Australia: Compensation for extinguishment or impairment of native title: the Federal Court Timber Creek decision, 24 August 2016

It is somewhat surprising that for over 20 years since the commencement of the Commonwealth Native Title Act 1994 on 1 January 1994, the principles to be applied in assessing compensation for the impairment and extinguishment of native title have not been thoroughly considered by the Federal Court.

The issue has been something of a sleeping giant in the development of native title law and while considerable case law has evolved in relation to most of the workings of the Native Title Act 1993 (NTA), compensation for impairment and extinguishment of native title has been the exception.

That has now changed with the decision on 24 August 2016 of Mansfield J in Griffiths v Northern Territory of Australia (No 3) (2016) FCA 900 (the Timber Creek Case).

The case involved a claim for compensation under the NTA on behalf of the Ngaliwurru and Nungali Peoples of the Northern Territory. A determination of native title in their favour had been made earlier in 2006. That was important as any compensation claim under the NTA would require significant proof of the existence of native title rights and the nature of them, in the absence of a Federal Court determination of the existence of those rights. The determination area included land within the boundaries of the proclaimed township of Timber Creek. The determined native title rights were found to be the following:

  • to travel over, move about and have access to the land;
  • to hunt, fish and forage on the land;
  • to gather and use the natural resources of the land such as food, medicinal plants, wild tobacco, timber, stone and resin;
  • to have access to and use of the natural water of the land;
  • to live on the land, to camp, to erect shelters and structures;
  • to engage in cultural activities, conduct ceremonies, to hold meetings, to teach the physical and spiritual attributes of the places and areas of importance on or in the land, and to participate in cultural practices related to birth and death, including burial rights;
  • to have access to, maintain and protect sites of significance on the land;
  • to share or exchange subsistence and other traditional resources obtained on or from the land (but not for any commercial purpose).

TIMBER CREEK AND COMPENSATION ACTS

The township of Timber Creek comprises an area of about 2,362ha. The township was declared as a town and set apart for that purpose under section 111 of the Crown Lands Ordinance 1931 (NT) by Proclamation made on 10 May 1975. This enabled town lands to be leased for various purposes by auction or to be offered for sale.

The claim for compensation under the NTA was for the extinguishment or impairment of native title rights arising from "compensable acts"' which mainly involved the grants of development leases. There were 56 compensable acts in all, attributable to the Northern Territory government within the meaning of section 239 of the NTA.

Twelve of these were category D past acts within the meaning of section 232 of the NTA. The non-extinguishment principle applies to category D past acts.

Some of those were followed by subsequent previous exclusive possession acts (PEPAs) which completely extinguished native title over the relevant lots (NTA s23B).

Others were previous exclusive possession acts within the meaning of section 23B of the NTA.

Three of the compensable acts were alleged to be invalid future acts for which common law damages for trespass was sought, not compensation under the NTA.

PAST ACTS AND FUTURE ACTS

Past acts under the NTA are those that occurred before 1 July 1993 (if legislation) or before 1 January 1994 (if any other act) which, because of the effect of the Racial Discrimination Act 1975 (Cwlth) may have been invalidly done due to their discriminatory effect on native title.

In validating those past acts, the NTA categorises them as category A-B past acts depending on the type of act (e.g. freehold, various types of leasehold) and for each category, sets out the consequence for any underlying native title (extinguishment or application of the non-extinguishment principle), and creates a right to compensation for the impact of that validated past act on the underlying native title.

The non-extinguishment principle essentially provides for the suppression of native title for the duration of the relevant act and for its having effect again on cessation of the relevant act to which it applies. The non-extinguishment principle also applies to most future acts i.e., those done after 1 July 1993 (if legislation) and after 1 January 1994 (if any other act). Future acts run the risk of invalidity if they do not comply with a relevant provision of the future acts regime contained in section 24 of the NTA. The future acts regime sets out the procedural rights to be afforded to traditional owners before the doing of the act and specifies what the impact of the future act once validly done, will be on native title. In most cases this is application of the non-extinguishment principle. Section 24 also provides for compensation for the doing of a future act. For most future acts this will be compensation for impairment rather than extinguishment of native title due to the application of the non-extinguishment principle. However, as appears from the judgement in the Timber Creek care, there might not be much difference between the two.

