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I1lustrated by An Assessment of Obligations Owed by Canada to Canadian Indians

by

Gerald Donegan

AThesis submitted to the Faculty of Graduate Studies and Research in partial fulfillment of the requirements of the degree of master of laws.

Institute of Comparative Law M'Gill University Montréal

August, 1996

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0-612-50928-1 -ü-

ABSTRACT

This thesis contains an analysis ofthe fonction and application ofthe doctrine offiduciary obligation, illustrated byan examination ofobligations Canada owes to Indians regarding reserve land transactions.

Chapters 1and II describe the ongin and development ofthe doctrine and the way in which fiduciary obligations are formulated. Cbapters III and IV describe the Crownllndian relationship and suggest how officiais might estimate Crown obligations. The thesis condudes that the doctrine is legislative and that its funetion is to extend juridical protection to otherwise inadequately regulated relationships ofsocial or economic importance. Rules developed to govem the trustee/beneficiary relationship are adapted and applied to useful relationships to prevent victimization through the use ofinherent opportunities for exploitation. Acceptance by Indians ofrepresentatlve decision-making is critical ta stable reconciliation ofIndian and non-Indian interests. Pursuit ofthis objective informs the Crownllndian relationship and shapes the content ofCrown obligations. - üi-

SOMMAIRE

Cette thèse présente une analyse de la fonction et de l'application de la doctrine de l'obligation fiduciaire illustrée par l'examen des obligations du Canada envers ses Autochtones en matière d'opérations fondères portant sur des terres de réserve.

Les Chapitres 1 et II décrivent l'origine et le développement de cette doctrine et s'intéressent à la formulation des obligations fiduciaires. Les Chapitres III et IV décrivent la relation existant entre la Couronne et les Autochtones et montrent comment les agents responsables peuvent estimer les obligations de la Couronne. La thèse énonce en conclusion que cette doctrine est de nature législative et a pour fonction d'assurer une protection juridique à des relations de portée sociale ou économique qui, autrement, seraient mal réglementées. Les règles régissant les rapports fiduciairelbénéficiaire sont adaptées et appliquées à de telles relations afin d'éviter toute victimisation découlant d'occasions d'exploitation que ces relations pourraient susciter. L'acceptation par les Autochtones d'un processus décisionnel représentatifest essentiel pour rapprocher de manière stable les intérêts des Autochtones et des Non-Autochtones. La poursuite de cet objectifétablit des relations entre la Couronne et les Autochtones et façonne le contenu des obligations de la CoW'Onne. ACKNOWLEDGMENTS

1would like to express mygratitude ta Dean StephenToope for taking time from a busy schedule ta supervise this project. His criticism and suggestions improved the end product immeasurably, and the patient and courteous manner inwhich theywere offered made our interviews a pleasure. 1 a1s0 want ta acknowledge the support and encouragement which 1 received from the Department ofJustice, and its former Deputy Minister, John Tait, Q.C. Without this assistance 1would not have been able to retum to school ta finish my studies. 1hasten ta add, however, mat the opinions expressed herein are my own and they do not necessarily represent the views ofthe Government ofCanada or any ofits administrative subdivisions or anyofits officiais.

My wife, Julie, and our children Christopherand Eleanor, put aside plans oftheir own in order to provide me with time to study and prepare this thesis. They have each paid a lot for this project and 1owe them more than 1can say. -v-

TABLE OF CONTENTS

Abstraet • fi Sommaire ili Acknowledgments iv Table ofContents v

INTRODUCTION 1 CHAPTER 1- THE FIDUCIARY REIATIONSHIP 13 1. Introduction 13 2. The Technique ofEquitable Intervention 16 a. Origins 16 b. The legislative character ofequitable jurisdiction 18 c. The remedial objective ofequitable intervention 21 d. The subsidiarity ofequitable doctrine 23 e. Discretion and tmst as essential characteristics 32 3. The Application ofthe Technique to Analogous Relationships 35 a. The regulation ofcompanypromoters 37 b. The basis ofthe analogy offiduciary relationships to trusts 44 4. Conclusion 49

CHAPTER fi - FlDUCIARY OBUGATIONS 53 1. Introduction 53 2. Opportunities for Exploitation 54 3. The Formulation ofFiduciary Obligations 61 a. The art & science ofeconomic inducement 67 i. improving the odds 69 • proofofbreach 71 • proofofcausation 73 -vi-

• praofofquantum 76

ü. raising the stakes 78 b. Proteeting uniquelyvulnerable beneficiaries 80 i. reduced capacity ta re-negotiate 81 ü. diverse constituencyofbeneficiaries 83 4. Determining the Regulatory Needs ofSpecifie Relationships 84 a. Enforcing the duties offidellty 84 b. Enforcing the duties ofprudence 95 CHAPTER III - THE CROWN-INDIAN RELATION5HIP 97 1. Introduction 97 2. TheGu~nJud~enœ 98 3. The Crown's Historical Commitment to Native Peoples 102 a. The Royal Proclamation of 1763 103 b. The reserve system 112 i. Crownllndian relationship between 1814 & 1945 112 ü. Crownllndian relationship after WW fi 118 4. Guerin Revisited 126 S. Conclusion 132 CHAPTER IV- THE CROWN'S FIDUCIARY DUIYTO INDIANS 135 1. Introduction 135 2. Allotment ofUnsurrendered Reserve Land 143 a. The allotment process 143 b. Locatee rights 145 c. Possible polides 146 i. equitable distribution ofreserve land among members 148 ü. maintain sites for preservation ofaboriginal cultures 149 iii. laisserfaire 152 iVe promote & support internaI seU-management 153 d. Fidueiary obligations 157 -vü -

i. allotment 158 ü. locatee leases 163 ili. alternative sources ofregulation 169 CONCLUSION 173

Table ofEnactments 177 Table ofCases 178 Bibliography 183 INTRODUCTION

In the Guerin case,l the Supreme CourtofCanada he1d that the re1ationsbip between the Crown and native peoples imposed equitable obligations on the Crown which could he enforced tbrough the courts. Individual members ofthe panel disagreed about'the juridical basis ofthis re1ationship and about the time that enforceable o&ligations first arase, but

MOst ofthe judges said that, at some point, the ClOwn came to stand in a tlduciary relationship to Indians.2 This charaeterization ofthe

ClOwn/native relationsbip W3S lateremployed by the entire Court inthe Sparrow decision3 to define duties created by the Crown's constitutional undertaking to recognize and affirm aboriginal and treaty rights.4 Lower courts have since made use oftlduciary concepts to regulate dealings between the Crown and aboriginal groups incircumstances other than those which occurred in Guerin orSparrow.5

It has been argued that the doctrine offiduciary obligation is capable ofproviding the foundation for a coherent theory ofmutuallegal and political rights and obligations applicable to Canada and its provinces, on the one band, and aboriginal peoples, on the other.6 Commentators

1 Guerin v. R., [1984] 2 S.C.R. 335 [hereinaCter Guerin].

2 The individual opinions are examjned indetail in chapter 3.

3 R. v. Sparrow, [1990] 1 S.C.R. 1075 [hereinafterSparrow). "' ConstituttonAct, 1982, s. 35, beingSchedule 8 to theCanadaAct1982 (U.K.), 1982, c. Il.

5 See, e.g., Krugerv. R.. (1985), [1986] 1 F.C. 3 (F.CA) [hereinafterKruger]; Delgamuukwv.R. (1991), 79 D.LR. (4~ 185 (B.C.S.C.);LowerKootenaylndtan Bandv.R. (1991),42 F.T.R. 241 (F.C.T.D.) [hereiDafterLowerKootenay); BlueberryRiverlndianBandv. Canada (Dept. oflndtanAffatrs & Nortbem DetJe/opment), [1995] 4 S.C.R. 344 [hereinafterB/uebenyRiver].

6 W.R. ~Murtry Be A. Pratt, "Indians and the FidudaryConcept, Self-Government and the Constitution: Guerin inPerspective" [1986] 3 e.N.LB. 19 at 20 & 37-42 [hereinafter"FfdudaryConcept"]. generallyagree that the doctrine bas potential. Many argue, bowever, that the duties imposed by its application are uncertain, and that further judidal r guidance is needed belore it can serve as a reliable t001 for the regulation ofthis relationship.7

ln this thesis, 1examine the concept ofthetfiduciary relationship in terms ofits juridical functions, and 1present a meàtod for determining the content ofthe fiduciary obligations like1y to be imposed by the courts for the purpose ofregulating the conduct ofthe parties to a given re1ationship. 1show how this method could be applied in respect ofthe relationship between the federaI Crown and status Indians to describe federaI responsibilities with respect to certain dealings in unsurrendered reserve land.

The first chapter contains an analysis ofthe functions ofthe doctrine as traditionally applied by the courts, without reference to govemment/native relations. Here, 1argue that "fiduciary law" is not a discrete branch ofthe law but a pure1y remedial doctrine in a broad sense-a rationalization for judicial intervention.

Fiduciary duties are imposed for the purpose ofpreventing the victimization ofparties to relationships ofsocial or economic utility which

7 J.D. Hurley, 'The ClOwn's Fiduciary Dutyand Indian Tide: Guerin v. The Queen" (1985) 30 ~GiIl LJ. 559 at391, 392, 595 &: 599 [hereinafter"Fiduciary Duty &: Indian Tide"]; ''Fiduciary Concept", supra, note 6 at 42; D.M. Jobnston, '~ Theory ofCrown Tmst Towards Aboriginal Peoples" (1986) 18 Ottawa L. Rev. 307 at 307, 308 '"330 [bereinafter "CrownTmst"]; aH Bardett, "The Fiduciary Obligationof the Crown to the Indians" (1989) 53 Sask. L. Rev. 301 at 324 [hereinafter ItFiduciary

Obligation ofthe Crown"]; o.W.M. Waterst ''New Directions in the Employmentof Equitable Doctrines: The Canadian Experience" in T.G. Youdan, ed., Eqrdty, Fiduciarles andTrusts (Toronto: CarsweJI, 1989) 411 at423425 [hereiDafter"New . Directions" & Eqrdty '89, respectively); M.J. Bryant, "Crown-Aboriginal Relationships in Canada· The PhantomofFiduciaryLaw" (1993) 27 U.B.C. L. Rev. ail 19 at 21 &: 22 [bereinafter"Crown·Aboriginal ReIationships"]. • .. 3-

contain, as an Inherent and otherwise unregulated Ceature, an opportunity for one party to exploit the other. The overa1l policy ofthe doctrine is to r guarantee the social and economic benefits which 80wCrom the relationship by maintaining its integrity.8 Fidudaryduties are imposed where the exploitative conduct can he remedied l'Y requiring the exploiter' ta observe an actual orconstnletîve underta1dng tl\ prefer the interests of 11 the victim10 to other interests, including bis own. Fiduciary dulies are thus designed ta hold the fiduciary to a notional obligation ofloyaltywhich is said to cbaracterize the relationship. Inevitably, a decision as to whether a given relationship is ofsuftlcient social or economic importance to warrant the imposition offiduciary obligations is subjective. Sncb a dedsionwould take inta account sncb considerations as the importance to the victim ofthe interests promoted by the relationship, the degree to which failure to provide adequate protection would undermine essential

8 E.J. Weinrib, ''The Fiduciary Obligation" (1975) 25 U.T.L.]. 1 at 15 (as applied to commercial re1ationships) [bereinafter "Fiduciary Obligation"]; P.O. Finn, ''The Fiduciary Prindple" inEqutty '89, supra, note 7, 1 at 27 & 42 [hereinafter ''Fiduciary Principle"]. See aIso, Hitcbcock v. Sykes (1914), 49 S.C.R. 403 at 408 "The prindple [that a tlduciary must disclose conftiets ofinterest ta bis benetldary] bas its justification in the necessity ofproteetïng these confidential relationships .... n per Dutt:J, andHodgktnson v. Simms, [1994] 3 s.e.&. 377 at 422,perLaForest, J.: The desire ta pmteet and reinforce the integrity ofsocial institutions and enterprises is prevalent througboutfidudary law. The reason for this desire is that the Iaw bas recognized the importance ofinstiUing in oursocial institutions and enterprises seme recognition matnot an relationships are charaeterized by a dynamic ofmutualautonomy, and mat the marketplace cannot aIways set the Mes. 8yinstiUing this kind offtexibility inta ourregu)adon ofsocial institutions and enterprises, the lawtherefore helps ta strengtben them.

9 Hereinafterfidudary.

10 Hereinafterbeneftdary.

Il Inpartnerships, bowever, each6dudary/partneris onderan obUgation to prefer the jointinterest5 ofail partne1'5, induding bjmseJf. -4- social institutions and the &equencywitb which the re1ationship is repUcated.. It is not possible ta provide a comprehensive list of characteristics which will enable us to tell whether a given relationship will. he held to he fidudary in advance ofa declaration inan authoritative judicial decision or legislative enaetment. It is po~sible, however, to use criteria derived from an analysis ofthe functions o~the doctrine to eliminate cases ta which the doctrine will not he applied.

Applying such criteria involves a three-step analysis. First, the application ofthe doctrine can he Med out incases inwbich the impugned conduct does not taire advantage ofan opportunity for exploitation which is inherent in the relationship and inimical to the social or economic benefits for which it was created. Secondly, the doctrine will not be applied where the exploitative conduet cannat he effectively remedied by holding the fiduciary to an undertaking ta prefer the interests ofthe beneficiary. Finally, fiduciary obligations will not he imposed in cases in which the impugned conduct can adequately he regulated by the application ofa doctrine based on explicit juridical principles. In these cases, the latterdoctrine will he employed in preference ta the doctrine of fiduciary obligation. In the sense used bere, an opportunity for exploitation is inherent ifthe relationship could not produce the benefits for which itwas established unIess such an opportunity exîsted. By exploitation, 1am referring to the imposition ofa detriment upon the beneficiary to which he did not agree, and which is dïsproportionate ta the benefits which he reasonablyexpeeted ta gain by reason ofbis participation in the relationship. A relationsbip, for the purposes ofthe applicationofthe doctrine offiduciary obligation, exists where one or more parties depend for the enjoyment ofimportant legal or praetical interests upon the conduct ofanotheror others, and where the dependent -5- parties are driven ta accept the judgment ofthose upon whom they depend as to whatshould be done ta advance their fnterests.

A briefexplanation ofthe subsidiary role played by the doctrine may be inorder here, although it will be dealt with ingreater detail inchapter

\ 1. Fiduciary obligations are imposed on the basis ofjudicial perceptions of the requirements ofpublic policy.lZ They are not àecessarily logical extensions ofthe explicit juridical principles general1y accepted as providing the legal structure for the relationships ta which they are applied. Disposing ofindividual disputes on the basis ofan intuitive understanding ofthe requirements offair dealing and honesty may satisCy the needs ofparticular litigants for a just resolution oftheir dispute, but it may also create uncertainty as ta the liabWty ofparties in similar but not identical circumsrances, and it may not provide adequate guidance for future dealings. 13 Replicabllity ofthe process ofjudicial reasoning is one of the foundational principles ofour law,14 and juridical doctrines which cannot be explained on the basis ofexplidt prindples tend to give way to doctrines which cao.15 It is not that the fonner are juridically subordinate; they simply become redundant.

12 Allcardv. Skinner (1887), 36 Ch.O. 145 at 171 (CottOR, L.J.), 182 (Undley, L.J.) & 190 ( Bowen, L.J.) (C.A.). 13 See, with respect to the application ofthe doctrine offiduciary obligation to Crownlnative relationships, "New Directions," supra, note 7 at 420-425.

14 MA Eisenberg, The Nature ofthe CommonLaw (Cambridge, Mass: Harvard University Press, 1988) at 10-12. 15 This process is ilIustrated by the deve10pment ofthe common lawofduress. By the middIe ofthis century, equitable prindples had supplemented the minimal protection then available tbrôugh the common Iawto the pointwhere duress had become an equitable doctrine for ail praaica1 purposes (see, e.g., W.H.D. Winder, "Undue Influence and Coerdon" (1939) 3 ML.R. 97 al lOS). In recentyear5, however, courts have extended the prindples ofthe common law doctrine ofduress 50 that they now provide the protection fonnerly ooly While tbis analysis will help us determine whether fidudary duües will. he imposed at a1l, itdoes not define their content. A declaration that a relationship is a ftduciary relationship really amounts to an atBrmation that the relationship is ofsocial or economic importance and that its integrity must he maintained by the imposition offiduciary duties. In the second chapterofthis thesis, 1describe a method which 1~e can be used to detennine which fiduciary obligations will he imposed to expand judicial regulation ofa given relationship.

The doctrine offiduciary obligation is interstitial.16 As an instnlment for the regulation ofhuman relatiooships, the doctrine consists ofan assortment ofobligations fashioned by the courts for application onan ad hoc basis in orderto extend judicial regulation ofrelationships ofsocial or economic value. In some relationships, it is the unregulated exploitative conduct which defines the content ofthe tiduciary duties. Here, the fiduciary will be found ta have a duty not ta engage in the otherwise unregulated conduct which threatens to destroysuch relationships. [n other relationships, fiduciary obligations are designed ta induce fiduciaries ta disclose circumstances likely ta tempt them ta depart from the standard ofconduct required to generate the benefits for which the relationship was established, and ta confinn or terminate the relationship, or re-negotiate the basis upon which it is to continue. [n a given class ofrelationships, the scope ofthe tiduciary duties will he coextensive with the unregulated available through recaurse ta equity's supplementary jurisdietion. See, e.g., Barton v.Armstrong (1973), [1976] A.C. 104 at 118-120 (p.C.) and Universe Tanllsbips Inc. ofMonrovia v. International Transport Workers Federation (1982)t [1983] 1 A.C. 366 at 384 (H.L.). lwould argue thatthis develapment is explained bythe filet that the corresponding equitable doctrine lacked explicit prindpleswhich could he used as a basis for private ordering.

16 DA DeMon, ''BeyondMetaphor: AnAnalysis ofFidudaryObligation" (1988) Duke L.]. 879 at880-882 [hereinafter"Beyond Metaphor"]. -7- opportunities for exploitation. Determinlng the content ofmese obligations requires analysis ofthe manner in which the opportunity for , exploitation arises. Fiduciaryobligations are aimed at neutralizing the fidudary's exploitative advantage inherent inthe relationship. The Identification ofregulatory lacunae which imperq. the integrityofuseful relationships requites famUiarity with the field un<\er investigation, a knowledge ofthe limitations ofexisting sources ofregulation and an eye for a potential for exploitation. Fiduciary obligations will he imposed where the most effective wayofforeclosing exploitative opportunities is the importation, adaptation and imposition ofdunes offidelity, diligence, prudence, impartiality borrowed from the code developed ta regulate the conduct oftnlstees. It then remains to specify the degree offidelity, diligence, prodence and impartiality required by the circumstances. Here, we can look to the decided cases for inspiration.

Happily, variations in human greed are not nearty as numeraus as instances ofits effects. Reported cases offer an extensive raster of mechanisms which the courts have brought ta hear for the purpose of providing a remedy for those victimized by the misuse ofdiseretionary power. Consequendy, one can, by analogy from existing decisions, predict with a fair degree ofconfidence which ofthese mechanisms will he adopted to deal with a given type ofexploitative conduct. The most effective mechanism will, at least in the long ron, specify the standard to which the fiduciary must canform.

In the third chapter, 1describe the essential features ofthe

Crownllndian relationship, in 50 far as this relationship is relevant ta reserve land transactions. In terms ofmy analysis ofthe prerequisites for the applicationofthe doctrine offiduciary obligation, these are the features ofthe re1ationship which must he proteeted ifits integrity is to he -8-

maintained, and ifthe social and economic benefits for which itwu created are ta continue.

From the mid 1600s ta the present, the Crown bas acted as intermediary between aboriginal peoples, on the one band, and the non­ native community, on the other. Its objective baS been the recondliation ofnative and non-native demands. This was also i~ historica1 role, first fonnally assumed during the mid-18mcenturywben the maintenance of peaceful relations with NorthAmerican natives was seen by the Imperial govemment as essential to British interests. The govemment's vision of bowbest to mediate the conflieting interests ofthese communities bas changed dramatically over the years.

From the mid-1600s to the late 17005, Imperial policy called for the physical separation ofthe native and non-native communities. From the early 18005 to the beginning ofthe 20th cenNty, govemment efforts were directed towards the cultural and economic adaptation ofnative peoples to the ways ofthe non-native majority. The govemment had clearly abandoned its attempts at cultural modification by the midd1e ofthis century. Lately, the Crown bas sought to identiCy a politica1 and economic structure acceptable to bath communities which will reconcile aboriginal aspirations for cultural autonomy and economic self.sufficiency with non­ native insistence that any such objectives he accomplished without encroachment on established economic rights oroverall political sovereignty.

Pending the development ofa fonnula for reconciling the interests of

the (WO communities, the Crown bas assumed the role ofcustodian ofthe tide to Indian lands and proteetorofIndian land rights. 1argue that the degree ofprotection undertaken bythe Crown anhe deduced from the ·9· provisions oftheIndlanAct. Analysis suggests that the Crown's role is not to direct the use ordisposition ofthe land, but to prevent the acquisition , by non-natives ofinterests in reserve land unless it appears tbat the proposed use or disposition represents the voluntary aet ofthe Indian occupiers made with a full appreciation ofits impact on their cultural and economic aspirations. \

The rights which Indians possess in relation to their reserves hear little resemblance ta aboriginalland rights. Through the legal mechanisms ofthe Indian Act, Parliament gave ta status Indians the opportunity to use reserve lands or ta have them disposed ofontheir behalfas if they held the maximum interest that the civil orcommon Iaw allowed.17 When the Guerin panel spoke ofthe ClOwn's historical commibDent to protect Indian interests, it was the protection ofthis opportunity to which they referred.

For status Indians, reserves are the sites within which Indian societies are segregated, and at least in theory, proteeted, from interference by non­ natives. They aise constitute the main, sometimes the ooly, capital asset of the band for whose use and benefit theywere set apart. 17rom the Indian perspective, decisions affecting the use ordisposition ofreserve land have to balance these two, oCten competing, requirements. Determining whether a given disposition ofreserve lands is beneficial to native interests involves an assessment ofthe degree to which the proposed transaction promotes or is inimical to the maintenance ofIndian cultural autonomy, on the one band, and the extent to which the Band's economic circumstances require its implementation, on the other. Where there is a con8iet between these two objectives, oolythe band cao resolve it. Only

17 It is for this reason thata juridical description ofaboriginalrights inreserve land is unnecessary, as wen as beingpotentially misleading: see~ supra, note 1 at 382. -10 -

the band bas the moral authorityto determine whetber the maintenance of the culturalvalues ofits members outweighs the finandal benefits which a , given transaction is 1ikely to generate. Any action bygovemment aimed at bringing about a result which it alone belleves, however honestly, to he in the best interests ofthe band represents an un~tedInterference in the decision.making process. \

The Crownllndian relationship contains an inherentopportunityfor the exploitation ofnatives by the ClOwn. The opportunity exists because performance ofthe Crown's historical commitment ofprotection requires that the government have a dîscretionary power to preventwhat it considers improvident uses ordispositions ofreserve lands by the occupying band or its couReil. This dîscretionary power is created by the legislation enacted to regulate the relationship between the Crown and status Indians, chiefty, theIndian Act and the regulations made pursuant to it. Neither the legislation itseJfnor any common lawdoctrine, provides a means ofcontrolling the ClOwn's use ofthis dïscretionary power. The effeet ofthese extraordinary provisions is ta put into the bands ofthe government sweeping powers ofcontrol over the use and disposition of reserve land. The extent ofthis discretion is summed up in section 18(1), which empowers the Crown to decide for itselfwhether a proposed use of reserve land is for the benefitofthe occupying band.

The govemment's overriding legal right to determine for itself whether a given use ofreserve lands is for the benefitofthe band is not intended to enable IndianAffairs officiais to substitute theirown plans for reserve development for those ofthe Indians for whom the reserve is set

apart. Sucb extraordinary power caR only be justified ifit is limited to ensuring that banddedsions respecting reserve lands geouinely represent -11-

the considered judgmentofthe IndJan decision-maken. It is in this sense ooly that the Crown is the proteetorofIndian interests.

In Guerin, the Supreme Court beld that the Crown bad an obligation ta prefer the band's demand for a revenue-producing golfcourse lease over IndJanAtrairs' vision ofa loss leader centerpiece for its up-market bousing estate. The Court declared tbat the lease was not ~ the best interests of the band not because it was a bad idea, but because the band had been given to expeet sometbing else. The majority held that, when the Crown barreled ahead with its own plans witbout band approval itviolated its bistorical commitment to proteet native interests. Thus, the panelwas able ta characterize as disloyalty officials' conduct in leasing the surrendered land on terms inconsistent with the understanding upon which the land had been surrendered. As Guerin illustrates, the exercise by the ClOwn of its discretionary power over Indian lands must he regu1ated by the imposition ofa dutyofloyalty on govemment officiais. No other doctrine was available ta restore the Band to the position in which it would have been had the govemment used its power for the purpose for which it was intended.

ln chapter four, 1apply the method developed in the preceding chapters to describe fiduciary obligations likely ta he imposed on the Crown in respect ofthe management and disposition ofreserve lands. The most commonopponunity for exploitation lies inthe bands ofa party who bas been given a discretionary power ta affect the legal or praetical interests ofanother, thereby rendering the latter pecuUarlyvulnerable to the exercise ofthat power.18 The IndianAct contains manyexamples of - 18 lnFrame v. Smith, [1987] 2 S.C.R. 99 al 136, Madam JusticeWdsonsuggested that these drcumstanœs alone "provideda rough and readyguide't for detecting the existence ofa fidudary relationship. ·12 - such plwers. Inchapter4, 1restriet my analysis ofthe fidudary aspectS of the Crownllndian relationship to an esaminationofthe discretion , conferred upon the Cmwn ta Interfere with Indian decision-making in conneetion with the allotment ofunsurrendered reserve land to band members and the grant ofleases ofparcels ofallqtted land ta non.. members. \

An examinationofthe discredonary powers conferred by thelndlan Actdoes not, ofcourse, provide an exhaustive list ofthe opportunities for exploitation which are inherent inthe Crownllndian relationship and which MaY affect reserve land transactions. The mediatory roIe ofthe Crown and the lackofexperience ofcertain bands with the non-native economy imparted to many Indian Affairs officiais an ability to exercise a powerful influence over Indian decisioos. Court records contain disturbing allegations ofoppressive conduct by public servants aimed at bringing about dispositions ofreserve land which, in retrospect, are difticuJt to justify 00 the basis that they were primarily iotended to benefit Indians. In fact, some seem disproportionately beneficial to the non-native community. In these cases, the relationship is likely best proteeted through the application ofthe doctrine ofundue influence. CHAFrERI

THE FlDUCIARY RELATIONSHIP

1. Introduction

The word "fiduciary" first came iota common use in the vocabu1ary of British law about 1850. Bythat time, it bad become desirable ta dïstinguish between tnlSts ofproperty, on the one band, and a variety oftrust-Uke relationships-all regulated by Equity--on the other. AIl ofthese relatlonships had fonnerly been referred to as trusts oras relations of confidence, but from the tinte that the word trust came to he reserved for the fonnaI trust ofproperty, the remainderwere, and still are, usually called flduciary relationshipS.19

Repeated judicial references to the fiduciary relationship as the foundation ofenforceable obligations no doubt gave rise to the bellefthat sueb relationships shared common charaeteristics which could be used to explain the nature and scope offiduciary obligations. Beginning in the 19405, commentators set out to produce the definitive formulation ofthe elements ofthe fiduciary relationship. Over the past 50 years, at least a dozen proposais have been put forward, ail subjeet to varying degrees of criticism.20 50 far, only ProfessorWeinrib's analysis bas received honourable mention byour Supreme Court.21

19 L.S. Sea1y, "FidudaryRe1adonships" [1962] Cambridge L.J. 69 at,l & 72 [hereinafter "FidudaryReladonships"].

20 Most ofthe pre-1981 bopefuJs are arrayed mI.C. Shepherd, 'Towards a Unified ConceptofFidudaryReladonsbips" (1981) 97 LQ.R. 51 and, ingreaterdetail, in I.e. Shepherd, TbeLswofPlduciarles (l'oron1O: CarsweI1, 1981), where theyare systematicallydispatehed bythe author, one byone. Suspected sunivors are given thecoup degrâce in"BeyondMetaphor," supra, note 16 at908-915. Mr. Shepherd's own synthesis ofthe bestofeach (the "transferofencumbered power" -14 -

Lately, the judiciary bas also had a gO.22 Fora wblle, Wllson,J.'5 tbree· clement test ofpower to affect the interests ofanother, discretion as to the manner inwbich the powershould be exercised and vu1nerabtltty, an admittedly"rough and ready" formula which she presented inberdissenting judgement inFrame, had a decided edge.23 Now, even thatformulation bas been demoted to " ... indicia that he1p recognise a fiductary relationship rather than ingredients that define it.,,24

Why is it 50 difticult to deve10p a comprehensive description ofsuch a common relationship? The answer is that the doctrine offiduciary obligation

theory) was critidzed in}.R.F. Lehane, Book Review of17Je Law ofF#duciarles by }.C. Sbepherd (1984) 7 U.N.S.W. L.]. 396. Recent suggestions indude D.SlC. Ong, ''Fiduciaries: Identification and Remedies" (1986) 8 University ofTasmania L. Rev. 311 (the "impUed dependence" theory) and R. Flannigan, "The Fiduciary Obligation" (1989) 9 OxfordJ. ofLegal Studies 285 [bereinafter "FIannigan, 'Fiduciary ObUgadon'''] and lfFiduciary Obligation in the Supreme Court" (1990) 54 Sask L. Rev. 45 (the "access to assets" theory). Law Be Economies analyses are to be round in R. Cooter& 8.}. Freedman, 'The FiduciaryRelationsbip: Its Economie Cbaracrer and Legal Consequences" (1991) 66 N.Y.University L Rev. 1045 [hereinafter "Economie Charaeter"), and F.H. Easterbrook Be D1 Fische1, "Contraet and Fiduciary Duty" (1993) 36J. ofLaw& Economies 425 [hereinaCter "Contraet & Fiduciary Dut)''']. Recent articles stress the need for yet Curtber examfnation ofthe eonceptual basis ofthe doctrine: "Beyond Merapbor", supra, note 16 at908-910, and "Crown.Aboriginal Relationsbips", supra, note 7 at48 Be 49. 21 ''Fiduciary ObUgation", supra, note 8 at4, wbere the authorargues that the ftduciary relationship is one" ... in which the prindpal's inteœsts cm be affected br, and are therefore dependenton, the mannerinwhich the &dudaryuses the dfscretion which bas been delegated. to him." This analysis wu quoted with guarded approval byDickson, J. inGuerin, supra, note 1 at 384. 22 Frame, supra, note 18. 23 InPrame, the majority did not disagree wim Wilson, J.'s formulation ofthe test, and otherpanels bave made useofitindiscussions offiduciary Iaw: lacMtnera/s Ltd~ IntemattcmalCoronaResourcesLtd, [1989] 2 S.C.R. 574 at 598-601 & 668, Ctmson EnterprisesLtdv. Bougbton 6,Company, [1991] 3 S.CA 534at543-545; Norbergv.1Vynrlb, [1992] 2 S.C.R. 226 at 274-281 (McI,acblin Be L'Heureux­ Oubé,D.);M.(K.) v.M.(H.), [1992] 3 S.C.R. 6 at63-66. 24 Hodgldnson, supra, note 8 at 409. -15 - is a technique ofjudicial interVention-ameans ofadapting existingIawto meet the exigendes ofchanges insocial and«onomiecircumstances. A , declantion that a relationship is fidudary is nothing more thanthe mtiona1isation for the impositionoffldudary obligations. It is the need for the impositionoffiduciary obligations which dete~eswhetber the relationship which requires them is fiduciary; not t1\e otherway around.25

The doctrine offiduciary obligation is a creature ofthe systemof equity.26 It represents the application, ta a variety ofre1ationships, of obligations which Equity had originally developed to regulate the conduet oftnlstees under an express trust ofproperty.27 The circumstanees which make it appropriate to apply the doctrine ta relationships other than that of trustee and beneficiary are those seen by the courts as analogous, in some importantway, ta the circumstances which require the application of similar obligations to the relationship oftrustee and beneficiary.28

What judges mean when they say that a given reJationship is analogous ta that oftrustee and beneficiary is that bath relationships contain an opportunity for the exploitation ofone party byanotherwhich is inherent in the reJationship and inimical ta its integrity, and that the technique used to provide a remedy to a beneficiary for exploitative conduetbybis trustee must

ZS P.o. Finn, Fûluctary Obligations (Sydney: Law BookCo, 1977) at 2 [hereinafterFtdudary Obligations) and "Deyond Metaphor", supra, note 16 at 915. nd Z6 D.W.M. Waters, Law afTrusts ln Canada, 2 ed. (Toronto: Carswell, 1984) at 31 [hereinafter Trusts in Canada).

27 D ..W.M. Waters, "Banks, FiduciaryObligations and Unconsclonable Transactions" (1986) 65 Can.. BarRev. 37 at 52 " 53 [bereinafter "Unconscionable Transactions"]; "Fiduciary Relationsbips", supra, note 19 at 72 &~. _. a "Fiduciary Relationships", supra., note 19 at 71; "8eyondMetapbor", supra, note 16 at879. -16·

aIso be used ta provide a remedyto the aggrieved party to the relationship under consideration.

The jurisdietion to develop juridical doctrine byproviding remedies custom designed to close offspecifie, unavoidable, but potentially destnletive, features ofuseful human relationship5 was established byequity \ during the 15thcentury. At that time, itwu used to regulate pennanent

trusts ofreal property. The technique proved 50 successful tbat it was tater extended to regutate otherrelationships which had little or nothing in commonwith the relationship oftrustee and beneficiary other than the existence ofan inherent opportunity for exploitation and the need for a certain type ofequitable regulation. This "beneficial jurisdiction,,29 is still claimed by ourcourts, 500 years after i15 début, and i15 features can best he seen from an examination ofi15 origins, and the method used to extend i15 scope.

2. The Technique of Equitable Intenendon

a. OrigiDs

The concept ofthe fiduciary was developed by equity to describe the juridical relationship between settlor and beneficiaries, on the one band, and trustees, on the other, under express trusts ofproperty.30 The earliest express trost ofpropertywas the permanent trust or use.. It consisted ofa formai conveyance ofreal property ta two ormore joint tenants and their beirs (the feoffees to use, or trustees).31 In general, these conveyances

29 Dentv. Bennett (1839), 4 My. & Cr. 269; 41 E.R. 205, per Ld.. Cottenham.

30 Trusts in Canada, supra, note 26 at 31 8t 32. rd 31 A.D .. Hargreaves, AnIntroduction ta the Princip/es oflAndLaw, 3 00.. (London: Sweet8t Maxwell, 1952) at 93 [hereinafterlAndLaw].. -17· provided that the grantees were ta permit the grantor and bis heirs (the cestuis. que use, or beneftciaries) to receive the profits &cm the property, to transfer interests in the land at the direction ofthe benefidaries and, if disseised, to recover possession ofthe land for the benefidaries and at their expense.32

Bythe beginning ofthe 15th century, most o"r the land in England was held by way ofpermanent trust.33 There were two main reasons for the popularity ofthis device. The first was that it enabled landowners ta give directions as to entidement ta their real propertywhich would continue to he respeeted after theirdeath; the second was that it enabled them ta avoid feudal dues.34 ln bath cases, the necessity for the establishment ofpermanent trusts arase out ofthe inability ofthe common Iaw ta adapt ta the chariging requirements ofBritish society:

The doctrine oftenure and its corollary the doctrine of estates provided an adequate basis for the land lawofthe early Middle Ages. They were the legal interpretation ofthe existing facts offeudalism. But when the feudal organization ofsociety began to disappear, ... the feudalized law began to lose its contact with the requirements ofthe 1ife ofthe people. ... [T]he inddents offeudal tenure [rapidly degenerated] ioto their ultimate fonn offinancia1 extortion; and their existence, together with the consequent refusai ofthe common law to recognize the validity ofa devise ofland by will, provided an ever-growing incentive to escape from the meshes ofan antiquated jurispntdence.35

The main drawback ofearly permanent trusts was tbat their efficacy depended entirelyon the honestyoftrustees. The commonIawdid not

52 G. Spence, 17Je Equitablejurlsdtctlon ofthe CourtofCbancery, vol. 1 (London: Stevens Be Norton, 1846) at 448 [hereinafterEquttablejurlsdtetion]. 35 Equitablejurlsdietlon, supra, note 32 at 441, note (c). 34 F.V/. Maidand, Equtty: A Course ofLectures, 2nd ed. byJ. Brunyate ­ (Cambridge: Cambridge University Press, 1936) at 25-29 [hereinafterEqutty). 35 LandLaw, supra, note 31 at92. -18· provide benefidaries with a remedy for the violationofthe terms upon which trustees or theirpredecessors had accepted the legal tide ta the iand.36 The failure ofthe common Iaw to recognize the interests ofthe setdor and beneficiaries left them vulnerable to exploitation bythe trostees, who, as holders ofthe legal tide, were tI;lus able to vindicate legal rigbts belore the courts without regard to the und~nakingsbywhich they had acquired that title. Such a widely-used institution demanded the protection ofthe Iawand, bythe beginning ofthe 15th century, the Chancellor had begun to direct the perfonnance by trustees, at the suitof beneficiaries, ofundertakings upon which tide had been conveyed. Within fifty years, this jurisdiction came to be exercised by the Court ofChancery and the formation ofan equitable jurisprudence with respect to the regulation ofexpress trusts ofreal property had begun.37 The significance ofthese developments, for the purposes ofthis chapter, lies not 50 much in the rules fonnulated to govem the conduet oftrustees, but in the jurisdietion which gave tise to them.

b. The legislative cbanderofequltable jurisdietiOD

One ofthe most striking features ofthe jurisdietion invoked to regulate early trusteetbeneficiary relationships was its legislative character.38 By the 15th century, the common law ofreal property had come to reflect so dosely the social stnleture ofmedieval Britain that its doctrines were incapable ofadaptation when the basis ofsocial relationships changed. British monarchs could not he expected to support changes which, like the permanent trust, had the purpose and effeet of

36 Equttab/ejurlsdietlon, supra, note 32 at 442.

37 Equitab/ejurlsdicttont supra, note 32 at 349 & 443-446.

38 Equttab/ejurtsdietlon, supra, note 32 at 418,419 &435. -19 -

decreasing royal revenues by eliminating the incidents oftenure. [t is signifiant that early opposition to equitable intervention came from

·ParUament,39 since it was a legislative jurisdictionwhich the Chancellorhad usurped.

The extent to which equity's jurïsdiction was legislative is apparent \ from the history ofthe judicial enforcement ofthe permanent tnlst:

... for Dot ooly, in virtue ofa lawcreated for private convenience and independentofthe common law, wu the persan legally entided, deprived ofail the beneficial inddents ofproperty; but a distinct tide ta the enjoyment wu introduced, not only unknown ta, but at Cirst repudiated by the law: the legal tide indeed was not direcdyaJfeeted, yet the legal ownerwas compelled to exercise bis legal rigbts, 50 as ooly ta be subservient to the protection and enjoyment ofthis equitable interest; although by tbis means as regarded the real ownerofthe estate, the legal rights of tbird persans, including the crown, were defeated, which indeed was one ofthe palpable abjects for which trusts were inuoduced. [Citation omitted.r'O The need for the assumption oflegislative power by the judiciary on that scale no longer exists in majorcommon law jurisdictions. Parliamentary jurisdietion ta enact substantive law is well established and, in general, clearly defined. Modem govemments are far more responsive ta requirements for changes in the Iaw, and tend ta intervene with . corrective enaetments where a clearcourse ofaction becomes apparent. In addition, courts exercising equitable jurisdiction have, for manyyears, made a effort to confine tbeir interventions ta cases clearly covered by estabUshed principles.41 The need for tbis jurisdiction did not, however, disappearentirely. As and when analogous opportunities for its exercise

39 HquttableJurlsdietiotl, supra, note 32 at 348-350.

40 HquttableJurlsdietion. supra, note 32 at 435 & 436.

41 D. Browne, Asbbumer'sPrlndpfes ofEquity, 2nded., (London: Bunerworths, 1933) at 34-39 [hereinafterPrlnctples ofEqutty). - 20- arose, courts ofequityand later, courts ofcombined commonlawand equitable jurfsdiction, resorted ta its application.. In 50 doing, the judiciary , responded, in lts way, ta the same stimuli which generate legislative change namples ofmanifest injustice, seemingly Irremediable through the application ofexisting juridical principles.. La.cldng the legitimacy ofan explicit mandate to effect substantive changes in tIl.e law, judges were driven to justifying their interventions on the basis oftheir perceptionof generally accepted principles ofpublic mOrality,42 variously referred to as "the chancellor's conscience," "the king's conscience," "the consdence of the realm," "the honorofthe Crown," and, as befits secular democracies, "public policy".

