Why is the case significant and who should read this alert?

  • The Federal Court has for the first time made a litigated determination on quantum of native title compensation – the first ever judicial clarity on methodologies to put a value on impacts on native title.
  • The Court’s decision on economic loss poses no great surprises – equivalent freehold value for exclusive native title, with a 20% reduction from this for non-exclusive native title.
  • What is highly significant is the Court’s finding on non-economic loss (here essentially, pain and suffering and loss of amenity due to the effects of the compensable acts on the native title rights). In this case the non-economic loss determined dwarfed the determination of economic loss, contrary to expectations, and was assessed with regard to very broad factors.
  • The Court also awarded a significant sum of interest, albeit calculated at the lower rate of simple interest rather than on a compound interest basis (as sought by the Applicants).
  • Whilst the methodologies adopted are specific to the native title rights and interests affected (i.e. other considerations will arise in other cases), and the matter will quite likely be appealed, the findings will no doubt greatly encourage the bringing of further native title compensation claims across the country.
  • The findings will also need to be given serious consideration, by Governments and government entities in acquiring interests in land and in granting tenure and approvals; by project proponents as the recipients of such grants and approvals; and by purchasers, lessees and financiers of infrastructure and utilities. This consideration arises both in relation to due diligence on liabilities that might be incurred through future commitments, and accounting for potential liabilities incurred under statutory and contractual obligations for previous grants and transactions.
  • The case also raises serious issues for the Crown and other respondents in their general strategies for native title consent determinations; and by parties engaged in native title future act negotiations seeking to reach agreement on full and final satisfaction of compensation entitlements for the acts consented to.

Background

The native title determination applications of the Ngaliwurru and Nungali Peoples under the Native Title Act 1993 (Cth) (NTA) were made in 1999 and 2000 over lands and waters in the township of Timber Creek, approximately 400km south of Darwin. At first instance, Justice Weinberg recognised the non-exclusive native title rights and interests of the Ngaliwurru and Nungali Peoples over the claim area, including through the application of section 47B of the NTA in some areas (in which prior extinguishment was disregarded). The applicants appealed the decision, and the Northern Territory cross-appealed. The Full Federal Court upheld the applicants’ appeal, finding that the trial judge erred in recognising only non-exclusive native title over those areas to which section 47B of the NTA applied. The Court determined that the correct application of section 47B required a recognition of the right to possession, occupation, use and enjoyment of the area to the exclusion of all others. The Northern Territory’s cross-appeal was dismissed.

The Ngaliwurru and Nungali Peoples commenced a claim for compensation under section 61 of the NTA in 2011. The matter was again litigated. Justice Mansfield handed down his decision on the question of the Northern Territory’s liability for the compensation claimed in 2014, but deferred the question of quantum. On 24 August 2016, Justice Mansfield handed down the Federal Court’s first determination of compensation quantum under the NTA in the matter of Griffiths v Northern Territory (No. 3) [2016] FCA 900 (Griffiths #3).

The Federal Court’s decision in Griffiths #3 represents a watershed in native title jurisprudence. As no compensation quantum claim had previously been successfully litigated, the Court was tasked with establishing new principles for valuing native title in accordance with the NTA and other applicable laws. In particular, the Court’s determination in relation to the non-economic loss component of the compensation is far more significant than had been anticipated.

The total compensation ultimately determined by the Court, and the relatively limited area over which the compensation determination relates (approximately 23km²), also foreshadows the potentially significant liability for extinguishment and impairment of native title to which Commonwealth, State and Territory governments may be exposed (given the NTA generally confers primary liability on the government to which the act is attributable). Third parties that are directly liable under the NTA or that have assumed liability by agreement with government for an interest in land or assets may also be at risk of significant compensation obligations. There may be some protection for proponents and government where agreements negotiated for future acts in the past contain releases, discharges and set-off for compensation paid under such agreements (though any risk will depend on the terms of the agreement, and so proponents may wish to review their agreements for this purpose).