PREVIOUS EXCLUSIVE POSSESSION ACTS (PEPA'S)

PEPAs are identified in section 23B of the NTA which was inserted into the NTA in 1998 following the High Court decision in the Wik case which dealt extensively with the extinguishment of native title. They include the valid grants of certain types of tenure involving a right of exclusive possession (granted before 23 December 1996 - the date of the Wik decision) and "public works" undertaken on behalf of the Crown, a local body or statutory authority of the Crown.

PEPAs can include past acts that have been validated as past acts under the NTA.

The NTA establishes a right to compensation for the extinguishment or impairment of native title occasioned by past acts, PEPAs and future acts (although the Timber Creek Case was not concerned with future acts except in a very limited context).

RELEVANT NTA COMPENSATION PROVISIONS – "JUST TERMS"

The principles to be applied to the assessment of compensation under the NTA include the following:

  • the basic principle is that the entitlement is to be compensated "on just terms", "for any loss, diminution, impairment or other effect" of a compensable act on native title rights and interests (NTA section S 51(1));
  • the total compensation payable for an act that extinguishes native title must not exceed the amount that would be payable if the act were instead a compulsory acquisition of a freehold estate (NTA section 50A). This however is subject to the requirement to compensate on just terms in section 51(1);
  • where there is a Commonwealth or State compulsory acquisition law providing for compensation for compulsory acquisition the court may have regard to the principles or criteria for determining compensation in that law (NTA section 51 (2)).

Having regard to these provisions of the NTA, the Court in Timber Creek went on to consider compensation under three heads;

  • economic value of the impairment or extinguishment;
  • interest on economic value; and
  • non-economic value which concerned the loss of spiritual or religious connection with the land.

ECONOMIC LOSS

At the outset the Court rejected the orthodox valuation approach in Spencer v the Commonwealth 1907 S CLR 418, i.e., determining value based on the value which would be paid by a willing but not anxious purchaser from a willing but not anxious vendor.

Submissions by both the Commonwealth and the Northern Territory in the case (while not same) were broadly to the effect that the nature of native title rights and interests being communally held, usufructuary in nature, not able to be sold, leased or mortgaged, made it inappropriate to equate the economic value of those rights with the value of freehold title.

The Commonwealth's view was that the economic value of native title should be assessed at 50% of the freehold value with any additional uplift for loss of spiritual or religious attachment to the land not assessed as "special" value but rather accounted for as "solatium" or some similar concept.

The Northern Territory's view on compensation for economic loss was described in the judgement as more "nuanced" than the Commonwealth's position and involved a number of steps.

First, the Territory said it was necessary to understand and accept the relevance of the differences between native title and freehold title in determining compensation.

Having regard to those differences it was then said that the orthodox test in Spencer should be applied. The relevant value though would be what the Territory described as a "usage" value (which it said recognised the true nature of native title rights). This it said should be applied to large parcels of undeveloped unserviced range lands as that, rather than small town lots, was where native title rights have the greatest usage value. This usage value was conceded to be "low" and there was little guidance available as to how to strike that value.

Finally, the Territory submitted that usage value would then have added to it 50% of the freehold value over and above the usage value.

The Court rejected both arguments. It accepted however, that it was necessary to have regard to the nature of native title rights in order to assess value, particularly whether they were exclusive or non-exclusive rights. There was existing precedent (not Australian precedent) for the proposition that exclusively held communal native title rights should be valued as freehold. Most native title rights are not exclusive.

