Advancing Reconciliation and Reconciliatory Justice by Contract: The Honour of the Crown’s Application to Crown-Indigenous Agreements

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This is a summary of the Supreme Court of Canada’s (the “Court”) decision in Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan, 2024 SCC 39 (the “Decision”). This summary is not legal advice.

Key Takeaways

1. The honour of the Crown can apply to Crown-Indigenous contracts: The Court added to the list of circumstances where the honour of the Crown—as a constitutional principle—can be engaged and give rise to enhanced duties or obligations owing to Indigenous Peoples. It held the honour of the Crown is engaged in the interpretation and implementation of Crown-Indigenous agreements or contracts where they are: (1) based on “Indigenous difference,” and (2) concern a credible or proven claim to Indigenous self-government or some other Aboriginal or treaty right protected by s. 35 of the Constitution Act, 1982. To apply, the rights or interests at issue in the contract need to be collective in nature, not individual.
2. Where engaged, the honour of the Crown imposes a duty on the Crown to perform contractual obligations with honour and integrity: Where the honour of the Crown is engaged, the constitutional principle imposes an additional obligation on the Crown to perform its contractual obligations with “honour and integrity.”^[1] This standard, which is rooted in public law, is different than the obligation of “good faith performance” in contract law. It can “intensify” the Crown’s obligations and may, in some contexts, broaden the scope of state liability. It requires the Crown to avoid “even the appearance of ‘sharp dealing’” or “an intransigent attitude.” The Crown must engage with an “open mind” with the goal of “genuine negotiations” to uphold its promises.^[2]
3. A remedy for a breach in this context is rooted in “reconciliatory justice” and courts can be creative in determining what is necessary to restore the honour of the Crown: In contrast to a private law breach, which would be based on “corrective justice,” the remedy for a breach of the honour of the Crown is rooted in “reconciliatory justice” (i.e., restoring and improving the relationship between the Crown and Indigenous Peoples). This flexible doctrine enables courts to order any measure necessary to restore the honour of the Crown in the circumstances, both looking backward at the Crown’s dishonourable conduct and forward toward the future and the ongoing relationship between the Crown and the Indigenous party.

Background and Context

In 2004, Pekuakamiulnuatsh Takuhikan (the “First Nation”), an Indian Act Band Council located in Mashteuiatsh, Quebec, reached an Agreement in Principle (“AIP”) with the governments of Canada and Quebec to enter into a treaty based on s. 35 of the Constitution Act, 1982. The AIP provides, inter alia, that the First Nation may enact laws to constitute, maintain and organize police corps. To date, a treaty has not been finalized or entered into between the parties.

The First Nation did, however, enter into a tripartite agreement with Canada and Quebec for the establishment and maintenance of an Indigenous police force, Sécurité publique de Mashteuiatsh (“SPM”). The purpose of the SPM is to provide culturally appropriate police services to the community in Mashteuiatsh. Successive agreements were negotiated and entered into on an annual basis to ensure the maintenance of the SPM over time (the “Agreements”).

Under the Agreements, Canada and Quebec agreed to make financial contributions up to a maximum amount for the First Nation to administer and maintain the SPM. In the Agreements, the First Nation was responsible for any costs that exceeded a prescribed maximum amount. During the contractual relationship, the First Nation repeatedly advised that funding provided under the Agreements was insufficient to cover the costs of the SPM. The severe underfunding forced the SPM to operate “at the very lowest of the lowest.”^[3] Between 2013 and 2017, the First Nation incurred deficits totalling more than $1.5 million (the “Deficit”).

The First Nation’s Claim for Deficit Reimbursement

In 2017, the First Nation commenced a lawsuit against Quebec and Canada for reimbursement of the Deficit. It alleged that Canada and Quebec breached their obligations under the Civil Code of Quebec to renegotiate the level of funding for the SPM in good faith. It also alleged the honour of the Crown applied to the Agreements, and that Canada and Quebec did not act with honour and integrity in their approach to negotiating annual successive renewals of the Agreements.

