Guerin v. The Queen

The Facts

There can be little doubt that by the mid '50s the Indian Affairs Branch was well aware that the appellants' reserve was a very valuable one because of its location. Indeed, offers to lease or buy large tracts of the reserve had already been received. We know this from a report dated October 11, 1955 made by Mr. Anfield who was in charge of the Vancouver agency at the time to Mr. Arneil, the Indian Commissioner for British Columbia. Both these men are since deceased which is unfortunate since Mr. Anfield played a lead role in the impugned lease transaction. In a later report to Mr. Arneil, Mr. Anfield suggested that a detailed study should be made of the Band's requirements of its reserve lands so that the surplus, if any, could be identified and turned to good account for the Band's benefit. He suggested that not only should they obtain an appraisal of land values but that a land use planning survey should be prepared aimed at maximum development in order to provide long-term revenue for the Band. He continued:

It seems to me that the real requirement here is the services of an expert estate planner with courage and vision and whose interest and concern would be as much

[page 342] the future of the Musqueam Indians as the revenue use of the lands unrequited by these Indians. It is essential that any new village be a model community. The present or any Agency staff set up could not possibly manage a project like this, and some very realistic and immediate plans must be formulated to bring about the stated wish of these Musqueam people, the fullest possible use and development for their benefit, of what is undoubtedly the most potentially valuable 400 acres in metropolitan Vancouver today.

Mr. Anfield went on to speak in terms of "another potential 'British Properties' " and suggested that all parties interested in the land should be advised that the land not required by the Band for its own use, when defined and surrendered, would be publicly advertised.

About this time the Shaughnessy Heights Golf Club was looking for a new site. Its lease from the Canadian Pacific Railway was due to expire in 1960 and the club had been told that it would not be renewed. The club turned its attention therefore to the Musqueam Reserve. At the same time an active interest in the reserve was being displayed by a representative of a prominent Vancouver real estate firm on behalf of a developer client interested in a long-term lease. Although his contact had been directly with the Indian Affairs Branch in Ottawa, Messrs. Arneil and Anfield were both aware of it. Indeed, when he suggested to them that he meet with the Chief and Councillors of the Band to try to work out some arrangement, he was told by Mr. Anfield not to do so but to deal only through Indian Affairs personnel. That he followed this advice is made clear from the evidence of the Band members who testified. They were told of no interest in their land other than that expressed by the golf club.

The learned trial judge dealt specifically with the issue of the credibility of the members of the Band because he was very conscious of the fact that neither Mr. Arneil nor Mr. Anfield was alive to testify. He found the Band members to be "honest, truthful witnesses" and accepted their testimony.

[page 343]

The Band agreed that its surplus land should be leased and authorized a land appraisal to be made and paid for out of Band funds. In fact the appraisal was done by Mr. Howell of the Veterans Land Act Administration. Although he was a qualified appraiser, he was not a land use expert. He divided the reserve for valuation purposes into four areas, the first of which included the 162 acres leased to the golf club. This area comprised 220 acres classified by Mr. Howell as "First Class Residential area" and valued at $5,500 per acre making a total of $1,209,120. The other three areas which were all low lying he valued at $625 per acre. The Band was not given a copy of his report and indeed Mr. Arneil and Mr. Anfield had difficulty getting copies. They were very anxious to get the report because they were considering a lease of 150 acres to the golf club at "a figure of say $20,000 to $25,000 a year". The documentary evidence at trial showed that meetings and discussions had taken place between Mr. Anfield and the president of the golf club in 1956 and in the early part of 1957. It is of interest to note that Mr. Anfield had told the president of the golf club about the appraisal which was being carried out and had subsequently reviewed Mr. Howell's report with them. The golf club was, of course, advised that any proposal made by it would have to be laid before the Band for its approval.

On April 7, 1957 the Band Council met, Mr. Anfield presiding. The trial judge found that the golf club proposal was put to the Chief and Councillors only in the most general terms. They were told the lease would be of approximately 160 acres, that it would be for an initial term of fifteen years with options to the club for additional fifteen year periods and that it would be "on terms to be agreed upon". In fact the rent that had been proposed by the club was $25,000 a year for the first fifteen years with the rent for each successive fifteen-year period being settled by mutual agreement or failing that by arbitration. However, under the proposal the rent for the renewal periods

[page 344] was subject to a ceiling increase of 15 per cent of the initial rent of $25,000.

