Lawyers for the Manitoba government say the province was within its rights to quash a $67.5-million payout to the Manitoba Metis Federation for future hydroelectric development.

"With all due respect, Manitoba has the authority to intervene in the management of Crown corporations," government lawyer Maureen Killoran said at Manitoba's Court of Queen's Bench on Thursday, the second day of a two-day hearing focused on the cancelled deal.

The Manitoba Metis Federation has taken Premier Brian Pallister's government to court for forcing Manitoba Hydro to cancel the $67.5-million payment to the federation last year.

The agreement, initially struck between the federation, Hydro and the former NDP government, saw the MMF agree to support several Hydro projects.

It was ended by government directive in March 2018, with Pallister calling it "persuasion money" and arguing the province shouldn't pay Métis people in exchange for their silence.

He said the agreement was for discussion purposes and wasn't legally binding.

The Manitoba Metis Federation contends the government's actions were unconstitutional, and violate both the contract and Indigenous rights.

The two-day court hearing ended on Thursday, following submissions from the government.

'Adverse effects' not established: lawyer

Killoran argued the deal did not explain how the Métis community would be detrimentally affected by future hydroelectric development.

"The major agreed points [of the deal] do not align with government policy. Far from it," she said. "It's $67.5 million to MMF, without defining, describing or identifying the adverse effects."

Killoran said the government did not act vindictively against the federation, which has a strained relationship with the province.

The province also cancelled an earlier 2014 contract between itself, the Métis federation, and Hydro. That $20-million deal, referred to as the Turning the Page agreement, was in exchange for the federation's support for several Hydro activities, including the Bipole III transmission line and the Keeyask generation project.

The Manitoba Metis Federation was set to receive $67.5 million for its support of hydroelectric projects such as a new transmission line to Minnesota. (John Woods/The Canadian Press)

Manitoba Metis Federation lawyer Jason Madden said his client sought a legal recourse to show the government cannot unilaterally trash deals because it wants to.

"If Manitoba wanted to unravel that deal, there could have been ways for them to do that," Madden told the court, arguing the province had the chance to express its reservations and work toward a mutual solution.

'No one's going to negotiate anymore'

Outside court, Madden warned of a chilling effect if governments can scrap contracts with Indigenous communities on a whim.

"If they can tear up agreements that have been duly negotiated after decades, decades upon decades, just think about that — no one's going to negotiate anymore. Reconciliation will be at a standstill."

Manitoba Metis Federation President David Chartrand said the implications of this court case could be felt nationwide.

If the judge rules in the province's favour, "it should send shivers down anybody who thinks they have a solid agreement in their hands now," he said.

Court of Queen's Bench Justice Glenn Joyal's final ruling is expected at a later date.