The Crown’s Fiduciary Duty and Enforcing Good Faith Contractual Negotiations

The Crown has a special fiduciary duty owed to First Nation communities which is commonly understood as a public law power. This creates a lacuna in the Crown’s duty with respect to private law dealings between corporations and First Nations, particularly contractual negotiations. More specifically, private corporations can opportunistically dictate negotiations and push First Nations to consent to unfavorable deals.  The Crown’s fiduciary duty must expand to protect First Nation peoples in negotiations with corporations by enforcing a duty of good faith in negotiations between corporations and First Nation peoples. The current status of the duty of good faith in Canadian contract law is burgeoning and is silent on negotiations. What is certain is that the private law of contracts is not concerned about distributive justice and background conditions of injustice, and therefore the Crown’s public law power needs to have a role in private law negotiations to address background injustices specific to First Nation communities.

The main upshot of the Crown enforcing a duty of good faith in negotiations among corporations and First Nations is that it ensures that First Nations are consenting to agreements in a more robust manner and shifts the onus of attaining this robust consent to corporations. This would mitigate corporations from opportunistic practices and provide First Nations with stronger claims for damages. More theoretically, this line of argumentation can be used to illustrate the general utility of private law principles for developing jurisprudence around indigenous law.

Fiduciary Duty of the Crown

The historical context of the Crown’s fiduciary duty appears in the context of analyzing Aboriginal rights.[1] As John Borrows explains,[2] it is important to note that Aboriginal rights are understood as sui generis or of its own kind. In Guerin,[3] the Supreme Court of Canada (“SCC”) described the nature of Aboriginal title as conceptually distinct from other common law rights; in other words, while they are a part of Canadian common law, they maintain their own separate existence. Aboriginal title predated Crown sovereignty and are inherent, and it does not depend on an affirmation by the Crown or have to be understood in terms of common law doctrines.[4] In Delgamuukw,[5] Justice Lambert of the appeal court observed that “the jurisprudential analysis of the concepts underlying ‘rights’ in common law or western legal thought is of little or no help in understanding the rights now held by aboriginal peoples…”[6] This special category of rights arose because First Nations’ treaty rights were trivialized and narrowly understood to be at the sole discretion of the Crown.[7] This undermined the role of indigenous normative orders in determining Aboriginal rights. As Bruce Ryder argues, the SCC repeatedly fails to apply the “same rigour to the question of extinguishment of Aboriginal self-government as they did to their analysis of the extinguishment of Aboriginal title.”[8] Sui generis Aboriginal rights are ideally supposed to bridge two legal regimes and give “equal weight” on each perspective.[9]

The current contours of the fiduciary duty of the Crown remains open textured. In Calder,[10] pre-Charter Aboriginal rights was understood by reference to common law, which looked to analogues in private law. In the private law context, fiduciary obligations are typically understood to arise “where there is a relation in which the principal’s interests can be affected by, and are therefore dependent on, the manner in which the fiduciary uses the discretion which has been delegated to him.”[11] In Sparrow,[12] the Crown’s fiduciary duty is understood as a constraint in Crown power in interfering with Aboriginal rights. More specifically, after an Aboriginal right is established, there is a further justificatory step for a possible infringement, and one must ask whether the infringement is consistent with the Crown’s fiduciary duty. In Gladstone,[13] the Court similarly elaborates the Crown’s fiduciary duty in terms of minimal infringement, fair compensation, and consultation. Kent McNeil describes the Crown’s fiduciary duty to “arise in circumstances where the Crown has assumed discretionary control over Aboriginal peoples and their interests.”[14] The Crown’s fiduciary duty depends on indigenous land interest being inalienable except upon surrendering it to the Crown. The surrender to the Crown must happen before transferring any land interest to a third party.  The content of the fiduciary duties has often been understood in the context of purchases of First Nations’ lands and expressed in the forms of a duty to consult and accommodate. The rationale is to protect First Nations people from unfavorable, coercive, or fraudulent deals.

