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Indigenous - Contracts
MORE CASES
Part 2
. Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan
In Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan (SCC, 2024) the Supreme Court of Canada dismissed a Quebec Crown appeal, that from an allowing by the Federal Court of Appeal, and that from a dismissal of the action at the Federal Court - the action being grounded in the allegation that "Canada and Quebec were in breach of good faith, the obligations flowing from the honour of the Crown or any fiduciary obligation" over a contract whereby the band provided it's own police service and the governments funded it.
The court firstly considers the lower courts' treatment of the 'good faith' aspects of the case [at paras 96-103], which are drawn in this case immediately from the Quebec Civil Code but still using the similar substantive law of the common law provinces [para 70: "...the private law analysis of the requirements of good faith in the performance of such a contract would be governed by the relevant common law principles ..."].
From here the court continues it's own analysis, presenting a useful review of the good faith doctrine:[104] The tripartite agreements are contracts entered into by the governments of Canada and Quebec and Pekuakamiulnuatsh Takuhikan. Under art. 1376 C.C.Q., the general rules in Book Five of the Civil Code — “Obligations” — apply to the State, to the extent that they are not excluded or altered by other rules of law. The tripartite agreements are therefore governed by the general law of obligations, including art. 1375 C.C.Q. on good faith. This Court recently noted that good faith is an enacted standard of public order that applies at every stage of the contractual relationship (Ponce, at para. 70, relying on arts. 1375 and 1434 C.C.Q.). This point is not in dispute here.
[105] No party argues that the public order rule of good faith is excluded by an incompatible rule of public law. In this regard, it should also be noted that the “entirety of the parties’ undertakings and responsibilities” clause (cl. 1.1) does not exclude the public order standard of good faith (see Développement Olymbec inc. v. Avanti Spa de Jour inc., 2019 QCCS 1198; C. Lebrun, “La clause d’intégralité au Québec” (2008), 67 R. du B. 39, at pp. 47 and 56). Commenting on Quebec jurisprudence, author Catherine Valcke writes that [translation] “[s]uch a clause cannot . . . exclude the obligation of good faith provided for in article 1375 C.C.Q.” (J. Pineau et al., Théorie des obligations (5th ed. 2023), by C. Valcke, at No. 859, fn. 971).
[106] The parties are therefore correct in recognizing, as the trial judge did (at para. 55), that Quebec was required to perform its contractual undertakings in good faith.
(a) Duties Flowing From the Obligation To Act in Good Faith
[107] Although the obligation to act in good faith applies to every contract, “its implementation varies with the circumstances” (Ponce, at para. 71; see also Churchill Falls, at para. 104). The respondent’s arguments in this regard are focused on the need to perform contractual obligations in accordance with the requirements of good faith pursuant to art. 1375 C.C.Q. In alleging that the governments of Canada and Quebec breached their obligation to “negotiate” in good faith, Pekuakamiulnuatsh Takuhikan is clearly not referring to the initial negotiation of their relationship during a pre‑contractual phase going back to 1996 — in theory, a source of extracontractual liability and, in any event, far removed from the period at issue. The respondent is not focusing on a possible obligation to renegotiate a contract in good faith in the absence of any renewal mechanism set out in the contract. Nor is it relying on the unforeseeable occurrence of deficits to justify the need for good faith negotiation. Renewal was contemplated by the parties, who viewed it, in the very text of the tripartite agreements, as a means of ensuring the maintenance of the police force.
[108] Given that the maintenance of the SPM is a purpose of the agreements and that, for most of the period at issue, the agreements were annual, the parties specifically provided for an extension mechanism in clause 6.10.2 to facilitate renewal in the event that the negotiations were not completed before the agreements expired. Pekuakamiulnuatsh Takuhikan raises the renewal negotiations contemplated notably by clause 6.10.2, which were, however, not always conducted through that clause, in arguing that Quebec’s refusal to discuss an increase in funding constitutes unreasonable conduct contrary to the requirements of good faith.
