T-1678-88
William Clarence Thomas, The Peguis School
Board and The Peguis Indian Band (Plaintiffs)
v.
Her Majesty the Queen in Right of Canada, as
represented by The Minister of Indian Affairs and
Northern Development (Defendant)
INDEXED AS: THOMAS v. CANADA (MINISTER OF INDIAN
AFFAIRS AND NORTHERN DEVELOPMENT) (T.D.)
Trial Division, Reed J.—Winnipeg, February 4;
Ottawa, February 15, 1991.
Crown — Contracts Senior public servant resigning to
become Superintendent of Education for Indian Band Alle
gation Crown agreeing to increase Band's education budget by
amount equivalent to Superintendent's salary and benefits
Department later changing funding method — Refusing to pay
salary on ground included in new funding formula Ordinary
contractual principles applied — New funding method not
including amount for salary Agreement to pay salary
contained in letters Constituting agreement to pay amount
over and above normal budgeted amount Whether promisee
must show government intending to be legally bound — Gov
ernment liable if conduct inducing reasonable reliance.
Native peoples Whether Crown agreeing to pay salary of
Superintendent of Education for Peguis School Board
Departmental funding of Indian schools changed from line
item to block — Plaintiff arguing fiduciary relationship be
tween parties arising from Treaty under which Crown agreeing
to maintain school on reserves and therefore onus on defendant
to prove Superintendent's salary still funded — Review of case
law on fiduciary relationship between Crown and Indians —
Breach of trust issue not determinative as action allowed on
principles of contract law.
In 1984, a senior executive, with the Department of Indian
Affairs and Northern Development since 1971, resigned to
accept a position with the Peguis School Board as Superintend
ent of Education. He had filled that position since 1977 while
employed by the Department. His resignation was pursuant to
three letters which, it was argued, constituted an agreement to
provide the Band with funding to pay his salary. The first of
these stated that the Department would enter into normal
budgetary negotiations with the Board to incorporate a superin
tendent's position, salary and related expenses; the second
reiterated the offer to include in the Board's budget an amount
equivalent to the Superintendent's salary and benefits; and the
third indicated that an increase in administration monies would
be added to the budget base for the period that the former
public servant would be employed by the Band. After his
resignation, amounts were added to the Band's education
budget for the next two fiscal years. But in 1987-1988 the
Department went to block funding of Indian band schools. It no
longer determined the total budget amount after a line-by-line
negotiation. Instead, it multiplied the enrolment by a unit cost
per student to arrive at a global sum. The Band opposed the
block system as providing reduced funding and as not including
an amount to cover the Superintendent's salary.
The Department argued that (1) an amount on account of
the Superintendent's salary had been included in the block
funding; (2) the 1984 agreement could not have been to pay the
Band an amount "beyond or in addition to normal program
funding" because at the time there was no "normal program
funding", each band's budget being determined on an individu
al basis; (3) the plaintiffs knew that Treasury Board approval
of any budget and Parliamentary appropriation was required;
and (4) there was no intention to enter into a contractual
relationship.
The plaintiffs argued that the Treaty under which the Crown
agreed to maintain a school on each reserve created a fiduciary
relationship between the Crown and the plaintiffs and therefore
the defendant should at least be required to prove that the
Superintendent's salary was still being funded.
Held, the School Board and Band should have judgment.
Although much of the argument was addressed to the issue
as to whether the Crown had breached its fiduciary relationship
with the Indians, it was unnecessary to decide the case by
reference to those arguments. This action could be decided on
the basis of ordinary principles of contract.
The block funding did not include an amount for the Super
intendent's salary. This conclusion was supported by the fact
that no portion of the block funding would cease on termination
of his employment by the Band. The agreement to pay his
salary was an agreement to pay an amount over and above the
normal budgeted amount paid to the Peguis School Board. The
amount for his salary was to be a temporary grant to last only
for the duration of his employment. The agreement was found
in the three letters, the last of which made it clear that the
funds were directed specifically to the former public servant's
salary and were to be paid only as long as he was employed by
the Band.
In 1984 there was "normal program funding" in the sense
that the line-by-line budget of one year operated as the base for
a line-by-line determination of the budget for the following
year. In relation to this process, the amount paid on account of
the Superintendent's salary was in addition to the normal
program funding. That the Peguis Band was the only one to
have a Superintendent of Education indicated that the amount
being paid in respect of this position was an extraordinary and
supplemental item. It was because of plaintiffs' knowledge of
the system that they were concerned that the guarantee be
carefully delineated: the commitment that the amount would be
added to the base of the Band's budget was a guarantee to pay
the yearly incremental increases that would arise for the Super
intendent's salary, as if he had stayed with the Department; the
commitment that the payments would continue for as long as
he was employed by the Band was designed both to give him
some security and to avoid setting in place an obligation to pay
the extra amount indefinitely as would occur if it were treated
as a regular budget item. It was unlikely that a senior public
servant would have resigned without there being in place an
arrangement affording him financial security. The plaintiffs
relied, to their detriment, upon the commitment to pay an
amount additional to that made available under the normal
funding program. The Department could not resile from these
arrangements. As was written by Waddams in his work The
Law of Contracts, in "the case of government contracts, it has
sometimes been suggested that a promisee must show that the
government intended to be legally bound ... but, if they
[governments] so conduct themselves as to induce reasonable
reliance, they should be held liable".
