Relationship Building with Indigenous Communities Will Come Into Focus For Resource Players

The Supreme Court of Canada (SCC) has released two recent seminal decisions that will significantly impact resource development projects where Indigenous interests might be affected. As M&A activity in the infrastructure, oil and gas and mining sectors unfolds in 2015, we expect buyers of and investors in Canadian targets involved in resource development to pay increasing attention to whether appropriate consultation and accommodation have occurred with local Indigenous communities, particularly those with existing or potential title claims.

While the practical effect of these decisions will principally be driven by the circumstances of each resource development project, we anticipate due diligence reviews in the transaction process to become more focused on ascertaining potential risks and liabilities associated with possible infringement on Indigenous title.

The Cases: Indigenous Title Claims Addressed by SCC

Tsilhqot’in Nation v. British Columbia (Tsilhqot’in) marks the first time the SCC has upheld a specific Indigenous title claim. In that case, the SCC confirmed that the Crown has a duty “to consult in good faith with any Indigenous groups asserting title to the land about proposed uses of the land and, if appropriate, accommodate the interests of such claimant groups.” Where a title claim exists and its holder does not provide consent, the province could only justify an incursion on the title in narrow circumstances where there is a compelling and substantial public objective.

The second case, Grassy Narrows First Nation v. Ontario (Natural Resources) (Grassy Narrows), was released shortly after Tsilhqot’in and confirmed that provincial governments can authorize resource development projects on provincial Crown lands covered by Indigenous treaties—in this case, licensing forestry operations in a treaty-covered area—without the prior consent of the federal government. While a province may not need federal consent, their power to take up treaty lands is nonetheless conditional on consulting and, where appropriate, accommodating any affected Indigenous interests.

These two decisions appropriately reflect the sophisticated matrix of factors at play when addressing Indigenous title claims. The degree of consultation and accommodation required will depend on the strength of the Indigenous claim, with proven Indigenous title claims requiring the most consultation and accommodation. Even when an Indigenous title claim is unproven, as the SCC noted in Tsilhqot’in, obtaining consent, although not a legal requirement, may avoid a charge of undue infringement if title is later established. According to the SCC, if the Crown authorizes a project without Indigenous consent, “it may be required to cancel the project upon establishment of [Indigenous] title if continuation of the project would be unjustifiably infringing.”

Sharper Due Diligence Practices in Resource Development M&A

The impact of the SCC decisions will depend largely on the details of each resource development project, including its location and historical circumstances. For example, Tsilhqot’in will have the greatest impact in B.C. and other areas of Canada where there are numerous unresolved Indigenous title claims, and have less impact in jurisdictions like Ontario and Saskatchewan that are largely covered by treaties. Likewise, the extent of the historical presence of Indigenous communities in a project area will have significant bearing on the degree of consultation and accommodation needed.

Based on the legal framework set out in the SCC decisions, we expect due diligence reviews to increasingly consider the following questions:

Target’s record of Indigenous consultation and accommodation

• Is the target a development project still undertaking consultation, or an operating project with a record of consultation and accommodation behind it?
• Is the record of consultation and accommodation commensurate to the strength of the affected Indigenous title claim or treaty right?
• Is there any pending or threatened litigation against the Crown for failing to satisfy the duty to consult, or against the target for failing to adequately carry out that duty in practice?
• Does the target have a productive Indigenous liaison committee for addressing any local community concerns?

Existing agreements, if any, between the target and local Indigenous communities

• Do the agreements evidence the Indigenous community’s consent to the target’s resource development operations?
• Do the agreements provide for capacity funding, economic benefits, employment or educational opportunities, equity participation or other mechanisms for building an enduring, positive relationship between the target and local communities?

The answers to these questions will invariably be highly fact-specific. For example, evaluating whether a target has provided sufficient accommodation to an affected First Nation will depend on many factors, including not only the strength of the First Nation’s claim (which in turn depends in part on its historical occupation of the area), but also the typical types and amounts of economic support seen in similar agreements in the area. Given the value of context in these matters, we expect buyers and investors to increasingly retain advisers who are knowledgeable about the relevant Indigenous communities and their negotiations with the resource development sector.

Importantly, the principles underlying the legal analysis in both Tsilhqot’in and Grassy Narrows offer a guide not only to doing business in Canada, but also to building relationships with local indigenous communities in other jurisdictions. The SCC decisions’ emphasis on meaningful dialogue and compensation around the encroachment on an indigenous community’s traditional rights and territory reflect the increasing importance of good relationship building for players in resource development projects around the world.