Fiduciary Duty in Negotiation

There is a need for a more robust notion of the Crown’s fiduciary duty, particularly in contractual negotiations between private corporations and First Nations. Dayna Scott demonstrates this point by exploring the question of consent in extraction contracts.[15] Economically, Canada is heavily reliant on mineral and resource extraction, which are often on First Nation lands. Scott focuses on extraction contracts which includes references to “mutual benefit agreements,” specifically “impact benefit agreements” (“IBA”) and similar “relationship agreements.”[16] Private corporations have had the most to gain from contractual laws and effectively control negotiations. Interestingly, the Crown, a non-party to IBAs are “not only tangentially involved in the negotiations, [they] basically [set] the terms”[17] Scott argues that consent by contract produces a market for consent to gain control over resource extraction on First Nation lands. The state has a covert and key role in this process, and it is ultimately at the detriment of First Nations.

By questioning the veracity of consent in such contracts, Scott identifies the failure of the Crown in acting as a fiduciary for First Nations. The question of consent is a core issue in contract law. Scott draws upon critical legal studies literature, particularly the contractual realist observation that contracts ultimately benefits the wealthier party. A part of a legally enforceable contract is that there are no impediments to consent and that consent is freely given.[18] There is a crude assumption that IBAs are equated with a First Nation community’s consent and represent the will and assent of the entire First Nation community. Ideally, expressions of the expectations of parties and arising contractual obligations inform the proper remedies available upon breach. Remedies often inform economic calculations of efficient breach or investment into further compliance. Notably, Scott argues that remedies are rarely invoked in the IBA context. Without a right to redress, it appears that the putative contractual rights of First Nations have little substance. The pre-contractual dealings are clearly partial towards corporations and there needs to be greater protection for First Nations in the negotiation process. Yet the role the state currently plays is merely alleviating any controversy by acquiring superficial consent, and this is inconsistent with the honor of the Crown and fails to act in the best interest of First nations.

The private law framework may offer more advantages for Aboriginal rights and empowerment than the current public law regime. It provides a more flexible regime for parties to negotiate and mitigate risks. For IBAs, as some argue, the private law of contracts has a gap-filling function for inadequate public law regulatory and constitutional regimes.[19] For instance, companies may mitigate the risk of reputation harming disputes and litigation driven delays, and First Nations parties may mitigate the adverse effect of projects and secure enhanced environmental protection beyond public law standards. Scott, however, argues that this picture “paints the state into too passive a role” whereas the reality is that the state actively influences contractual outcomes; more sharply, Scott argues that the private law regime “facilitates the state’s provision of access to First Nation lands for extractive capital.”[20]

For corporations, IBAs are a tool to manage risks associated with extracting on First Nation lands. To this end, corporations may push consent into onerous terms, such as an obligation for Chiefs to deter protesters.[21] Of course, these are common within the M&A world between corporations and sophisticated parties. In these contexts, corporations with more power have more negotiating leverage; a more balanced ground would be a merger of equals. However, between corporations and First Nations, consent is almost already assumed and the only room for negotiation is the compensation package.[22] IBAs, the rationale goes, are understood as the best option to get resources back into First Nation communities. It is possible to question whether this is a paternalistic view based on liberal notions of capitalism that does not consider the internal objectives and priorities of First Nation communities. Even factually, it is not clear that the economic benefits have lasting future results and can harm communities in their reliant on the temporary revenue stream.[23] In this light, IBAs are a part of a larger agenda of colonialism and a way of complacency with the failures of the pubic law scheme in empowering Indigenous sovereignty.

The issue of attaining substantive consent can be addressed through a number of ways. One possible way is addressing bad faith negotiations by corporations; as a corollary, the solution is enforcing good faith negotiations. This can be accomplished by expanding protections of First Nation communities in negotiations through expanding the Crown’s fiduciary duty whereby the Crown’s fiduciary duties are triggered in circumstances of negotiating private agreements. Similar to the justification animating Geurin, the Crown’s failure to mitigate bad faith would be a failure of their fiduciary duty.