STATUTES AND REGULATIONS JUDICIALLY
CONSIDERED
Constitution Act, 1982, Schedule B, Canada Act 1982,
1982, c. 11 (U.K.) [R.S.C., 1985, Appendix II, No.
44], s. 35.
Indian Act, R.S.C., 1985, c. I-5, ss. 114-122.
Treaty between Her Majesty the Queen and the Chip-
pewa and Cree Indians of Manitoba and Country
Adjacent. Canada. Treaties. Indian Treaties and Sur
renders from 1680 to 1890. Vol. I, Treaty No. 124.
CASES JUDICIALLY CONSIDERED
CONSIDERED:
Nowegijick v. The Queen, [1983] I S.C.R. 29; (1983),
144 D.L.R. (3d) 193; [1983] 2 C.N.L.R. 89; [1983] CTC
20; 83 DTC 5041; 46 N.R. 41; Regina v. Taylor and
Williams (1979), 55 C.C.C. (2d) 172; [1980] 1 C.N.L.R.
83 (Ont. Div. Ct.); affd. (1981), 34 O.R. (2d) 360; 62
C.C.C. (2d) 227; [1981] 3 C.N.L.R. 114 (C.A.); leave to
appeal denied [1981] 2 S.C.R. xi; [1982] 1 C.N.L.R.
183; Guerin et al. v. The Queen et al., [1984] 2 S.C.R.
335; (1984), 13 D.L.R. (4th) 321; [1984] 6 W.W.R. 481;
59 B.C.L.R. 301; [1985] I C.N.L.R. 120; 20 E.T.R. 6; 55
N.R. 161; 36 R.P.R. I; Attorney-General for British
Columbia v. Esquimalt and Nanaimo Railway Corn'-
pany, [1950] A.C. 87 (P.C.).
DISTINGUISHED:
R. v. Sparrow, [1990] I S.C.R. 1075; [1990] 4 W.W.R.
410; Desjarlais et al. v. Canada (Minister of Indian
Affairs and Northern Development), [1988] 2
C.N.L.R. 62 (F.C.T.D.).
AUTHORS CITED
Waddams, S. M. The Law of Contracts, 2nd ed. Toronto:
Canada Law Book Inc., 1984.
COUNSEL:
Victor S. Savino for plaintiffs.
Barbara Shields for defendant.
SOLICITORS:
Savino & Company, Winnipeg, for plaintiffs.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
REED J.: The issue in this case is whether the
defendant breached an agreement with the plain
tiffs concerning funding which was to be provided
to support the employment of Mr. Thomas as
Superintendent of Education for the Peguis Indian
Band. The central issue relates to the effect the
adoption of formula funding for the fiscal year
1987-1988, and the years following, had on that
agreement.
Facts
In the mid-1970s, a number of Indian bands
took initiatives to establish and manage schools on
their reserves. The Peguis Indian Band ("the
Band") was one of these. In furtherance of that
initiative, the Band sought in 1977 to secure strong
management for its School Board. The Depart
ment of Indian Affairs and Northern Development
("the Department") also had an interest in seeing
that the Band acquire such expertise. The word
"Department" is being used in these reasons to
refer collectively to one or more officials of the
Department of Indian Affairs and Northern De
velopment exercising the authority and responsibil
ity of the Minister of Indian Affairs and Northern
Development ("the Minister").
At the time, Mr. Thomas was an employee with
the Department. He had been an employee since
1971. In 1971-1972, he held the position of Assist
ant Regional Director of Education for the Alber-
ta region. In 1972-1974, he was Regional Director
of Indian Affairs for the Manitoba region. He
spent 1975-1976 taking a Masters of Education
program in Educational Administration at the
University of Alberta. After obtaining his Masters
degree, he returned to the Department to work on
projects related to native teacher education pro
grams. By 1977, he was holding a senior executive
position with the Department (an SX-1 classifica
tion).
The Peguis Indian Band is a signatory to a
Treaty between Her Majesty the Queen and the
Chippewa and Cree Indians of Manitoba and
Country Adjacent [Canada. Treaties. Indian Trea
ties and Surrenders from 1680 to 1890. Vol. I,
Treaty No. 124], which was signed August 3,
1871. This treaty is referred to as Treaty No. 1; it
is the first of eleven treaties signed between 1871
and 1923 which together cover most if not all of
the Prairie provinces and parts of Northern
Ontario, British Columbia, the Yukon and the
Northwest Territories. Treaty No. 1 covers part of
southern Manitoba. Treaty No. 1, like all of the
other numbered treaties, contains a clause respect
ing education. The relevant clause in Treaty No. 1
states:
... Her Majesty agrees to maintain a school on each reserve
hereby made whenever the Indians of the reserve should desire
it.
