The federal government could be headed back before the Canadian Human Rights Tribunal to settle an outstanding question on compensation for First Nations children who faced discrimination under the on-reserve child welfare system.

When the human rights tribunal first ruled in January 2016 that Ottawa discriminated against First Nations children by underfunding on-reserve services, it reserved its decision on the issue of compensation to allow the parties to come to a settlement.

Last Friday, hours after Indigenous Services Minister Jane Philpott announced upcoming legislation on Indigenous child welfare, Justice Canada lawyer Robert Frater wrote the tribunal to secure hearing dates for possible arguments on the compensation issue.

Frater said in the letter that officials on the file had still not received a mandate on how to proceed on compensation.

"We remain committed to discussing the compensation issue with the parties, and attempting to reach a resolution," said Frater's letter.

"But in view of the fact that we have not yet received final instructions, it is apparent that we will likely have to set the issue down for argument."

Minister wants a negotiated settlement

The window is closing on settling the issue outside of another round of hearings before the tribunal. The tribunal is facing the end of its oversight powers on the issue next March.

The tribunal also ordered Canada to implement Jordan's Principle, ensuring jurisdictional conflicts between Ottawa and the provinces don't hinder delivery of services to First Nations children. Families affected by Ottawa's failure to follow Jordan's Principle before the ruling could also be eligible for compensation.

Indigenous Services Minister Jane Philpott faced questions from chiefs Wednesday about the issue following her speech to the Assembly of First Nations, which is holding its annual December meeting this week at the Westin Hotel in Ottawa.

Indigenous Services Minister Jane Philpott speaks to the Assembly of First Nations in Ottawa on Wednesday. (Jorge Barrera/CBC)

She told chiefs that she wants settle the issue through talks.

"I have been very clear that I want to resolve all issues related to the Canadian Human Rights Tribunal and I want to resolve those directly by working with the parties," Philpott told reporters following her speech.

Philpott said she would rather deal with the compensation issue outside the tribunal process.

"As soon as the parties to the tribunal are happy to drop that legal mechanism and to work with us directly, we will be extremely happy to do so," Philpott said.

Philpott said she did not see the letter before it was sent.

A spokesperson for Philpott's office said the letter does not preclude "other mechanisms from moving forward" and there is still hope a resolution can be reached outside the tribunal process.

John Cutfeet, chair of the Sioux Lookout First Nation Health Authority, said there seems to be conflicting messages coming from the ministers and their officials.

"The minister is saying, 'We don't want to go there.' She wants to work it out," said Cutfeet. "But why hasn't she provided direction to Justice Canada to say this is how we are going to do this?"

Compensation could be in the billions of dollars

Cindy Blackstock, who heads the First Nations Child and Family Caring Society and led the human rights complaint, said the compensation issue has been on the table for months.

Blackstock said her organization filed questions on the issue in the summer and that Ottawa filed the Nov. 30 letter at the deadline set for its response.

Watch Blackstock speak about First Nations child welfare compensation

Cindy Blackstock, who heads the First Nations Child and Family Caring Society, spoke to reporters during the Assembly of First Nations meeting in Ottawa. 2:16

"Canada seems to have changed its position about litigating the compensation that is owed the children who were affected by the human rights tribunal," said Blackstock.

Blackstock said if Canada wants to go back before the tribunal to argue the issue again, she is prepared for another round.

"If there is a rights breach, or if Canada is not prepared to fulfil its responsibility, then for us as the Caring Society, we are prepared to litigate."

Blackstock said she wants affected children and families to get the maximum amount available under federal human rights legislation — $20,000 for discrimination, plus an additional $20,000 if the discrimination was done willfully or recklessly.

The overall compensation amount could hit at least an estimated $1.5 billion, said Blackstock.

There were, on average, between 8,500 and 10,000 on-reserve First Nations children in care between 2006 and 2018.

It remains unclear how many families and children were affected by the government's failure to implement Jordan's Principle before the ruling.

According to Indigenous Services figures, there were more than 165,000 requests for products, services and supports approved for First Nations children post-ruling between July 2016 and September 2018.