Lac Seul First Nation wins appeal to have damage award reconsidered in historic flooding case

Supreme Court agrees $30 million awarded to northern Ontario First Nation is insufficient

Lac Seul First Nation wins appeal to have damage award reconsidered in historic flooding case
Rosalind Cooper is an environmental lawyer in Fasken Martineau DuMoulin LLP’s Toronto office.

A First Nation has won its appeal to have damages reviewed for historical flooding on its lands, in a ruling from the Supreme Court of Canada that has confirmed the Crown’s fiduciary duties to Indigenous peoples.

In an 8/1 decision in Southwind v. Canada today, the Supreme Court found that the $30 million awarded to the Lac Seul First Nation (LSFN) was insufficient compensation for the extensive damage and loss of land suffered by LSFN, since it accounted for the loss of reserve land without considering the land’s value to the hydroelectricity project that was constructed on it.

Writing for the majority, Justice Andromache Karakatsanis ordered the case be sent back to the Federal Court to reassess the amount. She also took note of the Crown’s special relationship with Canada’s Indigenous peoples, and the duties owed to them.

“The honour of the Crown — and the sui generis fiduciary duty to which it gives rise — is a vital component of the relationship between the Crown and Indigenous Peoples,” Justice Karakatsanis wrote. The Crown’s fiduciary duty “structures the role voluntarily undertaken by the Crown as the intermediary between Indigenous interests in land and the interest of settlers.”

The decision looked at how damages should be measured, and on expropriation law and common law principles applicable to damages, says Rosalind Cooper, an environmental lawyer in Fasken Martineau DuMoulin LLP’s Toronto office.

“What's really notable about this decision is that it's saying that that's not a sufficient or adequate way of doing it” when considering fiduciary duty owed by the Crown to Indigenous peoples. In such cases, “you can't apply those simple common law principles. You have to approach it in a different way that takes into account that duty.”

Lac Seul First Nation is an Ojibwe First Nation band government located on the southeastern shores of Lac Seul, 56 kilometres northeast of Dryden, Ontario. In an action initiated in 1991, the LSFN claimed damages from the Crown for losses caused to it and its members as a result of the flooding of a part of its reserve following the construction of a dam where Lac Seul drains into the English River.

The dam was completed in 1929, after Canada, Ontario and Manitoba had signed the Lac Seul Storage Agreement. As a result of raising the water level of Lac Seul for the construction of the dam, and the resulting flooding, nearly one-fifth of the Lac Seul reserve was rendered unusable, with water covering about 17 per cent of the reserve. Timber was lost, graves were submerged, homes and fields were destroyed, and portions of the reserve were severed from one another.

Canada did not seek LSFN’s consent to surrender the land, nor did it expropriate it. The Federal Court found the trial judge erred in using current expropriation law rather than 1929 expropriation law, and by finding that Canada had no power to expropriate with respect to a comparable project, the Kananaskis Falls Project. However, it found that these errors did not affect the outcome, and awarded the appellants $30 million in equitable compensation for breach of fiduciary duty committed by Canada.

The LSFN appealed the quantum of the award, contending that the Federal Court erred in the assessment of the equitable compensation awarded, namely in the value it attributed to the flooded land. The majority dismissed the appeal. A dissenting judge would have allowed the appeal and remitted the assessment of equitable compensation for redetermination.

In today’s judgment Justice Karakatsanis, for the majority, found the LSFN was entitled to equitable compensation for the last opportunity to negotiate an agreement reflecting the value of the land to the hydroelectricity generation project.

“A hypothetical flowage easement at $1.29 an acre is not an appropriate measure of compensation in this case because it does not reflect the value of the land to the Project,” wrote Justice Karakatsanis in her reasons. “The sole basis for this valuation is the conclusion that because the Project was a public work, and Canada could have expropriated the land, Canada was not expected to secure compensation for the LSFN reflecting the value of its land to the Project. I cannot agree. …

“[T]his approach is inconsistent with the unique nature of the Indigenous interest in reserve land and the devastating impact of the flooding on the LSFN. It does not reflect the honour of the Crown nor serve the overarching goal of reconciliation. The LSFN is entitled to equitable compensation for the lost opportunity to negotiate for an agreement reflecting the value of the land to the hydroelectricity generation Project.”

In dissenting reasons Justice Suzanne Côté found that the trial judge had made no reviewable errors in concluding that $30 million was an appropriate compensation amount.


The judgment “does create a new framework for completing the … evaluations that would occur with respect to the assessment of damages,” says Cooper. “The case will … in future require a regard for the fiduciary duty aspect owed to Indigenous people, and, and therefore impose a different approach to assessment than might otherwise be the case in your traditional common law case.”

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