The government's obligations under this clause
of the treaty, have given rise to a variety of schools
arrangements. On some occasions, the Minister, on
behalf of the Crown, contracted with various
church organizations to operate schools on the
reserves. On other occasions, the Department oper
ated the schools itself. In still other circumstances,
arrangements were made for students to attend
provincial schools. Some evidence was led to indi
cate that some of these facilities, in the past at
least, may not have been terribly adequate. There
was particular criticism for the residential schools.
In order to attend these, children had to be sepa-
rated from their families for considerable periods
of time.
In any event, as has already been noted, by the
mid-1970s the Peguis Indian Band was moving to
operate its own school. An agreement with the
Minister was signed in 1977, pursuant to which
the Band agreed to take over the provision of
educational services on the reserve. The Minister,
on behalf of the Crown, agreed to provide funds
therefor. The agreement was expressed to "contin-
ue in effect from year to year except as modified
by mutual agreement". One of the terms relating
to funding provided that:
The Minister shall fund the educational programs and services
of the Band as outlined in Appendix "X" hereof for the fiscal
year 1977-78, and to be negotiated annually for following
years.
As has been noted, coincident with its decision
to undertake responsibility for educational ser
vices, the Peguis Band sought to obtain the ser
vices of an experienced and knowledgeable
individual as Superintendent of Education for the
Peguis School Board. To help accomplish that
objective, the Department entered into an Execu
tive Interchange Agreement with the Band pursu
ant to which Mr. Thomas took on the responsibili
ties of Superintendent of Education at the Peguis
reserve. The agreement was effective as of July,
1977. The agreement initially provided that the
Band would reimburse the Department for Mr.
Thomas' salary. This was modified, however, since
the Band did not have funds available for that
purpose. The Department agreed not to seek reim
bursement of the salary it was paying Mr.
Thomas.
The Executive Interchange Agreement was ini
tially for a two-year period. It was subsequently
extended for a further three years. The Depart
ment continued, during that time, to pay Mr.
Thomas' salary without reimbursement from the
Band. The extended agreement ended June 30,
1982. The Band sought a further extension of the
agreement but the Department refused. An intra-
departmental memorandum, dated August 10,
1982, states:
I. Mr. W.C. Thomas was on Executive Interchange for a
duration of five years, from July 1, 1977 to June 30, 1982.
The Public Service Commission was not prepared to extend
the assignment beyond that date. An Executive Interchange
assignment is normally for three years and the new extension
requested by the Band (5 years) would have resulted in a 10
year assignment. The Executive Interchange was no longer
acceptable.
At the same time, the Department offered to loan
Mr. Thomas to the Band for a further two-year
period, on a secondment basis. Under this arrange
ment the Department would continue paying Mr.
Thomas' salary.
The Band was told that, after the two-year
secondment period, either the Band could hire Mr.
Thomas or he could return to work with the
Department. In accepting the secondment, Mr.
Thomas wrote, in June of 1982, "I accept the
terms of this offer if the band is given a budget to
cover it." Mr. Thomas explained his position fur
ther in a letter of July 7, 1982:
Further, while I must sign your letter just to continue to be
employed it would not be difficult for me to work for the Band
two years down the road but surely, on the basis of the Band
having no money to cover my salary in the past, you must agree
that they will have to have a budget for it in the future. It is on
this basis I sign.
It is unfortunate that I have not ever been given an opportu
nity to discuss this with Mr. Goodwin.
Mr. Thomas' June and July, 1982 correspond
ence was taken by the Department, as indicating
willingness on his part to accept the secondment. It
is clear, however, that the Department, as of that
date, did not accept the condition which related to
the years after the secondment agreement was
terminated. That is, the Department did not ini
tially accept the condition that the Band be given a
budget to cover Mr. Thomas' salary.` Shortly
thereafter, a letter, dated August 16, 1982, was
sent to the Band by Mr. Goodwin, the Assistant
Deputy Minister of Indian Affairs:
To reiterate the agreement already reached, the Public Service
Commission cannot extend the Executive Interchange Program
any longer and it has ceased June 30, 1982. Mr. Thomas is
presently on a two-year secondment from the Department of
Indian Affairs and Northern Development effective June 30,
1982 to June 30, 1984.
At the end of this term, the Manitoba Regional Office will
enter into normal budgetary negotiations with the Peguis
School Board to incorporate a superintendent's position salary
and related expenses. Certainly, every school board requires a
superintendent and I do not envision major complications with
these negotiations. [Underlining added.]
Towards the end of the secondment agreement
further negotiations took place. A letter addressed
to the Chairman of the Peguis School Board dated
February 21, 1984 stated:
You are aware that the special arrangement regarding Mr.
W.C. Thomas' employment is expiring March 31, 1984.
We have been advised that Mr. D.K. Goodwin has offered the
School Board the alternative of having the Department include
in the Peguis School Board's budget an amount equivalent to
Mr. Thomas' salary and benefits to enable the Board to employ
him.
