It is well known that First Nations / Band Councils owe fiduciary duties to their Nation and members. This duty generally arises whenever a Council makes a discretionary decision that will affect its Nation or its members. For example, when a Council makes a decision regarding spending, saving, or investing “Indian moneys”, it must do so carefully and in a manner that satisfies its underlying fiduciary duties.
In a somewhat similar manner, directors owe fiduciary duties to their companies. Although these relationships offer some guidance on Council’s obligations associated with its fiduciary duties, the two entities – a First Nation and a company – have fundamental differences. For example, directors only owe fiduciary duties to their company; not to the company’s shareholders, bondholders, or employees. Conversely, Councils have duties to act in the best interests of both their members and their Nation – which duties can occasionally conflict. The matter is further complicated by the different types of “Indian moneys” under the Indian Act – including:
- capital moneys, that are derived from the sale of capital assets;
- revenue moneys, that are moneys collected, received or held by the Crown for the use and benefit of a band;
- settlement moneys derived from a resolved land claim or litigation with the Crown;
- own income, derived from the Band’s own commercial activities; and
- damages, from successful litigation.
Each category of “Indian moneys” may involve different decisions, different decision-makers, and different obligations.
In light of this complexity, it is critical that Councils seek legal advice when making difficult decisions regarding band moneys. Seeking such advice reveals a prudent approach to governance that reflects the careful attention that a fiduciary, such as a Council, owes its beneficiaries.
The question of remuneration commonly arises with respect to Council’s decisions on spending “Indian moneys”. The BC Court of Appeal carefully considered this matter in Louie v. Louie, 2015 BCCA 247.
In that case, the Lower Kootenay Indian Band had received $125,000 from the Regional District as compensation for the use of a road crossing one of its reserves. A few days later, the Band Council held a meeting, part of which was private. During the closed (private) meeting, the Councillors decided to pay themselves $5,000 each as a “retroactive honorarium” for their work as members of Council.
The decision to pay the $5,000 honorariums was challenged on the basis of a breach of fiduciary duty.
In evaluating the claim, the Court of Appeal revisited two long-standing obligations of fiduciaries: the no-conflict rule and the no-profit rule. In brief, the no-conflict rule aims to prevent a fiduciary from being swayed by considerations of personal interest, while the no-profit rule aims to prevent the fiduciary from misusing his or her position for personal advantage.
The no-conflict rule is generally viewed as an objective standard – accordingly, matters such as the subjective motivations of the fiduciary, the absence of actual harm to the beneficiary, and whether the fiduciary actually profited, are irrelevant. The subjective motivations of the fiduciary only come into play in determining the appropriate measures of relief for breaches of the fiduciary duty.
The no-profit rule applies strictly, unless otherwise expressly provided. As such, decisions regarding Council remuneration must be made in accordance with previously published bylaws or rules. Notably, in Louie v Louie, the Council decided to issue the $5,000 bonuses based on informal past practices; their decision was not made in accordance with any existing bylaw.
At the trial level, the judge found that as the bonuses were issued in accordance with the Council’s past practices, the Council had not breached its fiduciary duties. On appeal, however, the Court of Appeal unanimously rejected this finding, concluding instead that the Councillors acted to the detriment of the Band in deciding to pay themselves $5,000 each out of the Band revenues. In reaching this finding, the Court of Appeal highlighted the following:
- the benefit was clearly one that could have accrued to the beneficiary;
- the amount ($5,000 each, and $25,000 in total) was not small or insignificant; and
- as a one-time payment, it was a detriment to the Band that did not benefit future members of Council or of the Band.
In summary, Louie v. Louie does not specifically exclude Councils from making decisions regarding their remuneration. It does, however, highlight the importance of making such decisions only in strict compliance with existing bylaws or rules, and in a manner that can be shown to benefit current and/or future members of a Nation.
In addition to the development of clear bylaws/rules in relation to compensation, some Nations have established third-party/arm’s length compensation committees that set the level of remuneration for Chief and Council, as well as for other positions within the Nation’s government. This can help instill greater confidence in the determination of compensation, and insulate Chiefs and Councillors from any suggestions of conflict of interest or breach of fiduciary duty.
As this can be a complex matter, prudent Councils that recognize the importance of their fiduciary duties generally seek legal advice before making significant decisions regarding the use of “Indian moneys”.