Supreme Court rules seizure of band's funds legal

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The Supreme Court of Canada ruled on Dec. 15 that McDiarmid Lumber Ltd. of Winnipeg had the right to garnishee funds in a First Nation's off-reserve bank account.

After the God's Lake First Nation (Manitoba) fell into arrears with the lumber company, McDiarmid successfully sued the band for payment in 2003. Even though the parties worked out a repayment plan, the band was unable to pay. McDiarmid then initiated court proceedings to seize money in God's Lake's account at the Winnipeg branch of Peace Hills Trust, a move the band attempted to block.

After losing at trial, McDiarmid won at the Manitoba court of appeal which ruled in January 2004 that $550,000 that had been transferred to the band's off reserve bank account by the department of Indian and Northern Affairs Canada (INAC) could be seized.

At trial, a motion's judge granted the band's request to stop the garnishment based on sections 89 and 90 of the Indian Act. That judge ruled the Indian Act protected against the seizure of on-reserve assets.

But the appellate court ruled that the assets were not on a reserve and therefore not subject to Indian Act protection against seizure.

God's Lake appealed to the Supreme Court of Canada, saying some of the funds seized were part of funding received from the federal government through a consolidated funding agreement (CFA) and those funds were earmarked to pay for essential services within its community.

Chief Justice Beverly McLaughlin wrote the majority decision for the court. The nub of her 24-page reasons for decision is simply that the "funds were not situated on a reserve, and the immunity from seizure granted by s. 89 of the Indian Act accordingly does not apply."

Lawyers for the band also argued that the CFA funds were a treaty benefit owed to the band and should be exempt from seizure as a result.

The chief justice took on that argument directly.

"In 1951, Parliament revised the Indian Act, signaling an intention to encourage Indian entrepreneurship and self-government. This new approach is consistent with an intention to confine protection from seizure to benefits flowing from treaties. To exempt property broadly would be inconsistent with self-sufficiency, because it would deprive Indian communities of credit, which is a cornerstone of economic development.

"But to eliminate all protection would neglect the persistent concerns about exploitation. These potentially conflicting policy considerations suggest that Parliament wanted to provide limited protection for treaty entitlements while not interfering with the ability of Indians to achieve greater economic independence," she wrote. "Given that our Constitution also grants a special place to treaty obligations, Parliament's decision to distinguish between treaty and non-treaty property in the statutory scheme is not one that the court can or should disturb."

Justice Ian Binnie, however, wrote a 19-page dissenting opinion that raises a number of interesting points.

"If the garnishee is successful there will not be enough CFA money left to pay for essential public services. This means either band members will live in the 'Third World conditions' described in the Report of the Royal Commission on Aboriginal Peoples (1996) (RCAP), or the federal government will step in at some stage to fund the delivery of the essential services it had already funded under the CFA, but which funds were diverted to other priorities determined by the band council," he wrote.

"The first alternative is to perpetuate what RCAP calls a national embarrassment. The other alternative is for the public to pay twice. Neither is palatable public policy."

Windspeaker spoke to Assembly of First Nations (AFN) National Chief Phil Fontaine mere hours after the court handed down its decision. He was asked about the ruling that the Indian Act protections did not apply and that creditors could seize band funds.

"We've always been very concerned about the possibility of that outcoe," he said. "I hope, of course, that this is an isolated situation and the possibility may not come up again."

But he was encouraged to see the RCAP report being given serious consideration in a high court ruling.

"RCAP has resurfaced. We believe, and I say this based on conversations I've had recently, that RCAP may be the vehicle for future development.If it is, then what we must do is put that as a vehicle to move us beyond Kelowna," he said.

AFN chief of staff Bob Watts pointed out that the national chief and his staff had had little time to digest the ruling that day since it arrived the same day that an Ontario court approved the AFN's residential school compensation agreement.

"One of the things we're just looking through right now is how the court looked at, in particular, in the dissenting opinion, but also in the majority opinion, to distinguish between treaty and non-treaty monies, even calling treaty monies sacred," Watts said. "That was a positive aspect of it. Another positive aspect of it was saying that your property didn't have to be on your reserve, having the property situated on a reserve was good enough to keep it exempt. There's some things positive, some things negative."