If the Board chooses to accept Mr. Goodwin's offer and employ
Mr. Thomas, $60,000.00 will be included in the administration
component of your 1984/85 budget.
This letter led to a request for clarification,
particularly with respect to whether the Depart
ment was agreeing to pay the amount in question
for the 1984-85 fiscal year only, or whether it
would continue to pay funds after that time. This
was clarified by a letter dated March 21, 1984:
Further to my letter of February 21, 1984, please be advised
that the offer to increase your administration monies to enable
your Board to employ Mr. W.C. Thomas was intended to show
that this would be added to the base for the period that Mr.
Thomas will be employed by the School Board.
This letter should be considered a clarification of my earlier
letter. [Underlining added.]
Consequent upon this agreement being reached,
Mr. Thomas, in a letter dated March 28, 1984,
tendered his resignation to the Department. An
amount on account of his salary was added to the
Peguis Indian Band's education budget for the
1985-1986 fiscal year ($61,664) and for the 1986-
1987 fiscal year ($67,214) and paid to the School
Board for that purpose.
In the 1987-1988 fiscal year, the Department
changed its method of funding Indian band
schools. In general, this involved determining the
budget by reference to the number of students in
the schools and multiplying that number by a
dollar amount. A global sum was thus arrived at
and this was paid to the school boards for the
operation of the schools (block funding). The cal
culation itself is slightly more detailed than I have
indicated but, the details are not relevant for
present purposes.
Prior to the initiation of this block funding
system (the National Funding Formula), the
individual budgets of the bands had been "nego-
tiated" by the Band, with the regional office of the
Department. The total budget amount had been
determined after an item-by-item consideration of
what would be required to cover the cost of each
item the following year. This is referred to in the
evidence as a line-by-line "negotiation". The word
"negotiation" is used in the sense that the School
Board had to justify its request to the Depart
ment's regional office regarding the amounts
sought. If officials of that office agreed that the
estimates were reasonable, the regional office
would pass the budget as approved regionally
(aggregated with that of other bands), to the
headquarters office of the Department in Ottawa.
The final say as to the amount of money the Band
would receive was always, ultimately, in the hands
of the government. The total amount (national
aggregate for band operated schools) had to be
approved by Treasury Board and the monies had
to be appropriated by Parliament. The division of
the amount thus approved and appropriated as
between regions was done by the headquarters
office of the Department in Ottawa. The division,
as among the bands, of the amount granted to the
region, was done by the regional office.
The budget items, relevant to this case, which
were determined on a line-by-line basis prior to the
1987-1988 budget, fell under three main headings:
(1) Education Authority, (2) Instructional Staff
and (3) School Administration. The items listed
under the heading Education Authority (the
School Board) were Director of Education, Super
intendent of Education, Finance Officer, a Clerk
and Secretary (two people), Professional Develop
ment, Education Leave, Travel, and Administra
tion Recruitment. When a category of employee
was listed in the budget, the line-by-line presenta
tion showed the amount of money needed to
employ the individuals in the position indicated.
When an activity (eg. travel) and not a position
was listed as a budget item, the amount needed for
the activity was set out. The items listed under the
heading Instructional Staff included, among
others, the principal, vice-principal, teachers, para-
professionals, professional development and educa
tion leave. As noted, the amount to be allocated
for each of these items was negotiated annually by
the School Board with members of the regional
office of the Department, and the School Board
accounted for the expenditure of those funds on
the same line-by-line basis.
As has been noted, an item listing the position of
Superintendent of Education and an amount in the
Peguis' budget for salary for that position had
been added to the 1984-1985 budget. This was in
accordance with the 1984 Agreement, with the
Department, concerning the payment of Mr. Tho-
mas' salary. The evidence discloses that no other
band in Manitoba had school board staff which
comprised both a Superintendent of Education and
a Director of Education. Some had individuals
holding positions called Superintendent of Student
Services. These individuals might work out of their
respective school board offices, but they did not
perform the same functions as those performed by
either the Director of Education or by the Superin
tendent of Education of the Peguis School Board.
The block funding system was imposed on the
Peguis Band, and on other bands. As noted above,
it involved the determination of a unit cost per
student and the multiplication of that number by
the estimated school enrolment. This system had
not been developed in consultation with the various
bands, but as a result of studies undertaken by
various officials of the Department. The Peguis
Band opposed the new system from the start. Its
opposition to the block funding system (the Na
tional Funding Formula) was based on its view
that: (1) the amount of funds which it would
otherwise have received was reduced; and (2) par
ticularly in the case of Mr. Thomas, an amount to
cover his salary had not been included.
In response to the Band's continual insistence,
that the 1984 Agreement was not being honoured,
and after the Band made representations to the
Minister, an additional amount of $60,000 was
added, as a special item, to the Band's budget for
the 1987-1988 fiscal year. That is, the Band
received $60,000 more in that fiscal year than had
been allocated to it by application of the National
Funding Formula. This was expressed to be for
one year only.
