The court's decision, released earlier this month, upholds a ruling from the Specific Claims Tribunal in a case filed by the Kitselas First Nation, located along the Skeena River northeast of Terrace.
The case centres around a four-hectare section of riverfront land that is surrounded by Kitselas territory. A commissioner working for the Joint Indian Reserve Commission decided in 1891 that the area should be excluded from the band's reserve.
The Specific Claims Tribunal, which was set up by the Conservative government in 2008 to keep land claim cases out of the courts, concluded the excluded land was the site of an ancient Kitselas settlement and should never have been excluded from the reserve.
The federal government appealed the decision, arguing the 1891 decision was correct and should be left alone. It marked the first time Ottawa appealed a tribunal decision.
But the Federal Court of Appeal has rejected those arguments, upholding the tribunal's finding that the government breached its duties to the Kitselas.
"The land at issue was clearly delineated and identifiable, and the cognizable interest in that land was its historic and contemporary use and occupation as a settlement by the Kitselas themselves," the court said in a unanimous judgment.
The ruling means the Kitselas can now return to the tribunal to seek compensation unless Ottawa appeals to the Supreme Court of Canada.
The disputed land itself is now a provincial park.
The band's lawyer, Stan Ashcroft, said that while the land at the heart of the dispute may seem relatively small, the case could have a wide-ranging impact on other land claims.
Ashcroft said it's the first time the tribunal has ruled against the government over land that was historically excluded from a reserve. He said previous claims have focused on cases in which the provincial and federal governments had agreed to include land in First Nations reserves but failed to follow through.
Ashcroft said the case could affect other outstanding claims that involve similar issues, including one filed by the Williams Lake Indian Band that includes most of the City of Williams Lake, located in the province's Interior.
"I act for 19 First Nations, and quite a number of them are in the same situation," Ashcroft said.
The federal Justice Department referred questions to the Department of Aboriginal Affairs and Northern Development, which sent a brief email statement.
It did include a comment on the decision or confirm whether the government plans to appeal to the Supreme Court of Canada.
Unlike other provinces, B.C. did not sign treaties with its First Nations. Instead, the Joint Indian Reserve Commission was set up in the late 1800s to assess the competing interests of First Nations and European settlers and make recommendations to the government, which then unilaterally set reserve boundaries.
The commissioner in 1891, Peter O'Reilly, set aside more than 1,000 hectares of land for the Kitselas, but he carved out the four hectares that are now in dispute.
The tribunal concluded the four-hectare area was the site of an ancient Kitselas village, where dwellings still stood in 1891.
Nevertheless, O'Reilly excluded the land from the reserve, noting that a Hudson's Bay Co. storehouse was already located there.
The tribunal concluded O'Reilly did not inform the Kitselas of his final recommendation excluding the land.