The technique ofequitable intervention provided a formai method of adapting existing doctrine to meet juridical requirements generated by social and economic change. The selection ofthe relationships to which custom-made obligations were to he applied was a matter ofpoücy, the formulation ofwhich is normally a charaeteristic ofa legislative jurisdîction. Equity arrogated this jurisdiction to itselffrom an early date. Ultimately, this initiative received legislative sanction in the judicature acts, bywhich the ascendancy ofequitable doctrine was assured..43 From tilDe to time, specifie appücations the doctrine offiduciary obligation have been approved by eleeted lawmakers through legislation bestowing upen the

42 W.T. Allen, I~Professor Scheppele's Middle Way: On Minimizing Nonnativity and Economies in Securities Law" (1993) 56 Law & ContemporaryProblems 175 at 183. 43 (Supreme CourtobJudicature Act; 1873 CU.K.), 36 & 37Vic., c. 66, esp. s. 25. Foran e:xample ofCanadfan1egfslation ofsimilarInrent, secLawandEquItyAct, _ R.S.B.C. 1979, c. 224, esp. s. 41. courts the power to regulate incrementally the relationships specified in the enactment.44

c. The reDlecUal objective of equi1lble intenreOtiOD

The second feature ofequlty's jurisdietionwhich is important for present purposes is its remedial objective. Equitable doctrines, and common lawdoctrines for that matter, are remedial in a narrow sense. Both provide specifie relieffor claimants wronged at the hands of defendants who have acted contrary to normative standards enforced by the courts. Most equitable doctrines are also remedial in a broader sense. They are aimed at repairing gaps in the regulatory net cast byother sources oflaw. Equity itselfwas conceived as a remedial branch ofour law; unlike common law, it is not a self-sufficient system.45 From its inception, equity assumed the existence ofthe common law, and aimed at supplementing

44 See, e.g., the U.S. Employee RetirementIncome Securlty Act 29 u.s.c. § 1001-1461 [hereinaCter uERISA"] where the jurisdietion is expUdtly incorporated ÏDto the provisions ofthe legisladon, the Canada Business CorporationsAct, R.S.C. 1985, Ce <:-44, 55. 122(1)(a) [bereinafter Canada Business CorporationsAct] (direetors are bound to aet honest1y and in goad faith with a view to the best interests ofthe corporadon) and statutes such as the MunictpalAct, R.S.8.C. 1979, c. 290, s. 225(4)-(9), (e1eeted officiais whose interest in a specifie transaction contliets with the interests ofresidents as a wbole mustdeclare their inteteSt and re&ain from voting on that issue). The doctrine offidudary obligadon is notfmported explidtlyinto the reladonship between status Indians and the Cederai govemmentbythe terms oftheIndtan Act, R.S.C. 1985, c.I·5 [hereinafterIndtanAct]. Section s. 18, wbich provides that U ••• reserves are beld byHer Majesty for the use and benefttofthe respective bands for which theywere set apart n. " does, however, suggestwbat Parliament intended the juridica1 nature ofthe relationship to he, at least in 50 fat as dealings in reserve land are concemed. Generallyspealdng, however, the nature ofthe Indian-Crown relationship must be fmplied from the legal framework providedbytheAct and the bistoryofthe dealings betweennative peoples and Canada's govemments. [willdiscuss tbis ingreaterdetail inchapters 3 and 4.

",5 Equity, supra, note 34at 19. - 22- and fidfliling it.46 Equity's limited remedial objective is illustrated by the manner inwhich it used its jurisdiction overdealings in real property. The acquisition ofthis jurisdictiondid not lead to a wholesale reform ofthe law ofreal property as it migbt have done. Instead, once equity had provided beneficiaries with an effective remedies against abuse ofpower by their tnlstees, the courts proceeded to formulate a doctrine ofequitable estates mode1ed very closely upon the doctrine ofestates developed by the 47 common laW.

This feature ofequity's jurisdiction has important implications for studies, like this one, which attempt to predict the nature and scope ofthe obligations which equitywill impose. The remedial objective ofequity's jurisdiction diverted the focus ofdoctrinal development inequity away from the search for logical extensions oflegal principles held to be incontestable, and moved it towards an analysis ofthe juridical requirements ofthe relationships which required protection. Thus, the remedial qualityofequitable doctrines makes it virtuaUy impossible for us to deduce, from a study ofthe doctrines themselves, whether and howthey will be applied in situations not already covered by judicial authority or enactment.48 The justification for the imposition ofequitable obligations in respect ofa given relationship, and the contentofthose obligations, are govemed by the social or economic palicywhich mandates juridical protection ofthe relationship,49 and by the extent to which an adequate

46 Equity, supra, note 34 at 17-19.

47 Equity, su/Wa, note 34 at 31-33 St 107-109. There weret bowever, some exceptions. Maitland argues that their limited number illustrates the very considerable extent to which equitable estates and interests were modeled on common lawconcepts. See, Equtty, suprat note 34 at 32, 109 & 110.

48 "Fiduciary Obligation," supra, note 8 at 1-2 (as applied ta the doctrine of fidudary obligation).

49 "Fiduciary Obligation," supra, note 8 at 11..13. -23 -

alternative source ofregulation is unavallable ta do the job. The oolyway inwbich we an predietwhether and howequitywill intervene to enhance r the reguJation ofa given relationship is bydetermining the legalpoHcy which supports it, and by identifying regulatory lacunae which threaten to frustrate tbat policy and which cao he 6lled by th~ imposition ofequitable obligations. \

d. The subsicUarity of equitable dodriae

The legislative scope and remedial role ofequitable doctrines dietates their subsidiarity. They are not subordinate to commonlaw doctrines in the sense that the common law replaces them where the two contlict. In theory, at least, the opposite is ttue.5O Instead, the remedial nature ofequitable doctrines makes them redundant as regulatory devices ifand to the extent that satisfactory alternatives are avallable or develop.51 A given alternative will he satisfaetory and will he applied in place ofits equitable equivalent ta the extent to which it provides the needed regulation and is based on explicit juridical principles. The judiciaI preference for doctrines supported byexplicit principles retlects one ofthe

SO Provision for the ascendancy ofequitable doctrines is contained in the judicature legislation ofmost ofCanada's common-Iaw provinces and territories. See, e.g., B.C.'s Law andEqutty Act, supra, note 43.

SI Hence, the Supreme Court's reluetance to employthe doctrine offiduciary obligation where another source oflawwould provide adequate regulation: In Frame, supra, note 18 at 114-116, the majority held tbat adequate protection was provided bystatute. InNorberg, supra, note 23, a majority ofthe panel declined to applythe doctrine because the torts ofassault Be battery (La Forest, Cary Be Gonthier,JI.), orbreacb ofcontraet (Sopinka,J.), provided an adequate remedy. InLac, supra. note 23, reUefwu given on the buis ofbreachof confidence ramer than breach offidudary obligation. In]imaLtdv.Mister DonutofcanadaLtd (1973), [1975] 1 S.C.R. 2, the opportunityfor pdvate orderingexduded the impositionof6dudary Uability. AIl ofthese cases migbt also have been disposed ofin the same waybythe application ofthe doctrine of fidudary obligation. - 24- basic requirements for judge-made Iaw-the requirement that judicial reasoning he replicable bythe legal profession.52 ReplicabWty is important • because the vast majority oflegal problems must he resolved by private ordering-byavoidïng exposure to liability indoubtfulcases, by identifying and thJOIUng likely obligations, bynegotiating compromises ofclaims based t on an assessment ofthe risk ofliabllity. Ifthe le83\profession cannot predietwith reasonable certainty how the courts would dispose ofthe thousands oflegal disputes daUy brought ta it for resclution, much planning and dispute-settlement would, for ail practical purposes, become impossible.53 The judicial preference for doctrines based on explicit principles is important ta my thesis because it almost invariably determines which oftwo competing doctrines will he seleeted to regulate a given relationship. It may he useful, at this point, ta refer to recent case Iaw which illustrates this phenomenon.

A comparison ofthe Supreme Court's judgments inMdnerney v. MacDonalrl'4 andNorberg v. Wynrlb55 illustrates the degree ta which coons avoid the application ofthe doctrine offiduciary obligation in cases inwhich a remedy cao he granted on the basis ofa doctrine mpported by explicit juridical principles. The two judgments were handed down in the

Summer of1992, within a weekofone another. Three ofthe judges 56sat on both panels. In bath cases, an appellant patientcalled for the

52 TbeNatureoftbe CommonLaw, supra, note 14 at 10-12. 53 See, generally, 11Je Nature ofthe Common Law, supra, note 14 at 10-12. The difficulties in applying the doctrine to the relationship between Canada's native peoples and the ClOwn are described in "New Directions," supra, note 7 at 421­ 425. 54 ,__T't. I-' McInemey v. M~,",", [1992] 2 S.C.R. 138.. ss Norberg, supra, note 23.

56 La Forest, Gonthierand L'Heureux-Dubé,JJ. - 25- imposition offtdudary obligations upon the respondent physician which, it was alleged were necessary to protect the integrity ofthe doctor-patient ~lationship,a re1ationship long be1d ta he ftduCiary.s7 InMcInemey, the doctorwas beld ta bave violated a fidudary obligation to ber patient by failing to complywith the patient's request for copies ofail material contained in ber medica1 file 50 that the patient cO\lld assess the qualityof the treatment ordered by her previous physicians. In Wynrlb, the doctor was he1d58 not to bave violated a fiductary obligation by bartering prescriptions for an addictive drug in exchange for sexual Cavors by the patient.

The McInemey case arase out ofa request by a patient, Mrs. Margaret MacDonald, to her physician, Dr. Elizabeth Mdnemey, for copies ofber medical file. For some years priar to consulting Dr.. Mclnemey, doetors treating Mrs. MacDonald had prescribed a course ofthyroid pills. Dr.. Mdnemey advised Mrs.. MacDonald to cease taking this medication, which she did. Mrs.. MacDonald then became concemed that the treatment which she had received from other physicians may aetually have done her barm. As a first step towards investigating the matter, Mn. MacDonald asked Dr. McInemey for a copyofber complete medical file, including documents prepared or obtained by ber previous physicians. Dr. McInemey gave Mrs. MacDonald copies ofthe notes and reports which sbe bad prepared, but refused to provide copies ofmaterial supplied byotherdoetors unless they consented.

57 E. VIOler, A Treattse on lheHislory andLaw ofFtdudary Relationsbip and Resu/ttng Trusts, 3rd ed. (Cambridge: W. HetIer & Sons, 1955) at 76-85 [hereinafterFiduciaryRelationsbtp & Resrdttng Trusts]; L.A. Sheridanl~Fraud in Equity: A SlfIdy in Eng/isb andIf1sb ltIw (London: Sir Isaac Pitman " Sons, 1957) at93 [hereinafterFraud in Equity].

58 McLachlin & L'Heureux-Dubé,JI. dissenting. - 26-

Mn. MacDonald obtained a court ardergiving ber the right to inspeet and make copies ofthe whole file. Dy the time the case gat to the r Supreme CourtofCanada, Mn. MacDonald bad obtained an ofthe copies she needed. The Court proceeded to hear the appeal, however, because of the importance ofthe issues raised. In a unanimous judgment, the Court he1d that Mn. MacDonald had a right to inspeet alL.medical records prepared in relation to her request for medica1 advice and services, and to have copies made ofany or all ofthem.

The issue arose because a request for the disclosure ofa patient's Medical records involves a consideration oftwo sets ofcontradictory requirements ofsocial policy. The first appears to mandate strict control of the records by the physician ta the point where even the patient may he denied access. Patients may misinterpret the results oftests and pronounce themselves cured in cases inwhich an informed analysis ofthe results would dictate continued treatment and careful monitoring. If patients were entided ta unrestrieted access ta their doctors' notes, doctors might refrain from including observations which mayhe used as the basis ofa suit for professional negligence or in disciplinary proceedings, thereby leaving an incomplete medical record for practitioners called in ta overcome the effects ofnegligent advice or treatment. Patients themselves may withhold information vital to a correct diagnosis outoffear that the information might be disclosed ta government agencies or third parties. Medical files may contain information about a thircl partywhich, though important to those treating the patient, ought to remain confidential ta proteet the third party's right ofprivacy.

The second ofthese contlicting requirements appears ta ~datethe . disclosure ofmedical records, at least to the patient and, occasionally, to persanswho not parties to the relationship. Doctors should he able to - 27- communicate information required for the protection ofthird parties orfor public safety. Because disclosure ofmaterial in medical files mayhe r compelled for insurance purposes orfor legal proceedings, a patient bas an interest in satisCying himselfthat the records are accurate. Doetors sbould not be allowed to withhold production patient's ~edical records for the purpose ofpreventing the patient from investiga~g the adequacyofthe advice and treatment given ta him.

The Supreme Court held that a patient's medical records are the propenyofthe doctor, hospital orclinic responsible for their preparation. While ownership ofthe records gives these parties the right to their custodyand control, those rigbts are not absolute. A patient is entitled to see and make copies ofbis medical file, unless there is good reason ta deny him access. The anus ofjustifying a deniaI ofaccess is ta he borne by the doctor. The Supreme Court assigned the judiciarya "superintending jurisdîction" for the resolution ofdoubtful cases.59 The Court justitied its decision on the basis ofthe fiduciary relationship wbich exists between patient and doctor. The doctor's obligation ta provide the patient with access ta bis medical file is a fiduciary obligation.6O

InMcInerney, there was no other juridical doctrine which would give the patient a right ofaccess ta ber file and, at the same tinte, alIow the doctor ta restriet or permit access as the best interests ofthe patient and the pubUc may requite. An analysis based exclusively on propertyrights would not have given the non-owner the rights ofaccess or control needed to proteet aU interests. As it could not be said with cenainty that Dr. McInemeywould have agreed at the outset that Mn. MacDonald should he

59 McInemey, ~ note 54 at 159.

60 McInemey, supra, note 54 at 154 Be 155. ·28· entided to inspeet and maire copies ofher medical records, the dispute could not he resolved by implying a right ofaccess Into the contraet for medical services.61

In the result, the Court declared that the pbysician was onder a tlduciaryobligation ta aet "wim utmost good faith and loyalty towards bis patient.,,62 Good tàith and loyalty required that tb~ pbysidan afford bis patient an opportunityto inspect and copy bis own Medical records on request, but this right ofaccess could he restricted or denied by the physician for good reason. One good reason might he the protection of the patient oroftbird parties. There might be others as we11. In the final analysis, the judiciary granted itselfjurisdîction to declare what tbey were. This is a clear piece ofjudiciallegislation enacted under the guise of enforcing a fiduciary obligation. The scope ofthis new fiduciary obligation to provide access ta medical records is clearly prospective. It is aimed at regulating the medical profession's response to requests by other patients rather than simply provicling Mrs. MacDonald with a copy ofber file.63

lnNorberg ~ Wynrlb,64 the plaintUt: a young woman addicted to pain-killing drugs, sought to obtain supplies to feed ber addiction from the defendant Medical praetitioner on the pretense that she needed the drugs to cape with physical injuries. The defendant soon realized the real reason for which bis patient wanted dmgs. Instead ofprescribing treatment aimed at helping ber ta deal with her addiction, bowever, the defendantexploited her dependencyby providing berwith drugs or prescriptions inexchange

61 McInerney, supra, note 54 at 143 Be 146.

61 McInerney, supra, note 54at 152. 6~ Mn. MacDonald already had the records at the tfme the case was beard. M Norberg, supra, note 23. for sexual Cavan.. She sued for damages for battery, negligence, breacb of the contraet for medical adviœ and treatment, and breach offtdudary obligation.. The Supreme Court panel which heard the case uoanimously agreed that the plaintiffwu entided to damages, but individual members disagreed about the basis ofliability..

Mr.. Justice La Forest6S beld that the plaintiffb'ad a valid claim for damages for the tort ofbattery.. Madam}ustice McLachlin66 held that the defendant had violated a fiduciary obligation to prefer the physical well­ being ofbis patient to bis own semai needs. Mr.. Justice Sopinka ruled that the defendant was liable for breacb ofcontraet and in tort because ofbis failure to treat the Plaintiffs drog addiction in accordance with the standards ofbis profession..67

While it May be true to say, in general, mat patients repose trust and confidence in their physicians and rely on medical advisers to put the patient's interests above tbeir OWD, this was not a fair description ofthe relationsbip which existed between Ms. Norberg and Dr.. Wynrib.. Ms. Norberg did not really consult Dr. Wynrib for medical advice or treatment, but to get drugs to support ber addiction. At first, sbe lied about ber medical condition inorderto get pain killers.. Once Dr. Wynrib realized why she was asking for the dnlgs, be confronted berwith ber addiction and offered to trade prescriptions for sexual Cavors. Initially, Ms. Norberg refused, and obtained prescriptions from other doetors, or bougbt dntgs from traffickers. Onlywhen she could not get enough drugs &am these sources did she returnto Dr. Wynrib. She knewwhen she went back to

65 Gonthier St Cory, JI., concurring. 66 L'Heureux.DubéJ., concurring.

67 Norberg supra, note 23 at 313.316. -30 -

Wynrib's office wbat she would have to do to get furtber prescriptions ftom him. She submitted to bis sexual advances inexcbange for dmgs or , prescriptions.

IfDr. Wynrib betrayed anyone's trust, it was the trust which the public reposed in hint when it gave bim authority ta authorize the purchase ofaddictive drogs for therapeutic purpo~. The public expeeted him to use this authority exclusively for the treatment ofbis patients. The general public is probibited from purchasing soch dmgs freely because of their potentially addictive nature. Medical praetitioners may authoriZe sales to their patients because their knowledge and training enables them to ensure that patients obtain the beneftcial etfeet ofthe drugs without unduly exposing them to tbeir undesirable side effects. In this case, Dr. Wynrib used his authority ta prescribe potentially addictive drugs for the purpose ofsatisfying bis own sexual needs.

There are a number ofcases in which the doctrine offiduciary obligation has been invoked ta punish violation ofa public tnlst. Some of them were relied on by MadamJustice McLachIin in support ofher judgment that the doctrine should he applied inNorberg.68 Her vision of the legislative scope ofthe doctrine is apparent from the following extraet from her reasons for judgment:

The case at bar is Dot concemed with the protectionofwhat has traditionally been regarded as a fegaI. interest. It is, bowever, concemedwith the protection ofinterests, bath sodetal and personal, ofthe highest importance. Society bas an abiding interest in ensuring that the powerenttusted ta physicians by us, bath colleetively and individua1ly, not he used incorruptways, ta borrow the language ofReadingv. Altorney-General .... On the otherside of the coin, the plaintül: as indeed does everyone ofus whenwe put ourselves in the bands ofa physidan, bas a striIdng personal interest in obtaining professional medicalare &ee ofexploitation for the

68 Norberg, supra, note 23 at 275-277. ·31-

physidan's private purposes. These are notcoUateral duties and rights created at the whim ofan aggrieved patient. They are duties universally recognized as essential ta the physidan-patient reJationship.69 [Citation amitted.]

The difficulty with applying the doctrine offiduciary obligation 50 broadly is that it appears to open the entire relationship ofdoctor and patient to regulation according ta rules based on indeterminate notions such as loyalty and good faith. It would aIso cast inta daubt the juridical basis ofother relationships involving professional advisers who have been granted discretionary authority for the benefit oftheir clients.70 As Mr. Justice Sopinka put it, "fiduciary obligation 'must he reserved for situations that are truly in need ofthe special protection that equity affords.",71

The majority rationalized their decision according to the doctrine of battery. Dr. Wynrib had physically abused Ms. Norberg and, as a result, was Hable for general and aggravated damages. Ms. Norberg's apparent consent did not provide Dr. Wynrib with a defense because it wu not voluntarily given. The applicability ofthe doctrine ofbattery made it unnecessary for the majority ta consider negligence, breach ofcontractor breach of fiductary duty.n

InNorberg, the disagreement among members ofthe Supreme Court centered around the doctrine ta he applied in granting relie( rather than whether the reliefc1aimed should he granted at aU. The use ofthe doctrine offiduciary obligation ta reguJate the relationship ofdoctrine and patient,

69 Norberg, supra, note 23 at 276 & 277.

70 This is, ofcourse, exaet1y wbat Mcl.acbUn, J had in mind: " ... physicians, and ail those in positions oftnlst, must be warned that societywill notcondone abuse ofthe trust placed in them" (fIorberg, supra, note 23 at 301). n Norberg, supra, note 23 at 312, quoting from bis own judgmentinLac.

72 Norberg supra, note 23 at 246, althougb itdid require importing the concept ofundue pressure from contraet Iaw. -32 ... and its application to punish breaches ofa public trust, were sanctioned by previous authority andwere consistentwith the decision, one weekearlier, inMclnemey v. MacDonald.73 What made the ditIerence wu that there wu an alternative doctrine available to resolve the problem inNor1Jerg, but not inMc1nemey.

e. Discretion and trustas essential clJancterfstics

Fiduciary relationships are oCten said to share the essential elements ofthe relationship oftrustee and beneficiary. This is the reason for which the Courts regard the relationship oftrustee and beneficiary as a sort of paradigm. Judges compare a given relationship to that oftrustee and beneficiary and impose on the fiduciary some or an ofthe obligations which equity imposes on tnlstees. The similarity ofthe obligations varies directIy with the degree ofsimilarity between the two relationships, orsa the argument goes. BeCore leaving the subject ofpennanent trusts, it may he useful to examine the validity ofthis thesis.

The relationship between the seulor and the benetidarles, on the one band, and the tmstees on the other, can be seen in its simplest form in the permanent tnlst. Here, the settlor had to convey the legal tide to bis propertyto the trustees ifthe arrangement was to confer upen the settlors descendants orcteditors the benefits for which it wu created. At the same time as the settlor transferred bis property to bis tnlstees, however, he also surrendered bis abillty to hold them ta the undertakings upon which they bad accepted the tide, since the common lawofthe clay would notenforce these promises. Possession ofthe legal tide to the settiors propertyand

13 See, e.g., "Unconscionable Transactions," supra, note 27 at 53 & 54, where ProfessorWaters suggests that the imposition offtdudary Uabilitywould he appmpriate to regu1ate the relationship between a patient and a Medical praetitioDerfound "abusing the intilllaqofbis positionCor personalgain." ·33· the Jack ofa suitable enforcement mechanism gave trustees the opportunity to exploit the interests ofthose who depended upon them to fulfill their promises. Left unregulated, tbis opportunitywould have destroyed what had become a useful and economically important institution. Moreover, the opportunitywu inherent in the relationship of tnlstee, settlor and beneftciary in the permanent tn1St ofproperty. That is, the permanent trnst could not have achieved its objective without an absolute transfer ofownership ta trustees, and with it, the power ta control the disposition ofthe propertywhich fonned the subjeet-matter ofthe tnlst, a power which the common law reserved exclusively ta the holders of the legal tide.

Trnstees appointed under permanent tmsts undoubtedly had power to affect the legal interests ofthe beneficiaries. The question that arises is whether that power was discretionary in the normal sense ofthe ward. Unlike trustees appointed to administer active trusts-tnlsts which imposed obligations to manage property, invest income, seH assets, and 50 forth-trustees appointed under permanent trusts were merely the puppets ofthe settlor and bis beneficiaries. Their sole fonction was ta ensure that there was there was always a living persan seized ofthe property.74 Their tide was purely nominal, and their oolyobligations were to hold the tide ta the property, and deal with the land in accordance with the directions ofthe settlorand the beneftciaries. Thus, the discretion oCten said ta he the ballmarkofthe tlduciary relationsbip75 was largely

74 The practice was for the sett10r to make a grant to a number ofpersans as joint tenants. When one trustee resigned ordied anotherwould be appointed in bis place. Tnnsfers oftide from one jointtenant to another did not attraet feudal dues orsubject the land to the possibilityofescheat. see LandLaw, supra, note 31 at93. 75 "FidudaryObtigation," supra, note 8 at4-7. Iacking in the relationship oftnIstee and benefidary in the pennanent tnlst, the Brst "fiduciary" relationship.

Another element oCten associated with tiduciary relatiooships is a personal conviction oftrust orconfidence which beneficiaries are said to Ceel towards their fiduciaries. Some writers argue that a tiduciary relationship exists wherever soch feelings have, to the knowledge ofthe fiduciary, induced a beneflciary ta permit a trusted persan to exercise, in his stead, powers possessed by the beneficiary.76 Under this vision ofthe fiduciary relationship, the imposition offiduciary obligations is nothing more than the judicial enforcement ofthe legitimate expectations ofthe beneficiary. The beneficiary is, ta the knowledge ofthe fiduciary, given ta believe that, ifthe tiduciary aets at all, he will a1ways aet, in certain or an matters touching the beneflciary's interests, in a manner aimed at promoting those interests to the exclusion ofall other interests, even those ofthe fiduciary himself. Feelings oftrust and confidence are oCten stressed in the analysis ofundue influence cases, where the tiduciary's influence over the beneficiary's decisions actually does arise out ofthe beneficiary's conviction that the fiduciary will devote bis activities exc1usively ta the promotion ofthe beneticiary's interests.

Undoubtedly, seniors would be MOSt unlikely to gr.utt propertyin tnIst unless they had confidence that the grantees would carryout the obligations set forth in the trust instnlment. It was not, however, necessary for a petitionerwho sought equitable reliefagainst bis trustees to show that he, himseIt: actually tnIsted them ta carryout their undertakings in the same sense that the c1aimant in an uodue influence case had ta showthat he ttusted his fiduciary ta aetin bis best interests.. One ofthe major

16 Fidudary Relattonsbi.p & Resulttng Trusts, supra, note 57 al9 & 10. - 35-

fonctions ofpermanent trusts wu to allow landowners to settle property on their descendants in a manner dUfetent from that provided for by the ~ommonlawofdescent.77 The settlorwould ooly know personally the original tmstees to whom he bad conveyed the tide to bis land. In many cases, the beneficiaries would he in their minority or notyet born al the time the trustwu estabUshed and would bave had.. no band in appointing the tnlstees.78 The trustees themselves were expeeted to arrange for their own succession. Following the death or resignation ofthe first tnIstees, bath the settlor and the beneficiaries would have to make do with successors selected by the trostees themselves. When courts ofequity spoke ofthis relationship as a re1ationship of"tnIst" or"confidence," they were not referring to the state ofmind ofthe semororofbis beneficiaries, but to a role created by a set ofjuridical cules devised to guarantee the result for which the arrangement had been made in the first place:

[The duties ofpermanent trUstees] became, as it were, part ofthe Public Law, quite independent ofcontract; and they were enforced panly on public prindples, to seeure the enjoyment of propeny in the ooly way mat uses and trusts could be rendered effecmat19 3. The Application of the Technique to AoaIogous Relatioaships

The technique estabUshed for the regulation ofpermanent trusts was a spectacular success, and the courts were quick to recognize its regulatory potential. Over the next 500 years, equity applied the same technique over

77 The common Iawdenied landowners the power to devise property bywill. The Iaws ofdescentolten prevented Iandowners from settling propenyon second or subsequent children ordaugbters. 78 ProCessor Weinrib makes the point thataetual trust orconfidence is Dot a necessaryprerequisite for a fidudary relationship in modem law. See, "Fidudary Obligation,tt supra, note 8 at 5. 19 Equitab/eJurlsdlction, supra, note 32 al 449. .. 36 ..

and over again ta regulate other relationships. Pdndpal and agent, parent and chUd, soUdtor and client, direetor and shareholder, teacher and pupil, doctor and patient, priest and penitent, would an come ta be charaeterized as fidudary relationships and ail would, at least 10 some extent, he regulated bymIes which equityhad devised to ~aranteethe integrity of the relationship oftrustee and beneficiaryonder ~e express tnlst of property.

The roJes devised for the regulation ofthe diverse relationships to which the doctrine offiduciary obligation is appUed vary widely from one to the other, but the technique ofjudicial intervention used ta impose them remains true to its 15th century mode!. Fiduciary obligations are imposed where the relationship at risk is ofsocial or economic importance, where the relationship contains, as an inherent feature, an opportunity for one party ta exploit the interests ofanother, where the existence ofthe opportunity for exploitation threatens the integrity ofthe relationship, where no otherequally effective source ofregulation exists, and where victimization can be remedied by the imposition ofobligations designed ta align the interests ofpotentialvietimizers with those ofpotential victims.

ln tbis section, 1will skip 400 years oflegal bistory and examine the application ofthe doctrine offiduciary obligation ta the regulation ofa tnlly suigenerlsso relationship-tbe relationsbip between human stake holders in a business enterprise and the corporate legal fiction invented as

80 J.H. Gross, Company Promoters (TelAviv: TelAviv University, 1972) at 69 & 70, quoting ~Clung,J. in O'Rorize v. Geary, 56A. 541 (1903). ASrngenerls relationsbip, in the sense used here, refers to the Caet mat common1aw prindples do not provide adequate protection ta parties who depend-upon sum . relationships for the enjoyment oflegal orprae:tical înœœsts. The relationsbip between the Crown and Canadian native peoples fs œrtainly constitutes a sut generis relationship in this sense. See, Guerin, supra, note 1 at 387. a shield against unlimited financial Uabillty and as a medium for the ordering oftheir disparate interests. 1will concentrate onone aspect of this relationsbip, the point at which the legal fiction acquires the assets ta operate the joint enterprise on behalfofits human associates. 1have chosen this relationship to demonstrate the extension ofthe doctrine of tlduciary obligation beyond the tnIsteelbeneficiary relationship because it best illustrates the basis upon which the couns find other relationships to he analogous to that oftrostee and beneficiary. In myview, the basis for this analogy is as close ta a definition ofthe fiduciary relationship as we are Ukely ta get.

a. The reggladon of compaoy promoters

Dy the late 18005, British company lawhad well deftned expeetations as ta howa corporationwas to operate once it had an independent board of direetors and members with a financial stake in its future. Individual investors, mobilised br enlightened seJt:interest and restrained by the requirements ofshareholderdemocracy,81 were ta ensure that the best interests ofthe members as a whole were considered and promoted in their companys commercial dea1ings. Howthe business was to get to this Hobbesian nirvana in the first place-bowthe enterprise wu to pass from proprietorship orpannership control to corporate control-was not provided for by the legislation, nor, for that matter, bythe commonlaw.

Before the publicwouldbuysbares, the companyhad to have an undertakingwbich people could he convincedwas worth investing in. Companypmmoters were more tbanwilling to assemble and sen complete business enterprises, butsetting a fair price required armes length negotiatioDS. Embryonic 19thcenturycorporations, whose ftrst directors

81 ConvenientlyoutUned inTable A. -38 • often seemed to consist ofthe promoter, bis conCedentes and, occasionally,

a fewcredulous notables recroited for cosmetic effect,82 were not likely ta engage inthe nose-to-nose bargaining required ta get the best deal for prospective investOl'S. As in aIl situations inwhich one partygets te bargain with himselfoversomeone eJse's money, abuses were common and costly.83 The yean precedingeJJective regulation ofcorporate securides transactions provided disbonest promoters witb golden opportunities for tleecing investors. The usual method was for the promoterto sell assets to bis nascent corporation for more than they were worth, take payment in sbares, sell bis newly acquired stock belore the asset transfer was examined too closely,84 and run. To contain the damage, the courts fonnulated standards to govem the conduet ofpromoters in transferring the enterprise to the corporation. As a first step, the courts declared that a fiductary relationship existed between the promoter and bis company.8S

The promoterwu said to be under a fiductary obligation to bis companyto disclose the fact that he had an interest in the propertytbatwu 87 being sold,86 or that he stood to receive a commission on the sale.

82 This, ofcourse, assumes that the history ofBritish companyIaw cao be accurately inferred &am the reasons for judgmentrecorded in the Law Repons. 83 J. Gold, ''The IJabilityofPromoters for Secret Profits in English Law" (1943) 5 U.T.L.J. 21 at 21·25 [hereinafter "SecretProfits"]. 84 In Caimess, itshouldbe added thateven an honest promoœr might bave been driven to overpriœassets sold to bis corporation because ofhis inabilityta seaue fiûr compensation for bis services by IawCul means: W.J. BrockeIbank, ''The Compensation ofPromoters" (1934) 13 Oregon L. Rev. 195 at 201-204.

85 N. !sucs, ''The Promoter: ALegislative Problemlt (1925) 38 Harvard L. Rev. 887 at893 &894.

86 Erlangerv. l'be New Sombrero Phosphate Company (1878), 3 App. Cas. 1218 at 1229, 1236, 1255, 1260, 1269,1273 & 1284 (11.1.).

87 EmmaSi/verMiningCompany (Ltmited) v. lewis (1879), 40 L.T.R. 749 at751 (CA). .. 39 ..

Disclosure could be made inoneofthree ways. It could always he made direetly to a board ofdireetors who were independent ofthe promoter.88 In cases where no further distribution ofshares wu intended, it could also be made direetly ta ail parties who then heldshares.89 Incases inwhich further distribution wu contemplated, constructive disclosure could also he made ta future sbareholders by means ofa prospectus orsimilar public

document.90

Where the promoter had failed to make the required disclosure, the contraet ofsaie could he set aside at the instance ofthe company.91 Where the companyeleeted to keep the property, orwas unable to obtain rescission, it could recover secret commissions,92 and, in mostcases, secret profits.93

Today, most ofthe major problems ofthis type have been addressed by legislation,94 or by changes incommercial praetice,95 the latter being

88 Erlanger, supra, note 86; ReHess ManufaeturlngCompany (1894), 23 S.C.R. 644 at668. 89 Sa/omon v. A Sa/omon andCompany, Limited (1896), [1897] A.C. 22 at 57 (H.L); Canada (AG.) v. Standard Trust Company ofNew York, [1911] A.C. 498 at 505 (p.C.). 90 Gluckste1n v. Bames, [1900] A.C. 240 at 254 (H.L.).

91 Provided the companycould stiI1 make restitution: LagunasNitrate Company v. UlgunasSyndicate, [1899] 2 Ch. 392 at 434 (C.A.).

92 Lydney andWlgpoollron Ore Company v. Btrd (1886), 33 Ch.D. 85 at 94 (CA). 9~ Secret profits could oolyhe recovered ifthe promotion hadstarled be/ore the promoœn acquired the property: "Secret Profits", supra, note 83 at 29·31. H PidudaryIawis stillieft to reguJate promoters' dudes ofdisdosure incases in which exemptions are granted Crom prospectus requiœments: F.R. Buddey, Corporattans: Prlndp/esandPo/ietes, 2nded. (Toronto: Edmond Montgomery, 1988) at236, andinthe caseofprivate companies:J.R. Parnr, CompanyLaw (London: Butterworths, 1985) at 38.

95 Farrat, supra, note 94 at 38. -40-

induced, perhaps, bythe establishment ofeffective systems Cor Ucensing and regulating securities dealers. Companies may nowadoptwritten pre­ incorporationcontraets.96 Legislation regulatingsecurities transaetions now requires extensive disclosure ofdealings between the company and its promoter,97 and provides shareholders with rights ta bringcivil damage actions directly against promoters, amongst others, for breachofthe disclosure requirements.98

For present purposes, wbat is important is not 50 much the contentof the ntles used to regulate the relationship betweenthe promoterand bis company, butwhyfiduciary lawwas seen to be a suitable taol for the job and how it was used to fix the problems. As formulated by the courts, the problem posed by promotercases was simüar to that presented byuodue influence cases. The corporation was unable ta reach a decision independendyofthe self·interest ofits promoter just as the servient party was unable to form a judgement independendyofthe intluence exercised by the dominant party.99 Thanks to this analysis, the courts concluded that they could deal with problems with promoters in the same way tbat they had dea1t with problems ofpresumed undue intluence: the party seeking ta uphold the transaction was to he required to justiCy il, otherwise, itwould be

96 Forexample, canada Business Corporatlcms~ supr/4 note 44, s. 14. The rule that oolyUJrlnen contraets anbe adopted is intended ta encourage disclosure brpl'Omoters: R.W.V. Didœrson,].L Howard & L Getz, Proposaisfora New BustnessCorporationsLawfor canada, VoL 1 (Ottawa: Information Canada, 1971) at 23 & 24. 97 See, e.g., Ontario's SecurltiesAct, R.S.O. 1990, c. S.5, 55 53(1), 56(1), 58 " 61; Regulation 29 & Fonn 12 (Item 15).

98 See, e.g., Ontario's SecurltlesAct, supra, note 97, 55 2 C'misrepresentationj & 130. Rougbly comparable legislation bas existed sinœ the tomofthe œntul'y. See, e.g., 8 Edw. 7, c. 69, s. 84.

99 Oratleast, althe dominant PartYs disposai. -41-

set aside at the instance ofthe partywhose interests it prejudiced.lOO What the promater had ta do ta justify the tmnsaetion was to showthat the companyor lts shareholders had exercised "an independent and intelligent judgementlt inagreeing to the promoter's tenns.lOl

The precise conduet required ta bring about the state ofinfonned self-ïnterest which the lawseemed to filvour in bath situations was ciiaated by the circumstances charaeteristic ofeach type ofcase. Independent advice was usually required to Cree an unduly influenced personfrom the ensnarement ofbis ill-advised tnlst ordisequilibrating preoccupation. As for the world ofcommerce-the world ofrational maximisers ofutility-mere disclosure ofa contlict ofinterest ta a responsible manager orto a prospective investarwould usually bring him outof30y torpor induced by a promoter's soothing patter.102

Fiduciary laws treatment ofthe promater, on the one band, and the dominant party in uodue influence cases, on the other, differed in another

100 The analogydrawn bythe courts between these lWO types ofcase an he clearly seen in the judgmentofLord Penzance, who went 50 fàr as to say that the prindples needed to repte the reJationship ofpromoœrand companywere analogous ta those applied in regu)ating the relationship o~ amongst others, priest and penitent: Erlanger, supra, note 86 al 1230. 'Ibis anaIogy is discossed in FldudaryRelattonsbip andResu/tlng TnLftS, supra, note 57 al 142. 101 Erlanger, supra, note 86 al 1236; Ct: zamet v. Hyman, [1961] 3 AIl E.R. 933 at 938 (CA), where itwu held that, inpresumed undue iD8uence cases, the deCendant badto prove thatthe sement partyhad consented to the transaction after"full, &ee and inCormed thought about il."

102 In the absence ofspecifie undertaldngs to investigate and advise, equity's disdosure requirements are aimed al putting bene8daries in a position in which they an evaluate the orientationofthe parties upon whose adviœ orservices therdepend. As suggested above, the information required ta maIœ tbis evaluation depends largely on the ability ofthe benefidarles to distance themselves &cm their fidudary's influence. Each class ofbenefidaries bas unique requirements. 1will discoss the requirements ofnative groups in chapter 4. -42 - respect. A presomptionofundue influence did not arise where the impugned transactionwas initiallybeneficial to the servient party.103 In promoter cases, CaUure to disclose would render a sale voidable at the instance ofthe companyeven though the tmnsaetionwu, at the outset, beneficial to the company.lM The latter role might maire it possible for a company to get outofa transaction that seemed like a good idea at the time, but subsequently turned out to he uneconomical. This result illustrates prospective purpose in dedsions in promotercases.. This type offinancial penalty is to he contrasted with the stem lecture &am the benchorperhaps a requirement to paycosts, which were the ultimate judicial rebuffs meted out in particu1arly blatant undue influence cases. The harsher treatment reserved for dishonest promoters is certainly explained bythe gravityofthe threat to the British economywhich would inevitably follow from a 10ss of confidence in the integrity ofthe corporate medium ofcommercial and industrial enterprise.