Good Faith Negotiations

There is currently no duty of good faith enumerated with respect to the Crown’s fiduciary duty for negotiations between First Nations and other parties. To be clear, the Crown’s duty is cast as a public law power and, even in a private law context, there is privity of contracts which gives the Crown no basis to interfere in private agreements unless they are acting as an agent for First Nations. However, as earlier indicated, the Crown factually plays a background role in shaping negotiations through its regulatory powers. Arguably, the rationale behind the Crown’s fiduciary duty to protect the interests of First Nations is consistent with using its powers to enforce a duty of good faith in negotiations between corporations and First Nations. For instance, in Haida Nation,[24] the Crown’s fiduciary obligation is triggered even before an Aboriginal rights claim is crystalized—as long as the claim is reasonable, the Crown must act in accordance with their fiduciary duty. The suggestion is that the Crown’s fiduciary duty can be expanded as long as it is consistent with the rationale of protecting indigenous interests. To return to the negotiation context, it would amount to an operationalization of the Crown’s fiduciary duty by using the current contractual duty of good faith as an analytic aid or loose analogy.

The current doctrine of good faith in Canadian contract law is embedded in Bhasin.[25] In short, the SCC concluded that a non-renewal clause was exercised in bad faith because it was contrary to its purpose and carried out dishonestly. In general terms, a duty of good faith goes beyond strict contractual rights. A duty of good faith prevents conduct “while consonant with the letter of a contract, exhibits dishonesty, ill will, improper motive or similar departures from reasonable business expectations.”[26] The SCC explicitly acknowledge good faith in order “to develop the common law to keep in step with the “dynamic and evolving fabric of our society” where it can do so in an incremental fashion.”[27] In Bhasin, four specific doctrines flowed out of the “general organizing principle” of good faith: a duty of cooperation between the parties to achieve the objects of the contract;[28] a duty to exercise contractual discretion in good faith;[29] a duty not to evade contractual obligations in bad faith;[30] and a duty of honest performance.[31] The main takeaway from good faith is analyzing the shared purpose of an agreement, which goes towards the wellbeing of First Nations. This would mean that enforcing a duty of good faith in negotiations between First Nations and corporations would obligate corporations scrutinize how the contract would substantially contribute to the wellbeing of First Nations.

Good faith can be used to inform the Crown’s role in negotiations between corporations and First Nations—that is, to ensure good faith negotiations between corporations and First Nation peoples. An analogy is the lawyer who negotiates plea deals on behalf of their client. The lawyer is a fiduciary to the client and has a role in ensuring that the best deal is struck with the prosecutor. Ideally, this entails ensuring that all negotiations from the prosecutor, which ultimately only impacts the client, are conducted in good faith. A prosecutor may try to use, for example, the client’s lack of resources for a strong defense or try to intimidate the client by seeking a maximum penalty. This would be bad faith negotiations since the prosecutor is abusing their discretion.[32] At this point, the lawyer, as a fiduciary of the client, should step in and address this bad faith negotiations: perhaps they will move forward with a trial, perhaps they will report the prosecutor, and so forth. The analogy breaks here since the Crown has much more power to ensure that corporations negotiate with First Nations in good faith.

The current doctrine of good faith clearly does not apply to pre-contractual negotiations.[33] There are rules in contract law against misrepresentation and unconscionability, but there are no rules sensitive against background injustices or protecting against bad bargains. Thus, corporations have no duty of good faith when negotiating with First Nations, and this leads to a number of unjust contracts to the disadvantage of First Nations. Scott also argued that the state also has an active role in these unjust agreements. If this is true, the state can instead change their role into ensuring that there are good faith negotiations between corporations and First Nations. Contract law is about corrective justice and regulates interactions between parties. It does little to correct background injustices, which would be the domain of public law and distributive justice. However, the sui generis nature of the fiduciary duty of the Crown can go beyond the strictures of contract law.

