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The agony of Helmut Klug.

On the morning of March 26, Helmut Klug began an 18-day hunger strike in an abandoned restaurant on Portage Avenue. Soon joined on the strike by indian activists Calvin Pompana and Jim Elk, both campaigning for Indian Act reform and Indian self-government, Klug set out to get justice and money for houses he built as a general con, tractor on the Fisher River Indian Reserve and on other reserves in the early 1980s. Having failed to draw much attention to his cause with a 1988 marathon march from God's Lake to Winnipeg, abandoned after 13 days and 250 miles of trekking through the bush, putting his life on the line seemed to Klug to be fitting and necessary. "The government took everything else from me - my business, my home. Now they can have my life if they want it"' he declares.

The justice Klug seeks is not money from Indian bands, for his claims against them were extinguished by the receiver for his firm. Rather, he believes the federal government created the financial disaster that destroyed him.

Now 54, Klug was a prosperous contractor when he signed an April, 1983 agreement to build three dozen houses on the Fisher River Band's reserve. He lived in a grand, stone, faced house in North Kildonan appraised at $380,000. An adjacent house Klug kept for guests was valued at $200,000. He flew a Beech Baron twin-prop plane to many of his rural job sites. With a doting wife and two teenage sons, he seemed a man in command of his small slice of the world. It was the fulfillment of the dream of an immigrant from Austria, new to Canada in 1953. Klug's life seemed to show that Canada worked; that hard work and following the system would pay off.

Within two years, the dream was shattered. In September, 1989, Klug's house was seized by creditors. He had mortgaged his home and guest house to get funds to keep his company, Klug Construction Ltd., alive in order to finish construction work long after the Fisher River band had ceased payments for work performed. Other bands, too, had refused to make progress payments for work completed. The Fisher River project and other reserve work had already driven his company into receivership. Some funds that the Fisher River Band could have paid Klug Construction under the contract were with, held. Recently, band chief David Crate has justified ing of funds with the claim that there were deficiencies in the work. In any case, says Crate, his band settled with Klug Construction's receiver and has no further liability in the matter. Debating the Issues

The amount of money withheld by the Fisher River Band, $430,000 according to Crate, had to be spent to replace septic fields and rebuild houses erected by Klug Construction. Klug suggests the reserve was at fault for not maintaining the field. He notes that each house built had a CMHC inspection approval. Chief Crate says the field was fundamentally flawed. Backups ruined many houses and fouled the reserve, he says. In fact, some of the government inspection reports note septic tank leaks. Klug claims he did not actually build the fields, though a requirement that "all houses shall have septic fields to confirm [sic] to local requirements" forms part of the construction contract as an attachment.

In spite of the conflicting claims over the septic field, the larger question is why in doing business on reserves, any businessman should be forced to stake his life as a means of collecting his bills.

Canada's Indian Act, Section 89.(I) is the trap into which any businessman, white or native, can fall:

"Subject to this Act, the real and personal property of an Indian or a band, situated on a reserve, is not subject to charge, pledge, mortgage, attachment, levy, seizure, distress or execution in favour or at the instance of any person other than an Indian or a band."

Exceptions to the rule against taking security in lands on a reserve exist for lease, hold interests of a developer. He can, if tenants do not pay, take any cash flow or assets he may be entitled to. And anyone who sells a chattel, say a car, to a band or band member may seize it even though it is on a reserve. In effect, notes Department of justice lawyer Tom Saunders, counsel to the federal Department of Indian Affairs and Northern Development, "You cannot put a lien against any federal government land. Band lands are crown lands. The provincial Builder's Lien Act does not apply." So a contractor or builder who hopes to take security on real estate on a reserve is in a hopeless position. Yet it is no different, says Saunders, from the position he would be in were he to do work on an airport or military base. Crown lands are immune from seizure. Period.

Klug went into the Fisher River project, a deal that had a base price tag of $2.4 million, with open eyes and experience building for other bands. He had good relations with them. They had, he says, been satisfied and paid their bills. In the case of the Fisher River project, Klug sought security in an off, reserve housing authority that he could pursue if payment became a problem.

The Background

A construction agreement that created the authority was signed and then, within weeks, Klug was asked to sign a revised agreement. On advice of his lawyers, he did so, with one special provision. The final contract, dated April, 1983, required progress payments for construction to be issued, as the document says, "to Fisher River and Klug jointly but the said cheques shall be forwarded by CMHC to Fisher River and Fisher River in turn will forward same to Klug." Klug says he had similar understandings in other construction agreements with other hands. As in the case of Fisher River, cheques wound up being issued to bands only. Yet as long as the bands paid, Klug went along with the situation.

Peace Hills Trust, an Alberta-based financial institution, was the project's lender. According to Klug, cheques were sent by Peace Hills directly to the band payable to the band alone. The band chief signed the cheques, recalls Klug, and, in the end, he says only $1.5 million out of $2.4 million due under the contract was paid.

The balance, $900,000, says Klug, was wrongfully withheld.

Peace Hills Trust has a reputation as a precise and diligent firm. Its executives suggest they would never issue cheques in deviance from a contract or from standard procedure without written instructions in the form of a letter of assignment. Peace Hills declines to provide a copy of the letter of assignment, if it exists, on the basis that such a letter is part of its confidential dealings with its client, the band. What is clear is that the flow of funds would have been in control of the band and that the trust company would have acted in accord with its instructions.