The Quebec Superior Court dismissed the First Nation’s claim, finding no breach of good faith or the honour of the Crown. The Quebec Court of Appeal allowed the appeal, holding that the lower court erred in finding no breach of good faith or the honour of the Crown. The appeal court ordered Canada and Quebec to pay the First Nation the amount of the Deficit. Quebec appealed to the Court. Canada did not. The Decision, based on Quebec’s appeal, raised the following issues:

(1)   In performing its contractual undertakings in the Agreements, did Quebec:

a. breach the “requirements of good faith,” which is rooted in private law, with respect to the performance of contracts; or

b. breach its duties flowing from the honour of the Crown as a constitutional principle or a duty flowing from it, which is rooted in public law obligations; and

(2)   if the answer is yes to either 1(a) or 1(b), what is the appropriate remedy for the breach?^[4]

The Court’s Decision on Quebec’s Breaches and the Remedy

Quebec’s Breach of Good Faith

The Agreements provided that the parties were to renegotiate the budget amount. The common law required Canada, Quebec and the First Nation to act in good faith in the performance of the Agreements. Additionally, Article 1375 of the Civil Code of Quebec required these negotiations to be conducted in good faith. The Court noted that “good faith is an enacted standard of public order that applies at every stage of the contractual relationship.”^[5] This applies to all contracts.

The Court found that despite the First Nation’s repeated requests for additional funding to address the Deficit during each renegotiation of the Agreements, Quebec refused to renegotiate the funding amount. The First Nation’s requests were “flatly rejected” and Quebec turned “a deaf ear to its requests and complaints.” In adopting this “intransigent position” and refusing to negotiate the funding, Quebec breached its duty to perform the Agreements in good faith.^[6]

Quebec’s Breach of the Honour of the Crown

Increasingly, the honour of the Crown—as a constitutional principle—has become foundational to Aboriginal law in Canada. This principle arises from “the Crown’s assertion of sovereignty over an Aboriginal people and de facto control of land and resources that were formerly in the control of that people.”^[7] In effect, this “assertion” (i.e., the Crown’s “assumed” sovereignty) gives rise to a “special relationship” between the Crown and Indigenous Peoples.^[8] The honour of the Crown requires “the Crown” (in this appeal, Quebec) to act honourably in all of its dealings with Indigenous Peoples. It imposes a “heavy burden” and, in certain situations where the reconciliation of Indigenous claims, rights or interests with the Crown’s assertion of sovereignty is engaged, it can give rise to specific Crown duties or obligations being owed.

Over the last 40-plus years, the Court has recognized the following duties can exist: (1) a fiduciary duty; (2) a duty to consult and accommodate; (3) a duty of honourable negotiation and implementation of treaties; (4) a duty to accomplish the intended purposes of treaty and statutory grants to Indigenous Peoples; (5) a duty to purposively and diligently implement constitutional commitments made to Indigenous Peoples; and (6) a duty to negotiate when Aboriginal rights are engaged.^[9] This Decision recognizes a seventh duty—a duty to perform contractual obligations with honour and integrity. This new duty is extremely important because modern reconciliation is very often advanced through agreements and contracts between the Crown and Indigenous communities, not just through final treaties or legislation. The question before the Court was whether these types of contracts engage the honour of the Crown.

The Test for the Honour of the Crown Being Engaged by a Contract

Unlike the duty of good faith, the honour of the Crown does not apply to every contractual undertaking given by the Crown to an Indigenous party. For example, the Court noted that commercial contracts between the Crown and an Indigenous party dealing with private law matters would not necessarily engage the honour of the Crown.

The Court held that for the honour of the Crown to apply to a contract between a government and an Indigenous party, the contract must be entered into on the basis that it addresses:

1. The distinctive philosophies, traditions and cultural practices of Indigenous Peoples (i.e., “Indigenous difference”); and
2. The right to self-government, whether established or asserted. The Court left open the possibility for contracts addressing some other established or credibly asserted right, interest or claim to engage the honour of the Crown.^[10]

The Court explained that the requirement of “Indigenous difference” is anchored on the “special relationship” between the Crown and Indigenous Peoples.^[11] This is different than the relationship with the public at large. The Court also noted that the honour of the Crown only applies if the contract has a “collective dimension” (i.e., not dealing with individual rights or interests).^[12]

The Court repeatedly emphasized that in the context of self-government, the honour of the Crown applies where a credible claim is asserted, even if not yet established. This is because the Crown’s assumption of sovereignty creates an imperative of preserving the rights of Indigenous Peoples—on an interim basis—during the process of treaty negotiation and proof.^[13]

The Agreements Engaged the Honour of the Crown

The Court found the honour of the Crown applies to the Agreements.

