water Board …, where Lord Justices VaughanWilliams and Moulton deal with the whole subject exhaustively and accurately.” As he went on to explain, the two central propositionsthat govern this area are that: …. 1. The value to be paid for is the value to the owner as it existed at the date of the taking, not the value to the taker. 2. The value tothe owner consists in all advantages which the land possesses, present or future, but it is the present value alone of such advantages thatfalls to be determined.

Where, therefore, the element of value over and above the bare value of the ground itself … consists in adaptability for a certainundertaking … the value is not a proportional part of the assumed value of the whole undertaking, but is merely the price, enhancedabove the bare value of the ground which possible intended undertakers would give.

That price must be tested by the imaginary marketwhich would have ruled had the land been exposed for sale before any undertakers had secured the powers, or acquired the othersubjects which make the undertaking as a whole a realized possibility. [69] In Fraser, at page 194, Lord Buckmaster, giving the reasons of the Board, elaborated on the second proposition, writing that “thevalue to be ascertained is the value to the seller of the property in its actual condition at the time of expropriation with all its existingadvantages and with all its possibilities, excluding any advantage due to the carrying out of the scheme for which the property iscompulsorily acquired, the question of what is the scheme being a question of fact for the arbitrator in each case”. [70] The second proposition referred to in Cedars Rapids and Fraser arguably could point in opposite directions.

On the one hand, thevalue of the land includes that attributable to “existing advantages” and “possibilities” of the land, among them its “special adaptability”to certain uses, yet, on the other hand, the value excludes any value imputable to the scheme for which the land is being expropriated.Where the land’s special adaptability can be realized only through the scheme, it is arguably not clear whether the value attributable tothat adaptability is included and if so, to what extent. [71] The cases referred to by the Judicial Committee shed further light on this issue.

As noted, in Cedars Rapids and Fraser, theJudicial Committee referred to In re Lucas and Chesterfield Gas and Water Board, [1909] 1 K.B. 16 (C.A.) (Lucas) as stating the generalprinciples of this area of law. In Fraser, reference was also made to Sidney v. North Eastern Railway Co., [1914] 3 K.B. 629 (D.C.)(Sidney), in which judgment was rendered a few months after Cedars Rapids. [72] In Lucas, three Lord Justices of Appeal wrote separately.

Vaughan Williams L.J. explained that “special adaptability [is] anelement which the probability of purchasers requiring the land for such purposes gives to the land compulsorily taken such purposes”, tothe extent that it has value before the land is taken and before the probability is realized by those for whose benefit the land was taken:Lucas, at pages 27–28.

Buckley L.J. agreed: Lucas, at pages 36–37. [73] Fletcher Moulton L.J. took a more categorical view, explaining in Lucas, at page 31: … where the special value exists only for the particular purchaser who has obtained powers of compulsory purchase it cannot be takeninto consideration in fixing the price, because to do otherwise would be to allow the existence of the scheme to enhance the value of thelands to be purchased under it.

But when the special value exists also for other possible purchasers, so that there is […] a market […] inwhich that special value goes towards fixing the market price, the owner is entitled to have this element of value taken into consideration…. [74] In his concurring reasons in Sidney, Rowlatt J. elaborated on Fletcher Moulton L.J.’s approach, explaining that “[t]he value to theowner is not confined to the value of the land to the owner for his own purposes; it includes the value which the requirements of otherpersons for other purposes give to it as a marketable commodity, provided that the existence of the scheme for which it is taken is notallowed to add to the value.”: Sidney, at page 636.

The problem, as Rowlatt J. explains, is when one of the other purposes “seems at firstsight to infringe the principle that value due to the scheme is to be excluded”: Sidney, at page 636. The land’s “special adaptability forthe purposes of the particular scheme may be taken into consideration where it can be said that there might have been other competitorsfor it for that purpose, and to the extent that the competition of such possible purchasers with each other and with the promoter wouldraise the possible price that might have been obtained in the market”: Sidney, at page 636.

