In 2001 a First Nation in Ontario, the Pikangikum First Nation, asked for a judicial review after Indian Affairs refused to provide funding to the community unless it’s chief and council surrendered control to a Third Party Manager. It took two years, but in December 2002 a federal court ruled that Indian Affairs acted improperly when they assigned an outside financial manager for Pikangikum.
In that case Pikangikium had submitted audits which had passed for the two previous years. Justice O'Keefe called Nault's decision requiring Pikangikum to enter into a co-management agreement, "patently unreasonable." He overturned the Department’s decision to install a Third Party manager saying that the Department did not follow its own directives which say they must give notice - written or oral reasons - describing the difficulty or default before imposing co-management, and therefore did not allow for meaningful discussion.
The scenarios sound similar. We'll see how the arguments play out in court.