The Federal Court said today in a judicial review that it was "unreasonable" for the federal government to appoint a third-party manager in Attawapiskat last fall as the Ontario community was dealing with a housing crisis.

Attawapiskat First Nation had applied to the court for a judicial review of the decision by Aboriginal Affairs Minister John Duncan to have a third-party manager take control of the community's finances.

The northern Ontario reserve had been under co-management for 10 years before the third-party manager was appointed in November 2011 in response to a housing crisis that generated headlines for weeks.

The community of 2,000 declared a state of emergency last October after a severe housing shortage forced more than two dozen families to live in temporary shelters, some without insulation or plumbing.

"This judicial review confirms, if such confirmation were needed, that decisions made in the glare of publicity and amidst politically charged debate do not always lead to a reasonable resolution of the relevant issue," Justice Michael Phelan wrote.

He said there is no evidence to support the accusations from critics that Prime Minister Stephen Harper, Duncan and other cabinet members acted in a reprehensible way, and said the problem in this case lies not "at the feet of the political masters, but in the hands of the bureaucracy."

The judge determined that in the face of an alleged default by Attawapiskat under its funding agreement with the federal government, appointing a third-party manager was an "unreasonable" remedy.

Attawapiskat First Nation Chief Theresa Spence speaks to the Economic Club of Canada in Ottawa on Wednesday on Jan. 25. A court found Wednesday that it was unreasonable for the government to bring in an external financial manager for the community. (Sean Kilpatrick/Canadian Press)

"The decision to appoint did not respond in a reasonable way to the root of the problems at Attawapiskat nor to the remedies available upon default under the Comprehensive Funding Agreement," the judgment says. Phelan goes on to say that the government used the third-party manager without considering "more reasonable, more responsive or less invasive remedies available."

Jacques Marion, the appointee, was pulled out of Attawapiskat in April. The court said Wednesday there is no appointment to be quashed now, but that Attawapiskat is entitled to costs. It's not clear what that amount will be.

"I'm very pleased with the judgment of the court; it was what we were hoping for and what we were anticipating," Grand Chief Stan Louttit said in an interview. "It's a good ruling not only for Attawapiskat, but for other First Nations across the country."

Louttit, who was raised in Attawapiskat and is grand chief of Mushkegowuk Council, said Aboriginal Affairs officials may now think twice about using third-party managers in the future.

"They will be a lot more careful, rather than jumping to conclusions and making quick decisions without giving it much thought," he said.

Attawapiskat's chief, Teresa Spence, told CBC's Sudbury station that the positive decision shocked her, because she said the media portrayed her community in such a negative light that she had almost given up hope that it would win in court.

"I think it will be an eye-opener for everybody," she said. Spence said the court decision backs up what her council has said all along: that it hadn't done anything wrong.

Government 'disappointed' by decision

The community had tried to block Marion's appointment by seeking a court injunction, but it lost, and he was allowed to enter the community. The judicial review case, meanwhile, proceeded.

A spokesman for Duncan said the minister is "disappointed with the court's decision and will review it to determine the appropriate next steps."

The government could choose to appeal the decision.

"Since 2006 our government has spent over $90 million on the Attawapiskat First Nation. Aboriginal Affairs and Northern Development Canada will continue to work with the chief and council in developing long-term solutions to broader challenges, including the development of a housing strategy and updating its emergency plan," Jason MacDonald wrote in an email.

The judgment said that at no time did officials from Duncan's department raise any concerns about the community's management, prior to Marion's appointment, and no evidence was given to show mismanagement or improper spending. The community was only advised that it was considered to be in default of the funding agreement when it was notified that a third-party manager was being appointed. The funding agreement provides for transfer payments from Aboriginal Affairs to the reserve for essential services including housing.

Phelan writes that it wouldn't be right to call officials insensitive or uncaring about the situation in Attawapiskat, which he also called "an embarrassment" in a country as rich and generous as Canada. But he wrote that there "seems to have been a lack of understanding" of the community's actual needs and there was "an intention on the part of the officials to be seen to be doing something."

When a reserve is considered in default, the government can take one or more actions, and is supposed to take into account the nature and extent of the default. It can appoint a third-party manager, withhold any funds, require the council to implement an action plan within 60 days, and require the council to seek advisory support.

The judicial review found that the senior official responsible for making the decision to appoint the external manager did not refer to or rely on the other remedies that were available in a default situation.

Appointment led to animosity

It also said that the government picked someone who had worked with Attawapiskat's council before — and had been fired. Phelan wrote that there appeared to be no consideration of what impact Marion's appointment would have on the community, and that it contributed to an atmosphere of "distrust and animosity" with the whole process.

He noted that the mandate of a third-party manager is to take financial control of a reserve and that in this case, financial management was not the issue — dealing with a lack of proper housing was the problem.

'There is a sense that this is a government that really doesn't give a damn and that's why people are frustrated.'—NDP MP Charlie Angus

The government attempted to have this judicial review dismissed, arguing that because it withdrew Marion in April, there was no point in arguing over it in court.

The Federal Court disagreed and said that while it can't do anything now about the presence of the third-party manager, there are still important implications from the case, including who pays for the third-party manager. Marion was paid out of the money the reserve receives under the funding arrangement, but the band council didn't want him there in the first place, and now the Federal Court has sided with it and said it wasn't appropriate for him to be there.

Phelan said the interpretation of the funding agreement remains a "live controversy," and that the interpretation issues could impact agreements with the government and other First Nations communities.

The Attawapiskat situation was a hot-button issue on Parliament Hill for weeks, and opposition parties were quick to react to the court's decision Wednesday.

"I'm very relieved at this decision. I think this court decision sends a very clear message," said NDP MP Charlie Angus, whose riding includes Attawapiskat. He said the attitude of Harper and Duncan was to blame Attawapiskat's council instead of working with them to solve its problems. He said the community is seeking long-term solutions, but it's hard to work with a government that has such a negative attitude towards them.

"In communities like Attawapiskat, and there's many of them across Northern Canada, there is a sense that this is a government that really doesn't give a damn, and that's why people are frustrated," he said.

Liberal MP Carolyn Bennett reacted in a similar fashion, saying the federal government views aboriginal Canadians as "adversaries."

"It chose to smear the reputation of the band instead of owning up to its responsibility to respond to the housing emergency in Attawapiskat," she said.