[109] After a contract is entered into, [translation] “[t]he obligation to negotiate in good faith may . . . have a contractual basis and flow from the terms of the contract” (B. Lefebvre, La bonne foi dans la formation du contrat (1998), at p. 122), especially where the parties intend to renew the contract in a manner contemplated by it. In Trizec Equities Ltd. v. Hassine (1988), 27 Q.A.C. 167, which was decided under the Civil Code of Lower Canada, Monet J.A. explained that good faith must [translation] “preside over the entire contractual realm . . . over both the performance and the formation of the contract” (para. 9). He held that the imposition of such an obligation was justified in the circumstances given the presence of a renewal clause in a commercial lease. Thus, where parties have provided through a clause that they will have to enter into negotiations, the obligation to conduct the negotiations in good faith flows directly from the contract. Pursuant to art. 1375 C.C.Q., therefore, the performance of contractual provisions that contemplate negotiation must, as with any other contractual obligation, be in compliance with the standards of good faith. A breach of good faith in negotiating a renewal contemplated by a contract may thus be a source of contractual liability (Singh v. Kohli, 2015 QCCA 1135, at para. 67; see also Billards Dooly’s inc. v. Entreprises Prébour ltée, 2014 QCCA 842, at para. 98, and Centre de santé et de services sociaux de l’Énergie v. Maison Claire Daniel inc., 2012 QCCA 1975, at para. 80).
[110] Although good faith requires more than the absence of bad faith, it does not require parties to subordinate their interests to those of the other parties (Ponce, at para. 77). It is well established that good faith does not serve to “transform the objectives of corrective justice [it is] intended to protect into a mechanism of distributive justice that would be unpredictable and contrary to contractual stability” (Churchill Falls, at para. 125). In the case at bar, good faith does not require the parties to forsake their own interests to benefit their counterparties in the performance of the agreement. But as the Court noted in Ponce, “in the pursuit of their interests and the exercise of their rights, parties to a contract must conduct themselves loyally by not unduly increasing the burden on the other party or behaving in an excessive or unreasonable manner” (para. 76).
[111] It is true that no effect can be given to a contractual clause that is contrary to public order, a concept that includes the implied obligation to act in good faith that applies to every contract through the combined operation of arts. 1375 and 1434 C.C.Q. However, enforcement of the rule requiring good faith performance of a contract does not amount to a mandate to [translation] “rewrite” a contract freely entered into (see J.‑L. Baudouin and P.‑G. Jobin, Les obligations (7th ed. 2013), by P.‑G. Jobin and N. Vézina, at No. 415). In this sense, good faith in the performance of a contract must be seen as a standard that does not conflict with the binding force of contracts, but is its ally. Performing a contract in good faith does not require the debtor to renounce its rights.
[112] Similarly, good faith does not permit the creditor to go back on its word. As author Laurent Aynès writes about French law, good faith is [translation] “a duty of conduct that involves making the performance of the contract consistent with what was undertaken” (preface by L. Aynès in R. Jabbour, La bonne foi dans l’exécution du contrat (2016), at p. VII). In the instant case, good faith performance of the clauses contemplating the renewal of the contract cannot serve, for example, to require or impose specific outcomes from the negotiations. That being said, a party that enters into negotiations in good faith must consider the interests of any other party to the negotiations and avoid behaving unreasonably (see Singh, at paras. 67 and 74; Jolicoeur v. Rainville, 2000 CanLII 30012 (Que. C.A.), at para. 51). Negotiating tenaciously in one’s self‑interest — an approach that can be entirely compatible with good faith — does not mean negotiating in an obstinate or intransigent manner that would undermine the counterparty’s legitimate expectations. Good faith requires parties who discuss a renewal clause to negotiate faithfully. Parties are of course free — again, subject to the requirements of good faith — to end their existing contractual relationship. But when they begin renewal negotiations as permitted by the very terms of the contract, they are obliged to behave a manner that is neither excessive nor unreasonable in this final stage of carrying out their agreement (see, e.g., Société sylvicole de l’Outaouais v. Rasmussen, 2005 QCCA 729, at paras. 27‑28). Refusal to act in good faith in the negotiation of a renewal contemplated by the parties may jeopardize the very purpose of the contract where, as here, the achievement of that purpose depends on the existence of a relationship over time (see D. Lluelles and B. Moore, Droit des obligations (3rd ed. 2018), at Nos. 1979‑80 and 1987). At para 113-139 (esp. 134) the court find Quebec to have breached their good faith duty.
. Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan
In Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan (SCC, 2024) the Supreme Court of Canada dismissed a Quebec Crown appeal, that from an allowing by the Federal Court of Appeal, and that from a dismissal of the action at the Federal Court - the action being grounded in the allegation that "Canada and Quebec were in breach of good faith, the obligations flowing from the honour of the Crown or any fiduciary obligation" over a contract whereby the band provided it's own police service and the governments funded it.
Here the court summarizes it's extensive ruling - broadly considering issues of good faith, Honour of the Crown and remedies:I. Overview
[1] Do obligations undertaken by contract between the Government of Quebec and an Indigenous group engage the principles of good faith and of the honour of the Crown? If it is found that, in the performance of the contract, Quebec is liable on either of these distinct grounds, what remedy should be granted to address the breach? Where damages are claimed, as in this case, the remedy under the private law of obligations will in principle be limited to the amount required to compensate for the injury caused to the creditor by the failure to meet the requirements of good faith. But where there has been a breach of the obligation to act in a manner consistent with the honour of the Crown, can the public law remedy granted to the Indigenous group be distinguished from the private law remedy with a view to restoring the relationship between the contracting parties, both for the past and for the future, and thus placing them back on the constitutional path to reconciliation? These are the main questions raised by this appeal.
[2] The contracts in issue, which concern the police services provided to the Indigenous community of Mashteuiatsh in Quebec, are “tripartite” agreements: they were entered into by the Government of Canada, the Government of Quebec and Pekuakamiulnuatsh Takuhikan, an Indigenous band council established under the Indian Act, R.S.C. 1985, c. I‑5, which is the respondent in this appeal. These agreements have three main objectives: “to establish and maintain” an Indigenous police force that provides services adapted to the community; to set the maximum financial contribution by Canada and Quebec to the operation of the force; and to entrust the management of the force, which is accompanied by financial responsibility, to the respondent. Given the short duration of each of the agreements, the contracting parties have included an extension clause permitting their renewal so as to ensure the maintenance of the police force over time. In addition, the agreements state that they do not serve to recognize Aboriginal or treaty rights and that they must not be interpreted to be agreements or treaties within the meaning of s. 35 of the Constitution Act, 1982.
[3] Between 2013 and 2017 — the period covered by Pekuakamiulnuatsh Takuhikan’s amended originating application — the government funding provided for in the agreements proved to be inadequate on its own to ensure the maintenance of the Indigenous police force in Mashteuiatsh. At the end of each fiscal year, the police force incurred an operating deficit that did not result from any mismanagement or extraordinary expenses. The respondent therefore brought legal proceedings claiming reimbursement of the accumulated deficits from the governments of Canada and Quebec [translation] “[b]ecause of [their] undertaking to pay 100%” of the police force’s costs (amended originating application, at para. 84, reproduced in A.R., vol. I, at p. 148).
[4] The trial judge dismissed Pekuakamiulnuatsh Takuhikan’s application, holding that the contract is the law of the parties and that the honour of the Crown did not apply. The Court of Appeal set aside that judgment and ordered Canada and Quebec to pay their share of the total amount of the accumulated deficits. In the Court of Appeal’s view, the governments’ refusal to fund the Indigenous police force in Mashteuiatsh justified finding both a violation of the principle of good faith and a failure to uphold the honour of the Crown.
