‘Agreements must be kept’: Supreme Court applies the honour of the Crown to contracts with Indigenous Peoples

In Quebec (Attorney General) v. Pekuakamiulnuatsh Takuhikan, 2024 SCC 39, the Supreme Court of Canada for the first time held that the honour of the Crown can be engaged when governments enter into contracts with Indigenous Peoples and set out a new “reconciliatory” approach to damages resulting from breaches of the honour of the Crown.

Facts

The Pekuakamiulnuatsh First Nation is located on Lac Saint-Jean and is governed by Pekuakamiulnuatsh Takuhikan (Takuhikan), an Indigenous band council.

In 1996, Takuhikan and the governments of Canada and Québec entered a tripartite agreement to create an independent police force, the Sécurité publique de Mashteuiatsh (SPM), that would replace the Sûreté du Québec and provide local police services in the community. Under the tripartite agreement, Canada agreed to pay 52% of the SPM’s budget and Québec agreed to pay 48%, up to a prescribed maximum amount. Takuhikan agreed to pay for any SPM costs over this amount. The tripartite agreement also provided for periodic renewals of the funding scheme. Successive contract renewals were entered into between 1996 and 2018.

However, the maximum amounts prescribed by the tripartite agreement and renewals were insufficient to pay the SPM’s costs. Between 2013 and 2017, a deficit of $1,599,469.95 was incurred by Pekuakamiulnuatsh First Nation to cover the SPM’s budget.

In 2017, Takuhikan brought an action in the Québec Superior Court. It argued that Canada and Québec had breached the tripartite agreements between 2013 and 2017, violating the honour of the Crown and the duty of good faith in Québec civil law.

The trial judge held that the honour of the Crown did not apply to these contracts and that there was no breach of the duty of good faith. The Québec Court of Appeal overturned the trial judge’s decision. It held that Canada and Québec had violated the honour of the Crown and the duty of good faith and ordered each party to pay its share of the SPM’s operating deficit: $832,724.37 for Canada and $767,745.58 for Québec.

Québec appealed this ruling to the Supreme Court of Canada. Canada did not appeal.

The majority opinion

In an 8–1 decision, the Supreme Court upheld the Court of Appeal’s decision. The majority opinion, written by Kasirer J., held that the honour of the Crown bound Québec and that Québec violated the honour of the Crown and the duty of good faith. It also affirmed the remedy awarded by the Court of Appeal.

Private law duties: The duty of good faith

First, Kasirer J. considered the duty of good faith in Québec’s Civil Code.^[1] He held that, like all parties to a contract, the duty of good faith applied to Québec when it negotiated the tripartite agreements with Takuhikan. He considered the sequence of tripartite agreements dating back to the 1990s and concluded that they contemplated “a long‑term relationship during which the funding for the police force will be reassessed and renegotiated before entering into each new agreement.” As a result, by refusing to consider or negotiate increases in the maximum amounts under the tripartite agreements to cover the SPM’s severe budget deficits, Kasirer J. found that Québec had acted in bad faith.

Public law duties: the honour of the Crown

Next, Kasirer J. considered whether the honour of the Crown bound Québec and, if so, whether it had breached its obligations under it.

Justice Kasirer found that the honour of the Crown does not apply to the performance of every contract or every contractual undertaking given by the Crown to an Indigenous entity. However, the honour of the Crown applies when a government enters contracts with an Indigenous group

1. on the basis of the group’s Indigenous difference, or distinctive philosophies, traditions and cultural practices
2. where the contracts relate to an Indigenous right of self‑government, whether the right is established or is the subject of a credible claim

Justice Kasirer concluded that the tripartite agreements met this test and engaged the honour of the Crown. First, the agreements were entered into by reason of the First Nation’s Indigenous difference: to create a local Indigenous police force and remedy the historical harms “resulting from the imposition of the national police on Indigenous peoples and the difficulties experienced by Indigenous communities in managing their internal security”. Second, the agreements related to the First Nation’s claimed right of self-government in matters of internal security.

