Australia: First determination of compensation for native title - Take 2

Last Updated: 3 August 2017
Article by Damian Roe and Liz Wreck

On 20 July 2017 the Full Federal Court of Australia handed down its decision in Northern Territory of Australia v Griffiths [2017] FCAFC106 which was an appeal of the Honourable Justice Mansfield's decision. His Honour's decision was the first to order a State or Territory to pay compensation for loss or impairment of native title rights or interests pursuant to the provisions of the Native Title Act 1994 (Cth) (NT Act) ( see our previous alert here).

Essentially there were three primary issues addressed in the appeal, namely:

  • the valuation of the economic loss suffered by the native title holders as a result of the extinguishment of non-exclusive native title rights and interests;
  • whether simple or compound interest is payable on the amount of compensation awarded under section 51 of the NT Act; and
  • whether the valuation of the non-economic loss suffered by the native title holders was appropriate.

The outcome of the Full Federal Court's decision is that the amount of compensation payable by the Northern Territory to the native title holders for economic loss was reduced from 80% to 65% due to errors in the primary judge's assessment of the economic loss suffered by the native title holders. However, the other findings of the primary judge were affirmed by the Full Federal Court.

Valuation of economic loss

The primary judge, in assessing the economic loss for the extinguishment of non-exclusive native title rights and interests arrived at an "intuitive decision" that those rights and interests were valued at 80% of the freehold value of the relevant land.

The appeals and cross appeals by the Northern Territory, the Commonwealth and the native title holders addressed three main elements of the primary judge's reasoning.

  1. The extent of the native title holders' non-exclusive native title rights and interests

    In relation to this issue, the Full Court found that the primary judge's view that the native title holders' native title rights and interests were "very substantial" suggested an overestimation of their value. They held that "there were significant limits on the extent of those rights and interests which were not reflected in the descriptions used by the primary judge."

    The Full Court found fault in the reference by the primary judge to the practical sense in which the native title rights and interests were exercisable. The primary judge improperly assessed the extent of the native title rights and interests by reference to the way in which the rights were exercisable rather than by reference to the legal content of those rights.

  2. Whether in assessing the value of the rights and interests, it is open to take into account the value of those rights and interests to the acquiring authority

    In relation to the second issue, the Full Court accepted that the primary judge had taken into account the value to the Northern Territory of acquiring the native title holders' non-exclusive native title rights and interests as part of the assessment of those rights. Consistent with the decision of The Commonwealth v Reeve (1949) 78 CLR 410, the Full Court found that an allowance for the benefit of the acquisition to the Northern Territory was not available as such an allowance was prone to inflate the figure for compensation.

  3. Whether in assessing the value of the rights and interests it is open to take into account the effect of the inalienability of the native title holders non-exclusive native title rights and interests

    In relation to the assessment of non-economic loss, the Full Court found that, contrary to the approach taken by the primary judge, it was necessary to discount the value of the native title holders' rights and interests because those rights were inalienable. The Full Court found that the primary judge erred in not applying the approach adopted by the High Court in Spencer v The Commonwealth (1907) 5 CLR 418 of making a hypothetical assessment of the value based on the market value determined by a willing but not anxious seller to a willing but not anxious buyer. The Full Court found that the primary judge's refusal to apply the Spencer test resulted in the primary judge failing to fully consider the inalienability of the native title holders' native title rights and interests in assessing the value of the non-exclusive native title rights and interests.

On the basis of the above errors by the primary judge, the Full Court was of the view that the primary judge's assessment of 80% of the freehold value of the land was excessive. The Full Court made an assessment, based on the nature of the restrictions on the native title holders' non-exclusive native title rights and interests, that the economic value of those interests was 65% of the value of the freehold title. There seems to be a process of re-balancing the economic and non-economic losses here, in favour of the latter. This is no doubt to take account of the essentially spiritual nature of the native title.

It is also interesting to note that the Full Court postulated that an alternative approach to the assessment of compensation may be appropriate. That approach is to assess the amount of compensation payable under section 51 of the NT Act "in globo" rather than by splitting the assessment into economic loss and non-economic loss. The Full Court's view was that the terminology used in section 51 of the NT Act "contemplates compensation to native title holders of a more holistic nature". The Full Court also observed that this method would avoid the argument that there has been a "double counting as a result of including factors in both the economic and non-economic categories."

Interest payable on compensation

The Full Court found that, whilst compound interest may be awarded in certain circumstances, the native title holders had not demonstrated an error by the primary judge and found that the appeal by the native title holders on this issue had not been made out.

Valuation of non-economic loss

The Full Court noted that the task of fixing the amount of compensation under section 51 of the NT Act involves the exercise of discretion and that a judge, when exercising discretion, falls into error if the judge acts on a wrong principle, allows extraneous or irrelevant matters to guide or affect the exercise of discretion, mistakes the facts, does not take into account some material consideration, or if a substantial wrong has in fact occurred in the exercise of the discretion.

However, the Full Court found there was no manifest error in any of the ways identified in the grounds of appeal, including that the award of non-economic loss was not manifestly excessive and on that basis, found that it was not part of the Court's function on appeal to cavil with the primary judge's selection of $1.3 million. It observed that the amount awarded by the primary judge "reflects in money terms recognised by the community, a substantial acknowledgement of a high level of damage done" to the native title holders. Community standards are the true measure of just terms compensation.

Where to from here?

The High Court, obviously! Given the significance of the issue of compensation under the NT Act and that none of the parties to the appeal were entirely successful, we consider there is a high likelihood that all parties to the appeal will appeal or cross-appeal one or more aspects of the Full Federal Court's decision.

Whilst this decision confirms that the value of native title rights is significant and this is no doubt already informing land access negotiations with native title parties, Timber Creek did not concern any mining or petroleum tenure. There is yet to be a litigated compensation decision in respect of mining or petroleum tenure or in relation to compensation for extinguishment of exclusive native title rights and interest. The National Native Title Tribunal's (NNTT) website shows that currently seven compensation applications have been made and, given the Yindjibarndi's recent vow to sue FMG for compensation, we may not have to wait too long to find out.

On the other hand, the relatively small number of compensation applications compared with the total number of native title determinations made in Australia (391) indicates the appetite to litigate is small.

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