The learned trial judge found that when Mr. Bethune, the Superintendent of Reserves and Trusts in Ottawa, was advised of the $25,000 rental figure he questioned its adequacy and suggested to Mr. Arneil that he consult with Mr. Howell, the appraiser, as to what a proper return on the 160 acres would be. Unfortunately, Mr. Howell was not given all the facts. He was not told of the 15 per cent ceiling on rent increases. He was not told that the golf club would have the right to remove all improvements on termination of the lease although he was told that the club proposed to spend up to a million dollars in buildings and improvements on the leased land. Mr. Howell therefore recommended acceptance of the golf club's offer stating: "These improvements will revert to the Band at the end of the lease" and "the Department will be in a much sounder position to negotiate an increase in rental in fifteen years' time when the club will have invested a considerable amount of capital in the property, which they will have to protect." Mr. Howell testified at trial that he would not have recommended acceptance of the golf club's offer had he known that the improvements would not revert to the Band and that the rental on renewal periods was subject to a 15 per cent ceiling increase.

Mr. Howell's letter was forwarded to Ottawa with the request that surrender documents be prepared for submission to the Band and this was done. It is interesting to note, however, that in the letter forwarding the surrender documents Mr. Bethune indicated to Mr. Arneil that he would like to see the 15 per cent ceiling on rent removed and rent for subsequent periods established either by mutual agreement or by arbitration.

A Band Council meeting was held on July 25, 1957 again with Mr. Anfield in the chair. There was further discussion of the proposed lease to the golf club and two Councillors expressed the view that the renewal period should be at ten year

[page 345] intervals rather than fifteen. It was at this meeting that the resolution was passed to hold a general meeting of Band members to consider and vote on the surrender of the 162 acres to the Crown for purposes of the lease. The meeting of the Band was held on October 6, 1957 but prior to that there was another meeting of Councillors on September 27, 1957. Mr. Harrison and Mr. Jackson of the Shaughnessy Golf Club attended this meeting and Mr. Anfield, who had in the interval been promoted to Assistant Indian Commissioner for British Columbia, was there along with a Mr. Grant who was described as "Officer in charge—Vancouver Agency". In the presence of the golf club representatives Chief Sparrow took issue with the $25,000 per annum rental figure and stipulated for something in the neighbourhood of $44,000 to $44,500 per annum. The golf club representatives balked at this and they were asked to step outside while the Band Council and the Indian Affairs personnel had a private discussion.

Mr. Anfield expressed the view that the $44,000 figure was unreasonable and suggested $29,000 to which the Councillors agreed on the understanding that the first lease period would be for ten years and subsequent rental negotiations would take place every five years. Mr. Grant testified that Mr. Anfield advised the Council to go ahead with the lease at the $29,000 figure and in ten years demand a healthy increase from the golf club. Mr. Grant also testified that the Council objected to any ceiling on future rental and Mr. Anfield said that he would convey their concern to the Department of Indian Affairs. On that basis the Council, according to Mr. Grant, reluctantly accepted the $29,000 figure.

At the meeting of the Band on October 6, 1957 ("the surrender meeting") Chief Sparrow was present along with the Councillors and members. Mr. Anfield presided as usual. The learned trial judge made specific findings as to what occurred at the meeting and I reproduce them from his reasons:

(a) Before the Band members voted, those present assumed or understood the golf club lease would be,

[page 346] aside from the first term, for 10-year periods, not 15 years.

(b) Before the Band members voted, those present assumed or understood there would be no 15% limitation on rental increases.

(c) The meeting was not told the golf club proposed it should have the right, at any time during the lease and for a period of up to 6 months after termination, to remove any buildings or structures, and any course improvements and facilities.

(d) The meeting was not told that future rent on renewal periods was to be determined as if the land were still in an uncleared and unimproved condition and used as a golf club.

(e) The meeting was not told that the golf club would have the right at the end of each 15-year period to terminate the lease on six-month's prior notice.

Neither (d) nor (e) were in the original golf club proposal and first appeared in the draft lease following the surrender meeting. They were not brought before the Band Council or the Band at any time for comment or approval. The Band voted almost unanimously in favour of the surrender.

By the surrender document the Chief and Councillors of the Band acting on behalf of the Band surrendered 162 acres to the Crown:

TO HAVE AND TO HOLD the same unto Her said Majesty the Queen, her Heirs and Successors forever in trust to lease the same to such person or persons, and upon such terms as the Government of Canada may deem most conducive to our Welfare and that of our people.

AND upon the further condition that all moneys received from the leasing thereof, shall be credited to our revenue trust account at Ottawa.

AND WE, the said Chief and Councillors of the said Musqueam Band of Indians do on behalf of our people and for ourselves, hereby ratify and confirm, and promise to ratify and confirm, whatever the said Government may do, or cause to be lawfully done, in connection with the leasing thereof.

