Fontaine et al. v Canada (Attorney General) et al., 2015 SKQB 220, 389 DLR (4th) 749, is a decision of the Court of Queen's Bench for Saskatchewan which found that the Government of Canada, the Catholic entities party to the Indian Residential Schools Settlement Agreement (IRSSA), and the Corporation of Catholic Entities Party to the IRSSA (CCEPIRSS) had reached "an enforceable settlement of all issues between these parties relating to CCEPIRSS' obligations under the Settlement Agreement." The case became controversial because The Globe and Mail, and subsequently CBC News, claimed that the decision had enabled the Catholic entities to escape one or more of their IRSSA obligations that allegedly had not been met. Canadian Catholic authorities have maintained that all the obligations were met.
The government began an appeal of the judgment, then dropped it; this decision became a further topic of controversy because their reason for not pursuing the appeal remained obscure for years. Documents released under the Access to Information Act in 2022 revealed that the lawyer who argued the case on behalf of the government had expected to lose, and that the government had concluded that an appeal would be unlikely to succeed.
Background
As part of the Indian Residential Schools Settlement Agreement, approximately 50 Catholic entities, such as dioceses and religious congregations, agreed to make financial and in-kind contributions with a value of $54 million to $79 million to support healing and reconciliation programs. They had three specific obligations:
A cash contribution of $29 million. $8,344,575 paid out in compensation for residential school abuse claims before the IRSSA was counted as part of this contribution, leaving a further $20,655,425 (the "Net Amount") to pay. In-kind services valued at $25 million. A seven-year "best efforts" fundraising campaign with a target of $25 million. The seven-year period for the campaign began in September 2007 with the implementation of the IRSSA and ended in September 2014. "Best efforts" would be "deemed to have been made where the fund-raising campaign demonstrates on a Canada-Wide level in each of the seven years an approach and means that is consistent with the approach and means used by professionally managed national fundraising campaigns, including those operated by universities and hospital foundations".
The Catholic entities established the Corporation of Catholic Entities Party to the IRSSA (CCEPIRSS), a not-for-profit corporation, "for the exclusive purpose of implementing and carrying out the Catholic Entities’ obligations under the Settlement Agreement."
First Request for Directions
On December 24, 2013, the Government of Canada submitted a Request for Directions (RFD #1) to the Court of Queen's Bench for Saskatchewan objecting to an attempt by CCEPIRSS to deduct what Canada considered to be excessive and inappropriate administrative costs of $2 million from the Net Amount of $20,655,425. It was possible under the IRSSA for CCEPIRSS to use interest accrued on the funds it held to pay "reasonable administration costs"; if the interest was insufficient, CCEPIRSS could deduct such costs from the "capital amount" it held with the written consent of the government, which the government could not "unreasonably withhold". It was also specified that at least 80% of the money paid toward the Net Amount was to be transferred to the Aboriginal Healing Foundation (AHF). CCEPIRSS wanted to pay the AHF 80% of the money remaining after deducting administrative costs from the Net Amount; with a $2 million deduction, that would give the AHF $14,924,340 (80% of $18,655,425). Canada contended that the IRSSA did not permit CCEPIRSS to compute the amount owing to the AHF in this fashion, and that the AHF was owed $1.6 million more ($16,524,340, which is 80% of the full Net Amount of $20,655,425). Canada also argued that CCEPIRSS was inappropriately including legal fees in its administrative costs (in a January 27, 2014 response, CCEPIRSS denied including legal fees.)
In the following months, the parties compiled affidavits setting out their views of the evidence in the case and cross-examined each other's witnesses. On May 15, the government submitted a factum expanding its case against CCEPIRSS, alleging that CCEPIRSS had "breached its obligations" under the IRSSA and had a "large number of serious accounting discrepancies". The factum asked the Court for an oppression remedy under the Saskatchewan Non-profit Corporations Act, seeking an order that would, among other things, direct CCEPIRSS to pay the disputed amount to the AHF, direct CCEPIRSS to "recover all amounts paid to any law firm that had a partner occupying a formal position with the Corporation", declare CCEPIRSS to be "in default as per Section 3.16 of Schedule O-3", and launch a "forensic investigation into the financial affairs of CCEPIRSS" at CCEPIRSS' expense. On May 24, Minister of Aboriginal Affairs and Northern Development Bernard Valcourt "provided instructions to enter into mediation", but the May 29–30 mediation was unsuccessful. On June 12, Justice Gabrielson rescheduled a hearing for the case from June 16 to July 17–18, granting a motion for adjournment brought by CCEPIRSS on the grounds "that the dispute underlying Canada's Request for Direction has grown and that its complexion has changed", and that CCEPIRSS needed a "more complete evidentiary record." The hearing was later postponed to October 9–10 at CCEPIRSS' request.