In this alert, we set out the key facts and characteristics of Griffiths #3 that should be taken into account in determining what liabilities might arise in other parts of the country, and the potential implications of the decision.

Compensation quantum

Justice Mansfield found that the Northern Territory was liable under the NTA to pay to the Ngaliwurru and Nungali Peoples a total of $3,300,261 for the extinguishment and impairment of their non-exclusive native title rights and interests. The acts for which compensation was payable occurred after commencement of the Racial Discrimination Act 1975 (Cth) (RDA) and were validated under the NTA and the Validation (Native Title) Act (NT) (VNTA). The compensation was made up of the following:

  • $512,000 – economic value of the extinguished native title rights;
  • $1,488,261 – simple interest on $512,000 economic loss;
  • $1,300,000 – allowance for solatium (or non-economic/intangible loss).

The Court also found that the Northern Territory was liable to pay to the Ngaliwurru and Nungali Peoples common law damages for three invalid future acts, totalling $48,597, made up of the following:

  • $19,200 – value of native title rights impacted;
  • $29,397 – pre-judgment interest.

In determining whether the compensation was on ‘just terms’ (in accordance with division 5 of part 2 of the NTA), section 51(4) of the NTA enables (but does not mandate) a Court to take into account a law for compulsory acquisition of the Commonwealth or the State or Territory to which the act is attributable. On this basis, Justice Mansfield took into account the Lands Acquisition Act (NT) in making his determination.

Impairment/extinguishment of native title

The compensation claim was brought over areas:

  1. where native title rights had been recognised on a non-exclusive basis (i.e. the right to occupation, use and enjoyment of native title had been extinguished, leaving the non-exclusive right to exercise particular native title rights subject to non-native title interests);
  2. where no determination of native title had previously been made.

The acts for which the Ngaliwurru and Nungali Peoples sought compensation either impaired without extinguishing or extinguished non-exclusive native title.

Economic loss

In relation to economic loss, Justice Mansfield held that the freehold value of the land was the appropriate starting point of the enquiry. The rationale for this is because section 51A of the NTA fixes the freehold value as the maximum compensation payable for the extinguishment of all native title in an area (though this is subject to section 53 – the requirement to provide ‘just terms’ compensation). His Honour rejected an argument that because native title rights are inalienable and non-transferable, they should have a lesser value than freehold title. However, the Court also found that where the native title holders did not have exclusive possession native title, freehold value is ‘not the appropriate end point’, as exclusive and non-exclusive rights clearly hold different values. On this basis, there was a need to determine a value that was less than the freehold value, but which also ‘recognises and gives effect to the nature of those rights’.

After considering the evidence that had been put to the Court regarding the exercise of the native title rights and interests, Justice Mansfield found that ‘the deduction [from the freehold value for non-exclusive rights] should not be great in the present circumstances’. His Honour held that the appropriate valuation for the impact of the compensable acts on the non-exclusive rights should be 80% of the freehold value. Although the Court was not required to determine the value of exclusive native title rights, the Court established the valuation of such rights at freehold value to use as a benchmark for non-exclusive rights. A discount was applied to the freehold value given the lower value of non-exclusive rights.

In explaining his reasoning, his Honour noted that this figure was not arrived at ‘as a matter of careful calculation’. Rather, it:

is an intuitive decision, focusing on the nature of the rights held by the claim group which had been either extinguished or impaired by reason of the determination acts in the particular circumstances. It reflects a focus on the entitlement to just compensation for the impairment of those particular native title rights and interests which existed immediately prior to the determination acts.

Interest

As part of the claim, the Applicants sought interest on the economic loss component of the compensation, calculated on one of: a compound basis at superannuation rates; a compound risk free rate; or a simple interest rate in accordance with Practice Note CM 16 of the Federal Court Practice Notes.