It will be noted that there is no reference in the surrender to the proposed lease to the golf club. The position of the Crown at trial was that once

[page 347] the surrender documents were signed the Crown could lease to anyone on whatever terms it saw fit.

After the surrender there was considerable correspondence between Mr. Anfield and personnel in the Indian Affairs Branch in Ottawa particularly over the more controversial provisions of the lease but none of this correspondence was communicated to the Band Council nor were they given a copy of the draft lease which would have drawn these controversial provisions to their attention. The trial judge states at p. 409:

Put baldly, the band members, regardless of the whole history of dealings and the limited information imparted at the surrender meeting, were not consulted.

But it was their land. It was their potential investment and revenue. It was their future.

The learned trial judge accepted that the Chief, the Councillors and the Band members were wholly excluded from any further discussions or negotiations among the Indian Affairs personnel, the golf club officers and their respective solicitors with respect to the terms of the lease. The trial judge found an explanation, although not a justification, for this in the possibility that Indian Affairs personnel at the time took a rather paternalistic attitude towards the Indian people whom they regarded as wards of the Crown.

I turn now to the essential terms of the lease as entered into in January 22, 1958 as described by the learned trial judge at p. 412:

1. The term is for 75 years, unless sooner terminated.

The rent for the first 15 years is $29,000 per annum.

For the 4 succeeding 15-year periods, annual rent is to be determined by mutual agreement, or failing such agreement, by arbitration

... such rent to be equal to the fair rent for the demised premises as if the same were still in an uncleared and unimproved condition as at the date of each respective determination and considering the restricted use to which the Lessee may put the demised premises under the terms of this lease ...

[page 348]

The maximum increase in rent for the second 15-year period (January 1, 1973 to January 1, 1988) is limited to 15% of $29,000, that is $4,350 per annum.

The golf club can terminate the lease at the end of any 15-year period by giving 6 months' prior notice.

The golf club can, at any time during the lease and up to 6 months after termination, remove any buildings or other structures, and any course improvements and facilities.

Mr. Grant stated in evidence that the terms of the lease ultimately entered into bore little resemblance to what was discussed and approved at the surrender meeting and the learned trial judge agreed. He found that had the Band been aware of the terms in fact contained in the lease they would never have surrendered their land.

So much for the facts as found by the learned trial judge. What recourse in law, if any, does the Band have in such circumstances?

2. Section 18 of the Indian Act

The appellants contend that the Federal Court of Appeal erred in failing to find that s. 18 of the Indian Act imposed on the Crown a fiduciary obligation enforceable in the courts. The section reads as follows:

18. (1) Subject to the provisions of this Act, reserves shall be held by Her Majesty for the use and benefit of the respective bands for which they were set apart; and subject to this Act and to the terms of any treaty or surrender, the Governor in Council may determine whether any purpose for which lands in a reserve are used or are to be used is for the use and benefit of the band.

Mr. Justice Le Dain, after concluding on the authorities that there was nothing in principle to prevent the Crown from having the status of a trustee in equity, found that s. 18 nevertheless did not have that effect. It merely imposed on the Crown a governmental obligation of an administrative nature. It was a public law obligation rather than a private law obligation. Section 18 could not therefore afford a basis for an action for breach of trust.

While I am in agreement that s. 18 does not per se create a fiduciary obligation in the Crown with respect to Indian reserves, I believe that it recognizes

[page 349] the existence of such an obligation. The obligation has its roots in the aboriginal title of Canada's Indians as discussed in Calder v. Attorney General of British Columbia, [1973] S.C.R. 313. In that case the Court did not find it necessary to define the precise nature of Indian title because the issue was whether or not it had been extinguished. However, in St. Catherine's Milling and Lumber Co. v. The Queen (1888), 14 App. Cas. 46, Lord Watson, speaking for the Privy Council, had stated at p. 54 that "the tenure of the Indians ... [is] a personal and usufructuary right". That description of the Indian's interest in reserve lands was approved by this Court most recently in Smith v. The Queen, [1983] 1 S.C.R. 554. It should be noted that no constitutional issue such as arose in the St. Catherine's and Smith cases arises in this case since title to Indian reserve land in British Columbia was transferred to the Crown in right of Canada in 1938: see British Columbia Orders in Council 208 and 1036 passed pursuant to Article 13 of the Terms of Union of 1870.