First, the Court found the Agreements relate to Indigenous difference because (1) the contracting counterparty is an Indigenous community; (2) they establish an Indigenous police force managed by the First Nation; and (3) the aim of the funding is to remedy the historical harm resulting from the imposition of the national police force on Indigenous Peoples.^[14]

Second, the Court concluded that the Agreements concern the Indigenous right of self-government in matters of public safety in the community because (1) the AIP authorized the First Nation to enact laws to establish and maintain a police corps; and (2) the evidentiary record shows the importance of culturally appropriate police services for advancing reconciliation.^[15]

What Flows From the Honour of the Crown When Agreements Engage It?

This Decision required the Court to consider, for the first time, (1) whether contracts can engage the honour of the Crown; and (2) if so, what duties flow from the honour of the Crown. The Court held the honour of the Crown can apply to the negotiation, performance and implementation of Crown-Indigenous contracts and, where the constitutional principle is engaged, the obligations are similar to those in the treaty-making context (i.e., the avoidance of sharp dealing, etc.).^[16]

The Court emphasized the honour of the Crown does not change the terms of a contract but rather informs and can “intensify” how the obligations found therein are performed by requiring the Crown to act in a manner that fosters reconciliation.^[17] The Court noted that the honour of the Crown imposes this additional obligation only on the Crown, not on the Indigenous group.

The duty to act honourably and with integrity with respect to contractual commitments creates obligations for the Crown to avoid even the appearance of “sharp dealing.” This demands more from the Crown than the mere avoidance of dishonesty. The obligation requires the Crown to “come to the negotiating table with an open mind and with the goal of engaging in genuine negotiations with a view to entering into an agreement.”^[18]

While the Decision did not set out an exhaustive list of obligations that flow from this newly recognized duty, the Court highlighted the following obligations: (1) governments must “construe the terms of the agreement generously and comply with them scrupulously” in order to avoid any breaches; (2) governments should not adopt an intransigent attitude; (3) a government should enter into negotiations with the intention to keep its promises; (4) governments should not attempt to coerce or unilaterally impose an outcome; and (5) governments should not change their position for the sole purpose of delaying or ending negotiations.^[19]

The Court also noted that the honour of the Crown does not require that negotiations ultimately be successful.^[20] The Crown, however, “must adopt a standard of conduct higher than the one it would adopt in the private law context and must act in such a way as to maximize the chances of success.”^[21]

Quebec Breached Its Obligations Flowing From the Honour of the Crown

Having outlined what obligations apply to contracts that engage the honour of the Crown, the Court considered whether Quebec met these obligations. The Court concluded that Quebec failed to perform the Agreements with honour and integrity. Specifically, the Court found “Quebec refused to consider [the First Nation’s] repeated requests to renegotiate the level of funding for its police force even though it knew that the police force was underfunded and that the [First Nation] would accept an inadequate level of funding to avoid resorting to the [Sûreté du Québec’s] ill-adapted services.”^[22] The Court found “Quebec conducted itself in a manner that fell well below the standard of honourable conduct.”^[23] Through its breach of the obligations flowing from the honour of the Crown, Quebec jeopardized the very purpose of the Agreements.^[24]

The Appropriate Remedy

Remedies for Breach of Good Faith (Private Law/Corrective Justice)

The remedy for a breach of good faith under Quebec’s civil law regime is based on corrective justice. That is, the remedy aims to place the aggrieved party in the position it would have been in but for the fault committed by the other party. The Court found that there was insufficient evidence on the record to determine the quantum of damages required to restore the First Nation to the position it would have been in. Rather than remitting the matter back, the Court found that the issue of the appropriate remedy could be addressed by considering the remedy for Quebec’s breach of its obligations flowing from the honour of the Crown.

