COURT OF APPEAL FOR ONTARIO

CITATION: Pikangikum First Nation v. Nault, 2012 ONCA 705

DATE: 20121024

DOCKET: C53227

Weiler and Sharpe JJ.A. and Mackinnon J. (ad hoc)

BETWEEN

Pikangikum First Nation

Plaintiff (Appellant/

Respondent by way of cross-appeal)

and

Robert D. Nault

Defendant (Respondent/

Appellant by way of cross-appeal)

and

The Attorney General of Canada

Defendant (Respondent/

Appellant by way of cross-appeal)

Joseph Magnet and Travis Moffatt, for the appellant/respondent by way of cross-appeal

John Tyhurst and Abigail Martinez, for the respondents/appellants by way of cross-appeal

Heard: September 5-6, 2012

On appeal from the judgment of Justice John dePencier Wright of the Superior Court of Justice, dated December 23, 2010, with reasons reported at 2010 ONSC 5122.

Sharpe J.A.:

[1] This appeal arises out of a dispute between the Pikangikum First Nation (“PFN”) and Robert Nault, the former Minister of the Department Indian Affairs and Northern Development (“the department”). The principal issue is whether Nault committed the tort of misfeasance in public office by withholding millions of dollars of much-needed infrastructure funding in 2001-2002. PFN asserts that Nault knowingly abused his powers as Minister by insisting that there would be no funding unless PFN withdrew an application for judicial review challenging the department’s decision to appoint a third-party manager to assume control of PFN’s finances.

[2] Following a 23-day trial, and a careful review of the evidence, the trial judge dismissed PFN’s claim. His conclusion may be summed up in these few words, at paras. 250-251 and 260-261:

[I]t cannot be said that the inaction of Mr. Nault was motivated by a vindictive desire to harm the Band per se.

It cannot be said that the inaction of Mr. Nault was motivated by considerations extraneous to the legitimate issues between the parties.

Mr. Nault’s request for the setting aside of the litigation [was] not unreasonable. Unfortunately, the litigation had taken on a life of its own. It had come to symbolize the power struggle being engaged in by both parties.

Mr. Nault’s reluctance to embark on these extensive infrastructure projects when the necessary co-operative attitude did not exist was not unreasonable. Certainly it was not tortious. [Headings omitted.]

[3] The trial judge went on to assess the damages he would have awarded if PFN’s claim had succeeded. His assessment included over $48 million to reflect the opportunity cost of not converting the reserve’s power supply from diesel to an electrical grid. The trial judge also assessed $30,000 in punitive damages.

[4] On appeal, PFN submits that the trial judge made several errors in his analysis of the claim for misfeasance in public office. It also submits that the trial judge erred in his approach to punitive damages. Nault and the Attorney General of Canada (collectively, “Canada”) submit that the trial judge’s decision was based on his careful assessment of the facts and therefore entitled to deference and that his conclusions are sound in law. Canada cross-appeals the trial judge’s assessment of damages.

FACTS

Pikangikum First Nation

[5] PFN is a community of about 2000 people located on a remote reserve hundreds of kilometres northwest of Thunder Bay. There is no direct road access to the reserve and its residents depend on bulk deliveries of supplies to last for months at a time. The reserve is powered by unreliable and inadequate diesel generators. Housing is scarce and lacks indoor plumbing. The fresh water bay of Lake Pikangikum is prone to sewage spills from the surrounding public buildings. Unemployment on the reserve is high. Tragically, so is the suicide rate.

The Indian and Inuit Affairs Program

[6] In 2000-2001, Parliament allocated $4.14 billion for the Indian and Inuit Affairs Program, the objectives of which were to enhance the capacity of First Nations governments to provide services and to build infrastructure on reserves at levels comparable to those enjoyed by other Canadians.

[7] The plans for PFN as part of this initiative called for a phased series of capital projects, including:

• connecting Pikangikum to the electrical distribution grid from Red Lake;

• constructing a new water treatment plant and sewage lagoon;

• adding onto the existing school building; and

• extending water and sewage service to public buildings and, eventually, to every home on the reserve.

Robert Nault’s appointment

[8] Nault’s appointment as Minister in 1999 was cheered by members of PFN. The reserve was located in Nault’s riding and, as a backbencher, he visited PFN regularly and lobbied forcefully on its behalf. As Minister, he pledged to establish a unit within the department dedicated to the interests of PFN and to personally supervise progress on the school project to ensure that it did not get bogged down in bureaucracy.

