Still a long way to go on native title compensation: Insights from the Timber Creek Appeal

What you need to know 

• The Full Federal Court has upheld most of the trial judge's findings in the Timber Creek compensation claim (Northern Territory v Griffiths [2017] FCAFC 106).  
• The Full Court upheld the $1.3 million award for hurt feelings and loss of spiritual attachment (awarded as non-economic loss or solatium) and rejected the Commonwealth and Northern Territory's arguments that the award was manifestly excessive.
• However, the Full Court held that the trial judge had overvalued the economic aspects of the native title rights and interests and reduced the award from 80% to 65% of the freehold value of the relevant land at the time of the compensable acts.
• The Full Court agreed with the trial judge that only simple interest was payable on the economic loss component of the award and rejected the native title holders' claim for compound interest.  
• The timing of this decision is particularly relevant to the Yindjibarndi people who, fifteen minutes before the Full Court decision was handed down, were successful in their claim for exclusive native title over land including the Fortescue Metals Group's Solomon Hub iron ore mine (Warrie (formerly TJ) (on behalf of the Yindjibarndi People) v State of Western Australia [2017] FCA 803). The native title holders have already flagged a compensation claim seeking millions of dollars from FMG. 

What you need to do

• Be aware that the landscape around native title compensation liability has changed.  The risk is not theoretical, it is crystallising.
• Understand that questions around responsibility to pay are complex, vary by State, by the nature of the rights and the terms of the documents through which interests are created.  
• Check the terms and conditions of tenements, leases and other contractual arrangements with the State to identify the extent of any compensation liability associated with projects, infrastructure or assets and consider how any associated risk can be mitigated (particularly in the M&A context).
• Consider the impact of the Full Court decision on commercial native title negotiations, cultural heritage management arrangements and existing native title agreements. 
• Assess the impact of current and future native title compensation claims on your business and how to manage the associated compensation risk.
• Review the specific recommendations for mining and petroleum tenement holders, project proponents, infrastructure providers, councils, statutory bodies and government owned corporations contained in our 24 August 2016 Native Title Alert Timber Creek compensation – native title worth $3.3 million.

The trial judge's decision - $3.3 million compensation

In August 2016, the Federal Court determined that $3,300,261 compensation was payable to the Ngaliwurru and Nungali Peoples for the impact of land grants and public works on their native title rights and interests (Alan Griffiths and Lorraine Jones on behalf of the Ngaliwurru and Nungali Peoples v Northern Territory of Australia [2016] FCA 900) (Timber Creek).  

This was the first ever assessment of native title compensation in Australia.  

A detailed analysis of the trial judge's decision is contained in our 1 September 2016 Native Title Alert Insights from the Timber Creek decision on native title compensation. 

The decision was appealed to the Full Court of the Federal Court and almost all issues were re-agitated in the appeal.

Appeal Court's decision – total compensation decreased 

The Full Court of the Federal Court has upheld most of the trial judge's findings in the appeal of the Timber Creek compensation claim.    

Economic loss – award decreased – trial judge overvalued the non-exclusive native title

The Full Court held that the trial judge overvalued the native title rights and interests and reduced the award from 80% to 65% of the freehold value of the relevant land at the time of the compensable acts.

The Full Court held:

• the trial judge was wrong to find that the non-exclusive native title was "very substantial" and a real impediment to the grant of other interests.  The assessment did not take into account the consequences of the loss of the right to control access to and make decisions for the land;
• the trial judge wrongly included non-economic factors (eg deep spiritual attachment to the land) in his assessment of the economic value of the native title and wrongly valued the rights by reference to the practical exercise of the rights rather than the legal content of them;
• contrary to the trial judge's finding, that it was necessary to discount the economic value of the native title rights because those rights were inalienable and the land could not be exploited for commercial purposes.  

Interest – simple interest upheld 

The native title holders were unsuccessful in their claim for compound interest in the sum of $4.5 million.  The Full Court agreed with the trial judge that only simple interest was payable on the economic loss component of the award.  

The Full Court rejected the native title holders' argument that the Northern Territory was in a fiduciary relationship with them and failed to establish that the award of simple interest was unfair or did not amount to just terms.

However, the Full Court agreed with the trial judge that the scheme for the payment of compensation under the Native Title Act 1993 (Cth) does not exclude an award of compound interest in an appropriate case.

Interest not payable from date of native title determination restoring exclusive native title over Lot 47

The Full Court allowed the Commonwealth's appeal in relation to the payment of interest over a parcel of land upon which the prior extinguishment of native title was disregarded pursuant to section 47B of the Native Title Act. 

The Full Court noted that from the making of the 2006 determination of native title, exclusive native title rights and interests in Lot 47 were recognised and the native title holders ceased to suffer any loss from the compensable act.  In fact, they used Lot 47 to earn income when they made a stock agistment agreement over it.  Accordingly, there should be no interest on the economic loss in respect of Lot 47 from the date of the determination in 2006.