To be clear, the idea here is not that the fiduciary duty of the Crown necessitates good faith between the Crown and First Nations in contractual dealings. There is clearly already a duty of good faith couched in the Crown’s fiduciary duty. The argument here is that the fiduciary duty of the Crown extends to using public law powers to ensure that private negotiations between corporations and First Nations are being done in good faith. On the face of it, this is a radical violation of private law, especially the core contract law principle of the freedom to contract. Traditional views on the separation of public law and private law understand the purpose of public law to govern relations between states and the citizens, and private law to govern relations between citizens. Many legal realists challenge and collapse the distinction between public law and private law.[34] Contract law is often understood to be the purest expressions of the autonomy of private citizens to order affairs with one another.

To return to the problem Scott outline, allied with legal realists, Scott challenges the idea that consent represents free and informed consent or that mere consent represents a legitimate ground for contentious extraction projects. State actors use public law to influence private negotiations, the terms of the contract, and facilitate the agreement process. Ultimately, this is not favorable to Indigenous land interests. Public law of the settler state determines. for instance. the approval of permits. According to Scott, what is problematic about IBAs is that communities do not actually hold veto rights and this brings to disrepute whether there is actual consent to these projects. The background conditions of injustice and imbalances in power are important for true notions of consent. Contracts are not sufficient to capture the autonomy or the self-determination of First Nation communities, especially in the background context of inequality in negotiations. In this light, contracts are powerful devices for shirking the duty of the Crown by attaining thin forms of consent from First Nation people. A richer form of consent is needed, and Scott argues that contracts cannot provide this, rather it is the place of new constitutional orders.

However, to depart from Scott, it may be possible to appeal to the tools of private law to address this issue. The state needs to be held accountable for its fiduciary duty in the negotiation process to ensure that negotiations are held in good faith. This can mean that public law powers of regulatory or permit approval are used to empower First Nation communities by acting as an incentive for corporations to act in good faith. Moreover, without permits, the extraction process cannot continue and this can act as a functional veto right. The state is currently doing the opposite of acting as a fiduciary: they are using public law powers to act in favor of corporations and facilitating extraction agreements. The state might be acting under the faulty assumption that extraction contracts are beneficial for First Nation communities by injecting more money into the community; more cynically, the state might be siding with corporations for general policy aims of stimulating the state economy without giving much thought to First Nation communities. In any case, the Crown’s fiduciary duty should include ensuring that consent from First Nation communities is more robust. To this end, good faith negotiations between corporations and First Nations must reflect the true autonomy of First Nations. This includes, among others, veto rights, sensitivity to assent as conceptualized by Indigenous legal orders, and a view to mutually beneficial terms that actually contribute to the long-term benefit of First Nations. 

The upshot of this is that there can be more robust forms of consent and stronger claims for damages. The example of extraction can be contentious because they are governed by conflicting norms. For instance, there are clearly numerous Canadian regulatory laws relating to the environment, but there are also Indigenous normative orders that must be considered. Yet with a Crown-backed duty of good faith negotiations, the burden shifts to the corporations to ensure that negotiations are approached in good faith. This would shift the existing power towards First Nations. A practical step is having lawyers who are both sophisticated in indigenous norms and needs, and also sophisticated with commercial norms of negotiation.

The Utility of Private Law and Objections

Private law theory is imaginative and diverse in its development of legal concepts and methods of analysis. However, much of the scholarship in this area remains siloed and esoteric for discrete doctrines in areas of contracts, torts, property, and fiduciary law. There are some glimpses of using the theoretical toolkit of private law theory for indigenous law, but there is no clear conceptual link between these areas of law. While there are certainly points of fundamental incommensurability between English legal traditions and Indigenous legal traditions, this does not imply an absolute bar on fruitful comparative analyses.

There are some remaining loose threads which need to be addressed. One might object that private law is rooted in western or liberal normative assumptions. It is certainly true that indigenous normative frameworks are vastly different principles and methodologies, but there are shared areas of overlap. For instance, although it is possible to come to the conclusion in different ways, there might be overlap in the idea that sharp business practices are not permitted in negotiations. Still, there is much more research to be done into Indigenous normative frameworks if we are to understand areas of compatibility.