I think that when s. 18 mandates that reserves be held by the Crown for the use and benefit of the Bands for which they are set apart, this is more than just an administrative direction to the Crown. I think it is the acknowledgment of a historic reality, namely that Indian Bands have a beneficial interest in their reserves and that the Crown has a responsibility to protect that interest and make sure that any purpose to which reserve land is put will not interfere with it) This is not to say that the Crown either historically or by s. 18 holds the land in trust for the Bands. The Bands do not have the fee in the lands; their interest is a limited one. But it is an interest which cannot be derogated from or interfered with by the Crown's utilization of the land for purposes incompatible with the Indian title unless, of course, the Indians agree. I believe that in this sense the Crown has a fiduciary obligation to the Indian Bands with respect to the uses to which reserve land may be put and that s. 18 is a statutory acknowledgment of that obligation. It is my view, therefore, that while the Crown

[page 350] does not hold reserve land under s. 18 of the Act in trust for the Bands because the Bands' interests are limited by the nature of Indian title, it does hold the lands subject to a fiduciary obligation to protect and preserve the Bands' interests from invasion or destruction.

The respondent submits, however, that any obligation imposed on the Crown by s. 18(1) of the Indian Act is political only and unenforceable in courts of equity. Section 18, he says, gives rise to a "trust in the higher sense" as discussed in Kinloch v. Secretary of State for India in Council (1882), 7 App. Cas. 619 (H.L.), and Tito v. Waddell (No. 2), [1977] 3 All E.R. 129 (Ch.) Mr. Justice Le Dain, delivering the judgment of the Federal Court of Appeal, adopted this approach. He expressed the view, at p. 467, that these cases indicate that "in a public law context neither the use of the words 'in trust' nor the fact that the property is to be held or dealt with in some manner for the benefit of others is conclusive of an intention to create a true trust". He found that the discretion conferred on the Crown by s. 18(1) evidenced an intention to exclude the equitable jurisdiction of the courts.

With respect, while I agree with the learned justice that s. 18 does not go so far as to create a trust of reserve lands for the reasons I have given, it does not in my opinion exclude the equitable jurisdiction of the courts. The discretion conferred on the Governor in Council is not an unfettered one to decide the use to which reserve lands may be put. It is to decide whether any use to which they are proposed to be put is "for the use and benefit of the band". This discretionary power must be exercised on proper principles and not in an arbitrary fashion. It is not, in my opinion, open to the Governor in Council to determine that a use of the land which defeats Indian title and affords the Band nothing in return is a "purpose" which could be "for the use and benefit of the band". To

[page 351] so interpret the concluding part of s. 18 is to deprive the opening part of any substance.

Moreover, I do not think we are dealing with a purely public law context here. Mr. Justice Le Dain agrees that a Band has a beneficial interest in its reserve. I believe it is clear from s. 18 that that interest is to be respected and this is enough to make the so-called "political trust" cases inapplicable.

In Kinloch, supra in which Lord Selborne L.C. first advanced the idea of the political trust, the issue was whether a Royal Warrant that "granted" booty of war to the respondent Secretary of State for India "in trust" for the officers and men of certain forces created a trust enforceable in the courts. It was held that it did not, the effect of the Warrant being to constitute the Secretary of State an agent of the Crown for the distribution of the booty rather than a trustee. In Civilian War Claimants Association, Ltd. v. The King, [1932] A.C. 14, the plaintiffs, as the assignees of civilian claimants who had suffered loss at the hands of the Germans during World War I, alleged, inter alia, that money received by the Crown as war reparations from Germany pursuant to treaty was being held for the claimants on trust. Their claim was rejected by the House of Lords. In Hereford Railway Co. v. The Queen (1894), 24 S.C.R. 1, money alleged by the plaintiff railway to have been granted by the legislature as a subsidy was held not to be subject to a trust enforceable in the courts. In all these cases the funds at issue were the property of the Crown (or, at least, as in Kinloch, supra, in the possession of the Crown) and none of those laying claim to them as beneficiaries could show a right to share in the funds independent of the treaty, statute or other instrument alleged to give rise to an enforceable trust.

[page 352]

In Tito v. Waddell (No. 2), supra, the plaintiff Banaban Islanders asserted that certain royalties payable to the local government Commissioner as a result of mining operations on their land gave rise to trusts in their favour. In rejecting their claims on the basis of a number of different considerations, Megarry V.C. found at pp. 225-26 that there was not a sufficient relationship between the land on which the mining operations took place and the royalties to give rise to a fair inference that a true trust of the royalties was intended. The royalties were exclusively Crown property and the fact that the Banaban Islanders owned the land did not give them an interest in the royalties. I believe it is implicit in Megarry V.C.'s reasons that if the Banaban Islanders could have shown an interest in the royalties themselves, a stronger case would have arisen in favour of a trust.

