Australia: So that's how you value native title…

Last Updated: 5 September 2016
Article by Tosin Aro, Mark Geritz and Damien Gardiner

Most Read Contributor in Australia, August 2016

Private sector beneficiaries of future acts should be aware that Government parties may look to pass on native title compensation liability.

In Griffiths v Northern Territory of Australia (No 3) [2016] FCA 900 (Timber Creek), the Federal Court finally made its first determination of compensation under the Native Title Act - and the "price" put on native title rights and interests exceeds the rules of thumb adopted by many in Government and industry.

Context for the Timber Creek decision

In Mabo v Queensland (No 2) (1992) 175 CLR 1, the High Court held that the common law recognises a form of native title that reflects the entitlement of Aboriginal people and Torres Strait Islanders, in accordance with their traditional law and custom, to their traditional lands. In response to Mabo, the Commonwealth enacted the Native Title Act 1993 (Cth) (NTA), the objects of which included the establishment of a mechanism for determining native title claims.

One consequence of Mabo was to make it apparent that, as from the commencement date (31 October 1975) of the Racial Discrimination Act 1975 (Cth) (RDA), grants of freehold and leasehold tenures, mining tenements and other "acts" over lands subject to native title without the procedural, compensation and other rights that would have been accorded to freeholders may have been invalid. The NTA therefore also provided for the validation of these "past acts", and for the provision to native title holders of "just terms" compensation for the impact on their native title rights and interests of these (and any other) acts that have affected native title.

Where an application is made on behalf of a native title claim group for a determination of native title, the Federal Court will ultimately make a determination whether or not native title exists in relation to the area claimed. Of the determinations of native title made since the enactment of the NTA, the Court has determined that native title exists on 305 occasions - most frequently in relation to areas in the Northern Territory, Western Australia and Queensland. Ultimately, compensation determination applications could be made in relation to all of these determinations.

While there has been much conjecture over the years as to the valuation principles applicable to the calculation of loss or impairment of native title, Timber Creek is the first decision assessing and determining the quantum of compensation payable to native title holders for the impact of such acts on their native title rights and interests.

Background

Following a determination of native title in relation to the township of Timber Creek in the north west of the Northern Territory (an area of only 23km2), the Ngaliwurru and Nungali peoples (Holders) made a compensation determination application to the Federal Court. In broad terms, compensation was sought in recompense for the impact on determined native title rights and interests of particular:

  • past acts that had occurred since the commencement of the RDA, and been validated on 10 March 1994; and
  • "intermediate period acts" that had occurred after the commencement of the NTA, and been validated on 1 October 1998.

(Some of these acts had the effect of "suppressing" native title for the life of the act, while others - comprising either the grant of certain "exclusive possession" land interests or the construction or establishment of "public works" by or on behalf of the Crown ? extinguished native title.)

The Court awarded the Holders $3,300,261 in compensation, comprising:

  • $512,000 for the economic value of the extinguished native title rights over the land;
  • $1,488,261 in interest; and
  • $1,300,000 for non-economic/intangible loss or solatium.

Economic loss

The Holders argued, and Justice Mansfield accepted, that compensation for economic loss by the extinguishment or suppression of native title is to be assessed by reference to the market value of a freehold estate in the affected land - as any lesser basis would be inconsistent with the RDA requirement to treat native title holders comparably with non-native title holders.

While freehold value therefore had to be the starting point for the assessment, in the case of Timber Creek a discount to that value had to be applied because the native title rights and interests that were extinguished or otherwise impaired by the relevant acts are "non-exclusive". Justice Mansfield valued this non-exclusive native title at 80% of the freehold value of the affected lots. He conceded that he had not applied any "formula", and had instead made "an intuitive decision", in arriving at this valuation.

Justice Mansfield also considered that the quantum of just terms compensation is to be assessed as at the date on which relevant interests or titles were granted (or on which construction of relevant public works commenced), and not (as the Holders contended) as at the date on which such acts were validated (March 1994 or October 1998).