PFN project setbacks

[9] By the beginning of 2000, the electrical grid project was about 35% completed. The new water treatment plant and sewage lagoon were up and running and pipes and manhole covers had been delivered in anticipation of the next phase of construction.

[10] Unfortunately, over the course of several months, PFN suffered four catastrophic – and avoidable – setbacks.

[11] First, in February 2000, the Band advised the contractor for the electrical grid that it had run out of money. The trial judge found as a fact that the distribution grid was “very important” to the department: electrical power is far less expensive than diesel, and the conversion was expected to save the government some $3.6 million in annual energy costs. Even more important to PFN, the grid was expected to provide the safe and reliable power needed to connect all buildings on the reserve to the new water and sewage systems. The department also envisaged that connecting Pikangikum to the power grid would be a crucial first step in connecting other remote northern reserves.

[12] Second, in March 2000, the oil tank at the school overflowed, apparently as a result of human error by the school’s janitorial staff. The school was forced to close and did not reopen until the following January following a costly clean-up.

[13] Third, in June 2000, a power failure at the new water treatment plant caused a sewage backup that contaminated Pikangikum’s drinking water. Again, this appeared to have been caused by human error.

[14] Finally, in October 2000, the basement of the new water treatment plant flooded. Fuel oil spilled into the reservoir and PFN’s water supply was deemed unsafe. A state of emergency was declared.

The department’s intervention policy

[15] As a recipient of federal funds, PFN is subject to a Comprehensive Funding Agreement or Arrangement (“CFA”). At the relevant time, default under the CFA was triggered by:

• Failure to meet its terms and conditions;

• A denial of or adverse opinion from auditors;

• A cumulative deficit of 8% or more of total revenues; or

• Compromise to the “health, safety or welfare of community members”.

[16] In the event of a default, the department’s intervention policy is implemented. The policy provides for three increasingly direct levels of intervention:

1. Remedial management plan – the Band develops a plan, approved by the Crown, to address the default. This level is appropriate when the Band is willing to deal with the issues and has the capacity to do so.

2. Co-management – the Band and the Crown jointly agree on the appointment of an individual, partnership, corporation or Band council to assist the Band in meeting its obligations under the CFA. This level is appropriate when the Band is willing but lacks the capacity to deal with the issues that caused the default.

3. Third-party management – the Crown appoints a third-party manager over the Band’s affairs. This level is necessary where the Band is assessed as being at high risk and/or is unwilling to address the default or the difficulties that gave rise to the default.

November 2000: notice of intention to impose third-party management

[17] Beginning in 1996, PFN had been under co-management to bring its debt under control. By 2000 PFN had stabilized its finances and the co-manager had been discharged. As the trial judge observed, at para. 21, PFN’s progress between 1996 and 2000 was “[a]n admirable display of what can be achieved with co-operation, determination and expert assistance.”

[18] However, on November 17, 2000, officials in the department decided that the dire circumstances outlined above warranted immediate intervention, and they wrote to Chief Peter Quill to advise that a third-party manager would be appointed for PFN. In its letter, the department stated that it was imposing third-party management because of concerns over PFN’s ability to manage the existing community infrastructure facilities as well as the major capital projects planned for the future.

[19] The trial judge described the letter announcing this decision, at para. 58, as “extraordinary” both politically and procedurally. Politically, it was extraordinary because it was sent ten days before a federal election without the input or approval of Nault, who was known to oppose third-party management on principle. The trial judge observed, at para. 47, that the staff responsible for the letter were either “amazingly disloyal to their Minister or were shockingly oblivious to political realities.”

[20] Procedurally, the letter was extraordinary because, as the trial judge stated at para. 61, “it seemed to announce a fait accompli.” This was contrary to departmental policy requiring that the notice of intention to intervene be followed by a meeting between the parties.

[21] Immediately upon receipt of the letter, Quill asked for a written explanation for why third-party management was being imposed without prior notice or consultation with the Band and requested a meeting. In a telephone call a few days later, Nault assured Quill that he had “no intention” of imposing third-party management.

PFN’s application for judicial review

[22] Nault met with Quill and other PFN leaders in December 2000 shortly after his re-election, and used the opportunity to affirm his preference for co-management rather than third-party management. At the end of the meeting, PFN’s lawyer served Nault personally with notice of an application for judicial review of the department’s November 17 decision to impose third-party management, a decision Nault had already disavowed.