Peace Hills Trust, like other lenders, was aware that it was barred from taking security in the band's real estate. The program under which the Fisher River houses were built was therefore backed with a ministerial guarantee of payment. In the event of default by the band, the crown would stand ready to perform financially and pay the mortgage company. But the contractor had no guarantee.

Canada Mortgage and Housing Corporation was the mortgage guarantor in the Fisher River project. According to CMHC Manitoba provincial director Roy Nichol, "Klug brought this on himself by not taking precautions." The fact is, of course, that Klug did seek to protect himself, but did not close every loophole.

Matters of Public Policy

The position of the federal government in this case resembles that of the three monkeys that know no evil. CMHC, says Nichol, "does not make payment arrangements for third parties." Indian Affairs, says Lynne Boyer, acting director of communications, "is aware of the case but we have absolutely no involvement in it." Klug's own voluminous correspondence with federal politicians, including David Crombie, Minister of Indian Affairs and Northern Development when Klug sought a bureaucratic solution in 1985, amounts to a catalogue of buckpassing. Wrote Crombie . ..... the Department is not a party to the contract... [but] I would be willing to look at a Court judgment against the Band as a means of determining the validity of the claim, though I realize it would be impossible for you to collect on the judgment because of the legal situation."

Klug, out of money and nearly out of hope, duly sued the crown, filing a suit against the crown for $6.1 million in February, 1988. The Statement of Claim alleges that "negligence, incompetence and lack of administrative skills in performance of their respective duties of the defendants [the Ministers of Housing and Indian Affairs and Northern Development]" put Klug in his dilemma.

It is, thinks Klug, a hopeless case. Graeme Haig, Q.C., Klug's lawyer and a distinguished member of the bar, says the case was filed only to get CMHC moving. "Klug was told that, with an action started, his claim would get notice. Once he started it, the same people told him that with a case before the courts, his claim could not be dealt with." This is sinister hypocrisy, massive and deep. Unable to afford to pursue the case, Klug put it on hold. It is currently going nowhere, says Haig, just hanging, like Klug's fate, on the whims of the federal government. Tentatively, the federal government has, says Klug, offered to discuss his claims if he will withdraw the suit. Klug says he will do that, taking the federal government at its word. "We have nothing more than their indication of goodwill at this point," he confides, "but it is a sign that we can make progress." In fact, by leaving his strike, Klug is saving his strength for the battle ahead. It is a large struggle, for there is much at stake. Klug's out-of-pocket loss in the case is $900,000, funds not issued as progress payments. His related loss of business is larger than the out-of-pocket claim. He lost a fine home, a way of life, his credit, and standing in the community. What is left is his integrity and a belief that the Indian Act should be amended to provide security to contractors. It is not an impossible demand, for ministerial guarantees of payment already exist for lenders who, it should be noted, would not be able to lend for construction on reserves without the certainty payment by the crown in the event of default by the mortgagees. Klug thinks contractors and businessmen in general should not be left in legislative no man's land if they elect to work on reserves.

Two weeks into the hunger strike, Calvin Pompana reported that several bands other than the Fisher River band have issued band council resolutions that will eventually result in Klug being paid substantial funds. What will become of the Fisher River claim, which is the central example of Klug's problem with many bands, is not clear.

David Crate, now chief of the Fisher River Band, notes that the band did settle Klug's claim by paying, says Crate, $100,000 to Klug's receiver. In fact, says Crate, consulting engineers found Klug's original work defective. Crate believes holdbacks were justified. Crate feels the Fisher River band has been more than fair with Klug.

Public Policy

Klug goes to great lengths to say that he wants a hearing by the government, not to prosecute Indian bands. He and his allies on the strike, Elk and Pompana, are united in the belief that the Indian Act needs to be changed to give Indians greater responsibility for their affairs and to allow them to take greater responsibility for their business dealings. They see the jumble of federal housing programs for native housing as an improper compromise of the Indian Act.

The larger issues in the Klug case reach beyond the specifics of program administration, contracts and contractors' rights to the problems of native rights, and constitutional reform. The public policy issue of the Indian Act is the inviolability of native lands grant, ed by state treaties. Notes Graeme Haig, If the Indian Act defense against seizure of real property is breached, there may be an avalanche of claims." Yet, he says, "Indians have an interest in moving into the stream of commerce. An amendment of the Indian Act is necessary to do that. Even though many Indians are first-class in their dealings, the act needs to be amended."

That is the theory of the thing. The hard fact for Helmut Klug is that a way of life he once had and worked hard to earn is gone, forfeit to the anomalies of the Indian Act. His agony is that of a man who feels deceived by his government. He now asks nothing of the bands that did not pay him. Indeed, Klug's receiver may have extinguished any claim for contractual work performed but not paid. n
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Title Annotation:owner of Klug Construction Ltd., which went into receivership when Fisher River Indians withheld payment on housing Klug built
Author:Allentuck, Andrew
Publication:Manitoba Business
Date:Jul 1, 1990
Previous Article:A secure future.
Next Article:When the going gets tough....

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