In the recent decision Ermineskin Indian Band and Nation v. Canada, the Supreme Court of Canada dismissed allegations that the Crown’s fiduciary duty included a duty to invest the royalties of Aboriginal bands. The Court confirmed that fiduciary obligations are limited by the relevant statutory framework and must be balanced with the Crown’s responsibilities to all Canadians.

The Facts

Under the terms of Treaty No. 6, the federal government holds oil and gas royalties from reserves beneath the Samson Reserve and Pigeon Lake Reserve in trust for the Ermineskin Nation and Samson Nation (the Bands). The royalties were placed into the federal government’s consolidated revenue fund (CRF), and interest was paid to the Bands. The Samson Nation and Ermineskin Nation filed claims in 1989 and 1992, respectively, alleging that the Crown had a fiduciary obligation to invest the oil and gas royalties collected on their behalf, and the Crown’s failure to invest had deprived the Bands of hundreds of millions of dollars in investment revenue since 1972.

The Crown’s Fiduciary Obligation

The primary issue before the Supreme Court of Canada in this case was whether the Crown was obligated as a fiduciary to invest the oil and gas royalties that it was holding on behalf of the Bands. The parties conceded that the Crown has fiduciary obligations with respect to the Bands’ royalties. However, the Bands argued that as a fiduciary, the Crown is obligated to act in accordance with the same duties as a trustee at common law which includes the duty to invest.

The Court concluded that, based on the relevant statutory framework, the Crown did not have the obligation or the authority to invest the Bands’ royalties. The Court held that the language of Treaty No. 6 did not support an intention to impose on the Crown the duties of a common law trustee. Instead, Treaty No. 6 merely gave rise to an obligation to guarantee that the royalties would be preserved and would increase over time. The Court recognized that the fiduciary relationship between the Crown and the Band arose from the instruments of surrender from 1946, and is “trust-like in nature.” This means that the Crown possesses a discretionary power to act in the best interests of the Band. For example, the Crown may only grant mineral rights upon terms that are most conducive to the welfare of the Bands, and will hold the proceeds of granting those rights on behalf of the Bands. However, legislation may limit the discretion and actions of a fiduciary, including the Crown’s ability to invest the royalties. After an extensive analysis of the Indian Act, Financial Administration Act and the Indian Oil and Gas Act, the Court determined that the Crown had no authority to make, hold and manage investments made with Indian moneys held in the CRF. Furthermore, the history of dealings between the Bands and the Crown supported the Crown’s position that a transfer of royalties to the Bands so that they could invest on their own, would not have been in the best interests of the Bands.

The Bands also argued that the Crown had breached its fiduciary obligations in the way in which it calculated and paid interest on the royalties. The Court disagreed, noting that the Crown’s position was unique because it owed fiduciary duties to the Bands as well as responsibilities to taxpaying Canadians who finance the public treasury from which the interest is taken. Some balancing must inevitably be involved. The Court concluded that compliance with fiduciary obligations must be viewed prospectively and the use of a floating long-term rate was prudent and consistent with the Crown’s fiduciary duty.

It was also alleged that the Crown had breached its fiduciary duty by placing itself in a conflict of interest where it borrowed from the CRF without the consent of the Bands. This argument was rejected by the Court because the borrowing was required by legislation. The Court held that the “conflict of interest” was an inevitable consequence of the statutory scheme and a fiduciary cannot be said to breach its fiduciary duty when acting in accordance with legislation.

The Bands’ claims were ultimately dismissed.

Implications of Case

Where the Crown has assumed discretionary control over specific Aboriginal interests, the honour of the Crown will give rise to a fiduciary duty. The content of the fiduciary duty varies, and with this case the Supreme Court of Canada has confirmed that the actions of the Crown as a fiduciary will be limited by the relevant statutory framework. Furthermore, a fiduciary that acts in accordance with legislation cannot be said to be breaching its fiduciary duty. It is also noteworthy that the Crown’s fiduciary duties to First Nations does not trump its responsibilities towards all Canadians. Instead, the Crown’s different obligations must be balanced. This ruling will affect more than 600 First Nations who have accounts with the federal government.

The guidance provided in this case should be helpful in managing the expectations of First Nations in their dealings with the Crown. It also highlights the importance of understanding the statutory framework that applies to the circumstances at hand.