In the case ofsaIes at an overvaluation ta a promoter-owned company, the partywronged as a result ofa promoter's secret commissions or profits could not logically have been the corpol2tion itse1f.. As long as the promoter and bis nominees were i15 oolyshareholders and direetors, it would nothave tnattered that the company had become obUged to buyat an overvaluation.105 The tnle marketvalue ofthe overpriced assets would ooly have been retleeted inthe value ofthe shares he1d bythose who committed their companyta the tr.msaetion inthe first place.

103 National WestminsterBank Picv.. Morgan, [1985]1 A.C. 686 at 704, 707 Be 709 (H.L.). Cf CJ..B.C. MortgagesPicv.. Pitt (1993), [1994] 1 AC. 200 at 209 (H.L.) .. lCM Beck v .. KmItorowicz (1857), 3 K. &J. 230; 69 E.R. 1093 at 1100 (V.C..).

105 Exœptta creditant who, itseems, could lookalter themselves: DL. Dodd, Stock Waterlng (NewYork: ColumbiaUniversity, 1930) at 20 Be 21. - 43-

A problemwould arise, however, whensomebodybougbt shares believing tbat the price the companywas œquired ta pay for the un

before the companybad estabUshed any record ofeamings wu MOst Iikely to be hurt byan inflated bookvalue puton the co~pan.y'sassets.106 From 1867on, soch investors had, and still bave, a statut~ry rigbt ofaction against

promoters and direetors for misrepresentations in the proSpectuS.I07

It was, nevertheless, tbought necessary to give the companya rigbt to recover secretcommissions orprofits, orto rescind asset sale contraets, or hoth. In orderto afford the companya right ofrescission, the courts treated promoters as outsiders and declared that the company had been deceived by its promoterand direetors. This Bnding led the couns into a preposterous exercise incorporate psychoanalysis. The majority ofthe minds that constituted the companys decision-making facu1ty were clearly benton concealment and fraud, and were not for a moment fooled by their own sku1duggery. Separating the corpol2te pensée &am that ofits direetors required the courts to select from the wrongdoers' store ofinformation only those facts which were suitable for the delicate sensibilities ofan ingenuous corporation and to declare that that was ail that the company knewofthe transaction. The rest ofthe knowledge, especially the bit about the fraud, bad to he rejeeted as infonnationwhich the promoterand bis cronies would not pass on to the companyfor fear disclosure would torpedo tbeirsecret-

106 Dodd, supra, note 105 at 5.

107 See 30 & 31 Vict., c. 131, s. 38. The dgbt was initially restricted ta aUottees of sbares: Pee. v. Gumey (1873), [1861-73] AIl E.R. Rep. 116 at 127, 133 & 134. Undercurrent legtslation, subscribers who buyduringa distribution pedod (when therare most Iikely to he aftècted adverselybymisrepresentations in the prospectus) mayrecoverdamages forlasses occasionedbr reliance on materla1 omissions orfàJse statements. See note 105. -44- protlt-making scheme.lOS The whole exercise was, ofcourse, a thin1yveUed rationalisation. for.a judidallyenacted ~t of~~tions.aimed at preserving the integrity ofthe corporate medium.

b. The basls of the anaIogy of8dudaryreIa1Ioasbips to trusts

The judicia1 regulation ofcorporelte promoti~ bythe imposition of fiduciary obligations points to the circumstances inwhich a given relationship will he held to he analogous 10 the relationship oftrustee and beneficia1'y, and consequendy, a suitable candidate for fiduciary regulation.

One feature common to the re1ationship ofpromoterand investors and that oftnlstee and beneftciaries is that bath played an important role in the economic life ofthe nation. Raising capital through the sale ofshares in public corporations was essential to the maintenance ofBritain's competitive position in international markets. Investor confidence was, however, anything but a given. The abuses ofthe promoters ofthe bubble companies ofthe 1700s and the consequent financial minofsome ofBritain's most prominent families would still he associated with investment in public corporations at the time the companies aets ofthe first halfofthe nineteenth centurycame into force. I09 IfBritain were to maintain its competitive. advantage, investors had to be assured that the price ofa companys shares bore some reasonable relationship to the value ofits assets. The aetivities of the Baron Erlangers ofthis world, left unchecked, threatened to undennine that confidence. Pending the establishment ofinstitutional contrais or regulatory legislation, the taskofprotecting the public fell on the shoulders ofthe judiciary, JUst as the taskofpmteeting thecestuisque trustent and the

108 Lagunas, supra, note 91 at431.

109 See L.S. Benjamin, pseudo Lewis Melville, 17Je Soutb Sea Bubble (London: D. O'Connor, 1921). -45 - ce"""que use had fiillen onthe shoulders ofthe Chancellor inthe early years ofthe 14005...

The second characteristic ofbath relationships is the existence ofan opportunity, inherent in the relationships themselves, which enabled one or more ofthe parties to exploit the interests ofothen. The companies aets interposed a juristic person between the promoters~who created the public companyand controlled its dedsion malring plwers during one ofthe most critical periods ofits exïstence-the time whenthe companyacquired its business enterprise-and those who ultimately paid for matenterprise. This gave promoters an opportunityto exploit the interests ofinvestors which was not adequately regulated bycompanylegislation orexisting doctrine.

Legislators had provided corporate stakeholders with a business organisation designed to he run on democratic principles. Control of corporate decisian-making was ta be left in the bands ofthose who held the majorîty ofshares carrying voting rights. Market forces were ta he relied on to steerthe undertaking towards maximum profitability. Those with the greatest financial stake in the wise management ofthe business enterprise would, and should, have the power to direct it. As a group, theywould have the greatest economic incentive to ensure that the company's affiûrs were govemed wisely. Those with a lesser stake would benefit from the self­ interest ofthe majority, and itwas unnecessary, and perhaps even undesil2ble, that they should be able to control its aetivities. The whole thing represented a touching fiùth in the integrityofeconomic man.

Experience saonshowed, however, tbat this modeldid not take account ofa number ofsituations inwhich those incontrolofthe company bad aneconomic incentive to have it behave in a mannerwhich was not aimed at maximjsing its commercialpotential, but in maximjsing theirs. One • 46- sum situationoccurs whencompanfes buyassets from those who make its decisions. The situationwas summedup byLord Blackburn inErlanger:

Neither does [the Companteskt1867] impose anydutyon those promoten to bave regard to the ÏDterests ofthe companywbicb they are tbus empowered to create. But itgives tbem an almost unlimited power to maire the corporation subject to sum regulations as therplease, and for sum purposes as theyplease, and to aeate itwith a managing body whom they select, baving powers sum as theychobse to give to those managers, sa that the promoters ancreate sum a corpomtion that the corporation, as saon as it comes into being, maybe baund byanything, Dot in itselfilIegal, which those promoters have chosen. And 1tbink those who accept and use such extensive powers, whicb 50 gready affect the interests ofthe corporation when it comes ioto heing, are not entided to disregard the interests oftbat corporation altogether. They must maire a reasonable use ofthe powers wbich they accept!rom the Legislature with regard ta the formation ofthe corporation, and tbat requites tbem to pay some regard to its interests. And consequendy they do stand with regard to tbat corporation when formed inwhat is commonlycaUed a fiducia.ry relation to some extent.11d

The absence ofany othercommon law orequitable doctrine which would provide the required protectionwas guaranteed by the interposition ofa juristic persan between the buyers and sellers ofthe corporate enterprise, and by the desire oflegislators to aIlow market forces to shape the ultimate relationship. Dy the tum ofthe century, the Iawofcontract and agency and doctrines such as deceit, misrepresentation and fraud provided reasonable protection against the genus ofchicanery preferred by dishonest promoters. Nevertheless, these sources ofreptionwere not adequate to proteet the relationship between company promoters and investors. Many

110 Erlanger, supra, note 86 at 1268 & 1269. Lord Blackburn's analysis ofthe responsibility which falIs upon the shoulders ofthe benet1ciary ofstatutory powers, and the doctrine which he applied to enforce il, is similar to the approach used by the Supreme Court in Guerin. ThelndianActgives the Crown sweeping powers overthe disposition ofreserve landwithout imposiog corresponding responsibilities. In GuerIn, the doctrine offiducia.ry obligation was summoned ta ensure that the govemment U ••• maldIe a reasonable use of the powers which they accept &am the Legislature." ofthe existing doctrines depended on directdealings among the parties ta an impugned transaction.111 Notiona1ly, the parties ta the purchase.ofthe

r corponte enterprise were the promoters and the corporation itself. As long as a majodty ofthe corporation's guiding mlnds consisted ofthe promoters ortheir Dominees, the corporationbad access to ~e information necessary to make an informed decision andcould not he sai<\. ta bave suJfered from lackoffull disclosure.

The asset purcbase was, ofcourse, usually a preliminarystage inthe ultimate fraud which would take place when the corporation's shares were sold ta unsuspeeting·investors. This transaction involved the corporation itselfand the parties who subscribed for shares. Analysing these dealings on the basis that the company had misrepresented the value ofits own assets would give the shareholders judgement against their own company, thereby reducing the value ofaIl ofits shares by an amount related in some way ta the ditference between the true value ofthe companys assets and the priee the clajmants had paid. Shareholders who were innocent ofany complidty in the over valuation ofthe stockwould aIso suifer a reduction in the value oftheir shares. It would he virtually impossible to detennine with reasonable accuracy the aetualloss suffered by innocent subscribers. ~or example, the factors which detennine whether an individual will invest in a givenenterprise vary from investor to investor and include such intangibles as the subscribers personal assessment ofthe eaming potentialofthe corporation. In addition, it is doubtfulwhether large numbers of individuals, each ofwhomwould suifer a comparatively sman and difticult­ to-prove 1055, would have the economie incentive to pursue such anaetîon. More likely, individuals would simply avoid investing in untried corporate

111 LC. Clark, Corporate Law, (Boston: UnIe, Brown & Co, 1986) al716 " 717 [bereinafterCorporate Law}. -48-

enterprises and the ultimate 1058 would he ta the country's competitive position.

FinaIly, the tn1Steetbeneficiary relationship wu analogous to that of promoterand investors because the opPOnunityfor exploitation inherent in

~ bath relationships could be reguJated, albeit somewhat ine1egantly, by the imposition ofobligations designed to a1ign the int~ofthe potential victimiser with those ofbis potential victims. The victim wu not reaIly the company, ofcourse, but the lawmade use ofthe corporate personality to the

extent that it was convenient to do 50 and abandoned it where it interfered with overall reguJatory objectives. The lawrequired disclosure ofthe promoters' contliet ofinterest to human heings who had a real stake in the companys success, who were 1ikely to understand the significance ofthe contliet ofinterest and who had the power to have the company seek redress for the wrong done to it by the clishonesty ofits promoters. Up to a point, this result could be achieved bydeclaring that the promoters stood in a fiduciary re1ationship to the corporation and that, as fiduciaries, they had an obligation to declare their contliet ofinterest and abstain &cm partidpating in the ratification oftransactions inwhich they were interested. This

approach would OlÛY produce a just resuit, however, where the companys directors were independentofthe promoters.

In cases inwhich the promoters aauallycomprised the guiding minds ofthe company, it was necessary to define the fiduciary obligations in such a wayas to provide some compensation to innocent investors who had bought stock, orwere 1ikely to do so, inthe bellefthat the priee which they had paid for the company's shares would retleet the tàir market value ofthe assets whose purchase they had financed. A reasooable level ofreguJation eould he . obtained bydeclaringthat the companybad beendeceived andstrippingthe dishonest promoters ofwhattbeyhadgained from the transaction. e -49 -

Altemative1y, the courts could include amongst the promoters' fidudary obligations the dutyta aet exclusively inthe best interests ofthe company, and impose on the promoters the burdenofproving mat tbey had discharged this obligation. Proofofunconsdonable dealings or, what usually amounted ta the same thing, Canure te exonerate tbemselves from the implication ofdishonesty arising &am the drcumstances surrounding the \ asset purchase, usua1ly entidedthe companyto have the transaction set aside, recover undisclosed profits, or bath. In this way, innocent investors duped bypromoters' dishonestywould receive some compensation byway ofan increase in the value oftheirstock and the public record ofthe dedsion would serve as a tesson for the future.

4. Condusion

[n this chapter, 1argue that a jumcial declaration that a relationship is fiduciary is nothing more than a rationalization for the imposition of fiduciary obligations. Tbere is no list ofcharaeteristics common to all such relationships which we can use ta predict reliably whether a given relationship will he declared ta be fiduciary, other than the need for reption through the doctrine oftiduciary obligation. The best that

Canadian courts have otfered 50 far is a series of n ... indicia that help recognize a fiduciary relationship rather than ingredients that define it."U2 The Supreme Court has, however, cautioned us that " ... the categories of fiduciary, like those ofnegligence sbould not be considered c10sed ....,,113 On their own, the predictive value ofthese is indicia is rather low. The situation thatcurrendy prevails is tbat '4 ••• the courtwill recognize a

112 Hodgldnson, supra, note 8 at 408 & 409. 113 Guerin, supra, note 1 al 384. fidudary relationship when it sees one altbough it may not he able to say 1 why and it may not even call it that.n 14

What the Supreme Court panel in theMclnemey case was doing when they provided a list ofthe indicia which " ... he1p [us] to recognize a 6.duciary relationsbip ... " was to describe some ofthe e1ements which give rise to an opportunity for exploitation. A discretio~ power to affect the legal or practical interests ofanother certainly provides such an opportunity. As Mr. Justice La Forest concedes, bowever, these criteria are merely descriptive. They do not explain why some relationships which do not inc1ude soch a power have been held to he ftduciary,115 and tbey do not explain why some relationships which do containsuch a power have been held not to he fiduciary.116

d 114 Lefebvre v. Gardiner (1988), 27 B.C.L.R. (2 ) 294 at 299 (B.C.S.C.).

U5 See, e.g., Readingv. AG., [1951] A.C. 507 (H.L.), where a sergeant in the British anned forces on duty in Egypt accepted payments from smugglers in exchange for bis escorting dvilian vebicles carrying contraband. He wore bis military uniform on these occasions as it wu generally known that Egyptian authorities would not search civillan vebicles esconed by British servicemen who were on duty. The Sergeant was cashiered and retumed ta Britain, where the govemment obtained judgment against him for the amount ofthe payments he had received from the smugglers. It is difficult to see how the Reading's conduet could he characterized as the exercise ofa discretionary power, or, having so characterized it, how concepts of"discretionary power" and "vulnerability" broad enough to cover Sgt. Reading's situation would enable us to distinguish a fiduciary relationship from anyothersituation in which ciraunstances give tise to an opportunityfor exploitation. On that basis, a burglarwho finds an unlocked windowwould owe a dutyofloyalty to the occupiers ofthe premises he intends to loot.

116 See, e.g.,Ilma, supra, note 51, where a &ancbisorwas sued for breach of fidudary obligation in Cailing ta pass on to bis &anchisees rebates for volume purchases paid to the &anchisorby suppliers.. The franchise agreement required franchisees ta buyail produets used in the operationofthe business exclusively from the franchisor orfrom suppliers named brthe francbisor. The SUpreme Court ofCanada held that the eontraet did notrequire the franchisor ta aceoUDt for rebatest and mat hewas endded to decline to take them Into account in determining the priee which the &anchisees had to pay for supplies. Clearly, ·51·

The utility ofa given relationship ultimatelydepends upon the social and economic structure ofthe society inwhich it exïsts. As society

éhanges, 50 too does the raster ofrelationships critica1 to its stability.117 Se1ecting relationships worthyofjudicial protection is inevitably a matterof legal policy. It is this legislative fonction ofthe doctrine which makes it impossible to provide an exhaustive Iist of relatio~hipswhich will be declared to he fiductary. The purpose ofthe doctrine and the way inwhich it is applied cao, however, he used to exclude some possible contenders.

We have seen that fidudary obligations are imposed to preserve the integrity ofuseful relationships where existing sources do not provide an adequate level ofprotection. This phenomenon cao he used ta exclude many cases inwhich the misconduet which is alleged to threaten the integrity ofthe relationship would give tise to an action for breach of contraet or in tort.us The remedial objective ofthe doctrine coupied with the principle ofreplicability helps to determine the content offiduciary obligations likely to he imposed. In contractual relationships, it is unlikely that the doctrine offiduciary obligation will ever perfonn more than an interstitial function-providing evidentiary presumptions to facilitate praof

Mister Donut had a dîscretionary power as to whether to give &anchisees the benefitofthe rebate, and the franchisees were financially vulnerable ifthe francbisor chose to keep the rebates for itself.

117 T. Frankel, "FidudaryLaw" (1983) 71 Califomia L. Rev. 795 at 802-804.

118 "Adequate" in the sense used here, includes situations in which the remedies available for the alleged misconduet provide adequate protection. Fidudary liabillty is sometimes imposed as a justification for granting ofequitable remedies. See, M.D. Talbott, "Restitution Remedies in Contraet Cases: Finding a FiduciaryorConfidential Relationship to Gain Remedies" (1959) 20 Ohio St. L.J. 320 at 326 & 327. Foran analysis ofthe inadequacyoflegal remedies in the native lawcontext, see R.P. Chambe1's, "Judidal Enforcement ofthe FederalTrust Responsibllity to Indians" (1975) 27 Stanford L. Rev. 1213 at 1234-1236. ofmisconduct orgiving the vietim ofexploitative conduet access to a greater range ofremedies, for e:xample.119

The requirements ofthe principle ofreplicability aIso bas an evolutionaryeffeet. As individual relationsbips are increasingly subjected to regu1ation by the imposition oftlduciary obligations, the target relationships become associated with c1uster ofjuddical rules specjfically adapted to their needs. Over time, these ndes fonn a permanent shield which is applied irrespeetive ofany explicit declaration as to the fiduciary status ofthe relationship which they protect. Finally, the rules themselves become a branch ofthe Iawdistinct from the original doctrine. This phenomenon can he observed in the development ofthe doctrines of breach ofconfidence and negligent misrepresentation.

119 ln the case ofthe relalionsbip between Canada and the provinœs..9n the one . band, and Canadian natives, on the other, the doctrine may he called upon ta provide mostofthe needed reguladon. See "New Directions," supra, note 7 al 424. CHAPTERII

FIDUCIARY OBUGATIONS

1. Introduction

It is important to be able to estimate, in advance ofany judicial ruling, the likelihood that a given course ofconduct will he held to . constitute a breach ofa tiduciary duty. Armed with a reliable assessment, parties who risk being held to be fiduciaries could take steps to ensure that they fulfill potential obligations. In appropriate cases, they might avoid fiduciary liabillty altogether by disdosing conflicts ofinterest, byex:cluding liabillty by contract or by declining to proceed with a proposed transaction unless and until vulnerable parties receive independent advice. Parties whose conduct has already put them at risk might negotiate a principled resolution ofthe daims ofalleged victims.

Replication ofthe judicial reasoning upenwhich fiduciary liability is based is not always easy. Fiduciaries are not necessarily subjeet to ail ofthe obligations to which a trustee would he subjeet underan express trost of property.120 Not every obligation owed by one ofthe parties ta a fidudary 121 relationship ta the other is a fiduciary obligation. The degree ofloyalty exacted from fidudaries in some relationships is more intense than that

120 "Fidudary Relationsbips," supra, note 19 at 73. See, e.g., Re Coom6er, [1911] 1 Ch. 723 at 729 (CA.) manager/owner.

121 Gtrardetv. Crease & Co. (1987), Il B.C.L.R. (2d) 361 at 362 (B.C.5.C.)­ soUdtor/client; 14c, supra, note 23 at 647; Mclnemey, supra, note 54 at 149 8t 150. - 54- required offiduciaries inothers.l22 Fiduciary duties " ... are shaped bythe. demands ofthe situation.,,123

ln the first chapter, 1argued tbat tiduciary obligations are imposed for the purpose ofextending the regulalion ofuseful relationships threatened by the existence ofan inherent and otherwise unregulated opportunity for one party to exploit orvictimize the other. In this chapter, 1will identify the features ofrelationships which give tise to opportunities for exploitation which have, in the past, been regulated by the imposition offiduciary obligations. 1will describe the principles which 1 think the courts apply in formulating obligations aimed at redressing exploitative conduct. Finally, 1will outline a method ofanalysis wbich may be used to predict, with a reasonable degree ofconfidence, the fiduciary obligations likely to be imposed in respect ofa given relationship.

2. Opportunities for Exploitation

ln relationsbips which require the imposition offiduciary obligations for their protection, the beneficiary depends, for the enjoyment of important legal or practical interests, on advice or services or bathwhich the tiduciary is expeeted to provide or for which he is expeeted to arrange.124 For a variety ofreasoos, the beneficiary bas no alternative, or

122 A.W. Scott, "The FiduciaryPrindple" (1949) 37 Ca1ifomia L. Rev. 539 at 541 [hereinaCter "SCott, 'FiduciaryPrindple''']. ProfessorScott thought that the degree ofintensityofthe dutyofloyalty inaeased indirect proportion to the degree ofindependent authoritypossessed by the ftdudaly. 123 Mclnemey, supra, note 54 at 149. See also, Canadlan Aero SenJtce Ltdv. O'Maiiey (1973), [1974] S.C.R. 592 al619 & New ZealandNetberlands Society "Oranje- Ine. v. Kuy$, [19731 2 AIl E.R. 1222 at 1225 (per Lord WiIberforœ) (p.C.). U4 In"Fidudaries: Identification and Remedies," supra, note 20, Pmfessor Ong argues thatthe benefida.ysimplied dependence on the 8dudaryis a characterisdcofan 8duciaryreIadonships. no praeticable alternative, shortofforegoing the boped.for benefits, but to accept the 8duciary's judgment as to what should he done to advance the beneficiary's interests and as to how the undertaking should proceed.

In most fiduciary reladonships, the beneftciary accepts the tiduciary's judgment because he actually tmsts the fidudary. The beneficiary is given ta believe tbat he can rely upon the fiduciary ta perform as expected and tbat supervision orvigilance is unnecessary. This beliefmay he deliberately cultivated by the fiduciary.125 Altematively, it may be an unconsidered conclusion reasonably drawn by the beneficiary from the circumstances of the relationship. Some ofthe most cammon, as weil as the most important, ofall human relationships fall into this last category. The 127 relationship between parent and child,126 spiritual adviser and devotee

m See, e.g., Huguenin v. Baseley (1807), 14 Ves. Jun. 273, 33 E.R. 526 (L.C.)(real estate) manager/owner. Ms. Huguenin, the plaintiff, bad inherited real property which the defendant Baseley sought ta acquire for himself. He deliberately exploited Ms. Huguenin's ignorance ofbusiness matten, berdistress at baving to taire responsibility for remedying the dilapidated condition ofber estates, ber inability to obtain advice from close fiuniIy members, the !aetthat he wu distantly related ta ber and the expeetadon ofbonestywhich anached to bis clerical calling. As a result ofBaseley's persuasion, sbe became convinced that anything he did would be in her best interest5. At bis suggestion, she dismissed competent managers who bad advised caution and vigilance and conveyed the property ta Baseley and bis family as part ofan obscure scheme for the management ofberestates. The extent te which berjudgmentwu impaîredby Baseley's intervention is to be seenfrom a letterwhich she wrote ta her soUdton explaining berdedsion to terminate ber relationsbip with them, " ... Providence bas raised me up a Criend and mat &tend is Mr. Baseley. who will taIœ upon him the trouble ofbringing all myaffilirs Inta sucll a plan as 1shall hereafter be enabled to conduet tbem with fàdlity to myself.ft

126 Trusts 6, Guarantee Co. v. Hart (1902), 32 S.C.R. 5S3 at 558 & 559­ parent/child. See aIso, Fûluclary Relatitmsblp 8,Resultlng Trusts, supra, note 57 at 16-29 & authorities there dted. A persanaIso owes fidudaryObUgatioDS to persans to whom he stands inlocoparentis. See, PfdudaryRelattor&rbtp & Reaulltng T~ supra, note 57 at 109-141 & authorides there dted. Reladonships between more distant relatives bave aIso been heId to be sublectta fidudaryregulation. See, e.g., lncbe NorUlb v. S6atII Allie BmOmar (1928), [1929] AC. 127 at 133 (p.C.)-nephew/aunt. .. 56- and guardian and ward128 are ail, at least to some extent, regulated bythe imposition offidudary liability.l29 In these cases, the expectation of probity is incu1cated into the mind ofthe dependent partyby social convention or by necessity.

In other relationships regulated by this doctrine, the benefidary is driven to accept the fiduciary's judgment because it is impossible or impracticable for the beneficiary to monitor the tiduciary's performance or to evaluate critically the fiduciary's advice or services. The basis of relationships with an advisory component is the acknowledged inability of the beneficiary ta decide for himselfwhat course ofaction ta pursue. The beneficiary is more oCten than not incapable ofassessing the quallty or objectivity ofthe advice he receives. Even where the parties could actually clraft a contract containing an exhaustive list ofpossible scenarios coupled with a description ofwhat the tiduciary is to do ineach case, they are not likely to do so, as the exercise would usually be prohibitivelyexpensive.130

Monitoring is usually impraeticable in service relationships. The purpose ofmost service relationships is to relieve the beneftciary ofthe need to carry out a task himself. Maintaining constant vigilance over the

121 Allcard, supra, note 12 at 181-186. See also, F1duclaryRe/attonsbip & Resulttng Trusts, supra, note 57 at 16-29 & authorities there dted.

128 See, Fûludary Relattonsbtp & Resultlng Trusts, supra, note 57 at85 & 86 & autborities there cited.

129 But not the relationship ofbusband and wiCe. See, ~Kenzte v. RoyalBank o/Canada, [1934] A.C. 468 at 475 (p.C.); BarclaysBankPic. v. O'Brien (1993), [1994] 1 A.C. 180 at 190 & 195 (H.L). 130 F.H. Basterbrook& DA Fischel, 77Je Economie StrllctUre 0/CorptJrate Law (Cambridge, Mus: Harvard University Press, 1991) at90-93 [hereinafter EconomieStrllctUre], where the authors aque that, at Ieast in the corporaœ context, "[t]he &dudaryprindple is an alternative ta elaborate promises and extra monitoring." - 57- tidudary's activities, or paying to bave someone else do so, is usually Inconvenient and expensive for the benefidary and it invariably decreases the utilityofde1egation and specialization which are, very olten, the objects for which the relationship exists.131 Fiduciaries are frequendy in a position to conceal or destroy evidence ofneglect orself.interested behavior, thereby making detection by the beneficiary or bis advisers difticult and costly, or impossible.132 oCten, the results ofthe fidudary's advice or services cannot be used as a guide for detecting misconduct. Results frequendy depend on circumstances beyond the control or reasonable foreseeability ofthe tiduciary. In these cases, dishonest or neglectful performance by the fiduciary may be indistinguishable from honest and diligent service.133

ln suntmary, the beneficiary accepts the tlduciary's judgment because he trusts the fiduciary, because he lacks the information, education, skill, training, orexperience needed to assess the quality ofthe advice or services which the fiduciary provides, because the costofcasting the 6dudary's obligations inconttactual fonn is either impossible or prohibitively expensive, or because the cost ofmonitoring the fiduciary's performance is disproportionate to the bene6ts for which the relationship was established.

It is the expeetation bythe tlduciary that bis conduet will not he effeetively monitored nor bis judgmentseriously questioned wbich pro~des the tlduciarywith an opportunityto exploit orvictimize the

131 "FidudaryObligation," supra, note 8 at 4; E.R. Hoover (The Hon.), "Basic Prindples Underlying DutyofLoyalry' (1956) 5 Cleveland-Marshall L. Rev. 7 at 10 & Il [hereinafter"Basic Prindp1es").

132 "Basic Prindples,tt supra, note 131 at 12-14.

133 "Economie Character,Il supra, note 20 at 1049. • 58- beneficiary. The fiduciary can exploit this situation inseveral ways. He can misuse influence, information, poweror propertycreatedor obtained for the purpose ofor inconnectionwith advice orservices which he bas become responsible to provide. He cao neglect bis responsibllities entirely ordelegate tbem to another partywho is unable orunwiUing to discharge them in accordance with the beneficiary's expectations. He cao aet negligendy in connection with the discharge ofbis undertaldng-without exercising the degree ofcare appropriate ta the importance ta beneficiaries ofthe type ofadvice or services which the fiduciary is expected to provide. In cases in which the tlduciary is required to serve more than one beneficiary, he can prefer the interests ofone or some over those of anotheror others.134

No court system could ever take over the task ofmanaging aIl of these relationships.135 It would almost invariably he unfair to the fiduciary

134 Reserve land dea1ings frequently offer opponunities for exploitation. Upon acceptance ofa surrenderofreserve land, for example, the govemment acquires the right to dealwith the land subjeet to the conditions contained in the surrender, ifany. See [ndlan Act, S5. 18(1) & 41. The riskfor Indians Hes not 50 much in the possibility that the govemmentwould try to pocket the proceeds or make a secret commission, butin the possibility mat officiais would &il to aet diligendy. See Blueberry River, supra, note 5, where IndianAffiûrs inadvertendy failed to exercise a statutory right to resdnd a transfer ofminerai rights in surrendered land once they realized that the rights bad been conveyed by mistake. Here, as in transactions among non-natives, the doctrine offidudary obHgation is appHed "to keep penons in a fidudary capadtyup to their duty." The quotadon is taken from Lord Dunedin's judgmentinNocton v. Lord Asbburton, [1914] A.C. 932 at 963 (H.L.). 135 Provindallegislation does, however, permit trustees ta make a summary appUcation to court fordirecdoDS. British Columbia's TrusteeAct, R.S.B.C. 1979, c. 414, s. 88, is typical ofthis type oflegisladon. Apart altogether from the question as to whetherthis legislation even applies to 8dudaries who do not administer a trustofpropeny, the courts have refused ta permit trustees ta use sum legislation ta de1egate discretionary responsibilities to the courts. Fora discussion ofthe ambitofthese provisioDS, see Trust8 ln canada, supra, note 26 at897-909 le authorities there dted. - 59· ifjudges were to dictate bis obligations expostfacto-on the basis of events which neither partycould prediet orcontrol-oriftheywere to assess bis performance oolyagainst its outcome, thereby providing a guarantee ofsuccess wbich was neither promised nor expected. Imposing unrealistically high standards upon fiduciaries would interfere with the formation ofuseful relationships just as surelyas the existence of unregulated opportunities for exploitation. Nor could the courts simply ignore these relationships on the ground that they fell outside the classes protected by juridical doctrine. The importance ofthe benefits which they generate and the frequency with which they oecur preclude this option. Faced with an unavoidable requirement for effective regulation, and unable to insist on adherence to specifie promises, the courts have intervened in the onlyway contemplated by judicial precedent. They have required the tlduciary to conduct himselfin a trustwortby manner--in a manner appropriate to the importance to beneficiaries ofthe performance ofthe type ofobligations which the fiduciary bas undertaken, orwhich circumstances have thrust upon him.

Long ago, equity identified the standards which characterize tnJstworthy performance. They are fidelity, diligence, prudence and impartiality.136 Courts ofequitable jurisdietion developed a series ofrules designed to induce adherence to these standards bytrustees who had undertaken to execute express trusts ofpropeny. Overthe years, the rules were adapted on anadhoc basis to proteet the integrity ofa variety of re1ationships which were nototherwise effectively reguJated. It is pmbably not possible to identiCy a1l ofthe relationships subjeet to soch reguJation as

156 Trusts in Canada, supra, note 26 at 690, 696-710, 710-749, 750-762 &787­ 879; alUnconsdonable Transactions," supra, note 27 al52; D.W.M. Waœn, "Lac Minerais Ltd. v. InternationalCorona Resourœs Ltd." (1990) 69 Cao. BarRev. 455 al468 [hereinafter"Lac Minerais"]. -60-

" ... the categories offiduciary, like those ofnegligence, should not he considered closed .... ,,137 Nor is it possible ta provide a comprehensive Ust ofthe roles likely ta he applied to fiduciaries falling iota each category, as the courts have declined ta " ... fetter this useful jurîsdiction bydefining the exact limits ofits exercise."138

It is difficu1t to predict with confidence the precise obligations which will be imposed by the application to a specific relationshïp ofbroad concepts like fidelity, diligence, prudence and impartiality. Their main advantage is tbat, taken together, they comprise aIl ofthe specific obligations which must be imposed ta protect the integrity of relationships.139 Ifwe are ta replicate the reasoning applied by the courts when they come ta spell out the content offiduciary duties it will he necessary to identify the principles upon which the courts rely ta determine the degree offidelity, diligence, prudence and impartiality ta which fiduciaries have aetually been held in respect ofspecific classes of relationships. The body ofrules developed ta induce observance ofa given standard ofconduct in respect ofa particu1ar type ofreJationship should define the standard for such relationships. •

137 Guerin, supra, note 1 at 384.

138 Tate v. Wtlltamson (1866), L.R. 2 Ch. App. 55 at 61 (per Lord Chancellor Chelmsford)-slyreiative/distressed, dissolute expeetant. This caution was repeated byall members ofthe courtin Tuftan v. Spemt, [1952] Z T.L.R. 516 at 522, 529, 530 & 533 (C.A.)--eoworkers for the advancement ofthe MusUm religion. 139 See, e.g., "Contraet and FidudaryDuty," supra, note 20 at 427. Amerîcan writers tend to include fideUty, diligence and impartiality as components ofa dutyofloyalty. Pntdenœ is usua1ly described as a dutyofare. See, e.g., J.H. Langbein, "The Conttaetarian Basis ofthe LawofTntsts" (1995) 105 Yale L.J. 625 at655-657 [herefnaCter "Conttaetarian Basis ofTnasts"]. 1have avoided the use of"loyalty" here as it always seems to me to implya mucb more expansive level ofpersonaldevodon towards the dependent party than the guarded generosity which is reaIly ail that the lawrequires. - 61-

3.. The FormuladoD ofFidudary ObUgadoDS

Remedies for breach offiduciary obligation are designed ta serve tbree purposes.. They provide redress for victims ofexploitative conduct. They deter similar misconduct byother fiduciaries. In respect ofongoing re1ationsbips, they also provide guidance as ta how the fiduciary is to conduct himselfin future dealings bis benefiCiary.l40 Remedies granted in common lawactions-punitive damages, for example-sometimes have a deterrent element as well. The common law's arsenal ofprescriptive remedies is, however, usually trained squarely on one or more ofthe lltigants. It is the defendant's bebaviorwhich attracts judicial censure. An important feature ofmost cases involving breach offiduciary obligations is that the audience to whom the judicial ratlonalization ofthe outcome is addressed is usually much broader than those assembled in the courtroom for the hearing. Although the overall purpose ofthe doctrine is to protect the integrity ofuseful relationships, the outcome ofindividual cases seldom protects the litigants' relationship. It is usually too late for that by the lime its tenns are presented for adjudication. The best that the court cando is to support the required standard ofperformance bydeclaring it to have been an enforceable commitment an along, and fashion a remedy aimed both at compensating the beneficiary and atwithdrawing from the 6duciary an beneftts which he might have hoped to gain by acting in a manner inconsistent with tbat which the law (now) prescribes-this Iast, pour encourager les autres.

Incases inwhich the court candetermine with tolerable accwacy thatthe conduet complained ofthreatens the existence ofsfmilar relationsbips, the judge caR simplydeclare the relationsbip 6dudaryand

140 The CrowuIIndian relationship is anongoing reJadonship in this sense. prescribe the obligations required ta protect it against the particular brand ofmisconduet suggested by the evidence.141 Insuch cases, the fiduciary obligation becomes, so to speak, the reciprocal ofthe exploitative conduet. Cases which can he dealt witb in tbis manneroCten involve egregious violations ofany acceptable standard ofhonestdealing.l42 Otherexamples include cases inwhich the social oreconomic issues have been suffidendy weil defined in the material before the court as ta maire possible the fonnulation ofan obligationofgeneral application.143 In these cases the court is imposing a substantive obligation mandated by the importance of maintaining the integrity ofa class ofrelationsbips ofsocial oreconomic value.

Asomewhat different treatment is appropriate, however, where a variety ofpossible terms might protea the relationship more or less equally well, but where it is unclear which the parties themselves would have

141 See, e.g., "Flannigan, ~Fiduciary Obligation,ut supra, note 20 at 310 & 311, where the author argues that "[Fiduciary obligations vary) in accordance with the relevancyofthe particu1ar duty ta the respective faetual positions ofthe parties to the re1attonship. Generally spealdng, [fiduciaryobligations are) defined by whatever rules are required to maintain the integrityofthe particu1ar relationship." Professor Flannigan would, bowever, Umit the application ofthe doctrine to "tnisting relationships" in which the ftdudary bas "access to assets" (pp. 321 & 322). For tbis theory to be ofgeneral application, the Dation of "trust" bas to he redefined to include situations in which the benefidarydoes Dot aetually tnlst the fidudary ("vigilant trusts"), and the notion of"assets" bas to be 50 broadlydefined that it loses much disaiminative power. InSzarferv. Cbodos (1986), 54 O.R. (2d) 663 (H.C.), for example, the assets to which fidudary gained access byreason ofhis misconduet consisted ofthe affections ofthe beneftdary's esuangedwife.

142 Reading, supra, Dote 115, andAG. v. Goddard, [1929]98 L.I.K.O. 743, are examples. No army ofoccupation could toiente the 10ss ofauthority generated by the use ofmilItary privi1eges for violating the Iaws ofthe countrywhich it occupied, and DO police force could maintain arderIfit con8ned itselfta prosecuting onlythose criminalswho fail ta come up wim a bribe satisfactoryta o8icerin charge ofthe investiption. le ~ See, e.g., Mc1nemey, supra, note 5•. -63 - chosen. Most aCten, this uncertainty arises because the range ofpossible terms differ in theireconomic impactonone or both ofthe parties. The terms whicb the parties would have chosen bad tber foreseen the circumstances which aetuallyoccurred would depend on the strength of their relative bargaining positions when their relationship was 8rst estabUshed or as it developed. In these cases, courts are not able ta 1 provide the required regulation simply by implying specific obligations. " As the circumstances which give rise to opportunities for exploitation become less and less simiJar to those within the reasonable contemplation ofbath parties at the time the relationsbip was first establisbed, the imposition ofobligations for its protection assumes, more and more, the charaetet ofjudïeiaI management. Courts seeking to avoid becoming arbitratars ofthe day-to-day disputes arising in such relationsbips have little alternative but ta induce similarly situated parties ta re-negotiate the basis oftheir re1ationship whenever events make re-negatiation essential ta its protection. In such cases, the substantive obligations imposed by the court are whatever is needed to induce re-negotiation if, as and whenever the protection ofsimilar relationships requites it. Defining the content ofthe 6duciary obligations which will he imposed ta regulate socb relationsbips requites an understanding ofthe tools avallable to the judidaryfor this purpose.

