Tuesday, December 17, 2024

What does it mean that the Honour of the Crown applies to contracts between governments and Indigenous peoples? Until recently, this was a theoretical question. But on November 27, 2024, the Supreme Court of Canada released Quebec (Attorney General) v Pekuakamiulnuatsh Takuhikan. In this precedent-setting decision, the Supreme Court confirmed that contracts between the Crown and Indigenous communities can engage the honour of the Crown. The decision set out a two-part test for determining which contracts attract the honour of the Crown.

For people representing Indigenous communities in negotiations with Crown governments, whether in leadership, as a negotiator or as legal counsel, the Supreme Court’s decision will change how you negotiate, and what your final agreements look like.

Pekuakamiulnuatsh Takuhikan also provided new guidance on the remedies available when the Crown breaches obligations flowing from the honour of the Crown. These remedies are now part of a new category of tools that courts can use to resolve disputes between Indigenous peoples and the Crown, which the court called “reconciliatory justice.”[1] These remedies should be flexible, context dependent, sensitive to Indigenous perspectives, and should not only compensate an Indigenous claimant for past wrongs but “place the parties on the path to reconciliation.”[2]

What was the case About?

The contracts at the heart of the case were tripartite agreements between Quebec, Canada and Pekuakamiulnuatsh Takuhikan (the band council of Pekuakamiulnuatsh First Nation) to establish and fund an Indigenous police force for the Mashteuiatsh community called the Sécurité publique de Mashteuiatsh (“SPM”).

The parties entered their first tripartite agreement in 1996 and entered successive similar agreements from then on.[3] Under the tripartite agreements, Canada and Quebec promised to fund SPM to a “maximum amount,” while Pekuakamiulnuatsh Takuhikan was responsible for operation of SPM and any operating deficits.[4]

Between 2013 and 2017, SPM had a deficit of nearly $1.6 million for operating costs above the funding levels.[5] In that period, Canada and Quebec knew that funding under the tripartite agreements was insufficient to meet the SPM’s needs but they refused to negotiate funding. Pekuakamiulnuatsh Takuhikan repeatedly agreed to renewal to maintain the SPM, sinking into a further deficit, rather than reverting to a non-Indigenous police service.[6] Pekuakamiulnuatsh Takuhikan sued Canada and Quebec for failing to negotiate funding for the SPM for 2013 to 2017.

What happened in the lower courts?

At trial, the judge dismissed the case, rejecting Pekuakamiulnuatsh Takuhikan’s arguments that Canada and Quebec had breached a duty to contract in good faith, obligations flowing from the honour of the Crown, and fiduciary obligations.[7]

The Quebec Court of Appeal overturned the trial judge’s decision and ordered Canada and Quebec to pay their respective shares of the SPM deficit.[8] Canada paid Pekuakamiulnuatsh Takuhikan its portion of the deficit.

Only Quebec appealed to the Supreme Court of Canada.

What did the Supreme Court Decide?

The Supreme Court of Canada upheld the decision of the Quebec Court of Appeal in a seven judge Majority decision. Justice Côté wrote a lone dissenting opinion.

Quebec Breached its Duty of Good Faith Contract Performance

The Supreme Court concluded that Quebec breached a contractual obligation of good faith when it refused to enter genuine negotiations about the funding clause of the tripartite agreements. Although Quebec knew that its inadequate funding offers were causing difficulties for Pekuakamiulnuatsh Takuhikan and putting maintenance of the SPM in jeopardy, it insisted that its previous promise to only fund SPM to a “maximum amount” was binding.[9] The Court explained that the tripartite agreements envisioned a long-term relationship during which the funding would be reassessed and renegotiated.[10] The Court found that the parties intended to reassess funding based on the preamble section of the agreements which said the agreements aimed to maintain the SPM and the fact that the agreements had an extension clause would allow for funding negotiations.[11] This conclusion was reached despite the “maximum amount” clause in the agreement.

