Value is in the eye of the beholder
The principles of value established in this case may also, with the passage of time, inform concepts of value as they relate to other intangible personal rights such as privacy, beliefs and personal preferences.
Many claims for loss and damage require identification of the 'value' of an asset or interest. But what does 'value' mean, and how is it to be established? In this case, the High Court of Australia considered how to arrive at an 'objective economic value' for certain native title rights and how to determine the amount of compensation for 'cultural loss'. The principles of value established in this case may also, with the passage of time, inform concepts of value as they relate to other intangible personal rights such as privacy, beliefs and personal preferences.
These appeals concerned the amount of compensation payable by the Northern Territory of Australia to the Ngaliwurru and Nungali Peoples ('the Claim Group'), pursuant to Pt 2 of the Native Title Act 1993 (Cth), for loss, diminution, impairment or other effect of certain acts on the Claim Group's native title rights and interests over lands in the area of the township of Timber Creek. Timber Creek is located on the Victoria Highway about halfway between Katherine and Kununurra in the north western area of the Northern Territory.
The Claim Group's claim for compensation comprised claims for:
- compensation for economic loss of the native title rights and interests to be determined as if the effect of each compensable act was equivalent to the compulsory acquisition of an unencumbered freehold estate in the subject land;
- compound interest at the superannuation rate or alternatively on a compound 'risk free rate' of yields on long-term (10 year) government bonds or alternatively simple interest at the Pre Judgment Interest Rate fixed by the Federal Court of Australia Practice Note CM16 ('the Practice Note rate') on the amount of compensation awarded for economic loss to be computed from the date as at which the compensation was assessed until judgment or payment; and
- compensation for loss or diminution of connection or traditional attachment to land and intangible disadvantages of loss of rights to live on and gain spiritual and material sustenance from the land, to be assessed by adaptation of the criteria in Sch 2 rr 2(b) (special value) and 9 (intangible disadvantage) of the Lands Acquisition Act (NT), to be assessed as at the time of trial.
The outcomes awarded at first instance and on appeal to the Full Court of the Federal Court of Australia are summarised in the table below:
|Economic loss||Interest||Non-economic loss||Total|
As this summary suggests, the appeal to the Full Court produced different outcomes for economic loss and interest.
The claim for economic loss required:
- an assessment of the unencumbered freehold value of the land in relation to which the Claimant Group held native title rights; and
- an assessment of the deduction, if any, that should be made to the unencumbered value derived in paragraph above to reflect the fact that the Claimant Group's native title rights were 'non-exclusive', not 'exclusive' rights.
The unencumbered freehold value of the relevant land adopted at both first instance and on appeal to the Full Court was $640,500. The differing outcomes in relation to economic loss set out in the table above arose due to differences in the deduction made to that value, with the trial judge deducting 20% (i.e. adopting 80% of the freehold value), while the Full Court deducted 35% (i.e. adopting 65% of the freehold value).
On the question of interest, the differing outcomes set out above reflected the difference in outcomes in relation to the economic loss claim, with both courts awarding interest payable as part of compensation for economic loss on a simple interest basis calculated at the Practice Note rate from time to time and computed from the date of extinguishment of native title until judgment.
The Claim Group appealed on two grounds, being in substance that:
- the Full Court had erred in assessing the Claim Group's economic loss at 65% of the freehold value of the subject land and should have assessed it as being the freehold value of the land without reduction; and
- the Full Court had erred in awarding interest only on a simple interest basis computed at the Practice Note rate and should have allowed interest on a compound basis computed at the risk free rate.
The Northern Territory and the Commonwealth both appealed on the ground that the requisite deduction to the unencumbered freehold value should have been 50% (producing a loss at 50% of that value). Both these parties also argued that the award of compensation for non-economic loss at $1.3 million was, inter alia, manifestly excessive. The Commonwealth also argued that interest should have been awarded 'on compensation' rather than 'as part of compensation'.
Overall approach to assessing compensation
In addressing the connection between the two main elements of the Claim Group's claim for compensation (economic and non-economic loss), the High Court said (footnotes excluded):
'Objective economic value'
In applying the first stage of this 'bifurcated' approach, the High Court observed that:
The High Court commented further on the application of the 'Spencer' test, as follows:
The statements suggest that the High Court considers that an 'adapted Spencer' test of value is relevant when considering the value of intangible personal and cultural rights, which are plainly difficult to value. If this is correct, then this approach could also apply in cases involving the extinguishment of other personal rights such as privacy, beliefs and personal preferences.
On the question of the value of the subject land, at both first instance and on appeal to the Full Court, the 'economic' value of the subject land adopted by the Court was $640,500. That was the value that had been derived by an expert land valuer, 'Mr RC', called on behalf of the Commonwealth.
Before the High Court, the parties were agreed that Mr RC's valuations should form the basis of the assessment of compensation for all of the relevant land except one lot, lot 16. For that lot, the Northern Territory urged the High Court to adopt the (lower) valuation provided by its expert land valuer, 'Mr WW'. Mr WW had arrived at his valuation for lot 16 after considering an alternative methodology for valuing native title rights and interests proposed by another expert witness, 'Mr WL'.
Mr WL's thesis was that, in the absence of a relevant market or comparable sales data, the fair value of the Claim Group's native title rights and interests was to be determined by reference to an appropriate comparator. Because the freehold value of land increases with the availability of services and surrounding infrastructure, whereas the Claim Group's enjoyment of their native title rights and interests did not, Mr WL's opinion was that the appropriate comparator was freehold market value stripped of so much of that value as reflected the availability of services and infrastructure.
According to Mr WL, that figure could be gleaned by taking the market value of a large nearby rural block without road access, power or water, yielding what Mr WL termed a 'usage value', and then adding an uplift or 'negotiation value', which Mr WL postulated could be derived by splitting the difference between the market value of the land (which included the value of the availability of services and infrastructure) and the usage value of the native title rights and interests calculated using his approach. This, according to Mr WL, was an approach described as consistent with the "principles of behavioural economics and game theory, economic experience and notions of fair dealing".
The High Court rejected this approach, stating:
In any case, the High Court said:
Ultimately, after considering the limited nature of the Claim Group's residual native title rights, the High Court concluded that the appropriate amount of the Claim Group's economic loss was derived by applying a deduction of 50% to the freehold value of $640,500.
Interest on economic loss
The High Court summarised the issue it was considering as follows:
After an extensive review of the authorities, the High Court concluded that the Claim Group had no entitlement at law to compound interest. Since no party had argued for rates of simple interest which differed to the Practice Note rates, the High Court confirmed the applicability of those rates (albeit on the reduced amount of economic loss).
The High Court also considered the Commonwealth's argument that interest should have been awarded 'on compensation' rather than 'as part of compensation'. Having considered the statutory context of the claim, the High Court agreed.
Non-economic (or 'cultural') loss
The High Court described this element of the claim as follows:
After disposing of a variety of arguments relating to the process adopted by the trial judge (and finding no error), the High Court addressed the question of whether the outcome produced reflected 'manifest error'. In that respect, the High Court said:
1 This was a reference to the commonly accepted definition of market value in Spencer (1907) 5 CLR 418 at 432, 440-441.
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.