The British Columbia Court of Appeal dismissed an appeal relating to a claim against the Minister of Indian Affairs and Northern Development concerning leased lands on an Indian reserve.

The decision of the trial judge was summarized in our e-Newsletter of 14 July 2014. The Supreme Court of British Columbia allowed a claim of $176,000 by Canada, on behalf of locatees of portions of Duck Lake Indian Reserve No. 7 near Kelowna, against a corporation that had leased the lands for property development. A separate action by the corporation against Canada for breach of contract was dismissed. The relevant lands are approximately 12 acres in size and were set apart for the use and benefit of the Okanagan Indian Band. In 1983, the Band allotted portions of the reserve to two band members pursuant to section 20(1) of the Indian Act and granted a certificate of possession to the locatees. The Band Council, at the request of the locatees, then made a formal request to the Minister, pursuant to a Band Council Resolution, that these lands be leased pursuant to s. 58(3) of the Indian Act. In 1985, Canada entered into a 20-year lease with a company named Lakeshore Estates Ltd, and the term of the lease was subsequently extended to 45 years. In 1990, the lease was sold to a BC company that later became known as Water's Edge Resort Ltd. The terms of the lease provided for the determination of “ fair market rent ”, and that disputes would be referred to the Federal Court of Canada.

Beginning in 1991, Water's Edge constructed houses, condo buildings and cottages on the property. The lands were subleased, mostly to elderly or retired persons. Conflicts began to arise in the 1990s. The locatees of the lands (who were different than the original locatees in the early 1980s) objected to actions of Water's Edge such as cutting trees and the removal of tobacco bundles without the appropriate ceremony. A larger dispute related to rent. In 1996, the Minister issued a Notice of Rent increase for the term of 1995 to 2000 which raised the annual rent from $14,400 to $31,000.  The Minister directed that negotiations take place between Water's Edge and the locatees, but those negotiations broke down in 1997. In April 2001, the Minister advised Water's Edge that the annual rent for 2000 to 2005 would be $192,000. The receipt of this letter triggered the 60-day limitation period for rent reviews in Federal Court under the lease. Water's Edge objected to the rent increase but did not initiate proceedings in Federal Court. Negotiations reached an impasse since the Minister (and the locatees) wanted all rent arrears paid before discussions would begin, whereas Water's Edge would not pay any arrears until a new lease was negotiated. The Minister issued a Notice of Default of Lease in September 2001 and stated that the rent arrears of $176,000 must be paid by October. No amount was paid, and the Minister issued a Notice of Cancellation in October 2001.

The trial judge accepted the position of Canada that the substance of Water Edge's claim was a rent review. Such a claim was now moot due to the cancellation of the lease, and the Federal Court had exclusive jurisdiction due to the terms of the lease. The Court also rejected the claims of Water's Edge that there were implied terms to the lease, such as fairness, or an obligation of “ good faith ”.

The plaintiff Water's Edge appealed this decision. Most of the appeal was based upon the Supreme Court of Canada decision in Bhasin v. Hrynew , 2014 SCC 71, which was released after the trial judgment, in which a new overarching obligation of good faith and a duty of honest performance in contract was adopted. The Court of Appeal held that it would be inappropriate to decide the appeal on such grounds in the absence of specific findings of fact relating to the Bhasin obligations. The Court of Appeal dismissed the remaining ground of appeal concerning causation. Newbury J.A. commented:

In the circumstances, I am not persuaded that even if the new Bhasin duties had been in existence at the time of trial, a different conclusion on the issue of causation would have been appropriate. In other words, if the Ministry had been forthcoming about its appraisal, provided Water's Edge with an appraisal report or its methodology, or even sought a lesser rent for the period 2000-2005, the result would have been the same: Water's Edge would still have insisted upon a 99-year term and other conditions designed to allow it to obtain institutional financing. It appears these conditions were simply not acceptable to the Minister, who was of course under a duty to the Okanagan Band and the Locatees to protect the future of the property.

The appeal was therefore dismissed.


Scott Kerwin


Aboriginal Law