The major function oflegal rules, however imposed, is the definition, aIlotment and enforcementof"entidements.tt Entitlements are pre-

1" These situations are to be distfnguished !romthose lnwhich the parties have spedficallygiven the courts a Ucense ta impose ObUgatiODS e%anle-to impose so-caIled "quasi-8dudaryobUgations"--by contrae:dng matone ofthem is ta use bis bestefrorrs ta achieve a certain œsult. see, e.~J Sbeffte/dDtstrlctRm/way Co. v. GreatCentralRallway Co. (1911), 27T.L.R. 451 at 452 & 453 (Bail. & Canal COOL) andAlmospberlcDtfJingSystemslne. v.lntemaIItmalHardSldl$ Inc., [1994]5 W.W.R. 719 at 733-736 (B.C.5.C,,). -64-

judgments as to which ofcompeting parties will prevail inthe event of contliet.145 Indisputes among parties ta relationships declared to he "fiduciary," entidements are compendiouslydescribed as "loyalty" and "prudence." They are allotted to those categories ofparties whom the Iaw designates as beneficiaries-the parties who depend on the conduet of others for the enjoyment oflegal or practical interests. Ifwe regard the social cost ofunregulated exploitative conduct as the destruction ofuseful relationships, 6duciaries are in the best position to avoid those costs. AIl they have to do is to announce, in a timely manner, the circumstances which prevent tbeir continuing to perform as expected. At that point, the beneficiary will bave to decide whether to tenninate the relationship entirely, accept the proposed deviation or make it worthwhlle for the 6duciary to continue as before. Despite judicial rhetoric indicating otherwise,146 it is highly unlikely that a beneticiary's entidement is anything like "loyalty," as that word is commonly understood.147

145 G. Calabresi Be A.D. Melamed, "Property Rules, Liability Rutes, and InalienabiUty: OneView ofthe cathedral" (1972) 85 Harvard L. Rev. 1089 at 1090-1093 [hereinaCter "One View"]. 1'" "Not honestyalone, but the punetilio ofan hanar the most sensitive, is then the standard ofbehavior [expeeted offiduciaries]." Per Cardozo, C.J., in Metnbardv. salmon, 164 N.E. 545 (N.Y. Ct. App. 1928), quoted in DA DeMon, Fiductary Obligation, Agency andPartnersbip: Duites ln OngolngBusiness Relattonsblps (St. Paul, Minn.: West, 1991) at24. 1<67 See, L.S. Sealy, "Some Prindples ofFidudaryObUgation" [19631 Cambridge L.J. 119 at 125 Be 126 where Professar 5ea1y arpes that, at leastin respect ofone ofhis classifications oftidudaryrelattonships, contraets between beneJldarles and their tidudarles willbe upheld ifthe beneftdaryis aware mat the 8dudaryis an opposite prlndpalorbas an adverse interest, andifthe bendidarybas available any special information whicb the fidudarybas acqWred inbis capadty offidudary: " ... [D]isdosure ofnothing more than mese two matters is necessary, even today, Cor a contrattbetweenfldudary and beneJldaryto be uphe1d ••.. " - 65-

The mIe most oCten cited as justification for the imposition of fiduciary obligations is the nde probibiting contliets ofinterest-the mie that a fiduciary may not allow h1mselfta he put ioto a situation in which bis persona! interests conflict with those ofbis beneficiary. Notwithstanding this prohibition, the Iawdoes not appear ta regard con8icts ofinterestper se as intrinsicaRy evil. l48 Provided that information is plentiful and transaction casts are non-existent, selfinterest is generally thought ta

advance social benefits,149 50 much 50, in Cact, that seme commentatars argue that the sole purpose ofjuridical principles is ta mimic the result 150 which would have been attained through cost-free negatiations. What is problematic is the pursuit ofself-interest in circumstances inwhich its existence could not reasonably he expected by the dependent party.151 As

148 See, e.g., Mogul Steamshtp Co. Ltdv. McGregor (1889), 23 Q.B.O.598 (C.A.), aff'd [1892] A.C. 25 (H.L.), wbere Bowen L.J., said, in respect ofa commercial relationship: 1can find no authority for the doctrine that ... a commercial motive deprives ofjust cause orexcuse aets done in the course oftrade which would but for such a motive he justifiable. So to hold would be to convert into an illegal motive the instinct ofseltadvancement and self-protection, which is the very incentive to ail trade. per Sowen, L.J., at 23 Q.B.D. 614. See also, Bray v. Ford (1895), [1896] AC. 44 at 51 Be 52 (H.L.) and the caution set forth in P.o. Finn, "Commercial Law and Mor.a1ity" inFiductary Obligations (Vancouver: Continuing Legal Education Society ofB.C., 1989) 2.1.01 at 2.1.14.

149 R.H. Coase,"The Problem ofSoda1 Cost" (1960) 3J.L. & Economies 1.

150 See, e.g., UConttaet Be Fidudary Dury", supra, note 20 al 426-428.

151 Cf. Kelly v. Enderton (1912), [1913] AC. 191 (p.C.), andFosterv. Réaume, [1924] 2 D.L.R. 951 (S.C.C.). In the Foster case, the defeo:dant Réaume was a real estate agent ostensiblyemployedbythe Plaintiffs to arrange ofthe sale oftheir property. At bis request, the PlaintiiTs granted him an option to purchase in bis own name for the purpose offadlitating a sale.. Ultfmate1y, the propertywu sold atan acceptable priee. However, Réaume failed to discIose the fact that, during the time hewu negotiating the sale ofthis property, he bad aIso been retained brthe buyer to negotiate fts purcllase. The Supreme CourtofCanada restored the trial judgmentinfilvor ofthe Plaintiffs on the basis mat the Réaume wu in breach ofbis obUgadons ta the Plaintiffs byfailing ta disclose the con8ietof -66- the partywho proceeds in ignorance ofthe other's self:interested intentions is unable to taire steps to proteet himself, there is little chance that the dealings will tom out as he had been given to expeet. The benefidary is, however, seldom required to prove that the ftduciary bas in Cact preferred bis own interests. The presumptions which attend allegations ofmisconduct by fiduciaries usually make mat unnecessary. In fiduciary law, disloyalty is inferred from its appearance. Once judicial suspicions ofmisconduct are aroused, the fiduciary is conclusively presumed to have acted dishonesdy, or at a minimum, he is required to praye that he acted honesdy.152 Thus, the misconduct which gives rise to the rhetoric ofselfless service is lackofcandor, not ladc ofaltruisme The beneficiary's entitlement is an entitlement to a meaningful and timely disclosure.

It is unlikely, however, that disclosure is seen as an end in itself. The reason for insisting that the fiduciary disclose bis intention to prefer bis own interests to those ofthe beneficiary is the preservation ofuseful relationships in a form inwhich theywill produce the beneftts for which theywere created. Disclosure tends to promote that purpose. It gives bath parties an opportunityta bargain about the qualityofthe service the flduciary is to provide, following developments which mate it materially more onemus for the fiduciary to continue at the level expeeted at the outset. The standard ofservice aetually enforced, while it may not amount to loyalty, nevertheless requires ofthe fiduciary a great dealless self­ interest man is likely to he comfortable. AIl that is needed for the doctrine . interest. InKelly, the raets were similar, exœpt tbatthe deCendant Enderton made itclearto the seUer beCore he acquired the option tbat he was buyingon bis own account. The Court upbeld the dfsmfssal ofthe daimbased oncon8iet ofinterest. 1SZ "EconomieCbaracter," supra, note 20 at 1053-1056. to do its job is that the benefits from misconduct should appear to the average fiduciary as approximately equal to the benefits from honest and diligent performance. Ifthat result can be brought about, the doctrine should induce conduct which is just as satisfaetory as universal moral reform, and far more likely: re-negotiation ofthe basis ofthe relationship whic.h respects legitimate information requirements as well as the relative bargaining positions ofboth parties. or discontinuance ofthe conduct which threatens such relationships. The doctrine offiduciary obligation attempts to harness the self-interest ofthe fiduciary into an exercise aimed at preserving relationships on the only terms upan which they could praduce results reasanably acceptable ta all parties.153

a. The art &science of economic inducement

Protecting relationships which contain inherent apportunities far exploitation means reducing significandy the prabability that the fidueiary will seize the exploitative opportunities inherent it. Apart from such imponderables as the moral charaeter ofthe fiduciary or the sttength ofhis affections for the beneficiary, the probability ofdeviation depends largely on the utility which the fiduciary feels will tlow from exploitation.. In other words, fiduciaries, like anyone else, tend to choose, from the range of options presented ta them by circumstance, that course ofconduetwhich is likely ta produce the greatest henefit for themselves. Expected henetlt is a function ofthe value to the tlduciary ofthe benefit he

153 This outcome is far more satisfaetory tban the imposition ofobligations ex post. Inevitably, the temptation to relyon circumstances which have aetually occurred as a measure ofwhat ougbt to have been foreseen is unfair to fiduciaries. Resort to useful relationships is threatened just as surely by unrealistic expeetations ofother-interested behaviorby fiduciaries as it is by exploitation ofthe interests ofbeneficiaries. ·68· is likely ta receive from exploitation and the probabllity that he will receive that benefit.

As long as fiduciaries believe that the payofffrom exploitation is roughly equal to the payofffrom performance, there will he no incentive for them ta deviate from the expected level ofperformance.. They would do just as well ta fulfill reasonable expeetations.. There will he cases, bowever, in which, the payofffrom exploitation is greater than the payoff from performance, sometimes much greater. Here, fiduciaries would benefit, at least on the average, ifthey were to deviate from expeeted standards. It is the latter situation which gives rise to the need for regulation. In individual cases, the point at which a particular tiduciary finds a specific temptation tao good ta resist will depend on a number of factors. Some ofthese-the extent ta which the fiduciary is risk-neutra1, risk-averse or risk-preferring or and whether the 6duciary correctIy assesses the degree ofrisk or the value ofdeviation-depend on the preferences and capabilities ofthe individual fiduciary. Other tàctors depend upon the type ofrelationship under consideration. It is a feature ofcertain classes of relationships that the likelihood ofdisclosure and redress is remote-most ofthe status relationships regulated by the doctrine ofundue influence are examples-and the temptation for a fiduciary to deviate from expected standards depends almost entirely on the economic opportunities which present themselves, and on the moral cast ofthe ftduciary. Ifthe doctrine oftiduciary obUgation is ta induce general adherence ta accepted standards, the courtcannat dealwith each individual case as ifit were one ofa kind. Judicial rules must he designed to apply ta classes af relationships,154 and to average behavior. In the absence ofempirical

154 InC.LB.C, supra, note 103 at 209, Cor example, the House ofLords pointed outmat the doctrine ofundue influence was aimed atremedying breaches of confidence intIieted byclasses offiduciaries upon classes ofbenefidaries. • 69- evidence, judges simplyhave ta re1y on experience and intuition to assess averages.

The doctrine offiduciary obligation operates to discourage misconduet by fidudaries by approximating the beneB.ts available through misconduct to those avallable through performance. This resu1t is achieved by a series ofprocedural mIes aimed at improving the chance that the beneficiarywill be able to establisb misconduct, and by increasing the cast to the fidudary whenever he does SO.155 As long as fiduciaries are able to discem the boundaries oftheir responsibilities, the doctrine seldom imposes an unfair burdenon them. Fiduciaries who find that unforeseen circumstances have made it materially more onemus to adhere to expected standards cao always disclose their intention to pursue inconsistent opportunities and ask for the beneficiary's consent to the proposed course ofaction. Ifthe beneficiary refuses to consent, the fiduciary can, in Most cases, tenninate the relationship or re-negotiate bis mIe in it.

i. Improm.g the octds

The risk ofdisclosure would he increased ifthe standard which beneficiaries must satisCy to prove liability were to he decreased. Lowering the evidentiary standard would aIso help overcome the impossibUityor impraeticability ofthe beneficia1Ys monitoring the fiduciary's performance or evaluating the qualityorobjectivity ofbis advice.

155 As mentioned earUer, the obUgation notto engage in conduet inimical ta the integrityofthe relationship and the obligation to make complete and timely disdosure ofthe &dudary's intention to deviate &am expected performance are substantive obHgations. As a matter ofpoHcy theyare justifled bythe importance ofrelatiooships dedared to be &dudary. The ndes which cast upen the fidudary theanusofexcuIpating bimself&amallegations ofmisconduet are proceduraL Theirpurpose is to supportdiscbarRe ofthe substantive obHptions. • 70-

There are three issues in respect ofwhich the court couldlower the standard ofproofwhich the beneftciarywould otherwise have to discharge. First, the court might relieve the beneficiary ofthe necessityofproving ona balance ofprobabllities that the fiduciary aetual1y exploited bis interests. Forexample, the court could give judgmentfor the beneftciary upen evidence that the fidudarywas tempted to deviate from the expeeted level ofperformance by the possibillty ofreceiving benefits which exceeded those which he might expect ta receive by adherence to that standard, and that the outcome ofthe fiduciary's efforts was consistent with a finding that he succumbed ta that temptation. In arder ta displace the implication of misconduct, the fidudary would have ta prove aftirmatively that there was no exploitation.156 Secondly, the court could relieve the beneftciary ofthe necessity ofproving that the breach complained ofwas the effective cause ofthe loss suffered by the beneficiary. For example, the court might declare the fiduciary liable for allioss suffered by the beneftciary upen praofthat the alleged misconduet was one ofthe likely causes ofthat

IOSS.157 Finally, the court could telieve the beneftdary ofthe necessity of proving the precise extentofbis loss. Here, the court might give judgment for the benefidary ifthe ftduciary failed ta prave that the beneficiary's 1055 wu ofthe magnitude claimed. Itwill be useful at this point ta review authorities iIlustrating each ofthese evidentiaryrules. 1shouldcaution that these three issues are not easy to compartmentalize. It is oCten difticu1t to tell, for example, whena question ofcausation becomes a question of quantum. As a praetical matter, relaxation ofthe standard ofproofinone area oCten includes a relaxation ofthe standard inanother.

156 "EconomieCharaeter," supra, note 20 at 1055 & 1056.

67 J.D. Daviest "Equitable Compensation: 'CausadoD, ForseeabWty and Remoteness'" [hereinafter"Equitable Compensation"] inD.W.M. Waters, ed., -71-

• pnofofbreaeh

In the Glennte case,158 the assignee ofthe assets ofa finn ofstock brokers sued one ofthe 8rm's former customers Cor unpaid fees for services rendered, and for moneys paid bythe 8rmonthe customer's behalffor the purchase ofshares and securities. The customer contended that, as a result ofnegligence and breach ofduty by bis brokers, he bad suffered a 1055 inexcess ofthe amount daimed, and he argued that the 1055 should he set offagainst the brokers' daim. The customerwas allowed to set offbis losses against the daim, and the plaintiffs' action was dismissed.

The customer's portfolio consisted largely ofshares in International Nickel Ltd. and the BraziUan Traction Ught, Reat and Power Co. At one point, the customer, concemed about continuous decreases in share prices, insttucted bis brokers to seU an stocks which they then held on bis behalf, to apply the proceeds in payment ofwhat he owed the ftrm and to pay the balance to hïmself. Rad these instructions been carried out, the customer's indebtedness to bis brokers could have been paid offout ofthe proceeds ofthe sale and he would bave received a surplus ofabout '10,000. The plaintift's manager, however, advised the customer not to se11, and the customeraccepted tbis advice and provided the finn with even more collateral to secure payment ofbis account. The juryfound that the manager's advice was not disinterested. In Cact, itwas motivated bythe ftrm's fnterest in maintaining the value ofthe Niclœl and Brazilian sbares.

The onus ofestablishing negUgenœ orbreacb ofduty fell upon the defendant customer, who sougbt to have bis 1055 set-otfagainst the

Bqutty, Fûluctarles andTrusts, 1993 (Toronto: Carswd1, 1995) 297 al 304 & 305 [hereinafterBqutty ~3]. 158 Xc. Glennie v. McD. "c. HoldingsUd, [1935] S.Cll. 257. • 72· p1aintiff's claim for tees and disbursements. The customer alleged that the advice he received was " ••. tainted bya personal interest onthe partofthe broken which tbey did not disclose ... and which wu not [then] known ta him .... ,,159 Mt. Justice Davis, who delivered the unanimous judgmentof the Supreme Court said:160

Itwould be use1ess to detail the mass ofevidence given at the trial. Each story taken separately is in itselfa convindng story, butwhen you heuboth stories together you realize that the dUBcu1ty lies not 50 much on the &ets as in the implications involved in, and the inferences to be drawn &om, the proved faets. There is reallyvery little substantial dispute as to the tacts. There was, bowever, one circumstance which could bave penuaded the jury to accept the customer's interpretation ofevents. The prindpals of the finn ofstock brokers failed to testiCy. They did not give evidence at the hearing exculpating themselves from theircustomer's charge of dishonesty.161 This is really the only circumstance mentioned in the reasons for judgmentwhich would have aIlowed the jury, or the Court for that matter, to distinguish between opposing inferences which could have been drawn Crom the evidence. The outcome ofthis case cao ooly he explained on the basis mat, once a conftiet ofinterest was establisbed, the brokers bore the anus ofexculpating themselves from allegations thattheir advice was calculated exclusively ta serve their own interests and not those oftheir customer. By shifting the anus ofproofin this way, the Court reUeved the benetlciaryofthe necessityofpmving on a balance of probabilities that the tldudary aetuallyexploited bis interests.

159 Glemale, supra, note 158 at 262.

160 Glermte, suprat note 158 at263.

161 Glermlet suprat note 158 at 273. • proof of caUsatiOD

In the BIggs case,16Z the Privy CouncU was called upon to judge the conduct ofa Iawyer who had deliberatelyconcealed &amclients information relevant to theirdecision to grant a loan of'13,500 on the security ofa mortgage ofreal property. The propertywas already heavily mortgaged at the time the borrowers applied for the loan, and a proper valuation would bave shawn that it would not have yielded enough on a forced sale ta pay offall ofthe existing charges, let alone the proposed '13,500 mortgage. Tbroughout, lawyer Brickenden acted bath for the borrowers and for the lenders. Besides tbis contlict ofduty, Brickenden was also in a contliet ofinterest with bis mortgagee clients. He held a numberofmortgages on the properties on his own account and he had arranged with the borrowers that these would ail he paid offin full outof the proceeds ofthe $13,500 advance. Actually, this was the oolyway in which he could he assured ofrepayment. The borrowers were already in arrears on previous mortgages ofthe same properties. Ifany prior mortgagee bad instituted foreclosure proceedings, Brickendenwu unlikely to recover most ofwhat the borrowers owed hîm. Thus, he had a vested interest in the loan transaction proceeding, whetheror not that was also in the interests ofeither ofbis clients.

There was no suggestion that itwas Brickenden's duty ta determine whetber the securityotIered by the borrowers was adequate. Thatwas up ta the loan companys boardofdIreetors. Their bandlingofthe tnmsaetion

16Z BIggs v. Londonloan &* Sslllngs Co. (1930), 39 O.W.N. 126 (H.C.), rev»d (1932), 41 O.W.N. 48 (CA.), trial dedsion restored with variation, [1933] S.C.R. 257, afrd sub nom. BrIcIIenden v. London Lotm &* saulngs Co., [1934] 3 D.L.R. 465 (p.C.). -74- left a lot to he desired. For one thing, they approved the transaction before reviewing the certiftcate oftide.163 In filct, the trial judge suggested tbat the conduet ofthe mortgagee's directors in handling the transaction put them l64 in breach oftbeir ftdudarydutyta the mortgagee. Nor were the loan company's officers any more careful. They allowed the net proceeds ofthe loan to be paid to the borrowers four days prior to approval ofthe loan.165

Brickenden was, however, held liable to pay to the loan company an amount equal to what it had lost by advancing the '13,500 to the borrowers. Brickenden was either to pay the balance owing on the $13,5001030, inwhich case he would be entitled ta an assignment ofthe mortgage security, or altematively, he was ta pay ta the loan company the difference between the balance owing on the '13,500 1030 and the amount recovered in respect ofthat 10an &am a judicial sale ofthe mortgaged properties. The 10an company was ta have the option ofdeciding which of these two alternatives Brickenden was to be obliged to accept.l66

The underlying thesis ofthis judgment emerges from an analysis of the manner inwhich the Supreme Court and the Privy Couneil dealt with various arguments advanced on behalfofBrickenden. He argued that the loan company made its decision ta advance the '13,500 independently of bis advice as to the state ofthe tide. Even ifbis certificate was defeetive in

163 31 O.W.N. at 128.

ICW 31 O.W.N. at 127 & 128. As Raney,]., put it, "If[the managing director] were living and in a position to defend bimself, it is not unlikely that the Court, in an appropriate proceeding, would be able to fix the direetors, or some ofthem, wim personal responsibility for whatever 1055 may he incurred ultimatelyin those transactions, owing to their neglect to perfonnthe 8dudaryduties whicb they undertookwhen they accepted their appointments." 165 [1934], 3 D.L.R. at 468.

166 31 O.W.N. at 129, [1933] S.C.R. at 258 & 259 &t [1934] 3 DolA 470 & 472. -75 - that it fai1ed ta list two mortgages in bis own Caver, tbere was no evidence that the directors ever considered the certificàte before they approved the loan, and bence, no evidence that its inaccuracies ever inOuenced their decision. Sïxteen out ofthe nineteen judges wbo beard the case dismissed that argument. Lord Thankerton offered this explanation on behalfofthe Privy Council:

When a party, holding a tlduclary relationship, commits a breach of bis duty by non-disclosure ofmaterial faets, which bis constituent is entided ta know in connection witb the transaction, he cannat he heard ta maintain that disclosure would not have altered the decision ta proceed with the transaction, because the constituent's action would he salely determined bysame ather factor, such as the valuation by another party ofthe property propased to he mortgaged. Once the Court has determined that the non-disdosed faets were material, speculation as ta what course the constituent, on disclosure, would have taken is not relevant.167

What the Court is talking about here is the standard ofproofof causation which is ta he applied in cases involving breaches offiduciary obligations. In non-fiduciary cases, credible evidence adduced on behalfof a defendant establishing that it was just as likely that the plaintiffs 10ss was caused by circumstances for which the defendant was not accountable as by those for whicb he was would result in the dismissal ofthe plaintiffs daim. The reason is that, in our legal system, plaintitTs must hear the onus ofproving their case on a balance ofprobabilities. The Blggs case indicates that it is otherwise where the plaintitfestablishes that the defendant bas violated a fiduciary obligation whicb he owed to the plaintiff.l68

167 [1934] 3 D.L.R. at 469.

168 See, e.g.,JadIsv. Davis (1982), 141 D.L.R. (3d) 355 at 359-361 (B.C.C.A.). -76-

• proof of quantum

The Plaintiffs in theMeNetl casel69 sold coal mining rights to the defendant MeNeil. The rights were sold upon the understanding tbat MeNeU would incorporate a company to be ca1led the Port Hood Coal Co. Once the Defendant had acquired from the Plaintiffs and others enough mining rigbts ta fonn a eammercially exploitable blackofminerai rigbts, he was to transfer the mining rights in the black to Port Hood. Port Hoad would pay for the mining rights by the issuance and delivery to the Defendant ofPort Hood bonds having an aggregate market value equal to the cash value ofthe mining rigbts as ofthe date the rights were transferred to the company, together with an equal number ofthat company's shares. The cash value ofthe Plaintiffs' mining rights, as ofthe date ofthe transfer to Port Haod, was '4500. As ofthat date, the company's bonds were ooly worth 90% oftheir face value and its sbares had no market value. The Plaintiffs should have received bonds ofa face value of'5,000 and an equal number ofshares.

As things turned out, the Defendant had to taise approximately '65,000 to acquire an exploitable block ofminerai rights, and he was required to pay the lender a bonus of$12,500 inorderta secure this loan. The Defendant had made no allowanee for this unexpected expense. Accordingly, he took the position tbat the castofthis loan should be borne byeach investor in proportion to the value ofthe rigbts wbich he tnnsferred. The transaction could not have been completedwithoutsuch payment. Everyone who partidpated in the transaction benetl.ted &am this

169 Fultzv.MNeil (1905), [1906] N.S.R. 506 (N.S.C.A.)t upheldsub nomKNeil v. Fultz (1906) t 38 S.C.R. 198. -77 -

expenditure and an should he required to shoulder some ofthe burden of discharging it. MeNen held baclc, outofthe bonds and shares to which each ofthe PlaintUfs would otherwise he entided, bonds and shares ofa market value of'1,350.

The Court held that MeNen was not entided ta witbhold securities as compensation for the finance charges. The Plaintiffs had never expressly conferred this authority on MeNen, and no legal doctrine aIlowed the court to impose it. Accordingly, MeNeil was ordered to pay each ofthe Plaintiffs $1,350 plus interest and eosts. On appeal to the Supreme Court ofCanada, MeNen added an alternative argument eoneerning quantum, and it is this argument which is ofinterest here. MeNeil contended that, even ifhe was required to compensate the Plaintiffs, his liabillty should he limited to the market value ofthe bonds and shares as ofthe date upon which the Plaintiffs made a fonnal demand for delivery. As the Plaintiffs had never made such a demand, the bonds and shares should he valued as ofthe date ofcommencement ofthe action, and MeNeil's liability should he limited to that amount.

The Supreme Court rejeeted this argument. Mt. Justice DuJf, who dellvered the judgment ofthe Court, said MeNen should he :170

... treated as a trustee wrongfu11y withholding propertywhich he was bound under bis trust to deliver to bis cestuisque trustent, [MeNeil] is Hable to make reparations for the loss suffered brthe trust br reason ofbis breach oftrust; and (every presumpdon being made against hùn as a wrongdoer), tbat loss must be calculated on the assumpdon tbat the securides would have been soldat the best priee.

ln theMeNetl case, the court relieved the bene6ciaries ofthe burden ordinarilycastupon clafmants ofproving the precise extentoftheir loss. It

170 Full%, supra, note 169 at 206 • 78- wu enough that the victims could point to some 1058 arising from their fiduciary's misconduet. The Court awarded compensation on the basis of the higbest priee for wbich the securities migbt have been sold between the date uponwhich the Defendant was supposed to have delivered them to the Plaintiffs and the date the action was commenced. The Court did not require evidence that the Plaintiffs would have sold the securities at peak priees.171

In cases in which the tlduciary gains possession ofmeney or property belonging to the beneficiary, the courts impose on the tidueiary the obligation ofkeeping the beneficiary's money or property separate from bis own. He is aIso required to maintain accounts showing details ofreceipts and disbursements.1n Ifthe fiduciary allows his beneficiary's meneyor property to become mixed with bis OWO, the court will declare the beneficiary entitled to everything which the fiduciary is unable to prove belongs to himself.l73

iL raisinl the sfakes

In addition to making it easier for beneficiaries to prave exploitation, equity developed two techniques which tended to make liabllity a much more expensive proposition for fiduciaries than itwould have beenfor most defendants faced with liability arising outofcommon lawcauses of

171 See, e.g., Guerin, supra, note 1 at 362 & 363. InFales v. canada Permanent TrustCo. (1976), [1977] 2 S.C.R. 302, the fidudary failed to dispose of unauthorized securlties in a timely manner. Ultimately, the securities became value1ess. The fidudarywu ordered to paycompensation based on the average priee alwhich similar stockwu sold during the period in which the secondes muidhave been sold to advantage.

172 Reld-NewfoundlandCo. v. Anglo-Amerlcan Te/egrapb Co. Ltd, [1912] A.C. 555 at 559 (p.C.). 173 LuptOft v. WhIte (1808), 15 Ves. Ion. 432, 33 E.R. 817 (L.C.). -79- action.174 First, remedies for breach offiduciary obligation are generally designed to provide restitution-to put the victim back in the same position inwhich he would have been bad there been no misconduct.175 Liabillty-reducing principles, like contributory negligence,176 and (at least to some extent) foreseeability,l77 are usually ignored. Second, fiduciary remedies enable the courts to withdraw from fiduciaries all benefits which they might bave hoped to gain by their misconduct, regardless ofwhether 178 the victim bas proved that he suffered an equivalent 10SS. Where a fiduciary bas gained a benefit without having imposed a corresponding loss on the beneficiary, the courts have simply added the 6duciary's benefit to the beneficiary's recovery.179 A fiduciary who exploits the interests ofa beneficiary from whom he receives salary, wages or commissions, for

174 Other than &aud or deceit.

175 See, e.g., Btggs, supra, note 162 at 258 & 259.

176 Carl B. PonerLtdv. Tbe Mercanttle BankofCanada, [1980] 2 S.C.R. 343 at 351 & 352. 177 Cf, the minority and majority judgments in Canson, supra, note 23 at 552­ 556 (per McLachlin, J. for the minority) and at 579-589 (per La Forest, J. for the majority). 178 See, e.g., Canadlan Aero Service, supra, note 123 at 621 & 622.

179 See, e.g., Coy v. Pommerenke (1911), 44 S.C.R. 543, where an agent for the sale ofland induced bis prindpal ta sen to a Dominee ofa partnership wbich consisted ofthe agent, the nominee and an innocent third party, without telling the principal that the agent was one ofthe purchasers. The partnership paid market value for the propenyand the agent received a commission Crom the vendor. The panners later resold the land ta a bonaftde purchaser for value without notice ofthe agent's misconduet. The resale prieewu considerably higher tban that paid ta the prindpal. The prindpal, upon discovery the resale, suedthe agent and bis panners. He recovered judgmentagainst the agent and one ofthe partners who knew ofthe agent's mfsconduet. The courtheld tbatthe prindpalwas endded ta the marketvalue ofthe propertyon the 6rst sale, plus the profits made bythe agent and bis confederate on the resale, plus the commission paid ta the agentfor arrangingthe first sale. Thus, the judgment conCerred a greaterbenefit on the prindpaltban hewould have received had there been no misconduet. -80 - example, is usually denied the right"to receive socb incame, orifpaid already, will he required ta refond it. This mie applies even tbough the beneficiary has received the services or advice for which he paid.l80

b.. ProtediDg uaiquely vulnerable bene8daries

ln describing the regulatory options available to the court up ta this point, 1 have divided juridically protected relationsbips into two broad categories.. The first comprises relationships whicb the court can regulate direcdy by implying the term or tenns needed to protect them.. The second category comprises relatlonships in respect ofwhich the court is unable ta decide what arrangement the parties would have negotlated had they foreseen the circumstances which actually occurred.. In cases falling iota the latter category, the courts' usual approach is to define, allot and enforce, an entidement in favor ofthe dependent party.. Specifically, the dependent party is entided to a complete and timely disclosure ofthe fidudary's decision to deviate from expected performance and ofthe circumstances which led to that decision.. The intermediate objective ofthe imposition offiduciary duties in respect ofrelationships falling into the second category, is to induce the fiduciary to disclose the circumstances which have intluenced bis decision to depart from expeeted performance. The ultimate objective is to force re-negotiation ofthe basis ofthe relationship..

180 See, e ..g., Manitoba andNortb-WestLandCorp.. v. Davtdson (1903), 34 S.C.R. 255, where the plaintif(real estate agent sold bis prindpal's land atthe priee stipulated bythe prindpal. The court, nevenbeless, refused to allow the agent to recover the agreedcommission because the agentbad agreed ta accept a secretcommission of'200 &om the purchaser inexrhange for the agent's promise to give the purchaser the exclusive right ta buy a blackofthe landfor a perlod of6 days. The agent neverreœived the '200; he wu denied bis commission because he had courted a temptation ta prefer bis OWD interests ta those ofhis prindpal. -81-

Rules aimed at inducing re-negotiation are not, however, a panacea for the regulation ofail ofthe relationships wbich fall into the second category. Consequendy, it will he convenient to sub-divide this categoryof relationships Into two groups. The first will include beneficiaries whose capacity to negotiate in their own best interests falls below the average. Children, the elderly, persons ofunsound mind and persans whose judgment has been impaired by a disequilibrating preoccupation orby undue influence on the part ofthe fiduciary, are obvious examples. The second sub-group includes relationships in which the constituency of benefidaries is 50 large, and the interests ofindividual members 50 diverse, that re-negotiation is simply unrealistic. The law makes different provision for each ofthese two situations, and 1will deal with each separately.

i. reduced capadty to re-negotiate

This category includes most ofthe relationsbips whicb are regulated by the doctrine ofundue influence. Undue influence cases fall into two classes.181 ln the first class-cases ofaetual undue intluence-the dependent party must prove that the fiduciary possessed a dominant influence over bis will which induced the claimant to consent to the impugned transaction.182 In the second class-cases ofpresumed undue influence-the claimant need oolyprove thatthe nature ofthe relationship between bimselfand the fiduciary was such that the potential for domination was inherent in it.183 Once the claimantcstablishes the

181 Allcard, supra, note 12 at 171 & 181.

182 See, e.g., Bank ofMontrealv. Stuart (1910), [1911] AoC. 120 at 136'" 137 (p.C.).

183 Geffen v. GoodmanEstate, [1991) 2 S.C.R. 353 al 377, 378 et 392. see, e.l.,

Co:c v. Adams (1904), 35 S.C.R. 393 at404,415t 419 & 420 (parenttchild). Cox musthe reprded as overruledbyStuart, supra, note 182 al 126, in 50 fiIr as Coz . ·82· existence ofsuch a relationsbip, the anus passes to the fiduciary to prove that the claimant Cully understood the significance ofthe transaction, and proceeded ooly after full, free and informed thought about it.184 A potential for domination is presumed to he inherent in certain relationships-parent/chlld, solicitor/client, spiritual adviser/devotee, are among the ones Most consisteotly cited. In other relationships, the potential for domination must he proved.185

Claîms ofpresumed uodue influence are dealt with in a mannervery similar to that employed in the regulation ofother types offiduciary relationships. Once the claimant establishes the possibillty ofexploitation, an anus ofexculpation is imposed on the alleged wrongdoer. Ifthe fiduciary fails to establish that the claîmant's decision was not the result of

"the free exercise ofindependent will,,,186 the claimant is entided to redresse

The undue influence cases take the matter a step further, however. It is not enough that the claimant he provided with the relevant infonnation and left ta decide for himselfwhether he still wishes to proceed with the proposed transaction. The fiduciary must praye that the claimant's decision was Cree from the fiducialYs inftuence. In Most cases, the tiduciary would not be safe in proceedingwith the proposed tnutsaetion unless and until the beneficiary receives independent advice.187 The deddes mat a similat presumption arises with respect ta transactions between husband and wife. 184 Zamet, supra, note 101 at941. 18S See, e.g., HOu15fti.nson,~nW supra, note 8. 186 Incbe Norlab, supra, note 126 at 135.

187 LUes v. Terry, [1895) 2 Q.B. 679 at 684 (C.A.). Ct: Incbe Nof1ab, supra, note 126 at 135 where it is suggestedthat independent advice may not always he necessary. -83 - independent adviser acts, in a sense, as a surrogate for the detached, self­ interested persona which the lawattributes to us ail. The adviser is expected ta put the case against proceedingwith the transaction proposed by the fiduciary.l88 Parties who give the beneficiary to belleve that they are independent advisers, butwhose objectivity is tainted by their relationship with the tidudary or their own self-interest, may find that they, too, are required to participate in the provision ofredress.189

ü. diverse cODstitueDcy of beneftciaries

Imposing obligations aimed at inducing re-negotiation ofthe basis of useful but vulnerable relationships is oflittle value if, as a practical matter, the fiduciary cannot obtain the consent ofthe beneficiaries in a timely and cost..effective way. Regulatory problems ofthis sort are characteristic of relationships between the directors and officers ofpublic corporations, on the one band, and the remaining players in the corporate undertaking, on the other.l90 They are also characteristic ofrelationships between eleeted representatives and their electorate.191 Strict enforcement ofdisclosure and re-negotiation requirements on the basis ofcircumstances not contemplated at the tilDe the fiduciaries undertook their responsibWties would likely result in untàimess ta fiduciaries, wbo may, in tom, decline ta

188 InAl/cart/, supra, note 12, the independent adviser was expeeted to have urged Ms. Allcard not to make a giftofber inheritance for the reliefofpoverty, an objective which, at the tilDe sbe made the gift, she had taken a solemn vow to advance. 189 See, e.g., Camo", supra, note 23.

190 K.B. Davis, Jr., "JudidalReview ofFidudary Decisionmaldn g-50me Theoretical Penpeetives" (1985) 80 Nw. U. L. Rev. 1 al 40-42 [hereinafter "FidudaryDedsionmaldng"].

191 DM. Lawrence, "Loca1 Govemment Officiais as Fidudaries: The Appropriate Standard" (1993) 71 U. ofDetroit Men..y L. Rev. 1 at 18 &: 19 [hereinafter"Loca1 Govemment"]. participate in such reJationships. This outcome is hard1y conducive to the preservation ofthese useful re1ationships.

This problem is far from being resolved. Corporate Iaw, however, appears ta have two methods ofcontaining the disadvantages ofregulating these relationships through the doctrine offiduciary obligation. The first is to restrict the liability ofdireetors and oftlcers for "disloyalty.,,192 The second is ta grant to directors limited rights to contract outofstrict observance ofthe mIes against contlicts ofinterest.l93 What is important here is that protection ofa large constituency ofbeneficiaries with diverse interests requires adaptation ofthe concept offidelity. ln this case, the beneficiaries' vulnerability does not lie in their incapacity to look out for their own interests, but in the restriction in the choice offiduciaries available to serve those interests ifinsistence on strict standards offidelity were to he imposed.

4. DetermilÛllg the regulatory aeeds of spedftc: relationships

a. enfordng the duties of ftdeUty

1have argued tbat fiduciary obligations are what is required ta protect useful relationships not adequately regulated through other sources. In some cases, the content ofthe obligations is fàirly obvious. It

192 This approacb would justifya Umitation on the rule prohibiting exploitation bydireaors and ofBcetS ofopportunit(es which ha(( been refeeted bythe companyingoad faim. See, e.g., Peso SilverMines Lld. v. Cropper, [1966] S.C.R. 673 at682, a1though the Supreme Court did not ana1yze the result on this bais. The resu1t which would have been arrived atbyapplying standards offidelity applicable to trusts is desaibed in SM. Beek, "The Saga ofPeso Silver Mines: Corporate Opportunity Reconsidered" (1971) 49 Can. BarRev. 80 at 102 & 103. ProCessor Beek argues persuasive1y mat the outeome lnPeso cannot bede.fended on the buis oftrust standards. 1" Canada BusinessCorporationsAct, supra, note 44, s. 120. ·85 • simply consists ofa prohibition against the conduct which threatens the existence ofthe relationship. Inother cases, determining the contentof the obligations is more difficu1t. It involves an assessment ofwhat is required to induce the fidudary to make timely and fair disclosure ta the beneficialy bath ofthe fidudary's intended departure from conduct reasonably expeeted offiduciaries in that class ofrelationship, and ofthe circumstances which gave cise as to that intention.

Ifthe doctrine is to protect useful relationships, it is important that this assessment be as accurate as possible, and that the dulies imposed on fiduciaries represent the minimum required to offset the equilibrium lost through the threat ofundetectable exploitation. Ineffective regulation discourages beneficiaries from participating in relationships which are essential to the advancement oftheir interests. Overly strict regulatioR will deter prudent fiduciaries from assuming or continuing in advisory or service raIes. It may aIso induce fiduciaries to exact a Cee for potential restrictions on theircapacity to advance their personal interests during or following their period ofservice to their beneficiaries. Money paid to prevent fiduciaries from engaging in activities which do not in fact threaten the interests which a particuIar beneficiary hopes to advance by the relationship is money thrown away.

Ta some extent, fashioning appropriate obligations will depend on the circumstances ofeach case, and predictions as ta the content oflikely obligations will inevitably containelements ofuncertainty. There is, bowever, a way to reduce errors in determiningwhich obligations are necessaryto proteet the integrity ofindividual relationsbips. Opportunities for exploitation, and its potential benefits for fiduciaries, tend to be related to the structure ofthe reladonship and, as mentioned earUer, to the existence ofotheradequate sources ofregulation. Accordingly itshould be • -86- possible to develop a template for each class ofrelationships which will indicate the content oflikely obligations.

l94 The Btggs case will serve as an illustration ofa method which may he used to determine the obligations required to neutralize opportunities for exploitation inherent in the relationship between a Iawyer and bis lender/client in a loan transaction.