Settlement negotiations
In a June 26, 2014 letter to Department of Justice lawyer Alexander Gay, CCEPIRSS' lawyer, Gordon Kuski, offered to "settle all matters between the parties" by paying $1 million in exchange for "a General Release with respect to all matters between the Parties," and "more specifically", "a Release and an Indemnity in accordance with the terms contemplated by Section 4.5 and Section 4.6 of the Settlement Agreement, Schedule 'O-3'".
According to an August 7, 2014 Aboriginal Affairs and Northern Development Canada (AANDC) decision note, the government subsequently consulted the AHF, which "indicated that a settlement of $1 million or more would be acceptable." According to an August 12, 2015 decision note, the Assembly of First Nations was consulted before Canada and CCEPIRSS agreed on a figure of $1.2 million.
On September 18, 2014, Gay emailed Kuski: "The clients accept $1.2M as a quantum. The thing that needs to be resolved is the paperwork and the wording on the release documents. How do you propose to proceed?" Kuski replied: "Thanks for this. We have a deal. I'll call you today to discuss logistics." Kuski followed up with a letter describing the settlement, including language about a release under §4.5 and §4.6. Gay replied by email:
Later that day, Kuski sent a draft General Final Release, which was mostly consistent with his previous letter of June 26, but added a release under §4.7 as well.
On September 30, 2014, Gay sent Kuski an amended draft General Final Release that would release the Catholic entities only from matters related to RFD #1. He did not redline Kuski's draft or explicitly advise him of the significant difference between versions. Kuski replied on October 1 advocating for the broader release; Gay's response included the sentence, "We may have a problem." On November 10, Canada refused to consent to the broader release. CCEPIRSS and the Catholic entities commenced a second RFD (RFD #2) arguing that an enforceable settlement had been reached. RFD #2 was heard by Justice Gabrielson on June 3, 2015.
Opinion of the Court
Justice Gabrielson found that an enforceable settlement did exist: in exchange for a payment of $1.2 million, the Catholic entities were entitled to releases and indemnities under §4.5 and §4.6 of the IRSSA, but not §4.7. He rejected Canada's position that the parties had agreed only on the amount to pay, and would deal "with quantum first and terms second":
"Protective" notice of appeal and negotiations over release
Heavily redacted documents released under the Access to Information Act provide evidence of how government staff reacted to the decision and what they did next. On the day the case was decided, Department of Justice lawyer Wayne Schafer, who had represented Canada for RFD #2, forwarded the decision to five people at AANDC with the comment, "It went almost exactly as we thought it might". On July 20, an email with "initial thoughts" from Nancy Joyes at AANDC included this sentence: "The outcome is not a huge surprise, Canada was in a very weak position going into the hearing." On July 28, Ronald Schmalz at AANDC responded to an update from his colleague Duaine Simms on "Justice's assessment of Decision" with the comment: "Thanks for the update ... look very much forward to receiving it. I gather it will recommend not appealing the decision."
An August 12 AANDC decision note for the Deputy Minister sought instructions on whether to appeal. The recommended course of action is redacted in the ATI release. Deputy Minister Colleen Swords concurred with the recommendation on August 13. On August 14, an email from Joyes stated: "We've just had confirmation and received the signed BN from the Deputy that Canada will file a 'protective' notice of appeal." Around this time, Canada filed a Notice of Appeal in the Court of Appeal for Saskatchewan. The grounds specified for the appeal were that the judge had allegedly "erred in law" by finding that there was an enforceable settlement and that Canada's counsel had the authority to bind Canada to a settlement, and "made palpable and overriding errors in his assessment of the facts relating to the negotiations of a prospective agreement".
A September 3 AANDC decision note for the Minister expressed concern that the court decision was "unclear on the scope of the release, specifically whether [CCEPIRSS] was released from all further obligations (financial and non-financial)." The note states that the "protective notice of appeal" had been filed "to enable Canada and [CCEPIRSS] to discuss the terms of the Order and the content of the release". The recommendation in the decision note, with which Minister Bernard Valcourt concurred on September 4, was that the Department of Justice should "be instructed to seek a court order and release that would include the reimbursement of the previously agreed $1.2 million in return for a release from all three financial obligations", and that if they failed to "secure a release limited to the financial obligations", the Department of Justice should pursue the appeal. According to the "Considerations" section of the note, "[i]ncluding all three financial obligations in the order and the settlement" would not "create significant issues": the cash and in-kind obligations had "been met", and with respect to the fundraising obligation, Canada was "not in a position to take enforcement measures" (as Canada's affiant Pamela Stellick had previously admitted), and "the likelihood of compelling the Catholic Entities to meet their remaining fund-raising obligations" was "very low". However, "releasing [CCEPIRSS and the Catholic Entities] from some of the non-financial obligations could pose significant risks for Canada": "Of particular concern to Canada would be releasing the Catholic Entities from obligations such as cooperating in the defence or resolution of all Indian Residential Schools abuse claims outside of the settlement agreement."