Separately, one may object to the idea that private law concepts are applicable to a public law problem. The Crown’s relationship with First Nations is certainly the domain of public law, but theoretical and abstract concepts from private law are widely applicable. Indeed, the notion of sui generis Aboriginal rights is made with reference to the differences in property law concepts, and the Crown’s fiduciary duty is understood with reference to trust law. Moreover, one might object that such an analysis of private law is too abstract and has no practical application. But we have seen that theory guides practice, and a theory of good faith can have significant practical application in changing current practices of negotiations.

We have seen that the fiduciary duty of the Crown is a public law power that draws on parallels in private law. This sui generis duty is open textured and can be broadened to accommodate modern circumstances. Scott illustrates a need for further protection for First Nations through commercial contract negotiations. I argued that this protection can be achieved under the Crown’s fiduciary duty and operationalized through an analysis of a duty of good faith. This duty of good faith is different from its private law counterpart but can draw on its insights. The principles underlying good faith in contracts aims to prevent manipulation, enhance party rights, and promote contractual relations. This serves to illustrate the utility of private law in issues in indigenous law and how the conceptual tools of private law can assist in addressing public law issues.

---

[1] Peter W. Hogg & Daniel Styler, “Statutory Limitation of Aboriginal or Treaty Rights: What Counts as Justification” (2015) 1:1 Lakehead LJ 3.

[2] John Borrows & Leonard I Rotman, “The Sui Generis Nature of Aboriginal Rights: Does it Make a Difference” (1997) 36:1 Alta L Rev 9 [Borrows].

[3] Guerin v. The Queen, [1984] 2 SCR 335 [Guerin].

[4] Ibid at 190.

[5] Delgamuukw v. British Columbia, [1997] 3 SCR 1010 [Delgamuukw].

[6] Delgamuukw v. British Columbia, (1993) 104 D.L.R. (4th) 470 at 643-44 (B.C.C.A.).

[7] St. Catharines Milling and Lumber Co. v. R., (1887) 13 SCR 577 at 649.

[8] See Bruce Ryder, “Aborginal Rights and Delgamuukv v. the Queen,” Constitutional Forum. Volume 5, Number 2 (1994), p 43-48.

[9] R v Van der Peet, [1996] 2 SCR 507 at 202 [Van der Peet].

[10] Calder et al. v. Attorney-General of British Columbia, [1973] SCR 313 [Calder].

[11] Ernest J. Weinrib, “The Fiduciary Obligation” (1975) 25:1 U Toronto LJ 1 at p 7.

[12] R v Sparrow, [1990] 1 SCR 1075 [Sparrow].

[13] R v Gladstone, [1996] 2 SCR 723 [Gladstone].

[14] Kent McNeil, “The Crown’s Fiduciary Obligations in the Era of Aboriginal Self-Government” (2009) 88:1 Can B Rev 1 at p 6.

[15] Dayna Nadine Scott, “Extraction Contracting: The Struggle for Control of Indigenous Lands” (April 2020) 119:2 The South Atlantic Quarterly 269 [Scott].

[16] Ibid at p 270-271.

[17] Ibid at p 271.

[18] Ibid at p 271.

[19] Ibid at p 271.

[20] Ibid at p 272

[21] Ibid at p 284.

[22] Ibid at p 278

[23] Ibid at p 280.

[24] Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73 [Haida Nation]

[25] Bhasin v. Hrynew,2014 SCC 71 [Bhasin].

[26] Ibid at para 29.

[27] Ibid at para 40.

[28] Ibid at para 49.

[29] Ibid at para 50.

[30] Ibid at para 51.

[31] Ibid at para 73.

[32] Palma Paciocco, “Proportionality, Discretion, and the Roles of Judges and Prosecutors at Sentencing” (2014) Can Crim L Rev 18:3.

[33] Neil Finkelstein et al., “Honour among Businesspeople: The Duty of Good Faith and Contracts in the Energy Sector” (2015) 53:2 Alta L Rev 349.

[34] John Henry Merryman, “The Public Law-Private Law Distinction in European and American Law” (1968) 17:1 J Pub L 3.