Compensate ,,'------.1-0---<] Brcach Detected ri Disgorgc ail gains

\pcrform '----.9-5------.:-:1 \'------:1

Figure 1

Figure 1 is a decision tree,195 and it is intended ta represent the alternatives open te lawyer Brickenden at the time he decided not ta

194 Supra, note 162.

195 The two digit dedmal figures beneath the various branches ofthe tree represent the probabllityofoccurrence ofthe event described above that branch. For example, the probabilityofBrickendents misconduet being discovered is merely S% (.05). For a discussion ofthe theoretica1 basis ofdedsion analysis, see H. Raiffa, DecisionAna/ysts: Introductory Lectures on Cbotces under Uncertatnty, (NewYork: Random House, 1968) [hereinafterDedsionAnalysls]. For an example ofilS application to legal problems, see H. Raiffa, The Artand ScIence ofNegottatton, (Cambridge, Mass.: Harvard University Press, 1982) at ~ 77, M.B. Victor, "Utigation RiskAnalysis andADR" inJ.H. WiIIdnson, ed., DonovanLetsure Newton 6, I""neADR Practice Book (NewYork: JohnWdey 8c Sons, 1990) at 307 and M.B. Victor, "Risk Evaluation in Intelleetual Property Utigation" in L. Hol'Wia 8t E. Horwia, eds., Inte//ectualProperty Cormse/lngand Ltttgatûm, vol. 3 (NewYork: MatthewBender, 1989) at 50-1. -87 - disclose ta his client, London Loan & Savings, the fact that he intended to apply '1,993.33 ofthe new '13,500 1030 sought by Mr. and Mrs. Biggs to payoffmoneys which the Biggs owed him.l96 At that time, Brickenden held three mortgages on the Biggs' property. The outstanding balance on one ofthese mortgages was '5,000; on another, about '800; and on a third, roughly $600. He disclosed the $5,000 mottgage to London Lean and the Company agreed that it would he in order that he should he paid out ofthe proceeds ofthe newadvance. However, he failed to inform bis client that the borrowers were going to pay him '1,993.33 ta retire!Wo more mortgages in bis favor, as well as a further '500 orsa by way offees, commission and disbursements. This infonnation sbould have been of considerable importance ta London Loan's directors when they came ta evaluate the Biggs' application for a further advance. For one thing, it gave a more accurate picture ofwhat the Company was risking by lending the applicants any more money. The Biggs were not successful entrepreneurs who needed a cash infusion ta tide them over a difficu1t periode Instead, theywere hopelessly over their heads in debt. Brickenden, their legal advisor and the creditorwho probably knew Most about their current ftnancial state and the value ofthe security which theywere offering for the newadvance, did not have confidence in their being able to meet their obligations. Full disclosure migbt have prevented Brickenden from unloading bis bad debts on to bis client.

Prior to disbursing the Ioan proceeds, Brickenden bad ta choose whether to exploit bis superior knowledge at the expense ofbis client. If he had told bis client the tnlth before the loan had been disbursed, it might Dever have been approved. As the trial judge lound that the securitywould not even bave repaid the charges med against the ôde prior to the advance

196 Supra, note 162.. -88· ofthe '13,000 loan, Brickenden stood to lose the outstanding balances on an three ofbis mortgages plus the fees and commissions the Biggs bad agreed to paywhen the transactionwent througb, in ail, about '6,993.93.

Concealing the existence oftwo ofthe mortgages undoubtedly helped ensure that the Biggs' application received mvorable consideration and made it possible for Brickenden to recover the full amount due him plus a bonus for bis services. There was an element ofrisle, however. Ifhe were discovered, he would likely have to retum the '1,993.33 paid in respect ofthe two undisclosed mortgages. He lDight even have to compensate London Lean for the difference between what they recovered from the sale ofthe security, ifanything, and the S13,500 which they had advanced. Nevertheless, Brickenden could reasonably have felt fairly safe in deciding not to disclose. London Laan's managing director, Mr. Kent, seemed prepared to close bis eyes to bis lawyer's dealings.197 Brickenden was the son-in-law ofG.G. McCormick, president ofthe Loan Company,198 a point not overlooked by the Supreme Court. So Brickenden's chances of getting awaywith bis scheme were probablyvery good. He could not reasonably have counted on the assignment ofthe Biggs mortgage5 to independent companies, and the Biggs' action against them for a declaration that neither bonus nor interest at the stipulated rate was payable under the London Loan mortgage.l99 Let us assume, for the purposes ofillustration, that Brickendenbad estimated that the chance of bis lDÎSConduct being discovered was about 5%.

197 [1933] S.C.R. at 265 & 266.

198 [1933] S.C.R. at 259 & 260.

199 Tbese transactions are described at [1933] S.C.R. 265-268. Tbere was, however, another risk that Brickenden had to take into account. Ifhe were caught, he might not ooly lose the amount he colleeted in respectofthe undisdosed mortgages and bis fees, commissions and disbursements, he might aIso be made liable to repay the amount which London Laan lost by proceeding with the transaction in the first place-the difference between the '13,500 advanced and the amount the Company aetuaIly recovered on a sale ofthe security. Even here, liability must bave seemed far from certain. It was not up to Brickenden to value the security offered by the Biggs. That was bis client's responsibility. Brickenden might reasonably have felt it un1ikely that he would be held liable for the "marked laxity and dereliction ofduty" ofbis client's officers.2oo The Loan Company had not been deceived about the amount the Biggs owed. They had disclosed on their application documents that $7,500 was to be applied in payment of"sundry accounts." Let us say, for the purposes ofillustration, that Brickenden could reasonably assume that, if bis misconduet were to be discovered at aIl, there was ooly a 10% chance that he would have to reimburse bis client for aIl ofits losses--that is, '13,500 or something like it;201 a 10% chance that he would have to pay $6,993.33;202 and an 80% chance that he would ooly have to pay $1,993.33.

200 The quotatiOD is taken from Mr. Justice Croclœt's judgment at [1933] S.C.R. 295. It is unfortunate thatJudge Hoover's article, supra, note 131, wu Dot avaiIable to Brickenden al tbis time.

201 '13,500 would have been about dght. The trial judge had found that the securitywa5 insuJBdent to caver the mortgages in existence priorto London Loan '13,500 advance.

202 That is, the '5,000 owing onthe mongage mat he did disclose plus the outstandingbalances, fees andcommissions he badreœived in respect ofthe undisclosed mongages. .. 90 -

Figure 2 illustrates the expeeted monetaryvalues ofthe various options open to Brickenden belore he committed himselfto non.. disclosure:

~----'--'(.1-13S(J()=-SI3.soo;Compensale 1 P-O.OI 1 0.10 Breacll Deb:cted /.. Oisaorce all pins 1 1 Exploit _~. 0.05 0\ 0.10 1-6993.33 ....$6.993; P=O.OI Fid' 0'1 . 1 $6.461 " O' d' 1 sed . 1 UCIary'S 1mina QI Exploit: $6.4611 \ !sgorge ;s:C 0 pinS <] 1.1993.33 --51.993; p=o.04 I

'" \I...-Breac:_h_U_Rd_etec_ted______1 \ -11$6.993 - $6.993; P• 0.95 \ 0.95 \Perform 11 0 '" so 1

Figure 2

Based solely upon possible payaffs and the probability ofdetection, it was reasonable for Brickenden to have chosen ta take advantage ofthe opportunity for exploitation with which the circumstances had presented him. This is, in faet, exacdywhat he did.203

203 The double Une "barring" the path to the "Perform" option indicates that people faced with the situation illustrated by the dedsion tree would not do as weIl finandally, on the average, iftheywere to choose the option indicated by the barred path. The dollar figures at the end ofthe branches represent the monetaryvalue, or payolI, associated with each course ofconduet. Forexample, ifBrickenden's scheme were discovered and ifhe were held Hable ta compensate London Laan or its assignee for the '13,500 lost as a result ofthe advance to the Biggs, the expeeted manetaryvalue ofthat outcamewould be minus '13,500. The expeeted monetaryvalue ofeacb choice is cantained in the rectangles within the tree orfoUawing the Dode presenting the varlous options open to the dedsion-maker. These values represent the produet ofthe payoffeamed ifit occurred and the probabiUtyofits occurring. For example, Brickenden stood to gain '6,993.33 ifhis breach remained undeteeted. 8ecause there was aoly a 95% chance that this would be the outeome, the expeeted monetaryvalue ofthat dedsion is '6,461 ('6,993.33 x .95). An outcome which depends on more than one chance occurrence is the produetofthe payaJfeamedifitoccurred and the probabilityofthe occurrence ofeach ofthe events upon which its occurrence depends. Througbout, 1 have assumed that the fiduciary is risk-neutral. -91·

What is important is not 50 much the accuracy ofmy estimate of Brickenden's evaluation ofthe probabllity ofdetection orofbis potential exposure to liabllity-botb are purely speculative, in any event. What is important is tbat the exercise allows us to observe the etfeet ofchanges the probabUity ofdetection and the amount ofpotentialliabilltyupon decisions which the fiduciary might reasonably maire.

For example, let us assume that, in evaluating the disadvantages of exploitation, Brickenden took inta account the possibility that detectian might result in disbarment. He would have to add to the -$13,500 liabllity the present value ofthe diminution in his income stream for the period of disbarment as weU as the present value ofany further reduction in income which the inevitable public censure might cause. He might also make an allowance for the stress caused by discovery. Suppose that he concluded that diselasure would cost him $50,000, in addition ta the payoffs shawn in Figure 2. Brickenden's decision, assuming he used the logic implicit in the tree, would have been the same. He would still have tried to exploit bis client's interests:

CompcmaIC

- . 0.95 156,"3 • 56J93; P- 0.95 Paform ~ I.....------

Figure 3

In fact, it is not untilthe loss causedbydiscovery ofthe breach adds about S120,000 to eamofthe three stated payotTs assodated with the ·92·

"Breach Deteeted" branch that Brickendenwould have been justified in tbinking that he would do better in the long run by honest and diligent perfonnance ofbis obligations than byseizing the opportunityfor exploitation. This analysis bas an important tesson for those seeking to detennine the content offiduciary obligations imposed ta induce the fiduciary to perform rather than ta exploit: it is critica1 to the efficacy of such a regime that the obligations imposed improve materially the probability that the fiduciary will he held liable.204 The techniques which improve the beneficiary's abllity ta prove misconduct have already been mentioned. They consist ofa series ofpresumptions which the benefidary must disprove ifhe is to avaid liability. In relationships similar to the above, obligations should he imposed which maximize the chances that the beneficiaries will discover misconduct. These include obligations to account, ta report and to explain. Imposing soch obligations justifies a requirement that the fiduciary who cannot explain away suspicious circumstances must he liable for bis beneficiary's 10ss. Incidentally, it a1so supports the notion that the quintessential feature offiduciary relationships is loyalty.

Changes in the amountofpotentialliabllity, however, are not unimpottant in an circumstances. Let us assume, for the purposes of illustration, that Brickendenwas convinced that the Laan Companywould not have rejeeted the Biggs' application ifhe haddisclosed the existence of the two sma1l mortgages in bis faYOt. On this assumption, Brickenden would bave been able ta keep the '5,000 paid bythe loancompanyfor an assignment ofbis '5,000 mortgage. Assume thatdlscovery ofbis

204 Itwould be ditBcult ta see howacourt, on any theoryofequitable compensation, muid have juS1ifted imposing a penaltyof120,000 1933 doUars _ on Mr. Brickenden. .• -93 -

misconduct would, however, have left him in the same position as illustrated in Figure 2. Decision theorywould still have Brickenden preferringexploitation to performance because the likely gain from performance ('6,461), would he sUgbdy greater than the gain from honest service ('5,000). If, bowever, he also believed that the risk ofdeteetion wu 20% instead of5%, he would have done better to have performed:

" ,--co-m_pensale-O.__10---:::11-13500--SI3.5001

1 O' aU' ..---~O( lSIorgc pins <1 !-6993.33 - -16.993 , Exploit \ 0.10 Fiduduy'. Di...... ~~orm: S5.!XXl \OisIOrgc:oiscJOscd pins<1 [-1993.33 --SI,993 1

\ Brcach Undetected '-11 56.993 .16.993 1 0.80 \ "'-perfi_o_rm ,11 5000 -S5,OOO~ P- 1.001

Figure 4

Concems which Brickenden might have entertained about additionallosses caused by public censure, emotional distress or10ss ofprospective eamings due to disbarment (which 1have arbitrarily set at '130,000) would not have altered bis decision:

.--CD_m_pensaœ~~ __() 1-143500 _ -S143.soo1 / 0.10 D' all' ISgargc pans 1-136993.33 --SI36.9931 . 0.10 fiducilry's Dilanma \Oisgorae undiscloscd pins<11-131993.33 --S131.9931 0.80 _--:-. --1

~~------___"'.J116.993 -16.9931

~------<'Il 5000-SS,000;p-1.001

Figure 5 - 94-

In the circumstances illustrated by Figures 4 and 5, there would have been little purpose in the imposition ofa penalty upon Brickenden which went beyond stripping him ofgains eamed through conduct inimical to the existence ofsimiJar relationships. In Cact, eccentric imposition ofpunitive liabilitywould probablyooly serve to detersettlement ofcases inwhich it was imposed, without conferring much added protection on the relationships themselves.

The criticisms most frequendy levied against the use ofdecision theory in attempting ta predict behavior is that applying it requires specialized knowledge which most people do not possess or employ, coupIed with the faet mat the great majorîty ofpeople are incapable of assessing correcdy the impact ofimprobable occurrences or the probability ofhorrific occurrences.205 While these criticisms are undoubtedly valid, no substitute is yet available206 and the need for protection ofuseful relationships cannat attend a more perfect conceptualization ofhuman motivation. Furthermore, judges are not likely hobbled by either problem, and what is required is an explanation ofthe outcomes ofcases involving tlduciary liabWty. Ifcourts cannot assume that the heuristics which people rely on to maire decisions, however devised, will arrive at the same result as calcuJated self-interest, the prospect that effective regulation can he achieved by economic inducement is probably doomed to failure anyway.

•

ZOS R. Cooter& T. Ulen, Law andEconomies (NewYork: HarperCoWns, 1988) at 415-418 [hereinafterLaw 6T Economies]. 206 DecIsIon Ana/ysls, supra, note 195 at 268-272. -95 -

b. eaforciDg tIle duties of prudence

It bas olten been argued that fiduciary obligations imposed in respect ofrelationships other tban that oftnlStee and beneficiary, do not include a duty ofcare.207 In 1995, however, the Supreme Court beld that the govemment was liable to compensate an Indian band for the govemment's failure ta reserve minerai rights in a conveyance ofreserve landwhich the band had surrendered for sale or lease.208 Uability was imposed for

"inadvertence.,,209 Specitlcally, Indian Affairs officiais overlooked the possibility that one day, the minerai rights might be ofvaiue, and that inclucling them as part ofthe conveyance would not have increased the price. There was, therefore, nothing to lose by reserving them, and possibly, something to he gained for the surrendering band. In fact, there was even a departmental policy that the minerai rights should he included. Although the Crown was said ta have" ... taken on the obligations ofa

trustee in relation to the [surrendered land],,,210 it must he remembered that the Indian interest cannot he the subject ofa trust, properlyso called, and that the Crownlnative relationship which comes into existence following a surrender is not that oftrustee and beneficiary.211 The

:l07 See, e.g., "Fiduciary Prindple," supra, note 8 at 2~31. In The Law of Fûluclarles, supra, note 20 at 49, the author claims that" ... the dutyofare has absolutely no neœssaryconneetion with fidudary relationships. In the instances in which &duciary relationships have a dutyofare anached, ... that dutyofaue rests eitber in conttaet (e.g. most agents) orin tort (e.g. some types ofadvisers)." In the United States, fidudary obligations oCten indude a dutyofeue: see the cases dted at p. 29 of"FidudaryPrindple," supra, note 8.

208 BlueberryRiver, supra, note 5 at 363-366.

209 BlueberryRiver, supra, note 5 at 364 & 404.

210 BlueberryRiver, supra, note 5 at 363.

211 Guerin, supra, note 1 at 386. -96-

resulting obligation, which certainly resembles anobligation ta he carefu1, must have been imposed pursuant ta the doctrine oftlduciary obligation. It appears likely, inviewofthe Blueberry Riverdecision, tbat a duty ofare can indeed be imposed as a tiduciary obligation. This possibility taises questions as to whether the courts will adopt the same approach in enforcing the duties ofprudence as theyemployin enforcing the duties of fidelity.

Inducing re-negotiation may require the injection ofpunitive or restitutionary elements into judgments and the development ofspecial evidentiary presumptions, but there is no justification for similar measures in cases in which the threat ta the relationship arises from a breach ofa duty ofcare. Here, the ndes developed for torts and contraets should provide adequate protection. Ifthey do not, the entire basis ofjudicial remedies should he examined and new rules estabUshed for a11 situations. It is diftlcu1t to see why the lawshould distinguish between a professional tnlstee who faiIs to taire apply due care and attention in the investment of estate assets and a motorist who fai1s to pay due care and attention to the manner inwhich he drives. CHAPTERm

THE CROWN·INDIAN REIATIONSIDP

1. 1D1rOductiOD

In previous chapters, 1argued that fiduciary obligations are imposed for the purpose ofmaintaining the integrity ofrelationships ofsocial or economic value. Individual obligations are selected from the code ofcules developed to regulate the relationship oftrustee and beneficiary. One reason which would support the choice ofthis particular regime is that its obligations are broad enough to cover likely regulatory needs and the imposition ofspecific obligations cao be explained as an extension of established doctrine. Not all ofthese rules are imported into every fiduciary relationship, however, and those which are, are adapted ta suit the specific regulatory requirements ofthe target relationship. The need for reguJation arises because the relationship contains inherent opportunities for one or more ofthe parties to exploit the interests of another or athers. Such conduet, left unregulated, would tend to discourage full or any participation in simüar relationships orwould discourage continued participation in angoing relationships, and would deprive society afthe henefits which theywere established to provide. The doctrine offiduciary obligation empowers the courts to promote the establishment ofsuch relationships by providing redress to victims of exploitative conduct incircumstances in which reliefwould otherwise be unavailable.

The scope ofthe fiduciary obligations likely ta he imposed in respect ofa given relationsbip depends, in part, upen the fearures ofthe relationship which must he preserved ifit is tofield the expected benefits. It also depends upon the extent to which existingsources ofregu)ation fàU. -98- ta provide satisfaetory protection. The first step indeterminingwhether a specific course ofconduet threatens the integrityofa given relationsbip is ta determine the object for which such relationsbips are established and to identifythe features ofthe relationsbip necessary for the attainment ofthat objecte The second is to determine whether the impugned conduct is exploitative in the sense that it takes advantage ofan unregulated opportunitywhich is inherent in the relationship and which, ifexploited, would impose a burden upon the victim to whicb he had Dever agreed and which would tend to discourage or restrict his participation.

In this chapter, 1will examine the legal and economic strocture of the relationship between the federal govemment and status Indians in 50 far as it is relevant to the management and disposition ofunsurrendered reserve land. 1will give examples ofopportunities for exploitation which are inherent in this relationship, which are not otherwise adequately regu1ated and which, iftaken up by government, will threaten the utUity of the relationship. In chapter 4, 1will suggest the content ofthe fiduciary obUgations required to provide the necessary regulation in respect ofthe examples which 1 present.

2. The GIUIrl"JudgmeDts

Lawyers asked ta advise on fiduciary liabillty are very olten left without much judicial guidance as to whethet the relationship which they are consideringwill he declared to be ftduciary, and as to the contentofthe obligations likely to be imposed. The legislative chametet ofthis doctrine-the ability ofthe courts to create juridical policy bychoosingthe relationships to whicb protection is to he extended-makes it extremely diftlcult to advise incases not coveredbyenaetmentor authority. Inthe case ofthe Crown-Indian re1ationship, bowever, sum speculation is ·99· unnecessary. The Supreme Court ofCanada bas nded that tbis relationship is fiducialy. The Court bas also described its juridical Stnlcture, its essential features and the social andecanomic beneflts for which itwas created. These matters are an dealt with in the Guerin case. In this section, however, 1will concentrate onone feature ofthis dedsion, the explanation given by the Court for the difference between the Crown's relationship with aboriginal peoples and the Crown's re1ationship with other segments ofCanadian society.

There are three sets ofjudgments in the Guerin case. Although ail eight judges ofthe Supreme Court ofCanada agreed that the ClOwn was liable to compensate the Band for breach ofan equitable obligation, each group arrived at its ultimate conclusion by a sUghtly different process of reasoning. These differences are ofsignificance in assessing the elements ofthe Crownlnative relationshîp'prior ta surrender and each set of judgments will now he examined separately. It is important ta bear in mind during the discussion mat follaws that the Guerin case involved surrendered lands. Comments in the reasons for judgmentwhich relate ta unsurrendered reserve lands are, therefore, obtterdicta.

Madam]ustice Wilson, writing for herselfand for Ritchie and ~Intyre,JJ 0' said that Indian bands bave a beneflcial interest in unsurrendered reserve lands. The ClOwn, however, bas a statutorypower ta detennine the use ta which such lands may he put. Long aga, the ClOwn undertook the responsibility ofprotecting and preserving native interests from invasion ordestmetion. Ta enable it to discharge this underta1dng, the ClOwn assumed the power ta decide for itselfwhether proposedor aetua1 uses ofreserve lands are for the beneflt ofthe aboriginaloccupants. Section 18(1) ofthelndianAaacknowledges the currencyofthis commitment and its application to unsurrendered reserve -100- land. The Crown has an obligation to limit its use ofthis power to the purposes for which it was given. This obligation is a tlduciary obligation 212 which will he enforced by the COurts. Following a surrender, the juridical nature ofthe ClOwn/native relationship changes. The Crown holds surrendered land in tnJst to dispose ofit in accordance with directions given by the band.213

Mr. Justice Dickson, who delivered judgment for himselfand for Beetz, Chouinard and Lamer, JJ., held that a tiduciary duty arises on surreoder.214 That duty requires the Crown to dispose ofthe surrendered land for the henefit ofthe surrendering band.215 Once again, the duty is based on a historical commitment. Long aga, the ClOwn assumed the responsibillty ofprotecting native peoples in dealings with third parties. It implemented this undertaking by declaring native land rights inalienable except by surrender to the Crown. In this way, the Crown was able to interpose itselfbetween native sellers and non-native buyers and to use this position to prevent exploitation of natives. Section 18(1) ofthe lndlanAct acknowledges the currency ofthis commitment and its application to Indian reserves.216 Mr. Justice Dickson did oot specitlcally deal with the juridical nature ofthe Crown/native relationship in the absence ofa surrender. His judgment implies, however, that fiduciary duties do not arise from the relationship created by thelndianAct unless Crown

212 Guerin, supra, note 1 at 349-351. 213 Guerin, supra, note 1 at 354 &: 355.

21. Guerin, supra, note 1 at 385.

215 Guerin, supra, note 1 at 387.

2Ui Guerin, supra, note 1 at 382-384. -101-

representation is required to prevent exploitation intransactions involving a disposition to non-members ofa bandes interests in its reserved lands.217

Mr. Justice Estey held that the Crown was the agent ofthe band for the disposition ofsurrendered reserve lands and, therefore, was onder an obligation to ohey the bandes instructions.218 This relationship and its obligations arase out ofa govemment commitment to protect native interests, a commitment occasioned by lia strong community interest in proteeting the rights ofthe native population in those lands to which they had a longstanding connection." This community interest bas existed for a long time, as it is retlected in certain provisions ofthe Royal Proclamation of1763219 as well as all versions ofthe Indian Act. It wu tbis commitment whicb resulted in the enaetment ofthe various protective mechanisms of the Indian Act, including the surrender provisions.22o Mr. Justice Estey did not deal specifically with the obligations which the Crown might owe ta native peoples in the absence ofa surrender. It is implicit in bis judgment, bowever, tbat comparable obligations would also arise in any situation in whicb the Crown bas undertaken or bas become obliged ta aet as agent for a native groUp.221

AlI ofthese judgments rely on a bistorical commitmentby the Crown ta protect native land rights as the justification for the impositionof enforceable duties. While individual judges make reference ta various

217 Guerin, supra, note 1 at 382 & 383 andBlueberry River, supra, note 5 at 370-373. 218 Guerin, supra, note 1 at 393.

219 R.S.C. 1985, Appendix D, No. 1 [bereinafter Proclamation orRoyal Proclamation).

220 Guerin, supra, note 1 at392.

221 Guerin, supra, note 1 at392. -102- sections oftheIndianActor to the Royal Proclamation, these provisions are dted as a confirmation or acknowledgment ofthe existence ofthe historica1 commitment rather man its source.222 In Cact, the judges see themse1ves as enforcing a constitutional undenaking dating back to the establishment ofBritish sovereignty in North America, an undenaking which the Crown is said to bave confirmed continuouslysince that time.

3. The Crown's Historical Commftment to Native People

The Royal Proclamation of 1763 and the various versions ofthe Indian Act from time to time in force are continually cited by the courts as confirmation ofthe existence and terms ofthe ClOwn's historical commitment to native peoples. In this section, 1will examine these enactments with a view to deriving from their terms the essence ofthe Crown's commitment.

1 have divided my analysis ofthe Indian Acts into two sub-seetions.. The first deals with the statutes in force prior ta 7 June 1950. Most ofthese statutes were enacted at a time wheo it wu widely held tbat the solution to the [odian problem (as the presence ofaboriginal cultures wu then seen) was for native peoples te assimilate-to adopt the values and manners of the immigrant majority. The second sub-seetion deals with theIndtanAct of1950 and its successors. The 1950 statute and laterversions were passed after an extensive study ofreserve conditions and consultationwith Indian representatives. These statutes were enacted at a time ofgrowing uneasiness among the non-native majority about the legitimacy ofthe

zu Guerin, supra, note 1 at 349 (Wilson, J.); 383 & 384 (Diclcson, J.); 392 (Esley, J.). -103 - coercive measures ofthe past and dismay at the adverse impact these measures bad bad upon aboriginal peoples.223

1. The Royal Proclamation .f1763

Until the mid-eighteenth century, a numberofEuropean nations vied for the right to govem territories along the eastem seaboard ofNorth America. ACter 1750, however, oo1y Britain and France remained serious contenders. France fonnallywithdrew from the colonization ofmost ofthe easterly portion ofthe continent on 10 Febmary 1763 with the execution ofthe TreatyofParis. Eight months later, Britain announced public1y its policy with respect ta the administration and settlement ofthose portions ofthe continent overwhich it claimed sovereignty. This announcement was contained in the Royal Proclamation of1763.224

Four features ofthe Royal Proclamation are ofimportance in determining the scope ofthe Crown's historica1 commitment to native peoples. The ftrst is the territorial extent ofthe assertion ofBritish sovereignty contained in the Proclamation. Britain claimed sovereignty over most ofthe easterly third ofNorth America, inc1uding unceded territories then occupied or used by the Indians.225 The Proclamation describes unceded Indian lands located within the boundaries ofthe existing or newly acquired colonies as situate on"Parts ofOur Dominions and Territories".226 The assertion ofsovereigntywent funher than that,

223 J.R. Miller, Skyscrapers Hide the Heavens, rev. ed. (Toronto: Univ. ofToronto Press, 1989) at 220 & 221 [hereinafterSkyscrapers]. 224 J. Stagg,Ang/o-IndtanRelationslnNorth AmerIca ID 1763 andAnAnalyslsof theRoyalProclamatton 0/7October 17t6 (Ottawa: Indian &t NottbemAffairs, 1981) at337-339 &t 345-348 [hereinafterAnglo-indIanReIatlons]. 22S Anglo-IndlanRelations, supra, note 224 at 375.

Z26 Royal Proclamation, supra, note 219 al 5 [Empbasfs added]. -104-

however. The Proclamation presumed to reserve for Indian use a vast area lying outside the boundaries ofanyestablished colony. This reserved area was boundedon the East by the Atlantic watersbed, on the South by the colonies ofEast and West Floridaand on the North by Rupert's Land and the newly-acquired colony ofQuebec, and it extended westward for an indefinite distance towards the centerofthe continent. Unceded Indian

lands within this area were declared ta he reserved "under ourSOfJereignty, Protection, andDominion" for the use ofthe Indians.227

The second feature ofthe Royal Proclamation whicb is ofimportance here is that its stnleture assumes that native peoples pessess rights ofuse and occupation which pre-date Britain's assertion ofsovereignty and which have not been extinguished by it.228 The Proclamation does not expressly create native rights in unceded lands; it impliedly recognizes their existence, however, by prescribing the measures to he taken for their protection.229 For example, it requires the removal ofnon-natives who have settled on lands ''which, not having been ceded to or purchased by Us, are still reserved to the said Indians".230

The third feature ofimportance is that the Royal Proclamation dearly implied that, in future, native peoples were not to he compu1sorily displaced from the territories which they used or occupied. Addressing the

227 Royal Proclamation, supra, note 219 at S [Emphasis added]. ~28 Ca/derv.AG. (Britisb Columbia), [1973] s.e.1\.: 313 as interpreted by Guerin, supra, note 1 at 376 & 377,per Dickson, J. Cf. St. Catberlne'sMtll'flg& LumberCo. v.L (l888)t 14A.C. 46 at 55 (p.C.)t where the PrlvyCoundl suggested tbat Indian possession &6 ••• cm oolyhe asaibed to the general provisions made bythe royal proclamation in tàvourofan Indian tribes then living under the sovereigntyofthe British Crown."

229 Anglo-IndtanRelations. suprat note 224 al373 Be 374.

230 Royal Proclamation, suprat note 219 al 5. [Empbasis added]. -105 - circumstances underwhich purchases ofaboriginallands would he pennitted, itwas decreed that "... ifatany Time anyofthe Said Indians sbouldhe inclinedto dispose ofthe saidLands, the same sball he Purchased oolyfor Us, inour Name, at seme public Meeting orAssembly .... ,,231

Finally, the Proclamation prescribes measures to he taken to protect native dghts ofuse and occupation.. First, unceded Indian lands are declared to he reserved for Indian use. This reservation covers unceded lands located within the area lying West ofthe Atlantic watershed as well as ail unceded lands lying within existing or newly acquired colonies.Z3Z second, colonial officiaJs-civil or milltary-are prohibited from surveying orgranting tides to reserved lands, wherever situated, prior ta cession.233 Third, non·natives are prohibited from establishing settlements on reserved lands, and those who have already done 50 are required to leave.Z34 Fourth, private purchases ofland direetly from native occupiers are prohibited. Fifth, provision is made for the voluntary relinquishment of native rights ofuse and occupation in favar ofthe Crown.235 This last feature is MOst important in determining the SCOpe ofthe historical commitment, and requites some elaboration.

231 Royal Proclamation, supra, note 219 at 6. [Emphasis added.]

232 Royal Proclamation, supra, note 219 at 5. 233 Royal Proclamation, supra, note 219 at 5. The wording ofthe provision Umiting the powerofcolonial governOl'S to make surveys or graDts ofunceded Indianlands within the boundaries oftheircolonies is unelear. Fora discussion of the interpretation ofthese provisions, seeAngfo.lndianRelations, supra, note 224 at 382-391 and B. Slattery, LandRlgbtsofIndtgenous CanadtanPeoples, as 4ffeetedby the CrownlsAcquisitionofTbeir Terrltorles (D. PhiL Thesis, Oxford University, 1979; reprinted, Saskatoon: University ofSask., 1979) at 261-267 [hereinaCterLandRlgbts). 234 Royal Proclamation, supra, note 219 at 5.

23S Royal Proclamation, supra, note 219 at6. -106-

The preamble to the Proclamation declared that:

... great Frauds andAbuses have been committed in purcbasing Lands ofthe Indians, ta the greatPrejudice ofour Interests, and to the great Dissatisfiletion ofthe said Indians ....23Ci

The great Frauds andAbuses referred to in this statement cao he conveniendy grouped ioto three general categories. The first inc1udes cases in which immigrants would simply appropriate aboriginal hunting grounds for their settlements.237 ln the second, speculators would buy land from the natives on the understanding that the purchase price would he paid when individual parcels were sold to settlers. The speculators would sen all or part ofthe original tract, but would fiùl to pay the balance ofthe purchase price to the native sellers.238 Finally, private purchasers would buy land from natives who lacked the authority oftheir people to sell.239

These problems had not just come to the attention ofthe Imperial government at the conclusion ofthe Seven Years' War. Well before 1763, colonial governments had attempted to prevent irregular purchases of native land by prohibiting non-natives from buying land direetly from native occupiers without first obtaining the approval ofcolonial authorities.240 Generally speaking, these efforts were poorlyconceived, unevenly elÛCrced and usua1ly ineffeetual.241 Later, administrators would

Z36 Royal Proclamation, supra, note 219 at 6.

Z37 Ang/o-lndtanRelations, supra, note 224 at 58 '"59, 81, 106, 191 & 192.

Z38 Ang/o-IndtanRelations, supra, note 224 at 104'"213. 239 Ang/o-lndlanRelations, supra, note 224 at 104, lOS & 193.

2..0 Ang/o-lndlanRelations, supra, note 224 at 367-369. P.A. Ctlmming& N.H. Mickenberg, eds., NativeRlgbts ln canada, 2ded. (Toronto: Indian-EsldmoAssn. ofCan. Be GeneralPublishing Co., 1972) at 67 & 68 [hereinafterNativeRtgbts].

241 Ang/o-lndianRelations, supra, note 224 at 17-28. -107 - point to the confllct ofinterestwhich existed between settler-controlled local govemments and unrepresented native groups as a cause for putting decisions respeeting native lands iota the bands ofa body more representative ofthe interests ofthe communityas a whole.242 In British North America, the intervention ofthe Imperial Govemment in Indian land transactions was rendered necessary by mllitary expediency.

m The balance ofmilitary strength in mid-lS century North America was sucb that almast any action by major Indian groups ta redress illegal or dishonest appropriation oftheir lands would threaten British security. Occasionally, natives would take matters iota their own bands and attempt to recover their lands by force. British or colonial military units would then he required ta intervene to protect the settlers.243 BeCore the final defeat of the French forces in 1760, even Indian ill·will could threaten Britain's tenuous military position. Dy the mid-1700s, the British anny's ability ta mount a credible land campaign against the French depended heavUy upon Indian support or neutrallty.2« Native groups whose assistance was essential to British success made it c1ear that their hesitation in taking the side ofthe British, or remaining out ofthe figbt entirely, stemmed largely from their fcar that their land rights would continue to he violated by 245 British settlers in the event ofa French defeat. Indian participation in the later battles ofthe war usually had to he bought with assurances that

242 R.H. Bartlett, lndtanReserves andAborlglnallAndsin Canada (Saskatoon: Univ. ofSaskatchewan, 1990) at 24 [hereinafterIndlan Reserves). 245 Anglo-IndtanRe/attons, supra, note 224 at 20, 21, 254 & 255. One sum inddentdeveloped ioto the TuscaroraWarofI711-13. 2" Ang/o-IndlanRe/attons, supra, note 224 at 30-33, 135, 140, 160,208,217 & 230. 245 Anglo-IfldlanRe/attons, supra, note 224 at 184-188. -108 - aboriginalland claims would be redressed.246 ACter the fall ofNew France, rumors ofan all-out campaign by the British ta exterminate native peoples and taire over their lands circulated along the American frontier and threatened to provoke an Indian uprising.247 Even in 1763, therefore, the ability ofthe British to exploit their newly acquiredAmerican empire depended on the establishment ofa concillatory policy with respect to native land rights.

Restrictions on the alienabillty ofnative tide, as these measures later came to he known, were inserted to guarantee the govemment's ability ta afford the promised protection. As long as natives could not he dispossessed except through the medium ofa process controlled by central government authodties, the Crown would he in a position to ensure that any surrenderofnative land rights did not give tise to unmanageable consequences. The Proclamation decreed the structure ofthe process by which mis was to he accomplished. Indians could oolyeffectively relinquish their land rights at a public ceremony which was organized for that specifie purpose and whichwas presided over by representatives ofthe central government. On this occasion, the Indians would public1y declare their collective assent to the relinquishment oftheir rights and the central govemmentwould publicly accept the (then) unencumbered land. In later years, the surrender requirement was to receive a theoretical rationalization far removed from its pragmatic origins. Upon discoveryby European nations, the land rights ofNorth American natives became

246 Ang/o-Indtan Relattons, supra, note 224 at 208-217. 24' Ang/o-IndtanRelations, supra, note 224 at 280-283. Infàct, a serlous uprising, wbich bas sinee become known as Pontfac's Rebellion, wu weB underwayat ~e tilDe the terms ofthe Proclamationwere beingformuJated. The extentto which the uprising contributed to its provisions is unclear: seeAng/o-IndûmRelations, supra, note 224at 334-339. -109- impaired. "[T]heir power to dispose ofthe soU at their ownwill, to whomsoever they pleased, was denied by the original fundamental principle, that discovery gave exclusive tide to those who made it.,,248 According to this doctrine, Britain, and later, Canada and the United States, acquired a preemptive rigbt to purchase the land occupied by native groUpS.249

There is a difference ofopinion as to the extent to which perfonnance ofgovernment Qbligations expressly or impliedly contained in the Proclamation were intended to be subject to unilateral variation or cancellation by govemment authodty. For some, the Proclamation was the " ... Magna Charra [sic] ofaIl the Indians ofCanada ... ,,250 for others, merely "a temporary expedient to quiet the minds ofthe Indians.,,251 The histodcal record is perhaps a better gauge ofthe sincerity ofthese promises than speculation as to the authors' intentions. In Canada, for example, the necessity for cession and the procedure for securing Indian assent was to 252 acquire a constitutional status and a statutory force. Arguably, its provisions could not even he affected by pre-colÛederation legistation, or

248 Johnson v.M7ntosb 21 U.S. (8 Wheat.) 543 (1823), dted with approval in Guerin, supra, note 1 at 377-379.

249 N. Jessup Newton, "Federal Powerover Indians: Its Sources, Scope, and Umitadoos" (1984) 132 Univ. ofPenn. L. Rev. 195 at 207-210.

2S0 D. Campbell Scott, "The Administration ofIndianAffairs in Canada" (paper preparedfor the 4th biennialconference ofthe Institute ofPad6c Relations (Ottawa: Can. Institute ofInternationalAffairs, 1931) at 1.

251 A remarkattributed 10 George Washington, an early settler (and later military and polidca11eader) said to have surrepdtiously marked outlands beyond the boundaryestablished bythe Proclamation. SeeNative Rlgbts, supra, note 240 at 70, quodng].M. Sosin, Whiteball in the Wildemess (Uncoln, Neb.: Univ. of Nebraska Press, 1961). 252 Native Rlgbts, supra, note 240 at 26; Easterbrook v. R. (1930), [1931) S.C.R. 210 at217 &218. ·110 - byfederai enactments passed prior to 1931.253 The procedure for obtaining cessions ofaboriginal daims ultimately developed into a fixed palicywhicb led to the maldng oftreaties covering most parts ofCanada.254 Indian legislation enaaedbetween 1850 and 1985 provided that the prohibition against the direct prlvate purchase ofaboriginallands applied to the Indian reserves covered by those enacnnents. Later versions ofthe Indian Act added a code ofprocedure for ensuring that surrenders of native rights ofuse and occupation had the assent ofIndians whose rights would be affected by the proposed transaction.255

While the voluntary surrender requirement is strictly adhered to in respect oftransactions involving reserve land, it does not appear to have been sa stricdy adhered ta in the process leading ta the establishment of the reserves in the first place. There is nothing about the govemment's preemptive rlght ta purchase as described inJobnson v. M'Intosb which suggests that natives were to he obliged to sell on demande As time went on, however, increased emphasis was placed by the courts on the temporizing language ofthe Proclamation.256 When Canada needed aboriginalland cessions during the 19d1 and early 20lh centuries in order ta

Z53 B. Slattery, 'UnderstandingAboriginal Rigbtsft (1987) 66 Can. BarRev. 727 at ft 774 & 775 [hereinafter "Aboriginal Rights ).

Z54 A.G. Harper, "Canada's IndianAdministration: The Treaty System" (1947) 7 América Indigena 129 at 133 (bereinafter "Treaty System"].

