Scala Development Consultant Ltd v Spirit Bay Developments Limited Partnership, 2024 BCSC 1755 – Case Summary

This decision concerned a residential development project located on reserve land in East Sooke on Vancouver Island. The main issue before the court was whether section 89 of the Indian Act, which restricts execution against property of an “Indian or a Band,” prevented the appointment of a receiver to manage the project.

Photo credit: Gordon Lyall

Background

In 2013, SC’IȺNEW Nation, also known as Beecher Bay First Nation, formed a limited partnership, Spirt Bay Developments Limited Partnership (“Spirit Bay”), to develop SC’IȺNEW reserve land for economic purposes. SC’IȺNEW held all the equity in Spirit Bay and exercised full control of Spirit Bay through two corporate general partners. SC’IȺNEW granted headleases over the land for the project to Spirit Bay, which sold subleases to the public.

Through its general partners, Spirit Bay contracted with Scala Development Consultant Ltd (“Scala”) to build the project. The original plan called for the construction of about 500 homes along with new sewage and water systems. In 2018, Spirit Bay defaulted on its obligations to pay Scala, and Scala obtained a judgment against Spirit Bay in the amount of about $1.86 million. At that time, about 50 homes had been built. Scala petitioned the court to appoint an independent receiver to take control of Spirit Bay and manage the venture to pay the debt owed to Scala. SC’IȺNEW and Spirit Bay opposed the appointment and SC’IȺNEW sought orders terminating the headleases on the basis that Sprit Bay was not financially viable and had breached the headlease agreements, including by failing to build sewage and water service infrastructure.

Photo credit: Gordon Lyall

The Decision

The court considered whether section 89 of the Indian Act, which provides that property of an “Indian or a band” situated on a reserve is not subject to seizure or other execution in favour of any person other than an Indian or a band, prevented the appointment of a receiver to manage the project. The court held that section 89 did not bar the appointment of a receiver in this case because SC’IȺNEW had no legal interest in the assets of the project, including the headleases, which were held by the general partners of Spirit Bay, two corporations controlled by SC’IȺNEW. Since the assets that were to be under the control of the receiver were not assets of an Indian or a band, the court held that section 89 of the Indian Act did not prevent the court from appointing a receiver to manage those assets.

The court also held that the SC’IȺNEW land code did not prevent the appointment of a receiver because, although the land code precluded the disposition of land to a non-member by anyone other than a band-owned entity, Spirit Bay was a band-owned entity and, under the appointment order, the receiver would not own the leasehold interests but rather take custody and control over them.

SC’IȺNEW also argued that the provincial laws allowing for the appointment of a receiver (section 39 of the Law and Equity Act and Rule 10-2 of the Supreme Court Civil Rules) could not apply to appoint a receiver in this case because such an appointment would intrude on the protected core of exclusive federal jurisdiction over “Indians and lands reserved for the Indians” under subsection 91(24) of the Constitution Act, 1867, and would conflict with federal law. The court rejected these arguments on the basis that there was no conflict between the SC’IȺNEW land code (or the Framework Agreement on First Nation Land Management) and the appointment of a receiver in this case, and that the appointment of a receiver would not impair federal jurisdiction over reserve lands in any meaningful way.

The court ordered the appointment of a receiver, finding that such an order to be “just and convenient” in the circumstances.

Conclusion

This decision indicates that leasehold interests in reserve land held under a limited partnership structure established by a First Nation may not be exempt from seizure, execution, or third-party management even where the First Nation retains full beneficial ownership of the project.