The consequences of this finding included assessment of both:

  • an earlier (and, in all probability therefore, a lesser) market value; and
  • the unimproved market value on the lots in question.

Justice Mansfield considered that the requirement to determine a fair and just level of compensation would be achieved by compensating the Holders for the delay in payment by awarding interest on the principal compensation sum.

Interest

The Holders sought payment of interest on a compounded basis (either at a "superannuation" or "risk-free" rate). However, while Justice Mansfield did not rule out awarding compound interest if it would provide just terms compensation, he was not satisfied on the evidence that the Holders would have either invested the whole compensation amount without any expenditure, or used it for a profitable commercial activity.

In the end, simple interest was awarded at the rate specified in Federal Court Practice Note CM 16 - in effect, 4% above the RBA cash rate - although this still represented the largest component of the compensation award.

Non-economic loss

The Court found that Holders were entitled to additional compensation for the loss they have sustained, and the "intangible disadvantages" they have experienced, because of the extinguishment and impairment of their native title. This included loss of their spiritual or religious attachment to the land.

Justice Mansfield considered expert anthropological evidence that showed that the extinguishment of native title had had a significant and ongoing detrimental effect on the Holders, even where the acts had occurred over 30 years ago. However, he noted that assessment of loss of cultural and spiritual relationship could not be a "matter of science or of mathematical calculation". Regard must instead be had to the "loss of amenities" or "pain and suffering" of affected native title holders on a case by case basis.

Implications of the decision

This decision could have a number of implications for Government authorities and corporations, and for private sector project proponents.

  1. One expected consequence of the Timber Creek decision would be to encourage the native title holders for the rest of the 305 determinations that have been made by the Federal Court to redouble their efforts to lodge and progress their own compensation determination applications. In the future acts context, it is likely that native title parties will frequently regard this decision as strengthening their bargaining power with proponents.
  2. More generally, private sector beneficiaries of future acts, such as the grantees of certain tenements, should be aware that Government parties may, where possible, look to pass on native title compensation liability that is determined in relation to such future acts. Some jurisdictions already require this in certain circumstances and it would not be unexpected were Governments around the country increasingly to legislate for this type of pass-through to occur.
  3. A further issue is the number of compulsory acquisitions of native title that have occurred without any assessment of compensation because the acquired native title was not yet the subject of a native title determination. The acquisition authorities in question now have more clarity around the amounts that need to be budgeted for native title compensation ? including amounts referable to non-economic loss. Where the acquisition is for the benefit of a proponent, the acquiring authority will now have a firmer basis on which to set the amount of any guarantee or other instrument it requires from the proponent to cover expected compensation costs.
  4. The NTA provides for compensation also to be payable for acts done after 1994 that affect native title ("future acts"). Where future act compensation is agreed and recorded in an Indigenous land use agreement (ILUA) or (for grants of mining or petroleum tenements) "section 31 agreement", those agreements will typically provide for the consideration paid by the proponent to be in "full and final satisfaction" of the native title party's compensation liability. One question that arises is whether, if the level of "compensation" in a particular case did not have regard to market value, native title holders could successfully apply to a Court for an award of an amount to make up any shortfall on the basis that the agreed amount did not provide "just terms". One expects that, if this were to occur, the additional amount would be passed through to the proponent by the affected Government. While unlikely in all the circumstances, this is an issue that proponents should be alive to.

Going forward

There are strong prospects that the Full Federal Court (and, in time, the High Court) will have the opportunity to review the valuation principles set by Justice Mansfield in Timber Creek (whether on appeal from this decision or in relation to a future compensation application).

Until then, government and private sector players alike will do well to read this decision carefully to understand the basis on which native title compensation can be awarded against (or passed through to) them.

RELATED KNOWLEDGE

Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this bulletin. Persons listed may not be admitted in all states and territories.

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