It seems to me that the "political trust" line of authorities is clearly distinguishable from the present case because Indian title has an existence apart altogether from s. 18(1) of the Indian Act. It would fly in the face of the clear wording of the section to treat that interest as terminable at will by the Crown without recourse by the Band.

Continuing with the analysis of s. 18, it seems to me quite clear from the wording of the section that the Governor in Council's authority to determine in good faith whether any purpose to which reserve lands are proposed to be put is for the use and benefit of the Band is "subject to the terms of any treaty or surrender". I take this to mean that if a Band surrenders its beneficial interest in reserve lands for a specific purpose, then the Governor in Council's authority under the section to decide whether or not the purpose is for the use and benefit of the Band is pre-empted. The Band has itself agreed to the purpose and the Crown may rely upon that agreement. It will be necessary to consider this in greater detail in connection with the surrender which in fact took place in this case.

[page 353]

3. The Failure to Plead the Defence of "Political Trust"

The second ground of appeal put forward by the appellants concerns the fact that the defence of "political trust" which was accepted by the Federal Court of Appeal and formed the basis of its decision was not specifically pleaded as required by Rule 409 of the Federal Court Rules.

I need say very little about this ground since I think the case falls to be decided on the substantive rather than the procedural issues. However, I agree with the appellants' submission that the Crown's tactics in this regard left a lot to be desired. It is quite apparent that when the trial judge indicated a willingness to permit an amendment at trial but went on to order discovery on the issue, the Crown renounced the defence both at trial and through ministerial statements made out of court. It nevertheless went ahead and sought and obtained leave to raise it in the Federal Court of Appeal. Even although, as the Court of Appeal pointed out, the defence is a strictly legal one and the Band was probably not prejudiced by the absence of discovery, the Crown's behaviour does not, in my view, exemplify the high standard of professionalism we have come to expect in the conduct of litigation.

4. The Surrender

Reference has already been made to the language of s. 18 and in particular to the fact that the Crown's fiduciary duty under it is "subject to the terms of any . . . surrender". The implications of this have to be considered in the context of the learned trial judge's finding that the Band surrendered the 162 acres to the Crown for lease to the golf club on specific terms which were not obtained. The trial judge found that the surrender itself created a trust relationship between the Crown and the Band. The subject of the trust, the trust res, was not the Band's beneficial interest in the land but the land itself. The Crown prior to the

[page 354] surrender had title to the land subject to the Indian title. When the Band surrendered the land to the Crown, the Band's interest merged in the fee. The Crown then held the land free of the Indian title but subject to the trust for lease to the golf club on the terms approved by the Band at its meeting on October 6, 1957. This trust was breached by the Crown when it leased the land to the club on terms much less favourable to the Band.

It was submitted on behalf of the Crown that even if the surrender gave rise to a trust between the Crown and the Band, the terms of the trust must be found in the surrender document and it was silent both as to the lessee and the terms of the lease. Indeed, it expressly gave the government complete discretion both as to the lessee and the terms of the lease and contained a ratification by the Band of any lease the government might enter into.

I cannot accept the Crown's submission. The Crown was well aware that the terms of the lease were important to the Band. Indeed, we have the trial judge's finding that the Band would not have surrendered the land for the purpose of a lease on the terms obtained by the Crown. It ill becomes the Crown, therefore, to obtain a surrender of the Band's interest for lease on terms voted on and approved by the Band members at a meeting specially called for the purpose and then assert an overriding discretion to ignore those terms at will: see Robertson v. Minister of Pensions, [1949] 1 K.B. 227; Lever Finance Ltd. v. Westminster (City) London Borough Council, [1971] 1 Q.B. 222 (C.A.) It makes a mockery of the Band's participation. The Crown well knew that the lease it made with the golf club was not the lease the Band surrendered its interest to get. Equity will not permit the Crown in such circumstances to hide behind the language of its own document.

[page 355]

I return to s. 18. What effect does the surrender of the 162 acres to the Crown in trust for lease on specific terms have on the Crown's fiduciary duty under the section? It seems to me that s. 18 presents no barrier to a finding that the Crown became a full-blown trustee by virtue of the surrender. The surrender prevails over the s. 18 duty but in this case there is no incompatibility between them. Rather the fiduciary duty which existed at large under the section to hold the land in the reserve for the use and benefit of the Band crystallized upon the surrender into an express trust of specific land for a specific purpose.

