The Federal Court decision finding that the Federal Government acted unreasonably and unlawfully in appointing a third party manager to run the affairs of Attawapiskat is a blow to the Federal Government on a number of levels. In terms of short term politics it is obviously not a good development from the government's perspective to be taken to task in such a high profile way. However this decision actually marks a more systemic blow to the Federal Government. It significantly alters the balance of power between the Federal government and bands in the use of the Federal government's financial powers to take over the management of bands.
There were really two battles in front of Justice Phelan. One -- which got the most coverage last week -- was whether or not the government had acted reasonably in appointing a third party manager. Here the Court found that while the band had breached its Comprehensive Financing Agreement (the "CFA") it simply did not make sense to appoint a finance manager when the breach related to a non-financial housing problem. In a sense Justice Phelan said that it made no sense to send a fire engine to battle a flood by turning the hoses on when there was a perfectly good flood control team at the ready. In making this ruing Justice Phelan essentially dismissed the innuendo and allegations spread by the government and repeated in the press that the band was a financially mismanaged quagmire.
The second battle was over whether or not Justice Phelan could hear the matter at all. Part of this skirmish was over whether or not the application before Justice Phelan was moot or academic (which Justice Phelan dealt with in short order). More significant was the question of whether or not the procedure (known as judicial review) was available to police the government when it chose to use powers contained in the CFA rather than powers under the Indian Act. The judicial review process is designed as a quick and effective means of allowing citizens and others to get into court to challenge government decision making and get quick answers and quick solutions at a reasonable cost. While slow and expensive in ordinary human terms, judicial review shortens the time from challenge to decision by years -- indeed sometimes decades -- and reduces the costs by an order of magnitude. As a practical matter being able to use judicial review if you are small remote community is the difference between being able to hold the government to account and being run over.
Almost every band in Canada has a CFA. These agreements essentially finance band governance to the extent that the band takes on responsibility for the delivery of certain social programs such as welfare, health and housing on behalf of the Federal government. Attached to each budget there is a percentage increment that represents the expected overhead or administrative cost of running the program or service. Over a group of programs this overhead amount adds to enough to allow the Band council to hire a few workers to administer these programs and in their minimal spare time provide other band support services (book-keeping, basic administration, meeting organization and so forth). In theory this system can work, in practice it is very hard to stretch the dollars to actually deliver the programs and also provide need band administration. This of course also assumes that everything goes right -- which in reality it rarely does. Thus for example a band's finances can easily be devastated if just a few members are unable to pay their rent on what is essentially public housing. The band still has to pay off the loan but now the income necessary to support that payment is absent meaning it has to poached out of other sources of funds. The net result is that many bands, particularly small bands or remote bands with few economic opportunities, are always close to the edge or deep in the red.
It is here where Attiwapiskat's recent victory becomes important. The CFA contains provisions dealing what the government can do when various defaults arise. These defaults are fairly broadly defined and at one time or another almost every small band or remote band is either close to or in default. The most draconian remedy available to the Federal government in this situation is the ability to appoint a "Third-Party Manager". In ordinary terms this is somewhat like appointing a receiver. With the appointment of a Third-Party Manager every financial decision by the band from the writing of pay cheques, to the building of new housing, to the hiring of lawyers, to the buying of paper for the office is subject to the control of the Third-Party Manager. While the band notionally retains its self-government powers under the Indian Act it is deprived of any real autonomy. Moreover, the band is responsible for paying the Third-Party Manager and so the already strapped finances of the band are stretched even further.
Attawapiskat's battle with the Federal government was essentially over whether the Federal government could essentially live outside the usual constraints put on government agencies because this was a contractual arrangement rather than a public act. Generally we expect government officials acting to affect the day to day rights of citizens to act with more probity and regard for citizens than we would expect band officials to act in the context of commercial arrangements. We also expect that they can be held to account through the mechanism of judicial review. By contrast, banks and their customers are expected to comply with their contracts but as long as the bank lives by the terms of loan document it is free to act in its own self-interest. For example, once a borrower is in default the courts and other recognize that the bank is looking out for its own interests in what is largely a private matter. If a borrower is put into bankruptcy or prevented from achieving its aspirations or pursing its goals -- too bad -- that is a private matter that the courts will not generally meddle in unless there is a clear breach of contract. The Federal government has largely taken the view this is the world it is operating in when dealing with CFA's.
What Justice Phelan has done is say that this is wrong. The financing of public services and band administrations is not a commercial matter to be judged in a commercial context. Putting a band into a form of quasi-receivership -- especially in the midst of a public housing crisis and a political debate is no mere private matter. It is a matter of grave public concern and fundamentally governmental in action. In this case its actually smacked as much of an effort to silence the band council and stifle debate as much as an effort to control a financial crisis. As such Justice Phelan held the government had to act reasonably and could be held account using the processes designed to ensure speedy and effective accountability on the part of the Federal government. This is a precedent that will benefit First Nations across Canada and hold the Federal government to a higher, more honourable, standard of conduct.
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