It was necessary however to start with the freehold value His Honour said, as that is the upper limit prescribed by the NTA. His Honour accepted it was then necessary to discount that value having regard to the non-exclusive nature of the native title rights and possibly, other factors affecting the enjoyment of those rights.

His Honour determined that, in this case a figure of 80% of the freehold value was appropriate, accepting that this was not a matter of careful calculation but more of an "intuitive" decision.

An important aspect of determining the economic value of extinguishment or impairment was the date on which the valuation should be undertaken. For past acts the choices were the date of the doing of the act or the date of validation of the act under the NTA in early 1994. Clearly an earlier valuation could be expected to be considerably less than a later evaluation.

His Honour determined that it was the date of the doing of the act rather than the date of its validation that should be the date on which the freehold value was to be assessed.

The valuation of all compensable lots, as the relevant dates, discounted by 20%, was determined to be $512,400.00.

NON-ECONOMIC LOSS

That calculation of 80% of the freehold value determined at the date of the doing of the act was only for assessment of the economic value of the extinguishment or impairment. A separate and distinct element of the compensation related to the non-economic loss of cultural, spiritual and ceremonial attachment to the land which all parties accepted should be accounted for as "solatium". Special value was rejected as the appropriate head of value to determine this aspect of compensation because special value had an economic character and the Court was concerned to ensure there was no perception of duplication or overlap with economic value with this particular part of the valuation exercise.

The difficulty though was how to quantify the intangible spiritual relationship which Aboriginal people have with country and to translate their spiritual or religious hurt into compensation. Again, His Honour said that while potentially complex this aspect of compensation was essentially an intuitive exercise.

In coming to a view about this aspect of the compensation His Honour had regard to the findings of fact made by the trial judge in the native title determination case made in favour of the Ngaliwurru and Nungali Peoples about the nature of the determined rights and interests, their relationship to country and importantly "the pervasiveness of Dreaming". The evidence in the determination case some years earlier confirmed the extreme emotional distress experienced by native title holders from interference with their connection to and responsibility for country by the compensable acts.

On the other hand, changes to connection to country wrought by acts not compensable also had to be taken into account as did the fact that the compensable acts did not remove all native title in the township of Timber Creek. The Court cautioned though that connection to country was not divisible geographically.

In the end His Honour considered three matters of particular relevance to his determination of a $1.3 million en globo sum to this aspect of compensation. Those matters were:

  1. evidence concerning the construction of water tanks on the path of a particularly significant dingo Dreaming story;
  2. the extent to which certain of the compensable acts effected not simply the precise geographical area of the lot to which that act specifically related but in a more general way to related areas so as to have impaired the native title rights and interests more generally
  3. the fact that each of the compensable acts to some degree diminished the geographical area over which native title rights within the township of Timber Creek, and beyond, may be exercised. Each in an imprecise way, had adversely affected the spiritual connection with the particular allotments, and more generally, with the claim Group's country.

NON-EXTINGUISHMENT PRINCIPLE AND CATEGORY D PAST ACTS

The category D past acts considered in the case suppressed native title for the duration of the act but did not extinguish them. However, His Honour found that in a practical sense where a category D past act suppresses native title rights and interests in whole, for the period while those acts are suppressed, they have the same effect as a previous exclusive possession act which completely extinguishes native title.

His Honour said:

For the purposes of compensation, the difference between such acts is the existence of the contingency of the act or its effects being wholly or partially removed or otherwise ceasing to operate so that native title rights and interests again have full, or partial, effect.

While it may be conceptually appropriate to make a downward adjustment (from the freehold value) to provide for this contingency there was no evidence in the case upon which that contingency could be assessed.

His Honour therefore declined to reduce the freehold value of the land in question in assessing the economic value of the impacts of category D past acts that did not extinguish but supressed, and assessed them in the same way as the PEPAs were assessed.