The Department at all times took the position
that an amount on account of Mr. Thomas' salary
was included in the block funding. The argument,
as I understand it, is that when the National
Funding Formula was developed, it was defined to
include all administrative costs, including the
expenses of the education authorities (school
boards). Therefore, it is contended that Mr. Tho-
mas' salary was included in the block.
It is necessary to consider then, the genesis of
the National Funding Formula. It was developed
out of studies done in the Department which com
pared and analyzed education budgets and how
they were established in provincial education sys
tems, in some U.S. systems, as well as for the
schools for which the Department provided fund
ing. These studies concluded that, in general, non-
teacher salary and benefit related expenses
accounted for approximately 30% of budgets;
teachers' salaries and benefits accounted for the
other 70%. It was then necessary to identify the
various categories of expenses which would be
considered to fall within the 30% (transportation
for example, was an item that was not included,
nor were expenses related to high cost special
education needs or amounts relating to facility
rentals). Administrative costs including funding
for school boards were classified as falling within
the formula.
In the first year (1987-1988) of the application
of the National Funding Formula, the cost of
teachers' salaries was determined (based on what
Treasury Board had negotiated to be paid as sal
aries to teachers). This was used to determine the
regional costs for teachers' salaries. The number of
teachers each school would require was determined
by reference to a standard pupil/teacher ratio. As
a matter of easy arithmetical calculation (number
of teachers times regional salaries), an amount
could be obtained as representing approximately
70% of budget required for a given school. It was a
matter of simple arithmetic, then, to calculate
what the total budget allocation should be. As I
understand it, this was not done on a school-by-
school basis but by reference to regional figures.
The unit cost per student was adjusted upwards
each year depending upon the regional offices'
assessment of what price increases were likely that
year. The unit cost per student allocated to the
Peguis Band for the fiscal year 1988-1989 was, for
example, $3,927. In no year since the application
of the formula has the absolute total paid to the
Band decreased.
There were several reasons, in the Department's
opinion, for moving to the new system. In the first
place, it was easier to administer; it obviated the
need for discussions over budgets on a line-by-line
basis. Secondly, it gave the Indian school boards a
greater degree of autonomy; they could use the
funds for educational purposes as they saw fit
without the need to account on a line-by-line basis.
Also, it provided more certainty in the budgetary
process; the Department could predict with greater
certainty the amount that might be required to
fund the schools from year to year. Lastly, it was
designed to provide more equitable funding as
between the bands. In the Department's view,
some bands were overfunded in relation to others.
I will turn now to the various issues which were
raised, some in an indirect way, by the evidence
and argument.
Breach of Treaty No. 1 — Not in Issue
I do not think it necessary to make any determi
nation as to whether the terms of Treaty No. 1
have been breached. That issue is not before this
Court and indeed, a number of unanswered ques
tions arise if it were to be considered: when was a
request for a school on the reserve made? To what
extent does an obligation to "maintain a school on
the reserve" carry with it an obligation to provide
a certain level of educational service? Certainly if
the level of service were grossly inadequate, a
breach would occur but evidence in this case indi
cates that, at least, in recent times the amount of
funding provided for reserve schools is comparable
to, if not higher than, that provided to similarly
situated provincial schools.
Breach of 1977 Agreement — Not in Issue
Another issue which is not before this Court is
any allegation concerning a breach of the 1977
Agreement pursuant to which the Peguis Band
took over responsibility for educational services on
the reserve. Reference was made in the evidence to
the term of that agreement, which anticipates
annual negotiations of the budget on a line-by-line
basis. At the same time, however, that agreement
was not put in issue by the pleadings, nor was it
produced on discovery. Furthermore, if a potential
breach were in issue, one would have to ask to
what extent the Band's acceptance of funding
pursuant to the new formula would nullify the
alleged breach. More importantly, one would have
to determine whether, in any event, the agreement
was only intended to operate on a yearly basis with
it being possible for either party to give notice of
termination. The part of the agreement which was
read into the record indicates that the agreement
was intended to operate "from year to year".
Relevance of Fiduciary Relationship
Counsel for the plaintiffs argues that the facts in
this case, give rise to a finding that the defendant
breached the trust obligations she owed to the
plaintiffs. He bases this argument on the decisions
in: Nowegijick v. The Queen, [1983] 1 S.C.R. 29;
Regina v. Taylor and Williams (1979), 55 C.C.C.
(2d) 172 (Ont. Div. Ct.); affd. (1981), 34 O.R.
(2d) 360 (C.A.); leave to appeal to the Supreme
Court denied [1981] 2 S.C.R. xi; Guerin et al. v.
The Queen et al., [1984] 2 S.C.R. 335; and R. v.
Sparrow, [1990] 1 S.C.R. 1075; as well as on the
terms of Treaty No. 1 set out above and section 35
of the Constitution Act, 1982 [Schedule B,
Canada Act 1982, 1982, c. 11 (U.K.) [R.S.C.,
1985, Appendix II, No. 44]].
