Protection provided for bona fide purchaser for value without notice in transaction involving First Nation lands
Courts have long protected the interests of bona fide purchasers for value without notice in land transactions. However, seeking this protection can become far more complicated in land transactions where First Nations communities assert an interest and where such lands are held in trust. Despite these complexities, a recent decision from the Alberta Court of Queen’s Bench has confirmed that the interests of a bona fide purchaser for value without notice of a breach of trust should be protected. The consensual acts of those who created the trust should not prejudice the rights of innocent third parties. Furthermore, the Court provided some helpful guidance on what a purchaser should do to avail itself of this protection. Specifically, it is advisable for the purchaser to conduct sufficient diligence, particularly when dealing with a trust. In this case, the purchaser’s deliberate and thoughtful approach (and careful record keeping) demonstrated that it had both confirmed the authority of the Trustee to complete the sale of the First Nation Lands. In addition, it confirmed that the intentions of the Trustee and the First Nation beneficial owner were aligned.
In this recent decision of Paul First Nation v. K & R 2014 Inc., the Paul First Nation brought a claim arising from the transfer of lands (the “Lands”) by the Trustee of the Paul First Nation to Ritchie Bros. Auctioneers (Canada) Ltd. (the “Auctioneer”). Despite the transfer, the Paul First Nation alleged that the Lands could not be sold because they were “Special Reserve” lands under the Indian Act and because the Auctioneer held the lands as a constructive trustee for the Paul First Nation. The Court disagreed and summarily dismissed the claim against the Auctioneer.
The Paul First Nation acquired the Lands using proceeds from a Land Claims Settlement with the Federal Government, and was the beneficial owner of the Lands. For many years, legal title to the Lands was held by the plaintiff 399250 Alberta Ltd., the First Nation’s holding company. In 2015, legal title was transferred to the defendant K & R 2014 Inc. (the “Trustee”) so that a sale of the Lands might be pursued to assist the First Nation with its financial difficulties.
Subsequently, the Trustee approached the Auctioneer about the possibility of selling the Lands by auction, and discussions ensued. In the course of the discussions, the Auctioneer took a number of steps to determine ownership of the Lands and confirm the Trustee’s authority to sell the Lands on behalf of the beneficial owner, the Paul First Nation. This included the receipt of written and oral confirmation from the Chief of the First Nation that the Trustee was authorized to act as the agent in the sale of the Lands for the Paul First Nation; the review of the certificates of title which did not contain any registered encumbrances precluding the sale; and the review of a professional appraisal provided by the Trustee that stated that the appraisal was prepared at the request of the Paul First Nation and that the right being appraised was a fee simple estate. Additionally, the appraisal report, which was prepared at the direction of the Paul First Nation, did not contain any expressed limitations on the right to sell the Lands.
The Paul First Nation alleged that the Lands were Special Reserve lands under sections 28(1) and 37(1) of the Indian Act and therefore any private sale was void. In rejecting this argument the Court reviewed the relevant legislation and the settlement records relating to the Land Claims Settlement. The Court found that the settlement documents did not demonstrate that the Lands were either implicitly or explicitly “set apart” for the use of the Paul First Nation. The Court also found that the statutory requirements for the creation of a Special Reserve were not met.
As the Auctioneer was not a Trustee, the Paul First Nation claimed that the Auctioneer had liability for breach of trust as a stranger to the trust and therefore held the Lands as a constructive trustee for the Paul First Nation. The basis of the claim was that the Auctioneer had either knowingly assisted the Trustee in a fraudulent and dishonest design (“knowing assistance”) or was knowingly in receipt of trust property from the Trustee (“knowing assistance”). In summarily dismissing both claims for breach of trust, the Court focussed on the uncontested evidence of what the Auctioneer knew or was told prior to concluding the purchase of the Lands. The Court found that on an objective and a subjective standard, the Auctioneer did not know about any fraudulent or dishonest breach of trust, was not wilfully blind, and the Auctioneer’s knowledge of the circumstances did not reasonably indicate that a breach of trust had occurred nor did it invite follow up inquiries.
The arguments advanced by the Paul First Nation were unsuccessful and the Court afforded the protection to the Auctioneer of being a bona fide purchaser for value, without notice of a breach of trust, such that the claim was dismissed against it.
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