Loss of spiritual attachment – $1.3 million award upheld 

The Full Court upheld the $1.3 million award for hurt feelings and loss of spiritual attachment (awarded as non-economic loss or solatium) and rejected the Commonwealth and Northern Territory's arguments that the award was manifestly excessive.

There was no dispute in the appeal that it was appropriate to include an additional sum for intangible loss by way of a payment as solatium.  Nor was there any dispute that an award of solatium could be made on an "in globo" basis, without separate allocation of monetary amounts to particular compensable acts in respect of particular lots. 

The issue in dispute was the magnitude of the solatium payment and the factors taken into account by the trial judge in assessing the native title parties' loss. 

In a strong win for the native title holders, the Full Court rejected each of the grounds for appeal presented by the Commonwealth and the Northern Territory on this issue.

The Full Court held that the limits of awards for solatium in State compulsory acquisition statutes provide little assistance because "there exists between Aboriginal people and their country a unique and powerful bond unlike the relationship which non-Indigenous people have with land" (at [377]).  

Further, the inalienable character of native title would probably increase the valuation of the loss of deep spiritual attachment to the land.

The Full Court rejected the criticisms of the trial judge's "intuitive" assessment of $1.3 million and noted that the role of intuitive judgment is familiar in the process of sentencing in criminal law.  

The Full Court considered the nature of judicial discretion in detail, noting the relevance of previous cases for consistency of decision-making but acknowledging the unusual challenge of no analogous cases in Australia.  It drew on similar cases from the Inter-American Court of Human Rights to demonstrate the context and reasonableness of the trial judge's award.

Ultimately, the Full Court said that reasonable judicial minds may differ on the amounts of compensation, but $1.3 million was within the permissible range on the evidence before the trial judge.

In exercising their discretion, the Full Court noted the relevance of community values and held that:

• "The question then is whether the award for solatium would be judged by the Australian community as fair to the Claim Group.  Whilst the loss of rights so intertwined with the identity of a people cannot be valued in money, the award must signify by its amount a recognition of the level of the impact on the Claim Group.  The findings of the primary judge demonstrate that the impact on the Claim Group was at a very high level." (at [395])
• "In order to provide appropriate recognition, the Court must draw on knowledge of the value of money in the community.  It must look to the buying power of money in the community to fix on an amount sufficient to recognise the severity of the impact of the loss and impairment.  Thus, an award of $1000 would not satisfy the moral sense of the community because most people would spend more than that on groceries in a year.  On the other hand, $1 million is seen by most in the community as a substantial sum, in some major cities close to the median house price.  The figure of $1.3 million fixed by the primary judge reflects in money terms recognised by the community a substantial acknowledgement of a high level of damage done to the Claim Group." (at [396]).

Invalid future acts – findings overturned but native title holders invited to agitate the issue in future proceedings 

The Full Court overturned the trial judge's findings that damages totalling $48,597 were payable by the Northern Territory for making 3 freehold grants without complying with the Native Title Act.  

The Full Court said that the way in which the claims were made did not allow the Court to give proper consideration to the issues and there was an absence of a sound legal basis for the trial judge's approach.  

However, in closing the Full Court noted that the native title holders may be able to agitate the matter in future proceedings. 

How much was payable?

The Full Court did not make orders on the total amount of compensation payable to the group instead asking the parties to agree on final orders to reflect the decision.

However, with the $1.3 million award for non-economic loss upheld, a reduction in economic loss to approximately $416,000 plus a significant interest component, the final award is likely to be between $2.8-2.9 million.

Insights

Economic loss valuation methodology more certain

Subject to the comments below, the Full Court decision does provide more certainty about the valuation of native title compensation, in particular for economic loss.

The Full Court made clear that the starting point is an analogy of freehold with exclusive native title, followed by a reduction to account for the restrictions and limitations applicable to non-exclusive native title rights.  

Although the Full Court was not required to determine this, it follows from the findings in this case that even exclusive native title rights may have some reduction from the freehold value to account for its inalienability and the inability to exploit the land for commercial purposes.  

Future compound interest claims likely

Although the Full Court confirmed that only simple interest was payable in this case, it did not close the door for other compensation applications to claim compound interest.  

It is likely that future compensation claims will re-agitate this issue in light of the enormous sums involved, particularly in Western Australia where there is likely to be evidence of investment of native title monies by groups who have agreements with large resources companies.  

Not the final word on how to value loss of spiritual attachment 

The trial judge's findings on loss of spiritual attachment were the most controversial element of the decision because the award of $1.3 million far exceeded the nominal amount suggested by the Commonwealth and the Northern Territory.  

The Full Court's unwillingness to disturb the trial judge's findings on loss of spiritual attachment will mean that future compensation claims will cast the evidentiary net very widely when arguing about intangible or non-economic loss. The Full Court's acceptance of the discretionary basis for assessing non-economic amounts means that there are no clear principles, rather, each case must be assessed on its merits.

More certainty? Full Court invites alternative arguments

The Full Court commented that the Native Title Act does not necessarily require an economic/non-economic approach to compensation as adopted by the parties in this case and properly construed in fact contemplates compensation of a more holistic nature.  The Full Court queried the value of applying the principles of Australian land law to assessing native title compensation.  