The Nowegijick and Taylor and Williams cases
set out the principles that treaties, such as Treaty
No. 1, are to be interpreted liberally and that any
doubts respecting their interpretation be construed
in favour of the Indians. In the Taylor and Wil-
liams case, it was noted [at page 367] that "[i]n
approaching the terms of a treaty ... the honour
of the Crown is always involved and no appearance
of sharp dealing should be sanctioned." Further, it
was held that if there is any ambiguity in the
words or phrases used, not only should the words
be interpreted as against the framers or drafters of
the treaties, but the language should be construed
so as not to prejudice the Indians, providing that
such construction is reasonably possible. Lastly,
evidence of surrounding circumstances or facts of
history, including the conduct of the parties, could
be relevant to determine what had been meant by
the terms of the treaty.
In the present case, evidence was given by the
Chief of the Peguis Band, that according to oral
tradition, the purpose of the education clause in
Treaty No. 1 was to provide educational services
to the Indians to enable them to compete with
non-Indians in the post-Treaty era. He emphasized
that this was part of the bargain under which the
Indians gave up their rights to the land covered by
the Treaty.
The Guerin case established that when the
Crown dealt with reserve lands on behalf of an
Indian band, the Crown was under an equitable or
fiduciary obligation. I quote from the headnote [at
page 336] of that case (which repeats part of the
text found at page 384 of the decision):
Where by statute, by agreement or perhaps by unilateral
undertaking, one party has an obligation to act for the benefit
of another, and that obligation carries with it a discretionary
power, the party thus empowered becomes a fiduciary. Equity
will then supervise the relationship by holding him to the
fiduciary's strict standard of conduct. [Underlining added.]
It was held [at page 384] that the "categories of
fiduciary, like those of negligence, should not be
considered closed" and that if the Crown breached
the fiduciary duty owed to the Indians, it would be
liable to them in the same way and to the same
extent as if a trust were in effect.
The Guerin case dealt with the fiduciary obliga
tion owed with respect to transactions involving
reserve lands. The fact situation and, indeed, the
commencement of that law suit, occurred prior to
the enactment of the Constitution Act, 1982. The
Sparrow decision however, was commenced subse
quent to the enactment of that Act. Subsection
35(1) of the Constitution Act, 1982 states:
35. (1) The existing aboriginal and treaty rights of the
aboriginal peoples of Canada are hereby recognized and
affirmed.
The Supreme Court interpreted section 35 as
applying to aboriginal fishing rights (which were
not based on a treaty but which had existed from
"time immemorial") and held that they could only
be abrogated if the abrogation was justified. At
page 1109, the Court said:
In other words, federal power must be reconciled with federal
duty and the best way to achieve that reconciliation is to
demand the justification of any government regulation that
infringes upon or denies aboriginal rights.
And at page 1110:
By giving aboriginal rights constitutional status and priority,
Parliament and the provinces have sanctioned challenges to
social and economic policy objectives embodied in legislation to
the extent that aboriginal rights are affected. Implicit in this
constitutional scheme is the obligation of the legislature to
satisfy the test of justification.... The extent of legislative or
regulatory impact on an existing aboriginal right may be
scrutinized so as to ensure recognition and affirmation. [Under-
lining added.]
The Court went on to list several factors which
might be considered in determining whether rights
had been abrogated: is the limitation reasonable?
does the regulation impose undue hardship? does
the regulation deny to the holders of the right their
preferred means of exercising that right? If a
prima facie interference is found, the Court held
that an analysis should then be undertaken to see
whether it is justified. This involves an assessment
of whether or not a valid legislative objective for
the interference exists. In the context of fishing
rights, the Court held that an objective aimed at
preserving those rights, by conserving and manag
ing a natural resource, would be valid. So would
an interference which had as its objective the
prevention of harm to the general populace or to
aboriginal peoples themselves. The Court indicated
as well, that other valid objections, if compelling
and substantial, might exist.
If a valid legislative objective is found then the
Court must proceed to assess the justification for
this interference by asking questions such as:
whether there has been as little infringement as
possible of the right in order to accomplish the
valid objective; whether, in a case of expropriation,
fair compensation has been paid; whether the
aboriginal group has been consulted about the
change. These factors are not considered to be an
exhaustive list. The Court concluded, at page
1119:
We would not wish to set out an exhaustive list of the factors
to be considered in the assessment of justification. Suffice it to
say that recognition and affirmation requires sensitivity to and
respect for the rights of aboriginal peoples on behalf of the
government, courts and indeed all Canadians.
Counsel for the plaintiffs invites me to apply
this jurisprudence to the facts of the present case.
He points out that Treaty No. 1 creates a right in
the members of the Peguis Band to have a school
maintained on the reserve. He notes that Parlia
ment has delegated to the Minister, in sections
114-122 of the Indian Act, R.S.C., 1985, c. I-5,
the responsibility to fulfil the obligations owed. He
argues that a fiduciary relationship arises out of
the Treaty provisions comparable to that discussed
in Guerin and Sparrow, that a duty is owed by the
Crown to the Indians and that the Crown possesses
discretion as to how that duty will be discharged;
that the Crown has absolute control over the exer
cise of that discretion. Counsel argues that a
breach of the fiduciary relationship can arise from
the administrative actions of officials and the Min
ister as well as by legislative or regulatory action.
