"It would be contrary to the principles of fundamental justice" to send the men to the U.S., where their heritage would not be factored in to sentencing, the way it is in Canada, the Appeal Court ruled.
Factors under what is known as the Gladue principle are considered in Canadian law to try to offset systemic discrimination against aboriginal people.
The justice minister didn't properly take these factors into account when he ordered Zachary Leonard and Rejean Gionet extradited, and for that he was wrong, the court ruled.
Leonard, a young member of the Rainy River First Nations with no criminal record, was arrested at a U.S. border crossing in 2006 when the van in which he was a passenger was found to be carrying 46,000 ecstasy pills.
If he is prosecuted in the U.S. he could face 19 years in prison.
Given his age, lack of a record, peripheral alleged involvement in the crime, his aboriginal status and steps he has taken to rehabilitate himself since then, he might not receive any jail time in Canada, the court said.
Gionet, a member of the Ginogaming First Nation, was allegedly involved in importing oxycodone into the U.S. from Canada in 2003 and 2004.
In the U.S. he would face six or seven years if he pleaded guilty and up to 10 years if convicted after a trial. In Canada, the sentence range is three to five years and he has already spent 3 1/2 years in custody.
Gladue, a Supreme Court of Canada decision from 1999, stated that factors such as dislocation and high unemployment combined with bias and systemic racism have contributed to the "grossly disproportionate" incarceration of aboriginal people.
It does not amount to reverse discrimination in the form of automatically lighter sentences or a "get out of jail free" card, the Appeal Court said.
But the courts in Canada must consider aboriginal heritage as a factor in sentencing because equality does not necessarily mean equal treatment, the court said.
Justice Minister Rob Nicholson "refused to apply the Gladue principle," the Appeal Court ruled and quashed the extradition orders.
In the minister's decision in Leonard's case he wrote that "it would be unfair if Mr. Leonard could escape a trial on the offence alleged against him on the basis that he is an aboriginal defendant."
But the Appeal Court called that characterization "seriously flawed" because it would be open to the Public Prosecution Service of Canada to lay charges here.
"I do not wish to be taken as saying that application of Gladue somehow requires prosecutors to lay charges in Canada rather than agree to foreign proceedings," wrote Justices Robert Sharpe and James MacPherson in a split decision.
"That would be inconsistent with Gladue, which merely states that some consideration must be given to the distinct situation of aboriginal peoples in Canada to avoid further perpetuation of discrimination and disadvantage."
A minister's decision in such cases involves political judgment, but the judges wrote he could "see no possibility" that Nicholson could argue that political considerations outweigh the harsh consequences on the men.
Justice David Doherty agreed with the reasons in the 2-1 ruling, but dissented with the decision to quash the extradition outright and not send the case back to the minister for reconsideration.
"The minister is charged with the heavy responsibility of balancing competing interests and upholding Canada's international obligations under its treaties," Doherty wrote.
"The courts cannot, and should not, assume those responsibilities in the context of a judicial review application."
Both men could be prosecuted in Canada, the court said. A spokeswoman for Nicholson said his office is reviewing the decision and all legal options.Suggest a correction