The Federal Court of Appeal has ruled against Kinder Morgan Canada and the federal government in relation to the existing Trans Mountain Pipeline.

Tuesday's ruling states the federal government failed in its legal obligation to act in the best interests of the Coldwater Indian Band when it neglected to modernize the terms of a 1952 decision that allowed Kinder Morgan to use Coldwater's reserve for the pipeline.

Coldwater Indian Band, which is located about 12 kilometres south of Merritt, B.C., has about 860 members, half of which live on the reserve.

The existing Trans Mountain Pipeline was constructed through the reserve in 1952.

At the time, the band received a one-time payment of $1,292.

Failure to scrutinize 1952 terms

The ruling states the minister of Indigenous affairs failed to ensure the terms authorizing Kinder Morgan's use of the reserve were updated from the outdated terms of 1952.

According to court documents, the minister approved the transfer without properly scrutinizing the transaction.

"In the circumstance, particularly in light of the importance of Coldwater's interest in its reserve lands, the Crown was under a continuing duty to preserve and protect the band's interest in the reserve land from an exploitive or improvident bargain," the decision reads.

"The minister's failure to assess the current and ongoing impact of the continuation of the easement on Coldwater's right to use and enjoy its lands rendered his decision unreasonable."

'This is a great day'

In a release issued on Wednesday, Coldwater's chief and council said they were happy with the court's decision.

"We are very happy that the court recognized the importance of our land to the Coldwater people and that it is holding the Crown to a high standard of conduct in making decisions about our land," said Coldwater Chief Lee Spahan.

"Now things must change. This is a great day for Coldwater and all First Nations."

No impact for Trans Mountain

Trans Mountain spokesperson Ali Hounsell wrote in an email that the ruling changes little for the company.

"The Court's decision does not affect the day-to-day operations of the Trans Mountain Pipeline nor the Trans Mountain Expansion Project," she wrote.

But Spahan said the decision will help Coldwater members fight to protect their land.

The press secretary to Crown-Indigenous Affairs Minister Carolyn Bennett says she would like to work with the Coldwater leadership to address the issues in the ruling and find a path forward.

With files from The Canadian Press