In the Sparrow case regulations were the abrogat
ing instrument. However, this does not preclude
the principles set out therein being equally appli
cable to an administrative decision (the refusal to
fund Mr. Thomas' salary).
Counsel for the plaintiffs called attention to Mr.
Justice Strayer's decision in Desjarlais et al. v.
Canada (Minister of Indian Affairs and Northern
Development), [1988] 2 C.N.L.R. 62 (F.C.T.D.),
at page 67. In that decision, the question was
raised as to whether the allocation of funds for the
purpose of Indian housing had "its origin in public
law which does not give rise to a fiduciary relation
ship". Mr. Justice Strayer referred to the fact that
this issue had been raised in Guerin (supra). He
noted:
These are very complex questions which cannot be dealt with
adequately on an interlocutory motion. But it appears there is a
serious legal question as to whether a fiduciary relationship
might be made out.
Counsel for the plaintiffs argues that the issue
was not decided in the Desjarlais decision because
that decision related to an interlocutory motion.
He argues, as well, that the Sparrow decision was
decided since that time and that it strengthens the
plaintiffs' argument. I am not convinced that the
Sparrow decision assists in the analysis of the
issue. The Sparrow case did not deal with an
obligation involving the expenditure of public
funds. It was concerned only with legislative re
strictions on fishing rights. Also, as I read the
Desjarlais decision, it did not deal with a treaty
obligation which required the expenditure of
funds. Thus, while funds for Indian housing might
exist in circumstances which do not give rise to a
fiduciary relationship, this is less likely to be true
for expenditures which are required in order to
fulfil treaty obligations.
As I understand counsel's argument, it is that,
at the very least, the application of all this juris
prudence means that there exists a fiduciary rela
tionship between the plaintiffs and the defendant
in the present circumstances, and therefore, there
is an obligation on the defendant to prove that Mr.
Thomas' salary is still being funded. Any doubt in
this regard must be resolved in favour of the Band.
I have set out counsel's reasoning on the exist
ence and effect of a fiduciary relationship, as I
understand it, at some length, because it com
prised a significant portion of his argument. At the
same time, for the reasons which follow, I do not
find it necessary to decide the case by reference to
those arguments.
Contractual Agreement Breached?
In my view, this case can be decided on the basis
of the ordinary principles applicable to contractual
obligations. The defendant agreed, in 1984, to
fund Mr. Thomas' salary. The Band agreed to
employ Mr. Thomas. Mr. Thomas, on the strength
of these representations, resigned his position with
the civil service. In 1987-1988, the Department
decided to change its method of funding band
operated school programs. It adopted a method
that was based on general formulas and averages.
The new system was designed, in part, to provide
an equitable basis for band funding; each band
was to be treated more or less equally without
reference to the particular band's budget of the
preceding year.
I cannot conclude that the block funding includ
ed an amount on account of Mr. Thomas' salary.
The agreement to pay Mr. Thomas' salary was an
agreement to pay an amount over and above the
normal budgeted amount paid to the Peguis
School Board. The amount for Mr. Thomas' salary
was to be a temporary grant; it was to last only for
the duration of Mr. Thomas' employment. If the
agreement had been nothing more than as set out
in Mr. Goodwin's letter of August 16, 1982 then I
would agree with counsel for the defendant, that
what was contemplated was an amount to be
added to the Band's budget, as part of its normal
budgetary allotment. However, the agreement is
not found solely in that letter. The letter of Febru-
ary 21, 1984 and, that of March 21, 1984 also
constitute part of the agreement. It is clear, par
ticularly from the March 21 letter, that the funds
in question were directed specifically to Mr. Tho-
mas' salary and were to be paid only as long as he
was employed by the Band. In assessing whether
or not the block of funds received by application of
the National Funding Formula, contained an
amount on account of Mr. Thomas' salary, a
significant factor is that no portion of the block
fund will cease on termination of Mr. Thomas'
employment with the Band. This factor alone
makes it clear that funding for Mr. Thomas' salary
is not included in the amount paid under the
National Funding Formula.
Counsel for the defendant argues that the 1984
Agreement cannot have been to pay the Band an
amount "beyond or in addition to normal program
funding" because at the time there was no "nor-
mal program funding". Each band's budget was
determined on an individual basis as indicated.
She also argues that the agreement of 1984 was
entered into by the plaintiffs with full knowledge
of the budgetary process and with knowledge that
the amount of funds allocated fluctuated from
year to year. The plaintiffs also knew that the
funds available for this purpose were subject to
approval by Treasury Board and appropriation by
Parliament. Counsel for the defendant argued that
there was no intention to enter into a legal con
tractual relationship and without such intention, a
contract cannot be formed.