But, in the absence of the power toexpropriate, where the promoter has no competitors, “the owner need not sell to [the promoter]”: Sidney, at page 637. The promoterwould therefore “need to make higher and yet higher offers”, which the promoter would do because of “the value [of the land] to him forhis scheme”: Sidney, at page 637. Since the existence of the scheme is not to be taken into account, the premium the promoter wouldhave paid is excluded from the compensation. [75] In his concurring reasons, Shearman J. “agree[d] entirely” with Rowlatt J.: Sidney, at page 638.

For his part, Avory J., while notexpressly endorsing Rowlatt J.’s reasons, concluded that the arbitrator was entitled to take the possibility of competition among potentialbuyers with different intended uses for the land into account: Sidney, at page 635. [76] Canadian courts followed Sidney. The Supreme Court of Canada cited Rowlatt J.’s concurring reasons in Sidney with approval inThe King v. Hearn (1917), (SCC), 55 S.C.R. 562, at page 567 (per Idington J.), writing that it “agree[s] with the

observations of Rowlatt J. … from his judgment in the case of Sidney … at page 637 … bearing upon the exclusion from considerationof the market value, the advantages to be derived from the construction of the work in question for the promotion of which expropriationis made” and La Cité de Montréal v. Maucotel, (SCC), [1928] S.C.R. 384, at page 394, in which Rinfret J. (as he thenwas) put the point in these terms: [Translation] ….

To assess the indemnity on the basis that the alley has a certain value for the City of Montréal because it is speciallyadapted to the use that the City wants to make of it would be contrary to the principle set out in Fraser … and would grant an indemnityfor any [advantage] due to the carrying out of the scheme for which the property is compulsorily acquired . It is no longer necessary to discuss the reasons that led to the adoption of this principle.

Those reasons are clearly set out by Rowlatt J. inSidney. …. [Footnotes omitted.] [77] This Court’s predecessor, the Exchequer Court, which had jurisdiction in expropriation matters involving Canada under theExchequer Court Act, R.S.C. 1927, c. 34 and the Expropriation Act, R.S.C. 1927, c. 64 at the time, likewise cited Rowlatt J.’s reasons inSidney with approval in Raymond v. The King (1916), (CA EXC), 16 Ex. C.R. 1, 29 D.L.R. 574, at page 584, affd(1918), (SCC), 59 S.C.R. 682, 49 D.L.R. 689 and The King v. Quebec Gas Co. (1917), (CA EXC), 17Ex.

C.R. 386, 42 D.L.R. 61, at page 75, affd (1918), (SCC), 59 S.C.R. 677, 49 D.L.R. 692. [78] Given the Federal Court’s factual finding that compensation would have been paid in 1929, compensation would have beencalculated in accordance with the teachings expounded in Sidney.

Thus, to the degree that the Lac Seul First Nation’s land was speciallyadaptable to being flooded to expand Lac Seul’s capacity as a reservoir in support of downstream hydroelectric development, as theappellants argue, that possibility could only be realized through the construction of the dam, which is the “scheme” for which Canadawould have taken the land or secured its surrender. There is no suggestion that there existed a market for the land for other purchaserswho might have wanted to use the land as part of a reservoir.

The value attributable to that possibility must therefore be excluded fromthe compensation. [79] As such, the Federal Court’s finding that Canada would not have paid more than $1.29 per acre for the flooded land had itexpropriated the land in 1929 is not tainted by legal error. And, the appellants have failed to demonstrate that the Federal Court’s findingon this point amounts to palpable and overriding error. Having heard Duncan Bell’s evidence concerning land value, as well as NorrisWilson’s evidence on the purported limitations of Mr. Bell’s evidence, the Federal Court was entitled to accept Mr.