Justice Mansfield noted that the NTA does not prescribe any method for calculating interest on compensation. His Honour noted that ‘Whether the appropriate interest should be simple interest or compound interest will depend on the evidence’. The judgment then reviews the evidence of how the native title holders would have used the funds had those funds been provided on the date of the compensable act. His Honour took into account how the native title holders generally used funds received by the community. He found that they were, on the whole, disbursed to individuals and families and not used for commercial ventures or invested. He also determined that, even if the funds had been invested, it was more likely that any dividends would have been distributed to members of the community and not reinvested. It was for this reason that his Honour held that the appropriate method for calculating interest was the simple interest method.

Non-economic loss

The high proportion of the total compensation payable attributable to non-economic loss is perhaps the most significant aspect of this decision. Prior to Griffiths #3, a common way in which native title was valued for the purpose of extinguishment or impairment of native title was the unimproved freehold value of the land. This was sometimes supplemented with an additional amount calculated as a fraction of the freehold value for the impact of the act on the special character of native title (for example, some State Government working procedures suggest that 12.5% solatium is appropriate). However, the quantum of non-economic loss determined in Griffiths #3 surpasses by a significant margin the previous common practice, with the non-economic loss component of the compensation being approximately 250% of the economic loss component.

The Applicants claimed non-economic loss to ‘give effect to a diminution or disruption in traditional attachment to country and the loss of rights to live on, and gain spiritual and material sustenance from, the land’. The Northern Territory and Commonwealth did not dispute that compensation for non-economic loss should be included in the total compensation payable. The issue was ‘how to quantify the essentially spiritual relationship which Aboriginal people, and particularly the Ngaliwurru-Nungali People, have with country and to translate the spiritual or religious hurt into compensation’.

In determining non-economic loss, the judge held as follows:

  • The solatium component of compensation is to be assessed with regard to the communal native and collective ownership of the native title rights and interests.
  • Solatium must be calculated based on the loss or diminution of native title rights from extinguishment or impairment of the act in question, and not from earlier or subsequent events.
  • Solatium must also be assessed based on the non-exclusive or exclusive nature of the native title rights.
  • Like his findings on economic loss, Justice Mansfield observed that the process for calculating solatium was an intuitive one.
  • Although a native title group has a relationship with the whole of their country, there may be particular sites that are of particular significance and others of less significance.

Importantly, his Honour emphasised the importance of the inquiry to be made in the circumstances of each case:

Not all groups will be the same; hence it is not enough to make the inquiry about effects by reference only to a statement of what would be the determined native title rights were it not for extinguishment. An evaluation of what are the relevant compensable intangible disadvantages, with a view to assessing an amount that is fair and reasonable, requires an appreciation of the relevant effects on the native title holders concerned, which, may include elements of ‘loss of amenities’ or ‘pain and suffering’ or reputational damage. In that respect, evidence about the relationship with country and the effect of acts on that will be paramount.

Justice Mansfield identified the key question as being to consider what ‘non-economic effect there was upon the pre-existing native title by the compensable acts, that is the effect within the content of solatium only…In making that assessment, as noted, the previous acts adversely affecting the native title rights both generally in the area and specifically in the lots under consideration will be relevant.

Justice Mansfield ultimately identified ‘three particular considerations of significance to the assessment of the appropriate amount of compensation’. These concerned the construction of water tanks on a significant site (which ‘caused clearly identified distress and concern’), the effect of the compensable acts on the native title holders’ rights and interests generally beyond their physical location (specifically, the impact of an act on the ability of the group to conduct spiritual and ceremonial activities), and the diminution of the physical area over which the native title rights can be exercised, which has affected the spiritual connection of the Ngaliwurru and Nungali Peoples with the area in question as well as more broadly. Further, the connection of the Ngaliwurru and Nungali Peoples ‘is not divisible geographically, but each chipping away of the geographical area necessarily must have some incremental detriment to the enjoyment of the native title rights over the entire area.

The judgment emphasises the importance of the three elements in determining non-economic loss. Although the elements were listed in order of importance, their affects should be considered cumulatively.