With respect to the argument that the 1984
agreement was not one to pay an amount over and
above normal funding, it is true that there was no
"normal program funding" in the standardized
sense in which it was provided under the National
Funding Formula. There was, however, "normal
program funding" in the sense that the line-by-line
budget of one year operated as the base for a
line-by-line determination of the budget for the
following year. In relation to this process, the
amount paid on account of Mr. Thomas' salary
was an extra, or an addition to the normal pro
gram funding provided to the Band. The fact that
only the Peguis School Board had administrative
positions for both a Director of Education and a
Superintendent of Education also is an indication
that the amount being paid on account of Mr.
Thomas' salary was an extraordinary and supple
mental item. As has already been noted, the pay
ment was temporary in nature and was to cease
when Mr. Thomas' employment ceased.
With respect to the argument that the plaintiffs
knew the parameters of the budgetary process and
the requirements for Treasury Board approval and
Parliamentary appropriation, this argument is a
two-edged sword. It is precisely because of that
knowledge that the plaintiffs took care to have the
guarantee carefully delineated. The commitment
that the amount would be added to the base of the
Band's budget was a guarantee to pay the yearly
incremental increases that would arise for Mr.
Thomas' salary, as if he had stayed with the
Department, in the position he held when he
resigned. The commitment that the payments
would continue for as long as Mr. Thomas was
employed by the Band, was clearly designed both
to give Mr. Thomas some security and to avoid
setting in place an obligation to pay the extra
amount, indefinitely, on an ongoing basis, as would
likely occur if it were treated as a regular budget
item.
Mr. Thomas was, at the time, 51 years old. He
had a family to support. He had a senior position
with the Department and the security that such
entails. It is not likely that Mr. Thomas would
have agreed to make a move out of that position,
nor would the Band have asked him to do so,
without there being in place a system which
afforded him financial security. It is my view, that
the knowledge of the plaintiffs about the normal
operation of the system is the reason they sought
the commitment to funding which they obtained.
The Department made representations through
its correspondence to the plaintiffs, that it intended
to pay the funds requested. The commitment was
to pay an amount additional to that obtained
under the normal funding program. The plaintiffs
acted upon this commitment, conducting them
selves in ways they would not otherwise have done.
The Department should not now be allowed to
resile from these arrangements and pay only the
amounts calculated in accordance with the Na
tional Funding Formula.
Counsel for the defendant refers to the Privy
Council decision in Attorney-General for British
Columbia v. Esquimalt and Nanaimo Railway
Company, [1950] A.C. 87. That case dealt with
provincial legislation to tax timber severed from
certain railway lands. In 1883, provincial legisla
tion had been passed in furtherance of a scheme
which led to the construction of the railway. The
legislation contained a clause stating that the rail
way lands would not be subject to taxation for as
long as they were used for railroad purposes. The
Court held that there had been neither an offer nor
an acceptance with respect to a specified arrange
ment passing between the provincial government
and the railway company. It was held that they
had had ,no intention to create a contractual
relationship.
The test for contractual intention however, is an
objective one. It does not depend upon an enquiry
into the actual state of mind of the parties. It
depends upon how the conduct of the promisee
would strike a reasonable person in the position of
a promisor. In Waddams, The Law of Contracts
(2nd ed. 1984), at page 119, the following com
ments are made with respect to this requirement:
In the case of government contracts, it has sometimes been
suggested that a promisee must show that the government
intended to be legally bound. Thus in A.-G. B.C. v. Esquimalt
and Nanaimo R. Co., it was held that a tax concession granted
to a railway did not amount to an enforceable promise. The
conclusion is no doubt sustainable on the ground that it was not
a reasonable construction of the concession that the government
should be bound in perpetuity. But the dangers of setting up a
special requirement of intention are illustrated by a recent New
Brunswick case, where the government announced a scheme for
the purchase of surplus potatoes at subsidized prices. The
potatoes were to be destroyed after official inspection. The
plaintiff's potatoes, having been duly inspected, were destroyed,
but the government refused to pay the subsidy. The plaintiff's
action was successful, the court adopting Williston's statement
that:
" ... the test of the true interpretation of an offer or
acceptance is not what the party making it thought it meant
or intended it to mean, but what a reasonable person in the
position of the parties would have thought...."
The decision and the reasons for it appear sound. No doubt
governments, like other persons, intend to obtain as much as
they can for the smallest possible commitment. But, if they so
conduct themselves as to induce reasonable reliance, they
should be held liable. The injustice of a contrary decision was
particularly striking in Grant [Grant v. Province of New Bruns-
wick (1973), 35 D.L.R. (3d) 141 (N.B.S.C. App. Div.)] where
the plaintiff had destroyed his crop in reliance on the govern
ment's promise. [Footnotes omitted.]
Applying an objective test in the present case leads
to a conclusion that the creation of legal obliga
tions was intended.
For the reasons given, judgment will issue
requiring the defendant to pay to the plaintiffs, the
Peguis School Board and the Peguis Indian Band
an additional amount for the 1987-1988 fiscal year
so that the sum accords with what should have
been paid pursuant to the 1984 Agreement. Judg
ment will also be given requiring the defendant to
pay to the plaintiffs, the Peguis School Board and
the Peguis Indian Band, amounts for the 1988-
1989 fiscal year and the years following in accord
ance with these reasons.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.