There is no magic to the creation of a trust. A trust arises, as I understand it, whenever a person is compelled in equity to hold property over which he has control for the benefit of others (the beneficiaries) in such a way that the benefit of the property accrues not to the trustee, but to the beneficiaries. I think that in the circumstances of this case as found by the learned trial judge the Crown was compelled in equity upon the surrender to hold the surrendered land in trust for the purpose of the lease which the Band members had approved as being for their benefit. The Crown was no longer free to decide that a lease on some other terms would do. Its hands were tied.

What then should the Crown have done when the golf club refused to enter into a lease on the approved terms? It seems to me that it should have returned to the Band and told them. It was certainly not open to it at that point of time to go ahead with the less favourable lease on the basis that the Governor in Council considered it for the benefit of the Band. The Governor in Council's discretion in that regard was pre-empted by the surrender. I think the learned trial judge was right in finding that the Crown acted in breach of trust when it barrelled ahead with a lease on terms which, according to the learned trial judge, were wholly unacceptable to its cestui que trust.

[page 356]

5. The Claim in Deceit

The appellants base their claim against the Crown in deceit as well as in trust. They were unsuccessful on this aspect of their claim at trial but have raised it again on appeal to this Court. While the learned trial judge found that the conduct of the Indian Affairs personnel amounted to equitable fraud, it was not such as to give rise to an action for deceit at common law. He found no dishonesty or moral turpitude on the part of Mr. Anfield, Mr. Arneil and the others. Their failure to go back to the Band and indicate that the terms it had approved were unobtainable, their entry into the lease on less favourable terms and their failure to report to the Band what those terms were all flowed, he found, from their paternalistic attitude to the Band rather than from any intent to deceive them or cause them harm.

Nevertheless, there was a concealment amounting to equitable fraud. It was "conduct which, having regard to some special relationship between the two parties concerned, is an unconscionable thing for the one to do towards the other" (Kitchen v. Royal Air Force Association, [1958] 1 W.L.R. 563, per Lord Evershed MR., at p. 573). The effect of the finding of equitable fraud was to disentitle the Crown to relief for breach of trust under s. 98 of the Trustee Act, R.S.B.C. 1960, c. 390, now R.S.B.C. 1979, c. 414. A trustee cannot be exonerated from liability for breach of trust under that section unless he has acted "honestly and reasonably".

The trial judge's findings on this aspect of the Band's claim are, I believe, sufficient to dispose of this ground of appeal.

6. The Measure of Damages

I come now to one of the most difficult issues on the appeal, namely the principles applicable to determine the measure of damages. No assistance

[page 357] is to be derived on this issue from the Federal Court of Appeal which exonerated the Crown from any liability. I turn therefore to the approach taken by the learned trial judge.

The trial judge, at p. 430, stated as general principles that the measure of damages is "the actual loss which the acts or omissions have caused to the trust estate": Fales v. Canada Permanent Trust Co., [1977] 2 S.C.R. 302, per Dickson J. at p. 320, and that the beneficiary is "entitled to be placed in the same position so far as possible as if there had been no breach of trust": Toronto-Dominion Bank v. Uhren (1960), 32 W.W.R. 61 (Sask. C.A.), per Gordon J.A. at p. 66; Culliton J.A. at p. 73. The learned trial judge then considered whether the proper measure of damages might not be the difference in value between a lease on the terms approved by the Band and the lease which was in fact obtained from the golf club. He discarded this measure on the basis that the evidence of the witnesses for the golf club satisfied him that the club would never have entered into a lease on the terms approved by the Band. It was his conclusion that the difference in the value of the two leases could not be used as the proper measure in face of the evidence of the golf club witnesses that caused the learned trial judge to consider other approaches based on other uses of the land. Was he correct in this?

Viewed from one perspective it may be said that he was wrong. The Band authorized and was prepared to accept a lease of a certain value and received a lease of lesser value. Prima facie then, its loss was the difference between the two. On the other hand, how can it be said that the breach of trust cost the Band a lease which the club would never have entered into? The problem here seems to be one of causation. The breach of trust undoubtedly cost the Band something because they are fixed with a lease which is worth substantially less than the one they surrendered their land to receive. But against what is their loss to be measured

[page 358] if not against the value of the lease they expected to get?

The learned trial judge reviewed the evidence adduced by experts as to what would have been a fair return from a golf club lease over the period from 1958 to the date of trial based on the capital value attributed to the land over that period by these experts. This method of assessment made it clear that the golf club lease actually entered into did not yield a fair return. The learned trial judge, however, rejected the concept that the Band's loss was the difference in value between a "fair and reasonable" lease and the actual lease. He said, at p. 435:

My problem, unfortunately, is not whether the present golf club lease is reasonable or not. It is to determine the amount of loss suffered on the basis a golf course lease would probably not have been entered into. I have outlined the evidence, on this one aspect of value, merely to illustrate, among other things, the remarkable increase in value of this and other land since 1957 and 1958. [Emphasis added.]