[5] Sole appellant before this Court, Quebec refuses to cover any of the deficit. In Quebec’s opinion, contrary to what the Court of Appeal stated, the honour of the Crown does not apply to the agreements. They do not contain “solemn promises” and do not deal with the reconciliation of distinctly Indigenous rights or interests with the Crown’s assertion of sovereignty. As for the agreements themselves, Quebec emphasizes that they set “maximum amounts” for the government contributions and that there is a contractual clause placing responsibility for deficits squarely on the shoulders of Pekuakamiulnuatsh Takuhikan. Citing the binding force of contracts, Quebec denies that it has an obligation to make up the difference, given that the respondent has not proved a breach of the contractual terms or of the requirements of good faith. Moreover, Quebec states that it has already provided additional assistance to the respondent through contract addenda and other means, which would reduce the quantum of the damages claimed.
[6] The debate therefore centres around the question of whether Quebec is responsible for the deficits resulting from the operation of the Mashteuiatsh police force in light of the contractual undertakings set out in the tripartite agreements. Pekuakamiulnuatsh Takuhikan rests its claim on two main grounds: a contractual basis under private law, grounded in the provisions of the Civil Code of Québec (“C.C.Q.”), and a public law basis anchored in the principles of Aboriginal law. According to the respondent, Quebec refused to genuinely negotiate the funding clauses of the agreements, which was a breach of both the requirements of good faith and the obligations — heavier still for the State — flowing from the honour of the Crown. The respondent is not seeking the annulment of the agreements or the recognition of any constitutional right. Rather, it demands reimbursement of the deficits accumulated during the period at issue. Canada has complied with the Court of Appeal’s order to pay 52 percent of this amount, its share of the funding under the agreements. As for Quebec, it asks the Court to set aside the Court of Appeal’s judgment ordering that it pay 48 percent of the deficits, to restore the trial judgment and to dismiss Pekuakamiulnuatsh Takuhikan’s application.
[7] This is the setting in which the Court must determine the applicable analytical framework to address allegations that the Crown has breached its undertakings under agreements relating to the establishment and maintenance of an Indigenous police force. The parties are asking the Court to clarify how the general law of obligations, set out mainly in the Civil Code, applies to contracts between an Indigenous community and the State. This appeal also calls upon us to develop, for the first time, a methodology for determining whether contractual undertakings given by a government to an Indigenous group that are not constitutional in nature may be subject to the principles of Aboriginal law, and more specifically to the honour of the Crown.
[8] Although the two main grounds relied upon — good faith and the honour of the Crown — are both principles of public order that may not be derogated from by contract, they cannot be conflated because of the distinct bases, in private law and public law, respectively, on which they rest.
[9] The first element of the framework proposed here is that the rules of the general law of obligations in Book Five of the Civil Code apply to the State, including when it enters into any contract with an Indigenous group, subject to any other rules of law applicable to it (art. 1376 C.C.Q.). The tripartite agreements are therefore subject to the principle, set forth in art. 1375 C.C.Q., that parties must conduct themselves in good faith in the performance of a contract. Good faith requires that every contracting party consider the other party’s interests in the performance of the contract, but not that one party subordinate its own interests to those of the other in so doing (Ponce v. Société d’investissements Rhéaume ltée, 2023 SCC 25, at para. 76; Churchill Falls (Labrador) Corp. v. Hydro‑Québec, 2018 SCC 46, [2018] 3 S.C.R. 101, at paras. 112‑13, per Gascon J., and at para. 177, per Rowe J., dissenting, but not on this point).
[10] In my view, the proper analysis leads to the conclusion that Quebec’s refusal to renegotiate its financial contribution when the agreements were renewed — even though it knew that the police force was underfunded and that a return to the services of the Sûreté du Québec (“SQ”) would involve risks for the community — was not in keeping with the requirements of good faith. Quebec’s intransigent behaviour despite the precarious situation of its counterparty constituted an abuse of right having regard to its right to seek the renewal of the agreement, notably through the extension clause. In other words, Quebec’s conduct did not constitute a reasonable exercise of its right “as expressed by reference to the conduct of a prudent and diligent individual” (Houle v. Canadian National Bank, 1990 CanLII 58 (SCC), [1990] 3 S.C.R. 122, at p. 164; see arts. 6 and 7 C.C.Q.). Quebec’s actions therefore give rise to civil liability under the ordinary rules of contract set out in Book Five of the Civil Code.