Z5S U.C. 1850, c. 74,55. 1 & 2; S.C. 1868, c. 42, 55. 6, 8 & 17; 11Je IndlanAct, 1876, s.c. 1876, c. 18, 55. 11, 25 & 26; Tbe IndtanAa, 1880, S.C. 1880, c. 28, 55. 22, 36 & 37; The IndtanAct, R.S.C. 1886, c. 43, 55. 21, 38 & 39; IndümAa, as.c. 1906, c. 81, 55. 33, 48 & 49; Indian Act, as.c. 1927, c. 98, 55. 34& 5().52; The Indlan.Ad, s.c. 1951, c. 29, 55. 28 & 37-41; IndianAct, R.S.C. 1952, c. 149, 55. 28 & 3741; Indtankt, as.c. 1970, c.I-6, ss. 28 & 37-41; IndIanAa, a.S.C. 1985, c. 1·5, 55. 28 &37-41. :156 SL Catberlne'sMI/llng, supra, note 228 at 55, where itwu said matIndian land dgbts were a " ... personal and usufruetuary rightdependenton thegood willofthe SotJeretgn." [Emphasîs added.) -111- maire allowance for the expected arriva! ofEuropean settlers, Indians were presented withproforma agreements, called treaties, which theywere expeeted to accept without significant change.257 Some studies suggest that, at least in some cases, Indians may not bave fuIly appreciated the nature ofthe rigbts whicb they were giving up, and that those signing as their representatives may not have had the authority to make such a commitment.258 Recent judicial opinion bas suggested that Indian approval may not even have been a juridical requirement for the extinguishment of their land rights.259

Commentators do not agree about the precise juridical effect or territorial scope ofthe Royal Proclamation. The Proclamation does, however, provide some assistance in sketching in an oudine ofthe intended relationship between the Crown, on the one hand, and North America's native populations, on the other. The Proclamation contains a clear assertion ofthe Crown's authority to govern native peoples. There is

257 "TreatySystem," supra, note 254. With respect to pre-1947 treaties made wim t:anadian natives, Harperobserves that (p. 145), It cannot be said mat the terms ofmese treaties were ever negotlated with the Indians; only their acceptance was subjeeted ta the democratic process. There was remarkably Iittie eJfect upon the contents ofthe treaties, introduced as a result ofdemands made by Indians. The representatives ofthe govemment otrered the ueaties as instruments which the Indians could accept orrejeet. 258 L.M. Hanks, ]r. &cJ. R. Hanks, Trlbe under Trust: A Study ofthe Blackfoot Reserve ofAlberta (Toronto: Univ. ofToronto Press, 1950) at 5-14 andNative Rigbis, supra, note 240 at 124, and D.F.IC. Madill, Treaty Researcb Report: Treaty Eigbt(Onawa: Dept. ofIndian&NorthemAffairs, 1986) at 110 Be 111.

259 Ontario (AG.) \t BearIslandFoundation (1989), 58 D.LR. (4~ 117 at 135 & 136 (Ont. C.A.), afJinned bythe Supreme CoUttofCanada at [1991] S.C.R. 570 at 575, a1though noton the exact pointCor which the Court ofAppeal's dedsion is dted here. United States authorities ta similareJrect are discussedin N. ]essup Newton, "At the Whimofthe Sovereign: Aboriginal Tide Reconsidered" (1980) 31 Hastings L]. 1215. -112 - a somewhat less dear promise ofprotection against exploitation bynon­ native peoples. At a minimum, the practices wbich caused friction between the two groups in the past are to be addressed in the manner spedfted, witb the Cmwncast in the role ofmediator-restrainingthe pace and extent ofsettlement and ensuring genuine acquiescence by a majorîty of the natives whose interests would he affected to proposed dispositions of traditional territories. The terms ofthe relationship ace, however, expressiy made subject to change in a manner determined by the Crown.260

Inviting as it May he to interpret this instrument as the foundation of a comprehensive and permanent legal and political relationship between the Crown and native peoples, the construction ofthe Proclamation and the historical circumstances whicb brought it ioto existence maire it most unlikely that that was what was intended by its authors, oreven understood by aboriginal populations. Evidendy, Pontiac did not give it much credence.261 In view ofwhat was to come, bis skepticism was probably fully justified.

b. The resene system

i. CroWll/lndian reladonsbip between 18141: 1945

In fur trading days, natives were seen~eflyby the French-as partners in commerce.262 During the Seven Years' War, one group or another was essential to the success ofland war efforts conducted bybath

260 The arrangement could oolybe relied on "for the time being and until Our further pleasure becomes known.ft

261 L. Chevrette, "Pontiac" in G.W. Brown, ed., Dicttonary ofcanadtan Blograpby, vol. 3 (Toronto: Univ. ofToronto Press, 1966-) 530.

262 Sllyscrapers, supra, note 223 at 23-58 &t J.L Miller, "Introduction" inJ.R. Miller, ed~, SweetPromises: A Readeronlndtan-Wblte Relations ln Canada (Toronto: Univ. ofToronto Press, 1991) vii atxvi [hereinafterSweetPromises]. -113 -

French and British commanders. The British reUed heavily upon their native allies during the Revolutionary War.Z63 Indians fought on Britain's side througbout the War of 1812, andwere critical ta British success in tuming backthe American invasion. Native participation wu not, however, based onsome abstract notionoflayalty to European sovereigns.

Natives look part inthese essentially European contlicts when and to the extent that they felt that participation would serve their interests.264 French sovereignty was preferable to British sovereignty because the French came primarlly to trade, not to demand exclusive possession of native hunting grounds far agricu1tural purposes. As France's military fortunes began to wane, however, Britain seemed a better bet and native allegiances shifted accordingly. When their assistance was sought by the combatants ofthe Revolutionary War, Indian groups who felt that British promises ofrespect for native land rights in exchange for military support were more likely to he kept continued to support the British cause. The Americans' disregard for Indian land rights after the defeat ofBritish forces in the Revolutionary War, led natives living North ofthe border ofBritish North America and the United States to back Britain in the War of1812.

As long as there was an approximate unityofnative and non-native interests, the Crown bad an incentive to respect native rights. Once the Europeans resolved their dispute about who wu to govem North America and tumed their attention to settlement, however, the native population was subjeet ta exploitation at the bands ofa govemment by then controUed by non-native interests. Dy the mid-I800s, natives came to he seenas an

265 B. Graymont, "The Six Nations Indians in the Revolutionary Wu" inSweet

Promises, supra, note 262t 94 at 96. 264 1.R. Miller, "Owen Glendower, Hotspur, and Canadian Indian Policy" inSweet Promises, supra, note 262, 323 at 324 & 325. -114- obstacle to the orderlysettlement ofthe newcountry.us Maintaining the system bywhich the government distributed money, goods and equipment ta native peoples to secure their allegiance was no longer necessary. Annuity payments and presents came to he regarded as an unjusti6able financial burden. This change in oudookoccurred shortly after the conclusion ofthe War of1812.266

The thinking ofthe clay was broadlyassimilationist. Canada's native population would have to be brought to abandon their collective lifestyle, ta adapt the cultural values afthe majority and, (preferably), to da 50 quicldy. At a minimum, they had to he persuaded ta remove themselves from the path ofthe hoped-far waves ofimmigrant farmers, miners and ranchers expected to arrive at the tom ofthe century. The solution appeared simple. Ta stan with, the Indians had to he segregated from the majodtyofthe population bath to protect them from exploitation at the hands ofnon-natives and ta prevent their activities from interfering with the newcomers. Next, their social and economic evolution was to he "accelerated" until it reached the level oftheir new neighbors. Theywere ta he provided with the skiUs which would a1low them ta compete in the mainstream market economy so tbat they could become economicallyself· suffident. Afterwar

Z65 S1I.yscrapers, supra, Dote 223 at 172 & 273.

Z66 S1I.yscrapers, supra, note 223 at 79-98 and 267-276.

Z67 G.F.G. Stanley, "IntroduetoryEssay" inAL. Getty&A.S. Lussier,AsLongas the Sun SbffleS andWaterFiows (Vancouver: Univ. ofB.C. Press, 1983) 1 at 13 & 14 [hereinafterSun Sbfnes].

268 Once a persanwu found ta be a suitable candidate for enuy into non-native society, govemmentofficiais would issue a certificate ta mat etfeet. Upon the -115 -

The legislation which established the juridical relationsbip between the Crown and Canada's status Indians was developed during the heydayof the protection, ctvilization and advancement etfort. The federal government became the holder ofthe legal tide to lands reserved for aboriginal peoples. Neither the band for whom the reserve was set apart, not its individual members couldvoluntarily dispose oftheir land without Crown approval or participation. Non-members could not acquire interests through involuntary disposition. Govemment's decision-making power with respect to the uses ta which the reserves could he putwas to serve the palicy ofIndian self-sufficiency. The reserve served as a controlled environment in which the native occupants could he brougbt gradually ta adapt to the economic and culturallife ofthe non-native community.269 It a1so constituted a pool ofland which could he subdivided and conveyed to band members in severalty as individuallndians were persuaded to terminate their cultural adhesions. This palicy was supported byvarious versions ofthe Indian Act passed between 1868 and 1949, enactments which gave Indian.Affairs officiais sweeping powers ta regulate the everyday lives ofstatus Indians.

issuance ofthis certiftcate, the Indian and bis family became entitled to ail ofthe ripts and responsibilities ofdtizenship, including the riptto vote. Ingeneral, Canadian Indians were notentided to vote until the second balfofthe 20th century. Enfranchised Indians would aIso be entided to a conveyance in Cee simple ofa portion ofthe resetve set apartfor their former band. They aIso became entidéd to receive a lump sum payment in Heu offuture annuides. See, J.L. Tobias, "Protection, Civilization, Assimilation: An OutUne HistoryofCanada's Indian PoUcy" inSun Sbtnes, supra, note 267 at 39 [hereinafter "Protection, Civilization, Assimilation"). 269 A.G. Harper, "Canada's IndianAdmfDistradon: Basic Concepts and Objetives" [sic) (1945) América Indigena 119 at 132 [hereinafter "Basic Concepts & . Objectives"] andA.G. Harper, "Canada'sIndianAdministration: 'The IndianAct'" (1946) América Indigena 297 at 313. -116-

Generally speaking, Indians accepted the culturally neutral elements ofthis policy-the provision oflivestock and farm equipment and instruction inagricu1tural pursuits and the delivery ofhea1th services, for example-but theygreeted with stubbom resistance those which threatened traditional values.27o For Most status Indians, reserves were the sites withinwhich Indian societies were segregated, and in theory at least protected, from interference by non_Indians.271 They also constituted the main, and oCten the ooly, capital asset ofthe band for whose use and benefit they were set apart. From the Indian perspective, decisions affecting the use ofreserve land had to balance these two, oCten competing, requirements. The overall objective which bands sought to achieve in making decisions with respect to the use ofreserve lands was the maintenance oftheir traditional values, and not the dismemberment of their societies.

210 J.S. Milloy, "The Early Indian Acts: Developmental Strategy and Constitutional Change" in Sun Sbtnes, supra, note 267, 56 at 60 [hereinafter"The Early Indian Aas"].

271 This perspective was forcibly brougbt home to the govemment in the response ofstatus Indians to the 1969 White Paper on Indian Poliey. The White Paper had proposed repeal ofthe Indtan Act and distribution to individual members ofproperty-landand money-beld for the use and beneJit ofthe group to which they belonged. In Citizens Plus, described as the Red Paperon Indian Policy, status Indians were quick to pointout that individual Indians bad always had the opportunityto become "enfranchised" and obtain admission to non-Indian society along with their "share" ofreserve lands and band money. "But Most Indians prefer to remain Indians. We beUeve·that to be a goad useful Canadian we must first be a goad, happy and productive Indian .... " See, "Statementofthe Government ofCanadaon Indian Poliey, 1969" and "Citizens Plus, 1970," bath quoted in B.W. Morse, ed., AborlglnalPeoples andthe Law: Indûm, Metis andInuitRlgbtsin canada, rev. lited (Ottawa: Carleton Univ~ Press, 1991) at618-629. ForanAmedcan perspective, see F. Pommersheim, "The Reservadon as Place: A SouthDakotaEssay" (1989) 34 South Dakota L. Rev. 246 at254. -117 -

Govemment.. administrators had a d1fferent perspective. They, too, worked towards economic selt:suJBciency for native groups. However, earlyIndianAtfairs officiais viewed the communallifestyle adopted by most Indians as inimical to that goal. IfIndians were to become self-suffident, they had to he taugbt capitalist values-theybad to receive personally the produetoftheirown tabor, for example. Distributing wealth amongst those who did not contribute to its production was thought to discourage individual effort.272 Administrators appeared ta clismiss the possibillty of hamessing traditional values as a means ofattaining se1t:suJBciency and letting Indians decide for themselves whether, when and to what extent they were prepared to adopt non-native values.

Ifthe pre-WW II Crownllndian relationship were to he reduced to the few elements upen which there might have been agreement bad there been communication, the following picture would emerge. Most of Canada's status Indians remain in occupationofa sman portion ofthe territories which they occupied prior to contact. On the whole, individuals ftrmly reject the option, continually pressed upon them by the govemment, ofcultural assimilation with the non-native majority. Although the Indian Acts give status Indians an opportunityto have their land dealt with on tbeir behalfas iftheywere the holders ofthe maximum tide which the civil or commonlawallows, theyare unwilling ta deal with it in a waywhich is inconsistent with communitarianvalues. When tbey do dispose ofreserve land, they generaHy do 50 outofeconomic desperadon orout ofa desire to improve theircommunalexistence.

The govemment is the custodianoftide to this land, and it bas a veto in respect ofmany initiatives which Indians migbt otherwise considerfor zn S. Carter, "Two Acres and a Cow: 'Peasant' Farming for the Indians ofthe North-West, 1889-1897" in SweetPromises, supra, note 262, 353 at 355-360. .. 118 - their cultural and economic advancement. Govemment's primary aIlegiance appears ta favor predominandythe interests ofan electorate which does not sbare or value the aboriginal vision ofthe good life. The interests ofthe electorate are not direetlyopposed to Indian objectives, however, Just ta those which the majority sees ta be inimical to its interests-mostly, its economic interests. ACter ail, one ofthe benefits which it wu hoped that assimilationwould produce was the eliminationof an expensive administration whose sole purpose was cariog for a segment ofthe population who, in the viewofmost, ought ta have been taking care ofitself. Caught in the middle ofall this is the federal govemment. Its role, as in colonial times, was to mediate the contlicting interests ofthese two factions. Indian bargaining power has now decreased considerably. Indians would have to await a change in public opinion to press their case successfully. That opportunity arrived with the conclusion ofWorld War II.

ii. CroWll/lndian reladoDship after W\V U:l73

In 1946, the Canadian government estabUshed the SpecialJoint Committee ofthe Senate and House ofCommons to look into the operation ofthe Indian Act and the conductofIndian affairs. The Committee sat for three parliamentary sessions. It heard submissions from native groups from ail parts ofthe country and examined in detail all aspects ofadministrative policy and operations. Its members visited reserves, heard testimony from Indian leaders and IndianAffairs officiais,

~73 The Parliamentary history presented in this section is based on an unpublished report prepared for the Depanment ofIndian & NorthemAffairs in 1994 by S. Phinnie and E.M. Davies, historians employedwith the Depanment~s Lidgadon Support Direetorate, and on]. LesUe Be R. Maguire, eds., Tbe Hlstorical Dévelopmentollhe[nt/tan Act, 20d ed. (Ottawa: Dept. ofIndian Be Northem . Affairs, 1978) [hereinaCterDevelopmentofIndIanAct). The lega1 implications which 1 drawfrom this materla1 do not necessarily represent the views ofthe authors, the departmentor the govemment. -119- studied petitions from native organizations and interviewed experts in health care, education, and economic palicy.274 On 22 June 1948, the Committee de1ivered its fourth and final report to the Senate and the House ofCommons. Committee members pointed out that "[m]any anachronisms, anomalies, contradictions and divergencies [sic] were round in the [1927IndianAct]." They proposed that" ... with few exceptions, ail sections ofthe Act he either repealed or amended." The Committee favored banding over to Indians themse1ves more power to govem their own affairs. Specitically, they recommended,

(a) That the revised Act contain provisions to proteet from injustice and exploitation such Indians as are not sufficiendyadvanced ta manage their own affairs; *** (c) That greater responsibility and more progressive measures ofselfgovernment ofReserve and Band affairs be granted to Band Cauncils, ta assume and carry out sncb responsibilities; (d) That finandal assistance be granted to Band Councils ta enable them ta undertake, under proper supervision, projeets for the physical and ecanomie betterment ofthe Band members;

(e) That som Reserves as become suflidently advanced he then recommended for incorporation witbin the tenns of the Municipal Aas ofthe province in which they are situate;275

On 7 June 1950, W.E. Harris, the Minister responsible for Indian Affairs, introduced Bill 267, AnAct respectingIndÛlns276 ioto the House of

274 For a summaryofthe drcumstances surrounding the appointmentofthe Special]oint Committee and an outUne ofits activities, seeDeve/opmentof Indian~ supra, note 273 at 132-144.

275 SpecialJoint Committee ofthe Senate and the House ofCommoDS on the IndtanAct, Minutes 01Proceedlngs andEvidence, 1948Session (Ottawa: King's Prioter, 1948) (Co-chairs: W.H. Taylor & D.F. Brown) at 186 & 187 [hereinaCter Speda/jointCommittee Report]. -120 -

Commons. Extensive critidsmofthe provisions ofBill 267 came bath from opposition members and from the Indian community.277 The bill was withdrawn on 22June 1950 ta give the govemment a further opportunity to discuss its contents with native leaders.278 The Department wrote to " ... every Indian and Indian organization and to every non·Indian and oon­

Indian organization who had communicated ... about the bill.279 Representations were extensive. Departmental officiaIs interviewed a great many band councils and individual Indians.280

On 27 February 1951, Mc. Harris introduced Bill 79, AnAaRespecting lndians, into the House ofCommons.281 Bill 79 contained many ofthe changes sought by Indian critics and was clearly intended to impiement the major recommendations oftheJOint Committee of1946-48.282 With a view ta explaining the provisions ofthe new proposai direcdy to the Indian community and obtaining native views on the proposaI, the government invited 18 representatives ofIodian groups ta Ottawa ta meet witb the Minister and discuss the proposed legislatian. This meeting was held on 28 February, and on 1-3 Macch of1951. It was the tlrst meeting ofits

nd 276 2 Sess., 21st ParI., 1950 [hereinafter Bill 267]. See, Bouse ofCommons Debates (7June 1950) at 3329-3334.

277 Bouse ofCommonsDebates (21 June 1950) at 3936-3951 & 3962-3982.

278 Bouse ofCommons Debates (22 June 1950) at 3983 & 3984.

:!79 Bouse ofCommonsDebates (16 March 1951) at 1350 & 1351.

280 Spedal Committee ofthe House ofCommons on Bill 79, Minutes of ProceedinggandEvidence (Ottawa: King's Printer, 1951) (Chair: D.F. Brown) [hereinafterSpecial CommiUee Minutes). th :!81 4 Sess., 21- Pari., 1951 [bereinafter Bi1l79]. See, House ofCommons Debates (27 February 1951) at 713-759.

282 Spectal Committee Minutes, supra, note 280 at 14-22. -121- kind.283 Minutes ofthe meetingwere presented to Parliament prior to the second reading debate.2M

In 16 March 1951, the House ofCommons appointed a Special Committee to studythe bUl.2S5 As each clause ofBill 79 was referred ta this Committee for consideration, the Minister would list the comments made by those who bad attended the meeting of28 Febroary to 3 Match of1951, as weil as observations from individuals and organizations who bad corresponded direcdy with the Department.286 The Minister emphasized the degree to which the Bill's provisions were consistent with Indian preferences, and provided explanations for the fairly few occasions upon which theydiverged. On 20June 1951, Bill 79 became Canada's new Indian Aet.287 Apart from changes relating to band membersbip, taxation ofreserve lands occupied by non-members and enfrancbisement, the 1951 revision remains in force to this day.288

In certain respects, the new legislation was quite different from its predecessors.289 Provisions empowering non-natives to interfere with Indian cultural practices290 or social behavior291 were removed. The

Z83 Bouse ofCommana Debates (16 Match 1951) al 1351.

Z&l House ofCommana Debates (16 March 1951) al 1364-1367. :zas House ofCommonaDebates (16 Match 1951) at 1350-1360.

:za6 House ofCommonaDebates (16 Match 1951) at 1350 &: 1351. :za7 S.C. 1951, c. 29. - The current version is thelndlanAct, R.S.C. 1985, c. 1-5. :za9 Cf. "Protection, CivilizatioD, Assimilation," supra, note 268 at 52 &: 53, Deve/optnentofIntltan ~ supra Dote 273 al 149-162 andlndtan Reserves, supra, note 242 al 137. 190 Section 140 ofR.S.C. 1927, c.98 [hereinaCter "1927Act"] had probibited Sun Dance and Potlatch ceremonies. 291 Section 14OAofthe 1927Act made it an o8ènce for an Indianwho, "by inordinate &equentingofa poolroom ... misspends orwastes bis time or means -122 -

prohibition against furnishing natives with encouragement, financial support or expertise in connectionwith the formulation or presentationof land claims was eliminated.292 The most important difference lay in the increased autboritygiven band councUs. As recommended by the Special Joint Commission in 1948, band councUs were given more power to govem the day-to-day affiùrs oftheir reserves. Authority which wu formerly exercised bygovemment representatives with no requirement for prior consultation with or approval ofIndian bands or their representatives now required the consent ofthe band council. In many respects, the changes confirmed practices which had been adopted by Indian Branch officiais decades before. On 20 June 1951, however, they became a formal constituent ofthe CrownlIndian relationship.

The following table ilIustrates the differences between the authority ofband councils immediately before the introduction ofthe 1951 legislation and the legislation enacted during the period 1951-60, the period during which the changes proposed by the SpedalJoint Committee were incorporated ioto the IndtanAct.293

to the detriment of bimse~ bis family or bousehold .... " Section 140(3) made it an offence for an Indian to panicipate in aboriginalcostume in anyu ... show, exhibition, performance, stampede orpageant .... "

292 Section 141 ofthe 1927Act bad prohibited penons &am soUdtingor accepting money in conneetion with a claim. for aboriginal orland rigbts.

293 The Superintendent General ofIndian Affiûrs (abbreviated to Supt. inTable 1) wu the ministerofthe depanment having responsibWty for the CederaI. Indian Affairs Branch Cor the time being. (See, R.S.C. 1927, c. 98, s. 4.) The 1951 and . subsequentversions ofthelndianActreferred 10 tbis oftidal as the Minfster. (See, s.e. 1951, c. 29, s. 3.). ·123 •

Table 1 i 1937 Ad i 1951-60 Ad Membenblp Supt determines condusively who was enUded 1aand coundl can protest inclusion of person to he amember of a band, subject only to an 1whose name appears on band's membership appeal to the Govemor in Couneil (s. 18). Illst Coundl cao appeal to the courts Cs, 9),

PermissioD te use, occupy or exerdse rights OD reserves Supt. has unfettered right to permit use or ~ Min. may grant rights of use and occupation of occupation of reserve land by non-members 1reserve lands to non-members for ilyear, or for

(s. 34). f longer if band couneil consents (s. 28(2». : AIIotmeDt of exclusive possesSiOD of re5e"e IaDd te memben Band or band councO can make !Only band couneil can make aUotment allotment (s. 21). i (s. 20(1». : ConvocatioD ofsurreader meetiDgs ontySupt. or Gov. in Couneil cao convoke band ~ Band couneil or Min. cm convoke surrender meetings to consieler 50rrenders (s. 51 (1) . 1meeUngs(s.39(1)(b». i Timber Liceases

Supt. cao grant licenses to harvest timber on f Min. cao grant socb Ucenses ifempowered by reserve land (s. 76). 1regulation, but only widl consent of band 1coundl (s. 57(a». ~ ImpnvemeDt ofUaused or Uaculthated Reserve LaDd Supt. cao unilatera1ly arrange for cultivaUon of f Min. cao malœ som arrangements and apply f 50m land and apply band's capital money to ~ band's capital money to defrayexpense5, but : defrayexpenses (s. 93(3». 1onlywith the consent of the band coundl 1(5.58(1». ~ i ~ : : i f : -124-

Table 1 1937 Ad 1951-60 Ad

sales ofNoa-Me1I1Uc MiDerais o.Raenes Supt. can grant Uœnses to remove sand, grave! i Min. can dispose ofsum substances, but only or soU (s. 118(1). 1with co~t of band coundl. Min. ma, grant : 1temporary permits when consent cannot he : i obtained quicldy (s. 58(4». ! bpeoditure ofBaod's ~pital Moaeys Gov. in Couodl cao authorize expenditure of 1Min. cao authorize and direct sucb band's capital moneys for Iisted purposes. 1expenditures for simi1ar purposes, but consent Band councl1 approval oo1y required in a few 1of band councll required in ail cases (5. 64). cases (ss. 92 &93). 1 ., ._; bpenditure ofBaod's Reveoue Moaey! Gov. in Council could authorize and direct the ~ Min. cao authorization and direct expenditure, expenditure of band moneys as long as they 1in the specifie circumstanees Iisted in the reasonably believed it to he in the best interests ~ legislation, but 001, with the consent of the of the band (s. 91). 1bandcouncil (s. 64(1». : AdJustIIlent ofCootnds Gov. in Coundl could reduce the purchase 1Min. is given similar powers but he ma, not priee or interesl payable in respect of i exercise them unJess the band coundl : surrendered land Band couneil consent oot 1consenlS (5. 59(a». required (s. 91). ~ ~ 7.oDing Act did not provide for zoning b,-Iaws or for Band cooncil authorized to enact som b,-laws, bylaws regulating the use of business on the subject to the Minister's approwl reserve. (s. 8O(l)(g) &: (h». -125 -

Table 1

! 1927 Ad [ 1951-'0Ad ElpladedJurisdidioa 1Gov. in Coundl could authorize band couneil to 1enact by-Iaws providing for and assessment of 1 . 1reserve land, the Ucensing of businesses t t ioperating within the rrserve...Counm could 1also employ managers, accountants, etc., ~ (s. 82). e Gnou of Rese"e Lad te IDfrucbised radians Supt could have letters patent issued conveying 1Min. given similar powers, but ooly with band portion of reserve land to enfranchised Indian , council consent (5. 110(2)-(4». locatee (5. 110(8». !

As Table 1 suggests, the govemment had taken up most ofthe recommendations made bytheJoint Committee.294 Important obligations with respect to reserve managementwere turned over to the band council. Parliament maintained control by providing that oftldals were inserted ioto important decision-making processes in such a way that theywould he able to see first band wbat was going on. Officiais were given a veto over band and band councU decisions to prevent improvident transactions and exploitation,295 particularly, one assumes, ofbands deemed "notsuftlciently advanced to manage their own affairs.,,296 More important, however, band councils gained a new prominence and an increased mandate. The scope for

Z94 SpedalCommlneeMinutes, supra, note 280 at 14-22. Z9S Blueberry River, supra, note 5 at 370 & 371. Z96 SpedalJolntComminee Report, supra, note 275 at 186 Br 187. -126-

unilateral action bygovemment officials over reserve affairs wu significantly reduced bycomparison with the structure which existed prior to 20June 1951. Band cOUReil approval was now required for virtuallyany importantdecisionwhich affeeted the management or administration of the reserve. As Minister Harris proudly emphasized inbis address to the

Special Committee ofthe House ofCommons,297 the dedsions which may he taken by the Ministerwithout band council had been redueed from 78 to 58, and by the Govemor in Couneil, from 82 to 26. Status Indians were slowly gaining control over the management oftheir affairs.

In the second halfofthe 20th century, then, the Crown/lndian relationship is verydifIerent from that ofguardian andward, a reJatiooship ta which it has frequendy been compared.298 Undoubtedly, government officiais have power ta veto important initiatives which bands or their councils might otherwise attempt ta pursue, just as they had under the 1927 legislation. The Crown also holds the legal tide to reserve land. After 20 June 1951, however, much ofthe control fonnerly vested in the Govemor in Couneilorin the SuperintendentGeneral is shared between the Minister and the band councüs. Cultural assimilation has long since ceased to he a legitimate objective; economie integration bas become the official policy.299

4. GurI" Revisiteel

The Guerin decision provides confinnationofthe change whicb bad taken place in the Crown/lndian relatiooship between the assimilationist

297 Special Committee Minutes, supra, note 280 at9. 298 "Fiduduy Duty Be Indian Tide," supra, note 7 al 590-592. Not an commentators share this viewofthe relationship. See, F.S. Cohen, HantlbooII of FederalIndianLaw (Washington: U.S. Gavt. Printing Office, 1942) at 169-173.

299 House ofCommonsDebates (1~ Match 1951) al 1350. -127 - years ofthe Iate 1800s and the end ofthe second World War. The need for the application ofthe doctrine offiduciary obligation to proteet the relationship is not immediatety apparent, bowever, and it is important ta examine the Caets ofthe case carefully to understand whyandhowits application presentedthe ooly reasonable option. Guerin also bas its Umitations as justification for the variety ofIawsuits which it is alleged ta support, althougb these limitations were largely ignored in the euphoria which followed its publication. These limitations are oolydiscemible from a careful analysis ofthe facts uponwhich the decision was based.

The Musqueam Indian reserve is situate along the southwesterly edge ofthe Point Grey peninsula in Vancouver, British Columbia. The reserve is a short drive from the city center and is surrounded by undeveloped park land. The land was, and still is, 'very valuable as a residential site.300 In 1955, the band population was small,301 and the entire reserve302 was not used for residential or commercial use. Local IndianAffairs officiais suggested that the unoccupied part ofthe reserve be leased on a long term basis and that revenue from the lease be made 303 available ta the band. Headquarters agreed and, after commissioning a real estate appraisal ofthe land, local officiais opened negotiations with the Sbaughnessy Heights Golfand Country Club, a country club whose

300 Guerin v. R. (1981), [1982] 2 P.C. 385 at 432 (F.è.T.D.) [hereinafter"Guerln­ Trlal"]. 301 Guerln-Trlal, supra, note 300 at 389: 235 people. 302 Guerin-Trtal, supra, note 300 at 389: Musqueam Reserve No. 2 wu 416.5 acres in area. J03 R. v. Guerin (1982), [1983}2 P.C. 656 at663 & 664 (F.CA) [herefnafter "Guerin-Appear]. -128 -

direetors had expressed interest in leasing part ofthe reserve for its golf course.304

Negotiating a long-term lease with a golfclub migbt seem an unusual way to market prime residentialland but, from the start, IndianAffairs appeared detennined to plant a golfcourse in the middle ofthe development. In fact, the idea ofleasing to a golfclub actuaRy preceded the discovery ofa prospective tenant who wanted to rent a site for its golf course.305 The reasons can, perhaps, he inferred from the written justification local officiais provided ta their superiors in Ottawa. What IndianAffairs had in mind was duplicating the highly successful British Properties development in West Vancouver,306 which had also used a golf and country club to attract wealthy home buyers to its up-market residential development. Carefully planned, the Musqueam development could offer the same park-like settings and speetacularviews, but without the rush-hour traffic. The golfcaurse would provide the centerpiece and set the tone, and the grounds would he groomed and maintainedwithout cast ta the develapment.

Another factor which may have required a loss leader to induce people ta invest in upscale hausing wu the mct that the residentiallots were not to be sold to buyers. The Indians would never have permitted a permanentdisposition ofsuch a large portion oftheir reserve. Buyers

3CM Guerin-Trial, supra, note 300 at 394-396.

305 Guerln-Appeal, supra, note 303 at 664. IndianAffiùrs officiais inboth Vancouver and Ottawa were discussing the possibilltyofa golfcourse lease as a development possibility as early as October of1955. The club which aaually leased the lands did not stanlooldng Cor an alternative site until1956. 115 exisdng tenant.ydid Dot expire UDtill960. OfBcers ofthe lessee club had their ftrst meetingwith Indian Affiùrs ofBda1s in Februaryof1957. See, Guerln-TrlaI, supra, note 300 at 392, 394 &t 395. 306 GuerIn-Trial, supra, note 300 at 390. -129- would have ta be induced ta bund expensive homes on lots ofwhich they had ooly99-year leases. Leasehold residentiallots are still not commonin western Canada, and theywere certainly uncommon during the Iate 19505.307 Ta increase problems further, residential properties on the other side ofthe peninsula were aIso 1ike1y ta appear on the market at about the same time as those in the Musqueam subdivision.308

Before IndianAffàirs could proceedwitb its development, however, the Musqueam band would have to be persuaded ta surrender the portion ofits reserve which would be required for the subdivision. Local officiaIs seemed ta feel that obtaining a surrender would he problemattc.309 They appeared to have little confidence in the entrepreneurial savvy ofthe band or its councU.310 The role ofthe Indian Affairs Branch, as District Superintendent F.E. Anfield seemed to see it, was ta do what was necessary ta release the land from the Indians' control so that the Department could carry out their plans for their reserve.311 The band's resel'Ve development palicy, up to the tinte that IndianAffairs conceived its subdivision plan, wu to allot small parcels to members, who were then Cree to lease to non· members. Mr. Anfield said that this praetice was 50 iIl-advised that it could

307 Guerln-Appeal, supra, note 303 at 666.

308 Guerln-Trlal, supra, note 300 at 432 & 433.

309 As Mt. An.6eld put il, " ... somevery realisdc and immediate plans must he fonnulated to bring about the stated wish ofthese Musqueam people .... " (Guerln-Trlal, supra, note 300 at 390). Actua11y, at the tilDe he wrote dUs, the stated wish ofthe Musqueam people seemed ta he to aIlot individual parcels to members. What he probablymeantwu thatthe Indians bad ta he sold on the idea ofa non-native residential subdivision which would de up 75% oftheir reserve for the next 100 years. 310 Guerln-Trlal, supra, note 300 at 394, 395, 409, 410.

311 Spedfically,"to bringabout the sutedwishofthese Musqueam people": supra, note 309. -130 - ooly end in "economic disaster" for the band.312 This preoccupationwould make any"workable negotiadons" inwhich band membets might participate "practically impossible.,,313

As ifthat were not enough, IndianAffairs seemed to think that the proximityofthe proposed subdivision to the part ofthe reserve occupied by band membets would itselfdiscourage prospective home-buyers. Mr. Anfteld felt that this problem could ooly he solved by forcing the Indians to shape up or ship out. He suggested the establishment ofa "modelvillage" located at the extreme westerly boundary ofthe reserve. Alternadvely, members might have to move offthe reserve entirely.314

The seeds ofthe legal problem which was to follow were sewn in the conviction ofIndian Affairs officiais that neither band members nor their council were capable ofmeaningful participation in the commercial development oftheir reserve and that the Department was, therefore, justified in denying them any role in the decision making process.315 This was a reversai ofthe palicy ofgranting " ... greater responsibillty and more progressive measures ofseffi.govemment ofReserve and Band affairs ... ta

Band Councils, to assume and carryout such responsibilities.,,316 The District Superintendent saw the surrender as a license to implement the departmental deve10pment scheme regardless ofIndian wishes. He brought it about by plumping the golfcourse lease as an investment in its

312 Guerin-Trial, supra, note 300 at 390.

313 Guerin-Trial, supra, note 300 at 390. 314 Guerin-Appeal, supra, note 303 at 663 & 664.

315 Guerin-Trial, supra, note 300 at 409 & 410.

316 Guerln-Trlal, supra, note 300 at 411. As the Trial]udge put it, "At that time and for manyyean before, according to the evidence, a great numberofindian Affiûrs' personnel, vis-a·vfs Indian bands and Indians, tooka paternaIistic, albeit weU-meaning attitude: the Indians were children orwards, Cather Imewbest.ft -131- own right,317 and then proceeded ta depart from the principles upon which he had sold it ta the band.318 The band councft was excluded from these negotiations. Theywere not even given a copyofthe lease. Despite numerous requests, its terms were not disclosed to them during the 12­ year period following completion ofthe transaction.319

In the end, the Department succeeded in estabUshing "British

Properties West,rt known locally as the Musqueam subdivision. Today, the development area is occupied by an upscale residential subdivision which is the equal ofany in lower mainland. It is certainly the equal ofits "famous counterpart inWest Vancouver." The residentialleases come ta an end about 2060, when the band retakes possession ofall properties.

Taken in isolation, the golfcourse lease is undoubtedly a poor investment. As an element ofthe larger undertaking, its commercial benefits are more debatable.320 What is important for present purposes is that the govemme!lt was not condemned by the judiciary for having made a bad deal, but for having ignored the understanding upon whicb it had secured Indian consent to the lease.321 The result was that the Musqueam were compensated on the basis ofthe development potential ofthe land lost by the commitment ta the golfclub. That potential was calculated without regard ta the Cact that land values had been increased br the existence ofthe golfcourse,322 and witbout regard to the Cact that values

317 See, e.g., the extraet fromAnfield's address to tbose present at the surrender meeting inGuerin-Appeal, supra, note 303 at 677.

318 Guerin-Trial, supra, note 300 at 412 Be 413 and Guerln-Appeal, supra, note 303 at687. 319 Guerin-Trial, supra, note 300 at 418 Be 419. 320 Guerln-Trlal, supra, note 300 at 437.

321 Guertn-Trlal, supra, note 300 at425. 322 Guerln-Trlal, supra, note 300 at 437. ·132· rose dramatically after 1958 because ofa remarkable increase in demand for residential properties. The increased demand could not have been witbin the reasonable contemplationofthe parties at the time the lease was executed.323

The award combined compensation and deterrence in classic tlduciary terms.324 It appears to have been aimed at demonstrating to public officiais how far they had strayed from the principles ofthe legislation they were supposed to have been administering. While govemment officiaIs had not acted dishonesdy, they had betrayed the legitimate expectations ofband members. The decision confinns the terms ofthe relationship recommended to Parliament in 1948 and incorporated ioto the Indian legislation ofthe 1950s-lndian bands were, through tbeir counclls, to assume greater responsibilities and a greater measure ofself· government over their own affairs. The bureaucracy's role was to proteet against exploitation ofIndians whose level ofeconomic integration wu not sufficient to allow them ta protect themselves. Inevitably, the terms ofthe relationship would have to he worked out separatelywith each native community. The exercise would requite communication, conunitment to the process and, above aD, candor, the hallmark ofthe fiduciary relationship.

5. CoDclustoD

The Crownllndian relationship, in 50 tàr as it is relevant to the managementand administration ofreserve land, requires that govemment

323 Guerln-Trlal, supra, note 300 at435.

324 As opposed ta punitive damages, which the TriaiJudge decUned to impose beause there was no evidenœ ofoppressive, arbiuaryor higb·handed condùe:t or"&aud in the sense ofdeceit, dishonestyormoral turpitude" on the partof

IndianAffairs officiais. (see Guerln-TrIal, suprat note 300 al 443 Br 425.) -133 - authorities restriet the exercise oftheirstatutory powers to preventing exploitation ofstatus Indians. TheIndianAct in force tadaystill provides for govemment supervision ofreserve land transactions. The continued presence ofthese provisions is not to he taken as a license for a retum to the patemalistic policies ofthe past.325 The bistorical justificationfor tbeir existence lies in the benign conviction offederallegislators ofthe 1950s that there were groups "not sufficiendyadvanced to manage their own affairs.,,326 A majority ofthe Indian representatives who attended the historic meeting of28 Febmary to 3 March of1951 apparendy agreed. The thrust oftheir criticisms ofBill 79's reserve land sections was that band councils should a1so he able to initiate development proposais or veto departmental initiatives, not that an govemment review should he eliminated.321

Apart from preventing improvident dealings and using its statutory powers, where necessary, to carry out properly transactions which it has accepted, the govemment does not become the guarantor ofthe wisdom of non-exploitative Indian initiatives.328 The power given to the band councll to initiate reserve land dealings and veto government proposais cardes

325 That is surelythe tesson to be drawn from the Guerin decision. 326 Spectal]olnt Commtnee Report, supra, note 275 at 186 & 187 and Special Commtttee Minutes, supra, note 280 at 4.