[23] The trial judge described Nault’s response to being served with the application for judicial review, at para. 71:

This upset Mr. Nault. He considered that he had been championing the cause of the Band against his own department and now he had been betrayed by those whom he had attempted to help. This litigation was the first time in Ontario that the department's application of the intervention policy had been challenged in court and it was being defended vigorously. He was very concerned that the $40 million committed to the various community projects would be lost to the Band. He made it clear that if litigation was going to be an option then the Band should not expect anything other than an equally litigious response.

Negotiations for co-management

[24] Despite the litigation, there was some progress towards a cooperative solution. Nault took the prospect of third-party management off the table, and Quill agreed that co-management would be acceptable. However, at a general meeting of the Band in February 2001, Quill and his deputy were both ousted for their “inappropriate action” of agreeing to co-management, and new leadership was elected with the mandate of taking a harder line with the Minister.

[25] Not surprisingly, the situation rapidly deteriorated. The existing CFA was set to expire shortly and a new one would have to be signed to ensure the continued flow of federal funding. The department was not prepared to sign a CFA without a co-manager to guarantee the proper use of government money, but the Band refused to agree to co-management.

[26] On May 1, 2001, a department official wrote to PFN to reiterate the offer of co-management, pointing out that without a CFA the Minister had no authority to provide funding and that the Minister would not sign a CFA without a co-manager in place. The letter further stated: “Should this offer not be acceptable to the council the department is prepared to immediately commence the delivery of programs and services directly.”

[27] PFN responded by launching a second application for judicial review challenging the decision implicit in the May 1 letter to impose third-party management if a co-management agreement was not reached. On May 10, 2001, the department wrote again to the Band to inform them that a third-party manager would be appointed and would remain in place “until the First Nation and the department are able to reach agreement on the terms regarding the appointment of a co-manager.”

[28] On May 17, 2001, PFN notified the department that the third-party manager would not be granted access to the reserve and that it could not guarantee his safety if he was to appear. The next day, the department signed an agreement with an outside firm to act as third-party manager for PFN. By this time the dispute had drawn national media attention. The PFN called the third-party manager an “Indian Agent”, evoking the history of colonialism. The Chief of the Assembly of First Nations, Matthew Coon Come, warned that Pikangikum could become “another Oka”.

[29] In July 2001, Nault met with Band leaders and proposed mediation. One of the conditions laid down on the recommendation of the Department of Justice was that PFN put the applications for judicial review in abeyance. PFN did not respond to the formal offer to mediate.

[30] Nault continued to propose co-management rather than third-party management. He set out certain conditions in a letter to PFN dated September 10, 2001:

We are prepared to discuss a co-management agreement upon the following conditions:

1. an audit for the 2000-2001 fiscal year is submitted prior to initiating discussion,

2. all legal actions in reference to funding arrangements are suspended,

3. A joint press release is drafted on co-management.

[31] PFN was not prepared to accept conditions two and three and, at trial, submitted that those conditions –particularly the condition requiring the suspension of the applications for judicial review – were illegal and abusive.

Funding approval stalled

[32] Just as matters were coming to a head on third-party versus co-management, bids for the water and sewage project were received. The project manager recommended that the low bid be accepted immediately so that work could begin before winter. Around the same time, the department was informed that PFN’s diesel generators needed immediate overhaul to avoid the risk of “brown-outs”.

[33] The money needed to get both these initiatives underway was within the range that could be approved without ministerial approval. However, as the trial judge found, at paras. 147-148, officials believed that Nault had assumed decision-making authority over matters relating to PFN and so no funds were released.

[34] There was evidence from John Donnelly, the department’s Ontario Regional Director General, that Patti Skillen, one of Nault’s most trusted advisers, told him that Nault would not approve any projects for PFN until the applications for judicial review had been withdrawn. Skillen had testified at the trial in December 2009. She was asked whether she agreed with Donnelly’s conclusion in an email that Nault wanted no new projects for PFN until the court action was complete. She described this as “overreaching”. Her purported statement to Donnelly was not put to her cross-examination and she died later in December. Nault testified that he had not made such a directive. At para. 150, the trial judge rejected PFN’s submission that Skillen “should be accepted as an agent whose testimony binds the Minister” but he accepted “the fact that she said this is a fact which, taken with other facts, may lead to an inference.” He also accepted that in the eyes of the bureaucracy, “her word was the word of the Minister”.

