A methodology for the calculation of native title compensation

On 13 March 2019, the High Court handed down its first decision on native title compensation in ‘Timber Creek’ [2019] HCA 7 (Timber Creek).  

At a glance

On 13 March 2019, the High Court handed down its first decision on native title compensation in ‘Timber Creek’ [2019] HCA 7 (Timber Creek). 

The High Court’s decision is a measured reflection of the need for Australian law to evolve in a manner that acknowledges, recognises and accommodates the diversity and individuality of native title in Australia. The majority judgment sensibly navigates the difficult task of applying common law legal concepts, such as compensation, freehold value, economic loss and solatium, in the context of traditional rights and interests, and connection to country.

Resisting the temptation to apply a blanket approach, a 5:2 majority of the High Court instead affirmed a methodology to determine the appropriate, just and fair compensation to be awarded to native title holders for the impact of compensable acts on their distinct native title rights and interests. 

Applying the methodology, the High Court determined that compensation should be paid for the extinguishment of the claim group’s non-exclusive native title rights and interests as follows:

Facts

• The Ngaliwurru and Nungali Peoples hold native title in areas in and around the town of Timber Creek, Northern Territory (NT).
• In 1882, a pastoral lease was granted over the area now comprising the town.
• Between 1980 and 1996, the NT government granted tenure and constructed public works. These 53 acts affected 39 lots and four roads, and extinguished or impaired the Ngaliwurru and Nungali Peoples’ native title rights and interests.
• The grants of tenure included development leases, a Crown lease, freehold grants to government authorities and public works constructed without underlying tenure.

Full Court Appeal

On 20 July 2017, the Full Court of the Federal Court delivered its decision in Northern Territory of Australia v Griffiths [2017] FCAFC 106 (Full Court Appeal).

The Full Court assessed compensation as follows:

• where exclusive native title existed, 100% of freehold value as at the date of the compensable act; and
• where non-exclusive native title existed, 65% of freehold value as at the date of the compensable act.

The Full Court also made an award:

• of simple interest amounting to $1.488 million; and
• for solatium or non-economic loss in respect of the loss of a cultural and spiritual relationship with the land, amounting to $1.3 million.

High Court Appeal

The methodology

The majority judges’ methodology involves a two-step process of:

1. determining the economic value of the affected native title rights and interests; and
2. valuing the additional non-economic or cultural loss resulting from impacts on the claim group’s connection to country.

Their judgment makes it clear that the application and outcome of the methodology are fact specific. There is no uniform formula that can be applied to determine the amount of compensation.

Economic loss

The High Court awarded 50% of the relevant land’s freehold value for economic loss. The discount reflected that the group’s native title did not include rights of admission, exclusion and commercial exploitation.

Assessing the economic value of the affected rights and interests requires identifying:

• the date on which the value is to be assessed, being the date of the act; and
• the nature of those rights and interests.

The High Court considered that just compensation depends on the exact incidents of the native title rights and interests affected:

• if those rights and interests come close to a full exclusive title, the objective economic value is similar to freehold value;
• if those rights and interests are significantly less than full exclusive title, objective economic value is significantly less than freehold value.

Non-economic or cultural loss

The High Court upheld the trial judge’s award of compensation for non-economic loss of $1.3 million, stating that there was “nothing to suggest that the trial judge’s award would not be accepted by the Australian community as appropriate fair or just”.

The majority judgment explained the purpose of compensation for cultural loss as:

Compensation for the non-economic effect of compensable acts is compensation for that aspect of the value of land to native title holders which is inherent in the thing that has been lost, diminished, impaired or otherwise affected by the compensable acts.  It is not just about hurt feelings, although the strength of feeling may have evidentiary value in determining the extent of it.

The claim group’s cultural loss comprised two parts:

• the loss of connection to land, resulting from the interruption of Dreaming tracks and interference with other sites of significance; and
• the effects of harm to country under laws and customs.

The majority judgment referred to evidence given at the original hearing and the findings made by the trial judge. 

The trial judge likened the damage to a single large painting. The earlier acts such as the grant of the pastoral lease (which were not compensable) punched holes in the painting. The subsequent compensable acts “punched further holes in separate parts of the one painting”. The “damage done was not to be measured by reference to the holes created by the compensable acts alone, but by reference to the effect of those holes in the context of the wider area”.

Interest

The High Court awarded interest amounting to $910,100. This interest was calculated on a simple interest basis on the economic loss from the date the entitlement to compensation arose.

Although simple interest was awarded here, the majority judgment commented that the basis upon which interest is calculated will be influenced by the claimant’s evidence and that there may be circumstances in which it would be just to award interest on a compound interest basis. These include where there is evidence that the claim group would have invested the compensation to create profit or applied it to the expenses of a business.

Implications

The decision will likely have limited immediate effect given the time it takes for compensation claims to determined. However, we can reasonably expect that in 5 years’ time the number of compensation claims will have increased and the law evolved further. 

Native title compensation remains a potentially significant liability for the Commonwealth, States and Territories because responsibility for the payment of native title compensation typically rests with the Commonwealth, State or Territory. However, that liability can be (and regularly is) passed on to proponents through legislation or by contract. Proponents should consider:

1. whether any previous or future ‘acts’ affecting native title will trigger a compensation liability;
2. the potential quantum of any compensation liability in light of the High Court’s methodology. Compensation for cultural and other non-economic loss, which formed the largest proportion of compensation in Timber Creek, will be the most difficult part of calculating potential liability; and
3. who is responsible for paying and when. 

What the Court did not decide – and our further thoughts

The High Court only considered the following categories of compensable acts:

• grants of development leases by the NT government to non-Crown entities that could be exchanged for freehold upon satisfaction of a development covenant;
• grant of a Crown lease;
• public works constructed without underlying tenure;
• Crown to Crown grants by the NT government to government authorities, and subsequent public works upon the land; and
• Crown to Crown grants by the NT government to government authorities in perpetuity.

The High Court did not consider:

• the grant of a mining lease;
• the grant of an exploration licence; or
• the grant of temporary, non-exclusive access rights. 

Despite this, we consider that the use of freehold value in calculating economic loss provides a useful guide that will substantially assist in understanding potential liabilities. 

Finally, we consider that the challenge moving forward will be the issues that will arise in resourcing compensation claims in a system that is already at its limit, as well as securing evidence to demonstrate ‘cultural loss’. The native title claims system has itself been through seismic shifts in both the body that determines claims and the process through which determinations of native title are made. A specialist tribunal to assess ‘cultural loss’ may be something to consider.