327 House ofCommonsDebates (16 March 1951) at 1364-1367. This is a point overlooked bycommentators who argue mat the 1951 IndlanAct did not differ signiftcantly &cm previous versions. sec, e.g., lndtanReserves, supra, note 242 at 137, DevelopmentoflndtanAct, supra, note 273 at 149, "Protection, Civilizadon, Assimilation," supra, note 268 at 52 & 53. 'Ibis is not an exaggeration &am a purelysupertldal pointofvfew. A carefuI analysis ofthe amendments and the historical events wbich generated them, however, suggests tbattheAct bad changed signiftcantly. At least, tbatwu the conclusion which the TrialJudge reached inGuerin. Unfortunately, itdid not seem to bave occurred to Cederai administrators fnvolved in the Musqueam Parkdevelopment. .

3Z8 Blueberry RIver, supra, note 5 (decided underthe1927Act). -134- with it the responsibility to investigate and evaluate the advisabllity of individual transactions from the point ofview ofthe eonstituency the couneil bas undertalœn ta serve. Ta the ext~nt tbat that responsibllity is taken up by band eouneils, government responsibllity is diminisbed. Members have recourse to the courts for the failure ofthe couneil ta discharge its responsibillties ta them. The couneil, itself, owes fidueiary obligations ta the band in respeet ofits conduet ofband affairs.329

The ultimate control over certain reserve land dealings which the Indtan Act vests in the federaI govemment presents officiais with an opportunity ta exploit Indian interests, that is, ta use their power to veto Indian initiatives in a manner inconsistent with reasonable (in this case, parliamentary) expectations. To the extent that Parliament maintaïns existing contrais by statute, the opportunity for exploitation is inherent in the Crown/Indian relationship.330 ln chapter 4, 1will examine the exploitative opportunities which arise in three specifie types ofreserve land transactions and suggest the content ofthe fidueiary obligations needed to prevent exploitation ofIndian interests.

~29 Gilbert v. Abby, [1992] 4 C.N.L.R. 21 (B.C.S.C.). ~30 l do not mean to imply bere tbat, deprived ofgovemment review and approval ofproposed tnnsaetions, status Indians wouldbe easy preyfor speculators. The eurrent statutorydefinition ofthe CrowuIIndian reladonship requires tbat officiais provide this service, needed ornot, and, until the . legislation is amendedorrepealed, Indians and IndianAfrairs wiU have to manage tbeir respective mies wim as much pace as eam an muster. CHAPTERIV

THE CROWN'S FlDUCIARY DUTY TO INDIANS

1. Introduction

In chapter 1 ofthis thesis, [ argued that the doctrine offiduciary obligation is more legislative than interpretive. Specifically, it represents a technique for amending and supplementing the body ofjudge-made legal and equitable ndes generally referred to as the common law. The function ofthe doctrine is to preserve the integrity ofuseful relationships not adequately regulated through othersources. Besides being its greatest strength, the doctrine's legislative ambition is also its greatest weakness. One ofthe most important objectives ofcivillaw is to enable lawyers to incorporate juridical principles into advice to individuais seeking to regulate their dealings with one anotherwithout recourse to litigation. To achieve this result, outcomes ofindividuallawsuits must be capable of rationalization on the basis ofexplicit principles which can be applied in simUar circumstances. Any technique designed to facilitate the creation of rules not contemplated by existing doctrine is bound to run afoul ofthis requirement for replicable judicial reasoning. Opinions as ta whether a relationship not previously declared ta he tiduciary will he regulated through the doctrine offiductary obligation will always be subjeet to a large margin for error.

It is not necessary ta speculate as ta whetheror not the Crownllndian relationship is tlduciary. This reIationship bas been authoritatively held to require the imposition oftlduciary obligations.331 Here, the challenge is to identiCy the obligations which will he imposed to

331 Guerin, supra, note 1. -136 - preserve the integrity ofthis relationship, and to determine the manner in which they will he adapted to serve this purpose.

In chapter 2, 1describe the way inwhich the doctrine is applied to repte those relationsbips which, by legislative or judicial fiat, must be regarded as fiduciary. 1 argue that there are really two situations which the law must address-fust, cases in which the obligations required for the protection ofthe relationship should have been obvious ta the party or patties against whom the claim is made, and cases in which the evidence establishes that there is only one obligation likely adequate protection; second, cases in which it would not he fair for the court to dictate the terms ofthe relationship after the fact.

In the fust class ofcases, courts simply impose the necessary obligations.332 [n the second, they declare the dependent party or parties entided to timely notice ofany decision, by those upon whom they depend, to deviate from the standard ofservice required to generate the benefits generallyexpeeted fram such relationships, and entided to complete disclosure ofall circumstances relevant to that decision. It is this entidement to candorwhich gives the doctrine its vaguely moral cast. At that point, the lawexpects the parties to confinn the original arrangement, re-negotiate its terms or terminate it altogether. Falling disclosure and

332 InDreaverv. R. (1935), 5 C.N.L.C. 92 (Ex. Ct.), for example, the Mistawasis band sought to have Canada repay sums wrongfully deducred from the band's capital account byIndian.Affairs offieials. While some ofthe amounts claimed represented reimbursement for payments made bythe govemment in conneetion with the administration ofthe band's afiàirs, no enaetment, treaty or surrender required the band to reimburse the Crown for such payments. Other deduetions represented the costofmedicines, drup and medical supplies provided to members. Under the terms ofa treatybetween Canada and the band, Canadawas obliged to supplythese items to members without charge. The court nded that the Crown held the funds in trust for the band and ordered repayment. .. 137 - arms length re-negotlation, the fiduciary is obliged to conduct himselfin a manner which, in the circumstances, is most likely ta gain for the dependent party the benefits which such relationships are generally expected ta generate.333 Imposing soch a standard is not unfair because the party ofwhom it is required could have avoided ever having to perform simply by notifying the other in a timely way ofbis intention ta deviate from the expected level ofperformance. Unfortunately, the doctrine of fiduciary obligation is much more difficult to apply than ta describe. Apart entirely from the obscurity generated by its oblique objectives, its application is unavoidably eccentric. This is because the scope ofthe doctrine often depends upon the availability ofadequate relieffrom other sources and not upen principles which cao be deduced from the doctrine offiduciary obligation itself. Wherever a doctrine which is based upon replicable judicial reasoning provides adequate regulation, that doctrine is applied in preference to the imposition offiduciary obligations.

The tirst step in determining what fiduciary obligations will be imposed in respect ofa given relationship is to identify the benefits which the relationship is expected to produce. In chapter 3, 1examine the relationship between the Government ofCanada and Canada's status Indians in sa far as it is relevant to the management and administration of reserve land. [argue that the govemment's role is, generally speaking, mediatory. Its objective is to facilitate a reconciliadon ofthe demands of Canada's native peoples, on the one band, and those ofthe non-native community, onthe other, as to the role which native peoples are to play in Canadian society. Over the years, govemments have tried to achieve this goal in a number ofcWferent ways. The British sought to separate the two

333 As discussed in chapter 2~ special accommodation is made in respectof cenain classes ofbenefidaries. -138· communities by canfining each to a different geographicallacation and leaving the natives to govem themselves. British and, later, Canadian administrators med to induce natives ta assimilate cu1turally and econamically with the nan-native majority. ACter WW fi, the federal government limited its efforts ta anempting ta achieve integratian ofnative econamies and the surrounding non-native economy. At the moment, the country is negotiating agreements with status Indians for a measure ofself­ government.334

A comprehensive and stable reconciliation ofcompeting interests­ whatever form it May take-requires a careful assessment by each party of its negotiable and non...negotiable interests as weIl as an informed consent to the impact upon those interests ofany commitments required bya given settlement. Any likely reconciliation will inevitably require aboriginal peoples ta make a compromise between cultural autonomy and economic self-sufficiency. Oo1yaboriginal peoples themselves have the moral authority ta make soch a decision. Until native groups are in a position ta commit themselves permanendy to a given arrangement, they would he better advised ta avoid unnecessary undertakings which foreclose likely options. Transactions requiring such undertakings are improvident in the sense that they fail to take long term social consequences into account. There is, however, another sense in which a transaction may be improvident. It May represent the dissipation ofthe capital resources ofa native group-leasing reserve land for less than its fair market rentai value or selling it for Jess than it is worth, for example. Both types oftransactions are improvident in the sense used in the Blueberry River case, and bath

334 See, e.g., British Columbia, Canadaand the Nisga'a Tribal Council,Nisga'a Treaty NegotiationsAgreement lnPrinclp/e, (Vancouver: 8.C. Queen's Printer, 1996) at 65-80 [hereinafterNtsga'aAgreement ln Princip/el. -139 - require that preventative measures be taken ta avoid adverse consequences 335 for native peoples • The benefits which status Indians can reasonably expect from tbeir relationship witb the federal govemment is protection from bath types ofimprovidence. Indians should he able to count on the government to provide protection ifand to the extent that Indians' lack of familiarity with the non-native economy prevents them from appreciating the social or economic impact upon them ofa given reserve land transaction for which their consent is required. In screening out improvident reserve land dealings, protection usually consists ofadvice or, as a last resort, a refusai ta allow the transaction ta proceed. Where the government has undertaken ta implement a reserve land transaction, protection against improvidence includes ensuring that the transaction is carried out with diligence and prudence.

ln sa far as the management and administration ofreserve land is concemed, Canada still holds considerable legal power. At least in theory, every significant Indian initiative involving reserve land is subject to Crown review and veto. Superficially, Indian legislation seems almost as patemalistic as it was during the assimilationist period ofthe late 1800s. However, the parliamentary history ofthe Indian Aa of 1951, which forms the basis ofthe current legislation, suggests another reason for the

335 InBlueberry River, supra, note 5, the Court considered the band's decision to sen farmland in exchange for homesteads in locations more convenient to traplines and hunting grounds and held (at 362 & 363 per Gonthier, J., and at 371per McLachJin, J.) that, given the band~s chosen lifestyle, their decision was not improvident. The majority also ruled (at 364) that IndianAffiùrs officiais bad violated their fiduciary obligations ta the band in f.ùling to reserve minerai rights &om the grant to the Direaor, the Veterans LandAct. McLachJin, J. held that the original conveyance ofthe minerai rights wu not a breach because IndianAftàirs had no reasan to think that the rights bad anyvalue. She held, bowever, (at 401) that lndianAftàirs bad violated its fidudary obligations in filiIing 10 rescind the conveyance ofthe minerai rights once they bad reason to believe that they might he valuable. -140 - retention ofthese remnants ofpast palicies. IndianAffairs officiais, and the native community itseIt: recognized at the time the Act was being debated that there were groups who still required government protection.336 With that reservation, the 1951 legislation appears to contemplate a steady devolutïon ofpowers ofself·regulation from government officiais to Indian bands.337 A purposive reading oftheAct indicates that it should be interpreted in a mannerwhich favors informed Indian decisions over govemment policy. Such an interpretation was applied in Guerin, which stands as a authoritative confmnation ofparliamentary intenta

336 Between 1952 and 1954, forexample, most British Columbia band councils were primarily legitimators ofmeasures and decisions taken from outside the band and cbanneled through Indian Affilirs officials. Even as late as 1966, the most important funetions aetually performed by band eouncils across Canada were representative and intermediary, rather than directive and adaptive. See, H.B. Hawthom, ed., A Survey ofthe Contemporary [ndtans ofCanada: A Report on Economte, Po/tttea/, Edueattona/Needs andPo/tdes, vol. 2 (Ottawa: Indian Affilirs Branch, 1966) at 192 & 193 [bereinafterSurvey ofCanadtan[ndtans].

337 See, e.g., ss. 60(1) and 68(1): 60. (1) The Govemor in Couneil may at the request ofa band grant to the band the right to exercise such control and management over lands in the reserve occupied by that band as the Govemor in Couneil considers desirable. *** 68. (1) The Govemor in Couneil may by order pennit a band to control, manage and expend in whole or in part its revenue moneys and mayamend or revolœ any such order. •*. 83.... where the Govemor in Councildeclares that a band bas reached an advaneed stage ofdevelopment, the eouncil ofthe band May, subjeet ta the approval ofthe Minister, make by-laws for ... (a) the raising ofmoneyby (i) the assessment and taxationofinterests in land in the reserve ..., and (il) the lieensing ofbusinesses .... -141-

The second step indetermining what obligations will be imposed is to identify unregulated opportunities inherent in the structure ofthe relationship itselffor one or more ofthe parties to exploit the interests of another orothers. Opportunities for exploitation merit judicial regulation whenever ther threaten the integrity ofthe relationsbip-whenever they create disadvantages for beneficiaries which materially offset expected benefits. In chapter 2, 1argued that such opportunities arise whenever one or more ofthe parties expects to gain more by departing from the expected standard ofperformance than by adhering to it. The possibility ofprofit from non-performance is, no doubt, a feature ofa great many relationships, fiduciary and otherwise, but the possibility will ooly be seen by fiduciaries as an opportunity when they have reason ta believe that their conduct will not be effeetively monitored nor their judgment seriously questioned. This situation exists in eonneetion with the government's role in reserve land transactions.

As described in chapter 3, Parliament has given to the Minister of Indian Affairs and to the Govemor in Couneil what amounts to a statutory veto avec Indian initiatives for the purpose ofprotecting natives against exploitative transactions.338 In addition, govemment officiais have the

3~8 Blueberry River, supra, note 5, where the Govemor in Council accepted an absolute surrender ofreserve land for sale orlease. The Crown sold the land to the Direetor, the Veterans' LandAct, to provide fanns for retuming veterans. Mineral tights were not reserved from the grant, as dietated by Indian Affairs' poHcy ofthe clay, with the result tbat they passed to the Director, and thence, to individual grantees. A fewyean after most ofthe reserve had been sold, huge deposits ofoil and natura! gas were discovered in the vicinity ofthe former reserve and, for the first time, IndianAffairs officiais investigated the state ofthe tide to the minerai rights, on1y to ftnd that they had been conveyed to the Direetor. Tide to some ofthe lands and minerais remained in the Direetor at the tinte the mistake came to the attention ofofficiais, however, and the Superintendent General muid have canceled the tranSfer ofthe minerai rights in the remaining conveyances pursuantto s. 64(1) oftheIndian Act, R.S.C. 1927, c. 98. Officiais inadvertently overlooked this option. The majorityofthe Supreme -142 - power to initiate certain dealings,339 and, in a few cases, to proceed without band or band council approval.340 Bands are not always privy to the decision-making process and May oCten he unaware ofthe consid~rations which drive government action. People-natives and non-natives alike­ whose need for outside assistance is predicated upen their lackof knowledge or experience with the subject for which assistance is required, have linle alternative but ta accept the judgment ofthose who provide it. The Crown's motivation for deviation from expected standards-the government equivalent ofthe "profit" motive in commercial cases involving fiduciaries-will seldom come in the form ofa secret commission or money payment. Inducements sufficient to motivate the government itselfta violate fiduciary obligations are more likely ta be political. For example, Canadian govemments have and will continue to be tempted to prefer the interests ofthe non-native majorityover the Indian minority. This temptation may be retlected in a fallure to examine critically the impact upon treaty orconstitutional undertakings oflegislative or economic policies which favor non-native interests.341 It may result in approval ofthe

Court ofCanada held the Ccown liable ta compensate the band for its failure ta reserve the mineraI rights. AIl judges held the Crown liable for its failuce ta cancel the conveyance ofthe minerai rights once the mistake was discovered. Madam]ustice McLachlin speaking for Cary and Major, ]J., said (at 371) that a failure to prevent a foolish or improvident decision amounts to exploitation. The majority did not discuss this pointspecifically although they agreed, in general, (at 354) with McLachlin,].·s analysis.

339 Section 28(2) oftbelndtanAct provides that" ... [t]he Minister may authorize the use oflands·in a reserve for the purpose ofIndian schools, the administration ofIndian affairs, Indian burlal grounds [and] Indian health projeets.

340 Section 35(1) ofthe lndtan Act provides that the Govemor in Couneil may authorize the compulsory acquisition ofreserve land. The statute contains no requirement for consultation with band members orwith the band coundl

341 InSparrow, supra, note 3, at 1108, Chief]ustice Dickson and Mr.Justice LaForest, writing for the six-judge panelwhich heard the case, observed that: .. 143 .. compulsory acquisition ofreserve land for projects which unfairly burden native groups for the benefit ofnon-natives. Political temptation such as that described above tends to act on the government as a whole. The doctrine oftiduciary obligation, however, aIso imposes vicarious liability on government for breaches by individual public servants.342 The motivation for such breaches is seldom political. Examples would include witbholding information for the purpose ofavoiding disclosure ofnegligent conduct.

In chapter 4, 1examine the fiduciary obligations ofthe government to the various parties involved in the allotment ofreserve land-the band members, the band couneil, the locatee and those to whom the location is transferred, bequeathed, transmitted or leased.

2. A1lotment of Unsurrendered Resenre Land a. The a1lotment process

The earliest federai statute providing for the allotment ofreserve land to individuallndians was the GradualEnfranchisement Act of 1869.343 AlI future versions ofthe Indian Act made provision for the allotment ofreserve land ta members ofthe occupying band. At first,

In our opinion, Guerin, togetherwith R. v. Taylor andWilliams ... ground a genera! guiding prindple for s. 35(1). That is, the Government has the responsibility to act in a fiduciary capadtywith respect to aboriginal peoples. The relationship between the Government and aboriginals is trust-like, rather than adversarial, and contemporary recognition and affirmation ofaboriginal rights must be defined in light ofthis historie relationship. [Citation omitted.] 342 [n theBlueberryRiver case, supra, note 5, the government was ordered to compensate the plaintiffs for the inadvertence ofIndianAffairs officiais in failing to recommend cancellation ofthe sale ofminerai tigblS to the Direetor, the Veterans' LandAct, once the mistake had been discovered.

343 AnActfor thegraduaienfrancbtsementoflru/ians, the bettermanagement oflndian affairs, andto extendtheprovisions oftheAct31st Victoria, Cbapter 42, S.C. 1869, c. 6 [hereinafterGraduaiEnfrancbtsementAct]. -144- allotments were granted ooly bythe Superintendent General ofIndian Affairs.344 Later on, theywere granted by the band or its council and approved on behalfofthe govemment by the Superintendent General or 345 Minister. · Nineteenth century palicy makers saw the reserve as a controlled environment inwhich Indians could learn the habits and skills which would be needed to compete in the non-native economy. The final stage ofIndian development would occur when aU ofthe members had abandoned their communal way oflife and adopted the culture and religion ofthe dominant society.346 Commentators argue that the original purpose ofthe allotment provisions was to allow Indians ta get used to the non-native concept ofindividual ownership ofproperty, and to enable administrators to assess whether individuals were ready for 347 enfranchisement. As mentioned earlier, cultural assimilation was oŒcially disavowed as a legitimate policy objective at the beginning ofthe 19505 and economic integration replaced it as the prime goal ofCanadian Indian pOlicy.348

344 GraduaiEnfranchtsementAct, supra, nate 343, s. 1.

345 Under the GraduaiEnfrancbisementAct, supra, note 343, s. 1, only the Superintendent General was entided ta make an aUotment; by S.C. 1876, c. 18, s. 6, band cauld allat, subject ta approval afSuperintendent General; by S.C. 1880, c. 28, s. 17, band or band cauneil cauld allat land, subjeet to approval of Superintendent General; by S.C. 1951, c. 29, s. 20(1) band couneil was entided ta make an allotment, subjeet ta approval ofMînister. ~46 "Basic Concepts & Objectives", supra note 269 at 132. 347 see, e.g., "Protection, Civilization, Assimilation," supra, note 268 at 132 & 133. Entidement ta exclusive possession ofdefined parceIs ofland orof exclusive rigbts to the produce ofa parce! ofland, particularly one upon which an individual or a family group had expendedsubstantial eJfort, was not necessarily foreign to an Nonh American aboriginal groups. See, e.g., M.J. Bailey, KApproximate OptimalityofAboriginal Property Rigbts" (1992) 35 J. ofLaw &: Economies 183 at 195. 3..8 Bouse ofCommonsDehates (16 March 1951) at 1350. -145 -

Section 20(1) ofthe eurrentlndian Actempowers band councUs to allot unsurrendered reserve land to individual members ofthe band for whom the reserve was set apart. Ifthe allotment is also approved by the Minister, the member to whom it is made349 is said ta he in lawful possession ofthe land. The Minister has a discretion as to wbether to consent to the allotment.350 He may approve the allotment and issue the member a Certificate ofPossession. Altematively, he may withhold his approval, in which case he must issue a Certificate ofOccupation and permit the member and bis heirs or successors to occupy the land for a period oftwo years.351 At the end ofthe period in respect ofwhich the Certificate ofOccupation is in force, the Minister must either apprave ar refuse the allotment.352

b. Locatee rights

A lacatee is entitled ta exclusive possession afthe land forming part afthe location.353 He is entided ta campensation for impravements in the event that the land is compulsorily acquired.354 He May transfer his right ta possession to another member provided the Minister approves.355 The locatee's right to possession may he devised by will or May devolve upen the lacatee's successors, provided that the devisee or successor is entided

349 The "locatee." The parcel aUotted is called the "location" or the "allotment." 350 Section 20(4).

351 Section 20(4)-(6). The Minister may extend the period ofoccupation for a further period notexceeding two years (s. 20(6». 352 Section 20(6)(a) & (h).

353 Subjeet to the terms ofthe Act and the conditions (ifany) ofthe allotment, the locatee mayexdude all persons from the allotted p~ even otherband members. Seet e.g.,]oe v.Findray, [1981]3 W.W.R. 60 at 62 &63 (B.C.C.A.) .. 354 Section 23.

355 Section 24. ·146· to reside on the reserve in bis own righ~56 and provided the Minister approves the devisee or suceessor.357 The locatee mayalso have the Crown lease on bis behalfail or part ofbis location even though the tenant MaY be a non_native.358 The locatee is also entided to the proceeds ofany disposition ofminerai or timber or any agriculturallease granted in respect ofunoccupied locations.359

c. Possible polieies

In the Blueberry River case, the Supreme Court ofCanada ruled that the purpose ofgovemment involvement in the surrender process was to prevent the exploitation ofthe occupying band.360 In order to prevent exploitative decisions, Parliament declared surrenders ofreserve land void unless accepted by the Govemor in Council.361 MadamJustice McLachlin explained that, in this context, exploitation included failure by govemment officiais ta prevent foolish or improvident decisions.362 The legislative

356 Section 50.

357 Section 49.

358 Section 53(3). The Act contains no restrictions upon the identity ofthe tenant, the length ofthe lease or the use ta which the property may be put. For example, the tenant may be a corporation controlled by the locatee and bis family.

359 Section 53(1) & (4).

360 The discretion involved in that case was whetheror not ta accept surrender, rather man a discretion ta approve an allotment, traDsfer or lease. It is un1ikely that the reason for the discretion wauld he different in the case ofalIatments.

361 Blueberry River, supra, note 5 at 370 & 371. See s. 39 ofthe IndtanAct.

362 McLachlin, J.'s definitian ofexploitation focuses on the effeet ofexploitation on the victim and, to that extent, differs &am the definition used elsewhere in this thesis. In comman parlance, "exploitation" empbasizes the reprebensible conduct ofthe perpetrator. Exploitation means " ... [utilizing) for one's own ends, [treating) selfisblyas mere workable material (persans, etc.); '[maldng) capital out aL'" SeeJA Simpson & E.S.C. Weiner, eds., OxfordEng/isb Dtcttonary, vol. 5, 2d ed. (Oxford: Clarendon Press, 1989) at 574. See also, -147 - technique ofrequiring approval ofIndian decisions by govemment authorities is not limited to the surrenders. In Cact, the entire allobllent process is subject to Ministerial approval 1will assume, for the purposes of this chapter, that the reason for which Parliament requires govemment involvement in allotment transactions is the same as that for which govemment approval is required in surrender transactions-to prevent foolish or improvident dealings in the sense used in the Blueberry River case.

There are three occasions upon which government officiais play a role in the allotment ofreserve land-at the time the allotment is first made, at the time the location changes hands by agreement, devise or descent and at the time the allotted parcel is leased by the locatee. On each occasion the government bas an opponunity to prevent the proposed transaction from proceeding simply by refusing to approve it. The legislation does not provide a list ofprinciples upon which officiais are to base their judgment in making this decision. The matter is simply left up to the discretion ofthe Minister. Whether a decision cao be characterized as improvident or foolish depends heavUy upon the values ofthose called upon to assess it. The Blueberry River band's 1945 decision to sell prime fann land close to town and invest the proceeds in remote reserves barely large enough for living space and pasture for their horses (but closer to their trap Unes) would strike manyas foolish or improvident. The decision makes good sense in the context ofthe overall objectives ofthose making it-perpetuation ofa subsistence economy based on hunting and trapping and preservation ofsmall, interdependent social and cultural uoits isolated

Canadian PacifieLtdv. Paul, [1988] 2 S.C.R. 654 at677where the Courtnded that the purpose ofpreventing transfers ofIndian land direetly ta individuals wu " ... a proteetive measure for the Indian population lest mey he persuaded into improvident transactions." -148· from outside influences. In mct, there are at least four policies which the Minister might reasonably pursue indeciding whether to grant approvai. Each requires different information to implement successfully, and each exposes the band, or the locatee, and the govemment to different risles.

i. equitable distribudon of reserve land among members

The Minister might take the position that the reserve was set apart for the use ofail members ofthe occupying band equally and that any method ofindividuation ofreserve land must result in all members having an equal opportunity ta obtain exclusive possession ofa similar lot for whatever purposes-residential, agricultural or commercial-the band's reserve land could be put. Ta fulfill this obligation, the Minister would have ta have information as ta the amount ofreserve land the band possessed, the uses ta which the land might reasonably be put, the rate of growth or decrease in the segment ofthe band population which might require land in future, the ability ofthe applicant to make profitable use of the land, the amount ofland the applicant already possessed, the land use plans formulated for that reserve, the amount ofland which remained for allotment to other members, and 50 forth. Anned with such information, he should be able ta assess the wisdom ofa given allotment, at least to the point oftelling whether it was foolish or improvident in the sense that it failed to take into account the entidements ofaIl ofthe members. With sufficient involvement in the allotment process, the Minister might even prevent exploitation in the sense inwhich that ward is normally used­ cases in which the applicant applied pressure on the councilors to obtain more than bis fair share ofreserve land, for example, or cases inwhich councilors abused the powers oftheiroffice by allotting a disproportionate share ofreserve land to their supporters or families. -149-

Prior to 1951, IndianAffairs officiais seemed to see their role as ensuring that reserve land was allotted equitably among band members and that allotments were made to members who would actually occupy and use or exploit the location tbemselves.363 Maintaining this poUcy would give reasonable constnlctîon to the requirement that the Minister approve a1l allotments, and ail transfers, bequests or transmissions of allotted parcels. However, it would probably he regarded as offensive and oppressive by Indian leaders as it would subject decisions by individual locatees or by band councils to reversai by government officiais, a situation which smacks ofpatemalism and has no parallel in the non-native community. It would also he inconsistent with the overall policy of devolving powers ofinternai self-government to Indian bands.

ii maintain sites for preservation ofaboriginal cultures

By virtue ofs. 18(1) ofthe Indian Act the Crown holds the tide ta reserves " ... for the use and benefit ofthe band for which they were set apart ....,,364 These words suggest a general commitment by the govemment to advance the interests ofthe occupying band. During the th 1h second haitofthe 19 centuryand the earlyyears ofthe 20 , when most of

363 Even then, mast allotments were approved. IndianAffairs became involved wben it appeared that a few individuals had acquired a disproportionate amount ofreserve land, orthat allotments were being made to members who bad no intention ofworking the land themselves. See, SpecialJoint Committee ofthe Senate and the House ofCommons on the Indian Act,Minutes ofProceedtngs andEvidence, 1946Session, (Ottawa: King's Printer, 1946) (Co-chairs: ].F. Johnston & D.F. Brown) at 559 [bereinafterSpedal]otnt Commtttee Report, 1946) at 560 & 561, and "IndianAgent's References & Regulations," unpubUshed reference materials drcu1ated to Indian Superintendents after 1933 with respect to the administration ofthe 1927Act, at paras. 253 & 274. 364 Section 18(1). A numberofother provisions are aimed at preventing the ­ unauthorïzed occupation ofreserve land by non...natives. See, e.g., 5S. 28(1), 30 &31. -150 -

Canada's Indian reserves were established, govemment initiatives were aimed at the cultural transformation ofreserve inbabitants-inducing them ta adopt the values and practîces ofthe European immigrants.365 From the assimilationist perspective, reserves simply provided a place for natives ta live pending completion ofthe adaptation process. The government's duties with respect to unsurrendered reserve land would, therefore, be limited to preventing non-native interference with the transformation process and ensuring that sufficient land remained ta provide accommodation or money once members became enfranchised. If funds were needed to provide necessaries pending enfranchisement, reserve land could be sold or leased or its minerai or forest resources exploited. Historians have suggested , however, that Indians saw things quite differently. For the most part, they were anxious to acquire the skills and tooLs necessary to make their way in the new economy. It is doubtful ifthe majority ofIndian peoples were ever prepared to relinquish permanently cultural ties with their traditional societies.366 From a native perspective, ensuring that reserves were used for "the use and benefit ofthe band" would likely involve the preservation ofa land base and the creation ofa governmental jurisdiction adequate for the survival ofaboriginal cultures.

Dnder the preservation ofcultural sites regime, the govemment would be obliged to reject applications for individuation ofreserve land which might bring the communallyoccupied portion ofthe reserve below

365 As DeputySuperintendent..General Duncan Campbell Scott put it in 1920: ... [The] abject [ofthe program ofIndian education and advancement} is ta continue until there is not a single Indian in Canada that has not been absorbed mto the body palitie and there is no Indian question, and no Iodian Departm~nt.... (quoted inDevelopmentofIndtan ~ supra, note 273 al 114). 366 Skyscrapers, supra, note 223 at 277. - 151- a certain area as long as a significant percentage ofband members depend upon the existence ofa tract ofcommunally-held land occupied exclusively by members ofthe same cultural tradition. It may he required ta do sa even though a majority ofelectors may demand the subdivision ofthe entire reserve. On this basis, the individuals who comprise the occupying band at a given time have an interest similar ta a life estate in the reserve which mey, themselves, would he obliged ta pass on ta their descendants.367 Presumably, the government would have ta maintain this land base until the population seeking to maintain cultural traditions is tao small to do 50. Separating transactions which are improvident from those which are not involves a careful consideration ofthe interests ofunOOm generations.

The dedication ofa permanent land base free from erosion by govemment action and safe from interference by non-natives does appear to be one ofthe objectives sought by native groups currendy involved in

367 See R.P. Chambers & M.E. Priee, "Regulating Sovereignty: Secretarial Discretion and the Leasing ofIndian Landsu (1974) 26 Stanford L. Rev. 1061 at 1079-1081 [hereinafter "Leasing ofIndian Lands"], where the authors (speaking ofthe situation in the United States) say: The trust responsibility could be read as placing the highest value on the federal guarantee ofspace, immune &am state intervention, where an Indian society can be pursued. In this sense, the beneficial ownership ofreservation land mayhe likened to a life estate. Each generation mayhe obliged to pass the land base on to the next, and the [government] may funetion as a guardian for generations yet unbom 50 as ta guarantee that the cultural homeland and heritage will not he diminished in size orvalue. See also, lndtan Reserves, supra, note 242 at 2, 3, 60 Br 61, where Professor Bartlettargues that, historically, Canada and ail provinces other than the Maritimes, Québec and British Columbia adopted a policy" ... which sought bath to maintain traditionalways oflife and to develop more contemporary farros ofeconomic development." -152 .. treaty negotiations.368 Presumably, govemment action aimed at maintaining existing reserves for that purpose would meet with the general approval oflndian representatives.369 This approach would also give meaning to the statutory requirements for ministerial approvaL The Crown would not approve allotments which brought communally held reserve land below a definable critical area, orwould insist upon the insertion of conditions which would requite the restoration ofalloned land to the communal pool ifdemographic estimates were to prove incorrect. The purpose ofapproving locatee leases would a1so make sense. The government would insist that locatees restrict the term ofleases granted on their behalfto fit in with expeeted band requirements for communally held land. The approach would, however, he unedy inconsistent with government policies in effect between 1820 and 1950.370

Hi. ltlisserfllire

A third approach would he for the govemment ta decline to exercise any supervisory jurisdiction over the allotment process--to restrict its activities to the maintenance ofthe Reserve Land Register.371 The govemment could talœ the position that reserve land belongs ta the occupying band and that its disposition amongst members should be dealt

368 lndian Reserves, supra, note 242 at 6O-62,james Bay andNortbem Québec Agreement and Complementary Agreements, 1991 ed., (Québec: Publications du Québec, 1991) at 55-109 andNlsga'a Agreement inPrinciple, supra, note 334 at 9-13. 369 Indians are unlikely to agree, however, mat govemment officiais should have an unfettered right to decide wben a given aboriginal population bas Callen below the critical mass needed to sustain a distinct culture. It may be possible, bowever, to formuJate acceptable prindples upon which soch a judgment might he made. See "Leasing ofIndian Landst " suprat note 367 at 1094 & 1095.

370 Cf. [nd'km Reserves, suprat note 242 at 60-62. 371 Section 21. ·153 - with by exc1usively by their couneil. Ta some extent, this is the policy currently adopted bythe Department ofIndian Affairs.

On the one band, IndianAffilirs' current policy probably meets with approval from the Indian community. It is likely seen as deference ta management deeisions made by the band couneil, and it supports Indian aspirations for selt:government by confirming the band's competence to manage internai affairs without government intervention. On the other band, it may expose the Crown to liability for improvident allotments. The department does not appear to have regularized its policy by notifying bands ofthe basis upon which it grants approval, and by obtaining orders in council under s. 60(1) granting bands complete control ofthe aIlotment process. Bands who have suffered as a result ofimprovident dispositions are unlikely to excuse govemment officiais for failure to withhold approval. The govemment MaY be left without a defense ta a claim that officiais failed perform a duty which they owed to the band and which might reasonably he implied from the statutory requirement for ministerial approval ofail aIlotments and aIl transfers ofaUotted lands.

iVe promote asupport internai self-management

Finally, the Minister might determine that the approval powerwas never intended to apply to every band couneil orta every band or loeatee; ooly ta those "as are not suffieiendyadvanced to manage their own affairs,,,372 and even so, oolyfor as long as, and ta the extent that, a state of "insufficient advancement" prevails. He could, presumably, disregard aIlotments by the councils ofbands which he ftnds capable ofmanaging their own affairs, and eertain transfers bycapable locatees, and Cocus the

372 SpectaljolntCommlneeReport, supra, note 275 al 186 Be 187. -154 - attention ofbis officiaIs on natives genuinely in need ofgovernment assistance, ifany.

From this perspective, it would he important for IndianAffairs officiais to determine the extent to whicb there was need, and bence, justification, for continued scrutiny by IndianAtJairs officiais ovec the internai affairs ofbands coming within their jurisdiction.373 This approach would give meaning to the statutory requirement foc ministerial appcoval ofallotments, and it would be consistent with Parliament's intention that powers ofinternai self-management devolve from bureaucrats to Indians as soon as bands have enough experience with the non-native economy and enough self-confidence to manage on their own. Ideally, this stage would be marked by a formal withdrawal from specified supervisory roles in connection with the allotment process through an order in couneil made

pursuant to 55. 60(1) or 4(2).374

373 Even 50, many provisions ofthe IndianAct prevent a complete witbdrawal of govemment participation in Indian decision-making. See, e.g., s. 64(1)(k).

374 The prospect ofa band seeking as. 60(1) arder may not be great. See, e.g., the comments of].E. Hall, Q.C. (now, Mr.Justice Ha1l), Report ofthe Commlsston ofInquiry Conceming Certain Matters Assodatedwttb the Westbank lndian Band (Ottawa: Supply & Services Canada, 1988) at 443 [hereinafter Westbank Report): Depanmental personnel are divided on the issue ofhowdaring the Depanmentought to be in relation to surrendering its statutory and traditional roles to band councils and tribal councils. The Department and Indian groups are both presendysufferlng &am a confliet between inconsistent objectives. The Indian groups, for the most part, wish ta assume responsibility for theirown affiùrs. At the same tîme, since the Depanmental fiduciary responsibility is presently part ofthe hope for future economic gains, the Indian group obviouslywould Uke to retain the right ta recover compensation from the Department. It is oot particularly popular to acknowledge that a band's infonned decision to followa certain course ofaction carries with it a reIease ofthe Depanmenrts responsibility relating to that dedsion. Many Iodian -155 -

Ofthe four policies discussed in this section, ooly the last makes sense in the context ofthe Crown/lndian relationship as defined bycurrent legislation, recent judicial authority and the aspirations ofIndian groups as evidenced by recent treaties and ongoing treaty negotiations.

Rejection ofthe first (WO policy options is really required by the principle ofinformed self-determination underlying the Guerin decision. In effect, the Supreme Court roled that, ifthe traditional homeland ofthe Musqueam people was ta become a development opportunity for an upscale residential subdivision, ooly the Musqueam people had the right to make that decision. The first policy~quitabledistribution ofreserve land-would risk imposing on natives values imported from outside their societies. Adopting this policy made some sense as long as the ultimate objective ofthe reserve system was enfranchisement. Uoder that regime, it was important for the reserve to he parceled out equitably 50 that there would be available for each native family a fair share ofreserve land for ownership in severalty once its members had relinquished their ties with

witnesses before me walked carefully acound this issue. 1could not blame them. *** The Department should continue to exercise great care where less advanced bands are involved, but it should not he unduly alamted about potential soits from those bands that are willing and able to make their own decisions. Courts usually operate in the real world. Absolute jurisdietion overdedsion making is wholly inconsistent with residual responsibility in the Depanment. *** ... 1think that it is inevitable that the process ofIndian self-government will result in an abatement, ifnote1imination, ofthe Department's financialliability for [future] collective decisions which are made by Indian groups and which result in economic Cailure. Ac1ear consequence offull responsibility is that Indian groups will have to make theirown assessments aboutwhat degree ofrisk tbey are prepared ta assume in relation ta their own decisions. .156 - the native community and sought to become established in Euro-Canadian society. The second policy-the preservation ofcultural homelands-is certainly a policy which native communities shauld he Cree to adapt ifthey wisb, but it is surely not an objective which should he farced upon them by the govemment. IfIndians choose to maintain distinct societies within a non-native economy, they will no doubt he expected to bear the economic consequences oftheir decisian. It wauld seem ta follow that natives should be able ta choose wbether and to what extent reserve land is to be dedicated ta communal ownership.

Unquestionably, the third policy-laisserfaire-has a great economic and political attraction for govemment, but implementing it would canstitute an abdication ofthe protective raie decreed by Parliament and the courts. The existence ofa statutory veto over decisions ofelected representatives implies some parliamentary purpose. It is unlikely that Parliament made aIl allotments subject to ministerial approval merely to enable the Department ta maintain the Reserve Land Register. It can safely be assumed that the intention was that the veto he exercised for some protective purpose-to prevent "foolisb or improvident" allotments of resel'Ve land in the sense adopted inBlueberry River.