[35] On September 28, 2001, the Senior Project Manager for PFN’s Capital Management Group wrote to Nault to impress upon him the urgency of signing a contract with the successful bidder for the water and sewer project. He explained that the project was important to the health of the community and that the tender would be invalid if it was not signed immediately, pushing the project back “well into 2002 if there is a will to ever continue.” Nault claims not to have seen this letter. The trial judge found, at para. 164, that despite his denial, Nault had seen and initialled the letter.

[36] On October 3, 2001, Donnelly met with the Deputy Minister and recommended that he approach Nault to seek approval of the water and sewer and generator projects. The Deputy Minister later told Donnelly that he had discussed the matter with Nault. No decision was taken at that time.

[37] On October 12, 2001, PFN’s new Chief, Louis Quill, wrote to Donnelly affirming PFN’s absolute opposition to third-party management and its refusal to suspend or withdraw its case in Federal Court, but indicating that PFN would be prepared to receive funding through an intermediary (i.e. a co-manager) pending the outcome of the judicial review applications.

[38] The Senior Project Manager for PFN’s Capital Management Group sent a second letter to Nault on November 16, 2001, reiterating the importance of the water and sewer project and warning of the public health consequences if it did not proceed.

[39] Nault eventually approved funding for the generator project in late February 2002. Funding for the water and sewer project remained stalled.

March-April 2002: third-party management renewed

[40] The third-party management contract expired on March 31, 2002. In mid-March 2002, Quill requested a meeting with Nault to discuss co-management. Nault responded by letter advising that the preliminary audit for the 2000-2001 fiscal year received a denial of opinion “due to deficiencies in internal control over the accounting records.” If confirmed, the denial of opinion would trigger intervention under the policy. Nault stated that the department’s regional officials would be pleased to meet with the Band to discuss its management options, and requested financial statements for the first quarter of 2001-2002 so the parties could consider those options using the most up-to-date information. An e-mail from Skillen to department officials prior to the meeting with PFN clarified that no one had authority to made deals with PFN without Nault’s direction.

[41] The meeting took place on April 5, 2002 and at that meeting, PFN was informed that the department had signed a third-party management contract to run from April 1, 2002 to March 31, 2003.

November 2002: the Federal Court allows the application for judicial review

[42] PFN’s application for judicial review was heard in June 2002 and in November 2002, O’Keefe J. allowed the application: Pikangikum First Nation v. Canada (Minister of Indian & Northern Affairs), 2002 FCT 1246, (2002), 224 F.T.R. 215.[^1]

[43] The application judge held that it was patently unreasonable for the department not to follow the intervention policy, which, in his view, mandated that PFN be given notice of the difficulty or default before intervening.

[44] The application judge held that the generality of the November 17, 2000 letter referencing problems “at the water treatment plant and the school” was insufficient to meet the duty of procedural fairness. He also held that Nault’s “announcement” that he supported co-management, not third-party management, at the December 2000 meeting did not provide sufficient notice of the difficulties or defaults that would warrant intervention. Ultimately, the application judge declared the Minister’s decision to require co-management to be invalid because of the breach of the duty of procedural fairness.

[45] However, the application judge refused PFN’s request for a declaration that:

• PFN was not in default of its obligations under the CFA;

• There were no legal or equitable grounds to withhold funding;

• The actions of the department were contrary to its own policies; and

• PFN was entitled to enter into a CFA (i.e. without any departmental intervention), as in previous years.

[46] The application judge explained, at para. 106: “I am not prepared to grant this relief as much more information would have to be before the Court to make a decision with respect to the requested relief. In addition, the funding for the period in question is more likely already disbursed.” He also refused PFN’s request for an interlocutory injunction requiring the department to provide current year funding pending the outcome of the litigation, “as the current year funding has likely been provided by other means” (i.e. third-party management).

PFN’s action for misfeasance of public office commenced

[47] Shortly after the Federal Court decision was released, PFN commenced this action. PFN claimed that Nault acted unlawfully and misused his power by: imposing third-party management; attempting to deny PFN access to the courts; insisting on favourable media statements; and cancelling or delaying vital health and safety projects to advance illegal or wrongful objectives.

[48] The trial began in Kenora in December 2009 and concluded in June 2010. The trial judge’s decision was released at the end of 2010, ten years to the month that the dispute arose.

The current state of affairs

[49] At paras. 177-180, the trial judge summed up the state of PFN’s infrastructure as of the date of the trial:

To this day the power grid has not been completed. Power that could have been supplied at a cost of several hundreds of thousands of dollars continues to be supplied to this Band at a cost of millions of dollars. This does not take into consideration the continued cost of providing electricity by generator to the other Bands who would also have been served by the power grid.

