Hobbema Bands Lose $2 Billion Royalty Suits

By Clint Buehler

HOBBEMA, AB – After 20 years of court battles and millions of dollars in legal fees, two First Nations here have lost their bid to reclaim $2 billion they say they lost through mismanagement of oil and gas royalties by the Department of Indian Affairs.

Their hopes for success were dealt a bitter blow when the Supreme Court of Canada rejected their arguments, as were the hopes of dozens of other First Nations collecting oil and gas royalties—managed by the Crown—from deposits on their reserve lands.

Samson community leader Roy Louis called it a devastating loss that made him feel nauseated.

The only hope left may be to take the case to the United Nations for international intervention

The Samson Cree Nation filed its first lawsuit in 1989, with the Ermineskin band launching a separate suit in 1992, both contending that the department’s policy of paying interest on royalties they held in trust for the band, rather than investing them in diversified and more lucrative investment vehicles, had cost them hundreds of millions of dollars.

The interest rate paid for the 90 years until 1969 varied between three and six percent. In 1969, the government changed its formula to tie the interest rate to the yield on government bonds.

The Samson band estimated it was owed between $239 million and $1.5 billion, while the Ermineskin band put the figure it was owed at between $156 million and $217 million.

Following a Federal Court decision in 2006, the Samson band gained control of $350 million in royalties previously managed by the Crown. It used the money to establish a trust fund which has earned much higher returns from its diversified investments than the government interest rate.

In its first fiscal year, the annual rate of return on that fund was nearly 12.9 percent, earning $41.2 million in 2006, while the government paid out only 4.3 percent on funds it managed over the same period.

According to James O’Reilly, one of the lawyers for the bands, the Supreme Court decision says the Indian Act takes precedence over the Treaties.

Mr. Justice Marshall Rothstein, in writing for the 7-0 majority, said “the language of Treaty 6 does not support an intention to impose on the Crown the duties of common law trustee.”

The Samson and Ermineskin bands signed into Treaty 6 in 1876. Under one of its terms, the federal Crown administers arrangements with companies who wish to exploit oil and gas reserves beneath reserve land. Under the Indian Act, the money derived from royalties was held in trust for them by the Crown.

The bands also alleged that the Crown was in a conflict of interest since it could use money held in trust for its own purposes, as part of the Consolidated Revenue Fund, yet paid out only a fixed, modest rate of interest to them. But the Supreme Court ruled the Crown was not unjustly enriched by making use of the bands’ royalties and paying the interest rate that it did.

Judge Rothstein wrote that the borrowing is required by the legislation, and a fiduciary that acts according to the legislation cannot be said to be breaching its fiduciary responsibility.

He also rejected the argument that the government should have transferred most of the money held in trust to the bands, allowing them to pursue their own investment strategies. He said the government would have to be confident that the band councils would be careful and prudent with the money, and that the current situation with the band councils—especially Samson—did not provide such confidence.