The Court explained that good faith in negotiations does not require a specific outcome, but it does require the Crown to consider the interests of the other party and avoid being unreasonable, which Quebec failed to do.[12]

As a remedy for the breach of good faith, the Court said Quebec owed Pekuakamiulnuatsh Takuhikan money to compensate it for the injury suffered. The Court could not calculate this remedy from the available evidence, and so it would have sent the case back to the trial level court for another hearing if the Court had not been able to award a remedy based on the honour of the Crown.[13]

The Honour of the Crown Can Apply to Crown-Indigenous Contracts

The Supreme Court established that the honour of the Crown can apply to certain Crown contracts with Indigenous peoples.

The Court set out a new two-part test for when a contract attracts the honour of the Crown:

1. “First, the agreement in question must be entered into by the Crown and an Indigenous group by reason and on the basis of the group’s Indigenous difference, which reflects its distinctive philosophies, traditions and cultural practices.”[14] Furthermore, the honour of the Crown will only apply “if the contract has a collective dimension.”[15]
2. “Second, contractual agreements will engage the honour of the Crown where they relate to an Indigenous right of self‑government, whether the right is established or is the subject of a credible claim.” The Court limited its decision to self-government because that was the subject of the agreement in the case at issue. However, the Court was explicit that it left open the possibility that other Indigenous rights or interests might engage the honour of the Crown in connection with a contractual undertaking in other contexts.[16]

Applying this test, the Court said the honour of the Crown applies to the tripartite agreements because they relate to a right of self-government claimed by the Pekuakamiulnuatsh First Nation in matters of public safety in the community.[17] In 2004, Pekuakamiulnuatsh Takuhikan entered an agreement in principle with Canada and Quebec to pursue treaty negotiations. That agreement contemplated negotiation of treaty self-government rights, including the First Nation taking on operation of a police force.[18] Pekuakamiulnuatsh First Nation has not yet signed a treaty, but the Court said that the asserted right to self-government in matters of public safety was credible because it was included in the agreement in principle.[19]

The Honour of the Crown Superimposes Obligations on a Contract

The Supreme Court explained that when the honour of the Crown applies to a contract, it does not change the terms of the contract, but it affects the way the Crown must perform its contractual obligations “by requiring the Crown to act in a manner that fosters reconciliation.”[20]

The Court described the obligations that the honour of the Crown imposes in a contract relationship as follows: [21]

• The Crown must act with honour and integrity in negotiating an agreement, which requires the Crown “not to adopt an intransigent attitude” and come to negotiations with an “open mind and with the goal of engaging in genuine negotiations with a view to entering an agreement.”[22]
• Once a contract is signed, the Crown “must conduct itself with honour and integrity in performing its obligations,” which among other things means it must “construe the terms of the agreement generously and comply with them scrupulously while avoiding any breach of them” and “avoid taking advantage of any imbalance in the contractual relationship.”[23]

In this case, the honour of the Crown imposed a duty on Quebec to perform the tripartite agreements with honour and integrity.[24] When Quebec refused to renegotiate the funding despite Pekuakamiulnuatsh Takuhikan’s repeated complaints, it fell well below the standard of honourable conduct.[25]

Quebec’s breach of its duty to perform the contract with honour and integrity was enough to dismiss the appeal, so the Court did not address the fiduciary duty claim.[26]

Appropriate Remedies for Reconciliatory Justice

Finally, the Supreme Court provided new guidance on appropriate remedies when the Crown breaches an obligation of the honour of the Crown. This guidance builds on the Court’s recent statement in Ontario (Attorney General) v Restoule that the obligations flowing from the honour of the Crown make available “the full range of remedies, including damages and other coercive relief.”[27]

The Court confirmed that damages are one potential remedy for a breach of an obligation flowing from the honour of the Crown.[28] These damages should “serve not only to compensate for past injury but also to restore the honour of the Crown for the future.”[29]

The Court explained that remedies associated with the honour of the Crown serve what it called “reconciliatory justice.”[30] These remedies aim “to impose a measure that restores balance to the relationship between the parties and thus place them back on the path to reconciliation.”[31] The Court explained that these remedies are different from private law remedies that try to put the injured party in the position they would be in without the wrongdoing.[32] Reconciliatory justice instead aims to restore “the long‑term relationship between the Crown and Indigenous communities.”[33]