To this day the effluent from the water treatment plant is still being directed to the lake.

To this day sewage facilities continue to be largely dependent upon holding tanks and pump trucks.

To this day potable water must be largely hauled to the consumer from the water treatment plant.

THE TRIAL JUDGE’S REASONS

[50] The trial judge found that PFN had failed to establish the elements of the tort of misfeasance of public office. His conclusions may be summarized as follows:

• PFN failed to demonstrate that Nault was under any legal obligation to approve the tenders for the water and sewer projects. PFN admitted that the projects were not mandatory, an admission supported by the fact that the projects remain stalled to this day (paras. 194-196).

• The imposition of third-party management after May 10, 2001, was not wrongful. That action was not impugned in the Federal Court decision and that court was not prepared to declare that intervention was not necessary. Some level of intervention by a co-manager or a third-party manager was reasonable under the intervention policy in the circumstances (paras. 209, 245-246).

• The Band’s rejection of both forms of managerial intervention was unrealistic. Under the circumstances the department did not feel it could simply turn over large sums of money to the Band without supervision. In the absence of an agreement between the parties, there was no legal mechanism whereby the department could funnel financing to the Band except through an intermediary (para. 248).

• It cannot be said that Nault’s inactions were motivated by a vindictive desire to harm the Band per se, nor can it be said that his inactions were motivated by considerations extraneous to the legitimate issues between the parties. While one may feel that his reaction was not proportionate to the situation, the negotiating environment must be remembered (paras. 250-254).

• Nault did not cancel any project. At most, he deferred them pending complete resolution of the existing dispute. This was unfortunate for PFN but understandable (para. 257).

• Nault’s request for the setting aside of the litigation was not unreasonable. The litigation had taken on a life of its own and had come to symbolize the power struggle between the parties. His reluctance to embark on the infrastructure projects when the necessary cooperative attitude did not exist was not unreasonable. Certainly it was not tortious (paras. 260-261).

• Nault’s condition that the parties issue a joint press release was not improper. There was no mention of a favourable press release. It was simply to be one explaining co-management. This was reasonable given the very public nature of the dispute (paras. 140-141 and 268; emphasis in original).

• Contrary to PFN’s claim, Nault did not “bargain” by offering a lower level of intervention in exchange for an end to the Federal Court litigation and for positive media coverage. Rightly or wrongly and against the advice of his department, Nault was content to try out co-management and only resiled from that position when he was forced to do so by the changed position of the Band (paras. 269-270).

[51] The parties agreed on the quantum of special damages related to the involvement of the third-party manager. The trial judge assessed additional special damages in the amount of $272,000 for water pipes that were purchased but never used, and $545,351 for interest on a loan the Band took out when federal funds were withheld. He assessed $48 million in lost savings from the failure to convert the power supply from diesel to an electrical grid and $594,300 in damages for the loss of benefit of the water and sewer and school projects. Finally, the trial judge assessed punitive damages of $30,000.

ISSUES

[52] PFN raises four issues on appeal:

1. Did the trial judge make a palpable and overriding error by making no findings as to the claim of misfeasance arising from the events of March-April 2002?

2. Did the trial judge err by holding that Nault’s stalling of the infrastructure projects was a “failure to act”, and one not done for an improper purpose?

3. Did the trial judge judge err by holding that Skillen’s direction that no projects could proceed until PFN dropped its litigation was not a vicarious admission of Nault?

4. Did the trial judge err in his assessment of damages?

ANALYSIS

[53] As I see it, the first three issues raised by PFN all relate to its overarching submission that the trial judge erred in dismissing its claim for misfeasance in public office. Accordingly I will discuss the elements of the tort generally before turning to these specific grounds of appeal.

The tort of misfeasance in public office

[54] In Odhavji Estate v. Woodhouse, 2003 SCC 69, [2003] 3 S.C.R. 263, at para. 23, Iacobucci J., writing for a unanimous Supreme Court explained that the tort of misfeasance in public office has two elements:

(1) The defendant must have engaged in deliberate and unlawful conduct in his or her capacity as a public officer; and

(2) The defendant must have known that the conduct was unlawful and that it was likely to harm the plaintiff.

[55] At para. 24, Iacobucci J. set out the distinction between acts and omissions for purposes of the tort: “[A] failure to act can amount to misfeasance in a public office, but only in those circumstances in which the public officer is under a legal obligation to act.”

[56] He went on to explain, at para. 25, that in the context of this particular tort, “misconduct” means: (i) an intentional illegal act (or, where there is a duty to act, an intentional omission); and (ii) an intent to harm an individual or class of individuals.

