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Pipes are seen at the Kinder Morgan Trans Mountain facility in Edmonton, Alta., Thursday, April 6, 2017.

JONATHAN HAYWARD/THE CANADIAN PRESS

The Federal Court of Appeal has ordered Ottawa to renegotiate the terms under which the Trans Mountain pipeline crosses a First Nations reserve in British Columbia, raising new questions about the fate of Kinder Morgan Inc.'s federally approved plan to expand the pipeline.

In a decision released this week, the court ruled that the federal government failed in its duty to protect the interests of the Coldwater Indian Band in 2014 when it approved the transfer to Kinder Morgan of an easement agreement on the original pipeline, which was completed in 1952.

As a result, Carolyn Bennett, the Minister of Crown-Indigenous Relations Northern Affairs, must make a "redetermination" on the easement before Kinder Morgan can boost the flow of the pipeline as part of its expansion project.

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Coldwater is one of several First Nations communities in British Columbia that are challenging the federal government's approval of the $7.4-billion Trans Mountain expansion, claiming Ottawa failed to properly recognize Indigenous rights. That hearing begins next week.

The expansion project also faces political opposition from the new NDP government in British Columbia. In January, then-premier Christy Clark approved a cash deal with the company to approve the pipeline, but after unseating the Liberals in the spring election, the NDP government applied for intervenor status to fight the pipeline alongside the First Nations complainants.

Alberta insists the project is critical to the health of its oil industry.

And Ottawa argues it took into account environmental and Indigenous concerns when it approved it this past November.

Under the expansion plan, Kinder Morgan would boost the flow of the pipeline that runs through the reserve by 50,000 barrels per day. It would also build a second line outside the reserve territory but through a recharging area for the aquifer on which Coldwater relies for drinking water.

The appeal court ruling dealt with the Coldwater band's concerns about how it was treated after Texas-based Kinder Morgan acquired control of Trans Mountain in 2007. As part of that acquisition, the federal government had to approve the transfer to Kinder Morgan of a 1952 easement agreement with Coldwater. The band wanted the agreement updated with additional environmental protection and financial commitments, but Ottawa rejected its demands and approved the transfer.

A spokesperson for Kinder Morgan, Ali Hounsell, said the court ruling is directed at the government, not the company. She noted that the consent to transfer the easement agreement to Trans Mountain was made by the federal government and it will have to go back to the government.

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"The court's decision does not affect the day-to-day operations of the Trans Mountain pipeline nor the Trans Mountain expansion project," she said.

The appeal court said Ottawa had a duty to protect the interests of the Coldwater band and failed to execute that duty, finding there was little evidence that the then-minister of Indian and Northern Affairs even took Coldwater's concerns into consideration.

Coldwater lawyer Matthew Kirchner said the decision provides "clarity on the fiduciary obligations of the Crown," which will likely be helpful in the band's challenge of Ottawa's approval of the overall expansion.

In the court case set to begin next week, Coldwater will argue the National Energy Board and federal government failed to identify the aquifer or take into account the risk the pipeline would pose to their drinking water.

Coldwater Chief Lee Spahan welcomed the appeal court ruling and called on the federal government to negotiate directly with his community.

"Instead of being the referee in this dispute [with Kinder Morgan], I hope they will have meaningful talks with us," he said in an interview. "I'm hoping they will understand our ways and respect our wishes."

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He said the original compensation package of just $1,292 is an insult to his community, but the main concern now is to ensure the new pipeline doesn't threaten the aquifer.

"The way they sent the plans in, it's a definite 'No.' The planned route is to go right through our water aquifer," he said. "It's possible the community could be persuaded to accept an alternate route that did not threaten their water."

He added that Ottawa has not lived up to its commitments to reset relations with Canada's Indigenous people.

"I hand delivered a letter to the Prime Minister in December. It took six months for his minister to get back to me. I don't see this as a meaningful, government-to-government relationship."

Kinder Morgan has insisted it is committed to an aggressive construction schedule. But it received another setback last week when the National Energy Board ordered it to stop some pre-construction activity pending final approval of its precise route.

A spokeswoman for Minister Bennett said the Liberal government is committed to co-operation and partnership with Indigenous people.

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"The minister would welcome to meet the Coldwater leadership to find a path forward and work together to address these issues," Sabrina Williams said in an e-mail Wednesday.

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