At [144]:

"The problem concerning the use of such provisions, even with adaptation, is that they are designed to address the value of land as a material object  traded in a market for a like or analogous commodity. Native title rights and interests are of such a different type and significance to the holders that it may well be appropriate to loose the assessment from the shackles of Australian land law and approach the compensation exercise without dividing value into economic and non-economic components.  It might rather be more appropriate to seek to place a money value as best as can be done on the one indissoluble whole."  

The Full Court also noted that the present case did not include any claim for compensation for the effect of social disadvantage suffered as a result of the compensable acts.  It commented that this may well be a further basis for the award of compensation for non-economic loss, in view of the reference in the preamble to the Native Title Act to the social disadvantage suffered by Indigenous people.  The Full Court also commented that a causal link between social disadvantage and delay in receiving compensation may justify an award of compound interest.

At a time when further certainty was expected, the Full Court decision instead leaves the door wide open for a new approach to compensation assessment. It remains to be seen whether the parties to future compensation claims will accept the Full Court's invitation to reformulate their approach or continue to follow the economic loss/non-economic loss model.

How much will be payable in other areas?

Notwithstanding that the total award was reduced, it remains the case that if a small area like Timber Creek (about 1.26km²) triggers a compensation liability of almost $3 million, then the liability for the large native title land holdings in Western Australia, South Australia, Queensland and the rest of the Northern Territory could amount to a significant level of compensation.

Who will be liable?

The Commonwealth, States and Territories are largely liable for native title compensation, but this liability may be "passed on" to third parties in some circumstances (either by legislation or contractually). 

See our 24 August 2016 Native Title Alert Timber Creek compensation – native title worth $3.3 million for an outline of the implications for various stakeholders (including mining and petroleum tenant holders, project proponents and infrastructure providers and councils, statutory bodies and government owned corporations who compulsorily acquire native title).  

Future compensation claims

There have already been three compensation claims lodged since Timber Creek in August 2016.  We anticipate a significant increase in the number of further compensation claims across Australia now that the appeal decision has delivered more certainty about the valuation methodology.  

Affected parties will need to consider whether they should participate in the resolution of these claims in order to protect their interests. 

Yindjibarndi flag compensation claim against FMG 

On the same day as the Full Court decision in Timber Creek, the Yindjibarndi people were successful in their claim for exclusive native title over land including the Fortescue Metals Group's Solomon Hub iron ore mine (Warrie (formerly TJ) (on behalf of the Yindjibarndi People) v State of Western Australia [2017] FCA 803). 

The native title holders have already flagged a compensation claim seeking millions of dollars from FMG.  

This is a timely reminder of the compensation exposure faced by proponents, where compensation liability has been passed on by the State and the proponent has no agreement in place with the native title holders to release them from compensation liability.  

Many significant issues yet to be resolved

The Timber Creek appeal did not address the assessment of compensation for acts that do not wholly extinguish native title (eg mining and petroleum tenements and many types of leases) or acts that grant only a short term interests.  It is not known how compensation for such acts will be calculated.  

It is also unclear how evidentiary hurdles will be met in compensation claims that follow consent determinations of native title.  In Timber Creek, the Court had the benefit of the detailed evidence presented at the trial of the native title claim in determining the impact of the compensable acts on native title rights and interests.  There was also a detailed tenure history completed and findings made about liability after a hearing on this issue.

Many native title determinations across Australia are made by consent, in circumstances where far more limited evidentiary material (if any) has been provided to the Court.  Further, land parcels where native title has been extinguished are routinely excluded from native title claim areas (or the final determination area).  More evidence will be needed, particularly around non-economic loss, in order for compensation claims by these native title holders to be determined.  

Impact on commercial negotiations and cultural heritage management

The Timber Creek decision changed the expectations of native title parties when negotiating the financial component of native title agreements.  This will continue given the Full Court's unanimous confirmation that significant compensation is payable for impacting spiritual attachment to land.  

Conclusion

An application for special leave to appeal to the High Court is likely because of the implications of this decision for all stakeholders.  It will be some years before we hear the final word on the assessment of native title compensation at Timber Creek and the rest of Australia.  

Irrespective of this, it is now clear that native title holders will have a significant entitlement to compensation.  This will influence the decision making of governments and proponents as they grapple with their exposure, and, as noted, trigger new proceedings in the Federal Court.

Many native title stakeholders are wondering if there is an opportunity for a creative solution.  It does not seem to be in anyone's interest to resolve native title compensation liability one claim at a time, on a parcel by parcel basis.

For further information, see our:

• 27 April 2017 Ashurst Talks Native Title: Timber Creek Podcast;
• 1 September 2016 Native Title Alert Insights from the Timber Creek decision on native title compensation for a detailed analysis of the trial judge's ruling;
• 24 August 2016 Native Title Alert Timber Creek compensation – native title worth $3.3 million for an outline of the implications for various stakeholders.