[57] He summed up the legal principle this way, at para. 28:

The requirement that the defendant must have been aware that his or her conduct was unlawful reflects the well-established principle that misfeasance in a public office requires an element of “bad faith” or “dishonesty”. In a democracy, public officers must retain the authority to make decisions that, where appropriate, are adverse to the interests of certain citizens. Knowledge of harm is thus an insufficient basis on which to conclude that the defendant has acted in bad faith or dishonestly. A public officer may in good faith make a decision that she or he knows to be adverse to interests of certain members of the public. In order for the conduct to fall within the scope of the tort, the officer must deliberately engage in conduct that he or she knows to be inconsistent with the obligations of the office.

[58] In the case at bar, the trial judge’s central factual finding was that it was reasonable for Nault to insist that PFN suspend its litigation as a precondition to co-management and the release of millions of dollars in federal infrastructure funds.

[59] Simply put, the trial judge found that on account of PFN’s managerial and audit problems, some legal mechanism was required to monitor public money given to PFN. Under the governing legislation and departmental policies, that legal mechanism would inevitably involve an intermediary, either a co-manager or a third-party manager. Nault consistently favoured co-management and resisted the stronger level of intervention reflected by third-party management. Nault believed that the litigation stood in the way of reaching a mutually acceptable resolution of the management issue and the trial judge found that Nault’s belief was properly motivated and reasonable in the circumstances.

1. Did the trial judge make a palpable and overriding error by making no findings as to the claim of misfeasance arising from the events of March-April 2002?

The positions of the parties

[60] On appeal, PFN spent considerable time arguing that the trial judge failed to deal with its claim of misfeasance arising from the events of March-April 2002, and that this failure represents a palpable and overriding error attracting the intervention of this court.

[61] For its part, Canada argues that the events of March-April 2002 were not pleaded as constituting a separate and distinct tort. Citing Lax Kw’alaams Indian Bank v. Canada (Attorney General), 2001 SCC 56, [2011] 3 S.C.R. 535, it argues that a trial judge does not err when he or she fails to make findings on matters not pleaded. Canada also argues that, in any event, the trial judge’s findings are sufficient to embrace the events of March-April 2002 and are a complete answer to PFN’s argument that in March-April 2002, Nault committed the tort of misfeasance in public office.

Discussion

(a) The events of March-April 2002

[62] I agree with Canada’s submission that PFN did not plead that the events of March-April 2002 constituted a separate and distinct tort. The allegations contained in the amended statement of claim do not focus on those dates or events but plead a more general claim that, if anything, appears to be more focused in the earlier intervention. Canada sought particulars of the misfeasance claim and in response PFN specified actions taken in May 2001.

[63] In my view, a fair reading of this record indicates that PFN put forward a general claim based primarily on the events of 2000-2001. To the extent that the events of March-April 2002 were litigated, they were of a piece with PFN’s broader claim of misfeasance. Indeed, the decision to renew the third-party management contract in the spring of 2002 was simply an extension of the initial imposition of third-party management in May 2001.

[64] I therefore reject the submission that the trial judge erred by failing to deal separately or distinctly with the events of March-April 2002. In my view, his findings may properly be read as dealing with the entire history of the dispute concerning the appropriate level of government intervention in PFN’s financial affairs, including the events of March-April 2002.

(b) The trial judge’s findings on misfeasance in public office

[65] As the trial judge observed, at para. 236, when determining whether PFN has made out a case of misfeasance in public office, it is important to keep in mind the factual context and background to the dispute between these parties.

[66] Nault came to his role with no animus towards PFN. The reserve was in his riding and he had championed PFN’s cause and worked hard to help it deal with the problems it faced. As Minister, Nault consistently opposed third-party management. After the department announced its decision to impose third-party management in November 2000 without his instruction or approval, he tried to work out a solution for a less drastic form of intervention.

[67] As I have explained, the idea that PFN should suspend its litigation while the parties attempted mediation first emerged on the advice of the Department of Justice. While Nault continued to insist upon that as a condition of coming to some accommodation with PFN, there was ample evidence to support the trial judge’s finding that there were other compelling reasons to justify federal intervention in PFN’s financial affairs.

