Alberta's Court of Appeal has quashed approval of an oilsands project north of Fort McMurray after deciding the interests of the Fort McKay First Nation were not dealt with appropriately.

In June 2018, the Alberta Energy Regulator (AER) ruled Prosper Petroleum Ltd.'s proposed Rigel project to be in the public interest and recommended the provincial government issue an order in council that would give the project the go-ahead.

The proposed project would be built less than 10 kilometres away from two of Fort McKay First Nation's reserves, known as the Moose Lake Reserves.

The First Nation appealed AER's decision, saying it is working on a plan addressing how to mitigate the impact of oilsands development in the Moose Lake area.

As the Moose Lake Access Management Program (MLAMP) is not yet complete, the AER did not take it into consideration during consultations.

The province and Prosper Petroleum claimed any grievances arising from the plan could be dealt with by cabinet at a later date.

The court disagreed.

"We are satisfied that there was no basis for the AER to decline to consider the MLAMP process as part of its assessment of the public interest rather than deferring the issue to cabinet," the panel of three judges said in a ruling Friday.

"The public interest mandate can and should encompass considerations of the effect of a project on Aboriginal peoples.

"To preclude such considerations entirely takes an unreasonably narrow view of what comprises the public interest, particularly given the direction to all government actors to foster reconciliation."

One of the appeal court judges, Justice Sheila Greckol, went further.

The honour of the Crown is required to "keep promises made during negotiations designed to protect treaty rights," Greckol wrote in a concurring decision.

"It certainly demands more than allowing the Crown to placate [Fort McKay First Nation] while its treaty rights careen into obliteration," she said.

"That is not honourable. That is not reconciliation."

The AER is required to reassess the Rigel project, while taking into consideration the MLAMP negotiations between the Fort McKay First Nation and Alberta government.

"The AER is directed to reconsider whether the approval of the project is in the public interest after taking into consideration the honour of the Crown and the MLAMP process."

Fort McKay First Nation Chief Mel Grandjambe said the court decision was a "tremendous step towards reconciliation."

He said the decision reaffirms that the provincial and federal governments have a responsibility to consult with Indigenous people.

The Moose Lake reserve is of great significance to the community, said Grandjambe.

"This is all we have left and that's why it's so important to us," he said.

Most of the land surrounding Fort McKay has already seen high levels of industry development, he said, which is why the community wants to be properly consulted on any development that may take place in the Moose Lake reserve area.

The First Nation and provincial government are still working on the MLAMP, and Grandjambe said the process is moving along well. He expects they will come to an agreement in the next few months.

"It's just a big day for everybody and it's been a lot of work," he said. "It's a big win for First Nation, Aboriginal people in Canada today."

Prosper Petroleum says the Rigel project would create about 10,000 full-time jobs during construction, and would produce about 10,000 barrels of heavy oil a day.

In January, the Calgary-based company went to the Court of Queen's Bench to ask a judge to order the provincial government to make a decision on the Rigel project.

A judge ordered cabinet to make a decision, but the order was later stayed by the Court of Appeal.