An important consideration for His Honour was that the removal either wholly or partially of the category D past acts in issue or their effects was not likely ever to arise. In many of the cases involving category D past acts, a subsequent extinguishing PEPA over the same land had occurred.

INTEREST

There was considerable argument in the case as to the proper basis on which interest should be awarded on the economic component of the compensation (i.e., simple interest or compound interest). In this regard, His Honour was again guided by the "just terms" imperative in the NTA and concluded that any interest to be awarded is awarded as part of the compensation rather than interest on the compensation:

"That is, the entitlement to interest in circumstances where the market value is to be determined at the date of the compensable acts necessarily includes interest on that market value to provide for compensation on fair terms, or compensation which is in a just amount."

His Honour considered the appropriate interest calculation to be simple interest calculated at the rate specified in Federal Court Practice Note CM16. His Honour's judgement however leaves it open for compound interest to be applied in appropriate cases.

The amount of interest on the discounted freehold valuation was $1,488,261.

PRACTICAL IMPLICATIONS OF THE DECISION

It seems likely that the decision will act as a guide but a guide only, to the assessment of compensation for the extinguishment or impairment of native title in a variety of circumstances.

Accepting as His Honour did, that both in relation to the economic and non-economic component of the compensation the exercise was partly "intuitive" and that there was scope in appropriate cases to apply compounding interest, different results may emerge in different cases and circumstances.

The likely implications for a variety of entities and interests (subject to any appeal decision), are:

For Government

The valuation task faced by a State Government to properly assess possible compensation to provide for likely claims and to understand it's contingent liability for existing determination areas will be vast.

The task will be made only a little easier by the tenure and public works extinguishment analyses typically undertaken by State Governments as part of their response to native title determination applications (State Governments are Respondents to determination applications in their State).

There is likely to be very limited opportunity for State Governments to pass on their compensation liability to third parties in relation to the effects of past acts and PEPA's, save perhaps in some instances by increasing rents and royalties.

For future acts undertaken by Government on behalf of third parties the position is different. There will be greater opportunity to pass on compensation liability for extinguishment or the effects of the non-extinguishment principle.

For the resources industry

Prior to the creation of a "right to mine" (which includes the grants of exploration and production tenements for mining and petroleum activities) the right to negotiate process under the NTA must be gone through. In many cases an Indigenous Land Use Agreement is entered into in substitution for a right to negotiate agreement.

Those agreements (a section 31 right to negotiate agreement and ILUA) will provide for compensation for the doing of the relevant future act (the grant of a right to mine). Where that is expressed to be in satisfaction of all rights to compensation under the NTA the liability will be assumed by the resource entity pursuant to that agreement and no further liability will arise. The decision is therefore likely to have limited implications for the resources industry but in any negotiations involving compensation the case may serve as a guide.

For infrastructure providers

Many infrastructure projects have recourse to the future act provisions of the NTA rather than ILUA's. An example is section 24 KA (future acts that permit construction and use of infrastructure facilities for the general public). The section sets out the applicable procedural rights to be observed prior to the doing of the future act and also sets out compensation provisions. The non-extinguishment principle applies to the doing of a future act under S.24KA. The compensation provisions provide that if the relevant future act is attributable to the Commonwealth or a State or Territory then it is that government which is liable to pay the compensation. However the section also provides that if a law of the State or Territory provides that a person other than the Crown in any capacity is liable to pay the compensation then that person will pay the compensation.

Where in connection with an infrastructure facility the State undertakes compulsory acquisition of native title rights and interests on behalf of third parties, e.g. for a private infrastructure facility under the Queensland State Development and Public Works Organisation Act 1971, compensation for the acquisition is likely to be passed on unless in the relevant project deed, "native title risk" is expressed to include compensation liability, and is assumed by the State.

The case may make it more likely that compensation will be pursued for the impairment effect of these future acts. Claimants who do not have the benefit of a native title determination however will need to be able to prove they did once or still do hold native title rights that have been extinguished or impaired.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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