[68] By the period March-April 2002, the focus of PFN’s attack on this appeal, the litigation was but one item on a very long list of problems that justified some form of federal intervention in PFN’s affairs. In my view, there was a solid basis in the evidence for the trial judge to conclude, at para. 209, that “intervention by co-manager or third-party manager was reasonable under the intervention policy in the circumstances.” Those circumstances included:

• PFN’s most ambitious and important capital project, the extension of the electric power grid, had stalled and there were reasonable grounds to believe that that had occurred because of PFN’s actions.

• Extension of the grid was needed to complete projects vital to the health and safety of the community, namely the upgrade of water and sewer services and the completion and operation of the new water treatment plant.

• The fuel spill at the school and the contamination of the water supply appeared to have been caused by carelessness or mismanagement of PFN employees.

• PFN experienced political turmoil and instability that interfered with arriving at a cooperative solution.

• PFN was refusing to cooperate with the third-party manager or allow him access to the community, severely impeding progress on projects vital to the community’s health and safety.

• PFN’s 2000-2001 audit contained a denial of opinion, which was itself grounds for intervention under the policy.

[69] Nault’s reaction to PFN’s application for judicial review and its refusal to put the court proceedings in abeyance in order to work out a cooperative solution must be considered against that background. As the trial judge put it, at para. 239, the litigation created uncertainty as it “called into question the legitimacy of the department’s efforts to appoint a manager who would provide services to the Band.”

[70] PFN did have legal grounds to seek judicial review of the decision to impose third-party management, and it succeeded in making out its case that it had been denied procedural fairness. But, as the trial judge correctly observed at para. 210, a breach of natural justice, without more, does not give rise to a claim in damages. It is also important to note that, as I explained earlier, PFN failed to secure the substantive declaratory relief it had requested to the effect that it was not in default and that there were no grounds to withhold the funding or to impose some form of intervention.

(c) Failure to proceed with projects vital to health and safety

[71] In oral argument, PFN placed considerable emphasis on the delay in getting Nault’s approval for funds to repair the Band’s generator, as well as on his failure to approve funds for the water and sewer project. PFN submits that since these projects were vital to the health and safety of the community, departmental policies required that they proceed. It follows, PFN argues, that Nault was under a legal duty to approve these projects, and that his failure to do so constituted misfeasance.

[72] There is no doubt that there was a significant delay in getting Nault to approve the funds required for the generator repair, though as I noted above, that approval was eventually given in early 2002 – before the applications for judicial review were concluded. But again, one must evaluate Nault’s actions in light of the situation he faced at the time. PFN was refusing to cooperate with the third-party manager and stated in advance of his appointment that he would be refused entry to the reserve. After the manager’s appointment, the Chief stated that he would not be welcome on the reserve and that his safety could not be guaranteed. As Minister, Nault had to balance his duty to ensure that the needs of the community were met with his duty to see to the sound administration of public funds, as well as to protect the safety of his employees.

[73] I certainly do not suggest that PFN was totally to blame for the disagreement and the sorry state of affairs that flowed from the failure of these parties to agree on an appropriate mechanism to bring these much needed projects to completion. Nor do I suggest that Nault and his officials are free from criticism for all the decisions and actions they took. And one can only be distressed by the parties’ failure to put their differences aside so that they could focus on the pressing needs of the vulnerable residents of Pikangikum.

[74] However, an action for misfeasance in public office does not invite minute scrutiny of every discretionary decision taken by a public official. A claim for misfeasance in public office will only be made out where a public official has deliberately abused his powers to harm another party. In my view, the trial judge’s conclusion that the claim was not made out was amply supported by the evidence and his findings rest on a solid legal foundation.

[75] Rightly or wrongly, Nault regarded the applications for judicial review as a stumbling block to achieving co-management. It is not as if Nault was insisting that PFN suspend an unrelated lawsuit in exchange for co-management; he was insisting that it suspend a lawsuit that directly impugned the department’s legal authority to insist on co-management in the first place.

[76] PFN submits that Nault’s actions fell within principle established in Roncarelli v. Duplessis, 1959 CanLII 50 (SCC), [1959] S.C.R. 121, where a public official abused his office by using a statutory power for an improper and extraneous purpose. I disagree. In that case, Premier Duplessis tried to punish Roncarelli by denying him a liquor permit because of Roncarelli’s religious beliefs and the actions he took to support his co-religionists. In the present case, Nault’s actions regarding PFN’s litigation were not motivated by an extraneous or improper purpose but were linked to his statutory duty as a Minister of the Crown responsible for the dispersal of large amounts of public funds.

