The SCC Revises the Test for “Impecuniosity” and Advance Legal Costs in the Era of Reconciliation

The Court’s decision in Anderson provides a cautiously balanced approach to revising the analysis for the awarding of advance costs: it promotes reconciliation by recognizing the effect of competing financial priorities on First Nations governments’ ability to pay legal costs, yet respects the separation of powers between the legislature and judiciary in determining the allocation of public funds.

In 2008, Beaver Lake Cree Nation (“BLCN”), located in Treaty 6 territory, commenced an action against the Alberta and federal governments for an improper taking up of its traditional lands for industrial and resource development. A four-month trial is scheduled to begin in January 2024, and BLCN brought an application for advance costs to pay for its estimated $5 million in legal costs.

The case management judge at the Alberta Court of Queen’s Bench granted advance costs to be paid by the Alberta and federal governments (see Anderson v Alberta (Attorney General), 2019 ABQB 746 [Anderson QB]). Applying the tests as set out by the SCC in British Columbia (Minister of Forests) v Okanagan Indian Band, 2003 SCC 71 [Okanagan] and Little Sisters Book and Art Emporium v Canada (Commissioner of Customs and Revenue), 2007 SCC 2 [Little Sisters]—which requires an applicant to (1) show that they are impecunious, (2) present a prima facie meritorious case, and (3) raise issues of public importance—the judge found that although BLCN had access to substantial financial resources, it had serious social and infrastructural needs that required financial priority such that BLCN would not have sufficient funds to pay for its litigation. In addition to meeting the other two factors (with Alberta and Canada conceding that the case was prima facie meritorious), the judge found that BLCN met the threshold of impecuniosity.

The Alberta Court of Appeal allowed the governments’ appeals and set aside the lower court’s order on the basis that the judge erred in her impecuniosity analysis (see Anderson v Alberta (Attorney General), 2020 ABCA 238). For more on the Court of Appeal’s decision, see Grace Shin’s 2021 comment.

Writing for a unanimous Court, Justices Karakatsanis and Brown allowed BLCN’s appeal and remitted the matter to the trial court to reconsider BLCN’s application with the benefit of the Court’s reasons. While the SCC found that the case management judge erred in her analysis of whether BLCN met the threshold of impecuniosity, they concluded that the meaning of “impecunious” must be understood “by the condition of necessity” and “from the perspective of [the applying] First Nation government”(Anderson, para 4). They further remarked that “in appropriate cases, a First Nation government may succeed in demonstrating impecuniosity despite having access to resources whose value equals or exceeds its litigation costs” (Anderson, para 4). Accordingly, the Court outlined a new four-part analysis to determine whether an applicant meets the threshold of “impecuniosity” in which a court must:

Justices Karakatsanis and Brown identified two key principles underlying the advance costs framework. First, the Court emphasized the importance of maintaining judicial restraint in the awarding of advance costs. Justices Karakatsanis and Brown clarified that determining whether an award of advance costs should be allowed pursuant to the Okanagan/Little Sisters test is not merely a question of access to justice, but rather is a remedy that can only be granted in “rare instances where a court would be ‘participating in an injustice – against the litigant personally and against the public generally’ – by declining to exercise its discretion to order advance costs” (Anderson, para 21 quoting Little Sisters, para 5). Courts must approach applications for advance costs with restraint, as they cannot be seen to overstep the judiciary’s jurisdiction by enforcing the allocation of public funds and resources, which would otherwise more appropriately be left to the legislature.

Second, the Court recognized the significant role reconciliation will play where an advance costs application concerns litigation on novel issues of the interpretation and infringement of Aboriginal and treaty rights. Justices Karakatsanis and Brown held that courts must be alive to “the broader contexts in which First Nations governments such as [BLCN] make financial decisions,” since the promotion of Indigenous self-governance helps foster “a positive, mutually respectful long-term relationship between Indigenous and non-Indigenous communities, thereby furthering the objective of reconciliation” (Anderson, para 27). In assessing whether a First Nation government is impecunious, a court must ultimately consider the group’s financial decisions from the perspective of the First Nation government itself.

With the two principles in mind, Justices Karakatsanis and Brown set a new threshold for impecuniosity where a First Nation government claims for advance costs in public interest or constitutional litigation, yet has access to financial resources that it contends must be allocated to other priorities. The Court accepted that First Nation governments “may genuinely need to allocate some or all of its resources to priorities other than litigation” to provide for critical or essential infrastructure and social needs (Anderson, para 32). Consequently, Justices Karakatsanis and Brown affirmed that an applicant for advance costs may be found impecunious if it “genuinely cannot afford to pay for the litigation where, and only where, it cannot meet its pressing needs while also funding the litigation” (Anderson, para 40).

To determine if the applicant meets this threshold, the Court outlined a new four-part framework. First, a court must identify the applicant’s pressing needs. Under this step, if an applicant has access to finances that could be used to pay for legal costs, then it has the burden of showing that it still cannot afford to pay the legal costs because the finances must be used to address other pressing needs. The Court stated that the definition of “pressing needs” “will always be a fact-specific determination” (Anderson, para 43). Resource allocations by First Nation governments for essentials like clean drinking water and housing, for example, will always meet the threshold of pressing needs. It is critical, however, that “pressing needs” be determined from the perspective of the First Nation government, since “[r]econciliation requires a court to consider the pressing needs of a First Nation government applicant from its perspective as a government that sets its own priorities and is best situated to identify its needs” (Anderson, para 44).

Second, the court must determine what resources are required to meet the identified pressing needs. This step requires the applicant to introduce evidence of the costs required to meet the needs, the extent to which they cannot cover their legal costs, and that the resources that could be used to pay for the litigation are in fact devoted to the identified needs.