[11] A second element of the relevant framework is that the honour of the Crown is a public law principle originating in the special relationship with Indigenous peoples and that it applies to the performance of Quebec’s contractual undertakings in this case. While art. 1376 C.C.Q. provides that the private law of obligations applies to the State, it also specifies that this is “subject to any other rules of law which may be applicable to [it]”. This qualification set out in art. 1376 C.C.Q. refers implicitly to the idea that “public common law” rules may form a distinct liability regime for the State that supplements the one in Book Five of the Civil Code (Prud’homme v. Prud’homme, 2002 SCC 85, [2002] 4 S.C.R. 663, at para. 46; see also Sharp v. Autorité des marchés financiers, 2023 SCC 29, at para. 58, per Wagner C.J. and Jamal J., and at para. 150, per Côté J., dissenting, but not on this point). These public common law rules can, of course, narrow the scope of the State’s liability, as immunities do, but they can also alter it in other ways, and even intensify it.
[12] The principle of the honour of the Crown, which imposes a high standard of conduct on the State, is one such public law rule that may, in some contexts, broaden the scope of state liability. Unlike good faith, the honour of the Crown does not apply to the performance of every contract and is not an implied contractual obligation. As a common law rule originating in the sui generis relationship between the Crown and Indigenous peoples, the principle of the honour of the Crown is itself anchored to the goal of reconciliation. Indeed, it applies only in the performance of contracts between the State and Indigenous groups that are intended to foster the modern‑day reconciliation of pre‑existing Indigenous societies with the Crown’s historic assertion of sovereignty (see R. v. Desautel, 2021 SCC 17, [2021] 1 S.C.R. 533, at para. 22). Once its application is established, the binding nature of the honour of the Crown is, it seems to me, certain: as Binnie J. wrote in the context of a treaty, “the Crown cannot contract out of its duty of honourable dealing with Aboriginal people” (Beckman v. Little Salmon/Carmacks First Nation, 2010 SCC 53, [2010] 3 S.C.R. 103, at para. 61). The task before us is therefore to determine the legal test that can be used in this case to identify contractual undertakings that “attract” the honour of the Crown, the principle that will dictate “how [they] must be fulfilled” (Manitoba Metis Federation Inc. v. Canada (Attorney General), 2013 SCC 14, [2013] 1 S.C.R. 623 (“MMF”), at para. 73 (emphasis deleted)).
[13] With regard to this test, the jurisprudence supports the proposition that a contractual obligation that is not constitutional in nature may engage the honour of the Crown when it is related to Indigenous difference and it concerns a credible claim by the Indigenous creditor to a right of self‑government. This Court has never yet settled the question of whether there is a right of self‑government protected by s. 35(1) of the Constitution Act, 1982. However, as the case law on the duty to consult shows, the honour of the Crown may give rise to duties for the State, even where there is no established right protected by s. 35(1) (see Haida Nation v. British Columbia (Minister of Forests), 2004 SCC 73, [2004] 3 S.C.R. 511, at para. 35). Regardless of the means used by the Crown to advance the process of reconciliation, whether it be negotiating treaties, drafting legislation or entering into a contract as in the present case, the principle of the honour of the Crown must be applicable when it is required, and in accordance with the terms of the instrument that engages it.
[14] In the circumstances of this case, Quebec and Canada, as contracting parties, have an obligation to act with honour and integrity toward Pekuakamiulnuatsh Takuhikan in the performance of the tripartite agreements. These agreements are intended to advance reconciliation through the establishment and maintenance of an Indigenous police force that offers culturally appropriate services whose quality is in line with the applicable standard for such services, and for which administrative responsibility is entrusted to an Indigenous entity. The agreements relate to a credible, albeit not yet established, claim to the right of self‑government in matters of policing. As noted by the Minister who introduced the bill that authorized entering into such agreements in 1995 in the National Assembly, the establishment and maintenance of police forces managed by Indigenous peoples are part of a process [translation] “assuring them the exercise of the right of self‑government in Quebec” (Journal des débats, vol. 34, No. 19, 1st Sess., 35th Leg., January 27, 1995, at p. 1252 (S. Ménard)).
