Who gets compensation for failed Aboriginal consultation?

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The Supreme Court of Canada has closed the final door in the complicated saga of a B.C. logging dispute that raised questions about Aboriginal consultation, and the remedies available to both First Nations and corporations when the consultation process fails.

The Supreme Court of Canada denied a logging company leave to appeal a series of decisions that first awarded a company (Moulton Contracting) $1,750,000.00 in damages from the Crown for a failed Aboriginal consultation process, and then reversed that decision.

In denying the appeal of the B.C. Court of Appeal decision in Moulton Contracting Ltd. v. British Columbia, the Supreme Court has confirmed the reluctance of the courts to hold the Crown liable to third parties (such as corporations) affected by the Crown’s failure to fulfill its duty to consult. This decision will affect similar cases across Canada that have been wending their way through the courts.

The Original Behn and Moulton Dispute

The Behn and Moulton case started when B.C. granted Moulton a logging license in an area in which the Behn family (members of the Fort Nelson First Nation) had a trapline. The area is Treaty 8 territory. The Behn family had raised concerns with the Crown about consultation, including the need for the Crown to fund the consultation, but the Crown did not resolve these issues. When B.C. issued a logging license to Moulton, the Behns again raised concerns about consultation and advised that they would attempt to stop the logging.

Behn v. Moulton – Case # 1

A legal challenge by the Behn family, challenging the lack of Aboriginal consultation, ended up in the Supreme Court of Canada. The key issue in the first Behn v. Moulton case was the question of who had standing to challenge an Aboriginal consultation case. The Supreme Court denied the Behn family standing to rely on their Aboriginal collective rights as a defense to justify their blockade of the Moulton logging operation. The Supreme Court ruled that the First Nation, not the individual family members, had standing to assert a breach of the duty to consult. The Behn family members were left with no remedy, including any damages for their destroyed traplines.

Behn v. Moulton – Case #2

After the Behns erected the blockade, preventing Moulton from logging in the area, the company sued the provincial Crown for breach of contract and negligent misrepresentation. Moulton claimed that the Crown’s failure to properly consult the First Nation (thus leading to the logging blockade which prevented them from logging) had economically harmed their company.

In the initial trial, the  judge found that there was an implied term in the logging licenses and that the Crown had implicitly represented to Moulton, “that the Province was not aware of any First Nations expressing dissatisfaction with the consultation undertaken by the Province, save as the Province had disclosed to Moulton Contracting.” The trial judge found that the Crown had breached that representation and awarded $1,750,000.000 in damages for Moulton’s lost opportunities to enter into alternative logging contracts. Judith Rae’s summary and analysis of the trial decision (and an update) can be found here.

The B.C. Court of Appeal later overturned the trial judge’s decision, finding that there had been no implied contractual term in the logging licenses. The Court of Appeal found that a term in the logging licenses explicitly exempting the Crown from liability was contradictory to any implied intention in the contract that the Crown is liable in these circumstances. The Court of Appeal also found that no implied term in the licenses should be imported as a result of the duty to perform contracts in good faith. The Court of Appeal found that there was no issue as to whether the Crown had acted “dishonestly, unreasonably, capriciously or arbitrarily” so the duty of good faith performance had no application. The Court of Appeal also held that the Crown was not liable for negligent misrepresentation.

In the outcome, Moulton lost the ability to obtain damages from the B.C. Crown for the failed Aboriginal consultation process which resulted in the logging blockade and asserted loss of business opportunities.

The Result: Continuing Questions About the Crown’s Liability to Corporations When Consultation Fails

The B.C. Court of Appeal decision does not mean that the Crown can never be liable to a third party for failing to consult with a First Nation, but it certainly means that any future cases will have to be highly dependent on the facts of the situation.  Since the Supreme Court of Canada has denied leave to appeal, the B.C. Court of Appeal’s decision is the highest-level court decision to deal with this issue.

As Lorraine Land has written previously, the issue of Crown liability to third parties for the Crown’s failure to consult First Nations is a difficult one. On the one hand, if the Crown is liable to pay significant damages if it does not consult adequately with First Nations, there is a much bigger impetus for the Crown to ensure that it approaches its consultation obligations seriously. This increases the likelihood that the Crown will work with First Nations in an honourable and respectful manner. While it is sad that the Crown often needs a financial incentive to respect First Nations, unfortunately this is often the case.

On the other hand, the concept of third party damages is exasperating in contrast to what First Nations are typically awarded in court. Generally when courts find that the Crown has breached its duty to consult with First Nations, even when the court rules in the First Nation’s favour, the remedy is often just a declaration of the breach or an order that the Crown undertake further consultation. In order to be awarded damages, a First Nation would have to bring an action for breach of Aboriginal rights, a much more complex and unprecedented action than a simple breach of contract or misrepresentation case.

If the B.C. Supreme Court decision had stood, third parties whose “rights” to land and resources are based in paper licenses and permits would stand to be awarded millions when the Crown fails First Nations, while First Nations, whose rights are based in treaties and the Constitution, would still be stuck with hollow remedies.

While the Supreme Court’s denial of leave to appeal closes this particular case, the larger issues of how to incentivize the Crown to take its responsibilities to First Nations seriously and how the First Nation should be properly compensated when the Crown fails, are very much alive.

By Michael McClurg