In other words, just as he had found that the lease the Band wanted would not have been entered into and therefore the value of that lease could not be used in assessing the Band's damages, he likewise found that no golf club lease would have been entered into, presumably on the basis that a so-called "fair" lease could not have been obtained. The value of the land in 1957 and 1958 and its increase in value subsequently made use as a golf course uneconomic.

The trial judge therefore moved to other potential uses and concluded on the evidence that the 162 acres would at some point of time have been successfully marketed, as pre-paid ninety-nine-year leasehold lots for residential development. He found, however, that such a development would not have got underway for some years following the date of the golf club lease. Time would have been required for planning, for tenders and for negotiation. Moreover, development might have

[page 359] been slow at first. However, based on the evidence before him as to economic, business and population trends, real estate values, housing accommodation demand and raw land shortages over the period 1958 to 1973, he concluded that the area would probably have been well on the way to full development on a residential, leasehold basis by 1968 to 1971. He noted in passing that this type of development had taken place on other parts of the reserve and he made due allowance for the fact that those developments were probably assisted by the presence of the golf course.

Based then on the possibility that this type of development might have taken place on the 162 acres and applying the anticipated return from such development against the return from the golf club lease, the learned trial judge came up with a global assessment of $10 million. He acknowledged that this figure could not be mathematically documented but stated, at p. 441, that it was "a considered reaction based on the evidence, the opinions, the arguments and, in the end, my conclusions of fact". However, he did go on to set out the various factors and contingencies that he had taken into account in reaching his assessment. He did not allocate percentages to these contingencies.

It seems to me that what the trial judge was doing once he rejected the value of a golf club lease (either the one the Band authorized or one which could be described objectively as "fair") as the value against which the Band's loss was to be measured was to put a value as of the date of trial on the Band's lost opportunity to develop the land for residential purposes and assess the Band's damages in terms of the difference between that figure and the value of the golf club lease. Is this a proper approach to compensation for breach of trust?

The Crown submits that it is not. It points out that the Band was prepared to settle for a golf club lease and the lease it obtained was the best golf

[page 360] club lease available in 1958. The Band therefore suffered no loss. It seems to me, however, that this completely overlooks the terms of the trust and the failure of the Crown to return to the Band and tell them that those terms were not available. At that point the Band might well have abandoned the idea of a golf club lease entirely and canvassed other options. I do not think that that reality can be ignored. What the Crown did, therefore, was to commit the Band to an unauthorized long-term lease which deprived it of the opportunity to use the land for any other purpose. I do not think it is open to the Crown to say: "You wanted a golf club lease and you got one: your only loss arises from the fact that you didn't get as good a one as you wanted".

The position at common law concerning damages for breach of trust and, in particular, the difference between the principles in trust law from those applicable in tort and contract, are well summarized in the following passages from Mr. Justice Street's judgment in the Australian case of Re Dawson; Union Fidelity Trustee Co. v. Perpetual Trustee Co. (1966), 84 W.N. (Pt. 1) (N.S.W.) 399, at pp. 404-06:

The obligation of a defaulting trustee is essentially one of effecting a restitution to the estate. The obligation is of a personal character and its extent is not to be limited by common law principles governing remoteness of damage.

[¼]

Caffrey v. Darby (1801) 6 Ves. Jun. 488; 31 E.R. 1159 is consistent with the proposition that if a breach has been committed then the trustee is liable to place the trust estate in the same position as it would have been in if no breach had been committed. Considerations of causation, foreseeability and remoteness do not readily enter into the matter.

[¼]

The principles embodied in this approach do not appear to involve any inquiry as to whether the loss was caused by or flowed from the breach. Rather the inquiry in each instance would appear to be whether the loss would have happened if there had been no breach.