[15] Because the tripartite agreements provided for the renegotiation of their funding clauses, the Crown was required to conduct itself honourably during the renewal negotiations. Quebec’s obstinate refusal to genuinely renegotiate the contract’s funding terms is not only a breach of the requirements of good faith but also a breach of the obligation to act in a manner consistent with the honour of the Crown, a principle of public law based on a higher standard than the one relating to the obligation of good faith under private law. It bears repeating that these are two distinct bases. As I will endeavour to show, the breach of an obligation flowing from the honour of the Crown alone, independently of the breach of the requirements of good faith, justifies holding Quebec liable.
[16] As to the manner in which these breaches should be redressed, the appropriate remedy associated with the obligation of good faith under the civil law must be distinguished from that associated with the honour of the Crown under public law. Like the distinct bases of liability to which they refer, these private law and public law remedies are grounded in distinct conceptions of justice — corrective justice for the breach of the obligation of good faith under general contract law and justice linked to reconciliation for the failure to uphold the honour of the Crown, a public common law principle whose foundation lies outside Book Five of the Civil Code.
[17] Once a breach of the requirements of good faith has been established, the plaintiff still bears the burden of proving the extent of the injury caused to it by the defendant’s wrongful conduct in accordance with the basic rules of the law of civil liability grounded in the principle of restitutio in integrum, or full restitution. Here, the damages owed were not assessed at trial, because the judge did not find any fault on the part of the governments of Canada and Quebec. In my view, a precise calculation of damages, in conformity with the principles of corrective justice, must be undertaken. The damages awarded must not exceed the amount necessary to fully compensate for the injury suffered and place Pekuakamiulnuatsh Takuhikan in the position it would have been in but for the breach of good faith by the governments of Canada and Quebec in the renegotiation of the agreements (see arts. 1611 et seq. C.C.Q.). However, in this case we have neither sufficient evidence nor an adequate factual foundation to perform this task properly, and particularly to determine the relevance of the contract addenda and other additional contributions that Quebec contends are relevant to the assessment of damages. Had there been no claim based on the principle of the honour of the Crown, I would therefore have proposed remanding the case to the Superior Court for an assessment of compensatory damages, pursuant to s. 46.1 of the Supreme Court Act, R.S.C. 1985, c. S‑26.
[18] However, given the distinct public law basis for Quebec’s liability, a remedy meant to address the breach of the Crown’s obligation to carry out the agreements in an honourable manner rests on a basis other than corrective justice. Rooted in what might be described as reconciliatory justice, this remedy is not intended to compensate the Indigenous claimant only for harm suffered as a result of past wrongs. It serves here above all to restore and improve the relationship between the Crown and Indigenous peoples in order to support reconciliation, a process that not only takes the past into account but also “continues beyond formal claims resolution” (Haida Nation, at para. 32). In the determination of an appropriate remedy to preserve the honour of the Crown, Jamal J., writing for the Court, recently noted the importance of being “creative” within a principled legal framework (Ontario (Attorney General) v. Restoule, 2024 SCC 27, at para. 277, quoting P. W. Hogg and L. Dougan, “The Honour of the Crown: Reshaping Canada’s Constitutional Law” (2016), 72 S.C.L.R. (2d) 291, at p. 292). In this case, I am of the view that an award of damages equal to the deficits indicated by Pekuakamiulnuatsh Takuhikan is an appropriate measure that will enable the contracting parties to undertake future negotiations with equanimity. It also seems to me that remanding the case to the Superior Court would be contrary to considerations of proportionality, which warrant special attention where an obligation flowing from the honour of the Crown has been breached.
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