The fourth policy-facilitating internal self-management-would provide protection where it is needed and witbdraw it when it had degenerated iota Mere'intrusion. This option is consistent with Parliament's intention to çlevolve decision-making powers on Indian Bands. It gives meaning to the requirement for govemment approval and, at the same time, confines the exercise ofsupervisory functions to cases in which government involvement is consistentwith the overan intent ofthe legislation. -157 -

b. Fidudaryobligations

Perhaps the best way ofillustrating the application ofthe doctrine of fiduciary obligation to the allotment process is to analyze a hypothetica1 situation.375 Let us assume that members ofa band council pass a resolution allotting to a fellow councilor a large parce! ofreserve land with clear commercial potential. No steps are taken to notiCy band members of the proposai to make this allotment. The councilor to whom the allotment is made participates in the debate on the resolution and votes in favor ofit. The resolution allotting the land passes and a minute is sent ta Indian Affairs for approvaL Departmental officiais realize that the locatee is a member ofcouncil and that he voted on the resolution approving it. Officiais approve the resolution anyway. They act on the basis ofa departmental policy that mandates automatic approval ofall allotments by all band councils. The theory underlying the policy is that parceling out rights to occupy reserve land among band members is a matterofinternal self-government and that members have the same remedies for misconduct by elected officiaIs as non-natives have. Afew weeks later, the locatee/councilor makes application under s. 58(3) ofthelndianAct ta have the government lease the allotted parce! on bis behalf. The tenant is a development companywhose shares are held by the locatee and members ofhis CamUy. The Department approves the lease. The lease contains no covenants restricting assignment and subletting. The councilor's corporation subleases to a business enterprise directed and staffed by non­ natives whose ofticers are ignorant ofthe circumstances surrouÎlding the allotment. Onlyat tbis point are band members informed ofthe transactions. Members commence an action against the govemment for

375 The illustration used here does Dot, to the bestofmy Imowledge, represent an aetual case. -158 - compensation foc breach offiduciary duty foc approving the allotment and the lease to the councilor's company. They argue, as tutoS out to he the case, that the sublease is in violation ofan informai understanding among all members that locations would only be let ta band-nln businesses of which ail officers and employees were also band members.

i. altotment

The relationship between elected officiais and the constituency wbich they have been chosen to represent has long been held to be fiduciary.376 This doctrine has a1so been applled to regulate the relationship between the Chiefand councilors ofan Indian band and its membership. Where a Chiefor councilor has a persona! interest in a matter coming before the band council for decision, he must declare bis interest and refrain from debating oc voting on a resolution in respect of 377 that matter. An action may be brought on behalfofthe band to obtain

376 Bowesv. Toronto (City) (1858) Il Moo. 463, 14 E.R. 770 at 790 & 791 (p.C.).

377 Gilbert, supra, note 329 at 23. Section 19 ofthe Indian BandCouncil Procedure Regulations, C.R.C. 1978, c. 950 does nOl appear to disqualiCy a member ofcouneil from voting upon a matter in which he bas a persona! interest: 19. Every member present when a question is put shall vote thereon unless the couneil excuses him or unIess be is personally interested in the question, inwhich case he shall not he obliged to vote. -159 -

redress for misconduct by its council.378 Altematively, the decision itself

could he attacked by an application for injunctive or prerogative relief:379

The problem posed by the illustration, however. is whether the government will he held to have a fiduciary duty to intelVene. On the one hand, government officiais knowofthe irregularity. They have an opportunity ta have it rectified without taking over the decision-making process themselves-they might decline to approve the allotment uniess it has been ratified by the band, for example. Refusai to approve would be defensihle on purely juridical grounds. Here, officiais would be invoking a statutory power ofintervention for the purpose ofpreventing a clear breach ofa fiduciary obligation imposed for the protection ofband members. Withbolding approval ofthe allotment would also he the route least likely to expose the government ta liabillty.

On the other hand, adherence to a policy ofsupporting informed self-management might suggest that officiais should let band members son out such problems themselves. People who do not live on reserves, native and non-native alike, and who are faced with similar misconduct by a municipal councilor, for example, are required to seek redress through the courts. Outside the Crown/native relationship, the govemment is not normally liable ta answer for decisions made in contlict ofinterest, notwithstanding that it may have advance notice ofthe conflict. Even

378 In Gilbert, supra~ note 329, a daim was made on behalfofan Indian band against its former Chief. The evidence establisbed mat the Defendant had, as a memberofthe band couneil, bad partidpated in councilts debate on a resolution authorizing the purchase by the band ofa trailer ta serve as a residence for the Chiefand berfamily, and had voted on the resolution. The Court beld that the Defendant badviolated ber fidudary obligations ta the band, andordered ber to paycompensation to the band in respect ofberuse ofthe traller. 379 Sunday v. Benedict (1991), 49 F.T.R. 319 at 322 (F.C.TD.). ·160 • assimilationists might have difficulty justifying govemment involvement. Maintaining constant surveillance ofa personwho is supposed to he leaming to manage on bis own is not conducive to persona! independence, and it is not a practice employed outside ofthe Crownllndian relationship. UnIess there is some reason ta distinguish between the illustration and the case ofthe defalcating municipal councilor, govemment officiais sbould ignore the irregularity and approve the allotment.

A principled choice between these two positions can be made by determining which would best serve the objectives ofthe Crownllndian relationship. In so far as unsurrendered reserve land transactions are concemed, the purpose ofCrown involvement in Indian decision-making is to promote and support internai self-regulation through the agency of band councils. Officiais' use ofa statutory discretion permitting them to interfere with band council decisions must be consistent with and supponive ofthat objective. Forcing disclosure ofthe contlict to the membership at large would enable members to debate the merits ofthe allonnent and review the conduct ofthe locatee/councüor. Members who disagreed with the decision could contest it in a timely way by whatever means they felt were appropriate in the circumstances. Regardless of whether the decision was confirmed, varied orquashed, the final word in the matter would be that ofthe band, not the Department. Members would be able to take control ofthe situation ifthey wished to do 50. Approving the allotment without disclosing the conflict ofinterest ofthe locatee/councüorwould taire the matter oufofthe band's hands.

To this point, 1have ooly argued tbat it would he consistent with and supportive ofthe Crownllndianrelatiooship for officiais to decline ta approve the allotment. 1 have notyet provided any justification for saying that witbholding approval is a legal obligation. To do mat 1would have to -161- establish that failure to disclose the irregularity in these circumstances is, at least on average, destnlctive ofthe relationship.38O

Self-interested behavior by officiaIs elected or appointed to aet on behalfofa given constituency undennines constituents' confidence in 381 representative administration. Sucb confidence is particularly fragile where representative administration is a fairiy recent and, at least in the minds ofsorne constituents, an unproved method ofgroup decision­ making.382 Some situations--reseNes with limited per capita land holdings and councilors from the same family, for example-may increase the risk of constituents' 10ss ofconfidence in representative administration through self-interested conduct well beyond that experienced in non-native govemments where the same circumstances are seldom replicated.383 On this analysis, therefore, the better view would appear to be that Indian Affairs officiais owe an enforceable obligation to the band to declïne to approve the allotment until a way has been found by the band or its couneil to overcome the effect, ifany, ofthe councilor's misconduet.

The question then arises as ta why this obligation should be limited to declining to approve allotments based upon known irregularities. For example, ifit is appropriate for deparnnental officiais to force disclosure of a known breach ofa tiduciary obligation, why are they not aIso required to sit in on ail meetings ofthe band couneil sa that they can be certain that aIl irregularities come to tbeir attention? What ifthe locatee/councUor did not

380 1will also bave to establish that no adequate alternative exists to do the job, and [ will get to this in section iü.

381 See, e.g., uLocal Govemment," supra, note 191 at 1 as to the political impact ofseIf-dealing br eleeted municipal officiais. 381 See, e.g., Survey ofCanadian lndtans, supra, note 336, esp. c. 7.

383 See, e.g., Westbank Report, supra, note 374 at xiv-xvii. -162 - sign the resolution approving the allotment? Are departmental officials obliged to make inquiries to determine wbether he participated in the debate? Once again, the answer is provided by an analysis ofthe strocture ofthe relationship.

The raie wbich the Crown has accepted in connection with the allotment ofunsurrendered reserve land is defmed by the Indian Act. In the past, band couneils eould not afficially hold meetings for the dispatch ofbusiness except in the presence ofa departmental representative.384 The representative set the time, place and date ofmeetings and adjournments, presided at the meetings, maintained a record ofthe proeeedings, regulated matters ofprocedure and fonn, reported and certified by-laws and other aets to the Superintendent General and explained ta the Chief and councilors their powers and duties. Govemment officiais operating under that regime wauld certainly have had access to a great deal of background information about matters dealt with by band couneils. In these circumstances, a superintendent's recommendation to withhoid or grant ministerial approval ofa band couneil initiative would be based upon first band knowiedge ofthe circumstances. The 1951 version ofthe lndian Act and its successors contained no similar section. Provision is made in the Indtan BandCounctlProcedure Regulatio~85 for the role that the

384 See, e.g., 1927Act, ss. 176-180 and the Indlan Act, R.S.C. 1906, c. 81, ss 185­ 189. The 1951 Act did, however, permit the Govemor in Council to maire regulations with respect to " ... the duties ofany representative ofthe Minister at soch meetings .... " See, S.C. 1951, c. 149, s. 89(c). The current regulations prescribe the duties ofany departmental representative who does attend band council meetings, but theydo Qat require the presence ofa deparanental representative. See, Indian BandCounctlProcedure Regulations, supra, note 377.

385 C.R.C. 1978, c. 950. Presumably, the superintendent attends by the invitàtion ofthe couneil at sucb tinte as members feel that they requite departmental advice orassistance. -163 - superintendent is expected to play should he attend meetings ofcouncil, but nowhere is he given the right to be there. These changes are deliberate and they are consistent with a parliamentary intention that reserve land administration should devolve upon the bandcouneil. Today, the Department lacks the first band knowledge ofreserve land administration it once possessed, ex:cept, ofcourse wbere officiais aetually attend the meetings or acquire the information in another way. Courts are unlikely to require the government to answer for irregularities which officials have no practical means ofdiscovering, and Indians are unlikely to expect more.

ii loaatee feases

Suppose that a locatee agrees to have a lease ofhis location granted to a non-native developer. The lease is to be for a tlxed term of100 years. The lease is part ofa scheme for the development ofthe location for commercial purposes.386 From a purely economic standpoint, the length of the term is justified by the initial investment ta he made by the tenant in developing the parce!. The bargain is in all respects very favorable to the locatee. Assume that Indian Affaies has adopted a policy ofrefusing ta grant locatee leases which exceed 45 years in duration, including ail options to renew, unIess the locatee can produce evidence that bis application for a lease is supported by the council ofbis band. The band council refuses to approve the proposed lease. The locatee insists that Canada grant a lease on the agreed tenus with or without band council approval. IndianAffairs officiais refuse t

386 Assume, here, tbat the location is not atfeeted byland use restrictions which would interfere with the proposed development. -164-

Analysis ofthis problem requites an understanding offeatures ofthe Indian Actwhich are sometimes overlooked. The Indians' interest in reserve lands set apart for their use is the same as that which tbey 387 possessed in their traditional territories in pre-contact times. With certain exceptions not relevant here, ss. 28(1) and 37 ofthe Act prevent Indians from committing themselves direcdy to reserve land transactions. The conveyancing provisions ofthe Act do, however. permit the occupying band to have reserve land exploited on its behalfby the Crown as ifthe band were the holder ofthe maximum interest that the civil or common lawallowed. Section 58(3) extends sorne ofthese benefits to locatees. That section authorizes the Minister ta lease lacatee land upon the request ofthe locatee and for his benefit. In the case oflocatee leases, the statutory scheme makes it unnecessary for prospective tenants to conduct expensive investigations as to whether the locatee's land rights would "support" the grant ofa leasehold interest,388 or to obtain security for breaches ofthe landlord's covenants.389 Tenants cao simply rely on the Crown's covenants for tide. Without this protection, locatees might have difficulty obtaining

387 Guerin, supra, note 1 at 379.

388 Indian land rigbts with respect to reserve land are the same as those which existed with respect ta the group's traditional territories before contact. It took four years (almost 365 days ofwhich was court time) and millions ofdollars in research costs and legal Cees ta estabUsh the aboriginal rights ofthe Gitksan and Wet'suwet'n in the Delgamuukw case (supra, note 5). Without the conveyancing provisions ofthe [ne/tan Act, Indian tide would be virtually unmarketable. As it ÎS, speculation as ta aboriginal tide to reserve lands is unnecessary. Sec, Guerin, supra, note 1 at 382. 389 Ifa non-native tenant were ta suifer loss by reason ofa locatee's failure to provide a good sale holding and marketable tide ta the location, it may be difficult for the tenant to recover compensation from the tenant. section 89(1) ofthe [ndtan Act provides that ... the real and personalpropertyofan Indian ... situate on a reserve is not subject to charge, pledge, mongage, attacbment, levy, seizure, distress orexecution in filvor ofor atthe instance ofany persan otherthan an Indian ora band. -165 - full market rental value for their locations. In Cact, having the location leased by the Crown is about the ooly way in which a locatee can exploit bis holding for anything like its marketvalue. Facilitating the leasing of individual holdings ofreserve land is, therefore, one likely reason for which the locatee is required to obtain a lease througb the agency ofthe Crown. It is also possible that Parliament had it in mind that some locatees may require assistance in negotiating and enforcing terms and documenting the transaction. Section 58(3) provides that" ... [t]he Minister may lease for the benefit ofany Indian .... " IndianAffairs policy in the mid-1940s certainly assumed that the govemment should tum down requests for leases which were not in the best interests ofthe locatee.390

Generally speaking, however, the Crown holds the title to reserve land in order ta allow the govemment to ensure that any use ta which the reserve is put is for the use and benefit ofthe band for which it was set apart.391 In the illustration, the locatee has struck a bargain with a prospective tenant for a very long-term lease containing provisions highly favorable ta the locatee. In Cact, the tenu ofthe lease is so long that it may, for all praetical purposes, amount to a conveyance ofthe parcel ta a non­ native.392 This problem becomes a legal problem because ofthe surrender provisions. Subject to specifie exceptions, ss. 37 ta 41 ofthe Indian Act requite a surrenderordesignation by the band and approval by the federal

390 See, e.g., Spedal]ointCommtnee Report, 1946, supra, note 363 at 545. 391 Section 18(1).

392 See, "Leasing afIndian Lands," supra, note 367 at 1076-1079 where the author the impactoflong-tenn leases ofreserve land for non-native occupation. He argues that" ... the fiction ofIndian retention is maintained, but the impact on the tribe is aCten incansistentwith the fonn. In this context, 99-year leas~ are tantamount to the sale ofthe Cee." Neither theIndian Act, the regulations nor the autborities impose restrictions on the duration ofsuch leases or their terms. -166 - cabinet before reserve lands are " ... sold [or] tide in them conveyed ... " and before communally·held reserve lands are " ... leased [or] an interest in them granted ...." From the band's perspective, the prohibitions contained in ss. 37 to 41 appear to he based on a palicy ofensuring that permanent dispositions ofreserve land are supported by a majority of those whose communal rights ta it will be extinguished by the transaction. As mentioned in chapter 3, provisions like s. 58(3) entered the Indian Act as pan ofa scheme to give natives a taste for the rewards ofcapitalist enterprise and individual ownership; ta encourage them to abandon their communal societies and to assimiJate with the Euro-Canadian majority. This policy was official1y discontinued after WW II, but s. 58(3) remains a feature ofthe legislation. From this point ofview, s. 58(3) looks like a loophole in the cultural stockade erected by the legislation.

The question here is whether a blanket application ofa departmental policy such as that outlined above represents a violation ofany obligations which the Crown May owe to the band or the locatee or bath. Ifdelay in obtaining or failure to obtain band or band couneil approval forced canceUation ofthe project, would the Crown he liable for breaeh ofa 6duciaryobligation to the tenant to act on bis request for a lease? Ifthe government granted the lease, would the Crown he liable to compensate the band for failure to obtain band consent to an illegal alienation of reserve land?

1do not th~ that the govemmentwauld he justified in refusing ta grant the lease in the circumstances. 1think mat its failure ta respond in a timely way ta the locatee's request for a lease would likely violate an enforceable obligation which itowed ta hîm. It seems to me mat a fair reading ofthe Act requires implementatian ofanybonafide lease -167 - tranSaction requested bythe locatee.393 The absence ofa requirement for band council approval was not the result ofsome parliamentary oversight. The possibility ofrequiring band council approval oflocatee leases was specifically discussed with Indian representatives at the FebroarylMarch 1951 conference and, after debate, was approved by them. The basis upon which it was approved was that locatees should have the same rights with respect to leasing their locations as non-natives.394 As long as the duration ofthe lease requested is reasonably justified by a bonafide arrangement between a locatee and a prospective tenant, and its terms are not foolish or improvident as far as the interests ofthe locatee are concemed, the Department would have no legitimate reason for refusing ta grant the lease

393 In Boyerv. R., [1986] 2 F.C. 393 (C.A.), a locatee made application to the Minister, pursuant to s. 58(3) ofthelnd/an Act, [0 lease a portion ofbis location to a development company for a period of21 years. Indian Affairs officiais sent a draft ofthe (ease to the band council for comment. The band couneil refused to approve the lease, and took the position that the Minister bad no right to grant it without their formal approval. The Minister granted the lease notwithstanding the objections ofthe couneil. Councilors sued for a declaration tbat the lease was void for ladofIndian approval. They argued that a requirement for band or band couneil consent sbould he treated as an implied condition for the grantofa valid lease under s. 58(3). In the alternative, the Plaintiffs argued that the lease violated the Crownts tidudary duty to the band to prevent alienation ofreserve land without a surrender and Govemor in Couneil approval pursuant to ss. 37­ 41 ofthe IndianAct. The Court beld that the provisions ofthe statute did not permit the implication ofsuch a condition. The Minister's duty, in exercising his discretion under s. 58(3) was to aet in the best interests ofthe locatee. The majority ofthe Court cautioned, however, that the Minister cannat go beyond the powergranted ta him, which he would do if: under the guise ofa lease, he was ta proceed to wbat would be, for ail practical purposes, an alienation ofthe land .... The majority ruled that the 21·year lease under consideration did not constitute an alienation ofthe land within the meaning ofs. 37 ofthe[nt/tan Act.

394 See Special Commtttee Minutes, supra, note 280 at 126. 1would argue that the interpretation suggested by the resolution passed at the 1951 conferenc~ would, in this case, he adopted as a guide ta the interpretation ofs. 58(3). See Nowegljtck v. R., [1983] 1 S.C.R. 29 al 36. It is not clearas ta whether this point was argued inBoyer, supra, note 393. -168-

requested. If, on the other band, the arrangement is merely a colorable attempt ta evade the surrender requirements ofss. 37 ta 41 ofthe Act, the Iocatee's application must be rejected by IndianAffairs officiaIs. White it may be appropriate ta consult the band eouncil in arder ta obtain information necessary to make this assessment, any blanket palicy of requiring approval based solely upen the duration ofthe 1ease is not justifled either by the wording ofthe statute or the intent ofthe provision. Unauthorized and unnecessary disclosure ofthe terms ofthe intended lease may itselfconstitute a breach ofan obligation ofconfidentiality owed to the locatee.395

This position is not inconsistent with an overall policy ofdevolving internai self-management from Indian Affairs officiaIs ta band councils. Band councils can controlleases ofreserve land. They could decline to grant allotments ifthey were concemed about the 10ss ofthe cultural charactet ofthe reserve due to intrusion by non-native tenants.396 They could encourage band members to designate parcels ofthe reserve for lease to individual members pursuant ta s. 37(2)ofthe Act and have the Crown grant leases to members on terms satisfactory to the band couneil. These leases could contain restrictions on assignment or subletting without the approval ofthe band council. Discontinuing the blanket palicy referred to above would force the band couneil to govem in the manner contemplated by the devolution palicy.

The prohibition against the alienation ofreserve land without the consent ofa majority ofthe members ofthe occupying band assembled for

395 Lac, supra, note 23 at 608-614.

396 Although specifie provision is made for allotment in theIndlanAct, many

bands do not aIlot parcels to members. Seet Westbank Report, supra, note 374 at 394-396. -169 - the purpose ofdebating and authorizing it has been a permanent feature of the Crownllndian relationship since the mid-1700s. The requirement for band approval found its way iota every federal statute regulating the reladonship since 1868.397 ln the absence ofspecifie statutory authority permitting a1ienation without band consent, neither individual Indians, their band council, or the ClOwn mayalienate reserve land.398 Section 58(3) ooly authorizes leases. Ifthe transaction contemplated by the locatee and the third party eould not he said to constitute a bonafide lease in form and substance, it is not authorized by s. 58(3).

üi alternative sources of regulatioD

In sections i and ii, 1argued that the Crown is under an enforeeable obligation to disclose to the band a contlict ofinterest ofa band councilor which might affect a decision ta allot reserve land. 1also argued that the Crown is under an enforceable obligation ta impIement a bonafide request by a locatee for a lease ofthe allotted parcel, whether or not tbat request is supported by the band council. 1 have not yet established that these obligations would likely be characterized as fiduciary. As mentioned earlier, whether or not an obligation will be declared ta be a tiduciary obligation will depend upon whether an adequate alternative source of regulation is available. Alternative sources ofregulation are ooly adequate

397 An Actprovtdingfor the organtzatlon ofthe Departmentofthe Secretary of State ofCanada andofthe managementofIndian andOrdinanceLands, s..e. 1868, c. 42.

398 Section 37(1), wbich deals with alienation ofreserve land, is not expressly made subjeet to the other provisions ofthe Act. Section 37(2), which deals with leases ofreserve land, begins with the words, "Except where tbis Act otherwiSe provides ..... " and the closing words ofs. 58(3), authorize the Minister to grant leases oflocatee lands " ... witbout the land beingdesignated." -170 - ifthey are as effective as the doctrine oftlduciary obligation in preserving the integrity ofthe relationship.

The alternative source ofregulation, in the case ofthe contlict of interest ofthe locatee/councilor, would be to rely upon band members to take action on their owo. This strategy was certainly effective in the Gilbert case.399 The problem with this approach is that its efficacy depends upon members' knowledge ofthe irregularity. Ifthe general membership or a successor council does not discover the conflict ofinterest before the locatee leases the location to a bonafide tenant who is ignorant ofthe compromising circumstances, members may he stuckwith a highly undesirable lease, notwithstanding their administrative law remedies. If there is ooly a limited amount ofreserve land available for commercial exploitation, as is too often the case with smaller reserves, a single self­ interested transaction such as this may deal the band economy an insurmountable blow. Setting aside such a lease because ofa conflict of interest ofone ofthe councilors might induce prospective tenants ta steer clear ofleases ofreserve land, thereby lîmiting the marketability ofreserve land. Ideally, contlict ofinterest problems should he dealt with before an innocent party commits himselfto a transaction based upon the validityof the impugned decision. Imposing on the government fiduciary obligations to disclose conflicts which come to its attention and withhold approval until their effects have been dealt with would certainly promote this 4OO objective. Administrative remedies would not be nearly 50 effective.

399 Supra, note 329.

400 Itwould he temptingt but inappropriate in myview, to try to resolve the locatee/councilor illustration by analogy-bycharaeterizing the problem as an example ofa breach ofa transmitted tidudaryobligation analogous ta the "knowing complidty" cases. Fora critical analysis ofthis Une ofauthority, see P.D. Finn, "The Uability afTbird Parties for Knowing Receipt orAssistance" in ·171·

ln the locatee lease illustration, the locatee whose request for a lease had been turned down because ofbis failure to obtain band council concurrence would likely also he able ta obtain administrative law remedies.401 ln fact, a persanengaged in the commercial exploitation of allotted land would he more likely ta understand his rights and the options for their enforcement. The locatee's problem would he that administrative review is unlikely ta get him compensation for wbat he would lose ifa favorable lease transaction fell through. The courts are, therefore, likely ta impose a fiduciary obligation upon the government to grant the requested lease.402

ln cases involving claims against the Crown, the imposition of fiduciary obligations frequently provides more effective relief than other sources ofregulation. The doctrine ofsovereign immunity bas sometimes been held to protect the Crown from liability which has not been specifically accepted by contraet orstatute.403 Doctrines ofequity, on the other hand, have long been held ta be binding on the Crown without the necessity ofa statute submitting the Sovereign to judicial authority. In the Pawlett case,404 an action for redemption ofa mortgage acquired by the King by way ofescheat, Baron Atkyns ruled that,

Equity '93, supra, note 157, 195 al 204-218. Such an exercise involves trying to find outwhether the doctrine provides a remedy, rather than trying to find whether a justification exists for its application.

401 See, e.g., Tooabnippab v. Hickel, 397 li.S. 598 (1970).

402 Recognizjng a damage remedyagainst the government in the event ofa failure by the bureaucracy to implement legislative intent wu one ofthe reasons cited bythe United States Supreme Court for imposing fiduciary obligations in United States v. Mitcbell, 463 li.S. 206 (1983) [hereinafterMitcbellHI.

403 Cbipman v. R. t [1934] Ex. C.R. 152 at 159.

-104 Pawlettv.Attorney General (1667), 1 Harel. 465, 145 E.R. 550 at 552. .. 172 ..

... the panyought in this case to be relieved against the King, because the King is the founuin and bead ofjustice and equityj and it sball not be presumed, that he will he defeetive in either. And it would derogate from the King's bonoue to imagine, that what is equity against a common persan, should not be equity against bim. CONCLUSION

The doctrine offiduciary obligation is a creature ofthe system of equity. The main principles upon which is it based were developed by the Courts ofChancery prior ta the end ofthe fifteenth century. Its purpose then, as DOW, was to extend the abllity ofthe lawto proteet the integrity of relationships ofsocial or economic importance. The doctrine fulfills this task by providing a code ofroles which may be used to maintain the integrity ofuseful relationships threatened by the existence ofan inherent and otherwise unregulated opportunity for one or more ofthe parties to the relationship ta exploit the interests ofanother or others. The doctrine's legislative purpose makes it extremely difficult to detennine whether tlduciary obligations will he imposed upon the parties to a relationship which has not already been declared ta be 6duciary by authoritative judicial decision or legislative enactment. In fact, the only way in which it is possible ta estimate whether a given relationship is tlduciary is to guess whether the relationship is ofsufficient importance justify juridical protection, and whether adequate protection can be ooly be provided by the imposition offiduciary obligations.

The content oftlduciaryobligations is a1s0 difficult to determine. M befits a purely remedial doctrine, the content ofthe obligations which it creates depends largely uponwhat is required to protect the integrity of the target relationsbip. Detennining the contentofthe 6duciary obligations which will he imposed to proteet a give~ relationship requires an identification ofthe benefits which such relationships are reasonably expeeted to produce, and a determination ofthe extent to which those benefits are already guaranteed byother sources ofregulation. Ifthis analysis reveals lacunae in the existing regulatory scheme which expose one or more ofthe parties to the relationship to exploitationor -174- victimization at the bands ofanother party orother parties, and ifimposing one or more ofthe obligations owed by trostees to beneficiaries (suitably adapted) would provide the necessary protection, fiduciary obligations will be imposed upon the alleged wrongdoer.

Where it is clear what obligations must he imposed for the protection ofthe relationship, the courts simply declare those obligations to have been binding upon the alleged exploiter all along and provide the victim with redress, provided, ofcourse, that the evidence establishes violation. In cases in which the court cannot say with any confidence what the exploiter would have been expected to have done in the circumstances which actually occurred, or where the court is uncenain as to whether the exploiter has taken advantage ofan unregulated opponunity for exploitation inherent in the relationship, judges declare the alleged victim entided to timely disclosure ofaIl circumstances which might have tempted the putative victimizer to take advantage ofthe opportunity for exploitation, and praofthat he clid not do 50. Failing exculpation, the alleged victimizer is required to provide cedeess.

The entidement to complete and timely notice and an exculpatory explanation, as weIl as the generous remedies which equity makes avaiJable for violations ofits mIes, are aIl intended to have an educative effect. Specifically, they are intended to induce other would·be victimizers who find themselves party to similar relationships to disclose spontaneously circumstances which migbt tempt them ta depart from the standard of performance required to generate reasonably expected benefits, and to confirm or terminate the relationsbip or re-negotiate its terms. Where the relationship under consideration is an ongoing relationsbipt the entidement to candor and the arsenal ofremedies avaiJable for breach àre aIso intendedto discourage recidivism. Special rules bave been formulated -175· ta protect uniquely disadvantaged parties. Entitling alleged victims ta notice and providing comprehensive remedies are not unfair ta parties in a position ta exploit the interests ofothers as long as potential defendants cauld predict the likelihood ofliability with reasonable certainty and taire measures to protect themselves against it. Otherwise, the doctrine represents an intolerable intrusion by the judiciary into private rights; it amounts to Uttie than more than an expostfacto readjustment by the judiciaryofan arrangement which the parties ta the relationship could have but failed ta make.

Imposing fiduciary obligations on the Crown for breach ofits undertakings to status Indians is much less problematic. The terms ofthe Crownllndian relationship are largely defined by enactment, although an understanding oftheir tenor requires an appreciation ofthe development ofthe relationship aver the past 250 years or sa. It should not he tao surprising that the courts have found a way to induce bureaucratie adherence ta parliamentary strictures by imposing civilliability for institutlonal misconduct.

Difficulties in determining the, content ofobligations which might be imposed reaUy lie with the Indian Act itself, the statutory instrument which, ta a great extent, defines the underlying structure ofthe relationship. Conceived in an era in which non-native society felt secure in its right ta dictate cultural standards to Canadian minorities, amended piecemeal from time to time, treating aU Indians uniformly as iftbey represented a homogenous people marching lock-step towards a common future, the Act gives IndianAffairs officiaIs little discretion in adapting their interventions to respond ta the specifie needs ofindividual groups. The obligations which it imports can simultaneously he regarded as unwarranted paternalism by bands who have successfully integrated their -176 -

economic life into that ofthe surrounding non-native community, and downright unhelpful by groups with little experience or interest in doing so.

It is possible, however, ta estimate with some confidence the Crown's duties to status Indians with respect to reserve land transactions. An analysis ofthe relationship accepted by native representatives and the government in power at the tinte the current version ofthe statute was formulated, indicates that anempts at cultural transformation are to be abandoned and that native people are to be encouraged ta take charge of their internai affairs thcough the instrumentality oftheir band counciL Any interpretation which accomplishes this objective and whicb, at the same time, respects the wording ofthe Act will be supported by the imposition offiduciary liability ifand ta the extent that no other adequate source of regulation is available.. While this may appear an obscure foundation for administrative programs whicb involve the expenditure ofmillions, they are the best the government bas ta go on. We bave been assured that, provided that officiais exercise their discretion with care and base their judgment on accepted principles, their efforts will not be condemned simply because they did not, in the event, generate the expected benefits:

The Department should continue to exercise great eare where less advanced bands are invalved, but it shauld not he undulyalarmed about patential suits from those bands that are willing and able ta maire their own decisions. Courts usually operate in the realwarld. Absolute jurisdietion over decision making is who!lY inconsistent wim residual responsibility in the Department.4os

405 Westbank Report, supra,.note 374 at 443. .. -177 -

Table ofEnactments AnActfor thegraduai enfranchisement ofIndtans, the better managementofIndian affatrs, andta extend theprovisions ofthe Act31st Victoria, Cbapter 42, S.C. 1869, c. 6

AnActprovidingfor tbe organizatton ofthe Department oftbe Secretary ofState ofCanada andofthe management ofIndian andOrdinance Lands, S.C. 1868, c. 42

Canada Business Corporations Act, R.S.C. 1985, c. C-44

ConstitutionAct, 1982, being Schedule 8 to the Canada Act 1982 (U.K.), 1982,c. Il

Employee RetirementIncarne Securlty Act, 29 li.S.C.

Indian Act, R.S.C. 1927, c. 98

Indian Act, R.S.C. 1952, c. 149 Indtan Act, R.S.C. 1985, c. 1-5

Indtan BandCoundlProcedure Regulations, C.R.C. 1978, c. 950

Law andEquityAct, R.S.B.C. 1979, c. 224 Municipal Act, R.S.B.C. 1979, c. 290

Royal Proclamation of1763, RS.C. 1985, Appendîx II, No. 1

SecuritiesAct, R.S.O. 1990, c. S.5

(Supreme Court of)Judtcature Act, 1873 (U.K.), 36 & 37 Vic., c. 66

Trustee Act, R.S.B.C. 1979, c. 414 -178 -

Table ofCases

AG. v. Goddard, [1929] 98 L.].K.B. 743

Allcardv. Skinner (1887), 36 Ch.D. 145 (C.A.)

AtmospberlcDivingSystems [ne. v.InternationalHard Suits Inc., [1994] 5 W.W.R. 719 (B.C.S.C.)

Bank ofMontrea/v. Stuart (1910), [1911] A.C. 120 (p.C.)

Barelays Bank Pic. v. O'Brien (1993), [1994] 1 A.C. 180 (H.L)

Barton v.Armstrong (1973), [1976] A.C. 104 (p.C.)

Beek v. Kantorowicz (1857),3 K. &J. 230,69 E.R. 1093 (V.C.)

Biggs v. London Loan & Savings Co. (1930), 39 O.W.N. 126 (H.C.), (1932), 41 O.W.N. 48 (C.A.), [1933] S.C.R. 257, [1934] 3 D.L.R. 465 (p.C.)

Bigstone v. Big Bagle (1992), 52 F.T.R. 109

Blueberry Riverlndtan Bandv. Canada (Dept. oflndianAffairs & Nortbem Development), [1995]4 S.C.R. 344

Bowesv. Toronto (City) (1858) Il Moo. 463,14 E.R. 770 (p.C.)

Boyerv. R., [1986] 2 F.C. 393 (CA)

Bray v. Ford (1895), (1896] A.C. 44 (H.L.)

C.lB.C. Pic. v. Pitt (1993), [1994] 1 A.C. 200 (H.L.)

Calderv. Britisb Columbia (AG.), [1973] S.C.R. 313

Canada (AG.) v. Standard Trust Co. ofNew York, [1911] A.C. 498 (p.C.)

Canadian Aero Service Ltdv. O'Ma/ley (1973), [1974] S.C.R. 592

Canadian PacifieLtdv. Paul, [1988] 2 S.C.R. 654

Canson Enterprlses Ltdv. Bougbton & Company, [1991] 3 S.C.R. 534

Carl B. PatterLtdv. The Mercantile Bank ofCanada, [1980] 2 S.C.&. 343

Cbtpman v. R., [1934] Ex. C.R. 152 -179 -

Cox v. Adams (1904), 35 S.C.R. 393

Coy v. Pommerenke (1911), 44 S.C.R. 543

th Delgamuukw v. British Columbia. (1991), 79 D.L.R. (4 ) 185 (B.C.S.C.), th 104 D.L.R. (4 ) 470 (B.C.C.A.)

Dent v. Bennett (1839), 4 My. & Cr. 269, 41 E.R. 205

Dreaverv. R. (1935), 5 C.N.L.C. 92 (Ex. Ct.)

Easterbrook v. R. (1930), [1931] S.C.R. 210

Emma Silver Mining Co. v. Lewis (1879) 40 T.L.R. 749 (CA.)

Er/anger v. New Sombrero Phosphate Co. (1878), 3 App. Cas. 1218

Fa/es v. Canada Permanent Trust Co. (1976), [1977] 2 S.C.R. 302

Fosterv. Réaume, [1924] 2 D.L.R. 951 (S.C.C.)

Frame v. Smith, [1987] 2 S.C.K. 99

,Fu/tzv. MNeil (1905), [1906] N.S.R. 506 (N.S.C.A.), (1906), 38 S.C.R. 198 Gel/en v. Goodman Estate, [1991]2 S.C.R. 353

Gilbertv.Abbey, [1992] 4 C.N.L.R. 21 (B.C.S.C.)

Girardet v. Crease & Co. (1987), Il B.C.L.R. (2d) 361 (B.C.S.C.)

Gluckstein v. Bames, [1900) A.C. 240 (H.L.)

Guerin v. R., [1984] 2 S.C.K. 335

Hitchcock v. Sykes (1914), 49 S.C.R. 403

Hodgkinson v. Stmms, [1994] 3 S.C.K. 377

Howard v. Cunltffe (1973), 36 D.L.R. (3d) 212 (B.C.C.A.)

Huguenin v. Base/ey (1807),14 Ves.Jun. 273, 33 E.R. 526 (L.C.) lncbe Noriab v. SbaikAllie Sin omar (1928), [1929] A.C. 127 (p.C.) Jacks v. Davis (1982), 141 D.L.R. (3d) 355 (B.C.C.A.) -180 ..

JimaLtdv.MisterDonuto/CanadaLtd (1973), [1975] 1 S.C.R. 2

Joe v. Findlay, [1981] 3 W.W.R. 60 (B.C.C.A.)

Johnson v. M'lntosh 8 Wheaton 543 (U.S. 1823)

Kelly v. Enderton (1912), [1913] A.C. 191 (p.C.)

Kruger v. R. (1985), [1986] 1 F.C. 3 (F.CA)

LacMinerais Ltdv. Int. Corona Resources Ltd, [1989] 2 S.C.R. 574

Lagunas Nitrate Co. v. Lagunas Syndicate, [1899] 2 Ch. 392 (CA.)

Lefevbre v. Gardiner (1988), 27 B.C.L.R. (2d) 294 (B.C.S.C.)

Liles v. Terry, [1895] 2 Q.8. 679 (CA)

LowerKootenay Indian Band v. R (1991), 42 f.T.R. 241 (F.C.T.D.)

Lupton v. White (1808), 15 Yeso )un. 817, 33 E.R. 817 (L.C.)

Lydney andWigpool Iron Ore Co. v. Bird (1886), 33 Ch.D. 85 (CA)

M.(K) Y. M.(H.), [1992] 3 S.C.R. 6

~Kenzie v. RoyalBank ofCanada, [1934] A.C. 468 (p.C.)

Manitoba andNortb-West LandCorp. v. Davidson (1903), 34 S.C.R. 255

Mdnemey v. MacDonald, [1992] 2 S.C.R. 138

Meinbard Y. Salmon, 164 N.E. 545 (N.Y. Ct. App. 1928)

MogulSteamsbip Co. Ltdv. McGregor (1889),23 Q.B.D. 598 (CA), [1892] A.C. 25 (H.L.)

NationalWestminster Bank Pic. v. Morgan, [1985] 1 A.C. 686 (H.L.)

New ZealandNetberlands Society ,çOranje" Ine. v. Kuys, [1973] 2 AlI E.R. 1222 (p.C.)

Nocton v. LordAsbburton, [1914] A.C. 932 (H.L.)

Norberg v. Wynrlb, [1992] 2 S.C.R. 226

Nowegijick v. R., [1983] 1 S.C.R. 29 -181-

Pawlettv. Attorney General (1667), 1 Hard. 465, 145 E.R. 550 at 552

Peek v. Gurney (1873), [1861-73] AIl E.R. Rep. 116

Peso SilverMines Ltd. v. Cropper, [1966] S.C.R. 673

R. v. Sparrow, [1990] 1 S.C.R. 1075

Re Coomber, [1911] 1 Ch. 723 (C.A.)

Re Hess Manufaeturing Co. (1894), 23 S.C.R. 644

Reading v. AG., [1951] A.C. 507 (H.L.)

RegaL (Hastings) Ltdv. Gu/Liver (1942), [1967] 2 A.C. 134 (H.L.)

Reid-Newfound/and Co. v.Anglo-Amerlcan Telegrapb Co. Ltd, [1912] A.C. 555 (p.C.)

Salomon v. A Sa/oman and Co., Ltd (1896), [1897] A.C. 22 (H.L.)

SheffieldDistrictRaiLway Co. v. Great CentralRailway Co. (1911), 27 T.L.R. 451 (Rail. & Canal Com.)

Sparrow v. R., [1990] 2 S.C.R. 1075

St. Catberlne's Milling & Lumber Co. v. R. (1888), 14 A.C. 46 (p.C.)

Sunday v. Benedict (1991), 49 f.T.R. 319 (F.C.T.D.)

Szarfer v. Cbodos (1986), 540.R. (2d) 663 (H.C.)

T.C. Glennie v. McD. & C. Holdings Ltd, [1935] S.C.R. 257

Tate v. Williamson (1866), L.R. 2 Ch. App. 55 (L.C.)

Tooabnippab v. HickeL, 397 li.S. 598 (1970)

Trusts & Guarantee Co. v. Hart (1902), 32 S.C.R. 553

Tufion v. Sperni, [1952] 2 T.L.R. 516 (C.A.)

United States v. Mitcbell, 463 li.S. 206 (1983) Universe Tanksbips Ine. ofMonrovia v.International Transport Workers Federation (1982), [1983] 1 A.C. 366 (H.L.) -182 -

White v. Lincoln (1803),8 Ves. Jun. 364, 32 E.R. 395 (L.e.)

Zametv. Hyman, [1961] 3 All E.R. 933 (CA) -183 -

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