Reconsidering Past Bargains as a Facet of the Crown’s Fiduciary Duty

A recent judgment from the Federal Court of Appeal appears to have cast doubt on the future of Kinder Morgan’s Trans Mountain pipeline. On September 26, 2017, a split Court ruled in Coldwater Indian Band v. Canada (Aboriginal Affairs and Northern Development), 2017 FCA 199, that the Minister’s decision to consent to an assignment of an easement over land held for the benefit of Coldwater was unreasonable. The majority of the FCA held that in assessing whether to consent to the assignment, the Minister had failed in his fiduciary obligation to consider whether assignment of the easement under its original terms would be in Coldwater’s continuing best interest.

The Trans Mountain Pipeline, which traverses 14 reserves held for the benefit of 18 First Nations including the Coldwater Indian Band, was originally owned by Trans Mountain. In 1952, Trans Mountain made a request for right-of-way easements across various reserves, which was approved by the Minister then responsible for the administration of the Indian Act, R.S.C. 1952, c. 149.

Under the terms of the easement that fell on Coldwater’s reserves, Trans Mountain paid the band $1,292 in compensation as well as $1,125.09 for damages and loss of timber from the area. These terms were approved by the Coldwater Band Council in 1952.

Between 2002 and 2007, Trans Mountain underwent a series of corporate mergers and acquisitions which ultimately left the Trans Mountain Pipeline under Kinder Morgan Canada’s control. Kinder Morgan obtained the certificates of public convenience required to operate the pipeline from the Governor in Council.

However, at issue in this litigation was Clause 2 of the easement itself, which required the Minister’s consent to any assignment of the easement.

When Kinder Morgan ultimately sought this consent in 2012, Coldwater advised the Department of Aboriginal Affairs and Northern Development that the Band had determined it was not in its interest for the Minister to consent to the assignment. Essentially, Coldwater took the position that the original terms of the easement were no longer fair, and that the desired assignment of the easement provided the Minister with an opportunity to push Kinder Morgan to renegotiate these terms.

Ultimately the Minister consented to the assignment without any conditions, essentially on the grounds that Kinder Morgan had the legal and financial capacity, corporate and operational track record, and overall capability to fulfill the terms of the easement.

This was insufficient for the Federal Court of Appeal.

Writing for the majority, Dawson J.A. first found that by requiring the Minister to consent to any assignment of the easement, the Crown granting the easement in 1952 “undertook discretionary control over any assignment in a way that invoked a fiduciary obligation on its part” (para. 49).

The scope of the Crown’s fiduciary duty varies with the nature and importance of the interest at issue. The majority found that Coldwater’s use and enjoyment of its land was an issue of central importance, so accordingly, the Crown’s duty when considering whether to consent to assignment of the easement was “to preserve and protect the Band’s interest in the reserve land from an exploitive or improvident bargain” (52).

While the content of the fiduciary duty may take account of the Crown’s other, broader public interest obligations, it still required the Crown to act with reference to Coldwater’s best interest. Notably, an assessment of that best interest obliged the minister “to have regard to the current and ongoing impact of the continuation of the terms of the easement on Coldwater’s right to use and enjoy its reserve lands” (91).

In short, the Crown’s fiduciary duty required the Crown to reassess the continued legitimacy or fairness of an agreement entered into decades ago.

The majority went on to find that in this case, the Minister had failed to consider the current and ongoing impact of the continuation of the original terms of the easement on Coldwater’s right to use and enjoy its reserve lands. The Minister’s consent to the easement was consequently unreasonable. The Court remitted the decision back to the Minister for redetermination in accordance with the majority reasons – that is, taking into consideration the actual impact on Coldwater’s rights.

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The majority’s reasons do not purport to be a watershed. Dawson J.A. is careful to point out that the Federal Court of Appeal had recognized back in 1998, in Semiahmoo Indian Band v. Canada, [1998] 1 F.C.R. 3, that the Crown may have continuing obligations to First Nations even after a surrender of land occurs, and that these obligations may require the Crown to provide relief if it determines that the surrender was excessive. The majority in Coldwater viewed the principles established in Semiahmoo as being equally applicable in a case where the Crown must actually make a discrete decision about the subsequent use of surrendered land.

Yet the majority does not clearly articulate what would trigger the fiduciary requirement of reassessing the continuing validity or opportunity of the terms of a surrender of land. In Semiahmoo, the First Nations band actually alleged that the Crown had breached its fiduciary duty in the course of the initial surrender of land, a position ultimately upheld by the Federal Court of Appeal. In the present case, the consent of the Minister was required by a clause contained in the easement, thus triggering fiduciary obligations on the Minister’s part.

Yet as Webb J.A. points out in his dissent, not all corporate transactions would require the Minister’s consent. A sale of shares of the Grantee of the easement, for instance, would not necessitate assignment of the easement, would not require the Minister’s consent and would not, on the logic of the Federal Court of Appeal, consequently trigger an application of the Minister’s fiduciary duty to consider whether the continued application of the original terms of the easement were appropriate.

Could the Crown’s fiduciary obligation be triggered following surrender but absent a specific requirement for the Crown to make a decision involving that land? For instance, could a First Nation simply make a request to the Crown that an existing agreement be renegotiated in light of its modern-day inequity? Coldwater does not provide a clear answer to these questions.

Nevertheless, in terms of its articulation of the scope of the Crown’s fiduciary duty and the manner in which it influences the factors that the Crown must take into account when rendering a decision that concerns Aboriginal land, this decision nudges open the door to the possibility of reconsideration of prior agreements over land rights entered into by Aboriginal groups. It will be particularly interesting to see whether Coldwater will be adopted in other contexts, including in more classic situations where the Crown is statutorily mandated to make a decision relating to the continued use of Aboriginal land, as well as in litigation over the scope and application of the duty to consult.

And of course, the novel nature of this case might make it ripe for an appeal to the Supreme Court. Stay tuned…