Justice Kasirer went on to find that Québec had failed to comply with its obligation to act with honour. In cases where the honour of the Crown applies to a contract, the Crown is required to meet a standard of conduct that is higher than in the context of an ordinary contractual relationship and must act in a manner that fosters reconciliation. As such, when the Crown decides to enter into a contractual relationship that engages its honour, it must negotiate, interpret and apply the contracts with honour and integrity while avoiding even the appearance of sharp dealing. And once an agreement has been entered into, the Crown must conduct itself with honour and integrity in performing its obligations. Québec failed to comply with its obligation to act in accordance with the honour of the Crown because the province refused to consider requests to renegotiate the maximum amount of funding, taking advantage of the fact that Takuhikan was willing to enter into a deficit to avoid returning to the Sûreté du Québec’s “ill-adapted” police services.

Remedy

Given that the majority found that Québec’s conduct constituted both a civil fault and a breach of public law obligations, this invoked two distinct legal regimes with their own remedial principles: corrective justice in civil law and reconciliatory justice in public law.

In private law, damages typically aim to correct a breach by restoring the injured party to their pre-breach position. However, Kasirer J. held that the Court lacked sufficient evidence to determine what Québec’s contractual obligations would have entailed had it acted in good faith. Consequently, Kasirer J. found that for a private law remedy alone, a new trial would be necessary to ascertain proper damages.

However, because Québec had also breached its public law duties under the honour of the Crown, Kasirer J. held that this called for a “reconciliatory” rather than “corrective” approach to damages, a “special approach that ensures that the reconciliation of Aboriginal and mainstream Canadian societies can be achieved in a context of fairness and justice for both societies”. Applying this reconciliatory justice approach, Kasirer J. found that affirming the damages ordered by the Court of Appeal and avoiding further protracted litigation was the best way to restore the honour of the Crown and in service of the “ends of justice”.

The dissenting opinion

Justice Côté dissented and would have dismissed Takuhikan’s claims, finding that Québec did not violate its duties under either private or public law. Although Côté J. agreed with the majority that the duty of good faith and the honour of the Crown bound Québec’s actions, she disagreed with the majority’s interpretation of the facts and argued that Québec had not acted dishonourably or in bad faith when negotiating with Takuhikan. Justice Côté noted that Québec was under no contractual obligation to fully fund the SDM and that neither the duty of good faith nor the honour of the Crown required Québec to agree to fully fund the SDM during renewal negotiations. Ordering Québec to fund the full cost of the police force’s operations, in Côté J.’s view, “amounts to rewriting the terms of the agreement entered into by the parties” and would involve courts in a “discretionary policy decision concerning the allocation of budgetary resources of the state”, a task which was properly the role of the executive and the legislature.

Takeaways

The SCC made several important holdings in Takuhikan.

First, the Court held that the honour of the Crown is at stake when the government enters into contracts with First Nations groups that relate to the group’s Indigenous difference, or distinctive philosophies, traditions and cultural practices, and an Indigenous right of self‑government. The honour of the Crown requires the government to engage in meaningful negotiations and to act with honour and integrity — duties that go beyond any general obligations of good faith at civil or common law.

Second, the majority reframes the analysis of damages resulting from breaches of the honour of the Crown. Rather than a traditional “corrective” approach, the majority embraces a broader concept of “reconciliatory justice” that gives courts more flexibility to create a just remedy. This public law approach pays particularly close attention to the concept of proportionality. It remains to be seen how the concept of reconciliatory justice will be applied in other fact patterns or other cases involving other duties arising from the honour of the Crown, such as the duty to consult.

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[1] In Québec, contract law is set out in the Civil Code, which requires parties to conduct themselves in good faith both at the time the obligation arises and at the time it is performed or extinguished. Outside of Québec, contract law is uncodified and is largely comprised of judicial opinions applying the common law.