The Court explained that courts awarding these remedies should be “flexible” and “creative” in finding a remedy that serves reconciliation.[34] The Court also emphasized that courts should “be sensitive to Indigenous perspectives on the manner in which the relationship can be restored.”[35] However, the Court cautioned that “the more reasonable the Indigenous perspective is, the greater the likelihood that the court will accede to it.”[36]

The flexibility of the remedies a court can award stretches in both directions. The Supreme Court kept open the possibility that a declaration could be an appropriate remedy to foster reconciliation. The Court said that “no type of remedy takes precedence over the others.”[37]

The Court concluded that the remedy ordered by the Court of Appeal for Quebec to pay its portion of the full Pekuakamiulnuatsh Takuhikan deficit was appropriate to restore the honour of the Crown in the context of the tripartite agreements.

Some Takeaways From this Case

This case provides new, largely helpful, insight into how the Crown must conduct itself in contractual relationships with Indigenous peoples. This case provides clarity on when and how obligations of the honour of the Crown apply to Crown contracts with Indigenous parties.

The Court’s decision on reconciliatory justice remedies is generally a positive development in the law of the honour of the Crown. This decision makes it clear that Indigenous parties can claim compensation that can be greater than private law compensatory damages when the Crown behaves dishonourably. However, the reconciliatory justice remedy framework gives courts wide discretion. This unfortunately leaves some uncertainty for Indigenous parties looking to hold the Crown accountable for dishonourable conduct through litigation. Indigenous parties claiming these remedies can reduce this uncertainty by providing a robust record of evidence explaining why a certain remedy would further reconciliation from their perspective.

The Court’s reasoning in this case also serves as a reminder to Indigenous parties negotiating contracts with the Crown to take care in drafting the preamble of agreements. The Court looked to the preamble of the tripartite agreements to establish that the parties intended to undertake maintenance of the SPM for the long-term which created the obligation for Quebec to negotiate new funding in good faith. The preamble of an agreement is also a prime place to make clear how a contract with the Crown relates to an Indigenous right of self‑government so that it attracts the honour of the Crown.

[1] Quebec (Attorney General) v Pekuakamiulnuatsh Takuhikan, 2024 SCC 39 at paras 229-230.

[2] Ibid at paras 203, 210-211, 223.

[3] Ibid at paras 36-37.

[4] Ibid at para 37.

[5] Ibid.

[6] Ibid at para 64.

[7] Ibid at para 48.

[8] Ibid at para 54.

[9] Ibid at paras 112, 126.

[10] Ibid at para 94.

[11] Ibid at paras 120-121, 124.

[12] Ibid at paras 112-113.

[13] Ibid at para 208.

[14] Ibid at para 161, citing Dickson v Vuntut Gwitchin First Nation, 2024 SCC 10 at para 51.

[15] Quebec (Attorney General) v Pekuakamiulnuatsh Takuhikan, supra note 1 at para 162.

[16] Ibid at para 163.

[17] Ibid at para 177.

[18] Ibid at paras 42, 178.

[19] Ibid at para 178.

[20] Ibid at para 188.

[21] Ibid at paras 185-192.

[22] Ibid at para 190.

[23] Ibid at para 192.

[24] Ibid at para 185.

[25] Ibid at para 196.

[26] Ibid at para 185.

[27] Ibid at para 210; citing Ontario (Attorney General) v Restoule, 2024 SCC 27 at para 276.

[28] Quebec (Attorney General) v Pekuakamiulnuatsh Takuhikan, supra note 1 at para 220.

[29] Ibid at para 224.

[30] Ibid at paras 148, 203, 223.

[31] Ibid at para 210.

[32] Ibid at paras 202, 223.

[33] Ibid at para 203.

[34] Ibid.

[35] Ibid at para 211.

[36] Ibid.

[37] Ibid at para 220.