Remedies for Breach of the Honour of the Crown (Public Law/Reconciliatory Justice)

In contrast to the corrective justice model applicable to the breach of good faith, the remedy for a breach of the obligations flowing from the honour of the Crown is concerned with restoring the nation-to-nation relationship damaged by the dishonourable conduct. The Court held that, as a remedy, courts “must order any measure that is necessary to restore the honour of the Crown and thereby foster the goal of reconciliation.”^[25] The Court further explained, “[t]his regime is much more flexible than that of the civil law: courts can and must be creative in finding a remedy that advances reconciliation.”^[26]

In assessing the remedy that will restore the Crown’s honour, the Court stressed, “it is important to be sensitive to Indigenous perspectives on the manner in which the relationship can be restored. … The more reasonable the Indigenous perspective is, the greater the likelihood that the court will accede to it.”^[27] The Court also held that the determination of the remedy awarded for a breach of obligations flowing from the honour of the Crown should take into account any remedies granted concurrently under private law in order to avoid double compensation.

Quebec Ordered to Pay the Deficit Incurred by the First Nation

Given that Quebec’s dishonourable conduct served Quebec’s interests and harmed the First Nation (and the community it represents), both in financial terms and from the standpoint of public safety and dignity, the Court held that an award of damages in the amount of the Deficit (more than $1.5 million) was appropriate. The Court noted that this remedy is “intended to allow the endeavour of maintaining an Indigenous police force in Mashteuiatsh to regain momentum within a nation-to-nation relationship that is renewed for the future, and in accordance with the constitutional principle of reconciliation.”^[28]

The Implications of the Decision in Aboriginal Law

The Decision has profound implications for regulating the Crown’s conduct in relation to Indigenous Peoples that have chosen to enter into reconciliation-focused contractual agreements with the Crown.

In response to intensifying judicial preference for negotiation over litigation as a means to advance reconciliation, the Crown and Indigenous Peoples across Canada increasingly opt for contracts as a legal vehicle to operationalize the exercise of pre-existing rights and jurisdictions protected by s. 35 of the Constitution Act, 1982. While legislation or treaties remain indispensable tools in the reconciliation basket, contracts can be a more nimble, cost-effective and timely method to give practical effect to the often-nebulous promise of reconciliation.

The Decision imports Aboriginal law “guardrails” and standards of conduct into the law of contracts, which has—up to this point—only been subject to private law considerations. With the honour of the Crown at the centre of governing the negotiation, implementation and interpretation of contracts that engage its protections, Indigenous Peoples now have another tool to hold the Crown accountable to its solemn promises and to ensure the promise of reconciliation is fulfilled at all levels of operationalization.

About Us

Aird & Berlis LLP’s Indigenous Practice Group includes First Nations, Métis and non-Indigenous lawyers with extensive experience in Aboriginal law. We also support Indigenous Peoples, nations and communities in advancing their own jurisdiction, law and legal orders (i.e., Indigenous law). For more information about our firm or this summary, please contact one of the authors.

[1] Decision at para 185.

[2] Decision at paras 190-192.

[4] Decision at para 69.

[5] Decision at para 104.

[6] Decision at paras 124, 130.

[7] Manitoba Métis Federation Inc v. Canada (AG), 2013 SCC 14 at para 66 [MMF]; Decision at para 147.

[8] MMF at para 67; Decision at para 147. Some lower courts have referred to this assumption as a “legal fiction”: Thomas and Saik’uz First Nation v. Rio Tinto Alcan Inc, 2022 BCSC 15 at para 198.

[9] MMF at paras 73-75; Daniels v. Canada (Indian Affairs and Northern Development), 2016 SCC 12 at para 56.

[10] Decision at paras 160-163.

[11] Decision at paras 161-162.

[12] Decision at para 162.

[13] Decision at paras 166-167.

[14] Decision at paras 172-177, 184.

[15] Decision at paras 181-184.

[16] Decision at para 186.

[17] Decision at paras 152, 154.

[18] Decision at para 190.

[19] Decision at paras 190-192.

[20] Decision at para 191.

[21] Decision at para 191.

[22] Decision at para 194.

[23] Decision at para 196.

[24] Decision at para 196.

[25] Decision at para 203.

[26] Decision at para 203.

[27] Decision at para 211.

[28] Decision at para 235.