



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 (CanLII).

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 departments decision to appoint a third-party manager
    to assume control of PFNs finances.

[2]

Following a 23-day trial, and a careful review of the evidence, the
    trial judge dismissed PFNs 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. Naults 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. Naults
    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
    PFNs claim had succeeded. His assessment included over $48 million to reflect
    the opportunity cost of not converting the reserves 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
    judges 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 judges 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 Naults appointment

[8]

Naults appointment as Minister in 1999 was cheered by members of PFN.
    The reserve was located in Naults 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 schools 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 Pikangikums 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 PFNs water supply was deemed unsafe. A
    state of emergency was declared.

The departments 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 departments 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 Bands 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, PFNs 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 PFNs 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.

PFNs 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,
    PFNs lawyer served Nault personally with notice of an application for judicial
    review of the departments November 17 decision to impose third-party
    management, a decision Nault had already disavowed.

[23]

The trial judge described Naults 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 PFNs 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 departments Ontario Regional Director
    General, that Patti Skillen, one of Naults 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 Donnellys 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 PFNs 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 PFNs 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, PFNs new Chief, Louis Quill, wrote to Donnelly affirming PFNs
    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 PFNs 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 departments 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 Naults 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]

PFNs
    application for judicial review was heard in June 2002 and in November 2002,
    OKeefe 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 Naults
    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 Ministers decision to require co-management to be invalid because
    of the breach of the duty of procedural fairness.

[45]

However,
    the application judge refused PFNs 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 PFNs
    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).

PFNs 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
    judges 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 PFNs 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 JUDGES 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
    Bands 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 Naults 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).

·

Naults
    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).

·

Naults
    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 PFNs 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 Naults 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 Skillens 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 judges 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 PFNs 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 Naults
    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 Kwalaams 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 judges
    findings are sufficient to embrace the events of March-April 2002 and are a
    complete answer to PFNs 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 Canadas 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 PFNs 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 PFNs financial
    affairs, including the events of March-April 2002.

(b) The
    trial judges 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 PFNs 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
    judges finding that there were other compelling reasons to justify federal
    intervention in PFNs financial affairs.

[68]

By
    the period March-April 2002, the focus of PFNs 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 PFNs 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:

·

PFNs
    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 PFNs 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 communitys
    health and safety.

·

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

[69]

Naults
    reaction to PFNs 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 departments 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 Naults
    approval for funds to repair the Bands 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 Naults 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 managers 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
    judges 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 departments legal
    authority to insist on co-management in the first place.

[76]

PFN
    submits that Naults actions fell within principle established in
Roncarelli
    v. Duplessis
, [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 Roncarellis religious beliefs and the actions he took
    to support his co-religionists. In the present case, Naults actions regarding
    PFNs 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, Naults conduct was understandable  even
    reasonable  in its motivations, though it was regrettable in its consequences.
    The trial judges 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 Naults
    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 Naults conduct as omissions
    rather than positive and deliberate acts intended to harm PFN. In particular,
    it submits that Nault took control of the departments 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
    Naults conduct as omissions, his failure to approve the infrastructure
    projects was a breach of his legal duties in light of the governments 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 judges 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 Naults 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 departments 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
    Naults 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 judges findings that Nault was not so motivated are unassailable on this
    appeal.

Issue 3: Did the trial judge err by holding that Skillens
    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  Skillens evidence as a
    vicarious admission. I do not agree.

[86]

Skillen
    was a member of Naults 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.