Invalid future acts

The Applicants sought compensation for three future acts which the parties had agreed were invalid (i.e. the acts were not done in accordance with the future acts regime under theNative Title Act), constituted by the grant of freehold over two of the lots and the grant of a lease and then freehold over another lot. The Court noted that, while the NTA provides a regime for compensation for valid future acts, it does not do so for invalid future acts. The Applicants sought compensation in lieu of an injunction that could have been made at the time the acts were done.

Because there is no provision for compensation in these circumstances in the NTA, the claim was based on an action for damages for the tort of trespass. Justice Mansfield found in favour of the Applicants. As the native title that existed over the area at the time of the acts was non-exclusive, the Court again applied a discount on the freehold value of 20%. On this basis, the valuation of $24,000 was reduced to $19,200, though interest was also awarded on this amount.

Date of valuation and valuation evidence

The parties disagreed whether the date of valuation of the native title rights that had been impacted should be the date the native title was extinguished, or the date the extinguishment was validated under the VNTA (on 10 March 1994). The Court found that ‘because the relevant provisions deemed the extinguishing act to have been valid from the time of the act…, it is the date of the act which fixes the date at which compensation is to be assessed’.

This approach is consistent with Justice Sackville’s decision at first instance in Jango v Northern Territory (2006) 152 FCA 150 (and on appeal). Justice Sackville noted in that decision it was difficult to imagine that the compensation regime intended to confer ‘windfall benefits’ on the native title parties (for increased land value and any improvements by valuing the impact of the act on the date of validation). The Court rejected the Applicants’ argument that it would not be just terms compensation for the compensation to be calculated at the date the compensable act was done (rather than the date the act was validated).

In determining the freehold value, the Court heard evidence from expert valuers. His Honour weighed the evidence of the different parties’ experts regarding the freehold value of the land, and ultimately largely preferred the evidence of the expert of the Commonwealth over the experts of the Applicants and the Northern Territory.

After considering the valuation evidence, the judge found that the total freehold value of the land over which the compensable acts were done (excluding the invalid future acts) was $640,500. The total value of the three parcels where the invalid future acts were done was $24,000. These amounts were reduced by 20%, for reasons set out above.

Implications

One of the key bases for Justice Mansfield’s decision on non-economic loss was a consideration of the particular native title rights and interests of the Ngaliwurru and Nungali People, how those rights were exercised and the practical effects of the compensable acts on those rights. The methodology used to calculate the interest component of the economic loss compensation was also dependent on the usual practices of the Ngaliwurru and Nungali People in using funds received by the community.

On this basis, the extent of compensation that may become payable in other parts of the country will depend substantially on the nature of the continuing relationship of the native title parties with their country and the impact specific compensable acts have had on the more significant areas of that country. The potential liability that might arise in a particular area will therefore need to be determined on a case by case basis.

Although Griffiths #3 established principles for invalid future acts, it did not contain a consideration of the principles for compensation for valid future acts. However, given compensation for future acts is to be determined in accordance with division 5 of part 2 of the NTA, which is the part of the NTA considered in Griffiths #3, the principles established are likely to apply similarly to valid future acts.

Given Justice Mansfield’s reasoning for some parts of the decision is expressly noted to be ‘intuitive’, and the significance of the case as a precedent, we consider it likely that at least one of the parties will appeal the decision. The principles for quantifying native title compensation may therefore still take some time to be settled.

As a result of this case (and depending on the outcome of any appeal), governments and government entities will need to give serious consideration to potential liability, and measures for reducing exposure to any such liability, when acquiring interests in land and in granting tenure and approvals. Project proponents, as the recipients of such grants and approvals, purchasers, lessees and financiers of infrastructure and utilities, and any person who has agreed to assume native title compensation liability for any leases, licences or other interests in relation to Crown land, will similarly also need to consider the implications of the decision. This also applies in accounting for potential liabilities incurred under statutory and contractual obligations for previous grants and transactions.

The case also raises serious issues for the Crown and other respondents in their general strategies for native title consent determinations, and by parties engaged in native title future act negotiations seeking to reach agreement on full and final satisfaction of compensation entitlements for the acts consented to.