The British Columbia Court of Appeal found that members of a Band Council breached their fiduciary duties to the Band when they decided to pay themselves $5,000 each as a “retroactive honorarium”, and ordered the Councillors to disgorge the funds.

In 2009, the Lower Kootenay Indian Band in southeastern British Columbia received $125,000 from the Regional District of Central Kootenay as compensation for the District's use of a road that crosses one of the Band's reserves. During an in camera session at a subsequent Band Council meeting, the defendant Band Council members decided to pay themselves $5,000 each as a retroactive honorarium for their work as members of the Council. The plaintiff Wayne Louie, a Band member, brought an action in 2012 for an order that the funds be returned to the Band. He also sought punitive damages.

In 2014, the summary trial judge dismissed the action. He held that the Council had acted in accordance with the customs and practices of prior Band Councils, in which there had never been advance consultation with Band members before payments of honorariums or travel expenses. He also rejected the allegation that the payments had been made in secret or had been concealed by the defendants. With respect to allegations of conflict of interest, the trial judge found that it would be impossible for the Council of such a small Indian Band to apply strict conflict of interest rules.

The Court of Appeal noted two fundamental principles applying to fiduciaries: the “no conflict” rule and the “no profit” rule. A person in a fiduciary position is not entitled to make a profit from his or her position unless otherwise expressly provided by the terms establishing the fiduciary relationship. Fiduciaries also cannot put themselves in a position where their interests and duties conflict. The subjective motivations of the fiduciaries, or the absence of real harm to the beneficiaries, are irrelevant.

The Court of Appeal found that the trial judge had erred in assuming that express authority had been given to the defendants by virtue of past practice. Section 2(3) of the Indian Act requires the consent of the majority of the Band for the exercise of such a power by a Band Council. There was no evidence of compliance with s. 2(3). Newbury J.A. commented:

While I agree that it is unrealistic to expect a band to comply strictly with all the rules and regulations of a sophisticated corporation or council, I see no basis on which this very fundamental statutory provision could be effectively ignored.

There was also no evidence that the Band, by its custom or practice, had represented or held out that Council members could depart from a previously-set honorarium.

The removal of $25,000 from the Band funds was a clear and significant personal benefit to the defendants, and did not benefit future members of the Band Council or the Band. Indeed, it was a detriment to the Band. Newbury J.A. concluded:

The conclusion seems to me inescapable that this was a breach of fiduciary duty, even in the context of a relatively informal and custom-based governance structure. In my view, such a structure should not deprive members of the Band of the protection of the fiduciary principle. They were entitled to hold the defendants to the high standard to which other fiduciaries are held in this country.

Mr. Louie's appeal was therefore granted, and the Court of Appeal made an order declaring that the five defendants acted in breach of their fiduciary duties to the Band. The defendants were ordered to each disgorge the amount of $5,000 to the Band. The Court of Appeal also gave leave to the plaintiff to pursue his claim for punitive damages in the court below.

Decisions available here and here.

Author

Scott Kerwin 
SKerwin@blg.com
604.640.4029

Expertise

Aboriginal Law