Third, the court must assess the applicant’s financial resources. If a First Nation government has assets and revenue, then more detailed evidence in the form of accounts of its assets, liabilities, income, and expenses must be presented to the court to demonstrate impecuniosity. Additionally, the Court held that due to advance costs being “a measure of last resort”, the applicant must show that it has “made sufficient efforts to obtain funding from alternate sources” (Anderson, para 50).

Finally, the court must identify the estimated cost of funding the litigation. This requires the applicant to submit a current litigation plan, including an estimation of legal costs; from there, a court will determine whether the applicant has surplus resources (after allocating funds for the pressing needs) with which it can—either wholly or partially—finance the litigation.

The Court determined that the case management judge’s finding of BLCN’s impoverishment was “unassailable” but “insufficient” to ground a finding of impecuniosity (Anderson, para 54).

Applying the new test, the Court found that further information was required from BLCN in order to make an award of advance costs, and consequently remitted the matter to the trial court to determine the application using the Court’s reasons.

Under the first step, the SCC found that the judge had appropriately identified BLCN’s pressing needs as BLCN had “substantial deficits in housing and infrastructure and…high levels of unemployment and social assistance” (Anderson, para 55, quoting Anderson QB, para 30). Under the second step, Justices Karakatsanis and Brown found that the case management judge did not make any findings on the estimated costs of BLCN’s pressing needs or the extent to which their costs could be covered by its current financial resources, as BLCN did not provide any such information in the record or in evidence. Third, the Court found that although the judge had concluded that BLCN had over $3 million in assets that could have been allocated to litigation costs, more information would have been useful to determine BLCN’s liabilities, expenses or any restrictions on its assets. The Court also pointed to three examples of where BLCN could have provided further information as to whether it had made sufficient efforts to obtain funding from alternate sources since “a court must be satisfied that an applicant has explained with sufficient detail whether its financial resources can be used to finance the litigation, and if not, why not” (Anderson, para 67). Finally, under the fourth step, Justices Karakatsanis and Brown noted that although the case management judge accepted BLCN’s litigation plan, a new one ought to be submitted once the matter returns to the trial court given the prior appeals and to address the deficiencies identified by the Court’s reasons.

There is no doubt that the Court’s reasons in Anderson are a victory for many First Nations governments and Indigenous bodies in achieving advance costs awards in public interest and Aboriginal rights cases. The Court’s insistence on a contextual approach to determining impecuniosity, and consideration of pressing needs from the First Nation government’s perspective, demonstrates its concern in ensuring that such analyses are guided by the objective of reconciliation and the distinct experiences of Indigenous peoples in Canada. In fact, the Court affirmed that in the advance costs context, “judicial notice may be taken of the systemic and background factors affecting Indigenous peoples in Canadian society…insofar as they may be relevant to understanding a First Nation government’s financial situation and spending priorities” (Anderson, para 36).

Despite this broader understanding of First Nation governments’ financial situations and fiscal priorities, the Court was also clearly concerned in Anderson about maintaining a balance in the advance costs framework as between First Nation government applicants and the Crown. Part of striking this balance manifests in the requirement that the First Nation government bear the onus of showing whether it meets the pressing needs test. Although a court must consider the applicant’s pressing needs from the perspective of the First Nation government, this still places an onerous burden on the applicant to show why certain social or infrastructural priorities are “pressing,” in addition to providing detailed accounts and explanations of how its resources are or will be directed toward the identified pressing needs. Justice Karakatsanis and Brown explicitly rejected several approaches offered by BLCN and interveners to reframe the impecuniosity analysis. One intervener, the Chiefs of Ontario, proposed that where First Nation governments are involved in Aboriginal or treaty rights litigation, they should be presumptively impecunious (see Factum of the Intervener, Chiefs of Ontario, para 29). The Court rejected this approach based on (1) the varying financial situations of First Nations governments across Canada, (2) the holding in Okanagan that impecuniosity must be established on the evidence, and (3) the risk of “turning the advance costs test into a parallel system of legal aid which…would signify imprudent and inappropriate judicial overreach” (Anderson, para 35). The Court has clearly tried to balance the promotion of reconciliation with the assurance of judicial restraint and respect for the separation of powers. The additional hurdles imposed by the SCC’s pressing needs test, however, suggest that full equilibrium between the parties to an advance costs application may still be a ways off.

Ultimately, it is not fully clear whether the Court’s reasons in Anderson constitute a significant shift in the advance costs award framework for Indigenous groups and First Nation governments. The potential flexibility that is now afforded to advance cost applicants in meeting the threshold of impecuniosity is certainly a welcome advancement, but the Court’s cautious approach to formulating the impecuniosity analysis still leaves questions as to how the new test will be applied by lower courts. Only future applications of the Court’s reasons in Anderson will show whether the decision has truly moved the dial in allowing Indigenous groups and governments to pursue litigation against the Crown without the significant barriers of substantial legal costs.

Julia Schabas is a third-year law student at Osgoode Hall and is one of the Managing Editors of TheCourt.ca. She holds a BA and MA in English from the University of King’s College and Dalhousie University, and has worked in governance and policy for various professional regulators. She is the Student Contributions Editor of the Osgoode Hall Law Journal and is a former Caseworker in the Workers’ Rights Division at Parkdale Community Legal Services. Julia’s legal interests include constitutional law, administrative law, and civil litigation generally. In 2022, she will be articling at a national full-service law firm in Toronto. When she’s not hitting the books, she can be found trying new foods, biking around Toronto, or reading fiction.