[77] The tort of misfeasance in public office is difficult to establish. The plaintiff must prove more than mere negligence, mismanagement or poor judgment. To succeed, the plaintiff must demonstrate that the defendant knowingly acted illegally and in bad faith chose a course of action specifically to injure the plaintiff.

[78] In this case the trial judge concluded, following a lengthy trial featuring viva voce evidence from all the key players, including Nault, that PFN failed to satisfy this burden. In his view, Nault’s conduct was understandable – even reasonable – in its motivations, though it was regrettable in its consequences. The trial judge’s factual findings are supported by the record and I see no basis for this court to interfere with them.

2. Did the trial judge err by holding that Nault’s stalling of the infrastructure projects was a “failure to act”, and one not done for an improper purpose?

The positions of the parties

[79] PFN submits that the trial judge mischaracterized Nault’s conduct as omissions rather than positive and deliberate acts intended to harm PFN. In particular, it submits that Nault took control of the department’s regular approval process and ordered a halt to projects that would otherwise have gone forward. In the alternative, PFN submits that if the trial judge correctly characterized Nault’s conduct as omissions, his failure to approve the infrastructure projects was a breach of his legal duties in light of the government’s Indian and Inuit Affairs Program, the goals of which were to improve living conditions on reserves and to promote self-sufficiency in Aboriginal governance.

[80] Canada submits that the trial judge’s factual findings on this issue were supported by the evidence and disclose no palpable and overriding error.

Discussion

[81] I am inclined to agree with the trial judge that Nault’s decisions to withhold funding for the infrastructure projects should be regarded as omissions rather than acts.

[82] As I explained above, the federal budget for 2000-2001 allocated billions of dollars for infrastructure spending on reserves. The department’s stated policy envisaged that First Nations would self-administer those funds to build capacity and foster a sense of ownership and responsibility. But the distribution of funds to First Nations was not intended to be unqualified. It was subject to the CFA requirement and to the application of the intervention policy. As the trial judge found, at para. 195, the evidence indicated that Nault was under no legal obligation to approve funding for these projects. Certainly he was not obliged to approve funding unconditionally and without regard to the requirements of the CFA process.

[83] But in the end, it is my view that nothing really turns on the act-omission distinction in this case. Even if the trial judge erred in characterizing Nault’s refusal to approve the projects as omissions, in order to meet the test for misfeasance in public office PFN still must establish that Nault acted for an illegal or improper purpose. As I have explained, it is my view that the trial judge’s findings that Nault was not so motivated are unassailable on this appeal.

Issue 3: Did the trial judge err by holding that Skillen’s evidence of a direction that no projects could proceed unless PFN dropped its litigation was not a vicarious admission of Nault?

[84] The trial judge ruled, at para. 150:

Mr. Donnelly says that on several occasions Ms. Skillen told him that the Minister had said that no projects would proceed until the litigation pending before the Federal Court Trial Division had been withdrawn. This is not direct evidence the Minister actually said this. I do not accept that Ms. Skillen, as close as she was to the Minister, and notwithstanding that the bureaucracy accepted that her word was the word of the Minister, should be accepted as an agent whose testimony binds the Minister. However, again, the fact that she said this is a fact which, taken with other facts, may lead to an inference.

[85] PFN submits that the trial judge erred by failing to treat Skillen’s evidence as a “vicarious admission”. I do not agree.

[86] Skillen was a member of Nault’s political staff. She was not a public servant. She provided what Nault described as an administrative “interface” between the Minister, the bureaucracy and the First Nations. Skillen simply did not occupy a position of authority or agency sufficient to make her statements or actions binding on the Minister and the Crown. The trial judge quite properly considered her evidence as to what Nault had said as a fact from which inferences could be drawn and he did not err by rejecting the proposition that it constituted a binding admission.

Issue 4: Did the trial judge err in his approach to quantifying intangible benefits and awarding punitive damages?

[87] As I would dismiss the appeal on liability, it is unnecessary for me to deal with the appeal or the cross-appeal as to damages.

CONCLUSION

[88] For these reasons, I would dismiss the appeal and the cross-appeal. Canada is entitled to its costs of the appeal on a partial indemnity basis in the amount claimed, namely $41,913.78 for fees and $974.54 for disbursements.

Released: October 24, 2012 “KMW”

“Robert Sharpe J.A.”

“I agree K.M. Weiler J.A.”

“I agree J. Mackinnon J. (ad hoc)”

[^1]: The application for judicial review of the November 17, 2000 decision was apparently dismissed for delay. The application for judicial review of the May 1, 2001 decision encompassed the earlier impugned decision.