Bell’s evidence andaward compensation for the flooded land at $1.29 per acre. [80] Thus, the Federal Court did not err in its application of the relevant expropriation law principles. [81] I turn now to the second error alleged by the appellants, namely that the Federal Court erred in discounting the possibility of anegotiated surrender of the Lac Seul First Nation’s land and in distinguishing the Kananaskis Falls situation where Calgary Power bothentered into an agreement providing for ongoing payments for water power and riparian rights and paid a premium for the land that wasflooded. [82] According to the analytical method developed in Guerin FC, particularly at pages 441–442, the assessment of equitablecompensation requires that a court take into account realistic contingencies, i.e. events that could have occurred had the fiduciary dutynot been breached and that might have increased (or decreased) the value of what the beneficiary lost as a result of the breach. [83] As the Federal Court acknowledges, one of the contingencies in the instant case is that, rather than using its power to take LacSeul First Nation’s land in 1929, Canada would instead have initiated negotiations with Lac Seul First Nation, seeking a voluntarysurrender. [84] In these circumstances, as a fiduciary, Canada was arguably required to pursue a negotiated surrender before proceeding toexpropriation as a negotiated resolution would probably have been less detrimental to the Lac Seul First Nation.

Although the amountCanada would have had to pay had it expropriated the land would undoubtedly have influenced its position in negotiations with Lac SeulFirst Nation, the Federal Court was nonetheless required to assess whether the loss of the opportunity to negotiate a surrender might becompensable, either because a higher price might have been achieved or because loss of the opportunity to negotiate might becompensable per se. [85] I note that, as the appellants argued at the hearing, the Hudson’s Bay Company (HBC) may have received more than $1.29 peracre for its nearly 13 acres of land on the north shore of Lac Seul that were flooded by reason of the dam.

Ontario informed the HBC ofthe plan to build the dam and the flooding that would result. On behalf of itself, Manitoba and Canada, Ontario initiated negotiationswith the HBC as to the amount of compensation for the destruction of the HBC’s buildings and flooding of its lands. Ontario estimatedthe value of the buildings at $5 475, but this was disputed by the HBC, which estimated their value at $10 850. After lengthynegotiations, Ontario agreed to pay $7 000 as compensation for both the buildings and the land.

Ontario also transferred additional landto the HBC, which may have been additional compensation for the flooding. Ontario may thus have agreed to compensation in excess ofthe estimated value of the HBC’s buildings, suggesting that it perhaps put a value on the HBC’s land greater than $1.29 per acre. [86] I would add that Ontario’s approach to dealing with the HBC is in striking contrast to Canada’s posture towards the Lac SeulFirst Nation. None of Ontario, Manitoba or Canada owed a fiduciary duty to the HBC.

Yet Ontario informed the HBC of plans to buildthe dam and the resulting flooding, initiated negotiations with the HBC concerning compensation, and, once it was agreed to, promptlypaid that compensation.

Canada afforded none of this to the Lac Seul First Nation. [87] The Federal Court did not refer to any of the evidence regarding the amounts paid to the HBC nor to any other evidence thatwould have allowed it to categorically discount the possibility that, in negotiations with Lac Seul First Nation, Canada might have beenwilling to pay a premium over the amount it would have been required to pay had it expropriated the Lac Seul First Nation’s land.

[ 88 ] As noted, the appellants relied in part on the Kananaskis Falls precedent, where Canada required Calgary Power, that dam’s proponent, to negotiate a resolution with the Stoney Indian Band that resulted in that Band’s receiving a payment for flooded lands well in excess of their value as agricultural lands. [ 89 ] The Federal Court distinguished the Stoney Indian Band precedent by concluding that there was no power to expropriate in that case, unlike the situation of the Lac Seul First Nation.

The Federal Court’s reasoning on this point is set out at paragraphs 381–382 of its reasons, which it is useful to reproduce in their entirety.

The Federal Court there wrote: This manner of proceeding [i.e. concluding that the amount that would have been paid had the land been expropriated is the same as Canada would have agreed to in a negotiated surrender] may seem contrary to that advanced by Indian Affairs in the Kananaskis Falls development where, it will be recalled, the Department informed Calgary Power that the cost of the land must exceed its agricultural value as the “value in the lands consists in their usefulness in connection with the development of power at Kananaskis Falls and in this connection they have a considerable value.” But the Lac Seul Storage Project and the Kananaskis Falls development were considerably different in at least one material respect.

Indian Affairs had a legal opinion that Calgary Power had no ability to expropriate any Reserve lands. This put Calgary Power vi

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