Legal development

Federal Court declares implied term in ILUA

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    What you need to know

    • In a first, the Federal Court made orders declaring an implied term in an ILUA because the drafting did not contemplate any replacement process for the entity nominated by the native title party to receive funds from the proponent. 
    • To ensure compliance with the implied term, the Federal Court ordered the National Native Title Tribunal to participate in a process to appoint a new entity to receive the benefits under the ILUA. 
    • The mediation and other processes to resolve the issue of where the funds should go is  ongoing and have been very expensive and resource-intensive for the parties.

    What you need to do

    • Remember that representation arrangements for native title parties can, and often do, change over time.  
    • Ensure that your native title agreement contains a clear process for replacement of entities nominated to take a particular role, and accommodates other changes in the native title landscape that could occur over the term of the agreement 

    Decision part of dispute about an existing QGC ILUA

    QGC v Alberts (No.2) [2021] FCA 540 arises in the course of a long running dispute about an existing ILUA (called the Barunggam, Cobble Cobble, Jarowair, Western Wakka Wakka, Yiman and QGC ILUA).  The Court has already resolved two substantive disputes in relation to the ILUA (Conlon v QGC Pty Limited (No 2) (2017) 359 ALR 460 and QGC Pty Limited v Alberts [2020] FCA 1869). 

    In 2010, 14 persons signed the ILUA as representatives of various families comprising the Native Title Party.  In 2011, the Native Title Party nominated BCJWY Aboriginal Society Ltd (BCJWY) as the "nominated entity" under the ILUA.  The nominated entity was to receive substantial amounts of compensation from QGC over the course of 10 years. 

    QGC paid BCJWY the initial financial benefit of $2 million under the ILUA, and continued making the relevant annual payments.   However, issues with the financial transparency of the BCJWY arose, and the entity lost the confidence of a majority of the families.  From around 2017, this led to various attempts by some of the families to nominate a new entity to receive the funds.  However, the ILUA did not include a replacement mechanism for the nominated entity.

    Finally in 2019, BCJWY was placed into liquidation.  QGC ended up paying over $1.5 million into Court in an interpleader action because of the ongoing dispute between the various families about the nominated entity.

    The proceedings considered the problem created by the absence of a process for replacing the nominated entity in the ILUA.  

    Some members of the native title party contended that a majority of the native title party could simply vote to replace the nominated entity with another, which they had purported to do.   These members submitted that the persons comprising the native title party who were alive and had capacity were able to vote to do so because they had been appointed, under the ILUA, to make decisions on behalf of the families and family groups.  They argued that it followed that the native title party could establish a new nominated entity for and on behalf of the families, but without any additional consultation or authorisation steps.

    Implied terms in ILUAs

    Ultimately, Rares J found that a term could be implied into clause 2.1 of the ILUA to allow the appointment of a substitute nominated entity so that the clause would read (with the italicised and underlined implication) as follows:

    2.1   As soon as practicable after the later of:
    (a)    the Authorisation Date; or
    (b)    the establishment of the Nominated Entity, if there is no Nominated Entity at the Authorisation Date or, if at any time thereafter, the nominated entity for any reason has ceased to be capable of acting in accordance with clause 1.2;
    the Native Title Party, on behalf of the Families, must notify QGC in writing of the name and address of the Nominated Entity.

    The Court noted that while the ILUA is not, strictly speaking, a commercial contract (it is a statutory contract created by force of its registration and the requirements of s 24EA of the Native Title Act), the common law rules about implied terms in contracts are still applicable.   Rares J found that in construing a contract, a court should seek to give it an interpretation that the parties intended, that produces a commercial result and that avoids "making commercial nonsense or working commercial inconvenience" (at [64]).  

    The Court found that the parties could not have intended a construction of the ILUA that resulted in it being impossible to ever replace an existing nominated entity, particularly when that nominated entity was in liquidation.  Rather, the Court found that the intention of the parties was that there be at all times a nominated entity, being either a corporation or trust, that would be able to distribute the financial benefits, that QGC had agreed to pay over the term of 10 years, to, or for the benefit of, the families.

    Court orders a resolution involving the NNTT to assist the families to nominate an entity

    During the course of final submissions, QGC suggested that it may be possible for orders to be made to enable the NNTT to enter an agreement at the request of the Representative Body, Queensland South Native Title Services Limited, to formulate a process through which the families could meet, either individually or collectively, to see if they could establish one or more nominated entities to replace BCJWY.  

    Following his judgment, Rares J has made several prescriptive orders requiring family meetings to occur (convened by the NTTT and the Representative Body) to establish these replacement nominated entities.  Family disputes have also been referred to the NNTT for mediation.  

    In his judgment, Rares J noted that there has been significant dysfunction and disruption within the native title party.  He also noted that the current surviving original signatories of the ILUA have not had their positions "re-authorised, been re-elected or otherwise brought under the control" of the native title claim group for over 10 years.  This certainly seemed to influence the Court's preferred resolution of the matter. 

    The Court's approach may have appeared practical and focused on positive communal outcomes.  However, the nomination still seems a long way from occurring.  The issues do not seem to be confined to the drafting omission .  

    QGC agreed to resource up to $75,000 to assist this process.  We expect that is well and truly spent.  

    Author: Libby McKillop, Senior Associate 

    The information provided is not intended to be a comprehensive review of all developments in the law and practice, or to cover all aspects of those referred to.
    Readers should take legal advice before applying it to specific issues or transactions.

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