[¼]

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The cases to which I have referred demonstrate that the obligation to make restitution, which courts of equity have from very early times imposed on defaulting trustees and other fiduciaries, is of a more absolute nature than the common-law obligation to pay damages for tort or breach of contract. It is on this fundamental ground that I regard the principles in Tomkinson's case [Tomkinson v. First Pennsylvania Banking and Trust Co. [1961] A.C. 1007] as distinguishable. Moreover the distinction between common-law damages and relief against a defaulting trustee is strikingly demonstrated by reference to the actual form of relief granted in equity in respect of breaches of trust. The form of relief is couched in terms appropriate to require the defaulting trustee to restore to the estate the assets of which he deprived it. Increases in market values between the date of breach and the date of recoupment are for the trustee's account; the effect of such increases would, at common law, be excluded from the computation of damages but in equity a defaulting trustee must make good the loss by restoring to the estate the assets of which he deprived it notwithstanding that market values may have increased in the meantime. The obligation to restore to the estate the assets of which he deprived it necessarily connotes that, where a monetary compensation is to be paid in lieu of restoring assets, that compensation is to be assessed by reference to the value of the assets at the date of restoration and not at the date of deprivation. In this sense the obligation is a continuing one and ordinarily, if the assets are for some reason not restored in specie, it will fall for quantification at the date when recoupment is to be effected, and not before.

The reasoning which the House of Lords adopted in Tomkinson's case proceeds upon the basis that damages at common law are ordinarily not affected by subsequent fluctuations in currency exchange rates any more than ordinarily they are affected by subsequent fluctuations in market values. This reasoning is not available in a claim against a defaulting trustee as his obligation has always been regarded as tantamount to an obligation to effect restitution in specie; such an obligation must necessarily be measured in the light of market fluctuations since the breach of trust; and in my view it must also necessarily be affected, where relevant, by currency fluctuations since the breach. [Emphasis added.]

This statement of the law has been cited with approval in Underhill's Law of Trusts and Trustees (13th ed. 1979), at pp. 702-03,

[page 362] and was also recently adopted by Brightman L.J. in Bartlett v. Barclays Bank Trust Co. (No. 2), [1980] 2 All E.R. 92 (Ch.), at p. 93: see also Waters, Law of Trusts in Canada (1974), at pp. 843-45.

In this case the Band surrendered the land to the Crown for lease on certain specified terms. The trial judge found as a fact that such a lease was impossible to obtain. The Crown's duty at that point was to go back to the Band, consult with it, and obtain further instructions. Instead of doing that it went ahead and leased the land on unauthorized terms. In my view it thereby committed a breach of trust and damages are to be assessed on the basis of the principles enunciated by Mr. Justice Street. The lost opportunity to develop the land for a period of up to seventy-five years in duration is to be compensated as at the date of trial notwithstanding that market values may have increased since the date of breach. The beneficiary gets the benefit of any such increase. It seems to me that there is no merit in the Crown's submission that "if a trustee is under a duty to alienate land by lease or otherwise, the date to assess compensation for breach of that duty is the date when the alienation should have taken place not the date of trial or judgment". Since the lease that was authorized by the Band was impossible to obtain, the Crown's breach of duty in this case was not in failing to lease the land, but in leasing it when it could not lease it on the terms approved by the Band. The Band was thereby deprived of its land and any use to which it might have wanted to put it. Just as it is to be presumed that a beneficiary would have wished to sell his securities at the highest price available during the period they were wrongfully withheld from him by the trustee (see McNeil v. Fultz (1906), 38 S.C.R. 198,) so also it should be presumed that the Band would have wished to develop its land in the most advantageous way possible during the period covered by the unauthorized lease. In this respect also the principles applicable to determine damages for breach of trust are to be contrasted with the principles applicable to determine damages for breach of contract. In contract it would have been necessary for the Band to prove that it would have

[page 363] developed the land; in equity a presumption is made to that effect: see Waters, Law of Trusts in Canada, at p. 845.

I cannot find that the learned trial judge committed any error in principle in approaching the damage issue on the basis of a lost opportunity for residential development. It was urged upon us by counsel for the Band that the $10 million figure was inordinately low because the learned trial judge took into consideration the contingency that the golf club would decide to exercise its right to terminate the lease which it could do at any time. Counsel for the Band submitted that there was no evidence to suggest that the golf club would terminate the lease before the year 2033 and that indeed there was evidence to the contrary. The golf club had only recently expended $750,000 on capital improvements. There was no other land available in Vancouver to which the golf club could move. Even if there were, relocation would require the golf club to spend substantial amounts of money in creating a new golf course quite apart from the cost of acquisition of the land.

Be that as it may, I do not think it is the function of this Court to interfere with the quantum of damages awarded by the trial judge if no error in principle in determining the measure of damages has been demonstrated. The trial judge was entitled to treat the termination of the lease by the club as a contingency tending towards diminution of the Band's damages and it is not for this Court to substitute the value it would have put upon that contingency for his. I would not, therefore, interfere with the quantum. The trial judge's task was not an easy one but I think he "did the best he could": (see Penvidic Contracting Co. v. International Nickel Co. of Canada, [1976] 1 S.C.R. 267, at pp. 279-80).

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Punitive Damages, Interest and Costs